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 March 2020
LG Display Co., Ltd.
(Translation of Registrants name into English)
LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 07336, Republic of Korea
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submission to furnish a report or other document that the registration foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrants home country), or under the rules of the home country exchange on which the registrants 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 registrants 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 ☒
ANNUAL REPORT
(From January 1, 2019 to December 31, 2019)
THIS IS A TRANSLATION OF THE ANNUAL REPORT ORIGINALLY PREPARED IN KOREAN AND IS IN SUCH FORM AS REQUIRED BY THE KOREAN FINANCIAL SUPERVISORY COMMISSION.
IN THE TRANSLATION PROCESS, SOME PARTS OF THE REPORT WERE REFORMATTED, REARRANGED OR SUMMARIZED AND CERTAIN NUMBERS WERE ROUNDED FOR THE CONVENIENCE OF READERS. REFERENCES TO Q1, Q2, Q3 AND Q4 OF A FISCAL YEAR ARE REFERENCES TO THE THREE-MONTH PERIODS ENDED MARCH 31, JUNE 30, SEPTEMBER 30 AND DECEMBER 31, RESPECTIVELY, OF SUCH FISCAL YEAR.
UNLESS EXPRESSLY STATED OTHERWISE, ALL INFORMATION CONTAINED HEREIN IS PRESENTED ON A CONSOLIDATED BASIS IN ACCORDANCE WITH KOREAN INTERNATIONAL FINANCIAL REPORTING STANDARDS, OR K-IFRS, WHICH DIFFER IN CERTAIN RESPECTS FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CERTAIN OTHER COUNTRIES, INCLUDING THE UNITED STATES. K-IFRS ALSO DIFFERS IN CERTAIN RESPECTS FROM THE INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ISSUED BY THE INTERNATIONAL ACCOUNTING STANDARDS BOARD. WE HAVE MADE NO ATTEMPT TO IDENTIFY OR QUANTIFY THE IMPACT OF THESE DIFFERENCES IN THIS DOCUMENT.
1. | 4 | |||||||||
A. |
Name and contact information | 4 | ||||||||
B. |
Credit rating | 4 | ||||||||
C. |
Capitalization | 6 | ||||||||
D. |
Voting rights | 7 | ||||||||
E. |
Dividends | 7 | ||||||||
2. | 8 | |||||||||
A. |
Business overview | 8 | ||||||||
B. |
Industry | 8 | ||||||||
C. |
New businesses | 10 | ||||||||
3. | 10 | |||||||||
A. |
Major products | 10 | ||||||||
B. |
Average selling price trend of major products | 11 | ||||||||
C. |
Major raw materials | 11 | ||||||||
4. | 12 | |||||||||
A. |
Production capacity and output | 12 | ||||||||
B. |
Production performance and utilization ratio | 13 | ||||||||
C. |
Investment plan | 13 | ||||||||
5. | 13 | |||||||||
A. |
Sales performance | 13 | ||||||||
B. |
Sales organization and sales route | 13 | ||||||||
C. |
Sales methods and sales terms | 14 | ||||||||
D. |
Sales strategy | 14 | ||||||||
E. |
Major customers | 14 | ||||||||
6. | 15 | |||||||||
7. | 15 | |||||||||
A. |
Market risks | 15 |
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1. | Company |
A. | Name and contact information |
The name of our company is EL-GI DISPLAY CHUSIK HOESA, which shall be LG Display Co., Ltd. in English.
Our principal executive office is located at LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 07336, Republic of Korea, and our telephone number is +82-2-3777-1010. Our website address is http://www.lgdisplay.com.
B. | Credit rating |
(1) | Corporate bonds (Domestic) |
Subject instrument |
Month of rating(1) |
Credit rating(2) |
Rating agency (Rating range) | |||
Corporate bonds | May 2017 | AA | NICE Information Service Co., Ltd. (AAA ~ D) | |||
February 2018 | ||||||
May 2018 | ||||||
February 2019 | AA- | |||||
April 2019 | ||||||
November 2019 | ||||||
May 2017 | AA | Korea Investors Service, Inc. (AAA ~ D) | ||||
October 2017 | ||||||
May 2018 | ||||||
February 2019 | AA- | |||||
June 2019 | ||||||
October 2019 | ||||||
May 2017 | AA | Korea Ratings Corporation (AAA ~ D) | ||||
October 2017 | ||||||
February 2018 | ||||||
April 2018 | ||||||
April 2019 | AA- | |||||
November 2019 |
(1) | The results of our credit ratings subsequent to the reporting period are as follows: |
Subject instrument |
Month of rating |
Credit rating(2) |
Rating agency (Rating range) | |||
Corporate bonds | February 2020 | A+ | NICE Information Service Co., Ltd. (AAA ~ D) | |||
Corporate bonds | February 2020 | A+ | Korea Investors Service, Inc. (AAA ~ D) | |||
Corporate bonds |
February 2020 | A+ | Korea Ratings Corporation (AAA ~ D) |
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(2) | Domestic corporate bond credit ratings are generally defined to indicate the following: |
Subject instrument |
Credit rating |
Definition | ||
Corporate bonds | AAA |
Strongest capacity for timely repayment. | ||
AA+/AA/AA- |
Very strong capacity for timely repayment. This capacity may, nevertheless, be slightly inferior than is the case for the highest rating category | |||
A+/A/A- |
Strong capacity for timely repayment. This capacity may, nevertheless, be more vulnerable to adverse changes in circumstances or in economic conditions than is the case for higher rating categories. | |||
BBB+/BBB/BBB- |
Capacity for timely repayment is adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. | |||
BB+/BB/BB- |
Capacity for timely repayment is currently adequate, but that there are some speculative characteristics that make the repayment uncertain over time. | |||
B+/B/B- |
Lack of adequate capacity for repayment and speculative characteristics. Interest payment in time of unfavorable economic conditions is uncertain. | |||
CCC |
Lack of capacity for even current repayment and high risk of default. | |||
CC |
Greater uncertainties than higher ratings. | |||
C |
High credit risk and lack of capacity for timely repayment. | |||
D |
Insolvency. |
(2) | Corporate bonds (Overseas) |
Subject instrument |
Month of rating |
Credit rating |
Rating agency (Rating range) | |||
Corporate bonds(1) |
November 2018 | AA | Standard & Poors Rating Services (AAA ~ D) |
(1) | Represents credit rating for our overseas corporate bonds guaranteed by the Korea Development Bank. |
(2) | Overseas corporate bond credit ratings are generally defined to indicate the following: |
Subject instrument |
Credit rating |
Definition | ||
Corporate bonds | AAA |
Highest level of stability. | ||
AA+/AA/AA- |
Very high level of stability. This stability may be slightly more risky than is the case for the highest rating category but presents no issues. | |||
A+/A/A- |
High level of stability. There are no issues with repaying the principal, but there are characteristics that could be subject to future deterioration. | |||
BBB+/BBB/BBB- |
Level of stability is adequate. Current level of stability and profitability is adequate, but requires special attention during times of economic downturns. | |||
BB+/BB/BB- |
Speculative characteristics. There is no guarantee on future stability. Expected business performance is uncertain. | |||
B+/B/B- |
Inadequate as an investment target. Ability to make principal repayments or comply with contractual terms and conditions is uncertain. | |||
CCC/CC/C |
Very low level of stability. Ability to make payments of principal and interest is highly unlikely. Extremely speculative. Currently in default or undergoing a serious problem. | |||
D |
Bankruptcy. |
(3) | Commercial paper |
Subject instrument |
Month of rating |
Credit rating(1) |
Rating agency (Rating range) | |||
Commercial paper | May 2017 | A1 | Korea Investors Service, Inc. (A1 ~ D) |
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Subject instrument |
Month of rating |
Credit rating(1) |
Rating agency (Rating range) | |||
May 2017 | A1 | Korea Ratings Corporation (A1 ~ D) | ||||
October 2017 | A1 | Korea Investors Service, Inc. (A1 ~ D) | ||||
December 2017 | A1 | Korea Ratings Corporation (A1 ~ D) | ||||
May 2018 | A1 | Korea Investors Service, Inc. (A1 ~ D) | ||||
May 2018 | A1 | NICE Information Service Co., Ltd. (A1 ~ D) | ||||
November 2018 | Cancelled(2) | Korea Investors Service, Inc. (A1 ~ D) | ||||
November 2018 | Cancelled(2) | NICE Information Service Co., Ltd. (A1 ~ D) |
(1) | Domestic commercial paper credit ratings are generally defined to indicate the following: |
Subject |
Credit rating |
Definition | ||
Commercial paper | A1 | Timely repayment capability is at the highest level with extremely low investment risk and is stable such that it will not be influenced by any reasonably foreseeable changes in external factors. | ||
A2 | Strong capacity for timely repayment with very low investment risk. This capacity may, nevertheless, be slightly inferior than is the case for the highest rating category. | |||
A3 | Capacity for timely repayment is adequate with low investment risk. This capacity may, nevertheless, be somewhat influenced by sudden changes in external factors. | |||
B | Capacity for timely repayment is acknowledged, but there are some speculative characteristics. | |||
C | Capacity for timely repayment is questionable. | |||
D | Insolvency. |
※ + or - modifier can be attached to ratings A2 through B to differentiate ratings within broader rating categories.
(2) | Ratings have been cancelled due to repayment of our outstanding commercial paper on October 22, 2018 upon maturity. |
C. | Capitalization |
(1) | Change in capital stock (as of December 31, 2019) |
There were no changes to our issued capital stock during the annual reporting period ended December 31, 2019.
(2) | Convertible bonds (as of December 31, 2019) |
Description |
Issue Date |
Maturity |
Issue
Amount |
Class of |
Conversion |
Conditions
for |
Outstanding Bonds |
Notes | ||||||||||||||||
Conversion |
Conversion |
Issue Amount |
Number of | |||||||||||||||||||||
Unsecured Foreign Convertible Bonds No. 3 | Aug. 22, 2019 | Aug. 22, 2024 | 813,426,670,000 | (1)(2) | Registered Common Shares | Aug. 23, 2020 ~ Aug. 12, 2024 | 100% | 813,426,670,000 | (1) | 40,988,998 | Listed on Singapore Stock Exchange | |||||||||||||
Total |
| | 813,426,670,000 | | | 100% | 813,426,670,000 | 40,988,998 | |
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(1) | The issue amount for Unsecured Foreign Convertible Bonds No. 3 is calculated based on the application of
the mid-point of the relevant Won-US dollar exchange rates as of noon, July 30, 2019 (Korea Standard Time) quoted on Bloomberg, which was
|
(2) | The proceeds of our Unsecured Foreign Convertible Bonds No. 3 were used for general corporate purposes. |
D. | Voting rights (as of December 31, 2019) |
(Unit: share)
Description |
Number of shares |
|||||
A. Total number of shares issued(1): |
Common shares(1) |
357,815,700 | ||||
Preferred shares |
| |||||
B. Shares without voting rights: |
Common shares |
| ||||
Preferred shares |
| |||||
C. Shares subject to restrictions on voting rights pursuant to our articles of incorporation: |
Common shares |
| ||||
Preferred shares |
| |||||
D. Shares subject to restrictions on voting rights pursuant to regulations: |
Common shares |
| ||||
Preferred shares |
| |||||
E. Shares with restored voting rights: | Common shares |
| ||||
Preferred shares |
| |||||
Total number of issued shares with voting rights (=A B C D + E): |
Common shares |
357,815,700 | ||||
Preferred shares |
|
(1) | Authorized: 500,000,000 shares |
E. | Dividends |
Dividends for the three most recent fiscal years
Description (unit) |
2019 | 2018 | 2017 | |||||||||||
Par value (Won) |
5,000 | 5,000 | 5,000 | |||||||||||
Profit (loss) for the year (million Won)(1) |
(2,829,705 | ) | (207,239 | ) | 1,802,756 | |||||||||
Earnings (loss) per share (Won)(2) |
(7,908 | ) | (579 | ) | 5,038 | |||||||||
Total cash dividend amount for the period (million Won) |
| | 178,908 | |||||||||||
Total stock dividend amount for the period (million Won) |
| | | |||||||||||
Cash dividend payout ratio (%)(3) |
| | 9.92 | % | ||||||||||
Cash dividend yield (%)(4) |
Common shares |
| | 1.69 | % | |||||||||
Preferred shares |
| | | |||||||||||
Stock dividend yield (%) |
Common shares |
| | | ||||||||||
Preferred shares |
| | | |||||||||||
Cash dividend per share (Won) |
Common shares |
| | 500 | ||||||||||
Preferred shares |
| | | |||||||||||
Stock dividend per share (share) |
Common shares |
| | | ||||||||||
Preferred shares | | | |
(1) | Based on profit for the year attributable to the owners of the controlling company. |
(2) | Earnings per share is based on par value of |
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(3) | Cash dividend payout ratio is the percentage that is derived by dividing total cash dividend by profit for the year attributable to the owners of the controlling company. |
(4) | Cash dividend yield is the percentage that is derived by dividing cash dividend by the arithmetic average of the daily closing prices of our common shares during the one-week period ending two trading days prior to the closing of the register of shareholders for the purpose of determining the shareholders entitled to receive annual dividends. |
2. | Business |
A. | Business overview |
We were incorporated in February 1985 under the laws of the Republic of Korea. LG Electronics and LG Semicon transferred their respective LCD business to us in 1998, and since then, our business has been focused on the research, development, manufacture and sale of display panels, applying technologies such as TFT-LCD and OLED.
As of December 31, 2019, in order to support our business activities, we operated TFT-LCD and OLED production and research facilities in Paju and Gumi in Korea, and we have also established subsidiaries in the Americas, Europe and Asia.
As of December 31, 2019, our business consisted of the manufacture and sale of display and display related products utilizing TFT-LCD, OLED and other technologies under a single reporting business segment.
Consolidated operating results highlights
(Unit: In billions of Won)
2019 | 2018 | 2017(1) | ||||||||||
Sales Revenue |
23,476 | 24,337 | 27,790 | |||||||||
Gross Profit |
1,868 | 3,085 | 5,366 | |||||||||
Operating Profit (loss) |
(1,359 | ) | 93 | 2,462 | ||||||||
Total Assets |
35,575 | 33,176 | 29,160 | |||||||||
Total Liabilities |
23,086 | 18,289 | 14,178 |
(1) | Figures for 2017 were recorded in accordance with the previously applicable accounting standards, including K-IFRS 1018, Revenue and K-IFRS 1039, Financial Instruments. |
B. | Industry |
(1) | Industry characteristics |
| The entry barriers to manufacture display panels are relatively high due to the technology and capital intensive nature of the mass manufacturing process that is required to achieve economies of scale, among other factors. |
| While growth in the market for displays used in notebook computer, monitor and other traditional IT products has stagnated or declined, the market for small- and medium-sized displays (including those used in smartphones) in the rapidly evolving IT environment has shown gradual growth. The display market for televisions has also shown steady growth mainly due to growing demand from developing countries as well as from consumers in general for larger sized display panels. As for displays used in industrial, automobile and other value added products, we expect to see growth in these markets. |
(2) | Growth Potential |
| We are focusing on securing profitability through differentiated products such as Cinematic Sound OLED and Wallpaper display panels under our strategic plan to transition our business to center around OLED, which has a strong future growth potential. In the television business, we are expanding our offerings of premium products such as OLED and UHD products. In particular, with respect to large-sized OLED television display panels, we are continuing to secure additional production capacity of 8.5th generation OLED panels and are planning to further strengthen the fundamentals of our OLED business through building a successful line-up of new products and investments in the 8.5th and 10.5th generation OLED display panel production. In the IT business, we are increasing the proportion of premium products such as high resolution and wide screen products based on IPS and Oxide technologies. In the mobile business, we are continuously striving to secure mass production capabilities for 6th generation plastic OLED smartphones through additional investments. We are also strengthening the foundation for the expansion of small- and medium-sized OLED business. |
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(3) | Cyclicality |
| The display panel business is highly cyclical and sensitive to fluctuations in the general economy. The industry experiences recurring volatility caused by imbalances between supply and demand due to capacity expansion and changing production utilization rates within the industry. |
| Macroeconomic factors and other causes of business cycles can affect the rate of growth in demand for display panels. Accordingly, if supply exceeds demand, average selling prices of display panels may decrease. Conversely, if growth in demand outpaces growth in supply, average selling prices may increase. |
(4) | Market conditions |
| Most display panel manufacturers are located in Asia as set forth below. Pursuant to the Chinese governments initiative and support, Chinese panel manufacturers have continued to invest in new fabrication facilities and additional supplies, and the concern over intensification of a structural oversupply in the LCD industry continues to exist. |
a. | Korea: LG Display, Samsung Display, etc. |
b. | Taiwan: AU Optronics, Innolux, CPT, HannStar, etc. |
c. | Japan: Japan Display, Sharp, Panasonic LCD, etc. |
d. | China: BOE, CSOT, CEC Panda, HKC, etc. |
| Our worldwide market share of large-sized display panels (i.e., panels that are 9 inches or larger) based on revenue is as follows: |
2019 | 2018 | 2017 | ||||
Panels for Televisions(1)(2) |
28.1% | 28.3% | 28.1% | |||
Panels for Monitors(1) |
27.5% | 30.7% | 36.3% | |||
Panels for Notebook Computers(1) |
22.3% | 23.7% | 21.3% | |||
Panels for Tablet Computers(1) |
24.8% | 31.0% | 29.1% | |||
Total(1) |
27.2% | 28.8% | 29.2% |
(1) | Source: Large-Area Display Market Tracker (IHS Technology). The relevant amounts for the fourth quarter of 2019 reflect IHS Technologys research based on actual results of operations. |
(2) | Includes panels for public displays. |
(5) | Competitiveness and competitive advantages |
| Our ability to compete successfully depends on factors both within and outside our control, including product pricing, our relationship with customers, timely investments, adaptable production capabilities, development of new and premium products through technological advances, competitive production costs, success in marketing to our end-brand customers, component and raw material supply costs, foreign exchange rates and general economic and industry conditions. |
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| In order to compete effectively, it is critical to be cost competitive and maintain stable and long-term relationships with customers which will enable us to be profitable even in a buyers market. |
| A substantial portion of our sales is attributable to a limited number of end-brand customers and their designated system integrators. The loss of these end-brand customers, as a result of customers entering into strategic supplier arrangements with our competitors or otherwise, would result in reduced sales. |
| Developing new products and technologies that can be differentiated from those of our competitors is critical to the success of our business. It is important that we take active measures to protect our intellectual property internationally by obtaining patents and undertaking monitoring activities in our major markets. It is also necessary to recruit and retain experienced key managerial personnel and skilled line operators. |
| As a leading technology innovator in the display industry, we continue to focus on delivering differentiated value to our customers by developing various technologies and products, including display panels with OLED, IPS, in-TOUCH and other technologies. With respect to OLED panels, following our supply of the worlds first 55-inch OLED 3D panels for televisions in January 2013, we have shown that we are technologically a step ahead of the competition by continuing to introduce differentiated products with a variety of unique features specific to OLED technology, such as our Wallpaper, Cinematic Sound, Rollable and Transparent OLED panels for televisions. Moreover, we have supplied plastic OLED products for foldable notebook computers, automotive products, smartphones and wearable devices, among others. With respect to TFT-LCD panels, we are leading the market with our competitive advantages in technology, including through our IPS technology-based ultra-large and high-resolution ultra-high definition (Ultra HD or UHD) television panels, desktop and notebook monitors featuring differentiated designs and high frequency refresh rates, and specialized products for automotive, commercial and medical uses. Our production facilities are also equipped to produce products incorporating in-TOUCH technology. |
| Moreover, we are maintaining and strengthening close long-term relationships with major global firms to secure customers and expand partnerships for technology development. |
C. | New businesses |
For our continued growth, we are actively exploring and preparing for new business opportunities that may arise in the changing market environment. As such, we are continually reviewing and looking at opportunities in the display and promising new industries.
3. | Major Products and Raw Materials |
A. | Major products |
We manufacture TFT-LCD and OLED panels, of which a significant majority is sold overseas.
(Unit: In billions of Won, except percentages)
2019 | ||||||||||||||||
Business area |
Sales type | Items (By product) |
Usage |
Major |
Sales Revenue |
Percentages (%) |
||||||||||
Display | Goods/ Products/ |
Televisions |
Panels for televisions | LG Display |
7,998 | 34.07 | % | |||||||||
Desktop monitors |
Panels for monitors | LG Display |
4,028 | 17.16 | % | |||||||||||
Tablet products |
Panels for tablets | LG Display |
2,251 | 9.59 | % | |||||||||||
Notebook computers |
Panels for notebook computers | LG Display |
2,784 | 11.86 | % | |||||||||||
Mobile, etc. |
Panels for smartphones, etc. | LG Display |
6,415 | 27.32 | % | |||||||||||
|
|
|
|
|||||||||||||
Total |
23,476 | 100.0 | % | |||||||||||||
|
|
|
|
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B. | Average selling price trend of major products |
While average selling prices of display panels are subject to change based on market conditions and demand by product category, the average selling price of display panels per square meter of net display area shipped in the fourth quarter of 2019 increased by approximately 18% compared to the third quarter of 2019 due to an increase in the sales of plastic OLED mobile products, which resulted in an improvement in our overall product mix. There is no assurance that the average selling prices of display panels will not fluctuate in the future due to changes in market conditions.
(Unit: US$ / m2 )
Period |
Average Selling Price(1)(2) (in US$ / m2) | |
2019 Q4 | 606 | |
2019 Q3 | 513 | |
2019 Q2 | 456 | |
2019 Q1 | 528 | |
2018 Q4 | 559 | |
2018 Q3 | 500 | |
2018 Q2 | 501 | |
2018 Q1 | 522 | |
2017 Q4 | 589 | |
2017 Q3 | 600 | |
2017 Q2 | 574 | |
2017 Q1 |
608 |
(1) | Quarterly average selling price per square meter of net display area shipped. |
(2) | Excludes semi-finished products in the cell process. |
C. | Major raw materials |
Prices of major raw materials depend on fluctuations in supply and demand in the market as well as on change in size and quantity of raw materials due to the increased production of large-sized panels.
(Unit: In billions of Won, except percentages)
Business area |
Purchase type |
Items |
Usage |
Cost(1) | Ratio (%) | Suppliers | ||||||||||
Display |
Raw materials |
Printed circuit boards | Display panel manufacturing | 2,298 | 18.9 | % | Korea SMT Co., Ltd., etc. | |||||||||
Polarizers | 2,116 | 17.4 | % | LG Chem, etc. | ||||||||||||
Backlights | 1,935 | 15.9 | % | Heesung Electronics LTD., etc. | ||||||||||||
Glass | 1,098 | 9.0 | % | Paju Electric Glass Co., Ltd., Asahi Electric Glass Co., Ltd., etc. | ||||||||||||
Drive IC | 983 | 8.1 | % | Silicon Works Co., Ltd., MagnaChip Semiconductor Corporation, etc. | ||||||||||||
Others | 3,722 | 30.6 | % | | ||||||||||||
|
|
|
|
|||||||||||||
Total |
12,153 | 100.0 | % | |||||||||||||
|
|
|
|
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- | Period: January 1, 2019 ~ December 31, 2019. |
(1) | Based on total cost for purchase of raw materials which includes manufacturing and development costs, etc. |
(2) | Among our major suppliers, LG Chem and Silicon Works Co., Ltd. are member companies of the LG Group, and Paju Electric Glass Co., Ltd. is our affiliate. |
| The average price of EGI (Electrolytic Galvanized Iron), which is the main raw material for BLU components, increased by 0.3% from 2017 to 2018 but decreased by 8.6% from 2018 to 2019. Such decrease in 2019 was due to uncertainties arising from the U.S.-China trade disputes. The average price of resin increased by 18.7% from 2017 to 2018 but decreased by 38.2% from 2018 to 2019. Such decrease in 2019 was due to a mismatch between supply and demand. The average price of copper, the main raw material for PCB components, increased by 6.0% from 2017 to 2018 but decreased by 8.0% from 2018 to 2019. Such decrease in 2019 was due to uncertainties arising from the U.S.-China trade disputes. |
4. | Production and Equipment |
A. | Production capacity and output |
(1) | Production capacity |
The table below sets forth the production capacity of our Gumi, Paju and Guangzhou facilities in the periods indicated.
(Unit: 1,000 glass sheets)
Business area |
Items | Location of facilities | 2019(1) | 2018(1) | 2017(1) | |||||||||||||||
Display |
Display panel | Gumi, Paju, Guangzhou | 9,408 | 10,161 | 10,538 |
(1) | Calculated based on the maximum monthly input capacity (based on glass input substrate size for eighth-generation glass sheets) during the year multiplied by the number of months in a year (i.e., 12 months). The production capacity for facilities with adjusted utilization rates have been calculated based on the maximum input capacity during the period. |
(2) | Production output |
The table below sets forth the production output of our Gumi, Paju and Guangzhou facilities in the periods indicated.
(Unit: 1,000 glass sheets)
Business area |
Items | Location of facilities | 2019(1) | 2018(1) | 2017(1) | |||||
Display |
Display panel | Gumi, Paju, Guangzhou | 8,373 | 9,428 | 9,262 |
(1) | Based on the production results (input standard) of each plant converted into eighth-generation glass sheets. |
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B. | Production performance and utilization ratio |
(Unit: Hours, except percentages)
Production facilities |
Available working hours |
Actual working hours in |
Average utilization ratio | |||||
Gumi |
8,760(1) (24 hours x 365 days) |
8,680(1) (24 hours x 362 days)(2) |
99.1 | % | ||||
Paju |
8,760(1) (24 hours x 365 days) |
8,654(1) (24 hours x 361 days)(2) |
98.8 | % | ||||
Guangzhou |
8,760(1) (24 hours x 365 days) |
8,760(1) (24 hours x 365 days)(2) |
100.0 | % |
(1) | Based on the assumption that all 24 hours in a day have been fully utilized. |
(2) | Number of days is calculated by averaging the number of working days for each facility. |
C. | Investment plan |
In 2019, our total capital expenditures on a cash out basis was approximately W7 trillion. In 2020, we
expect that investment in OLED technology for the future will be nearly completed and plan to reduce our capital expenditures by approximately half as that compared to 2019.
5. | Sales |
A. | Sales performance |
(Unit: In billions of Won)
Business area |
Sales types |
Items (Market) |
2019 | 2018 | 2017 | |||||||||||||
Products | Display panel | Overseas(1) | 22,180 | 22,722 | 25,763 | |||||||||||||
Korea(1) | 1,255 | 1,572 | 1,982 | |||||||||||||||
Total | 23,435 | 24,294 | 27,745 | |||||||||||||||
Royalty | LCD, OLED technology patent | Overseas(1) | 14 | 18 | 20 | |||||||||||||
Korea(1) | 0 | 0 | 0 | |||||||||||||||
Total | 14 | 18 | 20 | |||||||||||||||
Display |
Others | Raw materials, components, etc. | Overseas(1) | 17 | 8 | 11 | ||||||||||||
Korea(1) | 10 | 17 | 14 | |||||||||||||||
Total | 26 | 25 | 25 | |||||||||||||||
Overseas(1) | 22,211 | 22,747 | 25,794 | |||||||||||||||
Total | Korea(1) | 1,265 | 1,590 | 1,996 | ||||||||||||||
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Total | 23,476 | 24,337 | 27,790 | |||||||||||||||
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(1) | Based on ship-to-party. |
(2) | Sales for 2017 were recorded based on previously applicable accounting standards, including K-IFRS 1018, Revenue. |
B. | Sales organization and sales route |
| As of December 31, 2019, each of our television, IT, mobile and OLED businesses had individual sales and customer support functions. |
| Sales subsidiaries in the United States, Germany, Japan, Taiwan, China and Singapore perform sales activities and provide local technical support to customers. |
| Sales of our products take place through one of the following two routes: |
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1) | LG Display Headquarters and overseas manufacturing subsidiaries g Overseas sales subsidiaries (USA/Germany/Japan/Taiwan/China/Singapore), etc. g System integrators and end-brand customers g End users |
2) | LG Display Headquarters and overseas manufacturing subsidiaries g System integrators and end-brand customers g End users |
| Sales performance by sales route |
Sales performance |
Sales route | Ratio | ||||
Overseas | Overseas subsidiaries | 94.3 | % | |||
Headquarters | 5.7 | % | ||||
Overseas sales portion (overseas sales / total sales) | 94.6 | % | ||||
Korea | Overseas subsidiaries | 3.4 | % | |||
Headquarters | 96.6 | % | ||||
Korea sales portion (Korea sales / total sales) |
5.4 | % |
C. | Sales methods and sales terms |
| Direct sales and sales through overseas subsidiaries, etc. Sales terms are subject to change depending on the fluctuation in the supply and demand of LCD panels. |
D. | Sales strategy |
| As part of our sales strategy, we have secured stable sales to major personal computer manufacturers and leading consumer electronics manufacturers globally. |
| With respect to television products, we have led the premium television market with our OLED TVs and strengthened the differentiation of our OLED products through unique designs and integration of additional technologies (wallpaper, cinematic sound, rollable, etc.). We also strengthened sales of high-resolution, IPS, narrow bezel and other high-end display panels in the monitor, notebook computer and tablet markets. |
| With respect to smartphones, commercial products (including interactive whiteboards and video wall displays, among others), industrial products (including aviation and medical equipment, among others) and automobile display products, we have continued to build a strong and diversified business portfolio by expanding our business with customers with a global reach on the strength of our differentiated products applying IPS, plastic OLED, high-resolution, high-reliability, Super Narrow bezel, in-TOUCH and other technologies. |
E. | Major customers |
| Customers A and B each accounted for more than 10% of our sales revenue in 2018 and 2019, and our sales revenue derived from our top ten customers comprised 77% of our total sales revenue in 2018 and 80% in 2019. |
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6. | Purchase Orders |
| We do not have purchase order contracts that recognize unbilled revenue by implementing the cost-based method. |
7. | Market Risks and Risk Management |
A. | Market risks |
The display industry continues to experience continued declines in the average selling prices of TFT-LCD and OLED panels irrespective of cyclical fluctuations in the industry, and our margins would be adversely impacted if prices decrease faster than we are able to reduce our costs.
The display industry is highly competitive. We have experienced pressure on the prices and margins of our major products due largely to additional industry capacity from panel manufacturers in Korea, Taiwan, China and Japan coupled with changes in the production mix of such manufacturers.
Our ability to compete successfully depends on factors both within and outside our control, including product pricing, performance and reliability, timely investments, adaptable production capabilities, utilization of differentiated technologies in product development, success or failure of our end-brand customers in marketing their brands and products, component and raw material supply costs, and general economic and industry conditions. We cannot provide assurance that we will be able to compete successfully with our competitors on these fronts and, as a result, we may be unable to sustain our current market position.
Our results of operations are subject to exchange rate fluctuations. To the extent that we incur costs in one currency and generate sales in a different currency, our profit margins may be affected by changes in the exchange rates between the two currencies. Our sales of display panels are denominated mainly in U.S. dollars, whereas our foreign currency denominated purchases of raw materials are denominated mainly in U.S. dollars and Japanese Yen. Seeking to achieve stable management, we take every precaution in our foreign currency risk management to minimize the risk of foreign currency fluctuations on our foreign currency denominated assets and liabilities.
B. | Risk management |
As the average selling prices of TFT-LCD and OLED panels can continue to decline over time irrespective of industry-wide cyclical fluctuations, we may find it hard to manage risks associated with certain factors that are outside our control. However, we counteract such declines in average selling prices by increasing the proportion of high value added panels in our product mix while also implementing various cost reduction measures. In addition, in order to manage our risk against foreign currency fluctuations, we eliminate such risk by matching foreign currency inflow and outflow by currency. We also continually monitor our currency position and risk, and when needed, we may from time to time enter into cross-currency interest rate swap contracts and foreign currency forward contracts.
8. | Derivative Contracts |
A. | Currency risks |
| We are exposed to currency risks on sales, purchases and borrowings that are denominated in currencies other than in Won, our functional currency. These currencies are primarily the U.S. dollar, the Chinese Yuan and the Japanese Yen. |
| Interest on borrowings is denominated in the currency of the borrowing. Generally, borrowings are denominated in currencies that match the cash flows generated by our underlying operations, primarily in Won, the U.S. dollar and the Chinese Yuan. |
| In respect of other monetary assets and liabilities denominated in foreign currencies, we have adopted a policy to maintain our net exposure within an acceptable level by buying or selling foreign currencies at spot rates, when necessary, to address short-term imbalances. |
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| In 2019, in order to avoid risks of interest rate fluctuations and exchange rate fluctuations on foreign currency denominated borrowings with floating interest rates, we entered into an aggregate of $2,085 million in Won/US dollar cross currency swap agreements with Standard Chartered Bank and others, for which we have not applied hedge accounting. |
| Any rights or obligations arising from derivative contracts that do not apply hedge accounting are measured at fair value and are accounted for as assets and liabilities, whereas any resulting valuation gain or loss is recognized as profit or loss at the time such valuation gain or loss is incurred. |
We recognized a net gain on valuation of derivative instruments in the amount of 41,782 million with
respect to our foreign exchange derivative instruments held during the reporting period. W
B. | Interest rate risks |
| Our exposure to interest rate risks relates primarily to our floating rate long term loan obligations. We have established and are managing interest rate risk policies to minimize uncertainty and costs associated with interest rate fluctuations by monitoring cyclical interest rate fluctuations and enacting countermeasures. |
9. | Major Contracts |
Our material contracts, other than contracts entered into in the ordinary course of business, are set forth below:
Type of agreement |
Name of party |
Term |
Content | |||
Technology licensing agreement |
Semiconductor Energy Laboratory | October 2005 ~ | Patent licensing of LCD and OLED related technology | |||
Hewlett-Packard | January 2011 ~ | Patent licensing of semi-conductor device technology | ||||
Ignis Innovation, Inc. | July 2016 ~ | Patent licensing of OLED related technology | ||||
Technology licensing/supply agreement |
HannStar Display Corporation | December 2013 ~ | Patent cross-licensing of LCD technology | |||
AU Optronics Corporation | August 2011~ | Patent cross-licensing of LCD technology | ||||
Innolux Corporation | July 2012 ~ | Patent cross-licensing of LCD technology | ||||
Universal Display Corporation | January 2015 ~ December 2022 | Patent cross-licensing of OLED related technology |
10. | Research & Development |
A. | Summary of R&D-related expenditures |
(Unit: In millions of Won, except percentages)
Items(1) |
2019 | 2018(3) | 2017(3) | |||||||||||||
Material Cost |
388,444 | 496,789 | 605,983 | |||||||||||||
Labor Cost |
618,187 | 630,695 | 611,450 | |||||||||||||
Depreciation Expense |
523,631 | 351,936 | 221,171 | |||||||||||||
Others |
246,027 | 277,699 | 233,266 | |||||||||||||
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Total R&D-Related Expenditures |
1,776,289 | 1,757,119 | 1,671,870 | |||||||||||||
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Selling & Administrative Expenses |
|
924,020 | 918,512 | 917,645 | |||||||||||
Accounting Treatment(2) | |
Manufacturing Cost |
|
414,324 | 465,772 | 418,018 | ||||||||||
|
Development Cost (Intangible Assets) |
|
437,945 | 372,835 | 336,207 | |||||||||||
R&D-Related Expenditures / Revenue Ratio (Total R&D-Related Expenditures ÷ Revenue for the period × 100) |
|
7.6 | % | 7.2 | % | 6.0 | % |
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(1) | Calculated based on the total R&D-related expenditures before subtracting government subsidies (state subsidies). |
(2) | For accounting treatment purposes, selling & administrative expenses are presented as research and development expenses in our statements of comprehensive income, net of amortization of capitalized intangible asset development costs. |
(3) | The figures for 2017 and 2018 have been restated due to changes in our method of recognizing R&D-related expenditures whereas the figures for 2019 was prepared in accordance with such modified method. |
B. | R&D achievements |
Achievements in 2017
(1) | Developed 5.7-inch QHD+ full vision display (LG Electronics) |
| Developed a full vision display smartphone product (G6) through strategic collaboration with other LG Group companies |
| Applied first 18:9 screen aspect ratio with 4-corner round display |
(2) | Developed mobile LTPS 30Hz product (SH 5.1-inch FHD) |
| Secured 30Hz low-frequency drive technology based on LTPS TFT-LCD |
| Reduced logic power consumption through 30Hz low-frequency drive (reduced from 96mW to 69mW on 5.1-inch FHD) |
(3) | Developed and released the worlds first Crystal Sound OLED, or CSO, television product |
| Released product with a new platform concept through development of OLED panel product with integrated speakers |
| Delivered OLED television product that achieves differentiated value not only in picture quality and design, but also sound quality |
(4) | Developed notebook oxide product (13.9-inch, Ultra HD) |
| Achieved high definition/narrow bezel product through application of oxide BCE GIP technology |
| Delivered low power consumption product through application of low refresh rate, or LRR, technology |
(5) | Developed medical monitor product for surgical endoscope (27.0-inch, Ultra HD) |
| Newly entered the medical devices market through development and production of medical monitor product for surgical endoscope |
| Achieved high definition (3,840 x 2,160), high luminance (800 nit) and high contrast ratio (1,300:1) |
| Implemented coverglass direct bonding applying our own manufacturing processes (M6 line) |
(6) | Developed the worlds first four-side borderless monitor with a resolution of 8K4K (31.5-inch 8K4K oxide) |
| Pioneered Ultra HD Premium MNT market through development of the worlds first four-side borderless monitor with a resolution of 8K4K |
| Delivered Ultra HD based on oxide GIP (280 PPI with a resolution of 7680x4320) |
| Delivered wide color gamut (Adobe RGB 100%/DCI 98%), four-side borderless |
(7) | Developed the worlds largest automotive Center Information Display (CID) product (15.4-inch Widescreen Ultra Extended Graphics Array (WUXGA)) |
| Developed the worlds largest auto component display in the automotive industry |
| Guaranteed the first 1000hr reliability in the automotive industry |
(8) | Developed the worlds first 88-inch Ultra Stretch display product |
| Strengthened competitiveness through application of smart (digital) stepper |
(9) | Developed products utilizing U-IPS (75-inch/65-inch/55-inch/49-inch, Ultra HD) |
| Utilized U-IPS technology to strengthen product competitiveness by improving panel transmittance rate and reflectivity |
(10) | Developed the worlds first 65-inch UHD OLED television product utilizing GIP |
| Strengthened product competitiveness through application of the worlds first oxide based UHD GIP technology |
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Achievements in 2018
(1) | Developed the worlds first glass-integrated LCD television product (Art Glass Series) |
| Achieved LCD modular appearance and simplicity in design by using glass material throughout product (including the panel, light guide plate and back cover) |
| Strengthened competitiveness of frameless design by decreasing bezel size from 7.8mm to 5.9mm |
(2) | Developed our first 5.8-inch Ultra HD Mobile 4K product |
| Developed our first Ultra HD mobile product |
| Achieved high luminance, low power consumption and HD resolution by applying Ultra HD RGBW (M+) pixel structure |
(3) | Developed the worlds first 5.8-inch mobile FHD product applying M+ |
| Our first product applying camera notch concept technology |
(4) | Developed the worlds first four-side borderless curved monitor with 1900R curvature radius |
| Our first product applying glass 0.25T (etching) bezel printing/reverse bonding process technology |
| Strengthened product competitiveness with our first shared design applying three-side/four-side borderless TFT Mask |
| Achieved high-speed driving at 144Hz, high color recall (DCI 98%) and HDR (peak luminance 550nit) |
(5) | Developed the worlds first 34-inch large-screen monitor/high-resolution four-sided borderless HDR |
| Pioneered HD Premium 21:9 monitor market through development of the worlds first WUHD(5K2K), four-side borderless monitor |
| Delivered Ultra HD (DCI 98Z%, sRGB 135%) by applying Adv. KSF LED PKG technology |
| Achieved high luminance (HDR 600); typ. 450 nit, maximum 600nit |
(6) | Developed LGD 6.01QHD+M+ Full Screen Display (LG Electronics) |
| Developed a full screen display concept smartphone product (G7) through strategic collaboration with other LG Group companies |
| Implemented a full screen display product concept through achievement of our first 19.5:9 screen aspect ratio and lower bezel of 2.7mm |
(7) | Developed the worlds narrowest bezel videowall product (0.44mm bezel, 55-inch FHD) |
| Achieved product competitiveness by developing the worlds narrowest bezel (originally 0.9mm g 0.44mm, Even Bezel) |
(8) | Developed the worlds first automotive glassless 3D cluster product |
| Developed FHD glassless barrier type 3D model (12.3 inches, 167 ppi level) |
| Achieved customers eye-tracking movement by applying a top moving barrier panel at the top of the panel |
| Improved adhesion accuracy of image panel and barrier panel by using OCA bonding technology |
| Improved barrier contrast ratio by applying a copper-based metal barrier panel |
(9) | Developed the worlds first 6th generation a-Si Indirect DXD product (21.9-inch, 14 x 17 resolution, 14µm pixel pitches) |
| Entered the DXD market through development of the worlds first 6th generation a-Si Indirect DXD product |
| Set up infrastructure for DXD product development through the development of our first DXD product |
(10) | Developed the worlds first 17-inch large-sized and lightweight notebook monitor |
| Developed large-sized (17-inch) product with a new screen aspect ratio (16:10) |
| Developed light-weight product (268g) through securing 17-inch+ Slim Design model technology |
Achievements in 2019
(1) | Developed the worlds first ultra large-sized in-TOUCH product (50-inch UHD) |
| Worlds first to apply in-TOUCH technology on ultra large-sized products (50-inch and larger) |
| Worlds first to apply low temperature PAS to achieve in-TOUCH function |
(2) | Developed the worlds first transparent WOLED product (55-inch FHD) |
| Developed WOLED-based Top Emission OLED device and process technology |
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(3) | Developed the worlds first OLED 8K product (88-inch 8K) |
| Developed gearing technology that secures and compensates aperture ratio for high resolution (8K) product implementation |
(4) | Developed the worlds first gaming monitor product applying OLED (55 UHD) |
| Developed 55 UHD gaming monitor product using advantages of OLED (latency, gray to gray, color recall) |
(5) | Developed the worlds first curved gaming monitor product applying AH-IPS COT (37.5 WQ+) |
| Developed and produced the worlds first monitor product applying AH-IPS COT |
| Pioneered gaming/curved premium monitor product market |
(6) | Developed the worlds first monitor product applying Crystal Sound Display (CSD) (27.0 FHD) |
| Developed and produced the worlds first monitor product applying CSD |
| Developed large-sized, front-oriented stereo speaker through the application of exciter and piezo to the bottom cover of the liquid crystal module |
(7) | Developed the worlds first automotive product applying plastic OLED (16.9 + 7.2 / 14.2) |
| Developed and produced the worlds first 1CG multi-display product applying plastic OLED (16.9 + 7.2 / 14.2) |
11. | Intellectual Property |
As of December 31, 2019, our cumulative patent portfolio (including patents that have already expired) included a total of 44,935 patents, consisting of 19,626 in Korea and 25,309 in other countries.
12. | Environmental and Safety Matters |
We are subject to a variety of environmental laws and regulations, and we may be subject to fines or restrictions that could cause our operations to be interrupted. Our manufacturing processes generate worksite waste, including water and air pollutants, at various stages in the manufacturing process, and we are subject to relevant laws and regulations in each area of the environment, including with respect to the treatment of chemical by-products. We have installed various types of anti-pollution equipment, consistent with environmental standards, for the treatment of chemical waste and equipment for the recycling of treated waste water at our various facilities. However, we cannot provide assurance that environmental claims will not be brought against us or that the local or national governments will not take steps toward adopting more stringent environmental standards. Any failure on our part to comply with any present or future environmental regulations could result in the assessment of damages or imposition of fines against us, suspension of production or a cessation of operations. In addition, environmental regulations could require us to acquire costly equipment or to incur other significant compliance expenses that may materially and negatively affect our financial condition and results of operations.
In accordance with the Framework Act on Low Carbon, Green Growth, we implemented the greenhouse gas emission and energy consumption target system from 2012 to 2014. In 2015, we implemented the greenhouse gas trading system, under which we are responsible to meet our emission targets based on the emission credits allocated to us by the Ministry of Environment of the Korean government. As a result, we have been investing in additional equipment and there may be other costs associated with meeting reduction targets, which may have a negative effect on our profitability or production activities.
In connection with the greenhouse gas emission and energy reduction target system, we submitted a statement of our domestic emissions and energy usage for 2018 to the Korean government in March 2019 after it was certified by BSI Korea, a government-designated certification agency. The table below sets forth yearly levels of our greenhouse gases emissions and energy usage in the statement submitted to the Korean government:
(Unit: thousand tonnes of CO2 equivalent; Tetra Joules)
Category |
2018 | 2017 | 2016 | |||||||||
Greenhouse gases |
6,696 | 6,314 | 6,092 | |||||||||
Energy |
64,296 | 63,451 | 60,423 |
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As we were designated as a target company for the greenhouse gas emission trading system in 2015, we submit a plan for allocating and monitoring our greenhouse gas emissions to the government every year. In order to continually promote the reduction of greenhouse gas emissions, we have set a short-term goal to reduce the emission level from 2014 to 2022 by 16.8% and a medium- to long-term goal to reduce the emission level from 2014 to 2045 by 65.1%. To achieve this, we are continually investing in facility improvements and monitoring our emission levels.
We are making extensive investments to replace SF6 gas, which is the main component of greenhouse gases, with NF3 gas. In addition, as a short-term strategy, we are actively implementing measures in compliance with the emission trading system. In 2018, we reduced our carbon dioxide greenhouse gas emission levels by 1.28 million tons, which was 0.63 million tons more than our initial target of 0.65 million tons. As our medium- to long-term goal, we plan to develop low-carbon production technologies in order to eliminate greenhouse gas emission during our manufacturing process and to conserve energy.
The increase in greenhouse gas emission in 2018 is due to the inclusion of certain other greenhouse gas emissions (N2O used in deposition facilities and CO2 in cleaning facilities) during the second planning period (2018 to 2020) that were not included during the first planning period (2015 to 2017) in the overall amount of greenhouse gas emissions in accordance with guidelines issued by the Korean government.
Operations at our manufacturing plants are subject to regulation and periodic scheduled and unscheduled on-site inspections by the Ministry of Environment and local environmental protection authorities. We believe that we have adopted adequate anti-pollution measures and have minimized our impact on the environment by improving existing and developing new technologies for the effective maintenance of environmental protection standards consistent with local industry practice. In addition, we have continually monitored, and we believe that we are in compliance in all material respects with, the applicable environmental laws and regulations in Korea. Expenditures related to such compliance may be substantial. Such expenditures are generally included in capital expenditures. As required by Korean law, we employ licensed environmental specialists to manage our water and air pollution, toxic materials and waste. In December 2013, to ensure safe water quality and reduce costs, we entered into a contract with a specialist company to operate our waste water treatment facilities. In stages beginning in November 1997, we have obtained environmental management system ISO 14001 certifications for our domestic panel and module production facilities and our overseas module production plants in Nanjing, Yantai, Guangzhou and Vietnam, and in December 2013, we have obtained energy management system ISO 50001 certifications for our domestic panel and module production plants and our overseas module production plants in Nanjing and Guangzhou.
In addition, in August 2014, GP1, our newest 8th generation panel fabrication facility located in Guangzhou, China, was the first electronics plant in China to receive the Green Plant designation under Chinas Green China Policy, in addition to receiving ISO 14001, ISO 50001, OHSAS 18001, ISO 9001, PAS 2050 and ISO 14064-1 certifications. Furthermore, with respect to our production facilities in Gumi, we were first certified by the Ministry of Environment as a Green Company for P1 in 1997, and such certification has since been renewed on a timely basis, most recently in May 2018. In recognition of our efforts to reduce greenhouse gas emissions, we were awarded a commendation from the Minister of Environment in the efforts against climate change category in the 2013 Green Management Awards, which was jointly hosted by the Ministry of Environment and the Ministry of Trade, Industry and Energy. In addition, in recognition of our efforts to improve recycling and reduce waste, we received a citation in 2014 for being a leading recycling company from the Prime Minister of Korea and, in recognition of our continued water conservation activities (reuse system investments, etc.) and greenhouse gas emission reduction activities (process gas and energy reduction, etc.), we attained the highest level, Leadership A, and received the grand prize award at the CDP Water Korea Best Awards in 2016 from the Carbon Disclosure Project, which was presided over by the Carbon Disclosure Project Korea Committee. We also attained a Leadership A in the climate change information technology sector and received a carbon management honors award. Our continued efforts to reduce greenhouse gas emissions was recognized again in 2018 following 2017 by becoming the only domestic information technology company to attain the Leadership A level and again receiving carbon management honors by ranking in the top five among all eligible companies. In May 2017, we were awarded a commendation from the Minister of Environment for having scored the highest grade among companies in the low- and medium-volume pollutant emitters category that had entered into voluntary agreements with the Metropolitan Air Quality Management Office, in recognition of having successfully met our voluntary targets for reduction of air pollutants as well as our overall efforts to enhance our relevant facilities and operational systems. In addition, in recognition of efficient control, management and operating systems implemented in our manufacturing facilities, we received the top-level certification, Level 1, in 2017 under the Factory Energy Management System evaluation presided by the Korea Energy Agency. Furthermore, in November 2017, we received the highest commendation, the Presidential Award, in the Korean Energy Efficiency Awards presided by the Ministry of Trade, Industry and Energy in recognition of our energy management practices and energy saving measures. In May 2018, we received the CEM Insight Award, presented at the Clean Energy Ministerial Meetings, and also received certification for our energy business management (Energy Champion) presided by the Ministry of Trade, Industry and Energy and the Korea Energy Agency in November 2018.
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In the case of the European Unions Restriction of Hazardous Substances (RoHS) Directive 2011/65/EU, with the adoption of Directive (EU) 2015/863 in 2016, four additional substances (four phthalate substances) have been added to the six already restricted substances, which additional restrictions became effective as of July 22, 2019. In order to address the latent risk elements of the four phthalate substances scheduled to be restricted in 2019 and to establish a more stable management system, we implemented in 2016 a preemptive response process with respect to such four phthalate substances. In implementing this process, we collaborated with external agencies to ascertain regulatory trends and establish our response strategy, and we formulated and applied effective management measures through the collaborative efforts of our development, procurement and quality teams. Beryllium (Be) was not designated internationally as a mandatorily restricted substance but has continued to be the subject of discussion for restriction, and certain of our customers have designated it as a restricted substance not to be used in products. Accordingly, we have completed verification of the parts used in products for customers who have banned the use of Beryllium. We have also conducted verification of the parts used in products for all customers who are expected to implement a ban and we have established a Beryllium verification process for parts in development. Through such efforts, we have established a voluntary hazardous substance response process that can be expanded to products for all customers, not only those who have requested a response.
In October 2005, we became the first display panel company to receive accreditation as an International Accredited Testing Laboratory by the Korea Laboratory Accreditation Scheme, which is operated by the Korean Ministry of Trade, Industry & Energy. In September 2006, we received international accreditation from TUV SUD, EUs German accreditation agency, as a RoHS testing laboratory. Our efforts to keep pace with the increasingly stringent accreditation standards and to receive and maintain such accreditations are part of our on-going efforts to systematically monitor environmentally controlled substances in our component parts inventory. Moreover, we participated in reforming IEC 62321, an international testing standard published by the International Electrotechnical Commission and used by RoHS, and the commission adopted our halogen-free combustion ion chromatography method in as IEC 62321-3-2, which was published in June 2013. In 2017, in a joint effort with the global product testing/accreditation agency SGS, we became the first display panel company to develop Eco Label, an environmentally friendly accreditation program for television display modules, and received the SGS Eco Label accreditation for our OLED and LCD television models in 2017 and 2018. For the IPS Nano Color for LCD, we received the Quality & Performance Mark from Intertek, a global product testing/accreditation agency, by applying a technology to eliminate cadmium (Cd) and indium phosphide (InP). In 2018, we became the first display panel company to receive the Green Technology Certification from the Korean Ministry of Science and ICT for improving the light efficiency technology of OLED to promote energy use reduction.
In June 2017, we were assessed a fine of W1 million, which we subsequently paid, for failure to meet certain waste
disposal subcontractor requirements under the Waste Management Act. To prevent such violations from occurring again, we are strengthening the periodic evaluation process for our waste management subcontractors.
In June 2017, we were audited by the Ministry of Employment and Labor in connection with the occurrence of a safety accident and found to be
in violation of certain provisions of the Industrial Safety and Health Act relating to supervisory obligations. As a result, we were issued a corrective order and assessed a fine of W2.4 million. In addition, the trial court
ordered a fine of W0.5 million on each of us and our chief production officer on the basis of certain other applicable provisions of the Industrial Safety and Health Act. In relation to the same matter, in May 2018, the
Prosecutors Office sought a fine of W3.0 million on each of us and our chief production officer on the basis of certain other applicable provisions of the Industrial Safety and Health Act. The trial court (Goyang Branch
of Uijeongbu District Court) issued a summary order confirming the same fine of W3.0 million on November 22, 2018. We and our chief production officer appealed the trial courts decision, and the case is currently
pending appeal at the Uijeongbu District Court. In order to prevent such accidents from occurring again, we are strengthening our safety management standards and training for our employees.
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In January 2018, we were audited by the Ministry of Employment and Labor in connection with
the occurrence of another safety accident and found to be in violation of certain provisions of the Industrial Safety and Health Act relating to supervisory obligations. As a result, we were issued a corrective order and assessed a fine of
W14.4 million. In relation to this matter, in January 2019, the trial court (Goyang Branch of Uijeongbu District Court) assessed a fine of W1 million as a summary order on each of us and our chief
production officer pursuant to certain other provisions of the Industrial Safety and Health Act. In addition, in January 2019, the trial court sought a fine of W4 million and W2 million on us and the
employee in charge of on-site safety management, respectively, on the basis of certain other provisions of the Industrial Safety and Health Act. Relevant authorities are currently conducting further
investigations. In order to prevent such accidents from occurring again, we are strengthening our safety management standards and training for our employees.
Also in January 2018, the government of Gyeong-gi Province issued a warning and assessed a fine of
W1 million on us, which we subsequently paid, for the failure to comply with certain requirements relating to air pollutant emission and prevention facilities under the Air Quality Management Act. To prevent such violations
from occurring again, we have shortened the air pollutant emission maintenance reporting period and strengthened the verification process for relevant data.
In February 2018, we were assessed a fine of W0.04 million by Paju City for stopping a vehicle in front of a day care
center in violation of certain provisions of the Road Traffic Law. We have since paid the fine and are in the process of strengthening our parking guidance procedures to prevent such recurrence.
In March 2018, we were audited by the Ministry of Employment and Labor in connection with our health and safety training practices, and we
were found to have omitted requisite health and safety training sessions for certain employees in our P9 facilities in 2016 and 2017. As a result, we were assessed a fine of W6.95 million, which we subsequently paid, and have
strengthened our efforts to promote health and safety training programs in advance as well as our management and supervision activities to ensure such programs are conducted.
In April 2018, we were assessed a fine of W0.24 million by Yeongdeungpo-gu
Office for our failure to keep one of our rescue vehicles current with its statutory inspection requirements, which we subsequently paid. In order to prevent recurrence, we are continually monitoring the compliance of inspection requirements for our
vehicles.
In June 2019, the government of Gyeong-gi Province reviewed the operational history and
the number of self-measurements of our emission outlets and confirmed that there were certain deficiencies in self-measurements for our reserve facilities. As a result, we were assessed a fine of W1.6 million by the government
of Gyeong-gi Province, which we subsequently paid, for the violation of Article 39 of the Air Quality Management Act. To prevent the recurrence, we have established a monthly self-measurement plan for our
reserve facilities.
13. | Financial Information |
A. | Financial highlights (Based on consolidated K-IFRS). Figures for 2017 are based on previously applicable accounting standards of K-IFRS 1018, Revenue and K-IFRS 1039, Financial Instruments. |
(Unit: In millions of Won)
Description |
As of December 31, 2019 |
As of December 31, 2018 |
As of December 31, 2017 |
|||||||||
Current assets |
10,248,315 | 8,800,127 | 10,473,703 | |||||||||
Quick assets |
8,197,160 | 6,108,924 | 8,123,619 | |||||||||
Inventories |
2,051,155 | 2,691,203 | 2,350,084 | |||||||||
Non-current assets |
25,326,248 | 24,375,583 | 18,685,984 | |||||||||
Investments in equity accounted investees |
109,611 | 113,989 | 122,507 | |||||||||
Property, plant and equipment, net |
22,087,645 | 21,600,130 | 16,201,960 | |||||||||
Intangible assets |
873,448 | 987,642 | 912,821 | |||||||||
Other non-current assets |
2,255,544 | 1,673,822 | 1,448,696 | |||||||||
Total assets |
35,574,563 | 33,175,710 | 29,159,687 | |||||||||
Current liabilities |
10,984,976 | 9,954,483 | 8,978,682 | |||||||||
Non-current liabilities |
12,101,306 | 8,334,981 | 5,199,495 | |||||||||
Total liabilities |
23,086,282 | 18,289,464 | 14,178,177 | |||||||||
Share capital |
1,789,079 | 1,789,079 | 1,789,079 | |||||||||
Share premium |
2,251,113 | 2,251,113 | 2,251,113 | |||||||||
Retained earnings |
7,503,312 | 10,239,965 | 10,621,571 | |||||||||
Other equity |
(203,021 | ) | (300,968 | ) | (288,280 | ) | ||||||
Non-controlling interest |
1,147,798 | 907,057 | 608,027 | |||||||||
Total equity |
12,488,281 | 14,886,246 | 14,981,510 |
22
(Unit: In millions of Won, except for per share data and number of consolidated entities)
Description |
For the year ended December 31, 2019 |
For the year ended December 31, 2018 |
For the year ended December 31, 2017 |
|||||||||
Revenue |
23,475,567 | 24,336,571 | 27,790,216 | |||||||||
Operating profit (loss) |
(1,359,382 | ) | 92,891 | 2,461,618 | ||||||||
Operating profit (loss) from continuing operations |
(2,872,078 | ) | (179,443 | ) | 1,937,052 | |||||||
Profit (loss) for the period |
(2,872,078 | ) | (179,443 | ) | 1,937,052 | |||||||
Profit (loss) attributable to: |
||||||||||||
Owners of the Company |
(2,829,705 | ) | (207,239 | ) | 1,802,756 | |||||||
Non-controlling interest |
(42,373 | ) | 27,796 | 134,296 | ||||||||
Basic earnings (loss) per share |
(7,908 | ) | (579 | ) | 5,038 | |||||||
Diluted earnings (loss) per share |
(7,908 | ) | (579 | ) | 5,038 | |||||||
Number of consolidated entities |
22 | 22 | 20 |
B. | Financial highlights (Based on separate K-IFRS). Figures for 2017 are based on previously applicable accounting standards of K-IFRS 1018, Revenue and K-IFRS 1039, Financial Instruments. |
(Unit: In millions of Won)
Description |
As of December 31, 2019 |
As of December 31, 2018 |
As of December 31, 2017 |
|||||||||
Current assets |
7,081,228 | 6,378,339 | 8,381,074 | |||||||||
Quick assets |
5,554,929 | 4,427,184 | 6,698,829 | |||||||||
Inventories |
1,526,299 | 1,951,155 | 1,682,245 | |||||||||
Non-current assets |
20,301,452 | 20,683,767 | 17,028,341 | |||||||||
Investments |
4,958,308 | 3,602,214 | 2,683,941 | |||||||||
Property, plant and equipment, net |
12,764,175 | 14,984,564 | 12,487,001 | |||||||||
Intangible assets |
708,047 | 816,808 | 731,373 | |||||||||
Other non-current assets |
1,870,922 | 1,280,181 | 1,126,026 | |||||||||
Total assets |
27,382,680 | 27,062,106 | 25,409,415 | |||||||||
Current liabilities |
9,140,483 | 7,416,630 | 7,394,605 | |||||||||
Non-current liabilities |
7,576,104 | 6,432,895 | 4,185,551 | |||||||||
Total liabilities |
16,716,587 | 13,849,525 | 11,580,156 | |||||||||
Share capital |
1,789,079 | 1,789,079 | 1,789,079 | |||||||||
Share premium |
2,251,113 | 2,251,113 | 2,251,113 | |||||||||
Retained earnings |
6,625,901 | 9,172,389 | 9,789,067 | |||||||||
Other equity |
0 | 0 | 0 | |||||||||
Total equity |
10,666,093 | 13,212,581 | 13,829,259 |
23
(Unit: In millions of Won, except for per share data)
Description |
For the year ended December 31, 2019 |
For the year ended December 31, 2018 |
For the year ended December 31, 2017 |
|||||||||
Revenue |
21,658,329 | 22,371,687 | 25,591,082 | |||||||||
Operating profit (loss) |
(1,784,245 | ) | (472,995 | ) | 1,536,730 | |||||||
Operating profit (loss) from continuing operations |
(2,639,893 | ) | (442,291 | ) | 1,779,721 | |||||||
Profit (loss) for the period |
(2,639,893 | ) | (442,291 | ) | 1,779,721 | |||||||
Basic earnings (loss) per share |
(7,378 | ) | (1,236 | ) | 4,974 | |||||||
Diluted earnings (loss) per share |
(7,378 | ) | (1,236 | ) | 4,974 |
C. | Consolidated subsidiaries (as of December 31, 2019) |
Company Interest |
Primary Business |
Location | Equity | |||||
LG Display America, Inc. |
Sales | U.S.A. | 100 | % | ||||
LG Display Germany GmbH |
Sales | Germany | 100 | % | ||||
LG Display Japan Co., Ltd. |
Sales | Japan | 100 | % | ||||
LG Display Taiwan Co., Ltd. |
Sales | Taiwan | 100 | % | ||||
LG Display Nanjing Co., Ltd. |
Manufacturing | China | 100 | % | ||||
LG Display Shanghai Co., Ltd. |
Sales | China | 100 | % | ||||
LG Display Poland Sp. zo.o. (1) |
Manufacturing | Poland | 100 | % | ||||
LG Display Guangzhou Co., Ltd. |
Manufacturing | China | 100 | % | ||||
LG Display Shenzhen Co., Ltd. |
Sales | China | 100 | % | ||||
LG Display Singapore Pte. Ltd. |
Sales | Singapore | 100 | % | ||||
L&T Display Technology (Fujian) Limited |
Manufacturing and sales | China | 51 | % | ||||
LG Display Yantai Co., Ltd. |
Manufacturing | China | 100 | % | ||||
LG Display (China) Co., Ltd. |
Manufacturing and sales | China | 70 | % | ||||
Nanumnuri Co., Ltd. |
Workplace services | Korea | 100 | % | ||||
Unified Innovative Technology, LLC |
Managing intellectual property | U.S.A. | 100 | % | ||||
Global OLED Technology LLC |
Managing intellectual property | U.S.A. | 100 | % | ||||
LG Display Guangzhou Trading Co., Ltd. |
Sales | China | 100 | % | ||||
LG Display Vietnam Haiphong Co., Ltd. (2) |
Manufacturing | Vietnam | 100 | % | ||||
Suzhou Lehui Display Co., Ltd. |
Manufacturing and sales | China | 100 | % | ||||
LG Display Fund I LLC (3) |
Investing in new emerging companies | U.S.A | 100 | % | ||||
LG Display High-Tech (China) Co., Ltd. (4) |
Manufacturing and sales | China | 75 | % | ||||
MMT (Money Market Trust) |
Money market trust | Korea | 100 | % |
24
D. | Status of equity investments (as of December 31, 2019) |
(1) | Consolidated subsidiaries |
Company |
Investment Amount (in millions) |
Initial Equity Investment Date |
Equity Interest |
|||||||||
LG Display America, Inc. |
US$ | 411 | September 24, 1999 | 100 | % | |||||||
LG Display Germany GmbH |
EUR | 1 | November 5, 1999 | 100 | % | |||||||
LG Display Japan Co., Ltd. |
¥ | 95 | October 12, 1999 | 100 | % | |||||||
LG Display Taiwan Co., Ltd. |
NT$ | 116 | May 19, 2000 | 100 | % | |||||||
LG Display Nanjing Co., Ltd. |
CNY | 3,020 | July 15, 2002 | 100 | % | |||||||
LG Display Shanghai Co., Ltd. |
CNY | 4 | January 16, 2003 | 100 | % | |||||||
LG Display Poland Sp. zo.o. (1) |
PLN | 511 | September 6, 2005 | 100 | % | |||||||
LG Display Guangzhou Co., Ltd. |
CNY | 1,655 | August 7, 2006 | 100 | % | |||||||
LG Display Shenzhen Co., Ltd. |
CNY | 4 | August 28, 2007 | 100 | % | |||||||
LG Display Singapore Pte. Ltd. |
US$ | 1.1 | January 12, 2009 | 100 | % | |||||||
L&T Display Technology (Fujian) Limited |
CNY | 116 | January 5, 2010 | 51 | % | |||||||
LG Display Yantai Co., Ltd. |
CNY | 1,008 | April 19, 2010 | 100 | % | |||||||
Nanumnuri Co., Ltd. |
March 19, 2012 | 100 | % | |||||||||
LG Display (China) Co., Ltd. |
CNY | 8,232 | December 27, 2012 | 70 | % | |||||||
Unified Innovative Technology, LLC |
US$ | 9 | March 21, 2014 | 100 | % | |||||||
LG Display Guangzhou Trading Co., Ltd. |
CNY | 1.2 | May 27, 2015 | 100 | % | |||||||
Global OLED Technology LLC |
US$ | 138 | May 7, 2015 | 100 | % | |||||||
LG Display Vietnam Haiphong Co., Ltd. (2) |
US$ | 600 | May 13, 2016 | 100 | % | |||||||
Suzhou Lehui Display Co., Ltd. |
CNY | 637 | July 1, 2016 | 100 | % | |||||||
LG Display Fund I LLC (3) |
US$ | 6 | May 1, 2018 | 100 | % | |||||||
LG Display High-Tech (China) Co., Ltd. (4) |
CNY | 14,570 | July 11, 2018 | 75 | % | |||||||
MMT (Money Market Trust) |
March 31, 2017 | 100 | % |
Changes since December 31, 2018:
(1) | LG Display Poland Sp. zo.o. began a liquidation process as of July 1, 2019. |
(2) | During the reporting period, we invested an additional |
(3) | During the reporting period, we invested an additional |
(4) | During the reporting period, we invested an additional |
Additionally, for the years ended December 31,
2018 and 2019, the amount of dividends attributable to the parent company from the aggregate dividends distributed by our consolidated subsidiaries was W90,281 million and W11,120 million, respectively.
(2) | Affiliated companies |
Company |
Carrying Amount (in millions) |
Date of |
Equity Interest |
|||||||
Paju Electric Glass Co., Ltd. |
January 2005 | 40 | % | |||||||
Invenia Co., Ltd. (1) |
| January 2001 | | |||||||
Wooree E&L Co., Ltd. (2) |
June 2008 | 14 | % | |||||||
YAS Co., Ltd. |
April 2002 | 15 | % | |||||||
Avatec Co., Ltd. (3) |
August 2000 | 14 | % | |||||||
Arctic Sentinel, Inc. |
| June 2008 | 10 | % | ||||||
Cynora GmbH (4) |
March 2003 | 12 | % | |||||||
Material Science Co., Ltd. (5) |
January 2014 | 10 | % | |||||||
Nanosys Inc. (6) |
July 2001 | 4 | % |
25
Changes since December 31, 2018:
(1) | In 2019, we sold all of the 3,000,000 shares of Invenia Co., Ltd. we previously held, and recognized a disposal
gain of |
(2) | In 2019, we recognized a reversal of impairment loss of |
(3) | In 2019, we sold 650,000 shares of Avatec Co., Ltd. we previously held, and our interest in Avatec Co., Ltd.
following such sale is 14% as of December 31, 2019. As a result of such sale, we recognized a disposal gain of |
(4) | In 2019, we recognized an impairment loss of |
(5) | In 2019, we recognized an impairment loss of |
(6) | In 2019, we recognized a reversal of impairment loss of |
As of December 31, 2019, the market values of Woori E&L Co., Ltd., YAS Co., Ltd. and Avatec Co., Ltd., each of which is listed in the
KOSDAQ market of the Korea Exchange, were W7,310 million, W39,300 million and W15,380 million, respectively.
Additionally, for the years ended December 31, 2018 and 2019, the aggregate amount of dividends we received from our affiliated companies
was W5,272 million and W7,502 million, respectively.
14. | Audit Information |
A. | Audit service |
(Unit: In millions of Won, hours)
Description |
2019 |
2018 |
2017 | |||
Auditor |
KPMG Samjong | KPMG Samjong | KPMG Samjong | |||
Activity |
Audit by independent auditor | Audit by independent auditor | Audit by independent auditor | |||
Compensation(1) |
1,280 (500)(2) | 1,170 (450)(2) | 1,040 (450)(2) | |||
Time required |
21,194 | 17,269 | 17,909 |
(1) | Compensation amount is the contracted amount for the full fiscal year. |
(2) | Compensation amount in ( ) is for Form 20-F filing and SOX 404 audit. |
B. | Non-audit service |
(Unit: In millions of Won, hours)
Period |
Date of contract |
Description of service |
Period of service |
Compensation | ||||||
2019 |
July 23, 2019 | Issuance of comfort letters | July 23, 2019 ~ August 31, 2019 | 120 | ||||||
2018 |
September 11, 2018 | Green bond verification | September 11, 2018 ~ October 9, 2018 | 45 |
15. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
A. | Risk relating to forward-looking statements |
This annual report contains forward-looking statements that are, by their nature, subject to significant risks and uncertainties. These forward-looking statements reflect our current views as of the date of this report with respect to future events and are not a guarantee of future performance or results. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors beyond our control. We have no obligation to update or correct the forward-looking statements contained in these materials subsequent to the date hereof. All forward-looking statements attributable to us in this report are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
26
B. | Overview |
In 2019, the display industry continued to experience a decline in panel prices caused by increased competition. We responded to such decline by optimizing our LCD business, including through the discontinuation of production at certain of our less competitive LCD fabrication facilities, and the acceleration of the transition of our business focus to OLED. However, certain delays in our OLED panel production and a continued decline in LCD panel prices led to a decrease in our revenue and our recording of a net loss in 2019 compared to net profit in 2018.
With respect to each of our business areas:
| Television. While we were able to increase our revenue for OLED television panels through differentiated products and an expansion of our customer base, our overall revenue in the television business decreased as we discontinued the production of our large LCD fabrication facilities in Korea in the process of optimizing our less competitive LCD products. |
| IT. We focused on supplying high value-added products centered on larger-sized products leveraging the strengths of our oxide-TFT and IPS technologies and differentiated products such as those featuring lightweight and high definition,. |
| Mobile. We laid the foundation for the stabilization of our production by securing the technology necessary for mass production of plastic OLED products for smartphones. |
C. | Financial condition and results of operations |
(1) | Changes in Political, Economic, Social, Competitive and Regulatory Environment |
Our industry is subject to cyclical fluctuations, including recurring periods of capacity increases, that may adversely affect our results of operations.
Display panel manufacturers are vulnerable to cyclical market conditions. Intense competition and expectations of growth in demand across the industry may cause display panel manufacturers to make additional investments in manufacturing capacity on similar schedules, resulting in a surge in capacity when production is ramped up at new fabrication facilities. During such surges in capacity growth, as evidenced by past experiences, customers can exert strong downward pricing pressure, resulting in sharp declines in average selling prices and significant fluctuations in the panel manufacturers gross margins. Conversely, demand surges and fluctuations in the supply chain can lead to price increases.
We address overcapacity issues by, in the short-term, adjusting the utilization rates of our existing fabrication facilities based on our assessment of industry inventory levels and demand for our products and, in the mid- to long-term, by fine-tuning our investment strategies relating to product development and capacity growth in light of our assessment of future market conditions.
From time to time, we have been affected by overcapacity in the industry relative to the general demand for display panels which, together
with uncertainties in the current global economic environment, has contributed to a general decline in the average selling prices of a number of our display panel products. Our average revenue per square meter of net display area decreased by 13.6%
from W667,726 in 2017 to W576,817 in 2018, which was largely driven by an increase in the supply capacity of global TFT-LCD panel manufacturers that applied downward pricing
pressure, but increased by 5.9% to W610,716 in 2019, which primarily reflected our ongoing efforts to increase in our product mix the proportion of OLED panels, which generally have higher selling prices than TFT-LCD panels.
While we believe that overcapacity and other cyclical issues in the industry are best addressed by increasing the proportion of high margin, differentiated specialty products based on newer technologies in our product mix that are tailored to our customers evolving needs, we cannot provide any assurance that an increase in demand, which helped to mitigate the impact of industry-wide overcapacity in the past, can occur or be sustained in future periods. We will therefore continue to closely monitor the overcapacity issues in the industry and respond accordingly. However, construction of new fabrication facilities and other capacity expansion projects in the display panel industry are undertaken with a multiple-year time horizon based on expectations of future market trends. Therefore, even if overcapacity issues persist in the industry, there may be continued capacity expansion in the near future due to pre-committed capacity expansion projects in the industry that were undertaken in past years. Any significant industry-wide capacity increases that are not accompanied by a sufficient increase in demand could further drive down the average selling price of our panels, which would negatively affect our gross margin. Any decline in prices may be further compounded by a seasonal weakening in demand growth for end products such as personal computer products, consumer electronics products and mobile and other application products. Furthermore, once the differentiated products that had a positive impact on our performance mature in their technology cycle, if we are not able to develop and commercialize newer products to offset the price erosion of such maturing products in a timely manner, our ability to counter the impact of cyclical market conditions on our gross margins would be further limited. We cannot provide assurance that any future downturns resulting from any large increases in capacity or other factors affecting the industry would not have a material adverse effect on our business, financial condition and results of operations.
27
A global economic downturn may result in reduced demand for our products and adversely affect our profitability.
In recent years, difficulties affecting the global financial sectors, adverse conditions and volatility in the worldwide credit and financial markets, fluctuations in oil and commodity prices and the general weakness of the global economy have increased the uncertainty of global economic prospects in general and have adversely affected the global and Korean economies. Global economic downturns in the past have adversely affected demand for consumer products manufactured by our customers in Korea and overseas, including televisions, notebook computers, desktop monitors, tablet computers and mobile and other application products utilizing display panels, which in turn led them to reduce or plan reductions of their production.
The overall prospects for the global economy remain uncertain, especially in light of the ongoing COVID-19 pandemic in China, Korea and other countries. We cannot provide any assurance that demand for our products can be sustained at current levels in future periods or that the demand for our products will not decrease again in the future due to such economic downturns which may adversely affect our profitability. We may decide to adjust our production levels in the future subject to market demand for our products, the production outlook of the global display panel industry, in particular, the display panel industry, any significant disruptions in our supply chain and global economic conditions in general. Any decline in demand for display panel products may adversely affect our business, results of operations and/or financial condition.
Earthquakes, tsunamis, floods, infectious diseases and other natural calamities could materially adversely affect our business, results of operations or financial condition.
As our main production facilities are concentrated in China, Korea and Vietnam and we are heavily dependent on certain countries including Korea, Japan and the United States for our major equipment, components and raw materials, any natural calamity that escalate in such regions may have an impact on our production. For such reasons, we experienced temporarily closures of certain of our manufacturing facilities located in those areas affected by the current outbreak of COVID-19 in order to disinfect such facilities, protect the safety of our employees and prevent the infection from further spreading to the local communities. As our supply chain is generally concentrated in Northeast Asia, there may be delays in the supply of raw materials, components and manufacturing equipment as well as disruptions in our production levels due to unforeseen natural calamities that may recur in the future.
In particular, an outbreak of infectious diseases, such as COVID-19, which has had an effect on the global economic activities, may affect our operations. The global economy may be adversely affected by a variety of infectious diseases that spreads worldwide, which may impact the market demand for finished products that utilize display panels. As a result, any changes in inventory management or purchase adjustment or other changes in the operational strategies of our end-brand customers, may affect our business performance.
28
Our industry continues to experience steady declines in the average selling prices of display panels irrespective of cyclical fluctuations in the industry, and our margins would be adversely impacted if prices decrease faster than we are able to reduce our costs.
The average selling prices of display panels have declined in general and are expected to continually decline with time irrespective of industry-wide cyclical fluctuations as a result of, among other factors, technological advancements and cost reductions. Although we may be able to take advantage of the higher selling prices typically associated with new products and technologies when they are first introduced in the market, such prices decline over time, and in certain cases, very rapidly, as a result of market competition or otherwise. If we are unable to effectively anticipate and counter the price erosion that accompanies our products, or if the average selling prices of our display panels decrease faster than the speed at which we are able to reduce our manufacturing costs, our gross margin would decrease and our results of operations and financial condition may be materially and adversely affected.
We operate in a highly competitive environment and we may not be able to sustain our current market position.
The display panel industry is highly competitive. We have experienced pressure on the prices and margins of our major products due largely to additional capacity from panel makers in Korea, Taiwan, China and Japan.
Some of our competitors may currently, or at some point in the future, have greater financial, sales and marketing, manufacturing, research and development or technological resources than we do. In addition, our competitors may be able to manufacture panels on a larger scale or with greater cost efficiencies than we do and we anticipate increases in production capacity in the future by other display panel manufacturers using similar display panel technologies as us. Any price erosion resulting from strong global competition or additional industry capacity may materially adversely affect our financial condition and results of operations.
In addition, consolidation within the industry in which we operate may result in increased competition as the entities emerging from such consolidation may have greater financial, manufacturing, research and development and other resources than we do, especially if such mergers or consolidations result in vertical integration and operational efficiencies, which may have a material adverse effect on our financial condition and results of operations.
Our ability to compete successfully also depends on factors both within and outside our control, including product pricing, performance and reliability, our relationship with customers, successful and timely investment and product development, success or failure of our end-brand customers in marketing their brands and products, component and raw material supply costs, and general economic and industry conditions. We cannot provide assurance that we will be able to maintain a competitive advantage with respect to all these factors and, as a result, we may be unable to sustain our current market position.
Our operating results fluctuate from period to period, so you should not rely on period-to-period comparisons to predict our future performance.
Our industry is affected by market conditions that are often outside the control of manufacturers. Our results of operations may fluctuate significantly from period to period due to a number of factors, including seasonal variations in consumer demand, capacity ramp-up by competitors, industry-wide technological changes, the loss of a key customer and the postponement, rescheduling or cancellation of large orders by a key customer, any of which may or may not reflect a continued trend from one period to the next. As a result of these factors and other risks discussed in this section, you should not rely on period-to-period comparisons to predict our future performance.
Our financial condition may be adversely affected if we cannot introduce new products to adapt to rapidly evolving customer needs on a timely basis.
Our success will depend greatly on our ability to respond quickly to rapidly evolving customer requirements and to develop and efficiently manufacture new and differentiated products in anticipation of future demand. A failure or delay on our part to develop and efficiently manufacture products of such quality and technical specifications that meet our customers evolving needs may adversely affect our business.
Close cooperation with our customers to gain insights into their product needs and to understand general trends in the end-product market is a key component of our strategy to produce successful products. In addition, when developing new products, we often work closely with equipment suppliers to design equipment that will make our production processes for such new products more efficient. If we are unable to work together with our customers and equipment suppliers, or to sufficiently understand their respective needs and capabilities or general market trends, we may not be able to introduce or efficiently manufacture new products in a timely manner, which may have a material adverse effect on our financial situation.
29
In addition, product differentiation, especially the ability to develop and market differentiated specialty products that command higher premiums in a timely manner, has become a key competitive strategy in the display panel market. This is in part due to trends in consumer electronics and other markets, such as televisions, tablet computers and mobile devices, where the growth in demand is led by end products employing newer technologies with specifications tailored to deliver enhanced performance, convenience and user experience in a cost-efficient and timely manner. Accordingly, we have focused our efforts on developing and marketing differentiated specialty products, such as OLED display panels for televisions and public displays including Wallpaper OLED panels, Cinematic Sound OLED sound integrated panels, rollable OLED display panels and transparent OLED display panels. We also strive to deliver differentiated values to meet our consumers demand for various display panels including (i) panels utilizing ultra-high definition, or Ultra HD, technology with oxide TFT backplanes, (ii) Advanced High-Performance In-Plane Switching, or AH-IPS, panels for tablet computers, mobile devices, notebook computers, desktop monitors, and (iii) plastic OLED display panels for smartphones, automotive products and wearable devices. We have also focused our efforts on cost reductions in the production process, in particular of panels with newer technologies, such as OLED, in order to improve or maintain our profit margins while offering competitive prices to our customers.
We have developed differentiated sales and marketing strategies to promote our panels for differentiated specialty products as part of our strategy to grow our operations to meet increasing demand for new applications in consumer electronics and other markets. However, we cannot provide assurance that the differentiated products we develop and market will be responsive to our end customers needs nor that our products will be successfully incorporated into end products or new applications that lead market growth in consumer electronics or other markets.
Problems with product quality, including defects, in our products could result in a decrease in customers and sales, unexpected expenses and loss of market share.
Our products are manufactured using advanced, and often new, technology and must meet stringent quality requirements. Products manufactured using advanced and new technology, such as our OLED technology, may contain undetected errors or defects, especially when first introduced. For example, our latest display panels may contain defects that are not detected until after they are shipped or installed because we cannot test for all possible scenarios. Such defects could cause us to incur significant re-designing costs, divert the attention of our technology personnel from product development efforts and significantly affect our customer relations and business reputation. In addition, future product failures could cause us to incur substantial expense to repair or replace defective products.
We recognize a provision for warranty obligations based on the estimated costs that we expect to incur under our basic limited warranty for our products, which covers defective products and is normally valid for a certain period from the date of purchase. The warranty provision is largely based on historical and anticipated rates of warranty claims, and therefore we cannot provide assurance that the provision would be sufficient to cover any surge in future warranty expenses that significantly exceed historical and anticipated rates of warranty claims. In addition, if we deliver products with errors or defects, or if there is a perception that our products contain errors or defects, our credibility and the market acceptance and sales of our products could be harmed. Widespread product failures may damage our market reputation and reduce our market share and cause our sales to decline.
If economic conditions in Korea deteriorate, our current business and future growth could be materially and adversely affected.
Developments that could have an adverse impact on Koreas economy include:
| declines in consumer confidence and a slowdown in consumer spending; |
| deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy (such as the ongoing trade disputes with Japan); |
30
| adverse conditions or developments in the economies of countries and regions that are important export markets for Korea, such as China, the United States, Europe and Japan, or in emerging market economies in Asia or elsewhere, including as a result of deteriorating economic and trade relations between the United States and China and increased uncertainties resulting from the United Kingdoms exit from the European Union; |
| the occurrence of severe health epidemics in Korea and other parts of the world, such as the ongoing COVID-19 pandemic; |
| adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, Euro or Japanese Yen exchange rates or revaluation of the Chinese Yuan, as well as the impact from the United Kingdoms exit from the European Union on the value of Korean Won), interest rates, inflation rates or stock markets; |
| increased sovereign default risk in select countries and the resulting adverse effects on the global financial markets; |
| a deterioration in the financial condition or performance of small- and medium-sized enterprises and other companies in Korea due to the Korean governments policies to increase minimum wages and limit working hours of employees; |
| investigations of large Korean business groups and their senior management for possible misconduct; |
| a continuing rise in the level of household debt and increasing delinquencies and credit defaults by retail and small- and medium-sized enterprise borrowers in Korea; |
| the economic impact of any pending free trade agreements or changes in existing free trade agreements; |
| social and labor unrest; |
| decreases in the market prices of Korean real estate; |
| a decrease in tax revenue coupled with a substantial increase in the Korean governments expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs that would lead to an increased Korean government budget deficit; |
| financial problems or lack of progress in the restructuring of Korean business groups, other large troubled companies, their suppliers or the financial sector; |
| loss of investor confidence arising from corporate accounting irregularities or corporate governance issues at certain Korean companies; |
| increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea; |
| geo-political uncertainty and the risk of further attacks by terrorist groups around the world; |
| natural or man-made disasters that have a significant adverse economic or other impact on Korea or its major trading partners; |
| political uncertainty or increasing strife among or within political parties in Korea; |
| hostilities or political or social tensions involving oil producing countries in the Middle East (including a potential escalation of hostilities between the U.S. and Iran) and Northern Africa and any material disruption in the global supply of oil or sudden increase in the price of oil; |
| increased reliance on exports to service foreign currency debts, which could cause friction with Koreas trading partners; |
| the continued growth of the Chinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of manufacturing bases from Korea to China); |
| political or social tensions involving Russia and any resulting adverse effects on the global supply of oil or the global financial markets; and |
| an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States. |
31
(1) | Results of operations |
In 2019, the display industry continued to experience a decline in LCD panel prices caused by increased competition. We responded to such decline by optimizing our LCD business, including through the discontinuation of production at certain of our less competitive LCD fabrication facilities, and the acceleration of the transition of our business focus to OLED. However, certain delays in our OLED panel production and a continued decline in LCD panel prices led to a decrease in our revenue and our recording of a net loss in 2019 compared to net profit in 2018.
By business area:
| Television. Our LCD television panel sales decreased by approximately 30% due to the discontinuation of our large LCD fabrication facilities production in Korea, while our revenue for OLED fabrication facilities increased by approximately 10% compared to the previous year due to increased productivity as well as our offering of differentiated products and an expansion of our customer base. As a result, the proportion of sales of our OLED television panels accounted for 34% within our overall television business, representing approximately a 10% increase compared to the previous year. |
| IT. We focused on supplying high value-added products centered on differentiated products with large-sized, lightweight and high definition features based on the strengths of our oxide TFT and IPS technologies. As a result, our revenue in this business area increased by approximately 10% compared to the previous year. |
| Mobile. We laid the foundation for the stabilization of our production by securing the technology necessary for mass production of plastic OLED products for smartphones. However, the cost incurred in the process of securing such mass production technology and the slowing demand in the high-end smartphone market contributed to a decline in our profitability for the year. Within our mobile business, our revenue in the automotive display sector increased by approximately 16% compared to the previous year, and we are expanding our automotive display business by supplying automotive plastic OLED products for the first time. |
(Unit: In millions of Won)
Description |
2019 | 2018 | Changes | |||||||||
Revenue |
23,475,567 | 24,336,571 | (861,004 | ) | ||||||||
Operating profit |
(1,359,382 | ) | 92,891 | (1,452,273 | ) | |||||||
Profit (loss) before income tax |
(3,344,242 | ) | (91,366 | ) | (3,252,876 | ) | ||||||
Profit (loss) for the period |
(2,872,078 | ) | (179,443 | ) | (2,692,635 | ) |
(a) | Revenue and cost of sales |
Our revenue decreased by 3.5% compared to 2018 due to downward pricing pressure primarily resulting from increased supply competition from China and the downsizing of our LCD fabrication facility. Our cost of sales as a percentage of revenue increased by 4.7 percentage points from 87.3% in 2018 to 92.0% in 2019, reflecting a shift in our business model from LCD to OLED products as well as an upward impact from an increase in the supply of our OLED products.
(Unit: In millions of Won, except percentages)
Description |
2019 | 2018 | Changes | |||||||||||||
Amount | Percentage | |||||||||||||||
Revenue |
23,475,567 | 24,336,571 | (861,004 | ) | (3.5 | )% | ||||||||||
Cost of sales |
21,607,240 | 21,251,305 | 355,935 | 1.7 | % | |||||||||||
Gross profit |
1,868,327 | 3,085,266 | (1,216,939 | ) | (39.4 | )% | ||||||||||
Cost of sales as a percentage of sales |
92.0 | % | 87.3 | % | 4.7 | % | |
32
(b) | Sales by category |
Revenue attributable to sales of panels exhibited varying trends by product category according to changes in product mix, customers and market conditions.
Categories |
2019 | 2018 | Difference | |||||||||
Panels for televisions |
34.1 | % | 40.0 | % | (5.9 | )% | ||||||
Panels for desktop monitors |
17.2 | % | 16.6 | % | 0.6 | % | ||||||
Panels for notebook computers |
11.9 | % | 11.7 | % | 0.2 | % | ||||||
Panels for tablet computers |
9.6 | % | 8.2 | % | 1.4 | % | ||||||
Panels for mobile applications and others |
27.2 | % | 23.5 | % | 3.7 | % |
(c) | Production capacity |
Our annual production capacity increased by approximately 13% in 2019 compared to 2018, in large part due to increased efficiency in productivity with respect to our large-sized OLED panels.
(2) | Financial condition |
Our current assets amounted to W10,248 billion as of December 31, 2019, representing an increase of
W1,448 billion from the end of the previous year, and our non-current assets amounted to W25,326 billion as of December 31, 2019, representing an increase of
W951 billion from the end of the previous year. Our current liabilities amounted to W10,985 billion as of December 31, 2019, representing an increase of W1,030 billion from the
end of the previous year, and our non-current liabilities amounted to W12,101 billion as of December 31, 2019, representing an increase of W3,766 billion from
the end of the previous year. Our total equity decreased by W2,398 billion to W12,488 billion as of December 31, 2019 from the end of the previous year, which mainly reflected the net loss for the
period.
(Unit: In millions of Won)
Description |
2019 | 2018 | Changes | |||||||||||||
Amount | Percentage | |||||||||||||||
Current assets |
10,248,315 | 8,800,127 | 1,448,188 | 16.5 | % | |||||||||||
Non-current assets |
25,326,247 | 24,375,583 | 950,664 | 3.9 | % | |||||||||||
Total assets |
35,574,562 | 33,175,710 | 2,398,852 | 7.2 | % | |||||||||||
Current liabilities |
10,984,976 | 9,954,483 | 1,030,493 | 10.4 | % | |||||||||||
Non-current liabilities |
12,101,306 | 8,334,981 | 3,766,325 | 45.2 | % | |||||||||||
Total liabilities |
23,086,282 | 18,289,464 | 4,796,818 | 26.2 | % | |||||||||||
Share capital |
1,789,079 | 1,789,079 | | 0.0 | % | |||||||||||
Share premium |
2,251,113 | 2,251,113 | | 0.0 | % | |||||||||||
Retained earnings |
7,503,311 | 10,239,965 | (2,736,654 | ) | (26.7 | )% | ||||||||||
Reserves |
(203,021 | ) | (300,968 | ) | 97,947 | (32.5 | )% | |||||||||
Non-controlling interest |
1,147,798 | 907,057 | 240,741 | 26.5 | % | |||||||||||
Total equity |
12,488,280 | 14,886,246 | (2,397,966 | ) | (16.1 | )% | ||||||||||
Total liabilities and equity |
35,574,562 | 33,175,710 | 2,398,852 | 7.2 | % |
Due in part to the steady sales in inventory during the fourth quarter of 2019 and the re-adjustment of our product mix in light of an expected decrease in demand during the first half of 2020, our inventory decreased by W640 billion from the end of the previous year to
W2,051 billion as of December 31, 2019.
33
Trade accounts and notes receivable as of December 31, 2019 was
W3,154 billion, representing an increase of W325 billion from net trade accounts and notes receivable as of December 31, 2018, mostly reflecting a decrease in sale of our trade accounts and notes
receivable and increase in foreign exchange rates as of December 31, 2019.
The book value of our total tangible assets as of
December 31, 2019 was W2,209 billion, representing an increase of W488 billion from the book value of our total tangible assets as of December 31, 2018. The increase was due to our continued
investment in increasing our production capacity and effects of increases in foreign exchange rates, which outpaced the negative effect of depreciation of our production facilities.
Trade accounts and notes payable as of December 31, 2019 was W2,618 billion, representing a decrease of
W469 billion from trade accounts and notes payable as of December 31, 2018, and our other accounts payable increased to W4,397 billion as of December 31, 2019.
(3) | Dependence on Key Customers |
We sell our products to a select group of key customers, including our largest shareholder, and any significant decrease in their order levels will negatively affect our financial condition and results of operations.
A substantial portion of our sales is attributable to a limited group of end-brand customers and their designated system integrators. Sales attributed to our end-brand customers are for their end-brand products and do not include sales to these customers for their system integration activities for other end-brand products, if any. Our top ten end-brand customers, including LG Electronics Inc., our largest shareholder, together accounted for approximately 81% of our sales in 2017, 77% in 2018 and 80% in 2019.
We benefit from the strong collaborative relationships we maintain with our end-brand customers by participating in the development of their products and gaining insights about levels of future demand for our products and other industry trends. Customers look to us for a dependable supply of quality products, even during downturns in the industry, and we benefit from the brand recognition of our customers end products. The loss of these end-brand customers, as a result of their entering into strategic supplier arrangements with our competitors or otherwise, would thus result not only in reduced sales, but also in the loss of these benefits. We cannot provide assurance that a select group of key end-brand customers, including our largest shareholder, will continue to place orders with us in the future at the same levels as in prior periods, or at all.
We expect that we will continue to be dependent upon LG Electronics and its affiliates for a significant portion of our revenue for the foreseeable future. Our results of operations and financial condition could therefore be affected by the overall performance of LG Electronics and its affiliates. Further details of our transactions with LG Electronics and its affiliates are described in Note 29 to our consolidated annual financial statements as of and for the years ended December 31, 2019 and 2018, which were furnished on March 11, 2020 as part of the current report on Form 6-K titled Submission of Audit Report.
Our revenue depends on continuing demand for televisions, notebook computers, desktop monitors, tablet computers and mobile and other application products with panels of the type we produce. Our sales may not grow at the rate we expect if consumers do not purchase these products.
Currently, our total sales are derived principally from customers who use our products in televisions, notebook computers, desktop monitors, tablet computers and mobile and other application products with display devices. In particular, a substantial percentage of our sales is derived from end-brand customers, or their designated system integrators, who use our panels in their televisions, which accounted for 42.2%, 40.0% and 34.1% of our total revenue in 2017, 2018 and 2019, respectively. A substantial portion of our sales is also derived from end-brand customers, or their designated system integrators, who use our panels in their notebook computers, which accounted for 8.1%, 11.7% and 11.9% of our total revenue in 2017, 2018 and 2019, respectively, those who use our panels in their desktop monitors, which accounted for 15.8%, 16.6% and 17.2% of our total revenue in 2017, 2018 and 2019, respectively, those who use our panels in their tablet computers, which accounted for 8.5%, 8.2% and 9.6% of our total revenue in 2017, 2018 and 2019, respectively, and those who use our panels in their mobile and other applications, which accounted for 25.4%, 23.5% and 27.2% of our total revenue in 2017, 2018 and 2019, respectively. Although the degree to which our total sales are dependent on sales of television panels has fluctuated in recent years, television panels remain our largest product category in terms of revenue and we will therefore continue to be dependent on continuing demand from the television industry. In addition, we will continue to be dependent on continuing demand from the personal computer industry, the tablet computer industry and the mobile device industry for a substantial portion of our sales. Any downturn in any of those industries in which our customers operate would result in reduced demand for our products, which may in turn result in reduced revenue, lower average selling prices and/or reduced margins.
34
(4) | Changes in Manufacturing Costs and Difficulties in Securing Supply of Raw Material |
If we cannot maintain high capacity utilization rates, our profitability will be adversely affected.
The production of display panels entails high fixed costs resulting from considerable expenditures for the construction of complex fabrication and assembly facilities and the purchase of costly equipment. We aim to maintain high capacity utilization rates so that we can allocate these fixed costs over a greater number of panels produced and realize a higher gross margin. However, due to any number of reasons, including fluctuating demand for our products or overcapacity in the display industry, we may need to reduce production, resulting in lower-than-optimal capacity utilization rates. As such, we cannot provide assurance that we will be able to sustain our capacity utilization rates in the future nor can we provide assurance that we will not reduce our utilization rates in the future as market and industry conditions change.
Limited availability of raw materials, components and manufacturing equipment could materially and adversely affect our business, results of operations or financial condition.
Our production operations depend on obtaining adequate supplies of quality raw materials and components on a timely basis. As a result, it is important for us to control our raw material and component costs and reduce the effects of fluctuations in price and availability. In general, we source most of our raw materials as well as key components, such as glass substrates, driver integrated circuits, polarizers and color filters used in both our TFT-LCD and OLED products, backlight units and liquid crystal materials used in our TFT-LCD products and hole transport materials and emission materials used in our OLED products, from two or more suppliers for each key component. However, we may establish a working relationship with a single supplier if we believe it is advantageous to do so due to performance, quality, support, delivery, capacity, price or other considerations. We may experience shortages in the supply of these key components, as well as other components or raw materials, as a result of, among other things, anticipated capacity expansion in the display industry or our dependence on a limited number of suppliers. Our results of operations would be adversely affected if we were unable to obtain adequate supplies of high-quality raw materials or components in a timely manner or make alternative arrangements for such supplies in a timely manner.
Furthermore, we may be limited in our ability to pass on increases in the cost of raw materials and components to our customers. We do not typically enter into binding long-term contracts with our customers, and even in those cases where we do enter into long-term agreements with certain of our major end-brand customers, the price terms are contained in the purchase orders. Except under certain special circumstances, the price terms in the purchase orders are not subject to change. Prices for our products are generally determined through negotiations with our customers, based generally on the complexity of the product specifications and the labor and technology involved in the design or production processes. However, if we become subject to any significant increase in the cost of raw materials or components that were not anticipated when negotiating the price terms after the purchase orders have been placed, we may be unable to pass on such cost increases to our customers.
We have purchased, and expect to purchase, a substantial portion of our equipment from a limited number of qualified foreign and local suppliers. From time to time, increased demand for new equipment may cause lead times to extend beyond those normally required by the equipment vendors. The unavailability of equipment, delays in the delivery of equipment, or the delivery of equipment that does not meet our specifications, could delay implementation of our expansion plans and impair our ability to meet customer orders. This could result in a loss of revenue and cause financial stress on our operations.
35
(5) | Intangible Assets, Including Intellectual Property, and Research and Development Activities |
Our business relies on our patent rights which may be narrowed in scope or found to be invalid or otherwise unenforceable.
Our success will depend, to a significant extent, on our ability to obtain and enforce our patent rights both in Korea and worldwide. The coverage claimed in a patent application can be significantly reduced before a patent is issued, either in Korea or abroad. Consequently, we cannot provide assurance that any of our pending or future patent applications will result in the issuance of patents. Patents issued to us may be subjected to further proceedings limiting their scope and may not provide significant proprietary protection or competitive advantage. Our patents also may be challenged, circumvented, invalidated or deemed unenforceable. In addition, because patent applications in certain countries generally are not published until more than 18 months after they are first filed, and because publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were, or any of our licensors was, the first creator of inventions covered by pending patent applications, that we or any of our licensors will be entitled to any rights in purported inventions claimed in pending or future patent applications, or that we were, or any of our licensors was, the first to file patent applications on such inventions.
Furthermore, pending patent applications or patents already issued to us or our licensors may become subject to dispute, and any dispute could be resolved against us. For example, we may become involved in re-examination, reissue or interference proceedings and the result of these proceedings could be the invalidation or substantial narrowing of our patent claims. We also could be subject to court proceedings that could find our patents invalid or unenforceable or could substantially narrow the scope of our patent claims. In addition, depending on the jurisdiction, statutory differences in patentable subject matter may limit the protection we can obtain on some of our inventions.
Failure to protect our intellectual property rights could impair our competitiveness and harm our business and future prospects.
We believe that developing new products and technologies that can be differentiated from those of our competitors is critical to the success of our business. We take active measures to obtain international protection of our intellectual property by obtaining patents and undertaking monitoring activities in our major markets. However, we cannot assure you that the measures we are taking will effectively deter competitors from improper use of our proprietary technologies. Our competitors may misappropriate our intellectual property, disputes as to ownership of intellectual property may arise and our intellectual property may otherwise become known or independently developed by our competitors.
Any failure to protect our intellectual property could impair our competitiveness and harm our business and future prospects.
We rely on technology provided by third parties and our business will suffer if we are unable to renew our licensing arrangements with them.
From time to time, we have obtained licenses for patent, copyright, trademark and other intellectual property rights to process and device technologies used in the production of our display panels. We have entered into key licensing arrangements with third parties, for which we have made, and continue to make, periodic license fee payments. In addition, we also have cross-license agreements with certain other third parties. These agreements terminate upon the expiration of the respective terms of the patents.
If we are unable to renew our technology licensing arrangements on acceptable terms, we may lose the legal protection to use certain of the processes we employ to manufacture our products and be prohibited from using those processes, which may prevent us from manufacturing and selling certain of our products, including our key products. In addition, we could be at a disadvantage if our competitors obtain licenses for protected technologies on more favorable terms than we do.
36
In the future, we may also need to obtain additional patent licenses for new or existing technologies. We cannot provide assurance that these license agreements can be obtained or renewed on acceptable terms or at all, and if not, our business and operating results could be adversely affected.
We rely upon trade secrets and other unpatented proprietary know-how to maintain our competitive position in the display panel industry and any loss of our rights to, or unauthorized disclosure of, our trade secrets or other unpatented proprietary know-how could negatively affect our business.
We also rely upon trade secrets, unpatented proprietary know-how and information, as well as continuing technological innovation in our business. The information we rely upon includes price forecasts, core technology and key customer information. We enter into confidentiality agreements with each of our employees and consultants upon the commencement of an employment or consulting relationship. These agreements generally provide that all inventions, ideas, discoveries, improvements and copyrightable material made or conceived by the individual arising out of the employment or consulting relationship and all confidential information developed or made known to the individual during the term of the relationship is our exclusive property. We cannot provide assurance that these types of agreements will be fully enforceable, or that they will not be breached. We also cannot be certain that we will have adequate remedies for any such breach. The disclosure of our trade secrets or other know-how as a result of such a breach could adversely affect our business. Also, our competitors may come to know about or determine our trade secrets and other proprietary information through a variety of methods. Disputes may arise concerning the ownership of intellectual property or the applicability or enforceability of our confidentiality agreements, and there can be no assurance that any such disputes would be resolved in our favor. Furthermore, others may acquire or independently develop similar technology, or if patents are not issued with respect to technologies arising from our research, we may not be able to maintain information pertinent to such research as proprietary technology or trade secrets and that could have an adverse effect on our competitive position within the display panel industry.
We have designated R&D organizations for our research and development activities.
Our research organization consists of the infrastructure technology research center, display research center and designated departments, all of which are overseen by our chief technology officer. The research centers conduct research on differentiated and next-generation technologies and basic infrastructure technology, while our designated departments enhance our competitiveness by conducting research that is geared toward future product development. Our development organization comprises of departments and centers dedicated to the development of a wide range of television, information technology and mobile products, including product-specific circuits, instrument/optics and panel design.
Our research and development related expenditures amounted to
W1,776 billion in 2019, an increase of W19 billion from 2018. This increase is mainly due to the additional research and development activities in new products and technologies for large-sized OLED and plastic OLED panels, for which we expect to continue investing in the future.
The
book value of our intangible assets decreased by W114 billion in 2019 compared to the previous year.
(6) | Sensitivity to Exchange Rates and Inflation |
There has been considerable volatility in foreign exchange rates in recent years, including rates between the Korean Won and the U.S. dollar and between the Korean Won and the Japanese Yen. To the extent that we incur costs in one currency and make sales in another, our profit margins may be affected by changes in the exchange rates between the two currencies.
37
Our sales of display panels are denominated mainly in U.S. dollars, whereas our purchases of raw materials are denominated mainly in U.S. dollars and Japanese Yen. The largest proportion of our expenditures on capital equipment are denominated in U.S. dollars and Chinese Yuan. Accordingly, fluctuations in exchange rates, in particular between the U.S. dollar and the Korean Won, between the Chinese Yuan and the Korean Won as well as between the Japanese Yen and the Korean Won, affect our pre-tax income, and in recent years, the value of the Won relative to the U.S. dollar, Chinese Yuan and Japanese Yen has fluctuated widely. Although a depreciation of the Korean Won against the U.S. dollar increases the Korean Won value of our export sales and enhances the price-competitiveness of our products in foreign markets in U.S. dollar terms, it also increases the cost of imported raw materials and components in Korean Won terms and our cost in Korean Won of servicing our U.S. dollar denominated debt. A depreciation of the Korean Won against the Chinese Yuan or Japanese Yen increases the Korean Won cost of our Chinese Yuan- or Japanese Yen-denominated purchases of equipment, raw materials or components, as applicable, and, to the extent we have any debt denominated in Chinese Yuan or Japanese Yen, our cost in Korean Won of servicing such debt, but has relatively little impact on our sales as most of our sales are denominated in U.S. dollars. In addition, continued exchange rate volatility may also result in foreign exchange losses for us. Although a depreciation of the Korean Won against the U.S. dollar, in general, has a net positive impact on our results of operations that more than offsets the net negative impact caused by a depreciation of the Korean Won against the Chinese Yuan or Japanese Yen, we cannot provide assurance that the exchange rate of the Korean Won against foreign currencies will not be subject to significant fluctuations, or that the impact of such fluctuations will not adversely affect the results of our operations.
(7) | Impairment of Assets |
The carrying amounts of our non-financial assets, other than assets arising from employee benefits, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated. We conduct such impairment review every year.
Due to the commencement of mass production of plastic OLED products in a new independent facility and our decision to discontinue our lighting business given the changes in its business environment, we recognized plastic OLED business and lighting business as separate cash generating units in 2019.
As a result of the determination to discontinue our lighting business and the signs of impairment due to negative developments in the business environment of our plastic OLED business, we tested for impairment of related assets for these cash generating units. The recoverable amount of each cash generating unit was estimated based on its value-in-use, which in turn was calculated based on the pre-tax cash flow estimates in accordance with a five-year business plan approved by our management. Estimates of sales revenue, which reflected outside information and our prior experiences, were incorporated into the applicable period of the cash flow estimates, and our management determined the pre-tax cash flow estimates on the basis of our prior results of operations and its assessment of the expected market growth.
In 2019, the impairment losses on our non-financial assets, which were recognized as other non-operating expenses, include the following:
Description |
2019 | |||||||
Lighting (in millions of Won) |
Plastic OLED (in millions of Won) |
|||||||
Property, plant and equipment |
121,921 | 1,369,371 | ||||||
Intangible assets |
105,344 | 26,284 | ||||||
Other assets |
3,602 | | ||||||
|
|
|
|
|||||
Total |
230,867 | 1,395,655 | ||||||
|
|
|
|
(8) | Changes in Organization and Business Reorganization |
In order to secure the fundamental competitiveness of our businesses and to seek sustainable growth, we are accelerating the transition of our business focus to the OLED business, while simultaneously pursuing activities to restructure our LCD business. While we have implemented certain organizational changes and a voluntary retirement program in connection with such pursuit, our restructuring processes are being pursued from the perspective of constructing the most competitive corporate and business structures rather than simply reducing costs or the size of workforce. As such, we are working towards the goal to meaningfully improve our results of operations by strengthening the competitiveness of our LCD business through focusing on our ability to offer differentiated products and expanding our OLED business to markets that can utilize the inherent value of such products.
38
D. | Liquidity and capital resources |
(1) | Liquidity |
Our main source for the procurement of funds include operations and financing activities. As of December 31, 2018 and 2019, our cash and
cash equivalents amounted to W2,365 billion and W3,336 billion, respectively, and short-term deposits in banks amounted to W78 billion and W79 billion,
respectively. Our primary use of cash has been to fund capital expenditures related to the expansion and improvement of our production capacity with respect to existing and newly developed products, including the construction and ramping-up of new, or in certain cases, expansion or conversion of existing, fabrication facilities and production lines and the acquisition of new equipment. We also use cash flows from operations for our working
capital requirements and servicing our debt payments. We expect our cash requirements for 2020 to be primarily for capital expenditures and repayment of maturing debt.
The details of the consolidated cash and cash equivalents, deposits in banks and other financial assets as of December 31, 2018 and 2019 are as follows:
(Unit: in millions of won)
Description |
2019 | 2018 | ||||||
Current assets |
||||||||
Cash and cash equivalents |
||||||||
Demand deposits |
3,336,003 | 2,365,022 | ||||||
Deposits in banks |
||||||||
Time deposits |
1,500 | 4,318 | ||||||
Restricted cash (1) |
77,257 | 74,082 | ||||||
Derivative assets (2) |
34,036 | 13,059 | ||||||
Government bonds |
6 | 106 | ||||||
Deposits |
9,585 | 17,020 | ||||||
Short-term loans |
21,623 | 16,116 | ||||||
Lease receivables |
5,695 | | ||||||
|
|
|
|
|||||
Total current assets |
3,485,705 | 2,489,723 | ||||||
|
|
|
|
|||||
Non-current assets |
||||||||
Deposits in banks |
||||||||
Restricted cash (1) |
11 | 11 | ||||||
Financial assets at fair value through profit or loss |
| | ||||||
Equity securities |
9,879 | 13,681 | ||||||
Convertible bonds |
1,544 | 1,327 | ||||||
Derivative assets (2) |
15,640 | | ||||||
Government bonds |
70 | 55 | ||||||
Deposits |
21,451 | 74,103 | ||||||
Long-term loans |
40,827 | 55,048 | ||||||
Lease receivables |
22,099 | | ||||||
|
|
|
|
|||||
Total non-current assets |
111,521 | 144,225 | ||||||
|
|
|
|
|||||
Total |
3,597,226 | 2,633,948 | ||||||
|
|
|
|
(1) | Restricted cash includes mutual growth fund to aid LG Groups suppliers, pledge to enforce investment plans following receipt of subsidies from Gumi city and Gyeongsangbuk-do and others. |
(2) | Represents derivatives that have not been recognized as hedging instruments, which have resulted from currency interest rate swap contracts related to foreign currency denominated borrowings and foreign currency denominated bonds. |
39
(Unit: in millions of won)
Description |
2019 | 2018 | Changes | |||||||||||||
Amount | Percentage | |||||||||||||||
Current assets |
10,248,315 | 8,800,127 | 1,448,188 | 16.5 | % | |||||||||||
Current liabilities |
10,984,976 | 9,954,483 | 1,030,493 | 10.4 | % | |||||||||||
Net current assets |
(736,661 | ) | (1,154,356 | ) | 417,695 | 36.2 | % |
As of December 31, 2018, our current assets and current liabilities amounted to
W8,800 billion and W9,954 billion, respectively, resulting in net current liabilities of W1,154 billion. As of December 31, 2019, our current assets and current liabilities
amounted to W10,248 billion and W10,985 billion, respectively, resulting in net current liabilities of W737 billion.
(2) | Financial liabilities and capital resources |
We need to observe certain financial and other covenants under the terms of our debt obligations, the failure to comply with which would put us in default under such debt obligations.
We are subject to financial and other covenants, including maintenance of credit ratings and debt-to-equity ratios, under certain of our debt obligations. The documentation for such debt also contains negative pledge provisions limiting our ability to provide liens on our assets as well as cross-default and cross-acceleration clauses, which give related creditors the right to accelerate the amounts due under such debt if an event of default or acceleration has occurred with respect to our existing or future indebtedness, or if any material part of our indebtedness or indebtedness of our subsidiaries is capable of being declared payable before the stated maturity date. In addition, such covenants restrict our ability to raise future debt financing.
If we breach the financial or other covenants contained in the documentation governing our debt obligations, our financial condition will be adversely affected to the extent we are not able to cure such breaches, obtain a waiver from the relevant lenders or debtholders or repay the relevant debt.
As of December 31, 2019, we had agreements with several banks for accounts receivable sales negotiating facilities of up to an aggregate of USD 1,360 million in connection with our export sales transactions, and our subsidiaries also have various such arrangements.
As
of December 31, 2018, no short-term borrowings were outstanding. As of December 31, 2019, W697 billion of short-term borrowings were outstanding.
As of December 31, 2019, our long-term borrowings, including the current portion of long-term debt and the discount on bonds, amounted to
W12,784 billion, which mainly consist of bonds denominated in Won of W3,151 billion, long-term debt denominated in foreign currencies of W6,302 billion and long-term debt denominated
in Won of W3,331 billion.
Some of our long-term borrowings may include covenants with acceleration rights. If an event of default occurs from failure to comply with the agreed financial ratios or cross-default occurs as a result of a breach of other debt obligations, the principal amount and interest may be subject to early repayment. As of December 31, 2019, we have complied with applicable financial and other covenants contained in the documentation governing our debt obligations.
40
Our financial liabilities and capital resources are as follows:
(a) | Financial liabilities |
Our financial liabilities amounted to W13,590 billion in 2019, representing an increase of
W5,006 billion from 2018.
(Unit: in millions of won)
Description |
2019 | 2018 | ||||||
Current financial liabilities |
| |||||||
Short-term borrowings |
696,793 | | ||||||
Current portion of long-term borrowings |
1,242,904 | 1,553,907 | ||||||
Lease liabilities |
37,387 | | ||||||
Sub-total |
1,977,084 | 1,553,907 | ||||||
Non-current financial liabilities |
| |||||||
Won denominated borrowings |
2,692,560 | 2,700,608 | ||||||
Foreign currency denominated borrowings |
6,107,117 | 2,531,663 | ||||||
Bonds |
2,741,516 | 1,772,599 | ||||||
Derivatives(*) |
20,592 | 25,758 | ||||||
Lease liabilities |
51,125 | | ||||||
|
|
|
|
|||||
Sub-total |
11,612,910 | 7,030,628 | ||||||
|
|
|
|
|||||
Total |
13,589,994 | 8,584,535 | ||||||
|
|
|
|
(*) | Represents derivatives that have not been recognized as hedging instruments and have resulted from currency interest rate swap contracts entered into in order to manage risks arising from foreign currency denominated borrowings and foreign currency denominated bonds. |
(b) | Capital resources |
Set forth below are the details of our procurement of funds as of December 31, 2019.
(Unit: In millions of Won or millions of other currency)
Categories |
Interest rate as of December 31, 2019 (%) |
2019 | 2018 | |||||||
Short-term borrowings |
12-month LIBOR + 0.78~0.88 | 347,340 | | |||||||
3-month LIBOR + 0.80~0.90 | 61,613 | | ||||||||
PBOC(*) * 1.05 PBOC(*) 0.05 |
|
287,840 (US$353, CNY1,737 |
) |
| ||||||
|
|
|
|
|||||||
Subtotal | 696,793 | | ||||||||
|
|
|
|
|||||||
Long-term borrowings denominated in Won |
2.75 | 608 | 1,259 | |||||||
CD(**) interest rate (91 days) + 1.00~1.39, 2.21~3.25 |
3,330,000 | 2,850,000 | ||||||||
Less: current portion | (638,048 | ) | (150,651 | ) | ||||||
|
|
|
|
|||||||
Subtotal | 2,692,560 | 2,700,608 | ||||||||
|
|
|
|
|||||||
Long-term borrowings denominated in foreign currencies |
3-month LIBOR + 0.75~1.70 / 6-month LIBOR + 1.25~1.35 |
1,696,177 | 955,975 | |||||||
US$: 3-month LIBOR + 0.80~1.43 / CNY: PBOC * (0.95~1.05) |
|
4,606,094 (US$2,767, CNY18,699 |
) |
|
2,419,286 (US$2,262, CNY5,198 |
) | ||||
Less: current portion | (195,154 | ) | (843,598 | ) | ||||||
|
|
|
|
|||||||
Subtotal | 6,107,117 | 2,531,663 | ||||||||
|
|
|
|
41
Categories |
Interest rate as of December 31, 2019 (%) |
2019 | 2018 | |||||||
Bonds denominated in Won |
1.95~2.95 | 1,730,000 | 1,900,000 | |||||||
3.25~4.25 | 110,000 | 110,000 | ||||||||
Less: original issue discount | (3,404 | ) | (3,949 | ) | ||||||
Less: current portion | (409,702 | ) | (559,658 | ) | ||||||
|
|
|
|
|||||||
Subtotal | 1,426,894 | 1,446,393 | ||||||||
|
|
|
|
|||||||
Bonds denominated in foreign currencies |
3.88 | |
347,340 (US$300 |
) |
|
335,430 (US$300 |
) | |||
3-month LIBOR + 1.47 | |
115,780 (US$100 |
) |
| ||||||
Less: original issue discount | (6,883 | ) | (9,224 | ) | ||||||
|
|
|
|
|||||||
Subtotal | 456,237 | 326,206 | ||||||||
|
|
|
|
|||||||
Financial liabilities at fair value through profit or loss (Foreign currency convertible bonds) |
1.50 | |
858,385 (US$741 |
) |
| |||||
|
|
|
|
|||||||
Total |
2,741,516 | 1,772,599 | ||||||||
|
|
|
|
(*) Represents the Peoples Bank of Chinas base rate.
(**) Represents certificates of deposit.
Set forth below are the details of our convertible bonds as of December 31, 2019.
Categories |
Content | |
Type of bond |
Registered unsecured foreign currency-denominated convertible bonds | |
Issue amount |
US$687,800,000 | |
Annual interest rate (%) |
1.50 | |
Issue date |
August 22, 2019 | |
Maturity date |
August 22, 2024 | |
Interest payment |
Payable semi-annually in arrear until maturity date in equal installments | |
Principal redemption |
1. Redemption at maturity:
Redeemed on the maturity date, at their outstanding principal amount, which has not been redeemed early or converted
2. Early redemption:
Payment of the principal and interest accrued up to the expected repayment date upon the exercise of the companys call option or the bondholders put option | |
Conversion price |
||
Conversion period |
August 23, 2020 ~ August 12, 2024 | |
Redemption at the option of the issuer (Call option) |
On or at any time after three years from the issue date, if the closing price of our common shares for any 20 trading days out of the 30 consecutive trading days is at least 130% of the applicable conversion price;
The aggregate principal amount of the convertible bonds outstanding is less than 10% of the aggregate principal amount originally issued; or
In the event of certain changes in laws and other directives resulting in additional taxes | |
Redemption at the option of the bondholders (Put option) |
On the date which is three years from the issue date |
42
We designated the convertible bonds as financial liabilities at fair value through profit of loss and recognized the change in its fair value in our income statement. We measure the fair value of the convertible bonds using the market price of convertible bonds disclosed on Bloomberg. Set forth below is certain information regarding our common shares subject to conversion under the terms of the convertible bonds as of December 31, 2019:
Categories |
2019 | |
Aggregate outstanding amount of the convertible bonds |
| |
Conversion price |
| |
Number of common shares subject to conversion |
40,988,998 shares |
Set forth below are the cash flows on our borrowings by maturity.
(Unit: In millions of Won or millions of other currency)
Categories |
Book value | Contractual cash flows | ||||||||||||||||||||||||||
Total | Within 6 months |
6~12 months |
1~2 years | 2~5 years | Over 5 years |
|||||||||||||||||||||||
Borrowings |
10,329,671 | 11,514,568 | 1,174,941 | 723,363 | 2,173,444 | 6,471,876 | 970,944 | |||||||||||||||||||||
Bonds |
3,151,218 | 3,306,729 | 297,649 | 184,878 | 908,281 | 1,780,014 | 135,907 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
13,480,889 | 14,821,297 | 1,472,590 | 908,241 | 3,081,725 | 8,251,890 | 1,106,851 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) | Cash usage |
Our management constantly monitors our working capital, and we have historically been able to satisfy our cash requirements from cash flows from operations and debt financing. Although we had a working capital deficit as of December 31, 2019, we believe that we have sufficient working capital for our present requirements.
Our ability to satisfy our cash requirements from cash flows from operations and financing activities will be affected by our ability to maintain and improve our margins and, in the case of external financing, market conditions, which in turn may be affected by several factors outside of our control. Therefore, we re-evaluate our capital requirements regularly in light of our cash flows from operations, the progress of our expansion plans and market conditions. To the extent that we do not generate sufficient cash flows from our operations to meet our capital requirements, we may rely on other financing activities, such as external long-term borrowings and securities offerings, including the issuance of equity, equity-linked and other debt securities.
Our net cash from operating activities amounted to W4,484 billion in 2018 and W2,707 billion in
2019. The decrease in net cash provided by operating activities in 2019 compared to 2018 was mainly due to changes in net profit.
Our net
cash used in investing activities amounted to W7,675 billion in 2018 and W6,755 billion in 2019. Net cash used in investing activities primarily reflected the expansion and conversion of our existing
production facilities and construction of our new facilities centered on OLED products. These cash outflows from capital expenditures amounted to W7,942 billion in 2018 and W6,927 billion in 2019. We
intend to fund our capital requirements associated with our expansion and construction projects with cash flows from operations and financing activities, such as external long-term borrowings.
We currently expect that, in 2020, our total capital expenditures on a cash out basis will be lower compared to 2019 and will be used primarily to continue to fund our previously announced investments related to facilities for OLED panels. However, our overall expenditure levels and our allocation among projects are subject to many uncertainties. We review the amount of our capital expenditures and may make adjustments from time to time based on cash flows from operations, the progress of our expansion plans and market conditions.
Our net cash provided by financing activities amounted to W2,953 billion in 2018 and
W4,988 billion in 2019. The net cash provided by financing activities in 2018 and 2019 reflect primarily an increase in long-term borrowings.
43
(Unit: In millions of Won)
Description |
2019 | 2018 | Changes | |||||||||
Net cash provided by operating activities |
2,706,545 | 4,484,123 | (1,777,578 | ) | ||||||||
Net cash used in investing activities |
(6,755,393 | ) | (7,675,339 | ) | 919,946 | |||||||
Net cash provided by financing activities |
4,987,902 | 2,952,919 | 2,034,983 | |||||||||
Cash and cash equivalents at December 31, |
3,336,003 | 2,365,022 | 970,981 |
16. | Board of Directors |
A. | Members of the board of directors |
As of the date of this report, our board of directors consisted of two non-outside directors, one non-standing director and four outside directors.
(As of the date of this report)
Name |
Position |
Primary responsibility | ||
James (Hoyoung) Jeong(1) | Representative Director (non-outside), Chief Executive Officer and President | Overall head of business management | ||
Donghee Suh(2) | Director (non-outside), Chief Financial Officer and Senior Vice President | Overall head of finances | ||
Young-Soo Kwon | Director (non-standing) | Chairman of the board of directors | ||
Sung-Sik Hwang | Outside Director | Related to the overall management | ||
Kun Tai Han | Outside Director | Related to the overall management | ||
Byung Ho Lee | Outside Director | Related to the overall management | ||
Chang-Yang Lee | Outside Director | Related to the overall management |
(1) | James (Hoyoung) Jeong was newly appointed as a non-outside director at the annual general meeting of shareholders and as the representative director at the board of directors meeting, both held on March 20, 2020. |
(2) | Donghee Suh was reappointed for another term as a non-outside director at the annual general meeting of shareholders held on March 20, 2020. |
44
B. | Committees of the board of directors |
We have the following committees that serve under our board of directors: Audit Committee, Outside Director Nomination Committee and Management Committee. The Management Committee consists of two non-outside directors, James (Hoyoung) Jeong and Donghee Suh.
As of March 20, 2020, the composition of the Outside Director Nomination Committee was as follows.
(As of March 20, 2020)
Committee |
Composition |
Member | ||
Outside Director Nomination Committee(1) |
1 non-standing director and 2 outside directors | Young-Soo Kwon, Kun Tai Han, Chang-Yang Lee |
(1) | Each of Young-Soo Kwon, Kun Tai Han, Chang-Yang Lee was appointed as a member of the outside director nomination committee of the board of directors at the board of directors meeting on March 20, 2020. |
As of the date of this report, the composition of the Audit Committee was as follows.
(As of the date of this report)
Committee |
Composition |
Member | ||
Audit Committee |
3 outside directors | Sung-Sik Hwang(1), Kun Tai Han, Chang-Yang Lee(2) |
(1) | Sung-Sik Hwang is the audit committee chairman. |
(2) | Chang-Yang Lee was newly appointed as an audit committee member at the annual general meeting of shareholders held on March 15, 2019. |
C. | Independence of directors |
Directors are appointed in accordance with the procedures of the Commercial Act and other relevant laws and regulations. Our board of directors is independent as four out of the seven directors that comprise the board are outside directors. Outside directors candidates are nominated for appointment at a shareholders meeting after undergoing rigorous review by the Outside Director Nomination Committee.
All of our current outside directors were nominated by the Outside Director Nomination Committee, and all of our current non-outside directors were nominated by the board of directors.
45
17. | Information Regarding Shares |
A. | Total number of shares |
(1) | Total number of shares authorized to be issued (as of December 31, 2019): 500,000,000 shares. |
(2) | Total shares issued and outstanding (as of December 31, 2019): 357,815,700 shares. |
B. | Shareholder list |
(1) | Largest shareholder and related parties as of December 31, 2019: |
Name |
Relationship |
Number of shares of common stock |
Equity interest |
|||||||
LG Electronics |
Largest shareholder | 135,625,000 | 37.9 | % | ||||||
Sang Beom Han |
Officer of member company | 54,000 | 0.0 | % | ||||||
Donghee Suh |
Officer of member company | 5,000 | 0.0 | % |
(2) | Shareholders who are known to us that own 5% or more of our shares as of December 31, 2019: |
Beneficial owner |
Number of shares of common stock |
Equity interest | ||
LG Electronics |
135,625,000 | 37.90% | ||
National Pension Service |
28,115,952 | 7.86% |
18. | Directors and Employees |
A. | Directors |
(1) | Remuneration for directors in 2019: |
(Unit: person, in millions of Won)
Classification |
No. of directors(1) | Amount paid(2) | Per capita average remuneration paid(3) |
|||||||||
Non-outside directors |
3 | 1,899 | 633 | |||||||||
Outside directors who are not audit committee members |
1 | 78 | 78 | |||||||||
Outside directors who are audit committee members |
3 | 241 | 80 | |||||||||
|
|
|
|
|
|
|||||||
Total |
7 | 2,218 | (4) | 317 | ||||||||
|
|
|
|
|
|
(1) | Number of directors as at December 31, 2019. |
(2) | Amount paid is calculated on the basis of amount of cash actually paid. |
(3) | Per capita average remuneration paid is calculated by dividing total amount paid by the average number of directors for the year ended December 31, 2019. |
(4) | As Joon Park resigned as an outside director on March 14, 2019 and Chang Yang Lee was appointed as an outside director at the annual general meeting of shareholders held on March 15, 2019, the total amount paid includes remuneration paid to both Mr. Park and Mr. Lee. |
46
(2) | Standards of remuneration paid to non-outside and outside directors |
| Non-outside directors (excluding outside directors and audit committee members) |
The remuneration system for non-outside directors consists of base salary, position salary and performance-related pay. The remuneration for non-outside directors is measured in accordance with the standards established by the board of directors (within the amount approved at the annual general meeting of shareholders), including the non-outside directors position and job responsibilities.
| Standards for base salary/position salary: relevant position and job responsibilities, among others |
| Standards for performance-related pay: financial performance of the company and achievement of individual management goals, among others |
| Outside directors, audit committee members and auditor |
The remuneration for outside directors, audit committee members and auditor is measured in accordance with the standards established by the board of directors (within the amount approved at the annual general meeting of shareholders), including the individuals job responsibilities, among others.
(3) | Remuneration for individual directors and audit committee members |
| Individual amount of remuneration paid in 2019 |
(Unit: in millions of Won)
Name |
Position | Total remuneration | Payment not included in total remuneration | |||
Sang Beom Han |
Former Chief Executive Officer | 1,541 | |
| Method of calculation |
Name |
Method of calculation | |
Sang Beom Han | Total remuneration
Salary
Base salary is set in accordance with the executive compensation regulations established by the
board of directors. Monthly payments of
Position salary is calculated based on the significance of the position and responsibilities of
the job. Monthly payments of
A total of |
47
(4) | Remuneration for the five highest paid individuals (among those paid over |
| Individual remuneration amount |
(Unit: in millions of Won)
Name |
Position | Total remuneration | Payment not included in total remuneration |
|||||||
Sang Beom Han | Former Chief Executive Officer | 1,541 | | |||||||
Yong Kee Hwang | Senior Advisor | 3,079 | | |||||||
Yu Seoung Yin | Advisor | 1,826 | | |||||||
Soo Youle Cha | Advisor | 1,793 | | |||||||
Yong Bum Kim | Former Vice President | 753 | |
| Method of calculation |
Name |
Method of calculation | |
Sang Beom Han | Total remuneration
Salary
Base salary is set in accordance with the executive compensation regulations established by the
board of directors. Monthly payments of
Position salary is calculated based on the significance of the position and responsibilities of
the job. Monthly payments of
A total of
| |
Yong Kee Hwang(1) | Total remuneration
Salary
Base salary is set in
accordance with the executive compensation regulations established by the board of directors. Monthly payments of
A total of
Retirement pay
Retirement pay is calculated in accordance with the applicable provisions of our regulations on compensation for retiring executives and is evaluated by the duration of employment (14 years), monthly base salary at the time of retirement and payment rate per position (2.5 to 4.5%).
|
48
Yu Seoung Yin(1) | Total remuneration
Salary
Base salary is set in
accordance with the executive compensation regulations established by the board of directors. Monthly payments of
A total of
Retirement pay
Retirement pay is calculated in accordance with the applicable provisions of our regulations on compensation for retiring executives and is evaluated by the duration of employment (16 years), monthly base salary at the time of retirement and payment rate per position (2.5 to 4.5%).
| |
Soo Youle Cha(1) | Total remuneration
Salary
Base salary is set in accordance with the executive compensation regulations established by the
board of directors. Monthly payments of
A total of
Retirement pay
Retirement pay is calculated in accordance with the applicable provisions of our regulations on compensation for retiring executives and is evaluated by the duration of employment (15 years), monthly base salary at the time of retirement and payment rate per position (2.5 to 4.5%).
|
49
Yong Bum Kim(2) | Total remuneration
Salary
Base salary is set in accordance with the executive compensation regulations established by the
board of directors. Monthly payments of
Position salary is calculated based on the significance of the position and responsibilities of
the job. Monthly payments of
A total of
Other earned income
A total of
Retirement pay
Retirement pay is calculated in accordance with the applicable provisions of our regulations on compensation for retiring executives and is evaluated by the duration of employment (4 years), monthly base salary at the time of retirement and payment rate per position (2.5 to 4.5%). |
(1) | Mssrs. Yong Kee Hwang, Yu Seoung Yin and Soo Youle Cha are former officers who retired from our company effective as of March 31, 2019. |
(2) | Yong Bum Kim is a former officer who retired from our company effective as of August 10, 2019. |
(5) | Stock options |
Not applicable.
B. | Employees |
As of December 31, 2019, we had 26,665 employees (excluding our directors). On average, our male employees have served 10.9 years and our
female employees have served 8.9 years. The total amount of salary paid to our employees for the year ended December 31, 2019 based on income tax statements submitted to the Korean tax authority in accordance with Article 20 of the Income Tax
Act was W1,683,311 million for our male employees and W292,400 million for our female employees. The following table provides details of our employees as of December 31, 2019:
(Unit: person, in millions of Won, year)
Number of employees(1) |
Total salary in 2019(2)(3)(4) |
Average salary per capita(5) |
Average years of service |
|||||||||||||
Male |
22,362 | 1,683,311 | 72 | 10.9 | ||||||||||||
Female |
4,270 | 292,400 | 53 | 8.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
26,632 | 1,975,712 | 68 | 10.6 | ||||||||||||
|
|
|
|
|
|
|
|
50
(1) | Includes part-time employees hired for temporary needs or to serve as temporary replacements for employees on parental leave. |
(2) | Welfare benefits and retirement expenses have been excluded. Total welfare benefit provided to our employees
for the year ended December 31, 2019 was |
(3) | Based on income tax statements, which are submitted to the Korean tax authority in accordance with Article 20 of the Income Tax Act. |
(4) | Includes incentive payments to employees who have transferred from our affiliated companies. |
(5) | Calculated using the cumulative salary and the average number of employees (male: 23,394, female: 5,479) for the year ended December 31, 2019. |
In December 2017, we were audited by the Ministry of Employment and Labor
regarding our human resource practices (including in relation to employment contracts, hours of work, outsourcing and employees in pregnancy), and we were found to be in violation of certain provisions of the Labor Standard Act relating to overtime,
night and holiday work. As a result, we were issued a corrective order in January 2018 and paid additional overtime wages of W2,893 million to 16,106 administrative employees of our Paju facilities for their nighttime work
between January 1, 2015 to December 31, 2017. In addition, we reviewed nighttime work records of our administrative employees outside of our Paju facilities during the same period and paid additional overtime wages of
W2,166 million to eligible employees. In order to prevent such violation from occurring again, we are periodically monitoring the nighttime work records of our employees.
From December 2017 to January 2018, we were audited by the Ministry of Employment and Labor regarding our human resource practices relating to
temporary and part-time employees, and we were found to have omitted certain required information (including the number of break hours and vacation days) in the employment contracts of 82 temporary employees. As a result, we were assessed a fine of
W27 million, which we subsequently paid. In order to prevent such violation from occurring again, we have amended the relevant provisions of the applicable employment contracts.
19. | Other Matters |
A. | Legal proceedings |
We are a defendant in three separate civil lawsuits (comprising one damages claim in the United Kingdom filed by private plaintiffs, one damages claim in Israel filed by private plaintiffs and one unjust enrichment claim in the United States filed by the Commonwealth of Puerto Rico) filed against us and certain other TFT-LCD panel manufacturers in connection with alleged anticompetitive behavior of the defendants. In each of these cases, the amount being sought has not been determined, and no trial has been scheduled. While the expected outcome of each of these cases is unclear, we do not believe that any of these cases would have a material effect on our financial conditions. In August 2019, we also settled a civil lawsuit that was filed against us and certain other TFT-LCD panel manufacturers in connection with alleged anticompetitive behavior of the defendants by certain plaintiffs in the United Kingdom.
We are also a defendant in two patent infringement lawsuits (one in the United States and the other in Germany) filed against us by Solas OLED Ltd. In each of these cases, the amount being sought has not been determined. A court hearing has been scheduled for each of these cases for May 2020. The expected outcome of each of these cases is currently unclear.
B. | Material events subsequent to the reporting period |
None.
C. | Material change in management |
At our annual general meeting of shareholders held on March 20, 2020, Mr. Sang Beom Han resigned as a non-outside director, Mr. James (Hoyoung) Jeong was newly appointed as a non-outside director and Donghee Suh was reappointed for another term as a non-outside director. At our meeting of the board of directors held on March 20, 2020, Mr. James (Hoyoung) Jeong was appointed as our Representative Director.
51
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Financial Statements
For the Years Ended December 31, 2019 and 2018
(With Independent Auditors Report Thereon)
52
Based on a report originally issued in Korean
To the Board of Directors and Shareholders
LG Display Co., Ltd.:
Opinion
We have audited the accompanying consolidated financial statements of LG Display Co., Ltd. and its subsidiaries (the Group), which comprise the consolidated statements of financial position of the Group as of December 31, 2019 and 2018, the related consolidated statements of comprehensive loss, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements comprising significant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean International Financial Reporting Standards (K-IFRS).
Basis for Opinion
We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements as of and for the year ended December 31, 2019. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
(i) | Assessment of impairment of non-financial assets including goodwill |
As discussed in Notes 3 (k), 9 and 10, Groups non-financial assets, including goodwill
amounts to W22,961,093 million as of December 31, 2019. Due to the significant changes in the Groups business during 2019, the Group determined that a change in its cash generating units (CGU) is
appropriate. As a result, the Groups CGU was changed from a single CGU to three CGUs, namely Display, Display (AD PO) and Lighting, with goodwill allocated to Display and Lighting CGUs, respectively. For CGUs to which goodwill is allocated,
the Group performs impairment test on an annual basis regardless of whether an indicator for impairment exists. For CGUs to which goodwill is not allocated, the Group performs impairment test when there is an indication of impairment. The
recoverable amount used in impairment tests as of December 31, 2019 is value in use based on discounted cash flow model which uses the expected future cash flows including assumptions that involved a high degree of management judgment. In 2019,
the Group recognized impairment losses of W1,395,655 million and W230,867 million for the Display (AD PO) CGU and Lighting CGU, respectively.
We identified the assessment of impairment of non-financial assets including goodwill as a key audit matter. Determination of change in CGUs as well as allocation of assets among different CGUs require managements significant judgment. In addition, for the CGUs of Display and Display (AD PO), revenue and operating expense forecasts over the period which management projected, growth rates for subsequent years (terminal growth rate) and discount rate used to estimate value in use were challenging to test as minor changes to those assumptions would have a significant effect on the Groups assessment whether goodwill and machinery and equipment were impaired.
54
The primary procedures we performed to address this key audit matter included:
| We tested certain internal controls over the Groups non-current assets impairment assessment process, including controls related to determination of cash generating units, and the development of revenue and operating expenses forecast, terminal growth rate and discount rate assumptions. |
| We evaluated the factors considered in the Groups determination CGUs against supporting evidence. |
| We verified the accuracy of allocation of Groups assets including corporate assets and goodwill to each CGU. |
| We compared the Groups historical revenue forecasts to actual results to assess the Groups ability to accurately forecast. |
| We evaluated the revenue forecasts and operating expense used to determine the value in use by comparison with the financial budgets approved by the board of directors. |
| We performed sensitivity analysis over the terminal growth rate and discount rate assumptions to assess their impact on the Groups impairment assessment. |
| We involved our valuation professionals with specialized skills and knowledge who assisted us in evaluating the appropriateness of the discounted cash flow model used by management, the discount rate by checking the source information underlying the determination of the discount rates, and testing the mathematical accuracy of the calculation. |
(ii) | Assessment of recoverability of deferred tax assets in Korea |
As discussed in Note 24 to the consolidated financial statements, the Group had W1,715,912 million of deferred tax assets and
W549,056 million of unrecognized tax benefit as of December 31, 2019, primarily related to Korea. The deferred tax assets arise primarily due to differences between financial statement carrying amounts of existing assets
and liabilities and their respective tax bases, as well as, unused tax losses and tax credit carryforwards. The assessment of the realizability of these deferred tax assets is dependent on the generation of future taxable income of the Group.
Changes in assumptions regarding forecasted taxable income could have a significant impact on the amount of deferred tax assets recognized and unrecognized tax benefit.
We identified the assessment of the realizability of the deferred tax assets as a key audit matter because it involves high degree of subjective auditor judgment in assessing the significant assumptions and judgments that are reflected in estimating future taxable profits over the periods in which the above mentioned differences become deductible, or within the periods before the unused tax losses and tax credit forwards expire. This subjectivity is primarily driven by the Groups assumptions in revenue and operating expense, which are used to estimate the forecasted taxable income in the future.
The primary procedures we performed to address this key audit matter included:
| We tested certain internal controls relating to the Groups deferred tax assets realizability assessment process, including controls related to the development of assumptions in determining the forecasted taxable income for each year. |
| We evaluated the Groups estimates of revenue and operating expense, by comparing them with the financial budgets approved by the board of directors and historical performance. |
| We compared the forecasts of taxable income and timing of utilization of deferred tax assets in prior year to actual results to assess the Groups ability to accurately forecast. |
| We also evaluated the Groups history of realizing deferred tax assets by evaluating the expiration of unused tax losses |
| We involved tax professionals with specialized skills and knowledge who assisted in assessing the Groups tax adjustments and feasibility of planned tax strategies affecting deferred tax. |
Other matter
The procedures and practices utilized in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with K-IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing these consolidated financial statements, management is responsible for assessing the Groups ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Groups financial reporting process.
55
Auditors Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether theses consolidated financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
| Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. |
| Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Groups internal control |
| Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
| Conclude on the appropriateness of managements use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Groups ability to continue as a going concern. If we conclude that a material uncertainty exists, then we are required to draw attention in our auditors report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Group to cease to continue as a going concern. |
| Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
| Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. |
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditors report is Sang Hyun Han.
56
KPMG Samjong Accounting Corp.
Seoul, Korea
March 11, 2020
This report is effective as of March 11, 2020, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.
57
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Financial Position
As of December 31, 2019 and 2018
(In millions of won) | Note | December 31, 2019 | December 31, 2018 | |||||||||
Assets |
||||||||||||
Cash and cash equivalents |
4, 26 | 2,365,022 | ||||||||||
Deposits in banks |
4, 26 | 78,757 | 78,400 | |||||||||
Trade accounts and notes receivable, net |
5, 14, 26, 29 | 3,154,080 | 2,829,163 | |||||||||
Other accounts receivable, net |
5, 26 | 474,048 | 169,313 | |||||||||
Other current financial assets |
6, 26 | 70,945 | 46,301 | |||||||||
Inventories |
7 | 2,051,155 | 2,691,203 | |||||||||
Prepaid income taxes |
114,143 | 4,516 | ||||||||||
Non-current assets held for sale |
31 | | 70,161 | |||||||||
Other current assets |
5 | 969,184 | 546,048 | |||||||||
|
|
|
|
|||||||||
Total current assets |
10,248,315 | 8,800,127 | ||||||||||
Deposits in banks |
4, 26 | 11 | 11 | |||||||||
Investments in equity accounted investees |
8 | 109,611 | 113,989 | |||||||||
Other non-current accounts receivable, net |
5, 26 | 9,072 | 11,448 | |||||||||
Other non-current financial assets |
6, 26 | 111,510 | 144,214 | |||||||||
Property, plant and equipment, net |
9, 17, 27 | 22,087,645 | 21,600,130 | |||||||||
Intangible assets, net |
10, 17 | 873,448 | 987,642 | |||||||||
Deferred tax assets |
24 | 1,727,122 | 1,136,166 | |||||||||
Employee benefits assets, net |
12 | 127,252 | | |||||||||
Other non-current assets |
5 | 280,577 | 381,983 | |||||||||
|
|
|
|
|||||||||
Total non-current assets |
25,326,248 | 24,375,583 | ||||||||||
|
|
|
|
|||||||||
Total assets |
33,175,710 | |||||||||||
|
|
|
|
|||||||||
Liabilities |
||||||||||||
Trade accounts and notes payable |
26, 29 | 3,087,461 | ||||||||||
Current financial liabilities |
11, 26, 27 | 1,977,084 | 1,553,907 | |||||||||
Other accounts payable |
26 | 4,397,121 | 3,566,629 | |||||||||
Accrued expenses |
675,270 | 633,346 | ||||||||||
Income tax payable |
120,034 | 105,900 | ||||||||||
Provisions |
13 | 189,525 | 98,254 | |||||||||
Advances received |
14 | 925,662 | 834,010 | |||||||||
Other current liabilities |
13 | 82,019 | 74,976 | |||||||||
|
|
|
|
|||||||||
Total current liabilities |
10,984,976 | 9,954,483 | ||||||||||
Non-current financial liabilities |
11, 26, 27 | 11,612,910 | 7,030,628 | |||||||||
Non-current provisions |
13 | 67,118 | 32,764 | |||||||||
Defined benefit liabilities, net |
12 | 1,338 | 45,360 | |||||||||
Long-term advances received |
14 | 320,582 | 1,114,316 | |||||||||
Deferred tax liabilities |
24 | 11,210 | 15,087 | |||||||||
Other non-current liabilities |
13 | 88,148 | 96,826 | |||||||||
|
|
|
|
|||||||||
Total non-current liabilities |
12,101,306 | 8,334,981 | ||||||||||
|
|
|
|
|||||||||
Total liabilities |
23,086,282 | 18,289,464 | ||||||||||
|
|
|
|
|||||||||
Equity |
||||||||||||
Share capital |
15 | 1,789,079 | 1,789,079 | |||||||||
Share premium |
2,251,113 | 2,251,113 | ||||||||||
Retained earnings |
7,503,312 | 10,239,965 | ||||||||||
Reserves |
15 | (203,021 | ) | (300,968 | ) | |||||||
|
|
|
|
|||||||||
Total equity attributable to owners of the Controlling Company |
11,340,483 | 13,979,189 | ||||||||||
|
|
|
|
|||||||||
Non-controlling interests |
1,147,798 | 907,057 | ||||||||||
|
|
|
|
|||||||||
Total equity |
12,488,281 | 14,886,246 | ||||||||||
|
|
|
|
|||||||||
Total liabilities and equity |
33,175,710 | |||||||||||
|
|
|
|
See accompanying notes to the consolidated financial statements.
58
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Loss
For the years ended December 31, 2019 and 2018
(In millions of won, except earnings per share) | Note | 2019 | 2018 | |||||||||
Revenue |
16, 17, 29 | 24,336,571 | ||||||||||
Cost of sales |
7, 18, 29 | (21,607,240 | ) | (21,251,305 | ) | |||||||
|
|
|
|
|||||||||
Gross profit |
1,868,327 | 3,085,266 | ||||||||||
Selling expenses |
19 | (1,057,753 | ) | (832,963 | ) | |||||||
Administrative expenses |
19 | (947,978 | ) | (938,214 | ) | |||||||
Research and development expenses |
(1,221,978 | ) | (1,221,198 | ) | ||||||||
|
|
|
|
|||||||||
Operating profit (loss) |
(1,359,382 | ) | 92,891 | |||||||||
|
|
|
|
|||||||||
Finance income |
22 | 276,732 | 254,131 | |||||||||
Finance costs |
22 | (443,247 | ) | (326,893 | ) | |||||||
Other non-operating income |
21 | 1,267,251 | 1,003,038 | |||||||||
Other non-operating expenses |
21 | (3,097,743 | ) | (1,115,233 | ) | |||||||
Equity in income of equity accounted investees, net |
8 | 12,147 | 700 | |||||||||
|
|
|
|
|||||||||
Loss before income tax |
(3,344,242 | ) | (91,366 | ) | ||||||||
Income tax expense (benefit) |
23 | (472,164 | ) | 88,077 | ||||||||
|
|
|
|
|||||||||
Loss for the year |
(2,872,078 | ) | (179,443 | ) | ||||||||
|
|
|
|
|||||||||
Other comprehensive income (loss) |
||||||||||||
Items that will never be reclassified to profit or loss |
||||||||||||
Remeasurements of net defined benefit liabilities |
12, 23 | 128,640 | 5,690 | |||||||||
Other comprehensive income from associates |
238 | 20 | ||||||||||
Related income tax |
12, 23 | (35,235 | ) | (1,169 | ) | |||||||
|
|
|
|
|||||||||
93,643 | 4,541 | |||||||||||
Items that are or may be reclassified to profit or loss |
||||||||||||
Foreign currency translation differences for foreign operations |
22, 23 | 106,690 | (19,987 | ) | ||||||||
Other comprehensive income from associates |
23 | 3,925 | 37 | |||||||||
|
|
|
|
|||||||||
110,615 | (19,950 | ) | ||||||||||
|
|
|
|
|||||||||
Other comprehensive income (loss) for the year, net of income tax |
204,258 | (15,409 | ) | |||||||||
|
|
|
|
|||||||||
Total comprehensive loss for the year |
(194,852 | ) | ||||||||||
|
|
|
|
|||||||||
Profit (loss) attributable to: |
||||||||||||
Owners of the Controlling Company |
(2,829,705 | ) | (207,239 | ) | ||||||||
Non-controlling interests |
(42,373 | ) | 27,796 | |||||||||
|
|
|
|
|||||||||
Loss for the year |
(179,443 | ) | ||||||||||
|
|
|
|
|||||||||
Total comprehensive income (loss) attributable to: |
||||||||||||
Owners of the Controlling Company |
(2,636,948 | ) | (215,386 | ) | ||||||||
Non-controlling interests |
(30,872 | ) | 20,534 | |||||||||
|
|
|
|
|||||||||
Total comprehensive loss for the year |
(194,852 | ) | ||||||||||
|
|
|
|
|||||||||
Loss per share (in won) |
||||||||||||
Basic and diluted loss per share |
25 | (579 | ) | |||||||||
|
|
|
|
See accompanying notes to the consolidated financial statements.
59
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
For the years ended December 31, 2019 and 2018
Attributable to owners of the Controlling Company | ||||||||||||||||||||||||||||
(In millions of won) |
Share capital |
Share premium |
Retained earnings |
Reserves | Sub-total | Non-controlling interests |
Total equity |
|||||||||||||||||||||
Balances at January 1, 2018 |
2,251,113 | 10,621,571 | (288,280 | ) | 14,373,483 | 608,027 | 14,981,510 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total comprehensive income (loss) for the year |
||||||||||||||||||||||||||||
Profit (loss) for the year |
| | (207,239 | ) | | (207,239 | ) | 27,796 | (179,443 | ) | ||||||||||||||||||
Other comprehensive income (loss) |
||||||||||||||||||||||||||||
Remeasurements of net defined benefit liabilities, net of tax |
| | 4,521 | | 4,521 | | 4,521 | |||||||||||||||||||||
Foreign currency translation differences |
| | | (12,725 | ) | (12,725 | ) | (7,262 | ) | (19,987 | ) | |||||||||||||||||
Other comprehensive income from associates |
| | 20 | 37 | 57 | | 57 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total other comprehensive income (loss) |
| | 4,541 | (12,688 | ) | (8,147 | ) | (7,262 | ) | (15,409 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total comprehensive income (loss) for the year |
| (202,698 | ) | (12,688 | ) | (215,386 | ) | 20,534 | (194,852 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Transaction with owners, recognized directly in equity |
||||||||||||||||||||||||||||
Dividends to share holders |
| | (178,908 | ) | | (178,908 | ) | | (178,908 | ) | ||||||||||||||||||
Subsidiaries dividends distributed to non-controlling interests |
| | | | | (53,107 | ) | (53,107 | ) | |||||||||||||||||||
Capital contribution from non-controlling interests |
| | | | | 331,603 | 331,603 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balances at December 31, 2018 |
2,251,113 | 10,239,965 | (300,968 | ) | 13,979,189 | 907,057 | 14,886,246 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balances at January 1, 2019 |
2,251,113 | 10,239,965 | (300,968 | ) | 13,979,189 | 907,057 | 14,886,246 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total comprehensive income (loss) for the year |
||||||||||||||||||||||||||||
Loss for the year |
| | (2,829,705 | ) | | (2,829,705 | ) | (42,373 | ) | (2,872,078 | ) | |||||||||||||||||
Other comprehensive income (loss) |
||||||||||||||||||||||||||||
Remeasurements of net defined benefit liabilities, net of tax |
| | 93,405 | | 93,405 | | 93,405 | |||||||||||||||||||||
Foreign currency translation differences |
| | | 95,189 | 95,189 | 11,501 | 106,690 | |||||||||||||||||||||
Other comprehensive income from associates |
| | 238 | 3,925 | 4,163 | | 4,163 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total other comprehensive income |
| | 93,643 | 99,114 | 192,757 | 11,501 | 204,258 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total comprehensive income (loss) for the year |
| (2,736,062 | ) | 99,114 | (2,636,948 | ) | (30,872 | ) | (2,667,820 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Transaction with owners, recognized directly in equity |
||||||||||||||||||||||||||||
Subsidiaries dividends distributed to non-controlling interests |
| | | | | (6,541 | ) | (6,541 | ) | |||||||||||||||||||
Capital contribution from non-controlling interests and others |
| | (591 | ) | (1,167 | ) | (1,758 | ) | 278,154 | 276,396 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balances at December 31, 2019 |
2,251,113 | 7,503,312 | (203,021 | ) | 11,340,483 | 1,147,798 | 12,488,281 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
60
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2019 and 2018
(In millions of won) | Note | 2019 | 2018 | |||||||||
Cash flows from operating activities: |
||||||||||||
Loss for the year |
(179,443 | ) | ||||||||||
Adjustments for: |
||||||||||||
Income tax expense (benefit) |
23 | (472,164 | ) | 88,077 | ||||||||
Depreciation and amortization |
9,10,18 | 3,695,051 | 3,554,565 | |||||||||
Gain on foreign currency translation |
(103,460 | ) | (84,643 | ) | ||||||||
Loss on foreign currency translation |
171,966 | 138,452 | ||||||||||
Expenses related to defined benefit plans |
12, 20 | 162,997 | 179,880 | |||||||||
Gain on disposal of property, plant and equipment |
(35,788 | ) | (6,620 | ) | ||||||||
Loss on disposal of property, plant and equipment |
40,897 | 15,048 | ||||||||||
Impairment loss on property, plant and equipment |
1,550,430 | 43,601 | ||||||||||
Gain on disposal of intangible assets |
(552 | ) | (239 | ) | ||||||||
Loss on disposal of intangible assets |
139 | | ||||||||||
Impairment loss on intangible assets |
249,450 | 82 | ||||||||||
Reversal of impairment loss on intangible assets |
(960 | ) | (348 | ) | ||||||||
Impairment loss on other assets |
3,602 | | ||||||||||
Gain on disposal of non-current assets held for sale |
(8,353 | ) | | |||||||||
Expense on increase of provisions |
419,720 | 234,928 | ||||||||||
Finance income |
(186,707 | ) | (101,313 | ) | ||||||||
Finance costs |
338,419 | 173,975 | ||||||||||
Equity in income of equity method accounted investees, net |
8 | (12,147 | ) | (700 | ) | |||||||
Other income |
(20,416 | ) | (3,310 | ) | ||||||||
Other expenses |
4,451 | 593 | ||||||||||
|
|
|
|
|||||||||
5,796,575 | 4,232,028 | |||||||||||
Changes in: |
||||||||||||
Trade accounts and notes receivable |
(1,007,373 | ) | 1,304,963 | |||||||||
Other accounts receivable |
(49,443 | ) | (56,870 | ) | ||||||||
Inventories |
632,359 | (449,901 | ) | |||||||||
Lease receivables |
6,617 | | ||||||||||
Other current assets |
(288,770 | ) | (249,968 | ) | ||||||||
Other non-current assets |
(38,608 | ) | (61,164 | ) | ||||||||
Trade accounts and notes payable |
(394,564 | ) | 267,358 | |||||||||
Other accounts payable |
2,035,750 | (111,053 | ) | |||||||||
Accrued expenses |
11,787 | (194,394 | ) | |||||||||
Provisions |
(294,096 | ) | (217,984 | ) | ||||||||
Other current liabilities |
(214,675 | ) | 78,849 | |||||||||
Defined benefit liabilities, net |
(65,681 | ) | (224,335 | ) | ||||||||
Long-term advances received |
63,672 | 948,276 | ||||||||||
Other non-current liabilities |
7,045 | 24,510 | ||||||||||
|
|
|
|
|||||||||
404,020 | 1,058,287 | |||||||||||
Cash generated from operating activities |
3,328,517 | 5,110,872 | ||||||||||
Income taxes paid |
(252,812 | ) | (486,549 | ) | ||||||||
Interests received |
47,276 | 71,819 | ||||||||||
Interests paid |
(416,436 | ) | (212,019 | ) | ||||||||
|
|
|
|
|||||||||
Net cash provided by operating activities |
4,484,123 | |||||||||||
|
|
|
|
See accompanying notes to the consolidated financial statements.
61
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
For the years ended December 31, 2019 and 2018
(In millions of won) | Note | 2019 | 2018 | |||||||||
Cash flows from investing activities: |
||||||||||||
Dividends received |
5,272 | |||||||||||
Increase in deposits in banks |
(114,557 | ) | (775,239 | ) | ||||||||
Proceeds from withdrawal of deposits in banks |
114,200 | 1,454,561 | ||||||||||
Acquisition of financial assets at fair value through profit or loss |
(708 | ) | (431 | ) | ||||||||
Proceeds from disposal of financial asset at fair value through profit or loss |
452 | | ||||||||||
Acquisition of financial assets at fair value through other comprehensive income |
(21 | ) | | |||||||||
Proceeds from disposal of financial assets at fair value through other comprehensive income |
107 | 6 | ||||||||||
Acquisition of investments in equity accounted investees |
| (14,732 | ) | |||||||||
Proceeds from disposal of investments in equity accounted investees |
16,738 | 4,527 | ||||||||||
Acquisition of property, plant and equipment |
(6,926,985 | ) | (7,942,210 | ) | ||||||||
Proceeds from disposal of property, plant and equipment |
335,446 | 142,088 | ||||||||||
Acquisition of intangible assets |
(540,996 | ) | (480,607 | ) | ||||||||
Proceeds from disposal of intangible assets |
2,468 | 960 | ||||||||||
Government grants received |
248,124 | 1,210 | ||||||||||
Proceeds from disposal of non-current assets held for sale |
81,351 | | ||||||||||
Receipt from settlement of derivatives |
21,752 | 2,026 | ||||||||||
Increase in short-term loans |
(8,725 | ) | (7,700 | ) | ||||||||
Proceeds from collection of short-term loans |
19,881 | 15,968 | ||||||||||
Increase in long-term loans |
(6,465 | ) | (36,580 | ) | ||||||||
Increase in deposits |
(30,680 | ) | (58,794 | ) | ||||||||
Decrease in deposits |
5,307 | 4,136 | ||||||||||
Proceeds from disposal of emission rights |
20,416 | 10,200 | ||||||||||
|
|
|
|
|||||||||
Net cash used in investing activities |
(6,755,393 | ) | (7,675,339 | ) | ||||||||
|
|
|
|
|||||||||
Cash flows from financing activities: |
28 | |||||||||||
Proceeds from short-term borrowings |
1,841,008 | 552,164 | ||||||||||
Repayments of short-term borrowings |
(1,154,911 | ) | (552,884 | ) | ||||||||
Proceeds from issuance of bonds |
1,323,251 | 828,169 | ||||||||||
Proceeds from long-term borrowings |
4,341,087 | 3,882,958 | ||||||||||
Repayments of current portion of long-term borrowings and bonds |
(1,567,818 | ) | (1,859,098 | ) | ||||||||
Payment of lease liabilities |
(64,570 | ) | | |||||||||
Capital contribution from non-controlling interests |
276,396 | 331,603 | ||||||||||
Subsidiaries dividends distributed to non-controlling interests |
(6,541 | ) | (51,085 | ) | ||||||||
Dividends paid |
| (178,908 | ) | |||||||||
|
|
|
|
|||||||||
Net cash provided by financing activities |
4,987,902 | 2,952,919 | ||||||||||
|
|
|
|
|||||||||
Net increase (decrease) in cash and cash equivalents |
939,054 | (238,297 | ) | |||||||||
Cash and cash equivalents at January 1 |
2,365,022 | 2,602,560 | ||||||||||
Effect of exchange rate fluctuations on cash held |
31,927 | 759 | ||||||||||
|
|
|
|
|||||||||
Cash and cash equivalents at December 31 |
2,365,022 | |||||||||||
|
|
|
|
See accompanying notes to the consolidated financial statements.
62
1. | Reporting Entity |
(a) | Description of the Controlling Company |
LG Display Co., Ltd. (the Controlling Company) was incorporated in February 1985 and the Controlling Company is a public corporation listed in the Korea Exchange since 2004. The main business of the Controlling Company and its subsidiaries (the Group) is to manufacture and sell displays and its related products. As of December 31, 2019, the Group is operating Thin Film Transistor Liquid Crystal Display (TFT-LCD) and Organic Light Emitting Diode (OLED) panel manufacturing plants in Gumi, Paju and China and TFT-LCD and OLED module manufacturing plants in Gumi, Paju, China and Vietnam. The Controlling Company is domiciled in the Republic of Korea with its address at 128 Yeouidae-ro, Yeongdeungpo-gu, Seoul, the Republic of Korea. As of December 31, 2019, LG Electronics Inc., a major shareholder of the Controlling Company, owns 37.9% (135,625,000 shares) of the Controlling Companys common stock.
The Controlling Companys common stock is listed on the Korea Exchange under the identifying code 034220. As of December 31, 2019, there are 357,815,700 shares of common stock outstanding. The Controlling Companys common stock is also listed on the New York Stock Exchange in the form of American Depository Shares (ADSs) under the symbol LPL. One ADS represents one-half of one share of common stock. As of December 31, 2019, there are 19,545,920 ADSs outstanding.
63
1. | Reporting Entity, Continued |
(b) | Consolidated Subsidiaries as of December 31, 2019 |
(In millions) | ||||||||||||||||
Subsidiaries |
Location | Percentage of ownership |
Fiscal year end |
Date of |
Business |
Capital stocks | ||||||||||
LG Display America, Inc. |
San Jose, U.S.A. | 100 | % | December 31 | September 24, 1999 | Sell display products | USD | 411 | ||||||||
LG Display Germany GmbH |
Eschborn, Germany | 100 | % | December 31 | November 5, 1999 | Sell display products | EUR | 1 | ||||||||
LG Display Japan Co., Ltd. |
Tokyo, Japan | 100 | % | December 31 | October 12, 1999 | Sell display products | JPY | 95 | ||||||||
LG Display Taiwan Co., Ltd. |
Taipei, Taiwan | 100 | % | December 31 | April 12, 1999 | Sell display products | NTD | 116 | ||||||||
LG Display Nanjing Co., Ltd. |
Nanjing, China | 100 | % | December 31 | July 15, 2002 | Manufacture display products | CNY | 3,020 | ||||||||
LG Display Shanghai Co., Ltd. |
Shanghai, China | 100 | % | December 31 | January 16, 2003 | Sell display products | CNY | 4 | ||||||||
LG Display Poland Sp. z o.o.(*1) |
Wroclaw, Poland | 100 | % | December 31 | September 6, 2005 | Manufacture display products | PLN | 511 | ||||||||
LG Display Guangzhou Co., Ltd. |
Guangzhou, China | 100 | % | December 31 | June 30, 2006 | Manufacture display products | CNY | 1,655 | ||||||||
LG Display Shenzhen Co., Ltd. |
Shenzhen, China | 100 | % | December 31 | August 28, 2007 | Sell display products | CNY | 4 | ||||||||
LG Display Singapore Pte. Ltd. |
Singapore | 100 | % | December 31 | January 12, 2009 | Sell display products | USD | 1.1 | ||||||||
L&T Display Technology (Fujian) Limited |
Fujian, China | 51 | % | December 31 | January 5, 2010 | Manufacture and sell LCD module and LCD monitor sets | CNY | 116 | ||||||||
LG Display Yantai Co., Ltd. |
Yantai, China | 100 | % | December 31 | April 19, 2010 | Manufacture display products | CNY | 1,008 | ||||||||
Nanumnuri Co., Ltd. |
Gumi, South Korea | 100 | % | December 31 | March 21, 2012 | Provide janitorial services | KRW | 800 | ||||||||
LG Display (China) Co., Ltd. |
Guangzhou, China | 70 | % | December 31 | December 10, 2012 | Manufacture and sell display products | CNY | 8,232 | ||||||||
Unified Innovative Technology, LLC |
Wilmington, U.S.A. | 100 | % | December 31 | March 12, 2014 | Manage intellectual property | USD | 9 | ||||||||
LG Display Guangzhou Trading Co., Ltd. |
Guangzhou, China | 100 | % | December 31 | April 28, 2015 | Sell display products | CNY | 1.2 | ||||||||
Global OLED Technology, LLC |
Herndon, U.S.A. | 100 | % | December 31 | December 18, 2009 | Manage OLED intellectual property | USD | 138 | ||||||||
LG Display Vietnam Haiphong Co., Ltd.(*2) |
Haiphong, Vietnam | 100 | % | December 31 | May 5, 2016 | Manufacture display products | USD | 600 | ||||||||
Suzhou Lehui Display Co., Ltd. |
Suzhou, China | 100 | % | December 31 | July 1, 2016 | Manufacture and sell LCD module and LCD monitor sets | CNY | 637 | ||||||||
LG DISPLAY FUND I LLC(*3) |
Wilmington, U.S.A. | 100 | % | December 31 | May 1, 2018 | Invest in venture business and acquire technologies | USD | 6 | ||||||||
LG Display High-Tech (China) Co., Ltd. (*4) |
Guangzhou, China | 75 | % | December 31 | July 11, 2018 | Manufacture and sell display products | CNY | 14,570 | ||||||||
Money Market Trust |
Seoul, South Korea | 100 | % | December 31 | | Money market trust | KRW | 34,700 |
64
1. | Reporting Entity, Continued |
(b) | Consolidated Subsidiaries as of December 31, 2019, Continued |
(*1) | On July 1, 2019, LG Display Poland Sp. z o.o. commenced the liquidation process. |
(*2) | For the year ended December 31, 2019, the Controlling Company contributed
|
(*3) | For the year ended December 31, 2019, the Controlling Company contributed
|
(*4) | For the year ended December 31, 2019, the Controlling Company contributed
|
W11,120 million and
W90,281 million are attributable to the Controlling Company over the distributed dividends from consolidated subsidiaries for the years ended December 31, 2019 and 2018, respectively.
65
1. | Reporting Entity, Continued |
(c) | Summary of financial information of subsidiaries as of and for the years ended December 31, 2019 and 2018 is as follows: |
(In millions of won) | December 31, 2019 | 2019 | ||||||||||||||||||
Subsidiaries |
Total assets |
Total liabilities |
Total shareholders equity |
Sales | Net income (loss) |
|||||||||||||||
LG Display America, Inc. |
942,860 | 18,210 | 9,669,140 | 5,366 | ||||||||||||||||
LG Display Germany GmbH |
404,852 | 392,824 | 12,028 | 1,715,627 | 5,451 | |||||||||||||||
LG Display Japan Co., Ltd. |
296,106 | 290,976 | 5,130 | 2,268,430 | 1,641 | |||||||||||||||
LG Display Taiwan Co., Ltd. |
473,177 | 457,469 | 15,708 | 1,455,596 | 1,671 | |||||||||||||||
LG Display Nanjing Co., Ltd. |
1,239,381 | 575,137 | 664,244 | 1,428,020 | 13,046 | |||||||||||||||
LG Display Shanghai Co., Ltd. |
297,068 | 279,362 | 17,706 | 1,001,478 | 7,182 | |||||||||||||||
LG Display Poland Sp. z o.o. |
160,385 | 228 | 160,157 | 7,904 | (3,440 | ) | ||||||||||||||
LG Display Guangzhou Co., Ltd. |
2,893,673 | 1,949,732 | 943,941 | 2,582,137 | 100,726 | |||||||||||||||
LG Display Shenzhen Co., Ltd. |
134,575 | 123,641 | 10,934 | 445,691 | 4,163 | |||||||||||||||
LG Display Singapore Pte. Ltd. |
517,449 | 511,962 | 5,487 | 1,140,952 | 2,006 | |||||||||||||||
L&T Display Technology (Fujian) Limited |
342,450 | 272,489 | 69,961 | 1,153,099 | 8,008 | |||||||||||||||
LG Display Yantai Co., Ltd. |
886,198 | 498,890 | 387,308 | 1,273,553 | 34,044 | |||||||||||||||
Nanumnuri Co., Ltd. |
5,243 | 3,537 | 1,706 | 22,529 | 292 | |||||||||||||||
LG Display (China) Co., Ltd. |
2,026,541 | 329,133 | 1,697,408 | 1,978,487 | (164,764 | ) | ||||||||||||||
Unified Innovative Technology, LLC |
3,976 | | 3,976 | | (1,104 | ) | ||||||||||||||
LG Display Guangzhou Trading Co., Ltd. |
377,295 | 370,665 | 6,630 | 1,250,110 | 4,396 | |||||||||||||||
Global OLED Technology, LLC |
81,481 | 21,004 | 60,477 | 8,380 | (5,220 | ) | ||||||||||||||
LG Display Vietnam Haiphong Co., Ltd. |
3,367,337 | 2,878,707 | 488,630 | 1,261,053 | (253,694 | ) | ||||||||||||||
Suzhou Lehui Display Co., Ltd. |
219,974 | 94,615 | 125,359 | 350,870 | 6,682 | |||||||||||||||
LG DISPLAY FUND I LLC |
589 | 39 | 550 | | (3,532 | ) | ||||||||||||||
LG Display High-Tech (China) Co., Ltd. |
6,606,874 | 4,188,766 | 2,418,108 | 40,766 | 12,503 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
14,182,036 | 7,113,658 | 29,053,822 | (224,577) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
66
1. | Reporting Entity, Continued |
(In millions of won) | December 31, 2018 | 2018 | ||||||||||||||||||
Subsidiaries |
Total assets |
Total liabilities |
Total shareholders equity |
Sales | Net income (loss) |
|||||||||||||||
LG Display America, Inc. |
1,035,975 | 12,137 | 8,985,127 | 7,268 | ||||||||||||||||
LG Display Germany GmbH |
451,328 | 444,676 | 6,652 | 1,780,233 | 4,322 | |||||||||||||||
LG Display Japan Co., Ltd. |
374,356 | 370,860 | 3,496 | 2,388,644 | 2,359 | |||||||||||||||
LG Display Taiwan Co., Ltd. |
294,103 | 280,794 | 13,309 | 1,558,166 | 2,653 | |||||||||||||||
LG Display Nanjing Co., Ltd. |
1,397,886 | 758,499 | 639,387 | 1,738,895 | 55,623 | |||||||||||||||
LG Display Shanghai Co., Ltd. |
931,773 | 921,289 | 10,484 | 994,258 | 5,977 | |||||||||||||||
LG Display Poland Sp. z o.o. |
165,079 | 5,308 | 159,771 | 38,437 | 249 | |||||||||||||||
LG Display Guangzhou Co., Ltd. |
2,689,670 | 1,860,804 | 828,866 | 2,366,355 | 293,222 | |||||||||||||||
LG Display Shenzhen Co., Ltd. |
50,337 | 43,636 | 6,701 | 1,370,364 | 3,386 | |||||||||||||||
LG Display Singapore Pte. Ltd. |
152,768 | 149,405 | 3,363 | 1,099,288 | 2,471 | |||||||||||||||
L&T Display Technology (Fujian) Limited |
293,025 | 231,955 | 61,070 | 1,156,111 | (1,937 | ) | ||||||||||||||
LG Display Yantai Co., Ltd. |
1,336,692 | 989,121 | 347,571 | 1,459,165 | 53,480 | |||||||||||||||
Nanumnuri Co., Ltd. |
5,171 | 3,757 | 1,414 | 22,964 | 295 | |||||||||||||||
LG Display (China) Co., Ltd. |
2,780,364 | 932,526 | 1,847,838 | 2,573,254 | 106,269 | |||||||||||||||
Unified Innovative Technology, LLC |
4,898 | 3 | 4,895 | | (986 | ) | ||||||||||||||
LG Display Guangzhou Trading Co., Ltd. |
485,800 | 483,502 | 2,298 | 807,536 | 1,266 | |||||||||||||||
Global OLED Technology, LLC |
81,922 | 18,537 | 63,385 | 7,962 | (5,232 | ) | ||||||||||||||
LG Display Vietnam Haiphong Co., Ltd. |
2,342,774 | 1,963,922 | 378,852 | 871,755 | 60,923 | |||||||||||||||
Suzhou Lehui Display Co., Ltd. |
212,138 | 95,359 | 116,779 | 365,914 | 5,018 | |||||||||||||||
LG DISPLAY FUND I LLC |
7 | | 7 | | (2,242 | ) | ||||||||||||||
LG Display High-Tech (China) Co., Ltd. |
3,258,830 | 2,208,244 | 1,050,586 | | (10,152 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
12,798,172 | 5,558,861 | 29,584,428 | 584,232 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
67
2. | Basis of Presenting Financial Statements |
(a) | Statement of Compliance |
In accordance with the Act on External Audits of Stock Companies, Etc., these consolidated financial statements have been prepared in accordance with Korean International Financial Reporting Standards (K-IFRS).
The consolidated financial statements were authorized for issuance by the Board of Directors on January 30, 2020, which will be submitted for approval to the shareholders meeting to be held on March 20, 2020.
(b) | Basis of Measurement |
The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the consolidated statement of financial position:
| derivative financial instruments at fair value, financial assets at fair value through profit or loss (FVTPL), financial assets at fair value through other comprehensive income (FVOCI), financial liabilities at fair value through profit or loss (FVTPL), and |
| net defined benefit liabilities (employee benefits assets) recognized at the present value of defined benefit obligations less the fair value of plan assets |
(c) | Functional and Presentation Currency |
Each subsidiarys financial statements within the Group are presented in the subsidiarys functional currency, which is the currency of the primary economic environment in which each subsidiary operates. The consolidated financial statements are presented in Korean won, which is the Controlling Companys functional currency.
(d) | Use of Estimates and Judgments |
The preparation of the consolidated financial statements in conformity with K-IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes:
| Financial instruments (Note 3(f)) |
| Intangible assets (Note 3(k), 10) |
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next 12 months is included in the following notes:
| Provisions (Note 3(m), 13) |
| Inventories (Note 3(e), 7) |
| Property, Plant and Equipment (Note 9) |
| Intangible assets (Note 10) |
| Employee benefits (Note 12) |
| Deferred tax assets and liabilities (Note 24) |
68
3. | Summary of Significant Accounting Policies |
The significant accounting policies followed by the Group in the preparation of its consolidated financial statements are as follows:
(a) | Changes in Accounting Policies |
The Group has initially applied K-IFRS No. 1116, Leases, from January 1, 2019. A number of other new standards are effective from January 1, 2019 but they do not have a material effect on the Groups consolidated financial statements.
In application of K-IFRS No. 1116, Leases, from January 1, 2019, the Group used the modified retrospective approach, under which right-of-use assets and lease liabilities are recognized in equal amount. Accordingly, the comparative information presented for 2018 is presented, as previously reported, under K-IFRS No. 1017 and relative interpretations. The disclosure requirements in K-IFRS No. 1116 have not been applied to comparative information. The details of the changes in accounting policies are disclosed below.
i) | Definition of a lease |
Previously, the Group determined at contract inception whether an arrangement was or contained a lease under K-IFRS No. 2104, Determining Whether an Arrangement contains a Lease. For contracts entered into or changed on or after January 1, 2019, the Group assesses whether a contract is or contains a lease based on the definition of a lease under K-IFRS No. 1116 as described in Note 27.
On adoption of K-IFRS No. 1116, as of January 1, 2019, the Group applied the practical expedient to grandfather the assessment of which transactions are leases for existing contracts. The Group applied K-IFRS No. 1116 only to contracts that were previously identified as leases.
ii) | Accounting as a lessee |
As a lessee, the Group leases buildings, vehicles, machinery, equipment and others. The Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Group. Under K-IFRS No. 1116, the Group recognizes right-of-use assets and lease liabilities for most of these leases on the consolidated statement of financial position.
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of its relative stand-alone price.
Leases | classified as operating leases under K-IFRS No. 1017 |
The Group classified its leases of buildings, vehicles, machinery, equipment and others as operating leases under K-IFRS No. 1017. On adoption of K-IFRS No. 1116, for these leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Groups incremental borrowing rate as at January 1, 2019 (see Note 27). Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid lease payments.
The Group used following practical expedients when applying K-IFRS No. 1116 to leases previously classified as operating leases under K-IFRS No. 1017:
| did not recognize right-of-use assets and liabilities for leases for which the lease term ends within 12 months of the date of initial application; |
| did not recognize right-of-use assets and liabilities for leases of low value assets; |
| excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application; and |
| used hindsight when determining the remaining lease term. |
69
3. | Summary of Significant Accounting Policies, Continued |
(a) | Changes in Accounting Policies, Continued |
iii) | Accounting as a lessor |
The Group leases out its own property and right-of-use assets. The Group classified these leases as operating leases or finance leases based on their characteristics.
The Group is not required to make any adjustments on transition for leases as a lessor, except for sub-lease provided with the right-of-use assets.
Under K-IFRS 1017, the head lease and sub-lease contracts were classified as operating leases. On adoption of K-IFRS 1116, the right-of-use assets recognized from the head leases are presented in property, plant and equipment, and measured at fair value at that date. The Group assessed the classification of the sub-lease contracts with reference to the underlying asset, and concluded that they are finance leases.
The Group applied K-IFRS No. 1115 to allocate consideration in the contract to each lease and non-lease component.
iv) | Impact on the consolidated financial statements |
Impacts on adoption
On adoption of K-IFRS No. 1116, the Group recognized additional right-of-use assets and additional lease liabilities as below:
(In millions of won) | ||||
January 1, 2019 | ||||
Right-of-use assets presented in property, plant and equipment |
||||
Prepaid expenses |
(61,570 | ) | ||
Lease receivable |
34,649 | |||
Lease liabilities |
115,119 |
When measuring lease liabilities at January 1, 2019 for leases that were classified as operating leases in accordance with K-IFRS No. 1017, the Group discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average discount rate applied is 3.36%.
(In millions of won) | ||||
January 1, 2019 | ||||
Amount of operating lease commitments at December 31, 2018 |
||||
Discounted using the incremental borrowing rate at January 1, 2019 |
115,614 | |||
Finance lease liabilities recognized as at December 31, 2018 |
| |||
Recognition exemption for lease of low-value assets |
(262 | ) | ||
Recognition exemption for leases with less than 12 months of lease term at adoption |
(233 | ) | ||
Lease liabilities recognized at January 1, 2019 |
115,119 |
70
3. | Summary of Significant Accounting Policies, Continued |
(b) | Consolidation |
(i) | Business Combinations |
The Group accounts for business combinations using the acquisition method except for a combination of entities or businesses under common control. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. If the aggregate sum of consideration transferred and non-controlling interest exceeds the fair value of identifiable net asset, the Group recognizes goodwill; if not, then the Group recognizes gain on a bargain purchase. Any goodwill that arises is tested annually for impairment. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities in accordance with K-IFRS No. 1032 and K-IFRS No. 1109. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.
(ii) | Subsidiaries |
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has right to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
(iii) | Non-controlling interests |
Non-controlling interests (NCI) are measured at their proportionate share of the acquirees identifiable net assets at the acquisition date. Profit or loss and other comprehensive income (loss) of subsidiaries are attributed to owners of the Controlling Company and non-controlling interests.
Changes in the Groups interest in subsidiaries that do not result in a loss of control are accounted for as equity transactions.
(iv) | Loss of Control |
If the Controlling Company loses control of subsidiaries, the Controlling Company derecognizes the assets and liabilities of the former subsidiaries from the consolidated statement of financial position and recognizes the gain or loss associated with the loss of control attributable to the former controlling interest. Meanwhile, the Controlling Company recognizes any investment retained in the former subsidiaries at its fair value when control is lost.
71
3. | Summary of Significant Accounting Policies, Continued |
(b) | Consolidation, Continued |
(v) | Associates and joint ventures (equity method investees) |
Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the parties have joint control, whereby the parties has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Investments in associates and joint ventures are initially recognized at cost and subsequently accounted for using the equity method of accounting. The carrying amount of investments in associates and joint ventures is increased or decreased to recognize the Groups share of the profits or losses and changes in the Groups proportionate interest of the investee after the date of acquisition. Distributions received from an investee reduce the carrying amount of the investment.
If an associate or a joint venture uses accounting policies different from those of the Controlling Company for like transactions and events in similar circumstances, appropriate adjustments are made to the consolidated financial statements. As of and during the periods presented in the consolidated financial statements, no adjustments were made in applying the equity method.
When the Groups share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.
(vi) | Transactions eliminated on consolidation |
Intra-group balances and transactions, including income and expenses and any unrealized income and expenses and balance of trade accounts and notes receivable and payable arising from intra-group transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Groups interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
72
3. | Summary of Significant Accounting Policies, Continued |
(c) | Foreign Currency Transaction and Translation |
Transactions in foreign currencies are translated to the respective functional currencies of the Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the exchange rate on the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was originally determined. Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on an investment in equity securities designated as at FVOCI and a financial asset and liability designated as a cash flow hedge, which are recognized in other comprehensive income. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition are recognized in profit or loss in the period in which they arise. Foreign currency differences arising from assets and liabilities in relation to the investing and financing activities including loans, bonds and cash and cash equivalents are recognized in finance income (costs) in the consolidated statement of comprehensive income (loss) and foreign currency differences arising from assets and liabilities in relation to activities other than investing and financing activities are recognized in other non-operating income (expense) in the consolidated statement of comprehensive income (loss). Foreign currency differences are presented in gross amounts in the consolidated statement of comprehensive income (loss).
If the presentation currency of the Group is different from a foreign operations functional currency, the financial position and financial performance of the foreign operation are translated into the presentation currency using the following methods. The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy are translated to the Groups functional currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to the Groups functional currency at exchange rates at the dates of the transactions and foreign currency differences are recognized in other comprehensive income (loss). Relevant proportionate shares of foreign currency differences are allocated to the controlling interests and non-controlling interests. When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to NCI. When the Group disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus, they are expressed in the functional currency of the foreign operation and translated at the at each reporting dates exchange rate.
(d) | Cash and cash equivalents |
Cash and cash equivalents include all cash balances and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash.
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3. | Summary of Significant Accounting Policies, Continued |
(e) | Inventories |
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted-average method, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated selling expenses. In the case of manufactured inventories and work-in-process, cost includes an appropriate share of production overheads based on the actual capacity of production facilities. However, the normal capacity is used for the allocation of fixed production overheads if the actual level of production is lower than the normal capacity.
(f) | Financial Instruments |
(i) | Non-derivative financial assets |
Recognition and initial measurement
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets are recognized in statement of financial position when, and only when, the Group becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
Classification and subsequent measurement
i) | Financial assets |
On initial recognition, a financial asset is classified as measured at: amortized cost; FVOCI debt investment; FVOCI equity investments; or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the subsequent reporting period following the change in the business model.
A financial asset is measured as at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:
| it is held within a business model whose objective is to hold assets to collect contractual cash flows; and |
| its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
| it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and |
| the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
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3. | Summary of Significant Accounting Policies, Continued |
(f) | Financial Instruments, Continued |
On initial recognition of an equity investments that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investments fair value in OCI. This election is made on an investment-by-investment basis.
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured as at FVTPL. This includes all derivative financial assets. At initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
ii) | Financial assets: business model |
The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:
| the stated policies and objectives for the portfolio and the operation of those policies in practice (these include whether managements strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realizing cash flows through the sale of the assets); |
| how the performance of the portfolio is evaluated and reported to the Groups management; |
| the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; and |
| the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity. |
Transfers of financial assets to third parties in transaction that do not qualify for derecognition are not considered sale for this purpose.
A financial asset that is held for trading or is managed and whose performance is evaluated on a fair value basis is measured at FVTPL.
iii) | Financial assets: Assessment whether contractual cash flows are solely payments of principal and interest |
For the purpose of the assessment, principal is defined as the fair value of the financial asset on initial recognition. Interest is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and cost (e.g. liquidity risk and administrative costs), as well as profit margin.
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3. | Summary of Significant Accounting Policies, Continued |
(f) | Financial Instruments, Continued |
In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers.
| contingent events that would change the amount or timing of cash flows: |
| terms that may adjust the contractual coupon rate, including variable-rate features; |
| prepayment and extension features; and |
| terms that limit the Groups claim to cash flows from specified assets (e.g. non-recourse features) |
A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest or the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract.
Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued but unpaid contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.
iv) | Financial assets: Subsequent measurement and gains and losses |
Financial assets at FVTPL | These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss. | |
Financial assets at amortized cost | These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss. | |
Debt investments at FVOCI | These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss. |
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3. | Summary of Significant Accounting Policies, Continued |
(f) | Financial Instruments, Continued |
Derecognition
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, it transfers the rights to receive the contractual cash flows of the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or it transfers or does not retain substantially all the risks and rewards of ownership of a transferred asset, and does not retain control of the transferred asset.
If the Group has retained substantially all the risks and rewards of ownership of the transferred asset, the Group continues to recognize the transferred asset.
Offset
Financial assets and liabilities are offset and the net amount is presented in the consolidated statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
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3. | Summary of Significant Accounting Policies, Continued |
(f) | Financial Instruments, Continued |
(ii) | Non-derivative financial liabilities |
The Group classifies financial liabilities into two categories, financial liabilities at FVTPL and other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities, and recognizes them in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.
Financial liabilities at FVTPL include financial liabilities held for trading or designated as such upon initial recognition at FVTPL. After initial recognition, financial liabilities at FVTPL are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the issuance of financial liabilities are recognized in profit or loss as incurred.
Non-derivative financial liabilities other than financial liabilities classified as at FVTPL are classified as other financial liabilities and measured initially at fair value minus transaction costs that are directly attributable to the issuance of financial liabilities. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. As of December 31, 2019, non-derivative financial liabilities comprise borrowings, bonds, trade accounts and notes payable, other accounts payable and others.
The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired.
(iii) | Share Capital |
The Group issued common stocks and they are classified as equity. Incremental costs directly attributable to the issuance of common stocks are recognized as a deduction from equity, net of tax effects. Capital contributed in excess of par value upon issuance of common stocks is classified as share premium within equity.
(iv) | Derivative financial instruments |
Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.
Hedge Accounting
If necessary, the Group designates derivatives as hedging items to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).
On initial designation of the hedge, the Groups management formally designates and documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship, both at the inception of the hedge relationship as well as on an ongoing basis.
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3. | Summary of Significant Accounting Policies, Continued |
(f) | Financial Instruments, Continued |
i) | Fair value hedges |
Change in the fair value of a derivative hedging instrument designated as a fair value hedge and the hedged item is recognized in profit or loss, respectively. The gain or loss from remeasuring the hedging instrument at fair value and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the statement of comprehensive income (loss). The Group discontinues fair value hedge accounting if it does not designate the derivative hedging instrument and the hedged item as the hedge relationship between them anymore; if the hedging instrument expires or is sold, terminated or exercised; or if the hedge no longer meets the criteria for hedge accounting.
ii) | Cash flow hedges |
When a derivative designated as a cash flow hedging instrument meets the criteria of cash flow hedge accounting, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and the ineffective portion of changes in the fair value of the derivative is recognized in profit or loss. The Group discontinues cash flow hedge accounting if it does not designate the derivative hedging instrument and the hedged item as the hedge relationship between them anymore; if the hedging instruments expires or is sold, terminated or exercised; or if the hedge no longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.
Embedded derivative
Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met.
Other derivative financial instruments
Other derivative financial instruments are measured at fair value and changes of their fair value are recognized in profit or loss.
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3. | Summary of Significant Accounting Policies, Continued |
(g) | Property, Plant and Equipment |
(i) | Recognition and measurement |
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes an expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and borrowing costs on qualifying assets.
The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item and recognized in other non-operating income or other non-operating expenses.
(ii) | Subsequent costs |
Subsequent expenditure on an item of property, plant and equipment is recognized as part of its cost only if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.
(iii) | Depreciation |
Depreciation is recognized in profit or loss on a straight-line basis, reflecting the pattern in which the assets future economic benefits are expected to be consumed by the Group. The residual value of property, plant and equipment is zero.
Estimated useful lives of the assets are as follows:
Useful lives (years) | ||
Buildings and structures |
20, 40 | |
Machinery |
4, 5 | |
Furniture and fixtures |
4 | |
Equipment, tools and vehicles |
2, 4, 12 | |
Right-of-use assets |
(*) |
(*) | The Group depreciates the right-of-use assets from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term on a straight-line basis. |
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3. | Summary of Significant Accounting Policies, Continued |
(h) | Borrowing Costs |
The Group capitalizes borrowing costs, which includes interests and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs, directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. The Group immediately recognizes other borrowing costs as an expense.
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3. | Summary of Significant Accounting Policies, Continued |
(i) | Government Grants |
In case there is reasonable assurance that the Group will comply with the conditions attached to a government grant, the government grant is recognized as follows:
(i) | Grants related to the purchase or construction of assets |
A government grant related to the purchase or construction of assets is deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense and cash related to grant received is presented in investing activities in the statement of cash flows.
(ii) | Grants for compensating the Groups expenses incurred |
A government grant that compensates the Group for expenses incurred is recognized in profit or loss as a deduction from relevant expenses on a systematic basis in the periods in which the expenses are recognized.
(iii) | Other government grants |
A government grant that becomes receivable for the purpose of giving immediate financial support to the Group with no compensation for expenses or losses already incurred or no future related costs is recognized as income of the period in which it becomes receivable.
(j) | Intangible Assets |
Intangible assets are initially measured at cost. Subsequently, intangible assets are measured at cost less accumulated amortization and accumulated impairment losses.
(i) | Goodwill |
Goodwill arising from business combinations is recognized as the excess of the acquisition cost of investments in subsidiaries, associates and joint ventures over the Groups share of the net fair value of the identifiable assets acquired and liabilities assumed. Any deficit is a bargain purchase that is recognized in profit or loss. Goodwill is measured at cost less accumulated impairment losses.
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3. | Summary of Significant Accounting Policies, Continued |
(j) | Intangible Assets, Continued |
(ii) | Research and development |
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred. Development activities involve a plan or design of the production of new or substantially improved products and processes. Development expenditure is capitalized as intangible assets only if the Group can demonstrate all of the following:
| the technical feasibility of completing the intangible asset so that it will be available for use or sale, |
| its intention to complete the intangible asset and use or sell it, |
| its ability to use or sell the intangible asset, |
| how the intangible asset will generate probable future economic benefits (among other things, the Group can demonstrate the usefulness of the intangible asset by existence of a market for the output of the intangible asset or the intangible asset itself if it is to be used internally), |
| the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and |
| its ability to measure reliably the expenditure attributable to the intangible asset during its development. |
The expenditure capitalized includes the cost of materials, direct labor and overhead costs that are directly attributable to preparing the asset for its intended use, and borrowing costs on qualifying assets.
(iii) | Other intangible assets |
Other intangible assets include intellectual property rights, software, customer relationships, technology, memberships and others.
(iv) | Subsequent costs |
Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific intangible asset to which they relate. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.
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3. | Summary of Significant Accounting Policies, Continued |
(j) | Intangible Assets, Continued |
(v) | Amortization |
Amortization is calculated on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which condominium and golf club memberships are expected to be available for use, these intangible assets are regarded as having indefinite useful lives and not amortized.
Estimated useful lives (years) | ||
Intellectual property rights |
5, 10 | |
Rights to use electricity, water and gas supply facilities |
10 | |
Software |
4 | |
Customer relationships |
7, 10 | |
Technology |
10 | |
Development costs |
(*) | |
Condominium and golf club memberships |
Not amortized |
(*) | Capitalized development costs are amortized over the useful lives considering the life cycle of the developed products. Amortization of capitalized development costs are recognized in research and development expenses in the consolidated statement of comprehensive income (loss). |
Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at each financial year-end. The useful lives of intangible assets that are not being amortized are reviewed each period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. If appropriate, the changes are accounted for as changes in accounting estimates.
(k) | Impairment |
(i) | Financial assets |
Financial instruments and contract assets
The Group recognizes loss allowance for financial assets measured at amortized cost and debt investments at FVOCI at the expected credit loss (ECL).
The Group recognizes a loss allowance for the life-time expected credit losses except for following, which are measured at 12-month ECLs:
| debt securities that are determined to have low credit risk at the reporting date; and |
| other debt securities and bank deposits for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. |
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both qualitative and quantitative information and analysis, based on the Groups historical experience and informed credit assessment including forward-looking information.
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3. | Summary of Significant Accounting Policies, Continued |
(k) | Impairment, Continued |
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
12-month ECLs are the portion of the ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.
Estimation of expected credit losses
Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are measured using the present value of the difference between the contractual cash flows and the expected contractual cash flows. The expected credit losses are discounted using effective interest rate of the financial assets.
Credit-impaired financial assets
At each reporting period-end, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
| significant financial difficulty of the issuer or the borrower; |
| the lender(s) of the borrower, for economic or contractual reasons relating to the borrowers financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider; |
| it is probable that the borrower will enter bankruptcy or other financial reorganization; or |
| the disappearance of an active market for a security because of financial difficulties. |
Presentation of loss allowance for ECL in the statement of financial position
Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is charged to profit or loss and is recognized in OCI instead of reducing the carrying amount of financial assets in the consolidated statement of financial position.
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3. | Summary of Significant Accounting Policies, Continued |
(k) | Impairment, Continued |
Write-off
The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations for recovering the financial asset in its entirety or a portion thereof. The Group assess whether there are reasonable expectations of recovering the contractual cash flows from customers and individually assess the timing and amount of write-off. The Group expects no significant recovery from the amount written-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Groups procedures for recovery of amounts due.
(ii) | Non-financial assets |
The carrying amounts of the Groups non-financial assets, other than assets arising from employee benefits, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, the recoverable amount is estimated each year.
Recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the Group determines the recoverable amount of the cash-generating unit to which the asset belongs. The cash-generating unit (CGU) is the smallest group of assets that includes the asset and generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or cash-generating unit is determined as the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. Fair value less costs to sell is based on the best information available to reflect the amount that the Group could obtain from the disposal of the asset in an arms length transaction between knowledgeable, willing parties, after deducting the costs of disposal.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of a CGU are allocated first to reduce the carrying amount of any goodwill allocated to the unit, and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis.
In respect of assets other than goodwill, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of accumulated depreciation or amortization, if no impairment loss had been recognized from the acquisition cost. An impairment loss in respect of goodwill is not reversed.
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3. | Summary of Significant Accounting Policies, Continued |
(l) | Leases |
The Group applied K-IFRS No. 1116 using the modified retrospective approach and therefore the comparative information is not restated and continues to be reported applying K-IFRS No. 1017 and K-IFRS No. 2104.
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in K-IFRS No. 1116.
(i) | As a lesseePolicies from January 1, 2019 |
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of its relative stand-alone price. For certain leases, the Group accounts for the lease and non-lease components as a single lease component by applying the practical expedient not to separate non-lease components.
The Group recognizes a right-of-use asset and lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at of before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case, the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Groups incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.
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3. | Summary of Significant Accounting Policies, Continued |
(l) | Leases, Continued |
Lease payments included in the measurement of the lease liability comprise the following:
| fixed payments, including in-substance fixed payments; |
| variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; |
| amounts expected to be payable under a residual value guarantee; and |
| the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. |
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Groups estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured, the Group recognizes the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. However, if the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Group recognizes any remaining amount of the remeasurement in profit or loss.
The Group presents right-of-use assets in property, plant and equipment and lease liabilities in financial liabilities in the consolidated statement of financial position.
The Group has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
(ii) | As a lessorPolicies from January 1, 2019 |
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.
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3. | Summary of Significant Accounting Policies, Continued |
(l) | Leases, Continued |
When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the sub-lease as an operating lease.
If an arrangement contains lease and non-lease components, then the Group applies K-IFRS No. 1115 to allocate the consideration in the contract.
At the commencement date, the Group recognizes assets held under a finance lease in its statement of financial position and present them as a receivable at an amount equal to the net investment in the lease and recognize finance income over the lease term, based on a pattern reflecting a constant periodic rate of return on the lessors net investment in the lease.
The Group recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of other revenue.
The accounting policies applicable to the Group as a lessor in the comparative period are not different from K-IFRS No. 1116 except for the classification of the sub-lease entered into during current reporting period that resulted in a finance lease classification.
(m) | Provisions |
A provision is recognized as a result of a past event, if the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
The risks and uncertainties that inevitably surround events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows. The unwinding of the discount is recognized as finance cost.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.
89
3. | Summary of Significant Accounting Policies, Continued |
(m) | Provisions, Continued |
The Group recognizes a liability for warranty obligations based on the estimated costs expected to be incurred under its basic limited warranty. This warranty covers defective products and is normally applicable for 18~36 months from the date of purchase. These liabilities are accrued when product revenues are recognized. Factors that affect the Groups warranty liability include historical and anticipated rates of warranty claims on those repairs and cost per claim to satisfy the Groups warranty obligation. Warranty costs primarily include raw materials and labor costs. As these factors are impacted by actual experience and future expectations, management periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Accrued warranty obligations are included in the current and non-current provisions.
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.
(n) | Non-current Assets Held for Sale |
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily from sale rather than through continuing use. In order to be classified as held for sale, the asset (or disposal group) is available for immediate sale in its present condition and its sale is highly probable. The assets (or disposal groups) that are classified as non-current assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell on initial classification. The Group recognizes an impairment loss for any subsequent decrease in fair value of the asset (or disposal group) for which an impairment loss was recognized on initial classification as held-for-sale and a gain for any subsequent increase in fair value in profit or losses, up to the cumulative impairment loss previously recognized.
The Group does not depreciate a non-current asset while it is classified as held for sale or while it is part of a disposal group classified as held for sale.
(o) | Employee Benefits |
(i) | Short-term employee benefits |
Short-term employee benefits that are due to be settled within twelve months after the end of the period in which the employees render the related service are recognized in profit or loss on an undiscounted basis. The expected cost of profit-sharing and bonus plans and others are recognized when the Group has a present legal or constructive obligation to make payments as a result of past events and a reliable estimate of the obligation can be made.
(ii) | Other long-term employee benefits |
The Groups net obligation in respect of long-term employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods.
90
3. | Summary of Significant Accounting Policies, Continued |
(o) | Employee Benefits, Continued |
(iii) | Defined contribution plan |
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the period during which services are rendered by employees.
(iv) | Defined benefit plan |
A defined benefit plan is a post-employment benefit plan other than defined contribution plans. The Groups net obligation in respect of its defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of any plan assets is deducted.
The calculation is performed annually by an independent actuary using the projected unit credit method. The discount rate is the yield at the reporting date on high quality corporate bonds that have maturity dates approximating the terms of the Groups obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Group recognizes all actuarial gains and losses arising from defined benefit plans in retained earnings immediately.
The Group determines the net interest expense (income) on the net defined benefit liability (employee benefits asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (employee benefits asset), taking into account any changes in the net defined benefit liability (employee benefits asset) during the period as a result of contributions and benefit payments. Consequently, the net interest on the net defined benefit liability (employee benefits asset) now comprises: interest cost on the defined benefit obligation, interest income on plan assets, and interest on the effect on the asset ceiling.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.
(v) | Termination benefits |
The Group recognizes expense for termination benefits at the earlier of the date when the entity can no longer withdraw the offer of those benefits and when the entity recognizes costs for a restructuring involving the payment of termination benefits. If the termination benefits are not expected to be settled wholly before twelve months after the end of the annual reporting period, the Group measures the termination benefit with present value of future cash payments.
91
3. | Summary of Significant Accounting Policies, Continued |
(p) | Revenue from contracts with customers |
Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of estimated returns, trade discounts, volume rebates and other cash incentives paid to customers.
The Group recognizes revenue according to the five stage revenue recognition model (① Identifying the contract ®② Identifying performance obligations ®③ Determining transaction price ®④ Allocating the transaction price to performance obligations ®⑤ Recognizing revenue for performance obligations).
The Group generates revenue primarily from sale of display panels. Product revenue is recognized when a customer obtains control over the Groups products, which typically occurs upon shipment or delivery depending on the terms of the contracts with the customer.
The Group includes return option in the sales contract of display panels with its customers and the consideration receivable from the customer is subject to change due to returns. The Group estimates an amount of variable consideration by using the expected value method which the Group expects to better predict the amount of consideration. The Group includes in the transaction price an amount of variable consideration estimated only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur during the return period when the uncertainty associated with the variable consideration is subsequently resolved. The Group recognizes a refund liability and an asset for its right to recover products from customers if the Group receives consideration from a customer and expects to refund some or all of that consideration to the customer. Sales taxes or value-added taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and are excluded from revenues in the consolidated statement of comprehensive income (loss).
(q) | Operating Segments |
An operating segment is a component of the Group that: 1) engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with other components of the group, 2) whose operating results are reviewed regularly by the Groups chief operating decision maker (CODM) in order to allocate resources and assess its performance, and 3) for which discrete financial information is available. Management has determined that the CODM of the Group is the Board of Directors. The CODM does not receive and therefore does not review discrete financial information for any component of the Group. Consequently, no operating segment information is included in these consolidated financial statements. Entity wide disclosures of geographic and product revenue information are provided in Note 17 to these consolidated financial statements.
(r) | Finance Income and Finance Costs |
Finance income comprises interest income on funds invested (including debt instruments measured at FVOCI), dividend income, gains on disposal of debt instruments measured at FVOCI, changes in fair value of financial assets at FVTPL, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Dividend income is recognized in profit or loss on the date that the Groups right to receive payment is established.
Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, gain and losses from financial assets measured at FVTPL, impairment losses recognized on financial assets, and losses on hedging instruments that are recognized in profit or loss. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset.
92
3. | Summary of Significant Accounting Policies, Continued |
(s) | Income Tax |
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
(i) | Current tax |
Current tax comprises the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.
(ii) | Deferred tax |
Deferred tax is recognized, using the liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that the differences relating to investments in subsidiaries, associates and joint ventures will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
The Group offsets deferred tax assets and deferred tax liabilities if, and only if the Group has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously.
(t) | Earnings (Loss) Per Share |
The Controlling Company presents basic and diluted earnings (loss) per share (EPS) data for its common stocks. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Controlling Company by the weighted average number of common stocks outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of common stocks outstanding, adjusted for the effects of all dilutive potential common stocks such as convertible bonds and others.
93
3. | Summary of Significant Accounting Policies, Continued |
(u) | New Standards and Amendments Not Yet Adopted, Continued |
A number of new standards are effective for annual periods beginning after January 1, 2019 and earlier application is permitted; however, the Group has not early adopted the new or amended standards in preparing these consolidated financial statements:
The following amended standards and interpretations are not expected to have a significant impact on the Groups consolidated financial statements:
| Amendments to References to Conceptual Framework in K-IFRS Standards.; |
| Definition of a Business (Amendments to K-IFRS No. 1103, Business Combinations); |
| Definition of Material (Amendments to K-IFRS No. 1001, Presentation of Financial Statements and K-IFRS No. 1008, Accounting Policies, Changes in Accounting Estimates and Errors); and |
| K-IFRS No. 1117, Insurance Contracts. |
94
4. | Cash and Cash Equivalents and Deposits in Banks |
Cash and cash equivalents and deposits in banks as of December 31, 2019 and December 31, 2018 are as follows:
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Current assets |
||||||||
Cash and cash equivalents |
||||||||
Demand deposits |
2,365,022 | |||||||
Deposits in banks |
||||||||
Time deposits |
4,318 | |||||||
Restricted deposits (*) |
77,257 | 74,082 | ||||||
|
|
|
|
|||||
78,400 | ||||||||
|
|
|
|
|||||
Non-current assets |
||||||||
Deposits in banks |
||||||||
Restricted deposits (*) |
11 | |||||||
|
|
|
|
|||||
2,443,433 | ||||||||
|
|
|
|
(*) | Includes funds deposited under agreements on mutually beneficial cooperation to aid LG Group companies suppliers, restricted deposits pledged to enforce the Groups investment plans upon the receipt of grants from Gumi city and Gyeongsangbuk-do, and others. |
5. | Receivables and Other Assets |
(a) Trade accounts and notes receivable as of December 31, 2019 and December 31, 2018 are as follows:
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Due from third parties |
2,305,368 | |||||||
Due from related parties |
577,689 | 523,795 | ||||||
|
|
|
|
|||||
2,829,163 | ||||||||
|
|
|
|
(b) Other accounts receivable as of December 31, 2019 and December 31, 2018 are as follows:
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Current assets |
||||||||
Non-trade receivables, net |
159,238 | |||||||
Accrued income |
10,434 | 10,075 | ||||||
|
|
|
|
|||||
169,313 | ||||||||
|
|
|
|
|||||
Non-current assets |
||||||||
Long-term non-trade receivables |
9,072 | 11,448 | ||||||
|
|
|
|
|||||
180,761 | ||||||||
|
|
|
|
Due from related parties included in other accounts receivable, as of December 31, 2019 and 2018 are
W19,431 million and W39,092 million, respectively.
95
5. | Receivables and Other Assets, Continued |
(c) The aging of trade accounts and notes receivable, and other accounts receivable as of December 31, 2019 and December 31, 2018 are as follows:
(In millions of won) | December 31, 2019 | |||||||||||||||
Book value | Allowance for impairment | |||||||||||||||
Trade accounts and notes receivable |
Other accounts receivable |
Trade accounts and notes receivable |
Other accounts receivable |
|||||||||||||
Current |
208,086 | (454 | ) | (3,292 | ) | |||||||||||
1-15 days past due |
34,626 | 3,512 | (6 | ) | (1 | ) | ||||||||||
16-30 days past due |
| 598 | | (4 | ) | |||||||||||
31-60 days past due |
| 61 | | | ||||||||||||
More than 60 days past due |
| 274,185 | | (25 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
486,442 | (460 | ) | (3,322 | ) | ||||||||||||
|
|
|
|
|
|
|
|
(In millions of won) | December 31, 2018 | |||||||||||||||
Book value | Allowance for impairment | |||||||||||||||
Trade accounts and notes receivable |
Other accounts receivable |
Trade accounts and notes receivable |
Other accounts receivable |
|||||||||||||
Current |
177,689 | (473 | ) | (816 | ) | |||||||||||
1-15 days past due |
21,558 | 3,148 | (4 | ) | (26 | ) | ||||||||||
16-30 days past due |
454 | 441 | | (4 | ) | |||||||||||
31-60 days past due |
30 | 96 | | (1 | ) | |||||||||||
More than 60 days past due |
| 668 | | (434 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
182,042 | (477 | ) | (1,281 | ) | ||||||||||||
|
|
|
|
|
|
|
|
The movement in the allowance for impairment in respect of trade accounts and notes receivable and other accounts receivable for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | 2019 | 2018 | ||||||||||||||
Trade accounts and notes receivable |
Other accounts receivable |
Trade accounts and notes receivable |
Other accounts receivable |
|||||||||||||
Balance at the beginning of the period |
1,281 | 1,632 | 1,311 | |||||||||||||
(Reversal of) bad debt expense |
(17 | ) | 2,041 | (1,155 | ) | (30 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at the reporting date |
3,322 | 477 | 1,281 | |||||||||||||
|
|
|
|
|
|
|
|
96
5. | Receivables and Other Assets, Continued |
(d) Other assets as of December 31, 2019 and December 31, 2018 are as follows:
(In millions of won) | December 31, 2019 | December 31, 2018 | ||||||
Current assets |
||||||||
Advanced payments |
13,259 | |||||||
Prepaid expenses |
114,145 | 89,110 | ||||||
Value added tax refundable |
826,730 | 436,190 | ||||||
Right to recover returned goods |
22,106 | 7,489 | ||||||
|
|
|
|
|||||
546,048 | ||||||||
|
|
|
|
|||||
Non-current assets |
||||||||
Long-term prepaid expenses |
381,983 | |||||||
Long-term advanced payments |
7,742 | | ||||||
|
|
|
|
|||||
381,983 | ||||||||
|
|
|
|
97
6. | Other Financial Assets |
Other financial assets as of December 31, 2019 and 2018 are as follows:
(In millions of won) | December 31, 2019 | December 31, 2018 | ||||||
Current assets |
||||||||
Financial assets at fair value through profit or loss |
||||||||
Derivatives(*) |
13,059 | |||||||
Financial assets at fair value through other comprehensive income |
||||||||
Debt instruments |
||||||||
Government bonds |
106 | |||||||
Financial asset carried at amortized cost |
||||||||
Deposits |
17,020 | |||||||
Short-term loans |
21,623 | 16,116 | ||||||
Lease receivables |
5,695 | | ||||||
|
|
|
|
|||||
33,136 | ||||||||
|
|
|
|
|||||
46,301 | ||||||||
|
|
|
|
|||||
Non-current assets |
||||||||
Financial assets at fair value through profit or loss |
||||||||
Equity instruments |
||||||||
Intellectual Discovery, Ltd. |
4,598 | |||||||
Kyulux, Inc. |
1,889 | 2,460 | ||||||
Fineeva Co., Ltd. |
4 | 286 | ||||||
ARCH Venture Fund Vlll, L.P. |
6,302 | 6,337 | ||||||
Sierra Ventures Fund XII, L.P. |
580 | | ||||||
|
|
|
|
|||||
13,681 | ||||||||
|
|
|
|
|||||
Convertible bonds |
1,327 | |||||||
Derivatives(*) |
15,640 | | ||||||
|
|
|
|
|||||
15,008 | ||||||||
|
|
|
|
|||||
Financial assets at fair value through other comprehensive income |
||||||||
Debt instruments |
||||||||
Government bonds |
55 | |||||||
Financial assets carried at amortized cost |
||||||||
Deposits |
74,103 | |||||||
Long-term loans |
40,827 | 55,048 | ||||||
Lease receivables |
22,099 | | ||||||
|
|
|
|
|||||
129,151 | ||||||||
|
|
|
|
|||||
144,214 | ||||||||
|
|
|
|
(*) | Represents valuation gain from currency interest rate swap contracts related to foreign currency denominated borrowings and bonds. The contracts are not designated as hedging instruments. |
Other financial assets issued by related
parties as of December 31, 2018 is 2,000 million. W
98
7. | Inventories |
Inventories as of December 31, 2019 and December 2018 are as follows:
(In millions of won) | December 31, 2019 | December 31, 2018 | ||||||
Finished goods |
1,084,297 | |||||||
Work-in-process |
756,744 | 856,388 | ||||||
Raw materials |
405,854 | 554,720 | ||||||
Supplies |
158,548 | 195,798 | ||||||
|
|
|
|
|||||
2,691,203 | ||||||||
|
|
|
|
For the years ended December 31, 2019 and 2018, the amount of inventories recognized as cost of sales including inventory write-downs and usage of inventory write-downs included in cost of sales are as follows:
(In millions of won) | 2019 | 2018 | ||||||
Inventories recognized as cost of sales |
21,251,305 | |||||||
Including: inventory write-downs |
472,885 | 313,180 | ||||||
Including: usage of inventory write-downs |
(313,180 | ) | (206,127 | ) |
There were no significant reversals of inventory write-downs recognized during the years ended December 31, 2019 and 2018.
99
8. | Investments in Equity Accounted Investees |
(a) Associates as of December 31, 2019 are as follows:
(In millions of won) | ||||||||||||||||||||||||||||||||
Associates |
Location |
Fiscal year |
Date of |
Business |
2019 | 2018 | ||||||||||||||||||||||||||
Percentage of ownership |
Carrying amount |
Percentage of ownership |
Carrying amount |
|||||||||||||||||||||||||||||
Paju Electric Glass Co., Ltd. |
Paju, South Korea |
December 31 | January 2005 |
Manufacture glass for display | % | 40 | % | 40 | ||||||||||||||||||||||||
INVENIA Co., Ltd. (*1) |
Seongnam, South Korea |
December 31 | January 2001 |
Develop and manufacture equipment for display manufacture | | | 13 | 4,166 | ||||||||||||||||||||||||
WooRee E&L Co., Ltd. (*2) |
Ansan, South Korea |
December 31 | June 2008 |
Manufacture LED back light unit packages | 14 | 7,310 | 14 | 4,746 | ||||||||||||||||||||||||
YAS Co., Ltd. |
Paju, South Korea |
December 31 | April 2002 |
Develop and manufacture deposition equipment for OLEDs | 15 | 19,424 | 15 | 16,308 | ||||||||||||||||||||||||
AVATEC Co., Ltd. (*3) |
Daegu, South Korea |
December 31 | August 2000 |
Process and sell glass for display | 14 | 19,929 | 17 | 23,441 | ||||||||||||||||||||||||
Arctic Sentinel, Inc. |
Los Angeles, U.S.A. | March 31 | June 2008 |
Develop and manufacture tablet for kids |
10 | | 10 | | ||||||||||||||||||||||||
CYNORA GmbH (*4) |
Bruchsal, Germany |
December 31 | March 2003 |
Develop organic emitting materials for displays and lighting devices | 12 | 4,714 | 14 | 8,668 |
100
8. | Investments in Equity Accounted Investees, Continued |
(In millions of won) | ||||||||||||||||||||||||||||||||
Associates |
Location |
Fiscal year |
Date of |
Business |
2019 | 2018 | ||||||||||||||||||||||||||
Percentage of ownership |
Carrying amount |
Percentage of ownership |
Carrying amount |
|||||||||||||||||||||||||||||
Material Science Co., Ltd. (*5) |
Seoul, South Korea |
December 31 | January 2014 |
Develop, manufacture, and sell materials for display | % | 10 | % | 10 | ||||||||||||||||||||||||
Nanosys Inc. (*6) |
Milpitas, U.S.A. |
December 31 | July 2001 |
Develop, manufacture, and sell materials for display | 4 | 5,183 | 4 | 5,491 | ||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||
|
|
|
|
101
8. | Investments in Equity Accounted Investees, Continued |
(*1) | During 2019, the Controlling Company disposed of the entire investments, 3,000,000 shares of common stock, in
INVENIA Co., Ltd and recognized |
(*2) | During 2019, the Controlling Company recognized a reversal of impairment loss of
|
(*3) | During 2019, the Controlling Company disposed of 650,000 shares of common stock in AVATEC Co., Ltd. As of
December 31, 2019, the Controlling Companys ownership percentage in AVATEC Co., LTD. is 14% and the Controlling Company recognized |
(*4) | During 2019, the Controlling Company recognized an impairment loss of |
(*5) | During 2019, the Controlling Company recognized an impairment loss of |
(*6) | During 2019, the Controlling Company recognized a reversal of impairment loss of
|
Although the Controlling Companys respective share interests in WooRee E&L Co., Ltd., YAS Co., Ltd., AVATEC Co., Ltd., Arctic Sentinel, Inc., CYNORA GmbH, Material Science Co., Ltd. and Nanosys Inc. are below 20%, the Controlling Company is able to exercise significant influence through its right to appoint a director to the board of directors of each investee. Accordingly, the investments in these investees have been accounted for using the equity method.
As of December 31, 2019, the market value of the Groups share in WooRee E&L Co., Ltd., YAS Co., Ltd., and AVATEC Co., Ltd., all
of which are listed in KOSDAQ, are W7,310 million, W39,300 million and W15,380 million, respectively.
Dividends income recognized from equity method investees for the years ended December 31, 2019 and 2018 amounted to
W7,502 million and W5,272 million, respectively.
102
8. | Investments in Equity Accounted Investees, Continued |
(b) | Summary of financial information as of and for the years ended December 31, 2019 and 2018 of the significant associate is as follows: |
(i) Paju Electric Glass Co., Ltd.
(In millions of won) | December 31, 2019 | December 31, 2018 | ||||||
Total assets |
194,021 | |||||||
Current assets |
126,314 | 128,788 | ||||||
Non-current assets |
69,501 | 65,233 | ||||||
Total liabilities |
66,017 | 72,686 | ||||||
Current liabilities |
51,625 | 66,797 | ||||||
Non-current liabilities |
14,392 | 5,889 | ||||||
Revenue |
384,144 | |||||||
Profit for the year |
13,672 | 12,744 | ||||||
Other comprehensive income |
9,933 | 2,612 | ||||||
Total comprehensive income |
23,605 | 15,356 |
(c) | Reconciliation from financial information of the significant associate to its carrying value in the consolidated financial statements as of December 31, 2019 and 2018 is as follows: |
(i) As of December 31, 2019
(In millions of won) | ||||||||||||||||||||||||||||
Company |
Net asset | Ownership interest |
Net asset (applying ownership interest) |
Goodwill | Intra- group transaction |
Impairment loss |
Book value |
|||||||||||||||||||||
Paju Electric Glass Co., Ltd. |
40 | % | 51,919 | | (789 | ) | (433 | ) | 50,697 |
(ii) As of December 31, 2018
(In millions of won) |
||||||||||||||||||||||||
Company |
Net asset | Ownership interest |
Net asset (applying ownership interest) |
Goodwill | Intra- group transaction |
Book value |
||||||||||||||||||
Paju Electric Glass Co., Ltd. |
40 | % | 48,534 | | (711 | ) | 47,823 |
103
8. | Investments in Equity Accounted Investees, Continued |
(d) | Book value of other associates, in aggregate, as of December 31, 2019 and 2018 is as follows: |
(i) As of December 31, 2019
(In millions of won) | ||||||||||||||||
Book value |
Net profit (loss) of associates (applying ownership interest) | |||||||||||||||
Profit (loss) for the year |
Other comprehensive income (loss) |
Total comprehensive income (loss) |
||||||||||||||
Other associates |
6,756 | 190 | 6,946 |
(ii) As of December 31, 2018
(In millions of won) | ||||||||||||||||
Book value |
Net profit (loss) of associates (applying ownership interest) | |||||||||||||||
Profit (loss) for the year |
Other comprehensive income (loss) |
Total comprehensive income (loss) |
||||||||||||||
Other associates |
(3,739 | ) | (988 | ) | (4,727 | ) |
104
8. | Investments in Equity Accounted Investees, Continued |
(e) | Changes in investments in associates accounted for using the equity method for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||||||||||||||||||||||||
2019 | ||||||||||||||||||||||||||||||
Company |
January 1 | Acquisition/ Disposal |
Dividends received |
Equity income (loss) on investments |
Other comprehensive income (loss) |
Other gain (loss) |
December 31 | |||||||||||||||||||||||
Associates |
Paju Electric Glass Co., Ltd. | | (6,057 | ) | 5,391 | 3,973 | (433 | ) | 50,697 | |||||||||||||||||||||
Others | 66,166 | (9,807 | ) | (1,445 | ) | 6,756 | 190 | (2,946 | ) | 58,914 | ||||||||||||||||||||
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(9,807 | ) | (7,502 | ) | 12,147 | 4,163 | (3,379 | ) | 109,611 | ||||||||||||||||||||||
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(In millions of won) | ||||||||||||||||||||||||||||||
2018 | ||||||||||||||||||||||||||||||
Company |
January 1 | Acquisition/ Disposal |
Dividends received |
Equity income (loss) on investments |
Other comprehensive income (loss) |
Other gain (loss) |
December 31 | |||||||||||||||||||||||
Associates |
Paju Electric Glass Co., Ltd. | | (4,172 | ) | 4,439 | 1,045 | | 47,823 | ||||||||||||||||||||||
Others | 75,996 | 12,592 | (1,100 | ) | (3,739 | ) | (988 | ) | (16,595 | ) | 66,166 | |||||||||||||||||||
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12,592 | (5,272 | ) | 700 | 57 | (16,595 | ) | 113,989 | |||||||||||||||||||||||
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105
9. | Property, Plant and Equipment |
(a) Changes in property, plant and equipment for the year ended December 31, 2019 are as follows:
(In millions of won) | ||||||||||||||||||||||||||||||||
Land | Buildings and structures |
Machinery and equipment |
Furniture and fixtures |
Construction- in-progress (*1) |
Right-of-use asset |
Others | Total | |||||||||||||||||||||||||
Acquisition cost as of January 1, 2019 |
6,528,939 | 39,825,070 | 834,628 | 12,234,824 | | 633,220 | 60,518,509 | |||||||||||||||||||||||||
Accumulated depreciation as of January 1, 2019 |
| (2,991,445 | ) | (34,817,982 | ) | (692,372 | ) | | | (368,983 | ) | (38,870,782 | ) | |||||||||||||||||||
Accumulated impairment loss as of January 1, 2019 |
| (1,706 | ) | (28,001 | ) | | (17,890 | ) | | | (47,597 | ) | ||||||||||||||||||||
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Book value as of January 1, 2019 |
3,535,788 | 4,979,087 | 142,256 | 12,216,934 | | 264,237 | 21,600,130 | |||||||||||||||||||||||||
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Recognition of right-of-use assets on initial application of K-IFRS No. 1116 |
| | | | | 142,040 | | 142,040 | ||||||||||||||||||||||||
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Adjusted book value as of January 1, 2019 |
3,535,788 | 4,979,087 | 142,256 | 12,216,934 | 142,040 | 264,237 | 21,742,170 | |||||||||||||||||||||||||
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Additions |
| | | | 5,878,369 | 29,733 | | 5,908,102 | ||||||||||||||||||||||||
Depreciation |
| (302,157 | ) | (2,609,205 | ) | (66,592 | ) | | (51,063 | ) | (239,762 | ) | (3,268,779 | ) | ||||||||||||||||||
Disposals |
(7,861 | ) | (4,958 | ) | (559,616 | ) | (1,622 | ) | | (3,594 | ) | (16,953 | ) | (594,604 | ) | |||||||||||||||||
Impairment loss (*2) |
| (125,687 | ) | (1,212,215 | ) | (8,278 | ) | (171,439 | ) | (4,302 | ) | (28,509 | ) | (1,550,430 | ) | |||||||||||||||||
Others (*3) |
68 | 1,064,123 | 6,958,793 | 70,140 | (8,373,047 | ) | | 279,923 | | |||||||||||||||||||||||
Government grants received |
| (83,200 | ) | (17,028 | ) | | (180,448 | ) | | | (280,676 | ) | ||||||||||||||||||||
Effect of movements in exchange rates |
| 21,984 | 30,957 | 884 | 75,958 | 436 | 1,643 | 131,862 | ||||||||||||||||||||||||
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Book value as of December 31, 2019 |
4,105,893 | 7,570,773 | 136,788 | 9,446,327 | 113,250 | 260,579 | 22,087,645 | |||||||||||||||||||||||||
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Acquisition cost as of December 31, 2019 |
7,381,156 | 43,604,721 | 899,053 | 9,618,256 | 169,133 | 823,101 | 62,949,455 | |||||||||||||||||||||||||
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Accumulated depreciation as of December 31, 2019 |
(3,154,387 | ) | (34,810,300 | ) | (753,987 | ) | | (51,581 | ) | (534,013 | ) | (39,304,268 | ) | |||||||||||||||||||
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Accumulated impairment loss as of December 31, 2019 |
(120,876 | ) | (1,223,648 | ) | (8,278 | ) | (171,929 | ) | (4,302 | ) | (28,509 | ) | (1,557,542 | ) | ||||||||||||||||||
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(*1) | As of December 31, 2019, construction-in-progress mainly relates to construction of manufacturing facilities. |
(*2) | During 2019, Display (AD PO) and Lighting CGUs were assessed for impairment, and impairment losses amounting to
|
(*3) | Others are mainly amounts transferred from construction-in-progress. |
106
9. | Property, Plant and Equipment, Continued |
(b) Changes in property, plant and equipment for the year ended December 31, 2018 are as follows:
(In millions of won) | ||||||||||||||||||||||||||||
Land | Buildings and structures |
Machinery and equipment |
Furniture and fixtures |
Construction- in-progress (*1) |
Others | Total | ||||||||||||||||||||||
Acquisition cost as of January 1, 2018 |
6,539,506 | 38,901,158 | 772,824 | 5,971,856 | 205,475 | 52,851,330 | ||||||||||||||||||||||
Accumulated depreciation as of January 1, 2018 |
| (2,678,970 | ) | (33,186,118 | ) | (631,482 | ) | | (148,753 | ) | (36,645,323 | ) | ||||||||||||||||
Accumulated impairment loss as of January 1, 2018 |
| (1,757 | ) | (2,290 | ) | | | | (4,047 | ) | ||||||||||||||||||
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Book value as of January 1, 2018 |
3,858,779 | 5,712,750 | 141,342 | 5,971,856 | 56,722 | 16,201,960 | ||||||||||||||||||||||
Additions |
| | | | 8,605,551 | | 8,605,551 | |||||||||||||||||||||
Depreciation |
| (318,311 | ) | (2,568,335 | ) | (67,274 | ) | | (169,739 | ) | (3,123,659 | ) | ||||||||||||||||
Disposals |
(15 | ) | (161 | ) | (112,752 | ) | (311 | ) | | (2,971 | ) | (116,210 | ) | |||||||||||||||
Impairment loss |
| | (25,711 | ) | | (17,890 | ) | | (43,601 | ) | ||||||||||||||||||
Others (*2) |
1,332 | 55,430 | 1,959,645 | 68,177 | (2,357,412 | ) | 380,278 | 107,450 | ||||||||||||||||||||
Effect of movements in exchange rates |
| 9,809 | 14,520 | 359 | 15,010 | 312 | 40,010 | |||||||||||||||||||||
Government grants received |
| | (1,029 | ) | | (181 | ) | | (1,210 | ) | ||||||||||||||||||
Reclassification to assets held-for-sale |
| (69,758 | ) | (1 | ) | (37 | ) | | (365 | ) | (70,161 | ) | ||||||||||||||||
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Book value as of December 31, 2018 |
3,535,788 | 4,979,087 | 142,256 | 12,216,934 | 264,237 | 21,600,130 | ||||||||||||||||||||||
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Acquisition cost as of December 31, 2018 |
6,528,939 | 39,825,070 | 834,628 | 12,234,824 | 633,220 | 60,518,509 | ||||||||||||||||||||||
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Accumulated depreciation as of December 31, 2018 |
(2,991,445 | ) | (34,817,982 | ) | (692,372 | ) | | (368,983 | ) | (38,870,782 | ) | |||||||||||||||||
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Accumulated impairment loss as of December 31, 2018 |
(1,706 | ) | (28,001 | ) | | (17,890 | ) | | (47,597 | ) | ||||||||||||||||||
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(*1) | As of December 31, 2018, construction-in-progress mainly relates to construction of manufacturing facilities. |
(*2) | Others are mainly amounts transferred from construction-in-progress. |
(c) Capitalized borrowing costs and capitalization rate for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Capitalized borrowing costs |
146,607 | |||||||
Capitalization rate |
3.74 | % | 2.80 | % |
107
10. | Intangible Assets and Non-current Asset Impairment |
(a) Changes in intangible assets for the year ended December 31, 2019 are as follows:
(In millions of won) | Intellectual property rights |
Software | Member- ships |
Development costs |
Construction- in-progress (software) |
Customer relationships |
Technology | Good- will |
Others (*2) |
Total | ||||||||||||||||||||||||||||||
Acquisition cost as of January 1, 2019 |
992,139 | 57,560 | 2,142,832 | 36,963 | 59,176 | 11,075 | 104,311 | 13,077 | 4,344,102 | |||||||||||||||||||||||||||||||
Accumulated amortization as of January 1, 2019 |
(696,948 | ) | (814,540 | ) | | (1,775,922 | ) | | (34,854 | ) | (9,598 | ) | | (13,077 | ) | (3,344,939 | ) | |||||||||||||||||||||||
Accumulated impairment loss as of January 1, 2019 |
| | (11,521 | ) | | | | | | | (11,521 | ) | ||||||||||||||||||||||||||||
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Book value as of January 1, 2019 |
177,599 | 46,039 | 366,910 | 36,963 | 24,322 | 1,477 | 104,311 | | 987,642 | |||||||||||||||||||||||||||||||
Additions - internally developed |
| | | 437,945 | | | | | | 437,945 | ||||||||||||||||||||||||||||||
Additions - external purchases |
28,397 | | 846 | | 90,369 | | | | 3 | 119,615 | ||||||||||||||||||||||||||||||
Amortization (*1) |
(42,550 | ) | (82,016 | ) | | (297,959 | ) | | (2,637 | ) | (1,108 | ) | | (2 | ) | (426,272 | ) | |||||||||||||||||||||||
Disposals |
| (239 | ) | (1,816 | ) | | | | | | | (2,055 | ) | |||||||||||||||||||||||||||
Impairment loss (*3)(*4) |
(29,152 | ) | (8,905 | ) | | (131,713 | ) | | (21,685 | ) | | (57,995 | ) | | (249,450 | ) | ||||||||||||||||||||||||
Reversal of impairment loss |
| | 960 | | | | | | | 960 | ||||||||||||||||||||||||||||||
Transfer from construction-in-progress |
| 111,359 | | | (112,159 | ) | | | | | (800 | ) | ||||||||||||||||||||||||||||
Effect of movements in exchange rates |
4,318 | 347 | 23 | | 72 | | | 1,103 | | 5,863 | ||||||||||||||||||||||||||||||
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Book value as of December 31, 2019 |
198,145 | 46,052 | 375,183 | 15,245 | | 369 | 47,419 | 1 | 873,448 | |||||||||||||||||||||||||||||||
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Acquisition cost as of December 31, 2019 |
1,097,290 | 56,612 | 2,580,777 | 15,245 | 59,176 | 11,074 | 105,414 | 13,080 | 4,898,351 | |||||||||||||||||||||||||||||||
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Accumulated amortization as of December 31, 2019 |
(890,281 | ) | | (2,073,881 | ) | | (37,491 | ) | (10,705 | ) | | (13,079 | ) | (3,764,935 | ) | |||||||||||||||||||||||||
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Accumulated impairment loss as of December 31, 2019 |
(8,864 | ) | (10,560 | ) | (131,713 | ) | | (21,685 | ) | | (57,995 | ) | | (259,968 | ) | |||||||||||||||||||||||||
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(*1) | The Group has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses and research and development expenses. |
(*2) | Others mainly consist of rights to use electricity and gas supply facilities. |
(*3) | During 2019, Display (AD PO) and Lighting CGUs were assessed for impairment, and the impairment losses
amounting to |
(*4) | The Group recognized an impairment loss amounting to |
108
10. | Intangible Assets and Non-current Asset Impairment, Continued |
(b) | Changes in intangible assets for the year ended December 31, 2018 are as follows: |
(In millions of won) | Intellectual property rights |
Software | Member- ships |
Development costs |
Construction- in-progress (software) |
Customer relationships |
Technology | Good- will |
Others (*2) |
Total | ||||||||||||||||||||||||||||||
Acquisition cost as of January 1, 2018 |
898,278 | 54,985 | 1,769,998 | 30,933 | 59,176 | 11,074 | 103,048 | 13,077 | 3,836,290 | |||||||||||||||||||||||||||||||
Accumulated amortization as of January 1, 2018 |
(648,755 | ) | (736,788 | ) | | (1,473,238 | ) | | (31,337 | ) | (8,490 | ) | | (13,076 | ) | (2,911,684 | ) | |||||||||||||||||||||||
Accumulated impairment loss as of January 1, 2018 |
| | (11,785 | ) | | | | | | | (11,785 | ) | ||||||||||||||||||||||||||||
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Book value as of January 1, 2018 |
161,490 | 43,200 | 296,760 | 30,933 | 27,839 | 2,584 | 103,048 | 1 | 912,821 | |||||||||||||||||||||||||||||||
Additions - internally developed |
| | | 372,835 | | | | | | 372,835 | ||||||||||||||||||||||||||||||
Additions - external purchases |
24,596 | | 2,844 | | 100,820 | | | | | 128,260 | ||||||||||||||||||||||||||||||
Amortization (*1) |
(43,437 | ) | (80,159 | ) | | (302,685 | ) | | (3,517 | ) | (1,107 | ) | | (1 | ) | (430,906 | ) | |||||||||||||||||||||||
Disposals |
| | (721 | ) | | | | | | | (721 | ) | ||||||||||||||||||||||||||||
Impairment loss |
| | (82 | ) | | | | | | | (82 | ) | ||||||||||||||||||||||||||||
Reversal of impairment loss |
| | 348 | | | | | | | 348 | ||||||||||||||||||||||||||||||
Transfer from construction-in-progress |
| 95,028 | 449 | | (95,028 | ) | | | | | 449 | |||||||||||||||||||||||||||||
Effect of movements in exchange rates |
1,896 | 1,240 | 1 | | 238 | | | 1,263 | | 4,638 | ||||||||||||||||||||||||||||||
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Book value as of December 31, 2018 |
177,599 | 46,039 | 366,910 | 36,963 | 24,322 | 1,477 | 104,311 | | 987,642 | |||||||||||||||||||||||||||||||
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Acquisition cost as of December 31, 2018 |
992,139 | 57,560 | 2,142,832 | 36,963 | 59,176 | 11,075 | 104,311 | 13,077 | 4,344,102 | |||||||||||||||||||||||||||||||
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Accumulated amortization as of December 31, 2018 |
(814,540 | ) | | (1,775,922 | ) | | (34,854 | ) | (9,598 | ) | | (13,077 | ) | (3,344,939 | ) | |||||||||||||||||||||||||
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Accumulated impairment loss as of December 31, 2018 |
| (11,521 | ) | | | | | | | (11,521 | ) | |||||||||||||||||||||||||||||
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(*1) | The Group has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses and research and development expenses. |
(*2) | Others mainly consist of rights to use electricity and gas supply facilities. |
109
10. | Intangible Assets and Non-current Asset Impairment, Continued |
(c) | Development projects are divided into research activities and development activities. Expenditures on research activities are recognized in profit or loss and qualifying development expenditures are capitalized, respectively. |
(d) | Development costs as of December 31, 2019 and 2018 are as follows: |
(i) | As of December 31, 2019 |
(In millions of won and in years) | ||||||||||
Classification |
Product type | Book Value | Remaining Useful life |
|||||||
Development completed |
Mobile | 0.4 | ||||||||
TV | 22,597 | 0.4 | ||||||||
Notebook | 14,464 | 0.4 | ||||||||
Others | 12,370 | 0.7 | ||||||||
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Development in process |
Mobile | | ||||||||
TV | 42,587 | | ||||||||
Notebook | 46,167 | | ||||||||
Others | 26,165 | | ||||||||
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(ii) As of December 31, 2018
(In millions of won and in years) | ||||||||||
Classification |
Product type | Book Value | Remaining Useful life |
|||||||
Development completed |
Mobile | 0.5 | ||||||||
TV | 28,001 | 0.5 | ||||||||
Notebook | 4,458 | 0.6 | ||||||||
Others | 9,475 | 0.5 | ||||||||
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Development in process |
Mobile | | ||||||||
TV | 55,580 | | ||||||||
Notebook | 9,639 | | ||||||||
Others | 6,611 | | ||||||||
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110
10. | Intangible Assets and Non-current Asset Impairment, Continued |
(e) | Impairment assessment |
(i) | During 2019, the Group has distinguished Display (AD PO) and Lighting businesses as separate CGUs from the
existing Display CGU due to the initiation of independent factory production of Display (AD PO) business and the decision of Lighting business planned discontinuance in response to business environmental changes. As of December 31, 2019
goodwill is allocated to the Display CGU amounts to |
(ii) | Impairment on assets belonging to CGUs was assessed due to the decision of planned discontinuance of Lighting business and adverse changes in the business environment of Display (AD PO). The recoverable amount of each CGU is estimated based on its value in use. Value in use is calculated using the estimated pre-tax cash flow based on 5-year business plan approved by management. The estimated sales of the Groups products used in the forecast was determined considering external sources and the Groups past experience. Management estimated the future pre- tax cash flow based on its past performance and forecasts on market growth. The key assumptions used in the estimation of value in use of each CGU as of December 31, 2019 are as follows. |
Lighting(*2) | Display (AD PO)(*3) | Display(*4) | ||||||||||
Discount rate(*1) |
6.1 | % | 6.1 | % | 6.1 | % | ||||||
Terminal growth rate |
0.0 | % | 0.0 | % | 1.0 | % |
(*1) | The discount rate was calculated using the weighted average cost of equity capital and debt, and the beta of equity capital was calculated as the average of five global listed companies in the same industry and the Group. Cost of debt was calculated by the interest rate of the Groups publicly issued bonds and debt ratio was determined using the average of the debt ratios of the five global listed companies in the same industry and the Group. |
(*2) | As a result of impairment test, the carrying amount of Lighting CGU which produces OLED lighting products was
fully impaired with impairment loss of |
(*3) | As a result of impairment test, the carrying amount of Display (AD PO) CGU which produces plastic OLED mobile
products and commenced mass production in 2019, exceeds the recoverable amount of |
(*4) | As a result of impairment test for Display CGU, the recoverable amount exceeds the carrying amount by
|
111
11. | Financial Liabilities |
(a) | Financial liabilities as of December 31, 2019 and 2018 are as follows: |
(In millions of won) | December 31, 2019 |
December 31, 2018 |
||||||
Current |
||||||||
Short-term borrowings |
| |||||||
Current portion of long-term borrowing and bonds |
1,242,904 | 1,553,907 | ||||||
Lease liabilities |
37,387 | | ||||||
|
|
|
|
|||||
1,553,907 | ||||||||
|
|
|
|
|||||
Non-current |
||||||||
Won denominated borrowings |
2,700,608 | |||||||
Foreign currency denominated borrowings |
6,107,117 | 2,531,663 | ||||||
Bonds |
2,741,516 | 1,772,599 | ||||||
Derivatives(*) |
20,592 | 25,758 | ||||||
Lease liabilities |
51,125 | | ||||||
|
|
|
|
|||||
7,030,628 | ||||||||
|
|
|
|
(*) | Represents currency interest rate swap contracts entered by the Group to hedge interest rate risks with respect to foreign currency denominated borrowings and bonds. |
(b) | Foreign currency denominated short-term borrowings as of December 31, 2019 are as follows. There are none as of December 31, 2018. |
(In millions of won and USD, CNY) | ||||||
Lender |
Annual interest rate as of December 31, 2019 (%)(*) |
December 31, 2019 |
||||
Standard Chartered Bank Korea Limited |
12ML + 0.78~0.88 | |||||
Standard Chartered Bank Vietnam and others |
3ML + 0.80~0.90 | 61,613 | ||||
Standard Chartered Bank (China) Limited and others |
PBOC x 1.05 PBOC 0.05 |
287,840 | ||||
|
|
|||||
Foreign currency equivalent |
USD 353 | |||||
CNY 1,737 | ||||||
|
|
|||||
|
|
(*) | ML represents Month LIBOR (London Inter-Bank Offered Rates) and PBOC represents the benchmark interest rate of Peoples Bank of China. |
112
11. | Financial Liabilities, Continued |
(c) | Won denominated long-term borrowings as of December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||||
Lender |
Annual interest rate as of December 31, 2019 (%)(*) |
December 31, 2019 |
December 31, 2018 |
|||||||
Woori Bank |
2.75 | 1,259 | ||||||||
Korea Development Bank and others |
CD rate (91days) + 1.00~1.39, 2.21~3.25 | 3,330,000 | 2,850,000 | |||||||
Less current portion of long-term borrowings |
(638,048 | ) | (150,651 | ) | ||||||
|
|
|
|
|||||||
2,700,608 | ||||||||||
|
|
|
|
(*) | CD represents Certificate of Deposit. |
(d) | Foreign currency denominated long-term borrowings as of December 31, 2019 and 2018 are as follows: |
(In millions of won and USD, CNY) | ||||||||||
Lender |
Annual interest rate as of December 31, 2019 (%) |
December 31, 2019 |
December 31, 2018 |
|||||||
The Export-Import Bank of Korea |
3ML+0.75~1.70 6ML+1.25~1.35 |
955,975 | ||||||||
China Construction Bank and others |
USD: 3ML+0.80~1.43 CNY: PBOC X (0.95~1.05) |
4,606,094 | 2,419,286 | |||||||
|
|
|
|
|||||||
Foreign currency equivalent |
USD 2,767 | USD 2,262 | ||||||||
CNY 18,699 | CNY 5,198 | |||||||||
Less current portion of long-term borrowings |
(843,598 | ) | ||||||||
|
|
|
|
|||||||
2,531,663 | ||||||||||
|
|
|
|
113
11. | Financial Liabilities, Continued |
(e) | Details of bonds issued and outstanding as of December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||||||||||
Maturity | Annual interest rate as of December 31, 2019 (%) |
December 31, 2019 |
December 31, 2018 |
|||||||||||||
Won denominated bonds(*1) |
||||||||||||||||
Publicly issued bonds |
|
May 2020 ~ February 2024 |
|
1.95~2.95 | 1,900,000 | |||||||||||
Privately issued bonds |
|
May 2025 ~ May 2033 |
|
3.25~4.25 | 110,000 | 110,000 | ||||||||||
Less discount on bonds |
(3,404 | ) | (3,949 | ) | ||||||||||||
Less current portion |
(409,702 | ) | (559,658 | ) | ||||||||||||
|
|
|
|
|||||||||||||
1,446,393 | ||||||||||||||||
|
|
|
|
|||||||||||||
Foreign currency denominated bonds (*2) |
||||||||||||||||
Publicly issued bonds |
November 2021 | 3.88 | 335,430 | |||||||||||||
Privately issued bonds |
April 2023 | 3ML + 1.47 | 115,780 | | ||||||||||||
Foreign currency equivalent |
USD 400 | USD 300 | ||||||||||||||
Less discount on bonds |
(6,883 | ) | (9,224 | ) | ||||||||||||
|
|
|
|
|||||||||||||
456,237 | 326,206 | |||||||||||||||
Financial liabilities at fair value through profit or loss |
||||||||||||||||
Foreign currency convertible bonds |
August 2024 | 1.50 | | |||||||||||||
Foreign currency equivalent |
USD 741 | | ||||||||||||||
|
|
|
|
|||||||||||||
1,772,599 | ||||||||||||||||
|
|
|
|
(*1) | Principal of the won denominated bonds is to be repaid at maturity and interests are paid quarterly. |
(*2) | Principal of the foreign currency denominated bonds is to be repaid at maturity and interests are paid quarterly or semi-annually. |
114
11. | Financial Liabilities, Continued |
(f) | Details of the convertible bonds issued and outstanding as of December 31, 2019 are as follows: |
(In won, USD) | ||
Description | ||
Type |
Unsecured foreign currency denominated convertible bonds | |
Issuance amount |
USD 687,800,000 | |
Annual interest rate (%) |
1.50 | |
Issuance date |
August 22, 2019 | |
Maturity date |
August 22, 2024 | |
Interest payment |
Payable semi-annually in arrear until maturity date in equal installments commencing on issuance | |
Principal redemption |
1. Redemption at maturity: Redeemed on the maturity date, at their outstanding principal amount, which has not been early redeemed or converted. 2. Advanced redemption: The Controlling Company has a right to redeem in advance (call option) and the bondholders have a right to require the Controlling Company to redeem in advance (put option). At exercise, the outstanding principal amount together with accrued but unpaid interest are to be redeemed. | |
Conversion price |
||
Conversion period |
From August 23, 2020 to August 12, 2024 | |
Redemption at the option of the issuer (Call option) |
- On or at any time after 3 years from the issuance, if the closing price of the shares for any 20 trading days out of the 30 consecutive trading days is at least 130% of the applicable conversion price - The aggregate principal amount of the convertible bonds outstanding is less than 10% of the aggregate principal amount originally issued, or - In the event of certain changes in laws and other directives resulting in additional taxes for the holders | |
Redemption at the option of the bondholders (Put option) |
On the day of 3 years from the issuance |
The Controlling Company designated the convertible bonds as financial liabilities at fair value through profit of loss and recognized the change in fair value in profit or loss. The Controlling Company measures the convertible bond at fair value using the market price of convertible bonds disclosed on Bloomberg. The number of convertible shares as of December 31, 2019 is as follows:
(In won and No. of shares) | ||||
December 31, 2019 | ||||
Aggregate outstanding amount of the convertible bonds |
||||
Conversion price |
||||
Number of common shares to be issued at conversion |
40,988,998 |
115
12. | Employee Benefits |
The Controlling Company and certain subsidiaries defined benefit plans provide a lump-sum payment to an employee based on final salary rates and length of service at the time the employee leaves the Group.
The defined benefit plans expose the Group to actuarial risks, such as the risk associated with expected periods of service, interest rate risk, market (investment) risk, and others.
(a) | Net defined benefit liabilities (employee benefits assets) recognized as of December 31 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Present value of partially funded defined benefit obligations |
1,595,423 | |||||||
Fair value of plan assets |
(1,607,253 | ) | (1,550,063 | ) | ||||
|
|
|
|
|||||
45,360 | ||||||||
|
|
|
|
|||||
Defined benefit liabilities, net |
45,360 | |||||||
Employee benefits assets |
|
(b) Changes in the present value of the defined benefit obligations for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Opening defined benefit obligations |
1,562,424 | |||||||
Current service cost |
194,469 | 204,668 | ||||||
Past service cost |
(32,006 | ) | (25,749 | ) | ||||
Interest cost |
42,360 | 49,145 | ||||||
Remeasurements (before tax) |
(137,464 | ) | (27,885 | ) | ||||
Benefit payments |
(95,675 | ) | (88,562 | ) | ||||
Curtailment of plans |
(80,470 | ) | (74,459 | ) | ||||
Net transfers from (to) related parties |
(5,349 | ) | (4,217 | ) | ||||
Others |
51 | 58 | ||||||
|
|
|
|
|||||
Closing defined benefit obligations |
1,595,423 | |||||||
|
|
|
|
Weighted average remaining maturity of defined benefit obligations as of December 31, 2019 and 2018 are 15.1 years and 14.4 years, respectively.
(c) Changes in fair value of plan assets for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Opening fair value of plan assets |
1,466,977 | |||||||
Expected return on plan assets |
41,826 | 48,184 | ||||||
Remeasurements (before tax) |
(8,824 | ) | (22,195 | ) | ||||
Contributions by employer directly to plan assets |
186,641 | 212,224 | ||||||
Benefit payments |
(82,266 | ) | (80,690 | ) | ||||
Net transfers from (to) related parties |
280 | | ||||||
Curtailment of plans |
(80,467 | ) | (74,437 | ) | ||||
|
|
|
|
|||||
Closing fair value of plan assets |
1,550,063 | |||||||
|
|
|
|
116
12. | Employee Benefits, Continued |
(d) | Plan assets at the reporting date are as follows: |
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Guaranteed deposits in banks |
1,550,063 |
As of December 31, 2019, the Group maintains the plan assets primarily with Mirae Asset Daewoo Co., Ltd., KB Insurance Co., Ltd. and others.
(e) | Expenses recognized in profit or loss for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Current service cost |
204,668 | |||||||
Past service cost |
(32,006 | ) | (25,749 | ) | ||||
Net interest cost |
534 | 961 | ||||||
|
|
|
|
|||||
179,880 | ||||||||
|
|
|
|
Expenses are recognized as following in the consolidated statements of comprehensive income (loss):
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Cost of sales |
134,879 | |||||||
Selling expenses |
10,600 | 11,045 | ||||||
Administrative expenses |
18,360 | 19,472 | ||||||
Research and development expenses |
14,890 | 14,484 | ||||||
|
|
|
|
|||||
179,880 | ||||||||
|
|
|
|
(f) | Remeasurements of net defined benefit liabilities (assets) included in other comprehensive income (loss) for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Balance at January 1 |
(170,510 | ) | ||||||
Remeasurements |
||||||||
Actuarial profit or loss arising from: |
||||||||
Experience adjustment |
43,644 | 56,225 | ||||||
Demographic assumptions |
(19,952 | ) | (15,379 | ) | ||||
Financial assumptions |
113,772 | (12,961 | ) | |||||
Return on plan assets |
(8,824 | ) | (22,195 | ) | ||||
Groups share of associates regarding remeasurements |
238 | 20 | ||||||
|
|
|
|
|||||
5,710 | ||||||||
|
|
|
|
|||||
Income tax |
(1,169 | ) | ||||||
|
|
|
|
|||||
Balance at December 31 |
(165,969 | ) | ||||||
|
|
|
|
117
12. | Employee Benefits, Continued |
(g) | Principal actuarial assumptions at the reporting date (expressed as weighted averages) are as follows: |
December 31, 2019 | December 31, 2018 | |||||||
Expected rate of salary increase |
3.4 | % | 4.3 | % | ||||
Discount rate for defined benefit obligations |
2.4 | % | 2.8 | % |
Assumptions regarding future mortality are based on published statistics and mortality tables. The current mortality underlying the values of the liabilities in the defined benefit plans are as follows:
December 31, 2019 | December 31, 2018 | |||||||||
Teens |
Males | 0.00 | % | 0.01 | % | |||||
Females | 0.00 | % | 0.00 | % | ||||||
Twenties |
Males | 0.01 | % | 0.01 | % | |||||
Females | 0.00 | % | 0.00 | % | ||||||
Thirties |
Males | 0.01 | % | 0.01 | % | |||||
Females | 0.00 | % | 0.01 | % | ||||||
Forties |
Males | 0.02 | % | 0.03 | % | |||||
Females | 0.01 | % | 0.02 | % | ||||||
Fifties |
Males | 0.04 | % | 0.05 | % | |||||
Females | 0.02 | % | 0.02 | % |
(h) | Reasonably possible changes to respective relevant actuarial assumptions would have affected the defined benefit obligations by the following amounts as of December 31, 2019: |
(In millions of won) | Defined benefit obligation | |||||||
1% increase | 1% decrease | |||||||
Discount rate for defined benefit obligations |
237,364 | |||||||
Expected rate of salary increase |
233,106 | (194,965 | ) |
118
13. | Provisions and Other Liabilities |
(a) | Changes in provisions for the year ended December 31, 2019 are as follows: |
(In millions of won) | ||||||||||||||||
Litigations and claims |
Warranties (*) | Others | Total | |||||||||||||
Balance at January 1, 2019 |
122,088 | 8,930 | 131,018 | |||||||||||||
Additions |
3,073 | 418,942 | 17,451 | 439,466 | ||||||||||||
Usage |
(3,073 | ) | (310,768 | ) | | (313,841 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2019 |
230,262 | 26,381 | 256,643 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current |
163,144 | 26,381 | 189,525 | |||||||||||||
Non-current |
67,118 | | 67,118 |
(*) | The provision for warranties on defective products is normally applicable for 18~36 months from the date of purchase. The provision is calculated by using historical and anticipated rates of warranty claims, and costs per claim to satisfy the Groups warranty obligation. |
(b) | Other liabilities at the reporting date are as follows: |
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Current liabilities |
||||||||
Withholdings |
30,970 | |||||||
Unearned revenues |
44,333 | 43,841 | ||||||
Security deposits |
9,310 | 165 | ||||||
|
|
|
|
|||||
74,976 | ||||||||
|
|
|
|
|||||
Non-current liabilities |
||||||||
Long-term accrued expenses |
80,817 | |||||||
Long-term other accounts payable |
1,069 | 3,103 | ||||||
Long-term advances received |
6,852 | 2,116 | ||||||
Security deposits |
1,690 | 10,790 | ||||||
|
|
|
|
|||||
96,826 | ||||||||
|
|
|
|
119
14. | Contingent Liabilities and Commitments |
(a) | Legal Proceedings |
Anti-trust litigations
Some individual claimants filed follow-on damages claims against the Group and other TFT-LCD manufacturers alleging violations of EU competition law. While the Group continues its vigorous defense of the various pending proceedings described above, as of December 31, 2019, the final results cannot be predicted.
Solas OLED Ltd. Litigations
In April 2019, Solas OLED Ltd. filed patent infringement actions against the Controlling Company and television manufacturers in the United States District Court for the Western District of Texas as well as the Controlling Company and its subsidiary, LG Display Germany GmbH, and television manufactures in Mannheim District Court in Germany. As of December 31, 2019, the final results cannot be predicted.
Others
The Group is involved in various disputes in addition to pending proceedings described above. The Group cannot reliably estimate the timing and amount of outflows of resources embodying economic benefits relating to the disputes.
120
14. | Contingent Liabilities and Commitments, Continued |
(b) | Commitments |
Factoring and securitization of accounts receivable
The Controlling Company has agreements with Korea Development Bank and several other banks for accounts receivable sales negotiating facilities
of up to an aggregate of USD 1,360 million (W1,574,608 million) in connection with the Controlling Companys export sales transactions with its subsidiaries. As of December 31, 2019, there are no outstanding
short-term borrowings that are past due in connection with these agreements. In connection with all of the contracts in this paragraph, the Controlling Company has sold its accounts receivable with recourse.
The Controlling Company and overseas subsidiaries entered into agreements with financial institutions for accounts receivables sales negotiating facilities. The respective maximum amount of accounts receivables that could be sold under the agreement and the amount of sold but not yet due accounts receivables by contract are as follows:
(In millions of USD and KRW) | ||||||||||||||||||
Classification |
Financial institutions |
Credit limit | Not yet due | |||||||||||||||
Contractual amount |
KRW equivalent |
Contractual amount |
KRW equivalent |
|||||||||||||||
Controlling Company |
Shinhan Bank | KRW 90,000 | 90,000 | | | |||||||||||||
USD 25 | 28,945 | | | |||||||||||||||
Sumitomo Mitsui Banking Corporation | USD 20 | 23,156 | | | ||||||||||||||
Bank of Tokyo-Mitsubishi UFJ | KRW 130,000 | 130,000 | | | ||||||||||||||
USD 70 | 81,046 | USD 4 | 4,640 | |||||||||||||||
BNP Paribas | USD 125 | 144,725 | USD 18 | 20,888 | ||||||||||||||
ING Bank | USD 150 | 173,670 | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
USD 390 | USD 22 | |||||||||||||||||
KRW 220,000 | 671,542 | | 25,528 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Subsidiaries |
||||||||||||||||||
LG Display Singapore Pte. Ltd. |
Standard Chartered Bank | USD 300 | 347,340 | | | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
LG Display Taiwan Co., Ltd. |
BNP Paribas | USD 15 | 17,367 | | | |||||||||||||
Australia and New Zealand Banking Group Ltd. | USD 70 | 81,046 | | | ||||||||||||||
Taishin International Bank | USD 280 | 324,184 | USD 20 | 23,157 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
LG Display Germany GmbH |
Citibank | USD 80 | 92,624 | | | |||||||||||||
BNP Paribas | USD 75 | 86,835 | | | ||||||||||||||
DZ Bank AG | USD 4 | 4,229 | USD 2 | 1,859 | ||||||||||||||
Commerzbank AG | USD 3 | 4,030 | USD 4 | 4,142 | ||||||||||||||
UniCredit Bank | USD 23 | 26,099 | USD 3 | 3,827 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
LG Display America, Inc. |
Hong Kong & Shanghai Banking Corp. | USD 800 | 926,240 | USD 749 | 867,424 | |||||||||||||
Standard Chartered Bank | USD 600 | 694,680 | | | ||||||||||||||
Sumitomo Mitsui Banking Corporation | USD 200 | 231,560 | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
USD 2,450 | 2,836,234 | USD 778 | 900,409 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
USD 2,840 | USD 800 | |||||||||||||||||
KRW 220,000 | 3,507,776 | | 925,937 | |||||||||||||||
|
|
|
|
|
|
|
|
121
14. | Contingent Liabilities and Commitments, Continued |
(b) | Commitments, Continued |
In connection with all of the contracts in the above table, the Group has sold its accounts receivable without recourse.
Letters of credit
As of December 31, 2019, the Controlling Company has agreements in relation to the opening of letters of credit up to USD 150 million
(W173,670 million) with KEB Hana Bank, USD 50 million (W57,890 million) with Sumitomo Mitsui Banking Corporation, USD 100 million (W115,780 million) with Industrial Bank of Korea and USD
100 million (W115,780 million) with Industrial and Commercial Bank of China.
Payment guarantees
The Controlling Company obtained payment guarantees amounting to USD 1,075 million (W1,244,635 million) from KEB Hana
Bank and others for advances received related to the long-term supply agreements. The Controlling Company also obtained payment guarantees amounting to USD 306 million (W354,070 million) from Korea
Development Bank for foreign currency denominated bonds.
LG Display (China) Co., Ltd. and others are provided with payment
guarantees from the China Construction Bank and other various banks amounting to CNY 778 million (W128,863 million), JPY 900 million (W9,571 million), EUR 2.5 million (W3,244
million), VND 46,394 million (W2,320 million) and USD 0.5 million (W579 million), respectively, for their local tax payments and utility payments.
License agreements
As of December 31, 2019, the Group has technical license agreements with Hitachi Display, Ltd. and others in relation to its LCD business and patent cross license agreement with Universal Display Corporation in relation to its OLED business. Also, the Group has a trademark license agreement with LG Corp. as of December 31, 2019.
Long-term supply agreement
As of December 31, 2019, in connection with long-term supply agreements with customers, the
Controlling Company recognized USD 875 million (W1,013,075 million) in advances received. The advances received will be offset against outstanding accounts receivable balances after a given period of time, as well as those
arising from the supply of products thereafter. The Controlling Company received payment guarantees amounting to USD 1,075 million (W1,244,635 million) from KEB Hana Bank and other various banks relating to advances received
(see Note 14(b) payment guarantees).
122
15. | Capital and Reserves |
(a) | Share capital |
The Controlling Company is authorized to issue 500,000,000 shares of capital stock (par value W5,000), and as of
December 31, 2019 and December 31, 2018, the number of issued common shares is 357,815,700. There have been no changes in the capital stock from January 1, 2018 to December 31, 2019.
(b) | Reserves |
Reserves consist mainly of the following:
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.
Other comprehensive income (loss) from associates
The other comprehensive income (loss) from associates comprises the amount related to change in equity of investments excluding the changes in net income in equity accounted investees.
Reserves as of December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Foreign currency translation differences for foreign operations |
(272,474 | ) | ||||||
Other comprehensive loss from associates |
(24,569 | ) | (28,494 | ) | ||||
|
|
|
|
|||||
(300,968 | ) | |||||||
|
|
|
|
123
15. | Capital and Reserves, Continued |
(b) | Reserves, Continued |
The movement in reserves for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||||||
Foreign currency translation differences for foreign operations |
Other comprehensive income (loss) from associates (excluding remeasurements) |
Total | ||||||||||
January 1, 2018 |
(28,531 | ) | (288,280 | ) | ||||||||
Change in reserves |
(12,725 | ) | 37 | (12,688 | ) | |||||||
|
|
|
|
|
|
|||||||
December 31, 2018 |
(272,474 | ) | (28,494 | ) | (300,968 | ) | ||||||
|
|
|
|
|
|
|||||||
January 1, 2019 |
(272,474 | ) | (28,494 | ) | (300,968 | ) | ||||||
Change in reserves |
94,022 | 3,925 | 97,947 | |||||||||
|
|
|
|
|
|
|||||||
December 31, 2019 |
(178,452 | ) | (24,569 | ) | (203,021 | ) | ||||||
|
|
|
|
|
|
124
16. | Revenue |
Details of revenue for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Sales of goods |
24,293,798 | |||||||
Royalties |
14,409 | 17,513 | ||||||
Others |
26,255 | 25,260 | ||||||
|
|
|
|
|||||
24,336,571 | ||||||||
|
|
|
|
17. | Geographic and Other Information |
The following is a summary of the Groups revenue by region based on the location of customers for the years ended December 31, 2019 and 2018.
(a) | Revenue by geography |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Domestic |
1,589,452 | |||||||
Foreign |
||||||||
China |
15,432,503 | 15,242,533 | ||||||
Asia (excluding China) |
2,404,739 | 2,481,112 | ||||||
United States |
1,940,321 | 2,462,918 | ||||||
Europe (excluding Poland) |
1,475,942 | 1,496,138 | ||||||
Poland |
957,423 | 1,064,418 | ||||||
|
|
|
|
|||||
22,747,119 | ||||||||
|
|
|
|
|||||
24,336,571 | ||||||||
|
|
|
|
Sales to Company A and Company B amount to W8,494,720 million and
W4,501,790 million, respectively, for the year ended December 31, 2019 (2018: W7,262,255 million and W5,171,354 million, respectively). The Groups top ten end-brand customers together accounted for 80% of sales for the year ended December 31, 2019 (2018: 77%).
(b) | Non-current assets by geography |
(In millions of won) | ||||||||||||||||
December 31, 2019 | December 31, 2018 | |||||||||||||||
Property, plant and equipment |
Intangible assets |
Property, plant and equipment |
Intangible assets |
|||||||||||||
Domestic |
708,047 | 14,984,688 | 816,808 | |||||||||||||
Foreign |
||||||||||||||||
China |
7,391,279 | 34,337 | 5,049,216 | 12,332 | ||||||||||||
Others |
1,932,126 | 131,064 | 1,566,226 | 158,502 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
165,401 | 6,615,442 | 170,834 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
873,448 | 21,600,130 | 987,642 | ||||||||||||||
|
|
|
|
|
|
|
|
125
17. | Geographic and Other Information, Continued |
(c) | Revenue by product and services |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Televisions |
9,727,260 | |||||||
Desktop monitors |
4,028,007 | 4,040,025 | ||||||
Tablet products |
2,251,049 | 1,990,766 | ||||||
Notebook computers |
2,783,718 | 2,836,888 | ||||||
Mobile and others |
6,414,656 | 5,741,632 | ||||||
|
|
|
|
|||||
24,336,571 | ||||||||
|
|
|
|
18. | The Nature of Expenses and Others |
The classification of expenses by nature for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Changes in inventories |
(341,120 | ) | ||||||
Purchases of raw materials, merchandise and others |
12,580,796 | 12,863,812 | ||||||
Depreciation and amortization |
3,695,051 | 3,554,565 | ||||||
Outsourcing |
865,935 | 825,393 | ||||||
Labor |
3,072,877 | 3,222,110 | ||||||
Supplies and others |
813,262 | 1,010,352 | ||||||
Utility |
896,112 | 899,075 | ||||||
Fees and commissions |
695,245 | 722,134 | ||||||
Shipping |
196,002 | 240,288 | ||||||
Advertising |
193,436 | 112,400 | ||||||
Warranty |
418,942 | 234,928 | ||||||
Travel |
95,074 | 104,009 | ||||||
Taxes and dues |
109,473 | 123,210 | ||||||
Impairment loss on property, plant, and equipment |
1,550,430 | 43,601 | ||||||
Impairment loss on intangible assets |
249,450 | 82 | ||||||
Others |
625,504 | 713,990 | ||||||
|
|
|
|
|||||
24,328,829 | ||||||||
|
|
|
|
Total expenses consist of cost of sales, selling, administrative, research and development expenses and other non-operating expenses, excluding foreign exchange differences.
126
19. | Selling and Administrative Expenses |
Details of selling and administrative expenses for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Salaries(*1) |
500,610 | |||||||
Expenses related to defined benefit plans(*2) |
29,018 | 30,724 | ||||||
Other employee benefits |
77,690 | 90,348 | ||||||
Shipping |
162,509 | 200,434 | ||||||
Fees and commissions |
219,784 | 221,050 | ||||||
Depreciation |
225,909 | 174,575 | ||||||
Taxes and dues |
49,826 | 65,621 | ||||||
Advertising |
193,436 | 112,400 | ||||||
Warranty |
418,942 | 234,928 | ||||||
Rent |
2,887 | 26,691 | ||||||
Insurance |
11,386 | 11,584 | ||||||
Travel |
23,594 | 24,659 | ||||||
Training |
12,215 | 13,309 | ||||||
Others |
63,799 | 64,244 | ||||||
|
|
|
|
|||||
1,771,177 | ||||||||
|
|
|
|
(*1) | Expenses recognized in relation to employee termination benefits for the years ended December 31, 2019 and
2018 amount to |
(*2) | Expenses recognized in relation to employee defined contribution plan for the years ended December 31,
2019 and 2018 amount to |
20. | Personnel Expenses |
Details of personnel expenses for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Salaries and wages |
2,720,014 | |||||||
Other employee benefits |
473,916 | 500,169 | ||||||
Contributions to National Pension plan |
73,148 | 75,668 | ||||||
Expenses related to defined benefit plan and defined contribution plan (*) |
163,757 | 180,737 | ||||||
|
|
|
|
|||||
3,476,588 | ||||||||
|
|
|
|
(*) | Expenses recognized in relation to employee defined contribution plan for the years ended December 31,
2019 and 2018 amount to |
127
21. | Other Non-operating Income and Other Non-operating Expenses |
(a) | Details of other non-operating income for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Foreign currency gain |
970,306 | |||||||
Gain on disposal of property, plant and equipment |
35,788 | 6,620 | ||||||
Gain on disposal of intangible assets |
552 | 239 | ||||||
Reversal of impairment loss on intangible assets |
960 | 348 | ||||||
Rental income |
3,098 | 3,584 | ||||||
Gain on disposal of non-current assets held for sale |
8,353 | | ||||||
Others |
44,124 | 21,941 | ||||||
|
|
|
|
|||||
1,003,038 | ||||||||
|
|
|
|
(b) | Details of other non-operating expenses for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Foreign currency loss |
1,030,084 | |||||||
Other bad debt expense |
1,379 | 4 | ||||||
Loss on disposal of property, plant and equipment |
40,897 | 15,048 | ||||||
Impairment loss on property, plant, and equipment |
1,550,430 | 43,601 | ||||||
Loss on disposal of intangible assets |
139 | | ||||||
Impairment loss on intangible assets |
249,450 | 82 | ||||||
Donations |
693 | 7,698 | ||||||
Others |
19,701 | 18,716 | ||||||
|
|
|
|
|||||
1,115,233 | ||||||||
|
|
|
|
128
22. | Finance Income and Finance Costs |
(a) | Finance income and costs recognized in profit or loss for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Finance income |
||||||||
Interest income |
69,020 | |||||||
Foreign currency gain |
135,006 | 160,989 | ||||||
Gain on disposal of investments in equity accounted investees |
4,531 | | ||||||
Reversal of impairment loss of investments in equity accounted investees |
1,744 | 802 | ||||||
Gain on transaction of derivatives |
21,752 | 2,075 | ||||||
Gain on valuation of derivatives |
59,781 | 13,059 | ||||||
Gain on disposal of financial asset at fair value through profit or loss |
138 | | ||||||
Gain on valuation of financial asset at fair value through profit or loss |
402 | 8,186 | ||||||
|
|
|
|
|||||
254,131 | ||||||||
|
|
|
|
|||||
Finance costs |
||||||||
Interest expense |
80,517 | |||||||
Foreign currency loss |
154,421 | 184,309 | ||||||
Loss on disposal of investments in equity accounted investees |
| 595 | ||||||
Loss on impairment of investments in equity accounted investees |
5,123 | 17,397 | ||||||
Loss on sale of trade accounts and notes receivable |
19,728 | 13,361 | ||||||
Loss on transaction of derivatives |
| 49 | ||||||
Loss on valuation of derivatives |
17,999 | 26,600 | ||||||
Loss on valuation of financial asset at fair value through profit or loss |
4,630 | 225 | ||||||
Loss on valuation of financial liabilities at fair value through profit or loss |
56,384 | | ||||||
Others |
12,212 | 3,840 | ||||||
|
|
|
|
|||||
326,893 | ||||||||
|
|
|
|
(b) | Finance income and costs recognized in other comprehensive income or loss for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Foreign currency translation differences for foreign operations |
(19,987 | ) | ||||||
|
|
|
|
|||||
Finance income (costs) recognized in other comprehensive income or loss after tax |
(19,987 | ) | ||||||
|
|
|
|
129
23. | Income Taxes |
(a) | Details of income tax expense (benefit) for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Current tax expense |
||||||||
Current year |
167,394 | |||||||
Adjustment for prior years |
(35,787 | ) | 82,225 | |||||
|
|
|
|
|||||
249,619 | ||||||||
|
|
|
|
|||||
Deferred tax expense (benefit) |
||||||||
Origination and reversal of temporary differences |
(226,360 | ) | ||||||
Change in unrecognized deferred tax assets |
333,317 | 64,818 | ||||||
|
|
|
|
|||||
(161,542 | ) | |||||||
|
|
|
|
|||||
Income tax expense (benefit) |
88,077 | |||||||
|
|
|
|
(b) | Income taxes recognized directly in other comprehensive income or loss for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | 2019 | 2018 | ||||||||||||||||||||||
Before tax | Tax expense |
Net of tax |
Before tax |
Tax expense |
Net of tax |
|||||||||||||||||||
Remeasurements of net defined benefit liabilities (assets) |
(35,235 | ) | 93,405 | 5,690 | (1,169 | ) | 4,521 | |||||||||||||||||
Foreign currency translation differences for foreign operations |
106,690 | | 106,690 | (19,987 | ) | | (19,987 | ) | ||||||||||||||||
Change in equity of equity method investee |
4,163 | | 4,163 | 57 | | 57 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(35,235 | ) | 204,258 | (14,240 | ) | (1,169 | ) | (15,409 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
130
23. | Income Taxes, Continued |
(c) | Reconciliation of the actual effective tax rate for the years ended December 31, 2019 and 2018 is as follows: |
(In millions of won) | ||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||
Loss for the year |
(2,872,078 | ) | (179,443 | ) | ||||||||||||||||
Income tax expense (benefit) |
(472,164 | ) | 88,077 | |||||||||||||||||
|
|
|
|
|||||||||||||||||
Loss before income tax |
(3,344,242 | ) | (91,366 | ) | ||||||||||||||||
|
|
|
|
|||||||||||||||||
Income tax expense (benefit) using the statutory tax rate of each country |
23.94 | % | (800,660 | ) | (33.60 | %) | 30,695 | |||||||||||||
Non-deductible expenses |
(0.95 | %) | 31,649 | (40.07 | %) | 36,608 | ||||||||||||||
Tax credits |
1.47 | % | (49,269 | ) | 117.27 | % | (107,146 | ) | ||||||||||||
Change in unrecognized deferred tax assets |
(9.97 | %) | 333,318 | (70.94 | %) | 64,818 | ||||||||||||||
Adjustment for prior years (*1) |
1.07 | % | (35,787 | ) | (90.00 | %) | 82,225 | |||||||||||||
Effect on change in tax rate |
(0.40 | %) | 13,353 | 15.68 | % | (14,326 | ) | |||||||||||||
Others |
(1.05 | %) | 35,232 | 5.25 | % | (4,797 | ) | |||||||||||||
|
|
|
|
|||||||||||||||||
Actual income tax expense (benefit) |
(472,164 | ) | 88,077 | |||||||||||||||||
|
|
|
|
|||||||||||||||||
Actual effective tax rate |
(*2 | ) | (*2 | ) |
(*1) | Consist of changes in tax credits in amended tax returns and expected amount of income tax adjustment in relation to the transfer price investigation and others |
(*2) | Actual effective tax rate are not calculated due to loss before income tax. |
(d) | Tax uncertainties |
In June 2019, LG Display Guangzhou Co., Ltd, LG Display Yantai Co., Ltd. and LG Display Nanjing Co., Ltd., subsidiaries of the Controlling
Company, were imposed of additional taxes amounting to W127.1 billion, in aggregate, by the Chinese tax authorities in connection with the transfer price investigation initiated in 2015.
OECD Guidelines, the Korea-China tax treaty, and the domestic tax laws of both countries stipulate mutual agreements to resolve double
taxation. In July 2019, the Controlling Company registered an application form to initiate a mutual agreement on the estimated amount of W109.2 billion corporate tax adjustment from the Korea National Tax Service. The
application was officially registered as a mutual agreement and the two tax authorities held their first meeting in November 2019 and further consultation will be conducted in 2020.
Meanwhile, the Controlling Company expects that the mutual agreement between tax authorities will be processed and be resolved within a reasonable period and the Controlling Company recognized the estimated income tax refund as current tax asset as of December 31, 2019.
24. | Deferred Tax Assets and Liabilities |
(a) | Unrecognized deferred tax liabilities |
As of December 31, 2019, in relation to the taxable temporary differences on investments in subsidiaries amounting to
W69,758 million, the Controlling Company did not recognize deferred tax liabilities since the Controlling Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary
differences will not reverse in the foreseeable future.
131
24. | Deferred Tax Assets and Liabilities, Continued |
(b) | Unused tax credit carryforwards for which no deferred tax asset is recognized |
Realization of deferred tax assets related to tax credit carryforwards which are primarily related to Korea is dependent on whether sufficient taxable income will be generated prior to their expiration. As of December 31, 2019, the amount of unused tax credit carryforwards for which no deferred tax asset is recognized and their expiration dates are as follows:
(In millions of won) | ||||||||||||||||||||||||
Total | December 31, 2020 |
December 31, 2021 |
December 31, 2022 |
December 31, 2023 |
December 31, 2024 |
|||||||||||||||||||
Tax credit carryforwards |
44,692 | 70,646 | 220,135 | 114,845 | 98,738 |
132
24. | Deferred Tax Assets and Liabilities, Continued |
(c) | Deferred tax assets and liabilities are attributable to the following: |
(In millions of won) | Assets | Liabilities | Total | |||||||||||||||||||||
December 31, 2019 |
December 31, 2018 |
December 31, 2019 |
December 31, 2018 |
December 31, 2019 |
December 31, 2018 |
|||||||||||||||||||
Other accounts receivable, net |
| (4,364 | ) | (1,013 | ) | (4,364 | ) | (1,013 | ) | |||||||||||||||
Inventories, net |
89,522 | 60,606 | | | 89,522 | 60,606 | ||||||||||||||||||
Investments in subsidiaries and associates |
| 13,404 | (20,015 | ) | | (20,015 | ) | 13,404 | ||||||||||||||||
Accrued expenses |
131,196 | 126,072 | | | 131,196 | 126,072 | ||||||||||||||||||
Property, plant and equipment |
691,599 | 445,721 | (21,690 | ) | (1,495 | ) | 669,909 | 444,226 | ||||||||||||||||
Intangible assets |
21,886 | 3,468 | (10,759 | ) | (14,588 | ) | 11,127 | (11,120 | ) | |||||||||||||||
Provisions |
59,875 | 32,468 | (4,446 | ) | | 55,429 | 32,468 | |||||||||||||||||
Gain or loss on foreign currency translation, net |
| 13 | | | | 13 | ||||||||||||||||||
Others |
137,667 | 20,850 | (328 | ) | (7,665 | ) | 137,339 | 13,185 | ||||||||||||||||
Tax loss carryforwards |
607,432 | 134,845 | | | 607,432 | 134,845 | ||||||||||||||||||
Tax credit carryforwards |
38,337 | 308,393 | | | 38,337 | 308,393 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Deferred tax assets (liabilities) |
1,145,840 | (61,602 | ) | (24,761 | ) | 1,715,912 | 1,121,079 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
133
24. | Deferred Tax Assets and Liabilities, Continued |
(d) | Changes in deferred tax assets and liabilities for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | January 1, 2018 |
Profit or loss |
Other comprehensive loss |
December 31, 2018 |
Profit or loss |
Other comprehensive loss |
December 31, 2019 |
|||||||||||||||||||||
Other accounts receivable, net |
428 | | (1,013 | ) | (3,351 | ) | | (4,364 | ) | |||||||||||||||||||
Inventories, net |
34,550 | 26,056 | | 60,606 | 28,916 | | 89,522 | |||||||||||||||||||||
Defined benefit liabilities, net |
2,375 | (1,206 | ) | (1,169 | ) | | 35,235 | (35,235 | ) | | ||||||||||||||||||
Subsidiaries and associates |
29,061 | (15,657 | ) | | 13,404 | (33,419 | ) | | (20,015 | ) | ||||||||||||||||||
Accrued expenses |
183,903 | (57,831 | ) | | 126,072 | 5,124 | | 131,196 | ||||||||||||||||||||
Property, plant and equipment |
409,928 | 34,298 | | 444,226 | 225,683 | | 669,909 | |||||||||||||||||||||
Intangible assets |
(21,189 | ) | 10,069 | | (11,120 | ) | 22,247 | | 11,127 | |||||||||||||||||||
Provisions |
27,018 | 5,450 | | 32,468 | 22,961 | | 55,429 | |||||||||||||||||||||
Gain or loss on foreign currency translation, net |
13 | | | 13 | (13 | ) | | | ||||||||||||||||||||
Others |
27,562 | (14,377 | ) | | 13,185 | 124,154 | | 137,339 | ||||||||||||||||||||
Tax loss carryforwards |
| 134,845 | | 134,845 | 472,587 | | 607,432 | |||||||||||||||||||||
Tax credit carryforwards |
268,926 | 39,467 | | 308,393 | (270,056 | ) | | 38,337 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Deferred tax assets (liabilities) |
161,542 | (1,169 | ) | 1,121,079 | 630,068 | (35,235 | ) | 1,715,912 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134
25. | Loss Per Share Attributable to Owners of the Controlling Company |
(a) | Basic loss per share for the years ended December 31, 2019 and 2018 are as follows: |
(In won and No. of shares) | ||||||||
2019 | 2018 | |||||||
Loss attributable to owners of the Controlling Company for the year |
(207,239,484,774 | ) | ||||||
Weighted-average number of common stocks outstanding |
357,815,700 | 357,815,700 | ||||||
|
|
|
|
|||||
Basic loss per share |
(579 | ) | ||||||
|
|
|
|
For the years ended December 31, 2019 and 2018, there were no events or transactions that resulted in changes in the number of common stocks used for calculating loss per share.
(b) | The Controlling Company issued potential common stocks as a result of issuance of the convertible bonds on August 22, 2019. Diluted loss per share is not different from basic loss per share due to loss for the year ended December 31, 2019. As of December 31, 2019, 40,988,998 options were excluded from the calculation of weighted-average number of common stocks due to antidilution. |
26. | Financial Risk Management |
The Group is exposed to credit risk, liquidity risk and market risks. The Group identifies and analyzes such risks, and controls are implemented under a risk management system to monitor and manage these risks at below an acceptable level.
(a) | Market risk |
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Groups income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
(i) | Currency risk |
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency of the Controlling Company, Korean won (KRW). The currencies in which these transactions primarily are denominated are USD, CNY, JPY, etc.
Interest on borrowings is denominated in the currency of the borrowing. Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying operations of the Group, primarily KRW, USD and CNY.
In respect of other monetary assets and liabilities denominated in foreign currencies, the Group adopts policies to ensure that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances. Meanwhile, the Group entered into currency interest rate swap contracts to hedge currency risk with respect to foreign currency borrowings and bonds.
135
26. | Financial Risk Management, Continued |
(a) | Market risk, Continued |
i) | Exposure to currency risk |
The Groups exposure to foreign currency risk based on notional amounts at the reporting date is as follows:
(In millions) | December 31, 2019 | |||||||||||||||||||||||||||
USD | JPY | CNY | TWD | EUR | PLN | VND | ||||||||||||||||||||||
Cash and cash equivalents |
1,594 | 68 | 8,360 | 33 | 5 | 25 | 28,663 | |||||||||||||||||||||
Trade accounts and notes receivable |
2,485 | 19 | 550 | | | | | |||||||||||||||||||||
Non-trade receivable |
276 | 455 | 230 | 3 | 2 | | 13,131 | |||||||||||||||||||||
Other assets denominated in foreign currencies |
29 | 526 | 5,668 | 369 | 5 | 503 | 4,032 | |||||||||||||||||||||
Trade accounts and notes payable |
(628 | ) | (9,043 | ) | (2,289 | ) | | | | (291,891 | ) | |||||||||||||||||
Other accounts payable |
(488 | ) | (12,396 | ) | (3,239 | ) | (4 | ) | (10 | ) | | (786,356 | ) | |||||||||||||||
Financial liabilities |
(4,255 | ) | | (20,436 | ) | | | | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Aggregate notional amounts in the consolidated statements of financial position |
(987 | ) | (20,371 | ) | (11,156 | ) | 401 | 2 | 528 | (1,032,421 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Currency swap contracts |
2,085 | | | | | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net exposure |
1,098 | (20,371 | ) | (11,156 | ) | 401 | 2 | 528 | (1,032,421 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) | December 31, 2018 | |||||||||||||||||||||||||||
USD | JPY | CNY | TWD | EUR | PLN | VND | ||||||||||||||||||||||
Cash and cash equivalents |
790 | 83 | 5,515 | 121 | 8 | 206 | 2,070,889 | |||||||||||||||||||||
Trade accounts and notes receivable |
2,175 | 7 | 1,098 | | | | | |||||||||||||||||||||
Non-trade receivable |
21 | 852 | 201 | 3 | 4 | | 23,182 | |||||||||||||||||||||
Other assets denominated in foreign currencies |
33 | 220 | 11,157 | 108 | 12 | 23 | 2,782 | |||||||||||||||||||||
Trade accounts and notes payable |
(863 | ) | (12,501 | ) | (2,862 | ) | | | | (355,390 | ) | |||||||||||||||||
Other accounts payable |
(928 | ) | (20,326 | ) | (4,762 | ) | (6 | ) | (3 | ) | (4 | ) | (1,585,130 | ) | ||||||||||||||
Financial liabilities |
(2,571 | ) | | (5,198 | ) | | | | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Aggregate notional amounts in the consolidated statements of financial position |
(1,343 | ) | (31,665 | ) | 5,149 | 226 | 21 | 225 | 156,333 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Currency swap contracts |
780 | | | | | | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net exposure |
(563 | ) | (31,665 | ) | 5,149 | 226 | 21 | 225 | 156,333 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
26. | Financial Risk Management, Continued |
(a) | Market risk, Continued |
Average exchange rates applied for the years ended December 31, 2019 and 2018 and the exchange rates at December 31, 2019 and December 31, 2018 are as follows:
(In won) | Average rate | Reporting date spot rate | ||||||||||||||
2019 | 2018 | December 31, 2019 | December 31, 2018 | |||||||||||||
USD |
1,100.21 | 1,157.80 | 1,118.10 | |||||||||||||
JPY |
10.70 | 9.96 | 10.63 | 10.13 | ||||||||||||
CNY |
168.56 | 166.41 | 165.74 | 162.76 | ||||||||||||
TWD |
37.74 | 36.51 | 38.48 | 36.58 | ||||||||||||
EUR |
1,304.52 | 1,298.53 | 1,297.43 | 1,279.16 | ||||||||||||
PLN |
303.62 | 304.87 | 304.87 | 297.33 | ||||||||||||
VND |
0.0502 | 0.0478 | 0.0500 | 0.0482 |
ii) | Sensitivity analysis |
A weaker won, as indicated below, against the following currencies which comprise the Groups assets or liabilities denominated in a foreign currency as of December 31, 2019 and 2018, would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considers to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, would remain constant. The changes in equity and profit or loss would have been as follows:
(In millions of won) | December 31, 2019 | December 31, 2018 | ||||||||||||||
Equity | Profit or loss | Equity | Profit or loss | |||||||||||||
USD (5 percent weakening) |
105,398 | (46,136 | ) | 38,725 | ||||||||||||
JPY (5 percent weakening) |
(8,397 | ) | (6,418 | ) | (12,060 | ) | (10,497 | ) | ||||||||
CNY (5 percent weakening) |
(92,454 | ) | 11 | 41,779 | 318 | |||||||||||
TWD (5 percent weakening) |
772 | | 413 | 1 | ||||||||||||
EUR (5 percent weakening) |
221 | (278 | ) | 1,197 | 390 | |||||||||||
PLN (5 percent weakening) |
8,036 | 28 | 3,451 | (236 | ) | |||||||||||
VND (5 percent weakening) |
(1,871 | ) | (1,871 | ) | 273 | 273 |
A stronger won against the above currencies as of December 31, 2019 and 2018 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
137
26. | Financial Risk Management, Continued |
(a) | Market risk, Continued |
(ii) | Interest rate risk |
Interest rate risk arises principally from the Groups bonds and borrowings. The Group establishes and applies its policy to reduce
uncertainty arising from fluctuations in the interest rate and to minimize finance cost and manages interest rate risk by monitoring of trends of fluctuations in interest rate and establishing plan for countermeasures. Meanwhile, the Group entered
into currency interest rate swap contracts amount of USD 1,785 million (W2,066,673 million) in notional amount to hedge interest rate risk with respect to variable interest rate applied foreign currency denominated borrowings.
i) | Profile |
The interest rate profile of the Groups interest-bearing financial instruments at the reporting date is as follows:
(In millions of won) | December 31, 2019 |
December 31, 2018 |
||||||
Fixed rate instruments |
||||||||
Financial assets |
2,443,583 | |||||||
Financial liabilities |
(6,066,554 | ) | (5,033,515 | ) | ||||
|
|
|
|
|||||
(2,589,932 | ) | |||||||
|
|
|
|
|||||
Variable rate instruments |
||||||||
Financial liabilities |
(3,525,262 | ) |
ii) | Equity and profit or loss sensitivity analysis for variable rate instruments |
For the years ended December 31, 2019 and 2018 a change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below for the respective following years. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
(In millions of won) | Equity | Profit or loss | ||||||||||||||
1%p increase |
1%p decrease |
1%p increase |
1%p decrease |
|||||||||||||
December 31, 2019 |
||||||||||||||||
Variable rate instruments (*) |
38,774 | (38,774 | ) | 38,774 | ||||||||||||
December 31, 2018 |
||||||||||||||||
Variable rate instruments (*) |
25,558 | (25,558 | ) | 25,558 |
(*) | Financial instruments related to interest rate swap not qualified for hedging are excluded. |
(b) | Credit risk |
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Groups receivables from customers.
The Groups exposure to credit risk of trade and other receivables is influenced mainly by the individual characteristics of each customer. However, management believes that the default risk of the country in which each customer operates, do not have a significant influence on credit risk since the majority of the customers are global electronic appliance manufacturers operating in global markets.
The Group establishes credit limits for each customer and each new customer is analyzed quantitatively and qualitatively before determining whether to utilize third party guarantees, insurance or factoring as appropriate.
138
26. | Financial Risk Management, Continued |
(b) | Credit risk, Continued |
In relation to the impairment of financial assets subsequent to initial recognition, the Group recognizes the changes in expected credit loss (ECL) at each reporting date in order to reflect changes in the credit risks based on ECL model.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk as of December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Financial assets carried at amortized cost |
||||||||
Cash and cash equivalents |
2,365,022 | |||||||
Deposits in banks |
78,768 | 78,411 | ||||||
Trade accounts and notes receivable, net |
3,154,080 | 2,829,163 | ||||||
Non-trade receivables |
463,614 | 159,238 | ||||||
Accrued income |
10,434 | 10,075 | ||||||
Deposits |
31,036 | 91,123 | ||||||
Short-term loans |
21,623 | 16,116 | ||||||
Long-term loans |
40,827 | 55,048 | ||||||
Long-term non-trade receivables |
9,072 | 11,448 | ||||||
Lease receivables |
27,794 | | ||||||
|
|
|
|
|||||
5,615,644 | ||||||||
|
|
|
|
|||||
Financial assets at fair value through profit or loss |
||||||||
Convertible bonds |
1,327 | |||||||
Derivatives |
49,676 | 13,059 | ||||||
|
|
|
|
|||||
14,386 | ||||||||
|
|
|
|
|||||
Financial assets at fair value through other comprehensive income |
||||||||
Debt instruments |
161 | |||||||
|
|
|
|
|||||
5,630,191 | ||||||||
|
|
|
|
Trade accounts and notes receivables are insured in order to manage credit risk if it does not meet the Groups internal credit ratings. Uninsured trade accounts and notes receivables are managed by continuous monitoring of internal credit ratings and seeking insurance coverage, if necessary.
139
26. | Financial Risk Management, Continued |
(c) | Liquidity Risk |
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or other financial asset. The Groups approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Groups reputation.
The Group has historically been able to satisfy its cash requirements from cash flows from operations and debt and equity financing. To the extent that the Group does not generate sufficient cash flows from operations to meet its capital requirements, the Group relies on other financing activities, such as external long-term borrowings and offerings of debt securities, equity-linked and other debt securities. In addition, the Group maintains a line of credit with various banks.
The following are the contractual maturities of financial liabilities, including estimated interest payments, as of December 31, 2019.
(In millions of won) | Contractual cash flows in | |||||||||||||||||||||||||||
Carrying amount |
Total | 6 months or less |
6-12 months |
1-2 years | 2-5 years | More than 5 years |
||||||||||||||||||||||
Non-derivative financial liabilities |
||||||||||||||||||||||||||||
Borrowings |
11,514,568 | 1,174,941 | 723,363 | 2,173,444 | 6,471,876 | 970,944 | ||||||||||||||||||||||
Bonds |
3,151,218 | 3,306,729 | 297,649 | 184,878 | 908,281 | 1,780,014 | 135,907 | |||||||||||||||||||||
Trade accounts and notes payable |
2,618,261 | 2,618,261 | 2,618,261 | | | | | |||||||||||||||||||||
Other accounts payable |
2,069,105 | 2,069,105 | 2,068,039 | 1,066 | | | | |||||||||||||||||||||
Other accounts payable (enterprise procurement cards)(*) |
2,328,016 | 2,353,355 | 1,287,023 | 1,066,332 | | | | |||||||||||||||||||||
Long-term other accounts payable |
1,069 | 1,069 | | | 1,069 | | | |||||||||||||||||||||
Security deposits received |
11,000 | 11,000 | 3,980 | 5,330 | 1,690 | | | |||||||||||||||||||||
Lease liabilities |
88,512 | 97,562 | 26,702 | 14,543 | 22,931 | 23,096 | 10,290 | |||||||||||||||||||||
Derivative financial liabilities |
||||||||||||||||||||||||||||
Derivatives |
(13,101 | ) | | | (4,870 | ) | (8,231 | ) | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
21,958,548 | 7,476,595 | 1,995,512 | 3,102,545 | 8,266,755 | 1,117,141 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) | Represents the amount of utility expenses and others paid by enterprise procurement cards and the outstanding payables are settled at the end of the billing cycle. The payments to the card company arises from operating activities of purchasing of goods and services thus the related cash flow is disclosed as operating activities. |
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.
140
26. | Financial Risk Management, Continued |
(d) | Capital Management |
Managements policy is to maintain a capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Liabilities to equity ratio, net borrowings to equity ratio and other financial ratios are used by management to achieve an optimal capital structure. Management also monitors the return on capital as well as the level of dividends to ordinary shareholders.
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Total liabilities |
18,289,464 | |||||||
Total equity |
12,488,281 | 14,886,246 | ||||||
Cash and deposits in banks (*1) |
3,414,760 | 2,443,422 | ||||||
Borrowings (including bonds) |
13,480,889 | 8,558,777 | ||||||
Total liabilities to equity ratio |
185 | % | 123 | % | ||||
Net borrowings to equity ratio (*2) |
81 | % | 41 | % |
(*1) | Cash and deposits in banks consist of cash and cash equivalents and current deposits in banks. |
(*2) | Net borrowings to equity ratio is calculated by dividing total borrowings (including bonds and excluding lease liabilities) less cash and current deposits in banks by total equity. |
141
26. | Financial Risk Management, Continued |
(e) | Determination of fair value |
(i) | Measurement of fair value |
A number of the Groups accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
i) | Current assets and liabilities |
The carrying amounts approximate their fair value because of the short maturity of these instruments.
ii) | Trade receivables and other receivables |
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes. The carrying amounts of current receivables approximate their fair value.
iii) | Investments in equity and debt securities |
The fair value of marketable financial assets at FVTPL and FVOCI is determined by reference to their quoted closing bid price at the reporting date. The fair value of non-marketable instruments is determined using the results of fair value assessment performed by external valuation institution and others.
iv) | Non-derivative financial liabilities |
Fair value, which is determined for disclosure purposes, except for the liabilities at FVTPL, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.
142
26. | Financial Risk Management, Continued |
(e) | Determination of fair value, Continued |
(ii) | Fair values versus carrying amounts |
The fair values of financial assets and liabilities, together with the carrying amounts shown in the consolidated statements of financial position as of December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||||||||||
December 31, 2019 | December 31, 2018 | |||||||||||||||
Carrying amounts |
Fair values | Carrying amounts |
Fair values | |||||||||||||
Financial assets carried at amortized cost |
||||||||||||||||
Cash and cash equivalents |
( | *) | 2,365,022 | ( | *) | |||||||||||
Deposits in banks |
78,768 | ( | *) | 78,411 | ( | *) | ||||||||||
Trade accounts and notes receivable |
3,154,080 | ( | *) | 2,829,163 | ( | *) | ||||||||||
Non-trade receivables |
463,614 | ( | *) | 159,238 | ( | *) | ||||||||||
Accrued income |
10,434 | ( | *) | 10,075 | ( | *) | ||||||||||
Deposits |
31,036 | ( | *) | 91,123 | ( | *) | ||||||||||
Short-term loans |
21,623 | ( | *) | 16,116 | ( | *) | ||||||||||
Long-term loans |
40,827 | ( | *) | 55,048 | ( | *) | ||||||||||
Long-term non-trade receivables |
9,072 | ( | *) | 11,448 | ( | *) | ||||||||||
Lease receivables |
27,794 | ( | *) | | | |||||||||||
Financial assets at fair value through profit or loss |
||||||||||||||||
Equity instruments |
9,879 | 13,681 | 13,681 | |||||||||||||
Convertible bonds |
1,544 | 1,544 | 1,327 | 1,327 | ||||||||||||
Derivatives |
49,676 | 49,676 | 13,059 | 13,059 | ||||||||||||
Financial assets at fair value through other comprehensive income |
||||||||||||||||
Debt instruments |
76 | 161 | 161 | |||||||||||||
Financial liabilities at fair value through profit or loss |
||||||||||||||||
Derivatives |
20,592 | 25,758 | 25,758 | |||||||||||||
Convertible bonds |
858,385 | 858,385 | | | ||||||||||||
Financial liabilities carried at amortized cost |
||||||||||||||||
Borrowings |
10,394,498 | 6,226,520 | 6,281,996 | |||||||||||||
Bonds |
2,292,833 | 2,345,867 | 2,332,257 | 2,384,987 | ||||||||||||
Trade accounts and notes payable |
2,618,261 | ( | *) | 3,087,461 | ( | *) | ||||||||||
Other accounts payable |
4,397,121 | ( | *) | 3,566,629 | ( | *) | ||||||||||
Long-term other accounts payable |
1,069 | ( | *) | 3,103 | ( | *) | ||||||||||
Security deposits received |
11,000 | ( | *) | 10,955 | ( | *) | ||||||||||
Lease liabilities |
88,512 | ( | *) | | |
(*) | Excluded from disclosures as the carrying amount approximates fair value. |
143
26. | Financial Risk Management, Continued |
(e) | Determination of fair value, Continued |
(iii) | Fair values of financial assets and liabilities |
i) | Fair value hierarchy |
The table below analyzes financial instruments carried at fair value based on the input variables used in the valuation method to measure fair value of assets and liabilities. The different levels have been defined as follows:
| Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities |
| Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly |
| Level 3: inputs for the asset or liability that are not based on observable market data |
ii) | Financial instruments measured at fair value |
Fair value hierarchy classifications of the financial instruments that are measured at fair value as of December 31, 2019 and 2018 are as follows:
(In millions of won) | December 31, 2019 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial assets at fair value through profit or loss |
||||||||||||||||
Equity instruments |
| 9,879 | 9,879 | |||||||||||||
Convertible bonds |
| | 1,544 | 1,544 | ||||||||||||
Derivatives |
| | 49,676 | 49,676 | ||||||||||||
Financial asset at fair value through other comprehensive income |
||||||||||||||||
Debt instruments |
| | 76 | |||||||||||||
Financial liabilities at fair value through profit or loss |
||||||||||||||||
Derivatives |
| 20,592 | 20,592 | |||||||||||||
Convertible bonds |
858,385 | | | 858,385 | ||||||||||||
(In millions of won) | December 31, 2018 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial assets at fair value through profit or loss |
||||||||||||||||
Equity instruments |
| 13,681 | 13,681 | |||||||||||||
Convertible bonds |
| | 1,327 | 1,327 | ||||||||||||
Derivatives |
| | 13,059 | 13,059 | ||||||||||||
Financial asset at fair value through other comprehensive income |
||||||||||||||||
Debt instruments |
| | 161 | |||||||||||||
Financial liabilities at fair value through profit or loss |
||||||||||||||||
Derivatives |
| 25,758 | 25,758 |
144
26. | Financial Risk Management, Continued |
(e) | Determination of fair value, Continued |
iii) | Financial instruments not measured at fair value but for which the fair value is disclosed |
Fair value hierarchy classifications, valuation technique and inputs for fair value measurements of the financial instruments not measured at fair value but for which the fair value is disclosed as of December 31, 2019 and December 31, 2018 are as follows:
(In millions of won) | December 31, 2019 | Valuation technique |
Input | |||||||||||||
Classification |
Level 1 | Level 2 | Level 3 | |||||||||||||
Liabilities |
||||||||||||||||
Borrowings |
| 10,394,498 | Discounted cash flow |
Discount rate | ||||||||||||
Bonds |
| | 2,345,867 | Discounted cash flow |
Discount rate | |||||||||||
(In millions of won) | December 31, 2018 | Valuation technique |
Input | |||||||||||||
Classification |
Level 1 | Level 2 | Level 3 | |||||||||||||
Liabilities |
||||||||||||||||
Borrowings |
| 6,281,996 | Discounted cash flow |
Discount rate | ||||||||||||
Bonds |
| | 2,384,987 | Discounted cash flow |
Discount rate |
The interest rates applied for determination of the above fair value at the reporting date are as follows:
December 31, 2019 | December 31, 2018 | |||
Borrowings, bonds and others |
1.87~3.56% | 2.09~3.37% |
145
27. | Leases |
Refer to accounting policies in Note 3(l).
(a) | Leases as lessee |
The Group leases buildings, vehicles, machinery and equipment and others. Information about leases for which the Group is a lessee is presented below.
(i) | Right-of-use assets |
Right-of-use assets are presented as property, plant and equipment. (See Note 9(a))
(In millions of won) | ||||||||||||||||||||||||
Buildings and structures |
Land | Machinery and equipment |
Vehicles | Others | Total | |||||||||||||||||||
Balance at January 1, 2019 |
53,960 | 1,111 | 10,800 | 392 | 142,040 | |||||||||||||||||||
Addition |
19,743 | 1,890 | 2,882 | 4,971 | 247 | 29,733 | ||||||||||||||||||
Depreciation |
(39,376 | ) | (2,272 | ) | (1,305 | ) | (7,760 | ) | (350 | ) | (51,063 | ) | ||||||||||||
Derecognition of right-of-use assets |
(3,056 | ) | | (538 | ) | | | (3,594 | ) | |||||||||||||||
Impairment |
(248 | ) | (3,833 | ) | (20 | ) | (193 | ) | (8 | ) | (4,302 | ) | ||||||||||||
Gain or loss on foreign currency translation |
373 | 9 | 17 | 30 | 7 | 436 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at December 31, 2019 |
49,754 | 2,147 | 7,848 | 288 | 113,250 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(ii) | Amounts recognized in profit or loss other than right-of-use assets |
(In millions of won) | ||||
December 31, 2019 | ||||
Interest on lease liabilities |
||||
Income from sub-leasing right-of-use assets |
1,079 | |||
Expenses relating to short-term leases |
(1,783 | ) | ||
Expenses relating to leases of low-value assets |
(1,188 | ) |
(iii) | Lease liabilities |
(In millions of won) | ||||
December 31, 2019 | ||||
Balance at January 1, 2019 |
||||
Additions |
33,878 | |||
Interest expense |
4,085 | |||
Repayment of liabilities |
(64,570 | ) | ||
|
|
|||
Balance at December 31, 2019 |
||||
|
|
146
27. | Leases, Continued |
(b) | Leases as lessor |
During 2019, the Group sub-leased certain right of use assets and classified them as finance leases.
During 2019, the Group recognized a gain of W3,390 million on derecognition of the right-of-use assets pertaining to buildings, machinery and
equipment and presented the gain as gain on disposal of property, plant and equipment.
The Group recognized interest income on lease
receivables of W1,079 million.
The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments to be received after the reporting date. Under K-IFRS No. 1017, the Group did not have any finance leases as a lessor.
(In millions of won) | ||||
December 31, 2019 | ||||
6 months or less |
||||
6-12 months |
3,282 | |||
1-2 years |
6,563 | |||
2-5 years |
16,956 | |||
Total undiscounted lease receivable |
30,083 | |||
Unearned finance income |
(2,289 | ) | ||
Net Investment in the lease |
27,794 |
28. | Changes in liabilities arising from financing activities |
Changes in liabilities arising from financing activities for the year ended December 31, 2019 are as follows:
(In millions of won) | ||||||||||||||||||||||||||||
January 1, 2019 |
Cash flows from financing activities |
Non-cash transactions | December 31, 2019 |
|||||||||||||||||||||||||
Reclassification | Gain or loss on foreign currency translation |
Effective interest adjustment |
Others | |||||||||||||||||||||||||
Short-term borrowings |
686,097 | | 10,696 | | | 696,793 | ||||||||||||||||||||||
Current portion of long-term borrowings and bonds |
1,553,907 | (1,567,818 | ) | 1,237,344 | 18,887 | 584 | | 1,242,904 | ||||||||||||||||||||
Long-term borrowings |
5,232,271 | 4,341,087 | (827,883 | ) | 54,202 | | | 8,799,677 | ||||||||||||||||||||
Bonds |
1,772,599 | 1,323,251 | (409,461 | ) | (20,351 | ) | 10,568 | 64,910 | 2,741,516 | |||||||||||||||||||
Lease liabilities |
115,119 | (64,570 | ) | | 1,849 | 4,085 | 32,029 | 88,512 | ||||||||||||||||||||
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|
|||||||||||||||
4,718,047 | | 65,283 | 15,237 | 96,939 | 13,569,402 | |||||||||||||||||||||||
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|
147
29. | Related Parties and Others |
(a) | Related parties |
Related parties as of December 31, 2019 are as follows:
Classification |
Description | |
Associates(*) | Paju Electric Glass Co., Ltd. and others | |
Entity that has significant influence over the Controlling Company |
LG Electronics Inc. | |
Subsidiaries of the entity that has significant influence over the Controlling Company |
Subsidiaries of LG Electronics Inc. |
(*) | Details of associates are described in Note 8. |
148
29. | Related Parties and Others, Continued |
(b) | Significant transactions such as sales of goods and purchases of raw material and outsourcing service and others, which occurred in the normal course of business with related parties for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | 2019 | |||||||||||||||||||||||
Sales and others |
Purchase and others | |||||||||||||||||||||||
Dividend income |
Purchase of raw material and others |
Acquisition of property, plant and equipment |
Outsourcing fees |
Other costs |
||||||||||||||||||||
Associates and their subsidiaries |
||||||||||||||||||||||||
INVENIA Co., Ltd.(*1) |
180 | 1,024 | 45,580 | | 297 | |||||||||||||||||||
AVATEC Co., Ltd. |
2,639 | 265 | | | 73,323 | 891 | ||||||||||||||||||
Paju Electric Glass Co., Ltd. |
| 6,057 | 342,958 | | | 4,416 | ||||||||||||||||||
WooRee E&L Co., Ltd. |
| | 6,441 | | | 5 | ||||||||||||||||||
YAS Co., Ltd. |
| 1,000 | 6,764 | 102,316 | | 3,655 | ||||||||||||||||||
Material Science Co., Ltd. |
| | 59 | | | 313 | ||||||||||||||||||
|
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|
|
|||||||||||||
7,502 | 357,246 | 147,896 | 73,323 | 9,577 | ||||||||||||||||||||
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|
|
|
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|
|
|||||||||||||
Entity that has significant influence over the Controlling Company |
||||||||||||||||||||||||
LG Electronics Inc. |
| 13,240 | 815,629 | | 153,212 | |||||||||||||||||||
Subsidiaries of the entity that has significant influence over the Controlling Company |
||||||||||||||||||||||||
LG Electronics India Pvt. Ltd. |
| | | | 194 | |||||||||||||||||||
LG Electronics Vietnam Haiphong Co., Ltd. |
277,743 | | | 3,019 | | 924 | ||||||||||||||||||
LG Electronics Nanjing New Technology Co., Ltd. |
297,033 | | | 31 | | 486 | ||||||||||||||||||
LG Electronics RUS, LLC |
100,894 | | | | | 1,972 |
149
29. | Related Parties and Others, Continued |
(In millions of won) | 2019 | |||||||||||||||||||||||
Sales and others |
Purchase and others | |||||||||||||||||||||||
Dividend income |
Purchase of raw material and others |
Acquisition of property, plant and equipment |
Outsourcing fees |
Other costs |
||||||||||||||||||||
LG Electronics do Brasil Ltda. |
| | | | 289 | |||||||||||||||||||
LG Innotek Co., Ltd. |
7,572 | | 53,886 | | | 79,162 | ||||||||||||||||||
Qingdao LG Inspur Digital Communication Co., Ltd. |
22,563 | | | | | | ||||||||||||||||||
Inspur LG Digital Mobile Communications Co., Ltd. |
41,858 | | | | | | ||||||||||||||||||
LG Electronics Mexicalli, S.A. DE C.V. |
114,520 | | | | | 85 | ||||||||||||||||||
LG Electronics Mlawa Sp. z o.o. |
618,715 | | | | | 1,967 | ||||||||||||||||||
LG Hitachi Water Solutions Co., Ltd.(*2) |
| | | 79,986 | | | ||||||||||||||||||
LG Electronics Reynosa, S.A. DE C.V. |
722,194 | | | | | 1,155 | ||||||||||||||||||
LG Electronics Air-Conditioning (Shandong) Co., Ltd. |
| | 444 | 14,527 | | 88 | ||||||||||||||||||
HiEntech Co., Ltd.(*2) |
47 | | | 7,264 | | 21,576 | ||||||||||||||||||
HiEntech (Tianjin) Co., Ltd.(*2) |
| | | 32,335 | | 15,423 | ||||||||||||||||||
LG Electronics Egypt S.A.E. |
97,359 | | | | | 241 | ||||||||||||||||||
LG Electronics Alabama Inc. |
12,869 | | | | | | ||||||||||||||||||
LG Electronics Japan, Inc. |
| | | 14 | | 6,236 | ||||||||||||||||||
P.T. LG Electronics Indonesia |
11,200 | | | | | 176 | ||||||||||||||||||
Others |
12,564 | | | 33 | | 6,996 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 54,330 | 137,209 | | 136,970 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
7,502 | 424,816 | 1,100,734 | 73,323 | 299,759 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | Represents transactions occurred prior to the Groups disposal of the entire investments |
(*2) | Represents transactions occurred prior to LG Electronics Inc.s disposal of the entire investments. |
150
29. | Related Parties and Others, Continued |
(In millions of won) | 2018 | |||||||||||||||||||||||
Sales and others |
Purchase and others | |||||||||||||||||||||||
Dividend income |
Purchase of raw material and others |
Acquisition of property, plant and equipment |
Outsourcing fees |
Other costs |
||||||||||||||||||||
Associates and their subsidiaries |
||||||||||||||||||||||||
INVENIA Co., Ltd. |
30 | 1,608 | 58,111 | | 896 | |||||||||||||||||||
AVATEC Co., Ltd. |
| 530 | | | 71,403 | 905 | ||||||||||||||||||
Paju Electric Glass Co., Ltd. |
| 4,172 | 364,183 | | | 4,411 | ||||||||||||||||||
WooRee E&L Co., Ltd. |
| | 58 | | | 144 | ||||||||||||||||||
YAS Co., Ltd. |
| | 5,281 | 143,192 | | 3,391 | ||||||||||||||||||
LB Gemini New Growth Fund No. 16(*) |
1,112 | 540 | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
5,272 | 371,130 | 201,303 | 71,403 | 9,747 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Entity that has significant influence over the Controlling Company |
||||||||||||||||||||||||
LG Electronics Inc. |
| 36,522 | 1,041,563 | | 127,775 | |||||||||||||||||||
Subsidiaries of the entity that has significant influence over the Controlling Company |
||||||||||||||||||||||||
LG Electronics India Pvt. Ltd. |
| | | | 103 | |||||||||||||||||||
LG Electronics Vietnam Haiphong Co., Ltd. |
173,051 | | | 4,541 | | 166 | ||||||||||||||||||
LG Electronics Nanjing New Technology Co., Ltd. |
223,524 | | | 424 | | 1,528 | ||||||||||||||||||
LG Electronics RUS, LLC |
106,631 | | | | | 2,673 |
151
29. | Related Parties and Others, Continued |
(In millions of won) | 2018 | |||||||||||||||||||||||
Sales and others |
Purchase and others | |||||||||||||||||||||||
Dividend income |
Purchase of raw material and others |
Acquisition of property, plant and equipment |
Outsourcing fees |
Other costs |
||||||||||||||||||||
LG Electronics do Brasil Ltda. |
| | | | 350 | |||||||||||||||||||
LG Innotek Co., Ltd. |
29,267 | | 147,453 | | | 39,136 | ||||||||||||||||||
Qingdao LG Inspur Digital Communication Co., Ltd. |
37,738 | | | | | | ||||||||||||||||||
Inspur LG Digital Mobile Communications Co., Ltd. |
131,970 | | | | | 1 | ||||||||||||||||||
LG Electronics Mexicalli, S.A. DE C.V. |
187,844 | | | | | 210 | ||||||||||||||||||
LG Electronics Mlawa Sp. z o.o. |
740,784 | | | | | 631 | ||||||||||||||||||
LG Electronics Taiwan Taipei Co., Ltd. |
12,746 | | | | | 330 | ||||||||||||||||||
LG Hitachi Water Solutions Co., Ltd. |
9,100 | | | 304,365 | | 8,980 | ||||||||||||||||||
LG Electronics Reynosa, S.A. DE C.V. |
1,030,414 | | | | | 2,021 | ||||||||||||||||||
LG Electronics Almaty Kazakhstan |
3,759 | | | | | 42 | ||||||||||||||||||
LG Electronics Air-Conditioning (Shandong) Co., Ltd. |
| | 330 | 26,871 | | 7,264 | ||||||||||||||||||
HiEntech Co., Ltd. |
| | | 22,378 | | 29,215 | ||||||||||||||||||
Hientech (Tianjin) Co., Ltd. |
| | | 92,900 | | 23,880 | ||||||||||||||||||
LG Electronics S.A. (Pty) Ltd. |
7,244 | | | | | 20 | ||||||||||||||||||
LG Electronics Egypt S.A.E. |
25,491 | | | | | 16 | ||||||||||||||||||
Others |
5,195 | | 28 | 15 | | 11,480 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 147,811 | 451,494 | | 128,046 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
5,272 | 555,463 | 1,694,360 | 71,403 | 265,568 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*) | Represents transactions occurred prior to the Groups disposal of the entire investments. |
152
29. | Related Parties and Others, Continued |
(c) | Trade accounts and notes receivable and payable as of December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||||||||||
Trade accounts and notes receivable and others |
Trade accounts and notes payable and others |
|||||||||||||||
December 31, 2019 |
December 31, 2018 |
December 31, 2019 |
December 31, 2018 |
|||||||||||||
Associates |
||||||||||||||||
INVENIA Co., Ltd.(*) |
| 2,000 | | 30,179 | ||||||||||||
AVATEC Co., Ltd. |
| | 1,029 | 4,382 | ||||||||||||
Paju Electric Glass Co., Ltd. |
| | 62,853 | 60,566 | ||||||||||||
WooRee E&L Co., Ltd. |
| | 1,888 | 7 | ||||||||||||
YAS Co., Ltd. |
| | 27,489 | 6,145 | ||||||||||||
Material Science Co., Ltd. |
| | 8 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
2,000 | 93,267 | 101,279 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Entity that has significant influence over the Controlling Company |
||||||||||||||||
LG Electronics Inc. |
247,679 | 157,713 | 430,677 | |||||||||||||
Subsidiaries of the entity that has significant influence over the Controlling Company |
||||||||||||||||
LG Electronics India Pvt. Ltd. |
9,047 | | 29 | |||||||||||||
LG Electronics Vietnam Haiphong Co., Ltd. |
47,740 | 25,544 | 75 | | ||||||||||||
LG Electronics Nanjing New Technology Co., Ltd. |
55,343 | 43,463 | 49 | 139 | ||||||||||||
LG Electronics RUS, LLC |
17,600 | 22,570 | 83 | 90 | ||||||||||||
LG Electronics do Brasil Ltda. |
14,805 | 15,608 | 26 | 62 | ||||||||||||
LG Innotek Co., Ltd. |
267 | 2,885 | 36,426 | 47,382 | ||||||||||||
LG Electronics Mexicali, S.A. DE C.V. |
15,305 | 17 | |
153
29. | Related Parties and Others, Continued |
(In millions of won) | ||||||||||||||||
Trade accounts and notes receivable and others |
Trade accounts and notes payable and others |
|||||||||||||||
December 31, 2019 |
December 31, 2018 |
December 31, 2019 |
December 31, 2018 |
|||||||||||||
LG Electronics Mlawa Sp. z o.o. |
70,236 | 75 | 33 | |||||||||||||
LG Electronics Reynosa, S.A. DE C.V. |
82,927 | 69,189 | 62 | 134 | ||||||||||||
LG Electronics Egypt S.A.E. |
9,432 | 10,296 | | | ||||||||||||
Qingdao LG Inspur Digital Communication Co., Ltd. |
7,221 | 3,530 | | | ||||||||||||
P.T. LG Electronics Indonesia |
7,696 | | 16 | | ||||||||||||
Others |
2,452 | 27,535 | 3,548 | 102,486 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
315,208 | 40,377 | 150,355 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
564,887 | 291,357 | 682,311 | ||||||||||||||
|
|
|
|
|
|
|
|
(*) | Excluded from related parties due to the Groups disposal of equity investments during the year ended December 31, 2019. |
154
29. | Related Parties and Others, Continued |
(d) | Details of significant cash transactions such as grant of loans and collection of loans, which occurred in the normal course of business with related parties for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||||||||||
Loans(*1) | ||||||||||||||||
Associates |
January 1, 2019 |
Increase | Decrease(*2) | December 31, 2019 |
||||||||||||
INVENIA Co., Ltd. |
1,000 | (3,000 | ) | |
(*1) | Loans are presented based on nominal amounts. |
(*2) | Excluded from related parties due to disposal of equity investments during the year ended December 31, 2019. |
(In millions of won) | ||||||||||||||||
Loans(*) | ||||||||||||||||
Associates |
January 1, 2018 |
Increase | Decrease | December 31, 2018 |
||||||||||||
INVENIA Co., Ltd. |
| (375 | ) | 2,000 | ||||||||||||
YAS Co., Ltd. |
375 | | (375 | ) | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
| (750 | ) | 2,000 | |||||||||||||
|
|
|
|
|
|
|
|
(*) | Loans are presented based on nominal amounts. |
155
29. | Related Parties and Others, Continued |
(e) | Conglomerate Transactions |
Transactions, trade accounts and notes receivable and payable, and others between the Group and certain companies and their subsidiaries, which are included in LG Group, one of conglomerates according to the Monopoly Regulation and Fair Trade Act for the years ended December 31, 2019 and 2018 are as follows. These entities are not related parties according to K-IFRS No. 1024, Related Party Disclosures.
(In millions of won) |
| |||||||||||||||
For the year ended December 31, 2019 |
December 31, 2019 | |||||||||||||||
Sales and others |
Purchase and others |
Trade accounts and notes receivable and others |
Trade accounts and notes payable and others |
|||||||||||||
LG International Corp. and its subsidiaries |
425,895 | 93,623 | 77,721 | |||||||||||||
LG Uplus Corp. |
| 2,358 | | 208 | ||||||||||||
LG Chem Ltd. and its subsidiaries |
82,565 | 1,123,633 | 97 | 128,636 | ||||||||||||
S&I Corp. and its subsidiaries (formerly, Serveone) |
867 | 739,722 | 21,307 | 159,202 | ||||||||||||
Silicon Works Co., Ltd. |
92 | 713,484 | | 126,856 | ||||||||||||
LG Corp. |
| 55,059 | 8,781 | | ||||||||||||
LG Management Development Institute |
| 8,606 | 3,480 | 231 | ||||||||||||
LG CNS Co., Ltd. and its subsidiaries |
20 | 253,056 | 2 | 75,850 | ||||||||||||
LG Hausys Ltd. |
3 | 1 | | | ||||||||||||
LG Household & Health Care and its subsidiaries |
1 | 214 | | 6 | ||||||||||||
LG Holdings Japan Co., Ltd. |
| 2,056 | 2,264 | | ||||||||||||
G2R Inc. and its subsidiaries |
| 74,830 | | 29,540 | ||||||||||||
Robostar Co., Ltd. |
| 11,384 | | 2,332 | ||||||||||||
Others(*) |
16 | 234,121 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
3,644,419 | 129,554 | 600,582 | ||||||||||||||
|
|
|
|
|
|
|
|
(*) | Due to S&I Corp.s disposal of partial investments in Serveone in May 2019, Serveone was reclassified from one of the S&I Corp.s subsidiaries to associates. Accordingly, transactions with S&I Corp. after the disposal are classified as others. In addition, due to LG Electronics Inc.s disposal of entire investments in HiEntech Co., Ltd. and its subsidiaries and LG Hitachi Water Solutions Co., Ltd. in September 2019, transactions after the disposal are presented as others. |
156
29. | Related Parties and Others, Continued |
(In millions of won) |
| |||||||||||||||
For the year ended December 31, 2018 |
December 31, 2018 | |||||||||||||||
Sales and others |
Purchase and others |
Trade accounts and notes receivable and others |
Trade accounts and notes payable and others |
|||||||||||||
LG International Corp. and its subsidiaries |
578,153 | 83,011 | 146,836 | |||||||||||||
LG Uplus Corp. |
21 | 1,745 | | 178 | ||||||||||||
LG Chem Ltd. and its subsidiaries |
1,648 | 1,233,945 | 173 | 184,357 | ||||||||||||
Serveone and its subsidiaries |
401 | 1,928,820 | 21,307 | 510,132 | ||||||||||||
Silicon Works Co., Ltd. |
| 713,093 | | 140,694 | ||||||||||||
LG Corp. |
| 54,434 | 11,246 | | ||||||||||||
LG Management Development Institute |
| 9,734 | 3,480 | 441 | ||||||||||||
LG CNS Co., Ltd. and its subsidiaries |
| 278,330 | 1 | 95,703 | ||||||||||||
LG Hausys Ltd. |
1,111 | 4 | | 3 | ||||||||||||
LG Household & Health Care and its subsidiaries |
1 | 118 | | | ||||||||||||
LG Holdings Japan Co., Ltd. |
| 1,836 | 2,037 | | ||||||||||||
G2R Inc. and its subsidiaries |
| 60,978 | | 19,773 | ||||||||||||
Robostar Co., Ltd. |
| 3,616 | | 2,723 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
4,864,806 | 121,255 | 1,100,840 | ||||||||||||||
|
|
|
|
|
|
|
|
157
29. | Related Parties and Others, Continued |
(f) | Key management personnel compensation |
Compensation costs of key management for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Short-term benefits |
2,622 | |||||||
Expenses related to the defined benefit plan |
553 | 794 | ||||||
|
|
|
|
|||||
3,416 | ||||||||
|
|
|
|
Key management refers to the registered directors who have significant control and responsibilities over the Controlling Companys operations and business.
30. | Supplemental Cash Flow Information |
Supplemental cash flow information for the years ended December 31, 2019 and 2018 is as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Non-cash investing and financing activities: |
||||||||
Changes in other accounts payable arising from the purchase of property, plant and equipment |
516,734 | |||||||
Recognition of right of use assets and lease liabilities |
29,733 | |
31. | Non-current Assets Held for Sale |
In prior years, the Group decided to dispose certain tangible assets of LG Display Poland Sp. z o.o. based on the managements approval and began effort to sell the disposal group. During the year ended December 31, 2019, the Group completed the sale of these assets to LG Chem Poland Sp. z o.o.
Gain from disposal of non-current assets held for sale amount to W8,353 million
and was recognized as other non-operating income.
158
LG DISPLAY CO., LTD.
Separate Financial Statements
For the Years Ended December 31, 2019 and 2018
(With Independent Auditors Report Thereon)
159
Contents
Page | ||||
161 | ||||
165 | ||||
166 | ||||
167 | ||||
168 | ||||
170 | ||||
Independent Auditors Report on Internal Control over Financial Reporting |
||||
Report on the Operation of Internal Control over Financial Reporting |
160
Based on a report originally issued in Korean
To the Board of Directors and Shareholders
LG Display Co., Ltd.:
Opinion
We have audited the accompanying separate financial statements of LG Display Co., Ltd. (the Company), which comprise the separate statements of financial position of the Company as of December 31, 2019 and 2018, the related separate statements of comprehensive loss, changes in equity and cash flows for the years then ended, and notes to the separate financial statements comprising significant accounting policies and other explanatory information.
In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of the Company as of December 31, 2019 and 2018, and its separate financial performance and its separate cash flows for the years then ended in accordance with Korean International Financial Reporting Standards (K-IFRS).
We also have audited, in accordance with the Standards on Auditing, the Companys Internal Control over Financial Reporting as of December 31, 2019, based on criteria established in Conceptual Framework for Designing and Operating Internal Control over Financial Reporting issued by the Operating Committee of Internal Control over Financial Reporting in Korea, and our report dated March 11, 2020 expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.
Basis for Opinion
We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Separate Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the separate financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the separate financial statements as of and for the year ended December 31, 2019. These matters were addressed in the context of our audit of the separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
(i) | Assessment of impairment of non-financial assets including goodwill |
As discussed in Notes 3 (k), 9 and 10, the Companys non-financial assets, including
goodwill amounts to W13,472,222 million as of December 31, 2019. Due to the significant changes in the Companys business during 2019, the Company determined that a change in its cash generating units
(CGU) is appropriate. As a result, the Companys CGU was changed from a single CGU to three CGUs, namely Display, Display (AD PO) and Lighting, with goodwill allocated to Display and Lighting CGUs, respectively. For CGUs to which
goodwill is allocated, the Company performs impairment test on an annual basis regardless of whether an indicator for impairment exists. For CGUs to which goodwill is not allocated, the Company performs impairment test when there is an indication of
impairment. The recoverable amount used in impairment tests as of December 31, 2019 is value in use based on discounted cash flow model which uses the expected future cash flows including assumptions that involved a high degree of management
judgment. In 2019, the Company recognized impairment losses of W1,004,229 million and W230,867 million for the Display (AD PO) CGU and Lighting CGU, respectively.
161
We identified the assessment of impairment of non-financial assets including goodwill as a key audit matter. Determination of change in CGUs as well as allocation of assets among different CGUs require managements significant judgment. In addition, for the CGUs of Display and Display (AD PO), revenue and operating expense forecasts over the period which management projected, growth rates for subsequent years (terminal growth rate) and discount rate used to estimate value in use were challenging to test as minor changes to those assumptions would have a significant effect on the Companys assessment whether goodwill and machinery and equipment were impaired.
The primary procedures we performed to address this key audit matter included:
| We tested certain internal controls over the Companys non-current assets impairment assessment process, including controls related to determination of cash generating units, and the development of revenue and operating expenses forecast, terminal growth rate and discount rate assumptions. |
| We evaluated the factors considered in the Companys determination of CGUs against supporting evidence. |
| We verified the accuracy of allocation of Companys assets including corporate assets and goodwill to each CGU. |
| We compared the Companys historical revenue forecasts to actual results to assess the Companys ability to accurately forecast. |
| We evaluated the revenue forecasts and operating expense used to determine the value in use by comparison with the financial budgets approved by the board of directors. |
| We performed sensitivity analysis over the terminal growth rate and discount rate assumptions to assess their impact on the Companys impairment assessment. |
| We involved our valuation professionals with specialized skills and knowledge who assisted us in evaluating the appropriateness of the discounted cash flow model used by management, the discount rate by checking the source information underlying the determination of the discount rates, and testing the mathematical accuracy of the calculation. |
(ii) | Assessment of recoverability of deferred tax assets |
As discussed in Note 24 to the separate financial statements, the Company had W1,367,714 million of deferred tax assets and
W549,056 million of unrecognized tax benefit as of December 31, 2019. The deferred tax assets arise primarily due to differences between financial statement carrying amounts of existing assets and liabilities and their
respective tax bases, as well as, unused tax losses and tax credit carryforwards. The assessment of the realizability of these deferred tax assets is dependent on the generation of future taxable income of the Company. Changes in assumptions
regarding forecasted taxable income could have a significant impact on the amount of deferred tax assets recognized and unrecognized tax benefit.
We identified the assessment of the realizability of the deferred tax assets as a key audit matter because it involves high degree of subjective auditor judgment in assessing the significant assumptions and judgments that are reflected in estimating future taxable profits over the periods in which the above mentioned differences become deductible, or within the periods before the unused tax losses and tax credit forwards expire. This subjectivity is primarily driven by the Companys assumptions in revenue and operating expense, which are used to estimate the forecasted taxable income in the future.
162
The primary procedures we performed to address this key audit matter included:
| We tested certain internal controls relating to the Companys deferred tax assets realizability assessment process, including controls related to the development of assumptions in determining the forecasted taxable income for each year. |
| We evaluated the Companys estimates of revenue and operating expense, by comparing them with the financial budgets approved by the board of directors and historical performance. |
| We compared the forecasts of taxable income and timing of utilization of deferred tax assets in prior year to actual results to assess the Companys ability to accurately forecast. |
| We also evaluated the Companys history of realizing deferred tax assets by evaluating the expiration of unused tax losses. |
| We involved tax professionals with specialized skills and knowledge who assisted in assessing the Companys tax adjustments and feasibility of planned tax strategies affecting deferred tax. |
Other matter
The procedures and practices utilized in the Republic of Korea to audit such separate financial statements may differ from those generally accepted and applied in other countries.
Responsibilities of Management and Those Charged with Governance for the Separate Financial Statements
Management is responsible for the preparation and fair presentation of these separate financial statements in accordance with K-IFRS, and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.
In preparing these separate financial statements, management is responsible for assessing the Companys ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Companys financial reporting process.
Auditors Responsibilities for the Audit of the Separate Financial Statements
Our objectives are to obtain reasonable assurance about whether theses separate financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate financial statements.
As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
| Identify and assess the risks of material misstatement of the separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. |
| Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. |
| Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. |
163
| Conclude on the appropriateness of managements use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Companys ability to continue as a going concern. If we conclude that a material uncertainty exists, then we are required to draw attention in our auditors report to the related disclosures in the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Company to cease to continue as a going concern. |
| Evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. |
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditors report is Sang Hyun Han.
KPMG Samjong Accounting Corp.
Seoul, Korea
March 11, 2020
This report is effective as of March 11, 2020, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.
164
LG DISPLAY CO., LTD.
Separate Statements of Financial Position
As of December 31, 2019 and 2018
(In millions of won) | Note | December 31, 2019 |
December 31, 2018 |
|||||||||
Assets |
||||||||||||
Cash and cash equivalents |
4, 26 | 473,283 | ||||||||||
Deposits in banks |
4, 26 | 77,257 | 77,200 | |||||||||
Trade accounts and notes receivable, net |
5, 14, 26, 29 | 3,565,860 | 3,389,108 | |||||||||
Other accounts receivable, net |
5, 26 | 439,940 | 321,963 | |||||||||
Other current financial assets |
6, 26 | 55,665 | 29,281 | |||||||||
Inventories |
7 | 1,526,299 | 1,951,155 | |||||||||
Prepaid income tax |
111,129 | | ||||||||||
Other current assets |
5 | 199,833 | 136,349 | |||||||||
|
|
|
|
|||||||||
Total current assets |
7,081,228 | 6,378,339 | ||||||||||
Deposits in banks |
4, 26 | 11 | 11 | |||||||||
Investments |
8 | 4,958,308 | 3,602,214 | |||||||||
Other non-current accounts receivable, net |
5, 26 | 19,899 | 25,823 | |||||||||
Other non-current financial assets |
6, 26 | 74,203 | 77,192 | |||||||||
Property, plant and equipment, net |
9, 27 | 12,764,175 | 14,984,564 | |||||||||
Intangible assets, net |
10 | 708,047 | 816,808 | |||||||||
Deferred tax assets |
24 | 1,367,714 | 851,936 | |||||||||
Employee benefits assets |
12 | 127,252 | | |||||||||
Other non-current assets |
5 | 281,843 | 325,219 | |||||||||
|
|
|
|
|||||||||
Total non-current assets |
20,301,452 | 20,683,767 | ||||||||||
|
|
|
|
|||||||||
Total assets |
27,062,106 | |||||||||||
|
|
|
|
|||||||||
Liabilities |
||||||||||||
Trade accounts and notes payable |
26, 29 | 3,186,123 | ||||||||||
Current financial liabilities |
11, 26, 27 | 1,474,589 | 1,044,841 | |||||||||
Other accounts payable |
26 | 3,329,040 | 1,746,412 | |||||||||
Accrued expenses |
520,395 | 516,970 | ||||||||||
Income tax payable |
| 17,404 | ||||||||||
Provisions |
13 | 188,238 | 96,555 | |||||||||
Advances received |
14 | 898,447 | 780,906 | |||||||||
Other current liabilities |
13 | 47,371 | 27,419 | |||||||||
|
|
|
|
|||||||||
Total current liabilities |
9,140,483 | 7,416,630 | ||||||||||
Non-current financial liabilities |
11, 26, 27 | 7,094,405 | 5,139,476 | |||||||||
Non-current provisions |
13 | 67,118 | 32,764 | |||||||||
Defined benefit liabilities, net |
12 | | 44,187 | |||||||||
Long-term advances received |
14 | 328,677 | 1,122,015 | |||||||||
Other non-current liabilities |
13 | 85,904 | 94,453 | |||||||||
|
|
|
|
|||||||||
Total non-current liabilities |
7,576,104 | 6,432,895 | ||||||||||
|
|
|
|
|||||||||
Total liabilities |
16,716,587 | 13,849,525 | ||||||||||
|
|
|
|
|||||||||
Equity |
||||||||||||
Share capital |
15 | 1,789,079 | 1,789,079 | |||||||||
Share premium |
2,251,113 | 2,251,113 | ||||||||||
Retained earnings |
16 | 6,625,901 | 9,172,389 | |||||||||
|
|
|
|
|||||||||
Total equity |
10,666,093 | 13,212,581 | ||||||||||
|
|
|
|
|||||||||
Total liabilities and equity |
27,062,106 | |||||||||||
|
|
|
|
See accompanying notes to the separate financial statements.
165
LG DISPLAY CO., LTD.
Separate Statements of Comprehensive Loss
For the years ended December 31, 2019 and 2018
(In millions of won, except earnings per share) | Note | 2019 | 2018 | |||||||
Revenue |
17, 29 | 22,371,687 | ||||||||
Cost of sales |
7, 18, 29 | (20,834,648 | ) | (20,439,681 | ) | |||||
|
|
|
|
|||||||
Gross profit |
823,681 | 1,932,006 | ||||||||
Selling expenses |
19 | (728,695 | ) | (519,804 | ) | |||||
Administrative expenses |
19 | (674,650 | ) | (678,861 | ) | |||||
Research and development expenses |
(1,204,581 | ) | (1,206,336 | ) | ||||||
|
|
|
|
|||||||
Operating loss |
(1,784,245 | ) | (472,995 | ) | ||||||
|
|
|
|
|||||||
Finance income |
22 | 204,966 | 148,301 | |||||||
Finance costs |
22 | (371,856 | ) | (129,652 | ) | |||||
Other non-operating income |
21 | 835,514 | 541,547 | |||||||
Other non-operating expenses |
21 | (2,229,160 | ) | (577,007 | ) | |||||
|
|
|
|
|||||||
Loss before income tax |
(3,344,781 | ) | (489,806 | ) | ||||||
Income tax benefit |
23 | (704,888 | ) | (47,515 | ) | |||||
|
|
|
|
|||||||
Loss for the period |
(2,639,893 | ) | (442,291 | ) | ||||||
|
|
|
|
|||||||
Other comprehensive income (loss) |
||||||||||
Items that will never be reclassified to profit or loss |
||||||||||
Remeasurements of net defined benefit liabilities |
12, 23 | 128,640 | 5,690 | |||||||
Related income tax |
12, 23 | (35,235 | ) | (1,169 | ) | |||||
|
|
|
|
|||||||
Other comprehensive income for the period, net of income tax |
93,405 | 4,521 | ||||||||
|
|
|
|
|||||||
Total comprehensive loss for the period |
(437,770 | ) | ||||||||
|
|
|
|
|||||||
Loss per share (In won) |
||||||||||
Basic and diluted loss per share |
25 | (1,236 | ) | |||||||
|
|
|
|
See accompanying notes to the separate financial statements.
166
LG DISPLAY CO., LTD.
Separate Statements of Changes in Equity
For the years ended December 31, 2019 and 2018
(In millions of won) | Share capital | Share premium |
Retained earnings |
Total equity | ||||||||||||
Balances at January 1, 2018 |
2,251,113 | 9,789,067 | 13,829,259 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total comprehensive loss for the period |
||||||||||||||||
Loss for the period |
| | (442,291 | ) | (442,291 | ) | ||||||||||
Other comprehensive income (loss) |
||||||||||||||||
Remeasurements of net defined benefit liabilities, net of tax |
| | 4,521 | 4,521 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total comprehensive loss for the period |
| (437,770 | ) | (437,770 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Transaction with owners, recognized directly in equity |
||||||||||||||||
Dividends to shareholders |
| | (178,908 | ) | (178,908 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances at December 31, 2018 |
2,251,113 | 9,172,389 | 13,212,581 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances at January 1, 2019 |
2,251,113 | 9,172,389 | 13,212,581 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total comprehensive loss for the period |
||||||||||||||||
Loss for the period |
| | (2,639,893 | ) | (2,639,893 | ) | ||||||||||
Other comprehensive income (loss) |
||||||||||||||||
Remeasurements of net defined benefit liabilities, net of tax |
| | 93,405 | 93,405 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total comprehensive loss for the period |
| (2,546,488 | ) | (2,546,488 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balances at December 31, 2019 |
2,251,113 | 6,625,901 | 10,666,093 | |||||||||||||
|
|
|
|
|
|
|
|
See accompanying notes to the separate financial statements.
167
LG DISPLAY CO., LTD.
Separate Statements of Cash Flows
For the years ended December 31, 2019 and 2018
(In millions of won) | Note |
2019 | 2018 | |||||||
Cash flows from operating activities: |
||||||||||
Loss for the period |
(442,291 | ) | ||||||||
Adjustments for: |
||||||||||
Income tax benefit |
23 | (704,888 | ) | (47,515 | ) | |||||
Depreciation and amortization |
9, 10, 18 | 2,549,770 | 2,392,768 | |||||||
Gain on foreign currency translation |
(60,963 | ) | (38,724 | ) | ||||||
Loss on foreign currency translation |
140,683 | 102,689 | ||||||||
Expenses related to defined benefit plans |
12, 20 | 161,056 | 178,274 | |||||||
Gain on disposal of property, plant and equipment |
(54,756 | ) | (42,864 | ) | ||||||
Loss on disposal of property, plant and equipment |
25,851 | 8,615 | ||||||||
Impairment loss on disposal of property, plant and equipment |
1,140,760 | 43,601 | ||||||||
Gain on disposal of intangible assets |
(552 | ) | (239 | ) | ||||||
Loss on disposal of intangible assets |
18 | | ||||||||
Impairment loss on intangible assets |
240,816 | 82 | ||||||||
Reversal of impairment loss on intangible assets |
(960 | ) | (348 | ) | ||||||
Expense on increase of provisions |
366,771 | 207,892 | ||||||||
Finance income |
(172,260 | ) | (145,293 | ) | ||||||
Finance costs |
331,475 | 119,915 | ||||||||
Other income |
(20,432 | ) | (3,400 | ) | ||||||
Other expenses |
9,078 | 612 | ||||||||
|
|
|
|
|||||||
3,951,467 | 2,776,065 | |||||||||
Changes in |
||||||||||
Trade accounts and notes receivable |
(830,210 | ) | 1,110,769 | |||||||
Other accounts receivable |
(66,057 | ) | 21,444 | |||||||
Inventories |
424,856 | (355,858 | ) | |||||||
Other current assets |
(14,579 | ) | 101,812 | |||||||
Other non-current assets |
(37,761 | ) | (65,166 | ) | ||||||
Trade accounts and notes payable |
(447,803 | ) | 828,112 | |||||||
Other accounts payable |
2,115,555 | (223,707 | ) | |||||||
Accrued expenses |
(23,461 | ) | (249,579 | ) | ||||||
Provisions |
(240,734 | ) | (190,317 | ) | ||||||
Other current liabilities |
(208,033 | ) | 53,017 | |||||||
Defined benefit liabilities, net |
(63,855 | ) | (222,932 | ) | ||||||
Long-term advances received |
63,672 | 957,717 | ||||||||
Other non-current liabilities |
7,174 | 25,745 | ||||||||
|
|
|
|
|||||||
678,764 | 1,791,057 | |||||||||
Cash generated from operating activities |
1,990,338 | 4,124,831 | ||||||||
Income taxes refunded (paid) |
25,342 | (313,867 | ) | |||||||
Interests received |
13,481 | 19,592 | ||||||||
Interests paid |
(236,936 | ) | (145,082 | ) | ||||||
|
|
|
|
|||||||
Net cash provided by operating activities |
3,685,474 | |||||||||
|
|
|
|
See accompanying notes to the separate financial statements.
168
LG DISPLAY CO., LTD.
Separate Statements of Cash Flows, Continued
For the years ended December 31, 2019 and 2018
(In millions of won) | Note |
2019 | 2018 | |||||||
Cash flows from investing activities: |
||||||||||
Dividends received |
24,136 | |||||||||
Increase in deposits in banks |
(114,257 | ) | (275,700 | ) | ||||||
Proceeds from withdrawal of deposits in banks |
114,200 | 778,915 | ||||||||
Acquisition of financial asset at fair value through profit or loss |
| (286 | ) | |||||||
Acquisition of financial assets at fair value through other comprehensive income |
(21 | ) | | |||||||
Proceeds from disposal of financial assets at fair value through other comprehensive income |
107 | 6 | ||||||||
Acquisition of investments |
(1,224,836 | ) | (192,611 | ) | ||||||
Proceeds from disposal of investments |
16,738 | 4,527 | ||||||||
Acquisition of property, plant and equipment |
(2,173,535 | ) | (5,548,289 | ) | ||||||
Proceeds from disposal of property, plant and equipment |
384,506 | 201,222 | ||||||||
Acquisition of intangible assets |
(511,661 | ) | (466,496 | ) | ||||||
Proceeds from disposal of intangible assets |
2,349 | 960 | ||||||||
Government grants received |
3,979 | 1,210 | ||||||||
Receipt from settlement of derivatives |
21,752 | 2,026 | ||||||||
Proceeds from collection of short-term loans |
19,881 | 11,058 | ||||||||
Increase in short-term loans |
(8,725 | ) | (7,700 | ) | ||||||
Increase in long-term loans |
(6,465 | ) | (36,580 | ) | ||||||
Increase in deposits |
(4,949 | ) | (348 | ) | ||||||
Decrease in deposits |
5,244 | 569 | ||||||||
Proceeds from disposal of emission rights |
20,416 | 10,200 | ||||||||
|
|
|
|
|||||||
Net cash used in investing activities |
(3,436,655 | ) | (5,493,181 | ) | ||||||
|
|
|
|
|||||||
Cash flows from financing activities: |
28 | |||||||||
Proceeds from short-term borrowings |
1,264,915 | 552,164 | ||||||||
Repayments of short-term borrowings |
(928,335 | ) | (552,884 | ) | ||||||
Proceeds from issuance of bonds |
1,323,251 | 828,169 | ||||||||
Proceeds from long-term borrowings |
1,669,148 | 2,489,560 | ||||||||
Repayments of current portion of long-term borrowings and bonds |
(1,043,649 | ) | (1,425,395 | ) | ||||||
Payment guarantee fee received |
5,068 | 1,876 | ||||||||
Repayments of lease liabilities |
(14,006 | ) | | |||||||
Dividends paid |
| (178,908 | ) | |||||||
|
|
|
|
|||||||
Net cash provided by financing activities |
2,276,392 | 1,714,582 | ||||||||
|
|
|
|
|||||||
Net increase (decrease) in cash and cash equivalents |
631,962 | (93,125 | ) | |||||||
Cash and cash equivalents at January 1 |
473,283 | 566,408 | ||||||||
|
|
|
|
|||||||
Cash and cash equivalents at December 31 |
473,283 | |||||||||
|
|
|
|
See accompanying notes to the separate interim financial statements.
169
1. | Organization and Description of Business |
LG Display Co., Ltd. (the Company) was incorporated in February 1985 and the Company is a public corporation listed in the Korea Exchange since 2004. The main business of the Company is to manufacture and sell displays and its related products. As of December 31, 2019, the Company is operating Thin Film Transistor Liquid Crystal Display (TFT-LCD) and Organic Light Emitting Diode (OLED) panel manufacturing plants in Gumi, Paju and China and TFT-LCD and OLED module manufacturing plants in Gumi, Paju, China and Vietnam. The Company is domiciled in the Republic of Korea with its address at 128 Yeouidae-ro, Yeongdeungpo-gu, Seoul, the Republic of Korea. As of December 31, 2019, LG Electronics Inc., a major shareholder of the Company, owns 37.9% (135,625,000 shares) of the Companys common stock.
The Companys common stock is listed on the Korea Exchange under the identifying code 034220. As of December 31, 2019, there are 357,815,700 shares of common stock outstanding. The Companys common stock is also listed on the New York Stock Exchange in the form of American Depository Shares (ADSs) under the symbol LPL. One ADS represents one-half of one share of common stock. As of December 31, 2019, there are 19,545,920 ADSs outstanding.
2. | Basis of Presenting Financial Statements |
(a) | Statement of Compliance |
In accordance with the Act on External Audits of Stock Companies, Etc., these separate financial statements have been prepared in accordance with Korean International Financial Reporting Standards (K-IFRS).
These financial statements are separate financial statements prepared in accordance with K-IFRS No.1027, Separate Financial Statements, presented by a parent, an investor in an associate or a venture in a joint ventures, in which the investments are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investees.
The separate financial statements were authorized for issuance by the Board of Directors on January 30, 2020, which will be submitted for approval to the shareholders meeting to be held on March 20, 2020.
170
2. | Basis of Presenting Financial Statements, Continued |
(b) | Basis of Measurement |
The separate financial statements have been prepared on the historical cost basis except for the following material items in the separate statement of financial position:
| derivative financial instruments at fair value, financial assets at fair value through profit or loss(FVTPL), financial assets at fair value through other comprehensive income (FVOCI), financial liabilities at fair value through profit or loss(FVTPL), and |
| net defined benefit liabilities (employee benefits assets) recognized at the present value of defined benefit obligations less the fair value of plan assets |
(c) | Functional and Presentation Currency |
The separate financial statements are presented in Korean won, which is the Companys functional currency.
(d) | Use of Estimates and Judgments |
The preparation of the separate financial statements in conformity with K-IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the separate financial statements is included in the following notes:
| Financial instruments (Note 3(f)) |
| Intangible assets (Note 3(k), 10) |
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next 12 months is included in the following notes:
| Provisions (Note 3(m), 13) |
| Inventories (Note 3(e), 7) |
| Property, plant and equipment (Note 9) |
| Intangible assets (Note 10) |
| Employee benefits (Note 12) |
| Deferred tax assets and liabilities (Note 24) |
171
3. | Summary of Significant Accounting Policies |
The significant accounting policies followed by the Company in the preparation of its separate financial statements are as follows:
(a) | Changes in Accounting Policies |
The Company has initially applied K-IFRS No. 1116, Leases, from January 1, 2019. A number of other new standards are effective from January 1, 2019 but they do not have a material effect on the Companys separate financial statements.
In application of K-IFRS No. 1116, Leases, from January 1, 2019, the Company used the modified retrospective approach, under which right-of-use assets and lease liabilities are recognized in equal amount. Accordingly, the comparative information presented for 2018 is presented, as previously reported, under K-IFRS No. 1017 and relative interpretations. The disclosure requirements in K-IFRS No. 1116 have not been applied to comparative information. The details of the changes in accounting policies are disclosed below.
i) | Definition of a lease |
Previously, the Company determined at contract inception whether an arrangement was or contained a lease under K-IFRS No. 2104, Determining Whether an Arrangement contains a Lease. For contracts entered into or changed on or after January 1, 2019, the Company assesses whether a contract is or contains a lease based on the definition of a lease under K-IFRS No. 1116 as described in Note 27.
On adoption of K-IFRS No. 1116, as of January 1, 2019, the Company applied the practical expedient to grandfather the assessment of which transactions are leases for existing contracts. The Company applied K-IFRS No. 1116 only to contracts that were previously identified as leases.
ii) | Accounting as a lessee |
As a lessee, the Company leases buildings, vehicles, machinery, equipment and others. The Company previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Company. Under K-IFRS No. 1116, the Company recognizes right-of-use assets and lease liabilities for most of these leases on the separate statement of financial position.
At commencement or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease and non-lease component on the basis of its relative stand-alone price.
172
3. | Summary of Significant Accounting Policies, Continued |
(a) | Changes in Accounting Policies, Continued |
Leases classified as operating leases under K-IFRS No. 1017
The Company classified its leases of buildings, vehicles, machinery, equipment and others as operating leases under K-IFRS No. 1017. On adoption of K-IFRS No. 1116, for these leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Companys incremental borrowing rate as at January 1, 2019 (see Note 27). Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid lease payments.
The Company used following practical expedients when applying K-IFRS No. 1116 to leases previously classified as operating leases under K-IFRS No. 1017:
| did not recognize right-of-use assets and liabilities for leases for which the lease term ends within 12 months of the date of initial application; |
| did not recognize right-of-use assets and liabilities for leases of low value assets; |
| excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application; and |
| used hindsight when determining the remaining lease term. |
iii) | Accounting as a lessor |
The Company leases out its own property and right-of-use assets. The Company classified these leases as operating leases or finance leases based on their characteristics.
iv) | Impact on the separate financial statements |
Impacts on adoption
On adoption of K-IFRS No. 1116, the Company recognized additional right-of-use assets and additional lease liabilities as below.
(In millions of won) | January 1, 2019 | |||
Right-of-use assets presented in property, plant and equipment | ||||
Lease liabilities |
16,332 |
When measuring lease liabilities at January 1, 2019 for leases that were classified as operating leases in accordance with K-IFRS No. 1017, the Company discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average discount rate applied is 2.96%.
(In millions of won) | January 1, 2019 |
|||
Amount of operating lease commitments at December 31, 2018 | ||||
Discounted using the incremental borrowing rate at January 1, 2019 | 16,558 | |||
Finance lease liabilities recognized as at December 31, 2018 | | |||
Recognition exemption for lease of low-value assets |
(115 | ) | ||
Recognition exemption for leases with less than 12 months of lease term at adoption |
(111 | ) | ||
Lease liabilities recognized at January 1, 2019 |
16,332 |
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3. | Summary of Significant Accounting Policies, Continued |
(b) | Interest in subsidiaries, associates and joint ventures |
These separate financial statements are prepared and presented in accordance with K-IFRS No.1027, Separate Financial Statements. The Company applied the cost method to investments in subsidiaries, associates and joint ventures. Dividends from subsidiaries, associates or joint ventures are recognized in profit or loss when the right to receive the dividend is established.
(c) | Foreign Currency Transaction and Translation |
Transactions in foreign currencies are translated to the functional currency of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the exchange rate on the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was originally determined. Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on an investment in equity securities designated as at FVOCI and a financial asset and liability designated as a cash flow hedge, which are recognized in other comprehensive income. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition are recognized in profit or loss in the period in which they arise. Foreign currency differences arising from assets and liabilities in relation to the investing and financing activities including loans, bonds and cash and cash equivalents are recognized in finance income (costs) in the separate statement of comprehensive income (loss) and foreign currency differences arising from assets and liabilities in relation to activities other than investing and financing activities are recognized in other non-operating income (expense) in the separate statement of comprehensive income (loss). Foreign currency differences are presented in gross amounts in the separate statement of comprehensive income (loss).
(d) | Cash and cash equivalents |
Cash and cash equivalents include all cash balances and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash.
(e) | Inventories |
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted-average method, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated selling expenses. In the case of manufactured inventories and work-in-process, cost includes an appropriate share of production overheads based on the actual capacity of production facilities. However, the normal capacity is used for the allocation of fixed production overheads if the actual level of production is lower than the normal capacity.
174
3. | Summary of Significant Accounting Policies, Continued |
(f) | Financial Instruments |
(i) | Non-derivative financial assets |
Recognition and initial measurement
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets are recognized in statement of financial position when, and only when, the Company becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
Classification and subsequent measurement
i) | Financial assets |
On initial recognition, a financial asset is classified as measured at: amortized cost; FVOCI debt investment; FVOCI equity investments; or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the subsequent reporting period following the change in the business model.
A financial asset is measured as at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:
| it is held within a business model whose objective is to hold assets to collect contractual cash flows; and |
| its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
| it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and |
| the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
On initial recognition of an equity investments that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investments fair value in OCI. This election is made on an investment-by-investment basis.
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured as at FVTPL. This includes all derivative financial assets. At initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
175
3. | Summary of Significant Accounting Policies, Continued |
(f) | Financial Instruments, Continued |
ii) | Financial assets: business model |
The Company makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:
| the stated policies and objectives for the portfolio and the operation of those policies in practice (these include whether managements strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realizing cash flows through the sale of the assets); |
| how the performance of the portfolio is evaluated and reported to the Companys management; |
| the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; and |
| the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity. |
Transfers of financial assets to third parties in transaction that do not qualify for derecognition are not considered sale for this purpose.
A financial asset that is held for trading or is managed and whose performance is evaluated on a fair value basis is measured at FVTPL.
iii) | Financial assets: Assessment whether contractual cash flows are solely payments of principal and interest |
For the purpose of the assessment, principal is defined as the fair value of the financial asset on initial recognition. Interest is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and cost (e.g. liquidity risk and administrative costs), as well as profit margin.
176
3. | Summary of Significant Accounting Policies, Continued |
(f) | Financial Instruments, Continued |
In assessing whether the contractual cash flows are solely payments of principal and interest, the Company considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Company considers.
| contingent events that would change the amount or timing of cash flows: |
| terms that may adjust the contractual coupon rate, including variable-rate features; |
| prepayment and extension features; and |
| terms that limit the Companys claim to cash flows from specified assets (e.g. non-recourse features) |
A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest or the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract.
Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued but unpaid contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.
iv) | Financial assets: Subsequent measurement and gains and losses |
Financial assets at FVTPL |
These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss. | |
Financial assets at amortized cost |
These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss. | |
Debt investments at FVOCI |
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss. |
Derecognition
The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, it transfers the rights to receive the contractual cash flows of the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or it transfers or does not retain substantially all the risks and rewards of ownership of a transferred asset, and does not retain control of the transferred asset.
If the Company has retained substantially all the risks and rewards of ownership of the transferred asset, the Company continues to recognize the transferred asset.
Offset
Financial assets and liabilities are offset and the net amount is presented in the separate statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
177
3. | Summary of Significant Accounting Policies, Continued |
(f) | Financial Instruments, Continued |
(ii) | Non-derivative financial liabilities |
The Company classifies financial liabilities into two categories, financial liabilities at FVTPL and other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities, and recognizes them in the separate statement of financial position when the Company becomes a party to the contractual provisions of the instrument.
Financial liabilities at FVTPL include financial liabilities held for trading or designated as such upon initial recognition at FVTPL. After initial recognition, financial liabilities at FVTPL are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the issuance of financial liabilities are recognized in profit or loss as incurred.
Non-derivative financial liabilities other than financial liabilities classified as at FVTPL are classified as other financial liabilities and measured initially at fair value minus transaction costs that are directly attributable to the issuance of financial liabilities. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. As of December 31, 2019, non-derivative financial liabilities comprise borrowings, bonds, trade accounts and notes payable, other accounts payable and others.
The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired.
(iii) | Share Capital |
The Company issued common stocks and they are classified as equity. Incremental costs directly attributable to the issuance of common stocks are recognized as a deduction from equity, net of tax effects. Capital contributed in excess of par value upon issuance of common stocks is classified as share premium within equity.
(iv) | Derivative financial instruments |
Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.
Hedge Accounting
If necessary, the Company designates derivatives as hedging items to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).
On initial designation of the hedge, the Companys management formally designates and documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship, both at the inception of the hedge relationship as well as on an ongoing basis.
178
3. | Summary of Significant Accounting Policies, Continued |
(f) | Financial Instruments, Continued |
i) | Fair value hedges |
Change in the fair value of a derivative hedging instrument designated as a fair value hedge and the hedged item is recognized in profit or loss, respectively. The gain or loss from remeasuring the hedging instrument at fair value and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the statement of comprehensive income (loss). The Company discontinues fair value hedge accounting if it does not designate the derivative hedging instrument and the hedged item as the hedge relationship between them anymore; if the hedging instrument expires or is sold, terminated or exercised; or if the hedge no longer meets the criteria for hedge accounting.
ii) | Cash flow hedges |
When a derivative designated as a cash flow hedging instrument meets the criteria of cash flow hedge accounting, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and the ineffective portion of changes in the fair value of the derivative is recognized in profit or loss. The Company discontinues cash flow hedge accounting if it does not designate the derivative hedging instrument and the hedged item as the hedge relationship between them anymore; if the hedging instruments expires or is sold, terminated or exercised; or if the hedge no longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.
Embedded derivative
Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met.
Other derivative financial instruments
Other derivative financial instruments are measured at fair value and changes of their fair value are recognized in profit or loss.
179
3. | Summary of Significant Accounting Policies, Continued |
(g) | Property, Plant and Equipment |
(i) | Recognition and measurement |
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes an expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and borrowing costs on qualifying assets.
The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item and recognized in other non-operating income or other non-operating expenses.
(ii) | Subsequent costs |
Subsequent expenditure on an item of property, plant and equipment is recognized as part of its cost only if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred
(iii) | Depreciation |
Depreciation is recognized in profit or loss on a straight-line basis, reflecting the pattern in which the assets future economic benefits are expected to be consumed by the Company. The residual value of property, plant and equipment is zero.
Estimated useful lives of the assets are as follows:
Useful lives (years) | ||
Buildings and structures |
20, 40 | |
Machinery |
4, 5 | |
Furniture and fixtures |
4 | |
Equipment, tools and vehicles |
2, 4, 12 | |
Right-of-use assets |
(*) |
(*) | The Company depreciates the right-of-use assets from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term on a straight-line basis. |
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate and any changes are accounted for as changes in accounting estimates.
(h) | Borrowing Costs |
The Company capitalizes borrowing costs, which includes interests and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs, directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. To the extent that the Company borrows funds specifically for the purpose of obtaining a qualifying asset, the Company determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. The Company immediately recognizes other borrowing costs as an expense.
(i) | Government Grants |
In case there is reasonable assurance that the Company will comply with the conditions attached to a government grant, the government grant is recognized as follows:
(i) | Grants related to the purchase or construction of assets |
A government grant related to the purchase or construction of assets is deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense and cash related to grant received is presented in investing activities in the statement of cash flows.
(ii) | Grants for compensating the Companys expenses incurred |
A government grant that compensates the Company for expenses incurred is recognized in profit or loss as a deduction from relevant expenses on a systematic basis in the periods in which the expenses are recognized.
180
3. | Summary of Significant Accounting Policies, Continued |
(i) | Government Grants, Continued |
(iii) | Other government grants |
A government grant that becomes receivable for the purpose of giving immediate financial support to the Company with no compensation for expenses or losses already incurred or no future related costs is recognized as income of the period in which it becomes receivable.
(j) | Intangible Assets |
Intangible assets are initially measured at cost. Subsequently, intangible assets are measured at cost less accumulated amortization and accumulated impairment losses.
(i) | Goodwill |
Goodwill arising from business combinations is recognized as the excess of the acquisition cost of a business over the net fair value of the identifiable assets acquired and liabilities assumed. Any deficit is a bargain purchase that is recognized in profit or loss. Goodwill is measured at cost less accumulated impairment losses.
(ii) | Research and development |
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred.
Development activities involve a plan or design of the production of new or substantially improved products and processes. Development expenditure is capitalized as intangible assets only if the Company can demonstrate all of the following:
| the technical feasibility of completing the intangible asset so that it will be available for use or sale, |
| its intention to complete the intangible asset and use or sell it, |
| its ability to use or sell the intangible asset, |
| how the intangible asset will generate probable future economic benefits (among other things, the Company can demonstrate the usefulness of the intangible asset by existence of a market for the output of the intangible asset or the intangible asset itself if it is to be used internally), |
| the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and |
| its ability to measure reliably the expenditure attributable to the intangible asset during its development. |
The expenditure capitalized includes the cost of materials, direct labor and overhead costs that are directly attributable to preparing the asset for its intended use, and borrowing costs on qualifying assets.
(iii) | Other intangible assets |
Other intangible assets include intellectual property rights, software, customer relationships, technology, memberships and others.
181
3. | Summary of Significant Accounting Policies, Continued |
(j) | Intangible Assets, Continued |
(iv) | Subsequent costs |
Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific intangible asset to which they relate. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.
(v) | Amortization |
Amortization is calculated on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which condominium and golf club memberships are expected to be available for use, these intangible assets are regarded as having indefinite useful lives and not amortized.
Estimated useful lives (years) | ||
Intellectual property rights |
5, 10 | |
Rights to use electricity, water and gas supply facilities |
10 | |
Software |
4 | |
Customer relationships |
7, 10 | |
Technology |
10 | |
Development costs |
(*) | |
Condominium and golf club memberships |
Not amortized |
(*) | Capitalized development costs are amortized over the useful lives considering the life cycle of the developed products. Amortization of capitalized development costs are recognized in research and development expenses in the separate statement of comprehensive income (loss). |
Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at each financial year-end. The useful lives of intangible assets that are not being amortized are reviewed each period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. If appropriate, the changes are accounted for as changes in accounting estimates.
(k) | Impairment |
(i) | Financial assets |
Financial instruments and contract assets
The Company recognizes loss allowance for financial assets measured at amortized cost and debt investments at FVOCI at the expected credit loss (ECL).
The Company recognizes a loss allowance for the life-time expected credit losses except for following, which are measured at 12-month ECLs:
| debt securities that are determined to have low credit risk at the reporting date; and |
| other debt securities and bank deposits for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. |
182
3. | Summary of Significant Accounting Policies, Continued |
(k) | Impairment, Continued |
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both qualitative and quantitative information and analysis, based on the Companys historical experience and informed credit assessment including forward-looking information.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.
12-month ECLs are the portion of the ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).
The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.
Estimation of expected credit losses
Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are measured using the present value of the difference between the contractual cash flows and the expected contractual cash flows. The expected credit losses are discounted using effective interest rate of the financial assets.
Credit-impaired financial assets
At each reporting period-end, the Company assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
| significant financial difficulty of the issuer or the borrower; |
| the lender(s) of the borrower, for economic or contractual reasons relating to the borrowers financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider; |
| it is probable that the borrower will enter bankruptcy or other financial reorganization; or |
| the disappearance of an active market for a security because of financial difficulties. |
Presentation of loss allowance for ECL in the statement of financial position
Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is charged to profit or loss and is recognized in OCI instead of reducing the carrying amount of financial assets in the separate statement of financial position.
183
3. | Summary of Significant Accounting Policies, Continued |
(k) | Impairment, Continued |
Write-off
The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations for recovering the financial asset in its entirety or a portion thereof. The Company assess whether there are reasonable expectations of recovering the contractual cash flows from customers and individually assess the timing and amount of write-off. The Company expects no significant recovery from the amount written-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Companys procedures for recovery of amounts due.
(ii) | Non-financial assets |
The carrying amounts of the Companys non-financial assets, other than assets arising from employee benefits, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, the recoverable amount is estimated each year.
Recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the Company determines the recoverable amount of the cash-generating unit to which the asset belongs. The cash-generating unit (CGU) is the smallest group of assets that includes the asset and generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or cash-generating unit is determined as the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. Fair value less costs to sell is based on the best information available to reflect the amount that the Company could obtain from the disposal of the asset in an arms length transaction between knowledgeable, willing parties, after deducting the costs of disposal.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of a CGU are allocated first to reduce the carrying amount of any goodwill allocated to the unit, and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis.
In respect of assets other than goodwill, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of accumulated depreciation or amortization, if no impairment loss had been recognized from the acquisition cost. An impairment loss in respect of goodwill is not reversed.
184
3. | Summary of Significant Accounting Policies, Continued |
(l) | Leases |
The Company applied K-IFRS No. 1116 using the modified retrospective approach and therefore the comparative information is not restated and continues to be reported applying K-IFRS No. 1017 and K-IFRS No. 2104.
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company uses the definition of a lease in K-IFRS No. 1116.
(i) | As a lesseePolicies from January 1, 2019 |
At commencement or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease and non-lease component on the basis of its relative stand-alone price. For certain leases, the Company accounts for the lease and non-lease components as a single lease component by applying the practical expedient not to separate non-lease components.
The Company recognizes a right-of-use asset and lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at of before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Company by the end of the lease term or the cost of the right-of-use asset reflects that the Company will exercise a purchase option. In that case, the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Companys incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.
The Company determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.
185
3. | Summary of Significant Accounting Policies, Continued |
(l) | Lease, Continued |
Lease payments included in the measurement of the lease liability comprise the following:
| fixed payments, including in-substance fixed payments; |
| variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; |
| amounts expected to be payable under a residual value guarantee; and |
| the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early. |
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Companys estimate of the amount expected to be payable under a residual value guarantee, if the Company changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured the Company recognizes the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. However, if the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Company recognizes any remaining amount of the remeasurement in profit or loss.
The Company presents right-of-use assets in property, plant and equipment and lease liabilities in financial liabilities in the separate statement of financial position.
The Company has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
(ii) | As a lessorPolicies from January 1, 2019 |
When the Company acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.
To classify each lease, the Company makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Company considers certain indicators such as whether the lease is for the major part of the economic life of the asset.
When the Company is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Company applies the exemption described above, then it classifies the sub-lease as an operating lease.
186
3. | Summary of Significant Accounting Policies, Continued |
(l) | Lease, Continued |
If an arrangement contains lease and non-lease components, then the Company applies K-IFRS No. 1115 to allocate the consideration in the contract.
At the commencement date, the Company recognizes assets held under a finance lease in its statement of financial position and present them as a receivable at an amount equal to the net investment in the lease and recognize finance income over the lease term, based on a pattern reflecting a constant periodic rate of return on the lessors net investment in the lease.
The Company recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of other revenue.
The accounting policies applicable to the Company as a lessor in the comparative period are not different from K-IFRS No. 1116.
(m) | Provisions |
A provision is recognized, as a result of a past event, if the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
The risks and uncertainties that inevitably surround events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows. The unwinding of the discount is recognized as finance cost.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.
The Company recognizes a liability for warranty obligations based on the estimated costs expected to be incurred under its basic limited warranty. This warranty covers defective products and is normally applicable for 18~36 months from the date of purchase. These liabilities are accrued when product revenues are recognized. Factors that affect the Companys warranty liability include historical and anticipated rates of warranty claims on those repairs and cost per claim to satisfy the Companys warranty obligation. Warranty costs primarily include raw materials and labor costs. As these factors are impacted by actual experience and future expectations, management periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Accrued warranty obligations are included in the current and non-current provisions.
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.
187
3. | Summary of Significant Accounting Policies, Continued |
(n) | Employee Benefits |
(i) | Short-term employee benefits |
Short-term employee benefits that are due to be settled within twelve months after the end of the period in which the employees render the related service are recognized in profit or loss on an undiscounted basis. The expected cost of profit-sharing and bonus plans and others are recognized when the Company has a present legal or constructive obligation to make payments as a result of past events and a reliable estimate of the obligation can be made.
(ii) | Other long-term employee benefits |
The Companys net obligation in respect of long-term employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods.
(iii) | Defined contribution plan |
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the period during which services are rendered by employees.
(iv) | Defined benefit plan |
A defined benefit plan is a post-employment benefit plan other than defined contribution plans. The Companys net obligation in respect of its defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of any plan assets is deducted.
The calculation is performed annually by an independent actuary using the projected unit credit method. The discount rate is the yield at the reporting date on high quality corporate bonds that have maturity dates approximating the terms of the Companys obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Company recognizes all actuarial gains and losses arising from defined benefit plans in retained earnings immediately.
The Company determines the net interest expense (income) on the net defined benefit liability (employee benefits asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (employee benefits asset), taking into account any changes in the net defined benefit liability (employee benefits asset) during the period as a result of contributions and benefit payments. Consequently, the net interest on the net defined benefit liability (employee benefits asset) now comprises: interest cost on the defined benefit obligation, interest income on plan assets, and interest on the effect on the asset ceiling.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.
(v) | Termination benefits |
The Company recognizes expense for termination benefits at the earlier of the date when the entity can no longer withdraw the offer of those benefits and when the entity recognizes costs for a restructuring involving the payment of termination benefits. If the termination benefits are not expected to be settled wholly before twelve months after the end of the annual reporting period, the Company measures the termination benefit with present value of future cash payments.
188
3. | Summary of Significant Accounting Policies, Continued |
(o) | Revenue from contracts with customers |
Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of estimated returns, trade discounts, volume rebates and other cash incentives paid to customers.
The Company recognizes revenue according to the five-stage revenue recognition model (① Identifying the contract g ② Identifying performance obligations g ③ Determining transaction price g ④ Allocating the transaction price to performance obligations g ⑤ Recognizing revenue for performance obligations).
The Company generates revenue primarily from sale of display panels. Product revenue is recognized when a customer obtains control over the Companys products, which typically occurs upon shipment or delivery depending on the terms of the contracts with the customer.
The Company includes return option in the sales contract of display panels with its customers and the consideration receivable from the customer is subject to change due to returns. The Company estimates an amount of variable consideration by using the expected value method which the Company expects to better predict the amount of consideration. The Company includes in the transaction price an amount of variable consideration estimated only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur during the return period when the uncertainty associated with the variable consideration is subsequently resolved. The Company recognizes a refund liability and an asset for its right to recover products from customers if the Company receives consideration from a customer and expects to refund some or all of that consideration to the customer. Sales taxes or value-added taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and are excluded from revenues in the separate statement of comprehensive income (loss).
(p) | Operating Segments |
In accordance with K-IFRS No. 1108, Operating Segments, entity wide disclosures of geographic and product revenue information are provided in the separate financial statements.
(q) | Finance Income and Finance Costs |
Finance income comprises interest income on funds invested (including debt instruments measured at FVOCI), dividend income, gains on disposal of debt instruments measured at FVOCI, changes in fair value of financial assets at FVTPL, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Dividend income is recognized in profit or loss on the date that the Companys right to receive payment is established.
Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, gain and losses from financial assets measured at FVTPL, impairment losses recognized on financial assets, and losses on hedging instruments that are recognized in profit or loss. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset.
189
3. | Summary of Significant Accounting Policies, Continued |
(r) | Income Tax |
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
(i) | Current tax |
Current tax comprises the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.
(ii) | Deferred tax |
Deferred tax is recognized, using the liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
The Company recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that the differences relating to investments in subsidiaries, associates and joint ventures will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
The Company offsets deferred tax assets and deferred tax liabilities if, and only if, the Company has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority.
190
3. | Summary of Significant Accounting Policies, Continued |
(s) | Earnings (Loss) Per Share |
The Company presents basic and diluted earnings (loss) per share (EPS) data for its common stocks. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of common stocks outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of common stocks outstanding, adjusted for the effects of all dilutive potential common stocks such as convertible bonds and others.
(t) | Business Combinations |
The Company accounts for business combinations using the acquisition method when control is transferred to the Company. The consideration transferred in the acquisition and the identifiable net assets acquired from business combinations are measured at fair value. If the consideration transferred exceeds the fair value of identifiable net asset, the Company recognizes goodwill; if not, then the Company recognizes gain on a bargain purchase. Any goodwill that arises is tested annually for impairment. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities in accordance with K-IFRS No. 1032 and K-IFRS No. 1109. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.
(u) | New Standards and Amendments Not Yet Adopted, |
A number of new standards are effective for annual periods beginning after January 1, 2019 and earlier application is permitted; however, the Company has not early adopted the new or amended standards in preparing these separate financial statements.
The following amended standards and interpretations are not expected to have a significant impact on the Companys separate financial statements:
| Amendments to References to Conceptual Framework in K-IFRS Standards; |
| Definition of a Business (Amendments to K-IFRS No. 1103, Business Combinations); |
| Definition of Material (Amendments to K-IFRS No. 1001, Presentation of Financial Statements and K-IFRS No. 1008, Accounting Policies, Changes in Accounting Estimates and Errors); and |
| K-IFRS No. 1117, Insurance Contracts. |
191
4. | Cash and Cash Equivalents and Deposits in Banks |
Cash and cash equivalents and deposits in banks as of December 31, 2019 and December 31, 2018 are as follows:
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Current assets |
||||||||
Cash and cash equivalents |
||||||||
Demand deposits |
473,283 | |||||||
Deposits in banks |
||||||||
Time deposits |
3,118 | |||||||
Restricted deposits (*) |
77,257 | 74,082 | ||||||
|
|
|
|
|||||
77,200 | ||||||||
|
|
|
|
|||||
Non-current assets | ||||||||
Deposits in banks |
||||||||
Restricted deposits (*) |
11 | |||||||
|
|
|
|
|||||
550,494 | ||||||||
|
|
|
|
(*) | Includes funds deposited under agreements on mutually beneficial cooperation to aid LG Group companies suppliers, restricted deposits pledged to enforce the Companys investment plans upon the receipt of grants from Gumi city and Gyeongsangbuk-do, and others. |
5. | Receivables and Other Assets |
(a) | Trade accounts and notes receivable as of December 31, 2019 and December 31, 2018 are as follows: |
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Due from third parties |
257,037 | |||||||
Due from related parties |
3,344,617 | 3,132,071 | ||||||
|
|
|
|
|||||
3,389,108 | ||||||||
|
|
|
|
(b) | Other accounts receivable as of December, 2019 and December 31, 2018 are as follows: |
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Current assets |
||||||||
Non-trade receivables, net |
316,069 | |||||||
Accrued income |
1,281 | 5,894 | ||||||
|
|
|
|
|||||
321,963 | ||||||||
|
|
|
|
|||||
Non-current assets |
||||||||
Long-term non-trade receivables |
25,823 | |||||||
|
|
|
|
|||||
347,786 | ||||||||
|
|
|
|
Due from related parties included in other accounts receivable, as of December 31, 2019 and 2018 are
W45,518 million and W247,677 million, respectively.
192
5. | Receivables and Other Assets, Continued |
(c) | The aging of trade accounts and notes receivable, and other accounts receivable as of December 31, 2019 and December 31, 2018 are as follows: |
(In millions of won) | December 31, 2019 | |||||||||||||||
Book value | Allowance for impairment |
|||||||||||||||
Trade accounts and notes receivable |
Other accounts receivable |
Trade accounts and notes receivable |
Other accounts receivable |
|||||||||||||
Current |
184,991 | (5) | (2,952 | ) | ||||||||||||
1-15 days past due |
70 | 3,488 | | (1 | ) | |||||||||||
16-30 days past due |
| 94 | | | ||||||||||||
31-60 days past due |
| 61 | | | ||||||||||||
More than 60 days past due |
| 274,183 | | (25 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
462,817 | (5 | ) | (2,978 | ) | ||||||||||||
|
|
|
|
|
|
|
|
(In millions of won) | December 31, 2018 | |||||||||||||||
Book value | Allowance for impairment |
|||||||||||||||
Trade accounts and notes receivable |
Other accounts receivable |
Trade accounts and notes receivable |
Other accounts receivable |
|||||||||||||
Current |
347,669 | (5 | ) | (551 | ) | |||||||||||
1-15 days past due |
1,353 | 274 | | (2 | ) | |||||||||||
16-30 days past due |
79 | 69 | | (1 | ) | |||||||||||
31-60 days past due |
28 | 95 | | (1 | ) | |||||||||||
More than 60 days past due |
| 668 | | (434 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
348,775 | (5 | ) | (989 | ) | ||||||||||||
|
|
|
|
|
|
|
|
The movement in the allowance for impairment in respect of trade accounts and notes receivable and other accounts receivable for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | 2019 | 2018 | ||||||||||||||
Trade accounts and notes receivable |
Other accounts receivable |
Trade accounts and notes receivable |
Other accounts receivable |
|||||||||||||
Balance at the beginning of the year |
989 | 570 | 1,092 | |||||||||||||
(Reversal of) bad debt expense |
| 1,989 | (565 | ) | (103 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at the end of the year |
2,978 | 5 | 989 | |||||||||||||
|
|
|
|
|
|
|
|
193
5. | Receivables and Other Assets, Continued |
(d) | Other assets as of December 31, 2019 and December 31, 2018 are as follows: |
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Current assets |
||||||||
Advanced payments |
3,354 | |||||||
Prepaid expenses |
100,561 | 73,254 | ||||||
Value added tax refundable |
75,317 | 52,252 | ||||||
Right to recover returned goods |
22,106 | 7,489 | ||||||
|
|
|
|
|||||
136,349 | ||||||||
|
|
|
|
|||||
Non-current assets |
||||||||
Long-term prepaid expenses |
325,219 | |||||||
Long-term advanced payments |
7,742 | | ||||||
|
|
|
|
|||||
325,219 | ||||||||
|
|
|
|
194
6. | Other Financial Assets |
Other financial assets as of December 31, 2019 and 2018 are as follows:
(In millions of won) | December 31, 2019 | December 31, 2018 | ||||||
Current assets |
||||||||
Financial assets at fair value through profit or loss |
||||||||
Derivatives(*) |
13,059 | |||||||
Financial assets at fair value through other comprehensive income |
||||||||
Debt instruments |
||||||||
Government bonds |
106 | |||||||
Financial asset carried at amortized cost |
||||||||
Short-term loans |
16,116 | |||||||
|
|
|
|
|||||
29,281 | ||||||||
|
|
|
|
|||||
Non-current assets |
||||||||
Financial assets at fair value through profit or loss |
||||||||
Equity instruments |
||||||||
Intellectual Discovery, Ltd. |
4,598 | |||||||
Kyulux, Inc. |
1,889 | 2,460 | ||||||
Fineeva Co., Ltd. |
4 | 286 | ||||||
|
|
|
|
|||||
7,344 | ||||||||
|
|
|
|
|||||
Convertible bonds |
1,327 | |||||||
Derivatives(*) |
15,640 | | ||||||
|
|
|
|
|||||
8,671 | ||||||||
|
|
|
|
|||||
Financial assets at fair value through other comprehensive income |
||||||||
Debt instruments |
||||||||
Government bonds |
55 | |||||||
Financial assets carried at amortized cost |
||||||||
Deposits |
13,418 | |||||||
Long-term loans |
40,827 | 55,048 | ||||||
|
|
|
|
|||||
68,466 | ||||||||
|
|
|
|
|||||
77,192 | ||||||||
|
|
|
|
(*) | Represents valuation gain from currency interest rate swap contracts related to foreign currency denominated borrowings and bonds. The contracts are not designated as hedging instruments. |
Other financial assets issued by related
parties as of December 31, 2018 is W2,000 million.
195
7. | Inventories |
Inventories as of December 31, 2019 and December 31, 2018 are as follows:
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Finished goods |
539,859 | |||||||
Work-in-process |
696,993 | 791,396 | ||||||
Raw materials |
341,004 | 500,413 | ||||||
Supplies |
94,233 | 119,487 | ||||||
|
|
|
|
|||||
1,951,155 | ||||||||
|
|
|
|
For the years ended December 31, 2019 and 2018, the amount of inventories recognized as cost of sales including inventory write-downs and usage of inventory write-downs included in cost of sales are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Inventories recognized as cost of sales |
20,439,681 | |||||||
Including: inventory write-downs |
408,567 | 280,323 | ||||||
Including: usage of inventory write-downs |
(280,323 | ) | (184,139 | ) |
There were no significant reversals of inventory write-downs recognized during the years ended December 31, 2019 and 2018.
196
8. | Investments |
(a) | Investments in subsidiaries consist of the following: |
(In millions of won) | December 31, 2019 | December 31, 2018 | ||||||||||||||||||
Subsidiaries |
Location | Business | Percentage of ownership |
Book Value |
Percentage of ownership |
Book Value |
||||||||||||||
LG Display America, Inc. |
San Jose, U.S.A. |
Sell display products | 100 | % | 100 | % | ||||||||||||||
LG Display Germany GmbH |
Eschborn, Germany |
Sell display products | 100 | % | 19,373 | 100 | % | 19,373 | ||||||||||||
LG Display Japan Co., Ltd. |
Tokyo, Japan |
Sell display products | 100 | % | 15,686 | 100 | % | 15,686 | ||||||||||||
LG Display Taiwan Co., Ltd. |
Taipei, Taiwan |
Sell display products | 100 | % | 35,230 | 100 | % | 35,230 | ||||||||||||
LG Display Nanjing Co., Ltd. |
Nanjing, China |
Manufacture display products |
100 | % | 593,726 | 100 | % | 593,726 | ||||||||||||
LG Display Shanghai Co., Ltd. |
Shanghai, China |
Sell display products | 100 | % | 9,093 | 100 | % | 9,093 | ||||||||||||
LG Display Poland Sp. z o.o.(*1) |
Wroclaw, Poland |
Manufacture display products |
100 | % | 160,361 | 100 | % | 194,992 | ||||||||||||
LG Display Guangzhou Co., Ltd. |
Guangzhou, China |
Manufacture display products |
100 | % | 293,557 | 100 | % | 293,557 | ||||||||||||
LG Display Shenzhen Co., Ltd. |
Shenzhen, China |
Sell display products | 100 | % | 3,467 | 100 | % | 3,467 | ||||||||||||
LG Display Singapore Pte. Ltd. |
Singapore | Sell display products | 100 | % | 1,250 | 100 | % | 1,250 | ||||||||||||
L&T Display Technology (Fujian) Limited |
Fujian, China |
Manufacture and sell LCD module and LCD monitor sets |
51 | % | 10,123 | 51 | % | 10,123 | ||||||||||||
LG Display Yantai Co., Ltd. |
Yantai, China |
Manufacture display products |
100 | % | 169,195 | 100 | % | 169,195 | ||||||||||||
Nanumnuri Co., Ltd. |
Gumi, South Korea |
Provide janitorial services |
100 | % | 800 | 100 | % | 800 | ||||||||||||
LG Display (China) Co., Ltd. |
Guangzhou, China |
Manufacture and sell display products |
51 | % | 723,086 | 51 | % | 723,086 | ||||||||||||
Unified Innovative Technology, LLC |
Wilmington, U.S.A. |
Manage intellectual property |
100 | % | 9,489 | 100 | % | 9,489 | ||||||||||||
LG Display Guangzhou Trading Co., Ltd. |
Guangzhou, China |
Sell display products | 100 | % | 218 | 100 | % | 218 | ||||||||||||
Global OLED Technology LLC |
Herndon, U.S.A |
Manage OLED intellectual property |
100 | % | 164,322 | 100 | % | 164,322 | ||||||||||||
LG Display Vietnam Haiphong Co., Ltd.(*2) |
Haiphong, Vietnam |
Manufacture display products |
100 | % | 672,658 | 100 | % | 329,978 | ||||||||||||
Suzhou Lehui Display Co., Ltd. |
Suzhou, China |
Manufacture and sell LCD module and LCD monitor sets |
100 | % | 121,640 | 100 | % | 121,640 | ||||||||||||
LG DISPLAY FUND I LLC(*3) |
Wilmington, U.S.A |
Invest in venture business and acquire technologies |
100 | % | 6,322 | 100 | % | 2,249 | ||||||||||||
LG Display High-Tech (China) Co., Ltd.(*4) |
Guangzhou, China |
Manufacture and sell display products |
74 | % | 1,794,547 | 69 | % | 749,154 | ||||||||||||
Money Market Trust |
Seoul, Korea |
Money market trust | 100 | % | 34,700 | 100 | % | 24,501 | ||||||||||||
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197
8. | Investments, Continued |
(*1) | On July 1, 2019, LG Display Poland Sp. z o.o. (LGDWR) commenced the liquidation process and,
for the year ended December 31, 2019, the Company recognized an impairment loss of |
(*2) | For the year ended December 31, 2019, the Company contributed |
(*3) | For the year ended December 31, 2019, the Company contributed |
(*4) | For the year ended December 31, 2019, the Company contributed |
(b) | Investments in associates consist of the following: |
(In millions of won) | ||||||||||||||||||||||||
December 31, 2019 | December 31, 2018 | |||||||||||||||||||||||
Associates |
Location | Business | Percentage of ownership |
Book Value |
Percentage of ownership |
Book Value |
||||||||||||||||||
Paju Electric Glass Co., Ltd. |
|
Paju, South Korea |
|
|
Manufacture glass for display |
|
40 | % | 40 | % | ||||||||||||||
INVENIA Co., Ltd.(*1) |
|
Seongnam, South Korea |
|
|
Develop and manufacture equipment for display manufacture |
|
| | 13 | % | 6,330 | |||||||||||||
WooRee E&L Co., Ltd.(*2) |
|
Ansan, South Korea |
|
|
Manufacture LED back light unit packages |
|
14 | % | 7,310 | 14 | % | 4,746 | ||||||||||||
YAS Co., Ltd. |
|
Paju, South Korea |
|
|
Develop and manufacture deposition equipment for OLEDs |
|
15 | % | 10,000 | 15 | % | 10,000 | ||||||||||||
AVATEC Co., Ltd.(*3) |
|
Daegu, South Korea |
|
|
Process and sell glass for display |
|
14 | % | 8,000 | 17 | % | 10,600 | ||||||||||||
Arctic Sentinel, Inc. |
|
Los Angeles, U.S.A. |
|
|
Develop and manufacture tablet for kids |
|
10 | % | | 10 | % | | ||||||||||||
CYNORA GmbH(*4) |
|
Bruchsal Germany |
|
|
Develop organic emitting materials for displays and lighting devices |
|
12 | % | 4,714 | 14 | % | 8,668 | ||||||||||||
Material Science Co., Ltd.(*5) |
|
Seoul, South Korea |
|
|
Develop, manufacture and sell material for display |
|
10 | % | 2,354 | 10 | % | 3,346 | ||||||||||||
Nanosys Inc.(*6) |
|
Milpitas, U.S.A. |
|
|
Develop, manufacture and sell material for display |
|
4 | % | 5,183 | 4 | % | 5,491 | ||||||||||||
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198
8. | Investments, Continued |
(*1) | During 2019, the Company disposed of the entire investments, 3,000,000 shares of common stock, in INVENIA Co.,
Ltd. and recognized |
(*2) | During 2019, the Company recognized a reversal of impairment loss of |
(*3) | During 2019, the Company disposed of 650,000 shares of common stock in AVATEC Co., Ltd. As of December 31,
2019, the Companys ownership percentage in AVATEC Co., Ltd. is 14% and the Company recognized |
(*4) | During 2019, the Company recognized an impairment loss of |
(*5) | During 2019, the Company recognized an impairment loss of |
(*6) | During 2019, the Company recognized a reversal of impairment loss of |
For the years ended December 31, 2019 and 2018, the aggregate
amount of received dividends from subsidiaries and associates are W18,622 million and W95,553 million, respectively.
199
9. | Property, Plant and Equipment |
(a) | Changes in property, plant and equipment for the year ended December 31, 2019 are as follows: |
(In millions of won) | ||||||||||||||||||||||||||||||||
Land | Buildings and structures |
Machinery and equipment |
Furniture and fixtures |
Construction- in-progress (*1) |
Right-of- use asset |
Others | Total | |||||||||||||||||||||||||
Acquisition cost as of January 1, 2019 |
4,860,942 | 34,433,030 | 652,723 | 8,469,901 | | 479,594 | 49,358,018 | |||||||||||||||||||||||||
Accumulated depreciation as of January 1, 2019 |
| (2,444,534 | ) | (31,062,229 | ) | (569,823 | ) | | | (250,977 | ) | (34,327,563 | ) | |||||||||||||||||||
Accumulated impairment loss as of January 1, 2019 |
| | (28,001 | ) | | (17,890 | ) | | | (45,891 | ) | |||||||||||||||||||||
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|||||||||||||||||
Book value as of January 1, 2019 |
2,416,408 | 3,342,800 | 82,900 | 8,452,011 | | 228,617 | 14,984,564 | |||||||||||||||||||||||||
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|||||||||||||||||
Recognition of right-of-use assets on initial application of K-IFRS No. 1116 |
| | | | | 16,332 | | 16,332 | ||||||||||||||||||||||||
Adjusted book value as of January 1, 2019 |
2,416,408 | 3,342,800 | 82,900 | 8,452,011 | 16,332 | 228,617 | 15,000,896 | |||||||||||||||||||||||||
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|
|||||||||||||||||
Additions |
| | | 1,647,209 | 3,874 | | 1,651,083 | |||||||||||||||||||||||||
Depreciation |
| (210,827 | ) | (1,700,851 | ) | (39,222 | ) | | (13,482 | ) | (190,220 | ) | (2,154,602 | ) | ||||||||||||||||||
Disposals |
(7,844 | ) | (4,947 | ) | (557,241 | ) | (1,519 | ) | | | (16,912 | ) | (588,463 | ) | ||||||||||||||||||
Impairment loss(*2) |
| (72,902 | ) | (960,587 | ) | (5,037 | ) | (74,984 | ) | (309 | ) | (26,941 | ) | (1,140,760 | ) | |||||||||||||||||
Others (*3) |
51 | 47,138 | 5,324,621 | 25,726 | (5,608,483 | ) | | 210,947 | | |||||||||||||||||||||||
Government grants received |
| | (4,207 | ) | | 228 | | | (3,979 | ) | ||||||||||||||||||||||
|
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|
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|||||||||||||||||
Book value as of December 31, 2019 |
2,174,870 | 5,444,535 | 62,848 | 4,415,981 | 6,415 | 205,491 | 12,764,175 | |||||||||||||||||||||||||
|
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|
|||||||||||||||||
Acquisition cost as of December 31, 2019 |
4,839,806 | 36,694,704 | 668,956 | 4,491,455 | 19,078 | 632,773 | 47,800,807 | |||||||||||||||||||||||||
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|
|||||||||||||||||
Accumulated depreciation as of December 31, 2019 |
(2,596,845 | ) | (30,263,872 | ) | (601,071 | ) | | (12,354 | ) | (400,341 | ) | (33,874,483 | ) | |||||||||||||||||||
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|
|||||||||||||||||
Accumulated impairment loss as of December 31, 2019 |
(68,091 | ) | (986,297 | ) | (5,037 | ) | (75,474 | ) | (309 | ) | (26,941 | ) | (1,162,149 | ) | ||||||||||||||||||
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|
|
(*1) | As of December 31, 2019, construction-in-progress mainly relates to construction of manufacturing facilities. |
(*2) | During 2019, Display(AD PO) and Lighting CGUs were assessed for impairment, and impairment losses amounting to
|
(*3) | Others are mainly amounts transferred from construction-in-progress. |
200
9. | Property, Plant and Equipment, Continued |
(b) | Changes in property, plant and equipment for the year ended December 31, 2018 are as follows: |
(In millions of won) | ||||||||||||||||||||||||||||
Land | Buildings and structures |
Machinery and equipment |
Furniture and fixtures |
Construction- in-progress (*1) |
Others | Total | ||||||||||||||||||||||
Acquisition cost as of January 1, 2018 |
4,857,328 | 33,969,092 | 622,955 | 5,586,631 | 139,774 | 45,636,291 | ||||||||||||||||||||||
Accumulated depreciation as of January 1, 2018 |
| (2,218,404 | ) | (30,303,595 | ) | (531,316 | ) | | (93,685 | ) | (33,147,000 | ) | ||||||||||||||||
Accumulated impairment loss as of January 1, 2018 |
| | (2,290 | ) | | | | (2,290 | ) | |||||||||||||||||||
|
|
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|
|||||||||||||||
Book value as of January 1, 2018 |
2,638,924 | 3,663,207 | 91,639 | 5,586,631 | 46,089 | 12,487,001 | ||||||||||||||||||||||
Additions |
| | | | 4,943,986 | | 4,943,986 | |||||||||||||||||||||
Depreciation |
| (225,710 | ) | (1,584,542 | ) | (39,522 | ) | | (143,359 | ) | (1,993,133 | ) | ||||||||||||||||
Disposals |
(15 | ) | (22 | ) | (147,490 | ) | (305 | ) | | (4,434 | ) | (152,266 | ) | |||||||||||||||
Impairment loss |
| | (25,711 | ) | | (17,890 | ) | | (43,601 | ) | ||||||||||||||||||
Others (*2) |
1,332 | 3,216 | 1,438,365 | 31,088 | (2,060,535 | ) | 330,321 | (256,213 | ) | |||||||||||||||||||
Government grants received |
| | (1,029 | ) | | (181 | ) | | (1,210 | ) | ||||||||||||||||||
|
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|
|||||||||||||||
Book value as of December 31, 2018 |
2,416,408 | 3,342,800 | 82,900 | 8,452,011 | 228,617 | 14,984,564 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Acquisition cost as of December 31, 2018 |
4,860,942 | 34,433,030 | 652,723 | 8,469,901 | 479,594 | 49,358,018 | ||||||||||||||||||||||
|
|
|
|
|
|
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|
|
|||||||||||||||
Accumulated depreciation as of December 31, 2018 |
(2,444,534 | ) | (31,062,229 | ) | (569,823 | ) | | (250,977 | ) | (34,327,563 | ) | |||||||||||||||||
|
|
|
|
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|
|||||||||||||||
Accumulated impairment loss as of December 31, 2018 |
| (28,001 | ) | | (17,890 | ) | | (45,891 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
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|
|
|
(*1) | As of December 31, 2018, construction-in-progress mainly relates to construction of manufacturing facilities. |
(*2) | Others are mainly amounts transferred from construction-in-progress. |
(c) | Capitalized borrowing costs and capitalization rate for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Capitalized borrowing costs |
121,441 | |||||||
Capitalization rate |
2.88 | % | 2.74 | % |
201
10. | Intangible Assets and Non-current Asset Impairment |
(a) | Changes in intangible assets for the year ended December 31, 2019 are as follows: |
(In millions of won) | ||||||||||||||||||||||||||||||||||||||||
Intellectual property rights |
Software | Memberships | Development costs | Construction- in-progress (software) |
Customer relationships |
Technology | Goodwill | Others (*2) | Total | |||||||||||||||||||||||||||||||
Acquisition cost as of January 1, 2019 |
895,186 | 56,959 | 2,142,832 | 33,867 | 59,176 | 11,074 | 72,588 | 13,077 | 3,971,466 | |||||||||||||||||||||||||||||||
Accumulated amortization as of January 1, 2019 |
(570,476 | ) | (739,211 | ) | | (1,775,922 | ) | | (34,854 | ) | (9,597 | ) | | (13,077 | ) | (3,143,137 | ) | |||||||||||||||||||||||
Accumulated impairment loss as of January 1, 2019 |
| | (11,521 | ) | | | | | | | (11,521 | ) | ||||||||||||||||||||||||||||
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|||||||||||||||||||||
Book value as of January 1, 2019 |
155,975 | 45,438 | 366,910 | 33,867 | 24,322 | 1,477 | 72,588 | | 816,808 | |||||||||||||||||||||||||||||||
Additions - internally developed |
| | | 437,945 | | | | | | 437,945 | ||||||||||||||||||||||||||||||
Additions - external purchases |
28,397 | | 845 | | 60,889 | | | | 2 | 90,133 | ||||||||||||||||||||||||||||||
Amortization (*1) |
(22,679 | ) | (70,783 | ) | | (297,959 | ) | | (2,637 | ) | (1,107 | ) | | (2 | ) | (395,167 | ) | |||||||||||||||||||||||
Disposals |
| | (1,816 | ) | | | | | | | (1,816 | ) | ||||||||||||||||||||||||||||
Impairment loss (*3)(*4) |
(21,690 | ) | (7,733 | ) | | (131,713 | ) | | (21,685 | ) | | (57,995 | ) | | (240,816 | ) | ||||||||||||||||||||||||
Reversal of impairment loss |
| | 960 | | | | | | | 960 | ||||||||||||||||||||||||||||||
Transfer from construction-in-progress |
| 80,553 | | | (80,553 | ) | | | | | | |||||||||||||||||||||||||||||
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Book value as of December 31, 2019 |
158,012 | 45,427 | 375,183 | 14,203 | | 370 | 14,593 | | 708,047 | |||||||||||||||||||||||||||||||
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|||||||||||||||||||||
Acquisition cost as of December 31, 2019 |
975,739 | 55,988 | 2,580,777 | 14,203 | 59,176 | 11,074 | 72,588 | 13,079 | 4,497,728 | |||||||||||||||||||||||||||||||
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Accumulated amortization as of December 31, 2019 |
(809,994 | ) | | (2,073,881 | ) | | (37,491 | ) | (10,704 | ) | | (13,079 | ) | (3,538,304 | ) | |||||||||||||||||||||||||
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|||||||||||||||||||||
Accumulated impairment loss as of December 31, 2019 |
(7,733 | ) | (10,561 | ) | (131,713 | ) | | (21,685 | ) | | (57,995 | ) | | (251,377 | ) | |||||||||||||||||||||||||
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202
10. | Intangible Assets and Non-current Asset Impairment, Continued |
(*1) | The Company has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses, and research and development expenses. |
(*2) | Others mainly consist of rights to use electricity and gas supply facilities. |
(*3) | During 2019, Display (AD PO) and Lighting CGUs were assessed for impairment, and the impairment losses
amounting to |
(*4) | The Company recognized an impairment loss amounting to |
203
10. | Intangible Assets and Non-current Asset Impairment, Continued |
(b) | Changes in intangible assets for the year ended December 31, 2018 are as follows: |
(In millions of won) | ||||||||||||||||||||||||||||||||||||||||
Intellectual property rights |
Software | Memberships | Development costs |
Construction- in-progress (software) |
Customer relationships |
Technology | Goodwill | Others (*2) | Total | |||||||||||||||||||||||||||||||
Acquisition cost as of January 1, 2018 |
810,270 | 54,834 | 1,769,998 | 30,722 | 59,176 | 11,074 | 72,588 | 13,077 | 3,487,384 | |||||||||||||||||||||||||||||||
Accumulated amortization as of January 1, 2018 |
(546,105 | ) | (671,980 | ) | | (1,473,238 | ) | | (31,338 | ) | (8,489 | ) | | (13,076 | ) | (2,744,226 | ) | |||||||||||||||||||||||
Accumulated impairment loss as of January 1, 2018 |
| | (11,785 | ) | | | | | | | (11,785 | ) | ||||||||||||||||||||||||||||
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|||||||||||||||||||||
Book value as of January 1, 2018 |
138,290 | 43,049 | 296,760 | 30,722 | 27,838 | 2,585 | 72,588 | 1 | 731,373 | |||||||||||||||||||||||||||||||
Additions - internally developed |
| | | 372,835 | | | | | | 372,835 | ||||||||||||||||||||||||||||||
Additions - external purchases |
21,061 | | 2,844 | | 88,785 | | | | | 112,690 | ||||||||||||||||||||||||||||||
Amortization (*1) |
(24,370 | ) | (67,955 | ) | | (302,685 | ) | | (3,516 | ) | (1,108 | ) | | (1 | ) | (399,635 | ) | |||||||||||||||||||||||
Disposals |
| | (721 | ) | | | | | | | (721 | ) | ||||||||||||||||||||||||||||
Impairment loss |
| | (82 | ) | | | | | | | (82 | ) | ||||||||||||||||||||||||||||
Reversal of impairment loss |
| | 348 | | | | | | | 348 | ||||||||||||||||||||||||||||||
Transfer from construction-in-progress |
| 85,640 | | | (85,640 | ) | | | | | | |||||||||||||||||||||||||||||
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|||||||||||||||||||||
Book value as of December 31, 2018 |
155,975 | 45,438 | 366,910 | 33,867 | 24,322 | 1,477 | 72,588 | | 816,808 | |||||||||||||||||||||||||||||||
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|
|||||||||||||||||||||
Acquisition cost as of December 31, 2018 |
895,186 | 56,959 | 2,142,832 | 33,867 | 59,176 | 11,074 | 72,588 | 13,077 | 3,971,466 | |||||||||||||||||||||||||||||||
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Accumulated amortization as of December 31, 2018 |
(739,211 | ) | | (1,775,922 | ) | | (34,854 | ) | (9,597 | ) | | (13,077 | ) | (3,143,137 | ) | |||||||||||||||||||||||||
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|
|||||||||||||||||||||
Accumulated impairment loss as of December 31, 2018 |
| (11,521 | ) | | | | | | | (11,521 | ) | |||||||||||||||||||||||||||||
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204
10. | Intangible Assets and Non-current Asset Impairment, Continued |
(*1) | The Company has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses, and research and development expenses. |
(*2) | Others mainly consist of rights to use electricity and gas supply facilities. |
(c) | Development projects are divided into research activities and development activities. Expenditures on research activities are recognized in profit or loss and qualifying development expenditures are capitalized, respectively. |
(d) | Development costs as of December 31, 2019 and 2018 are as follows: |
(i) | As of December 31, 2019 |
(In millions of won and in years) | ||||||||||
Classification |
Product type |
Book Value | Remaining Useful life |
|||||||
Development completed |
Mobile | 0.4 | ||||||||
TV | 22,597 | 0.4 | ||||||||
Notebook | 14,464 | 0.4 | ||||||||
Others | 12,370 | 0.7 | ||||||||
|
|
|||||||||
|
|
|||||||||
Development in process |
Mobile | | ||||||||
TV | 42,587 | | ||||||||
Notebook | 46,167 | | ||||||||
Others | 26,165 | | ||||||||
|
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|
(ii) | As of December 31, 2018 |
(In millions of won and in years) | ||||||||||
Classification |
Product type |
Book Value | Remaining Useful life |
|||||||
Development completed | Mobile | 0.5 | ||||||||
TV | 28,001 | 0.5 | ||||||||
Notebook | 4,458 | 0.6 | ||||||||
Others | 9,475 | 0.5 | ||||||||
|
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|||||||||
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|
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Development in process |
Mobile | | ||||||||
TV | 55,580 | | ||||||||
Notebook | 9,639 | | ||||||||
Others | 6,611 | | ||||||||
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|
205
10. | Intangible Assets and Non-current Asset Impairment, Continued |
(e) | Impairment assessment |
(i) | During 2019, the Company has distinguished Display (AD PO) and Lighting businesses as separate CGUs from the
existing Display CGU due to the initiation of independent factory production of Display (AD PO) business and the decision of Lighting business planned discontinuance in response to business environmental changes. As of December 31, 2019
goodwill is allocated to the Display CGU amounts to |
(ii) | Impairment on assets belonging to CGUs was assessed due to the decision of planned discontinuance of Lighting business and adverse changes in the business environment of Display (AD PO). The recoverable amount of each CGU is estimated based on its value in use. Value in use is calculated using the estimated pre-tax cash flow based on 5-year business plan approved by management. The estimated sales of the Companys products used in the 5-year forecast was determined considering external sources and the Companys past experience. Management estimated the future pre-tax cash flows based on its past performance and forecasts on market growth. The key assumptions used in the estimation of value in use of each CGU as of December 31, 2019 are as follows. |
Classification |
Lighting(*2) | Display (AD PO)(*3) |
Display(*4) | |||||||||
Discount rate(*1) |
6.1 | % | 6.1 | % | 6.1 | % | ||||||
Terminal growth rate |
0.0 | % | 0.0 | % | 1.0 | % |
(*1) | The discount rate was calculated using the weighted average cost of equity capital and debt and the beta of equity capital was calculated as the average of five global listed companies in the same industry and the Company. Cost of debt was calculated by the interest rate of the Companys publicly issued bonds and debt ratio was determined using the average of the debt ratios of the five global listed companies in the same industry and the Company. |
(*2) | As a result of impairment test, the carrying amount of Lighting CGU which produces OLED lighting products was
fully impaired with impairment loss of |
(*3) | In the Companys consolidated financial statements, Display (AD PO) CGU, which produces plastic OLED
mobile products and commenced mass production in 2019, is comprised of a group of assets of the Company and one subsidiary. The Company performed impairment test for its separate financial statements at the same level of CGU used in consolidated
financial statements because the relevant assets in the CGU generate cash inflows largely independently only in combination with certain assets in the subsidiary. As a result of impairment test, the carrying amount of the Companys assets for
the Display (AD PO) exceeds the recoverable amount and an impairment loss of |
(*4) | As a result of impairment test for Display CGU, the recoverable amount exceeds the carrying value. The value in use determined for this CGU is sensitive to assumptions such as the discount rate and terminal growth rate used in the discounted cash flow model. |
206
11. | Financial Liabilities |
(a) | Financial liabilities as of December 31, 2019 and 2018 are as follows: |
(In millions of won) | December 31, 2019 | December 31, 2018 | ||||||
Current |
||||||||
Short-term borrowings |
| |||||||
Current portion of long-term borrowings and bonds |
1,117,218 | 1,040,148 | ||||||
Current portion of payment guarantee liabilities |
5,674 | 4,693 | ||||||
Lease liabilities |
4,357 | | ||||||
|
|
|
|
|||||
1,044,841 | ||||||||
|
|
|
|
|||||
Non-current |
||||||||
Won denominated borrowings |
2,700,608 | |||||||
Foreign currency denominated borrowings |
1,626,709 | 626,136 | ||||||
Bonds |
2,741,516 | 1,772,599 | ||||||
Payment guarantee liabilities |
10,828 | 14,375 | ||||||
Derivatives(*) |
20,592 | 25,758 | ||||||
Lease liabilities |
2,200 | | ||||||
|
|
|
|
|||||
5,139,476 | ||||||||
|
|
|
|
(*) | Represents currency interest rate swap contracts entered by the Company to hedge interest rate risks with respect to foreign currency denominated borrowings and bonds. |
(b) | Foreign currency denominated short-term borrowings as of December 31, 2019 are as follows. There are none as of December 31, 2018. |
(In millions of won and USD) | ||||||
Lender |
Annual interest rate as of December 31, 2019 (%)(*) |
December 31, 2019 |
||||
Standard Chartered Bank Korea Limited |
12ML + 0.78~0.88 | |||||
|
|
|||||
Foreign currency equivalent |
USD | 300 |
(*) | ML represents Month LIBOR (London Inter-Bank Offered Rates). |
207
11. | Financial Liabilities, Continued |
(c) | Won denominated long-term borrowings as of December 31, 2019 and 2018 are as follows : |
(In millions of won) | ||||||||||||
Lender |
Annual interest rate as of December 31, 2019 (%)(*) |
December 31, 2019 |
December 31, 2018 |
|||||||||
Woori Bank |
2.75 | 1,259 | ||||||||||
Korea Development Bank and others |
|
CD rate (91days) + 1.00~1.39, 2.21~3.25 |
|
3,330,000 | 2,850,000 | |||||||
Less current portion of long-term borrowings |
(638,048 | ) | (150,651 | ) | ||||||||
|
|
|
|
|||||||||
2,700,608 | ||||||||||||
|
|
|
|
(*) | CD represents certificate of deposit. |
(d) | Foreign currency denominated long-term borrowings as of December 31, 2019 and 2018 are as follows : |
(In millions of won and USD) | ||||||||||||
Lender |
Annual interest rate as of December 31, 2019 (%) |
December 31, 2019 |
December 31, 2018 |
|||||||||
The Export-Import Bank of Korea and others |
|
3ML+0.75 ~1.70 6ML+1.25 ~1.35 |
|
955,975 | ||||||||
|
|
|
|
|||||||||
Foreign currency equivalent |
USD | 1,465 | USD | 855 | ||||||||
Less current portion of long-term borrowings |
(69,468 | ) | (329,839 | ) | ||||||||
|
|
|
|
|||||||||
626,136 | ||||||||||||
|
|
|
|
208
11. | Financial Liabilities, Continued |
(e) | Details of bonds issued and outstanding as of December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||||||||||
Maturity | Annual interest rate as of December 31, 2019 (%) |
December 31, 2019 |
December 31, 2018 |
|||||||||||||
Won denominated bonds (*1) |
||||||||||||||||
Publicly issued bonds |
|
May 2020~ February |
|
1.95~2.95 | 1,900,000 | |||||||||||
Privately issued bonds |
|
May 2025~ May 2033 |
|
3.25~4.25 | 110,000 | 110,000 | ||||||||||
Less discount on bonds |
(3,404 | ) | (3,949 | ) | ||||||||||||
Less current portion |
(409,702 | ) | (559,658 | ) | ||||||||||||
|
|
|
|
|||||||||||||
1,446,393 | ||||||||||||||||
|
|
|
|
|||||||||||||
Foreign currency denominated bonds (*2) |
||||||||||||||||
Publicly issued bonds |
|
November 2021 |
|
3.88 | 335,430 | |||||||||||
|
|
|
|
|||||||||||||
Privately issued bonds |
April 2023 | 3ML+1.47 | 115,780 | | ||||||||||||
|
|
|
|
|||||||||||||
Foreign currency equivalent |
USD | 400 | USD | 300 | ||||||||||||
|
|
|
|
|||||||||||||
Less discount on bonds |
(6,883 | ) | (9,224 | ) | ||||||||||||
|
|
|
|
|||||||||||||
326,206 | ||||||||||||||||
|
|
|
|
|||||||||||||
Financial liabilities at fair value through profit or loss |
||||||||||||||||
Foreign currency convertible bonds |
August 2024 | 1.50 | | |||||||||||||
|
|
|
|
|||||||||||||
Foreign currency equivalent |
USD | 741 | | |||||||||||||
|
|
|
|
|||||||||||||
1,772,599 | ||||||||||||||||
|
|
|
|
(*1) | Principal of the won denominated bonds is to be repaid at maturity and interests are paid quarterly. |
(*2) | Principal of the foreign currency denominated bonds is to be repaid at maturity and interests are paid quarterly or semi-annually. |
209
11. | Financial Liabilities, Continued |
(f) | Details of the convertible bonds issued and outstanding as of December 31, 2019 are as follows: |
(In won, USD) | ||
Description | ||
Type |
Unsecured foreign currency denominated convertible bonds | |
Issuance amount |
USD 687,800,000 | |
Annual interest rate (%) |
1.50 | |
Issuance date |
August 22, 2019 | |
Maturity date |
August 22, 2024 | |
Interest payment |
Payable semi-annually in arrear until maturity date in equal installments commencing on issuance | |
Principal redemption |
1. Redemption at maturity: Redeemed on the maturity date, at their outstanding principal amount, which has not been early redeemed or converted. | |
2. Advanced redemption: The Company has a right to redeem in advance (call option) and the bondholders have a right to require the Company to redeem in advance (put option). At exercise, the outstanding principal amount together with accrued but unpaid interest are to be redeemed. | ||
Conversion price |
||
Conversion period |
From August 23, 2020 to August 12, 2024 | |
Redemption at the option of the issuer (Call option) |
On or at any time after 3 years from the issuance, if the closing price of the shares for any 20 trading days out of the 30 consecutive trading days is at least 130% of the applicable conversion price The aggregate principal amount of the convertible bonds outstanding is less than 10% of the aggregate principal amount originally issued, or In the event of certain changes in laws and other directives resulting in additional taxes for the holders | |
Redemption at the option of the bondholders (Put option) |
On the day of 3 years from the issuance |
The Company designated the convertible bonds as financial liabilities at fair value through profit of loss and recognized the change in fair value in profit or loss. The Company measures the convertible bond at fair value using the market price of convertible bonds disclosed on Bloomberg. The number of convertible shares as of December 31, 2019 is as follows:
(In won and No. of shares) | ||||
December 31, 2019 | ||||
Aggregate outstanding amount of the convertible bonds |
||||
Conversion price |
||||
Number of common shares to be issued at conversion |
40,988,998 |
210
12. | Employee Benefits |
The Companys defined benefit plans provide a lump-sum payment to an employee based on final salary rates and length of service at the time the employee leaves the Company.
The defined benefit plans expose the Company to actuarial risks, such as the risk associated with expected periods of service, interest rate risk, market (investment) risk, and others.
(a) | Net defined benefit liabilities (employee benefits assets) recognized as of December 31 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Present value of partially funded defined benefit obligations |
1,592,366 | |||||||
Fair value of plan assets |
(1,604,118 | ) | (1,548,179 | ) | ||||
|
|
|
|
|||||
44,187 | ||||||||
|
|
|
|
(b) | Changes in the present value of the defined benefit obligations for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | 2019 | 2018 | ||||||
Opening defined benefit obligations |
1,560,525 | |||||||
Current service cost |
192,528 | 203,062 | ||||||
Past service cost |
(32,006 | ) | (25,749 | ) | ||||
Interest cost |
42,360 | 49,145 | ||||||
Remeasurements (before tax) |
(137,464 | ) | (27,885 | ) | ||||
Benefit payments |
(95,099 | ) | (88,056 | ) | ||||
Curtailment of plans |
(80,470 | ) | (74,459 | ) | ||||
Net transfers from (to) related parties |
(5,349 | ) | (4,217 | ) | ||||
|
|
|
|
|||||
Closing defined benefit obligations |
1,592,366 | |||||||
|
|
|
|
Weighted average remaining maturity of defined benefit obligations as of December 31, 2019, and 2018 are 15.1 years and 14.4 years, respectively.
211
12. | Employee Benefits, Continued |
(c) | Changes in fair value of plan assets for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Opening fair value of plan assets |
1,465,990 | |||||||
Expected return on plan assets |
41,826 | 48,184 | ||||||
Remeasurements (before tax) |
(8,824 | ) | (22,195 | ) | ||||
Contributions by employer directly to plan assets |
185,000 | 211,006 | ||||||
Benefit payments |
(81,876 | ) | (80,369 | ) | ||||
Net transfers from (to) related parties |
280 | | ||||||
Curtailment of plans |
(80,467 | ) | (74,437 | ) | ||||
|
|
|
|
|||||
Closing fair value of plan assets |
1,548,179 | |||||||
|
|
|
|
(d) | Plan assets as of December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Guaranteed deposits in banks |
1,548,179 |
As of December 31, 2019, the Company maintains the plan assets primarily with Mirae Asset Daewoo Co., Ltd., KB Insurance Co., Ltd. and others.
(e) | Expenses recognized in profit or loss for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Current service cost |
203,062 | |||||||
Past service cost |
(32,006 | ) | (25,749 | ) | ||||
Net interest cost |
534 | 961 | ||||||
|
|
|
|
|||||
178,274 | ||||||||
|
|
|
|
Expenses are recognized as following in the separate statements of comprehensive income (loss):
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Cost of sales |
134,879 | |||||||
Selling expenses |
10,221 | 10,719 | ||||||
Administrative expenses |
16,798 | 18,193 | ||||||
Research and development expenses |
14,890 | 14,483 | ||||||
|
|
|
|
|||||
178,274 | ||||||||
|
|
|
|
212
12. Employee Benefits, Continued
(f) | Remeasurements of net defined benefit liabilities (assets) included in other comprehensive income (loss) for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Balance at January 1 |
(170,134 | ) | ||||||
Remeasurements |
||||||||
Actuarial profit or loss arising from: |
||||||||
Experience adjustment |
43,644 | 56,225 | ||||||
Demographic assumptions |
(19,952 | ) | (15,379 | ) | ||||
Financial assumptions |
113,772 | (12,961 | ) | |||||
Return on plan assets |
(8,824 | ) | (22,195 | ) | ||||
|
|
|
|
|||||
5,690 | ||||||||
|
|
|
|
|||||
Income tax |
(1,169 | ) | ||||||
|
|
|
|
|||||
Balance at December 31 |
(165,613 | ) | ||||||
|
|
|
|
(g) | Principal actuarial assumptions as of December 31, 2019 and 2018 (expressed as weighted averages) are as follows: |
December 31, 2019 | December 31, 2018 | |||||||
Expected rate of salary increase |
3.4 | % | 4.3 | % | ||||
Discount rate for defined benefit obligations |
2.4 | % | 2.8 | % |
Assumptions regarding future mortality are based on published statistics and mortality tables. The current mortality underlying the values of the liabilities in the defined benefit plans are as follows:
December 31, 2019 | December 31, 2018 | |||||
Teens |
Males Females |
0.00% 0.00% |
0.01% 0.00% | |||
Twenties |
Males Females |
0.01% 0.00% |
0.01% 0.00% | |||
Thirties |
Males Females |
0.01% 0.00% |
0.01% 0.01% | |||
Forties |
Males Females |
0.02% 0.01% |
0.03% 0.02% | |||
Fifties |
Males Females |
0.04% 0.02% |
0.05% 0.02% | |||
213
12. | Employee Benefits, Continued |
(h) | Reasonably possible changes to respective relevant actuarial assumptions would have affected the defined benefit obligations by the following amounts as of December 31, 2019: |
(In millions of won) | Defined benefit obligation | |||||||
1% increase | 1% decrease | |||||||
Discount rate for defined benefit obligations |
237,364 | |||||||
Expected rate of salary increase |
233,106 | (194,965 | ) |
13. | Provisions and Other Liabilities |
(a) | Changes in provisions for the year ended December 31, 2019 are as follows: |
(In millions of won) | ||||||||||||||||
Litigations and claims |
Warranties (*) | Others | Total | |||||||||||||
Balance at January 1, 2019 |
120,389 | 8,930 | 129,319 | |||||||||||||
Additions |
3,073 | 365,993 | 17,451 | 386,517 | ||||||||||||
Usage |
(3,073 | ) | (257,407 | ) | | (260,480 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2019 |
228,975 | 26,381 | 255,356 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current |
161,857 | 26,381 | 188,238 | |||||||||||||
Non-current |
67,118 | | 67,118 |
(*) | The provision for warranties on defective products is normally applicable for 18~36 months from the date of customers purchase. The provision is calculated by using historical and anticipated rates of warranty claims and costs per claim to satisfy the Companys warranty obligation. |
(b) | Other liabilities as of December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
December 31, 2019 | December 31, 2018 | |||||||
Current liabilities |
||||||||
Withholdings |
16,181 | |||||||
Unearned revenues |
25,012 | 11,073 | ||||||
Security deposits |
9,310 | 165 | ||||||
|
|
|
|
|||||
27,419 | ||||||||
|
|
|
|
|||||
Non-current liabilities |
||||||||
Long-term accrued expenses |
78,466 | |||||||
Long-term other accounts payable |
1,062 | 3,081 | ||||||
Long-term advances received |
6,852 | 2,116 | ||||||
Security deposits |
1,690 | 10,790 | ||||||
|
|
|
|
|||||
94,453 | ||||||||
|
|
|
|
214
14. | Contingent Liabilities and Commitments |
(a) | Legal Proceedings |
Anti-trust litigations
Some individual claimants filed follow-on damages claims against the Company and other TFT-LCD manufacturers alleging violations of EU competition law. While the Company continues its vigorous defense of the various pending proceedings described above, as of December 31, 2019, the final results cannot be predicted.
Solas OLED Ltd. Litigations
In April 2019, Solas OLED Ltd. filed patent infringement actions against the Company and television manufacturers in the United States District Court for the Western District of Texas as well as the Company and its subsidiary, LG Display Germany GmbH, and television manufacturers in Mannheim District Court in Germany. As of December 31, 2019, the value of litigation has not been finalized, and the final results cannot be predicted.
Others
The Company is involved in various disputes in addition to pending proceedings described above. The Company cannot reliably estimate the timing and amount of outflows of resources embodying economic benefits relating to the disputes.
(b) | Commitments |
Factoring and securitization of accounts receivable
The Company has agreements with Korea Development Bank and several other banks for accounts receivable sales negotiating facilities of up to an
aggregate of USD 1,360 million (W1,574,608 million) in connection with the Companys export sales transactions with its subsidiaries. As of December 31, 2019, there are no outstanding short-term borrowings that are
past due in connection with these agreements. In connection with all of the contracts in this paragraph, the Company has sold its accounts receivable with recourse.
The Company has a credit facility agreement with Shinhan Bank and several other banks pursuant to which the Company could sell its accounts
receivables up to an aggregate of W671,542 million in connection with its domestic and export sales transactions and, as of December 31, 2019, W25,528 million accounts and notes receivable sold to
Shinhan Bank were outstanding in connection with the agreement. In connection with the contract above, the Company has sold its accounts receivable without recourse.
Letters of credit
As of December 31, 2019, the Company has agreements in relation to the opening of letters of credit up to USD 150 million
(W173,670 million) with KEB Hana Bank, USD 50 million (W57,890 million) with Sumitomo Mitsui Banking Corporation, USD 100 million (W115,780 million) with Industrial Bank of Korea and USD
100 million (W115,780 million) with Industrial and Commercial Bank of China.
215
14. | Contingent Liabilities and Commitments, Continued |
Payment guarantees
The Company provides payment guarantees to LG Display Vietnam Haiphong, Co., Ltd. in connection with the principal amount of term loan credit
facilities amounting to USD 1,302 million (W1,506,921 million) and payables for facilities amounting to USD 57 million (W66,150 million).
In addition, the Company obtained payment guarantees amounting to USD 1,075 million (W1,244,635 million) from KEB Hana
Bank and others for advances received related to the long-term supply agreements. The Company also obtained payment guarantees amounting to USD 306 million (W354,070 million) from Korea Development Bank for foreign currency
denominated bonds.
License agreements
As of December 31, 2019, the Company has technical license agreements with Hitachi Display, Ltd. and others in relation to its LCD business and patent cross license agreement with Universal Display Corporation in relation to its OLED business. Also, the Company has a trademark license agreement with LG Corp. as of December 31, 2019.
Long-term supply agreement
As of December 31, 2019, in connection with long-term supply agreements with customers, the Company recognized USD 875 million
(W1,013,075 million) in advances received. The advances received will be offset against outstanding accounts receivable balances after a given period of time, as well as those arising from the supply of products thereafter. The
Company received payment guarantees amounting to USD 1,075 million (W1,244,635 million) from KEB Hana Bank and other various banks relating to advances received (see Note 14(b) payment guarantees).
216
15. | Share Capital |
The Company is authorized to issue 500,000,000 shares of capital stock (par value W5,000), and as of
December 31, 2019 and December 31, 2018, the number of issued common shares is 357,815,700. There have been no changes in the capital stock from January 1, 2018 to December 31, 2019.
16. | Retained earnings |
(a) | Retained earnings as of December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Legal reserve |
212,158 | |||||||
Other reserve |
68,251 | 68,251 | ||||||
Defined benefit plan actuarial loss |
(72,208 | ) | (165,613 | ) | ||||
Retained earnings |
6,417,700 | 9,057,593 | ||||||
|
|
|
|
|||||
9,172,389 | ||||||||
|
|
|
|
(b) | For the years ended December 31, 2019 and 2018, details of the Companys appropriations of retained earnings are as follows: |
(In millions of won, except for cash dividend per common stock) | ||||||||
2019 | 2018 | |||||||
Retained earnings before appropriations |
||||||||
Unappropriated retained earnings carried over from prior year |
9,499,884 | |||||||
Loss for the year |
(2,639,893 | ) | (442,291 | ) | ||||
|
|
|
|
|||||
Unappropriated retained earnings carried forward to the following year |
9,057,593 | |||||||
|
|
|
|
For the years ended December 31, 2019 and 2018, the date of appropriation is March 20, 2020 and March 15, 2019, respectively.
217
17. | Revenue |
Details of revenue for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Sales of goods |
22,324,003 | |||||||
Royalties |
40,271 | 20,970 | ||||||
Others |
24,725 | 26,714 | ||||||
|
|
|
|
|||||
22,371,687 | ||||||||
|
|
|
|
18. | The Nature of Expenses and Others |
The classification of expenses by nature for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Changes in inventories |
(268,910 | ) | ||||||
Purchases of raw materials, merchandise and others |
8,616,802 | 8,875,141 | ||||||
Depreciation and amortization |
2,549,770 | 2,392,768 | ||||||
Outsourcing |
6,377,774 | 6,012,740 | ||||||
Labor |
2,398,422 | 2,592,716 | ||||||
Supplies and others |
615,620 | 795,935 | ||||||
Utility |
711,890 | 728,166 | ||||||
Fees and commissions |
466,415 | 522,328 | ||||||
Shipping |
65,986 | 102,913 | ||||||
Advertising |
192,333 | 111,972 | ||||||
Warranty |
365,993 | 207,892 | ||||||
Travel |
85,091 | 95,003 | ||||||
Taxes and dues |
58,899 | 59,207 | ||||||
Impairment loss on property, plant and equipment |
1,140,760 | 43,601 | ||||||
Impairment loss on intangible assets |
240,816 | 82 | ||||||
Others |
560,225 | 650,483 | ||||||
|
|
|
|
|||||
22,922,037 | ||||||||
|
|
|
|
Total expenses consist of cost of sales, selling, administrative, research and development expenses and other non-operating expenses, excluding foreign exchange differences.
218
19. | Selling and Administrative Expenses |
Details of selling and administrative expenses for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Salaries(*1) |
396,223 | |||||||
Expenses related to defined benefit plans(*2) |
27,109 | 29,023 | ||||||
Other employee benefits |
47,976 | 42,987 | ||||||
Shipping |
48,256 | 72,876 | ||||||
Fees and commissions |
129,209 | 136,417 | ||||||
Depreciation |
107,571 | 111,133 | ||||||
Taxes and dues |
2,478 | 4,777 | ||||||
Advertising |
192,333 | 111,972 | ||||||
Warranty |
365,993 | 207,892 | ||||||
Rent |
588 | 10,597 | ||||||
Insurance |
6,026 | 6,175 | ||||||
Travel |
17,338 | 18,197 | ||||||
Training |
9,535 | 10,910 | ||||||
Others |
38,578 | 39,486 | ||||||
|
|
|
|
|||||
1,198,665 | ||||||||
|
|
|
|
(*1) | Expenses recognized in relation to employee termination benefits for the years ended December 31, 2019 and
2018 amount to |
(*2) | Expenses recognized in relation to employee defined contribution plan for the years ended December 31,
2019 and 2018 amount to |
20. | Personnel Expenses |
Details of personnel expenses for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Salaries and wages |
2,280,341 | |||||||
Other employee benefits |
285,794 | 312,050 | ||||||
Contributions to National Pension plan |
73,149 | 75,668 | ||||||
Expenses related to defined benefit plan and defined contribution plan(*) |
161,848 | 179,137 | ||||||
|
|
|
|
|||||
2,847,196 | ||||||||
|
|
|
|
(*) | Expenses recognized in relation to employee defined contribution plan for the year ended December 31, 2019
and 2018 amount to |
219
21. | Other Non-operating Income and Other Non-operating Expenses |
(a) | Details of other non-operating income for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Foreign currency gain |
483,160 | |||||||
Gain on disposal of property, plant and equipment |
54,756 | 42,864 | ||||||
Gain on disposal of intangible assets |
552 | 239 | ||||||
Reversal of impairment loss on intangible assets |
960 | 348 | ||||||
Rental income |
1,832 | 1,764 | ||||||
Others |
24,785 | 13,172 | ||||||
|
|
|
|
|||||
541,547 | ||||||||
|
|
|
|
(b) | Details of other non-operating expenses for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Foreign currency loss |
499,652 | |||||||
Other bad debt expense |
1,349 | 23 | ||||||
Loss on disposal of property, plant and equipment |
25,851 | 8,615 | ||||||
Impairment loss on property, plant and equipment |
1,140,760 | 43,601 | ||||||
Loss on disposal of intangible assets |
18 | | ||||||
Impairment loss on intangible assets |
240,816 | 82 | ||||||
Donations |
592 | 7,294 | ||||||
Others |
19,692 | 17,740 | ||||||
|
|
|
|
|||||
577,007 | ||||||||
|
|
|
|
220
22. | Finance Income and Finance Costs |
Finance income and costs recognized in profit or loss for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Finance income |
||||||||
Interest income |
17,938 | |||||||
Dividend income |
18,622 | 95,553 | ||||||
Foreign currency gain |
77,502 | 10,170 | ||||||
Gain on disposal of investments |
5,408 | 1,111 | ||||||
Reversal of impairment loss of investments |
2,564 | | ||||||
Gain on transaction of derivatives |
21,752 | 2,075 | ||||||
Gain on valuation of derivatives |
59,781 | 13,059 | ||||||
Gain on valuation of financial assets at fair value through profit or loss |
402 | 4,362 | ||||||
Other |
4,033 | |||||||
|
|
|
|
|||||
204,966 | 148,301 | |||||||
|
|
|
|
|||||
Finance costs |
||||||||
Interest expense |
35,108 | |||||||
Foreign currency loss |
104,153 | 39,869 | ||||||
Impairment loss on investments |
39,884 | 23,059 | ||||||
Loss on sale of trade accounts and notes receivable |
1,769 | 875 | ||||||
Loss on valuation of financial assets at fair value through profit or loss |
4,531 | 225 | ||||||
Loss on valuation of financial liabilities at fair value through profit or loss |
56,384 | | ||||||
Loss on transaction of derivatives |
| 49 | ||||||
Loss on valuation of derivatives |
17,999 | 26,600 | ||||||
Other |
12,242 | 3,867 | ||||||
|
|
|
|
|||||
129,652 | ||||||||
|
|
|
|
221
23. | Income Taxes |
(a) | Details of income tax expense for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Current tax expense (benefit) |
||||||||
Current year |
(3,883 | ) | ||||||
Adjustment for prior years |
(163,203 | ) | 82,225 | |||||
|
|
|
|
|||||
78,342 | ||||||||
Deferred tax benefit |
||||||||
Origination and reversal of temporary differences |
(190,675 | ) | ||||||
Change in unrecognized deferred tax assets |
324,301 | 64,818 | ||||||
|
|
|
|
|||||
(125,857 | ) | |||||||
|
|
|
|
|||||
Income tax benefit |
(47,515 | ) | ||||||
|
|
|
|
(b) | Income taxes recognized directly in other comprehensive income or loss for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | 2019 | 2018 | ||||||||||||||||||||||
Before tax | Tax expense | Net of tax | Before tax | Tax expense | Net of tax | |||||||||||||||||||
Remeasurements of net defined benefit liabilities (assets) |
(35,235 | ) | 93,405 | 5,690 | (1,169 | ) | 4,521 |
222
23. | Income Taxes, Continued |
(c) | Reconciliation of the actual effective tax rate for the years ended December 31, 2019 and 2018 is as follows: |
(In millions of won) | 2019 | 2018 | ||||||||||||||
Loss for the year |
(2,639,893 | ) | (442,291 | ) | ||||||||||||
Income tax benefit |
(704,888 | ) | (47,515 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Loss before income tax |
(3,344,781 | ) | (489,806 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Income tax benefit using the Companys statutory tax rate |
25.67 | % | (858,605 | ) | 26.65 | % | (130,533 | ) | ||||||||
Non-deductible expenses |
(0.53 | %) | 17,870 | (6.76 | %) | 33,112 | ||||||||||
Tax credits |
1.35 | % | (45,237 | ) | 19.97 | % | (97,822 | ) | ||||||||
Change in unrecognized deferred tax assets |
(9.70 | %) | 324,301 | (13.23 | %) | 64,818 | ||||||||||
Adjustment for prior years (*1) |
4.88 | % | (163,203 | ) | (16.79 | %) | 82,225 | |||||||||
Effect on change in tax rate |
(0.66 | %) | 22,201 | 0.41 | % | (2,007 | ) | |||||||||
Others |
0.07 | % | (2,215 | ) | (0.55 | %) | 2,692 | |||||||||
|
|
|
|
|||||||||||||
Actual income tax benefit |
(704,888 | ) | (47,515 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Actual effective tax rate |
(*2 | ) | (*2 | ) |
(*1) | Consist of changes in tax credits in amended tax returns and expected amount of income tax adjustment in relation to the transfer price investigation and others. |
(*2) | Actual effective tax rate are not calculated due to loss before income tax. |
(d) | Tax uncertainties |
In June 2019, LG Display Guangzhou Co., Ltd., LG Display Yantai Co., Ltd. and LG Display Nanjing Co., Ltd., the subsidiaries of the Company,
were imposed of additional income taxes amounting to 127.1 billion, in aggregate, by the Chinese tax authorities in connection with the transfer price investigation initiated in 2015. W
OECD Guidelines, the Korea-China tax treaty, and the domestic tax laws of both countries stipulate mutual agreements to resolve double
taxation. In July 2019, the Company registered an application form to request an initiation of a mutual agreement to receive the estimated amount of 109.2 billion corporate tax adjustment from the Korea
National Tax Service. The application was officially registered and the two tax authorities held their first meeting in November 2019 and further consultation will be conducted in 2020. W
Meanwhile, the Company expects that the mutual agreement between tax authorities will be processed and be resolved within a reasonable period in favor of the Company and the Company recognized the estimated income tax refund as current tax asset, as of December 31, 2019.
223
24. | Deferred Tax Assets and Liabilities |
(a) | Unrecognized deferred tax liabilities |
As of December 31, 2019, in relation to the taxable temporary differences on investments in subsidiaries amounting to
W211,264 million, the Company did not recognize deferred tax liabilities since the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary differences will not
reverse in the foreseeable future.
(b) | Unused tax credit carryforwards for which no deferred tax asset is recognized |
Realization of deferred tax assets related to tax credit carryforwards is dependent on whether sufficient taxable income will be generated prior to their expiration. As of December 31, 2019, the amount of unused tax credit carryforwards for which no deferred tax asset is recognized and their expiration dates are as follows:
(In millions of won) | ||||||||||||||||||||||||
Total | December 31, 2020 |
December 31, 2021 |
December 31, 2022 |
December 31, 2023 |
December 31, 2024 |
|||||||||||||||||||
Tax credit carryforwards |
44,692 | 70,646 | 220,135 | 114,845 | 98,738 |
(c) | Deferred tax assets and liabilities are attributable to the following: |
(In millions of won) | Assets | Liabilities | Total | |||||||||||||||||||||
December 31, 2019 |
December 31, 2018 |
December 31, 2019 |
December 31, 2018 |
December 31, 2019 |
December 31, 2018 |
|||||||||||||||||||
Other accounts receivable, net |
| (4,364 | ) | (1,013 | ) | (4,364 | ) | (1,013 | ) | |||||||||||||||
Inventories, net |
78,730 | 53,882 | | | 78,730 | 53,882 | ||||||||||||||||||
Accrued expenses |
120,854 | 121,508 | | | 120,854 | 121,508 | ||||||||||||||||||
Property, plant and equipment |
465,883 | 191,073 | | | 465,883 | 191,073 | ||||||||||||||||||
Intangible assets |
19,422 | 925 | | | 19,422 | 925 | ||||||||||||||||||
Provisions |
59,875 | 32,468 | | | 59,875 | 32,468 | ||||||||||||||||||
Gain or loss on foreign currency translation, net |
| 13 | | | | 13 | ||||||||||||||||||
Others |
52,293 | 17,932 | | | 52,293 | 17,932 | ||||||||||||||||||
Tax loss carryforwards |
536,684 | 126,755 | | | 536,684 | 126,755 | ||||||||||||||||||
Tax credit carryforwards |
38,337 | 308,393 | | | 38,337 | 308,393 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Deferred tax assets (liabilities) |
852,949 | (4,364 | ) | (1,013 | ) | 1,367,714 | 851,936 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
224
24. | Deferred Tax Assets and Liabilities, Continued |
(d) | Changes in deferred tax assets and liabilities for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||||||||||||||||||||||
January 1, 2018 |
Profit or loss |
Other comprehensive income (loss) |
December 31, 2018 |
Profit or loss |
Other comprehensive income (loss) |
December 31, 2019 |
||||||||||||||||||||||
Other accounts receivable, net |
365 | | (1,013 | ) | (3,351 | ) | | (4,364 | ) | |||||||||||||||||||
Inventories, net |
30,688 | 23,194 | | 53,882 | 24,848 | | 78,730 | |||||||||||||||||||||
Defined benefit liabilities, net |
2,375 | (1,206 | ) | (1,169 | ) | | 35,235 | (35,235 | ) | | ||||||||||||||||||
Accrued expenses |
179,112 | (57,604 | ) | | 121,508 | (654 | ) | | 120,854 | |||||||||||||||||||
Property, plant and equipment |
206,900 | (15,827 | ) | | 191,073 | 274,810 | | 465,883 | ||||||||||||||||||||
Intangible assets |
1,249 | (324 | ) | | 925 | 18,497 | | 19,422 | ||||||||||||||||||||
Provisions |
27,018 | 5,450 | | 32,468 | 27,407 | | 59,875 | |||||||||||||||||||||
Gain or loss on foreign currency translation, net |
13 | | | 13 | (13 | ) | | | ||||||||||||||||||||
Others |
12,345 | 5,587 | | 17,932 | 34,361 | | 52,293 | |||||||||||||||||||||
Tax loss carryforwards |
| 126,755 | | 126,755 | 409,929 | | 536,684 | |||||||||||||||||||||
Tax credit carryforwards |
268,926 | 39,467 | | 308,393 | (270,056 | ) | | 38,337 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Deferred tax assets (liabilities) |
125,857 | (1,169 | ) | 851,936 | 551,013 | (35,235 | ) | 1,367,714 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225
25. | Loss per Share |
(a) | Basic loss per share for the years ended December 31, 2019 and 2018 are as follows: |
(In won and No. of shares) | 2019 | 2018 | ||||||
Loss for the year |
(442,291,281,486 | ) | ||||||
Weighted-average number of common stocks outstanding |
357,815,700 | 357,815,700 | ||||||
|
|
|
|
|||||
Basic loss per share |
(1,236 | ) | ||||||
|
|
|
|
For the years ended December 31, 2019 and 2018, there were no events or transactions that resulted in changes in the number of common stocks used for calculating basic loss per share.
(b) | The Company issued potential common stocks as a result of an issuance of the convertible bonds on August 22, 2019. Diluted loss per share is not different from basic loss per share due to loss for the year ended December 31, 2019. As of December 31, 2019, 40,988,998 options were excluded from the calculation of weighted-average number of common stocks due to antidilution. |
26. | Financial Risk Management |
The Company is exposed to credit risk, liquidity risk and market risks. The Company identifies and analyzes such risks, and controls are implemented under a risk management system to monitor and manage these risks at below an acceptable level.
(a) | Market risk |
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Companys income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
(i) | Currency risk |
The Company is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency of the Company, Korean won (KRW). The currencies in which these transactions primarily are denominated are USD, JPY, etc.
Interest on borrowings is denominated in the currency of the borrowing. Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying operations of the Company, primarily KRW and USD.
In respect of other monetary assets and liabilities denominated in foreign currencies, the Company adopts policies to ensure that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances. Meanwhile, the Company entered into currency interest rate swap contracts to hedge currency risk with respect to foreign currency borrowings and bonds.
226
26. | Financial Risk Management, Continued |
i) | Exposure to currency risk |
The Companys exposure to foreign currency risk based on notional amounts as of December 31, 2019 and 2018 are as follows:
(In millions) | December 31, 2019 | |||||||||||||||||||
USD | JPY | CNY | PLN | EUR | ||||||||||||||||
Cash and cash equivalents |
907 | 3 | 2 | 1 | 2 | |||||||||||||||
Trade accounts and notes receivable |
2,880 | 3,974 | | | | |||||||||||||||
Non-trade receivable |
306 | 452 | | | | |||||||||||||||
Trade accounts and notes payable |
(1,035 | ) | (7,346 | ) | | | | |||||||||||||
Other accounts payable |
(145 | ) | (3,619 | ) | | | (9 | ) | ||||||||||||
Financial liabilities |
(2,900 | ) | | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Aggregate notional amounts in the separate statements of financial position |
13 | (6,536 | ) | 2 | 1 | (7 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Currency swap contracts |
2,085 | | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net exposure |
2,098 | (6,536 | ) | 2 | 1 | (7 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
(In millions) | December 31, 2018 | |||||||||||||||||||
USD | JPY | CNY | PLN | EUR | ||||||||||||||||
Cash and cash equivalents |
66 | | 54 | 1 | 7 | |||||||||||||||
Trade accounts and notes receivable |
2,809 | 2,937 | | | | |||||||||||||||
Non-trade receivable |
48 | 836 | 1,018 | | | |||||||||||||||
Trade accounts and notes payable |
(1,392 | ) | (11,477 | ) | | | | |||||||||||||
Other accounts payable |
(117 | ) | (13,982 | ) | | (18 | ) | (2 | ) | |||||||||||
Financial liabilities |
(1,163 | ) | | | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Aggregate notional amounts in the separate statements of financial position |
251 | (21,686 | ) | 1,072 | (17 | ) | 5 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Currency swap contracts |
780 | | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net exposure |
1,031 | (21,686 | ) | 1,072 | (17 | ) | 5 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
227
26. | Financial Risk Management, Continued |
Average exchange rates applied for the years ended December 31, 2019 and 2018 and the exchange rates at December 31, 2019 and December 31, 2018 are as follows:
(In won) | Average rate | Reporting date spot rate | ||||||||||||||
2019 | 2018 | December 31, 2019 |
December 31, 2018 |
|||||||||||||
USD |
1,100.21 | 1,118.10 | ||||||||||||||
JPY |
10.70 | 9.96 | 10.63 | 10.13 | ||||||||||||
CNY |
168.56 | 166.41 | 165.74 | 162.76 | ||||||||||||
PLN |
303.62 | 304.87 | 304.87 | 297.33 | ||||||||||||
EUR |
1,304.52 | 1,298.53 | 1,297.43 | 1,279.16 |
ii) | Sensitivity analysis |
A weaker won, as indicated below, against the following currencies which comprise the Companys assets or liabilities denominated in a foreign currency as of December 31, 2019 and 2018, would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Company considers to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, would remain constant. The changes in equity and profit or loss would have been as follows:
(In millions of won) | December 31, 2019 | December 31, 2018 | ||||||||||||||
Equity | Profit or loss |
Equity | Profit or loss |
|||||||||||||
USD (5 percent weakening) |
88,054 | 41,788 | ||||||||||||||
JPY (5 percent weakening) |
(2,520 | ) | (2,520 | ) | (7,965 | ) | (7,965 | ) | ||||||||
CNY (5 percent weakening) |
12 | 12 | 6,325 | 6,325 | ||||||||||||
PLN (5 percent weakening) |
11 | 11 | (183 | ) | (183 | ) | ||||||||||
EUR (5 percent weakening) |
(329 | ) | (329 | ) | 232 | 232 |
A stronger won against the above currencies as of December 31, 2019 and 2018 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
228
26. | Financial Risk Management, Continued |
(ii) | Interest rate risk |
Interest rate risk arises principally from the Companys bonds and borrowings. The Company establishes and applies its policy to reduce
uncertainty arising from fluctuations in the interest rate and to minimize finance cost and manages interest rate risk by monitoring of trends of fluctuations in interest rate and establishing plan for countermeasures. Meanwhile, the Company entered
into currency interest rate swap contracts amounting to USD 1,785 million (W2,066,673 million) in notional amount to hedge interest rate risk with respect to variable interest rate applied foreign currency denominated
borrowings.
i) | Profile |
The interest rate profile of the Companys interest-bearing financial instruments as of December 31, 2019 and 2018 is as follows:
(In millions of won) | ||||||||
December 31, 2019 |
December 31, 2018 |
|||||||
Fixed rate instruments |
||||||||
Financial assets |
550,644 | |||||||
Financial liabilities |
(6,066,554 | ) | (5,033,515 | ) | ||||
|
|
|
|
|||||
(4,482,871 | ) | |||||||
|
|
|
|
|||||
Variable rate instruments |
||||||||
Financial liabilities |
(1,105,976 | ) |
ii) | Equity and profit or loss sensitivity analysis for variable rate instruments |
For the years ended December 31, 2019 and 2018, a change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below for the respective following years. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
(In millions of won) | ||||||||||||||||
Equity | Profit or loss | |||||||||||||||
1%p increase |
1%p decrease |
1%p increase |
1%p decrease |
|||||||||||||
December 31, 2019 |
||||||||||||||||
Variable rate instruments(*) |
2,847 | (2,847 | ) | 2,847 | ||||||||||||
December 31, 2018 |
||||||||||||||||
Variable rate instruments(*) |
8,018 | (8,018 | ) | 8,018 |
(*) | Financial instruments related to currency interest rate swap not qualified for hedging are excluded. |
229
26. | Financial Risk Management, Continued |
(b) | Credit risk |
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Companys receivables from customers.
The Companys exposure to credit risk of trade and other receivables is influenced mainly by the individual characteristics of each customer. However, management believes that the default risk of the country in which each customer operates, do not have a significant influence on credit risk since the majority of the customers are global electronic appliance manufacturers operating in global markets.
The Company establishes credit limits for each customer and each new customer is analyzed quantitatively and qualitatively before determining whether to utilize third party guarantees, insurance or factoring as appropriate.
In relation to the impairment of financial assets subsequent to initial recognition, the Company recognizes the changes in expected credit loss (ECL) at each reporting date in order to reflect changes in the credit risks based on ECL model.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk as of December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
December 31, 2019 |
December 31, 2018 |
|||||||
Financial assets carried at amortized cost |
||||||||
Cash and cash equivalents |
473,283 | |||||||
Deposits in banks |
77,268 | 77,211 | ||||||
Trade accounts and notes receivable, net |
3,565,860 | 3,389,108 | ||||||
Non-trade receivables |
438,659 | 316,069 | ||||||
Accrued income |
1,281 | 5,894 | ||||||
Deposits |
13,125 | 13,418 | ||||||
Short-term loans |
21,623 | 16,116 | ||||||
Long-term loans |
40,827 | 55,048 | ||||||
Long-term non-trade receivables |
19,899 | 25,823 | ||||||
|
|
|
|
|||||
4,371,970 | ||||||||
|
|
|
|
|||||
Financial assets at fair value through profit or loss |
||||||||
Convertible bonds |
1,327 | |||||||
Derivatives |
49,676 | 13,059 | ||||||
|
|
|
|
|||||
14,386 | ||||||||
|
|
|
|
|||||
Financial assets at fair value through other comprehensive income |
||||||||
Debt instruments |
161 | |||||||
|
|
|
|
|||||
4,386,517 | ||||||||
|
|
|
|
In addition to the financial assets above, as of December 31, 2019, the Company provides payment
guarantees in connection with the principal amount of credit facilities amounting to USD 1,302 million (W1,506,921 million) and payables for facility purchases amounting to USD 57 million (W66,150
million), for its subsidiary.
Trade accounts and notes receivables are insured in order to manage credit risk if it does not meet the Companys internal credit ratings. Uninsured trade accounts and notes receivables are managed by continuous monitoring of internal credit ratings and seeking insurance coverage, if necessary.
230
26. | Financial Risk Management, Continued |
(c) | Liquidity risk |
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or other financial asset. The Companys approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Companys reputation.
The Company has historically been able to satisfy its cash requirements from cash flows from operations and debt and equity financing. To the extent that the Company does not generate sufficient cash flows from operations to meet its capital requirements, the Company relies on other financing activities, such as external long-term borrowings and offerings of debt securities, equity-linked and other debt securities. In addition, the Company maintains a line of credit with various banks.
The following are the contractual maturities of financial liabilities, including estimated interest payments, as of December 31, 2019.
(In millions of won) | Contractual cash flows in | |||||||||||||||||||||||||||
Carrying amount |
Total | 6 months or less |
6-12 months |
1-2 years |
2-5 years |
More than 5 years |
||||||||||||||||||||||
Non-derivative financial liabilities |
||||||||||||||||||||||||||||
Borrowings |
5,813,355 | 691,013 | 523,231 | 1,070,782 | 3,389,181 | 139,148 | ||||||||||||||||||||||
Bonds |
3,151,218 | 3,306,729 | 297,649 | 184,878 | 908,281 | 1,780,014 | 135,907 | |||||||||||||||||||||
Trade accounts and notes payable |
2,682,403 | 2,682,403 | 2,682,403 | | | | | |||||||||||||||||||||
Other accounts payable |
1,001,024 | 1,001,024 | 999,958 | 1,066 | | | | |||||||||||||||||||||
Other accounts payable (enterprise procurement cards)(*1) |
2,328,016 | 2,353,355 | 1,287,023 | 1,066,332 | | | | |||||||||||||||||||||
Long-term other accounts payable |
1,062 | 1,062 | | | 1,062 | | | |||||||||||||||||||||
Payment guarantee(*2) |
16,502 | 1,637,522 | 51,094 | 118,907 | 316,255 | 1,079,665 | 71,601 | |||||||||||||||||||||
Security deposits received |
11,000 | 11,000 | 3,980 | 5,330 | 1,690 | | | |||||||||||||||||||||
Lease liabilities |
6,557 | 6,748 | 2,889 | 1,608 | 1,741 | 510 | | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Derivative financial liabilities |
||||||||||||||||||||||||||||
Derivatives |
(13,101 | ) | | | (4,870 | ) | (8,231 | ) | | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
16,800,097 | 6,016,009 | 1,901,352 | 2,294,941 | 6,241,139 | 346,656 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | Represents the amount of utility expenses and others paid by enterprise procurement cards and the outstanding payables are settled at the end of the billing cycle. The payments to the card company arises from operating activities of purchasing of goods and services thus the related cash flow is disclosed as operating activities. |
(*2) | Contractual cash flows of payment guarantee is identical to timing of principal payment and represent the maximum amount that the Company could be required to pay the guarantee amount. |
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.
231
26. | Financial Risk Management, Continued |
(d) | Capital Management |
Managements policy is to maintain a capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Liabilities to equity ratio, net borrowings to equity ratio and other financial ratios are used by management to achieve an optimal capital structure. Management also monitors the return on capital as well as the level of dividends to ordinary shareholders.
(In millions of won) | ||||||||
December 31, 2019 |
December 31, 2018 |
|||||||
Total liabilities |
13,849,525 | |||||||
Total equity |
10,666,093 | 13,212,581 | ||||||
Cash and deposits in banks (*1) |
1,182,502 | 550,483 | ||||||
Borrowings (including bonds) |
8,525,343 | 6,139,491 | ||||||
Total liabilities to equity ratio |
157 | % | 105 | % | ||||
Net borrowings to equity ratio (*2) |
69 | % | 42 | % |
(*1) | Cash and deposits in banks consist of cash and cash equivalents and current deposits in banks. |
(*2) | Net borrowings to equity ratio is calculated by dividing total borrowings (including bonds and excluding lease liabilities) less cash and current deposits in banks by total equity. |
232
26. | Financial Risk Management, Continued |
(e) | Determination of fair value |
(i) | Measurement of fair value |
A number of the Companys accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
i) | Current Assets and Liabilities |
The carrying amounts approximate their fair value because of the short maturity of these instruments.
ii) | Trade receivables and other receivables |
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes. The carrying amounts of current receivables approximate their fair value.
iii) | Investments in equity and debt securities |
The fair value of marketable financial assets at FVTPL and at FVOCI is determined by reference to their quoted closing bid price at the reporting date. The fair value of non-marketable instruments is determined using the results of fair value assessment performed by external valuation institution and others.
iv) | Non-derivative financial liabilities |
Fair value, which is determined for disclosure purposes, except for the liabilities at FVTPL, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.
233
26. | Financial Risk Management, Continued |
(ii) | Fair values versus carrying amounts |
The fair values of financial assets and liabilities, together with the carrying amounts shown in the separate statement of financial position as of December 31, 2019 and 2018 are as follows:
(In millions of won) | December 31, 2019 | December 31, 2018 | ||||||||||||||
Carrying amounts |
Fair values |
Carrying amounts |
Fair values |
|||||||||||||
Financial assets carried at amortized cost |
||||||||||||||||
Cash and cash equivalents |
(*) | 473,283 | (*) | |||||||||||||
Deposits in banks |
77,268 | (*) | 77,211 | (*) | ||||||||||||
Trade accounts and notes receivable |
3,565,860 | (*) | 3,389,108 | (*) | ||||||||||||
Non-trade receivables |
438,659 | (*) | 316,069 | (*) | ||||||||||||
Accrued income |
1,281 | (*) | 5,894 | (*) | ||||||||||||
Deposits |
13,125 | (*) | 13,418 | (*) | ||||||||||||
Short-term loans |
21,623 | (*) | 16,116 | (*) | ||||||||||||
Long-term loans |
40,827 | (*) | 55,048 | (*) | ||||||||||||
Long-term non-trade receivables |
19,899 | (*) | 25,823 | (*) | ||||||||||||
Financial assets at fair value through profit or loss |
||||||||||||||||
Equity instruments |
2,997 | 7,344 | 7,344 | |||||||||||||
Convertible bonds |
1,544 | 1,544 | 1,327 | 1,327 | ||||||||||||
Derivatives |
49,676 | 49,676 | 13,059 | 13,059 | ||||||||||||
Financial assets at fair value through other comprehensive income |
||||||||||||||||
Debt instruments |
76 | 161 | 161 | |||||||||||||
Financial liabilities at fair value through profit or loss |
||||||||||||||||
Derivatives |
20,592 | 25,758 | 25,758 | |||||||||||||
Convertible bonds |
858,385 | 858,385 | | | ||||||||||||
Financial liabilities carried at amortized cost |
||||||||||||||||
Borrowings |
5,438,952 | 3,807,234 | 3,862,709 | |||||||||||||
Bonds |
2,292,833 | 2,345,867 | 2,332,257 | 2,384,987 | ||||||||||||
Trade accounts and notes payable |
2,682,403 | (*) | 3,186,123 | (*) | ||||||||||||
Other accounts payable |
3,329,040 | (*) | 1,746,412 | (*) | ||||||||||||
Long-term other accounts payable |
1,062 | (*) | 3,081 | (*) | ||||||||||||
Payment guarantee liabilities |
16,502 | (*) | 19,068 | (*) | ||||||||||||
Security deposits received |
11,000 | (*) | 10,955 | (*) | ||||||||||||
Lease liabilities |
6,557 | (*) | | |
(*) | Excluded from disclosures as the carrying amount approximates fair value. |
234
26. | Financial Risk Management, Continued |
(iii) | Fair values of financial assets and liabilities |
i) | Fair value hierarchy |
The table below analyzes financial instruments carried at fair value based on the input variables used in the valuation method to measure fair value of assets and liabilities. The different levels have been defined as follows:
| Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities |
| Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly |
| Level 3: inputs for the asset or liability that are not based on observable market data |
ii) | Financial instruments measured at fair value |
Fair value hierarchy classifications of the financial instruments that are measured at fair value as of December 31, 2019 and 2018 are as follows:
(In millions of won) | December 31, 2019 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial assets at fair value through profit or loss |
||||||||||||||||
Equity instruments |
| 2,997 | 2,997 | |||||||||||||
Convertible bonds |
| | 1,544 | 1,544 | ||||||||||||
Derivatives |
| | 49,676 | 49,676 | ||||||||||||
Financial asset at fair value through other comprehensive income |
||||||||||||||||
Debt instruments |
76 | | | 76 | ||||||||||||
Financial liabilities at fair value through profit or loss |
||||||||||||||||
Derivatives |
| | 20,592 | 20,592 | ||||||||||||
Convertible bonds |
858,385 | | | 858,385 | ||||||||||||
(In millions of won) | December 31, 2018 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial assets at fair value through profit or loss |
||||||||||||||||
Equity instruments |
| 7,344 | 7,344 | |||||||||||||
Convertible bonds |
| | 1,327 | 1,327 | ||||||||||||
Derivatives |
| | 13,059 | 13,059 | ||||||||||||
Financial asset at fair value through other comprehensive income |
||||||||||||||||
Debt instruments |
161 | | | 161 | ||||||||||||
Financial liabilities at fair value through profit or loss |
||||||||||||||||
Derivatives |
| | 25,758 | 25,758 |
235
26. | Financial Risk Management, Continued |
iii) | Financial instruments not measured at fair value but for which the fair value is disclosed |
Fair value hierarchy classifications, valuation technique and inputs for fair value measurements of the financial instruments not measured at fair value but for which the fair value is disclosed as of December 31, 2019 and December 31, 2018 are as follows:
(In millions of won) | December 31, 2019 | Valuation technique |
Input | |||||||||||||||||
Classification |
Level 1 | Level 2 | Level 3 | |||||||||||||||||
Liabilities |
||||||||||||||||||||
Borrowings |
| 5,438,952 | |
Discounted cash flow |
|
|
Discount rate |
| ||||||||||||
Bonds |
| | 2,345,867 | |
Discounted cash flow |
|
|
Discount rate |
| |||||||||||
(In millions of won) | December 31, 2018 | Valuation technique |
Input | |||||||||||||||||
Classification |
Level 1 | Level 2 | Level 3 | |||||||||||||||||
Liabilities |
||||||||||||||||||||
Borrowings |
| 3,862,709 | |
Discounted cash flow |
|
|
Discount rate |
| ||||||||||||
Bonds |
| | 2,384,987 | |
Discounted cash flow |
|
|
Discount rate |
|
iv) | The interest rates applied for determination of the above fair value as of December 31, 2019 and 2018 are as follows: |
December 31, 2019 |
December 31, 2018 | |||
Borrowings, bonds and others | 1.87~3.56% | 2.09~3.37% |
236
27. | Leases |
Refer to accounting policies in Note 3(l).
The Company leases buildings, vehicles, machinery and equipment and others. Information about leases for which the Company is a lessee is presented below.
(i) | Right-of-use assets |
Right-of-use assets are presented as property, plant and equipment (see Note 9(a)).
(In millions of won) | ||||||||||||||||||||||||
Buildings | Land | Machinery and equipment |
Vehicles | Others | Total | |||||||||||||||||||
Balance at January 1 |
| 1,021 | 5,922 | 51 | 16,332 | |||||||||||||||||||
Additions |
307 | 2 | 1,271 | 2,253 | 41 | 3,874 | ||||||||||||||||||
Depreciation |
(8,602 | ) | (1 | ) | (1,091 | ) | (3,726 | ) | (62 | ) | (13,482 | ) | ||||||||||||
Impairment |
(121 | ) | | (21 | ) | (167 | ) | | (309 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at December 31 |
1 | 1,180 | 4,282 | 30 | 6,415 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(ii) | Amounts recognized in profit or loss not from right-of-use assets |
(In millions of won) | ||||
December 31, 2019 |
||||
Interest on lease liabilities | ||||
Expenses relating to short-term leases | (417 | ) | ||
Expenses relating to leases of low-value assets |
(257 | ) |
(iii) | Lease liabilities |
(In millions of won) | ||||
December 31, 2019 |
||||
Balance at January 1, 2019 |
||||
Additions | 3,874 | |||
Interest expense | 357 | |||
Repayment of liabilities | (14,006 | ) | ||
|
|
|||
Balance at December 31, 2019 |
||||
|
|
237
28. | Changes in liabilities arising from financing activities |
Changes in liabilities arising from financing activities for the year ended December 31, 2019 are as follows:
(In millions of won) | ||||||||||||||||||||||||||||
January 1, 2019 |
Cash flows from financing activities |
Non-cash transactions | December 31, 2019 |
|||||||||||||||||||||||||
Reclassification | Gain or loss on foreign currency translation |
Effective interest adjustment |
Others | |||||||||||||||||||||||||
Short-term borrowings |
336,580 | | 10,760 | | | 347,340 | ||||||||||||||||||||||
Current portion of long-term borrowings and bonds |
1,040,148 | (1,043,649 | ) | 1,114,595 | 5,541 | 583 | | 1,117,218 | ||||||||||||||||||||
Payment guarantee liabilities |
19,068 | 5,068 | | | | (7,634 | ) | 16,502 | ||||||||||||||||||||
Long-term borrowings |
3,326,744 | 1,669,148 | (705,134 | ) | 28,511 | | | 4,319,269 | ||||||||||||||||||||
Bonds |
1,772,599 | 1,323,251 | (409,461 | ) | (20,351 | ) | 10,568 | 64,910 | 2,741,516 | |||||||||||||||||||
Lease liabilities |
16,332 | (14,006 | ) | | | 357 | 3,874 | 6,557 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
2,276,392 | | 24,461 | 11,508 | 61,150 | 8,548,402 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238
29. | Related Parties and Others |
(a) | Related parties |
Related parties as of December 31, 2019 are as follows:
Classification |
Description | |
Subsidiaries(*) | LG Display America, Inc. and others | |
Associates(*) | Paju Electric Glass Co., Ltd. and others | |
Entity that has significant influence over the Company | LG Electronics Inc. | |
Subsidiaries of the entity that has significant influence over the Company | Subsidiaries of LG Electronics Inc. |
(*) | Details of subsidiaries and associates are described in Note 8. |
239
29. | Related Parties and Others, Continued |
(b) | Significant transactions such as sales of goods and purchases of raw material and outsourcing service and others, which occurred in the normal course of business with related parties for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | 2019 | |||||||||||||||||||||||
Sales and others |
Dividend income |
Purchase and others | ||||||||||||||||||||||
Purchase of raw material and others |
Acquisition of property, plant and equipment |
Outsourcing fees |
Other costs |
|||||||||||||||||||||
Subsidiaries |
||||||||||||||||||||||||
LG Display America, Inc. |
| | | | 6 | |||||||||||||||||||
LG Display Japan Co., Ltd. |
2,229,825 | | | | | 5 | ||||||||||||||||||
LG Display Germany GmbH |
1,676,418 | | | | | 4,452 | ||||||||||||||||||
LG Display Taiwan Co., Ltd. |
1,433,672 | | | | | 595 | ||||||||||||||||||
LG Display Nanjing Co., Ltd. |
9,791 | | 3,671 | | 1,423,501 | 28,206 | ||||||||||||||||||
LG Display Shanghai Co., Ltd. |
978,886 | | | | | | ||||||||||||||||||
LG Display Poland Sp. z o.o. |
47 | | | | 7,535 | 1,717 | ||||||||||||||||||
LG Display Guangzhou Co., Ltd. |
111,242 | | 11,987 | | 2,105,906 | 33,014 | ||||||||||||||||||
LG Display Shenzhen Co., Ltd. |
407,115 | | | | | | ||||||||||||||||||
LG Display Yantai Co., Ltd. |
2,156 | | 14,047 | | 1,250,772 | 11,175 | ||||||||||||||||||
LG Display (China) Co., Ltd. |
15 | 11,120 | 1,399,183 | | | 2,550 | ||||||||||||||||||
LG Display Singapore Pte. Ltd. |
1,133,923 | | | | | 1,305 | ||||||||||||||||||
L&T Display Technology (Fujian) Limited |
355,887 | | 2 | | | 1,119 | ||||||||||||||||||
Nanumnuri Co., Ltd. |
191 | | | | | 22,001 | ||||||||||||||||||
Global OLED Technology, LLC |
| | | | | 5,859 | ||||||||||||||||||
LG Display Guangzhou Trading Co., Ltd. |
1,181,187 | | | | | | ||||||||||||||||||
LG Display Vietnam Haiphong Co., Ltd. |
18,797 | | 122,807 | | 1,114,903 | 26,668 | ||||||||||||||||||
Suzhou Lehui Display Co., Ltd. |
158,065 | | 239 | | | | ||||||||||||||||||
LG Display High-Tech (China) Co., Ltd. |
40,951 | | 1,190 | | 41,612 | 182 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
11,120 | 1,553,126 | | 5,944,229 | 138,854 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
240
29. | Related Parties and Others, Continued |
(In millions of won) | 2019 | |||||||||||||||||||||||
Sales and Others |
Dividend income |
Purchase and others | ||||||||||||||||||||||
Purchase of raw material and others |
Acquisition of property, plant and equipment |
Outsourcing fees |
Other costs |
|||||||||||||||||||||
Associates and their subsidiaries |
||||||||||||||||||||||||
WooRee E&L Co., Ltd. |
| 27 | | | 5 | |||||||||||||||||||
INVENIA Co., Ltd.(*1) |
| 180 | 1,024 | 8,700 | | 297 | ||||||||||||||||||
AVATEC Co., Ltd. |
2,639 | 265 | | | 73,323 | 891 | ||||||||||||||||||
Paju Electric Glass Co., Ltd. |
| 6,057 | 342,958 | | | 4,416 | ||||||||||||||||||
YAS Co., Ltd. |
| 1,000 | 6,764 | 13,949 | | 3,655 | ||||||||||||||||||
Material Science Co., Ltd. |
| | 59 | | | 313 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
7,502 | 350,832 | 22,649 | 73,323 | 9,577 | ||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Entity that has significant influence over the Company |
||||||||||||||||||||||||
LG Electronics Inc. |
| 10,568 | 224,854 | | 138,789 |
241
29. | Related Parties and Others, Continued |
(In millions of won) | 2019 | |||||||||||||||||||||||
Sales and others |
Dividend income |
Purchase and others | ||||||||||||||||||||||
Purchase of raw material and others |
Acquisition of property, plant and equipment |
Outsourcing fees |
Other costs |
|||||||||||||||||||||
Subsidiaries of the entity that has significant influence over the Company |
||||||||||||||||||||||||
LG Electronics India Pvt. Ltd. |
| | | | 194 | |||||||||||||||||||
LG Electronics Vietnam Haiphong Co., Ltd. |
277,743 | | | | | 924 | ||||||||||||||||||
LG Electronics Reynosa S.A. DE C.V. |
| | | | | 1,155 | ||||||||||||||||||
LG Electronics S.A. (Pty) Ltd. |
2,384 | | | | | 21 | ||||||||||||||||||
LG Electronics Mexicalli, S.A. DE C.V. |
1,848 | | | | | 85 | ||||||||||||||||||
LG Electronics RUS, LLC |
770 | | | | | 1,698 | ||||||||||||||||||
LG Electronics Egypt S.A.E. |
97,359 | | | | | 241 | ||||||||||||||||||
LG Electronics (Kunshan) Computer Co., Ltd. |
385 | | | | | | ||||||||||||||||||
LG Innotek Co., Ltd. |
6,954 | | 34,194 | | | 79,155 | ||||||||||||||||||
LG Hitachi Water Solutions Co., Ltd.(*2) |
| | | 68,282 | | | ||||||||||||||||||
Inspur LG Digital Mobile Communications Co., Ltd. |
36,182 | | | | | | ||||||||||||||||||
Qingdao LG Inspur Digital Communication Co., Ltd. |
21,377 | | | | | | ||||||||||||||||||
Hi Entech Co., Ltd.(*2) |
47 | | | | | 21,576 | ||||||||||||||||||
Others |
41,662 | | | | | 12,155 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 34,194 | 68,282 | | 117,204 | ||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
18,622 | 1,948,720 | 315,785 | 6,017,552 | 404,424 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | Represents transactions occurred prior to the Companys disposal of the entire investments |
(*2) | Represents transactions occurred prior to LG Electronics Inc.s disposal of the entire investments |
242
29. | Related Parties and Others, Continued |
(In millions of won) | 2018 | |||||||||||||||||||||||
Purchase and others | ||||||||||||||||||||||||
Sales and others |
Dividend income |
Purchase of raw material and others |
Acquisition of property, plant and equipment |
Outsourcing fees |
Other costs | |||||||||||||||||||
Subsidiaries |
||||||||||||||||||||||||
LG Display America, Inc. |
| | | | 9 | |||||||||||||||||||
LG Display Japan Co., Ltd. |
2,413,437 | | | | | 2,158 | ||||||||||||||||||
LG Display Germany GmbH |
1,796,479 | | | | | 5,558 | ||||||||||||||||||
LG Display Taiwan Co., Ltd. |
1,488,447 | | | | | 568 | ||||||||||||||||||
LG Display Nanjing Co., Ltd. |
13,840 | | 6,037 | | 1,321,700 | 27,142 | ||||||||||||||||||
LG Display Shanghai Co., Ltd. |
963,865 | | | | | 52 | ||||||||||||||||||
LG Display Poland Sp. z o.o. |
329 | | | | 37,307 | 16 | ||||||||||||||||||
LG Display Guangzhou Co., Ltd. |
52,168 | | 14,043 | | 1,930,113 | 14,194 | ||||||||||||||||||
LG Display Shenzhen Co., Ltd. |
1,312,088 | | | | | 4 | ||||||||||||||||||
LG Display Yantai Co., Ltd. |
23,018 | | 25,759 | | 1,358,502 | 13,597 | ||||||||||||||||||
LG Display (China) Co., Ltd. |
328 | 90,281 | 1,409,953 | | | 1,253 | ||||||||||||||||||
LG Display Singapore Pte. Ltd. |
1,087,835 | | | | | 38 | ||||||||||||||||||
L&T Display Technology (Fujian) Limited |
392,318 | | | | 8 | 38 | ||||||||||||||||||
Nanumnuri Co., Ltd. |
180 | | | | | 21,356 | ||||||||||||||||||
Global OLED Technology, LLC |
| | | | | 6,007 | ||||||||||||||||||
LG Display Guangzhou Trading Co., Ltd. |
782,603 | | | | | | ||||||||||||||||||
LG Display Vietnam Haiphong Co., Ltd. |
39,639 | | 36,013 | | 830,170 | 6,175 | ||||||||||||||||||
Suzhou Lehui Display Co., Ltd. |
178,357 | | | | | | ||||||||||||||||||
LG Display High-Tech (China) Co., Ltd. |
12,434 | | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
90,281 | 1,491,805 | | 5,477,800 | 98,165 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
243
29. | Related Parties and Others, Continued |
(In millions of won) | 2018 | |||||||||||||||||||||||
Purchase and others | ||||||||||||||||||||||||
Sales and Others |
Dividend income |
Purchase of raw material and others |
Acquisition of property, plant and equipment |
Outsourcing fees |
Other costs | |||||||||||||||||||
Associates and their subsidiaries |
||||||||||||||||||||||||
WooRee E&L Co., Ltd. |
| 50 | | | 144 | |||||||||||||||||||
INVENIA Co., Ltd. |
| 30 | 1,608 | 28,657 | | 795 | ||||||||||||||||||
AVATEC Co., Ltd. |
| 530 | | | 71,403 | 905 | ||||||||||||||||||
Paju Electric Glass Co., Ltd. |
| 4,172 | 364,183 | | | 4,411 | ||||||||||||||||||
LB Gemini New Growth Fund No.16(*) |
1,112 | 540 | | | | | ||||||||||||||||||
YAS Co., Ltd. |
| | 5,281 | 25,422 | | 3,391 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
5,272 | 371,122 | 54,079 | 71,403 | 9,646 | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Entity that has significant influence over the Company |
||||||||||||||||||||||||
LG Electronics Inc. |
| 31,161 | 454,555 | | 107,861 |
244
29. | Related Parties and Others, Continued |
(In millions of won) | 2018 | |||||||||||||||||||||||
Purchase and others | ||||||||||||||||||||||||
Sales and others |
Dividend income |
Purchase of raw material and others |
Acquisition of property, plant and equipment |
Outsourcing fees |
Other costs | |||||||||||||||||||
Subsidiaries of the entity that has significant influence over the Company |
||||||||||||||||||||||||
LG Electronics India Pvt. Ltd. |
| | | | 103 | |||||||||||||||||||
LG Electronics Vietnam Haiphong Co., Ltd. |
173,051 | | | | | 166 | ||||||||||||||||||
LG Electronics Reynosa S.A. DE C.V. |
33,225 | | | | | 2,021 | ||||||||||||||||||
LG Electronics Almaty Kazakhstan |
3,759 | | | | | 42 | ||||||||||||||||||
LG Electronics S.A. (Pty) Ltd. |
7,244 | | | | | 20 | ||||||||||||||||||
LG Electronics Mexicalli, S.A. DE C.V. |
10,296 | | | | | 210 | ||||||||||||||||||
LG Electronics RUS, LLC |
2,201 | | | | | 1,862 | ||||||||||||||||||
LG Electronics Egypt S.A.E. |
25,491 | | | | | 16 | ||||||||||||||||||
LG Electronics (Kunshan) Computer Co., Ltd. |
4,804 | | | | | | ||||||||||||||||||
LG Innotek Co., Ltd. |
29,148 | | 137,949 | | | 38,930 | ||||||||||||||||||
LG Hitachi Water Solutions Co., Ltd. |
9,100 | | | 285,514 | | 8,980 | ||||||||||||||||||
Inspur LG Digital Mobile Communications Co., Ltd. |
69,769 | | | | | 1 | ||||||||||||||||||
Qingdao LG Inspur Digital Communication Co., Ltd. |
37,738 | | | | | | ||||||||||||||||||
HiEntech Co., Ltd. |
| | | | | 29,215 | ||||||||||||||||||
Others |
2,185 | | 27 | | | 9,498 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 137,976 | 285,514 | | 91,064 | ||||||||||||||||||||
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|
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|
|
|
|
|
|
|||||||||||||
95,553 | 2,032,064 | 794,148 | 5,549,203 | 306,736 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(*) | Represents transactions occurred prior to LG Electronics Inc.s disposal of the entire investments |
245
29. | Related Parties and Others, Continued |
(c) | Trade accounts and notes receivable and payable as of December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||||||||||
Trade accounts and notes receivable and others |
Trade accounts and notes payable and others |
|||||||||||||||
December 31, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | |||||||||||||
Subsidiaries |
||||||||||||||||
LG Display America, Inc. |
1,031,718 | | | |||||||||||||
LG Display Japan Co., Ltd. |
274,964 | 349,814 | 5 | 5 | ||||||||||||
LG Display Germany GmbH |
382,463 | 433,077 | 2,794 | 4,332 | ||||||||||||
LG Display Taiwan Co., Ltd. |
454,563 | 274,860 | 104 | 34 | ||||||||||||
LG Display Nanjing Co., Ltd. |
1,358 | 2,448 | 220,327 | 272,991 | ||||||||||||
LG Display Shanghai Co., Ltd. |
172,259 | 168,117 | 3 | 1 | ||||||||||||
LG Display Poland Sp. z o. o |
| 30 | | 6,849 | ||||||||||||
LG Display Guangzhou Co., Ltd. |
12,465 | 167,814 | 313,756 | 196,070 | ||||||||||||
LG Display Guangzhou Trading Co., Ltd. |
351,322 | 377,145 | | | ||||||||||||
LG Display Shenzhen Co., Ltd. |
116,494 | 32,759 | 2 | | ||||||||||||
LG Display Yantai Co., Ltd. |
| 115 | 149,715 | 382,448 | ||||||||||||
LG Display (China) Co., Ltd. |
22 | | 112,053 | 187,004 | ||||||||||||
LG Display Singapore Pte. Ltd. |
298,132 | 85,680 | 21 | 1 | ||||||||||||
L&T Display Technology (Fujian) Limited |
46,375 | 62,336 | 199,349 | 139,171 | ||||||||||||
Nanumnuri Co., Ltd. |
| | 3,866 | 2,065 | ||||||||||||
Global OLED Technology LLC |
| | | 1,146 | ||||||||||||
LG Display Vietnam Haiphong Co., Ltd. |
24,385 | 22,113 | 395,429 | 340,780 | ||||||||||||
Suzhou Lehui Display Co., Ltd. |
24,830 | 32,641 | 46 | | ||||||||||||
LG Display High-Tech (China) Co., Ltd. |
1,722 | 17,333 | 54,662 | 3,362 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
3,058,000 | 1,452,132 | 1,536,259 | ||||||||||||||
|
|
|
|
|
|
|
|
246
29. | Related Parties and Others, Continued |
(In millions of won) | ||||||||||||||||
Trade accounts and notes receivable and others |
Trade accounts and notes payable and others |
|||||||||||||||
December 31, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | |||||||||||||
Associates and their subsidiaries |
||||||||||||||||
WooRee E&L Co., Ltd. |
| 8 | 6 | |||||||||||||
INVENIA Co., Ltd. (*1) |
| 2,000 | | 1,671 | ||||||||||||
AVATEC Co., Ltd. |
| | 1,029 | 4,382 | ||||||||||||
Paju Electric Glass Co., Ltd. |
| | 62,853 | 60,566 | ||||||||||||
YAS Co., Ltd. |
| | 4,533 | 2,709 | ||||||||||||
Material Science Co., Ltd. |
| | 8 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
2,000 | 68,431 | 69,334 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Entity that has significant influence over the Company |
||||||||||||||||
LG Electronics Inc. |
247,134 | 110,784 | 99,574 |
247
29. | Related Parties and Others, Continued |
(In millions of won) | ||||||||||||||||
Trade accounts and notes receivable and others |
Trade accounts and notes payable and others |
|||||||||||||||
December 31, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | |||||||||||||
Subsidiaries of the entity that has significant influence over the Company |
||||||||||||||||
LG Innotek Co., Ltd. |
2,782 | 29,613 | 45,815 | |||||||||||||
LG Hitachi Water Solutions Co., Ltd. (*2) |
| 9,100 | | 47,463 | ||||||||||||
HiEntech Co., Ltd. (*2) |
| | | 4,782 | ||||||||||||
Inspur LG Digital Mobile Communications Co., Ltd |
| 6,137 | | | ||||||||||||
LG Electronics Reynosa S.A. DE C.V |
| 2,572 | 62 | 134 | ||||||||||||
LG Electronics India Pvt. Ltd. |
6,113 | 9,047 | | 29 | ||||||||||||
LG Electronics Vietnam Haiphong Co., Ltd. |
47,740 | 25,544 | 29 | | ||||||||||||
LG Electronics S.A. (Pty) Ltd. |
| 896 | | 5 | ||||||||||||
LG Electronics RUS, LLC |
| | 67 | | ||||||||||||
LG Electronics Egypt S.A.E |
9,432 | 10,296 | | | ||||||||||||
LG Electronics (Kunshan) Computer Co., Ltd. |
| 1,370 | | | ||||||||||||
Qingdao LG Inspur Digital Communication Co., Ltd. |
6,456 | 3,530 | | | ||||||||||||
Others |
12,757 | 3,340 | 1,768 | 1,275 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
74,614 | 31,539 | 99,503 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
3,381,748 | 1,662,886 | 1,804,670 | ||||||||||||||
|
|
|
|
|
|
|
|
(*1) | Excluded from related parties due to the Companys disposal of equity investments during the year ended December 31, 2019. |
(*2) | Excluded from related parties due to LG Electronics Inc.s disposal of the entire investments during the year ended December 31, 2019. |
248
29. | Related Parties and Others, Continued |
(d) | Details of significant cash transactions such as grant of loans and collection of loans, which occurred with related parties for the years ended December 31, 2019 and 2018 are as follows: |
(In millions of won) | ||||||||||||||||
Loans (*1) | ||||||||||||||||
Associates |
January 1, 2019 |
Increase | Decrease (*2) |
December 31, 2019 |
||||||||||||
INVENIA Co., Ltd. |
1,000 | (3,000 | ) | |
(*1) | Loans are presented based on nominal amounts. |
(*2) | Excluded from related parties due to disposal of equity investments during the year ended December 31, 2019. |
(In millions of won) | ||||||||||||||||
Loans (*) | ||||||||||||||||
Associates |
January 1, 2018 |
Increase | Decrease | December 31, 2018 |
||||||||||||
INVENIA Co., Ltd. |
| (375 | ) | 2,000 | ||||||||||||
YAS Co., Ltd. |
375 | | (375 | ) | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
| (750 | ) | 2,000 | |||||||||||||
|
|
|
|
|
|
|
|
(*) | Loans are presented based on nominal amounts. |
249
29. | Related Parties and Others, Continued |
(e) | Conglomerate Transactions |
Transactions, trade accounts and notes receivable and payable, and others between the Company and certain companies and their subsidiaries, which are included in LG Group, one of the conglomerates according to the Monopoly Regulation and Fair Trade Act for the years ended December 31, 2019 and 2018 are as follows. These entities are not related parties according to K-IFRS No. 1024, Related Party Disclosures.
(In millions of won) | ||||||||||||||||
For the year ended December 31, 2019 | December 31, 2019 | |||||||||||||||
Sales and others |
Purchase and others |
Trade accounts and notes receivable and others |
Trade accounts and notes payable and others |
|||||||||||||
LG International Corp. and its subsidiaries |
113,913 | 93,622 | 45,363 | |||||||||||||
LG Uplus Corp. |
| 2,352 | | 208 | ||||||||||||
LG Chem Ltd. and its subsidiaries |
149 | 594,264 | 23 | 53,428 | ||||||||||||
S&I Corp. and its subsidiaries (formerly, Serveone) |
867 | 360,023 | 21,307 | 85,312 | ||||||||||||
Silicon Works Co., Ltd. |
92 | 671,822 | | 88,355 | ||||||||||||
LG Corp. |
| 55,059 | 8,781 | | ||||||||||||
LG Management Development Institute |
| 8,606 | 3,480 | 231 | ||||||||||||
LG CNS Co., Ltd. and its subsidiaries |
| 166,820 | | 58,967 | ||||||||||||
LG Hausys Ltd. |
3 | 1 | | | ||||||||||||
G2R Inc. and its subsidiaries |
| 72,639 | | 29,540 | ||||||||||||
Robostar Co., Ltd. |
| 2,155 | | | ||||||||||||
Others(*) |
11 | 106,045 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
2,153,699 | 127,213 | 361,404 | ||||||||||||||
|
|
|
|
|
|
|
|
(*) | Due to S&I Corp.s disposal of partial investments in Serveone in May 2019, Serveone was reclassified from one of the S&I Corp.s subsidiaries to associates. Accordingly, transactions with S&I Corp. after the disposal are classified as others. In addition, due to LG Electronics Inc.s disposal of entire investments in HiEntech Co., Ltd. and its subsidiaries and LG Hitachi Water Solutions Co., Ltd. in September 2019, transactions after the disposal are presented as others. |
250
29. | Related Parties and Others, Continued |
(In millions of won) | ||||||||||||||||
For the year ended December 31, 2018 | December 31, 2018 | |||||||||||||||
Sales and others |
Purchase and others |
Trade accounts and notes receivable and others |
Trade accounts and notes payable and others |
|||||||||||||
LG International Corp. and its subsidiaries |
190,091 | 82,965 | 82,028 | |||||||||||||
LG Uplus Corp. |
21 | 1,739 | | 178 | ||||||||||||
LG Chem Ltd. and its subsidiaries |
1,648 | 776,031 | 14 | 93,274 | ||||||||||||
Serveone and its subsidiaries |
388 | 1,166,309 | 21,307 | 239,091 | ||||||||||||
Silicon Works Co., Ltd. |
| 713,093 | | 140,694 | ||||||||||||
LG Corp. |
| 54,434 | 11,246 | | ||||||||||||
LG Management Development Institute |
| 9,734 | 3,480 | 441 | ||||||||||||
LG CNS Co., Ltd. and its subsidiaries |
| 210,344 | | 72,694 | ||||||||||||
LG Hausys Ltd. |
1,111 | 4 | | 3 | ||||||||||||
G2R Inc. and its subsidiaries |
| 57,744 | | 19,773 | ||||||||||||
Robostar Co., Ltd. |
| 1,374 | | 530 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
3,180,897 | 119,012 | 648,706 | ||||||||||||||
|
|
|
|
|
|
|
|
251
29. | Related Parties and Others, Continued |
(f) | Key management personnel compensation |
Compensation costs of key management for the years ended December 31, 2019 and 2018 are as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Short-term benefits |
2,622 | |||||||
Expenses related to the defined benefit plan |
553 | 794 | ||||||
|
|
|
|
|||||
3,416 | ||||||||
|
|
|
|
Key management refers to the registered directors who have significant control and responsibilities over the Companys operations and business.
30. | Supplemental Cash Flow Information |
Supplemental cash flow information for the years ended December 31, 2019 and 2018 is as follows:
(In millions of won) | ||||||||
2019 | 2018 | |||||||
Non-cash investing and financing activities: |
||||||||
Changes in other accounts payable arising from the purchase of property, plant and equipment |
(725,744 | ) | ||||||
Changes in other receivable arising from the investments of dividends received from subsidiaries |
(177,509 | ) | (405,992 | ) | ||||
Recognition of right of use assets and lease liabilities |
3,874 | | ||||||
Capital contribution of property, plant and equipment in subsidiaries |
| 343,163 |
252
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LG Display Co., Ltd. | ||||||
(Registrant) | ||||||
Date: March 31, 2020 | By: | /s/ Heeyeon Kim | ||||
(Signature) | ||||||
Name: | Heeyeon Kim | |||||
Title: | Head of IR / Vice President |
253