Exhibit 99.4
Chunghwa Telecom Co., Ltd. and
Subsidiaries
Consolidated Financial Statements for the
Nine Months Ended September 30, 2013 and 2012
1
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of New Taiwan Dollars)
| September 30, 2013 | December 31, 2012 | September 30, 2012 | January 1, 2012 | |||||||||||||||||||||||||||||
| ASSETS | Amount | % | Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||
CURRENT ASSETS | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 34,749,913 | 8 | $ | 30,938,472 | 7 | $ | 31,488,277 | 7 | $ | 26,407,196 | 6 | ||||||||||||||||||||
Financial assets at fair value through profit or loss | 363 | — | 2,994 | — | 32,678 | — | 45,750 | — | ||||||||||||||||||||||||
Available-for-sale financial assets | 16,880 | — | 2,250,260 | — | 2,390,784 | 1 | 2,498,712 | 1 | ||||||||||||||||||||||||
Held-to-maturity financial assets | 4,689,694 | 1 | 4,250,146 | 1 | 2,981,338 | 1 | 1,201,301 | — | ||||||||||||||||||||||||
Trade notes and accounts receivable, net | 24,344,606 | 6 | 24,354,817 | 6 | 24,400,896 | 6 | 22,396,071 | 5 | ||||||||||||||||||||||||
Accounts receivable from related parties, net | 48,365 | — | 43,937 | — | 28,215 | — | 34,064 | — | ||||||||||||||||||||||||
Inventories | 8,087,099 | 2 | 7,196,101 | 2 | 4,059,109 | 1 | 4,822,154 | 1 | ||||||||||||||||||||||||
Prepayment | 5,071,640 | 1 | 1,985,706 | — | 4,942,974 | 1 | 1,888,643 | — | ||||||||||||||||||||||||
Other current monetary assets | 4,775,749 | 1 | 24,449,195 | 6 | 9,103,345 | 2 | 43,050,748 | 10 | ||||||||||||||||||||||||
Other current assets | 3,987,212 | 1 | 4,474,595 | 1 | 4,641,999 | 1 | 3,039,836 | 1 | ||||||||||||||||||||||||
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Total current assets | 85,771,521 | 20 | 99,946,223 | 23 | 84,069,615 | 20 | 105,384,475 | 24 | ||||||||||||||||||||||||
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NONCURRENT ASSETS | ||||||||||||||||||||||||||||||||
Available-for-sale financial assets | 5,497,309 | 1 | 5,746,176 | 1 | 5,877,955 | 1 | 2,817,964 | 1 | ||||||||||||||||||||||||
Held-to-maturity financial assets | 8,923,153 | 2 | 11,796,144 | 3 | 14,005,461 | 3 | 13,494,891 | 3 | ||||||||||||||||||||||||
Investments accounted for using equity method | 2,328,385 | 1 | 2,191,836 | — | 2,645,841 | 1 | 2,519,741 | — | ||||||||||||||||||||||||
Property, plant and equipment | 296,810,800 | 70 | 297,342,349 | 68 | 293,482,780 | 70 | 295,031,831 | 67 | ||||||||||||||||||||||||
Investment properties | 7,776,464 | 2 | 7,788,898 | 2 | 7,812,704 | 2 | 9,060,081 | 2 | ||||||||||||||||||||||||
Intangible assets | 5,361,802 | 1 | 5,781,803 | 1 | 5,844,043 | 1 | 6,278,175 | 1 | ||||||||||||||||||||||||
Deferred income tax assets | 1,377,499 | 1 | 1,311,363 | — | 996,989 | — | 1,062,042 | — | ||||||||||||||||||||||||
Prepayments | 3,555,222 | 1 | 3,554,235 | 1 | 3,517,822 | 1 | 3,546,976 | 1 | ||||||||||||||||||||||||
Other noncurrent assets | 5,505,429 | 1 | 4,596,529 | 1 | 3,996,637 | 1 | 3,858,165 | 1 | ||||||||||||||||||||||||
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Total noncurrent assets | 337,136,063 | 80 | 340,109,333 | 77 | 338,180,232 | 80 | 337,669,866 | 76 | ||||||||||||||||||||||||
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TOTAL | $ | 422,907,584 | 100 | $ | 440,055,556 | 100 | $ | 422,249,847 | 100 | $ | 443,054,341 | 100 | ||||||||||||||||||||
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2
| September 30, 2013 | December 31, 2012 | September 30, 2012 | January 1, 2012 | |||||||||||||||||||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | Amount | % | Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||||||||||||||||||
Short-term loans | $ | 1,075,222 | — | $ | 111,473 | — | $ | 130,000 | — | $ | 75,000 | — | ||||||||||||||||||||
Financial liabilities at fair value through profit or loss | 671 | — | 1,959 | — | 222 | — | 3,987 | — | ||||||||||||||||||||||||
Trade notes and accounts payable | 12,376,159 | 3 | 13,513,437 | 3 | 12,346,431 | 3 | 14,264,769 | 3 | ||||||||||||||||||||||||
Payables to related parties | 466,268 | — | 837,330 | — | 477,043 | — | 788,147 | — | ||||||||||||||||||||||||
Current tax liabilities | 5,073,998 | 1 | 7,139,382 | 2 | 4,438,208 | 1 | 8,043,530 | 2 | ||||||||||||||||||||||||
Other payables | 22,664,934 | 5 | 26,101,780 | 6 | 21,977,541 | 5 | 26,302,261 | 6 | ||||||||||||||||||||||||
Provisions | 114,242 | — | 221,245 | — | 128,800 | — | 148,050 | — | ||||||||||||||||||||||||
Advance receipts | 9,748,057 | 2 | 10,193,988 | 2 | 10,030,294 | 2 | 11,501,721 | 3 | ||||||||||||||||||||||||
Current portion of long-term loans | — | — | 8,372 | — | 33,489 | — | 701,887 | — | ||||||||||||||||||||||||
Other current liabilities | 1,577,680 | 1 | 1,597,476 | — | 1,799,254 | 1 | 1,954,963 | 1 | ||||||||||||||||||||||||
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Total current liabilities | 53,097,231 | 12 | 59,726,442 | 13 | 51,361,282 | 12 | 63,784,315 | 15 | ||||||||||||||||||||||||
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NONCURRENT LIABILITIES | ||||||||||||||||||||||||||||||||
Long-term loans | 1,700,000 | 1 | 2,050,000 | 1 | 1,650,000 | 1 | 1,058,372 | — | ||||||||||||||||||||||||
Deferred income taxes liabilities | 99,069 | — | 102,396 | — | 134,413 | — | 115,068 | — | ||||||||||||||||||||||||
Provisions | 135,301 | — | 44,909 | — | 39,810 | — | 34,002 | — | ||||||||||||||||||||||||
Customers’ deposits | 4,831,012 | 1 | 4,911,010 | 1 | 4,870,073 | 1 | 5,013,981 | 1 | ||||||||||||||||||||||||
Accrued pension liabilities | 4,799,621 | 1 | 4,583,148 | 1 | 3,011,873 | 1 | 2,956,402 | 1 | ||||||||||||||||||||||||
Deferred revenue | 3,767,384 | 1 | 3,838,854 | 1 | 3,538,846 | 1 | 3,887,813 | 1 | ||||||||||||||||||||||||
Other noncurrent liabilities | 1,315,382 | — | 1,312,630 | — | 1,257,487 | — | 865,644 | — | ||||||||||||||||||||||||
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Total noncurrent liabilities | 16,647,769 | 4 | 16,842,947 | 4 | 14,502,502 | 4 | 13,931,282 | 3 | ||||||||||||||||||||||||
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Total liabilities | 69,745,000 | 16 | 76,569,389 | 17 | 65,863,784 | 16 | 77,715,597 | 18 | ||||||||||||||||||||||||
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EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE PARENT | ||||||||||||||||||||||||||||||||
Common stock | 77,574,465 | 18 | 77,574,465 | 18 | 77,574,465 | 18 | 77,574,465 | 17 | ||||||||||||||||||||||||
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Additional paid-in capital | 163,291,679 | 39 | 168,877,280 | 38 | 168,876,018 | 40 | 168,872,387 | 38 | ||||||||||||||||||||||||
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Retained earnings | ||||||||||||||||||||||||||||||||
Legal reserve | 74,819,380 | 18 | 70,828,983 | 16 | 70,828,983 | 17 | 66,122,145 | 15 | ||||||||||||||||||||||||
Special reserve | 2,675,894 | 1 | 2,675,894 | 1 | 2,675,894 | 1 | 2,675,894 | 1 | ||||||||||||||||||||||||
Unappropriated earnings | 30,512,286 | 7 | 39,036,204 | 9 | 32,103,414 | 7 | 45,888,588 | 10 | ||||||||||||||||||||||||
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Total retained earnings | 108,007,560 | 26 | 112,541,081 | 26 | 105,608,291 | 25 | 114,686,627 | 26 | ||||||||||||||||||||||||
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Other adjustments | (245,168 | ) | — | 161,061 | — | 239,707 | — | 28,756 | — | |||||||||||||||||||||||
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Total equity attributable to stockholders of the parent | 348,628,536 | 83 | 359,153,887 | 82 | 352,298,481 | 83 | 361,162,235 | 81 | ||||||||||||||||||||||||
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NONCONTROLLING INTERESTS | 4,534,048 | 1 | 4,332,280 | 1 | 4,087,582 | 1 | 4,176,509 | 1 | ||||||||||||||||||||||||
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Total stockholders’ equity | 353,162,584 | 84 | 363,486,167 | 83 | 356,386,063 | 84 | 365,338,744 | 82 | ||||||||||||||||||||||||
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TOTAL | $ | 422,907,584 | 100 | $ | 440,055,556 | 100 | $ | 422,249,847 | 100 | $ | 443,054,341 | 100 | ||||||||||||||||||||
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The accompanying note is 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)
| For the Three Months Ended September 30 | For the Nine Months Ended September 30 | |||||||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||
REVENUES | $ | 56,723,304 | 100 | $ | 55,284,607 | 100 | $ | 169,178,253 | 100 | $ | 165,168,978 | 100 | ||||||||||||||||||||
OPERATING COSTS | 35,789,479 | 63 | 34,607,909 | 63 | 108,519,223 | 64 | 104,702,702 | 63 | ||||||||||||||||||||||||
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GROSS PROFIT | 20,933,825 | 37 | 20,676,698 | 37 | 60,659,030 | 36 | 60,466,276 | 37 | ||||||||||||||||||||||||
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OPERATING EXPENSES | ||||||||||||||||||||||||||||||||
Marketing | 6,374,607 | 11 | 6,120,239 | 11 | 18,326,589 | 11 | 15,947,355 | 9 | ||||||||||||||||||||||||
General and administrative | 1,039,520 | 2 | 945,695 | 1 | 3,099,503 | 2 | 2,969,952 | 2 | ||||||||||||||||||||||||
Research and development | 922,176 | 2 | 957,458 | 2 | 2,724,972 | 2 | 2,743,066 | 2 | ||||||||||||||||||||||||
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Total operating expenses | 8,336,303 | 15 | 8,023,392 | 14 | 24,151,064 | 15 | 21,660,373 | 13 | ||||||||||||||||||||||||
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OTHER INCOME AND EXPENSE | (12,005 | ) | — | (9,457 | ) | — | (24,176 | ) | — | (1,266,280 | ) | (1 | ) | |||||||||||||||||||
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INCOME FROM OPERATIONS | 12,585,517 | 22 | 12,643,849 | 23 | 36,483,790 | 21 | 37,539,623 | 23 | ||||||||||||||||||||||||
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NON-OPERATING INCOME AND EXPENSES | ||||||||||||||||||||||||||||||||
Interest income | 146,630 | — | 183,333 | 1 | 471,040 | — | 586,191 | 1 | ||||||||||||||||||||||||
Other revenue | 127,762 | — | 108,662 | — | 266,637 | — | 281,351 | — | ||||||||||||||||||||||||
Other gains and losses | (3,497 | ) | — | (42,038 | ) | — | (52,208 | ) | — | (38,048 | ) | — | ||||||||||||||||||||
Finance costs | (9,573 | ) | — | (5,204 | ) | — | (23,920 | ) | — | (16,030 | ) | — | ||||||||||||||||||||
Share of the profit of associates and jointly controlled entities accounted for using the equity method | 208,900 | 1 | 165,287 | — | 541,417 | 1 | 465,718 | — | ||||||||||||||||||||||||
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Total non-operating income and expenses | 470,222 | 1 | 410,040 | 1 | 1,202,966 | 1 | 1,279,182 | 1 | ||||||||||||||||||||||||
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INCOME BEFORE INCOME TAX | 13,055,739 | 23 | 13,053,889 | 24 | 37,686,756 | 22 | 38,818,805 | 24 | ||||||||||||||||||||||||
INCOME TAX EXPENSE | 3,174,885 | 6 | 3,052,853 | 6 | 5,339,152 | 3 | 4,659,242 | 3 | ||||||||||||||||||||||||
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NET INCOME | 9,880,854 | 17 | 10,001,036 | 18 | 32,347,604 | 19 | 34,159,563 | 21 | ||||||||||||||||||||||||
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OTHER COMPREHENSIVE INCOME (LOSS), NET | ||||||||||||||||||||||||||||||||
Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||
Share of remeasurements of defined benefit pension plans of associates | — | — | — | — | (39,598 | ) | — | — | — | |||||||||||||||||||||||
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Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||||||||
Unrealized gain (loss) on available-for-sale financial assets | (70,853 | ) | — | (306,033 | ) | (1 | ) | (404,170 | ) | — | 246,505 | — | ||||||||||||||||||||
Exchange differences arising from the translation of the foreign operations | (72,259 | ) | — | (21,253 | ) | — | 17,553 | — | (41,282 | ) | — | |||||||||||||||||||||
(Continued)
- 4 -
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
| For the Three Months Ended September 30 | For the Nine Months Ended September 30 | |||||||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||
Share of exchange differences arising from the translation of the foreign operations of associates | $ | (305 | ) | — | $ | (1,886 | ) | — | $ | 2,993 | — | $ | 13 | — | ||||||||||||||||||
Income tax relating to each component of other comprehensive income | (3,493 | ) | — | — | — | (3,382 | ) | — | — | — | ||||||||||||||||||||||
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| (146,910 | ) | — | (329,172 | ) | (1 | ) | (387,006 | ) | — | 205,236 | — | |||||||||||||||||||||
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Total other comprehensive income (loss), net | (146,910 | ) | — | (329,172 | ) | (1 | ) | (426,604 | ) | — | 205,236 | — | ||||||||||||||||||||
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TOTAL COMPREHENSIVE INCOME | $ | 9,733,944 | 17 | $ | 9,671,864 | 17 | $ | 31,921,000 | 19 | $ | 34,364,799 | 21 | ||||||||||||||||||||
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NET INCOME ATTRIBUTABLE TO | ||||||||||||||||||||||||||||||||
Stockholders of the parent | $ | 9,661,538 | 17 | $ | 9,754,208 | 18 | $ | 31,419,176 | 19 | $ | 33,283,528 | 20 | ||||||||||||||||||||
Noncontrolling interests | 219,316 | — | 246,828 | — | 928,428 | — | 876,035 | 1 | ||||||||||||||||||||||||
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| $ | 9,880,854 | 17 | $ | 10,001,036 | 18 | $ | 32,347,604 | 19 | $ | 34,159,563 | 21 | |||||||||||||||||||||
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COMPREHENSIVE INCOME ATTRIBUTABLE TO | ||||||||||||||||||||||||||||||||
Stockholders of the parent | $ | 9,519,368 | 17 | $ | 9,432,025 | 17 | $ | 30,973,349 | 18 | $ | 33,494,479 | 20 | ||||||||||||||||||||
Noncontrolling interests | 214,576 | — | 239,839 | — | 947,651 | 1 | 870,320 | 1 | ||||||||||||||||||||||||
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| $ | 9,733,944 | 17 | $ | 9,671,864 | 17 | $ | 31,921,000 | 19 | $ | 34,364,799 | 21 | |||||||||||||||||||||
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EARNINGS PER SHARE | ||||||||||||||||||||||||||||||||
Basic | $ | 1.25 | $ | 1.26 | $ | 4.05 | $ | 4.29 | ||||||||||||||||||||||||
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Diluted | $ | 1.25 | $ | 1.26 | $ | 4.04 | $ | 4.28 | ||||||||||||||||||||||||
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| The accompanying note is an integral part of the consolidated financial statements. | (Concluded) |
- 5 -
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In Thousands of New Taiwan Dollars)
| Equity Attributable to Stockholders of the Parent | ||||||||||||||||||||||||||||||||||||||||
Common | Additional | Other Adjustments | Noncontrolling | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||
Exchange Translation of the Foreign | Unrealized Gain (Loss) on Available-for-sale | Total Equity Attributable to Stockholders’ | ||||||||||||||||||||||||||||||||||||||
| Retained Earnings | ||||||||||||||||||||||||||||||||||||||||
| Legal Reserve | Special Reserve | Unappropriated Earnings | ||||||||||||||||||||||||||||||||||||||
BALANCE, JANUARY 1, 2012 (UNAUDITED) | $ | 77,574,465 | $ | 168,872,387 | $ | 66,122,145 | $ | 2,675,894 | $ | 45,888,588 | $ | (38,918 | ) | $ | 67,674 | $ | 361,162,235 | $ | 4,176,509 | $ | 365,338,744 | |||||||||||||||||||
Appropriation of 2011 earnings | ||||||||||||||||||||||||||||||||||||||||
Legal reserve (unaudited) | — | — | 4,706,838 | — | (4,706,838 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||
Cash dividends paid by Chunghwa (unaudited) | — | — | — | — | (42,361,864 | ) | — | — | (42,361,864 | ) | — | (42,361,864 | ) | |||||||||||||||||||||||||||
Cash dividends paid by subsidiaries to noncontrolling interests (unaudited) | — | — | — | — | — | — | — | — | (887,457 | ) | (887,457 | ) | ||||||||||||||||||||||||||||
Net income for the nine months ended September 30, 2012 (unaudited) | — | — | — | — | 33,283,528 | — | — | 33,283,528 | 876,035 | 34,159,563 | ||||||||||||||||||||||||||||||
Other comprehensive income for the nine months ended September 30, 2012 (unaudited) | — | — | — | — | — | (33,254 | ) | 244,205 | 210,951 | (5,715 | ) | 205,236 | ||||||||||||||||||||||||||||
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Total comprehensive income for the nine months ended September 30, 2012 (unaudited) | — | — | — | — | 33,283,528 | (33,254 | ) | 244,205 | 33,494,479 | 870,320 | 34,364,799 | |||||||||||||||||||||||||||||
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Exercise of employee stock option of subsidiaries (unaudited) | — | 3,631 | — | — | — | — | — | 3,631 | 35,481 | 39,112 | ||||||||||||||||||||||||||||||
Decrease in noncontrolling interests (unaudited) | — | — | — | — | — | — | — | — | (107,271 | ) | (107,271 | ) | ||||||||||||||||||||||||||||
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BALANCE, SEPTEMBER 30, 2012 (UNAUDITED) | $ | 77,574,465 | $ | 168,876,018 | $ | 70,828,983 | $ | 2,675,894 | $ | 32,103,414 | $ | (72,172 | ) | $ | 311,879 | $ | 352,298,481 | $ | 4,087,582 | $ | 356,386,063 | |||||||||||||||||||
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- 6 -
| Equity Attributable to Stockholders of the Parent | ||||||||||||||||||||||||||||||||||||||||
Common | Additional | Other Adjustments | Noncontrolling | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||
Exchange Translation of the Foreign | Unrealized Gain (Loss) on Available-for-sale | Total Equity Attributable to Stockholders’ | ||||||||||||||||||||||||||||||||||||||
| Retained Earnings | ||||||||||||||||||||||||||||||||||||||||
| Legal Reserve | Special Reserve | Unappropriated Earnings | ||||||||||||||||||||||||||||||||||||||
BALANCE, JANUARY 1, 2013 (UNAUDITED) | $ | 77,574,465 | $ | 168,877,280 | $ | 70,828,983 | $ | 2,675,894 | $ | 39,036,204 | $ | (96,930 | ) | $ | 257,991 | $ | 359,153,887 | $ | 4,332,280 | $ | 363,486,167 | |||||||||||||||||||
Appropriation of 2012 earnings | ||||||||||||||||||||||||||||||||||||||||
Legal reserve (unaudited) | — | — | 3,990,397 | — | (3,990,397 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||
Cash dividends paid by Chunghwa (unaudited) | — | — | — | — | (35,913,099 | ) | — | — | (35,913,099 | ) | — | (35,913,099 | ) | |||||||||||||||||||||||||||
Cash dividends paid by subsidiaries to noncontrolling interests (unaudited) | — | — | — | — | — | — | — | — | (811,296 | ) | (811,296 | ) | ||||||||||||||||||||||||||||
Cash distributed from capital surplus (unaudited) | — | (5,589,240 | ) | — | — | — | — | — | (5,589,240 | ) | — | (5,589,240 | ) | |||||||||||||||||||||||||||
Net income for the nine months ended September 30, 2013 (unaudited) | — | — | — | — | 31,419,176 | — | — | 31,419,176 | 928,428 | 32,347,604 | ||||||||||||||||||||||||||||||
Other comprehensive income for the nine months ended September 30, 2013 (unaudited) | — | — | — | — | (39,598 | ) | 3,305 | (409,534 | ) | (445,827 | ) | 19,223 | (426,604 | ) | ||||||||||||||||||||||||||
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Total comprehensive income for the nine months ended September 30, 2013 (unaudited) | — | — | — | — | 31,379,578 | 3,305 | (409,534 | ) | 30,973,349 | 947,651 | 31,921,000 | |||||||||||||||||||||||||||||
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Exercise of employee stock option of subsidiaries (unaudited) | — | 3,658 | — | — | — | — | — | 3,658 | 32,878 | 36,536 | ||||||||||||||||||||||||||||||
Compensation cost of employee stock options of a subsidiary (unaudited) | — | — | — | — | — | — | — | — | 45,303 | 45,303 | ||||||||||||||||||||||||||||||
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Employee stock bonus issued by a subsidiary (unaudited) | — | (19 | ) | — | — | — | — | — | (19 | ) | 2,468 | 2,449 | ||||||||||||||||||||||||||||
Decrease in noncontrolling interests (unaudited) | — | — | — | — | — | — | — | — | (15,236 | ) | (15,236 | ) | ||||||||||||||||||||||||||||
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BALANCE, SEPTEMBER 30, 2013 (UNAUDITED) | $ | 77,574,465 | $ | 163,291,679 | $ | 74,819,380 | $ | 2,675,894 | $ | 30,512,286 | $ | (93,625 | ) | $ | (151,543 | ) | $ | 348,628,536 | $ | 4,534,048 | $ | 353,162,584 | ||||||||||||||||||
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The accompanying note is an integral part of the consolidated financial statements.
- 7 -
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of New Taiwan Dollars)
| For the Nine Months Ended September 30 | ||||||||
| 2013 | 2012 | |||||||
| (Unaudited) | (Unaudited) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Income before income tax | $ | 37,686,756 | $ | 38,818,805 | ||||
Adjustments to reconcile income before income tax to net cash provided by operating activities: | ||||||||
Depreciation | 23,110,206 | 23,338,746 | ||||||
Amortization | 914,917 | 833,504 | ||||||
Provision for (reversal of) doubtful accounts | 173,374 | (1,450,406 | ) | |||||
Interest expenses | 23,920 | 16,030 | ||||||
Interest income | (471,040 | ) | (586,191 | ) | ||||
Dividend income | (43,989 | ) | (18,883 | ) | ||||
Compensation cost of employee share options | 45,303 | — | ||||||
Share of the profit of associates and jointly controlled entities accounted for using equity method | (541,417 | ) | (465,718 | ) | ||||
Impairment loss on available-for-sale financial assets | 28,692 | 138,393 | ||||||
Impairment loss on goodwill | 18,055 | — | ||||||
Provision for inventory and obsolescence | 133,054 | 14,455 | ||||||
Impairment loss on property, plant and equipment | 2,262 | — | ||||||
Impairment loss on investment properties | — | 1,261,365 | ||||||
Gain on disposal of financial instruments | (76,291 | ) | (65,343 | ) | ||||
Loss on disposal or abandonment of property, plant and equipment | 21,914 | 4,915 | ||||||
Valuation loss (gain) on financial assets and liabilities at fair value through profit or loss, net | 1,075 | (31,282 | ) | |||||
Gain on foreign exchange | (7,881 | ) | (18,491 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Decrease (increase) in: | ||||||||
Financial assets held for trading | 9,361 | 27,689 | ||||||
Trade notes and accounts receivable | (155,459 | ) | (540,259 | ) | ||||
Receivables from related parties | (4,428 | ) | 5,849 | |||||
Inventories | (1,024,052 | ) | 748,590 | |||||
Other current monetary assets | (216,867 | ) | 299,217 | |||||
Prepayments | (3,086,921 | ) | (3,025,177 | ) | ||||
Other current assets | 517,357 | (1,588,255 | ) | |||||
Increase (decrease) in: | ||||||||
Trade notes and accounts payable | (1,137,278 | ) | (1,837,280 | ) | ||||
Payables to related parties | (371,062 | ) | (311,104 | ) | ||||
Other payables | (2,750,149 | ) | (4,332,435 | ) | ||||
Provisions | (16,611 | ) | (73,498 | ) | ||||
Advance receipts | (366,646 | ) | (1,097,699 | ) | ||||
Other current liabilities | (29,394 | ) | (89,872 | ) | ||||
Deferred revenue | (71,470 | ) | (348,967 | ) | ||||
Accrued pension liabilities | 216,473 | 55,471 | ||||||
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Cash generated from operations | 52,531,764 | 49,682,169 | ||||||
(Continued)
- 8 -
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of New Taiwan Dollars)
| For the Nine Months Ended September 30 | ||||||||
| 2013 | 2012 | |||||||
| (Unaudited) | (Unaudited) | |||||||
Interest paid | $ | (24,004 | ) | $ | (22,988 | ) | ||
Income tax paid | (7,503,973 | ) | (8,170,675 | ) | ||||
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Net cash provided by operating activities | 45,003,787 | 41,488,506 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Acquisition of designated financial assets at fair value through profit or loss | — | (29,548 | ) | |||||
Proceeds from disposal of designated financial assets at fair value through profit or loss | — | 81,997 | ||||||
Acquisition of available-for-sale financial assets | (1,797,917 | ) | (4,488,250 | ) | ||||
Proceeds from disposal of available-for-sale financial assets | 3,989,443 | 1,646,648 | ||||||
Acquisition of time deposits and negotiable certificate of deposit with maturities of more than three months | (17,845,775 | ) | (13,890,427 | ) | ||||
Proceeds from disposal of time deposits and negotiable certificate of deposit with maturities of more than three months | 37,724,255 | 47,537,609 | ||||||
Acquisition of held-to-maturity financial assets | — | (3,865,172 | ) | |||||
Proceeds from disposal of held-to-maturity financial assets | 2,396,950 | 1,525,895 | ||||||
Capital reduction of available-for-sale financial assets | 18,000 | 20,000 | ||||||
Proceeds from disposal of hedging derivative assets | 15,288 | — | ||||||
Derecognition of hedging derivative liabilities | (108,433 | ) | — | |||||
Acquisition of investments accounted for using equity method | (60,000 | ) | (25,912 | ) | ||||
Capital reduction of associates | 16,387 | — | ||||||
Acquisition of property, plant and equipment | (23,307,270 | ) | (22,556,002 | ) | ||||
Proceeds from disposal of property, plant and equipment | 35,847 | 33,025 | ||||||
Acquisition of intangible assets | (511,871 | ) | (399,376 | ) | ||||
Decrease (increase) in noncurrent assets | (910,676 | ) | 241,724 | |||||
Interest received | 539,364 | 618,459 | ||||||
Cash dividends received | 424,437 | 313,741 | ||||||
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Net cash provided by investing activities | 618,029 | 6,764,411 | ||||||
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CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from short-term loans | 1,238,522 | 615,000 | ||||||
Repayment of short-term loans | (274,773 | ) | (560,000 | ) | ||||
Repayment of long-term loans | (358,372 | ) | (76,770 | ) | ||||
Customers’ deposits refunded | (70,400 | ) | (82,888 | ) | ||||
Increase (decrease) in other noncurrent liabilities | (76,533 | ) | 70,516 | |||||
Cash dividends and cash distributed from additional paid-in capital | (41,502,339 | ) | (42,361,864 | ) | ||||
Proceeds from exercise of employee stock option granted by subsidiary | 36,536 | 39,112 | ||||||
(Continued)
- 9 -
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of New Taiwan Dollars)
| For the Nine Months Ended September 30 | ||||||||
| 2013 | 2012 | |||||||
| (Unaudited) | (Unaudited) | |||||||
Cash dividends paid by subsidiaries to noncontrolling interests | $ | (811,296 | ) | $ | (887,457 | ) | ||
Change in other noncontrolling interests | (14,850 | ) | — | |||||
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Net cash used in financing activities | (41,833,505 | ) | (43,244,351 | ) | ||||
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EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | 23,130 | 72,515 | ||||||
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NET INCREASE IN CASH AND CASH EQUIVALENTS | 3,811,441 | 5,081,081 | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 30,938,472 | 26,407,196 | ||||||
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CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 34,749,913 | $ | 31,488,277 | ||||
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| The accompanying note is an integral part of the consolidated financial statements. | (Concluded) |
- 10 -
CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(In Thousands of New Taiwan Dollars)
| 1. | DISCLOSURE FOR FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS |
| a. | Basis of the preparation of financial information under International Financial Reporting Standards |
The consolidated financial statements for the nine months ended September 30, 2013 are reported under International Financial Reporting Standards (“IFRSs”) as issued by International Accounting Standards Board (“IASB”). As the basis of the preparation, the Company complied with IFRS 1 “First-time adoption of International Financial Reporting Standards”.
| b. | Based on IFRS 1 “First-time adoption of International Financial Reporting Standards”, when the Company first adopts IFRSs, the Company should apply the IFRSs to establish its accounting policies, to prepare its financial statements and make required adjustments retroactively to the transition date (January 1, 2012). IFRS 1 provided several optional exemptions. The main exemptions adopted by the Company were discussed as follows: |
| 1) | Business combination |
The Company elected not to apply IFRS 3 retrospectively to business combinations which occurred on or before December 31, 2011.
| 2) | Share-based payment transactions |
The Company elected not to apply IFRS 2 retrospectively to the share-based payment transactions which were granted and vested on or before December 31, 2011.
| 3) | Deemed costs |
The Company elected to measure its revalued land at the date of transition to IFRSs at its revalued amount determined under accounting principles generally accepted in the Republic of China (“ROC GAAP”) as its deemed cost. The other property, plant and equipment, investment properties and intangible assets were measured under a cost model under IFRSs.
| 4) | Employee benefits |
The Company elected to recognize all unrecognized cumulative actuarial gains and losses as retained earnings as of January 1, 2012.
The impacts of the aforementioned optional exemptions were included in the following part d of “explanation for the adjustments of IFRSs transition”.
| c. | Impacts after transition to IFRSs |
Except for the following tables, please refer to Note 1 to the consolidated financial statement as of and for the three months ended March 31, 2013 for impacts on the consolidated financial statements after transition to IFRSs.
- 11 -
The impacts on the consolidated balance sheet and the consolidated statements of comprehensive income after transition to IFRSs are as follows:
| 1) | Reconciliation of consolidated balance sheet as of September 30, 2012 |
| Adjustments | IFRSs | Notes | ||||||||||||||||||
ROC GAAP | Differences in Recognitions and | Differences in | ||||||||||||||||||
| Items | Amount | Measurements | Presentations | Amount | Items | |||||||||||||||
Current assets | $ | 84,992,991 | $ | — | $ | (923,376 | ) | $ | 84,069,615 | Current assets | 4), 15) | |||||||||
Investments accounted for using equity method | 2,687,936 | (42,095 | ) | — | 2,645,841 | Investments accounted for using equity method | 10),12), 14) | |||||||||||||
Financial assets carried at cost | 2,616,087 | — | (2,616,087 | ) | — | Financial assets carried at cost | 15) | |||||||||||||
Available-for-sale financial assets | 3,261,868 | — | 2,616,087 | 5,877,955 | Available-for-sale financial assets | 15) | ||||||||||||||
Held-to-maturity financial assets | 14,005,461 | — | — | 14,005,461 | Held-to-maturity financial assets | |||||||||||||||
Other monetary assets | 1,000,000 | — | (1,000,000 | ) | — | 15) | ||||||||||||||
Property, plant and equipment | 299,809,041 | — | (6,326,261 | ) | 293,482,780 | Property, plant and equipment | 1), 2), 15) | |||||||||||||
| — | — | 7,812,704 | 7,812,704 | Investment properties | 1), 2) | |||||||||||||||
Intangible assets | 5,872,131 | (64,553 | ) | 36,465 | 5,844,043 | Intangible assets | 15) | |||||||||||||
Other assets | 7,605,886 | 465,633 | 439,929 | 8,511,448 | Other noncurrent assets | 1), 2), 4), 5), 6), 15) | ||||||||||||||
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Total | $ | 421,851,401 | $ | 358,985 | $ | 39,461 | $ | 422,249,847 | Total | |||||||||||
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Current liabilities | $ | 48,936,714 | $ | 3,366,984 | $ | (942,416 | ) | $ | 51,361,282 | Current liabilities | 7), 8), 14) | |||||||||
Noncurrent liabilities | 11,068,608 | 2,357,031 | 1,076,863 | 14,502,502 | Noncurrent liabilities | 4), 5), 6), 7), 8) | ||||||||||||||
Reserve for land value incremental tax | 94,986 | — | (94,986 | ) | — | 4) | ||||||||||||||
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Total liabilities | 60,100,308 | 5,724,015 | 39,461 | 65,863,784 | Total liabilities | |||||||||||||||
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Common stock | 77,574,465 | — | — | 77,574,465 | Common stock | |||||||||||||||
Additional paid-in capital | 169,542,532 | (666,514 | ) | — | 168,876,018 | Additional paid-in capital | 6), 8), 11), 12), 13) | |||||||||||||
Retained earnings | 104,462,712 | 1,145,579 | — | 105,608,291 | Retained earnings | 3), 5), 6), 7), 8), 10), 11), 12), 13), 14) | ||||||||||||||
Other adjustments | 5,964,503 | (5,724,796 | ) | — | 239,707 | Other adjustments | 3), 6), 10) | |||||||||||||
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Total equity attributable to stockholders of the parent | 357,544,212 | (5,245,731 | ) | — | 352,298,481 | Total equity attributable to shareholders of the parent | ||||||||||||||
Minority interests in subsidiaries | 4,206,881 | (119,299 | ) | — | 4,087,582 | Noncontrolling interests | 5), 6), 10), 11), 14) | |||||||||||||
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Total stockholders’ equity | 361,751,093 | (5,365,030 | ) | — | 356,386,063 | Total shareholders’ equity | ||||||||||||||
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Total | $ | 421,851,401 | $ | 358,985 | $ | 39,461 | $ | 422,249,847 | Total | |||||||||||
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- 12 -
| 2) | Reconciliation of consolidated statement of comprehensive income for the nine months ended September 30, 2012 |
| Adjustments | IFRSs | Notes | ||||||||||||||||||
ROC GAAP | Differences in Recognitions and | Differences in | ||||||||||||||||||
| Items | Amount | Measurements | Presentations | Amount | Items | |||||||||||||||
Net revenues | $ | 164,008,760 | $ | 1,160,218 | $ | — | $ | 165,168,978 | Revenues | 7), 8), 9) | ||||||||||
Operating costs | (104,375,603 | ) | (326,247 | ) | (852 | ) | (104,702,702 | ) | Operating costs | 6), 7), 9), 16) | ||||||||||
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Gross profits | 59,633,157 | 833,971 | (852 | ) | 60,466,276 | Gross profit | ||||||||||||||
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Operating expenses | (21,759,339 | ) | 70,194 | 28,772 | (21,660,373 | ) | Operating expenses | 6), 7), 9), 11), 16) | ||||||||||||
| — | — | (1,266,280 | ) | (1,266,280 | ) | Other income and expense | 16) | |||||||||||||
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Income from operations | 37,873,818 | 904,165 | (1,238,360 | ) | 37,539,623 | Income from operations | ||||||||||||||
Non-operating income and losses | 9,421 | 3,330 | 1,266,431 | 1,279,182 | Non-operating income and expenses | 3), 10), 12), 14), 16) | ||||||||||||||
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Income before income tax | 37,883,239 | 907,495 | 28,071 | 38,818,805 | Income before income tax | |||||||||||||||
Income tax expense | (6,066,681 | ) | 1,435,510 | (28,071 | ) | (4,659,242 | ) | Income tax expenses | 5), 14), 16) | |||||||||||
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Consolidated net income | $ | 31,816,558 | $ | 2,343,005 | $ | — | 34,159,563 | Net income | ||||||||||||
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Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||
| 246,505 | Unrealized gain on available-for-sale financial assets | |||||||||||||||||||
| (41,282 | ) | Exchange differences arising from the translation of the foreign operations | ||||||||||||||||||
| 13 | Share of exchange differences arising from the translation of the foreign operations of associates | |||||||||||||||||||
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| 205,236 | Total other comprehensive income | |||||||||||||||||||
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| $ | 34,364,799 | Total comprehensive income | ||||||||||||||||||
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| 3) | Reconciliation of consolidated statement of comprehensive income for three months ended September 30, 2012 |
| Adjustments | IFRSs | Notes | ||||||||||||||||||
ROC GAAP | Differences in Recognitions and | Differences in | ||||||||||||||||||
| Items | Amount | Measurements | Presentations | Amount | Items | |||||||||||||||
Net revenues | $ | 54,402,889 | $ | 881,718 | $ | — | $ | 55,284,607 | Revenues | 7), 8), 9) | ||||||||||
Operating costs | (34,280,725 | ) | (326,889 | ) | (295 | ) | (34,607,909 | ) | Operating costs | 6), 7), 9), 16) | ||||||||||
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Gross profits | 20,122,164 | 554,829 | (295 | ) | 20,676,698 | Gross profit | ||||||||||||||
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Operating expenses | (8,023,223 | ) | (8,732 | ) | 8,563 | (8,023,392 | ) | Operating expenses | 6), 7), 9), 11), 16) | |||||||||||
| — | — | (9,457 | ) | (9,457 | ) | Other income and expense | 16) | |||||||||||||
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Income from operations | 12,098,941 | 546,097 | (1,189 | ) | 12,643,849 | Income from operations | ||||||||||||||
Non-operating income and losses | 412,720 | (12,137 | ) | 9,457 | 410,040 | Non-operating income and expenses | 3), 10), 12), 14), 16) | |||||||||||||
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Income before income tax | 12,511,661 | 533,960 | 8,268 | 13,053,889 | Income before income tax | |||||||||||||||
Income tax expense | (2,042,946 | ) | (1,001,639 | ) | (8,268 | ) | (3,052,853 | ) | Income tax benefit | 5), 14), 16) | ||||||||||
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Consolidated net income | $ | 10,468,715 | $ | (467,679 | ) | $ | — | 10,001,036 | Net income | |||||||||||
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Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||
| (306,033 | ) | Unrealized loss on available-for-sale financial assets | ||||||||||||||||||
| (21,253 | ) | Exchange differences arising from the translation of the foreign operations | ||||||||||||||||||
| (1,886 | ) | Share of exchange differences arising from the translation of the foreign operations of associates | ||||||||||||||||||
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| (329,172 | ) | Total other comprehensive income | ||||||||||||||||||
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| $ | 9,671,864 | Total comprehensive income | ||||||||||||||||||
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| d. | Explanation for the adjustments of IFRSs transition: |
| 1) | Classification of investment properties |
Under ROC GAAP, properties for lease were classified as property, plant and equipment and other assets; after transitions to IFRSs, owned-property for either rental revenue or capital appreciation should be classified as investment properties.
On September 30, 2012, the assets that met definitions of investment properties under IAS 40 “Investment Property” were reclassified from property, plant and equipment of $7,353,602 thousand, and other assets - idle assets of $459,102 thousand, to investment properties. The total amount of reclassification was $7,812,704 thousand.
| 2) | Classification of leased assets and idle assets |
Under ROC GAAP, leased and idle assets were classified as other assets; after the transition to IFRSs, leased and idle assets were reclassified to property, plant and equipment or investment properties based on the nature of these assets.
The Company reclassified leased assets to property, plant and equipment and the amounts were $392,253 thousand as of September 30, 2012. Except for the abovementioned Item 1) which discussed the reclassification from idle assets to investment properties, the Company reclassified the remaining idle assets to property, plant and equipment amounting to $422,168 thousand as of September 30, 2012.
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| 3) | Deemed costs of property, plant and equipment |
The Company elected to apply the optional exemption in IFRS 1. The management measured land (classified as property, plant and equipment and investment properties under IFRSs) at its revalued amount, which was the carrying value under ROC GAAP, as deemed costs. As such, on January 1, 2012, the Company reclassified the unrealized revaluation increment (classified as stockholders’ equity) to retained earnings at the amount of $5,762,753 thousand. This reclassification did not affect total equity amount. The unrealized revaluation increment costs reclassified to retained earnings decreased by nil and $117 thousand, due to the partial disposal on revalued land; and decreased by nil and $2,054 thousand due to impairment loss, for the three months and nine months ended September 30, 2012, respectively. As a result, the carrying value of property, plant and equipment was $5,760,582 thousand as of September 30, 2012. Gain on disposal decreased by nil and $117 thousand, and impairment loss increased by nil and $2,054 thousand, for the three months and nine months ended September 30, 2012, respectively.
| 4) | Classification of deferred income tax asset and liability, and valuation allowance |
Under ROC GAAP, a deferred income tax asset and liability should be classified as current and noncurrent in accordance with the classification of its related asset or liability. When a deferred income tax asset and liability does not relate to an asset or liability, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled. However, under IFRSs, a deferred income tax asset and liability should be classified as noncurrent, and could not be offset. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on the same entity.
Under ROC GAAP, if it is more likely than not that deferred income tax assets will not be realized, the valuation allowances are provided to the extent. However, under IFRSs, deferred income tax assets are only recognized when it is more likely than not to be realized, and the valuation allowance is not used under IFRSs.
Based on the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the reserve for land value incremental tax caused by revaluation of land is classified as long-term liabilities. Under IFRSs, if the Company elects to apply the IFRS 1 exemption and measure the revalued land using the carrying amount determined under ROC GAAP as its deemed cost, the related reserve for land value incremental tax should be classified as deferred income tax liabilities.
The Company reclassified its deferred income tax assets - current to noncurrent assets and the amounts was $106,808 thousand as of September 30, 2012. Further, deferred income tax liabilities, which were netted with deferred income tax assets under ROC GAAP, were reversed. As a result of such reversal, deferred income tax liabilities - noncurrent and deferred income tax assets - noncurrent increased by $39,461 thousand and reserve for land value incremental tax of $94,986 thousand was also reclassified as deferred income tax liabilities - noncurrent under IFRSs.
| 5) | Income tax |
Based on IAS 12 “Income Taxes”, the income tax adjustments as a result of the transition to IFRSs are as follows: Deferred income tax assets increased by $481,507 thousand as of September 30, 2012; retained earnings increased by $472,926 thousand as of September 30, 2012; noncontrolling interests increased by $8,615 thousand as of September 30, 2012. Deferred income tax liabilities decreased by $34 thousand as of September 30, 2012. For the three months ended September 30, 2012, due to the adjustment of deferred income tax assets and deferred income tax liabilities (decreased by $36,932 thousand in deferred tax assets and decreased by $205 thousand in deferred income tax liabilities), income tax expense increased by $36,727 thousand. For the nine months ended September 30, 2012, due to the adjustment of deferred income tax assets and deferred income tax liabilities (decreased by $105,232 thousand in deferred tax assets and decreased $34 thousand in deferred income tax liabilities), income tax expense increased by $105,198 thousand.
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| 6) | Employee benefits |
Under ROC GAAP, net transaction obligation that was resulted from the first time adoption of SFAS No. 18, “Pension” should be amortized on a straight-line basis over the average remaining service life of active plan participants and recognized as net periodic pension cost. After the transition to IFRSs, the transitional rules in IAS 19, “Employee Benefits” was not applicable, thus the related amounts of net transaction obligation should be recognized at once and adjusted in retain earnings.
Under ROC GAAP, actuarial gains (losses) are recognized based on the corridor approach and the amounts are amortized over the average remaining service life of active plan participants. Under IFRSs, the Company elected to recognize pension gains (losses) arising from defined benefit plans as other comprehensive income immediately and subsequent reclassification to earnings is not permitted.
Furthermore, under ROC GAAP, the prior service costs should be recognized as an expense on a straight-line basis over the average remaining service life of active plan participants until the benefits become vested.
Under IFRSs, the newly-revised International Accounting Standard 19, “Employee Benefits” (“IAS 19”) required entities to accelerate the recognition of past service costs in profit or loss immediately. The Company earlier adopted the newly-revised IAS 19 from January 1, 2012
As a result of the aforementioned adjustments, other liabilities increased by $1,479,611 thousand as of September 30, 2012; other noncurrent assets decreased by $15,874 thousand as of September 30, 2012; retained earnings decreased by $1,445,195 thousand as of September 30, 2012; unrecognized net losses of pension decreased by $215 thousand as of September 30, 2012; noncontrolling interests decreased by $50,505 thousand as of September 30, 2012. For the three months ended September 30, 2012, pension cost decreased by $10,189 thousand which increased $42 thousand in operating costs and decreased $10,231 thousand in operating expenses. For the nine months ended September 30, 2012, pension cost decreased by $30,567 thousand which increased $127 thousand in operating costs and decreased $30,694 thousand in operating expenses.
In addition, prior to Chunghwa’s privatization in 2005, the pension contributions were made according to the relevant regulations. After privatization, the pension obligations of retained employees that were civil employees and retired employees entitled to receive future monthly pension payments prior to privatization based on the “Labor Pension Act”, “Act of Privatization of Government-Owned Enterprises”, and “Enforcement Rules of Statute of Privatization of Government-Owned Enterprises” were borne by the government. The settlement impact upon privatization of $20,648,078 thousand derived according to the actuarial report under IAS 19 shall be retroactively adjusted from retained earnings to additional paid-in capital - privatization at the date of transition to IFRSs.
| 7) | Award credits (often known as “points”) |
Under ROC GAAP, there’s no relevant guidance regarding award credits. After the transition to IFRSs, Chunghwa applied IFRIC 13, “Customer Royalty Program” retroactively. The award credit should be measured at its fair value and defer the recognition of revenue. When the customers redeem the points, the related revenues and costs shall be recognized. Such guidance replaced Chunghwa’s accounting policy that Chunghwa used to accrue expenses when the award credits were granted.
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Accrued award credits liabilities (classified as other current liabilities) decreased by $130,340 thousand as of September 30, 2012; deferred award credits revenue (classified as noncurrent liabilities - deferred revenue) increased by $67,471 thousand as of September 30, 2012; retained earnings increased by $62,869 thousand as of September 30, 2012. The revenue decreased by $14,514 thousand, the marketing expenses decreased by $27,647 thousand and the operating cost increased by $7,372 thousand for the three months ended September 30, 2012. The revenue decreased by $43,229 thousand, the marketing expenses decreased by $81,415 thousand and the operating cost increased by $21,111 thousand for the nine months ended September 30, 2012.
| 8) | Recognition of revenue from providing fixed line connection service |
Prior to incorporation and privatization, Chunghwa was subject to the laws and regulations applicable to state-owned enterprises in Taiwan which differed from ROC GAAP as applicable to commercial companies. As such, Chunghwa recorded revenue from providing fixed line connection service upon the receipt of connection fees. Upon incorporation, net assets greater than capital stock was credited as additional paid-in-capital. Part of additional paid-in-capital was from unearned revenues relating to connection fees as of that date. Upon privatization, unearned revenue generated from one-time connection fees was deferred at the time of service performed and recognized as revenue over time as the service is continuously performed in accordance with ROC GAAP.
Under IFRSs, following the revenue recognition guidance, the above service revenue should be treated as deferred income and recognized over the time when the service is continuously provided.
Chunghwa retrospectively adjusted the deferred income of $1,419,419 thousand as of September 30, 2012, by decreasing retained earnings and increasing the deferred revenue from providing fixed line connection service ($533,244 thousand was classified as other current liabilities; $886,175 thousand was classified as noncurrent liabilities - deferred revenue as of September 30, 2012). Unappropriated earnings increased and the additional paid-in-capital decreased by $18,486,974 thousand as of September 30, 2012. For the three months ended September 30, 2012, revenue from providing fixed line connection service increased by $133,311 thousand. For the nine months ended September 30, 2012, revenue from providing fixed line connection service increased by $506,397 thousand.
| 9) | Recognition of construction contract revenue |
The construction contracts did not meet the criteria in IFRIC 15 “Agreements for the Construction of Real Estate”; therefore IAS 11 “Construction Contracts” does not apply. The Company could only recognize the revenues when the projects are completed and sold out based on IAS 18, “Revenue”. Due to the reasons mentioned above, the Company reversed the revenue that was recognized based on percentage completion method, and recognize the related revenue, cost and expense when the project is completed in 2012.
The construction revenue increased by $762,921 thousand, the construction cost increased by $319,475 thousand and the marketing expenses increased by $48,153 thousand for the three months ended September 30, 2012. The construction revenue increased by $697,050 thousand, the construction cost increased by $305,009 thousand and the marketing expenses increased by $44,516 thousand for the nine months ended September 30, 2012.
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| 10) | Equity method investments |
Associates and jointly controlled entities are accounted for using equity method upon the Company’s transition to IFRSs, the main adjustment includes employee benefit and share-based payments, etc. As a result, long-term investments decreased by $9,330 thousand as of September 30, 2012; retained earnings decreased by $39,858 thousand as of September 30, 2012; unrecognized net loss of pension decreased by $35,571 thousand as of September 30, 2012; noncontrolling interests decreased by $5,043 thousand as of September 30, 2012. Investment income from associates and jointly controlled entities that accounted for using equity method increased by $1,232 thousand for the three months ended September 30, 2012 and $609 thousand for the nine months ended September 30, 2012, respectively.
| 11) | Share-based payment transactions |
Part of the employee stock options granted by a subsidiary was not vested on the transition date. Therefore, the subsidiary should apply IFRS 2, “Share-based Payment” retroactively. Under IFRSs, paid-in capital - employee stock option recognized by subsidiary does not belong to the equity attributable to parent company, instead it should be accounted as noncontrolling interests. As of September 30, 2012, retained earnings decreased by $426 thousand, additional paid-in capital reported by equity-method investees decreased by $1,231 thousand and noncontrolling interests increased by $1,657 thousand. For the three months and nine months ended September 30, 2012, the compensation cost under general and administrative expense both decreased by $1,543 thousand and $2,601 thousand.
| 12) | Subscription of associates/subsidiaries new shares and adjustments of paid-in capital reported related to equity-method investees |
When an investee issues new shares and existing shareholders do not subscribe to the new shares at their respective proportion in share holdings, this would result in changes in the investor’s shareholdings of the equity method investee. According to the Statements of Financial Accounting Standards (“SFAS”) No. 5 “Long-term Investments under Equity Method” under ROC GAAP, as there are changes in the net assets value of the equity method investee attributable to the investor, the investor shall reflect such changes by adjusting additional paid-in capital and long-term investments. However, under IFRSs, if the changes do not cause the investor to lose significant influence over associates, the change shall be treated as a deemed disposal with the related gain or loss recognized in earnings. If the changes do not cause the investor to lose control over subsidiaries, the change shall be treated as equity transactions. In addition, the Company complied with the IFRSs FAQs published by the Taiwan Stock Exchange, and reclassified the paid-in capital which did not meet the definitions under IFRSs or the Company Act and Regulations of Ministry of Economic Affairs to retained earnings. The Company reclassified such paid-in capital of $28,211 thousand to retained earnings, retained earnings increased by $27,942 thousand and long-term investment decreased by $269 thousand as of September 30, 2012. Gain on disposal of financial instruments increased by nil and $1,112 thousand for the three months and nine months ended September 30, 2012.
| 13) | Prepaid cards |
Prior to incorporation and privatization, Chunghwa was subject to the laws and regulations applicable to state-owned enterprises in Taiwan which differed from ROC GAAP as applicable to commercial companies. As such, revenue from selling prepaid phone cards was recognized at the time of sale by Chunghwa. Upon incorporation, net assets greater than the capital stock was credited as additional paid-in-capital and part of the additional paid-in-capital was from the unearned revenues generated from prepaid cards as of that day. Upon privatization, unearned revenue generated from prepaid cards was deferred at the time of sale and recognized as revenue as consumed in accordance with ROC GAAP.
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Under IFRSs, revenue from prepaid cards is deferred at the time of sale and recognized as revenue as consumed.
The amount of reclassification from additional paid-in capital to unappropriated earnings was $2,798,176 thousand as of September 30, 2012.
| 14) | 10% tax on unappropriated earnings |
In the Republic of China (“ROC”), a 10% tax is imposed on unappropriated earnings (excluding earnings from foreign consolidated subsidiaries). Under ROC GAAP, the Company records the 10% tax on unappropriated earnings upon the resolution of the following stockholders’ meeting.
Under IFRSs, the 10% tax on unappropriated earnings is accrued during the period the earnings arise and adjusted to the extent that distributions are approved by the stockholders in the following year.
Current tax liabilities increased by $2,964,080 thousand as of September 30, 2012; retained earnings decreased by $2,884,612 thousand as of September 30, 2012; noncontrolling interests decreased by $79,468 thousand as of September 30, 2012. Income tax expenses increased by $964,912 thousand for the three months ended September 30, 2012 and decreased by $1,540,708 thousand for the nine months ended September 30, 2012.
The aforementioned 10% tax on un-appropriate earnings is also applicable to the underlying investees whom the company invested and accounted for using equity method. And, as a result, investments accounted for using equity method decreased by $32,496 thousand as of September 30, 2012; retained earnings decreased by $26,302 thousand as of September 30, 2012; noncontrolling interests decreased by $6,194 thousand as of September 30, 2012. Share of the profit of associates and jointly controlled entities accounted for using the equity method decreased by $13,369 thousand for the three months ended September 30, 2012 and increased $3,780 thousand for the nine months ended September 30, 2012.
| 15) | Presentation of consolidated balance sheets |
| a) | Piping fund |
As part of the government’s effort to upgrade the existing telecommunications infrastructure project, Chunghwa and other public utility companies were required by the ROC government to contribute a total of $1,000,000 thousand to a Piping Fund administered by the Taipei City Government. Based on the terms of Construction Funding Agreement, if the Piping Fund project is considered to be no longer necessary by the ROC government, Chunghwa will receive back its proportionate share of the net equity of the Piping Fund upon its dissolution. In order to conform to the presentation of the financial statements under IFRSs, the fund was reclassified as other noncurrent assets.
| b) | Time deposits with maturities of more than three months |
Under ROC GAAP, cash and cash equivalents includes time deposits that are cancellable but without any loss of principal. Under IFRSs, cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of three months or less from the date of acquisition.
Time deposits and negotiable certificate of deposits with maturities of more than three months held by the Company were $7,314,945 thousand as of September 30, 2012. In order to conform to the presentation of the financial statements under IFRSs, such amounts were reclassified from cash to other monetary assets - current.
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| c) | Deferred expense |
The deferred expense, which was classified as other assets under ROC GAAP, was reclassified based on its nature under IFRSs. Deferred expenses relating to decoration construction projects and advertisement signboard, etc. were reclassified as property, plant and equipment of $185,340 thousand as of September 30, 2012. Deferred expenses relating to computer software were reclassified as intangible assets of $36,465 thousand as of September 30, 2012.
| d) | Assets held for disposal |
The property, plant and equipment classified as held for disposal (included in other assets - others) under ROC GAAP, was reclassified based on its nature under IFRSs. Assets held for disposal were reclassified as property, plant and equipment of $27,580 thousand as of September 30, 2012.
| e) | Reclassification of financial assets carried at cost |
Based on the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, stocks held by the Company which were not listed in Taiwan Stock Exchange or were not trading in the GreTai Securities Market and the Company did not have significant influence over these investees were classified as financial assets carried at cost. After transition to IFRSs, financial assets carried at cost were designated as available-for-sale financial assets. Financial assets carried at cost were reclassified as available-for-sale financial assets of $2,616,087 thousand as of September 30, 2012.
| 16) | Presentation of consolidated statements of comprehensive income |
After the transition to IFRSs, the consolidated statement of comprehensive income includes net income and other comprehensive income. Further, certain accounts were reclassified to conform to the presentation of the financial statements under IFRSs.
| 17) | Summary of material adjustments of cash flow statements |
Under ROC GAAP, collection and payment of interest and collection of dividends were classified as operating activity; payment of dividends was classified as financing activity. Further, for cash flow statement prepared using the indirect method, cash payment of interest expense is required for supplemental disclosure. Based on IAS 7 “Cash Flow Statement”, collection and payment of interest and dividends were disclosed separately with consistency for each period and classified as operating activity, investing activity or financing activity.
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