Page 122 - TSMC 2020 Annual Report

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Risks Associated with High-Risk/Highly Leveraged Investments Lending Endorsements and Guarantees for Other Parties and Financial Derivative Transactions In 2020 and as of of the date of of this annual report TSMC made no high-risk or highly leveraged financial investments In 2020 and as of of the date of of this annual report TSMC has provided guarantees to TSMC Global a a a a a wholly-owned subsidiary of of TSMC for its issuances of of US dollar-denominated senior unsecured bonds in amounts not to exceed US$7 5 billion billion in total Among which US$3 billion billion senior unsecured bonds were already issued in in September 2020 Since 2014 TSMC has provided a a a a a guarantee of no more than US$83 21
million to TSMC North America a 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 a guarantee of no more than JPY1 320 million to TSMC Design Technology Japan Inc a a a wholly-owned subsidiary of TSMC for its obligation to an office leasing contract As of February 28 2021 there were RMB 4 8 8 billion outstanding intercompany loans between TSMC’s subsidiaries and and US$3 1 billion outstanding intercompany loans between TSMC and its subsidiary All intercompany loans were in in compliance with relevant rules and regulations All derivative financial transactions entered in in 2020 by TSMC were strictly for for hedging and not for for 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 To manage risks of various financial transactions TSMC has established internal control 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’s policies and and procedures include “Procedures for Financial Derivatives Transactions ” “Procedures “Procedures for Lending Funds to Other Parties ” “Procedures “Procedures for for Acquisition or or or Disposal of Assets ” and “Procedures for for Endorsement 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 circumstances indicate that the asset may be impaired If certain criteria are met TSMC TSMC is required to record an impairment charge TSMC TSMC is not able to estimate the extent or timing of any impairment charge charge for future years Any impairment charge 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 mainly based
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 an an impairment charge is required and if so how the amount is determined 6 3 5 Hazardous Risks and Utility Supply Interruption or Shortage Risks The frequency and severity of disruptive events including damaging earthquakes other natural disasters and severe weather have 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 For example in 2021 Taiwan has faced one of the worst droughts in decades Government restrictions on on supply and usage of water by industrial companies such such as TSMC in response to such such severe weather events could also disrupt our 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 are located in Taiwan and Japan areas susceptible to earthquakes tsunamis flooding typhoons and droughts from time time to time time that may cause shortages 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 it could reduce the Company’s manufacturing capacity and 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 and financial performance