EX-99.1 2 d725558dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

Chunghwa Telecom Co., Ltd.

Financial Statements for the

Years Ended December 31, 2018 and 2017 and

Independent Auditors’ Report


INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders

Chunghwa Telecom Co., Ltd.

Opinion

We have audited the accompanying financial statements of Chunghwa Telecom Co., Ltd. (the Company), which comprise the balance sheets as of December 31, 2018 and 2017, and the statements of comprehensive income, changes in equity and cash flows for the years then ended, and the related notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

The descriptions of the key audit matters of the financial statements for the year ended December 31, 2018 are as follows:

Revenue Recognition on Mobile Services

Key audit matter:

As disclosed in Note 40 to the financial statements, mobile service revenue is the Company’s one source of main revenues and is also an important indicator for the public to evaluate competitiveness and growth potential of telecommunications companies. The calculation of the Company’s mobile services revenue highly relies on an automated computer environment in which the systems are complex due to combinations of the various mobile service price plans and process large volumes of data. Consequently, whether mobile services revenue is appropriately recognized is considered as one of the key audit matters.

 

- 1 -


Corresponding audit procedures:

We tested the effectiveness of the general information technology controls over the information systems used to process the mobile services revenue and relevant controls over the mobile service revenue process from call records, rate calculations, and billing procedures to accounting information system.

Moreover, we performed the following audit procedures on a sample basis: (1) inspected mobile service customers’ contracts; (2) performed live call testing and re-calculated the call records on the basis of corresponding price plans; (3) checked that the calculations of call records agreed with customers’ bills; and (4) checked that the amounts transferred from the mobile service system agreed with the accounting information system.

Revenue Recognition on Project Business

Key audit matter:

The project business mainly provides customers with combinations of one or more equipment and/or services. When the Company provides a project business, part of the obligations or service may likely be outsourced to third parties. Hence, the judgment on whether the Company is acting as a principal or an agent is required in order to determine if revenue should be reported gross as principal versus net as agent. Please refer to Notes 3 and 4 to the financial statements for the details. Due to highly customized nature of the project business, whether project revenue is recognized appropriately is considered as one of the key audit matters.

Corresponding audit procedures:

We tested the effectiveness of controls over the project revenue, including those over principal-versus-agent considerations and revenue recognition.

Moreover, we performed the following audit procedures on a sample basis: (1) inspected project contracts; (2) evaluated the reasonableness of the evaluation forms prepared by authorized personnel on whether the Company is acting as a principal or an agent; (3) re-calculated the project revenue and checked that they agreed with the accounting records; (4) obtained confirmations; and (5) checked the source documents and tested the amounts received.

Emphasis of Matter

As discussed in Note 5 to the financial statements, the Company initially applied IFRS 9 “Financial instruments” and IFRS 15 “Revenue from contracts with customers” in 2018. Our audit opinion is not modified in respect of this matter.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the audit committee, are responsible for overseeing the Company’s financial reporting process.

 

- 2 -


Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

1.

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

2.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

 

3.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

4.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

 

5.

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

6.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision, and performance of the audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

- 3 -


From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the year ended December 31, 2018 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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

 

/s/ Hung Peng Lin

   

/s/ Ching Pin Shih

Deloitte & Touche

Taipei, Taiwan

Republic of China

March 19, 2019

Notice to Readers

The accompanying financial statements are intended only to present the 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 audit such financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying 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’ report and financial statements shall prevail.

 

- 4 -


CHUNGHWA TELECOM CO., LTD.

BALANCE SHEETS

DECEMBER 31, 2018 AND 2017

(In Thousands of New Taiwan Dollars)

 

 

     2018      2017  

ASSETS

     Amount        %        Amount        %  

CURRENT ASSETS

           

Cash and cash equivalents (Notes 3 and 6)

   $ 16,922,851        4      $ 19,744,416        5  

Hedging financial assets (Notes 3 and 20)

     1,069        —          —          —    

Contract assets—current (Notes 3, 5 and 27)

     1,653,886        —          —          —    

Trade notes and accounts receivable, net (Notes 3, 4, 5, 10 and 27)

     27,851,879        6        29,627,307        7  

Receivables from related parties (Note 35)

     817,874        —          1,006,442        —    

Inventories (Notes 3, 4, 5 and 11)

     10,471,759        2        3,834,008        1  

Prepayments (Notes 12 and 35)

     1,438,962        —          1,771,460        —    

Other current monetary assets (Notes 13 and 25)

     5,671,132        1        2,671,540        1  

Other current assets (Notes 5 and 19)

     2,509,572        1        2,107,270        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     67,338,984        14        60,762,443        14  
  

 

 

    

 

 

    

 

 

    

 

 

 

NONCURRENT ASSETS

           

Financial assets at fair value through profit or loss (Notes 3, 4, 5 and 7)

     517,362        —          —          —    

Financial assets at fair value through other comprehensive income (Notes 3, 4, 5 and 8)

     6,533,053        1        —          —    

Available-for-sale financial assets (Notes 3, 5 and 9)

     —          —          3,071,198        1  

Financial assets carried at cost (Notes 3, 5 and 14)

     —          —          2,411,738        1  

Investments accounted for using equity method (Notes 3, 5 and 15)

     15,696,310        4        14,771,770        3  

Contract assets—noncurrent (Notes 3, 5 and 27)

     667,259        —          —          —    

Property, plant and equipment (Notes 3, 4, 16 and 35)

     281,056,057        64        281,413,852        64  

Investment properties (Notes 3, 4 and 17)

     8,212,437        2        7,973,018        2  

Intangible assets (Notes 3, 4 and 18)

     50,404,295        11        54,283,253        13  

Deferred income tax assets (Notes 3 and 29)

     3,041,999        1        2,279,124        1  

Incremental costs of obtaining contracts (Notes 3, 5 and 27)

     7,620,704        2        —          —    

Net defined benefit assets (Notes 3, 4 and 25)

     1,149,402        —          —          —    

Prepayments (Notes 12 and 35)

     1,852,675        —          1,870,604        —    

Other noncurrent assets (Note 19)

     4,726,124        1        5,093,183        1  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total noncurrent assets

     381,477,677        86        373,167,740        86  
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL

   $ 448,816,661        100      $ 433,930,183        100  
  

 

 

    

 

 

    

 

 

    

 

 

 

LIABILITIES AND EQUITY

           

CURRENT LIABILITIES

           

Financial liabilities at fair value through profit or loss (Notes 3, 5 and 7)

   $ 897        —        $ 94        —    

Hedging derivative financial liabilities (Notes 3, 5 and 20)

     —          —          850        —    

Contract liabilities—current (Notes 3, 5, 24 and 27)

     10,686,892        2        —          —    

Trade notes and accounts payable (Note 21)

     16,773,477        4        15,645,102        4  

Payables to related parties (Note 35)

     4,443,212        1        4,223,065        1  

Current tax liabilities (Notes 3, 5 and 29)

     4,070,910        1        4,438,738        1  

Other payables (Note 22)

     20,148,990        4        22,024,733        5  

Provisions (Notes 3, 5 and 23)

     50,844        —          115,305        —    

Advance receipts (Notes 3, 5 and 24)

     —          —          8,390,325        2  

Other current liabilities (Note 5)

     1,159,732        —          1,091,593        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total current liabilities

     57,334,954        12        55,929,805        13  
  

 

 

    

 

 

    

 

 

    

 

 

 

NONCURRENT LIABILITIES

           

Contract liabilities—noncurrent (Notes 3, 5, 24 and 27)

     2,456,191        1        —          —    

Deferred income tax liabilities (Notes 3 and 29)

     1,957,503        —          1,388,350        —    

Provisions (Notes 3 and 23)

     78,627        —          78,513        —    

Customers’ deposits (Note 35)

     4,635,193        1        4,582,587        1  

Net defined benefit liabilities (Notes 3, 4 and 25)

     3,419,867        1        2,599,396        1  

Deferred revenue (Notes 3 and 5)

     —          —          3,611,623        1  

Other noncurrent liabilities (Notes 5 and 35)

     2,371,954        1        857,924        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total noncurrent liabilities

     14,919,335        4        13,118,393        3  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     72,254,289        16        69,048,198        16  
  

 

 

    

 

 

    

 

 

    

 

 

 

EQUITY (Notes 5 and 26)

           

Common stocks

     77,574,465        18        77,574,465        18  
  

 

 

    

 

 

    

 

 

    

 

 

 

Additional paid-in capital

     171,136,764        39        169,466,883        39  
  

 

 

    

 

 

    

 

 

    

 

 

 

Retained earnings

           

Legal reserve

     77,574,465        17        77,574,465        18  

Special reserve

     2,675,419        —          2,680,823        —    

Unappropriated earnings

     47,141,345        10        37,202,683        9  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total retained earnings

     127,391,229        27        117,457,971        27  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other adjustments

     459,914        —          382,666        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity

     376,562,372        84        364,881,985        84  
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL

   $ 448,816,661        100      $ 433,930,183        100  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

- 5 -


CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2018 AND 2017

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

 

 

     2018     2017  
     Amount     %     Amount     %  

REVENUES (Notes 3, 5, 27, 35 and 40)

   $ 185,331,699       100     $ 196,985,774       100  

OPERATING COSTS (Notes 3, 5, 11, 25, 27, 28, 35 and 40)

     118,829,935       64       121,512,142       62  
  

 

 

   

 

 

   

 

 

   

 

 

 

GROSS PROFIT

     66,501,764       36       75,473,632       38  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES (Notes 3, 5, 25, 28, 35 and 40)

        

Marketing

     18,807,803       10       24,328,558       12  

General and administrative

     3,427,037       2       3,522,518       2  

Research and development

     3,182,608       2       3,386,000       2  

Expected credit loss

     888,844       —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     26,306,292       14       31,237,076       16  
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER INCOME AND EXPENSES (Notes 16, 17, 28 and 40)

     170,442       —         (90,819     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME FROM OPERATIONS

     40,365,914       22       44,145,737       22  
  

 

 

   

 

 

   

 

 

   

 

 

 

NON-OPERATING INCOME AND EXPENSES

        

Interest income (Note 40)

     114,887       —         153,205       —    

Other income (Notes 8, 28 and 35)

     521,177       —         662,050       —    

Other gains and losses (Notes 28 and 35)

     (64,694     —         (73,924     —    

Interest expenses (Note 40)

     (267     —         (5     —    

Share of profits of subsidiaries, associates and joint ventures accounted for using equity method (Notes 5, 15 and 40)

     2,579,961       1       1,417,413       2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating income and expenses

     3,151,064       1       2,158,739       2  
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX

     43,516,978       23       46,304,476       24  

INCOME TAX EXPENSE (Notes 3, 5 and 29)

     8,015,356       4       7,430,571       4  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

     35,501,622       19       38,873,905       20  
  

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)

        

Items that will not be reclassified to profit or loss:

        

Remeasurements of defined benefit pension plans (Note 25)

     (1,201,469     (1     (2,011,048     (1

(Continued)

 

- 6 -


CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2018 AND 2017

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

 

 

     2018     2017  
     Amount     %     Amount     %  

Unrealized gain or loss on investments in equity instruments at fair value through other comprehensive income (Notes 3 and 26)

   $ (346,223     —       $ —         —    

Gain or loss on hedging instruments subject to basis adjustment (Notes 3 and 20)

     1,919       —         —         —    

Share of unrealized gain or loss on investments in equity instruments at fair value through other comprehensive income of subsidiaries, associates and joint ventures (Notes 3 and 26)

     1,075       —         —         —    

Share of remeasurements of defined benefit pension plans of subsidiaries, associates and joint ventures (Note 15)

     (659     —         (2,440     —    

Income tax benefit relating to items that will not be reclassified to profit or loss (Note 29)

     445,311       —         341,878       —    
  

 

 

   

 

 

   

 

 

   

 

 

 
     (1,100,046     (1     (1,671,610     (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Items that may be reclassified subsequently to profit or loss:

        

Exchange differences arising from the translation of the foreign operations

     91,956       —         (208,928     —    

Unrealized gain or loss on available-for-sale financial assets (Note 26)

     —         —         619,512       —    

Cash flow hedges (Notes 20 and 28)

     —         —         (263     —    

Share of exchange differences arising from the translation of the foreign operations of subsidiaries, associates and joint ventures (Note 15)

     3,210       —         (11,733     —    

Share of unrealized loss on available-for-sale financial assets of subsidiaries, associates and joint ventures (Notes 15 and 26)

     —         —         (10,518  
  

 

 

   

 

 

   

 

 

   

 

 

 
     95,166       —         388,070       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive loss, net of income tax

     (1,004,880     (1     (1,283,540     (1
  

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL COMPREHENSIVE INCOME

   $ 34,496,742       18     $ 37,590,365       19  
  

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS PER SHARE (Notes 5 and 30)

        

Basic

   $ 4.58       $ 5.01    
  

 

 

     

 

 

   

Diluted

   $ 4.57       $ 5.00    
  

 

 

     

 

 

   

 

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

     (Concluded)  

 

- 7 -


CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CHANGES IN EQUITY

YEARS ENDED DECEMBER 31, 2018 AND 2017

(In Thousands of New Taiwan Dollars)

 

 

                                      Other Adjustments (Notes 20 and 26)        
            Additional      Retained Earnings (Note 26)     Exchange
Differences
Arising from the
Translation of the
   

Unrealized

Gain

or Loss on

   

Unrealized
Gain

or Loss on

Financial
Assets

at Fair Value

through Other

          Gain or
Loss
       
     Common Stocks
(Note 26)
     Paid-in Capital
(Note 26)
     Legal Reserve      Special Reserve     Unappropriated
Earnings
    Foreign
Operations
   

Available-for-sale

Financial Assets

   

Comprehensive

Income

    Cash Flow
Hedges
   

on Hedging

Instruments

    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  

Appropriation of 2016 earnings

                         

Special Reserve

     —          —          —          5,404       (5,404     —         —         —         —         —         —    

Cash dividends

     —          —          —          —         (38,336,525     —         —         —         —         —         (38,336,525

Unclaimed dividend

     —          3,023        —          —         —         —         —         —         —         —         3,023  

Change in additional paid-in capital from investments in subsidiaries, associates and joint ventures accounted for using equity method

     —          844,981        —          —         —         —         —         —         —         —         844,981  

Partial disposal of interests in subsidiaries

     —          76,393        —          —         —         —         —         —         —         —         76,393  

Net income for the year ended December 31, 2017

     —          —          —          —         38,873,905       —         —         —         —         —         38,873,905  

Other comprehensive loss for the year ended December 31, 2017

     —          —          —          —         (1,671,610     (220,661     608,994       —         (263     —         (1,283,540
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year ended December 31, 2017

     —          —          —          —         37,202,295       (220,661     608,994       —         (263     —         37,590,365  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, DECEMBER 31, 2017

     77,574,465        169,466,883        77,574,465        2,680,823       37,202,683       (174,593     558,109       —         (850     —         364,881,985  

Effect of retrospective application (Note 5)

     —          —          —          —         12,393,167       —         (558,109     883,420       850       (850     12,718,478  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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  

Appropriation of 2017 earnings

                         

Reversal of special reserve

     —          —          —          (5,404     5,404       —         —         —         —         —         —    

Cash dividends

     —          —          —          —         (37,204,714     —         —         —         —         —         (37,204,714

Unclaimed dividend

     —          2,455        —          —         —         —         —         —         —         —         2,455  

Change in additional paid-in capital from investments in subsidiaries, associates and joint ventures accounted for using equity method

     —          950,689        —          —         —         —         —         —         —         —         950,689  

Partial disposal of interests in subsidiaries

     —          716,737        —          —         —         —         —         —         —         —         716,737  

Net income for the year ended December 31, 2018

     —          —          —          —         35,501,622       —         —         —         —         —         35,501,622  

Other comprehensive loss for the year ended December 31, 2018

     —          —          —          —         (756,817     95,166       —         (345,148     —         1,919       (1,004,880
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year ended December 31, 2018

     —          —          —          —         34,744,805       95,166       —         (345,148     —         1,919       34,496,742  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, DECEMBER 31, 2018

   $ 77,574,465      $ 171,136,764      $ 77,574,465      $ 2,675,419     $ 47,141,345     $ (79,427   $ —       $ 538,272     $ —       $ 1,069     $ 376,562,372  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

- 8 -


CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2018 AND 2017

(In Thousands of New Taiwan Dollars)

 

 

     2018     2017  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Income before income tax

   $ 43,516,978     $ 46,304,476  

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

    

Depreciation

     26,867,479       27,587,424  

Amortization

     4,312,043       3,693,706  

Amortization of incremental costs of obtaining contracts

     9,958,119       —    

Expected credit loss

     888,844       —    

Provision for doubtful accounts

     —         637,799  

Interest expenses

     267       5  

Interest income

     (114,887     (153,205

Dividend income

     (389,651     (322,158

Share of profits of subsidiaries, associates and joint ventures accounted for using equity method

     (2,579,961     (1,417,413

Loss (gain) on disposal of property, plant and equipment

     (151,309     101,798  

Property, plant and equipment transferred to expenses

     —         2,565  

Loss on disposal of investments accounted for using equity method

     —         223  

Provision for inventory and obsolescence

     352,833       45,285  

Reversal of impairment loss on investment properties

     (19,133     (10,979

Valuation loss (gain) on financial assets and liabilities at fair value through profit or loss, net

     25,961       (1,262

Loss (gain) on foreign exchange, net

     (3,105     72,078  

Changes in operating assets and liabilities:

    

Decrease (increase) in:

    

Contract assets

     359,155       —    

Trade notes and accounts receivable

     1,201,810       (864,894

Receivables from related parties

     188,568       (250,329

Inventories

     (7,122,670     (1,492,081

Other current monetary assets

     (100,041     (44,583

Prepayments

     350,427       278,109  

Other current assets

     (270,216     (88,876

Incremental cost of obtaining contracts

     (5,575,998     —    

Increase (decrease) in:

    

Contract liabilities

     3,196,632       —    

Trade notes and accounts payable

     1,124,526       924,625  

Payables to related parties

     220,147       (507,330

Other payables

     (1,195,293     (1,045,896

Provisions

     23,225       72,486  

Advance receipts

     —         (556,178

Other operating liabilities

     394,170       (78,148

Deferred revenue

     —         66,342  

Net defined benefit plans

     (1,530,400     53,689  
  

 

 

   

 

 

 

Cash generated from operations

     73,928,520       73,007,278  

Interest paid

     (267     (5

Income tax paid

     (10,358,286     (5,276,135
  

 

 

   

 

 

 

Net cash provided by operating activities

     63,569,967       67,731,138  
  

 

 

   

 

 

 

(Continued)

 

- 9 -


CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2018 AND 2017

(In Thousands of New Taiwan Dollars)

 

 

     2018     2017  

CASH FLOWS FROM INVESTING ACTIVITIES

    

Acquisition of financial assets at fair value through other comprehensive income

   $ (89,580   $ —    

Proceeds from return of financial assets at fair value through other comprehensive income

     6,690       —    

Acquisition of negotiable certificates of deposit with maturities of more than three months

     (6,502,000     (4,200,000

Proceeds from disposal of negotiable certificates of deposit with maturities of more than three months

     3,700,000       4,200,000  

Proceeds from disposal of held-to-maturity financial assets

     —         2,140,000  

Acquisition of financial assets carried at cost

     —         (300,000

Capital reduction of financial assets carried at cost

     —         12,042  

Acquisition of investments accounted for using equity method

     (204,900     (340,000

Acquisition of property, plant and equipment

     (27,490,579     (25,709,388

Acquisition of investment properties

     (5,627     —    

Proceeds from disposal of property, plant and equipment

     264,290       157,740  

Acquisition of intangible assets

     (433,085     (11,250,892

Increase in other noncurrent assets

     (64,036     (713,078

Interest received

     108,389       178,928  

Cash dividends received from others

     389,651       322,158  

Cash dividends received from subsidiaries and associates accounted for using equity method

     897,743       975,440  
  

 

 

   

 

 

 

Net cash used in investing activities

     (29,423,044     (34,527,050
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Increase (decrease) in customers’ deposits

     12,597       (111,104

Increase in other noncurrent liabilities

     95,074       12,910  

Cash dividends paid

     (37,204,714     (38,336,525

Partial disposal of interests in subsidiaries without losing control

     126,100       100,594  

Unclaimed dividend

     2,455       3,023  
  

 

 

   

 

 

 

Net cash used in financing activities

     (36,968,488     (38,331,102
  

 

 

   

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

     (2,821,565     (5,127,014

CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR

     19,744,416       24,871,430  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF THE YEAR

   $ 16,922,851     $ 19,744,416  
  

 

 

   

 

 

 

 

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

     (Concluded

 

- 10 -


CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2018 AND 2017

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

 

 

1.

GENERAL

Chunghwa Telecom Co., Ltd. (“the Company”) was incorporated on July 1, 1996 in the Republic of China (“ROC”) pursuant to the Article 30 of the Telecommunications Act. The Company 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 the Company 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 the Company which continues to carry out the business and the DGT continues to be the industry regulator.

Effective August 12, 2005, the MOTC completed the process of privatizing the Company by reducing the government ownership to below 50% in various stages. In July 2000, the Company 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 the Company’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 the Company’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 the Company 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 the Company and completed the privatization plan.

The financial statements are presented in the Company’s functional currency, New Taiwan dollars.

 

2.

APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved and authorized for issue by the Board of Directors on March 19, 2019.

 

3.

SUMMARY OF 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 reflect the figures on a retrospective basis in comparative periods. Different accounting policies for each accounting period as a result of the application of new accounting standards are listed by year separately.

Statement of Compliance

The accompanying financial statements have been prepared in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (the “Regulations”).

 

- 11 -


Basis of Preparation

The financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values and net defined benefit liabilities (assets) which are measured at the present value of the defined benefit obligation less the fair value of plan assets.

When preparing the accompanying financial statements, the Company used equity method to account for its investment in subsidiaries, associates and joint ventures. In order for the amounts of the net profit, other comprehensive income and total equity in the parent company only financial statements to be the same with those amounts attributable to the owner of the Company in its consolidated financial statements, adjustments arising from the differences in accounting treatment between parent company only basis and consolidated basis were made to the captions of “investments accounted for using equity method”, “share of profit (loss) of subsidiaries, associates and joint ventures accounted for using equity method”, “share of other comprehensive income of subsidiaries, associates and joint ventures accounted for using equity method” and related equity items, as appropriate, in the parent company only financial statements.

Current and Noncurrent Assets and Liabilities

Current assets include:

 

  a.

Assets held primarily for the purpose of trading;

 

  b.

Assets expected to be realized within twelve months after the reporting period; and

 

  c.

Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

Current liabilities include:

 

  a.

Liabilities held primarily for the purpose of trading;

 

  b.

Liabilities due to be settled within twelve months after the reporting period; and

 

  c.

Liabilities for which the Company does not have an unconditional right to defer settlement for at least twelve months after the reporting period.

Assets and liabilities that are not classified as current are classified as noncurrent.

Foreign Currencies

In preparing the Company’s financial statements, transactions in currencies other than the Company’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise.

Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined and related exchange differences are recognized in profit or loss. Conversely, when the fair value changes were recognized in other comprehensive income, related exchange difference shall be recognized in other comprehensive income.

 

- 12 -


Non-monetary items that are measured at historical cost in a foreign currency are not retranslated.

For the purposes of presenting financial statements, the assets and liabilities of the Company’s foreign operations (including of the subsidiaries and associates in other countries or currencies used different with the Company) are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognized in other comprehensive income.

Cash Equivalents

Cash equivalents include commercial paper, time deposits and negotiable certificates of deposit with original maturities within three months from the date of acquisition, highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

Inventories

Inventories are stated at the lower of cost or net realizable value item by item, except for those that may be appropriate to group items of similar or related inventories. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. The calculation of the cost of inventory is derived using the weighted-average method.

Investments Accounted for Using Equity Method

Investments in subsidiaries, associates and joint ventures are accounted for using equity method.

 

  a.

Investment in subsidiaries

Subsidiaries are the entities controlled by the Company.

Under the equity method, the investment in subsidiaries is initially recognized at cost and the increase or decrease of carrying amount reflects the recognition of the Company’s share of profit or loss and other comprehensive income of the subsidiaries after the date of acquisition. Besides, the Company also recognizes the Company’s share of the change in other equity of the subsidiaries.

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company’s loss of control over the subsidiaries are accounted for as equity transactions. Any difference between the carrying amounts of the investment of the subsidiaries and the fair value of the consideration paid or received is recognized directly in equity.

The acquisition cost in excess of the acquisition-date fair value of the identifiable net assets acquired is recognized as goodwill, which is included within the carrying amount of the investment and shall not be amortized. The acquisition-date fair value of the net identifiable assets acquired in excess of the acquisition cost is recognized immediately in profit or loss.

Unrealized profits and losses from downstream transactions with a subsidiary are eliminated in full. Profits and losses from upstream transactions with a subsidiary and sidestream transactions between subsidiaries are recognized in the Company’s financial statements only to the extent of interests in the subsidiary that are not related to the Company.

 

- 13 -


  b.

Investments in associates and joint ventures

An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. A joint venture is a joint arrangement whereby the Company and other parties that have joint control of the arrangement have rights to the net assets of the arrangement.

Investments accounted for using the equity method include investments in associates and interests in joint ventures. Under the equity method, an investment in an associate or a joint venture is initially recognized at cost and adjusted thereafter to recognize the Company’s share of profit or loss and other comprehensive income of the associate and joint venture as well as the distribution received. The Company also recognizes its share in changes in the associates and joint ventures.

When the Company subscribes for new shares of the associate and joint venture at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the associate and joint venture. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to additional paid-in capital. When the adjustment should be debited to additional paid-in capital but the additional paid-in capital recognized from investments accounted for using equity method is insufficient, the shortage is debited to retained earnings.

Any excess of the cost of acquisition over the Company’s share of the fair value of the identifiable net assets and liabilities of an associate or a joint venture at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and shall not be amortized. Any excess of the Company’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognized immediately in profit or loss.

When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

When the Company transacts with its associate and joint venture, profits and losses resulting from the transactions with the associate and joint venture are recognized in the Company’s financial statements only to the extent of interests in the associate and joint venture that are not related to the Company.

Property, Plant and Equipment

Property, plant and equipment are initially measured at cost and subsequently measured at cost less accumulated depreciation and accumulated impairment loss.

Property, plant and equipment in the course of construction are depreciated and classified to the appropriate categories of property, plant and equipment when completed and ready for their intended use.

Depreciation on property, plant and equipment is recognized using the straight-line method. Each significant part is depreciated separately. Freehold land is not depreciated. The estimated useful lives, residual values and depreciation method are reviewed at the end of each year, with the effect of any changes in estimate accounted for on a prospective basis.

On derecognition of an item of property, plant and equipment, the difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period in which the property is derecognized.

 

- 14 -


Investment Properties

Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties also include land held for a currently undetermined future use.

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment loss. Depreciation is recognized using the straight-line method.

For a transfer from the investment properties to property, plant and equipment, the deemed cost of the property, plant and equipment for subsequent accounting is its carrying amount at the commencement of owner-occupation.

For a transfer from the property, plant and equipment to investment properties, the deemed cost of the investment properties for subsequent accounting is its carrying amount at the end of owner-occupation.

On derecognition of the investment properties, the difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period in which the property is derecognized.

Intangible Assets

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis. The estimated useful life, residual value, and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless the Company expects to dispose of the intangible asset before the end of its economic life.

Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss in the period in which the asset is derecognized.

Impairment of Tangible Assets, Intangible Assets and Incremental Costs of Obtaining Contracts

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss.

Impairment loss from the assets related to incremental cost of obtaining contracts is recognized to the extent that the carrying amount of the assets exceeds the remaining amount of consideration that the Company expects to receive in exchange for related goods or services less the costs which relate directly to providing those goods or services.

 

- 15 -


When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

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.

 

  a.

Financial assets

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

 

  1)

Measurement category

2018

 

  a)

Financial assets at fair value through profit or 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 34.

 

  b)

Financial assets at amortized cost

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

 

  i.

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

 

  ii.

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.

Interest income is calculated by applying the effective interest rate to the gross carrying amount of such financial assets.

 

- 16 -


  c)

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.

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

 

  a)

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

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

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 or interest earned on the financial asset.

 

  b)

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.

 

  c)

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 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.

 

- 17 -


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

 

  d)

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.

 

  2)

Impairment of financial assets and contract 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.

 

- 18 -


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.

 

  3)

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 entirety, 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 entirety, 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.

 

- 19 -


  b.

Financial liabilities

 

  1)

Subsequent measurement

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

 

  2)

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.

 

  c.

Derivative financial instruments

The Company enters into 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. 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.

 

- 20 -


Provisions

Provisions are measured at the best estimate of the expenditure required to settle the Company’s obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. The provisions for warranties claims and 2017 trade-in right are made by management according to the sales agreements which represent the management’s best estimate of the future outflow of economic benefits. The provisions of warranties claims and trade-in right are recognized as operating cost and the reduction of revenue, respectively, in the period in which the goods are sold.

Revenue recognition

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 reclassified to accounts receivable when the amounts 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.

 

- 21 -


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:

 

  a.

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

 

  b.

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

 

  c.

The amount of revenue can be measured reliably;

 

  d.

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

 

  e.

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.

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.

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.

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 and measured using units of accounting within the arrangement based on their relative fair values limited to the amount paid by the customer for the products.

Services revenue is recognized when service provided. Revenue from a contract to provide services is recognized by reference to the stage of completion of the contract.

 

- 22 -


Dividend income from investments is recognized when the stockholder’s right to receive payment has been established under the premises when it is probable that the economic benefit related to the transactions will flow to the Company and that the revenue can be reasonably measured.

Interest income from a financial asset is recognized when it is probable that the economic benefits related to the transactions will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

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.

Leasing

 

  a.

The Company as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

 

  b.

The Company as lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

Employee Benefits

 

  a.

Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.

 

  b.

Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost and gains or losses on settlements) and net interest on the net defined benefit liability (asset) are recognized as employee benefits expense in the period they occur. Remeasurement, comprising (a) actuarial gains and losses; and (b) the return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset), is recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.

 

- 23 -


Net defined benefit liability (asset) represents the actual deficit (surplus) in the Company’s defined benefit plan. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

 

  c.

Other long-term employee benefits

Other long-term employee benefits are accounted for in the same way as the accounting required for defined benefit plan except that remeasurement is recognized in profit or loss.

Income Tax

Income tax expense represents the sum of the tax currently payable and deferred tax.

 

  a.

Current tax

According to the Income Tax Act in the ROC, an additional tax of unappropriated earnings is provided for in the year the stockholders approve to retain the earnings.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

 

  b.

Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the Company’s financial statements and the corresponding tax bases used in the computation of taxable profit.

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences and unused tax credits from purchases of machinery, equipment and technology and research and development expenditures to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax 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.

 

- 24 -


  c.

Current and deferred tax

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income, in which case, the current and deferred tax are also recognized in other comprehensive income.

 

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.

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period. Actual results may differ from these estimates.

 

  a.

Revenue recognition

The Company’s project agreements are mainly to provide one or more equipment or services to customers. In order to fulfill the agreements, another party may be involved in some agreements. The Company considers the following factors to determine whether the Company is a principal of the transaction: whether the Company is the primary obligation provider of the agreements, its exposures to inventory risks and the discretion in establishing prices, etc. The determination of whether the Company is a principal or an agent will affect the amount of revenue recognized by the Company. Only when the Company is acting as a principal, gross inflows of economic benefits arising from transactions is recognized as revenue.

 

  b.

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 there is objective evidence showed indications of impairment, the Company considers the estimation of future cash flows. The amount of impairment will be measured at the difference between the carrying amount and the present value of estimated future cash flows discounted by the original effective interest rates of the financial assets. However, as the impact from discounting short-term receivables is not material, the impairment of short-term receivables is measured at the difference between the carrying amount and the estimated undiscounted future cash flows. Where the actual future cash flows are lower than expected, a material impairment loss may arise.

 

- 25 -


  c.

Fair value measurements and valuation processes

2018

For the assets and liabilities measured at fair value without quoted prices in active markets, the Company’s management determines the appropriate valuation techniques for the fair value measurements and whether to engage third party qualified appraisers based on the related regulations and professional judgments.

Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities was disclosed in Note 34. If the actual changes of inputs in the future differ from expectation, the fair value may vary accordingly. The Company updates inputs periodically to monitor the appropriateness of the fair value measurement.

 

  d.

Provision for inventory valuation and obsolescence

Inventories are stated at the lower of cost or net realizable value. Net realizable value is calculated as the estimated selling price less the estimated selling costs. Comparison of net realizable value and cost is determined on an item by item basis, except for those similar items which could be categorized into the same groups. The Company uses the inventory holding period and turnover as the evaluation basis for inventory obsolescence losses.

 

  e.

Impairment of tangible and intangible assets

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.

 

  f.

Useful lives of property, plant and equipment

As discussed in Note 3, “Summary of Significant Accounting Policies—Property, Plant and Equipment”, the Company reviews estimated useful lives of property, plant and equipment at the end of each year.

 

  g.

Recognition and measurement of defined benefit plans

Net defined benefit liabilities and the resulting pension expense under defined benefit pension plans are calculated using the Projected Unit Credit Method. Actuarial assumptions comprise the discount rate, employee turnover rate, average future salary increase and etc. Changes in economic circumstances and market conditions will affect these assumptions and may have a material impact on the amount of the expense and the liability.

 

5.

APPLICATION OF NEW AND REVISED STANDARDS AND INTERPRETATIONS

 

  a.

Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), International Financial Reporting Interpretations Committee Interpretations (IFRIC) and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission (FSC).

 

- 26 -


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 IFRS, IAS, IFRIC and SIC 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 financial statements.

 

  1)

IFRS 9 “Financial Instruments” and related amendments

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.

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    $ 19,744,416      $ 19,744,416      a)

Equity securities

   Available-for-sale    FVTPL      542,521        542,521      b).c)
     

FVOCI—equity investments

     4,940,415        6,796,385      b)

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

   Loans and receivables    Amortized cost      35,857,242        35,857,242      a)

Financial liabilities

              

Trade notes and accounts payable, payables to related parties, partial other payables and customers’ deposit

   Amortized cost    Amortized cost      36,464,843        36,464,843     

Derivatives

   FVTPL    FVTPL      94        94     
  

Hedging derivative financial liabilities

  

Hedging financial liabilities

     850        850      d)

 

- 27 -


     IAS 39
Carrying
Amount
January 1,
2018
    Reclassifications    

Remea-

surements

     IFRS 9
Carrying
Amount
January 1,
2018
    Retained
Earnings
Effect on
January 1,
2018
     Other
Adjustment
Effect on
January 1,
2018
     Note

Financial assets measured at FVTPL

   $ —       $ —       $ —        $ —       $ —        $ —       
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

Add: reclassification from available for sale (IAS 39)—mandatory reclassification

     —         542,521       —          542,521       —          —        (b)
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    
     —         542,521       —          542,521       —          —       
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

Financial liabilities measured at FVTPL

     (94     —         —          (94     —          —       
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

Financial assets measured at FVOCI—equity investments

     —         —         —          —         —          —       

Add: reclassification from available for sale (IAS 39)—designated at January 1, 2018

     —         4,940,415       1,855,970        6,796,385       1,515,525        340,445      (b)
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    
     —         4,940,415       1,855,970        6,796,385       1,515,525        340,445     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

Financial assets measured at Amortized cost

     —         —         —          —         —          —       

Add: reclassification from loans and receivables (IAS 39)

     —         55,601,658       —          55,601,658       —          —        (a)
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    
     —         55,601,658       —          55,601,658       —          —       
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

Financial liabilities measured at amortized cost

     —         —         —          —         —          —       

Add: reclassification from amortized cost (IAS 39)

     —         (36,464,843     —          (36,464,843     —          —       
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    
     —         (36,464,843     —          (36,464,843     —          —       
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

Hedging financial liabilities

     —         —         —          —         —          —       

Add: reclassification from Hedging derivative instrument (IAS 39)

     —         (850     —          (850     —          —        (d)
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    
     —         (850     —          (850     —          —       
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

Total

   $ (94   $ 24,618,901     $ 1,855,970      $ 26,474,777     $ 1,515,525      $ 340,445     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

  a)

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.

 

  b)

The Company elected to reclassify equity securities originally classified as available-for-sale under IAS 39 to 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 $556,243 thousand to other equity—unrealized gain or loss on financial assets at FVOCI. Some investments that previously classified as available-for-sale and measured at cost under IAS 39 were classified mandatorily as FVTPL under IFRS 9 as the contractual cash flows are not solely payments of principal and interest on the principal outstanding and such investments are not equity instruments.

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 both increased by $1,855,970 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.

 

  c)

As Chunghwa Investment Co., Ltd. (“CHI”), CHIEF Telecom Inc. (“CHIEF”) and Prime Asia Investments Group Ltd. (B.V.I.) (“Prime Asia”) retrospectively applied IFRS 9, an adjustment was made that resulted in a decrease of $8,985 thousand in investments accounted for using equity method, a decrease of $1,866 thousand in other equity—unrealized gain or loss on available-for-sale financial assets, a decrease of $13,268 thousand in other equity—unrealized gain or loss on financial assets at FVOCI, and an increase of $6,149 thousand in retained earnings on January 1, 2018.

 

- 28 -


  d)

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.

 

  2)

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

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 does not change the total revenue recognized, but changes 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 cost of obtaining contracts is recognized as an asset to the extent the Company expects to recover those costs. Such asset is 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.

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 determined 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 was 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.

 

- 29 -


Impact on items of assets, liabilities and equity

 

     Carrying
Amounts before
Retrospective
Adjustments as
of January 1,
2018
     Adjustments
Arising from
Initial
Application of
IFRS 15
     Carrying
Amounts after
Retrospective
Adjustments as
of January 1,
2018
 

Contract assets—current

   $ —        $ 1,380,055      $ 1,380,055  
  

 

 

       

 

 

 

Trade notes and accounts receivable, net

   $ 29,627,307        (117,911    $ 29,509,396  
  

 

 

       

 

 

 

Inventories

   $ 3,834,008        (132,086    $ 3,701,922  
  

 

 

       

 

 

 

Other current assets

   $ 2,107,270        132,086      $ 2,239,356  
  

 

 

       

 

 

 

Contract assets—noncurrent

   $ —          1,306,626      $ 1,306,626  
  

 

 

       

 

 

 

Incremental costs of obtaining contracts

   $ —          12,002,825      $ 12,002,825  
  

 

 

       

 

 

 

Investments accounted for using equity method

   $ 14,771,770        (2,483,547    $ 12,288,223  
  

 

 

    

 

 

    

 

 

 

Total effect on assets

      $ 12,088,048     
     

 

 

    

Contract liabilities—current

   $ —        $ 7,395,323      $ 7,395,323  
  

 

 

       

 

 

 

Current tax liabilities

   $ 4,438,738        2,226,691      $ 6,665,429  
  

 

 

       

 

 

 

Provisions—current

   $ 115,305        (87,572    $ 27,733  
  

 

 

       

 

 

 

Advance receipts

   $ 8,390,325        (8,390,325    $ —    
  

 

 

       

 

 

 

Other current liabilities

   $ 1,091,593        61,274      $ 1,152,867  
  

 

 

       

 

 

 

Contract liabilities—noncurrent

   $ —          2,551,128      $ 2,551,128  
  

 

 

       

 

 

 

Deferred revenue

   $ 3,611,623        (3,611,623    $ —    
  

 

 

       

 

 

 

Other noncurrent liabilities

   $ 857,924        1,071,659      $ 1,929,583  
  

 

 

    

 

 

    

 

 

 

Total effect on liabilities

      $ 1,216,555     
     

 

 

    

Total effect on equity (unappropriated earnings)

   $ 37,202,683      $ 10,871,493      $ 48,074,176  
  

 

 

    

 

 

    

 

 

 

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

 

     December 31,
2018
 

Contract assets—current

   $ 1,653,886  

Trade notes and accounts receivable, net

     (101,890

Inventories

     (79,801

Other current assets

     79,801  

Contract assets—noncurrent

     667,259  

Incremental costs of obtaining contracts

     7,620,704  

Investments accounted for using equity method

     (1,280,249
  

 

 

 

Assets

   $ 8,559,710  
  

 

 

 

(Continued)

 

- 30 -


     December 31,
2018
 

Contract liabilities—current

   $ 10,686,892  

Current tax liabilities

     1,417,946  

Provisions—current

     (51,675

Advance receipts

     (10,896,375

Other current liabilities

     103,475  

Contract liabilities—noncurrent

     2,456,191  

Deferred revenue

     (3,619,564

Other noncurrent liabilities

     1,173,165  
  

 

 

 

Liabilities

   $ 1,270,055  
  

 

 

 

Equity (unappropriated earnings)

   $ 7,289,655  
  

 

 

 

(Concluded)

Impact on items of statement of comprehensive income for current year

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

 

     Year Ended
December 31,
2018
 

Revenues

   $ (1,205,379

Operating costs

     7,715,738  

Operating expenses

     (3,327,236
  

 

 

 

Income from operations

     (5,593,881

Share of profits or losses of associates and joint ventures accounted for using equity method

     1,203,298  

Income tax expense

     (808,745
  

 

 

 

Net income

   $ (3,581,838
  

 

 

 

Impact on earnings per share(NT$):

  

Basic earnings per share

   $ (0.46
  

 

 

 

Diluted earnings per share

   $ (0.46
  

 

 

 

 

  b.

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)

(Continued)

 

- 31 -


New, Revised or Amended Standards and Interpretations

  

Effective Date Announced

by IASB (Note 1)

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

(Concluded)

 

  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 financial statements.

 

  IFRS

16 “Leases”

IFRS 16 sets out the accounting standards for identifying leases and accounting treatments for lessors and lessees. It will supersede IAS 17, IFRIC 4 - Determining Whether an Arrangement Contains a Lease 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. Some contracts currently identified as containing a lease under IAS 17 and IFRIC 4 do not meet the definition of a lease under IFRS 16 and will be accounted for in accordance with other accounting standards because the Company does not have the right to direct the use of the identified assets. 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 balance sheets except for those whose payments under low-value will be recognized as expenses on a straight-line basis. On the 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 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. Before the application of IFRS 16, payments under operating lease contracts are recognized as expenses on a straight-line basis. Prepaid lease payments for use rights of leased assets are recognized as prepaid rents. Cash flows for operating leases are classified within operating activities on the statements of cash flows.

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.

 

- 32 -


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.

Lease liabilities will be recognized on January 1, 2019 for leases currently classified as operating leases under IAS 17 and measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate on January 1, 2019. Right-of-use assets will be measured at the present value discounted using the aforementioned incremental borrowing rate as if IFRS 16 had been applied since the commencement date of leases. The Company will apply IAS 36 for assessing impairment of right-of-use assets.

Anticipated impacts on assets, liabilities and equity

 

     Carrying
Amount as of
December 31,
2018
     Adjustments
Arising
from Initial
Application
of IFRS 16
     Adjusted
Carrying
Amount as of
January 1,
2019
 

Prepayments—current

   $ 1,438,962      $ (281,266    $ 1,157,696  
  

 

 

       

 

 

 

Investments accounted for using equity method

   $ 15,696,310        3,234      $ 15,699,544  
  

 

 

       

 

 

 

Property, plant and equipment

   $ 281,056,057        (1,401,581    $ 279,654,476  
  

 

 

       

 

 

 

Right-of-use assets

   $ —          11,000,544      $ 11,000,544  
  

 

 

       

 

 

 

Deferred income tax assets

   $ 3,041,999        13,514      $ 3,055,513  
  

 

 

       

 

 

 

Prepayments—noncurrent

   $ 1,852,675        (252,416    $ 1,600,259  
  

 

 

    

 

 

    

 

 

 

Total effect on assets

      $ 9,082,029     
     

 

 

    

Contract liabilities—current

   $ 10,686,892      $ 160,561      $ 10,847,453  
  

 

 

       

 

 

 

Lease liabilities—current

   $ —          3,043,530      $ 3,043,530  
  

 

 

       

 

 

 

Other payables

   $ 20,148,990        (48,712    $ 20,100,278  
  

 

 

       

 

 

 

Other current liabilities

   $ 1,159,732        (160,561    $ 999,171  
  

 

 

       

 

 

 

Contract liabilities—noncurrent

   $ 2,456,191        1,010,583      $ 3,466,774  
  

 

 

       

 

 

 

Lease liabilities—noncurrent

   $ —          6,138,034      $ 6,138,034  
  

 

 

       

 

 

 

Other noncurrent liabilities

   $ 2,371,954        (1,010,583    $ 1,361,371  
  

 

 

    

 

 

    

 

 

 

Total effect on liabilities

      $ 9,132,852     
     

 

 

    

Total effect on equity (unappropriated earnings)

   $ 47,141,345      $ (50,823    $ 47,090,522  
  

 

 

    

 

 

    

 

 

 

Except for the abovementioned impact, as of the date the 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.

 

- 33 -


  c.

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 Materiality    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.

As of the date the financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of above 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.

 

6.

CASH AND CASH EQUIVALENTS

 

     December 31  
     2018      2017  

Cash

     

Cash on hand

   $ 210,125      $ 191,528  

Bank deposits

     4,016,515        2,462,609  
  

 

 

    

 

 

 
     4,226,640        2,654,137  
  

 

 

    

 

 

 

Cash equivalents (investments with maturities of less than three months)

     

Commercial paper

     5,095,053        9,140,279  

Time deposits

     1,158        —    

Negotiable certificates of deposit

     7,600,000        7,950,000  
  

 

 

    

 

 

 
     12,696,211        17,090,279  
  

 

 

    

 

 

 
   $ 16,922,851      $ 19,744,416  
  

 

 

    

 

 

 

 

- 34 -


The annual yield rates of bank deposits, commercial paper, time deposits and negotiable certificates of deposit were as follows:

 

     December 31
     2018   2017

Bank deposits

   0.00%-0.48%   0.00%-0.28%

Commercial paper

   0.52%-0.57%   0.35%-0.38%

Time deposits

   0.62%   —  

Negotiable certificates of deposit

   0.55%-0.60%   0.40%-0.50%

 

7.

FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

 

     December 31  
         2018              2017      

Financial assets—noncurrent

     

Mandatorily measured at FVTPL

     

Non-derivative financial assets

     

Non-listed stocks—domestic

   $ 292,910      $ —    

Non-listed stocks—foreign

     224,452        —    
  

 

 

    

 

 

 
   $ 517,362      $ —    
  

 

 

    

 

 

 

Financial liabilities—current

     

Held for trading

     

Derivatives (not designated for hedge)

     

Forward exchange contracts

   $ 897      $ 94  
  

 

 

    

 

 

 

Some investments previously carried at cost under IAS 39 were mandatorily reclassified as FVTPL when applying IFRS 9.

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

 

     Currency      Maturity Period      Contract
Amount
(In Thousands)
 

December 31, 2018

        

Forward exchange contracts—buy

     EUR/NT$        2019.03-06        EUR5,452/NT$192,734  

December 31, 2017

        

Forward exchange contracts—buy

     EUR/NT$        2018.03-06        EUR1,942/NT$69,061  

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.

 

- 35 -


8.

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

 

     December 31,
2018
 

Domestic investments

  

Listed stocks

   $ 2,899,843  

Non-listed stocks

     3,512,405  

Foreign investments

  

Non-listed stocks

     120,805  
  

 

 

 
   $ 6,533,053  
  

 

 

 

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 dividend income of $389,651 thousand for the year ended December 31, 2018 from those investments still held on December 31, 2018.

 

9.

AVAILABLE-FOR-SALE FINANCIAL ASSETS—NONCURRENT—2017

 

     December 31,
2018
     December 31,
2017
 

Equity securities

     

Listed stocks

   $ —        $ 3,071,198  
  

 

 

    

 

 

 

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 year ended December 31, 2017.

 

10.

TRADE NOTES AND ACCOUNTS RECEIVABLE, NET

 

     December 31  
     2018      2017  

Trade notes and accounts receivable

   $ 30,396,566      $ 31,691,444  

Less: Loss allowance

     (2,544,687      (2,064,137
  

 

 

    

 

 

 
   $ 27,851,879      $ 29,627,307  
  

 

 

    

 

 

 

Year ended December 31, 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.

 

- 36 -


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.

The Company’s provision matrix arising from telecommunications business and project business is disclosed below.

December 31, 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%-30%       7%-69%       19%-82%       32%-90%       61%-95%       100%    

Gross carrying amount

   $ 23,307,276     $ 454,465     $ 94,715     $ 48,924     $ 37,640     $ 36,090     $ 418,101     $ 24,397,211  

Loss allowance (lifetime ECL)

     (79,857     (26,872     (24,023     (28,432     (28,196     (25,618     (418,101     (631,099
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amortized cost

   $ 23,227,419     $ 427,593     $ 70,692     $ 20,492     $ 9,444     $ 10,472     $ —       $ 23,766,112  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Project business

                

Expected credit loss rate (Note b)

     0%-5%       5%       10%       30%       50%       80%       100%    

Gross carrying amount

   $ 4,066,271     $ 88,384     $ 92,343     $ 8,248     $ 12,132     $ 6,809     $ 1,725,168     $ 5,999,355  

Loss allowance (lifetime ECL)

     (152,624     (8,609     (10,142     (2,910     (8,492     (5,643     (1,725,168     (1,913,588
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amortized cost

   $ 3,913,647     $ 79,775     $ 82,201     $ 5,338     $ 3,640     $ 1,166     $ —       $ 4,085,767  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  Note a:

Please refer to Note 40 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.

 

- 37 -


Movements of the allowance for doubtful accounts were as follows:

 

     Year Ended
December 31,
2018
 

Balance at January 1, 2018

   $ 2,064,137  

Add: Provision of credit loss

     786,250  

Less: Amounts written off

     (305,700
  

 

 

 

Balance at December 31, 2018

   $ 2,544,687  
  

 

 

 

Year ended December 31, 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.

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

 

     December 31,
2017
 

Non-overdue

   $ 28,179,768  

Less than 30 days

     949,839  

31-60 days

     444,028  

61-90 days

     258,658  

91-120 days

     182,428  

121-180 days

     119,911  

More than 181 days

     1,556,812  
  

 

 

 
   $ 31,691,444  
  

 

 

 

The above aging analysis was based on days overdue.

There was no trade notes and accounts receivable that was past due but not impaired as of December 31, 2017.

 

- 38 -


Movements of the allowance for doubtful accounts were as follows:

 

     Individually
Assessed for
Impairment
     Collectively
Assessed for
Impairment
     Total  

Balance on January 1, 2017

   $ 766,178      $ 956,153      $ 1,722,331  

Add: Provision for doubtful accounts

     521,747        50,662        572,409  

Deduct: Amounts written off

     (13,541      (217,062      (230,603
  

 

 

    

 

 

    

 

 

 

Balance on December 31, 2017

   $ 1,274,384      $ 789,753      $ 2,064,137  
  

 

 

    

 

 

    

 

 

 

 

11.

INVENTORIES

 

     December 31  
     2018      2017  

Merchandise

   $ 3,645,462      $ 2,346,618  

Project in process

     6,826,297        1,487,390  
  

 

 

    

 

 

 
   $ 10,471,759      $ 3,834,008  
  

 

 

    

 

 

 

The operating costs related to inventories were $22,230,534 thousand (including the valuation loss on inventories of $352,833 thousand) and $25,679,204 thousand (including the valuation loss on inventories of $45,285 thousand) for the years ended December 31, 2018 and 2017, respectively.

 

12.

PREPAYMENTS

 

     December 31  
     2018      2017  

Prepaid rents

   $ 2,358,439      $ 2,623,401  

Others

     933,198        1,018,663  
  

 

 

    

 

 

 
   $ 3,291,637      $ 3,642,064  
  

 

 

    

 

 

 

Current

     

Prepaid rents

   $ 505,764      $ 752,797  

Others

     933,198        1,018,663  
  

 

 

    

 

 

 
   $ 1,438,962      $ 1,771,460  
  

 

 

    

 

 

 

Noncurrent

     

Prepaid rents

   $ 1,852,675      $ 1,870,604  
  

 

 

    

 

 

 

 

- 39 -


13.

OTHER CURRENT MONETARY ASSETS

 

     December 31  
     2018      2017  

Negotiable certificates of deposit with maturities of more than three months

   $ 4,402,000      $ 1,600,000  

Others

     1,269,132        1,071,540  
  

 

 

    

 

 

 
   $ 5,671,132      $ 2,671,540  
  

 

 

    

 

 

 

The annual yield rates of negotiable certificates of deposit with maturities of more than three months at the balance sheet dates were as follows:

 

     December 31  
     2018      2017  

Negotiable certificates of deposit with maturities of more than three months

     0.58% - 1.04%        0.63%  

 

14.

FINANCIAL ASSETS CARRIED AT COST—2017

 

     December 31,
2017
 

Non-listed stocks

  

Domestic

   $ 2,142,383  

Foreign

     269,355  
  

 

 

 
   $ 2,411,738  
  

 

 

 

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 invested $300,000 thousand of Taiwania Capital Buffalo Fund Co., Ltd. in December 2017 and owns 12.9% equity shares of Taiwania Capital Buffalo Fund Co., Ltd. Taiwania Capital Buffalo Fund Co., Ltd. engages mainly in investment business.

There was no disposal of financial assets carried at cost in 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 year ended December 31, 2017.

 

15.

INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

     December 31  
     2018      2017  

Investments in subsidiaries

   $ 14,210,385      $ 13,628,711  

Investments in associates

     1,485,925        1,143,059  
  

 

 

    

 

 

 
   $ 15,696,310      $ 14,771,770  
  

 

 

    

 

 

 

 

- 40 -


  a.

Investments in subsidiaries

Investments in subsidiaries were as follows:

 

     Carrying Amount  
     December 31  
     2018      2017  

Listed

     

Senao International Co., Ltd. (“SENAO”)

   $ 335,629      $ 1,678,240  

CHIEF Telecom Inc. (“CHIEF”)

     1,694,950        —    

Non-listed

     

Light Era Development Co., Ltd. (“LED”)

     3,853,824        3,855,359  

Chunghwa Investment Co., Ltd. (“CHI”)

     3,152,229        2,316,100  

Donghwa Telecom Co., Ltd. (“DHT”)

     1,619,155        1,527,333  

CHIEF Telecom Inc. (“CHIEF”)

     —          858,313  

Chunghwa Telecom Singapore Pte., Ltd. (“CHTS”)

     915,532        848,442  

Chunghwa System Integration Co., Ltd. (“CHSI”)

     738,139        715,610  

Honghwa International Co., Ltd. (“HHI”)

     457,449        459,096  

Chunghwa Telecom Global, Inc. (“CHTG”)

     288,207        218,982  

CHT Security Co., Ltd. (“CHTSC”)

     237,927        240,007  

CHYP Multimedia Marketing & Communications Co., Ltd. (“CHYP”)

     197,996        194,808  

Prime Asia Investments Group Ltd. (B.V.I.) (“Prime Asia”)

     192,841        212,251  

Chunghwa Telecom Vietnam Co., Ltd. (“CHTV”)

     106,091        106,676  

Chunghwa Leading Photonics Tech. Co., Ltd. (“CLPT”)

     98,763        98,007  

Spring House Entertainment Tech. Inc. (“SHE”)

     98,298        93,907  

Chunghwa Telecom (Thailand) Co., Ltd. (“CHTT”)

     94,931        93,998  

Smartfun Digital Co., Ltd. (“SFD”)

     72,031        73,049  

Chunghwa Telecom Japan Co., Ltd. (“CHTJ”)

     62,626        48,730  

Chunghwa Sochamp Technology Inc. (“CHST”)

     (6,233      (10,197

New Prospect Investments Holdings Ltd. (B.V.I.) (“New Prospect”)

     —          —    
  

 

 

    

 

 

 
   $ 14,210,385      $ 13,628,711  
  

 

 

    

 

 

 

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

 

     % of Ownership and
Voting Right
 
     December 31  
     2018      2017  

Senao International Co., Ltd. (“SENAO”)

     28        29  

CHIEF Telecom Inc. (“CHIEF”)

     57        67  

Light Era Development Co., Ltd. (“LED”)

     100        100  

Chunghwa Investment Co., Ltd. (“CHI”)

     89        89  

Donghwa Telecom Co., Ltd. (“DHT”)

     100        100  

Chunghwa Telecom Singapore Pte., Ltd. (“CHTS”)

     100        100  

Chunghwa System Integration Co., Ltd. (“CHSI”)

     100        100  

(Continued)

 

- 41 -


     % of Ownership and
Voting Right
 
     December 31  
     2018      2017  

Honghwa International Co., Ltd. (“HHI”)

     100        100  

Chunghwa Telecom Global, Inc. (“CHTG”)

     100        100  

CHT Security Co., Ltd. (“CHTSC”)

     80        80  

CHYP Multimedia Marketing & Communications Co., Ltd. (“CHYP”)

     100        100  

Prime Asia Investments Group Ltd. (B.V.I.) (“Prime Asia”)

     100        100  

Chunghwa Telecom Vietnam Co., Ltd. (“CHTV”)

     100        100  

Chunghwa Leading Photonics Tech. Co., Ltd. (“CLPT”)

     75        75  

Spring House Entertainment Tech. Inc. (“SHE”)

     56        56  

Chunghwa Telecom (Thailand) Co., Ltd. (“CHTT”)

     100        100  

Smartfun Digital Co., Ltd. (“SFD”)

     65        65  

Chunghwa Telecom Japan Co., Ltd. (“CHTJ”)

     100        100  

Chunghwa Sochamp Technology Inc. (“CHST”)

     51        51  

New Prospect Investments Holdings Ltd. (B.V.I.) (“New Prospect”)

     —          —    

(Concluded)

SENAO transferred its treasury stock to employees in June 2018 and the Company’s ownership interest in SENAO decreased to 27.79% as of December 31, 2018. As the Company controls five out of nine seats of the Board of Directors of SENAO through the support of large beneficial stockholders, the accounts of SENAO are included in the consolidated financial statements.

The Company 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 66.9% as of December 31, 2017. CHIEF issued new shares in March and November 2018 as its employees exercised their options. In addition, the Company 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, the Company did not participate in the capital increase of CHIEF in June 2018. Therefore, the Company’s equity ownership interest in CHIEF decreased to 57.21% as of December 31, 2018.

The Company invested 80% equity shares of CHT Security Co., Ltd. (“CHTSC”) in December 2017.

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

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

For the details of the subsidiaries indirectly held by the Company, please refer to Note 39.

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

 

- 42 -


  b.

Investments in associates

Investments in associates were as follows:

 

     Carrying Amount  
     December 31  
     2018      2017  

Non-listed

     

International Integrated System, Inc. (“IISI”)

   $ 310,842      $ 296,333  

Viettel-CHT Co., Ltd. (“Viettel-CHT”)

     286,510        256,323  

Taiwan International Standard Electronics Co., Ltd. (“TISE”)

     216,439        136,885  

Chunghwa PChome Fund I Co., Ltd. (“CPFI”)

     198,974        —    

KKBOX Taiwan Co., Ltd. (“KKBOXTW”, previously known as Skysoft Co., Ltd.)

     147,360        139,741  

KingwayTek Technology Co., Ltd. (“KWT”)

     134,925        128,269  

So-net Entertainment Taiwan Limited (“So-net”)

     119,956        104,171  

Taiwan International Ports Logistics Corporation (“TIPL”)

     49,650        49,631  

UUPON Inc. (“UUPON”, previously known as Dian Zuan Integrating Marketing Co., Ltd.)

     11,432        17,218  

Alliance Digital Tech Co., Ltd. (“ADT”)

     5,080        14,488  

Cornerstone Ventures Co., Ltd. (“CVC”)

     4,757        —    
  

 

 

    

 

 

 
   $ 1,485,925      $ 1,143,059  
  

 

 

    

 

 

 

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 Right
 
     December 31  
     2018      2017  

International Integrated System, Inc. (“IISI”)

     32        32  

Viettel-CHT Co., Ltd. (“Viettel-CHT”)

     30        30  

Taiwan International Standard Electronics Co., Ltd. (“TISE”)

     40        40  

Chunghwa PChome Fund I Co., Ltd. (“CPFI”)

     50        —    

KKBOX Taiwan Co., Ltd. (“KKBOXTW”)

     30        30  

KingwayTek Technology Co., Ltd. (“KWT”)

     26        26  

So-net Entertainment Taiwan Limited (“So-net”)

     30        30  

Taiwan International Ports Logistics Corporation (“TIPL”)

     27        27  

UUPON Inc. (“UUPON”)

     15        15  

Alliance Digital Tech Co., Ltd. (“ADT”)

     14        14  

Cornerstone Ventures Co., Ltd. (“CVC”)

     49        —    

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:

 

     Year Ended December 31  
     2018      2017  

The Company’s share of profits

   $ 235,356      $ 143,197  

The Company’s share of other comprehensive income (loss)

     4,060        (1,028
  

 

 

    

 

 

 

The Company’s share of total comprehensive income

   $ 239,416      $ 142,169  
  

 

 

    

 

 

 

 

- 43 -


The Company invested 50% equity shares of Chunghwa PChome Fund I Co., Ltd. (“CPFI”) in October 2018. The Company has only two out of five seats of the Board of Directors of CPFI, and has no control but significant influence over CPFI. Therefore, the Company recognized CPFI as investment in associate. CPFI engages mainly in investment business.

The Company invested 49% equity shares of Cornerstone Ventures Co., Ltd. (“CVC”) in October 2018. The Company has only two out of five seats of the Board of Directors of CVC, and has no control but significant influence over CVC. Therefore, the Company recognized CVC as investment in associate. CVC engages mainly in investment business.

The Company did not participate in the capital increase of UUPON in April 2017 and the ownership interest of UUPON decreased to 15%. UUPON 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 audited financial statements.

 

  c.

Investments in joint ventures

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:

 

     Year Ended December 31  
     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 losses of the joint ventures was recognized based on the audited financial statements.

 

- 44 -


16.

PROPERTY, PLANT AND EQUIPMENT

 

    

Land

    Land
Improvements
    Buildings     Computer
Equipment
    Telecommunications
Equipment
    Transportation
Equipment
    Miscellaneous
Equipment
    Construction in
Progress and
Equipment to
be Accepted
    Total  

Cost

                  

Balance on January 1, 2017

   $ 100,877,222     $ 1,580,893     $ 65,415,472     $ 13,852,367     $ 712,160,794     $ 3,861,941     $ 7,495,894     $ 19,986,617     $ 925,231,200  

Additions

     —         —         —         4       9,124       60       —         25,264,145       25,273,333  

Disposal

     (157,928     (4,701     (108,349     (938,945     (13,646,913     (61,470     (326,606     —         (15,244,912

Other

     365,049       18,707       5,024,273       759,539       20,034,386       29,012       670,318       (26,973,633     (72,349
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance on December 31, 2017

   $ 101,084,343     $ 1,594,899     $ 70,331,396     $ 13,672,965     $ 718,557,391     $ 3,829,543     $ 7,839,606     $ 18,277,129     $ 935,187,272  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation and impairment

                  

Balance on January 1, 2017

   $ —       $ (1,248,614   $ (25,001,672   $ (11,210,188   $ (594,719,411   $ (3,233,727   $ (5,905,261   $ —       $ (641,318,873

Depreciation expenses

     —         (49,673     (1,328,809     (1,164,331     (24,216,471     (328,998     (478,311     —         (27,566,593

Disposal

     —         4,688       47,462       932,416       13,620,399       61,443       318,966       —         14,985,374  

Other

     —         1,072       147,222       25,508       78,266       (8,916     (116,480     —         126,672  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance on December 31, 2017

   $ —       $ (1,292,527   $ (26,135,797   $ (11,416,595   $ (605,237,217   $ (3,510,198   $ (6,181,086   $ —       $ (653,773,420
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance on January 1, 2017, net

   $ 100,877,222     $ 332,279     $ 40,413,800     $ 2,642,179     $ 117,441,383     $ 628,214     $ 1,590,633     $ 19,986,617     $ 283,912,327  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance on December 31, 2017, net

   $ 101,084,343     $ 302,372     $ 44,195,599     $ 2,256,370     $ 113,320,174     $ 319,345     $ 1,658,520     $ 18,277,129     $ 281,413,852  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost

                  

Balance on January 1, 2018

   $ 101,084,343     $ 1,594,899     $ 70,331,396     $ 13,672,965     $ 718,557,391     $ 3,829,543     $ 7,839,606     $ 18,277,129     $ 935,187,272  

Additions

     —         —         —         50       6,944       —         2       26,830,327       26,837,323  

Disposal

     (71,333     (337     —         (589,922     (31,949,302     (29,250     (535,897     —         (33,176,041

Other

     (35,805     5,761       193,605       692,570       25,465,666       77,073       520,643       (27,161,582     (242,069
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance on December 31, 2018

   $ 100,977,205     $ 1,600,323     $ 70,525,001     $ 13,775,663     $ 712,080,699     $ 3,877,366     $ 7,824,354     $ 17,945,874     $ 928,606,485  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation and impairment

                  

Balance on January 1, 2018

   $ —       $ (1,292,527   $ (26,135,797   $ (11,416,595   $ (605,237,217   $ (3,510,198   $ (6,181,086   $ —       $ (653,773,420

Depreciation expenses

     —         (45,731     (1,281,264     (945,621     (23,970,020     (161,226     (442,840     —         (26,846,702

Disposal

     —         337       —         584,047       31,918,865       29,186       530,625       —         33,063,060  

Other

     —         217       28,453       (5,193     11,274       (5,096     (23,021     —         6,634  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance on December 31, 2018

   $ —       $ (1,337,704   $ (27,388,608   $ (11,783,362   $ (597,277,098   $ (3,647,334   $ (6,116,322   $ —       $ (647,550,428
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance on January 1, 2018, net

   $ 101,084,343     $ 302,372     $ 44,195,599     $ 2,256,370     $ 113,320,174     $ 319,345     $ 1,658,520     $ 18,277,129     $ 281,413,852  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance on December 31, 2018, net

   $ 100,977,205     $ 262,619     $ 43,136,393     $ 1,992,301     $ 114,803,601     $ 230,032     $ 1,708,032     $ 17,945,874     $ 281,056,057  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

There was no indication that property, plant and equipment was impaired so the Company did not recognize any impairment loss for the years ended December 31, 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

     4-10 years  
Computer equipment      5-6 years  
Telecommunications equipment   

Telecommunication circuits

     9-15 years  

Telecommunication machinery and antennas equipment

     5-10 years  
Transportation equipment      3-10 years  
Miscellaneous equipment   

Leasehold improvements

     2-6 years  

Mechanical and air conditioner equipment

     8-16 years  

Others

     3-10 years  

 

- 45 -


17.

INVESTMENT PROPERTIES

 

     Investment
Properties
 

Cost

  

Balance on January 1, 2017

   $ 9,119,876  

Reclassification

     (59,834
  

 

 

 

Balance on December 31, 2017

   $ 9,060,042  
  

 

 

 

Accumulated depreciation and impairment

  

Balance on January 1, 2017

   $ (1,080,118

Depreciation expense

     (20,831

Reclassification

     2,946  

Reversal of impairment loss

     10,979  
  

 

 

 

Balance on December 31, 2017

   $ (1,087,024
  

 

 

 

Balance on January 1, 2017, net

   $ 8,039,758  
  

 

 

 

Balance on December 31, 2017, net

   $ 7,973,018  
  

 

 

 

Cost

  

Balance on January 1, 2018

   $ 9,060,042  

Additions

     5,627  

Reclassification

     252,008  
  

 

 

 

Balance on December 31, 2018

   $ 9,317,677  
  

 

 

 

Accumulated depreciation and impairment

  

Balance on January 1, 2018

   $ (1,087,024

Depreciation expense

     (20,777

Reclassification

     (16,572

Reversal of impairment loss

     19,133  
  

 

 

 

Balance on December 31, 2018

   $ (1,105,240
  

 

 

 

Balance on January 1, 2018, net

   $ 7,973,018  
  

 

 

 

Balance on December 31, 2018, net

   $ 8,212,437  
  

 

 

 

After the evaluation of land and buildings, the Company concluded the recoverable amount which represented the fair value less costs to sell of some land and buildings was higher than the carrying amount. Therefore, the Company recognized reversal of impairment losses of $19,133 thousand and $10,979 thousand for the years ended December 31, 2018 and 2017, respectively, and the amounts were recognized only to the extent of impairment losses that had been recognized in prior years. The reversal of impairment loss was included in other income and expenses in the statements of comprehensive income.

 

- 46 -


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, 2018 and 2017 were determined by Level 3 fair value measurements inputs based on the appraisal reports conducted by independent appraisers. Those appraisal reports are based on the comparison approach, income approach or cost approach. Key assumptions and the fair values were as follows:

 

     December 31
     2018    2017

Fair value

   $18,282,068    $17,490,094
  

 

  

 

Overall capital interest rate

   1.02%-4.04%    1.46%-2.20%

Profit margin ratio

   12%-20%    12%-20%

Discount rate

     

Capitalization rate

   0.79%-1.75%    0.47%-1.69%

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

 

18.

INTANGIBLE ASSETS

 

     3G and 4G
Concession
     Computer
Software
     Others      Total  

Cost

           

Balance on January 1, 2017

   $ 59,209,000      $ 3,095,616      $ 7,467      $ 62,312,083  

Additions—acquired separately

     10,935,000        314,110        1,782        11,250,892  

Disposal

     —          (445,964      (18      (445,982
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance on December 31, 2017

   $ 70,144,000      $ 2,963,762      $ 9,231      $ 73,116,993  
  

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated amortization and impairment

           

Balance on January 1, 2017

   $ (13,412,712    $ (2,169,902    $ (3,402    $ (15,586,016

Amortization expenses

     (3,261,853      (430,827      (1,026      (3,693,706

Disposal

     —          445,964        18        445,982  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance on December 31, 2017

   $ (16,674,565    $ (2,154,765    $ (4,410    $ (18,833,740
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance on January 1, 2017, net

   $ 45,796,288      $ 925,714      $ 4,065      $ 46,726,067  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance on December 31, 2017, net

   $ 53,469,435      $ 808,997      $ 4,821      $ 54,283,253  
  

 

 

    

 

 

    

 

 

    

 

 

 

(Continued)

 

- 47 -


     3G and 4G
Concession
     Computer
Software
     Others      Total  

Cost

           

Balance on January 1, 2018

   $ 70,144,000      $ 2,963,762      $ 9,231      $ 73,116,993  

Additions—acquired separately

     —          424,397        8,688        433,085  

Disposal

     —          (363,953      (9      (363,962
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance on December 31, 2018

   $ 70,144,000      $ 3,024,206      $ 17,910      $ 73,186,116  
  

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated amortization and impairment

           

Balance on January 1, 2018

   $ (16,674,565    $ (2,154,765    $ (4,410    $ (18,833,740

Amortization expenses

     (3,957,909      (352,634      (1,500      (4,312,043

Disposal

     —          363,953        9        363,962  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance on December 31, 2018

   $ (20,632,474    $ (2,143,446    $ (5,901    $ (22,781,821
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance on January 1, 2018, net

   $ 53,469,435      $ 808,997      $ 4,821      $ 54,283,253  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance on December 31, 2018, net

   $ 49,511,526      $ 880,760      $ 12,009      $ 50,404,295  
  

 

 

    

 

 

    

 

 

    

 

 

 

(Concluded)

For long-term business development, the Company submitted an application to NCC for 4G mobile broadband license in 1.8 and 2.1 GHz frequency bands and obtained certain spectrums. The Company 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 was fully amortized in 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 1 to 11 years.

 

19.

OTHER ASSETS

 

     December 31  
     2018      2017  

Spare parts

   $ 2,423,391      $ 2,059,905  

Refundable deposits

     1,659,261        1,551,953  

Other financial assets

     1,000,000        1,000,000  

Others

     2,153,044        2,588,595  
  

 

 

    

 

 

 
   $ 7,235,696      $ 7,200,453  
  

 

 

    

 

 

 

(Continued)

 

- 48 -


     December 31  
     2018      2017  

Current

     

Spare parts

   $ 2,423,391      $ 2,059,905  

Others

     86,181        47,365  
  

 

 

    

 

 

 
   $ 2,509,572      $ 2,107,270  
  

 

 

    

 

 

 

Noncurrent

     

Refundable deposits

   $ 1,659,261      $ 1,551,953  

Other financial assets

     1,000,000        1,000,000  

Others

     2,066,863        2,541,230  
  

 

 

    

 

 

 
   $ 4,726,124      $ 5,093,183  
  

 

 

    

 

 

 

(Concluded)

Other financial assets—noncurrent was Piping Fund. As part of the government’s effort to upgrade the existing telecommunications infrastructure, the Company 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.

 

20.

HEDGING DERIVATIVE FINANCIAL INSTRUMENTS

2018

The Company’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, the Company’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.

The Company 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 do 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.

 

- 49 -


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

December 31, 2018

 

Hedging Instruments    Currency     

Notional
Amount
(In Thousands)

     Maturity      Forward
Rate
     Line Item in
Balance Sheet
  Carrying Amount      Change in Fair
Values of
Hedging
Instruments Used
for Calculating
Hedge
 
  Asset      Liability      Ineffectiveness  

Cash flow hedge

Forecast purchases -
forward exchange contracts

   EUR/NT$         

EUR4,911/

NT$171,797

 

 

     2019.03      $ 34.98      Hedging financial
    assets (liabilities)
  $ 1,069      $ —        $ 1,919  

 

     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

   $ (1,919    $ 1,069      $ —    

Year ended December 31, 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

   $ 1,919      $ —          —       

$        (4,030)

Construction in progress and equipment to be accepted  

  

$            (297)

Other gains and losses            

2017

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

 

     December 31,  
     2017  

Hedging derivative financial Liabilities

  

Cash flow hedge—forward exchange contracts

   $ 850  
  

 

 

 

 

- 50 -


For the year ended December 31, 2017, change in fair value of the hedged items recognized in other comprehensive income was loss of $263 thousand. Upon the completion of the purchase transaction, the amount deferred and recognized in equity initially will be reclassified into equipment as its carrying value.

As of December 31, 2017, the Company expected part of the equipment purchase transactions would not occur and reclassified the related gain of $1,748 thousand from equity to profit or loss which arising from the forward exchange contracts of the aforementioned transactions for the year ended December 31, 2017.

The outstanding forward exchange contracts at the balance sheet date was as follows:

 

                   Contract Amount  
     Currency      Maturity Period      (Thousands)  

December 31, 2017

        

Forward exchange contracts—buy

   EUR/NT$          2018.03-06      EUR3,963/NT$ 141,605  

Loss arising from the hedging derivative financial instruments that has been reclassified from equity to initial cost of the property, plant and equipment was as follows:

 

     Year Ended December 31,  
     2017  

Construction in progress and equipment to be accepted

   $ (2,411
  

 

 

 

 

21.

TRADE NOTES AND ACCOUNTS PAYABLE

 

     December 31  
     2018      2017  

Trade notes and accounts payable

   $ 16,773,477      $ 15,645,102  
  

 

 

    

 

 

 

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

 

22.

OTHER PAYABLES

 

     December 31  
     2018      2017  

Accrued salary and compensation

   $ 7,628,124      $ 8,373,882  

Payables to contractors

     1,530,713        2,057,651  

Accrued compensation to employees and remuneration to directors

     1,442,480        1,636,762  

Payables to equipment suppliers

     1,399,296        1,537,536  

Accrued franchise fees

     1,148,241        1,244,800  

Amounts collected for others

     1,100,599        1,073,115  

Accrued maintenance costs

     1,046,412        1,080,410  

Others

     4,853,125        5,020,577  
  

 

 

    

 

 

 
   $ 20,148,990      $ 22,024,733  
  

 

 

    

 

 

 

 

- 51 -


23.

PROVISIONS

 

     December 31  
     2018      2017  

Warranties

   $ 54,308      $ 58,350  

Employee benefits

     51,393        43,429  

Trade-in right

     —          87,572  

Others

     23,770        4,467  
  

 

 

    

 

 

 
   $ 129,471      $ 193,818  
  

 

 

    

 

 

 

Current

   $ 50,844      $ 115,305  

Noncurrent

     78,627        78,513  
  

 

 

    

 

 

 
   $ 129,471      $ 193,818  
  

 

 

    

 

 

 

 

     Warranties      Employee
Benefits
     Trade-in
Right
     Others      Total  

Balance on January 1, 2017

   $ 47,493      $ 38,014      $ 31,378      $ 4,447      $ 121,332  

Additional provisions recognized

     32,776        7,187        69,308        50        109,321  

Used /forfeited during the year

     (21,919      (1,772      (13,114      (30      (36,835
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance on December 31, 2017

   $ 58,350      $ 43,429      $ 87,572      $ 4,467      $ 193,818  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance on January 1, 2018

   $ 58,350      $ 43,429      $ 87,572      $ 4,467      $ 193,818  

Effect of retrospective application of IFRS 15

     —          —          (87,572      —          (87,572
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance on January 1, 2018 as adjusted

     58,350        43,429        —          4,467        106,246  

Additional provisions recognized

     24,370        9,180        —          19,403        52,953  

Used /forfeited during the year

     (28,412      (1,216      —          (100      (29,728
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance on December 31, 2018

   $ 54,308      $ 51,393      $ —        $ 23,770      $ 129,471  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  a.

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.

 

  b.

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

 

  c.

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.

 

24.

ADVANCE RECEIPTS—2017

Advance receipts are mainly from advance telecommunication charges. For the obligations to transfer goods or services to customers for which the Company has received consideration from, they were retrospectively reclassified as contract liabilities starting from 2018.

 

- 52 -


25.

RETIREMENT BENEFIT PLANS

 

  a.

Defined contribution plans

The pension plan under the Labor Pension Act of ROC (the “LPA”) is considered as a defined contribution plan. Based on the LPA, the Company makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

 

  b.

Defined benefit plans

The Company completed its privatization plans on August 12, 2005. The Company is required to pay all accrued pension obligations including service clearance payment, lump sum payment under civil service plan, additional separation payments, etc. upon the completion of the privatization in accordance with the Statute Governing Privatization of Stated-owned Enterprises. After paying all pension obligations for privatization, the plan assets of the Company should be transferred to the Fund for Privatization of Government-owned Enterprises (the “Privatization Fund”) under the Executive Yuan. On August 7, 2006, the Company transferred the remaining balance of fund to the Privatization Fund. However, according to the instructions of MOTC, the Company was requested to administer the distributions to employees for pension obligations including service clearance payment, lump sum payment under civil service plan, additional separation payments, etc. upon the completion of the privatization and recognized in other current monetary assets.

The Company with the pension mechanism under the Labor Standards Law is considered as defined benefit plans. These pension plans provide benefits based on an employee’s length of service and average six-month salary prior to retirement. The Company contributes an amount no more than 15% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the names of the Committees in the Bank of Taiwan. The plan assets are held in a commingled fund which is operated and managed by the government’s designated authorities; as such, the Company does not have any right to intervene in the investments of the funds. According to the Article 56 of the Labor Standards Law in the ROC revised in February 2015, entities are required to contribute the difference in one appropriation to the Funds before the end of next March when the balance of the Funds is insufficient to pay employees who will meet the retirement eligibility criteria within next year.

The amounts included in the balance sheets arising from the Company’s obligation in respect of its defined benefit plans were as follows:

 

     December 31  
     2018      2017  

Present value of funded defined benefit obligation

   $ 41,088,052      $ 37,369,934  

Fair value of plan assets

     (38,817,587      (34,770,538
  

 

 

    

 

 

 

Funded status—deficit

   $ 2,270,465      $ 2,599,396  
  

 

 

    

 

 

 

Net defined benefit liabilities

   $ 3,419,867      $ 2,599,396  

Net defined benefit assets

     (1,149,402      —    
  

 

 

    

 

 

 
   $ 2,270,465      $ 2,599,396  
  

 

 

    

 

 

 

 

- 53 -


Movements in the defined benefit obligation and the fair value of plan assets were as follows:

 

     Present Value
of Funded
Defined Benefit
Obligation
     Fair Value of
Plan Assets
     Net Defined
Benefit
Liabilities
(Assets)
 

Balance on January 1, 2017

   $ 34,283,765      $ 33,749,106      $ 534,659  
  

 

 

    

 

 

    

 

 

 

Current service cost

     2,916,782        —          2,916,782  

Interest expense/interest income

     501,935        515,921        (13,986
  

 

 

    

 

 

    

 

 

 

Amounts recognized in profit or loss

     3,418,717        515,921        2,902,796  
  

 

 

    

 

 

    

 

 

 

Remeasurement on the net defined benefit liability

        

Return on plan assets (excluding amounts included in net interest)

     —          (191,286      191,286  

Actuarial losses recognized from experience adjustments

     1,819,762        —          1,819,762  
  

 

 

    

 

 

    

 

 

 

Amounts recognized in other comprehensive income

     1,819,762        (191,286      2,011,048  
  

 

 

    

 

 

    

 

 

 

Contributions from employer

     —          2,627,873        (2,627,873

Benefits paid

     (1,931,076      (1,931,076      —    

Benefits paid directly by the Company

     (221,234      —          (221,234
  

 

 

    

 

 

    

 

 

 

Balance on December 31, 2017

     37,369,934        34,770,538        2,599,396  
  

 

 

    

 

 

    

 

 

 

Current service cost

     3,023,221        —          3,023,221  

Interest expense/interest income

     545,268        540,995        4,273  
  

 

 

    

 

 

    

 

 

 

Amounts recognized in profit or loss

     3,568,489        540,995        3,027,494  
  

 

 

    

 

 

    

 

 

 

Remeasurement on the net defined benefit liability

        

Return on plan assets (excluding amounts included in net interest)

     —          870,224        (870,224

Actuarial losses recognized from changes in financial assumptions

     1,255,589        —          1,255,589  

Actuarial losses recognized from experience adjustments

     816,104        —          816,104  
  

 

 

    

 

 

    

 

 

 

Amounts recognized in other comprehensive income

     2,071,693        870,224        1,201,469  
  

 

 

    

 

 

    

 

 

 

Contributions from employer

            4,366,333        (4,366,333

Benefits paid

     (1,730,503      (1,730,503      —    

Benefits paid directly by the Company

     (191,561      —          (191,561
  

 

 

    

 

 

    

 

 

 

Balance on December 31, 2018

   $ 41,088,052      $ 38,817,587      $ 2,270,465  
  

 

 

    

 

 

    

 

 

 

Relevant pension costs recognized in profit and loss for defined benefit plans were as follows:

 

     Year Ended December 31  
     2018      2017  

Operating costs

   $ 1,795,299      $ 1,733,699  

Marketing expenses

     883,744        845,311  

General and administrative expenses

     163,958        155,384  

Research and development expenses

     107,494        96,953  
  

 

 

    

 

 

 
   $ 2,950,495      $ 2,831,347  
  

 

 

    

 

 

 

 

- 54 -


The Company is exposed to following risks for the defined benefits plans under the Labor Standards Law:

 

  a.

Investment risk

Under the Labor Standards Law, the rate of return on assets shall not be lower than the average interest rate on a two-year time deposit published by the local banks and the government is responsible for any shortfall in the event that the rate of return is less than the required rate of return. The plan assets are held in a commingled fund mainly invested in foreign and domestic equity and debt securities and bank deposits which is operated and managed by the government’s designated authorities; as such, the Company does not have any right to intervene in the investments of the funds.

 

  b.

Interest rate risk

The decline in government bond interest rate will increase the present value of the obligation on the defined benefit plan, while the return on plan assets will increase. The net effect on the present value of the obligation on defined benefit plan is partially offset by the return on plan assets.

 

  c.

Salary risk

The calculation of the present value of defined benefit obligation is referred to the plan participants’ future salary. Hence, the increase in plan participants’ salary will increase the present value of the defined benefit obligation.

The most recent actuarial valuation of plan assets and the present value of the defined benefit obligation were carried out by the independent actuary. The principal assumptions used for the purpose of the actuarial valuations were as follows:

 

     Measurement Date  
     December 31  
     2018     2017  

Discount rates

     1.00     1.50

Expected rates of salary increase

     1.20     1.20

If reasonably possible changes of the respective significant actuarial assumptions occur at the end of reporting periods, while holding all other assumptions constant, the present value of the defined benefit obligation would increase (decrease) as follows:

 

     December 31  
     2018      2017  

Discount rates

     

0.5% increase

   $ (1,240,406    $ (1,214,303
  

 

 

    

 

 

 

0.5% decrease

   $