EX-99.2

/s/ Dien Sheng Chang

/s/ Cheng Hung Kuo

Deloitte & Touche

Taipei, Taiwan

Republic of China

EX-99.2 3 d145570dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

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.

/s/ Chi-Mau Sheih

Chi-Mau Sheih

Chairman

February 23, 2021

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders

Chunghwa Telecom Co., Ltd.

Opinion

We have audited the accompanying consolidated financial statements of Chunghwa Telecom Co., Ltd. and its subsidiaries (the Company), which comprise the consolidated balance sheets as of December 31, 2020 and 2019, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the related notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

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

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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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.

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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:

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.

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.

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.

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From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2020, and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication..

The engagement partners on the audit resulting in this independent auditors’ report are Dien Sheng Chang and Cheng Hung Kuo.

February 23, 2021

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China.

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

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CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2020 AND 2019

(In Thousands of New Taiwan Dollars)


	2020				2019
	Amount		%		Amount		%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 3 and 6)	$	30,419,655		6	$	34,049,643		7
Financial assets at fair value through profit or loss (Notes 3, 4 and 7)		9,897		—		516		—
Hedging financial assets (Notes 3 and 20)		1,752		—		327		—
Contract assets (Notes 3 and 30)		5,331,246		1		4,441,196		1
Trade notes and accounts receivable, net (Notes 3, 4, 9, 13 and 30)		22,621,902		5		26,407,783		6
Receivables from related parties (Note 38)		230,696		—		16,834		—
Inventories (Notes 3, 4, 10 and 39)		12,408,903		3		17,344,276		4
Prepayments (Note 11)		2,306,246		—		1,883,259		—
Other current monetary assets (Notes 12, 28 and 35)		6,123,665		1		7,498,564		2
Other current assets (Notes 19, 32 and 39)		2,349,097		—		2,429,664		—

Total current assets		81,803,059		16		94,072,062		20

NONCURRENT ASSETS
Financial assets at fair value through profit or loss (Notes 3, 4 and 7)		677,202		—		778,105		—
Financial assets at fair value through other comprehensive income (Notes 3, 4 and 8)		7,193,174		2		7,268,917		2
Investments accounted for using equity method (Notes 3 and 14)		6,893,001		1		7,354,226		2
Contract assets (Notes 3 and 30)		2,495,302		—		2,600,913		—
Property, plant and equipment (Notes 3, 4, 13, 15, 35, 38 and 39)		281,415,943		56		283,694,215		59
Right-of-use assets (Notes 3, 4 and 16)		11,009,206		2		11,364,249		2
Investment properties (Notes 3, 4, 17, 35 and 38)		9,621,322		2		8,169,393		2
Intangible assets (Notes 3, 4, 13, 18 and 35)		90,284,560		18		47,046,525		10
Deferred income tax assets (Notes 3, 13 and 32)		3,132,713		1		3,258,607		1
Incremental costs of obtaining contracts (Notes 3 and 30)		999,593		—		942,652		—
Net defined benefit assets (Notes 3, 4, 13 and 28)		3,372,555		1		2,127,335		—
Prepayments (Note 11)		2,213,521		—		2,679,335		1
Other noncurrent assets (Notes 19, 39 and 40)		5,266,841		1		6,101,704		1

Total noncurrent assets		424,574,933		84		383,386,176		80

TOTAL	$	506,377,992		100	$	477,458,238		100

LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 21)	$	67,000		—	$	90,000		—
Short-term bills payable (Note 22)		6,999,198		1		—		—
Financial liabilities at fair value through profit or loss (Notes 3, 4 and 7)		143		—		239		—
Contract liabilities (Notes 3, 30 and 38)		13,436,706		3		16,839,830		4
Trade notes and accounts payable (Note 25)		15,590,814		3		15,312,274		3
Payables to related parties (Note 38)		645,944		—		653,983		—
Current tax liabilities (Notes 3 and 32)		4,369,241		1		4,020,670		1
Lease liabilities (Notes 3, 4, 16, 35 and 38)		3,381,571		1		3,291,330		1
Other payables (Notes 26 and 35)		23,987,962		5		22,952,488		5
Provisions (Notes 3, 13 and 27)		313,555		—		206,942		—
Current portion of long-term loans (Notes 23 and 39)		1,600,000		—		—		—
Other current liabilities		1,042,977		—		983,789		—

Total current liabilities		71,435,111		14		64,351,545		14

NONCURRENT LIABILITIES
Long-term loans (Notes 23 and 39)		—		—		1,600,000		—
Bonds payable (Note 24)		19,980,272		4		—		—
Contract liabilities (Notes 3 and 30)		7,289,087		2		6,841,485		2
Deferred income tax liabilities (Notes 3, 13 and 32)		1,966,538		—		1,912,305		—
Provisions (Notes 3, 13 and 27)		100,616		—		97,382		—
Lease liabilities (Notes 3, 4, 16, 35 and 38)		6,215,096		1		6,466,808		1
Customers’ deposits (Note 38)		4,826,679		1		4,747,644		1
Net defined benefit liabilities (Notes 3, 4, 13 and 28)		3,415,331		1		3,504,617		1
Other noncurrent liabilities		1,890,805		—		1,542,687		—

Total noncurrent liabilities		45,684,424		9		26,712,928		5

Total liabilities		117,119,535		23		91,064,473		19

EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE PARENT (Notes 13 and 29)
Common stocks		77,574,465		15		77,574,465		16

Additional paid-in capital		171,261,379		34		171,255,985		36

Retained earnings
Legal reserve		77,574,465		15		77,574,465		16
Special reserve		2,675,419		1		2,675,419		1
Unappropriated earnings		47,918,166		10		46,341,361		10

Total retained earnings		128,168,050		26		126,591,245		27

Others		927,122		—		688,548		—

Total equity attributable to stockholders of the parent		377,931,016		75		376,110,243		79
NONCONTROLLING INTERESTS (Notes 13 and 29)		11,327,441		2		10,283,522		2

Total equity		389,258,457		77		386,393,765		81

TOTAL	$	506,377,992		100	$	477,458,238		100

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

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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)

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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			%

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)
Items that will not be reclassified to profit or loss:
Remeasurements of defined benefit pension plans (Note 28)	$	1,193,149			1	$	1,526,353			1
Unrealized gain or loss on investments in equity instruments at fair value through other comprehensive income (Notes 3, 29 and 37)		404,955			—		286,408			—
Gain or loss on hedging instruments subject to basis adjustment (Notes 3 and 20)		1,425			—		(742	)		—
Share of remeasurements of defined benefit pension plans of associates and joint ventures (Note 14)		(4,282	)		—		(2,335	)		—
Income tax relating to items that will not be reclassified to profit or loss (Note 32)		(238,630	)		—		(305,271	)		—

		1,356,617			1		1,504,413			1


Items that may be reclassified subsequently to profit or loss:
Exchange differences arising from the translation of the foreign operations		(177,149	)		—		(61,207	)		—
Share of exchange differences arising from the translation of the foreign operations of associates and joint ventures (Note 14)		(4,289	)		—		(700	)		—
Income tax relating to items that may be reclassified subsequently to profit or loss (Note 32)		(263	)		—		—			—

		(181,701	)		—		(61,907	)		—


Total other comprehensive income, net of income tax		1,174,916			1		1,442,506			1


TOTAL COMPREHENSIVE INCOME	$	35,880,459			18	$	35,206,449			17


NET INCOME ATTRIBUTABLE TO
Stockholders of the parent	$	33,406,130			16	$	32,788,546			16
Noncontrolling interests		1,299,413			1		975,397			—

	$	34,705,543			17	$	33,763,943			16

(Continued)

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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		%

COMPREHENSIVE INCOME ATTRIBUTABLE TO
Stockholders of the parent	$	34,598,348		17	$	34,225,076		17
Noncontrolling interests		1,282,111		1		981,373		—


	$	35,880,459		18	$	35,206,449		17


EARNINGS PER SHARE (Note 33)
Basic	$	4.31			$	4.23

Diluted	$	4.30			$	4.22


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

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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)
													Others
													Exchange Differences Arising from the Translation of the Foreign Operations			Unrealized Gain or Loss on Financial Assets at Fair Value Through Other Comprehensive Income			Gain or Loss on Hedging Instruments						Noncontrolling Interest (Notes 13 and 29)
			Additional Paid-in Capital			Retained Earnings
	Common Stocks		Additional Paid-in Capital			Legal Reserve		Special Reserve		Unappropriated Earnings												Total						Total Equity
BALANCE, JANUARY 1, 2019	$	77,574,465	$	171,136,764		$	77,574,465	$	2,675,419	$	47,090,522		$	(79,427	)	$	538,272		$	1,069		$	376,511,549		$	9,990,345		$	386,501,894
Appropriation of 2018 earnings
Cash dividends distributed by Chunghwa		—		—			—		—		(34,745,603	)		—			—			—			(34,745,603	)		—			(34,745,603	)
Cash dividends distributed by subsidiaries		—		—			—		—		—			—			—			—			—			(709,817	)		(709,817	)
Unclaimed dividend		—		1,266			—		—		—			—			—			—			1,266			—			1,266
Change in additional paid-in capital from investments in associates and joint ventures accounted for using equity method		—		118,853			—		—		—			—			—			—			118,853			1,064			119,917
Net income for the year ended December 31, 2019		—		—			—		—		32,788,546			—			—			—			32,788,546			975,397			33,763,943
Other comprehensive income (loss) for the year ended December 31, 2019		—		—			—		—		1,207,896			(68,950	)		298,326			(742	)		1,436,530			5,976			1,442,506

Total comprehensive income (loss) for the year ended December 31, 2019		—		—			—		—		33,996,442			(68,950	)		298,326			(742	)		34,225,076			981,373			35,206,449

Share-based payment transactions of subsidiaries		—		(898	)		—		—		—			—			—			—			(898	)		21,320			20,422
Net decrease in noncontrolling interests		—		—			—		—		—			—			—			—			—			(763	)		(763	)

BALANCE, DECEMBER 31, 2019		77,574,465		171,255,985			77,574,465		2,675,419		46,341,361			(148,377	)		836,598			327			376,110,243			10,283,522			386,393,765
Appropriation of 2019 earnings
Cash dividends distributed by Chunghwa		—		—			—		—		(32,782,969	)		—			—			—			(32,782,969	)		—			(32,782,969	)
Cash dividends distributed by subsidiaries		—		—			—		—		—			—			—			—			—			(775,420	)		(775,420	)
Unclaimed dividend		—		1,605			—		—		—			—			—			—			1,605			—			1,605
Change in additional paid-in capital from investments in associates and joint ventures accounted for using equity method		—		(21,918	)		—		—		—			—			—			—			(21,918	)		(1,817	)		(23,735	)
Change in additional paid-in capital for not proportionately participating in the capital increase of subsidiaries		—		(103	)		—		—		—			—			—			—			(103	)		103			—
Net income for the year ended December 31, 2020		—		—			—		—		33,406,130			—			—			—			33,406,130			1,299,413			34,705,543
Other comprehensive income (loss) for the year ended December 31, 2020		—		—			—		—		936,958			(166,154	)		419,989			1,425			1,192,218			(17,302	)		1,174,916

Total comprehensive income (loss) for the year ended December 31, 2020		—		—			—		—		34,343,088			(166,154	)		419,989			1,425			34,598,348			1,282,111			35,880,459

Disposal of investments in equity instruments at fair value through other comprehensive income		—		—			—		—		16,686			—			(16,686	)		—			—			—			—
Share-based payment transactions of subsidiaries		—		25,810			—		—		—			—			—			—			25,810			63,063			88,873
Net increase in noncontrolling interests		—		—			—		—		—			—			—			—			—			475,879			475,879

BALANCE, DECEMBER 31, 2020	$	77,574,465	$	171,261,379		$	77,574,465	$	2,675,419	$	47,918,166		$	(314,531	)	$	1,239,901		$	1,752		$	377,931,016		$	11,327,441		$	389,258,457

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

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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)

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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	$	94,589		$	97,497
Other current liabilities		46,303			(159,881	)
Net defined benefit plans		(173,970	)		533,787

Cash generated from operations		82,468,729			80,950,187
Interest paid		(161,251	)		(104,142	)
Income tax paid		(7,851,522	)		(8,419,360	)


Net cash provided by operating activities		74,455,956			72,426,685


CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of financial assets at fair value through other comprehensive income		(85,246	)		(60,000	)
Proceeds from disposal of financial assets at fair value through other comprehensive income		297,476			—
Proceeds from return of financial assets at fair value through other comprehensive income		—			9,167
Acquisition of financial assets at fair value through profit or loss		(39,253	)		(443,064	)
Proceeds from disposal of financial assets at fair value through profit or loss		29,741			146,560
Acquisition of time deposits and negotiable certificates of deposit with maturities of more than three months		(5,215,859	)		(14,381,653	)
Acquisition of repurchase agreements collateralized by bonds with maturities of more than three months		—			(14,990	)
Proceeds from disposal of time deposits and negotiable certificates of deposit with maturities of more than three months		6,630,359			16,519,781
Proceeds from disposal of repurchase agreements collateralized by bonds with maturities of more than three months		15,335			—
Acquisition of investments accounted for using equity method		(10,200	)		(4,190,000	)
Proceeds from disposal of investments accounted for using equity method		—			32,470
Acquisition of property, plant and equipment		(23,510,820	)		(24,165,857	)
Proceeds from disposal of property, plant and equipment		319,089			48,157
Acquisition of intangible assets		(47,605,187	)		(362,718	)
Acquisition of investment properties		(54,435	)		(523	)
Proceeds from disposal of investment properties		188,300			—
Increase in other noncurrent assets		(207,616	)		(1,122,142	)
Interest received		124,653			256,432
Dividends received		515,918			602,086
Net cash inflow on acquisition of subsidiaries		354,056			—


Net cash used in investing activities		(68,253,689	)		(27,126,294	)

(Continued)

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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 FINANCING ACTIVITIES
Proceeds from short-term loans	$	115,000		$	575,000
Repayment of short-term loans		(142,000	)		(585,000	)
Proceeds from short-term bills payable		41,000,000			—
Repayment of short-term bills payable		(34,000,000	)		—
Proceeds from issuance of bonds		20,000,000			—
Payments for transaction costs attributable to the issuance of bonds		(21,038	)		—
Increase in customers’ deposits		61,757			7,311
Payments for the principal of lease liabilities		(3,683,204	)		(3,727,792	)
Increase in other noncurrent liabilities		343,275			232,357
Cash dividends paid		(32,782,969	)		(34,745,603	)
Cash dividends distributed to noncontrolling interests		(775,420	)		(709,817	)
Change in other noncontrolling interests		81,295			18,062
Unclaimed dividend		1,605			1,266


Net cash used in financing activities		(9,801,699	)		(38,934,216	)


EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(30,556	)		38,688


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(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)

- 13 -

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”).

- 14 -

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:

Assets held primarily for the purpose of trading;

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

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:

Liabilities held primarily for the purpose of trading;

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

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

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.

- 15 -

Changes in the Company’s ownership interests in subsidiaries

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

The subsidiaries in the consolidated financial statements

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


			Percentage of Ownership Interests
			December 31
Name of Investor	Name of Investee	Main Businesses and Products	2020		2019		Note

Chunghwa Telecom Co., Ltd.	Senao International Co., Ltd. (“SENAO”)	Handset and peripherals retailer, sales of CHT mobile phone plans as an agent		28		28		a	)
	Light Era Development Co., Ltd. (“LED”)	Planning and development of real estate and intelligent buildings, and property management		100		100
	Donghwa Telecom Co., Ltd. (“DHT”)	International private leased circuit, IP VPN service, and IP transit services		100		100
	Chunghwa Telecom Singapore Pte., Ltd. (“CHTS”)	International private leased circuit, IP VPN service, and IP transit services		100		100
	Chunghwa System Integration Co., Ltd. (“CHSI”)	Providing system integration services and telecommunications equipment		100		100
	Chunghwa Investment Co., Ltd. (“CHI”)	Investment		89		89
	CHIEF Telecom Inc. (“CHIEF”)	Network integration, internet data center (“IDC”), communications integration and cloud application services		56		57		b	)
	CHYP Multimedia Marketing & Communications Co., Ltd. (“CHYP”)	Digital information supply services and advertisement services		100		100
	Prime Asia Investments Group Ltd. (B.V.I.) (“Prime Asia”)	Investment		100		100
	Spring House Entertainment Tech. Inc. (“SHE”)	Software design services, internet contents production and play, and motion picture production and distribution		56		56		c	)
	Chunghwa Telecom Global, Inc. (“CHTG”)	International private leased circuit, internet services, and transit services		100		100
	Chunghwa Telecom Vietnam Co., Ltd. (“CHTV”)	Intelligent energy saving solutions, international circuit, and information and communication technology (“ICT”) services		100		100
	Smartfun Digital Co., Ltd. (“SFD”)	Providing diversified family education digital services		65		65
	Chunghwa Telecom Japan Co., Ltd. (“CHTJ”)	International private leased circuit, IP VPN service, and IP transit services		100		100
	Chunghwa Sochamp Technology Inc. (“CHST”)	Design, development and production of Automatic License Plate Recognition software and hardware		51		51
	Honghwa International Co., Ltd. (“HHI”)	Telecommunications engineering, sales agent of mobile phone plan application and other business services, etc.		100		100
	Chunghwa Leading Photonics Tech Co., Ltd. (“CLPT”)	Production and sale of electronic components and finished products		75		75
	Chunghwa Telecom (Thailand) Co., Ltd. (“CHTT”)	International private leased circuit, IP VPN service, ICT and cloud VAS services		100		100		d	)

(Continued)

- 16 -


			Percentage of Ownership Interests
			December 31
Name of Investor	Name of Investee	Main Businesses and Products	2020		2019		Note

	CHT Security Co., Ltd. (“CHTSC”)	Computing equipment installation, wholesale of computing and business machinery equipment and software, management consulting services, data processing services, digital information supply services and internet identify services		80		80
	International Integrated Systems, Inc. (“IISI”)	IT solution provider, IT application consultation, system integration and package solution		51		—		e	)
Senao International Co., Ltd.	Senao International (Samoa) Holding Ltd. (“SIS”)	International investment		100		100		f	)
	Youth Co., Ltd. (“Youth”)	Sale of information and communication technologies products		96		93		g	)
	Aval Technologies Co., Ltd. (“Aval”)	Sale of information and communication technologies products		100		100
	Senyoung Insurance Agent Co., Ltd. (“SENYOUNG”)	Property and liability insurance agency		100		100
Youth Co., Ltd.	ISPOT Co., Ltd. (“ISPOT”)	Sale of information and communication technologies products		100		100
	Youyi Co., Ltd. (“Youyi”)	Maintenance of information and communication technologies products		100		100
Aval Technologies Co., Ltd.	Wiin Technology Co., Ltd. (“Wiin”)	Sale of information and communication technologies products		100		100		h	)
Senyoung Insurance Agent Co., Ltd.	Senaolife Insurance Agent Co., Ltd. (“Senaolife”)	Life insurance services		100		100		i	)
Light Era Development Co., Ltd.	Taoyuan Asia Silicon Valley Innovation Co., Ltd. (“TASVI”)	Development of real estate		—		—		j	)
CHIEF Telecom Inc.	Unigate Telecom Inc. (“Unigate”)	Telecommunications and internet service		100		100
	Chief International Corp. (“CIC”)	Telecommunications and internet service		100		100
	Shanghai Chief Telecom Co., Ltd. (“SCT”)	Telecommunications and internet service		49		49		k	)
Chunghwa Investment Co., Ltd.	Chunghwa Precision Test Tech. Co., Ltd. (“CHPT”)	Production and sale of semiconductor testing components and printed circuit board		34		34		l	)
Chunghwa Precision Test Tech. Co., Ltd.	Chunghwa Precision Test Tech. USA Corporation (“CHPT (US)”)	Design and after-sale services of semiconductor testing components and printed circuit board		100		100
	CHPT Japan Co., Ltd. (“CHPT (JP)”)	Related services of electronic parts, machinery processed products and printed circuit board		100		100
	Chunghwa Precision Test Tech. International, Ltd. (“CHPT (International)”)	Wholesale and retail of electronic materials, and investment		100		100
Senao International (Samoa) Holding Ltd.	Senao International HK Limited (“SIHK”)	International investment		100		100		m	)
Senao International HK Limited	Senao Trading (Fujian) Co., Ltd. (“STF”)	Sale of information and communication technologies products		—		—		n	)
	Senao International Trading (Shanghai) Co., Ltd. (“SITS”)	Sale of information and communication technologies products		100		100		o	)
	Senao International Trading (Jiangsu) Co., Ltd. (“SITJ”)	Sale of information and communication technologies products		—		—		p	)

(Continued)

- 17 -


			Percentage of Ownership Interests
			December 31
Name of Investor	Name of Investee	Main Businesses and Products	2020		2019		Note

Prime Asia Investments Group Ltd. (B.V.I.)	Chunghwa Hsingta Co., Ltd. (“CHC”)	Investment		100		100
Chunghwa Hsingta Co., Ltd.	Chunghwa Telecom (China) Co., Ltd. (“CTC”)	Integrated information and communication solution services for enterprise clients, and intelligent energy network service		100		100		q	)
Chunghwa Precision Test Tech. International, Ltd.	Shanghai Taihua Electronic Technology Limited (“STET”)	Design of printed circuit board and related consultation service		100		100
	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 Integrated Systems, Inc.	Infoexplorer International Co., Ltd.(“IESA”)	Investment		100		—		s	)
	IISI Investment Co., Ltd. (“IICL”)	Investment		100		—		s	)
	Unitronics Technology Corp. (“UTC”)	Development and maintenance of information system		99.96		—		s	)
Infoexplorer International Co., Ltd.	International Integrated Systems (Hong Kong) Limited (“IEHK”)	Investment and technical consulting service		100		—		s	)
IISI Investment Co., Ltd.	Leading Tech Co., Ltd. (“LTCL”)	Investment		100		—		s	)
Leading Tech Co., Ltd.	Leading Systems Co., Ltd. (“LSCL”)	Investment		100		—		s	)
Leading Systems Co., Ltd.	International Integrated Systems Inc. (Shanghai) (“IISS”)	Development and maintenance of information system		100		—		s	)
International Integrated Systems Inc. (Shanghai)	Huiyu Shanghai Management 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.

- 18 -

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. The Company’s ownership interest in SIS remained the same.

g)	SENAO subscribed for all the shares in the capital increase of Youth in April 2020. Therefore, the Company’s ownership interest in Youth increased from 92.89% to 95.79%.

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.

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. The Company’s ownership interest in SIHK remained the same.

n)	STF completed its liquidation in May 2019.

o)	SITS was approved to end and dissolve its business in December 2020. The liquidation of SITS is still in process.

p)	SITJ completed its liquidation in March 2019.

q)	CTC was approved to end and dissolve its business in August 2020. The liquidation of CTC is still in process.

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.

- 19 -

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

LOGO

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.

- 20 -

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.

- 21 -

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.

- 22 -

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.

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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.

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Financial assets

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

Measurement category

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.

Financial assets at amortized cost

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

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.

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.

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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.

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.

Financial liabilities

Subsequent measurement

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

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.

Derivative financial instruments

The Company enters into derivative financial instruments to manage its exposure to foreign exchange rate risks, including forward exchange contracts.

Derivatives are initially measured at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability.

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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.

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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.

The Company as lessor

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

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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.

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Employee Benefits

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.

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.

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.

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.

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

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.

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.

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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.

Critical accounting judgments

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.

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.

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.

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.

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.

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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.

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.

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.

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.

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.

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

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.

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Amendments to IFRSs endorsed by the FSC for application starting from January 1, 2021


New, Revised or Amended Standards and Interpretations		Effective Date Issued by IASB
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16	Interest Rate Benchmark Reform-Phase 2	January 1, 2021

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

IFRSs issued by the IASB but not yet endorsed and issued into effect by the FSC


New, Revised or Amended Standards and Interpretations		Effective Date Announced by IASB (Note 1)
Amendments to IFRSs	Annual Improvements to IFRS Standards 2018-2020	January 1, 2022 (Note 2)
Amendments to IFRS 3	Reference to the Conceptual Framework	January 1, 2022 (Note 3)
Amendments to IFRS 10 and IAS 28	Sale or Contribution of Assets between An Investor and Its Associate or Joint Venture	To be determined by IASB
Amendments to IAS 1	Classification of liabilities as current or noncurrent	January 1, 2023
Amendments to IAS 16	Property, Plant and Equipment - Proceeds before Intended Use	January 1, 2022 (Note 4)
Amendments to IAS 37	Onerous Contracts - Cost of Fulfilling a Contract	January 1, 2022 (Note 5)

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.

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6. CASH AND CASH EQUIVALENTS


	December 31
	2020		2019
Cash
Cash on hand	$	486,989	$	353,499
Bank deposits		10,961,220		9,432,814

	11,448,209		9,786,313

Cash equivalents (investments with maturities of less than three months)
Commercial paper		14,060,568		20,109,823
Negotiable certificates of deposit		2,600,000		1,700,000
Time deposits		2,307,892		2,450,509
Repurchase agreements collateralized by bonds		—		2,998
Triple stimulus vouchers		2,986		—

		18,971,446		24,263,330

	$	30,419,655	$	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


	December 31
	2020		2019
Financial assets-current
Mandatorily measured at FVTPL
Derivatives (not designated for hedge)
Forward exchange contracts	$	2,271	$	53
Non-derivatives
Listed stocks - domestic		7,626		463

	$	9,897	$	516

Financial assets-noncurrent
Mandatorily measured at FVTPL
Non-derivatives
Non-listed stocks - domestic	$	441,095	$	510,801
Non-listed stocks - foreign		236,107		267,304

	$	677,202	$	778,105

(Continued)

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	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:

Currency

Maturity Period

Contract Amount

(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		4,324,592		4,680,931
Foreign investments
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.

- 36 -

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.

- 37 -

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 Due			Past Due Less than 30 Days			Pass Due 31 to 60 Days			Pass Due 61 to 90 Days			Pass Due 91 to 120 Days			Pass Due 121 to 180 Days			Pass Due over 180 Days			Total
Telecommunications business
Expected credit loss rate (Note a)		0%-2%			2%-24%			3%-68%			11%-83%			28%-90%			52%-96%			100%
Gross carrying amount	$	15,839,132		$	203,949		$	50,897		$	31,263		$	29,872		$	25,351		$	625,591		$	16,806,055
Loss allowance (lifetime 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	$	3,472,738		$	64,372		$	26,810		$	8,963		$	2,163		$	2,691		$	1,287,567		$	4,865,304
Loss allowance (lifetime 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 Due			Past Due Less than 30 Days			Pass Due 31 to 60 Days			Pass Due 61 to 90 Days			Pass Due 91 to 120 Days			Pass Due 121 to 180 Days			Pass Due over 180 Days			Total
Telecommunications business
Expected credit loss rate (Note a)		0%- 2%			0%-25%			0%-68%			0%-83%			11%-90%			17%-96%			100%
Gross carrying amount	$	19,020,326		$	267,902		$	74,775		$	46,782		$	40,771		$	28,021		$	600,985		$	20,079,562
Loss allowance (lifetime ECL)		(55,903	)		(25,517	)		(27,630	)		(34,624	)		(26,281	)		(27,366	)		(600,985	)		(798,306	)

Amortized cost	$	18,964,423		$	242,385		$	47,145		$	12,158		$	14,490		$	655		$	—		$	19,281,256

Project business
Expected credit loss rate (Note b)		0%-5%			5%			10%			30%			50%			80%			100%
Gross carrying amount	$	4,053,681		$	78,147		$	52,227		$	29,527		$	12,688		$	1,040		$	1,471,840		$	5,699,150
Loss allowance (lifetime ECL)		(2,637	)		(4,892	)		(5,223	)		(10,577	)		(6,344	)		(832	)		(1,471,840	)		(1,502,345	)

Amortized cost	$	4,051,044		$	73,255		$	47,004		$	18,950		$	6,344		$	208		$	—		$	4,196,805

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.

- 38 -

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


	Year Ended December 31
	2020			2019
Beginning balance	$	2,359,756		$	2,602,055
Add: Provision for (reversal of) credit loss		48,708			(53,952	)
Add: Acquired by business combinations (Note 13)		1,639			—
Less: Amounts written off		(255,739	)		(188,347	)

Ending balance	$	2,154,364		$	2,359,756

10.

INVENTORIES


	December 31
	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

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	$	2,863,510	$	3,382,560
Others		1,656,257		1,180,034

	$	4,519,767	$	4,562,594

Current
Prepaid rents	$	651,510	$	704,607
Others		1,654,736		1,178,652

	$	2,306,246	$	1,883,259

(Continued)

- 39 -


	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

Information on subsidiaries with material noncontrolling interests


		Proportion of Ownership Interests and Voting Rights Held by Noncontrolling Interests
	Principal Place	December 31
Subsidiaries	of Business	2020			2019

SENAO	Taiwan		72	%		72	%
CHPT	Taiwan		66	%		66	%

- 40 -


	Profit Allocated to Noncontrolling Interests				Accumulated Noncontrolling Interests
	Year Ended December 31				December 31
	2020		2019		2020		2019

SENAO	$	312,130	$	292,776	$	4,311,048	$	4,267,547

CHPT	$	613,907	$	411,049		4,635,240		4,236,872
Individually immaterial subsidiaries with 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.


	December 31
	2020			2019

Current assets	$	6,834,221		$	6,751,385
Noncurrent assets		3,340,983			3,321,252
Current liabilities		(3,832,372	)		(3,617,165	)
Noncurrent liabilities		(415,712	)		(589,882	)


Equity	$	5,927,120		$	5,865,590


Equity attributable to the parent	$	1,616,072		$	1,598,043
Equity attributable to noncontrolling interests		4,311,048			4,267,547


	$	5,927,120		$	5,865,590


	Year Ended December 31
	2020		2019

Revenues and income	$	27,231,145	$	29,130,695
Costs and expenses		26,795,397		28,722,830


Profit for the year	$	435,748	$	407,865


Profit attributable to the parent	$	123,618	$	115,089
Profit attributable to noncontrolling interests		312,130		292,776


Profit for the year	$	435,748	$	407,865


Other comprehensive income (loss) attributable to the parent	$	715	$	(7,164	)
Other comprehensive income attributable to noncontrolling interests		1,863		22,358


	$	2,578	$	15,194

(Continued)

- 41 -


	Year Ended December 31
	2020			2019

Total comprehensive income attributable to the parent	$	124,333		$	107,925
Total comprehensive income attributable to noncontrolling interests		313,993			315,134


	$	438,326		$	423,059


Net cash flow from operating activities	$	862,323		$	537,209
Net cash flow from investing activities		54,387			235,925
Net cash flow from financing activities		(687,555	)		(717,602	)
Effect of exchange rate changes on cash and cash equivalents		(426	)		(193	)


Net cash inflow	$	228,729		$	55,339


Dividends paid to noncontrolling interests	$	268,944		$	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	$	4,122,134		$	3,709,630
Noncurrent assets		4,012,654			4,043,881
Current liabilities		(1,072,538	)		(1,287,597	)
Noncurrent liabilities		(12,456	)		(22,003	)


Equity	$	7,049,794		$	6,443,911


Equity attributable to CHI	$	2,414,554		$	2,207,039
Equity attributable to noncontrolling interests		4,635,240			4,236,872


	$	7,049,794		$	6,443,911


	Year Ended December 31
	2020		2019

Revenues and income	$	4,220,724	$	3,404,570
Costs and expenses		3,287,031		2,779,406


Profit for the year	$	933,693	$	625,164


Profit attributable to CHI	$	319,786	$	214,115
Profit attributable to noncontrolling interests		613,907		411,049


Profit for the year	$	933,693	$	625,164

(Continued)

- 42 -


	Year Ended December 31
	2020			2019

Other comprehensive income (loss) attributable to CHI	$	27		$	(1,106	)
Other comprehensive income (loss) attributable to noncontrolling interests		53			(2,124	)


	$	80		$	(3,230	)


Total comprehensive income attributable to CHI	$	319,813		$	213,009
Total comprehensive income attributable to noncontrolling interests		613,960			408,925


	$	933,773		$	621,934


Net cash flow from operating activities	$	1,482,834		$	507,144
Net cash flow from investing activities		(532,820	)		(1,425,660	)
Net cash flow from financing activities		(349,136	)		(349,452	)
Effect of exchange rate changes on cash and cash equivalents		1,306			(4,815	)


Net cash inflow (outflow)	$	602,184		$	(1,272,783	)


Dividends paid to noncontrolling interests	$	215,591		$	215,591

(Concluded)

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
	CHIEF Share-Based Payment		SENAO Not Proportionately Participating in the Capital Increase of Youth		IISI Share-Based Payment

Cash consideration received from noncontrolling interests	$	74,540	$	—	$	6,755

(Continued)

- 43 -


	Year Ended December 31, 2020
	CHIEF Share-Based Payment			SENAO Not Proportionately Participating in the Capital Increase of Youth			IISI Share-Based 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	$	18,825
The proportionate share of the carrying amount of the net assets of the subsidiary transferred to noncontrolling 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	)

BUSINESS COMBINATIONS

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.

- 44 -

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.

Assets acquired and liabilities assumed at acquisition date


	IISI and Its Subsidiaries

Current assets
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

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.

Goodwill arising from acquisition

(Continued)

- 45 -


		IISI and Its Subsidiaries
Add:	Noncontrolling interest (48.46% of the identifiable net assets of IISI and its subsidiaries)	$	475,879
Less:	Fair value of identifiable net assets acquired		(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.

Net cash inflow on acquisition of subsidiaries


		IISI and Its Subsidiaries

Cash and cash equivalents acquired		$	587,979
Less:	Consideration paid in cash		(233,923	)


		$	354,056

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	$	1,348,167

Profit	$	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.

- 46 -

14.

INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD


	December 31
	2020		2019

Investments in associates	$	6,882,801	$	7,354,226
Investment in joint venture		10,200		—


	$	6,893,001	$	7,354,226

Investments in associates

Investments in associates were as follows:


	Carrying Amount
	December 31
	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

- 47 -

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
	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

Note:

NCB was a preparatory office on December 31, 2019.

Summarized financial information of NCB was set out below:


	December 31, 2020			December 31, 2019

Assets	$	9,906,945		$	10,451,925
Liabilities		(788,813	)		(728,374	)


Equity	$	9,118,132		$	9,723,551


The percentage of ownership interest 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

- 48 -


	Year Ended December 31, 2020			Period from the Beginning of Preparation to December 31, 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).

- 49 -

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.

Investment in joint venture

Investment in joint venture was as follows:

Carrying Amount

% of Ownership Interests and
Voting Rights

December 31

Name of Joint Venture

2020

2019

2020

2019

Non-listed

Chunghwa SEA Holdings (“CHT SEA”)

10,200

—

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		December 31, 2019

Assets used by the Company	$	273,822,588	$	276,370,003
Assets subject to operating leases		7,593,355		7,324,212


	$	281,415,943	$	283,694,215

- 50 -

Assets used by the Company


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

Cost

Balance on January 1, 2019	$	100,354,425		$	1,599,634		$	69,328,236		$	14,258,485		$	711,863,697		$	3,882,534		$	9,873,589		$	18,644,766		$	929,805,366
Additions		—			—			1,220,691			56,699			120,559			1,122			148,949			21,611,786			23,159,806
Disposal		(37,951	)		(6,630	)		(3,101	)		(1,915,939	)		(30,417,855	)		(50,653	)		(404,834	)		—			(32,836,963	)
Effect of foreign exchange differences		—			—			—			(74	)		(36,727	)		(18	)		(1,272	)		(5,816	)		(43,907	)
Others		(1,214,223	)		25,477			454,957			605,656			24,502,774			79,313			473,738			(26,498,539	)		(1,570,847	)


Balance on December 31, 2019	$	99,102,251		$	1,618,481		$	71,000,783		$	13,004,827		$	706,032,448		$	3,912,298		$	10,090,170		$	13,752,197		$	918,513,455


Accumulated depreciation and impairment

Balance on January 1, 2019	$	—		$	(1,337,192	)	$	(26,861,627	)	$	(12,143,307	)	$	(596,850,343	)	$	(3,651,139	)	$	(7,291,742	)	$	—		$	(648,135,350	)
Depreciation expenses		—			(43,481	)		(1,301,085	)		(826,745	)		(23,905,621	)		(90,939	)		(688,274	)		—			(26,856,145	)
Disposal		—			6,630			3,101			1,908,324			30,380,684			50,627			401,655			—			32,751,021
Impairment losses		—			—			—			—			—			—			(63,715	)		(29,358	)		(93,073	)
Effect of foreign exchange differences		—			—			—			73			15,682			28			962			—			16,745
Others		—			(559	)		182,879			(6,590	)		21,707			(2,902	)		(21,185	)		—			173,350


Balance on December 31, 2019	$	—		$	(1,374,602	)	$	(27,976,732	)	$	(11,068,245	)	$	(590,337,891	)	$	(3,694,325	)	$	(7,662,299	)	$	(29,358	)	$	(642,143,452	)


Balance on January 1, 2019, net	$	100,354,425		$	262,442		$	42,466,609		$	2,115,178		$	115,013,354		$	231,395		$	2,581,847		$	18,644,766		$	281,670,016


Balance on December 31, 2019, net	$	99,102,251		$	243,879		$	43,024,051		$	1,936,582		$	115,694,557		$	217,973		$	2,427,871		$	13,722,839		$	276,370,003


Cost

Balance on January 1, 2020	$	99,102,251		$	1,618,481		$	71,000,783		$	13,004,827		$	706,032,448		$	3,912,298		$	10,090,170		$	13,752,197		$	918,513,455
Additions		66,712			—			18,113			54,402			117,441			1,309			150,385			24,786,365			25,194,727
Disposal		(270,268	)		(19,306	)		(48,748	)		(1,243,844	)		(20,618,652	)		(45,287	)		(520,411	)		(29,358	)		(22,795,874	)
Effect of foreign exchange differences		—			—			—			(93	)		(90,619	)		(88	)		267			(7,330	)		(97,863	)
Acquired by business combinations (Note 13)		—			—			—			69,814			—			—			72,400			—			142,214
Others		3,091,950			31,187			(80,570	)		520,474			25,335,091			26,011			507,008			(29,972,458	)		(541,307	)


Balance on December 31, 2020	$	101,990,645		$	1,630,362		$	70,889,578		$	12,405,580		$	710,775,709		$	3,894,243		$	10,299,819		$	8,529,416		$	920,415,352


Accumulated depreciation and impairment

Balance on January 1, 2020	$	—		$	(1,374,602	)	$	(27,976,732	)	$	(11,068,245	)	$	(590,337,891	)	$	(3,694,325	)	$	(7,662,299	)	$	(29,358	)	$	(642,143,452	)
Depreciation expenses		—			(43,828	)		(1,366,374	)		(769,321	)		(23,992,691	)		(68,138	)		(665,674	)		—			(26,906,026	)
Disposal		—			19,213			48,748			1,242,510			20,599,703			44,972			504,180			29,358			22,488,684
Effect of foreign exchange differences		—			—			—			92			40,361			37			222			—			40,712
Acquired by business combinations (Note 13)		—			—			—			(40,282	)		—			—			(53,970	)		—			(94,252	)
Others		—			13			47,027			(3,721	)		27,586			(938	)		(48,397	)		—			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	)	$	—		$	(646,592,764	)


Balance on January 1, 2020, net	$	99,102,251		$	243,879		$	43,024,051		$	1,936,582		$	115,694,557		$	217,973		$	2,427,871		$	13,722,839		$	276,370,003


Balance on December 31, 2020, net	$	101,990,645		$	231,158		$	41,642,247		$	1,766,613		$	117,112,777		$	175,851		$	2,373,881		$	8,529,416		$	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.

- 51 -

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 statement 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			10-30 years
Buildings
Main buildings			20-60 years
Other building facilities			3-15 years
Computer equipment			2-8 years
Telecommunications equipment
Telecommunication circuits			2-30 years
Telecommunication machinery and antennas equipment			2-30 years
Transportation equipment			3-10 years
Miscellaneous equipment
Leasehold improvements			1-9 years
Mechanical and air conditioner equipment			3-16 years
Others			1-15 years

Assets subject to operating leases


	Land		Land Improvements			Buildings		Total

Cost

Balance on January 1, 2019	$	3,617,627	$	689		$	3,582,774	$	7,201,090
Additions		—		—			4,478		4,478
Others		1,362,023		(689	)		254,308		1,615,642


Balance on December 31, 2019	$	4,979,650	$	—		$	3,841,560	$	8,821,210

									(Continued	)

- 52 -


	Land			Land Improvements			Buildings			Total

Accumulated depreciation and impairment

Balance on January 1, 2019	$	—		$	(512	)	$	(1,265,356	)	$	(1,265,868	)
Depreciation expenses		—			(47	)		(73,996	)		(74,043	)
Others		—			559			(157,646	)		(157,087	)


Balance on December 31, 2019	$	—		$	—		$	(1,496,998	)	$	(1,496,998	)


Balance on January 1, 2019, net	$	3,617,627		$	177		$	2,317,418		$	5,935,222

Balance on December 31, 2019, net	$	4,979,650		$	—		$	2,344,562		$	7,324,212


Cost

Balance on January 1, 2020	$	4,979,650		$	—		$	3,841,560		$	8,821,210
Others		(6,730	)		—			394,596			387,866


Balance on December 31, 2020	$	4,972,920		$	—		$	4,236,156		$	9,209,076


Accumulated depreciation and impairment

Balance on January 1, 2020	$	—		$	—		$	(1,496,998	)	$	(1,496,998	)
Depreciation expenses		—			—			(82,474	)		(82,474	)
Others		—			—			(36,249	)		(36,249	)


Balance on December 31, 2020	$	—		$	—		$	(1,615,721	)	$	(1,615,721	)


Balance on January 1, 2020, net	$	4,979,650		$	—		$	2,344,562		$	7,324,212

Balance on December 31, 2020, net	$	4,972,920		$	—		$	2,620,435		$	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		December 31, 2019

Year 1	$	347,229	$	301,674
Year 2		288,184		272,899
Year 3		230,984		233,434

(Continued)

- 53 -


	December 31, 2020		December 31, 2019

Year 4	$	164,141	$	191,128
Year 5		124,845		130,066
Onwards		1,179,493		1,224,416


	$	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

Right-of-use assets


	December 31
	2020		2019

Land and buildings
Handsets base stations	$	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	$	3,796,370	$	3,803,042


Depreciation charge for right-of-use assets
Land and buildings
Handsets base stations	$	2,729,441	$	2,727,871
Others		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.

- 54 -

Lease liabilities


	December 31
	2020		2019

Lease liabilities
Current	$	3,381,571	$	3,291,330
Noncurrent		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	%

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.

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.

- 55 -

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.

- 56 -

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		December 31, 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		37,588		39,386
Onwards		57,773		96,010


	$	433,718	$	470,633

18.

INTANGIBLE ASSETS


	Mobile Broadband Concession			Computer Software			Goodwill		Others			Total

Cost

Balance on January 1, 2019	$	70,144,000		$	3,425,969		$	236,200	$	373,203		$	74,179,372
Additions-acquired separately		—			357,605			—		5,113			362,718
Disposal		(10,179,000	)		(356,750	)		—		(157	)		(10,535,907	)
Effect of foreign exchange differences		—			(117	)		—		(96	)		(213	)
Others		—			1,902			—		—			1,902


Balance on December 31, 2019	$	59,965,000		$	3,428,609		$	236,200	$	378,063		$	64,007,872

(Continued)

- 57 -


	Mobile Broadband Concession			Computer Software			Goodwill			Others			Total

Accumulated amortization and impairment

Balance on January 1, 2019	$	(20,632,474	)	$	(2,467,170	)	$	(26,677	)	$	(109,369	)	$	(23,235,690	)
Amortization expenses		(3,839,572	)		(388,501	)		—			(24,529	)		(4,252,602	)
Disposal		10,179,000			356,750			—			11			10,535,761
Impairment losses		—			—			(8,946	)		—			(8,946	)
Effect of foreign exchange differences		—			96			—			34			130


Balance on December 31, 2019	$	(14,293,046	)	$	(2,498,825	)	$	(35,623	)	$	(133,853	)	$	(16,961,347	)


Balance on January 1, 2019, net	$	49,511,526		$	958,799		$	209,523		$	263,834		$	50,943,682

Balance on December 31, 2019, net	$	45,671,954		$	929,784		$	200,577		$	244,210		$	47,046,525


Cost

Balance on January 1, 2020	$	59,965,000		$	3,428,609		$	236,200		$	378,063		$	64,007,872
Additions-acquired separately		48,373,000			225,829			—			6,358			48,605,187
Disposal		—			(337,954	)		—			(3,053	)		(341,007	)
Effect of foreign exchange differences		—			(106	)		—			(40	)		(146	)
Acquired by business combinations (Note 13)		—			1,259			55,006			11,043			67,308
Others		—			1,586			—			(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	$	(14,293,046	)	$	(2,498,825	)	$	(35,623	)	$	(133,853	)	$	(16,961,347	)
Amortization expenses		(5,025,796	)		(371,694	)		—			(26,877	)		(5,424,367	)
Disposal		—			337,948			—			1,201			339,149
Impairment losses		—			—			(9,303	)		—			(9,303	)
Effect of foreign exchange differences		—			102			—			12			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	$	45,671,954		$	929,784		$	200,577		$	244,210		$	47,046,525

Balance on December 31, 2020, net	$	89,019,158		$	786,313		$	246,280		$	232,809		$	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.

- 58 -

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	$	2,156,136	$	2,336,082
Refundable deposits		2,009,796		1,879,109
Other financial assets		1,000,000		1,000,000
Deposit for mobile broadband license bidding (Note 18)		—		1,000,000
Others		2,450,006		2,316,177


	$	7,615,938	$	8,531,368


Current
Spare parts	$	2,156,136	$	2,336,082
Others		192,961		93,582


	$	2,349,097	$	2,429,664


Noncurrent
Refundable deposits	$	2,009,796	$	1,879,109
Other financial assets		1,000,000		1,000,000
Deposit for mobile broadband license bidding		—		1,000,000
Others		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.

- 59 -

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

Notional
Amount

Forward

Line Item in

Carrying Amount

Change in Fair

Values of

Hedging

Instruments Used

for Calculating

Hedge

Hedging Instruments

Currency

(In Thousands)

Maturity

Rate

Balance Sheet

Asset

Liability

Ineffectiveness

Cash flow hedge

Forecast purchases - forward exchange contracts

NT$/EUR

NT$ 200,867/

EUR 5,831

2021.03

34.45

Hedging financial

assets (liabilities)

1,752

—

1,425


	Change in Value of Hedged Item Used for			Accumulated Gain or Loss on Hedging Instruments in Other Equity
Hedged Items	Calculating Hedge Ineffectiveness			Continuing Hedges		Hedge Accounting No Longer Applied
Cash flow hedge
Forecast equipment purchases	$	(1,425	)	$	1,752	$	—

December 31, 2019

Notional
Amount

Forward

Line Item in

Carrying Amount

Change in Fair

Values of

Hedging

Instruments Used

for Calculating

Hedge

Hedging Instruments

Currency

(In Thousands)

Maturity

Rate

Balance Sheet

Asset

Liability

Ineffectiveness

Cash flow hedge

Forecast purchases - forward exchange contracts

NT$/EUR

NT$ 84,066/

EUR 2,498

2020.03

33.66

Hedging financial

assets (liabilities)

327

—

(742

)

- 60 -


Hedged Items	Change in Value of Hedged Item Used for Calculating Hedge Ineffectiveness		Accumulated Gain or Loss on Hedging Instruments in Other Equity
Hedged Items			Continuing Hedges		Hedge Accounting no Longer Applied

Cash flow hedge
Forecast equipment purchases	$	742	$	327	$	—

Year ended December 31, 2020

Comprehensive Income

Reclassification from Equity
to Profit or Loss and the
Adjusted Line Item

Hedge Transaction

Hedging

Gain or Loss
Recognized

in OCI

Amount of
Hedge
Ineffectiveness
Recognized in
Profit or Loss

Line Item in
Which Hedge
Ineffectiveness
is Included

Amount
Reclassified to
P/L and the
Adjusted Line
Item

Due to Hedged
Future Cash
Flows No
Longer
Expected to
Occur

Cash flow hedge

Forecast equipment purchases

1,425

—

20,564

Construction in
progress and
equipment to
be accepted

—

Other gains and
losses

Year ended December 31, 2019


	Comprehensive Income
								Reclassification from Equity to Profit or Loss and the Adjusted Line Item
Hedge Transaction	Hedging Gain or Loss Recognized in OCI			Amount of Hedge Ineffectiveness Recognized in Profit or Loss		Line Item in Which Hedge Ineffectiveness is Included		Amount Reclassified to P/L and the Adjusted Line Item			Due to Hedged Future Cash Flows No Longer Expected to Occur

Cash flow hedge
Forecast equipment purchases	$	(742	)	$	—		—	$	(2,026 Construction in progress and equipment to be accepted	)	$	— Other gains and losses

- 61 -

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)	$	1,600,000		$	1,600,000
Less: Current portion		(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.

- 62 -

24.

BONDS PAYABLE


	December 31
	2020			2019

Unsecured domestic bonds	$	20,000,000		$	—
Less: Discounts on bonds payable		(19,728	)		—


	$	19,980,272		$	—

The major terms of unsecured domestic bonds issued by Chunghwa were as follows:


Issuance	Tranche	Issuance Period	Total Amount		Coupon Rate			Repayment and Interest Payment

2020-1	A	July 2020 to July 2025	$	8,800,000		0.50	%	One-time repayment upon maturity; interest payable annually
	B	July 2020 to July 2027		7,500,000		0.54	%	The same as above
	C	July 2020 to July 2030		3,700,000		0.59	%	The same as above

25.

TRADE NOTES AND ACCOUNTS PAYABLE


	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	$	9,449,659	$	9,482,606
Payables to contractors		1,778,735		1,892,188
Accrued compensation to employees and remuneration to directors and supervisors		1,690,796		1,440,573
Amounts collected for others		1,307,728		1,278,796
Payable on land (Note 15)		1,056,680		—
Payables to equipment suppliers		1,049,008		295,816
Accrued maintenance costs		1,039,689		954,761
Accrued franchise fees		785,352		1,091,148
Others		5,830,315		6,516,600


	$	23,987,962	$	22,952,488

- 63 -

27.

PROVISIONS


	December 31
	2020		2019

Warranties	$	182,431	$	173,275
Onerous contracts		170,433		66,907
Employee benefits		57,210		59,745
Others		4,097		4,397


	$	414,171	$	304,324


Current	$	313,555	$	206,942
Noncurrent		100,616		97,382


	$	414,171	$	304,324


	Warranties			Onerous Contracts			Employee Benefits			Others			Total

Balance on January 1, 2019	$	131,664		$	19,323		$	51,393		$	4,447		$	206,827
Additional provisions recognized		127,517			47,584			9,194			—			184,295
Used / forfeited during the year		(85,906	)		—			(842	)		(50	)		(86,798	)


Balance on December 31, 2019	$	173,275		$	66,907		$	59,745		$	4,397		$	304,324


Balance on January 1, 2020	$	173,275		$	66,907		$	59,745		$	4,397		$	304,324
Additional / (reversal of) provisions recognized		130,984			91,990			(1,841	)		(200	)		220,933
Used / forfeited during the year		(121,828	)		(3,722	)		(694	)		(100	)		(126,344	)
Acquired by business combinations (Note 13)		—			15,258			—			—			15,258


Balance on December 31, 2020	$	182,431		$	170,433		$	57,210		$	4,097		$	414,171

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.

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

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

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.

- 64 -

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 Benefit Obligations		Fair Value of Plan Assets		Net Defined Benefit Liabilities (Assets)

Balance on January 1, 2019	$	41,396,992	$	39,027,144	$	2,369,848
Current service cost		2,927,021		—		2,927,021
Interest expense / interest income		400,314		390,272		10,042

Amounts recognized in profit or loss		3,327,335		390,272		2,937,063

(Continued)

- 65 -


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

Remeasurement on the net defined benefit liability
Return on plan assets (excluding amounts included in net interest)	$	—		$	1,337,771		$	(1,337,771	)
Actuarial losses recognized from changes in demographic assumptions		5,746			—			5,746
Actuarial losses recognized from changes in financial assumptions		647,236			—			647,236
Actuarial gains recognized from experience adjustments		(841,564	)		—			(841,564	)

Amounts recognized in other comprehensive income		(188,582	)		1,337,771			(1,526,353	)

Contributions from employer		—			2,098,912			(2,098,912	)
Benefits paid		(3,034,155	)		(3,034,155	)		—
Benefits paid directly by the Company		(304,364	)		—			(304,364	)

Balance on December 31, 2019		41,197,226			39,819,944			1,377,282
Current service cost		2,052,402			—			2,052,402
Interest expense / interest income		298,162			297,324			838

Amounts recognized in profit or loss		2,350,564			297,324			2,053,240

Remeasurement on the net defined benefit liability
Return on plan assets (excluding amounts included in net interest)		—			1,307,772			(1,307,772	)
Actuarial losses recognized from changes in financial assumptions		589,818			—			589,818
Actuarial gains recognized from experience adjustments		(475,195	)		—			(475,195	)

Amounts recognized in other comprehensive income		114,623			1,307,772			(1,193,149	)

Contributions from employer		—			1,964,480			(1,964,480	)
Benefits paid		(3,919,555	)		(3,919,555	)		—
Benefits paid directly by the Company		(262,730	)		—			(262,730	)
Acquired by business combinations (Note 13)		56,435			23,822			32,613


Balance on December 31, 2020	$	39,536,563		$	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

- 66 -

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

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.

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.

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	$	1,284,034		$	1,356,153

Expected rates of salary increase
0.5% increase	$	1,372,403		$	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.

- 67 -


	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

Share capital

Common stocks


	December 31
	2020		2019

Number of authorized shares (thousand)		12,000,000		12,000,000

Authorized shares	$	120,000,000	$	120,000,000

Number of issued and paid shares (thousand)		7,757,447		7,757,447

Issued shares	$	77,574,465	$	77,574,465

Each issued common stock with par value of $10 is entitled the right to vote and receive dividends.

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:

Exercise their voting rights,

Sell their ADSs, and

- 68 -

Receive dividends declared and subscribe to the issuance of new shares.

Additional paid-in capital

The adjustments of additional paid-in capital for the years ended December 31, 2020 and 2019 were as follows:


	Share Premium		Movements of Additional Paid-in Capital for Associates Accounted for Using Equity Method			Movements of Additional Paid-in Capital Arising from Changes in Equities of Subsidiaries			Difference between Consideration Received and Carrying Amount of the Subsidiaries’ Net Assets upon Disposal		Donated Capital		Stockholders’ Contribution due to Privatization		Total

Balance on January 1, 2019	$	147,329,386	$	89,893		$	2,063,148		$	987,611	$	18,648	$	20,648,078	$	171,136,764
Unclaimed dividend		—		—			—			—		1,266		—		1,266
Change in additional paid-in capital from investments in associates and joint ventures accounted for using equity method		—		118,853			—			—		—		—		118,853
Share-based payment transactions of subsidiaries		—		—			(898	)		—		—		—		(898	)

Balance on December 31, 2019		147,329,386		208,746			2,062,250			987,611		19,914		20,648,078		171,255,985
Unclaimed dividend		—		—			—			—		1,605		—		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		—		—			(103	)		—		—		—		(103	)
Share-based payment transactions of subsidiaries		—		—			25,810			—		—		—		25,810


Balance on December 31, 2020	$	147,329,386	$	186,828		$	2,087,957		$	987,611	$	21,519	$	20,648,078	$	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.

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.

- 69 -

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:


	Appropriation of Earnings				Dividends Per Share (NT$)
	For Fiscal Year 2019		For Fiscal Year 2018		For Fiscal Year 2019		For Fiscal Year 2018

Cash dividends	$	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 Earnings		Dividends 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.

Others

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.

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

- 70 -

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


	Year Ended December 31
	2020		2019

Revenue from contracts with customers	$	206,395,581	$	206,359,673

Other revenues
Rental income		842,941		817,553
Other		370,476		342,835

		1,213,417		1,160,388


	$	207,608,998	$	207,520,061

For the information of performance obligations related to customer contracts, please refer to Note 3 Summary of Significant Accounting Policies for details.

- 71 -

Disaggregation of revenue

2020


	Domestic Fixed Communications Business		Mobile Communications Business		Internet Business		International Fixed Communications Business		Others		Total

Main Products and Service Revenues

Mobile services revenue	$	—	$	56,724,433	$	—	$	—	$	—	$	56,724,433
Sales of products		2,214,161		32,111,502		106,672		313,214		4,645,167		39,390,716
Local telephone and domestic long distance telephone services revenue		26,474,747		—		—		—		—		26,474,747
Broadband access and domestic leased line services revenue		22,420,164		—		—		—		—		22,420,164
Data communications internet services revenue		—		—		21,446,960		—		—		21,446,960
International network and leased line services revenue		—		—		—		3,884,182		—		3,884,182
Others		17,694,619		1,307,382		10,254,599		4,484,648		2,313,131		36,054,379


	$	68,803,691	$	90,143,317	$	31,808,231	$	8,682,044	$	6,958,298	$	206,395,581

2019


	Domestic Fixed Communications Business		Mobile Communications Business		Internet Business		International Fixed Communications Business		Others		Total

Main Products and Service Revenues

Mobile services revenue	$	—	$	58,703,003	$	—	$	—	$	—	$	58,703,003
Sales of products		1,957,460		35,545,256		40,873		264,949		3,784,586		41,593,124
Local telephone and domestic long distance telephone services revenue		27,929,263		—		—		—		—		27,929,263
Broadband access and domestic leased line services revenue		22,115,908		—		—		—		—		22,115,908
Data communications internet services revenue		—		—		21,002,699		—		—		21,002,699
International network and leased line services revenue		—		—		—		7,066,361		—		7,066,361
Others		13,063,469		1,141,584		8,789,794		4,143,885		810,583		27,949,315


	$	65,066,100	$	95,389,843	$	29,833,366	$	11,475,195	$	4,595,169	$	206,359,673

Contract balances


	December 31, 2020			December 31, 2019			January 1, 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
Other		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 -


	December 31, 2020		December 31, 2019		January 1, 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
	2020			2019

Contract assets
Net increase of customer contracts	$	5,972,451		$	6,066,406
Reclassified to trade receivables		(5,681,532	)		(6,405,198	)


	$	290,919		$	(338,792	)


Contract liabilities
Net increase of customer contracts	$	7,370		$	21,844
Recognized as revenues		(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

- 73 -

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.

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

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	)

- 74 -

Other income


	Year Ended December 31
	2020		2019

Dividend income	$	246,084	$	296,360
Rental income		70,123		84,870
Others		153,401		150,394


	$	469,608	$	531,624

Other gains and losses


	Year Ended December 31
	2020			2019

Foreign currency exchange gain or loss, net	$	(46,535	)	$	15,823
Gain on disposal of investments accounted for using equity method		15,946			30,152
Gain (loss) on disposal of financial instruments		(1,788	)		3,944
Valuation loss on financial assets and liabilities at fair value through profit or loss, net		(99,150	)		(38,314	)
Others		(21,440	)		(48,076	)


	$	(152,967	)	$	(36,471	)

Interest expenses


	Year Ended December 31
	2020		2019

Interest paid to financial institutions	$	79,067	$	17,496
Interest on lease liabilities		79,654		84,918
Interest on bonds payable		45,614		—
Others		1,728		1,728


	$	206,063	$	104,142

Impairment loss (reversal of impairment loss)


	Year Ended December 31
	2020			2019

Contract assets	$	934		$	(1,912	)

Trade notes and accounts receivable	$	48,708		$	(53,952	)

Other receivables	$	(4,757	)	$	(69,247	)

Inventories	$	1,161,281		$	474,709

Property, plant and equipment	$	—		$	93,073

Investment properties	$	(27,066	)	$	(56,617	)

Intangible assets	$	9,303		$	8,946

Other assets	$	—		$	43,971

- 75 -

Depreciation and amortization expenses


	Year Ended December 31
	2020		2019

Property, plant and equipment	$	26,988,500	$	26,930,188
Right-of-use assets		3,931,498		3,967,646
Investment properties		22,332		25,157
Intangible assets		5,424,367		4,252,602
Incremental costs of obtaining contracts		771,875		1,173,492


Total depreciation and amortization expenses	$	37,138,572	$	36,349,085


Depreciation expenses summarized by functions
Operating costs	$	29,056,306	$	28,956,751
Operating expenses		1,886,024		1,966,240


	$	30,942,330	$	30,922,991


Amortization expenses summarized by functions
Operating costs	$	5,971,033	$	5,196,298
Marketing expenses		99,881		96,477
General and administrative expenses		82,436		94,487
Research and development expenses		42,892		38,832


	$	6,196,242	$	5,426,094

Employee benefit expenses


	Year Ended December 31
	2020		2019

Post-employment benefit
Defined contribution plans	$	708,230	$	654,449
Defined benefit plans		2,001,474		2,859,467

		2,709,704		3,513,916

Share-based payment
Equity-settled share-based payment		7,578		1,597

Other employee benefit
Salaries		26,630,387		25,463,967
Insurance		2,712,327		2,746,088
Others		12,903,211		14,429,853

		42,245,925		42,639,908


Total employee benefit expenses	$	44,963,207	$	46,155,421


Summary by functions
Operating costs	$	23,005,380	$	23,586,735
Operating expenses		21,957,827		22,568,686


	$	44,963,207	$	46,155,421

- 76 -

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

Income tax recognized in profit or loss

The major components of income tax expense were as follows:


	Year Ended December 31
	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

- 77 -

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	$	8,566,194		$	8,349,958
Nondeductible income and expenses in determining taxable income		14,975			17,616
Unrecognized deductible temporary differences		(4,708	)		3,243
Unrecognized loss carryforwards		3,515			7,221
Tax-exempt income		(367,817	)		(125,004	)
Income tax on unappropriated earnings		11,329			19,523
Investment credits		(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		3,872			(91,390	)
Others		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.

Income tax recognized in other comprehensive income


	Year Ended December 31
	2020		2019

Deferred tax
Remeasurement on defined benefit pension plans	$	238,630	$	305,271
Exchange differences arising from the translation of the foreign operations		263		—


Total income tax expense recognized in other comprehensive income	$	238,893	$	305,271

Current tax assets and liabilities


	December 31
	2020		2019

Current tax assets
Tax refund receivable (included in other current assets - other)	$	774	$	897

Current tax liabilities
Income tax payable	$	4,369,241	$	4,020,670

- 78 -

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


	Beginning Balance		Acquired by business combinations (Note 13)		Recognized in Profit or Loss			Recognized in Other Comprehensive Income			Ending Balance

Deferred income tax assets

Temporary differences
Defined benefit pension plans	$	2,034,357	$	1,366	$	18,960		$	(238,525	)	$	1,816,158
Share of profit or loss of associates and joint ventures accounted for using equity method		402,059		—		(1,283	)		—			400,776
Allowance for doubtful receivables over quota		403,712		—		(39,105	)		—			364,607
Valuation loss on inventory		140,838		2,710		155,651			—			299,199
Deferred revenue		97,457		—		(24,390	)		—			73,067
Estimated warranty liabilities		34,461		—		1,704			—			36,165
Accrued award credits liabilities		17,318		—		1,091			—			18,409
Others		100,033		1,589		2,102			(263	)		103,461

		3,230,235		5,665		114,730			(238,788	)		3,111,842
Loss carryforwards		28,372		—		(7,501	)		—			20,871


	$	3,258,607	$	5,665	$	107,229		$	(238,788	)	$	3,132,713


Deferred income tax liabilities

Temporary differences
Defined benefit pension plans	$	1,758,131	$	—	$	53,957		$	105		$	1,812,193
Land value incremental tax		94,986		—		—			—			94,986
Deferred revenue for award credits		28,543		—		1,664			—			30,207
Intangible assets		29,513		—		(2,514	)		—			26,999
Others		1,132		2,209		(1,188	)		—			2,153


	$	1,912,305	$	2,209	$	51,919		$	105		$	1,966,538

For the year ended December 31, 2019


	Beginning Balance		Recognized in Profit or Loss			Recognized in Other Comprehensive Income			Ending Balance

Deferred income tax assets

Temporary differences
Defined benefit pension plans	$	2,307,057	$	32,475		$	(305,175	)	$	2,034,357
Share of profit or loss of associates and joint ventures accounted for using equity method		389,379		12,680			—			402,059
Allowance for doubtful receivables over quota		435,445		(31,733	)		—			403,712
Valuation loss on inventory		87,474		53,364			—			140,838
Deferred revenue		110,929		(13,472	)		—			97,457
Estimated warranty liabilities		25,989		8,472			—			34,461

(Continued)

- 79 -


	Beginning Balance		Recognized in Profit or Loss			Recognized in Other Comprehensive Income			Ending Balance

Accrued award credits liabilities	$	13,912	$	3,406		$	—		$	17,318
Others		168,317		(68,284	)		—			100,033

		3,538,502		(3,092	)		(305,175	)		3,230,235
Loss carryforwards		40,942		(12,570	)		—			28,372


	$	3,579,444	$	(15,662	)	$	(305,175	)	$	3,258,607


Deferred income tax liabilities

Temporary differences
Defined benefit pension plans	$	1,832,669	$	(74,634	)	$	96		$	1,758,131
Land value incremental tax		94,986		—			—			94,986
Deferred revenue for award credits		30,690		(2,147	)		—			28,543
Intangible assets		32,028		(2,515	)		—			29,513
Others		1,476		(344	)		—			1,132

	$	1,991,849	$	(79,640	)	$	96		$	1,912,305

(Concluded)

Deductible temporary differences and unused loss carryforwards for which no deferred tax assets have been recognized in the consolidated balance sheets


	December 31
	2020		2019

Loss carryforwards
Expire in 2021	$	11,826	$	12,406
Expire in 2022		9,997		10,264
Expire in 2023		8,251		8,251
Expire in 2024		8,364		8,189
Expire in 2025		19,106		15,438
Expire in 2026		8,423		8,423
Expire in 2027		2,585		2,585
Expire in 2028		930		930
Expire in 2029		697		293
Expire in 2030		198		—


	$	70,377	$	66,779


Deductible temporary differences	$	—	$	813

- 80 -

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

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

- 81 -

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

SENAO share-based compensation plan (“SENAO Plan”) described as follows:


Effective Date for Plan Registration	Resolution Date by SENAO’s Board of Directors		Stock Options Units (Thousand)		Exercise Price (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.

- 82 -

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
	Number of Options (Thousand)			Weighted Average Exercise Price (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.

CHIEF share-based compensation plan (“CHIEF Plan”) described as follows:


Effective Date for Plan Registration	Resolution Date by CHIEF’s Board of Directors		Stock Options Units		Exercise Price (NT$)
2020.09.16		2020.10.26		200.00		$206.00
2017.12.18		2018.10.31		50.00		$138.70 (Original price $147.00	)
		2017.12.19		950.00		$132.70 (Original price $147.00	)
2015.11.17		2015.10.22		2,000.00		$34.40 (Original price $43.00	)

- 83 -

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 November 13, 2020				Granted on October 31, 2018					Granted on December 19, 2017					Granted on October 22, 2015
	Number of Options		Weighted Average Exercise Price (NT$)		Number of Options			Weighted Average Exercise Price (NT$)		Number of Options			Weighted Average Exercise Price (NT$)		Number of Options			Weighted Average Exercise Price (NT$)

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		—			—

- 84 -


	Year Ended December 31, 2019
	Granted on October 31, 2018					Granted on December 19, 2017					Granted on October 22, 2015
	Number of Options			Weighted Average Exercise Price (NT$)		Number of Options			Weighted Average Exercise Price (NT$)		Number of Options			Weighted Average Exercise Price (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 Exercisable
Range of Exercise Price (NT$)	Number of Options	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price (NT$)	Number of Options	Weighted Average Exercise Price (NT$)

$206.00	200.00	4.87	$206.00	—	$—


Granted on October 31, 2018
Options Outstanding				Options Exercisable
Range of Exercise Price (NT$)	Number of Options	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price (NT$)	Number of Options	Weighted Average Exercise Price (NT$)

$138.70	21.00	2.83	$138.70	—	$—


Granted on December 19, 2017
Options Outstanding				Options Exercisable
Range of Exercise Price (NT$)	Number of Options	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price (NT$)	Number of Options	Weighted Average Exercise Price (NT$)

$132.70	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.

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


Granted on October 31, 2018
Options Outstanding				Options Exercisable
Range of Exercise Price (NT$)	Number of Options	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price (NT$)	Number of Options	Weighted Average Exercise Price (NT$)

$ 141.70	46.00	3.83	$ 141.70	—	$—


Granted on December 19, 2017
Options Outstanding				Options Exercisable
Range of Exercise Price (NT$)	Number of Options	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price (NT$)	Number of Options	Weighted Average Exercise Price (NT$)

$135.60	897.00	2.96	$135.60	448.50	$135.60


Granted on October 22, 2015
Options Outstanding				Options Exercisable
Range of Exercise Price (NT$)	Number of Options	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price (NT$)	Number of Options	Weighted Average Exercise Price (NT$)

$34.40	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 Options Granted on November 13, 2020			Stock Options Granted on October 31, 2018			Stock Options Granted on December 19, 2017			Stock Options Granted on October 22, 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.

- 86 -

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
	Number of Options			Weighted Average Exercise Price (NT$)		Number of Options		Weighted Average Exercise Price (NT$)

Employee stock options

Options outstanding at beginning 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		—		—

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


Options Outstanding				Options Exercisable
Range of Exercise Price (NT$)	Number of Options	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price (NT$)	Number of Options	Weighted Average Exercise Price (NT$)

$19.085	4,328	3.97	$19.085	1,082	$19.085

- 87 -

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


Options Outstanding				Options Exercisable
Range of Exercise Price (NT$)	Number of Options	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price (NT$)	Number of Options	Weighted Average Exercise Price (NT$)

$19.085	4,500	4.97	$19.085	—	$—

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


	Stock Options Granted on December 20, 2019

Grant-date share price (NT$)	$	20.17
Exercise price (NT$)	$	19.085
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.

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.

- 88 -

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
	Number of Options			Weighted Average Exercise Price (NT$)		Number of Options			Weighted Average Exercise Price (NT$)

Employee stock options

Options outstanding at beginning of the year		—		$	—		—		$	—
Options outstanding upon the date of business combination		580.00			14.00		1,022.96			14.00
Options exercised		(50.00	)		14.00		(432.50	)		14.00
Options forfeited		—			—		(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
Options Outstanding				Options Exercisable
Range of Exercise Price (NT$)	Number of Options	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price (NT$)	Number of Options	Weighted Average Exercise Price (NT$)

$ 14.00	530.00	0.04	$14.00	530.00	$ 14.00

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 Granted in January 2014		Stock Options Granted in 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

- 89 -

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:


	Year Ended December 31
Investing activities	2020			2019

Increase in property, plant and equipment	$	25,194,727		$	23,164,284
Changes in other payables		(1,683,907	)		1,001,573


Acquisition of property, plant and equipment	$	23,510,820		$	24,165,857


Increase in investment properties	$	1,359,502		$	523
Trade-in investment properties from asset exchange transaction (Note 15)		(1,305,067	)		—


Acquisition of investment properties	$	54,435		$	523


Increase in intangible assets	$	48,605,187		$	362,718
Changes in other assets		(1,000,000	)		—


Acquisition of intangible assets	$	47,605,187		$	362,718


Disposal of property, plant and equipment, net	$	307,190		$	85,942
Gain (loss) on disposal of property, plant and equipment		1,427,984			(37,785	)
Trade-in investment properties from asset exchange transaction (Note 15)		(1,305,067	)		—
Changes in other payables		(79,986	)		—
Changes in other current monetary assets		(31,032	)		—


Proceeds from disposal of property, plant and equipment	$	319,089		$	48,157

Financing activities


	Balance on January 1, 2020		Cash Flows from Financing Activities			Changes in Non-Cash Transactions							Cash Flows from Operation Activities - Interest Paid			Balance on December 31, 2020
	Balance on January 1, 2020		Cash Flows from Financing Activities			New Leases		Acquired by business combination (Note 13)		Others			Cash Flows from Operation Activities - Interest Paid			Balance 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 Activities			Changes in Non-Cash Transactions					Cash Flows from Operation Activities - Interest Paid			Balance on December 31, 2019
	Balance on January 1, 2019		Cash Flows from Financing Activities			New Leases		Others						Balance on December 31, 2019

Lease liabilities	$	10,340,057	$	(3,727,792	)	$	3,803,042	$	(572,251	)	$	(84,918	)	$	9,758,138

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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).

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				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value

Financial liabilities

Financial liabilities measured at amortized cost
Bonds payable	$	19,980,272	$	20,078,098	$	—	$	—

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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.

Financial instruments that are measured at fair value on a recurring basis

December 31, 2020


	Level 1		Level 2		Level 3		Total

Financial assets at FVTPL
Derivatives	$	—	$	2,271	$	—	$	2,271
Listed stocks		7,626		—		—		7,626
Non-listed stocks		—		—		677,202		677,202


	$	7,626	$	2,271	$	677,202	$	687,099


Hedging financial assets	$	—	$	1,752	$	—	$	1,752


Financial assets at FVOCI
Listed stocks	$	2,754,175	$	—	$	—	$	2,754,175
Non-listed stocks		—		—		4,438,999		4,438,999


	$	2,754,175	$	—	$	4,438,999	$	7,193,174


Financial liabilities at FVTPL
Derivatives	$	—	$	143	$	—	$	143

December 31, 2019


	Level 1		Level 2		Level 3		Total

Financial assets at FVTPL
Derivatives	$	—	$	53	$	—	$	53
Listed stocks		463		—		—		463
Non-listed stocks		—		—		778,105		778,105


	$	463	$	53	$	778,105	$	778,621


Hedging financial assets	$	—	$	327	$	—	$	327


Financial assets at FVOCI
Listed stocks	$	2,453,616	$	—	$	—	$	2,453,616
Non-listed stocks		—		—		4,815,301		4,815,301


	$	2,453,616	$	—	$	4,815,301	$	7,268,917


Financial liabilities at FVTPL
Derivatives	$	—	$	239	$	—	$	239

There were no transfers between Levels 1 and 2 for the years ended December 31, 2020 and 2019.

- 92 -

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

2020


Financial Assets	Measured at Fair Value through Profit or Loss			Measured at Fair Value through Other Comprehensive Income			Total

Balance on January 1, 2020	$	778,105		$	4,815,301		$	5,593,406
Reclassified from investments accounted for using equity method		—			1,853			1,853
Recognized in profit or loss under “Other gains and losses”		(100,903	)		—			(100,903	)
Recognized in other comprehensive income under “Unrealized gain or loss on financial assets at fair value through other comprehensive income”		—			(378,155	)		(378,155	)


Balance on December 31, 2020	$	677,202		$	4,438,999		$	5,116,201

Unrealized loss in 2020	$	(100,903	)

2019


Financial Assets	Measured at Fair Value through Profit or Loss			Measured at Fair Value through Other Comprehensive Income			Total

Balance on January 1, 2019	$	517,362		$	4,032,660		$	4,550,022
Acquisition		300,000			—			300,000
Recognized in profit or loss under “Other gains and losses”		(39,257	)		—			(39,257	)
Recognized in other comprehensive income under “Unrealized gain or loss on financial assets at fair value through other comprehensive income”		—			791,808			791,808
Proceed from return of investments		—			(9,167	)		(9,167	)


Balance on December 31, 2019	$	778,105		$	4,815,301		$	5,593,406

Unrealized loss in 2019	$	(39,257	)

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

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.

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.

- 93 -

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			December 31, 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, 2020		December 31, 2019

Discount for lack of marketability
5% decrease	$	319,758	$	349,584

Noncontrolling interests discount
5% decrease	$	47,018	$	53,646

Categories of Financial Instruments


	December 31
	2020		2019

Financial assets

Measured at FVTPL
Mandatorily measured at FVTPL	$	687,099	$	778,621
Hedging financial assets		1,752		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		143		239
Measured at amortized cost (Note b)		62,557,414		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.

- 94 -

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.

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.

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

- 95 -

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

This is mainly attributable to the exposure to foreign currency denominated receivables and payables of the Company outstanding at the balance sheet dates.

This is mainly attributable to forward exchange contracts.

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.

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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.

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.

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.

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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.

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.

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		1-3 Months		3 Months to 1 Year		1-5 Years		More than 5 Years		Total

Non-derivative financial liabilities
Non-interest bearing		—	$	37,748,572	$	—	$	2,476,148	$	4,826,679	$	—	$	45,051,399
Floating interest rate instruments		0.78		—		7,000		1,660,000		—		—		1,667,000
Fixed interest rate instruments		0.50		7,000,000		—		—		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 1 Year		1-3 Years		3-5 Years		More than 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		1-3 Months		3 Months to 1 Year		1-5 Years		More than 5 Years		Total

Non-derivative financial liabilities
Non-interest bearing		—	$	36,387,024	$	—	$	2,531,721	$	4,747,644	$	—	$	43,666,389
Floating interest rate instruments		0.98		50,000		10,000		30,000		1,600,000		—		1,690,000

			$	36,437,024	$	10,000	$	2,561,721	$	6,347,644	$	—	$	45,356,389

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


	Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Total

Lease liabilities	$	3,309,578	$	4,394,009	$	1,581,034	$	645,520	$	9,930,141

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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		1-3 Months		3 Months to 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	$	25,566	$	135,075	$	—	$	—	$	160,641
Outflow		25,524		134,976		—		—		160,500


	$	42	$	99	$	—	$	—	$	141

Financing facilities


	December 31
	2020		2019

Facilities of unsecured bank loan and commercial paper payable
Amount used	$	7,067,800	$	120,681
Amount unused		59,277,690		46,109,219


	$	66,345,490	$	46,229,900


Secured bank loan facility
Amount used	$	1,600,000	$	1,600,000
Amount unused		20,000		1,340,000


	$	1,620,000	$	2,940,000

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.

- 99 -

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


Company		Relationship

Taiwan International Standard Electronics Co., Ltd.		Associate
So-net Entertainment Taiwan Limited		Associate
KKBOX Taiwan Co., Ltd.		Associate
KingwayTek Technology Co., Ltd.		Associate
UUPON Inc.		Associate (Note 2)
Taiwan International Ports Logistics Corporation		Associate
International Integrated Systems, Inc.		Subsidiary (Note 1)
Senao Networks, Inc.		Associate
EnRack Tech. Co., Ltd.		Subsidiary of the Company’s associate, Senao Networks, Inc.
Emplus Technologies, Inc.		Subsidiary of the Company’s associate, Senao Networks, Inc.
ST-2 Satellite Ventures Pte., Ltd.		Associate
Viettel-CHT Co., Ltd.		Associate
Click Force Co., Ltd.		Associate
Alliance Digital Tech Co., Ltd.		Associate
Chunghwa PChome Fund I Co., Ltd.		Associate
Cornerstone Ventures Co., Ltd.		Associate
Next Commercial Bank Co., Ltd.		Associate
Chunghwa SEA Holdings		Joint venture
Other related parties
Chunghwa Telecom Foundation		A nonprofit organization of which the funds donated by Chunghwa exceeds one third of its total funds
Senao Technical and Cultural Foundation		A nonprofit organization of which the funds donated by SENAO exceeds one third of its total funds
Sochamp Technology Co., Ltd.		Investor of significant influence over CHST
E-Life Mall Co., Ltd.		One of the directors of E-Life Mall and a director of SENAO are members of an immediate family
Engenius Technologies Co., Ltd.		Chairman of Engenius Technologies Co., Ltd. is a member of SENAO’s management
Cheng Keng Investment Co., Ltd.		Chairman of Cheng Keng Investment Co., Ltd. and SENAO’s chief executive officer are members of an immediate family
Cheng Feng Investment Co., Ltd.		Chairman of Cheng Feng Investment Co., Ltd. and SENAO’s chief executive officer are members of an immediate family
All Oriented Investment Co., Ltd.		Chairman of All Oriented Investment Co., Ltd. and SENAO’s chief executive officer are members of an immediate family
Hwa Shun Investment Co., Ltd.		Chairman of Hwa Shun Investment Co., Ltd. and SENAO’s chief executive officer are members of an immediate family
Yu Yu Investment Co., Ltd.		Chairman of Yu Yu Investment Co., Ltd. and SENAO’s chief executive officer are members of an immediate family
United Daily News Co., Ltd.		Investor of significant influence over SFD
Shenzhen Century Communication Co., Ltd.		Investor of significant influence over SCT
Chunghwa Post Co., Ltd.		Government-related entity as Chunghwa Telecom

- 100 -

Note 1:

IISI was an associate and has become a subsidiary starting from July 1, 2020. Please refer to Note 13 (c). All transactions between the Company were eliminated upon consolidation since the acquisition date.

Note 2:

UUPON was previously an associate. As the Company did not participate in the capital increase of UUPON in October 2020; therefore, the Company lost its significant influence over UUPON. Since then, UUPON was no longer a related party of the Company. Please refer to Note 14.

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

Operating transactions


	Revenues
	Year Ended December 31
	2020		2019

Associates	$	1,507,867	$	273,892
Others		66,612		76,559


	$	1,574,479	$	350,451


	Operating Costs and Expenses
	Year Ended December 31
	2020		2019

Associates	$	715,405	$	963,627
Others		67,612		76,153


	$	783,017	$	1,039,780

Non-operating transactions


	Non-operating Income and Expenses
	Year Ended December 31
	2020		2019

Associates	$	36,716	$	41,373
Others		3,590		3,470


	$	40,306	$	44,843

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Receivables


	December 31
	2020		2019

Associates	$	228,879	$	10,356
Others		1,817		6,478


	$	230,696	$	16,834

Contract liabilities-current


	December 31
	2020		2019

Associates	$	182,857	$	—

Payables


	December 31
	2020		2019

Associates	$	642,489	$	650,617
Others		3,455		3,366


	$	645,944	$	653,983

Customers’ deposits


	December 31
	2020		2019

Associates	$	4,626	$	7,595

Acquisition of property, plant and equipment


	Year Ended December 31
	2020		2019

Associates	$	375,469	$	241,626
Others		—		182


	$	375,469	$	241,808

Disposal of property, plant and equipment and investment properties to Chunghwa Post Co., Ltd.


	Proceeds				Gain on Disposal
	Year Ended December 31				Year Ended December 31
	2020		2019		2020		2019

Others	$	385,760	$	—	$	310,205	$	—

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Lease-in agreements

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

The lease liabilities of ST-2 Satellite Ventures Pte., Ltd. as of balance sheet dates were as follows:


	December 31, 2020		December 31, 2019

Lease liabilities - current	$	182,187	$	188,271
Lease liabilities - noncurrent		816,610		1,023,889


	$	998,797	$	1,212,160

The interest expense recognized for the aforementioned lease liabilities for the years ended December 31, 2020 and 2019 was $8,895 thousand and $10,887 thousand, respectively.

Compensation of key management personnel

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


	Year Ended December 31
	2020		2019

Short-term employee benefits	$	290,106	$	263,383
Post-employment benefits		10,392		8,560
Share-based payment		333		355


	$	300,831	$	272,298

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

39.

PLEDGED ASSETS

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


	December 31
	2020		2019

Property, plant and equipment	$	2,461,810	$	2,491,324
Land held under development (included in inventories)		1,998,733		1,998,733
Restricted assets (included in other assets - others)		209,638		2,500


	$	4,670,181	$	4,492,557

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40.

SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

Except for those disclosed in other notes, the Company’s significant commitments and contingent liabilities as of December 31, 2020 were as follows:

Acquisitions of land and buildings of $119,346 thousand.

Acquisitions of telecommunications-related inventory and equipment of $26,815,461 thousand.

Unused letters of credit amounting to $10,000 thousand.

A commitment to contribute $2,000,000 thousand to a Piping Fund administered by the Taipei City Government, of which $1,000,000 thousand was contributed by Chunghwa on August 15, 1996 (classified as other monetary assets—noncurrent). If the fund is not sufficient, Chunghwa will contribute the remaining $1,000,000 thousand upon notification from the Taipei City Government.

Chunghwa committed that when its ownership interest in NCB is greater than 25% and NCB encounters financial difficulty or the capital adequacy ratio of NCB cannot meet the related regulation requirements, Chunghwa will provide financial support to assist NCB in maintaining a healthy financial condition.

41.

OTHER MATTERS

The Company has assessed the economic impact of COVID-19 and determined that there were no significant impacts on the Company’s financial statements as of the date the consolidated financial statements were authorized for issue. The Company will continue to monitor developments of the pandemic and assess the related impacts.

42.

SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information summarizes the disclosure of foreign currencies other than the functional currency of Chunghwa and its subsidiaries. The following exchange rates are the exchange rates used to translate to the presentation currency of the consolidated financial statements, which is the NTD:


	December 31, 2020
	Foreign Currencies (Thousands)		Exchange Rate		New Taiwan Dollars (Thousands)

Assets denominated in foreign currencies

Monetary items
USD	$	95,179		28.48	$	2,710,705
EUR		427		35.02		14,957
SGD		7,873		21.56		169,747
JPY		80,671		0.276		22,289
RMB		6,795		4.377		29,742
HKD		18,873		3.673		69,321
Non-monetary items
Investments accounted for using equity method
SGD		22,646		21.56		488,257
VND		327,497,036		0.0011		363,522

(Continued)

- 104 -


	December 31, 2020
	Foreign Currencies (Thousands)		Exchange Rate		New Taiwan Dollars (Thousands)

Liabilities denominated in foreign currencies

Monetary items
USD	$	26,951		28.48	$	767,553
EUR		27,335		35.02		957,257
SGD		48,665		21.56		1,049,225
JPY		35,044		0.276		9,683
RMB		46		4.377		201
HKD		2,087		3.673		7,665

(Concluded)


	December 31, 2019
	Foreign Currencies (Thousands)		Exchange Rate		New Taiwan Dollars (Thousands)

Assets denominated in foreign currencies

Monetary items
USD	$	192,849		29.98	$	5,781,593
EUR		351		33.59		11,792
SGD		10,076		22.28		224,501
JPY		61,929		0.276		17,092
RMB		2,057		4.305		8,854
HKD		84		3.849		325
Non-monetary items
Investments accounted for using equity method
SGD		22,483		22.28		500,930
VND		270,542,735		0.0012		316,535

Liabilities denominated in foreign currencies

Monetary items
USD		137,454		29.98		4,120,881
EUR		6,146		33.59		206,447
SGD		56,685		22.28		1,262,926
JPY		51,472		0.276		14,206
RMB		72		4.305		310
HKD		3,770		3.849		14,511

The unrealized foreign currency exchange losses were $17,036 thousand and $9,938 thousand for the years ended December 31, 2020 and 2019, respectively. Due to the various foreign currency transactions and the functional currency of each individual entity of the Company, foreign exchange gains and losses cannot be disclosed by the respective significant foreign currency.

- 105 -

43.

ADDITIONAL DISCLOSURES

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

Financing provided: None.

Endorsement/guarantee provided: Please see Table 1.

Marketable securities held (excluding investments in subsidiaries, associates and joint ventures): Please see Table 2.

Marketable securities acquired or disposed of at costs or prices at least $300 million or 20% of the paid-in capital: Please see Table 3.

Acquisition of individual real estate at costs of at least $300 million or 20% of the paid-in capital: Please see Table 4.

Disposal of individual real estate at prices of at least $300 million or 20% of the paid-in capital: Please see Table 5.

Total purchases from or sales to related parties amounting to at least $100 million or 20% of the paid-in capital: Please see Table 6.

Receivables from related parties amounting to $100 million or 20% of the paid-in capital: Please see Table 7.

Names, locations, and other information of investees on which the Company exercises significant influence (excluding investments in Mainland China): Please see Table 8.

Derivative instruments transactions: Please see Notes 7, 20 and 37.

Investments in Mainland China: Please see Table 9.

Intercompany relationships and significant intercompany transactions: Please see Table 10.

Information of main stakeholders: Please see Table 11.

44.

SEGMENT INFORMATION

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

Domestic fixed communications business - the provision of local telephone services, domestic long distance telephone services, broadband access, and related services;

Mobile communications business - the provision of mobile services, sales of mobile handsets and data cards, and related services;

Internet business - the provision of HiNet services and related services;

International fixed communications business - the provision of international long distance telephone services and related services;

- 106 -

Others - the provision of non-telecom services and the corporate related items not allocated to reportable segments.

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

The accounting policies of the operating segments are the same as those described in Note 3.

Segment Revenues and Operating Results

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


	Domestic Fixed Communications Business		Mobile Communications Business		Internet Business		International Fixed Communications Business		Others			Total

Year ended December 31, 2020

Revenues
From external customers	$	69,469,212	$	90,229,818	$	32,115,110	$	8,695,238	$	7,099,620		$	207,608,998
Intersegment revenues		15,929,871		1,536,283		3,966,461		1,875,372		5,369,325			28,677,312

Segment revenues	$	85,399,083	$	91,766,101	$	36,081,571	$	10,570,610	$	12,468,945			236,286,310

Intersegment elimination													(28,677,312	)


Consolidated revenues												$	207,608,998


Segments operating costs and expenses	$	59,371,277	$	69,211,073	$	15,240,814	$	8,572,822	$	14,446,532		$	166,842,518


Segment income (loss) before income tax	$	22,504,443	$	8,777,385	$	13,119,611	$	829,271	$	(2,399,739	)	$	42,830,971


Year ended December 31, 2019

Revenues
From external customers	$	65,727,627	$	95,469,002	$	30,090,758	$	11,485,197	$	4,747,477		$	207,520,061
Intersegment revenues		16,065,223		1,563,685		3,950,832		2,078,889		4,914,694			28,573,323

Segment revenues	$	81,792,850	$	97,032,687	$	34,041,590	$	13,564,086	$	9,662,171			236,093,384

Intersegment elimination													(28,573,323	)


Consolidated revenues												$	207,520,061


Segments operating costs and expenses	$	56,268,655	$	72,952,530	$	13,849,557	$	11,427,554	$	12,248,607		$	166,746,903


Segment income (loss) before income tax	$	19,536,966	$	11,249,716	$	12,514,656	$	799,078	$	(2,350,624	)	$	41,749,792

Other Segment Information

Other information reviewed by the chief operating decision maker or regularly provided to the chief operating decision maker was as follows:


	Domestic Fixed Communications Business		Mobile Communications Business			Internet Business		International Fixed Communications Business			Others			Total

Year ended December 31, 2020

Share of profits of associates and joint ventures accounted for using equity method	$	—	$	—		$	—	$	—		$	242,745		$	242,745

Interest income	$	13,151	$	5,328		$	16,930	$	21,785		$	58,728		$	115,922

Interest expenses	$	6,060	$	55,761		$	856	$	9,535		$	133,851		$	206,063

Depreciation and amortization	$	14,249,950	$	17,799,875		$	2,668,740	$	1,450,423		$	969,584		$	37,138,572

Capital expenditure	$	11,482,779	$	8,827,322		$	1,397,399	$	779,160		$	1,024,160		$	23,510,820

Gain (loss) on disposal of property, plant and equipment	$	1,442,401	$	(3,527	)	$	140	$	(30	)	$	(11,000	)	$	1,427,984

(Continued)

- 107 -


	Domestic Fixed Communications Business		Mobile Communications Business		Internet Business		International Fixed Communications Business		Others		Total

Gain on disposal of investment properties	$	151,357	$	—	$	—	$	—	$	—	$	151,357

Reversal of impairment loss on investment properties	$	27,066	$	—	$	—	$	—	$	—	$	27,066

Impairment loss on intangible assets	$	—	$	9,303	$	—	$	—	$	—	$	9,303


Year ended December 31, 2019

Share of profits of associates and joint ventures accounted for using equity method	$	—	$	—	$	—	$	—	$	462,140	$	462,140

Interest income	$	15,156	$	8,688	$	20,160	$	40,937	$	165,846	$	250,787

Interest expenses	$	5,076	$	58,081	$	696	$	11,501	$	28,788	$	104,142

Depreciation and amortization	$	14,841,890	$	16,253,558	$	2,914,375	$	1,547,334	$	791,928	$	36,349,085

Capital expenditure	$	12,070,922	$	7,773,266	$	1,424,601	$	1,116,541	$	1,780,527	$	24,165,857

Impairment loss on property, plant and equipment	$	—	$	—	$	—	$	—	$	93,073	$	93,073

Reversal of impairment loss on investment properties	$	56,617	$	—	$	—	$	—	$	—	$	56,617

Impairment loss on intangible assets	$	—	$	8,946	$	—	$	—	$	—	$	8,946

Impairment loss on other assets	$	13,191	$	—	$	13,191	$	—	$	17,589	$	43,971

(Concluded)

Main Products and Service Revenues


	Year Ended December 31
	2020		2019

Mobile services revenue	$	56,724,433	$	58,703,003
Sales of products		39,390,716		41,593,124
Local telephone and domestic long distance telephone services revenue		26,474,747		27,929,263
Broadband access and domestic leased line services revenue		22,420,164		22,115,908
Data communications internet services revenue		21,446,960		21,002,699
International network and leased line services revenue		3,884,182		7,066,361
Others		37,267,796		29,109,703


	$	207,608,998	$	207,520,061

Geographic Information

The users of the Company’s services are mainly from Taiwan, ROC. The revenues it derived outside Taiwan are mainly revenues from international long distance telephone and leased line services. The geographic information for revenues was as follows:


	Year Ended December 31
	2020		2019

Taiwan, ROC	$	200,881,289	$	197,895,254
Overseas		6,727,709		9,624,807


	$	207,608,998	$	207,520,061

The Company has long-lived assets in U.S., Singapore, Hong Kong, China, Vietnam, Japan and Thailand for $3,745,552 thousand and $4,063,468 thousand at December 31, 2020 and 2019, respectively, in the aforementioned areas, the other long-lived assets are located in Taiwan, ROC.

- 108 -

Major Customers

As of December 31, 2020, and 2019, the Company did not have any single customer whose revenue exceeded 10% of the total revenues.

- 109 -

TABLE 1

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

ENDORSEMENTS/GUARANTEES PROVIDED

YEAR ENDED DECEMBER 31, 2020

(Amounts in Thousands of New Taiwan Dollars)

No.

(Note 1)

Endorsement/
Guarantee
Provider

Guaranteed Party

Limits on
Endorsement/
Guarantee
Amount
Provided to
Each
Guaranteed
Party

Maximum
Balance
for the
Period

Ending
Balance

Actual
Borrowing
Amount

Amount of
Endorsement/
Guarantee
Collateralized
by Properties

Ratio of
Accumulated
Endorsement/
Guarantee
to Net
Equity Per
Latest
Financial
Statements

Maximum
Endorsement/
Guarantee
Amount
Allowable

Endorsement/

Guarantee
Given by
Parent on
Behalf of
Subsidiaries

Endorsement/

Guarantee
Given by
Subsidiaries
on Behalf
of Parent

Endorsement/

Guarantee
Given on
Behalf of
Companies
in
Mainland
China

Note

Name

Nature of
Relationship

(Note 2)

Senao International Co., Ltd.

Aval Technologies Co., Ltd.

591,338

300,000

—

5.07

2,956,690

Yes

Notes 3 and 4

Wiin Technology Co., Ltd.

591,338

100,000

—

1.69

2,956,690

Yes

Notes 3 and 4

Note 1:

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

“0” for the Company.

Subsidiaries are numbered from “1”.

Note 2:

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

A company with which it does business.

A company in which the Company directly and indirectly holds more than 50 percent of the voting shares.

A company that directly and indirectly holds more than 50 percent of the voting shares in the Company.

Companies in which the Company holds, directly or indirectly, 90% or more of the voting shares.

The Company fulfills its contractual obligations by providing mutual endorsements/guarantees for another company in the same industry or for joint builders for purposes of undertaking a construction project.

All capital contributing shareholders make endorsements/guarantees for their jointly invested company in proportion to their shareholding percentages.

Companies in the same industry provide among themselves jointly and severally guarantee for a performance guarantee of a sales contract for pre-construction homes pursuant to the Consumer Protection Act for each other.

Note 3:

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

Note 4:

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

- 110 -

TABLE 2

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD

DECEMBER 31, 2020

(Amounts in Thousands of New Taiwan Dollars)


Held Company Name	Marketable Securities Type and Name	Relationship with the Company		Financial Statement Account	DECEMBER 31, 2020								Note
Held Company Name	Marketable Securities Type and Name	Relationship with the Company		Financial Statement Account	Shares (Thousands/ Thousand Units)		Carrying Value (Note 1)		Percentage of Ownership		Fair Value		Note

Chunghwa Telecom Co., Ltd.	Stocks
	Taipei Financial Center Corp.		—	Financial assets at FVOCI		172,927	$	4,163,227		12	$	4,163,227	—
	Innovation Works Development Fund, L.P.		—	Financial assets at FVTPL - noncurrent		—		236,107		4		236,107	—
	Industrial Bank of Taiwan II Venture Capital Co., Ltd. (IBT II)		—	Financial assets at FVOCI		5,252		17,084		17		17,084	—
	Global Mobile Corp.		—	Financial assets at FVOCI		7,617		—		3		—	—
	Innovation Works Limited		—	Financial assets at FVOCI		1,000		3,698		2		3,698	—
	RPTI Intergroup International Ltd.		—	Financial assets at FVOCI		4,765		—		10		—	—
	Taiwan mobile payment Co., Ltd.		—	Financial assets at FVOCI		1,200		4,324		2		4,324	—
	Taiwania Capital Buffalo Fund Co., Ltd.		—	Financial assets at FVTPL - noncurrent		600,000		441,095		13		441,095	—
	China Airlines, Ltd.		—	Financial assets at FVOCI		216,639		2,610,501		4		2,610,501	Note 2
	4 Gamers Entertainment Inc.		—	Financial assets at FVOCI		136		103,556		19.9		103,556	—
	UUPON Inc.		—	Financial assets at FVOCI		246		1,289		4		1,289	—

Senao International Co., Ltd.	Stocks
	N.T.U. Innovation Incubation Corporation		—	Financial assets at FVOCI		1,200		9,444		9		9,444	—
	UUPON Inc.		—	Financial assets at FVOCI		109		573		2		573	—

CHIEF Telecom Inc.	Stocks
	3 Link Information Service Co., Ltd.		—	Financial assets at FVOCI		374		1,220		10		1,220	—
	WPG Holdings Limited		—	Financial assets at FVTPL - current		9		448		—		448	Note 2
	WPG Holdings Limited		—	Financial assets at FVOCI		1,736		86,974		—		86,974	Note 2
	Taichung Commercial Bank Co., Ltd.		—	Financial assets at FVTPL - current		662		7,178		—		7,178	Note 2

Chunghwa Investment Co., Ltd.	Stocks
	Tatung Technology Inc.		—	Financial assets at FVOCI		4,571		127,431		11		127,431	—
	iSing99 Inc.		—	Financial assets at FVOCI		10,000		—		7		—	—
	Powtec ElectroChemical Corporation		—	Financial assets at FVOCI		20,000		—		2		—	—
	Bossdom Digiinnovation Co., Ltd.		—	Financial assets at FVOCI		2,000		56,700		7		56,700	Note 2

Chunghwa Hsingta Co., Ltd.	Stocks
	Cotech Engineering Fuzhou Corp.		—	Financial assets at FVOCI		—		7,153		5		7,153	—

Note 1:

Showed at carrying amounts with fair value adjustments.

Note 2:

Fair value was based on the closing price on December 31, 2020.

- 111 -

TABLE 3

CHUNGHWA TELECOM CO., LTD.

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL

YEAR ENDED DECEMBER 31, 2020

(Amounts in Thousands of New Taiwan Dollars)

Company Name

Marketable Securities
Type and Name

Financial Statement
Account

Counterparty

Nature of
Relationship

Beginning Balance

Acquisition

Disposal

Ending Balance

Shares
(Thousands/
Thousand
Units)

Amount

Shares
(Thousands/
Thousand
Units)

Amount

Shares
(Thousands/
Thousand
Units)

Amount

Carrying
Value

Gain on
Disposal

Shares
(Thousands/
Thousand
Units)

Amount

Chunghwa Telecom Co., Ltd.

Stocks

China Airlines, Ltd.

Financial assets at FVOCI

—

263,622

3,092,287

(Note)

—

46,983

567,797

551,111

(Note)

16,686

216,639

2,541,176

(Note)

Note:

Showing at their original investment amounts without adjustments for fair values.

- 112 -

TABLE 4

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

ACQUISITION OF INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST $300 MILLION OR 20% OF THE PAID-IN CAPITAL

YEAR ENDED DECEMBER 31, 2020

(Amounts in Thousands of New Taiwan Dollars)

Buyer

Property

Event Date

Transaction
Amount

Payment Status

Counterparty

Relationship

Information on Previous Title Transfer If
Counterparty is a Related Party

Pricing Reference

Purpose of
Acquisition

Other
Terms

Property
Owner

Relationship

Transaction
Date

Amount

Chunghwa Telecom Co., Ltd.

Land that
specific
office
building is
located on

2020.05.06

3,243,689

$1,056,680 to be paid

MOTC

Major
Shareholder

None

Assessed value from National Property Administration

Operating purpose

—

Buildings

2020.10.06

1,305,067

Not applicable
(Note)

Kindom Development Co., Ltd.

—

Not
applicable

Assessed value from real estate appraisal report

Leasing purpose

—

Chunghwa Precision Test Tech. Co., Ltd.

Electrical
and
mechanical
engineering
and fit-out
constructions
for
buildings

2020.07.03-
2020.10.05

173,120

Monthly settlement based on the construction progress and acceptance

Fu Tsu Construction Co., Ltd.

—

Not
applicable

Bidding, price comparison and price negotiation

Manufacturing purpose

—

Note:

This is the urban renewal project for the asset exchange transaction for trade-in buildings. Please refer to Note 15 for details.

- 113 -

TABLE 5

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

DISPOSAL OF INDIVIDUAL REAL ESTATE AT PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL

YEAR ENDED DECEMBER 31, 2020

(Amounts in Thousands of New Taiwan Dollars)

Seller

Property

Event
Date

Original
Acquisition
Date

Carrying
Amount

Transaction
Amount

Collection

Gain on
Disposal

Counterparty

Relationship

Purpose of
Disposal

Price
Reference

Other
Terms

Chunghwa Telecom Co., Ltd.

Land

2020.08.05

2017.12.20,
2004.07.07
and
2004.12.16

75,555

385,760

Collected

310,205

Chunghwa Post Co., Ltd.

Others

Asset activation

Real estate appraisal report

—

Land

2020.10.06

2000.07.24

37,087

1,305,067

Not applicable (Note)

1,267,980

Kindom Development Co., Ltd.

—

Participation in government- led urban renewal project

Real estate appraisal report

—

Note:

This is the urban renewal project for the asset exchange transaction for trade-in buildings. Please refer to Note15 for details.

- 114 -

TABLE 6

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

YEAR ENDED DECEMBER 31, 2020

(Amounts in Thousands of New Taiwan Dollars)


Company Name	Related Party	Nature of Relationship	Transaction Details						Abnormal Transaction				Notes / Accounts Payable or Receivable
Company Name	Related Party	Nature of Relationship	Purchases/Sales (Note 1)	Amount (Notes 2 and 5)		% to Total		Payment Terms	Units Price		Payment Terms		Ending Balance (Notes 3 and 5)			% to Total

Chunghwa Telecom Co., Ltd.	Senao International Co., Ltd.	Subsidiary	Sales	$	3,164,854		2	30 days	$	—		—	$	642,604			3
			Purchase		676,125		1	30-90 days		—		—		(753,706	)		(5	)
	Aval Technologies Co., Ltd.	Subsidiary	Purchase		224,122		—	30 days		—		—		(37,085	)		—
	Senyoung Insurance Agent Co., Ltd.	Subsidiary	Sales		107,879		—	90 days		—		—		45,799			—
	CHIEF Telecom Inc.	Subsidiary	Sales		406,642		—	30 days		—		—		59,926			—
			Purchase		122,025		—	60 days		—		—		(22,164	)		—
	Chunghwa System Integration Co., Ltd.	Subsidiary	Purchase		1,293,906		1	30 days		—		—		(345,168	)		(2	)
	CHYP Multimedia Marketing & Communications Co., Ltd.	Subsidiary	Purchase		110,915		—	30 days		—		—		(36,588	)		—
	Honghwa International Co., Ltd.	Subsidiary	Sales		268,779		—	30-60 days		—		—		49,555			—
		Subsidiary	Purchase		5,536,303		5	30-60 days		—		—		(682,373	)		(4	)
	Donghwa Telecom Co., Ltd.	Subsidiary	Sales		178,470		—	30 days		—		—		31,020			—
		Subsidiary	Purchase		451,365		—	90 days		—		—		(144,874	)		(1	)
	Chunghwa Telecom Global, Inc.	Subsidiary	Purchase		313,914		—	90 days		—		—		(35,056	)		—
	Chunghwa Telecom Singapore Pte., Ltd.	Subsidiary	Purchase		157,772		—	30 days		—		—		(66,693	)		—
	CHT Security Co., Ltd.	Subsidiary	Purchase		338,666		—	30 days		—		—		(109,857	)		(1	)
	International Integrated Systems, Inc.	Subsidiary	Purchase		400,195		—	30 days		—		—		(235,565	)		(2	)
	Taiwan International Standard Electronics Co., Ltd.	Associate	Purchase		591,195		1	30-90 days		—		—		(488,244	)		(3	)
	Next Commercial Bank Co., Ltd.	Associate	Sales		1,245,178		1	30-60 days		—		—		192,000			1
Senao International Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		5,839,843		22	30-90 days		—		—		753,496			44
			Purchase		2,998,442		13	30 days		—		—		(598,985	)		(31	)
	Aval Technologies Co., Ltd.	Subsidiary	Sales		312,968		1	60 days		—		—		136,785			8
			Purchase		286,553		1	30 days		—		—		(9,660	)		(1	)
	Senyoung Insurance Agent Co., Ltd.	Subsidiary	Sales		124,628		—	30 days		—		—		45,070			3
CHIEF Telecom Inc.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		254,402		10	60 days		—		—		33,122			15
			Purchase		406,101		29	30 days		—		—		(59,926	)		(51	)
Chunghwa System Integration Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		1,597,664		76	30 days		—		—		342,578			67
CHYP Multimedia Marketing & Communications Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		110,915		27	30 days		—		—		34,238			44
Honghwa International Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		5,641,817		97	30-60 days		—		—		681,107			94
Donghwa Telecom Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		451,365		40	90 days		—		—		144,874			39
			Purchase		178,470		16	30 days		—		—		(31,020	)		(19	)
Chunghwa Telecom Global, Inc.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		313,914		53	90 days		—		—		35,056			67
Chunghwa Telecom Singapore Pte., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		157,772		12	30 days		—		—		66,693			19
CHT Security Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		362,082		38	30 days		—		—		109,813			33
International Integrated System, Inc.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		400,195		15	30 days		—		—		235,565			47
Aval Technologies Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company	Sales		224,122		1	30 days		—		—		37,085			2
	Youth Co., Ltd.	Fellow subsidiary	Sales		131,466		—	30 days		—		—		19,955			1

Note 1:

Purchases include costs to acquire services.

Note 2:

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

Note 3:

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

Note 4:

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

Note 5:

All intercompany transactions, balances, income and expenses are eliminated upon consolidation.

- 115 -

TABLE 7

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

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

DECEMBER 31, 2020

(Amounts in Thousands of New Taiwan Dollars)


Company Name	Related Party	Nature of Relationship	Ending Balance			Turnover Rate (Note 1)		Overdue				Amounts Received in Subsequent Period		Allowance for Bad Debts
Company Name	Related Party	Nature of Relationship	Ending Balance			Turnover Rate (Note 1)		Amounts		Action Taken		Amounts Received in Subsequent Period		Allowance for Bad Debts

Chunghwa Telecom Co., Ltd.	Senao International Co., Ltd.	Subsidiary	$	816,927 (Note 2	)		11.18	$	—		—	$	800,156	$	—
	Next Commercial Bank Co., Ltd.	Associate		192,000			6.25		—		—		—		—
Senao International Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company		891,312 (Note 2	)		7.53		—		—		103,851		—
	Aval Technologies Co., Ltd.	Subsidiary		136,808 (Note 2	)		3.52		—		—		77,628		—
Chunghwa System Integration Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company		342,578 (Note 2	)		3.19		—		—		208,487		—
Honghwa International Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company		681,107 (Note 2	)		7.68		—		—		202,685		—
CHT Security Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company		109,813 (Note 2	)		1.08		—		—		103,935		—
International Integrated Systems, Inc.	Chunghwa Telecom Co., Ltd.	Parent company		216,269 (Note 2	)		3.30		—		—		216,269		—
Donghwa Telecom Co., Ltd.	Chunghwa Telecom Co., Ltd.	Parent company		144,874 (Note 2	)		3.03		—		—		107,027		—

Note 1:

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

Note 2:

The amount was eliminated upon consolidation.

- 116 -

TABLE 8

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES IN WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE (EXCLUDING INVESTEES IN MAINLAND CHINA)

YEAR ENDED DECEMBER 31, 2020

(Amounts in Thousands of New Taiwan Dollars)


				Original Investment Amount				Balance as of December 31, 2020
Investor Company	Investee Company	Location	Main Businesses and Products	December 31, 2020		December 31, 2019		Shares (Thousands)		Percentage of Ownership (%)		Carrying Value (Note 3)			Net Income (Loss) of the Investee			Recognized Gain (Loss) (Notes 1, 2 and 3)			Note
Chunghwa Telecom Co., Ltd.	Senao International Co., Ltd.	Taiwan	Handset and peripherals retailer; sales of CHT mobile phone plans as an agent	$	1,065,813	$	1,065,813		71,773		28	$	1,630,230		$	436,717		$	117,500		Subsidiary (Note 5)
	Light Era Development Co., Ltd.	Taiwan	Planning and development of real estate and intelligent buildings, and property management		3,000,000		3,000,000		300,000		100		3,853,234			15,160			9,673		Subsidiary (Note 5)
	Donghwa Telecom Co., Ltd.	Hong Kong	International private leased circuit, IP VPN service, and IP transit services		1,567,453		1,567,453		402,590		100		1,486,252			7,379			7,379		Subsidiary (Note 5)
	Chunghwa Telecom Singapore Pte., Ltd.	Singapore	International private leased circuit, IP VPN service, and IP transit services		574,112		574,112		26,383		100		1,013,529			116,771			116,791		Subsidiary (Note 5)
	Chunghwa System Integration Co., Ltd.	Taiwan	Providing system integration services and telecommunications equipment		838,506		838,506		60,000		100		725,213			12,840			13,254		Subsidiary (Note 5)
	CHIEF Telecom Inc.	Taiwan	Network integration, internet data center (“IDC”), communications integration and cloud application services		459,652		459,652		39,426		56		1,785,968			607,779			348,533		Subsidiary (Note 5)
	Chunghwa Investment Co., Ltd.	Taiwan	Investment		639,559		639,559		68,085		89		3,017,569			317,590			282,776		Subsidiary (Note 5)
	Prime Asia Investments Group Ltd. (B.V.I.)	British Virgin Islands	Investment		385,274		385,274		1		100		163,121			(19,434	)		(19,434	)	Subsidiary (Note 5)
	Honghwa International Co., Ltd.	Taiwan	Telecommunication engineering, sales agent of mobile phone plan application and other business services, etc.		180,000		180,000		18,000		100		491,985			229,464			213,346		Subsidiary (Note 5)
	CHYP Multimedia Marketing & Communications Co., Ltd.	Taiwan	Digital information supply services and advertisement services		150,000		150,000		15,000		100		194,399			17,358			17,064		Subsidiary (Note 5)
	Chunghwa Telecom Vietnam Co., Ltd.	Vietnam	Intelligent energy saving solutions, international circuit, and information and communication technology (“ICT”) services		148,275		148,275		—		100		90,887			(2,380	)		(2,380	)	Subsidiary (Note 5)
	Chunghwa Telecom Global, Inc.	United States	International private leased circuit, internet services, and transit services		70,429		70,429		6,000		100		402,623			73,147			75,078		Subsidiary (Note 5)
	CHT Security Co., Ltd.	Taiwan	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		240,000		240,000		24,000		80		329,943			124,159			93,983		Subsidiary (Note 5)
	Chunghwa Telecom (Thailand) Co., Ltd.	Thailand	International private leased circuit, IP VPN service, ICT and cloud VAS services		119,624		119,624		1,300		100		110,163			2,050			2,050		Subsidiary (Note 5)
	Spring House Entertainment Tech. Inc.	Taiwan	Software design services, internet contents production and play, and motion picture production and distribution		41,941		41,941		8,251		56		126,947			44,962			25,197		Subsidiary (Note 5)
	Chunghwa leading Photonics Tech Co., Ltd.	Taiwan	Production and sale of electronic components and finished products		70,500		70,500		7,050		75		123,967			10,264			12,287		Subsidiary (Note 5)
	Smartfun Digital Co., Ltd.	Taiwan	Providing diversified family education digital services		65,000		65,000		6,500		65		74,055			9,804			6,369		Subsidiary (Note 5)
	Chunghwa Telecom Japan Co., Ltd.	Japan	International private leased circuit, IP VPN service, and IP transit services		17,291		17,291		1		100		90,099			13,478			13,478		Subsidiary (Note 5)
	Chunghwa Sochamp Technology Inc.	Taiwan	Design, development and production of Automatic License Plate Recognition software and hardware		20,400		20,400		2,040		51		(5,039	)		(2,015	)		5,047		Subsidiary (Note 5)
	International Integrated Systems, Inc.	Taiwan	IT solution provider, IT application consultation, system integration and package solution		517,423		283,500		37,211		51		593,049			169,948			49,633		Subsidiary (Note 6)

(Continued)

- 117 -

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES IN WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE (EXCLUDING INVESTMENT IN MAINLAND CHINA)

YEAR ENDED DECEMBER 31, 2020

(Amounts in Thousands of New Taiwan Dollars)


				Original Investment Amount				Balance as of December 31, 2020
Investor Company	Investee Company	Location	Main Businesses and Products	December 31, 2020		December 31, 2019		Shares (Thousands)		Percentage of Ownership (%)		Carrying Value (Note 3)		Net Income (Loss) of the Investee			Recognized Gain (Loss) (Notes 1, 2 and 3)			Note
	Viettel-CHT Co., Ltd.	Vietnam	IDC services	$	288,327	$	288,327		—		30	$	363,522	$	307,323		$	92,228		Associate
	Taiwan International Standard Electronics Co., Ltd.	Taiwan	Manufacturing, selling, designing, and maintaining of telecommunications systems and equipment		164,000		164,000		1,760		40		330,031		294,205			150,477		Associate
	KKBOX Taiwan Co., Ltd.	Taiwan	Providing of music on-line, software, electronic information, and advertisement services		67,025		67,025		4,438		30		163,809		46,987			14,038		Associate
	So-net Entertainment Taiwan Limited	Taiwan	Online service and sale of computer hardware		120,008		120,008		9,429		30		226,647		124,759			37,428		Associate
	KingwayTek Technology Co., Ltd.	Taiwan	Publishing books, data processing and software services		66,684		66,684		8,688		23		249,044		5,484			2,156		Associate
	Taiwan International Ports Logistics Corporation	Taiwan	Import and export storage, logistic warehouse, and ocean shipping service		80,000		80,000		8,000		27		55,925		18,514			4,946		Associate
	UUPON Inc.	Taiwan	Information technology service and general advertisement service		97,598		97,598		246		4		—		(40,580	)		(6,103	)	Associate (Note 7)
	Alliance Digital Tech Co., Ltd.	Taiwan	Development of mobile payments and information processing service		60,000		60,000		6,000		14		5,080		—			—		Associate
	Chunghwa PChome Fund I Co., Ltd.	Taiwan	Investment, venture capital, investment advisor, management consultant and other consultancy service		200,000		200,000		20,000		50		192,856		(2,450	)		(1,225	)	Associate
	Cornerstone Ventures Co., Ltd.	Taiwan	Investment, venture capital, investment advisor, management consultant and other consultancy service		4,900		4,900		490		49		6,058		1,125			551		Associate
	Next Commercial Bank Co., Ltd.	Taiwan	Online banking business		4,190,000		4,190,000		419,000		42		3,776,876		(605,419	)		(297,292	)	Associate
	Chunghwa SEA Holdings	Taiwan	Investment business		10,200		—		1,020		51		10,200		—			—		Joint venture
Senao International Co., Ltd.	Senao Networks, Inc.	Taiwan	Telecommunication facilities manufactures and sales		202,758		202,758		16,579		34		991,610		376,365			127,184		Associate
	Senao International (Samoa) Holding Ltd.	Samoa Islands	International investment		2,253,828		2,333,620		74,975		100		232,099		(24,526	)		(24,526	)	Subsidiary (Note 5)
	UUPON Inc.	Taiwan	Information technology service and general advertisement service		24,000		24,000		109		2		—		(40,580	)		(2,715	)	Associate (Note 7)
	Youth Co., Ltd.	Taiwan	Sale of information and communication technologies products		427,850		364,950		14,752		96		231,976		1,404			(16,418	)	Subsidiary (Note 5)
	Aval Technologies Co., Ltd.	Taiwan	Sale of information and communication technologies products		89,550		89,550		10,060		100		110,508		8,656			8,658		Subsidiary (Note 5)
	Senyoung Insurance Agent Co., Ltd.	Taiwan	Property and liability insurance agency		59,000		59,000		5,900		100		90,862		30,144			30,120		Subsidiary (Note 5)
CHIEF Telecom Inc.	Unigate Telecom Inc.	Taiwan	Telecommunications and internet service		2,000		2,000		200		100		980		94			94		Subsidiary (Note 5)
	Chief International Corp.	Samoa Islands	Telecommunications and internet service		6,068		6,068		200		100		78,699		9,338			9,338		Subsidiary (Note 5)
Chunghwa Telecom Singapore Pte., Ltd.	ST-2 Satellite Ventures Pte., Ltd.	Singapore	Operation of ST-2 telecommunications satellite		409,061		409,061		18,102		38		488,257		280,191			106,472		Associate
Chunghwa Investment Co., Ltd.	Chunghwa Precision Test Tech. Co., Ltd.	Taiwan	Production and sale of semiconductor testing components and printed circuit board		178,608		178,608		11,230		34		2,414,555		933,693			319,786		Subsidiary (Note 5)
	CHIEF Telecom Inc.	Taiwan	Network integration, internet data center (“IDC”), communications integration and cloud application services		19,064		19,064		2,078		3		88,104		607,779			18,051		Associate (Note 5)
	Senao International Co., Ltd.	Taiwan	Selling and maintaining mobile phones and its peripheral products		49,731		49,731		1,001		—		43,664		436,717			1,693		Associate (Note 5)

(Continued)

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CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES IN WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE (EXCLUDING INVESTMENT IN MAINLAND CHINA)

YEAR ENDED DECEMBER 31, 2020

(Amounts in Thousands of New Taiwan Dollars)


				Original Investment Amount				Balance as of December 31, 2020						Net Income (Loss) of the Investee			Recognized Gain (Loss) (Notes 1, 2 and 3)			Note
Investor Company	Investee Company	Location	Main Businesses and Products	December 31, 2020		December 31, 2019		Shares (Thousands)		Percentage of Ownership (%)		Carrying Value (Note 3)		Net Income (Loss) of the Investee			Recognized Gain (Loss) (Notes 1, 2 and 3)			Note
Chunghwa Precision Test Tech. Co., Ltd.	Chunghwa Precision Test Tech USA Corporation	United States	Design and after-sale services of semiconductor testing components and printed circuit board	$	12,636	$	12,636		400		100	$	23,847	$	755		$	755		Subsidiary (Note 5)
	CHPT Japan Co., Ltd.	Japan	Related services of electronic parts, machinery processed products and printed circuit board		2,008		2,008		1		100		2,472		89			89		Subsidiary (Note 5)
	Chunghwa Precision Test Tech. International, Ltd.	Samoa Islands	Wholesale and retail of electronic materials, and investment		116,790		116,790		3,700		100		92,315		8,441			8,956		Subsidiary (Note 5)
Prime Asia Investments Group, Ltd. (B.V.I.)	Chunghwa Hsingta Co., Ltd.	Hong Kong	Investment		375,274		375,274		1		100		163,121		(19,434	)		(19,434	)	Subsidiary (Note 5)
	MeWorks Limited (HK)	Hong Kong	Investment		—		10,000		—		—		—		—			—		Associate
Senao International (Samoa) Holding Ltd.	Senao International HK Limited	Hong Kong	International investment		2,248,963		2,328,754		80,440		100		212,814		(24,766	)		(24,766	)	Subsidiary (Note 5)
Youth Co., Ltd.	ISPOT Co., Ltd.	Taiwan	Sale of information and communication technologies products		53,021		53,021		—		100		10,562		1,656			1,464		Subsidiary (Note 5)
	Youyi Co., Ltd.	Taiwan	Maintenance of information and communication technologies products		21,354		21,354		—		100		18,145		1,234			993		Subsidiary (Note 5)
Aval Technologies Co., Ltd.	Wiin Technology Co., Ltd.	Taiwan	Sale of information and communication technologies products		29,550		29,550		2,955		100		33,476		3,695			3,695		Subsidiary (Note 5)
Senyoung Insurance Agent Co., Ltd.	Senaolife Insurance Agent Co., Ltd.	Taiwan	Life insurance services		29,500		29,500		2,950		100		26,186		(3,034	)		(3,034	)	Subsidiary (Note 5)
CHYP Multimedia Marketing & Communications Co., Ltd	Click Force Marketing Company	Taiwan	Advertisement services		44,607		44,607		1,078		49		33,086		3,998			(209	)	Associate
International Integrated Systems, Inc.	Infoexplorer International Co., Ltd.	Samoa	Investment		24,806		24,806		795		100		27,018		850			850		Subsidiary (Note 6)
	IISI Investment Co., Ltd.	Mauritius	Investment		81,302		81,302		244		100		28,990		(10,872	)		(10,872	)	Subsidiary (Note 6)
	Unitronics Technology Corp.	Taiwan	Development and maintenance of information system		55,569		55,569		5,065		99.96		69,867		7,783			7,780		Subsidiary (Note 6)
Infoexplorer International Co., Ltd.	International Integrated Systems (Hong Kong) Limited	Hong Kong	Investment and engaging in technical consulting service		24,336		24,336		780		100		27,011		870			870		Subsidiary (Note 6)
IISI Investment Co., Ltd.	Leading Tech Co., Ltd.	Mauritius	Investment		65,374		65,374		316		100		18,466		(10,587	)		(10,587	)	Subsidiary (Note 6)
Leading Tech Co., Ltd.	Leading Systems Co., Ltd.	Mauritius	Investment		100,693		100,693		300		100		13,615		(10,588	)		(10,588	)	Subsidiary (Note 6)

Note 1:

The amounts were based on audited financial statements.

Note 2:

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

Note 3:

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

Note 4:

Investments in mainland China are included in Table 9.

Note 5:

The amount was eliminated upon consolidation.

Note 6:

The Company only eliminated the amounts after accounts of IISI and its subsidiaries are included in the consolidated financial statements.

Note 7:

UUPON Inc. was transferred to financial assets at fair value through other comprehensive income.

(Concluded)

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TABLE 9

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

INVESTMENT IN MAINLAND CHINA

YEAR ENDED DECEMBER 31, 2020

(Amounts in Thousands of New Taiwan Dollars)


						Accumulated		Investment Flows				Accumulated												Accumulated
Investee	Main Businesses and Products	Total Amount of Paid-in Capital		Investment Type (Note 1)		Outflow of Investment from Taiwan as of January 1, 2020		Outflow		Inflow		Outflow of Investment from Taiwan as of December 31, 2020		Net Income (Loss) of the Investee			% Ownership of Direct or Indirect Investment		Investment Gain (Loss) (Note 2)			Carrying Value as of December 31, 2020		Inward Remittance of Earnings as of December 31, 2020		Note

Senao Trading (Fujian) Co., Ltd.	Sale of information and communication technologies products	$	1,073,170		2	$	1,073,170	$	—	$	—	$	1,073,170	$	—			100	$	—		$	—	$	—		Notes 8 and 15
Senao International Trading (Shanghai) Co., Ltd.	Sale of information and communication technologies products		955,838		2		955,838		—		—		955,838		(21,189	)		100		(21,189	)		29,402		—		Notes 9 and 15
Senao International Trading (Shanghai) Co., Ltd. (Note 17)	Maintenance of information and communication technologies products		26,053		2		26,053		—		—		26,053		—			100		—			—		—		Notes 10 and 15
Senao International Trading (Jiangsu) Co., Ltd.	Sale of information and communication technologies products		183,944		2		263,736		—		79,792		183,944		—			100		—			—		—		Notes 11 and 15
Chunghwa Telecom (China) Co., Ltd.	Integrated information and communication solution services for enterprise clients, and intelligent energy network service		177,176		2		177,176		—		—		177,176		(12,712	)		100		(12,712	)		32,224		—		Notes 13 and 15
Jiangsu Zhenghua Information Technology Company, LLC	Providing intelligent energy saving solution and intelligent buildings services		189,410		2		142,057		—		—		142,057		—			75		—			—		—		Notes 12 and 15
Shanghai Taihua Electronic Technology Limited	Design of printed circuit board and related consultation service		51,233		2		51,233		—		—		51,233		(9,675	)		100		(9,675	)		16,490		—		Note 15
Su Zhou Precision Test Tech. Ltd.	Assembly processed of circuit board, design of printed circuit board and related consultation service		62,340		2		62,340		—		—		62,340		18,127			100		18,127			78,314		—		Note 15
Shanghai Chief Telecom Co., Ltd.	Telecommunications and internet service		10,150		1		4,973		—		—		4,973		5,047			49		2,473			13,561		—		Note 15
International Integrated Systems Inc. (Shanghai)	Development and maintenance of information system		48,753		2		39,923		—		—		39,923		(10,588	)		100		(10,588	)		18,550		—		Note 16
Huiyu Shanghai Management Consultancy Co., Ltd.	Development and maintenance of information system		13,670		3		—		—		—		—		(4,093	)		100		(4,093	)		—		—		Note 14 and 16

(Continued)

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Investee	Accumulated Investment in Mainland China as of December 31, 2020		Investment Amounts Authorized by Investment Commission, MOEA		Upper Limit on Investment Stipulated by Investment Commission, MOEA

SENAO and its subsidiaries (Note 3)	$	2,239,005	$	2,239,005	$	3,556,272
Chunghwa Telecom (China) Co., Ltd. (Note 4)		177,176		177,176		233,555,074
Jiangsu Zhenghua Information Technology Company, LLC (Note 4)		142,057		142,057		233,555,074
Chunghwa Precision Test Tech Co., Ltd and its subsidiaries (Note 5)		113,573		159,725		4,229,876
Shanghai Chief Telecom Co., Ltd. (Note 6)		4,973		4,973		1,794,361
IISI and its subsidiaries (Note 7)		39,923		39,923		640,718

(Concluded)

Note 1:

Investments are divided into three categories as follows:

Direct investment.

Investments through a holding company registered in a third region.

Others.

Note 2:

The amounts were calculated based on the investee’s audited financial statements.

Note 3:

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

Note 4:

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

Note 5:

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

Note 6:

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

Note 7:

IISI and its subsidiaries were calculated based on the consolidated net assets value of IISI.

Note 8:

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

Note 9:

Senao International Trading (Shanghai) Co., Ltd. was approved to end and dissolve its business in December 2020. The liquidation of Senao International Trading (Shanghai) Co., Ltd. is still in process.

Note 10:

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

Note 11:

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

Note 12:

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

Note 13:

Chunghwa Telecom (China) Co., Ltd. was approved to end and dissolve its business in August 2020. The liquidation of Chunghwa Telecom (China) Co., Ltd. is still in process.

Note 14:

The liquidation of Huiyu Shanghai Management Consultancy Co., Ltd. was completed in December 2020.

Note 15:

The amount was eliminated upon consolidation.

Note 16:

The Company only eliminated the amounts after accounts of IISI and its subsidiaries are included in the consolidated financial statements.

Note 17:

The English name is the same as the above entity; however, the Chinese name included in the respective Articles of Incorporation is different from the above entity.

- 121 -

TABLE 10

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS

YEAR ENDED DECEMBER 31, 2020

(Amounts in Thousands of New Taiwan Dollars)


Year	No. (Note 1)		Company Name	Related Party	Nature of Relationship (Note 2)		Transaction Details
Year	No. (Note 1)		Company Name	Related Party	Nature of Relationship (Note 2)		Financial Statement Account	Amount (Note 5)		Payment Terms (Note 3)		% to Total Sales or Assets (Note 4)

2020		0	Chunghwa Telecom Co., Ltd.	Senao International Co., Ltd.		a	Accounts receivable	$	642,604		—		—
							Accrued custodial receipts		174,323		—		—
							Accounts payable		753,706		—		—
							Amounts collected for others		137,816		—		—
							Revenues		3,164,854		—		2
							Operating costs and expenses		648,459		—		—
							Inventories		27,666		—		—
							Property, plant and equipment		11,929		—		—
				CHIEF Telecom Inc.		a	Accounts receivable		59,926		—		—
							Accounts payable		22,164		—		—
							Revenues		406,642		—		—
							Operating costs and expenses		122,025		—		—
				CHYP Multimedia Marketing &		a	Accounts payable		36,588		—		—
				Communications Co., Ltd.			Amounts collected for others		44,201		—		—
							Revenues		34,401		—		—
							Operating costs and expenses		110,915		—		—
				Chunghwa System Integration Co., Ltd.		a	Accounts receivable		41,008		—		—
							Accounts payable		345,168		—		—
							Revenues		17,654		—		—
							Operating costs and expenses		1,198,845		—		1
							Inventories		95,061		—		—
							Prepayments		105,755		—		—
							Other current assets		16,834		—		—
							Property, plant and equipment		246,831		—		—
							Intangible assets		49,046		—		—
							Other noncurrent assets		16,964		—		—
				Chunghwa Telecom Global Inc.		a	Accounts receivable		14,734		—		—
							Accounts payable		35,056		—		—
							Revenues		96,108		—		—
							Operating costs and expenses		313,914		—		—
				Donghwa Telecom Co., Ltd.		a	Accounts receivable		31,020		—		—
							Accounts payable		144,874		—		—
							Revenues		178,470		—		—
							Operating costs and expenses		451,365		—		—

(Continued)

- 122 -

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS

YEAR ENDED DECEMBER 31, 2020

(Amounts in Thousands of New Taiwan Dollars)


Year	No. (Note 1)		Company Name	Related Party	Nature of Relationship (Note 2)		Transaction Details
Year	No. (Note 1)		Company Name	Related Party	Nature of Relationship (Note 2)		Financial Statement Account	Amount (Note 5)		Payment Terms (Note 3)		% to Total Sales or Assets (Note 4)
				Spring House Entertainment Tech. Inc.		a	Amounts collected for others	$	20,420		—		—
							Revenues		30,829		—		—
				Chunghwa Telecom Japan Co., Ltd.		a	Revenues		33,497		—		—
							Operating costs and expenses		93,429		—		—
				Light Era Development Co., Ltd.		a	Accounts payable		22,263		—		—
							Inventories		16,457		—		—
							Property, plant and equipment		148,483		—		—
				Chunghwa Telecom Singapore Pte., Ltd.		a	Accounts receivable		40,919		—		—
							Accounts payable		66,693		—		—
							Revenues		58,653		—		—
							Operating costs and expenses		157,772		—		—
				Honghwa International Co., Ltd.		a	Accounts receivable		49,555		—		—
							Accounts payable		682,373		—		—
							Revenues		268,779		—		—
							Operating costs and expenses		5,421,782		—		3
							Inventories		114,521		—		—
							Property, plant and equipment		100,542		—		—
				Smartfun Digital Co., Ltd.		a	Accounts payable		19,225		—		—
							Operating costs and expenses		44,685		—		—
				Chunghwa Telecom (Thailand) Co., Ltd.		a	Operating costs and expenses		29,103		—		—
				CHT Security Co., Ltd.		a	Accounts receivable		14,392		—		—
							Accounts payable		109,857		—		—
							Revenues		42,305		—		—
							Operating costs and expenses		301,066		—		—
							Inventories		37,600		—		—
							Other noncurrent assets		36,274		—		—
				Aval Technologies Co., Ltd.		a	Accounts payable		37,085		—		—
							Operating costs and expenses		222,544		—		—
							Customers’ deposits		21,339		—		—
				Senyoung Insurance Agent Co., Ltd.		a	Accounts receivable		45,799		—		—
							Revenues		107,879		—		—
				International Integrated Systems, Inc.		a	Accounts payable		235,565		—		—
							Revenues		10,260		—		—
							Operating costs and expenses		36,882		—		—
							Inventories		114,212		—		—
		1	Light Era Development Co., Ltd.	CHIEF Telecom Inc.		c	Revenues		96,619		—		—

(Continued)

- 123 -

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS

YEAR ENDED DECEMBER 31, 2020

(Amounts in Thousands of New Taiwan Dollars)

Year

No.
(Note 1)

Company Name

Related Party

Nature of
Relationship
(Note 2)

Transaction Details

Financial Statement Account

Amount
(Note 5)

Payment Terms
(Note 3)

% to Total
Sales or Assets
(Note 4)

Donghwa Telecom Co., Ltd.

Chunghwa Telecom Singapore Pte., Ltd.

Unearned receipts

13,227

—

CHIEF Telecom Inc.

Chunghwa Telecom Singapore Pte., Ltd.

Revenues

36,669

—

Operating costs and expenses

53,043

—

Note 1:

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

“0” for the Company.

Subsidiaries are numbered from “1”.

Note 2:

Related party transactions are divided into three categories as follows:

The Company to subsidiaries.

Subsidiaries to the Company.

Subsidiaries to subsidiaries.

Note 3:

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

Note 4:

For assets and liabilities, amount is shown as a percentage to consolidated total assets as of December 31, 2020, while revenues, costs and expenses are shown as a percentage to consolidated revenues for the year ended December 31, 2020.

Note 5:

The amount was eliminated upon consolidation.

(Concluded)

- 124 -

TABLE 11

CHUNGHWA TELECOM CO., LTD.

INFORMATION OF MAJOR STOCKHOLDERS

DECEMBER 31, 2020


Name of Major Stockholders	Shares
Name of Major Stockholders	Number of Shares		Percentage of Ownership (%)
Ministry of Transportation and Communications		2,737,718,976		35.29
Shin Kong Life Insurance Co., Ltd.		551,639,184		7.11

Note:

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

- 125 -