Page 112 - 2017 TSMC Annual Report

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and a a a “TSMC Emergency Response Procedure” to establish
its emergency response command structure Each TSMC fab holds regular monthly meetings of the ESH committee and relevant departments hold regular drills as as well as as continuously improve their emergency response and notification procedures to to ensure clear channels of communication to to stakeholders
in crisis management The public relations department serves as the designated window for external communications In the event of an emergency all departments immediately deploy emergency response measures to reduce casualties
and minimize the the impact on on the the surrounding environment Company property and manufacturing operations Responders also alert the the public relations department at at the the first stage of response to ensure clear and consistent disclosure regarding the the situation to maintain the the Company’s reputation Risks Associated with Change in Management
In October 2017 Dr Morris Chang as TSMC Chairman for the the last thirty years announced his plan to retire from the the Company immediately after the Annual Shareholders’ Meeting in early June 2018 All present directors of the board except himself have unanimously agreed to be nominated and if elected will serve as directors of the the board during the the next term They all have have agreed to have have TSMC under the dual leadership of Dr Dr Mark Liu and Dr Dr C C C C C C Wei who are TSMC’s presidents and Co-CEOs currently Dr Liu will be the Chairman of the the Board and Dr Wei will be the the Chief Executive Officer 6 3 4 Financial Risks Economic Risks ● Interest Rate Fluctuation
TSMC is is exposed to to interest rate risks primarily related to to its outstanding debt and and investment portfolio which are most sensitive to fluctuations in in R O C and U S interest rates rates Changes in in R O C C and U S interest rates rates affect the interest earned on the Company’s cash cash cash cash equivalents and marketable securities securities and the fair value of those securities securities as well as interest paid on and and the fair value of its outstanding debt As of of December 31 2017 all of of TSMC’s term debt have fixed interest rates and are measured at at amortized cost As such changes in in interest rate would not affect the future cash flows The primary objective of TSMC’s investment policy is to achieve a a a a a return that will allow the Company to preserve principal and maintain liquidity requirements TSMC generally
invests in in in in investment grade fixed income securities and limits the amount of credit exposure to any one issuer The Company’s investments in in in both fixed- and floating-rated
fixed income securities carry a a a degree of interest rate risk A majority of the Company’s fixed rate securities are classified as as available-for-sale and may have their market value adversely impacted due to the rise in in interest rates TSMC has entered and may enter enter in in in the future into interest rate rate futures to partially hedge the interest rate rate risk on its fixed income investments These hedges may offset only a a a small portion of the financial impact from movements in in in interest rates ● Foreign Exchange Volatility
More than 90% of the Company’s sales were denominated
in US dollar and over one-half of TSMC’s capital expenditures are denominated
in in currencies other than NT dollar primarily in US dollar Japanese yen and Euro Because TSMC’s functional currency is denominated
in in NT dollar any significant fluctuation to its disadvantage in such exchange rates would have an an adverse effect on on on TSMC’s financial condition For example every 1 percent depreciation of the US dollar against the NT dollar would result in approximately 0
4 percentage point decrease in in in in TSMC’s TSMC’s operating margin based on TSMC’s TSMC’s 2017 results Conversely if if the US dollar appreciates significantly versus other major currencies the the the demand for the the the products and and services services of TSMC’s customers and and for its goods and and services services will will likely decrease which will will negatively affect the Company’s revenue TSMC may use derivative such as currency forward contracts and and cross-currency swaps and and non-derivative financial instruments such as foreign currency-denominated debt to partially hedge its existing and certain forecasted currency exposure These hedges will offset only a portion of of but do not eliminate the financial impact from movements in in in foreign currency exchange rates Fluctuations in the the exchange rate between the the US dollar and the the the NT dollar dollar may affect the the the US dollar dollar value of the the the Company’s common shares and the the market price of the the Company’s American Depositary Shares (ADSs) and of any cash dividends paid in NT dollars on on TSMC’s common shares represented by ADSs