1934 Act Registration No. 1-31731

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

Dated March 30, 2010

 

 

Chunghwa Telecom Co., Ltd.

(Translation of Registrant’s Name into English)

 

 

21-3 Hsinyi Road Sec. 1,

Taipei, Taiwan, 100 R.O.C.

(Address of Principal Executive Office)

 

 

(Indicate by check mark whether the registrant files or will file annual reports under cover of form 20-F or Form 40-F.)

Form 20-F  x            Form 40-F  ¨

(Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

Yes  ¨                    No  x

(If “Yes” is marked, indicated below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable )

 

 

 

---

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant Chunghwa Telecom Co., Ltd. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: 2010/03/30

 

---

Exhibit

 

Exhibit		Description
1		Press Release to Report Operating Results for 2009 Full Year
2		Press Release to Capital Reduction Plan for Year 2010
3		Financial Statements for the Years Ended December 31, 2009 and 2008 and Independent Auditors’ Report (Stand Alone)
4		Consolidated Financial Statements for the Years Ended December 31, 2009 and 2008 and Independent Auditors’ Report

---

Exhibit 1

Chunghwa Telecom Reports Operating Results for Fiscal Year 2009

Taipei, Taiwan, R.O.C. March 30, 2010 - Chunghwa Telecom Co., Ltd. (TAIEX: 2412, NYSE: CHT) (“Chunghwa” or “the Company”), today reported its operating results for the year ending December 31, 2009. All figures were presented on a consolidated basis and prepared in accordance with generally accepted accounting principles in the Republic of China (“ROC GAAP”).

(Comparisons, unless otherwise stated, are to the prior year period)

Financial Highlights for Full Year 2009:

 

•

Total consolidated revenue decreased by 1.6% to NT$198.4 billion

 

•

Mobile communications business revenue decreased by 2.6% to NT$86.5 billion; mobile value-added services (VAS) revenue increased by 20.5% to NT$8.45 billion

 

•

Internet business revenue increased by 2.7% to NT$23.7 billion; internet value-added services (VAS) revenue increased by 18.0% to NT$2.0 billion

 

•

Domestic fixed communications business revenue decreased by 2.2% to NT$71.5 billion

 

•

International fixed communications business revenue decreased by 4.3% to NT$15.2 billion

 

•

Total operating costs and expenses decreased by 0.8% to NT$142.0billion

 

•

Net income totaled NT$43.8 billion, representing a decrease of 2.8%

 

•

Basic earnings per share (EPS) decreased by 2.8% to NT$4.51

Financial Highlights for the Fourth Quarter of 2009:

 

•

Total consolidated revenue increased by 2.6% to NT$51.1 billion

 

•

Mobile communications business revenue increased by 1.6% to NT$21.9 billion

 

•

Internet business revenue increased by 9.5% to NT$6.4 billion

 

•

Domestic fixed communications business revenue decreased by 0.2% to NT$18.5 billion

 

•

International fixed communications business revenue decreased by 6.1% to NT$3.7 billion

 

•

Total operating costs and expenses decreased by 0.4% to NT$38.0 billion

 

•

Net income totaled NT$10.6 billion, representing an increase of 24.6%

 

•

Basic earnings per share (EPS) increased by 24.6% to NT$1.09

 

1

---

Dr. Shyue-Ching Lu, Chairman and Chief Executive Officer of Chunghwa Telecom said, “I am proud that we were able to sustain our overall market leadership and achieve solid results in 2009, despite the challenges brought on by a difficult economic climate, intense competition in the mobile services and broadband access markets and the tragic impact of Typhoon Morakot in Taiwan. We swiftly implemented cost controlling initiatives to address the weakened economic conditions, while also improving our value-added services, MOD/IPTV offering and key Enterprise solutions. Our firm commitment to investments in innovation has not wavered and, moving forward, we plan to continue enhance our VAS, accelerate our fiber deployment and further enrich our MOD/IPTV content in order to execute our growth plan.”

Revenue

Chunghwa’s total consolidated revenue for full year 2009 decreased by 1.6% year-over-year to NT$198.4 billion, of which 43.6% was from the mobile business, 11.9% was from the internet business, 36.0% was from the domestic fixed business, 7.7% was from the international fixed business and the remainder was from others. The primary reasons for the revenue decline were economic downturn and market competition.

For the mobile business, total revenue for 2009 amounted to NT$86.5 billion, representing a decline of 2.6% year-over-year. The decrease was mainly due to the average revenue per user (ARPU) decline resulting from the market competition and the overall economic environment. Furthermore, the decline in handset sales from the slow economic environment also contributed to the revenue decrease.

Chunghwa’s internet business revenue increased by 2.7% year-over-year to NT$23.7 billion in 2009, mainly attributable to the successful promotion for corporate solution and internet VAS revenue growth from internet security services, and on-line music service etc.

For 2009, domestic fixed revenue totaled NT$71.5 billion, representing a decrease of 2.2% year-over-year. Of this, local and DLD revenues decreased by 3.9% to NT$33.2 billion and 12.7% to NT$7.4 billion year-over-year, respectively. The decrease of local revenue was mainly due to the deteriorating economic environment, as well as mobile and VOIP substitution. The decrease of DLD revenue was a result of a mandated interconnection tariff decrease by the National Communication Commission (“NCC”) and the economic downturn.

Broadband revenue, including ADSL and FTTx, decreased slightly by 0.3% year-over-year to NT$19.9 billion. Although FTTx revenue increased as more ADSL subscribers migrated to fiber solutions, such an increase did not fully offset the ADSL revenue decrease that was the result of the migration to FTTx, market competition and the mandatory NCC tariff reduction.

International fixed revenue decreased by 4.3%, primarily because of the economic downturn, which resulted in the substitution of cost-saving services, such as VOIP, for traditional International Direct Dialing (IDD) services.

 

2

---

Finally, others revenue increased by 74.3% to NT$1.5 billion in 2009 compared to the same period of 2008.

For the fourth quarter of 2009, total revenue was NT$51.1 billion, representing a 2.6% increase from the same period of 2008. Of this amount, the mobile business contributed 42.9%, the internet business was 12.6%, the domestic fixed business was 36.2%, the international fixed business was 7.3%, and the remainder was from others.

Costs and expenses

Total operating costs and expenses for 2009 were NT$142.0 billion, a decrease of 0.8% compared to 2008. This decrease was mainly due to decrease in depreciation, material & maintenance expenses, as well as decline in cost of sales from Senao due to its decreased sales.

For the fourth quarter of 2009, total operating costs and expenses were NT$38.0 billion, a decrease of 0.4% compared to the fourth quarter of 2008. The decrease can largely be attributed to a decrease in material and maintenance expenses, as well as decreased depreciation expense.

Income Tax

Income tax expense for 2009 were NT$12.7 billion, representing a decrease of 8.3% compared to NT$13.9 billion for 2008. This decrease was mainly due to the decreased operating profit.

EBITDA and Net Income

EBITDA and operating profit for 2009 decreased by 4.2% to NT$92.7 billion and by 3.7% to NT$56.4 billion, respectively, primarily due to the revenue decline. The Company’s EBITDA margin and operating profit margin for 2009 were 46.7% and 28.4%, respectively, compared to a 48.0% EBITDA margin and a 29.0% operating profit margin, respectively, for 2008. Net income for 2009 decreased by 2.8% year-over-year to NT$43.8 billion. The primary reason for the net income decrease was the decline in revenue.

EBITDA and operating profit for the fourth quarter of 2009 increased by 4.4% to NT$22.1billion and by12.7% to NT$13.2 billion, respectively. The reasons for these increases were the overall revenue growth and the reduced operating costs and expenses. The EBITDA margin and operating profit margin for the fourth quarter of 2009 were 43.3% and 25.7%, respectively; both are up compared to 42.6% and 23.4%, respectively, for the fourth quarter of 2008.

Net income increased by 24.6% to NT$10.6 billion for the fourth quarter of 2009, primarily due to the NT$1.2 billion financial asset impairment recognized in the fourth quarter in 2008.

 

3

---

Capital Expenditures (“Capex”)

Total capex for 2009 amounted to NT$25.5 billion, a 15.4% decrease compared to that of 2008. The decrease of capex was owing to the economic downturn. Of the NT$25.5 billion capex figure, 62.3% was used for the domestic fixed communications business, 19.7% was for mobile business, 8.2% was for internet business, 5.1% was for international fixed communications business and the remainder was for other uses.

Cash Flow

Cash flow from operating activities for 2009 decreased by 15.9% to NT$77.3 billion compared to 2008. This was primarily because of the revenue decline, a NT$4.0 billion increased pension fund contributions due to the income tax rate adjustment in 2010, the NT$3.2 billion income tax refund received in 2008, the 2009 revenue decline as well as the change of other operating assets and liabilities.

For the fourth quarter of 2009, our net cash flow from operating activities decreased by 22.6% year-over-year to NT$27.8 billion. This was primarily because of the increased pension fund contributions as mentioned.

As of December 31, 2009, the Company’s cash and cash equivalents totaled NT$73.3 billion, a decrease of 9.9% year-over-year, primarily due to the capital reduction distribution to shareholders in March of 2009.

Businesses Performance Highlights:

Broadband/ HiNet Business

 

•

Total broadband subscribers were 4.3 million as of December 31, 2009. Chunghwa made important progress over the course of 2009: There was a strong growth in FTTx subscriptions, with 568,000 net additions bringing the total to 1.64 million subscribers. ADSL subscribers decreased by 575,000 to 2.67 million. By the end of 2009, the number of ADSL and FTTx subscriptions with a service speed greater than 8 Mbps reached 2.0 million, representing 46.8% of total broadband subscribers, compared to 36.9% at the end of 2008.

 

•

HiNet subscribers totaled 4.07 million at the end of 2009, which were 35,000 less year over year.

Mobile Business

 

•

As of December 31, 2009, Chunghwa had 9.27 million mobile subscribers, an increase of 3.6% compare to 8.95 million at the end of 2008.

 

•

Chunghwa had 1.17 million net additions to its 3G subscriber base during 2009, recording a 32.9% year-over-year growth, bringing the total to 4.73 million as of December 31, 2009.

 

4

---

•

Mobile VAS revenue for 2009 was up 20.5% year-over-year to NT$84.5 billion, of which SMS revenue was up 12.3% year-over-year and mobile Internet revenue was up 54.3% year-over-year.

Domestic/International Fixed-line Businesses

 

•

As of the end of 2009, the Company maintained its leading fixed-line market position, with fixed-line subscribers totaling 12.45 million.

Financial Statements

Financial statements and additional operational data can be found on the Company’s website at www.cht.com.tw/ir/filedownload.

Note Concerning Forward-looking Statements

Please be advised that Chunghwa’s 2009 full year annual report including the complete U.S. GAAP reconciled financial statements and footnotes will be part of the Form 20-F to be filed to U.S. SEC. This Form 20-F, or the 2009 full year annual report, will be available at the U.S. SEC and on Chunghwa’s website no later than June 30, 2010.

Except for statements in respect of historical matters, the statements made in this press release contain “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual performance, financial condition or results of operations of Chunghwa to be materially different from what may be implied by such forward-looking statements. Investors are cautioned that actual events and results could differ materially from those statements as a result of a number of factors including, among other things: extensive regulation of telecom industry; the intensely competitive telecom industry; our relationship with our labor union; general economic and political conditions, including those related to the telecom industry; possible disruptions in commercial activities caused by natural and human induced events and disasters, including terrorist activity, armed conflict and highly contagious diseases, such as SARS; and those risks identified in the section entitled “Risk Factors” in Chunghwa’s annual reports on Form F-20 filed with the SEC.

The forward-looking statements in this press release reflect the current belief of Chunghwa as of the date of this press release and we undertake no obligation to update these forward-looking statements for events or circumstances that occur subsequent to such date.

 

5

---

About Chunghwa Telecom

Chunghwa Telecom (TAIEX 2412, NYSE: CHT) is the leading telecom service provider in Taiwan. Chunghwa Telecom provides fixed-line, mobile and Internet and data services to residential and business customers in Taiwan.

 

		Contact:		Fu-fu Shen
		Phone:		+886 2 2344 5488
		Email:		chtir@cht.com.tw

 

6

---

Exhibit 2

Chunghwa Telecom Announces NT$19.3 billion

Capital Reduction Plan for Year 2010

Taipei, Taiwan, R.O.C. March 30, 2010 - Chunghwa Telecom Co., Ltd (TAIEX: 2412, NYSE: CHT) (“Chunghwa” or “the Company”) today announced that its Board of Directors has approved a 20% of capital reduction from Chunghwa’s existing outstanding common stock, equivalent to approximately NT$19.39 billion for fiscal year 2010. As a result of this capital reduction, the Company will cancel 1,939,361,636 outstanding common shares by exchanging one existing common share for 0.8 new shares while distributing NT$2 per share to its shareholders. All related procedures and timetables will be announced following shareholder approval of this proposal at the Annual General Meeting scheduled to be held on June 18, 2010.

Shu Yeh, Chief Financial Officer of Chunghwa, commented, “We are very pleased that the Board has approved this round of capital reduction, the fourth year we are returning cash to our shareholders via capital reduction plan. The key reasons for conducting the capital reduction via Chunghwa’s outstanding common stock this year are to reduce the Company’s cost of capital, to effectively improve return on equity (ROE), and to continue our commitment in delivering value to our shareholders.”

Changes in outstanding common shares:

 

Current outstanding common shares		9,696,808,181
Common shares to be cancelled via capital reduction		(1,939,361,636	)
Outstanding common shares after capital reduction		7,757,446,545

 

*	1 ADS =10 shares

About Chunghwa Telecom

Chunghwa Telecom (TAIEX 2412, NYSE: CHT) is the leading telecom service provider in Taiwan. Chunghwa Telecom provides fixed line, mobile and Internet and data services to residential and business customers in Taiwan.

For inquiries:

Fu-fu Shen

Investor Relations

+886 2 2344 5488

chtir@cht.com.tw

---

Exhibit 3

 

		Chunghwa Telecom Co., Ltd.
		Financial Statements for the
		Years Ended December 31, 2009 and 2008 and
		Independent Auditors’ Report

---

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders

Chunghwa Telecom Co., Ltd.

We have audited the accompanying balance sheets of Chunghwa Telecom Co., Ltd. as of December 31, 2009 and 2008, and the related statements of income, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards required that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to first paragraph present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended in conformity with the Securities and Exchange Act, the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China.

As discussed in Note 3 to the financial statements on January 1, 2008, the Company adopted Interpretation 96-052 issued by the Accounting and Research Development Foundation of the Republic of China that requires companies to record bonuses paid to employees, directors and supervisors as an expense rather than an appropriation of earnings. The Company early adopted the new Statements of Financial Accounting Standards No. 41, “Operating Segments” (“SFAS No. 41”) beginning from September 1, 2009.

 

- 1 -

---

We have also audited the consolidated financial statements of the Company and its subsidiaries as of and for the years ended December 31, 2009 and 2008, and have expressed a modified unqualified opinion on those consolidated financial statements.

March 10, 2010

Notice to Readers

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

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

 

- 2 -

---

CHUNGHWA TELECOM CO., LTD.

BALANCE SHEETS

DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars, Except Par Value Data)

 

 

The accompanying notes are an integral part of the financial statements.   (With Deloitte & Touche audit report dated March 10, 2010)

 

- 3 -

---

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars, Except Earnings Per Share Data)

 

 

		2009					2008
		Amount			%		Amount			%
NET REVENUES (Note 24)		$	184,040,272		100		$	186,780,650		100
OPERATING COSTS (Note 24)			97,229,277		53			95,812,214		52
GROSS PROFIT			86,810,995		47			90,968,436		48
OPERATING EXPENSES (Note 24)
Marketing			25,210,891		13			27,306,113		14
General and administrative			3,303,370		2			3,345,977		2
Research and development			3,155,752		2			3,151,789		2
Total operating expenses			31,670,013		17			33,803,879		18
INCOME FROM OPERATIONS			55,140,982		30			57,164,557		30
NON-OPERATING INCOME AND GAINS
Interest income			454,464		—			1,866,875		1
Equity in earnings of equity method investees, net			281,340		—			362,314		—
Valuation gain on financial instruments, net			100,688		—			550,649		1
Foreign exchange gain, net			87,597		—			329,408		—
Gain on disposal of property, plant and equipment, net			5,147		—			—		—
Others			646,593		1			397,631		—
Total non-operating income and gains			1,575,829		1			3,506,877		2
NON-OPERATING EXPENSES AND LOSSES
Loss on disposal of financial instruments, net			194,133		—			660,331		—
Loss arising from natural calamities			148,747		—			—		—
Impairment loss on assets			95,349		—			1,164,105		1
Interest expense			2,776		—			404		—
Loss on disposal of property, plant and equipment, net			—		—			276,710		—
Others			112,385		—			97,019		—
Total non-operating expenses and losses			553,390		—			2,198,569		1
INCOME BEFORE INCOME TAX			56,163,421		31			58,472,865		31
INCOME TAX EXPENSE (Notes 2 and 21)			12,405,995		7			13,462,523		7
NET INCOME		$	43,757,426		24		$	45,010,342		24

(Continued)

 

- 4 -

---

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars, Except Earnings Per Share Data)

 

 

		2009						2008
		Income Before Income Tax			Net Income			Income Before Income Tax			Net Income
EARNINGS PER SHARE (Notes 2 and 22)
Basic earnings per share		$	5.79		$	4.51		$	6.03		$	4.64
Diluted earnings per share		$	5.77		$	4.50		$	6.02		$	4.63

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

 

(With Deloitte & Touche audit report dated March 10, 2010)		(Concluded)

 

- 5 -

---

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars Except Dividend Per Share Data)

 

 

		Common Stock							Preferred Stock					Additional Paid-in Capital				Retained Earnings
		Shares (Thousands)			Amount				Shares (Thousands)		Amount							Legal Reserve			Special Reserve				Unappropriated Earnings
BALANCE, JANUARY 1, 2008		9,667,845			$	96,678,451			—		$	—		$	200,605,563			$	48,036,210		$	2,678,723			$	48,317,617
Adjustment of additional paid-in capital from revaluation of land to income upon disposal		—				—			—			—			—				—			—				—
Appropriations of 2007 earnings
Legal reserve		—				—			—			—			—				4,823,356			—				(4,823,356	)
Reversal of special reserve		—				—			—			—			—				—			(3,304	)			3,304
Cash dividend - NT$4.26 per share		—				—			—			—			—				—			—				(40,716,130	)
Stock dividend - NT$0.1 per share		95,578				955,778			—			—			—				—			—				(955,778	)
Employees’ bonus - cash		—				—			—			—			—				—			—				(1,303,605	)
Employees’ bonus - stock		43,453				434,535			—			—			—				—			—				(434,535	)
Remuneration to board of directors and supervisors		—				—			—			—			—				—			—				(43,454	)
Capital surplus transferred to common stock		1,911,555				19,115,554			—			—			(19,115,554	)			—			—				—
Capital reduction (Note 18)		(1,911,555	)			(19,115,554	)		—			—			—				—			—				—
Net income in 2008		—				—			—			—			—				—			—				45,010,342
Unrealized loss on financial instruments held by investees		—				—			—			—			—				—			—				—
Equity adjustments in investees		—				—			—			—			—				—			—				(54,583	)
Cumulative translation adjustment for foreign-currency investments held by investees		—				—			—			—			—				—			—				—
Defined benefit pension plan adjustments of investees		—				—			—			—			—				—			—				—
Special reserve for gain arising from disposal of land		—				—			—			—			—				—			475				(475	)
Cancellation of treasury stock - 110,068 thousand common shares (Notes 2 and 19)		(110,068	)			(1,100,682	)		—			—			(2,283,739	)			—			—				(3,723,073	)
Unrealized loss on financial instruments		—				—			—			—			—				—			—				—
BALANCE, DECEMBER 31, 2008		9,696,808				96,968,082			—			—			179,206,270				52,859,566			2,675,894				41,276,274
Adjustment of additional paid-in capital from revaluation of land to income upon disposal		—				—			—			—			—				—			—				—
Appropriations of 2008 earnings
Legal reserve		—				—			—			—			—				4,127,675			—				(4,127,675	)
Cash dividend - NT$3.83 per share		—				—			—			—			—				—			—				(37,138,775	)
Cancellation of preferred stock (Note 18)		—				—			—			—			—				—			—				—
Capital surplus transferred to common stock		969,680				9,696,808			—			—			(9,696,808	)			—			—				—
Capital reduction (Note 18)		(969,680	)			(9,696,808	)		—			—			—				—			—				—
Net income in 2009		—				—			—			—			—				—			—				43,757,426
Unrealized gain on financial instruments held by investees		—				—			—			—			—				—			—				—
Equity adjustments in investees		—				—			—			—			301				—			—				(17,288	)
Cumulative translation adjustment for foreign-currency investments held by investees		—				—			—			—			—				—			—				—
Defined benefit pension plan adjustments of investees		—				—			—			—			—				—			—				—
Unrealized gain on financial instruments		—				—			—			—			—				—			—				—
BALANCE, DECEMBER 31, 2009		9,696,808			$	96,968,082			—		$	—		$	169,509,763			$	56,987,241		$	2,675,894			$	43,749,962

 

		Other Adjustments
		Cumulative Translation Adjustments				Unrecognized Net Loss of Pension				Unrealized Gain (Loss) on Financial Instruments				Unrealized Revaluation Increment				Treasury Stock				Total Stockholders’ Equity
BALANCE, JANUARY 1, 2008		$	(1,980	)		$	(90	)		$	37,508			$	5,823,200			$	(7,107,494	)		$	395,067,708
Adjustment of additional paid-in capital from revaluation of land to income upon disposal			—				—				—				(10,013	)			—				(10,013	)
Appropriations of 2007 earnings
Legal reserve			—				—				—				—				—				—
Reversal of special reserve			—				—				—				—				—				—
Cash dividend - NT$4.26 per share			—				—				—				—				—				(40,716,130	)
Stock dividend - NT$0.1 per share			—				—				—				—				—				—
Employees’ bonus - cash			—				—				—				—				—				(1,303,605	)
Employees’ bonus - stock			—				—				—				—				—				—
Remuneration to board of directors and supervisors			—				—				—				—				—				(43,454	)
Capital surplus transferred to common stock			—				—				—				—				—				—
Capital reduction (Note 18)			—				—				—				—				—				(19,115,554	)
Net income in 2008			—				—				—				—				—				45,010,342
Unrealized loss on financial instruments held by investees			—				—				(18,613	)			—				—				(18,613	)
Equity adjustments in investees			—				—				—				—				—				(54,583	)
Cumulative translation adjustment for foreign-currency investments held by investees			31,454				—				—				—				—				31,454
Defined benefit pension plan adjustments of investees			—				6				—				—				—				6
Special reserve for gain arising from disposal of land			—				—				—				—				—				—
Cancellation of treasury stock - 110,068 thousand common shares (Notes 2 and 19)			—				—				—				—				7,107,494				—
Unrealized loss on financial instruments			—				—				(2,291,137	)			—				—				(2,291,137	)
BALANCE, DECEMBER 31, 2008			29,474				(84	)			(2,272,242	)			5,813,187				—				376,556,421
Adjustment of additional paid-in capital from revaluation of land to income upon disposal			—				—				—				(9,741	)			—				(9,741	)
Appropriations of 2008 earnings
Legal reserve			—				—				—				—				—				—
Cash dividend - NT$3.83 per share			—				—				—				—				—				(37,138,775	)
Cancellation of preferred stock (Note 18)			—				—				—				—				—				—
Capital surplus transferred to common stock			—				—				—				—				—				—
Capital reduction (Note 18)			—				—				—				—				—				(9,696,808	)
Net income in 2009			—				—				—				—				—				43,757,426
Unrealized gain on financial instruments held by investees			—				—				36,011				—				—				36,011
Equity adjustments in investees			—				—				—				—				—				(16,987	)
Cumulative translation adjustment for foreign-currency investments held by investees			(21,848	)			—				—				—				—				(21,848	)
Defined benefit pension plan adjustments of investees			—				(43,666	)			—				—				—				(43,666	)
Unrealized gain on financial instruments			—				—				1,789,102				—				—				1,789,102
BALANCE, DECEMBER 31, 2009		$	7,626			$	(43,750	)		$	(447,129	)		$	5,803,446			$	—			$	375,211,135

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

(With Deloitte & Touche audit report dated March 10, 2010)

 

- 6 -

---

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars)

 

 

		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	43,757,426			$	45,010,342
Impairment loss on assets			95,349				1,164,105
Provision for doubtful accounts			454,402				503,753
Depreciation and amortization			35,972,878				37,968,938
Amortization of premium of financial assets			15,295				3,258
Loss on disposal of financial instruments, net			194,133				660,331
Valuation gain on financial instruments, net			(100,688	)			(550,649	)
Valuation loss on inventory			11,550				23,320
Loss (gain) on disposal of property, plant and equipment, net			(5,147	)			276,710
Loss arising from natural calamities			148,747				—
Equity in earnings of equity method investees, net			(281,340	)			(362,314	)
Dividends received from equity investees			393,115				435,285
Deferred income taxes			1,092,773				(178,971	)
Changes in operating assets and liabilities:
Decrease (increase) in:
Financial assets held for trading			215,658				(207,463	)
Trade notes and accounts receivable			(1,322,076	)			(218,461	)
Receivables from related parties			(40,202	)			(131,390	)
Other monetary assets			371,339				4,860,343
Inventories			(205,463	)			(254,588	)
Other current assets			601,970				(1,010,310	)
Increase (decrease) in:
Trade notes and accounts payable			(1,338,719	)			(454,187	)
Payables to related parties			(324,270	)			553,070
Income tax payable			(1,275,644	)			(1,526,874	)
Accrued expenses			819,458				723,521
Other current liabilities			501,273				650,762
Deferred income			411,467				567,147
Accrued pension liabilities			(3,956,431	)			1,252,424
Net cash provided by operating activities			76,206,853				89,758,102
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of available-for-sale financial assets			(8,617,262	)			(7,271,995	)
Proceeds from disposal of available-for-sale financial assets			7,642,345				6,639,849
Acquisition of held-to-maturity financial assets			(2,099,875	)			(3,326,951	)
Proceeds from disposal of held-to-maturity financial assets			868,860				659,605
Acquisition of financial assets carried at cost			—				(485,859	)
Proceeds from disposal of financial assets carried at cost			285,859				354,933
Acquisition of investments accounted for using equity method			(1,637,615	)			(4,461,562	)
Proceeds from disposal of long-term investments			—				44,047
Acquisition of property, plant and equipment			(24,344,334	)			(29,660,351	)
Proceeds from disposal of property, plant and equipment			64,599				2,642,439

(Continued)

 

- 7 -

---

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars)

 

 

		2009				2008
Increase in intangible assets		$	(233,471	)		$	(258,290	)
Increase in other assets			(329,770	)			(331,620	)
Net cash used in investing activities			(28,400,664	)			(35,455,755	)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in customers’ deposits			(95,111	)			(160,733	)
Decrease in other liabilities			(201,273	)			(135,309	)
Cash dividends paid			(37,138,775	)			(40,716,130	)
Remuneration to board of directors and supervisors and bonus to employees			—				(1,347,059	)
Capital reduction			(19,115,554	)			(9,557,777	)
Net cash used in financing activities			(56,550,713	)			(51,917,008	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(8,744,524	)			2,385,339
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			77,137,903				74,752,564
CASH AND CASH EQUIVALENTS, END OF YEAR		$	68,393,379			$	77,137,903
SUPPLEMENTAL INFORMATION
Interest paid		$	37			$	404
Income tax paid		$	12,588,866			$	15,168,368
NON-CASH FINANCING ACTIVITIES
Reclassification from common capital stock to due to stockholders for capital reduction		$	9,696,808			$	19,115,554
CASH AND NON-CASH INVESTING ACTIVITIES
Increase in property, plant and equipment		$	24,257,098			$	30,493,115
Payables to suppliers			87,236				(832,764	)
		$	24,344,334			$	29,660,351

(Continued)

 

- 8 -

---

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars)

 

The acquisition of InfoExplorer Co., Ltd. (“IFE”) was made on January 20, 2009. The following table presents the allocation of acquisition costs of IFE to assets acquired and liabilities assumed based on their fair values on the basis of the final data on May 7, 2009:

 

Cash and cash equivalents		$	457,990
Receivables			13,479
Other current assets			14,792
Property, plant, and equipment			40,221
Identifiable intangible assets			53,001
Refundable deposits			2,468
Other assets			2,338
Payables			(83,319	)
Income tax payable			(246	)
Other current liabilities			(153	)
Total			500,571
Percentage of ownership			49.07	%
			245,630
Goodwill			37,870
Acquisition costs of acquired subsidiary (cash prepaid for long-term investments in December 2008)		$	283,500

(Continued)

 

- 9 -

---

CHUNGHWA TELECOM CO., LTD.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars)

 

The acquisition of additional interest of Chunghwa Investment Co., Ltd. (“CHI”) and its subsidiaries was made on September 9, 2009. The following table presents the allocation of acquisition costs of Chunghwa Investment Co., Ltd. and its subsidiaries to assets acquired and liabilities assumed based on their fair values on the basis of the final data performed:

 

Cash and cash equivalents		$	913,593
Financial assets at fair value through profit or loss			51,357
Available-for-sale financial assets			568,377
Trade notes and accounts receivable			76,258
Inventories			60,040
Other current assets			19,429
Investments accounted for using equity method			57,339
Financial assets carried at cost			155,714
Property, plant, and equipment			90,278
Identifiable intangible assets			33,662
Other assets			22,462
Trade notes and accounts payable			(33,665	)
Accrued expenses			(16,496	)
Income tax payable			(1,289	)
Short-term loans			(20,000	)
Long-term loans			(24,238	)
Other liabilities			(1,115	)
Subtotal			1,951,706
Minority interests			(100,071	)
Total			1,851,635
Percentage of additional ownership			40	%
			740,654
Goodwill			18,055
Acquisition costs of acquired subsidiary paid in cash		$	758,709

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

 

(With Deloitte & Touche audit report dated March 10, 2010)		(Concluded)

 

- 10 -

---

CHUNGHWA TELECOM CO., LTD.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

 

 

1.

GENERAL

Chunghwa Telecom Co., Ltd. (“Chunghwa”) was incorporated on July 1, 1996 in the Republic of China (“ROC”) 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.

As the dominate telecommunications service provider of fixed-line and Global System for Mobile Communications (“GSM”) in the ROC, Chunghwa is subject to additional regulations imposed by ROC.

Effective August 12, 2005, the MOTC had 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 shares were listed and traded on the Taiwan Stock Exchange (the “TSE”) on October 27, 2000. Certain of Chunghwa’s common shares had been 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 shares had also been 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 shares 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.

As of December 31, 2009 and 2008, the Company had 24,668 and 24,551 employees, respectively.

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements were prepared in conformity with the Securities and Exchange Act, the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law, Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the ROC (“ROC GAAP”). The preparation of financial statements requires management to make reasonable estimates and assumptions on allowances for doubtful accounts, valuation allowances on inventories, depreciation of property, plant and equipment, impairment of assets, bonuses paid to employees, directors and supervisors, pension plans and income tax which are inherently uncertain. Actual results may differ from these estimates. The significant accounting policies are summarized as follows:

Classification of Current and Noncurrent Assets and Liabilities

Current assets are assets expected to be converted to cash, sold or consumed within one year from balance sheet date. Current liabilities are obligations expected to be settled within one year from balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.

 

- 11 -

---

Cash Equivalents

Cash equivalents is commercial paper with maturities of three months or less from the date of acquisition. The carrying amount approximates fair value.

Financial Assets and Liabilities at Fair Value Through Profit or Loss

Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss (“FVTPL”) include financial assets or financial liabilities held for trading and those designated as at FVTPL on initial recognition. The Company recognizes a financial asset or a financial liability when the Company becomes a party to the contractual provisions of the financial instrument. A financial asset is derecognized when the Company loses control of its contractual rights over the financial asset. A financial liability is derecognized when the obligation specified in the relevant contract is discharged, cancelled or expired.

Financial instruments at FVTPL are initially measured at fair value. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized as expenses as incurred. Financial assets or financial liabilities at FVTPL are remeasured at fair value, subsequently with changes in fair value recognized in earnings. Cash dividends received subsequently (including those received in the period of investment) are recognized as income. On derecognition of a financial asset or a financial liability, the difference between its carrying amount and the sum of the consideration received and receivable or consideration paid and payable is recognized in earnings. A regular way purchase or sale of financial assets is accounted for using trade date accounting.

Derivatives that do not meet the criteria for hedge accounting is classified as financial assets or financial liabilities held for trading. When the fair value is positive, the derivative is recognized as a financial asset, when the fair value is negative, the derivative is recognized as a financial liability.

Available-for-sale Financial Assets

Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of stockholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using trade date accounting.

The recognition and derecognition of available-for-sale financial assets are similar to those of financial assets at FVTPL.

Fair values are determined as follows: Listed stocks - at closing prices at the balance sheet date; open-end mutual funds - at net asset values at the balance sheet date; bonds - quoted at prices provided by the Taiwan GreTai Securities Market; and financial assets and financial liabilities without quoted prices in an active market - at values determined using valuation techniques.

Cash dividends are recognized in earnings on the ex-dividend date, except for the dividends declared before acquisition which are treated as a reduction of investment cost. Stock dividends are recorded as an increase in the number of shares and do not affect investment income. The total number of shares subsequent to the increase of stock dividends is used for recalculate cost per share.

An impairment loss is recognized when there is objective evidence that the financial asset is impaired. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent to the decrease and recorded as an adjustment to stockholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.

 

- 12 -

---

Held-to-maturity Financial Assets

Held-to-maturity financial assets are carried at amortized cost using the effective interest method. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains and losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using trade date accounting.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.

Revenue Recognition, Account Receivables and Allowance for Doubtful Receivables

Revenues are recognized when they are realized or realizable and earned. Revenues are realized or realizable and earned when the Company has persuasive evidence of an arrangement, the goods have been delivered or the services have been rendered to the customer, the sales price is fixed or determinable and collectibility is reasonably assured.

Revenue is measured at the fair value of the consideration received or receivable and represents amounts agreed between the Company and the customers for goods sold in the normal course of business, net of sales discounts and volume rebates. For trade receivables due within one year from the balance sheet date, as the nominal value of the consideration to be received approximates its fair value and transactions are frequent, fair value of the consideration is not determined by discounting all future receipts using an imputed rate of interest.

Usage revenues from fixed-line services (including local, domestic long distance and international long distance), cellular services, Internet and data services, and interconnection and call transfer fees from other telecommunications companies and carriers are billed in arrears and are recognized based upon minutes of traffic processed when the services are provided in accordance with contract terms.

The costs of providing services are recognized as incurred. Incentives to third party dealers for inducing business which are payable when the end user enters into an airtime contract are recognized in marketing expenses as incurred.

Other revenues are recognized as follows: (a) one-time subscriber connection fees (on fixed-line services) are deferred and recognized over the average expected customer service periods, (b) monthly fees (on fixed-line services, wireless and Internet and data services) are accrued every month, and (c) prepaid services (fixed line, cellular and Internet) are recognized as income based upon actual usage by customers or when the right to use those services expires.

Where the Company enters into transactions which involve both the provision of air time bundled with products such as 3G data card and handset, total consideration received from handsets in these arrangements is allocated and measured using units of accounting within the arrangement based on relative fair values limited to the amount that is not contingent upon the delivery of other items or services.

Where the Company sells products to third party cellular phone stores the Company records the direct sale of the products, typically handsets, as gross revenue when the Company is the primary obligor in the arrangement and when title is passed and the products are accepted by the stores.

An allowance for doubtful receivables is provided based on a review of the collectibility of accounts receivable. The Company determines the amount of allowance for doubtful receivables by examining the aging analysis of outstanding accounts receivable as well as historical collection experience.

 

- 13 -

---

Inventories

Inventories including merchandise and work-in-process are stated at the lower of cost (weighted-average cost) or net realizable value item by item, except for those that may be appropriate to group items of similar or related inventories. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. The calculation of the cost of inventory is derived using the weighted- average method.

Investments Accounted for Using Equity Method

Investments in companies where in the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. Under the equity method, the investment is initially stated at cost and subsequently adjusted for its proportionate share in the net earnings of the investee companies. Any cash dividends received are recognized as a reduction in the carrying value of the investments.

Gains or losses on sales from the Company to equity method investees wherein Chunghwa exercises significant influence over these equity investees are deferred in proportion to the Company’s ownership percentage in the investees until such gains or losses are realized through transactions with third parties. Gains or losses on sales from equity method investees to Chunghwa are deferred in proportion to Chunghwa’s ownership percentages in the investees until they are realized through transactions with third parties.

When the Company subscribes for additional investees shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to additional paid-in capital the extent available, with the balance charged to retained earnings.

Financial Assets Carried at Cost

Investments in equity instruments that do not have a quoted price in an active market and whose fair values cannot be reliably measured such as non-publicly traded stocks are measured at their original cost. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Property, Plant and Equipment

Property, plant and equipment are stated at cost plus a revaluation increment, if any, less accumulated depreciation and accumulated impairment loss. The interest costs that are directly attributable to the acquisition, construction of a qualifying asset are capitalized as property, plant and equipment. Major renewals and betterments are capitalized, while maintenance and repairs are expensed as incurred.

When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized.

An impairment loss on a revalued asset is charged to “unrealized revaluation increment” under equity to the extent available, with the balance is recognized as a loss in earnings. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment loss could be reversed and recognized as a gain, with the remaining credited to “unrealized revaluation increment”.

 

- 14 -

---

Depreciation expense is computed using the straight-line method over the following estimated service lives: land improvements - 10 to 30 years; buildings - 10 to 60 years; computer equipment - 6 to 10 years; telecommunications equipment - 6 to 15 years; transportation equipment - 5 to 10 years; and miscellaneous equipment - 3 to 12 years.

Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation, accumulated impairment losses and any unrealized revaluation increment are deducted from the corresponding accounts, and any gain or loss recorded as non-operating gains or losses in the period of sale or disposal.

Intangible Assets

Intangible assets mainly include 3G Concession, computer software and patents.

The 3G Concession is valid through December 31, 2018. The 3G Concession is amortized on a straight-line basis from the date operations commence through the date the license expires. Computer software costs and patents are amortized using the straight-line method over the estimated useful lives of 3-20 years.

The Company adopted the Statements of Financial Accounting Standards No. 37, “Intangible Assets.” Expenditure on research shall be expensed as incurred. Development costs are capitalized when those costs meet relative criteria and are amortized using the straight-line method over estimated useful lives. Development costs do not meet relative criteria shall be expensed as incurred.

When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, as if no impairment loss had been recognized.

Idle Assets

Idle assets are carried at the lower of recoverable amount or carrying amount.

Pension Costs

For defined benefit pension plans, net periodic pension benefit cost is recorded in the statement of income and includes service cost, interest cost, expected return on plan assets, amortization of prior service costs, amortization of pension gains (losses) and curtailment or settlement gains (losses).

The Company recognizes into income, any unrecognized actuarial net gains or losses that exceed 10% of the larger of projected benefit obligations or plan assets, defined as the “corridor”. Amounts inside this 10% corridor are amortized over the average remaining service life of active plan participants. Actuarial net gains and losses occur when actual experience differs from any of the many assumptions used to value the plans. Differences between the expected and actual returns on plan assets and changes in interest rate, which affect the discount rate used to value projected plan obligations, can have a significant impact on the calculation of pension net gains and losses from year to year.

The curtailments and settlement gains (losses) resulted from the Chunghwa’s early retirement programs. Curtailment/settlement gains or losses are equal to the changes of underfunded status plus the a pro rata portion of the unrecognized prior service cost, unrecognized net gains (losses), and unrecognized transition obligations/assets, before the settlement/curtailment event multiplied by the percentage reduction in projected benefit obligation.

 

- 15 -

---

The projected benefit obligation represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future compensation levels.

The carrying amount of accrued pension liability should be the sum of the following amounts: (a) projected benefit obligation as of balance sheet date, (b) minus (plus) unamortized actuarial loss (gain), (c) minus unamortized prior service cost, and (d) minus the fair value of plan assets. If the amount determined by above calculation is negative, it is viewed as prepaid pension cost. The prepaid pension cost is measured at the lower of: (a) the amount determined above, and (b) the sum of the following amounts: (i) unamortized actuarial loss, (ii) unamortized prior service cost, and (iii) the present value of refunds from the plan or reductions in future contributions to the plan.

The measurement of benefit obligations and net periodic cost (income) is based on estimates and assumptions approved by the company’s management such as compensation, age and seniority, as well as certain assumptions, including estimates of discount rates, expected return on plan assets and rate of compensation increases.

For employees under defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods.

Expense Recognition

The costs of providing services are recognized as incurred. The cost includes incentives to third party dealers for inducing business which are payable when the end user enters into an airtime contract.

Treasury Stock

Treasury stock is recorded at cost and shown as a reduction to stockholders’ equity. Upon cancellation of treasury stock, the treasury stock account is reduced and the common stock and capital surplus are reversed on a pro rata basis. If capital surplus is not sufficient for debiting purposes, the difference is charged to retained earnings.

Income Tax

The Company applies inter-period allocations for its income tax, whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.

Any tax credits arising from purchases of machinery, equipment and technology, research and development expenditures, personnel training, and investments in important technology-based enterprises are recognized using the flow-through method.

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

Income taxes (10%) on undistributed earnings is recorded in the year of stockholders approval which is the year subsequent to the year the earnings are generated.

 

- 16 -

---

Foreign-currency Transactions

Foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.

The financial statements of foreign equity investees are translated into New Taiwan dollars at the following exchange rates. Assets and liabilities - spot rates at year-end; stockholders’ equity - historical rates, income and expenses - average rates during the year. The resulting translation adjustments are recorded as a separate component of stockholders’ equity.

Hedge Accounting

A hedging relationship qualifies for hedge accounting only if, all of the following conditions are met: (a) at the inception of the hedge, there is formal documentation of the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge; (b) the hedge is expected to be highly effective in achieving offsetting changes in fair value attributable to the hedged risk, consistently with the risk management strategy documented for that particular hedging relationship; (c) the effectiveness of the hedge can be reliably measured; (d) the hedge is assessed on an ongoing basis and determined actually to have been highly effective throughout the financial reporting periods for which the hedge was designated.

The gain or loss from remeasuring the hedging instrument at fair value and the gain or loss on the hedged item attributable to the hedged risk are recognized in earnings.

The hedging items that do not meet the criteria for hedge accounting were classified as financial assets or financial liabilities at fair value through profit or loss.

 

3.	EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES

The Company early adopted the Statement of Financial Accounting Standards No. 41 “Operating Segments” (“SFAS No. 41”) starting from September 1, 2009. This Statement supersedes the Statement of Financial accounting Standards No. 20 “Segment Reporting”. For comparative purpose, the segment information for the year ended December 31, 2008 was presented in accordance with SFAS No. 41.

The Company adopted the newly-revised Statements of Financial Accounting Standards No. 10, “Accounting for Inventories,” (“SFAS No. 10”) beginning from January 1, 2009, which requires inventories to be stated at the lower of cost (weighted-average cost) or net realizable value item by item, except for those that may be appropriate to group items of similar or related inventories. The inventory-related incomes and expenses shall be classified as operating cost. The adoption of the revised SFAS No. 10 does not have significant impact on the Company’s net income and basic earnings per share (after income tax) for the year ended December 31, 2009. The Company reclassified non-operating losses of $23,320 thousand to operating costs for the year ended December 31, 2008.

In March 2007, the ARDF issued an Interpretation 96-052 that requires companies to recognize bonuses paid to employees, directors and supervisors as an expense rather than an appropriation of earnings beginning from January 1, 2008.

 

- 17 -

---

4.	CASH AND CASH EQUIVALENTS

 

		December 31
		2009			2008
Cash
Cash on hand		$	88,089		$	91,441
Bank deposits			4,455,444			10,207,252
Negotiable certificate of deposit, annual yield rate - ranging from 0.25%- 0.37% and 0.31%-2.45% for 2009 and 2008, respectively			63,350,000			48,485,481
			67,893,533			58,784,174
Cash equivalents
Commercial paper, annual yield rate - ranging from 0.19% and 0.70%-1.55% for 2009 and 2008, respectively			499,846			18,353,729
		$	68,393,379		$	77,137,903

As of December 31, 2009 and 2008, foreign deposits in bank were as following:

 

		December 31
		2009			2008
United States of America - New York (US$402 thousand and US$65,389 thousand for 2009 and 2008, respectively)		$	12,880		$	2,148,690
Hong Kong (US$30,572 thousand, EUR247 thousand, JPY27,844 thousand and GBP270 thousand for 2008)			—			1,039,021
		$	12,880		$	3,187,711

 

5.	FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

 

		December 31
		2009			2008
Derivatives - financial assets
Currency swap contracts		$	6,677		$	—
Index future contracts			—			242,868
Forward exchange contracts			—			15,208
		$	6,677		$	258,076
Derivatives - financial liabilities
Forward exchange contracts		$	—		$	95,515
Index future contracts			—			11,381
		$	—		$	106,896

Chunghwa entered into investment management agreements with well-known financial institutions (fund managers) to manage its investment portfolios in 2006. The investment portfolios managed by these fund managers aggregated to an original amount of US$100,000 thousand. Chunghwa terminated the investment management agreements on March 2, 2009 and asked fund managers to dispose all the investment portfolios. The fund managers had disposed all investment portfolios before June 23, 2009 and returned the proceeds to Chunghwa.

 

- 18 -

---

Chunghwa entered into currency swap contracts, forward exchange contracts and index future contracts to reduce its exposure to foreign currency risk and variability in operating results due to fluctuations in exchange rates and stock prices. However, the aforementioned derivatives did not meet the criteria for hedge accounting and were classified as financial assets or financial liabilities held for trading.

Outstanding currency swap contracts and forward exchange contracts on December 31, 2009 and 2008 were as follows:

 

		Currency		Maturity Period		Contract Amount (In Thousands)
December 31, 2009
Currency swap contracts		USD/NTD		2010.01-04			USD45,000/NTD1,448,160
December 31, 2008
Forward exchange contracts - sell		EUR/USD		2009.01		EUR	4,240
		JPY/USD		2009.01		JPY	446,200
		GBP/USD		2009.01		GBP	1,880
		USD/NTD		2009.01		USD	96,000
		USD/JPY		2009.01		USD	1,544
		USD/EUR		2009.01		USD	777
		USD/GBP		2009.01		USD	124

The Company did not have any outstanding index future contracts on December 31, 2009.

Outstanding index future contracts on December 31, 2008 were as follows:

 

		Maturity Date		Units		Contract Amount (In Thousands)
December 31, 2008
AMSTERDAM IDX FUT		2009.01		13		EUR	642
CAC40 10 EURO FUT		2009.01		14		EUR	451
DAX INDEX FUTURE		2009.03		3		EUR	356
IBEX 35 INDX FUTR		2009.01		7		EUR	633
MINI S&P/MIB FUT		2009.03		37		EUR	712
FTSE 100 IDX FUT		2009.03		19		GBP	815
TOPIX INDEX FUTURE		2009.03		35		JPY	283,990
S&P 500 FUTURE		2009.03		16		USD	3,541
S&P 500 EMINI FUTURE		2009.03		53		USD	2,346

As of December 31, 2008, the deposits paid for index future contracts were $242,768 thousand.

 

- 19 -

---

In September 2007, Chunghwa entered into a 10-year, foreign currency derivative contract with Goldman Sachs Group Inc. (“Goldman”) and valuations were made biweekly starting from September 20, 2007 which were 260 valuation periods totally. Under the terms of the contract, if the NT dollar/US dollar exchange rate was less than NT$31.50 per US dollar at any two consecutive bi-weekly valuation dates during the valuation period starting from October 4, 2007 to September 5, 2017, Chunghwa was required to make a cash payment to Goldman. The settlement amount was determined by the difference between the applicable exchange rates and the base amount of US$4,000 thousand. Conversely, if the NT dollar/US dollar exchange rate was above NT$31.50 per US dollar using the same valuation methodology, Goldman would have a settlement obligation to Chunghwa determined using a base amount of US$2,000 thousand. Further, if the exchange rate was at or above NT$32.70 per US dollar starting from December 12, 2007 at any time, the contract would be terminated at that time. In accordance with the terms of the contract, Chunghwa deposited US$3,000 thousand with Goldman with annual yield rate of 8%. On October 21, 2008, the exchange rate was above NT$32.70 per US dollar, so the contract was terminated at that time.

Net gain arising from financial assets and liabilities at fair value through profit or loss for the years ended December 31, 2009 and 2008 were $71,155 thousand (including realized settlement loss of $27,110 thousand and valuation gain of $98,265 thousand, respectively) and $477,792 thousand (including realized settlement loss of $46,210 thousand and valuation gain of $524,002 thousand, respectively).

 

6.	AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

		December 31
		2009			2008
Open-end mutual funds		$	16,325,016		$	13,420,645
Domestic listed stocks			257,242			—
Real estate investment trust fund			102,122			194,226
Foreign listed stocks			—			546,520
		$	16,684,380		$	14,161,391

For the years ended December 31, 2009 and 2008, movements of unrealized gain or loss on financial instruments were as follows:

 

		Year Ended December 31
		2009				2008
Balance, beginning of year		$	(2,255,905	)		$	35,232
Recognized in stockholders’ equity			1,658,615				(3,174,015	)
Transferred to profit or loss			130,487				882,878
Balance, end of year		$	(466,803	)		$	(2,255,905	)

Global economic and financial circumstances have significantly changed. As a result, Chunghwa determined that the impairment losses of available for sale financial assets is other-than-temporary in nature, and recorded impairment losses of $85,349 thousand and $1,139,105 thousand for the years ended December 31, 2009 and 2008, respectively.

 

- 20 -

---

7.	HELD-TO-MATURITY FINANCIAL ASSETS

 

		December 31
		2009			2008
Corporate bonds, nominal interest rate ranging from 0.764%-4.75% and 1.93%-2.95% for 2009 and 2008, respectively; effective interest rate ranging from 0.45%-2.95% and 1.8%-2.95% for 2009 and 2008, respectively		$	4,531,699		$	2,635,172
Bank debentures, nominal interest rate ranging from 1.865%-2.11% and 2.11%-3.85% for 2009 and 2008, respectively; effective interest rate ranging from 1.14%-2.9% and 2.33%-2.9% for 2009 and 2008, respectively			497,558			1,137,005
Collateralized loan obligation, nominal and effective interest rate was 2.175% for 2008			—			41,360
			5,029,257			3,813,537
Less: Current portion			1,099,595			769,435
		$	3,929,662		$	3,044,102

 

8.	ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

		Year Ended December 31
		2009				2008
Balance, beginning of year		$	2,992,143			$	3,290,123
Provision for doubtful accounts			446,901				499,113
Accounts receivable written off			(664,176	)			(797,093	)
Balance, end of year		$	2,774,868			$	2,992,143

 

9.	OTHER MONETARY ASSETS - CURRENT

 

		December 31
		2009			2008
Accrued custodial receipts from other carriers		$	432,569		$	484,224
Other receivables			1,339,380			1,703,100
		$	1,771,949		$	2,187,324

 

10.	INVENTORIES, NET

 

		December 31
		2009			2008
Work in process		$	646,908		$	283,739
Merchandise			539,614			708,870
		$	1,186,522		$	992,609

The operating costs related to inventories were NT$6,983,989 thousand (including the valuation loss on inventories of NT$11,550 thousand), and NT$4,191,228 thousand (including the valuation loss on inventories of NT$23,320 thousand) for the years ended December 31, 2009 and 2008, respectively.

 

- 21 -

---

11.	OTHER CURRENT ASSETS

 

		December 31
		2009			2008
Spare parts		$	2,348,894		$	2,511,153
Prepaid rents			804,687			840,889
Prepaid expenses			562,207			597,148
Miscellaneous			201,062			233,468
		$	3,916,850		$	4,182,658

 

12.	INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

		December 31
		2009					2008
		Carrying Value			% of Owner- ship		Carrying Value			% of Owner- Ship
Listed
Senao International Co., Ltd. (“SENAO”)		$	1,331,859		29		$	1,331,443		29
Non-listed
Light Era Development Co., Ltd. (“LED”)			2,926,677		100			2,976,434		100
Chunghwa Investment Co., Ltd. (“CHI”)			1,651,391		89			829,716		49
Chunghwa Telecom Singapore Pte., Ltd. (“CHTS”)			1,407,519		100			791,161		100
Chunghwa System Integration Co., Ltd. (“CHSI”)			706,932		100			747,104		100
CHIEF Telecom Inc. (“CHIEF”)			447,647		69			427,848		69
Taiwan International Standard Electronics Co., Ltd. (“TISE”)			427,810		40			593,441		40
InfoExplorer Co., Ltd. (“IFE”)			276,472		49			—		—
Viettel-CHT Co., Ltd. (“Viettel-CHT”)			269,924		30			95,836		33
Donghwa Telecom Co., Ltd. (“DHT”)			230,528		100			221,537		100
Chunghwa International Yellow Pages Co., Ltd. (“CIYP”)			171,986		100			110,545		100
Skysoft Co., Ltd. (“SKYSOFT”)			89,913		30			84,992		30
KingWay Technology Co., Ltd. (“KWT”)			69,913		33			77,222		33
Chunghwa Telecom Global, Inc. (“CHTG”)			63,752		100			71,097		100
Spring House Entertainment Inc. (“SHE”)			57,095		56			45,113		56
So-Net Entertainment Taiwan (“So-net”)			30,920		30			—		—
Chunghwa Telecom Japan Co., Ltd. (“CHTJ”)			10,166		100			4,165		100
New Prospect Investments Holdings Ltd. (B.V.I.) (“New Prospect”)			—		100			—		100
Prime Asia Investments Group Ltd. (B.V.I.) (“Prime Asia”)			—		100			—		100
			8,838,645					7,076,211
Prepayments for long-term investments - InfoExplorer Co., Ltd. (“IFE”)			—		—			283,500		—
			8,838,645					7,359,711
		$	10,170,504				$	8,691,154

 

- 22 -

---

On March 27, 2009, the board of directors of Chunghwa resolved to purchase 48,000 thousand common shares of Senao International Co., Ltd. (“SENAO”) through SENAO’s private placement. However, Chunghwa and SENAO did not complete the required procedures within the legal payment period; therefore, Chunghwa and SENAO decided to discontinue the private placement. SENAO engages mainly in selling and maintaining mobile phone and its peripheral products.

Chunghwa established 100% shares of Light Era Development Co., Ltd. (“LED”) by prepaying $3,000,000 thousand in January 2008. LED completed its incorporation on February 12, 2008. LED engages mainly in development of property for rent and sale.

Chunghwa invested in Chunghwa Investment Co., Ltd. (“CHI”) in September 2009 for $758,709 thousand. Chunghwa increased its ownership interest in CHI from 49% to 89%. CHI engages mainly in professional investing in telecommunication business and the telecommunication valued-added services.

Chunghwa established Chunghwa Telecom Singapore Pte., Ltd. (“CHTS”) in July 2008, for a purchase price of $200,000 thousand, and increased its investment in CHTS for $610,659 thousand and $579,280 thousand in July 2009 and September 2008. CHTS engages mainly in telecommunication wholesale, internet transfer services, international data, long distance call wholesales to carriers and the world satellite business. ST-1 telecommunications satellite is expected be retired in 2011; therefore, CHTS and SingTelSat Pte., Ltd. established a joint venture, ST-2 Satellite Ventures Pte., Ltd. (“STS”) in Singapore in October 2008 in order to maintain the current service. STS will engage in the installation and the operation of ST-2 telecommunications satellite.

Chunghwa prepaid $283,500 thousand to invest in InfoExplorer Co., Ltd. (“IFE”) and the record date of capital increase of IFE was January 5, 2009. Chunghwa acquired 49% of ownership. Chunghwa has control over IFE by obtaining above half of seats of the board of directors of IFE on January 20, 2009, which was IFE’s stockholder’s meeting. IFE mainly engages in information system planning and maintenance, software development, and information technology consultation services.

Chunghwa established Viettel-CHT Co., Ltd. (“Viettel-CHT”) with Viettel Co., Ltd. in Vietnam in April 2008, by investing NT$91,239 thousand cash. Chunghwa participated in the capital increase of Viettel-CHT in September 2009, by investing $197,088 thousand cash but its ownership interest of Viettel-CHT was decreased from 33% to 30%. Viettel-CHT engages mainly in IDC services.

Chunghwa invested in Donghwa Telecom Co., Ltd. (“DHT”) in September 2008 for a purchase price of $189,833 thousand. DHT engages mainly in international telecommunications, IP fictitious internet and internet transfer services.

Chunghwa invested in KingWay Technology Co., Ltd. (“KWT”) in January 2008, for a purchase price of $71,770 thousand. KWT engages mainly in publishing books, data processing and software services.

Chunghwa increased its ownership of Spring House Entertainment Inc. (“SHE”) from 30% to 56% in January 2008, for a purchase price of $39,800 thousand, and SHE becomes a subsidiary of Chunghwa. SHE engages mainly in network services, producing digital entertainment contents and broadband visual sound terrace development.

Chunghwa participated in So-net Entertainment Co., Ltd.’s capital increase on April 3, 2009, by investing $60,008 thousand cash, and acquired 30% of its shares. So-net Entertainment Co., Ltd. engages mainly in online service and sale of computer hardware.

Chunghwa established Chunghwa Telecom Japan Co., Ltd. (“CHTJ”), a 100% owned subsidiary in October 2008 by investing $6,140 thousand cash, and increased its investment on CHTJ by investing $11,151 thousand cash in January 2009. CHTJ engages mainly in telecommunication business, information processing and information providing service, development and sale of software and consulting services in telecommunication.

 

- 23 -

---

Chunghwa has established New Prospect Investments Holdings Ltd. (B.V.I.) (“New Prospect”) and Prime Asia Investments Group Ltd. (B.V.I.) (“Prime Asia”) in March 2006, but not on operation stage yet. Both holding companies are operating as investment companies and Chunghwa has 100% ownership right in an amount of US$1 in each holding company.

The carrying values of the equity investees as of December 31, 2009 and 2008 and the equity in earnings for the years ended December 31, 2009 and 2008 are determined based on the audited financial statements of the investees for the same years as the Company.

All accounts of Chunghwa’s subsidiaries were included in Chunghwa’s consolidated financial statements.

 

13.	FINANCIAL ASSETS CARRIED AT COST

 

		December 31
		2009					2008
		Carrying Value			% of Owner- ship		Carrying Value			% of Owner- ship
Non-listed
Taipei Financial Center (“TFC”)		$	1,789,530		12		$	1,789,530		12
Industrial Bank of Taiwan II Venture Capital Co., Ltd. (“IBT II”)			200,000		17			200,000		17
Global Mobile Corp. (“GMC”)			127,018		11			127,018		11
iD Branding Ventures (“iDBV”)			75,000		8			75,000		8
RPTI International (“RPTI”)			34,500		10			34,500		12
Essence Technology Solution, Inc. (“ETS”)			—		9			10,000		9
			2,226,048					2,236,048
Prepayments for long-term investments in stocks - Taipei Financial Center (“TFC”)			—		—			285,859		—
		$	2,226,048				$	2,521,907

Chunghwa invested in IBT II in January 2008, for a purchase price of $200,000 thousand. IBT II completed its incorporation on February 13, 2008 and engages mainly in investment activities.

Chunghwa invested in GMC in December 2007, for a purchase price of $168,038 thousand for 16,796 thousand shares. GMC engages mainly in wire communication services and computer software wholesale and circuit engineering. The National Communications Commission (“NCC”) informed Chunghwa with the Communication Letter (#0974102087) on April 1, 2008 that its investment in GMC was not authorized by NCC, and notified Chunghwa on May 5, 2008 that Chunghwa should dispose of its investment in GMC no later than June 30, 2008, otherwise, NCC would fine Chunghwa according to the Telecommunication Act. In April 2008, Chunghwa disposed of a portion of its investment in GMC (4,100 thousand shares) and filed an appeal to NCC to suspend the enforcement. In July 2008, NCC resolved that according to the Administrative Penalty Act, Chunghwa could not divest of its investment in the short time period provided and that Chunghwa would not be subject to fines as noted above. In October 2008, NCC revoked the original decree about Chunghwa’s investment in GMC, therefore, Chunghwa did not dispose of its remaining holding in GMC.

After evaluating the financial assets carried at cost, Chunghwa determined the investment in RPTI was impaired and recognized an impairment loss of NT$15,000 thousand for the year ended December 31, 2008. RPTI completed a capital reduction to offset its deficits and as a result the number of shares held by Chunghwa was reduced from 9,234 thousand shares to 4,765 thousand shares. Subsequent to this capital reduction, RPTI raised additional capital through cash contributions. Chunghwa did not participate in the RPTI’s capital increase plan; therefore, Chunghwa’s ownership of RPTI is decreased to 10%.

 

- 24 -

---

After evaluating the financial assets carried at cost, Chunghwa determined the investment in ETS was impaired and recognized an impairment loss of NT$10,000 thousand both in 2008 and 2009.

Chunghwa participated in TFC’s capital increase in October 2008 and prepaid $285,859 thousand. However, TFC is not expected to be able to collect enough amount of capital increase within a specific period; therefore TFC’s board of directors held a meeting on April 10, 2009 and resolved to withdraw its capital increase plan from Securities and Futures Bureau of Financial Supervisory Commission, Executive Yuan (“FSC”). TFC returned the prepayment to Chunghwa on May 8, 2009.

The above investments that do not have a quoted market price in an active market and whose fair values cannot be reliably measured are carried at original cost.

 

14.	OTHER MONETARY ASSETS - NONCURRENT

 

		December 31
		2009			2008
Piping Fund		$	1,000,000		$	1,000,000

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 a total of $1,000,000 thousand to a Piping Fund administered by the Taipei City Government. This fund was used to finance various telecommunications infrastructure projects.

 

15.	PROPERTY, PLANT AND EQUIPMENT

 

		December 31
		2009			2008
Cost
Land		$	101,266,026		$	101,259,221
Land improvements			1,535,066			1,494,398
Buildings			62,669,377			62,612,157
Computer equipment			15,636,520			15,751,162
Telecommunications equipment			654,609,330			648,805,525
Transportation equipment			2,111,872			2,404,125
Miscellaneous equipment			7,062,450			7,247,977
Total cost			844,890,641			839,574,565
Revaluation increment on land			5,800,909			5,810,650
			850,691,550			845,385,215
Accumulated depreciation
Land improvements			951,240			898,156
Buildings			17,314,729			16,238,529
Computer equipment			11,755,940			11,590,417
Telecommunications equipment			518,037,372			502,974,534
Transportation equipment			1,884,332			2,194,104
Miscellaneous equipment			5,950,203			6,114,629
			555,893,816			540,010,369
Construction in progress and advances related to acquisition of equipment			15,715,083			15,989,495
Property, plant and equipment, net		$	310,512,817		$	321,364,341

 

- 25 -

---

Pursuant to the related regulation, Chunghwa revalued its land owned as of April 30, 2000 based on the publicly announced value on July 1, 1999. These revaluations which have been approved by the Ministry of Auditing resulted in increases in the carrying values of property, plant and equipment of $5,986,074 thousand, liabilities for land value incremental tax of $211,182 thousand, and stockholder’s equity - other adjustments of $5,774,892 thousand.

The amendment to the Land Tax Act, relating to the article to permanently lower land value incremental tax, went effective from February 1, 2005. In accordance with the lowered tax rates, Chunghwa recomputed its land value incremental tax, and reclassified the reserve for land value incremental tax of $116,196 thousand to stockholders’ equity - other adjustments. As of December 31, 2009, the unrealized revaluation increment was decreased to $5,803,446 thousand by disposal of revaluation assets.

Depreciation on property, plant and equipment for the years ended December 31, 2009 and 2008 amounted to $34,891,495 thousand and $36,951,384 thousand, respectively. No interest expense was capitalized for the years ended December 31, 2009 and 2008.

 

16.	ACCRUED EXPENSES

 

		December 31
		2009			2008
Accrued salary and compensation		$	9,285,263		$	8,900,146
Accrued franchise fees			2,224,104			2,368,996
Accrued employees’ bonus and remuneration to directors and supervisors			1,842,140			1,764,807
Other accrued expenses			3,148,553			2,646,653
		$	16,500,060		$	15,680,602

 

17.	OTHER CURRENT LIABILITIES

 

		December 31
		2009			2008
Advances from subscribers		$	6,476,852		$	5,624,497
Payables to contractors			2,229,165			1,546,234
Amounts collected in trust for others			2,160,252			2,446,647
Payables to equipment suppliers			1,528,559			2,250,041
Refundable customers’ deposits			1,043,713			980,622
Miscellaneous			2,494,484			2,598,540
		$	15,933,025		$	15,446,581

 

18.	STOCKHOLDERS’ EQUITY

Under Chunghwa’s Articles of Incorporation, Chunghwa’s authorized capital is $120,000,000,000 which is divided into 12,000,000,000 common shares (at $10 par value per share), among which 9,696,808,181 shares are issued and outstanding as of December 31, 2009.

 

- 26 -

---

On March 28, 2006, the board of directors approved the issuance of the 2 preferred shares, and the MOTC purchased the 2 preferred shares at par value on April 4, 2006. In accordance with the Articles of Incorporation of Chunghwa, the preferred shares would be redeemed by Chunghwa three years from the date of issuance at their par value. These preferred shares expired on April 4, 2009 and were redeemed on April 6, 2009.

For the purpose of privatizing Chunghwa, the MOTC sold 1,109,750 thousand common shares of Chunghwa in an international offering of securities in the form of American Depositary Shares (“ADS”) amounting to 110,975 thousand units (one ADS represents ten common shares) on the New York Stock Exchange on July 17, 2003. Afterwards, the MOTC sold 1,350,682 thousand common shares in the form of ADS amounting to 135,068 thousand units on August 10, 2005. Subsequently, the MOTC and Taiwan Mobile Co., Ltd. sold 505,389 thousand and 58,959 thousand common shares of Chunghwa, respectively, in the form of ADS totally amounting to 56,435 thousand units on September 29, 2006. The MOTC and Taiwan Mobile Co., Ltd. have sold 3,024,780 thousand common shares in the form of ADS amounting to 302,478 thousand units. As of December 31, 2009, the outstanding ADSs were 1,182,888 thousand common shares, which equaled approximately 118,289 thousand units and represented 12.20% of Chunghwa’s total outstanding common shares.

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 can, through deposit agents:

 

a.

Exercise their voting rights,

 

b.

Sell their ADSs, and

 

c.

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

Under the ROC Company Law, additional paid-in capital may only be utilized to offset deficits. For those companies having no deficits, additional paid-in capital arising from capital surplus can be used to increase capital stock and distribute to stockholders in proportion to their ownership at the ex-dividend date. Also, such amounts can only be declared as a stock dividend by Chunghwa at an amount calculated in accordance with the provisions of existing regulations. The combined amount of any portions capitalized each year may not exceed 10 percent of common stock issued. However, where a company undergoes an organizational change (such as a merger, acquisition, or reorganization) that results in the capitalization of undistributed earnings after the organizational change, the above restriction does not apply.

In addition, before distributing a dividend or making any other distribution to stockholders, Chunghwa must pay all outstanding taxes, recover any past losses and set aside a legal reserve equal to 10% of its net income, and depending on its business needs or requirements, may also set aside a special reserve. In accordance with the Articles of Incorporation, no less than 50% of the remaining earnings comprising remaining balance of net income, if any, plus cumulative undistributed earnings shall be distributed in the following order: (a) from 2% to 5% of distributable earnings shall be distributed to employees as employee bonus; (b) no more than 0.2% of distributable earnings shall be distributed to board of directors and supervisors as remuneration; and (c) cash dividends to be distributed shall not be less than 50% of the total amount of dividends to be distributed. If cash dividends to be distributed is less than $0.10 per share, such cash dividend shall be distributed in the form of common shares.

Chunghwa operates in a capital-intensive and technology-intensive industry and requires capital expenditures to sustain its competitive position in high-growth market. Thus, Chunghwa’s dividend policy takes into account future capital expenditure outlays. In this regard, a portion of the earnings may be retained to finance these capital expenditures. The remaining earnings can then be distributed as dividends if approved by the stockholders in the following year and will be recorded in the financial statements of that year.

 

- 27 -

---

For the years ended December 31, 2009 and 2008, the accrual amounts for bonuses to employees and remuneration to directors and supervisors is based on management estimates including past experience and probable amount to be paid in accordance with Chunghwa’s Articles of Incorporation and Implementation Guidance for the Employee’s Bonus Distribution of Chunghwa Telecom Co., Ltd.

If the initial accrual amounts of the aforementioned bonus are significantly different from the amounts proposed by the board of directors, the difference is charged to the earnings of the year making the initial estimate. Otherwise, the difference between initial accrual amounts and the amounts resoluted in the shareholders’ meeting is charged to the earnings of the following year as a result of change of accounting estimate.

Under the ROC Company Law, 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 reaching 50% of the aggregate par value of the outstanding capital stock of Chunghwa, up to 50% of the reserve may, at the option of Chunghwa, be declared as a stock dividend and transferred to capital.

The appropriations and distributions of the 2008 and 2007 earnings of the company have been approved and resolved by the stockholders on June 19, 2009 and June 19, 2008 as follows:

 

		Appropriation and Distribution						Dividend Per Share
		2008			2007			2008			2007
Legal reserve		$	4,127,675		$	4,823,356		$	—		$	—
Special reserve			475			—			—			—
Reversal of special reserve			—			3,304			—			—
Cash dividends			37,138,775			40,716,130			3.83			4.26
Stock dividends			—			955,778			—			0.10
Employee bonus - cash			—			1,303,605			—			—
Employee bonus - stock			—			434,535			—			—
Remuneration to board of directors and supervisors			—			43,454			—			—

The amounts for bonuses to employees and remuneration to directors and supervisors approved in the stockholders’ meeting on June 19, 2009, were $1,629,915 thousand and $38,807 thousand, respectively. The bonus to employees was all settled in cash. The aforementioned approved amounts of the bonus to employees and the remuneration to directors and supervisors were different from the accrual amounts of $1,723,921 thousand and $40,886 thousand, respectively, reflected in the statement of income for the year ended December 31, 2008. The differences of $94,006 thousand and $2,079 thousand, respectively, were treated as change in estimates and were adjusted against earnings for the year ended December 31, 2009.

The stockholders, at a meeting held on June 19, 2009, resolved to transfer capital surplus in the amount of $9,696,808 thousand to common capital stock. The abovementioned 2009 capital increase proposal was effectively registered with FSC. The board of directors authorized the chairman of directors to decide the ex-dividend date of the aforementioned proposal and the chairman decided the ex-dividend date as August 9, 2009.

The stockholders, at the stockholders’ meeting held on June 19, 2009, also resolved to reduce the amount of capital in Chunghwa by a cash distribution to its stockholders in order to improve the financial condition of Chunghwa and better utilize its excess funds. The abovementioned 2009 capital reduction proposal was effectively approved by FSC. The board of directors of Chunghwa further authorized the chairman of board of directors of Chunghwa to designate the record date of capital reduction as of October 26, 2009. Subsequently, common capital stock was reduced by $9,696,808 thousand and the stock transfer date of capital reduction was January 28, 2010. The amount due to stockholders for capital reduction was paid in February 2010.

 

- 28 -

---

The stockholders, at a special meeting held on August 14, 2008, resolved to transfer capital surplus in the amount of $19,115,554 thousand to common capital stock. The abovementioned 2008 capital increase proposal was effectively registered with FSC. The board of directors resolved the ex-dividend date of the aforementioned proposal as October 25, 2008.

The stockholders, at the stockholders’ meeting held on August 14, 2008, also resolved to reduce the amount of capital in Chunghwa by a cash distribution to its stockholders in order to improve the financial condition of Chunghwa and better utilize its excess funds. The capital reduction plan was effected by a transfer of capital surplus in the amount of $19,115,554 thousand to common capital stock and was effectively registered with FSC. Chunghwa designated December 30, 2008 as the record date and March 9, 2009 as the stock transfer date of capital reduction. Subsequently, common capital stock was reduced by $19,115,554 thousand and a liability for the same amount of cash to be distributed to stockholders was recorded. Such cash payment to stockholders was made in March 2009.

The stockholders, at a meeting held on June 15, 2007, resolved to transfer capital surplus in the amount of $9,667,845 thousand to common capital stock, and the capital increase proposal was effectively registered with FSC.

The stockholders, at the stockholders’ meeting held on June 15, 2007, also resolved to reduce the amount of capital in Chunghwa by a cash distribution to its stockholders in order to improve the financial condition of Chunghwa and better utilize its excess funds. The capital reduction plan was effected by a transfer of capital surplus in the amount of $9,667,845 thousand to common capital stock and was effectively registered with FSC. Chunghwa designated October 19, 2007 and December 29, 2007 as the record date and the stock transfer date of capital reduction, respectively. Subsequently, common capital stock was reduced by $9,667,845 thousand and a liability for the actual amount of cash to be distributed to stockholders of $9,557,777 thousand was recorded. The difference between the reduction in common capital stock and the distribution amount represents treasury stock of $110,068 thousand held by Chunghwa and concurrently cancelled. Such cash payment to stockholders was made in January 2008.

The appropriation of Chunghwa’s 2009 earnings has not been resolved by the board of directors as of the report date. Information on the appropriation of Chunghwa’s 2009 earnings, employee bonus and remuneration to directors and supervisors resolved by the board of directors and approved by the stockholders will be available at the Market Observation Post System website.

 

19.	TREASURY STOCK (COMMON STOCK IN THOUSANDS OF SHARES)

 

		Year Ended December 31
		2009		2008
Balance, beginning of year				110,068
Decrease		—		(110,068	)
Balance, end of year		—		—

According to the Securities and Exchange Act of the ROC, total shares of treasury stock shall not exceed 10% of Chunghwa’s stock issued. The total amount of the repurchased shares shall not be more than the total amount of retained earnings, capital surplus and realized additional paid-in capital. The Company shall neither pledge treasury stock nor exercise stockholders’ rights on these shares, such as rights to dividends and to vote.

In order to maintain its credit and stockholders’ equity, Chunghwa repurchased 121,075 thousand shares of treasury stock for $7,217,562 thousand from August 29, 2007 to October 25, 2007. On December 29, 2007, Chunghwa cancelled 11,007 thousand shares of treasury stock by reducing common stock of $110,068 thousand. The remaining of 110,068 thousand shares of treasury stock amounted to $7,107,494 thousand was cancelled on February 21, 2008.

 

- 29 -

---

20.	COMPENSATION, DEPRECIATION AND AMORTIZATION EXPENSES

 

		Year Ended December 31, 2009
		Operating Costs			Operating Expenses			Total
Compensation expense
Salaries		$	12,124,805		$	8,238,199		$	20,363,004
Insurance			965,506			664,339			1,629,845
Pension			1,494,350			1,068,898			2,563,248
Other compensation			8,750,957			5,937,562			14,688,519
		$	23,335,618		$	15,908,998		$	39,244,616
Depreciation expense		$	33,018,154		$	1,873,341		$	34,891,495
Amortization expense		$	922,276		$	158,308		$	1,080,584
		Year Ended December 31, 2008
		Operating Costs			Operating Expenses			Total
Compensation expense
Salaries		$	12,108,552		$	8,282,400		$	20,390,952
Insurance			900,020			617,331			1,517,351
Pension			1,606,127			1,181,250			2,787,377
Other compensation			8,472,465			5,766,107			14,238,572
		$	23,087,164		$	15,847,088		$	38,934,252
Depreciation expense		$	34,925,146		$	2,026,238		$	36,951,384
Amortization expense		$	880,086		$	136,596		$	1,016,682

 

21.	INCOME TAX

 

a.

A reconciliation between income tax expense computed by applying the statutory income tax rate to income before income tax and income tax payable is as follows:

 

		Year Ended December 31
		2009				2008
Income tax expense computed at statutory income tax rate		$	14,040,845			$	14,618,206
Add (deduct) tax effects of:
Permanent differences			(167,558	)			(135,085	)
Temporary differences			(1,012,153	)			325,840
10% undistributed earning tax			6,441				—
Investment tax credits			(1,422,308	)			(1,502,112	)
Income tax payable		$	11,445,267			$	13,306,849

The balance of income tax payable as of December 31, 2009 and 2008 was shown net of prepaid income tax.

 

- 30 -

---

b.

Income tax expense consists of the following:

 

		Year Ended December 31
		2009				2008
Income tax payable		$	11,445,267			$	13,306,849
Income tax - separated			62,278				296,901
Income tax - deferred			1,092,773				(178,971	)
Adjustments of prior years’ income tax			(194,323	)			37,744
		$	12,405,995			$	13,462,523

In May 2009, the Legislative Yuan passed the amendment of Article 5 of the Income Tax Law, which reduces the income tax rate of profit-seeking enterprises from 25% to 20% since 2010. The Company recalculated its deferred income tax assets and liabilities in accordance with the amended Article and recorded the resulting difference as an income tax expense or benefit.

 

c.

Net deferred income tax assets (liabilities) consists of the following:

 

		December 31
		2009				2008
Current
Provision for doubtful accounts		$	349,890			$	478,196
Unrealized accrued expense			50,128				22,384
Abandonment of equipment not approved by National Tax Administration			4,628				40,239
Unrealized foreign exchange loss (gain)			2,850				(35,568	)
Valuation (gain) loss on financial instruments, net			(9,181	)			13,696
Other			12,275				23,460
			410,590				542,407
Valuation allowance			(349,890	)			(478,196	)
Net deferred income tax assets-current		$	60,700			$	64,211
Noncurrent
Accrued pension cost		$	336,167			$	1,407,460
Impairment loss			62,256				80,225
Net deferred income tax assets-noncurrent		$	398,423			$	1,487,685

 

d.

The related information under the Integrated Income Tax System is as follows:

 

		December 31
		2009			2008
Balance of Imputation Credit Account (“ICA”)		$	7,429,628		$	7,285,595

The actual and the estimated creditable ratios distribution of Chunghwa’s 2008 and 2009 for earnings were 30.61% and 26.50%, respectively. The imputation credit allocated to stockholders is based on its balance as of the date of dividend distribution. The estimated creditable ratio may change when the actual distribution of imputation credit is made.

 

e.

Undistributed earnings information

All Chunghwa’s earnings generated prior to June 30, 1998 have been appropriated.

 

- 31 -

---

Chunghwa’s income tax returns have been examined by tax authorities through 2005.

 

22.	EARNINGS PER SHARE

EPS was calculated as follows:

 

		Amount (Numerator)								Weighted- average Number of Common Shares		Earnings Per Share (Dollars)
		Income Before Income Tax				Net Income				Outstanding (Thousand) (Denominator)		Income Before Income Tax			Net Income
Year ended December 31, 2009
Basic EPS:
Income attributable to stockholders		$	56,163,421			$	43,757,426			9,696,808		$	5.79		$	4.51
Effect of dilutive potential common stock
SENAO’s stock options			(7,707	)			(7,707	)		—
Employee bonus			—				—			28,806
Diluted EPS
Income attributable to stockholders (including effect of dilutive potential common stock)		$	56,155,714			$	43,749,719			9,725,614		$	5.77		$	4.50
Year ended December 31, 2008
Basic EPS:
Income attributable to stockholders		$	58,472,865			$	45,010,342			9,696,808		$	6.03		$	4.64
Effect of dilutive potential common stock
SENAO’s stock options			(13,775	)			(13,775	)		—
Employee bonus			—				—			20,681
Diluted EPS
Income attributable to stockholders (including effect of dilutive potential common stock)		$	58,459,090			$	44,996,567			9,717,489		$	6.02		$	4.63

In March 2007, the ARDF issued an Interpretation 96-052 that requires companies to recognize bonuses paid to employees, directors and supervisors as an expense rather than an appropriation of earnings beginning from January 1, 2008. According to the Interpretation 97-169 issued by ARDF in May 2008, Chunghwa presumed that the employees bonuses to be paid will be settled in shares and takes those shares into consideration when calculating the weighted average number of outstanding shares used in the calculation of diluted EPS if the shares have a dilutive effect for the years ended December 31, 2009 and 2008. The number of shares is calculated by dividing the amount of bonuses by the closing price of the Chunghwa’s shares of the balance sheet date. The dilutive effect of the shares needs to be considered until the stockholders resolve the number of shares to be distributed to employees in their meeting in the following year.

The diluted earnings per share for the years ended December 31, 2009 and 2008 were due to the effect of potential common stock of stock options issued by SENAO.

 

- 32 -

---

23.	PENSION PLAN

Chunghwa completed privatization plans on August 12, 2005. Chunghwa is required to pay all accrued pension obligations including service clearance payment, lump sum payment under civil service plan, additional separation payments, etc. upon the completion of the privatization in accordance with the Statute Governing Privatization of Stated-owned Enterprises. After paying all pension obligations for privatization, the plan assets of Chunghwa should be transferred to the Fund for Privatization of Government-owned Enterprises (the “Privatization Fund”) under the Executive Yuan. On August 7, 2006, Chunghwa transferred the remaining balance of fund to the Privatization Fund. However, according to the instructions of MOTC, Chunghwa would, on behalf of the MOTC, pay all accrued pension obligations including service clearance payment, lump sum payment under civil service plan, additional separation payments, etc. upon the completion of the privatization.

The pension plan under the Labor Pension Act of ROC (the “LPA”) is effective beginning July 1, 2005 and this pension mechanism is considered as a defined contribution plan. Based on the LPA, Chunghwa makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

Chunghwa’s pension plan is considered as a defined benefit plan under the Labor Standards Law that provide benefits based on an employee’s length of service and average six-month salary prior to retirement. Chunghwa contributes an amount at 15% or less of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the names of the Committees in the Bank of Taiwan.

The Company used December 31 as the measurement date for their pension plans.

Pension costs of Chunghwa were $2,855,647 thousand ($2,732,388 thousand subject to defined benefit plan and $123,259 thousand subject to defined contribution plan) and $2,871,428 thousand ($2,774,274 thousand subject to defined benefit plan and $97,154 thousand subject to defined contribution plan) for the years ended December 31, 2009 and 2008, respectively.

Pension information of the defined benefit plan was summarized as follows:

 

a.

Components of net periodic pension cost

 

		Year Ended December 31
		2009				2008
Service cost		$	2,693,006			$	2,658,562
Interest cost			184,279				185,873
Expected return on plan assets			(140,875	)			(82,006	)
Amortization of unrecognized loss			(4,022	)			(2,529	)
Curtailment/settlement loss to be recognized			—				14,374
		$	2,732,388			$	2,774,274

 

- 33 -

---

b.

Reconciliation between the fund status and accrued pension cost is summarized as follows:

 

		December 31
		2009				2008
Benefit obligation
Vested benefit obligation		$	(7,440,999	)		$	(5,658,116	)
Non-vested benefit obligation			(3,156,229	)			(2,832,135	)
Accumulated benefit obligation			(10,597,228	)			(8,490,251	)
Additional benefit obligation			(1,387,020	)			(930,915	)
Projected benefit obligation			(11,984,248	)			(9,421,166	)
Fair values of plan assets			10,787,564				4,282,694
Funded status			(1,196,684	)			(5,138,472	)
Unrecognized prior service cost effect			(45,754	)			(49,776	)
Amortization of unrecognized net loss (gain)			34,481				23,860
Accrued pension liabilities		$	(1,207,957	)		$	(5,164,388	)
c.        Vested benefit		$	10,635,994			$	7,664,921
d.        Actuarial assumptions
Discount rate used in determining present value			2.00	%			2.00	%
Rate of compensation increase			1.00	%			1.00	%
Rate of return on plan assets			1.50	%			2.50	%

 

e.

Contributions and payments of the Fund

 

		Year Ended December 31
		2009			2008
Contributions		$	6,645,316		$	1,515,234
Payments		$	177,500		$	99,293

 

24.	TRANSACTIONS WITH RELATED PARTIES

The ROC Government, one of Chunghwa’s customers held 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 and other state-owned enterprises in the normal course of business and at arm’s-length prices. The information on service revenues from government bodies and related organizations have not been provided because details of the type of transactions were not summarized by Chunghwa. Chunghwa believes that all costs of doing business are reflected in the financial statements.

 

a.

Chunghwa engages in business transactions with the following related parties:

 

Company		Relationship
Senao International Co., Ltd. (“SENAO”)		Subsidiary
Light Era Development Co., Ltd. (“LED”)		Subsidiary
Chunghwa Telecom Singapore Pte., Ltd. (“CHTS”)		Subsidiary
CHIEF Telecom, Inc. (“CHIEF”)		Subsidiary
InfoExplorer Co., Ltd. (“IFE”)		Subsidiary
Chunghwa Telecom Japan Co., Ltd. (“CHTJ”)		Subsidiary
Chunghwa International Yellow Pages Co., Ltd. (“CIYP”)		Subsidiary

(Continued)

 

- 34 -

---

Company		Relationship
Chunghwa System Integration Co., Ltd. (“CHSI”)		Subsidiary
Spring House Entertainment Inc. (“SHE”)		Subsidiary
Chunghwa Telecom Global, Inc. (“CHTG”)		Subsidiary
Donghwa Telecom Co., Ltd. (“DHT”)		Subsidiary
New Prospect Investments Holdings Ltd. (B.V.I.) (“New Prospect”)		Subsidiary
Prime Asia Investments Group Ltd. (B.V.I.) (“Prime Asia”)		Subsidiary
Chunghwa Investment Co., Ltd. (“CHI”)		Equity-method investee before Chunghwa obtained control over CHI on September 9, 2009
Chunghwa Investment Holding Company (“CIHC”)		Subsidiary of CHI before Chunghwa obtained control over CHI on September 9, 2009
Chunghwa Precision Test Tech. Co., Ltd. (“CHPT”)		Subsidiary of CHI before Chunghwa obtained control over CHI on September 9, 2009
Unigate Telecom Inc. (“Unigate”)		Subsidiary of CHIEF
CHIEF Telecom (Hong Kong) Limited (“CHK”)		Subsidiary of CHIEF
Chief International Corp. (“CIC”)		Subsidiary of CHIEF
Concord Technology Co., Ltd. (“Concord”)		Subsidiary of CHSI
Glory Network System Service (Shanghai) Co., Ltd. (“Glory”)		Subsidiary of Concord
Senao International (Samoa) Holding Ltd. (SIS)		Subsidiary of SENAO
Senao International HK Limited (SIHK)		Subsidiary of SENAO
CHI One Investment Co., Ltd. (“COI”)		Subsidiary of CHI
Taiwan International Standard Electronics Co., Ltd. (“TISE”)		Equity-method investee
So-net Entertainment Taiwan (“So-net”)		Equity-method investee
Skysoft Co., Ltd. (“SKYSOFT”)		Equity-method investee
Senao Networks, Inc. (“SNI”)		Equity-method investee of SENAO
ELTA Technology Co., Ltd. (“ELTA”)		Equity-method investee before Chunghwa sold all shares in July 2008

(Concluded)

 

b.

Significant transactions with the above related parties are summarized as follows:

 

		December 31
		2009					2008
		Amount			%		Amount			%
1)      Receivables
Trade notes and accounts receivable
SENAO		$	261,458		68		$	178,878		52
CHSI			29,422		8			41,256		12
CHIEF			23,660		6			20,906		6
CIYP			22,899		6			38,782		11
CHTG			20,399		5			18,618		5
DHT			10,112		3			9,155		3
SHE			7,706		2			10,863		3
CHTJ			3,780		1			—		—
LED			—		—			22,566		7
Others			3,782		1			1,992		1
		$	383,218		100		$	343,016		100

 

- 35 -

---

		December 31
		2009					2008
		Amount			%		Amount			%
2)      Payables
Trade notes payable, accounts payable and accrued expenses
SENAO		$	616,052		33		$	606,990		27
CHSI			426,674		23			628,485		28
TISE			271,290		14			492,883		22
CIYP			88,527		5			35,198		2
CHIEF			51,554		3			34,215		2
DHT			39,284		2			17,063		1
CHTG			31,014		2			14,867		1
SKYSOFT			14,218		1			—		—
IFE			11,382		—			—		—
SHE			3,025		—			14,782		—
Others			6,830		—			2,947		—
			1,559,850		83			1,847,430		83
Payables to contractors
TISE			42,309		2			26,188		1
CHSI			449		—			53,502		2
			42,758		2			79,690		3
Amounts collected in trust for others
SENAO			247,091		13			244,291		11
CIYP			23,033		2			61,273		3
Others			2,985		—			4,235		—
			273,109		15			309,799		14
		$	1,875,717		100		$	2,236,919		100
		Year Ended December 31
		2009					2008
		Amount			%		Amount			%
3)      Revenues
SENAO		$	999,821		1		$	1,634,017		1
CHIEF			229,335		—			208,227		—
So-net			60,227		—			—		—
CHTG			59,288		—			140,416		—
CHSI			34,879		—			32,865		—
SKYSOFT			34,485		—			32,738		—
CIYP			19,168		—			23,499		—
IFE			14,336		—			—		—
CHTS			12,794		—			—		—
CHTJ			10,291		—			—		—
CHPT			6,641		—			6,743		—
ELTA			—		—			9,831		—
Others			15,481		—			11,047		—
		$	1,496,746		1		$	2,099,383		1

 

- 36 -

---

		Year Ended December 31
		2009					2008
		Amount			%		Amount			%
4)      Operating costs and expenses
SENAO		$	5,172,852		5		$	6,667,907		5
TISE			481,743		—			538,389		—
CHSI			441,564		—			401,740		—
CHIEF			309,498		—			207,345		—
IFE			111,190		—			—		—
CIYP			84,334		—			50,679		—
SHE			83,868		—			51,836		—
CHTG			67,139		—			41,122		—
SKYSOFT			21,870		—			—		—
DHT			14,196		—			8,599		—
CHTS			13,613		—			—		—
ELTA			—		—			189,744		—
Others			14,997		—			14,482		—
		$	6,816,864		5		$	8,171,843		5
5)      Acquisition of property, plant and equipment
TISE		$	1,336,564		6		$	849,985		3
CHSI			771,878		3			1,388,118		5
CHTG			21,770		—			56,740		—
IFE			16,857		—			—		—
SENAO			268		—			1,701		—
SNI			—		—			355		—
		$	2,147,337		9		$	2,296,899		8

Chunghwa sold the land with a carrying value of $936,016 thousand to Light Era Development Co., Ltd. (“LED”) at the price of $2,421,932 thousand during the year ended December 31, 2008. However, since the gain on disposal of land amounting to $1,485,916 thousand is unrealized, the gain was recognized as deferred credit - profit on intercompany transactions, and will not be recognized as revenue till the gain is realized in the future.

Chunghwa sold the land with a carrying value of $378,927 thousand to LED at price of $207,030 thousand in 2008 and resulted in a disposal loss amounting to $171,897 thousand. The disposal loss on land is unrealized and the unrealized loss is included in other assets - other. The unrealized loss is not recognized in earnings until it is sold to the third party and realized in the future.

The foregoing transactions with related parties were conducted as arm’s length transactions, except for the transactions with SENAO, CHIEF, CIYP, LED, and IFE were determined in accordance with mutual agreements.

 

- 37 -

---

c.

The compensation of directors, supervisors and managements is showed as follows:

 

		Year Ended December 31
		2009			2008
Salaries		$	51,019		$	48,355
Compensations			40,123			35,978
Bonus			47,168			48,238
		$	138,310		$	132,571

 

25.	SIGNIFICANT COMMITMENTS AND CONTINGENCIES

As of December 31, 2009, Chunghwa’s remaining commitments under non-cancelable contracts with various parties were as follows:

 

a.

Acquisition of land and buildings of $229,522 thousand.

 

b.

Acquisition of telecommunications equipment of $18,006,427 thousand.

 

c.

Contract to print billing, envelopes and marketing gifts of $60,111 thousand.

 

d.

Chunghwa also has non-cancelable operating leases covering certain buildings, computers, computer peripheral equipment and operating system software under contracts that expire in various years. Future lease payments were as follows:

 

		Rental Amount
2010		$	1,662,451
2011			1,369,972
2012			930,086
2013			601,089
2014 and thereafter			444,485

 

e.

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 long-term investment - other monetary assets). If the fund is not sufficient, Chunghwa will contribute the remaining $1,000,000 thousand upon notification from the Taipei City Government. Based on Chunghwa’s understanding of the Piping Fund terms, if the 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. Chunghwa does not know when its contribution to the Piping Fund will be returned; therefore, Chunghwa did not discount the face amount of its contribution on the Piping Fund.

 

f.

A portion of the land used by Chunghwa during the period July 1, 1996 to December 31, 2004 was co-owned by Chunghwa and Chunghwa Post Co., Ltd. (the former Chunghwa Post Co., Ltd. directorate General of Postal Service). In accordance with the claims process in Taiwan, on July 12, 2005, the Taiwan Taipei District Court sent a claim notice to Chunghwa to reimburse Chunghwa Post Co., Ltd. in the amount of $767,852 thousand for land usage compensation due to the portion of land usage area in excess of Chunghwa’s ownership and along with interest calculated at 5% interest rate from June 30, 2005 to the payment date. Chunghwa stated that both parties have the right to use co-management land without consideration. Chunghwa Post Co., Ltd. can’t request payment for land compensation. Furthermore, Chunghwa believes that the computation used to derive the land usage compensation amount is inaccurate because most of the compensation amount has expired as result of the expiration clause. Therefore, Chunghwa has filed an appeal at the Taiwan Taipei District Court. On March 30, 2009, the Taiwan Taipei District Court rendered its judgment that Chunghwa only need to pay $16,870 thousand along with interest calculated at 5% per annum from July 23, 2005 and 4% of the court fees as the court judgment compensation. However, Chunghwa Post Co., Ltd. did not accept the judgment and filed an appeal at Taiwan High Court. Chunghwa also filed an appeal at the Taiwan High Court within the statutory period. As of the date of the audit report, the appeal is still in process.

 

- 38 -

---

g.

Giga Media filed a civil action against Chunghwa with the Taiwan Taipei District Court (the “Court”) on June 12, 2008. The complaint alleged that Chunghwa infringed Giga Media’s ROC Patent No. I 258284 which is a Point-to-Point Protocol over Ethernet (“PPPoE”) technique used to launch fixed IP of ADSL. Giga Media is seeking damages of $500,000 thousand and interest calculated at 5% for the period from one day following the date Chunghwa received the official notification from the Court to the payment date. Giga Media withdrew this civil action on October 2, 2009.

 

26.	FAIR VALUE OF FINANCIAL INSTRUMENTS

 

a.

Carrying amounts and fair value of financial instruments were as follows:

 

		December 31
		2009						2008
		Carrying Amount			Fair Value			Carrying Amount			Fair Value
Assets
Cash and cash equivalents		$	68,393,379		$	68,393,379		$	77,137,903		$	77,137,903
Financial assets at fair value through profit or loss			6,677			6,677			258,076			258,076
Available-for-sale financial assets			16,684,380			16,684,380			14,161,391			14,161,391
Held-to-maturity financial assets - current			1,099,595			1,099,595			769,435			769,435
Trade notes and accounts receivable, net			11,065,325			11,065,325			10,190,150			10,190,150
Receivables from related parties			383,218			383,218			343,016			343,016
Other current monetary assets			1,771,949			1,771,949			2,187,324			2,187,324
Investments accounted for using equity method			10,170,504			12,287,033			8,691,154			9,620,760
Financial assets carried at cost			2,226,048			2,226,048			2,521,907			2,521,907
Held-to-maturity financial assets - noncurrent			3,929,662			3,929,662			3,044,102			3,044,102
Other noncurrent monetary assets			1,000,000			1,000,000			1,000,000			1,000,000
Refundable deposits			1,408,706			1,408,706			1,282,539			1,282,539
Liabilities
Financial liabilities at fair value through profit or loss			—			—			106,896			106,896
Trade notes and accounts payable			8,346,932			8,346,932			9,349,489			9,349,489
Payables to related parties			1,875,717			1,875,717			2,236,919			2,236,919
Accrued expenses			16,500,060			16,500,060			15,680,602			15,680,602
Due to stockholders for capital reduction			9,696,808			9,696,808			19,115,554			19,115,554
Payables to contractors (included in “other current liabilities”)			2,229,165			2,229,165			1,546,234			1,546,234
Amounts collected in trust for others (included in “other current liabilities”)			2,160,252			2,160,252			2,446,647			2,446,647
Payables to equipment suppliers (included in “other current liabilities”)			1,528,559			1,528,559			2,250,041			2,250,041
Refundable customers’ deposits (included in “other current liabilities”)			1,043,713			1,043,713			980,622			980,622
Hedging derivative financial liabilities (included in “other current liabilities”)			—			—			27,616			27,616
Customers’ deposits			5,940,403			5,940,403			6,098,605			6,098,605

 

- 39 -

---

b.

Methods and assumptions used in the estimation of fair values of financial instruments:

 

1)

The fair values of certain financial instruments recognized in the balance sheet generally correspond to the market prices of the financial assets. Because of the short maturities of these instruments, the carrying value represents a reasonable basis to estimate fair values. This method does not apply to the financial instruments discussed in Notes 2 and 3 below.

 

2)

If the financial instruments have quoted market prices in an active market, the quoted market prices are viewed as fair values. If the market prices of the other financial instruments are not readily available, valuation techniques are used incorporating estimates and assumptions that are consistent with prevailing market conditions.

 

3)

Long-term investments are based on the net asset values or carrying values of the investments in investees, if quoted market prices are not available.

 

c.

Fair values of financial assets and liabilities using quoted market prices or valuation techniques were as follow:

 

		Amount Based on Quoted Market Price						Amount Determined Using Valuation Techniques
		December 31						December 31
		2009			2008			2009			2008
Assets
Financial assets at fair value through profit or loss		$	6,677		$	258,076		$	—		$	—
Available-for-sale financial assets			16,684,380			14,161,391			—			—
Liabilities
Financial liabilities at fair value through profit or loss			—			106,896			—			—
Hedging derivative financial liabilities (classified as other current liabilities)			—			27,616			—			—

 

d.

Information about financial risks

 

1)

Market risk

The foreign exchange rate fluctuations would result in Chunghwa’s foreign-currency-dominated assets and liabilities, outstanding currency swap contracts, and forward exchange contracts exposed to rate risk.

The fluctuations of market price would result in the index future contracts exposed to price risk.

The financial instruments categorized as available-for-sale financial assets are mainly listed stocks and open-end mutual funds. Therefore, the market risk is the fluctuations of market price. In order to manage this risk, Chunghwa would assess the risk before investing; therefore, no material market risk are anticipated.

 

2)

Credit risk

Credit risk represents the potential loss that would be incurred by Chunghwa if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The counter-parties or third-parties of the aforementioned financial instruments are reputable financial institutions and corporations. Management does not expect Chunghwa’s exposure to default by those parties to be material.

 

- 40 -

---

3)

Liquidation risk

Chunghwa has sufficient operating capital to meet cash needs upon settlement of derivative financial instruments. Therefore, the liquidation risk is low.

The financial instruments of the Company categorized as available-for-sale financial assets are publicly-traded, easily converted to cash. Therefore, no material liquidation risks are anticipated. The financial instruments categorized as financial assets carried at cost are investments that do not have a quoted market price in an active market. Therefore, material liquidation risks are anticipated.

 

4)

Cash flow interest rate risk

The Company engages in investments in fixed-interest-rate debt securities. Therefore, cash flows from such securities are not expected to fluctuate significantly due to changes in market interest rates.

In addition, the Company engages in investments in floating-interest-rate debt securities. The changes in market interest rate would impact the floating-interest rate; therefore, cash flows from such securities are expected to fluctuate due to changes in market interest rates.

 

e.

Fair value hedge

Chunghwa entered into currency swap contracts and forward exchange contracts to hedge the fluctuation in exchange rates of beneficiary certificate denominated in foreign currency, which is fair value hedge. The transaction was assessed as highly effective for the year ended December 31, 2009 and 2008.

None of the hedge currency swap contracts and forward exchange contracts existed as of December 31, 2009.

Outstanding forward exchange contracts for hedge as of December 31, 2008:

 

		Currency		Maturity Date		Contract Amount (In Thousands)
Forward exchange contracts - sell		USD/NTD		2009.01		US$	30,000

As of December 31, 2008, the forward exchange contract measured at fair value resulting in hedging derivative financial liability of $27,616 thousand (classified as other current liabilities).

According to the regulations of Securities and Futures Bureau, Chunghwa should disclose the derivative transactions of Chunghwa’s investees, SENAO, which was as follows:

 

1)

Holding period and contract amounts

SENAO entered into a forward exchange contract for the years ended December 31, 2009 and 2008 to reduce the exposure to foreign currency risk.

 

- 41 -

---

Outstanding forward exchange contracts as of December 31, 2009 and 2008:

 

		Currency		Maturity Date		Contract Amount (In Thousands)
December 31, 2009
Buy		NTD/USD		2010.01		NT$	86,657
December 31, 2008
Buy		NTD/USD		2009.01		NT$	131,412

 

2)

Market risk

The foreign exchange rate fluctuations would result in SENAO’s foreign-currency-dominated assets and liabilities and open forward exchange contracts exposed to rate risk.

 

3)

Credit risk

Credit risk represents the potential loss that would be incurred by SENAO if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The counter-parties or third-parties to the aforementioned financial instruments are reputable financial institutions. Management does not expect SENAO’s exposure to default by those parties to be material.

 

4)

Liquidation risk

SENAO has sufficient operating capital to meet cash needs upon settlement of derivative financial instruments. Therefore, the liquidation risk is low.

 

27.	ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFC for Chunghwa and its investees:

 

a.

Financing provided:    Please see Table 1.

 

b.

Endorsement/guarantee provided:    None.

 

c.

Marketable securities held:    Please see Table 2.

 

d.

Marketable securities acquired and disposed of at costs or prices at least $100 million or 20% of the paid-in capital:    Please see Table 3.

 

e.

Acquisition of individual real estate at costs of at least $100 million or 20% of the paid-in capital:    Please see Table 4.

 

f.

Disposal of individual real estate at prices of at least $100 million or 20% of the paid-in capital:    None.

 

g.

Total purchase from or sale to related parties amounting to at least $100 million or 20% of the paid-in capital:    Please see Table 5.

 

h.

Receivables from related parties amounting to $100 million or 20% of the paid-in capital:    Please see Table 6.

 

- 42 -

---

i.

Names, locations, and other information of investees on which Chunghwa exercises significant influence:    Please see Table 7.

 

j.

Financial transactions:    Please see Notes 5 and 26.

 

k.

Investment in Mainland China:    Please see Table 8.

 

28.	SEGMENT FINANCIAL INFORMATION

 

a.

Segment information:    Please see Table 9.

 

b.

Products and service revenues from external customer information:    Please see Table 10.

 

c.

Geographic information

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

 

		Year Ended December 31
		2009			2008
Taiwan, ROC		$	179,088,884		$	181,871,706
Overseas			4,951,388			4,908,944
		$	184,040,272		$	186,780,650

The Company does not have material non-current assets in foreign operations for the year ended December 31, 2009.

 

d.

Major customers’ information

For the years ended December 31, 2009 and 2008, the Company did not have any single customer whose net revenue exceeded 10% of the total net revenues.

 

- 43 -

---

TABLE 1

CHUNGHWA TELECOM CO., LTD.

FINANCINGS PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 2009

(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

No.

Financing

Counter-

Financial Statement

Maximum Balance for

Ending

Interest Rate

Type of Financing

Transaction

Reason for Short-term

Allowance for Bad

Collateral

Financing Limit for Each Borrowing Company

Financing Company’s Financing Amount Limit

Company

party

Account

the Year

Balance

(Note 5)

(Note 2)

Amount

Financing

Debt

Item

Value

(Note 3)

(Note 4)

9

Chunghwa Telecom Singapore Pte., Ltd.

ST-2 Satellite Ventures Pte., Ltd.

Other receivables

$ (SG$

546,167 23,913

)

$ (SG$

546,167 23,913

)

6.38

%

a

(Note 6)

—

$

—

—

$

—

$ (SG$

1,407,519 61,625

)

$ (SG$

1,407,519 61,625

)

 

Note 1:		Significant transactions between the Company and its subsidiaries or among subsidiaries are numbered as follows:
		a.      “0” for the Company.
		b.      Subsidiaries are numbered from “1”.
Note 2:		Reasons for financing are as follows:
		a.      Business relationship.
		b.      For short-term financing.
Note 3:		The upper limit of loans lending to any other party is no more than 100% of the net value of the latest financial statements of the lender.
Note 4:		The upper limit of loans lending to all other parties is no more than 100% of the net value of the latest financial statements of the lender.
Note 5:		It equals to the prime rate of Singapore plus 1%
Note 6:		Chunghwa Telecom Singapore Pte., Ltd. signed the joint venture contract with SingTelSat Pte., Ltd. to establish ST-2 Satellite Ventures Pte., Ltd. which mainly engages in the installation and the operation of ST-2 telecommunications satellite. In the contract, it stated that Chunghwa Telecom Singapore Pte., Ltd. is obligated to rent the ST-2 telecommunications satellite from ST-2 Satellite Ventures Pte., Ltd. when the satellite is accomplished.

 

- 44 -

---

TABLE 2

CHUNGHWA TELECOM CO., LTD.

MARKETABLE SECURITIES HELD

DECEMBER 31, 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)

 

 

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009												Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)				Percentage of Ownership		Market Value or Net Asset Value
0		Chunghwa Telecom Co., Ltd.		Stocks
				Senao International Co., Ltd.		Subsidiary		Investments accounted for using equity method		71,773		$	1,331,859			29		$	3,452,289			Note 5
				Light Era Development Co., Ltd.		Subsidiary		Investments accounted for using equity method		300,000			2,926,677			100			2,927,108			Note 1
				Chunghwa Investment Co., Ltd.		Subsidiary		Investments accounted for using equity method		178,000			1,651,391			89			1,723,733			Note 1
				Chunghwa Telecom Singapore Pte. Ltd.		Subsidiary		Investments accounted for using equity method		61,869			1,407,519			100			1,407,519			Note 1
				Chunghwa System Integration Co., Ltd.		Subsidiary		Investments accounted for using equity method		60,000			706,932			100			625,409			Note 1
				CHIEF Telecom Inc.		Subsidiary		Investments accounted for using equity method		37,942			447,647			69			396,688			Note 1
				Taiwan International Standard Electronics Co., Ltd.		Equity-method investee		Investments accounted for using equity method		1,760			427,810			40			635,946			Note 1
				InfoExplorer Co., Ltd.		Subsidiary		Investments accounted for using equity method		22,498			276,472			49			227,865			Note 1
				Viettel-CHT Co., Ltd.		Equity-method investee		Investments accounted for using equity method		—			269,924			30			269,924			Note 1
				Donghwa Telecom Co., Ltd.		Subsidiary		Investments accounted for using equity method		51,590			230,528			100			230,528			Note 1
				Chunghwa International Yellow Pages Co., Ltd.		Subsidiary		Investments accounted for using equity method		15,000			171,986			100			171,986			Note 1
				Skysoft Co., Ltd.		Equity-method investee		Investments accounted for using equity method		4,438			89,913			30			50,546			Note 1
				KingWay Technology Co., Ltd.		Equity-method investee		Investments accounted for using equity method		1,703			69,913			33			18,917			Note 1
				Chunghwa Telecom Global, Inc.		Subsidiary		Investments accounted for using equity method		6,000			63,752			100			83,537			Note 1
				Spring House Entertainment Inc.		Subsidiary		Investments accounted for using equity method		5,996			57,095			56			41,806			Note 1
				So-net Entertainment Taiwan		Equity-method investee		Investments accounted for using equity method		3,429			30,920			30			13,066			Note 1
				Chunghwa Telecom Japan Co., Ltd.		Subsidiary		Investments accounted for using equity method		1			10,166			100			10,166			Note 1
				New Prospect Investments Holdings Ltd. (B.V.I.)		Subsidiary		Investments accounted for using equity method		—		(US$	1 dollar	)		100		(US$	1 dollar	)		Note 3
				Prime Asia Investments Group Ltd. (B.V.I.)		Subsidiary		Investments accounted for using equity method		—		(US$	1 dollar	)		100		(US$	1 dollar	)		Note 3
				Taipei Financial Center		—		Financial assets carried at cost		172,927			1,789,530			12			1,358,652			Note 2
				Industrial Bank of Taiwan II Venture Capital Co., Ltd. (IBT II)		—		Financial assets carried at cost		20,000			200,000			17			223,065			Note 2
				Global Mobile Corp.		—		Financial assets carried at cost		12,696			127,018			11			109,111			Note 2
				iD Branding Ventures		—		Financial assets carried at cost		7,500			75,000			8			81,292			Note 2
				PRTI International		—		Financial assets carried at cost		4,765			34,500			10			35,515			Note 2
				Essence Technology Solution, Inc.		—		Financial assets carried at cost		2,000			—			9			2,882			Note 2
				Beneficiary certificates (mutual fund)
				PCA Well Pool Fund		—		Available-for-sale financial assets		194,181			2,500,000			—			2,521,126			Note 4
				Yuan Ta Wan Tai Bond Fund		—		Available-for-sale financial assets		173,683			2,500,000			—			2,513,121			Note 4
				Central Diamond Bond Fund		—		Available-for-sale financial assets		126,106			1,500,000			—			1,504,586			Note 4
				Polaris De-Li		—		Available-for-sale financial assets		129,654			2,008,787			—			2,021,960			Note 4
				Fuh-Hwa Bond Fund		—		Available-for-sale financial assets		108,849			1,500,000			—			1,503,777			Note 4
				JPM (Taiwan) Global Balanced Fund		—		Available-for-sale financial assets		14,161			200,000			—			207,434			Note 4
				JPM (Taiwan) JF Balanced Fund		—		Available-for-sale financial assets		2,462			50,000			—			49,538			Note 4

(Continued)

 

- 45 -

---

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009										Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)			Percentage of Ownership		Market Value or Net Asset Value
				Fuh-Hwa Aegis Fund		—		Available-for-sale financial assets		17,813		$	234,684		—		$	234,439		Note 4
				AGI Global Quantitative Balanced Fund		—		Available-for-sale financial assets		17,000			197,821		—			196,180		Note 4
				Capital Value Balance Fund		—		Available-for-sale financial assets		8,000			141,776		—			139,231		Note 4
				Fuh Hwa Life Goal Fund		—		Available-for-sale financial assets		9,330			140,000		—			159,575		Note 4
				Fuh Hwa Asia Pacific Balanced		—		Available-for-sale financial assets		7,764			100,000		—			89,907		Note 4
				Asia-Pacific Mega - Trend Fund		—		Available-for-sale financial assets		15,074			200,000		—			193,694		Note 4
				PCA Asia Pacc Infrastructure Fund		—		Available-for-sale financial assets		3,061			30,000		—			30,850		Note 4
				AIG Flagship Global Balanced Fund of Funds		—		Available-for-sale financial assets		25,679			350,000		—			348,723		Note 4
				Franklin Templeton Global Bond Fund of Funds		—		Available-for-sale financial assets		14,000			158,018		—			175,307		Note 4
				Cathay Global Aggressive Fund of Funds		—		Available-for-sale financial assets		15,570			210,000		—			198,047		Note 4
				Polaris Global Emerging Market Funds		—		Available-for-sale financial assets		13,603			200,000		—			191,389		Note 4
				HSBC Global Fund of Bond Funds		—		Available-for-sale financial assets		22,838			250,000		—			259,143		Note 4
				Fuh Hwa global Fixed Income FOFs Fund		—		Available-for-sale financial assets		11,512			140,000		—			141,257		Note 4
				PCA Asia Pacific REITs-A		—		Available-for-sale financial assets		7,849			50,000		—			51,020		Note 4
				Fidelity US High Yield Fund		—		Available-for-sale financial assets		535			206,588		—			187,894		Note 4
				HSBC GIF G16 Emg MK+ Bond		—		Available-for-sale financial assets		273			155,112		—			153,752		Note 4
				FTIF - Templeton G16 Bond		—		Available-for-sale financial assets		289			210,001		—			208,570		Note 4
				PIMCO Global Investment Grade Credit - Ins H Acc		—		Available-for-sale financial assets		398			161,575		—			160,663		Note 4
				MFS Meridian Funds - Global Equity Fund (A1 class)		—		Available-for-sale financial assets		253			262,293		—			222,375		Note 4
				Fidelity Fds International		—		Available-for-sale financial assets		128			163,960		—			123,157		Note 4
				Fidelity Fds America		—		Available-for-sale financial assets		937			163,960		—			134,258		Note 4
				JPMorgan Funds - Global Dynamic Fund (B)		—		Available-for-sale financial assets		303			165,640		—			126,684		Note 4
				MFS Meridian Funds - Research International Fund (A1 share)		—		Available-for-sale financial assets		173			131,920		—			100,559		Note 4
				Fidelity Fds Emerging Markets		—		Available-for-sale financial assets		144			122,175		—			84,397		Note 4
				Credit Suisse Equity Fund (Lux) Global Resources		—		Available-for-sale financial assets		10			130,402		—			88,785		Note 4
				Schroder ISF - BRIC Fund - A1 Acc		—		Available-for-sale financial assets		31			197,071		—			195,344		Note 4
				Parvest Europe Convertible Bond Fond		—		Available-for-sale financial assets		71			398,787		—			390,303		Note 4
				JPMorgan Funds - Global Convertibles Fund (EUR)		—		Available-for-sale financial assets		868			491,450		—			481,087		Note 4
				Schroder ISF Euro Corp. Bond A		—		Available-for-sale financial assets		260			190,098		—			185,120		Note 4
				Fidelity Euro Balanced Fund		—		Available-for-sale financial assets		476			303,683		—			259,501		Note 4
				Fidelity Fds World		—		Available-for-sale financial assets		248			144,116		—			102,520		Note 4
				Fidelity Fds Euro Blue Chip		—		Available-for-sale financial assets		155			140,125		—			98,465		Note 4
				MFS Meridian Funds - European Equity Fund (A1 share)		—		Available-for-sale financial assets		171			178,920		—			137,276		Note 4
				Henderson Horizon Fund - Pan European Equity Fund		—		Available-for-sale financial assets		230			180,886		—			154,002		Note 4

(Continued)

 

- 46 -

---

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009										Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)			Percentage of Ownership		Market Value or Net Asset Value
				Stock
				Polaris TW Top 50 Tracker		—		Available-for-sale financial assets		1,710		$	91,574		—		$	96,530		Note 5
				Polaris/P-Shares Taiwan DTV ETF		—		Available-for-sale financial assets		600			15,000		—			14,040		Note 5
				China Steel Corporation		—		Available-for-sale financial assets		926			28,374		—			30,558		Note 5
				Siliconware Precision Industries Co., Ltd.		—		Available-for-sale financial assets		661			28,369		—			28,654		Note 5
				Taiwan Semiconductor Manufacturing Co., Ltd.		—		Available-for-sale financial assets		456			28,357		—			29,412		Note 5
				U-Ming Marine Transport Corp.		—		Available-for-sale financial assets		454			28,363		—			29,510		Note 5
				President Chain Store Corp.		—		Available-for-sale financial assets		375			28,367		—			28,538		Note 5
				REITS
				Gallop No. 1 REIT		—		Available-for-sale financial assets		4,643			46,430		—			37,980		Note 5
				Fubon No. 1 Fund		—		Available-for-sale financial assets		5,727			57,270		—			64,142		Note 5
				Bonds
				Mega Securities Corp. 1st Unsecured Corporate Bonds in 2007		—		Held-to-maturity financial assets		—			150,000		—			150,000		Note 7
				KGI Securities 1st Unsecured Corporate Bonds 2007 - B Issue		—		Held-to-maturity financial assets		—			100,000		—			100,000		Note 7
				Mega Financial Holding 1st Unsecured Corporate Bond 2007 - B Issue		—		Held-to-maturity financial assets		—			200,000		—			200,000		Note 7
				Mega Securities Corp. 1st Unsecured Corporate Bond 2008 - A Issue		—		Held-to-maturity financial assets		—			300,000		—			300,000		Note 7
				Formosa Petrochemical Corp.		—		Held-to-maturity financial assets		—			99,876		—			99,876		Note 7
				Taiwan Power Company 3rd Boards in 2008		—		Held-to-maturity financial assets		—			149,941		—			149,941		Note 7
				GreTai Company 1st Unsecured Corporate Bonds-A Issue in 2008		—		Held-to-maturity financial assets		—			100,000		—			100,000		Note 7
				Fubon Financial Holding Company 2005 1st Unsecured Debenture		—		Held-to-maturity financial assets		—			99,720		—			99,720		Note 7
				Formosa Petrochemical Corporation 3rd Unsecured Corporate Bonds Issue in 2008.		—		Held-to-maturity financial assets		—			49,935		—			49,935		Note 7
				Taiwan Power Company 5th Boards in 2008		—		Held-to-maturity financial assets		—			272,397		—			272,397		Note 7
				Yuanta Securities Finance Co. Ltd. 1st Unsecured Corporate Bonds-A Issue in 2007		—		Held-to-maturity financial assets		—			100,015		—			100,015		Note 7
				Formosa Petrochemical Corporation 4th Unsecured Corporate Bonds Issue in 2006		—		Held-to-maturity financial assets		—			300,716		—			300,716		Note 7
				NAN YA Company 2nd Unsecured Corporate Bonds Issue in 2008		—		Held-to-maturity financial assets		—			407,575		—			407,575		Note 7
				Taiwan Power Company 3rd Boards in 2006		—		Held-to-maturity financial assets		—			201,019		—			201,019		Note 7
				Taiwan Power Co. 1st Unsecured Bond-B Issue in 2001		—		Held-to-maturity financial assets		—			180,039		—			180,039		Note 7
				Formosa Petrochemical Corporation Bond Issue in 2006		—		Held-to-maturity financial assets		—			201,358		—			201,358		Note 7
				NAN YA Company 3rd Unsecured Corporate Bonds Issue in 2008		—		Held-to-maturity financial assets		—			204,583		—			204,583		Note 7
				China Development Financial Holding Corporation 1st Unsecured Corporate Bonds Issue in 2006		—		Held-to-maturity financial assets		—			202,049		—			202,049		Note 7

(Continued)

 

- 47 -

---

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009										Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)			Percentage of Ownership		Market Value or Net Asset Value
				China Development Financial Holding Corporation 1st Unsecured Corporate Bonds - A Issue in 2008		—		Held-to-maturity financial assets		—		$	103,656		—		$	103,656		Note 7
				Taiwan Power Co. 4th secured Bond-B Issue in 2008		—		Held-to-maturity financial assets		—			51,948		—			51,948		Note 7
				Formosa Petrochemical Corporation 2nd Unsecured Corporate Bonds Issue in 2008		—		Held-to-maturity financial assets		—			102,961		—			102,961		Note 7
				Formosa Petrochemical Corporation 1st Unsecured Corporate Bonds Issue in 2009		—		Held-to-maturity financial assets		—			201,190		—			201,190		Note 7
				NAN YA Company 1st Unsecured Corporate Bonds Issue in 2009		—		Held-to-maturity financial assets		—			99,893		—			99,893		Note 7
				MLPC 1st Unsecured Corporate Bonds Issue in 2009		—		Held-to-maturity financial assets		—			199,703		—			199,703		Note 7
				China Steel Corporation 2nd Unsecured Corporate Bonds - A Issue in 2008		—		Held-to-maturity financial assets		—			100,033		—			100,033		Note 7
				China Development Financial Holding Corporation 1st Unsecured Corporate Bonds Issue in 2006		—		Held-to-maturity financial assets		—			202,049		—			202,049		Note 7
				Taiwan Power Co. 2nd Unsecured Bond - CB Issue in 2003		—		Held-to-maturity financial assets		—			151,043		—			151,043		Note 7
				Chinatrust Commercial Bank 2nd Unsecured Subordinate Financial Debentures Issue in 2003		—		Held-to-maturity financial assets		—			198,410		—			198,410		Note 7
				China Development Industrial Bank 2nd Financial Debentures Issue in 2006		—		Held-to-maturity financial assets		—			198,741		—			198,741		Note 7
				TaipeiFubon Bank 1st Financial Debentures - BA Issue in 2005		—		Held-to-maturity financial assets		—			100,407		—			100,407		Note 7
1		Senao International Co., Ltd.		Stocks
				Senao Networks, Inc.		Equity- method investee		Investments accounted for using equity method		15,295			288,407		41			288,407		Note 1
				Senao International (Samoa) Holding Ltd.		Subsidiary		Investments accounted for using equity method		—			—		100			—		Note 8
				N.T.U. Innovation Incubation Corporation		—		Financial assets carried at cost		1,200			12,000		9			12,672		Note 2
				Beneficiary certificates (mutual fund)
				Prudential Financial Bond Fund		—		Available-for-sale financial assets		3,304			50,000		—			50,005		Note 4
				IBT Bond Fund		—		Available-for-sale financial assets		3,691			50,000		—			50,009		Note 4
				Fuh Hwa Global Short-term Income Fund		—		Available-for-sale financial assets		4,850			50,000		—			50,379		Note 4
				Fuh Hwa Strategic High Income Fund		—		Available-for-sale financial assets		5,000			50,000		—			51,100		Note 4
2		CHIEF Telecom Inc.		Stocks
				Unigate Telecom Inc.		Subsidiary		Investments accounted for using equity method		200			1,997		100			1,997		Note 1
				CHIEF Telecom (Hong Kong) Limited		Subsidiary		Investments accounted for using equity method		400			993		100			993		Note 1
				Chief International Corp.		Subsidiary		Investments accounted for using equity method		200			7,601		100			7,601		Note 1
				eASPNet Inc.		—		Financial assets carried at cost		1,000			—		2			—		Note 2
				3 Link Information Service Co., Ltd.		—		Financial assets carried at cost		374			3,450		10			6,633		Note 2

(Continued)

 

- 48 -

---

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009												Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)				Percentage of Ownership		Market Value or Net Asset Value
3		Chunghwa System Integration Co., Ltd.		Stocks
				Concord Technology Co., Ltd.		Subsidiary		Investments accounted for using equity method		500		$	474			100		$	474			Note 1
				Beneficiary certificates (mutual fund)
				Cathay Global Aggressive Fund of Fund		—		Available-for-sale financial assets		1,233			15,000			—			15,690			Note 4
				Cathay Global Infrastructure Fund		—		Available-for-sale financial assets		1,418			15,000			—			12,099			Note 4
9		Chunghwa Telecom Singapore Pte., Ltd.		Stocks
				ST-2 Satellite Ventures Pte., Ltd.		Equity-method investee		Investments accounted for using equity method		18,102			408,341 (SG$17,878	)		38			408,341 (SG$17,878	)		Note 1
18		Concord Technology Co., Ltd.		Stocks
				Glory Network System Service (Shanghai) Co., Ltd.		Subsidiary		Investments accounted for using equity method		500			469			100			469			Note 1
14		Chunghwa Investment Co., Ltd.		Stocks
				Chunghwa Precision Test Tech. Co., Ltd.		Subsidiary		Investments accounted for using equity method		10,317			109,560			54			109,560			Note 1
				Chunghwa Investment Holding Company		Subsidiary		Investments accounted for using equity method		589			10,860			100			10,860			Note 1
				Tatung Technology Inc.		Equity-method investee		Investments accounted for using equity method		5,000			36,544			28			36,544			Note 1
				PandaMonium Company Ltd.		Equity-method investee		Investments accounted for using equity method		602			—			43			—			Note 1
				CHIEF Telecom Inc.		Equity-method investee		Investments accounted for using equity method		2,000			20,558			4			20,933			Note 1
				Digimax Inc.		—		Financial assets carried at cost		2,000			36,000			4			15,860			Note 2
				ChipSiP Technology Co.		—		Financial assets carried at cost		923			25,508			3			21,093			Note 11
				iD Branding Ventures		—		Financial assets carried at cost		2,500			25,000			3			27,100			Note 2
				Crystal Media Inc. Co.		—		Financial assets carried at cost		1,000			15,000			5			6,380			Note 2
				Giga Solar Materials Corporation		—		Financial assets carried at cost		456			54,720			2			216,481			Note 11
				UniDisplay Inc.		—		Financial assets carried at cost		4,000			46,000			3			46,000			Note 2
				Superior Industries Co., Ltd.		—		Financial assets carried at cost		750			22,500			2			14,880			Note 2
				XinTec Inc.		—		Financial assets carried at cost		24			1,076			—			1,280			Note 2
				LightHouse Technology Co.		—		Financial assets carried at cost		219			10,650			—			11,802			Note 11
				J Touch Corporation.		—		Financial assets carried at cost		74			3,640			—			4,241			Note 11
				DelSolar Co., Ltd.		—		Financial assets carried at cost		113			5,376			—			5,885			Note 11
				Taidoc Technology Corporation		—		Financial assets carried at cost		26			3,468			—			3,348			Note 11
				Tennrich International Corp.		—		Financial assets carried at cost		163			3,112			—			3,982			Note 11
				Subtron Technology Co.		—		Financial assets carried at cost		271			3,384			—			3,667			Note 11
				Huga Optotech Inc.		—		Financial assets carried at cost		229			6,672			—			8,116			Note 11
				Tatung Fine Chemicals Co.		—		Financial assets carried at cost		93			7,762			—			5,863			Note 11
				Join Well Technology Co.		—		Financial assets carried at cost		206			8,210			—			10,368			Note 11
				Daxon Technology Inc.		—		Financial assets carried at cost		50			750			—			1,278			Note 11
				Win Semiconductors Corp.		—		Financial assets carried at cost		260			7,603			—			7,145			Note 11
				GoaTronics Inc.		—		Prepayments for long-term investments in stocks		—			25,000			—			25,000			—
				Huga Optotech Inc.		—		Prepayments for long-term investments in stocks		—			791			—			791			—
				Tennrich International Corp.		—		Prepayments for long-term investments in stocks		—			7			—			7			—
				China Steel Corporation		—		Available-for-sale financial assets		263			7,757			—			8,721			Note 5
				Chi Mei Optoelectronics Corporation		—		Available-for-sale financial assets		20			332			—			450			Note 5
				Lite-On Technology Corp.		—		Available-for-sale financial assets		10			247			—			483			Note 5

(Continued)

 

- 49 -

---

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009										Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)			Percentage of Ownership		Market Value or Net Asset Value
				Asustek Computer Inc.		—		Available-for-sale financial assets		10		$	395		—		$	619		Note 5
				Orise Technology Co.		—		Available-for-sale financial assets		15			604		—			1,193		Note 5
				AU Optronics Corp.		—		Available-for-sale financial assets		6			181		—			223		Note 5
				Hon Hai Precision Ind. Co.		—		Available-for-sale financial assets		3			324		—			455		Note 5
				Tung Ho Steel Enterprise Corp.		—		Available-for-sale financial assets		30			1,009		—			1,040		Note 5
				Asia Cement Corporation		—		Available-for-sale financial assets		40			1,476		—			1,384		Note 5
				Yuanta Financial Holdings		—		Available-for-sale financial assets		70			1,707		—			1,645		Note 5
				Soft-World International Corporation		—		Available-for-sale financial assets		5			898		—			1,018		Note 5
				Radium Life Tech. Co., Ltd.		—		Available-for-sale financial assets		20			549		—			538		Note 5
				China Synthetic Rubber Corporation		—		Available-for-sale financial assets		20			686		—			684		Note 5
				Cyberlink Co.		—		Available-for-sale financial assets		5			676		—			685		Note 5
				Formosa Plastics Corporation		—		Available-for-sale financial assets		86			4,961		—			5,768		Note 5
				Fubon Financial Holding Co.		—		Available-for-sale financial assets		200			7,447		—			7,860		Note 5
				Cathay Financial Holding Co.		—		Available-for-sale financial assets		151			8,669		—			8,985		Note 5
				Asustek Computer Inc.		—		Available-for-sale financial assets		100			5,708		—			6,180		Note 5
				LARGAN Precision Co.		—		Available-for-sale financial assets		10			3,870		—			4,294		Note 5
				Dynapack International Technology Corp.		—		Available-for-sale financial assets		36			3,261		—			4,034		Note 5
				Anpec Electronics Corporation		—		Available-for-sale financial assets		51			1,745		—			2,746		Note 5
				Wei Chuan Foods Corp.		—		Available-for-sale financial assets		198			8,710		—			8,633		Note 5
				Faraday Technology Corp.		—		Available-for-sale financial assets		5			281		—			356		Note 5
				Gemtek Technology Co.		—		Available-for-sale financial assets		50			2,907		—			2,890		Note 5
				Swancor. Ind. Co.		—		Available-for-sale financial assets		129			7,376		—			9,265		Note 5
				Apex Biotechnology Corp.		—		Available-for-sale financial assets		121			6,643		—			7,700		Note 5
				Via Technologies, Inc.		—		Available-for-sale financial assets		147			4,935		—			2,682		Note 5
				Cyberlink Co.		—		Available-for-sale financial assets		25			3,089		—			3,466		Note 5
				ITE Tech. Inc.		—		Available-for-sale financial assets		5			317		—			362		Note 5
				Optotech Corporation		—		Available-for-sale financial assets		50			1,305		—			1,430		Note 5
				Sino-American Silicon Products Inc.		—		Available-for-sale financial assets		113			8,841		—			9,954		Note 5
				Solar Applied Materials Technology Corp.		—		Available-for-sale financial assets		61			4,795		—			4,987		Note 5
				Vanguard International Semiconductor Co.		—		Available-for-sale financial assets		220			3,434		—			3,542		Note 5
				Marcoblock Inc.		—		Available-for-sale financial assets		10			1,162		—			1,490		Note 5
				Taiwan Semiconductor Co.		—		Available-for-sale financial assets		240			6,635		—			6,888		Note 5
				Tang Eng Iron Works Co.		—		Available-for-sale financial assets		75			2,449		—			2,902		Note 5
				Pan Jit International Inc.		—		Available-for-sale financial assets		270			5,415		—			7,250		Note 5
				Lite-On Semiconductor Corp.		—		Available-for-sale financial assets		285			6,300		—			6,883		Note 5
				MediaTek Inc.		—		Available-for-sale financial assets		2			991		—			1,116		Note 5
				Elan Microelectronics Corp.		—		Available-for-sale financial assets		105			5,334		—			5,953		Note 5
				Prolific Technology Inc.		—		Available-for-sale financial assets		50			1,776		—			2,450		Note 5
				Ability Enterprise Co.		—		Available-for-sale financial assets		95			5,933		—			5,966		Note 5
				Taiwan Hon Chuan Enterprise Co., Ltd.		—		Available-for-sale financial assets		100			5,306					5,300		Note 5
				Asia Cement Corporation		—		Available-for-sale financial assets		100			3,424		—			3,460		Note 5
				I-Chiun Precision Industry Co., Ltd.		—		Available-for-sale financial assets		40			1,916		—			2,208		Note 5
				Cyber Power Systems, Inc.		—		Available-for-sale financial assets		100			7,532		—			13,500		Note 5
				Everlight Electronics Co., Ltd.		—		Available-for-sale financial assets		70			7,621		—			8,400		Note 5
				Yuanta Financial Holdings		—		Available-for-sale financial assets		300			6,978		—			7,050		Note 5
				Unimicron Technology Corp.		—		Available-for-sale financial assets		70			3,108		—			3,248		Note 5
				Hiwin Technologies Corp.		—		Available-for-sale financial assets		80			3,101		—			3,348		Note 5
				Sunrex Technology Corporation		—		Available-for-sale financial assets		176			6,285		—			6,574		Note 5
				A-DATA Technology Co., Ltd.		—		Available-for-sale financial assets		20			1,564		—			2,090		Note 5

(Continued)

 

- 50 -

---

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009										Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)			Percentage of Ownership		Market Value or Net Asset Value
				Delta Electronics, Inc.		—		Available-for-sale financial assets		60		$	5,379		—		$	6,000		Note 5
				Vivotek Inc.		—		Available-for-sale financial assets		95			3,764		—			4,323		Note 5
				Visual Phoionics Epijaxy Co., Ltd.		—		Available-for-sale financial assets		55			4,564		—			4,829		Note 5
				Taiwan Mobile Co., Ltd.		—		Available-for-sale financial assets		15			897		—			935		Note 5
				San Chih Semiconductor Inc. Ltd.		—		Available-for-sale financial assets		7			347		—			545		Note 5
				JuTeng International Holdings Limited		—		Available-for-sale financial assets		195			8,175		—			7,020		Note 5
				Tingyi (Cayman Islands) Holding Corp.		—		Available-for-sale financial assets		50			2,295		—			2,325		Note 5
				Neo-Neon Holdings Limited		—		Available-for-sale financial assets		400			5,280		—			6,420		Note 5
				Beneficiary certificates (mutual)
				Cathay Bond Fund		—		Available-for-sale financial assets		4,285			50,880		—			51,229		Note 4
				Jih Sun Bond Fund		—		Available-for-sale financial assets		2,130			30,000		—			30,070		Note 4
				FSITC Bound Found		—		Available-for-sale financial assets		294			50,000		—			50,094		Note 4
				Fuh Hwa Yu-Li Found		—		Available-for-sale financial assets		3,501			45,004		—			45,107		Note 4
				Fuh Hwa Global Fixed Income Found of Founds		—		Available-for-sale financial assets		1,899			20,757		—			23,304		Note 4
				Cathay Cathay Found		—		Available-for-sale financial assets		408			5,000		—			6,166		Note 4
				Manulife Asia Pacific Bond Fund		—		Available-for-sale financial assets		2,000			20,000		—			19,820		Note 4
				Capital Income Fund		—		Available-for-sale financial assets		649			10,000		—			10,000		Note 4
				Jih Sun Small Cap Fund		—		Available-for-sale financial assets		868			12,000		—			12,783		Note 4
				Kathy Mandarin Fund		—		Available-for-sale financial assets		500			5,000		—			4,950		Note 4
				Cathy Man AHL Futures Trust Fund of Funds		—		Available-for-sale financial assets		2,474			25,000		—			23,302		Note 4
				Bonds
				Hua Nan Financial Holdings Company 1st Unsecured Subordinate Corporate Bonds Issue in 2006		—		Available-for-sale financial assets		500			51,398		—			51,675		Note 5
				AU Optronics Corporation 1st Secured Corporate Bonds Issue in 2008		—		Available-for-sale financial assets		500			51,372		—			51,648		Note 5
				Convertible bonds
				Synnex Technology International Corporation 1st Uusecured Convertible Bond Issue in 2008		—		Financial assets at fair value through profit or loss		9			1,002		—			1,010		Note 5
				Epistar Corporation Ltd. 3rd Convertible Bond		—		Financial assets at fair value through profit or loss		35			3,732		—			4,078		Note 5
				Evergreen Marine Corp. (Taiwan) Ltd. 3rd Unsecured Convertible Bond		—		Financial assets at fair value through profit or loss		60			6,412		—			6,288		Note 5
				Everlight Electronics Co., Ltd. 3rd Convertible Bonds		—		Financial assets at fair value through profit or loss		40			4,351		—			5,136		Note 5
				Asia Optical’s Second Domestic Unsecured Convertible Bond		—		Financial assets at fair value through profit or loss		49			4,900		—			6,223		Note 5
				Everlight Electronics Co., Ltd. 4th Convertible Bonds		—		Financial assets at fair value through profit or loss		50			5,000		—			5,958		Note 5
				King Slide works Co., Ltd. 2nd convertible bond		—		Financial assets at fair value through profit or loss		50			5,000		—			5,150		Note 5
22		Senao International		Stocks
		(Samoa) Holding Ltd.		Senao International HK Limited		Subsidiary		Investment accounted for using equity method		—			—		100			—		Note 9

(Continued)

 

- 51 -

---

No.

Held Company Name

Marketable Securities Type and Name

Relationship with the Company

Financial Statement Account

December 31, 2009

Note

Shares (Thousands/ Thousand Units)

Carrying Value (Note 6)

Percentage of Ownership

Market Value or Net Asset Value

24

Chunghwa Investment Holding Company

Stocks CHI One Investment Co., Limited

Subsidiary

Investment accounted for using equity method

—

$

—

100

$

—

Note 10

 

Note 1:		The net asset values of investees were based on audited financial statements.
Note 2:		The net asset values of investees were based on unaudited financial statements.
Note 3:		New Prospect Investments Holdings Ltd. (B.V.I.) and Prime Asia Investments Group Ltd. (B.V.I.) were incorporated in March 2006, but not on operating stage, yet. Chunghwa has 100% ownership right in an amount of US$1 in each holding company.
Note 4:		The net asset values of beneficiary certification (mutual fund) were based on the net asset values on December 31, 2009.
Note 5:		Market value was based on the closing price of December 31, 2009.
Note 6:		Showing at their original carrying amounts without adjustments for fair values, except for held-to-maturity financial assets.
Note 7:		The net asset values of investees were based on amortized cost.
Note 8:		Senao International (Samoa) Holding Ltd. (SIS) was established by Senao in 2009. No capital is injected in SIS yet by the end of 2009.
Note 9:		Senao International HK Limited (SIHK) was established by SIS in 2009. No capital is injected in SIHK yet by the end of 2009.
Note 10:		CHI One Investment Co., Ltd. (COI) was established by CHI in 2009. No capital is injected in COI yet by the end of 2009.
Note 11:		Market value of emerging stock was based on the average trading price on December 31, 2009.

(Concluded)

 

- 52 -

---

CHUNGHWA TELECOM CO., LTD.

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2009

(Amounts in Thousands of New Taiwan Dollars)

 

 

No.		Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter-party		Nature of Relationship		Beginning Balance					Acquisition					Disposal											Ending Balance
												Shares (Thousands/ Thousand Units)		Amount (Note 1)			Shares (Thousands/ Thousand Units)		Amount			Shares (Thousands/ Thousand Units)		Amount			Carrying Value (Note 1)			Gain (Loss) on Disposal			Shares (Thousands/ Thousand Units)		Amount (Note 1)
0		Chunghwa Telecom Co., Ltd.		Stock
				Chunghwa Investment Co., Ltd.		Investments accounted for using equity method		—		Subsidiary		98,000		$	829,716 (Note 3)		80,000		$	758,709		—		$	—		$	—		$	—		178,000		$	1,651,391 (Note 3)
				Chunghwa Singapore Pte. Ltd.		Investments accounted for using equity method		—		Subsidiary		34,869			791,161 (Note 3)		27,000			610,659		—			—			—			—		61,869			1,407,519 (Note 3)
				Vettel-CHT Co., Ltd.		Investments accounted for using equity method		—		Equity method investee		—			95,836 (Note 3)		—			197,088		—			—			—			—		—			269,924 (Note 3)
				Beneficiary certificates (mutual fund)
				PCA Well Pool Fund		Available-for-sale financial assets		—		—		117,079			1,500,000		77,102			1,000,000		—			—			—			—		194,181			2,500,000
				Yuanta Wan Tai Bond Fund		Available-for-sale financial assets		—		—		104,520			1,500,000		69,163			1,000,000		—			—			—			—		173,683			2,500,000
				Mega Diamond Bond Fund		Available-for-sale financial assets		—		—		—			—		126,106			1,500,000		—			—			—			—		126,106			1,500,000
				Polaris De-Li Fund		Available-for-sale financial assets		—		—		97,388			1,500,000		128,513			2,000,000		96,247			1,500,000			1,491,213			8,787		129,654			2,008,787
				Fuh-Hwa Bond Fund		Available-for-sale financial assets		—		—		—			—		108,849			1,500,000		—			—			—			—		108,849			1,500,000
				Franklin Templeton Sinoam Franklin Templeton Global Bond Fund of Fund		Available-for-sale financial assets		—		—		18,089			200,000		4,060			50,000		8,149			102,177			91,982			10,195		14,000			158,018
				Fuh Hwa Global Fixed Inc. FOFs		Available-for-sale financial assets		—		—		—			—		11,512			140,000		—			—			—			—		11,512			140,000
				Fubon Taiwan Selected Fund		Available-for-sale financial assets		—		—		100,000			618,404		—			—		100,000			671,052			618,104			52,948		—			—
				HSBC Taiwan Balanced Strategy Fund		Available-for-sale financial assets		—		—		100,000			797,811		—			—		100,000			794,099			769,374 (Note 4)			24,725		—			—
				Cathay Chung Hwa No. 1 Fund		Available-for-sale financial assets		—		—		100,000			717,909		—			—		100,000			696,522			710,886 (Note 4)			(14,364)		—			—
				Fuh Hwa Power Fund III		Available-for-sale financial assets		—		—		100,000			726,771		—			—		100,000			717,136			677,182 (Note 4)			39,954		—			—
				MFS Meridian Emerging Markets Debt Fund		Available-for-sale financial assets		—		—		336			208,578		—			—		336			231,575			208,578			22,997		—			—
				MFS Meridian Strategic Income Fund		Available-for-sale financial assets		—		—		316			132,592		—			—		316			141,019			132,592			8,427		—			—
				Fidelity Fds Intl Bond		Available-for-sale financial assets		—		—		14,644			565,387		—			—		14,644			551,576			565,387			(13,811)		—			—
				Sinopia Alternative Funds - Global Bond Market Neutral Fund 600		Available-for-sale financial assets		—		—		—			623,332		—			—		—			684,208			647,917			36,291		—			—
				HSBC GIF Global Emerging Markets Bond Fund		Available-for-sale financial assets		—		—		—			—		273			155,112		—			—			—			—		273			155,112
				Templeton Global Bond Fund Class A		Available-for-sale financial assets		—		—		—			—		289			210,001		—			—			—			—		289			210,001
				PIMCO Global Investor Series plc Global Investment Grade Credit Fund Class H - Institutional Accumulation		Available-for-sale financial assets		—		—		—			—		398			161,575		—			—			—			—		398			161,575
				Schroder International Selection Fund - BRIC (Brazil, Russia, India, China) EUR A1 (Accumulation)		Available-for-sale financial assets		—		—		—			—		31			197,071		—			—			—			—		31			197,071
				Fidelity Funds - European High Yield Fund		Available-for-sale financial assets		—		—		324			126,425		—			—		324			131,145			126,425			4,720		—			—

(Continued)

 

- 53 -

---

No.		Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter- party		Nature of Relationship		Beginning Balance					Acquisition					Disposal											Ending Balance
												Shares (Thousands/ Thousand Units)		Amount (Note 1)			Shares (Thousands/ Thousand Units)		Amount			Shares (Thousands/ Thousand Units)		Amount			Carrying Value (Note 1)			Gain (Loss) on Disposal			Shares (Thousands/ Thousand Units)		Amount (Note 1)
				Parvest Europe Bond Fund		Available-for-sale financial assets		—		—		39		$	287,400		—		$	—		39		$	320,925		$	287,400		$	33,525		—		$	—
				SISF - Euro Bond Class A1 (Accumulation)		Available-for-sale financial assets		—		—		—			—		260			190,098		—			—			—			—		260			190,098
				Fidelity Euro Balance Fund		Available-for-sale financial assets		—		—		879			560,819		—			—		403			217,420			257,136			(39,716)		476			303,683
				Bonds
				Taiwan Power Co. 1st Unsecured Bond-B Issue in 2001		Held-to-maturity financial assets		—		—		—			—		—			262,500 (Note 2)		—			—			—			—		—			175,000 (Notes 2 and 5)
				Formosa Petrochemical Corporation 5th Unsecured Corporate Bonds Issue in 2006		Held-to-maturity financial assets		—		—		—			—		—			200,000 (Note 2)		—			—			—			—		—			200,000 (Note 2)
				Nan Ya Company 3rd Unsecured Corporate Bonds Issue in 2008		Held-to-maturity financial assets		—		—		—			—		—			200,000 (Note 2)		—			—			—			—		—			200,000 (Note 2)
				China Development Financial Holding Corporation 1st Unsecured Corporate Bonds Issue in 2007		Held-to-maturity financial assets		—		—		—			—		—			200,000 (Note 2)		—			—			—			—		—			200,000 (Note 2)
				China Development Financial Holding Corporation 1st Unsecured Corporate Bonds-A Issue in 2008		Held-to-maturity financial assets		—		—		—			—		—			100,000 (Note 2)		—			—			—			—		—			100,000 (Note 2)
				Formosa Petrochemical Corporation 2nd Unsecured Corporate Bonds Issue in 2008.		Held-to-maturity financial assets		—		—		—			—		—			100,000 (Note 2)		—			—			—			—		—			100,000 (Note 2)
				Formosa Petrochemical Corporation 1st Unsecured Corporate Bonds Issue in 2009.		Held-to-maturity financial assets		—		—		—			—		—			200,000 (Note 2)		—			—			—			—		—			200,000 (Note 2)
				Nan Ya Company 1st Unsecured Corporate Bonds Issue in 2009.		Held-to-maturity financial assets		—		—		—			—		—			100,000 (Note 2)		—			—			—			—		—			100,000 (Note 2)
				MLPC 1st Unsecured Corporate Bonds Issue in 2008		Held-to-maturity financial assets		—		—		—			—		—			200,000 (Note 2)		—			—			—			—		—			200,000 (Note 2)
				China Development Financial Holding Corporation 1st Unsecured Corporate Bonds Issue in 2007		Held-to-maturity financial assets		—		—		—			—		—			200,000 (Note 2)		—			—			—			—		—			200,000 (Note 2)
				Taiwan Power Co. 2nd Unsecured Bond-CB Issue in 2003		Held-to-maturity financial assets		—		—		—			—		—			150,000 (Note 2)		—			—			—			—		—			150,000 (Note 2)
				Taipei Fubon Bank 1st Financial Debentures-BA Issue in 2005		Held-to-maturity financial assets		—		—		—			—		—			100,000 (Note 2)		—			—			—			—		—			100,000 (Note 2)
1		Senao International Co., Ltd.		Beneficiary certificates (mutual fund)
				Prudential financial bond		Available-for-sale financial assets		—		—		—			—		6,610			100,000		3,306			50,031			50,000			31		3,304			50,000
				IBT bond		Available-for-sale financial assets		—		—		—			—		7,385			100,000		3,694			50,041			50,000			41		3,691			50,000
9		Chunghwa Telecom Singapore Pte., Ltd.		Stocks
				ST-2 Satellite Ventures Pte., Ltd.		Investment accounted for using equipment		—		Equity-method investee		4,735		(SG$	106,432 4,735)		13,367		(SG$	302,629 13,367)		—			—			—			—		18,102		(SG$	408,341 17,878) (Note 3)
14		Chunghwa Investment Co., Ltd.		Beneficiary certificates (mutual fund)
				Cathay G16 Money Market		Available-for-sale financial assets		—		—		4,860			50,163		4,845			50,851		9,705			100,594			101,014			(420)		—			—

 

Note 1:		Showing at their original carrying amounts without adjustments for fair values.
Note 2:		Stated at its nominal amounts.
Note 3:		The ending balance includes investment gain (loss) recognized under equity method, cumulative translation adjustments, and unrealized loss on financial instruments, respectively.
Note 4:		The carrying amount of disposal was decreased by impairment losses.
Note 5:		The carrying amount of installment was deducted $87,500 thousand.

(Concluded)

 

- 54 -

---

TABLE 4

CHUNGHWA TELECOM CO., LTD.

ACQUISITION OF INDIVIDUAL REAL ESTATE PROPERTIES AT PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2009

(In Thousands of New Taiwan Dollars)

 

 

Company Name

Type of Property

Transaction Date

Transaction Amount

Proceeds Collection Status

Counter- party

Nature of Relationship

Prior Transaction Made by Related Counter-party

Price Reference

Purpose of Acquisition

Other Terms

Owner

Relationship

Transfer Date

Amount

Light Era Development Co., Ltd.

Land and buildings

2009.09.01

$

610,000

All collected

New Brilliance Asset Management Corp.

—

—

—

—

$

—

Evaluation report of jointed firm

Construction sites

—

 

- 55 -

---

TABLE 5

CHUNGHWA TELECOM CO., LTD.

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

FOR THE YEAR ENDED DECEMBER 31, 2009

(Amounts in Thousands of New Taiwan Dollars)

 

 

No.		Company Name		Related Party		Nature of Relationship		Transaction Details										Abnormal Transaction						Notes/Accounts Payable or Receivable
								Purchase/Sale		Amount				% to Total		Payment Terms		Units Price			Payment Terms			Ending Balance (Note 1)				% to Total
0		Chunghwa Telecom Co., Ltd.		Senao International Co., Ltd.		Subsidiary		Sales		$	999,821 (Note 4	)		1		30 days		(Note 2)			(Note 2)			$	261,458 (Note 5	)		2
								Purchase			5,172,852 (Note 3	)		5		30-90 days		(Note 2)			(Note 2)				(604,005	)		(6	)
				CHIEF Telecom Inc.		Subsidiary		Sales			229,335 (Note 6	)		—		30 days		(Note 2)			(Note 2)				23,031			—
								Purchase			309,498			—		60 days		(Note 2)			(Note 2)				(51,554	)		(1	)
				Chunghwa System Integration Co., Ltd.		Subsidiary		Purchase			441,564 (Note 7	)		—		30 days		—			—				(426,674 (Note 8	)  )		(4	)
				InfoExplorer Co., Ltd.		Subsidiary		Purchase			111,190 (Note 9	)		—		30 days		(Note 2)			(Note 2)				(11,382	)		—
				Taiwan International Standard Electronics Co., Ltd.		Equity-method investee		Purchase			481,743			—		30-90 days		—			—				(271,290	)		(3	)
1		Senao International Co., Ltd.		Chunghwa Telecom Co., Ltd.		Parent company		Sales			5,093,269 (Note 3	)		27		30-90 days		(Note 2	)		(Note 2	)			604,005			59
								Purchase			956,945 (Note 4	)		6		30 days		(Note 2	)		(Note 2	)			(142,117 (Note 5	)  )		(12	)
2		CHIEF Telecom Inc.		Chunghwa Telecom Co., Ltd.		Parent company		Sales			309,498			28		60 days		(Note 2	)		(Note 2	)			51,554			39
								Purchase			228,557 (Note 6	)		26		30 days		(Note 2	)		(Note 2	)			(23,031	)		(28	)
3		Chunghwa System Integration Co., Ltd.		Chunghwa Telecom Co., Ltd.		Parent company		Sales			1,334,846 (Note 7	)		45		30 days		—			—				427,123 (Note 8	)		86
11		InfoExplorer Co., Ltd.		Chunghwa Telecom Co., Ltd.		Parent company		Sales			142,506 (Note 9	)		22		30 days		(Note 2	)		(Note 2	)			11,382			4

 

Note 1:		Excluding payment and receipts in trust for others.
Note 2:		Transaction terms were determined in accordance with mutual agreements.
Note 3:		The difference was because Senao International Co., Ltd. classified the amount as nonoperating income and other current liabilities.
Note 4:		The difference was because Senao International Co., Ltd. classified the amount as operating expenses.
Note 5:		The difference was because Senao International Co., Ltd. classified the amount as other payables.
Note 6:		The difference was because CHIEF Telecom Inc. classified the amount as operating expenses.
Note 7:		The difference was because Chunghwa classified the amount as property, plant and equipment, inventories, and intangible assets.
Note 8:		The difference was because Chunghwa classified the amount as payables to contractors.
Note 9:		The difference was because Chunghwa classified the amount as property, plant and equipment, inventories, and intangible asset.

 

- 56 -

---

TABLE 6

CHUNGHWA TELECOM CO., LTD.

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

DECEMBER 31, 2009

(Amounts in Thousands of New Taiwan Dollars)

 

 

No.		Company Name		Related Party		Nature of Relationship		Ending Balance			Turnover Rate		Overdue					Amounts Received in Subsequent Period			Allowance for Bad Debts
													Amounts			Action Taken
0		Chunghwa Telecom Co., Ltd.		Senao International Co., Ltd.		Subsidiary		$	261,458		4.54		$	—		—		$	261,458		$	—
1		Senao International Co., Ltd.		Chunghwa Telecom Co., Ltd.		Parent company			862,912		8.50			—		—			3,771			—
3		Chunghwa System Integration Co., Ltd.		Chunghwa Telecom Co., Ltd.		Parent company			427,123		2.42			—		—			182,104			—

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

 

- 57 -

---

Table 7

CHUNGHWA TELECOM CO., LTD.

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES IN WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE

FOR THE YEAR ENDED DECEMBER 31, 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)

 

 

No.		Investor Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of December 31, 2009								Net Income (Loss) of the Investee				Recognized Gain (Loss) (Notes 1 and 2)				Note
										December 31, 2009				December 31, 2008				Shares (Thousands)		Percentage of Ownership (%)		Carrying Value
0		Chunghwa Telecom Co., Ltd.		Senao International Co., Ltd.		Sindian City, Taipei		Selling and maintaining mobile phones and its peripheral products		$	1,065,813			$	1,065,813			71,773		29		$	1,331,859			$	1,008,040			$	288,268			Subsidiary
				Light Era Development Co., Ltd.		Taipei		Housing, office building development, rent and sale services			3,000,000				3,000,000			300,000		100			2,926,677				(49,907	)			(49,757	)		Subsidiary
				Chunghwa Investment Co., Ltd.		Taipei		Telecommunications, telecommunications value-added services and other related professional investment			1,738,709				980,000			178,000		89			1,651,391				45,517				34,424			Subsidiary
				Chunghwa Telecom Singapore Pte., Ltd.		Singapore		Telecommunication wholesale, internet transfer services international data and long distance call wholesales to carriers			1,389,939				779,280			61,869		100			1,407,519				24				24			Subsidiary
				Chunghwa System Integration Co., Ltd.		Taipei		Providing communication and information aggregative services			838,506				838,506			60,000		100			706,932				3,702				(14,033	)		Subsidiary
				CHIEF Telecom Inc.		Taipei		Internet communication and internet data center (“IDC”) service			482,165				482,165			37,942		69			447,647				25,012				19,956			Subsidiary
				Taiwan International Standard Electronics Co., Ltd.		Taipei		Manufacturing, selling, designing, and maintaining of telecommunications systems and equipment			164,000				164,000			1,760		40			427,810				(53,764	)			(48,471	)		Equity-method investee
				InfoExplorer Co., Ltd.		Banqiao City, Taipei		IT solution provider, IT application consultation, system integration and package solution			283,500				—			22,498		49			276,472				5,093				(7,029	)		Subsidiary
				Viettel-CHT Co., Ltd.		Vietnam		IDC services			288,327				91,239			—		30			269,924				23,766				7,724			Equity-method investee
				Donghwa Telecom Co., Ltd.		Hong Kong		International telecommunications IP fictitious internet and internet transfer services			201,263				201,263			51,590		100			230,528				15,075				15,075			Subsidiary
				Chunghwa International Yellow Pages Co., Ltd.		Taipei		Yellow pages sales and advertisement services			150,000				150,000			15,000		100			171,986				60,714				61,441			Subsidiary
				Skysoft Co., Ltd.		Taipei		Providing of music on-line, software, electronic information, and advertisement services			67,025				67,025			4,438		30			89,913				16,816				5,045			Equity-method investee
				KingWay Technology Co., Ltd.		Taipei		Publishing books, data processing and software services			71,770				71,770			1,703		33			69,913				2,252				(4,804	)		Equity-method investee
				Chunghwa Telecom Global, Inc.		United States		International data and internet services and long distance call wholesales to carriers			70,429				70,429			6,000		100			63,752				14,916				(5,115	)		Subsidiary
				Spring House Entertainment Inc.		Taipei		Network services, producing digital entertainment contents and broadband visual sound terrace development			62,209				62,209			5,996		56			57,095				20,332				11,982			Subsidiary
				So-net Entertainment Taiwan		Taipei		Online service and sale of computer hardware			60,008				—			3,429		30			30,920				(96,958	)			(29,086	)		Equity-method investee
				Chunghwa Telecom Japan Co., Ltd.		Japan		Telecom business, information process and information provide service, development and sale of software and consulting services in telecommunication			17,291				6,140			1		100			10,166				(4,304	)			(4,304	)		Subsidiary
				New Prospect Investments Holdings Ltd. (B.V.I.)		British Virgin Islands		Investment			—   (Note 3	)			—   (Note 3	)		—		100			—   (Note 3	)			—				—   (Note 3	)		Subsidiary
				Prime Asia Investments Group Ltd. (B.V.I.)		British Virgin Islands		Investment			—   (Note 3	)			—   (Note 3	)		—		100			—   (Note 3	)			—				—   (Note 3	)		Subsidiary

(Continued)

 

- 58 -

---

No.		Investor Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of December 31, 2009								Net Income (Loss) of the Investee				Recognized Gain (Loss) (Notes 1 and 2)				Note
										December 31, 2009				December 31, 2008				Shares (Thousands)		Percentage of Ownership (%)		Carrying Value
1		Senao International Co., Ltd.		Senao Networks, Inc.		Linkou Hsiang, Taipei		Telecommunication facilities manufactures and sales		$	206,190			$	206,190			15,295		41		$	288,407			$	104,663			$	45,235			Equity-method investee
				Senao International (Samoa) Holding Ltd.		Samoa Islands		International investment			—				—			—		100			—   (Note 4	)			—				—			Subsidiary
2		CHIEF Telecom Inc.		Unigate Telecom Inc.		Taipei		Telecommunication and internet service			2,000				2,000			200		100			1,997				33				33			Subsidiary
				CHIET Telecom (Hong Kong) Limited		Hong Kong		Network communication and engine room hiring		(HK$	1,678 400	)		(HK$	1,678 400	)		400		100		(HK$	993 241	)		(HK$	(191 (45	)  ))		(HK$	(191 (45	)  ))		Subsidiary
				Chief International Corp.		Samoa Islands		Network communication and engine room hiring		(US$	6,068 200	)		(US$	6,068 200	)		200		100		(US$	7,601 238	)		(US$	1,178 36	)		(US$	1,178 36	)		Subsidiary
3		Chunghwa System Integrated Co., Ltd.		Concord Technology Co., Ltd.		Brunei		Providing advanced business solutions to telecom- munications		(US$	16,179 500	)		(US$	16,179 500	)		500		100		(US$	474 15	)		(US$	(12,738 (386	)  ))		(US$	(12,738 (386	)  ))		Subsidiary
9		Chunghwa Telecom Singapore Pte., Ltd.		ST-2 Satellite Ventures Pte., Ltd.		Singapore		Operation of ST-2 telecom- munication satellite		(SG$	409,061 18,102	)		(SG$	106,432 4,735	)		18,102		38		(SG$	408,341 17,878	)		(SG$	(7,478 (329	)  ))		(SG$	(2,842 (125	)  ))		Equity-method investee
14		Chunghwa Investment Co., Ltd.		Chunghwa Precision Test Tech Co., Ltd.		Tao Yuan		Semiconductor testing components and printed circuit board industry production and marketing of electronic products			91,875				91,875			10,317		54			109,560				(9,998	)			(5,372	)		Subsidiary
				Chunghwa Investment Holding Company		Brunei		General investment		(US$	20,000 589	)		(US$	20,000 589	)		589		100		(US$	10,860 341	)		(US$	(72 (2	)  ))		(US$	(72 (2	)  ))		Subsidiary
				Tatung Technology Inc.		Taipei		The product of SET TOP BOX			50,000				50,000			5,000		28			36,544				6,072				760			Equity-method investee
				Panda Monium Company Ltd.		Cayman		The production of animation		(US$	20,000 602	)		(US$	20,000 602	)		602		43			—				(34,418	)			(14,645	)		Equity-method investee
				CHIEF Telecom Inc.		Taipei		Telecommunication and internet service			20,000				20,000			2,000		4			20,588				25,012				550			Equity-method investee
18		Concord Technology Co., Ltd.		Glory Network System Service (Shanghai) Co., Ltd.		Shanghai		Providing advanced business solutions to telecom- munications		(US$	16,179 500	)		(US$	16,179 500	)		500		100		(US$	469 15	)		(US$	(12,738 (386	)  ))		(US$	(12,738 (386	)  ))		Subsidiary
22		Senao International (Samoa) Holding Ltd.		Senao International HK Limited.		Hong Kong		Sales of communication business			—				—			—		100			—   (Note 5	)			—				—			Subsidiary
24		Chunghwa Investment Holding Company		CHI One Investment Co., Limited		Hong Kong		General investment			—				—			—		100			—   (Note 6	)			—				—			Subsidiary

 

Note 1:		The equity in net income (loss) of investees was based on audited financial statements.
Note 2:		The equity in net income (loss) of investees includes amortization of differences between the investment cost and net value and elimination of unrealized transactions.
Note 3:		New Prospect Investments Holdings Ltd. (B.V.I.) and Prime Asia Investments Group Ltd. (B.V.I.) were incorporated in March 2006, but not on operating stage. Chunghwa has 100% ownership right in an amount of US$1 in each holding company.
Note 4:		Senao International (Samoa) Holding Ltd. was established by Senao International Co., Ltd. in 2009. No capital is injected in Senao International (Samoa) yet by the end of 2009.
Note 5:		Senao International Co., Ltd. established Senao International HK Limited by the subsidiary, Senao International (Samoa) Holding Ltd., in 2009. No capital is injected in Senao International HK Limited yet by the end of 2009.
Note 6:		CHI established CHI One Investment Co., Limited by the subsidiary, Chunghwa Investment Holding Company, in Hong Kong in 2009. No capital is injected in CHI One Investment Co., Limited yet by the end of 2009.

(Concluded)

 

- 59 -

---

TABLE 8

CHUNGHWA TELECOM CO., LTD.

INVESTMENT IN MAINLAND CHINA

FOR THE YEAR ENDED DECEMBER 31, 2009

(Amounts in Thousands of New Taiwan Dollars, in Thousands of U.S. Dollars)

 

 

Investee		Main Businesses and Products		Total Amount of Paid-in Capital				Investment Type		Accumulated Outflow of Investment from Taiwan as of January 1, 2009				Investment Flows						Accumulated Outflow of Investment from Taiwan as of December 31, 2009				% Ownership of Direct or Indirect Investment			Investment Gain (Loss) (Note 2)				Carrying Value as of December 31, 2009				Accumulated Inward Remittance of Earnings as of December 31, 2009
														Outflow			Inflow
Glory Network System Service (Shanghai) Co., Ltd.		Providing advanced business solutions to telecommunications		$ (US$	16,179 500	)		Note 1		$ (US$	16,179 500	)		$	—		$	—		$ (US$	16,179 500	)		100	%		$ (US$	(12,738 (386	)  ))		$ (US$	469 15	)		$	—

 

Accumulated Investment in Mainland China as of December 31, 2009				Investment Amounts Authorized by Investment Commission, MOEA				Upper Limit on Investment Stipulated by Investment Commission, MOEA
$ (US$	16,179 500	)		$ (US$	48,169 1,500	)		$	375,245 (Note 3)

 

Note 1:		Chunghwa System Integration Co., Ltd. indirectly owns this investee through an investment company registered in a third region.
Note 2:		Recognition of investment gains (losses) was calculated based on the investee’s audited financial statements.
Note 3:		The amount was calculated based on the net assets value of Chunghwa System Integration Co., Ltd.

 

- 60 -

---

TABLE 9

CHUNGHWA TELECOM CO., LTD.

SEGMENT INFORMATION

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amount in Thousands of New Taiwan Dollars)

 

 

		Domestic Fixed Communications Business			Mobile Communications Business			Internet Business			International Fixed Communications Business			Others				Adjustment				Total
Year ended December 31, 2009
Revenues from external customers		$	71,623,447		$	74,102,564		$	22,855,233		$	15,252,941		$	206,087			$	—			$	184,040,272
Intersegment revenues (Note 2)			13,649,786			1,914,861			716,818			1,523,235			2,734				(17,807,434	)			—
Interest revenue			3,071			42			2,006			5,414			443,931				—				454,464
Other income			83,771			22,406			67,931			9,482			937,775				—				1,121,365
		$	85,360,075		$	76,039,873		$	23,641,988		$	16,791,072		$	1,590,527			$	(17,807,434	)		$	185,616,101
Interest expense		$	2,505		$	194		$	34		$	20		$	23			$	—			$	2,776
Depreciation and amortization		$	23,984,346		$	8,237,698		$	2,194,515		$	1,392,868		$	163,451			$	—			$	35,972,878
Other expense		$	156,248		$	94,103		$	2,310		$	477		$	296,677			$	—			$	549,815
Segment income before tax		$	17,246,448		$	28,804,144		$	8,986,531		$	2,582,390		$	(1,456,092	)		$	—			$	56,163,421
Total assets		$	231,176,634		$	58,202,467		$	15,884,070		$	17,371,498		$	120,525,134			$	—			$	443,159,803
Capital expenditures for segment assets		$	15,877,274		$	5,006,928		$	1,802,924		$	1,145,264		$	511,944			$	—			$	24,344,334
Year ended December 31, 2008
Revenues from external customers		$	73,172,775		$	75,014,150		$	22,304,668		$	16,028,594		$	260,463			$	—			$	186,780,650
Intersegment revenues (Note 2)			11,928,677			1,933,572			562,746			1,526,956			1,646				(15,953,597	)			—
Interest revenue			2,849			166			2,034			32,708			1,829,118				—				1,866,875
Other income			208,860			78,860			7,685			34,247			1,310,350				—				1,640,002
		$	85,313,161		$	77,026,748		$	22,877,133		$	17,622,505		$	3,401,577			$	(15,953,597	)		$	190,287,527
Interest expense		$	192		$	200		$	5		$	7		$	—			$	—			$	404
Depreciation and amortization		$	25,500,893		$	8,739,578		$	2,266,210		$	1,319,822		$	142,435			$	—			$	37,968,938
Other expense		$	323,680		$	27,462		$	1,558		$	409		$	1,844,184			$	—			$	2,197,293
Segment income before tax		$	15,395,210		$	31,673,172		$	9,821,036		$	2,888,990		$	(1,305,543	)		$	—			$	58,472,865
Total assets		$	243,101,703		$	61,613,764		$	15,619,274		$	17,233,831		$	121,700,099			$	—			$	459,268,671
Capital expenditures for segment assets		$	20,709,584		$	5,162,099		$	1,785,866		$	1,199,187		$	803,615			$	—			$	29,660,351

(Continued)

 

- 61 -

---

Note 1:		The Company organizes its reporting segments based on types of organizational business. The five reporting segments are segregated as below: domestic fixed communications business, mobile communications business, internet business, international fixed communications business and others.
		•     Domestic fixed communications business - the provision of local telephone services, domestic long distance telephone services, broadband access, and related services;   •     Mobile communications business - the provision of mobile services, sales of mobile handsets and data cards, and related services;   •     Internet business - the provision of HiNet services and related services;   •     International fixed communications business - the provision of international long distance telephone services and related services;   •     Others - the provision of non-Telecom Services, and the corporate related items not allocated to reportable segments.
Note 2:		Represents inter-segment revenues from goods and services.
Note 3:		Beginning from September 1, 2009, the Company redefined its financial reporting operating segments into five operating segments: (a) domestic fixed communications business, (b) mobile communications business, (c) internet business, (d) international fixed communications business and (e) others. Prior to September 1, 2009, Chunghwa Telecom had six operating segments: (a) local operations, (b) domestic long distance operations, (c) international long distance operations, (d) cellular service operations, (e) internet and data operations, and (f) all others. The redefinition of the company’s operating segments is expected to facilitate the management’s ability to assess the performance of each operating segment by conforming the company’s operating segments to the international trends of other telecommunications companies in general. The Company also early adopted the Statement of Financial accounting Standards No. 41 “Operating Segments” (“SFAS No. 41”) starting from September 1, 2009. For the comparative purpose, the segments information for the year ended December 31, 2008 was presented in accordance with SFAS No. 41.

(Concluded)

 

- 62 -

---

TABLE 10

CHUNGHWA TELECOM CO., LTD.

PRODUCTS AND SERVICE REVENUES

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amount in Thousands of New Taiwan Dollars)

 

 

		Year Ended December 31
		2009			2008
Mobile services revenue		$	71,296,171		$	72,290,568
Local telephone services revenue			34,119,625			35,247,753
Leased line services revenue			27,494,829			27,669,720
Internet services revenue			20,800,937			21,062,207
International long distance telephone services revenue			12,878,411			14,100,047
Domestic long distance telephone services revenue			7,406,709			8,480,349
Others			10,043,590			7,930,006
		$	184,040,272		$	186,780,650

 

- 63 -

---

Exhibit 4

Chunghwa Telecom Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the

Years Ended December 31, 2009 and 2008 and

Independent Auditors’ Report

---

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders of

Chunghwa Telecom Co., Ltd.

We have audited the accompanying consolidated balance sheet of Chunghwa Telecom Co., Ltd. and subsidiaries (“the Company”) as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those standards required that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Chunghwa Telecom Co., Ltd. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, and accounting principles generally accepted in the Republic of China.

As discussed in Note 3 to the consolidated financial statements, on January 1, 2008, the Company adopted Interpretation 96-052 issued by the Accounting and Research Development Foundation of the Republic of China that requires companies to record bonuses paid to employees, directors and supervisors as an expense rather than an appropriation of earnings. The Company early adopted the new Statements of Financial Accounting Standards No. 41, “Operating Segments” (“SFAS No. 41”) beginning from September 1, 2009.

March 10, 2010

Notice to Readers

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

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

 

- 1 -

---

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars, Except Par Value Data)

 

 

		2009						2008
		Amount				%		Amount				%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)		$	73,259,490			16		$	81,288,165			18
Financial assets at fair value through profit or loss (Notes 2 and 5)			40,519			—			258,578			—
Available-for-sale financial assets (Notes 2 and 6)			17,537,089			4			14,182,385			3
Held-to-maturity financial assets (Notes 2 and 7)			1,099,595			—			769,435			—
Trade notes and accounts receivable, net of allowance for doubtful accounts of $2,798,679 in 2009 and $3,050,691 in 2008 (Notes 2 and 8)			11,973,180			3			10,844,712			2
Receivables from related parties (Note 28)			94,323			—			2,052			—
Other monetary assets (Note 9)			1,839,745			—			2,226,256			—
Inventories, net (Notes 2, 3, 10 and 20)			4,049,207			1			3,902,498			1
Deferred income taxes assets (Notes 2 and 25)			101,347			—			118,535			—
Restricted assets (Notes 20, 29 and 30)			177,462			—			58,914			—
Other current assets (Notes 11 and 20)			4,319,700			1			4,556,040			1
Total current assets			114,491,657			25			118,207,570			25
LONG-TERM INVESTMENTS
Investments accounted for using equity method (Notes 2 and 12)			1,621,772			—			2,337,190			—
Financial assets carried at cost (Notes 2 and 13)			2,536,560			1			2,537,357			1
Held-to-maturity financial assets (Notes 2 and 7)			3,929,662			1			3,044,102			1
Other monetary assets (Notes 14 and 30)			1,000,000			—			1,000,000			—
Total long-term investment			9,087,994			2			8,918,649			2
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 15, 28, 29 and 30)
Cost
Land			102,131,565			23			101,460,017			22
Land improvements			1,535,066			—			1,494,398			—
Buildings			63,184,398			14			63,029,159			14
Computer equipment			16,343,774			4			16,130,398			3
Telecommunications equipment			656,016,086			146			650,204,202			140
Transportation equipment			2,113,053			—			2,406,111			1
Miscellaneous equipment			7,230,632			2			7,331,543			2
Total cost			848,554,574			189			842,055,828			182
Revaluation increment on land			5,800,909			1			5,810,650			1
			854,355,483			190			847,866,478			183
Less: Accumulated depreciation			557,020,560			124			540,822,370			117
			297,334,923			66			307,044,108			66
Construction in progress and advances related to acquisition of equipment			15,687,426			4			16,005,390			4
Property, plant and equipment, net			313,022,349			70			323,049,498			70
INTANGIBLE ASSETS (Note 2)
3G concession			6,737,479			2			7,486,088			2
Goodwill			282,182			—			226,257			—
Others			597,417			—			558,435			—
Total intangible assets			7,617,078			2			8,270,780			2
OTHER ASSETS
Leased assets (Note 29)			362,700			—			516,637			—
Idle assets (Note 2)			957,475			—			957,757			—
Refundable deposits			1,550,825			1			1,373,644			—
Deferred income taxes assets (Notes 2 and 25)			482,931			—			1,543,315			1
Restricted assets (Note 29)			23,524			—			8,536			—
Others (Note 27)			1,400,282			—			743,903			—
Total other assets			4,777,737			1			5,143,792			1
TOTAL		$	448,996,815			100		$	463,590,289			100
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term loans (Note 16)		$	763,000			—		$	258,000			—
Financial liabilities at fair value through profit or loss (Notes 2 and 5)			828			—			107,344			—
Trade notes and accounts payable (Note 20)			10,155,383			2			11,359,570			2
Payables to related parties (Note 28)			335,719			—			523,488			—
Income tax payable (Notes 2 and 25)			4,311,545			1			5,687,100			1
Accrued expenses (Notes 3 and 17)			17,448,914			4			16,345,702			4
Due to stockholders for capital reduction (Note 21)			9,696,808			2			19,115,554			4
Current portion of long-term loans (Note 19)			117,181			—			8,440			—
Other current liabilities (Notes 2, 18, 20, 28 and 31)			16,870,329			4			16,529,811			4
Total current liabilities			59,699,707			13			69,935,009			15
NONCURRENT LIABILITIES
Long-term loans (Note 19)			221,252			—			29,400			—
Deferred income			2,483,764			1			2,072,297			—
Total noncurrent liabilities			2,705,016			1			2,101,697			—
RESERVE FOR LAND VALUE INCREMENTAL TAX (Note 15)			94,986			—			94,986			—
OTHER LIABILITIES
Accrued pension liabilities (Notes 2 and 27)			1,216,940			—			5,173,489			1
Customers’ deposits			5,998,035			2			6,159,722			2
Others			318,517			—			431,515			—
Total other liabilities			7,533,492			2			11,764,726			3
Total liabilities			70,033,201			16			83,896,418			18
EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE PARENT (Notes 2, 15, 21 and 23)
Common stock – $10 par value;
Authorized: 12,000,000 thousand shares
Issued: 9,696,808 thousand shares			96,968,082			21			96,968,082			21
Preferred stock – $10 par value			—			—			—			—
Additional paid-in capital:
Capital surplus			169,496,289			38			179,193,097			38
Donated capital			13,170			—			13,170			—
Equity in additional paid-in capital reported by equity-method investees			304			—			3			—
Total additional paid-in capital			169,509,763			38			179,206,270			38
Retained earnings:
Legal reserve			56,987,241			13			52,859,566			11
Special reserve			2,675,894			—			2,675,894			1
Unappropriated earnings			43,749,962			10			41,276,274			9
Total retained earnings			103,413,097			23			96,811,734			21
Other adjustments
Cumulative translation adjustments			7,626			—			29,474			—
Unrecognized net loss of pension			(43,750	)		—			(84	)		—
Unrealized loss on financial instruments			(447,129	)		—			(2,272,242	)		—
Unrealized revaluation increment			5,803,446			1			5,813,187			1
Total other adjustments			5,320,193			1			3,570,335			1
Total equity attributable to stockholders of the parent			375,211,135			83			376,556,421			81
MINORITY INTERESTS IN SUBSIDIARIES			3,752,479			1			3,137,450			1
Total stockholders’ equity			378,963,614			84			379,693,871			82
TOTAL		$	448,996,815			100		$	463,590,289			100

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

(With Deloitte & Touche audit report dated March 10, 2010)

 

- 2 -

---

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

 

 

		2009					2008
		Amount			%		Amount			%
NET REVENUES (Note 28)		$	198,361,220		100		$	201,669,521		100
OPERATING COSTS (Note 28)			112,735,948		57			113,546,289		56
GROSS PROFIT			85,625,272		43			88,123,232		44
OPERATING EXPENSES (Note 28)
Marketing			22,292,965		11			22,732,128		11
General and administrative			3,764,974		2			3,680,178		2
Research and development			3,173,255		2			3,143,935		2
Total operating expenses			29,231,194		15			29,556,241		15
INCOME FROM OPERATIONS			56,394,078		28			58,566,991		29
NON-OPERATING INCOME AND GAINS (Note 28)
Interest income			478,708		—			1,916,263		1
Valuation gain on financial instruments, net			98,654		—			550,703		1
Foreign exchange gain, net			88,840		—			336,037		—
Equity in earnings of equity method investees, net			—		—			63,648		—
Others			755,692		1			509,482		—
Total non-operating income and gains			1,421,894		1			3,376,133		2
NON-OPERATING EXPENSES AND LOSSES
Loss arising from natural calamities			148,747		—			—		—
Loss on disposal of financial instruments, net			141,865		—			671,685		—
Impairment loss on assets			109,968		—			1,168,399		1
Equity in losses of equity method investees, net			23,223		—			—		—
Interest expense			15,223		—			4,256		—
Loss on disposal of property, plant and equipment, net			6,903		—			278,091		—
Others			131,956		—			136,773		—
Total non-operating expenses and losses			577,885		—			2,259,204		1
INCOME BEFORE INCOME TAX			57,238,087		29			59,683,920		30
INCOME TAX EXPENSE (Notes 2 and 25)			12,742,934		7			13,892,308		7
CONSOLIDATED NET INCOME		$	44,495,153		22		$	45,791,612		23

(Continued)

 

- 3 -

---

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

 

 

		2009						2008
		Amount			%			Amount			%
ATTRIBUTABLE TO
Stockholders of the parent		$	43,757,426			22		$	45,010,342			22
Minority interests			737,727			—			781,270			1
		$	44,495,153			22		$	45,791,612			23
		2009						2008
		Before Income Tax			After Income Tax			Before Income Tax			After Income Tax
EARNINGS PER SHARE (Note 26)
Basic earnings per share		$	5.79		$	4.51		$	6.03		$	4.64
Diluted earnings per share		$	5.77		$	4.50		$	6.02		$	4.63

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

(With Deloitte & Touche audit report dated March 10, 2010)

(Concluded)

 

- 4 -

---

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(In Thousands of New Taiwan Dollars)

 

																													Other Adjustments
		Common Stock							Preferred Stock					Addit- ional Paid- in Capital				Retained Earnings											Cumu- lative Trans- lation Adjust- ments				Unrecog- nized Net Loss of Pension				Unreal- ized Loss on Financial Instru- ments				Unreal- ized Revalu- ation Incre- ment				Treasury Stock				Minority Inter- ests				Total Stock- holders’ Equity
		Shares (Thousands)			Amount				Shares (Thousands)		Amount							Legal Reserve			Special Reserve				Un- approp- riated Earn- ings
BALANCE, JANUARY 1, 2008		9,667,845			$	96,678,451			—		$	—		$	200,605,563			$	48,036,210		$	2,678,723			$	48,317,617			$	(1,980	)		$	(90	)		$	37,508			$	5,823,200			$	(7,107,494	)		$	2,774,561			$	397,842,269
Adjustment of additional paid- in capital from revaluation of land to income upon disposal		—				—			—			—			—				—			—				—				—				—				—				(10,013	)			—				—				(10,013	)
Appropriation of 2007 earnings
Legal reserve		—				—			—			—			—				4,823,356			—				(4,823,356	)			—				—				—				—				—				—				—
Reversal of special reserve		—				—			—			—			—				—			(3,304	)			3,304				—				—				—				—				—				—				—
Cash dividend—NT$4.26 per share		—				—			—			—			—				—			—				(40,716,130	)			—				—				—				—				—				—				(40,716,130	)
Stock dividend—NT$0.1 per share		95,578				955,778			—			—			—				—			—				(955,778	)			—				—				—				—				—				—				—
Employees’ bonus—cash		—				—			—			—			—				—			—				(1,303,605	)			—				—				—				—				—				—				(1,303,605	)
Employees’ bonus—stock		43,453				434,535			—			—			—				—			—				(434,535	)			—				—				—				—				—				—				—
Remuneration to board of directors and supervisors		—				—			—			—			—				—			—				(43,454	)			—				—				—				—				—				—				(43,454	)
Capital surplus transferred to common stock		1,911,555				19,115,554			—			—			(19,115,554	)			—			—				—				—				—				—				—				—				—				—
Decrease in minority interests		—				—			—			—			—				—			—				—				—				—				—				—				—				(419,211	)			(419,211	)
Capital reduction (Note 21)		(1,911,555	)			(19,115,554	)		—			—			—				—			—				—				—				—				—				—				—				—				(19,115,554	)
Consolidated net income in 2008		—				—			—			—			—				—			—				45,010,342				—				—				—				—				—				781,270				45,791,612
Unrealized loss on financial instruments held by investees		—				—			—			—			—				—			—				—				—				—				(7,398	)			—				—				—				(7,398	)
Equity adjustments in investees		—				—			—			—			—				—			—				(54,583	)			—				—				—				—				—				—				(54,583	)
Cumulative translation adjustment for foreign-currency investments held by investees		—				—			—			—			—				—			—				—				31,454				—				—				—				—				(345	)			31,109
Defined benefit pension plan adjustments of investees		—				—			—			—			—				—			—				—				—				6				—				—				—				13				19
Special reserve for gain arising from disposal of land		—				—			—			—			—				—			475				(475	)			—				—				—				—				—				—				—
Cancellation of treasury stock—110,068 thousand common shares (Notes 2 and 23)		(110,068	)			(1,100,682	)		—			—			(2,283,739	)			—			—				(3,723,073	)			—				—				—				—				7,107,494				—				—
Unrealized loss on financial instruments		—				—			—			—			—				—			—				—				—				—				(2,302,352	)			—				—				1,162				(2,301,190	)
BALANCE, DECEMBER 31, 2008		9,696,808				96,968,082			—			—			179,206,270				52,859,566			2,675,894				41,276,274				29,474				(84	)			(2,272,242	)			5,813,187				—				3,137,450				379,693,871
Adjustment of additional paid-in capital from revaluation of land to income upon disposal		—				—			—			—			—				—			—				—				—				—				—				—				—				—				—
Appropriation of 2008 earnings
Legal reserve		—				—			—			—			—				4,127,675			—				(4,127,675	)			—				—				—				—				—				—				—
Cash dividend—NT$3.83 per share		—				—			—			—			—				—			—				(37,138,775	)			—				—				—				—				—				—				(37,138,775	)
Cancellation of preferred stock (Note 21)		—				—			—			—			—				—			—				—				—				—				—				—				—				—				—
Capital surplus transferred to common stock		969,680				9,696,808			—			—			(9,696,808	)			—			—				—				—				—				—				—				—				—				—
Decrease in minority interests		—				—			—			—			—				—			—				—				—				—				—				—				—				(128,833	)			(128,833	)
Capital reduction (Note 21)		(969,680	)			(9,696,808	)		—			—			—				—			—				—				—				—				—				—				—				—				(9,696,808	)
Consolidated net income in 2009		—				—			—			—			—				—			—				43,757,426				—				—				—				—				—				737,727				44,495,153
Equity adjustments in investees		—				—			—			—			301				—			—				(17,288	)			—				—				—				—				—				—				(16,987	)
Cumulative translation adjustment for foreign-currency investments held by investees		—				—			—			—			—				—			—				—				(21,848	)			—				—				—				—				(210	)			(22,058	)
Defined benefit pension plan adjustments of investees		—				—			—			—			—				—			—				—				—				(43,666	)			—				—				—				(1,079	)			(44,745	)
Unrealized loss on financial instruments		—				—			—			—			—				—			—				—				—				—				1,825,113				—				—				7,424				1,832,537
BALANCE, DECEMBER 31, 2009		9,696,808			$	96,968,082			—		$	—		$	169,509,763			$	56,987,241		$	2,675,894			$	43,749,962			$	7,626			$	(43,750	)		$	(447,129	)		$	5,813,187			$	—			$	3,752,479			$	378,973,355

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

(With Deloitte & Touche audit report dated March 10, 2010)

 

- 5 -

---

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars)

 

 

		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income		$	44,495,153			$	45,791,612
Provision for doubtful accounts			462,329				505,285
Depreciation and amortization			36,319,957				38,216,171
Amortization of premium of financial assets			16,080				3,258
Loss on disposal of financial instruments, net			141,865				671,685
Valuation loss on inventory			56,055				58,961
Valuation gain on financial instruments, net			(98,654	)			(550,703	)
Loss on disposal of property, plant and equipment, net			6,903				278,091
Equity in loss (earnings) of equity investees, net			23,223				(63,648	)
Dividends received from equity investees			89,279				217,177
Loss arising from natural calamities			148,747				—
Impairment loss on assets			109,968				1,168,399
Loss on disposal of leased assets			24				733
Deferred income taxes			1,098,630				(155,852	)
Changes in operating assets and liabilities:
Decrease (increase) in:
Financial assets held for trading			221,427				(207,535	)
Trade notes and accounts receivable			(1,491,798	)			126,578
Receivables from related parties			(70,392	)			(388,712	)
Other monetary assets			350,295				4,841,092
Inventories			(143,704	)			(270,506	)
Other current assets			510,031				(1,182,000	)
Increase (decrease) in:
Financial liabilities held for trading			145				—
Trade notes and accounts payable			(1,564,541	)			190,333
Payables to related parties			(206,090	)			656,488
Income tax payable			(1,377,091	)			(1,570,848	)
Accrued expenses			950,081				906,990
Other current liabilities			775,918				808,494
Deferred income			421,598				567,147
Accrued pension liabilities			(3,959,844	)			1,244,325
Net cash provided by operating activities			77,285,594				91,863,015
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of designated financial assets at fair value through profit or loss			(44,625	)			—
Proceeds from disposal of designated financial assets at fair value through profit or loss			62,695				—
Acquisition of available-for-sale financial assets			(9,263,485	)			(8,759,539	)
Proceeds from disposal of available-for-sale financial assets			8,096,767				8,425,156
Acquisition of held-to-maturity financial assets			(2,099,875	)			(3,326,951	)
Proceeds from disposal of held-to-maturity financial assets			868,860				659,605
Acquisition of financial assets carried at cost			(142,455	)			(485,859	)

(Continued)

 

- 6 -

---

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars)

 

 

		2009				2008
Proceeds from disposal of financial assets carried at cost		$	302,157			$	354,933
Increase in other monetary assets			—				(30,000	)
Proceeds from other monetary assets			—				29,109
Acquisition of investments accounted for using equity method			(559,725	)			(554,693	)
Proceeds from disposal of long-term investment			—				44,256
Acquisition of property, plant and equipment			(25,477,587	)			(30,118,922	)
Proceeds from disposal of property, plant and equipment			65,177				14,077
Increase in intangible assets			(274,406	)			(208,323	)
Increase in restricted assets			(90,574	)			(3,065	)
Increase in other assets			(913,815	)			(565,301	)
Net cash used in investing activities			(29,470,891	)			(34,525,517	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans			485,000				222,000
Increase in long-term loans			400,000				—
Repayment of long-term loans			(123,645	)			(37,280	)
Decrease in customers’ deposits			(118,081	)			(126,699	)
Decrease in other liabilities			(199,126	)			(293,747	)
Cash dividends paid			(37,836,442	)			(41,202,177	)
Remuneration to board of directors and supervisors and bonus to employees			—				(1,394,077	)
Proceeds from exercise of employee stock option granted by subsidiary			58,289				63,436
Capital reduction			(19,115,554	)			(9,557,777	)
Net cash used in financing activities			(56,449,559	)			(52,326,321	)
EFFECT OF EXCHANGE RATE CHANGES			(6,693	)			30,795
EFFECT OF CHANGE ON CONSOLIDATED SUBSIDIARIES			612,874				13,192
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(8,028,675	)			5,055,164
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			81,288,165				76,233,001
CASH AND CASH EQUIVALENTS, END OF YEAR		$	73,259,490			$	81,288,165
SUPPLEMENTAL INFORMATION
Interest paid (excluding capitalized interest expense)		$	13,480			$	4,095
Income tax paid		$	13,023,872			$	15,620,016

(Continued)

 

- 7 -

---

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars)

 

 

		2009				2008
NON-CASH FINANCING ACTIVITIES
Current portion of long-term loans		$	117,181			$	8,440
Reclassification from common capital stock to due to stockholders for capital reduction		$	9,696,808			$	19,115,554
CASH AND NON-CASH INVESTING ACTIVITIES
Increase in property, plant and equipment		$	25,150,339			$	31,162,149
Payables to suppliers			359,280				(1,070,843	)
Prepayments for equipment			(32,032	)			27,616
		$	25,477,587			$	30,118,922

The acquisition of InfoExplorer Co., Ltd. (“IFE”) was made on January 20, 2009. The following table presents the allocation of acquisition costs of IFE to assets acquired and liabilities assumed based on their fair values on the basis of the final data on May 7, 2009:

 

Cash and cash equivalents		$	457,990
Receivables			13,479
Other current assets			14,792
Property, plant, and equipment			40,221
Identifiable intangible assets			53,001
Refundable deposits			2,468
Other assets			2,338
Payables			(83,319	)
Income tax payable			(246	)
Other current liabilities			(153	)
Total			500,571
Percentage of ownership			49.07	%
			245,630
Goodwill			37,870
Acquisition costs of acquired subsidiary (cash prepaid for long-term investments in December 2008)		$	283,500

(Continued)

 

- 8 -

---

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars)

 

The acquisition of Chunghwa Investment Co., Ltd. (“CHI”) and its subsidiaries was made on September 9, 2009. The following table presents the allocation of acquisition costs of Chunghwa Investment Co., Ltd. and its subsidiaries to assets acquired and liabilities assumed based on their fair values on the basis of the final data performed:

 

Cash and cash equivalents		$	913,593
Financial assets at fair value through profit or loss			51,357
Available-for-sale financial assets			568,377
Trade notes and accounts receivable			76,258
Inventories			60,040
Other current assets			19,429
Investments accounted for using equity method			57,339
Financial assets carried at cost			155,714
Property, plant, and equipment			90,278
Identifiable intangible assets			33,662
Other assets			22,462
Trade notes and accounts payable			(33,665	)
Accrued expense			(16,496	)
Income tax payable			(1,289	)
Short-term loans			(20,000	)
Long-term loans			(24,238	)
Other liabilities			(1,115	)
Subtotal			1,951,706
Minority interests			(100,071	)
Total			1,851,635
Percentage of additional ownership			40	%
			740,654
Goodwill			18,055
Acquisition costs of acquired subsidiary paid in cash		$	758,709

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

(With Deloitte & Touche audit report dated March 10, 2010)

(Concluded)

 

- 9 -

---

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise)

 

1. GENERAL

Chunghwa Telecom Co., Ltd. (“Chunghwa”) was incorporated on July 1, 1996 in the Republic of China (“ROC”) 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 to as Chunghwa which continues to carry out the business and the DGT continues to be the industry regulator.

As the dominate telecommunications service provider of fixed-line and Global System for Mobile Communications (“GSM”) in the ROC, Chunghwa is subject to additional regulations imposed by ROC.

Effective August 12, 2005, the MOTC had 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 shares were listed and traded on the Taiwan Stock Exchange (the “TSE”) on October 27, 2000. Certain of Chunghwa’s common shares had been 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 shares had also been 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 shares 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.

Senao International Co., Ltd. (“SENAO”) was incorporated in 1979. SENAO engages mainly in selling and maintaining mobile phones and its peripheral products. Chunghwa acquired 31.33% shares of SENAO on January 15, 2007 and has substantial control in SENAO by obtaining half of the seats of the board of directors of SENAO on April 12, 2007. On March 27, 2009, the board of directors of Chunghwa resolved to purchase 48,000 thousand common shares of SENAO through SENAO’s private placement. However, Chunghwa and SENAO did not complete the required procedures within the legal payment period; therefore, Chunghwa and SENAO decided to discontinue the private placement.

Senao International (Samoa) Holding Ltd. (SIS) was established by SENAO in 2009. SIS will engage mainly in international investment activities; however, no capital is injected in SIS and SIS is not on operation stage yet by the end of 2009.

Senao International HK Limited (SIHK) was established by SIS in 2009. SIHK will engage mainly in the sales of telecommunication business; however, no capital is injected in SIHK and SIHK is not on operation stage yet by the end of 2009.

Chunghwa established Chunghwa International Yellow Pages Co., Ltd. (“CIYP”) in January 2007. CIYP engages mainly in yellow pages sales and advertisement services.

 

- 10 -

---

CHIEF Telecom Inc. (“CHIEF”) was incorporated in 1991. CHIEF engages mainly in internet communication and internet date center (“IDC”) service. Chunghwa acquired 70% shares of CHIEF on September 2006.

Unigate Telecom Inc. (“Unigate”) was established by CHIEF in 1999. Unigate engages mainly in telecommunication and information software service.

CHIEF Telecom (Hong Kong) Limited (“CHIEF (HK)”) was established by CHIEF in 2003. CHIEF (HK) engages mainly in internet communication and internet data center (“IDC”) service. On August 20, 2009, the stockholders of CHIEF (HK) resolved to dissolve CHIEF (HK). CHIEF (HK) will enter into liquidation process upon receiving the local government authorization. This procedure is still in the application phase as of the date of the audit report.

Chief International Corp. (“CIC”) was established by CHIEF in 2008. CIC engages mainly in internet communication and internet data center (“IDC”) services.

Chunghwa System Integration Co., Ltd. (“CHSI”) was incorporated in 2002. CHSI engages mainly in providing communication and information integration services. Chunghwa has acquired 100% shares of CHSI in December 2007.

Concord Technology Co., Ltd. (“Concord”), a subsidiary of CHSI, was incorporated in 2006. Concord engages mainly in investment.

Glory Network System Service (Shanghai) Co., Ltd. (“GNSS (Shanghai)”), a subsidiary of Concord, was incorporated in 2006. GNSS (Shanghai) engages mainly in planning and designing of systems and communications and information integration services. On March 20, 2009, the stockholders of CHSI resolved to dissolve GNSS (Shanghai). On July 23, 2009, the board of directors of CHSI revoked the original resolution of dissolution.

Chunghwa Telecom Global, Inc. (“CHTG”) was incorporated in 2004. CHTG engages mainly in international data and internet services and long distance call wholesales to carriers. Chunghwa acquired 100% shares of CHTG in December 2007.

Donghwa Telecom Co., Ltd. (“DHT”) was incorporated in 2004. DHT engages mainly in international telecommunications, IP fictitious internet and internet transfer services. Chunghwa acquired 100% shares of DHT in December 2007.

Spring House Entertainment Inc. (“SHE”) was incorporated in 2000. SHE engages mainly in network services, producing digital entertainment contents and broadband visual sound terrace development. SHE was an equity method investee before Chunghwa obtained control interest over it in January 2008.

Chunghwa established Light Era Development Co., Ltd. (“LED”) in January 2008. LED engages mainly in development of property for rent and sale.

LED signed the contract with Good Neighbor Labuan Holdings Ltd. to acquire 100% ownership interest of Yao Yong Real Property. The consideration for this transaction is $2,793,667 thousand in cash to acquire 83,290 thousand shares on March 1, 2010. Yao Yong Real Property Co., Ltd. engages mainly in real estate leasing business.

Chunghwa established Chunghwa Telecom Singapore Pte. Ltd. (“CHTS”) in July 2008, CHTS engages mainly in telecommunication wholesale, internet transfer services, international data, long distance call wholesales to carriers and the world satellite business.

Chunghwa established Chunghwa Telecom Japan Co., Ltd. (“CHTJ”) in October 2008. CHTJ engages mainly in telecommunication business, information processing and information providing service, development and sale of software and consulting services in telecommunication.

 

- 11 -

---

InfoExplorer Co., Ltd. (“IFE”) was incorporated in 2008. IFE engages mainly in information system planning and maintenance, software development, and information technology consultation services. Chunghwa acquired 49% shares of IFE on January 5, 2009 and has control over IFE by obtaining half of seats of the board of directors of IFE on January 20, 2009.

Chunghwa Investment Co., Ltd. (“CHI”) was established in 2002. CHI engages mainly in professional investing in telecommunication business, and telecommunication valued-added services. Chunghwa acquired additional 40% of the shares of CHI on September 9, 2009 for $758,709 thousand. Chunghwa increased its ownership interest in CHI from 49% to 89% and became the parent company of CHI. As a result of additional acquisition of CHI, the accounts of CHI and its subsidiaries are included in the consolidated financial statements starting from September 9, 2009.

Chunghwa Precision Test Tech. Co., Ltd. (“CHPT”) was established in 2005 as the subsidiary of CHI. CHPT engages mainly in production and marketing in semiconductor testers and printed circuit board.

Chunghwa Investment Holding Company (“CIHC”) was established by CHI in 2004. CIHC engages mainly in general investment activities.

CHI One Investment Co., Ltd. (COI) was established by CHI in 2009. COI engages mainly in investment activities. There was no capital injection by the end of 2009. The capital injection made in January 2010 was amounted to $14,438 thousand.

Chunghwa has established New Prospect Investments Holdings Ltd. (“New Prospect”) and Prime Asia Investments Group Ltd. (“Prime Asia”) in March 2006, but not on operation stage yet. Both holding companies are operating as investment companies and Chunghwa has 100% ownership right in an amount of US$1 in each holding company by the end of 2009.

As of December 31, 2009 and 2008, the Company had 27,915 and 27,165 employees, respectively.

The following diagram presents information regarding the relationship and ownership percentages between Chunghwa and its subsidiaries as of December 31, 2009:

 

- 12 -

---

Chunghwa together with its subsidiaries are hereinafter referred to collectively as the “Company”. Minority interests in the aforementioned subsidiaries are presented as a separate component of stockholders’ equity.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements were prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the ROC (“ROC GAAP”). The preparation of consolidated financial statements requires management to make reasonable estimates and assumptions on allowances for doubtful accounts, valuation allowances on inventories, depreciation of property, plant and equipment, impairment of assets, bonuses paid to employees, directors and supervisors, pension plans and income tax which are inherently uncertain. Actual results may differ from these estimates. The significant accounting policies are summarized as follows:

Principle of Consolidation

The Company accounts for business combinations in accordance with the requirements of the Statement of Financial Accounting Standards No. 25, “Business Combinations”—the accounting treatment of purchase method when acquiring the information of its subsidiaries.

The accompanying consolidated financial statements include the accounts of all directly and indirectly majority owned subsidiaries of the Company, and the accounts of investees in which the Company’s ownership percentage is less than 50% but over which the Company has a controlling interest. All significant intercompany transactions and balances are eliminated upon consolidation.

The consolidated financial statements for the year ended December 31, 2009 include the accounts of Chunghwa, SENAO, SIS, SIHK, CIYP, CHIEF, Unigate, CHIEF (HK), CIC, CHSI, Concord, GNSS (Shanghai), CHTG, DHT, SHE, LED, CHTS, CHTJ, IFE, CHI, CHPT, CIHC, COI, New Prospect and Prime Asia. The consolidated financial statements for the year ended December 31, 2008 include the accounts of Chunghwa, SENAO, CIYP, CHIEF, Unigate, CHIEF (HK), CIC, CHSI, Concord, GNSS (Shanghai), CHTG, DHT, SHE, LED, CHTS, CHTJ, New Prospect and Prime Asia.

For foreign subsidiaries using their local currency as their functional currency, assets and liabilities are translated in New Taiwan dollars at the exchange rates in effect on the balance sheet date; stockholders’ equity accounts are translated into New Taiwan dollars at historical exchange rates and income statement accounts are translated into New Taiwan dollars at average exchange rates during the year.

The entities in the “Consolidated Financial Statements of Affiliated Enterprises” are the same as those in the consolidated financial statements; thus, no consolidated financial statements of Chunghwa and affiliates will be compiled. The information needed in the consolidated financial statements of Chunghwa and affiliates is enclosed in the consolidated financial statements

Classification of Current and Noncurrent Assets and Liabilities

Current assets are assets expected to be converted to cash, sold or consumed within one year from balance sheet date. Current liabilities are obligations expected to be settled within one year from balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.

LED engages mainly in development of property for rent and sale. The assets are liabilities of LED related to property development within its operating cycle which are over one year is classified as current items. For assets and liabilities related to property development over its operating cycle are classified as noncurrent items.

 

- 13 -

---

Cash Equivalents

Cash equivalents is commercial paper with maturities of three months or less from the date of acquisition. The carrying amount approximates fair value.

Financial Assets and Liabilities at Fair Value Through Profit or Loss

Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss (“FVTPL”) include financial assets or financial liabilities held for trading and those designated as at FVTPL on initial recognition. The Company recognizes a financial asset or a financial liability when the Company becomes a party to the contractual provisions of the financial instrument. A financial asset is derecognized when the Company loses control of its contractual rights over the financial asset. A financial liability is derecognized when the obligation specified in the relevant contract is discharged, cancelled or expired.

Financial instruments at FVTPL are initially measured at fair value. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized as expenses as incurred. Financial assets or financial liabilities at FVTPL are remeasured at fair value, subsequently with changes in fair value recognized in earnings. Cash dividends received subsequently (including those received in the period of investment) are recognized as income. On derecognition of a financial asset or a financial liability, the difference between its carrying amount and the sum of the consideration received and receivable or consideration paid and payable is recognized in earnings. A regular way purchase or sale of financial assets is accounted for using trade date accounting.

Derivatives that do not meet the criteria for hedge accounting is classified as financial assets or financial liabilities held for trading. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.

Available-for-sale Financial Assets

Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of stockholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using trade date accounting.

The recognition and derecognition of available-for-sale financial assets are similar to those of financial assets at FVTPL.

Fair values are determined as follows: Listed stocks—at closing prices at the balance sheet date; open-end mutual funds—at net asset values at the balance sheet date; bonds—quoted at prices provided by the Taiwan GreTai Securities Market; and financial assets and financial liabilities without quoted prices in an active market—at values determined using valuation techniques.

Cash dividends are recognized in earnings on the ex-dividend date, except for the dividends declared before acquisition which are treated as a reduction of investment cost. Stock dividends are recorded as an increase in the number of shares and do not affect investment income. The total number of shares subsequent to the increase of stock dividends is used for recalculate cost per share.

An impairment loss is recognized when there is objective evidence that the financial asset is impaired. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent to the decrease and recorded as an adjustment to stockholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.

 

- 14 -

---

Held-to-maturity Financial Assets

Held-to-maturity financial assets are carried at amortized cost using the effective interest method. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains and losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using trade date accounting.

If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.

Revenue Recognition, Account Receivables and Allowance for Doubtful Receivables

Revenues are recognized when they are realized or realizable and earned. Revenues are realized or realizable and earned when the Company has persuasive evidence of an arrangement, the goods have been delivered or the services have been rendered to the customer, the sales price is fixed or determinable and collectability is reasonably assured.

Revenue is measured at the fair value of the consideration received or receivable and represents amounts agreed between the Company and the customers for goods sold in the normal course of business, net of sales discounts and volume rebates. For trade receivables due within one year from the balance sheet date, as the nominal value of the consideration to be received approximates its fair value and transactions are frequent, fair value of the consideration is not determined by discounting all future receipts using an imputed rate of interest.

Usage revenues from fixed-line services (including local, domestic long distance and international long distance), cellular services, Internet and data services, and interconnection and call transfer fees from other telecommunications companies and carriers are billed in arrears and are recognized based upon minutes of traffic processed when the services are provided in accordance with contract terms.

The costs of providing services are recognized as incurred. Incentives to third party dealers for inducing business which are payable when the end user enters into an airtime contract are recognized in marketing expenses as incurred.

Other revenues are recognized as follows: (a) one-time subscriber connection fees (on fixed-line services) are deferred and recognized over the average expected customer service periods, (b) monthly fees (on fixed-line services, wireless and Internet and data services) are accrued every month, and (c) prepaid services (fixed line, cellular and Internet) are recognized as income based upon actual usage by customers or when the right to use those services expires.

Where the Company enters into transactions which involve both the provision of air time bundled with products such as 3G data card and handset, total consideration received from handsets in these arrangements is allocated and measured using units of accounting within the arrangement based on relative fair values limited to the amount that is not contingent upon the delivery of other items or services.

Where the Company sells products to third party cellular phone stores the Company records the direct sale of the products, typically handsets, as gross revenue when the Company is the primary obligor in the arrangement and when title is passed and the products are accepted by the stores.

An allowance for doubtful receivables is provided based on a review of the collectability of accounts receivable. The Company determines the amount of allowance for doubtful receivables by examining the aging analysis of outstanding accounts receivable.

 

- 15 -

---

Inventories

Inventories including merchandise and work-in-process are stated at the lower of cost (weighted-average cost) or net realizable value item by item, except for those that may be appropriate to group items of similar or related inventories. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. The calculation of the cost of inventory is derived using the weighted-average method.

Inventories of LED are stated at the lower of cost or net realizable value. Prepayments for licensing and other miscellaneous costs have been capitalized as part of inventory. Profit shall be recognized in full when the land is sold, provided (a) the profit is determinable, that is, the collectability of the sales price is reasonably assured or the amount that will not be collectible can be estimated, and (b) the earnings process is virtually completed.

Investments Accounted for using Equity Method

Investments in companies in which the Company exercises significant influence over the operating and financial policy decisions are accounted for by the equity method. Under the equity method, the investment is initially stated at cost and subsequently adjusted for its proportionate share in the net earnings of the investee companies. Any cash dividends received are recognized as a reduction in the carrying value of the investments.

Gains or losses on sales from the Company to equity method investees wherein Chunghwa exercises significant influence over these equity investees are deferred in proportion to the Company’s ownership percentage in the investees until such gains or losses are realized through transactions with third parties. Gains or losses on sales from equity method investees to Chunghwa are deferred in proportion to Chunghwa’s ownership percentages in the investees until they are realized through transactions with third parties.

When the Company subscribes for additional investees shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to additional paid-in capital to the extent available, with the balance charged to retained earnings.

Financial Assets Carried at Cost

Investments in equity instruments that do not have a quoted price in an active market and whose fair values cannot be reliably measured such as non-publicly traded stocks are measured at their original cost. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.

The accounting treatment for cash dividends and stock dividends arising from financial assets carried at cost is the same as that for cash dividends and stock dividends arising from available-for-sale financial assets.

Property, Plant and Equipment

Property, plant and equipment are stated at cost plus a revaluation increment, if any, less accumulated depreciation and accumulated impairment loss. The interest costs that are directly attributable to the acquisition, construction of a qualifying asset are capitalized as property, plant and equipment. Major renewals and betterments are capitalized, while maintenance and repairs are expensed as incurred.

 

- 16 -

---

When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized.

An impairment loss on a revalued asset is charged to “unrealized revaluation increment” under equity to the extent available, with the balance is recognized as a loss in earnings. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment loss could be reversed and recognized as a gain, with the remaining credited to “unrealized revaluation increment”.

Depreciation expense is computed using the straight-line method over the following estimated service lives: land improvements—10 to 30 years; buildings—10 to 60 years; computer equipment—3 to 10 years; telecommunication equipment—5 to 30 years; transportation equipment—5 to 10 years; and miscellaneous equipment—2 to 12 years.

Upon sale or disposal of property, plant and equipment, the related cost, accumulated depreciation, accumulated impairment losses and any unrealized revaluation increment are deducted from the corresponding accounts, and any gain or loss recorded as non-operating gains or losses in the year of sale or disposal.

Intangible Assets

Intangible assets mainly include 3G Concession, computer software, patents and goodwill.

The 3G Concession is valid through December 31, 2018. The 3G Concession fees is amortized on a straight-line basis from the date operations commence through the date the license expires. Computer software costs and patents are amortized using the straight-line method over the estimated useful lives of 2-20 years.

The Company adopted the newly released Statements of Financial Accounting Standards No. 37, “Intangible Assets.” Expenditure on research shall be expensed as incurred. Development Costs are capitalized when those costs meet relative criteria and are amortized using the straight-line method over estimated useful lives. Development costs that do not meet relative criteria shall be expensed as incurred.

When an indication of impairment is identified other than goodwill, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, as if no impairment loss had been recognized.

Goodwill represents the excess of the consideration paid over the fair value of identifiable net assets acquired. Goodwill is tested for impairment annually. If an event occurs or circumstances change which indicates that the fair value of goodwill is below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Idle Assets

Idle assets are carried at the lower of recoverable amount or carrying amount.

Pension Costs

For defined benefit pension plans, net periodic pension benefit cost is recorded in the consolidated statement of income and includes service cost, interest cost, expected return on plan assets, amortization of prior service costs, amortization of pension gains (losses) and curtailment or settlement gains (losses).

 

- 17 -

---

The Company recognizes into income, any unrecognized actuarial net gains or losses that exceed 10% of the larger of projected benefit obligations or plan assets, defined as the “corridor”. Amounts inside this 10% corridor are amortized over the average remaining service life of active plan participants. Actuarial net gains and losses occur when actual experience differs from any of the many assumptions used to value the plans. Differences between the expected and actual returns on plan assets and changes in interest rate, which affect the discount rate used to value projected plan obligations, can have a significant impact on the calculation of pension net gains and losses from year to year.

The curtailments and settlement gains (losses) resulted from the Chunghwa’s early retirement programs. Curtailment/settlement gains or losses are equal to the changes of underfunded status plus the a pro rata portion of the unrecognized prior service cost, unrecognized net gains (losses), and unrecognized transition obligations/assets, before the settlement/curtailment event multiplied by the percentage reduction in projected benefit obligation.

The projected benefit obligation represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future compensation levels.

The carrying amount of accrued pension liability should be the sum of the following amounts: (a) projected benefit obligation as of balance sheet date, (b) minus (plus) unamortized actuarial loss (gain), (c) minus unamortized prior service cost, and (d) minus the fair value of plan assets. If the amount determined by above calculation is negative, it is viewed as prepaid pension cost. The prepaid pension cost is measured at the lower of: (a) the amount determined above, and (b) the sum of the following amounts: (i) unamortized actuarial loss, (ii) unamortized prior service cost, and (iii) the present value of refunds from the plan or reductions in future contributions to the plan.

The measurement of benefit obligations and net periodic cost (income) is based on estimates and assumptions approved by the company’s management such as compensation, age and seniority, as well as certain assumptions, including estimates of discount rates, expected return on plan assets and rate of compensation increases.

For employees under defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods.

Expense Recognition

The costs of providing services are recognized as incurred. The cost includes incentives to third party dealers for inducing business which are payable when the end user enters into an airtime contract.

Treasury Stock

Treasury stock is recorded at cost and shown as a reduction to stockholders’ equity. Upon cancellation of treasury stock, the treasury stock account is reduced and the common stock and capital surplus are reversed on a pro rata basis. If capital surplus is not sufficient for debiting purpose, the difference is charged to retained earnings.

Share-based Compensation

Employee stock options granted on or after January 1, 2008 are accounted for using fair value method in accordance with under SFAS No. 39, “Accounting for Share-based Payment.” The adoption of SFAS No. 39 did not have any impact on the Company.

Employee stock options granted between January 1, 2004 and December 31, 2007 were accounted for under the interpretations issued by the Accounting Research and Development Foundation (the “ARDF”). The Company adopted the intrinsic value method, under which compensation cost was amortized over the vesting period.

 

- 18 -

---

Income Tax

The Company applies inter-period allocations for its income tax, whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.

Any tax credits arising from purchases of machinery, equipment and technology, research and development expenditures, personnel training, and investments in important technology-based enterprises are recognized using the flow-through method.

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

Income taxes (10%) on undistributed earnings is recorded in the year of stockholders approval which is the year subsequent to the year the earnings are generated.

Foreign-currency Transactions

Foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.

The financial statements of foreign equity investees and consolidate subsidiaries are translated into New Taiwan dollars at the following exchange rates. Assets and liabilities—spot rates at year-end; stockholders’ equity—historical rates, income and expenses—average rates during the year. The resulting translation adjustments are recorded as a separate component of stockholders’ equity.

Hedge Accounting

A hedging relationship qualifies for hedge accounting only if, all of the following conditions are met: (a) at the inception of the hedge, there is formal documentation of the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge; (b) the hedge is expected to be highly effective in achieving offsetting changes in fair value attributable to the hedged risk, consistently with the risk management strategy documented for that particular hedging relationship; (c) the effectiveness of the hedge can be reliably measured; (d) the hedge is assessed on an ongoing basis and determined actually to have been highly effective throughout the financial reporting periods for which the hedge was designated.

The gain or loss from remeasuring the hedging instrument at fair value and the gain or loss on the hedged item attributable to the hedged risk are recognized in earnings.

The hedging items that do not meet the criteria for hedge accounting were classified as financial assets or financial liabilities at fair value through profit or loss.

3. EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES

The Company early adopted the Statement of Financial Accounting Standards No. 41 “Operating Segments” (“SFAS No. 41”) starting from September 1, 2009. This Statement supersedes the Statement of Financial Accounting Standards No. 20 “Segment Reporting”. For comparative purpose, the segment information for the year ended December 31, 2008 was presented in accordance with SFAS No. 41.

 

- 19 -

---

The Company adopted the newly-revised Statements of Financial Accounting Standards No. 10, “Accounting for Inventories,” (“SFAS No. 10”) beginning from January 1, 2009, which requires inventories to be stated at the lower of cost (weighted-average cost) or net realizable value item by item, except for those that may be appropriate to group items of similar or related inventories. The inventory-related incomes and expenses shall be classified as operating cost. The adoption of the revised SFAS No. 10 does not have significant impact on the Company’s consolidated net income and basic earnings per share (after income tax) for the year ended December 31, 2009. The Company reclassified non-operating losses of $58,170 thousand to operating costs for the year ended December 31, 2008.

In March 2007, the ARDF issued an Interpretation 96-052 that requires companies to recognize bonuses paid to employees, directors and supervisors as an expense rather than an appropriation of earnings beginning from January 1, 2008.

4. CASH AND CASH EQUIVALENTS

 

		December 31
		2009			2008
Cash
Cash on hand		$	142,319		$	148,216
Bank deposits			8,198,905			12,829,954
Negotiable certificate of deposit, annual yield rate – ranging from 0.25%-0.37% and 0.31%-2.45% for 2009 and 2008, respectively.			63,350,000			48,486,241
			71,691,224			61,464,411
Cash equivalents
Commercial paper, annual yield rate – ranging from 0.19%-0.24% and 0.70%-1.55% for 2009 and 2008, respectively			1,568,266			19,823,754
		$	73,259,490		$	81,288,165

5. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

 

		December 31
		2009			2008
Derivatives – financial assets
Currency swap contracts		$	6,677		$	—
Index future contracts			—			242,868
Forward exchange contracts			—			15,710
Designated financial assets at fair value through profit or loss			6,677			258,578
Convertible bonds			33,842			—
		$	40,519		$	258,578
Derivatives – financial liabilities
Forward exchange contracts		$	828		$	95,963
Index future contracts			—			11,381
		$	828		$	107,344

 

- 20 -

---

Chunghwa entered into investment management agreements with well-known financial institutions (fund managers) to manage its investment portfolios in 2006. The investment portfolios managed by these fund managers aggregated to an original amount of US$100,000 thousand. Chunghwa terminated the investment management agreements on March 2, 2009 and asked fund managers to dispose all the investment portfolios. The fund managers had disposed all investment portfolios before June 23, 2009 and returned the proceeds to Chunghwa.

The Company entered into currency swap contracts, forward exchange contracts and index future contracts to reduce its exposure to foreign currency risk and variability in operating results due to fluctuations in exchange rates and stock prices. However, the aforementioned derivatives did not meet the criteria for hedge accounting and were classified as financial assets or financial liabilities held for trading.

Outstanding currency swap contracts and forward exchange contracts as of December 31, 2009 and 2008:

 

		Currency		Maturity Period		Contract Amount (In Thousands)
December 31, 2009
Currency swap contracts		USD/NTD		2010.01-2010.04		USD45,000/NTD1,448,160
Forward exchange contracts—buy		NTD/USD		2010.01		NTD 86,657
December 31, 2008
Buy		NTD/USD		2009.01		NTD 131,412
Sell		EUR/USD		2009.01		EUR 4,240
		JPY/USD		2009.01		JPY 446,200
		GBP/USD		2009.01		GBP 1,880
		USD/NTD		2009.01		USD 96,000
		USD/JPY		2009.01		USD 1,544
		USD/EUR		2009.01		USD 777
		USD/GBP		2009.01		USD 124

The Company did not have any outstanding index future contracts on December 31, 2009.

Outstanding index future contracts on December 31, 2008 were as follows:

 

		Maturity Period		Units		Contract Amount (In Thousands)
December 31, 2008
AMSTERDAM IDX FUT		2009.01		13		EUR 642
CAC40 10 EURO FUT		2009.01		14		EUR 451
DAX INDEX FUTURE		2009.03		3		EUR 356
IBEX 35 INDX FUTR		2009.01		7		EUR 633
MINI S&P/MIB FUT		2009.03		37		EUR 712
FTSE 100 IDX FUT		2009.03		19		GBP 815
TOPIX INDEX FUTURE		2009.03		35		JPY 283,990
S&P 500 FUTURE		2009.03		16		USD 3,541
S&P 500 EMINI FUTURE		2009.03		53		USD 2,346

As of December 31, 2008, the deposits paid for index future contracts were $242,768 thousand.

 

- 21 -

---

In September 2007, Chunghwa entered into a 10-year, foreign currency derivative contract with Goldman Sachs Group Inc. (“Goldman”) and valuations were made biweekly starting from September 20, 2007 which were 260 valuation periods totally. Under the terms of the contract, if the NT dollar/US dollar exchange rate was less than NT$31.50 per US dollar at any two consecutive bi-weekly valuation dates during the valuation period starting from October 4, 2007 to September 5, 2017, Chunghwa was required to make a cash payment to Goldman. The settlement amount was determined by the difference between the applicable exchange rates and the base amount of US$4,000 thousand. Conversely, if the NT dollar/US dollar exchange rate was above NT$31.50 per US dollar using the same valuation methodology, Goldman would have a settlement obligation to Chunghwa determined using a base amount of US$2,000 thousand. Further, if the exchange rate was at or above NT$32.70 per US dollar starting from December 12, 2007 at any time, the contract would be terminated at that time. In accordance with the terms of the contract, Chunghwa deposited US$3,000 thousand with Goldman with annual yield rate of 8%. On October 21, 2008, the exchange rate was above NT$32.70 per US dollar, so the contract was terminated at that time.

Net gain arising from financial assets and liabilities at fair value through profit or loss for the years ended December 31, 2009 and 2008 were $72,315 thousand (including realized settlement loss of $26,328 thousand and valuation gain of $98,643 thousand), and $485,929 thousand (including realized settlement loss of $38,127 thousand and valuation gain of $524,056 thousand) respectively.

6. AVAILABLE-FOR-SALE FINANCIAL ASSETS

 

		December 31
		2009			2008
Open-end mutual funds		$	16,831,657		$	13,441,639
Domestic listed stocks			499,987			—
Corporate bonds			103,323			—
Real estate investment trust fund			102,122			194,226
Foreign listed stocks			—			546,520
		$	17,537,089		$	14,182,385

Movements of unrealized gain (loss) on available-for-sale financial assets were as follows:

 

		Years Ended December 31
		2009				2008
Balance, beginning of year		$	(2,264,932	)		$	37,420
Impact on acquisition of subsidiaries			2,147				—
Recognized in stockholders’ equity			1,685,169				(3,185,230	)
Transferred to profit or loss			130,487				882,878
Balance, end of year		$	(447,129	)		$	(2,264,932	)

Global economic and financial circumstances have significantly changed. As a result, Chunghwa determined that the impairment losses of available-for-sale financial assets is other-than-temporary in nature, and recorded impairment losses of $85,349 thousand and $1,139,105 thousand for the years ended December 31, 2009 and 2008, respectively.

 

- 22 -

---

7. HELD-TO-MATURITY FINANCIAL ASSETS

 

		December 31
		2009			2008
Corporate bonds, nominal interest rate ranging from 0.76%-4.75% and 1.93%-2.95% for 2009 and 2008, respectively; effective interest rate ranging from 0.45%-2.95% and 1.80%-2.95% for 2009 and 2008, respectively		$	4,531,699		$	2,635,172
Bank debentures, nominal interest rate ranging from 1.87%-2.11% and 2.11%-3.85% for 2009 and 2008, respectively; effective interest rate ranging from 1.14%-2.90% and 2.33%-2.90%, respectively			497,558			1,137,005
Collateralized loan obligation, nominal and effective interest rate was 2.18% for 2008			—			41,360
			5,029,257			3,813,537
Less: Current portion			1,099,595			769,435
		$	3,929,662		$	3,044,102

8. ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

		Year Ended December 31
		2009				2008
Balance, beginning of year		$	3,050,691			$	3,430,157
Provision for doubtful accounts			454,598				500,898
Impact on acquisition of subsidiaries			630				983
Accounts receivable written off			(707,240	)			(881,347	)
Balance, end of year		$	2,798,679			$	3,050,691

9. OTHER MONETARY ASSETS-CURRENT

 

		December 31
		2009			2008
Accrued custodial receipts from other carriers		$	432,569		$	484,224
Other receivables			1,407,176			1,742,032
		$	1,839,745		$	2,226,256

 

- 23 -

---

10. INVENTORIES, NET

 

		December 31
		2009			2008
Merchandise		$	2,033,571		$	2,305,302
Work in process			647,212			319,324
			2,680,783			2,624,626
Land held under development			706,176			706,176
Land held for development			563,402			531,501
Payment for construction			98,846			40,195
		$	4,049,207		$	3,902,498

The operating costs related to inventories were $23,116,483 thousand (including the valuation loss on inventories of $56,055 thousand) and $24,283,128 thousand (including valuation loss on inventories of $58,961 thousand) for the years ended December 31, 2009 and 2008, respectively.

Land held under development on December 31, 2009 and 2008 was for Wan-Xi project which is expected to be completed in 2012.

11. OTHER CURRENT ASSETS

 

		December 31
		2009			2008
Spare parts		$	2,348,894		$	2,509,979
Prepaid rents			811,904			843,420
Prepaid expenses			651,777			681,672
Miscellaneous			507,125			520,969
		$	4,319,700		$	4,556,040

 

- 24 -

---

12. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

 

		December 31
		2009					2008
		Carrying Amount			% of Owner- ship		Carrying Amount			% of Owner- ship
Non-listed
Taiwan International Standard Electronics Co., Ltd. (“TISE”)		$	427,810		40		$	593,441		40
ST-2 Satellite Ventures Pte., Ltd. (“SSVP”)			408,341		38			108,212		38
Senao Networks, Inc. (“SNI”)			288,407		41			264,271		45
Viettel-CHT Co., Ltd. (“Viettel-CHT”)			269,924		30			95,836		33
Skysoft Co., Ltd. (“SKYSOFT”)			89,913		30			84,992		30
KingWay Technology Co., Ltd. (“KWT”)			69,913		33			77,222		33
Tatung Technology Inc.			36,544		28			—		—
So-net Entertainment Co., Ltd. (“So-net”)			30,920		30			—		—
Chunghwa Investment Co., Ltd. (“CHI”)			—		—			829,716		49
PandaMonium Company Ltd.			—		43			—		—
			1,621,772					2,053,690
Prepayments for long-term investments—InfoExplorer Co., Ltd. (“IFE”)			—		—			283,500		—
		$	1,621,772				$	2,337,190

ST-1 telecommunications satellite is expected be retired in 2011; therefore, CHTS and SingTelSat Pte., Ltd. established a joint venture, ST-2 Satellite Ventures Pte., Ltd. (“STS”) in Singapore in October 2008 in order to maintain the current service. By December 31, 2009, Chunghwa has invested $409,061 thousand in STS. STS will engage in the installation and the operation of ST-2 telecommunications satellite.

Chunghwa established Viettel-CHT Co., Ltd. with Viettel Co., Ltd. in Vietnam in April 2008, by investing NT$91,239 thousand cash. Chunghwa participated in the capital increase of Viettel-CHT in September 2009, by investing $197,088 thousand cash but its ownership interest of Viettel-CHT was decreased from 33% to 30%. Viettel-CHT engages mainly in IDC services.

Chunghwa invested in KingWay Technology Co., Ltd. (“KWT”) in January 2008, for a purchase price of $71,770 thousand. KWT engages mainly in publishing books, data processing and software services.

PandaMonium Company Ltd. and Tatung Technology Inc. are the subsidiaries of Chunghwa Investment Co., Ltd. They engage mainly in making animations and selling the product of SET TOP BOX, respectively.

Chunghwa participated in So-net Entertainment Co., Ltd.’s capital increase on April 3, 2009, by investing $60,008 thousand cash, and acquired 30% of its shares. So-net Entertainment Co., Ltd. engages mainly in online service and sale of computer hardware.

The carrying values of the equity investees as of December 31, 2009 and 2008 and the equity in earnings for the years ended December 31, 2009 and 2008 are determined based on the audited financial statements of the investees for the same years as the Company.

 

- 25 -

---

13. FINANCIAL ASSETS CARRIED AT COST

 

		December 31
		2009					2008
		Carrying Amount			% of Owner- ship		Carrying Amount			% of Owner- ship
Non-listed
Taipei Financial Center (“TFC”)		$	1,789,530		12		$	1,789,530		12
Industrial Bank of Taiwan II Venture Capital Co., Ltd. (“IBT II”)			200,000		17			200,000		17
Global Mobile Corp. (“GMC”)			127,018		11			127,018		11
iD Branding Ventures (“iDBV”)			99,504		11			75,000		8
Giga Solar Materials Corp.			54,656		2			—		—
Un Display Inc.			46,000		3			—		—
RPTI International (“RPTI”)			34,500		10			34,500		12
Digimax Inc. (“DIG”)			23,935		4			—		—
ChipSip Technology Co.			23,247		3			—		—
Superior Innovation Incubation			22,500		2			—		—
N.T.U. Innovation Incubation Corporation			12,000		9			12,000		9
Crystal Media Inc.			11,642		5			—		—
LightHouse Technology Co.			10,982					—		—
Join Well Technology Co.			8,210					—		—
Tatung Fine Chemicals Co.			7,762					—		—
Win Semiconductors Corp.			7,603		—			—		—
Huga Optotech Inc.			6,672					—		—
DelSolar Co.			5,388					—		—
J Touch Corporation			4,161		—			—		—
Taidoc Technology Corporation			3,498					—		—
3 Link Information Service Co., Ltd.			3,450		10			3,450		10
Subtron Technology Co.,			3,394		—			—		—
Cando Corporation			3,282					—		—
XinTec Inc.			1,078		—			—		—
Daxon technology Corporation			750		—			—		—
Essence Technology Solution, Inc. (“ETS”)			—		9			10,000		9
eASPNet Inc.			—		2			—		2
			2,510,762					2,251,498
Prepayments for long-term investments in stocks
Goa Tronics Inc.			25,000		—			—		—
Huga Optotech Inc.			791		—			—		—
Cando Corporation			7		—			—		—
Taipei Financial Center (“TFC”)			—					285,859		—
		$	2,536,560				$	2,537,357

Chunghwa invested IBT II in January 2008, for a purchase price of $200,000 thousand. IBT II completed its incorporation on February 13, 2008 and engages mainly in investment activities.

 

- 26 -

---

Chunghwa invested in GMC in December 2007, for a purchase price of $168,038 thousand for 16,796 thousand shares. GMC engages mainly in wire communication services and computer software wholesale and circuit engineering. The National Communications Commission (“NCC”) informed Chunghwa with the Communication Letter (#0974102087) on April 1, 2008 that its investment in GMC was not authorized by NCC, and notified Chunghwa on May 5, 2008 that Chunghwa should dispose of its investment in GMC no later than June 30, 2008, otherwise, NCC would fine Chunghwa according to the Telecommunication Act. In April 2008, Chunghwa disposed of a portion of its investment in GMC (4,100 thousand shares) and filed an appeal to NCC to suspend the enforcement. In July 2008, NCC resolved that according to the Administrative Penalty Act, Chunghwa could not divest of its investment in the short time period provided and that Chunghwa would not be subject to fines as noted above. In October 2008, NCC revoked the original decree about Chunghwa’s investment in GMC, therefore, Chunghwa did not dispose of its remaining holding in GMC.

After evaluating the financial assets carried at cost, Chunghwa determined the investment in RPTI was impaired and recognized an impairment loss of $15,000 thousand for the year ended December 31, 2008. RPTI completed a capital reduction to offset its deficits and as a result the number of shares held by Chunghwa was reduced from 9,234 thousand shares to 4,765 thousand shares. Subsequent to this capital reduction, RPTI raised additional capital through cash contributions. Chunghwa did not participate in the RPTI’s capital increase plan; therefore, Chunghwa’s ownership of RPTI is decreased to 10%.

After evaluating the financial assets carried at cost, CHI determined the investment in DIG was impaired and recognized an impairment loss of NT$10,289 thousand for the year ended December 31, 2009.

After evaluating the financial assets carried at cost, Chunghwa determined the investment in ETS was impaired and recognized an impairment loss of NT$10,000 thousand both in 2009 and 2008.

Chunghwa participated in TFC’s capital increase in October 2008 and prepaid $285,859 thousand. However, TFC is not expected to be able to collect enough amount of capital increase within a specific period; therefore TFC’s board of directors held a meeting on April 10, 2009 and resolved to withdraw its capital increase plan from Financial Supervisory Commission, Executive Yuan (“FSC”). TFC returned the prepayment to Chunghwa on May 8, 2009.

The above investments that do not have a quoted market price in an active market and whose fair values can not be reliably measured are carried at original cost.

14. OTHER MONETARY ASSETS-NONCURRENT

 

		December 31
		2009			2008
Piping Fund		$	1,000,000		$	1,000,000

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 a total of $1,000,000 thousand to a Piping Fund administered by the Taipei City Government. This fund was used to finance various telecommunications infrastructure projects.

In January 2008, CHSI invested in Taiwan Goal Co., Ltd. (“TG”) for a purchase price of $30,000 thousand. TG engages mainly in import and export activities for machine wholesale, arms and ammunition products. On March 17, 2008, the stockholders of TG resolved to dissolve TG at a special meeting. Therefore, CHSI has reclassified its investment to other financial assets and recognized a loss of $900 thousand for the three months ended March 31, 2008. As of December 31, 2008, TG has completed its dissolution process. CHSI received $29,585 thousand for the liquidation and recognized a loss of $415 thousand in 2008.

 

- 27 -

---

15. PROPERTY, PLANT AND EQUIPMENT

 

		December 31
		2009			2008
Cost
Land		$	102,131,565		$	101,460,017
Land improvements			1,535,066			1,494,398
Buildings			63,184,398			63,029,159
Computer equipment			16,343,774			16,130,398
Telecommunications equipment			656,016,086			650,204,202
Transportation equipment			2,113,053			2,406,111
Miscellaneous equipment			7,230,632			7,331,543
Total cost			848,554,574			842,055,828
Revaluation increment on land			5,800,909			5,810,650
			854,355,483			847,866,478
Accumulated depreciation
Land improvements			951,240			898,156
Buildings			17,395,165			16,298,698
Computer equipment			12,149,757			11,846,090
Telecommunications equipment			518,608,726			503,425,455
Transportation equipment			1,885,512			2,195,401
Miscellaneous equipment			6,030,160			6,158,570
			557,020,560			540,822,370
Construction in progress and advances related to acquisition of equipment			15,687,426			16,005,390
Property, plant and equipment, net		$	313,022,349		$	323,049,498

Pursuant to the related regulation, Chunghwa revalued its land owned as of April 30, 2000 based on the publicly announced value on July 1, 1999. These revaluations which have been approved by the Ministry of Auditing resulted in increases in the carrying values of property, plant and equipment of $5,986,074 thousand, liabilities for land value incremental tax of $211,182 thousand, and stockholders’ equity – other adjustments of $5,774,892 thousand.

The amendment to the Land Tax Act, relating to the article to permanently lower land value incremental tax, went effective from February 1, 2005. In accordance with the lowered tax rates, Chunghwa recomputed its land value incremental tax, and reclassified the reserve for land value incremental tax of $116,196 thousand to stockholders’ equity – other adjustments. As of December 31, 2009, the unrealized revaluation increment was decreased to $5,803,446 thousand by disposal revaluation assets.

Depreciation expense on property, plant and equipment were $35,114,106 thousand and $37,101,335 thousand for the years ended December 31, 2009 and 2008, respectively. Capitalized interest expense for the years ended December 31, 2009 and 2008 were $207 thousand and $1,916 thousand. The capitalized interest rate were 1.165%-1.604% and 2.268%-2.928%, respectively.

16. SHORT-TERM LOANS

 

		December 31
		2009			2008
Secured loans - annual rate - 0.81% for 2009		$	488,000		$	—
Unsecured loans - annual rate - 1.15%-1.12% and 1.70% for 2009 and 2008, respectively			275,000			258,000
		$	763,000		$	258,000

 

- 28 -

---

17. ACCRUED EXPENSES

 

		December 31
		2009			2008
Accrued salary and compensation		$	9,876,025		$	9,253,899
Accrued franchise fees			2,224,104			2,368,996
Accrued employees’ bonus and remuneration to directors and supervisors			1,964,214			1,891,413
Other accrued expenses			3,384,571			2,831,394
		$	17,448,914		$	16,345,702

18. OTHER CURRENT LIABILITIES

 

		December 31
		2009			2008
Advances from subscribers		$	6,908,417		$	6,151,140
Payables to contractors			2,229,165			1,546,234
Amounts collected in trust for others			2,224,736			2,534,600
Payables to equipment suppliers			1,532,703			2,526,229
Refundable customers’ deposits			1,045,127			980,622
Miscellaneous			2,930,181			2,790,986
		$	16,870,329		$	16,529,811

19. LONG-TERM LOANS (INCLUDING LONG-TERM LOANS – CURRENT PORTION)

 

		December 31
		2009			2008
Unsecured loans – annual rate – 2.01%-2.04% for 2009		$	309,777		$	—
Secured loans – annual rate – 1.00%–1.37% and 1.00% for 2009 and 2008, respectively			28,656			37,840
			338,433			37,840
Less: Current portion of long-term loans			117,181			8,440
		$	221,252		$	29,400

CHIEF obtained an unsecured loan from Bank of Taiwan in January 2009. Interest and principal amount are paid monthly from January 2009 and due in January 2013.

SHE obtained a loan from the Industrial Development Bureau, Ministry of Economic Affairs and obtained a secured loan from Taiwan Business Bank. Interest is paid monthly and the principal is paid every three month from January 2009 and due in April 2013.

CHI obtained a secured loan from the E. Sun Commercial Bank in December 2006. Interest and the principal are payable monthly from January 2007 and due December 2009. CHI obtained another loan from the E. Sun Commercial Bank in February 2009. Interest and the principal are payable monthly from March 2009 and due in February 2013.

 

- 29 -

---

20. MATURITY ANALYSIS OF ASSETS AND LIABILITIES

The Company classified LED’s assets and liabilities of the construction operations as current and noncurrent according to the length of the operating cycle of the construction operations. Maturity analysis of LED’s related assets and liabilities was as follows:

 

		December 31, 2009
		Within One Year			Over One Year			Total
Assets
Inventories		$	—		$	1,368,424		$	1,368,424
Deferred expenses (classified as other current assets)			—			93,236			93,236
Restricted assets			—			100,869			100,869
		$	—		$	1,562,569		$	1,562,569
Liabilities
Trade notes and accounts payable		$	5,797		$	—		$	5,797
Advance from land and building (classified as other current liabilities)			—			328,317			328,317
		$	5,797		$	328,317		$	334,114

		December 31, 2008
		Within One Year			Over One Year			Total
Assets
Inventories		$	—		$	1,277,872		$	1,277,872
Deferred expenses (classified as other current assets)			—			91,580			91,580
Restricted assets			—			55,546			55,546
		$	—		$	1,424,998		$	1,424,998
Liabilities
Trade notes and accounts payable		$	3,711		$	—		$	3,711
Advance from land and building (classified as other current liabilities)			—			226,567			226,567
		$	3,711		$	226,567		$	230,278

21. STOCKHOLDERS’ EQUITY

Under Chunghwa’s Articles of Incorporation, Chunghwa’s authorized capital is $120,000,000,000, which is divided into 12,000,000,000 common shares (at $10 par value per share), among which 9,696,808,181 shares are issued and outstanding as of December 31, 2009.

 

- 30 -

---

On March 28, 2006, the board of directors approved the issuance of the 2 preferred shares, and the MOTC purchased the 2 preferred shares at par value on April 4, 2006. In accordance with the Articles of Incorporation of Chunghwa, the preferred shares would be redeemed by Chunghwa three years from the date of issuance at their par value. These preferred shares expired on April 4, 2009 and were redeemed on April 6, 2009.

For the purpose of privatizing Chunghwa, the MOTC sold 1,109,750 thousand common shares of Chunghwa in an international offering of securities in the form of American Depositary Shares (“ADS”) amounting to 110,975 thousand units (one ADS represents ten common shares) on the New York Stock Exchange on July 17, 2003. Afterwards, the MOTC sold 1,350,682 thousand common shares in the form of ADS amounting to 135,068 thousand units on August 10, 2005. Subsequently, the MOTC and Taiwan Mobile Co., Ltd. sold 505,389 thousand and 58,959 thousand common shares of Chunghwa, respectively, in the form of ADS totally amounting to 56,435 thousand units on September 29, 2006. The MOTC and Taiwan Mobile Co., Ltd. have sold 3,024,780 thousand common shares in the form of ADS amounting to 302,478 thousand units. As of December 31, 2009, the outstanding ADSs were 1,182,888 thousand common shares, which equaled approximately 118,289 thousand units and represented 12.20% of Chunghwa’s total outstanding common shares.

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 can, through deposit agents:

a. Exercise their voting rights,

b. Sell their ADSs, and

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

Under the ROC Company Law, additional paid-in capital may only be utilized to offset deficits. For those companies having no deficits, additional paid-in capital arising from capital surplus can be used to increase capital stock and distribute to stockholders in proportion to their ownership at the ex-dividend date. Also, such amounts can only be declared as a stock dividend by Chunghwa at an amount calculated in accordance with the provisions of existing regulations. The combined amount of any portions capitalized each year may not exceed 10 percent of common stock issued. However, where a company undergoes an organizational change (such as a merger, acquisition, or reorganization) that results in the capitalization of undistributed earnings after the organizational change, the above restriction does not apply.

In addition, before distributing a dividend or making any other distribution to stockholders, Chunghwa must pay all outstanding taxes, recover any past losses and set aside a legal reserve equal to 10% of its net income, and depending on its business needs or requirements, may also set aside a special reserve. In accordance with the Articles of Incorporation, no less than 50% of the remaining earnings comprising remaining balance of net income, if any, plus cumulative undistributed earnings shall be distributed in the following order: (a) from 2% to 5% of distributable earnings shall be distributed to employees as employee bonus; (b) no more than 0.2% of distributable earnings shall be distributed to board of directors and supervisors as remuneration; and (c) cash dividends to be distributed shall not be less than 50% of the total amount of dividends to be distributed. If cash dividends to be distributed is less than $0.10 per share, such cash dividend shall be distributed in the form of common shares.

Chunghwa operates in a capital-intensive and technology-intensive industry and requires capital expenditures to sustain its competitive position in high-growth market. Thus, Chunghwa’s dividend policy takes into account future capital expenditure outlays. In this regard, a portion of the earnings may be retained to finance these capital expenditures. The remaining earnings can then be distributed as dividends if approved by the stockholders in the following year and will be recorded in the financial statements of that year.

 

- 31 -

---

For the years ended December 31, 2009 and 2008, the accrual amounts for bonuses to employees and remuneration to directors and supervisors were accrued on past experiences and probable amount to be paid in accordance with Chunghwa’s Articles of Incorporation and Implementation Guidance for the Employee’s Bonus Distribution of Chunghwa Telecom Co., Ltd.

If the initial accrual amounts of the aforementioned bonus are significantly different from the amounts proposed by the board of directors, the difference is charged to the earnings of the year making the initial estimate. Otherwise, the difference between initial accrual amount and the amount resolved in the shareholders’ meeting is charged to the earnings of the following year as a result of change in accounting estimate.

Under the ROC Company Law, 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 reaching 50% of the aggregate par value of the outstanding capital stock of Chunghwa, up to 50% of the reserve may, at the option of Chunghwa, be declared as a stock dividend and transferred to capital.

The appropriations and distributions of the 2008 and 2007 earnings of Chunghwa have been approved and resolved by the stockholders on June 19, 2009 and June 19, 2008 as follows:

 

		Appropriation and Distribution						Dividend Per Share
		2008			2007			2008			2007
Legal reserve		$	4,127,675		$	4,823,356		$	—		$	—
Special reserve			475			—			—			—
Reversal of special reserve			—			3,304			—			—
Cash dividends			37,138,775			40,716,130			3.83			4.26
Stock dividends			—			955,778			—			0.10
Employee bonus—cash			—			1,303,605			—			—
Employee bonus—stock			—			434,535			—			—
Remuneration to board of directors and supervisors			—			43,454			—			—

The amounts for bonuses to employees and remuneration to directors and supervisors approved in the stockholders’ meeting on June 19, 2009, were $1,629,915 thousand and $38,807 thousand, respectively. The bonus to employees was all settled in cash. The aforementioned approved amounts of the bonus to employees and the remuneration to directors and supervisors were different from the accrual amounts of $1,723,921 thousand and $40,886 thousand, respectively, reflected in the statement of income for the year ended December 31, 2008. The differences of $94,006 thousand and $2,079 thousand, respectively, were treated as change in estimates and were adjusted against earnings for the year ended December 31, 2009.

The stockholders, at a meeting held on June 19, 2009, resolved to transfer capital surplus in the amount of NT$9,696,808 thousand to common capital stock. The abovementioned 2009 capital increase proposal was effectively approved by FSC. The board of directors authorized the chairman of directors to decide the ex-dividend date of the aforementioned proposal and the chairman decided the ex-dividend date as August 9, 2009.

The stockholders, at the stockholders’ meeting held on June 19, 2009, also resolved to reduce the amount of capital in Chunghwa by a cash distribution to its stockholders in order to improve the financial condition of Chunghwa and better utilize its excess funds. The abovementioned 2009 capital reduction proposal was effectively approved by FSC. The board of directors of Chunghwa further authorized the chairman of board of directors of Chunghwa to designate the record date of capital reduction as of October 26, 2009. Subsequently, common capital stock was reduced by NT$9,696,808 thousand and the stock transfer date of capital reduction was January 28, 2010. The amount due to stockholders for capital reduction was paid in February 2010.

 

- 32 -

---

The stockholders, at a special meeting held on August 14, 2008, resolved to transfer capital surplus in the amount of $19,115,554 thousand to common capital stock. The abovementioned 2008 capital increase proposal was effectively registered with FSC. The board of directors resolved the ex-dividend date of the aforementioned proposal as October 25, 2008.

The stockholders, at the stockholders’ meeting held on August 14, 2008, also resolved to reduce the amount of capital in Chunghwa by a cash distribution to its stockholders in order to improve the financial condition of Chunghwa and better utilize its excess funds. The capital reduction plan was effected by a transfer of capital surplus in the amount of $19,115,554 thousand to common capital stock and was effectively registered with FSC. Chunghwa designated December 30, 2008 as the record date and March 9, 2009 as the stock transfer date of capital reduction. Subsequently, common capital stock was reduced by $19,115,554 thousand and a liability for the same amount of cash to be distributed to stockholders was recorded. Such cash payment to stockholders was made in March 2009.

The stockholders, at a meeting held on June 15, 2007, resolved to transfer capital surplus in the amount of $9,667,845 thousand to common capital stock and the capital increase proposal was effectively registered with FSC.

The stockholders, at the stockholders’ meeting held on June 15, 2007, also resolved to reduce the amount of capital in Chunghwa by a cash distribution to its stockholders in order to improve the financial condition of Chunghwa and better utilize its excess funds. The capital reduction plan was effected by a transfer of capital surplus in the amount of $9,667,845 thousand to common capital stock and was effectively registered with FSC. Chunghwa designated October 19, 2007 and December 29, 2007 as the record date and the stock transfer date of capital reduction, respectively. Subsequently, common capital stock was reduced by $9,667,845 thousand and a liability for the actual amount of cash to be distributed to stockholders of $9,557,777 thousand was recorded. The difference between the reduction in common capital stock and the distribution amount represents treasury stock of $110,068 thousand held by Chunghwa and concurrently cancelled. Such cash payment to stockholders was made in January 2008.

The appropriation of Chunghwa’s 2009 earnings has not been resolved by the board of directors as of the report date. Information on the appropriation of Chunghwa’s 2009 earnings, employee bonus and remuneration to directors and supervisors resolved by the board of directors and approved by the stockholders will be available at the Market Observation Post System website.

22. SHARE-BASED COMPENSATION PLANS

SENAO share-based compensation plans (“SENAO Plans”) described as follows:

 

Effective Date		Grant Date		Stock Options Units (Thousand)		Exercise Price
2003.09.03		2003.10.17		3,981		$ 14.7 (Original price $20.2)
2003.09.03		2004.03.04		385		17.6 (Original price $23.9)
2004.12.01		2004.12.28		6,500		10.0 (Original price $11.6
2004.12.01		2005.11.28		1,500		14.4 (Original price $18.3)
2005.09.30		2006.05.05		10,000		13.3 (Original price $16.9)
2007.10.16		2007.10.31		6,181		42.6 (Original price $44.2)
				28,547

 

- 33 -

---

Each option is eligible to subscribe for one common share when exercisable. Under the terms of the Plans, the options are granted at an exercise price equal to the closing price of the SENAO’s common shares listed on the TSE on the higher of closing price or par value. The SENAO Plans have exercise price adjustment formula upon the issuance of new common shares, capitalization of retained earnings and/or capital reserves, stock split as well as distribution of cash dividend (except for 2007 Plan), except (i) in the case of issuance of new shares in connection with mergers and in the case of cancellation of outstanding shares in connection with capital reduction (2007 Plan is out of this exception), and (ii) except if the exercise price after adjustment exceeds the exercise price before adjustment. The options of all the Plans are valid for six years and the graded vesting schedule for which 50% of option granted will vest two years after the grant date and another two tranches of 25% will vest three and four years after the grant date respectively.

Information about SENAO’s outstanding stock options for the years ended December 31, 2009 and 2008 was as follows:

 

		Stock Options Outstanding
		2009						2008
		Number of Options (Thousand)			Weighted Average Exercise Price NT$			Number of Options (Thousand)			Weighted Average Exercise Price NT$
Options outstanding, beginning of year		13,818			$	26.34		18,592			$	24.70
Options exercised		(4,076	)			13.75		(4,299	)			13.64
Options expired		(419	)			31.35		(475	)			23.10
Options outstanding, end of year		9,323				30.92		13,818				26.34
Options exercisable, end of year		4,545						2,559

As of December 31, 2009, information about SENAO’s outstanding and exercisable options was as follows:

 

Options Outstanding									Options Exercisable
Range of Exercise             Price             (NT$)		Number of Options (Thousand)		Weighted- average Remaining Contractual Life (Years)		Weighted Average Exercise Price (NT$)			Number of Options (Thousand)		Weighted Average Exercise Price (NT$)
$10.0-$13.3		3,427		2.20		$	12.96		1,512		$	12.54
$14.4-$17.6		259		1.92			14.40		259			14.40
$42.6		5,637		3.92			42.60		2,774			42.60

As of December 31, 2008, information about SENAO’s outstanding and exercisable options was as follows:

 

Options Outstanding									Options Exercisable
Range of Exercise             Price             (NT$)		Number of Options (Thousand)		Weighted- average Remaining Contractual Life (Years)		Weighted Average Exercise Price (NT$)			Number of Options (Thousand)		Weighted Average Exercise Price (NT$)
$10.0-$14.3		6,852		3.08		$	13.49		1,959		$	13.38
$15.5-$18.9		933		2.25			15.60		600			15.65
$42.6		6,033		4.92			42.60		—			—

 

- 34 -

---

No compensation cost was recognized under the intrinsic value method for the years ended December 31, 2009 and 2008. Had SENAO used the fair value method to recognize the compensation cost, there would have been no significant impact on the consolidated net income and earnings per share.

Had SENAO used the fair value method to evaluate the options using the Black-Scholes model, the assumptions of SENAO for the year ended December 31, 2009 would have been as follows:

 

		October 31, 2007		May 5, 2006		November 28, 2005		December 28, 2004		March 4, 2004
Expected dividend yield		1.49%		—		—		—		—
Risk free interest rate		2.00%		1.75%		2.00%		1.88%		1.88%
Expected life		4.375 years		4.375 years		4.375 years		4.375 years		4.375 years
Expected volatility		39.82%		39.63%		43.40%		49.88%		52.65%
Weighted-average fair value of grants		$13.69		$5.88		$6.93		$4.91		$10.56

23. TREASURY STOCK (COMMON STOCK IN THOUSANDS OF SHARES)

 

		Year Ended December 31
		2009		2008
Balance, beginning of year		—		110,068
Decrease		—		(110,068	)
Balance, end of year		—		—

According to the Securities and Exchange Law of the ROC, total shares of treasury stock shall not exceed 10% of Chunghwa’s stock issued. The total amount of the repurchased shares shall not be more than the total amount of retained earnings, capital surplus and realized additional paid-in capital. The Company shall neither pledge treasury stock nor exercise shareholders’ rights on these shares, such as rights to dividends and to vote.

In order to maintain its credit and stockholders’ equity, Chunghwa repurchased 121,075 thousand share of treasury stock for $7,217,562 thousand from August 29, 2007 to October 25, 2007. On December 29, 2007, Chunghwa cancelled 11,007 thousand shares of treasury stock by reducing common stock of $110,068 thousand. The remaining treasury stock of 110,068 thousand shares amounted $7,107,494 thousand was cancelled on February 21, 2008.

24. COMPENSATION, DEPRECIATION AND AMORTIZATION EXPENSES

 

		Year Ended December 31, 2009
		Operating Costs			Operating Expenses			Total
Compensation expense
Salaries		$	12,543,945		$	9,900,839		$	22,444,784
Insurance			998,513			771,386			1,769,899
Pension			1,517,216			1,138,192			2,655,408
Other compensation			8,807,199			6,030,557			14,837,756
		$	23,866,873		$	17,840,974		$	41,707,847
Depreciation expense		$	33,169,331		$	1,944,775		$	35,114,106
Amortization expense		$	957,183		$	232,255		$	1,189,438

 

- 35 -

---

		Year Ended December 31, 2008
		Operating Costs			Operating Expenses			Total
Compensation expense
Salaries		$	12,335,481		$	9,789,863		$	22,125,344
Insurance			915,170			703,331			1,618,501
Pension			1,616,950			1,237,295			2,854,245
Other compensation			8,494,259			5,838,074			14,332,333
		$	23,361,860		$	17,568,563		$	40,930,423
Depreciation expense		$	35,018,348		$	2,082,987		$	37,101,335
Amortization expense		$	889,019		$	185,862		$	1,074,881

25. INCOME TAX

a. Income tax expense consisted of the following:

 

		Year Ended December 31
		2009				2008
Income tax payable		$	11,777,375			$	13,666,740
Income tax – separated			62,768				300,915
Income tax – deferred			1,098,630				(153,646	)
Adjustments of prior years’ income tax			(195,839	)			78,299
Income tax		$	12,742,934			$	13,892,308

The balance of income tax payable as of December 31, 2009 and 2008 was shown net of prepaid income tax.

In May 2009, the Legislative Yuan passed the amendment of Article 5 of the Income Tax Law, which reduces the income tax rate of profit-seeking enterprises from 25% to 20% since 2010. The Company recalculated its deferred income tax assets and liabilities in accordance with the amended Article and recorded the resulting difference as an income tax expense or benefit.

 

- 36 -

---

b. Net deferred income tax assets (liabilities) consisted of the following:

 

		December 31
		2009				2008
Current
Deferred income tax assets (liabilities)
Provision for doubtful accounts		$	351,322			$	489,405
Unrealized accrued expense			50,128				22,384
Estimated warranty liabilities			19,434				12,726
Valuation loss on inventory			16,780				31,181
Abandonment of equipment not approved by National Tax Administration			4,628				40,239
Unrealized foreign exchange loss (gain)			2,870				(35,600	)
Loss carryforward			2,274				11,291
Investment tax credit			862				—
Valuation loss (gain) on financial instruments, net			(9,015	)			13,696
Other			13,371				11,246
			452,654				596,568
Valuation allowance			(351,307	)			(478,033	)
Net deferred income tax assets—current		$	101,347			$	118,535
Noncurrent
Accrued pension cost		$	333,290			$	1,404,718
Loss carryforward			112,756				137,280
Impairment loss			63,777				138,499
Investment tax credit			17,016				—
Loss on disposal of property, plant and equipment			513				2,566
Other			16,008				6,424
			543,360				1,689,487
Valuation allowance			(60,429	)			(146,172	)
Net deferred income tax assets—noncurrent		$	482,931			$	1,543,315

As of December 31, 2009, details for investment tax credit of CHI and CHPT are as follows:

 

Law/Statue		Items		Remaining Creditable Amount			Expiry Year
Statute for Upgrading Industries		Pioneer Industry Investment Tax Credit		$	7,383		2011
Statute for Upgrading Industries		Personnel training expenditures		$	690		2011
		Personnel training expenditures			3,772		2012
		Personnel training expenditures			3,285		2013
		Purchase of machinery and equipment			889		2011
		Purchase of machinery and equipment			1,580		2012
		Purchase of machinery and equipment			279		2013
				$	10,495

 

- 37 -

---

As of December 31, 2009, loss carryforward of CHIEF, Unigate, SHE, LED and CIYP are as follows:

 

Company		Total Amounts			Unused Amounts			Expiry Year
CHIEF		$	22,609		$	22,609		2013
			17,942			17,942		2014
			20,314			20,314		2015
			17,580			17,580		2016
			10,068			10,068		2017
			3,197			3,197		2018
			876			876		2019
Unigate			16			6		2017
			7			7		2018
SHE			5,010			3,948		2016
			922			922		2017
LED			6,383			6,383		2018
			8,904			8,904		2019
CIYP			2,274			2,274		2019
		$	116,102		$	115,030

c. The related information under the Integrated Income Tax System is as follows:

 

		December 31
		2009			2008
Balance of Imputation Credit Account (“ICA”)
Chunghwa		$	7,429,628		$	7,285,595

The actual and the estimated creditable ratios distribution of Chunghwa’s 2009 and 2008 for earnings were 26.50% and 30.61%, respectively. The imputation credit allocated to stockholders is based on its balance as of the date of dividend distribution. The estimated creditable ratio may change when the actual distribution of imputation credit is made.

d. Undistributed earnings information

All Chunghwa’s earnings generated prior to June 30, 1998 have been appropriated.

Chunghwa’s income tax returns have been examined by tax authorities through 2005. SENAO’s income tax returns have been examined by tax authorities through 2006. The following subsidiaries’ income tax returns have been examined by tax authorities through 2007: CHIEF, CHSI, SHE, CIYP, CHI and CHPT. Unigate’s income tax returns have been examined by tax authorities through 2008.

 

- 38 -

---

26. EARNINGS PER SHARE

EPS was calculated as follows:

 

		Amount (Numerator)								Weighted- average Number of Common Shares (Thousand) (Denominator)		Earnings Per Share (Dollars)
		Income Before Income Tax				Net Income						Income Before Income Tax			Net Income
Year ended December 31, 2009
Basic EPS:
Income attributable to stockholders of the parent		$	56,163,421			$	43,757,426			9,696,808		$	5.79		$	4.51
Effect of dilutive potential common stock
SENAO’s stock options			(7,707	)			(7,707	)		—
Employee bonus			—				—			28,806
Diluted EPS
Income attributable to stockholders of the parent (including effect of dilutive potential common stock)		$	56,155,714			$	43,749,719			9,725,614		$	5.77		$	4.50
Year ended December 31, 2008
Basic EPS:
Income attributable to stockholders of the parent		$	58,472,865			$	45,010,342			9,696,808		$	6.03		$	4.64
Effect of dilutive potential common stock
SENAO’s stock options			(13,775	)			(13,775	)		—
Employee bonus			—				—			20,681
Diluted EPS
Income attributable to stockholders of the parent (including effect of dilutive potential common stock)		$	58,459,090			$	44,996,567			9,717,489		$	6.02		$	4.63

In March 2007, the ARDF issued an Interpretation 96-052 that requires companies to recognize bonuses paid to employees, directors and supervisors as an expense rather than an appropriation of earnings beginning from January 1, 2008. According to the Interpretation 97-169 issued by ARDF in May 2008, Chunghwa presumed that the employees bonuses to be paid will be settled in shares and takes those shares into consideration when calculating the weighted average number of outstanding shares used in the calculation of diluted EPS if the shares have a dilutive effect for the years ended December 31, 2009, and 2008. The number of shares is calculated by dividing the amount of bonuses by the closing price of the Chunghwa’s shares of the balance sheet date. The dilutive effect of the shares needs to be considered until the stockholders resolve the number of shares to be distributed to employees in their meeting in the following year.

The diluted earnings per share for the years ended December 31, 2009 and 2008 were also due to the effect of potential common stock of stock options issued by SENAO.

 

- 39 -

---

27. PENSION PLAN

Chunghwa completed privatization plans on August 12, 2005. Chunghwa is required to pay all accrued pension obligations including service clearance payment, lump sum payment under civil service plan, additional separation payments, etc. upon the completion of the privatization in accordance with the Statute Governing Privatization of Stated-owned Enterprises. After paying all pension obligations for privatization, the plan assets of Chunghwa should be transferred to the Fund for Privatization of Government-owned Enterprises (the “Privatization Fund”) under the Executive Yuan. On August 7, 2006, Chunghwa transferred the remaining balance of fund to the Privatization Fund. However, according to the instructions of MOTC, Chunghwa is requested to pay all accrued pension obligations including service clearance payment, lump sum payment under civil service plan, additional separation payments, etc. on behalf of the MOTC upon the completion of the privatization.

The pension plan under the Labor Pension Act of ROC (the “LPA”) is effective beginning July 1, 2005 and this pension mechanism is considered as a defined contribution plan. Based on the LPA, Chunghwa, SENAO, CIYP, CHIEF, Unigate, CHSI, SHE, LED, IFE, and CHI make monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

The Company’s pension plan is considered as a defined benefit plan under the Labor Standards Law that provide benefits based on an employee’s length of service and average six-month salary prior to retirement. Chunghwa, SENAO, CHIEF and SHE contribute an amount no more than 15% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the names of the Committees in the Bank of Taiwan.

The Company used December 31 as the measurement date for their pension plans.

Pension costs of the Company were $2,948,459 thousand ($2,737,057 thousand subject to defined benefit plan and $211,402 thousand subject to defined contribution plan) and $2,938,297 thousand ($2,774,487 thousand subject to defined benefit plan and $163,810 thousand subject to defined contributed plan) for the years ended December 31, 2009 and 2008, respectively.

Pension information of the Company of the defined benefit plan is summarized as follows:

a. Components of net periodic pension cost for the year

2009

 

		Chunghwa				SENAO				CHIEF
Service cost		$	2,693,006			$	1,602			$	—
Interest cost			184,279				2,757				394
Expected return on plan assets			(140,875	)			(2,595	)			(254	)
Amortization			(4,022	)			1,224				256
Net periodic benefit pension cost		$	2,732,388			$	2,988			$	396

 

- 40 -

---

2008

 

		Chunghwa				SENAO				CHIEF
Service cost		$	2,658,562			$	1,610			$	—
Interest cost			185,873				2,656				443
Expected return on plan assets			(82,006	)			(3,154	)			(227	)
Amortization			(2,529	)			924				111
Curtailment/settlement loss to be recognized			14,374				—				(3,081	)
Net periodic benefit pension cost		$	2,774,274			$	2,036			$	(2,754	)

b. Reconciliation between the fund status and accrued pension liabilities, vested benefit, actuarial assumptions and contributions and payments of the fund is summarized as follows:

Reconciliation between the fund status and accrued pension cost is summarized as follows:

2009

 

		Chunghwa				SENAO				CHIEF
Benefit obligation
Vested benefit obligation		$	(7,440,999	)		$	(14,117	)		$	—
Non-vested benefit obligation			(3,156,229	)			(90,301	)			(10,001	)
Accumulated benefit obligation			(10,597,228	)			(104,418	)			(10,001	)
Additional benefit obligation			(1,387,020	)			(42,341	)			(6,328	)
Projected benefit obligation			(11,984,248	)			(146,759	)			(16,329	)
Fair values of plan assets			10,787,564				119,076				9,718
Funded status			(1,196,684	)			(27,683	)			(6,611	)
Amortization of unrecognized net transition obligation			—				1,846				5,250
Unrecognized prior service cost effect			(45,754	)			(7,518	)			—
Amortization of unrecognized net loss (gain)			34,481				48,561				(3,980	)
Net amount recognized – prepaid pension cost – included in other assets – other (accrued pension liabilities)		$	(1,207,957	)		$	15,206			$	(5,341	)

2008

 

		Chunghwa				SENAO				CHIEF
Benefit obligation
Vested benefit obligation		$	(5,658,116	)		$	(13,691	)		$	—
Non-vested benefit obligation			(2,832,135	)			(72,787	)			(7,661	)
Accumulated benefit obligation			(8,490,251	)			(86,478	)			(7,661	)
Additional benefit obligation			(930,915	)			(36,350	)			(6,659	)
Projected benefit obligation			(9,421,166	)			(122,828	)			(14,320	)
Fair values of plan assets			4,282,694				112,186				8,877
Funded status			(5,138,472	)			(10,642	)			(5,443	)
Amortization of unrecognized net transition obligation			—				2,770				5,712
Unrecognized prior service cost effect			(49,776	)			(7,831	)			—
Amortization of unrecognized net loss (gain)			23,860				27,614				(5,933	)
Net amount recognized – prepaid pension cost – included in other assets – other (accrued pension liabilities)		$	(5,164,388	)		$	11,911			$	(5,664	)

 

- 41 -

---

c. Vested benefit

 

		Chunghwa			SENAO			CHIEF
2009		$	10,635,994		$	17,846		$	—
2008		$	7,664,921		$	17,776		$	—

d. Actuarial assumptions

 

		Years Ended December 31
		2009			2008
Discount rate used in determining present value		2.00	%		2.00	%
Rate of compensation increase		1.00	%		1.00	%
Expect long-term rate of return on plan assets		1.50	%		2.50	%

e. Contributions and payments of the Fund

2009

 

		Chunghwa			SENAO			CHIEF
Contributions		$	6,645,316		$	6,129		$	720
Payments		$	177,500		$	—		$	—

2008

 

		Chunghwa			SENAO			CHIEF
Contributions		$	1,515,234		$	6,647		$	735
Payments		$	99,293		$	—		$	—

28. TRANSACTIONS WITH RELATED PARTIES

The ROC Government, one of Chunghwa’s customers held 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 and other state-owned enterprises in the normal course of business and at arm’s-length prices. The information on service revenues from government bodies and related organizations have not been provided because details of the type of transactions were not summarized by Chunghwa. Chunghwa believes that all costs of doing business are reflected in the financial statements.

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

 

(Continued)

 

- 42 -

---

Company		Relationship
SENAO Technology Education Foundation (“STEF”)		A nonprofit organization of which the funds donated by SENAO exceeds one third of its total funds
Institute for Information Industry (“III”)		Equity-method investor of InfoExplorer
e-To You International Inc. (“ETY”)		Chairman of ETY is the vice chairman of InfoExplorer
ELTA Technology Co., Ltd. (“ELTA”)		Equity-method investee before Chunghwa sold all shares in July 2008

(Concluded)

b. Significant transactions with the above related parties are summarized as follows:

 

		December 31
		2009					2008
		Amount			%		Amount			%
1) Receivables
Trade notes and accounts receivable
III		$	85,106		90		$	—		—
ETY			9,000		10			—		—
CHPT			—		—			1,234		60
Others			217		—			818		40
		$	94,323		100		$	2,052		100
2) Payables
Trade notes payable, accounts payable, and accrued expenses
TISE		$	271,290		81		$	492,883		94
SKYSOFT			14,218		4			—		—
STEF			2,802		1			2,385		1
ETY			2,754		1			—		—
Others			2,346		—			2,032		—
			293,410		87			497,300		95
Payables to contractors
TISE			42,309		13			26,188		5
		$	335,719		100		$	523,488		100
3) Advances from customers (include in other current liabilities)
SNI		$	2,142		—		$	2,688		—
Others			—		—			152		—
		$	2,142		—		$	2,840		—

 

- 43 -

---

		Years Ended December 31
		2009					2008
		Amount			%		Amount			%
4) Revenues
III		$	126,655		—		$	—		—
So-net			60,516		—			—		—
SKYSOFT			34,485		—			32,738		—
ETY			10,812		—			—		—
ELTA			—		—			9,831		—
CHPT			—		—			6,800		—
Others			4,575		—			4,147		—
		$	237,043		—		$	53,516		—
5) Operating costs and expenses
TISE		$	481,743		—		$	538,389		—
SKYSOFT			21,870		—			—		—
STEF			19,198		—			11,028		—
III			17,606		—			—		—
ETY			13,444		—			—		—
KWT			6,057		—			—		—
SNI			397		—			8,452		—
ELTA			—		—			189,744		—
Others			955		—			6,070		—
		$	561,270		—		$	753,683		—
6) Non-operating income and gains
SNI		$	25,531		2		$	30,731		1
Others			7		—			155		—
		$	25,538		2		$	30,886		1
7) Acquisition of property, plant and equipment
TISE		$	1,336,564		5		$	849,985		3
III			18,972		—			—		—
Others			—		—			355		—
		$	1,355,536		5		$	850,340		3

SENAO rents out part of its plant to SNI and the rent is collected monthly. The foregoing transactions with related parties were conducted as arm’s length transactions, except for the transactions with SNI and STEF, III and ETY which were determined in accordance with mutual agreements.

 

- 44 -

---

c. The compensation of directors, supervisors and managements is showed as follow:

 

		Years Ended December 31
		2009			2008
Salaries		$	144,192		$	136,923
Compensation			63,518			56,671
Bonus			60,277			58,239
		$	267,987		$	251,833

29. PLEDGED ASSETS

The following assets are pledged as collateral for short-term and long-term bank loans and contract deposits by LED, SENAO, CHIEF, SHE, IFE, CHPT and CHTS.

 

		December 31
		2009			2008
Property, plant and equipment, net		$	660,580		$	337,857
Leased assets, net			—			435,166
Restricted assets			100,117			11,904
		$	760,697		$	784,927

30. SIGNIFICANT COMMITMENTS AND CONTINGENCIES

As of December 31, 2009, the Company’s remaining commitments under non-cancelable contracts with various parties were as follows:

 

a.

Acquisition of land and buildings of $229,522 thousand.

 

b.

Acquisition of telecommunications equipment of $18,006,427 thousand.

 

c.

Unused letters of credit of $400,000 thousand.

 

d.

Contract to print billing, envelopes and marketing gifts of $60,111 thousand.

 

e.

LED has already contracted to advance sale of land and buildings for $2,244,173 thousand, and collected $328,317 thousand according to the contracts.

 

f.

For the purpose of completion the construction, acquisition of the building construction license and registration ownerships of all buildings for Wan-Xi Project, LED signed the trust deeds with Hua Nan Bank and China Real Estate Management Co., Ltd. for the fund management, property rights and related development to the extent of authority they are given.

 

- 45 -

---

Trust assets are as follow:

 

		December 31, 2009
Restricted assets -bank deposits		$	100,869
Land held under development			1,822,167
		$	1,923,036

 

g.

The Company also has non-cancelable operating leases covering certain buildings, computers, computer peripheral equipment and operation system software under contracts that expire in various years. Future lease payments were as follows:

 

		Amount
2010		$	1,731,510
2011			1,381,134
2012			1,053,008
2013			815,230
2014 and thereafter			452,514

 

h.

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 long-term investment—other monetary assets). If the fund is not sufficient, Chunghwa will contribute the remaining $1,000,000 thousand upon notification from the Taipei City Government. Based on Chunghwa’s understanding of the Piping Fund terms, if the 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. The Company does not know when its contribution to the Piping Fund will be returned; therefore, the Company did not discount the face amount of its contribution to the Pining Fund.

 

i.

A portion of the land used by Chunghwa during the period July 1, 1996 to December 31, 2004 was co-owned by Chunghwa and Taiwan Post Co., Ltd. (the former Chunghwa Post Co., Ltd. directorate General of Postal Service). In accordance with the claims process in Taiwan, on July 12, 2005, the Taiwan Taipei District Court sent a claim notice to Chunghwa to reimburse Chunghwa Post Co., Ltd. in the amount of $767,852 thousand for land usage compensation due to the portion of land usage area in excess of Chunghwa’s ownership and along with interest calculated at 5% interest rate from June 30, 2005 to the payment date. Chunghwa stated that both parties have the right to use co-management land without consideration. Chunghwa Post Co., Ltd. can’t request payment for land compensation. Furthermore, Chunghwa believes that the computation used to derive the land usage compensation amount is inaccurate because most of the compensation amount has expired as result of the expiration clause. Therefore, Chunghwa filed an appeal at the Taiwan Taipei District Court. On March 30, 2009, the Taiwan Taipei District Court rendered its judgment that Chunghwa only need to pay $16,870 thousand along with interest calculated at 5% per annum from July 23, 2005 and 4% of the court fees as the court judgment compensation. However, Chunghwa Post Co., Ltd. did not accept the judgment and filed an appeal at Taiwan High Court. Chunghwa also filed an appeal at the Taiwan High Court within the statutory period. As of the date of the audit report, the appeal is still in process.

 

j.

Giga Media filed a civil action against Chunghwa with the Taiwan Taipei District Court (the “Court”) on June 12, 2008. The complaint alleged that Chunghwa infringed Giga Media’s ROC Patent No. I258284 which is a Point-to-Point Protocol over Ethernet (“PPPoE”) technique used to launch fixed IP of ADSL. Giga Media is seeking damages of $500,000 thousand and interest calculated at 5% for the period from one day following the date Chunghwa received the official notification from the Court to the payment date. Afterwards Giga Media withdrew this civil action on October 2, 2009.

 

- 46 -

---

31. FAIR VALUE OF FINANCIAL INSTRUMENTS

 

a.

Carrying amounts and fair values of financial instruments were as follows:

 

		December 31
		2009						2008
		Carrying Amount			Fair Value			Carrying Amount			Fair Value
Assets
Cash and cash equivalents		$	73,259,490		$	73,259,490		$	81,288,165		$	81,288,165
Financial assets at fair value through profit or loss			40,519			40,519			258,578			258,578
Available-for-sale financial assets			17,537,089			17,537,089			14,182,385			14,182,385
Held-to-maturity financial assets—current			1,099,595			1,099,595			769,435			769,435
Trade notes and accounts receivable, net			11,973,180			11,973,180			10,844,712			10,844,712
Receivables from related parties			94,323			94,323			2,052			2,052
Other current monetary assets			1,839,745			1,839,745			2,226,256			2,226,256
Restricted assets—current			177,462			177,462			58,914			58,914
Investments accounted for using equity method			1,621,772			1,742,624			2,337,190			2,498,632
Financial assets carried at cost			2,536,560			2,536,560			2,537,357			2,537,357
Held-to-maturity financial assets—noncurrent			3,929,662			3,929,662			3,044,102			3,044,102
Other noncurrent monetary assets			1,000,000			1,000,000			1,000,000			1,000,000
Refundable deposits			1,550,825			1,550,825			1,373,644			1,373,644
Restricted assets—noncurrent (included in “other assets—others”)			23,524			23,524			8,536			8,536
Liabilities
Short-term loans			763,000			763,000			258,000			258,000
Financial liabilities at fair value through profit or loss			828			828			107,344			107,344
Trade notes and accounts payable			10,155,383			10,155,383			11,359,570			11,359,570
Payables to related parties			335,719			335,719			523,488			523,488
Accrued expenses			17,448,914			17,448,914			16,345,702			16,345,702
Due to stockholders for capital reduction			9,696,808			9,696,808			19,115,554			19,115,554
Payables to contractors (included in “other current liabilities”)			2,229,165			2,229,165			1,546,234			1,546,234
Amounts collected in trust for others (included in “other current liabilities”)			2,224,736			2,224,736		$	2,534,600		$	2,534,600
Payables to equipment suppliers (included in “other current liabilities”)			1,532,703			1,532,703			2,526,229			2,526,229
Refundable customers’ deposits (included in “other current liabilities”)			1,045,127			1,045,127			980,622			980,622
Hedging derivative financial liabilities (included in “other current liabilities”)			—			—			27,616			27,616
Current portion of long-term loans			117,181			117,181			8,440			8,440
Long-term loans			221,252			221,252			29,400			29,400
Customers’ deposits			5,998,035			5,998,035			6,159,722			6,159,722

 

b.

Methods and assumptions used in the estimation of fair values of financial instruments:

 

1)

The fair values of certain financial instruments recognized in the balance sheet generally correspond to the market prices of the financial assets. Because of the short maturities of these instruments, the carrying value represents a reasonable basis to estimate fair values. This method does not apply to the financial instruments discussed in Notes 2, 3, and 4 below.

 

- 47 -

---

2)

If the financial instruments have quoted market prices in an active market, the quoted market prices are viewed as fair values. If the market price of the other financial instruments are not readily available, valuation techniques are used incorporating estimates and assumptions that are consistent with prevailing market conditions.

 

3)

Long-term investments are based on the net asset values or carrying values of the investments in unconsolidated companies if quoted market prices are not available.

 

4)

The fair value of long-term loans (including current portion) is discounted based on discounted projected cash flow which approximate their carrying amounts. The projected cash flows were discounted using the interest rate of similar long-term loans.

 

c.

Fair values of financial assets and liabilities using quoted market price or valuation techniques were as follows:

 

		Amount Based on Quoted Market Price						Amount Determined Using Valuation Techniques
		December 31						December 31
		2009			2008			2009			2008
Assets
Financial assets at fair value through profit or loss		$	40,519		$	258,578		$	—		$	—
Available-for-sale financial assets			17,537,089			14,182,385			—			—
Liabilities
Financial liabilities at fair value through profit or loss			828			107,344			—			—
Hedging derivative financial liabilities (classified as other current liabilities)			—			27,616			—			—

 

d.

Information about financial risks

 

1)

Market risk

The foreign exchange rate fluctuations would result in the Company’s foreign-currency-dominated assets and liabilities, outstanding currency swap contracts, forward exchange contracts and currency option contracts exposed to rate risk.

The fluctuations of market price would result in the index future contracts exposed to price risk.

The financial instruments categorized as available-for-sale financial assets are mainly listed stocks and open-end mutual funds. Therefore, the market risk is the fluctuations of market price. In order to manage this risk, the Company would assess the risk before investing; therefore, no material market risk are anticipated.

 

2)

Credit risk

Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The counter-parties or third-parties of the aforementioned financial instruments are reputable financial institutions and corporations. Management does not expect the Company’s exposure to default by those parties to be material.

 

- 48 -

---

3)

Liquidation risk

The Company has sufficient operating capital to meet cash needs upon settlement of derivative financial instruments. Therefore, the liquidation risk is low.

The financial instruments of the Company categorized as available-for-sale financial assets are publicly-traded, easily converted to cash. Therefore, no material liquidation risk are anticipated. The financial instruments categorized as financial assets carried at cost are investments that do not have a quoted market price in an active market. Therefore, material liquidation risk are anticipated.

 

4)

Cash flow interest rate risk

The Company engages in investments in fixed-interest-rate debt securities. Therefore, cash flows from such securities are not expected to fluctuate significantly due to changes in market interest rates.

In addition, Chunghwa engages in investments in floating-interest-rate debt securities. The changes in market interest rate would impact the floating-interest rate; therefore, cash flows from such securities are expected to fluctuate due to changes in market interest rates.

 

e.

Fair value hedge

Chunghwa entered into currency swap contracts and forward exchange contracts to hedge the fluctuation in exchange rates of beneficiary certificate denominated in foreign currency, which is fair value hedge. The transaction was assessed as highly effective for the years ended December 31, 2009 and 2008.

None of the hedge currency swap contracts and forward exchange contracts existed as of December 31, 2009.

Outstanding forward exchange contracts for hedge as of December 31, 2008:

 

		Currency		Holding Period		Contract Amount (In Thousands)
December 31, 2008
Forward exchange contracts—sell		USD/NTD		2009.01		USD30,000

As of December 31, 2008, the forward exchange contract measured at fair value resulting in hedging derivative financial liability of $27,616 thousand (classified as other current liabilities).

32. ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFC for Chunghwa and its investees:

 

a.

Financing provided: Please see Table 1.

 

b.

Endorsement/guarantee provided: None.

 

c.

Marketable securities held: Please see Table 2.

 

d.

Marketable securities acquired and disposed of at costs or prices at least $100 million or 20% of the paid-in capital: Please see Table 3.

 

- 49 -

---

e.

Acquisition of individual real estate at costs of at least $100 million or 20% of the paid-in capital: Please see Table 4.

 

f.

Disposal of individual real estate at prices of at least $100 million or 20% of the paid-in capital: None.

 

g.

Total purchase from or sale to related parties amounting to at least $100 million or 20% of the paid-in capital: Please see Table 5.

 

h.

Receivables from related parties amounting to $100 thousand or 20% of the paid-in capital: Please see Table 6.

 

i.

Names, locations, and other information of investees on which the Company exercises significant influence: Please see Table 7.

 

j.

Financial transactions: Please see Notes 5 and 31.

 

k.

Investment in Mainland China: Please see Table 8.

 

l.

Intercompany relationships and significant intercompany transaction: Please see Table 9.

33. THE FINANCIAL INFORMATION OF OPERATING SEGMENTS

 

a.

Segment information: Please see Table 10.

 

b.

Products and service revenues from external customer information: Please see Table 11.

 

c.

Geographic information

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

 

		Year Ended December 31
		2009			2008
		(In Thousands)			(In Thousands)
Taiwan, ROC		$	193,003,567		$	196,333,878
Overseas			5,357,653			5,335,643
		$	198,361,220		$	201,669,521

The Company has long-lived assets in U.S., Singapore, Hong Kong, China, Vietnam, Thailand, and Japan and except for $175,095 thousand and $31,549 thousand at December 31, 2009 and 2008, respectively, in the aforementioned areas, the other long-lived assets are located in Taiwan, ROC.

 

d.

Major customers’ information

The export sales revenue of the Company is less than 10% of the operating income.

 

- 50 -

---

TABLE 1

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

FINANCINGS PROVIDED

YEAR ENDED DECEMBER 31, 2009

(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

No.

Financing Company

Counter-party

Financial Statement Account

Maximum Balance for the Year

Ending Balance

Interest Rate (Note 5)

Type of Financing (Note 2)

Transaction Amount

Reason for Short-term Financing

Allowance for Bad Debt

Collateral

Financing Limit for Each Borrowing Company (Note 3)

Financing Company’s Financing Amount Limit (Note 4)

Item

Value

9

Chunghwa Telecom     Singapore Pte., Ltd.

ST-2 Satellite     Ventures Pte., Ltd.

Other     receivables

$ (SG$

546,167 23,913

)

$ (SG$

546,167 23,913

)

6.38

%

a

(Note 6

)

—

$

—

—

$

—

$1,407,519 (SG$ 61,625

)

$1,407,519 (SG$ 61,625

)

 

Note 1:

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

 

a.

“0” for the Company.

b.

Subsidiaries are numbered from “1”.

 

Note 2:

Reasons for financing are as follows:

 

a.

Business relationship.

b.

For short-term financing.

 

Note 3:

The upper limit of loans lending to any other party is no more than 100% of the net value of the latest financial statements of the lender.

 

Note 4:

The upper limit of loans lending to all other parties is no more than 100% of the net value of the latest financial statements of the lender.

 

Note 5:

It equals to the prime rate of Singapore plus 1%.

 

Note 6:

Chunghwa Telecom Singapore Pte., Ltd. signed the joint venture contract with SingTelSat Pte., Ltd. to establish ST-2 Satellite Ventures Pte., Ltd. which mainly engages in the installation and the operation of ST-2 telecommunications satellite. In the contract, it stated that Chunghwa Telecom Singapore Pte., Ltd. is obligated to rent the ST-2 telecommunications satellite from ST-2 Satellite Ventures Pte., Ltd. when the satellite is accomplished.

 

- 51 -

---

TABLE 2

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD

DECEMBER 31, 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)

 

 

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009											Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)				Percentage of Ownership		Market Value or Net Asset Value
0		Chunghwa		Stocks
		Telecom Co., Ltd.		Senao International Co., Ltd.		Subsidiary		Investments accounted for using equity method		71,773		$	1,331,859 (Note 12	)		29		$	3,452,289		Note 5
				Light Era Development Co., Ltd.		Subsidiary		Investments accounted for using equity method		300,000			2,926,677 (Note 12	)		100			2,927,108		Note 1
				Chunghwa Investment Co., Ltd.		Subsidiary		Investments accounted for using equity method		178,000			1,651,391 (Note 12	)		89			1,723,733		Note 1
				Chunghwa Telecom Singapore Pte. Ltd.		Subsidiary		Investments accounted for using equity method		61,869			1,407,519 (Note 12	)		100			1,407,519		Note 1
				Chunghwa System Integration Co., Ltd.		Subsidiary		Investments accounted for using equity method		60,000			706,932 (Note 12	)		100			625,409		Note 1
				CHIEF Telecom Inc.		Subsidiary		Investments accounted for using equity method		37,942			447,647 (Note 12	)		69			396,688		Note 1
				Taiwan International Standard Electronics Co., Ltd.		Equity-method investee		Investments accounted for using equity method		1,760			427,810			40			635,946		Note 1
				InfoExplorer Co., Ltd.		Subsidiary		Investments accounted for using equity method		22,498			276,472 (Note 12	)		49			227,865		Note 1
				Viettel-CHT Co., Ltd.		Equity-method investee		Investments accounted for using equity method		—			269,924			30			269,924		Note 1
				Donghwa Telecom Co., Ltd.		Subsidiary		Investments accounted for using equity method		51,590			230,528 (Note 12	)		100			230,528		Note 1
				Chunghwa International Yellow Pages Co., Ltd.		Subsidiary		Investments accounted for using equity method		15,000			171,986 (Note 12	)		100			171,986		Note 1
				Skysoft Co., Ltd.		Equity-method investee		Investments accounted for using equity method		4,438			89,913			30			50,546		Note 1
				KingWay Technology Co., Ltd.		Equity-method investee		Investments accounted for using equity method		1,703			69,913			33			18,917		Note 1
				Chunghwa Telecom Global, Inc.		Subsidiary		Investments accounted for using equity method		6,000			63,752 (Note 12	)		100			83,537		Note 1
				Spring House Entertainment Inc.		Subsidiary		Investments accounted for using equity method		5,996			57,095 (Note 12	)		56			41,806		Note 1
				So-net Entertainment Taiwan		Equity-method investee		Investments accounted for using equity method		3,429			30,920			30			13,066		Note 1
				Chunghwa Telecom Japan Co., Ltd.		Subsidiary		Investments accounted for using equity method		1			10,166 (Note 12	)		100			10,166		Note 1

(Continued)

 

- 52 -

---

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009										Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)			Percentage of Ownership		Market Value or Net Asset Value
				New Prospect Investments Holdings Ltd. (B.V.I.)		Subsidiary		Investments accounted for using equity method		—		(US$ 1 dollar (Note 12	)  )		100		(US$ 1 dollar	)		Note 3
				Prime Asia Investments Group Ltd. (B.V.I.)		Subsidiary		Investments accounted for using equity method		—		(US$ 1 dollar (Note 12	)  )		100		(US$ 1 dollar	)		Note 3
				Taipei Financial Center		—		Financial assets carried at cost		172,927		1,789,530			12		1,358,652			Note 2
				Industrial Bank of Taiwan II Venture Capital Co.,     Ltd. (IBT II)		—		Financial assets carried at cost		20,000		200,000			17		223,065			Note 2
				Global Mobile Corp.		—		Financial assets carried at cost		12,696		127,018			11		109,111			Note 2
				iD Branding Ventures		—		Financial assets carried at cost		7,500		75,000			8		81,292			Note 2
				PRTI International		—		Financial assets carried at cost		4,765		34,500			10		35,515			Note 2
				Essence Technology Solution, Inc.		—		Financial assets carried at cost		2,000		—			9		2,882			Note 2
				Beneficiary certificates (mutual fund)
				PCA Well Pool Fund		—		Available-for-sale financial assets		194,181		2,500,000			—		2,521,126			Note 4
				Yuan Ta Wan Tai Bond Fund		—		Available-for-sale financial assets		173,683		2,500,000			—		2,513,121			Note 4
				Central Diamond Bond Fund		—		Available-for-sale financial assets		126,106		1,500,000			—		1,504,586			Note 4
				Polaris De-Li		—		Available-for-sale financial assets		129,654		2,008,787			—		2,021,960			Note 4
				Fuh-Hwa Bond Fund		—		Available-for-sale financial assets		108,849		1,500,000			—		1,503,777			Note 4
				JPM (Taiwan) Global Balanced Fund		—		Available-for-sale financial assets		14,161		200,000			—		207,434			Note 4
				JPM (Taiwan) JF Balanced Fund		—		Available-for-sale financial assets		2,462		50,000			—		49,538			Note 4
				Fuh-Hwa Aegis Fund		—		Available-for-sale financial assets		17,813		234,684			—		234,439			Note 4
				AGI Global Quantitative Balanced Fund		—		Available-for-sale financial assets		17,000		197,821			—		196,180			Note 4
				Capital Value Balance Fund		—		Available-for-sale financial assets		8,000		141,776			—		139,231			Note 4
				Fuh Hwa Life Goal Fund		—		Available-for-sale financial assets		9,330		140,000			—		159,575			Note 4
				Fuh Hwa Asia Pacific Balanced		—		Available-for-sale financial assets		7,764		100,000			—		89,907			Note 4
				Asia-Pacific Mega - Trend Fund		—		Available-for-sale financial assets		15,074		200,000			—		193,694			Note 4
				PCA Asia Pacc Infrastructure Fund		—		Available-for-sale financial assets		3,061		30,000			—		30,850			Note 4
				AIG Flagship Global Balanced Fund of Funds		—		Available-for-sale financial assets		25,679		350,000			—		348,723			Note 4
				Franklin Templeton Global Bond Fund of Funds		—		Available-for-sale financial assets		14,000		158,018			—		175,307			Note 4
				Cathay Global Aggressive Fund of Funds		—		Available-for-sale financial assets		15,570		210,000			—		198,047			Note 4
				Polaris Global Emerging Market Funds		—		Available-for-sale financial assets		13,603		200,000			—		191,389			Note 4
				HSBC Global Fund of Bond Funds		—		Available-for-sale financial assets		22,838		250,000			—		259,143			Note 4
				Fuh Hwa global Fixed Income FOFs Fund		—		Available-for-sale financial assets		11,512		140,000			—		141,257			Note 4
				PCA Asia Pacific REITs-A		—		Available-for-sale financial assets		7,849		50,000			—		51,020			Note 4
				Fidelity US High Yield Fund		—		Available-for-sale financial assets		535		206,588			—		187,894			Note 4
				HSBC GIF G16 Emg MK+ Bond		—		Available-for-sale financial assets		273		155,112			—		153,752			Note 4
				FTIF - Templeton G16 Bond		—		Available-for-sale financial assets		289		210,001			—		208,570			Note 4
				PIMCO Global Investment Grade Credi - Ins H Acc		—		Available-for-sale financial assets		398		161,575			—		160,663			Note 4
				MFS Meridian Funds - Global Equity Fund (A1 class)		—		Available-for-sale financial assets		253		262,293			—		222,375			Note 4
				Fidelity Fds International		—		Available-for-sale financial assets		128		163,960			—		123,157			Note 4
				Fidelity Fds America		—		Available-for-sale financial assets		937		163,960			—		134,258			Note 4
				JPMorgan Funds - Global Dynamic Fund (B)		—		Available-for-sale financial assets		303		165,640			—		126,684			Note 3
				MFS Meridian Funds - Research International Fund     (A1 share)		—		Available-for-sale financial assets		173		131,920			—		100,559			Note 4
				Fidelity Fds Emerging Markets		—		Available-for-sale financial assets		144		122,175			—		84,397			Note 4

(Continued)

 

- 53 -

---

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009										Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)			Percentage of Ownership		Market Value or Net Asset Value
				Credit Suisse Equity Fund (Lux) Global     Resources		—		Available-for-sale financial assets		10		$	130,402		—		$	88,785		Note 4
				Schroder ISF - BRIC Fund - A1 Acc		—		Available-for-sale financial assets		31			197,071		—			195,344		Note 4
				Parvest Europe Convertible Bond Fond		—		Available-for-sale financial assets		71			398,787		—			390,303		Note 4
				JPMorgan Funds - Global Convertibles Fund     (EUR)		—		Available-for-sale financial assets		868			491,450		—			481,087		Note 4
				Schroder ISF Euro Corp. Bond A		—		Available-for-sale financial assets		260			190,098		—			185,120		Note 4
				Fidelity Euro Balanced Fund		—		Available-for-sale financial assets		476			303,683		—			259,501		Note 4
				Fidelity Fds World		—		Available-for-sale financial assets		248			144,116		—			102,520		Note 4
				Fidelity Fds Euro Blue Chip		—		Available-for-sale financial assets		155			140,125		—			98,465		Note 4
				MFS Meridian Funds - European Equity Fund     (A1 share)		—		Available-for-sale financial assets		171			178,920		—			137,276		Note 4
				Henderson Horizon Fund - Pan European     Equity Fund		—		Available-for-sale financial assets		230			180,886		—			154,002		Note 4
				Stock
				Polaris TW Top 50 Tracker		—		Available-for-sale financial assets		1,710			91,574		—			96,530		Note 5
				Polaris/P-Shares Taiwan DTV ETF		—		Available-for-sale financial assets		600			15,000		—			14,040		Note 5
				China Steel Corporation		—		Available-for-sale financial assets		926			28,374		—			30,558		Note 5
				Siliconware Precision Industries Co., Ltd.		—		Available-for-sale financial assets		661			28,369		—			28,654		Note 5
				Taiwan Semiconductor Manufacturing Co., Ltd.		—		Available-for-sale financial assets		456			28,357		—			29,412		Note 5
				U-Ming Marine Transport Corp.		—		Available-for-sale financial assets		454			28,363		—			29,510		Note 5
				President Chain Store Corp.		—		Available-for-sale financial assets		375			28,367		—			28,538		Note 5
				REITS
				Gallop No. 1 REIT		—		Available-for-sale financial assets		4,643			46,430		—			37,980		Note 5
				Fubon No. 1 Fund		—		Available-for-sale financial assets		5,727			57,270		—			64,142		Note 5
				Bonds
				Mega Securities Corp. 1st Unsecured Corporate     Bonds in 2007		—		Held-to-maturity financial assets		—			150,000		—			150,000		Note 7
				KGI Securities 1st Unsecured Corporate     Bonds 2007 - B Issue		—		Held-to-maturity financial assets		—			100,000		—			100,000		Note 7
				Mega Financial Holding 1st Unsecured Corporate     Bond 2007 - B Issue		—		Held-to-maturity financial assets		—			200,000		—			200,000		Note 7
				Mega Securities Corp. 1st Unsecured Corporate     Bond 2008 - A Issue		—		Held-to-maturity financial assets		—			300,000		—			300,000		Note 7
				Formosa Petrochemical Corp.		—		Held-to-maturity financial assets		—			99,876		—			99,876		Note 7
				Taiwan Power Company 3rd Boards in 2008		—		Held-to-maturity financial assets		—			149,941		—			149,941		Note 7
				GreTai Company 1st Unsecured Corporate     Bonds-A Issue in 2008		—		Held-to-maturity financial assets		—			100,000		—			100,000		Note 7
				Fubon Financial Holding Company 2005 1st     Unsecured Debenture		—		Held-to-maturity financial assets		—			99,720		—			99,720		Note 7
				Formosa Petrochemical Corporation 3rd     Unsecured Corporate Bonds Issue in 2008.		—		Held-to-maturity financial assets		—			49,935		—			49,935		Note 7
				Taiwan Power Company 5th Boards in 2008		—		Held-to-maturity financial assets		—			272,397		—			272,397		Note 7

(Continued)

 

- 54 -

---

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009										Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)			Percentage of Ownership		Market Value or Net Asset Value
				Yuanta Securities Finance Co. Ltd. 1st Unsecured     Corporate Bonds-A Issue in 2007		—		Held-to-maturity financial assets		—		$	100,015		—		$	100,015		Note 7
				Formosa Petrochemical Corporation 4th     Unsecured Corporate Bonds Issue in 2006		—		Held-to-maturity financial assets		—			300,716		—			300,716		Note 7
				NAN YA Company 2nd Unsecured Corporate     Bonds Issue in 2008		—		Held-to-maturity financial assets		—			407,575		—			407,575		Note 7
				Taiwan Power Company 3rd Boards in 2006		—		Held-to-maturity financial assets		—			201,019		—			201,019		Note 7
				Taiwan Power Co. 1st Unsecured Bond-B Issue in 2001		—		Held-to-maturity financial assets		—			180,039		—			180,039		Note 7
				Formosa Petrochemical Corporation Bond Issue in 2006		—		Held-to-maturity financial assets		—			201,358		—			201,358		Note 7
				NAN YA Company 3rd Unsecured Corporate     Bonds Issue in 2008		—		Held-to-maturity financial assets		—			204,583		—			204,583		Note 7
				China Development Financial Holding     Corporation 1st Unsecured Corporate     Bonds Issue in 2006		—		Held-to-maturity financial assets		—			202,049		—			202,049		Note 7
				China Development Financial Holding     Corporation 1st Unsecured Corporate     Bonds - A Issue in 2008		—		Held-to-maturity financial assets		—			103,656		—			103,656		Note 7
				Taiwan Power Co. 4th secured Bond-B Issue in 2008		—		Held-to-maturity financial assets		—			51,948		—			51,948		Note 7
				Formosa Petrochemical Corporation 2nd     Unsecured Corporate Bonds Issue in 2008		—		Held-to-maturity financial assets		—			102,961		—			102,961		Note 7
				Formosa Petrochemical Corporation 1st     Unsecured Corporate Bonds Issue in 2009		—		Held-to-maturity financial assets		—			201,190		—			201,190		Note 7
				NAN YA Company 1st Unsecured Corporate     Bonds Issue in 2009		—		Held-to-maturity financial assets		—			99,893		—			99,893		Note 7
				MLPC 1st Unsecured Corporate Bonds Issue in 2009		—		Held-to-maturity financial assets		—			199,703		—			199,703		Note 7
				China Steel Corporation 2nd Unsecured Corporate     Bonds - A Issue in 2008		—		Held-to-maturity financial assets		—			100,033		—			100,033		Note 7
				China Development Financial Holding Corporation 1st Unsecured Corporate     Bonds Issue in 2006		—		Held-to-maturity financial assets		—			202,049		—			202,049		Note 7
				Taiwan Power Co. 2nd Unsecured Bond - CB     Issue in 2003		—		Held-to-maturity financial assets		—			151,043		—			151,043		Note 7
				Chinatrust Commercial Bank 2nd Unsecured     Subordinate Financial Debentures Issue in 2003		—		Held-to-maturity financial assets		—			198,410		—			198,410		Note 7
				China Development Industrial Bank 2nd Financial     Debentures Issue in 2006		—		Held-to-maturity financial assets		—			198,741		—			198,741		Note 7
				TaipeiFubon Bank 1st Financial Debentures - BA     Issue in 2005		—		Held-to-maturity financial assets		—			100,407		—			100,407		Note 7

(Continued)

 

- 55 -

---

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009								Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)		Percentage of Ownership		Market Value or Net Asset Value
1		Senao International Co., Ltd.		Stocks
				Senao Networks, Inc.		Equity-method investee		Investments accounted for using equity method		15,295		$288,407		41		$288,407		Note 1
				Senao International (Samoa) Holding Ltd.		Subsidiary		Investments accounted for using equity method		—		—   (Note 12)		100		—		Note 8
				N.T.U. Innovation Incubation Corporation		—		Financial assets carried at cost		1,200		12,000		9		12,672		Note 2
				Beneficiary certificates (mutual fund)
				Prudential Financial Bond Fund		—		Available-for-sale financial assets		3,304		50,000		—		50,005		Note 4
				IBT Bond Fund		—		Available-for-sale financial assets		3,691		50,000		—		50,009		Note 4
				Fuh Hwa Global Short-term Income Fund		—		Available-for-sale financial assets		4,850		50,000		—		50,379		Note 4
				Fuh Hwa Strategic High Income Fund		—		Available-for-sale financial assets		5,000		50,000		—		51,100		Note 4
2		CHIEF Telecom Inc.		Stocks
				Unigate Telecom Inc.		Subsidiary		Investments accounted for using equity method		200		1,997 (Note 12)		100		1,997		Note 1
				CHIEF Telecom (Hong Kong) Limited		Subsidiary		Investments accounted for using equity method		400		993 (Note 12)		100		993		Note 1
				Chief International Corp.		Subsidiary		Investments accounted for using equity method		200		7,601 (Note 12)		100		7,601		Note 1
				eASPNet Inc.		—		Financial assets carried at cost		1,000		—		2		—		Note 2
				3 Link Information Service Co., Ltd.		—		Financial assets carried at cost		374		3,450		10		6,633		Note 2
3		Chunghwa System Integration Co., Ltd.		Stocks
				Concord Technology Co., Ltd.		Subsidiary		Investments accounted for using equity method		500		474 (Note 12)		100		474		Note 1
				Beneficiary certificates (mutual fund)
				Cathay Global Aggressive Fund of Fund		—		Available-for-sale financial assets		1,233		15,000		—		15,690		Note 4
				Cathay Global Infrastructure Fund		—		Available-for-sale financial assets		1,418		15,000		—		12,099		Note 4
9		Chunghwa Telecom Singapore Pte., Ltd.		Stocks
				ST-2 Satellite Ventures Pte., Ltd.		Equity-method investee		Investments accounted for using equity method		18,102		408,341 (SG$ 17,878)		38		408,341 (SG$ 17,878)		Note 1
18		Concord Technology Co., Ltd.		Stocks
				Glory Network System Service (Shanghai) Co., Ltd.		Subsidiary		Investments accounted for using equity method		500		469 (Note 12)		100		469		Note 1
14		Chunghwa Investment Co., Ltd.		Stocks
				Chunghwa Precision Test Tech. Co., Ltd.		Subsidiary		Investments accounted for using equity method		10,317		109,560 (Note 12)		54		109,560		Note 1
				Chunghwa Investment Holding Company		Subsidiary		Investments accounted for using equity method		589		10,860 (Note 12)		100		10,860		Note 1
				Tatung Technology Inc.		Equity-method investee		Investments accounted for using equity method		5,000		36,544		28		36,544		Note 1
				PandaMonium Company Ltd.		Equity-method investee		Investments accounted for using equity method		602		—		43		—		Note 1
				CHIEF Telecom Inc.		Equity-method investee		Investments accounted for using equity method		2,000		20,558 (Note 12)		4		20,933		Note 1

(Continued)

 

- 56 -

---

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009										Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)			Percentage of Ownership		Market Value or Net Asset Value
				Digimax Inc.		—		Financial assets carried at cost		2,000		$	36,000		4		$	15,860		Note 2
				ChipSiP Technology Co.		—		Financial assets carried at cost		923			25,508		3			21,093		Note 11
				iD Branding Ventures		—		Financial assets carried at cost		2,500			25,000		3			27,100		Note 2
				Crystal Media Inc. Co.		—		Financial assets carried at cost		1,000			15,000		5			6,380		Note 2
				Giga Solar Materials Corporation		—		Financial assets carried at cost		456			54,720		2			216,481		Note 11
				UniDisplay Inc.		—		Financial assets carried at cost		4,000			46,000		3			46,000		Note 2
				Superior Industries Co., Ltd.		—		Financial assets carried at cost		750			22,500		2			14,880		Note 2
				XinTec Inc.		—		Financial assets carried at cost		24			1,076		—			1,280		Note 2
				LightHouse Technology Co.		—		Financial assets carried at cost		219			10,650		—			11,802		Note 11
				J Touch Corporation.		—		Financial assets carried at cost		74			3,640		—			4,241		Note 11
				DelSolar Co., Ltd.		—		Financial assets carried at cost		113			5,376		—			5,885		Note 11
				Taidoc Technology Corporation		—		Financial assets carried at cost		26			3,468		—			3,348		Note 11
				Tennrich International Corp.		—		Financial assets carried at cost		163			3,112		—			3,982		Note 11
				Subtron Technology Co.		—		Financial assets carried at cost		271			3,384		—			3,667		Note 11
				Huga Optotech Inc.		—		Financial assets carried at cost		229			6,672		—			8,116		Note 11
				Tatung Fine Chemicals Co.		—		Financial assets carried at cost		93			7,762		—			5,863		Note 11
				Join Well Technology Co.		—		Financial assets carried at cost		206			8,210		—			10,368		Note 11
				Daxon Technology Inc.		—		Financial assets carried at cost		50			750		—			1,278		Note 11
				Win Semiconductors Corp.		—		Financial assets carried at cost		260			7,603		—			7,145		Note 11
				GoaTronics Inc.				Prepayments for long-term investments in stocks		—			25,000		—			25,000		—
				Huga Optotech Inc.				Prepayments for long-term investments in stocks		—			791		—			791		—
				Tennrich International Corp.				Prepayments for long-term investments in stocks		—			7		—			7		—
				China Steel Corporation		—		Available-for-sale financial assets		263			7,757		—			8,271		Note 5
				Chi Mei Optoelectronics Corporation		—		Available-for-sale financial assets		20			332		—			450		Note 5
				Lite-On Technology Corp.		—		Available-for-sale financial assets		10			247		—			483		Note 5
				Asustek Computer Inc.		—		Available-for-sale financial assets		10			395		—			619		Note 5
				Orise Technology Co.		—		Available-for-sale financial assets		15			604		—			1,193		Note 5
				AU Optronics Corp.		—		Available-for-sale financial assets		6			181		—			223		Note 5
				Hon Hai Precision Ind. Co.		—		Available-for-sale financial assets		3			324		—			455		Note 5
				Tung Ho Steel Enterprise Corp.		—		Available-for-sale financial assets		30			1,009		—			1,040		Note 5
				Asia Cement Corporation		—		Available-for-sale financial assets		40			1,476		—			1,384		Note 5
				Yuanta Financial Holdings		—		Available-for-sale financial assets		70			1,707		—			1,645		Note 5
				Soft-World International Corporation		—		Available-for-sale financial assets		5			898		—			1,018		Note 5
				Radium Life Tech. Co., Ltd.		—		Available-for-sale financial assets		20			549		—			538		Note 5
				China Synthetic Rubber Corporation		—		Available-for-sale financial assets		20			686		—			684		Note 5
				Cyberlink Co.		—		Available-for-sale financial assets		5			676		—			685		Note 5
				Formosa Plastics Corporation		—		Available-for-sale financial assets		86			4,961		—			5,768		Note 5
				Fubon Financial Holding Co.		—		Available-for-sale financial assets		200			7,447		—			7,860		Note 5
				Cathay Financial Holding Co.		—		Available-for-sale financial assets		151			8,669		—			8,985		Note 5
				Asustek Computer Inc.		—		Available-for-sale financial assets		100			5,708		—			6,180		Note 5
				LARGAN Precision Co.		—		Available-for-sale financial assets		10			3,870		—			4,294		Note 5
				Dynapack International Technology Corp.		—		Available-for-sale financial assets		36			3,261		—			4,034		Note 5
				Anpec Electronics Corporation		—		Available-for-sale financial assets		51			1,745		—			2,746		Note 5
				Wei Chuan Foods Corp.		—		Available-for-sale financial assets		198			8,710		—			8,633		Note 5
				Faraday Technology Corp.		—		Available-for-sale financial assets		5			281		—			356		Note 5
				Gemtek Technology Co.		—		Available-for-sale financial assets		50			2,907		—			2,890		Note 5
				Swancor. Ind. Co.		—		Available-for-sale financial assets		129			7,376		—			9,265		Note 5

(Continued)

 

- 57 -

---

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009										Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)			Percentage of Ownership		Market Value or Net Asset Value
				Apex Biotechnology Corp.		—		Available-for-sale financial assets		121		$	6,643		—		$	7,700		Note 5
				Via Technologies, Inc.		—		Available-for-sale financial assets		147			4,935		—			2,682		Note 5
				Cyberlink Co.		—		Available-for-sale financial assets		25			3,089		—			3,466		Note 5
				ITE Tech. Inc.		—		Available-for-sale financial assets		5			317		—			362		Note 5
				Optotech Corporation		—		Available-for-sale financial assets		50			1,305		—			1,430		Note 5
				Sino-American Silicon Products Inc.		—		Available-for-sale financial assets		113			8,841		—			9,954		Note 5
				Solar Applied Materials Technology Corp.		—		Available-for-sale financial assets		61			4,795		—			4,987		Note 5
				Vanguard International Semiconductor Co.		—		Available-for-sale financial assets		220			3,434		—			3,542		Note 5
				Marcoblock Inc.		—		Available-for-sale financial assets		10			1,162		—			1,490		Note 5
				Taiwan Semiconductor Co.		—		Available-for-sale financial assets		240			6,635		—			6,888		Note 5
				Tang Eng Iron Works Co.		—		Available-for-sale financial assets		75			2,449		—			2,902		Note 5
				Pan Jit International Inc.		—		Available-for-sale financial assets		270			5,415		—			7,250		Note 5
				Lite-On Semiconductor Corp.		—		Available-for-sale financial assets		285			6,300		—			6,883		Note 5
				MediaTek Inc.		—		Available-for-sale financial assets		2			991		—			1,116		Note 5
				Elan Microelectronics Corp.		—		Available-for-sale financial assets		105			5,334		—			5,953		Note 5
				Prolific Technology Inc.		—		Available-for-sale financial assets		50			1,776		—			2,450		Note 5
				Ability Enterprise Co.		—		Available-for-sale financial assets		95			5,933		—			5,966		Note 5
				Taiwan Hon Chuan Enterprise Co., Ltd.		—		Available-for-sale financial assets		100			5,306					5,300		Note 5
				Asia Cemet Corporation		—		Available-for-sale financial assets		100			3,424		—			3,460		Note 5
				I-Chiun Precision Industry Co., Ltd.		—		Available-for-sale financial assets		40			1,916		—			2,208		Note 5
				Cyber Power Systems, Inc.		—		Available-for-sale financial assets		100			7,532		—			13,500		Note 5
				Everlight Electronics Co., Ltd.		—		Available-for-sale financial assets		70			7,621		—			8,400		Note 5
				Yuanta Financial Holdings		—		Available-for-sale financial assets		300			6,978		—			7,050		Note 5
				Unimicron Technology Corp.		—		Available-for-sale financial assets		70			3,108		—			3,248		Note 5
				Hiwin Technologies Corp.		—		Available-for-sale financial assets		80			3,101		—			3,348		Note 5
				Sunrex Technology Corporation		—		Available-for-sale financial assets		176			6,285		—			6,574		Note 5
				A-DATA Technology Co., Ltd.		—		Available-for-sale financial assets		20			1,564		—			2,090		Note 5
				Delta Electronics, Inc.		—		Available-for-sale financial assets		60			5,379		—			6,000		Note 5
				Vivotek Inc.		—		Available-for-sale financial assets		95			3,764		—			4,323		Note 5
				Visual Phoionics Epijaxy Co., Ltd.		—		Available-for-sale financial assets		55			4,564		—			4,829		Note 5
				Taiwan Mobile Co., Ltd.		—		Available-for-sale financial assets		15			897		—			935		Note 5
				San Chih Semiconductor Inc. Ltd.		—		Available-for-sale financial assets		7			347		—			545		Note 5
				JuTeng International Holdings Limited		—		Available-for-sale financial assets		195			8,175		—			7,020		Note 5
				Tingyi (Cayman Islands) Holding Corp.		—		Available-for-sale financial assets		50			2,295		—			2,325		Note 5
				Neo-Neon Holdings Limited		—		Available-for-sale financial assets		400			5,280		—			6,420		Note 5
				Beneficiary certificates (mutual)
				Cathay Bond Fund		—		Available-for-sale financial assets		4,285			50,880		—			51,229		Note 4
				Jih Sun Bond Fund		—		Available-for-sale financial assets		2,130			30,000		—			30,070		Note 4
				FSITC Bound Found		—		Available-for-sale financial assets		294			50,000		—			50,094		Note 4
				Fuh Hwa Yu-Li Found		—		Available-for-sale financial assets		3,501			45,004		—			45,107		Note 4
				Fuh Hwa Global Fixed Income Found of Founds		—		Available-for-sale financial assets		1,899			20,757		—			23,304		Note 4
				Cathay Cathay Found		—		Available-for-sale financial assets		408			5,000		—			6,166		Note 4
				Manulife Asia Pacific Bond Fund		—		Available-for-sale financial assets		2,000			20,000		—			19,820		Note 4
				Capital Income Fund		—		Available-for-sale financial assets		649			10,000		—			10,000		Note 4
				Jih Sun Small Cap Fund		—		Available-for-sale financial assets		868			12,000		—			12,783		Note 4
				Kathy Mandarin Fund		—		Available-for-sale financial assets		500			5,000		—			4,950		Note 4
				Cathy Man AHL Futures Trust Fund of Funds		—		Available-for-sale financial assets		2,474			25,000		—			23,302		Note 4

(Continued)

 

- 58 -

---

No.		Held Company Name		Marketable Securities Type and Name		Relationship with the Company		Financial Statement Account		December 31, 2009											Note
										Shares (Thousands/ Thousand Units)		Carrying Value (Note 6)				Percentage of Ownership		Market Value or Net Asset Value
				Bonds
				Hua Nan Financial Holdings Company 1st Unsecured Subordinate Corporate Bonds Issue in 2006		—		Available-for-sale financial assets		500		$	51,398			—		$	51,675		Note 5
				AU Optronics Corporation 1st Secured Corporate Bonds Issue in 2008		—		Available-for-sale financial assets		500			51,372			—			51,648		Note 5
				Convertible bonds
				Synnex Technology International Corporation 1st Uusecured Convertible Bond Issue in 2008		—		Financial assets at fair value		9			1,002			—			1,010		Note 5
				Epistar Corporation Ltd. 3rd Convertible Bond		—		Financial assets at fair value through profit or loss		35			3,732			—			4,078		Note 5
				Evergreen Marine Corp. (Taiwan) Ltd. 3rd Unsecured Convertible Bond		—		Financial assets at fair value through profit or loss		60			6,412			—			6,288		Note 5
				Everlight Electronics Co., Ltd. 3rd Convertible Bonds		—		Financial assets at fair value through profit or loss		40			4,351			—			5,136		Note 5
				Asia Optical’s Second Domestic Unsecured Convertible Bond		—		Financial assets at fair value through profit or loss		49			4,900			—			6,223		Note 5
				Everlight Electronics Co., Ltd. 4th Convertible Bonds		—		Financial assets at fair value through profit or loss		50			5,000			—			5,958		Note 5
				Kingslide Works Co., Ltd. 2nd Convertible Bond		—		Financial assets at fair value through profit or loss		50			5,000			—			5,150		Note 5
22		Senao International     (Samoa) Holding Ltd.		Stocks
				Senao International HK Limited		Subsidiary		Investment accounted for using equity method		—			—   (Note 12	)		100			—		Note 9
24		Chunghwa Investment     Holding Company		Stocks
				CHI One Investment Co., Limited		Subsidiary		Investment accounted for using equity method		—			—   (Note 12	)		100			—		Note 10

 

Note 1:

The net asset values of investees were based on audited financial statements.

Note 2:

The net asset values of investees were based on unaudited financial statements.

Note 3:

New Prospect Investments Holdings Ltd. (B.V.I.) and Prime Asia Investments Group Ltd. (B.V.I.) were incorporated in March 2006, but not on operating stage, yet. Chunghwa has 100% ownership right in an amount of US$1 in each holding company.

Note 4:

The net asset values of beneficiary certification (mutual fund) were based on the net asset values on December 31, 2009.

Note 5:

Market value was based on the closing price of December 31, 2009.

Note 6:

Showing at their original carrying amounts without adjustments for fair values, except for held-to-maturity financial assets.

Note 7:

The net asset values of investees were based on amortized cost.

Note 8:

Senao International (Samoa) Holding Ltd. (SIS) was established by Senao in 2009. No capital is injected in SIS yet by the end of 2009.

Note 9:

Senao International HK Limited (SIHK) was established by SIS in 2009. No capital is injected in SIHK yet by the end of 2009.

Note 10:

CHI One Investment Co., Ltd. (COI) was established by CHI in 2009. No capital is injected in COI yet by the end of 2009.

Note 11:

Market value of emerging stock was based on the average trading price on December 31, 2009.

Note 12:

The amount was eliminated upon consolidation.

(Concluded)

 

- 59 -

---

TABLE 3

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2009

(Amounts in Thousands of New Taiwan Dollars)

 

 

No.		Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter- party		Nature of Relationship		Beginning Balance						Acquisition					Disposal													Ending Balance
												Shares (Thousands/ Thousand Units)		Amount (Note 1)				Shares (Thousands/ Thousand Units)		Amount			Shares (Thousands/ Thousand Units)		Amount			Carrying Value (Note 1)				Gain (Loss) on Disposal				Shares (Thousands/ Thousand Units)		Amount (Note 1)
0		Chunghwa Telecom Co., Ltd.		Stock
				Chunghwa Investment Co., Ltd.		Investments accounted for using equity method		—		Subsidiary		98,000		$	829,716 (Note 3	)		80,000		$	758,709		—		$	—		$	—			$	—			178,000		$	1,651,391 (Notes 3 and 6	)
				Chunghwa Singapore Pte. Ltd.		Investments accounted for using equity method		—		Subsidiary		34,869			791,161 (Note 3	)		27,000			610,659		—			—			—				—			61,869			1,407,519 (Notes 3 and 6	)
				Vettel-CHT Co., Ltd.		Investments accounted for using equity method		—		Equity method investee		—			95,836 (Note 3	)		—			197,088		—			—			—				—			—			269,924 (Note 3	)
				Beneficiary certificates (mutual fund)
				PCA Well Pool Fund		Available-for-sale financial assets		—		—		117,079			1,500,000			77,102			1,000,000		—			—			—				—			194,181			2,500,000
				Yuanta Wan Tai Bond Fund		Available-for-sale financial assets		—		—		104,520			1,500,000			69,163			1,000,000		—			—			—				—			173,683			2,500,000
				Mega Diamond Bond Fund		Available-for-sale financial assets		—		—		—			—			126,106			1,500,000		—			—			—				—			126,106			1,500,000
				Polaris De-Li Fund		Available-for-sale financial assets		—		—		97,388			1,500,000			128,513			2,000,000		96,247			1,500,000			1,491,213				8,787			129,654			2,008,787
				Fuh-Hwa Bond Fund		Available-for-sale financial assets		—		—		—			—			108,849			1,500,000		—			—			—				—			108,849			1,500,000
				Franklin Templeton Sinoam Franklin Templeton Global Bond Fund of Fund		Available-for-sale financial assets		—		—		18,089			200,000			4,060			50,000		8,149			102,177			91,982				10,195			14,000			158,018
				Fuh Hwa Global Fixed Inc. FOFs		Available-for-sale financial assets		—		—		—			—			11,512			140,000		—			—			—				—			11,512			140,000
				Fubon Taiwan Selected Fund		Available-for-sale financial assets		—		—		100,000			618,404			—			—		100,000			671,052			618,104				52,948			—			—
				HSBC Taiwan Balanced Strategy Fund		Available-for-sale financial assets		—		—		100,000			797,811			—			—		100,000			794,099			769,374 (Note 4	)			24,725			—			—
				Cathay Chung Hwa No. 1 Fund		Available-for-sale financial assets		—		—		100,000			717,909			—			—		100,000			696,522			710,886 (Note 4	)			(14,364	)		—			—
				Fuh Hwa Power Fund III		Available-for-sale financial assets		—		—		100,000			726,771			—			—		100,000			717,136			677,182 (Note 4	)			39,954			—			—
				MFS Meridian Emerging Markets Debt Fund		Available-for-sale financial assets		—		—		336			208,578			—			—		336			231,575			208,578				22,997			—			—
				MFS Meridian Strategic Income Fund		Available-for-sale financial assets		—		—		316			132,592			—			—		316			141,019			132,592				8,427			—			—
				Fidelity Fds Intl Bond		Available-for-sale financial assets		—		—		14,644			565,387			—			—		14,644			551,576			565,387				(13,811	)		—			—
				Sinopia Alternative Funds – Global Bond Market Neutral Fund 600		Available-for-sale financial assets		—		—		—			623,332			—			—		—			684,208			647,917				36,291			—			—
				HSBC GIF Global Emerging Markets Bond Fund		Available-for-sale financial assets		—		—		—			—			273			155,112		—			—			—				—			273			155,112
				Templeton Global Bond Fund Class A		Available-for-sale financial assets		—		—		—			—			289			210,001		—			—			—				—			289			210,001
				PIMCO Global Investor Series plc Global Investment Grade Credit Fund Class H – Institutional Accumulation		Available-for-sale financial assets		—		—		—			—			398			161,575		—			—			—				—			398			161,575
				Schroder International Selection Fund – BRIC (Brazil, Russia, India, China) EUR A1 (Accumulation)		Available-for-sale financial assets		—		—		—			—			31			197,071		—			—			—				—			31			197,071
				Fidelity Funds – European High Yield Fund		Available-for-sale financial assets		—		—		324			126,425			—			—		324			131,145			126,425				4,720			—			—
				Parvest Europe Bond Fund		Available-for-sale financial assets		—		—		39			287,400			—			—		39			320,925			287,400				33,525			—			—

(Continued)

 

- 60 -

---

No.		Company Name		Marketable Securities Type and Name		Financial Statement Account		Counter- party		Nature of Relationship		Beginning Balance						Acquisition						Disposal												Ending Balance
												Shares (Thousands/ Thousand Units)		Amount (Note 1)				Shares (Thousands/ Thousand Units)		Amount				Shares (Thousands/ Thousand Units)		Amount			Carrying Value (Note 1)			Gain (Loss) on Disposal				Shares (Thousands/ Thousand Units)		Amount (Note 1)
				SISF – Euro Bond Class A1 (Accumulation)		Available-for-sale financial assets		—		—		—		$	—			260		$	190,098			—		$	—		$	—		$	—			260		$	190,098
				Fidelity Euro Balance Fund		Available-for-sale financial assets		—		—		879			560,819			—			—			403			217,420			257,136			(39,716	)		476			303,683
				Bonds
				Taiwan Power Co. 1st Unsecured Bond-B Issue in 2001		Held-to-maturity financial assets		—		—		—			—			—			262,500 (Note 2	)		—			—			—			—			—		$	175,000 (Notes 2 and 5	)
				Formosa Petrochemical Corporation 5th Unsecured Corporate Bonds Issue in 2006		Held-to-maturity financial assets		—		—		—			—			—			200,000 (Note 2	)		—			—			—			—			—			200,000 (Note 2	)
				Nan Ya Company 3rd Unsecured Corporate Bonds Issue in 2008		Held-to-maturity financial assets		—		—		—			—			—			200,000 (Note 2	)		—			—			—			—			—			200,000 (Note 2	)
				China Development Financial Holding Corporation 1st Unsecured Corporate Bonds Issue in 2007		Held-to-maturity financial assets		—		—		—			—			—			200,000 (Note 2	)		—			—			—			—			—			200,000 (Note 2	)
				China Development Financial Holding Corporation 1st Unsecured Corporate Bonds-A Issue in 2008		Held-to-maturity financial assets		—		—		—			—			—			100,000 (Note 2	)		—			—			—			—			—			100,000 (Note 2	)
				Formosa Petrochemical Corporation 2nd Unsecured Corporate Bonds Issue in 2008.		Held-to-maturity financial assets		—		—		—			—			—			100,000 (Note 2	)		—			—			—			—			—			100,000 (Note 2	)
				Formosa Petrochemical Corporation 1st Unsecured Corporate Bonds Issue in 2009.		Held-to-maturity financial assets		—		—		—			—			—			200,000 (Note 2	)		—			—			—			—			—			200,000 (Note 2	)
				Nan Ya Company 1st Unsecured Corporate Bonds Issue in 2009.		Held-to-maturity financial assets		—		—		—			—			—			100,000 (Note 2	)		—			—			—			—			—			100,000 (Note 2	)
				MLPC 1st Unsecured Corporate Bonds Issue in 2008		Held-to-maturity financial assets		—		—		—			—			—			200,000 (Note 2	)		—			—			—			—			—			200,000 (Note 2	)
				China Development Financial Holding Corporation 1st Unsecured Corporate Bonds Issue in 2007		Held-to-maturity financial assets		—		—		—			—			—			200,000 (Note 2	)		—			—			—			—			—			200,000 (Note 2	)
				Taiwan Power Co. 2nd Unsecured Bond-CB Issue in 2003		Held-to-maturity financial assets		—		—		—			—			—			150,000 (Note 2	)		—			—			—			—			—			150,000 (Note 2	)
				Taipei Fubon Bank 1st Financial Debentures-BA Issue in 2005		Held-to-maturity financial assets		—		—		—			—			—			100,000 (Note 2	)		—			—			—			—			—			100,000 (Note 2	)
1		Senao International Co., Ltd.		Beneficiary certificates (mutual fund)
				Prudential financial bond		Available-for-sale financial assets		—		—		—			—			6,610			100,000			3,306			50,031			50,000			31			3,304			50,000
				IBT bond		Available-for-sale financial assets		—		—		—			—			7,385			100,000			3,694			50,041			50,000			41			3,691			50,000
9		Chunghwa Telecom Singapore Pte., Ltd.		Stocks
				ST-2 Satellite Ventures Pte., Ltd.		Investment accounted for using equipment		—		Equity-method investee		4,735		(SG$	106,432 4,735	)		13,367		(SG$	302,629 13,367	)		—			—			—			—			18,102		(SG$	408,341 17,878 (Note 3	)  )
14		Chunghwa Investment Co., Ltd.		Beneficiary certificates (mutual fund)
				Cathay G16 Money Market		Available-for-sale financial assets		—		—		4,860			50,163			4,845			50,851			9,705			100,594			101,014			(420	)		—			—

Note 1: Showing at their original carrying amounts without adjustments for fair values.

Note 2: Stated at its nominal amounts.

Note 3: The ending balance includes investment gain (loss) recognized under equity method, cumulative translation adjustments, and unrealized loss on financial instruments, respectively.

Note 4: The carrying amount of disposal was decreased by impairment losses.

Note 5: The carrying amount of installment was deducted $87,500 thousand.

Note 6: The amount was eliminated upon consolidation.

(Concluded)

 

- 61 -

---

TABLE 4

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

ACQUISITION OF INDIVIDUAL REAL ESTATE PROPERTIES AT PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2009

(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

 

 

Company Name

Type of Property

Trans- action Date

Trans- action Amount

Proceeds Collection Status

Counter- party

Nature of Relation- ship

Prior Transaction Made by Related Counter-party

Price Reference

Purpose of Acquisi- tion

Other Terms

Owner

Relation- ship

Transfer Date

Amount

Light Era Development Co., Ltd.

Land and buildings

2009.09.01

$

610,000

All collected

New Brilliance Asset Management Corp.

—

—

—

—

$

—

Evaluation report of jointed firm

Construction sites

—

---

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

FOR THE YEAR ENDED DECEMBER 31, 2009

(Amounts in Thousands of New Taiwan Dollars)

 

 

No.

Company Name

Related Party

Nature of Relationship

Transaction Details

Abnormal Transaction

Notes/Accounts Payable or Receivable

Purchase/ Sale

Amount

% to Total

Payment Terms

Units Price

Payment Terms

Ending Balance (Note 1)

% to Total

0

Chunghwa Telecom Co., Ltd.

Senao International Co., Ltd.

Subsidiary

Sales

$999,821 (Notes 4 and 10)

1

30 days

(Note 2)

(Note 2)

$261,458 (Notes 5 and 10)

2

Purchase

5,172,852 (Notes 3 and 10)

5

30-90 days

(Note 2)

(Note 2)

(604,005) (Note 10)

(6

)

CHIEF Telecom Inc.

Subsidiary

Sales

229,335 (Notes 6 and 10)

—

30 days

(Note 2)

(Note 2)

23,031 (Note 10)

—

Purchase

309,498 (Note 10)

—

60 days

(Note 2)

(Note 2)

(51,554) (Note 10)

(1

)

Chunghwa System Integration Co., Ltd.

Subsidiary

Purchase

441,564 (Notes 7 and 10)

—

30 days

—

—

(426,674) (Notes 8 and 10)

(4

)

InfoExplorer Co., Ltd.

Subsidiary

Purchase

111,190 (Notes 9 and 10)

—

30 days

(Note 2)

(Note 2)

(11,382) (Note 10)

—

Taiwan International Standard Electronics Co., Ltd.

Equity-method investee

Purchase

481,743

—

30-90 days

—

—

(271,290)

(3

)

1

Senao International Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

5,093,269 (Notes 3 and 10)

27

30-90 days

(Note 2)

(Note 2)

604,005 (Note 10)

59

Purchase

956,945 (Notes 4 and 10)

6

30 days

(Note 2)

(Note 2)

(142,117) (Notes 5 and 10)

(12

)

2

CHIEF Telecom Inc.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

309,498 (Note 10)

28

60 days

(Note 2)

(Note 2)

51,554 (Note 10)

39

Purchase

228,557 (Notes 6 and 10)

26

30 days

(Note 2)

(Note 2)

(23,031) (Note 10)

(28

)

3

Chunghwa System Integration Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

1,334,846 (Notes 7 and 10)

45

30 days

—

—

427,123 (Notes 8 and 10)

86

11

InfoExplorer Co., Ltd.

Chunghwa Telecom Co., Ltd.

Parent company

Sales

142,506 (Notes 9 and 10)

22

30 days

(Note 2)

(Note 2)

11,382 (Note 10)

4

(Continued)

 

- 63 -

---

Note 1:

Excluding payment and receipts collected in trust for others.

Note 2:

Transaction terms were determined in accordance with mutual agreements.

Note 3:

The difference was because Senao International Co., Ltd. classified the amount as nonoperating income and other current liabilities.

Note 4:

The difference was because Senao International Co., Ltd. classified the amount as operating expenses.

Note 5:

The difference was because Senao International Co., Ltd. classified the amount as other payables.

Note 6:

The difference was because CHIEF Telecom Inc. classified the amount as operating expenses.

Note 7:

The difference was because Chunghwa classified the amount as property, plant and equipment, inventories, and intangible assets.

Note 8:

The difference was because Chunghwa classified the amount as payables to contractors.

Note 9:

The difference was because Chunghwa classified the amount as property, plant and equipment, inventories, and intangible assets.

Note 10:

The amount was eliminated upon consolidation.

(Concluded)

 

- 64 -

---

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

DECEMBER 31, 2009

(Amounts in Thousands of New Taiwan Dollars)

 

 

No.		Company Name		Related Party		Nature of Relationship		Ending Balance				Turnover Rate			Overdue					Amounts Received in Subsequent Period			Allowance for Bad Debts
															Amounts			Action Taken
0		Chunghwa Telecom Co., Ltd.		Senao International Co., Ltd.		Subsidiary		$	261,458 (Note 2	)		4.54 (Note 1	)		$	—		—		$	261,458		$	—
1		Senao International Co., Ltd.		Chunghwa Telecom Co., Ltd.		Parent company			862,912 (Note 2	)		8.5 (Note 1	)			—		—			3,771			—
3		Chunghwa System Integration Co., Ltd.		Chunghwa Telecom Co., Ltd.		Parent company			427,123 (Note 2	)		2.42 (Note 1	)			—		—			182,104			—

 

Note 1:

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

Note 2:

The amount was eliminated upon consolidation.

 

- 65 -

---

TABLE 7

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES IN WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE

FOR THE YEAR ENDED DECEMBER 31, 2009

(Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified)

 

 

No.		Investor Company		Investee Company		Location		Main Businesses and Products		Original Investment Amount								Balance as of December 31, 2009								Net Income (Loss) of the Investee				Recognized Gain (Loss) (Notes 1 and 2)				Note
										December 31, 2009				December 31, 2008				Shares (Thousands)		Percentage of Ownership (%)		Carrying Value
0		Chunghwa Telecom Co., Ltd.		Senao International Co., Ltd.		Sindian City, Taipei		Selling and maintaining mobile phones and its peripheral products		$	1,065,813			$	1,065,813			71,773		29		$	1,331,859 (Note 7	)		$	1,008,040			$	288,268 (Note 7	)		Subsidiary
				Light Era Development Co., Ltd.		Taipei		Housing, office building development, rent and sale services			3,000,000				3,000,000			300,000		100			2,926,677 (Note 7	)			(49,907	)			(49,757 (Note 7	)  )		Subsidiary
				Chunghwa Investment Co., Ltd.		Taipei		Telecommunications, telecommunications value-added services and other related professional investment			1,738,709				980,000			178,000		89			1,651,391 (Note 7	)			45,517				34,424 (Note 7	)		Subsidiary
				Chunghwa Telecom Singapore Pte., Ltd.		Singapore		Telecommunication wholesale, internet transfer services international data and long distance call wholesales to carriers			1,389,939				779,280			61,869		100			1,407,519 (Note 7	)			24				24 (Note 7	)		Subsidiary
				Chunghwa System Integration Co., Ltd.		Taipei		Providing communication and information aggregative services			838,506				838,506			60,000		100			706,932 (Note 7	)			3,702				(14,033 (Note 7	)  )		Subsidiary
				CHIEF Telecom Inc.		Taipei		Internet communication and internet data center (“IDC”) service			482,165				482,165			37,942		69			447,647 (Note 7	)			25,012				19,956 (Note 7	)		Subsidiary
				Taiwan International Standard Electronics Co., Ltd.		Taipei		Manufacturing, selling, designing, and maintaining of telecommunications systems and equipment			164,000				164,000			1,760		40			427,810				(53,764	)			(48,471	)		Equity-method investee
				InfoExplorer Co., Ltd.		Banqiao City, Taipei		IT solution provider, IT application consultation, system integration and package solution			283,500				—			22,498		49			276,472 (Note 7	)			5,093				(7,029 (Note 7	)  )		Subsidiary
				Viettel-CHT Co., Ltd.		Vietnam		IDC services			288,327				91,239			—		30			269,924				23,766				7,724			Equity-method investee
				Donghwa Telecom Co., Ltd.		Hong Kong		International telecommunications IP fictitious internet and internet transfer services			201,263				201,263			51,590		100			230,528 (Note 7	)			15,075				15,075 (Note 7	)		Subsidiary
				Chunghwa International Yellow Pages Co., Ltd.		Taipei		Yellow pages sales and advertisement services			150,000				150,000			15,000		100			171,986 (Note 7	)			60,714				61,441 (Note 7	)		Subsidiary
				Skysoft Co., Ltd.		Taipei		Providing of music on-line, software, electronic information, and advertisement services			67,025				67,025			4,438		30			89,913				16,816				5,045			Equity-method investee
				KingWay Technology Co., Ltd.		Taipei		Publishing books, data processing and software services			71,770				71,770			1,703		33			69,913				2,252				(4,804	)		Equity-method investee
				Chunghwa Telecom Global, Inc.		United States		International data and internet services and long distance call wholesales to carriers			70,429				70,429			6,000		100			63,752 (Note 7	)			14,916				(5,115 (Note 7	)  )		Subsidiary
				Spring House Entertainment Inc.		Taipei		Network services, producing digital entertainment contents and broadband visual sound terrace development			62,209				62,209			5,996		56			57,095 (Note 7	)			20,332				11,982 (Note 7	)		Subsidiary
				So-net Entertainment Taiwan		Taipei		Online service and sale of computer hardware			60,008				—			3,429		30			30,920				(96,958	)			(29,086	)		Equity-method investee
				Chunghwa Telecom Japan Co., Ltd.		Japan		Telecom business, information process and information provide service, development and sale of software and consulting services in telecommunication			17,291				6,140			1		100			10,166 (Note 7	)			(4,304	)			(4,304 (Note 7	)  )		Subsidiary
				New Prospect Investments Holdings Ltd. (B.V.I.)		British Virgin Islands		Investment			—   (Note 3	)			—   (Note 3	)		—		100			—   (Notes 3 and 7	)			—				—   (Notes 3 and 7	)		Subsidiary
				Prime Asia Investments Group Ltd. (B.V.I.)		British Virgin Islands		Investment			—   (Note 3	)			—   (Note 3	)		—		100			—   (Notes 3 and 7	)			—				—   (Notes 3 and 7	)		Subsidiary

(Continued)

 

- 66 -

---

No.

Investor Company

Investee Company

Location

Main Businesses and Products

Original Investment Amount

Balance as of December 31, 2009

Net Income (Loss) of the Investee

Recognized Gain (Loss) (Notes 1 and 2)

Note

December 31, 2009

December 31, 2008

Shares (Thousands)

Percentage of Ownership (%)

Carrying Value

1

Senao International Co., Ltd.

Senao Networks, Inc.

Linkou Hsiang, Taipei

Telecommunication facilities manufactures and sales

$

206,190

$

206,190

15,295

41

$288,407

$104,663

$45,235

Equity-method investee

Senao International (Samoa) Holding Ltd.

Samoa Islands

International investment

—

—

—

100

—   (Notes 4 and 7)

—

—   (Notes 4 and 7)

Subsidiary

2

CHIEF Telecom Inc.

Unigate Telecom Inc.

Taipei

Telecommunication and internet service

2,000

2,000

200

100

1,997 (Note 7)

33

33 (Note 7)

Subsidiary

CHIET Telecom (Hong Kong) Limited

Hong Kong

Network communication and engine room hiring

1,678 (HK$ 400)

1,678 (HK$ 400)

400

100

993 (HK$ 241) (Note 7)

(191) (HK$(45) )

(191) (HK$(45) ) (Note 7)

Subsidiary

Chief International Corp.

Samoa Islands

Network communication and engine room hiring

6,068 (US$ 200)

6,068 (US$ 200)

200

100

7,601 (US$ 238) (Note 7)

1,178 (US$ 36)

1,178 (US$ 36) (Note 7)

Subsidiary

3

Chunghwa System Integrated Co., Ltd.

Concord Technology Co., Ltd.

Brunei

Providing advanced business solutions to telecommunications

16,179 (US$ 500)

16,179 (US$ 500)

500

100

474 (US$ 15) (Note 7)

(12,738) (US$(386) )

(12,738) (US$(386) ) (Note 7)

Subsidiary

9

Chunghwa Telecom Singapore Pte., Ltd.

ST-2 Satellite Ventures Pte., Ltd.

Singapore

Operation of ST-2 telecommunication satellite

409,061 (SG$ 18,102)

106,432 (SG$ 4,735)

18,102

38

408,341 (SG$ 17,878)

(7,478) (SG$(329) )

(2,842)(SG$(125) )

Equity-method investee

14

Chunghwa Investment Co., Ltd.

Chunghwa Precision Test Tech Co., Ltd.

Tao Yuan

Semiconductor testing components and printed circuit board industry production and marketing of electronic products

91,875

91,875

10,317

54

109,560 (Note 7)

(9,998)

(5,372) (Note 8)

Subsidiary

Chunghwa Investment Holding

Burnei

General investment

20,000 (US$ 589)

20,000 (US$ 589)

589

100

10,860 (US$ 341) (Note 7)

(72) (US$(2) )

(72) (US$(2) ) (Note 8)

Subsidiary

Tatung Technology Inc.

Taipei

The product of SET TOP BOX

50,000

50,000

5,000

28

36,544

6,072

760

Equity-method investee

Panda Monium Company Ltd.

Cayman

The production of animation

20,000 (US$ 602)

20,000 (US$ 602)

602

43

—

(34,418)

(14,645)

Equity-method investee

CHIEF Telecom Inc.

Taipei

Telecommunication and internet service

20,000

20,000

2,000

4

20,588 (Note 7)

25,012

550 (Note 8)

Equity-method investee

18

Concord Technology Co., Ltd.

Glory Network System Service (Shanghai) Co., Ltd.

Shanghai

Providing advanced business solutions to telecommunications

16,179 (US$ 500)

16,179 (US$ 500)

500

100

469 (US$ 15) (Note 7)

(12,738) (US$(386) )

(12,738) (US$(386) ) (Note 7)

Subsidiary

22

Senao International (Samoa) Holding Ltd.

Senao International HK Limited.

Hong Kong

Sales of communication business

—

—

—

100

—   (Notes 5 and 7)

—

—   (Notes 5 and 7)

Subsidiary

24

Chunghwa Investment Holding Company

(CHI One Investment Co., Limited)

Hong Kong

General investment

—

—

—

100

—   (Notes 6 and 7)

—

—   (Notes 6 and 7)

Subsidiary

 

Note 1:

The equity in net income (loss) of investees was based on audited financial statements.

Note 2:

The equity in net income (loss) of investees includes amortization of differences between the investment cost and net value and elimination of unrealized transactions.

Note 3:

New Prospect Investments Holdings Ltd. (B.V.I.) and Prime Asia Investments Group Ltd. (B.V.I.) were incorporated in March 2006, but not on operating stage. Chunghwa has 100% ownership right in an amount of US$1 in each holding company.

Note 4:

Senao International (Samoa) Holding Ltd. was established by Senao International Co., Ltd. in 2009. No capital is injected in Senao International (Samoa) yet by the end of 2009.

Note 5:

Senao International Co., Ltd. established Senao International HK Limited by the subsidiary, Senao International (Samoa) Holding Ltd., in 2009. No capital is injected in Senao International HK Limited yet by the end of 2009.

Note 6:

CHI established CHI One Investment Co., Limited by the subsidiary, Chunghwa Investment Holding Company, in Hong Kong in 2009. No capital is injected in CHI One Investment Co., Limited yet by the end of 2009.

Note 7:

The amount was eliminated upon consolidation.

Note 8:

The transactions happened after Chunghwa has control over CHI on September 9, 2009 were eliminated upon consolidation.

(Concluded)

 

- 67 -

---

TABLE 8

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

INVESTMENT IN MAINLAND CHINA

FOR THE YEAR ENDED DECEMBER 31, 2009

(Amounts in Thousands of New Taiwan Dollars, in Thousands of U.S. Dollars)

 

 

Investee

Main Businesses and Products

Total Amount of Paid-in Capital

Investment Type

Accumulated Outflow of Investment from Taiwan as of January 1, 2009

Investment Flows

Accumulated Outflow of Investment from Taiwan as of December 31, 2009

% Ownership of Direct or Indirect Investment

Investment Gain (Loss) (Note 2 and 4)

Carrying Value as of December 31, 2009 (Note 4)

Accumulated Inward Remittance of Earnings as of December 31, 2009

Outflow

Inflow

Glory Network System Service (Shanghai) Co., Ltd.

Providing advanced business solutions to telecommunications

$16,179 (US$ 500

)

Note 1

$16,179 (US$ 500

)

$

—

$

—

$16,179 (US$ 500

)

100

%

$(12,738) (US$(386))

$ (US$

469  15

)

$

—

 

Accumulated Investment in Mainland China as of December 31, 2009		Investment Amounts Authorized by Investment Commission, MOEA		Upper Limit on Investment Stipulated by Investment Commission, MOEA
$16,179 (US$500)		$48,169 (US$1,500)		$375,245 (Note 3)

 

Note 1:

Chunghwa System Integration Co., Ltd. indirectly owns this investee through an investment company registered in a third region.

Note 2:

Recognition of investment gains (losses) was calculated based on the investee’s audited financial statements.

Note 3:

The amount was calculated based on the net assets value of Chunghwa System Integration Co., Ltd.

Note 4:

The amount was eliminated upon consolidation.

 

- 68 -

---

TABLE 9

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars)

 

 

Year		No. (Note 1)		Company Name		Related Party		Nature of Relationship (Note 2)		Transaction Details
										Financial Statement Account		Amount (Note 5)			Payment Terms (Note 3)		% to Total Sales or Assets (Note 4)
2009		0		Chunghwa Telecom Co., Ltd.		Senao International Co., Ltd.		a		Accounts receivable		$	261,458		—		—
										Accounts payable			616,052		—		—
										Amounts collected in trust for others			247,091		—		—
										Revenues			999,821		—		1
										Non-operating income and gains			35		—		—
										Operating costs and expenses			5,172,852		—		3
										Office supplies			165		—		—
										Property, plant and equipment			268		—		—
						CHIEF Telecom Inc.		a		Accounts receivable			23,660		—		—
										Accounts payable			51,554		—		—
										Amounts collected in trust for others			2,984		—		—
										Revenues			229,335		—		—
										Operating costs and expenses			309,498		—		—
						Chunghwa System Integration Co., Ltd.		a		Accounts receivable			29,422		—		—
										Accounts payable			426,674		—		—
										Payable to contractors			449		—		—
										Revenues			34,879		—		—
										Non-operating income and gains			6,890		—		—
										Operating costs and expenses			441,564		—		—
										Office supplies			1,264		—		—
										Inventories			19,139		—		—
										Property, plant and equipment			771,878		—		—
										Intangible assets			101,001		—		—
						Chunghwa Telecom Global, Inc.		a		Accounts receivable			20,399		—		—
										Accounts payable			31,001		—		—
										Advances from customers			13		—		—
										Revenues			59,288		—		—
										Operating costs and expenses			67,139		—		—
										Property, plant and equipment			21,770		—		—
						Spring House Entertainment Inc.		a		Accounts receivable			7,706		—		—
										Accounts payable			3,025		—		—
										Revenues			2,500		—		—
										Operating costs and expenses			83,868		—		—
						Unigate Telecom Inc.		a		Revenues			1,971		—		—

(Continued)

 

- 69 -

---

		No. (Note 1)		Company Name		Related Party		Nature of Relationship (Note 2)		Transaction Details
										Financial Statement Account		Amount (Note 5)			Payment Terms (Note 3)		% to Total Sales or Assets (Note 4)
						Chunghwa International Yellow Pages Co., Ltd.		a		Accounts receivable		$	22,899		—		—
										Accounts payable			86,287		—		—
										Amounts collected in trust for others			23,033		—		—
										Advances from customers			2,240		—		—
										Revenues			19,168		—		—
										Non-operating income and gains			126		—		—
										Operating costs and expenses			84,334		—		—
						Donghwa Telecom Co., Ltd.		a		Accounts receivable			10,112		—		—
										Accounts payable			13,733		—		—
										Advances from customers			25,551		—		—
										Revenues			2,690		—		—
										Operating costs and expenses			14,196		—		—
						Light Era Development Co., Ltd.		a		Accounts payable			78		—		—
										Amounts collected in trust for others			494		—		—
										Revenues			4,022		—		—
										Operating costs and expenses			74		—		—
						InfoExplorer Co., Ltd.		a		Accounts receivable			63		—		—
										Accounts payable			11,382		—		—
										Revenues			14,336		—		—
										Operating costs and expenses			111,190		—		—
										Inventories			7,792		—		—
										Property, plant and equipment			16,857		—		—
										Intangible assets			6,667		—		—
						Chunghwa Telecom Japan Co., Ltd.		a		Accounts receivable			3,780		—		—
										Accounts payable			2,472		—		—
										Revenues			10,291		—		—
										Operating costs and expenses			8,646		—		—
						Chunghwa Telecom Singapore Pte., Ltd.		a		Accounts receivable			2,382		—		—
										Accounts payable			2,946		—		—
										Revenues			12,794		—		—
										Operating costs and expenses			13,613		—		—
						Chunghwa Precision Test Tech. Co., Ltd.		a		Accounts receivable			1,220		—		—
										Revenues			6,641		—		—
										Non-operating income and gains			286		—		—
										Operating costs and expenses			1		—		—
		1		Senao International Co., Ltd.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			604,005		—		—
										Other receivable			258,907		—		—
										Prepaid expenses			231		—		—
										Accounts payable			142,117		—		—
										Other payable			119,341		—		—
										Amounts collected in trust for others			79,925		—		—
										Revenues			5,093,269		—		3
										Non-operating income and gains			91		—		—
										Operating costs and expenses			999,821		—		1
										Non-operating expenses and losses			35		—		—

(Continued)

 

- 70 -

---

		No. (Note 1)		Company Name		Related Party		Nature of Relationship (Note 2)		Transaction Details
										Financial Statement Account		Amount (Note 5)			Payment Terms (Note 3)		% to Total Sales or Assets (Note 4)
						Chunghwa International Yellow Pages Co., Ltd.		c		Other payable		$	170		—		—
										Operating costs and expenses			1,212		—		—
						Chunghwa System Integration Co., Ltd.		c		Other payable			4,550		—		—
										Revenues			19		—		—
		2		CHIEF Telecom Inc.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			54,538		—		—
										Accounts payable			23,031		—		—
										Advances from customers			629		—		—
										Revenues			309,498		—		—
										Operating costs and expenses			229,335		—		—
						Chunghwa System Integration Co., Ltd.		c		Accounts receivable			25		—		—
										Revenues			137		—		—
						Chunghwa International Yellow Pages Co., Ltd.		c		Notes payable			81		—		—
										Operating costs and expenses			77		—		—
						Donghwa Telecom Co., Ltd.		c		Accounts receivable			108		—		—
						Chunghwa Telecom Global, Inc.		c		Operating costs and expenses			74		—		—
		3		Chunghwa System Integration Co., Ltd.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			427,123		—		—
										Accounts payable			29,422		—		—
										Revenues			1,334,846		—		—
										Operating costs and expenses			41,769		—		—
						CHIEF Telecom Inc.		c		Accounts payable			25		—		—
										Operating costs and expenses			137		—		—
						Spring House Entertainment Inc.		c		Accounts receivable			166		—		—
										Revenues			1,315		—		—
						Chunghwa International Yellow Pages Co., Ltd.		c		Accounts payable			164		—		—
										Revenues			3,615		—		—
						Light Era Development Co., Ltd.		c		Revenues			6		—		—
						InfoExplorer Co., Ltd.		c		Accounts receivable			864		—		—
										Accounts payable			1,659		—		—
										Advances from customers			640		—		—
										Revenues			8,551		—		—
										Operating costs and expenses			1,580		—		—
						Chunghwa Precision Test Tech. Co., Ltd.		c		Accounts receivable			877		—		—
										Revenues			835		—		—
						Senao International Co., Ltd.		c		Accounts receivable			4,550		—		—
										Operating costs and expenses			19		—		—
		5		Chunghwa Telecom Global, Inc.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			31,001		—		—
										Prepaid expenses			13		—		—
										Accounts payable			20,399		—		—
										Revenues			88,909		—		—
										Operating costs and expenses			59,288		—		—
						CHIEF Telecom Inc.		c		Revenues			74		—		—
						Chunghwa Precision Test Tech. Co., Ltd.		c		Accounts receivable			88		—		—

(Continued)

 

- 71 -

---

		No. (Note 1)		Company Name		Related Party		Nature of Relationship (Note 2)		Transaction Details
										Financial Statement Account		Amount (Note 5)			Payment Terms (Note 3)		% to Total Sales or Assets (Note 4)
		7		Spring House Entertainment Inc.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable		$	3,025		—		—
										Other payable			7,706		—		—
										Revenues			83,868		—		—
										Operating costs and expenses			2,500		—		—
						Chunghwa System Integration Co., Ltd.		c		Accounts payable			166		—		—
										Operating costs and expenses			26		—		—
										Property, plant and equipment			689		—		—
										Intangible assets			600		—		—
		15		Unigate Telecom Inc.		Chunghwa Telecom Co., Ltd.		b		Operating costs and expenses			1,971		—		—
		4		Chunghwa International Yellow Pages Co., Ltd.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			109,320		—		—
										Prepaid expenses			2,240		—		—
										Accounts payable			4,215		—		—
										Amounts collected in trust for others			17,545		—		—
										Advance from customers			1,139		—		—
										Revenues			84,334		—		—
										Operating costs and expenses			19,168		—		—
										Non-operating expenses and losses			126		—		—
						Senao International Co., Ltd.		c		Accounts receivable			170		—		—
										Revenues			1,212		—		—
						Chunghwa System Integration Co., Ltd.		c		Accounts receivable			164		—		—
										Operating costs and expenses			680		—		—
										Property, plant and equipment			1,716		—		—
										Intangible assets			1,219		—		—
						CHIEF Telecom Inc.		c		Accounts receivable			81		—		—
										Revenues			77		—		—
						InfoExplorer Co., Ltd.		c		Accounts receivable			29		—		—
										Revenues			28		—		—
		6		Donghwa Telecom Co., Ltd.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			13,733		—		—
										Prepaid expenses			25,551		—		—
										Accounts payable			10,112		—		—
										Revenues			14,196		—		—
										Operating costs and expenses			2,690		—		—
						Chunghwa Telecom Singapore Pte., Ltd.		c		Accounts payable			1,444		—		—
						CHIEF Telecom Inc.		c		Accounts payable			108		—		—
		8		Light Era Development Co., Ltd.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			78		—		—
										Prepaid rent			494		—		—
										Revenues			74		—		—
										Operating costs and expenses			4,022		—		—
						Chunghwa System Integration Co., Ltd.		c		Operating costs and expenses			6		—		—

(Continued)

 

- 72 -

---

		No. (Note 1)		Company Name		Related Party		Nature of Relationship (Note 2)		Transaction Details
										Financial Statement Account		Amount (Note 5)			Payment Terms (Note 3)		% to Total Sales or Assets (Note 4)
		11		InfoExplorer Co., Ltd.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable		$	11,382		—		—
										Accounts payable			63		—		—
										Revenues			142,506		—		—
										Operating costs and expenses			14,336		—		—
						Chunghwa International Yellow Pages Co., Ltd.		c		Accounts payable			29		—		—
										Operating costs and expenses			28		—		—
						Chunghwa System Integration Co., Ltd.		c		Accounts receivable			1,659		—		—
										Prepaid expenses			640		—		—
										Accounts payable			864		—		—
										Revenues			1,580		—		—
										Operating expenses			1,513		—		—
										Property, plant and equipment			88		—		—
										Intangible assets			6,950		—		—
		10		Chunghwa Telecom Japan Co., Ltd.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			2,472		—		—
										Accounts payable			3,780		—		—
										Revenues			8,646		—		—
										Operating costs and expenses			10,291		—		—
		9		Chunghwa Telecom Singapore Pte., Ltd.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			2,946		—		—
										Accounts payable			2,382		—		—
										Revenues			13,613		—		—
										Operating costs and expenses			12,794		—		—
						Donghwa Telecom Co., Ltd.		c		Accounts receivable			1,444		—		—
		20		Chunghwa Precision Test Tech. Co., Ltd.		Chunghwa Telecom Co., Ltd.		b		Accounts payable			1,220		—		—
										Revenues			1		—		—
										Operating costs and expenses			6,927		—		—
						Chunghwa System Integration Co., Ltd.		c		Accounts payable			877		—		—
										Operating costs and expenses			74		—		—
										Property, plant and equipment			761		—		—
						Chunghwa Telecom Global, Inc.		c		Accounts payable			88		—		—

(Continued)

 

- 73 -

---

		No. (Note 1)		Company Name		Related Party		Nature of Relationship (Note 2)		Transaction Details
										Financial Statement Account		Amount (Note 5)			Payment Terms (Note 3)		% to Total Sales or Assets (Note 4)
2008		0		Chunghwa Telecom Co., Ltd.		CHIEF Telecom Inc.		a		Accounts receivable		$	20,906		—		—
										Accounts payable			34,215		—		—
										Amount collected in trust for others			1,095		—		—
										Revenues			208,227		—		—
										Operating costs and expenses			207,345		—		—
						Unigate Telecom Inc.		a		Revenues			1,124		—		—
						Chunghwa International Yellow Pages Co., Ltd.		a		Accounts receivable			38,688		—		—
										Prepaid expenses			94		—		—
										Accounts payable			35,198		—		—
										Amount collected in trust for others			61,273		—		—
										Revenues			23,499		—		—
										Operating costs and expenses			50,679		—		—
										Office supplies			989		—		—
										Work in process			436		—		—
						Senao International Co., Ltd.		a		Accounts receivable			178,878		—		—
										Accounts payable			606,990		—		—
										Amount collected in trust for others			244,291		—		—
										Revenues			1,634,017		—		1
										Operating costs and expenses			6,667,907		—		3
										Office supplies			574		—		—
										Work in process			238		—		—
										Property, plant and equipment			1,701		—		—
						Chunghwa System Integration Co., Ltd.		a		Accounts receivable			40,741		—		—
										Prepaid expenses			515		—		—
										Accounts payable			628,485		—		—
										Payables to contractors			53,502		—		—
										Revenues			32,865		—		—
										Non-operating income and gains			884		—		—
										Operating costs and expenses			401,740		—		—
										Office supplies			2,538		—		—
										Work in process			5,168		—		—
										Materials in transit			3,723		—		—
										Temporary receipts			4,152		—		—
										Property, plant and equipment			1,388,118		—		—
										Intangible assets			52,127		—		—
						Chunghwa Telecom Global, Inc.		a		Accounts receivable			18,618		—		—
										Accounts payable			14,867		—		—
										Revenues			140,416		—		—
										Non-operating income and gains			446		—		—
										Operating costs and expenses			41,122		—		—
										Property, plant and equipment			56,740		—		—
						Donghwa Telecom Co., Ltd.		a		Accounts receivable			9,155		—		—
										Accounts payable			17,063		—		—
										Revenues			2,670		—		—
										Operating costs and expenses			8,599		—		—

(Continued)

 

- 74 -

---

		No. (Note 1)		Company Name		Related Party		Nature of Relationship (Note 2)		Transaction Details
										Financial Statement Account		Amount (Note 5)			Payment Terms (Note 3)		% to Total Sales or Assets (Note 4)
						Spring House Entertainment Inc.		a		Accounts receivable		$	10,863		—		—
										Accounts payable			14,782		—		—
										Amounts collected in trust for others			2,794		—		—
										Operating costs and expenses			51,836		—		—
						Light Era Development Co., Ltd.		a		Accounts receivable			22,566		—		—
										Accounts payable			1,904		—		—
										Amounts collected in trust for others			346		—		—
										Revenues			4,662		—		—
										Deferred credit			1,485,916		—
										Deferred debit			171,897		—
		1		Senao International Co., Ltd.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			851,011		—		—
										Prepaid expenses			231		—		—
										Accounts payable			178,658		—		—
										Revenues			6,670,564		—		3
										Non-operating income and gains			76		—		—
										Operating costs and expenses			1,633,759		—		1
										Non-operating expenses and losses			297		—		—
						Chunghwa International Yellow Pages Co., Ltd.		c		Accounts payable			930		—		—
										Non-operating income and gains			3		—		—
										Operating costs and expenses			4,458		—		—
						Chunghwa System Integration Co., Ltd.		c		Operating costs and expenses			650		—		—
		2		CHIEF Telecom Inc.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			35,310		—		—
										Accounts payable			20,277		—		—
										Advances from subscribers			629		—		—
										Revenues			207,345		—		—
										Operating costs and expenses			204,894		—		—
										Property, plant and equipment			3,333		—		—
						Unigate Telecom Inc.		c		Accounts payable			1,437		—		—
										Revenues			34		—		—
										Operating costs			6,366		—		—
						Chunghwa System Integration Co., Ltd.		c		Operating costs and expenses			34		—		—
										Property, plant and equipment			1,343		—		—
						Chunghwa International Yellow Pages Co., Ltd.		c		Accounts payable			61		—		—
										Operating costs and expenses			91		—		—
						Chief International Corp.		c		Accounts receivable			52		—		—
										Prepaid expenses			588		—		—
										Accounts payable			5,076		—		—
										Advances from subscribers			96		—		—
										Revenues			6,274		—		—
										Operating costs and expenses			36,319		—		—

(Continued)

 

- 75 -

---

		No. (Note 1)		Company Name		Related Party		Nature of Relationship (Note 2)		Transaction Details
										Financial Statement Account		Amount (Note 5)			Payment Terms (Note 3)		% to Total Sales or Assets (Note 4)
		3		Chunghwa System Integration Co., Ltd.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable		$	681,987		—		—
										Accounts payable			40,741		—		—
										Revenues			1,858,081		—		1
										Operating costs and expenses			33,749		—		—
						Senao International Co., Ltd.		c		Revenues			650		—		—
						Spring House Entertainment Inc.		c		Accounts receivable			28		—		—
										Revenues			128		—		—
						Chunghwa International Yellow Pages Co., Ltd.		c		Revenues			4,461		—		—
						Light Era Development Co., Ltd.		c		Revenues			552		—		—
						CHIEF Telecom Inc.		c		Revenues			1,377		—		—
		5		Chunghwa Telecom Global, Inc.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			14,867		—		—
										Accounts payable			18,618		—		—
										Revenues			97,862		—		—
										Operating costs and expenses			140,862		—		—
		6		Spring House Entertainment Inc.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			17,576		—		—
										Accounts payable			10,863		—		—
										Revenues			51,836		—		—
						Chunghwa System Integration Co., Ltd.		c		Accounts payable			28		—		—
										Property, plant and equipment			128		—		—
‘		7		Unigate Telecom Inc.		Chunghwa Telecom Co., Ltd.		b		Operating costs and expenses			1,124		—		—
						CHIEF Telecom Inc.		c		Accounts receivable			1,437		—		—
										Revenues			6,366		—		—
										Operating expenses			34		—		—
		8		Chunghwa International Yellow Pages Co., Ltd.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			28,655		—		—
										Accrued custodial receipts			61,273		—		—
										Accrued custodial payments			4,347		—		—
										Prepaid expenses			2,196		—		—
										Accounts payable payments			4,613		—		—
										Amounts collected in trust for others			27,294		—		—
										Advances from subscribers			6,781		—		—
										Revenues			52,198		—		—
										Operating costs and expenses			23,499		—		—
						Senao International Co., Ltd.		c		Accounts receivable			930		—		—
										Revenues			4,458		—		—
										Non-operating expenses and losses			3		—		—
						CHIEF Telecom Inc.		c		Accounts receivable			61		—		—
										Revenues			91		—		—
						Chunghwa System Integration Co., Ltd.		c		Property, plant and equipment			3,229		—		—
										Intangible assets			461		—		—
										Operating costs and expenses			771		—		—
						Light Era Development Co., Ltd.		c		Revenues			20		—		—

(Continued)

 

- 76 -

---

		No. (Note 1)		Company Name		Related Party		Nature of Relationship (Note 2)		Transaction Details
										Financial Statement Account		Amount (Note 5)			Payment Terms (Note 3)		% to Total Sales or Assets (Note 4)
		9		Donghwa Telecom Co., Ltd.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable		$	17,063		—		—
										Accounts payable			9,155		—		—
										Revenues			8,599		—		—
										Operating costs and expenses			2,670		—		—
		10		Light Era Development Co., Ltd.		Chunghwa Telecom Co., Ltd.		b		Accounts receivable			1,828		—		—
										Prepaid expenses			422		—
										Accounts payable			22,566		—		—
										Operating costs and expenses			3,070		—		—
										Inventories			1,573,954		—
										Leased assets			83,859		—
										Property, plant and equipment			1,592		—		—
						Chunghwa International Yellow Pages Co., Ltd.		c		Operating costs and expenses			20		—		—
						Chunghwa System Integration Co., Ltd.		c		Property, plant and equipment			186		—		—
										Intangible assets			312		—		—
										Operating costs and expenses			54		—		—
		11		Chief International Corp.		CHIEF Telecom Inc.		c		Accounts receivable			5,076		—		—
										Prepaid expenses			96		—		—
										Accounts payable			52		—		—
										Advances from subscribers			588		—		—
										Revenues			36,319		—		—
										Operating costs and expenses			6,274		—		—

 

Note 1:

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

 

a.

“0” for the Company.

b.

Subsidiaries are numbered from “1”.

 

Note 2:

Related party transactions are divided into three categories as follows:

 

a.

The Company to subsidiaries.

b.

Subsidiaries to the Company.

c.

Subsidiaries to subsidiaries.

 

Note 3:

Except part transaction prices of SENAO, CHIEF, CIYP, LED and InfoExplorer were determined in accordance with mutual agreements, the foregoing transactions with related parties were conducted under normal commercial terms.

 

Note 4:

For assets and liabilities, amount is shown as a percentage to consolidated total assets as of December 31, 2009, while revenues, costs and expenses are shown as a percentage to consolidated total operating revenues for the year ended December 31, 2009.

 

Note 5:

The amount was eliminated upon consolidation.

(Concluded)

 

- 77 -

---

TABLE 10

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

SEGMENT INFORMATION

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amount in Thousands of New Taiwan Dollars)

 

 

		Domestic Fixed Communications Business			Mobile Communications Business			Internet Business			International Fixed Communications Business			Others				Adjustment				Total
Year ended December 31, 2009
Revenues from external customers		$	71,466,803		$	86,524,119		$	23,653,518		$	15,244,205		$	1,472,575			$	—			$	198,361,220
Intersegment revenues (Note 2)			13,649,786			1,914,861			716,818			1,523,235			2,734				(17,807,434	)			—
Interest income			3,071			7,910			4,096			11,096			452,535				—				478,708
Other income			77,140			104,388			73,621			9,807			678,230				—				943,186
		$	85,196,800		$	88,551,278		$	24,448,053		$	16,788,343		$	2,606,074			$	(17,807,434	)		$	199,783,114
Interest expense		$	2,505		$	1,199		$	10,027		$	20		$	1,472			$	—			$	15,223
Depreciation and amortization		$	23,984,346		$	8,372,746		$	2,326,921		$	1,403,691		$	232,253			$	—			$	36,319,957
Other expense		$	156,248		$	98,132		$	10,572		$	1,873		$	279,424			$	—			$	546,249
Segment income before tax		$	17,452,253		$	30,183,840		$	9,355,849		$	2,550,043		$	(2,303,898	)		$	—			$	57,238,087
Total assets		$	231,176,634		$	63,537,383		$	17,153,733		$	18,699,859		$	118,429,206			$	—			$	448,996,815
Capital expenditures for segment assets		$	15,877,274		$	5,027,950		$	2,097,183		$	1,298,435		$	1,176,745			$	—			$	25,477,587
Year ended December 31, 2008
Revenues from external customers		$	73,057,825		$	88,808,032		$	23,022,094		$	15,936,284		$	845,286			$	—			$	201,669,521
Intersegment revenues (Note 2)			11,928,678			1,933,573			562,745			1,526,956			1,644				(15,953,596	)			—
Interest income			2,849			13,729			4,492			34,973			1,860,220				—				1,916,263
Other income			208,861			175,142			21,845			34,537			1,019,485				—				1,459,870
		$	85,198,213		$	90,930,476		$	23,611,176		$	17,532,750		$	3,726,635			$	(15,953,596	)		$	205,045,654
Interest expense		$	192		$	1,323		$	2,037		$	220		$	484			$	—			$	4,256
Depreciation and amortization		$	25,500,893		$	8,859,477		$	2,353,565		$	1,326,296		$	175,940			$	—			$	38,216,171
Other expense		$	323,679		$	37,163		$	8,699		$	2,367		$	1,843,084			$	—			$	2,214,992
Segment income before tax		$	15,472,512		$	33,174,960		$	10,086,204		$	2,910,954		$	(1,960,710	)		$	—			$	59,683,920
Total assets		$	243,101,703		$	66,970,888		$	17,004,425		$	18,244,080		$	118,269,193			$	—			$	463,590,289
Capital expenditures for segment assets		$	20,709,584		$	5,206,961		$	2,186,065		$	1,200,129		$	816,183			$	—			$	30,118,922

(Continued)

 

- 78 -

---

Note 1:

The Company organizes its reporting segments based on types of organizational business. The five reporting segments are segregated as below: domestic fixed communications business, mobile communications business, internet business, international fixed communications business and others.

 

¡

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

 

¡

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

 

¡

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

 

¡

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

 

¡

Others – the provision of non-Telecom Services, and the corporate related items not allocated to reportable segments.

 

Note 2:

Represents intersegment revenues from goods and services.

 

Note 3:

Beginning from September 1, 2009, the Company redefined its financial reporting operating segments into five operating segments: (a) domestic fixed communications business, (b) mobile communications business, (c) internet business, (d) international fixed communications business and (e) others. Prior to September 1, 2009, Chunghwa Telecom had seven operating segments:(a)local operations,(b)domestic long distance operations, (c) international long distance operations, (d) cellular service operations,(e)internet and data operations, (f) cellular phone sales and (g)all others. The redefinition of the company’s operating segments is expected to facilitate the management’s ability to assess the performance of each operating segment by conforming the company’s operating segments to the international trends of other telecommunications companies in general. The Company also early adopted the Statement of Financial accounting Standards No. 41 “Operating Segments” (“SFAS No. 41”) starting from September 1, 2009. For the comparative purpose, the segments information for the year ended December 31, 2008 was presented in accordance with SFAS No. 41.

(Concluded)

 

- 79 -

---

TABLE 11

CHUNGHWA TELECOM CO., LTD. AND SUBSIDIARIES

PRODUCTS AND SERVICE REVENUES FROM EXTERNAL CUSTOMER INFORMATION

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(Amounts in Thousands of New Taiwan Dollars)

 

 

		Years Ended December 31
		2009			2008
Mobile services revenue		$	71,295,127		$	72,289,844
Local telephone services revenue			34,116,203			35,187,684
Leased line services revenue			27,476,532			27,643,458
Internet services revenue			21,510,999			21,769,884
Sales revenue			15,058,169			16,340,458
International long distance telephone services revenue			12,921,798			14,050,749
Domestic long distance telephone services revenue			7,406,662			8,480,347
Others			8,575,730			5,907,097
		$	198,361,220		$	201,669,521

 

- 80 -