“TSMC”, “tsmc”, “Open Innovation Platform”, “CyberShuttle”, “CoWoS”, “TSMC-SoIC^”“TSMC-SoIC”, “3DFabric”, “TSMC 3DFabric”, and “N12e” are some of our registered and/or pending trademarks used by us in various jurisdictions, including the United States of America. All rights reserved.

ii

PART I

Not applicable.

Not applicable.

Selected Financial and Operating Data

The selected consolidated statements of profit or loss and other comprehensive income data and other consolidated financial data for the years ended December 31, 2018, 2019 and 2020, and the selected consolidated statements of financial position data as of December 31, 2019 and 2020, set forth below, are derived from our audited consolidated financial statements included herein, and should be read in conjunction with, and are qualified in their entirety by reference to, these consolidated financial statements, including the notes thereto, which have been prepared in accordance with International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) issued by the International Accounting Standards Board (IASB) (collectively, “IFRSs”). The selected consolidated statements of profit or loss and other comprehensive income data and other consolidated financial data for the years ended December 31, 2016 and 2017 and the selected consolidated statements of financial position data as of December 31, 2016, 2017 and 2018 set forth below are derived from our audited consolidated financial statements not included herein.

In addition to preparing financial statements in accordance with IFRSs included in this annual report, we also prepare financial statements in accordance with the IFRSs as adopted for use in Taiwan (“Taiwan-IFRSs”), which we are required to file with the Financial Supervisory Commission (“FSC”) of the Republic of China (“R.O.C.” or “Taiwan”) and Taiwan Stock Exchange (“TWSE”) under the applicable regulations and listing rules of TWSE. The English translation of such financial statements is furnished to the Securities and Exchange Commission (“SEC”) on Form 6-K, which is not incorporated by reference to this or any of our previous annual reports on Form 20-F.

Exchange RatesEXCHANGE RATES

We publish our financial statements in New Taiwan dollars, the lawful currency of the R.O.C. In this annual report, “$,”, “US$” and “U.S. dollars” mean United States dollars, the lawful currency of the United States, and “NT$” and “NT dollars” mean New Taiwan dollars. This annual report contains translations of certain NT dollar amounts into U.S. dollars at specified rates solely for the convenience of the reader. TheUnless otherwise noted, all translations from NT dollars to U.S. dollars and from U.S. dollars to NT dollarsin this annual report were made byat NT$30.73 to US$1.00, the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. Unless otherwise noted, all translations for the year 2020 were made at the exchange rate as ofBoard on December 31, 2020, which was NT$28.08 to US$1.00.30, 2022.

No representation is made that the NT dollar or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or NT dollars, as the case may be, at any particular rate or at all.

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The majority of our principal executive officers and our principal production facilities are located in the R.O.C., and the majority of our net revenue is derived from our operations in the R.O.C. In addition, we have operations worldwide and a significant percentage of our revenue comes from sales to locations outside the R.O.C. Operating in the R.O.C. and overseas exposes us to changes in laws, rules, regulations and the enforcements of such laws, rules and regulations in certain key areas that wouldcould have a material impact on our operations, such as intellectual property, labor, antitrust, export control, import restrictions, and trade barriers or disputes, as well as thedisputes. In addition, deterioration in general political, economic, financial andor social conditions, military conflicts, the risk of outbreak of war or hostilities, terrorism events, security risks, social unrest, protests, strikes, health conditions and possible disruptions in transportation networks in the various jurisdictions in which we operate whichor elsewhere, could result inhave an adverse effectimpact on our business operations in such jurisdictions and our results of operations as well as the market price and the liquidity of our ADSs and common shares. AnyFurthermore, any major change in economic, fiscal and/or trade policies in the U.S. from which we derive a substantial portion of our revenue or in another major jurisdiction could severely affect our business, financial condition and results of operations. For example, recent political and trade tensions among major economies as well as military conflicts (such as the conflict in Ukraine since early 2022) have resulted in and could escalatethe imposition of trade barriers, including higher tariffs on certain productssuch as sanctions and other protectionist measures thatimport and export controls, which could reduce overall consumer demand, increase our manufacturing costs, andlimit our access to certain supplies, make our pricing less competitive. Ifcompetitive, and to the extent certain countries adopt further protectionist measures such as import and export controls,limit our ability to offer our products and services in some markets or source key materials and key production equipment, may be limited, which may have adverse direct or indirect effects directly and indirectly on our sales.

Any law or government policy that encourages our customers to relocate their manufacturing capacity or supply chain to their own countries or require their respective contractors, subcontractors and relevant agents to do so could also impair our ability to sustain our current level of productivity and manufacturing efficiency. An important aspect of our business operation is an ecosystem of interconnected semiconductor fabs, employees and suppliers in the R.O.C. that provides us with significant operational synergies, flexibility and efficiencies. For example, we are able to temporarily reassign thousands of our engineers and other relevant personnel from one manufacturing site to another that are in close proximity to each other, to refine specific designs and adapt manufacturing processes in a timely manner. These advantages permit us to operate our manufacturing fabs efficiently and resolve any technical or commercial difficulties quickly to maintain our competitive edge. IfRestrictions on our ability to transfer people among our operations in the R.O.C., the United States, the P.R.C. and Japan efficiently due to, for example, immigration or travel restrictions may impair or reduce these advantages, are impaired or lost as a result of government policy or otherwise,and we may not be able to sustain our current ability to supply our customers with goods and services at the current level of cost, quality, quantity and delivery schedule to which our customers have been accustomed.

In addition, the financial markets have viewed certain past developments in relations between the R.O.C. and the P.R.C. as occasions to depress general market prices of the securities of R.O.C. companies, including our own. Also, the R.O.C. government has not lifted some trade and investment restrictions imposed on R.O.C. companies on the amount and types of certain investments that can be made in the P.R.C. Our plans, investment applications and/or any relevant regulatory approvals to establish or possibly expand operations in the P.R.C. may be delayed, interrupted, suspended or cancelled due to unforeseeable social and political factors in the R.O.C. or the P.R.C., and these potential operational risks can be aggravated by applicable export controls which impose license requirements on our P.R.C. fab’s acquisition of certain manufacturing tools.

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If we are unable to remain a technological leader in the semiconductor industry, unable to timely respond to fast-changing semiconductor market dynamics, or unable to maintain our edge in product quality, we may become less competitive.

The semiconductor industry and its technologies are constantly changing. We compete by developing process technologies using increasingly advanced nodes and on manufacturing products with more functions. We also compete by developing new derivative technologies. If we do not anticipate these changes in technologies and rapidly develop new and innovative technologies, or our competitors unforeseeably gain sudden access to additional technologies, we may not be able to provide foundry services on competitive terms. In addition, our customers have significantly decreased the time in which their products or services are launched into the market. If we are unable to meet these shorter product time-to-market, we risk losing these customers. These factors have also been intensified by the shift of the global technology market to consumer driven products, such as smartphones, and increasing competition and concentration of customers (all further discussed among these risk factors). Also, the uncertainty and instability inherent in advanced technologies also impose challenges for achieving expected product quality and product yield. If we fail to maintain quality, it may result in loss of revenue and additional cost, as well as loss of business or customer trust. For example, in January 2019, we discovered yield problems in 12-nanometer and 16-nanometer wafers caused by a batch of photoresist, which resulted in delayed delivery of products and had a negative effect on our gross margin and operating margin in the first quarter of 2019. To reduce future risks of such incidences, we have since strengthened inline wafer inspection and tightened control of incoming material to deal with the increasing complexity of leading-edge technologies. If we are unable to innovate new technologies that meet the demand of our customers or overcome the above factors, we may become less competitive and our revenue may decline significantly.

In light of the rise of new foundry service providers worldwide, if we are unable to compete effectively in the highly competitive foundry segment of the semiconductor industry, we may lose customers andand/or our profit margin and earnings may decrease.

The markets for our foundry services are highly competitive. We compete with other foundry service providers, as well as a number of integrated device manufacturers. Some of these companies may have access to more advanced technologies than us. Other companies may have greater financial and other resources than us, such as the possibility of receiving direct or indirect government subsidies, economic stimulus funds, or other incentives that may be unavailable to us. For example, Chinese companiesThe governments of the United States, China, Europe, South Korea, and Japan provide various incentive programs to promote developments of their domestic semiconductor industries, such as the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (the “U.S. CHIPS Act”), which provides financial incentives to incentivize the development of U.S. semiconductor industry. Although governments in certain of the countries or regions where we are expectedcurrently expanding or planning to expand our production capacity have extended or may in the future extend certain financial incentives to us, there is no assurance that we will be key playersable to apply for new semiconductor fab developmentor receive such financial incentives at the levels we expect or at all. Additionally, any financial incentives we receive may be subject to strict conditions, or the grantors could seek to recover any funds provided to us, or cancel, reduce or deny our requested subsidies or grants in the future. This could materially increase our operating costs and fab equipment spending in part due to various incentives provided by the Chinese government. adversely affect our results of operations.

Furthermore, our competitors may, from time to time, also decide to undertake aggressive pricing initiatives in one or several technology nodes. These competitive activities may decrease our customer base or our ASP, or both. If we are unable to compete effectively with thesesuch new and aggressive competitors on technology, manufacturing capacity, product quality and customer satisfaction, we risk losing customers to thesesuch new contenders.

If we are unable to manage our capacity and production facilities effectively, our competitiveness may be weakened.

We perform long-term market demand forecasts for our products and services to manage our overall capacity. Based on our market demand forecasts, we have continued to add capacity to meet market needs for our products and services. Currently, our capacity expansion plans include installingservices, including in Taiwan, in Arizona, U.S., in Nanjing, China and increasing production capacity, mainly for 5-nanometer and 3-nanometer nodes, expanding our production facilities in the Southern Taiwan Science Park and building a 300mm wafer fab in Arizona.Kumamoto, Japan.

Implementing these capacity expansion plans will increase our costs, and the increases may be substantial. For example, we would need to build new facilities, purchase additional equipment and hire and train personnel to operate the new equipment. If we do not increase our net revenue accordingly, our financial performance may be adversely affected by these increased costs. See “Item 4. Information on The Company – Capacity Management and Technology Upgrade Plans” for a further discussiondiscussion.

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Having one or more large customers that account for a significant percentage of our revenue may render us vulnerable to the loss of or significant curtailment of purchases by such customers that could in turn adversely affect our results of operations. Similarly, the increasing consolidation of our customers may further increase our revenue concentration.

Over the years, our customer profile and the nature of our customers’ business have changed dramatically. While we generate revenue from hundreds of customers worldwide, our ten largest customers in 2018, 20192020, 2021 and 20202022 accounted for approximately, 68%74%, 71% and 74%68% of our net revenue in the respective year. Our largest customer in 2018, 20192020, 2021 and 20202022 accounted for 22%25%, 23%26% and 25%23% of our net revenue in the respective year. Our second largest customer in 2020 and 2021 accounted for each particular year12% and 10% of our net revenue in the respective year. In 2022, our second largest customer accounted for less than 10% of our net revnue in 2018, 14% and 12% of our net revenue in 2019 and 2020, respectively.revenue. A more concentrated customer base will subject our revenue to seasonal demand fluctuations from our large customers, and cause different seasonal patterns ofin our business. This customer concentration results in part from the changing dynamics of the electronics industry with the structural shift to mobile and high performance computing (“HPC”) devices and applications and software that provide the content for such devices.

There are only a limited number of customers who are successfully exploiting this new business model paradigm. Also, we have seen the changes of nature in our customers’ business models in response to this new business model paradigm. For example, there is a growing trend toward the system companies developing their own designsdesigned semiconductors and working directly with semiconductor foundries which makes their products and services more marketable in a changing consumer market. Also, since the global semiconductor industry is becoming increasingly competitive, some of our customers have engaged in industry consolidations in order to remain competitive. Such consolidations have taken the form of mergers and acquisitions. If more of our major customers consolidate, this will further decrease the overall number of our customer pool. In addition, regulatory restrictions, such as export controlcontrols directed at our major customers, could impact our ability to supply products to those customers, reduce those customers’ demand for our products and services and impact their business operations.

The loss of, or significant curtailment of purchases by, one or more of our top customers, including curtailments due to increased competitive pressures, industry consolidation, changes in applicable regulatory restrictions, product designs, manufacturing sourcing or outsourcing policies or practices of these customers, or the timing of customer or distributor inventory adjustments, or changes in our major customers’ business models, may adversely affect our results of operations and financial condition.

If our information technology systems or those of our service providers with whom we share our confidential information succumb to cyberattacks by third parties worldwide, our business and operations may be severely interrupted or even shut down, and our results of operations, financial condition, prospects and reputation may also be materially and adversely affected.

Even though we have established a comprehensive internet and computing security network, we cannot guarantee that our computing systems which control or maintain vital corporate functions, such as our manufacturing operations and enterprise accounting, would be completely immune to crippling cyberattacks by any third party attempting to gain unauthorized access to our internal network systems, to sabotage our operations and goodwill or otherwise.cyberattacks. In the event of a serious cyberattack, our systems may lose important corporate data or our production lines may be shut down pending the resolution of such attack. Major cyberattacks could also lead to loss or divulgence of trade secrets and other sensitive information, such as proprietary information of our customers and other stakeholders and personal information of our employees. While we seek to continuously review and assess our cybersecurity policies and procedures to ensure their adequacy and effectiveness, we cannot guarantee that we will not be susceptible to new and emerging risks and attacks in the evolving landscape of cybersecurity threats. Hackers behind these cyberattacks may also attempt to steal our trade secrets and other sensitive information, such as proprietary information of our customers and other stakeholders and personal information of our employees.

Malicious hackers may also try to introduce computer viruses, corrupted software or ransomware into our network systems to disrupt our operations, blackmail us to regain control of our computing systems, or spy on us for sensitive information. These attacks may result in us having to pay damages for our delayed or disrupted orders or incur significant expenses in implementing remedial and improvement measures to further enhance our cybersecurity network, and may also expose us to significant legal liabilities arising from or related to legal proceedings or regulatory investigations associated with among other things, leakage of employee, customer or third-party information which we have an obligation to keep confidential.such breaches.

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In addition, we employ certain third-party service providers for us and our affiliates worldwide with whom we need to share highly sensitive and confidential information to enable them to provide the relevant services. Despite thatWhile we require thesuch third-party service providers to comply withstrictly fulfill the confidentiality and/or internet security requirements in our service agreements with them, there is no assurance that each of them will strictly fulfillcomply with such obligations, or at all. The on-site network systems of and the off-site cloud computing networksobligations. Moreover, such as servers maintained by suchthird-party service providers and/or its contractors aremay also subjectbe susceptible to risks associated with cyberattacks. If we or our service providers are not able to timely resolve the respective technical difficulties caused by such cyberattacks, or ensure the integrity and availability of our data (and data belonging to our customers and other third parties) or maintain control of our or our service providers’ computing systems, our commitments to our customers and other stakeholders may be materially impaired and our results of operations, financial condition, prospects and reputation may also be materially and adversely affected as a result.affected.

We may not be able to implement our planned growth and development or maintain our leading position if we are unable to recruit and retain key executives, managers and skilled technical and service personnel.

We rely on the continued services and contributions of our management team, skilled technical and professional personnel. Our business could suffer from the inability to fulfill personnel needs with high quality professionals in a timely fashion caused by the loss of personnel, talent shortages, illegal talent poaching, immigration controls, or related changes in market demand for our products and services. Since there is fierce competition for talent recruitment, we cannot ensure timely fulfillment of our personnel demand.

We may be unable to obtain in a timely manner and at a reasonable cost equipment that is necessary for us to remain competitive.

Our operations and ongoing expansion plans depend on our ability to obtain an appropriate amount of equipment and related services available from a limited number of suppliers in a market that is characterized from time to time bysuppliers. We may encounter the situation of limited supply and long delivery cycles. During such times, supplier-specific or industry-wide lead times for delivery can be as long as six months or more. To better manage our supply chain, we evaluate and project delivery lead times to minimize the impact of supply chain risks on operating costs. We have also implemented various collaborative business models and risk management contingencies with suppliers to ensure supply and shorten the procurement lead time. Further, growing complexities especiallyHowever, if we are unable to acquire in advanced lithographic technologies may delay thea timely availability ofmanner the equipment and parts neededwe need, we may fail to successfully implement capacity expansion plans and exploit time sensitive business opportunities and also increase the market price for such equipment and parts.opportunities. Additionally, ongoing trade tensions or protectionist measures could result in increased prices for, or even unavailability of, key equipment, including as a resultthrough delay or denial of necessary export licenses, being delayed or denied,adoption of additional export control measures and other tariff or non-tariff barriers. If we are unable to obtain equipment in a timely mannerfashion to fulfill our customers’ demand onfor technology and production capacity, or unable to do so at a reasonable cost, our financial condition and results of operations could be negatively impacted.

Our revenue and profitability may decline if we are unable to obtain adequate supplies of raw materials in a timely manner and at commercially reasonable prices.

Our production operations require that we obtain adequate supplies of raw materials, such as silicon wafers, gases, chemicals, and photoresist, on a timely basis and at commercially reasonable prices. In the past, shortages in the supply of some materials, whether by specific vendorssuppliers or by the semiconductor industry generally, have resulted in occasional industry-wide price adjustments and delivery delays. Moreover, major natural disasters, trade barriers and political or economic turmoil, including military conflicts and inflation, occurring within the country of origin of such raw materials may also significantly disrupt the availability of such raw materials or increase their prices. Also, since we procure some of our raw materials from sole-sourced suppliers, there is a risk that our need for such raw materials may not be met or that back-up supplies may not be readily available. Importation and domestic production limitations may also limit our ability to obtain adequate supplies of raw materials as well as materials of the necessary quality. In addition, recent trade tensions could result in increased prices or even unavailability of raw materials due to tariffs, export control or other non-tariff barriers. Our revenue and earnings could decline if we are unable to obtain adequate supplies of the necessary raw materials in a timely manner or if there are significant increases in the costs of raw materials.

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We have received, from time to time, communications from third parties, including non-practicing entities and semiconductor companies, asserting that our technologies, our manufacturing processes, or the design IPs of the semiconductors made by us or the use of those semiconductors by our customers may infringe their patents or other intellectual property rights. Because of the nature of the industry, our market position, and the expansion of our manufacturing operations outside of Taiwan, we may receive an increased number of such communications in the future. The assertions made and lawsuits initiated by litigious, well-funded, non-practicing entities are particularly aggressive in their monetary demand and in seeking court-issued injunctions. Such lawsuits and assertions may increase our cost of doing business and may potentially be extremely disruptive if these asserting entities succeed in blocking the trade of products made and services offered by us. See “Item 8. Financial Information – Legal Proceedings” for a further discussion. Also, with the expansion of our manufacturing operations into certain non-R.O.C jurisdictions, we have faced increased challenges in managing risks of intellectual property misappropriation. Despite our efforts to adopt robust measures to mitigate the risk of intellectual property misappropriation in such new jurisdictions, we cannot guarantee that the protection measures we adopted will be sufficient to prevent us from potential infringements by others, or at all.

If we fail to obtain or maintain certain technologies or intellectual property licenses or fail to prevent our intellectual property from being misappropriated and, if litigation relating to alleged intellectual property matters occurs, it could: (i) prevent us from manufacturing particular products or selling particular services or applying particular technologies; and (ii) reduce our ability to compete effectively against entities benefiting from our misappropriated intellectual property, which could reduce our opportunities to generate revenue.

Our operational results could also be materially and adversely affected by disruptive events, such as earthquakes and droughts, or by industrial accidents, in the locations in which we, our customers or our suppliers operate oroperate.

Disruptions caused by industrial accidents, fires or explosions.

The frequencynatural and severityman-made disasters, including earthquakes, flooding, typhoons, droughts, tsunamis, sandstorms, wildfires, volcanic eruptions, fire, gas/chemical leakage, pandemic, cyber-attacks, sabotage, failure of disruptive events, including damaging earthquakes, other natural disasterscritical facilities and severe weather has been increasing, in part due to climate change or systemic regional geological changes. We have manufacturing and other operations in locations subject to natural disasters, such as flooding, earthquakes, tsunamis, typhoons, and droughts that may cause interruptions orequipment, shortages in the supply of utilities, such as water, electricity and electricity, which in turnnatural gas, etc., could disrupt operations. For example, in 2020 and 2021, Taiwan has faced one of the worst droughts in decades. Government restrictions on supply and usage of water by industrial companies such as us in response to such severe weather events could also disruptinterrupt our operations. In addition, our suppliers and customers also have operations in such locations. For example, mostMost of our production facilities, as well as those of many of our suppliers, and customers and upstream providers of complementary semiconductor manufacturing services, are located in Taiwan and Japan, areas susceptible to earthquakes, tsunamis, flooding, typhoons,natural disasters and droughts from time to time that may causeface potential shortages inof electricity or water, orwhich could cause interruptions to our operations.

Thus, if one or more natural disasters that result in a prolonged disruption to our operations or those of our customers or suppliers, or if any of our fabs or vendor facilities were to be damaged or cease operations as a result of an explosion or fire,unforeseen disruptive event, it could reduce our manufacturing capacity and cause the loss of important customers, and thereby have an adverse, and material impact on our operational and financial performance.

The COVID-19 pandemic could materially adversely affect our business and results of operations.

The ongoing COVID-19 pandemic may materially adversely affect our business and results of operations in several ways, including but not limited to: (i) interruption of the operations of our supply chains for equipment, parts and materials in terms of manufacturing, logistics, and manpower arrangements for tool installation; (ii) significant fluctuation in our customers’ demands for certain products, leading to uncertainties for our capacity planning and also for meeting customers’ demand, which may harm our business with our customers and subject us to risks of legal disputes; and (iii) potential production delays for our products due to forced factory or office closures or partial operation.

We have implemented various measures to address the abovementioned risks, including but not limited to, health management of our employees, management of production inventory, supply chain risk management, and capacity management for demand changes. As of the date of this annual report, our current business and results of operations have not been materially affected by the pandemic, partially due to such trends as work-from-home and distance learning emerged to help accelerate the digital transformation . However, there is no certainty that the measures we have taken will be sufficient to mitigate the risks posed by COVID-19, and our ability to perform critical functions and to meet customers’ needs could be materially adversely affected.

Our operation may be interrupted, and our expansion may be limited, by power or other utility shortages.

We have occasionally suffered power outages, dips or surges in Taiwan caused by difficulties encountered by our electricity supplier the Taiwan Power Company, or other power consumers on the same power grid. Some of these have resulted in interruptions to our operations. Such shortages or interruptions in electricity supply could further be exacerbated by changes in the energy policy of the government which intends to make Taiwan a nuclear-free country by 2025.governments. If we are unable to secure reliable and uninterrupted supply of electricity to power our manufacturing fabs, within Taiwan, our ability to fill customers’ orders would be severely jeopardized.

In addition, severe weather events, such as droughts, and any measures taken by governments in response to such severe weather events, may materially affect our operations. For further information, see “–“— Our operational results could also be materially and adversely affected by disruptive events, such as earthquakes and droughts, or by industrial accidents, in the locations in which we, our customers or our suppliers operate or by industrial accidents, fires or explosions.operate.”

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Our inability to timely obtain approvals necessary for the conduct of our business could impair our operational and financial results. For example, if we are unable to timely obtain environmental related approvals needed to undertake the development and construction of a new fab or expansion project, then such inability may delay, limit, or increase the cost of our expansion plans that could also in turn adversely affect our business and operational results. In light of increased public interest in environmental issues, our operations and expansion plans may be adversely affected or delayed responding to public concern and social environmental pressures even if we comply with all applicable laws and regulations.

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Risks Relating to Ownership of ADSs

Your voting rights as a holder of ADSs will be limited.

Holders of American Depositary Receipts (ADRs) evidencing ADSs may exercise voting rights with respect to the common shares represented by these ADSs only in accordance with the provisions of our ADS deposit agreement. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our common shares, the depositary bank will, as soon as practicable thereafter, mail to the holders (i) the notice of the meeting sent by us, (ii) voting instruction forms and (iii) a statement as to the manner in which instructions may be given by the holders.

ADS holders will not generally be able to exercise the voting rights attaching to the deposited securities on an individual basis. According to the provisions of our ADS deposit agreement, the voting rights attaching to the deposited securities must be exercised as to all matters subject to a vote of shareholders collectively in the same manner, except in the case of an election of directors. Election of directors is by means of cumulative voting. See “Item 10. Additional Information – Voting of Deposited Securities” for a more detailed discussion of the manner in which a holder of ADSs can exercise its voting rights.

You may not be able to participate in rights offerings and may experience dilution of your holdings.

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under our ADS deposit agreement, the depositary bank will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the United States Securities Act of 1933, as amended, (the “Securities Act”), with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. Although we may be eligible to take advantage of certain exemptions for rights offerings by certain foreign companies, we can give no assurance that we can establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to have such a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

If the depositary bank is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.

The value of your investment may be reduced by possible future sales of common shares or ADSs by us or our shareholders or fluctuations in foreign exchange.

One or more of our existing shareholders may, from time to time, dispose of significant numbers of our common shares or ADSs. For example, the National Development Fund of the R.O.C., which owned 6.38% of TSMC’s outstanding shares as of February 28, 2021,2023, had from time to time in the past sold our shares in the form of ADSs in several transactions.

We cannot predict the effect, if any, that future sales of ADSs or common shares, or the availability of ADSs or common shares for future sales, will have on the market price of ADSs or common shares prevailing from time to time. Sales of substantial amounts of ADSs or common shares in the public market, or the perception that such sales may occur, could depress the prevailing market price of our ADSs or common shares. In addition, fluctuations in the exchange rate between the U.S. dollar and the NT dollar may affect the U.S. dollar value of our common shares and the market price of the ADSs and the U.S. dollar value of any cash dividends paid in NT dollars on our common shares represented by ADSs.

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Our History and Structure

Our legal and commercial name is台is台灣積體電路製造股份有限公司 (Taiwan Semiconductor Manufacturing Company Limited). We believe we are currently the world’s largest dedicated foundry in the semiconductor industry. We were founded in 1987 as a joint venture among the R.O.C. government and other private investors and were incorporated in the R.O.C. as a company limited by shares on February 21, 1987. Our common shares have been listed on the Taiwan Stock Exchange since September 5, 1994, and our ADSs have been listed on the New York Stock Exchange (“NYSE”) since October 8, 1997.

Our Principal Office

Our principal executive office is located at No. 8, Li-Hsin Road 6, Hsinchu Science Park, Hsinchu, Taiwan, Republic of China. Our telephone number at that office is (886-3) 563-6688. Our website is www.tsmc.com. Information contained on our website is not incorporated herein by reference and does not constitute part of this annual report.

Business Overview of the Company

As a foundry, we manufacture semiconductors using our manufacturing processes for our customers based on proprietary integrated circuit designs provided by them. We offer a comprehensive range of wafer fabrication processes, including processes to manufacture complementary metal oxide siliconmetal-oxide-semiconductor (“CMOS”) logic, mixed-signal, radio frequency (“RF”), embedded memory, bipolar complementary metal oxide siliconmetal-oxide-semiconductor (“BiCMOS”, which uses CMOS transistors in conjunction with bipolar junction transistor) mixed-signal and other semiconductors.others. We also offer design, mask making, TSMC 3DFabric^TM advanced packaging and silicon stacking technologies and testing services. We produced 2430 percent of the world semiconductor excluding memory output value in 2020,2022, as compared to 2126 percent in the previous year. We also offer design, mask making, TSMC 3DFabric^TM advanced 3D chip stacking and packaging, and testing services.

We believe that our largescale and capacity, particularly for advanced technologies, is a major competitive advantage. Please see “– Semiconductor Manufacturing Capacity and Technology” and “– Capacity Management and Technology Upgrade Plans” for a further discussion of our capacity.

We count among our customers many of the world’s leading semiconductor companies, ranging from fabless semiconductor companies, system companies to integrated device manufacturers, including, but not limited to, Advanced Micro Devices, Inc., Amazon Web Services, Inc., Broadcom Limited, Intel Corporation, MediaTek Inc., NVIDIA Corporation, NXP Semiconductors N.V., OmniVision Technology Inc., Qualcomm Inc., Renesas Electronics Corporation, Sony Semiconductor Solutions Corporation, and STMicroelectronics N.V., and Xilinx Inc.

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Semiconductor Manufacturing Capacity and Technology

We manufacture semiconductors on silicon wafers based on proprietary circuitry designs provided by our customers. Two key factors that characterize a foundry’s manufacturing capabilities are output capacity and fabrication process technologies. Since our establishment, we have possessed the largest capacity among the world’s dedicated foundries. We also believe that we are the technology leader among the dedicated foundries in terms of our net revenue of advanced semiconductors with a resolution of 16-nanometer7-nanometer and below, and are one of the leaders in the semiconductor manufacturing industry generally. In 2020, our 7-nanometerfor mainstream and specialty technologies. Our 5-nanometer technology in its third year of volume production, shipped over one billion good dies for our customers. Our 7-nanometer Plus technology also entered its second year of volume production using Extreme Ultraviolet (EUV) lithography technology, while our 6-nanometer technology, which provides a clear migration path for next wave 7-nanometer products, entered volume production in 2020 as well. In addition, our 5-nanometerand 3-nanometer technology successfully entered volume production in 2020. We2020 and 2022, respectively. Also, we are continuing to make progress on the development of 3-nanometer technology.2-nanometer technology, which we expect to enter volume production in 2025.

The following table lists our wafer fabs and those of our subsidiaries in operation as of February 28, 2021,2023, together with the year of commencement of commercial production, wafer size and the most advanced technology for volume production:

In 2020,2022, our annual capacity (in 12-inch equivalent wafers) was approximately 13.015 million wafers, compared to approximately 12.314 million wafers in 2019.2021. This increase was primarily from the expansion of our 5-nanometer and 7-nanometer advanced technologies.

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We are entering a period of higher growth as the multiyear megatrends of 5G and HPChigh performance computing are expected to fuel strong demand for our semiconductor technologies in the next several years. In addition,years, after the COVID-19 pandemic also acceleratesaccelerated digitalization in every aspect. In order to keep up with demand, we expect to invest US$100 billion over the next three years to increase capacity to support the manufacturing and R&D of advanced semiconductor technologies. We are working closely with our customers to address their needs in a sustainable manner.

These investment plans are preliminary and may change according to market conditions.

Markets and Customers

We categorize our net revenue mainly based on the countries where our customers are headquartered, which may be different from the countries to which we actually sell or ship our products or different from where products are actually ordered. Under this approach, the following table presents a geographic breakdown of our net revenue during the periods indicated:

In 2020,2022, our net revenue increased from all geographies by a total of NT$269,270676,476 million compared to 2019,2021, which was mainly due to an increase in orders from North America of NT$186,974498,660 million, or a 29%48% year-over-year increase, from China of NT$80,617 million, or a 49% year-over-year increase and from Asia PacificJapan of NT$47,90547,178 million, or a 50%66% year-over-year increase. In 2019,2021, our net revenue increased by a total of NT$38,511248,160 million from 2018,compared to 2020, which was mainly due to an increase in orders from ChinaNorth America of NT$32,307208,471 million, or an 18%a 25% year-over-year increase, from Asia Pacific of NT$81,502 million, or a 56% year-over-year increase and from Asia PacificEMEA of NT$7,07818,796 million, or an 8%a 27% year-over-year increase. The increase was partially offset by a decrease in orders from China of NT$69,231 million, or a 30% year-over-year decrease.

We provide worldwide customer support. Our office in Hsinchu and wholly-owned subsidiaries in the United States, Canada, Japan, China, the Netherlands and South Korea are dedicated to serving our customers worldwide. Foundry services, which are both technologically and logistically intensive, involve frequent and in-depth interaction with customers. We believe that the most effective means of providing foundry services is by developing direct and close relationships with our customers. Our customer service and technical support managers work closely with the sales force to offer integrated services to customers. To facilitate customer interaction and information access on a real-time basis, a suite of web-based applications have also been offered to provide more active interactions with customers in design, engineering and logistics.

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Types of Semiconductors We Manufacture. We manufacture different types of semiconductors with different specific functions by changing the number and the combinations of conducting, insulating and semiconducting layers and by defining different patterns in which such layers are applied on the wafer. At any given point in time, there are thousands of different products in various stages of fabrication at our fabs. We believe that the keys to maintaining high production quality and utilization rates are our effective management and control of the manufacturing process technologies which comes from our extensive experience as the longest existing dedicated foundry and our dedication to quality control and process improvements. Our semiconductors are used for a variety of different platforms. The principal platforms include:

Smartphone Platform: We offer leading process technologies such as 5-nanometer Fin Field-Effect Transistor (“FinFET”), 6-nanometer FinFET, 7-nanometer FinFET plus, and 7-nanometer FinFET logic process technologies, as well as comprehensive intellectual properties for premium product applications to further enhance chip performance, reduce power consumption, and decrease chip size. For mainstream product applications, we offer leading process technologies such as 6-nanometer FinFET, 12-nanometer FinFET compact plus (“12FFC+”), 12-nanometer FinFET compact (“12FFC”), 16-nanometer FinFET compact plus (“16FFC+”), 16-nanometer FinFET compact (“16FFC”), 28-nanometer high performance compact (“HPC”), 28-nanometer high performance mobile compact plus (“28HPC+”), and 22-nanometer ultra-low power (“22ULP”) logic process technologies, in addition to comprehensive intellectual properties, to satisfy customer needs for high-performance and low-power chips. Furthermore, for premium, high-end, mid-end, and entry-level product applications, we offer the most competitive, leading-edge specialty technologies to deliver specialty companion chips for customers’ logic application processors, including RF, embedded flash memory, emerging memory technologies, power management, sensors, and display chips, as well as advanced TSMC 3DFabric^TM packaging technologies such as the leading integrated fan-out (“InFO”) technology.

High Performance Computing Platform: Platform: Driven by data explosion and application innovation, high performance computing has become one of the key growth drivers for our business. We provide customers, both fabless IC design companies and system companies, with leading-edge process technologies such as 5-nanometer3-nanometer Fin Field-Effect Transistor (“FinFET”), 4-nanometer FinFET, 6-nanometer5-nanometer FinFET, 6-nanometer FinFET, 7-nanometer FinFET and 12-nanometer/ 16-nanometer FinFET, as well as comprehensive intellectual properties including high-speed interconnect intellectual properties to meet customers’ product requirements for transferring and processing vast amounts of data anywhere and anytime. In particular, we introduced our first HPC-focused technology, N4X, representing the ultimate performance and maximum clock frequencies in our 5-nanometer family. Based on advanced process nodes, a variety of high performance computingHPC products have been launched, such as personal computer central processing units (CPUs)(“CPUs”), graphics processor units (GPUs)(“GPUs”), field programmable gate arrays (FPGAs)(“FPGAs”), server processors, accelerator,accelerators, and high-speed networking chips, etc. ThoseThese products can be used in current and future 5G,5G/6G infrastructure, AI, cloud, and enterprise data centers. We also offer multiple advanced TSMC 3DFabric^TM advanced packaging and silicon stacking technologies, such as Chip-on-Wafer-on-Substrate (“CoWoS^®”), InFO,Integrated Fan-Out (“InFO”), and System on Integrated Chip (“TSMC-SoIC^®”), to enable homogeneous and heterogeneous chip integration to meet customers’ requirements for high performance, high compute density and high energy efficiency, low latency and high integration. We will continue to optimize our high performance computingHPC platform and strengthen collaboration with customers to help customers capture market growth in HPC markets.

Smartphone Platform: For customers’ premium product applications, we offer leading logic process technologies such as 3-nanometer FinFET, 4-nanometer FinFET and 5-nanometer FinFET, as well as comprehensive intellectual properties to further enhance chip performance, reduce power consumption, and decrease chip size. For mainstream product applications, we offer a broad range of logic process technologies, including 6-nanometer FinFET, 7-nanometer FinFET plus, 7-nanometer FinFET, 12-nanometer FinFET compact plus (“12FFC+”), 12-nanometer FinFET compact (“12FFC”), 16-nanometer FinFET compact plus (“16FFC+”), 16-nanometer FinFET compact (“16FFC”), 28-nanometerhigh performance computing markets.compact (“28HPC”), 28-nanometer high performance mobile compact plus (“28HPC+”), and 22-nanometer ultra-low power (“22ULP”), in addition to comprehensive intellectual properties, to satisfy customer needs for high-performance and low-power chips. Furthermore, for premium and mainstream product applications, we offer highly competitive, leading-edge specialty technologies to deliver specialty companion chips for customers’ logic application processors, including RF, embedded flash memory, emerging memory, power management ICs, sensors, and display chips, as well as TSMC 3DFabric^TM advanced packaging technologies, such as industry-leading InFO technology.

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Digital Consumer Electronics (“DCE”) Platform: We provide customers with leading and comprehensive technologies to deliver AI-enabled smart devices for DCE applications, including digital TV (“DTV”), set-top box (“STB”), digital still camera, AI-embedded smart camera, and associated wireless local area network (“WLAN”), power IC,management ICs, timing controller (“T-CON”) and so on. Our leading 7-nanometer FinFET, compact, 16FFC/12FFC, 22ULP/22ULL and 28HPC+ technologies have been widely adopted by leading global makers forof 8K/4K DTV, 4K streaming STB,STB/ over-the-top (“OTT”), digital single-lens reflex (“DSLR”) devices, and so on. We will continue to make these technologies more cost competitive through die size shrink for customers’ digital intensive chip designs, and to drive lower power consumption for more cost-effective packaging.

The following table presents a breakdown of our net revenue by platform during the periods indicated:

Due to accelerated digital transformation caused by COVID-19, theThe increase in our net revenue from 20192021 to 20202022 mainly came from the High Performance Computing Platform of NT$123,989344,604 million, or a 39%59% year-over-year increase, and from the Smartphone Platform of NT$121,690193,788 million, or a 23%28% year-over-year increase. The increase also came from the Internet of Things Platform of NT$24,01263,109 million, or a 28%47% year-over-year increase. The increase in our net revenue from 20182020 to 20192021 mainly came from the Smartphone Platform of NT$57,161 million, or a 12% year-over-year increase, and from the IoT Platform of NT$21,251 million, or a 33% year-over-year increase. The increase was partially offset by a decrease from the High Performance Computing Platform of NT$26,088147,970 million, or a 34% year-over-year increase, and from the Smartphone Platform of NT$49,787 million, or an 8% year-over-year decrease.increase. The increase also came from the Automotive Platform of NT$22,710 million, or a 51% year-over-year increase.

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Customer Service

We believe that our dedication to customer service has been an indispensable factor in attracting new customers, helping to ensure the satisfaction of existing customers, and building a mutually beneficial relationship with our customers. The key elements are our:

We also conduct an annual customer satisfaction survey to assess customer satisfaction and to ensure that their needs are adequately understood and addressed. Continuous improvement plans based upon customer feedback are an integral part of this business process. We use data derived from the survey as a base to identify future focus areas. We believe that satisfaction leads to better customer relationships, which would result in more business opportunities.

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Equipment

The quality and technology of the equipment used in the semiconductor manufacturing process are important in that they effectively define the limits of our process technologies. Advances in process technologies cannot be brought about without commensurate advances in equipment technology. We have periodic meetings with important suppliers with respect to co-developing next-generation equipment.

The principal pieces of equipment used by us to manufacture semiconductors are scanners, cleaners and track equipment, inspection equipment, etchers, furnaces, wet stations, strippers, implanters, sputterers, chemical vapor deposition (CVD) equipment, chemical mechanism polish (CMP) equipment, testers and probers. Other than certain equipment under leases located at testing areas, we own all of the equipment used at our fabs.

In implementing our capacity management and technology advancement plans, we expect to make significant purchases of equipment required for semiconductor manufacturing. Some of the equipment is available from a limited number of vendorssuppliers and/or is manufactured in relatively limited quantities, and certain equipment has only recently been developed. We believe that ourwell management of the relationships with our equipment suppliers are good and that we have enjoyed the advantages of beingis important for us as a major purchaser of semiconductor fabrication equipment. We work closely with manufacturers tothat provide equipment customized to our needs for certain advanced technologies.

Raw Materials

Our manufacturing processes use many raw materials, primarily silicon wafers, chemicals, gases and various types of precious metals. Although most of our raw materials are available from multiple suppliers, some materials are purchased through sole-sourced vendors.suppliers. Our raw material procurement policy is to select only those vendorssuppliers who have demonstrated quality control and reliability on delivery time and to maintain multiple sources for each raw material whenever possible so that a quality or delivery problem with any one vendorsupplier will not adversely affect our operations. The quality and delivery performance of each vendorsupplier is evaluated quarterly and quantity allocations are adjusted for subsequent periods based on the evaluation.

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To fulfill our commitment to environmental sustainability in our business and operations, we have continued to explore and participate in initiatives to expand our use of renewable energy. We participatedIn 2022, TSMC used in the R.O.C. Ministry of Economic Affairs’ voluntary “green power purchasing program” between 2015 and 2017, purchasing a total of 400 GWh in clean energy, and were Taiwan’s largest purchaser of clean energy over that period. Between 2018 and 2020, we purchased an additional 2,7652,191 GWh in renewable energy, renewable energy certificates, and carbon credits globally, of which approximately 1,225 GWh enabled our overseas sites to be 100% powered by clean energy. Following Taiwan’senergy for the fifth consecutive year. As of the end of 2022, we have signed power liberalization, we are expanding our usepurchase agreements to purchase 2.9 GW of renewable energy. In May 2020, we participated in Taiwan’s first group of energy, wheeling transactions with 12 other companies and, as of December 31, 2020, we have entered into renewable energy purchase agreements that are expected to bring our total renewable energy capacity to 1.3 GW by 2025, thereby eliminating an estimated 2.24.6 million metric tons of carbon dioxide equivalent emissions per year.

Environmental, Social and Governance (ESG)(“ESG”) Initiatives

We believe that our innovative technologies and services can help to bring positive changes and make positive contributions to the global society.community. We are strongly committed to pursuing a sustainable future and achieving our vision of contributing to society through a range of ESG initiatives. In 2011, we established the Corporate Social Responsibility Committee (renamed as the ESG Committee sincein 2021) and, which is in compliance with the vision and mission of the TSMC Corporate Social Responsibility Policy TSMC has(renamed as the ESG Policy in 2021). We have been further connected to the international sustainability trend by establishing a CSR Executive Committee in 2019 (renamed as the ESG Steering Committee sincein 2021), which is comprised of senior management personnelexecutives from various functions and tasked to developwith developing our future ESG strategy.strategies. In addition, we have mapped out a blueprint for sustainable development that connects TSMC’sour core advantages with United Nations’ sustainable development goals.Sustainable Development Goals (SDGs).

We currently focus our ESG efforts in the following key areas:

Driving Green manufacturing. We aim to lead the industry in developing advanced semiconductor technologies and employing green product and process innovations to help address the impacts of climate change. We are committed to green manufacturing that implements continuous improvement projects in the areas of climate change, energy management, water management, waste management, and air pollution control.

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Risk Management

We maintainare committed to maintaining a comprehensiveproactive and robust enterprise risk management (“ERM”) system, as well as fostering a risk-aware culture, to integrateenable us to respond to the preventiondynamic business environment and controlshifting business demands and capitalize new opportunities. The Board of risk. Directors has delegated risk oversight responsibilities to the Audit Committee (renamed as “Audit and Risk Committee”, effective as of February 14, 2023), which is authorized to review our ERM framework, including risk governance, risk management policy, ERM procedures and implementation status. Adhering to the International Organization for Standardization (“ISO”) and Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) standards, our ERM framework was established to provide a systematic approach for risk management, which outlines the risk governance structure, processes and tools to assist with the identification, assessment, response, monitoring and reviewing of risks, and thereby assisting the management in making informed decisions to implement business strategies and achieve corporate objectives.

We have also prepared emergencyimplemented pre-crisis risk assessments, response crisis managementprocedures and business continuityrecovery plans to respond to natural disasters and other disruptive events such as cyberattacks or epidemicepidemic/pandemic outbreaks that could interrupt the operation of our business. These plans have beenwere developed in orderaccordance with business continuity management standards. Continuous efforts to prevent or reduce the loss of personnel or damageenhance our operational resilience through ongoing exercises will enable us to our facilities, equipment and machinery caused by natural disasters and other disruptive events. respond effectively to a business disruption.

We also maintain insurance with respect to our facilities, equipment and inventories. The insurance for the fabs and their equipment covers, subject to some limitations, various risks, including earthquake, fire, typhoons, earthquakestyphoon and other risks generally up to the respective policy limit for their replacement values and lost profits due to business interruption. In addition, we have insurance policies covering losses with respect to the construction of all our fabs. Equipment and inventories in transit are also insured. No assurance can be given, however, that insurance will fully cover any losses and our emergency response plans will be effective in preventing or reducing losses in the future.losses.

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Xintec, Inc. (“Xintec”). In January 2007, we acquired a 51.2% equity interest in Xintec, a supplier of wafer level packaging service, to support our CMOS image sensor manufacturing business. In March 2015, Xintec listed its shares on the Taipei Exchange. Subsequent to Xintec’s IPO, our shareholding in Xintec was diluted to approximately 41.2%. As of February 28, 2021,2023, we owned approximately 41.0% of the equity interest in Xintec. Please see “Item 7. Major Shareholders and Related Party Transactions” for a further discussion.

TSMC Nanjing. In May 2016, we established TSMC Nanjing (of which the manufacturing entity is Fab 16), a wholly-owned subsidiary primarily engaged in the manufacture and sale of integrated circuits. TSMC Nanjing commenced commercial production in April 2018.

TSMC Arizona. In November 2020, we established TSMC Arizona, a wholly-owned subsidiary that is expected to be primarily engaged in the manufacture and sale of integrated circuits. TSMC Arizona plans to spend approximately US$12 billion from 2021 to 2029 to build and operate an advanced semiconductor manufacturing facility, Fab 21, in Phoenix, Arizona. Construction on the Phoenix area, creating over 1,900 high-tech professional jobs directly.

Under the terms of the development agreement entered into between TSMC Arizona and the City of Phoenix, the City of Phoenix commits approximately US$205 million toward various public infrastructure projectssite commenced in the area of the proposed manufacturing facility, conditioned on TSMC Arizona’s achieving a minimum project scale with defined spending and job-creation thresholds.April 2021. TSMC Arizona targets to commence commercial production in 2024. In December 2022, we announced a plan for TSMC Arizona to build and operate a second semiconductor manufacturing facility for commercial production in 2026.

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Pricing. We establish pricing levels for specific periods of time with our customers, some of which are subject to adjustment during the course of that period to take into account market conditions and other factors. We believe that customers find value in our flexible manufacturing capabilities, focus on customer service and timely delivery of high yield products, and this value is reflected in our pricing. Our pricing enables us to continue to invest significantly in research and development to deliver ever-improving products to our customers.

Production Capacity. We currently own and operate our semiconductor manufacturing facilities. For the year of 20192021 and 2020,2022, our production capacity was approximately 1214 million and 1315 million 12-inch equivalent wafers, respectively.

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Critical Accounting Policies and Judgments

Revenue Recognition. We recognize revenue when performance obligations are satisfied. Our performance obligations are satisfied when customers obtain control of the promised goods, which is generally when the goods are delivered to our customers’ specified locations.

Commencement of Depreciation Related to Property, Plant and Equipment Classified as Equipment under Installation and Construction in Progress (EUI/CIP). Commencement of depreciation related to EUI/CIP involves determining when the assets are available for their intended use. The criteria we use to determine whether EUI/CIP are available for their intended use involves subjective judgments and assumptions about the conditions necessary for the assets to be capable of operating in the intended manner.

Judgments on Lease Terms. In determining a lease term, we consider all facts and circumstances that create an economic incentive to exercise or not to exercise an option, including any expected changes in facts and circumstances from the commencement date until the exercise date of the option. Main factors considered include contractual terms and conditions covered by the optional periods, and the importance of the underlying asset to the lessee’s operations, etc. The lease term is reassessed if a significant change in circumstances that are within our control occurs. See note 4 to our 2019 consolidated financial statements for further information regarding the initial application of IFRS 16.

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When we determine that the carrying value of tangible assets, right-of-use assets and intangible assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any impairment for tangible assets, right-of-use assets and intangible assets based on projected future cash flow. If the tangible assets, right-of-use assets or intangible assets are determined to be impaired, we recognize an impairment loss through a charge to our operating results to the extent the recoverable amount, measured at the present value of discounted cash flows attributable to the assets, is less than their carrying value. Such cash flow analysis includes assumptions about expected future economic and market conditions, the applicable discount rate, and the future revenue generation from the use or disposition of the assets. We also perform a periodic review to identify assets that are no longer used and are not expected to be used in future periods and record an impairment charge to the extent that the carrying amount of the tangible assets, right-of-use assets and intangible assets exceeds the recoverable amount. If the recoverable amount subsequently increases, the impairment loss previously recognized will be reversed to the extent of the increase in the recoverable amount, provided that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years.

In the process of evaluating the potential impairment of tangible assets, right-of-use assets and intangible assets other than goodwill, we are required to review for impairment groups of assets related to the lowest level of identifiable independent cash flows. We determine the independent cash flows that can be related to specific asset groups. In addition, we determine the remaining useful lives of assets and the expected future revenue and expenses associated with the assets. Any change in these estimates based on changed economic conditions or business strategies could result in significant impairment charges or reversal in future periods. Our projection for future cash flow is generally lower during periods of reduced earnings. As a result, an impairment charge is more likely to occur during a period when our operating results are already otherwise depressed.

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