CHT [CHUNGHWA TELECOM CO] 6-K: Subject : To announce the differences between the

Ticker: CHT, Company: CHUNGHWA TELECOM CO LTD, Type: 6-K, Date: 2019-08-14
Original SEC Filing: Click here


Webplus: CHT/20190814/6-K/2_EX-99.1/000.htm SEC Original: d789138dex991.htm
Subject : To announce the differences between the second quarter of 2019 financial statements under Taiwan-IFRSs and IFRSs To which item it meets—article 4 paragraph xx:47 (Form 1) Date of events:2019/8/14 Contents: 1.Date of occurrence of the event: 2019/8/14 2.Of which year/ quarter financial report required to be adjusted: The second quarter of 2019 3.Accounting principles applied (domestic listing securities):



EX-99.1 2 d789138dex991.htm EX-99.1

Exhibit 99.1

Chunghwa Telecom’s Material Information as Reported to Taiwan Stock Exchange Corporation

Subject : To announce the differences between the second quarter of 2019 financial statements under Taiwan-IFRSs and IFRSs

To which item it meets—article 4 paragraph xx:47 (Form 1)

Date of events:2019/8/14

Contents:

1.Date of occurrence of the event:

2019/8/14

2.Of which year/ quarter financial report required to be adjusted:

The second quarter of 2019

3.Accounting principles applied (domestic listing securities):

Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China (“Taiwan-IFRSs”)

4.Inconsistent items/ amounts (domestic listing securities):

Under Taiwan-IFRSs, Chunghwa Telecom Co., Ltd. and its subsidiaries (or the “Company”) reported consolidated net income of NT$8,756,498 thousand and NT$17,283,211 thousand, consolidated net income attributable to stockholders of the parent of NT$8,568,370 thousand and NT$16,924,452 thousand, and basic earnings per share of NT$1.10 and NT$2.18 for the three months and six months ended June 30, 2019, respectively. The Company also reported total assets of NT$489,464,353 thousand, total liabilities of NT$121,218,254 thousand, and total equity of NT$368,246,099 thousand as of June 30, 2019.

- 1 -


5.Accounting principles applied (securities issued overseas):

IAS 34 “Interim Financial Reporting” as issued by the International Accounting Standard Board (“IFRSs”)

6.Inconsistent items/ amounts (securities issued overseas):

Under IFRSs, the Company reported consolidated net income of NT$10,270 million and NT$18,361 million, consolidated net income attributable to stockholders of the parent of NT$10,044 million and NT$17,973 million, and basic earnings per share of NT$1.29 and NT$2.32 for the three months and six months ended June 30, 2019, respectively. The Company also reported total assets of NT$489,259 million, total liabilities of NT$122,100 million, and total equity of NT$367,159 million as of June 30, 2019.

7.Cause of the inconsistency:

The differences between consolidated net income under Taiwan-IFRSs and that under IFRSs followed by the Company mainly come from the timing of the recognition of income tax on unappropriated earnings. In addition, prior to incorporation, the Company was subject to the laws and regulations applicable to state-owned enterprises in Taiwan which differed from the generally accepted accounting principles as applicable to commercial companies. As such, revenue from providing fixed line connection service and selling prepaid phone cards was recognized at the time the service was performed or the card was sold by the Company. Upon incorporation, net assets greater than the capital stock was credited as additionalpaid-in-capital and part of the additionalpaid-in-capital was from the unearned revenues generated from connection fees and prepaid cards as of the date of incorporation. Under IFRSs, revenue from connection fees and prepaid phone cards was deferred at the time of the service performed or sale and recognized as revenue over time as the service is continuously performed or as consumed. This reclassification from additionalpaid-in capital to retained earnings did not affect total equity.

- 2 -


8.Any other matters that need to be specified:

Chunghwa Telecom’s earnings distribution and stockholders’ equity matters are in accordance with Taiwan-IFRSs.

- 3 -


Webplus: CHT/20190814/6-K/3_EX-99.2/000.htm SEC Original: d789138dex992.htm
Chunghwa Telecom Co., Ltd. and Subsidiaries Consolidated Financial Statements for the Six Months Ended June 30, 2019 and 2018 and Independent Auditors’ Review Report INDEPENDENT AUDITORS’ REVIEW REPORT The Board of Directors and Stockholders Chunghwa Telecom Co., Ltd. Introduction We have reviewed the accompanying consolidated balance sheets of Chunghwa Telecom Co., Ltd. and its subsidiaries (the “Company”) as of June



Exhibit 99.2

Chunghwa Telecom Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the

Six Months Ended June 30, 2019 and 2018 and

Independent Auditors’ Review Report


INDEPENDENT AUDITORS’ REVIEW REPORT

The Board of Directors and Stockholders

Chunghwa Telecom Co., Ltd.

Introduction

We have reviewed the accompanying consolidated balance sheets of Chunghwa Telecom Co., Ltd. and its subsidiaries (the “Company”) as of June 30, 2019 and 2018, the related consolidated statements of comprehensive income for the three months ended June 30, 2019 and 2018, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the six months ended June 30, 2019 and 2018, and related notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “consolidated financial statements”). Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Our responsibility is to express a conclusion on the consolidated financial statements based on our reviews.

Scope of Review

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

Conclusion

Based on our reviews, nothing has come to our attention that caused us to believe that the accompanying consolidated financial statements do not present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2019 and 2018, and of its consolidated financial performance for the three months ended June 30, 2019 and 2018, as well as of its consolidated financial performance and its consolidated cash flows for the six months ended June 30, 2019 and 2018 in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Accounting Standard 34 “Interim Financial Reporting” endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

Emphasis of Matter

As disclosed in Note 5 to the consolidated financial statements, the Company initially applied IFRS 16 “Lease” in 2019. Our review result is not modified in respect of this matter.

 

- 1 -


The engagement partners on the reviews resulting in this independent auditors’ review report are Mr. Dien Sheng Chang and Mr. Ching Pin Shih.

 

/s/ DELOITTE & TOUCHE   

Deloitte & Touche

Taipei, Taiwan

Republic of China

August 13, 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 review such consolidated financial statements are those generally applied in the Republic of China.

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

 

- 2 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

 

 

     June 30, 2019
(Reviewed)
     December 31, 2018
(Audited)
     June 30, 2018
(Reviewed)
 
     Amount      %      Amount      %      Amount      %  

ASSETS

                 

CURRENT ASSETS

                 

Cash and cash equivalents (Note 6)

   $ 36,551,150        7      $ 27,644,780        6      $ 43,843,635        9  

Financial assets at fair value through profit or loss (Note 7)

     3,071        —          —          —          277,105        —    

Hedging financial assets (Note 20)

     1,803        —          1,069        —          —          —    

Contract assets (Note 28)

     4,667,108        1        4,868,728        1        5,233,204        1  

Trade notes and accounts receivable, net (Notes 9 and 28)

     27,704,025        6        30,075,503        7        29,224,452        6  

Receivables from related parties (Note 36)

     22,258        —          24,270        —          30,816        —    

Inventories (Notes 10 and 37)

     15,256,997        3        15,120,715        3        11,938,340        3  

Prepayments (Notes 5, 11 and 36)

     4,937,925        1        1,872,984        —          5,688,779        1  

Other current monetary assets (Note 12)

     18,684,258        4        9,504,203        2        6,618,969        1  

Other current assets (Notes 19 and 37)

     2,633,792        1        2,576,084        1        3,677,085        1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     110,462,387        23        91,688,336        20        106,532,385        22  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

NONCURRENT ASSETS

                 

Financial assets at fair value through profit or loss (Note 7)

     508,262        —          517,362        —          —          —    

Financial assets at fair value through other comprehensive income (Note 8)

     6,649,385        1        6,932,503        2        7,051,912        1  

Investments accounted for using equity method (Note 14)

     3,033,826        1        2,944,890        1        2,558,978        1  

Contract assets (Note 28)

     2,406,011        —          2,343,958        —          2,562,011        1  

Property, plant and equipment (Notes 5, 15 and 37)

     283,593,894        58        288,914,228        61        285,685,468        59  

Right-of-use assets (Notes 3, 4, 5 and 16)

     11,529,946        2        —          —          —          —    

Investment properties (Note 17)

     8,272,336        2        8,287,212        2        8,042,960        2  

Intangible assets (Note 18)

     48,933,945        10        50,943,682        11        52,804,547        11  

Deferred income tax assets (Notes 3 and 5)

     3,545,648        1        3,553,856        1        3,268,615        1  

Incremental costs of obtaining contracts (Note 28)

     1,010,011        —          1,335,030        —          1,841,140        —    

Net defined benefit assets (Note 3)

     966,175        —          1,164,088        —          1,183,712        —    

Prepayments (Notes 5, 11 and 36)

     2,843,759        1        3,463,337        1        3,374,837        1  

Other noncurrent assets (Notes 19, 37 and 38)

     5,708,768        1        5,180,222        1        5,372,022        1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total noncurrent assets

     379,001,966        77        375,580,368        80        373,746,202        78  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL

   $ 489,464,353        100      $ 467,268,704        100      $ 480,278,587        100  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

LIABILITIES AND EQUITY

                 

CURRENT LIABILITIES

                 

Short-term loans (Note 21)

   $ 95,000        —        $ 100,000        —        $ 80,000        —    

Financial liabilities at fair value through profit or loss (Note 7)

     1,081        —          1,114        —          423        —    

Hedging financial liabilities (Note 20)

     —          —          —          —          300        —    

Contract liabilities (Notes 5 and 28)

     14,724,134        3        10,687,772        2        9,735,037        2  

Trade notes and accounts payable (Note 23)

     15,320,902        3        20,464,792        5        17,114,532        4  

Payables to related parties (Note 36)

     398,515        —          917,951        —          425,115        —    

Current tax liabilities (Note 3)

     4,350,756        1        4,390,203        1        4,587,071        1  

Lease liabilities (Notes 3, 4, 5, 16 and 36)

     3,392,703        1        —          —          —          —    

Dividends payables (Note 27)

     34,745,603        7        —          —          37,204,714        8  

Other payables (Notes 5 and 24)

     20,990,148        5        23,315,383        5        22,892,445        5  

Provisions (Note 25)

     145,412        —          128,200        —          104,675        —    

Other current liabilities (Note 5)

     997,872        —          1,381,606        —          1,297,166        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current liabilities

     95,162,126        20        61,387,021        13        93,441,478        20  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

NONCURRENT LIABILITIES

                 

Contract liabilities (Notes 5 and 28)

     6,369,959        1        2,595,149        1        2,359,992        1  

Long-term loans (Notes 22 and 37)

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

Deferred income tax liabilities (Notes 3 and 5)

     1,954,700        —          1,991,843        —          2,039,672        —    

Provisions (Note 25)

     82,890        —          78,627        —          81,464        —    

Lease liabilities (Notes 3, 4, 5, 16 and 36)

     6,341,162        1        —          —          —          —    

Customers’ deposits (Note 36)

     4,646,748        1        4,716,571        1        4,627,456        1  

Net defined benefit liabilities (Note 3)

     3,613,320        1        3,533,936        1        2,036,452        —    

Other noncurrent liabilities (Note 5)

     1,447,349        —          4,793,237        1        4,725,710        1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total noncurrent liabilities

     26,056,128        4        19,309,363        4        17,470,746        3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     121,218,254        24        80,696,384        17        110,912,224        23  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE PARENT (Notes 5, 13 and 27)

                 

Common stocks

     77,574,465        16        77,574,465        17        77,574,465        16  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Additional paid-in capital

     171,255,580        35        171,136,764        36        170,831,097        36  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Retained earnings

                 

Legal reserve

     77,574,465        16        77,574,465        17        77,574,465        16  

Special reserve

     2,675,419        1        2,675,419        1        2,675,419        1  

Unappropriated earnings

     29,269,371        6        47,141,345        10        31,191,321        6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total retained earnings

     109,519,255        23        127,391,229        28        111,441,205        23  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other adjustments

     226,265        —          459,914        —          79,507        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total equity attributable to stockholders of the parent

     358,575,565        74        376,562,372        81        359,926,274        75  

NONCONTROLLING INTERESTS (Notes 5, 13 and 27)

     9,670,534        2        10,009,948        2        9,440,089        2  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total equity

     368,246,099        76        386,572,320        83        369,366,363        77  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

TOTAL

   $ 489,464,353        100      $ 467,268,704        100      $ 480,278,587        100  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

- 3 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Reviewed, Not Audited)

 

 

    Three Months Ended June 30     Six Months Ended June 30  
    2019     2018     2019     2018  
    Amount     %     Amount     %     Amount     %     Amount     %  

REVENUES (Notes 28, 36 and 41)

  $ 50,108,175       100     $ 53,658,359       100     $ 101,439,336       100     $ 107,290,717       100  

OPERATING COSTS (Notes 10, 26, 28, 29, 36 and 41)

    32,267,298       65       33,192,438       62       65,748,086       65       67,642,805       63  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GROSS PROFIT

    17,840,877       35       20,465,921       38       35,691,250       35       39,647,912       37  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES (Notes 26, 29, 36 and 41)

               

Marketing

    5,483,018       11       5,955,611       11       10,890,909       11       11,608,425       11  

General and administrative

    1,140,567       2       1,168,462       2       2,311,725       2       2,359,436       2  

Research and development

    954,352       2       909,341       2       1,875,311       1       1,834,845       2  

Expected credit loss (reversal of credit loss) (Notes 9 and 29)

    (45,808     —         370,045       1       (101,761     —         767,965       1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    7,532,129       15       8,403,459       16       14,976,184       14       16,570,671       16  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OTHER INCOME AND EXPENSES (Notes 18 and 29)

    (4,707     —         (9,178     —         (9,212     —         (80,500     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME FROM OPERATIONS

    10,304,041       20       12,053,284       22       20,705,854       21       22,996,741       21  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NON-OPERATING INCOME AND EXPENSES

               

Interest income

    76,931       —         58,737       —         129,534       —         97,656       —    

Other income (Notes 29 and 36)

    279,330       1       301,468       1       335,676       —         357,628       —    

Other gains and losses (Notes 14, 29 and 36)

    (4,308     —         12,490       —         (23,676     —         (20,798     —    

Interest expenses (Notes 16 and 36)

    (25,594     —         (4,318     —         (51,438     —         (8,704     —    

Share of profits of associates accounted for using equity method (Note 14)

    137,878       —         109,024       —         217,051       —         191,672       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating income and expenses

    464,237       1       477,401       1       607,147       —         617,454       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX

    10,768,278       21       12,530,685       23       21,313,001       21       23,614,195       21  

INCOME TAX EXPENSE (Notes 3 and 30)

    2,011,780       4       2,467,300       5       4,029,790       4       4,553,306       4  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

    8,756,498       17       10,063,385       18       17,283,211       17       19,060,889       17  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)

               

Items that will not be reclassified to profit or loss:

               

Unrealized gain or loss on investments in equity instruments at fair value through other comprehensive income

    (124,403     —         (453,053     (1     (283,391     —         (687,185     (1

Gain or loss on hedging instruments subject to basis adjustment (Note 20)

    4,522       —         (347     —         734       —         550       —    

Income tax benefit relating to items that will not be reclassified to profit or loss (Note 30)

    —         —         —         —         —         —         207,269       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (119,881     —         (453,400     (1     (282,657     —         (479,366     (1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Continued)

 

- 4 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Reviewed, Not Audited)

 

 

     Three Months Ended June 30     Six Months Ended June 30  
     2019      2018     2019      2018  
     Amount     %      Amount     %     Amount     %      Amount     %  

Items that may be reclassified subsequently to profit or loss:

                  

Exchange differences arising from the translation of the foreign operations

   $ 39,468       —        $ 118,276       —       $ 62,998       —        $ 66,352       —    

Share of exchange differences arising from the translation of the foreign operations of associates (Note 14)

     146       —          1,424       —         316       —          2,259       —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     39,614       —          119,700       —         63,314       —          68,611       —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total other comprehensive loss, net of income tax

     (80,267     —          (333,700     (1     (219,343     —          (410,755     (1
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

TOTAL COMPREHENSIVE INCOME

   $ 8,676,231       17      $ 9,729,685       17     $ 17,063,868       17      $ 18,650,134       16  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

NET INCOME ATTRIBUTABLE TO

                  

Stockholders of the parent

   $ 8,568,370       17      $ 9,861,497       18     $ 16,924,452       17      $ 18,589,021       17  

Noncontrolling interests

     188,128       —          201,888       —         358,759       —          471,868       —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
   $ 8,756,498       17      $ 10,063,385       18     $ 17,283,211       17      $ 19,060,889       17  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO

                  

Stockholders of the parent

   $ 8,485,493       17      $ 9,523,931       17     $ 16,690,803       17      $ 18,166,311       16  

Noncontrolling interests

     190,738       —          205,754       —         373,065       —          483,823       —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
   $ 8,676,231       17      $ 9,729,685       17     $ 17,063,868       17      $ 18,650,134       16  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

EARNINGS PER SHARE (Note 31)

                  

Basic

   $ 1.10        $ 1.27       $ 2.18        $ 2.40    
  

 

 

      

 

 

     

 

 

      

 

 

   

Diluted

   $ 1.10        $ 1.27       $ 2.18        $ 2.39    
  

 

 

      

 

 

     

 

 

      

 

 

   

 

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

     (Concluded)  

 

- 5 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

    Equity Attributable to Stockholders of the Parent (Notes 13, 20 and 27)              
                                  Other Adjustments                    
                                        Unrealized Gain                          
                                  Exchange     or Loss on                          
                                  Differences     Financial Assets                          
                                  Arising from the     at Fair Value                          
                Retained Earnings     Translation of     Through Other     Gain or Loss           Noncontrolling        
          Additional                 Unappropriated     the Foreign     Comprehensive     on Hedging           Interests        
    Common Stocks     Paid-in Capital     Legal Reserve     Special Reserve     Earnings     Operations     Income     Instruments     Total     (Notes 13 and 27)     Total Equity  

BALANCE, JANUARY 1, 2018

  $ 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

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

    —         (8     —         —         —         —         —         —         (8     46       38  

Partial disposal of interests in subsidiaries

    —         521,400       —         —         —         —         —         —         521,400       205,280       726,680  

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

    —         776,781       —         —         —         —         —         —         776,781       699,899       1,476,680  

Net income for the six months ended June 30, 2018

    —         —         —         —         18,589,021       —         —         —         18,589,021       471,868       19,060,889  

Other comprehensive income (loss) for the six months ended June 30, 2018

    —         —         —         —         205,760       62,527       (691,547     550       (422,710     11,955       (410,755
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the six months ended June 30, 2018

    —         —         —         —         18,794,781       62,527       (691,547     550       18,166,311       483,823       18,650,134  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share-based payment transactions of subsidiaries

    —         12,119       —         —         —         —         —         —         12,119       37,637       49,756  

Net increase in noncontrolling interests

    —         53,922       —         —         —         —         —         —         53,922       278,200       332,122  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, JUNE 30, 2018

  $ 77,574,465     $ 170,831,097     $ 77,574,465     $ 2,675,419     $ 31,191,321     $ (112,066   $ 191,873     $ (300   $ 359,926,274     $ 9,440,089     $ 369,366,363  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, JANUARY 1, 2019

  $ 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  

Effect of retrospective application (Note 5)

    —         —         —         —         (50,823     —         —         —         (50,823     (19,603     (70,426
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, JANUARY 1, 2019 AS ADJUSTED

    77,574,465       171,136,764       77,574,465       2,675,419       47,090,522       (79,427     538,272       1,069       376,511,549       9,990,345       386,501,894  

Appropriation of 2018 earnings

                     

Cash dividends distributed by Chunghwa

    —         —         —         —         (34,745,603     —         —         —         (34,745,603     —         (34,745,603

Cash dividends distributed by subsidiaries

    —         —         —         —         —         —         —         —         —         (709,817     (709,817

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

    —         119,628       —         —         —         —         —         —         119,628       942       120,570  

Net income for the six months ended June 30, 2019

    —         —         —         —         16,924,452       —         —         —         16,924,452       358,759       17,283,211  

Other comprehensive income (loss) for the six months ended June 30, 2019

    —         —         —         —         —         41,848       (276,231     734       (233,649     14,306       (219,343
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the six months ended June 30, 2019

    —         —         —         —         16,924,452       41,848       (276,231     734       16,690,803       373,065       17,063,868  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share-based payment transactions of subsidiaries

    —         (812     —         —         —         —         —         —         (812     15,999       15,187  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, JUNE 30, 2019

  $ 77,574,465     $ 171,255,580     $ 77,574,465     $ 2,675,419     $ 29,269,371     ($ 37,579   $ 262,041     $ 1,803     $ 358,575,565     $ 9,670,534     $ 368,246,099  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

- 6 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     Six Months Ended June 30  
     2019     2018  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Income before income tax

   $ 21,313,001     $ 23,614,195  

Adjustments for:

    

Depreciation

     15,432,100       13,758,900  

Amortization

     2,129,015       2,174,887  

Amortization of incremental costs of obtaining contracts

     690,939       1,098,411  

Expected credit loss (reversal of credit loss)

     (101,761     767,965  

Interest expenses

     51,438       8,704  

Interest income

     (129,534     (97,656

Dividend income

     (240,849     (231,439

Compensation cost of share-based payment transactions

     859       16,457  

Share of profits of associates accounted for using equity method

     (217,051     (191,672

Loss on disposal of property, plant and equipment

     9,066       29,750  

Loss on disposal of intangible assets

     146       —    

Gain on disposal of financial instruments

     —         (5,763

Loss (gain) on disposal of investments accounted for using equity method

     (30,152     125  

Provision for inventory and obsolescence

     240,511       36,161  

Impairment loss on intangible assets

     —         50,750  

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

     5,997       (238

Others

     7,844       (2,598

Changes in operating assets and liabilities

    

Decrease (increase) in:

    

Financial assets mandatorily measured at fair value through profit or loss

     —         (218,837

Contract assets

     140,300       2,186,835  

Trade notes and accounts receivable

     2,463,779       1,978,138  

Receivables from related parties

     2,012       18,551  

Inventories

     (376,793     (3,266,972

Prepayments

     (3,104,099     (3,309,726

Other current monetary assets

     (1,033,337     (244,262

Other current assets

     (57,708     (1,362,241

Incremental cost of obtaining contracts

     (365,920     (465,408

Increase (decrease) in:

    

Contract liabilities

     4,114,091       1,464,855  

Trade notes and accounts payable

     (5,143,953     (2,283,165

Payables to related parties

     (519,436     (259,070

Other payables

     (2,127,402     (2,578,299

Provisions

     21,475       6,454  

Other operating liabilities

     (154,345     239,161  

Net defined benefit plans

     277,297       (1,837,850
  

 

 

   

 

 

 

Cash generated from operations

     33,297,530       31,095,103  

Interest paid

     (51,438     (8,704

Income tax paid

     (4,072,590     (6,638,622
  

 

 

   

 

 

 

Net cash provided by operating activities

     29,173,502       24,447,777  
  

 

 

   

 

 

 

(Continued)

 

- 7 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

 

 

     Six Months Ended June 30  
     2019     2018  

CASH FLOWS FROM INVESTING ACTIVITIES

    

Purchase of financial assets at fair value through other comprehensive income

   $ —       $ (200,000

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

     (12,308,334     (3,229,100

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

     4,654,443       2,750,005  

Proceeds from disposal of investments accounted for using equity method

     32,470       3,379  

Proceeds from capital reduction of investments accounted for using equity method

     —         19,184  

Acquisition of property, plant and equipment

     (10,315,387     (11,214,349

Proceeds from disposal of property, plant and equipment

     23,887       24,246  

Acquisition of intangible assets

     (119,123     (146,874

Acquisition of investment properties

     —         (5,557

Increase in other noncurrent assets

     (503,514     (28,165

Interest received

     125,234       93,094  

Cash dividends received

     17,939       —    
  

 

 

   

 

 

 

Net cash used in investing activities

     (18,392,385     (11,934,137
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Proceeds from short-term loans

     305,000       210,000  

Repayment of short-term loans

     (310,000     (200,000

Decrease in customers’ deposits

     (85,038     (45,502

Payments for the principal of lease liabilities

     (1,962,191     —    

Increase in other noncurrent liabilities

     137,019       102,282  

Partial disposal of interests in subsidiaries without losing control

     —         593,969  

Change in other noncontrolling interests

     14,328       1,842,101  
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (1,900,882     2,502,850  
  

 

 

   

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

     26,135       2,210  
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     8,906,370       15,018,700  

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     27,644,780       28,824,935  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 36,551,150     $ 43,843,635  
  

 

 

   

 

 

 

 

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

     (Concluded

 

- 8 -


CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2019 AND 2018

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

(Reviewed, Not Audited)

 

 

1.

GENERAL

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

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 August 13, 2019.

 

3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except for the following items, the accounting policies applied in these consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2018. Please refer to the consolidated financial statements for the year ended December 31, 2018 for the details.

 

- 9 -


Statement of Compliance

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

Basis of Consolidation

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

 

               Percentage of Ownership         
Name of Investor    Name of Investee    Main Businesses and Products   

June 30,

2019

     December 31,
2018
    

June 30,

2018

     Note  

Chunghwa Telecom Co., Ltd.

  

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

  

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

     28        28        28        a.  
  

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

  

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

     100        100        100     
  

Donghwa Telecom Co., Ltd. (“DHT”)

  

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

     100        100        100     
  

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

  

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

     100        100        100     
  

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

  

Providing system integration services and telecommunications equipment

     100        100        100     
  

Chunghwa Investment Co., Ltd. (“CHI”)

  

Investment

     89        89        89     
  

CHIEF Telecom Inc. (“CHIEF”)

  

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

     57        57        57        b.  
  

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

  

Digital information supply services and advertisement services

     100        100        100     
  

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

  

Investment

     100        100        100     
  

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

  

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

     56        56        56     
  

Chunghwa Telecom Global, Inc. (“CHTG”)

  

International private leased circuit, internet services, and transit services

     100        100        100     
  

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

  

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

     100        100        100     
  

Smartfun Digital Co., Ltd. (“SFD”)

  

Providing diversified family education digital services

     65        65        65     
  

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

  

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

     100        100        100     
  

Chunghwa Sochamp Technology Inc. (“CHST”)

  

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

     51        51        51     

(Continued)

 

- 10 -


               Percentage of Ownership         
Name of Investor    Name of Investee    Main Businesses and Products   

June 30,

2019

     December 31,
2018
    

June 30,

2018

     Note  
  

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

  

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

     100        100        100     
  

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

  

Production and sale of electronic components and finished products

     75        75        75     
  

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

  

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

     100        100        100     
  

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        80     

Senao International Co., Ltd.

  

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

  

International investment

     100        100        100     
  

Youth Co., Ltd. (“Youth”)

  

Sale of information and communication technologies products

     93        93        89        c.  
  

Aval Technologies Co., Ltd. (“Aval”)

  

Sale of information and communication technologies products

     100        100        100     
  

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

  

Property and liability insurance agency

     100        100        100     

Youth Co., Ltd.

  

ISPOT Co., Ltd. (“ISPOT”)

  

Sale of information and communication technologies products

     100        100        100     
  

Youyi Co., Ltd. (“Youyi”)

  

Maintenance of information and communication technologies products

     100        100        100     

Light Era Development Co., Ltd.

  

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

  

Development of real estate

     60        60        60        d.  

CHIEF Telecom Inc.

  

Unigate Telecom Inc. (“Unigate”)

  

Telecommunications and internet service

     100        100        100     
  

Chief International Corp. (“CIC”)

  

Telecommunications and internet service

     100        100        100     
  

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

  

Telecommunications and internet service

     49        49        49     

Chunghwa System Integration Co., Ltd.

  

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

  

Investment

     —          —          —          e.  

Chunghwa Investment Co., Ltd.

  

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

  

Production and sale of semiconductor testing components and printed circuit board

     34        34        36        f.  

Chunghwa Precision Test Tech. Co., Ltd.

  

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

  

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

     100        100        100     
  

CHPT Japan Co., Ltd. (“CHPT (JP)”)

  

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

     100        100        100     
  

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

  

Wholesale and retail of electronic materials, and investment

     100        100        100     

(Continued)

 

- 11 -


               Percentage of Ownership         
Name of Investor    Name of Investee    Main Businesses and Products   

June 30,

2019

     December 31,
2018
    

June 30,

2018

     Note  

Senao International (Samoa) Holding Ltd.

  

Senao International HK Limited (“SIHK”)

  

International investment

     100        100        100     

Senao International HK Limited

  

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

  

Sale of information and communication technologies products

     —          100        100        g.  
  

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

  

Sale of information and communication technologies products

     100        100        100     
  

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

  

Maintenance of information and communication technologies products

     —          —          —          h.  
  

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

  

Sale of information and communication technologies products

     —          100        100        i.  

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

  

Chunghwa Hsingta Co., Ltd. (“CHC”)

  

Investment

     100        100        100     

Chunghwa Hsingta Co., Ltd. (“CHC”)

  

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

  

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

     100        100        100     
  

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

  

Providing intelligent energy saving solution and intelligent buildings services

     —          —          75        j.  

Chunghwa Precision Test Tech. International, Ltd.

  

Shanghai Taihua Electronic Technology Limited (“STET”)

  

Design of printed circuit board and related consultation service

     100        100        100     

(Concluded)

 

  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 June 30, 2018, December 31, 2018 and June 30, 2019. As Chunghwa controls six out of eleven 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.

CHIEF issued new shares in March 2019, 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 60.28%, 60.23% and 59.86% as of June 30, 2018, December 31, 2018 and June 30, 2019, respectively.

 

  c.

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%.

 

  d.

LED invested 60% equity shares of Taoyuan Asia Silicon Valley Innovation Co., Ltd. (“TASVI”) in March 2018. TASVI was approved to end and dissolve its business in April 2019. The liquidation of TASVI is still in process.

 

  e.

Concord completed its liquidation in January 2018.

 

- 12 -


  f.

CHI disposed some shares of CHPT from April to August 2018. Therefore, its ownership interest in CHPT decreased to 36.04%, 34.25% and 34.25% as of June 30, 2018, December 31, 2018 and June 30, 2019, respectively. 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.

 

  g.

STF completed its liquidation in May 2019.

 

  h.

SEITS completed its liquidation in March 2018.

 

  i.

SITJ completed its liquidation in March 2019.

 

  j.

JZIT completed its liquidation in December 2018.

The following diagram presents information regarding the relationship and ownership percentages between Chunghwa and its subsidiaries as of June 30, 2019:

 

LOGO

Other Significant Accounting Policies

The Company initial applied IFRS 16 “Lease’’ on January 1, 2019, and elected not to restate the figures in comparative periods. Different accounting policies for each accounting periods as a result of the application of new accounting standards are listed by year separately.

 

  a.

Defined benefit retirement benefits

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

 

- 13 -


  b.

Taxation

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

The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

 

  c.

Leasing

2019

At inception of a contract, the Company assesses whether the contract is, or contains, a lease.

 

  1)

The Company as lessor

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

 

  2)

The Company as lessee

The Company recognizes right-of-use assets and lease liabilities for all leases at the commencement date of a lease, except for lease payments for low-value assets are recognized as expenses on a straight-line basis over the lease terms accounted for applying recognition exemption.

Right-of-use assets are initially measured at cost, which comprises the initial measurement of lease liabilities and for lease payments made at or before the commencement date. Right-of-use assets are subsequently measured at cost less accumulated depreciation and accumulated impairment losses and adjusted for any remeasurement of the lease liabilities. Right-of-use assets are presented separately on the consolidated balance sheets.

Right-of-use assets are depreciated using the straight-line basis from the commencement dates to the earlier of the end of the useful lives of the right-of-use assets or the end of the lease terms.

Lease liabilities were initially measured at the present value of the lease payments, which comprise fixed payments, in-substance fixed payments, variable lease payments which depend on an index or a rate. The lease payments are discounted using the interest rate implicit in a lease, if that rate can be readily determined. If such rate cannot be readily determined, the lessee’s incremental borrowing rate is used.

Lease liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized over the lease terms. When there is a change in a lease term or a change in future lease payments resulting from a change in an index or a rate used to determine those payments, the Company remeasures the lease liabilities with a corresponding adjustment to the right-of-use-assets. However, if the carrying amount of the right-of-use assets is reduced to zero, any remaining amount of the remeasurement is recognized in profit or loss. Lease liabilities are presented separately on the consolidated balance sheets.

 

- 14 -


Variable lease payments not depending on an index or a rate are recognized as expenses in the periods in which they are incurred.

2018

 

  1)

The Company as lessor

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

 

  2)

The Company as lessee

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

 

4.

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

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

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

Except for the following items, for the critical accounting judgments and key sources of estimation, uncertainty and assumption applied in these consolidated financial statements, please refer to the consolidated financial statements for the year ended December 31, 2018.

Lessees’ incremental borrowing rates - 2019

In determining a lessee’s incremental borrowing rate used in discounting lease payments, a risk-free rate for relevant duration and the same currency is selected as a reference rate. The lessee’s credit spread adjustments and lease specific adjustments are also taken into account.

 

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 IFRSs endorsed and issued into effect by the FSC

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

IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for identifying leases and accounting treatments for lessors and lessees. It supersedes IAS 17 “Lease”, IFRIC 4 - Determining Whether an Arrangement Contains a Lease and a number of related interpretations. Refer to Note 3 for information relating to the relevant accounting policies.

 

- 15 -


The Company reassessed whether a contract is, or contains, a lease in accordance with the definition of a lease under IFRS 16. Some contracts previously identified as containing a lease under IAS 17 and IFRIC 4 do not meet the definition of a lease under IFRS 16 and are 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 are accounted for in accordance with the transitional provisions under 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 for low-value assets are recognized as expenses on a straight-line basis. On the consolidated statements of comprehensive income, the Company presents 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 are classified within financing activities; cash payments for interest portion are classified within operating activities. Before the application of IFRS 16, payments under operating lease contracts were recognized as expenses on a straight-line basis. Prepaid lease payments for use rights of leased assets were recognized as prepaid rents. Cash flows for operating leases were classified within operating activities on the statements of cash flows.

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

The Company applied 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 is not restated.

Lease liabilities are recognized on January 1, 2019 for leases previously 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 are 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 applies IAS 36 for assessing impairment of right-of-use assets.

The lessee’s weighted average incremental borrowing rate applied to lease liabilities recognized on January 1, 2019 is 0.85%. The difference between the (1) lease liabilities recognized and (2) future aggregate minimum lease payments of non-cancellable operating lease disclosed under IAS 17 on December 31, 2018 is explained as follows:

 

The future aggregate minimum lease payments of non-cancellable operating lease on December 31, 2018

   $ 10,557,854  

Less: Recognition exemption for leases of low-value assets

     (3,263
  

 

 

 

Undiscounted amount on January 1, 2019

   $ 10,554,591  
  

 

 

 

Discounted amount using the incremental borrowing rate on January 1, 2019

   $ 10,339,868  

Add: Adjustments as a result of a different treatment of extension options

     189  
  

 

 

 

Lease liabilities recognized on January 1, 2019

   $ 10,340,057  
  

 

 

 

 

- 16 -


The impact on assets, liabilities and equity as of January 1, 2019 from the initial application of IFRS 16 is set out as follows:

 

     Carrying
Amount as of
January 1, 2019
     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   
     

 

 

    

 

  b.

Amendments to the IFRSs endorsed by the FSC for application starting from 2020

 

New, Revised or Amended Standards and Interpretations

  

Effective Date Issued

by IASB

Amendments to IFRS 3

   Definition of a Business    January 1, 2020 (Note 1)

Amendments to IAS 1 and IAS 8

  

Definition of Materiality

   January 1, 2020 (Note 2)

 

  Note 1:

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 2:

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.

 

- 17 -


  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 10 and IAS 28

 

Sale or Contribution of Assets between An Investor and Its Associate or Joint Venture

   To be determined by IASB

 

  Note 1:

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

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

 

     June 30,
2019
     December 31,
2018
     June 30,
2018
 

Cash

        

Cash on hand

   $ 425,687      $ 462,719      $ 297,645  

Bank deposits

     8,866,882        10,574,697        8,634,060  
  

 

 

    

 

 

    

 

 

 
     9,292,569        11,037,416        8,931,705  
  

 

 

    

 

 

    

 

 

 

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

        

Commercial paper

     12,685,341        6,143,672        13,890,087  

Negotiable certificates of deposit

     11,900,000        7,600,000        17,600,000  

Time deposits

     2,673,240        2,863,692        3,421,843  
  

 

 

    

 

 

    

 

 

 
     27,258,581        16,607,364        34,911,930  
  

 

 

    

 

 

    

 

 

 
   $ 36,551,150      $ 27,644,780      $ 43,843,635  
  

 

 

    

 

 

    

 

 

 

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

 

     June 30,
2019
  December 31,
2018
  June 30,
2018

Bank deposits

   0.00%-0.85%   0.00%-0.50%   0.00%-0.38%

Commercial paper

   0.43%-0.60%   0.47%-0.57%   0.37%-0.48%

Negotiable certificates of deposit

   0.53%-0.60%   0.55%-0.60%   0.40%-0.50%

Time deposits

   0.09%-4.40%   0.09%-4.40%   0.13%-4.40%

 

- 18 -


7.

FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

 

     June 30,
2019
     December 31,
2018
     June 30,
2018
 

Financial assets-current

        

Mandatorily measured at FVTPL

        

Derivatives (not designated for hedge)

        

Forward exchange contracts

   $ 3,071      $ —        $ 83  

Hybrid financial assets

        

Financial commodities

     —          —          277,022  
  

 

 

    

 

 

    

 

 

 
   $ 3,071      $ —        $ 277,105  
  

 

 

    

 

 

    

 

 

 

Financial assets-noncurrent

        

Mandatorily measured at FVTPL

        

Non-derivatives

        

Non-listed stocks - domestic

   $ 283,353      $ 292,910      $ —    

Non-listed stocks - foreign

     224,909        224,452        —    
  

 

 

    

 

 

    

 

 

 
   $ 508,262      $ 517,362      $ —    
  

 

 

    

 

 

    

 

 

 

Financial liabilities-current

        

Held for trading

        

Derivatives (not designated for hedge)

        

Forward exchange contracts

   $ 1,081      $ 1,114      $ 423  
  

 

 

    

 

 

    

 

 

 

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

 

                   Contract
Amount
 
     Currency      Maturity Period      (Thousands)  

June 30, 2019

        

Forward exchange contracts - buy

     EUR/NT$        2019.09        EUR7,057/NT$247,073  

Forward exchange contracts - buy

     US$/NT$        2019.07        US$3,056/NT$95,989  

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  

June 30, 2018

        

Forward exchange contracts - buy

     EUR/NT$        2018.09-12        EUR9,496/NT$336,469  

Forward exchange contracts - buy

     US$/NT$        2018.07        US$160/NT$4,795  

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.

 

- 19 -


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

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

 

                   Contract
Amount
 
     Currency      Maturity Period      (In Thousands)  
June 30, 2018                     

Financial commodities

     RMB        2018.07-08        RMB60,100  

 

8.

FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME - NONCURRENT

 

     June 30,
2019
     December 31,
2018
     June 30,
2018
 

Domestic investments

        

Listed stocks

   $ 2,594,041      $ 2,899,843      $ 2,509,683  

Non-listed stocks

     3,879,760        3,901,053        4,234,052  

Foreign investments

        

Non-listed stocks

     175,584        131,607        308,177  
  

 

 

    

 

 

    

 

 

 
   $ 6,649,385      $ 6,932,503      $ 7,051,912  
  

 

 

    

 

 

    

 

 

 

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.

 

9.

TRADE NOTES AND ACCOUNTS RECEIVABLE, NET

 

     June 30,
2019
     December 31,
2018
     June 30,
2018
 

Trade notes and accounts receivable

   $ 30,219,401      $ 32,677,558      $ 31,931,069  

Less: Loss allowance

     (2,515,376      (2,602,055      (2,706,617
  

 

 

    

 

 

    

 

 

 
   $ 27,704,025      $ 30,075,503      $ 29,224,452  
  

 

 

    

 

 

    

 

 

 

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 adopts 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.

 

- 20 -


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.

June 30, 2019

 

    

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%-27%       8%-69%       19%-83%       30%-90%       58%-96%       100%    

Gross carrying amount

   $ 22,155,698     $ 315,403     $ 118,468     $ 72,437     $ 36,733     $ 30,301     $ 514,108     $ 23,243,148  

Loss allowance (Lifetime ECL)

     (57,033     (24,731     (28,257     (27,325     (27,405     (21,501     (514,108     (700,360
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amortized cost

   $ 22,098,665     $ 290,672     $ 90,211     $ 45,112     $ 9,328     $ 8,800     $ —       $ 22,542,788  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Project business

                                                

Expected credit loss rate (Note b)

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

Gross carrying amount

   $ 2,579,415     $ 116,036     $ 54,815     $ 82,046     $ 6,657     $ 22,276     $ 1,691,495     $ 4,552,740  

Loss allowance (Lifetime ECL)

     (2,289     (5,888     (7,466     (24,614     (3,402     (17,846     (1,691,495     (1,753,000
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amortized cost

   $ 2,577,126     $ 110,148     $ 47,349     $ 57,432     $ 3,255     $ 4,430     $ —       $ 2,799,740  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Continued)

 

- 21 -


    

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  

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  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Concluded)

June 30, 2018

 

    

Not past

due

    Past due Less
than 30 days
   

Pass due

31 to 60 days

   

Pass due

61 to 90 days

   

Pass due

91 to 120 days

   

Pass due

121 to 180 days

   

Pass due

Over 181 days

    Total  

Telecommunications business

                

Expected credit loss rate (Note a)

     0%-2%       3%-32%       8%-69%       17%-82%       33%-89%       65%-95%       100%    

Gross carrying amount

   $ 22,461,178     $ 271,156     $ 82,695     $ 48,452     $ 38,079     $ 44,519     $ 451,394     $ 23,397,473  

Loss allowance (Lifetime ECL)

     (57,493     (26,194     (24,715     (25,668     (30,325     (28,786     (451,394     (644,575
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amortized cost

   $ 22,403,685     $ 244,962     $ 57,980     $ 22,784     $ 7,754     $ 15,733     $ —       $ 22,752,898  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Project business

                

Expected credit loss rate (Note b)

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

Gross carrying amount

   $ 4,322,849     $ 194,526     $ 199,021     $ 153,293     $ 110,110     $ 120,882     $ 1,546,997     $ 6,647,678  

Loss allowance (Lifetime ECL)

     (153,555     (77,882     (79,682     (61,374     (44,084     (48,397     (1,546,997     (2,011,971
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Amortized cost

   $ 4,169,294     $ 116,644     $ 119,339     $ 91,919     $ 66,026     $ 72,485     $ —       $ 4,635,707  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  Note a:

Please refer to Notes 28 and 41 for the information of disaggregation of telecommunications service revenue. The expected credit loss rate applicable to different business revenue varies so as to reflect the risk level indicating by factors like historical experience.

 

  Note b:

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

Movements of the allowance for doubtful accounts were as follows:

 

     Six Months Ended June 30  
     2019      2018  

Beginning balance

   $ 2,602,055      $ 2,117,349  

Add: Provision for (reversal of) credit loss

     (24,453      733,036  

Less: Amounts written off

     (62,226      (143,768
  

 

 

    

 

 

 

Ending balance

   $ 2,515,376      $ 2,706,617  
  

 

 

    

 

 

 

 

- 22 -


10.

INVENTORIES

 

     June 30, 2019      December 31,
2018
     June 30, 2018  

Merchandise

   $ 3,583,169      $ 6,067,750      $ 4,091,754  

Project in process

     9,343,288        6,756,486        5,542,199  

Work in process

     102,126        109,191        134,701  

Raw materials

     149,793        111,566        94,341  
  

 

 

    

 

 

    

 

 

 
     13,178,376        13,044,993        9,862,995  

Land held under development

     1,998,733        1,998,733        1,998,733  

Construction in progress

     79,888        76,989        76,612  
  

 

 

    

 

 

    

 

 

 
   $ 15,256,997      $ 15,120,715      $ 11,938,340  
  

 

 

    

 

 

    

 

 

 

The operating costs related to inventories were $10,542,716 thousand (including the valuation loss on inventories of $144,829 thousand) and $22,706,124 thousand (including the valuation loss on inventories of $240,511 thousand) for the three months and six months ended June 30, 2019, respectively. The operating costs related to inventories were $10,321,106 thousand (including the valuation loss on inventories of $3,685 thousand) and $22,612,202 thousand (including the valuation loss on inventories of $36,161 thousand) for the three months and six months ended June 30, 2018, respectively.

As of June 30, 2019, December 31, 2018 and June 30, 2018, inventories of $2,078,621 thousand, $2,075,722 thousand and $2,075,345 thousand, respectively, were expected to be recovered after more than twelve months. The aforementioned amount of inventories is related to property development owned by LED.

Land held under development and construction in progress on June 30, 2019, December 31, 2018 and June 30, 2018 was for Qingshan Sec., Dayuan Dist., Taoyuan City project.

 

11.

PREPAYMENTS

 

     June 30, 2019      December 31,
2018
     June 30, 2018  

Prepaid rents

   $ 3,539,616      $ 2,415,083      $ 2,722,397  

Prepaid salary and bonus

     3,089,648        5,407        3,259,058  

Others

     1,152,420        2,915,831        3,082,161  
  

 

 

    

 

 

    

 

 

 
   $ 7,781,684      $ 5,336,321      $ 9,063,616  
  

 

 

    

 

 

    

 

 

 

Current

        

Prepaid salary and bonus

   $ 3,089,648      $ 5,407      $ 3,259,058  

Prepaid rents

     696,352        599,817        978,617  

Others

     1,151,925        1,267,760        1,451,104  
  

 

 

    

 

 

    

 

 

 
   $ 4,937,925      $ 1,872,984      $ 5,688,779  
  

 

 

    

 

 

    

 

 

 

Noncurrent

        

Prepaid rents

   $ 2,843,264      $ 1,815,266      $ 1,743,780  

Others

     495        1,648,071        1,631,057  
  

 

 

    

 

 

    

 

 

 
   $ 2,843,759      $ 3,463,337      $ 3,374,837  
  

 

 

    

 

 

    

 

 

 

 

- 23 -


Prepaid rents in 2019 comprises the prepayments from the lease agreements applying the recognition exemption and the prepayments for leases that do not meet the definition of leases under IFRS 16.

 

12.

OTHER CURRENT MONETARY ASSETS

 

     June 30, 2019     

December 31,

2018

     June 30, 2018  

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

   $ 15,836,335      $ 8,156,647      $ 4,564,577  

Others

     2,847,923        1,347,556        2,054,392  
  

 

 

    

 

 

    

 

 

 
   $ 18,684,258      $ 9,504,203      $ 6,618,969  
  

 

 

    

 

 

    

 

 

 

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

 

     June 30, 2019   December 31,
2018
  June 30, 2018

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

   0.03%-2.95%   0.03%-3.05%   0.03%-2.65%

 

13.

SUBSIDIARIES

 

  a.

Information on significant noncontrolling interest subsidiary

 

     Principal      Proportion of Ownership Interests and Voting
Rights Held by Noncontrolling Interests
 
Subsidiaries    Place of
Business
     June 30, 2019     December 31,
2018
    June 30, 2018  

SENAO

     Taiwan        72     72     72

CHPT

     Taiwan        66     66     64

 

     Profit Allocated to Noncontrolling Interests  
     Three Months Ended June 30      Six Months Ended June 30  
     2019      2018      2019      2018  

SENAO

   $ 49,001      $ 22,953      $ 94,220      $ 145,227  
  

 

 

    

 

 

    

 

 

    

 

 

 

CHPT

   $ 77,293      $ 129,394      $ 139,230      $ 232,175  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Accumulated Noncontrolling Interests  
     June 30, 2019      December 31,
2018
     June 30, 2018  

SENAO

   $ 4,067,117      $ 4,228,240      $ 4,141,198  

CHPT

     3,967,656        4,044,322        3,715,091  

Individually immaterial subsidiaries with noncontrolling interests

     1,635,761        1,737,386        1,583,800  
  

 

 

    

 

 

    

 

 

 
   $ 9,670,534      $ 10,009,948      $ 9,440,089  
  

 

 

    

 

 

    

 

 

 

 

- 24 -


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.

 

     June 30, 2019      December 31,
2018
     June 30, 2018  

Current assets

   $ 6,724,455      $ 7,041,416      $ 7,695,127  

Noncurrent assets

     3,426,650        2,675,748        2,626,939  

Current liabilities

     (3,867,434      (3,740,162      (4,524,176

Noncurrent liabilities

     (697,346      (164,056      (154,280
  

 

 

    

 

 

    

 

 

 

Equity

   $ 5,586,325      $ 5,812,946      $ 5,643,610  
  

 

 

    

 

 

    

 

 

 

Equity attributable to the parent

   $ 1,519,208      $ 1,584,706      $ 1,502,412  

Equity attributable to noncontrolling interests

     4,067,117        4,228,240        4,141,198  
  

 

 

    

 

 

    

 

 

 
   $ 5,586,325      $ 5,812,946      $ 5,643,610  
  

 

 

    

 

 

    

 

 

 

 

     Three Months Ended June 30      Six Months Ended June 30  
     2019      2018      2019      2018  

Revenues and income

   $ 6,802,080      $ 7,283,122      $ 14,629,265      $ 16,181,178  

Costs and expenses

     6,733,948        7,251,502        14,497,927        15,974,890  
  

 

 

    

 

 

    

 

 

    

 

 

 

Profit for the period

   $ 68,132      $ 31,620      $ 131,338      $ 206,288  
  

 

 

    

 

 

    

 

 

    

 

 

 

Profit attributable to the parent

   $ 19,131      $ 8,667      $ 37,118      $ 61,061  

Profit attributable to the noncontrolling interests

     49,001        22,953        94,220        145,227  
  

 

 

    

 

 

    

 

 

    

 

 

 

Profit for the period

   $ 68,132      $ 31,620      $ 131,338      $ 206,288  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income attributable to the parent

   $ 5,169      $ 1,370      $ 8,328      $ 4,105  

Other comprehensive income attributable to the noncontrolling interests

     13,192        2,482        20,391        4,135  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income for the period

   $ 18,361      $ 3,852      $ 28,719      $ 8,240  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income attributable to the parent

   $ 24,300      $ 10,037      $ 45,446      $ 65,166  

Total comprehensive income attributable to the noncontrolling interests

     62,193        25,435        114,611        149,362  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income for the period

   $ 86,493      $ 35,472      $ 160,057      $ 214,528  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 25 -


     Six Months Ended June 30  
     2019      2018  

Net cash flow from operating activities

   $ (491,041    $ 101,423  

Net cash flow from investing activities

     133,129        (171,899

Net cash flow from financing activities

     (173,439      327,165  

Effect of exchange rate changes on cash and cash equivalents

     221        73  
  

 

 

    

 

 

 

Net cash inflow (outflow)

   $ (531,130    $ 256,762  
  

 

 

    

 

 

 

Dividends paid to noncontrolling interests

   $ —        $ —    

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.

 

     June 30, 2019      December 31,
2018
     June 30, 2018  

Current assets

   $ 4,173,928      $ 4,416,910      $ 4,811,936  

Noncurrent assets

     3,492,196        2,779,020        2,440,125  

Current liabilities

     (1,620,862      (1,044,054      (1,442,429

Noncurrent liabilities

     (10,805      (816      (1,173
  

 

 

    

 

 

    

 

 

 

Equity

   $ 6,034,457      $ 6,151,060      $ 5,808,459  
  

 

 

    

 

 

    

 

 

 

Equity attributable to CHI

   $ 2,066,801      $ 2,106,738      $ 2,093,368  

Equity attributable to noncontrolling interests

     3,967,656        4,044,322        3,715,091  
  

 

 

    

 

 

    

 

 

 
   $ 6,034,457      $ 6,151,060      $ 5,808,459  
  

 

 

    

 

 

    

 

 

 

 

     Three Months Ended June 30      Six Months Ended June 30  
     2019      2018      2019      2018  

Revenues and income

   $ 679,705      $ 893,709      $ 1,291,454      $ 1,638,699  

Costs and expenses

     562,051        687,737        1,079,599        1,266,146  
  

 

 

    

 

 

    

 

 

    

 

 

 

Profit for the period

   $ 117,654      $ 205,972      $ 211,855      $ 372,553  
  

 

 

    

 

 

    

 

 

    

 

 

 

Profit attributable to CHI

   $ 40,361      $ 76,578      $ 72,625      $ 140,378  

Profit attributable to the noncontrolling interests

     77,293        129,394        139,230        232,175  
  

 

 

    

 

 

    

 

 

    

 

 

 

Profit for the period

   $ 117,654      $ 205,972      $ 211,855      $ 372,553  
  

 

 

    

 

 

    

 

 

    

 

 

 

(Continued)

 

- 26 -


     Three Months Ended June 30      Six Months Ended June 30  
     2019      2018      2019      2018  

Other comprehensive income (loss) attributable to CHI

   $ (124    $ 388      $ 214      $ 480  

Other comprehensive income (loss) attributable to the noncontrolling interests

     (238      505        411        653  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss) for the period

   $ (362    $ 893      $ 625      $ 1,133  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income attributable to CHI

   $ 40,237      $ 76,966      $ 72,839      $ 140,858  

Total comprehensive income attributable to the noncontrolling interests

     77,055        129,899        139,641        232,828  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income for the period

   $ 117,292      $ 206,865      $ 212,480      $ 373,686  
  

 

 

    

 

 

    

 

 

    

 

 

 

(Concluded)

 

     Six Months Ended June 30  
     2019      2018  

Net cash flow from operating activities

   $ 101,139      $ 506,418  

Net cash flow from investing activities

     (607,297      (320,521

Net cash flow from financing activities

     (10,995      —    

Effect of exchange rate changes on cash and cash equivalents

     1,475        565  
  

 

 

    

 

 

 

Net cash inflow (outflow)

   $ (515,678    $ 186,462  
  

 

 

    

 

 

 

Dividends paid to noncontrolling interests

   $ —        $ —    
  

 

 

    

 

 

 

 

  b.

Equity transactions with noncontrolling interests

CHIEF issued new shares in March 2019 and 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. See Note 32(c)(d) for details.

SENAO transferred its treasury stock to employees in June 2018; therefore, the Company’s ownership interest in SENAO decreased. See Note 32(b) for details.

CHI disposed some shares of CHPT from April to June 2018. Therefore, the Company’s ownership interest in CHPT decreased.

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

 

- 27 -


Information of the Company’s equity transactions with noncontrolling interests for the six months ended June 30, 2019 and 2018 were as follows:

 

     Six Months
Ended June 30,
2019
 
     CHIEF
Share-Based
Payment
 

Cash consideration received from noncontrolling interests

   $ 14,328  

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

     (15,140
  

 

 

 

Differences arising from equity transactions

   $ (812
  

 

 

 

Line items for equity transaction adjustments

  

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

   $ (812
  

 

 

 

 

     Six Months Ended June 30, 2018  
     SENAO
Transferred its
Treasury Stock
    CHI Disposed
Some Shares of
CHPT
   

Chunghwa and
CHI Did Not
Participate

in the Capital
Increase of
CHIEF

   

Chunghwa and
CHI Disposed
Some Shares of

CHIEF

    Share-based
Payment of
CHIEF
 

Cash consideration received from noncontrolling interests

   $ 327,122     $ 593,969     $ 1,476,680     $ 132,711     $ 33,299  

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

     (273,200     (187,027     (699,899     (18,253     (21,180
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Differences arising from equity transactions

   $ 53,922     $ 406,942     $ 776,781     $ 114,458     $ 12,119  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ —       $ 406,942     $ —       $ 114,458     $ —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 53,922     $ —       $ 776,781     $ —       $ 12,119  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 28 -


14.

INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments in associates were as follows:

 

     Carrying Amount  
     June 30, 2019      December 31,
2018
     June 30, 2018  

Listed

        

Senao Networks, Inc. (“SNI”)

   $ 872,543      $ 919,841      $ 846,702  

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

     253,606        —          —    

Non-listed

        

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

     540,889        496,033        541,654  

International Integrated System, Inc. (“IISI”)

     302,912        310,842        305,618  

Viettel-CHT Co., Ltd. (“Viettel-CHT”)

     284,569        286,510        274,799  

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

     196,524        198,974        —    

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

     177,789        216,439        110,783  

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

     150,003        119,956        99,421  

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

     144,928        147,360        135,699  

Taiwan International Ports Logistics Corporation (“TIPL”)

     50,382        49,650        47,465  

Click Force Co., Ltd. (“CF”)

     37,302        37,876        38,442  

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

     12,123        16,647        20,357  

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

     5,176        4,757        —    

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

     5,080        5,080        9,676  

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

     —          134,925        128,362  

MeWorks LIMITED (HK) (“MeWorks”)

     —          —          —    
  

 

 

    

 

 

    

 

 

 
   $ 3,033,826      $ 2,944,890      $ 2,558,978  
  

 

 

    

 

 

    

 

 

 

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  
     June 30, 2019      December 31,
2018
     June 30, 2018  

Senao Networks, Inc. (“SNI”)

     34        34        34  

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

     22        26        26  

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

     38        38        38  

International Integrated System, Inc. (“IISI”)

     32        32        32  

Viettel-CHT Co., Ltd. (“Viettel-CHT”)

     30        30        30  

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

     50        50        —    

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

     40        40        40  

(Continued)

 

- 29 -


     % of Ownership and Voting Rights  
     June 30, 2019      December 31,
2018
     June 30, 2018  

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

     30        30        30  

KKBOX Taiwan Co., Ltd. (“KKBOXTW”)

     30        30        30  

Taiwan International Ports Logistics Corporation (“TIPL”)

     27        27        27  

Click Force Co., Ltd. (“CF”)

     49        49        49  

UUpon Inc. (“UUPON”)

     22        22        22  

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

     49        49        —    

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

     14        14        14  

MeWorks LIMITED (HK) (“MeWorks”)

     20        20        20  

(Concluded)

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

 

     Three Months Ended June 30      Six Months Ended June 30  
     2019