CHUNGHWA TELECOM CO., LTD. Chunghwa Telecom Co., Ltd. and Subsidiaries
Consolidated Financial Statements for the Years Ended December 31, 2020 and 2019 and Independent Auditors' Report
REPRESENTATION LETTER
The entities that are required to be included in the consolidated financial statements of affiliates in accordance with the "Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises" for the year ended December 31, 2020 are all the same as those included in the consolidated financial statements of Chunghwa Telecom Co., Ltd. and its subsidiaries prepared in conformity with the International Financial Reporting Standard 10 "Consolidated Financial Statements". Relevant information that should be disclosed in the consolidated financial statements of affiliates is included in the consolidated financial statements of Chunghwa Telecom Co., Ltd. and its subsidiaries. Hence, we do not prepare a separate set of consolidated financial statements of affiliates.
Very truly yours,
CHUNGHWA TELECOM CO., LTD.
By
Chi-Mau Sheih Chairman
February 23, 2021
The key audit matter of the consolidated financial statements for the year ended December 31, 2020 is as follows:
Revenue Recognition on Mobile Service
Refer to Notes 3 and 30 to the consolidated financial statements.
The Company's mobile service revenue consists of subscriber-based charges made up of a significant volume of low-dollar transactions. Because of the complexity and a variety of subscriber-based charges as well as a large number of transactions, the Company uses highly automated systems to process and record its revenue transactions.
Given the Company's systems to process and record revenue are highly automated, auditing revenue was complex and challenging due to the extent of audit effort required and involvement of professionals with expertise in information technology (IT) necessary for us to identify, test, and evaluate the Company's IT systems.
Our audit procedures related to the Company's systems to process revenue transactions included the following, among others:
• With the assistance of our IT specialists, we:
- Identified the significant systems used to process revenue transactions and tested the general IT controls over each of these systems, including testing of user access controls and change management controls.
- Performed testing of system interface controls and automated controls within the relevant revenue streams, as well as the controls designed to ensure the accuracy and completeness of revenue.
• We tested internal controls within the relevant revenue business processes, including those in place to reconcile the various systems to the Company's accounting system.
• We selected samples from mobile service revenue and agreed to customer contracts and records of cash receipts.
Other Matter
We have also audited the parent company only financial statements of Chunghwa Telecom Co., Ltd. as of and for the years ended December 31, 2020 and 2019 on which we have issued an unmodified opinion.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRS, IAS, IFRIC, and SIC endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance, including the audit committee, are responsible for overseeing the Company's financial reporting process.
Auditors' Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
4. Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Company to cease to continue as a going concern.
5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
6.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings Per Share) (Reviewed, Not Audited)
Items that may be reclassified subsequently to profit or loss: Exchange differences arising from the translation of the foreign operations
Share of exchange differences arising from the translation of the foreign operations of associates (Note 14)
Total other comprehensive loss, net of income tax
TOTAL COMPREHENSIVE
INCOME
NET INCOME ATTRIBUTABLE
TO
Stockholders of the parent Noncontrolling interestsCOMPREHENSIVE INCOME
ATTRIBUTABLE TO Stockholders of the parent Noncontrolling interestsEARNINGS PER SHARE
(Note 31)
Three Months Ended June 30
2019 AmountSix Months Ended June 30
%
2018 Amount
%
2019 Amount
%
2018 Amount
$
%
$ 8,676,231
39,468
-
-
-
-
-
-
-
-
-
-
(1)
-
(1)
17
$ 17,063,868
17
$ 18,650,134
16
18
$ 16,924,452
17
$ 18,589,021
17
-
358,759
-
471,868
-
$ 10,063,385
18
$ 17,283,211
17
$ 19,060,889
17
17
$ 16,690,803
17
$ 18,166,311
16
-
373,065
-
483,823
-
17
$ 17,063,868
17
$ 18,650,134
16
$
118,276
$
62,998
$ 66,352
146 39,614
- -1,424 119,700
316 2,259
63,314 68,611
(80,267)
-
(333,700)
(219,343)
(410,755)
17
$ 9,729,685
$ 8,568,370 188,128
17 -
$ 9,861,497 201,888
$ 8,756,498
17
$ 8,485,493 190,738
17 - 17
$ 9,523,931 205,754
$ 8,676,231
$ 9,729,685
Basic Diluted
$ | 1.10 | $ | 1.27 | $ | 2.18 | $ | 2.40 |
$ | 1.10 | $ | 1.27 | $ | 2.18 | $ | 2.39 |
The accompanying notes are an integral part of the consolidated financial statements.
(Concluded)
- 5 -
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2020 AND 2019
(In Thousands of New Taiwan Dollars)
2020
2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 3 and 6)
Financial assets at fair value through profit or loss (Notes 3, 4 and 7)
Hedging financial assets (Notes 3 and 20)
Contract assets (Notes 3 and 30)
Trade notes and accounts receivable, net (Notes 3, 4, 9, 13 and 30)
Receivables from related parties (Note 38)
Inventories (Notes 3, 4, 10 and 39)
Prepayments (Note 11)
Other current monetary assets (Notes 12, 28 and 35)
Other current assets (Notes 19, 32 and 39)
Total current assets
NONCURRENT ASSETS
Financial assets at fair value through profit or loss (Notes 3, 4 and 7)
Financial assets at fair value through other comprehensive income (Notes 3, 4 and 8)
Investments accounted for using equity method (Notes 3 and 14)
Contract assets (Notes 3 and 30)
Property, plant and equipment (Notes 3, 4, 13, 15, 35, 38 and 39)
Right-of-use assets (Notes 3, 4 and 16)
Investment properties (Notes 3, 4, 17, 35 and 38)
Intangible assets (Notes 3, 4, 13, 18 and 35)
Deferred income tax assets (Notes 3, 13 and 32)
Incremental costs of obtaining contracts (Notes 3 and 30)
Net defined benefit assets (Notes 3, 4, 13 and 28)
Prepayments (Note 11)
Other noncurrent assets (Notes 19, 39 and 40)
Total noncurrent assets
TOTAL
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 21)
Short-term bills payable (Note 22)
Financial liabilities at fair value through profit or loss (Notes 3, 4 and 7)
Contract liabilities (Notes 3, 30 and 38)
Trade notes and accounts payable (Note 25)
Payables to related parties (Note 38)
Current tax liabilities (Notes 3 and 32)
Lease liabilities (Notes 3, 4, 16, 35 and 38)
Other payables (Notes 26 and 35)
Provisions (Notes 3, 13 and 27)
Current portion of long-term loans (Notes 23 and 39) Other current liabilities
Total current liabilities
NONCURRENT LIABILITIES
Long-term loans (Notes 23 and 39)
Bonds payable (Note 24)
Contract liabilities (Notes 3 and 30)
Deferred income tax liabilities (Notes 3, 13 and 32)
Provisions (Notes 3, 13 and 27)
Lease liabilities (Notes 3, 4, 16, 35 and 38)
Customers' deposits (Note 38)
Net defined benefit liabilities (Notes 3, 4, 13 and 28) Other noncurrent liabilities
Total noncurrent liabilities
Total liabilities
EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE PARENT (Notes 13 and 29)
Common stocks
Additional paid-in capital Retained earnings
Legal reserve Special reserve Unappropriated earnings
Total retained earnings Others
Total equity attributable to stockholders of the parent
NONCONTROLLING INTERESTS (Notes 13 and 29)
Total equity
TOTAL
The accompanying notes are an integral part of the consolidated financial statements.
Amount
%
Amount
%
$ 30,419,655
22,621,902
12,408,903
5,331,246
2,306,246
6,123,665
2,349,097
230,696
9,897
1,752
6 - - 1 5 - 3 - 1 -
$ 34,049,643
26,407,783
17,344,276
4,441,196
1,883,259
7,498,564
2,429,664
16,834
516
327
7 - - 1 6 - 4 - 2 -
81,803,059
16
94,072,062
20
677,202
-
778,105
-
7,193,174
2
7,268,917
2
6,893,001
2,495,302
1 -
7,354,226
2,600,913
2 -
281,415,943
56
283,694,215
59
11,009,206
2
11,364,249
2
9,621,322
2
8,169,393
2
90,284,560
18
47,046,525
10
3,132,713
3,372,555
999,593
1 -
1 -
3,258,607
2,127,335
942,652
1 - -
2,213,521
2,679,335
1
5,266,841
1
6,101,704
1
424,574,933
84
383,386,176
80
$
506,377,992
100
$
477,458,238
100
$
13,436,706
15,590,814
23,987,962
6,999,198
4,369,241
3,381,571
1,600,000
1,042,977
645,944
313,555
67,000
143
- 1 - 3 3 - 1 1 5 - - -
$
16,839,830
15,312,274
22,952,488
4,020,670
3,291,330
653,983
206,942 -
983,789
90,000 -
239
- - - 4 3 - 1 1 5 - - -
71,435,111
14
64,351,545
14
45,684,424 117,119,535
19,980,272
7,289,087
1,966,538
6,215,096
4,826,679
3,415,331
1,890,805
100,616
-
- 4 2 - - 1 1 1 - 9 23
1,542,687 26,712,928
91,064,473
1,600,000 -
6,841,485
1,912,305
6,466,808
4,747,644
3,504,617
97,382
- - 2 - - 1 1 1 - 5 19
77,574,465 171,261,379
15 34
77,574,465 171,255,985
16 36
77,574,465
15
77,574,465
16
2,675,419
1
2,675,419
1
47,918,166
10
46,341,361
10
128,168,050
927,122
26 -
126,591,245
688,548
27 -$
377,931,016 11,327,441 389,258,457 506,377,992
75 2 77 100
$
376,110,243 10,283,522 386,393,765 477,458,238
79 2 81 100
- 6 -
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
YEARS ENDED DECEMBER 31, 2020 AND 2019 |
(In Thousands of New Taiwan Dollars, Except Earnings Per Share) |
2020 |
2019 | ||||
Amount | % | Amount | % | |
REVENUES (Notes 3, 30, 38 and 44) | $ 207,608,998 | 100 | $ 207,520,061 | 100 |
OPERATING COSTS (Notes 3, 10, 28, 30, 31, 38 | ||||
and 44) | 137,028,852 | 66 | 135,952,540 | 65 |
GROSS PROFIT | 70,580,146 | 34 | 71,567,521 | 35 |
OPERATING EXPENSES (Notes 3, 9, 28, 31, 38 | ||||
and 44) | ||||
Marketing | 20,912,848 | 10 | 22,219,688 | 11 |
General and administrative | 5,005,934 | 2 | 4,758,340 | 2 |
Research and development | 3,849,999 | 2 | 3,941,446 | 2 |
Expected credit loss (reversal of credit loss) | 44,885 | - | (125,111) | - |
Total operating expenses | 29,813,666 | 14 | 30,794,363 | 15 |
OTHER INCOME AND EXPENSES (Notes 15, 17, | ||||
18, 19, 31 and 44) | 1,595,246 | 1 | (127,304) | - |
INCOME FROM OPERATIONS | 42,361,726 | 21 | 40,645,854 | 20 |
NON-OPERATING INCOME AND EXPENSES | ||||
Interest income (Note 44) | 115,922 | - | 250,787 | - |
Other income (Notes 8, 31 and 38) | 469,608 | - | 531,624 | - |
Other gains and losses (Notes 14, 31, 37 and 38) | (152,967) | - | (36,471) | - |
Interest expenses (Notes 16, 31, 38 and 44) | (206,063) | - | (104,142) | - |
Share of profits of associates and joint ventures | ||||
accounted for using equity method (Notes 14 | ||||
and 44) | 242,745 | - | 462,140 | - |
Total non-operating income and expenses | 469,245 | - | 1,103,938 | - |
INCOME BEFORE INCOME TAX | 42,830,971 | 21 | 41,749,792 | 20 |
INCOME TAX EXPENSE (Notes 3 and 32) | 8,125,428 | 4 | 7,985,849 | 4 |
NET INCOME | 34,705,543 | 17 | 33,763,943 | 16 |
(Continued)
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |
YEARS ENDED DECEMBER 31, 2020 AND 2019 | |
(In Thousands of New Taiwan Dollars, Except Earnings Per Share) | |
2020 | 2019 |
Amount | % |
1,526,353 | 1 |
286,408 | - |
(742) | - |
(2,335) | - |
(305,271) | - |
1,504,413 | 1 |
(61,207) | - |
(700) | - |
- | - |
(61,907) | - |
1,442,506 | 1 |
35,206,449 | 17 |
32,788,546 | 16 |
975,397 | - |
Amount
TOTAL OTHER COMPREHENSIVE INCOME
(LOSS)
Items that will not be reclassified to profit or loss:
Remeasurements of defined benefit pension plans (Note 28)
Unrealized gain or loss on investments in equity instruments at fair value through other comprehensive income (Notes 3, 29 and 37) Gain or loss on hedging instruments subject to basis adjustment (Notes 3 and 20)
Share of remeasurements of defined benefit pension plans of associates and joint ventures (Note 14)
Income tax relating to items that will not be reclassified to profit or loss (Note 32)Items that may be reclassified subsequently to profit or loss:
Exchange differences arising from the translation of the foreign operations
Share of exchange differences arising from the translation of the foreign operations of associates and joint ventures (Note 14) Income tax relating to items that may be reclassified subsequently to profit or loss (Note 32)
Total other comprehensive income, net of income tax
TOTAL COMPREHENSIVE INCOME
NET INCOME ATTRIBUTABLE TO
Stockholders of the parent Noncontrolling interests
$ 1,193,149
404,955
1,425
(4,282)
(238,630) 1,356,617
(177,149)
(4,289)
(263) (181,701)
$
1,174,916 35,880,459
$
33,406,130 1,299,413
%
1
$
- -
-
- 1
-
-
- -
1 18
$
16 1
$
$
34,705,543
17
$
33,763,943 16
(Continued)
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2020 AND 2019
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
2020
Amount
COMPREHENSIVE INCOME ATTRIBUTABLE
TO
Stockholders of the parent Noncontrolling interestsEARNINGS PER SHARE (Note 33)
$ 34,598,348 1,282,111 $ 35,880,459
2019
%
Amount
17 $ 34,225,076
1
981,373
18 $ 35,206,449
%
17 -
17
The accompanying notes are an integral part of the consolidated financial statements.
$ | 4.31 | $ | 4.23 |
$ | 4.30 | $ | 4.22 |
(Concluded) |
Basic
Diluted
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY YEARS ENDED DECEMBER 31, 2020 AND 2019
(In Thousands of New Taiwan Dollars)
Equity Attributable to Stockholders of the Parent (Notes 13, 20 and 29)Common Stocks
BALANCE, JANUARY 1, 2019
Appropriation of 2018 earnings
Cash dividends distributed by Chunghwa
Cash dividends distributed by subsidiaries
Unclaimed dividend
Change in additional paid-in capital from investments in associates and joint ventures accounted for using equity method
Net income for the year ended December 31, 2019
Other comprehensive income (loss) for the year ended December 31, 2019
Total comprehensive income (loss) for the year ended December 31, 2019
Share-based payment transactions of subsidiaries
Net decrease in noncontrolling interests
BALANCE, DECEMBER 31, 2019
Appropriation of 2019 earnings
Cash dividends distributed by Chunghwa
Cash dividends distributed by subsidiaries
Unclaimed dividend
Change in additional paid-in capital from investments in associates and joint ventures accounted for using equity method
Change in additional paid-in capital for not proportionately participating in the capital increase of subsidiaries
Net income for the year ended December 31, 2020
Other comprehensive income (loss) for the year ended December 31, 2020
Total comprehensive income (loss) for the year ended December 31, 2020
Disposal of investments in equity instruments at fair value through other comprehensive income
Share-based payment transactions of subsidiaries
Net increase in noncontrolling interests
BALANCE, DECEMBER 31, 2020
$ 77,574,465
$ 77,574,465
The accompanying notes are an integral part of the consolidated financial statements.
Additional Paid-in CapitalRetained EarningsUnappropriated
Differences Arising from the Translation of the Foreign OperationsExchange
Others Unrealized Gain or Loss on Financial Assets at Fair Value Through Other Comprehensive
Gain or Loss on Hedging Instruments
NoncontrollingLegal Reserve
Special Reserve
Earnings
Income
Total
Interests (Notes 13 and 29)Total Equity
$ 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
- - -
- - 1,266
- - -
- - -
(34,745,603)
- - -
- - -
- - -
(34,745,603)
-
(34,745,603)
- -
- 1,266
(709,817)
(709,817)
- 1,266
- - - - - - 77,574,465
118,853
- - - - - - 77,574,465
- - - - - - 2,675,419
- 32,788,546 1,207,896 33,996,442
- -
- - 298,326 298,326
- -
118,853 32,788,546 1,436,530 34,225,076
1,064 119,917
- - -
975,397 33,763,943
(68,950)
(742)
5,976 1,442,506
(68,950)
(742)
981,373 35,206,449
(898)
- - 46,341,361
- -
- - 836,598
- - 327
(898)
21,320
20,422
-
-
(763)
(763)
171,255,985
(148,377)
376,110,243
10,283,522
386,393,765
- - -
- - 1,605
- - -
- - -
(32,782,969)
- - -
- - -
- - -
(32,782,969)
-
(32,782,969)
- -
- 1,605
(775,420)
(775,420)
-
1,605
-
(21,918)
-
-
-
-
-
-
(21,918)
(1,817)
(23,735)
- - - -
(103)
- - - -
- - - -
- 33,406,130
- -
- - 419,989 419,989
- - 1,425 1,425
(103)
103
-
- - -
33,406,130 1,192,218 34,598,348
1,299,413 34,705,543
936,958 34,343,088
(166,154)
(17,302) 1,174,916
(166,154)
1,282,111 35,880,459
- - -
- 25,810
- - -
- - - 2,675,419
16,686
- - -
(16,686)
- - - 1,752
- 25,810
-
-
- -
- - 1,239,901
63,063 88,873
-
-
475,879 475,879
$ 171,261,379
$ 77,574,465
$
$ 47,918,166
$
(314,531)
$
$
$ 377,931,016
$ 11,327,441
$ 389,258,457
- 10 -
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2020 AND 2019
(In Thousands of New Taiwan Dollars)
2020 | 2019 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Income before income tax | $ 42,830,971 | $ 41,749,792 |
Adjustments for: | ||
Depreciation | 30,942,330 | 30,922,991 |
Amortization | 5,424,367 | 4,252,602 |
Amortization of incremental costs of obtaining contracts | 771,875 | 1,173,492 |
Expected credit loss (reversal of credit loss) | 44,885 | (125,111) |
Interest expenses | 206,063 | 104,142 |
Interest income | (115,922) | (250,787) |
Dividend income | (246,084) | (296,360) |
Compensation cost of share-based payment transactions | 7,578 | 1,597 |
Share of profits of associates and joint ventures accounted for | ||
using equity method | (242,745) | (462,140) |
Loss (gain) on disposal of property, plant and equipment | (1,427,984) | 37,785 |
Gain on disposal of investment properties | (151,357) | - |
Loss on disposal of intangible assets | 1,858 | 146 |
Loss (gain) on disposal of financial instruments | 1,788 | (3,944) |
Gain on disposal of investments accounted for using equity | ||
method | (15,946) | (30,152) |
Provision for impairment loss and obsolescence of inventory | 1,161,281 | 474,709 |
Impairment loss on property, plant and equipment | - | 93,073 |
Reversal of impairment loss on investment properties | (27,066) | (56,617) |
Impairment loss on intangible assets | 9,303 | 8,946 |
Impairment loss on other assets | - | 43,971 |
Valuation loss on financial assets and liabilities at fair value | ||
through profit or loss, net | 99,150 | 38,314 |
Others | 3,139 | (26,524) |
Changes in operating assets and liabilities: | ||
Decrease (increase) in: | ||
Contract assets | (202,628) | 172,489 |
Trade notes and accounts receivable | 4,071,260 | 4,038,731 |
Receivables from related parties | (213,862) | 7,436 |
Inventories | 3,915,328 | (2,698,270) |
Prepayments | 173,243 | 114,991 |
Other current monetary assets | 354,739 | (154,780) |
Other current assets | 155,324 | 146,420 |
Incremental cost of obtaining contracts | (828,816) | (781,114) |
Increase (decrease) in: | ||
Contract liabilities | (3,289,055) | 6,701,313 |
Trade notes and accounts payable | 21,015 | (5,151,740) |
Payables to related parties | (8,039) | (263,968) |
Other payables | (924,186) | 697,351 |
(Continued) |
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2020 AND 2019
(In Thousands of New Taiwan Dollars)
2020
2019
Provisions
Other current liabilities Net defined benefit plans
Cash generated from operations Interest paid
Income tax paid
$
94,589 $
46,303
(173,970)
82,468,729
(161,251)
(7,851,522)
97,497
(159,881)
533,787
80,950,187
(104,142)
(8,419,360)Net cash provided by operating activitiesCASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of financial assets at fair value through other comprehensive income
Proceeds from disposal of financial assets at fair value through other comprehensive income
Proceeds from return of financial assets at fair value through other comprehensive income
Acquisition of financial assets at fair value through profit or loss Proceeds from disposal of financial assets at fair value through profit or loss
Acquisition of time deposits and negotiable certificates of deposit with maturities of more than three months
Acquisition of repurchase agreements collateralized by bonds with maturities of more than three months
Proceeds from disposal of time deposits and negotiable certificates of deposit with maturities of more than three months
Proceeds from disposal of repurchase agreements collateralized by bonds with maturities of more than three months
Acquisition of investments accounted for using equity method Proceeds from disposal of investments accounted for using equity method
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment Acquisition of intangible assets
Acquisition of investment properties
Proceeds from disposal of investment properties Increase in other noncurrent assets
Interest received
Dividends received
Net cash inflow on acquisition of subsidiaries
74,455,956
(85,246)
297,476
- (39,253)
29,741
(5,215,859)
- 6,630,359
15,335 (10,200)
-
(23,510,820)
319,089
(47,605,187)
72,426,685
(60,000)
-
9,167 (443,064)
146,560
(14,381,653)
(14,990)
16,519,781
- (4,190,000)
32,470
(24,165,857)
48,157
(362,718)
(54,435)
(523)
188,300
-
(207,616)
(1,122,142)
124,653 256,432
515,918 602,086
354,056
-
Net cash used in investing activities
(68,253,689)
(27,126,294)
(Continued)
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2020 AND 2019
(In Thousands of New Taiwan Dollars)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term loans
Repayment of short-term loans Proceeds from short-term bills payable Repayment of short-term bills payable Proceeds from issuance of bonds
Payments for transaction costs attributable to the issuance of bonds Increase in customers' deposits
Payments for the principal of lease liabilities Increase in other noncurrent liabilities
Cash dividends paid
Cash dividends distributed to noncontrolling interests Change in other noncontrolling interests
Unclaimed dividend
2020
$
115,000
(142,000)
41,000,000
(34,000,000)
20,000,000
(21,038)
61,757
(3,683,204)
343,275
(32,782,969)
(775,420) (709,817)
81,295 18,062
1,605 1,266
2019
$
575,000 (585,000)
- - - - 7,311 (3,727,792)
232,357 (34,745,603)Net cash used in financing activitiesEFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
(9,801,699)
(30,556)
(38,934,216)
38,688
(3,629,988) 6,404,863
CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR
34,049,643 27,644,780
CASH AND CASH EQUIVALENTS, END OF THE YEAR
$ 30,419,655
$ 34,049,643
The accompanying notes are an integral part of the consolidated financial statements.
(Concluded)
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
1. GENERAL
Chunghwa Telecom Co., Ltd. ("Chunghwa") was incorporated on July 1, 1996 in the Republic of China ("ROC"). 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 February 23, 2021.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Compliance
The accompanying consolidated financial statements have been prepared in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), International Financial Reporting Interpretations Committee (IFRIC) and SIC Interpretations (SIC) (collectively, the "IFRSs") endorsed and issued into effect by the Financial Supervisory Commission (the "FSC") (collectively, the Taiwan-IFRS").
Basis of Preparation
The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values and net defined benefit liabilities (assets) which are measured at the present value of the defined benefit obligations less the fair value of plan assets.
Current and Noncurrent Assets and Liabilities
Current assets include:
a. Assets held primarily for the purpose of trading;
b. Assets expected to be realized within twelve months after the reporting period; and
c. Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
Current liabilities include:
a. Liabilities held primarily for the purpose of trading;
b. Liabilities due to be settled within twelve months after the reporting period; and
c. Liabilities for which the Company does not have an unconditional right to defer settlement for at least twelve months after the reporting period.
Assets and liabilities that are not classified as current are classified as noncurrent.
Light Era Development Co., Ltd. (LED) engages mainly in development of property for rent and sale. The assets and liabilities of LED related to property development within its operating cycle, which is over one year, are classified as current items.
Basis of Consolidation
a. Principles for preparing consolidated financial statements
The consolidated financial statements incorporate the financial statements of Chunghwa and entities controlled by Chunghwa (its subsidiaries).
Income and expenses of subsidiaries acquired are included in the consolidated statement of comprehensive income from the acquisition date.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by the Company.
All inter-company transactions, balances, income and expenses are eliminated in full upon consolidation.
Attribution of total comprehensive income to noncontrolling interests
Total comprehensive income of subsidiaries is attributed to the stockholders of the parent and to the noncontrolling interests even if it results in the noncontrolling interests having a deficit balance.
Changes in the Company's ownership interests in subsidiariesChanges in the Company's ownership interests in subsidiaries that do not result in the Company losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Company's interests and the noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the noncontrolling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to stockholders of the parent.
b. The subsidiaries in the consolidated financial statements The detail information of the subsidiaries at the end of reporting period was as follows:
Name of Investor Name of Investee Main Businesses and Products
Chunghwa Telecom
Co., Ltd.
Senao International Co., Ltd.
("SENAO")
Light Era Development Co.,
Ltd. ("LED")
Donghwa Telecom Co., Ltd.
("DHT")
Chunghwa Telecom Singapore
Pte., Ltd. ("CHTS")
Chunghwa System Integration
Co., Ltd. ("CHSI")
Chunghwa Investment Co.,
Ltd. ("CHI")
CHIEF Telecom Inc.
("CHIEF")
CHYP Multimedia Marketing
& Communications Co.,
Ltd. ("CHYP")
Prime Asia Investments Group
Ltd. (B.V.I.) ("Prime Asia")
Spring House Entertainment
Tech. Inc. ("SHE")Chunghwa Telecom Global,
Inc. ("CHTG") Chunghwa Telecom Vietnam
Co., Ltd. ("CHTV")Smartfun Digital Co., Ltd.
("SFD")
Chunghwa Telecom Japan
Co., Ltd. ("CHTJ")
Chunghwa Sochamp
Technology Inc. ("CHST")
Honghwa International Co.,
Ltd. ("HHI")
Chunghwa Leading Photonics
Tech Co., Ltd. ("CLPT") Chunghwa Telecom
(Thailand) Co., Ltd.
("CHTT")
Handset and peripherals retailer, sales of CHT mobile phone plans as an agent
Planning and development of real estate and intelligent buildings, and property management
International private leased circuit, IP
VPN service, and IP transit services International private leased circuit, IP
VPN service, and IP transit services Providing system integration services and telecommunications equipment Investment
Network integration, internet data center ("IDC"), communications integration and cloud application services
Digital information supply services and advertisement services
Investment
Software design services, internet contents production and play, and motion picture production and distribution
International private leased circuit, internet services, and transit services Intelligent energy saving solutions, international circuit, and information and communication technology ("ICT") services
Providing diversified family education digital services
International private leased circuit, IP
VPN service, and IP transit services Design, development and production of
Automatic License Plate
Recognition software and hardware Telecommunications engineering, sales agent of mobile phone plan application and other business services, etc.
Production and sale of electronic components and finished products International private leased circuit, IP
VPN service, ICT and cloud VAS services
Percentage of Ownership
Interests
December 31
2020 2019 Note
28 28 a)
100 100
100 100
100 100
100 100
89 89
56 57 b)
100 100
100 100
56 56 c)
100 100 100 100
65 65
100 100
51 51
100 100
75 75
100 100 d)
(Continued)
Name of Investor
Senao International
Co., Ltd.
Youth Co., Ltd.
Aval Technologies
Co., Ltd.
Senyoung Insurance
Agent Co., Ltd.
Light Era
Development Co., Ltd.
CHIEF Telecom Inc.
Chunghwa Investment
Co., Ltd.
Chunghwa Precision
Test Tech. Co., Ltd.
Senao International
(Samoa) Holding Ltd.
Senao International
HK Limited
Name of Investee
CHT Security Co., Ltd.
("CHTSC")International Integrated
Systems, Inc. ("IISI")Senao International (Samoa)
Holding Ltd. ("SIS")
Youth Co., Ltd. ("Youth")
Aval Technologies Co., Ltd.
("Aval")
Senyoung Insurance Agent
Co., Ltd. ("SENYOUNG")ISPOT Co., Ltd. ("ISPOT")
Youyi Co., Ltd. ("Youyi")Wiin Technology Co., Ltd.
("Wiin")
Senaolife Insurance Agent
Co., Ltd. ("Senaolife")Taoyuan Asia Silicon Valley
Innovation Co., Ltd. ("TASVI")
Unigate Telecom Inc.
("Unigate")
Chief International Corp.
("CIC")
Shanghai Chief Telecom Co.,
Ltd. ("SCT")
Chunghwa Precision Test
Tech. Co., Ltd. ("CHPT")Chunghwa Precision Test
Tech. USA Corporation
("CHPT (US)")
CHPT Japan Co., Ltd.
("CHPT (JP)")Chunghwa Precision Test
Tech. International, Ltd.
("CHPT (International)")
Senao International HK
Limited ("SIHK")Senao Trading (Fujian) Co.,
Ltd. ("STF")
Senao International Trading
(Shanghai) Co., Ltd.
("SITS")
Senao International Trading
(Jiangsu) Co., Ltd. ("SITJ")
Main Businesses and Products
Computing equipment installation, wholesale of computing and business machinery equipment and software, management consulting services, data processing services, digital information supply services and internet identify services
IT solution provider, IT application consultation, system integration and package solution
International investment
Sale of information and communication technologies products
Sale of information and communication technologies products
Property and liability insurance agencySale of information and communication technologies products
Maintenance of information and communication technologies products
Sale of information and communication technologies products
Life insurance servicesDevelopment of real estateTelecommunications and internet service
Telecommunications and internet service
Telecommunications and internet service
Production and sale of semiconductor testing components and printed circuit board
Design and after-sale services of semiconductor testing components and printed circuit board
Related services of electronic parts, machinery processed products and printed circuit board
Wholesale and retail of electronic materials, and investmentInternational investmentSale of information and communication technologies products
Sale of information and communication technologies products
Sale of information and communication technologies products
2020 2019 Note
80 80
51
- e)
100 100 f)
96 93 g)
100 100
100 100
100 100
100 100
100 100 h)
100 100 i)
-
- j)
100 100 100 100
49 49 k)
34 34 l)
100 100
100 100
100 100
100 100 m)
- 100
- n)
100 o)
-
- p)
(Continued)
Name of Investor
Name of Investee
Main Businesses and Products
2020 2019 Note
Prime Asia
Chunghwa Hsingta Co., Ltd.
Investment
100 100
Investments Group Ltd. (B.V.I.)
("CHC")
Chunghwa HsingtaChunghwa Telecom (China)Integrated information and
100 100
q)
Co., Ltd.
Co., Ltd. ("CTC")
communication solution services for enterprise clients, and intelligent energy network service
Chunghwa PrecisionShanghai Taihua Electronic
Test Tech. International, Ltd.
Technology Limited
Design of printed circuit board and related consultation service
100 100
("STET")
Su Zhou Precision Test Tech.
Ltd. ("SZPT")
Assembly processed of circuit board, design of printed circuit board and related consultation service
100 100
r)
International
Infoexplorer International Co.,
Investment
100
-
s)
Integrated Systems, Inc.
Ltd.("IESA")
IISI Investment Co., Ltd.
Investment
("IICL")
Unitronics Technology Corp.
("UTC")
Development and maintenance of information system
100 99.96
- -s)
s)
Infoexplorer
International Integrated
International Co., Ltd.
Systems (Hong Kong) Limited ("IEHK")
Investment and technical consulting service
100
-
s)
IISI Investment Co.,
Leading Tech Co., Ltd.
Investment
100
-
s)
Ltd.
("LTCL")
Leading Tech Co.,
Leading Systems Co., Ltd.
Investment
100
-
s)
Ltd.
("LSCL")
Leading Systems Co.,
International Integrated
Ltd.
Systems Inc. (Shanghai)Development and maintenance of information system
100
-
s)
("IISS")
International
Huiyu Shanghai Management
Integrated Systems Inc. (Shanghai)
Consultancy Co., Ltd. ("HSMC")Development and maintenance of information system
-
-
s) t)
(Concluded)a)Chunghwa continues to control six out of eleven seats of the Board of Directors of SENAO through the support of large beneficial stockholders. As a result, the Company treated SENAO as a subsidiary.
b) CHIEF issued new shares in March 2019, November 2019, March 2020 and December 2020 as its employees exercised options. Therefore, the Company's ownership interest in CHIEF decreased to 59.75% and 59.08% as of December 31, 2019 and 2020, respectively.
c)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.
d) The Company increased its investment in CHTT proportionally in October 2019 and the
Company's ownership interest in CHTT remained the same.
e) Chunghwa obtained 20.38% ownership interest in IISI in July 2020 and Chunghwa's ownership interest in IISI increased to 51.54% by considering the previously held ownership interest in IISI. Chunghwa obtained over half of the seats of the Board of Directors of IISI; therefore, Chunghwa gained control over IISI and treated it as a subsidiary. IISI issued new shares in September 2020 as its employees exercised options; therefore, the Company's ownership interest in IISI decreased to 51.20% as of December 31, 2020.
f) SIS reduced and returned its capital to its stakeholders in November 2020. ownership interest in SIS remained the same.
The Company's
g) SENAO subscribed for all the shares in the capital increase of Youth in April 2020. the Company's ownership interest in Youth increased from 92.89% to 95.79%.
Therefore,
h) Aval invested 100% equity shares of Wiin Technology Co., Ltd. ("Wiin") in September 2019.
i) SENYOUNG invested 100% equity shares of Senaolife Insurance Agent Co., Ltd. ("Senaolife") in November 2019.
j) TASVI completed its liquidation in September 2019.
k) CHIEF has 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.
l) 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.
m) SIHK reduced and returned its capital to its stakeholders in November 2020. ownership interest in SIHK remained the same.
The Company's
n) STF completed its liquidation in May 2019.
o) SITS was approved to end and dissolve its business in December 2020. SITS is still in process.
The liquidation of
p) SITJ completed its liquidation in March 2019.
q) CTC was approved to end and dissolve its business in August 2020. still in process.
The liquidation of CTC is
r) CHPT (International) invested 100% equity shares of Su Zhou Precision Test Tech. Ltd. ("SZPT") in October 2019.
s) It is a subsidiary of IISI.
t) HSMC completed its liquidation in December 2020.
The following diagram presented information regarding the relationship and percentages of ownership interests between Chunghwa and its subsidiaries as of December 31, 2020.
Chunghwa Telecom Co., Ltd.
(Chunghwa)
100%
27.79%
100%
100%
100%
100%
100%
56.04%
100%
56.13%
100%
89%
100%
51%
65%
100%
75%
100%
80.27%
51.20%Chunghwa Telecom Vietnam Co., Ltd. ("CHTV")
Senao International
Co., Ltd. ("SENAO")
CHYP Multimedia Marketing & CommunicationsChunghwa Telecom Singapore Pte., Ltd.
Chunghwa
System Integration Co., Ltd.
Chunghwa Telecom Global,
Co., Ltd.
("CHTS")
("CHSI")
Inc. ("CHTG")
("CHYP")Light Era Development
Co., Ltd.
("LED")Entertainment
Tech. Inc. ("SHE")
Spring House Donghwa
TelecomCo., Ltd.
("DHT")CHIEF Telecom
Inc. ("CHIEF")Telecom
Japan Co., Ltd. ("CHTJ")
Chunghwa Chunghwa
InvestmentCo., Ltd.
("CHI")
Prime Asia Investments Group Ltd.
Chunghwa Sochamp Technology
(B.V.I.) ("Prime Asia")
Inc.
Smartfun Digital Co., Ltd. ("SFD")
("CHST")
Honghwa International
Co., Ltd.
("HHI")Chunghwa Leading Photonics Tech Co.,
Ltd. ("CLPT")Chunghwa Telecom (Thailand) Co., Ltd. ("CHTT")CHT Security Co., Ltd. ("CHTSC")International Integrated Systems, Inc. ("IISI")
2.95%
100%
100%
95.79%
100%
34.25%
99.96%
100%
100%
Aval Technologies
Co., Ltd. ("Aval")
100%
100%
49%
Senyoung Insurance Agent
Co., Ltd. ("SENYOUNG")
Youth Co., Ltd. ("Youth")
Senao International
(Samoa) Holding Ltd.
("SIS")Unigate Telecom Inc. ("Unigate")
Chief International
Corp. ("CIC")
Shanghai
Chief Telecom Co., Ltd. ("SCT")
Chunghwa Precision Test Tech. Co., Ltd. ("CHPT")
Chunghwa Hsingta Co., Ltd.
("CHC")Unitronics Technology
Corp. ("UTC")IISI Investment Co., Ltd. ("IICL")
Co., Ltd.
("IESA")
100% Infoexplorer International
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Leading
Tech Co., Ltd.
("LTCL")
International Integrated Systems
0.39%Wiin Technology Co., Ltd. ("Wiin")
Senaolife Insurance Agent Co.,
Ltd. ("Senaolife")ISPOT Co.,
Ltd. ("ISPOT")Youyi Co.,
Ltd. ("Youyi")
Senao International HK Limited ("SIHK")Chunghwa Precision Test
Tech USA
Corporation ("CHPT (US)")CHPT Japan
Co., Ltd. ("CHPT (JP)")
Chunghwa Precision Test Tech.
International, Ltd. ("CHPT (International)")Chunghwa Telecom (China) Co., Ltd.
("CTC")
100%
Leading Systems Co., Ltd.
(Hong Kong) Limited ("IEHK")
("LSCL")
100%
100%
Senao International
Trading (Shanghai) Co., Ltd. ("SITS")
International | ||
Integrated | ||
Systems Inc. | ||
Shanghai | Su Zhou | (Shanghai) |
Taihua | Precision Test | ("IISS") |
Electronic | Tech. Ltd. | |
Technology | ("SZPT") | |
Limited | ||
("STET") |
100%
100%
Business Combinations
Acquisitions of businesses are accounted for using the acquisition method. Acquisition-related costs are generally recognized in profit or loss as they are incurred.
Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirer's previously held equity interests in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation are measured at the non-controlling interests' proportionate share of the recognized amounts of the acquiree's identifiable net assets.
When a business combination is achieved in stages, the Company's previously held equity interest in an acquiree is remeasured to fair value at the acquisition date and the resulting gain or loss is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are recognized on the same basis as would be required had those interests been directly disposed of by the Company.
Foreign Currencies
In preparing the financial statements of each individual entity, transactions in currencies other than the entity's functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.
At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise.
Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined and related exchange differences are recognized in profit or loss. Conversely, when the fair value changes were recognized in other comprehensive income, related exchange difference shall be recognized in other comprehensive income.
Non-monetary items that are measured at historical cost in a foreign currency are not retranslated.
For the purposes of presenting consolidated financial statements, the assets and liabilities of the Company's foreign operations (including of the subsidiaries, associates and joint ventures in other countries or currencies used different with Chunghwa) are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognized in other comprehensive income and attributed to stockholders of the parent and noncontrolling interests as appropriate.
Cash Equivalents
Cash equivalents include commercial paper, negotiable certificates of deposit, time deposits, repurchase agreements collateralized by bonds with original maturities within three months from the date of acquisition and triple stimulus vouchers, highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.
Inventories
Inventories are stated at the lower of cost or net realizable value item by item, except for those that may be appropriate to group items of similar or related inventories. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. The calculation of the cost of inventory is derived using the weighted-average method.
Buildings and Land Consigned to Construction Contractors
Inventories of LED are stated at the lower of cost or net realizable value item by item, except for those that may be appropriate to group as similar items or related inventories. Land acquired before construction is classified as land held for development, and then reclassified as land held under development after LED begins its construction project.
Upon the completion of the construction project, LED recognizes revenues in the amount of proceeds from customers for land and buildings and related costs when ownership is transferred to the customers. The unsold portion of the completed construction project is transferred to land and building held for sale.
Investments in Associates and Joint Ventures
An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. A joint venture is a joint arrangement whereby the Company and other parties that have joint control of the arrangement have rights to the net assets of the arrangement.
Investments accounted for using the equity method include investments in associates and interests in joint ventures. Under the equity method, an investment in an associate or a joint venture is initially recognized at cost and adjusted thereafter to recognize the Company's share of profit or loss and other comprehensive income of the associate and joint venture as well as the distribution received. The Company also recognizes its share in changes in the associates and joint ventures.
When the Company subscribes for new shares of an associate and a joint venture at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company's proportionate interest in the associate and joint venture. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to additional paid-in capital. When the adjustment should be debited to additional paid-in capital but the additional paid-in capital recognized from investments accounted for using equity method is insufficient, the shortage is debited to retained earnings.
Any excess of the cost of acquisition over the Company's share of the fair value of the identifiable net assets and liabilities of an associate and a joint venture at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and shall not be amortized. Any excess of the Company's share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognized immediately in profit or loss.
The entire carrying amount of an investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized is not allocated to any asset, including goodwill, that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.
The Company discontinues the use of the equity method from the date on which its investment ceases to be an associate and a joint venture. Any retained investment is measured at fair value at that date, and the fair value is regarded as the investment's fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate and joint venture attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate and joint venture. The Company accounts for all amounts previously recognized in other comprehensive income in relation to that associate and joint venture on the same basis as would be required had that associate and joint venture directly disposed of the related assets or liabilities.
When the Company transacts with its associate and joint venture, profits and losses resulting from the transactions with the associate and joint venture are recognized in the Company's consolidated financial statements only to the extent of interests in the associate and joint venture that are not related to the Company.
Property, Plant and Equipment
Property, plant and equipment are initially measured at cost and subsequently measured at cost less accumulated depreciation and accumulated impairment loss.
Property, plant and equipment in the course of construction are depreciated and classified to the appropriate categories of property, plant and equipment when completed and ready for their intended use.
Depreciation on property, plant and equipment is recognized using the straight-line method. Each significant part is depreciated separately. Freehold land is not depreciated. The estimated useful lives, residual values and depreciation method are reviewed at the end of each year, with the effect of any changes in estimate accounted for on a prospective basis.
On derecognition of an item of property, plant and equipment, the difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period in which the property is derecognized.
Investment Properties
Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties also include land held for a currently undetermined future use.
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment loss. Depreciation is recognized using the straight-line method.
For a transfer from the investment properties to property, plant and equipment, the deemed cost of the property, plant and equipment for subsequent accounting is its carrying amount at the commencement of owner-occupation.
For a transfer from the property, plant and equipment to investment properties, the deemed cost of the investment properties for subsequent accounting is its carrying amount at the end of owner-occupation.
For a contract where a land owner provides land for the construction of buildings by a property developer in exchange for a certain percentage of the buildings, any exchange gain or loss is recognized when the exchange transaction occurs if the exchange transaction has commercial substance.
On derecognition of the investment properties, the difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period in which the property is derecognized.
Goodwill
Goodwill arising from the acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment loss.
For the purpose of impairment testing, goodwill is allocated to each of the Company's cash-generating units or groups of cash-generating units (referred to as "cash-generating unit") that are expected to benefit from the synergies of the business combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired, by comparing its carrying amount, including the attributable goodwill, with its recoverable amount. However, if the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.
Intangible Assets Other Than Goodwill
Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis. The estimated useful life, residual value, and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless the Company expects to dispose of the intangible asset before the end of its economic life.
Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, they are measured on the same basis as intangible assets that are acquired separately.
Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss in the period in which the asset is derecognized.
Impairment of Property, Plant and Equipment, Right-of-use Assets, Intangible Assets Other Than Goodwill and Incremental Costs of Obtaining Contracts
At the end of each reporting period, the Company reviews the carrying amounts of its property, plant and equipment, right-of-use assets and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss.
Impairment loss from the assets related to incremental cost of obtaining contracts is recognized to the extent that the carrying amount of the assets exceeds the remaining amount of consideration that the Company expects to receive in exchange for related goods or services less the costs which relate directly to providing those goods or services.
When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.
Financial Instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.
a.
Financial assets
All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.
1) Measurement category
a) Financial assets at fair value through profit or loss (FVTPL)
Financial asset is classified as at FVTPL when the financial asset is mandatorily classified as at FVTPL. Financial assets mandatorily classified as at FVTPL include investments in equity instruments which are not designated as at fair value through other comprehensive income (FVOCI).
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any dividend earned on the financial asset. Fair value is determined in the manner described in Note 37.
b) Financial assets at amortized cost
Financial assets that meet the following conditions are subsequently measured at amortized cost:
i.
The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
ii. The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Subsequent to initial recognition, financial assets at amortized cost are measured at amortized cost, which equals to gross carrying amount determined by the effective interest method less any impairment loss, except for short-term receivables as the effect of discounting is immaterial. Exchange differences are recognized in profit or loss.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of such financial assets.
c) Investments in equity instruments at FVOCI
On initial recognition, the Company may make an irrevocable election to designate investments in equity instruments as at FVOCI. Designation at FVOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination.
Investments in equity instruments at FVOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments. Instead, it will be transferred to retained earnings.
Dividends on these investments in equity instruments are recognized in profit or loss when the Company's right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.
2) Impairment of financial assets and contract assets
The Company recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including accounts receivable) and contract assets.
The Company recognizes lifetime Expected Credit Loss (ECL) for accounts receivable and contract assets. For all other financial instruments, the Company recognizes lifetime ECL when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on the financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12-month ECL.
Expected credit losses reflect the weighted average of credit losses with the respective risks of a default occurring as the weights. Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.
The Company recognizes an impairment loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.
3)Derecognition of financial assets
The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
On derecognition of a financial asset measured at amortized cost in its entirety, the difference between the asset's carrying amount and the sum of the consideration received and receivable is recognized in profit or loss.
On derecognition of investments in equity instruments at FVOCI in its entirety, the cumulative gain or loss is directly transferred to retained earnings, and it is not reclassified to profit or loss.
b.
Financial liabilities
1)Subsequent measurement
Except for financial liabilities at FVTPL, all the financial liabilities are subsequently measured at amortized cost using the effective interest method.
2) Derecognition of financial liabilities
The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.
c. Derivative financial instruments
The Company enters into derivative financial instruments to manage its exposure to foreign exchange rate risks, including forward exchange contracts.
Derivatives are initially measured at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or lossdepends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability.
Hedge Accounting
The Company designates some derivatives instruments as cash flow hedges. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss.
The associated gains or losses that were recognized in other comprehensive income are reclassified from equity to profit or loss as a reclassification adjustment in the line item relating to the hedged item in the same period when the hedged item affects profit or loss. If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, the associated gains and losses that were recognized in other comprehensive income are removed from equity and are included in the initial cost of the non-financial asset or non-financial liability.
The Company discontinues hedge accounting only when the hedging relationship ceases to meet the qualifying criteria; for instance, when the hedging instrument expires or is sold, terminated or exercised. The cumulative gain or loss on the hedging instrument that has been previously recognized in other comprehensive income from the period when the hedge was effective remains separately in equity until the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss.
Provisions
Provisions are measured at the best estimate of the expenditure required to settle the Company's obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. The provisions for warranties claims are made by management according to the sales agreements which represent the management's best estimate of the future outflow of economic benefits. The provisions of warranties claims are recognized as operating cost in the period in which the goods are sold. 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.
Revenue Recognition
The Company identifies the performance obligations in the contract with the customers, allocates transaction price to each performance obligation and recognizes revenue when performance obligations are satisfied.
Sales of products are recognized as revenue when the Company delivers products and the customer accepts and controls the product. Except for the consumer electronic products such as mobile devices sold in channel stores which are usually in cash sale, the Company recognizes revenues for sale of other electronic devices and corresponding trade notes and accounts receivable.
Usage revenues from fixed-line services (including local, domestic long distance and international long distance telephone services), mobile services, internet and data services, and interconnection and call transfer fees from other telecommunications companies and carriers are billed in arrears and are recognized based upon seconds or minutes of traffic processed when the services are provided in accordance with contract terms. The usage revenues and corresponding trade notes and accounts receivable are recognized monthly.
Other revenues are recognized as follows: (a) one-time subscriber connection fees (on fixed-line services) are first recognized as contract liabilities and revenues are recognized subsequently over the average expected customer service periods, (b) monthly fees (on fixed-line services, mobile, internet and data services) and related receivables are accrued monthly, and (c) prepaid services (fixed-line, mobile, internet and data services) are recognized as contract liabilities upon collection considerations from customers and are recognized as revenues subsequently based upon actual usage by customers.
Where the Company enters into transactions which involve both the provision of telecommunications service bundled with products such as handsets, total consideration received from products and telecommunications service in these arrangements are allocated based on their relative stand-alone selling price. The amount of sales revenue recognized for products is not limited to the amount paid by the customer for the products. When the amount of sales revenue recognized for products exceeded the amount paid by the customer for the products, the difference is recognized as contract assets. Contract assets are reclassified to accounts receivable when the amounts become collectible from customers subsequently. When the amount of sales revenue recognized for products was less than the amount paid by the customer for the products, the difference is recognized as contract liabilities and revenues are recognized subsequently when the telecommunications service are provided.
For project business contracts, if a substantial part of the Company's promise to customers is to manage and coordinate the various tasks and assume the risks of those tasks to ensure the individual goods or services are incorporated into the combined output, they are treated as a single performance obligation since the Company provides a significant integration service. The Company recognizes revenues and corresponding accounts receivable when the project business contract is completed and accepted by customers. For some project contracts, the Company does not create an asset with an alternative use to the Company and has an enforceable right to payment for performance completed to date; therefore, performance obligations are satisfied and revenues are recognized over time.
For service contracts such as maintenance and warranties, customers simultaneously receive and consume the benefits provided by the Company; thus, revenues and corresponding accounts receivable of service contracts are recognized over the related service period.
When another party is involved in providing goods or services to a customer, the Company is acting as a principal if it controls the specified good or service before that good or service is transferred to a customer; otherwise, the Company is acting as an agent. When the Company is acting as a principal, gross inflow of economic benefits arising from transactions is recognized as revenue. When the Company is acting as an agent, revenue is recognized as its share of transaction.
Incremental Costs of Obtaining Contracts
Commissions and equipment subsidy related to telecommunications service as a result of obtaining contracts are recognized as an asset under the incremental costs of obtaining contracts to the extent the costs are expected to be recovered and are amortized over the contract period. However, the Company elects not to capitalize the incremental costs of obtaining contracts if the amortization period of the assets that the Company otherwise would have recognized is expected to be one year or less.
Leasing
At inception of a contract, the Company assesses whether the contract is, or contains, a lease.
a. The Company as lessor
Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.
b. The Company as lessee
The Company recognizes right-of-use assets and lease liabilities for all leases at the commencement date of a lease, except for lease payments for low-value assets are recognized as expenses on a straight-line basis over the lease terms accounted for applying recognition exemption.
Right-of-use assets are initially measured at cost, which comprises the initial measurement of lease liabilities and for lease payments made at or before the commencement date. Right-of-use assets are subsequently measured at cost less accumulated depreciation and accumulated impairment losses and adjusted for any remeasurement of the lease liabilities. Right-of-use assets are presented separately on the consolidated balance sheets.
Right-of-use assets are depreciated using the straight-line basis from the commencement dates to the earlier of the end of the useful lives of the right-of-use assets or the end of the lease terms.
Lease liabilities were initially measured at the present value of the lease payments, which comprise fixed payments, in-substance fixed payments, variable lease payments which depend on an index or a rate. The lease payments are discounted using the interest rate implicit in a lease, if that rate can be readily determined. If such rate cannot be readily determined, the lessee's incremental borrowing rate is used.
Lease liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized over the lease terms. When there is a change in a lease term or a change in future lease payments resulting from a change in an index or a rate used to determine those payments, the Company remeasures the lease liabilities with a corresponding adjustment to the right-of-use-assets. However, if the carrying amount of the right-of-use assets is reduced to zero, any remaining amount of the remeasurement is recognized in profit or loss. The Company accounts for the remeasurement of the lease liability as a result of the decrease of lease scope by decreasing the carrying amount of the right-of-use assets and recognizes in profit or loss any gain or loss on the partial or full termination of the lease. Lease liabilities are presented separately on the consolidated balance sheets.
Variable lease payments not depending on an index or a rate are recognized as expenses in the periods in which they are incurred.
Borrowing Costs
All borrowing costs are recognized in profit or loss in the period in which they are incurred.
Government Grants
Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attached to government grants and that the grants will be received.
Government grants related to income are recognized in profit or loss on a systematic basis over the periods in which the Company recognizes expenses of the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Company should construct noncurrent assets are recognized as deferred revenue and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.
Employee Benefits
a. Short-term employee benefits
Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.
b. Retirement benefits
Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.
Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost and gains or losses on settlements) and net interest on the net defined benefit liability (asset) are recognized as employee benefits expense in the period they occur. Remeasurement, comprising (a) actuarial gains and losses; and (b) the return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset), is recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.
Net defined benefit liability (asset) represents the actual deficit (surplus) in the Company's defined benefit plan. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.
c. Other long-term employee benefits
Other long-term employee benefits are accounted for in the same way as the accounting required for defined benefit plan except that remeasurement is recognized in profit or loss.
Share-based Payment Arrangements - Employee Stock Options
The fair value determined at the grant date of the employee share options is expensed on a straight-line basis over the vesting period, based on the Company's estimate of employee stock options that are expected to ultimately vest, with a corresponding increase in additional paid-in capital - employee stock options. If the equity instruments granted vest immediately at the grant date, expenses are recognized in full in profit or loss.
At the end of each reporting period, the Company revises its estimate of the number of employee share options expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to additional paid-in capital - employee stock options.
Income Tax
Income tax expense represents the sum of the tax currently payable and deferred tax.
a. Current tax
Income tax payable or recoverable is based on taxable profit or loss for the period determined according to the applicable tax laws of each tax jurisdiction.
According to the Income Tax Act in the ROC, an additional tax of unappropriated earnings is provided for in the year the stockholders approve to retain the earnings.
Adjustments of prior years' tax liabilities are added to or deducted from the current year's tax provision.
b. Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. A deferred tax liability is not recognized on taxable temporary difference arising from initial recognition of goodwill.
Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carry forward and unused tax credits from purchases of machinery, equipment and technology and research, and development expenditures, etc. to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, associates, and joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
c.
Current and deferred tax
Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income, in which case, the current and deferred tax are also recognized in other comprehensive income.
Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
4. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY AND ASSUMPTION
In the application of the Company's accounting policies, the management is required to make judgments, estimates and assumptions which are based on historical experience and other factors that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed by the management on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
a. Critical accounting judgments
1) Revenue recognition
The Company's project agreements are mainly to provide one or more customized equipment or services to customers. In order to fulfill the agreements, another party may be involved in some agreements. The Company considers the following factors to determine whether the Company is a principal of the transaction: whether the Company is the primary obligation provider of the agreements, its exposures to inventory risks and the discretion in establishing prices, etc. The determination of whether the Company is a principal or an agent will affect the amount of revenue recognized by the Company. Only when the Company is acting as a principal, gross inflows of economic benefits arising from transactions is recognized as revenue.
2) Control over subsidiaries
As discussed in Note 3, "Summary of Significant Accounting Policies - Basis of Consolidation", some entities are subsidiaries of the Company although the Company only owns less than 50% ownership interests in these entities. After considering the Company's absolute size of holding in the entity and the relative size of and the dispersion of shares owned by the other stockholders, and the contractual arrangements between the Company and other investors, potential voting interests and the written agreement between stockholders, the management concluded that the Company has a sufficiently dominant voting interest to direct the relevant activities of the entity and therefore the Company has control over these entities.
b. Key sources of estimation uncertainty and assumption
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period. Actual results may differ from these estimates.
1) Impairment of trade notes and accounts receivable
The provision for impairment of trade notes and accounts receivable is based on assumptions about risk of default and expected loss rates. The Company uses judgment in making these assumptions and in selecting the inputs to the impairment calculation, based on the Company's past experience, current market conditions as well as forward looking information at the end of each reporting period. For details of the key assumptions and inputs used, see Note 9. Where the actual future cash flows are less than expected, a material impairment loss may arise.
2) Fair value measurements and valuation processes
For the assets and liabilities measured at fair value without quoted prices in active markets, the Company's management determines the appropriate valuation techniques for the fair value measurements and whether to engage third party qualified appraisers based on the related regulations and professional judgments.
Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities was disclosed in Note 37. If the actual changes of inputs in the future differ from expectation, the fair value may vary accordingly. The Company updates inputs periodically to monitor the appropriateness of the fair value measurement.
3) Provision for inventory valuation and obsolescence
Inventories are stated at the lower of cost or net realizable value. Net realizable value is calculated as the estimated selling price less the estimated selling costs. Comparison of net realizable value and cost is determined on an item by item basis, except for those similar items which could be categorized into the same groups. The Company uses the inventory holding period and turnover as the evaluation basis for inventory obsolescence losses.
4) Impairment of property, plant and equipment, right-of-use assets and intangible assets
When an indication of impairment is assessed with objective evidence, the Company considers whether the recoverable amount of an asset is less than its carrying amount and recognizes the impairment loss based on difference between the recoverable amount and its carrying amount. The estimate of recoverable amount would impact on the timing and the amount of impairment loss recognition.
5) Useful lives of property, plant and equipment
As discussed in Note 3, "Summary of Significant Accounting Policies - Property, Plant and Equipment", the Company reviews estimated useful lives of property, plant and equipment at the end of each year.
6) Recognition and measurement of defined benefit plans
Net defined benefit liabilities (assets) and the resulting pension expense under defined benefit pension plans are calculated using the Projected Unit Credit Method. Actuarial assumptions comprise the discount rate, employee turnover rate, average future salary increase and etc. Changes in economic circumstances and market conditions will affect these assumptions and may have a material impact on the amount of the expense and the liability.
7) Lessees' incremental borrowing rates
In determining a lessee's incremental borrowing rate used in discounting lease payments, a risk-free rate for relevant duration and the same currency is selected as a reference rate. The lessee's credit spread adjustments and lease specific adjustments are also taken into account.
5. APPLICATION OF NEW AND REVISED STANDARDS AND INTERPRETATIONS
a.
Initial application of the amendments to the IFRSs endorsed and issued into effect by the FSC
The initial application of the amendments to the IFRS, IAS, IFRIC and SIC issued by the International Accounting Standards Board and endorsed and issued into effect by the FSC does not have material impacts on the Company's consolidated financial statements.
b. Amendments to IFRSs endorsed by the FSC for application starting from January 1, 2021
Effective Date Issued
New, Revised or Amended Standards and Interpretations by IASB
Amendments to IFRS 9, IAS 39, IFRSInterest Rate Benchmark
January 1, 2021
7, IFRS 4 and IFRS 16
Reform-Phase 2
The application of the above new, revised or amended standards and interpretations will not have material impact on the Company's consolidated financial statements.
c.
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 1)
Amendments to IFRSs | Annual Improvements to IFRS Standards | January 1, 2022 (Note 2) |
2018-2020 | ||
Amendments to IFRS 3 | Reference to the Conceptual Framework | January 1, 2022 (Note 3) |
Amendments to IFRS 10 | Sale or Contribution of Assets between An | To be determined by |
and IAS 28 | Investor and Its Associate or Joint | IASB |
Venture | ||
Amendments to IAS 1 | Classification of liabilities as current or | January 1, 2023 |
noncurrent | ||
Amendments to IAS 16 | Property, Plant and Equipment - Proceeds | January 1, 2022 (Note 4) |
before Intended Use | ||
Amendments to IAS 37 | Onerous Contracts - Cost of Fulfilling a | January 1, 2022 (Note 5) |
Contract |
Note 1： | Unless stated otherwise, the above new IFRSs are effective for annual periods beginning |
on or after their respective effective dates. | |
Note 2： | The amendments to IFRS 9 are applied prospectively to financial liabilities that are |
exchanged or modified on or after the annual reporting periods beginning on or after | |
January 1, 2022. | |
Note 3： | The amendments are applicable to business combinations for which the acquisition date is |
on or after the annual reporting period beginning on or after January 1, 2022. | |
Note 4： | The amendments are applicable to property, plant and equipment that are brought to the |
location and condition necessary for them to be capable of operating in the manner | |
intended by management on or after January 1, 2021. | |
Note 5： | The amendments are applicable to contracts for which the entity has not yet fulfilled all |
its obligations on January 1, 2022. |
As of the date the consolidated financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of above standards and interpretations will have on the Company's financial position and operating result and will disclose the relevant impact when the assessment is completed.
6. CASH AND CASH EQUIVALENTS
Cash
Cash on hand Bank depositsCash equivalents (investments with maturities of less than three months)
December 31
2020
2019
$
486,989
10,961,220 9,432,814 11,448,209 9,786,313
$
353,499
Commercial paper 14,060,568 20,109,823
Negotiable certificates of deposit Time deposits
Repurchase agreements collateralized by bonds Triple stimulus vouchers
2,600,000 1,700,000 2,307,892 2,450,509
- 2,986 18,971,446 $ 30,419,655
2,998 - 24,263,330 $ 34,049,643
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
2020 | 2019 | |
Bank deposits | 0.00%-0.40% | 0.00%-0.74% |
Commercial paper | 0.14%-0.26% | 0.47%-0.54% |
Negotiable certificates of deposit | 0.24%-0.30% | 0.58%-0.60% |
Time deposits | 0.10%-3.60% | 0.09%-4.40% |
Repurchase agreements collateralized by bonds | - | 1.90% |
7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Financial assets-currentMandatorily measured at FVTPL
Derivatives (not designated for hedge)
Forward exchange contracts Non-derivatives
Listed stocks - domestic
December 31
2020 2019
$
2,271
$ 53
7,626 463
Financial assets-noncurrentMandatorily measured at FVTPL
Non-derivatives
Non-listed stocks - domestic Non-listed stocks - foreign
$
9,897
$ 516
$ 441,095 | $ 510,801 |
236,107 | 267,304 |
$ 677,202 | $ 778,105 |
(Continued) |
December 31
2020 2019
Financial liabilities-current
Held for trading
Derivatives (not designated for hedge)
Forward exchange contracts
$
143
$ 239
(Concluded)The Company increased its investment in Taiwania Capital Buffalo Fund Co., Ltd. proportionally for 300,000 thousand in October 2019 and the Company's ownership interest in Taiwania Capital Buffalo Fund Co., Ltd. remained at 12.90%.
Outstanding forward exchange contracts not designated for hedge as of balance sheet dates were as follows:
Contract Amount
Currency | Maturity Period | (In Thousands) | |
December 31, 2020 | |||
Forward exchange contracts - buy | NT$/EUR | 2021.03 | NT$50,435/EUR1,500 |
Forward exchange contracts - sell | US$/NT$ | 2021.02-03 | US$13,500/NT$379,472 |
December 31, 2019 | |||
Forward exchange contracts - buy | NT$/EUR | 2020.03 | NT$50,910/EUR1,500 |
Forward exchange contracts - buy | NT$/US$ | 2020.01 | NT$25,524/US$850 |
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
2020
2019
Domestic investments
Listed stocks
$
2,754,175
$ 2,453,616
Non-listed stocks Foreign investments
4,324,592 4,680,931
Non-listed stocks
114,407
134,370
$ 7,193,174
$ 7,268,917
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 Electro Chemical 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 after its declaration of bankruptcy.
The Company disposed a portion of its investment in China Airlines, Ltd. at fair value of $567,797 thousand in December 2020. As of December 31, 2020, the settlement of funds/securities amounting to $270,321 thousand had not been completed. The related unrealized gain on investments in equity instruments at fair value through other comprehensive income of $16,686 thousand was transferred from other equity to retained earnings upon the aforementioned disposal.
The Company recognized dividend income of $246,084 thousand and $296,360 thousand for the years ended December 31, 2020 and 2019, respectively, from the investments still held on December 31, 2020 and 2019.
9. TRADE NOTES AND ACCOUNTS RECEIVABLE, NET
December 31
2020
2019
Trade notes and accounts receivable | $ 24,776,266 $ 28,767,539 |
Less: Loss allowance | (2,154,364) (2,359,756) |
$ 22,621,902 $ 26,407,783 | |
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.
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:
December 31, 2020
Not Past DuePast Due Less than 30 DaysPass Due 31 to 60 DaysPass Due 61 to 90 DaysPass Due 91 to 120 DaysPass Due 121 to 180 DaysPass Due over 180 DaysTotal
Telecommunications business
Expected credit loss rate
(Note a)
Gross carrying amount Loss allowance (lifetime
0%-2% $ 15,839,132
2%-24%
3%-68%
11%-83%
28%-90%
52%-96%
100%
$ 203,949
$ 50,897
$ 31,263
$ 29,872
$ 25,351
$ 625,591
$ 16,806,055
ECL)
(56,249 )
(20,880 )
(23,483 )
(24,859 )
(24,319 )
(21,665 )
(625,591 )
(797,046 )Amortized cost
$ 15,782,883
$ 183,069
$ 27,414
$ 6,404
$ 5,553
$ 3,686
$
-
$ 16,009,009
Project business
Expected credit loss rate
(Note b)
0%-5%
5%
10%
30%
50%
80%
100%
Gross carrying amount Loss allowance (lifetime
$ 3,472,738
$ 64,372
$ 26,810
$ 8,963
$ 2,163
$ 2,691
$ 1,287,567
$ 4,865,304
ECL)
(20,060 )
(3,219 )
(2,772 )
(2,760 )
(1,132 )
(2,160 )
(1,287,567 )
(1,319,670 )Amortized cost
$ 3,452,678
$ 61,153
$ 24,038
$ 6,203
$ 1,031
$
531
$
-
$ 3,545,634
December 31, 2019
Not Past DuePast Due Less than 30 DaysPass Due 31 to 60 DaysPass Due 61 to 90 DaysPass Due 91 to 120 DaysPass Due 121 to 180 DaysPass Due over 180 DaysTotal
Telecommunications business
Expected credit loss rate
(Note a)
Gross carrying amount Loss allowance (lifetime
0%- 2% $ 19,020,326
0%-25%
0%-68%
0%-83%
11%-90%
17%-96%
100%
$ 267,902
$ 74,775
$ 46,782
$ 40,771
$ 28,021
$ 600,985
$ 20,079,562
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 Loss allowance (lifetime
$ 4,053,681
$ 78,147
$ 52,227
$ 29,527
$ 12,688
$ 1,040
$ 1,471,840
$ 5,699,150
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
Note a:Please refer to Notes 30 and 44 for the information of disaggregation of telecommunications service revenue. The expected credit loss rate applicable to different business revenue varies so as to reflect the risk level indicating by factors like historical experience.
Note b:
The project business has different loss types according to the customer types. The expected credit loss rate listed above is for general customers. When 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:
Year Ended December 31
2020
2019
Beginning balance | ||
Add: Provision for (reversal of) credit loss | ||
Add: Acquired by business combinations (Note 13) | ||
Less: Amounts written off | ||
Ending balance | ||
10. INVENTORIES | ||
2020 | 2019 | |
Merchandise | $ 3,902,854 | $ 3,858,034 |
Project in process | 6,166,583 | 11,113,286 |
Work in process | 126,163 | 141,417 |
Raw materials | 137,495 | 155,495 |
10,333,095 | 15,268,232 | |
Land held under development | 1,998,733 | 1,998,733 |
Construction in progress | 77,075 | 77,311 |
$ 12,408,903 | $ 17,344,276 |
$
2,359,756 48,708 1,639 (255,739)
$ 2,602,055
(53,952)
- (188,347)
$ 2,154,364
$ 2,359,756
December 31
The operating costs related to inventories were $53,847,123 thousand (including the valuation loss on inventories of $1,161,281 thousand) and $49,258,066 thousand (including the valuation loss on inventories of $474,709 thousand) for the years ended December 31, 2020 and 2019, respectively.
As of December 31, 2020 and 2019, inventories of $2,075,808 thousand and $2,076,044 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
2020
2019
Prepaid rents Others
$ 2,863,510 1,656,257
$ 3,382,560 1,180,034
$ 4,519,767
$ 4,562,594
Current
Prepaid rents Others
$
651,510
$
704,607
1,654,736
1,178,652
$ 2,306,246
$ 1,883,259 (Continued)
December 31
2020 | 2019 | |
Noncurrent | ||
Prepaid rents | $ 2,212,000 | $ 2,677,953 |
Others | 1,521 | 1,382 |
$ 2,213,521 | $ 2,679,335 | |
(Concluded) |
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
2020 | 2019 | |
Time deposits and negotiable certificates of deposit with | ||
maturities of more than three months | $ 4,595,951 | $ 5,959,074 |
Repurchase agreements collateralized by bonds with maturities of | ||
more than three months | - | 14,990 |
Others | 1,527,714 | 1,524,500 |
$ 6,123,665 | $ 7,498,564 |
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 the balance sheet dates were as follows:
December 31
2020
2019
Time deposits and negotiable certificates of deposit with maturities of more than three months
0.07%-2.25%
0.03%-2.73%
Repurchase agreements collateralized by bonds with maturities of more than three months
-
2.50%
13. SUBSIDIARIES
a.
Information on subsidiaries with material noncontrolling interests
Proportion of Ownership Interests and Voting Rights Held by Noncontrolling Interests
Principal Place | |||
Subsidiaries | of Business | 2020 | 2019 |
SENAO | Taiwan | 72% | 72% |
CHPT | Taiwan | 66% | 66% |
December 31
Profit Allocated to | Accumulated Noncontrolling |
Noncontrolling Interests | Interests |
Year Ended December 31 | December 31 |
2020
2019
2020
2019
SENAO CHPT
Individually immaterial subsidiaries with
$ $
312,130 613,907
$ 292,776
$ 411,049
$
4,311,048 $ 4,267,547 4,635,240 4,236,872
noncontrolling interests 2,381,153 1,779,103
$ 11,327,441
$ 10,283,522
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.
Current assets Noncurrent assets Current liabilities Noncurrent liabilitiesEquityEquity attributable to the parent
Equity attributable to noncontrolling interests
December 31
2020 | 2019 |
$ 6,834,221 | $ 6,751,385 |
3,340,983 | 3,321,252 |
(3,832,372) | (3,617,165) |
(415,712) | (589,882) |
$ 5,927,120 | $ 5,865,590 |
$ 1,616,072 | $ 1,598,043 |
4,311,048 | 4,267,547 |
$ 5,927,120 | $ 5,865,590 |
Year Ended December 31
2020
2019
Revenues and income Costs and expenses
$ 27,231,145 26,795,397
$ 29,130,695 28,722,830
Profit for the year
$ 435,748
$ 407,865
Profit attributable to the parent
Profit attributable to noncontrolling interests
$ 123,618 312,130
$ 115,089 292,776
Profit for the year
$ 435,748
$ 407,865
Other comprehensive income (loss) attributable to the parent Other comprehensive income attributable to noncontrolling interests
$ 715 1,863
$ (7,164)
22,358
$ 2,578
$ 15,194
(Continued)
Total comprehensive income attributable to the parent Total comprehensive income attributable to noncontrolling interests
$
124,333
313,993 315,134
$ 107,925
$ $
Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities
Effect of exchange rate changes on cash and cash equivalents
438,326 862,323
$ 423,059
$ 537,209
54,387 235,925
(687,555)
(426)
(717,602)
(193)Net cash inflow
Dividends paid to noncontrolling interests
$ $
228,729 268,944
$ 55,339
$ 268,944
(Concluded)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
2020
2019
Current assets Noncurrent assets Current liabilities Noncurrent liabilities
$ 4,122,134 4,012,654 (1,072,538)
(12,456)
$ 3,709,630 4,043,881 (1,287,597)
(22,003)Equity
$ 7,049,794
$ 6,443,911
Equity attributable to CHI
Equity attributable to noncontrolling interests
$ 2,414,554 4,635,240
$ 2,207,039 4,236,872
$ 7,049,794
$ 6,443,911
Year Ended December 31
Revenues and income Costs and expenses
Profit for the year
Profit attributable to CHI
Profit attributable to noncontrolling interests
Profit for the year
2020 | 2019 | ||
$ | 4,220,724 | $ | 3,404,570 |
3,287,031 | 2,779,406 | ||
$ | 933,693 | $ | 625,164 |
$ | 319,786 | $ | 214,115 |
613,907 | 411,049 | ||
$ | 933,693 | $ | 625,164 |
(Continued) |
Other comprehensive income (loss) attributable to CHI Other comprehensive income (loss) attributable to noncontrolling interests
$
27
$ (1,106)
53 (2,124)Total comprehensive income attributable to CHI
$ $
80 319,813
$ (3,230)
$ 213,009
Total comprehensive income attributable to noncontrolling interests
613,960 408,925
$
933,773
$ 621,934
Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities
$ 1,482,834
$ 507,144
(532,820) (1,425,660)
(349,136) (349,452)
Effect of exchange rate changes on cash and cash equivalents
1,306 (4,815)
Net cash inflow (outflow)
Dividends paid to noncontrolling interests
$ $
602,184 215,591
$ (1,272,783)
$ 215,591
(Concluded)b. Equity transactions with noncontrolling interests
CHIEF issued new shares in March 2020, December 2020, March 2019 and November 2019 as its employees exercised options. Therefore, the Company's equity ownership interest in CHIEF decreased. See Note 34(b) for details.
SENAO subscribed for all the shares in the capital increase of Youth in April 2020; therefore, the Company's ownership interest in Youth increased.
IISI issued new shares in September 2020 as its employees exercised options; therefore, the Company's ownership interest in IISI decreased. See Note 34(d) for details.
The above transactions were accounted for as equity transactions since the Company did not cease to have control over these subsidiaries.
Information of the Company's equity transactions with noncontrolling interests for the years ended December 31, 2020 and 2019 was as follows:
Year Ended December 31, 2020
SENAO Not
Proportionately
Participating in
CHIEF | the Capital | IISI |
Share-Based | Increase of | Share-Based |
Payment | Youth | Payment |
Cash consideration received from noncontrolling interests
$
74,540
$
-$
6,755 (Continued)
Year Ended December 31, 2020
SENAO Not Proportionately Participating in
CHIEF | the Capital | IISI |
Share-Based | Increase of | Share-Based |
Payment | Youth | Payment |
The proportionate share of the carrying amount of the net assets of the subsidiary transferred to noncontrolling interests
$
(48,826)
$
(103)
$ (6,659)
Differences arising from equity transactions
$
25,714
$
(103) $ 96
Line items for equity transaction adjustments
Additional paid-in capital - arising from changes in equities of subsidiaries
$
25,714
$
(103) $ 96
(Concluded)
Year Ended
December 31,
2019
CHIEF
Share-Based
Payment
Cash consideration received from noncontrolling interests The proportionate share of the carrying amount of the net assets of the subsidiary transferred to noncontrolling
$ 18,825
interests (19,723)Differences arising from equity transactions
$ (898)
Line items for equity transaction adjustments
Additional paid-in capital - arising from changes in equities of subsidiaries
$ (898)c.
BUSINESS COMBINATIONS
1) Subsidiary acquired
In order to develop and cultivate the enterprise customer market, Chunghwa obtained 20.38% ownership interest in IISI by cash on July 1, 2020, the acquisition date. (Note) Chunghwa's ownership interest in IISI increased to 51.54% by considering the previously held ownership interest in IISI. Chunghwa obtained over half of the seats of the Board of Directors of IISI; therefore, Chunghwa gained control over IISI and included IISI and its subsidiaries in the consolidated financial statements starting from the acquisition date. IISI mainly engages in information system development and maintenance service business, etc.
Note:IISI issued new shares in April 2020 as its employees exercised options; therefore, the percentage of ownership interest in IISI obtained on the acquisition date is lower than that approved by Chunghwa's Board of Directors in January 2020.
2) Assets acquired and liabilities assumed at acquisition date
Cash and cash equivalents | $ | 587,979 |
Contract assets | 582,745 | |
Trade notes and accounts receivable | 165,452 | |
Inventories | 141,236 | |
Prepayments | 113,858 | |
Other current monetary assets | 113,724 | |
Other current assets | 74,757 | |
Noncurrent assets | ||
Property, plant and equipment | 47,962 | |
Right-of-use assets | 70,007 | |
Intangible assets | 11,861 | |
Deferred income tax assets | 5,665 | |
Other noncurrent assets | 102,519 | |
Current liabilities | ||
Short-term loans | (4,000) | |
Contract liabilities | (333,533) | |
Trade notes and accounts payable | (256,902) | |
Current tax liabilities | (19,355) | |
Lease liabilities | (25,941) | |
Other payables | (265,901) | |
Provisions | (15,258) | |
Other current liabilities | (30,163) | |
Noncurrent liabilities | ||
Deferred income tax liabilities | (2,209) | |
Lease liabilities | (44,964) | |
Net defined benefit liabilities | (32,613) | |
Other noncurrent liabilities | (4,843) | |
$ | 982,083 | |
IISI and Its Subsidiaries
Current assets
The trade notes and accounts receivable acquired in business combination transactions have a fair value of $165,452 thousand and a gross contractual amount of $167,091 thousand. The best estimates of the contractual cash flows not expected to be collected as of the acquisition date are $1,639 thousand.
3)Goodwill arising from acquisition
IISI and Its Subsidiaries
Consideration transferred | 233,923 |
Add: Fair value of equity interest held before the | |
acquisition date | 327,287 |
(Continued) |
$
IISI and Its Subsidiaries
Add:
Less:Noncontrolling interest (48.46% of the identifiable net assets of IISI and its subsidiaries) Fair value of identifiable net assets acquired
$ 475,879 (982,083)Goodwill arising from acquisition
$ 55,006
(Concluded)The goodwill arising from the acquisition of IISI mainly represents the control premium. In addition, the consideration paid for the combination included amounts attributed to the benefits of expected synergies and the assembled workforces of IISI. These benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.
Goodwill arising from business combinations is not deductible for tax purposes.
4)
Net cash inflow on acquisition of subsidiaries
IISI and Its Subsidiaries
Cash and cash equivalents acquired Less: Consideration paid in cash
$
587,979 (233,923)
$ 354,056
5) Impact of acquisition on the financial results of the Company
The financial results of the acquiree since the acquisition date to December 31 2020 included in the consolidated statements of comprehensive income are as follows:
IISI and Its Subsidiaries
Revenue Profit
$ 1,348,167 $ 68,021
Had the business combination been in effect at the beginning of the annual reporting period, the
Company's revenue and profit would have been $208,604,696 thousand and $34,747,291 thousand for the year ended December 31, 2020, respectively. This pro-forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Company that actually would have been achieved had the acquisition been completed on January 1, 2020, nor is it intended to be a projection of future results.
In determining the pro-forma revenue and profit of the Company had IISI been acquired at the beginning of the financial year, the management calculated amortization of intangible assets acquired on the basis of the fair values arising in the initial accounting for the business combination rather than the carrying amounts recognized in the pre-acquisition financial statements.
14. INVESTMENTS ACCOUNTED FOR USING EQUITY METHODDecember 31
2020 | 2019 | |
Investments in associates | $ 6,882,801 | $ 7,354,226 |
Investment in joint venture | 10,200 | - |
$ 6,893,001 | $ 7,354,226 |
a.
Investments in associates | ||
Investments in associates were as follows: | ||
2020 | 2019 | |
Material associate | ||
Next Commercial Bank Co., Ltd. ("NCB") (Note) | $ 3,776,876 | $ 4,074,168 |
Associates that are not individually material | ||
Listed | ||
Senao Networks, Inc. ("SNI") | 991,610 | 953,685 |
KingwayTek Technology Co., Ltd. ("KWT") | 249,044 | 253,021 |
Non-listed | ||
ST-2 Satellite Ventures Pte., Ltd. ("STS") | 488,257 | 500,930 |
Viettel-CHT Co., Ltd. ("Viettel-CHT") | 363,522 | 316,535 |
Taiwan International Standard Electronics Co., Ltd. ("TISE") | 330,031 | 272,166 |
So-net Entertainment Taiwan Limited ("So-net") | 226,647 | 189,396 |
Chunghwa PChome Fund I Co., Ltd. ("CPFI") | 192,856 | 194,081 |
KKBOX Taiwan Co., Ltd. ("KKBOXTW") | 163,809 | 150,789 |
Taiwan International Ports Logistics Corporation ("TIPL") | 55,925 | 50,979 |
Click Force Co., Ltd. ("CF") | 33,086 | 37,120 |
Cornerstone Ventures Co., Ltd. ("CVC") | 6,058 | 5,507 |
Alliance Digital Tech Co., Ltd. ("ADT") | 5,080 | 5,080 |
International Integrated System, Inc. ("IISI") | - | 340,240 |
UUPON Inc. ("UUPON") | - | 10,529 |
MeWorks Limited (HK) ("MeWorks") | - | - |
3,105,925 | 3,280,058 | |
$ 6,882,801 | $ 7,354,226 |
Carrying Amount
December 31
The percentages of ownership interests and voting rights in associates held by the Company as of balance sheet dates were as follows:
% of Ownership Interests and
Voting Rights December 31
Note:
2020 | 2019 | |
Material associate | ||
Next Commercial Bank Co., Ltd. ("NCB") (Note) | 42 | 42 |
Associates that are not individually material | ||
Senao Networks, Inc. ("SNI") | 34 | 34 |
KingwayTek Technology Co., Ltd. ("KWT") | 23 | 23 |
ST-2 Satellite Ventures Pte., Ltd. ("STS") | 38 | 38 |
Viettel-CHT Co., Ltd. ("Viettel-CHT") | 30 | 30 |
Taiwan International Standard Electronics Co., Ltd. ("TISE") | 40 | 40 |
So-net Entertainment Taiwan Limited ("So-net") | 30 | 30 |
Chunghwa PChome Fund I Co., Ltd. ("CPFI") | 50 | 50 |
KKBOX Taiwan Co., Ltd. ("KKBOXTW") | 30 | 30 |
Taiwan International Ports Logistics Corporation ("TIPL") | 27 | 27 |
Click Force Co., Ltd. ("CF") | 49 | 49 |
Cornerstone Ventures Co., Ltd. ("CVC") | 49 | 49 |
Alliance Digital Tech Co., Ltd. ("ADT") | 14 | 14 |
International Integrated System, Inc. ("IISI") | - | 31 |
UUPON Inc. ("UUPON") | - | 22 |
MeWorks Limited (HK) ("MeWorks") | - | 20 |
December 31 | ||
2020 | 2019 |
NCB was a preparatory office on December 31, 2019.
Summarized financial information of NCB was set out below: | ||
Assets | $ 9,906,945 | $ 10,451,925 |
Liabilities | (788,813) | (728,374) |
Equity | $ 9,118,132 | $ 9,723,551 |
The percentage of ownership interests held by the Company | 41.90% | 41.90% |
Equity attributable to the Company | $ 3,820,497 | $ 4,074,168 |
Unrealized gain or loss from downstream transactions | (43,621) | - |
The carrying amount of investment | $ 3,776,876 | $ 4,074,168 |
Period from the | |
Beginning of | |
Year Ended | Preparation to |
December 31, | December 31, |
2020 | 2019 |
Revenues | $ | - | $ | - |
Net loss for the period | $ | (605,419) | $ | (276,449) |
Other comprehensive income | - | - | ||
Total comprehensive loss for the period | $ | (605,419) | $ | (276,449) |
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:
Year Ended December 31
2020 | 2019 | |||
The Company's share of profits | $ | 540,037 | $ | 577,972 |
The Company's share of other comprehensive loss | (8,571) | (3,035) | ||
The Company's share of total comprehensive income | $ | 531,466 | $ | 574,937 |
The Level 1 fair values of associates based on the closing market prices as of the balance sheet dates were as follows:
December 31
2020 | 2019 | |
SNI | $ 1,707,640 | $ 2,014,353 |
KWT | $ 675,911 | $ 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, for ownership interest of 41.90%. Although Chunghwa is the single largest stockholder of NCB, it only obtained six out of fifteen seats of the Board of Directors of NCB. In addition, the management considered the size of ownership interest and the dispersion of shares owned by the other stockholders, other holdings are not extremely dispersed. Chunghwa is not able to direct its relevant activities. 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.
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 and recognized gain on disposal of $30,152 thousand. 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 2020, respectively.
IISI issued new shares in March, September 2019 and April 2020, as its employees exercised options; therefore, the Company's ownership interest in IISI decreased to 31.47% and 31.16% as of December 31, 2019 and June 30, 2020, respectively. The additional investment of 20.58%ownership interest in IISI was approved by Chunghwa's Board of Directors in January 2020 and the equity transaction was completed in July 2020. As the business combination was achieved in stages, the Company remeasured the previously held equity interest of IISI and recognized gain on disposal of $1,412 thousand on the acquisition date. The Company treated IISI as a subsidiary starting from the acquisition date and included IISI and its subsidiaries in the consolidated financial statements. Please refer to Note 13(c).
UUPON reduced 95.44% of its capital to offset accumulated deficits in September 2020 and the Company did not participate in the capital increase of UUPON in October 2020. Therefore, the Company's ownership interest in UUPON decreased to 5.36% and lost its significant influence over UUPON. Hence the Company discontinued to treat UUPON as an associate. Instead, the Company treated it as a financial asset at fair value through other comprehensive income and recognized gain on disposal of $14,534 thousand.
The aforementioned gains on disposal were included under "other gains and losses" in the consolidated statements of comprehensive income.
The Company disposed of all shares of MeWorks in September 2020.
The Company invested and obtained 50% equity shares of CPFI. However, as 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, the Company recognized CPFI as an investment in associate.
The Company invested and obtained 49% equity shares of CVC. However, as 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 an investment in associate.
The Company owns 14% equity shares of ADT. As the Company remains its 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 has 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 audited financial statements.
b. Investment in joint venture Investment in joint venture was as follows:
% of Ownership Interests andCarrying Amount
December 31
Voting Rights December 31
Name of Joint Venture
2020
2019
2020
2019
Non-listed
Chunghwa SEA Holdings
("CHT SEA")
$
10,200
$
-
51
-The Company invested $10,200 thousand to establish a joint venture, CHT SEA, with Delta
Electronics, Inc. and Kwang Hsing Industrial Co., Ltd. in December 2020 and obtained 51% equity shares of CHT SEA. However, according to the mutual agreements among stockholders, the Company does not individually direct CHT SEA's relevant activities and has joint control with the other party; therefore, the Company treated CHT SEA as a joint venture.
15. PROPERTY, PLANT AND EQUIPMENT
December 31
2020
2019
Assets used by the Company Assets subject to operating leases
$ 273,822,588 7,593,355
$ 276,370,003 7,324,212
$ 281,415,943
$ 283,694,215
a.
Assets used by the Company
LandLand ImprovementsBuildingsComputer Equipment
Telecommuni-cations EquipmentTransportationMiscellaneous
Equipment
EquipmentConstruction in Progress and Equipment to be Accepted
Total
Cost
Balance on January 1, 2019 Additions
Disposal
$ 100,354,425 - (37,951 )
$ 1,599,634 - (6,630 )
$
69,328,236 $ 1,220,691
(3,101 )
14,258,485 56,699 (1,915,939 )
$ 711,863,697 120,559 (30,417,855 )
$ 3,882,534 1,122 (50,653 )
$
9,873,589 148,949 (404,834 )
$
18,644,766 $ 929,805,366
21,611,786 -23,159,806 (32,836,963 )
Effect of foreign exchange differences
Others
- (1,214,223 )
-
25,477
- 454,957
(74 ) 605,656
Balance on December 31, 2019
$ 99,102,251
$ 1,618,481
$ 71,000,783
$ 13,004,827
(36,727 ) 24,502,774 $ 706,032,448
(18 )
79,313
(1,272 ) 473,738
(5,816 ) (26,498,539 )
(43,907 ) (1,570,847 )
$ 3,912,298
$ 10,090,170
$ 13,752,197
$ 918,513,455
Accumulated depreciation and impairment
Balance on January 1, 2019 Depreciation expenses Disposal
$
Impairment losses
Effect of foreign exchange differences
Others
Balance on December 31, 2019
$
- - - - - - -
$ (1,337,192 )
$ (26,861,627 )
$ (12,143,307)
$(596,850,343)
$ (3,651,139 )
$ (7,291,742 )
$
- $(648,135,350)
(43,481 )
(1,301,085 )
6,630 -
3,101 -
(826,745 ) 1,908,324 -
-
-
73
(559 )
182,879
(6,590 )
$ (1,374,602 )
$ (27,976,732 )
$ (11,068,245 )
(23,905,621 ) 30,380,684 - 15,682 21,707 $(590,337,891)
(90,939 ) 50,627 -
(688,274 ) 401,655 (63,715 )
- - (29,358 )
(26,856,145 ) 32,751,021
(93,073 )
28
962 - 16,745
(2,902 )
(21,185 ) - 173,350
$ (3,694,325 )
$ (7,662,299 )
$ (29,358 )
$(642,143,452)
Balance on January 1, 2019, net Balance on December 31, 2019, net
$ 100,354,425
$ 99,102,251
$ $
262,442 243,879
$ 42,466,609
$
$ 43,024,051
$
2,115,178 1,936,582
$ 115,013,354
$ 115,694,557
$ $
231,395 217,973
$ $
2,581,847 2,427,871
$ $
18,644,766 13,722,839
$ 281,670,016
$ 276,370,003
Cost
Balance on January 1, 2020 Additions
Disposal
$ 99,102,251 66,712 (270,268 )
$ 1,618,481 - (19,306 )
$ 71,000,783 18,113 (48,748 )
$
13,004,827 54,402 (1,243,844 )
$ 706,032,448 117,441 (20,618,652 )
$ 3,912,298 1,309 (45,287 )
$
10,090,170 150,385 (520,411 )
$
13,752,197 24,786,365
(29,358 )
$ 918,513,455 25,194,727 (22,795,874 )
Effect of foreign exchange differences
-
-
-
(93 )
(90,619 )
(88 )
Acquired by business combinations (Note 13) Others
Balance on December 31, 2020
- 3,091,950 $ 101,990,645
- 31,187
- (80,570 )
69,814 520,474
$ 1,630,362
$ 70,889,578
$ 12,405,580
- 25,335,091 $ 710,775,709
- 26,011
267 72,400 507,008
(7,330 )
(97,863 )
-
(29,972,458 )
142,214 (541,307 )
$ 3,894,243
$ 10,299,819
$ 8,529,416
$ 920,415,352
Accumulated depreciation and impairment
Balance on January 1, 2020 Depreciation expenses Disposal
$
Effect of foreign exchange differences
Acquired by business combinations (Note 13) Others
- - - - - -
$ (1,374,602 )
$ (27,976,732 )
$ (11,068,245 )
$(590,337,891)
$ (3,694,325 )
$ (7,662,299 )
$ (29,358 )
$(642,143,452)
(43,828 ) 19,213
(1,366,374 )
48,748
(769,321 ) 1,242,510
(23,992,691 ) 20,599,703
(68,138 ) 44,972
(665,674 ) 504,180
- 29,358
(26,906,026 ) 22,488,684
-
-
92
40,361
37
222
- 13
- 47,027
(40,282 ) (3,721 )
-
27,586
- (938 )
(53,970 ) (48,397 )
- - -
40,712
(94,252 ) 21,570
Balance on December 31, 2020
$ -
$ (1,399,204 )
$ (29,247,331 )
$ (10,638,967 )
$(593,662,932)
$ (3,718,392 )
$ (7,925,938 )Balance on January 1, 2020, net Balance on December 31, 2020, net
$ 99,102,251
$ 101,990,645
$ $
243,879 231,158
$ 43,024,051
$ 41,642,247
$ $
1,936,582 1,766,613
$ 115,694,557
$ 117,112,777
$ $
217,973 175,851
$ $
2,427,871 2,373,881
$ $ $
- $(646,592,764)
13,722,839 8,529,416
$ 276,370,003
$ 273,822,588
There was no indication that property, plant and equipment was impaired; therefore, the Company did not recognize any impairment loss for the year ended December 31, 2020.
CHPT evaluated that certain miscellaneous equipment, construction in progress and equipment to be accepted used for manufacturing specific PCB will not be used in the future and there was no active market for sale; therefore, CHPT determined that the recoverable amount of such assets was nil and recognized impairment losses of $89,207 thousand for the year ended December 31, 2019. CHSI evaluated that certain miscellaneous equipment will not be used in the future and there was no active market for sale; therefore, CHSI determined that the recoverable amount of such assets was nil and recognized impairment losses of $3,866 thousand for the year ended December 31, 2019. The aforementioned impairment losses were included in other income and expenses of statement of comprehensive income.
Chunghwa signed a joint development agreement with the MOTC previously 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 difference amounting to $1,056,680 thousand due to the MOTC was reported to Chunghwa's Board of Directors in May 2020 and Chunghwa will complete the property registration of the respective asset once the payment is made. Please refer to Table 4 for the details.
The Company participated in the government-led urban renewal project in Xingzheng Section, Xindian District, New Taipei City. The Company provided land as a building lot while Kindom Development Corp., chosen through public selection by the New Taipei City Government, acted as the urban renewal developer. The property registration was completed in 2020. With respect to the Company's trade-in share of land and buildings, only the trade-in buildings had commercial substance. Therefore, the gain on the asset exchange transaction of $1,267,980 thousand (included in" gains and losses on disposal of property, plant and equipment") was recognized at the difference between the carrying amount of the trade-out land of $37,087 thousand and the fair value of trade-in buildings of $1,305,067 thousand (included in "investment properties"). The aforementioned gain on disposal was included under "other income and expenses" in the statements of comprehensive income.
Depreciation expense for assets used by the Company is computed using the straight-line method over the following estimated service lives:
Land improvements Buildings
Main buildings
Other building facilities
Computer equipment Telecommunications equipment
Telecommunication circuits
Telecommunication machinery and antennas equipment
Transportation equipment
Miscellaneous equipment
Leasehold improvements
Mechanical and air conditioner equipment
Others
10-30 years 20-60 years 3-15 years 2-8 years 2-30 years 2-30 years 3-10 years 1-9 years 3-16 years 1-15 years
b. Assets subject to operating leases
LandLand ImprovementsBuildings
Total
Cost
Balance on January 1, 2019 Additions
Others
$ 3,617,627 - 1,362,023
$
689 -$ 3,582,774 4,478
$ 7,201,090 4,478
(689) 254,308 1,615,642
Balance on December 31, 2019
$
4,979,650
$
-$ 3,841,560
$ 8,821,210 (Continued)
Land
Accumulated depreciation and impairment
Balance on January 1, 2019 Depreciation expenses Others
Land Improvements
$
- - -
Buildings
$
(512) $ (1,265,356)
(47) 559
Total
$ (1,265,868)
(73,996) (74,043) (157,646) (157,087)
Balance on December 31, 2019
$
-$
-
$ (1,496,998)
$ (1,496,998)
Balance on January 1, 2019, net
Balance on December 31, 2019, net
Cost
Balance on January 1, 2020 Others
$ $
3,617,627 4,979,650
$
4,979,650
(6,730)
$ $
177
-
$
- -
$ $
2,317,418 2,344,562
$
3,841,560 394,596
$ 5,935,222
$ 7,324,212
$ 8,821,210 387,866
Balance on December 31, 2020
Accumulated depreciation and impairmentBalance on January 1, 2020 Depreciation expenses Others
$ 4,972,920
$
- - -
$
-$
- - -
$ 4,236,156
$ (1,496,998)
$ 9,209,076
$ (1,496,998)
(82,474) (82,474)
(36,249) (36,249)
Balance on December 31, 2020
$
-$
-
$ (1,615,721)
$ (1,615,721)Balance on January 1, 2020, net
Balance on December 31, 2020, net
$ $
4,979,650 4,972,920
$ $
-
-$ $
2,344,562 2,620,435
$ 7,324,212
$ 7,593,355
(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 was as follows:
December 31
2020 | 2019 | ||
Year 1 | 347,229 | $ | 301,674 |
Year 2 | 288,184 | 272,899 | |
Year 3 | 230,984 | 233,434 | |
(Continued) |
$
December 31
Year 4 Year 5 Onwards
$
164,141
124,845 130,066 1,179,493 1,224,416
$ 191,128
$
2,334,876
$ 2,353,617 (Concluded)
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 | 10-30 years |
Buildings | |
Main buildings | 35-60 years |
Other building facilities | 3-15 years |
16. LEASE ARRANGEMENTS |
a.
Right-of-use assetsLand and buildings
Handsets base stations
December 31
2020
2019
$
7,095,883 $ 6,844,687
Others
1,708,593 1,916,835
Equipment
2,204,730 2,602,727
$ 11,009,206
$ 11,364,249
Year Ended December 31
2020
2019
Additions to right-of-use assets
Depreciation charge for right-of-use assets
Land and buildings
Handsets base stations
$
3,796,370
$ 3,803,042
$
2,729,441
Others
$ 2,727,871
786,114 821,272
Equipment
415,943 418,503
$ 3,931,498
$ 3,967,646
The Company did not have significant sublease or impairment of right-of-use assets for the years ended December 31, 2020 and 2019.
b. Lease liabilities
December 31
Lease liabilities
Current Noncurrent
2020 | 2019 | ||
$ | 3,381,571 | $ | 3,291,330 |
6,215,096 | 6,466,808 | ||
$ | 9,596,667 | $ | 9,758,138 |
Ranges of discount rates for lease liabilities were as follows:
December 31
2020
2019
Land and buildings
Handsets base stations 0.46%-1.18% 0.58%-1.18%
Others 0.46%-9.00% 0.58%-9.00%
Equipment 0.46%-2.99% 0.58%-4.50%
c. Important lease-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 38 to the consolidated financial statements for details.
d. Other lease information
Year Ended December 31
2020 | 2019 | |||
Expenses relating to low-value asset leases | $ | 8,314 | $ | 6,664 |
Expenses relating to variable lease payments not included in | ||||
the measurement of lease liabilities | $ | 5,119 | $ | 6,603 |
Total cash outflow for leases | $ | 3,776,291 | $ | 3,825,977 |
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.
17. INVESTMENT PROPERTIES
Cost
Balance on January 1, 2019 | $ 9,392,452 |
Additions | 523 |
Disposal | (5,831) |
Reclassification | (173,165) |
Balance on December 31, 2019 | $ 9,213,979 |
Accumulated depreciation and impairment | |
Balance on January 1, 2019 | $ (1,105,240) |
Depreciation expense | (25,157) |
Disposal | 5,831 |
Reclassification | 23,363 |
Reversal of impairment loss | 56,617 |
Balance on December 31, 2019 | $ (1,044,586) |
Balance on January 1, 2019, net | $ 8,287,212 |
Balance on December 31, 2019, net | $ 8,169,393 |
Cost | |
Balance on January 1, 2020 | $ 9,213,979 |
Additions (Note 15) | 1,359,502 |
Disposal | (36,943) |
Reclassification | 125,912 |
Balance on December 31, 2020 | $ 10,662,450 |
Accumulated depreciation and impairment |
Balance on January 1, 2020 | $ | (1,044,586) |
Depreciation expense | (22,332) | |
Reclassification | (1,276) | |
Reversal of impairment loss | 27,066 | |
Balance on December 31, 2020 | $ | (1,041,128) |
Balance on January 1, 2020, net | $ | 8,169,393 |
Balance on December 31, 2020, net | $ | 9,621,322 |
After the evaluation of land and buildings, the Company concluded the recoverable amount which represented the fair value less costs to sell of some land and buildings was higher than the carrying amount. Therefore, the Company recognized reversal of impairment losses of $27,066 thousand and $56,617 thousand for the years ended December 31, 2020 and 2019, respectively, and the amounts were recognized only to the extent of impairment losses that had been recognized in prior years. The reversal of impairment loss was included in other income and expenses in the statements of comprehensive income.
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, 2020 and 2019 were determined by Level 3 fair value measurements inputs based on the appraisal reports conducted by independent appraisers. Those appraisal reports are based on the comparison approach, income approach or cost approach. Key assumptions and the fair values were as follows:
December 31
2020 | 2019 | |
Fair value | $ 22,644,318 | $ 18,701,398 |
Overall capital interest rate | 0.93%-3.03% | 1.03%-4.04% |
Profit margin ratio | 12%-20% | 12%-20% |
Discount rate | - | - |
Capitalization rate | 0.73%-2.20% | 0.79%-1.74% |
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
2020
2019
Year 1
$
115,305
$ 112,626
Year 2
95,223 90,701
Year 3
75,285 70,795
Year 4
52,544 61,115
Year 5 Onwards
37,588 39,386
57,773 96,010
$
433,718
$ 470,633
18. INTANGIBLE ASSETS
Mobile Broadband Concession
Computer SoftwareGoodwill
Others
Total
Cost
Balance on January 1, 2019 Additions-acquired separately Disposal
$ 70,144,000 -
(10,179,000)
$ 3,425,969 357,605 (356,750)
Effect of foreign exchange differences
Others
- -
Balance on December 31, 2019
$ 59,965,000
(117) 1,902 $ 3,428,609
$ 236,200 - - - -
$
373,203 $ 74,179,372
5,113
362,718
(157) (10,535,907)
(96)
-
$ 236,200
$ 378,063
(213) 1,902 $ 64,007,872
(Continued)
Mobile Broadband Concession
Computer SoftwareGoodwill
Others
Total
Accumulated amortization and impairment
Balance on January 1, 2019 Amortization expenses Disposal
$(20,632,474)
$ (2,467,170)
$ (26,677)
$
(109,369) $(23,235,690)
Impairment losses
Effect of foreign exchange differences
(3,839,572) 10,179,000 - -
(388,501) 356,750 - 96
-
(24,529) (4,252,602)
- (8,946)
-11 - 34
10,535,761
(8,946)Balance on December 31, 2019
$(14,293,046)
$ (2,498,825)
$ (35,623)
$ (133,853)
130 $(16,961,347)
Balance on January 1, 2019, net Balance on December 31, 2019, net
$ 49,511,526
$ 45,671,954
$ $
958,799 929,784
$ $
209,523 200,577
$ $
263,834 244,210
$ 50,943,682
$ 47,046,525
Cost
Balance on January 1, 2020 Additions-acquired separately Disposal
$ 59,965,000 48,373,000 -
$ 3,428,609 225,829 (337,954)
$
Effect of foreign exchange differences
-
(106)
Acquired by business combinations (Note 13) Others
- -
1,259 1,586
236,200 - - - 55,006 -
$
378,063
$ 64,007,872
6,358 48,605,187
(3,053)
(341,007)
(40) (146)
11,043 67,308
(45) 1,541
Balance on December 31, 2020
$108,338,000
$ 3,319,223
$ 291,206
$ 392,326
$112,340,755
Accumulated amortization and impairment
Balance on January 1, 2020 Amortization expenses Disposal
$(14,293,046)
$ (2,498,825)
$ (35,623)
$
(133,853) $(16,961,347)
(5,025,796)
Impairment losses
- -
Effect of foreign exchange differences
-
(371,694) 337,948 - 102
-
(26,877) (5,424,367)
- (9,303)
-1,201 - 12
339,149
(9,303)
114
Acquired by business combinations (Note 13)
-
(441)
-
-
(441)
Balance on December 31, 2020
$(19,318,842)
$ (2,532,910)
$ (44,926)
$ (159,517)
$(22,056,195)
Balance on January 1, 2020, net Balance on December 31, 2020, net
$ 45,671,954
$ 89,019,158
$ $
929,784 786,313
$ $
200,577 246,280
$ $
244,210 232,809
$ 47,046,525
$ 90,284,560
(Concluded)For long-term business development, Chunghwa participated in the 5G mobile broadband license bidding hosted by the 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, including the aforementioned deposit, 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.
SENAO evaluated the goodwill that arose in the acquisition of Youth and its subsidiaries at the end of each year. SENAO determined the smallest identifiable group of assets that generates cash inflows as single cash generating units by business type and evaluated the recoverable amount of those cash generating units by their value in use. The management of SENAO estimated the cash flow projections based on the financial budgets for the following five years. Discount rates were 12.10% and 12.30% as of December 31, 2020 and 2019, respectively and were used to calculate the recoverable amount of related cash generating units by discounting aforementioned cash flows.
SENAO concluded the recoverable amount of the goodwill was lower than the carrying value and recognized impairment loss of $9,303 thousand and $8,946 thousand for the years ended December 31, 2020 and 2019, respectively. The aforementioned impairment losses were included in other income and expenses of statements of comprehensive income.
19. OTHER ASSETS
December 31
2020
2019
Spare parts Refundable deposits Other financial assets
$
2,156,136
$ 2,336,082
Deposit for mobile broadband license bidding (Note 18) Others
2,009,796 1,879,109 1,000,000 1,000,000 - 1,000,000 2,450,006 2,316,177
$
7,615,938
$ 8,531,368
Current
Spare parts Others
$
2,156,136 192,961
$ 2,336,082 93,582
$
2,349,097
$ 2,429,664
Noncurrent
Refundable deposits Other financial assets
$
2,009,796
$ 1,879,109
Deposit for mobile broadband license bidding Others
1,000,000 1,000,000 - 1,000,000 2,257,045 2,222,595
$
5,266,841
$ 6,101,704
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.
Chunghwa evaluated that certain other assets will not be used in the future and there was no active market for sale; therefore, the Company determined that the recoverable amount of such assets was nil and recognized impairment losses of $43,971 thousand for the year ended December 31, 2019. The aforementioned impairment loss was included in other income and expenses in the statements of comprehensive income.
20. HEDGING FINANCIAL INSTRUMENTS
Chunghwa's hedge strategy is to enter into 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.
The following tables summarized the information relating to the hedges for foreign currency risk.
December 31, 2020
Change in Fair
Values of
Hedging Instruments UsedNotional
for CalculatingHedging InstrumentsCurrency
Amount (In Thousands)ForwardMaturity
RateLine Item in Balance SheetCarrying AmountAssetLiability
Hedge Ineffectiveness
Cash flow hedge
Forecast purchases - forward exchange contracts
NT$/EURNT$ 200,867/
2021.03
$
34.45
EUR 5,831
Hedging financial assets (liabilities)
$
1,752
$
-
$ 1,425
Change in
Value of Hedged Item
Used for CalculatingAccumulated Gain or Loss on Hedging Instruments in Other Equity
HedgeHedged Items
Hedge Ineffectiveness
Continuing Accounting No
Hedges Longer Applied
Cash flow hedge
Forecast equipment purchases
$ (1,425)
$
1,752
$
-December 31, 2019
Change in Fair
Values ofNotional
Hedging Instruments Used for Calculating
Hedging InstrumentsCurrency
Amount (In Thousands)ForwardMaturity
RateLine Item in Balance SheetCarrying AmountAssetLiability
Hedge Ineffectiveness
Cash flow hedge
Forecast purchases - forward exchange contracts
NT$/EURNT$ 84,066/
2020.03
$
33.66
EUR 2,498
Hedging financial assets (liabilities)
$
327
$
-
$
(742 )
Change inHedged Items
Cash flow hedge
Forecast equipment purchasesYear ended December 31, 2020
Hedge Transaction
Cash flow hedge
Forecast equipment purchases
Hedging Gain or Loss Recognized in OCI
$
1,425
Year ended December 31, 2019
Hedge Transaction
Cash flow hedge
Forecast equipment purchases
Hedging Gain or Loss Recognized in OCI
Value of | Accumulated Gain or Loss |
Hedged Item | on Hedging Instruments |
Used for | in Other Equity |
Calculating | Hedge |
Hedge | Continuing Accounting no |
Ineffectiveness | Hedges Longer Applied |
$
742
$
Comprehensive IncomeAmount of
Hedge Ineffectiveness Recognized in Profit or Loss
$
-
Comprehensive IncomeAmount of
Hedge Ineffectiveness Recognized in Profit or LossLine Item in Which Hedge Ineffectiveness is Included
-
Line Item in Which Hedge Ineffectiveness is Included
327
$
-
Reclassification from Equity to Profit or Loss and the
Adjusted Line Item
Due to Hedged
Amount Future Cash Reclassified to Flows No P/L and the Longer Adjusted Line Expected to
Item Occur
$ 20,564 | $ - |
Construction in | Other gains and |
progress and | losses |
equipment to | |
be accepted |
Reclassification from Equity to Profit or Loss and the
Adjusted Line Item
Due to Hedged
Amount Future Cash Reclassified to Flows No P/L and the Longer Adjusted Line Expected to
Item Occur
$
(742)
$
-
-
$ (2,026) | $ - |
Construction in | Other gains and |
progress and | losses |
equipment to | |
be accepted |
21. SHORT-TERM LOANS
December 31
2020
2019
Unsecured bank loans
$
67,000
$
90,000
The annual interest rates of bank loans were as follows:
December 31 2020
2019
Unsecured bank loans
1.12%-2.33%
1.20%-2.50%
22. SHORT-TERM BILLS PAYABLE
December 31
2020
2019
Commercial paper payable
$ 7,000,000
$
Less: Discounts on commercial paper payable
(802)
$ 6,999,198
$
- - -
The annual interest rates of commercial paper payable were as follows:
December 31 2020
2019
Commercial paper payable
0.34%-0.36%
-
23. LONG-TERM LOANS
December 31
2020
2019
Secured bank loans (Note 39) Less: Current portion
$ 1,600,000
(1,600,000) $ -$ 1,600,000 - $ 1,600,000
The annual interest rates of loans were as follows:
December 31 2020
2019
Secured bank loans
0.72%
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.
24. BONDS PAYABLE
December 31
2020
2019
Unsecured domestic bonds
Less: Discounts on bonds payable
$ 20,000,000
(19,728)
$
- -$ 19,980,272
The major terms of unsecured domestic bonds issued by Chunghwa were as follows:
IssuanceTranche
Issuance Period
2020-1
A
July 2020 to July 2025
B C
July 2020 to July 2027
July 2020 to July 2030
25. TRADE NOTES AND ACCOUNTS PAYABLE
$
-
Total AmountCoupon
RateRepayment and Interest
Payment
$
8,800,000
0.50% One-time repayment upon maturity; interest payable annually
7,500,000 3,700,000
0.54% The same as above
0.59% The same as above
December 31
2020
2019
Trade notes and accounts payable
$ 15,590,814
$ 15,312,274
Trade notes and accounts payable were attributable to operating activities and the trading conditions were agreed separately.
26. OTHER PAYABLES
December 31
2020
2019
Accrued salary and compensation Payables to contractors
Accrued compensation to employees and remuneration to directors and supervisors
Amounts collected for others Payable on land (Note 15) Payables to equipment suppliers Accrued maintenance costs Accrued franchise fees Others
$
9,449,659 $ 9,482,606
1,778,735 1,892,188
1,690,796 1,440,573
1,307,728 1,278,796
1,056,680
1,049,008 295,816
1,039,689 954,761
785,352 1,091,148
5,830,315 6,516,600
-$ 23,987,962
$ 22,952,488
27. PROVISIONS
December 31
Warranties
Onerous contracts Employee benefits Others
Current Noncurrent
WarrantiesOnerous Contracts
2020 | 2019 |
$ 182,431 | $ 173,275 |
170,433 | 66,907 |
57,210 | 59,745 |
4,097 | 4,397 |
$ 414,171 | $ 304,324 |
$ 313,555 | $ 206,942 |
100,616 | 97,382 |
$ 414,171 | $ 304,324 |
Employee | |
Total |
Benefits
Others
Balance on January 1, 2019 Additional provisions recognized Used / forfeited during the year
$
131,664 127,517 (85,906)
$
Balance on December 31, 2019
Balance on January 1, 2020 Additional / (reversal of)
$ $
provisions recognized
Used / forfeited during the year Acquired by business combinations (Note 13)
173,275 173,275 130,984 (121,828)
$ $
19,323 47,584 - 66,907 66,907 91,990 (3,722)
$
51,393 9,194 (842)
$ 4,447
$ 206,827
- 184,295
(50)
(86,798)
$ $
59,745 59,745
$ $
4,397 4,397
$ 304,324
$ 304,324
(1,841)
(200) 220,933
(694)
(100)
(126,344)
-
15,258
-
-
15,258
Balance on December 31, 2020
$ 182,431
$ 170,433
$ 57,210
$ 4,097
$ 414,171
a. The provision for warranty claims represents the present value of the management's best estimate of
the future outflow of economic benefits that will be required under the Company's obligation for warranties in sales agreements. The estimate has been made based on the historical warranty experience.
b. The provision for employee benefits represents vested long-term service compensation accrued.
c. The provision for 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.
28. RETIREMENT BENEFIT PLANS
a.
Defined contribution plans
The pension plan under the Labor Pension Act of ROC (the "LPA") is considered as a defined contribution plan. Based on the LPA, Chunghwa and its domestic subsidiaries make monthly contributions to employees' individual pension accounts at 6% of monthly salaries and wages. Its foreign subsidiaries would make monthly contributions based on the local pension requirements.
b. Defined benefit plans
Chunghwa completed its privatization plans on August 12, 2005. Chunghwa is required to pay all accrued pension obligations including service clearance payment, lump sum payment under civil service plan, additional separation payments, etc. upon the completion of the privatization in accordance with the Statute Governing Privatization of Stated-owned Enterprises. After paying all pension obligations for privatization, the plan assets of Chunghwa should be transferred to the Fund for Privatization of Government-owned Enterprises (the "Privatization Fund") under the Executive Yuan. On August 7, 2006, Chunghwa transferred the remaining balance of fund to the Privatization Fund. However, according to the instructions of MOTC, Chunghwa was requested to administer the distributions to employees for pension obligations including service clearance payment, lump sum payment under civil service plan, additional separation payments, etc. upon the completion of the privatization and recognized in other current monetary assets.
Chunghwa and its subsidiaries SENAO, CHIEF, CHSI, SHE, IISI and UTC with the pension mechanism under the Labor Standards Law in the ROC are considered as defined benefit plans. These pension plans provide benefits based on an employee's length of service and average six-month salary prior to retirement. Chunghwa and its subsidiaries contribute an amount no more than 15% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the names of the Committees in the Bank of Taiwan. The plan assets are held in a commingled fund which is operated and managed by the government's designated authorities; as such, the Company does not have any right to intervene in the investments of the funds. According to the Article 56 of the Labor Standards Law, 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.
The amounts included in the consolidated balance sheets arising from the Company's obligation in respect of its defined benefit plans were as follows:
December 31
2020 | 2019 | |
Present value of funded defined benefit obligations | $ 39,536,563 | $ 41,197,226 |
Fair value of plan assets | (39,493,787) | (39,819,944) |
Funded status - deficit | $ 42,776 | $ 1,377,282 |
Net defined benefit liabilities | $ 3,415,331 | $ 3,504,617 |
Net defined benefit assets | (3,372,555) | (2,127,335) |
$
42,776
$
1,377,282
Movements in the defined benefit obligations and the fair value of plan assets were as follows:
Present Value of Funded Defined BenefitNet Defined
ObligationsFair Value of Plan Assets
Benefit Liabilities (Assets)
Balance on January 1, 2019 Current service cost
Interest expense / interest income Amounts recognized in profit or loss
$ 41,396,992 2,927,021 400,314 3,327,335
$ 39,027,144
$ 2,369,848
- 2,927,021
390,272 390,272
10,042 2,937,063 (Continued)
Present Value | Net Defined | |
of Funded | Benefit | |
Defined Benefit | Fair Value of | Liabilities |
Obligations | Plan Assets | (Assets) |
Remeasurement on the net defined benefit liability
Return on plan assets (excluding amounts included in net interest) Actuarial losses recognized from changes in demographic assumptions Actuarial losses recognized from changes in financial assumptions Actuarial gains recognized from experience adjustments Amounts recognized in other comprehensive income Contributions from employer Benefits paid
Benefits paid directly by the Company Balance on December 31, 2019 Current service cost
Interest expense / interest income Amounts recognized in profit or loss Remeasurement on the net defined benefit liability
Return on plan assets (excluding amounts included in net interest) Actuarial losses recognized from changes in financial assumptions Actuarial gains recognized from experience adjustments Amounts recognized in other comprehensive income Contributions from employer Benefits paid
Benefits paid directly by the Company Acquired by business combinations (Note 13)
Balance on December 31, 2020
$
-5,746 - 5,746
647,236 - 647,236
(841,564)
(188,582)
$
1,337,771
-
$ (1,337,771)
(841,564)
1,337,771 (1,526,353)
- 2,098,912 (2,098,912)
(3,034,155)
(304,364)
(3,034,155)
-- (304,364)
41,197,226 39,819,944 1,377,282
2,052,402 298,162 2,350,564
- 589,818
(475,195)
- 2,052,402
297,324 297,324
1,307,772
- -
838 2,053,240
(1,307,772)
589,818
(475,195)
114,623 1,307,772 (1,193,149)
- 1,964,480 (1,964,480)
(3,919,555)
(262,730)
56,435 $ 39,536,563
(3,919,555)
- (262,730)
23,822 32,613
$ 39,493,787
$ 42,776
(Concluded)Relevant pension costs recognized in profit and loss for defined benefit plans were as follows:
Year Ended December 31
-
2020 | 2019 | |
Operating costs | $ 1,205,545 | $ 1,725,644 |
Marketing expenses | 602,754 | 866,412 |
General and administrative expenses | 121,050 | 164,255 |
Research and development expenses | 72,125 | 103,156 |
$ 2,001,474 | $ 2,859,467 |
The Company is exposed to following risks for the defined benefits plans under the Labor Standards Law:
a. Investment risk
Under the Labor Standards Law, the rate of return on assets shall not be lower than the average interest rate on a two-year time deposit published by the local banks and the government is responsible for any shortfall in the event that the rate of return is less than the required rate of return. The plan assets are held in a commingled fund mainly invested in foreign and domestic equity and debt securities and bank deposits which is operated and managed by the government's designated authorities; as such, the Company does not have any right to intervene in the investments of the funds.
b. Interest rate risk
The decline in government bond interest rate will increase the present value of the obligation on the defined benefit plan, while the return on plan assets will increase. The net effect on the present value of the obligation on defined benefit plan is partially offset by the return on plan assets.
c. Salary risk
The calculation of the present value of defined benefit obligations is referred to the plan participants' future salary. Hence, the increase in plan participants' salary will increase the present value of the defined benefit obligations.
The most recent actuarial valuation of plan assets and the present value of the defined benefit obligations were carried out by the independent actuary.
The principal assumptions used for the purpose of the actuarial valuations were as follows:
Measurement Date
December 31
2020 | 2019 | |
Discount rates | 0.50% | 0.75% |
Expected rates of salary increase | 1.00%-2.00% | 1.20%-2.00% |
If reasonably possible changes of the respective significant actuarial assumptions occur at the end of reporting periods, while holding all other assumptions constant, the present values of the defined benefit obligations would increase (decrease) as follows:
December 31
2020
2019
Discount rates
0.5% increase
$ (1,208,082)
$ (1,275,319)
0.5% decrease
Expected rates of salary increase
0.5% increase
$ $
1,284,034 1,372,403
$ 1,356,153
$ 1,448,264
0.5% decrease
$ (1,302,983)
$ (1,374,156)The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligations as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. There is no change in the methods and assumptions used in preparing the sensitivity analysis from the previous period.
December 31
2020 | 2019 | |
The expected contributions to the plan for the next year | $ 1,931,842 | $ 2,076,027 |
The average duration of the defined benefit obligations | 6.4-13 years | 6.5-14 years |
As of December 31, 2020, the Company's maturity analysis of the undiscounted benefit payments was as follows:
Year
Amount
2021
$ 3,285,245
2022 7,055,727
2023 10,669,441
2024 11,798,911
2025 and thereafter 39,496,567
$ 72,305,891
29. EQUITY
a. Share capital 1) Common stocks
December 31
Number of authorized shares (thousand)
Authorized shares
Number of issued and paid shares (thousand)
Issued shares
2020 | 2019 |
12,000,000 | 12,000,000 |
$ 120,000,000 | $ 120,000,000 |
7,757,447 | 7,757,447 |
$ 77,574,465 | $ 77,574,465 |
Each issued common stock with par value of $10 is entitled the right to vote and receive dividends.
2) 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 December 31, 2020, the outstanding ADSs were 220,439 thousand common stocks, which equaled 22,044 thousand units and represented 2.84% 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:
a) Exercise their voting rights,
b) Sell their ADSs, and
c) Receive dividends declared and subscribe to the issuance of new shares.
b. Additional paid-in capital
The adjustments of additional paid-in capital for the years ended December 31, 2020 and 2019 were as follows:
Difference betweenMovements ofMovements of
Additional Paid-in Capital for Associates Accounted for Using Equity
Share Premium
Method
Additional Paid-in Capital Arising from Changes in Equities of SubsidiariesConsideration Received and
Carrying Amount of the Subsidiaries' Net
Assets upon
Disposal
Donated CapitalStockholders' Contribution due to Privatization
Total
Balance on January 1, 2019 Unclaimed dividend Change in additional paid-in capital from investments in associates and joint ventures accounted for using equity method
$ 147,329,386 -
$ 89,893 -
$ 2,063,148 -
$ 987,611 -$
18,648 $ 20,648,078
$ 171,136,764
1,266 - 1,266
-
118,853 - - - - 118,853
Share-based payment transactions of subsidiaries Balance on December 31, 2019 Unclaimed dividend
- 147,329,386
-- 208,746 -
(898 ) 2,062,250
- 987,611
-
-- 19,914 1,605
- 20,648,078
-(898 ) 171,255,985 1,605
Change in additional paid-in capital from investments in associates and joint ventures accounted for using equity method
-
(21,918 )
-
-
-
-
(21,918 )
Change in additional paid-in capital for not proportionately participating in the capital increase of subsidiaries Share-based payment transactions of subsidiaries
-
-- -(103 )
-
25,810
-
- -
-
(103 )
-
Balance on December 31, 2020
$ 147,329,386
$ 186,828
$ 2,087,957
$ 987,611
$ 21,519
$ 20,648,078
25,810 $ 171,261,379
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 and joint ventures accounted for using equity method, the portion arising from the difference between consideration received and the carrying amount of the subsidiaries' net assets upon disposal may be utilized to offset deficits; furthermore, when the Company has no deficit, it may be distributed in cash or capitalized. However, other additional paid-in capital recognized in proportion of share ownership may only be utilized to offset deficits.
c.
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 $0.10 per share, such cash dividend shall be distributed in the form of common stocks.
Chunghwa should appropriate or reverse a special reserve in accordance with Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the directive entitled "Questions and Answers on Special Reserves Appropriated Following the Adoption of Taiwan-IFRSs". Distributions can be made out of any subsequent reversal of the debit to other equity items.
The appropriation for legal reserve shall be made until the accumulated reserve equals the aggregate par value of the outstanding capital stock of Chunghwa. This reserve can only be used to offset a deficit, or when the legal reserve has exceeded 25% of Chunghwa's paid-in capital, the excess may be transferred to capital or distributed in cash.
The appropriations of the 2019 and 2018 earnings of Chunghwa approved by the stockholders in their meetings on May 29, 2020 and June 21, 2019 were as follows:
Dividends Per ShareAppropriation of Earnings
(NT$)
Cash dividends
For Fiscal | For Fiscal | For Fiscal | For Fiscal |
Year 2019 | Year 2018 | Year 2019 | Year 2018 |
$ 32,782,969 | $ 34,745,603 |
$
4.226
$
4.479
The appropriations of earnings for 2020 had been proposed by Chunghwa's Board of Directors on February 23, 2021. The appropriations and dividends per share were as follows:
Appropriation of EarningsDividends Per Share (NT$)
Cash dividends
$ 33,403,565
$
4.306
The appropriations of earnings for 2020 are subject to the resolution of the stockholders' meeting planned to be held on May 28, 2021. 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.
d. 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
Year Ended December 31
2020 | 2019 | |
Beginning balance | $ 836,598 | $ 538,272 |
Unrealized gain or loss for the year | ||
Equity instruments | 419,989 | 298,326 |
Transferred accumulated gain or loss to unappropriated | ||
earnings resulting from the disposal of equity | ||
instruments (Note 8) | (16,686) | - |
Ending balance | $1,239,901 | $ 836,598 |
e.
Noncontrolling interests
Year Ended December 31
2020 | 2019 | |
Beginning balance | $ 10,283,552 | $ 9,990,345 |
Shares attributed to noncontrolling interests | ||
Net income for the year | 1,299,413 | 975,397 |
Exchange differences arising from the translation of the | ||
foreign operations | (13,866) | 7,753 |
Unrealized gain or loss on financial assets at FVOCI | (15,034) | (11,918) |
Remeasurements of defined benefit pension plans | 17,395 | 14,340 |
Income tax relating to exchange differences arising from | ||
the translation of the foreign operations | (128) | - |
Income tax relating to remeasurements of defined benefit | ||
pension plans | (3,479) | (2,874) |
Share of other comprehensive loss of associates and joint | ||
ventures accounted for using equity method | (2,190) | (1,325) |
Cash dividends distributed by subsidiaries | (775,420) | (709,817) |
Changes in additional paid-in capital from investments in | ||
associates and joint ventures accounted for using equity | ||
method | (1,817) | 1,064 |
Non-controlling interests increased by business combination | ||
of IISI (Note 13) | 475,879 | - |
Share-based payment transactions of subsidiaries | 63,063 | 21,320 |
Change in additional paid-in capital for not proportionately | ||
participating in the capital increase of subsidiaries | 103 | - |
Net decrease in noncontrolling interests | - | (763) |
Ending balance | $ 11,327,441 | $ 10,283,522 |
30. REVENUES | ||
2020 | 2019 | |
Revenue from contracts with customers | $ 206,395,581 | $ 206,359,673 |
Other revenues | ||
Rental income | 842,941 | 817,553 |
Others | 370,476 | 342,835 |
1,213,417 | 1,160,388 | |
$ 207,608,998 | $ 207,520,061 |
Year Ended December 31
For the information of performance obligations related to customer contracts, please refer to Note 3 Summary of Significant Accounting Policies for details.
a. Disaggregation of revenue
2020
Main Products and Service RevenuesMobile services revenue Sales of products
Local telephone and domestic long distance telephone services revenue
Broadband access and domestic leased line services revenue Data communications internet services revenue
International network and leased line services revenue
Others
2019
Main Products and Service Revenues
Mobile services revenue
Sales of products
Local telephone and domestic long distance telephone services revenue
Broadband access and domestic leased line services revenue Data communications internet services revenue
International network and leased line services revenue
Others
b.
Contract balances
$ 65,066,100 | |||
December 31, | December 31, | January 1, | |
2020 | 2019 | 2019 | |
Trade notes and accounts receivable | |||
(Note 9) | $ 22,621,902 | $ 26,407,783 | $ 30,075,503 |
Contract assets | |||
Products and service bundling | $ 7,232,134 | $ 6,942,974 | $ 7,122,875 |
Others | 612,206 | 115,993 | 108,581 |
Less: Loss allowance | (17,792) | (16,858) | (18,770) |
$ 7,826,548 | $ 7,042,109 | $ 7,212,686 | |
Current | $ 5,331,246 | $ 4,441,196 | $ 4,868,728 |
Noncurrent | 2,495,302 | 2,600,913 | 2,343,958 |
$ 7,826,548 | $ 7,042,109 | $ 7,212,686 | |
(Continued) | |||
- 72 - |
$ 4,595,169
Domestic Fixed
Communi-cations BusinessMobile Communi-cations Business
Internet Business
$
- 2,214,161
$ 56,724,433 32,111,502
$
- 106,672
26,474,747 - - - - 26,474,747
22,420,164 - - - - 22,420,164
-
-
21,446,960 - - 21,446,960
- 17,694,619
- 1,307,382
- 10,254,599
$ 68,803,691
$ 90,143,317
$ 31,808,231
Domestic Fixed
Communi-cations BusinessMobile Communi-cations Business
Internet Business
$
- 1,957,460
$ 58,703,003 35,545,256
$
- 40,873
27,929,263 - - - - 27,929,263
22,115,908 - - - - 22,115,908
-
-
21,002,699 - - 21,002,699
- 13,063,469
- 1,141,584
- 8,789,794
$ 95,389,843
$ 29,833,366
International
Fixed Communi-cations Business
Others
Total
$
- 313,214
$
3,884,182 - 3,884,182
$
4,484,648 8,682,044
$
International
Fixed Communi-cations Business
$
- 264,949
$
7,066,361 - 7,066,361
4,143,885 $ 11,475,195
-$ 56,724,433
4,645,167 39,390,716
2,313,131 36,054,379 6,958,298 $206,395,581
Others
Total
-$ 58,703,003
3,784,586 41,593,124
810,583 27,949,315
$206,359,673
December 31, | December 31, | January 1, | |
2020 | 2019 | 2019 | |
Contract liabilities | |||
Telecommunications business | $ 13,601,662 | $ 12,771,621 | $ 8,193,215 |
Project business | 6,686,561 | 10,360,428 | 4,508,200 |
Products and service bundling | 16,404 | 38,570 | 105,559 |
Others | 421,166 | 510,696 | 475,947 |
$ 20,725,793 | $ 23,681,315 | $ 13,282,921 | |
Current | $ 13,436,706 | $ 16,839,830 | $ 10,687,772 |
Noncurrent | 7,289,087 | 6,841,485 | 2,595,149 |
$ 20,725,793 | $ 23,681,315 | $ 13,282,921 | |
(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. Significant changes of contract assets and liabilities recognized resulting from product and service bundling were as follows:
Year Ended December 31
Contract assets
Net increase of customer contracts Reclassified to trade receivables
2020 | 2019 |
$ 5,972,451 | $ 6,066,406 |
(5,681,532) | (6,405,198) |
$
290,919
$ (338,792)Contract liabilities
Net increase of customer contracts Recognized as revenues
$
7,370
$ 21,844
(29,536) (88,833)
$
(22,166)
$ (66,989)The Company applies the simplified approach to recognize 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.
Revenue recognized for the period that was included in the contract liability at the beginning of the year was as follows:
Year Ended December 31
2020 | 2019 | |
Telecommunications business | $ 5,492,271 | $ 6,185,997 |
Project business | 6,091,951 | 3,973,559 |
Others | 511,619 | 403,921 |
$ 12,095,841 | $ 10,563,477 |
c. Incremental costs of obtaining contracts
December 31 2020
2019
Noncurrent
Incremental costs of obtaining contracts
$
999,593
$
942,652
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 were capitalized. Amortization expenses for the years ended December 31, 2020 and 2019 were $771,875 thousand and $1,173,492 thousand, respectively.
d.
Remaining Performance Obligations
As of December 31, 2020, the aggregate amount of transaction price allocated to performance obligations for non-cancellable telecommunications service contracts that are unsatisfied is $29,501,357 thousand. The Company recognizes revenue when service is provided over contract terms. The Company expects to recognize such revenue of $18,728,796 thousand, $9,081,973 thousand and $1,690,588 thousand in 2021, 2022 and 2023, respectively. The variable consideration collected from customers on nonrecurring basis resulting from exceeded usage from monthly fee and revenue recognized for contracts that the Company has a right to consideration from customers in the amount corresponding directly with the value to the customers of the Company's performance completed to date have been excluded from the disclosure of remaining performance obligations.
As of December 31, 2020, the aggregate amount of transaction price allocated to performance obligations for non-cancellable project business contracts that are unsatisfied is $18,554,982 thousand. The Company recognizes revenues when the project business contract is completed and accepted by customers. The Company expects to recognize such revenue of $7,977,505 thousand, $5,896,740 thousand and $4,680,737 thousand in 2021, 2022 and 2023, respectively. Project business contracts whose expected duration are less than a year have been excluded from the aforementioned disclosure.
31. NET INCOME
a.
Other income and expenses
Year Ended December 31
2020 | 2019 | ||
Gain (loss) on disposal of property, plant and equipment | $1,427,984 | $ | (37,785) |
Impairment loss on property, plant and equipment | - | (93,073) | |
Gain on disposal of investment properties | 151,357 | - | |
Reversal of impairment loss on investment properties | 27,066 | 56,617 | |
Loss on disposal of intangible assets | (1,858) | (146) | |
Impairment loss on intangible assets | (9,303) | (8,946) | |
Impairment loss on other assets | - | (43,971) | |
$1,595,246 |
$ (127,304)
b. Other income
Year Ended December 31
2020
2019
Dividend income Rental income Others
c. Other gains and lossesForeign currency exchange gain or loss, net
Gain on disposal of investments accounted for using equity method
Gain (loss) on disposal of financial instruments
Valuation loss on financial assets and liabilities at fair value through profit or loss, net
Others
d. Interest expenses
$
246,084 $ 296,360
70,123 84,870
$
153,401 150,394 469,608 $ 531,624
Year Ended December 31
$
2020 | 2019 | |
(46,535) | $ | 15,823 |
15,946 | 30,152 | |
(1,788) | 3,944 | |
(99,150) | (38,314) | |
(21,440) | (48,076) | |
$ | (36,471) |
$ (152,967)
Year Ended December 31
2020
2019
Interest paid to financial institutions Interest on lease liabilities
Interest on bonds payable Others
$ 79,067
$ 17,496
79,654 84,918
45,614 1,728
- 1,728
e. Impairment loss (reversal of impairment loss)Contract assets
Trade notes and accounts receivable Other receivables
Inventories
Property, plant and equipment Investment properties Intangible assets Other assets
$ 206,063
$ 104,142
Year Ended December 31
2020 | 2019 | |
$ 934 | $ | (1,912) |
$ 48,708 | $ | (53,952) |
$ (4,757) | $ | (69,247) |
$1,161,281 | $ | 474,709 |
$ - | $ | 93,073 |
$ (27,066) | $ | (56,617) |
$ 9,303 | $ | 8,946 |
$ - | $ | 43,971 |
f. Depreciation and amortization expenses
Year Ended December 31
2020
2019
Property, plant and equipment Right-of-use assets Investment properties Intangible assets
Incremental costs of obtaining contracts
$
26,988,500 $ 26,930,188
3,931,498 22,332
5,424,367 4,252,602
771,875 1,173,492
3,967,646 25,157
Total depreciation and amortization expenses
Depreciation expenses summarized by functions
Operating costs
Operating expenses
$
37,138,572
$
29,056,306 1,886,024
$ 36,349,085
$ 28,956,751 1,966,240
$
30,942,330 $ 30,922,991
Amortization expenses summarized by functions
Operating costs
Marketing expenses
General and administrative expenses Research and development expenses
$
5,971,033
99,881 96,477 82,436 94,487 42,892 38,832
$ 5,196,298
$ 6,196,242
$ 5,426,094
g.
Employee benefit expensesPost-employment benefit
Defined contribution plans Defined benefit plansShare-based payment
Equity-settled share-based payment Other employee benefit
Salaries
Insurance
Others
Total employee benefit expensesSummary by functions
Operating costs Operating expenses
Year Ended December 31
$
$
$
$
2020 | 2019 | |
708,230 | $ | 654,449 |
2,001,474 | 2,859,467 | |
2,709,704 | 3,513,916 | |
7,578 | 1,597 | |
26,630,387 | 25,463,967 | |
2,712,327 | 2,746,088 | |
12,903,211 | 14,429,853 | |
42,245,925 | 42,639,908 | |
44,963,207 | $ | 46,155,421 |
23,005,380 | $ | 23,586,735 |
21,957,827 | 22,568,686 | |
44,963,207 | $ | 46,155,421 |
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. As of December 31, 2020, the payables of the employees' compensation and the remuneration to directors were $1,202,448 thousand and $35,803 thousand, respectively. Such amounts have been approved by the Chunghwa's Board of Directors on February 23, 2021 and will be reported to the stockholders in their meeting planned to be held on May 28, 2021.
If there is a change in the proposed amounts after the annual consolidated financial statements are authorized for issue, the difference is 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:
2019 | 2018 | |
Cash | Cash | |
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 accrued amounts recognized in 2019 and 2018 and the amounts approved by 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.
32. INCOME TAX
a.
Income tax recognized in profit or loss | ||
The major components of income tax expense were as follows: | ||
2020 | 2019 | |
Current tax | ||
Current tax expenses recognized for the year | $ 8,172,184 | $ 8,109,261 |
Income tax on unappropriated earnings | 11,329 | 19,523 |
Income tax adjustments on prior years | (22,436) | (90,531) |
Others | 19,661 | 11,574 |
8,180,738 | 8,049,827 | |
Deferred tax | ||
Deferred tax benefits recognized for the year | (81,618) | (63,119) |
Income tax adjustments on prior years | 26,308 | (859) |
(55,310) | (63,978) | |
Income tax recognized in profit or loss | $ 8,125,428 | $ 7,985,849 |
Year Ended December 31
Reconciliation of accounting profit and income tax expense was as follows:
Year Ended December 31
2020
2019
Income before income tax
$ 42,830,971
$ 41,749,792
Income tax expense calculated at the statutory rate Nondeductible income and expenses in determining taxable income
$ 8,566,194
$ 8,349,958
Unrecognized deductible temporary differences Unrecognized loss carryforwards
14,975 17,616 (4,708) 3,243 3,515 7,221
Tax-exempt income
(367,817)
(125,004)
Income tax on unappropriated earnings Investment credits
11,329
19,523
(130,888) (202,921)
Effect of different tax rates of group entities operating in other jurisdictions
10,324 (8,981)
Income tax adjustments on prior years Others
3,872 (91,390)
18,632
16,584
Income tax expense recognized in profit or loss
$ 8,125,428
$ 7,985,849
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. The Company has deducted the reinvested capital expenditure while calculating income tax on unappropriated earnings.
b. Income tax recognized in other comprehensive income
Year Ended December 31
2020
2019
Deferred tax
Remeasurement on defined benefit pension plans Exchange differences arising from the translation of the foreign operations
$ 238,630
$ 305,271
263
-
Total income tax expense recognized in other comprehensive income
$ 238,893
$ 305,271
c.
Current tax assets and liabilities
December 31
Current tax assets
Tax refund receivable (included in other current assets - other)
Current tax liabilities
Income tax payable
2020 | 2019 | |
$ | 774 | 897 |
$ $4,020,670
$4,369,241
d. Deferred income tax assets and liabilities The movements of deferred income tax assets and liabilities were as follows:
For the year ended December 31, 2020
Deferred income tax assetsTemporary differences
Defined benefit pension plans Share of profit or loss of associates and joint ventures accounted for using equity method
Allowance for doubtful receivables over quota
Valuation loss on inventory Deferred revenue
Estimated warranty liabilities Accrued award credits liabilities Others
Loss carryforwards
Deferred income tax liabilities
Temporary differences
Defined benefit pension plans Land value incremental tax Deferred revenue for award credits Intangible assets
Beginning Balance
$ 2,034,357
402,059
403,712
140,838
97,457
34,461
17,318
100,033
3,230,235
28,372
$ 3,258,607
$ 1,758,131
94,986
28,543
29,513
Others
1,132
$ 1,912,305
For the year ended December 31, 2019
Deferred income tax assetsTemporary differences
Defined benefit pension plans
Share of profit or loss of associates and joint ventures accounted for using equity method Allowance for doubtful receivables over quota Valuation loss on inventory Deferred revenue Estimated warranty liabilities
Acquired by business combinations
(Note 13)Recognized in Profit or Loss
$ 1,366
$ 18,960
-
- 2,710
- - - 1,589 5,665
-
$ 5,665
$
$
- - - - 2,209
$
$
2,209
$ 51,919
Beginning Balance
Recognized in Profit or Loss
$
2,307,057
$
(1,283) - 400,776
Recognized in
Other Comprehensive
IncomeEnding Balance
$ (238,525)
$ 1,816,158
(39,105) - 364,607
155,651 - 299,199
(24,390) - 73,067
1,704 - 36,165
1,091 - 18,409
2,102 114,730
(263) 103,461
(7,501)
(238,788)
-3,111,842 20,871
107,229
$ (238,788)
$ 3,132,713
53,957
$ 105
$ 1,812,193
- - 94,986
1,664 - 30,207
(2,514) - 26,999
(1,188) - 2,153
$ 105
Recognized in
Other Comprehensive
Income
$ 1,966,538
Ending Balance
32,475 $
(305,175)
$
2,034,357
389,379 435,445 87,474 110,929 25,989
12,680 - 402,059
(31,733) - 403,712
53,364 - 140,838
(13,472) - 97,457
8,472 - 34,461
(Continued)
Recognized inBeginning Balance
Recognized in Profit or Loss
Other Comprehensive
IncomeEnding Balance
Accrued award credits liabilities
Others
Loss carryforwards
$
13,912 168,317 3,538,502 40,942
$ 3,406
$
-
$ 17,318
(68,284) - 100,033
(3,092) (12,570)
(305,175)
-3,230,235 28,372
$
3,579,444
Deferred income tax liabilities
Temporary differences
Defined benefit pension plans
Land value incremental tax Deferred revenue for award credits
Intangible assets Others
$
(15,662)
$ (305,175)
$ 3,258,607
$
1,832,669 94,986 30,690 32,028 1,476
$
(74,634)
- - 94,986
(2,147) - 28,543
(2,515) - 29,513
(344) - 1,132
$
96
$ 1,758,131
$ 1,991,849
$ (79,640)
$
96
$ 1,912,305
(Concluded)e.
Deductible temporary differences and unused loss carryforwards for which no deferred tax assets have been recognized in the consolidated balance sheets
Loss carryforwards
Expire in 2021
Expire in 2022
Expire in 2023
Expire in 2024
Expire in 2025
Expire in 2026
Expire in 2027
Expire in 2028
Expire in 2029
Expire in 2030
Deductible temporary differences
December 31
2020
2019
$
11,826
$ 12,406
9,997 10,264
8,251 8,251
8,364 8,189
19,106 15,438
8,423 8,423
2,585 2,585
930 930
697 293
198 70,377
-$ $
$ 66,779
-
$ 813
f. Information about unused loss carryforwards As of December 31, 2020, information about loss carryforwards was as follows:
Remaining
Creditable Amount
Expiry Year
$
13,791 2021
10,848 2022
8,923 2023
8,547 2024
21,900 2025
15,529 2026
3,503 2027
4,556 2028
2,034 2029
1,617 2030
$ 91,248
g.
Income tax examinations
Income tax returns of Chunghwa have been examined by the tax authorities through 2017. Income tax returns of SENAO, ISPOT, Youth, Youyi, SENYOUNG, Aval, CHIEF, CHSI, SHE, CHI, CHPT, SFD, CLPT, CHTSC, HHI, IISI and UTC have been examined by the tax authorities through 2018. Income tax returns of CHYP, LED, Unigate and CHST have been examined by the tax authorities through 2019.
33. EARNINGS PER SHARE ("EPS")
Net income and weighted average number of common stocks used in the calculation of earnings per share were as follows:
Net Income
Year Ended December 31
2020
2019
Net income used to compute the basic earnings per share
Net income attributable to the parent
$ 33,406,130
$ 32,788,546
Assumed conversion of all dilutive potential common stocks
Employee stock options and employee compensation of subsidiaries
(7,241)
(3,617)
Net income used to compute the diluted earnings per share
$ 33,398,889
$ 32,784,929
Weighted Average Number of Common Stocks
(Thousand Shares)
Year Ended December 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
7,108
7,862
Weighted average number of common stocks used to compute the diluted earnings per share
7,764,555
7,765,309
As Chunghwa may settle the employee compensation in shares or cash, Chunghwa shall presume that it will be settled in shares and take those shares into consideration when calculating the weighted average number of outstanding shares used in the calculation of diluted EPS if the shares have a dilutive effect. The dilutive effect of the shares needs to be considered until the approval of the number of shares to be distributed to employees as compensation in the following year.
34. SHARE-BASED PAYMENT ARRANGEMENT
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 $93.00)
Each option is eligible to subscribe for one common share when exercisable. Under the terms of the SENAO Plan, the options are granted at an exercise price equal to the closing price of SENAO's common stocks listed on the TWSE on the higher of closing price or par value. The SENAO Plan has an exercise price adjustment formula upon the changes in common stocks equity (including cash capital increase, new share issue through capitalization of earnings and additional paid-in capital, merger, spin off and new share issue for Global Depositary Shares, and so on) or distribution of cash dividends. The options of the SENAO Plan are valid for six years and the graded vesting schedule for which 50% of options granted will vest two years after the grant date and another two tranches of 25%, each will vest three and four years after the grant date respectively.
No compensation cost of stock options granted on May 7, 2013 was recognized for the years ended December 31, 2020 and 2019.
Information about SENAO's outstanding stock options for the year ended December 31, 2019 was as follows:
Year Ended December 31, 2019
Granted on May 7, 2013
Weighted
Number of | Average |
Options | Exercise Price |
(Thousand) | (NT$) |
Employee stock options | ||
Options outstanding at beginning of the year | 5,318 | 66.20 |
Options forfeited | (5,318) | - |
Options outstanding at end of the year | - | - |
Options exercisable at end of the year | - | - |
$
As of December 31, 2020 and 2019, there were no outstanding stock options.
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$) | $93.00 |
Exercise price (NT$) | $93.00 |
Dividend yield | - |
Risk-free interest rate | 0.91% |
Expected life | 4.375 years |
Expected volatility | 36.22% |
Weighted average fair value of grants (NT$) | $28.72 |
Expected volatility was based on the historical share price volatility of SENAO over the period equal to the expected life of the SENAO Plan.
b. CHIEF share-based compensation plan ("CHIEF Plan") described as follows:
Resolution Date by
Effective Date for Plan RegistrationCHIEF's Board of
Exercise Price
Directors
Stock Options Units
(NT$)
2020.09.16 2017.12.18
2020.10.26 2018.10.31
200.00 50.00
$ 206.00
$ 138.70
(Original price $ 147.00)
2015.11.17
2017.12.19 2015.10.22
950.00 2,000.00
$ 132.70
(Original price $ 147.00)
$ 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 an exercise price adjustment formula upon the changes in common stocks or distribution of cash dividends. The options of the CHIEF Plan are valid for five years and the graded vesting schedule will vest two years after the grant date.
The Board of Directors of CHIEF resolved to issue stock options in October 26, 2020 and authorized the chairman to decide the grant date. Afterwards, the grant date was decided as November 13, 2020. The compensation costs were $1,297 thousand for the year ended December 31, 2020.
The compensation costs for stock options granted on October 31, 2018 were $312 thousand and $552 thousand for the years ended December 31, 2020 and 2019, respectively.
The compensation costs for stock options granted on December 19, 2017 were $226 thousand and $582 thousand for the years ended December 31, 2020 and 2019, respectively.
The compensation costs for stock options granted on October 22, 2015 was $272 thousand for the year ended December 31, 2019. No compensation cost was recognized for the year ended December 31, 2020.
CHIEF modified the plan terms of stock options granted on October 31, 2018 in June 2019 and July 2020; therefore, the exercise price changed from $147.00 to $141.70 and $138.70 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 July 2020; therefore, the exercise price changed from $140.60 to $135.60 and $132.70 per share. The modification did not cause any incremental fair value granted.
Information about CHIEF's outstanding stock options for the years ended December 31, 2020 and 2019 was as follows:
Year Ended December 31, 2020
Granted on | Granted on October | Granted on December | Granted on October |
November 13, 2020 | 31, 2018 | 19, 2017 | 22, 2015 |
Weighted | Weighted | Weighted | Weighted |
Average | Average | Average | Average |
Number Exercise | Number Exercise | Number Exercise | Number Exercise |
of Price | of Price | of Price | of Price |
Options (NT$) | Options (NT$) | Options (NT$) | Options (NT$) |
Employee stock options
Options outstanding at
beginning of the year | - | $ | - | 46.00 | $ 141.70 | 897.00 | $ 135.60 | 314.25 | $ 34.40 |
Options granted | 200.00 | 206.00 | - | - | - | - | - | - | |
Options exercised | - | - | (21.00) | 138.70 | (448.50) | 135.60 | (314.25) | 34.40 | |
Options forfeited | - | - | (4.00) | - | (21.00) | - | - | - | |
Options outstanding at end of | |||||||||
the year | 200.00 | 206.00 | 21.00 | 138.70 | 427.50 | 132.70 | - | - | |
Options exercisable at end of | |||||||||
the year | - | - | - | - | 213.75 | 132.70 | - | - |
Year Ended December 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 year | 50.00 | $ 147.00 | 925.00 | $ 140.60 | 882.75 | $ | 34.40 |
Options exercised | - | - | - | - | (547.25) | 34.40 | |
Options forfeited | (4.00) | - | (28.00) | - | (21.25) | - | |
Options outstanding at end of the | |||||||
year | 46.00 | 141.70 | 897.00 | 135.60 | 314.25 | 34.40 | |
Options exercisable at end of the year | - | - | 448.50 | 135.60 | 314.25 | 34.40 |
As of December 31, 2020, information about employee stock options outstanding was as follows:
Granted on November 13, 2020
Options Outstanding
Options ExercisableRange of Exercise Price
(NT$)
Weighted
Average Weighted Remaining Average
Number of Contractual Exercise
Options Life (Years) Price (NT$)Number of
OptionsWeighted Average
Exercise Price (NT$)
$206.00
200.00 4.87 $206.00
Granted on October 31, 2018
Options Outstanding
-
$
-
Options ExercisableRange of Exercise Price
(NT$)
Weighted
Average Weighted Remaining Average
Number of Contractual Exercise
Options Life (Years) Price (NT$)Number of
OptionsWeighted Average
Exercise Price (NT$)
$138.70
21.00 2.83 $138.70
Granted on December 19, 2017
Options Outstanding
-
$
-
Options ExercisableRange of Exercise Price
(NT$)
Weighted
Average Weighted Remaining Average
Weighted Average
$132.70
Number of | Contractual Exercise | Number of | Exercise |
Options | Life (Years) Price (NT$) | Options | Price (NT$) |
427.50 | 1.96 $132.70 | 213.75 | $132.70 |
As of December 31, 2020, all the stock options granted on October 22, 2015 were exercised or forfeited.
Granted on October 31, 2018
Options Outstanding
Options Exercisable
Weighted
Range of Exercise Price
Average Weighted Remaining Average
Weighted Average
Number of Contractual ExerciseNumber of
(NT$)
Options Life (Years) Price (NT$)
OptionsExercise Price (NT$)
$141.70
46.00 3.83 $141.70
-
$
-
Granted on December 19, 2017
Options Outstanding
Options Exercisable
Weighted
Range of Exercise Price
Average Weighted Remaining Average
Weighted Average
Number of Contractual Exercise
(NT$)
Options Life (Years) Price (NT$)
$135.60
897.00 2.96 $135.60
Number of | Exercise |
Options | Price (NT$) |
448.50 | $135.60 |
Granted on October 22, 2015
Options Outstanding
Options Exercisable
Weighted
Range of Exercise Price
Average Weighted Remaining Average
Weighted Average
(NT$)
$ 34.40
Number of | Contractual Exercise | Number of | Exercise |
Options | Life (Years) Price (NT$) | Options | Price (NT$) |
314.25 | 0.81 $ 34.40 | 314.25 | $ 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 | Stock | Stock | Stock | |
Options | Options | Options | Options | |
Granted on | Granted on | Granted on | Granted on | |
November | October 31, | December 19, | October 22, | |
13, 2020 | 2018 | 2017 | 2015 | |
Grant-date share price (NT$) | $356.00 | $166.00 | $95.92 | $39.55 |
Exercise price (NT$) | $206.00 | $147.00 | $147.00 | $43.00 |
Dividend yield | - | - | - | - |
Risk-free interest rate | 0.18% | 0.72% | 0.62% | 0.86% |
Expected life | 5 years | 5 years | 5 years | 5 years |
Expected volatility | 34.61% | 16.60% | 17.35% | 21.02% |
Weighted average fair value of | ||||
grants (NT$) | $173,893 | $33,540 | $2,318 | $4,863 |
The expected volatility for the options granted in 2020 was based on CHIEF's average annualized historical share price volatility from June 5, 2018, CHIEF's listing date on Taipei Exchange, to the grant date. The expected volatilities for the options granted from 2015 to 2018 were based on the average annualized historical share price volatility of CHIEF's comparable companies before the grant date.
c.
CHTSC share-based compensation plan ("CHTSC Plan") described as follows:
The Board of Directors of CHTSC resolved to issue 4,500 stock 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 exercise price is $19.085. The CHTSC Plan has an exercise price adjustment formula upon the changes in common stocks. The options of the CHTSC Plan are valid for five years and the graded vesting schedule will vest one year after the grant date.
The compensation costs were $5,743 thousand and $191 thousand for the years ended December 31, 2020 and 2019, respectively.
Information about CHTSC's outstanding stock options for the years ended December 31, 2020 and 2019 were as follows:
Year Ended December 31
2020
2019
Granted on December 20, 2019
Granted on December 20, 2019
Weighted | Weighted |
Average | Average |
Exercise | Exercise |
Number of | Price | Number of | ||
Options | (NT$) | Options | ||
of the year | 4,500 | $ 19.085 | - | - |
Options granted | - | - | 4,500 | 19.085 |
Options forfeited | (172) | - | - | - |
Options outstanding at end of the | ||||
year | 4,328 | 19.085 | 4,500 | 19.085 |
Options exercisable at end of the | ||||
year | 1,082 | 19.085 | - | - |
Price (NT$)
Employee stock options
Options outstanding at beginning
$
As of December 31, 2020, information about employee stock options outstanding was as follows:
Options Outstanding
Options ExercisableRange of Exercise Price
Weighted Average RemainingNumber of
(NT$)
OptionsContractual Life (Years)Weighted Average Exercise Price (NT$)Number of
OptionsWeighted Average Exercise Price (NT$)
$19.085
4,328
3.97
$19.085
1,082
$19.085
Options Outstanding
Options Exercisable
Weighted | |||||
Range of | Average | ||||
Exercise Price | Number of | Contractual | Exercise | Number of | Exercise |
(NT$) | Options | Life (Years) | Price (NT$) | Options | Price (NT$) |
$19.085 | 4,500 | 4.97 | $19.085 | - |
Weighted Average Remaining
Weighted Average
$
-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$) | $20.17 |
Exercise price (NT$) | $19.085 |
Dividend yield | 12.49% |
Risk-free interest rate | 0.54% |
Expected life | 5 years |
Expected volatility | 42.41% |
Weighted average fair value of grants (NT$) | $2,470 |
Expected volatility was based on the average annualized historical share price volatility of CHTSC's comparable companies before the grant date.
d. IISI share-based compensation plan ("IISI Plan") described as follows:
IISI issued 1,665 and 1,335 options in January 2014 and August 2013, respectively. Each option is eligible to subscribe for one thousand common stocks when exercisable. The options are granted to specific employees of IISI and its subsidiaires that meet the vesting conditions. The options of the IISI Plan are valid for seven years and the graded vesting schedule will vest two years after the grant date. The exercise price of the original options is $14 per share. After the options are issued, if the common stocks of IISI change, the exercise price of the options should be adjusted according to the prescibed formula.
No compensation cost of stock options granted was recognized for the six months ended December 31, 2020.
Information about IISI's outstanding stock options for the year ended December 31, 2020 was as follows:
Year Ended December 31, 2020
Granted in January 2014 | Granted in August 2013 |
Weighted | Weighted |
Average | Average |
Number of Exercise Price | Number of Exercise Price |
Options (NT$) | Options (NT$) |
Employee stock options
Options outstanding at
beginning of the year Options outstanding upon the date of business combination
-$
-
-$
-
Options exercised Options forfeited
580.00 (50.00)
-14.00 14.00 -1,022.96 14.00
(432.50) 14.00
(590.46)
-
Options outstanding at end of the year
530.00
14.00
-
-
Options exercisable at end of the year
530.00
14.00
-
-As of December 31, 2020, information about employee stock options outstanding was as follows:
Granted in January 2014
Range of | ||||
Exercise Price | Number of | Contractual Exercise | Number of | Exercise |
(NT$) | Options | Life (Years) Price (NT$) | Options | Price (NT$) |
$ 14.00 | 530.00 | 0.04 $ 14.00 | 530.00 | $ 14.00 |
Options Outstanding | Options Exercisable |
Weighted | |
Average Weighted | Weighted |
Remaining Average | Average |
As of December 31, 2020, the options granted to employees in 2013 have been fully exercised or forfeited.
IISI 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 | Stock Options | |
Granted in | Granted in | |
January 2014 | August 2013 | |
Grant-date share price (NT$) | $14.51 | $12.51 |
Exercise price (NT$) | $14.00 | $14.00 |
Dividend yield | 6% | 6% |
Risk-free interest rate | 1.16%-1.32% | 1.20%-1.39% |
Expected life | 4.5-5.5 years | 4.5-5.5 years |
Expected volatility | 35.28%-35.97% | 36.01%-36.62% |
Weighted average fair value of grants (NT$) | $14.51 | $12.51 |
Expected volatility was based on the average annualized historical share price volatility of IISI's comparable companies before the grant date.
35. CASH FLOW INFORMATION
Except for those disclosed in other notes, the Company entered into the following non-cash investing and financing activities:
Investing activities
Year Ended December 31
2020
2019
Increase in property, plant and equipment Changes in other payables
$ 25,194,727
(1,683,907)
$ 23,164,284 1,001,573
Acquisition of property, plant and equipment
$ 23,510,820 $ 24,165,857
Increase in investment properties
Trade-in investment properties from asset exchange transaction
(Note 15)
Acquisition of investment properties
$ 1,359,502
(1,305,067)
$ 54,435
$
523
$
- 523
Increase in intangible assets Changes in other assets
$ 48,605,187 (1,000,000)
$ 362,718 -
Acquisition of intangible assets
$ 47,605,187
$ 362,718
Disposal of property, plant and equipment, net
Gain (loss) on disposal of property, plant and equipment Trade-in investment properties from asset exchange transaction
(Note 15)
Changes in other payables
Changes in other current monetary assets
$ 307,190 1,427,984
(1,305,067)
(79,986) (31,032)
$ 85,942 (37,785)
- - -
Proceeds from disposal of property, plant and equipment
Financing Activities
$
319,089
Changes in Non-Cash Transactions
$ 48,157
Balance on January 1, 2020
Cash Flows from Financing Activities
New Leases
Business CombinationAcquired by
(Note 13)
OthersCash Flows from Operation Activities - Interest PaidBalance on December 31, 2020
Lease liabilities
$
9,758,138
$ (3,683,204)
$ 3,796,370
$
70,905
$
(265,888 )
$
(79,654 )
$ 9,596,667
Balance on January 1, 2019
Cash Flows from Financing ActivitiesChanges in Non-Cash
TransactionsNew LeasesOthersCash Flows from Operation Activities - Interest PaidBalance on December 31, 2019
Lease liabilities
$10,340,057
$ (3,727,792)
$ 3,803,042
$ (572,251)
$
(84,918)
$ 9,758,138
36. CAPITAL MANAGEMENT
The Company manages its capital to ensure that entities in the Company will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance.
The capital structure of the Company consists of debt of the Company and the equity attributable to the parent.
Some consolidated entities are required to maintain minimum paid-in capital amount as prescribed by the applicable laws.
The management reviews the capital structure of the Company as needed. As part of this review, the management considers the cost of capital and the risks associated with each class of capital. According to the management's suggestions, the Company maintains a balanced capital structure through paying cash dividends, increasing its share capital, purchasing outstanding shares, and issuing new debt or repaying debt.
37. 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).
a. Financial instruments that are not measured at fair value but for which fair value is disclosed
Except those listed in the table below, 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.
December 31
2020
2019
Carrying
Carrying
Value
Fair Value
Value
Fair Value
Financial liabilities
Financial liabilities measured at amortized cost
Bonds payable
$ 19,980,272
$ 20,078,098
$
-$
-The fair value of bonds payable is measured using Level 2 inputs. The valuation of fair value is based on the weighted-average per-hundred price of Taipei Exchange at the end of reporting period.
b. Financial instruments that are measured at fair value on a recurring basis
December 31, 2020
Financial assets at FVTPL
Derivatives
Listed stocks Non-listed stocks
Level 1
Level 2
$
-7,626 - - 7,626
-
$ 2,271
-
Level 3
Total
$
-677,202 677,202
$ 2,271
$ 7,626
Hedging financial assets
Financial assets at FVOCI
Listed stocks Non-listed stocks
$
-
$ 2,754,175 -
$ $
2,271 1,752
$
- -
$ $
677,202
-
$ 687,099
$ 1,752
$
-
4,438,999 4,438,999
$ 2,754,175
$ 2,754,175
Financial liabilities at
FVTPL DerivativesDecember 31, 2019
Financial assets at FVTPL
Derivatives
Listed stocks Non-listed stocksHedging financial assetsFinancial assets at FVOCI
Listed stocks Non-listed stocks
$
-
$
-$
143
$
4,438,999
$
-
$ 7,193,174
$
143
Level 1
Level 2
Level 3
Total
$
-463 - - 463
$ $
- 463
-
$ 2,453,616 -$
53 $ - $ 53
-$ $
53 327
$
- -778,105 778,105
$ $
778,105
-
$ 778,621
$
327
$
-
4,815,301 4,815,301
$ 2,453,616
$ 2,453,616
Financial liabilities at
FVTPL Derivatives
$
-$
-
$
4,815,301
$
239
$ 7,268,917
$
-$
239
There were no transfers between Levels 1 and 2 for the years ended December 31, 2020 and 2019.
The reconciliations for financial assets measured at Level 3 were listed below: 2020
Measured at | |
Measured at | Fair Value |
Fair Value | through Other |
through Profit | Comprehensive |
2019
Acquisition 300,000 Recognized in profit or loss under "Other
Income | Total | |
$ 4,815,301 | $ 5,593,406 | |
1,853 | 1,853 | |
- | (100,903) | |
(378,155) | (378,155) | |
$ 4,438,999 | $ 5,116,201 | |
Measured at | ||
Measured at | Fair Value | |
Fair Value | through Other | |
through Profit | Comprehensive | |
or Loss | Income | Total |
$ 4,032,660 | $ 4,550,022 | |
- | 300,000 | |
- | (39,257) | |
791,808 | 791,808 | |
(9,167) | (9,167) | |
$ 4,815,301 | $ 5,593,406 |
or Loss |
Financial Assets
Balance on January 1, 2020
$ 778,105
Reclassified from investments accounted for using equity method
-
Recognized in profit or loss under "Other gains and losses"
(100,903)
Recognized in other comprehensive income under "Unrealized gain or loss on financial assets at fair value through other comprehensive income"
-Balance on December 31, 2020
$ 677,202
Unrealized loss in 2020
$ (100,903)
Financial Assets
Balance on January 1, 2019
$ 517,362
gains and losses"
(39,257)
Recognized in other comprehensive income under "Unrealized gain or loss on financial assets at fair value through other comprehensive income"
Proceed from return of investments
- -
Balance on December 31, 2019
$ 778,105
Unrealized loss in 2019
$ (39,257)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.
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
2020 | 2019 | |
Discount for lack of marketability | 14.73%-20.00% | 13.73%-20.00% |
Noncontrolling interests discount | 17.29%-25.00% | 21.45%-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.
December 31
Discount for lack of marketability 5% decrease
Noncontrolling interests discount 5% decrease
$ $
2020 | 2019 | |
319,758 | $ | 349,584 |
47,018 | $ | 53,646 |
Categories of Financial Instruments
December 31
2020
2019
Financial assets
Measured at FVTPL
Mandatorily measured at FVTPL Hedging financial assets
$
687,099 $ 1,752
778,621 327
Financial assets at amortized cost (Note a) 62,405,714 71,851,933
Financial assets at FVOCI
7,193,174 7,268,917
Financial liabilities
Measured at FVTPL
Held for trading
Measured at amortized cost (Note b)
143 62,557,414
239 34,433,210
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, bonds payable and long-term loans which were financial liabilities carried at amortized cost.
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, short-term bills payable and bonds 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.
a.
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
2020 | 2019 | |
Assets | ||
USD | $ 2,710,705 | $ 5,781,593 |
EUR | 14,957 | 11,792 |
SGD | 169,747 | 224,501 |
JPY | 22,289 | 17,092 |
RMB | 29,742 | 8,854 |
HKD | 69,321 | 325 |
Liabilities | ||
USD | 767,553 | 4,120,881 |
EUR | 957,257 | 206,447 |
SGD | 1,049,225 | 1,262,926 |
JPY | 9,683 | 14,206 |
RMB | 201 | 310 |
HKD | 7,665 | 14,511 |
The carrying amounts of the Company's derivatives with exchange rate risk exposures at the balance sheet dates were as follows:
December 31
2020 | 2019 | ||
Assets | |||
USD | $ | 121 | 53 |
EUR | 3,902 | 327 | |
Liabilities | |||
USD | 143 | 11 | |
EUR | - | 228 | |
Foreign currency sensitivity analysis |
$
The Company is mainly exposed to the fluctuations of the currencies USD, EUR, SGD, JPY, RMB and HKD 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.
Year Ended December 31
2020 | 2019 | |
Profit or loss | ||
Monetary assets and liabilities (a) | ||
USD | $ 97,158 | $ 83,036 |
EUR | (47,115) | (9,733) |
SGD | (43,974) | (51,921) |
JPY | 630 | 144 |
RMB | 1,477 | 427 |
HKD | 3,083 | (709) |
Derivatives (b) | ||
USD | (19,224) | 1,274 |
EUR | 2,627 | 2,519 |
Equity | ||
Derivatives (c) | ||
EUR | 10,210 | 4,195 |
a) This is mainly attributable to the exposure to foreign currency denominated receivables and payables of the Company outstanding at the balance sheet dates.
b) This is mainly attributable to forward exchange contracts.
c) 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.
2) 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
2020 | 2019 | |
Fair value interest rate risk | ||
Financial assets | $ 24,217,959 | $ 30,946,503 |
Financial liabilities | 36,576,137 | 9,758,138 |
Cash flow interest rate risk | ||
Financial assets | 9,306,397 | 7,681,032 |
Financial liabilities | 1,667,000 | 1,690,000 |
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 $19,098 thousand and $14,978 thousand for the years ended December 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 loans.
3)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 $34,241 thousand and $359,659 thousand as a result of the changes in fair value of financial assets at FVTPL and financial assets at FVTOCI for the year ended December 31, 2020. If equity prices had been 5% higher/lower, pre-tax profit and pre-tax other comprehensive income would have increased/decreased by $38,928 thousand and $363,446 thousand as a result of the changes in fair value of financial assets at FVTPL and financial assets at FVOCI for the year ended December 31, 2019.
b. 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 the consolidated balance sheet as of the balance sheet date.
The Company has large trade receivables outstanding with its customers. A substantial majority of the Company's outstanding trade receivables are not covered by collateral or credit insurance. The Company has implemented ongoing measures including enhancing credit assessments and strengthening overall risk management to reduce its credit risk. While the Company has procedures to monitor and limit exposure to credit risk on trade receivables, there can be no assurance such procedures will effectively limit its credit risk and avoid losses. This risk is heightened during periods when economic conditions worsen.
As the Company serves a large number of unrelated consumers, the concentration of credit risk was limited.
c.
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.
December 31, 2020
Weighted Average Effective Interest Rate
(%)Less than 1 Month
3 Months to
More than
1-3 Months
1 Year
1-5 Years
5 Years
Total
Non-derivative financial liabilities
Non-interest bearing
Floating interest rate instruments Fixed interest rate instruments
- 0.78 0.50
$ 37,748,572 - 7,000,000
$
- 7,000 -
$
2,476,148 $ 1,660,000
4,826,679
$
- $ 45,051,399
- - 1,667,000
-
8,800,000
11,200,000 27,000,000
$ 44,748,572
$ 7,000
$ 4,136,148
$ 13,626,679
$ 11,200,000
$ 73,718,399
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
$ 3,396,908
$ 4,239,587
$ 1,691,426
$ 409,067
$ 9,736,988
December 31, 2019
Weighted Average Effective Interest Rate
(%)Less than 1 Month
3 Months to
More than
1-3 Months
1 Year
1-5 Years
5 Years
Total
Non-derivative financial liabilities
Non-interest bearing
Floating interest rate instruments
- 0.98
$ 36,387,024 50,000 $ 36,437,024
$
$
- 10,000 10,000
$ 2,531,721 30,000
$
$ 2,561,721
$
4,747,644 1,600,000 6,347,644
$
- $ 43,666,389
-
1,690,000
$
- $ 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
The following table detailed the Company's liquidity analysis for its derivative financial instruments. The table had been drawn up based on the undiscounted gross inflows and outflows on those derivatives that require gross settlement.
Less than 1 Month
3 Months to
1-3 Months
1 Year
1-5 Years
Total
December 31, 2020
Gross settled
Forward exchange contracts
Inflow
$
- $ 634,676
$
-$
- $ 634,676
Outflow
$
- -630,796 - - 630,796
$
3,880
$
-$
-
$ 3,880
December 31, 2019
Gross settled
Forward exchange contracts
Inflow
$
Outflow
25,566 25,524
$
135,075
$
-$
-
$ 160,641
134,976 - - 160,500
$
42
$
99
$
-$
-
$ 141
2) Financing facilities
December 31 2020
2019
Facilities of unsecured bank loan and commercial paper payable
Amount used
Secured bank loan facility
Amount unused 59,277,690
$ | 120,681 | |
46,109,219 | ||
$ 66,345,490 | $ | 46,229,900 |
$ | 1,600,000 | |
1,340,000 | ||
$ | 2,940,000 |
$ 7,067,800
Amount used Amount unused
$ 1,600,000 20,000
$ 1,620,000
38. 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. Except for those disclosed in other notes or this note, 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.
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Chunghwa Telecom Co. Ltd. published this content on 24 February 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 March 2021 10:33:10 UTC.
