6-K 1 d6k.txt FORM 6-K 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 September 9, 2003 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: 9/9/2003 Chunghwa Telecom Co., Ltd. By: /s/ Hank H. C. Wang ----------------------------------- Name: Hank H. C. Wang Title: Senior Managing Director Finance Department Exhibit Exhibit Description 1 Announcement on 2003/07/18: Chunghwa Telecom lists on the New York Stock Exchange 2 Announcement on 2003/07/29: Clarification to Commercial Times reports related to Chunghwa Telecom published on July 29, 2003 3 Announcement on 2003/07/30: Clarification to the media reports about the price drop of Chunghwa Telecom ADR on July 28, 2003 4 Announcement on 2003/07/31: Chunghwa Telecom acquired CCP-LAP-SS cable etc. from Pacific Electric Wire & Cable Co., Ltd. Total cost was NT$599,593,895 5 The MOTC relieved Mr. Joseph Jye-Cheng,Lyu from serving as the MOTC's representative director to Chunghwa Telecom Co., Ltd. 6 Chunghwa Telecom held Investor Conference for 1H03 operating results 7 Chunghwa Telecom acquired B-RAS Interface Cards etc. from Siemens Telecommunication System Co., Ltd. in the past one year. Total cost was NT$546,525,984. 8 Mr. Lo Min Chung, vice president of China Steel Corporation, holds a concurrent post as director of Chunghwa Telecom 9 Announcement on August 9, 2003: July sales 10 Announcement on September 9, 2003: August sales 11 Financial Statements for the Six Months Ended June 30, 2003 and 2002 Together with Independent Auditors' Report EXHIBIT 1 Chunghwa Telecom lists on the New York Stock Exchange Date of events:2003/07/18 Contents: 1.Date of occurrence of the event:2003/07/18 2.Cause of occurrence:Chunghwa Telecom Co., Ltd. listed on the New York Stock Exchange 96,500,000 American depositary shares, representing 965,000,000 common shares on July 17 New York time.The American depositary shares were priced at $14.24 per share. 3.Countermeasures:None 4.Any other matters that need to be specified:This listing is a secondary offering of shares owned by the Ministry of Transportation and Communications of the Republic of China ("MOTC") EXHIBIT 2 Clarification to Commercial Times reports related to Chunghwa Telecom published on July 29, 2003 Date of events:2003/07/29 Contents: 1.Name of the reporting media: Commercial Times 2.Date of the report: 2003/07/29 3.Content of the report: 1H03 operation results and dividends distribution of Chunghwa Telecom and Taiwan Cellular Corp. 4.Summary of the information provided by investors: None 5.Company's explanation of the reportage or provided information: Chunghwa Telecom not yet officially announced its semi-annual report for 2003 and the report is merely derived from the available data by the reporter. Semi-annual report of the company is now being audited by accountants and audited semi-annual report will be officially announced on the website of Taiwan Stock Exchange Corporation. 6.Countermeasures: None. 7.Any other matters that need to be specified: None. EXHIBIT 3 Clarification to the media reports about the price drop of Chunghwa Telecom ADR on July 28, 2003 Date of events:2003/07/29 Contents: 1.Name of the reporting media: Central News Agency and China Times 2.Date of the report:2003/07/29 3.Content of the report: "Chunghwa Telecom ADR dropped $0.88 on July 28, which was 5.93% lower." and "Chunghwa Telecom ADR closed at $13.95, which was $0.88 lower than last trading day." 4.Summary of the information provided by investors: None. 5.Company's explanation of the reportage or provided information: In accordance with NYSE trading system, the ex-dividend day of Chunghwa Telecom ADR is July 28, which is different from July 30 in Taiwan. The ex-dividend reference price per ADR was $13.67 on July 28 Eastern time, and the closing price was $13.95 per ADR on that day. The ADR actually rose 2% in price. 6.Countermeasures: None. 7.Any other matters that need to be specified: None. EXHIBIT 4 Chunghwa Telecom acquired CCP-LAP-SS cable etc. from Pacific Electric Wire & Cable Co., Ltd. Total cost was NT$599,593,895 Date of events: 2003/07/31 Contents: 1.Name and nature of the subject matter (e.g. land located at Sublot XX, Lot XX, North District, Taichung City): CCP-LAP-SS cable etc. 2.Date of the occurrence of the event:2002/08/01~2003/07/31 3.Transaction volume (e.g.XX square meters, equivalent to XX p'ing), unit price, total transaction price: NT$599,593,895 in total 4.Counterparty to the trade and its relationship with the company (if the trading counterpart is a natural person and is not an actual related party of the Company, the name of the trading counterpart is not required to be disclosed): Pacific Electric Wire & Cable Co., Ltd. 5.Where the counterpart to the trade is an actual related party, a public announcement shall also include the reason for choosing the related party as trading counterpart and the identity of the previous owner (including its relationship with the company and the trading counterpart), price of transfer and the date of acquisition: N.A. 6.Where a person who owned the property within the past five years has been an actual related person of the company, a public announcement shall also include the dates and prices of acquisition and disposal by the related person and the person's relationship to the company at those times: N.A. 7.Anticipated loss or profit from the disposal (not applicable in cases of acquisition of assets) (where originally deferred, the status or recognition shall be stated and explained): N.A. 8.Terms of delivery or payment (including payment period and monetary amount): In Accordance with the contract. 9.The manner of deciding on this transaction (such as tender invitation , price comparison, or price negotiation), the reference basis for the decision on price and the decision-making department: In accordance with the Government Procurement Law. 10.Name of the professional appraisal institution and its appraisal amount:N.A. 11.Reason for any significant discrepancy with the transaction amount, and opinion of the certifying CPA: None. 12.Is the appraisal report price a limited price or specific price?: N.A. 13.Has an appraisal report not yet been obtained?: N.A. 14.Reason an appraisal report has not yet been obtained: N.A. 15.Broker and broker's fee: N.A. 16.Concrete purpose or use of the acquisition or disposition: Telecom material. 17.Do the directors have any objection to the present transaction?: No. 18.Any other matters that need to be specified: None. EXHIBIT 5 The MOTC relieved Mr. Joseph Jye-Cheng,Lyu from serving as the MOTC's representative director to Chunghwa Telecom Co., Ltd. Date of events:2003/08/13 Contents: 1.Date of occurrence of the change:2003/08/13 2.Name and resume of the replaced person:Title:Director;Name:Joseph Jye-Cheng ,Lyu;Current Position & Title:President of the Land Bank of TAIWAN; Education:Master of Management degree from Kellogg Graduate School of Management,Northwestern University;Institutional Shareholder:MOTC 3.Name and resume of the replacement:Pending 4.Reason for the change:Primary position as Vice Chairman of the Commission of National Corporations in the Ministry of Economic Affairs had been changed 5.Number of shares held by the new director or supervisor at the time of appointment:9,196,826,888 shares 6.Original term (From __________ to __________):2002/07/13~2005/07/12 7.Effective date of the new appointment:pending 8.Rate of change of directors/supervisors of the same term:0% 9.Any other matters that need to be specified:nil EXHIBIT 6 Chunghwa Telecom held Investor Conference for 1H03 operating results Date of events:2003/08/20 Contents: 1.Date of the investor/press conference:2003/08/20 2.Location of the investor/press conference: Fl. 12,No. 21-3,Hsinyi Rd., Sec.1, Taipei 3.Financial and business related information: Chunghwa Telecom announced its operating results for 1H03. Revenues was NT$88.0bn, gross profit NT$43.5bn, income from operation NT$13.6bn, net income NT$23.9bn and earning per share NT$2.48. 4.Any other matters that need to be specified: None. EXHIBIT 7 Chunghwa Telecom acquired B-RAS Interface Cards etc. from Siemens Telecommunication System Co., Ltd. in the past one year. Total cost was NT$546,525,984. Date of events:2003/08/27 Contents: 1.Name and nature of the subject matter (e.g.land located at Sublot XX, Lot XX, North District, Taichung City): B-RAS Interface Cards, TC-5 exchange materials and related technical supports etc. 2.Date of the occurrence of the event:2002/08/28~2003/08/27 3.Transaction volume (e.g.XX square meters, equivalent to XX p'ing), unit price, total transaction price: NT$546,525,984. 4.Counterparty to the trade and its relationship with the company (if the trading counterpart is a natural person and is not an actual related party of the Company, the name of the trading counterpart is not required to be disclosed):Siemens Telecommunication System Co., Ltd. 5.Where the counterpart to the trade is an actual related party, a public announcement shall also include the reason for choosing the related party as trading counterpart and the identity of the previous owner (including its relationship with the company and the trading counterpart), price of transfer and the date of acquisition:N.A. 6.Where a person who owned the property within the past five years has been an actual related person of the company, a public announcement shall also include the dates and prices of acquisition and disposal by the related person and the person's relationship to the company at those times:N.A. 7.Anticipated loss or profit from the disposal (not applicable in cases of acquisition of assets) (where originally deferred, the status or recognition shall be stated and explained):N.A. 8.Terms of delivery or payment (including payment period and monetary amount): In accordance with the contract. 9.The manner of deciding on this transaction (such as tender invitation , price comparison, or price negotiation), the reference basis for the decision on price and the decision-making department: In accordance with the government procurement law. 10.Name of the professional appraisal institution and its appraisal amount:N.A. 11.Reason for any significant discrepancy with the transaction amount, and opinion of the certifying CPA:N.A. 12.Is the appraisal report price a limited price or specific price?:N.A. 13.Has an appraisal report not yet been obtained?:N.A. 14.Reason an appraisal report has not yet been obtained:N.A. 15.Broker and broker's fee:N.A. 16.Concrete purpose or use of the acquisition or disposition: Telecom materials. 17.Do the directors have any objection to the present transaction?:No. 18.Any other matters that need to be specified:None. EXHIBIT 8 Mr. Lo Min Chung, vice president of China Steel Corporation, holds a concurrent post as director of Chunghwa Telecom Date of events:2003/08/29 Contents: 1.Date of occurrence of the change:2003/08/29 2.Name and resume of the replaced person:Mr. Joseph J.C. Lyu, president of Land Bank of Taiwan 3.Name and resume of the replacement: Mr. Lo Min Chung, vice president of China Steel Corporation 4.Reason for the change:MoTC's official document, reference no. 0920052583, approved the replacement of Mr. Lo Min Chung, vice president of China Steel, for Mr. Joseph J.C. Lyu to hold a concurrent post as director of Chunghwa Telecom due to Mr. Lyu's change in his former primary posittion as Vice Chairman of the Commission of National Corporation in the Ministry of Economic Affairs. 5.Number of shares held by the new director or supervisor at the time of appointment: 9,196,826,888 shares. 6.Original term (From __________ to __________):2002/07/13 ~ 2005/07/12 7.Effective date of the new appointment:2003/08/29 8.Rate of change of directors/supervisors of the same term:0% 9.Any other matters that need to be specified: None. EXHIBIT 9 Chunghwa Telecom August 9, 2003 This is to report the changes or status of 1) Sales volume 2) Funds lent to other parties 3) Endorsements and guarantees 4) Financial derivative transactions for the period of July 2003 1) Sales volume (NT$ Thousand)
--------------------------------------------------------------------------------------------- Period Items 2003 2002 Changes % --------------------------------------------------------------------------------------------- July Invoice amount 17,390,356 17,160,562 229,794 1.34% --------------------------------------------------------------------------------------------- Jan -July Invoice amount 120,463,874 119,641,859 822,015 0.69% --------------------------------------------------------------------------------------------- July Net sales 14,893,863 14,667,474 226,389 1.54% --------------------------------------------------------------------------------------------- Jan -July Net sales 102,888,321 100,932,660 1,955,661 1.94% ---------------------------------------------------------------------------------------------
2) Funds lent to other parties (NT$ Thousand)
------------------------------------------------------------------------------------------- Balance as of period end ------------------------------------------------------------------------------------------- This Month Last Month Limit of lending ------------------------------------------------------------------------------------------- CHT 0 0 0 ------------------------------------------------------------------------------------------- CHT's subsidiaries 0 0 0 -------------------------------------------------------------------------------------------
3) Endorsements and guarantees (NT$ Thousand)
------------------------------------------------------------------------------------------------------- Change in This Month Balance as of period end Limit of endorsements ------------------------------------------------------------------------------------------------------- CHT 0 0 0 ------------------------------------------------------------------------------------------------------- CHT's subsidiaries 0 0 0 ------------------------------------------------------------------------------------------------------- CHT endorses for subsidiaries 0 0 ------------------------------------------------------------------------------------------------------- CHT's subsidiaries endorse for CHT 0 0 ------------------------------------------------------------------------------------------------------- CHT endorses for PRC companies 0 0 ------------------------------------------------------------------------------------------------------- CHT's subsidiaries endorse for PRC companies 0 0 -------------------------------------------------------------------------------------------------------
4) Financial derivatives transactions a-1 Hedging purpose (for assets/liabilities denominated in foreign currencies) ---------------------------------------------------------------------------------------------------- Underlying assets / liabilities N/A ---------------------------------------------------------------------------------------------------- Financial instruments ---------------------------------------------------------------------------------------------------- Realized profit (loss) ----------------------------------------------------------------------------------------------------
a-2 Hedging purpose (for the position of floating rate liabilities) ---------------------------------------------------------------------------------------------------- Underlying assets / liabilities N/A ---------------------------------------------------------------------------------------------------- Financial instruments ---------------------------------------------------------------------------------------------------- Realized profit (loss) ----------------------------------------------------------------------------------------------------
b Trading purpose : None EXHIBIT 10 Chunghwa Telecom September 9, 2003 This is to report the changes or status of 1) Sales volume 2) Funds lent to other parties 3) Endorsements and guarantees 4) Financial derivative transactions for the period of August 2003 1) Sales volume (NT$ Thousand)
--------------------------------------------------------------------------------------------- Period Items 2003 2002 Changes % --------------------------------------------------------------------------------------------- August Invoice amount 19,836,888 18,625,283 1,211,605 6.51% --------------------------------------------------------------------------------------------- Jan -August Invoice amount 140,300,762 138,267,142 2,033,620 1.47% --------------------------------------------------------------------------------------------- August Net sales 15,566,297 15,781,728 - 215,431 - 1.37% --------------------------------------------------------------------------------------------- Jan -August Net sales 118,454,618 116,714,388 1,740,230 1.49% ---------------------------------------------------------------------------------------------
2) Funds lent to other parties (NT$ Thousand)
------------------------------------------------------------------------------------------------ Balance as of period end ------------------------------------------------------------------------------------------------ This Month Last Month Limit of lending ------------------------------------------------------------------------------------------------ CHT 0 0 0 ------------------------------------------------------------------------------------------------ CHT's subsidiaries 0 0 0 ------------------------------------------------------------------------------------------------
3) Endorsements and guarantees (NT$ Thousand)
------------------------------------------------------------------------------------------------------- Change in This Month Balance as of period end Limit of endorsements ------------------------------------------------------------------------------------------------------- CHT 0 0 0 ------------------------------------------------------------------------------------------------------- CHT's subsidiaries 0 0 0 ------------------------------------------------------------------------------------------------------- CHT endorses for subsidiaries 0 0 ------------------------------------------------------------------------------------------------------- CHT's subsidiaries endorse for CHT 0 0 ------------------------------------------------------------------------------------------------------- CHT endorses for PRC companies 0 0 ------------------------------------------------------------------------------------------------------- CHT's subsidiaries endorse for PRC companies 0 0 -------------------------------------------------------------------------------------------------------
4) Financial derivatives transactions a-1 Hedging purpose (for assets/liabilities denominated in foreign currencies) ---------------------------------------------------------------------------------------------------- Underlying assets / liabilities N/A ---------------------------------------------------------------------------------------------------- Financial instruments ---------------------------------------------------------------------------------------------------- Realized profit (loss) ----------------------------------------------------------------------------------------------------
a-2 Hedging purpose (for the position of floating rate liabilities) ---------------------------------------------------------------------------------------------------- Underlying assets / liabilities N/A ---------------------------------------------------------------------------------------------------- Financial instruments ---------------------------------------------------------------------------------------------------- Realized profit (loss) ----------------------------------------------------------------------------------------------------
b Trading purpose : None Exhibit 11 Chunghwa Telecom Co., Ltd. Financial Statements for the Six Months Ended June 30, 2003 and 2002 Together with Independent Auditors' Report Readers are advised that the original version of these financial statements is in Chinese. If there is any conflict between these financial statements and the Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail. English Translation of a Report Originally Issued in Chinese INDEPENDENT AUDITORS' REPORT August 1, 2003 The Board of Directors and Stockholders Chunghwa Telecom Co., Ltd. We have audited the accompanying balance sheets of Chunghwa Telecom Co., Ltd. as of June 30, 2003 and 2002, and the related statements of operations, changes in stockholders' equity and cash flows for the six months then ended, all expressed in New Taiwan dollars. 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. Except for the matters described in the next paragraph, we conducted our audits in accordance with the Regulations for Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those regulations 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. A stated in Note 8 to the financial statements, we did not audit the financial statements of equity-accounted investments, the investments in which are reflected in the accompanying financial statements using the equity method of accounting. The aggregate carrying values of the equity-accounted investments were NT$1,348,460 thousand and NT$1,760,979 thousand as of June 30, 2003 and 2002 and the equity in their net loss and net income were (NT$68,441) thousand and NT$111,827 thousand for the six months then ended. In our opinion, except for the matters described in the preceding paragraph, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of the Company as of June 30, 2003 and 2002, and the results of its operations and its cash flows for the six months then ended in conformity with relevant regulations, regulations governing the preparation of financial statements of public companies and accounting principles generally accepted in the Republic of China. -1- As stated in Notes 2 and 3 to the financial statements, the Company's accounts are subject to examination by the Directorate General of Budget, Accounting and Statistics of the Executive Yuan and by the Ministry of Audit of the Control Yuan. The accounts as of and for the year ended December 31, 2002 have been examined by these government agencies, and adjustments from this examinations have been recognized in the accompanying financial statements. Deloitte & Touche (T N Soong & Co and Deloitte & Touche (Taiwan) Established Deloitte & Touche Effective June 1, 2003) Taipei, Taiwan The Republic of China 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. -2- English Translation of Financial Statements Originally Issued in Chinese CHUNGHWA TELECOM CO., LTD.
BALANCE SHEETS JUNE 30, 2003 AND 2002 (Amounts in New Taiwan Thousand Dollars, Except Par Value Data) ------------------------------------------------------------------------------------------------------------------------------ 2003 2002 -------------------- ------------------- ASSETS Amount % Amount % ------------- --- ------------- --- CURRENT ASSETS Cash and cash equivalents (Notes 2 and 4) $ 16,671,266 4 $ 22,909,779 5 Trade notes and accounts receivable--net of allowance for doubtful accounts of $1,687,909 in 2003 and $845,780 in 2002 (Notes 2 and 5) 15,592,137 3 18,928,252 4 Other current monetary assets 2,348,951 - 1,832,791 - Inventories--net (Notes 2 and 6) 1,425,678 - 1,895,242 - Deferred income taxes (Notes 2 and 17) 12,260,046 3 44,245 - Other current assets (Note 7) 2,877,006 1 2,602,668 1 ------------- --- ------------- --- Total current assets 51,175,084 11 48,212,977 10 ------------- --- ------------- --- INVESTMENTS IN UNCONSOLIDATED COMPANIES AND FUNDS (Notes 2, 8 and 21) Funds 2,000,000 - 2,000,000 - Investments accounted for using the equity method 1,348,460 - 1,760,979 - Investments accounted for using the cost method 2,076,603 1 2,310,303 1 ------------- --- ------------- --- Investment in unconsolidated companies and funds 5,425,063 1 6,071,282 1 ------------- --- ------------- --- PROPERTY, PLANT AND EQUIPMENT (Notes 2, 9 and 20) Cost Land 101,744,494 22 101,187,915 21 Land improvements 1,362,090 - 1,283,680 - Buildings 53,183,034 11 48,122,844 10 Machinery and equipment 21,846,305 5 19,989,332 4 Telecommunications network facilities 610,714,740 131 588,430,408 122 Miscellaneous equipment 2,118,741 1 2,089,340 1 ------------- --- ------------- --- Total cost 790,969,404 170 761,103,519 158 Revaluation increment on land 5,953,621 2 5,961,060 1 ------------- --- ------------- --- 796,923,025 172 767,064,579 159 Less: Accumulated depreciation 440,071,882 95 414,832,142 86 ------------- --- ------------- --- 356,851,143 77 352,232,437 73 Construction in progress and advances related to acquisitions of equipment 38,641,538 8 48,752,229 10 ------------- --- ------------- --- Property, plant and equipment--net 395,492,681 85 400,984,666 83 ------------- --- ------------- --- INTANGIBLE ASSETS 3G concession (Note 2) 10,179,000 2 10,179,000 2 Prepaid pension cost (Notes 2 and 19) 77,659 - - - Patents and computer software--net (Note 2) 227,764 - 152,878 - ------------- --- ------------- --- Total intangible assets 10,484,423 2 10,331,878 2 ------------- --- ------------- --- OTHER ASSETS Refundable deposits 819,968 - 711,039 - Overdue receivables--net of allowance for losses of $6,280,246 in 2003 and $3,539,828 in 2002 (Notes 2 and 5) 1,058,786 1 4,342,180 1 Deferred income taxes--non-current (Notes 2 and 17) 18,548 - 12,562,539 3 Other 551,267 - 689,908 - ------------- --- ------------- --- Total other assets 2,448,569 1 18,305,666 4 ------------- --- ------------- --- TOTAL ASSETS $ 465,025,820 100 $ 483,906,469 100 ============= === ============= === 2003 2002 -------------------- ------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Amount % Amount % ------------- --- ------------- --- CURRENT LIABILITIES Short-term bank loans (Note 10) $ - - $ 13,000,000 3 Trade notes and accounts payable 9,190,671 2 11,409,194 2 Income tax payable (Notes 2 and 17) 5,773,464 1 6,054,110 1 Accrued expenses (Note 11) 11,854,781 3 11,708,233 3 Accrued pension liabilities (Notes 2 and 19) 2,626,174 1 - - Dividends payable (Note 12) 38,590,900 8 33,767,037 7 Other current liabilities (Notes 13 and 20) 10,595,838 2 11,660,458 2 ------------- --- ------------- --- Total current liabilities 78,631,828 17 87,599,032 18 ------------- --- ------------- --- LONG-TERM LIABILITIES Long-term loans (Note 14) 700,000 - 11,700,000 3 Deferred income 394,146 - 399,987 - ------------- --- ------------- --- Total long-term liabilities 1,094,146 - 12,099,987 3 ------------- --- ------------- --- RESERVE FOR LAND VALUE INCREMENTAL TAX (Note 9) 211,182 - 211,182 - ------------- --- ------------- --- OTHER LIABILITIES Accrued pension liabilities (Notes 2 and 19) - - 1,324,221 - Customers' deposits 11,390,555 3 12,359,198 3 Other 232,720 - 327,191 - ------------- --- ------------- --- Total other liabilities 11,623,275 3 14,010,610 3 ------------- --- ------------- --- Total liabilities 91,560,431 20 113,920,811 24 ------------- --- ------------- --- STOCKHOLDERS' EQUITY Common capital stock--$10 par value; authorized, issued and outstanding--9,647,725 thousand shares 96,477,249 21 96,477,249 20 ------------- --- ------------- --- Capital surplus: Paid-in capital in excess of par value 214,546,263 46 214,546,263 44 Capital surplus from revaluation of land 5,742,439 1 5,749,909 1 Donations 13,170 - 13,170 - ------------- --- ------------- --- Total capital surplus 220,301,872 47 220,309,342 45 ------------- --- ------------- --- Retained earnings: Legal reserve 29,436,072 6 25,105,829 5 Special reserve 2,675,419 1 2,675,419 1 Unappropriated earnings 24,574,477 5 25,417,819 5 ------------- --- ------------- --- Total retained earnings 56,685,968 12 53,199,067 11 ------------- --- ------------- --- Other adjustment Cumulative translation adjustments 300 - - - ------------- --- ------------- --- Total stockholders' equity 373,465,389 80 369,985,658 76 ------------- --- ------------- --- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 465,025,820 100 $ 483,906,469 100 ============= === ============= ===
The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche report dated August 1, 2003) -3- English Translation of Financial Statements Originally Issued in Chinese CHUNGHWA TELECOM CO., LTD. STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (Amounts in New Taiwan Thousand Dollars, Except Basic Net Income Per Share Data)
2003 2002 ------------------- -------------------- Amount % Amount % ------------- --- ------------- --- SERVICE REVENUES $ 87,994,458 100 $ 86,265,186 100 COSTS OF SERVICES 44,471,606 50 43,352,025 50 ------------- --- ------------- --- GROSS PROFIT 43,522,852 50 42,913,161 50 ------------- --- ------------- --- OPERATING EXPENSES Marketing 11,077,946 12 8,927,015 10 General and administrative 1,439,958 2 1,522,051 2 Research and development 1,474,492 2 1,463,072 2 ------------- --- ------------- --- Total operating expenses 13,992,396 16 11,912,138 14 ------------- --- ------------- --- INCOME FROM OPERATIONS 29,530,456 34 31,001,023 36 ------------- --- ------------- --- OTHER INCOME Penalties 637,751 1 705,283 1 Dividends 122,082 - 103,396 - Equity in net income of unconsolidated companies - - 111,827 - Income from sale of scrap 108,560 - 146,953 - Interest 46,106 - 85,479 - Other income 251,623 - 286,422 - ------------- --- ------------- --- Total other income 1,166,122 1 1,439,360 1 ------------- --- ------------- --- OTHER EXPENSES Equity in net loss of unconsolidated companies 68,441 - - - Losses on disposal of property, plant and equipment 64,371 - 68,205 - Interest 21,530 - 72,038 - Foreign exchange loss--net 20,499 - 114,596 - Other expense 669,714 1 690,044 1 ------------- --- ------------- --- Total other expenses 844,555 1 944,883 1 ------------- --- ------------- --- INCOME BEFORE INCOME TAX 29,852,023 34 31,495,500 36 INCOME TAX (Notes 2 and 17) 5,948,438 7 6,442,461 7 ------------- --- ------------- --- NET INCOME $ 23,903,585 27 $ 25,053,039 29 ============= === ============= ===
(Continued) -4- English Translation of Financial Statements Originally Issued in Chinese
2003 2002 ------------------- --------------------- Income Income Before Before Income Income Tax Net Tax Net Expense Income Expense Income ------- ------ ------- ------ BASIC NET INCOME PER SHARE (Notes 2 and 18) $ 3.09 $ 2.48 $ 3.26 $ 2.60 ======= ======= ======= =======
The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche report dated August 1, 2003) (Concluded) -5- English Translation of Financial Statements Originally Issued in Chinese CHUNGHWA TELECOM CO., LTD. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (Amounts in New Taiwan Thousand Dollars) --------------------------------------------------------------------------------
Capital Surplus (Notes 2, 9 and 15) ----------------------------------------------------------------------- Capital Gain on Paid-in surplus disposal of Common Capital Stock capital from property, ------------------------- Shares in excess of revaluation plant and (thousand) Amount par value of land equipment Donations Total ---------- ---------- --------------- ------------- --------- --------- -------------- BALANCE, JANUARY 1, 2003 (AS ADJUSTED, Note 3) 9,647,725 $ 96,477,249 $ 214,546,263 $ 5,749,909 $ - $ 13,170 $ 220,309,342 Reclassification of capital surplus from revaluation upon disposal of land to other income - - - (7,470) - - (7,470) Net income for the six months ended June 30, 2003 - - - - - - - ---------- ------------ --------------- ------------ --------- --------- ------------- BALANCE, JUNE 30, 2003 9,647,725 $ 96,477,249 $ 214,546,263 $ 5,742,439 $ - $ 13,170 $ 220,301,872 ========== ============ =============== ============ ========= ========= ============= BALANCE, JANUARY 1, 2002 (AS ADJUSTED) 9,647,725 $ 96,477,249 $ 214,546,263 $ 5,750,491 $ 75,176 $ 13,170 $ 220,385,100 Reclassification of gain on disposal of property, plant and equipment - - - - (75,176) - (75,176) Reclassification of capital surplus from revaluation upon disposal of land to other income - - - (582) - - (582) Net income for the six months ended June 30, 2002 - - - - - - - ---------- ------------ --------------- ------------ --------- --------- ------------- BALANCE, JUNE 30, 2002 9,647,725 $ 96,477,249 $ 214,546,263 $ 5,749,909 $ - $ 13,170 $ 220,309,342 ========== ============ =============== ============ ========= ========= ============= Cumulative Retained Earnings (Notes 2 and 15) Translation Total ------------------------------------------------------------- Legal Special Unappropriated Adjustments Stockholders' reserve reserve earnings Total (Note 2) Equity ------------ ------------ ----------------- ------------- --------------- --------------- BALANCE, JANUARY 1, 2003 (AS ADJUSTED, Note 3) $ 29,436,072 $ 2,675,419 $ 670,892 $ 32,782,383 $ 300 $ 349,569,274 Reclassification of capital surplus from revaluation upon disposal of land to other income - - - - - (7,470) Net income for the six months ended June 30, 2003 - - 23,903,585 23,903,585 - 23,903,585 ------------ ----------- -------------- ------------- ------------ ------------- BALANCE, JUNE 30, 2003 $ 29,436,072 $ 2,675,419 $ 24,574,477 $ 56,685,968 $ 300 $ 373,465,389 ============ =========== ============== ============= ============ ============= BALANCE, JANUARY 1, 2002 (AS ADJUSTED) $ 25,105,829 $ 2,675,419 $ 289,604 $ 28,070,852 $ - $ 344,933,201 Reclassification of gain on disposal of property, plant and equipment - - 75,176 75,176 - - Reclassification of capital surplus from revaluation upon disposal of land to other income - - - - - (582) Net income for the six months ended June 30, 2002 - - 25,053,039 25,053,039 - 25,053,039 ------------ ------------ -------------- ------------- ------------ ------------- BALANCE, JUNE 30, 2002 $ 25,105,829 $ 2,675,419 $ 25,417,819 $ 53,199,067 $ - $ 369,985,658 ============ ============ ============== ============= ============ =============
The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche report dated August 1, 2003) -6- English Translation of Financial Statements Originally Issued in Chinese CHUNGHWA TELECOM CO., LTD. STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (Amounts in New Taiwan Thousand Dollars)
2003 2002 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 23,903,585 $ 25,053,039 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 1,783,074 326,651 Depreciation and amortization 21,116,305 20,343,951 Reversal of allowance for losses on inventories (10,717) (20,263) Net loss on disposal of property, plant and equipment 62,948 63,679 Equity in net loss (net income) of unconsolidated companies 68,441 (111,827) Deferred income taxes 193,688 403,624 Accrued pension liabilities 242,844 194,445 Changes in operating assets and liabilities: Decrease (increase) in: Trade notes and accounts receivable (57,791) (319,786) Other current monetary assets (541,680) 783,589 Inventories (2,168,588) (2,845,294) Other current assets (2,311,526) (1,989,391) Overdue receivables (866,246) (2,716,652) Increase (decrease) in: Trade notes and accounts payable (109,439) (822,132) Income tax payable (285,018) 3,194,567 Accrued expenses (1,922,855) (2,453,362) Other current liabilities 868,739 541,663 Deferred income 964 (3,328) ------------- ------------- Net cash provided by operating activities 39,966,728 39,623,173 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of investments in unconsolidated companies - (1,999,843) Proceeds from disposal of investments in unconsolidated companies 233,700 - Acquisitions of property, plant and equipment (13,534,236) (17,541,651) Proceeds from disposal of property, plant and equipment 4,750 203,091 Acquisition of intangible assets (147,300) (9,153,991) ------------- ------------- Net cash used in investing activities (13,443,086) (28,492,394) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term bank loans - 13,000,000 Proceeds from long-term loans - 11,700,000 Payment on principal of long-term loans (17,000,000) (17,000,000) Decrease in customers' deposits (583,965) (555,738) Increase (decrease) in other liabilities 79,429 (8,423) ------------- ------------- Net cash used in (provided by) financing activities (17,504,536) 7,135,839 ------------- -------------
(Continued) -7- English Translation of Financial Statements Originally Issued in Chinese
2003 2002 ------------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS $ 9,019,106 $ 18,266,618 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,652,160 4,643,161 ------------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,671,266 $ 22,909,779 ============= ============= SUPPLEMENTAL INFORMATION Interest paid $ 81,830 $ 224,342 Less: Capitalized interest 37,148 172,924 ------------- ------------- Interest paid, excluding capitalized interest $ 44,682 $ 51,418 ============= ============= Income tax paid $ 6,039,768 $ 2,844,270 ============= ============= NON-CASH FINANCING ACTIVITIES Dividend payable $ 38,590,900 $ 33,767,037 ============= =============
The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche report dated August 1, 2003) (Concluded) -8- English Translation of Financial Statements Originally Issued in Chinese CHUNGHWA TELECOM CO., LTD. NOTES TO FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (Amounts in Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. GENERAL Chunghwa Telecom Co., Ltd. ("Chunghwa" or "the Company") was incorporated on July 1, 1996 in the Republic of China ("ROC") pursuant to the Telecommunications Act No. 30. The Company 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 and the DGT continues to be the industry regulator. As a dominant telecommunications service provider of fixed-line and cellular telephone services, within the meaning of applicable telecommunications regulations of the ROC, the Company is subject to additional requirements imposed by the MOTC. The MOTC is in the process of privatizing the Company by reducing the government ownership below 50% in stages. In July 2000, the Company 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 the Company's common shares were sold by auction, in connection with the foregoing privatization plan, in domestic public offerings in June 2001, December 2002, March 2003, April 2003 and July 2003. Certain of the Company's common shares were also sold in an international offering of securities in the form of American Depository Shares ("ADS") in July 2003 and were listed and traded on the New York Stock Exchange (the "NYSE") on July 17, 2003. In addition, the MOTC intends to sell certain of the Company's common shares in the ROC and throughout the privatization process to the Company's employees. The MOTC has sold 34.01% shares of the Company as of August 1, 2003. The numbers of employees as of June 30, 2003 and 2002 are 29,313 and 28,642, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in conformity with relevant regulations, regulations governing the preparation of financial statements of public companies and accounting principles generally accepted in the Republic of China. The significant accounting policies are summarized as follows: Basis of Accounting As a state-owned company, the Company maintains statutory accounts in accordance with the laws and regulations issued by the Executive Yuan, the MOTC, the Ministry of Audit (the "MOA") of the Control Yuan and, in the absence of any specific laws and regulations applicable to a particular transaction or account, the regulations governing the preparation of financial statements of public companies and generally accepted accounting principles in the Republic of China. The accounts are subject to annual examinations by the Directorate General of Budget, Accounting and Statistics (the "DGBAS") of the Executive Yuan and by the MOA (DGBAS and MOA are hereinafter referred to as "government agencies"). The objective of these examinations is to evaluate the Company's performance against the budget approved by the Legislative Yuan. The accounts are considered final only after any adjustments based on the annual examinations are taken into account. The accounts for the year ended December 31, 2002 have been examined by these government agencies and resulting adjustments were recorded retroactively. -9- Current Assets and Liabilities Current assets are commonly identified as those which are reasonably expected to be realized in cash; or sold or consumed within one year. Current liabilities are obligations which mature within one year. Cash and Cash Equivalents Cash and cash equivalents include convertible deposits and commercial paper purchased with maturities of three months or less from the date of acquisition. Allowance for Doubtful Receivables Allowance for doubtful receivables is provided on the basis of review of the collectibility of individual receivables. Inventories Inventories are stated at the lower of cost (weighted-average cost method) or market value (replacement cost or net realizable value). Investments in Unconsolidated Companies Investments in shares of stock in companies where the Company exercises significant influence in their operating and financial policy decisions are accounted for using the equity method. Under the equity method, the over investment is initially stated at cost and subsequently adjusted for its proportionate share in the net earnings or company's investee companies. Any cash dividends received are recognized as a reduction in the carrying value of the investments. Unrealized profits arising from downstream transactions to equity investees are deferred in the Company's portion of equity income or loss. Profits and losses arising from equipment purchases from equity investees are eliminated and recognized over the estimated remaining useful life of the equipment. Investments in shares of stock with no readily determinable market value are accounted for using the cost method when the ownership is less than 20%. The carrying value of those investments less reductions for decline in value are charged to stockholders' equity. Reductions which are determined to be other than temporary are charged to current income. Cash dividends received are recorded as income. Stock dividends received are accounted for as increases in the number of shares hold but not recognized as income. The cost of investments sold are determined using the weighted-average method. Property, Plant and Equipment Property, plant and equipment are stated at cost plus a revaluation increment, if any, less accumulated depreciation. Major renewals and betterments are capitalized, while maintenance and repairs are expensed currently. Depreciation expense is determined based upon the asset's estimated useful life using the straight-line method. The estimated useful lives are as follows: land improvements, 10 to 30 years; buildings, 10 to 60 years; machinery and equipment, 6 to 10 years; telecommunication network facilities, 6 to 15 years; and miscellaneous equipment, 3 to 10 years. Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is credited or charged to income. -10- Intangible Assets 3G concession will be amortized upon the MOTC approval using the straight-line method over the lower of the legal useful life or estimated useful life. Patents are amortized using the straight-line method over the estimated useful lives ranging from 12 to 20 years. Computer software costs are capitalized and amortized using the straight-line method over the estimated useful lives of three years. Pension Costs Pension costs are recognized according to the budget approved by the Legislative Yuan and the actuarial report. In addition, the DGBAS issued instructions that the pension costs of all state-owned companies to be privatized should be measured and recognized on the assumption that there is no privatization and that an additional amount should be calculated on the basis of the employees' service years if the additional amount does not reduce the budgeted net income. Revenue Recognition Revenues are recognized when revenues are realized or realizable and earned. Related costs are expensed as incurred. Service revenue is based on the fair value of the sales price, after business discount and quantity discount, between the Company and customer. The sales price of service revenue is the amounts which matures within one year. The difference between fair value and maturity value is not material and the transactions occur frequently so the interest factor is not included in calculating fair value. 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. Other revenues are recognized as follows: (a) one-time subscriber connection fees are recognized upon activation, (b) fixed-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. Expense Recognition Expenses including commissions paid to agencies and handset subsidy costs paid to a vendor that sells a handset to a customer who subscribes to the service, as an inducement to enter into a service contract are charged to income as incurred. Earnings Per Share Earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Income Tax The Company accounts for income tax using the asset and liability method. Under this method, deferred income tax is recognized for investment tax credits, losses carried forward and tax consequences of differences between financial statement carrying amounts and their respective tax bases. A valuation allowance is recognized if, available evidence indicates it is more likely than not that a portion or the entire deferred tax asset will not be realized. A deferred tax asset or liability should be classified as current or non-current according to the classification of its related asset or liability. However, if a deferred asset or liability cannot be related to an asset or liability in the financial statements, it should be classified as current or non-current depending on the expected reversal date of the temporary difference. -11- Investment tax credits utilized are recognized as reduction of income tax expense. Adjustments of prior years' tax liabilities are added to or deducted from the current year's tax provision. Income taxes (10%) on undistributed earnings are recorded as expense in the year when the stockholders have resolved that the earnings shall be retained. Foreign-currency Transactions The functional currency of the Company is the local currency, the New Taiwan dollar. Thus, the transactions of the Company that are denominated in currencies other than the New Taiwan dollars (the "foreign currency") are recorded in New Taiwan dollars at the exchange rates prevailing on the transaction dates. Gains or losses realized upon the settlement of a foreign currency transaction is included in the period in which the transaction is settled. The balances, at the balance sheet dates, of the foreign currency assets and liabilities are adjusted to reflect the prevailing exchange rates, and the resulting differences are recorded as follows: a. Long-term stock investments accounted for by the equity method--as cumulative translation adjustment under stockholders' equity. b. Other assets and liabilities--credited or charged to current income. 3. ADJUSTMENTS OF FINANCIAL STATEMENTS For the Year Ended December 31, 2002 The Company's financial statements for the year ended December 31, 2002 had been examined by the government agencies, and the resulting adjustments had been recorded retroactively as of December 31, 2002. The effects of these adjustments are summarized as follows:
Adjustment As Previously Increase Reported (Decrease) As Adjusted --------------- --------------- --------------- Balance sheet Assets Current assets $ 39,438,555 $ 2,970 $ 39,441,525 Investments in unconsolidated companies and funds 5,727,204 - 5,727,204 Property, plant and equipment--net 407,211,397 - 407,211,397 Intangible assets 10,390,506 - 10,390,506 Other assets 3,092,794 - 3,092,794 --------------- --------------- --------------- Total assets $ 465,860,456 $ 2,970 $ 465,863,426 =============== =============== ===============
(Continued) -12-
Adjustment As Previously Increase Reported (Decrease) As Adjusted --------------- --------------- --------------- Liabilities Current liabilities $ 47,290,325 $ 38,571,652 $ 85,861,977 Long-term liabilities 18,093,182 - 18,093,182 Reserve for land value incremental tax 211,182 - 211,182 Other liabilities 12,127,811 - 12,127,811 --------------- --------------- --------------- Total liabilities 77,722,500 38,571,652 116,294,152 --------------- --------------- --------------- Total stockholders' equity 388,137,956 (38,568,682) 349,569,274 --------------- --------------- --------------- Total liabilities and stockholders' equity $ 465,860,456 $ 2,970 $ 465,863,426 =============== =============== =============== Statement of income ------------------- Service revenues $ 176,089,011 $ - $ 176,089,011 Costs of services 90,407,298 (15,353) 90,391,945 Operating expenses 30,293,844 (14,274) 30,279,570 Other income 2,498,277 - 2,498,277 Other expenses 2,170,126 - 2,170,126 Income before income tax 55,716,020 29,627 55,745,647 Income tax 12,510,983 7,409 12,518,392 Net income 43,205,037 22,218 43,227,255
The adjustments made by the government agencies that increased income before income tax of $29,627 thousand were due to the different bases of estimates used by the MOA in determining certain accruals. Increased current liabilities of $38,571,652 thousand and decreased total stockholders' equity of $38,568,682 thousand were due to the appropriations of 2002 earnings recorded at December 31, 2002 by the MOA. 4. CASH AND CASH EQUIVALENTS
June 30 ---------------------------- 2003 2002 ------------ ------------- Cash Cash on hand $ 112,735 $ 113,472 Cash in banks 3,427,235 5,250,424 ------------ ------------- 3,539,970 5,363,896 ------------ ------------- Cash equivalents Commercial paper purchased, annual yield rate--0.90%-1.05% in2003 and 1.36%-1.70% in 2002 13,131,296 17,543,883 Convertible deposit, annual rate--3.70% - 2,000 ------------ ------------- 13,131,296 17,545,883 ------------ ------------- $ 16,671,266 $ 22,909,779 ============ =============
-13- 5. ALLOWANCE FOR DOUBTFUL ACCOUNTS Six Months Ended June 30 --------------------------- 2003 2002 ----------- ----------- Notes and accounts receivable Balance, beginning of period $ 1,491,907 $ 769,221 Provision for doubtful accounts 223,989 77,296 Accounts receivable written off (27,987) (737) ----------- ----------- Balance, end of period $ 1,687,909 $ 845,780 =========== =========== Overdue receivable Balance, beginning of period $ 6,012,517 $ 4,238,782 Provision for doubtful accounts 1,513,885 249,337 Accounts receivable written off (1,246,156) (948,291) ----------- ----------- Balance, end of period $ 6,280,246 $ 3,539,828 =========== =========== 6. INVENTORIES--NET June 30 --------------------------- 2003 2002 ----------- ----------- Supplies $ 1,410,562 $ 1,639,289 Work in process 2,885 14,461 Finished goods - 2,219 Materials in transit 17,904 253,440 ----------- ----------- 1,431,351 1,909,409 Less: Allowance for losses 5,673 14,167 ----------- ----------- $ 1,425,678 $ 1,895,242 =========== =========== The insurance coverage on inventories as of June 30, 2003 amounted to $1,417,327 thousand. 7. OTHER CURRENT ASSETS June 30 --------------------------- 2003 2002 ----------- ----------- Prepaid expenses $ 2,811,298 $ 2,512,219 Miscellaneous 65,708 90,449 ----------- ----------- $ 2,877,006 $ 2,602,668 =========== =========== 8. INVESTMENTS IN UNCONSOLIDATED June 30 COMPANIES AND FUNDS --------------------------------------- 2003 2002 ------------------- ------------------ % of % of Carrying Owner- Carrying Owner- Value ship Value ship ----------- ------ ----------- ------ Funds Fixed Line Funds $ 1,000,000 $ 1,000,000 Piping Funds 1,000,000 1,000,000 ----------- ----------- 2,000,000 2,000,000 ----------- ----------- (Continued) -14-
June 30 ---------------------------------------------- 2003 2002 --------------------- --------------------- % of % of Carrying Owner- Carrying Owner- Value ship Value ship ------------ ------- ------------ ------ Investments in unconsolidated companies Equity investees: Chunghwa Investment $ 972,043 49 $ 980,000 49 Taiwan International Standard Electronics 376,417 40 780,979 40 ------------ ------------ 1,348,460 1,760,979 ------------ ------------ Cost investees Taipei Financial Center 1,999,843 12 1,999,843 12 RPTI International 71,500 12 71,500 12 Siemens Telecommunication Systems 5,250 15 5,250 15 International Telecommunication Development 10 - 10 - Lucent Technologies Taiwan Telecom - - 233,700 15 ------------ ------------ 2,076,603 2,310,303 ------------ ------------ Total investments in unconsolidated companies 3,425,063 4,071,282 ------------ ------------ $ 5,425,063 $ 6,071,282 ============ ============
The carrying values of the equity investees and the equity in their net loss and net income as of and for the six months ended June 30, 2003 and 2002 are based on unaudited financial statements. The aggregate carrying value of the investments based on unaudited financial statements was $1,348,460 thousand and $1,760,979 thousand as of June 30, 2003 and 2002, and the equity in their net loss and net income were ($68,441) thousand and $111,827 thousand for the six months ended June 30, 2003 and 2002, respectively. The equity in the net assets of investments in unconsolidated companies accounted for using the cost method as computed by the percentage of ownership was $2,050,797 thousand and $2,510,275 thousand as of June 30, 2003 and 2002, respectively. As part of the government's effort to upgrade the existing telecommunications infrastructure, the Company and other public utility companies were required to contribute to a Fixed Line Fund managed by the Ministry of Interior Affairs and a Piping Fund administered by the Taipei City Government. These funds will be used to finance various telecommunications infrastructure projects, and any deficiency of the funds will be reimbursed by the companies. 9. PROPERTY, PLANT AND EQUIPMENT June 30 ------------------------------- 2003 2002 ------------- --------------- Cost Land $ 101,744,494 $ 101,187,915 Land improvements 1,362,090 1,283,680 Buildings 53,183,034 48,122,844 Machinery and equipment 21,846,305 19,989,332 Telecommunications network facilities 610,714,740 588,430,408 Miscellaneous equipment 2,118,741 2,089,340 ------------- --------------- Total cost 790,969,404 761,103,519 Revaluation increment on land 5,953,621 5,961,060 ------------- --------------- 796,923,025 767,064,579 ------------- --------------- (Continued) -15-
June 30 ----------------------------- 2003 2002 ------------- ------------- Accumulated depreciation Land improvements $ 608,071 $ 557,983 Buildings 10,838,079 9,965,926 Machinery and equipment 15,251,427 14,118,446 Telecommunications network facilities 411,646,223 388,543,786 Miscellaneous equipment 1,728,082 1,646,001 ------------- ------------- 440,071,882 414,832,142 ------------- ------------- Construction in progress and advances related to acquisition of equipment 38,641,538 48,752,229 ------------- ------------- Property, plant and equipment-net $ 395,492,681 $ 400,984,666 ============= =============
Pursuant to the relative regulation, the Company revalued land it owned on April 30, 2000 based on the publicly announced value on July 1, 1999. These revaluations which have been approved by MOA resulted in increases in the carrying values of property, plant and equipment of $5,986,074 thousand, accrued liabilities for land value incremental taxes of $211,182 thousand, and capital surplus of $5,774,892 thousand. On July 1, 1996, pursuant to the guidance on the incorporation of the Company and as instructed by the ROC's Executive Yuan (executive branch), the ROC Government (through the MOTC) transferred to the Company certain land and buildings with carrying value of $120,957,303 thousand. Those properties, as of that date, were registered in the name of the ROC's National Properties Bureau ("NPB"). As the number of the Company's properties is large, management has begun the process of registering the titles to the properties in the name of the Company. The process has been delayed due to the requirement of rezoning a small number of currently-classified agricultural and industrial zoned property to telecommunication or special purpose property prior to the approval of title transfer by the Executive Yuan. As of June 30, 2003, titles to land and buildings with carrying value of $596,937 thousand were still in the name of the NPB. Depreciation on property, plant and equipment for the years ended June 30, 2003 and 2002 amounted to $20,992,970 thousand and $20,285,663 thousand, respectively. Capitalized interest expense aggregated to $37,148 and $172,924 thousand for the six months ended June 30, 2003 and 2002, respectively. The rate of capitalized interest is from 1.51% to 1.67% and 1.73% to 4.18%, respectively. The insurance coverages on property, plant and equipment as of June 30, 2003 aggregated $7,105,149 thousand. 10. SHORT-TERM LOANS Short-term loans were obtained pursuant to short-term agreements with several banks that allow the Company to obtain unsecured credit due October 23, 2002. These loans bear fixed annual interest rates ranging from 2.03% to 2.18% for the six months ended June 30, 2002. As of June 30, 2003, the Company has unused credit lines totaling approximately $64,500,000 thousand, which are available for short-term loans. -16- 11. ACCRUED EXPENSES June 30 ------------------------------- 2003 2002 ------------- ------------- Accrued compensation $ 8,870,909 $ 9,033,458 Accrued franchise fees 1,188,196 1,144,211 Other accrued expenses 1,795,676 1,530,564 ------------- ------------- $ 11,854,781 $ 11,708,233 ============= ============= 12. DIVIDENDS PAYABLE The distribution of earnings for the year 2002 and 2001 was approved in the shareholders' meeting held on June 17, 2003 and June 21, 2002, respectively. Cash dividends for the year 2002 and 2001 was $4 and $3.5 per shares, and amounted to $38,590,900 thousand and $33,767,037 thousand, respectively. The distributing date is August 5, 2003 and July 16, 2002, respectively. 13. OTHER CURRENT LIABILITIES June 30 ------------------------------- 2003 2002 ------------- ------------- Amounts collected in trust for others $ 3,848,681 $ 2,206,537 Advances from subscribers 2,368,474 2,379,202 Other payables 1,867,200 1,639,741 Payables to constructors suppliers 1,003,976 1,857,258 Payables to equipment suppliers 831,978 2,808,581 Miscellaneous 675,529 769,139 ------------- ------------- $ 10,595,838 $ 11,660,458 ============= ============= 14. LONG-TERM LOANS Long-term loans consisted of the following: June 30 ------------------------------- 2003 2002 ------------- ------------- Common Tunnel Fund $ 700,000 $ 700,000 Syndicated Loans - 11,000,000 ------------- ------------- $ 700,000 $ 11,700,000 ============= ============= The loan from the Common Tunnel Fund was obtained pursuant to a long-term loan agreement with the Common Tunnel Fund managed by Ministry of Interior that allows the Company to obtain unsecured interest-free credit until March 12, 2007. The outstanding principal amounts as of June 30, 2002 are payable in three annual installments ($0.2 billion, $0.2 billion and $0.3 billion) starting on March 12, 2005. The Syndicated Loans were obtained pursuant to long-term loan agreements with several banks that allow the Company to obtain unsecured credit until June 26, 2005. These loans bear fixed annual interest rates ranging from 2.01% to 2.05% for the six months ended June 30, 2002. As of June 30, 2003, the Company prepaid $11,000,000 thousand of the outstanding balances of these syndicated loans. As of June 30, 2003, the Company has unused credit lines totaling approximately $142,000,000 thousand. -17- 15. STOCKHOLDERS' EQUITY Under the Company's Articles of Incorporation, authorized capital is divided into 9,647,724,900 common shares (at $10 par value per share), all of which are issued and outstanding. The Company's Articles of Incorporation and the Republic of China Telecommunications Act provide that the MOTC has the right to purchase two redeemable preferred shares (NT$10 par value) in the event its ownership in the Company falls below 50% of the outstanding common shares. The Company issued 110,975 thousand American Depositary Shares (ADS) on the New York Stock Exchange as of August 1, 2003. The number of common shares represented by the ADSs is 1,109,750 thousand shares (one ADS represents ten common shares). The MOTC, as the holder of those preferred shares is entitled to the same rights as holders of common shares and certain additional rights as specified in the Company's Articles of Incorporation as follows: a. The holder of the preferred shares, or its nominated representative, will act as a director and/or supervisor during the entire period in which the preferred shares are outstanding. b. The holder of preferred shares has the same stock option as holders of common shares when the Company raises capital by issuing new shares. c. The holder of the preferred shares will have the right to vote any change in the name of the Company or the nature of its business and any transfer of a substantial portion of the Company's business or property. d. The holder of the preferred shares can't transfer the ownership. And the Company must redeem all outstanding preferred shares within three years from the date of their issuance. Under the ROC Company Law, capital surplus can only be utilized to offset deficits or be declared as stock dividends. Also, such capital surplus and donations can only be declared as a stock dividend by the Company at an amount calculated in accordance with the provisions of existing regulations. In addition, before distributing a dividend or making any other distribution to stockholders, the Company 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. The cash dividends to be distributed shall not be less than 10% of the total amount of the dividends to be distributed. In addition, if the cash dividend to be distributed is less than $0.10 per share, such cash dividend shall be distributed in the form of common shares. Telecommunications service is a capital-intensive and the Corporation needs tremendous capital expenditure to sustain its leadership position in high-growth market. Thus, the Company'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 may 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. Furthermore, 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 the Company. This reserve can only be used to offset a deficit, or when the balance is 50% of the aggregate par value of the outstanding capital stock of the Company, the Company may, at its option, declare 50% of the reserve as a stock dividend and transfer the amount to capital. -18- Under the Integrated Income Tax System that became effective on July 1, 1998, non-corporate stockholders are allowed a tax credit for the income tax paid by the Company on earnings generated in 1999 and onwards. An Imputation Credit Account (ICA) is maintained by the Company for such income tax and the tax credit is allocated to each stockholder. 16. COMPENSATION, DEPRECIATION AND AMORTIZATION EXPENSES
Six Months Ended June 30, 2003 ------------------------------------------------------ Cost of Operating Services Expenses Total ------------------------------------------------------ Compensation expense Salaries $ 7,769,591 $ 4,476,743 $ 12,246,334 Insurance 318,166 141,244 459,410 Pension 212,640 123,495 336,135 Other compensation 2,901,370 1,628,120 4,529,490 --------------- --------------- --------------- 11,201,767 6,369,602 17,571,369 Depreciation expense 19,767,301 1,225,669 20,992,970 Amortization expense 64,355 58,980 123,335 --------------- --------------- --------------- $ 31,033,423 $ 7,654,251 $ 38,687,674 =============== =============== =============== Six Months Ended June 30, 2002 ------------------------------------------------------ Cost of Operating Services Expenses Total ------------------------------------------------------ Compensation expense Salaries $ 7,733,649 $ 4,228,772 $ 11,962,421 Insurance 247,991 107,833 355,824 Pension 306,246 166,758 473,004 Other compensation 2,871,616 1,589,011 4,460,627 --------------- --------------- --------------- 11,159,502 6,092,374 17,251,876 Depreciation expense 19,122,467 1,163,196 20,285,663 Amortization expense 14,197 44,091 58,288 --------------- --------------- --------------- $ 30,296,166 $ 7,299,661 $ 37,595,827 =============== =============== ===============
17. INCOME TAX a. A reconciliation between income tax expense computed by applying the statutory income tax rate of 25% to income before income tax and income tax expense shown in the statements of income is as follows:
Six Months Ended June 30 ------------------------------- 2003 2002 ------------- ------------- Income tax expense computed at statutory income tax rate of 25% $ 7,462,996 $ 7,873,865 Add (deduct) tax effect of: Permanent differences (22,290) (68,698) Timing differences (247,652) (665,516) Investment tax credits (1,559,959) (1,110,398) ------------- ------------- Income tax expense $ 5,633,095 $ 6,029,253 ============= =============
(Continued) -19-
Six Months Ended June 30 ------------------------------- 2003 2002 ------------- ------------- b. Income tax expense consisted of the following: Income tax expense $ 5,633,095 $ 6,029,253 Income tax--separated 7,144 9,584 Income tax--deferred 193,688 403,624 Income tax on undistributed earnings 114,511 - ------------- ------------- $ 5,948,438 $ 6,442,461 ============= =============
The balance of income tax payable at June 30, 2003 and 2002 are shown net of prepaid income tax of $1,834 thousand and $1,992 thousand, respectively. c. Net deferred income tax assets consist of the following:
June 30 ------------------------------- 2003 2002 ------------- ------------- Current Deferred income tax assets: Accrued pension cost $ 12,216,114 $ - Provision for doubtful receivables 1,633,886 880,439 Other 44,246 48,451 ------------- ------------- 13,894,246 928,890 Less: Valuation allowance (1,633,886) (873,771) ------------- ------------- 12,260,360 55,119 Deferred income tax liability: Unrealized foreign exchange gain (314) (10,874) ------------- ------------- Net deferred income tax assets $ 12,260,046 $ 44,245 ============= ============= Noncurrent deferred income tax assets: Accrued pension cost $ - $ 12,534,981 Unrealized losses on disposal of property, plant and equipment 14,256 14,256 Unrealized advertisement expense 4,292 13,302 ------------- ------------- Net deferred income tax assets $ 18,548 $ 12,562,539 ============= ============= d. The related information under the Integrated Income Tax System is as follows: June 30 ------------------------------- 2003 2002 ------------- ------------- Balance of Imputation Credit Account (ICA) $ 17,901,724 $ 18,467,677 ============= =============
The estimated ICA rate for the year ended December 31, 2002 and the actual ICA rate for the year ended December 31, 2001 was 33.44% and 33.53%, respectively. The credit available for allocation to the stockholders is calculated on the basis of the balance of ICA on the date of distribution of dividends. Accordingly, the estimated rate as of June 30, 2002 may differ from the actual rate determined based on the balance of the ICA on the dividend distribution date. -20- e. Undistributed earnings information As of June 30, 2003 and 2002, the Company's undistributed earnings generated in June 30, 1998 and onward were $907 thousand for both years. Income tax returns through the eighteen months ended December 31, 2002 had been examined by the tax authorities. 18. BASIC NET INCOME PER SHARE
Weighted- Net Income per average Share (Dollars) Amount (Numerator) Number of ----------------- ------------------------------- Common Income Income Shares Before Before Outstanding Income Net Income Tax Net Income (Denominator) Tax Income ------------- ------------- ------------- ------- ------- Six months ended June 30, 2003 ------------------------------ Net income $ 29,852,023 $ 23,903,585 ============= ============= Basic net income per share 9,647,725 $ 3.09 $ 2.48 ========= ======= ======= Six months ended June 30, 2002 ------------------------------ Net income $ 31,495,500 $ 25,053,039 ============= ============= Basic net income per share 9,647,725 $ 3.26 $ 2.60 ========= ======= =======
19. PENSION PLAN The Company has different pension plans for its employees depending on their classifications. In general, the employees' pension entitlement is based on MOTC regulations, Labor Law and/or the private pension plan of the Company. The funding of the pension plan for employees classified as staff is based on the budget approved by the Legislative Yuan and a supplementary budget approved by the Executive Yuan. The staff pension fund is administered by a pension fund committee and deposited in its name in a commercial bank. The pension plan for employees classified as workers is funded monthly at 15% or less of their wages and is also administered by a pension committee and deposited in its name in the Central Trust of China. Contributions and payments are as follows: Six Months Ended June 30 ----------------------------------- 2003 2002 --------------- --------------- Contributions $ 112,601 $ 151,061 =============== =============== Payments of benefits $ 1,093,926 $ 6,896,678 =============== =============== Pension costs amounted to $355,444 thousand and $509,988 thousand for the six months ended June 30, 2003 and 2002, respectively. The MOTC has informed the Company by a letter sent on December 28, 2001 that the target privatization date is December 31, 2003. Therefore, based on the assumption that the timing of the privatization is December 31, 2003, the accrued pension cost as of June 30, 2003 was $2,626,174 thousand. -21- 20. TRANSACTIONS WITH RELATED PARTIES As the Company is a state-owned enterprise, the ROC Government is one of the Company's largest customers. The Company provides fixed-line services, wireless services, Internet and data and other services to the various departments and agencies 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 users were not maintained by the Company. The Company believes that all costs of doing business are reflected in the financial statements and that no additional expenditures will be incurred as a result of the privatization being completed. a. The Company engages in business transactions with the following related party: Company Relationship ----------------------------------------- ------------------------- Taiwan International Standard Electronics Equity-accounted investee b. Significant transactions with the above related party are summarized as follows:
June 30 -------------------------------------------- 2003 2002 --------------------- ------------------- Amount % Amount % ------------ ---- ------------ ---- Payable to construction supplier (included in "other current liabilities") $ 273,541 3 $ 776,487 7 ============ ==== ============ ==== Six Months Ended June 30, June 30 -------------------------------------------- 2003 2002 --------------------- ------------------- Amount % Amount % ------------ ---- ------------ ---- Acquisition of properties $ 2,651,080 20 $ 4,271,582 24 ============ ==== ============ ====
The foregoing acquisitions were conducted under normal commercial terms. 21. COMMITMENTS AND CONTINGENT LIABILITIES As of June 30, 2003, the Company's remaining commitments under non-cancelable contracts with various parties were as follows: a. Acquisitions of buildings of $3,608,054 thousand. b. Acquisitions of telecommunications equipment of $10,199,250 thousand. c. Unused letters of credit of approximately $13,422,546 thousand. d. Contracts to print billing, envelops and telephone directories of approximately $183,598 thousand. -22- e. The Company also has non-cancelable operating leases covering certain buildings, computers, computer peripheral equipment and operating system software under contracts that expire in various years. Minimum rental commitments under those leases are as follows: Year Rental Amount -------------------------------------- ----------------- The six months ended December 31, 2003 $ 626,801 2004 783,975 2005 458,980 2006 291,930 2007 and thereafter 189,050 f. A commitment to contribute $2,500,000 thousand to a Fixed Line Fund administered by the Ministry of Interior Affairs and Taiwan Power Company, of which $1,000,000 thousand has been contributed by the Company on June 30, 1995. If the balance of the Fixed Line Fund is not sufficient for its purpose, the above three parties will determine when to raise additional fund and how much is the contribution from each party. g. 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 the Company on August 15, 1996. 22. ADDITIONAL DISCLOSURES Following are the additional disclosures required by the SFC for the Company and its investees: a. Financing provided: None. b. Endorsement/guarantee provided: None. c. Marketable securities held: Please see Table 1. 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 2. e. Acquisition of individual real estate at costs of at least $100 million or 20% of the paid-in capital: Please see Table 3. 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: None. h. Receivables from related parties amounting to $100 million or 20% of the paid-in capital: None. i. Names, locations, and other information of investees on which the Company exercises significant influence: Please see Table 4. -23- j. Financial transactions 1) The Company has no derivative financial instruments. 2) Fair value of financial instruments
June 30, 2003 June 30, 2002 ----------------------------- ------------------------------ Carrying Carrying Amount Fair Value Amount Fair Value ------------- ------------- ------------- ------------- Nonderivative financial instruments ----------------------------------- Assets Cash and cash equivalents $ 16,671,266 $ 16,671,266 $ 22,909,779 $ 22,909,779 Trade notes and accounts receivable--net 15,592,137 15,592,137 18,928,252 18,928,252 Other current monetary assets 2,348,951 2,348,951 1,832,791 1,832,791 Investments in unconsolidated companies and funds 5,425,063 5,874,969 6,071,282 6,812,743 Refundable deposits 819,968 819,968 711,039 711,039 Overdue receivables--net 1,058,786 1,058,786 4,342,180 4,342,180 Liabilities Short-term loans - - 13,000,000 13,000,000 Trade notes and accounts payable 9,190,671 9,190,671 11,409,194 11,409,194 Income tax payable 5,773,464 5,773,464 6,054,110 6,054,110 Accrued expenses 11,854,781 11,854,781 11,708,233 11,708,233 Dividend payable 38,590,900 38,590,900 33,767,037 33,767,037 Long-term loans 700,000 700,000 11,700,000 11,700,000 Customers' deposits 11,390,555 11,390,555 12,359,198 12,359,198
The Company's basis for determining the fair values is as follows: a) Financial instruments except those mentioned in b) and c)--the carrying values of such financial instruments reported in the balance sheet approximate the fair values of these assets. b) Fair values of investments in unconsolidated companies and funds are based on the net asset values of the investments in unconsolidated companies, if quoted market prices are not available. c) Long-term loans. The fair value is discounted value based on projected cash flow. The projected cash flows were discounted using the maturity dates of long-term loans. k. Investment in Mainland China: None. -24- TABLE 1 CHUNGHWA TELECOM CO., LTD. MARKETABLE SECURITIES HELD JUNE 30, 2003 (Amounts in Thousands of New Taiwan Dollars)
------------------------------------------------------------------------------------------------------------------------------------ No. Held Company Name Marketable Securities Type and Name Relationship with the Financial Statement Account Company ------------------------------------------------------------------------------------------------------------------------------------ 0 Chunghwa Telecom Co., Ltd. Common stock ------------ Chunghwa Investment Co., Ltd. Equity method investee Investments in unconsolidated companies Taiwan International Standard Electronics Equity method investee Investments in unconsolidated companies Taipei Financial Center - Investments in unconsolidated companies RPTI International - Investments in unconsolidated companies Siemens Telecommunication Systems - Investments in unconsolidated companies International Telecommunication Development - Investments in unconsolidated companies ------------------------------------------------------------------------------------------------------------------------------------ 1 Chunghwa Investment Co., Common stock ------------ Ltd. Chunghaw System Integration Co., Ltd. Subsidiary Investments in unconsolidated companies Chunghwa Telecom Global Subsidiary Investments in unconsolidated companies Beneficiary certification ------------------------- Prudential Bond Fund - Short-term investment Barits Bond Fund - Short-term investment APIT Bond Fund - Short-term investment Prudential financial Bond Fund - Short-term investment James Bond Fund - Short-term investment TIIM Bond Fund - Short-term investment DAM Band Fund - Short-term investment UBS Soaring Eagle Bond Fund - Short-term investment Prudential Well Pool Fund - Short-term investment The First Global Investment Trust The - Short-term investment Duoli-2 Bond Fund JF (Taiwan) Bond Fund - Short-term investment Fuh-Hwa Bond Fund - Short-term investment Fuh-Hwa Global Bond Fund - Short-term investment HSBC Taiwan Dragon Fund - Short-term investment Albatross Fund - Short-term investment The First Global Investment Trust Wan Tai - Short-term investment Bond Fund ------------------------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------------- June 30, 2003 --------------------------------------------------------------------------- No. Held Company Name Shares Carrying Value Percentage of Market Value or Note (Thousands) Ownership Net Asset Value --------------------------------------------------------------------------------------------------------------------------- 0 Chunghwa Telecom Co., Ltd. 98,000 $ 972,043 49 $ 972,043 Note 1 1,760 376,417 40 852,129 Note 1 199,984 1,999,843 12 1,759,199 Note 1 9,234 71,500 12 111,431 Note 1 75 5,250 15 180,150 Note 1 - 10 - 17 Note 1 --------------------------------------------------------------------------------------------------------------------------- 1 Chunghwa Investment Co., Ltd. 60,000 598,644 100 598,644 Note 1 1,000 13,117 100 13,117 Note 1 8,892 131,400 - 131,481 Note 2 10,468 121,216 - 121,285 Note 2 8,330 100,891 - 100,955 Note 2 7,256 100,853 - 100,915 Note 2 7,564 100,779 - 100,844 Note 2 6,002 80,705 - 80,756 Note 2 7,277 80,000 - 80,055 Note 2 6,783 70,209 - 70,248 Note 2 3,484 41,564 - 41,589 Note 2 2,596 36,109 - 36,129 Note 2 2,446 35,577 - 35,594 Note 2 2,427 30,533 - 30,554 Note 2 2,698 29,000 - 28,702 Note 2 1,771 25,899 - 25,916 Note 2 2,383 25,315 - 25,332 Note 2 1,382 18,415 - 18,425 Note 2 --------------------------------------------------------------------------------------------------------------------------- (Continued)
-25-
------------------------------------------------------------------------------------------------------------------------------------ No. Held Company Name Marketable Securities Type and Name Relationship with the Financial Statement Account Company ------------------------------------------------------------------------------------------------------------------------------------ Convertible bonds ----------------- Rexon Industrial CBE - Short-term investment ------------------------------------------------------------------------------------------------------------------------------------ 2 Chunghwa System Beneficiary certificates ------------------------ Integration Co., Ltd. ABN.Amro Bond Fund - Short-term investment The Forever Fund - Short-term investment Twfund Solomon Bond Fund - Short-term investment Prudential Financial Bond Fund - Short-term investment APIT Bond Fund - Short-term investment Invessco GP ROC Bond Fund - Short-term investment Albatross Fund - Short-term investment Fuh-Hwa Bond Fund - Short-term investment ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------- June 30, 2003 --------------------------------------------------------------------------- No. Held Company Name Shares Carrying Value Percentage of Market Value or Note (Thousands) Ownership Net Asset Value ------------------------------------------------------------------------------------------------------------------------- 264 $ 27,690 - $ 1,944 Note 3 ------------------------------------------------------------------------------------------------------------------------- 2 Chunghwa System Integration Co., Ltd. 7,787 111,760 - 111,819 Note 2 7,335 100,867 - 100,930 Note 2 9,113 100,859 - 100,922 Note 2 4,974 69,133 - 69,175 Note 2 4,405 53,361 - 53,395 Note 2 2,652 37,645 - 37,662 Note 2 479 5,089 - 5,093 Note 2 401 5,044 - 5,048 Note 2 -------------------------------------------------------------------------------------------------------------------------
Note 1: The net asset values of unconsolidated companies are based on unaudited financial statements. Note 2: The market value of short-term investments is based on the net asset values of the funds as of June 30, 2003. Note 3: The market value of short-term investments is based on the average closing price of June 30, 2003. -26- TABLE 2 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 SIX MONTHS ENDED JUNE 30, 2003 (Amounts in Thousands of New Taiwan Dollars)
--------------------------------------------------------------------------------------------------------------- No. Company Name Marketable Securities Type Financial Statement Counter- Nature of and Name Account party Relationship -------------------------------------------------------------------------------------------------------------- 0 Chunghwa Telecom Co., Lucent Technologies Taiwan Investments in - - Ltd. Telecom unconsolidated companies --------------------------------------------------------------------------------------------------------------- 1 Chunghwa Investment Prudential Bond Fund Short-term investment - - Co., Ltd. Barits Bond Fund Short-term investment - - APIT Bond Fund Short-term investment - - Prudential Financial Bond Short-term investment - - Fund James Bond Fund Short-term investment - - TIIM Bond Fund Short-term investment - - DAM Band fund Short-term investment - - UBS Soaring Eagle Bond Fund Short-term investment - - James Bond Fund Short-term investment - - --------------------------------------------------------------------------------------------------------------- 2 Chunghwa System ABN.Amro Bond Fund Short-term investment - - Integration Co., Ltd. The Forever Fund Short-term investment - - Twfund Solomon Bond Fund Short-term investment - - Prudential Financial Bond Short-term investment - - Fund APIT Bond Fund Short-term investment - - --------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- Beginning Balance Acquisition ---------------------------------------------------- Shares Shares Equity in Income No. Company Name (Thousands/ Amount (Thousands/ Amount (Loss) of Thousand Thousand Unconsolidated Units) Units) Companies -------------------------------------------------------------------------------------------------------- 0 Chunghwa Telecom Co., 234 $ 233,700 - $ - $ - Ltd. -------------------------------------------------------------------------------------------------------- 1 Chunghwa Investment 2,067 30,240 24,609 362,206 - Co., Ltd. 4,358 50,000 32,229 371,857 - - - 24,989 301,315 - - - 21,769 301,255 - - - 7,564 100,779 - - - 18,007 241,041 - - - 14,592 160,000 - - - 13,566 140,209 - - - 13,733 200,363 - -------------------------------------------------------------------------------------------------------- 2 Chunghwa System 4,980 70,865 18,380 263,097 - Integration Co., Ltd. - - 22,006 301,269 - - - 27,338 301,261 - 5,047 69,441 10,419 144,456 - 4,199 50,328 8,811 106,485 - -------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------- Disposal Ending Balance ---------------------------------------------------------------------------------- Shares Shares No. Company Name (Thousands/ Amount Carrying Gain (Loss) (Thousands/ Amount Thousand Value on Disposal Thousand Units) Units) ------------------------------------------------------------------------------------------------------------------- 0 Chunghwa Telecom Co., 234 $ 233,700 $ 233,700 $ - - $ - Ltd. ------------------------------------------------------------------------------------------------------------------- 1 Chunghwa Investment 17,784 262,206 261,046 1,160 8,892 131,400 Co., Ltd. 26,119 301,857 300,641 1,216 10,468 121,216 16,659 201,315 200,424 891 8,330 100,891 14,513 201,255 200,402 853 7,256 100,853 - - - - 7,564 100,779 12,005 161,041 160,336 705 6,002 80,705 7,315 80,410 80,000 410 7,277 80,000 6,783 70,209 70,000 209 6,783 70,209 13,733 201,143 200,363 780 - - ------------------------------------------------------------------------------------------------------------------- 2 Chunghwa System 15,573 223,097 222,202 895 7,787 111,760 Integration Co., Ltd. 14,671 201,269 200,402 867 7,335 100,867 18,225 201,261 200,402 859 9,113 100,859 10,492 145,456 144,764 692 4,974 69,133 8,605 103,985 103,452 533 4,405 53,361 -------------------------------------------------------------------------------------------------------------------
TABLE 3 CHUNGHWA TELECOM CO., LTD. ACQUISITION OF INDIVIDUAL REAL ESTATES AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE SIX MONTHS ENDED JUNE 30, 2003 (Amounts in Thousands of New Taiwan Dollars) --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------ Property Transaction Transaction Payment Counter-Party Nature of Company Name Date Amount Term Relationship ------------------------------------------------------------------------------------------------------------------------------------ Chunghwa Telecom. Co., Building 2003.3.21 $ 236,846 Paid Dong-Bang Engineering Limited Company None Ltd. Building 2003.3.24 147,721 Paid E-Kuen Construction Co., Ltd. and None others Building 2003.5.08 117,038 Paid Sunkai Builder Co., Ltd. None Building 2003.5.12 101,710 Paid Te Chang Construction Co., Ltd. and None others Building 2003.5.21 302,076 Paid Guo-Chi Construction Co., Ltd. and None others ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ Prior Transactions with Related Counter-party ----------------------------------------------- Transfer Company Name Owner Relationship Date Amount Price Reference Purpose of Acquisition Other Terms ------------------------------------------------------------------------------------------------------------------------------------ Chunghwa Telecom. Co., - - - - Bidding Telecommunications None Ltd. construction - - - - Bidding Telecommunications None construction - - - - Bidding Telecommunications None construction - - - - Bidding Telecommunications None construction - - - - Bidding Telecommunications None construction ------------------------------------------------------------------------------------------------------------------------------------
TABLE 4 CHUNGHWA TELECOM CO., LTD. NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE FOR THE SIX MONTHS ENDED JUNE 30, 2003 (Amounts in Thousands of New Taiwan Dollars, Unless Otherwise Specified) --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------ Investor Company Investee Company Location Products ------------------------------------------------------------------------------------------------------------------------------------ Chunghwa Telecom Co., Ltd. Chunghwa Investment Co., 6F, No. 21-3, Hsinyi Rd., Investment Ltd. Sec. 1, Taipei Taiwan International No. 4, Min Sheng St., Tu-Chen Manufacturing, selling, Standard Electronics Taipei Hsien designing and maintaining of telecommunications systems and equipment Chunghwa Investment Co., Ltd. Chunghwa System Integration 2F, No. 127, Dechang St., Integrated communication and Co., Ltd. Wanhua Chiu, Taipei information services Chunghwa Telecom Global United States Multinational enterprise data service, Internet gateway and voice wholesale, mobile commerce value-added services, and content services. ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ Original Investment Amount Balance as of June 30, 2003 ---------------------------- -------------------------------------- Net Income Shares Percentage of Carrying (Loss) of the Recognized Investor Company June 30, 2003 Dec. 31, 2002 (Thousands) Ownership (%) Value Investee Gain (Loss) ------------------------------------------------------------------------------------------------------------------------------------ Chunghwa Telecom Co., Ltd. $ 980,000 $ 980,000 98,000 49 $972,043 $ (20,092) $ (9,845) (Note 1) 164,000 164,000 1,760 40 376,417 (293,974) (58,596) (Note 2) Chunghwa Investment Co., Ltd. 600,000 600,000 60,000 100 598,644 917 917 (Note 1) 34,090 34,090 1,000 100 13,117 (12,553) (12,553) (US$ 1,000 (US$ 1,000 (Note 1) thousand) thousand) ------------------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------- Investor Company Note ----------------------------------------------- Chunghwa Telecom Co., Ltd. Equity- accounted investee Equity- accounted investee Chunghwa Investment Co., Ltd. Subsidiary Subsidiary -----------------------------------------------
Note 1: The equity in net income (net loss) of unconsolidated companies is based on unaudited financial statements. Note 2: The equity in net loss of an unconsolidated company amounted to $117,590 thousand is calculated from the unaudited financial statements plus a gain on realized upstream transactions of $81,375 thousand less a gain on unrealized upstream transactions of $22,381 thousand.