NOTES TO THE CONSOLIDATED CONDENSED INTERIM
FINANCIAL STATEMENTS
1
|
General information
|
2
|
Accounting policies and basis of presentation
|
3
|
Segment information
|
4
|
Cost of sales
|
5
|
Selling, general and administrative expenses
|
6
|
Financial results
|
7
|
Dividend distribution
|
8
|
Property, plant and equipment, net
|
9
|
Intangible assets, net
|
10
|
Right-of-use assets, net and lease liabilities
|
11
|
Cash and cash equivalents and other investments
|
12
|
Derivative financial instruments
|
13
|
Contingencies, commitments and restrictions to the distribution of profits
|
14
|
Investments in non-consolidated companies
|
15
|
Nationalization of Venezuelan Subsidiaries
|
16
|
Agreement for acquisition and other business agreements
|
17
|
Business combinations
|
18
|
Related party transactions
|
19
|
Category of financial instruments and classification within the fair value hierarchy
|
20
|
Subsequent event
|
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
NOTES TO THE CONSOLIDATED CONDENSED INTERIM
FINANCIAL STATEMENTS
(In the notes all amounts are shown in
U.S. dollars, unless otherwise stated)
Tenaris S.A. (the "Company")
was established as a public limited liability company (
société anonyme
) under the laws of the Grand-Duchy
of Luxembourg on December 17, 2001. The Company holds, either directly or indirectly, controlling interests in various subsidiaries
in the steel pipe manufacturing and distribution businesses. References in these Consolidated Condensed Interim Financial Statements
to "Tenaris" refer to Tenaris S.A. and its consolidated subsidiaries. A list of the principal Company’s subsidiaries
is included in Note 29 to the Company’s audited Consolidated Financial Statements for the year ended December 31, 2018.
The Company’s shares trade on the
Buenos Aires Stock Exchange, the Italian Stock Exchange and the Mexican Stock Exchange; the Company’s American Depositary
Securities (“ADS”) trade on the New York Stock Exchange.
These Consolidated Condensed Interim Financial
Statements were approved for issuance by the Company’s Board of Directors on July 31, 2019.
|
2
|
Accounting policies and basis of presentation
|
These Consolidated Condensed Interim Financial
Statements have been prepared in accordance with IAS 34, “Interim Financial Reporting”. The accounting policies used
in the preparation of these Consolidated Condensed Interim Financial Statements are consistent with those used in the audited Consolidated
Financial Statements for the year ended December 31, 2018 except for the adoption of new and amended standards as set out below.
These Consolidated Condensed Interim Financial Statements should be read in conjunction with the audited Consolidated Financial
Statements for the year ended December 31, 2018, which have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standard Board (“IASB”) and in conformity
with IFRS as adopted by the European Union (“EU”).
The preparation of Consolidated Condensed
Interim Financial Statements requires management to make certain accounting estimates and assumptions that might affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet dates, and the
reported amounts of revenues and expenses for the reported periods. Actual results may differ from these estimates.
Material inter-company transactions, balances
and unrealized gains (losses) on transactions between Tenaris’s subsidiaries have been eliminated in consolidation. However,
since the functional currency of some subsidiaries is its respective local currency, some financial gains (losses) arising from
inter-company transactions are generated. These are included in the Consolidated Condensed Interim Income Statement under
Other
financial results
.
There were no significant changes in valuation
techniques during the period and there have been no changes in any risk management policies since the year ended December 31, 2018.
Whenever necessary, certain comparative amounts
have been reclassified to conform to changes in presentation in the current period.
Accounting pronouncements applicable
as from January 1, 2019 and relevant for Tenaris
IFRS 16, “Leases”
Tenaris has
adopted IFRS 16 “
Leases”
from 1 January 2019. In accordance with the transition
provisions in IFRS 16, Tenaris has adopted the new rules using the modified retrospective approach, meaning that reclassifications
of the adoption was recognized in the opening balance sheet as of January 1, 2019 and that comparatives were not restated.
Upon adoption of IFRS 16, Tenaris recognized
lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles
of IAS 17 “Leases”. These liabilities were measured at the present value of the remaining lease payments, discounted
using the lessee’s incremental borrowing rate as of 1 January 2019. The associated right-of-use assets were measured at the
amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized
in the balance sheet as of December 31, 2018. The difference between the amount of the lease liability recognized in the statement
of financial position at the date of initial application and the operating lease commitments under IAS 17 is related to leases
with a duration lower than 12 months, low value leases and/or leases with clauses related to variable payments.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
|
2.
|
Accounting policies and basis of presentation (Cont.)
|
Accounting pronouncements applicable
as from January 1, 2019 and relevant for Tenaris (Cont.)
IFRS 16, “Leases” (Cont.)
Leases are recognized as a right-of-use asset
and a corresponding liability at the date at which the leased asset is available for use by the group. Each lease payment is allocated
between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated
over the shorter of the asset's useful life and the lease term on a straight-line basis.
Lease liabilities include the net present
value of i) fixed payments, less any lease incentives receivable, ii) variable lease payments that are based on an index or a rate,
iii) amounts expected to be payable by the lessee under residual value guarantees, iv) the exercise price of a purchase option
if the lessee is reasonably certain to exercise that option, and v) payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using
the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used,
being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar
economic environment with similar terms and conditions.
Right-of-use assets are measured at cost
comprising the amount of the initial measurement of lease liability, any lease payments made at or before the commencement date
less any lease incentives received and any initial direct costs incurred by the lessee.
Payments associated with short-term leases
and leases of low-value assets are recognized on a straight-line basis as an expenses in profit or loss. Short-term leases are
leases with a lease term of 12 months or less. Low-value comprise mainly IT equipment and small items of office furniture.
In determining the lease term, management
considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination
option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably
certain to be extended (or not terminated).
None of the accounting pronouncements
issued after December 31, 2018 and as of the date of these Consolidated Condensed Interim Financial Statements has a material effect
on the Company’s financial condition or result of operations.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
3 Segment
information
Reportable operating segment
(All
amounts in millions of U.S. dollars
)
Six-month period ended June 30, 2019
|
|
Tubes
|
|
Other
|
|
Total
|
IFRS - Net Sales
|
|
|
3,578
|
|
|
|
212
|
|
|
|
3,790
|
|
Management view - operating income
|
|
|
476
|
|
|
|
36
|
|
|
|
512
|
|
Difference in cost of sales
|
|
|
(27
|
)
|
|
|
2
|
|
|
|
(25
|
)
|
Differences in depreciation and amortization
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
Differences in selling, general and administrative expenses
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
Differences in other operating income (expenses), net
|
|
|
6
|
|
|
|
-
|
|
|
|
6
|
|
IFRS - operating income
|
|
|
455
|
|
|
|
39
|
|
|
|
494
|
|
Financial income (expense), net
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Income before equity in earnings of non-consolidated companies and income tax
|
|
|
|
|
|
|
|
|
|
|
512
|
|
Equity in earnings of non-consolidated companies
|
|
|
|
|
|
|
|
|
|
|
55
|
|
Income before income tax
|
|
|
|
|
|
|
|
|
|
|
567
|
|
Capital expenditures
|
|
|
177
|
|
|
|
6
|
|
|
|
183
|
|
Depreciation and amortization
|
|
|
258
|
|
|
|
9
|
|
|
|
267
|
|
Six-month period ended June 30, 2018
|
|
Tubes
|
|
Other
|
|
Total
|
IFRS - Net Sales
|
|
|
3,452
|
|
|
|
203
|
|
|
|
3,655
|
|
Management view - operating income
|
|
|
290
|
|
|
|
35
|
|
|
|
325
|
|
Difference in cost of sales
|
|
|
103
|
|
|
|
3
|
|
|
|
106
|
|
Differences in depreciation and amortization
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
Differences in selling, general and administrative expenses
|
|
|
-
|
|
|
|
6
|
|
|
|
6
|
|
IFRS - operating income
|
|
|
391
|
|
|
|
44
|
|
|
|
435
|
|
Financial income (expense), net
|
|
|
|
|
|
|
|
|
|
|
31
|
|
Income before equity in earnings of non-consolidated companies and income tax
|
|
|
|
|
|
|
|
|
|
|
466
|
|
Equity in earnings of non-consolidated companies
|
|
|
|
|
|
|
|
|
|
|
87
|
|
Income before income tax
|
|
|
|
|
|
|
|
|
|
|
553
|
|
Capital expenditures
|
|
|
194
|
|
|
|
2
|
|
|
|
196
|
|
Depreciation and amortization
|
|
|
274
|
|
|
|
8
|
|
|
|
282
|
|
In
the six-month period ended June 30, 2019 and 2018, transactions between segments, which were eliminated in consolidation, are mainly
related to sales of scrap, energy, surplus raw materials and others from the Other segment to the Tubes segment for $14 million
and $26 million respectively. In addition to the amounts reconciled above, the main differences in net income arise from the impact
of functional currencies on financial result, deferred income taxes as well as the result of investment in non-consolidated companies
and changes on the valuation of inventories according to cost estimation internally defined.
Geographical information
(all amounts in thousands of U.S. dollars)
|
|
North America
|
|
South America
|
|
Europe
|
|
Middle East & Africa
|
|
Asia Pacific
|
|
Total
|
Six-month period ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,822,159
|
|
|
|
740,633
|
|
|
|
401,451
|
|
|
|
636,016
|
|
|
|
189,465
|
|
|
|
3,789,724
|
|
Capital expenditures
|
|
|
94,560
|
|
|
|
62,353
|
|
|
|
20,392
|
|
|
|
2,474
|
|
|
|
3,285
|
|
|
|
183,064
|
|
Depreciation and amortization
|
|
|
136,171
|
|
|
|
52,998
|
|
|
|
40,790
|
|
|
|
20,229
|
|
|
|
16,367
|
|
|
|
266,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-month period ended June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,690,341
|
|
|
|
679,178
|
|
|
|
380,838
|
|
|
|
763,002
|
|
|
|
141,360
|
|
|
|
3,654,719
|
|
Capital expenditures
|
|
|
110,708
|
|
|
|
40,049
|
|
|
|
41,613
|
|
|
|
808
|
|
|
|
2,553
|
|
|
|
195,731
|
|
Depreciation and amortization
|
|
|
166,903
|
|
|
|
55,277
|
|
|
|
44,077
|
|
|
|
5,217
|
|
|
|
10,729
|
|
|
|
282,203
|
|
Allocation of net sales to geographical
information is based on customer location. Allocation of depreciation and amortization is based on the geographical location of
the underlying assets.
There are no revenues from external customers
attributable to the Company’s country of incorporation (Luxembourg). For geographical information purposes, “North
America” comprises Canada, Mexico and the USA; “South America” comprises principally Argentina, Brazil and Colombia;
“Europe” comprises principally Italy, Romania and the United Kingdom; “Middle East and Africa” comprises
principally Saudi Arabia, Kazakhstan, Nigeria and United Arab Emirates and “Asia Pacific” comprises principally China,
Japan, Indonesia and Thailand.
Revenue is mainly recognized at a point
in time to direct customers, when control has been transferred and there is no unfulfilled performance obligation that could affect
the acceptance of the product by the customer.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
4 Cost
of sales
|
|
Six-month period ended June 30,
|
(all amounts in thousands of U.S. dollars)
|
|
2019
|
|
2018
|
|
|
(Unaudited)
|
Inventories at the beginning of the period
|
|
|
2,524,341
|
|
|
|
2,368,304
|
|
Increase in inventories due to business combinations
|
|
|
56,996
|
|
|
|
-
|
|
Plus: Charges of the period
|
|
|
|
|
|
|
|
|
Raw materials, energy, consumables and other
|
|
|
1,401,675
|
|
|
|
1,686,567
|
|
Services and fees
|
|
|
122,006
|
|
|
|
143,862
|
|
Labor cost
|
|
|
440,099
|
|
|
|
439,051
|
|
Depreciation of property, plant and equipment
|
|
|
212,991
|
|
|
|
217,179
|
|
Amortization of intangible assets
|
|
|
2,895
|
|
|
|
4,770
|
|
Depreciation of right-of-use assets
|
|
|
14,328
|
|
|
|
-
|
|
Maintenance expenses
|
|
|
129,112
|
|
|
|
100,810
|
|
Allowance for obsolescence
|
|
|
15,313
|
|
|
|
14,921
|
|
Taxes
|
|
|
73,281
|
|
|
|
16,497
|
|
Other
|
|
|
54,238
|
|
|
|
70,174
|
|
|
|
|
2,522,934
|
|
|
|
2,693,831
|
|
Less: Inventories at the end of the period
|
|
|
(2,432,657
|
)
|
|
|
(2,530,072
|
)
|
|
|
|
2,614,618
|
|
|
|
2,532,063
|
|
5 Selling,
general and administrative expenses
|
|
Six-month period ended June 30,
|
(all amounts in thousands of U.S. dollars)
|
|
2019
|
|
2018
|
|
|
(Unaudited)
|
Services and fees
|
|
|
77,968
|
|
|
|
64,458
|
|
Labor cost
|
|
|
242,001
|
|
|
|
239,563
|
|
Depreciation of property, plant and equipment
|
|
|
8,966
|
|
|
|
8,430
|
|
Amortization of intangible assets
|
|
|
20,481
|
|
|
|
51,824
|
|
Depreciation of right-of-use assets
|
|
|
6,894
|
|
|
|
-
|
|
Commissions, freight and other selling expenses
|
|
|
234,033
|
|
|
|
236,131
|
|
Provisions for contingencies
|
|
|
15,357
|
|
|
|
9,395
|
|
Allowances for doubtful accounts
|
|
|
(22,074
|
)
|
|
|
(6,661
|
)
|
Taxes
|
|
|
52,569
|
|
|
|
33,568
|
|
Other
|
|
|
47,779
|
|
|
|
50,500
|
|
|
|
|
683,974
|
|
|
|
687,208
|
|
6 Financial
results
(all amounts in thousands of U.S. dollars)
|
|
Six-month period ended June 30,
|
|
|
2019
|
|
2018
|
|
|
(Unaudited)
|
Interest Income
|
|
|
23,224
|
|
|
|
21,208
|
|
Net result on changes in FV of financial assets at FVTPL
|
|
|
(27
|
)
|
|
|
(2,226
|
)
|
Finance Income (*)
|
|
|
23,197
|
|
|
|
18,982
|
|
Finance Cost
|
|
|
(18,269
|
)
|
|
|
(20,596
|
)
|
Net foreign exchange transactions results (**)
|
|
|
17,555
|
|
|
|
28,070
|
|
Foreign exchange derivatives contracts results
|
|
|
(4,120
|
)
|
|
|
4,891
|
|
Other
|
|
|
(105
|
)
|
|
|
(644
|
)
|
Other Financial results
|
|
|
13,330
|
|
|
|
32,317
|
|
Net Financial results
|
|
|
18,258
|
|
|
|
30,703
|
|
(*) The six-month period ended June 2019
includes $3.8 million of interest related to instruments carried at FVTPL.
(**) The six-month period ended June 2019
and 2018 mainly includes the positive result from the Argentine peso depreciation against the U.S. dollar on Peso denominated liabilities
at Argentine subsidiaries which functional currency is the U.S. dollar. The six-month period ended June 2018 also includes the
positive impact from Euro depreciation against the U.S. dollar on Euro denominated intercompany liabilities in subsidiaries with
functional currency U.S. Dollar, largely offset by an increase in currency translation adjustment reserve from an Italian subsidiary.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
7 Dividend
distribution
On May 6, 2019, the Company’s
Shareholders approved an annual dividend in the amount of $0.41 per share ($0.82 per ADS). The amount approved included the interim
dividend previously paid in November 21, 2018 in the amount of $0.13 per share ($0.26 per ADS). The balance, amounting to $0.28
per share ($0.56 per ADS), was paid on May 22, 2019. In the aggregate, the interim dividend paid in November 2018 and the balance
paid in May 2019 amounted to approximately $484 million.
On May 2, 2018, the Company’s Shareholders
approved an annual dividend in the amount of $0.41 per share ($0.82 per ADS). The amount approved included the interim dividend
previously paid in November 22, 2017 in the amount of $0.13 per share ($0.26 per ADS). The balance, amounting to $0.28 per share
($0.56 per ADS), was paid on May 23, 2018. In the aggregate, the interim dividend paid in November 2017 and the balance paid in
May 2018 amounted to approximately $484 million.
8 Property,
plant and equipment, net
(all amounts in thousands of U.S. dollars)
|
|
2019
|
|
2018
|
|
|
(Unaudited)
|
Six-month period ended June 30,
|
|
|
|
|
Opening net book amount
|
|
|
6,063,908
|
|
|
|
6,229,143
|
|
Increase due to business combinations
|
|
|
178,739
|
|
|
|
-
|
|
Currency translation adjustment
|
|
|
(1,774
|
)
|
|
|
(42,303
|
)
|
Additions
|
|
|
164,112
|
|
|
|
177,583
|
|
Disposals
|
|
|
(4,483
|
)
|
|
|
(1,908
|
)
|
Transfers
|
|
|
(4,968
|
)
|
|
|
2,939
|
|
Depreciation charge
|
|
|
(221,957
|
)
|
|
|
(225,609
|
)
|
At June 30,
|
|
|
6,173,577
|
|
|
|
6,139,845
|
|
9 Intangible
assets, net
(all amounts in thousands of U.S. dollars)
|
|
2019
|
|
2018
|
|
|
(Unaudited)
|
Six-month period ended June 30,
|
|
|
|
|
Opening net book amount
|
|
|
1,465,965
|
|
|
|
1,660,859
|
|
Increase due to business combinations
|
|
|
114,101
|
|
|
|
-
|
|
Currency translation adjustment
|
|
|
201
|
|
|
|
(4,631
|
)
|
Additions
|
|
|
18,952
|
|
|
|
18,148
|
|
Disposals
|
|
|
(650
|
)
|
|
|
(800
|
)
|
Transfers
|
|
|
368
|
|
|
|
(2,939
|
)
|
Amortization charge
|
|
|
(23,376
|
)
|
|
|
(56,594
|
)
|
At June 30,
|
|
|
1,575,561
|
|
|
|
1,614,043
|
|
10 Right-of-use
assets, net and lease liabilities
Right-of-use assets evolution
(all amounts in thousands of U.S. dollars)
|
|
2019
|
|
|
(Unaudited)
|
Six-month period ended June 30,
|
|
|
|
|
Opening net book amount
|
|
|
238,400
|
|
Increase due to business combinations
|
|
|
2,267
|
|
Currency translation adjustment
|
|
|
188
|
|
Additions
|
|
|
10,451
|
|
Depreciation charge
|
|
|
(21,222
|
)
|
At June 30,
|
|
|
230,084
|
|
Tenaris is a party to lease contracts which
mainly consist in land where our facilities are located, as well as yards used for the storage of material. These leases represent
more than 75% of right-of-use assets. The remaining assets are mainly related to office spaces and equipments.
Depreciation of right-of-use assets
was mainly included in Tubes segment.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
10 Right-of-use
assets, net and lease liabilities (Cont.)
The initial cost of right-of-use assets
consists of the initial lease liability plus lease payments made in 2018 of approximately $4 million.
Lease liabilities evolution
(all amounts in thousands of U.S. dollars)
|
|
2019
|
|
|
(Unaudited)
|
Six-month period ended June 30,
|
|
|
|
|
Opening net book amount
|
|
|
234,149
|
|
Increase due to business combinations
|
|
|
2,267
|
|
Translation differences
|
|
|
4,691
|
|
Additions
|
|
|
5,735
|
|
Repayments
|
|
|
(20,872
|
)
|
Interest accrued
|
|
|
1,518
|
|
At June 30,
(*)
|
|
|
227,488
|
|
(
*
) The weighted average lessee’s
incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 2.4%.
The amount of remaining payments with maturity
less than 1 year, between 2 and 5 years and more than 5 years is approximately 15%, 44% and 41% of the total remaining payments,
respectively.
11 Cash
and cash equivalents and other investments
(all amounts in thousands of U.S. dollars)
|
|
At June 30,
|
|
At December 31,
|
|
|
2019
|
|
2018
|
Cash and cash equivalents
|
|
|
(Unaudited)
|
|
|
|
|
|
Cash at banks
|
|
|
127,993
|
|
|
|
81,211
|
|
Liquidity funds
|
|
|
167,700
|
|
|
|
160,198
|
|
Short – term investments
|
|
|
906,294
|
|
|
|
186,952
|
|
|
|
|
1,201,987
|
|
|
|
428,361
|
|
|
|
|
|
|
|
|
|
|
Other investments - current
|
|
|
|
|
|
|
|
|
Bonds and other fixed Income
|
|
|
187,767
|
|
|
|
187,324
|
|
Fixed Income (time-deposit, zero coupon bonds, commercial papers)
|
|
|
172,103
|
|
|
|
300,410
|
|
Others
|
|
|
824
|
|
|
|
-
|
|
|
|
|
360,694
|
|
|
|
487,734
|
|
Other investments - non-current
|
|
|
|
|
|
|
|
|
Bonds and other fixed Income
|
|
|
22,800
|
|
|
|
113,829
|
|
Others
|
|
|
4,141
|
|
|
|
4,326
|
|
|
|
|
26,941
|
|
|
|
118,155
|
|
12 Derivative
financial instruments
(all amounts in thousands of U.S. dollars)
|
|
At June 30,
|
|
At December 31,
|
|
|
2019
|
|
2018
|
Assets
|
|
|
(Unaudited)
|
|
|
|
|
|
Derivatives hedging borrowings and investments
|
|
|
15,375
|
|
|
|
5,604
|
|
Other Derivatives (*)
|
|
|
1,321
|
|
|
|
3,621
|
|
|
|
|
16,696
|
|
|
|
9,225
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives hedging borrowings and investments
|
|
|
324
|
|
|
|
11,667
|
|
Other Derivatives
|
|
|
1,636
|
|
|
|
311
|
|
|
|
|
1,960
|
|
|
|
11,978
|
|
(*) At December 31, 2018 includes $52 thousand
of non-current derivatives.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
13 Contingencies,
commitments and restrictions to the distribution of profits
Contingencies
Tenaris is from time to time subject to
various claims, lawsuits and other legal proceedings, including customer claims, in which third parties are seeking payment for
alleged damages, reimbursement for losses, or indemnity. Management with the assistance of legal counsel periodically reviews the
status of each significant matter and assesses potential financial exposure.
Some of these claims, lawsuits and other
legal proceedings involve highly complex issues, and often these issues are subject to substantial uncertainties and, therefore,
the probability of loss and an estimation of damages are difficult to ascertain. Accordingly, with respect to a large portion of
such claims, lawsuits and other legal proceedings, Tenaris is unable to make a reliable estimate of the expected financial effect
that will result from ultimate resolution of the proceeding. In those cases, Tenaris has not accrued a provision for the potential
outcome of these cases.
If a potential loss from a claim, lawsuit
or other proceeding is considered probable and the amount can be reasonably estimated, a provision is recorded. Accruals for loss
contingencies reflect a reasonable estimate of the losses to be incurred based on information available to management as of the
date of preparation of the financial statements and take into consideration litigation and settlement strategies. In a limited
number of ongoing cases, Tenaris was able to make a reliable estimate of the expected loss or range of probable loss and has accrued
a provision for such loss but believes that publication of this information on a case-by-case basis would seriously prejudice Tenaris’s
position in the ongoing legal proceedings or in any related settlement discussions. Accordingly, in these cases, the Company has
disclosed information with respect to the nature of the contingency but has not disclosed its estimate of the range of potential
loss.
The Company believes that the aggregate
provisions recorded for potential losses in these Consolidated Condensed Interim Financial Statements are adequate based upon currently
available information. However, if management’s estimates prove incorrect, current reserves could be inadequate and Tenaris
could incur a charge to earnings which could have a material adverse effect on Tenaris’s results of operations, financial
condition, net worth and cash flows.
Below is a summary description of Tenaris’s
material legal proceedings which are outstanding as of the date of these Consolidated Condensed Interim Financial Statements. In
addition, Tenaris is subject to other legal proceedings, none of which is believed to be material.
|
§
|
CSN claims relating
to the January 2012 acquisition of Usiminas shares
|
Confab
Industrial S.A. (“Confab”), a Brazilian subsidiary of the Company, is one of the defendants in a lawsuit filed in Brazil
by Companhia Siderúrgica Nacional (CSN) and various entities affiliated with CSN against Confab and several Ternium subsidiaries
that acquired a participation in Usiminas’ control group in January 2012.
The
CSN lawsuit alleges that, under applicable Brazilian laws and rules, the acquirers were required to launch a tag-along tender offer
to all non-controlling holders of Usiminas’ ordinary shares for a price per share equal to 80% of the price per share paid
in such acquisition, or BRL28.8, and seeks an order to compel the acquirers to launch an offer at that price plus interest. If
so ordered, the offer would need to be made to 182,609,851 ordinary shares of Usiminas not belonging to Usiminas’ control
group, and Confab would have a 17.9% share in that offer.
On
September 23, 2013, the first instance court dismissed the CSN lawsuit, and on February 8, 2017, the court of appeals maintained
the understanding of the first instance court. On March 6, 2017, CSN filed a motion for clarification against the decision of the
Court of Appeals of São Paulo, which was rejected on July 19, 2017. On August 18, 2017, CSN filed an appeal to the Superior
Court of Justice seeking the review and reversal of the decision issued by the Court of Appeals. On March 5, 2018, the court of
appeals ruled that CSN’s appeal did not meet the requirements for submission to the Superior Court of Justice and rejected
the appeal. On May 8, 2018, CSN appealed against such ruling and on January 22, 2019, the court of appeals rejected it and ordered
that the case be submitted to the Superior Court of Justice. The Superior Court of Justice will review admissibility of CSN’s
appeal, and, if declares it admissible, will then render a decision on the merits. The Superior Court of Justice is restricted
to the analysis of alleged violations to federal laws and cannot assess matters of fact.
Tenaris
continues to believe that all of CSN’s claims and allegations are groundless and without merit, as confirmed by several opinions
of Brazilian legal counsel, two decisions issued by the Brazilian securities regulator (CVM) in February 2012 and December 2016,
and the first and second instance court decisions referred to above.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
13 Contingencies,
commitments and restrictions to the distribution of profits (Cont.)
Contingencies
(Cont.)
|
§
|
Veracel celulose accident
litigation
|
On
September 21, 2007, an accident occurred in the premises of Veracel Celulose S.A. (“Veracel”) in connection with
a rupture in one of the tanks used in an evaporation system manufactured by Confab. The Veracel accident allegedly resulted
in material damages to Veracel. Itaú Seguros S.A. (“Itaú”), Veracel’s insurer at the
time of the Veracel accident and then replaced by Chubb Seguros Brasil S/A (“Chubb”), initiated a lawsuit against
Confab seeking reimbursement of damages paid to Veracel in connection with the Veracel accident. Veracel initiated a second
lawsuit against Confab seeking reimbursement of the amount paid as insurance deductible with respect to the Veracel accident
and other amounts not covered by insurance. Itaú and Veracel claimed that the Veracel accident was caused by failures
and defects attributable to the evaporation system manufactured by Confab. Confab believes that the Veracel accident was
caused by the improper handling by Veracel’s personnel of the equipment supplied by Confab in violation of
Confab’s instructions. The two lawsuits were consolidated and are considered by the 6th Civil Court of São
Caetano do Sul; however, each lawsuit will be adjudicated separately.
On
September 28, 2018 Confab and Chubb, entered into a settlement agreement pursuant to which on October 9, 2018, Confab paid an amount
of approximately $3.5 million to Chubb, without assuming any liability for the accident or the claim.
On
October 10, 2018, Confab was notified that the court had issued rulings for both lawsuits. Both decisions were unfavorable to Confab:
|
§
|
With respect to
Chubb’s claim, Confab was ordered to pay an amount of approximately BRL89.8 million (approximately $23.4 million) (including
interest, fees and expenses). On October 15, 2018, Confab filed a request for homologation of the settlement agreement mentioned
above, as such settlement agreement remains valid and binding between the parties. On November 8, 2018, the settlement agreement
was homologated by the court.
|
|
§
|
With respect to
Veracel’s claim, Confab was ordered to pay the insurance deductible and other concepts not covered by insurance, currently
estimated to amount to BRL60.9 million (approximately $15.9 million) (including interest, fees and expenses). Both parties filed
motions for clarification against the court’s decision, which were partially granted. Although the contract between Confab
and Veracel expressly provided that Confab would not be liable for damages arising from lost profits, the court award would appear
to include BRL52.2 million (approximately $13.6 million) of damages arising therefrom; Confab has additional defense arguments
in respect of a claim for lost profits. On December 18, 2018, Confab filed an appeal against the first instance court decision,
and on April 30, 2019, Veracel filed its response to the appeal. At this stage the Company cannot predict the outcome of the claim
or the amount or range of loss in case of an unfavorable outcome.
|
§
Ongoing investigation
The
Company is aware that Italian and Swiss authorities have been investigating whether certain payments were made from accounts of
entities presumably associated with affiliates of the Company to accounts controlled by an individual allegedly related with an
officer of Petróleo Brasileiro S.A. and whether any such payments were intended to benefit the Company’s Brazilian
subsidiary Confab. Any such payments could violate certain applicable laws, including the U.S. Foreign Corrupt Practices Act.
The
Company had previously reviewed certain of these matters in connection with an investigation by the Brazilian authorities related
to “Operation Lava Jato” and the Audit Committee of the Company’s Board of Directors engaged external counsel
in connection with a review of the alleged payments and related matters. In addition, the Company voluntarily notified the U.S
Securities and Exchange Commission and the U.S. Department of Justice in October 2016. In July 2019, the Company learned that the
public prosecutor office of Milan, Italy, has completed a preliminary investigation into the alleged payments and has included
in the investigation, among other persons, the Company’s Chairman and CEO, two other board members, Gianfelice Rocca and
Roberto Bonatti, and the Company’s controlling shareholder, San Faustin. No determination has been made by the Italian judiciary
as to whether to move the case to trial or have it dismissed.
The
Company continues to review these matters and to respond to requests from and otherwise cooperate with the appropriate authorities.
At this time, the Company cannot predict the outcome of these matters or estimate the range of potential loss or extent of risk,
if any, to the Company's business that may result from resolution of these matters.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
13 Contingencies,
commitments and restrictions to the distribution of profits (Cont.)
Contingencies
(Cont.)
|
§
|
Petroamazonas penalties
|
On January 22, 2016, Petroamazonas
(“PAM”), an Ecuadorian state-owned oil company, imposed penalties to the Company’s Uruguayan subsidiary, Tenaris
Global Services S.A. (“TGS”), for its alleged failure to comply with delivery terms under a pipe supply agreement.
On June 27, 2018, TGS initiated arbitration proceedings against PAM before the Quito Chamber of Commerce Arbitration Center, seeking
the annulment of the penalties. In September 2018, PAM filed its response to the arbitration claim. On May 16, 2019 the arbitration
panel issued a favorable decision to TGS and decided that the penalties had been wrongfully imposed. The decision has now become
final and TGS already collected the outstanding credits from PAM amounting to $22.5 million.
|
§
|
Contractor claim for
additional costs
|
Tenaris Bay City Inc. (“Tenaris
Bay City”), a U.S. subsidiary of the Company, received claims from a contractor for alleged additional costs in the construction
of a project located in the Bay City area for an amount initially stated to be in excess of $90 million; however, subsequently
the contractor amended the amount of the claim to $45 million plus attorneys’ fees and arbitration costs. On June 30, 2017,
the contractor filed a demand for arbitration of these claims. On June 6, 2019, the arbitrators issued their final opinion, awarding
$12.8 million to Brahma, inclusive of attorneys’ fees and interest. The parties agreed not to challenge the award and the
Company paid the amount due on June 21, 2019.
§
Tax assessment in Mexico
In
2017, Tubos de Acero de México S.A (“Tamsa”) and Servicios Generales Tenaris Tamsa S.A (“Segeta”),
two Mexican subsidiaries of the Company, were informed that the Mexican tax authorities had determined that the tax deductions
associated with certain purchases of scrap made by the companies during 2013 failed to comply with applicable requirements and,
accordingly, should be rejected. Tamsa and Segeta filed their respective responses and complaints against the determination and
provided additional information evidencing compliance with applicable requirements for the challenged tax deductions. On August
30, 2018 and January 24, 2019, administrative decisions were issued in the proceedings against Segeta and Tamsa, respectively,
determining a tax obligation in the amount of MXN1,540 million (approximately $80.4 million) for Segeta and MXN3,751 million (approximately
$195.8 million) for Tamsa. On October 15, 2018 and March 8, 2019, Segeta and Tamsa filed revocation requests (
recursos de revocación
exclusivos
) against the August 2018 decision as to Segeta, and the January 2019 decision as to Tamsa. On March 27, 2019, and
July 1, 2019, respectively, Segeta and Tamsa were notified that the tax authorities had reversed and left without effects their
former tax determinations and, accordingly both proceedings have been terminated.
§
Putative class actions
Following the Company’s
November 27, 2018 announcement that its Chairman and CEO Paolo Rocca had been included in an Argentine court investigation known
as the Notebooks Case, two putative class action complaints were filed in the U.S. District Court for the Eastern District of New
York. On April 29, 2019, the court consolidated the complaints into a single case, captioned “In re Tenaris S.A. Securities
Litigation”, and appointed lead plaintiffs and lead counsel. On July 19, 2019, the lead plaintiffs filed an amended complaint
purportedly on behalf of purchasers of Tenaris securities during the putative class period of May 1, 2014 through December 5, 2018.
The individual defendants named in the complaint are Tenaris’s Chairman and CEO and Tenaris’s CFO. The complaint alleges
that during the class period, the Company and the individual defendants inflated the Tenaris share price by failing to disclose
that sale proceeds received by Ternium (in which Tenaris held an 11.46% stake) when Sidor was expropriated by Venezuela were received
or expedited as a result of allegedly improper payments made to Argentine officials. The complaint does not specify the damages
that plaintiff is seeking. Management believes the Company has meritorious defenses to these claims; however, at this stage the
Company cannot predict the outcome of the claim or the amount or range of loss in case of an unfavorable outcome.
|
§
|
Investigation concerning alleged price
overcharges in Brazil
|
In
2018, two Brazilian subsidiaries of the Company were notified of formal charges arising from a review by the Tribunal de Contas
da Uniao (TCU) for alleged price overcharges on goods supplied to Petróleo Brasileiro S.A- Petrobras under a supply contract.
Both companies have already filed their defenses. The estimated amount of this claim is BRL29 million (approximately $7.6 million).
Tenaris believes, based on the advice of counsel and external consultants, that the prices charged under the Petrobras contract
do not result in overprices and that it is unlikely that the ultimate resolution of this matter will result in a material obligation.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
13 Contingencies,
commitments and restrictions to the distribution of profits (Cont.)
Contingencies
(Cont.)
§
Administrative proceeding concerning
Brazilian tax credits
Confab
is a party to an administrative proceeding concerning the recognition and transfer of tax credits for an amount allegedly exceeding
the amount that Confab would have been entitled to recognize and/or transfer. The proceeding resulted in the imposition of a fine
against Confab representing approximately 75% of the allegedly undue credits, which was appealed by Confab. On January 21, 2019,
Confab was notified of an administrative decision denying Confab’s appeal, thereby upholding the tax determination and the
fine against Confab. On January 28, 2019, Confab challenged such administrative decision and is currently awaiting a resolution.
In case of an unfavorable resolution, Confab may still appeal before the courts. The estimated amount of this claim is BRL56.4
million (approximately $14.7 million). At this stage, the Company cannot predict the outcome of this claim.
Commitments
and guarantees
Set forth is a description of Tenaris’s
main outstanding commitments:
|
§
|
A Tenaris company entered into a contract
with Transportadora de Gas del Norte S.A. for the service of natural gas transportation to the facilities of Siderca, an Argentine
subsidiary of Tenaris. As of June 30, 2019, the aggregate commitment to take or pay the committed volumes for a 9-year term totaled
approximately $41.2 million.
|
|
§
|
Several Tenaris companies entered into
a contract with Praxair S.A. for the service of oxygen and nitrogen supply. As of June 30, 2019, the aggregate commitment to take
or pay the committed volumes for a 14-year term totalled approximately $57.7 million.
|
|
§
|
Several Tenaris companies entered into
a contract with Graftech for the supply of graphite electrodes. As of June 30, 2019, the aggregate commitment to take or pay the
committed volumes totalled approximately $48 million.
|
|
§
|
A Tenaris company entered into a 25-year
contract (effective as of December 1, 2016, through December 1, 2041) with Techgen for the supply of 197 MW (which represents 22%
of Techgen’s capacity). Monthly payments are determined on the basis of capacity charges, operation costs, back-up power
charges, and transmission charges. As of the seventh contract year (as long as Techgen’s existing or replacing bank facility
has been repaid in full), the Tenaris company has the right to suspend or early terminate the contract if the rate payable under
the agreement is higher than the rate charged by the Comisión Federal de Electricidad (“CFE”) or its successors.
The Tenaris company may instruct Techgen to sell to any affiliate, to CFE, or to any other third party all or any part of unused
contracted energy under the agreement and the Tenaris company will benefit from the proceeds of such sale.
|
|
§
|
A Tenaris company entered into a contract
with Vale International S.A. for the supply of iron ore, for which it is committed to purchase at least 70% of its annual iron
ore needs, up to 770 thousand tons of pellets annually. The contract expires on December 31, 2020. The aggregate commitment amounts
to approximately $107.4 million.
|
|
§
|
A Tenaris company entered into a contract
with Canadian National Railway for the service of rail transportation from its raw material supplier to its Canadian production
center. The total commitment ending June 30, 2020 is $20.9 million.
|
|
§
|
A Tenaris company entered into a contract
with Air Liquide Mexico, S. de R.L de C.V. for the supply of argon gas. As of June 30, 2019, the aggregate commitment totalled
approximately $20.7 million.
|
Additionally Tenaris has issued performance
guarantees mainly related to long term commercial contracts with several customers and parent companies guarantees for approximately
$2.4 billion.
Restrictions
to the distribution of profits and payment of dividends
As of December 31, 2018, equity as defined
under Luxembourg law and regulations consisted of:
(all amounts in thousands of U.S. dollars)
|
|
|
Share capital
|
|
|
1,180,537
|
|
Legal reserve
|
|
|
118,054
|
|
Share Premium
|
|
|
609,733
|
|
Retained earnings including net income for the year ended December 31, 2018
|
|
|
16,439,438
|
|
Total equity in accordance with Luxembourg law
|
|
|
18,347,762
|
|
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
13 Contingencies,
commitments and restrictions to the distribution of profits (Cont.)
Restrictions
to the distribution of profits and payment of dividends (Cont.)
At least 5% of the Company’s net
income per year, as calculated in accordance with Luxembourg law and regulations, must be allocated to the creation of a legal
reserve equivalent to 10% of the Company’s share capital. As of June 30, 2019, this reserve is fully allocated and additional
allocations to the reserve are not required under Luxembourg law. Dividends may not be paid out of the legal reserve.
The Company may pay dividends to the extent,
among other conditions, that it has distributable retained earnings calculated in accordance with Luxembourg law and regulations.
At December 31, 2018, distributable amount
under Luxembourg law totals $17.0 billion, as detailed below:
(all amounts in thousands of U.S. dollars)
|
|
|
Retained earnings at December 31, 2017 under Luxembourg law
|
|
|
16,956,761
|
|
Other income and expenses for the year ended December 31, 2018
|
|
|
(33,303
|
)
|
Dividends approved
|
|
|
(484,020
|
)
|
Retained earnings at December 31, 2018 under Luxembourg law
|
|
|
16,439,438
|
|
Share premium
|
|
|
609,733
|
|
Distributable amount at December 31, 2018 under Luxembourg law
|
|
|
17,049,171
|
|
14 Investments
in non-consolidated companies
This note supplements and should be read
in conjunction with Note 11 to the Company’s audited Consolidated Financial Statements for the year ended December 31, 2018.
Ternium
S.A. (“Ternium”), is a steel producer with production facilities in Mexico, Argentina, Brazil, Colombia, United States
and Guatemala and is one of Tenaris’s main suppliers of round steel bars and flat steel products for its pipes business.
At June 30, 2019, the closing price of
Ternium’s ADSs as quoted on the New York Stock Exchange was $22.43 per ADS, giving Tenaris’s ownership stake a market
value of approximately $515.2 million. At June 30, 2019, the carrying value of Tenaris’s ownership stake in Ternium, based
on Ternium’s IFRS financial statements under IFRS, was approximately $753.3 million.
Usiminas is a Brazilian producer of high
quality flat steel products used in the energy, automotive and other industries and Tenaris’s principal supplier of flat
steel in Brazil for its pipes and industrial equipment businesses.
As of June 30, 2019, the closing price
of the Usiminas’ ordinary and preferred shares, as quoted on the B3, was BRL10.5 ($2.74) and BRL8.94 ($2.33), respectively,
giving Tenaris’s ownership stake a market value of approximately $103 million. As that date, the carrying value of Tenaris’s
ownership stake in Usiminas was approximately $78.4 million.
|
c)
|
Techgen, S.A. de C.V. (“Techgen”)
|
Techgen is a Mexican company that operates
a natural gas-fired combined cycle electric power plant in the Pesquería area of the State of Nuevo León, Mexico.
The company started producing energy on December 1, 2016 and is fully operational, with a power capacity of 900 megawatts. As of
June 30, 2019, Tenaris held 22% of Techgen’s share capital, and its affiliates, Ternium and Tecpetrol International S.A.
(a wholly-owned subsidiary of San Faustin S.A., the controlling shareholder of both Tenaris and Ternium), held 48% and 30% respectively.
Techgen is a party to transportation capacity
agreements for a purchasing capacity of 150,000 MMBtu/Gas per day starting on August 1, 2016 and ending on July 31, 2036, and a
party to a contract for the purchase of power generation equipment and other services related to the equipment. As of June 30,
2019, Tenaris’s exposure under these agreements amounted to $53.5 million and $1.8 million respectively. Furthermore, during
2018, Techgen entered a contract for the purchase of clean energy certificates. As of June 30, 2019 Tenaris’s exposure under
this agreement amounted to $17.8 million.
During 2019, there were repayments of
loans by the shareholders of Techgen; the part corresponding to Tenaris amounted to $40.5 million. As of June 30, 2019, the aggregate
outstanding principal amount under these subordinated loans was $58.1 million.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
14 Investments
in non-consolidated companies
|
c)
|
Techgen, S.A. de C.V. (“Techgen”)
|
On February 13, 2019, Techgen entered
into a $640 million syndicated loan agreement with several banks to refinance an existing loan, resulting in the release of certain
corporate guarantee issued by Techgen’s shareholders to secure the replaced facility.
Techgen’s obligations under the
current facility, which is “non-recourse” on the sponsors, are guaranteed by a Mexican security trust covering Techgen’
shares, assets and accounts as well as Techgen’s affiliates rights under certain contracts. In addition, Techgen’s
collection and payment accounts not subject to the trust have been pledged in favor of the lenders under the new loan agreement,
and certain direct agreements –customary for these type of transactions– have been entered into with third parties
and affiliates, including in connection with the agreements for the sale of energy produced by the project and the agreements for
the provision of gas and long-term maintenance services to Techgen. The commercial terms and conditions governing the purchase,
by the Company’s Mexican subsidiary Tamsa, of 22% of the energy generated by the project remain unchanged.
Under the loan agreement, Techgen is committed
to maintain a debt service reserve account covering debt service becoming due during two consecutive quarters; such account is
funded by stand-by letters of credit issued for the account of Techgen’s sponsors in proportion to their respective participations
in Techgen. Accordingly, the Company and its Swiss subsidiary, Tenaris Investments Switzerland AG, applied for stand-by letters
of credit covering 22% of the debt service coverage ratio, which as of the date hereof amounts to $9.8 million.
15 Nationalization
of Venezuelan Subsidiaries
Following the nationalization by the Venezuelan
government of the Company’s interests in its majority-owned subsidiaries TAVSA - Tubos de Acero de Venezuela S.A. (“Tavsa”)
and Matesi Materiales Siderúrgicos S.A (“Matesi”) and in Complejo Siderúrgico de Guayana, C.A (“Comsigua”),
the Company and its wholly-owned subsidiary Talta - Trading e Marketing Sociedad Unipessoal Lda (“Talta”) initiated
arbitration proceedings against Venezuela before the ICSID in Washington D.C. in connection with these nationalizations and obtained
favorable awards, which are final and not subject to further appeals. For further information on these cases, see Note 30 in the
Company’s audited consolidated financial statements for the year ended December 31, 2018.
16
Agreement for acquisition and other business agreements
Agreement
for acquisition of
IPSCO Tubulars Inc.
On March 22, 2019, the company entered
into a definitive agreement to acquire from PAO TMK, a Russian company and manufacturer of steel pipe, 100% of the shares of its
wholly owned U.S. subsidiary IPSCO Tubulars Inc., for $1.209 million, on a cash-free, debt-free bases, which includes $270 million
of working capital.
The transaction is subject to regulatory
approvals, including approval by the U.S. antitrust authorities, and other customary conditions.
IPSCO Tubulars Inc. is a U.S. domestic
producer of seamless and welded OCTG and line pipe products, with an annual production capacity of 450,000 metric tons of steel
bars, 400,000 metric tons of seamless pipe and 1,000,000 metric tons of welded pipes, and production facilities spread throughout
the country.
Agreement
to build a welded pipe plant in West Siberia
On
February 5, 2019 Tenaris entered into an agreement with PAO Severstal to build a welded pipe plant to produce OCTG products in
the Surgut area, West Siberia, Russian Federation. Tenaris holds a 49% interest in the company, while PAO Severstal owns the remaining
51%. The regulatory approvals and other customary conditions have been already obtained. The plant, which is estimated to require
an investment of $240 million and a two-year construction period, is planned to have an annual production capacity of 300,000 tons.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
17 Business
combinations
Acquisition
of Saudi Steel Pipe Company
On January 21, 2019, Tenaris acquired
47.79% of the shares of Saudi Steel Pipe Company (“SSP”), a welded steel pipes producer listed on the Saudi stock market,
for a total amount of SAR530 million (approximately $141 million). The amount was paid with Tenaris cash in hand. SSP’s facilities
are located in the Eastern Province of the Kingdom of Saudi Arabia and have a manufacturing capacity of 360,000 tons per year.
SSP started its operations in 1980 and serves energy industrial and commercial segments, is qualified to supply products with major
national oil companies in the region.
Upon closing of the acquisition, four
Tenaris’s nominees were appointed as new members of the SSP’s board of directors and a Tenaris senior executive was
appointed as managing director and chief executive officer of SSP. Such appointment was ratified at the shareholders meeting of
SSP held on May 7, 2019, where the shareholders also approved the reappointment of the Tenaris’s nominees until June 6, 2022.
The Company has begun consolidating SSP’s
balances and results of operations as from January 21, 2019.
|
a)
|
Fair value of net assets acquired
|
The application of the purchase method
requires certain estimates and assumptions specially concerning the determination of the fair values of the acquired intangible
assets and property, plant and equipment as well as the liabilities assumed at the date of the acquisition. The fair values determined
at the acquisition date are based mainly on discounted cash flows and other valuation techniques.
The preliminary allocation of the fair
values determined for the assets and liabilities arising from the acquisition is as follows:
Fair value of acquired assets and liabilities:
|
|
SAR million
|
|
$ million
|
Property, Plant and Equipment
|
|
|
671
|
|
|
|
178
|
|
Customer relationship
|
|
|
305
|
|
|
|
82
|
|
Investment in associated
|
|
|
77
|
|
|
|
21
|
|
Working capital
|
|
|
167
|
|
|
|
45
|
|
Cash and Cash Equivalents
|
|
|
32
|
|
|
|
9
|
|
Other Receivables
|
|
|
11
|
|
|
|
3
|
|
Borrowings
|
|
|
(304
|
)
|
|
|
(81
|
)
|
Employees end of service benefits
|
|
|
(59
|
)
|
|
|
(16
|
)
|
Deferred Tax Liabilities
|
|
|
(47
|
)
|
|
|
(13
|
)
|
Net assets acquired
|
|
|
853
|
|
|
|
228
|
|
Tenaris acquired 47.79% of total assets
and liabilities shown above, approximately $109 million. As of the result of the acquisition, the Company recognized a Goodwill
of approximately $32.5 million. Tenaris has chosen to recognize the non-controlling interest at the proportionate share of the
acquiree’s net identifiable assets.
The acquired business contributed revenues
for $86.8 million with a minor contribution to Tenaris’s margin for the period starting January 21, 2019 and ending June
30, 2019.
If the acquisition had occurred on 1 January
2019, consolidated revenue and profit after tax would have not changed significantly.
The preliminary purchase
price allocation has been done with the assistance of a third party expert. Following IFRS 3 “Business Combinations”,
the Company will continue reviewing the allocation and make any necessary adjustments (mainly over property, plant and equipment,
intangible assets and provisions) during the twelve months following the acquisition date.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
18 Related
party transactions
As of June 30, 2019:
|
§
|
San Faustin S.A., a Luxembourg
société
anonyme
(“San Faustin”), owned 713,605,187 shares in the Company, representing 60.45% of the Company’s capital
and voting rights.
|
|
§
|
San Faustin owned all of its shares in
the Company through its wholly-owned subsidiary Techint Holdings S.à r.l., a Luxembourg
société à
responsabilité limitée
(“Techint”), who is the holder of record of the above-mentioned Tenaris shares.
|
|
§
|
Rocca & Partners Stichting Administratiekantoor
Aandelen San Faustin, a Dutch private foundation (
Stichting
) (“RP STAK”) held voting shares in San Faustin sufficient
to control San Faustin.
|
|
§
|
No person or group of persons controls
RP STAK.
|
Based on the information most recently
available to the Company, Tenaris’s directors and senior management as a group owned 0.08% of the Company’s outstanding
shares.
Transactions and balances disclosed as
with “non-consolidated parties” are those with companies over which Tenaris exerts significant influence or joint control
in accordance with IFRS, but does not have control. All other transactions and balances with related parties which are not non-consolidated
parties and which are not consolidated are disclosed as “Other”.
The
following transactions were carried out with related parties:
|
(all amounts in thousands of U.S. dollars)
|
|
Six-month period ended June 30,
|
|
|
|
2019
|
|
2018
|
(i)
|
Transactions
|
|
(Unaudited)
|
|
(a) Sales of goods and services
|
|
|
|
|
|
Sales of goods to non-consolidated parties
|
|
|
9,605
|
|
|
|
13,540
|
|
|
Sales of goods to other related parties
|
|
|
43,969
|
|
|
|
65,453
|
|
|
Sales of services to non-consolidated parties
|
|
|
2,831
|
|
|
|
3,886
|
|
|
Sales of services to other related parties
|
|
|
2,134
|
|
|
|
3,214
|
|
|
|
|
|
58,539
|
|
|
|
86,093
|
|
|
(b) Purchases of goods and services
|
|
|
|
|
|
|
|
|
|
Purchases of goods to non-consolidated parties
|
|
|
86,446
|
|
|
|
109,334
|
|
|
Purchases of goods to other related parties
|
|
|
30,318
|
|
|
|
50,859
|
|
|
Purchases of services to non-consolidated parties
|
|
|
3,293
|
|
|
|
5,039
|
|
|
Purchases of services to other related parties
|
|
|
27,360
|
|
|
|
25,020
|
|
|
|
|
|
147,417
|
|
|
|
190,252
|
|
|
(all amounts in thousands of U.S. dollars)
|
|
At June 30,
|
|
At December 31,
|
|
|
|
2019
|
|
2018
|
(ii)
|
Period-end balances
|
|
(Unaudited)
|
|
|
|
(a) Arising from sales / purchases of goods / services / others
|
|
|
|
|
|
|
|
|
|
Receivables from non-consolidated parties
|
|
|
79,846
|
|
|
|
122,136
|
|
|
Receivables from other related parties
|
|
|
13,967
|
|
|
|
24,419
|
|
|
Payables to non-consolidated parties
|
|
|
(31,461
|
)
|
|
|
(33,197
|
)
|
|
Payables to other related parties
|
|
|
(10,510
|
)
|
|
|
(17,595
|
)
|
|
|
|
|
51,842
|
|
|
|
95,763
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Financial debt
|
|
|
|
|
|
|
|
|
|
Borrowings from other related parties
|
|
|
(671
|
)
|
|
|
-
|
|
|
Finance lease liabilities from other related parties
|
|
|
(2,204
|
)
|
|
|
-
|
|
|
|
|
|
(2,875
|
)
|
|
|
-
|
|
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
19
Category
of financial instruments and classification within the fair value hierarchy
The following table illustrates the three
hierarchical levels for valuing financial instruments at fair value and those measured at amortized cost as of June 30, 2019 and
December 31, 2018.
|
Carrying amount
|
Measurement Categories
|
At Fair Value
|
June 30, 2019
|
Amortized Cost
|
Fair Value
|
Level 1
|
Level 2
|
Level 3
|
Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
1,201,987
|
1,034,287
|
167,700
|
167,700
|
-
|
-
|
Other investments
|
360,694
|
172,103
|
188,591
|
169,923
|
18,668
|
-
|
Fixed income (time-deposit, zero coupon bonds, commercial papers)
|
172,103
|
172,103
|
-
|
-
|
-
|
-
|
Certificates of deposits
|
86,174
|
86,174
|
-
|
-
|
-
|
-
|
Commercial papers
|
24,983
|
24,983
|
-
|
-
|
-
|
-
|
Other notes
|
60,946
|
60,946
|
-
|
-
|
-
|
-
|
Bonds and other fixed income
|
188,591
|
-
|
188,591
|
169,923
|
18,668
|
-
|
U.S. government securities
|
37,599
|
-
|
37,599
|
37,599
|
-
|
-
|
Non - U.S. government securities
|
3,003
|
-
|
3,003
|
3,003
|
-
|
-
|
Corporates securities
|
129,321
|
-
|
129,321
|
129,321
|
-
|
-
|
Structured notes
|
17,844
|
-
|
17,844
|
-
|
17,844
|
-
|
Others
|
824
|
-
|
824
|
-
|
824
|
-
|
Derivative financial instruments
|
16,696
|
-
|
16,696
|
-
|
16,696
|
-
|
Other Investments Non-current
|
26,941
|
-
|
26,941
|
22,800
|
-
|
4,141
|
Bonds and other fixed income
|
22,800
|
-
|
22,800
|
22,800
|
-
|
-
|
Other investments
|
4,141
|
-
|
4,141
|
-
|
-
|
4,141
|
Trade receivables
|
1,481,076
|
1,481,076
|
-
|
-
|
-
|
-
|
Receivables C and NC (*)
|
290,051
|
93,278
|
48,659
|
-
|
-
|
48,659
|
Other receivables
|
141,937
|
93,278
|
48,659
|
-
|
-
|
48,659
|
Other receivables (non-financial)
|
148,114
|
-
|
-
|
-
|
-
|
-
|
Total
|
|
2,780,744
|
448,587
|
360,423
|
35,364
|
52,800
|
Liabilities
|
|
|
|
|
|
|
Borrowings C and NC
|
894,301
|
894,301
|
-
|
-
|
-
|
-
|
Lease Liabilities C and NC
|
227,488
|
227,488
|
-
|
-
|
-
|
-
|
Trade payables
|
636,720
|
636,720
|
-
|
-
|
-
|
-
|
Derivative financial instruments
|
1,960
|
-
|
1,960
|
-
|
1,960
|
-
|
Total
|
|
1,758,509
|
1,960
|
-
|
1,960
|
-
|
(*) Includes balances related to interest
in our Venezuelan companies, see Note 15.
|
Carrying amount
|
Measurement Categories
|
At Fair Value
|
December 31, 2018
|
Amortized Cost
|
Fair Value
|
Level 1
|
Level 2
|
Level 3
|
Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
428,361
|
268,163
|
160,198
|
160,198
|
-
|
-
|
Other investments
|
487,734
|
300,410
|
187,324
|
168,165
|
19,159
|
-
|
Fixed income (time-deposit, zero coupon bonds, commercial papers)
|
300,410
|
300,410
|
-
|
-
|
-
|
-
|
Certificates of deposits
|
198,912
|
198,912
|
-
|
-
|
-
|
-
|
Commercial papers
|
9,932
|
9,932
|
-
|
-
|
-
|
-
|
Other notes
|
91,566
|
91,566
|
-
|
-
|
-
|
-
|
Bonds and other fixed income
|
187,324
|
-
|
187,324
|
168,165
|
19,159
|
-
|
U.S. government securities
|
1,077
|
-
|
1,077
|
1,077
|
-
|
-
|
Non - U.S. government securities
|
24,912
|
-
|
24,912
|
24,912
|
-
|
-
|
Corporates securities
|
142,176
|
-
|
142,176
|
142,176
|
-
|
-
|
Structured notes
|
19,159
|
-
|
19,159
|
-
|
19,159
|
-
|
Derivative financial instruments
|
9,173
|
-
|
9,173
|
-
|
9,173
|
-
|
Other Investments Non-current
|
118,155
|
-
|
118,155
|
113,830
|
-
|
4,326
|
Bonds and other fixed income
|
113,830
|
-
|
113,830
|
113,830
|
-
|
-
|
Other investments
|
4,326
|
-
|
4,326
|
-
|
-
|
4,326
|
Trade receivables
|
1,737,366
|
1,737,366
|
-
|
-
|
-
|
-
|
Receivables C and NC (*)
|
307,790
|
99,620
|
48,711
|
-
|
52
|
48,659
|
Other receivables
|
148,331
|
99,620
|
48,711
|
-
|
52
|
48,659
|
Other receivables (non-financial)
|
159,459
|
-
|
-
|
-
|
-
|
-
|
Total
|
|
2,405,559
|
523,561
|
442,193
|
28,384
|
52,985
|
Liabilities
|
|
|
|
|
|
|
Borrowings C and NC
|
539,007
|
539,007
|
-
|
-
|
-
|
-
|
Trade payables
|
693,673
|
693,673
|
-
|
-
|
-
|
-
|
Derivative financial instruments
|
11,978
|
-
|
11,978
|
-
|
11,978
|
-
|
Total
|
|
1,232,680
|
11,978
|
-
|
11,978
|
-
|
(*) Includes balances related to interest
in our Venezuelan companies, see Note 15.
There were no transfers between Levels
during the period.
The fair value of financial instruments traded
in active markets is based on quoted market prices at the reporting date. A market is regarded as active if quoted prices are readily
and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices
represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial
assets held by Tenaris is the current bid price. These instruments are included in Level 1 and comprise primarily corporate and
sovereign debt securities.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2019
19
Category
of financial instruments and classification within the fair value hierarchy (Cont.)
The fair value of financial instruments
that are not traded in an active market (such as certain debt securities, certificates of deposits with original maturity of more
than three months, forward and interest rate derivative instruments) is determined by using valuation techniques which maximize
the use of observable market data when available and rely as little as possible on entity specific estimates. If all significant
inputs required to value an instrument are observable, the instrument is included in Level 2. Tenaris values its assets and liabilities
included in this level using bid prices, interest rate curves, broker quotations, current exchange rates, forward rates and implied
volatilities obtained from market contributors as of the valuation date.
The fair value of all outstanding derivatives
is determined using specific pricing models that include inputs that are observable in the market or can be derived from or corroborated
by observable data. The fair value of forward foreign exchange contracts is calculated as the net present value of the estimated
future cash flows in each currency, based on observable yield curves, converted into U.S. dollars at the spot rate of the valuation
date.
If one or more of the significant inputs
are not based on observable market data, the instruments are included in Level 3. Tenaris values its assets and liabilities in
this level using observable market inputs and management assumptions which reflect the Company’s best estimate on how market
participants would price the asset or liability at measurement date. Main balances included in this level correspond to Tenaris’s
interest in Venezuelan companies (see Note 15).
Borrowings
are comprised primarily of fixed rate debt and variable rate debt with a short term portion where interest has already been fixed.
They are classified under other financial liabilities and measured at their amortized cost. Tenaris estimates that the fair value
of its main financial liabilities is approximately 99.7% of its carrying amount including interests accrued as of June 30, 2019
as compare with 99.3% as of December 31, 2018. Fair values were calculated using standard valuation techniques for floating rate
instruments and comparable market rates for discounting flows.
20 Subsequent
event
Delisting of Tenaris’s shares from the
Buenos Aires stock exchange
On July 29, 2019, the General Shareholders
Meeting approved the delisting of the Company’s shares from the Buenos Aires stock exchange, Bolsas y Mercados Argentinos
S.A. (“BYMA”), through a voluntarily withdrawal from listing of the Argentine National Securities Commission (
Comisión
Nacional de Valores
, or “CNV”) pursuant to Article 32, clause c), Section VIII, Chapter II of Title III of the
rules (
Normas
) of the CNV, which permits the Company to delist from BYMA without making a delisting public tender offer.
Shareholders holding shares through CVSA on
June 11, 2019 who were absent from the General Shareholders Meeting may exercise the right under article 22 of the Company’s
articles of association (”Appraisal Right”) to have such shares repurchased by the Company at the arithmetic average
of the closing Argentine peso sale price per share as reported by BYMA for the ninety (90) calendar-day period immediately preceding
the date of the General Shareholders Meeting. Qualifying shareholders wishing to exercise Appraisal Rights may do so from July
30, 2019 to (and including) August 29, 2019. Based on the total amount of Tenaris shares held through CVSA at the close of trading
on July 26, 2019 (excluding those shares that are held by Deutsche Bank as depositary under the Company’s ADS facility),
the Company estimates that the maximum number of shares potentially eligible for Appraisal Rights should not exceed 16,735,783
shares, or approximately 1.4% of Tenaris’s total issued and outstanding capital stock. If all holders of such potentially
eligible shares were to exercise Appraisal Rights, the maximum amount payable by the Company would not exceed of ARS9.5 billion,
which at the exchange rate as of the close of business on July 29, 2019, equaled to approximately $218.7 million.
The repurchase of qualifying shares in connection
with any exercise of Appraisal Rights will be consummated on the date that is 180 days from the date of the General Shareholders
Meeting, i.e., on January 24, 2020. The repurchase price for such shares will be paid in Argentine pesos, and the Company will
not be required to pay any interest or any other additional amounts on or with respect to such repurchase price.
Edgardo Carlos
Chief Financial
Officer
21