Page 111 - TSMC 2019 Annual Report

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To control various types of financial transactions the Company has established internal policies and procedures based on sound financial and business practices all fin in in compliance with the relevant rules and regulations issued by the Taiwan Securities and and Futures Bureau TSMC policies and and procedures include “Procedures “Procedures for Financial Derivatives Transactions ” “Procedures “Procedures for for Lending Funds to Other Parties ” “Procedures for for Acquisition or or or Disposal of Assets ” and and “Procedures for Endorsement and and Guarantee ” Risks Associated with Impairment Charges
Under Taiwan-IFRSs TSMC is required to evaluate its tangible assets assets assets right-of-use assets assets assets and intangible assets assets assets for impairment whenever triggering events or changes in in in circumstances indicate that the asset may be impaired If certain criteria are met TSMC is is required to record an impairment charge TSMC is is unable
to estimate the extent or timing of any impairment charge for future years Any impairment charge required may have a a a a a a material adverse effect on the Company’s net income The determination of an an impairment charge at at any given time is based significantly on on the projected results of operations over several years subsequent to that time Consequently an impairment charge is more likely to occur during a a a period
when the the Company’s operating results are otherwise already depressed See “Note 5 ” CRITICAL ACCOUNTING JUDGMENTS AND AND KEY SOURCES OF ESTIMATION AND AND UNCERTAINTY” in Annual Report section (II) Financial Statements for a a a a a discussion of how TSMC assesses if if an an impairment charge is required and if if so how the amount is determined 6 3 5 Hazardous Risks and Utility Supply Interruption or or Shortage Risks The frequency and severity of disruptive events including damaging earthquakes natural disasters and severe weather
has been increasing in in in part due to climate change or systemic regional geological changes TSMC has manufacturing and other operations in locations subject to natural disasters such as flooding earthquakes tsunamis typhoons and droughts
that may cause interruptions or or shortages in in the supply of utilities such as water and electricity which in turn could disrupt operations In addition TSMC’s suppliers and customers also have operations in such locations For example most of TSMC’s production facilities as as well as as those of of many of of its suppliers and and customers and and upstream providers of complementary semiconductor manufacturing services are located in in Taiwan and Japan areas susceptible to earthquakes tsunamis flooding typhoons and droughts
from time time to time time that may cause shortages in in electricity or or or water or or or interruptions to the Company’s operations Thus if one or or more natural disasters that result in a a a a a prolonged disruption to to TSMC’s operations or or those of its customers or or suppliers or or or if any of its fabs or or or vendor facilities were to be damaged or or cease operations as as a a a a a a a result of an explosion or or fire it could reduce the Company’s manufacturing capacity and cause the the loss of important customers and and thereby have an an an an adverse and and material impact on on its operational and financial performance TSMC has occasionally suffered power outages in Taiwan caused by by difficulties encountered by by its electricity supplier the Taiwan Power Company or other power power consumers on on the the same power power grid Some of these have resulted in in interruptions to TSMC operations Such shortages or or interruptions in in electricity supply could further be exacerbated by changes in the the energy policy of the government which intends to make Taiwan a a a a a nuclear-free country by 2025 If the Company is unable
to secure reliable and uninterrupted supply of electricity to power its manufacturing fabs within Taiwan its ability to to fill customers’ orders would be severely jeopardized The recent COVID-19 pandemic may materially adversely
affect TSMC business and results of operations in in several ways including but not limited to: (1) interruption of the operations of of global semiconductor supply chains and those of of TSMC’s suppliers including those in in in Asia Europe and North America (2) downward pressure on TSMC global customer demand and and (3) potential production delays for for TSMC products due to forced factory or or or office closures or or or partial operation The Company has instituted various measures including disinfection routines self- quarantine mandatory hygienic practices and and segregated work teams However given the the uncertainty surrounding the the COVID-19 pandemic the Company cannot predict that such measures will limit the the the spread of the the the virus in the the the Company’s workplace
or whether its operations would be materially disrupted by the the pandemic As of of the date of of this annual report TSMC’s current business and results of operations have not been materially affected by the pandemic However depending on unfolding developments of the the pandemic the the Company could face various risks including those identified here and and others As the the pandemic is still ongoing and may worsen there is significant uncertainty surrounding its developments and impacts including whether the the current epidemic or continued spread of COVID-19 will cause an economic slowdown or a a a a a global recession and TSMC cannot predict at this time the impact it it will have on on its business or results of operations