Page 110 - TSMC 2019 Annual Report

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• Foreign Exchange Volatility
The majority of TSMC’s sales are denominated in in U S S dollar
and over one-half of its capital expenditures are denominated in in currencies other than NT dollar
dollar
primarily in in U S dollar
dollar
Japanese yen and Euro As a a a a a a a result any significant fluctuations to its disadvantage in in exchange rate of NT dollar
against such currencies in in in particular a a a a a a a weakening of U S dollar
against NT dollar
would have an an adverse impact on the Company’s revenue and operating profit as expressed in in NT dollar
For example every one percent depreciation of the the U S dollar
against the the NT dollar
would result in in approximately 0 4 percentage point decrease in in in TSMC’s TSMC’s operating margin based on TSMC’s TSMC’s 2019 results Conversely if i the the U S dollar
appreciates significantly versus other major currencies the the demand for the the products and and services of TSMC’s TSMC’s customers and and for TSMC’s TSMC’s goods and and services will likely decrease which will negatively affect the Company’s revenue TSMC uses foreign currency derivatives contracts such as currency currency currency forwards or or currency currency currency swaps to protect against currency currency currency exchange rate risks associated with non-NT dollar-denominated assets and and liabilities and and certain forecasted transactions The Company also utilizes U S dollar-denominated debt to partially offset currency risk arising from U S dollar-denominated receivables for balance sheet hedges hedges These hedges hedges reduce but do not entirely eliminate the effect of foreign currency exchange rate movements on its assets and liabilities Fluctuations in the the exchange rate between the the U S dollar
and the the the NT dollar
dollar
may affect the the the U S 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 dollar
on on TSMC’s common shares represented by ADSs • Inflation
In 2019 and as of of the date of of this annual report inflation did not have a a a a a a material impact on on TSMC’s operations or the business operations of its customers and suppliers • A m m m m e e e e e n n n n n d m m m m e e e e e n n n n n t t t t t s s t t t t t o o o o o T a a a x R e e e e e g u l l a a a t t t t t i i o o o o o n n n n n s s o o o o o r I m m m m p l l e e e e e m m m m e e e e e n n n n n t t t t t a a a t t t t t i i o o o o o n n n n n o o o o o f New Tax Laws
Any amendments to existing tax regulations or the implementation of any new tax laws in in the jurisdictions in in which TSMC operates its its business may have an adverse effect on its its net income While the Company is subject to tax laws and regulations in in various jurisdictions in in which it operates or conducts business TSMC’s principal operations are in in in the R O C C and it is exposed primarily to taxes levied by the R O C government Any unfavorable changes of tax laws and regulations in this jurisdiction could increase TSMC’s effective tax rate and have an an adverse effect on its operating results In order to to control tax risk the Company closely monitors all domestic and and foreign governmental policies and and regulations that might impact its financial operations TSMC has established risk management procedures to collect information analyze potential tax implications and develop countermeasures 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 it it it may be forced to curtail its expansion modify plans 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 In 2019 and as of of the date of of this annual report TSMC did not make high-risk or highly leveraged financial investments Since 2014 TSMC has provided a a a a a guarantee no more than US$83 21 million to TSMC North America a a wholly-owned subsidiary of of TSMC for its obligation to an office leasing contract Since 2020 TSMC Japan Limited has provided a a a a a guarantee no more than JPY1 320 million to TSMC Design Technology Japan Inc a a a a wholly-owned subsidiary of TSMC for its obligation to an office leasing contract As of February 29 2020 there were RMB 4 8
billion and US$86 million in in intercompany loans between the Company’s subsidiaries and US$1 billion in in intercompany loans between the Company and its subsidiary which were all in compliance with relevant rules and regulations All financial transactions of a a a a a a a a derivative nature that TSMC entered into in in in in 2019 were strictly for for hedging and not for for any trading or or or speculative purposes For more transaction information and risk assessment please refer to Note Note Note 7 Note Note Note 10 and Note Note Note 32 of the annual report section (II) Financial Statements