EX-99.2 3 d725558dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

Chunghwa Telecom Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the

Years Ended December 31, 2018 and 2017 and

Independent Auditors’ Report


REPRESENTATION LETTER

The entities that are required to be included in the consolidated financial statements of affiliates in accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” for the year ended December 31, 2018 are all the same as those included in the consolidated financial statements of Chunghwa Telecom Co., Ltd. and its subsidiaries prepared in conformity with the International Financial Reporting Standard 10 “Consolidated Financial Statements”. Relevant information that should be disclosed in the consolidated financial statements of affiliates is included in the consolidated financial statements of Chunghwa Telecom Co., Ltd. and its subsidiaries. Hence, we do not prepare a separate set of consolidated financial statements of affiliates.

 

Very truly yours,
CHUNGHWA TELECOM CO., LTD.
By

/s/ YU CHENG

YU CHENG

Chairman

March 19, 2019

 

- 1 -


INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders

Chunghwa Telecom Co., Ltd.

Opinion

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

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

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 Consolidated 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 consolidated financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

- 2 -


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

Revenue Recognition on Mobile Services

Key audit matter:

As disclosed in Note 45 to the consolidated 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.

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 consolidated 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 consolidated 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.

 

- 3 -


Other Matter

We have also audited the parent company only financial statements of Chunghwa Telecom Co., Ltd. as of and for the years ended December 31, 2018 and 2017 on which we have issued an unmodified opinion.

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

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRS, IAS, IFRIC, and SIC endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated 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.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

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

 

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 consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

 

- 4 -


5.

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

 

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 consolidated financial statements. We are responsible for the direction, supervision, and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements 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 consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China.

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

 

- 5 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED 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)

   $ 27,644,780        6      $ 28,824,935        7  

Hedging financial assets (Notes 3, 5 and 21)

     1,069        —          —          —    

Contract assets (Notes 3, 5 and 30)

     4,868,728        1        —          —    

Trade notes and accounts receivable, net (Notes 3, 4, 5, 10 and 30)

     30,075,503        7        31,941,094        7  

Receivables from related parties (Note 39)

     24,270        —          49,367        —    

Inventories (Notes 3, 4, 5, 11 and 40)

     15,120,715        3        8,839,615        2  

Prepayments (Notes 5, 12 and 39)

     1,872,984        —          2,188,173        —    

Other current monetary assets (Notes 13 and 28)

     9,504,203        2        5,308,060        1  

Other current assets (Notes 5, 20, 32 and 40)

     2,576,084        1        2,182,758        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     91,688,336        20        79,334,002        17  
  

 

 

    

 

 

    

 

 

    

 

 

 

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)

     6,932,503        2        —          —    

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

     —          —          3,125,086        1  

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

     —          —          2,625,785        1  

Investments accounted for using equity method (Notes 3 and 16)

     2,944,890        1        2,546,374        —    

Contract assets (Notes 3, 5 and 30)

     2,343,958        —          —          —    

Property, plant and equipment (Notes 3, 4, 17, 39 and 40)

     288,914,228        61        288,707,910        64  

Investment properties (Notes 3, 4 and 18)

     8,287,212        2        8,047,793        2  

Intangible assets (Notes 3, 4 and 19)

     50,943,682        11        54,883,268        12  

Deferred income tax assets (Notes 3 and 32)

     3,553,856        1        2,730,093        1  

Incremental costs of obtaining contracts (Notes 3, 5 and 30)

     1,335,030        —          —          —    

Net defined benefit assets (Notes 3, 4 and 28)

     1,164,088        —          12,979        —    

Prepayments (Notes 12 and 39)

     3,463,337        1        3,573,345        1  

Other noncurrent assets (Notes 20 and 40)

     5,180,222        1        5,536,487        1  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total noncurrent assets

     375,580,368        80        371,789,120        83  
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL

   $ 467,268,704        100      $ 451,123,122        100  
  

 

 

    

 

 

    

 

 

    

 

 

 

LIABILITIES AND EQUITY

           

CURRENT LIABILITIES

           

Short-term loans (Note 22)

   $ 100,000        —        $ 70,000        —    

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

     1,114        —          578        —    

Hedging derivative financial liabilities (Notes 3, 5 and 21)

     —          —          850        —    

Contract liabilities (Notes 3, 5, 27 and 30)

     10,687,772        2        —          —    

Trade notes and accounts payable (Note 24)

     20,464,792        5        19,395,889        4  

Payables to related parties (Note 39)

     917,951        —          684,185        —    

Current tax liabilities (Notes 3, 5 and 32)

     4,390,203        1        4,725,698        1  

Other payables (Note 25)

     23,315,383        5        25,001,401        6  

Provisions (Notes 3,5 and 26)

     128,200        —          188,744        —    

Advance receipts (Note 3, 5 and 27)

     —          —          8,841,858        2  

Other current liabilities (Note 5)

     1,381,606        —          1,081,156        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total current liabilities

     61,387,021        13        59,990,359        13  
  

 

 

    

 

 

    

 

 

    

 

 

 

NONCURRENT LIABILITIES

           

Contract liabilities (Notes 3, 5, 27 and 30)

     2,595,149        1        —          —    

Long-term loans (Notes 23 and 40)

     1,600,000        —          1,600,000        —    

Deferred income tax liabilities (Notes 3, 5 and 32)

     1,991,843        —          1,429,592        —    

Provisions (Notes 3 and 26)

     78,627        —          78,513        —    

Customers’ deposits (Note 39)

     4,716,571        1        4,671,441        1  

Net defined benefit liabilities (Notes 3, 4 and 28)

     3,533,936        1        2,703,569        1  

Deferred revenue (Note 3 and 5)

     —          —          3,612,391        1  

Other noncurrent liabilities (Note 5)

     4,793,237        1        3,457,677        1  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total noncurrent liabilities

     19,309,363        4        17,553,183        4  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     80,696,384        17        77,543,542        17  
  

 

 

    

 

 

    

 

 

    

 

 

 

EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE PARENT (Notes 5, 15 and 29)

           

Common stocks

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

 

 

    

 

 

    

 

 

    

 

 

 

Additional paid-in capital

     171,136,764        36        169,466,883        38  
  

 

 

    

 

 

    

 

 

    

 

 

 

Retained earnings

           

Legal reserve

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

Special reserve

     2,675,419        1        2,680,823        1  

Unappropriated earnings

     47,141,345        10        37,202,683        8  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total retained earnings

     127,391,229        28        117,457,971        26  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other adjustments

     459,914        —          382,666        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity attributable to stockholders of the parent

     376,562,372        81        364,881,985        81  

NONCONTROLLING INTERESTS (Notes 5, 15 and 29)

     10,009,948        2        8,697,595        2  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity

     386,572,320        83        373,579,580        83  
  

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL

   $ 467,268,704        100      $ 451,123,122        100  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

- 6 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED 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, 30, 39 and 45)

   $ 215,483,158       100      $ 227,514,183       100  

OPERATING COSTS (Notes 3, 5, 11, 28, 30, 31, 39 and 45)

     139,545,457       65        146,837,483       65  
  

 

 

   

 

 

    

 

 

   

 

 

 

GROSS PROFIT

     75,937,701       35        80,676,700       35  
  

 

 

   

 

 

    

 

 

   

 

 

 

OPERATING EXPENSES (Notes 3, 5, 28, 31, 39 and 45)

         

Marketing

     23,170,024       11        25,356,999       11  

General and administrative

     4,589,488       2        4,626,423       2  

Research and development

     3,725,249       2        3,885,920       2  

Expected credit loss

     919,732       —          —         —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     32,404,493       15        33,869,342       15  
  

 

 

   

 

 

    

 

 

   

 

 

 

OTHER INCOME AND EXPENSES (Notes 18, 19, 31 and 45)

     110,451       —          (104,381     —    
  

 

 

   

 

 

    

 

 

   

 

 

 

INCOME FROM OPERATIONS

     43,643,659       20        46,702,977       20  
  

 

 

   

 

 

    

 

 

   

 

 

 

NON-OPERATING INCOME AND EXPENSES

         

Interest income (Note 45)

     196,889       —          205,448       —    

Other income (Notes 8, 31 and 39)

     699,823       —          835,465       —    

Other gains and losses (Notes 31, 38 and 39)

     (45,671     —          (132,158     —    

Interest expenses (Note 45)

     (17,596     —          (21,913     —    

Share of profits of associates and joint ventures accounted for using equity method (Notes 16 and 45)

     501,600       —          407,243       —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Total non-operating income and expenses

     1,335,045       —          1,294,085       —    
  

 

 

   

 

 

    

 

 

   

 

 

 

INCOME BEFORE INCOME TAX

     44,978,704       20        47,997,062       20  

INCOME TAX EXPENSE (Notes 3, 5 and 32)

     8,522,533       4        7,954,461       2  
  

 

 

   

 

 

    

 

 

   

 

 

 

NET INCOME

     36,456,171       16        40,042,601       18  
  

 

 

   

 

 

    

 

 

   

 

 

 

(Continued)

 

- 7 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED 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     %  

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)

         

Items that will not be reclassified to profit or loss:

         

Remeasurements of defined benefit pension plans (Note 28)

   $ (1,214,552     —        $ (2,023,493     (1

Unrealized gain or loss on investments in equity instruments at fair value through other comprehensive income (Notes 3 and 38)

     (346,330     —          —         —    

Gain or loss on hedging instruments subject to basis adjustment (Notes 3 and 21)

     1,919       —          —         —    

Share of remeasurements of defined benefit pension plans of associates and joint ventures (Note 16)

     1,707       —          844       —    

Income tax benefit relating to items that will not be reclassified to profit or loss (Note 32)

     450,166       —          343,994       —    
  

 

 

   

 

 

    

 

 

   

 

 

 
     (1,107,090     —          (1,678,655     (1
  

 

 

   

 

 

    

 

 

   

 

 

 

Items that may be reclassified subsequently to profit or loss:

         

Exchange differences arising from the translation of the foreign operations

     89,319       —          (229,009     —    

Unrealized gain or loss on available-for-sale financial assets (Note 31)

     —         —          605,274       —    

Cash flow hedges (Notes 21 and 31)

     —         —          (263     —    

Share of exchange differences arising from the translation of the foreign operations of associates and joint ventures (Note 16)

     3,318       —          (5,293     —    

Income tax benefit relating to items that may be reclassified subsequently to profit or loss (Note 32)

     —         —          2,420       —    
  

 

 

   

 

 

    

 

 

   

 

 

 
     92,637       —          373,129       —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Total other comprehensive loss, net of income tax

     (1,014,453     —          (1,305,526     (1
  

 

 

   

 

 

    

 

 

   

 

 

 

TOTAL COMPREHENSIVE INCOME

   $ 35,441,718       16      $ 38,737,075       17  
  

 

 

   

 

 

    

 

 

   

 

 

 

NET INCOME ATTRIBUTABLE TO

         

Stockholders of the parent

   $ 35,501,622       16      $ 38,873,905       17  

Noncontrolling interests

     954,549       —          1,168,696       1  
  

 

 

   

 

 

    

 

 

   

 

 

 
   $ 36,456,171       16      $ 40,042,601       18  
  

 

 

   

 

 

    

 

 

   

 

 

 

(Continued)

 

- 8 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED 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      %  

COMPREHENSIVE INCOME ATTRIBUTABLE TO

           

Stockholders of the parent

   $ 34,496,742        16      $ 37,590,365        17  

Noncontrolling interests

     944,976        —          1,146,710        —    
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 35,441,718        16      $ 38,737,075        17  
  

 

 

    

 

 

    

 

 

    

 

 

 

EARNINGS PER SHARE (Notes 5 and 33)

           

Basic

   $ 4.58         $ 5.01     
  

 

 

       

 

 

    

Diluted

   $ 4.57         $ 5.00     
  

 

 

       

 

 

    

 

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

 

- 9 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

YEARS ENDED DECEMBER 31, 2018 and 2017

(In Thousands of New Taiwan Dollars)

 

 

    Equity Attributable to Stockholders of the Parent (Notes 15, 21 and 29)              
                                  Other Adjustments                    
                Retained Earnings     Exchange
Differences
Arising from the
    Unrealized Gain     Unrealized Gain
or Loss on
Financial Assets
at Fair Value
          Gain or           Noncontrolling        
    Common
Stocks
   

Additional
Paid-in

Capital

   

Legal

Reserve

    Special
Reserve
    Unappropriated
Earnings
    Translation
of the Foreign
Operations
    or Loss on
Available-for-sale
Financial Assets
    Through Other
Comprehensive
Income
    Cash Flow
Hedges
    Loss on
Hedging
Instruments
    Total     Interests
(Notes 15
and 29)
    Total Equity  

BALANCE, JANUARY 1, 2017

  $ 77,574,465     $ 168,542,486     $ 77,574,465     $ 2,675,419     $ 38,342,317     $ 46,068     $ (50,885   $ —       $ (587   $ —       $ 364,703,748     $ 6,495,922     $ 371,199,670  

Appropriation of 2016 earnings

                         

Provision for special reserve

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

Cash dividends distributed by Chunghwa

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

Cash dividends distributed by subsidiaries

    —         —         —         —         —         —         —         —         —         —         —         (942,482     (942,482

Unclaimed dividend

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

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

    —         13,965       —         —         —         —         —         —         —         —         13,965       1,762       15,727  

Partial disposal of interests in subsidiaries

    —         76,714       —         —         —         —         —         —         —         —         76,714       29,217       105,931  

Change in additional paid-in capital for not participating proportionately in the capital increase of subsidiaries

    —         801,727       —         —         —         —         —         —         —         —         801,727       1,750,326       2,552,053  

Other change in additional paid-in capital of subsidiaries

    —         84       —         —         —         —         —         —         —         —         84       41       125  

 

(Continued)

 

- 10 -


    Equity Attributable to Stockholders of the Parent (Notes 15, 21 and 29)              
                                  Other Adjustments                    
                Retained Earnings     Exchange
Differences
Arising from the
    Unrealized Gain     Unrealized Gain
or Loss on
Financial Assets
at Fair Value
          Gain or           Noncontrolling        
    Common
Stocks
   

Additional
Paid-in

Capital

   

Legal

Reserve

    Special
Reserve
    Unappropriated
Earnings
    Translation
of the Foreign
Operations
    or Loss on
Available-for-sale
Financial Assets
    Through Other
Comprehensive
Income
    Cash Flow
Hedges
    Loss on
Hedging
Instruments
    Total     Interests
(Notes 15
and 29)
    Total Equity  

Net income for the year ended December 31, 2017

    —         —         —         —         38,873,905       —         —         —         —         —         38,873,905       1,168,696       40,042,601  

Other comprehensive income (loss) for the year ended December 31, 2017

    —         —         —         —         (1,671,610     (220,661     608,994       —         (263     —         (1,283,540     (21,986     (1,305,526
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the year ended December 31, 2017

    —         —         —         —         37,202,295       (220,661     608,994       —         (263     —         37,590,365       1,146,710       38,737,075  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share-based payment transactions of subsidiaries

    —         1,984       —         —         —         —         —         —         —         —         1,984       19,799       21,783  

Net increase in noncontrolling interests

    —         26,900       —         —         —         —         —         —         —         —         26,900       196,300       223,200  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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       8,697,595       373,579,580  

Effect of retrospective application (Note 5)

    —         —         —         —         12,393,167       —         (558,109     883,420       850       (850     12,718,478       (3,945     12,714,533  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, JANUARY 1, 2018 AS ADJUSTED

    77,574,465       169,466,883       77,574,465       2,680,823       49,595,850       (174,593     —         883,420       —         (850     377,600,463       8,693,650       386,294,113  

Appropriation of 2017 earnings

                         

Reversal of special reserve

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

Cash dividends distributed by Chunghwa

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

Cash dividends distributed by subsidiaries

    —         —         —         —         —         —         —         —         —         —         —         (958,446     (958,446

Unclaimed dividend

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

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

    —         (1,044     —         —         —         —         —         —         —         —         (1,044     191       (853

 

(Continued)

 

- 11 -


    Equity Attributable to Stockholders of the Parent (Notes 15, 21 and 29)              
                                  Other Adjustments                    
                Retained Earnings     Exchange
Differences
Arising from the
    Unrealized Gain     Unrealized Gain
or Loss on
Financial Assets
at Fair Value
          Gain or           Noncontrolling        
    Common
Stocks
   

Additional
Paid-in

Capital

   

Legal

Reserve

    Special
Reserve
    Unappropriated
Earnings
    Translation
of the Foreign
Operations
    or Loss on
Available-for-sale
Financial Assets
    Through Other
Comprehensive
Income
    Cash Flow
Hedges
    Loss on
Hedging
Instruments
    Total     Interests
(Notes 15
and 29)
    Total Equity  

Partial disposal of interests in subsidiaries

    —         826,047       —         —         —         —         —         —         —         —         826,047       348,353       1,174,400  

Change in additional paid-in capital for not participating proportionately in the capital increase of subsidiaries

    —         776,713       —         —         —         —         —         —         —         —         776,713       699,967       1,476,680  

Net income for the year ended December 31, 2018

    —         —         —         —         35,501,622       —         —         —         —         —         35,501,622       954,549       36,456,171  

Other comprehensive income (loss) for the year ended December 31, 2018

    —         —         —         —         (756,817     95,166       —         (345,148     —         1,919       (1,004,880     (9,573     (1,014,453
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the year ended December 31, 2018

    —         —         —         —         34,744,805       95,166       —         (345,148     —         1,919       34,496,742       944,976       35,441,718  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share-based payment transactions of subsidiaries

    —         10,776       —         —         —         —         —         —         —         —         10,776       41,863       52,639  

Net increase in noncontrolling interests

    —         54,934       —         —         —         —         —         —         —         —         54,934       239,394       294,328  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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     $ 10,009,948     $ 386,572,320  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

(Concluded)

 

- 12 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED 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

   $ 44,978,704     $ 47,997,062  

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

    

Depreciation

     27,481,956       28,163,584  

Amortization

     4,386,798       3,766,020  

Amortization of incremental costs of obtaining contracts

     1,941,124       —    

Expected credit loss

     919,732       —    

Provision for doubtful accounts

     —         643,010  

Interest expenses

     17,596       21,913  

Interest income

     (196,889     (205,448

Dividend income

     (395,593     (327,861

Compensation cost of share-based payment transactions

     17,302       21,783  

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

     (501,600     (407,243

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

     (142,068     106,692  

Property, plant and equipment transferred to expenses

     —         2,565  

Loss on disposal of intangible assets

     —         46  

Gain on disposal of financial instruments

     (5,763     (2,748

Loss on disposal of investments accounted for using equity method

     125       223  

Provision for inventory and obsolescence

     365,123       52,487  

Reversal of impairment loss on investment properties

     (19,133     (10,979

Impairment loss on intangible assets

     50,750       8,622  

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

     20,763       (779

Loss (gain) on foreign exchange, net

     (17,223     83,171  

Changes in operating assets and liabilities:

    

Decrease (increase) in:

    

Financial assets held for trading

     —         218  

Financial assets mandatorily measured at fair value through profit or loss

     63,117       —    

Contract assets

     2,750,594       —    

Trade notes and accounts receivable

     1,353,807       (1,191,428

Receivables from related parties

     25,097       (35,568

Inventories

     (6,778,309     (1,469,328

Prepayments

     417,569       458,004  

Other current monetary assets

     (172,597     (81,035

Other current assets

     (261,240     (60,981

Incremental cost of obtaining contracts

     (802,011     —    

Increase (decrease) in:

    

Contract liabilities

     2,652,747       —    

Trade notes and accounts payable

     1,065,054       586,940  

Payables to related parties

     233,766       (77,888

Other payables

     (1,088,406     (691,001

(Continued)

 

- 13 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2018 and 2017

(In Thousands of New Taiwan Dollars)

 

 

     2018     2017  

Provisions

   $ 27,142     $ 82,443  

Advance receipts

     —         (728,007

Other operating liabilities

     422,413       (76,063

Deferred revenue

     —         66,199  

Net defined benefit plans

     (1,535,294     48,919  
  

 

 

   

 

 

 

Cash generated from operations

     77,275,153       76,743,544  

Interest paid

     (17,524     (21,918

Income tax paid

     (10,891,279     (5,789,762
  

 

 

   

 

 

 

Net cash provided by operating activities

     66,366,350       70,931,864  
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Acquisition of financial assets at fair value through other comprehensive income

     (289,580     —    

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

     6,690       —    

Proceeds from disposal of available-for-sale financial assets

     —         1,258  

Acquisition of time deposits and negotiable certificates of deposit with maturities of more than three months

     (9,719,951     (6,230,944

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

     5,654,941       5,649,868  

Proceeds from disposal of held-to-maturity financial assets

     —         2,140,000  

Acquisition of financial assets carried at cost

     —         (400,000

Proceeds from disposal of financial assets carried at cost

     —         7,292  

Capital reduction of financial assets carried at cost

     —         12,167  

Acquisition of investments accounted for using equity method

     (204,900     —    

Proceeds from disposal of investments accounted for using equity method

     3,379       —    

Proceeds from capital reduction of investments accounted for using equity method

     19,184       —    

Acquisition of property, plant and equipment

     (28,549,929     (26,875,336

Proceeds from disposal of property, plant and equipment

     264,446       159,636  

Acquisition of intangible assets

     (498,005     (11,304,633

Acquisition of investment properties

     (5,627     —    

Increase in other noncurrent assets

     (80,640     (788,594

Interest received

     186,617       233,439  

Cash dividends received

     599,621       675,321  
  

 

 

   

 

 

 

Net cash used in investing activities

     (32,613,754     (36,720,526
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Proceeds from short-term loans

     360,000       6,951,500  

Repayment of short-term loans

     (330,000     (7,019,500

Increase (decrease) in customers’ deposits

     30,997       (110,756

Increase (decrease) in other noncurrent liabilities

     83,613       (36,271

(Continued)

 

- 14 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2018 and 2017

(In Thousands of New Taiwan Dollars)

 

 

     2018     2017  

Cash dividends

   $ (37,204,714   $ (38,336,525

Partial disposal of interests in subsidiaries without losing control

     1,174,400       105,931  

Cash dividends distributed to noncontrolling interests

     (958,446     (942,482

Change in other noncontrolling interests

     1,806,345       2,777,237  

Unclaimed dividend

     2,455       3,023  
  

 

 

   

 

 

 

Net cash used in financing activities

     (35,035,350     (36,607,843
  

 

 

   

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

     102,599       121,098  
  

 

 

   

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

     (1,180,155     (2,275,407

CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR

     28,824,935       31,100,342  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF THE YEAR

   $ 27,644,780     $ 28,824,935  
  

 

 

   

 

 

 

 

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

 

- 15 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2018 and 2017

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

 

 

1.

GENERAL

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

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

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

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

 

2.

APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Board of Directors on 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 consolidated financial statements have been prepared in conformity with 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 (IFRIC) and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission (FSC) (the “Taiwan-IFRS”).

 

- 16 -


Basis of Preparation

The consolidated 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.

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.

Light Era Development Co., Ltd. (LED) engages mainly in development of property for rent and sale. The assets and liabilities of LED related to property development within its operating cycle, which is over one year, are classified as current items.

Basis of Consolidation

 

  a.

Principles for preparing consolidated financial statements

The consolidated financial statements incorporate the financial statements of Chunghwa and entities controlled by Chunghwa (its subsidiaries).

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by the Company.

All inter-company transactions, balances, income and expenses are eliminated in full upon consolidation.

Attribution of total comprehensive income to noncontrolling interests

Total comprehensive income of subsidiaries is attributed to the stockholders of the parent and to the noncontrolling interests even if it results in the noncontrolling interests having a deficit balance.

 

- 17 -


Changes in the Company’s ownership interests in subsidiaries

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Company’s interests and the noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the noncontrolling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to stockholders of the parent.

 

  b.

The subsidiaries in the consolidated financial statements

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

 

               Percentage of Ownership         
               December 31         
Name of Investor    Name of Investee    Main Businesses and Products    2018      2017      Note  

Chunghwa Telecom Co., Ltd.

  

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

  

Handset and peripherals retailer; sales of CHT mobile phone plans as an agent

     28        29        a
  

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

  

Planning and development of real estate and intelligent buildings, and property management

     100        100     
  

Donghwa Telecom Co., Ltd. (“DHT”)

  

International private leased circuit, IP VPN service, and IP transit services

     100        100     
  

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

  

International private leased circuit, IP VPN service, and IP transit services

     100        100     
  

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

  

Providing system integration services and telecommunications equipment

     100        100     
  

Chunghwa Investment Co., Ltd. (“CHI”)

  

Investment

     89        89     
  

CHIEF Telecom Inc. (“CHIEF”)

  

Network integration, internet data center (“IDC”), communications integration and cloud application services

     57        67        b
  

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

  

Digital information supply services and advertisement services

     100        100     
  

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

  

Investment

     100        100     
  

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

  

Software design services, internet contents production and play, and motion picture production and distribution

     56        56     
  

Chunghwa Telecom Global, Inc. (“CHTG”)

  

International private leased circuit, internet services, and transit services

     100        100     
  

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

  

Intelligent energy saving solutions, international circuit, and information and communication technology (“ICT”) services.

     100        100     
  

Smartfun Digital Co., Ltd. (“SFD”)

  

Providing diversified family education digital services

     65        65     
  

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

  

International private leased circuit, IP VPN service, and IP transit services

     100        100     
  

Chunghwa Sochamp Technology Inc. (“CHST”)

  

Design, development and production of Automatic License Plate Recognition software and hardware

     51        51     
  

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

  

Telecommunications engineering, sales agent of mobile phone plan application and other business services

     100        100     
  

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

  

Production and sale of electronic components and finished products

     75        75     
  

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

  

International private leased circuit, IP VPN service, ICT and cloud VAS services

     100        100        c

(Continued)

 

- 18 -


               Percentage of Ownership         
               December 31         
Name of Investor    Name of Investee    Main Businesses and Products    2018      2017      Note  
  

CHT Security Co., Ltd. (“CHTSC”)

  

Computing equipment installation, wholesale of computing and business machinery equipment and software, management consulting services, data processing services, digital information supply services and internet identify services

     80        80        d
  

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

  

Investment

                   e

Senao International Co., Ltd.

  

Senao International (Samoa) Holding Ltd. (“SIS”)

  

International investment

     100        100     
  

Youth Co., Ltd. (“Youth”)

  

Sale of information and communication technologies products

     93        89        f
  

Aval Technologies Co., Ltd. (“Aval”)

  

Sale of information and communication technologies products

     100        100     
  

SENYOUNG Insurance Agent Co., Ltd. (“SENYOUNG”)

  

Property and liability insurance agency

     100        100        g

Youth Co., Ltd.

  

ISPOT Co., Ltd. (“ISPOT”)

  

Sale of information and communication technologies products

     100        100     
  

Youyi Co., Ltd. (“Youyi”)

  

Maintenance of information and communication technologies products

     100        100     

Light Era Development Co., Ltd.

  

Taoyuan Asia Silicon Valley Innovation Co., Ltd. (“TASVI”)

  

Development of real estate

     60               h

CHIEF Telecom Inc.

  

Unigate Telecom Inc. (“Unigate”)

  

Telecommunications and internet service

     100        100     
  

Chief International Corp. (“CIC”)

  

Telecommunications and internet service

     100        100     
  

Shanghai Chief Telecom Co., Ltd. (“SCT”)

  

Telecommunications and internet service

     49        49     

Chunghwa System Integration Co., Ltd.

  

Concord Technology Co., Ltd. (“Concord”)

  

Investment

            100        i

Chunghwa Investment Co., Ltd.

  

Chunghwa Precision Test Tech. Co., Ltd. (“CHPT”)

  

Production and sale of semiconductor testing components and printed circuit board

     34        38        j

Concord Technology Co., Ltd.

  

Glory Network System Service (Shanghai) Co., Ltd. (“GNSS (Shanghai)”)

  

Design, development and production of computer and internet software, installment, maintenance and consulting services of information system integration, and sales of self-production products

                   k

Chunghwa Precision Test Tech. Co., Ltd.

  

Chunghwa Precision Test Tech. USA Corporation (“CHPT (US)”)

  

Design and after-sale services of semiconductor testing components and printed circuit board

     100        100     
  

CHPT Japan Co., Ltd. (“CHPT (JP)”)

  

Related services of electronic parts, machinery processed products and printed circuit board

     100        100     
  

Chunghwa Precision Test Tech. International, Ltd. (“CHPT (International)”)

  

Wholesale and retail of electronic materials, and investment

     100        100     

Senao International (Samoa) Holding Ltd.

  

Senao International HK Limited (“SIHK”)

  

International investment

     100        100     

Senao International HK Limited

  

Senao Trading (Fujian) Co., Ltd. (“STF”)

  

Sale of information and communication technologies products

     100        100        l
  

Senao International Trading (Shanghai) Co., Ltd. (“SITS”)

  

Sale of information and communication technologies products

     100        100     

(Continued)

 

- 19 -


               Percentage of Ownership         
               December 31         
Name of Investor    Name of Investee    Main Businesses and Products    2018      2017      Note  
  

Senao International Trading (Shanghai) Co., Ltd. (“SEITS”)

  

Maintenance of information and communication technologies products

            100        m
  

Senao International Trading (Jiangsu) Co., Ltd. (“SITJ”)

  

Sale of information and communication technologies products

     100        100        n

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

  

Chunghwa Hsingta Co., Ltd. (“CHC”)

  

Investment

     100        100     

Chunghwa Hsingta Co., Ltd. (“CHC”)

  

Chunghwa Telecom (China) Co., Ltd. (“CTC”)

  

Integrated information and communication solution services for enterprise clients, and intelligent energy network service

     100        100     
  

Jiangsu Zhenhua Information Technology Company, LLC. (“JZIT”)

  

Providing intelligent energy saving solution and intelligent buildings services

            75        o

Chunghwa Precision Test Tech. International, Ltd.

  

Shanghai Taihua Electronic Technology Limited (“STET”)

  

Design of printed circuit board and related consultation service

     100        100     

(Concluded)

 

  a)

SENAO transferred its treasury stock to employees in June 2018 and the Company’s ownership interest in SENAO decreased to 28.18% as of December 31, 2018. As Chunghwa 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.

 

  b)

Chunghwa and CHI disposed some shares of CHIEF in June 2017 before CHIEF traded its shares on the emerging stock market according to the local requirements. The Company’s equity ownership of CHIEF decreased to 70.43% as of December 31, 2017. CHIEF issued new shares in March and November 2018 as its employees exercised their options. In addition, Chunghwa and CHI disposed some shares of CHIEF in May 2018 before CHIEF traded its shares on the General Stock Market of the Taipei Exchange according to the local requirements. Furthermore, Chunghwa and CHI did not participate in the capital increase of CHIEF in June 2018. Therefore, the Company’s equity ownership interest in CHIEF decreased to 60.23% as of December 31, 2018.

 

  c)

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

 

  d)

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

 

  e)

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

 

  f)

SENAO subscribed for all the shares in the capital increase of Youth in December 2018. Therefore, the Company’s equity ownership interest in Youth increased from 89% to 93%.

 

  g)

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

 

  h)

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

 

  i)

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

 

- 20 -


  j)

CHI did not participate in the capital increase of CHPT in September 2017 and disposed some shares of CHPT from April to August 2018. Therefore, its ownership interest in CHPT decreased to 34.25% as of December 31, 2018. However, considering the absolute and relative size of ownership interest, and the dispersion of shares owned by the other stockholders, the management concluded that the Company has a sufficiently dominant voting interest to direct the relevant activities; hence, CHPT is deemed as a subsidiary of the Company.

 

  k)

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

 

  l)

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

 

  m)

SEITS completed its liquidation in March 2018.

 

  n)

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

 

  o)

JZIT completed its liquidation in December 2018 and CHC received the proceeds from the liquidation.

The following diagram presents information regarding the relationship and ownership percentages between Chunghwa and its subsidiaries as of December 31, 2018:

 

LOGO

Foreign Currencies

In preparing the financial statements of each individual entity, transactions in currencies other than the entity’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.

 

- 21 -


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.

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

For the purposes of presenting consolidated 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 Chunghwa) 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 and attributed to stockholders of the parent and noncontrolling interests as appropriate.

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.

Buildings and Land Consigned to Construction Contractors

Inventories of LED are stated at the lower of cost or net realizable value item by item, except for those that may be appropriate to group as similar items or related inventories. Land acquired before construction is classified as land held for development, and then reclassified as land held under development after LED begins its construction project.

Upon the completion of the construction project, LED recognizes revenues in the amount of proceeds from customers for land and buildings and related costs when ownership is transferred to the customers. The unsold portion of the completed construction project is transferred to land and building held for sale.

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.

 

- 22 -


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 consolidated 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.

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.

 

- 23 -


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.

Goodwill

Goodwill arising from the acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment loss.

For the purpose of impairment testing, goodwill is allocated to each of the Company’s cash-generating units or groups of cash-generating units (referred to as “cash-generating unit”) that are expected to benefit from the synergies of the business combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired, by comparing its carrying amount, including the attributable goodwill, with its recoverable amount. However, if the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

Intangible Assets Other Than Goodwill

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. Intangible assets with indefinite useful lives that are acquired separately are measured at cost less accumulated impairment loss.

Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, they are measured on the same basis as intangible assets that are acquired separately.

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 (Other Than Goodwill) 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, excluding goodwill, 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.

 

- 24 -


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.

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 38.

 

- 25 -


  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.

 

  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.

 

- 26 -


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

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

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

 

  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.

 

- 27 -


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.

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.

 

- 28 -


  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.

 

  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.

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.

 

- 29 -


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, or 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.

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.

 

- 30 -


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.

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.

 

- 31 -


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.

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.

Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

 

- 32 -


Other than stated above, all other borrowing costs are recognized in profit or loss in the period in which they are incurred.

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.

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.

Share-based Payment Arrangements—Employee Stock Options

The fair value determined at the grant date of the employee share options is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of employee share options that are expected to ultimately vest, with a corresponding increase in additional paid-in capital—employee stock options. If the equity instruments granted vest immediately at the grant date, expenses are recognized in full in profit or loss.

At the end of each reporting period, the Company revises its estimate of the number of employee share options expected to vest. The impact of the revision of the original estimates is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to additional paid-in capital—employee stock options.

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.

 

- 33 -


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 consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. If the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit, the resulting deferred tax asset or liability is not recognized. In addition, a deferred tax liability is not recognized on taxable temporary difference arising from initial recognition of goodwill.

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carry forward 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.

 

  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.

Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

 

- 34 -


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.

 

  c.

Fair value measurements and valuation processes

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 38. 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.

 

- 35 -


  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.

 

  h.

Control over subsidiaries

As discussed in Note 3, some entities are subsidiaries of the Company although the Company only owns less than 50% ownership interests in these entities. After considering the Company’s absolute size of holding in the entity and the relative size of and the dispersion of shares owned by the other stockholders, and the contractual arrangements between the Company and other investors, potential voting interests and the written agreement between stockholders, the management concluded that the Company has a sufficiently dominant voting interest to direct the relevant activities of the entity and therefore the Company has control over these entities.

 

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).

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 consolidated financial statements.

 

- 36 -


  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    $ 28,824,935      $ 28,824,935        a)  

Equity securities

   Available-for-sale    FVTPL      596,409        596,409        b)  
   Available-for-sale    FVOCI—equity investments      5,154,462        6,996,327        b)  

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

   Loans and receivables    Amortized cost      40,158,885        40,158,885        a)  

Financial Liabilities

              

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

   Amortized cost    Amortized cost      39,725,662        39,725,662     

Derivatives

   Held-for-trading    FVTPL      578        578     
   Hedging derivative financial liabilities    Hedging financial liabilities      850        850        c)  

 

     IAS 39
Carrying
Amount
January 1,
2018
    Reclassifi-
cations
     Remea-
surements
     IFRS 9
Carrying
Amount
January 1,
2018
    Retained
Earnings
Effect on
January 1,
2018
     Other
Adjustment
Effect on
January 1,
2018
    Noncontrolling
Interests
Effect on
January 1,
2018
     Note  

Financial assets measured at FVTPL

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

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

     —         596,409        —          596,409       6,149        (6,149     —          b)  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    
     —         596,409        —          596,409       6,149        (6,149     —       
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Financial liabilities measured at FVTPL

     (578     —          —          (578     —          —         —       
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

(Continued)

 

- 37 -


     IAS 39
Carrying
Amount
January 1,
2018
    Reclassifi-
cations
    Remea-
surements
     IFRS 9
Carrying
Amount
January 1,
2018
    Retained
Earnings
Effect on
January 1,
2018
     Other
Adjustment
Effect on
January 1,
2018
     Noncontrolling
Interests
Effect on
January 1,
2018
    Note  

Financial assets measured at FVOCI—equity investments

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

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

     —         5,154,462       1,841,865        6,996,327       1,515,525        327,177        (837     b)  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   
     —         5,154,462       1,841,865        6,996,327       1,515,525        327,177        (837  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

Financial assets measured at Amortized cost

     —         —         —          —         —          —          —      

Add: reclassification from loans and receivables (IAS 39)

     —         68,983,820       —          68,983,820       —          —          —         a)  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

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

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

Financial liabilities measured at amortized cost

     —         —         —          —         —          —          —      

Add: reclassification from amortized cost (IAS 39)

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

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

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

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

Hedging financial liabilities

     —         —         —          —         —          —          —      

Add: reclassification from Hedging derivative instrument (IAS 39)

     —         (850     —          (850     —          —          —         c)  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   
     —         (850     —          (850     —          —          —      
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

Total

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

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

(Concluded)

 

  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 FVTPL and designated at FVOCI in accordance with IFRS 9. As a result, the related other equity—unrealized gain or loss on available-for-sale financial assets of $6,149 thousand and $556,243 thousand were reclassified to retained earnings and to other equity—unrealized gain or loss on financial assets at FVOCI, respectively.

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

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.

 

- 38 -


  c)

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

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

 

  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.

 

- 39 -


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

   $ —        $ 6,065,126      $ 6,065,126  
  

 

 

       

 

 

 

Trade notes and accounts receivable, net

   $ 31,941,094        (117,911    $ 31,823,183  
  

 

 

       

 

 

 

Inventories

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

 

 

       

 

 

 

Prepayments—current

   $ 2,188,173        (7,628    $ 2,180,545  
  

 

 

       

 

 

 

Other current assets

   $ 2,182,758        132,086      $ 2,314,844  
  

 

 

       

 

 

 

Contract assets—noncurrent

   $ —          3,916,924      $ 3,916,924  
  

 

 

       

 

 

 

Incremental costs of obtaining contracts

   $ —          2,474,143      $ 2,474,143  
  

 

 

    

 

 

    

 

 

 

Total effect on assets

      $ 12,330,654     
     

 

 

    

Contract liabilities—current

   $ —        $ 8,003,855      $ 8,003,855  
  

 

 

       

 

 

 

Current tax liabilities

   $ 4,725,698        2,226,691      $ 6,952,389  
  

 

 

       

 

 

 

Provisions—current

   $ 188,744        (87,572    $ 101,172  
  

 

 

       

 

 

 

Advance receipts

   $ 8,841,858        (8,841,858    $ —    
  

 

 

       

 

 

 

Other current liabilities

   $ 1,081,156        71,690      $ 1,152,846  
  

 

 

       

 

 

 

Contract liabilities—noncurrent

   $ —          2,626,319      $ 2,626,319  
  

 

 

       

 

 

 

Deferred revenue

   $ 3,612,391        (3,612,391    $ —    
  

 

 

       

 

 

 

Other noncurrent liabilities

   $ 3,457,677        1,072,427      $ 4,530,104  
  

 

 

    

 

 

    

 

 

 

Total effect on liabilities

      $ 1,459,161     
     

 

 

    

Total effect on equity (unappropriated earnings)

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

 

 

    

 

 

    

 

 

 

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

   $ 4,868,728  

Trade notes and accounts receivable, net

     (108,582

Inventories

     (79,801

Prepayments—current

     (12,088

Other current assets

     79,801  

Contract assets—noncurrent

     2,343,958  

Incremental costs of obtaining contracts

     1,335,030  
  

 

 

 

Assets

   $ 8,427,046  
  

 

 

 

(Continued)

 

- 40 -


     December 31,
2018
 

Contract liabilities—current

   $ 10,687,772  

Current tax liabilities

     1,417,946  

Provisions—current

     (51,675

Advance receipts

     (11,276,942

Other current liabilities

     340,019  

Contract liabilities—noncurrent

     2,595,149  

Deferred revenue

     (3,748,043

Other noncurrent liabilities

     1,173,165  
  

 

 

 

Liabilities

   $ 1,137,391  
  

 

 

 

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

   $ (3,228,240

Operating costs

     2,455,413  

Operating expenses

     (1,293,070
  

 

 

 

Income from operations

     (4,390,583

Income tax expense

     (808,745
  

 

 

 

Net income

   $ (3,581,838
  

 

 

 

Decrease in net income attributable to:

   $ (3,581,838

Stockholders of the parent

     —    
  

 

 

 

Noncontrolling interests

  
   $ (3,581,838
  

 

 

 

Impact on earnings per share(NT$):

  

Basic earnings per share

   $ (0.46
  

 

 

 

Diluted earnings per share

   $ (0.46
  

 

 

 

 

- 41 -


  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)

Amendments to IAS 28

  

Long-term Interests in Associates and Joint Ventures

   January 1, 2019

IFRIC 23

  

Uncertainty over Income Tax Treatments

   January 1, 2019

 

  Note 1:

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

 

  Note 2:

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

 

  Note 3:

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

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

IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for 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 consolidated balance sheets except for those whose payments under low-value will be recognized as expenses on a straight-line basis. On the consolidated statements of comprehensive income, the Company will present the depreciation expense charged on the right-of-use asset separately from the interest expense accrued on lease liability using the effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of lease liability will be classified within financing activities; cash payments for interest portion will be classified within operating activities. 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.

 

- 42 -


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

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

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

   $ 1,872,984      $ (245,215    $ 1,627,769  
  

 

 

       

 

 

 

Property, plant and equipment

   $ 288,914,228        (1,308,990    $ 287,605,238  
  

 

 

       

 

 

 

Right-of-use assets

   $ —          12,163,063      $ 12,163,063  
  

 

 

       

 

 

 

Deferred income tax assets

   $ 3,553,856        25,588      $ 3,579,444  
  

 

 

       

 

 

 

Prepayments—noncurrent

   $ 3,463,337        (413,521    $ 3,049,816  
  

 

 

    

 

 

    

 

 

 

Total effect on assets

      $ 10,220,925     
     

 

 

    

Contract liabilities—current

   $ 10,687,772      $ 214,174      $ 10,901,946  
  

 

 

       

 

 

 

Lease liabilities—current

   $ —          3,394,119      $ 3,394,119  
  

 

 

       

 

 

 

Other payables

   $ 23,315,383        (48,712    $ 23,266,671  
  

 

 

       

 

 

 

Other current liabilities

   $ 1,381,606        (214,174    $ 1,167,432  
  

 

 

       

 

 

 

Contract liabilities—noncurrent

   $ 2,595,149        3,482,907      $ 6,078,056  
  

 

 

       

 

 

 

Deferred income tax liabilities

   $ 1,991,843        6      $ 1,991,849  
  

 

 

       

 

 

 

Lease liabilities—noncurrent

   $ —          6,945,938      $ 6,945,938  
  

 

 

       

 

 

 

Other noncurrent liabilities

   $ 4,793,237        (3,482,907    $ 1,310,330  
  

 

 

    

 

 

    

 

 

 

Total effect on liabilities

      $ 10,291,351     
     

 

 

    

Unappropriated earnings

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

 

 

       

 

 

 

Noncontrolling interests

   $ 10,009,948        (19,603    $ 9,990,345  
  

 

 

    

 

 

    

 

 

 

Total effect on equity

      $ (70,426   
     

 

 

    

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

 

- 43 -


  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 consolidated 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

   $ 462,719      $ 382,694  

Bank deposits

     10,574,697        7,877,605  
  

 

 

    

 

 

 
     11,037,416        8,260,299  
  

 

 

    

 

 

 

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

     

Commercial paper

     6,143,672        10,178,512  

Negotiable certificates of deposit

     7,600,000        7,950,000  

Time deposits

     2,863,692        2,436,124  
  

 

 

    

 

 

 
     16,607,364        20,564,636  
  

 

 

    

 

 

 
   $ 27,644,780      $ 28,824,935  
  

 

 

    

 

 

 

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

 

     December 31
     2018    2017

Bank deposits

   0.00%-0.50%    0.00%-0.70%

Commercial paper

   0.47%-0.57%    0.32%-0.40%

Negotiable certificates of deposit

   0.55%-0.60%    0.40%-0.50%

Time deposits

   0.09%-4.40%    0.52%-4.40%

 

- 44 -


7.

FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

 

                 December 31               
     2018      2017  

Financial assets-noncurrent

     

Mandatorily measured at FVTPL

     

Non-derivatives

     

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

   $ 1,114      $ 578  
  

 

 

    

 

 

 

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  

Forward exchange contracts—buy

     US$/NT$        2019.01        US$2,020/NT$62,252  

December 31, 2017

        

Forward exchange contracts—buy

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

Forward exchange contracts—buy

     US$/NT$        2018.01        US$4,190/NT$125,481  

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.

 

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

     3,901,053  

Foreign investments

  

Non-listed stocks

     131,607  
  

 

 

 
   $ 6,932,503  
  

 

 

 

 

- 45 -


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 $395,593 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

   $ —        $ 3,125,086  
  

 

 

    

 

 

 

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

   $ 32,677,558      $ 34,058,443  

Less: Loss allowance

     (2,602,055      (2,117,349
  

 

 

    

 

 

 
   $ 30,075,503      $ 31,941,094  
  

 

 

    

 

 

 

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.

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.

 

- 46 -


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

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

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

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

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 45 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.

 

- 47 -


Movements of the allowance for doubtful accounts were as follows:

 

     Year Ended
December 31,
2018
 

Balance at January 1, 2018

   $ 2,117,349  

Add: Provision of credit loss

     804,727  

Less: Amounts written off

     (320,021
  

 

 

 

Balance at December 31, 2018

   $ 2,602,055  
  

 

 

 

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

   $ 30,031,885  

Less than 30 days

     1,280,443  

31-60 days

     484,795  

61-90 days

     278,242  

91-120 days

     253,318  

121-180 days

     122,086  

More than 181 days

     1,607,674  
  

 

 

 
   $ 34,058,443  
  

 

 

 

The above aging analysis was based on days overdue.

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

 

     December 31,
2017
 

Less than 30 days

   $ 328,438  

31-60 days

     36,253  

61-90 days

     7,279  

91-120 days

     69,486  

(Continued)

 

- 48 -


     December 31,
2017
 

121-180 days

   $ 549  

More than 181 days

     6,572  
  

 

 

 
   $ 448,577  
  

 

 

 

(Concluded)

The above aging analysis was based on days overdue.

Movements of the allowance for doubtful accounts were as follows:

 

     Individually
Assessed for
Impairment
     Collectively
Assessed for
Impairment
     Total  

Balance on January 1, 2017

   $ 805,145      $ 967,880      $ 1,773,025  

Add: Provision for doubtful accounts

     534,836        42,811        577,647  

Deduct: Amounts written off

     (15,202      (218,121      (233,323
  

 

 

    

 

 

    

 

 

 

Balance on December 31, 2017

   $ 1,324,779      $ 792,570      $ 2,117,349  
  

 

 

    

 

 

    

 

 

 

 

11.

INVENTORIES

 

     December 31  
     2018      2017  

Merchandise

   $ 6,067,750      $ 5,133,528  

Project in process

     6,756,486        1,390,212  

Work in process

     109,191        151,804  

Raw materials

     111,566        88,726  
  

 

 

    

 

 

 
     13,044,993        6,764,270  

Land held under development

     1,998,733        1,998,733  

Construction in progress

     76,989        76,612  
  

 

 

    

 

 

 
   $ 15,120,715      $ 8,839,615  
  

 

 

    

 

 

 

The operating costs related to inventories were $48,648,763 thousand (including the provision for inventory and obsolescence of $365,123 thousand) and $56,342,225 thousand (including the provision for inventory and obsolescence of $52,487 thousand) for the years ended December 31, 2018 and 2017, respectively.

As of December 31, 2018 and 2017, inventories of $2,075,722 thousand and $2,075,345 thousand, respectively, were expected to be recovered for a time period longer than twelve months. The aforementioned amount of inventories is related to property development owned by LED.

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

 

- 49 -


12.

PREPAYMENTS

 

     December 31  
     2018      2017  

Prepaid rents

   $ 2,415,083      $ 2,687,513  

Others

     2,921,238        3,074,005  
  

 

 

    

 

 

 
   $ 5,336,321      $ 5,761,518  
  

 

 

    

 

 

 

Current

     

Prepaid rents

   $ 599,817      $ 812,148  

Others

     1,273,167        1,376,025  
  

 

 

    

 

 

 
   $ 1,872,984      $ 2,188,173  
  

 

 

    

 

 

 

Noncurrent

     

Prepaid rents

   $ 1,815,266      $ 1,875,365  

Others

     1,648,071        1,697,980  
  

 

 

    

 

 

 
   $ 3,463,337      $ 3,573,345  
  

 

 

    

 

 

 

 

13.

OTHER CURRENT MONETARY ASSETS

 

     December 31  
     2018      2017  

Time deposits and negotiable certificates of deposit with maturities of more than three months

   $ 8,156,647      $ 4,053,637  

Others

     1,347,556        1,254,423  
  

 

 

    

 

 

 
   $ 9,504,203      $ 5,308,060  
  

 

 

    

 

 

 

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

 

     December 31  
     2018      2017  

Time deposits and negotiable certificates of deposit with maturities of more than three months

     0.03%-3.05%        0.06%-4.15%  

 

14.

FINANCIAL ASSETS CARRIED AT COST- 2017

 

     December 31,
2017
 

Non-listed stocks

  

Domestic

   $ 2,331,798  

Foreign

     293,987  
  

 

 

 
   $ 2,625,785  
  

 

 

 

 

- 50 -


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.

The Company disposed financial assets carried at cost with carrying amount $4,587 thousand and recognized the disposal gain of $2,705 thousand for the year ended December 31, 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.

SUBSIDIARIES

 

  a.

Information on significant noncontrolling interest subsidiary

 

Subsidiaries

  

Principal Place

of Business

     Proportion of Ownership
Interests and Voting Rights Held
by Noncontrolling Interests
 
   December 31  
   2018     2017  

SENAO

     Taiwan        72     71

CHPT

     Taiwan        66     62

 

     Profit Allocated to
Noncontrolling Interests
     Accumulated Noncontrolling
Interests
 
     Year Ended December 31      December 31  
     2018      2017      2018      2017  

SENAO

   $ 281,238      $ 578,618      $ 4,228,240      $ 4,257,408  
  

 

 

    

 

 

       

CHPT

   $ 456,599      $ 439,123        4,044,322        3,555,563  
  

 

 

    

 

 

       

Individually immaterial subsidiaries with noncontrolling interests

           1,737,386        884,624  
        

 

 

    

 

 

 
         $ 10,009,948      $ 8,697,595  
        

 

 

    

 

 

 

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

 

     December 31  
     2018      2017  

Current assets

   $ 7,041,416      $ 7,584,225  

Noncurrent assets

     2,675,748        2,686,696  

Current liabilities

     (3,740,162      (4,203,944

Noncurrent liabilities

     (164,056      (160,366
  

 

 

    

 

 

 

Equity

   $ 5,812,946      $ 5,906,611  
  

 

 

    

 

 

 

(Continued)

 

- 51 -


     December 31  
     2018      2017  

Equity attributable to the parent

   $ 1,584,706      $ 1,649,203  

Equity attributable to noncontrolling interests

     4,228,240        4,257,408  
  

 

 

    

 

 

 
   $ 5,812,946      $ 5,906,611  
  

 

 

    

 

 

 

(Concluded)

 

     Year Ended December 31  
     2018      2017  

Revenues and income

   $ 31,533,371      $ 36,034,572  

Costs and expenses

     31,137,428        35,215,871  
  

 

 

    

 

 

 

Profit for the year

   $ 395,943      $ 818,701  
  

 

 

    

 

 

 

Profit attributable to the parent

   $ 114,705      $ 240,083  

Profit attributable to noncontrolling interests

     281,238        578,618  
  

 

 

    

 

 

 

Profit for the year

   $ 395,943      $ 818,701  
  

 

 

    

 

 

 

Other comprehensive income (loss) attributable to the parent

   $ (1,818    $ 2,656  

Other comprehensive loss attributable to noncontrolling interests

     (10,523      (16,581
  

 

 

    

 

 

 
   $ (12,341    $ (13,925
  

 

 

    

 

 

 

Total comprehensive income attributable to the parent

   $ 112,887      $ 242,739  

Total comprehensive income attributable to noncontrolling interests

     270,715        562,037  
  

 

 

    

 

 

 
   $ 383,602      $ 804,776  
  

 

 

    

 

 

 

Net cash flow from operating activities

   $ 696,142      $ 1,080,947  

Net cash flow from investing activities

     (12,596      (56,640

Net cash flow from financing activities

     (490,757      (896,889

Effect of exchange rate changes on cash and cash equivalents

     516        (2,488
  

 

 

    

 

 

 

Net cash inflow

   $ 193,305      $ 124,930  
  

 

 

    

 

 

 

Dividends paid to noncontrolling interests

   $ 587,264      $ 703,207  
  

 

 

    

 

 

 

 

- 52 -


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

 

     December 31  
     2018      2017  

Current assets

   $ 4,416,910      $ 4,495,601  

Noncurrent assets

     2,779,020        2,167,138  

Current liabilities

     (1,044,054      (899,079

Noncurrent liabilities

     (816      (997
  

 

 

    

 

 

 

Equity

   $ 6,151,060      $ 5,762,663  
  

 

 

    

 

 

 

Equity attributable to CHI

   $ 2,106,738      $ 2,207,100  

Equity attributable to noncontrolling interests

     4,044,322        3,555,563  
  

 

 

    

 

 

 
     $6,151,060        $5,762,663  

 

     Year Ended December 31  
     2018      2017  

Revenues and income

   $ 3,299,226      $ 3,126,669  

Costs and expenses

     2,583,202        2,390,299  
  

 

 

    

 

 

 

Profit for the year

   $ 716,024      $ 736,370  
  

 

 

    

 

 

 

Profit attributable to CHI

   $ 259,425      $ 297,247  

Profit attributable to noncontrolling interests

     456,599        439,123  
  

 

 

    

 

 

 

Profit for the year

   $ 716,024      $ 736,370  
  

 

 

    

 

 

 

Other comprehensive loss attributable to CHI

   $ 218      $ (1,179

Other comprehensive loss attributable to noncontrolling interests

     45        (1,904
  

 

 

    

 

 

 
   $ 263      $ (3,083
  

 

 

    

 

 

 

Total comprehensive income attributable to CHI

   $ 259,643      $ 296,068  

Total comprehensive income attributable to noncontrolling interests

     456,644        437,219  
  

 

 

    

 

 

 
   $ 716,287      $ 733,287  
  

 

 

    

 

 

 

Net cash flow from operating activities

   $ 861,558      $ 1,051,989  

Net cash flow from investing activities

     (733,108      (639,158

Net cash flow from financing activities

     (327,890      2,305,741  

Effect of exchange rate changes on cash and cash equivalents

     1,337        (3,640
  

 

 

    

 

 

 

Net cash inflow (outflow)

   $ (198,103    $ 2,714,932  
  

 

 

    

 

 

 

Dividends paid to noncontrolling interests

   $ 209,711      $ 145,849  
  

 

 

    

 

 

 

 

- 53 -


  b.

Equity transactions with noncontrolling interests

SENAO subscribed for all the shares in the capital increase of Youth in December 2018. Therefore, the Company’s equity ownership interest in Youth increased from 89% to 93%.

SENAO transferred its treasury stock to employees in June and November 2017, and June 2018. The Company’s ownership interest in SENAO decreased to 28.93% and 28.18% as of December 31, 2017 and 2018, respectively. See Note 34(b) for details.

CHI did not participate in the capital increase of CHPT in September 2017 and disposed some shares of CHPT from April to August 2018. Therefore, the Company’s ownership interest in CHPT decreased to 34.25% as of December 31, 2018. See Note 34(e) for details.

CHIEF issued new shares in March and November 2018 as its employees exercised their options. In addition, Chunghwa and CHI disposed some shares of CHIEF in May 2018 before CHIEF traded its shares on the General Stock Market of the Taipei Exchange according to the local requirements. Furthermore, Chunghwa and CHI did not participate in the capital increase of CHIEF in June 2018. Therefore, the Company’s equity ownership interest in CHIEF decreased to 60.23% as of December 31, 2018. See Note 34(c)(d) for details.

Chunghwa and CHI disposed some shares of CHIEF in June 2017 before CHIEF traded its shares on the emerging stock market according to the local requirements. The Company’s ownership interest in CHIEF decreased to 70.43% as of December 31, 2017.

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

Information of the Company’s equity transactions with noncontrolling interests for the years ended December 31, 2018 and 2017 was as follows:

 

     Year Ended December 31, 2018  
     SENAO Not
Proportionately
Participating in
the Capital
Increase of
Youth
    SENAO
Transferred
its Treasury
Stock
    CHI Disposed
Some Shares
of CHPT
    Chunghwa
and CHI
Did Not
Participate
in the
Capital
Increase of
CHIEF
    Chunghwa
and CHI
Disposed
Some
Shares of
CHIEF
    Share-based
Payment of
CHIEF
 

Cash consideration received from noncontrolling interests

   $ —       $ 327,122     $ 1,041,689     $ 1,476,680     $ 132,711     $ 35,337  

The proportionate share of the carrying amount of the net assets of the subsidiary transferred to noncontrolling interests

     (68     (272,188     (330,100     (699,899     (18,253     (24,561
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Differences arising from equity transactions

   $ (68   $ 54,934     $ 711,589     $ 776,781     $ 114,458     $ 10,776  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Line items for equity transaction adjustments

            

Additional paid-in capital—difference between consideration received or paid and the carrying amount of the subsidiaries’ net assets upon actual disposal or acquisition

   $ —       $ —       $ 711,589     $ —       $ 114,458     $ —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Additional paid-in capital—arising from changes in equities of subsidiaries

   $ (68   $ 54,934     $ —       $ 776,781     $ —       $ 10,776  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 54 -


     Year Ended December 31, 2017  
     CHI Did Not
Participate in
the Capital
Increase of
CHPT
    Chunghwa
and CHI
Disposed
Some Shares
of CHIEF
    SENAO
Transferred
its Treasury
Stock
 

Cash consideration received from noncontrolling interests

   $ 2,552,053     $ 105,931     $ 164,200  

The proportionate share of the carrying amount of the net assets of the subsidiary transferred to noncontrolling interests

     (1,750,326     (29,217     (137,300
  

 

 

   

 

 

   

 

 

 

Differences arising from equity transactions

   $ 801,727     $ 76,714     $ 26,900  
  

 

 

   

 

 

   

 

 

 

Line items for equity transaction adjustments

      

Additional paid-in capital—difference between consideration received or paid and the carrying amount of the subsidiaries’ net assets upon actual disposal or acquisition

   $ —       $ 76,393     $ —    
  

 

 

   

 

 

   

 

 

 

Additional paid-in capital—arising from changes in equities of subsidiaries

   $ 801,727     $ 321     $ 26,900  
  

 

 

   

 

 

   

 

 

 

 

16.

INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

     December 31  
     2018      2017  

Investments in associates

   $ 2,944,890      $ 2,546,374  
  

 

 

    

 

 

 

 

  a.

Investments in associates

Investments in associates were as follows:

 

     Carrying Amount  
     December 31  
     2018      2017  

Listed

     

Senao Networks, Inc. (“SNI”)

   $ 919,841      $ 862,116  

Non-listed

     

ST-2 Satellite Ventures Pte., Ltd. (“STS”)

     496,033        472,505  

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  

(Continued)

 

- 55 -


     Carrying Amount  
     December 31  
     2018      2017  

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  

Click Force Co., Ltd. (“CF”)

     37,876        38,175  

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

     16,647        25,006  

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

     5,080        14,488  

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

     4,757        —    

HopeTech Technologies Limited (“HopeTech”)

     —          22,731  

MeWorks LIMITED (HK) (“MeWorks”)

     —          —    
  

 

 

    

 

 

 
   $ 2,944,890      $ 2,546,374  
  

 

 

    

 

 

 

(Concluded)

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

 

     % of Ownership and Voting
Rights
 
     December 31  
     2018      2017  

Senao Networks, Inc. (“SNI”)

     34        34  

ST-2 Satellite Ventures Pte., Ltd. (“STS”)

     38        38  

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  

Click Force Co., Ltd. (“CF”)

     49        49  

UUpon Inc. (“UUPON”)

     22        22  

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

     14        14  

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

     49        —    

HopeTech Technologies Limited (“HopeTech”)

     —          45  

MeWorks LIMITED (HK) (“MeWorks”)

     20        20  

 

- 56 -


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

   $ 501,600      $ 408,022  

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

     5,025        (4,449
  

 

 

    

 

 

 

The Company’s share of total comprehensive income

   $ 506,625      $ 403,573  
  

 

 

    

 

 

 

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

 

     December 31  
     2018      2017  

SNI

   $ 1,447,350      $ 2,130,406  
  

 

 

    

 

 

 

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.

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

The Company did not participate in the capital increase of UUPON in April 2017 and the ownership interest of UUPON decreased to 22%. 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.

 

  b.

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.

 

- 57 -


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 loss of joint ventures was recorded based on the audited financial statements.

 

17.

PROPERTY, PLANT AND EQUIPMENT

 

    Land     Land
Improvements
    Buildings     Computer
Equipment
    Telecommuni-
cations
Equipment
    Transportation
Equipment
    Miscellaneous
Equipment
    Construction in
Progress and
Equipment to be
Accepted
    Total  

Cost

                 

Balance on January 1, 2017

  $ 103,872,069     $ 1,580,893     $ 67,737,813     $ 14,294,817     $ 715,692,476     $ 3,866,401     $ 8,942,936     $ 20,140,722     $ 936,128,127  

Additions

    —         —         29,582       77,643       193,286       1,048       193,238       25,574,267       26,069,064  

Disposal

    (157,928     (4,701     (108,349     (974,218     (13,739,288     (61,988     (401,624     —         (15,448,096

Effect of foreign exchange differences

    —         —         —         (424     (172,350     (101     (3,467     35       (176,307

Others

    365,049       18,707       5,035,004       763,979       20,080,311       29,012       783,792       (27,188,210     (112,356
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance on December 31, 2017

  $ 104,079,190     $ 1,594,899     $ 72,694,050     $ 14,161,797     $ 722,054,435     $ 3,834,372     $ 9,514,875     $ 18,526,814     $ 946,460,432  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation and impairment

                 

Balance on January 1, 2017

  $ —       $ (1,248,614   $ (25,591,288   $ (11,581,679   $ (596,497,180   $ (3,237,064   $ (6,802,542   $ —       $ (644,958,367

Depreciation expenses