Chunghwa Telecom Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the

Three Months Ended March 31, 2020 and 2019 and Independent Auditors' Review Report

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (In Thousands of New Taiwan Dollars)

March 31, 2020

December 31, 2019

March 31, 2019

(Reviewed)

(Audited)

(Reviewed)

ASSETS

Amount

%

Amount

%

Amount

%

CURRENT ASSETS

Cash and cash equivalents (Note 6)

$

16,569,950

3

$

34,049,643

7

$

37,228,202

8

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

6,631

-

516

-

-

-

Hedging financial assets (Note 20)

-

-

327

-

-

-

Contract assets (Note 29)

4,466,540

1

4,441,196

1

4,606,104

1

Trade notes and accounts receivable, net (Notes 9 and 29)

23,401,540

5

26,407,783

6

27,524,272

6

Receivables from related parties (Note 37)

9,712

-

16,834

-

18,251

-

Inventories (Notes 10 and 38)

17,774,693

4

17,344,276

4

13,904,329

3

Prepayments (Note 11)

5,103,222

1

1,883,259

-

4,855,305

1

Other current monetary assets (Note 12)

6,159,141

1

7,498,564

2

7,169,247

1

Other current assets (Notes 19 and 38)

1,876,171

-

2,429,664

-

2,925,849

1

Total current assets

75,367,600

15

94,072,062

20

98,231,559

21

NONCURRENT ASSETS

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

767,362

-

778,105

-

511,274

-

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

5,903,181

1

7,268,917

2

6,774,106

1

Investments accounted for using equity method (Note 14)

7,358,379

1

7,354,226

2

3,024,908

1

Contract assets (Note 29)

2,567,439

1

2,600,913

-

2,394,383

-

Property, plant and equipment (Notes 15, 37 and 38)

279,867,247

56

283,694,215

59

284,681,139

59

Right-of-use assets (Note 16)

11,494,300

2

11,364,249

2

11,710,079

2

Investment properties (Note 17)

8,164,263

1

8,169,393

2

8,277,484

2

Intangible assets (Note 18)

94,407,682

19

47,046,525

10

49,934,152

11

Deferred income tax assets (Note 3)

3,262,026

1

3,258,607

1

3,557,699

1

Incremental costs of obtaining contracts (Note 29)

929,827

-

942,652

-

1,117,334

-

Net defined benefit assets (Note 3)

2,204,182

1

2,127,335

-

1,088,263

-

Prepayments (Note 11)

2,611,936

1

2,679,335

1

2,931,109

1

Other noncurrent assets (Notes 19, 38 and 39)

4,991,506

1

6,101,704

1

5,798,112

1

Total noncurrent assets

424,529,330

85

383,386,176

80

381,800,042

79

TOTAL

$

499,896,930

100

$

477,458,238

100

$

480,031,601

100

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Short-term loans (Note 21)

$

70,000

-

$

90,000

-

$

175,000

-

Short-term bills payable (Note 22)

19,965,629

4

-

-

-

-

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

570

-

239

-

2,219

-

Hedging financial liabilities (Note 20)

-

-

-

-

2,719

-

Contract liabilities (Note 29)

17,163,178

4

16,839,830

4

12,417,476

3

Trade notes and accounts payable (Note 24)

11,890,475

2

15,312,274

3

14,948,306

4

Payables to related parties (Note 37)

338,449

-

653,983

-

361,333

-

Current tax liabilities (Note 3)

6,103,903

1

4,020,670

1

6,276,099

1

Lease liabilities (Notes 16, 34 and 37)

3,395,000

1

3,291,330

1

3,500,021

1

Other payables (Note 25)

19,653,578

4

22,952,488

5

20,293,306

4

Provisions (Note 26)

199,804

-

206,942

-

131,367

-

Other current liabilities

972,553

-

983,789

-

1,051,655

-

Total current liabilities

79,753,139

16

64,351,545

14

59,159,501

13

NONCURRENT LIABILITIES

Contract liabilities (Note 29)

6,667,831

1

6,841,485

2

6,324,795

1

Long-term loans (Notes 23 and 38)

1,600,000

-

1,600,000

-

1,600,000

-

Deferred income tax liabilities (Note 3)

1,928,010

1

1,912,305

-

1,984,867

-

Provisions (Note 26)

99,681

-

97,382

-

79,142

-

Lease liabilities (Notes 16, 34 and 37)

6,424,707

1

6,466,808

1

6,353,362

2

Customers' deposits (Note 37)

4,601,704

1

4,747,644

1

4,646,233

1

Net defined benefit liabilities (Note 3)

3,539,441

1

3,504,617

1

3,579,648

1

Other noncurrent liabilities

1,686,030

-

1,542,687

-

1,400,139

-

Total noncurrent liabilities

26,547,404

5

26,712,928

5

25,968,186

5

Total liabilities

106,300,543

21

91,064,473

19

85,127,687

18

EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE PARENT (Notes 13 and 28)

Common stocks

77,574,465

16

77,574,465

16

77,574,465

16

Additional paid-in capital

171,274,394

34

171,255,985

36

171,135,080

36

Retained earnings

Legal reserve

77,574,465

16

77,574,465

16

77,574,465

16

Special reserve

2,675,419

1

2,675,419

1

2,675,419

1

Unappropriated earnings

54,625,420

10

46,341,361

10

55,446,604

11

Total retained earnings

134,875,304

27

126,591,245

27

135,696,488

28

Others

(708,698)

-

688,548

-

309,142

-

Total equity attributable to stockholders of the parent

383,015,465

77

376,110,243

79

384,715,175

80

NONCONTROLLING INTERESTS (Notes 13 and 28)

10,580,922

2

10,283,522

2

10,188,739

2

Total equity

393,596,387

79

386,393,765

81

394,903,914

82

TOTAL

$

499,896,930

100

$

477,458,238

100

$

480,031,601

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 March 31

2020

2019

Amount

%

Amount

%

REVENUES (Notes 29, 37 and 43)

$ 48,149,999

100

$ 51,331,161

100

OPERATING COSTS (Notes 10, 27, 29, 30, 37 and

43)

30,390,800

63

33,480,788

65

GROSS PROFIT

17,759,199

37

17,850,373

35

OPERATING EXPENSES (Notes 9, 27, 30, 37 and

43)

Marketing

5,072,556

11

5,407,891

11

General and administrative

1,213,500

3

1,171,158

2

Research and development

936,176

2

920,959

2

Expected credit loss (reversal of credit loss)

6,137

-

(55,953)

-

Total operating expenses

7,228,369

16

7,444,055

15

OTHER INCOME AND EXPENSES (Note 30)

(680)

-

(4,505)

-

INCOME FROM OPERATIONS

10,530,150

21

10,401,813

20

NON-OPERATING INCOME AND EXPENSES

Interest income

39,386

-

52,603

-

Other income (Notes 30 and 37)

43,192

-

56,346

-

Other gains and losses (Notes 30, 36 and 37)

43,989

-

(19,368)

-

Interest expenses (Notes 16, 30 and 37)

(42,387)

-

(25,844)

-

Share of profits of associates accounted for using

equity method (Note 14)

37,074

-

79,173

-

Total non-operating income and expenses

121,254

-

142,910

-

INCOME BEFORE INCOME TAX

10,651,404

21

10,544,723

20

INCOME TAX EXPENSE (Notes 3 and 31)

2,104,040

4

2,018,010

4

NET INCOME

8,547,364

17

8,526,713

16

(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 March 31

2020

2019

Amount

%

Amount

%

TOTAL OTHER COMPREHENSIVE INCOME

(LOSS)

Items that will not be reclassified to profit or loss:

Unrealized gain or loss on investments in

equity instruments at fair value through other

comprehensive income (Note 36)

$

(1,400,916)

(3)

$

(158,988)

-

Gain or loss on hedging instruments subject to

basis adjustment (Note 20)

(327)

-

(3,788)

-

Share of remeasurements of defined benefit

pension plans of associates (Note 14)

725

-

-

-

(1,400,518)

(3)

(162,776)

-

Items that may be reclassified subsequently to

profit or loss:

Exchange differences arising from the

translation of the foreign operations

(11,776)

-

23,530

-

Share of exchange differences arising from the

translation of the foreign operations of

associates (Note 14)

(188)

-

170

-

(11,964)

-

23,700

-

Total other comprehensive loss, net of

income tax

(1,412,482)

(3)

(139,076)

-

TOTAL COMPREHENSIVE INCOME

$

7,134,882

14

$

8,387,637

16

NET INCOME ATTRIBUTABLE TO

Stockholders of the parent

$

8,283,334

17

$

8,356,082

16

Noncontrolling interests

264,030

-

170,631

-

$

8,547,364

17

$

8,526,713

16

COMPREHENSIVE INCOME ATTRIBUTABLE

TO

Stockholders of the parent

$

6,886,813

14

$

8,205,310

16

Noncontrolling interests

248,069

-

182,327

-

$

7,134,882

14

$

8,387,637

16

EARNINGS PER SHARE (Note 32)

Basic

$1.07

$1.08

Diluted

$1.07

$1.08

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 28)

Others

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 28)

Total Equity

BALANCE, JANUARY 1, 2019

$

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

Change in additional paid-in capital from investments in associates

accounted for using equity method

-

(872)

-

-

-

-

-

-

(872)

497

(375)

Net income for the three months ended March 31, 2019

-

-

-

-

8,356,082

-

-

-

8,356,082

170,631

8,526,713

Other comprehensive income (loss) for the three months ended March 31,

2019

-

-

-

-

-

15,223

(162,207)

(3,788)

(150,772)

11,696

(139,076)

Total comprehensive income (loss) for the three months ended March 31,

2019

-

-

-

-

8,356,082

15,223

(162,207)

(3,788)

8,205,310

182,327

8,387,637

Share-based payment transactions of subsidiaries

-

(812)

-

-

-

-

-

-

(812)

15,570

14,758

BALANCE, MARCH 31, 2019

$

77,574,465

$

171,135,080

$

77,574,465

$

2,675,419

$

55,446,604

$

(64,204)

$

376,065

$

(2,719)

$

384,715,175

$

10,188,739

$

394,903,914

BALANCE, JANUARY 1, 2020

$

77,574,465

$

171,255,985

$

77,574,465

$

2,675,419

$

46,341,361

$

(148,377)

$

836,598

$

327

$

376,110,243

$

10,283,522

$

386,393,765

Change in additional paid-in capital from investments in associates

accounted for using equity method

-

(5,580)

-

-

-

-

-

-

(5,580)

47

(5,533)

Net income for the three months ended March 31, 2020

-

-

-

-

8,283,334

-

-

-

8,283,334

264,030

8,547,364

Other comprehensive income (loss) for the three months ended March 31,

2020

-

-

-

-

725

(12,593)

(1,384,326)

(327)

(1,396,521)

(15,961)

(1,412,482)

Total comprehensive income (loss) for the three months ended March 31,

2020

-

-

-

-

8,284,059

(12,593)

(1,384,326)

(327)

6,886,813

248,069

7,134,882

Share-based payment transactions of subsidiaries

-

23,989

-

-

-

-

-

-

23,989

49,284

73,273

BALANCE, MARCH 31, 2020

$

77,574,465

$

171,274,394

$

77,574,465

$

2,675,419

$

54,625,420

$

(160,970)

$

(547,728)

$

-

$

383,015,465

$

10,580,922

$

393,596,387

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)

Three Months Ended March 31

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax

$ 10,651,404

$ 10,544,723

Adjustments to reconcile income before income tax to net cash

provided by operating activities:

Depreciation

7,759,282

7,693,369

Amortization

1,059,023

1,064,194

Amortization of incremental costs of obtaining contracts

196,659

376,902

Expected credit loss (reversal of credit loss)

6,137

(55,953)

Interest expenses

42,387

25,844

Interest income

(39,386)

(52,603)

Compensation cost of share-based payment transactions

1,646

430

Share of profits of associates accounted for using equity method

(37,074)

(79,173)

Loss on disposal of property, plant and equipment

680

4,505

Loss on disposal of financial instruments

1,788

-

Provision for inventory and obsolescence

23,601

95,682

Valuation loss on financial assets and liabilities at fair value

through profit or loss, net

12,374

7,193

Others

(50,887)

(23,594)

Changes in operating assets and liabilities:

Decrease (increase) in:

Contract assets

8,189

212,752

Trade notes and accounts receivable

3,042,468

2,615,369

Receivable from related parties

7,122

6,019

Inventories

(454,018)

1,120,704

Prepayments

(3,152,564)

(3,108,829)

Other current monetary assets

122,464

(42,281)

Other current assets

553,493

(349,765)

Incremental cost of obtaining contracts

(183,834)

(159,206)

Increase (decrease) in:

Contract liabilities

149,694

1,762,269

Trade notes and accounts payable

(3,422,773)

(5,516,944)

Payables to related parties

(315,534)

(556,618)

Other payables

(2,523,167)

(2,240,856)

Provisions

(4,839)

3,682

Other current liabilities

(6,481)

(107,442)

Net defined benefit plans

(42,023)

121,537

Cash generated from operations

13,405,831

13,361,910

Interest paid

(76,758)

(25,844)

Income tax paid

(8,521)

(117,351)

Net cash provided by operating activities

13,320,552

13,218,715

(Continued)

- 7 -

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

Three Months Ended March 31

2020

2019

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of financial assets at fair value through other

comprehensive income

$

(35,433)

$

-

Purchase of financial assets at fair value through profit or loss

(38,944)

-

Proceeds from disposal of financial assets at fair value through

profit or loss

29,741

-

Acquisition of time deposits and negotiable certificates of deposit

with maturities of more than three months

(1,391,556)

(1,563,562)

Proceeds from disposal of time deposits and negotiable certificates

of deposit with maturities of more than three months

2,616,599

3,931,264

Acquisition of property, plant and equipment

(3,729,411)

(4,492,381)

Proceeds from disposal of property, plant and equipment

14,465

9,618

Acquisition of intangible assets

(47,420,261)

(54,332)

Decrease (increase) in other noncurrent assets

70,533

(618,400)

Interest received

45,620

58,028

Net cash used in investing activities

(49,838,647)

(2,729,765)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from short-term loans

70,000

300,000

Repayment of short-term loans

(90,000)

(225,000)

Proceeds from short-term bills payable

29,000,000

-

Repayment of short-term bills payable

(9,000,000)

-

Decrease in customers' deposits

(150,695)

(78,673)

Payment for the principal of lease liabilities

(992,494)

(1,019,347)

Increase in other noncurrent liabilities

143,343

89,809

Change in other noncontrolling interests

71,627

14,328

Net cash provided by (used in) financing activities

19,051,781

(918,883)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND

CASH EQUIVALENTS

(13,379)

13,355

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS

(17,479,693)

9,583,422

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

34,049,643

27,644,780

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

16,569,950

$

37,228,202

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 THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(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 May 6, 2020.
  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, 2019. Please refer to the consolidated financial statements for the year ended December 31, 2019 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

Main Businesses and

March 31,

December

March 31,

Name of Investor

Name of Investee

Products

2020

31, 2019

2019

Note

Chunghwa Telecom

Senao International Co., Ltd.

Handset and peripherals

28

28

28

a.

Co., Ltd.

("SENAO")

retailer, sales of CHT mobile

phone plans as an agent

Light Era Development Co.,

Planning and development of

100

100

100

Ltd. ("LED")

real estate and intelligent

buildings, and property

management

Donghwa Telecom Co., Ltd.

International private leased

100

100

100

("DHT")

circuit, IP VPN service, and

IP transit services

Chunghwa Telecom Singapore

International private leased

100

100

100

Pte., Ltd. ("CHTS")

circuit, IP VPN service, and

IP transit services

Chunghwa System Integration

Providing system integration

100

100

100

Co., Ltd. ("CHSI")

services and

telecommunications

equipment

Chunghwa Investment Co.,

Investment

89

89

89

Ltd. ("CHI")

CHIEF Telecom Inc.

Network integration, internet

56

57

57

b.

("CHIEF")

data center ("IDC"),

communications integration

and cloud application

services

CHYP Multimedia Marketing

Digital information supply

100

100

100

& Communications Co., Ltd.

services and advertisement

("CHYP")

services

Prime Asia Investments Group

Investment

100

100

100

Ltd. (B.V.I.) ("Prime Asia")

Spring House Entertainment

Software design services,

56

56

56

c.

Tech. Inc. ("SHE")

internet contents production

and play, and motion picture

production and distribution

Chunghwa Telecom Global,

International private leased

100

100

100

Inc. ("CHTG")

circuit, internet services, and

transit services

Chunghwa Telecom Vietnam

Intelligent energy saving

100

100

100

Co., Ltd. ("CHTV")

solutions, international

circuit, and information and

communication technology

("ICT") services.

Smartfun Digital Co., Ltd.

Providing diversified family

65

65

65

("SFD")

education digital services

Chunghwa Telecom Japan Co.,

International private leased

100

100

100

Ltd. ("CHTJ")

circuit, IP VPN service, and

IP transit services

Chunghwa Sochamp

Design, development and

51

51

51

Technology Inc. ("CHST")

production of Automatic

License Plate Recognition

software and hardware

(Continued)

- 10 -

Percentage of Ownership

Main Businesses and

March 31,

December

March 31,

Name of Investor

Name of Investee

Products

2020

31, 2019

2019

Note

Honghwa International Co.,

Telecommunications

100

100

100

Ltd. ("HHI")

engineering, sales agent of

mobile phone plan

application and other

business services, etc

Chunghwa Leading Photonics

Production and sale of

75

75

75

Tech Co., Ltd. ("CLPT")

electronic components and

finished products

Chunghwa Telecom (Thailand)

International private leased

100

100

100

d.

Co., Ltd. ("CHTT")

circuit, IP VPN service, ICT

and cloud VAS services

CHT Security Co., Ltd.

Computing equipment

80

80

80

("CHTSC")

installation, wholesale of

computing and business

machinery equipment and

software, management

consulting services, data

processing services, digital

information supply services

and internet identify services

Senao International

Senao International (Samoa)

International investment

100

100

100

Co., Ltd.

Holding Ltd. ("SIS")

Youth Co., Ltd. ("Youth")

Sale of information and

93

93

93

communication technologies

products

Aval Technologies Co., Ltd.

Sale of information and

100

100

100

("Aval")

communication technologies

products

Senyoung Insurance Agent Co.,

Property and liability insurance

100

100

100

Ltd. ("SENYOUNG")

agency

Youth Co., Ltd.

ISPOT Co., Ltd. ("ISPOT")

Sale of information and

100

100

100

communication technologies

products

Youyi Co., Ltd. ("Youyi")

Maintenance of information

100

100

100

and communication

technologies products

Aval Technologies

Wiin Technology Co., Ltd.

Sale of information and

100

100

-

e.

Co., Ltd.

("Wiin")

communication technologies

products

Senyoung Insurance

Senaolife Insurance Agent Co.,

Life insurance services

100

100

-

f.

Agent Co., Ltd.

Ltd. ("Senaolife")

Light Era

Taoyuan Asia Silicon Valley

Development of real estate

-

-

60

g.

Development Co.,

Innovation Co., Ltd.

Ltd.

("TASVI")

CHIEF Telecom Inc.

Unigate Telecom Inc.

Telecommunications and

100

100

100

("Unigate")

internet service

Chief International Corp.

Telecommunications and

100

100

100

("CIC")

internet service

Shanghai Chief Telecom Co.,

Telecommunications and

49

49

49

h.

Ltd. ("SCT")

internet service

Chunghwa Investment

Chunghwa Precision Test

Production and sale of

34

34

34

i.

Co., Ltd.

Tech. Co., Ltd. ("CHPT")

semiconductor testing

components and printed

circuit board

Chunghwa Precision

Chunghwa Precision Test

Design and after-sale services

100

100

100

Test Tech. Co., Ltd.

Tech. USA Corporation

of semiconductor testing

("CHPT (US)")

components and printed

circuit board

CHPT Japan Co., Ltd. ("CHPT

Related services of electronic

100

100

100

(JP)")

parts, machinery processed

products and printed circuit

board

(Continued)

- 11 -

Name of Investor

Name of Investee

Chunghwa Precision Test

Tech. International, Ltd.

("CHPT (International)")

Senao International

Senao International HK

(Samoa) Holding

Limited ("SIHK")

Ltd.

Senao International

Senao Trading (Fujian) Co.,

HK Limited

Ltd. ("STF")

Senao International Trading

(Shanghai) Co., Ltd.

("SITS")

Senao International Trading

(Jiangsu) Co., Ltd. ("SITJ")

Prime Asia

Chunghwa Hsingta Co., Ltd.

Investments Group

("CHC")

Ltd. (B.V.I.)

Chunghwa Hsingta

Chunghwa Telecom (China)

Co., Ltd. ("CHC")

Co., Ltd. ("CTC")

Chunghwa Precision

Shanghai Taihua Electronic

Test Tech.

Technology Limited

International, Ltd.

("STET")

Su Zhou Precision Test Tech.

Ltd. ("SZPT")

Percentage of Ownership

Main Businesses and

March 31,

December

March 31,

Products

2020

31, 2019

2019

Note

Wholesale and retail of

100

100

100

electronic materials, and

investment

International investment

100

100

100

Sale of information and

-

-

100

j.

communication technologies

products

Sale of information and

100

100

100

communication technologies

products

Sale of information and

-

-

-

k.

communication technologies

products

Investment

100

100

100

Integrated information and

100

100

100

communication solution

services for enterprise

clients, and intelligent

energy network service

Design of printed circuit board

100

100

100

and related consultation

service

Assembly processed of circuit

100

100

-

l.

board, design of printed

circuit board and related

consultation service

(Concluded)

  1. Chunghwa continues to control over half of the seats of the Board of Directors of SENAO (six out of eleven seats as of March 31, 2020) through the support of large beneficial stockholders. As a result, the accounts of SENAO are included in the consolidated financial statements.
  2. CHIEF issued new shares in March 2020, March and November 2019 as its employees exercised their options. Therefore, the Company's ownership interest in CHIEF decreased to 59.75% and 59.10% as of December 31, 2019 and March 31, 2020, respectively.
  3. SHE reduced 19.72% of its capital to offset accumulated deficits in December 2019 and the Company's ownership interest in SHE remained the same.
  4. The Company increased its investment in CHTT proportionally in October 2019 and the Company's ownership interest in CHTT remained the same.
  5. Aval invested 100% equity shares of Wiin Technology Co., Ltd. ("Wiin") in September 2019.
  6. SENYOUNG invested 100% equity shares of Senaolife Insurance Agent Co., Ltd. ("Senaolife") in November 2019.
  7. TASVI completed its liquidation in September 2019.
  8. CHIEF obtained two out of three seats of the Board of Directors of SCT according to the mutual agreements among stockholders and gained control over SCT; hence, SCT is deemed as a subsidiary of the Company.
    • 12 -
  1. Though the Company's ownership interest in CHPT is less than 50%, the management considered the absolute and relative size of ownership interest, and the dispersion of shares owned by the other stockholders and 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.
  2. STF completed its liquidation in May 2019.
  3. SITJ completed its liquidation in March 2019.
  1. CHPT (International) invested 100% equity shares of Su Zhou Precision Test Tech. Ltd. ("SZPT") in October 2019.

The following diagram presented information regarding the relationship and ownership percentages between Chunghwa and its subsidiaries as of March 31, 2020.

Chunghwa Telecom Co., Ltd.

(Chunghwa)

100%

27.79%

100%

100%

100%

100%

100%

56.04%

100%

56.14%

100%

89%

100%

51%

65%

100%

75%

100%

80.27%

Chunghwa

Chunghwa

Chunghwa

Prime Asia

Chunghwa

Smartfun

Honghwa

Chunghwa

Chunghwa

CHT

Senao

CHYP

Chunghwa

Chunghwa

Chunghwa

Light Era

Spring House

Donghwa

CHIEF

Telecom

International

Multimedia

Telecom

System

Telecom

Development

Entertainment

Telecom

Telecom

Telecom

Investment

Investments

Sochamp

Digital

International

Leading

Telecom

Security

Vietnam

Co., Ltd.

Marketing &

Singapore

Integration

Global, Inc.

Co., Ltd.

Tech. Inc.

Co., Ltd.

Inc.

Japan Co.,

Co., Ltd.

Group Ltd.

Technology

Co., Ltd.

Co., Ltd.

Photonics

(Thailand)

Co., Ltd.

Co., Ltd.

("SENAO")

Communications

Pte., Ltd.

Co., Ltd.

("CHTG")

("LED")

("SHE")

("DHT")

("CHIEF")

Ltd.

("CHI")

("Prime

Inc.

("SFD")

("HHI")

Tech

Co., Ltd.

("CHTSC")

("CHTV")

Co., Ltd.

("CHTS")

("CHSI")

("CHTJ")

Asia")

("CHST")

Co., Ltd.

("CHTT")

("CHYP")

("CLPT")

100%

2.96%

100%

92.89%

100%

100%

34.25%

100%

100%

49%

Aval

Senyoung

Youth

Senao

Chunghwa

Chunghwa

Technologies

Insurance Agent

Co., Ltd.

International

Precision

Co., Ltd.

Co., Ltd.

("Youth")

(Samoa)

Unigate

Chief

Shanghai

Test Tech.

Hsingta

Telecom Inc.

International

Chief

Co., Ltd.

("Aval")

("SENYOUNG")

Holding Ltd.

Co., Ltd.

("Unigate")

Corp. ("CIC")

Telecom

("CHC")

("SIS")

("CHPT")

Co., Ltd.

("SCT")

100%

100%

100%

100%

100%

100%

100%

100%

100%

Youyi Co., Ltd.

Senao

0.39%

Chunghwa

CHPT Japan

Chunghwa

Chunghwa

Wiin

Senaolife

ISPOT Co.,

Precision Test

Co., Ltd.

Precision

Telecom

Technology

Insurance

Ltd.

("Youyi")

International

Tech USA

("CHPT (JP)")

Test Tech.

(China)

Co., Ltd.

Agent Co.,

("ISPOT")

HK Limited

Corporation

International, Ltd.

Co., Ltd.

("Wiin")

Ltd.

("SIHK")

("CHPT

("CHPT (US)")

("CTC")

("Senaolife")

(International)")

100%

100%

Senao

100%

International

Shanghai Taihua

Su Zhou

Trading

Electronic

Precision Test

(Shanghai)

Technology

Tech. Ltd.

Co., Ltd.

Limited

("SZPT")

("SITS")

("STET")

Other Significant Accounting Policies

  1. 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.
  2. 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 measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the Company expects to recover or settle the carrying amount of its assets and liabilities at balance sheet date.

- 13 -

  1. 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.
    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, 2019.
  2. APPLICATION OF NEW AND REVISED STANDARDS AND INTERPRETATIONS
    1. 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
      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.
    2. IFRSs issued by the IASB but not yet endorsed and issued into effect by the FSC

Effective Date

Announced by IASB

New, Revised or Amended Standards and Interpretations

(Note)

Amendments to IFRS 10 and IAS 28

Sale or Contribution of Assets

To be determined by

between An Investor and Its

IASB

Associate or Joint Venture

Amendments to IAS 1

Classification of liabilities as

January 1, 2022

current or noncurrent

Note: 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.

- 14 -

6. CASH AND CASH EQUIVALENTS

December 31,

March 31, 2020

2019

March 31, 2019

Cash

Cash on hand

$

311,405

$

353,499

$

413,478

Bank deposits

8,437,027

9,432,814

9,199,415

8,748,432

9,786,313

9,612,893

Cash equivalents (investments with maturities

of less than three months)

Commercial paper

4,955,878

20,109,823

12,303,571

Negotiable certificates of deposit

550,000

1,700,000

12,400,000

Time deposits

2,312,602

2,450,509

2,911,738

Repurchase agreements collateralized by

bonds

3,038

2,998

-

7,821,518

24,263,330

27,615,309

$

16,569,950

$

34,049,643

$

37,228,202

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

December 31,

March 31, 2020

2019

March 31, 2019

Bank deposits

0.00%-0.50%

0.00%-0.74%

0.00%-0.85%

Commercial paper

0.34%-0.52%

0.47%-0.54%

0.46%-0.52%

Negotiable certificates of deposit

0.60%

0.58%-0.60%

0.54%-0.63%

Time deposits

0.09%-4.40%

0.09%-4.40%

0.09%-4.40%

Repurchase agreements collateralized by

bonds

1.45%

1.90%

-

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

December 31,

March 31, 2020

2019

March 31, 2019

Financial assets-current

Mandatorily measured at FVTPL

Derivatives (not designated for hedge)

Forward exchange contracts

$

-

$

53

$

-

Non-derivatives

Listed stocks - domestic

6,631

463

-

$

6,631

$

516

$

-

(Continued)

- 15 -

December 31,

March 31, 2020

2019

March 31, 2019

Financial assets-noncurrent

Mandatorily measured at FVTPL

Non-derivatives

Non-listed stocks - domestic

$

502,249

$

510,801

$

287,259

Non-listed stocks - foreign

265,113

267,304

224,015

$

767,362

$

778,105

$

511,274

Financial liabilities-current

Held for trading

Derivatives (not designated for hedge)

Forward exchange contracts

$

570

$

239

$

2,219

(Concluded)

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

Contract Amount

Currency

Maturity Period

(Thousands)

March 31, 2020

Forward exchange contracts - buy

EUR/NT$

2020.06

EUR1,063/NT$35,905

December 31, 2019

Forward exchange contracts - buy

EUR/NT$

2020.03

EUR1,500/NT$50,910

Forward exchange contracts - buy

US$/NT$

2020.01

US$850/NT$25,524

March 31, 2019

Forward exchange contracts - buy

EUR/NT$

2019.06

EUR6,050/NT$212,082

Forward exchange contracts - buy

US$/NT$

2019.04

US$300/NT$9,245

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

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

December 31,

March 31, 2020

2019

March 31, 2019

Domestic investments

Listed stocks

$

1,823,534

$ 2,453,616

$ 2,599,314

Non-listed stocks

3,983,097

4,680,931

3,997,088

(Continued)

-

16

-

December 31,

March 31, 2020

2019

March 31, 2019

Foreign investments

Non-listed stocks

$

96,550

$

134,370

$

177,704

$

5,903,181

$

7,268,917

$

6,774,106

(Concluded)

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.

The Company holds Powtec ElectroChemical Corporation ("Powtec") as financial assets at FVOCI. The Board of Directors of Powtec resolved in February 2020 to file a petition with court for the declaration of its bankruptcy which was adjudged by the court in April 2020. The Company evaluated and determined the fair value of such investment was nil on March 31, 2020.

9. TRADE NOTES AND ACCOUNTS RECEIVABLE, NET

December 31,

March 31, 2020

2019

March 31, 2019

Trade notes and accounts receivable

$

25,763,047

$

28,767,539

$

30,074,822

Less: Loss allowance

(2,361,507)

(2,359,756)

(2,550,550)

$

23,401,540

$

26,407,783

$

27,524,272

The main credit terms range from 30 to 90 days.

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

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

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

- 17 -

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 is evidence 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:

March 31, 2020

Past Due Less

Pass Due

Pass Due

Pass Due

Pass Due

Pass Due

Not Past Due

than 30 Days

31 to 60 Days

61 to 90 Days

91 to 120 Days

121 to 180 Days

over 180 Days

Total

Telecommunications

business

Expected credit loss rate

(Note a)

0%-2%

0%-24%

0%-68%

0%-83%

17%-90%

25%-96%

100%

Gross carrying amount

$

17,985,058

$

247,357

$

76,261

$

44,069

$

28,652

$

26,575

$

662,490

$

19,070,462

Loss allowance (lifetime

ECL)

(55,180 )

(29,938 )

(25,869 )

(26,350 )

(25,732 )

(24,799 )

(662,490 )

(850,358 )

Amortized cost

$

17,929,878

$

217,419

$

50,392

$

17,719

$

2,920

$

1,776

$

-

$

18,220,104

Project business

Expected credit loss rate

(Note b)

0%-5%

5%

10%

30%

50%

80%

100%

Gross carrying amount

$

2,008,876

$

128,593

$

7,150

$

35,195

$

24,960

$

17,489

$

1,404,358

$

3,626,621

Loss allowance (lifetime

ECL)

(2,445 )

(7,044 )

(715 )

(11,109 )

(12,554 )

(14,061 )

(1,404,358 )

(1,452,286 )

Amortized cost

$

2,006,431

$

121,549

$

6,435

$

24,086

$

12,406

$

3,428

$

-

$

2,174,335

December 31, 2019

Past Due Less

Pass Due

Pass Due

Pass Due

Pass Due

Pass Due

Not Past Due

than 30 Days

31 to 60 Days

61 to 90 Days

91 to 120 Days

121 to 180 Days

over 180 Days

Total

Telecommunications

business

Expected credit loss rate

(Note a)

0%- 2%

0%-25%

0%-68%

0%-83%

11%-90%

17%-96%

100%

Gross carrying amount

$

19,020,326

$

267,902

$

74,775

$

46,782

$

40,771

$

28,021

$

600,985

$

20,079,562

Loss allowance (lifetime

ECL)

(55,903 )

(25,517 )

(27,630 )

(34,624 )

(26,281 )

(27,366 )

(600,985 )

(798,306 )

Amortized cost

$

18,964,423

$

242,385

$

47,145

$

12,158

$

14,490

$

655

$

-

$

19,281,256

Project business

Expected credit loss rate

(Note b)

0%-5%

5%

10%

30%

50%

80%

100%

Gross carrying amount

$

4,053,681

$

78,147

$

52,227

$

29,527

$

12,688

$

1,040

$

1,471,840

$

5,699,150

Loss allowance (lifetime

ECL)

(2,637 )

(4,892 )

(5,223 )

(10,577 )

(6,344 )

(832 )

(1,471,840 )

(1,502,345 )

Amortized cost

$

4,051,044

$

73,255

$

47,004

$

18,950

$

6,344

$

208

$

-

$

4,196,805

- 18 -

March 31, 2019

Past Due Less

Pass Due

Pass Due

Pass Due

Pass Due

Pass Due

Not Past Due

than 30 Days

31 to 60 Days

61 to 90 Days

91 to 120 Days

121 to 180 Days

over 180 Days

Total

Telecommunications

business

Expected credit loss rate

(Note a)

0%-3%

3%-29%

8%-70%

19%-83%

30%-90%

58%-96%

100%

Gross carrying amount

$

22,471,713

$

484,292

$

121,606

$

57,219

$

130,153

$

29,607

$

439,878

$

23,734,468

Loss allowance (lifetime

ECL)

(74,225 )

(30,867 )

(28,169 )

(25,686 )

(26,075 )

(26,339 )

(439,878 )

(651,239 )

Amortized cost

$

22,397,488

$

453,425

$

93,437

$

31,533

$

104,078

$

3,268

$

-

$

23,083,229

Project business

Expected credit loss rate

(Note b)

0%-5%

5%

10%

30%

50%

80%

100%

Gross carrying amount

$

2,069,173

$

130,563

$

75,300

$

207,572

$

47,669

$

17,095

$

1,692,221

$

4,239,593

Loss allowance (lifetime

ECL)

(10,785 )

(9,189 )

(7,678 )

(70,693 )

(31,909 )

(13,808 )

(1,692,221 )

(1,836,283 )

Amortized cost

$

2,058,388

$

121,374

$

67,622

$

136,879

$

15,760

$

3,287

$

-

$

2,403,310

Note a: Please refer to Notes 29 and 43 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 the customer is a government-affiliated entity, it is anticipated that there will not be an instance of credit loss. Customers with past history of bounced checks or accounts receivable exceeding six months overdue are classified as high-risk customers, with an expected credit loss rate of 50%, increasing by period as the days overdue increase.

Movements of loss allowance for trade notes and accounts receivable were as follows:

Three Months Ended March 31

2020

2019

Beginning balance

$

2,359,756

$

2,602,055

Add:

Provision for (reversal of) credit loss

5,930

(2,227)

Less:

Amounts written off

(4,179)

(49,278)

Ending balance

$

2,361,507

$

2,550,550

10. INVENTORIES

December 31,

March 31, 2020

2019

March 31, 2019

Merchandise

$

3,443,108

$

3,858,034

$

3,607,408

Project in process

11,864,846

11,113,286

7,991,698

Work in process

161,540

141,417

108,766

Raw materials

228,875

155,495

120,584

15,698,369

15,268,232

11,828,456

Land held under development

1,998,733

1,998,733

1,998,733

Construction in progress

77,591

77,311

77,140

$

17,774,693

$ 17,344,276

$ 13,904,329

- 19 -

The operating costs related to inventories were $10,154,244 thousand (including the valuation loss on inventories of $23,601 thousand) and $12,163,408 thousand (including the valuation loss on inventories of $95,682 thousand) for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, December 31, 2019 and March 31, 2019, inventories of $2,076,324 thousand, $2,076,044 thousand and $2,075,873 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 was developed by LED for Qingshan Sec., Dayuan Dist., Taoyuan City project.

11. PREPAYMENTS

December 31,

March 31, 2020

2019

March 31, 2019

Prepaid rents

$

3,317,182

$

3,382,560

$

3,629,909

Prepaid salary and bonus

3,085,701

5,117

3,105,568

Others

1,312,275

1,174,917

1,050,937

$

7,715,158

$

4,562,594

$

7,786,414

Current

Prepaid salary and bonus

$

3,085,701

$

5,117

$

3,105,568

Prepaid rents

705,322

704,607

699,428

Others

1,312,199

1,173,535

1,050,309

$

5,103,222

$

1,883,259

$

4,855,305

Noncurrent

Prepaid rents

$

2,611,860

$

2,677,953

$

2,930,481

Others

76

1,382

628

$

2,611,936

$

2,679,335

$

2,931,109

Prepaid rents comprised 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

December 31,

March 31, 2020

2019

March 31, 2019

Time deposits and negotiable certificates of

deposit with maturities of more than three

months

$

4,747,464

$

5,959,074

$

5,789,466

Repurchase agreements collateralized by

bonds with maturities of more than three

months

15,113

14,990

-

Others

1,396,564

1,524,500

1,379,781

$

6,159,141

$

7,498,564

$

7,169,247

- 20 -

The annual yield rates of time deposits, negotiable certificates of deposit and repurchase agreements collateralized by bonds with maturities of more than three months at balance sheet dates were as follows:

December 31,

March 31, 2020

2019

March 31, 2019

Time deposits and negotiable certificates of

deposit with maturities of more than three

months

0.03%-2.73%

0.03%-2.73%

0.03%-2.95%

Repurchase agreements collateralized by

bonds with maturities of more than three

months

2.50%

2.50%

-

13. SUBSIDIARIES

a. Information on significant noncontrolling interest subsidiary

Proportion of Ownership Interests and Voting

Principal

Rights Held by Noncontrolling Interests

Place of

March 31,

December 31,

March 31,

Subsidiaries

Business

2020

2019

2019

SENAO

Taiwan

72%

72%

72%

CHPT

Taiwan

66%

66%

66%

Profit Allocated to

Noncontrolling Interests

Accumulated Noncontrolling Interests

Three Months Ended March 31

March 31,

December 31,

March 31,

2020

2019

2020

2019

2019

SENAO

$

63,212

$

45,219

$

4,331,638

$

4,267,547

$

4,273,647

CHPT

$

117,684

$

61,937

4,354,343

4,236,872

4,106,192

Individually immaterial

subsidiaries with

noncontrolling interests

1,894,941

1,779,103

1,808,900

$

10,580,922

$

10,283,522

$

10,188,739

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

December 31,

March 31, 2020

2019

March 31, 2019

Current assets

$

7,108,725

$

6,751,385

$

7,016,462

Noncurrent assets

3,362,736

3,321,252

3,527,483

Current liabilities

(3,928,940)

(3,617,165)

(3,950,067)

Noncurrent liabilities

(587,578)

(589,882)

(719,587)

Equity

$

5,954,943

$

5,865,590

$

5,874,291

(Continued)

- 21 -

December 31,

March 31, 2020

2019

March 31, 2019

Equity attributable to the parent

$

1,623,305

$

1,598,043

$

1,600,644

Equity attributable to noncontrolling

interests

4,331,638

4,267,547

4,273,647

$

5,954,943

$

5,865,590

$

5,874,291

(Concluded)

Three Months Ended March 31

2020

2019

Revenues and income

$

6,776,807

$

7,827,185

Costs and expenses

6,688,643

7,763,979

Profit for the period

$

88,164

$

63,206

Profit attributable to the parent

$

24,952

$

17,987

Profit attributable to noncontrolling interests

63,212

45,219

Profit for the period

$

88,164

$

63,206

Other comprehensive income attributable to the parent

$

261

$

3,159

Other comprehensive income attributable to noncontrolling

interests

665

7,199

Other comprehensive income for the period

$

926

$

10,358

Total comprehensive income attributable to the parent

$

25,213

$

21,146

Total comprehensive income attributable to noncontrolling

interests

63,877

52,418

Total comprehensive income for the period

$

89,090

$

73,564

Net cash flow from operating activities

$

181,557

$

34,785

Net cash flow from investing activities

(5,776)

186,604

Net cash flow from financing activities

(81,563)

(86,449)

Effect of exchange rate changes on cash and cash equivalents

92

63

Net cash inflow

$

94,310

$

135,003

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

December 31,

March 31, 2020

2019

March 31, 2019

Current assets

$ 3,890,284

$ 3,709,630

$ 4,277,957

Noncurrent assets

4,025,176

4,043,881

3,114,279

(Continued)

- 22 -

December 31,

March 31, 2020

2019

March 31, 2019

Current liabilities

$

(1,274,059)

$

(1,287,597)

$

(1,135,278)

Noncurrent liabilities

(18,827)

(22,003)

(11,903)

Equity

$

6,622,574

$

6,443,911

$

6,245,055

Equity attributable to CHI

$

2,268,231

$

2,207,039

$

2,138,863

Equity attributable to noncontrolling

interests

4,354,343

4,236,872

4,106,192

$

6,622,574

$

6,443,911

$

6,245,055

(Concluded)

Three Months Ended March 31

2020

2019

Revenues and income

$

909,295

$

611,749

Costs and expenses

730,309

517,548

Profit for the period

$

178,986

$

94,201

Profit attributable to CHI

$

61,302

$

32,264

Profit attributable to noncontrolling interests

117,684

61,937

Profit for the period

$

178,986

$

94,201

Other comprehensive income attributable to CHI

$

(110)

$

338

Other comprehensive income (loss) attributable to

noncontrolling interests

(213)

649

$

(323)

$

987

Total comprehensive income attributable to the CHI

$

61,192

$

32,602

Total comprehensive income attributable to noncontrolling

interests

117,471

62,586

$

178,663

$

95,188

Net cash flow from operating activities

$

175,028

$

205,270

Net cash flow from investing activities

(103,378)

(235,104)

Net cash flow from financing activities

(5,482)

(5,364)

Effect of exchange rate changes on cash and cash equivalents

4,403

714

Net cash inflow (outflow)

$

70,571

$

(34,484)

  1. Equity transactions with noncontrolling interests
    CHIEF issued new shares in March 2020, March and November 2019 as its employees exercised their options. Therefore, the Company's equity ownership interest in CHIEF decreased. See Note 33(b) for details.
    The above transactions were accounted for as equity transactions since the Company did not cease to have control over these subsidiaries.
    • 23 -

Information of the Company's equity transactions with noncontrolling interests for the three months ended March 31, 2020 and 2019 were as follows:

CHIEF Share-Based Payment

Three Months Ended March 31

2020

2019

Cash consideration received from noncontrolling interests

$

71,627

$

14,328

The proportionate share of the carrying amount of the net

assets of the subsidiary transferred to noncontrolling

interests

(47,638)

(15,140)

Differences arising from equity transactions

$

23,989

$

(812)

Line items for equity transaction adjustments

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

subsidiaries

$

23,989

$

(812)

14. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD Investments in associates were as follows:

Carrying Amount

December 31,

March 31, 2020

2019

March 31, 2019

Material associate

Next Commercial Bank Co., Ltd. ("NCB")

(Note)

$ 4,040,695

$ 4,074,168

$

-

Associates that are not individually material

Listed

Senao Networks, Inc. ("SNI")

982,484

953,685

944,463

KingwayTek Technology Co., Ltd. ("KWT")

245,294

253,021

-

Non-listed

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

504,119

500,930

522,084

International Integrated System, Inc. ("IISI")

330,805

340,240

307,978

Viettel-CHT Co., Ltd. ("Viettel-CHT")

329,843

316,535

302,794

Taiwan International Standard Electronics

Co., Ltd. ("TISE")

270,338

272,166

234,238

Chunghwa PChome Fund I Co., Ltd. ("CPFI")

199,145

194,081

197,740

So-net Entertainment Taiwan Limited

("So-net")

191,140

189,396

127,980

KKBOX Taiwan Co., Ltd. ("KKBOXTW")

160,061

150,789

139,951

Taiwan International Ports Logistics

Corporation ("TIPL")

51,765

50,979

49,887

Click Force Co., Ltd. ("CF")

36,823

37,120

37,835

(Continued)

- 24 -

Carrying Amount

December 31,

March 31, 2020

2019

March 31, 2019

Cornerstone Ventures Co., Ltd. ("CVC")

$

5,646

$

5,507

$

4,950

UUPON Inc. ("UUPON")

5,141

10,529

14,238

Alliance Digital Tech Co., Ltd. ("ADT")

5,080

5,080

5,080

KingwayTek Technology Co., Ltd. ("KWT")

-

-

135,690

MeWorks Limited (HK) ("MeWorks")

-

-

-

3,317,684

3,280,058

3,024,908

$

7,358,379

$

7,354,226

$

3,024,908

(Concluded)

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

% of Ownership and Voting Rights

December 31,

March 31, 2020

2019

March 31, 2019

Material associate

Next Commercial Bank Co., Ltd. ("NCB")

(Note)

42

42

-

Associates that are not individually material

Senao Networks, Inc. ("SNI")

34

34

34

KingwayTek Technology Co., Ltd. ("KWT")

23

23

26

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

38

38

38

International Integrated System, Inc. ("IISI")

31

31

32

Viettel-CHT Co., Ltd. ("Viettel-CHT")

30

30

30

Taiwan International Standard Electronics

Co., Ltd. ("TISE")

40

40

40

Chunghwa PChome Fund I Co., Ltd. ("CPFI")

50

50

50

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

Cornerstone Ventures Co., Ltd. ("CVC")

49

49

49

UUPON Inc. ("UUPON")

22

22

22

Alliance Digital Tech Co., Ltd. ("ADT")

14

14

14

MeWorks Limited (HK) ("MeWorks")

20

20

20

Note: NCB was a preparatory office on December 31, 2019.

- 25 -

Summarized financial information of NCB was set out below:

December 31,

March 31, 2020

2019

Current assets

$

9,647,964

$

10,000,028

Noncurrent assets

596,270

451,897

Current liabilities

(30,848)

(291,399)

Noncurrent liabilities

(569,723)

(436,975)

Equity

$

9,643,663

$

9,723,551

The percentage of ownership held by the company

41.9%

41.9%

Equity attributable to the Company and carrying amount of

investment

$

4,040,695

$

4,074,168

Three Months

Ended March

31, 2019

Revenues

$

-

Net loss for the period

$

(79,888)

Other comprehensive income

-

Total comprehensive loss for the period

$

(79,888)

Except for NCB, no associate is considered individually material to the Company. Summarized financial information of associates that are not individually material to the Company was as follows:

Three Months Ended March 31

2020

2019

The Company's share of profits

$

70,547

$

79,173

The Company's share of other comprehensive income

537

170

The Company's share of total comprehensive income

$

71,084

$

79,343

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

December 31,

March 31, 2020

2019

March 31, 2019

SNI

$

1,424,139

$

2,014,353

$

1,765,667

KWT

$

591,561

$

872,729

$

-

The participation of establishing NCB was approved by Chunghwa's Board of Directors in January 2019. The establishment of NCB was approved by the FSC in July 2019 and the incorporation of NCB was approved by the Ministry of Economic Affairs Department of Commerce in January 2020. Chunghwa prepaid investment funds to NCB in February and November 2019 amounting to $4,190,000 thousand (included in other assets), for ownership interest of 41.90%. Chunghwa obtained six out of fifteen seats of the Board of Directors of NCB; therefore, Chunghwa does not have control over NCB and merely has significant influence over NCB and treats it as an associate. NCB mainly engages in online banking business in Taiwan.

- 26 -

The Company disposed some shares of KWT in April 2019 before KWT traded its shares on the General Stock Market of the Taipei Exchange according to the local requirements. In addition, the Company did not participate in the capital increase of KWT in May 2019 and KWT repurchased its stock from December 2019 to February 2020. Therefore, the Company's ownership interest in KWT changed to 22.52% and 22.72% as of December 31, 2019 and March 31, 2020, respectively.

IISI issued new shares in March and September 2019 as its employees exercised their options; therefore, the Company's ownership interest in IISI decreased to 31.47% as of December 31, 2019. The investment of 20.58% of ownership interest in IISI was approved by Chunghwa's Board of Directors in January 2020. As of March 31,2020, the equity transaction was not completed. Chunghwa expects to obtain more than 50% of ownership interest and half of the seats of the Board of Directors in IISI, therefore, Chunghwa will gain control over IISI and treat it as a subsidiary.

The Company invested and obtained 50% equity shares of CPFI. The Company has only two out of five seats of the Board of Directors of CPFI and has no control but significant influence over CPFI. Therefore, the Company recognized CPFI as investment in associate.

The Company invested and obtained 49% equity shares of CVC. The Company has only two out of five seats of the Board of Directors of CVC and has no control but significant influence over CVC. Therefore, the Company recognized CVC as investment in associate.

The Company owns 14% equity shares of ADT. As the Company remains the seat in the Board of Directors of ADT and considers the relative size of ownership interest and the dispersion of shares owned by the other stockholders, the Company remains significant influence over ADT. In June 2018, the stockholders of ADT approved to dissolve. The liquidation of ADT is still in process.

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

15. PROPERTY, PLANT AND EQUIPMENT

December 31,

March 31, 2020

2019

March 31, 2019

Assets used by the Company

$ 272,137,995

$ 276,370,003

$ 278,763,541

Assets subject to operating leases

7,729,252

7,324,212

5,917,598

$ 279,867,247

$ 283,694,215

$ 284,681,139

a. Assets used by the Company

Construction in

Telecommuni-

Progress and

Land

Computer

cations

Transportation

Miscellaneous

Equipment to

Land

Improvements

Buildings

Equipment

Equipment

Equipment

Equipment

be Accepted

Total

Cost

Balance on January 1, 2019

$

100,354,425

$

1,599,634

$

69,328,236

$

14,258,485

$ 711,863,697

$

3,882,534

$

9,873,589

$

18,644,766

$ 929,805,366

Additions

-

-

2,297

11,941

14,678

-

12,126

3,754,329

3,795,371

Disposal

(9,310 )

-

(2,285 )

(292,201 )

(13,396,265 )

(7,522 )

(75,245 )

-

(13,782,828 )

Effect of foreign exchange

differences

-

-

-

154

2,647

3

1,226

16

4,046

Others

88

-

(1,676 )

16,133

5,861,350

4,444

36,813

(5,912,730 )

4,422

Balance on March 31, 2019

$

100,345,203

$

1,599,634

$

69,326,572

$

13,994,512

$ 704,346,107

$

3,879,459

$

9,848,509

$

16,486,381

$ 919,826,377

Accumulated depreciation

and impairment

Balance on January 1, 2019

$

-

$

(1,337,192 )

$

(26,861,627 )

$ (12,143,307 )

$(596,850,343)

$

(3,651,139 )

$

(7,291,742 )

$

-

$(648,135,350)

Depreciation expenses

-

(10,762 )

(324,803 )

(212,324 )

(5,946,959 )

(26,372 )

(171,444 )

-

(6,692,664 )

Disposal

-

-

2,285

291,500

13,392,872

7,522

74,526

-

13,768,705

Effect of foreign exchange

differences

-

-

-

(94 )

(884 )

(3 )

(580 )

-

(1,561 )

Others

-

-

6,133

(6,716 )

1,374

(938 )

(1,819 )

-

(1,966 )

Balance on March 31, 2019

$

-

$

(1,347,954)

$

(27,178,012)

$ (12,070,941)

$(589,403,940)

$

(3,670,930)

$

(7,391,059)

$

-

$(641,062,836)

(Continued)

- 27 -

Construction in

Telecommuni-

Progress and

Land

Computer

cations

Transportation

Miscellaneous

Equipment to

Land

Improvements

Buildings

Equipment

Equipment

Equipment

Equipment

be Accepted

Total

Balance on January 1, 2019, net

$

100,354,425

$

262,442

$

42,466,609

$

2,115,178

$ 115,013,354

$

231,395

$

2,581,847

$

18,644,766

$ 281,670,016

Balance on March 31, 2019, net

$

100,345,203

$

251,680

$

42,148,560

$

1,923,571

$ 114,942,167

$

208,529

$

2,457,450

$

16,486,381

$ 278,763,541

Cost

Balance on January 1, 2020

$

99,102,251

$

1,618,481

$

71,000,783

$

13,004,827

$ 706,032,448

$

3,912,298

$

10,090,170

$

13,752,197

$ 918,513,455

Additions

-

-

7,565

4,524

9,371

-

23,336

2,906,083

2,950,879

Disposal

(9,310 )

-

-

(292,573 )

(3,081,614 )

(8,494 )

(74,093 )

-

(3,466,084 )

Effect of foreign exchange

differences

-

-

-

(28 )

24,568

(78 )

(923 )

1,554

25,093

Others

86,927

1,909

(677,900 )

33,151

6,051,748

-

32,341

(6,126,932 )

(598,756 )

Balance on March 31, 2020

$

99,179,868

$

1,620,390

$

70,330,448

$

12,749,901

$ 709,036,521

$

3,903,726

$

10,070,831

$

10,532,902

$ 917,424,587

Accumulated depreciation

and impairment

Balance on January 1, 2020

$

-

$

(1,374,602 )

$

(27,976,732 )

$

(11,068,245 )

$(590,337,891)

$

(3,694,325 )

$

(7,662,299 )

$

(29,358 )

$(642,143,452)

Depreciation expenses

-

(11,115 )

(338,931 )

(194,766 )

(6,024,528 )

(17,907 )

(163,865 )

-

(6,751,112 )

Disposal

-

-

-

292,300

3,076,100

8,494

74,045

-

3,450,939

Effect of foreign exchange

differences

-

-

-

26

(10,022 )

(4 )

296

-

(9,704 )

Others

-

-

176,864

(3,718 )

(2,249 )

(373 )

(3,787 )

-

166,737

Balance on March 31, 2020

$

-

$

(1,385,717)

$

(28,138,799)

$

(10,974,403)

$(593,298,590)

$

(3,704,115)

$

(7,755,610)

$

(29,358 )

$(645,286,592)

Balance on January 1, 2020, net

$

99,102,251

$

243,879

$

43,024,051

$

1,936,582

$ 115,694,557

$

217,973

$

2,427,871

$

13,722,839

$ 276,370,003

Balance on March 31, 2020, net

$

99,179,868

$

234,673

$

42,191,649

$

1,775,498

$ 115,737,931

$

199,611

$

2,315,221

$

10,503,544

$ 272,137,995

(Concluded)

There was no indication that property, plant and equipment was impaired so the Company did not recognize any impairment loss for the three months ended March 31, 2020 and 2019.

Depreciation expense for assets used by the Company is computed using the straight-line method over the following estimated service lives:

Land improvements

10-30 years

Buildings

Main buildings

20-60 years

Other building facilities

3-15 years

Computer equipment

2-8 years

Telecommunications equipment

Telecommunication circuits

2-30 years

Telecommunication machinery and antennas equipment

2-30 years

Transportation equipment

3-10 years

Miscellaneous equipment

Leasehold improvements

1-9 years

Mechanical and air conditioner equipment

3-16 years

Others

1-15 years

b. Assets subject to operating leases

Land

Land

Improvements

Buildings

Total

Cost

Balance on January 1, 2019

$

3,617,627

$

689

$

3,582,774

$

7,201,090

Additions

-

-

310

310

Others

(88)

-

(2,341)

(2,429)

Balance on March 31, 2019

$

3,617,539

$

689

$

3,580,743

$

7,198,971

(Continued)

- 28 -

Land

Land

Improvements

Buildings

Total

Accumulated depreciation

and impairment

Balance on January 1, 2019

$

-

$

(512)

$

(1,265,356)

$

(1,265,868)

Depreciation expenses

-

(16)

(16,014)

(16,030)

Others

-

-

525

525

Balance on March 31, 2019

$

-

$

(528)

$

(1,280,845)

$

(1,281,373)

Balance on January 1, 2019,

net

$

3,617,627

$

177

$

2,317,418

$

5,935,222

Balance on March 31, 2019,

net

$

3,617,539

$

161

$

2,299,898

$

5,917,598

Cost

Balance on January 1, 2020

$

4,979,650

$

-

$

3,841,560

$

8,821,210

Others

(86,927)

-

689,992

603,065

Balance on March 31, 2020

$

4,892,723

$

-

$

4,531,552

$

9,424,275

Accumulated depreciation

and impairment

Balance on January 1, 2020

$

-

$

-

$

(1,496,998)

$

(1,496,998)

Depreciation expenses

-

-

(23,105)

(23,105)

Others

-

-

(174,920)

(174,920)

Balance on March 31, 2020

$

-

$

-

$

(1,695,023)

$

(1,695,023)

Balance on January 1, 2020,

net

$

4,979,650

$

-

$

2,344,562

$

7,324,212

Balance on March 31, 2020,

net

$

4,892,723

$

-

$

2,836,529

$

7,729,252

(Concluded)

The Company leases out land and buildings with lease terms between 1 to 20 years. The lessees do not have bargain purchase options to acquire the assets at the expiry of the lease periods.

The future aggregate lease collection under operating lease for the freehold plant, property and equipment is as follows:

December 31,

March 31, 2020

2019

March 31, 2019

Year 1

$

329,167

$

301,674

$

245,048

Year 2

289,963

272,899

142,144

Year 3

234,707

233,434

91,914

Year 4

191,157

191,128

59,084

Year 5

116,675

130,066

37,657

Onwards

1,203,039

1,224,416

94,223

$

2,364,708

$

2,353,617

$

670,070

-

29

-

The above items of property, plant and equipment subject to operating leases are depreciated on a straight-line basis over their estimated useful lives as follows:

Land improvements

10 years

Buildings

Main buildings

35-60 years

Other building facilities

3-15 years

16. LEASE ARRANGEMENTS

a. Right-of-use assets

December 31,

March 31, 2020

2019

March 31, 2019

Land and buildings

Handsets base stations

$

7,008,413

$

6,844,687

$

6,846,186

Others

1,972,852

1,916,835

1,959,142

Equipment

2,513,035

2,602,727

2,904,751

$

11,494,300

$

11,364,249

$

11,710,079

Three Months Ended March 31

2020

2019

Additions to right-of-use assets

$

1,162,359

$

799,527

Depreciation charge for right-of-use assets

Land and buildings

Handsets base stations

$

677,376

$

666,476

Others

195,623

203,795

Equipment

106,936

104,676

$

979,935

$

974,947

The Company did not have significant sublease or impairment of right-of-use assets for the three months ended March 31, 2020 and 2019.

b. Lease liabilities

December 31,

March 31, 2020

2019

March 31, 2019

Lease liabilities

Current

$

3,395,000

$

3,291,330

$

3,500,021

Noncurrent

6,424,707

6,466,808

6,353,362

$

9,819,707

$

9,758,138

$

9,853,383

- 30 -

Range of discount rate for lease liabilities is as follows:

December 31,

March 31, 2020

2019

March 31, 2019

Land and buildings

Handsets base stations

0.58%-1.18%

0.58%-1.18%

0.59%-1.18%

Others

0.58%-9.00%

0.58%-9.00%

0.59%-9.00%

Equipment

0.58%-3.07%

0.58%-4.50%

0.59%-4.50%

  1. Importantlease-in activities and terms
    The Company mainly enters into lease-in agreements of land and buildings for handsets base stations located throughout Taiwan with lease terms ranging from 1 to 20 years. The lease agreements do not contain bargain purchase options to acquire the assets at the expiration of the respective leases. For majority of the lease-in agreements on handsets base station, the Company has the right to terminate the agreement prior to the expiration date if the Company is unable to build the required telecommunication equipment, either due to legal restrictions, controversial events, or other events.
    The Company also leases land and buildings for the use of offices, server rooms, and stores with lease terms from 1 to 30 years. Most of the lease agreements for national land adjust the lease payment according to the changes of the announced land values by the authority. At the expiry of the lease term, the Company does not have bargain purchase options to acquire the assets.
    The lease agreements for equipment include a contract between Chunghwa and ST-2 Satellite Ventures Pte., Ltd. on March 12, 2010 to lease capacity on the ST-2 satellite. For the information of lease agreements with related parties, please refer to Note 37 to the consolidated financial statements for details.
  2. Other lease information

Three Months Ended March 31

2020

2019

Expenses relating to low-value asset leases

$

1,841

$

1,481

Expenses relating to variable lease payments not included in

the measurement of lease liabilities

$

1,147

$

1,131

Total cash outflow for leases

$

1,016,954

$

1,041,865

The Company leases certain equipment which qualify as low-value asset leases. The Company has elected to apply the recognition exemption and, thus, not to recognize right-of-use assets and lease liabilities for these leases.

Lease-out arrangements under operating leases for freehold property, plant, and equipment and investment properties were set out in Notes 15 and 17 to the consolidated financial statements.

- 31 -

17. INVESTMENT PROPERTIES

Cost

Balance on January 1, 2019

$

9,392,452

Disposal

(5,831)

Balance on March 31, 2019

$

9,386,621

Accumulated depreciation and impairment

Balance on January 1, 2019

$

(1,105,240)

Depreciation expense

(9,728)

Disposal

5,831

Balance on March 31, 2019

$

(1,109,137)

Balance on January 1, 2019, net

$

8,287,212

Balance on March 31, 2019, net

$

8,277,484

Cost

Balance on January 1 and March 31, 2020

$

9,213,979

Accumulated depreciation and impairment

Balance on January 1, 2020

$

(1,044,586)

Depreciation expense

(5,130)

Balance on March 31, 2020

$

(1,049,716)

Balance on January 1, 2020, net

$

8,169,393

Balance on March 31, 2020, net

$

8,164,263

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

Land improvements

10-30 years

Buildings

Main buildings

35-60 years

Other building facilities

4-10 years

The fair values of the Company's investment properties as of December 31, 2019 and 2018 were determined by Level 3 fair value measurements inputs based on the appraisal reports conducted by independent appraisers. The Company used the aforementioned appraisal reports as the basis to determine the fair values as of March 31, 2020 and 2019 because there was no material change in the economic environment or the market transaction price. Those appraisal reports are based on the comparison approach, income approach or cost approach. Key assumptions and the fair values were as follows:

- 32 -

December 31,

March 31, 2020

2019

March 31, 2019

Fair value

$ 18,701,398

$ 18,701,398

$ 18,514,801

Overall capital interest rate

1.03%-4.04%

1.03%-4.04%

1.02%-4.04%

Profit margin ratio

12%-20%

12%-20%

12%-20%

Discount rate

-

-

-

Capitalization rate

0.79%-1.74%

0.79%-1.74%

0.79%-1.75%

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

The future aggregate lease collection under operating lease for investment properties is as follows:

December 31,

March 31, 2020

2019

March 31, 2019

Year 1

$

118,705

$

112,626

$

114,977

Year 2

94,996

90,701

99,711

Year 3

73,199

70,795

80,987

Year 4

58,476

61,115

61,713

Year 5

37,338

39,386

52,534

Onwards

89,825

96,010

105,165

$

472,539

$

470,633

$

515,087

18. INTANGIBLE ASSETS

Mobile

Broadband

Computer

Concession

Software

Goodwill

Others

Total

Cost

Balance on January 1, 2019

$ 70,144,000

$

3,425,969

$

236,200

$

373,203

$ 74,179,372

Additions-acquired separately

-

53,377

-

955

54,332

Disposal

(10,179,000)

(37,324)

-

-

(10,216,324)

Effect of foreign exchange

difference

-

48

-

90

138

Others

-

247

-

-

247

Balance on March 31, 2019

$ 59,965,000

$

3,442,317

$

236,200

$

374,248

$ 64,017,765

Accumulated amortization and

impairment

Balance on January 1, 2019

$(20,632,474)

$

(2,467,170)

$

(26,677)

$

(109,369)

$(23,235,690)

Amortization expenses

(959,893)

(98,218)

-

(6,083)

(1,064,194)

Disposal

10,179,000

37,324

-

-

10,216,324

Effect of foreign exchange

difference

-

(32)

-

(21)

(53)

Balance on March 31, 2019

$(11,413,367)

$

(2,528,096)

$

(26,677)

$

(115,473)

$(14,083,613)

Balance on January 1, 2019, net

$ 49,511,526

$

958,799

$

209,523

$

263,834

$ 50,943,682

Balance on March 31, 2019, net

$ 48,551,633

$

914,221

$

209,523

$

258,775

$ 49,934,152

(Continued)

- 33 -

Mobile

Broadband

Computer

Concession

Software

Goodwill

Others

Total

Cost

Balance on January 1, 2020

$ 59,965,000

$

3,428,609

$

236,200

$

378,063

$ 64,007,872

Additions-acquired separately

48,373,000

45,456

-

1,805

48,420,261

Disposal

-

(128,598)

-

(9)

(128,607)

Effect of foreign exchange

difference

-

27

-

(51)

(24)

Others

-

-

-

(45)

(45)

Balance on March 31, 2020

$108,338,000

$

3,345,494

$

236,200

$

379,763

$112,299,457

Accumulated amortization and

impairment

Balance on January 1, 2020

$(14,293,046)

$

(2,498,825)

$

(35,623)

$

(133,853)

$(16,961,347)

Amortization expenses

(959,893)

(92,851)

-

(6,279)

(1,059,023)

Disposal

-

128,598

-

9

128,607

Effect of foreign exchange

difference

-

(28)

-

16

(12)

Balance on March 31, 2020

$(15,252,939)

$

(2,463,106)

$

(35,623)

$

(140,107)

$(17,891,775)

Balance on January 1, 2020, net

$ 45,671,954

$

929,784

$

200,577

$

244,210

$ 47,046,525

Balance on March 31, 2020, net

$ 93,085,061

$

882,388

$

200,577

$

239,656

$ 94,407,682

(Concluded)

For long-term business development, Chunghwa participated in the 5G mobile broadband license bidding hosted by NCC and paid the deposit for 5G spectrum bidding amounting to $1,000,000 thousand (included in other assets) in October 2019. Chunghwa paid $48,373,000 thousand in February 2020 for the aforementioned license to obtain 90MHz in the 3.5GHz spectrum and 600MHz in the 28GHz spectrum.

The concessions are granted and issued by the NCC. The concession fees are amortized using the straight-line method over the period from the date operations commence through the date the license expires or the useful life, whichever is shorter. The 4G concession fees will be fully amortized by December 2030 and December 2033 and 5G concession fees will be fully amortized by December 2040.

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

19. OTHER ASSETS

December 31,

March 31, 2020

2019

March 31, 2019

Refundable deposits

$

1,793,997

$

1,879,109

$

1,854,102

Spare parts

1,762,816

2,336,082

2,656,342

Other financial assets

1,000,000

1,000,000

1,000,000

Prepayment for investments (Note 14)

-

-

838,000

Deposit for mobile broadband license bidding

(Note 18)

-

1,000,000

-

Others

2,310,864

2,316,177

2,375,517

$

6,867,677

$

8,531,368

$

8,723,961

(Continued)

-

34

-

December 31,

March 31, 2020

2019

March 31, 2019

Current

Spare parts

$

1,762,816

$

2,336,082

$

2,656,342

Others

113,355

93,582

269,507

$

1,876,171

$

2,429,664

$

2,925,849

Noncurrent

Refundable deposits

$

1,793,997

$

1,879,109

$

1,854,102

Other financial assets

1,000,000

1,000,000

1,000,000

Prepayment for investments

-

-

838,000

Deposit for mobile broadband license

bidding

-

1,000,000

-

Others

2,197,509

2,222,595

2,106,010

$

4,991,506

$

6,101,704

$

5,798,112

(Concluded)

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

20. HEDGING FINANCIAL INSTRUMENTS

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

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

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

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

- 35 -

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

March 31, 2020

Change in Fair

Values of

Hedging

Instruments Used

Notional

for Calculating

Amount

Forward

Line Item in

Carrying Amount

Hedge

Hedging Instruments

Currency

(In Thousands)

Maturity

Rate

Balance Sheet

Asset

Liability

Ineffectiveness

Cash flow hedge

Forecast purchases -

EUR/NT$

-

-

$

-

Hedging financial

$

-

$

-

$

(327 )

forward exchange

assets (liabilities)

contracts

Change in

Value of

Accumulated Gain or Loss

Hedged Item

on Hedging Instruments

Used for

in Other Equity

Calculating

Hedge

Hedge

Continuing

Accounting no

Hedged Items

Ineffectiveness

Hedges

Longer Applied

Cash flow hedge

Forecast equipment purchases

$

327

$

-

$

-

December 31, 2019

Change in Fair

Values of

Hedging

Instruments Used

Notional

for Calculating

Amount

Forward

Line Item in

Carrying Amount

Hedge

Hedging Instruments

Currency

(In Thousands)

Maturity

Rate

Balance Sheet

Asset

Liability

Ineffectiveness

Cash flow hedge

Forecast purchases -

EUR/NT$

EUR 2,498/

2020.03

$

33.66

Hedging financial

$

327

$

-

$

(742 )

forward exchange

NT$ 84,066

assets (liabilities)

contracts

Change in

Value of

Accumulated Gain or Loss

Hedged Item

on Hedging Instruments

Used for

in Other Equity

Calculating

Hedge

Hedge

Continuing

Accounting No

Hedged Items

Ineffectiveness

Hedges

Longer Applied

Cash flow hedge

Forecast equipment purchases

$

742

$

327

$

-

March 31, 2019

Change in Fair

Values of

Hedging

Instruments Used

Notional

for Calculating

Amount

Forward

Line Item in

Carrying Amount

Hedge

Hedging Instruments

Currency

(In Thousands)

Maturity

Rate

Balance Sheet

Asset

Liability

Ineffectiveness

Cash flow hedge

Forecast purchases -

EUR/NT$

EUR 7,206/

2019.06

$

35.07

Hedging financial

$

-

$

2,719

$

(3,788 )

forward exchange

NT$ 252,668

assets (liabilities)

contracts

- 36 -

Change in

Value of

Accumulated Gain or Loss

Hedged Item

on Hedging Instruments

Used for

in Other Equity

Calculating

Hedge

Hedge

Continuing

Accounting no

Hedged Items

Ineffectiveness

Hedges

Longer Applied

Cash flow hedge

Forecast equipment purchases

$

3,788

$ (2,719)

$

-

Three months ended March 31, 2020

Comprehensive Income

Reclassification from Equity

to Profit or Loss and the Adjusted

Line Item

Due to Hedged

Amount of

Amount

Future Cash

Hedging

Hedge

Line Item in

Reclassified to

Flows No

Gain or Losses

Ineffectiveness

Which Hedge

P/L and the

Longer

Recognized

Recognized in

Ineffectiveness is

Adjusted Line

Expected to

Hedge Transaction

in OCI

Profit or Loss

Included

Item

Occur

Cash flow hedge

Forecast equipment

$

(327)

$

-

-

$

(706)

$

-

purchases

Construction in

Other gains and

progress and

losses

equipment to

be accepted

Three months ended March 31, 2019

Comprehensive Income

Reclassification from Equity

to Profit or Loss and the Adjusted

Line Item

Due to Hedged

Amount of

Amount

Future Cash

Hedging

Hedge

Line Item in

Reclassified to

Flows No

Gain or Losses

Ineffectiveness

Which Hedge

P/L and the

Longer

Recognized

Recognized in

Ineffectiveness is

Adjusted Line

Expected to

Hedge Transaction

in OCI

Profit or Loss

Included

Item

Occur

Cash flow hedge

Forecast equipment

$

(3,788)

$

-

-

$

-

$

-

purchases

Construction in

Other gains and

progress and

losses

equipment to

be accepted

- 37 -

21. SHORT-TERM LOANS

December 31,

March 31, 2020

2019

March 31, 2019

Unsecured bank loans

$ 70,000

$ 90,000

$ 175,000

The annual interest rates of bank loans were as follows:

December 31,

March 31, 2020

2019

March 31, 2019

Unsecured bank loans

1.20%-2.50%

1.20%-2.50%

1.15%-2.50%

22. SHORT-TERM BILLS PAYABLE

December 31,

March 31, 2020

2019

March 31, 2019

Commercial paper payable

$ 20,000,000

$

Less: Discounts on commercial paper

payable

(34,371)

$ 19,965,629

$

The annual interest rates of commercial paper payable were as follows:

-

$

-

-

-

-

$

-

December 31,

March 31, 2020

2019

March 31, 2019

Commercial paper payable

0.57%-0.69%

-

-

23. LONG-TERM LOANS (INCLUDING LONG-TERM LOANS - CURRENT PORTION)

December 31,

March 31, 2020

2019

March 31, 2019

Secured bank loans (Note 38)

$ 1,600,000

$ 1,600,000

$ 1,600,000

The annual interest rates of loans were as follows:

December 31,

March 31, 2020

2019

March 31, 2019

Secured bank loans

0.91%

0.92%

0.92%

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

- 38 -

24. TRADE NOTES AND ACCOUNTS PAYABLE

December 31,

March 31, 2020

2019

March 31, 2019

Trade notes and accounts payable

$ 11,890,475

$ 15,312,274

$ 14,948,306

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

25. OTHER PAYABLES

December 31,

March 31, 2020

2019

March 31, 2019

Accrued salary and compensation

$

6,478,657

$

9,482,606

$

5,531,189

Accrued compensation to employees and

remuneration to directors and supervisors

1,807,337

1,440,573

2,136,648

Accrued franchise fees

1,352,266

1,091,148

1,425,770

Amounts collected for others

1,336,273

1,278,796

1,262,882

Payables to contractors

1,182,512

1,892,188

1,293,063

Accrued maintenance costs

847,504

954,761

1,140,817

Payables to equipment suppliers

227,977

295,816

1,190,671

Others

6,421,052

6,516,600

6,312,266

$

19,653,578

$

22,952,488

$

20,293,306

26. PROVISIONS

December 31,

March 31, 2020

2019

March 31, 2019

Warranties

$

167,155

$

173,275

$

137,307

Onerous contracts

66,578

66,907

15,919

Employee benefits

61,355

59,745

52,836

Others

4,397

4,397

4,447

$

299,485

$

304,324

$

210,509

Current

$

199,804

$

206,942

$

131,367

Noncurrent

99,681

97,382

79,142

$

299,485

$

304,324

$

210,509

Onerous

Employee

Warranties

contracts

Benefits

Others

Total

Balance on January 1, 2019

$

131,664

$

19,323

$

51,393

$

4,447

$

206,827

Additional provisions recognized

22,516

-

1,443

-

23,959

Used / forfeited during the period

(16,873)

(3,404)

-

-

(20,277)

Balance on March 31, 2019

$

137,307

$

15,919

$

52,836

$

4,447

$

210,509

(Continued)

- 39 -

Onerous

Employee

Warranties

contracts

Benefits

Others

Total

Balance on January 1, 2020

$

173,275

$

66,907

$

59,745

$

4,397

$

304,324

Additional / (reversal of)

provisions recognized

18,870

(329)

1,610

-

20,151

Used / forfeited during the period

(24,990)

-

-

-

(24,990)

Balance on March 31, 2020

$

167,155

$

66,578

$

61,355

$

4,397

$

299,485

(Concluded)

  1. The provision for warranties claims represents the present value of the management's best estimate of the future outflow of economic benefits that will be required under the Company's obligation for warranties in sales agreements. The estimate has been made based on the historical warranty experience.
  2. The provision for employee benefits represents vestedlong-term service compensation accrued.
  3. The provision for onerous contracts represents the present obligation resulting from the measurement for the unavoidable costs of meeting the Company's contractual obligations exceed the economic benefits expected to be received from the contracts.

27. RETIREMENT BENEFIT PLANS

According to the Article 56 of the Labor Standards Law, entities are required to contribute the difference in one appropriation to their pension funds before the end of next March when the balance of the Funds is insufficient to pay the eligible employees who meet the retirement criteria in the following year. There is no difference that requires Chunghwa to contribute into the Fund in 2020 and 2019.

Relevant pension costs for defined benefit plans which were determined by the pension cost rates of actuarial valuation as of December 31, 2019 and 2018 were as follows:

Three Months Ended March 31

2020

2019

Operating costs

$

300,673

$

432,574

Marketing expenses

150,910

215,652

General and administrative expenses

29,977

40,300

Research and development expenses

18,036

26,361

$

499,596

$

714,887

28. EQUITY

a. Share capital

1) Common stocks

December 31,

March 31, 2020

2019

March 31, 2019

Number of authorized shares

(thousand)

12,000,000

12,000,000

12,000,000

Authorized shares

$ 120,000,000

$ 120,000,000

$ 120,000,000

(Continued)

-

40 -

December 31,

March 31, 2020

2019

March 31, 2019

Number of issued and paid shares

(thousand)

7,757,447

7,757,447

7,757,447

Issued shares

$ 77,574,465

$ 77,574,465

$ 77,574,465

(Concluded)

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

    1. Global depositary receipts
      The MOTC and some stockholders sold some common stocks of Chunghwa in an international offering of securities in the form of American Depositary Shares ("ADS") (one ADS represents 10 common stocks) in July 2003, August 2005, and September 2006. The ADSs were traded on the New York Stock Exchange since July 17, 2003. As of March 31, 2020, the outstanding ADSs were 234,291 thousand common stocks, which equaled 23,429 thousand units and represented 3.02% of Chunghwa's total outstanding common stocks.
      The ADS holders generally have the same rights and obligations as other common stockholders, subject to the provision of relevant laws. The exercise of such rights and obligations shall comply with the related regulations and deposit agreement, which stipulate, among other things, that ADS holders are entitled to, through deposit agents:
      1. Exercise their voting rights,
      2. Sell their ADSs, and
      3. Receive dividends declared and subscribe to the issuance of new shares.
  2. Additionalpaid-in capital
    The adjustments of additional paid-in capital for the three months ended March 31, 2020 and 2019 were as follows:

Difference

between

Movements of

Movements of

Consideration

Additional

Additional

Received and

Paid-in Capital

Paid-in Capital

Carrying

for Associates

Arising from

Amount of the

Accounted for

Changes in

Subsidiaries' Net

Stockholders'

Using Equity

Equities of

Assets upon

Contribution due

Share Premium

Method

Subsidiaries

Disposal

Donated Capital

to Privatization

Total

Balance on January 1, 2019

$

147,329,386

$

89,893

$

2,063,148

$

987,611

$

18,648

$

20,648,078

$

171,136,764

Change in additional paid-in

capital from investments in

associates accounted for

using equity method

-

(872 )

-

-

-

-

(872 )

Share-based payment

transactions of subsidiaries

-

-

(812 )

-

-

-

(812 )

Balance on March 31, 2019

$

147,329,386

$

89,021

$

2,062,336

$

987,611

$

18,648

$

20,648,078

$

171,135,080

Balance on January 1, 2020

$

147,329,386

$

208,746

$

2,062,250

$

987,611

$

19,914

$

20,648,078

$

171,255,985

Change in additional paid-in

capital from investments in

associates accounted for

using equity method

-

(5,580 )

-

-

-

-

(5,580 )

Share-based payment

transactions of subsidiaries

-

-

23,989

-

-

-

23,989

Balance on March 31, 2020

$

147,329,386

$

203,166

$

2,086,239

$

987,611

$

19,914

$

20,648,078

$

171,274,394

- 41 -

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

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

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

  1. Retained earnings and dividends policy
    In accordance with the Chunghwa's Articles of Incorporation, Chunghwa must pay all outstanding taxes, offset deficits in prior years and set aside a legal reserve equal to 10% of its net income before distributing a dividend or making any other distribution to stockholders, except when the accumulated amount of such legal reserve equals to Chunghwa's total issued capital, and depending on its business needs or requirements, may also set aside or reverse special reserves. No less than 50% of the remaining earnings comprising remaining balance of net income, if any, plus cumulative undistributed earnings shall be distributed as stockholders' dividends, of which cash dividends to be distributed shall not be less than 50% of the total amount of dividends to be distributed. If cash dividend to be distributed is less than $0.10 per share, such cash dividend shall be distributed in the form of common stocks.
    Chunghwa should appropriate or reverse a special reserve in accordance with Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the directive entitled "Questions and Answers on Special Reserves Appropriated Following the Adoption of Taiwan-IFRSs". Distributions can be made out of any subsequent reversal of the debit to other equity items.
    The appropriation for legal reserve shall be made until the accumulated reserve equals the aggregate par value of the outstanding capital stock of Chunghwa. This reserve can only be used to offset a deficit, or, when the legal reserve has exceeded 25% of Chunghwa's paid-in capital, the excess may be transferred to capital or distributed in cash.
    The appropriations of the 2019 earnings of Chunghwa proposed by the Chunghwa's Board of Directors on February 26, 2020 and the appropriations of the 2018 earnings of Chunghwa approved by the stockholders in their meetings on June 21, 2019 were as follows:

Dividends Per Share

Appropriation of Earnings

(NT$)

For Fiscal

For Fiscal

For Fiscal

For Fiscal

Year 2019

Year 2018

Year 2019

Year 2018

Cash dividends

$ 32,782,969

$ 34,745,603

$ 4.226

$ 4.479

The appropriations of earnings for 2019 are subject to the resolution of the stockholders' meeting planned to be held on May 29, 2020. Information of the appropriation of Chunghwa's earnings proposed by the Board of Directors and approved by the stockholders is available on the Market Observation Post System website.

- 42 -

  1. Others
    1. Exchange differences arising from the translation of the foreign operations
      The exchange differences arising from the translation of the foreign operations from their functional currency to New Taiwan dollars were recognized as exchange differences arising from the translation of the foreign operations in other comprehensive income.
    2. Unrealized gain or loss on financial assets at FVOCI

Three Months Ended March 31

2020

2019

Beginning balance

$

836,598

$

538,272

Unrealized gain or loss for the period

Equity instruments

(1,384,326)

(162,207)

Ending balance

$

(547,728)

$

376,065

e. Noncontrolling interests

Three Months Ended March 31

2020

2019

Beginning balance

$ 10,283,522

$

9,990,345

Shares attributed to noncontrolling interests

Net income for the period

264,030

170,631

Exchange differences arising from the translation of the

foreign operations

456

8,387

Unrealized valuation gain or loss on financial assets at

FVOCI

(16,590)

3,219

Share of other comprehensive income of associates

accounted for using equity method

173

90

Changes in additional paid-in capital from investments in

associates accounted for using equity method

47

497

Share-based payment transactions of subsidiaries

49,284

15,570

Ending balance

$ 10,580,922

$ 10,188,739

29. REVENUES

Three Months Ended March 31

2020

2019

Revenue from contracts with customers

$ 47,871,762

$ 51,048,624

Other revenues

Rental income

203,926

191,711

Others

74,311

90,826

278,237

282,537

$ 48,149,999

$ 51,331,161

For the information of performance obligations related to customer contracts, please refer to Note 3 Summary of Significant Accounting Policies to the consolidated financial statements for the year ended December 31, 2019 for details.

- 43 -

  1. Disaggregation of revenue
    Three months ended March 31, 2020

International

Domestic Fixed

Mobile

Fixed

Communi-

Communi-

Communi-

cations

cations

Internet

cations

Business

Business

Business

Business

Others

Total

Main Products and Service Revenues

Mobile services revenue

$

-

$ 14,284,650

$

-

$

-

$

-

$

14,284,650

Sales of products

481,821

8,004,138

18,788

77,732

931,044

9,513,523

Local telephone and domestic long

distance telephone services

revenue

6,611,740

-

-

-

-

6,611,740

Broadband access and domestic

leased line services revenue

5,541,156

-

-

-

-

5,541,156

Data Communications internet

services revenue

-

-

5,305,258

-

-

5,305,258

International network and leased

telephone services revenue

-

-

-

1,079,323

-

1,079,323

Others

1,900,147

228,436

2,126,029

1,076,424

205,076

5,536,112

$ 14,534,864

$ 22,517,224

$

7,450,075

$

2,233,479

$

1,136,120

$

47,871,762

Three months ended March 31, 2019

International

Domestic Fixed

Mobile

Fixed

Communi-

Communi-

Communi-

cations

cations

Internet

cations

Business

Business

Business

Business

Others

Total

Main Products and Service Revenues

Mobile services revenue

$

-

$ 14,721,342

$

-

$

-

$

-

$

14,721,342

Sales of products

416,884

9,482,418

-

68,026

621,915

10,589,243

Local telephone and domestic long

distance telephone services

revenue

7,004,002

-

-

-

-

7,004,002

Broadband access and domestic

leased line services revenue

5,512,974

-

-

-

-

5,512,974

Data Communications internet

services revenue

-

-

5,240,314

-

-

5,240,314

International network and leased

telephone services revenue

-

-

-

1,810,881

-

1,810,881

Others

2,710,535

254,758

2,102,746

889,646

212,183

6,169,868

$ 15,644,395

$ 24,458,518

$

7,343,060

$

2,768,553

$

834,098

$

51,048,624

b. Contract balances

December 31,

March 31, 2020

2019

March 31, 2019

Trade notes and account receivables (Note

9)

$

23,401,540

$

26,407,783

$

27,524,272

Contract assets

Products and service bundling

$

6,922,587

$

6,942,974

$

6,888,091

Other

128,191

115,993

130,613

Less: Loss allowance

(16,799)

(16,858)

(18,217)

$

7,033,979

$

7,042,109

$

7,000,487

Current

$

4,466,540

$

4,441,196

$

4,606,104

Noncurrent

2,567,439

2,600,913

2,394,383

$

7,033,979

$

7,042,109

$

7,000,487

(Continued)

- 44 -

December 31,

March 31, 2020

2019

March 31, 2019

Contract liabilities

Telecommunications business

$ 12,457,891

$ 12,771,621

$ 11,841,556

Project business

10,872,402

10,360,428

6,176,701

Products and service bundling

33,129

38,570

73,002

Other

467,587

510,696

651,012

$ 23,831,009

$ 23,681,315

$ 18,742,271

Current

$ 17,163,178

$ 16,839,830

$ 12,417,476

Noncurrent

6,667,831

6,841,485

6,324,795

$ 23,831,009

$ 23,681,315

$ 18,742,271

(Concluded)

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

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. Contract assets will be reclassified to trade receivables when the corresponding invoice is billed to the client. Contract assets have substantially the same risk characteristics as the trade receivables of the same types of contracts. Therefore, the Company concluded that the expected loss rates for trade receivables can be applied to the contract assets.

c. Incremental costs of obtaining contracts

December 31,

March 31, 2020

2019

March 31, 2019

Noncurrent

Incremental costs of obtaining contracts

$ 929,827

$ 942,652

$ 1,117,334

The Company considered the past experience and the default clauses in the telecommunications service contracts and believes the commissions and equipment subsidies paid for obtaining such contracts are expected to be recoverable, therefore, such costs are capitalized. Amortization recognized in the three months ended March 31, 2020 and 2019 are $196,659 thousand and $376,902 thousand, respectively.

30. NET INCOME

a. Other income and expenses

Three Months Ended March 31

2020

2019

Loss on disposal of property, plant and equipment

$

(680)

$ (4,505)

- 45 -

  1. Other income
    Rental income Others
  2. Other gains and losses
    Valuation loss on financial assets and liabilities at fair value through profit or loss, net
    Net foreign currency exchange gains (losses) Loss on disposal of financial instruments Others
  3. Interest expenses
    Interest on lease liabilities Other interest expenses
  4. Impairment loss (reversal of impairment loss)
    Contract assets
    Trade notes and accounts receivable Other receivables
    Inventories
  5. Depreciation and amortization expenses
    Property, plant and equipment Right-of-use assets Investment properties Intangible assets
    Incremental costs of obtaining contracts Total depreciation and amortization expenses
    • 46 -

Three Months Ended March 31

2020

2019

$

17,973

$

19,566

25,219

36,780

$

43,192

$

56,346

Three Months Ended March 31

2020

2019

$

(12,374)

$

(7,193)

71,070

(4,763)

(1,788)

-

(12,919)

(7,412)

$

43,989

$

(19,368)

Three Months Ended March 31

2020

2019

$

21,472

$

21,388

20,915

4,456

$

42,387

$

25,844

Three Months Ended March 31

2020

2019

$

(59)

$

(553)

$

5,930

$

(2,227)

$

266

$

(53,173)

$

23,601

$

95,682

Three Months Ended March 31

2020

2019

$

6,774,217

$

6,708,694

979,935

974,947

5,130

9,728

1,059,023

1,064,194

196,659

376,902

$

9,014,964

$

9,134,465

(Continued)

Three Months Ended March 31

2020

2019

Depreciation expenses summarized by functions

Operating costs

$

7,277,894

$

7,196,349

Operating expenses

481,388

497,020

$

7,759,282

$

7,693,369

Amortization expenses summarized by functions

Operating costs

$

1,199,273

$

1,384,458

Marketing expenses

23,034

24,608

General and administrative expenses

22,552

23,287

Research and development expenses

10,823

8,743

$

1,255,682

$

1,441,096

(Concluded)

g. Employee benefit expenses

Three Months Ended March 31

2020

2019

Post-employment benefit

Defined contribution plans

$

167,292

$

162,553

Defined benefit plans

499,596

714,887

666,888

877,440

Share-based payment

Equity-settledshare-based payment

1,646

430

Other employee benefit

Salaries

6,299,418

6,348,313

Insurance

691,619

714,858

Others

3,553,031

3,453,336

10,544,068

10,516,507

Total employee benefit expenses

$

11,212,602

$

11,394,377

Summary by functions

Operating costs

$

5,727,372

$

5,888,047

Operating expenses

5,485,230

5,506,330

$

11,212,602

$

11,394,377

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

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

The compensation to the employees and remuneration to the directors of 2019 and 2018 approved by the Board of Directors on February 26, 2020 and March 19, 2019, respectively, were as follows. The compensation to the employees and remuneration to the directors of 2019 will be reported to the stockholders in their meeting planned to be held on May 29, 2020.

- 47 -

Cash

2019

2018

Compensation distributed to the employees

$ 1,126,194

$ 1,404,264

Remuneration paid to the directors

35,210

38,216

There was no difference between the initial accrual amounts and the amounts approved in the Board of Directors in 2020 and 2019 of the aforementioned compensation to employees and the remuneration to directors.

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

31. INCOME TAX

  1. Income tax recognized in profit or loss
    The major components of income tax expense were as follows:

Three Months Ended March 31

2020

2019

Current tax

Current tax expenses recognized for the period

$

2,087,951

$

2,007,019

Income tax adjustments on prior years

-

(11,409)

Others

143

4,497

2,088,094

2,000,107

Deferred tax

Deferred tax expenses recognized for the period

15,946

17,903

Income tax recognized in profit or loss

$

2,104,040

$

2,018,010

The applicable tax rate used by the entities subject to the Income Tax Act of the Republic of China is 20%, while the applicable tax rate used by subsidiaries in China is 25%. Tax rates used by other entities of the Company operating in other jurisdictions are based on the tax laws in those jurisdictions.

In July 2019, the President of the ROC announced the amendments to the Statute of Industrial Innovation, which stipulate that the unappropriated earnings in 2018 and thereafter that are used to build or acquire certain assets or technologies are allowed as deduction when computing the income tax on unappropriated earnings. Chunghwa has deducted the reinvested capital expenditure from the unappropriated earnings while calculating income tax on unappropriated earnings.

  1. Income tax examinations
    Income tax returns of Chunghwa, CHSI, CHST, SENAO, CHIEF, SHE, Youth, SENYOUNG and Aval have been examined by the tax authorities through 2017. Income tax returns of CHI, CHPT, LED, Unigate, CLPT, SFD, Youyi, ISPOT, HHI, CHYP and CHTSC have been examined by the tax authorities through 2018.
    • 48 -

32. EARNINGS PER SHARE ("EPS")

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

Net Income

Three Months Ended March 31

2020

2019

Net income used to compute the basic earnings per share

Net income attributable to the parent

$

8,283,334

$

8,356,082

Assumed conversion of all dilutive potential common stocks

Employee stock options and employee compensation of

subsidiaries

(1,386)

(1,376)

Net income used to compute the diluted earnings per share

$

8,281,948

$

8,354,706

Weighted Average Number of Common Stocks

(Thousand Shares)

Three Months Ended March 31

2020

2019

Weighted average number of common stocks used to compute the

basic earnings per share

7,757,447

7,757,447

Assumed conversion of all dilutive potential common stocks

Employee compensation

7,731

12,777

Weighted average number of common stocks used to compute the

diluted earnings per share

7,765,178

7,770,224

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

33. SHARE-BASED PAYMENT ARRANGEMENT

a. SENAO share-based compensation plan ("SENAO Plan") described as follows:

Resolution Date by

Effective Date for

SENAO's Board of

Stock Options Units

Exercise Price

Plan Registration

Directors

(Thousand)

(NT$)

2012.05.28

2013.04.29

10,000

$66.20

(Original price $93.00)

Each option is eligible to subscribe for one common share when exercisable. Under the terms of the SENAO Plan, the options are granted at an exercise price equal to the closing price of the SENAO's common stocks listed on the TSE on the higher of closing price or par value. The SENAO Plan have exercise price adjustment formula upon the changes in common stocks equity (including cash capital increase, new share issue through capitalization of earnings and additional

- 49 -

paid-in capital, merger, spin off and new share issue for Global Depositary Shares, and so on) or distribution of cash dividends. The options of SENAO Plan are valid for six years and the graded vesting schedule for which 50% of option granted will vest two years after the grant date and another two tranches of 25%, each will vest three and four years after the grant date respectively.

No compensation cost of stock options granted on May 7, 2013 was recognized for the three months ended March 31, 2019 and 2020, respectively.

Information about SENAO's outstanding stock options for the three months ended March 31, 2019 was as follows:

Three Months Ended

March 31, 2019

Granted on May 7, 2013

Weighted

Number of

Average

Options

Exercise Price

(Thousand)

(NT$)

Employee stock options

Options outstanding at beginning of the period

5,318

$ 66.20

Options forfeited

(602)

-

Options outstanding at end of the period

4,716

66.20

Option exercisable at end of the period

4,716

66.20

As of March 31, 2020 and December 31, 2019, there was no outstanding stock options.

As of March 31, 2019, information about employee stock options outstanding was as follows:

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Number of

Remaining

Average

Number of

Average

Exercise Price

Options

Contractual

Exercise

Options

Exercise

(NT$)

(Thousand)

Life (Years)

Price (NT$)

(Thousand)

Price (NT$)

$ 66.20

4,716

0.10

$ 66.20

4,716

$ 66.20

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

Stock Options

Granted on

May 7, 2013

Grant-date share price (NT$)

$93.00

Exercise price (NT$)

$93.00

Dividends yield

-

Risk-free interest rate

0.91%

Expected life

4.375 years

Expected volatility

36.22%

Weighted average fair value of grants (NT$)

$28.72

- 50 -

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

b. CHIEF share-based compensation plan ("CHIEF Plan") described as follows:

Resolution Date by

Effective Date for

CHIEF's Board of

Exercise Price

Plan Registration

Directors

Stock Options Units

(NT$)

2017.12.18

2017.12.19

950.00

$

135.60

(Original price $

147.00)

2018.10.31

50.00

$

141.70

(Original price $

147.00)

2015.11.17

2015.10.22

2,000.00

$

34.40

(Original price $

43.00)

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

The compensation costs for stock options granted on October 31, 2018 were $138 thousand and $138 thousand for the three months ended March 31, 2020 and 2019, respectively.

The compensation costs for stock options granted on December 19, 2017 were $72 thousand and $168 thousand for the three months ended March 31, 2020 and 2019, respectively.

The compensation costs for stock options granted on October 22, 2015 were $124 thousand for the three months ended March 31, 2019. No compensation cost of stock options was recognized for the three months ended March 31, 2020.

CHIEF modified the plan terms of stock options granted on October 31, 2018 in June 2019 and the exercise price changed from $147.00 to $141.70 per share. The modification did not cause any incremental fair value granted.

CHIEF modified the plan terms of stock options granted on December 19, 2017 in June 2019 and the exercise price changed from $140.60 to $135.60 per share. The modification did not cause any incremental fair value granted.

Information about CHIEF's outstanding stock options for the three months ended March 31, 2020 and 2019 was as follows:

Three Months Ended March 31, 2020

Granted on October 31,

Granted on December

Granted on October 22,

2018

19, 2017

2015

Weighted

Weighted

Weighted

Average

Average

Average

Exercise

Exercise

Exercise

Number of

Price

Number of

Price

Number of

Price

Options

(NT$)

Options

(NT$)

Options

(NT$)

Employee stock options

Options outstanding at beginning of

the period

46.00

$ 141.70

897.00

$ 135.60

314.25

$ 34.40

Options exercised

-

-

(448.50)

135.60

(314.25)

34.40

(Continued)

- 51 -

Three Months Ended March 31, 2020

Granted on October 31,

Granted on December

Granted on October 22,

2018

19, 2017

2015

Weighted

Weighted

Weighted

Average

Average

Average

Exercise

Exercise

Exercise

Number of

Price

Number of

Price

Number of

Price

Options

(NT$)

Options

(NT$)

Options

(NT$)

Options forfeited

-

$ -

(15.00)

$ -

-

$

-

Options outstanding at end of the

period

46.00

141.70

433.50

135.60

-

-

Options exercisable at end of the

period

-

-

-

-

-

-

(Concluded)

Three Months Ended March 31, 2019

Granted on October 31,

Granted on December

Granted on October 22,

2018

19, 2017

2015

Weighted

Weighted

Weighted

Average

Average

Average

Exercise

Exercise

Exercise

Number of

Price

Number of

Price

Number of

Price

Options

(NT$)

Options

(NT$)

Options

(NT$)

Employee stock options

Options outstanding at beginning of

the period

50.00

$ 147.00

925.00

$ 140.60

882.75

$

34.40

Options exercised

-

-

-

-

(416.50)

34.40

Options outstanding at end of the

period

50.00

147.00

925.00

140.60

466.25

34.40

Options exercisable at end of the

period

-

-

-

-

-

-

As of March 31, 2020, information about employee stock options outstanding was as follows:

Granted on October 31, 2018

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$141.70

46.00

3.58

$141.70

-

$

-

Granted on December 19, 2017

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$135.60

433.50

2.72

$135.60

-

$

-

- 52 -

As of March 31, 2020, all the stock options granted on October 22, 2015 were exercised.

As of December 31, 2019, information about employee stock options outstanding was as follows:

Granted on October 31, 2018

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$141.70

46.00

3.83

$141.70

-

$

-

Granted on December 19, 2017

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$135.60

897.00

2.96

$135.60

448.50

$135.60

Granted on October 22, 2015

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$ 34.40

314.25

0.81

$ 34.40

314.25

$ 34.40

As of March 31, 2019, information about employee stock options outstanding was as follows:

Granted on October 31, 2018

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$147.00

50.00

4.58

$147.00

-

$

-

Granted on December 19, 2017

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$140.60

925.00

3.72

$140.60

-

$

-

- 53 -

Granted on October 22, 2015

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$ 34.40

466.25

1.56

$ 34.40

-

$

-

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

Stock Options

Stock Options

Stock Options

Granted on

Granted on

Granted on

October 31,

December 19,

October 22,

2018

2017

2015

Grant-date share price (NT$)

$166.00

$95.92

$39.55

Exercise price (NT$)

$147.00

$147.00

$43.00

Dividends yield

-

-

-

Risk-free interest rate

0.72%

0.62%

0.86%

Expected life

5 years

5 years

5 years

Expected volatility

16.60%

17.35%

21.02%

Weighted average fair value of grants

(NT$)

$33,540

$2,318

$4,863

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

  1. CHTSCshare-based compensation plan ("CHTSC Plan") described as follows:
    The Board of Directors of CHTSC resolved to issue 4,500 options that are granted to specific employees that meet the vesting conditions on December 20, 2019. Each option is eligible to subscribe for one thousand common stocks when exercisable, and the exercisable price is $19.085. The CHTSC Plan has exercise price adjustment formula upon the changes in common stocks. The options of CHTSC Plan are valid for five years and the graded vesting schedule will vest one year after the grant date.
    The compensation cost of stock options granted was $1,436 thousand for the three months ended March 31, 2020.

- 54 -

Information about CHTSC's outstanding stock options for the three months ended March 31, 2020 was as follows:

Three Months Ended

March 31, 2020

Granted on December 20, 2019

Weighted

Average

Number of

Exercise Price

Options

(NT$)

Employee stock options

Options outstanding at beginning and end of the period

4,500

$

19.085

Options exercisable at end of the period

-

-

As of March 31, 2020, information about employee stock options outstanding was as follows:

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$19.085

4,500

4.72

$19.085

-

$

-

As of December 31, 2019, information about employee stock options outstanding was as follows:

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$19.085

4,500

4.97

$19.085

-

$

-

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

Stock Options

Granted on

December

20,2019

Grant-date share price (NT$)

$20.17

Exercise price (NT$)

$19.085

Dividends yield

12.49%

Risk-free interest rate

0.54%

Expected life

5 years

Expected volatility

42.41%

Weighted average fair value of grants (NT$)

$2,470

- 55 -

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

34. CASH FLOW INFORMATION

For the three months ended March 31, 2020 and 2019, the Company entered into the following non-cash investing activities:

Three Months Ended March 31

2020

2019

Increase in property, plant and equipment

$

2,950,879

$

3,795,681

Changes in other payables

778,532

696,700

$

3,729,411

$

4,492,381

Increase in intagible assets

$

48,420,261

$

54,332

Changes in other assets

(1,000,000)

-

$

47,420,261

$

54,332

For the three months ended March 31, 2020 and 2019, changes in liabilities arising from financing activities, including non-cash transactions, were as follows:

Cash Flows

From

Cash Flows

Operation

Balance on

From

Changes In Non-Cash

Activities -

Balance on

January 1,

Financing

Transactions

Interest

March 31,

2020

Activities

New Leases

Others

Paid

2020

Lease liabilities

$ 9,758,138

$ (992,494)

$

1,162,359

$

(86,824)

$

(21,472)

$ 9,819,707

Cash Flows

From

Cash Flows

Operation

Balance on

From

Changes In Non-Cash

Activities -

Balance on

January 1,

Financing

Transactions

Interest

March 31,

2019

Activities

New Leases

Others

Paid

2019

Lease liabilities

$10,340,057

$ (1,019,347)

$

799,527

$

(245,466)

$

(21,388)

$ 9,853,383

35. CAPITAL MANAGEMENT

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

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

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

- 56 -

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

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

36. FINANCIAL INSTRUMENTS Fair Value Information

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

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

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

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

  1. Financial instruments that are not measured at fair value but for which fair value is disclosed
    The Company considers that the carrying amounts of financial assets and liabilities not measured at fair value approximate their fair values or the fair values cannot be reliable estimated, no financial instruments need to be disclosed on balance sheet date.
  2. Financial instruments that are measured at fair values on a recurring basisMarch 31, 2020

Level 1

Level 2

Level 3

Total

Financial assets at FVTPL

Listed stocks

$

6,631

$

-

$

-

$

6,631

Non-listed stocks

-

-

767,362

767,362

$

6,631

$

-

$

767,362

$

773,993

Financial assets at FVOCI

Listed stocks

$

1,823,534

$

-

$

-

$

1,823,534

Non-listed stocks

-

-

4,079,647

4,079,647

$

1,823,534

$

-

$

4,079,647

$

5,903,181

Financial liabilities at

FVTPL

Derivatives

$

-

$

570

$

-

$

570

- 57 -

December 31, 2019

Level 1

Level 2

Level 3

Total

Financial assets at FVTPL

Derivatives

$

-

$

53

$

-

$

53

Listed stocks

463

-

-

463

Non-listed stocks

-

-

778,105

778,105

$

463

$

53

$

778,105

$

778,621

Hedging financial assets

$

-

$

327

$

-

$

327

Financial assets at FVOCI

Listed stocks

$

2,453,616

$

-

$

-

$

2,453,616

Non-listed stocks

-

-

4,815,301

4,815,301

$

2,453,616

$

-

$

4,815,301

$

7,268,917

Financial liabilities at

FVTPL

Derivatives

$

-

$

239

$

-

$

239

March 31, 2019

Level 1

Level 2

Level 3

Total

Financial assets at FVTPL

Non-listed stocks

$

-

$

-

$

511,274

$

511,274

Financial assets at FVOCI

Listed stocks

$

2,599,314

$

-

$

-

$

2,599,314

Non-listed stocks

-

-

4,174,792

4,174,792

$

2,599,314

$

-

$

4,174,792

$

6,774,106

Financial liabilities at

FVTPL

Derivatives

$

-

$

2,219

$

-

$

2,219

Hedging financial liabilities

$

-

$

2,719

$

-

$

2,719

There were no transfers between Levels 1 and 2 for the three months ended March 31, 2020 and 2019.

- 58 -

The reconciliations for financial assets measured at Level 3 are listed below:

Three months ended March 31, 2020

Measured at

Measured at

Fair Value

Fair Value

through Other

through Profit

Comprehensive

Financial Assets

or Loss

Income

Total

Balance on January 1, 2020

$

778,105

$

4,815,301

$

5,593,406

Recognized in profit or loss under "Other

gains and losses"

(10,743)

-

(10,743)

Recognized in other comprehensive

income under "Unrealized gain or loss

on investments in equity instruments at

fair value through other comprehensive

income"

-

(735,654)

(735,654)

Balance on March 31, 2020

$

767,362

$

4,079,647

$

4,847,009

Unrealized loss for the three months ended

March 31, 2020

$

(10,743)

Three months ended March 31, 2019

Measured at

Measured at

Fair Value

Fair Value

through Other

through Profit

Comprehensive

Financial Assets

or Loss

Income

Total

Balance on January 1, 2019

$

517,362

$

4,032,660

$

4,550,022

Recognized in profit or loss under "Other

gains and losses"

(6,088)

-

(6,088)

Recognized in other comprehensive

income under "Unrealized gain or loss

on investments in equity instruments at

fair value through other comprehensive

income"

-

142,132

142,132

Balance on March 31, 2019

$

511,274

$

4,174,792

$

4,686,066

Unrealized loss for the three months ended

March 31, 2019

$

(6,088)

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

  1. The fair values of financial assets and financial liabilities with standard terms and conditions and traded in active markets are determined with reference to quoted market prices.
  2. For derivatives, fair values are estimated using discounted cash flow model. Future cash flows are estimated based on observable inputs including forward exchange rates at the end of the reporting periods and the forward and spot exchange rates stated in the contracts, discounted at a rate that reflects the credit risk of various counterparties.

- 59 -

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

December 31,

March 31, 2020

2019

March 31, 2019

Discount for lack of marketability

13.73%-20.00%

13.73%-20.00%

12.73%-20.00%

Noncontrolling interests discount

21.45%-25.00%

21.45%-25.00%

24.41%-25.00%

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

March 31, 2020

March 31, 2019

Discount for lack of marketability

5% decrease

$

302,934

$

271,635

Noncontrolling interests discount

5% decrease

$

52,925

$

16,940

Categories of Financial Instruments

December 31,

March 31, 2020

2019

March 31, 2019

Financial assets

Measured at FVTPL

Mandatorily measured at FVTPL

$

773,993

$

778,621

$

511,274

Hedging financial assets

-

327

-

Financial assets at amortized cost (Note a)

48,934,340

71,851,933

74,794,074

Financial assets at FVOCI

5,903,181

7,268,917

6,774,106

Financial liabilities

Measured at FVTPL

Held for trading

570

239

2,219

Hedging financial liabilities

-

-

2,719

Measured at amortized cost (Note b)

49,833,841

34,433,210

34,356,341

Note a: The balances included cash and cash equivalents, trade notes and accounts receivable, receivables from related parties, other current monetary assets and refundable deposits (classified as other noncurrent assets), which were financial assets measured at amortized cost.

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

- 60 -

Financial Risk Management Objectives

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

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

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

  1. Market risk
    The Company is exposed to market risks of changes in foreign currency exchange rates and interest rates. The Company uses forward exchange contracts to hedge the exchange rate risk arising from assets and liabilities denominated in foreign currencies.
    There were no changes to the Company's exposure to market risks or the manner in which these risks are managed and measured.
    1. Foreign currency risk
      The carrying amounts of the Company's foreign currency denominated monetary assets and monetary liabilities at the balance sheet dates were as follows:

December 31,

March 31, 2020

2019

March 31, 2019

Assets

USD

$ 5,699,931

$ 5,781,593

$ 6,305,055

EUR

16,599

11,792

29,834

SGD

229,967

224,501

128,110

JPY

21,229

17,092

30,103

RMB

15,819

8,854

2,307

Liabilities

USD

4,097,882

4,120,881

5,643,875

EUR

179,523

206,447

1,061,209

SGD

1,115,049

1,262,926

1,425,877

JPY

8,705

14,206

19,198

RMB

-

310

-

- 61 -

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

December 31,

March 31, 2020

2019

March 31, 2019

Assets

USD

$

-

$

53

$

-

EUR

-

327

-

Liabilities

USD

-

11

6

EUR

570

228

4,932

Foreign currency sensitivity analysis

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

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

Three Months Ended March 31

2020

2019

Profit or loss

Monetary assets and liabilities (a)

USD

$ 80,102

$ 33,059

EUR

(8,146)

(51,569)

SGD

(44,254)

(64,888)

JPY

626

545

RMB

791

115

Derivatives (b)

USD

-

462

EUR

1,767

10,470

Equity

Derivatives (c)

EUR

-

12,469

  1. This is mainly attributable to the exposure to foreign currency denominated receivables and payables of the Company outstanding at the balance sheet dates.
  2. This is mainly attributable to forward exchange contracts.
  3. This is mainly attributable to the changes in the fair value of derivatives that are designated as cash flow hedges.

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

- 62 -

  1. Interest rate risk
    The carrying amounts of the Company's exposures to interest rates on financial assets and financial liabilities at the balance sheet dates were as follows:

December 31,

March 31, 2020

2019

March 31, 2019

Fair value interest rate risk

Financial assets

$ 13,211,537

$ 30,946,503

$ 34,376,501

Financial liabilities

29,785,336

9,758,138

9,908,383

Cash flow interest rate risk

Financial assets

7,326,188

7,681,032

8,558,623

Financial liabilities

1,670,000

1,690,000

1,720,000

Interest rate sensitivity analysis

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

If interest rates had been 25 basis points higher/lower and all other variables were held constant, the Company's pre-tax income would increase/decrease by $14,140 thousand and $17,097 thousand for the three months ended March 31, 2020 and 2019, respectively. This is mainly attributable to the Company's exposure to floating interest rates on its financial assets and short-term and long-term loan.

    1. Other price risk
      The Company is exposed to equity price risks arising from holding other company's equity. Equity investments are held for strategic rather than trading purposes. The management managed the risk through holding various risk portfolios. Further, the Company assigned finance and investment departments to monitor the price risk.
      Equity price sensitivity analysis
      The sensitivity analyses below have been determined based on the exposure to equity price risks at the end of the reporting period.
      If equity prices had been 5% higher/lower, pre-tax profit and pre-tax other comprehensive income would have increased/decreased by $38,700 thousand and $295,159 thousand as a result of the changes in fair value of financial assets at FVTPL and financial assets at FVOCI for the three months ended March 31, 2020. If equity prices had been 5% higher/lower, pre-tax profit and pre-tax other comprehensive income would have increased/decreased by $25,564 thousand and $338,705 thousand as a result of the changes in fair value of financial assets at FVTPL and financial assets at FVOCI for the three months ended March 31, 2019.
  2. Credit risk
    Credit risk refers to the risk that a counterparty would default on its contractual obligations resulting in financial loss to the Company. The maximum credit exposure of the aforementioned financial instruments is equal to their carrying amounts recognized in consolidated balance sheet as of the balance sheet date.

- 63 -

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

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

  1. Liquidity risk
    The Company manages and maintains sufficient cash and cash equivalent position to support the operations and reduce the impact on fluctuation of cash flow.
    1. Liquidity and interest risk tables
      The following tables detailed the Company's remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables had been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company is required to pay.

March 31, 2020

Weighted

Average

Effective

Interest Rate

Less than

3 Months to

Add More than

(%)

1 Month

1-3 Months

1 Year

1-5 Years

5 Years

Total

Non-derivative financial liabilities

Non-interest bearing

-

$ 28,722,899

$

1,352,266

$

1,807,337

$

4,601,704

$

-

$ 36,484,206

Floating interest rate instruments

0.97

60,000

-

10,000

1,600,000

-

1,670,000

Fixed interest rate instruments

0.62

-

4,000,000

16,000,000

-

-

20,000,000

$ 28,782,899

$

5,352,266

$

17,817,337

$

6,201,704

$

-

$ 58,154,206

Information about the maturity analysis for lease liabilities was as follows:

Less than

Add More

1 Year

1-3 Years

3-5 Years

than 5 Years

Total

Lease liabilities

$ 3,409,621

$ 4,306,574

$ 1,629,653

$ 645,022

$ 9,990,870

December 31, 2019

Weighted

Average

Effective

Interest Rate

Less than

3 Months to

Add More than

(%)

1 Month

1-3 Months

1 Year

1-5 Years

5 Years

Total

Non-derivative financial liabilities

Non-interest bearing

-

$ 36,387,024

$

-

$

2,531,721

$

4,747,644

$

-

$ 43,666,389

Floating interest rate instruments

0.98

50,000

10,000

30,000

1,600,000

-

1,690,000

$ 36,437,024

$

10,000

$

2,561,721

$

6,347,644

$

-

$ 45,356,389

Information about the maturity analysis for lease liabilities was as follows:

Less than

More than

1 Year

1-3 Years

3-5 Years

5 Years

Total

Lease liabilities

$ 3,309,578

$ 4,394,009

$ 1,581,034

$ 645,520

$ 9,930,141

- 64 -

March 31, 2019

Weighted

Average

Effective

Interest Rate

Less than

3 Months to

Add More than

(%)

1 Month

1-3 Months

1 Year

1-5 Years

5 Years

Total

Non-derivative financial liabilities

Non-interest bearing

-

$ 32,040,527

$

1,425,770

$

2,136,648

$

4,646,233

$

-

$ 40,249,178

Floating interest rate instruments

0.99

-

-

120,000

1,600,000

-

1,720,000

Fixed interest rate instruments

1.15

55,000

-

-

-

-

55,000

$ 32,095,527

$

1,425,770

$

2,256,648

$

6,246,233

$

-

$ 42,024,178

Information about the maturity analysis for lease liabilities was as follows:

Less than

Add More

1 Year

1-3 Years

3-5 Years

than 5 Years

Total

Lease liabilities

$ 3,555,491

$ 4,339,888

$ 1,600,769

$ 707,739

$10,203,887

The following table detailed the Company's liquidity instruments. The table had been drawn up based on outflows on those derivatives that require gross settlement.

analysis for its derivative financial the undiscounted gross inflows and

Less than

3 Months to

1 Month

1-3 Months

1 Year

1-5 Years

Total

March 31, 2020

Gross settled

Forward exchange contracts

Inflow

$

-

$

35,335

$

-

$

-

$

35,335

Outflow

-

35,905

-

-

35,905

$

-

$

(570)

$

-

$

-

$

(570)

December 31, 2019

Gross settled

Forward exchange contracts

Inflow

$

25,566

$

135,075

$

-

$

-

$

160,641

Outflow

25,524

134,976

-

-

160,500

$

42

$

99

$

-

$

-

$

141

March 31, 2019

Gross settled

Forward exchange contracts

Inflow

$

9,239

$

459,818

$

-

$

-

$

469,057

Outflow

9,245

464,750

-

-

473,995

$

(6)

$

(4,932)

$

-

$

-

$

(4,938)

- 65 -

2) Financing facilities

December 31,

March 31, 2020

2019

March 31, 2019

Facilities from unsecured bank loan

and commercial paper payable

Amount used

$

20,105,826

$

120,681

$

207,445

Amount unused

46,045,299

46,109,219

46,046,655

$

66,151,125

$

46,229,900

$

46,254,100

Secured bank loan facility

Amount used

$

1,600,000

$

1,600,000

$

1,600,000

Amount unused

1,340,000

1,340,000

1,340,000

$

2,940,000

$

2,940,000

$

2,940,000

37. RELATED PARTIES TRANSACTIONS

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

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

Company

Relationship

Taiwan International Standard Electronics Co., Ltd.

Associate

So-net Entertainment Taiwan Limited

Associate

KKBOX Taiwan Co., Ltd.

Associate

KingwayTek Technology Co., Ltd.

Associate

UUPON Inc.

Associate

Taiwan International Ports Logistics Corporation

Associate

International Integrated System, Inc.

Associate

Senao Networks, Inc.

Associate

EnRack Tech. Co., Ltd.

Subsidiary of the Company's associate, Senao

Networks, Inc.

Emplus Technologies, Inc.

Subsidiary of the Company's associate, Senao

Networks, Inc.

ST-2 Satellite Ventures Pte., Ltd.

Associate

Viettel-CHT Co., Ltd.

Associate

Click Force Co., Ltd.

Associate

Alliance Digital Tech Co., Ltd.

Associate

MeWorks Limited（HK）

Associate

Chunghwa PChome Fund I Co., Ltd.

Associate

Cornerstone Ventures Co., Ltd.

Associate

Next Commercial Bank Co., Ltd.

Associate

(Continued)

- 66 -

Company

Relationship

Other related parties

Chunghwa Telecom Foundation

A nonprofit organization of which the funds

donated by Chunghwa exceeds one third of

its total funds

Senao Technical and Cultural Foundation

A nonprofit organization of which the funds

donated by SENAO exceeds one third of its

total funds

Sochamp Technology Co., Ltd.

Investor of significant influence over CHST

E-Life Mall Co., Ltd.

One of the directors of E-Life Mall and a

director of SENAO are members of an

immediate family

Engenius Technologies Co., Ltd.

Chairman of Engenius Technologies Co., Ltd.

is a member of SENAO's management

Cheng Keng Investment Co., Ltd.

Chairman of Cheng Keng Investment Co.,

Ltd. and SENAO's chief executive officer

are members of an immediate family

Cheng Feng Investment Co., Ltd.

Chairman of Cheng Feng Investment Co.,

Ltd. and SENAO's chief executive officer

are members of an immediate family

All Oriented Investment Co., Ltd.

Chairman of All Oriented Investment Co.,

Ltd. and SENAO's chief executive officer

are members of an immediate family

Hwa Shun Investment Co., Ltd.

Chairman of Hwa Shun Investment Co., Ltd.

and SENAO's chief executive officer are

members of an immediate family

Yu Yu Investment Co., Ltd.

Chairman of Yu Yu Investment Co., Ltd. and

SENAO's chief executive officer are

members of an immediate family

United Daily News Co., Ltd.

Investor of significant influence over SFD

Shenzhen Century Communication Co., Ltd.

Investor of significant influence over SCT

(Concluded)

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

Revenues

Three Months Ended March 31

2020

2019

Associates

$

61,699

$

67,181

Others

16,992

25,982

$

78,691

$

93,163

- 67 -

Operating Costs and Expenses

Three Months Ended March 31

2020

2019

Associates

$

173,950

$

213,958

Others

55,693

62,182

$

229,643

$

276,140

2) Non-operating transactions

Non-operating Income and

Expenses

Three Months Ended March 31

2020

2019

Associates

$

63,560

$ (11,955)

Others

11

9

$

63,571

$ (11,946)

3)

Receivables

December 31,

March 31, 2020

2019

March 31, 2019

Associates

$

6,444

$

10,356

$

10,106

Others

3,268

6,478

8,145

$

9,712

$

16,834

$

18,251

4)

Payables

December 31,

March 31, 2020

2019

March 31, 2019

Associates

$

335,248

$

650,617

$

357,595

Others

3,201

3,366

3,738

$

338,449

$

653,983

$

361,333

5)

Customers' deposits

December 31,

March 31, 2020

2019

March 31, 2019

Associates

$

6,734

$

7,595

$

5,870

6) Acquisition of property, plant and equipment

Three Months Ended March 31

2020

2019

Associates

$

12,995

$

-

-

68 -

  1. Lease-inagreements
    Chunghwa entered into a contract with ST-2 Satellite Ventures Pte., Ltd. on March 12, 2010 to lease capacity on the ST-2 satellite. This lease term is for 15 years which should start from the official operation of ST-2 satellite and the total contract value is approximately $6,000,000 thousand (SG$260,723 thousand), including a prepayment of $3,067,711 thousand at the inception of the lease, and the rest of amount should be paid annually when ST-2 satellite starts its official operation. ST-2 satellite was launched in May 2011 and began its official operation in August 2011.
    The lease liabilities of ST-2 Satellite Ventures Pte., Ltd. as of balance sheet dates were as follows:

December 31,

March 31, 2020

2019

March 31, 2019

Lease liabilities - current

$

179,398

$

188,271

$

192,260

Lease liabilities - noncurrent

932,884

1,023,889

1,230,614

$

1,112,282

$

1,212,160

$

1,422,874

The interest expense recognized for the aforementioned lease liabilities were $2,412 thousand and $2,837 thousand for the three months ended March 31, 2020 and 2019, respectively.

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

Three Months Ended March 31

2020

2019

Short-term employee benefits

$

72,366

$

76,035

Post-employment benefits

2,010

2,158

Share-based payment

20

68

$

74,396

$

78,261

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

38. PLEDGED ASSETS

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

December 31,

March 31, 2020

2019

March 31, 2019

Property, plant and equipment

$

2,483,946

$

2,491,324

$

2,513,460

Land held under development (included in

inventories)

1,998,733

1,998,733

1,998,733

Restricted assets (included in other assets -

others)

2,850

2,500

2,500

$

4,485,529

$

4,492,557

$

4,514,693

- 69 -

  1. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS
    Except for those disclosed in other notes, the Company's significant commitments and contingent liabilities as of March 31, 2020 were as follows:
    1. Acquisitions of land and buildings of $59,769 thousand.
    2. Acquisitions of telecommunications equipment of $23,605,294 thousand.
    3. Unused letters of credit amounting to $50,000 thousand.
    4. A commitment to contribute $2,000,000 thousand to a Piping Fund administered by the Taipei City Government, of which $1,000,000 thousand was contributed by Chunghwa on August 15, 1996 (classified as other monetary assets - noncurrent). If the fund is not sufficient, Chunghwa will contribute the remaining $1,000,000 thousand upon notification from the Taipei City Government.
    5. Chunghwa committed that when its ownership interest in NCB is greater than 25% and NCB encounters financial difficulty or capital adequacy ratio of NCB cannot meet the related regulation requirements, the Company will provide financial support to assist NCB maintain in healthy financial condition.
    6. CHPT signed the contract for its headquarters construction amounting to $1,613,800 thousand in July 2017. The payment of $1,533,110 thousand has been made as of March 31, 2020.
  3. SIGNIFICANT EVENTS AFTER REPORTING PERIOD
    Chunghwa signed a joint development agreement with the MOTC which stated that the MOTC would provide the national land and Chunghwa would be in charge of the planning and construction for the MOTC's office building, Chunghwa's Renai office building, etc. According to the agreement, the MOTC and Chunghwa would each own a certain percentage of the buildings, and Chunghwa is to pay or get the reimbursement for the difference between the assessed value of the land and the construction cost paid by Chunghwa on behalf of the MOTC. The aforementioned difference amounting to $ 1,056,680 thousand due to the MOTC is reported to Chunghwa's Board of Directors in May 2020 and Chunghwa will obtain the ownership of the respective property once the payment is made.
  4. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES
    The following information summarizes the disclosure of the currency which is other than functional currency of Chunghwa and its subsidiaries. The following exchange rates are the exchange rates used to translate to the presentation currency in the consolidated financial statements, which is NTD:

March 31, 2020

Foreign

New Taiwan

Currencies

Exchange

Dollars

(Thousands)

Rate

(Thousands)

Assets denominated in foreign currencies

Monetary items

USD

$

188,583

30.23

$ 5,699,931

EUR

499

33.24

16,599

SGD

10,832

21.23

229,967

(Continued)

- 70 -

March 31, 2020

Foreign

New Taiwan

Currencies

Exchange

Dollars

(Thousands)

Rate

(Thousands)

JPY

$

76,144

0.279

$

21,229

RMB

3,718

4.25

15,819

Non-monetary items

Investments accounted for using equity

method

SGD

23,746

21.23

504,119

VND

284,347,414

0.0012

329,843

Liabilities denominated in foreign currencies

Monetary items

USD

135,579

30.23

4,097,882

EUR

5,401

33.24

179,523

SGD

52,522

21.23

1,115,049

JPY

31,224

0.279

8,705

(Concluded)

December 31, 2019

Foreign

New Taiwan

Currencies

Exchange

Dollars

(Thousands)

Rate

(Thousands)

Assets denominated in foreign currencies

Monetary items

USD

$

192,849

29.98

$

5,781,593

EUR

351

33.59

11,792

SGD

10,076

22.28

224,501

JPY

61,929

0.276

17,092

RMB

2,057

4.305

8,854

Non-monetary items

Investments accounted for using equity

method

SGD

22,483

22.28

500,930

VND

270,542,735

0.0012

316,535

Liabilities denominated in foreign currencies

Monetary items

USD

137,454

29.98

4,120,881

EUR

6,146

33.59

206,447

SGD

56,685

22.28

1,262,926

JPY

51,472

0.276

14,206

RMB

72

4.305

310

- 71 -

March 31, 2019

Foreign

New Taiwan

Currencies

Exchange

Dollars

(Thousands)

Rate

(Thousands)

Assets denominated in foreign currencies

Monetary items

USD

$

204,577

30.82

$ 6,305,055

EUR

862

34.61

29,834

SGD

5,631

22.75

128,110

JPY

108,282

0.278

30,103

RMB

504

4.58

2,307

Non-monetary items

Investments accounted for using equity

method

SGD

22,949

22.75

522,084

VND

250,242,975

0.00121

302,794

Liabilities denominated in foreign currencies

Monetary items

USD

183,123

30.82

5,643,875

EUR

30,662

34.61

1,061,209

SGD

62,676

22.75

1,425,877

JPY

69,059

0.278

19,198

The unrealized foreign exchange gains were $59,759 thousand and $39,394 thousand for the three months ended March 31, 2020 and 2019, respectively. Due to the various foreign currency transactions and the functional currency of each individual entity of the Company, foreign exchange gains and losses cannot be disclosed by the respective significant foreign currency.

42. ADDITIONAL DISCLOSURES

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

  1. Financing provided: None.
  2. Endorsement/guarantee provided: Please see Table 1.
  3. Marketable securities held (excluding investments in subsidiaries and associates): Please see Table 2.
  4. Marketable securities acquired and disposed of at costs or prices at least $300 million or 20% of thepaid-in capital: None.
  5. Acquisition of individual real estate at costs of at least $300 million or 20% of thepaid-in capital: Please see Table 3.
  6. Disposal of individual real estate at prices of at least $300 million or 20% of thepaid-in capital: None.
    • 72 -
  1. Total purchases from or sales to related parties amounting to at least $100 million or 20% of thepaid-in capital: Please see Table 4.
  2. Receivables from related parties amounting to $100 million or 20% of thepaid-in capital: Please see Table 5.
  3. Names, locations, and other information of investees on which the Company exercises significant influence (excluding investment in Mainland China): Please see Table 6.
  4. Derivative instruments transactions: Please see Notes 7, 20 and 36.
  5. Investment in Mainland China: Please see Table 7.
  6. Intercompany relationships and significant intercompany transaction: Please see Table 8.
  7. Information of main stakeholders: Please see Table 9.

43. SEGMENT INFORMATION

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

  1. Domestic fixed communications business - the provision of local telephone services, domestic long distance telephone services, broadband access, and related services;
  2. Mobile communications business - the provision of mobile services, sales of mobile handsets and data cards, and related services;
  3. Internet business - the provision of HiNet services and related services;
  4. International fixed communications business - the provision of international long distance telephone services and related services;
  5. Others - the provision ofnon-telecom services and the corporate related items not allocated to reportable segments.

Some operating segments have been aggregated into a single operating segment taking into account the following factors: (a) similar economic characteristics such as long-term gross profit margins; (b) the nature of the telecommunications products and services are similar; (c) the nature of production processes of the telecommunications products and services are similar; (d) the type or class of customer for the telecommunications products and services are similar; and (e) the methods used to provide the services to the customers are similar.

There was no material differences between the accounting policies of the operating segments and the accounting policies described in Note 3.

- 73 -

Segment Revenues and Operating Results

Analysis by reportable segment of revenues and operating results of continuing operations are as follows:

International

Domestic Fixed

Mobile

Fixed

Communi-

Communi-

Communi-

cations

cations

Internet

cations

Business

Business

Business

Business

Others

Total

Three months ended March 31, 2020

Revenues

From external customers

$

14,691,853

$

22,540,777

$

7,512,040

$

2,236,110

$

1,169,219

$ 48,149,999

Intersegment revenues

3,952,209

380,195

923,404

487,817

1,262,553

7,006,178

Segment revenues

$

18,644,062

$

22,920,972

$

8,435,444

$

2,723,927

$

2,431,772

55,156,177

Intersegment elimination

(7,006,178 )

Consolidated revenues

$ 48,149,999

Segment operating costs and expenses

$

12,233,189

$

16,696,101

$

3,480,134

$

2,219,609

$

2,990,136

$ 37,619,169

Segment income (loss) before income tax

$

5,169,284

$

2,873,707

$

3,034,483

$

242,065

$

(668,135)

$ 10,651,404

Three months ended March 31, 2019

Revenues

From external customers

$

15,788,192

$

24,481,095

$

7,418,363

$

2,770,888

$

872,623

$ 51,331,161

Intersegment revenues

4,078,238

392,128

960,639

577,885

1,068,788

7,077,678

Segment revenues

$

19,866,430

$

24,873,223

$

8,379,002

$

3,348,773

$

1,941,411

58,408,839

Intersegment elimination

(7,077,678 )

Consolidated revenues

$ 51,331,161

Segment operating costs and expenses

$

13,858,067

$

18,357,933

$

3,367,805

$

2,797,460

$

2,543,578

$ 40,924,843

Segment income (loss) before income tax

$

4,668,808

$

3,241,819

$

3,010,735

$

201,982

$

(578,621)

$ 10,544,723

Main Products and Service Revenues

Three Months Ended March 31

2020

2019

Mobile services revenue

$

14,284,650

$

14,721,342

Sales of products

9,513,523

10,589,242

Local telephone and domestic long distance telephone services

revenue

6,611,740

7,004,002

Broadband access and domestic leased line services revenue

5,541,156

5,512,974

Data Communications internet services revenue

5,305,258

5,240,314

International network and leased telephone services revenue

1,079,323

1,810,881

Others

5,814,349

6,452,406

$

48,149,999

$

51,331,161

- 74 -

TABLE 1

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

ENDORSEMENTS/GUARANTEES PROVIDED THREE MONTHS ENDED MARCH 31, 2020 (Amounts in Thousands of New Taiwan Dollars)

Guaranteed Party

Limits on

Ratio of

Endorsement/

Endorsement/

Amount of

Accumulated

Maximum

Endorsement/

Endorsement/

Guarantee

Endorsement/

Guarantee

Guarantee

Guarantee

Maximum

Actual

Endorsement/

Endorsement/

Given on

No.

Endorsement/

Nature of

Amount

Ending

Guarantee to

Given by

Given by

Note

(Note 1)

Guarantee Provider

Name

Relationship

Provided to

Balance for

Balance

Borrowing

Guarantee

Net Equity

Guarantee

Parent on

Subsidiaries

Behalf of

the Period

Amount

Collateralized

Amount

Companies in

(Note 2)

Each

Per Latest

Behalf of

on Behalf of

by Properties

Allowable

Mainland

Guaranteed

Financial

Subsidiaries

Parent

China

Party

Statements

1

Senao International

Aval

b

$ 593,925

$ 300,000

$ 300,000

$ 300,000

$

-

5.05

$ 2,969,625

Yes

No

No

Notes 3 and 4

Co., Ltd.

Technologies

Co., Ltd.

Wiin Technology

b

593,925

100,000

100,000

100,000

-

1.68

2,969,625

Yes

No

No

Notes 3 and 4

Co., Ltd.

Note 1:

Significant transactions between the Company and its subsidiaries or among subsidiaries are numbered as follows:

  1. "0" for the Company.
  2. Subsidiaries are numbered from "1".

Note 2: Relationships between the endorsement/guarantee provider and the guaranteed party:

  1. A company with which it does business.
  2. A company in which the Company directly and indirectly holds more than 50 percent of the voting shares.
  3. A company that directly and indirectly holds more than 50 percent of the voting shares in the Company.
  4. Companies in which the Company holds, directly or indirectly, 90% or more of the voting shares.
  5. The Company fulfills its contractual obligations by providing mutual endorsements/guarantees for another company in the same industry or for joint builders for purposes of undertaking a construction project.
  6. All capital contributing shareholders make endorsements/guarantees for their jointly invested company in proportion to their shareholding percentages.
  7. Companies in the same industry provide among themselves joint and several security for a performance guarantee of a sales contract forpre-construction homes pursuant to the Consumer Protection Act for each other.

Note 3: The limits on endorsement or guarantee amount provided to each guaranteed party is up to 10% of the net assets value of the latest financial statements of Senao International Co., Ltd.

Note 4: The total amount of endorsement or guarantee that the Company is allowed to provide is up to 50% of the net assets value of the latest financial statements of Senao International Co., Ltd.

- 75 -

TABLE 2

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD MARCH 31, 2020

(Amounts in Thousands of New Taiwan Dollars)

March 31, 2020

Held Company Name

Marketable Securities Type and Name

Relationship with

Financial Statement Account

Shares

Carrying Value

Percentage of

Note

the Company

(Thousands/

Fair Value

(Note 1)

Ownership

Thousand Units)

Chunghwa Telecom Co., Ltd.

Stocks

Taipei Financial Center Corp.

-

Financial assets at FVOCI

172,927

$ 3,816,731

12

$ 3,816,731

-

Innovation Works Development Fund, L.P.

-

Financial assets at FVTPL - noncurrent

-

265,113

4

265,113

-

Industrial Bank of Taiwan II Venture Capital Co.,

-

Financial assets at FVOCI

5,252

17,084

17

17,084

-

Ltd. (IBT II)

Global Mobile Corp.

-

Financial assets at FVOCI

7,617

-

3

-

-

Innovation Works Limited

-

Financial assets at FVOCI

1,000

4,045

2

4,045

-

RPTI Intergroup International Ltd.

-

Financial assets at FVOCI

4,765

-

10

-

-

Taiwan mobile payment Co., Ltd.

-

Financial assets at FVOCI

1,200

4,470

2

4,470

-

Taiwania Capital Buffalo Fund Co., Ltd.

-

Financial assets at FVTPL - noncurrent

600,000

502,249

13

502,249

-

China Airlines Ltd.

-

Financial assets at FVOCI

263,622

1,742,542

5

1,742,542

Note 2

4 Gamers Entertainment Inc.

-

Financial assets at FVOCI

136

87,516

19.9

87,516

-

Senao International Co., Ltd.

Stocks

N.T.U. Innovation Incubation Corporation

-

Financial assets at FVOCI

1,200

10,373

9

10,373

-

CHIEF Telecom Inc.

Stocks

3 Link Information Service Co., Ltd.

-

Financial assets at FVOCI

374

950

10

950

-

WPG Holdings Limited

-

Financial assets at FVTPL - current

9

421

-

421

Note 2

WPG Holdings Limited

-

Financial assets at FVOCI

724

33,992

-

33,992

Note 2

Taichung Commercial Bank Co., Ltd.

-

Financial assets at FVTPL - current

600

6,210

-

6,210

Note 2

Chunghwa Investment Co., Ltd.

Stocks

Tatung Technology Inc.

-

Financial assets at FVOCI

4,571

133,489

11

133,489

-

iSing99 Inc.

-

Financial assets at FVOCI

10,000

-

7

-

-

Powtec ElectroChemical Corporation

-

Financial assets at FVOCI

20,000

-

2

-

-

Bossdom Digiinnovation Co., Ltd.

-

Financial assets at FVOCI

2,000

47,000

7

47,000

Note 2

Chunghwa Hsingta Co., Ltd.

Stocks

Cotech Engineering Fuzhou Corp.

-

Financial assets at FVOCI

-

4,989

5

4,989

-

Note 1: Showed at carrying amounts with fair value adjustments.

Note 2: Fair value was based on the closing price on March 31, 2020.

- 76 -

TABLE 3

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

ACQUISITION OF INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST $300 MILLION OR 20% OF THE PAID-IN CAPITAL THREE MONTHS ENDED MARCH 31, 2020

(Amounts in Thousands of New Taiwan Dollars)

Buyer

Property

Event Date

Transaction

Payment Status

Counterparty

Relationship

Information on Previous Title Transfer If Counterparty is a Related Party

Pricing Reference

Purpose of

Other Terms

Amount

Property Owner

Relationship

Transaction Date

Amount

Acquisition

Chunghwa Precision Test

Headquarters

2017.07.29-

$ 1,460,105

Monthly settlement

Fu Tsu

-

Not applicable

Not applicable

Not applicable

Not applicable

Bidding, price

Manufacturing

None

Tech. Co., Ltd.

2019.12.25

based on the

Construction

comparison and

purpose

construction

Co., Ltd.

price negotiation

progress and

acceptance

- 77 -

TABLE 4

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL THREE MONTHS ENDED MARCH 31, 2020

(Amounts in Thousands of New Taiwan Dollars)

Transaction Details

Abnormal Transaction

Notes / Accounts Payable

or Receivable

Company Name

Related Party

Nature of Relationship

Purchase/Sales

Amount

% to Total

Payment Terms

Units Price

Payment Terms

Ending Balance

% to Total

(Note 1)

(Notes 2 and 5)

(Notes 3 and 5)

Chunghwa Telecom Co., Ltd.

Senao International Co., Ltd.

Subsidiary

Sales

$

697,609

2

30 days

$

-

-

$

145,385

1

Purchase

156,273

1

30-90 days

-

-

(801,573)

(9)

Chunghwa System Integration Co., Ltd.

Subsidiary

Purchase

325,114

1

30 days

-

-

(333,298)

(4)

Honghwa International Co., Ltd.

Subsidiary

Purchase

1,321,672

5

30-60 days

-

-

(702,548)

(8)

Donghwa Telecom Co., Ltd.

Subsidiary

Purchase

114,437

-

90 days

-

-

(129,667)

(2)

Taiwan International Standard Electronics Co., Ltd.

Associate

Purchase

143,233

1

30-90 days

-

-

(119,130)

(1)

International Integrated System, Inc.

Associate

Purchase

167,298

1

30 days

-

-

(34,281)

-

Senao International Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

1,460,919

22

30-90 days

-

-

807,501

47

Purchase

653,674

11

30 days

-

-

(137,736)

(6)

Chunghwa System Integration Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

372,348

93

30 days

-

-

330,688

71

Honghwa International Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

1,282,278

95

30-60 days

-

-

701,269

98

Donghwa Telecom Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

114,437

32

90 days

-

-

129,667

29

Note 1: Purchase included acquisition of services costs.

Note 2: The differences were because Chunghwa Telecom Co., Ltd. and subsidiaries classified the amount as incremental costs of obtaining contracts, inventories, property, plant and equipment, intangible assets, and operating expenses.

Note 3: Notes and accounts receivable did not include the amounts collected for others and other receivables.

Note 4: Transaction terms with the related parties were determined in accordance with mutual agreements when there were no similar transactions with third parties. Other transactions with related parties were not significantly different from those with third parties.

Note 5: All inter-company transactions, balances, income and expenses are eliminated upon consolidation.

- 78 -

TABLE 5

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL MARCH 31, 2020

(Amounts in Thousands of New Taiwan Dollars)

Overdue

Amounts

Company Name

Related Party

Nature of Relationship

Ending Balance

Turnover Rate

Amounts

Action Taken

Received in

Allowance for

(Note 1)

Subsequent

Bad Debts

Period

Chunghwa Telecom Co., Ltd.

Senao International Co., Ltd.

Subsidiary

$ 262,677

10.55

$

-

-

$ 259,326

$

-

(Note 2)

Senao International Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

1,021,525

7.28

-

-

124,613

-

(Note 2)

Chunghwa System Integration Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

330,688

3.01

-

-

173,369

-

(Note 2)

Honghwa International Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

701,269

6.88

-

-

29,941

-

(Note 2)

Donghwa Telecom Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

129,667

3.45

-

-

89,436

-

(Note 2)

Note 1: Payments and receipts collected in trust for others are excluded from the accounts receivable for calculating the turnover rate.

Note 2: The amount was eliminated upon consolidation.

- 79 -

TABLE 6

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES IN WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE (EXCLUDING INVESTEES IN MAINLAND CHINA) THREE MONTHS ENDED MARCH 31, 2020

(Amounts in Thousands of New Taiwan Dollars)

Original Investment Amount

Balance as of March 31, 2020

Net Income

Recognized

Investor Company

Investee Company

Location

Main Businesses and Products

March 31, 2019

December 31,

Shares

Percentage of

Carrying Value

(Loss) of the

Gain (Loss)

Note

2019

(Thousands)

Ownership (%)

(Note 3)

Investee

(Notes 1, 2 and 3)

Chunghwa Telecom Co., Ltd.

Senao International Co., Ltd.

Taiwan

Handset and peripherals retailer; sales of CHT

$ 1,065,813

$ 1,065,813

71,773

28

$ 1,640,660

$

88,487

$

23,496

Subsidiary (Note 5)

mobile phone plans as an agent

Light Era Development Co., Ltd.

Taiwan

Planning and development of real estate and

3,000,000

3,000,000

300,000

100

3,852,126

3,502

2,031

Subsidiary (Note 5)

intelligent buildings, and property

management

Donghwa Telecom Co., Ltd.

Hong Kong

International private leased circuit, IP VPN

1,567,453

1,567,453

402,590

100

1,648,451

239

239

Subsidiary (Note 5)

service, and IP transit services

Chunghwa Telecom Singapore Pte.,

Singapore

International private leased circuit, IP VPN

574,112

574,112

26,383

100

934,772

21,057

21,059

Subsidiary (Note 5)

Ltd.

service, and IP transit services

Chunghwa System Integration Co.,

Taiwan

Providing system integration services and

838,506

838,506

60,000

100

709,039

(14,082)

(8,844)

Subsidiary (Note 5)

Ltd.

telecommunications equipment

CHIEF Telecom Inc.

Taiwan

Network integration, internet data center

459,652

459,652

39,426

56

1,836,701

146,951

85,173

Subsidiary (Note 5)

("IDC"), communications integration and

cloud application services

Chunghwa Investment Co., Ltd.

Taiwan

Investment

639,559

639,559

68,085

89

3,057,731

60,685

54,043

Subsidiary (Note 5)

Prime Asia Investments Group Ltd.

British Virgin

Investment

385,274

385,274

1

100

176,522

610

610

Subsidiary (Note 5)

(B.V.I.)

Islands

Honghwa International Co., Ltd.

Taiwan

Telecommunication engineering, sales agent

180,000

180,000

18,000

100

456,237

36,390

33,968

Subsidiary (Note 5)

of mobile phone plan application and other

business services, etc.

CHYP Multimedia Marketing &

Taiwan

Digital information supply services and

150,000

150,000

15,000

100

195,598

4,568

4,625

Subsidiary (Note 5)

Communications Co., Ltd.

advertisement services

Chunghwa Telecom Vietnam Co.,

Vietnam

Intelligent energy saving solutions,

148,275

148,275

-

100

96,915

(471)

(471)

Subsidiary (Note 5)

Ltd.

international circuit, and information and

communication technology ("ICT")

services.

Chunghwa Telecom Global, Inc.

United States

International private leased circuit, internet

70,429

70,429

6,000

100

367,427

16,621

17,181

Subsidiary (Note 5)

services, and transit services

CHT Security Co., Ltd.

Taiwan

Computing equipment installation, wholesale

240,000

240,000

24,000

80

332,125

30,430

25,274

Subsidiary (Note 5)

of computing and business machinery

equipment and software, management

consulting services, data processing

services, digital information supply services

and internet identify services

Chunghwa Telecom (Thailand) Co.,

Thailand

International private leased circuit, IP VPN

119,624

119,624

1,300

100

110,126

5,496

5,496

Subsidiary (Note 5)

Ltd.

service, ICT and cloud VAS services

Spring House Entertainment Tech.

Taiwan

Software design services, internet contents

41,941

41,941

8,251

56

116,484

10,934

6,128

Subsidiary (Note 5)

Inc.

production and play, and motion picture

production and distribution

Chunghwa leading Photonics Tech

Taiwan

Production and sale of electronic components

70,500

70,500

7,050

75

115,495

3,558

3,816

Subsidiary (Note 5)

Co., Ltd.

and finished products

Smartfun Digital Co., Ltd.

Taiwan

Providing diversified family education digital

65,000

65,000

6,500

65

74,043

543

355

Subsidiary (Note 5)

services

Chunghwa Telecom Japan Co., Ltd.

Japan

International private leased circuit, IP VPN

17,291

17,291

1

100

81,531

4,151

4,151

Subsidiary (Note 5)

service, and IP transit services

Chunghwa Sochamp Technology Inc.

Taiwan

Design, development and production of

20,400

20,400

2,040

51

(6,068)

(2,326)

4,018

Subsidiary (Note 5)

Automatic License Plate Recognition

software and hardware

International Integrated System, Inc.

Taiwan

IT solution provider, IT application

283,500

283,500

22,498

31

330,805

(11,160)

(8,435)

Associate

consultation, system integration and

package solution

- 80 -

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES IN WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE (EXCLUDING INVESTMENT IN MAINLAND CHINA) THREE MONTHS ENDED MARCH 31, 2020

(Amounts in Thousands of New Taiwan Dollars)

Original Investment Amount

Balance as of December 31, 2020

Net Income

Recognized

Investor Company

Investee Company

Location

Main Businesses and Products

March 31, 2019

December 31,

Shares

Percentage of

Carrying Value

(Loss) of the

Gain (Loss)

Note

2019

(Thousands)

Ownership (%)

(Note 3)

Investee

(Notes 1, 2 and 3)

Viettel-CHT Co., Ltd.

Vietnam

IDC services

$ 288,327

$ 288,327

-

30

$ 329,843

$

53,815

$

16,152

Associate

Taiwan International Standard

Taiwan

Manufacturing, selling, designing, and

164,000

164,000

1,760

40

270,338

(33,670)

(2,894)

Associate

Electronics Co., Ltd.

maintaining of telecommunications systems

and equipment

KKBOX Taiwan Co., Ltd.

Taiwan

Providing of music on-line, software,

67,025

67,025

4,438

30

160,061

30,148

9,044

Associate

electronic information, and advertisement

services

So-net Entertainment Taiwan Limited

Taiwan

Online service and sale of computer hardware

120,008

120,008

9,429

30

191,140

5,805

1,741

Associate

KingwayTek Technology Co., Ltd.

Taiwan

Publishing books, data processing and

66,684

66,684

7,898

23

245,294

(10,525)

(2,147)

Associate

software services

Taiwan International Ports Logistics

Taiwan

Import and export storage, logistic warehouse,

80,000

80,000

8,000

27

51,765

2,933

786

Associate

Corporation

and ocean shipping service

UUPON Inc.

Taiwan

Information technology service and general

97,598

97,598

5,400

15

3,469

(24,799)

(3,730)

Associate

advertisement service

Alliance Digital Tech Co., Ltd.

Taiwan

Development of mobile payments and

60,000

60,000

6,000

14

5,080

-

-

Associate

information processing service

Chunghwa PChome Fund I Co., Ltd.

Taiwan

Investment, venture capital, investment

200,000

200,000

20,000

50

199,145

10,126

5,063

Associate

advisor, management consultant and other

consultancy service

Cornerstone Ventures Co., Ltd.

Taiwan

Investment, venture capital, investment

4,900

4,900

490

49

5,646

284

139

Associate

advisor, management consultant and other

consultancy service

Next Commercial Bank Co., Ltd.

Taiwan

Online banking business

4,190,000

4,190,000

419,000

42

4,040,695

(79,888)

(33,473)

Associate

Senao International Co., Ltd.

Senao Networks, Inc.

Taiwan

Telecommunication facilities manufactures

202,758

202,758

16,579

34

982,484

84,514

28,560

Associate

and sales

Senao International (Samoa) Holding

Samoa Islands

International investment

2,333,620

2,333,620

77,775

100

345,490

(7,726)

(7,726)

Subsidiary (Note 5)

Ltd.

UUPON Inc.

Taiwan

Information technology service and general

24,000

24,000

2,400

7

1,672

(24,799)

(1,659)

Associate

advertisement service

Youth Co., Ltd.

Taiwan

Sale of information and communication

364,950

364,950

8,462

93

182,775

(1,035)

(3,083)

Subsidiary (Note 5)

technologies products

Aval Technologies Co., Ltd.

Taiwan

Sale of information and communication

89,550

89,550

9,843

100

103,683

1,831

1,832

Subsidiary (Note 5)

technologies products

Senyoung Insurance Agent Co., Ltd.

Taiwan

Property and liability insurance agency

59,000

59,000

5,900

100

81,412

5,686

5,683

Subsidiary (Note 5)

CHIEF Telecom Inc.

Unigate Telecom Inc.

Taiwan

Telecommunications and internet service

2,000

2,000

200

100

913

27

27

Subsidiary (Note 5)

Chief International Corp.

Samoa Islands

Telecommunications and internet service

6,068

6,068

200

100

76,613

2,633

2,633

Subsidiary (Note 5)

Chunghwa Telecom Singapore

ST-2 Satellite Ventures Pte., Ltd.

Singapore

Operation of ST-2 telecommunications

409,061

409,061

18,102

38

504,119

74,273

28,224

Associate

Pte., Ltd.

satellite

Chunghwa Investment Co., Ltd.

Chunghwa Precision Test Tech. Co.,

Taiwan

Production and sale of semiconductor testing

178,608

178,608

11,230

34

2,268,232

178,986

61,303

Subsidiary (Note 5)

Ltd.

components and printed circuit board

CHIEF Telecom Inc.

Taiwan

Network integration, internet data center

19,064

19,064

2,078

3

90,971

146,951

4,379

Associate (Note 5)

("IDC"), communications integration and

cloud application services

Senao International Co., Ltd.

Taiwan

Selling and maintaining mobile phones and its

49,731

49,731

1,001

-

43,775

88,487

360

Associate (Note 5)

peripheral products

(Continued)

- 81 -

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES IN WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE (EXCLUDING INVESTMENT IN MAINLAND CHINA) THREE MONTHS ENDED MARCH 31, 2020

(Amounts in Thousands of New Taiwan Dollars)

Original Investment Amount

Balance as of December 31, 2020

Net Income

Recognized

Investor Company

Investee Company

Location

Main Businesses and Products

March 31, 2019

December 31,

Shares

Percentage of

Carrying Value

(Loss) of the

Gain (Loss)

Note

2019

(Thousands)

Ownership (%)

(Note 3)

Investee

(Notes 1, 2 and 3)

Chunghwa Precision Test Tech.

Chunghwa Precision Test Tech USA

United States

Design and after-sale services of

$

12,636

$

12,636

400

100

$

23,729

$

(802)

$

(802)

Subsidiary (Note 5)

Co., Ltd.

Corporation

semiconductor testing components and

printed circuit board

CHPT Japan Co., Ltd.

Japan

Related services of electronic parts,

2,008

2,008

1

100

2,429

24

24

Subsidiary (Note 5)

machinery processed products and printed

circuit board

Chunghwa Precision Test Tech.

Samoa Islands

Wholesale and retail of electronic materials,

116,790

116,790

3,700

100

79,860

(4,281)

(4,281)

Subsidiary (Note 5)

International, Ltd.

and investment

Prime Asia Investments Group,

Chunghwa Hsingta Co., Ltd.

Hong Kong

Investment

375,274

375,274

1

100

176,523

608

608

Subsidiary (Note 5)

Ltd. (B.V.I.)

MeWorks Limited (HK)

Hong Kong

Investment

10,000

10,000

-

20

-

-

-

Associate

Senao International (Samoa)

Senao International HK Limited

Hong Kong

International investment

2,328,754

2,328,754

80,440

100

325,193

(7,801)

(7,801)

Subsidiary (Note 5)

Holding Ltd.

Youth Co., Ltd.

ISPOT Co., Ltd.

Taiwan

Sale of information and communication

53,021

53,021

-

100

9,164

114

66

Subsidiary (Note 5)

technologies products

Youyi Co., Ltd.

Taiwan

Maintenance of information and

21,354

21,354

-

100

17,329

239

177

Subsidiary (Note 5)

communication technologies products

Aval Technologies Co., Ltd.

Wiin Technology Co., Ltd.

Taiwan

Sale of information and communication

29,550

29,550

2,955

100

30,527

746

746

Subsidiary (Note 5)

technologies products

Senyoung Insurance Agent Co.,

Senaolife Insurance Agent Co., Ltd.

Taiwan

Life insurance services

29,500

29,500

2,950

100

28,186

(1,034)

(1,034)

Subsidiary (Note 5)

Ltd.

CHYP Multimedia Marketing

Click Force Marketing Company

Taiwan

Advertisement services

44,607

44,607

1,078

49

36,823

478

(297)

Associate

& Communications Co., Ltd

Note 1: The amounts were based on reviewed financial statements.

Note 2:

Recognized gain (loss) of investees includes amortization of differences between the investment cost and net value and elimination of unrealized transactions.

Note 3:

Recognized gain (loss) and carrying value of the investees did not include the adjustment of the difference between the accounting treatment on standalone basis and consolidated basis as a result of the application of IFRS 15.

Note 4: Investment in mainland China is included in Table 7.

Note 5:

The amount was eliminated upon consolidation.

(Concluded)

- 82 -

TABLE 7

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

INVESTMENT IN MAINLAND CHINA

THREE MONTHS ENDED MARCH 31, 2020

(Amounts in Thousands of New Taiwan Dollars)

Accumulated

Investment Flows

Accumulated

Accumulated

Outflow of

Outflow of

% Ownership

Total Amount

Investment

Net Income

Investment

Carrying Value

Inward

Investment

Investment

of Direct or

Investee

Main Businesses and Products

of Paid-in

Type

(Loss) of the

Gain (Loss)

as of

Remittance of

Note

from Taiwan

Outflow

Inflow

from Taiwan

Indirect

Capital

(Note 1)

Investee

(Note 2)

March 31, 2020

Earnings as of

as of January

as of March 31,

Investment

March 31, 2020

1, 2020

2020

Senao Trading (Fujian)

Sale of information and

$ 1,073,170

2

$ 1,073,170

$

-

$

-

$ 1,073,170

$

-

100

$

-

$

-

$

-

Notes 7

Co., Ltd.

communication technologies

and 11

products

Senao International

Sale of information and

955,838

2

955,838

-

-

955,838

(7,983)

100

(7,983)

41,992

-

Note 11

Trading (Shanghai) Co.,

communication technologies

Ltd.

products

Senao International

Maintenance of information and

26,053

2

26,053

-

-

26,053

-

100

-

-

-

Notes 8

Trading (Shanghai) Co.,

communication technologies

and 11

Ltd. (Note 12)

products

Senao International

Sale of information and

263,736

2

263,736

-

-

263,736

-

100

-

-

-

Notes 9

Trading (Jiangsu) Co.,

communication technologies

and 11

Ltd.

products

Chunghwa Telecom

Integrated information and

177,176

2

177,176

-

-

177,176

(2,017)

100

(2,017)

41,967

-

Note 11

(China) Co., Ltd.

communication solution services

for enterprise clients, and

intelligent energy network

service

Jiangsu Zhenghua

Providing intelligent energy saving

189,410

2

142,057

-

-

142,057

-

75

-

-

-

Notes 10

Information

solution and intelligent

and 11

Technology Company,

buildings services

LLC

Shanghai Taihua

Design of printed circuit board and

51,233

2

51,233

-

-

51,233

(5,508)

100

(5,508)

20,310

-

Note 11

Electronic Technology

related consultation service

Limited

Su Zhou Precision Test

Assembly processed of circuit

62,340

2

62,340

-

-

62,340

1,239

100

1,239

59,709

-

Note 11

Tech. Ltd.

board, design of printed circuit

board and related consultation

service

Shanghai Chief Telecom

Telecommunications and internet

10,150

1

4,973

-

-

4,973

2,479

49

1,215

11,925

-

Note 11

Co., Ltd.

service

(Continued)

- 83 -

Accumulated Investment in

Investment Amounts

Upper Limit on Investment

Investee

Mainland China as of

Authorized by Investment

Stipulated by Investment

March 31, 2020

Commission, MOEA

Commission, MOEA

SENAO and its subsidiaries (Note 3)

$ 2,318,797

$ 2,318,797

$ 3,571,962

Chunghwa Telecom (China) Co., Ltd. (Note 4)

177,176

177,176

236,157,832

Jiangsu Zhenghua Information Technology Company, LLC (Note 4)

142,057

142,057

236,157,832

Chunghwa Precision Test Tech Co., Ltd and its subsidiaries (Note 5)

113,573

159,725

3,973,544

Shanghai Chief Telecom Co., Ltd. (Note 6)

4,973

4,973

1,851,459

Note 1: Investments are divided into three categories as follows:

  1. Direct investment.
  2. Investments through a holding company registered in a third region.
  3. Others.

Note 2: The amounts were calculated based on the investee's reviewed financial statements.

Note 3: Senao International Co., Ltd. and its subsidiaries were calculated based on the consolidated net assets value of Senao International Co., Ltd.

Note 4: Chunghwa Telecom (China) Co., Ltd. and Jiangsu Zhenghua Information Technology Company, LLC were calculated based on the consolidated net assets value of Chunghwa Telecom Co., Ltd.

Note 5: Chunghwa Precision Test Tech. Co., Ltd. and its subsidiaries were calculated based on the consolidated net assets value of Chunghwa Precision Test Tech. Co., Ltd

Note 6: Shanghai Chief Telecom Co., Ltd. was calculated based on the consolidated net assets value of CHIEF Telecom Inc.

Note 7: The liquidation of Senao Trading (Fujian) Co., Ltd. was completed in May 2019.

Note 8: The liquidation of Senao International Trading (Shanghai) Co., Ltd. was completed in March 2018.

Note 9: The liquidation of Senao International Trading (Jiangsu) Co., Ltd. was completed in March 2019.

Note 10: The liquidation of Jiangsu Zhenhua Information Technology Company, LLC. was completed in December 2018.

Note 11: The amount was eliminated upon consolidation.

Note 12: The English name is the same as the above entity; however the Chinese name included in the respective Articles of Incorporations is different from the above entity.

(Concluded)

- 84 -

TABLE 8

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS THREE MONTHS ENDED MARCH 31, 2020

(Amounts in Thousands of New Taiwan Dollars)

Nature of

Transaction Details

No.

% to Total

Year

Company Name

Related Party

Relationship

Amount

Payment Terms

(Note 1)

Financial Statement Account

Sales or Assets

(Note 2)

(Note 5)

(Note 3)

(Note 4)

2020

0

Chunghwa Telecom Co., Ltd.

Senao International Co., Ltd.

a

Accounts receivable

$ 145,385

-

-

Accrued custodial receipts

117,292

-

-

Accounts payable

801,573

-

-

Amounts collected for others

219,952

-

-

Revenues

697,609

-

1

Operating costs and expenses

144,042

-

-

Inventories

12,231

-

-

CHIEF Telecom Inc.

a

Accounts receivable

52,203

-

-

Accounts payable

13,225

-

-

Revenues

86,123

-

-

Operating costs and expenses

30,810

-

-

CHYP Multimedia Marketing &

a

Amounts collected for others

21,284

-

-

Communications Co., Ltd.

Operating costs and expenses

29,364

-

-

Chunghwa System Integration Co., Ltd.

a

Accounts receivable

37,938

-

-

Accounts payable

333,298

-

-

Operating costs and expenses

323,507

-

1

Property, plant and equipment

20,029

-

-

Intangible assets

27,659

-

-

Chunghwa Telecom Global Inc.

a

Accounts receivable

18,886

-

-

Accounts payable

39,186

-

-

Revenues

25,404

-

-

Operating costs and expenses

83,428

-

-

Donghwa Telecom Co., Ltd.

a

Accounts receivable

19,343

-

-

Accounts payable

129,667

-

-

Revenues

53,566

-

-

Operating costs and expenses

114,437

-

-

Spring House Entertainment Tech. Inc.

a

Amounts collected for others

26,841

-

-

Chunghwa Telecom Japan Co., Ltd.

a

Operating costs and expenses

23,607

-

-

Chunghwa Telecom Singapore Pte., Ltd.

a

Accounts receivable

34,844

-

-

Accounts payable

53,049

-

-

Revenues

16,622

-

-

Operating costs and expenses

33,364

-

-

Honghwa International Co., Ltd.

a

Accounts receivable

56,952

-

-

Accounts payable

702,548

-

-

Revenues

26,385

-

-

Operating costs and expenses

1,306,341

-

3

Inventories

15,331

-

-

(Continued)

- 85 -

Nature of

Transaction Details

No.

% to Total

Year

Company Name

Related Party

Relationship

Amount

Payment Terms

(Note 1)

Financial Statement Account

Sales or Assets

(Note 2)

(Note 5)

(Note 3)

(Note 4)

Smartfun Digital Co., Ltd.

a

Operating costs and expenses

$

10,321

-

-

CHT Security Co., Ltd.

a

Accounts payable

25,724

-

-

Operating costs and expenses

47,697

-

-

Inventories

28,309

-

-

Aval Technologies Co., Ltd.

a

Operating costs and expenses

32,906

-

-

Customers deposits

14,477

-

-

Senyoung Insurance Agent Co., Ltd.

a

Accounts receivable

40,248

-

-

Revenues

25,110

-

-

Light Era Development Co., Ltd.

a

Property, plant and equipment

35,003

-

-

1

Light Era Development Co., Ltd.

CHIEF Telecom Inc.

c

Revenues

24,190

-

-

2

Donghwa Telecom Co., Ltd.

Chunghwa Telecom Singapore Pte., Ltd.

c

Prepayments

15,247

-

-

3

CHIEF Telecom Inc.

Chunghwa Telecom Singapore Pte., Ltd.

c

Operating costs and expenses

24,682

-

-

Note 1: Significant transactions between the Company and its subsidiaries or among subsidiaries are numbered as follows:

  1. "0" for the Company.
  2. Subsidiaries are numbered from "1".

Note 2: Related party transactions are divided into three categories as follows:

  1. The Company to subsidiaries.
  2. Subsidiaries to the Company.
  3. Subsidiaries to subsidiaries.

Note 3: Transaction terms with the related parties were determined in accordance with mutual agreements when there were no similar transactions with third parties. Other transactions with related parties were not significantly different from those with third parties.

Note 4: For assets and liabilities, amount is shown as a percentage to consolidated total assets as of March 31, 2020, while revenues, costs and expenses are shown as a percentage to consolidated revenues for the three months ended March 31, 2020.

Note 5: The amount was eliminated upon consolidation.

(Concluded)

- 86 -

TABLE 9

CHUNGHWA TELECOM CO., LTD.

INFORMATION OF MAJOR STOCKHOLDERS

MARCH 31, 2020

Shares

Name of Major Stockholders

Number of Shares

Percentage of

(Thousands)

Ownership (%)

Ministry of Transportation and Communication

2,737,719

35.29

Shin Kong Life Insurance Co., Ltd.

610,488

7.86

Note: This table presents information provided by the Taiwan Depository & Clearing Corporation on stockholders holding greater than 5% of Chunghwa's dematerialized securities that have completed the process of registration and delivery by book-entry transfer as of the last business day for the current quarter.

- 87 -

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Chunghwa Telecom Co. Ltd. published this content on 07 May 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 07 May 2020 09:48:06 UTC