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Far EasTone Telecommunications Co., Ltd. and Subsidiaries Consolidated Financial Statements for the Three Months Ended March 31, 2014 and 2013 and Independent Auditors’ Review Report

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INDEPENDENT AUDITORS’ REVIEW REPORT

The Board of Directors and Stockholders

Far EasTone Telecommunications Co., Ltd.

We have reviewed the accompanying consolidated balance sheets of Far EasTone

Telecommunications Co., Ltd. (“Far EasTone”) and its subsidiaries as of March 31, 2014 and 2013,

and the related consolidated statements of comprehensive income, changes in equity and cash flows

for the three months then ended. These consolidated financial statements are the responsibility of

Far EasTone’s and subsidiaries’ management. Our responsibility is to issue a report on these

consolidated financial statements based on our reviews.

Except for the matter stated in the next paragraph, we conducted our reviews in accordance with

Statement of Auditing Standards No. 36 - “Engagements to Review Financial Statements” of the

Republic of China. A review consists principally of applying analytical procedures to financial

data and making inquiries of persons responsible for financial and accounting matters. It is

substantially less in scope than an audit conducted in accordance with auditing standards generally

accepted in the Republic of China, the objective of which is the expression of an opinion regarding

the consolidated financial statements taken as a whole. Accordingly, we do not express such an

opinion.

As disclosed in Note 4 to the consolidated financial statements, the financial statements of certain

nonsignificant subsidiaries used as basis for the consolidated financial statements were unreviewed.

As of March 31, 2014 and 2013, the unreviewed assets amounted to NT$4,481,115 thousand and

NT$4,498,511 thousand (3.7% and 4.5% of the consolidated assets, respectively), and the

unreviewed liabilities amounted to NT$2,119,488 thousand and NT$2,164,716 thousand (4.7% and

9.0% of the consolidated liabilities, respectively). The unreviewed comprehensive income (losses)

for the three months ended March 31, 2014 and 2013 were NT$25,391 thousand and NT$(2,767)

thousand (0.8% and (0.1%) of the consolidated comprehensive income, respectively). As stated

in Note 13 to the consolidated financial statements, the investments accounted for using

equity-method as of March 31, 2014 and 2013 were NT$987,690 thousand and NT$1,096,050

thousand, respectively, and the related investment comprehensive losses for the three months ended

March 31, 2014 and 2013 were NT$50,190 thousand and NT$45,047 thousand, respectively.

These amounts referring to the equity-method investments and the related investees’ information

were based on unreviewed financial statements. Related information on Far EasTone’s and

subsidiaries’ investments shown in Note 34 to the consolidated financial statements was not

reviewed either.

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Based on our reviews, except for the effects of such adjustments, if any, as might have been

determined to be necessary had the financial statements of the subsidiaries and other equity-method

investees as described in the preceding paragraph been reviewed, we are not aware of any material

modifications that should be made to the consolidated financial statements of Far EasTone and

subsidiaries referred to in the first paragraph for them to be in conformity with the Regulations

Governing the Preparation of Financial Reports by Securities Issuers and International Accounting

Standards 34 “Interim Financial Reporting” endorsed by the Financial Supervisory Commission.

As disclosed in Note 3 to the consolidated financial statements, Far EasTone and its subsidiaries

changed their accounting policy for investment properties effective January 1, 2014 and

subsequently measured investment properties using the fair value model. As a result of this

retrospectively application of accounting policy, the consolidated financial statements as of and for

the three months then ended March 31, 2013, the consolidated balance sheet as of December 31,

2013 and January 1, 2013 have been restated.

April 25, 2014

Notice to Readers

The accompanying consolidated financial statements are intended only to present the financial

position, financial performance 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 review such consolidated financial statements are

those generally accepted and applied in the Republic of China.

For the convenience of readers, the independent auditors’ review report and the accompanying

consolidated financial statements have been translated into English from the original Chinese

version prepared and used in the Republic of China. If there is any conflict between the English

version and the original Chinese version or any difference in the interpretation of the two versions,

the Chinese-language independent auditors’ review report and consolidated financial statements

shall prevail.

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FAR EASTONE TELECOMMUNICATIONS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

March 31, 2014

Reviewed

December 31, 2013

Audited after Restated

March 31, 2013

Reviewed after Restated

January 1, 2013


March 31, 2014

Reviewed

December 31, 2013


March 31, 2013


January 1, 2013


ASSETS Amount % Amount % Amount % Amount % LIABILITIES AND EQUITY Amount % Amount % Amount % Amount %

CURRENT ASSETS CURRENT LIABILITIES

Cash and cash equivalents (Notes 6 and 30) $ 6,558,327 5 $ 2,821,165 2 $ 13,048,051 13 $ 11,810,538 12 Short-term borrowings (Notes 4 and 18) $ 516,081 - $ 1,804,122 2 $ 861,007 1 $ 939,390 1

Financial assets at fair value through Short-term bills payable (Notes 4 and 18) 669,501 1 519,574 - 249,751 - 199,768 - profit or loss - current (Note 4) - - - - 215,826 - 211,608 - Derivative financial liabilities for

Available-for-sale financial assets - current hedging - current (Notes 4, 8 and 30) 1,495 - - - 40,639 - - - (Notes 4, 7 and 30) 738,163 1 706,310 1 2,402,799 2 2,008,526 2 Notes payable 48,935 - 17,118 - 30,582 - 38,838 -

Held-to-maturity financial assets - current Accounts payable (Note 30) 4,490,232 4 5,123,707 4 4,986,880 5 6,458,682 7

(Note 4) 99,975 - 99,962 - 100,000 - 100,000 - Payables for acquisition of properties Derivative financial assets for hedging - (Note 20) 2,069,859 2 2,617,177 2 3,015,024 3 3,440,589 3

current (Notes 4, 8 and 30) - - 4,442 - - - 21,962 - Other payables (Notes 4 and 20) 5,673,925 5 6,095,662 5 4,728,125 5 4,880,699 5

Debt investments with no active market - Current tax liabilities (Note 4) 3,682,993 3 2,997,094 3 2,827,500 3 2,203,865 2 current (Notes 4 and 10) 1,667,857 2 1,320,618 1 1,152,208 1 1,191,556 1 Provisions - current (Notes 4 and 21) 136,724 - 124,739 - 97,493 - 96,306 -

Notes receivable (Note 4) 56,038 - 51,707 - 50,091 - 65,493 - Unearned revenue - current (Notes 4

Accounts receivable, net (Notes 4 and 11) 6,451,145 5 6,894,733 6 6,442,497 7 7,042,177 7 and 20) 2,365,081 2 2,276,460 2 2,767,958 3 2,562,118 3 Accounts receivable - related parties Current portion of long-term borrowings

(Notes 4, 11 and 30) 146,931 - 311,507 - 282,014 - 169,279 - (Notes 4 and 18) 93,887 - 99,869 - 105,901 - 10,745 -

Inventories (Notes 4 and 12) 2,765,845 2 4,018,112 3 3,177,451 3 2,225,653 2 Guarantee deposits received - current 301,824 - 310,734 - 336,313 - 346,366 - Prepaid expenses 1,311,372 1 1,099,031 1 987,952 1 990,215 1 Other current liabilities (Notes 20, 21

Other financial assets - current (Notes 4, 30 and 30) 654,545 - 645,751 1 661,721 1 676,824 1

and 31) 1,746,237 2 1,742,124 2 1,719,124 2 1,640,864 2 Other current assets (Note 30) 251,391 - 276,096 - 494,926 1 760,379 1 Total current liabilities 20,705,082 17 22,632,007 19 20,708,894 21 21,854,190 22

Total current assets 21,793,281 18 19,345,807 16 30,072,939 30 28,238,250 28 NONCURRENT LIABILITIES Bonds payable (Notes 4 and 19) 19,967,538 16 19,965,600 17 - - - -

NONCURRENT ASSETS Long-term borrowings (Notes 4 and 18) 1,000,000 1 - - - - 96,703 -

Financial assets carried at cost (Notes 4 Provisions -noncurrent (Notes 4 and 21) 705,850 1 705,863 - 653,718 1 650,648 1 and 9) 75,022 - 76,407 - 26,407 - 26,509 - Deferred income tax liabilities (Notes 3

Held-to-maturity financial assets - noncurrent and 4) 1,224,320 1 1,123,151 1 1,048,084 1 1,007,956 1

(Note 4) - - - - 99,897 - 99,871 - Deferred revenue - noncurrent (Notes 4 Investments accounted for using the and 20) 329,254 - 350,414 - 428,081 - 445,624 -

equity method (Notes 4 and 13) 987,690 1 1,037,880 1 1,096,050 1 1,051,097 1 Accrued pension costs (Note 4) 751,593 1 753,742 1 780,046 1 783,507 1

Property, plant and equipment, net Guarantee deposits received - noncurrent 349,872 - 361,568 - 369,512 - 370,025 - (Notes 4, 14, 30 and 31) 48,105,776 39 48,034,681 40 48,807,646 48 48,884,549 49 Other noncurrent liabilities (Note 20) 57,399 - 96,773 - 64,127 - 35,048 -

Investment properties, net (Notes 3, 4

and 15) 1,113,494 1 1,174,896 1 1,148,584 1 1,101,035 1 Total noncurrent liabilities 24,385,826 20 23,357,111 19 3,343,568 3 3,389,511 3 Concession, net (Notes 1, 4 and 16) 34,785,857 28 34,968,533 29 4,201,563 4 4,384,239 5

Goodwill (Notes 4 and 16) 10,826,174 9 10,826,174 9 10,881,018 11 10,881,018 11 Total liabilities 45,090,908 37 45,989,118 38 24,052,462 24 25,243,701 25

Other intangible assets (Notes 4 and 16) 3,041,588 2 3,075,256 2 3,030,062 3 3,119,804 3 Deferred income tax assets (Note 4) 1,044,485 1 992,940 1 851,550 1 812,896 1 EQUITY ATTRIBUTABLE TO OWNERS OF

Other noncurrent assets (Notes 4, 17, 30 FAR EASTONE

and 31) 697,103 1 691,202 1 627,126 1 616,372 1 Capital stock Common stock 32,585,008 26 32,585,008 27 32,585,008 32 32,585,008 33

Total noncurrent assets 100,677,189 82 100,877,969 84 70,769,903 70 70,977,390 72 Capital surplus 15,919,097 13 15,919,097 13 17,790,049 18 17,790,049 18

Retained earnings Legal reserve 12,822,948 10 12,822,948 11 11,762,957 12 11,762,957 12

Special reserve 648,717 1 - - - - - -

Unappropriated earnings 14,691,084 12 12,229,862 10 13,769,311 13 10,986,793 11 Total retained earnings 28,162,749 23 25,052,810 21 25,532,268 25 22,749,750 23

Other equity (110,532 ) - (107,032 ) - 106,111 - 97,319 -

Total equity attributable to owners of

Far EasTone 76,556,322 62 73,449,883 61 76,013,436 75 73,222,126 74

NONCONTROLLING INTERESTS 823,240 1 784,775 1 776,944 1 749,813 1

Total equity 77,379,562 63 74,234,658 62 76,790,380 76 73,971,939 75

TOTAL $ 122,470,470 100 $ 120,223,776 100 $ 100,842,842 100 $ 99,215,640 100 TOTAL $ 122,470,470 100 $ 120,223,776 100 $ 100,842,842 100 $ 99,215,640 100

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

(With Deloitte & Touche review report dated April 25, 2014)

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Reviewed, Not Audited)

Three Months Ended March 31

2014 2013


Amount % Amount %

OPERATING REVENUES (Notes 4, 24 and 30) $ 22,864,485 100 $ 22,085,787 100

OPERATING COSTS (Notes 4, 12, 22, 25 and 30) 13,481,263 59 13,451,001 61

GROSS PROFIT 9,383,222 41 8,634,786 39

OPERATING EXPENSES (Notes 4, 22, 25 and 30)

Marketing 3,809,252 17 3,574,728 16

General and administrative 1,470,913 6 1,492,678 7

Total operating expenses 5,280,165 23 5,067,406 23

OPERATING INCOME 4,103,057 18 3,567,380 16

NONOPERATING INCOME AND EXPENSES

Other income (Notes 4, 25 and 30) 38,077 - 71,060 1

Other gains and losses (Notes 3, 4, 8 and 30) 28,705 - 43,689 -

Financial costs (Notes 4, 25 and 30) (83,829) - (10,623) -

Losses on disposal of property, plant, equipment and

intangible assets (Note 4) (240,947) (1) (213,769) (1)

Share of the profit or loss of associates (Note 4) (38,507) - (21,482) -

Total nonoperating income and expenses (296,501) (1) (131,125) -

INCOME BEFORE INCOME TAX 3,806,556 17 3,436,255 16

INCOME TAX (Notes 4 and 26) 658,261 3 626,248 3

NET INCOME 3,148,295 14 2,810,007 13

OTHER COMPREHENSIVE INCOME

Exchange differences on translating foreign

operations (Notes 4 and 23) (42) - (1,108) -

Unrealized gains on available-for-sale financial

assets (Notes 4 and 23) 26,915 - 125,510 -

Cash flow hedges (Notes 4, 8 and 23) (18,363) - (89,930) -

(Continued)

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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



2014 2013


Amount % Amount %

Share of other comprehensive income of associates

(Notes 4 and 23) $ (11,683) - $ (23,565) -

Income tax relating to components of other

comprehensive income (Notes 4 and 26) (218) - (2,473) -

Total other comprehensive income, net of

income tax (3,391) - 8,434 -

TOTAL COMPREHENSIVE INCOME $ 3,144,904 14 $ 2,818,441 13

NET INCOME ATTRIBUTABLE TO:

Owners of Far EasTone $ 3,109,939 14 $ 2,782,518 13

Noncontrolling interests 38,356 - 27,489 -

$ 3,148,295 14 $ 2,810,007 13

COMPREHENSIVE INCOME ATTRIBUTABLE TO:

Owners of Far EasTone $ 3,106,439 14 $ 2,791,310 13

Noncontrolling interests 38,465 - 27,131 -

$ 3,144,904 14 $ 2,818,441 13

EARNINGS PER SHARE, NEW TAIWAN

DOLLARS (Notes 4 and 27)

Basic $ 0.95 $ 0.85

Diluted $ 0.95 $ 0.85


(With Deloitte & Touche review report dated April 25, 2014) (Concluded)

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY



Equity Attributable to Owners of Far EasTone

Other Equity

Exchange Unrealized Gains

Retained Earnings Differences on on

Unappropriated Translating Available-for-sale Noncontrolling

Share Capital Capital Surplus Legal Reserve Special Reserve Earnings Foreign Operations Financial Assets Cash Flow Hedges Interests

(Note 23) (Notes 4 and 23) (Note 23) (Note 23) (Notes 3, 4 and 23) (Notes 4 and 23) (Notes 4 and 23) (Notes 4, 8 and 23) Total (Notes 3, 4 and 23) Total Equity

BALANCE AT JANUARY 1, 2013 $ 32,585,008 $ 17,790,049 $ 11,762,957 $ - $ 10,388,791 $ (1,925 ) $ 121,555 $ (22,311 ) $ 72,624,124 $ 740,923 $ 73,365,047

Effect of retrospective application and restatement - - - - 598,002 - - - 598,002 8,890 606,892

BALANCE AT JANUARY 1, 2013 AS RESTATED 32,585,008 17,790,049 11,762,957 - 10,986,793 (1,925 ) 121,555 (22,311 ) 73,222,126 749,813 73,971,939

Net income for the three months ended March 31, 2013 - - - - 2,782,518 - - - 2,782,518 27,489 2,810,007

Other comprehensive income for the three months ended March 31, 2013 - - - - - (749 ) 123,824 (114,283 ) 8,792 (358 ) 8,434

BALANCE AT MARCH 31, 2013 $ 32,585,008 $ 17,790,049 $ 11,762,957 $ - $ 13,769,311 $ (2,674 ) $ 245,379 $ (136,594 ) $ 76,013,436 $ 776,944 $ 76,790,380

BALANCE AT JANUARY 1, 2014 $ 32,585,008 $ 15,919,097 $ 12,822,948 $ - $ 11,573,185 $ (1,564 ) $ 49,319 $ (154,787 ) $ 72,793,206 $ 774,838 $ 73,568,044

Effect of retrospective application and restatement - - - - 656,677 - - - 656,677 9,937 666,614

BALANCE AT JANUARY 1, 2014 AS RESTATED 32,585,008 15,919,097 12,822,948 - 12,229,862 (1,564 ) 49,319 (154,787 ) 73,449,883 784,775 74,234,658

Special reserve reserved under Rule No. 1030006415 issued by the FSC - - - 648,717 (648,717 ) - - - - - -

Net income for the three months ended March 31, 2014 - - - - 3,109,939 - - - 3,109,939 38,356 3,148,295

Other comprehensive income for the three months ended March 31, 2014 - - - - - 2 25,979 (29,481 ) (3,500 ) 109 (3,391 )

BALANCE AT MARCH 31, 2014 $ 32,585,008 $ 15,919,097 $ 12,822,948 $ 648,717 $ 14,691,084 $ (1,562 ) $ 75,298 $ (184,268 ) $ 76,556,322 $ 823,240 $ 77,379,562


(With Deloitte & Touche review report dated April 25, 2014)

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CONSOLIDATED STATEMENTS OF CASH FLOWS




2014

2013

Reviewed after

Restated

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ 3,806,556 $ 3,436,255

Adjustments for:

Depreciation 2,212,330 2,190,312

Amortization 200,198 201,386

Amortization of 3G concession 182,676 182,676

Allowance for doubtful accounts 79,746 64,310

Net gains on valuation of financial assets at fair value through profit

or loss - (4,218)

Financial costs 83,829 10,623

Interest income (14,034) (36,695)

Share of the loss of associates 38,507 21,482

Impairment loss on financial assets 1,385 102

Write-down of inventories - 12,865

Reversal of write-down of inventories (30,398) -

Loss on disposal of property, plant, equipment and intangible assets 240,947 213,769

Gain on disposal of financial assets (447) (16,190)

Deferred (loss) income on derivative assets for hedging (8,600) 13,921

Net changes in operating assets and liabilities

Notes receivable (4,331) 15,402

Accounts receivable 363,842 535,370

Accounts receivable - related parties 164,576 (112,735)

Inventories 1,282,665 (964,663)

Prepaid expenses (212,341) 2,263

Other current assets (53,681) (16,287)

Notes payable 31,817 (8,256)

Accounts payable (633,475) (1,471,802)

Other payables (440,038) (151,876)

Unearned revenue 88,621 205,840

Accrued pension costs (2,207) (3,535)

Provisions 9,141 (1,826)

Other current liabilities 10,273 (1,140)

Cash generated from operations 7,397,557 4,317,353

Interest received 9,227 35,191

Interest paid (9,001) (7,962)

Income taxes paid (735) (3,611)

Net cash generated from operating activities 7,397,048 4,340,971

(Continued)

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CONSOLIDATED STATEMENTS OF CASH FLOWS




2014

2013

Reviewed after

Restated

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of available-for-sale financial assets $ (10,000) $ (534,600)

Proceeds of the disposal of available-for-sale financial assets 85,031 526,370

(Acquisition) disposal of debt investments with no active market (347,239) 39,348

Acquisition of investments accounted for using the equity method - (90,000)

Acquisition of property, plant and equipment (3,029,814) (2,792,860)

Proceeds of the disposal of property, plant and equipment 4,506 8,391

Increase in refundable deposits (78,565) (45,164)

Decrease in refundable deposits 62,238 46,501

Acquisition of intangible assets (166,530) (111,404)

Decrease (increase) in other financial assets 6,371 (90,277)

Net cash used in investing activities (3,474,002) (3,043,695)

CASH FLOWS FROM FINANCING ACTIVITIES

Decrease in short-term borrowings (1,288,041) (78,383)

Increase in short-term bills payable 149,927 49,983

Proceeds from long-term borrowings 1,000,000 -

Repayment of long-term borrowings (5,596) (1,547)

Increase in guarantee deposits received 26,594 38,098

Decrease in guarantee deposits received (47,200) (48,664)

Decrease in deferred revenue (21,160) (17,543)

Net cash used in financing activities (185,476) (58,056)

EFFECT OF EXCHANGE RATE CHANGES (408) (1,707)

INCREASE IN CASH AND CASH EQUIVALENTS 3,737,162 1,237,513

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,821,165 11,810,538

CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,558,327 $ 13,048,051


(With Deloitte & Touche review report dated April 25, 2014) (Concluded)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2014 AND 2013

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


1. ORGANIZATION AND OPERATIONS

Far EasTone Telecommunications Co., Ltd. (“Far EasTone”) was incorporated in the Republic of China

(ROC) on April 11, 1997 and began commercial operations on January 20, 1998. Far EasTone’s shares

began to be traded on the ROC over-the-counter (OTC) securities exchange (known as GreTai Securities

Market) on December 10, 2001. Later, Far EasTone’s shares ceased to be traded on OTC exchange and

became listed on the ROC Taiwan Stock Exchange (the TSE) on August 24, 2005. Far EasTone provides

wireless communications, leased circuit, Internet and international simple resale (ISR) services and also

sells cellular phone equipment and accessories. As of March 31, 2014 and 2013, Far Eastern New

Century Corporation (“Far Eastern New Century”) and its affiliates directly and indirectly owned 38.28%

and 38.48% of Far EasTone’s shares. Since Far Eastern New Century and its subsidiaries have power to

cast majority of votes at the meeting of Far EasTone’s board of directors, Far Eastern New Century has

control over Far EasTone’s finances, operations and personnel affairs. Thus, Far Eastern New Century is

the ultimate parent company of Far EasTone.

Far EasTone provides 2G (second-generation wireless communications services) by geographical sector

under two type I licenses - GSM900 for the northern region of Taiwan and GSM1800 island-wide (“GSM”

means “global system for mobile communications”) - issued by the Directorate General of

Telecommunications (DGT) of the ROC. These licenses allow Far EasTone to provide services for 15

years from 1997, in February 2012, Far EasTone applied for the renewal of the license and the renewed

license is valid from the application date to June 30, 2017, with an annual license fee of 2% of total 2G

wireless communications service revenues.

The DGT also issued to Far EasTone a type II license to provide Internet and ISR services until December

2015 and to pay annual license fees based on the regulations for each service. Far EasTone is also

licensed to provide local/domestic long-distance land cable leased circuit services for 15 years from January

2003, for an annual license fee of 1% of leased circuit service revenues.

Merger with Yuan-Ze Telecommunications Co., Ltd.

Far EasTone merged with Yuan-Ze Telecommunications Co., Ltd. (“Yuan-Ze Telecom”) on May 2, 2005.

In 2002, Yuan-Ze Telecom received from the DGT the 3G (third-generation wireless communications

system) concession, with a bidding price of $10,169,000 thousand, included in intangible assets -

concession. On January 24, 2005, the DGT issued to Yuan-Ze Telecom a 3G license, which is valid

through December 31, 2018. Through the completion of the merger with Yuan-Ze Telecom, Far EasTone

became licensed to provide 3G wireless communications service and began commercial operations from

2005.

Merger with KG Telecommunication Co., Ltd.

In 2004, Far EasTone incorporated KG Telecommunication Co., Ltd., (“KG Telecom”, formerly Yuan Ho

Telecommunications Co., Ltd.) to proceed with the merger with the former KG Telecommunications Co.,

Ltd. (the “former KGT”). Through the completion of the merger with the former KGT, KG Telecom

became licensed to provide island-wide 2G wireless communications services under a 2G wireless

communications license - GSM1800. In February 2012, Far EasTone applied for the renewal of the

license and the renewed license is valid from the application date to June 30, 2017, with an annual license

fee at 2% of total 2G wireless communications service revenues. The DGT also issued the former KGT a

type I license to provide local/domestic long distance land cable leased circuit services for 15 years from

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September 2000, with an annual license fee of 1% of leased circuit service revenues. To integrate the

resources and enhance the operating efficiency of Far EasTone and KG Telecom (formerly Far EasTone’s

100% subsidiary), the boards of directors of both companies resolved to approve their merger on February

26, 2009, with Far EasTone as the survivor entity. On August 28, 2009, the National Communications

Commission (NCC) approved this merger, and the record date of this merger was January 1, 2010.

WiMAX service

On December 28, 2009, NCC awarded Far EasTone the WiMAX (worldwide interoperability for

microwave access) license, which is valid for six years, in the southern region of Taiwan, and Far EasTone

began its commercial operation of WiMAX service soon after. Far EasTone has to pay an annual license

fee that is equal to WiMAX service revenues multiplied by the bidding percentage (4.18%), but the annual

license fee should not be less than a specified minimum amount.

Mobile Broadband Business License

Far EasTone bid for a mobile broadband business concession on October 30, 2013, with a bidding price of

$31,315,000 thousand, included in intangible assets - concession. The NCC approved the business plan

and the Group had obtained letters of approval consenting to inception to begin subsequent related matters

as of April 25, 2014.

The consolidated financial statements are presented in New Taiwan dollars, the functional currency of Far

EasTone.

2. APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements were approved by the board of directors on April 25, 2014.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

a. Initial application of new accounting policy

The management of Far EasTone Telecommunications Co., Ltd. and its subsidiaries (“the Group”)

considered that the fair value model can provide reliable and more relevant information. Thus, on

April 25, 2014, the Group’s board of directors resolved to change the Group’s accounting policy for

investment properties effective January 1, 2014. Under the new accounting policy, investment

properties are subsequently measured using the fair value model, and a special reserve should be

appropriated in accordance with Rule No. 1030006415 issued by the Financial Supervisory

Commission (FSC).

The impact on the current period is set out below:

The fair values of investment properties as of December 31, 2013 had been calculated by an

independent appraiser. The Group determined that the fair values were still applicable as of March 31,

2014.

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The impact on the prior reporting periods is set out below:

Impact on Assets, Liabilities and Equity As Originally

Stated

Adjustment for

Investment

Properties

under the Fair

Value Model Restated

December 31, 2013

Investment properties $ 467,173 $ 707,723 $ 1,174,896

Deferred tax liabilities $ 1,082,042 $ 41,109 $ 1,123,151

Retained earnings $ 24,396,133 $ 656,677 $ 25,052,810

Noncontrolling interests 774,838 9,937 784,775

$ 25,170,971 $ 666,614 $ 25,837,585

March 31, 2013


Deferred tax liabilities $ 1,013,424 $ 34,660 $ 1,048,084



$ 25,700,358 $ 608,854 $ 26,309,212

January 1, 2013


Deferred tax liabilities $ 973,296 $ 34,660 $ 1,007,956



$ 22,892,671 $ 606,892 $ 23,499,563

Three Months Ended March 31, 2013

Impact on Total Comprehensive Income

As Originally

Stated

Adjustment for

Investment

Properties

under the Fair


Other gains and losses $ 41,727 $ 1,962 $ 43,689

Net Income $ 2,808,045 $ 1,962 $ 2,810,007

Total comprehensive income for the period $ 2,816,479 $ 1,962 $ 2,818,441

Net income attributable to:

Owners of Far EasTone $ 2,780,578 $ 1,940 $ 2,782,518

Noncontrolling interests 27,467 22 27,489

$ 2,808,045 $ 1,962 $ 2,810,007

(Continued)

- 12 -


As Originally

Stated

Adjustment for

Investment

Properties

under the Fair


Comprehensive income attributable to:

Owners of Far EasTone $ 2,789,370 $ 1,940 $ 2,791,310

Noncontrolling interests 27,109 22 27,131

$ 2,816,479 $ 1,962 $ 2,818,441

Impact on earnings per share

(New Taiwan dollars)

Basic $ 0.85 $ - $ 0.85

Diluted $ 0.85 $ - $ 0.85

(Concluded)

b. The 2013 version of the International Financial Reporting Standards (IFRS), International Accounting

Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) in issue but not yet

effective

Rule No. 1030010325 issued by the FSC on April 3, 2014 stipulated that the Group should apply the

2013 version of IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”) endorsed by the FSC starting

January 1, 2015.

New, Amended and Revised

Standards and Interpretations (the “New IFRSs”) Effective Date Announced by

IASB (Note)

Improvements to IFRSs (2009) - amendment to IAS 39 January 1, 2009 and January 1,

2010, as appropriate

Amendment to IAS 39 “Embedded Derivatives” Effective for annual periods

ending on or after June 30,

2009

Improvements to IFRSs (2010) July 1, 2010 and January 1,

2011, as appropriate

Annual Improvements to IFRSs 2009-2011 Cycle January 1, 2013

Amendment to IFRS 1 “Limited Exemption from Comparative

IFRS 7 Disclosures for First-time Adopters”

July 1, 2010

Amendment to IFRS 1 “Severe Hyperinflation and Removal of Fixed

Dates for First-time Adopters”

July 1, 2011

Amendment to IFRS 1 “Government Loans” January 1, 2013

Amendment to IFRS 7 “Disclosure - Offsetting Financial Assets and

Financial Liabilities”

January 1, 2013

Amendment to IFRS 7 “Disclosure - Transfer of Financial Assets” July 1, 2011

IFRS 10 “Consolidated Financial Statements” January 1, 2013

IFRS 11 “Joint Arrangements” January 1, 2013

IFRS 12 “Disclosure of Interests in Other Entities” January 1, 2013

(Continued)

- 13 -

New, Amended and Revised

Standards and Interpretations (the “New IFRSs”) Effective Date Announced by

IASB (Note)

Amendments to IFRS 10, IFRS 11 and IFRS 12 “Consolidated

Financial Statements, Joint Arrangements and Disclosure of

Interests in Other Entities: Transition Guidance”

January 1, 2013

Amendments to IFRS 10 and IFRS 12 and IAS 27 “Investment

Entities”

January 1, 2014

IFRS 13 “Fair Value Measurement” January 1, 2013

Amendment to IAS 1 “Presentation of Other Comprehensive Income” July 1, 2012

Amendment to IAS 12 “Deferred Tax: Recovery of Underlying

Assets”

January 1, 2012

IAS 19 (Revised 2011) “Employee Benefits” January 1, 2013

IAS 27 (Revised 2011) “Separate Financial Statements” January 1, 2013

IAS 28 (Revised 2011) “Investments in Associates and Joint

Ventures”

January 1, 2013

Amendment to IAS 32 “Offsetting Financial Assets and Financial

Liabilities”

January 1, 2014

IFRIC 20 “Stripping Costs in Production Phase of a Surface Mine” January 1, 2013

(Concluded)

Note: Unless otherwise noted, the above New IFRSs are effective for annual periods beginning on or

after the respective effective dates.

Except for the following, the initial application of the above 2013 IFRSs version has not had any

material impact on the Group’s accounting policies:

1) IFRS 10 “Consolidated Financial Statements”

IFRS 10 replaces IAS 27 “Consolidated and Separate Financial Statements” and SIC 12

“Consolidation - Special Purpose Entities”. The Group considers whether it has control over other

entities for consolidation. The Group has control over an investee if and only if it has i) power

over the investee; ii) exposure, or rights, to variable returns from its involvement with the investee

and iii) the ability to use its power over the investee to affect the amount of its returns. Additional

guidance has been included in IFRS 10 to explain when an investor has control over an investee.

2) IFRS 12 “Disclosure of Interests in Other Entities”

IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries,

joint arrangements, associates and/or unconsolidated structured entities. In general, the disclosure

requirements in IFRS 12 are more extensive than in the current standards.

3) IFRS 13 “Fair Value Measurement”

IFRS 13 establishes a single source of guidance for fair value measurements. It defines fair value,

establishes a framework for measuring fair value, and requires disclosures about fair value

measurements. The disclosure requirements in IFRS 13 are more extensive than those required in

the current standards. For example, quantitative and qualitative disclosures based on the

three-level fair value hierarchy currently required for financial instruments only will be extended by

IFRS 13 to cover all assets and liabilities within its scope.

The fair value measurements under IFRS 13 will be applied prospectively from January 1, 2015.

- 14 -

4) Amendment to IAS 1 “Presentation of Items of Other Comprehensive Income”

The amendment to IAS 1 requires items of other comprehensive income to be grouped into those

items that (1) will not be reclassified subsequently to profit or loss; and (2) may be reclassified

subsequently to profit or loss. Income taxes on related items of other comprehensive income are

grouped on the same basis. Under current IAS 1, there were no such requirements.

The Group will apply the above amendments in presenting the consolidated statement of

comprehensive income, starting from the year 2015. Items not expected to be reclassified to profit

or loss are the actuarial gain (loss) arising from defined benefit plans and share of the actuarial gains

(loss) arising from defined benefit plans of associates accounted for using the equity method.

Items expected to be reclassified to profit or loss are the exchange differences on translating foreign

operations, unrealized gains (loss) on available-for-sale financial assets, cash flow hedges, and share

of the other comprehensive income (except the share of the actuarial gains (loss) arising from

defined benefit plans) of associates accounted for using the equity method.

As of the date the consolidated financial statements were authorized for issue, the Group was

continuing to assess other possible effects (i.e., aside from the effects stated above) that the

application of the 2013 IFRSs version will have on the Group’s financial position and operating

results, and will disclose the other effects when the assessment is completed.

c. New IFRSs in issued but not yet endorsed by the FSC

The Group has not applied the following new IFRSs issued by the IASB but not yet endorsed by the

FSC. As of the date that consolidated financial statements were authorized for issue, the FSC has not

yet announced their effective dates.

New IFRSs

Effective Date Announced by

IASB (Note 1)

Annual Improvements to IFRSs 2010-2012 Cycle July 1, 2014 (Note 2)

Annual Improvements to IFRSs 2011-2013 Cycle July 1, 2014

IFRS 9 “Financial Instruments” Note 3

Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of

IFRS 9 and Transition Disclosures”

Note 3

IFRS 14“Regulatory Deferral Accounts” January 1, 2016

Amendment to IAS 19 “Defined Benefit Plans: Employee

Contributions”

July 1, 2014

Amendment to IAS 36 “Impairment of Assets: Recoverable

Amount Disclosures for Non-financial Assets”

January 1, 2014

Amendment to IAS 39 “Novation of Derivatives and Continuation of

Hedge Accounting”

January 1, 2014

IFRIC 21 “Levies” January 1, 2014

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on

or after the respective effective dates.

Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on or

after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition

date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the

remaining amendments are effective for annual periods beginning on or after July 1, 2014.

Note 3: IASB tentatively decided that an entity should apply IFRS 9 for annual periods beginning on

or after January 1, 2018.

- 15 -

Except for the following, the initial application of the above New IFRSs has not had any material

impact on the Group’s accounting policies:

1) IFRS 9 “Financial Instruments”

Recognition and measurement of financial assets

With regards to financial assets, all recognized financial assets that are within the scope of IAS 39

“Financial Instruments: Recognition and Measurement” are subsequently measured at amortized

cost or fair value. Specifically, financial assets that are held within a business model whose

objective is to collect the contractual cash flows, and that have contractual cash flows that are solely

payments of principal and interest on the principal outstanding are generally measured at amortized

cost at the end of subsequent accounting periods. All other financial assets are measured at their

fair values at the end of reporting period. However, the Group may make an irrevocable election

to present subsequent changes in the fair value of an equity investment (that is not held for trading)

in other comprehensive income, with only dividend income generally recognized in profit or loss.

Recognition and measurement of financial liabilities

As for financial liabilities, the main changes in the classification and measurement relate to the

subsequent measurement of financial liabilities designated as at fair value through profit or loss.

The amount of change in the fair value of such financial liability attributable to changes in the credit

risk of that liability is presented in other comprehensive income and the remaining amount of

change in the fair value of that liability is presented in profit or loss, unless the recognition of the

effects of changes in the liability’s credit risk in other comprehensive income would create or

enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial

liability’s credit risk are not subsequently reclassified to profit or loss. If the above accounting

treatment would create or enlarge an accounting mismatch in profit or loss, the Group presents all

gains or losses on that liability in profit or loss.

Hedge accounting

The main changes in hedge accounting amended the application requirements for hedge accounting

to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes

include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening

the risk eligible for hedge accounting of non-financial items; (2) changing the way hedging

derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing

retrospective effectiveness assessment with the principle of economic relationship between the

hedging instrument and the hedged item.

2) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-Financial Assets”

In issuing IFRS 13 “Fair Value Measurement”, the IASB made consequential amendment to the

disclosure requirements in IAS 36 “Impairment of Assets”, introducing a requirement to disclose in

every reporting period the recoverable amount of an asset or each cash-generating unit. The

amendment clarifies that such disclosure of recoverable amounts is required only when an

impairment loss has been recognized or reversed during the period. Furthermore, the Group is

required to disclose the discount rate used in measurements of the recoverable amount based on fair

value less costs of disposal measured using a present value technique.

- 16 -

3) IFRIC 21 “Levies”

IFRIC 21 provides guidance on when to recognize a liability for a levy imposed by a government.

It addresses the accounting for a liability whose timing and amount is certain and the accounting for

a provision whose timing or amount is not certain. The Group accrues related liability when the

transaction or activity that triggers the payment of the levy occurs. Therefore, if the obligating

event occurs over a period of time (such as generation of revenue over a period of time), the liability

is recognized progressively. If an obligation to pay a levy is triggered upon reaching a minimum

threshold (such as a minimum amount of revenue or sales generated), the liability is recognized

when that minimum threshold is reached.

4) Annual Improvements to IFRSs: 2010-2012 Cycle

The amended IFRS 8 requires an entity to disclose the judgments made by management in applying

the aggregation criteria to operating segments, including a description of the operating segments

aggregated and the economic indicators assessed in determining whether the operating segments

have ‘similar economic characteristics’. The amendment also clarifies that a reconciliation of the

total of the reportable segments’ assets to the entity’s assets should only be provided if the

segments’ assets are regularly provided to the chief operating decision-maker.

IAS 24 was amended to clarify that a management entity providing key management personnel

services to the Group is a related party of the Group. Consequently, the Group is required to

disclose as related party transactions the amounts incurred for the service paid or payable to the

management entity for the provision of key management personnel services. However, disclosure

of the components of such compensation is not required.

5) Annual Improvements to IFRSs: 2011-2013 Cycle

The scope in IFRS 13 of the portfolio exception for measuring the fair value of a group of financial

assets and financial liabilities on a net basis was amended to clarify that it includes all contracts that

are within the scope of, and accounted for in accordance with, IAS 39 or IFRS 9, even if those

contracts do not meet the definitions of financial assets or financial liabilities within IAS 32.

Except for the above impacts, as of the date the consolidated financial statements were authorized for

issue, the Group was continuingly to assess other possible impacts that the application of the 2013

IFRSs version will have on the Group’s financial position and operating result, and will disclose these

other impacts when the assessment is completed.

4. SIGNIFICANT ACCOUNTING POLICIES

Except for the following, the same accounting policies have been followed in these consolidated financial

statement as applied in the preparation of the consolidated financial statements for the year ended

December 31, 2013.

Statement of Compliance

The consolidated financial statements have been prepared in accordance with the Regulations Governing

the Preparation of Financial Reports by Securities Issuers and IAS 34 “Interim Financial Reporting” as

endorsed by the FSC. Disclosure information included in interim financial reports is less than disclosures

required in a full set of annual financial reports.

- 17 -

Basis of Consolidation

a. Subsidiaries included in consolidated financial statement

Intercompany relationships and percentages of ownership are shown as follows:

Percentage of Ownership

Investor Company Investee Company Main Businesses and Products

March 31,

2014

December 31,

2013

March 31,

2013 Note

Far EasTone ARCOA Type II telecommunications

services, sales of communications

products and office equipment

61.07 61.07 61.07

Q-ware com. Type II telecommunications services 81.46 81.46 81.46

KGEx.com Type II telecommunications services 99.99 99.99 99.97

Yuan Cing Call center services 99.99 99.99 99.99

Omusic Electronic information providing

services

50.00 50.00 50.00

NCIC Type I, II telecommunications

services

100.00 100.00 100.00

E. World Investment 85.92 85.92 85.92

FEIS Investment 100.00 100.00 100.00

Far EasTron Holding Investment 100.00 100.00 100.00

Hiiir Electronic information providing

services

80.00 80.00 -

FEIS FETI Computer software, data processing

and network information

providing services

100.00 100.00 100.00

NCIC Simple InfoComm Type II telecommunications 100.00 100.00 100.00 ISSDU Security and monitoring service via

Internet 100.00 100.00 100.00

DU (Cayman) Investment 100.00 100.00 100.00 New Diligent Investment 100.00 100.00 100.00

FETI FENCIT Electronic information providing

services

2.12 2.12 55.00

New Diligent FEND Investment 100.00 100.00 100.00

Sino Lead Telecommunication services 100.00 100.00 100.00

FEND FENCIT Electronic information providing

services

76.92 76.92 -

DU (Cayman) DUIT Design and research of computer

system

100.00 100.00 100.00

ARCOA DataExpress Sale of communications products 70.00 70.00 70.00

DataExpress Linkwell Sale of communications products 100.00 100.00 100.00

Home Master Sale of communications products 99.99 99.99 99.99

Jing Yuan Data processing - 100.00 100.00 Dissolved on

January 28,

2014

Except for NCIC’s and ARCOA’s financial statements as of and for the three months ended March 31,

2014 and 2013, all the financial statements were unreviewed.

Investment Properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

Investment properties are measured initially at cost, including transaction costs, and are subsequently

measured using the fair value model. Gains or losses on changes in the fair value of investment properties

are included in profit or loss in the period in which they arise.

For a transfer from investment property carried at fair value to owner-occupied property, the property’s

deemed cost for subsequent accounting shall be its fair value at the date of change in use.

For a transfer from owner-occupied property to investment property carried at fair value, any difference

between the fair value of the property at the transfer date and its previous carrying amount is recognized in

other comprehensive income.

Any gain or loss arising on derecognition of the property is calculated as the difference between the net

disposal proceeds and the carrying amount of the asset and is included in profit or loss in the period in

which the property is derecognized.

- 18 -

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax. Interim period

income taxes are assessed on an annual basis. Interim period income tax expense is calculated by

applying to an interim period’s pre-tax income the tax rate that would be applicable to expected total annual

earnings.

5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY

The same critical accounting judgments and key sources of estimation uncertainty of consolidated financial

statements have been followed in these consolidated financial statements as were applied in the preparation

of the consolidated financial statements for the year ended December 31, 2013.

6. CASH AND CASH EQUIVALENTS

March 31, 2014

December 31,

2013 March 31, 2013

Cash on hand $ 14,430 $ 14,887 $ 19,231

Checking and demand deposits 1,884,936 1,598,337 1,860,945

Cash equivalents

Commercial paper purchased under resell

agreements 4,091,349 769,019 2,539,929

Certificates of deposits 567,612 438,922 8,627,946

$ 6,558,327 $ 2,821,165 $ 13,048,051

7. AVAILABLE-FOR-SALE FINANCIAL ASSETS

March 31, 2014

December 31,

2013 March 31, 2013

Current

Domestic investments

Publicly traded stocks $ 59,114 $ 60,047 $ 80,070

Open-end mutual funds 20,520 10,125 54,459

79,634 70,172 134,529

Overseas investments

Mutual funds 658,529 636,138 2,268,270

$ 738,163 $ 706,310 $ 2,402,799

- 19 -

8. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING

March 31, 2014

December 31,

2013 March 31, 2013

Derivative financial assets under hedge

accounting - current

Cash flow hedge

Cross-currency swap contracts $ - $ 115 $ -

Foreign exchange swap contracts - 4,327 -

$ - $ 4,442 $ -

Derivative financial liabilities under hedge

accounting - current

Cash flow hedge

Cross-currency swap contracts $ 455 $ - $ 3,575

Foreign exchange swap contracts 1,040 - 37,064

$ 1,495 $ - $ 40,639

Cash Flow Hedge

The Group used cross-currency swap and foreign exchange swap contracts to hedge against adverse cash

flow fluctuations on its foreign currency-denominated assets, respectively.

The contracts on cross-currency swap and foreign exchange swap contracts were in accordance with the

contracts on the hedged items. The outstanding cross-currency swaps and foreign exchange forward

contracts of the Group at the end of the reporting period were as follows:

Currency Maturity Date/Period

Contract Amount

(In Thousands)

March 31, 2014

Cross-currency swap contracts US$ to NT$ 2014.05.27 US$ 5,000

Foreign exchange swap contracts US$ to NT$ 2014.04.30-2014.05.12 US$ 15,000

December 31, 2013



March 31, 2013



- 20 -

The Group invested in overseas mutual funds and used cross-currency swaps contracts and foreign

exchange swaps contracts (with terms no more than 6 months) to hedge against adverse cash flow

fluctuations, and the foreign exchange agreements were designated as cash flow hedge. For the three

months March 31, 2014 and 2013, expected future trading exposures on foreign exchange swap contracts,

amounting to loss $(17,798) thousand and $(90,718) thousand, net of the tax benefit (expense) effects

amounting to $565 thousand and $(788) thousand, were recognized in other comprehensive income. The

expected cash flows will occur when the hedge target is sold, and will be reclassified from equity to profit

or loss.

Gains and losses of hedging instruments reclassified from equity to profit or loss were included in the

following line items in the consolidated statements of comprehensive income:


2014 2013

Other gains and losses $ 3,825 $ 41,250

9. FINANCIAL ASSETS CARRIED AT COST

March 31, 2014

December 31,

2013 March 31, 2013

Noncurrent

Domestic unlisted common stock $ 75,022 $ 76,407 $ 26,407

By measurement of category

Available-for-sale $ 75,022 $ 76,407 $ 26,407

Management believed that the above unlisted equity investments held by the Group, whose fair value

cannot be reliably measured due to the range of reasonable fair value estimates was so significant; therefore

they were measured at cost less impairment at the end of reporting period.

10. DEBT INVESTMENTS WITH NO ACTIVE MARKET

March 31, 2014

December 31,

2013 March 31, 2013

Current

Certificates of deposits with original maturity of

more than three months

$ 1,667,857 $ 1,320,618 $ 1,152,208

11. ACCOUNTS RECEIVABLE

March 31, 2014

December 31,

2013 March 31, 2013

Accounts receivable $ 7,609,936 $ 8,188,195 $ 7,768,477

Less: Allowance for doubtful accounts (1,011,860) (981,955) (1,043,966)

$ 6,598,076 $ $ 7,206,240 $ 6,724,511

- 21 -

Accounts receivable

The Group’s average credit period for the sale of inventories is 30 to 45 days, and the average credit period

for telecommunications services is 30 to 60 days. When deciding the recoverability of accounts

receivable, the Group considers any change in the credit quality from the date credit was initially granted up

to the end of the reporting period. The Group has recognized an allowance for doubtful accounts of 100%

against all receivables over 120 days because the historical experience has been that receivables that are

past due beyond 120 days are not recoverable. Allowance for doubtful accounts is recognized against

accounts receivable between 30 and 120 days based on estimated irrecoverable amounts determined by

reference to past default experience of the counter-party and the analysis of its current financial position.

The Group does not have accounts receivable with the aging being past due but not impaired.

Movements of the allowance for doubtful accounts were as follows:


2014 2013

Beginning balance $ 981,955 $ 1,015,604

Add: Accounts recovered during the period 64,609 78,990

Add: Impairment losses/bad debts 79,746 64,310

Less: Amounts written off during the period as uncollectible (114,450) (114,938)

Ending balance $ 1,011,860 $ 1,043,966

Sale of overdue accounts receivable

Under an agreement on a sale of accounts receivable signed in February 2013, the Group sold to an asset

management company the overdue accounts receivable that had been written off and the Group was not

under the risk of irrecoverable receivables.

Related information as of March 31, 2013 is as follows:

Amounts of

Accounts

Receivable Sold

Proceeds of the

Sale of

Accounts

Receivable

Hui Cheng Second Asset Management Co., Ltd. $ 4,067,103 $ 97,238

The Group did not sell the overdue accounts receivable for the three months ended March 31, 2014.

12. INVENTORIES

March 31, 2014

December 31,

2013 March 31, 2013

Cellular phone equipment and accessories $ 2,133,720 $ 3,297,990 $ 2,487,200

Others 632,125 720,122 690,251

$ 2,765,845 $ 4,018,112 $ 3,177,451

Costs of inventories sold were $6,510,188 thousand and $6,298,657 thousand for the three months ended

March 31, 2014 and 2013, respectively.

- 22 -

The reversal of write-down of inventories amounting to $30,398 thousand and the write-down of

inventories amounting to $12,865 were included in the cost of sales for the three months ended March 31,

2014 and 2013, respectively.

13. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in Associates

March 31, 2014

December 31,

2013 March 31, 2013

Common stocks with no quoted market prices

Far Eastern Electronic Toll Collection Co., Ltd. $ 800,446 $ 844,978 $ 953,278

Yuan Hsin Digital Payment Co., Ltd. 74,328 78,330 90,000

Ding Ding Integrated Marketing Service Co.,

Ltd. 40,414 37,804 32,747

Far Eastern Electronic Commerce Co., Ltd. 28,864 32,667 2,725

Alliance Digital Technology Co., Ltd. 27,229 28,514 -

iScreen Corporation 16,409 15,587 17,300

$ 987,690 $ 1,037,880 $ 1,096,050

a. Far Eastern Electronic Toll Collection Co., Ltd. (FETC)

Far Eastern Electronic Toll Collection Co., Ltd. (FETC) provides electronic toll collection (ETC)

services on national freeways. As of June 30, 2011, the usage rate of ETC services had not reached

the requirement stated in the contract of the Electronic Toll Collection BOT Project (“ETC Project”).

Thus, FETC entered into a negotiation with the Taiwan Area National Freeway Bureau (TANFB) and

the Negotiation Committee suggested that TANFB decrease the penalty. While FETC declared that

the ETC usage rate was already achieved 65% and could enter into taximeter phase according to the

contract. For reasons that the amounts FETC invested in the improvement plan were more than the

penalty TANFB claimed and the impact of usage rate to public interest was markedly diminished.

FETC, however, could not accept the negotiation result. In September 2013, FETC filed a lawsuit

against TANFB, FETC claims the penalty did not exist. The litigation is under process in the Taiwan

Taipei District Court and the exact amount of the penalty could not be reasonably estimated as of April

25, 2014.

Also under the ETC Project requirements, FETC should complete the taximeter system infrastructure

within a specified period. In April 2013, TANFB claimed that FETC breached the infrastructure

agreement by not completing the construction within the deadline; thus TANFB filed a lawsuit against

FETC for the penalty issue in September 2013. Following the lawsuit, TANFB filed a claim in March

2014 to demand an increase in FETC’s penalty. As of April 25, 2014, FETC had completed the

taximeter system infrastructure; however, the litigation is under process in the Taiwan Taipei District

Court and the exact amount of the penalty could not be reasonably estimated as of.

b. Yuan Hsin Digital Payment Co., Ltd.

To provide a new micro payment mechanism and support digital content development, Far EasTone’s

board of directors resolved on July 25, 2012 to subscribe for Yuan Hsin Digital Payment Co., Ltd.’s

(“Yuan Hsin”) common shares. On February 18, 2014, Far EasTone’s board of directors resolved to

increase the amount of its holding of Yuan Hsin’s shares the amount to $450,000 thousand, and already

paid $90,000 thousand as of March 31, 2014. The formation of Yuan Hsin was not set up yet as of

April 25, 2014.

- 23 -

As of the balance sheet date, the associates’ equity interests and the voting rights percentage are as

follows:

March 31, 2014

December 31,

2013 March 31, 2013

Far Eastern Electronic Toll Collection Co.,

Ltd. 39.42% 39.42% 39.42%

Yuan Hsin Digital Payment Co., Ltd. 31.58% 31.58% 31.58%

Ding Ding Integrated Marketing Service Co.,

Ltd. 20.00% 20.00% 20.00%

Far Eastern Electronic Commerce Co., Ltd. 20.16% 20.16% 18.98%

Alliance Digital Technology Co., Ltd. 19.23% 19.23% -

iScreen Corporation 40.00% 40.00% 40.00%

Since the Group has representation on the board of directors of Alliance Digital Technology Co., Ltd.

and Far Eastern Electronic Commerce Co., Ltd., and is able to exercise significant influence over these

investees, the investments are accounted for by the equity method.

The summarized financial information in respect of the Group’s associates was set out below:

March 31, 2014

December 31,

2013 March 31, 2013

Total assets $ 12,019,354 $ 11,179,522 $ 10,758,387

Total liabilities $ 9,227,175 $ 8,244,609 $ 8,117,314


2014 2013

Operating revenue $ 1,932,670 $ 927,157

Net loss $ (100,722) $ (65,058)

Other comprehensive income $ (29,641) $ (59,783)

The financial statements used as bases for calculating the carrying values of equity method investments

and equity in the Group’s profits and losses and other comprehensive income had not been reviewed.

14. PROPERTY, PLANT AND EQUIPMENT

Freehold Land Building

Operating

Equipment

Computer

Equipment Office Equipment

Leasehold

Improvements

Miscellaneous

Equipment

Construction-in-

progress and

Prepayment for

Equipment Total

Cost

Balance at January 1,

2013 $ 5,325,111 $ 7,630,119 $ 140,117,629 $ 11,979,885 $ 1,265,048 $ 4,114,789 $ 1,438,717 $ 4,873,235 $ 176,744,533

Additions - 616 12,936 3,147 1,231 12,373 2,760 2,352,131 2,385,194

Disposals - (325 ) (591,938 ) (6,181 ) (415 ) (17,868 ) (7,422 ) (566 ) (624,715 )

Effect of foreign currency

exchange difference - - 4 1,102 1,869 - 25 - 3,000

Adjustments and

reclassification - (41,442 ) 2,052,969 151,851 7,152 52,343 15,254 (2,308,080 ) (69,953 )

Balance at March 31,

2013 $ 5,325,111 $ 7,588,968 $ 141,591,600 $ 12,129,804 $ 1,274,885 $ 4,161,637 $ 1,449,334 $ 4,916,720 $ 178,438,059

Accumulated depreciation

and impairment


2013 $ (96,557 ) $ (3,216,097 ) $ (109,612,520 ) $ (9,758,300 ) $ (1,102,901 ) $ (2,948,213 ) $ (1,125,396 ) $ - $ (127,859,984 )

Depreciation expense - (49,474 ) (1,823,338 ) (206,833 ) (21,732 ) (67,287 ) (21,648 ) - (2,190,312 )

Disposals - 325 371,234 6,182 409 14,647 7,383 - 400,180


exchange difference - - (3 ) (789 ) (1,587 ) - (23 ) - (2,402 )

Adjustments and reclassification - 9,630 12,478 - (17 ) (17 ) 31 - 22,105


2013 $ (96,557 ) $ (3,255,616 ) $ (111,052,149 ) $ (9,959,740 ) $ (1,125,828 ) $ (3,000,870 ) $ (1,139,653 ) $ - $ (129,630,413 )

Carrying amount at

March 31, 2013 $ 5,228,554 $ 4,333,352 $ 30,539,451 $ 2,170,064 $ 149,057 $ 1,160,767 $ 309,681 $ 4,916,720 $ 48,807,646

(Continued)

- 24 -

Freehold Land Building

Operating

Equipment

Computer

Equipment Office Equipment

Leasehold

Improvements

Miscellaneous

Equipment

Construction-in-

progress and

Prepayment for

Equipment Total

Cost


2014 $ 5,325,111 $ 7,696,315 $ 144,712,993 $ 12,556,359 $ 1,264,792 $ 4,617,076 $ 1,520,859 $ 4,050,677 $ 181,744,182 Additions - 3,175 2,832 4,051 146 10,649 1,961 2,450,050 2,472,864

Disposals - (3,018 ) (1,999,809 ) (34,524 ) (161 ) (23,107 ) (838 ) (779 ) (2,062,236 )


exchange difference - - - (34 ) (4 ) (1 ) - - (39 )

Adjustments and

reclassification - 95,584 1,085,702 232,534 11,823 94,560 9,821 (1,454,740 ) 75,284


2014 $ 5,325,111 $ 7,792,056 $ 143,801,718 $ 12,758,386 $ 1,276,596 $ 4,699,177 $ 1,531,803 $ 5,045,208 $ 182,230,055

Accumulated depreciation and impairment


2014 $ (96,557 ) $ (3,403,788 ) $ (114,293,551 ) $ (10,453,977 ) $ (1,121,535 ) $ (3,138,722 ) $ (1,201,371 ) $ - $ (133,709,501 )

Depreciation expense - (51,884 ) (1,804,838 ) (214,886 ) (20,382 ) (91,159 ) (29,181 ) - (2,212,330 )

Disposals - 3,018 1,759,837 34,498 127 18,302 838 - 1,816,620


exchange difference - - - 15 2 1 - - 18

Adjustments and

reclassification - (14,734 ) 1,943 (3,852 ) (32 ) (431 ) (1,980 ) - (19,086 )

Balance at March 31, 2014 $ (96,557 ) $ (3,467,388 ) $ (114,336,609 ) $ (10,638,202 ) $ (1,141,820 ) $ (3,212,009 ) $ (1,231,694 ) $ - $ (134,124,279 )

Carrying amount at

January 1, 2014 $ 5,228,554 $ 4,292,527 $ 30,419,442 $ 2,102,382 $ 143,257 $ 1,478,354 $ 319,488 $ 4,050,677 $ 48,034,681

Carrying amount at

March 31, 2014 $ 5,228,554 $ 4,324,668 $ 29,465,109 $ 2,120,184 $ 134,776 $ 1,487,168 $ 300,109 $ 5,045,208 $ 48,105,776

(Concluded)

The following useful lives of property, plant and equipment are used in the calculation of depreciation by

the straight-line method:

Building

Main building 41-55 years

Other building equipment 3-18 years

Operating equipment 2-25 years

Computer equipment 3-10 years

Office equipment 3-10 years

Leasehold improvements 2-11 years

Miscellaneous equipment 3-10 years

15. INVESTMENT PROPERTIES

Completed

Investment

Properties

Balance at January 1, 2013 (Note 3) $ 1,101,035

Transferred from property, plant and equipment 47,549

Balance at March 31, 2013 $ 1,148,584

Balance at January 1, 2014 $ 1,174,896

Transferred to property, plant and equipment (61,402)

Balance at March 31, 2014 $ 1,113,494

The lease terms of investments properties were 1-6 years. The rights of lease term extension contain

clauses for market rental reviews. The lessee does not have a bargain purchase option to acquire the

investment property at the expiry of the lease period.

- 25 -

The future minimum lease payments of nocancellable operating lease commitments are as follows:

March 31,

2014

December 31,

2013

March 31,

2013

January 1,

2013

No later than 1 year $ 32,846 $ 35,162 $ 34,496 $ 26,195

Later than 1 year and not later than

5 years 34,373 36,978 59,094 57,924

$ 67,219 $ 72,140 $ 93,590 $ 84,119

The fair value of investment properties were as follows:

March 31,

2014

December 31,

2013

March 31,

2013

January 1,

2013

Independent valuation $ 1,113,494 $ 1,174,896 $ 1,148,584 $ 1,101,035

The fair values of the investment properties as of December 31, 2013 and January 1, 2013 were based on

the valuations carried out at these dates by an independent qualified professional valuator, Mr. Tsai,

Chia-ho, from Debenham Tie Leung Real Estate Appraiser Office, a member of certified ROC real estate

appraisals.

In consultation with the appraisers, the Group determined that the fair values reported as of December 31,

2013 and January 1, 2013 were still valid as of March 31, 2014 and 2013.

The fair value of investment properties was measured using the income approach. The significant

assumptions used were as follows:

March 31,

2014

December 31,

2013

March 31,

2013

January 1,

2013

Expected future cash inflows $ 1,398,041 $ 1,463,706 $ 1,435,884 $ 1,386,827 Expected future cash outflows (27,635) (29,579) (29,841) (28,333)

Expected future cash inflows, net $ 1,370,406 $ 1,434,127 $ 1,406,043 $ 1,358,494 Discount rate 2.125%-2.45% 2.125%- 2.45% 2.125%-2.55% 2.125%-2.55%

The market rentals in the area where the investment property is located were between $6 thousand and $225

thousand per ping (i.e. 1 ping = 3.3 square meters). The market rentals for comparable properties were

between $6 thousand and $168 thousand per ping.

All floors of the investment properties had been leased out under operating leases. The rental incomes

generated for the three months ended March 31, 2014 and 2013 were $13,383 thousand and $14,663

thousand, respectively.

The expected future cash inflows generated by investment properties refered to rental income, interest

income on rental deposits, loss on vacancy rate of space and disposal value. The rental income was

extrapolated using the comparative market rentals covering 10 years, excluding too-high and too-low

values, taking into account the annual rental growth rate, loss on vacancy rate of space was extrapolated

using the vacancy rates of the neighboring stores and factories, the interest income on rental deposits was

extrapolated using 1.36%, the interest rate announced by the central bank for the one-year average deposit

interest rate of five major banks, and the disposal value was determined using the direct capitalization

method under the income approach. The expected future cash outflows on investment property included

expenditures such as land value taxes, house taxes, insurance premium, maintenance costs, replacement

- 26 -

allowance and depreciation. These expenditure were extrapolated on the basis of the current level of

expenditures, taking into account the future adjustment to the government-announced land value and the tax

rate promulgated under the House Tax Act.

The discount rate was determined by reference to the local same class product, a reasonable rental income

level and the selling price of investment properties taking into consideration the liquidity, potential risk,

appreciation and the complexity of management; in addition, the discount rate should not be lower than the

interest rate for two-year time deposits of Chunghwa Post Co., Ltd plus 0.75%.

16. INTANGIBLE ASSETS

3G Concession

Computer

Software Goodwill

Other Intangible

Assets Total

Cost

Balance at January 1, 2013 $ 10,169,000 $ 14,780,991 $ 10,881,018 $ 1,324,268 $ 37,155,277

Additions - 105,454 - 5,952 111,406

Disposals - (28,196) - - (28,196)

Reclassification - 222 - - 222

Balance at March 31, 2013 $ 10,169,000 $ 14,858,471 $ 10,881,018 $ 1,330,220 $ 37,238,709

Accumulated amortization

and impairment

Balance at January 1, 2013 $ (5,784,761) $(12,397,952) $ - $ (587,503) $(18,770,216)

Amortization (182,676) (176,344) - (25,042) (384,062)

Disposals - 28,196 - - 28,196

Reclassification - 16 - - 16

Balance at March 31, 2013 $ (5,967,437) $(12,546,084) $ - $ (612,545) $(19,126,066)

Carrying amount at

March 31, 2013 $ 4,201,563 $ 2,312,387 $ 10,881,018 $ 717,675 $ 18,112,643

Cost

Balance at January 1, 2014 $ 41,484,000 $ 15,453,686 $ 10,883,789 $ 1,359,819 $ 69,181,294

Additions - 153,784 - 12,746 166,530

Disposals - (661) - - (661)

Balance at March 31, 2014 $ 41,484,000 $ 15,606,809 $ 10,883,789 $ 1,372,565 $ 69,347,163

Accumulated amortization

and impairment

Balance at January 1, 2014 $ (6,515,467) $(13,056,325) $ (57,615) $ (681,924) $(20,311,331)

Amortization (182,676) (174,660) - (25,538) (382,874)

Disposals - 661 - - 661

Balance at March 31, 2014 $ (6,698,143) $(13,230,324) $ (57,615) $ (707,462) $(20,693,544)

Carrying amount at

January 1, 2014 $ 34,968,533 $ 2,397,361 $ 10,826,174 $ 677,895 $ 48,869,963

Carrying amount at

March 31, 2014 $ 34,785,857 $ 2,376,485 $ 10,826,174 $ 665,103 $ 48,653,619

The following useful lives are used in the calculation of amortization on a straight-line basis:

3G concession 14 years

Computer software 4 to 6 years

Other intangible assets 1.5 to 15.5 years

- 27 -

Refer to Note 16 of the consolidated financial statement for the year ended December 31, 2013 for the

related information of goodwill.

17. OTHER ASSETS

March 31, 2014

December 31,

2013 March 31, 2013

Refundable deposits $ 639,923 $ 623,596 $ 554,731 Other financial assets 39,410 49,894 55,788 Others 17,770 17,712 16,607 $ 697,103 $ 691,202 $ 627,126

18. BORROWINGS

a. Short-term borrowings

March 31, 2014

December 31,

2013 March 31, 2013

Secured bank loans

Bank loans $ - $ - $ 8,000

Unsecrued bank loans

Credit loans 516,081 1,804,122 853,007

$ 516,081 $ 1,804,122 $ 861,007

Interest rate of secured bank loans - - 1.307%

Interest rate of credit loans 1.16%-2.10% 0.82%-2.10% 1.12%-2.35%

b. Short-term bills payable

March 31, 2014

December 31,

2013 March 31, 2013

Commercial paper payable $ 670,000 $ 520,000 $ 250,000

Less: Discount 499 426 249

$ 669,501 $ 519,574 $ 249,751

Interest rate 1.135%-1.27% 1.2%-1.27% 1.15%-1.27%

- 28 -

c. Long-term borrowings

March 31, 2014

December 31,

2013 March 31, 2013

Unsecured loans

Credit loans $ 1,093,887 $ 99,869 $ 105,091

Less: Current portion 93,887 99,869 105,091

Long-term loans $ 1,000,000 $ - $ -

Interest rate 1.0%-3.6% 2% 2%

FETI has extended the due date of long-term borrowings from March 17, 2014 to April 29, 2014 after

negotiating with the bank.

19. BONDS PAYABLE

March 31, 2014

December 31,

2013 March 31, 2013

4th Unsecured domestic bonds $ 4,991,666 $ 4,991,212 $ -

5th Unsecured domestic bonds 4,991,792 4,991,315 -

6th Unsecured domestic bonds 9,984,080 9,983,073 -

$ 19,967,538 $ 19,965,600 $ -

On June 27, 2013, Far EasTone issued the fourth seven-year unsecured domestic bonds with an aggregate

principal amount of $5,000,000 thousand and a par value of $10,000 thousand and the coupon interest rate

of 1.33%, with simple interest due annually. Repayment will be made in the fifth and seventh years with

equal installment.

On October 15, 2013, Far EasTone issued the fifth unsecured domestic bonds with an aggregate principal

amount of $5,000,000 thousand and a par value of $10,000 thousand. The bonds included four-year bonds

and five-year bonds, with the principle amount of $1,000,000 thousand and $4,000,000 thousand, having a

coupon interest rate of 1.46% and 1.58%, with simple interest due annually, respectively. Repayment will

be made in the fourth and fifth years with full amount.

On December 24, 2013, Far EasTone issued the sixth unsecured domestic bonds, with an aggregate

principal amount of $10,000,000 thousand and a par value of $10,000 thousand. The bonds included

three-year bonds, four-year bonds and six-year bonds, with the principal amounts of $1,600,000 thousand

and $5,200,000 thousand and $3,200,000 thousand, respectively, and coupon interest rates of 1.17%, 1.27%

and 1.58%, with simple interest due annually. Full repayment will be made in the third, fourth and sixth

years.

- 29 -

20. OTHER LIABILITIES

March 31, 2014

December 31,

2013 March 31, 2013

Current

Payable for acquisition of properties $ 2,069,859 $ 2,617,177 $ 3,015,024

Unearned revenue $ 2,365,081 $ 2,276,460 $ 2,767,958

Other payables

Commission $ 1,927,903 $ 1,657,599 $ 1,688,589

Salary and bonus 631,277 1,312,757 489,379

Maintenance fee 604,130 526,217 518,184

Bonus to employees and remuneration to

directors and supervisors 427,982 334,947 391,741

Professional service fee 253,855 289,495 184,401

Advertisement 189,372 282,296 141,331

Utilities 211,199 205,633 141,777

Rent 217,176 169,636 237,596

Accumulating compensated absences 87,252 87,252 77,535

Other 1,123,779 1,229,830 857,592

$ 5,673,925 $ 6,095,662 $ 4,728,125

Other current liabilities $ 654,545 $ 645,751 $ 661,721

Noncurrent

Deferred revenue

Government grant $ 71,399 $ 83,183 $ 137,371

Construction subsidies 257,855 265,951 290,167

Other - 1,280 543

$ 329,254 $ 350,414 $ 428,081

Other non-current liabilities $ 57,399 $ 96,773 $ 64,127

The Group received government grants related to properties and intangible assets $614,536 thousand in the

present and past years, which were recognized as deferred revenue. The deferred revenue is recognized as

follows: (1) if the grant is related to depreciable assets, it should be recognized as revenue over the asset

economic lives in proportion to the depreciation expenses for these assets; or (2) if the grant is related to

income, the grant amount should be deducted from the related expense when the revenue is realized.

The Group recognized government grant revenue $10,660 thousand and $19,702 thousand as of and for the

three months ended March 31, 2014 and 2013, respectively.

- 30 -

21. PROVISIONS

March 31, 2014

December 31,

2013 March 31, 2013

Current

Dismantling obligation $ 96,741 $ 93,897 $ 85,917

Product warranty 39,983 30,842 11,576

$ 136,724 $ 124,739 $ 97,493

Noncurrent

Dismantling obligation $ 705,850 $ 705,863 $ 653,718

Dismantling

Obligation

Product

Warranty

Balance at January 1, 2013 $ 733,552 $ 13,402

Additional provisions recognized 7,632 7,646

Reductions arising from payments (1,549) (9,472)

Balance at March 31, 2013 $ 739,635 $ 11,576

Balance at January 1, 2014 $ 799,760 $ 30,842

Additional provisions recognized 5,110 21,446

Reductions arising from payments (2,279) (12,305)

Balance at March 31, 2014 $ 802,591 $ 39,983

22. RETIREMENT BENEFIT PLANS

For defined benefit plans, employee benefit expenses were calculated using the actuarially determined

pension cost discount rate as of December 31, 2013 and 2012 and were recognized in their respective

periods.

The pension expenses were included in the following line items:


2014 2013

Operating cost $ 1,296 $ 1,278 Marketing expense 3,408 2,736 General and administrative expense 2,223 1,898 $ 6,927 $ 5,912

- 31 -

23. EQUITY

a. Share capital

1) Common shares

March 31, 2014

December 31,

2013 March 31, 2013

Shares authorized (in thousands) 4,200,000 4,200,000 4,200,000

Capital authorized $ 42,000,000 $ 42,000,000 $ 42,000,000

Issued and fully paid shares (in

thousands)

3,258,501 3,258,501 3,258,501

Issued capital $ 32,585,008 $ 32,585,008 $ 32,585,008

Share issuance in excess of par value 7,370,576 7,370,576 9,234,438

$ 39,955,584 $ 39,955,584 $ 41,819,446

Issued common shares, which have a par value of NT$10, are entitled to one vote per share and a

right to dividend.

2) Global depositary receipts.

Far EasTone’s global depositary receipts (GDRs) as of March 31, 2014 were as follows:

Equivalent

GDRs Common Stock

(In Thousand (In Thousand

Units) Shares)

Initial offering a) 10,000 150,000

Converted from overseas unsecured convertible

bonds

b) 165 2,473

Net decrease due to capital increase or capital

reduction

c) (362) (5,426)

Reissued within authorized units d) 23,817 357,255

GDRs transferred to common stock (33,155) (497,318)

Outstanding GDRs issued 465 6,984

a) On June 1, 2004, the Securities and Futures Bureau (SFB) approved Far EasTone’s request to

sell to foreign investors 150,000 thousand shares of Far EasTone’s common stock in the form of

10,000 thousand units of GDRs. One GDR unit represents 15 shares of Far EasTone’s

common stock. The issuance of the GDRs was completed on June 17, 2004 and the GDRs

were traded and listed on the Luxembourg Stock Exchange with a price of US$13.219 per unit.

b) On July 20, 2004, the SFB approved Far EasTone’s request to issue new common stock in the

form of GDRs amounting to US$114,500 thousand to be used for the conversion of overseas

convertible bonds. As of March 31, 2014, there had been 165 thousand units of GDRs issued

for the conversion of overseas unsecured convertible bonds representing 2,473 thousand

common shares.

- 32 -

c) In 2003, Far EasTone issued 296 thousand units of GDRs as a result of a capital increase from

capital surplus and retained earnings. The GDRs represent 4,448 thousand common shares.

Furthermore, in 2008, Far EasTone canceled 658 thousand units of GDRs as a result of its

capital reduction. These GDRs represent 9,874 thousand common shares.

d) Under the terms of the GDR offering, following the completion of an offering to the extent that

previously issued GDRs have been withdrawn, GDR re-issuance is allowed up to the aggregate

amount previously approved by the SFB. Thus, as of March 31, 2014, Far EasTone had

reissued 23,817 thousand units of GDRs representing 357,255 thousand common shares.

The owners of GDRs have the same rights as holders of common stock, except that the GDR

owners should exercise, through a depositary trust company, the following beneficial interests

subject to the terms of the Depositary Agreements and the relevant ROC laws and regulations:

a) Exercise voting rights;

b) Convert the GDRs into common stocks; and

c) Receive dividends and exercise preemptive rights or other rights and interests.

3) Share issuance for cash - private placement

On June 13, 2012, June 9, 2011, June 15, 2010 and June 16, 2009, the stockholders of Far EasTone

resolved to issue common shares by private placement to keep up with industry development trends

and to meet Far EasTone’s future operating needs. The subscriber for these privately placed

shares will be China Mobile Limited’s (“China Mobile) indirect 100% subsidiary incorporated in

the ROC. However, since the related regulations have not been approved and the resolution is

about to expire, the private placement cannot be completed before deadline. Thus, Far EasTone

terminated the share subscription agreement and signed a business cooperation framework

agreement with China Mobile on April 18, 2013. Under this agreement, Far EasTone and China

Mobile will continue exploring opportunities for long-term extensive cooperation in various areas

of the mobile communications business, and after the Taiwan laws and regulations permit

investment in Type I telecommunications enterprise by China investors, may re-explore the

possibility of share acquisition by China Mobile’s subsidiary.

b. Capital surplus

March 31, 2014

December 31,

2013 March 31, 2013

Share issuance in excess of par value $ 7,370,576 $ 7,370,576 $ 9,234,438

From business combination 8,482,381 8,482,381 8,482,381

Changes in equity-method associates capital

surplus

48,207 48,207 50,988

Difference between acquisition price and

carrying amount from equity transaction

17,933 17,933 22,242

$ 15,919,097 $ 15,919,097 $ 17,790,049

The capital surplus arising from shares issued in excess of par (including share premium from issuance

of common shares, conversion of bonds, and excess of the consideration received over the carrying

amount of the subsidiaries’ net assets during disposal or acquisition) may be used to offset a deficit. In

addition, when Far EasTone has no deficit, such capital surplus may be distributed as cash dividends or

transferred to share capital (limited to a certain percentage of Far EasTone’s capital surplus and once a

year). The capital surplus from long-term investments may not be used for any purpose.

- 33 -

c. Appropriation of earnings and dividend policy

Far EasTone’s Articles of Incorporation provide that, every year, 10% of net income less any

accumulated deficit should be appropriated as legal reserve. In addition, if Far EasTone decides to

distribute dividends, 1% to 2% of the balance should be appropriated as bonus to employees, and 1% of

the final balance should be appropriated as remuneration to directors and supervisors.

At least 50% of the balance of net income less accumulated deficit, legal reserve and special reserve

should be appropriated as dividends. The cash dividends should be at least 50% of total dividends

declared. The adjustment of this percentage may be approved by the stockholders depending on the

cash requirement for any significant future capital expenditures or plans to improve financial structure.

For the three months ended March 31, 2014 and 2013, the bonus to employees was $55,979 thousand

and $46,233 thousand, respectively, and the remuneration to directors and supervisors was $27,989

thousand and $23,116 thousand, respectively. The bonus to employees and remuneration to directors

and supervisors, representing 2% and 1% of net income (net of bonus and remuneration) less 10% legal

reserve and special reserve, respectively, were recognized for the three months ended March 31, 2014

and 2013, respectively. The amounts were estimated based on past experience. Material differences

between these estimates and the amounts proposed by the board of directors in the following year are

adjusted in the current year. If the actual amounts subsequently resolved by the stockholders differ

from the proposed amounts, the differences are recorded in the year of the stockholders’ resolution as a

change in accounting estimate. If a share bonus is resolved to be distributed to employees, the number

of shares is determined by dividing the amount of the share bonus by the closing price (after

considering the effect of cash and stock dividends) of the shares of the day immediately preceding the

stockholders’ meeting.

Far EasTone appropriated and reversed special reserve in accordance with Rule No. 1010012865 issued

by the FSC and the directive entitled “Questions and Answers for Special Reserves Appropriated

Following Adoption of IFRSs.” Distributions can be made out of any subsequent reversal of the debit to

other equity items. Far EasTone also appropriated and reversed special reserve in accordance with

Rule No. 1030006415 issued by the FSC.

Legal reserve may be used to offset a deficit. If Far EasTone has no deficit and the legal reserve

exceeds 25% of Far EasTone’s paid-in capital, the excess may be transferred to capital or distributed in

cash.

Except for non-ROC resident stockholders, all stockholders receiving the dividends are allowed a tax

credit equal to their proportionate share of the income tax paid by Far EasTone.

The appropriations of earnings, the bonus to employees and the remuneration to directors and

supervisors of 2013 and 2012 was resolved by Far EasTone’s board of directors on February 18, 2014

and approved by Far EasTone’s stockholders on June 13, 2013, respectively.

Appropriation and Distribution

Dividend Per Share

(Dollars)

2013 2012 2013 2012

Legal reserve $ 1,155,843 $ 1,059,991

Special reserve 107,032 -

Cash dividend 10,309,897 9,540,891 $ 3.164 $ 2.928

- 34 -

Years Ended December 31

2013 2012

Cash Stock Cash Stock

Bonuses to employees $ 205,911 $ - $ 190,798 $ -

Remuneration to directors and

supervisors 102,956 - 95,399 -

In addition to distributing cash dividends at NT$3.164 and NT$2.928 per share from unappropriated

earnings. The board of directors and stockholders resolved and approved to distribute cash of

$1,909,481 thousand and $1,863,862 thousand from the above-mentioned additional paid-in capital -

shares issuance in excess of par value at $0.586 and $0.572 per share, respectively. Therefore, Far

EasTone’s stockholders will receive $3.75 (projected) and received $3.5 per share in 2014 and 2013,

respectively.

There was no difference between the resolved and approved amounts of the bonus to employees and the

remuneration to directors and supervisors and the accrual amounts reflected in the financial statements

for the year ended December 31, 2013 and 2012.

Information on the bonus to employees and remuneration to directors and supervisors can be accessed

through the Market Observation Post System website of the Taiwan Stock Exchange Corporation’s

website.

d. Special reserves

Three Months

Ended March

31, 2014 Beginning balance $ - Appropriation in respect of

First-time application of the fair value method to investment

properties 648,717 Ending balance $ 648,717

On the initial application of fair value model to investment properties, Far EasTone appropriated for a

special reserve of $648,717 thousand, the same amount as the net increase that arose from fair value

measurement and was transferred to retained earnings.

- 35 -

e. Other equity items

Other adjustment for the three months ended March 31, 2014 and 2013 and are summarized as follows:

Exchange

Differences on

Translating

Foreign

Operations

Unrealized

Gains and

Losses on

Available-for-

sale Financial

Assets

Unrealized

Gains and

Losses on

Cash Flow

Hedge Total

Three months ended

March 31, 2014

Beginning balance $ (1,564) $ 49,319 $ (154,787) $ (107,032)

Recorded as adjustments to

stockholders’ equity 2 22,601 (13,973) 8,630

Recorded as profit or loss - 3,378 (3,825) (447)

Share of other comprehensive

income of associates - - (11,683) (11,683)

Ending balance $ (1,562) $ 75,298 $ (184,268) $ (110,532)

Three months ended

March 31, 2013

Beginning balance $ (1,925) $ 121,555 $ (22,311) $ 97,319

Recorded as adjustments to

stockholders’ equity (751) 109,909 (49,466) 59,692

Recorded as profit or loss - 13,915 (41,250) (27,335)

Share of other comprehensive

income of associates 2 - (23,567) (23,565)

Ending balance $ (2,674) $ 245,379 $ (136,594) $ 106,111

f. Noncontrolling interests


2014 2013

Beginning balance $ 774,838 $ 740,923

Impact on the first-time application of the fair value model to

investment properties

9,937 8,890

Adjusted beginning balance 784,775 749,813

Attributable to noncontrolling interests

Share of profit 38,356 27,489

Exchange differences on translating foreign operations (45) (358)

Unrealized gains on available-for-sale financial assets 154 -

Ending balance $ 823,240 $ 776,944

- 36 -

24. REVENUE


2014 2013

Sales of inventories $ 5,071,808 $ 4,684,197

Telecommunications service revenues 17,115,805 16,857,664

Other 676,872 543,926

$ 22,864,485 $ 22,085,787

25. CONSOLIDATED NET INCOME

Consolidated net income included some items as follows:

a. Other income


2014 2013

Interest revenue $ 14,034 $ 36,695

Government grant 10,660 19,702

Rent revenue 13,383 14,663

$ 38,077 $ 71,060

b. Depreciation and amortization


2014 2013

Property, plant and equipment $ 2,212,330 $ 2,190,312

Intangible asset 200,198 201,386

$ 2,412,528 $ 2,391,698

Depreciation expense categorized by function

Operating costs $ 1,984,857 $ 1,998,510

Operating expenses 227,473 191,802

$ 2,212,330 $ 2,190,312

Amortization expense categorized by function

Operating costs $ 79,151 $ 80,640

Marketing expense 20,303 19,250

General and administrative 100,744 101,496

$ 200,198 $ 201,386

- 37 -

c. Finance costs


2014 2013

Interest expense on bank loans $ 6,048 $ 6,018

Unwinding of discounts on provisions 3,794 3,300

Interest on financial liabilities carried at cost 71,843 -

Other finance costs 2,144 2,455

83,829 11,773

Less: Interest capitalized (interest rate 0.90%-0.91%) - (1,150)

$ 83,829 $ 10,623

d. Employee benefits expense


2014 2013

Retirement benefits (see Note 22)

Defined contribution plans $ 75,000 $ 82,085

Defined benefit plans 6,927 5,912

81,927 87,997

Other employee benefits

Salary 1,382,067 1,321,695

Insurance 118,908 73,206

Other 69,676 69,192

1,570,651 1,464,093

$ 1,652,578 $ 1,552,090

Categorized by function

Operating cost $ 259,927 $ 279,700

Operating expense 1,392,651 1,272,390

$ 1,652,578 $ 1,552,090

26. INCOME TAX

a. Income tax recognized in profit or loss


2014 2013

The major components of tax expense were as follows:

Current tax $ 608,637 $ 623,479

Deferred tax 49,624 2,769

Income tax recognized in profit or loss $ 658,261 $ 626,248

On April 9, 2014, the Ministry of Finance promulgated the amendments to the Assessment Rules

Governing Income Tax Returns of Profit-Seeking Enterprises, the Tax Ruling No. 10304540780, and

the amendments apply to the filing of income tax returns for 2013 onwards. The applications of such

amendments were not expected to have significant effect on current and deferred tax assets and

liabilities.

- 38 -

b. Income tax expense recognized in other comprehensive income


2014 2013

Deferred tax

Unrealized gains and losses on available-for-sale financial assets $ (783) $ (1,685)

Fair value changes of hedging instruments for cash flow hedges 565 (788)

Income tax recognized in other comprehensive income $ (218) $ (2,473)

c. Integrated income tax information is as follows:

March 31, 2014

December 31,

2013 March 31, 2013

Unappropriated earnings

Generated in and after 1997 $ 14,691,084 $ 12,229,862 $ 13,769,311

Balance of imputation credit account (ICA)

Far EasTone

$ 926,449 $ 926,449 $ 852,366

The creditable ratio for distribution of earnings of 2013 and 2012 was 18.25% (estimate) and 18.80%,

respectively.

Under the Income Tax Law, for distribution of earnings generated after January 1, 1998, the imputation

credits allocated to ROC resident stockholders of Far EasTone is calculated on the basis of the

creditable ratio as of the date of dividend distribution. The actual imputation credits allocated to

stockholders of Far EasTone was based on the balance of the Imputation Credit Accounts (ICA) as of

the date of dividend distribution. Therefore, the expected creditable ratio for the 2013 earnings may

differ from the actual creditable ratio to be used in allocating imputation credits to the stockholders.

According to legal interpretation No. 10204562810 announced by the Taxation Administration of the

Ministry of Finance, when calculating imputation credits in the year of first-time adoption of IFRSs, the

cumulative retained earnings include the net increase or net decrease in retained earnings arising from

first-time adoption of IFRSs.

d. Income tax assessments

Income tax returns through 2011, except for 2009, of Far EasTone had been assessed by the tax

authorities. However, Far EasTone disagreed with the tax authorities’ assessment of its 2005 to 2006

and 2010 to 2011 returns and applied for a reexamination. Nevertheless, Far EasTone accrued the

related tax.

Income tax returns through 2010, except for 2009, of KG Telecom (dissolved due to the merger with

Far EasTone on January 1, 2010) had been assessed by the tax authorities. However, Far EasTone

disagreed with the tax authorities’ assessment of its 2004 to 2008 returns and thus filed appeals for the

reexamination of these returns. Nevertheless, Far EasTone accrued the related tax.

Income tax returns through 2011 of ARCOA had been assessed by the tax authorities. However,

ARCOA disagreed with tax authorities’ assessment of its 2002 returns and thus filed administrative

litigation of these returns. Nevertheless, ARCOA accrued the related tax.

Income tax returns through 2008 of Digital United Inc. (DU) (dissolved due to the merger with NCIC

on March 16, 2009) had been assessed by the tax authorities.

- 39 -

Income tax returns through 2012 of Omusic, KGEx.com, Q-ware Com., DataExpress, Home Master and

Jing Yuan had been assessed and cleared by the tax authorities. Income tax returns through 2011 of

NCIC, ISSDU, Simple Infocomm, Yuan Cing, New Diligent and Linkwell also had been assessed and

cleared by the tax authorities. However, NCIC disagreed with tax authorities’ assessment of its 2009

returns and thus applied for a reexamination. Nevertheless, NCIC accrued the related tax.

27. EARNINGS PER SHARE

(New Taiwan Dollars)


2014 2013

Basic earnings per share $ 0.95 $ 0.85

Diluted earnings per share $ 0.95 $ 0.85

The earnings and weighted average number of common stock used in the calculation of basic earnings per

share are as follows:

Net Income


2014 2013

Net income attributable to Far EasTone $ 3,109,939 $ 2,782,518

Effect of dilutive potential common stock:

Bonus to employees - -

Earnings used in the calculation of diluted earnings per share $ 3,109,939 $ 2,782,518

Weighted Average Number of Common Shares Used

(In Thousand Share)


2014 2013

Weighted average number of common shares used in the calculation

of basic earnings per share 3,258,501 3,258,501

Effect of dilutive potential common stock:

Bonus to employees 4,310 3,598

Weighted average number of common shares used in the calculation

of diluted earnings per share 3,262,811 3,262,099

Since Far EasTone offered settle the bonus to employees by cash or shares, Far EasTone assumed that the

entire amount of the bonus would be settled in shares and the resulting potential shares were included in the

weighted average number of shares outstanding used in the calculation of diluted earnings per share, if the

effect was dilutive. Such dilutive effect of the potential shares was included in the calculation of diluted

earnings per share until the stockholders resolve the number of shares to be distributed to employees at their

meeting in the following year.

- 40 -

28. OPERATING LEASE ARRANGEMENTS

a. The Group as leasee

The future minimum lease payments of non-cancellable operating lease commitments were as follows:

March 31, 2014

December 31,

2013 March 31, 2013

Not later than 1 year $ 3,197,151 $ 3,188,222 $ 3,011,347

Later than 1 year and not later than 5 years 5,551,176 5,666,661 5,274,936

Later than 5 years 93,297 46,098 79,766

$ 8,841,624 $ 8,900,981 $ 8,366,049

The lease payments recognized as expenses were as follows:


2014 2013

Minimum lease payment $ 987,117 $ 846,691

b. The Group as lessor

Operating leases relate to the investment property owned by the Group please refer to Note 15.

29. FAIR VALUE OF FINANCIAL INSTRUMENTS

a. Fair value information

1) Fair value measurements recognized in the consolidated balance sheet

The following table provides an analysis of financial instruments that are measured after the initial

recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is

observable:

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active

markets for identical assets or liabilities;

Level 2 fair value measurements are those derived from inputs other than quoted prices included

within Level 1 that are observable for the asset or liability, directly (e.g., as prices) or indirectly

(e.g., derived from prices); and

Level 3 fair value measurements are those derived from valuation techniques that include inputs

for the asset or liability that are not based on observable market data (unobservable inputs).

- 41 -

March 31, 2014

Level 1 Level 2 Level 3 Total

Available-for-sale financial assets

Overseas funds $ - $ 658,529 $ - $ 658,529

Listed common stock 59,114 - - 59,114

Open-end mutual funds 20,520 - - 20,520

$ 79,634 $ 658,529 $ - $ 738,163

Hedging derivative financial liabilities

Cross-currency swap contracts $ - $ - $ 455 $ 455

Foreign exchange swap contracts - - 1,040 1,040

$ - $ - $ 1,495 $ 1,495

December 31, 2013



Overseas funds $ - $ 636,138 $ - $ 636,138



$ 70,172 $ 636,138 $ - $ 706,310

Hedging derivative financial assets

Cross-currency swap contracts $ - $ - $ 115 $ 115


$ - $ - $ 4,442 $ 4,442

March 31, 2013


Financial assets at FVTPL

Open-end mutual funds $ 215,826 $ - $ - $ 215,826


Overseas funds $ - $ 2,268,270 $ - $ 2,268,270



$ 134,529 $ 2,268,270 $ - $ 2,402,799

Hedging derivative financial liabilities

Cross-currency swap contracts $ - $ - $ 3,575 $ 3,575


$ - $ - $ 40,639 $ 40,639

There were no transfers of financial assets and liabilities between level 1 and level 2 for the three

months ended March 31, 2014 and 2013.

- 42 -

2) Reconciliation of Level 3 fair value measurements of financial assets:


2014 2013

Hedging derivative financial instruments

Beginning balance $ 4,442 $ 21,962

Total gains or losses

Recognized in profit or loss (3,825) (41,250)

Recognized in other comprehensive income (2,112) (21,351)

Ending balance $ (1,495) $ (40,639)

3) Valuation techniques and assumptions applied for the purpose of measuring fair value

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

a) The fair values of financial assets and financial liabilities with standard terms and conditions

and traded in active liquid markets are determined with reference to quoted market prices.

b) The fair values of derivative instruments are calculated using quoted prices. Where such

prices are not available, quoted spot exchange rate or a discounted cash flow analysis is

performed using quoted spot exchange rate or the applicable yield curve for the duration of the

instruments for non-optional derivatives.

c) The fair values of other financial assets and financial liabilities (excluding those described

above) are determined in accordance with generally accepted pricing models based on

discounted cash flow analysis.

Specifically, significant assumptions used in determining the fair value of the following

financial assets and liabilities are set out below.

Unlisted shares

The consolidated financial statements included holdings in unlisted shares with fair value under

significant volatility; the management believes that the fair value cannot be reliably measured;

therefore they were measured at cost less accumulated impairment at the end of reporting

period.

b. Financial instruments

March 31, 2014

December 31,

2013 March 31, 2013

Financial assets

Financial assets at FVTPL

Held for trading $ - $ - $ 215,826

Derivative financial assets for hedging - 4,442 -

Held-to-maturity financial assets 99,975 99,962 199,897

Loans and receivables (Note 1) 17,389,601 13,873,942 23,389,863

Available-for-sale financial assets 738,163 706,310 2,402,799

(Continued)

- 43 -

March 31, 2014

December 31,

2013 March 31, 2013

Financial liabilities

Derivative financial assets for hedging $ 1,495 $ - $ 40,639

Measured at amortized cost (Note 2) 35,369,223 37,119,862 14,831,106

(Concluded)

Note 1: The balances included the carrying amount of cash and cash equivalents, debt investments

with no active market, notes receivable, accounts receivable (including related parties), other

receivables (including related parties), refundable deposits, other financial assets and loans

and receivables measured at amortized cost.

Note 2: The balances included the carrying amount of short-term bank loans, short-term bills payable,

notes payable, accounts payable (including related parties), other payable (including related

parties), long-term bank loans (including current portion), payables for acquisition of

properties, financial lease payables, bonds payable and guarantee deposits received, which

were measured at amortization cost.

c. Financial risk management objectives

The Group’s Corporate Treasury function provides each business unit various services, such as

coordinating access to domestic and international financial markets and monitoring and managing

financial risks relating to the operations of the Group through internal risk reports that provide analysis

of exposures by degree and magnitude of risks. These risks include currency, interest rate, credit and

liquidity. In order to reduce financial risk, the Group is committed to identify, assess and avoid the

uncertainty of the market and reduce the market changes against the Group’s financial performance

potential downside effects.

The Group seeks to minimize the effects of these risks by using derivative financial instruments to

hedge risk exposures. The use of financial derivatives is governed by the Group’s policies approved

by the board of directors, which provide written principles managing on foreign exchange risk, interest

rate risk, credit risk, the use of financial derivatives and nonderivative financial instruments, and the

investment of excess liquidity. The compliance with policies and the control of exposure limits are

continually reviewed by the internal auditors on a continuous basis. The Group does not enter into or

trade financial instruments, including derivative financial instruments, for speculative purposes.

The Corporate Treasury function is reviewed by the Group’s board of directors in accordance with

related rules and internal control system. The Group should implement the overall financial

management objective as well as observe the levels of delegated authority and ensure that those with

delegated authority carry out their duties.

1) Market risk

The Group’s activities expose it primarily to the financial risks of changes in foreign currency

exchange rates (see Note (a) below) and interest rates (see Note (b) below). The Group manages

the risk of changes in the foreign currency exchange through cross-currency swap contracts and

foreign exchange swap contracts.

- 44 -

a) Foreign currency risk

Foreign-currency sensitivity analysis

The Group was mainly exposed to U.S. dollars.

The following table details the Group’s sensitivity to a 5% increase and decrease in the New

Taiwan dollar (NTD) against the U.S. dollar. The 5% sensitivity rate is used when reporting

foreign currency risk internally to key management personnel, and it represents management’s

basis for assessing the reasonable possible changes in foreign exchange rates for reasonableness.

The sensitivity analysis includes only outstanding foreign currency-denominated monetary

items, for which their translation at period end is adjusted for a 5% change in foreign currency

rates. The positive number shown in the currency impact table below indicates an increase in

profit or equity where the NTD strengthened 5% against the U.S. dollar. For a 5% weakening

of the NTD against U.S. dollar, shown by the negative amount below, there was a decrease in

profit or equity.

Impact


2014 2013

Profit or loss $ (8,431) $ (13,347)

b) Interest rate risk management

The Group is exposed to interest rate risk because entities in the Group borrow loans at both

fixed and floating interest rates. To manage this risk, the Group maintains an appropriate mix

of fixed and floating rate borrowings.

The carrying amount of the Group’s financial assets and financial liabilities with exposure to

interest rates at the end of the reporting period were as follows:

March 31, 2014

December 31,

2013 March 31, 2013

Fair value risk

Financial assets $ 6,925,146 $ 3,705,212 $ 13,718,369

Financial liabilities 22,077,658 21,790,825 1,616,777

Cash flow risk

Financial assets 3,781,394 2,896,907 2,996,297

Financial liabilities 913,887 1,369,869 364,908

Interest rate sensitivity analysis

The sensitivity analysis described below was based on the Group’s exposure to interest rates for

financial assets and financial liabilities at the end of the reporting period. An increase or

decrease of 25 basis points is used when reporting interest rate risk internally to key

management personnel and represents management’s assessment of the reasonably possible

change in interest rates. For the financial assets and financial liabilities with fixed interest rate,

their fair value will change as the market interest rates change. For the financial assets and

financial liabilities with floating interest rate, their effective interest rates will change as the

market interest rates change.

- 45 -

Had interest rates been 25 basis points higher/lower and all other variables been held constant,

the income before income tax for the three months ended March 31, 2014 and 2013 would have

increased/decreased by $1,792 thousand and $1,645 thousand, respectively, mainly because

bank deposits and borrowings had floating interest rates.

c) Other price risks

The Group is exposed to equity price risks involving equity investments in listed companies and

beneficial certificates. The Group managed the risk by holding a portfolio of investments with

different risk. In addition, the Group has appointed a special team to monitor the price risk and

will consider hedging the risk exposure should need arise.

Sensitivity analysis

The following sensitivity analysis was based on the exposure to equity price risks at the end of

the reporting period.

Had equity prices been 5% higher/lower, the fair value of held-for-trading and available-for-sale

financial assets as of March 31, 2014 and 2013 would have increased/decreased by $36,908

thousand and $130,931 thousand, respectively.

2) Credit risk

Credit risk refers to the risk that a counter-party will default on its contractual obligations, resulting

in financial loss to the Group. As at the end of the reporting period, the Group’s maximum

exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an

obligation by the counterparties and financial guarantees provided by the Group is arising from:

a) The carrying amount of the respective recognized financial assets as stated in the condensed

balance sheets; and

b) The amount of contingent liabilities in relation to financial guarantee issued by the Group.

The Group has a policy of dealing only with creditworthy counterparties. The credit line of those

counterparties were granted through credit analysis and investigation based on the information

supplied by independent rating agencies. The counterparties transaction type, financial position

and collateral are also taken into consideration. All credit lines have expiration dates and are

subject to reexamination before any granting of extensions.

Accounts receivables consist of a large number of customers, spread across diverse industries and

geographical areas. On going credit evaluation is performed on the financial condition of accounts

receivable.

3) Liquidity risk

The Group manages liquidity risk by monitoring and maintaining a level of cash and cash

equivalents deemed adequate to finance the Group’s operations and mitigate the effects of

fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings

and ensures compliance with loan covenants.

The Group’s had unused overdraft and short-term bank loan facilities amounting to $38,523,278

thousand, $34,303,078 thousand and $28,219,120 thousand as of March 31, 2014, December 31,

2013 and March 31, 2013, respectively.

- 46 -

The table below summarizes the maturity profile of the Group’s financial liabilities based on

undiscounted contractual payments but did not include the financial liabilities with carrying

amounts that approximated contractual cash flows:

March 31, 2014

Carry Value

Contractual

Cash Flows Within 1 Year 1-5 Years More than

5 Years

Short-term borrowings $ 516,081 $ 519,393 $ 519,393 $ - $ -

Short-term bills payable 669,501 670,000 670,000 - -

Long-term borrowings

(including current portion) 1,093,887 1,114,520 104,787 1,009,733 -

Bonds payable 19,967,538 21,397,080 279,620 15,300,400 5,817,060

$ 22,247,007 $ 23,700,993 $ 1,573,800 $ 16,310,133 $ 5,817,060

December 31, 2013

Carry Value

Contractual


5 Years

Short-term borrowings $ 1,804,122 $ 1,809,931 $ 1,809,931 $ - $ -



(including current portion) 99,869 100,359 100,359 - -

Bonds payable 19,965,600 21,397,080 279,620 15,300,400 5,817,060

$ 22,389,165 $ 23,827,370 $ 2,709,910 $ 15,300,400 $ 5,817,060

March 31, 2013

Carry Value

Contractual


5 Years

Short-term borrowings $ 861,007 $ 865,208 $ 865,208 $ - $ -



(including current portion) 105,901 108,019 108,019 - -

$ 1,216,659 $ 1,223,227 $ 1,223,227 $ - $ -

30. TRANSACTIONS WITH RELATED PARTIES

Balances and transactions between Far EasTone and its subsidiaries, which are related parties of Far

EastTone, have been eliminated on consolidation and are not disclosed in this note. Details of transactions

between the Group and other related parties are disclosed below.

a. Operating revenue


2014 2013

Far Eastern New Century $ 6,857 $ 6,677

Subsidiaries of Far Eastern New Century 35,768 188,022

Other related parties 42,512 30,670

$ 85,137 $ 225,369

- 47 -

Operating revenues from related parties include revenue from sales of inventories, telecommunication

service, leased circuit, storage service and customer service, of which the terms and conditions

conformed to normal business practice.

b. Operating costs and expenses

Three Months Ended March 31 2014 2013

Cost of telecommunications service

Subsidiaries of Far Eastern New Century $ 769 $ 1,187

Other related parties 726 703

$ 1,495 $ 1,890

Rental (including in operating cost)

Far Eastern New Century $ 281 $ 240



$ 5,456 $ 5,373

Rental (including in operating expense)

Far Eastern New Century $ 701 $ 671



$ 73,969 $ 52,871

Marketing expense

Far Eastern New Century $ - $ 3


Other related parties 2,488 668

$ 12,676 $ 13,951

Service fee

Far Eastern New Century $ 155 $ -


Other related parties 31 30

$ 43,011 $ 34,551

Other expense

Far Eastern New Century $ 15,333 $ 15,201

Subsidiaries of Far Eastern New Century - 1


$ 16,673 $ 17,224

The above companies provide telecommunication services to the Group. The terms and conditions

conformed to normal business practice.

All the terms and conditions of above rental contract conformed to normal business practice.

- 48 -

c. Property transactions


Acquisition of properties, plants and equipment

Subsidiaries of Far Eastern New Century $ 711 $ 3,531

Acquisition of available-for-sale financial assets

Other related parties $ - $ 534,600

Disposal of available-for-sale financial assets

Other related parties $ - $ 254,730

The fund transaction between the Group and Opas Fund Segregated Porfolio Company (“Opas

Company”), was carrying out investment to acquisition and disposal the overseas fund including Opas

Fund Segregated Porfolio Tranche “B”, “C”, “D”, “E”, through the trading platform of Opas Company.

The decisions on overseas mutual funds with different tranches were made by the investment committee

which is formed with the Group and other investors. During the three months ended March 31, 2013,

the Group acquired funds for $534,600 thousand, and the Group disposed of funds with carrying

amounts of $238,725 thousand. The disposal proceeds were $254,730 thousand, and the gains on fund

disposal were $16,005 thousand.

d. Bank deposits

March 31, 2014

December 31,

2013 March 31, 2013

Other related parties $ 3,776,799 $ 3,005,850 $ 6,120,700

The Group had bank deposits in Far Eastern International Bank (FEIB). These deposits included the

proceeds of Far EasTone’s sale of prepaid cards and NCIC’s sale of international calling cards, which

were consigned to FEIB as trust fund, which were included in other financial assets - current.

e. Hedging derivative financial assets (liabilities) - current

March 31, 2014

December 31,

2013 March 31, 2013

Other related parties $ (590) $ 1,275 $ (11,500)

NCIC entered into foreign exchange swap contracts with FEIB to hedge against cash flow fluctuation

on its foreign currency-denominated assets. The notional amounts were US$5,000,000 as of March

31, 2014 and December 31, 2013, and US$20,000,000 as of March 31, 2013. Related expenses were

treated as financial cost.

- 49 -

f. Receivables and payables - related parties

March 31, 2014

December 31,

2013 March 31, 2013

Accounts receivable - related parties

Far Eastern New Century $ 384 $ 1,739 $ 223

Subsidiaries of Far Eastern New Century 41,190 138,569 178,295

Other related parties 105,357 171,199 103,496

$ 146,931 $ 311,507 $ 282,014

Other receivable - related parties (included in

other current assets)

Far Eastern New Century $ - $ - $ 20



$ 39,294 $ 14,859 $ 19,324

Accounts payable - related parties (included

in accounts payable)

Subsidiaries of Far Eastern New Century $ 525 $ 708 $ 2,384

Other related parties 1,450 589 1,234

$ 1,975 $ 1,297 $ 3,618

Other payables - related parties (included in

other current liabilities)

Far Eastern New Century $ 38,239 $ 35,269 $ 27,755



$ 94,726 $ 105,504 $ 88,810

g. Refundable deposits

March 31, 2014

December 31,

2013 March 31, 2013

Refundable deposits

Subsidiaries of Far Eastern New Century $ 67,966 $ 100,593 $ 66,939


$ 69,597 $ 102,653 $ 68,307

h. Others


Interest revenue

Subsidiaries of Far Eastern New Century $ 4 $ 4


$ 9,385 $ 17,901

- 50 -


Rent revenue

Subsidiaries of Far Eastern New Century $ 2,725 $ 2,915

Other related parties 789 1,178

$ 3,514 $ 4,093

Finance costs

Other related parties $ 652 $ 517

All the terms and conditions of the above rental contracts conformed to normal business practice.

i. Compensation of key management personnel

The remuneration of directors and other members of key management personnel during the three

months ended March 31, 2014 and 2013 were as follows:


2014 2013

Short-term benefits $ 114,554 $ 113,537

Post-employment benefits 714 769

$ 115,268 $ 114,306

The remuneration of directors and key management personnel is determined by the remuneration

committee having regard to the performance of individuals and market trends.

31. ASSETS PLEDGED OR MORTGAGED

Assets pledged or mortgaged, i.e., used as collaterals for the purchase of inventory and for transaction with

financial institution and undertaking government projects, were as follows:

March 31, 2014

December 31,

2013 March 31, 2013

Other financial assets - current $ 212,570 $ 212,570 $ 207,117

Other financial assets - noncurrent 39,410 49,894 55,788

Properties, plants and equipment, net - - 493,257

$ 251,980 $ 262,464 $ 756,162

- 51 -

32. SIGNIFICANT CONTINGENCIES AND UNRECOGNIZED COMMITMENTS

In addition to those disclosed in other notes, significant commitments and contingencies of the Group as of

March 31, 2014, December 31, 2013 and March 31, 2013 were as follows:

a.

March 31, 2014

December 31,

2013 March 31, 2013

Acquisition of property, plant and equipment

under contracts $ 6,537,217 $ 7,109,272 $ 5,262,447

Less: Payments for acquisition of property,

plant and equipment 1,255,767 881,415 1,016,541

$ 5,281,450 $ 6,227,857 $ 4,245,906

Acquisition of cellular phone equipment

under contract $ 12,310,801 $ 10,687,933 $ 5,272,479

Less: Payments for acquisition of cellular

phone equipment 6,259,024 5,596,581 4,339,724

$ 6,051,777 $ 5,091,352 $ 932,755

b. The Group provided a $100,000 thousand bank guarantee for its purchases as of March 31, 2014,

December 31, 2013 and March 31, 2013, respectively.

c. Far EasTone provided a guarantee for Q-ware Com.’s bank loans of $0 thousand, $0 thousand and

$160,720 thousand as of March 31, 2014, December 31, 2013 and March 31, 2013, respectively.

33. EXCHANGE RATE OF FINANCIAL ASSETS AND LIABILITIES DENOMINATED IN

FOREIGN CURRENCIES

The significant financial assets and liabilities denominated in foreign currencies were as follows:

(In Thousands, Except Exchange Rate)

March 31, 2014

Foreign

Currencies Exchange Rate

New Taiwan

Dollars

Financial assets

Monetary items

USD $ 25,653 30.47 $ 781,657

Nonmonetary items

USD 21,612 30.47 658,529


Monetary items

USD 20,120 30.47 613,041

- 52 -

December 31, 2013

Foreign


New Taiwan

Dollars

Financial assets

Monetary items

USD $ 24,551 29.805 $ 731,731

Nonmonetary items

USD 21,343 29.805 636,138


Monetary items

USD 18,593 29.805 554,343

March 31, 2013

Foreign


New Taiwan

Dollars

Financial assets

Monetary items

USD $ 32,232 29.825 $ 961,089

Nonmonetary items

USD 76,053 29.825 2,268,270


Monetary items

USD 23,282 29.825 694,376

34. ADDITIONAL DISCLOSURES REQUIRED BY THE SECURITIES AND FUTURES BUREAU

a. Important transactions and b. information on the Group’s investees

1) Financing provided: Schedule A

2) Endorsement/guarantee provided: Schedule B

3) Marketable securities held (excluding investment in subsidiaries, associates and joint controlled

entities): Schedule C

4) Marketable securities acquired or disposed posed of at costs or prices of at least NT$300 million or

20% of the paid-in capital: None

5)Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital:

None

6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital:

None

7) Total purchase from or sale to related parties amounting to at least NT$100 million or 20% of the

paid-in capital: Schedule D

- 53 -

8)Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital:

Schedule E

9) Trading derivative transactions: Note 8

10) Significant transactions between Far EasTone and its subsidiaries and among subsidiaries:

Schedule F

11) Names, locations, and related information of investees on which Far EasTone exercises significant

influence: Schedule G

c. Investment in Mainland China

1) Name of the investees in Mainland China, main businesses and products, paid-in capital, method of

investment, information on inflow or outflow of capital, percentage of ownership, investment

income or loss, ending balance of investment, dividends remitted by the investee, and the limit of

investment in Mainland China: Schedule H

2) Any of the following significant transactions with investee companies in mainland China, either

directly or indirectly through a third area, and their prices, payment terms, and unrealized gains or

losses: Schedule G

a) The amount and percentage of purchases and the balance and percentage of the related payables

at the end of the period.

b) The amount and percentage of sales and the balance and percentage of the related receivables at

the end of the period.

c) The amount of property transactions and the amount of the resultant gains or losses.

d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the

end of the period and the purposes.

e) The highest balance, the end of period balance, the interest rate range, and total current period

interest with respect to financing of funds.

f) Other transactions that have material effect on profit or loss or financial position, such as

rendering or receive service.

35. SEGMENT INFORMATION

Products and services form which reportable segments derivative revenues:

The information provided to the Group’s chief operating decision maker in order to allocate resources to the

segments and assess their performance focuses on the type of goods or services delivered or provided. As

required by IFRS 8 - “Operating Segments,” the Group defined its operating segments as follows:

a. Mobile services business: Providing mobile telecommunications services;

b. Fixed-line services business: Providing international direct dial, local network, long-distance network

and broadband access services;

c. Sales business: Selling cellular phones, computers and accessories;

- 54 -

Segment operating income represented the profit generated by each operating segment, which included

specifically attributable segment revenue, interest revenue, other revenue, equity in investees’ net losses,

interest expense, other expense and general and administrative expense. The profits were the measure

reported to the chief operating decision marker to allocate resources to the segments and assess their

performance. However, the measure of segment assets was not provided to the chief operating decision

maker.

The Group’s revenues and operating results were analyzed by the operating segments as follows:


Mobile Services

Business

Fixed-line

Services Business Sales Business

Adjustment and

Elimination Consolidation

Revenues generated from external

customers

$ 15,112,034 $ 2,606,515 $ 5,145,936 $ - $ 22,864,485

Revenues generated from the Group (Note)

319,717 707,702 - (1,027,419 ) -

Total revenues $ 15,431,751 $ 3,314,217 $ 5,145,936 $ (1,027,419 ) $ 22,864,485

Segment operating income $ 3,300,128 $ 508,715 $ 509,622 $ (511,909 ) $ 3,806,556


Mobile Services

Business

Fixed-line

Services Business Sales Business

Adjustment and

Elimination Consolidation

Revenues generated from external customers

$ 14,731,669 $ 2,612,305 $ 4,741,813 $ - $ 22,085,787

Revenues generated from the Group

(Note)

337,693 546,580 48 (884,321 ) -

Total revenues $ 15,069,362 $ 3,158,885 $ 4,741,861 $ (884,321 ) $ 22,085,787

Segment operating income $ 3,045,708 $ 401,047 $ 410,623 $ (421,123 ) $ 3,436,255

Note: Represents sales between segments.

- 55 -

SCHEDULE A


FINANCING PROVIDED

THREE MONTHS ENDED MARCH 31, 2014


No. Lender Borrower

Financial

Statement

Account

Related Party Highest Balance for

the Period Ending Balance

Actual Borrowing

Amount Interest Rate Nature of Financing

Business

Transaction

Amounts

Reasons for

Short-term Financing

Allowance for

Impairment Loss

Collateral Financing Limit for

Each Borrower

(Notes A and B)

Aggregate

Financing Limits

(Notes A and B) Item Value

0 Far EasTone

Telecommunications Co., Ltd.

Q-ware

Communications Co., Ltd.

Other receivables -

related parties

Yes $ 250,000 $ 250,000 $ 241,000 1.63%-1.64% Short-term financing $ - For business operations $ - - $ - $ 7,655,632 $ 11,483,448

1 New Century InfoComrn Co., Ltd.

Far EasTone Telecommunicati

ons Co., Ltd.

Other receivables - related parties

Yes 2,200,000 2,200,000 2,200,000 1.14% Short-term financing - For business operations - - - 2,358,446 3,537,668

Far EasTone Telecommunicati

ons Co., Ltd.

Other receivables - related parties

Yes 3,000,000 3,000,000 3,000,000 1.14% Transaction 3,392,474 - - - - 3,392,474 11,792,228

Note A: The maximum total financing provided amount for short-term financing should not exceed 15% of Far EasTone’s net worth of most current audited or reviewed financial statements; while the amount of financing provided to each counterparty should not exceed 10% of Far EasTone’s net worth of the most current audited or

reviewed financial statements.

Note B: Where New Century InfoComrn Co., Ltd. (‘NCIC’) provides loans for business transactions and short-term financing needs, the amount of loans is limited to the total amount of business transactions and 50% of NCIC’s net worth. A) For business transactions: The individual loan amount should not exceed the amount of

business transaction amount between two parties. B) For short-term financing needs, the individual loan amount and the aggregate amount of loans should not exceed 10% and 15%, respectively, of NCIC’s net worth.

- 56 -

SCHEDULE B


ENDORSEMENT/GUARANTEE PROVIDED



No. Endorser/Guarantor

Endorsee/Guarantee Limits on

Endorsement/

Guarantee

Amount Given

on Behalf of

Each Party

(Note)

Maximum

Amounts

Endorsed/

Guaranteed

During the

Period

Outstanding

Endorsement/

Guarantee at the

end of the

Period

Actual

Appropriation

Amount

Endorsed/

Guaranteed by

Collaterals

Ratio of

Accumulated

Endorsement/

Guarantee to

Net Equity In

Latest Financial

Statements

(%)

Aggregate

Endorsement/

Guarantee Limit

Endorsement/

Guarantee

Given by Parent

on Behalf of

Subsidiaries

Endorsement/

Guarantee

Given by

Subsidiaries on

Behalf of Parent

Endorsement/

Guarantee

Given On behalf

of Companies in

Mainland China

Name Relationship

0 Far EasTone Telecommunications KGEx.com Co., Ltd. Subsidiary $ 38,278,161 $ 45,000 $ 45,000 $ 6,035 $ - 0.06 $ 76,556,322 Yes - -

Co., Ltd.

Note A: The maximum total endorsement/guarantee amount was equal to Far EasTone’s net worth, while the limit of endorsement/guarantee amount for each counterparty should not exceed 50% of Far EasTone’s net worth.

- 57 -

SCHEDULE C


MARKETABLE SECURITIES HELD

MARCH 31, 2014


Holding Company Name Type and Name of Marketable Securities Relationship with the

Holding Company Financial Statement Account

March 31, 2014

Note Shares

Carrying Amount

(Note F)

Percentage of

Ownership

(%)

Fair Value

Far EasTone Telecommunications Stocks

Co., Ltd. ACC Same chairman Available-for-sale financial assets - current 1,555,632 $ 59,114 - $ 59,114 Note A

Overseas funds

Opas Fund Segregated Portfolio Tranche D Other related parties Available-for-sale financial assets - current 5,000 170,299 - 170,299 Note B

Bonds

Asia Cement Corporation 1st Unsecured

Corporation Bond Issue in 2009

Same chairman Held-to-maturity financial assets - current 100.00 99,975 - 100,500 Note C

ARCOA Communication Co., Stock

Ltd. THI consultants - Financial assets carried at cost - noncurrent 1,213,594 12,190 18.32 - Note D

VIBO Telecom Inc. - Financial assets carried at cost - noncurrent 123,071 - 0.004 - Note D

Chunghwa Int’l Communication Network

Co., Ltd.

- Financial assets carried at cost - noncurrent 2,086,854 6,714 3.98 - Note D

Web Point Co., Ltd. - Financial assets carried at cost - noncurrent 160,627 1,618 0.63 - Note D

Funds

Franklin Templeton SinoAm Global High

Yield Bond Fund

- Available-for-sale financial assets - current 1,770,300.3 20,520 - 20,520 Note B

New Century InfoComm Tech Stock

Co., Ltd. Kaohsiung Rapid Transit Corporation - Financial assets carried at cost - noncurrent 8,858,191 50,000 3.18 - Note D

Bank Pro E-service Technology Co., Ltd. - Financial assets carried at cost - noncurrent 450,000 4,500 3.33 - Note D

Overseas funds

Opas Fund Segregated Portfolio Tranche B Other related party Available-for-sale financial assets - current 11,499.399 488,230 - 488,230 Note B

Note A: The calculation of domestic publicly traded stocks was based on the closing price as of March 31, 2014.

Note B: The market values of open-end mutual funds were calculated at their net asset values as of March 31, 2014.

Note C: The calculation of the market value of bonds was based on the volume-weighted average price on the GreTai Securities exchange as of March 31, 2014.

Note D: The fair value of financial assets carried at cost were not disclosed due to it can’t be reliably measured.

- 58 -

SCHEDULE D


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



Purchaser (Seller) of Goods Related Party Nature of

Relationship

Transaction Details Abnormal Transaction Notes/Accounts Receivable or (Payable)

Purchase (Sale) Amount % to

Total Payment Terms Unit Price Payment Terms Ending Balance

% to

Total

Far EasTone Telecommunications Co.,

Ltd.

ARCOA Communication Co., Ltd. Subsidiary Cost of telecommunications services,

marketing expenses and cost of

sales

$ 2,830,592 20 Based on agreement $ - - Accounts payable and $ (877,616)

accrued expense

(10)

Operating revenues (140,014) (1 ) Based on agreement - - Accounts receivable 247,786 4

New Century InfoComm Tech Co., Ltd. Subsidiary Operating revenues (278,023) (1 ) Based on agreement - - Accounts receivable 2,573 -

Cost of telecommunications services 685,303 6 Based on agreement - - Accounts payable and (432,696)

accrued expense (Note A)

(5)

New Century InfoComm Tech Co., Ltd. Far EasTone Telecommunications Co., Ltd. Parent company Operating revenues (685,303) (21 ) Based on agreement - - Accounts receivable (Note B) 432,696 38

Cost of telecommunications services 278,023 12 Based on agreement - - Accounts payable (2,573) -

ARCOA Communication Co., Ltd. Far EasTone Telecommunications Co., Ltd. Parent company Operating revenues (2,830,592) (62 ) Based on agreement - - Accounts receivable 877,616 79

Cost of sales and cost of

telecommunication services

140,014 3 Based on agreement - - Accounts payable (247,786) (21)

Note A: All interconnect revenues, costs and collection of international direct dial revenues between Far EasTone and NCIC were settled at net amounts and were included in accounts payable - related parties.

Note B: Including the receivables collected by Far EasTone for NCIC.

- 59 -

SCHEDULE E


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

MARCH 31, 2014


Company Name Related Party Relationship Ending Balance Turnover

Rate

Overdue Amounts

Received in

Subsequent Period

Allowance for

Impairment Loss Amount Action Taken

Far EasTone Telecommunications ARCOA Communication Co., Ltd. Subsidiary $ 250,613 11.24 $ - - $ 216,767 $ -

Co., Ltd. New Century InfoComm Tech Co.,

Ltd.

Subsidiary 282,602 (Note A) - - 98,007 -

Q-ware Communications Co., Ltd. Subsidiary 273,618 (Note B) - - 248,253 -

New Century InfoComm Tech Co.,

Ltd.

Far EasTone Telecommunications

Co., Ltd.

Parent company 5,732,040 (Note C) - - 216,390 -

ARCOA Communication Co., Ltd. Far EasTone Telecommunications

Co., Ltd.

Parent company 877,616 11.36 - - 783,821 -

Note A: The turnover rate was unavailable as the receivables from related parties were mainly due to the advances made for NCIC’s daily operating expenditures and the management service charges to NCIC.

Note B: The turnover rate was unavailable as the receivables from related parties were mainly due to financing provided for Q-ware by Far EasTone.

Note C: The turnover rate was unavailable as the receivables from related parties were due to the collection of telecommunications bills by Far EasTone for NCIC.

- 60 -

SCHEDULE F


SIGNIFICANT TRANSACTIONS BETWEEN FAR EASTONE AND SUBSIDIARIES



Number

(Note A) Company Name Counter Party

Flow of

Transactions

(Note B)

Transaction Details

Financial Statement Account Amount Payment Terms

% to Consolidated

Assets/Revenue

(Note C)

0 Far EasTone Telecommunications Co., Ltd. New Century InfoComm Tech Co., Ltd. 1 Accounts receivable - related parties $ 2,573 Note F -

Other receivables - related parties 280,029 Note F -

Refundable deposits 3,517 Note F -

Accounts payable - related parties 165,515 Note F -

Other payables - related parties 5,566,525 Note F 5

Telecommunications service revenues 278,023 Note F 1

Cost of telecommunications services 685,303 Note F 3

Rental 3,994 Note F -

Telephone fee 10,132 Note F -

Marketing expense 3,003 Note F -

Rent 10,031 Note F -

Management services revenue 13,094 Note F -

Interest expense 14,617 Note F -

ARCOA Communication Co., Ltd. 1 Accounts receivable - related parties 247,786 Note F -


Accounts payable - related parties 751,932 Note F 1

Other payables - related parties 125,684 Note F -

Unearned revenues 181,837 Note F -

Sales of inventories, net 115,499 Note F -

Telecommunications service revenues 24,515 Note F -

Cost of sales 2,594,350 Note F 2

Cost of telecommunications services 24,500 Note F -

Marketing expense 211,742 Note F 1


Telephone fee 676 Note F -

Nonoperating income and gains 349 Note F -

KGEx.com Co., Ltd. 1 Accounts receivable - related parties 23,811 Note F -


Lease receivables 24,684 Note F -

Refundable deposits 898 Note F -




Marketing expense 312 Note F -

Telephone fee 2,044 Note F -



(Continued)

- 61 -

Number


Flow of

Transactions

(Note B)

Transaction Details


% to Consolidated

Assets/Revenue

(Note C)

Yuan Cing Co., Ltd. 1 Other receivables - related parties $ 6,579 Note F -



Q-ware Communications Co., Ltd. 1 Accounts receivable - related parties 23,241 Note F -






Nonoperating income and gains 1,376 Note F -

DataExpress Infotech Co., Ltd. 1 Accounts receivable - related parties 1 Note F -

Other receivables - related parties 619 Note F -


Telecommunications service revenues 2 Note F -


Cost of sales 7,260 Note F -


Omusic Co., Ltd. 1 Accounts receivable - related parties 22 Note F -






Linkwell Tech. Ltd. 1 Telecommunications service revenues 50 Note F -


Home Master Technology Ltd. 1 Marketing expense 1 Note F -

Sino Lead Enterprise Limited 1 Other payables - related parties 5,740 Note F -

Information Security Services Digital United 1 Accounts receivable - related parties 65 Note F -

Inc. Other receivables - related parties 88 Note F -

Accounts payable - related parties 401 Note F -

Other payables - related parties 122 Note F -

Telecommunications service revenue 187 Note F -

Cost of telecommunications services 401 Note F -

General and administrative expenses 210 Note F -


Far Eastern New Diligent Company Ltd. 1 Other receivables - related parties 349 Note F -

Far Eastern New Century Information

Technology (Beijing) Limited

1 Other receivables - related parties 29,444 Note F -

HIIIR Inc. 1 Other receivables - related parties 172 Note F -



General and administrative expenses 50,144 Note F -


1 New Century InfoComm Tech Co., Ltd. ARCOA Communication Co., Ltd. 3 Accounts receivable - related parties 87 Note F -



(Continued)

- 62 -

Number


Flow of

Transactions

(Note B)

Transaction Details


% to Consolidated

Assets/Revenue

(Note C)

Telecommunications service revenues $ 255 Note F -


Telephone fee 715 Note F -

Marketing expenses 2 Note F -

KGEx.com Co., Ltd. 3 Accounts receivable - related parties 2,027 Note F -






Q-ware Communications Co., Ltd. 3 Accounts receivable - related parties 3,286 Note F -

Guarantee deposits received 720 Note F -





Marketing expenses 1,168 Note F -


Omusic Co., Ltd. 3 Telecommunications service revenues 9 Note F -


Sino Lead Enterprise Limited 3 Accounts payable - related parties 67,536 Note F -


Information Security Services Digital United 3 Accounts receivable - related parties 1,444 Note F -

Inc. Guarantee deposits received 990 Note F -




Cost of sales 971 Note F -

Other operating costs 4,877 Note F -


Digital United Information Technologies

(Shanghai) Co., Ltd.

3 Accounts receivable - related parties 1,087 Note F -


HIIIR Inc. 3 Accounts receivable - related parties 21 Note F -


Nonoperating income and gains 1,015 Note F

DataExpress Infotech Co., Ltd. 3 Accounts receivable - related parties 8 Note F -


Linkwell Tech. Ltd. 3 Accounts receivable - related parties 2 Note F -


Home Master Technology Ltd. 3 Accounts receivable - related parties 5 Note F -


2 ARCOA Communication Co., Ltd. KGEx.com Co., Ltd. 3 Other payables - related parties 217 Note F -

General and administrative expenses 630 Note F -

DataExpress Infotech Co., Ltd. 3 Accounts payables - related parties 8,139 Note F -


(Continued)

- 63 -

Number


Flow of

Transactions

(Note B)

Transaction Details


% to Consolidated

Assets/Revenue

(Note C)

Linkwell Tech. Ltd. 3 Accounts receivable - related parties $ 10,823 Note F -

Deferred credits - gain on inter-company transactions 892 Note F -



Realized intercompany gain 536 Note F -

Home Master Tech. Ltd. 3 Accounts receivable - related parties 11,023 Note F -


Other operating revenues 9 Note F -

HIIIR Inc. 3 Sales of inventories, net 331 Note F -

3 KGEx.com Co., Ltd. (Note E) Q-ware Communications Co., Ltd. 3 Accounts receivable - related parties 13 Note F -


4 DataExpress Infotech Co., Ltd. (Note E) Linkwell Tech. Ltd. 3 Accounts receivable - related parties 3,913 Note F -


Sales of inventories, net 156 Note F -



General and administrative expense 1 Note F -

Home Master Tech. Ltd. 3 Accounts receivable - related parties 2,100 Note F -



5 Linkwell Tech. Ltd. (Note E) Home Master Tech. Ltd. 3 Accounts payable - related parties 19 Note F -

Sales of inventories, net 820 Note F -


Note A: Parties to the intercompany transactions are identified and numbered as follows:

1. “0” for Far EasTone Telecommunications Co., Ltd. (“Far EasTone”).

2. Subsidiaries are numbered from “1”.

Note B: The flow of related-party transactions is as follows:

1. From the parent company to its subsidiary.

2. From a subsidiary to its parent company.

3. Between subsidiaries.

Note C: For assets and liabilities, amount is shown as a percentage to consolidated total assets as of March 31, 2014; while revenues, costs and expenses are shown as a percentage to consolidated total operating revenues for the three months

ended March 31, 2014.

Note D: The information shown in the schedule is equivalent to the eliminated material intercompany transactions.

Note E: The information was based on unreviewed financial statements as of March 31, 2014.

Note F: Payment terms varied depending on the related agreements.

(Concluded)

- 64 -

SCHEDULE G


INFORMATION ON INVESTEES



Investor Company Investee Company Location Main Businesses and Products

Original Investment Amount As of March 31, 2014 Net Income (Loss)

of the Investee

Share of Profit

(Loss) Note

March 31, 2014 December 31, 2013 Shares Percentage of

Ownership (%) Carrying Amount

Far EasTone Telecommunications Co., Ltd. New Century InfoComm Tech Co., Ltd. Taiwan Type I, II telecommunications services $ 22,249,283 $ 22,249,283 2,100,000,000 100.00 $ 25,809,546 $ 512,798 $ 565,914 Notes A and B

ARCOA Communication Co., Ltd. Taiwan Type II telecommunications services, sales of communications products and office

equipment

1,295,035 1,295,035 82,009,242 61.07 1,344,501 84,841 49,490 Notes A and B

KGEx.com Co., Ltd. Taiwan Type II telecommunications services 2,540,442 2,540,442 112,391,414 99.99 861,246 6,015 6,014 Notes A and D Far Eastern Info Service (Holding) Ltd. Bermuda Investment 92,616 92,616 1,200 100.00 (257 ) (5,991 ) (5,991 ) Notes A and D

Yuan Cing Co., Ltd. Taiwan Call center services 101,371 101,371 19,349,995 99.99 117,412 6,048 6,048 Notes A and D

E. World (Holdings) Ltd. Cayman Islands Investment 82,883 82,883 6,014,622 85.92 95,281 2,436 2,093 Notes A and D Far EasTron Holding Ltd. Cayman Islands Investment 150,000 150,000 4,486,988 100.00 26,013 422 422 Notes A and D

Omusic Co., Ltd. Taiwan Electronic information providing services 25,000 25,000 2,500,000 50.00 (295 ) (285 ) (143 ) Notes A and D

Hiiir Inc. Taiwan Electronic information providing services 80,000 80,000 8,000,000 80.00 77,229 21,845 17,649 Notes A and D Q-ware Communications Co., Ltd. Taiwan Type II telecommunications services 832,038 832,038 33,982,812 81.46 (41,403 ) (14,852 ) (12,099 ) Notes A and D

Far Eastern Electronic Commerce Co., Ltd. Taiwan Electronic information providing services 80,893 80,893 6,691,000 14.85 21,263 (26,660 ) (2,801 ) Notes C and D

Far Eastern Electronic Toll Collection Co., Ltd. Taiwan Electronic toll collection service 2,542,396 2,542,396 254,239,581 39.42 800,446 (65,009 ) (32,849 ) Notes C and D Yuan Hsin Digital Payment Co., Ltd. Taiwan Other financing and supporting services 90,000 90,000 9,000,000 31.58 74,328 (12,514 ) (4,002 ) Notes C and D

Ding Ding Integrated Marketing Service Co., Ltd. Taiwan Marketing 60,000 60,000 2,144,145 15.00 30,310 9,351 1,957 Notes C and D

iScreen Corporation Taiwan Information service 100,000 100,000 4,000,000 40.00 16,409 2,054 821 Notes C and D Alliance Digital Technology Co., Ltd. Taiwan Electronic information providing services 30,000 30,000 3,000,000 19.23 27,229 (7,944 ) (1,284 ) Notes C and D

ARCOA Communication Co., Ltd. DataExpress Infotech Co., Ltd. Taiwan Sale of communications products 141,750 141,750 12,392,494 70.00 205,422 22,777 Notes D and E

New Century InfoComm Tech Co., Ltd. New Diligent Co., Ltd. Taiwan Investment 800,000 800,000 80,000,000 100.00 686,339 (5,079 ) Notes D and E

Information Security Service Digital United Inc. Taiwan Security and monitoring service via Internet

148,777 148,777 14,877,747 100.00 97,597 (838 ) Notes D and E

Digital United (Cayman) Ltd. Cayman Islands Investment 132,406 132,406 4,320,000 100.00 47,467 (2,702 ) Notes D and E

Simple InfoComm Co., Ltd. Taiwan Type II telecommunications 34,000 34,000 3,400,000 100.00 20,934 47 Notes D and E Far Eastern Electronic Commerce Co., Ltd. Taiwan Electronic information providing services 28,922 28,922 2,392,000 5.31 7,601 (26,660 ) Notes C and D

Ding Ding Integrated Marketing Service Co., Ltd. Taiwan Marketing 20,000 20,000 714,715 5.00 10,104 9,351 Notes C and D

New Diligent Co., Ltd. (Note F) Sino Lead Enterprise Limited Hong Kong Telecommunication services 125 125 - 100.00 312 (5 ) Notes D and E

Far Eastern New Diligent Company Ltd. British Virgin Islands Investment 133,048 133,048 - 100.00 77,757 (6,498 ) Notes D and E

DataExpress Infotech Co., Ltd. (Note F) Linkwell Tech. Ltd. Taiwan Sale of communications products 10,000 10,000 - 100.00 45,663 1,762 Notes D and E

Home Master Technology Ltd. Taiwan Sale of communications products 9,999 9,999 - 99.99 12,549 (340 ) Notes D and E

Jing Yuan Technology Ltd. Taiwan Data processing - 10,000 - - - (28 ) Notes D and E

Note A: Subsidiary.

Note B: The calculation was based on reviewed financial statements as of March 31, 2014.

Note C: Equity-method investee of Far EasTone.

Note D: The calculation was based on unreviewed financial statements as of March 31, 2014.

Note E: Subsidiary of New Century InfoComm Tech Co., Ltd., Far Eastern Info Service (Holding) Ltd., Digital United (Cayman) Ltd., New Diligent Co., Ltd., ARCOA Communication Co., Ltd., Far Eastern New Diligent Company Ltd., DataExpress Infotech Co., Ltd. and Far Eastern Tech-info Ltd. (Shanghai).

Note F: The information was based on unreviewed financial statements as of March 31, 2014.

Note G: Investments in mainland China please refer to Schedule H.

- 65 -

SCHEDULE H


INVESTMENTS IN MAINLAND CHINA


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

Company Name Investee Company Name Main Businesses and

Products Paid-in Capital

Method of

Investment

(Note A)

Accumulated

Outflow of

Investment from

Taiwan as of

January 1, 2014

Investment Flows Accumulated

Outflow of

Investment from

Taiwan as of

March 31, 2014

Net Income (Loss)

of the Investee

% Ownership of

Direct or Indirect

Investment

Investment

Gain (Loss)

Carrying Amount

as of

March 31, 2014

Accumulated

Repatriation of

Investment Income

as of March 31,

2014

Outflow Inflow

Far EasTone

Telecommunications Co.,

Ltd.

Far Eastern Tech-info Ltd.

(Shanghai)

Computer software, data

processing and provision

of network information

$ 76,175

( US$ 2,500,000 )

2 $ 92,616 $ - $ - $ 92,616 $ (1,195 ) 100.00 $ (1,195 ) $ 51,896

(RMB 10,591,000 )

$ -

New Century InfoComm Tech

Co., Ltd.

Digital United Information

Technologies (Shanghai) Ltd.

Research and design of

computer system

94,457

( US$ 3,100,000 )

2 94,457

( US$ 3,100,000 )

- - 94,457

( US$ 3,100,000 )

(3,433 ) 100.00 (3,433 ) 27,068

(RMB 5,524,000 )

-

New Diligent Co., Ltd.

(Note E)

Far Eastern New Century Information

Technology (Beijing) Limited

Electronic information

providing services

158,444

( US$ 5,200,000 )

2 121,880

( US$ 4,000,000 )

- - 121,880

( US$ 4,000,000 )

(8,974 ) 79.04

(Note B)

(7,093 )

(Note B)

210,494

(RMB 42,958,000 ) (Note B)

-

New Diligent Co., Ltd. (Note E)

New Diligence Corporation (Shanghai)

Consulting services, supporting services, and

wholesale of machinery

and equipment

34,340 ( US$ 1,127,000 )

1 34,340 ( US$ 1,127,000 )

- - 34,340 ( US$ 1,127,000 )

- - - -

Company Name

Accumulated Investment in

Mainland China as of

March 31, 2014

Investment Amounts

Authorized by Investment

Commission, MOEA

Upper Limit on Investment

Far EasTone Telecommunications Co., Ltd. $ 92,616 $ 92,616 $ 45,933,793

(Note C )

New Century InfoComm Tech Co., Ltd. 94,457

( US$ 3,100,000 )

94,457

( US$ 3,100,000 )

14,150,674

(Note C )

New Diligent Co., Ltd. 156,220

( US$ 5,127,000 )

156,220

( US$ 5,127,000 )

411,084

(Notes C and D )

Note A: Investment type as follows:

1. The Group made the investment directly.

2. The Group made the investment through a company registered in a third region. The companies registered in a third region are Far Eastern Info Service (Holding) Ltd., Digital United (Cayman) Ltd. and Far Eastern New Diligent Company Ltd., respectively.

3. Other.

Note B: Including Far Eastern New Diligent Company Ltd. 76.92% of ownership and Far Eastern Tech-Info Ltd. (Shanghai) 2.12% of ownership.

Note C: Based on the limit, which is 60% of the investor company’s net worth, as stated in the Principles Governing the Review of Investment or Technical Corporation in Mainland China, which was issued on August 29, 2008 by the Investment Commission of the MOEA.

Note D: On June 27, 2012, New Diligence Corporation (Shanghai) had been remitted back to Taiwan US$73,000 the investment registered in the Investment Commission of the MOEA and wrote off this same amount.

Note E: The calculation was based on unreviewed financial statements as of March 31, 2014.

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