Chunghwa Telecom Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the

Nine Months Ended September 30, 2020 and 2019 and Independent Auditors' Review Report

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (In Thousands of New Taiwan Dollars)

September 30, 2020

December 31, 2019

September 30, 2019

(Reviewed)

(Audited)

(Reviewed)

ASSETS

Amount

%

Amount

%

Amount

%

CURRENT ASSETS

Cash and cash equivalents (Note 6)

$

17,703,012

4

$

34,049,643

7

$

24,072,337

5

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

7,240

-

516

-

24,595

-

Hedging financial assets (Note 20)

7,841

-

327

-

-

-

Contract assets (Note 30)

5,169,966

1

4,441,196

1

4,516,992

1

Trade notes and accounts receivable, net (Notes 9, 13 and 30)

22,595,966

5

26,407,783

6

29,760,143

6

Receivables from related parties (Note 38)

690,145

-

16,834

-

19,077

-

Inventories (Notes 10 and 39)

15,167,360

3

17,344,276

4

17,888,077

4

Prepayments (Note 11)

4,868,631

1

1,883,259

-

4,564,748

1

Other current monetary assets (Note 12)

5,576,298

1

7,498,564

2

7,997,055

2

Other current assets (Notes 19 and 39)

3,366,624

-

2,429,664

-

2,496,710

1

Total current assets

75,153,083

15

94,072,062

20

91,339,734

20

NONCURRENT ASSETS

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

699,689

-

778,105

-

512,736

-

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

7,632,641

2

7,268,917

2

6,457,296

1

Investments accounted for using equity method (Note 14)

7,017,970

2

7,354,226

2

3,232,056

1

Contract assets (Note 30)

2,356,776

-

2,600,913

-

2,537,975

1

Property, plant and equipment (Notes 13, 15, 38 and 39)

279,241,678

56

283,694,215

59

282,108,127

60

Right-of-use assets (Note 16)

11,159,348

3

11,364,249

2

11,350,779

2

Investment properties (Note 17)

8,171,495

2

8,169,393

2

8,267,187

2

Intangible assets (Notes 13 and 18)

91,885,832

19

47,046,525

10

47,920,083

10

Deferred income tax assets (Note 3)

3,348,788

-

3,258,607

1

3,522,971

1

Incremental costs of obtaining contracts (Note 30)

975,788

-

942,652

-

961,348

-

Net defined benefit assets (Note 3)

2,285,109

-

2,127,335

-

842,890

-

Prepayments (Note 11)

2,340,922

-

2,679,335

1

2,761,579

1

Other noncurrent assets (Notes 19, 39 and 40)

5,191,151

1

6,101,704

1

5,888,995

1

Total noncurrent assets

422,307,187

85

383,386,176

80

376,364,022

80

TOTAL

$

497,460,270

100

$

477,458,238

100

$

467,703,756

100

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Short-term loans (Note 21)

$

75,000

-

$

90,000

-

$

90,000

-

Short-term bills payable (Note 22)

11,990,829

3

-

-

-

-

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

19

-

239

-

1,854

-

Contract liabilities (Notes 30 and 38)

16,184,042

4

16,839,830

4

16,417,493

4

Trade notes and accounts payable (Note 25)

13,256,209

3

15,312,274

3

16,932,170

4

Payables to related parties (Note 38)

494,388

-

653,983

-

379,020

-

Current tax liabilities (Note 3)

2,580,457

-

4,020,670

1

6,238,714

1

Lease liabilities (Notes 16, 35 and 38)

3,272,130

-

3,291,330

1

3,247,553

1

Other payables (Note 26)

22,189,496

5

22,952,488

5

20,092,380

4

Provisions (Notes 13 and 27)

240,296

-

206,942

-

248,858

-

Current portion of long-term loans (Notes 23 and 39)

1,600,000

-

-

-

-

-

Other current liabilities

956,329

-

983,789

-

999,685

-

Total current liabilities

72,839,195

15

64,351,545

14

64,647,727

14

NONCURRENT LIABILITIES

Long-term loans (Notes 23 and 29)

-

-

1,600,000

-

1,600,000

-

Bonds payable (Note 24)

19,979,473

4

-

-

-

-

Contract liabilities (Note 30)

6,508,142

2

6,841,485

2

6,802,600

2

Deferred income tax liabilities (Note 3)

1,953,561

-

1,912,305

-

1,941,106

-

Provisions (Note 27)

105,323

-

97,382

-

85,090

-

Lease liabilities (Notes 16, 35 and 38)

6,300,425

1

6,466,808

1

6,339,175

1

Customers' deposits (Note 38)

4,702,387

1

4,747,644

1

4,645,677

1

Net defined benefit liabilities (Note 3)

3,612,832

1

3,504,617

1

3,662,751

1

Other noncurrent liabilities

1,801,816

-

1,542,687

-

1,496,663

-

Total noncurrent liabilities

44,963,959

9

26,712,928

5

26,573,062

5

Total liabilities

117,803,154

24

91,064,473

19

91,220,789

19

EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE PARENT (Notes 13 and 29)

Common stocks

77,574,465

16

77,574,465

16

77,574,465

17

Additional paid-in capital

171,272,215

34

171,255,985

36

171,257,188

36

Retained earnings

Legal reserve

77,574,465

16

77,574,465

16

77,574,465

17

Special reserve

2,675,419

-

2,675,419

1

2,675,419

1

Unappropriated earnings

38,753,327

8

46,341,361

10

37,359,912

8

Total retained earnings

119,003,211

24

126,591,245

27

117,609,796

26

Others

868,533

-

688,548

-

22,151

-

Total equity attributable to stockholders of the parent

368,718,424

74

376,110,243

79

366,463,600

79

NONCONTROLLING INTERESTS (Notes 13 and 29)

10,938,692

2

10,283,522

2

10,019,367

2

Total equity

379,657,116

76

386,393,765

81

376,482,967

81

TOTAL

$

497,460,270

100

$

477,458,238

100

$

467,703,756

100

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

- 3 -

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings Per Share) (Reviewed, Not Audited)

Three Months Ended September 30

Nine Months Ended September 30

2020

2019

2020

2019

Amount

%

Amount

%

Amount

%

Amount

%

REVENUES (Notes 30, 38 and 44)

$ 52,171,326

100

$ 50,848,160

100

$ 148,129,189

100

$ 152,287,496

100

OPERATING COSTS (Notes 10,

28, 30, 31, 38 and 44)

34,505,914

66

33,019,129

65

94,697,928

64

98,767,215

65

GROSS PROFIT

17,665,412

34

17,829,031

35

53,431,261

36

53,520,281

35

OPERATING EXPENSES

(Notes 9, 28, 31, 38 and 44)

Marketing

5,142,574

10

5,578,613

11

15,392,969

10

16,469,522

11

General and administrative

1,151,224

2

1,123,654

2

3,512,404

2

3,435,379

2

Research and development

980,526

2

1,088,190

2

2,877,722

2

2,963,501

2

Expected credit loss (reversal of

credit loss)

(45,390)

-

9,968

-

58,588

-

(91,793)

-

Total operating expenses

7,228,934

14

7,800,425

15

21,841,683

14

22,776,609

15

OTHER INCOME AND

EXPENSES (Note 31)

285,688

1

(19,273)

-

273,854

-

(28,485)

-

INCOME FROM OPERATIONS

10,722,166

21

10,009,333

20

31,863,432

22

30,715,187

20

NON-OPERATING INCOME

AND EXPENSES

Interest income

21,187

-

67,223

-

93,362

-

196,757

-

Other income (Notes 31 and 38)

86,892

-

143,583

-

416,510

-

479,259

-

Other gains and losses (Notes

31, 37 and 38)

(53,371)

-

47,230

-

(76,322)

-

23,554

-

Interest expenses (Notes 16, 31

and 38)

(57,610)

-

(26,292)

-

(148,005)

-

(77,730)

-

Share of profits of associates

accounted for using equity

method (Note 14)

106,012

-

195,449

-

270,932

-

412,500

-

Total non-operating

income and expenses

103,110

-

427,193

-

556,477

-

1,034,340

-

INCOME BEFORE INCOME

TAX

10,825,276

21

10,436,526

20

32,419,909

22

31,749,527

20

INCOME TAX EXPENSE

(Notes 3 and 32)

2,109,499

4

1,990,531

4

6,303,782

4

6,020,321

4

NET INCOME

8,715,777

17

8,445,995

16

26,116,127

18

25,729,206

16

TOTAL OTHER

COMPREHENSIVE INCOME

(LOSS)

Items that will not be

reclassified to profit or loss:

Unrealized gain or loss on

investments in equity

instruments at fair value

through other

comprehensive income

(Notes 29 and 37)

726,376

1

(191,166)

-

280,667

-

(474,557)

-

Gain or loss on hedging

instruments subject to basis

adjustment (Note 20)

5,483

-

(1,803)

-

7,514

-

(1,069)

-

Share of remeasurements of

defined benefit pension

plans of associates (Note

14)

-

-

-

-

725

-

-

-

731,859

1

(192,969)

-

288,906

-

(475,626)

-

(Continued)

- 4 -

Three Months Ended September 30

Nine Months Ended September 30

2020

2019

2020

2019

Amount

%

Amount

%

Amount

%

Amount

%

Items that may be reclassified

subsequently to profit or loss:

Exchange differences arising

from the translation of the

foreign operations

$

(52,733)

-

$

(17,242)

-

$

(132,042)

-

$

45,756

-

Share of exchange differences

arising from the translation

of the foreign operations of

associates (Note 14)

(1,565)

-

(17)

-

(2,800)

-

299

-

Income tax relating to items

that may be reclassified

subsequently to profit or

loss (Note 32)

56

-

-

-

56

-

-

-

(54,242)

-

(17,259)

-

(134,786)

-

46,055

-

Total other comprehensive

income (loss), net of

income tax

677,617

1

(210,228)

-

154,120

-

(429,571)

-

TOTAL COMPREHENSIVE

INCOME

$

9,393,394

18

$

8,235,767

16

$

26,270,247

18

$

25,299,635

16

NET INCOME ATTRIBUTABLE

TO

Stockholders of the parent

$

8,336,836

16

$

8,090,541

16

$

25,194,210

17

$

25,014,993

16

Noncontrolling interests

378,941

1

355,454

-

921,917

1

714,213

-

$

8,715,777

17

$

8,445,995

16

$

26,116,127

18

$

25,729,206

16

COMPREHENSIVE INCOME

ATTRIBUTABLE TO

Stockholders of the parent

$

9,017,894

17

$

7,886,427

16

$

25,374,920

17

$

24,577,230

16

Noncontrolling interests

375,500

1

349,340

-

895,327

1

722,405

-

$

9,393,394

18

$

8,235,767

16

$

26,270,247

18

$

25,299,635

16

EARNINGS PER SHARE

(Note 33)

$

1.07

$

1.04

$

3.25

$

3.22

Basic

Diluted

$

1.07

$

1.04

$

3.24

$

3.22

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

(Concluded)

- 5 -

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

Equity Attributable to Stockholders of the Parent (Notes 13, 20 and 29)

Others

Unrealized Gain

Exchange

or Loss on

Differences

Financial Assets

Arising from the

at Fair Value

Retained Earnings

Translation of

Through Other

Gain or Loss

Noncontrolling

Additional

Unappropriated

the Foreign

Comprehensive

on Hedging

Interests

Common Stocks

Paid-in Capital

Legal Reserve

Special Reserve

Earnings

Operations

Income

Instruments

Total

(Notes 13 and 29)

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

-

1,314

-

-

-

-

-

-

1,314

-

1,314

Change in additional paid-in capital from investments in associates accounted for

using equity method

-

119,922

-

-

-

-

-

-

119,922

769

120,691

Net income for the nine months ended September 30, 2019

-

-

-

-

25,014,993

-

-

-

25,014,993

714,213

25,729,206

Other comprehensive income (loss) for the nine months ended September 30, 2019

-

-

-

-

-

27,706

(464,400)

(1,069)

(437,763)

8,192

(429,571)

Total comprehensive income (loss) for the nine months ended September 30, 2019

-

-

-

-

25,014,993

27,706

(464,400)

(1,069)

24,577,230

722,405

25,299,635

Share-based payment transactions of subsidiaries

-

(812)

-

-

-

-

-

-

(812)

16,428

15,616

Net decrease in noncontrolling interests

-

-

-

-

-

-

-

-

-

(763)

(763)

BALANCE, SEPTEMBER 30, 2019

$

77,574,465

$

171,257,188

$

77,574,465

$

2,675,419

$

37,359,912

$

(51,721)

$

73,872

$

-

$

366,463,600

$

10,019,367

$

376,482,967

BALANCE, JANUARY 1, 2020

$

77,574,465

$

171,255,985

$

77,574,465

$

2,675,419

$

46,341,361

$

(148,377)

$

836,598

$

327

$

376,110,243

$

10,283,522

$

386,393,765

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

-

1,647

-

-

-

-

-

-

1,647

-

1,647

Change in additional paid-in capital from investments in associates accounted for

using equity method

-

(9,399)

-

-

-

-

-

-

(9,399)

47

(9,352)

Change in additional paid-in capital for not proportionately participating in the

capital increase of subsidiaries

-

(103)

-

-

-

-

-

-

(103)

103

-

Net income for the nine months ended September 30, 2020

-

-

-

-

25,194,210

-

-

-

25,194,210

921,917

26,116,127

Other comprehensive income (loss) for the nine months ended September 30, 2020

-

-

-

-

725

(123,485)

295,956

7,514

180,710

(26,590)

154,120

Total comprehensive income (loss) for the nine months ended September 30, 2020

-

-

-

-

25,194,935

(123,485)

295,956

7,514

25,374,920

895,327

26,270,247

Share-based payment transactions of subsidiaries

-

24,085

-

-

-

-

-

-

24,085

59,234

83,319

Net increase in noncontrolling interests

-

-

-

-

-

-

-

-

-

475,879

475,879

BALANCE, SEPTEMBER 30, 2020

$

77,574,465

$

171,272,215

$

77,574,465

$

2,675,419

$

38,753,327

$

(271,862)

$

1,132,554

$

7,841

$

368,718,424

$

10,938,692

$

379,657,116

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

- 6 -

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

Nine Months Ended September 30

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax

$ 32,419,909

$ 31,749,527

Adjustments for:

Depreciation

23,184,863

23,169,471

Amortization

3,774,247

3,191,249

Amortization of incremental costs of obtaining contracts

582,950

953,109

Expected credit loss (reversal of credit loss)

58,588

(91,793)

Interest expenses

148,005

77,730

Interest income

(93,362)

(196,757)

Dividend income

(246,084)

(296,360)

Compensation cost of share-based payment transactions

4,937

1,288

Share of profits of associates accounted for using equity method

(270,932)

(412,500)

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

(124,341)

28,339

Gain on disposal of investment properties

(151,357)

-

Loss on disposal of intangible assets

1,844

146

Loss on disposal of financial instruments

1,788

-

Gain on disposal of investments accounted for using equity

method

(1,412)

(30,152)

Provision for impairment loss of inventory

608,024

155,761

Valuation loss on financial assets and liabilities at fair value

through profit or loss, net

78,887

3,197

Others

(40,116)

(26,531)

Changes in operating assets and liabilities:

Decrease (increase) in:

Contract assets

98,393

159,557

Trade notes and accounts receivable

4,019,978

593,945

Receivables from related parties

(340,311)

5,193

Inventories

1,710,128

(2,923,123)

Prepayments

(2,516,543)

(2,648,742)

Other current monetary assets

276,557

(915,166)

Other current assets

(862,203)

79,373

Incremental cost of obtaining contracts

(616,086)

(579,427)

Increase (decrease) in:

Contract liabilities

(1,322,664)

6,240,091

Trade notes and accounts payable

(2,313,384)

(3,531,938)

Payables to related parties

(159,595)

(538,931)

Other payables

(2,955,045)

(1,556,888)

Provisions

26,037

127,121

Other current liabilities

(41,634)

(147,149)

Net defined benefit plans

(82,172)

450,013

Cash generated from operations

54,857,894

53,089,653

(Continued)

- 7 -

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

Nine Months Ended September 30

2020

2019

Interest paid

$

(138,943)

$

(77,730)

Income tax paid

(7,808,819)

(4,166,080)

Net cash provided by operating activities

46,910,132

48,845,843

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of financial assets at fair value through other

comprehensive income

(83,254)

-

Purchase of financial assets at fair value through profit or loss

(38,944)

(86,536)

Proceeds from disposal of financial assets at fair value through

profit or loss

29,741

64,111

Acquisition of time deposits and negotiable certificates of deposit

with maturities of more than three months

(3,718,148)

(13,483,451)

Proceeds from disposal of time deposits and negotiable certificates

of deposit with maturities of more than three months

5,381,866

15,880,554

Proceeds from disposal of agreements collateralized by bonds with

maturities of more than three months

15,335

-

Proceeds from disposal of investments accounted for using equity

method

-

32,470

Acquisition of property, plant and equipment

(13,972,367)

(16,356,682)

Proceeds from disposal of property, plant and equipment

110,115

37,476

Acquisition of intangible assets

(47,547,040)

(167,593)

Acquisition of investment properties

(54,435)

-

Increase in other noncurrent assets

(130,825)

(882,141)

Interest received

102,113

207,360

Dividends received

515,364

534,395

Net cash inflow on acquisition of subsidiaries

354,056

-

Net cash used in investing activities

(59,036,423)

(14,220,037)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from short-term loans

115,000

315,000

Repayment of short-term loans

(134,000)

(325,000)

Proceeds from short-term bills payable

41,000,000

-

Repayment of short-term bills payable

(29,000,000)

-

Proceeds from issuance of bonds

20,000,000

-

Payments for transaction costs attributable to the issuance of bonds

(21,038)

-

Decrease in customers' deposits

(61,246)

(91,492)

Payments for the principal of lease liabilities

(2,863,451)

(2,896,092)

Increase in other noncurrent liabilities

254,286

186,333

Cash dividends

(32,782,969)

(34,745,603)

Dividends distributed to noncontrolling interests

(775,420)

(709,817)

(Continued)

- 8 -

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of New Taiwan Dollars)

(Reviewed, Not Audited)

Nine Months Ended September 30

2020

2019

Change in other noncontrolling interests

$

78,382

$

13,565

Unclaimed dividend

1,647

1,314

Net cash used in financing activities

(4,188,809)

(38,251,792)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND

CASH EQUIVALENTS

(31,531)

53,543

NET DECREASE IN CASH AND CASH EQUIVALENTS

(16,346,631)

(3,572,443)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

34,049,643

27,644,780

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

17,703,012

$

24,072,337

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

(Concluded)

- 9 -

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) (Reviewed, Not Audited)

  1. GENERAL
    Chunghwa Telecom Co., Ltd. ("Chunghwa") was incorporated on July 1, 1996 in the Republic of China ("ROC") pursuant to the Article 30 of the Telecommunications Act. Chunghwa is a company limited by shares and, prior to August 2000, was wholly owned by the Ministry of Transportation and Communications ("MOTC"). Prior to July 1, 1996, the current operations of Chunghwa were carried out under the Directorate General of Telecommunications ("DGT"). The DGT was established by the MOTC in June 1943 to take primary responsibility in the development of telecommunications infrastructure and to formulate policies related to telecommunications. On July 1, 1996, the telecom operations of the DGT were spun-off as Chunghwa which continues to carry out the business and the DGT continues to be the industry regulator.
    Effective August 12, 2005, the MOTC completed the process of privatizing Chunghwa by reducing the government ownership to below 50% in various stages. In July 2000, Chunghwa received approval from the Securities and Futures Commission (the "SFC") for a domestic initial public offering and its common stocks were listed and traded on the Taiwan Stock Exchange (the "TWSE") on October 27, 2000. Certain of Chunghwa's common stocks were sold, in connection with the foregoing privatization plan, in domestic public offerings at various dates from August 2000 to July 2003. Certain of Chunghwa's common stocks were also sold in an international offering of securities in the form of American Depository Shares ("ADS") on July 17, 2003 and were listed and traded on the New York Stock Exchange (the "NYSE"). The MOTC sold common stocks of Chunghwa by auction in the ROC on August 9, 2005 and completed the second international offering on August 10, 2005. Upon completion of the share transfers associated with these offerings on August 12, 2005, the MOTC owned less than 50% of the outstanding shares of Chunghwa and completed the privatization plan.
    Chunghwa together with its subsidiaries are hereinafter referred to collectively as the "Company".
    The consolidated financial statements are presented in Chunghwa's functional currency, New Taiwan dollars.
  2. APPROVAL OF FINANCIAL STATEMENTS
    The consolidated financial statements were approved by the Board of Directors on November 6, 2020.
  3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    Except for the following items, the accounting policies applied in these consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended December 31, 2019. Please refer to the consolidated financial statements for the year ended December 31, 2019 for the details.

- 10 -

Statement of Compliance

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

Basis of Consolidation

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

Percentage of Ownership

Main Businesses and

September

December

September

Name of Investor

Name of Investee

Products

30, 2020

31, 2019

30, 2019

Note

Chunghwa Telecom

Senao International Co., Ltd.

Handset and peripherals

28

28

28

a.

Co., Ltd.

("SENAO")

retailer, sales of CHT mobile

phone plans as an agent

Light Era Development Co.,

Planning and development of

100

100

100

Ltd. ("LED")

real estate and intelligent

buildings, and property

management

Donghwa Telecom Co., Ltd.

International private leased

100

100

100

("DHT")

circuit, IP VPN service, and

IP transit services

Chunghwa Telecom Singapore

International private leased

100

100

100

Pte., Ltd. ("CHTS")

circuit, IP VPN service, and

IP transit services

Chunghwa System Integration

Providing system integration

100

100

100

Co., Ltd. ("CHSI")

services and

telecommunications

equipment

Chunghwa Investment Co.,

Investment

89

89

89

Ltd. ("CHI")

CHIEF Telecom Inc.

Network integration, internet

56

57

57

b.

("CHIEF")

data center ("IDC"),

communications integration

and cloud application

services

CHYP Multimedia Marketing

Digital information supply

100

100

100

& Communications Co., Ltd.

services and advertisement

("CHYP")

services

Prime Asia Investments Group

Investment

100

100

100

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

Spring House Entertainment

Software design services,

56

56

56

c.

Tech. Inc. ("SHE")

internet contents production

and play, and motion picture

production and distribution

Chunghwa Telecom Global,

International private leased

100

100

100

Inc. ("CHTG")

circuit, internet services, and

transit services

Chunghwa Telecom Vietnam

Intelligent energy saving

100

100

100

Co., Ltd. ("CHTV")

solutions, international

circuit, and information and

communication technology

("ICT") services

Smartfun Digital Co., Ltd.

Providing diversified family

65

65

65

("SFD")

education digital services

Chunghwa Telecom Japan Co.,

International private leased

100

100

100

Ltd. ("CHTJ")

circuit, IP VPN service, and

IP transit services

Chunghwa Sochamp

Design, development and

51

51

51

Technology Inc. ("CHST")

production of Automatic

License Plate Recognition

software and hardware

(Continued)

- 11 -

Percentage of Ownership

Main Businesses and

September

December

September

Name of Investor

Name of Investee

Products

30, 2020

31, 2019

30, 2019

Note

Honghwa International Co.,

Telecommunications

100

100

100

Ltd. ("HHI")

engineering, sales agent of

mobile phone plan

application and other

business services, etc.

Chunghwa Leading Photonics

Production and sale of

75

75

75

Tech Co., Ltd. ("CLPT")

electronic components and

finished products

Chunghwa Telecom (Thailand)

International private leased

100

100

100

d.

Co., Ltd. ("CHTT")

circuit, IP VPN service, ICT

and cloud VAS services

CHT Security Co., Ltd.

Computing equipment

80

80

80

("CHTSC")

installation, wholesale of

computing and business

machinery equipment and

software, management

consulting services, data

processing services, digital

information supply services

and internet identify services

International Integrated

IT solution provider, IT

51

-

-

e.

Systems, Inc. ("IISI")

application consultation,

system integration and

package solution

Senao International

Senao International (Samoa)

International investment

100

100

100

Co., Ltd.

Holding Ltd. ("SIS")

Youth Co., Ltd. ("Youth")

Sale of information and

96

93

93

f.

communication technologies

products

Aval Technologies Co., Ltd.

Sale of information and

100

100

100

("Aval")

communication technologies

products

Senyoung Insurance Agent Co.,

Property and liability insurance

100

100

100

Ltd. ("SENYOUNG")

agency

Youth Co., Ltd.

ISPOT Co., Ltd. ("ISPOT")

Sale of information and

100

100

100

communication technologies

products

Youyi Co., Ltd. ("Youyi")

Maintenance of information

100

100

100

and communication

technologies products

Aval Technologies

Wiin Technology Co., Ltd.

Sale of information and

100

100

100

g.

Co., Ltd.

("Wiin")

communication technologies

products

Senyoung Insurance

Senaolife Insurance Agent Co.,

Life insurance services

100

100

-

h.

Agent Co., Ltd.

Ltd. ("Senaolife")

Light Era

Taoyuan Asia Silicon Valley

Development of real estate

-

-

-

i.

Development Co.,

Innovation Co., Ltd.

Ltd.

("TASVI")

CHIEF Telecom Inc.

Unigate Telecom Inc.

Telecommunications and

100

100

100

("Unigate")

internet service

Chief International Corp.

Telecommunications and

100

100

100

("CIC")

internet service

Shanghai Chief Telecom Co.,

Telecommunications and

49

49

49

j.

Ltd. ("SCT")

internet service

Chunghwa Investment

Chunghwa Precision Test

Production and sale of

34

34

34

k.

Co., Ltd.

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

semiconductor testing

components and printed

circuit board

(Continued)

- 12 -

Percentage of Ownership

Main Businesses and

September

December

September

Name of Investor

Name of Investee

Products

30, 2020

31, 2019

30, 2019

Note

Chunghwa Precision

Chunghwa Precision Test

Design and after-sale services

100

100

100

Test Tech. Co., Ltd.

Tech. USA Corporation

of semiconductor testing

("CHPT (US)")

components and printed

circuit board

CHPT Japan Co., Ltd. ("CHPT

Related services of electronic

100

100

100

(JP)")

parts, machinery processed

products and printed circuit

board

Chunghwa Precision Test

Wholesale and retail of

100

100

100

Tech. International, Ltd.

electronic materials, and

("CHPT (International)")

investment

Senao International

Senao International HK

International investment

100

100

100

(Samoa) Holding

Limited ("SIHK")

Ltd.

Senao International

Senao Trading (Fujian) Co.,

Sale of information and

-

-

-

l.

HK Limited

Ltd. ("STF")

communication technologies

products

Senao International Trading

Sale of information and

100

100

100

(Shanghai) Co., Ltd.

communication technologies

("SITS")

products

Senao International Trading

Sale of information and

-

-

-

m.

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

communication technologies

products

Prime Asia

Chunghwa Hsingta Co., Ltd.

Investment

100

100

100

Investments Group

("CHC")

Ltd. (B.V.I.)

Chunghwa Hsingta

Chunghwa Telecom (China)

Integrated information and

100

100

100

n.

Co., Ltd.

Co., Ltd. ("CTC")

communication solution

services for enterprise

clients, and intelligent

energy network service

Chunghwa Precision

Shanghai Taihua Electronic

Design of printed circuit board

100

100

100

Test Tech.

Technology Limited

and related consultation

International, Ltd.

("STET")

service

Su Zhou Precision Test Tech.

Assembly processed of circuit

100

100

-

o.

Ltd. ("SZPT")

board, design of printed

circuit board and related

consultation service

International

Infoexplorer International Co.,

Investment

100

-

-

p.

Integrated Systems,

Ltd.("IESA")

Inc.

IISI Investment Co., Ltd.

Investment

100

-

-

p.

("IICL")

Unitronics Technology Corp.

Development and maintenance

99.96

-

-

p.

("UTC")

of information system

Infoexplorer

International Integrated

Investment and technical

100

-

-

p.

International Co.,

Systems (Hong Kong)

consulting service

Ltd.

Limited ("IEHK")

IISI Investment Co.,

Leading Tech Co., Ltd.

Investment

100

-

-

p.

Ltd.

("LTCL")

Leading Tech Co.,

Leading Systems Co., Ltd.

Investment

100

-

-

p.

Ltd.

("LSCL")

Leading Systems Co.,

International Integrated

Development and maintenance

100

-

-

p.

Ltd.

Systems Inc. (Shanghai)

of information system

("IISS")

International

Huiyu Shanghai Management

Development and maintenance

100

-

-

p.

Integrated Systems

Consultancy Co., Ltd.

of information system

Inc. (Shanghai)

("HSMC")

(Concluded)

- 13 -

  1. 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 accounts of SENAO are included in the consolidated financial statements.
  2. CHIEF issued new shares in March, November 2019 and March 2020, as its employees exercised options. Therefore, the Company's ownership interest in CHIEF decreased to 59.75% and 59.10% as of December 31, 2019 and September 30, 2020, respectively.
  3. SHE reduced 19.72% of its capital to offset accumulated deficits in December 2019 and the
    Company's ownership interest in SHE remained the same.
  4. The Company increased its investment in CHTT proportionally in October 2019 and the Company's ownership interest in CHTT remained the same.
  5. 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 September 30, 2020.
  6. 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%.
  7. Aval invested 100% equity shares of Wiin Technology Co., Ltd. ("Wiin") in September 2019.
  8. SENYOUNG invested 100% equity shares of Senaolife Insurance Agent Co., Ltd. ("Senaolife") in November 2019.
  9. TASVI completed its liquidation in September 2019.
  10. CHIEF obtained two out of three seats of the Board of Directors of SCT according to the mutual agreements among stockholders and gained control over SCT; hence, SCT is deemed as a subsidiary of the Company.
  11. 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.
  12. STF completed its liquidation in May 2019.
  13. SITJ completed its liquidation in March 2019.
  14. CTC was approved to end and dissolve its business in August 2020. The liquidation of CTC is still in process.
  15. CHPT (International) invested 100% equity shares of Su Zhou Precision Test Tech. Ltd. ("SZPT") in October 2019.
  16. It is a subsidiary of IISI.

- 14 -

The following diagram presented information regarding the relationship and ownership percentages between Chunghwa and its subsidiaries as of September 30, 2020.

Chunghwa Telecom Co., Ltd.

(Chunghwa)

100%

27.79%

100%

100%

100%

100%

100%

56.04%

100%

56.14%

100%

89%

100%

51%

65%

100%

75%

100%

80.27%

51.20%

Prime Asia

Chunghwa

Smartfun

Honghwa

Chunghwa

International

Chunghwa

Senao

CHYP

Chunghwa

Chunghwa

Chunghwa

Light Era

Spring House

Donghwa

CHIEF

Chunghwa

Chunghwa

Chunghwa

CHT

Telecom

International

Multimedia

Telecom

System

Telecom Development

Entertainment

Telecom

Telecom

Telecom

Investment

Investments

Sochamp

Digital

International

Leading

Telecom

Security

Integrated

Vietnam

Co., Ltd.

Marketing &

Singapore

Integration

Global,

Co., Ltd.

Tech. Inc.

Co., Ltd.

Inc.

Japan

Co., Ltd.

Group Ltd.

Technology

Co., Ltd.

Co., Ltd.

Photonics

(Thailand)

Co., Ltd.

Systems,

Co., Ltd.

("SENAO") Communications

Pte., Ltd.

Co., Ltd.

Inc.

("LED")

("SHE")

("DHT") ("CHIEF")

Co., Ltd.

("CHI")

(B.V.I.)

Inc.

("SFD")

("HHI")

Tech Co.,

Co., Ltd.

("CHTSC")

Inc. ("IISI")

("CHTV")

Co., Ltd.

("CHTS")

("CHSI")

("CHTG")

("CHTJ")

("Prime

("CHST")

Ltd.

("CHTT")

("CHYP")

Asia")

("CLPT")

2.96%

100%

100%

95.79

100%

100%

34.25%

100%

99.96%

100%

100%

%

100%

49%

Aval

Senyoung

Senao

Chunghwa

Unitronics

IISI

Infoexplorer

Youth

Chunghwa

Technologies

Insurance Agent

Co., Ltd.

International

Precision

Technology

Investment

International

Unigate

Chief

Shanghai

Hsingta

Co., Ltd.

Co., Ltd.

("Youth")

(Samoa)

Test Tech.

Corp.

Co., Ltd.

Co., Ltd.

Telecom Inc.

International

Chief

Co., Ltd.

("Aval")

("SENYOUNG")

Holding Ltd.

Co., Ltd.

("UTC")

("IICL")

("IESA")

("Unigate")

Corp.

Telecom

("CHC")

("SIS")

("CHPT")

100%

("CIC")

Co., Ltd.

100%

("SCT")

Leading

International

Tech

Integrated

100%

100%

Co., Ltd.

Systems

100%

100%

100%

100%

100%

100%

100%

("LTCL")

(Hong

Wiin

Senaolife

ISPOT Co.,

Youyi Co.,

Senao

0.39%

Chunghwa

CHPT Japan

Chunghwa

Chunghwa

100%

Kong)

Precision Test

Co., Ltd.

Precision

Telecom

Limited

Technology

Insurance

Ltd.

Ltd.

International

Leading

Tech USA

("CHPT (JP)")

Test Tech.

(China)

("IEHK")

Co., Ltd.

Agent Co.,

("ISPOT")

("Youyi")

HK Limited

Corporation

International,

Co., Ltd.

Systems

("Wiin")

Ltd.

("SIHK")

("CHPT (US)")

Ltd. ("CHPT

("CTC")

Co., Ltd.

("Senaolife")

(International)")

("LSCL")

100%

100%

International

Senao

100%

100%

Integrated

International

Shanghai

Su Zhou

Systems Inc.

Trading

(Shanghai)

Taihua

Precision Test

("IISS")

(Shanghai)

Electronic

Tech. Ltd.

Co., Ltd.

Technology

("SZPT")

100%

("SITS")

Limited

Huiyu

("STET")

Shanghai

Management

Consultancy

Co., Ltd.

("HSMC")

Other Significant Accounting Policies

  1. Defined benefit retirement benefits
    Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined pension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since that time and for other significant one-off events.
  2. Taxation
    Income tax expense represents the sum of the tax currently payable and deferred tax. Income taxes for interim period are assessed on an annual basis and calculated by applying to an interim period's pre-tax income the tax rate that would be applicable to expected total annual earnings.
    The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the Company expects to recover or settle the carrying amount of its assets and liabilities at balance sheet date.
  3. 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

- 15 -

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.

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.

For the critical accounting judgments and key sources of estimation, uncertainty and assumption applied in these consolidated financial statements, please refer to the consolidated financial statements for the year ended December 31, 2019.

5. APPLICATION OF NEW AND REVISED STANDARDS AND INTERPRETATIONS

  1. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC
    The initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs issued by the International Accounting Standards Board and endorsed and issued into effect by the FSC (collectively, the "Taiwan-IFRSs") does not have material impacts on the Company's consolidated financial statements.
  2. IFRSs issued by the IASB but not yet endorsed and issued into effect by the FSC

Effective Date

Announced by IASB

New, Revised or Amended Standards and Interpretations

(Note 1)

Amendments to IFRSs

Annual Improvements to IFRS Standards

January 1, 2022 (Note 2)

2018-2020

Amendments to IFRS 3

Reference to the Conceptual Framework

January 1, 2022 (Note 3)

Amendments to IFRS 9,

Interest rate benchmark reform - phase 2

January 1, 2021

IAS 39, IFRS 7, IFRS 4

and IFRS 16

Amendments to IFRS 10

Sale or Contribution of Assets between An

To be determined by

and IAS 28

Investor and Its Associate or Joint

IASB

Venture

Amendments to IAS 1

Classification of liabilities as current or

January 1, 2023

noncurrent

(Continued)

- 16 -

Effective Date

Announced by IASB

New, Revised or Amended Standards and Interpretations

(Note 1)

Amendments to IAS 16

Property, Plant and Equipment - Proceeds

January 1, 2022 (Note 4)

before Intended Use

Amendments to IAS 37

Onerous Contracts - Cost of Fulfilling a

January 1, 2022 (Note 5)

Contract

(Concluded)

Note 1： Unless stated otherwise, the above new IFRSs are effective for annual periods beginning on or after their respective effective dates.

Note 2： The amendments to IFRS 9 are applied prospectively to financial liabilities that are exchanged or modified on or after the annual reporting periods beginning on or after January 1, 2022.

Note 3： The amendments are applicable to business combinations for which the acquisition date is on or after the annual reporting period beginning on or after January 1, 2022.

Note 4： The amendments are applicable to property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after January 1, 2021.

Note 5： The amendments are applicable to contracts for which the entity has not yet fulfilled all its obligations on January 1, 2022.

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

6. CASH AND CASH EQUIVALENTS

September 30,

December 31,

September 30,

2020

2019

2019

Cash

Cash on hand

$

343,096

$

353,499

$

347,622

Bank deposits

10,099,127

9,432,814

13,284,563

10,442,223

9,786,313

13,632,185

Cash equivalents (investments with maturities

of less than three months)

Commercial paper

4,938,075

20,109,823

7,903,428

Negotiable certificates of deposit

-

1,700,000

-

Time deposits

2,302,877

2,450,509

2,536,724

Repurchase agreements collateralized by

bonds

17,703

2,998

-

Triple stimulus vouchers

2,134

-

-

7,260,789

24,263,330

10,440,152

$

17,703,012

$

34,049,643

$

24,072,337

- 17 -

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:

September 30,

December 31,

September 30,

2020

2019

2019

Bank deposits

0.00%-0.35%

0.00%-0.74%

0.00%-0.77%

Commercial paper

0.22%-0.33%

0.47%-0.54%

0.45%-0.58%

Negotiable certificates of deposit

-

0.58%-0.60%

-

Time deposits

0.10%-3.60%

0.09%-4.40%

0.09%-4.40%

Repurchase agreements collateralized by

0.50%

1.90%

-

bonds

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

September 30,

December 31,

September 30,

2020

2019

2019

Financial assets-current

Mandatorily measured at FVTPL

Derivatives (not designated for hedge)

Forward exchange contracts

$

38

$

53

$

83

Non-derivatives

Listed stocks - domestic

7,202

463

24,512

$

7,240

$

516

$

24,595

Financial assets-noncurrent

Mandatorily measured at FVTPL

Non-derivatives

Non-listed stocks - domestic

$

455,275

$

510,801

$

280,363

Non-listed stocks - foreign

244,414

267,304

232,373

$

699,689

$

778,105

$

512,736

Financial liabilities-current

Held for trading

Derivatives (not designated for hedge)

Forward exchange contracts

$

19

$

239

$

1,854

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

Contract Amount

Currency

Maturity Period

(Thousands)

September 30, 2020

Forward exchange contracts - buy

EUR/NT$

2020.12

EUR1,800/NT$61,426

Forward exchange contracts - sell

US$/NT$

2020.11

US$500/NT$14,589

(Continued)

- 18 -

Contract Amount

Currency

Maturity Period

(Thousands)

December 31, 2019

Forward exchange contracts - buy

EUR/NT$

2020.03

EUR1,500/NT$50,910

Forward exchange contracts - buy

US$/NT$

2020.01

US$850/NT$25,524

September 30, 2019

Forward exchange contracts - buy

EUR/NT$

2019.12

EUR1,568/NT$55,134

Forward exchange contracts - buy

US$/NT$

2019.10

US$1,610/NT$49,917

(Concluded)

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

September 30,

December 31,

September 30,

2020

2019

2019

Domestic investments

Listed stocks

$

2,317,591

$

2,453,616

$

2,393,689

Non-listed stocks

5,192,117

4,680,931

3,920,796

Foreign investments

Non-listed stocks

122,933

134,370

142,811

$

7,632,641

$

7,268,917

$

6,457,296

The Company holds the above foreign and domestic stocks for medium to long-term strategic purposes and expects to profit from long-term investment. Accordingly, the management elected to designate these investments in equity instruments at FVOCI as they believe that recognizing short-term fair value fluctuations of these investments in profit or loss is not consistent with the Company's strategy of holding these investments for long-term purposes.

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

The Company recognized dividend income of $1,952 thousand and $238,248 thousand for the three months and nine months ended September 30, 2020, respectively. The Company recognized dividend income of $55,257 thousand and $278,168 thousand for the three months and nine months ended September 30, 2019, respectively. The above dividend income was derived from the investments held on the balance sheet date.

- 19 -

9. TRADE NOTES AND ACCOUNTS RECEIVABLE, NET

September 30,

December 31,

September 30,

2020

2019

2019

Trade notes and accounts receivable

$

24,921,407

$

28,767,539

$

32,234,790

Less: Loss allowance

(2,325,441)

(2,359,756)

(2,474,647)

$

22,595,966

$

26,407,783

$

29,760,143

The main credit terms range from 30 to 90 days.

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

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

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

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

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

- 20 -

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:

September 30, 2020

Past Due Less

Pass Due

Pass Due

Pass Due

Pass Due

Pass Due

Not Past Due

than 30 Days

31 to 60 Days

61 to 90 Days

91 to 120 Days

121 to 180 Days

over 180 Days

Total

Telecommunications

business

Expected credit loss rate

(Note a)

0%-2%

0%-24%

0%-68%

0%-83%

26%-90%

65%-96%

100%

Gross carrying amount

$

16,934,972

$

232,478

$

79,837

$

55,807

$

29,873

$

23,989

$

694,535

$

18,051,491

Loss allowance (lifetime

ECL)

(53,906 )

(20,802 )

(24,891 )

(29,859 )

(25,180 )

(23,645 )

(694,535 )

(872,818 )

Amortized cost

$

16,881,066

$

211,676

$

54,946

$

25,948

$

4,693

$

344

$

-

$

17,178,673

Project business

Expected credit loss rate

(Note b)

0%-5%

5%

10%

30%

50%

80%

100%

Gross carrying amount

$

2,337,222

$

35,934

$

15,592

$

27,248

$

4,203

$

10,645

$

1,372,549

$

3,803,393

Loss allowance (lifetime

ECL)

(3,201 )

(2,871 )

(1,559 )

(8,174 )

(2,102 )

(8,516 )

(1,372,549 )

(1,398,972 )

Amortized cost

$

2,334,021

$

33,063

$

14,033

$

19,074

$

2,101

$

2,129

$

-

$

2,404,421

December 31, 2019

Past Due Less

Pass Due

Pass Due

Pass Due

Pass Due

Pass Due

Not Past Due

than 30 Days

31 to 60 Days

61 to 90 Days

91 to 120 Days

121 to 180 Days

over 180 Days

Total

Telecommunications

business

Expected credit loss rate

(Note a)

0%-2%

0%-25%

0%-68%

0%-83%

11%-90%

17%-96%

100%

Gross carrying amount

$

19,020,326

$

267,902

$

74,775

$

46,782

$

40,771

$

28,021

$

600,985

$

20,079,562

Loss allowance (lifetime

ECL)

(55,903 )

(25,517 )

(27,630 )

(34,624 )

(26,281 )

(27,366 )

(600,985 )

(798,306 )

Amortized cost

$

18,964,423

$

242,385

$

47,145

$

12,158

$

14,490

$

655

$

-

$

19,281,256

Project business

Expected credit loss rate

(Note b)

0%-5%

5%

10%

30%

50%

80%

100%

Gross carrying amount

$

4,053,681

$

78,147

$

52,227

$

29,527

$

12,688

$

1,040

$

1,471,840

$

5,699,150

Loss allowance (lifetime

ECL)

(2,637 )

(4,892 )

(5,223 )

(10,577 )

(6,344 )

(832 )

(1,471,840 )

(1,502,345 )

Amortized cost

$

4,051,044

$

73,255

$

47,004

$

18,950

$

6,344

$

208

$

-

$

4,196,805

September 30, 2019

Past Due Less

Pass Due

Pass Due

Pass Due

Pass Due

Pass Due

Not Past Due

than 30 Days

31 to 60 Days

61 to 90 Days

91 to 120 Days

121 to 180 Days

Over 181 Days

Total

Telecommunications

business

Expected credit loss rate

(Note a)

0%-3%

0%-26%

5%-69%

10%-83%

15%-90%

53%-96%

100%

Gross carrying amount

$

23,672,880

$

310,069

$

87,290

$

62,759

$

29,706

$

31,755

$

557,785

$

24,752,244

Loss allowance

(Lifetime ECL)

(56,232 )

(24,883 )

(29,907 )

(27,399 )

(29,293 )

(22,092 )

(557,785 )

(747,591 )

Amortized cost

$

23,616,648

$

285,186

$

57,383

$

35,360

$

413

$

9,663

$

-

$

24,004,653

Project business

Expected credit loss rate

(Note b)

0%-5%

5%

10%

30%

50%

80%

100%

Gross carrying amount

$

2,041,041

$

578,854

$

177,408

$

35,526

$

16,018

$

15,530

$

1,582,987

$

4,447,364

Loss allowance

(Lifetime ECL)

(1,684 )

(29,740 )

(17,741 )

(13,199 )

(8,940 )

(12,424 )

(1,582,987 )

(1,666,715 )

Amortized cost

$

2,039,357

$

549,114

$

159,667

$

22,327

$

7,078

$

3,106

$

-

$

2,780,649

- 21 -

Note a: Please refer to Notes 30 and 44 for the information of disaggregation of telecommunications service revenue. The expected credit loss rate applicable to different business revenue varies so as to reflect the risk level indicating by factors like historical experience.

Note b: The project business has different loss types according to the customer types. The expected credit loss rate listed above is for general customers. When the customer is a government-affiliated entity, it is anticipated that there will not be an instance of credit loss. Customers with past history of bounced checks or accounts receivable exceeding six months overdue are classified as high-risk customers, with an expected credit loss rate of 50%, increasing by period as the days overdue increase.

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

Nine Months Ended September 30

20202019

Beginning balance

Add: Provision for (reversal of) credit loss

Add: Acquired by business combinations (Note 13)

Less: Amounts written off

Ending balance

$

2,359,756

$

2,602,055

61,890

(23,064)

1,639

-

(97,844)

(104,344)

$

2,325,441

$

2,474,647

10. INVENTORIES

September 30,

December 31,

September 30,

2020

2019

2019

Merchandise

$

3,682,561

$

3,858,034

$

4,569,690

Project in process

9,108,343

11,113,286

10,939,283

Work in process

147,958

141,417

136,752

Raw materials

152,448

155,495

163,226

13,091,310

15,268,232

15,808,951

Land held under development

1,998,733

1,998,733

1,998,733

Construction in progress

77,317

77,311

80,393

$

15,167,360

$

17,344,276

$

17,888,077

The operating costs related to inventories were $13,171,599 thousand (including the valuation loss on inventories of $412,334 thousand) and $32,758,756 thousand (including the valuation loss on inventories of $608,024 thousand) for the three months and nine months ended September 30, 2020, respectively. The operating costs related to inventories were $11,081,398 thousand (including the valuation loss on inventories of $10,415 thousand) and $33,787,522 thousand (including the valuation loss on inventories of $155,761 thousand) for the three months and nine months ended September 30, 2019, respectively.

As of September 30, 2020, December 31, 2019 and September 30, 2019, inventories of $2,076,050 thousand, $2,076,044 thousand and $2,079,126 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.

- 22 -

11. PREPAYMENTS

September 30,

December 31,

September 30,

2020

2019

2019

Prepaid rents

$

3,007,495

$

3,382,560

$

3,471,857

Prepaid salary and bonus

2,543,550

5,117

2,558,243

Others

1,658,508

1,174,917

1,296,227

$

7,209,553

$

4,562,594

$

7,326,327

Current

Prepaid salary and bonus

$

2,543,550

$

5,117

$

2,558,243

Prepaid rents

666,767

704,607

710,452

Others

1,658,314

1,173,535

1,296,053

$

4,868,631

$

1,883,259

$

4,564,748

Noncurrent

Prepaid rents

$

2,340,728

$

2,677,953

$

2,761,405

Others

194

1,382

174

$

2,340,922

$

2,679,335

$

2,761,579

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

September 30,

December 31,

September 30,

2020

2019

2019

Time deposits and negotiable certificates of

deposit with maturities of more than three

months

$

4,371,489

$

5,959,074

$

5,746,069

Repurchase agreements collateralized by

bonds with maturities of more than three

months

-

14,990

-

Others

1,204,809

1,524,500

2,250,986

$

5,576,298

$

7,498,564

$

7,997,055

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:

September 30,

December 31,

September 30,

2020

2019

2019

Time deposits and negotiable certificates of

deposit with maturities of more than three

months

0.07%-2.55%

0.03%-2.73%

0.03%-2.90%

Repurchase agreements collateralized by

bonds with maturities of more than three

months

-

2.50%

-

- 23 -

13. SUBSIDIARIES

a. Information on subsidiaries with significant noncontrolling interests

Proportion of Ownership Interests and Voting

Principal

Rights Held by Noncontrolling Interests

Place of

September 30,

December 31,

September 30,

Subsidiaries

Business

2020

2019

2019

SENAO

Taiwan

72%

72%

72%

CHPT

Taiwan

66%

66%

66%

Profit Allocated to Noncontrolling Interests

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

SENAO

$

94,443

$

122,831

$

201,343

$

217,051

CHPT

$

188,532

$

162,788

$

459,571

$

302,018

Accumulated Noncontrolling Interests

September 30,

December 31,

September 30,

2020

2019

2019

SENAO

$ 4,190,814

$ 4,267,547

$

4,188,236

CHPT

4,480,000

4,236,872

4,129,773

Individually immaterial subsidiaries with

noncontrolling interests

2,267,878

1,779,103

1,701,358

$ 10,938,692

$ 10,283,522

$ 10,019,367

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.

September 30,

December 31,

September 30,

2020

2019

2019

Current assets

$

6,877,640

$

6,751,385

$

7,439,800

Noncurrent assets

3,361,673

3,321,252

3,395,005

Current liabilities

(4,018,979)

(3,617,165)

(4,414,657)

Noncurrent liabilities

(460,623)

(589,882)

(665,109)

Equity

$

5,759,711

$

5,865,590

$

5,755,039

Equity attributable to the parent

$

1,568,897

$

1,598,043

$

1,566,803

Equity attributable to noncontrolling

interests

4,190,814

4,267,547

4,188,236

$

5,759,711

$

5,865,590

$

5,755,039

- 24 -

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Revenues and income

$

6,813,751

$

7,219,126

$

19,563,348

$

21,848,391

Costs and expenses

6,682,148

7,047,989

19,282,146

21,545,916

Profit for the period

$

131,603

$

171,137

$

281,202

$

302,475

Profit attributable to the

parent

$

37,160

$

48,306

$

79,859

$

85,424

Profit attributable to

noncontrolling interests

94,443

122,831

201,343

217,051

Profit for the period

$

131,603

$

171,137

$

281,202

$

302,475

Other comprehensive

income (loss) attributable

to the parent

$

(1,560)

$

(820)

$

(3,430)

$

7,508

Other comprehensive

income (loss) attributable

to noncontrolling interests

(4,796)

(1,740)

(9,449)

18,651

Other comprehensive

income (loss) for the

period

$

(6,356)

$

(2,560)

$

(12,879)

$

26,159

Total comprehensive

income attributable to the

parent

$

35,600

$

47,486

$

76,429

$

92,932

Total comprehensive

income attributable to

noncontrolling interests

89,647

121,091

191,894

235,702

Total comprehensive

income for the period

$

125,247

$

168,577

$

268,323

$

328,634

Nine Months Ended September 30

2020

2019

Net cash flow from operating activities

$

35,759

$

(225,183)

Net cash flow from investing activities

46,856

239,726

Net cash flow from financing activities

(609,129)

(631,723)

Effect of exchange rate changes on cash and cash equivalents

488

208

Net cash outflow

$

(526,026)

$

(616,972)

Dividends paid to noncontrolling interests

$

268,944

$

268,944

- 25 -

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.

September 30,

December 31,

September 30,

2020

2019

2019

Current assets

$

3,949,170

$

3,709,630

$

3,819,176

Noncurrent assets

4,021,513

4,043,881

3,716,879

Current liabilities

(1,142,130)

(1,287,597)

(1,245,552)

Noncurrent liabilities

(14,864)

(22,003)

(9,480)

Equity

$

6,813,689

$

6,443,911

$

6,281,023

Equity attributable to CHI

$

2,333,689

$

2,207,039

$

2,151,250

Equity attributable to noncontrolling

interests

4,480,000

4,236,872

4,129,773

$

6,813,689

$

6,443,911

$

6,281,023

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Revenues and income

$

1,204,323

$

1,106,759

$

3,168,534

$

2,398,213

Costs and expenses

917,582

859,174

2,469,572

1,938,773

Profit for the period

$

286,741

$

247,585

$

698,962

$

459,440

Profit attributable to CHI

$

98,209

$

84,797

$

239,391

$

157,422

Profit attributable to

noncontrolling interests

188,532

162,788

459,571

302,018

Profit for the period

$

286,741

$

247,585

$

698,962

$

459,440

Other comprehensive

income (loss) attributable

to CHI

$

443

$

(349)

$

(443)

$

(135)

Other comprehensive

income (loss) attributable

to noncontrolling interests

851

(670)

(851)

(259)

Other comprehensive

income (loss) for the

period

$

1,294

$

(1,019)

$

(1,294)

$

(394)

Total comprehensive

income attributable to

CHI

$

98,652

$

84,448

$

238,948

$

157,287

Total comprehensive

income attributable to

noncontrolling interests

189,383

162,118

458,720

301,759

Total comprehensive

income for the period

$

288,035

$

246,566

$

697,668

$

459,046

- 26 -

Nine Months Ended September 30

2020

2019

Net cash flow from operating activities

$

1,050,319

$

111,119

Net cash flow from investing activities

(296,387)

(1,069,396)

Net cash flow from financing activities

(344,264)

(342,952)

Effect of exchange rate changes on cash and cash equivalents

487

(776)

Net cash inflow (outflow)

$

410,155

$

(1,302,005)

Dividends paid to noncontrolling interests

$

215,591

$

215,591

  1. Equity transactions with noncontrolling interests
    CHIEF issued new shares in March 2020, March 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 nine months ended September 30, 2020 and 2019 were as follows:

Nine Months Ended September 30, 2020

SENAO Not

Proportionately

Participating in

IISI

CHIEF

the Capital

Share-Based

Increase of

Share-Based

Payment

Youth

Payment

Cash consideration received from

noncontrolling interests

$

71,627

$

-

$

6,755

The proportionate share of the carrying

amount of the net assets of the

subsidiary transferred to noncontrolling

interests

(47,638)

(103)

(6,659)

Differences arising from equity

transactions

$

23,989

$

(103)

$

96

Line items for equity transaction

adjustments

Additional paid-in capital - arising from

changes in equities of subsidiaries

$

23,989

$

(103)

$

96

- 27 -

Nine Months

Ended

September 30,

2019

CHIEF

Share-Based

Payment

Cash consideration received from noncontrolling interests

$

14,328

The proportionate share of the carrying amount of the net

assets of the subsidiary transferred to noncontrolling

interests

(15,140)

Differences arising from equity transactions

$

(812)

Line items for equity transaction adjustments

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

subsidiaries

$

(812)

  1. BUSINESS COMBINATIONS
    1. Subsidiary acquired
      In order to develop and cultivate the enterprise customer market, Chunghwa obtained 20.38% ownership interest in IISI by cash on July 1, 2020, the acquisition date. (Note) Chunghwa's ownership interest in IISI increased to 51.54% by considering the previously held ownership interest in IISI. Chunghwa obtained over half of the seats of the Board of Directors of IISI; therefore, Chunghwa gained control over IISI and included IISI and its subsidiaries in the consolidated financial statements starting from the acquisition date. IISI mainly engages in information system development and maintenance service business, etc.
      Note: IISI issued new shares in April 2020 as its employees exercised options; therefore, the percentage of ownership interest in IISI obtained on the acquisition date is lower than that approved by Chunghwa's Board of Directors in January 2020.
  1. Assets acquired and liabilities assumed at acquisition date
    Current assets
    Cash and cash equivalents Contract assets
    Trade notes and accounts receivable Inventories
    Prepayments
    Other current monetary assets Other current assets
    Noncurrent assets
    Property, plant and equipment Right-of-use assets Intangible assets

IISI and Its Subsidiaries

$ 587,979 582,745 165,452 141,236 113,858 113,724

74,757

47,962

70,007

11,861

(Continued)

- 28 -

Deferred income tax assets Other noncurrent assets

Current liabilities Short-term loans Contract liabilities

Trade notes and accounts payable Current tax liabilities

Lease liabilities Other payables Provisions

Other current liabilities Noncurrent liabilities

Deferred income tax liabilities Lease liabilities

Net defined benefit liabilities Other noncurrent liabilities

IISI and Its Subsidiaries

$ 5,665 102,519

(4,000)

(333,533)

(256,902)

(19,355)

(25,941)

(265,901)

(15,258)

(30,163)

(2,209)

(44,964)

(32,613)

(4,843)

$ 982,083(Concluded)

The trade notes and accounts receivable acquired in business combination transactions have a fair value of $165,452 thousand and a gross contractual amount of $167,091 thousand. The best estimates of the contractual cash flows not expected to be collected as of the acquisition date are $1,639 thousand.

3) Goodwill arising from acquisition

IISI and Its

Subsidiaries

Consideration transferred

$

233,923

Add:

Fair value of equity interest held before the

acquisition date

327,287

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

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.

- 29 -

4) 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

  1. Impact of acquisition on the financial results of the Company
    The financial results of the acquiree since the acquisition date to September 30, 2020, which are included in the consolidated statements of comprehensive income, are as follows:

IISI and Its

Subsidiaries

Revenue

$

544,229

Profit

$

23,004

Had the business combination been in effect at the beginning of the annual reporting period, the Company's revenue and profit would have been $149,124,887 thousand and $26,157,875 thousand for the nine months ended September 30, 2020, respectively. This pro-forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Company that actually would have been achieved had the acquisition been completed on January 1, 2020, nor is it intended to be a projection of future results.

In determining the pro-forma revenue and profit of the Company had IISI been acquired at the beginning of the financial year, the management calculated amortization of intangible assets acquired on the basis of the fair values arising in the initial accounting for the business combination rather than the carrying amounts recognized in the pre-acquisition financial statements.

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

Carrying Amount

September 30,

December 31,

September 30,

2020

2019

2019

Material associate

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

(Note)

$ 3,932,953

$ 4,074,168

$

-

Associates that are not individually material

Listed

Senao Networks, Inc. ("SNI")

951,699

953,685

920,063

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

241,665

253,021

251,556

(Continued)

- 30 -

Carrying Amount

September 30,

December 31,

September 30,

2020

2019

2019

Non-listed

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

$

554,839

$

500,930

$

575,355

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

341,047

316,535

301,623

Taiwan International Standard Electronics

Co., Ltd. ("TISE")

318,167

272,166

249,298

So-net Entertainment Taiwan Limited

("So-net")

220,102

189,396

169,008

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

194,378

194,081

195,316

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

162,206

150,789

147,440

Taiwan International Ports Logistics

Corporation ("TIPL")

55,190

50,979

50,870

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

32,418

37,120

36,173

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

5,919

5,507

5,131

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

5,080

5,080

5,080

UUPON Inc. ("UUPON")

2,307

10,529

10,473

International Integrated Systems, Inc. ("IISI")

-

340,240

314,670

MeWorks Limited (HK) ("MeWorks")

-

-

-

3,085,017

3,280,058

3,232,056

$

7,017,970

$

7,354,226

$

3,232,056

(Concluded)

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

% of Ownership Interests and Voting Rights

September 30,

December 31,

September 30,

2020

2019

2019

Material associate

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

(Note)

42

42

-

Associates that are not individually material

Senao Networks, Inc. ("SNI")

34

34

34

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

23

23

22

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

38

38

38

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

30

30

30

Taiwan International Standard Electronics

Co., Ltd. ("TISE")

40

40

40

So-net Entertainment Taiwan Limited

("So-net")

30

30

30

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

50

50

50

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

30

30

30

Taiwan International Ports Logistics

Corporation ("TIPL")

27

27

27

(Continued)

- 31 -

% of Ownership Interests and Voting Rights

September 30,

December 31,

September 30,

2020

2019

2019

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

49

49

49

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

49

49

49

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

14

14

14

UUPON Inc. ("UUPON")

22

22

22

International Integrated Systems, Inc. ("IISI")

-

31

31

MeWorks Limited (HK) ("MeWorks")

-

20

20

(Concluded)

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

Summarized financial information of NCB was set out below:

September 30,

December 31,

2020

2019

Assets

$

9,971,758

$ 10,451,925

Liabilities

(585,235)

(728,374)

Equity

$

9,386,523

$

9,723,551

The percentage of ownership interest held by the Company

41.90%

41.90%

Equity attributable to the Company and carrying amount of

investment

$

3,932,953

$

4,074,168

Three Months

Nine Months

Ended

Ended

September 30,

September 30,

2020

2020

Revenues

$

-

$

-

Net loss for the period

$

(139,881)

$

(337,028)

Other comprehensive income

-

-

Total comprehensive loss for the period

$

(139,881)

$

(337,028)

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

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

The Company's share of profits

$

164,622

$

195,449

$

412,147

$

412,500

The Company's share of other

comprehensive income (loss)

(1,565)

(17)

(2,075)

299

The Company's share of total

comprehensive income

$

163,057

$

195,432

$

410,072

$

412,799

- 32 -

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

September 30,

December 31,

September 30,

2020

2019

2019

SNI

$

1,472,218

$

2,014,353

$

1,873,431

KWT

$

687,206

$

872,729

$

979,353

The participation of establishing NCB was approved by Chunghwa's Board of Directors in January 2019. The establishment of NCB was approved by the FSC in July 2019 and the incorporation of NCB was approved by the Ministry of Economic Affairs Department of Commerce in January 2020. Chunghwa prepaid investment funds to NCB in February and November 2019 amounting to $4,190,000 thousand (included in other assets), for ownership interest of 41.90%. 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 dominate 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 disposal gain 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 September 30, 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 disposal gain of $1,412 thousand under "other gains and losses" on the consolidated statements of comprehensive income. The Company treated IISI as a subsidiary starting from the acquisition date and included IISI and its subsidiaries in consolidated financial statements. Please refer to note 13(c).

UUPON reduced its capital to offset accumulated deficits in September 2020. The capital reduction ratio was 95.44%. The Company's ownership interest in UUPON remained unchanged.

The Company disposed 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.

- 33 -

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

15. PROPERTY, PLANT AND EQUIPMENT

September 30,

December 31,

September 30,

2020

2019

2019

Assets used by the Company

$ 271,452,524

$ 276,370,003

$ 274,337,903

Assets subject to operating leases

7,789,154

7,324,212

7,770,224

$ 279,241,678

$ 283,694,215

$ 282,108,127

a.

Assets used by the Company

Construction in

Telecommuni-

Progress and

Land

Computer

cations

Transportation

Miscellaneous

Equipment to

Land

Improvements

Buildings

Equipment

Equipment

Equipment

Equipment

be Accepted

Total

Cost

Balance on January 1, 2019

$

100,354,425

$

1,599,634

$

69,328,236

$

14,258,485

$ 711,863,697

$

3,882,534

$

9,873,589

$

18,644,766

$ 929,805,366

Additions

-

-

12,857

36,536

74,375

1,118

46,043

14,577,257

14,748,186

Disposal

(28,641 )

-

(3,101 )

(778,818 )

(25,854,514 )

(24,330 )

(278,941 )

-

(26,968,345 )

Effect of foreign exchange

differences

-

-

-

55

18,736

64

(216 )

(26 )

18,613

Others

(1,229,480 )

11,272

(1,015,551 )

174,946

15,714,115

60,571

252,180

(16,212,384 )

(2,244,331 )

Balance on September 30, 2019

$

99,096,304

$

1,610,906

$

68,322,441

$

13,691,204

$ 701,816,409

$

3,919,957

$

9,892,655

$

17,009,613

$ 915,359,489

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

-

(32,297 )

(955,977 )

(626,361 )

(17,917,740 )

(72,206 )

(514,733 )

-

(20,119,314 )

Disposal

-

-

3,101

772,552

25,825,485

24,327

277,065

-

26,902,530

Effect of foreign exchange

differences

-

-

-

(34 )

(6,191 )

(24 )

483

-

(5,766 )

Others

-

(543 )

365,072

(6,877 )

(2,332 )

(2,421 )

(16,585 )

-

336,314

Balance on September 30, 2019

$

-

$

(1,370,032)

$

(27,449,431)

$ (12,004,027)

$(588,951,121)

$

(3,701,463)

$

(7,545,512)

$

-

$(641,021,586)

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 September 30, 2019,

net

$

99,096,304

$

240,874

$

40,873,010

$

1,687,177

$ 112,865,288

$

218,494

$

2,347,143

$

17,009,613

$ 274,337,903

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

-

-

15,906

29,595

26,676

579

107,061

15,678,819

15,858,636

Disposal

(106,039 )

(567 )

(3,761 )

(1,080,083 )

(11,570,597 )

(30,354 )

(376,226 )

(29,358 )

(13,196,985 )

Effect of foreign exchange

differences

-

-

-

(74 )

(48,352 )

(134 )

(973 )

(3,948 )

(53,481 )

Acquired by business

combinations (Note 13)

-

-

-

69,814

-

72,400

142,214

Others

3,110,637

16,036

(442,732 )

227,150

17,601,765

14,809

240,939

(21,373,415 )

(604,811 )

Balance on September 30, 2020

$

102,106,849

$

1,633,950

$

70,570,196

$

12,251,229

$ 712,041,940

$

3,897,198

$

10,133,371

$

8,024,295

$ 920,659,028

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

-

(32,881 )

(1,019,795 )

(584,065 )

(17,968,611 )

(52,482 )

(497,502 )

-

(20,155,336 )

Disposal

-

567

3,761

1,078,883

11,556,712

30,039

367,191

29,358

13,066,511

Effect of foreign exchange

differences

-

-

-

72

21,827

33

686

-

22,618

Acquired by business

combinations (Note 13)

-

-

-

(40,282 )

-

-

(53,970 )

-

(94,252 )

Others

-

13

123,206

(3,653 )

21,232

(894 )

(42,497 )

-

97,407

Balance on September 30, 2020

$

-

$

(1,406,903)

$

(28,869,560)

$ (10,617,290)

$(596,706,731)

$

(3,717,629)

$

(7,888,391)

$

-

$(649,206,504)

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 September 30, 2020,

net

$

102,106,849

$

227,047

$

41,700,636

$

1,633,939

$ 115,335,209

$

179,569

$

2,244,980

$

8,024,295

$ 271,452,524

There was no indication that property, plant and equipment was impaired, so the Company did not recognize any impairment loss for the nine months ended September 30, 2020 and 2019.

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

- 34 -

Directors in May 2020 and Chunghwa will complete the property registration of the respective asset once the payment is made. Please refer to Table 3 for the details.

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

1-16 years

Others

1-15 years

b. Assets subject to operating leases

Land

Land

Improvements

Buildings

Total

Cost

Balance on January 1, 2019

$

3,617,627

$

689

$

3,582,774

$

7,201,090

Additions

-

-

4,284

4,284

Others

1,229,480

(689)

1,008,444

2,237,235

Balance on September 30,

2019

$

4,847,107

$

-

$

4,595,502

$

9,442,609

Accumulated depreciation

and impairment

Balance on January 1, 2019

$

-

$

(512)

$

(1,265,356)

$

(1,265,868)

Depreciation expenses

-

(31)

(64,750)

(64,781)

Others

-

543

(342,279)

(341,736)

Balance on September 30,

2019

$

-

$

-

$

(1,672,385)

$

(1,672,385)

Balance on January 1, 2019,

net

$

3,617,627

$

177

$

2,317,418

$

5,935,222

Balance on September 30,

2019, net

$

4,847,107

$

-

$

2,923,117

$

7,770,224

(Continued)

- 35 -

Land

Land

Improvements

Buildings

Total

Cost

Balance on January 1, 2020

$

4,979,650

$

-

$

3,841,560

$

8,821,210

Others

99,219

-

544,834

644,053

Balance on September 30,

2020

$

5,078,869

$

-

$

4,386,394

$

9,465,263

Accumulated depreciation

and impairment

Balance on January 1, 2020

$

-

$

-

$

(1,496,998)

$

(1,496,998)

Depreciation expenses

-

-

(66,378)

(66,378)

Others

-

-

(112,733)

(112,733)

Balance on September 30,

2020

$

-

$

-

$

(1,676,109)

$

(1,676,109)

Balance on January 1, 2020,

net

$

4,979,650

$

-

$

2,344,562

$

7,324,212

Balance on September 30,

2020, net

$

5,078,869

$

-

$

2,710,285

$

7,789,154

(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:

September 30,

December 31,

September 30,

2020

2019

2019

Year 1

$

339,491

$

301,674

$

305,593

Year 2

295,583

272,899

257,654

Year 3

234,338

233,434

232,656

Year 4

177,560

191,128

193,882

Year 5

124,478

130,066

145,573

Onwards

1,207,181

1,224,416

1,245,923

$

2,378,631

$

2,353,617

$

2,381,281

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

Land improvements

10 years

Buildings

Main buildings

35-60 years

Other building facilities

3-15 years

- 36 -

16. LEASE ARRANGEMENTS

a. Right-of-use assets

September 30,

December 31,

September 30,

2020

2019

2019

Land and buildings

Handsets base stations

$

7,065,729

$

6,844,687

$

6,895,757

Others

1,788,733

1,916,835

1,754,009

Equipment

2,304,886

2,602,727

2,701,013

$

11,159,348

$

11,364,249

$

11,350,779

Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2020

2020

2019

2020

2019

Additions to right-of-use

assets

$

2,892,908

$

2,671,187

Depreciation charge for

right-of-use assets

Land and buildings

Handsets base stations

$

683,732

$

689,311

$

2,041,451

$

2,037,060

Others

201,142

205,489

594,220

614,508

Equipment

104,082

104,644

312,088

313,783

$

988,956

$

999,444

$

2,947,759

$

2,965,351

The Company did not have significant sublease or impairment of right-of-use assets for the nine months ended September 30, 2020 and 2019.

b. Lease liabilities

September 30,

December 31,

September 30,

2020

2019

2019

Lease liabilities

Current

$

3,272,130

$

3,291,330

$

3,247,553

Noncurrent

6,300,425

6,466,808

6,339,175

$

9,572,555

$

9,758,138

$

9,586,728

Ranges of discount rates for lease liabilities are as follows:

September 30,

December 31,

September 30,

2020

2019

2019

Land and buildings

Handsets base stations

0.50%-1.18%

0.58%-1.18%

0.58%-1.18%

Others

0.50%-9.00%

0.58%-9.00%

0.58%-9.00%

Equipment

0.52%-2.99%

0.58%-4.50%

0.59%-4.50%

- 37 -

  1. 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.
  2. Other lease information

Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2020

2020

2019

2020

2019

Expenses relating to

low-value asset leases

$

2,378

$

1,797

$

5,926

$

4,782

Expenses relating to variable

lease payments not

included in the

measurement of lease

liabilities

$

1,391

$

2,107

$

3,841

$

4,510

Total cash outflow for leases

$

2,933,976

$

2,968,915

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

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

17. INVESTMENT PROPERTIES Cost

Balance on January 1, 2019

$

9,392,452

Disposal

(5,831)

Balance on September 30, 2019

$

9,386,621

(Continued)

- 38 -

Accumulated depreciation and impairment

Balance on January 1, 2019

$

(1,105,240)

Depreciation expense

(20,025)

Disposal

5,831

Balance on September 30, 2019

$

(1,119,434)

Balance on January 1, 2019, net

$

8,287,212

Balance on September 30, 2019, net

$

8,267,187

Cost

Balance on January 1, 2020

$

9,213,979

Additions

54,435

Disposal

(36,943)

Reclassification

1,277

Balance on September 30, 2020

$

9,232,748

Accumulated depreciation and impairment

Balance on January 1, 2020

$

(1,044,586)

Depreciation expense

(15,390)

Reclassification

(1,277)

Balance on September 30, 2020

$

(1,061,253)

Balance on January 1, 2020, net

$

8,169,393

Balance on September 30, 2020, net

$

8,171,495

(Concluded)

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

Land improvements

10-30 years

Buildings

Main buildings

35-60 years

Other building facilities

4-10 years

The fair values of the Company's investment properties as of December 31, 2019 and 2018 were determined by Level 3 fair value measurements inputs based on the appraisal reports conducted by independent appraisers. The Company used the aforementioned appraisal reports as the basis to determine the fair values as of September 30, 2020 and 2019 because there was no material change in the economic environment or the market transaction price. Those appraisal reports are based on the comparison approach, income approach or cost approach. Key assumptions and the fair values were as follows:

- 39 -

September 30,

December 31,

September 30,

2020

2019

2019

Fair value

$ 18,701,398

$ 18,701,398

$ 18,514,801

Overall capital interest rate

1.03%-4.04%

1.03%-4.04%

1.02%-4.04%

Profit margin ratio

12%-20%

12%-20%

12%-20%

Discount rate

-

-

-

Capitalization rate

0.79%-1.74%

0.79%-1.74%

0.79%-1.75%

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

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

September 30,

December 31,

September 30,

2020

2019

2019

Year 1

$

108,915

$

112,626

$

115,191

Year 2

89,548

90,701

95,189

Year 3

71,720

70,795

76,280

Year 4

51,324

61,115

63,022

Year 5

32,902

39,386

45,885

Onwards

59,387

96,010

103,160

$

413,796

$

470,633

$

498,727

18. INTANGIBLE ASSETS

Mobile

Broadband

Computer

Concession

Software

Goodwill

Others

Total

Cost

Balance on January 1, 2019

$ 70,144,000

$

3,425,969

$

236,200

$

373,203

$ 74,179,372

Additions-acquired separately

-

164,375

-

3,218

167,593

Disposal

(10,179,000)

(329,027)

-

(157)

(10,508,184)

Effect of foreign exchange

differences

-

90

-

(69)

21

Others

-

247

-

-

247

Balance on September 30, 2019

$ 59,965,000

$

3,261,654

$

236,200

$

376,195

$ 63,839,049

Accumulated amortization and

impairment

Balance on January 1, 2019

$(20,632,474)

$

(2,467,170)

$

(26,677)

$

(109,369)

$(23,235,690)

Amortization expenses

(2,879,679)

(293,218)

-

(18,352)

(3,191,249)

Disposal

10,179,000

329,027

-

11

10,508,038

Effect of foreign exchange

differences

-

(91)

-

26

(65)

Balance on September 30, 2019

$(13,333,153)

$

(2,431,452)

$

(26,677)

$

(127,684)

$(15,918,966)

Balance on January 1, 2019, net

$ 49,511,526

$

958,799

$

209,523

$

263,834

$ 50,943,682

Balance on September 30, 2019,

net

$ 46,631,847

$

830,202

$

209,523

$

248,511

$ 47,920,083

(Continued)

- 40 -

Mobile

Broadband

Computer

Concession

Software

Goodwill

Others

Total

Cost

Balance on January 1, 2020

$ 59,965,000

$

3,428,609

$

236,200

$

378,063

$ 64,007,872

Additions-acquired separately

48,373,000

170,054

-

3,986

48,547,040

Disposal

-

(318,939)

-

(3,040)

(321,979)

Effect of foreign exchange

differences

-

(84)

-

(60)

(144)

Acquired by business

combinations (Note 13)

-

1,259

55,006

11,043

67,308

Others

-

1,586

-

(43)

1,543

Balance on September 30, 2020

$108,338,000

$

3,282,485

$

291,206

$

389,949

$112,301,640

Accumulated amortization and

impairment

Balance on January 1, 2020

$(14,293,046)

$

(2,498,825)

$

(35,623)

$

(133,853)

$(16,961,347)

Amortization expenses

(3,476,068)

(278,543)

-

(19,636)

(3,774,247)

Disposal

-

318,939

-

1,196

320,135

Effect of foreign exchange

differences

-

75

-

17

92

Acquired by business

combinations (Note 13)

-

(441)

-

-

(441)

Balance on September 30, 2020

$(17,769,114)

$

(2,458,795)

$

(35,623)

$

(152,276)

$(20,415,808)

Balance on January 1, 2020, net

$ 45,671,954

$

929,784

$

200,577

$

244,210

$ 47,046,525

Balance on September 30, 2020,

net

$ 90,568,886

$

823,690

$

255,583

$

237,673

$ 91,885,832

(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 in February 2020 for the aforementioned license to obtain 90MHz in the 3.5GHz spectrum and 600MHz in the 28GHz spectrum.

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

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

19. OTHER ASSETS

September 30,

December 31,

September 30,

2020

2019

2019

Spare parts

$ 3,200,426

$ 2,336,082

$ 2,328,662

Refundable deposits

1,824,654

1,879,109

1,788,380

Other financial assets

1,000,000

1,000,000

1,000,000

Prepayment for investments (Note 14)

-

-

838,000

(Continued)

- 41 -

September 30,

December 31,

September 30,

2020

2019

2019

Deposit for mobile broadband license bidding

(Note 18)

$

-

$

1,000,000

$

-

Others

2,532,695

2,316,177

2,430,663

$

8,557,775

$

8,531,368

$

8,385,705

Current

Spare parts

$

3,200,426

$

2,336,082

$

2,328,662

Others

166,198

93,582

168,048

$

3,366,624

$

2,429,664

$

2,496,710

Noncurrent

Refundable deposits

$

1,824,654

$

1,879,109

$

1,788,380

Other financial assets

1,000,000

1,000,000

1,000,000

Prepayment for investments

-

-

838,000

Deposit for mobile broadband license

bidding

-

1,000,000

-

Others

2,366,497

2,222,595

2,262,615

$

5,191,151

$

6,101,704

$

5,888,995

(Concluded)

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

20. HEDGING FINANCIAL INSTRUMENTS

Chunghwa's hedge strategy is to enter 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.

  • 42 -

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.

September 30, 2020

Change in Fair

Values of

Hedging

Instruments Used

Notional

for Calculating

Amount

Forward

Line Item in

Carrying Amount

Hedge

Hedging Instruments

Currency

(In Thousands)

Maturity

Rate

Balance Sheet

Ineffectiveness

Asset

Liability

Cash flow hedge

Forecast purchases -

EUR/NT$

EUR 13,000/

2020.12

$

33.53

Hedging financial

$

7,841

$

-

$

7,514

forward exchange

NT$ 435,843

assets (liabilities)

contracts

Change in

Accumulated Gain or Loss

Value of

Hedged Item

on Hedging Instruments

Used for

in Other Equity

Calculating

Hedge

Hedge

Continuing

Accounting no

Hedged Items

Ineffectiveness

Hedges

Longer Applied

Cash flow hedge

Forecast equipment purchases

$

(7,514)

$

7,841

$

-

December 31, 2019

Change in Fair

Values of

Hedging

Instruments Used

Notional

for Calculating

Amount

Forward

Line Item in

Carrying Amount

Hedge

Hedging Instruments

Currency

(In Thousands)

Maturity

Rate

Balance Sheet

Asset

Liability

Ineffectiveness

Cash flow hedge

Forecast purchases -

EUR/NT$

EUR 2,498/

2020.03

$

33.66

Hedging financial

$

327

$

-

$

(742 )

forward exchange

NT$ 84,066

assets (liabilities)

contracts

Change in

Accumulated Gain or Loss

Value of

Hedged Item

on Hedging Instruments

Used for

in Other Equity

Calculating

Hedge

Hedge

Continuing

Accounting No

Hedged Items

Ineffectiveness

Hedges

Longer Applied

Cash flow hedge

Forecast equipment purchases

$

742

$

327

$

-

There is no outstanding forward exchange contract designated for hedge on September 30, 2019.

- 43 -

Nine months ended September 30, 2020

Comprehensive Income

Reclassification from Equity

to Profit or Loss and the Adjusted

Line Item

Due to Hedged

Amount of

Amount

Future Cash

Hedging

Hedge

Line Item in

Reclassified to

Flows No

Gain or Losses

Ineffectiveness

Which Hedge

P/L and the

Longer

Recognized

Recognized in

Ineffectiveness is

Adjusted Line

Expected to

Hedge Transaction

in OCI

Profit or Loss

Included

Item

Occur

Cash flow hedge

Forecast equipment

$

7,514

$

-

-

$

10,050

$

-

purchases

Construction in

Other gains and

progress and

losses

equipment to

be accepted

Nine months ended September 30, 2019

Comprehensive Income

Reclassification from Equity

to Profit or Loss and the Adjusted

Line Item

Due to Hedged

Amount of

Amount

Future Cash

Hedging

Hedge

Line Item in

Reclassified to

Flows No

Gain or Loss

Ineffectiveness

Which Hedge

P/L and the

Longer

Recognized

Recognized in

Ineffectiveness is

Adjusted Line

Expected to

Hedge Transaction

in OCI

Profit or Loss

Included

Item

Occur

Cash flow hedge

Forecast equipment

$

(1,069)

$

-

-

$

(1,766)

$

-

purchases

Construction in

Other gains and

progress and

losses

equipment to

be accepted

21. SHORT-TERM LOANS

September 30,

December 31,

September 30,

2020

2019

2019

Unsecured bank loans

$

75,000

$

90,000

$

90,000

The annual interest rates of bank loans were as follows:

September 30,

December 31,

September 30,

2020

2019

2019

Unsecured bank loans

1.12%-2.33%

1.20%-2.50%

1.20%-2.50%

- 44 -

22. SHORT-TERM BILLS PAYABLE

September 30,

December 31,

September 30,

2020

2019

2019

Commercial paper payable

$ 12,000,000

$

-

$

-

Less: Discounts on commercial paper

payable

(9,171)

-

-

$ 11,990,829

$

-

$

-

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

September 30,

December 31,

September 30,

2020

2019

2019

Commercial paper payable

0.37%-0.40%

-

-

23. LONG-TERM LOANS

September 30,

December 31,

September 30,

2020

2019

2019

Secured bank loans (Note 39)

$

1,600,000

$

1,600,000

$

1,600,000

Less: Current portion

(1,600,000)

-

-

$

-

$

1,600,000

$

1,600,000

The annual interest rates of loans were as follows:

September 30,

December 31,

September 30,

2020

2019

2019

Secured bank loans

0.72%

0.92%

0.92%

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

24. Bonds Payable

September 30,

December 31,

September 30,

2020

2019

2019

Unsecured domestic bonds

$ 20,000,000

$

-

$

-

Less: Discounts on bonds payable

(20,527)

-

-

$ 19,979,473

$

-

$

-

- 45 -

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

Total

Coupon

Repayment and Interest

Issuance

Tranche

Issuance Period

Amount

Rate

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

September 30,

December 31,

September 30,

2020

2019

2019

Trade notes and accounts payable

$ 13,256,209

$ 15,312,274

$ 16,932,170

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

26. OTHER PAYABLES

September 30,

December 31,

September 30,

2020

2019

2019

Accrued salary and compensation

$

7,440,890

$

9,482,606

$

7,385,472

Payables to contractors

2,290,469

1,892,188

1,176,504

Accrued compensation to employees and

remuneration to directors and supervisors

1,314,633

1,440,573

1,152,002

Amounts collected for others

1,264,053

1,278,796

1,414,354

Payable on land (Note 15)

1,056,680

-

-

Accrued maintenance costs

884,601

954,761

1,163,052

Accrued franchise fees

785,169

1,091,148

824,985

Payables to equipment suppliers

725,746

295,816

404,978

Others

6,427,255

6,516,600

6,571,033

$

22,189,496

$

22,952,488

$

20,092,380

27. PROVISIONS

September 30,

December 31,

September 30,

2020

2019

2019

Warranties

$

176,268

$

173,275

$

157,237

Onerous contracts

101,372

66,907

117,433

Employee benefits

63,882

59,745

54,881

Others

4,097

4,397

4,397

$

345,619

$

304,324

$

333,948

(Continued)

- 46 -

September 30,

December 31,

September 30,

2020

2019

2019

Current

$

240,296

$

206,942

$

248,858

Noncurrent

105,323

97,382

85,090

$

345,619

$

304,324

$

333,948

(Concluded)

Onerous

Employee

Warranties

contracts

Benefits

Others

Total

Balance on January 1, 2019

$

131,664

$

19,323

$

51,393

$

4,447

$

206,827

Additional

89,022

98,110

4,330

-

191,462

Used / forfeited during the period

(63,449)

-

(842)

(50)

(64,341)

Balance on September 30, 2019

$

157,237

$

117,433

$

54,881

$

4,397

$

333,948

Balance on January 1, 2020

$

173,275

$

66,907

$

59,745

$

4,397

$

304,324

Additional / (reversal of)

provisions recognized

104,321

19,207

4,831

(200)

128,159

Used / forfeited during the period

(101,328)

-

(694)

(100)

(102,122)

Acquired by business

combinations (Note 13)

-

15,258

-

-

15,258

Balance on September 30, 2020

$

176,268

$

101,372

$

63,882

$

4,097

$

345,619

  1. 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 historical warranty experience.
  2. The provision for employee benefits represents vested long-term service compensation accrued.
  3. The provision for onerous contracts represents the present obligation resulting from the measurement for the unavoidable costs of meeting the Company's contractual obligations exceed the economic benefits expected to be received from the contracts.

28. RETIREMENT BENEFIT PLANS

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

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

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Operating costs

$ 301,420

$ 429,939

$ 904,216

$ 1,295,094

Marketing expenses

151,073

217,992

452,231

649,579

(Continued)

- 47 -

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

General and administrative

expenses

$

30,395

$

41,124

$ 90,368

$

122,109

Research and development

25,635

77,920

expenses

18,175

54,183

$

501,063

$

714,690

$ 1,500,998

$ 2,144,702

(Concluded)

29. EQUITY

a. Share capital

1) Common stocks

September 30,

December 31,

September 30,

2020

2019

2019

Number of authorized shares

(thousand)

12,000,000

12,000,000

12,000,000

Authorized shares

$ 120,000,000

$ 120,000,000

$ 120,000,000

Number of issued and paid shares

(thousand)

7,757,447

7,757,447

7,757,447

Issued shares

$ 77,574,465

$ 77,574,465

$

77,574,465

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

  1. Global depositary receipts
    The MOTC and some stockholders sold some common stocks of Chunghwa in an international offering of securities in the form of American Depositary Shares ("ADS") (one ADS represents 10 common stocks) in July 2003, August 2005, and September 2006. The ADSs were traded on the New York Stock Exchange since July 17, 2003. As of September 30, 2020, the outstanding ADSs were 226,662 thousand common stocks, which equaled 22,666 thousand units and represented 2.92% of Chunghwa's total outstanding common stocks.
    The ADS holders generally have the same rights and obligations as other common stockholders, subject to the provision of relevant laws. The exercise of such rights and obligations shall comply with the related regulations and deposit agreement, which stipulate, among other things, that ADS holders are entitled to, through deposit agents:
    1. Exercise their voting rights,
    2. Sell their ADSs, and
    3. Receive dividends declared and subscribe to the issuance of new shares.
      • 48 -
  1. Additional paid-in capital
    The adjustments of additional paid-in capital for the nine months ended September 30, 2020 and
    2019 were as follows:

Difference

between

Movements of

Movements of

Consideration

Additional

Additional

Received and

Paid-in Capital

Paid-in Capital

Carrying

for Associates

Arising from

Amount of the

Accounted for

Changes in

Subsidiaries' Net

Stockholders'

Using Equity

Equities of

Assets upon

Contribution due

Share Premium

Method

Subsidiaries

Disposal

Donated Capital

to Privatization

Total

Balance on January 1, 2019

$

147,329,386

$

89,893

$

2,063,148

$

987,611

$

18,648

$

20,648,078

$

171,136,764

Unclaimed dividend

-

-

-

-

1,314

-

1,314

Change in additional paid-in

capital from investments in

associates accounted for

using equity method

-

119,922

-

-

-

-

119,922

Share-based payment

transactions of subsidiaries

-

-

(812 )

-

-

-

(812 )

Balance on September 30, 2019

$

147,329,386

$

209,815

$

2,062,336

$

987,611

$

19,962

$

20,648,078

$

171,257,188

Balance on January 1, 2020

$

147,329,386

$

208,746

$

2,062,250

$

987,611

$

19,914

$

20,648,078

$

171,255,985

Unclaimed dividend

-

-

-

-

1,647

-

1,647

Change in additional paid-in

capital from investments in

associates accounted for

using equity method

-

(9,399 )

-

-

-

-

(9,399 )

Change in additional paid-in

capital for not

proportionately participating

in the capital increase of

subsidiaries

-

-

(103 )

-

-

-

(103 )

Share-based payment

transactions of subsidiaries

-

-

24,085

-

-

-

24,085

Balance on September 30, 2020

$

147,329,386

$

199,347

$

2,086,232

$

987,611

$

21,561

$

20,648,078

$

171,272,215

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

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

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

  1. Retained earnings and dividends policy
    In accordance with the Chunghwa's Articles of Incorporation, Chunghwa must pay all outstanding taxes, offset deficits in prior years and set aside a legal reserve equal to 10% of its net income before distributing a dividend or making any other distribution to stockholders, except when the accumulated amount of such legal reserve equals to Chunghwa's total issued capital, and depending on its business needs or requirements, may also set aside or reverse special reserves. No less than 50% of the remaining earnings comprising remaining balance of net income, if any, plus cumulative undistributed earnings shall be distributed as stockholders' dividends, of which cash dividends to be distributed shall not be less than 50% of the total amount of dividends to be distributed. If cash dividend to be distributed is less than $0.10 per share, such cash dividend shall be distributed in the form of common stocks.

- 49 -

Chunghwa should appropriate or reverse a special reserve in accordance with Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the directive entitled "Questions and Answers on Special Reserves Appropriated Following the Adoption of Taiwan-IFRSs". Distributions can be made out of any subsequent reversal of the debit to other equity items.

The appropriation for legal reserve shall be made until the accumulated reserve equals the aggregate par value of the outstanding capital stock of Chunghwa. This reserve can only be used to offset a deficit, or, when the legal reserve has exceeded 25% of Chunghwa's paid-in capital, the excess may be transferred to capital or distributed in cash.

The appropriations of the 2019 and 2018 earnings of Chunghwa approved by the stockholders in their meetings on May 29, 2020 and June 21, 2019 were as follows:

Dividends Per Share

Appropriation of Earnings

(NT$)

For Fiscal

For Fiscal

For Fiscal

For Fiscal

Year 2019

Year 2018

Year 2019

Year 2018

Cash dividends

$ 32,782,969

$ 34,745,603

$ 4.226

$ 4.479

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.

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

Nine Months Ended September 30

2020

2019

Beginning balance

$

836,598

$

538,272

Unrealized gain or loss for the period

Equity instruments

295,956

(464,400)

Ending balance

$

1,132,554

$

73,872

e. Noncontrolling interests

Nine Months Ended September 30

2020

2019

Beginning balance

$ 10,283,522

$ 9,990,345

Shares attributed to noncontrolling interests

Net income for the period

921,917

714,213

Exchange differences arising from the translation of the

foreign operations

(10,370)

18,068

Unrealized gain or loss on financial assets at FVOCI

(15,289)

(10,157)

(Continued)

- 50 -

Nine Months Ended September 30

2020

2019

Income tax relating to exchange differences arising from

the translation of the foreign operations

$

27

$

-

Share of other comprehensive income (loss) of associates

accounted for using equity method

(958)

281

Cash dividends distributed by subsidiaries

(775,420)

(709,817)

Changes in additional paid-in capital from investments in

associates accounted for using equity method

47

769

Change in additional paid-in capital for not participating in

the capital increase of subsidiaries

103

-

Share-based payment transactions of subsidiaries

59,234

16,428

Non-controlling interests increased by business combination

of IISI (Note 13)

475,879

-

Decrease in noncontrolling interests

-

(763)

Ending balance

$ 10,938,692

$

10,019,367

(Concluded)

30. REVENUES

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Revenue from contracts with

customers

$ 51,860,647

$ 50,595,069

$147,225,735

$

151,449,766

Other revenues

Rental income

220,581

216,558

616,557

607,370

Other

90,098

36,533

286,897

230,360

310,679

253,091

903,454

837,730

$ 52,171,326

$ 50,848,160

$148,129,189

$

152,287,496

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

  1. Disaggregation of revenue
    Nine months ended September 30, 2020

International

Domestic Fixed

Mobile

Fixed

Communi-

Communi-

Communi-

cations

cations

Internet

cations

Business

Business

Business

Business

Others

Total

Main Products and Service Revenues

Mobile services revenue

$

-

$ 42,516,219

$

-

$

-

$

-

$ 42,516,219

Sales of products

1,508,598

21,812,355

85,314

235,971

3,333,899

26,976,137

Local telephone and domestic long

distance telephone services

19,944,136

-

-

-

-

19,944,136

revenue

Broadband access and domestic

16,729,965

-

-

-

-

16,729,965

leased line services revenue

(Continued)

- 51 -

Data Communications internet services revenue

International network and leased line services revenue

Others

International

Domestic Fixed

Mobile

Fixed

Communi-

Communi-

Communi-

cations

cations

Internet

cations

Business

Business

Business

Business

Others

Total

$

-

$

-

$

16,030,764

$

-

$

-

$

16,030,764

-

-

-

3,041,287

-

3,041,287

10,556,132

874,639

6,053,156

3,270,788

1,232,512

21,987,227

$

48,738,831

$

65,203,213

$

22,169,234

$

6,548,046

$

4,566,411

$

147,225,735

(Concluded)

Nine months ended September 30, 2019

International

Domestic Fixed

Mobile

Fixed

Communi-

Communi-

Communi-

cations

cations

Internet

cations

Business

Business

Business

Business

Others

Total

Main Products and Service Revenues

Mobile services revenue

$

-

$

44,114,766

$

-

$

-

$

-

$

44,114,766

Sales of products

1,411,248

26,040,008

32,646

191,201

2,489,023

30,164,126

Local telephone and domestic long

distance telephone services

21,076,977

-

-

-

-

21,076,977

revenue

Broadband access and domestic

16,550,818

-

-

-

-

16,550,818

leased line services revenue

Data communications internet

-

-

15,722,032

-

-

15,722,032

services revenue

International network and leased

-

-

-

5,662,625

-

5,662,625

telephone services revenue

Others

7,815,573

790,131

6,017,643

2,960,312

574,763

18,158,422

$

46,854,616

$

70,944,905

$

21,772,321

$

8,814,138

$

3,063,786

$

151,449,766

b. Contract balances

September 30,

December 31,

September 30,

January 1,

2020

2019

2019

2019

Trade notes and account

$

30,075,503

receivables (Note 9)

$

22,595,966

$

26,407,783

$

29,760,143

Contract assets

Products and service

bundling

$

6,872,648

$

6,942,974

$

6,958,114

$

7,122,875

Other

670,671

115,993

113,785

108,581

Less: Loss allowance

(16,577)

(16,858)

(16,932)

(18,770)

$

7,526,742

$

7,042,109

$

7,054,967

$

7,212,686

Current

$

5,169,966

$

4,441,196

$

4,516,992

$

4,868,728

Noncurrent

2,356,776

2,600,913

2,537,975

2,343,958

$

7,526,742

$

7,042,109

$

7,054,967

$

7,212,686

(Continued)

- 52 -

September 30,

December 31,

September 30,

January 1,

2020

2019

2019

2019

Contract liabilities

Telecommunications

business

$ 12,693,256

$ 12,771,621

$ 12,530,094

$

8,193,215

Project business

9,462,062

10,360,428

9,820,467

4,508,200

Products and service

bundling

20,211

38,570

44,068

105,559

Other

516,655

510,696

825,464

475,947

$ 22,692,184

$ 23,681,315

$ 23,220,093

$

13,282,921

Current

$ 16,184,042

$ 16,839,830

$ 16,417,493

$

10,687,772

Noncurrent

6,508,142

6,841,485

6,802,600

2,595,149

$ 22,692,184

$ 23,681,315

$ 23,220,093

$

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.

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.

c. Incremental costs of obtaining contracts

September 30,

December 31,

September 30,

2020

2019

2019

Noncurrent

Incremental costs of obtaining contracts

$ 975,788

$ 942,652

$ 961,348

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 recognized for the three months and nine months ended September 30, 2020 were $192,669 thousand and $582,950 thousand, respectively. Amortization recognized in the three months and nine months ended September 30, 2019 were $262,170 thousand and $953,109 thousand, respectively.

- 53 -

31. NET INCOME

a. Other income and expenses

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Gain on disposal of

investment properties

$

151,357

$

-

$

151,357

$

-

Gain (loss) on disposal of

property, plant and

equipment

136,175

(19,273)

124,341

(28,339)

Loss on disposal of

intangible assets

(1,844)

-

(1,844)

(146)

$

285,688

$

(19,273)

$

273,854

$

(28,485)

b. Other income

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Dividend income

$

9,788

$

55,511

$

246,084

$

296,360

Rental income

18,378

23,062

53,522

64,704

Others

58,726

65,010

116,904

118,195

$

86,892

$

143,583

$

416,510

$

479,259

c. Other gains and losses

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Net foreign currency

exchange gains (losses)

$

(46,526)

$

51,943

$

14,268

$

37,280

Gains on disposal of

investments accounted for

using equity method

1,412

-

1,412

30,152

Losses on disposal of

financial instruments

-

-

(1,788)

-

Valuation gains (losses) on

financial assets and

liabilities at fair value

through profit or loss, net

(10,717)

2,800

(78,887)

(3,197)

Others

2,460

(7,513)

(11,327)

(40,681)

$

(53,371)

$

47,230

$

(76,322)

$

23,554

- 54 -

d. Interest expenses

Three Months Ended

September 30

2020

2019

Interest on bank loans

$

19,195

$

4,776

Interest on lease liabilities

18,738

20,970

Interest on bonds payable

18,233

-

Others

1,444

546

$

57,610

$

26,292

e. Impairment loss (reversal of impairment loss)

Three Months Ended

September 30

2020

2019

Contract assets

$

(76)

$

(1,105)

Trade notes and accounts

receivable

$

(43,237)

$

1,389

Other receivables

$

(2,077)

$

9,684

Inventories

$

412,334

$

10,415

f. Depreciation and amortization expenses

Three Months Ended

September 30

2020

2019

Property, plant and

equipment

$

6,741,765

$

6,732,778

Right-of-use assets

988,956

999,444

Investment properties

5,130

5,149

Intangible assets

1,650,539

1,062,234

Incremental costs of

obtaining contracts

192,669

262,170

Total depreciation and

amortization expenses

$

9,579,059

$

9,061,775

Depreciation expenses

summarized by functions

Operating costs

$

7,264,661

$

7,256,485

Operating expenses

471,190

480,886

$

7,735,851

$

7,737,371

Nine Months Ended

September 30

20202019

$

67,289

$

13,136

60,758

63,531

18,233

-

1,725

1,063

$

148,005

$

77,730

Nine Months Ended

September 30

20202019

$

(281)

$

(1,838)

$

61,890

$

(23,064)

$

(3,021)

$

(66,891)

$

608,024

$

155,761

Nine Months Ended

September 30

2020

2019

$ 20,221,714

$ 20,184,095

2,947,759

2,965,351

15,390

20,025

3,774,247

3,191,249

582,950

953,109

$ 27,542,060

$ 27,313,829

$ 21,754,763

$ 21,686,614

1,430,100

1,482,857

$ 23,184,863

$ 23,169,471

(Continued)

- 55 -

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Amortization expenses

summarized by functions

Operating costs

$

1,787,420

$

1,267,217

$

4,190,432

$

3,971,884

Marketing expenses

24,865

23,552

71,245

73,728

General and

administrative expenses

20,242

23,268

63,041

70,553

Research and

development expenses

10,681

10,367

32,479

28,193

$

1,843,208

$

1,324,404

$

4,357,197

$

4,144,358

(Concluded)

g. Employee benefit expenses

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Post-employment benefit

Defined contribution

plans

$

183,609

$

163,662

$

520,826

$

490,303

Defined benefit plans

501,063

714,690

1,500,998

2,144,702

684,672

878,352

2,021,824

2,635,005

Share-based payment

Equity-settled share -

based payment

1,646

429

4,937

1,288

Other employee benefit

Salaries

6,538,139

6,278,607

19,742,735

19,056,884

Insurance

684,912

682,712

2,032,869

2,072,893

Others

3,234,105

3,908,055

9,764,217

10,784,939

10,457,156

10,869,374

31,539,821

31,914,716

Total employee benefit

expenses

$

11,143,474

$

11,748,155

$

33,566,582

$

34,551,009

Summary by functions

Operating costs

$

5,711,453

$

5,984,774

$

17,197,330

$

17,731,271

Operating expenses

5,432,021

5,763,381

16,369,252

16,819,738

$

11,143,474

$

11,748,155

$

33,566,582

$

34,551,009

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

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

- 56 -

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:

Cash

2019

2018

Compensation distributed to the employees

$ 1,126,194

$ 1,404,264

Remuneration paid to the directors

35,210

38,216

There was no difference between the initial 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

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

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Current tax

Current tax expenses

recognized for the

period

$

2,174,029

$

1,972,343

$

6,332,269

$

6,015,903

Income tax on

unappropriated

earnings

-

15,839

11,527

19,523

Income tax adjustments

on prior years

1,096

(11,264)

(16,510)

(35,452)

Others

15,671

5,247

17,778

10,443

2,190,796

1,982,165

6,345,064

6,010,417

Deferred tax

Deferred tax expenses

recognized for the

period

(81,374)

8,982

(69,098)

10,354

Income tax adjustments

on prior years

77

(616)

27,816

(450)

(81,297)

8,366

(41,282)

9,904

Income tax recognized in

profit or loss

$

2,109,499

$

1,990,531

$

6,303,782

$

6,020,321

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.

- 57 -

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 from the unappropriated earnings while calculating income tax on unappropriated earnings.

b. Income tax recognized in other comprehensive income

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Deferred tax

Exchange differences

arising from the

translation of the

foreign operations

$

(56)

$

-

$

(56)

$

-

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

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

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Net income used to compute the

basic earnings per share

Net income attributable to the

parent

$

8,336,836

$

8,090,541

$ 25,194,210

$ 25,014,993

Assumed conversion of all

dilutive potential common

stocks

Employee stock options and

employee compensation of

subsidiaries

(922)

(1,070)

(3,528)

(3,936)

Net income used to compute the

diluted earnings per share

$

8,335,914

$

8,089,471

$ 25,190,682

$ 25,011,057

- 58 -

Weighted Average Number of Common Stocks

(Thousand Shares)

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Weighted average number of

common stocks used to

compute the basic earnings

per share

7,757,447

7,757,447

7,757,447

7,757,447

Assumed conversion of all

dilutive potential common

stocks

Employee compensation

1,435

990

7,425

7,774

Weighted average number of

common stocks used to

compute the diluted earnings

per share

7,758,882

7,758,437

7,764,872

7,765,221

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

34. SHARE-BASED PAYMENT ARRANGEMENT

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

Resolution Date by

Effective Date for

SENAO's Board of

Stock Options Units

Exercise Price

Plan Registration

Directors

(Thousand)

(NT$)

2012.05.28

2013.04.29

10,000

$66.20

(Original price $93.00)

Each option is eligible to subscribe for one common share when exercisable. Under the terms of the SENAO Plan, the options are granted at an exercise price equal to the closing price of SENAO's common stocks listed on the TWSE on the higher of closing price or par value. The SENAO Plan has an exercise price adjustment formula upon the changes in common stocks equity (including cash capital increase, new share issue through capitalization of earnings and additional paid-in capital, merger, spin off and new share issue for Global Depositary Shares, and so on) or distribution of cash dividends. The options of the SENAO Plan are valid for six years and the graded vesting schedule for which 50% of options granted will vest two years after the grant date and another two tranches of 25%, each will vest three and four years after the grant date respectively.

No compensation cost of stock options granted on May 7, 2013 was recognized for the three months and nine months ended September 30, 2019 and 2020, respectively.

- 59 -

Information about SENAO's outstanding stock options for the nine months ended September 30,

2019 was as follows:

Nine Months Ended

September 30, 2019

Granted on May 7, 2013

Weighted

Number of

Average

Options

Exercise Price

(Thousand)

(NT$)

Employee stock options

Options outstanding at beginning of the period

5,318

$ 66.20

Options forfeited

(5,318)

-

Options outstanding at end of the period

-

-

Option exercisable at end of the period

-

-

As of September 30, 2020, December 31, and September 30, 2019, there were no outstanding stock options.

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

Stock Options

Granted on

May 7, 2013

Grant-date share price (NT$)

$93.00

Exercise price (NT$)

$93.00

Dividend yield

-

Risk-free interest rate

0.91%

Expected life

4.375 years

Expected volatility

36.22%

Weighted average fair value of grants (NT$)

$28.72

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

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

Resolution Date by

Effective Date for

CHIEF's Board of

Exercise Price

Plan Registration

Directors

Stock Options Units

(NT$)

2017.12.18

2017.12.19

950.00

$

132.70

(Original price $

147.00)

2018.10.31

50.00

$

138.70

(Original price $

147.00)

2015.11.17

2015.10.22

2,000.00

$

34.40

(Original price $

43.00)

- 60 -

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 compensation costs for stock options granted on October 31, 2018 were both $138 thousand for the three months ended September 30, 2020 and 2019. The compensation costs for stock options granted on October 31, 2018 were both $414 thousand for the nine months ended September 30, 2020 and 2019, respectively.

The compensation costs for stock options granted on December 19, 2017 were $72 thousand and $216 thousand for the three months and nine months ended September 30, 2020, respectively. The compensation costs were $167 thousand and $502 thousand for the three months and nine months ended September 30, 2019, respectively.

There were no compensation costs for stock options granted on October 22, 2015 for the three months and nine months ended September 30, 2020. The compensation costs were $124 thousand and $372 thousand for the three months and nine months ended September 30, 2019, respectively.

CHIEF modified the plan terms of stock options granted on October 31, 2018 in June 2019 and July 2020, 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, 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 nine months ended September 30,

2020 and 2019 was as follows:

Nine Months Ended September 30, 2020

Granted on October 31,

Granted on December

Granted on October 22,

2018

19, 2017

2015

Weighted

Weighted

Weighted

Average

Average

Average

Exercise

Exercise

Exercise

Number of

Price

Number of

Price

Number of

Price

Options

(NT$)

Options

(NT$)

Options

(NT$)

Employee stock options

Options outstanding at beginning of

46.00

897.00

314.25

the period

$ 141.70

$ 135.60

$ 34.40

Options exercised

-

-

(448.50)

135.60

(314.25)

34.40

Options forfeited

(4.00)

-

(17.00)

-

-

-

Options outstanding at end of the

42.00

431.50

-

period

138.70

132.70

-

Options exercisable at end of the

-

-

-

period

-

-

-

- 61 -

Nine Months Ended September 30, 2019

Granted on October 31,

Granted on December

Granted on October 22,

2018

19, 2017

2015

Weighted

Weighted

Weighted

Average

Average

Average

Exercise

Exercise

Exercise

Number of

Price

Number of

Price

Number of

Price

Options

(NT$)

Options

(NT$)

Options

(NT$)

Employee stock options

Options outstanding at beginning of

50.00

925.00

882.75

the period

$ 147.00

$ 140.60

$ 34.40

Options exercised

-

-

-

-

(416.50)

34.40

Options forfeited

(4.00)

-

(32.00)

-

(21.25)

-

Options outstanding at end of the

46.00

893.00

445.00

period

141.70

135.60

34.40

Options exercisable at end of the

-

-

-

period

-

-

-

As of September 30, 2020, information about employee stock options outstanding was as follows:

Granted on October 31, 2018

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$138.70

42.00

3.08

$138.70

-

$

-

Granted on December 19, 2017

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$132.70

431.50

2.22

$132.70

-

$

-

As of September 30, 2020, all the stock options granted on October 22, 2015 were exercised or forfeited.

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

Granted on October 31, 2018

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$141.70

46.00

3.83

$141.70

-

$

-

- 62 -

Granted on December 19, 2017

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$135.60

897.00

2.96

$135.60

448.50

$135.60

Granted on October 22, 2015

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$ 34.40

314.25

0.81

$ 34.40

314.25

$ 34.40

As of September 30, 2019, information about employee stock options outstanding was as follows:

Granted on October 31, 2018

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$141.70

46.00

4.08

$141.70

-

$

-

Granted on December 19, 2017

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$135.60

893.00

3.22

$135.60

-

$

-

Granted on October 22, 2015

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$ 34.40

445.00

1.06

$ 34.40

-

$

-

- 63 -

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

Stock Options

Stock Options

Stock Options

Granted on

Granted on

Granted on

October 31,

December 19,

October 22,

2018

2017

2015

Grant-date share price (NT$)

$166.00

$95.92

$39.55

Exercise price (NT$)

$147.00

$147.00

$43.00

Dividend yield

-

-

-

Risk-free interest rate

0.72%

0.62%

0.86%

Expected life

5 years

5 years

5 years

Expected volatility

16.60%

17.35%

21.02%

Weighted average fair value of grants

(NT$)

$33,540

$2,318

$4,863

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

  1. CHTSC share-based compensation plan ("CHTSC Plan") described as follows:
    The Board of Directors of CHTSC resolved to issue 4,500 options that are granted to specific employees that meet the vesting conditions on December 20, 2019. Each option is eligible to subscribe for one thousand common stocks when exercisable, and the exercise price is $19.085. The CHTSC Plan has an exercise price adjustment formula upon the changes in common stocks. The options of CHTSC Plan are valid for five years and the graded vesting schedule will vest one year after the grant date.
    The compensation costs were $1,436 thousand and $4,307 thousand for the three months and nine months ended September 30, 2020, respectively.
    Information about CHTSC's outstanding stock options for the nine months ended September 30,
    2020 was as follows:

Nine Months Ended

September 30, 2020

Granted on December 20, 2019

Weighted

Average

Number of

Exercise Price

Options

(NT$)

Employee stock options

Options outstanding at beginning and end of the period

4,500

$ 19.085

Options exercisable at end of the period

-

-

- 64 -

As of September 30, 2020, information about employee stock options outstanding was as follows:

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$19.085

4,500

4.22

$19.085

-

$

-

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

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$19.085

4,500

4.97

$19.085

-

$

-

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

Stock Options

Granted on

December

20,2019

Grant-date share price (NT$)

$20.17

Exercise price (NT$)

$19.085

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.

  1. 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 three months ended September 30, 2020.

- 65 -

Information about IISI's outstanding stock options for the nine months ended September 30, 2020 was as follows:

Nine Months Ended September 30, 2020

Granted in January 2014

Granted in August 2013

Weighted

Weighted

Average

Average

Number of

Exercise Price

Number of

Exercise Price

Options

(NT$)

Options

(NT$)

Employee stock options

Options outstanding at

-

$ -

-

$ -

beginning of the period

Options outstanding upon the

date of business

580.00

14.00

1,022.96

14.00

combination

Options exercised

(50.00)

14.00

(432.50)

14.00

Options forfeited

-

-

(590.46)

-

Options outstanding at end of

530.00

14.00

-

-

the period

Options exercisable at end of

530.00

14.00

-

-

the period

As of September 30, 2020, information about employee stock options outstanding was as follows:

Granted in January 2014

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Weighted

Range of

Remaining

Average

Average

Exercise Price

Number of

Contractual

Exercise

Number of

Exercise

(NT$)

Options

Life (Years)

Price (NT$)

Options

Price (NT$)

$ 14.00

530.00

0.29

$ 14.00

530.00

$ 14.00

As of September 30, 2020, the options granted to employees in 2013 have been fully exercised or forfeited.

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

Stock Options

Stock Options

Granted in

Granted in

January 2014

August 2013

Grant-date share price (NT$)

$14.51

$12.51

Exercise price (NT$)

$14.00

$14.00

Dividend yield

6%

6%

Risk-free interest rate

1.16%-1.32%

1.20%-1.39%

Expected life

4.5-5.5 years

4.5-5.5 years

Expected volatility

35.28%-35.97%

36.01%-36.62%

Weighted average fair value of grants (NT$)

$14.51

$12.51

- 66 -

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

For the nine months ended September 30, 2020 and 2019, the Company entered into the following non-cash investing activities:

Nine Months Ended September 30

2020

2019

Increase in property, plant and equipment

$

15,858,636

$

14,752,470

Changes in other payables

(1,886,269)

1,604,212

$

13,972,367

$

16,356,682

Increase in intangible assets

$

48,547,040

$

167,593

Changes in other assets

(1,000,000)

-

$

47,547,040

$

167,593

Disposal of property, plant and equipment

$

130,474

$

65,815

Gain (loss) on disposal of property, plant and equipment

124,341

(28,339)

Changes in receivables from related parties

(144,700)

-

$

110,115

$

37,476

Disposal of investment properties

$

36,943

$

-

Gain on disposal of investment properties

151,357

-

Changes in receivables from related parties

(188,300)

-

$

-

$

-

For the nine months ended September 30, 2020 and 2019, changes in liabilities arising from financing activities, including non-cash transactions, were as follows:

Changes in Non-Cash Transactions

Cash Flows

Cash Flows

Acquired by

from

Balance on

from

business

Operation

Balance on

January 1,

Financing

combination

Activities -

September 30,

2020

Activities

New Leases

(Note 13)

Others

Interest Paid

2020

Lease liabilities

$ 9,758,138

$ (2,863,451)

$

2,892,908

$

70,905

$ (225,187 )

$ (60,758 )

$ 9,572,555

Cash Flows

from

Cash Flows

Operation

Balance on

from

Changes in Non-Cash

Activities -

Balance on

January 1,

Financing

Transactions

Interest

September

2019

Activities

New Leases

Others

Paid

30, 2019

Lease liabilities

$10,340,057

$ (2,896,092)

$ 2,671,187

$

(464,893)

$

(63,531)

$ 9,586,728

- 67 -

  1. 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.
  2. FINANCIAL INSTRUMENTS Fair Value Information
    The fair value measurement guidance establishes a framework for measuring fair value and expands disclosure about fair value measurements. The standard describes a fair value hierarchy based on three levels of inputs that may be used to measure fair value. These levels are:
    Level 1 fair value measurements: These measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
    Level 2 fair value measurements: These measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
    Level 3 fair value measurements: These measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
    1. Financial instruments that are not measured at fair value but for which fair value is disclosed
      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.

September 30, 2020

December 31, 2019

September 30, 2019

Carrying

Carrying

Carrying

Value

Fair Value

Value

Fair Value

Value

Fair Value

Financial liabilities

Financial liabilities carried at

amortized cost

Bonds payable

$ 19,979,473

$ 19,999,956

$

-

$

-

$

-

$

-

The fair value of bonds payable is measured using Level 2 inputs. The valuation of fair value is based on the weighted-averageper-hundred price of Taipei Exchange at the end of reporting period.

- 68 -

  1. Financial instruments that are measured at fair values on a recurring basis September 30, 2020

Level 1

Level 2

Level 3

Total

Financial assets at FVTPL

Derivatives

$

-

$

38

$

-

$

38

Listed stocks

7,202

-

-

7,202

Non-listed stocks

-

-

699,689

699,689

$

7,202

$

38

$

699,689

$

706,929

Hedging financial assets

$

-

$

7,841

$

-

$

7,841

Financial assets at FVOCI

Listed stocks

$

2,317,591

$

-

$

-

$

2,317,591

Non-listed stocks

-

-

5,315,050

5,315,050

$

2,317,591

$

-

$

5,315,050

$

7,632,641

Financial liabilities at

FVTPL

Derivatives

$

-

$

19

$

-

$

19

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

- 69 -

September 30, 2019

Level 1

Level 2

Level 3

Total

Financial assets at FVTPL

Derivatives

$

-

$

83

$

-

$

83

Listed stocks

24,512

-

-

24,512

Non-listed stocks

-

-

512,736

512,736

$

24,512

$

83

$

512,736

$

537,331

Financial assets at FVOCI

Listed stocks

$

2,393,689

$

-

$

-

$

2,393,689

Non-listed stocks

-

-

4,063,607

4,063,607

$

2,393,689

$

-

$

4,063,607

$

6,457,296

Financial liabilities at

FVTPL

Derivatives

$

-

$

1,854

$

-

$

1,854

There were no transfers between Levels 1 and 2 for the nine months ended September 30, 2020 and 2019.

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

Nine months ended September 30, 2020

Measured at

Measured at

Fair Value

Fair Value

through Other

through Profit

Comprehensive

Financial Assets

or Loss

Income

Total

Balance on January 1, 2020

$

778,105

$

4,815,301

$

5,593,406

Recognized in profit or loss under "Other

gains and losses"

(78,416)

-

(78,416)

Recognized in other comprehensive

income under "Unrealized gain or loss

on investments in equity instruments at

fair value through other comprehensive

income"

-

499,749

499,749

Balance on September 30, 2020

$

699,689

$

5,315,050

$

6,014,739

Unrealized loss for the nine months ended

September 30, 2020

$

(78,416)

- 70 -

Nine months ended September 30, 2019

Measured at

Measured at

Fair Value

Fair Value

through Other

through Profit

Comprehensive

Financial Assets

or Loss

Income

Total

Balance on January 1, 2019

$

517,362

$

4,032,660

$

4,550,022

Recognized in profit or loss under "Other

gains and losses"

(4,626)

-

(4,626)

Recognized in other comprehensive

income under "Unrealized gain or loss

on investments in equity instruments at

fair value through other comprehensive

income"

-

30,947

30,947

Balance on September 30, 2019

$

512,736

$

4,063,607

$

4,576,343

Unrealized loss for the nine months ended

September 30, 2019

$

(4,626)

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

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

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

September 30,

December 31,

September 30,

2020

2019

2019

Discount for lack of marketability

13.73%-20.00%

13.73%-20.00%

12.73%-20.00%

Noncontrolling interests discount

21.45%-25.00%

21.45%-25.00%

24.41%-25.00%

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

September 30,

September 30,

2020

2019

Discount for lack of marketability

5% decrease

$

375,917

$

268,494

Noncontrolling interests discount

5% decrease

$

48,373

$

17,480

- 71 -

Categories of Financial Instruments

September 30,

December 31,

September 30,

2020

2019

2019

Financial assets

Measured at FVTPL

Mandatorily measured at FVTPL

$

706,929

$

778,621

$

537,331

Hedging financial assets

7,841

327

-

Financial assets at amortized cost (Note a)

49,390,075

71,851,933

64,636,992

Financial assets at FVOCI

7,632,641

7,268,917

6,457,296

Financial liabilities

Measured at FVTPL

Held for trading

19

239

1,854

Measured at amortized cost (Note b)

65,532,259

34,433,210

35,201,773

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

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

Financial Risk Management Objectives

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

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

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

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

- 72 -

  1. Foreign currency risk
    The carrying amounts of the Company's foreign currency denominated monetary assets and monetary liabilities at the balance sheet dates were as follows:

September 30,

December 31,

September 30,

2020

2019

2019

Assets

USD

$ 3,752,586

$ 5,781,593

$ 6,165,652

EUR

10,164

11,792

32,842

SGD

261,394

224,501

67,691

JPY

22,647

17,092

17,451

RMB

28,137

8,854

9,314

Liabilities

USD

2,370,285

4,120,881

6,519,851

EUR

567,044

206,447

338,103

SGD

1,077,468

1,262,926

1,270,743

JPY

7,961

14,206

16,178

RMB

288

310

701

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

September 30,

December 31,

September 30,

2020

2019

2019

Assets

USD

$

38

$

53

$

83

EUR

7,841

327

-

Liabilities

USD

-

11

47

EUR

19

228

1,807

Foreign currency sensitivity analysis

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

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

Nine Months Ended September 30

2020

2019

Profit or loss

Monetary assets and liabilities (a)

USD

$ 69,115

$ (17,710)

EUR

(27,844)

(15,263)

SGD

(40,804)

(60,153)

(Continued)

- 73 -

Nine Months Ended September 30

2020

2019

JPY

$

734

$

64

RMB

1,392

431

Derivatives (b)

USD

(728)

2,498

EUR

3,074

2,662

Equity

Derivatives (c)

EUR

22,198

-

(Concluded)

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

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

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

Fair value interest rate risk Financial assets Financial liabilities

Cash flow interest rate risk Financial assets Financial liabilities

Interest rate sensitivity analysis

September 30,

December 31,

September 30,

2020

2019

2019

$ 12,256,062

$ 30,946,503

$ 17,015,191

41,542,857

9,758,138

9,586,728

8,893,268

7,681,032

12,605,731

1,675,000

1,690,000

1,690,000

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 $18,046 thousand and $27,289 thousand for the nine months ended September 30, 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.

- 74 -

    1. Other price risk
      The Company is exposed to equity price risks arising from holding other company's equity. Equity investments are held for strategic rather than trading purposes. The management managed the risk through holding various risk portfolios. Further, the Company assigned finance and investment departments to monitor the price risk.
      Equity price sensitivity analysis
      The sensitivity analyses below have been determined based on the exposure to equity price risks at the end of the reporting period.
      If equity prices had been 5% higher/lower, pre-tax profit and pre-tax other comprehensive income would have increased/decreased by $35,345 thousand and $381,632 thousand as a result of the changes in fair value of financial assets at FVTPL and financial assets at FVOCI for the nine months ended September 30, 2020. If equity prices had been 5% higher/lower, pre-tax profit and pre-tax other comprehensive income would have increased/decreased by $26,862 thousand and $322,865 thousand as a result of the changes in fair value of financial assets at FVTPL and financial assets at FVOCI for the nine months ended September 30, 2019.
  2. Credit risk
    Credit risk refers to the risk that a counterparty would default on its contractual obligations resulting in financial loss to the Company. The maximum credit exposure of the aforementioned financial instruments is equal to their carrying amounts recognized in consolidated balance sheet as of the balance sheet date.
    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.
  3. Liquidity risk
    The Company manages and maintains sufficient cash and cash equivalent position to support the operations and reduce the impact on fluctuation of cash flow.
    1. Liquidity and interest risk tables
      The following tables detailed the Company's remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables had been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company is required to pay.

- 75 -

September 30, 2020

Weighted

Average

Effective

Interest Rate

Less than

3 Months to

Add More than

(%)

1 Month

1-3 Months

1 Year

1-5 Years

5 Years

Total

Non-derivative financial liabilities

Non-interest bearing

-

$ 32,783,611

$

-

$

3,156,482

$

4,702,387

$

-

$ 40,642,480

Floating interest rate instruments

0.78

-

-

1,675,000

-

-

1,675,000

Fixed interest rate instruments

0.48

-

5,000,000

7,000,000

8,800,000

11,200,000

32,000,000

$ 32,783,611

$

5,000,000

$

11,831,482

$

13,502,387

$

11,200,000

$ 74,317,480

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

Less than

Add More

1 Year

1-3 Years

3-5 Years

than 5 Years

Total

Lease liabilities

$ 3,293,176

$ 4,272,026

$ 1,663,042

$

509,197

$ 9,737,441

December 31, 2019

Weighted

Average

Effective

Interest Rate

Less than

3 Months to

Add More than

(%)

1 Month

1-3 Months

1 Year

1-5 Years

5 Years

Total

Non-derivative financial liabilities

Non-interest bearing

-

$ 36,387,024

$

-

$

2,531,721

$

4,747,644

$

-

$ 43,666,389

Floating interest rate instruments

0.98

50,000

10,000

30,000

1,600,000

-

1,690,000

$ 36,437,024

$

10,000

$

2,561,721

$

6,347,644

$

-

$ 45,356,389

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

Less than

More than

1 Year

1-3 Years

3-5 Years

5 Years

Total

Lease liabilities

$ 3,309,578

$ 4,394,009

$ 1,581,034

$

645,520

$ 9,930,141

September 30, 2019

Weighted

Average

Effective

Interest Rate

Less than

3 Months to

More than 5

(%)

1 Month

1-3 Months

1 Year

1-5 Years

Years

Total

Non-derivative financial liabilities

Non-interest bearing

-

$ 35,426,583

$

-

$

1,976,987

$

4,645,677

$

-

$ 42,049,247

Floating interest rate instruments

0.98

10,000

-

80,000

1,600,000

-

1,690,000

$ 35,436,583

$

-

$

2,056,987

$

6,245,677

$

-

$ 43,739,247

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

Less than

More than

1 Year

1-3 Years

3-5 Years

5 Years

Total

Lease liabilities

$ 3,266,203

$ 4,341,335

$ 1,553,871

$ 602,270

$ 9,763,679

- 76 -

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

3 Months to

1 Month

1-3 Months

1 Year

1-5 Years

Total

September 30, 2020

Gross settled

Forward exchange contracts

Inflow

$

-

$

519,680

$

-

$

-

$

519,680

Outflow

-

511,820

-

-

511,820

$

-

$

7,860

$

-

$

-

$

7,860

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

September 30, 2019

Gross settled

Forward exchange contracts

Inflow

$

49,953

$

53,327

$

-

$

-

$

103,280

Outflow

49,917

55,134

-

-

105,051

$

36

$

(1,807)

$

-

$

-

$

(1,771)

2) Financing facilities

September 30,

December 31,

September 30,

2020

2019

2019

Facilities from unsecured bank loan

and commercial paper payable

Amount used

$

12,086,405

$

120,681

$

123,305

Amount unused

54,462,777

46,109,219

46,111,895

$

66,549,182

$

46,229,900

$

46,235,200

Secured bank loan facility

Amount used

$

1,600,000

$

1,600,000

$

1,600,000

Amount unused

20,000

1,340,000

1,340,000

$

1,620,000

$

2,940,000

$

2,940,000

- 77 -

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.

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

Company

Taiwan International Standard Electronics Co., Ltd.

So-net Entertainment Taiwan Limited

KKBOX Taiwan Co., Ltd.

KingwayTek Technology Co., Ltd.

UUPON Inc.

Taiwan International Ports Logistics Corporation

International Integrated Systems, Inc.

Senao Networks, Inc.

EnRack Tech. Co., Ltd.

Emplus Technologies, Inc.

ST-2 Satellite Ventures Pte., Ltd.

Viettel-CHT Co., Ltd.

Click Force Co., Ltd.

Alliance Digital Tech Co., Ltd.

Chunghwa PChome Fund I Co., Ltd.

Cornerstone Ventures Co., Ltd.

Next Commercial Bank Co., Ltd.

Other related parties

Chunghwa Telecom Foundation

Senao Technical and Cultural Foundation

Sochamp Technology Co., Ltd.

E-Life Mall Co., Ltd.

Engenius Technologies Co., Ltd.

Cheng Keng Investment Co., Ltd.

Cheng Feng Investment Co., Ltd.

All Oriented Investment Co., Ltd.

Relationship

Associate

Associate

Associate

Associate

Associate

Associate Subsidiary (Note) Associate

Subsidiary of the Company's associate, Senao Networks, Inc.

Subsidiary of the Company's associate, Senao Networks, Inc.

Associate

Associate

Associate

Associate

Associate

Associate

Associate

A nonprofit organization of which the funds donated by Chunghwa exceeds one third of its total funds

A nonprofit organization of which the funds donated by SENAO exceeds one third of its total funds

Investor of significant influence over CHST One of the directors of E-Life Mall and a

director of SENAO are members of an immediate family

Chairman of Engenius Technologies Co., Ltd. is a member of SENAO's management

Chairman of Cheng Keng Investment Co., Ltd. and SENAO's chief executive officer are members of an immediate family

Chairman of Cheng Feng Investment Co., Ltd. and SENAO's chief executive officer are members of an immediate family

Chairman of All Oriented Investment Co., Ltd. and SENAO's chief executive officer are members of an immediate family

(Continued)

- 78 -

Company

Relationship

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

(Concluded)

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

  1. Balances and transactions between Chunghwa and its subsidiaries, which are related parties of Chunghwa, have been eliminated on consolidation and are not disclosed in this note. Terms of the foregoing transactions with related parties were not significantly different from transactions 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:
    1. Operating transactions

Revenues

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Associates

$

70,211

$

70,117

$

214,433

$

195,172

Others

17,944

16,473

52,772

57,333

$

88,155

$

86,590

$

267,205

$

252,505

Operating Costs and Expenses

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Associates

$

186,154

$

221,095

$

513,819

$

575,777

Others

4,056

5,933

63,346

72,021

$

190,210

$

227,028

$

577,165

$

647,798

- 79 -

2) Non-operating transactions

Non-operating Income and Expenses

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Associates

$

5,648

$

38,135

$

75,213

$

22,193

Others

570

221

1,036

238

$

6,218

$

38,356

$

76,249

$

22,431

3)

Receivables

September 30,

December 31,

September 30,

2020

2019

2019

Associates

$ 353,980

$

10,356

$

12,960

Others

336,165

6,478

6,117

$ 690,145

$

16,834

$

19,077

4) Contract liabilities-current

September 30,

December 31,

September 30,

2020

2019

2019

Associates

$

609,524

$

-

$

-

5)

Payables

September 30,

December 31,

September 30,

2020

2019

2019

Associates

$

491,142

$

650,617

$

375,633

Others

3,246

3,366

3,387

$

494,388

$

653,983

$

379,020

  1. Customers' deposits

September 30,

December 31,

September 30,

2020

2019

2019

Associates

$

4,376

$

7,595

$

6,809

7) Acquisition of property, plant and equipment

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Associates

$

108,923

$

62,988

$

134,526

$

94,823

Others

-

182

-

182

$

108,923

$

63,170

$

134,526

$

95,005

- 80 -

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

Proceeds

Three Months Ended

September 30

20202019

Gain on Disposal

Three Months Ended

September 30

20202019

Others

$ 333,000

$

-

$ 264,257

$

-

Proceeds

Nine Months Ended

September 30

20202019

Gain on Disposal

Nine Months Ended

September 30

20202019

Others

$ 333,000

$

-

$ 264,257

$

-

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

September 30,

December 31,

September 30,

2020

2019

2019

Lease liabilities - current

$

179,651

$

188,271

$

189,876

Lease liabilities - noncurrent

848,319

1,023,889

1,077,779

$

1,027,970

$

1,212,160

$

1,267,655

The interest expense recognized for the aforementioned lease liabilities for the three months and nine months ended September 30, 2020 were $2,176 thousand and $6,821 thousand, respectively. The interest expense recognized for the aforementioned lease liabilities for the three months and nine months ended September 30, 2019 are $2,675 thousand and $8,347 thousand, respectively.

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

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Short-term employee

$

80,934

$

74,139

$

218,013

$

209,553

benefits

Post-employment benefits

2,223

2,070

6,219

6,349

Share-based payment

20

70

61

202

$

83,177

$

76,279

$

224,293

$

216,104

- 81 -

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

39. PLEDGED ASSETS

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

September 30,

December 31,

September 30,

2020

2019

2019

Property, plant and equipment

$

2,469,188

$

2,491,324

$

2,498,703

Land held under development (included in

inventories)

1,998,733

1,998,733

1,998,733

Restricted assets (included in other assets -

others)

112,659

2,500

2,500

$

4,580,580

$

4,492,557

$

4,499,936

  1. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS
    Except for those disclosed in other notes, the Company's significant commitments and contingent liabilities as of September 30, 2020 were as follows:
    1. Acquisitions of land and buildings of $60,220 thousand.
    2. Acquisitions of telecommunications-related inventory and equipment of $34,384,149 thousand.
    3. Unused letters of credit amounting to $10,000 thousand.
    4. A commitment to contribute $2,000,000 thousand to a Piping Fund administered by the Taipei City Government, of which $1,000,000 thousand was contributed by Chunghwa on August 15, 1996 (classified as other monetary assets - noncurrent). If the fund is not sufficient, Chunghwa will contribute the remaining $1,000,000 thousand upon notification from the Taipei City Government.
    5. Chunghwa committed that when its ownership interest in NCB is greater than 25% and NCB encounters financial difficulty or 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.
    6. CHPT signed the contract for its headquarters construction amounting to $1,613,800 thousand in July 2017. The payment of $1,533,110 thousand has been made as of September 30, 2020.
  3. 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.

- 82 -

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:

September 30, 2020

Foreign

New Taiwan

Currencies

Exchange

Dollars

(Thousands)

Rate

(Thousands)

Assets denominated in foreign currencies

Monetary items

USD

$

128,955

29.10

$

3,752,586

EUR

298

34.15

10,164

SGD

12,295

21.26

261,394

JPY

82,056

0.276

22,647

RMB

6,591

4.269

28,137

Non-monetary items

Investments accounted for using equity

method

SGD

26,098

21.26

554,839

VND

302,812,035

0.0011

341,047

Liabilities denominated in foreign currencies

Monetary items

USD

81,453

29.10

2,370,285

EUR

16,605

34.15

567,044

SGD

50,681

21.26

1,077,468

JPY

28,844

0.276

7,961

RMB

68

4.269

288

December 31, 2019

Foreign

New Taiwan

Currencies

Exchange

Dollars

(Thousands)

Rate

(Thousands)

Assets denominated in foreign currencies

Monetary items

USD

$

192,849

29.98

$

5,781,593

EUR

351

33.59

11,792

SGD

10,076

22.28

224,501

JPY

61,929

0.276

17,092

RMB

2,057

4.305

8,854

Non-monetary items

Investments accounted for using equity

method

SGD

22,483

22.28

500,930

VND

270,542,735

0.0012

316,535

(Continued)

- 83 -

September 30, 2020

Foreign

New Taiwan

Currencies

Exchange

Dollars

(Thousands)

Rate

(Thousands)

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

(Concluded)

September 30, 2019

Foreign

New Taiwan

Currencies

Exchange

Dollars

(Thousands)

Rate

(Thousands)

Assets denominated in foreign currencies

Monetary items

USD

$

198,635

31.04

$

6,165,652

EUR

967

33.95

32,842

SGD

3,013

22.47

67,691

JPY

60,635

0.288

17,451

RMB

2,141

4.35

9,314

Non-monetary items

Investments accounted for using equity

method

SGD

25,605

22.47

575,355

VND

247,231,882

0.00122

301,623

Liabilities denominated in foreign currencies

Monetary items

USD

210,047

31.04

6,519,851

EUR

9,959

33.95

338,103

SGD

56,553

22.47

1,270,743

JPY

56,213

0.288

16,178

RMB

161

4.35

701

The unrealized foreign currency exchange gains and losses were loss of $16,358 thousand and gain of $26,460 thousand for the three months ended September 30, 2020 and 2019, respectively. The unrealized foreign currency exchange gains were $30,119 thousand and $15,397 thousand for the nine months ended September 30, 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.

- 84 -

  1. ADDITIONAL DISCLOSURES
    Following are the additional disclosures required by the FSC for the Company:
    1. Financing provided: None.
    2. Endorsement/guarantee provided: Please see Table 1.
    3. Marketable securities held (excluding investments in subsidiaries and associates): Please see Table 2.
    4. Marketable securities acquired or disposed of at costs or prices at least $300 million or 20% of the paid-in capital: None.
    5. Acquisition of individual real estate at costs of at least $300 million or 20% of the paid-in capital: Please see Table 3.
    6. Disposal of individual real estate at prices of at least $300 million or 20% of the paid-in capital: Table 4.
    7. Total purchases from or sales to related parties amounting to at least $100 million or 20% of the paid-in capital: Please see Table 5.
    8. Receivables from related parties amounting to $100 million or 20% of the paid-in capital: Please see Table 6.
    9. Names, locations, and other information of investees on which the Company exercises significant influence (excluding investment in Mainland China): Please see Table 7.
    10. Derivative instruments transactions: Please see Notes 7, 20 and 37.
    11. Investment in Mainland China: Please see Table 8.
    12. Intercompany relationships and significant intercompany transactions: Please see Table 9.
    13. Information of main stakeholders: Please see Table 10.
  3. 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:
    1. Domestic fixed communications business - the provision of local telephone services, domestic long distance telephone services, broadband access, and related services;
    2. Mobile communications business - the provision of mobile services, sales of mobile handsets and data cards, and related services;
    3. Internet business - the provision of HiNet services and related services;

- 85 -

  1. International fixed communications business - the provision of international long distance telephone services and related services;
  2. 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:

International

Domestic Fixed

Mobile

Fixed

Communi-

Communi-

Communi-

cations

cations

Internet

cations

Business

Business

Business

Business

Others

Total

For the three months ended September 30,

2020

Revenues

From external customers

$

18,850,991

$

21,628,859

$

7,457,571

$

2,143,029

$

2,090,876

$

52,171,326

Intersegment revenues

4,037,029

356,286

932,476

419,848

1,317,229

7,062,868

Segment revenues

$

22,888,020

$

21,985,145

$

8,390,047

$

2,562,877

$

3,408,105

59,234,194

Intersegment elimination

(7,062,868 )

Consolidated revenues

$

52,171,326

Segments operating costs and expenses

$

16,451,237

$

16,422,668

$

3,186,981

$

2,066,251

$

3,607,711

$

41,734,848

Segment income (loss) before income tax

$

5,465,576

$

2,082,700

$

3,358,242

$

214,845

$

(296,087 )

$

10,825,276

For the nine months ended September 30,

2020

Revenues

From external customers

$

49,234,337

$

65,270,735

$

22,398,988

$

6,558,132

$

4,666,997

$

148,129,189

Intersegment revenues

11,954,409

1,123,376

2,796,946

1,424,411

3,861,018

21,160,160

Segment revenues

$

61,188,746

$

66,394,111

$

25,195,934

$

7,982,543

$

8,528,015

169,289,349

Intersegment elimination

(21,160,160 )

Consolidated revenues

$

148,129,189

Segments operating costs and expenses

$

41,918,494

$

48,672,443

$

9,855,216

$

6,381,720

$

9,711,738

$

116,539,611

Segment income (loss) before income tax

$

15,892,354

$

7,522,363

$

9,591,980

$

738,597

$

(1,325,385)

$

32,419,909

For the three months ended September 30,

2019

Revenues

From external customers

$

15,626,976

$

23,629,079

$

7,269,202

$

2,941,355

$

1,381,548

$

50,848,160

Intersegment revenues

4,025,434

389,498

980,963

576,929

1,261,373

7,234,197

Segment revenues

$

19,652,410

$

24,018,577

$

8,250,165

$

3,518,284

$

2,642,921

58,082,357

Intersegment elimination

(7,234,197 )

Consolidated revenues

$

50,848,160

Segments operating costs and expenses

$

13,492,888

$

17,965,998

$

3,344,164

$

2,929,556

$

3,086,948

$

40,819,554

Segment income (loss) before income tax

$

4,625,431

$

2,838,741

$

2,962,026

$

267,236

$

(256,908 )

$

10,436,526

(Continued)

- 86 -

International

Domestic Fixed

Mobile

Fixed

Communi-

Communi-

Communi-

cations

cations

Internet

cations

Business

Business

Business

Business

Others

Total

For the nine months ended September 30,

2019

Revenues

From external customers

$

47,336,075

$

71,006,351

$

21,945,887

$

8,821,448

$

3,177,735

$

152,287,496

Intersegment revenues

12,061,671

1,133,367

2,911,479

1,715,751

3,438,839

21,261,107

Segment revenues

$

59,397,746

$

72,139,718

$

24,857,366

$

10,537,199

$

6,616,574

173,548,603

Intersegment elimination

(21,261,107 )

Consolidated revenues

$

152,287,496

Segments operating costs and expenses

$

40,594,438

$

53,719,290

$

9,982,674

$

8,797,681

$

8,449,741

$

121,543,824

Segment income (loss) before income tax

$

14,565,179

$

8,779,149

$

8,994,894

$

734,580

$

(1,324,275)

$

31,749,527

(Concluded)

Main Products and Service Revenues

Three Months Ended

Nine Months Ended

September 30

September 30

2020

2019

2020

2019

Mobile services revenue

$

14,220,347

$

14,729,163

$

42,516,219

$

44,114,766

Sales of products

8,927,134

10,318,026

26,976,137

30,164,126

Local telephone and domestic

long distance telephone

services revenue

6,666,969

7,004,246

19,944,136

21,076,977

Broadband access and domestic

leased line services revenue

5,583,920

5,491,616

16,729,965

16,550,818

Data communications internet

services revenue

5,370,351

5,219,220

16,030,764

15,722,032

International network and

leased telephone services

revenue

942,659

1,790,271

3,041,287

5,662,625

Others

10,459,946

6,295,618

22,890,681

18,996,152

$

52,171,326

$

50,848,160

$

148,129,189

$ 152,287,496

- 87 -

TABLE 1

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

ENDORSEMENTS/GUARANTEES PROVIDED NINE MONTHS ENDED SEPTEMBER 30, 2020 (Amounts in Thousands of New Taiwan Dollars)

Guaranteed Party

Limits on

Ratio of

Endorsement/

Endorsement/

Amount of

Accumulated

Maximum

Endorsement/

Endorsement/

Guarantee

Endorsement/

Guarantee

Guarantee

Guarantee

Maximum

Actual

Endorsement/

Endorsement/

Given on

No.

Endorsement/

Nature of

Amount

Ending

Guarantee to

Given by

Given by

Note

(Note 1)

Guarantee Provider

Name

Relationship

Provided to

Balance for

Balance

Borrowing

Guarantee

Net Equity

Guarantee

Parent on

Subsidiaries

Behalf of

the Period

Amount

Collateralized

Amount

Companies in

(Note 2)

Each

Per Latest

Behalf of

on Behalf of

by Properties

Allowable

Mainland

Guaranteed

Financial

Subsidiaries

Parent

China

Party

Statements

1

Senao International

Aval

b

$ 574,501

$ 300,000

$ 300,000

$ 300,000

$

-

5.22

$ 2,872,505

Yes

No

No

Notes 3 and 4

Co., Ltd.

Technologies

Co., Ltd.

Wiin Technology

b

574,501

100,000

100,000

100,000

-

1.74

2,872,505

Yes

No

No

Notes 3 and 4

Co., Ltd.

Note 1:

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

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

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

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

- 88 -

TABLE 2

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD

September 30, 2020

(Amounts in Thousands of New Taiwan Dollars)

September 30, 2020

Held Company Name

Marketable Securities Type and Name

Relationship with

Financial Statement Account

Shares

Carrying Value

Percentage of

Note

the Company

(Thousands/

Fair Value

(Note 1)

Ownership

Thousand Units)

Chunghwa Telecom Co., Ltd.

Stocks

Taipei Financial Center Corp.

-

Financial assets at FVOCI

172,927

$ 5,023,510

12

$ 5,023,510

-

Innovation Works Development Fund, L.P.

-

Financial assets at FVTPL - noncurrent

-

244,414

4

244,414

-

Industrial Bank of Taiwan II Venture Capital Co.,

-

Financial assets at FVOCI

5,252

17,084

17

17,084

-

Ltd. (IBT II)

Global Mobile Corp.

-

Financial assets at FVOCI

7,617

-

3

-

-

Innovation Works Limited

-

Financial assets at FVOCI

1,000

3,518

2

3,518

-

RPTI Intergroup International Ltd.

-

Financial assets at FVOCI

4,765

-

10

-

-

Taiwan mobile payment Co., Ltd.

-

Financial assets at FVOCI

1,200

4,395

2

4,395

-

Taiwania Capital Buffalo Fund Co., Ltd.

-

Financial assets at FVTPL - noncurrent

600,000

455,275

13

455,275

-

China Airlines Ltd.

-

Financial assets at FVOCI

263,622

2,182,791

5

2,182,791

Note 2

4 Gamers Entertainment Inc.

-

Financial assets at FVOCI

136

115,056

19.9

115,056

-

Senao International Co., Ltd.

Stocks

N.T.U. Innovation Incubation Corporation

-

Financial assets at FVOCI

1,200

9,492

9

9,492

-

CHIEF Telecom Inc.

Stocks

3 Link Information Service Co., Ltd.

-

Financial assets at FVOCI

374

950

10

950

-

WPG Holdings Limited

-

Financial assets at FVTPL - current

9

448

-

448

Note 2

WPG Holdings Limited

-

Financial assets at FVOCI

1,696

84,800

-

84,800

Note 2

Taichung Commercial Bank Co., Ltd.

-

Financial assets at FVTPL - current

631

6,754

-

6,754

Note 2

Chunghwa Investment Co., Ltd.

Stocks

Tatung Technology Inc.

-

Financial assets at FVOCI

4,571

136,686

11

136,686

-

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

50,000

7

50,000

Note 2

Chunghwa Hsingta Co., Ltd.

Stocks

Cotech Engineering Fuzhou Corp.

-

Financial assets at FVOCI

-

4,359

5

4,359

-

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

Note 2: Fair value was based on the closing price on September 30, 2020.

- 89 -

TABLE 3

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

ACQUISITION OF INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST $300 MILLION OR 20% OF THE PAID-IN CAPITAL NINE MONTHS ENDED SEPTEMBER 30, 2020

(Amounts in Thousands of New Taiwan Dollars)

Buyer

Property

Event Date

Transaction

Payment Status

Counterparty

Relationship

Information on Previous Title Transfer If Counterparty is a Related Party

Pricing Reference

Purpose of

Other Terms

Amount

Property Owner

Relationship

Transaction Date

Amount

Acquisition

Chunghwa Telecom Co.,

Land that specific office

2020.05.06

$ 3,243,689

$1,056,680 to be

MOTC

Major Shareholder

None

None

None

None

Assessed value

Operating purpose

None

Ltd.

building is located on

paid

from National

Property

Administration

Chunghwa Precision Test

Headquarters

2017.07.29-

1,460,105

Monthly settlement

Fu Tsu

-

Not applicable

Not applicable

Not applicable

Not applicable

Bidding, price

Manufacturing

None

Tech. Co., Ltd.

2019.12.25

based on the

Construction

comparison and

purpose

construction

Co., Ltd.

price negotiation

progress and

acceptance

- 90 -

TABLE 4

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 NINE MONTHS ENDED SEPTEMBER 30, 2020

(Amounts in Thousands of New Taiwan Dollars)

Seller

Property

Event Date

Original Acquisition

Carrying

Transaction

Collection

Gain on

Counterparty

Relationship

Purpose of

Price Reference

Other Terms

Date

Amount

Amount

Disposal

Disposal

Chunghwa Telecom

Land

2020.08.05

2017.12.20, 2004.07.07

$

75,555

$ 385,760

Not received yet

$ 310,205

Chunghwa Post

Others

Asset activation

Real estate appraisal

-

Co., Ltd.

and 2004.12.16

Co., Ltd.

report

Note: As of September 30, 2020, transaction for one piece of land had not been completed, with carrying amount and transaction amount of $6,812 thousand and $52,760 thousand, respectively. Upon completion of the transaction, there will be a gain on disposal of $45,948 thousand.

- 91 -

TABLE 5

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 NINE MONTHS ENDED SEPTEMBER 30, 2020

(Amounts in Thousands of New Taiwan Dollars)

Transaction Details

Abnormal Transaction

Notes / Accounts Payable

or Receivable

Company Name

Related Party

Nature of Relationship

Purchases/Sales

Amount

% to Total

Payment Terms

Units Price

Payment Terms

Ending Balance

% to Total

(Note 1)

(Notes 2 and 5)

(Notes 3 and 5)

Chunghwa Telecom Co., Ltd.

Senao International Co., Ltd.

Subsidiary

Sales

$

1,511,816

1

30 days

$

-

-

$

44,408

-

Purchase

491,983

1

30-90 days

-

-

(891,359)

(9)

Aval Technologies Co., Ltd.

Subsidiary

Purchase

132,866

-

30 days

-

-

(11,307)

-

CHIEF Telecom Inc.

Subsidiary

Sales

293,800

-

30 days

-

-

61,497

-

Chunghwa System Integration Co., Ltd.

Subsidiary

Purchase

977,945

1

30 days

-

-

(314,035)

(3)

Honghwa International Co., Ltd.

Subsidiary

Sales

234,179

-

30-60 days

-

-

71,733

-

Subsidiary

Purchase

4,134,619

5

30-60 days

-

-

(530,477)

(5)

Donghwa Telecom Co., Ltd.

Subsidiary

Sales

140,673

-

30 days

-

-

35,635

-

Subsidiary

Purchase

344,277

-

90 days

-

-

(157,594)

(2)

Chunghwa Telecom Global, Inc.

Subsidiary

Purchase

240,165

-

90 days

-

-

(37,111)

-

Chunghwa Telecom Singapore Pte., Ltd.

Subsidiary

Purchase

132,484

-

30 days

-

-

(85,785)

(1)

CHT Security Co., Ltd.

Subsidiary

Purchase

162,388

-

30 days

-

-

(43,534)

-

International Integrated Systems, Inc.

Subsidiary

Purchase

287,009

-

30 days

-

-

(24,923)

-

Taiwan International Standard Electronics Co., Ltd.

Associate

Purchase

403,960

1

30-90 days

-

-

(312,218)

(3)

Senao International Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

4,481,544

23

30-90 days

-

-

891,368

47

Purchase

1,392,855

8

30 days

-

-

(40,467)

(2)

Aval Technologies Co., Ltd.

Subsidiary

Sales

146,702

1

60 days

-

-

41,947

2

Purchase

219,992

1

30 days

-

-

(1,822)

-

CHIEF Telecom Inc.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

191,890

10

60 days

-

-

34,688

15

Purchase

293,439

29

30 days

-

-

(61,497)

(53)

Chunghwa System Integration Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

1,197,635

84

30 days

-

-

311,485

70

Honghwa International Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

4,174,548

98

30-60 days

-

-

529,198

97

Donghwa Telecom Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

344,277

41

90 days

-

-

157,594

99

Purchase

140,673

17

30 days

-

-

(35,635)

(30)

Chunghwa Telecom Global, Inc.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

240,165

54

90 days

-

-

37,111

57

Chunghwa Telecom Singapore Pte., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

132,484

14

30 days

-

-

85,785

14

CHT Security Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

171,778

30

30 days

-

-

43,543

29

International Integrated System, Inc.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

287,009

48

30 days

-

-

24,923

14

Aval Technologies Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

132,866

1

30 days

-

-

11,307

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.

- 92 -

TABLE 6

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL September 30, 2020

(Amounts in Thousands of New Taiwan Dollars)

Overdue

Amounts

Company Name

Related Party

Nature of Relationship

Ending Balance

Turnover Rate

Amounts

Action Taken

Received in

Allowance for

(Note 1)

Subsequent

Bad Debts

Period

Chunghwa Telecom Co., Ltd.

Senao International Co., Ltd.

Subsidiary

$ 126,487

11.13

$

-

-

$

46,897

$

-

(Note 2)

Next Commercial Bank Co., Ltd.

Associate

320,000

0.08

-

-

-

-

Chunghwa Post Co., Ltd.

Others

333,000

-

-

-

-

-

Senao International Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

1,118,995

7.08

-

-

185,356

-

(Note 2)

Chunghwa System Integration Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

311,485

3.29

-

-

119,312

-

(Note 2)

Honghwa International Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

529,198

8.45

-

-

85,328

-

(Note 2)

Donghwa Telecom Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

157,594

3.18

-

-

116,692

-

(Note 2)

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.

- 93 -

TABLE 7

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) NINE MONTHS ENDED SEPTEMBER 30, 2020

(Amounts in Thousands of New Taiwan Dollars)

Original Investment Amount

Balance as of September 30, 2020

Net Income

Recognized

Investor Company

Investee Company

Location

Main Businesses and Products

September 30,

December 31,

Shares

Percentage of

Carrying Value

(Loss) of the

Gain (Loss)

Note

2020

2019

(Thousands)

Ownership (%)

(Note 3)

Investee

(Notes 1, 2 and 3)

Chunghwa Telecom Co., Ltd.

Senao International Co., Ltd.

Taiwan

Handset and peripherals retailer; sales of CHT

$ 1,065,813

$ 1,065,813

71,773

28

$ 1,585,489

$ 282,010

$

76,334

Subsidiary (Note 5)

mobile phone plans as an agent

Light Era Development Co., Ltd.

Taiwan

Planning and development of real estate and

3,000,000

3,000,000

300,000

100

3,850,034

9,886

6,473

Subsidiary (Note 5)

intelligent buildings, and property

management

Donghwa Telecom Co., Ltd.

Hong Kong

International private leased circuit, IP VPN

1,567,453

1,567,453

402,590

100

1,517,426

5,805

5,805

Subsidiary (Note 5)

service, and IP transit services

Chunghwa Telecom Singapore Pte.,

Singapore

International private leased circuit, IP VPN

574,112

574,112

26,383

100

985,831

90,451

90,452

Subsidiary (Note 5)

Ltd.

service, and IP transit services

Chunghwa System Integration Co.,

Taiwan

Providing system integration services and

838,506

838,506

60,000

100

702,827

(15,680)

(8,712)

Subsidiary (Note 5)

Ltd.

telecommunications equipment

CHIEF Telecom Inc.

Taiwan

Network integration, internet data center

459,652

459,652

39,426

56

1,691,859

445,262

255,680

Subsidiary (Note 5)

("IDC"), communications integration and

cloud application services

Chunghwa Investment Co., Ltd.

Taiwan

Investment

639,559

639,559

68,085

89

2,949,852

239,593

213,331

Subsidiary (Note 5)

Prime Asia Investments Group Ltd.

British Virgin

Investment

385,274

385,274

1

100

168,498

(7,338)

(7,338)

Subsidiary (Note 5)

(B.V.I.)

Islands

Honghwa International Co., Ltd.

Taiwan

Telecommunication engineering, sales agent

180,000

180,000

18,000

100

461,386

193,466

182,746

Subsidiary (Note 5)

of mobile phone plan application and other

business services, etc.

CHYP Multimedia Marketing &

Taiwan

Digital information supply services and

150,000

150,000

15,000

100

188,060

11,148

10,725

Subsidiary (Note 5)

Communications Co., Ltd.

advertisement services

Chunghwa Telecom Vietnam Co.,

Vietnam

Intelligent energy saving solutions,

148,275

148,275

-

100

94,868

5

5

Subsidiary (Note 5)

Ltd.

international circuit, and information and

communication technology ("ICT")

services.

Chunghwa Telecom Global, Inc.

United States

International private leased circuit, internet

70,429

70,429

6,000

100

390,764

53,064

54,744

Subsidiary (Note 5)

services, and transit services

CHT Security Co., Ltd.

Taiwan

Computing equipment installation, wholesale

240,000

240,000

24,000

80

302,323

84,832

66,363

Subsidiary (Note 5)

of computing and business machinery

equipment and software, management

consulting services, data processing

services, digital information supply services

and internet identify services

Chunghwa Telecom (Thailand) Co.,

Thailand

International private leased circuit, IP VPN

119,624

119,624

1,300

100

108,882

4,461

4,461

Subsidiary (Note 5)

Ltd.

service, ICT and cloud VAS services

Spring House Entertainment Tech.

Taiwan

Software design services, internet contents

41,941

41,941

8,251

56

122,549

37,216

20,856

Subsidiary (Note 5)

Inc.

production and play, and motion picture

production and distribution

Chunghwa leading Photonics Tech

Taiwan

Production and sale of electronic components

70,500

70,500

7,050

75

123,603

11,308

11,923

Subsidiary (Note 5)

Co., Ltd.

and finished products

Smartfun Digital Co., Ltd.

Taiwan

Providing diversified family education digital

65,000

65,000

6,500

65

68,911

1,885

1,225

Subsidiary (Note 5)

services

Chunghwa Telecom Japan Co., Ltd.

Japan

International private leased circuit, IP VPN

17,291

17,291

1

100

86,012

9,618

9,618

Subsidiary (Note 5)

service, and IP transit services

Chunghwa Sochamp Technology Inc.

Taiwan

Design, development and production of

20,400

20,400

2,040

51

(6,856)

(4,364)

3,230

Subsidiary (Note 5)

Automatic License Plate Recognition

software and hardware

International Integrated Systems, Inc.

Taiwan

IT solution provider, IT application

517,423

283,500

37,211

51

573,044

107,798

26,663

Subsidiary (Note 6)

consultation, system integration and

package solution

(Continued)

- 94 -

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) NINE MONTHS ENDED SEPTEMBER 30, 2020

(Amounts in Thousands of New Taiwan Dollars)

Original Investment Amount

Balance as of September 30, 2020

Net Income

Recognized

Investor Company

Investee Company

Location

Main Businesses and Products

September 30,

December 31,

Shares

Percentage of

Carrying Value

(Loss) of the

Gain (Loss)

Note

2020

2019

(Thousands)

Ownership (%)

(Note 3)

Investee

(Notes 1, 2 and 3)

Viettel-CHT Co., Ltd.

Vietnam

IDC services

$ 288,327

$ 288,327

-

30

$ 341,047

$ 210,792

$

63,255

Associate

Taiwan International Standard

Taiwan

Manufacturing, selling, designing, and

164,000

164,000

1,760

40

318,167

260,695

134,492

Associate

Electronics Co., Ltd.

maintaining of telecommunications systems

and equipment

KKBOX Taiwan Co., Ltd.

Taiwan

Providing of music on-line, software,

67,025

67,025

4,438

30

162,206

40,040

11,953

Associate

electronic information, and advertisement

services

So-net Entertainment Taiwan Limited

Taiwan

Online service and sale of computer hardware

120,008

120,008

9,429

30

220,102

102,347

30,704

Associate

KingwayTek Technology Co., Ltd.

Taiwan

Publishing books, data processing and

66,684

66,684

8,688

23

241,665

(25,975)

(5,222)

Associate

software services

Taiwan International Ports Logistics

Taiwan

Import and export storage, logistic warehouse,

80,000

80,000

8,000

27

55,190

15,759

4,211

Associate

Corporation

and ocean shipping service

UUPON Inc.

Taiwan

Information technology service and general

97,598

97,598

246

15

1,507

(37,846)

(5,692)

Associate

advertisement service

Alliance Digital Tech Co., Ltd.

Taiwan

Development of mobile payments and

60,000

60,000

6,000

14

5,080

-

-

Associate

information processing service

Chunghwa PChome Fund I Co., Ltd.

Taiwan

Investment, venture capital, investment

200,000

200,000

20,000

50

194,378

593

297

Associate

advisor, management consultant and other

consultancy service

Cornerstone Ventures Co., Ltd.

Taiwan

Investment, venture capital, investment

4,900

4,900

490

49

5,919

840

411

Associate

advisor, management consultant and other

consultancy service

Next Commercial Bank Co., Ltd.

Taiwan

Online banking business

4,190,000

4,190,000

419,000

42

3,932,953

(337,028)

(141,215)

Associate

Senao International Co., Ltd.

Senao Networks, Inc.

Taiwan

Telecommunication facilities manufactures

202,758

202,758

16,579

34

951,699

253,190

85,560

Associate

and sales

Senao International (Samoa) Holding

Samoa Islands

International investment

2,333,620

2,333,620

77,775

100

315,317

(26,548)

(26,548)

Subsidiary (Note 5)

Ltd.

UUPON Inc.

Taiwan

Information technology service and general

24,000

24,000

109

7

800

(37,846)

(2,532)

Associate

advertisement service

Youth Co., Ltd.

Taiwan

Sale of information and communication

427,850

364,950

14,752

96

241,408

(677)

(6,985)

Subsidiary (Note 5)

technologies products

Aval Technologies Co., Ltd.

Taiwan

Sale of information and communication

89,550

89,550

10,060

100

106,777

4,925

4,927

Subsidiary (Note 5)

technologies products

Senyoung Insurance Agent Co., Ltd.

Taiwan

Property and liability insurance agency

59,000

59,000

5,900

100

81,993

21,266

21,251

Subsidiary (Note 5)

CHIEF Telecom Inc.

Unigate Telecom Inc.

Taiwan

Telecommunications and internet service

2,000

2,000

200

100

957

71

71

Subsidiary (Note 5)

Chief International Corp.

Samoa Islands

Telecommunications and internet service

6,068

6,068

200

100

78,419

7,380

7,380

Subsidiary (Note 5)

Chunghwa Telecom Singapore

ST-2 Satellite Ventures Pte., Ltd.

Singapore

Operation of ST-2 telecommunications

409,061

409,061

18,102

38

554,839

212,572

80,777

Associate

Pte., Ltd.

satellite

Chunghwa Investment Co., Ltd.

Chunghwa Precision Test Tech. Co.,

Taiwan

Production and sale of semiconductor testing

178,608

178,608

11,230

34

2,333,688

698,962

239,391

Subsidiary (Note 5)

Ltd.

components and printed circuit board

CHIEF Telecom Inc.

Taiwan

Network integration, internet data center

19,064

19,064

2,078

3

83,192

445,262

13,176

Associate (Note 5)

("IDC"), communications integration and

cloud application services

Senao International Co., Ltd.

Taiwan

Selling and maintaining mobile phones and its

49,731

49,731

1,001

-

43,012

282,010

1,113

Associate (Note 5)

peripheral products

(Continued)

- 95 -

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) NINE MONTHS ENDED SEPTEMBER 30, 2020

(Amounts in Thousands of New Taiwan Dollars)

Original Investment Amount

Balance as of September 30, 2020

Net Income

Recognized

Investor Company

Investee Company

Location

Main Businesses and Products

September 30,

December 31,

Shares

Percentage of

Carrying Value

(Loss) of the

Gain (Loss)

Note

2020

2019

(Thousands)

Ownership (%)

(Note 3)

Investee

(Notes 1, 2 and 3)

Chunghwa Precision Test Tech.

Chunghwa Precision Test Tech USA

United States

Design and after-sale services of

$

12,636

$

12,636

400

100

$

23,817

$

200

$

200

Subsidiary (Note 5)

Co., Ltd.

Corporation

semiconductor testing components and

printed circuit board

CHPT Japan Co., Ltd.

Japan

Related services of electronic parts,

2,008

2,008

1

100

2,451

74

74

Subsidiary (Note 5)

machinery processed products and printed

circuit board

Chunghwa Precision Test Tech.

Samoa Islands

Wholesale and retail of electronic materials,

116,790

116,790

3,700

100

85,003

4,833

5,189

Subsidiary (Note 5)

International, Ltd.

and investment

Prime Asia Investments Group,

Chunghwa Hsingta Co., Ltd.

Hong Kong

Investment

375,274

375,274

1

100

168,497

(7,338)

(7,338)

Subsidiary (Note 5)

Ltd. (B.V.I.)

MeWorks Limited (HK)

Hong Kong

Investment

-

10,000

-

-

-

-

-

Associate

Senao International (Samoa)

Senao International HK Limited

Hong Kong

International investment

2,328,754

2,328,754

80,440

100

295,731

(26,670)

(26,670)

Subsidiary (Note 5)

Holding Ltd.

Youth Co., Ltd.

ISPOT Co., Ltd.

Taiwan

Sale of information and communication

53,021

53,021

-

100

9,411

456

313

Subsidiary (Note 5)

technologies products

Youyi Co., Ltd.

Taiwan

Maintenance of information and

21,354

21,354

-

100

17,918

946

766

Subsidiary (Note 5)

communication technologies products

Aval Technologies Co., Ltd.

Wiin Technology Co., Ltd.

Taiwan

Sale of information and communication

29,550

29,550

2,955

100

31,653

1,872

1,872

Subsidiary (Note 5)

technologies products

Senyoung Insurance Agent Co.,

Senaolife Insurance Agent Co., Ltd.

Taiwan

Life insurance services

29,500

29,500

2,950

100

26,707

(2,513)

(2,513)

Subsidiary (Note 5)

Ltd.

CHYP Multimedia Marketing

Click Force Marketing Company

Taiwan

Advertisement services

44,607

44,607

1,078

49

32,418

1,847

(876)

Associate

& Communications Co., Ltd

International Integrated

Infoexplorer International Co., Ltd.

Samoa

Investment

24,806

24,806

795

100

27,052

290

290

Subsidiary (Note 6)

Systems, Inc.

IISI Investment Co., Ltd.

Mauritius

Investment

81,302

81,302

244

100

31,065

(8,588)

(8,588)

Subsidiary (Note 6)

Unitronics Technology Corp.

Taiwan

Development and maintenance of information

55,569

55,569

5,065

99.96

68,623

6,290

6,287

Subsidiary (Note 6)

system

Infoexplorer International Co.,

International Integrated Systems

Hong Kong

Investment and engaging in technical

24,336

24,336

780

100

27,030

294

294

Subsidiary (Note 6)

Ltd.

(Hong Kong) Limited

consulting service

IISI Investment Co., Ltd.

Leading Tech Co., Ltd.

Mauritius

Investment

65,374

65,374

316

100

20,027

(8,593)

(8,593)

Subsidiary (Note 6)

Leading Tech Co., Ltd.

Leading Systems Co., Ltd.

Mauritius

Investment

100,693

100,693

300

100

15,071

(8,594)

(8,594)

Subsidiary (Note 6)

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

Note 2: Recognized gain (loss) of investees includes amortization of differences between the investment cost and net value and elimination of unrealized transactions.

Note 3: Recognized gain (loss) and carrying value of the investees did not include the adjustment of the difference between the accounting treatment on standalone basis and consolidated basis as a result of the application of IFRS 15.

Note 4: Investments in mainland China are included in Table 8.

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.

(Concluded)

- 96 -

TABLE 8

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

INVESTMENT IN MAINLAND CHINA

NINE MONTHS ENDED SEPTEMBER 30, 2020

(Amounts in Thousands of New Taiwan Dollars)

Accumulated

Investment Flows

Accumulated

Accumulated

Total Amount

Investment

Outflow of

Outflow of

Net Income

% Ownership

Investment

Carrying Value

Inward

Investment

Investment

of Direct or

as of

Remittance of

Investee

Main Businesses and Products

of Paid-in

Type

(Loss) of the

Gain (Loss)

Note

from Taiwan

Outflow

Inflow

from Taiwan

Indirect

September 30,

Earnings as of

Capital

(Note 1)

Investee

(Note 2)

as of January

as of September

Investment

2020

September 30,

1, 2020

30, 2020

2020

Senao Trading (Fujian)

Sale of information and

$ 1,073,170

2

$ 1,073,170

$

-

$

-

$ 1,073,170

$

-

100

$

-

$

-

$

-

Notes 8

Co., Ltd.

communication technologies

and 13

products

Senao International

Sale of information and

955,838

2

955,838

-

-

955,838

(26,562)

100

(26,562)

23,370

-

Note 13

Trading (Shanghai) Co.,

communication technologies

Ltd.

products

Senao International

Maintenance of information and

26,053

2

26,053

-

-

26,053

-

100

-

-

-

Notes 9

Trading (Shanghai) Co.,

communication technologies

and 13

Ltd.

products

Senao International

Sale of information and

263,736

2

263,736

-

-

263,736

-

100

-

-

-

Notes 10

Trading (Jiangsu) Co.,

communication technologies

and 13

Ltd.

products

Chunghwa Telecom

Integrated information and

177,176

2

177,176

-

-

177,176

(5,814)

100

(5,814)

38,276

-

Notes 12

(China) Co., Ltd.

communication solution services

and 13

for enterprise clients, and

intelligent energy network

service

Jiangsu Zhenghua

Providing intelligent energy saving

189,410

2

142,057

-

-

142,057

-

75

-

-

-

Notes 11

Information

solution and intelligent

and 13

Technology Company,

buildings services

LLC

Shanghai Taihua

Design of printed circuit board and

51,233

2

51,233

-

-

51,233

(6,645)

100

(6,645)

19,137

-

Note 13

Electronic Technology

related consultation service

Limited

Su Zhou Precision Test

Assembly processed of circuit

62,340

2

62,340

-

-

62,340

11,467

100

11,467

70,072

-

Note 13

Tech. Ltd.

board, design of printed circuit

board and related consultation

service

Shanghai Chief Telecom

Telecommunications and internet

10,150

1

4,973

-

-

4,973

4,848

49

2,375

13,142

-

Note 13

Co., Ltd.

service

International Integrated

Development and maintenance of

48,753

2

39,923

-

-

39,923

(8,594)

100

(8,594)

20,112

-

Note 14

Systems Inc. (Shanghai)

information system

(Continued)

- 97 -

Accumulated

Investment Flows

Accumulated

Accumulated

Total Amount

Investment

Outflow of

Outflow of

Net Income

% Ownership

Investment

Carrying Value

Inward

Investment

Investment

of Direct or

as of

Remittance of

Investee

Main Businesses and Products

of Paid-in

Type

(Loss) of the

Gain (Loss)

Note

from Taiwan

Outflow

Inflow

from Taiwan

Indirect

September 30,

Earnings as of

Capital

(Note 1)

Investee

(Note 2)

as of January

as of September

Investment

2020

September 30,

1, 2020

30, 2020

2020

Huiyu Shanghai

Development and maintenance of

$

13,670

3

$

-

$

-

$

-

$

-

$

(2,943)

100

$

(2,943)

$

1,491

$

-

Note 14

Management

information system

Consultancy Co., Ltd.

Accumulated Investment in

Investment Amounts

Upper Limit on Investment

Investee

Mainland China as of

Authorized by Investment

Stipulated by Investment

September 30, 2020

Commission, MOEA

Commission, MOEA

SENAO and its subsidiaries (Note 3)

$

2,318,797

$

2,318,797

$

3,455,346

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

177,176

177,176

227,794,269

Jiangsu Zhenghua Information Technology Company, LLC (Note 4)

142,057

142,057

227,794,269

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

113,573

159,725

4,088,213

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

4,973

4,973

1,694,524

IISI and its subsidiaries (Note 7)

39,923

39,923

606,903

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

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

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

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

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

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

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

Note 7: International Integrated Systems, Inc. and its subsidiaries were calculated based on the consolidated net assets value of International Integrated Systems, Inc.

Note 8: The liquidation of Senao Trading (Fujian) Co., Ltd. was completed in May 2019.

Note 9: The liquidation of Senao International Trading (Shanghai) Co., Ltd. was completed in March 2018.

Note 10: The liquidation of Senao International Trading (Jiangsu) Co., Ltd. was completed in March 2019.

Note 11: The liquidation of Jiangsu Zhenhua Information Technology Company, LLC. was completed in December 2018.

Note 12: 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 13: The amount was eliminated upon consolidation.

Note 14: The Company only eliminated the amounts after accounts of IISI and its subsidiaries are included in the consolidated financial statements.

Note 15: 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.

(Concluded)

- 98 -

TABLE 9

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS NINE MONTHS ENDED SEPTEMBER 30, 2020

(Amounts in Thousands of New Taiwan Dollars)

Nature of

Transaction Details

No.

% to Total

Year

Company Name

Related Party

Relationship

Amount

Payment Terms

(Note 1)

Financial Statement Account

Sales or Assets

(Note 2)

(Note 5)

(Note 3)

(Note 4)

2020

0

Chunghwa Telecom Co., Ltd.

Senao International Co., Ltd.

a

Accounts receivable

$

44,408

-

-

Accrued custodial receipts

82,079

-

-

Accounts payable

891,359

-

-

Amounts collected for others

227,627

-

-

Revenues

1,511,816

-

1

Operating costs and expenses

433,869

-

-

Inventories

58,114

-

-

CHIEF Telecom Inc.

a

Accounts receivable

61,497

-

-

Accounts payable

23,730

-

-

Revenues

293,800

-

-

Operating costs and expenses

92,610

-

-

CHYP Multimedia Marketing &

a

Accounts payable

11,440

-

-

Communications Co., Ltd.

Amounts collected for others

55,019

-

-

Revenues

24,722

-

-

Operating costs and expenses

62,917

-

-

Chunghwa System Integration Co., Ltd.

a

Accounts receivable

42,005

-

-

Accounts payable

314,035

-

-

Revenues

13,867

-

-

Operating costs and expenses

873,098

-

1

Inventories

104,847

-

-

Prepayments

102,152

-

-

Property, plant and equipment

129,367

-

-

Intangible assets

46,056

-

-

Other noncurrent assets

16,116

-

-

Chunghwa Telecom Global Inc.

a

Accounts receivable

17,035

-

-

Accounts payable

37,111

-

-

Revenues

74,891

-

-

Operating costs and expenses

240,165

-

-

Donghwa Telecom Co., Ltd.

a

Accounts receivable

35,635

-

-

Accounts payable

157,594

-

-

Revenues

140,673

-

-

Operating costs and expenses

344,277

-

-

Spring House Entertainment Tech. Inc.

a

Amounts collected for others

20,859

-

-

Revenues

22,695

-

-

Chunghwa Telecom Japan Co., Ltd.

a

Revenues

26,196

-

-

Light Era Development Co., Ltd.

Operating costs and expenses

68,764

-

-

a

Inventories

14,629

-

-

Property, plant and equipment

84,777

-

-

(Continued)

- 99 -

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Chunghwa Telecom Co. Ltd. published this content on 09 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 November 2020 08:13:05 UTC