LG Display (LPL)

14 Cost of Sales

Details of cost of sales for the nine-month periods ended September 30, 2009 and 2008 are as follows:

Cost of Sales

Cost of sales increased by 10.7% from (Won)10,910.3 billion in 2006 to (Won)12,072.3 billion in 2007. However, as a percentage of sales, cost of sales decreased from 102.7% in 2006 to 84.1% in 2007. The increase in our cost of sales in 2007 was attributable primarily to:

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As a percentage of our total cost of sales, raw material costs increased slightly from 2006 to 2007, whereas depreciation expenses decreased slightly over the same period.

Cost of sales per panel, which is derived by dividing total cost of sales by total number of panels sold, decreased by 34.5% from (Won)88,280 per panel in 2006 to (Won)57,820 in 2007 due primarily to decreases in cost of raw materials, improved production efficiency, and decreases in fixed costs as a percentage of sales due to increase in sales. Cost of sales per square meter of net display area, which is derived by dividing total cost of sales by total square meters of net display area shipped, decreased by 31.6% from US$1,627 per square meter of net display area in 2006 to US$1,113 in 2007. In 2007, we continued to improve production efficiency at our fabs, produce color filters in-house and reduce common components and processing steps in the manufacturing process.

Cost of Sales

Cost of sales increased by 20.3% from (Won)9,069.8 billion in 2005 to (Won)10,910.3 billion in 2006. As a percentage of sales, cost of sales increased from 90.0% in 2005 to 102.7% in 2006. The increase in our cost of sales in 2006 was attributable primarily to increases in:

As a percentage of our total cost of sales, raw material costs, depreciation expenses, overhead costs and labor costs all increased slightly from 2005 to 2006.

Cost of sales per panel, which is derived by dividing total cost of sales by total number of panels sold, decreased by 3.8% from (Won)91,780 per panel in 2005 to (Won)88,280 in 2006 reflecting our ongoing cost reduction efforts, particularly in managing raw material costs by procuring raw materials on a large scale at favorable prices from strategic suppliers and increases in unit sales of other small and medium-sized application products, which are generally less costly to produce than panels in our other product categories. Cost of sales per square meter of net display area, which is derived by dividing total cost of sales by total square meters of net display area shipped, decreased by 14.6% from US$1,904 per square meter of net display area in 2005 to US$1,627 in 2006. In 2006, we continued to improve production efficiency at our fabs, produce color filters in-house and reduce common components and processing steps in the manufacturing process.

Cost of Sales

Cost of sales increased by 45.2% from (Won)6,246.2 billion in 2004 to (Won)9,069.8 billion in 2005. As a percentage of sales, cost of sales increased from 75.0% in 2004 to 90.0% in 2005. The increase in our cost of sales in 2005 was attributable primarily to increases in:

As a percentage of our total cost of sales, raw material costs decreased slightly from 2004 to 2005, as labor costs decreased slightly but depreciation expenses increased slightly, from 2004 to 2005.

Cost of sales per panel decreased by 23.2% from (Won)119,552 in 2004 to (Won)91,780 in 2005 reflecting our ongoing cost reduction efforts, particularly in managing raw material costs by procuring raw materials on a large scale at favorable prices from strategic suppliers and significant increases in unit sales of other small-sized application products, which are generally less costly to produce than panels in our other product categories. In 2005, we continued to improve production efficiency at our fabs, produce color filters in-house and reduce common components and processing steps in the manufacturing process.

Cost of Sales

Cost of sales increased by 31.7% from (Won)4,741.6 billion in 2003 to (Won)6,246.2 billion in 2004. As a percentage of sales, however, cost of sales decreased from 77.8% in 2003 to 75.0% in 2004. The increase in our cost of sales in 2004 was attributable primarily to increases in:

As a percentage of our total cost of sales, raw material costs increased from 2003 to 2004 while depreciation expenses decreased and labor costs remained constant from 2003 to 2004.

Cost of sales per panel decreased by 32.1% from (Won)175,965 in 2003 to (Won)119,552 in 2004 reflecting our ongoing cost reduction efforts, particularly in managing raw material costs by procuring raw materials on a large scale at favorable prices from strategic suppliers, as well as a shift in product mix to larger-size panels. In 2004, we continued to improve production efficiency at our fabs, produce color filters in-house and reduce common components and processing steps in the manufacturing process.

Cost of Sales

Cost of sales increased by 51.1% from (Won)3,139.0 billion in 2002 to (Won)4,741.6 billion in 2003. As a percentage of sales, however, cost of sales decreased from 88.0% in 2002 to 77.8% in 2003. The increase in our cost of sales in 2004 was attributable primarily to increases in:

As a percentage of our total cost of sales, raw material costs and labor costs increased from 2002 to 2003 while depreciation expenses decreased significantly over the same period.

Cost of sales per panel decreased by 36.8% from (Won)278,289 in 2002 to (Won)175,965 in 2003, reflecting our ongoing cost reduction efforts, particularly in managing raw material costs, as well as a change in product mix. We have significantly increased our production output, thereby enabling economies of scale. In 2003, we continued to improve production yields at our fabs, produce color filters in-house and reduce common components and processing steps in the manufacturing process. In addition, our strategic relationships with our raw material suppliers enabled us to procure raw materials on a large scale at favorable prices, which resulted in lower raw material costs per unit compared to 2002.