2.0.0.10 true Summary of Significant Accounting Policies (Accumulated Other Comprehensive Income) 109 - Disclosure - Summary of Significant Accounting Policies true false true false 1 KRW ₩ true false false false us-gaap_AccumulatedOtherComprehensiveIncomeMember us-gaap_StatementEquityComponentsAxis xbrldi http://xbrl.org/2006/xbrldi us-gaap_AccumulatedOtherComprehensiveIncomeMember us-gaap_StatementEquityComponentsAxis explicitMember iso4217_KRW Standard http://www.xbrl.org/2003/iso4217 KRW iso4217 0 2 Summary of Significant Accounting Policies 2 us-gaap_SignificantAccountingPoliciesTextBlock us-gaap true na duration string No definition available. false false false false false false false false false false false false 1 false false false false 0 0 <div> <table style="BORDER-COLLAPSE: collapse" border="0" cellspacing="0" cellpadding="0" width="100%"> <tr> <td valign="top" width="4%" align="left">2.</td> <td valign="top" align="left">Summary of Significant Accounting Policies</td> </tr> </table> The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are summarized below. Principles of Consolidation The consolidated financial statements include the accounts of LG Display Co., Ltd. and its majority-owned subsidiaries. When the Company does not have a controlling financial interest in an entity, but has the ability to exercise significant influence over the entity, the affiliated entity is accounting for using the equity method. All significant intercompany transactions and balances with the consolidated subsidiaries have been eliminated upon consolidation. Noncontrolling Interest On January 1, 2009, the Company adopted an amendment to ASC 810 (Statement of Financial Accounting Standards (“SFAS”) 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51), which requires certain retrospective changes to the presentation of the financial statements. This amendment requires noncontrolling interests (previously referred to as “minority interest”) to be classified in the consolidated statements of income as part of consolidated net earnings and to include the accumulated amount of noncontrolling interests in the consolidated balance sheets as part of total equity. As of December 31, 2008 and 2009, the Company did not have any noncontrolling interests. The adoption of the amendment to ASC 810 did not have a material impact on the Company’s consolidated financial statements and accordingly, the Company did not retrospectively apply changes to the presentation of the comparative financial statements. Use of Estimates The preparation of financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. The most significant estimates and assumptions relate to the allowance for uncollectible accounts receivable, warranty obligations, recoverability of long-lived assets, valuation of inventories and deferred tax assets, assessments of tax uncertainties, assessment of pending and threatened litigation and other contingent liabilities, and the determination of fair value of financial instruments. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.   Foreign Currency Transactions and Translation The functional currency of the Controlling Company’s subsidiaries in Nanjing and Guangzhou, China is the Chinese Renminbi. The functional currency of the Controlling Company’s subsidiary in Poland is Zloty and that of the remaining foreign subsidiaries is the US dollar. The functional currency of the Controlling Company is the Korean Won. Transactions that are denominated in currencies other than the functional currency of the respective entity are re-measured into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using the applicable exchange rates at each balance sheet date. The resulting foreign currency transaction gains and losses are included as foreign exchange gain (loss), a component of other income (expense) in the consolidated statements of income. The Controlling Company’s reporting currency is the Korean Won. Asset and liabilities of foreign operations with a functional currency other than the Korean Won are translated into Korean Won using the exchange rates at each balance sheet date. Revenues and expenses are translated into Korean Won at average rates prevailing during the reporting period. The gains and losses, net of tax, resulting from translation into Korean Won are reported as a separate component of accumulated other comprehensive income (loss) within equity. Cash and Cash Equivalents Cash and cash equivalents include all cash balances and highly liquid investments, including time deposits and short-term financial instruments which are readily convertible into known amounts of cash and have an original maturity of three months or less. Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and our customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. From 2008, accounts receivable from certain customers are insured under accounts receivable insurance programs which cover 90 to 95 percent of the insured customers’ accounts receivable balance. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company has several accounts receivable selling programs with banks. The sale of the receivables is accounted for under ASC Topic 860, Transfers and Servicing (SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities). Under that guidance, receivables are considered sold when they are transferred beyond the reach of the Company and its creditors, the purchaser has the right to pledge or exchange the receivables, and the Company has surrendered control over the transferred receivables. (note 4).   In addition, the Controlling Company has agreements with banks and other financial institutions for accounts receivable negotiating facilities under which the Controlling Company sells accounts receivable due from its subsidiaries. The Company accounts for the sale of accounts receivable as short-term borrowings in the consolidated balance sheets (note 12) in accordance with ASC Topic 860. Inventories Inventories are valued at the lower of cost or market value, with cost being determined on a weighted-average cost basis, except for the cost of materials in transit which is determined by the specific identification method. Short-term Financial Instruments Short-term financial instruments primarily include certificate of deposits and time deposits placed with financial institutions which have an original maturity greater than three months but less than one year. Investment Securities The Company classifies its debt securities in one of three categories: trading, available-for-sale, or held-to-maturity and its equity securities that have readily determinable fair values into trading or available-for-sale. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity debt securities are those debt securities in which the Company has the ability and intent to hold the security until maturity. All securities not included in trading or held-to-maturity are classified as available-for-sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity debt securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of accumulated other comprehensive income until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific-identification basis. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed to be other-than-temporary results in an impairment to reduce the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an impairment is other-than-temporary, management considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year-end, forecasted performance of the investee, and the general market condition in the geographic area or industry the investee operates in.   Premiums and discounts are amortized or accreted over the life of the related held-to-maturity or available-for-sale security as an adjustment to yield using the effective-interest method. Such amortization and accretion is included in the “Interest Expense” line item in the consolidated statements of income. Dividend and interest income are recognized when earned. Property, Plant and Equipment Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the following estimated useful lives.   <table border="0" cellspacing="0" cellpadding="0" width="84%" align="center"> <tr> <td width="85%"></td> <td valign="bottom" width="4%"></td> <td></td> </tr> <tr> <td valign="top"> Buildings </td> <td valign="bottom">  </td> <td valign="bottom" align="right">20 ~ 40 years</td> </tr> <tr> <td valign="top"> Machinery, equipment and vehicles </td> <td valign="bottom">  </td> <td valign="bottom" align="right">4 ~ 12 years</td> </tr> <tr> <td valign="top"> Tools, furniture and fixtures </td> <td valign="bottom">  </td> <td valign="bottom" align="right">3 ~ 5 years</td> </tr> </table> Significant renewals and additions are capitalized at cost. Maintenance and repairs are charged to expense as incurred. The Company capitalizes interest on borrowings during the construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. Total interest expense incurred amounted to (Won)239,910 million, (Won)190,275 million and (Won)153,891 million for the years ended December 31, 2007, 2008 and 2009, respectively, of which approximately (Won)33,240 million, (Won)38,078 million and (Won)28,943 million, respectively, was capitalized. Intangible Assets Intangible assets, comprising intellectual property rights (including patents and technology related to the TFT-LCD production process and the like), privileges for industrial water facility, and purchased software, are stated at cost less accumulated amortization. Amortization is computed using the straight-line method over the following estimated useful lives.   <table border="0" cellspacing="0" cellpadding="0" width="84%" align="center"> <tr> <td width="87%"></td> <td valign="bottom" width="3%"></td> <td></td> </tr> <tr> <td valign="top"> Intellectual property rights </td> <td valign="bottom">  </td> <td valign="bottom" align="right">5 ~10 years</td> </tr> <tr> <td valign="top"> Privilege for industrial water facilities </td> <td valign="bottom">  </td> <td valign="bottom" align="right">10 years</td> </tr> <tr> <td valign="top"> Purchased software </td> <td valign="bottom">  </td> <td valign="bottom" align="right">4 years</td> </tr> <tr> <td valign="top"> Others </td> <td valign="bottom">  </td> <td valign="bottom" align="right">10 years</td> </tr> </table> Costs incurred during the application development stage related to the development of software for internal use are capitalized. Costs incurred related to the planning and post-implementation phases of development are expensed as incurred. Impairment of Long-Lived Assets Long-lived assets, such as property, plant and equipment, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, management first compares the undiscounted cash flows expected to be generated by that asset or asset group to its carrying value.   If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment loss is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Stock Appreciation Plan The Company’s employee stock-based compensation awards are recognized as an expense in the financial statements and such costs are measured at the fair value of the awards. The Company determines the fair value of the award using the Black-Scholes option-pricing model. Accrued Severance Benefits Employees and directors with at least one year or more of service are entitled to receive a lump-sum payment upon termination of their employment with the Company, based on their length of service and rate of pay at the time of termination. Accrued severance benefits are estimated assuming all eligible employees were to terminate their employment at the balance sheet date. The annual severance benefits expense charged to operations is calculated based on the net change in the accrued severance benefits payable at the balance sheet date, plus the actual payments made during the year. The contributions to the national pension fund made under the National Pension Plan and the severance insurance deposit are deducted from accrued severance benefit liabilities. Contributed amounts are refunded from the National Pension Plan and the insurance company to employees on their retirement. Revenue Recognition Revenues from the sale of the Company’s products are recognized when : i) persuasive evidence of an arrangement exists, ii) delivery has occurred to the customers, iii) the sales price to the customer is fixed or determinable, and iv) collectibility of relevant receivable is reasonably assured. The Company generally enters into long-term formal master sales agreements with its significant customers. The Company records reductions to revenue for expected future product returns based on the Company’s historical experience. Transfer of title and risk of ownership of the Company’s product generally occurs on delivery and acceptance at the customers’ premises, at which point revenue is recognized. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the consolidated statements of income. Research and Development Costs Certain costs incurred in connection with the purchase of equipment and facilities used in the Company’s research and development activities are capitalized into property, plant and equipment, to the extent that they have alternative future uses. All other research and development costs are expensed as incurred. The Company has expensed (Won)415,081 million, (Won)501,551 million and (Won)775,701 million during the years ended December 31, 2007, 2008 and 2009, respectively, for research and development costs which are included in cost of sales and selling, general and administrative expenses. These research and development expenses included depreciation cost of equipment and facilities used specifically for research and development activities amounting to (Won)19,539 million, (Won)19,503 million and (Won)19,598 million for the years ended December 31, 2007, 2008 and 2009, respectively. Shipping and Handling Costs The Company includes shipping and handling costs in selling, general and administrative expenses. Shipping and handling costs for the years ended December 31, 2007, 2008 and 2009, amounted to (Won)194,081 million, (Won)209,665 million and (Won)350,352 million, respectively. Advertising Costs Advertising costs are expensed as incurred. Advertising expenses for the years ended December 31, 2007, 2008 and 2009 amounted to (Won)30,433 million, (Won)48,964 million and (Won)59,545 million, respectively. Income Taxes The Company recognizes deferred tax assets and liabilities related to temporary differences between the financial statement and tax bases of assets and liabilities, as well as net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are computed on such temporary differences by applying enacted statutory tax rates applicable to the years when such differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided on deferred tax assets to the extent that it is more likely than not that such deferred tax assets will not be realized. In assessing the likelihood of realization, management considers all currently available evidence for future years, both positive and negative. The total income tax provision includes current tax expenses under applicable tax regulations and the change in the balance of deferred tax assets and liabilities. Investment tax credits are accounted for by the flow-through method whereby they reduce income taxes in the period the assets giving rise to such credits are placed in service. To the extent such credits are not currently utilized, deferred tax assets, subject to considerations regarding the need for a valuation allowance, are recognized for the amount carried forward. The Company adopted ASC Subtopic 740-10 – Income Taxes—Overall (FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes), on January 1, 2007. That guidance clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and provides guidance on the recognition, de-recognition and measurement of benefits related to an entity’s uncertain income tax positions. The initial adoption of ASC Subtopic 740-10 did not have any impact on the Company’s consolidated financial statements. The Company recognizes accrued interest on the underpayment of income taxes as a component of interest expense and penalties associated with tax liabilities as a component of income tax expense.   Derivative Financial Instruments All derivative financial instruments are recognized as either assets or liabilities in the balance sheet at their fair value. At the time management designates a hedging relationship, it defines the method it will use to assess the hedge’s effectiveness in achieving offsetting cash flows attributable to the risk being hedged. Management formally documents all hedging relationships between the derivatives designated as hedges and hedged items, as well as its risk management objectives and strategies for undertaking various hedging activities. The Company links all hedges that are designated as cash flow hedges to the specific forecasted transactions. Management also assesses, both at the inception of the hedge and on an on-going basis, whether the derivatives designated as hedges are highly effective in offsetting changes cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge, the Company discontinues hedge accounting with the effect recorded in earnings. The derivatives designated as cash flow hedges include foreign exchange forward contracts, which are used for reducing the risk arising from the changes in anticipated foreign currency cash flows from forecasted transactions. Changes in the fair value of derivatives designated and effective as cash flow hedges for forecasted transactions are initially recorded in accumulated other comprehensive income and reclassified into earnings when the hedged transactions affect earnings. Changes in the fair value of the ineffective portion are recognized in current period earnings. The derivatives designated for trading comprise cross-currency swap contracts, foreign exchange forward contracts, interest rate swap contracts and currency option contracts. Such contracts are marked-to-market with changes in value, including premiums paid or received, recognized in other income (expense) as foreign exchange gain (loss) except interest rate swap contracts which are recognized as interest expense. On January 1, 2009 the Company adopted the provisions of ASC Subtopic 815-10, Derivatives and Hedging – Overall (SFAS 161, Disclosures about Derivative Instruments and Hedging Activities), which amends the disclosure requirements for derivative instruments and hedging activities. The amended disclosures require entities to provide information to enable users of the financial statements to understand how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under ASC Topic 815, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. (note 8) Deferred Bond Issuance Costs Costs that are directly related to the issuance of bonds are capitalized and amortized over the term of the debt using the effective interest rate method.   Accrued Warranty Obligations 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 eighteen months from the date of purchase. These liabilities are accrued when product revenues are recognized. Warranty costs primarily include raw materials and labor costs. Factors that affect the Company’s warranty liability include historical and anticipated rate of warranty claims on those repairs and cost per claim to satisfy the Company’s warranty obligation. 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 other current liabilities and other non-current liabilities. Commitments and Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and 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. Legal costs incurred in connection with loss contingencies are expensed as incurred. Fair Value Measurements On January 1, 2008, the Company adopted the provisions of ASC Topic 820, Fair Value Measurements and Disclosures (SFAS 157, Fair Value Measurements) for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements. See note 5 to the Company’s consolidated financial statements. The Company has no non-financial assets and liabilities that are required to be measured at fair value on a recurring basis during 2009. Fair Value Option Effective January 1, 2008, the Fair Value Option provisions of the Subsections of ASC Subtopic 825-10, Financial Instruments – Overall (SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities), permits the Company to elect to use fair value to measure eligible items at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. During 2008, the Company did not elect to use the Fair Value Option. During 2009, the Company elected to use the Fair Value Option for certain eligible financial assets (See note 20 for the impact of adopting fair value option provisions on the Company’s financial position and results of operations).   Financial Reporting after 2009 The Company has decided to report its financial statements using International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board after December 31, 2009 and the Company will discontinue the use of U.S. GAAP financial reporting. Consequently, the Company’s 2009 consolidated financial statements under IFRS may be materially different than the accompanying 2009 U.S. GAAP consolidated financial statements.   </div> false false false false This element may be used to describe all significant accounting policies of the reporting entity. 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