Business Context and Reporting Period
Company: Chunghwa Telecom Co., Ltd.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Date: September 9, 2003
Reporting Period: The filing primarily covers the six months ended June 30, 2003, with supplemental monthly sales data for July and August 2003.
Chunghwa Telecom is a dominant telecommunications service provider in Taiwan, offering fixed-line, cellular, and internet services. The company is in the process of privatization by the Ministry of Transportation and Communications (MOTC). On July 17, 2003, the company completed a secondary offering of 96.5 million American Depositary Shares (ADS) on the New York Stock Exchange (NYSE), priced at $14.24 per share.
Key Financial Metrics (Six Months Ended June 30, 2003)
| Metric | 2003 (NT$ Thousands) | 2002 (NT$ Thousands) |
|---|---|---|
| Service Revenues | 87,994,458 | 86,265,186 |
| Gross Profit | 43,522,852 | 42,913,161 |
| Income from Operations | 29,530,456 | 31,001,023 |
| Net Income | 23,903,585 | 25,053,039 |
| Basic EPS (Net Income) | NT$ 2.48 | NT$ 2.60 |
| Cash and Cash Equivalents (End of Period) | 16,671,266 | 22,909,779 |
| Net Cash Provided by Operating Activities | 39,966,728 | 39,623,173 |
| Total Debt (Short-term + Long-term) | 700,000 | 24,700,000 |
Note: All financial figures are in New Taiwan Dollars (NT$) unless otherwise specified. The company reported no short-term bank loans as of June 30, 2003, having repaid previous balances.
Material Changes vs. Prior Period
- Revenue Growth: Service revenues increased by approximately 2.0% year-over-year to NT$88.0 billion. However, operating income decreased by 4.7% to NT$29.5 billion, and net income declined by 4.6% to NT$23.9 billion.
- Debt Reduction: Total debt decreased significantly from NT$24.7 billion in 2002 to NT$0.7 billion in 2003. The company prepaid NT$11.0 billion of syndicated loans during the period.
- Investment Losses: The company recorded an equity in net loss of unconsolidated companies of NT$68.4 million in 2003, compared to an equity in net income of NT$111.8 million in 2002.
- Monthly Sales Trends:
- July 2003: Net sales increased 1.54% year-over-year.
- August 2003: Net sales decreased 1.37% year-over-year, though invoice amounts increased 6.51%.
Guidance, Outlook, and Material Events
- Privatization Status: The MOTC intends to reduce government ownership below 50%. As of August 1, 2003, the MOTC had sold 34.01% of the company's shares. The target privatization date remains December 31, 2003.
- Capital Expenditures: The company continues significant investment in infrastructure. Capital expenditures (acquisitions of property, plant, and equipment) totaled NT$13.5 billion for the six months ended June 30, 2003. Specific acquisitions included NT$600 million in cables from Pacific Electric Wire & Cable Co., Ltd. and NT$547 million in interface cards from Siemens.
- Dividends: The company declared cash dividends of NT$4.00 per share for the year 2002, totaling NT$38.6 billion, payable in August 2003.
- Management Changes: Mr. Joseph Jye-Cheng Lyu was relieved of his position as the MOTC's representative director. He was replaced by Mr. Lo Min Chung, Vice President of China Steel Corporation, effective August 29, 2003.
- Risks and Contingencies:
- Government Audit: Financial statements are subject to examination by government agencies (DGBAS and Ministry of Audit), which may result in retroactive adjustments.
- Pension Liabilities: Accrued pension liabilities are significant (NT$2.6 billion current, NT$0.0 billion long-term as of June 2003), calculated based on the assumption of privatization by December 31, 2003.
- Commitments: The company has non-cancelable commitments for equipment and building acquisitions totaling over NT$13.8 billion.
Investor Verification Checklist
- Privatization Timeline: Verify the progress of the MOTC's share sales to ensure the target date of December 31, 2003, is met, as this impacts governance and pension liability calculations.
- Government Audit Adjustments: Monitor for potential retroactive adjustments to financial statements resulting from examinations by the Directorate General of Budget, Accounting and Statistics.
- Debt Servicing: Confirm the status of the remaining NT$700 million long-term loan from the Common Tunnel Fund and the utilization of unused credit lines (approx. NT$206.5 billion total).
- Investment Performance: Review the performance of equity-accounted investments (e.g., Taiwan International Standard Electronics), which contributed to a net loss in the current period compared to income in the prior period.
- ADR Liquidity: Assess the trading volume and price stability of the newly listed ADS on the NYSE following the July 2003 secondary offering.