Page 113 - 2017 TSMC Annual Report

111
● Inflation Deflation and Resulting Market Volatility
The global economy is becoming more vulnerable to sudden unexpected fluctuations in in inflationary and deflationary expectations and conditions Expectations of high inflation and deflation each adversely affects the economy at at both macro and micro levels by reducing economic efficiency
and disrupting investment decisions For example recent implementation of “balance sheet normalization” program by the the U S Federal Reserve and the the possible changes in economic fiscal and/or trade policies in the U S have exacerbated fluctuations in in inflationary expectations Such volatility may negatively affect the the costs of TSMC’s operations and the the business operations of its customers who may be forced to to plan their purchases of TSMC’s goods and services within
an an uncertain economy Therefore the demand for for TSMC’s products and services could unexpectedly fluctuate severely
in in accordance with expectations of inflation or or deflation as affected by market volatility Risks Associated with External Financing
In times of market instability sufficient external financing
may not be available to the Company on on a a a a a a a timely basis on on commercially reasonable terms to the Company or at all all If sufficient external financing
is not available when TSMC needs such financing
to meet its capital requirements TSMC may be forced to curtail its expansion modify plans or or delay the deployment of new or expanded services until it obtains such financing
Risks Associated with High-Risk/Highly Leveraged Investments Lending Endorsements and Guarantees for Other Parties and Financial Derivative Transactions TSMC did not make high-risk or highly leveraged financial investments in in 2017 nor up to the date of this annual report TSMC TSMC provided a a a a a guarantee to TSMC TSMC Global a a a a a wholly-owned subsidiary of of TSMC for its issuance of of US dollar-denominated senior unsecured corporate bonds in April 2013 As of of February 28 2018 TSMC had intercompany loans of of RMB$4 4 4 billion arranged among the Company’s subsidiaries which were all in compliance with relevant rules and regulations In 2017 the financial transactions of a a a a a a a a derivative nature that TSMC entered into were strictly for for hedging and not for for any trading or or or or speculative purposes For more information please
refer to pages 33-34 of the annual report section (II) Financial Statements The fair market value of TSMC’s trading and available-for-sale financial securities is subject to prevailing market conditions and may fluctuate from TSMC’s carrying value from time time to time time which may impact the returns of those securities To control various types of financial transactions the Company has established internal policies and procedures based on sound financial and business practices all in in in compliance with the the relevant rules and regulations issued by the the Taiwan Securities and and Futures Bureau TSMC policies and and procedures include “Policies and Procedures for Financial Derivative Transactions ” ” “Procedures for Lending Funds to Other Parties ” ” “Procedures for Acquisition or or Disposal of Assets ” and “Procedures for Endorsement and Guarantee ” Risks Associated with Impairment Charges
Under Taiwan-IFRSs TSMC is required to evaluate its investments tangible tangible assets assets and intangible assets assets for impairment whenever triggering events or changes in in circumstances indicate that the asset may be impaired If certain criteria are met TSMC is required to record an impairment charge TSMC is also required under Taiwan-IFRSs to evaluate goodwill for impairment at at least on an an annual basis or or or more frequently whenever triggering events or or or changes in in circumstances indicate that goodwill may be impaired and the carrying value may not be recoverable TSMC holds investments in in certain publicly listed and private companies some of which have incurred certain impairment charges as disclosed in in in Annual Report section (II) Financial Statements The determination of an an impairment charge at at any given time is based significantly on the the projected results of the the Company’s operations over several years subsequent to that time Consequently an impairment charge is more likely to occur during a a a a period when the Company’s operating results are otherwise already depressed TSMC has established the process and system to closely monitor and assess the risk of impairment charge However the the management is unable to estimate the the extent or timing of any impairment charge for future years or or whether such impairment charge may have a a a a a a a a material adverse effect on the Company’s net income