EX-99.2

EX-99.2 3 d638270dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

Chunghwa Telecom Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the

Nine Months Ended September 30, 2018 and 2017 and

Independent Auditors’ Review Report

INDEPENDENT AUDITORS’ REVIEW REPORT

The Board of Directors and Stockholders

Chunghwa Telecom Co., Ltd.

Introduction

We have reviewed the accompanying consolidated balance sheets of Chunghwa Telecom Co., Ltd. and its subsidiaries (the “Company”) as of September 30, 2018 and 2017, the related consolidated statements of comprehensive income for the three months ended September 30, 2018 and 2017 and for the nine months ended September 30, 2018 and 2017, the consolidated statements of changes in equity and cash flows for the nine months then ended, and the related notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “consolidated financial statements”). Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Our responsibility is to express a conclusion on the consolidated financial statements based on our reviews.

Scope of Review

We conducted our reviews in accordance with Statement of Auditing Standards No. 65 “Review of Financial Information Performed by the Independent Auditor of the Entity”. A review of consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our reviews, nothing has come to our attention that caused us to believe that the accompanying consolidated financial statements do not present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2018 and 2017, its consolidated financial performance for the three months ended September 30, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the nine months ended September 30, 2018 and 2017 in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

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The engagement partners on the reviews resulting in this independent auditors’ review report are Mr. Hung Peng Lin and Mr. Ching Pin Shih.


/s/ DELOITTE & TOUCHE

Deloitte & Touche
Taipei, Taiwan
Republic of China
November 6, 2018

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such consolidated financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ review report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ review report and consolidated financial statements shall prevail.

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CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)


	September 30, 2018 (Reviewed)				December 31, 2017 (Audited)			September 30, 2017 (Reviewed)
ASSETS		Amount		%		Amount	%		Amount	%

CURRENT ASSETS
Cash and cash equivalents (Note 6)	$	20,325,004		5	$	28,824,935	7	$	25,466,108	6
Financial assets at fair value through profit or loss (Notes 3, 5 and 7)		195,682		—		—	—		1,878	—
Hedging derivative financial assets (Notes 3, 5 and 21)		—		—		—	—		537	—
Hedging financial assets (Notes 3, 5 and 21)		367		—		—	—		—	—
Contract assets (Notes 3, 5 and 30)		5,078,820		1		—	—		—	—
Trade notes and accounts receivable, net (Notes 3, 4, 5, 10 and 30)		29,221,409		6		31,941,094	7		29,833,115	7
Receivables from related parties (Note 39)		31,067		—		49,367	—		41,012	—
Inventories (Notes 5, 11 and 40)		14,012,185		3		8,839,615	2		9,041,373	2
Prepayments (Notes 5, 12 and 39)		5,069,493		1		2,188,173	—		5,142,945	1
Other current monetary assets (Note 13)		6,359,264		1		5,308,060	1		5,446,951	1
Other current assets (Notes 5, 20 and 40)		3,055,785		1		2,182,758	—		2,744,782	1

Total current assets		83,349,076		18		79,334,002	17		77,718,701	18

NONCURRENT ASSETS
Financial assets at fair value through other comprehensive income (Notes 3, 4, 5 and 8)		6,999,165		1		—	—		—	—
Available-for-sale financial assets (Notes 3, 5 and 9)		—		—		3,125,086	1		3,036,199	1
Financial assets carried at cost (Notes 3, 5 and 14)		—		—		2,625,785	1		2,237,376	—
Investments accounted for using equity method (Note 16)		2,660,106		1		2,546,374	—		2,553,947	1
Contract assets (Notes 3, 5 and 30)		2,313,689		1		—	—		—	—
Property, plant and equipment (Notes 17, 39 and 40)		286,885,678		63		288,707,910	64		283,501,050	65
Investment properties (Note 18)		8,037,836		2		8,047,793	2		8,094,492	2
Intangible assets (Note 19)		51,753,224		11		54,883,268	12		44,792,194	10
Deferred income tax assets (Note 3)		3,284,365		1		2,730,093	1		2,373,000	1
Incremental costs of obtaining contracts (Notes 3, 5 and 30)		1,587,709		—		—	—		—	—
Net defined benefit assets (Notes 3 and 28)		1,069,336		—		12,979	—		958,400	—
Prepayments (Notes 12 and 39)		3,286,667		1		3,573,345	1		3,614,264	1
Other noncurrent assets (Notes 20 and 40)		5,234,262		1		5,536,487	1		6,047,244	1

Total noncurrent assets		373,112,037		82		371,789,120	83		357,208,166	82

TOTAL	$	456,461,113		100	$	451,123,122	100	$	434,926,867	100

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Short-term loans (Notes 22 and 40)	$	120,000		—	$	70,000	—	$	423,000	—
Financial liabilities at fair value through profit or loss (Notes 3, 5 and 7)		619		—		578	—		—	—
Hedging derivative financial liabilities (Notes 3, 5 and 21)		—		—		850	—		—	—
Contract liabilities (Notes 3, 5, 27 and 30)		10,392,850		2		—	—		—	—
Trade notes and accounts payable (Note 24)		20,546,011		5		19,395,889	4		17,643,423	4
Payables to related parties (Note 39)		543,919		—		684,185	—		586,248	—
Current tax liabilities (Notes 3 and 5)		6,618,229		1		4,725,698	1		2,891,477	1
Other payables (Note 25)		20,888,337		5		25,001,401	6		20,331,708	5
Provisions (Notes 5 and 26)		104,880		—		188,744	—		146,151	—
Advance receipts (Notes 3, 5 and 27)		—		—		8,841,858	2		9,171,362	2
Current portion of long-term loans (Notes 23 and 40)		—		—		—	—		1,600,000	—
Other current liabilities (Note 5)		1,321,764		—		1,081,156	—		1,213,486	—

Total current liabilities		60,536,609		13		59,990,359	13		54,006,855	12

NONCURRENT LIABILITIES
Contract liabilities (Notes 3, 5, 27 and 30)		2,559,789		1		—	—		—	—
Long-term loans (Notes 23 and 40)		1,600,000		—		1,600,000	—		—	—
Deferred income tax liabilities (Notes 3 and 5)		2,010,974		—		1,429,592	—		1,446,192	—
Provisions (Note 26)		74,670		—		78,513	—		68,251	—
Customers’ deposits (Note 39)		4,664,558		1		4,671,441	1		4,548,472	1
Net defined benefit liabilities (Notes 3 and 28)		2,086,269		1		2,703,569	1		1,566,566	—
Deferred revenue (Notes 3 and 5)		—		—		3,612,391	1		3,611,569	1
Other noncurrent liabilities (Note 5)		4,538,863		1		3,457,677	1		3,547,716	1

Total noncurrent liabilities		17,535,123		4		17,553,183	4		14,788,766	3

Total liabilities		78,071,732		17		77,543,542	17		68,795,621	15

EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE PARENT (Notes 5, 15 and 29)
Common stocks		77,574,465		17		77,574,465	17		77,574,465	18

Additional paid-in capital		171,138,234		37		169,466,883	38		169,446,456	39

Retained earnings
Legal reserve		77,574,465		17		77,574,465	17		77,574,465	18
Special reserve		2,675,419		1		2,680,823	1		2,680,823	1
Unappropriated earnings		39,695,528		9		37,202,683	8		30,192,271	7

Total retained earnings		119,945,412		27		117,457,971	26		110,447,559	26

Other adjustments		(55,834	)	—		382,666	—		350,310	—

Total equity attributable to stockholders of the parent		368,602,277		81		364,881,985	81		357,818,790	83
NONCONTROLLING INTERESTS (Notes 5, 15 and 29)		9,787,104		2		8,697,595	2		8,312,456	2

Total equity		378,389,381		83		373,579,580	83		366,131,246	85

TOTAL	$	456,461,113		100	$	451,123,122	100	$	434,926,867	100

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

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CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

(Reviewed, Not Audited)


	Three Months Ended September 30										Nine Months Ended September 30
	2018					2017					2018						2017
	Amount			%		Amount			%		Amount			%			Amount			%
REVENUES (Notes 3, 5, 30, 39 and 44)	$	52,704,885			100	$	56,424,903			100	$	159,995,602			100		$	166,629,444			100
OPERATING COSTS (Notes 3, 5, 11, 28, 31, 39 and 44)		34,431,469			65		35,655,368			63		102,074,274			64			105,354,095			63

GROSS PROFIT		18,273,416			35		20,769,535			37		57,921,328			36			61,275,349			37

OPERATING EXPENSES (Notes 3, 5, 28, 31, 39 and 44)
Marketing		5,652,316			11		6,269,260			11		17,260,741			11			18,704,753			11
General and administrative		1,088,377			2		1,121,105			2		3,447,813			2			3,442,742			2
Research and development		951,424			2		945,763			2		2,786,269			1			2,825,042			2
Expected credit loss		155,816			—		—			—		923,781			1			—			—

Total operating expenses		7,847,933			15		8,336,128			15		24,418,604			15			24,972,537			15

OTHER INCOME AND EXPENSES (Notes 19 and 31)		(8,753	)		—		(16,875	)		—		(89,253	)		—			(33,620	)		—

INCOME FROM OPERATIONS		10,416,730			20		12,416,532			22		33,413,471			21			36,269,192			22

NON-OPERATING INCOME AND EXPENSES
Interest income		46,722			—		51,692			—		144,378			—			158,658			—
Other income (Notes 8, 31 and 39)		267,542			1		130,052			—		625,170			—			634,303			—
Other gains and losses (Notes 31 and 39)		(3,771	)		—		(84,962	)		—		(24,569	)		—			(84,984	)		—
Interest expenses		(4,508	)		—		(5,617	)		—		(13,212	)		—			(16,384	)		—
Share of profits of associates and joint ventures accounted for using equity method (Note 16)		137,856			—		74,687			—		329,528			—			294,307			—

Total non-operating income and expenses		443,841			1		165,852			—		1,061,295			—			985,900			—

INCOME BEFORE INCOME TAX		10,860,571			21		12,582,384			22		34,474,766			21			37,255,092			22
INCOME TAX EXPENSE (Notes 3, 5 and 32)		2,138,295			4		2,083,099			4		6,691,601			4			6,134,236			4

NET INCOME		8,722,276			17		10,499,285			18		27,783,165			17			31,120,856			18

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
Items that will not be reclassified to profit or loss:
Unrealized gain or loss on investments in equity instruments at fair value through other comprehensive income (Note 3)		(137,447	)		—		—			—		(824,632	)		(1	)		—			—

(Continued)

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CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

(Reviewed, Not Audited)


	Three Months Ended September 30										Nine Months Ended September 30
	2018					2017					2018						2017
	Amount			%		Amount			%		Amount			%			Amount			%
Gain or loss on hedging instruments subject to basis adjustment (Notes 3 and 21)	$	667			—	$	—			—	$	1,217			—		$	—			—
Income tax benefit relating to items that will not be reclassified to profit or loss (Note 32)		—			—		—			—		207,269			—			—			—

		(136,780	)		—		—			—		(616,146	)		(1	)		—			—

Items that may be reclassified subsequently to profit or loss:
Exchange differences arising from the translation of the foreign operations		(15,591	)		—		9,810			—		50,761			—			(175,207	)		—
Unrealized gain or loss on available-for-sale financial assets (Note 31)		—			—		544,383			1		—			—			515,172			—
Cash flow hedges (Notes 21 and 31)		—			—		(521	)		—		—			—			1,124			—
Share of exchange differences arising from the translation of the foreign operations of associates and joint ventures (Note 16)		2,263			—		(132	)		—		4,522			—			(3,175	)		—
Income tax benefit relating to items that may be reclassified subsequently to profit or loss (Note 32)		—			—		224			—		—			—			2,053			—

		(13,328	)		—		553,764			1		55,283			—			339,967			—

Total other comprehensive income (loss), net of income tax		(150,108	)		—		553,764			1		(560,863	)		(1	)		339,967			—

TOTAL COMPREHENSIVE INCOME	$	8,572,168			17	$	11,053,049			19	$	27,222,302			16		$	31,460,823			18

NET INCOME ATTRIBUTABLE TO
Stockholders of the parent	$	8,504,207			17	$	10,153,411			18	$	27,093,228			17		$	30,191,883			18
Noncontrolling interests		218,069			—		345,874			—		689,937			—			928,973			—

	$	8,722,276			17	$	10,499,285			18	$	27,783,165			17		$	31,120,856			18

COMPREHENSIVE INCOME ATTRIBUTABLE TO
Stockholders of the parent	$	8,368,866			17	$	10,701,734			19	$	26,535,177			16		$	30,547,597			18
Noncontrolling interests		203,302			—		351,315			—		687,125			—			913,226			—

	$	8,572,168			17	$	11,053,049			19	$	27,222,302			16		$	31,460,823			18

EARNINGS PER SHARE (Notes 5 and 33)
Basic	$	1.10				$	1.31				$	3.49					$	3.89

Diluted	$	1.10				$	1.31				$	3.49					$	3.89


The accompanying notes are an integral part of the consolidated financial statements.		(Concluded)

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CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)


	Equity Attributable to Stockholders of the Parent (Notes 15, 21 and 29)
												Other Adjustments
					Retained Earnings							Exchange Differences Arising from the Translation			Unrealized Gain or Loss on Available-			Unrealized Gain or Loss on Financial Assets at Fair Value Through					Gain or						Noncontrolling
	Common Stocks		Additional Paid-in Capital		Legal Reserve		Special Reserve		Unappropriated Earnings			of the Foreign Operations			for-sale Financial Assets			Other Comprehensive Income		Cash Flow Hedges			Loss on Hedging Instruments			Total			Interests (Notes 15 and 29)			Total Equity
BALANCE, JANUARY 1, 2017	$	77,574,465	$	168,542,486	$	77,574,465	$	2,675,419	$	38,342,317		$	46,068		$	(50,885	)	$	—	$	(587	)	$	—		$	364,703,748		$	6,495,922		$	371,199,670
Appropriation of 2016 earnings
Provision for special reserve		—		—		—		5,404		(5,404	)		—			—			—		—			—			—			—			—
Cash dividends distributed by Chunghwa		—		—		—		—		(38,336,525	)		—			—			—		—			—			(38,336,525	)		—			(38,336,525	)
Cash dividends distributed by subsidiaries		—		—		—		—		—			—			—			—		—			—			—			(942,482	)		(942,482	)
Change in additional paid-in capital from investments in associates and joint ventures accounted for using equity method		—		12,523		—		—		—			—			—			—		—			—			12,523			1,916			14,439
Partial disposal of interests in subsidiaries		—		76,714		—		—		—			—			—			—		—			—			76,714			29,217			105,931
Change in additional paid-in capital for not participating in the capital increase of subsidiaries		—		803,342		—		—		—			—			—			—		—			—			803,342			1,753,711			2,557,053
Net income for the nine months ended September 30, 2017		—		—		—		—		30,191,883			—			—			—		—			—			30,191,883			928,973			31,120,856
Other comprehensive income (loss) for the nine months ended September 30, 2017		—		—		—		—		—			(163,736	)		518,326			—		1,124			—			355,714			(15,747	)		339,967

Total comprehensive income (loss) for the nine months ended September 30, 2017		—		—		—		—		30,191,883			(163,736	)		518,326			—		1,124			—			30,547,597			913,226			31,460,823

Share-based payment transactions of subsidiaries		—		2,074		—		—		—			—			—			—		—			—			2,074			15,825			17,899
Net increase in noncontrolling interests		—		9,317		—		—		—			—			—			—		—			—			9,317			45,121			54,438

BALANCE, SEPTEMBER 30, 2017	$	77,574,465	$	169,446,456	$	77,574,465	$	2,680,823	$	30,192,271		$	(117,668	)	$	467,441		$	—	$	537		$	—		$	357,818,790		$	8,312,456		$	366,131,246

BALANCE, JANUARY 1, 2018	$	77,574,465	$	169,466,883	$	77,574,465	$	2,680,823	$	37,202,683		$	(174,593	)	$	558,109		$	—	$	(850	)	$	—		$	364,881,985		$	8,697,595		$	373,579,580
Effect of retrospective application (Note 5)		—		—		—		—		12,393,167			—			(558,109	)		883,420		850			(850	)		12,718,478			(3,945	)		12,714,533

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	Equity Attributable to Stockholders of the Parent (Notes 15, 21 and 29)
													Other Adjustments
					Retained Earnings								Exchange Differences Arising from the Translation			Unrealized Gain or Loss on Available-		Unrealized Gain or Loss on Financial Assets at Fair Value Through					Gain or						Noncontrolling
	Common Stocks		Additional Paid-in Capital		Legal Reserve		Special Reserve			Unappropriated Earnings			of the Foreign Operations			for-sale Financial Assets		Other Comprehensive Income			Cash Flow Hedges		Loss on Hedging Instruments			Total			Interests (Notes 15 and 29)			Total Equity
BALANCE, JANUARY 1, 2018 AS ADJUSTED		77,574,465		169,466,883		77,574,465		2,680,823			49,595,850			(174,593	)		—		883,420			—		(850	)		377,600,463			8,693,650			386,294,113
Appropriation of 2017 earnings
Reversal of special reserve		—		—		—		(5,404	)		5,404			—			—		—			—		—			—			—			—
Cash dividends distributed by Chunghwa		—		—		—		—			(37,204,714	)		—			—		—			—		—			(37,204,714	)		—			(37,204,714	)
Cash dividends distributed by subsidiaries		—		—		—		—			—			—			—		—			—		—			—			(958,446	)		(958,446	)
Unclaimed dividend		—		2,481		—		—			—			—			—		—			—		—			2,481			—			2,481
Change in additional paid-in capital from investments in associates and joint ventures accounted for using equity method		—		1		—		—			—			—			—		—			—		—			1			203			204
Partial disposal of interests in subsidiaries		—		826,047		—		—			—			—			—		—			—		—			826,047			348,353			1,174,400
Change in additional paid-in capital for not participating in the capital increase of subsidiaries		—		776,781		—		—			—			—			—		—			—		—			776,781			699,899			1,476,680
Net income for the nine months ended September 30, 2018		—		—		—		—			27,093,228			—			—		—			—		—			27,093,228			689,937			27,783,165
Other comprehensive income (loss) for the nine months ended September 30, 2018		—		—		—		—			205,760			61,411			—		(826,439	)		—		1,217			(558,051	)		(2,812	)		(560,863	)

Total comprehensive income (loss) for the nine months ended September 30, 2018		—		—		—		—			27,298,988			61,411			—		(826,439	)		—		1,217			26,535,177			687,125			27,222,302

Share-based payment transactions of subsidiaries		—		12,119		—		—			—			—			—		—			—		—			12,119			38,120			50,239
Net increase in noncontrolling interests		—		53,922		—		—			—			—			—		—			—		—			53,922			278,200			332,122

BALANCE, SEPTEMBER 30, 2018	$	77,574,465	$	171,138,234	$	77,574,465	$	2,675,419		$	39,695,528		$	(113,182	)	$	—	$	56,981		$	—	$	367		$	368,602,277		$	9,787,104		$	378,389,381

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

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CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)


	Nine Months Ended September 30
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax	$	34,474,766		$	37,255,092
Adjustments for:
Depreciation		20,613,767			21,224,411
Amortization		3,282,482			2,687,735
Amortization of incremental costs of obtaining contracts		1,519,228			—
Expected credit loss		923,781			—
Provision for doubtful accounts		—			461,764
Interest expenses		13,212			16,384
Interest income		(144,378	)		(158,658	)
Dividend income		(395,593	)		(327,861	)
Compensation cost of share-based payment transactions		16,940			17,899
Share of profits of associates and joint ventures accounted for using equity method		(329,528	)		(294,307	)
Loss on disposal of property, plant and equipment		38,503			33,620
Gain on disposal of financial instruments		(5,763	)		(2,705	)
Loss on disposal of investments accounted for using equity method		125			—
Provision for inventory and obsolescence		122,884			23,351
Impairment loss on intangible assets		50,750			—
Valuation gain on financial assets and liabilities at fair value through profit or loss, net		(4,666	)		(3,234	)
Loss (gain) on foreign exchange, net		(3,700	)		74,294
Changes in operating assets and liabilities:
Decrease (increase) in:
Financial assets held for trading		—			217
Financial assets mandatorily measured at fair value through profit or loss		(132,790	)		—
Contract assets		2,570,131			—
Trade notes and accounts receivable		1,944,866			1,004,382
Receivables from related parties		18,300			(27,213	)
Inventories		(5,427,540	)		(1,641,950	)
Prepayments		(2,602,270	)		(2,537,687	)
Other current monetary assets		(238,682	)		(394,463	)
Other current assets		(740,941	)		(623,005	)
Incremental cost of obtaining contracts		(632,794	)		—
Increase (decrease) in:
Contract liabilities		2,322,465			—
Trade notes and accounts payable		1,149,538			(1,166,289	)
Payables to related parties		(140,266	)		(175,825	)
Other payables		(3,540,858	)		(3,420,268	)
Provisions		(135	)		29,588
Advance receipts		—			(309,884	)

(Continued)

- 8 -

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)


	Nine Months Ended September 30
	2018			2017
Other operating liabilities	$	(37,764	)	$	(77,837	)
Deferred revenue		—			65,377
Net defined benefit plans		(1,673,657	)		(10,012	)

Cash generated from operations		53,010,413			51,722,916
Interest paid		(13,212	)		(16,375	)
Income tax paid		(6,790,207	)		(5,777,058	)

Net cash provided by operating activities		46,206,994			45,929,483

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of financial assets at fair value through other comprehensive income		(289,580	)		—
Proceeds from capital reduction of financial assets at fair value through other comprehensive income		4,022			—
Acquisition of time deposits and negotiable certificates of deposit with maturities of more than three months		(6,020,219	)		(5,635,498	)
Proceeds from disposal of time deposits and negotiable certificates of deposit with maturities of more than three months		5,262,202			5,333,570
Proceeds from disposal of held-to-maturity financial assets		—			2,140,000
Proceeds from disposal of financial assets carried at cost		—			7,292
Proceeds from capital reduction of financial assets carried at cost		—			500
Proceeds from disposal of investments accounted for using equity method		3,379			—
Proceeds from capital reduction of investments accounted for using equity method		19,184			—
Acquisition of property, plant and equipment		(19,346,884	)		(16,591,455	)
Proceeds from disposal of property, plant and equipment		32,661			148,771
Acquisition of intangible assets		(203,261	)		(126,611	)
Acquisition of investment properties		(5,627	)		—
Decrease (increase) in other noncurrent assets		824			(1,257,256	)
Interest received		148,339			185,734
Cash dividends received		599,621			625,559

Net cash used in investing activities		(19,795,339	)		(15,169,394	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term loans		260,000			5,351,500
Repayment of short-term loans		(210,000	)		(5,066,500	)
Decrease in customers’ deposits		(8,400	)		(99,621	)
Increase (decrease) in other noncurrent liabilities		216,958			(34,851	)
Cash dividends		(37,204,714	)		(38,336,525	)
Partial disposal of interests in subsidiaries without losing control		1,174,400			105,931
Cash dividends distributed to noncontrolling interests		(958,446	)		(942,482	)

(Continued)

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CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)


	Nine Months Ended September 30
	2018			2017
Change in other noncontrolling interests	$	1,842,101		$	2,611,491
Unclaimed dividend		2,481			—

Net cash used in financing activities		(34,885,620	)		(36,411,057	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(25,966	)		16,734

NET DECREASE IN CASH AND CASH EQUIVALENTS		(8,499,931	)		(5,634,234	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		28,824,935			31,100,342

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	20,325,004		$	25,466,108


The accompanying notes are an integral part of the consolidated financial statements.		(Concluded)

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CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

(Reviewed, Not Audited)

1.	GENERAL

Chunghwa Telecom Co., Ltd. (“Chunghwa”) was incorporated on July 1, 1996 in the Republic of China (“ROC”) pursuant to the Article 30 of the Telecommunications Act. Chunghwa is a company limited by shares and, prior to August 2000, was wholly owned by the Ministry of Transportation and Communications (“MOTC”). Prior to July 1, 1996, the current operations of Chunghwa were carried out under the Directorate General of Telecommunications (“DGT”). The DGT was established by the MOTC in June 1943 to take primary responsibility in the development of telecommunications infrastructure and to formulate policies related to telecommunications. On July 1, 1996, the telecom operations of the DGT were spun-off as Chunghwa which continues to carry out the business and the DGT continues to be the industry regulator.

As the dominant telecommunications service provider of domestic and international fixed-line, Global System for Mobile Communications (“GSM”), and Third Generation (“3G”) in the ROC, Chunghwa is subject to additional regulations imposed by the ROC.

Effective August 12, 2005, the MOTC completed the process of privatizing Chunghwa by reducing the government ownership to below 50% in various stages. In July 2000, Chunghwa received approval from the Securities and Futures Commission (the “SFC”) for a domestic initial public offering and its common stocks were listed and traded on the Taiwan Stock Exchange (the “TWSE”) on October 27, 2000. Certain of Chunghwa’s common stocks were sold, in connection with the foregoing privatization plan, in domestic public offerings at various dates from August 2000 to July 2003. Certain of Chunghwa’s common stocks were also sold in an international offering of securities in the form of American Depository Shares (“ADS”) on July 17, 2003 and were listed and traded on the New York Stock Exchange (the “NYSE”). The MOTC sold common stocks of Chunghwa by auction in the ROC on August 9, 2005 and completed the second international offering on August 10, 2005. Upon completion of the share transfers associated with these offerings on August 12, 2005, the MOTC owned less than 50% of the outstanding shares of Chunghwa and completed the privatization plan.

Chunghwa together with its subsidiaries are hereinafter referred to collectively as the “Company”.

The consolidated financial statements are presented in Chunghwa’s functional currency, New Taiwan dollars.

2.	APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Board of Directors on November 6, 2018.

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3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except for the following items, the accounting policies applied in these consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2017. Please refer to the consolidated financial statements for the year ended December 31, 2017 for the details.

Statement of Compliance

The accompanying consolidated financial statements have been prepared in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission (the “FSC”). The consolidated financial statements do not present all the disclosures required for a complete set of annual consolidated financial statements as required by International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), International Financing Reporting Interpretations Committee (IFRIC) and SIC Interpretation (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the FSC.

Basis of Consolidation

The detail information of the subsidiaries at the end of reporting period was as follows:


			Percentage of Ownership
Name of Investor	Name of Investee	Main Businesses and Products	September 30, 2018		December 31, 2017		September 30, 2017		Note
Chunghwa Telecom Co., Ltd.	Senao International Co., Ltd. (“SENAO”)	Handset and peripherals retailer; sales of CHT mobile phone plans as an agent		28		29		29		a.
	Light Era Development Co., Ltd. (“LED”)	Planning and development of real estate and intelligent buildings, and property management		100		100		100
	Donghwa Telecom Co., Ltd. (“DHT”)	International private leased circuit, IP VPN service, and IP transit services		100		100		100
	Chunghwa Telecom Singapore Pte., Ltd. (“CHTS”)	International private leased circuit, IP VPN service, and IP transit services		100		100		100
	Chunghwa System Integration Co., Ltd. (“CHSI”)	Providing system integration services and telecommunications equipment		100		100		100
	Chunghwa Investment Co., Ltd. (“CHI”)	Investment		89		89		89
	CHIEF Telecom Inc. (“CHIEF”)	Network integration, internet data center (“IDC”), communications integration and cloud application services		57		67		67		b.
	CHYP Multimedia Marketing & Communications Co., Ltd. (“CHYP”)	Digital information supply services and advertisement services		100		100		100		c.
	Prime Asia Investments Group Ltd. (B.V.I.) (“Prime Asia”)	Investment		100		100		100
	Spring House Entertainment Tech. Inc. (“SHE”)	Software design services, internet contents production and play, and motion picture production and distribution		56		56		56
	Chunghwa Telecom Global, Inc. (“CHTG”)	International private leased circuit, internet services, and transit services		100		100		100
	Chunghwa Telecom Vietnam Co., Ltd. (“CHTV”)	Intelligent energy saving solutions, international circuit, and information and communication technology (“ICT”) services.		100		100		100

(Continued)

- 12 -


			Percentage of Ownership
Name of Investor	Name of Investee	Main Businesses and Products	September 30, 2018		December 31, 2017		September 30, 2017		Note
	Smartfun Digital Co., Ltd. (“SFD”)	Providing diversified family education digital services		65		65		65
	Chunghwa Telecom Japan Co., Ltd. (“CHTJ”)	International private leased circuit, IP VPN service, and IP transit services		100		100		100
	Chunghwa Sochamp Technology Inc. (“CHST”)	Design, development and production of Automatic License Plate Recognition software and hardware		51		51		51
	Honghwa International Co., Ltd. (“HHI”)	Telecommunications engineering, sales agent of mobile phone plan application and other business services		100		100		100
	Chunghwa Leading Photonics Tech Co., Ltd. (“CLPT”)	Production and sale of electronic components and finished products		75		75		75
	Chunghwa Telecom (Thailand) Co., Ltd. (“CHTT”)	International private leased circuit, IP VPN service, ICT and cloud VAS services		100		100		100		d.
	CHT Security Co., Ltd. (“CHTSC”)	Computing equipment installation, wholesale of computing and business machinery equipment and software, management consulting services, data processing services, digital information supply services and internet identify services		80		80		—		e.
	New Prospect Investments Holdings Ltd. (B.V.I.) (“New Prospect”)	Investment		—		—		—		f.
Senao International Co., Ltd.	Senao International (Samoa) Holding Ltd. (“SIS”)	International investment		100		100		100
	Youth Co., Ltd. (“Youth”)	Sale of information and communication technologies products		89		89		89
	Aval Technologies Co., Ltd. (“Aval”)	Sale of information and communication technologies products		100		100		100
	SENYOUNG Insurance Agent Co., Ltd. (“SENYOUNG”)	Property and liability insurance agency		100		100		—		g.
Youth Co., Ltd.	ISPOT Co., Ltd. (“ISPOT”)	Sale of information and communication technologies products		100		100		100
	Youyi Co., Ltd. (“Youyi”)	Maintenance of information and communication technologies products		100		100		100
Light Era Development Co., Ltd.	Taoyuan Asia Silicon Valley Innovation Co., Ltd. (“TASVI”)	Development of real estate		60		—		—		h.
CHIEF Telecom Inc.	Unigate Telecom Inc. (“Unigate”)	Telecommunications and internet service		100		100		100
	Chief International Corp. (“CIC”)	Telecommunications and internet service		100		100		100
	Shanghai Chief Telecom Co., Ltd. (“SCT”)	Telecommunications and internet service		49		49		49
Chunghwa System Integration Co., Ltd.	Concord Technology Co., Ltd. (“Concord”)	Investment		—		100		100		i.
Chunghwa Investment Co., Ltd.	Chunghwa Precision Test Tech. Co., Ltd. (“CHPT”)	Production and sale of semiconductor testing components and printed circuit board		34		38		38		j.

(Continued)

- 13 -


			Percentage of Ownership
Name of Investor	Name of Investee	Main Businesses and Products	September 30, 2018		December 31, 2017		September 30, 2017		Note
Concord Technology Co., Ltd.	Glory Network System Service (Shanghai) Co., Ltd. (“GNSS (Shanghai)”)	Design, development and production of computer and internet software, installment, maintenance and consulting services of information system integration, and sales of self-production products		—		—		—		k.
Chunghwa Precision Test Tech. Co., Ltd.	Chunghwa Precision Test Tech. USA Corporation (“CHPT (US)”)	Design and after-sale services of semiconductor testing components and printed circuit board		100		100		100
	CHPT Japan Co., Ltd. (“CHPT (JP)”)	Related services of electronic parts, machinery processed products and printed circuit board		100		100		100
	Chunghwa Precision Test Tech. International, Ltd. (“CHPT (International)”)	Wholesale and retail of electronic materials, and investment		100		100		100
Senao International (Samoa) Holding Ltd.	Senao International HK Limited (“SIHK”)	International investment		100		100		100
Senao International HK Limited	Senao Trading (Fujian) Co., Ltd. (“STF”)	Sale of information and communication technologies products		100		100		100		l.
	Senao International Trading (Shanghai) Co., Ltd. (“SITS”)	Sale of information and communication technologies products		100		100		100
	Senao International Trading (Shanghai) Co., Ltd. (“SEITS”)	Maintenance of information and communication technologies products		—		100		100		m.
	Senao International Trading (Jiangsu) Co., Ltd. (“SITJ”)	Sale of information and communication technologies products		100		100		100		n.
Prime Asia Investments Group Ltd. (B.V.I.)	Chunghwa Hsingta Co., Ltd. (“CHC”)	Investment		100		100		100
Chunghwa Hsingta Co., Ltd. (“CHC”)	Chunghwa Telecom (China) Co., Ltd. (“CTC”)	Integrated information and communication solution services for enterprise clients, and intelligent energy network service		100		100		100
	Jiangsu Zhenhua Information Technology Company, LLC. (“JZIT”)	Providing intelligent energy saving solution and intelligent buildings services		75		75		75		o.
Chunghwa Precision Test Tech. International, Ltd.	Shanghai Taihua Electronic Technology Limited (“STET”)	Design of printed circuit board and related consultation service		100		100		100

(Concluded)

SENAO transferred its treasury stock to employees in June 2018 and the Company’s ownership interest in SENAO decreased to 28.18% as of September 30, 2018. Chunghwa had originally four out of seven seats of the Board of Directors of SENAO through the support of large beneficial stockholders. In order to comply with the local regulations, SENAO increased two seats of independent directors in June 2016; therefore, total seats of its Board of Directors increased to nine and Chunghwa continues to hold four out of nine seats of the Board of Directors. As Chunghwa remains the control over SENAO’s relevant activities, the accounts of SENAO are included in the consolidated financial statements.

- 14 -

Chunghwa and CHI disposed some shares of CHIEF in June 2017 before CHIEF traded its shares on the emerging stock market according to the local requirements. The Company’s equity ownership of CHIEF decreased to 70.43% as of September 30 and December 31, 2017. CHIEF issued new shares in March 2018 as its employees exercised their options. In addition, Chunghwa and CHI disposed some shares of CHIEF in May 2018 before CHIEF traded its shares on the General Stock Market of the Taipei Exchange according to the local requirements. Furthermore, Chunghwa and CHI did not participate in the capital increase of CHIEF in June 2018. Therefore, the Company’s equity ownership interest in CHIEF decreased to 60.28% as of September 30, 2018.

Chunghwa International Yellow Pages Co., Ltd. changed its name to CHYP Multimedia Marketing & Communications Co., Ltd. starting from September 4, 2017.

Chunghwa invested 100% equity shares of Chunghwa Telecom (Thailand) Co., Ltd. (“CHTT”) in March 2017.

Chunghwa invested 80.27% equity shares of CHT Security Co., Ltd. (“CHTSC”) in December 2017.

New Prospect was approved to dissolve its business in April 2017. The liquidation of New Prospect was completed in May 2017.

SENAO invested 100% equity shares of SENYOUNG Insurance Agent Co., Ltd. (“SENYOUNG”) in November 2017.

LED invested 60% equity shares of Taoyuan Asia Silicon Valley Innovation Co., Ltd. (“TASVI”) in March 2018.

Concord was approved to end and dissolve its business in August 2017. The liquidation of Concord was completed in January 2018.

CHI did not participate in the capital increase of CHPT in September 2017 and disposed some shares of CHPT from April to August 2018. Therefore, its ownership interest in CHPT decreased to 34.25% as of September 30, 2018. However, considering the absolute and relative size of ownership interest, and the dispersion of shares owned by the other stockholders, the management concluded that the Company has a sufficiently dominant voting interest to direct the relevant activities; hence, CHPT is deemed as a subsidiary of the Company.

GNSS (Shanghai) completed its liquidation in August 2017 and Concord received the proceeds from the liquidation.

STF was approved to end and dissolve its business in September 2018. The liquidation of STF is still in process.

SEITS completed its liquidation in March 2018.

SITJ was approved to end and dissolve its business in April 2018. The liquidation of SITJ is still in process.

JZIT was approved to end and dissolve its business in May 2016. The liquidation of JZIT is still in process.

- 15 -

The following diagram presents information regarding the relationship and ownership percentages between Chunghwa and its subsidiaries as of September 30, 2018:

LOGO

Other Significant Accounting Policies

The Company initial applied IFRS 9 “Financial Instruments’’ and IFRS 15 “Revenue from Contracts with Customers’’ on January 1, 2018, and elected not to restate the figures in comparative periods. Different accounting policies for each accounting periods as a result of the application of new accounting standards are listed by year separately.

Retirement benefits

Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined pension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since that time and for other significant one-off events.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax. Income taxes for interim period are assessed on an annual basis and calculated by applying to an interim period’s pre-tax income the tax rate that would be applicable to expected total annual earnings. The effect of a change in tax rate resulting from a change in tax law is recognized in consistent with the accounting for the transaction itself for which the tax consequence arises from, and is recognized in profit or loss or other comprehensive income in full in the period in which the change in tax rate occurs.

The measurement of deferred tax assets and liabilities 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.

- 16 -

Financial instruments

Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.

Measurement category

2018

Financial assets at fair value through profit and loss (FVTPL)

Financial asset is classified as at FVTPL when the financial asset is mandatorily classified as at FVTPL. Financial assets mandatorily classified as at FVTPL include investments in equity instruments which are not designated as at fair value through other comprehensive income (FVOCI).

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any dividend earned on the financial asset. Fair value is determined in the manner described in Note 38.

ii.

Financial assets at amortized cost

Financial assets that meet the following conditions are subsequently measured at amortized cost:

The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

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

Subsequent to initial recognition, financial assets at amortized cost are measured at amortized cost, which equals to gross carrying amount determined by the effective interest method less any impairment loss, except for short-term receivables as the effect of discounting is immaterial. Exchange differences are recognized in profit or loss.

iii.

Investments in equity instruments at FVOCI

On initial recognition, the Company may make an irrevocable election to designate investments in equity instruments as at FVOCI. Designation at FVOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination.

- 17 -

Investments in equity instruments at FVOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments. Instead, it will be transferred to retained earnings.

Dividends on these investments in equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.

2017

Financial assets at fair value through profit and loss (FVTPL)

Financial assets are classified as at FVTPL when the financial asset is held for trading.

ii.

Held-to-maturity financial assets

The Company invests in bank debentures and corporate bonds with specific credit ratings and the Company has positive intent and ability to hold to maturity, are classified as held-to-maturity investments.

Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized cost using the effective interest method less any impairment loss.

iii.

Available-for-sale financial assets (AFS financial assets)

AFS financial assets are non-derivatives that are either designated as AFS or are not classified as loans and receivables, held-to-maturity financial assets or financial assets at fair value through profit or loss.

The Company invests in listed stocks, emerging market stocks and non-listed stocks. Among these investments, those that have a quoted market price in an active market are classified as AFS and measured at fair value at the end of each reporting period; the others that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less any identified impairment losses at the end of each reporting period by presenting in a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between the carrying amount and the fair value is recognized in other comprehensive income. Any impairment losses are recognized in profit or loss.

Changes in the carrying amount of AFS monetary financial assets relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method and dividends on AFS equity investments are recognized in profit or loss. Other changes in the carrying amount of AFS financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when the investment is disposed of or is determined to be impaired.

Dividends on AFS equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established.

- 18 -

iv.

Loans and receivables

Loans and receivables (including cash and cash equivalents, trade notes and accounts receivable, receivables from related parties, other financial assets and refundable deposits) are measured at amortized cost using the effective interest method, less any impairment loss, except for short-term receivables as the effect of discounting is immaterial.

Impairment of financial assets

2018

The Company recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including accounts receivable) and contract assets.

The Company recognizes lifetime Expected Credit Loss (ECL) for accounts receivable and contract assets. For all other financial instruments, the Company recognizes lifetime ECL when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on the financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12-month ECL.

Expected credit losses reflect the weighted average of credit losses with the respective risks of a default occurring as the weights. Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

The Company recognizes an impairment loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.

2017

Financial assets, other than those at FVTPL, are assessed to determine whether there is objective evidence that an impairment loss has occurred at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For financial assets carried at amortized cost, such as held-to-maturity financial assets and trade notes and accounts receivable, assets that are individually assessed and not impaired are, in addition, assessed for impairment on a collective basis.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is mainly based on the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. However, since the discounted effect of short-term receivables is immaterial, the impairment loss is recognized on the difference between carrying amount and estimated future cash flow.

- 19 -

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

For AFS equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period.

In respect of AFS equity securities, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income.

For financial assets that are carried at cost, the amount of the impairment loss is mainly measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss is not reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade notes and accounts receivable and other receivables, where the carrying amount is reduced through the use of an allowance account. When trade notes and accounts receivable and other receivables are considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade notes and accounts receivable and other receivables that are written off against the allowance account.

Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

2018

On derecognition of a financial asset measured at amortized cost in its entirely, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss.

On derecognition of investments in equity instruments at FVOCI in its entirely, the cumulative gain or loss is directly transferred to retained earnings, and it is not reclassified to profit or loss.

2017

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss.

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Financial liabilities

Subsequent measurement

Except for financial liabilities at FVTPL, all the financial liabilities are subsequently measured at amortized cost using the effective interest method.

Derecognition of financial liabilities

The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

Derivative financial instruments

The Company enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including forward exchange contracts.

Derivatives are initially measured at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability.

For derivatives embedded in non-derivative host contracts that are financial assets within the scope of IFRS 9, the whole hybrid contracts shall be measured as one and the classification is determined by the entire hybrid contract. For derivatives embedded in non-derivative host contracts that are not financial assets within the scope of IFRS 9 (e.g. financial liabilities), the embedded derivatives are separated from the host contract when (1) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; (2) the risks and economic characteristics of the embedded derivatives are not closely related to those of the host contracts; and (3) the hybrid contracts are not measured at FVTPL.

Hedge Accounting

The Company designates some derivatives instruments as cash flow hedges. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss.

The associated gains or losses that were recognized in other comprehensive income are reclassified from equity to profit or loss as a reclassification adjustment in the line item relating to the hedged item in the same period when the hedged item affects profit or loss. If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, the associated gains and losses that were recognized in other comprehensive income are removed from equity and are included in the initial cost of the non-financial asset or non-financial liability.

Before 2018, hedge accounting was discontinued prospectively when the Company revoked the designated hedging relationship; when the hedging instrument expired or was sold, terminated, or exercised; or when the hedging instrument no longer met the criteria for hedge accounting.

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Starting from 2018, the Company discontinues hedge accounting only when the hedging relationship ceases to meet the qualifying criteria; for instance, when the hedging instrument expires or is sold, terminated or exercised. The cumulative gain or loss on the hedging instrument that has been previously recognized in other comprehensive income from the period when the hedge was effective remains separately in equity until the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss.

Revenue recognition of the contract with the customer

2018

The Company identifies the performance obligations in the contract with the customers, allocates transaction price to each performance obligation and recognizes revenue when performance obligations are satisfied.

Sales of products are recognized as revenue when the Company delivers products and the customer accepts and controls the product. Except for the consumer electronic products such as mobile devices sold in channel stores which are usually in cash sale, the Company recognizes revenues for sale of other electronic devices and corresponding trade notes and accounts receivable.

Usage revenues from fixed-line services (including local, domestic long distance and international long distance telephone services), cellular services, Internet and data services, and interconnection and call transfer fees from other telecommunications companies and carriers are billed in arrears and are recognized based upon seconds or minutes of traffic processed when the services are provided in accordance with contract terms. The usage revenues and corresponding trade notes and accounts receivable are recognized monthly.

Other revenues are recognized as follows: (a) one-time subscriber connection fees (on fixed-line services) are first recognized as contract liabilities and revenues are recognized subsequently over the average expected customer service periods, (b) monthly fees (on fixed-line services, mobile, Internet and data services) and related receivables are accrued monthly, and (c) prepaid services (fixed-line, mobile, Internet and data services) are recognized as contract liabilities upon collection considerations from customers and are recognized as revenues subsequently based upon actual usage by customers.

Where the Company enters into transactions which involve both the provision of telecommunications service bundled with products such as handsets, total consideration received from products and telecommunications service in these arrangements are allocated based on their relative stand-alone selling price. The amount of sales revenue recognized for products is not limited to the amount paid by the customer for the products. When the amount of sales revenue recognized for products exceeded the amount paid by the customer for the products, the difference is recognized as contract assets. Contract assets are derecognized and accounts receivable is recognized when the amount become collectible from customers subsequently. When the amount of sales revenue recognized for products was less than the amount paid by the customer for the products, the difference is recognized as contract liabilities and revenues are recognized subsequently when the telecommunications service are provided.

For project business contracts, if a substantial part of the Company’s promise to customers is to manage and coordinate the various tasks and assume the risks of those tasks to ensure the individual goods or services are incorporated into the combined output, they are treated as a single performance obligation since the Company provides a significant integration service. The Company recognizes revenues and corresponding accounts receivable when the project business contract is completed and accepted by customers.

- 22 -

For service contracts such as maintenance and warranties, customers simultaneously receive and consume the benefits provided by the Company; thus revenues and corresponding accounts receivable of service contracts are recognized over the related service period.

When another party is involved in providing goods or services to a customer, the Company is acting as a principal if it controls the specified good or service before that good or service is transferred to a customer; otherwise, the Company is acting as an agent. When the Company is acting as a principal, gross inflow of economic benefits arising from transactions is recognized as revenue. When the Company is acting as an agent, revenue is recognized in the amount of commission.

2017

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

The amount of revenue can be measured reliably;

It is probable that the economic benefits associated with the transaction will flow to the Company; and

The costs incurred or to be incurred in respect of the transaction can be measured reliably.

Revenue is measured at the fair value of the consideration received or receivable and represents amounts for goods sold in the normal course of business, net of sales discounts and volume rebates. For trade notes and accounts receivable due within one year from the balance sheet date, as the nominal value of the consideration to be received approximates its fair value and transactions are frequent, fair value of the consideration is not determined by discounting all future receipts using an imputed rate of interest.

Other revenues are recognized as follows: (a) one-time subscriber connection fees (on fixed-line services) are deferred and recognized over the average expected customer service periods, (b) monthly fees (on fixed-line services, mobile, Internet and data services) are accrued every month, and (c) prepaid services (fixed-line, mobile, Internet and data services) are recognized as income based upon actual usage by customers.

Revenue from a contract to provide services is recognized by reference to the stage of completion of the contract.

- 23 -

When another party is involved in providing goods or services to a customer, the Company is acting as a principal when it has exposure to the significant risks and rewards associated with the sale of goods or the rendering of services; otherwise, the Company is acting as an agent. When the Company is acting as a principal, gross inflow of economic benefits arising from transactions is recognized as revenue. When the Company is acting as an agent, revenue is recognized in the amount of commission.

Incremental costs of obtaining contracts

Commissions and equipment subsidy related to telecommunications service as a result of obtaining contracts are recognized as an asset under the incremental costs of obtaining contracts to the extent the costs are expected to be recovered, and are amortized over the contract period. However, the Company elects not to capitalize the incremental costs of obtaining contracts if the amortization period of the assets that the Company otherwise would have recognized is expected to be one year or less.

4.	CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION, UNCERTAINTY AND ASSUMPTION

In the application of the Company’s accounting policies, the management is required to make judgments, estimates and assumptions which are based on historical experience and other factors that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed by the management on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Except for the following items, for the critical accounting judgments and key sources of estimation, uncertainty and assumption applied in these consolidated financial statements, please refer to the consolidated financial statements for the year ended December 31, 2017.

Impairment of trade notes and accounts receivable

2018

The provision for impairment of trade notes and accounts receivable is based on assumptions about risk of default and expected loss rates. The Company uses judgment in making these assumptions and in selecting the inputs to the impairment calculation, based on the Company’s past experience, current market conditions as well as forward looking information at the end of each reporting period. For details of the key assumptions and inputs used, see Note 10. Where the actual future cash flows are less than expected, a material impairment loss may arise.

2017

When an indication of impairment is assessed with objective evidence, the Company considers whether the recoverable amount of an asset is less than its carrying amount and recognizes the impairment loss based on difference between the recoverable amount and its carrying amount. The estimate of recoverable amount would impact on the timing and the amount of impairment loss recognition.

- 24 -

Judgment of business model of the financial assets classification

2018

The Company determines the business model at a level that reflects how groups of financial assets are managed together to achieve a particular business objective. This assessment includes judgments reflecting all relevant evidence including how the performance of the assets is evaluated and their performance measured, the risks that affect the performance of the assets. The Company monitors financial assets measured at amortized cost that are derecognized prior to their maturity to understand the reason for their disposal and whether the reasons are consistent with the objective of the business model for which the assets was held. If business model is changed, a prospective change to the classification of those financial assets is applied.

5.	APPLICATION OF NEW AND REVISED STANDARDS AND INTERPRETATIONS

Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC

Except for the following, whenever applied, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs issued by the International Accounting Standards Board and endorsed and issued into effect by the FSC (collectively, the “Taiwan-IFRSs”) does not have material impacts on the Company’s consolidated financial statements.

IFRS 9 “Financial Instruments” and related amendment

IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, with consequential amendments to IFRS 7 “Financial Instruments: Disclosures” and other standards. IFRS 9 sets out the requirements for classification, measurement and impairment of financial assets and hedge accounting. Refer to Note 3 for information relating to the relevant accounting policies.

The requirements for classification, measurement and impairment of financial assets have been applied retrospectively on January 1, 2018, and the requirements for hedge accounting have been applied prospectively. IFRS 9 is not applicable to items that have already been derecognized on or before December 31, 2017.

Classification, measurement and impairment of financial assets and liabilities

On the basis of the facts and circumstances that existed on January 1, 2018, the Company performed an assessment of the classifications of financial assets and liabilities and elected not to restate the comparative figures.

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The following table shows the original measurement categories and carrying amounts under IAS 39 and the new measurement categories and carrying amounts under IFRS 9 for each class of the Company’s financial assets and financial liabilities as of January 1, 2018.

Measurement category

Carrying amount

IAS 39

IFRS 9

IAS 39

IFRS 9

Note

Financial Assets

Cash and cash equivalents

Loans and receivables

Amortized cost

28,824,935

)

Equity securities

Available-for-sale

FVTPL

53,888

)

Available-for-sale

FVOCI- equity investments

5,696,983

7,538,848

)

Trade notes and accounts receivable, receivables from related parties, other current monetary assets and refundable deposits

Loans and receivables

Amortized cost

40,158,885

)

Financial Liabilities

Short-term loans, trade notes and accounts payable, payables to related parties, partial other payables, customers’ deposit and loan-term loans

Amortized cost

39,725,662

Derivatives

Held-for-trading

FVTPL

578

Hedging derivative financial liabilities

Hedging financial liabilities

850

)


	IAS 39 Carrying Amount January 1, 2018			Reclassifi- cations		Remea- surements		IFRS 9 Carrying Amount January 1, 2018			Retained Earnings effect on January 1, 2018		Other adjustment effect on January 1, 2018			Noncontrolling interests effect on January 1, 2018			Note
Financial assets measured at FVTPL	$	—		$	—	$	—	$	—		$	—	$	—		$	—
Add: reclassification from available for sale (IAS 39)—mandatory reclassification		—			53,888		—		53,888			6,149		(6,149	)		—			b	)

		—			53,888		—		53,888			6,149		(6,149	)		—

Financial liabilities measured at FVTPL		(578	)		—		—		(578	)		—		—			—

Financial assets measured at FVOCI—equity investments		—			—		—		—			—		—			—
Add: reclassification from available for sale (IAS 39)—designated at January 1, 2018		—			5,696,983		1,841,865		7,538,848			1,515,525		327,177			(837	)		b	)

		—			5,696,983		1,841,865		7,538,848			1,515,525		327,177			(837	)

Financial assets measured at Amortized cost		—			—		—		—			—		—			—
Add: reclassification from loans and receivables (IAS 39)		—			68,983,820		—		68,983,820			—		—			—			a	)

		—			68,983,820		—		68,983,820			—		—			—

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	IAS 39 Carrying Amount January 1, 2018			Reclassifi- cations			Remea- surements		IFRS 9 Carrying Amount January 1, 2018			Retained Earnings effect on January 1, 2018		Other adjustment effect on January 1, 2018		Noncontrolling interests effect on January 1, 2018			Note
Financial liabilities measured at amortized cost		—			—			—		—			—		—		—
Add: reclassification from amortized cost (IAS 39)		—			(39,725,662	)		—		(39,725,662	)		—		—		—

		—			(39,725,662	)		—		(39,725,662	)		—		—		—

Hedging financial liabilities		—			—			—		—			—		—		—
Add: reclassification from Hedging derivative instrument (IAS 39)		—			(850	)		—		(850	)		—		—		—			c	)

		—			(850	)		—		(850	)		—		—		—

Total	$	(578	)	$	35,008,179		$	1,841,865	$	36,849,466		$	1,521,674	$	321,028	$	(837	)

Cash and cash equivalents, trade notes and accounts receivable, receivables from related parties, other current monetary assets and refundable deposit that were classified as loans and receivables under IAS 39 are now classified as financial assets measured at amortized cost with assessment of expected credit loss.

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The Company elected to reclassify equity securities originally classified as available-for-sale under IAS 39 to FVTPL and designated at FVOCI in accordance with IFRS 9. As a result, the related other equity—unrealized gain or loss on available-for-sale financial assets was reclassified $6,149 thousand to retained earnings and $556,243 thousand to other equity—unrealized gain or loss on financial assets at FVOCI.

Equity investments in non-listed stocks previously carried at cost under IAS 39 are designated as FVOCI and remeasured at fair values. As a result, financial assets at FVOCI and other equity—unrealized gain or loss on financial assets at FVOCI were increased by $1,841,865 thousand and $1,842,702 thousand, respectively, and noncontrolling interests was decreased by $837 thousand.

The Company recognized impairment loss on certain investments in equity securities previously classified as available-for-sale and measured at cost and the loss was accumulated in retained earnings under IAS 39. Since those investments were designated as financial assets measured at FVOCI under IFRS 9 and no impairment assessment is required, an adjustment was made that resulted in a decrease of $1,515,525 thousand in other equity—unrealized gain or loss on financial assets at FVOCI and an increase of the $1,515,525 thousand in retained earnings on January 1, 2018.

Due to the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers, all derivative and non-derivative financial assets and financial liabilities which were designated as hedging instruments are presented as hedging financial assets and hedging financial liabilities for starting from January 1, 2018.

As the Company expects there is no tax obligation upon the disposal of the available-for-sale financial assets, the deferred income tax liabilities was decreased by $1,175 thousand, unrealized gain or loss on available-for-sale financial assets was increased by $4,283 thousand and noncontrolling interests was decreased by of $3,108 thousand, respectively.

IFRS 15 “Revenue from Contracts with Customers” and related amendment

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations. Please refer to Note 3 for related accounting policies.

When applying IFRS 15 and related amendments, the Company allocates the transaction price to each performance obligation identified in the contract on a relative stand-alone selling price basis.

Where the Company enters into transactions which involve both the provision of telecommunications service bundled with products such as handsets, total consideration received from products and telecommunications service in these arrangements is allocated based on each performance obligation’s relative stand-alone selling price. The amount of sales revenue recognized for products is no longer limited to the amount paid by the customer for the products. This will not change the total revenue recognized, but will change the timing of revenue recognition. The Company may recognize more revenue at the beginning of the contract period (i.e., at the time of sale of products), and revenue recognized for telecommunications service in the subsequent contract periods will decrease.

Incremental costs of obtaining contracts will be recognized as an asset to the extent the Company expects to recover those costs. Such asset will be amortized on a basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. Before the application of IFRS 15, the relevant expenditures were recognized as expenses.

- 28 -

IFRS 15 and its related amendments require that when another party is involved in providing goods or services to a customer, the Company is a principal if it controls the specified good or service before that good or service is transferred to a customer. Before the application of IFRS 15, the Company determines whether it is a principal or an agent based on its exposure to the significant risks and rewards associated with the sale of goods or the rendering of services.

Under IFRS 15, the net effect of revenue recognizes, consideration received and receivable is recognized as a contract asset or a contract liability. Before the application of IFRS 15, receivable is recognized or advance receipts and deferred revenue was reduced when revenue was recognized for the contract under IAS 18.

Under IFRS 15, the Company recognized a trade-in liability (other current liabilities) and a right to recover a product (other current assets) when recognizing revenue for the sale with a trade-in right. Before the application of IFRS 15, trade-in right provisions and inventories were recognized when recognizing revenue.

The Company elected to retrospectively apply IFRS 15 to contracts that were not completed on January 1, 2018 and recognized the cumulative effect of the change in the retained earnings on January 1, 2018.

Impact on items of assets, liabilities and equity


	Carrying Amounts Before Retrospective Adjustments as of January 1, 2018		Adjustments Arising from Initial Application			Carrying Amounts After Retrospective Adjustments as of January 1, 2018
Contract assets—current	$	—	$	6,065,126		$	6,065,126

Trade notes and accounts receivable, net	$	31,941,094		(117,911	)	$	31,823,183

Inventories	$	8,839,615		(132,086	)	$	8,707,529

Prepayments- current	$	2,188,173		(7,628	)	$	2,180,545

Other current assets	$	2,182,758		132,086		$	2,314,844

Contract assets—noncurrent	$	—		3,916,924		$	3,916,924

Incremental costs of obtaining contracts	$	—		2,474,143		$	2,474,143

Total effect on assets			$	12,330,654

Contract liabilities—current	$	—	$	8,003,855		$	8,003,855

Current tax liabilities	$	4,725,698		2,226,691		$	6,952,389

Provisions—current	$	188,744		(87,572	)	$	101,172

Advance receipts	$	8,841,858		(8,841,858	)	$	—

Other current liabilities	$	1,081,156		71,690		$	1,152,846

Contract liabilities—noncurrent	$	—		2,626,319		$	2,626,319

Deferred revenue	$	3,612,391		(3,612,391	)	$	—

Other noncurrent liabilities	$	3,457,677		1,072,427		$	4,530,104

Total effect on liabilities			$	1,459,161

Total effect on equity (unappropriated earnings)	$	37,202,683	$	10,871,493		$	48,074,176

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The following table shows the increase (decrease) in assets, liabilities and equity resulting from the application of IFRS 15 on the balance sheet date.


	September 30, 2018
Contract assets—current	$	5,078,820
Trade notes and accounts receivable, net		(110,153	)
Inventories		(81,985	)
Prepayments—current		(10,989	)
Other current assets		81,985
Contract assets—noncurrent		2,313,689
Incremental costs of obtaining contracts		1,587,709

Assets	$	8,859,076

Contract liabilities—current	$	10,392,850
Current tax liabilities		1,481,885
Provisions—current		(53,952	)
Advance receipts		(10,925,228	)
Other current liabilities		247,721
Contract liabilities—noncurrent		2,559,789
Deferred revenue		(3,613,463	)
Other noncurrent liabilities		1,083,548

Liabilities	$	1,173,150

Equity (unappropriated earnings)	$	7,685,926

Impact on items of statement of comprehensive income for current period

The following table shows the increase (decrease) in net income resulting from the application of IFRS 15.


	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
Revenues	$	(514,343	)	$	(3,021,169	)
Operating costs		407,754			1,313,557
Operating expenses		(133,708	)		(404,353	)

Income from operations		(788,389	)		(3,930,373	)
Income tax expense		(151,286	)		(744,806	)

Net income	$	(637,103	)	$	(3,185,567	)

Decrease in net income attributable to:
Stockholders of the parent	$	(637,103	)	$	(3,185,567	)
Noncontrolling interests		—			—

	$	(637,103	)	$	(3,185,567	)

Impact on earnings per share(NT$):
Basic earnings per share	$	(0.08	)	$	(0.41	)

Diluted earnings per share	$	(0.08	)	$	(0.41	)

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Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers for application starting from 2019 and the IFRSs endorsed by the FSC


New, Revised or Amended Standards and Interpretations		Effective Date Announced by IASB (Note 1)
Amendments to IFRSs	Annual Improvements to IFRSs 2015-2017 Cycle	January 1, 2019
Amendments to IFRS 9	Prepayment Features with Negative Compensation	January 1, 2019 (Note 2)
IFRS 16	Leases	January 1, 2019
Amendments to IAS 19	Plan Amendment, Curtailment or Settlement	January 1, 2019 (Note 3)
Amendments to IAS 28	Long-term Interests in Associates and Joint Ventures	January 1, 2019
IFRIC 23	Uncertainty over Income Tax Treatments	January 1, 2019

Note 1:

Unless stated otherwise, the above new, amended or revised standards and interpretations are effective for annual periods beginning on or after their respective effective dates.

Note 2:

The FSC permits the election for early adoption of the amendments starting from 2018.

Note 3:

The Company shall apply these amendments to pension plan amendments, curtailments or settlements occurring on or after January 1, 2019.

Except for the following items, the application of the above new, revised or amended standards and interpretations will not have material impact on the Company’s consolidated financial statements.

IFRS

16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations.

Upon the initial application of IFRS 16, the Company anticipates reassessing whether a contract is, or contains, a lease in accordance with the definition of a lease under IFRS 16. Contracts that are reassessed as leases or containing a lease will be accounted for in accordance with the transitional provisions under IFRS 16.

Upon the initial application of IFRS 16, if the Company is a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for those whose payments under low-value and short-term leases will be recognized as expenses on a straight-line basis. On the consolidated statements of comprehensive income, the Company will present the depreciation expense charged on the right-of-use asset separately from the interest expense accrued on lease liability using the effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of lease liability will be classified within financing activities; cash payments for interest portion will be classified within operating activities.

The Company will not make any adjustments for leases in which the Company is a lessor and will account for those leases with the application of IFRS 16 starting from January 1, 2019.

The Company anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial application of IFRS 16 recognized in retained earnings on January 1, 2019. Comparative financial information will not be restated.

- 31 -

Except for the abovementioned impact, as of the date the consolidated financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’s financial position and operating result, and will disclose the relevant impact when the assessment is completed.

IFRSs issued by the IASB but not yet endorsed and issued into effect by the FSC


New, Revised or Amended Standards and Interpretations		Effective Date Announced by IASB (Note 1)
Amendments to IFRS 3	Definition of a Business	January 1, 2020 (Note 2)
Amendments to IFRS 10 and IAS 28	Sale or Contribution of Assets between An Investor and Its Associate or Joint Venture	To be determined by IASB
Amendments to IAS 1 and IAS 8	Definition of Material	January 1, 2020 (Note 3)

Note 1:

Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.

Note 2:

The Company shall apply these amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.

Note 3:

The Company shall apply these amendments prospectively in annual periods beginning on or after January 1, 2020.

6.	CASH AND CASH EQUIVALENTS


	September 30, 2018		December 31, 2017		September 30, 2017
Cash
Cash on hand	$	475,146	$	382,694	$	216,248
Bank deposits		10,806,065		7,877,605		8,245,793

		11,281,211		8,260,299		8,462,041

Cash equivalents (investments with maturities of less than three months)
Commercial paper		6,706,418		10,178,512		11,686,899
Negotiable certificate of deposit		-		7,950,000		4,150,000
Time deposits		2,337,375		2,436,124		1,167,168

		9,043,793		20,564,636		17,004,067

	$	20,325,004	$	28,824,935	$	25,466,108

The annual yield rates of bank deposits, commercial paper, negotiable certificate of deposit and time deposits as of balance sheet dates were as follows:


	September 30, 2018		December 31, 2017		September 30, 2017
Bank deposits		0.00%-0.43%		0.00%-0.70%		0.00%-0.65%
Commercial paper		0.36%-0.46%		0.32%-0.40%		0.32%-0.38%
Negotiable certificate of deposit		-		0.40%-0.50%		0.40%-0.50%
Time deposits		0.40%-4.40%		0.52%-4.40%		0.13%-4.10%

- 32 -

7.	FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS—CURRENT


	September 30, 2018		December 31, 2017		September 30, 2017
Financial assets
Held for trading
Derivatives (not designated for hedge)
Forward exchange contracts	$	—	$	—	$	1,878

Mandatorily measured at FVTPL
Hybrid financial assets
Financial commodities	$	195,682	$	—	$	—

Financial liabilities
Held for trading
Derivatives (not designated for hedge)
Forward exchange contracts	$	619	$	578	$	—

Outstanding forward exchange contracts not designated for hedge as of balance sheet dates were as follows:

Currency

Maturity Period

Contract Amount
(Thousands)

September 30, 2018

Forward exchange contracts—buy

EUR/NT$

2018.12-2019.03

EUR10,857/NT$386,578

Forward exchange contracts—buy

US$/NT$

2018.10

US$1,715/NT$52,765

December 31, 2017

Forward exchange contracts—buy

EUR/NT$

2018.03-06

EUR1,942/NT$69,061

Forward exchange contracts—buy

US$/NT$

2018.01

US$4,190/NT$125,481

September 30, 2017

Forward exchange contracts—buy

EUR/NT$

2017.12

EUR3,521/NT$124,570

Forward exchange contracts—buy

US$/NT$

2017.10

US$2,982/NT$89,845

The Company entered into the above forward exchange contracts to manage its exposure to foreign currency risk due to fluctuations in exchange rates. However, the aforementioned derivatives did not meet the criteria for hedge accounting.

SENAO entered into financial commodities with a bank. As the contractual terms to cash flows that are not solely payments of principal and interest on the principal amount outstanding, the financial commodities are assessed and classified as mandatorily measured at FVTPL according to IFRS 9.

- 33 -

Outstanding financial commodities as of balance sheet dates were as follows:

Currency

Maturity
Period

Contract Amount
(In Thousands)

September 30, 2018

Financial commodities

RMB

2018.10

RMB43,600

8.	FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME—NONCURRENT—2018


	September 30, 2018
Domestic investments
Listed stocks	$	2,438,505
Non-listed stocks		4,158,471
Foreign investments
Non-listed stocks		402,189

	$	6,999,165

The Company holds the above foreign and domestic stocks for medium to long-term strategic purposes and expects to profit from long-term investment. Accordingly, the management elected to designate these investments in equity instruments at FVOCI as they believe that recognizing short-term fair value fluctuations of these investments in profit or loss is not consistent with the Company’s strategy of holding these investments for long-term purposes. These investments in equity instruments were classified as available-for-sale financial assets under IAS 39. Refer to Notes 5, 9 and 14 for information relating to their reclassification and comparative information for 2017.

The Company recognized dividends of $164,154 thousand and $395,593 thousand from those investments held on September 30, 2018 for the three months and nine months ended September 30, 2018, respectively.

9.	AVAILABLE-FOR-SALE FINANCIAL ASSETS—NONCURRENT—2017


	December 31, 2017		September 30, 2017
Equity securities
Listed stocks	$	3,125,086	$	3,036,199

The Company evaluated and concluded that there was no indication that available-for-sale financial assets were impaired; therefore, no impairment loss was recognized for the nine months ended September 30, 2017.

- 34 -

10.

TRADE NOTES AND ACCOUNTS RECEIVABLE, NET


	September 30, 2018			December 31, 2017			September 30, 2017
Trade notes and accounts receivable	$	31,901,780		$	34,058,443		$	31,841,295
Less: Allowance doubtful account		(2,680,371	)		(2,117,349	)		(2,008,180	)

	$	29,221,409		$	31,941,094		$	29,833,115

Nine months ended September 30, 2018

The average credit terms range from 30 to 90 days.

The Company serves a large consumer base for telecommunications business; therefore, the concentration of credit risk is limited. When having transactions with customers, the Company considers the record of arrears in the past. In addition, the Company may also collect some telecommunication charges in advance to reduce the payment arrears in subsequent periods.

The Company adopted a policy of dealing with counterparties with certain credit ratings for project business and to obtain collateral where necessary to mitigate the risk of loss arising from default. Credit rating information is provided by independent rating agencies where available and, if such credit rating information is not available, the Company uses other publicly available financial information and its own historical transaction experience to rate its major customers. The Company continues to monitor the credit exposure and credit ratings of its counterparties and spread the credit risk amongst qualified counterparties.

In order to mitigate credit risk, the management of the Company has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure the recoverability of receivables. In addition, the Company reviews the recoverable amount of receivables at balance sheet dates to ensure that adequate allowance is provided for possible irrecoverable amounts. In this regard, the management believes the Company’s credit risk could be reasonably reduced.

The Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss provision for receivables. The expected credit losses on receivables are estimated using a provision matrix by reference to past default experience of the customers and an analysis of the customers’ current financial positions, as well as the forward-looking indicators such as macroeconomic business indicator.

When there are evidences indicating that the counterparty is in evasion, bankruptcy, deregistration of its company or the accounts receivable are over two years past due and the recoverable amount cannot be reasonable estimated, the Company writes off the trade notes and accounts receivable. For accounts receivable that have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivables due. Where recoveries are made, these are recognized in profit or loss.

Except for receivables arising from telecommunications business and project business, the Company’s remaining accounts receivable are limited. Therefore, only Chunghwa’s provision matrix arising from telecommunications business and project business is disclosed below.

- 35 -

September 30, 2018


	Not past due			Past due Less than 30 days			Pass due 31 to 60 days			Pass due 61 to 90 days			Pass due 91 to 120 days			Pass due 121 to 180 days			Pass due Over 181 days			Total
Telecommunications business
Expected credit loss rate (Note a)		0%-3%			3%-31%			7%-69%			20%-82%			34%-89%			63%-95%			100	%
Gross carrying amount	$	24,156,803		$	332,131		$	90,556		$	63,478		$	42,188		$	31,319		$	408,482		$	25,124,957
Loss allowance (Lifetime ECL)		(63,567	)		(29,624	)		(28,488	)		(26,986	)		(25,471	)		(22,972	)		(408,482	)		(605,590	)

Amortized cost	$	24,093,236		$	302,507		$	62,068		$	36,492		$	16,717		$	8,347		$	—		$	24,519,367

Project business
Expected credit loss rate (Note b)		0%-5%			5	%		10	%		30	%		50	%		80	%		100	%
Gross carrying amount	$	3,018,692		$	238,556		$	168,881		$	67,167		$	44,985		$	96,923		$	1,653,639		$	5,288,843
Loss allowance (Lifetime ECL)		(173,801)			(74,098	)		(52,456	)		(20,863	)		(13,973	)		(30,105	)		(1,653,639	)		(2,018,935	)

Amortized cost	$	2,844,891		$	164,458		$	116,425		$	46,304		$	31,012		$	66,818		$	—		$	3,269,908


Note a:		Please refer to Note 44 for the information of disaggregation of telecommunications service revenue. The expected credit loss rate applicable to different business revenue varies so as to reflect the risk level indicating by factors like historical experience.

Note b:		The project business has different loss types according to the customer types. The expected credit loss rate listed above is for general customers. When customer is the government or its affiliates, it is expected that no credit loss will occur. For those who had bounced or exchanged checks as well as those accounts receivable were overdue more than six months that are classified as high risk customers, the expected credit loss of high risk customers is at least 50%, and the rate is increased when the overdue days increases.

Movements of the allowance for doubtful accounts were as follows:


	Nine Months Ended September 30, 2018
Balance at January 1, 2018	$	2,117,349
Add: Provision of impairment loss		839,302
Less: Amounts written off		(276,280	)

Balance at September 30, 2018	$	2,680,371

Nine months ended September 30, 2017

The average credit terms range from 30 to 90 days. In determining the recoverability of trade notes and accounts receivable, the Company considers significant change in the credit quality of the trade notes and accounts receivable from the date credit was initially granted up to the end of the reporting period. In general, with few exceptional cases, it is unlikely for the notes and accounts receivable due longer than 180 days to be collected, therefore the Company recognized 100% allowance of notes and accounts receivable overdue longer than 180 days. For the notes and accounts receivable less than 180 days, the allowance for doubtful accounts was estimated based on the Company’s historical recovery experience.

The Company serves a large consumer base; therefore, the concentration of credit risk is limited.

- 36 -

The aging analysis for trade notes and accounts receivable as of balance sheet dates was as follows:


	December 31, 2017		September 30, 2017
Non-overdue	$	30,031,885	$	28,202,575
Less than 30 days		1,280,443		1,070,457
31-60 days		484,795		392,168
61-90 days		278,242		205,870
91-120 days		253,318		220,896
121-180 days		122,086		194,252
More than 181 days		1,607,674		1,555,077

	$	34,058,443	$	31,841,295

The above aging analysis was based on days overdue.

At the balance sheet dates, the receivables that were past due but not impaired were considered recoverable by the management of the Company. The aging of these receivables as of balance sheet dates was as follows:


	December 31, 2017		September 30, 2017
Less than 30 days	$	328,438	$	197,209
31-60 days		36,253		32,691
61-90 days		7,279		19,541
91-120 days		69,486		88,741
121-180 days		549		1,420
More than 181 days		6,572		9,846

	$	448,577	$	349,448

The above aging analysis was based on days overdue.

Movements of the allowance for doubtful accounts were as follows:


	Individually Assessed for Impairment			Collectively Assessed for Impairment			Total
Balance on January 1, 2017	$	805,145		$	967,880		$	1,773,025
Add: Provision for (reversal of) doubtful accounts		433,975			(17,958	)		416,017
Deduct: Amounts written off		(5,544	)		(175,318	)		(180,862	)

Balance on September 30, 2017	$	1,233,576		$	774,604		$	2,008,180

- 37 -

11.

INVENTORIES


	September 30, 2018		December 31, 2017		September 30, 2017
Merchandise	$	5,270,664	$	5,133,528	$	4,763,257
Project in process		6,445,139		1,390,212		2,005,945
Work in process		107,311		151,804		105,670
Raw materials		113,726		88,726		91,156

		11,936,840		6,764,270		6,966,028
Land held under development		1,998,733		1,998,733		1,998,733
Construction in progress		76,612		76,612		76,612

	$	14,012,185	$	8,839,615	$	9,041,373

The operating costs related to inventories were $11,036,550 thousand (including the valuation loss on inventories of $86,723 thousand) and $33,648,752 thousand (including the valuation loss on inventories of $122,884 thousand) for the three months and nine months ended September 30, 2018, respectively. The operating costs related to inventories were $13,077,279 thousand (including the valuation loss on inventories of $5,072 thousand) and $38,010,811 thousand (including the valuation loss on inventories of $23,351 thousand) for the three months and nine months ended September 30, 2017, respectively.

As of September 30, 2018, December 31, 2017 and September 30, 2017, inventories of $2,075,345 thousand were expected to be recovered after more than twelve months. The aforementioned amount of inventories is related to property development owned by LED.

Land held under development and construction in progress on September 30, 2018, December 31, 2017 and September 30, 2017 was for Qingshan Sec., Dayuan Dist., Taoyuan City project developed by LED.

12.

PREPAYMENTS


	September 30, 2018		December 31, 2017		September 30, 2017
Prepaid salary and bonus	$	2,668,146	$	—	$	2,651,586
Prepaid rents		2,616,183		2,687,513		2,854,783
Others		3,071,831		3,074,005		3,250,840

	$	8,356,160	$	5,761,518	$	8,757,209

Current
Prepaid salary and bonus	$	2,668,146	$	—	$	2,651,586
Prepaid rents		926,884		812,148		994,121
Others		1,474,463		1,376,025		1,497,238

	$	5,069,493	$	2,188,173	$	5,142,945

Noncurrent
Prepaid rents	$	1,689,299	$	1,875,365	$	1,860,662
Others		1,597,368		1,697,980		1,753,602

	$	3,286,667	$	3,573,345	$	3,614,264

- 38 -

13.

OTHER CURRENT MONETARY ASSETS


	September 30, 2018		December 31, 2017		September 30, 2017
Time deposits and negotiable certificates of deposit with maturities of more than three months	$	4,851,358	$	4,053,637	$	3,801,729
Others		1,507,906		1,254,423		1,645,222

	$	6,359,264	$	5,308,060	$	5,446,951

The annual yield rates of time deposits and negotiable certificates of deposit with maturities of more than three months were as follows:


	September 30, 2018		December 31, 2017		September 30, 2017
Time deposits and negotiable certificates of deposit with maturities of more than three months		0.07%-2.83%		0.06%-4.15%		0.06%-1.95%

14.

FINANCIAL ASSETS CARRIED AT COST—2017


	December 31, 2017		September 30, 2017
Non-listed stocks
Domestic	$	2,331,798	$	1,943,465
Foreign		293,987		293,911

	$	2,625,785	$	2,237,376

Since the fair values of the above non-listed stocks investments cannot be reliably measured due to the range of reasonable fair value estimates was so significant, the above non-listed stocks investments owned by the Company were measured at costs less any impairment losses at the balance sheet dates.

The Company disposed financial assets carried at cost with carrying amount of $4,587 thousand and recognized the disposal gain of $2,705 thousand for the nine months ended September 30, 2017.

The Company evaluated and concluded that there was no indication that financial assets carried at cost were impaired; therefore, no impairment loss was recognized for the nine months ended September 30, 2017.

- 39 -

15.

SUBSIDIARIES

Information on significant noncontrolling interest subsidiary


	Principal Place of Business		Proportion of Ownership Interests and Voting Rights Held by Noncontrolling Interests
Subsidiaries	Principal Place of Business		September 30, 2018			December 31, 2017			September 30, 2017
SENAO		Taiwan		72	%		71	%		71	%
CHPT		Taiwan		66	%		62	%		62	%


	Profit Allocated to Noncontrolling Interests
	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
SENAO	$	43,720	$	163,229	$	188,947	$	444,634

CHPT	$	116,218	$	137,477	$	348,393	$	369,575


	Accumulated Noncontrolling Interests
	September 30, 2018		December 31, 2017		September 30, 2017
SENAO	$	4,142,443	$	4,257,408	$	4,032,892
CHPT		3,935,766		3,555,563		3,489,542
Individually immaterial subsidiaries with noncontrolling interests		1,708,895		884,624		790,022

	$	9,787,104	$	8,697,595	$	8,312,456

Summarized financial information in respect of SENAO and its subsidiaries that has material noncontrolling interests is set out below. The summarized financial information below represents amounts before intercompany eliminations.


	September 30, 2018			December 31, 2017			September 30, 2017
Current assets	$	7,186,828		$	7,584,225		$	7,807,971
Noncurrent assets		2,652,429			2,686,696			2,631,217
Current liabilities		(3,994,879	)		(4,203,944	)		(4,678,326	)
Noncurrent liabilities		(152,905	)		(160,366	)		(151,139	)

Equity	$	5,691,473		$	5,906,611		$	5,609,723

Equity attributable to the parent	$	1,549,030		$	1,649,203		$	1,576,831
Equity attributable to noncontrolling interests		4,142,443			4,257,408			4,032,892

	$	5,691,473		$	5,906,611		$	5,609,723

- 40 -


	Three Months Ended September 30					Nine Months Ended September 30
	2018			2017		2018			2017
Revenues and income	$	7,383,641		$	9,100,307	$	23,564,819		$	26,785,736
Costs and expenses		7,322,687			8,870,603		23,297,577			26,157,510

Profit for the period	$	60,954		$	229,704	$	267,242		$	628,226

Profit attributable to the parent	$	17,234		$	66,475	$	78,295		$	183,592
Profit attributable to noncontrolling interests		43,720			163,229		188,947			444,634

Profit for the period	$	60,954		$	229,704	$	267,242		$	628,226

Other comprehensive income (loss) attributable to the parent	$	(3,802	)	$	1,911	$	303		$	(4,608	)
Other comprehensive income (loss) attributable to noncontrolling interests		(9,453	)		4,727		(5,318	)		(11,404	)

	$	(13,255	)	$	6,638	$	(5,015	)	$	(16,012	)

Total comprehensive income attributable to the parent	$	13,432		$	68,386	$	78,598		$	178,984
Total comprehensive income attributable to noncontrolling interests		34,267			167,956		183,629			433,230

	$	47,699		$	236,342	$	262,227		$	612,214


	Nine Months Ended September 30
	2018			2017
Net cash flow from operating activities	$	610,363		$	258,896
Net cash flow from investing activities		(15,067	)		74,396
Net cash flow from financing activities		(470,555	)		(653,550	)
Effect of exchange rate changes on cash and cash equivalents		299			(2,337	)

Net cash inflow (outflow)	$	125,040		$	(322,595	)

Dividends paid to noncontrolling interests	$	587,264		$	703,207

- 41 -

Summarized financial information in respect of CHPT and its subsidiaries that has material noncontrolling interests is set out below. The summarized financial information below represents amounts before intercompany eliminations.


	September 30, 2018			December 31, 2017			September 30, 2017
Current assets	$	4,525,604		$	4,495,601		$	4,293,195
Noncurrent assets		2,613,526			2,167,138			2,055,523
Current liabilities		(1,152,002	)		(899,079	)		(691,749	)
Noncurrent liabilities		(1,173	)		(997	)		(1,305	)

Equity	$	5,985,955		$	5,762,663		$	5,655,664

Equity attributable to CHI	$	2,050,189		$	2,207,100		$	2,166,122
Equity attributable to noncontrolling interests		3,935,766			3,555,563			3,489,542

	$	5,985,955		$	5,762,663		$	5,655,664


	Three Months Ended September 30					Nine Months Ended September 30
	2018			2017		2018			2017
Revenues and income	$	930,947		$	936,825	$	2,569,646		$	2,572,949
Costs and expenses		752,047			705,166		2,018,193			1,949,299

Profit for the period	$	178,900		$	231,659	$	551,453		$	623,650

Profit attributable to CHI	$	62,682		$	94,182	$	203,060		$	254,075
Profit attributable to noncontrolling interests		116,218			137,477		348,393			369,575

Profit for the period	$	178,900		$	231,659	$	551,453		$	623,650

Other comprehensive income (loss) attributable to CHI	$	(445	)	$	273	$	35		$	(1,003	)
Other comprehensive income (loss) attributable to noncontrolling interests		(959	)		230		(306	)		(1,623	)

	$	(1,404	)	$	503	$	(271	)	$	(2,626	)

Total comprehensive income attributable to CHI	$	62,237		$	94,455	$	203,095		$	253,072
Total comprehensive income attributable to noncontrolling interests		115,259			137,707		348,087			367,952

	$	177,496		$	232,162	$	551,182		$	621,024

- 42 -


	Nine Months Ended September 30
	2018			2017
Net cash flow from operating activities	$	646,686		$	801,716
Net cash flow from investing activities		(510,256	)		(615,459	)
Net cash flow from financing activities		(327,890	)		2,310,741
Effect of exchange rate changes on cash and cash equivalents		195			(2,652	)

Net cash inflow (outflow)	$	(191,265	)	$	2,494,346

Dividends paid to noncontrolling interests	$	209,711		$	145,849

Equity transactions with noncontrolling interests

SENAO transferred its treasury stock to employees in June 2017 and June 2018 and the Company’s ownership interest in SENAO decreased to 29.18% and 28.18% as of September 30, 2017 and 2018, respectively. See Note 34(b) for details.

CHI did not participate in the capital increase of CHPT in September 2017 and disposed some shares of CHPT from April to August 2018. Therefore, the Company’s ownership interest in CHPT decreased to 34.25% as of September 30, 2018. See Note 34(e) for details.

CHIEF issued new shares in March 2018 as its employees exercised their options. In addition, Chunghwa and CHI disposed some shares of CHIEF in May 2018 before CHIEF traded its shares on the General Stock Market of the Taipei Exchange according to the local requirements. Furthermore, Chunghwa and CHI did not participate in the capital increase of CHIEF in June 2018. Therefore, the Company’s equity ownership interest in CHIEF decreased to 60.28% as of September 30, 2018. See Note 34(c)(d) for details.

Chunghwa and CHI disposed some shares of CHIEF in June 2017 before CHIEF traded its shares on the emerging stock market according to the local requirements. The Company’s ownership interest in CHIEF decreased to 70.43% as of September 30, 2017.

The above transactions were accounted for as equity transactions since the Company did not cease to have control over these subsidiaries.

Information of the Company’s equity transactions with noncontrolling interests for the nine months ended September 30, 2018 and 2017 were as follows:


	Nine Months Ended September 30, 2018
	SENAO Transferred its Treasury Stock			CHI Disposed Some Shares of CHPT			Chunghwa and CHI Did Not Participate in the Capital Increase of CHIEF			Chunghwa and CHI Disposed Some Shares of CHIEF			Share-Based Payment of CHIEF
Cash consideration received from noncontrolling interests	$	327,122		$	1,041,689		$	1,476,680		$	132,711		$	33,299
The proportionate share of the carrying amount of the net assets of the subsidiary transferred to noncontrolling interests		(273,200	)		(330,100	)		(699,899	)		(18,253	)		(21,180	)

Differences arising from equity transactions	$	53,922		$	711,589		$	776,781		$	114,458		$	12,119

(Continued)

- 43 -


	Nine Months Ended September 30, 2018
	SENAO Transferred its Treasury Stock		CHI Disposed Some Shares of CHPT		Chunghwa and CHI Did Not Participate in the Capital Increase of CHIEF		Chunghwa and CHI Disposed Some Shares of CHIEF		Share-Based Payment of CHIEF
Line items for equity transaction adjustments
Additional paid-in capital-difference between consideration received or paid and the carrying amount of the subsidiaries’ net assets upon actual disposal or acquisition	$	—	$	711,589	$	—	$	114,458	$	—

Additional paid-in capital—arising from changes in equities of subsidiaries	$	53,922	$	—	$	776,781	$	—	$	12,119

(Concluded)


	Nine Months Ended September 30, 2017
	CHI Did Not Participate in the Capital Increase of CHPT			Chunghwa and CHI Disposed Some Shares of CHIEF			SENAO Transfered its Treasury Stock
Cash consideration received from noncontrolling interests	$	2,557,053		$	105,931		$	54,438
The proportionate share of the carrying amount of the net assets of the subsidiary transferred to noncontrolling interests		(1,753,711	)		(29,217	)		(45,121	)

Differences arising from equity transactions	$	803,342		$	76,714		$	9,317

Line items for equity transaction adjustments
Additional paid-in capital—difference between consideration received or paid and the carrying amount of the subsidiaries’ net assets upon actual disposal or acquisition	$	—		$	76,714		$	—

Additional paid-in capital—arising from changes in equities of subsidiaries	$	803,342		$	—		$	9,317

- 44 -

16.

INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD


	September 30, 2018		December 31, 2017		September 30, 2017
Investments in associates	$	2,660,106	$	2,546,374	$	2,552,050
Investments in joint ventures		—		—		1,897

	$	2,660,106	$	2,546,374	$	2,553,947

Investments in associates

Investments in associates were as follows:


	Carrying Amount
	September 30, 2018		December 31, 2017		September 30, 2017

Listed

Senao Networks, Inc. (“SNI”)	$	887,402	$	862,116	$	805,633

Non-listed

ST-2 Satellite Ventures Pte., Ltd. (“STS”)		558,770		472,505		556,344
International Integrated System, Inc. (“IISI”)		315,475		296,333		288,283
Viettel-CHT Co., Ltd. (“Viettel-CHT”)		268,313		256,323		244,356
Taiwan International Standard Electronics Co., Ltd. (“TISE”)		149,674		136,885		121,013
Skysoft Co., Ltd. (“SKYSOFT”)		133,553		139,741		145,329
KingwayTek Technology Co., Ltd. (“KWT”)		129,449		128,269		117,464
So-net Entertainment Taiwan Limited (“So-net”)		105,820		104,171		109,526
Taiwan International Ports Logistics Corporation (“TIPL”)		47,958		49,631		50,462
Click Force Co., Ltd. (“CF”)		37,297		38,175		37,863
Dian Zuan Integrating Marketing Co., Ltd. (“DZIM”)		17,177		25,006		25,140
Alliance Digital Tech Co., Ltd. (“ADT”)		9,218		14,488		27,593
HopeTech Technologies Limited (“HopeTech”)		—		22,731		23,044
MeWorks LIMITED (HK) (“MeWorks”)		—		—		—

	$	2,660,106	$	2,546,374	$	2,552,050

- 45 -

The percentages of ownership and voting rights in associates held by the Company as of balance sheet dates were as follows:


	% of Ownership and Voting Rights
	September 30, 2018		December 31, 2017		September 30, 2017
Senao Networks, Inc. (“SNI”)		34		34		34
ST-2 Satellite Ventures Pte., Ltd. (“STS”)		38		38		38
International Integrated System, Inc. (“IISI”)		32		32		32
Viettel-CHT Co., Ltd. (“Viettel-CHT”)		30		30		30
Taiwan International Standard Electronics Co., Ltd. (“TISE”)		40		40		40
Skysoft Co., Ltd. (“SKYSOFT”)		30		30		30
KingwayTek Technology Co., Ltd. (“KWT”)		26		26		26
So-net Entertainment Taiwan Limited (“So-net”)		30		30		30
Taiwan International Ports Logistics Corporation (“TIPL”)		27		27		27
Click Force Co., Ltd. (“CF”)		49		49		49
Dian Zuan Integrating Marketing Co., Ltd. (“DZIM”)		22		22		22
Alliance Digital Tech Co., Ltd. (“ADT”)		14		14		14
HopeTech Technologies Limited (“HopeTech”)		—		45		45
MeWorks LIMITED (HK) (“MeWorks”)		20		20		20

None of the above associates is considered individually material to the Company. Summarized financial information of associates that are not individually material was as follows:


	Three Months Ended September 30					Nine Months Ended September 30
	2018		2017			2018		2017
The Company’s share of profits	$	137,856	$	74,687		$	329,528	$	295,086
The Company’s share of other comprehensive income (loss)		2,263		(132	)		4,522		(3,175	)

The Company’s share of total comprehensive income	$	140,119	$	74,555		$	334,050	$	291,911

The Level 1 fair values based on the closing market prices of SNI as of the balance sheet dates were as follows:


	September 30, 2018		December 31, 2017		September 30, 2017
SNI	$	1,856,852	$	2,130,406	$	2,155,274

- 46 -

HopeTech returned the proceeds of $19,184 thousand as a result of capital reduction in January 2018. The Company received $3,379 thousand by disposing all shares of HopeTech in June 2018 and recognized disposal loss of $125 thousand. HopeTech engages mainly in sale of information and communication technologies products.

The Company did not participate in the capital increase of DZIM in April 2017 and the ownership interest of DZIM decreased from 26% to 22%. DZIM engages mainly in information technology service and general advertisement service.

The Company owns 14% equity shares of ADT. As the Company remains the seat in the Board of Directors of ADT and considers the relative size of ownership interest and the dispersion of shares owned by the other stockholders, the Company remains significant influence over ADT. In June 2018, the stockholders of ADT approved to dissolve. ADT engages mainly in the development of mobile payments and information processing service.

The Company’s share of profit and other comprehensive income (loss) of associates was recognized based on the reviewed financial statements.

Investments in joint ventures

Investments in joint ventures were as follows:


	Carrying Amount						% of Ownership and Voting Rights
	September 30, 2018		December 31, 2017		September 30, 2017		September 30, 2018		December 31, 2017		September 30, 2017
Non-listed
Chunghwa Benefit One Co., Ltd. (“CBO”)	$	—	$	—	$	1,897		—		—		50
Huada Digital Corporation (“HDD”)		—		—		—		—		—		—

	$	—	$	—	$	1,897

In December 2016, the stockholders of CBO approved that CBO should start its dissolution from December 31, 2016. CBO completed its liquidation in December 2017.

In March 2016, the stockholders of HDD approved that HDD should start its dissolution from March 31, 2016. HDD completed its liquidation in March 2017.

None of the above joint ventures is considered individually material to the Company. Summarized financial information of joint ventures that was not material to the Company was as follows:


	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
The Company’s share of loss	$	—	$	—	$	—	$	(779	)
The Company’s share of other comprehensive income		—		—		—		—

The Company’s share of total comprehensive loss	$	—	$	—	$	—	$	(779	)

The Company’s share of loss of joint ventures was recorded based on the reviewed financial statements.

- 47 -

17. PROPERTY, PLANT AND EQUIPMENT


	Land			Land Improvements			Buildings			Computer Equipment			Telecommuni- cations Equipment			Transportation Equipment			Miscellaneous Equipment			Construction in Progress and equipment to be accepted			Total
Cost
Balance on January 1, 2017	$	103,872,069		$	1,580,893		$	67,737,813		$	14,294,817		$	715,692,476		$	3,866,401		$	8,942,936		$	20,140,722		$	936,128,127
Additions		—			—			14,853			50,271			156,305			1,053			165,663			13,453,504			13,841,649
Disposal		(147,324	)		(4,701	)		(2,207	)		(685,784	)		(8,329,177	)		(39,813	)		(223,944	)		—			(9,432,950	)
Effect of foreign exchange differences		—			—			—			(399	)		(139,209	)		(74	)		(3,083	)		(46	)		(142,811	)
Others		312,565			3,107			4,030,646			246,848			12,845,112			22,974			480,800			(18,068,451	)		(126,399	)

Balance on September 30, 2017	$	104,037,310		$	1,579,299		$	71,781,105		$	13,905,753		$	720,225,507		$	3,850,541		$	9,362,372		$	15,525,729		$	940,267,616

Accumulated depreciation and impairment
Balance on January 1, 2017	$	—		$	(1,248,614	)	$	(25,591,288	)	$	(11,581,679	)	$	(596,497,180	)	$	(3,237,064	)	$	(6,802,542	)	$	—		$	(644,958,367	)
Depreciation expenses		—			(37,507	)		(1,061,637	)		(905,422	)		(18,425,082	)		(268,719	)		(510,407	)		—			(21,208,774	)
Disposal		—			4,688			2,207			680,581			8,307,862			39,783			215,438			—			9,250,559
Effect of foreign exchange differences		—			—			—			180			35,436			64			1,387			—			37,067
Others		—			1,082			139,329			11,865			79,217			(7,026	)		(111,518	)		—			112,949

Balance on September 30, 2017	$	—		$	(1,280,351	)	$	(26,511,389	)	$	(11,794,475	)	$	(606,499,747	)	$	(3,472,962	)	$	(7,207,642	)	$	—		$	(656,766,566	)

Balance on January 1, 2017, net	$	103,872,069		$	332,279		$	42,146,525		$	2,713,138		$	119,195,296		$	629,337		$	2,140,394		$	20,140,722		$	291,169,760

Balance on September 30, 2017, net	$	104,037,310		$	298,948		$	45,269,716		$	2,111,278		$	113,725,760		$	377,579		$	2,154,730		$	15,525,729		$	283,501,050

Cost
Balance on January 1, 2018	$	104,079,190		$	1,594,899		$	72,694,050		$	14,161,797		$	722,054,435		$	3,834,372		$	9,514,875		$	18,526,814		$	946,460,432
Additions		—			—			14,325			33,610			59,196			270			196,611			18,497,861			18,801,873
Disposal		(28,379	)		(337	)		(23	)		(455,245	)		(25,165,235	)		(21,047	)		(492,999	)		—			(26,163,265	)
Effect of foreign exchange differences		—			—			—			(169	)		48,787			37			(809	)		99			47,945
Others		10,488			3,607			114,883			218,095			16,366,803			26,787			415,193			(17,151,377	)		4,479

Balance on September 30, 2018	$	104,061,299		$	1,598,169		$	72,823,235		$	13,958,088		$	713,363,986		$	3,840,419		$	9,632,871		$	19,873,397		$	939,151,464

Accumulated depreciation and impairment
Balance on January 1, 2018	$	—		$	(1,292,527	)	$	(26,798,694	)	$	(11,787,847	)	$	(607,154,914	)	$	(3,513,529	)	$	(7,205,011	)	$	—		$	(657,752,522	)
Depreciation expenses		—			(34,760	)		(1,016,433	)		(756,705	)		(18,152,985	)		(130,657	)		(506,643	)		—			(20,598,183	)
Disposal		—			337			23			444,637			25,139,451			21,013			486,640			—			26,092,101
Effect of foreign exchange differences		—			—			—			97			(16,907	)		(23	)		504			—			(16,329	)
Others		—			(18	)		11,398			(4,976	)		24,402			(4,087	)		(17,572	)		—			9,147

Balance on September 30, 2018	$	—		$	(1,326,968	)	$	(27,803,706	)	$	(12,104,794	)	$	(600,160,953	)	$	(3,627,283	)	$	(7,242,082	)	$	—		$	(652,265,786	)

Balance on January 1, 2018, net	$	104,079,190		$	302,372		$	45,895,356		$	2,373,950		$	114,899,521		$	320,843		$	2,309,864		$	18,526,814		$	288,707,910

Balance on September 30, 2018, net	$	104,061,299		$	271,201		$	45,019,529		$	1,853,294		$	113,203,033		$	213,136		$	2,390,789		$	19,873,397		$	286,885,678

There was no indication that property, plant and equipment was impaired so the Company did not recognize any impairment loss for the nine months ended September 30, 2018 and 2017.

Depreciation expense is computed using the straight-line method over the following estimated service lives:


Land improvements		8-30 years
Buildings
Main buildings		35-60 years
Other building facilities		3-20 years
Computer equipment		2-8 years
Telecommunications equipment
Telecommunication circuits		2-30 years
Telecommunication machinery and antennas equipment		2-30 years
Transportation equipment		3-10 years
Miscellaneous equipment
Leasehold improvements		1-6 years
Mechanical and air conditioner equipment		3-16 years
Others		1-10 years

- 48 -

18.

INVESTMENT PROPERTIES


Cost
Balance on January 1, 2017	$	9,194,652
Reclassification		(7,351	)

Balance on September 30, 2017	$	9,187,301

Accumulated depreciation and impairment
Balance on January 1, 2017	$	(1,080,119	)
Depreciation expense		(15,637	)
Reclassification		2,947

Balance on September 30, 2017	$	(1,092,809	)

Balance on January 1, 2017, net	$	8,114,533

Balance on September 30, 2017, net	$	8,094,492

Cost
Balance on January 1, 2018	$	9,134,817
Additions		5,627

Balance on September 30, 2018	$	9,140,444

Accumulated depreciation and impairment
Balance on January 1, 2018	$	(1,087,024	)
Depreciation expense		(15,584	)

Balance on September 30, 2018	$	(1,102,608	)

Balance on January 1, 2018, net	$	8,047,793

Balance on September 30, 2018, net	$	8,037,836

Depreciation expense is computed using the straight-line method over the following estimated service lives:


Land improvements		8-30 years
Buildings
Main buildings		35-60 years
Other building facilities		4-10 years

The fair values of the Company’s investment properties as of December 31, 2017 and 2016 were determined by Level 3 fair value measurements inputs based on the appraisal reports conducted by independent appraisers. The Company used the aforementioned appraisal reports as the basis to determine the fair values as of September 30, 2018 and 2017 because there was no material change in the economic environment and the market transaction price. Those appraisal reports are based on the comparison approach, income approach or cost approach. Key assumptions and the fair values were as follows:

- 49 -


	September 30, 2018		December 31, 2017		September 30, 2017
Fair value	$	17,728,012	$	17,728,012	$	17,778,228

Overall capital interest rate		1.46%-2.20%		1.46%-2.20%		1.46%-2.20%
Profit margin ratio		12%-20%		12%-20%		10%-20%
Discount rate		1.04%		1.04%		1.04%
Capitalization rate		0.47%-1.69%		0.47%-1.69%		0.43%-1.78%

All of the Company’s investment properties are held under freehold interest.

19.

INTANGIBLE ASSETS


	3G and 4G Concession			Computer Software			Goodwill			Others			Total
Cost
Balance on January 1, 2017	$	59,209,000		$	3,408,092		$	236,200		$	414,231		$	63,267,523
Additions-acquired separately		—			124,981			—			1,630			126,611
Disposal		—			(315,686	)		—			(18	)		(315,704	)
Effect of foreign exchange difference		—			(209	)		—			(65	)		(274	)

Balance on September 30, 2017	$	59,209,000		$	3,217,178		$	236,200		$	415,778		$	63,078,156

Accumulated amortization and impairment
Balance on January 1, 2017	$	(13,412,712	)	$	(2,413,337	)	$	(18,055	)	$	(69,995	)	$	(15,914,099	)
Amortization expenses		(2,303,889	)		(366,218	)		—			(17,628	)		(2,687,735	)
Disposal		—			315,686			—			18			315,704
Effect of foreign exchange difference		—			169			—			(1	)		168

Balance on September 30, 2017	$	(15,716,601	)	$	(2,463,700	)	$	(18,055	)	$	(87,606	)	$	(18,285,962	)

Balance on January 1, 2017, net	$	45,796,288		$	994,755		$	218,145		$	344,236		$	47,353,424

Balance on September 30, 2017, net	$	43,492,399		$	753,478		$	218,145		$	328,172		$	44,792,194

Cost
Balance on January 1, 2018	$	70,144,000		$	3,311,610		$	236,200		$	418,150		$	74,109,960
Additions-acquired separately		—			199,149			—			4,112			203,261
Disposal		—			(321,356	)		—			(58,009	)		(379,365	)
Effect of foreign exchange difference		—			41			—			(95	)		(54	)

Balance on September 30, 2018	$	70,144,000		$	3,189,444		$	236,200		$	364,158		$	73,933,802

Accumulated amortization and impairment
Balance on January 1, 2018	$	(16,674,565	)	$	(2,431,797	)	$	(26,677	)	$	(93,653	)	$	(19,226,692	)
Amortization expenses		(2,955,280	)		(309,998	)		—			(17,204	)		(3,282,482	)
Disposal		—			321,356			—			58,009			379,365
Impairment losses		—			—			—			(50,750	)		(50,750	)
Effect of foreign exchange difference		—			(40	)		—			21			(19	)

Balance on September 30, 2018	$	(19,629,845	)	$	(2,420,479	)	$	(26,677	)	$	(103,577	)	$	(22,180,578	)

Balance on January 1, 2018, net	$	53,469,435		$	879,813		$	209,523		$	324,497		$	54,883,268

Balance on September 30, 2018, net	$	50,514,155		$	768,965		$	209,523		$	260,581		$	51,753,224

(Concluded)

- 50 -

For long-term business development, Chunghwa deposited $1,000,000 thousand as bid bond in August 2017. Chunghwa submitted an application to NCC for 4G mobile broadband license in 1.8 and 2.1 GHz frequency bands and obtained certain spectrums. Chunghwa paid the 4G concession fee amounting to $10,935,000 thousand in November 2017.

The concessions are granted and issued by the NCC. The concession fees are amortized using the straight-line method from the date operations commence through the date the license expires. The carrying amount of 3G concession fee will be fully amortized by December 2018, and 4G concession fees will be fully amortized by December 2030 and December 2033.

The computer software is amortized using the straight-line method over the estimated useful lives of 1 to 10 years. Other intangible assets are amortized using the straight-line method over the estimated useful lives of 3 to 20 years. Goodwill is not amortized.

SENAO evaluated and determined that the recoverable amount of certain licensed contract was nil and recognized the impairment loss of $50,750 thousand for the nine months ended September 30, 2018. The recoverable amount was based on the value in use. The aforementioned impairment loss was included in other income and expenses of statement of comprehensive income.

20.

OTHER ASSETS


	September 30, 2018		December 31, 2017		September 30, 2017
Spare parts	$	2,788,548	$	2,058,769	$	2,584,509
Refundable deposits		1,824,679		1,860,364		1,664,858
Other financial assets		1,000,000		1,000,000		1,000,000
Telecom license bid bond (Note 19)		—		—		1,000,000
Others		2,676,820		2,800,112		2,542,659

	$	8,290,047	$	7,719,245	$	8,792,026

Current
Spare parts	$	2,788,548	$	2,058,769	$	2,584,509
Others		267,237		123,989		160,273

	$	3,055,785	$	2,182,758	$	2,744,782

Noncurrent
Refundable deposits	$	1,824,679	$	1,860,364	$	1,664,858
Other financial assets		1,000,000		1,000,000		1,000,000
Telecom license bid bond		—		—		1,000,000
Others		2,409,583		2,676,123		2,382,386

	$	5,234,262	$	5,536,487	$	6,047,244

- 51 -

Other financial assets—noncurrent was Piping Fund. As part of the government’s effort to upgrade the existing telecommunications infrastructure, Chunghwa and other public utility companies were required by the ROC government to contribute to a Piping Fund administered by the Taipei City Government. This fund was used to finance various telecommunications infrastructure projects. Net assets of this fund will be returned proportionately after the project is completed.

21.

HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

2018

Chunghwa’s hedge strategy is to enter forward exchange contracts—buy to avoid its foreign currency exposure to certain foreign currency denominated equipment payments in the following six months. In addition, Chunghwa’s management considers the market condition to determine the hedge ratio and enters into forward exchange contracts with the banks to avoid the foreign currency risk.

Chunghwa signed equipment purchase contracts with suppliers and entered into forward exchange contracts to avoid foreign currency risk exposure to Euro-denominated purchase commitments. Those forward exchange contracts were designated as cash flow hedges. When forecast purchases actually take place, basis adjustments are made to the initial carrying amounts of hedged items.

For the hedges of highly probable forecast sales and purchases, as the critical terms (i.e. the notional amount, life and underlying) of the forward foreign exchange contracts and their corresponding hedged items are the same, the Company performs a qualitative assessment of effectiveness and it is expected that the value of the forward contracts and the value of the corresponding hedged items will systematically change in opposite direction in response to movements in the underlying exchange rates.

The main source of hedge ineffectiveness in these hedging relationships is the effect of credit risks of the Company and the counterparty on the fair value of the forward exchange contracts. Such credit risks does not impact the fair value of the hedged item attributable to changes in foreign exchange rates. No other sources of ineffectiveness emerged from these hedging relationships.

The following tables summarize the information relating to the hedges for foreign currency risk.

September 30, 2018

Notional
Amount

Forward

Line item in

Carrying
amount

Change in fair
values of hedging
instruments used
for calculating
hedge

Hedging instruments

Currency

(In Thousands)

Maturity

Rate

balance sheet

Asset

Liability

ineffectiveness

Cash flow hedge

Forecast purchases—forward exchange contracts

EUR/NT$

EUR2,500/
NT$88,583

2018.12

35.43

Hedging financial
assets

(liabilities

)

367

—

1,217


	Change in value of hedged item used for calculating hedge ineffectiveness			Accumulated gain or loss on hedging instruments in other equity
Hedged items				Continuing hedges		Hedge accounting no longer applied
Cash flow hedge
Forecast equipment purchases	$	(1,217	)	$	367	$	—

- 52 -

Nine months ended September 30, 2018


	Comprehensive income
							Reclassification from equity to profit or loss and the adjusted line item
Hedge transaction	Hedging gain or loss recognized in OCI		Amount of hedge ineffectiveness recognized in profit or loss		Line item in which hedge ineffectiveness is included		Amount reclassified to P/L and the adjusted line item			Due to hedged future cash flows no longer expected to occur
Cash flow hedge
Forecast equipment purchases	$	1,217	$	—		—	$	(3,529 Construction in progress and equipment to be accepted	)	$	(297 Other gains and losses	)

2017

The hedging policy of 2017 for foreign currency risk is the same as that in 2018. The hedging instrument was showed as follows:


	December 31, 2017		September 30, 2017
Hedging derivative financial Assets
Cash flow hedge—forward exchange contracts	$	—	$	537

Hedging derivative financial Liabilities
Cash flow hedge—forward exchange contracts	$	850	$	—

For the three months and nine months ended September 30, 2017, changes in fair value of the hedged items recognized in other comprehensive income was loss of $521 thousand and gain of $1,124 thousand, respectively. Upon the completion of the purchase transaction, the amount deferred and recognized in equity initially will be reclassified into equipment as its carrying value.

No reclassification was made from equity to profit or loss for the nine months ended September 30, 2017.

The outstanding forward exchange contracts at the balance sheet dates were as follows:

Currency

Maturity Period

Contract Amount
(Thousands)

December 31, 2017

Forward exchange contracts—buy

EUR/NT$

2018.03-06

EUR3,963/NT$

141,605

September 30, 2017

Forward exchange contracts—buy

EUR/NT$

2017.12-2018.03

EUR6,741/NT$

240,803

- 53 -

Gain (losses) arising from the hedging derivative financial instruments that have been reclassified from equity to initial cost of the property, plant and equipment were as follows:


	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Construction in progress and equipment to be accepted	$	8,000	$	3,584

22.

SHORT-TERM LOANS


	September 30, 2018		December 31, 2017		September 30, 2017
Secured loans (Note 40)	$	—	$	—	$	33,000
Unsecured loans		120,000		70,000		390,000

	$	120,000	$	70,000	$	423,000

The annual interest rates of loans were as follows:


	September 30, 2018	December 31, 2017	September 30, 2017
Secured loans	—	—	1.98%-2.28%
Unsecured loans	1.35%-2.35%	2.15%-2.19%	0.80%-2.19%

23.

LONG-TERM LOANS (INCLUDING LONG-TERM LOANS—CURRENT PORTION)


	September 30, 2018		December 31, 2017		September 30, 2017
Secured loans (Note 40)	$	1,600,000	$	1,600,000	$	1,600,000
Less: Current portion of long-term loans		—		—		(1,600,000	)

	$	1,600,000	$	1,600,000	$	—

The annual interest rates of loans were as follows:


	September 30, 2018			December 31, 2017			September 30, 2017
Secured loans		0.92	%		0.91	%		0.91	%

LED obtained a secured loan from Chang Hwa Bank in September 2010. Interest is paid monthly. $300,000 thousand and $1,350,000 thousand were originally due in December 2014 and September 2015, respectively. In October 2014, the bank borrowing mentioned above was extended to September 2018 for one time repayment. LED made an early repayment of $50,000 thousand in April 2015. LED entered into a contract with Chang Hwa Bank to renew the contract upon the maturity of the aforementioned contract in December 2017 and the due date of the renew contract is September 2021.

- 54 -

24.

TRADE NOTES AND ACCOUNTS PAYABLE


	September 30, 2018		December 31, 2017		September 30, 2017
Trade notes and accounts payable	$	20,546,011	$	19,395,889	$	17,643,423

Trade notes and accounts payable were attributable to operating activities and the trading conditions were agreed separately.

25.

OTHER PAYABLES


	September 30, 2018		December 31, 2017		September 30, 2017
Accrued salary and compensation	$	6,872,977	$	9,748,433	$	7,671,521
Payables to equipment suppliers		1,818,405		1,689,685		839,758
Accrued compensation to employees and remuneration to directors and supervisors		1,405,065		1,948,821		1,525,561
Payables to contractors		1,384,653		2,057,651		912,217
Amounts collected for others		1,173,806		1,202,933		1,217,281
Accrued maintenance costs		1,020,974		1,081,473		995,299
Accrued franchise fees		871,167		1,248,010		944,173
Others		6,341,290		6,024,395		6,225,898

	$	20,888,337	$	25,001,401	$	20,331,708

26.

PROVISIONS


	September 30, 2018		December 31, 2017		September 30, 2017
Warranties	$	129,056	$	131,789	$	135,226
Employee benefits		46,047		43,429		40,995
Trade-in right		—		87,572		33,764
Others		4,447		4,467		4,417

	$	179,550	$	267,257	$	214,402

Current	$	104,880	$	188,744	$	146,151
Noncurrent		74,670		78,513		68,251

	$	179,550	$	267,257	$	214,402

- 55 -


	Warranties			Employee Benefits			Trade-in right			Others			Total
Balance on January 1, 2017	$	110,975		$	38,014		$	31,378		$	4,447		$	184,814
Additional provisions recognized		67,140			4,619			10,462			—			82,221
Used / forfeited during the period		(42,889	)		(1,638	)		(8,076	)		(30	)		(52,633	)

Balance on September 30, 2017	$	135,226		$	40,995		$	33,764		$	4,417		$	214,402

Balance on January 1, 2018	$	131,789		$	43,429		$	87,572		$	4,467		$	267,257
Effect of retrospective application of IFRS 15		—			—			(87,572	)		—			(87,572	)

Balance on January 1, 2018 as adjusted		131,789			43,429			—			4,467			179,685
Additional provisions recognized		135,558			3,834			—			80			139,472
Used / forfeited during the period		(138,291	)		(1,216	)		—			(100	)		(139,607	)

Balance on September 30, 2018	$	129,056		$	46,047		$	—		$	4,447		$	179,550

(Concluded)

The provision for warranties claims represents the present value of the management’s best estimate of the future outflow of economic benefits that will be required under the Company’s obligation for warranties in sales agreements. The estimate has been made based on the historical warranty experience.

The provision for employee benefits represents vested long-term service compensation accrued.

The provision for trade-in right in 2017 was based on the management’s judgments to estimate the trade-in right of products exercised by customers in the future. The provision was recognized as a reduction of revenue in the period in which the goods are sold.

27.

ADVANCE RECEIPTS

Advance receipts are mainly from advance telecommunication charges. For those obliged to transfer good and service in order to collect consideration from customer, they were retrospectively reclassified as contract liabilities starting from 2018. In accordance with NCC’s regulation named “Mandatory and Prohibitory Provisions To Be Included In Standard Contracts for Telecommunication Goods (Services) Coupons”, the Company entered into a contract with Bank of Taiwan to provide a performance guarantee for advance receipts from selling prepaid cards amounting to $624,373 thousand as of September 30, 2018.

28.

RETIREMENT BENEFIT PLANS

According to the Article 56 of the Labor Standards Law revised in February 2015, entities are required to contribute the difference in one appropriation to their pension funds before the end of next March when the balance of the Funds is insufficient to pay the eligible employees who meet the retirement criteria in the following year. Chunghwa contributed $2,118,583 thousand and $337,686 thousand to its pension fund as of March 31, 2018 and 2017, respectively.

- 56 -

Relevant pension costs for defined benefit plans which were determined by the pension cost rates of actuarial valuation as of December 31, 2017 and 2016 were as follows:


	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Operating costs	$	448,462	$	433,592	$	1,346,614	$	1,300,940
Marketing expenses		221,238		211,716		665,283		635,101
General and administrative expenses		41,375		38,968		122,639		116,623
Research and development expenses		27,064		24,191		80,466		72,766

	$	738,139	$	708,467	$	2,215,002	$	2,125,430

29.

EQUITY

Share capital

Common stocks


	September 30, 2018		December 31, 2017		September 30, 2017
Number of authorized shares (thousand)		12,000,000		12,000,000		12,000,000

Authorized shares	$	120,000,000	$	120,000,000	$	120,000,000

Number of issued and paid shares (thousand)		7,757,447		7,757,447		7,757,447

Issued shares	$	77,574,465	$	77,574,465	$	77,574,465

The issued common stocks of a par value at $10 per share entitled the right to vote and receive dividends.

Global depositary receipts

The MOTC and some stockholders sold some common stocks of Chunghwa in an international offering of securities in the form of American Depositary Shares (“ADS”) (one ADS represents 10 common stocks) in July 2003, August 2005, and September 2006. The ADSs were traded on the New York Stock Exchange since July 17, 2003. As of September 30, 2018, the outstanding ADSs were 234,085 thousand common stocks, which equaled 23,408 thousand units and represented 3.01% of Chunghwa’s total outstanding common stocks.

The ADS holders generally have the same rights and obligations as other common stockholders, subject to the provision of relevant laws. The exercise of such rights and obligations shall comply with the related regulations and deposit agreement, which stipulate, among other things, that ADS holders are entitled to, through deposit agents:

Exercise their voting rights,

Sell their ADSs, and

Receive dividends declared and subscribe to the issuance of new shares.

- 57 -

Additional paid-in capital

The adjustments of additional paid-in capital for the nine months ended September 30, 2018 and 2017 were as follows:


	Share Premium		Movements of Additional Paid-in Capital for Associates and Joint Ventures Accounted for Using Equity Method		Movements of Additional Paid-in Capital Arising from Changes in Equities of Subsidiaries		Difference between Consideration Received and Carrying Amount of the Subsidiaries’ Net Assets upon Disposal		Donated Capital		Stockholders’ Contribution Due to Privatization		Total
Balance on January 1, 2017	$	147,329,386	$	76,972	$	390,030	$	84,850	$	13,170	$	20,648,078	$	168,542,486
Change in additional paid-in capital from investments in associates and joint ventures accounted for using equity method		—		12,523		—		—		—		—		12,523
Partial disposal of interests in subsidiaries		—		—		—		76,714		—		—		76,714
Treasury stock transfer of subsidiaries		—		—		9,317		—		—		—		9,317
Change in additional paid-in capital for not participating in the capital increase of subsidiaries		—		—		803,342		—		—		—		803,342
Share-based payment transactions of subsidiaries		—		—		2,074		—		—		—		2,074

Balance on September 30, 2017	$	147,329,386	$	89,495	$	1,204,763	$	161,564	$	13,170	$	20,648,078	$	169,446,456

Balance on January 1, 2018	$	147,329,386	$	90,937	$	1,221,046	$	161,243	$	16,193	$	20,648,078	$	169,466,883
Unclaimed dividend		—		—		—		—		2,481		—		2,481
Change in additional paid-in capital from investments in associates and joint ventures accounted for using equity method		—		1		—		—		—		—		1
Partial disposal of interests in subsidiaries		—		—		—		826,047		—		—		826,047
Change in additional paid-in capital for not participating in the capital increase of subsidiaries		—		—		776,781		—		—		—		776,781
Share-based payment transactions of subsidiaries		—		—		12,119		—		—		—		12,119
Treasury stock transfer of subsidiaries		—		—		53,922		—		—		—		53,922

Balance on September 30, 2018	$	147,329,386	$	90,938	$	2,063,868	$	987,290	$	18,674	$	20,648,078	$	171,138,234

Additional paid-in capital from share premium, donated capital and the difference between consideration received and the carrying amount of the subsidiaries’ net assets upon disposal may be utilized to offset deficits. Furthermore, when Chunghwa has no deficit, it may be distributed in cash or capitalized, which however is limited to a certain percentage of Chunghwa’s paid-in capital except the additional paid-in capital arising from claimed dividend can only be utilized to offset deficits.

The additional paid-in capital from movements of paid-in capital arising from changes in equities of subsidiaries may only be utilized to offset deficits.

Among additional paid-in capital from movements of investments in associates and joint ventures accounted for using equity method, the portion arising from the difference between consideration received and the carrying amount of the subsidiaries net assets upon disposal may be utilized to offset deficits; furthermore, when the Company has no deficit, it may be distributed in cash or capitalized. However, other additional paid-in capital recognized in proportion of share ownership may only be utilized to offset deficits.

- 58 -

Retained earnings and dividends policy

In accordance with the Chunghwa’s Articles of Incorporation, Chunghwa must pay all outstanding taxes, offset deficits in prior years and set aside a legal reserve equal to 10% of its net income before distributing a dividend or making any other distribution to stockholders, except when the accumulated amount of such legal reserve equals to Chunghwa’s total issued capital, and depending on its business needs or requirements, may also set aside or reverse special reserves. No less than 50% of the remaining earnings comprising remaining balance of net income, if any, plus cumulative undistributed earnings shall be distributed as stockholders’ dividends, of which cash dividends to be distributed shall not be less than 50% of the total amount of dividends to be distributed. If cash dividend to be distributed is less than $0.10 per share, such cash dividend shall be distributed in the form of common stocks.

Chunghwa should appropriate or reverse a special reserve in accordance with Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the directive entitled “Questions and Answers on Special Reserves Appropriated Following the Adoption of Taiwan-IFRSs”. Distributions can be made out of any subsequent reversal of the debit to other equity items.

The appropriation for legal reserve shall be made until the accumulated reserve equals the aggregate par value of the outstanding capital stock of Chunghwa. This reserve can only be used to offset a deficit, or, when the legal reserve has exceeded 25% of Chunghwa’s paid-in capital, the excess may be transferred to capital or distributed in cash.

The appropriations of the 2017 and 2016 earnings of Chunghwa approved by the stockholders in their meetings on June 15, 2018 and June 23, 2017 were as follows:


	Appropriation of Earnings					Dividends Per Share (NT$)
	For Fiscal Year 2017			For Fiscal Year 2016		For Fiscal Year 2017		For Fiscal Year 2016
Provision for (reversal of) special reserve	$	(5,404	)	$	5,404
Cash dividends		37,204,714			38,336,525	$	4.796	$	4.9419

Information of the appropriation of Chunghwa’s earnings proposed by the Board of Directors and approved by the stockholders is available on the Market Observation Post System website.

Other adjustments

Exchange differences arising from the translation of the foreign operations

The exchange differences arising from the translation of the foreign operations from their functional currency to New Taiwan dollars were recognized as exchange differences arising from the translation of the foreign operations in other comprehensive income.

Unrealized gain or loss on available-for-sale financial assets


Balance on January 1, 2017	$	(50,885	)
Unrealized gain or loss on available-for-sale financial assets		516,499
Income tax relating to unrealized gain or loss on available- for-sale financial assets		1,827

Balance on September 30, 2017	$	467,441

Balance on January 1, 2018 under IAS 39	$	558,109
Effect of retrospective application of IFRS 9		(558,109	)

Balance on January 1, 2018 under IFRS 9	$	—

(Concluded)

- 59 -

Unrealized gain or loss on financial assets at FVOCI


	Nine Months Ended September 30 2018
Balance on January 1, 2018 under IAS 39	$	—
Effect of retrospective application of IFRS 9		883,420

Balance on January 1, 2018 under IFRS 9		883,420
Unrealized gain or loss for the period Equity instruments		(826,439	)

Balance on September 30, 2018	$	56,981

Noncontrolling interests


	Nine Months Ended September 30
	2018			2017
Beginning balance	$	8,697,595		$	6,495,922
Effect of retrospective application		(3,945	)		—

Beginning balance as adjusted		8,693,650			6,495,922
Shares attributed to noncontrolling interests
Net incomme for the period		689,937			928,973
Exchange differences arising from the translation of the foreign operations		(6,683	)		(12,951	)
Unrealized gain or loss on financial assets at FVOCI		1,807			—
Unrealized gain (loss) on available-for-sale financial assets		—			(1,327	)
Income tax relating to unrealized gain or loss on available-for-sale financial assets		—			226
Income tax relating to remeasurments of defined benefit pension plans		1,509			—
Share of other comprehensive income (loss) of associates accounted for using equity method		555			(1,695	)
Cash dividends distributed by subsidiaries		(958,446	)		(942,482	)
Changes in additional paid-in capital from investments in associates and joint ventures accounted for using equity method		203			1,916
Partial disposal of interests in subsidiaries		348,353			29,217
Change in additional paid-in capital for not participating in the capital increase of subsidiaries		699,899			1,753,711
Share-based payment transactions of subsidiaries		38,120			15,825
Increase in noncontrolling interests		278,200			45,121

Ending balance	$	9,787,104		$	8,312,456

- 60 -

30.

REVENUES


	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Revenue from contracts with customers	$	52,410,781	$	56,151,787	$	159,309,639	$	165,864,651

Other revenues
Rental income		171,658		177,100		486,927		489,203
Other		122,446		96,016		199,036		275,590

		294,104		273,116		685,963		764,793

	$	52,704,885	$	56,424,903	$	159,995,602	$	166,629,444

The information of performance obligations in customer contracts, please refer to Note 3 Summary of Significant Accounting Policies for details.

Disaggregation of revenue

The main source of revenue of the Company includes various telecommunications services in different streams, the information of disaggregation of revenue please refer to Note 44.

Contract balances


	September 30, 2018
Trade notes and accounts receivable (Note 10)	$	29,221,409

Contract assets
Sale of products	$	7,282,941
Other		109,568

	$	7,392,509

Current	$	5,078,820
Non-current		2,313,689

	$	7,392,509

Contract liabilities
Telecommunications business	$	8,614,160
Project business		3,832,921
Other		505,558

	$	12,952,639

Current	$	10,392,850
Non-current		2,559,789

	$	12,952,639

The changes in the contract asset and the contract liability balances primarily result from the timing difference between the fulfillment of performance obligations and the payments collected from customers.

- 61 -

Revenue recognized for the period that was included in the contract liability at the beginning of the period was as follows:


	Nine Months Ended September 30, 2018
Telecommunications business	$	3,614,478
Project business		396,236
Other		445,148

	$	4,455,862

Incremental costs of obtaining contracts


	September 30, 2018
Noncurrent
Incremental costs of obtaining contracts	$	1,587,709

The Company considered the past experience and the default clauses in the telecommunications service contract and believes the commissions and equipment subsidy paid for obtaining contracts are expected to be recoverable; therefore, incremental costs of obtaining contracts are recognized as an asset. Amortization recognized in the three months and nine months ended September 30, 2018 are $420,817 thousand and $1,519,228 thousand, respectively.

31.

NET INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)

Net income

Other income and expenses


	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
Loss on disposal of property, plant and equipment	$	(8,753	)	$	(16,875	)	$	(38,503	)	$	(33,620	)
Impairment loss on intangible assets		—			—			(50,750	)		—

	$	(8,753	)	$	(16,875	)	$	(89,253	)	$	(33,620	)

- 62 -

Other income


	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Dividend income	$	164,154	$	16,124	$	395,593	$	327,861
Rental income		14,610		14,502		49,218		40,067
Others		88,778		99,426		180,359		266,375

	$	267,542	$	130,052	$	625,170	$	634,303

Other gains and losses


	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
Net foreign currency exchange gains (losses)	$	2,191		$	(67,541	)	$	6,011		$	(58,933	)
Gains on disposal of financial instruments		—			—			5,763			2,705
Valuation gains (losses) on financial assets and liabilities at fair value through profit or loss, net		4,428			(4,946	)		4,666			3,234
Losses on disposal of investments accounted for using equity method		—			—			(125	)		—
Others		(10,390	)		(12,475	)		(40,884	)		(31,990	)

	$	(3,771	)	$	(84,962	)	$	(24,569	)	$	(84,984	)

Impairment loss


	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Contract assets	$	19,410	$	—	$	19,410	$	—

Trade notes and accounts receivable	$	106,266	$	37,643	$	839,302	$	416,017

Other receivables	$	30,140	$	33,173	$	65,069	$	45,747

Inventories	$	86,723	$	5,072	$	122,884	$	23,351

Intangible assets	$	—	$	—	$	50,750	$	—

- 63 -

Depreciation and amortization expenses


	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Property, plant and equipment	$	6,849,673	$	6,914,720	$	20,598,183	$	21,208,774
Investment properties		5,194		5,194		15,584		15,637
Intangible assets		1,107,595		887,721		3,282,482		2,687,735
Incremental costs of obtaining contracts		420,817		—		1,519,228		—

Total depreciation and amortization expenses	$	8,383,279	$	7,807,635	$	25,415,477	$	23,912,146

Depreciation expenses summarized by functions
Operating costs	$	6,493,284	$	6,497,607	$	19,474,658	$	19,872,319
Operating expenses		361,583		422,307		1,139,109		1,352,092

	$	6,854,867	$	6,919,914	$	20,613,767	$	21,224,411

Amortization expenses summarized by functions
Operating costs	$	1,470,665	$	817,938	$	4,612,851	$	2,464,137
Marketing expenses		24,601		36,512		89,916		116,931
General and administrative expenses		23,551		24,763		71,730		79,852
Research and development expenses		9,595		8,508		27,213		26,815

	$	1,528,412	$	887,721	$	4,801,710	$	2,687,735

Employee benefit expenses


	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Post-employment benefit
Defined contribution plans	$	162,010	$	150,291	$	473,853	$	441,865
Defined benefit plans		738,139		708,467		2,215,002		2,125,430

		900,149		858,758		2,688,855		2,567,295

Share-based payment
Equity-settled share—based payment		483		7,072		16,940		17,899

(Continued)

- 64 -


	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Other employee benefit
Salaries	$	6,577,415	$	6,544,408	$	19,771,591	$	19,583,911
Insurance		679,151		685,703		2,056,703		2,067,629
Others		3,320,037		3,748,387		10,629,343		11,349,909

		10,576,603		10,978,498		32,457,637		33,001,449

Total employee benefit expenses	$	11,477,235	$	11,844,328	$	35,163,432	$	35,586,643

Summary by functions
Operating costs	$	5,908,401	$	6,182,186	$	18,212,803	$	18,602,057
Operating expenses		5,568,834		5,662,142		16,950,629		16,984,586

	$	11,477,235	$	11,844,328	$	35,163,432	$	35,586,643

(Concluded)

Chunghwa distributes employees’ compensation at the rates from 1.7% to 4.3% and remuneration to directors not higher than 0.17%, respectively, of pre-tax income.

If there is a change in the proposed amounts after the annual financial statements are authorized for issue, the differences are recorded as a change in accounting estimate.

The compensation to the employees and remuneration to the directors of 2017 and 2016 approved by the Board of Directors on March 13, 2018 and March 7, 2017, respectively, were as follows.


	Cash
	2017		2016
Compensation distributed to the employees	$	1,596,012	$	1,702,164
Remuneration paid to the directors		40,750		42,087

There was no difference between the initial accrual amounts and the amounts proposed in the Board of Directors in 2018 and 2017 of the aforementioned compensation to employees and the remuneration to directors.

Information of the appropriation of Chunghwa’s employees compensation and remuneration to directors and those approved by the Board of Directors is available on the Market Observation Post System website.

- 65 -

Reclassification adjustments of other comprehensive income (loss)


	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Unrealized gain on available-for-sale financial assets Arising during the period	$	544,383		$	515,172

Cash flow hedges
Loss arising during the period	$	(6,642	)	$	(581	)
Reclassification adjustments included in profit or loss		(1,879	)		(1,879	)
Adjusted against the carrying amount of hedged items		8,000			3,584

	$	(521	)	$	1,124

32.

INCOME TAX

Income tax recognized in profit or loss

The major components of income tax expense were as follows:


	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
Current tax
Current tax expenses recognized for the period	$	2,152,686		$	2,109,146		$	6,378,976		$	6,139,770
Income tax on unappropriated earnings		—			29			47,528			48,170
Income tax adjustments on prior years		24,476			4,287			22,828			(1,991	)
Others		5,532			8,038			6,610			13,168

		2,182,694			2,121,500			6,455,942			6,199,117

Deferred tax
Deferred tax expenses recognized for the period		(44,399	)		(38,401	)		253,761			(64,881	)
Income tax adjustments on prior years		—			—			19,550			—
Change in tax rate		—			—			(37,652	)		—

		(44,399	)		(38,401	)		235,659			(64,881	)

Income tax recognized in profit or loss	$	2,138,295		$	2,083,099		$	6,691,601		$	6,134,236

In February 2018, the Income Tax Act in the ROC was amended, the corporate income tax rate is adjusted from 17% to 20%. Deferred income tax resulting from the change in tax rate that shall recognize in profit or loss is recognized in full in the period in which the change in tax rate occurs. In addition, the rate of the corporate surtax applicable to 2018 unappropriated earnings will be reduced from 10% to 5%.

- 66 -

Income tax benefit recognized in other comprehensive income


	Three Months Ended September 30					Nine Months Ended September 30
	2018		2017			2018			2017
Deferred tax benefit Change in tax rate	$	—	$	—		$	(207,269	)	$	—
Unrealized gain or loss on available-for-sale financial assets		—		(224	)		—			(2,053	)

	$	—	$	(224	)	$	(207,269	)	$	(2,053	)

Income tax examinations

Income tax returns of Chunghwa have been examined by the tax authorities through 2014. Income tax returns of CHPT have been examined by the tax authorities through 2015. Income tax returns of SENAO, CHSI, CHI, HHI, SFD, SHE, CHYP, LED, CHIEF, Unigate, CLPT, ISPOT, Youth, Youyi, Aval and CHST have been examined by the tax authorities through 2016.

33.

EARNINGS PER SHARE (“EPS”)

Net income and weighted average number of common stocks used in the calculation of earnings per share were as follows:

Net Income


	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
Net income used to compute the basic earnings per share
Net income attributable to the parent	$	8,504,207		$	10,153,411		$	27,093,228		$	30,191,883
Assumed conversion of all dilutive potential common stocks
Employee stock options and employee compensation of subsidiaries		(1,330	)		(86	)		(6,430	)		(395	)

Net income used to compute the diluted earnings per share	$	8,502,877		$	10,153,325		$	27,086,798		$	30,191,488

- 67 -

Weighted Average Number of Common Stocks


	(Thousand Shares)
	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Weighted average number of common stocks used to compute the basic earnings per share		7,757,447		7,757,447		7,757,447		7,757,447
Assumed conversion of all dilutive potential common stocks
Employee compensation		1,379		1,907		9,011		9,936

Weighted average number of common stocks used to compute the diluted earnings per share		7,758,826		7,759,354		7,766,458		7,767,383

Because Chunghwa may settle the employee compensation in shares or cash, Chunghwa shall presume that it will be settled in shares and takes those shares into consideration when calculating the weighted average number of outstanding shares used in the calculation of diluted EPS if the shares have a dilutive effect. The dilutive effect of the shares needs to be considered until the approval of the number of shares to be distributed to employees as compensation in the following year.

34.

SHARE-BASED PAYMENT ARRANGEMENT

SENAO share-based compensation plan (“SENAO Plan”) described as follows:

Effective Date for

Plan Registration

Resolution Date by
SENAO’s Board of

Directors

Stock Options Units

(Thousand)

Exercise Price

(NT$)

2012.05.28

2013.04.29

10,000

$66.20

(Original price $93.00 )

Each option is eligible to subscribe for one common share when exercisable. Under the terms of the SENAO Plan, the options are granted at an exercise price equal to the closing price of the SENAO’s common stocks listed on the TSE on the higher of closing price or par value. The SENAO Plan have exercise price adjustment formula upon the changes in common stocks equity (including cash capital increase, new share issue through capitalization of earnings and additional paid-in capital, merger, spin off and new share issue for Global Depositary Shares, and so on) or distribution of cash dividends. The options of SENAO Plan are valid for six years and the graded vesting schedule for which 50% of option granted will vest two years after the grant date and another two tranches of 25%, each will vest three and four years after the grant date respectively.

The recognized compensation cost of stcok options granted on May 7, 2013 was $4,059 thousand for the nine months ended September 30, 2017. No compensation cost was recognized for the nine months ended September 30, 2018 and three months ended September 30, 2017.

- 68 -

SENAO modified the plan terms of the outstanding stock options in July 2018 and the exercise price changed from $70.70 to $66.20 per share. The modification did not cause any incremental fair value granted.

SENAO modified the plan terms of the outstanding stock options in July 2017 and the exercise price changed from $76.10 to $70.70 per share. The modification did not cause any incremental fair value granted.

Information about SENAO’s outstanding stock options for the nine months ended September 30, 2018 and 2017 was as follows:


	Nine Months Ended September 30
	2018					2017
	Granted on May 7, 2013					Granted on May 7, 2013
	Number of Options (Thousand)			Weighted Average Exercise Price (NT$)		Number of Options (Thousand)			Weighted Average Exercise Price (NT$)
Employee stock options
Options outstanding at beginning of the period		5,926		$	70.70		6,587		$	76.10
Options forfeited		(585	)		—		(506	)		—

Options outstanding at end of the period		5,341			66.20		6,081			70.70

Options exercisable at end of the period		5,341			66.20		6,081			70.70

As of September 30, 2018, information about employee stock options outstanding was as follows:


Options Outstanding							Options Exercisable
Range of Exercise Price (NT$)	Number of Options (Thousand)		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price (NT$)		Number of Options (Thousand)		Weighted Average Exercise Price (NT$)
$66.20		5,341		0.60	$	66.20		5,341	$	66.20

As of December 31, 2017, information about employee stock options outstanding was as follows:


Options Outstanding							Options Exercisable
Range of Exercise Price (NT$)	Number of Options (Thousand)		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price (NT$)		Number of Options (Thousand)		Weighted Average Exercise Price (NT$)
$70.70		5,926		1.35	$	70.70		5,926	$	70.70

- 69 -

As of September 30, 2017, information about employee stock options outstanding was as follows:


Options Outstanding							Options Exercisable
Range of Exercise Price (NT$)	Number of Options (Thousand)		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price (NT$)		Number of Options (Thousand)		Weighted Average Exercise Price (NT$)
$70.70		6,081		1.60	$	70.70		6,081	$	70.70

SENAO used the fair value method to evaluate the options using the Black-Scholes model and the related assumptions and the fair value of the options were as follows:


	Stock Options Granted on May 7, 2013
Grant-date share price (NT$)	$	93.00
Exercise price (NT$)	$	93.00
Dividends yield		—
Risk-free interest rate		0.91	%
Expected life		4.375 years
Expected volatility		36.22	%
Weighted average fair value of grants (NT$)	$	28.72

Expected volatility was based on the historical share price volatility of SENAO over the period equal to the expected life of SENAO Plan.

SENAO transferred the treasury stock

The Board of Directors of SENAO resolved to transfer treasury stock 6,658 thousand shares to specific employees in April 2018. The aforementioned treasury stock transferred to employees were measured at the fair value on the grant date. The compensation cost of $15,564 thousand was recognized for the nine months ended September 30, 2018.

The Board of Directors of SENAO resolved to transfer treasury stock 1,108 thousand shares to specific employees in May 2017. The aforementioned treasury stock transferred to employees were measured at the fair value of the grant date. The compensation cost of $4,793 thousand was recognized for the nine months ended September 30, 2017.

SENAO used the fair value method to evaluate share-based payment transaction using the Black-Scholes model and the related assumptions and the fair value of the option were as follows:


	Stock Options Granted on May 7, 2018			Stock Options Granted on May 23, 2017
Grant-date share price (NT$)	$	51.60		$	53.60
Exercise price (NT$)	$	49.28		$	49.28
Dividends yield		—			—
Risk-free interest rate		0.59	%		0.59	%
Expected life		18 days			9 days
Expected volatility		8.78	%		12.35	%
Weighted average fair value of grants (NT$)	$	2.34		$	4.33

- 70 -

Expected volatility was based on the historical share price volatility of SENAO over three months before the grant date.

CHIEF share-based compensation plan (“CHIEF Plan”) described as follows:


Effective Date for Plan Registration	Resolution Date by CHIEF’s Board of Directors	Stock Options Units	Exercise Price (NT$)
2017.12.18	2017.12.19	950	$140.60 (Original price $147.00 )
2015.11.17	2015.10.22	2,000	$ 34.40 (Original price $43.00 )

Each option is eligible to subscribe for one thousand common stocks when exercisable. The options are granted to specific employees that meet the vesting conditions. The CHIEF Plan has exercise price adjustment formula upon the changes in common stocks or distribution of cash dividends. The options of CHIEF Plan are valid for five years and the graded vesting schedule will vest two years after the grant date.

The compensation costs of stock options granted on December 19, 2017 were $168 thousand and $430 thousand for the three months and nine months ended September 30, 2018, respectively.

The compensation costs of stock options granted on October 22, 2015 were $315 thousand and $946 thousand for the three months and nine months ended September 30, 2018, respectively. The compensation costs were $987 thousand and $2,962 thousand for the three months and nine months ended September 30, 2017, respectively.

CHIEF modified the plan terms of stock options granted on December 19, 2017 in June and August 2018 and the exercise price changed from $147.00 to $144.10 and $144.10 to $140.60 per share, respectively. The modification did not cause any incremental fair value granted.

Information about CHIEF’s outstanding stock options for the nine months ended September 30, 2018 and 2017 was as follows:


	Nine Months Ended September 30
	2018										2017
	Granted on December 19, 2017					Granted on October 22, 2015					Granted on October 22, 2015
	Number of Options			Weighted Average Exercise Price (NT$)		Number of Options			Weighted Average Exercise Price (NT$)		Number of Options			Weighted Average Exercise Price (NT$)
Employee stock options
Options outstanding at beginning of the period		950.0		$	147.00		1,936.0		$	34.40		1,948.0		$	34.40
Options exercised		—			—		(968.0	)		34.40		—			—
Options forfeited		(16.0	)		—		(16.5	)		—		(12.0	)		—

Options outstanding at end of the period		934.0			140.60		951.5			34.40		1,936.0			34.40

Option exercisable at end of the period		—			—		—			—		—			—

- 71 -

As of September 30, 2018, information about employee stock options outstanding was as follows:


Granted on December 19, 2017
Options Outstanding							Options Exercisable
Range of Exercise Price (NT$)	Number of Options		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price (NT$)		Number of Options		Weighted Average Exercise Price (NT$)
$140.60		934.0		4.22	$	140.60		—	$	—


Granted on October 22, 2015
Options Outstanding							Options Exercisable
Range of Exercise Price (NT$)	Number of Options		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price (NT$)		Number of Options		Weighted Average Exercise Price (NT$)
$34.40		951.5		2.06	$	34.40		—	$	—

As of December 31, 2017, information about employee stock options outstanding was as follows:


Granted on December 19, 2017
Options Outstanding							Options Exercisable
Range of Exercise Price (NT$)	Number of Options		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price (NT$)		Number of Options		Weighted Average Exercise Price (NT$)
$ 147.00		950.0		4.96	$	147.00		—	$	—


Granted on October 22, 2015
Options Outstanding							Options Exercisable
Range of Exercise Price (NT$)	Number of Options		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price (NT$)		Number of Options		Weighted Average Exercise Price (NT$)
$ 34.40		1,936.0		2.81	$	34.40		968.0	$	34.40

As of September 30, 2017, information about employee stock options outstanding was as follows:


Granted on October 22, 2015
Options Outstanding							Options Exercisable
Range of Exercise Price (NT$)	Number of Options		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price (NT$)		Number of Options		Weighted Average Exercise Price (NT$)
$34.40		1,936.0		3.06	$	34.40		—	$	—

- 72 -

CHIEF used the fair value method to evaluate the options using the Black-Scholes model and binomial option pricing model and the related assumptions and the fair value of the options were as follows:


	Stock Options Granted on December 19, 2017			Stock Options Granted on October 22, 2015
Grant-date share price (NT$)	$	95.92		$	39.55
Exercise price (NT$)	$	147.00		$	43.00
Dividends yield		—			—
Risk-free interest rate		0.62	%		0.86	%
Expected life		5 years			5 years
Expected volatility		17.35	%		21.02	%
Weighted average fair value of grants (NT$)	$	2,318		$	4,863

Expected volatility was based on the average annualized historical share price volatility of CHIEF’s comparable companies before the grant date.

New shares reserved for subscription by employees under cash injection of CHIEF

In March 2018, the Board of Directors of CHIEF approved the cash injection to issue 7,842 thousand shares and simultaneously reserved 1,176 thousand shares for subscription by employees according to the Company Act of the ROC. Furthermore, when the employees subscribed some shares or discarded their rights to subscribe shares, the Board of Directors of CHIEF authorized the chairman of the Board of Directors to contact specific people or group to subscribe.

The aforementioned options granted to employees are accounted for and measured at fair value of the grant date. No compensation cost was recognized for the nine months ended September 30, 2018.

CHIEF used the fair value method to evaluate the options granted to employees on May 22, 2018 using the Black-Scholes model and the related assumptions and the fair value of the options were as follows:


	Stock Options Granted on May 22, 2018
Grant-date share price (NT$)	$	156.41
Exercise price (NT$)	$	170.00
Dividends yield		—
Risk-free interest rate		0.34	%
Expected life		7 days
Expected volatility		14.33	%
Weighted average fair value of grants (NT$)	$	—

Expected volatility was based on the average annualized historical share price volatility of CHIEF’s comparable companies before the grant date.

- 73 -

New shares reserved for subscription by employees under cash injection of CHPT

On February 8, 2017, the Board of Directors of CHPT approved the cash injection to issue 2,000 thousand shares and simultaneously reserved 300 thousand shares for subscription by employees according to the Company Act of the ROC. Furthermore, when the employees subscribed some shares or discarded their rights to subscribe shares, the Board of Directors of CHPT authorized the chairman of the Board of Directors to contact specific people or group to subscribe.

The aforementioned options granted to employees are accounted for and measured at fair value. The recognized compensation cost was $5,821 thousand for the year ended December 31, 2017.

CHPT used the fair value method to evaluate the options granted to employees on September 18, 2017 using the Black-Scholes model and the related assumptions and the fair value of the options were as follows:


	Stock Options Granted on September 18, 2017
Grant-date share price (NT$)	$	1,295.00
Exercise price (NT$)	$	1,267.33
Dividends yield		—
Risk-free interest rate		0.35	%
Expected life		4 days
Expected volatility		28.30	%
Weighted average fair value of grants (NT$)	$	31.60

Expected volatility was based on the historical share price volatility of CHPT over the period equal to the expected life.

35.

NON-CASH TRANSACTIONS

For the nine months ended September 30, 2018 and 2017, the Company entered into the following non-cash investing activities:


	Nine Months Ended September 30
	2018		2017
Increase in property, plant and equipment	$	18,801,873	$	13,841,649
Changes in other payables		545,011		2,749,806

	$	19,346,884	$	16,591,455

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36.

OPERATING LEASE ARRANGEMENTS

The Company as lessee

Except for the ST-2 satellite referred in Note 39 to the consolidated financial statements, the Company entered into several lease agreements for base stations located all over in Taiwan. The future aggregate minimum lease payments under non-cancellable operating leases are as follows:


	September 30, 2018		December 31, 2017		September 30, 2017
Within one year	$	3,422,216	$	2,918,651	$	3,256,037
Longer than one year but within five years		6,983,034		5,796,026		6,754,736
Longer than five years		932,348		778,808		885,271

	$	11,337,598	$	9,493,485	$	10,896,044

The Company as lessor

The Company leases out some land and buildings. The future aggregate minimum lease collection under non-cancellable operating leases are as follows:


	September 30, 2018		December 31, 2017		September 30, 2017
Within one year	$	325,756	$	353,023	$	373,502
Longer than one year but within five years		620,089		658,768		563,901
Longer than five years		195,371		242,799		302,892

	$	1,141,216	$	1,254,590	$	1,240,295

37.

CAPITAL MANAGEMENT

The Company manages its capital to ensure that entities in the Company will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance.

The capital structure of the Company consists of debt of the Company and the equity attributable to the parent.

Some consolidated entities are required to maintain minimum paid-in capital amount as prescribed by the applicable laws.

The management reviews the capital structure of the Company as needed. As part of this review, the management considers the cost of capital and the risks associated with each class of capital.

According to the management’s suggestion, the Company maintains a balanced capital structure through paying cash dividends, increasing its share capital, purchasing outstanding shares, and proceeds from new debt or repayment of debt.

- 75 -

38.

FINANCIAL INSTRUMENTS

Fair Value Information

The fair value measurement guidance establishes a framework for measuring fair value and expands disclosure about fair value measurements. The standard describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value. These levels are:

Level 1 fair value measurements: These measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 fair value measurements: These measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 fair value measurements: These measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Financial instruments that are not measured at fair value but for which fair value is disclosed

The Company considers that the carrying amounts of financial assets and liabilities not measured at fair value approximate their fair values or the fair values cannot be reliable estimated, no financial instruments need to be disclosed on balance sheet date.

Financial instruments that are measured at fair values on a recurring basis

September 30, 2018


	Level 1		Level 2		Level 3		Total
Financial assets at FVTPL
Hybrid financial assets	$	—	$	195,682	$	—	$	195,682

Hedging financial assets	$	—	$	367	$	—	$	367

Financial assets at FVOCI
Equity investment	$	2,438,505	$	—	$	4,560,660	$	6,999,165

Financial liabilities at FVTPL
Derivatives	$	—	$	619	$	—	$	619

December 31, 2017


	Level 1		Level 2		Level 3		Total
Available-for-sale financial assets
Equity investments	$	3,125,086	$	—	$	—	$	3,125,086

Financial liabilities at FVTPL
Derivatives	$	—	$	578	$	—	$	578

Hedging derivative financial liabilities	$	—	$	850	$	—	$	850

(Concluded)

- 76 -

September 30, 2017


	Level 1		Level 2		Level 3		Total
Financial assets at FVTPL
Derivatives	$	—	$	1,878	$	—	$	1,878

Hedging derivative financial assets	$	—	$	537	$	—	$	537

Available-for-sale financial assets
Listed securities
Equity investments	$	3,036,199	$	—	$	—	$	3,036,199

There were no transfers between Levels 1 and 2 for the nine months ended September 30, 2018 and 2017.

For financial assets measured at Level 3, there is no other reconciliation item except for the change in fair value that is recognized in other comprehensive income or loss.

The fair values of financial assets and financial liabilities of Level 2 are determined as follows:

The fair values of financial assets and financial liabilities with standard terms and conditions and traded in active markets are determined with reference to quoted market prices.

For derivatives, fair values are estimated using discounted cash flow model. Future cash flows are estimated based on observable inputs including forward exchange rates at the end of the reporting periods and the forward and spot exchange rates stated in the contracts, discounted at a rate that reflects the credit risk of various counterparties.

For hybrid financial assets, fair values are estimated based on the related financial instrument information provided by financial institution. The valuation is measured at the principal of deposit and the yield rate of the embedded instrument.

The fair values of non-listed domestic and foreign equity investments were Level 3 fair value assets, and determined using the market approach by reference the Price-to-Book ratios (P/B ratios) of peer companies that traded in active market or using assets approach. The significant unobservable inputs used were listed in the table below. A decrease in discount for the lack of marketability or noncontrolling interests discount would result in increases in the fair values.


	September 30, 2018
Discount for lack of marketability		14.25%-20.00%
Noncontrolling interests discount		23.00%-24.40%

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If the inputs to the valuation model were changed to reflect reasonably possible alternative assumptions while all the other variables were held constant, the fair values of equity investments would increase as below table. When related discounts increase, the fair value of equity investments would be the negative amount of the same amount.


	September 30, 2018
Discount for lack of market ability 5% decrease	$	248,513

Noncontrolling interests discount 5% decrease	$	19,948

Categories of Financial Instruments


	September 30, 2018		December 31, 2017		September 30, 2017
Financial assets
Measured at FVTPL
Held for trading	$	—	$	—	$	1,878
Mandatorily at FVTPL		195,682		—		—
Hedging financial assets		367		—		537
Loans and receivables (Note a)		—		68,983,820		63,452,044
Available-for-sale financial assets (Note b)		—		5,750,871		5,273,575
Financial assets at amortized cost (Note a)		58,761,423		—		—
Financial assets at FVOCI		6,999,165		—		—

Financial liabilities

Measured at FVTPL
Held for trading		619		578		—
Hedging financial liabilities		—		850		—
Measured at amortized cost (Note c)		40,084,783		39,725,662		35,935,769

Note a:

The balances included cash and cash equivalents, trade notes and accounts receivable, receivables from related parties, other current monetary assets and refundable deposits (classified as other noncurrent assets) which were loans and receivables. Such amounts are reclassified as financial assets at amortized cost upon the application of IFRS 9 starting from 2018.

Note b:

The balances included financial assets carried at cost which were classified as available-for-sale financial assets.

Note c:

The balances included short-term loans, trade notes and accounts payable, payables to related parties, partial other payables, customers’ deposits and long-term loans which were financial liabilities carried at amortized cost.

- 78 -

Financial Risk Management Objectives

The main financial instruments of the Company include equity and debt investments, accounts receivable, accounts payable and loans. The Company’s Finance Department provides services to its business units, co-ordinates access to domestic and international capital markets, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include market risk (including foreign currency risk, interest rate risk and other price risk), credit risk, and liquidity risk.

The Company seeks to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives is governed by the Company’s policies approved by the Board of Directors. Those derivatives are used to hedge the risks of exchange rate fluctuation arising from operating or investment activities. Compliance with policies and risk exposure limits is reviewed by the Company’s Finance Department on a continuous basis. The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

Chunghwa reports the significant risk exposures and related action plans timely and actively to the audit committee and to the Board of Directors if needed.

Market risk

The Company is exposed to market risks of changes in foreign currency exchange rates and interest rates. The Company uses forward exchange contracts to hedge the exchange rate risk arising from assets and liabilities denominated in foreign currencies.

There were no changes to the Company’s exposure to market risks or the manner in which these risks are managed and measured.

Foreign currency risk

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities at the balance sheet dates were as follows:


	September 30, 2018		December 31, 2017		September 30, 2017
Assets
USD	$	6,306,993	$	5,584,064	$	7,492,807
EUR		20,253		28,492		23,287
SGD		94,354		62,909		5,810
JPY		16,781		36,248		48,295
RMB		932		2,986		3,279
Liabilities
USD		6,882,060		4,963,953		6,131,750
EUR		1,531,019		1,322,803		653,629
SGD		48,050		96,442		48,192
JPY		19,759		11,934		5,835
RMB		—		25		282

- 79 -

The carrying amounts of the Company’s derivatives with exchange rate risk exposures at the balance sheet dates were as follows:


	September 30, 2018		December 31, 2017		September 30, 2017
Assets
USD	$	—	$	—	$	481
EUR		367		—		1,934
Liabilities
USD		383		484		—
EUR		236		944		—

Foreign currency sensitivity analysis

The Company is mainly exposed to the fluctuations of the currencies USD, EUR, SGD, JPY and RMB listed above.

The following table details the Company’s sensitivity to a 5% increase and decrease in the functional currency against the relevant foreign currencies. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible changes in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and forward exchange contracts. A positive number below indicates an increase in pre-tax profit or equity where the functional currency weakens 5% against the relevant currency.


	Nine Months Ended September 30
	2018			2017
Profit or loss
Monetary assets and liabilities (a)
USD	$	(28,753	)	$	68,053
EUR		(75,538	)		(31,517	)
SGD		2,315			(2,119	)
JPY		(149	)		2,123
RMB		47			150
Derivatives (b)
USD		2,618			4,511
EUR		19,261			6,294
Equity
Derivatives (c)
EUR		4,435			12,049

This is mainly attributable to the exposure to foreign currency denominated receivables and payables of the Company outstanding at the balance sheet dates.

This is mainly attributable to the forward exchange contracts.

This is mainly attributable to the changes in the fair value of derivatives that are designated as cash flow hedges.

For a 5% strengthening of the functional currency against the relevant currencies, it would have the equal but opposite effect on the pre-tax profit or equity for the amounts shown above.

- 80 -

Interest rate risk

The carrying amounts of the Company’s exposures to interest rates on financial assets and financial liabilities at the balance sheet dates were as follows:


	September 30, 2018		December 31, 2017		September 30, 2017
Fair value interest rate risk
Financial assets	$	15,282,885	$	25,911,422	$	21,998,068
Financial liabilities		—		—		300,000
Cash flow interest rate risk
Financial assets		10,213,768		6,714,639		7,270,885
Financial liabilities		1,720,000		1,670,000		1,723,000

Interest rate sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the end of the reporting period. A 25 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 25 basis points higher/lower and all other variables were held constant, the Company’s pre-tax income would increase/decrease by $21,234 thousand and $13,870 thousand for the nine months ended September 30, 2018 and 2017, respectively. This is mainly attributable to the Company’s exposure to floating interest rates on its financial assets and short-term and long-term loan.

Other price risk

The Company is exposed to equity price risks arising from equity securities investments. Equity investments are held for strategic rather than trading purposes. The management managed the risk through holding various risk portfolios. Further, the Company assigned finance and investment departments to monitor the price risk.

Equity price sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to equity price risks at the end of the reporting period.

If equity prices had been 5% higher/lower, pretax other comprehensive income would have increased/decreased by $349,958 thousand and $151,810 thousand as a result of the changes in fair value of financial assets at FVOCI for the nine months ended September 30, 2018 and 2017, respectively.

- 81 -

Credit risk

Credit risk refers to the risk that a counterparty would default on its contractual obligations resulting in financial loss to the Company. The maximum credit exposure of the aforementioned financial instruments is equal to their carrying amounts recognized in consolidated balance sheet as of the balance sheet date.

The Company has large trade receivables outstanding with its customers. A substantial majority of the Company’s outstanding trade receivables are not covered by collateral or credit insurance. The Company has implemented ongoing measures including enhancing credit assessments and strengthening overall risk management to reduce its credit risk. While the Company has procedures to monitor and limit exposure to credit risk on trade receivables, there can be no assurance such procedures will effectively limit its credit risk and avoid losses. This risk is heightened during periods when economic conditions worsen.

As the Company serves a large number of unrelated consumers, the concentration of credit risk was limited.

Liquidity risk

The Company manages and maintains sufficient cash and cash equivalent position to support the operations and reduce the impact on fluctuation of cash flow.

Liquidity and interest risk tables

The following tables detailed the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables had been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company is required to pay.


	Weighted Average Effective Interest Rate (%)		Less Than 1 Month		1-3 Months		3 Months to 1 Year		1-5 Years		Add More than 5 Years		Total
September 30, 2018

Non-derivative financial liabilities
Non-interest bearing		—	$	39,702,035	$	—	$	2,276,232	$	4,664,558	$	—	$	46,642,825
Floating interest rate instruments		0.99		20,000		—		100,000		1,600,000		—		1,720,000

			$	39,722,035	$	—	$	2,376,232	$	6,264,558	$	—	$	48,362,825

December 31, 2017

Non-derivative financial liabilities
Non-interest bearing		—	$	41,884,644	$	—	$	3,196,831	$	4,671,441	$	—	$	49,752,916
Floating interest rate instruments		0.97		50,000		—		20,000		1,600,000		—		1,670,000

			$	41,934,644	$	—	$	3,216,831	$	6,271,441	$	—	$	51,422,916

September 30, 2017

Non-derivative financial liabilities
Non-interest bearing		—	$	36,091,645	$	—	$	2,469,734	$	4,548,472	$	—	$	43,109,851
Floating interest rate instruments		1.00		—		25,000		1,698,000		—		—		1,723,000
Fixed interest rate instruments		0.80		300,000		—		—		—		—		300,000

			$	36,391,645	$	25,000	$	4,167,734	$	4,548,472	$	—	$	45,132,851

- 82 -

The following table detailed the Company’s liquidity analysis for its derivative financial instruments. The table had been drawn up based on the undiscounted gross inflows and outflows on those derivatives that require gross settlement.


	Less Than 1 Month			1-3 Months			3 Months to 1 Year			1-5 Years		Total
September 30, 2018

Gross settled

Forward exchange contracts
Inflow	$	52,382		$	422,080		$	53,212		$	—	$	527,674
Outflow		52,765			421,322			53,839			—		527,926

	$	(383	)	$	758		$	(627	)	$	—	$	(252	)

December 31, 2017

Gross settled

Forward exchange contracts
Inflows	$	124,997		$	173,068		$	36,654		$	—	$	334,719
Outflows		125,481			174,021			36,645			—		336,147

	$	(484	)	$	(953	)	$	9		$	—	$	(1,428	)


September 30, 2017

Gross settled

Forward exchange contracts
Inflow	$	90,326		$	327,536		$	39,771		$	—	$	457,633
Outflow		89,845			325,237			40,136			—		455,218

	$	481		$	2,299		$	(365	)	$	—	$	2,415

Financing facilities


	September 30, 2018		December 31, 2017		September 30, 2017
Unsecured bank loan facility
Amount used	$	133,385	$	90,000	$	390,000
Amount unused		51,324,490		45,748,967		45,783,967

	$	51,457,875	$	45,838,967	$	46,173,967

Secured bank loan facility
Amount used	$	1,600,000	$	1,600,000	$	1,633,000
Amount unused		1,340,000		1,910,000		2,077,000

	$	2,940,000	$	3,510,000	$	3,710,000

- 83 -

39.

RELATED PARTIES TRANSACTIONS

The ROC Government, one of Chunghwa’s customers, has significant equity interest in Chunghwa. Chunghwa provides fixed-line services, wireless services, internet and data and other services to the various departments and institutions of the ROC Government in the normal course of business and at arm’s-length prices. The transactions with the ROC government bodies have not been disclosed because the transactions are not individually or collectively significant. However, the related revenues and operating costs have been appropriately recorded.

The Company engages in business transactions with the following related parties:


Company		Relationship
Taiwan International Standard Electronics Co., Ltd.		Associate
So-net Entertainment Taiwan Limited		Associate
Skysoft Co., Ltd.		Associate
KingwayTek Technology Co., Ltd.		Associate
Dian Zuan Integrating Marketing Co., Ltd.		Associate
Taiwan International Ports Logistics Corporation		Associate
Huada Digital Corporation		Joint venture
Chunghwa Benefit One Co., Ltd.		Joint venture
International Integrated System, Inc.		Associate
Senao Networks, Inc.		Associate
EnGenius Tech. Co., Ltd.		Subsidiary of the Company’s associate, Senao Networks, Inc.
HopeTech Technologies Limited		Associate
ST-2 Satellite Ventures Pte., Ltd.		Associate
Viettel-CHT Co., Ltd.		Associate
Click Force Co., Ltd.		Associate
Alliance Digital Tech Co., Ltd.		Associate
MeWorks LIMITED（HK）		Associate
Other related parties
Chunghwa Telecom Foundation		A nonprofit organization of which the funds donated by Chunghwa exceeds one third of its total funds
Senao Technical and Cultural Foundation		A nonprofit organization of which the funds donated by SENAO exceeds one third of its total funds
Sochamp Technology Co., Ltd.		Investor of significant influence over CHST
E-Life Mall Co., Ltd.		One of the directors of E-Life Mall and a director of SENAO are members of an immediate family
Engenius Technologies Co., Ltd.		Chairman of Engenius Technologies Co., Ltd. is a member of SENAO’s management
United Daily News Co., Ltd.		Investor of significant influence over SFD
Shenzhen Century Communication Co., Ltd.		Investor of significant influence over SCT
Taoyuan Aerotropolis Co., Ltd.		Investor of significant influence over TASUI

- 84 -

Balances and transactions between Chunghwa and its subsidiaries, which are related parties of Chunghwa, have been eliminated on consolidation and are not disclosed in this note. Terms of the foregoing transactions with related parties were not significantly different from transactions with non-related parties. When no similar transactions with non-related parties can be referenced, terms were determined in accordance with mutual agreements. Details of transactions between the Company and other related parties are disclosed below:

Operating transactions


	Revenues
	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Associates	$	71,727	$	99,406	$	257,457	$	246,035
Joint ventures		—		—		—		87
Others		27,829		13,690		64,741		43,807

	$	99,556	$	113,096	$	322,198	$	289,929


	Operating Costs and Expenses
	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Associates	$	308,872	$	366,074	$	798,509	$	961,684
Joint ventures		—		—		—		2,247
Others		4,099		5,343		70,876		66,543

	$	312,971	$	371,417	$	869,385	$	1,030,474

Non-operating transactions


	Non-operating Income and Expenses
	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Associates	$	7,819	$	7,803	$	23,430	$	23,688
Others		7		7		24		24

	$	7,826	$	7,810	$	23,454	$	23,712

Receivables


	September 30, 2018		December 31, 2017		September 30, 2017
Associates	$	15,574	$	43,302	$	36,362
Others		15,493		6,065		4,650

	$	31,067	$	49,367	$	41,012

- 85 -

Payables


	September 30, 2018		December 31, 2017		September 30, 2017
Associates	$	540,449	$	679,845	$	581,419
Joint ventures		—		—		476
Others		3,470		4,340		4,353

	$	543,919	$	684,185	$	586,248

Customers’ deposits


	September 30, 2018		December 31, 2017		September 30, 2017
Associates	$	5,932	$	5,700	$	7,220

Acquisition of property, plant and equipment


	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Associates	$	39,711	$	56,116	$	39,711	$	120,151
Joint ventures		—		—		—		46

	$	39,711	$	56,116	$	39,711	$	120,197

Prepayments

Chunghwa entered into a contract with ST-2 Satellite Ventures Pte., Ltd. on March 12, 2010 to lease capacity on the ST-2 satellite. This lease term is for 15 years which should start from the official operation of ST-2 satellite and the total contract value is approximately $6,000,000 thousand (SG$260,723 thousand), including a prepayment of $3,067,711 thousand, and the rest of amount should be paid annually when ST-2 satellite starts its official operation. ST-2 satellite was launched in May 2011, and began its official operation in August 2011. The total rental expense for the three months ended September 30, 2018 was $98,694 thousand, which consisted of an offsetting credit of the prepayment of $51,100 thousand and an additional accrual of $47,594 thousand. The total rental expense for the nine months ended September 30, 2018 was $295,538 thousand, which consisted of an offsetting credit of the prepayment of $153,300 thousand and an additional accrual of $142,238 thousand. The total rental expense for the three months ended September 30, 2017 was $98,355 thousand, which consisted of an offsetting credit of the prepayment of $51,100 thousand and an additional accrual of $47,255 thousand. The total rental expense for the nine months ended September 30, 2017 was $293,366 thousand, which consisted of an offsetting credit of the prepayment of $153,300 thousand and an additional accrual of $140,066 thousand. The prepaid rents (classified as prepayments) as of September 30, 2018, December 31, 2017 and September 30, 2017, were as follows:


	September 30, 2018		December 31, 2017		September 30, 2017
Prepaid rents—current	$	204,398	$	204,398	$	204,398
Prepaid rents—noncurrent		1,396,721		1,550,021		1,601,119

	$	1,601,119	$	1,754,419	$	1,805,517

- 86 -

Compensation of key management personnel

The compensation of directors and key management personnel was as follows:


	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Short-term employee benefits	$	67,504	$	83,687	$	216,768	$	216,407
Post-employment benefits		2,299		2,314		6,983		6,628
Share-based payment		108		1,142		9,401		1,930

	$	69,911	$	87,143	$	233,152	$	224,965

The compensation of directors and key management personnel was mainly determined by the compensation committee having regard to the performance of individual and market trends.

40. PLEDGED ASSETS

The following assets are pledged as collaterals for bank loans and custom duties of the imported materials.


	September 30, 2018		December 31, 2017		September 30, 2017
Property, plant and equipment	$	2,528,217	$	2,550,352	$	2,557,731
Land held under development (included in inventories)		1,998,733		1,998,733		1,998,733
Restricted assets (included in other assets - others)		2,500		2,500		18,324

	$	4,529,450	$	4,551,585	$	4,574,788

41.

SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

As of September 30, 2018, the Company’s significant commitments and contingent liabilities, excluding those disclosed in other notes, were as follows:

Acquisitions of land and buildings of $35,865 thousand.

Acquisitions of telecommunications equipment of $20,009,805 thousand.

Unused letters of credit amounting to $50,000 thousand.

A commitment to contribute $2,000,000 thousand to a Piping Fund administered by the Taipei City Government, of which $1,000,000 thousand was contributed by Chunghwa on August 15, 1996 (classified as other monetary assets—noncurrent). If the fund is not sufficient, Chunghwa will contribute the remaining $1,000,000 thousand upon notification from the Taipei City Government.

CHPT signed the contract for its headquarters construction amounted to $1,613,800 thousand in July, 2017. The payment of $234,234 thousand has been made as of September 30, 2018.

- 87 -

42.

SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information summarizes the disclosure of the currency which is other than functional currency of Chunghwa and its subsidiaries. The following exchange rates are the exchange rates used to translate to the presentation currency in the consolidated financial statements, which is NTD:


	September 30, 2018
	Foreign Currencies (Thousands)		Exchange Rate		New Taiwan Dollars (Thousands)
Assets denominated in foreign currencies

Monetary items
Cash
USD	$	26,177		30.53	$	799,056
EUR		548		35.48		19,437
SGD		4,081		22.33		91,123
JPY		60,347		0.269		16,246
RMB		210		4.436		932
Accounts receivable
USD		180,440		30.53		5,507,937
EUR		23		35.48		816
SGD		145		22.33		3,231
JPY		1,989		0.269		535
Non-monetary items
Investments accounted for using equity method
SGD		25,023		22.33		558,770
VND		227,383,898		0.00118		268,313

Liabilities denominated in foreign currencies

Monetary items
Accounts payable
USD		225,457		30.53		6,882,060
EUR		43,152		35.48		1,531,019
SGD		2,152		22.33		48,050
JPY		73,399		0.269		19,759

	December 31, 2017
	Foreign Currencies (Thousands)		Exchange Rate		New Taiwan Dollars (Thousands)
Assets denominated in foreign currencies

Monetary items
Cash
USD	$	20,224		29.76	$	601,877
EUR		757		35.57		26,941
SGD		2,752		22.26		61,270
JPY		97,684		0.264		25,789
RMB		197		4.565		898

(Continued)

- 88 -


	December 31, 2017
	Foreign Currencies (Thousands)		Exchange Rate		New Taiwan Dollars (Thousands)
Accounts receivable
USD	$	167,412		29.76	$	4,982,187
EUR		44		35.57		1,551
SGD		74		22.26		1,639
JPY		39,616		0.264		10,459
RMB		457		4.565		2,088
Non-monetary items
Investments accounted for using equity method
USD		762		29.76		22,731
SGD		21,227		22.26		472,505
VND		215,397,479		0.00119		256,323

Liabilities denominated in foreign currencies

Monetary items
Accounts payable
USD		166,800		29.76		4,963,953
EUR		37,189		35.57		1,322,803
SGD		4,333		22.26		96,442
JPY		45,203		0.264		11,934
RMB		5		4.565		25
(Concluded)
	September 30, 2017
	Foreign Currencies		Exchange Rate		New Taiwan Dollars
Assets denominated in foreign currencies

Monetary items
Cash
USD	$	26,147		30.26	$	791,198
EUR		627		35.75		22,420
SGD		167		22.30		3,723
JPY		169,196		0.269		45,514
RMB		720		4.551		3,279
Accounts receivable
USD		221,468		30.26		6,701,609
EUR		24		35.75		867
SGD		94		22.30		2,087
JPY		10,338		0.269		2,781
Non-monetary items
Investments accounted for using equity method
USD		762		30.26		23,044
SGD		24,948		22.30		556,344
VND		201,947,107		0.00121		244,356
(Continued)

- 89 -


	September 30, 2017
	Foreign Currencies		Exchange Rate		New Taiwan Dollars
Liabilities denominated in foreign currencies

Monetary items
Accounts payable
USD	$	202,635		30.26	$	6,131,750
EUR		18,283		35.75		653,629
SGD		2,161		22.30		48,192
JPY		21,691		0.269		5,835
RMB		62		4.551		282

(Concluded)

The unrealized foreign currency exchange losses and gains were loss of $38,860 thousand and gain of $25,319 thousand for the three months ended September 30, 2018 and 2017, respectively. The unrealized foreign currency exchange losses were of $8,994 thousand and $25,649 thousand for the nine months ended September 30, 2018 and 2017, respectively. Due to the various foreign currency transactions and the functional currency of each individual entity of the Company, foreign exchange gains and losses cannot be disclosed by the respective significant foreign currency.

43.

ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the FSC for the Company:

Financing provided: None.

Endorsement/guarantee provided: Please see Table 1.

Marketable securities held (excluding investments in subsidiaries, associates and joint ventures): Please see Table 2.

Marketable securities acquired and disposed of at costs or prices at least $300 million or 20% of the paid-in capital: Please see Table 3.

Acquisition of individual real estate at costs of at least $300 million or 20% of the paid-in capital: Please see Table 4.

Disposal of individual real estate at prices of at least $300 million or 20% of the paid-in capital: None.

Total purchases from or sales to related parties amounting to at least $100 million or 20% of the paid-in capital: Please see Table 5.

Receivables from related parties amounting to $100 million or 20% of the paid-in capital: Please see Table 6.

Names, locations, and other information of investees on which the Company exercises significant influence (excluding investment in Mainland China): Please see Table 7.

Derivative instruments transactions: Please see Notes 7, 21 and 38.

- 90 -

Investment in Mainland China: Please see Table 8.

Intercompany relationships and significant intercompany transaction: Please see Table 9.

44.

SEGMENT INFORMATION

The Company has the following reportable segments that provide different products or services. The reportable segments are managed separately because each segment represents a strategic business unit that serves different markets. Segment information is provided to CEO who allocates resources and assesses segment performance. The Company’s measure of segment performance is mainly based on revenues and income before income tax. The Company’s reportable segments are as follows:

Domestic fixed communications business—the provision of local telephone services, domestic long distance telephone services, broadband access, and related services;

Mobile communications business—the provision of mobile services, sales of mobile handsets and data cards, and related services;

Internet business—the provision of HiNet services and related services;

International fixed communications business—the provision of international long distance telephone services and related services;

Others—the provision of non-telecom services and the corporate related items not allocated to reportable segments.

Some operating segments have been aggregated into a single operating segment taking into account the following factors: (a) similar economic characteristics such as long-term gross profit margins; (b) the nature of the telecommunications products and services are similar; (c) the nature of production processes of the telecommunications products and services are similar; (d) the type or class of customer for the telecommunications products and services are similar; and (e) the methods used to provide the services to the customers are similar.

There was no material differences between the accounting policies of the operating segments and the accounting policies described in Note 3.

Segment Revenues and Operating Results

Analysis by reportable segment of revenue and operating results of continuing operations are as follows:


	Domestic Fixed Communications Business		Mobile Communications Business		Internet Business		International Fixed Communications Business		Others			Total
For the three months ended September 30, 2018
Revenues
From external customers	$	16,496,740	$	23,446,380	$	7,188,615	$	4,190,691	$	1,382,459		$	52,704,885
Intersegment revenues		4,101,647		412,040		1,095,076		471,890		1,196,291			7,276,944

Segment revenues	$	20,598,387	$	23,858,420	$	8,283,691	$	4,662,581	$	2,578,750			59,981,829

Intersegment elimination													(7,276,944	)

Consolidated revenues												$	52,704,885

Segments operating costs and expenses	$	14,610,433	$	17,308,953	$	3,289,216	$	4,008,965	$	3,061,835		$	42,279,402

Segment income before income tax	$	4,523,392	$	3,113,999	$	3,179,749	$	314,605	$	(271,174	)	$	10,860,571

(Continued)

- 91 -


	Domestic Fixed Communications Business		Mobile Communications Business		Internet Business		International Fixed Communications Business		Others			Total
For the nine months ended September 30, 2018
Revenues
From external customers	$	48,735,029	$	75,904,284	$	21,316,442	$	10,408,126	$	3,631,721		$	159,995,602
Intersegment revenues		12,997,387		1,290,565		2,906,366		1,686,202		3,500,178			22,380,698

Segment revenues	$	61,732,416	$	77,194,849	$	24,222,808	$	12,094,328	$	7,131,899			182,376,300

Intersegment elimination													(22,380,698	)

Consolidated revenues												$	159,995,602

Segments operating costs and expenses	$	43,345,319	$	54,754,504	$	9,409,477	$	10,327,998	$	8,655,580		$	126,492,878

Segment income before income tax	$	13,992,048	$	12,201,127	$	8,595,206	$	698,715	$	(1,012,330	)	$	34,474,766

For the three months ended September 30, 2017
Revenues
From external customers	$	17,773,330	$	26,962,640	$	7,200,085	$	3,165,655	$	1,323,193		$	56,424,903
Intersegment revenues		5,694,088		504,532		1,127,381		579,383		1,129,919			9,035,303

Segment revenues	$	23,467,418	$	27,467,172	$	8,327,466	$	3,745,038	$	2,453,112			65,460,206

Intersegment elimination													(9,035,303	)

Consolidated revenues												$	56,424,903

Segments operating costs and expenses	$	15,532,978	$	19,279,714	$	3,186,733	$	3,195,271	$	2,796,800		$	43,991,496

Segment income before income tax	$	6,425,112	$	3,314,558	$	2,984,266	$	182,128	$	(323,680	)	$	12,582,384

For the nine months ended September 30, 2017
Revenues
From external customers	$	51,537,731	$	80,408,472	$	21,184,661	$	10,003,288	$	3,495,292		$	166,629,444
Intersegment revenues		17,041,828		1,543,889		3,372,192		1,741,086		3,204,008			26,903,003

Segment revenues	$	68,579,559	$	81,952,361	$	24,556,853	$	11,744,374	$	6,699,300			193,532,447

Intersegment elimination													(26,903,003	)

Consolidated revenues												$	166,629,444

Segments operating costs and expenses	$	45,530,847	$	57,589,682	$	9,555,353	$	9,788,996	$	7,861,754		$	130,326,632

Segment income before income tax	$	18,762,371	$	9,842,306	$	8,553,050	$	824,062	$	(726,697	)	$	37,255,092

(Concluded)

Main Products and Service Revenues


	Three Months Ended September 30				Nine Months Ended September 30
	2018		2017		2018		2017
Mobile services revenue	$	15,016,988	$	19,006,767	$	48,867,385	$	57,261,226
Sales of products		9,727,746		9,202,867		30,442,949		26,442,315
Local telephone and domestic long distance telephone services revenue		7,498,097		8,255,374		22,678,369		24,390,648
Broadband access and domestic leased line services revenue		5,575,452		5,734,620		16,824,397		17,272,225
Data Communications internet services revenue		5,275,797		5,321,512		15,816,447		15,839,407
International network and leased telephone services revenue		2,945,898		2,130,070		7,046,828		7,003,858
Others		6,664,907		6,773,693		18,319,227		18,419,765

	$	52,704,885	$	56,424,903	$	159,995,602	$	166,629,444

- 92 -

TABLE 1

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

ENDORSEMENTS/GUARANTEES PROVIDED

NINE MONTHS ENDED SEPTEMBER 30, 2018

(Amounts in Thousands of New Taiwan Dollars)

No.

(Note 1)

Endorsement/
Guarantee Provider

Guaranteed Party

Limits on
Endorsement/
Guarantee
Amount
Provided to
Each
Guaranteed
Party

Maximum
Balance for
the Period

Ending
Balance

Actual
Borrowing
Amount

Amount of
Endorsement/
Guarantee
Collateralized
by Properties

Ratio of
Accumulated
Endorsement/
Guarantee to
Net Equity
Per Latest
Financial
Statements

Maximum
Endorsement/
Guarantee
Amount
Allowable

Endorsement/
Guarantee
Given by
Parent on
Behalf of
Subsidiaries

Endorsement/
Guarantee
Given by
Subsidiaries
on Behalf of
Parent

Endorsement/
Guarantee
Given on
Behalf of
Companies
in Mainland
China

Note

Name

Nature of
Relationship
(Note 2)

Senao International
Co., Ltd.

Youth Co., Ltd.
ISPOT Co., Ltd.

Aval Technologies
Co., Ltd.

b
b
b

568,642
568,642
568,642

200,000
150,000
300,000

—

—
300,000

—

—
300,000

—
—
—

—
—
5.28

2,843,210
2,843,210
2,843,210

Yes
Yes
Yes

No
No
No

Notes 3, 4 and 5

Notes 3, 4 and 6
Notes 3 and 4

Note 1:

Significant transactions between the Company and its subsidiaries or among subsidiaries are numbered as follows:

“0” for the Company.

Subsidiaries are numbered from “1”.

Note 2:

Relationships between the endorsement/guarantee provider and the guaranteed party:

A company with which it does business.

A company in which the Company directly and indirectly holds more than 50 percent of the voting shares.

A company that directly and indirectly holds more than 50 percent of the voting shares in the Company.

Companies in which the Company holds, directly or indirectly, 90% or more of the voting shares.

The Company fulfills its contractual obligations by providing mutual endorsements/guarantees for another company in the same industry or for joint builders for purposes of undertaking a construction project.

All capital contributing shareholders make endorsements/ guarantees for their jointly invested company in proportion to their shareholding percentages.

Companies in the same industry provide among themselves joint and several security for a performance guarantee of a sales contract for pre-construction homes pursuant to the Consumer Protection Act for each other.

Note 3:

The limits on endorsement or guarantee amount provided to each guaranteed party is up to 10% of the net assets value of the latest financial statements of Senao International Co., Ltd.

Note 4:

The total amount of endorsement or guarantee that the Company is allowed to provide is up to 50% of the net assets value of the latest financial statements of Senao International Co., Ltd.

Note 5:

Senao International Co., Ltd. dissolved the endorsement or guarantee to Youth Co., Ltd. in August 2018.

Note 6:

Senao International Co., Ltd. retrieved the guarantee letter and dissolved the endorsement or guarantee to ISPOT Co., Ltd. in August 2018.

- 93 -

TABLE 2

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD

SEPTEMBER 30, 2018

(Amounts in Thousands of New Taiwan Dollars)


Held Company Name	Marketable Securities Type and Name	Relationship with the Company	Financial Statement Account	September 30, 2018								Note
Held Company Name	Marketable Securities Type and Name	Relationship with the Company	Financial Statement Account	Shares (Thousands/ Thousand Units)		Carrying Value (Note 1)		Percentage of Ownership		Fair Value		Note
Chunghwa Telecom Co., Ltd.	Stocks
	Taipei Financial Center Corp.	—	Financial assets at FVOCI		172,927	$	3,422,019		12	$	3,422,019	—
	Innovation Works Development Fund, L.P.	—	Financial assets at FVOCI		—		272,240		4		272,240	—
	Industrial Bank of Taiwan II Venture Capital Co., Ltd. (IBT II)	—	Financial assets at FVOCI		5,252		22,167		17		22,167	—
	Global Mobile Corp.	—	Financial assets at FVOCI		7,617		—		3		—	—
	Innovation Works Limited	—	Financial assets at FVOCI		1,000		1,298		2		1,298	—
	RPTI Intergroup International Ltd.	—	Financial assets at FVOCI		4,765		—		10		—	—
	Taiwan mobile payment Co., Ltd.	—	Financial assets at FVOCI		1,200		5,013		2		5,013	—
	Taiwania Capital Buffalo Fund Co., Ltd.	—	Financial assets at FVOCI		300,000		292,910		13		292,910	—
	China Airlines Ltd.	—	Financial assets at FVOCI		263,622		2,438,505		5		2,438,505	Note 2
	4 Gamers Entertainment Inc.	—	Financial assets at FVOCI		136		117,955		20		117,955	—

Senao International Co., Ltd.	Stocks
	N.T.U. Innovation Incubation Corporation	—	Financial assets at FVOCI		1,200		9,671		9		9,671	—

CHIEF Telecom Inc.	Stocks
	3 Link Information Service Co., Ltd.	—	Financial assets at FVOCI		374		920		10		920	—

Chunghwa Investment Co., Ltd.	Stocks
	Tatung Technology Inc.	—	Financial assets at FVOCI		4,571		114,285		11		114,285	—
	iSing99 Inc.	—	Financial assets at FVOCI		10,000		52,574		7		52,574	—
	Powertec Energy Corp.	—	Financial assets at FVOCI		20,000		238,912		2		238,912	—

Chunghwa Hsingta Co., Ltd.	Stocks
	Cotech Engineering Fuzhou Corp.	—	Financial assets at FVOCI		—		10,696		5		10,696	—

Note 1:

Showed at carrying amounts with fair value adjustments.

Note 2:

Fair value was based on the closing price on September 28, 2018.

- 94 -

TABLE 3

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL

NINE MONTHS ENDED SEPTEMBER 30, 2018

(Amounts in Thousands of New Taiwan Dollars)

Company
Name

Marketable Securities
Type and Name

Financial Statement
Account

Counter-
party

Nature of
Relationship

Beginning Balance

Acquisition

Disposal

Ending Balance

Shares
(Thousands/
Thousand
Units)

Amount

Shares
(Thousands/
Thousand
Units)

Amount

Shares
(Thousands/
Thousand
Units)

Amount

Carrying
Value

Gain
(Loss)
on
Disposal

Shares
(Thousands/
Thousand
Units)

Amount

Chunghwa Investment Co., Ltd.

Stocks

Chunghwa Precision Test Tech. Co., Ltd.

Investments accounted for using equity method

—

Subsidiary

12,558

2,207,100

(Note 1

)

—

1,328

1,041,689

240,953

(Note 1

)

800,736

(Note 2

)

11,230

2,050,190

(Note 1

)

Note 1:

Including share of profit and other comprehensive income of associates accounted for using equity method.

Note 2:

Differences arising from equity transactions are included in additional paid-in capital.

- 95 -

TABLE 4

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

ACQUISITION OF INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST $300 MILLION OR 20% OF THE PAID-IN CAPITAL

NINE MONTHS ENDED SEPTEMBER 30, 2018

(Amounts in Thousands of New Taiwan Dollars)

Buyer

Property

Event Date

Transaction
Amount

Payment Status

Counterparty

Relationship

Information on Previous Title Transfer If Counterparty is a Related
Party

Pricing
Reference

Purpose of
Acquisition

Other Terms

Property Owner

Relationship

Transaction Date

Amount

Chunghwa Precision Test Tech. Co., Ltd.

Headquarters

2017.7.29-
2018.9.26

380,875

Monthly settlement based on the construction progress and acceptance

Fu tsu
Construction
Co., Ltd.

—

Not applicable

Bidding, price comparison and price negotiation

Manufacturing purpose

None

- 96 -

TABLE 5

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

NINE MONTHS ENDED SEPTEMBER 30, 2018

(Amounts in Thousands of New Taiwan Dollars)


Company Name	Related Party	Nature of Relationship	Transaction Details						Abnormal Transaction				Notes / Accounts Payable or Receivable
Company Name	Related Party	Nature of Relationship	Purchase/Sales (Note 1)	Amount (Notes 2 and 5)		% to Total		Payment Terms	Units Price		Payment Terms		Ending Balance (Notes 3 and 5)			% to Total
Chunghwa Telecom Co., Ltd.	Senao International Co., Ltd.	Subsidiary	Sales	$	1,392,313		1	30 days	$	—		—	$	495,272			2
			Purchase		1,112,120		1	30-90 days		—		—		(823,943	)		(5	)
	CHIEF Telecom Inc.	Subsidiary	Sales		243,790		—	30 days		—		—		44,085			—
			Purchase		217,182		—	60 days		—		—		(42,170	)		—
	Chunghwa System Integration Co., Ltd.	Subsidiary	Purchase		615,577		1	30 days		—		—		(239,111	)		(1	)
	Honghwa International Co., Ltd.	Subsidiary	Purchase		3,935,219		5	30-60 days		—		—		(809,565	)		(5	)
	Donghwa Telecom Co., Ltd.	Subsidiary	Sales		160,699		—	30 days		—		—		120,589			—
			Purchase		382,157		—	90 days		—		—		(135,496	)		(1	)
	Chunghwa Telecom Global, Inc.	Subsidiary	Purchase		254,709		—	90 days		—		—		(56,476	)		—
	Chunghwa Telecom Singapore Pte., Ltd.	Subsidiary	Sales		114,212		—	30 days		—		—		103,552			—
			Purchase		140,318		—	90 days		—		—		(73,608	)		—
	CHT Security Co., Ltd.	Subsidiary	Purchase		184,089		—	30 days		—		—		(43,149	)		—
	ST-2 Satellite Ventures Pte. Ltd.	Associate	Purchase		295,538		—	30 days		—		—		(47,411	)		—
	Taiwan International Standard Electronics Co., Ltd.	Associate	Purchase		396,949		—	30-90 days		—		—		(264,912	)		(2	)
	So-net Entertainment Taiwan Limited	Associate	Sales		107,443		—	60 days		—		—		8			—
Senao International Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		4,932,109		21	30-90 days		—		—		828,219			47
			Purchase		1,254,209		6	30 days		—		—		(475,625	)		(17	)
	Aval Technologies Co., Ltd.	Subsidiary	Purchase		203,480		1	30 days		—		—		(9,428	)		—
CHIEF Telecom Inc.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		217,182		13	60 days		—		—		42,170			21
			Purchase		243,388		25	30 days		—		—		(43,992	)		(36	)
Chunghwa System Integration Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		910,293		76	30 days		—		—		237,836			68
Honghwa International Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		3,935,219		97	30-60 days		—		—		809,565			98
Donghwa Telecom Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		382,157		43	90 days		—		—		135,496			84
			Purchase		160,699		19	30 days		—		—		(120,589	)		(70	)
Chunghwa Telecom Global, Inc.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		254,709		57	90 days		—		—		56,476			73
Chunghwa Telecom Singapore Pte., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		140,318		15	90 days		—		—		73,608			21
			Purchase		114,212		13	30 days		—		—		(103,552	)		(38	)
CHT Security Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		184,089		89	30 days		—		—		43,149			67

Note 1:

Purchase included acquisition of services costs.

Note 2:

The differences were because Chunghwa Telecom Co., Ltd. and subsidiaries classified the amount as inventories, property, plant and equipment, intangible assets, and operating expenses.

Note 3:

Notes and accounts receivable did not include the amounts collected for others and other receivables.

Note 4:

Transaction terms with the related parties were determined in accordance with mutual agreements when there were no similar transactions with third parties. Other transactions with related parties were not significantly different from those with third parties.

Note 5:

All inter-company transactions, balances, income and expenses are eliminated upon consolidation.

- 97 -

TABLE 6

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

SEPTEMBER 30, 2018

(Amounts in Thousands of New Taiwan Dollars)


Company Name	Related Party	Nature of Relationship	Ending Balance			Turnover Rate (Note 1)		Overdue				Amounts Received in Subsequent Period		Allowance for Bad Debts
Company Name	Related Party	Nature of Relationship	Ending Balance			Turnover Rate (Note 1)		Amounts		Action Taken		Amounts Received in Subsequent Period		Allowance for Bad Debts
Chunghwa Telecom Co., Ltd.	Senao International Co., Ltd.	Subsidiary	$	717,976 (Note 2	)		11.55	$	—		—	$	702,047	$	—
	Donghwa Telecom Co., Ltd.	Subsidiary		120,589 (Note 2	)		2.42		—		—		17,238		—
	Chunghwa Telecom Singapore Pte., Ltd.	Subsidiary		103,552 (Note 2	)		1.42		—		—		103,552		—
Senao International Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company		1,082,326 (Note 2	)		6.45		—		—		571,074		—
Chunghwa System Integration Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company		237,836 (Note 2	)		3.15		—		—		94,658		—
Honghwa International Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company		817,808 (Note 2	)		5.70		—		—		245,534		—
Donghwa Telecom Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company		135,496 (Note 2	)		10.69		—		—		57,388		—

Note 1:

Payments and receipts collected in trust for others are excluded from the accounts receivable for calculating the turnover rate.

Note 2:

The amount was eliminated upon consolidation.

- 98 -

TABLE 7

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES IN WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE (EXCLUDING INVESTMENT IN MAINLAND CHINA)

NINE MONTHS ENDED SEPTEMBER 30, 2018

(Amounts in Thousands of New Taiwan Dollars)


				Original Investment Amount				Balance as of September 30, 2018						Net Income		Recognized
Investor Company	Investee Company	Location	Main Businesses and Products	September 30, 2018		December 31, 2017		Shares (Thousands)		Percentage of Ownership (%)		Carrying Value		(Loss) of the Investee		Gain (Loss) (Notes 1, 2 and 3)		Note
Chunghwa Telecom Co., Ltd.	Senao International Co., Ltd.	Taiwan	Handset and peripherals retailer; sales of CHT mobile phone plans as an agent	$	1,065,813	$	1,065,813		71,773		28	$	1,575,107	$	274,310	$	72,916	Subsidiary (Notes 3 and 7)
	Light Era Development Co., Ltd.	Taiwan	Planning and development of real estate and intelligent buildings, and property management		3,000,000		3,000,000		300,000		100		3,853,585		7,811		7,811	Subsidiary (Note 7)
	Donghwa Telecom Co., Ltd.	Hong Kong	International private leased circuit, IP VPN service, and IP transit services		1,567,453		1,567,453		402,590		100		1,596,194		30,462		30,462	Subsidiary (Note 7)
	Chunghwa Telecom Singapore Pte., Ltd.	Singapore	International private leased circuit, IP VPN service, and IP transit services		574,112		574,112		26,383		100		956,951		94,613		94,613	Subsidiary (Note 7)
	Chunghwa System Integration Co., Ltd.	Taiwan	Providing system integration services and telecommunications equipment		838,506		838,506		60,000		100		732,816		4,172		16,272	Subsidiary (Note 7)
	CHIEF Telecom Inc.	Taiwan	Network integration, internet data center (“IDC”), communications integration and cloud application services		459,652		468,326		39,426		57		1,620,803		354,803		222,694	Subsidiary (Note 7)
	Chunghwa Investment Co., Ltd.	Taiwan	Investment		639,559		639,559		68,085		89		3,126,847		146,708		127,525	Subsidiary (Note 7)
	Prime Asia Investments Group Ltd. (B.V.I.)	British Virgin Islands	Investment		385,274		385,274		1		100		193,362		360		360	Subsidiary (Note 7)
	Honghwa International Co., Ltd.	Taiwan	Telecommunication engineering, sales agent of mobile phone plan application and other business services		180,000		180,000		18,000		100		371,619		119,580		117,715	Subsidiary ((Notes 3 and 7)

(Continued)

- 99 -


				Original Investment Amount				Balance as of September 30, 2018							Net Income			Recognized
Investor Company	Investee Company	Location	Main Businesses and Products	September 30, 2018		December 31, 2017		Shares (Thousands)		Percentage of Ownership (%)		Carrying Value			(Loss) of the Investee			Gain (Loss) (Notes 1, 2 and 3)			Note
	CHYP Multimedia Marketing & Communications Co., Ltd.	Taiwan	Digital information supply services and advertisement services		150,000		150,000		15,000		100		189,278			16,600			16,600		Subsidiary (Note 7)
	Chunghwa Telecom Vietnam Co., Ltd.	Vietnam	Intelligent energy saving solutions, international circuit, and information and communication technology (“ICT”) services.		148,275		148,275		—		100		104,404			(1,377	)		(1,377	)	Subsidiary (Note 7)
	Chunghwa Telecom Global, Inc.	United States	International private leased circuit, internet services, and transit services		70,429		70,429		6,000		100		271,880			44,723			46,414		Subsidiary (Note 7)
	CHT Security Co., Ltd.	Taiwan	Computing equipment installation, wholesale of computing and business machinery equipment and software, management consulting services, data processing services, digital information supply services and internet identify services		240,000		240,000		24,000		80		220,102			(19,193	)		(19,904	)	Subsidiary (Note 7)
	Chunghwa Telecom (Thailand) Co., Ltd.	Thailand	International private leased circuit, IP VPN service, ICT and cloud VAS services		100,000		100,000		1,000		100		95,799			(1,345	)		(1,345	)	Subsidiary (Note 7)
	Spring House Entertainment Tech. Inc.	Taiwan	Software design services, internet contents production and play, and motion picture production and distribution		62,209		62,209		10,277		56		97,956			7,158			4,011		Subsidiary (Note 7)
	Chunghwa leading Photonics Tech Co., Ltd.	Taiwan	Production and sale of electronic components and finished products		70,500		70,500		7,050		75		95,527			22,473			21,279		Subsidiary (Note 7)
	Smartfun Digital Co., Ltd.	Taiwan	Providing diversified family education digital services		65,000		65,000		6,500		65		70,118			5,605			6,301		Subsidiary (Note 7)
	Chunghwa Telecom Japan Co., Ltd.	Japan	International private leased circuit, IP VPN service, and IP transit services		17,291		17,291		1		100		57,053			7,499			7,499		Subsidiary (Note 7)
	Chunghwa Sochamp Technology Inc.	Taiwan	Design, development and production of Automatic License Plate Recognition software and hardware		20,400		20,400		2,040		51		(7,902	)		2,823			2,295		Subsidiary (Note 7)
	International Integrated System, Inc.	Taiwan	IT solution provider, IT application consultation, system integration and package solution		283,500		283,500		22,498		32		315,475			78,889			24,699		Associate

(Continued)

- 100 -


				Original Investment Amount				Balance as of September 30, 2018						Net Income			Recognized
Investor Company	Investee Company	Location	Main Businesses and Products	September 30, 2018		December 31, 2017		Shares (Thousands)		Percentage of Ownership (%)		Carrying Value		(Loss) of the Investee			Gain (Loss) (Notes 1, 2 and 3)			Note
	Viettel-CHT Co., Ltd.	Vietnam	IDC services	$	288,327	$	288,327		—		30	$	268,313	$	154,585		$	46,397		Associate
	Taiwan International Standard Electronics Co., Ltd.	Taiwan	Manufacturing, selling, designing, and maintaining of telecommunications systems and equipment		164,000		164,000		1,760		40		149,674		48,815			68,912		Associate
	Skysoft Co., Ltd.	Taiwan	Providing of music on-line, software, electronic information, and advertisement services		67,025		67,025		4,438		30		133,553		(23,567	)		(6,413	)	Associate
	So-net Entertainment Taiwan Limited	Taiwan	Online service and sale of computer hardware		120,008		120,008		9,429		30		105,820		5,176			1,553		Associate
	KingwayTek Technology Co., Ltd.	Taiwan	Publishing books, data processing and software services		69,013		69,013		6,993		26		129,449		8,116			1,951		Associate
	Taiwan International Ports Logistics Corporation	Taiwan	Import and export storage, logistic warehouse, and ocean shipping service		80,000		80,000		8,000		27		47,958		(6,320	)		(1,673	)	Associate
	Dian Zuan Integrating Marketing Co., Ltd.	Taiwan	Information technology service and general advertisement service		97,598		97,598		5,400		15		11,799		(36,032	)		(5,419	)	Associate
	Alliance Digital Tech Co., Ltd.	Taiwan	Development of mobile payments and information processing service		60,000		60,000		6,000		14		9,218		(36,600	)		(5,270	)	Associate
Senao International Co., Ltd.	Senao Networks, Inc.	Taiwan	Telecommunication facilities manufactures and sales		202,758		202,758		16,579		34		887,402		370,002			123,888		Associate
	Senao International (Samoa) Holding Ltd.	Samoa Islands	International investment		2,416,645		2,416,645		81,175		100		477,815		(20,545	)		(20,545	)	Subsidiary (Note 7)
	Dian Zuan Integrating Marketing Co., Ltd.	Taiwan	Information technology service and general advertisement service		24,000		24,000		2,400		7		5,378		(36,032	)		(2,411	)	Associate
	Youth Co., Ltd.	Taiwan	Sale of information and communication technologies products		335,450		335,450		13,780		89		179,759		(12,294	)		(60,110	)	Subsidiary (Note 7)
	Aval Technologies Co., Ltd.	Taiwan	Sale of information and communication technologies products		60,000		60,000		6,510		100		69,353		3,522			3,522		Subsidiary (Note 7)
	SENYOUNG Insurance Agent Co., Ltd.	Taiwan	Property and liability insurance agency		29,500		10,000		2,950		100		20,199		(8,817	)		(8,817	)	Subsidiary (Note 7)

(Continued)

- 101 -


				Original Investment Amount				Balance as of September 30, 2018						Net Income			Recognized
Investor Company	Investee Company	Location	Main Businesses and Products	September 30, 2018		December 31, 2017		Shares (Thousands)		Percentage of Ownership (%)		Carrying Value		(Loss) of the Investee			Gain (Loss) (Notes 1, 2 and 3)			Note
Light Era Development Co., Ltd.	Taoyuan Asia Silicon Valley Innovation Co., Ltd.	Taiwan	Development of real estate		7,500		—		750		60		6,453		(1,744	)		(1,047	)	Subsidiary (Note 7)
CHIEF Telecom Inc.	Unigate Telecom Inc.	Taiwan	Telecommunications and internet service		2,000		2,000		200		100		906		(97	)		(97	)	Subsidiary (Note 7)
	Chief International Corp.	Samoa Islands	Telecommunications and internet service		6,068		6,068		200		100		60,530		7,973			7,973		Subsidiary (Note 7)
Chunghwa System Integrated Co., Ltd.	Concord Technology Co., Ltd.	Brunei	Investment		—		47,321		—		—		—		—			—		Subsidiary (Notes 4 and 7)
Chunghwa Telecom Singapore Pte., Ltd.	ST-2 Satellite Ventures Pte., Ltd.	Singapore	Operation of ST-2 telecommunications satellite		409,061		409,061		18,102		38		558,770		216,536			82,284		Associate
Chunghwa Investment Co., Ltd.	Chunghwa Precision Test Tech. Co., Ltd.	Taiwan	Production and sale of semiconductor testing components and printed circuit board		178,608		199,736		11,230		34		2,050,190		551,453			203,060		Subsidiary (Note 7)
	CHIEF Telecom Inc.	Taiwan	Network integration, internet data center (“IDC”), communications integration and cloud application services		19,064		19,422		2,078		3		82,035		354,803			11,862		Associate (Note 7)
	Senao International Co., Ltd.	Taiwan	Selling and maintaining mobile phones and its peripheral products		49,731		49,731		1,001		—		42,804		274,310			1,004		Associate (Note 7)
Chunghwa Precision Test Tech. Co., Ltd.	Chunghwa Precision Test Tech USA Corporation	United States	Design and after-sale services of semiconductor testing components and printed circuit board		12,636		12,636		400		100		23,916		792			792		Subsidiary (Note 7)
	CHPT Japan Co., Ltd.	Japan	Related services of electronic parts, machinery processed products and printed circuit board		2,008		2,008		1		100		2,262		100			100		Subsidiary (Note 7)
	Chunghwa Precision Test Tech. International, Ltd.	Samoa Islands	Wholesale and retail of electronic materials, and investment		54,450		54,450		1,700		100		41,813		(4,420	)		(4,420	)	Subsidiary (Note 7)
Prime Asia Investments Group,	Chunghwa Hsingta Co., Ltd.	Hong Kong	Investment		375,274		375,274		1		100		206,602		(358	)		(358	)	Subsidiary (Note 7)
Ltd. (B.V.I.)	MeWorks Limited (HK)	Hong Kong	Investment		10,000		10,000		—		20		—		—			—		Associate

(Continued)

- 102 -


				Original Investment Amount				Balance as of September 30, 2018						Net Income			Recognized
Investor Company	Investee Company	Location	Main Businesses and Products	September 30, 2018		December 31, 2017		Shares (Thousands)		Percentage of Ownership (%)		Carrying Value		(Loss) of the Investee			Gain (Loss) (Notes 1, 2 and 3)			Note
Senao International (Samoa)	Senao International HK Limited	Hong Kong	International investment	$	2,393,646	$	2,393,646		80,440		100	$	439,512	$	(20,452	)	$	(20,452	)	Subsidiary (Note 7)
Holding Ltd.	HopeTech Technologies Limited	Hong Kong	Information technology and telecommunications products sales		—		21,177		—		—		—		(330	)		(149	)	Associate (Note 5)
Youth Co., Ltd.	ISPOT Co., Ltd.	Taiwan	Sale of information and communication technologies products		53,021		53,021		—		100		9,152		(5,259	)		(10,062	)	Subsidiary (Note 7)
	Youyi Co., Ltd.	Taiwan	Maintenance of information and communication technologies products		21,354		21,354		—		100		17,011		1,539			1,267		Subsidiary (Note 7)
CHYP Multimedia Marketing & Communications Co., Ltd	Click Force Marketing Company	Taiwan	Advertisement services		44,607		44,607		1,078		49		37,297		5,663			1,181		Associate

Note 1:

The amounts were based on reviewed financial statements.

Note 2:

Recognized gain (loss) of investees includes amortization of differences between the investment cost and net value and elimination of unrealized transactions.

Note 3:

Recognized gain (loss) and carrying value of the investees did not include the adjustment of the difference between the accounting treatment on standalone basis and consolidated basis as a result of the application of IFRS 15.

Note 4:

Concord Technology Co., Ltd. was approved to end and dissolve its business in August 2017. The liquidation of Concord was completed in January 2018.

Note 5:

Senao International (Samoa) Holding Ltd disposed all shares of HopeTech Technologies Limited in June 2018.

Note 6:

Investment in mainland China is included in Table 8.

Note 7:

The amount was eliminated upon consolidation.

(Concluded)

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TABLE 8

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

INVESTMENT IN MAINLAND CHINA

NINE MONTHS ENDED SEPTEMBER 30, 2018

(Amounts in Thousands of New Taiwan Dollars)


Investee	Main Businesses and Products	Total Amount of Paid-in Capital		Investment Type (Note 1)		Accumulated Outflow of Investment from Taiwan as of January 1, 2018		Investment Flows				Accumulated Outflow of Investment from Taiwan as of September 30, 2018		Net Income (Loss) of the Investee			% Ownership of Direct or Indirect Investment		Investment Gain (Loss) (Note 2)			Carrying Value as of September 30, 2018		Accumulated Inward Remittance of Earnings as of September 30, 2018		Note
Investee	Main Businesses and Products	Total Amount of Paid-in Capital		Investment Type (Note 1)				Outflow		Inflow				Net Income (Loss) of the Investee			% Ownership of Direct or Indirect Investment		Investment Gain (Loss) (Note 2)			Carrying Value as of September 30, 2018				Note
Senao Trading (Fujian) Co., Ltd.	Sale of information and communication technologies products	$	1,073,170		2	$	1,073,170	$	—	$	—	$	1,073,170	$	5,829			100	$	5,829		$	192,501	$	—		Notes 7 and 11
Senao International Trading (Shanghai) Co., Ltd.	Sale of information and communication technologies products		955,838		2		955,838		—		—		955,838		(26,295	)		100		(26,295	)		87,610		—		Note 11
Senao International Trading (Shanghai) Co., Ltd. (Note 11)	Maintenance of information and communication technologies products		87,540		2		87,540		—		—		87,540		(968	)		—		(968	)		—		—		Notes 8 and 11
Senao International Trading (Jiangsu) Co., Ltd.	Sale of information and communication technologies products		263,736		2		263,736		—		—		263,736		2,234			100		2,234			88,839		—		Notes 9 and 11
Chunghwa Telecom (China) Co., Ltd.	Integrated information and communication solution services for enterprise clients, and intelligent energy network service		177,176		2		177,176		—		—		177,176		(418	)		100		(418	)		52,318		—		Note 11
Jiangsu Zhenghua Information Technology Company, LLC	Providing intelligent energy saving solution and intelligent buildings services		189,410		2		142,057		—		—		142,057		(551	)		75		(413	)		109,995		—		Notes 10 and 11
Shanghai Taihua Electronic Technology Limited	Design of printed circuit board and related consultation service		51,233		2		51,233		—		—		51,233		(4,450	)		100		(4,450	)		38,688		—		Note 11
Shanghai Chief Telecom Co., Ltd.	Telecommunications and internet service		10,150		1		4,973		—		—		4,973		2,963			49		1,452			7,273		—		Note 11

(Continued)

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Investee	Accumulated Investment in Mainland China as of September 30, 2018		Investment Amounts Authorized by Investment Commission, MOEA		Upper Limit on Investment Stipulated by Investment Commission, MOEA
SENAO and its subsidiaries (Note 3)	$	2,380,284	$	2,380,284	$	3,421,221
Chunghwa Telecom (China) Co., Ltd. (Note 4)		177,176		177,176		227,033,629
Jiangsu Zhenghua Information Technology Company, LLC (Note 4)		142,057		142,057		227,033,629
Shanghai Taihua Electronic Technology Limited (Note 5)		51,233		97,965		3,591,573
Shanghai Chief Telecom Co., Ltd. (Note 6)		4,973		4,973		1,629,843

Note 1:

Investments are divided into three categories as follows:

Direct investment.

Investments through a holding company registered in a third region.

Others.

Note 2:

The amounts were calculated based on the investee’s reviewed financial statements.

Note 3:

Senao International Co., Ltd. and its subsidiaries were calculated based on the consolidated net assets value of Senao International Co., Ltd.

Note 4:

Chunghwa Telecom (China) Co., Ltd. and Jiangsu Zhenghua Information Technology Company, LLC were calculated based on the consolidated net assets value of Chunghwa Telecom Co., Ltd.

Note 5:

Shanghai Taihua Electronic Technology Limited was calculated based on the consolidated net assets value of Chunghwa Precision Test Tech. Co., Ltd.

Note 6:

Shanghai Chief Telecom Co., Ltd. was calculated based on the consolidated net assets value of CHIEF Telecom Inc.

Note 7:

Senao Trading (Fujian) Co., Ltd. was approved to end its business and dissolve in September 2018. The liquidation of Senao Trading (Fujian) Co., Ltd. is still in process.

Note 8:

The liquidation of Senao International Trading (Shanghai) Co., Ltd. was completed in March 2018.

Note 9:

Senao International Trading (Jiangsu) Co., Ltd. was approved to end its business and dissolve in April 2018. The liquidation of Senao International Trading (Jiangsu) Co., Ltd. is still in process.

Note 10:

Jiangsu Zhenhua Information Technology Company, LLC. was approved to end its business and dissolve in May 2016. The liquidation of Jiangsu Zhenhua Information Technology Company, LLC. is still in process.

Note 11:

The amount was eliminated upon consolidation.

Note 12:

The English name is the same as the above entity; however the Chinese name included in the respective Articles of Incorporations is different from the above entity.

(Concluded)

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TABLE 9

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS

NINE MONTHS ENDED SEPTEMBER 30, 2018

(Amounts in Thousands of New Taiwan Dollars)


Year	No. (Note 1)		Company Name	Related Party	Nature of Relationship (Note 2)	Transaction Details
Year	No. (Note 1)		Company Name	Related Party	Nature of Relationship (Note 2)	Financial Statement Account	Amount (Note 5)		Payment Terms (Note 3)		% to Total Sales or Assets (Note 4)
2018		0	Chunghwa Telecom Co., Ltd.	Senao International Co., Ltd.	a	Accounts receivable	$	495,272		—		—
						Accrued custodial receipts		222,704		—		—
						Inventories		48,027		—		—
						Accounts payable		823,943		—		—
						Amounts collected for others		258,383		—		—
						Revenues		1,392,313		—		1
						Operating costs and expenses		1,064,093		—		1
				CHIEF Telecom Inc.	a	Accounts receivable		44,085		—		—
						Accounts payable		42,170		—		—
						Revenues		243,790		—		—
						Operating costs and expenses		217,182		—		—
				CHYP Multimedia Marketing &	a	Accounts payable		35,038		—		—
				Communications Co., Ltd.		Amounts collected for others		63,768		—		—
						Revenues		22,588		—		—
						Operating costs and expenses		86,896		—		—
				Chunghwa System Integration Co., Ltd.	a	Accounts receivable		28,137		—		—
						Accounts payable		239,111		—		—
						Revenues		14,154		—		—
						Operating costs and expenses		512,205		—		—
						Inventories		103,372		—		—
						Prepayments		98,392		—		—
						Property, plant and equipment		211,064		—		—
						Intangible assets		46,961		—		—
				Chunghwa Telecom Global Inc.	a	Accounts receivable		18,532		—		—
						Accounts payable		56,476		—		—
						Revenues		41,564		—		—
						Operating costs and expenses		254,709		—		—
				Donghwa Telecom Co., Ltd.	a	Accounts receivable		120,589		—		—
						Accounts payable		135,496		—		—
						Revenues		160,699		—		—
						Operating costs and expenses		382,157		—		—
				Chunghwa Telecom Japan Co., Ltd.	a	Accounts receivable		16,861		—		—
						Accounts payable		16,959		—		—
						Revenues		10,292		—		—
						Operating costs and expenses		66,552		—		—
				Light Era Development Co., Ltd.	a	Operating costs and expenses		45,120		—		—

(Continued)

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Year	No. (Note 1)		Company Name	Related Party	Nature of Relationship (Note 2)	Transaction Details
Year	No. (Note 1)		Company Name	Related Party	Nature of Relationship (Note 2)	Financial Statement Account	Amount (Note 5)		Payment Terms (Note 3)		% to Total Sales or Assets (Note 4)
				Chunghwa Telecom Singapore Pte., Ltd.	a	Accounts receivable	$	103,552		—		—
						Accounts payable		73,608		—		—
						Revenues		114,212		—		—
						Operating costs and expenses		140,318		—		—
				Chunghwa Sochamp Technology Inc.	a	Accounts payable		27,219		—		—
						Operating costs and expenses		16,558		—		—
				Honghwa International Co., Ltd.	a	Accounts payable		809,565		—		—
						Revenues		14,842		—		—
						Operating costs and expenses		3,932,695		—		2
						Property, plant and equipment		35,682		—		—
				Chunghwa Telecom (Thailand) Co., Ltd.	a	Operating costs and expenses		18,659		—		—
				CHT Security Co., Ltd.	a	Accounts payable		43,149		—		—
						Revenues		14,916		—		—
						Operating costs and expenses		184,089		—		—
				Aval Technologies Co., Ltd.	a	Operating costs and expenses		41,838		—		—
		1	Light Era Development Co., Ltd.	CHIEF Telecom Inc.	c	Revenues		71,390		—		—
		2	Chunghwa Telecom Singapore Pte., Ltd.	Donghwa Telecom Co., Ltd.	c	Prepayments		18,769		—		—

Note 1:

Significant transactions between the Company and its subsidiaries or among subsidiaries are numbered as follows:

“0” for the Company.

Subsidiaries are numbered from “1”.

Note 2:

Related party transactions are divided into three categories as follows:

The Company to subsidiaries.

Subsidiaries to the Company.

Subsidiaries to subsidiaries.

Note 3:

Note 4:

For assets and liabilities, amount is shown as a percentage to consolidated total assets as of September 30, 2018, while revenues, costs and expenses are shown as a percentage to consolidated revenues for the nine months ended September 30, 2018.

Note 5:

The amount was eliminated upon consolidation.

(Concluded)

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