Washington, D.C. 20549
Indicate by check mark whether the registrant
files or will file annual reports under cover Form 20-F or 40-F.
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12G3-2(b) under the Securities
Exchange Act of 1934.
If “Yes” is marked, indicate below
the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-__.
The attached material is being furnished to the Securities and Exchange Commission pursuant
to Rule 13a-16 and Form 6-K under the Securities Exchange Act of 1934, as amended. This report contains Tenaris S.A. Consolidated
Condensed Interim Financial Statements for the six-month period ended June 30, 2020.
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
|
Impairment charge
|
7
|
Financial results
|
8
|
Dividend distribution
|
9
|
Property, plant and equipment, net
|
10
|
Intangible assets, net
|
11
|
Right-of-use assets, net and lease liabilities
|
12
|
Cash and cash equivalents and other investments
|
13
|
Derivative financial instruments
|
14
|
Contingencies, commitments and restrictions to the distribution of profits
|
15
|
Investments in non-consolidated companies
|
16
|
Agreement to build a welded pipe plant in West Siberia
|
17
|
Business combinations
|
18
|
Related party transactions
|
19
|
Category of financial instruments and classification within the fair value hierarchy
|
20
|
Nationalization of Venezuelan Subsidiaries
|
21
|
Closure of facilities at JFE’s Keihin steel complex
|
22
|
Foreign Exchange Control measures in Argentina
|
23
|
The COVID-19 pandemic and the oil & gas crisis and their impact on Tenaris’s operations and financial condition
|
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
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 32
to the Company’s audited Consolidated Financial Statements for the year ended December 31, 2019.
The Company’s shares trade on 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 August 5, 2020.
|
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, 2019. These Consolidated Condensed Interim Financial Statements should be read in conjunction
with the audited Consolidated Financial Statements for the year ended December 31, 2019, 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. The main areas involving significant estimates
or judgements are: impairment of goodwill and long-lived assets; income taxes; obsolescence of inventory; loss contingencies; defined
benefit obligations, business combinations; useful lives of property, plant and equipment and other long-lived assets. During the
period there were no changes in the significant accounting 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, 2019, except as disclosed
in Note 23 in response to the impact of the oil and gas crisis and the COVID-19 pandemic.
Management has reviewed Tenaris’s exposure to the effects of the
oil and gas crisis and the COVID-19 pandemic and their impact over its business, financial position and performance, monitoring
the recognition of deferred tax assets, and their recoverability, impairment testing, financial risk management -in particular
credit and liquidity risks- and the adequacy of its provisions for contingent liabilities. In the six-month period ended June 30,
2020, management conducted impairment tests and recorded impairment charges over certain long-lived assets. Refer to Note 6 and
23 for further information on impairment of assets and the impact of the oil and gas crisis and the COVID-19 pandemic.
The Company chose not to adopt the optional amendment to IFRS 16 “Leases”,
“COVID-19 - Related Rent Concessions” as the impact for Tenaris is not material.
Whenever necessary, certain comparative amounts have been reclassified
to conform to changes in presentation in the current period.
None of the accounting pronouncements applicable after December 31,
2019 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, 2020
Reportable operating segment
(All amounts in millions of U.S. dollars)
Six-month period ended June 30, 2020
|
|
Tubes
|
|
Other
|
|
Total
|
IFRS - Net Sales
|
|
|
2,848
|
|
|
|
155
|
|
|
|
3,003
|
|
Management view - operating (loss)
|
|
|
(291
|
)
|
|
|
(50
|
)
|
|
|
(341
|
)
|
Difference in cost of sales
|
|
|
(89
|
)
|
|
|
3
|
|
|
|
(86
|
)
|
Differences in selling, general and administrative expenses
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
Differences in other operating income (expenses), net
|
|
|
(172
|
)
|
|
|
-
|
|
|
|
(172
|
)
|
IFRS - operating (loss)
|
|
|
(553
|
)
|
|
|
(47
|
)
|
|
|
(600
|
)
|
Financial income (expense), net
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
(Loss) before equity in earnings of non-consolidated companies and income tax
|
|
|
|
|
|
|
|
|
|
|
(636
|
)
|
Equity in earnings of non-consolidated companies
|
|
|
|
|
|
|
|
|
|
|
6
|
|
(Loss) before income tax
|
|
|
|
|
|
|
|
|
|
|
(630
|
)
|
Capital expenditures
|
|
|
111
|
|
|
|
3
|
|
|
|
114
|
|
Depreciation and amortization
|
|
|
307
|
|
|
|
9
|
|
|
|
316
|
|
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
|
|
In the six-month period ended June
30, 2020 and 2019, 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 $7.5 million and $14.3 million respectively.
There are no material differences between total reportable segments’
revenues and the entity’s revenue under IFRS.
The main differences between operating income under IFRS view and the
management view are mainly related to the cost of goods sold and other timing differences. The difference in Other operating
income (expenses), net is attributable to the impairment of the goodwill, which residual value in the management view differs
from IFRS.
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, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
1,404,618
|
|
|
|
428,246
|
|
|
|
337,510
|
|
|
|
657,652
|
|
|
|
175,330
|
|
|
|
3,003,356
|
|
Capital expenditures
|
|
|
38,589
|
|
|
|
47,018
|
|
|
|
18,029
|
|
|
|
3,651
|
|
|
|
6,298
|
|
|
|
113,585
|
|
Depreciation and amortization
|
|
|
183,569
|
|
|
|
52,323
|
|
|
|
41,627
|
|
|
|
22,144
|
|
|
|
16,517
|
|
|
|
316,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
3
|
Segment information (Cont.)
|
Geographical information (Cont.)
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 Egypt, Kazakhstan, Nigeria, India
and Saudi Arabia 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 revenues related to governmental institutions represents approximately 21% and 19% in 2020 and
2019 respectively.
Tubes segment revenues by market:
Revenues Tubes (in millions of U.S. dollars)
|
|
|
2020
|
|
|
|
2019
|
|
Oil and Gas
|
|
|
2,456
|
|
|
|
2,983
|
|
Hydrocarbon Processing and Power Generation
|
|
|
201
|
|
|
|
301
|
|
Industrial and Other
|
|
|
191
|
|
|
|
294
|
|
Total
|
|
|
2,848
|
|
|
|
3,578
|
|
|
|
Six-month period ended June 30,
|
(all amounts in thousands of U.S. dollars)
|
|
2020
|
|
2019
|
|
|
(Unaudited)
|
Inventories at the beginning of the period
|
|
|
2,265,880
|
|
|
|
2,524,341
|
|
Increase in inventories due to business combinations
|
|
|
199,589
|
|
|
|
56,996
|
|
Plus: Charges of the period
|
|
|
|
|
|
|
|
|
Raw materials, energy, consumables and other
|
|
|
793,262
|
|
|
|
1,401,675
|
|
Services and fees
|
|
|
87,990
|
|
|
|
122,006
|
|
Labor cost
|
|
|
433,474
|
|
|
|
440,099
|
|
Depreciation of property, plant and equipment
|
|
|
232,403
|
|
|
|
212,991
|
|
Amortization of intangible assets
|
|
|
3,897
|
|
|
|
2,895
|
|
Depreciation of right-of-use assets
|
|
|
17,654
|
|
|
|
14,328
|
|
Maintenance expenses
|
|
|
59,850
|
|
|
|
129,112
|
|
Allowance for obsolescence
|
|
|
31,238
|
|
|
|
15,313
|
|
Taxes
|
|
|
26,530
|
|
|
|
73,281
|
|
Other
|
|
|
41,933
|
|
|
|
54,238
|
|
|
|
|
1,927,820
|
|
|
|
2,522,934
|
|
Less: Inventories at the end of the period
|
|
|
(1,857,713
|
)
|
|
|
(2,432,657
|
)
|
|
|
|
2,335,987
|
|
|
|
2,614,618
|
|
|
5
|
Selling, general and administrative expenses
|
|
|
Six-month period ended June 30,
|
(all amounts in thousands of U.S. dollars)
|
|
2020
|
|
2019
|
|
|
(Unaudited)
|
Services and fees
|
|
|
65,257
|
|
|
|
77,968
|
|
Labor cost
|
|
|
240,750
|
|
|
|
242,001
|
|
Depreciation of property, plant and equipment
|
|
|
9,752
|
|
|
|
8,966
|
|
Amortization of intangible assets
|
|
|
43,647
|
|
|
|
20,481
|
|
Depreciation of right-of-use assets
|
|
|
8,827
|
|
|
|
6,894
|
|
Commissions, freight and other selling expenses
|
|
|
196,787
|
|
|
|
234,033
|
|
Provisions for contingencies
|
|
|
12,564
|
|
|
|
15,357
|
|
Allowances for doubtful accounts
|
|
|
4,773
|
|
|
|
(22,074
|
)
|
Taxes
|
|
|
32,236
|
|
|
|
52,569
|
|
Other
|
|
|
28,416
|
|
|
|
47,779
|
|
|
|
|
643,009
|
|
|
|
683,974
|
|
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
Tenaris’s main source of revenue is the sale of products and services
to the oil and gas industry, and the level of such sales is sensitive to international oil and gas prices and their impact on drilling
activities.
A decline during the period in oil prices and futures resulted in reductions
in Tenaris customers` investments. Drilling activity and demand of products and services, particularly in North America, continues
to decline. Selling prices of products in North America were also affected by low levels of consumption caused by the spread of
COVID-19 pandemic in the period. For more information on these effects, refer to Note 23.
Tenaris conducts regular assessments of the carrying values of its assets.
The value-in-use was used to determine the recoverable value. Value-in-use is calculated by discounting the estimated cash flows
over a five year period (or higher if the period can be justified) based on forecasts approved by management. For the subsequent
years beyond the five-year period, a terminal value is calculated based on perpetuity considering a nominal growth rate of 2% considering
the historical inflation rate.
The main key assumptions, used in estimating
the value in use are discount rate, growth rate and competitive and economic factors applied to determine Tenaris’s
cash flow projections, such as oil and gas prices, average number of active oil and gas drilling rigs (rig count) and raw material
costs.
For purposes of assessing key assumptions, Tenaris uses external sources
of information and management judgment based on past experience.
The discount rates used are based on the respective weighted average
cost of capital (WACC) which is considered to be a good indicator of capital cost. For each CGU where assets are allocated, a specific
WACC was determined taking into account the industry, country and size of the business. In 2020, the main discount rates used were
in a range between 8% and 9.3%.
In March, 2020, as a result of the deterioration of business conditions
and in light of the presence of impairment indicators for its assets in the United States, Tenaris decided to write down the goodwill
and other assets values recording an impairment charge of approximately $622 million, impacting the carrying value of goodwill
of the cash-generating units OCTG USA, IPSCO and Coiled Tubing for $225, $357 and $4 million respectively, and the carrying
value of fixed assets of the cash generating unit Rods USA for $36 million. Out of the total amount, $582 million were allocated
to the Tubes segment.
(all amounts in millions of U.S. dollars)
|
|
Assets before impairment
|
|
Impairment
|
|
Assets after impairment
|
OCTG - USA
|
|
|
544
|
|
|
|
225
|
|
|
|
319
|
|
IPSCO
|
|
|
1,169
|
|
|
|
357
|
|
|
|
812
|
|
Coiled Tubing
|
|
|
108
|
|
|
|
4
|
|
|
|
104
|
|
Rods - USA
|
|
|
73
|
|
|
|
36
|
|
|
|
37
|
|
As of March 31, 2020, an increase of 100 Bps in the discount rate, a
decline of 100 Bps in the growth rate or a decline of 5% in the cash flow projections, would have generated an additional impairment
as showed in the below table.
(all amounts in millions of U.S. dollars)
|
|
+100Bps Discount rate
|
|
-100Bps Growth rate
|
|
-5% Cash flows
|
OCTG - USA
|
|
|
(60
|
)
|
|
|
(43
|
)
|
|
|
(16
|
)
|
IPSCO
|
|
|
(117
|
)
|
|
|
(77
|
)
|
|
|
(41
|
)
|
Coiled Tubing
|
|
|
(12
|
)
|
|
|
(6
|
)
|
|
|
(5
|
)
|
Rods - USA
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
As of June 30, 2020, management has conducted an assessment in order
to consider any reasonable and possible change in key assumptions and has not identified any material impact in the sensitivity
analysis mentioned above.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
(all amounts in thousands of U.S. dollars)
|
|
Six-month period ended June 30,
|
|
|
2020
|
|
2019
|
|
|
(Unaudited)
|
Interest Income
|
|
|
8,907
|
|
|
|
23,224
|
|
Net result on changes in FV of financial assets at FVTPL
|
|
|
-
|
|
|
|
(27
|
)
|
Impairment result on financial assets at FVTOCI
|
|
|
(3,238
|
)
|
|
|
-
|
|
Finance Income (*)
|
|
|
5,669
|
|
|
|
23,197
|
|
Finance Cost
|
|
|
(15,860
|
)
|
|
|
(18,269
|
)
|
Net foreign exchange transactions results (**)
|
|
|
(45,225
|
)
|
|
|
17,555
|
|
Foreign exchange derivatives contracts results (***)
|
|
|
19,972
|
|
|
|
(4,120
|
)
|
Other
|
|
|
(383
|
)
|
|
|
(105
|
)
|
Other Financial results
|
|
|
(25,636
|
)
|
|
|
13,330
|
|
Net Financial results
|
|
|
(35,827
|
)
|
|
|
18,258
|
|
(*) Finance Income:
The six-month period ended June 2020 and 2019 includes $3.2 and $3.8
million of interest related to instruments carried at FVPL, respectively.
(**) Net foreign exchange transactions results:
The six-month period ended June 2020 mainly includes the result from
Brazilian real depreciation against the U.S. dollar on U.S. dollar denominated intercompany liabilities in subsidiaries with functional
currency Brazilian real, largely offset by a decrease in currency translation adjustment reserve from our Brazilian subsidiary,
together with the result from the Mexican peso depreciation against the U.S. dollar on peso denominated trade and fiscal receivables
at Mexican subsidiaries with functional currency U.S. dollar.
The six-month period ended June 2019 mainly includes the result from
the Argentine peso depreciation against the U.S. dollar on peso denominated financial, trade, social and fiscal payables and receivables
at Argentine subsidiaries with functional currency U.S. dollar.
(***) Foreign exchange derivatives contracts results:
The six-month period ended June 2020 includes mainly gain on derivatives
covering net receivables in Mexican peso, Brazilian real, Colombian peso and Canadian dollar.
The six-month period ended June 2019 includes mainly losses on derivatives
covering net payables in Argentine peso and Euro and net receivables in Canadian dollar.
On June 2, 2020, the Company’s Shareholders approved that, as
a consequence of liquidity preservation initiatives, no further dividends be distributed in respect of fiscal year 2019 beyond
the interim dividend of approximately $153 million already paid in November 2019.
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 on
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.
|
9
|
Property, plant and equipment, net
|
(all amounts in thousands of U.S. dollars)
|
|
2020
|
|
2019
|
|
|
(Unaudited)
|
Six-month period ended June 30,
|
|
|
|
|
Opening net book amount
|
|
|
6,090,017
|
|
|
|
6,063,908
|
|
Increase due to business combinations
|
|
|
503,438
|
|
|
|
178,739
|
|
Currency translation adjustment
|
|
|
(39,773
|
)
|
|
|
(1,774
|
)
|
Additions
|
|
|
99,138
|
|
|
|
164,112
|
|
Disposals
|
|
|
(7,504
|
)
|
|
|
(4,483
|
)
|
Transfers
|
|
|
1,184
|
|
|
|
(4,968
|
)
|
Impairment charge (see note 6)
|
|
|
(36,000
|
)
|
|
|
-
|
|
Depreciation charge
|
|
|
(242,155
|
)
|
|
|
(221,957
|
)
|
At June 30,
|
|
|
6,368,345
|
|
|
|
6,173,577
|
|
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
10
|
Intangible assets, net
|
(all amounts in thousands of U.S. dollars)
|
|
2020
|
|
2019
|
|
|
(Unaudited)
|
Six-month period ended June 30,
|
|
|
|
|
Opening net book amount
|
|
|
1,561,559
|
|
|
|
1,465,965
|
|
Increase due to business combinations
|
|
|
526,846
|
|
|
|
114,101
|
|
Impairment charge (see note 6)
|
|
|
(586,402
|
)
|
|
|
-
|
|
Currency translation adjustment
|
|
|
(6,546
|
)
|
|
|
201
|
|
Additions
|
|
|
14,447
|
|
|
|
18,952
|
|
Disposals
|
|
|
(642
|
)
|
|
|
(650
|
)
|
Transfers
|
|
|
(1,059
|
)
|
|
|
368
|
|
Amortization charge
|
|
|
(47,544
|
)
|
|
|
(23,376
|
)
|
At June 30,
|
|
|
1,460,659
|
|
|
|
1,575,561
|
|
|
11
|
Right-of-use assets, net and lease liabilities
|
Right-of-use assets evolution
(all amounts in thousands of U.S. dollars)
|
|
2020
|
|
2019
|
|
|
(Unaudited)
|
Six-month period ended June 30,
|
|
|
|
|
Opening net book amount
|
|
|
233,126
|
|
|
|
238,400
|
|
Increase due to business combinations
|
|
|
24,747
|
|
|
|
2,267
|
|
Currency translation adjustment
|
|
|
(810
|
)
|
|
|
188
|
|
Additions
|
|
|
45,025
|
|
|
|
10,451
|
|
Disposals
|
|
|
(10,580
|
)
|
|
|
-
|
|
Depreciation charge
|
|
|
(26,481
|
)
|
|
|
(21,222
|
)
|
At June 30,
|
|
|
265,027
|
|
|
|
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 70% of right-of-use
assets. The remaining assets are mainly related to office spaces and equipment.
Depreciation of right-of-use assets was mainly included in Tubes
segment.
The initial cost of right-of-use assets recognized in 2019 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)
|
|
2020
|
|
2019
|
|
|
(Unaudited)
|
Six-month period ended June 30,
|
|
|
|
|
Opening net book amount
|
|
|
230,167
|
|
|
|
234,149
|
|
Increase due to business combinations
|
|
|
26,046
|
|
|
|
2,267
|
|
Translation differences
|
|
|
(1,140
|
)
|
|
|
4,691
|
|
Additions
|
|
|
44,499
|
|
|
|
5,735
|
|
Cancellations
|
|
|
(10,319
|
)
|
|
|
-
|
|
Repayments
|
|
|
(26,595
|
)
|
|
|
(20,872
|
)
|
Interest accrued
|
|
|
2,122
|
|
|
|
1,518
|
|
At June 30,
|
|
|
264,780
|
|
|
|
227,488
|
|
The amount of remaining payments with maturity less than 1 year, between
2 and 5 years and more than 5 years is approximately 16.3%, 40.3% and 43.4% of the total remaining payments, respectively.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
12
|
Cash and cash equivalents and other investments
|
(all amounts in thousands of U.S. dollars)
|
|
At June 30,
|
|
At December 31,
|
|
|
2020
|
|
2019
|
Cash and cash equivalents
|
|
|
(Unaudited)
|
|
|
|
|
|
Cash at banks
|
|
|
113,885
|
|
|
|
118,314
|
|
Liquidity funds
|
|
|
744,162
|
|
|
|
1,166,697
|
|
Short – term investments
|
|
|
52,910
|
|
|
|
269,288
|
|
|
|
|
910,957
|
|
|
|
1,554,299
|
|
|
|
|
|
|
|
|
|
|
Other investments - current
|
|
|
|
|
|
|
|
|
Bonds and other fixed Income
|
|
|
101,959
|
|
|
|
144,502
|
|
Fixed Income (time-deposit, zero coupon bonds, commercial papers)
|
|
|
343,258
|
|
|
|
65,874
|
|
|
|
|
445,217
|
|
|
|
210,376
|
|
Other investments - non-current
|
|
|
|
|
|
|
|
|
Bonds and other fixed Income
|
|
|
36,516
|
|
|
|
18,012
|
|
Others
|
|
|
10,534
|
|
|
|
6,922
|
|
|
|
|
47,050
|
|
|
|
24,934
|
|
|
13
|
Derivative financial instruments
|
(all amounts in thousands of U.S. dollars)
|
|
At June 30,
|
|
At December 31,
|
|
|
2020
|
|
2019
|
Assets
|
|
|
(Unaudited)
|
|
|
|
|
|
Derivatives hedging borrowings and investments
|
|
|
3,146
|
|
|
|
19,000
|
|
Other Derivatives
|
|
|
1,417
|
|
|
|
929
|
|
|
|
|
4,563
|
|
|
|
19,929
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Derivatives hedging borrowings and investments
|
|
|
26,604
|
|
|
|
-
|
|
Other Derivatives
|
|
|
620
|
|
|
|
1,814
|
|
|
|
|
27,224
|
|
|
|
1,814
|
|
|
14
|
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, employee, tax and environmental-related 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.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
14
|
Contingencies, commitments and restrictions to the distribution of profits (Cont.)
|
Contingencies (Cont.)
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. On September
10, 2019, the Superior Court of Justice declared CSN’s appeal admissible. The Superior Court of Justice will review the case
and 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.
|
§
|
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, on October 9, 2018, Confab paid an amount of approximately BRL13.1 million (approximately
$3.5 million at historical exchange rate), including interest, fees and expenses, settling the Chubb claim in full.
|
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
14
|
Contingencies, commitments and restrictions to the distribution of profits (Cont.)
|
Contingencies (Cont.)
|
§
|
Veracel celulose accident litigation (Cont.)
|
|
·
|
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 BRL66 million (approximately $12.1 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 BRL56.6 million (approximately $10.3 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.
|
The Company is aware that Brazilian, Italian and Swiss authorities have
been investigating whether certain payments were made prior to 2014 from accounts of entities presumably associated with affiliates
of the Company to accounts allegedly linked to individuals related to Petróleo Brasileiro S.A. (“Petrobras”)
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 did not uncover any information
that corroborated allegations of involvement in these alleged payments by the Company or its subsidiaries. Furthermore, the Company
became aware that a Petrobras internal investigation commission reviewed certain contracts with Confab and concluded that they
had not found evidence that Petrobras had benefitted Confab or had misused applicable local content rules.
The Audit Committee of the Company's Board of Directors engaged external
counsel in connection with the Company’s review of these 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 prosecutors’
office of Milan, Italy, had completed a preliminary investigation into the alleged payments and had included in the investigation,
among other persons, the Company’s Chairman and Chief Executive Officer, two other board members, Gianfelice Rocca and Roberto
Bonatti, and the Company’s controlling shareholder, San Faustin. The Company is not a party to the proceedings. In February
2020, the Company learned that the magistrate overseeing the investigation decided to move the case to trial. The Company’s
outside counsel had previously reviewed the Italian prosecutors’ investigative file and has informed the Board that neither
that file nor this magistrate’s decision sets forth evidence of involvement by any of the three directors in the alleged
wrongdoing. Accordingly, the Board has concluded that no particular action is warranted at the present time, other than inviting
the referred board members to continue discharging their respective responsibilities with the full support of the Board. The trial
has not yet started.
In June 2020, the Company learned that the Brazilian public prosecutors’
office requested the indictment of several individuals, including two former Confab employees, a former Confab board member and
a former agent of Confab, charging them with the alleged crimes of corruption and money laundering in relation to the above referred
payments. Neither the Company nor Confab is a party to the proceedings.
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, 2020
|
14
|
Contingencies, commitments and restrictions to the distribution of profits (Cont.)
|
Contingencies (Cont.)
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 (a decision subsequently
reversed by a higher court), 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 former 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. Defendants’ motions to dismiss are expected to be decided during 2020. 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 BRL30.4 million (approximately $5.5 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.
|
§
|
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 BRL57.0 million (approximately $10.4 million). At this stage, the Company cannot predict
the outcome of this claim.
|
§
|
U.S.
patent infringement litigation
|
Tenaris Coiled Tubes, LLC (“TCT”), a U.S. subsidiary of
the Company, was sued on 2017 by its competitor Global Tubing, alleging violations to certain intellectual property regulations
and seeking a declaration that certain Global Tubing products do not infringe patents held by TCT. TCT filed a counterclaim seeking
declaration that certain Global Tubing products infringe patents held by TCT, and Global Tubing responded alleging that such patents
should be invalidated. On December 13, 2019, Global Tubing filed an amended complaint (including the Company as defendant) and
alleging that TCT and the Company misled the patent office in order to monopolize the coiled tubing market for quench and tempered
products. The trial is set for August 2021. At this time, the Company cannot predict the outcome of this matter or estimate the
range of potential losses that may result from the resolution of this claim.
|
§
|
Tax assessment from Italian tax authorities
|
Tenaris’s Italian subsidiary Dalmine received on December 27,
2019, a tax assessment from the Italian tax authorities related to fiscal year 2014. As of June 30, 2020, the claim amounted to
approximately EUR25.3 million (approximately $28.4 million), comprising EUR20.7 million (approximately $23.2 million) in principal
and EUR4.6 million (approximately $5.2 million) in interest and penalties. In the report for a tax audit conducted in 2019, the
Italian tax inspectors indicated that they also intend to bring claims for fiscal year 2015 with respect to the same matters; as
of June 30, 2020, these additional claims would amount to approximately EUR10.3 million (approximately $11.6 million), comprising
EUR8.1 million (approximately $9.1 million) in principal and EUR2.2 million (approximately $2.5 million) in interest and penalties.
The claims mainly refer to the compensation for certain intercompany transactions involving Dalmine in connection with sales of
products and R&D activities. On July 27, 2020, Dalmine filed a first-instance appeal before the Milan tax court against the
2014 tax assessment. Based on the advice of counsel, Tenaris believes that it is unlikely that the ultimate resolution of these
matters will result in a material obligation.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
14
|
Contingencies, commitments and restrictions to the distribution of profits (Cont.)
|
Contingencies (Cont.)
|
§
|
Product liability litigation
|
Tenaris’s recently acquired U.S. subsidiary, IPSCO Tubulars Inc.
(“IPSCO”), or its subsidiaries, that are parties to several product liability claims, which may result in damages for
an aggregate amount estimated at approximately $25.9 million. This includes a lawsuit alleging product liability and negligent
misrepresentation in which the plaintiff alleges that defects in certain casing provided by IPSCO resulted in three well failures
causing damages for an amount of approximately $15 million. Although at this time the Company cannot predict the outcome of any
of these matters, the Company believes that provisions have been recorded in an amount sufficient to cover potential exposure under
these claims.
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, 2020, the aggregate
commitment to take or pay the committed volumes for a 9-year term totaled approximately $21.7 million.
|
|
§
|
Several Tenaris companies entered into a contract with Praxair S.A. for the service of oxygen and
nitrogen supply. As of June 30, 2020, the aggregate commitment to take or pay the committed volumes for a 14-year term totalled
approximately $50 million.
|
|
§
|
Several Tenaris companies entered into a contract with Graftech for the supply of graphite electrodes.
As of June 30, 2020, the aggregate commitment to take or pay the committed volumes totalled approximately $19.7 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 Air Liquide Mexico, S. de R.L de C.V. for the supply
of argon gas. As of June 30, 2020, the aggregate commitment totaled approximately $20.9 million.
|
|
§
|
Tenaris Bay City, a U.S. subsidiary of the Company, is a party to a contract with Nucor Steel Memphis
Inc. under which it is committed to purchase on a monthly basis a specified minimum volume of steel bars, at prices subject to
quarterly adjustments. The contract will become effective upon delivery of the first purchase order, which has not yet occurred,
and will remain in force until December 2022. As of June 30, 2020, the estimated aggregate contract amount through December 31,
2022, calculated at current prices, is approximately $108.9 million. The contract gives Tenaris Bay City the right to temporarily
reduce the quantities to be purchased thereunder to 75% of the agreed-upon minimum volume in cases of material adverse changes
in prevailing economic or market conditions.
|
|
§
|
In connection with the closing of the acquisition of IPSCO, a Tenaris Company entered into a 6-year
master distribution agreement (the “MDA”) with PAO TMK (“TMK”) whereby, since January 2, 2020, Tenaris
is the exclusive distributor of TMK’s OCTG and line pipe products in United States and Canada. At the end of the MDA’s
6-years term, TMK will have the option to extend the duration of its term for an additional 12 month period. Under the MDA, Tenaris
is required to purchase specified minimum volumes of TMK-manufactured OCTG and line pipe products, based on the aggregate market
demand for the relevant product category in the United States in the relevant year. In light of the adverse scenario of declining
oil and gas prices and unprecedented oversupply in the oil market, Tenaris and TMK have agreed to certain accommodations relating
to the MDA’s minimum annual purchase requirement for 2020 to minimize the negative impact of the crisis on both parties,
including reduction of potential penalties for the year 2020 and 2021. As of June 30, 2020, Tenaris’s commitment under the
MDA for the remainder of its 6-year term totaled approximately $498.5 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. This amount
does not include guarantees disclosed in note 15 (c and d).
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
14
|
Contingencies, commitments and restrictions to the distribution of profits (Cont.)
|
Restrictions to the distribution of profits and payment of dividends
In accordance with Luxembourg Law, the Company is required to transfer
a minimum of 5% of its net profit for each financial year to a legal reserve until such reserve equals 10% of the issued share
capital.
As of June 30, 2020, 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.
|
15
|
Investments in non-consolidated companies
|
This note supplements and should be read in conjunction with Note 12
to the Company’s audited Consolidated Financial Statements for the year ended December 31, 2019.
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, 2020, the closing price of Ternium’s ADSs as quoted
on the New York Stock Exchange was $15.17 per ADS, giving Tenaris’s ownership stake a market value of approximately $348.5
million. At June 30, 2020, the carrying value of Tenaris’s ownership stake in Ternium, based on Ternium’s IFRS Financial
Statements, was approximately $743.7 million. Tenaris reviews its participation in Ternium whenever events or circumstances indicate
that the asset’s carrying amount may not be recoverable. As of June 30, 2020, the Company concluded that the carrying amount
does not exceed the recoverable value of the investment.
Usiminas is a Brazilian producer of high quality flat steel products
used in the energy, automotive and other industries.
As of June 30, 2020, the closing price of the Usiminas’ ordinary
and preferred shares, as quoted on the B3 - Brasil Bolsa Balcão S.A, was BRL8.09 ($1.48) and BRL7.27 ($1.33), respectively,
giving Tenaris’s ownership stake a market value of approximately $55.6 million. As of that date, the carrying value of Tenaris’s
ownership stake in Usiminas was approximately $54.4 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, with a power capacity of 900 megawatts. As of June 30, 2020, 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, 2020, Tenaris’s exposure
under these agreements amounted to $50.4 million and $0.9 million respectively. Furthermore, during 2018, Techgen entered a contract
for the purchase of clean energy certificates. As of June 30, 2020 Tenaris’s exposure under this agreement amounted to $17.7
million.
During 2019, Techgen repaid certain subordinated loans to Techgen’s
sponsors; the part corresponding to Tenaris amounted to $40.5 million. As of June 30, 2020, the aggregate outstanding principal
amount under these subordinated loans was $58.1 million.
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.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
15
|
Investments in non-consolidated companies (Cont.)
|
|
c)
|
Techgen, S.A. de C.V. (“Techgen”) (Cont.)
|
Techgen’s obligations under the current facility, which is “non-recourse”
on the sponsors, are guaranteed by a Mexican security trust covering Techgen’s 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 this
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.
|
d)
|
Global Pipe Company (“GPC”)
|
Global Pipe Company is a Saudi-German joint venture, established in
2010 and located in Jubail - Saudi Arabia. The Company manufactures LSAW pipes. Tenaris, through its subsidiary Saudi Steel Pipe
Company (“SSPC”), currently owns 35% of the share capital of GPC. As of June 30, 2020, the carrying value of Tenaris’s
ownership stake in GPC was approximately $23 million.
SSPC and the other three owners of GPC issued corporate guarantees to
secure repayment of loan agreements entered into by GPC, with Saudi Investment Development Fund, Saudi British Bank, National Commercial
Bank and Banque Saudi Fransi to finance GPC’s capital expenditures and working capital. As of June 30, 2020, SSPC’s
exposure under the guarantees amounted to $131.7 million.
|
16
|
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 $280 million and a two-year construction period, is planned to have an annual production capacity of 300,000 tons. During 2019,
Tenaris contributed approximately $19.6 million in the project, no additional contributions were made during 2020.
Acquisition of IPSCO Tubulars, Inc.
|
§
|
Acquisition and price determination
|
On January 2, 2020, Tenaris acquired 100% of the shares of IPSCO, a
U.S. manufacturer of steel pipes, from PAO TMK (“TMK”). The acquisition price was determined on a cash-free, debt-free
basis, and the amount paid in cash at the closing, following contractual adjustments for cash, indebtedness, working capital and
certain other items as estimated by the seller as of the closing date, was $1,067 million. The final acquisition price was subject
to a contractual true-up adjustment based on actual amounts of cash, indebtedness, working capital and certain other items as of
the closing date. On June 25, 2020 Tenaris and PAO TMK signed a Letter Agreement in which they settled the discussions regarding
certain adjustments on the transaction price. The parties finally determined the closing price in an amount equal to $1,029
million, which is less than the closing price paid by an amount equal to $38.5 million. This amount was collected on July
2, 2020 and this agreement implies that all disputes relating to the closing statement were resolved.
IPSCO’s facilities are located mainly in the midwestern and northeastern
regions of the country. IPSCO’s steel shop in Koppel, Pennsylvania, is Tenaris’s first in the United States, providing
vertical integration through domestic production of a relevant part of its steel bar needs. The Ambridge, Pennsylvania, mill adds
a second seamless manufacturing facility and complements Tenaris’s seamless plant in Bay City, Texas. Given the abrupt and
steep decline in market demand, however, all of IPSCO’s facilities are currently temporarily closed until market conditions
improve.
In connection with the closing of the transaction, subsidiaries of Tenaris
and TMK entered into a 6-year master distribution agreement (the “MDA”) for more information see note 14.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
17
|
Business combinations (Cont.)
|
|
§
|
Acquisition and price determination (Cont.)
|
The Company has begun consolidating IPSCO’s balances and results
of operations as from January 2, 2020. The acquired business contributed revenues for $156.8 million with a minor contribution
to Tenaris’s margin for the period starting January 2, 2020 and ending June 30, 2020.
|
§
|
Fair value of net assets acquired
|
The application of the purchase method requires certain estimates and
assumptions, mainly 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 purchase price allocation was carried out with the assistance
of a third-party expert. Following IFRS 3, during the period ended June 30, 2020, the Company continued reviewing the allocation
and, based on new information related to events or circumstances existing at the acquisition date, made certain adjustments over
the value of the identifiable assets acquired such as inventory, property, plant and equipment, other liabilities and deferred
tax assets. Tenaris has up to one year after the acquisition date to finalize the accounting for the business combination.
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:
|
|
$ million
|
Property, Plant and Equipment
|
|
|
503
|
|
Intangible assets
|
|
|
170
|
|
Working capital
|
|
|
138
|
|
Cash and Cash Equivalents
|
|
|
4
|
|
Borrowings
|
|
|
(53
|
)
|
Provisions
|
|
|
(27
|
)
|
Other assets and liabilities, net
|
|
|
(63
|
)
|
Net assets acquired
|
|
|
672
|
|
Tenaris acquired total assets and liabilities shown above, for approximately
$1,029 million. As a result of the acquisition, Tenaris recognized goodwill for approximately $357 million. The goodwill is not
expected to be deductible for tax purposes.
The goodwill generated by the acquisition is mainly attributable to
the synergy created following the integration between Tenaris and IPSCO, which is expected to enhance Tenaris’s position
as well as its local manufacturing presence in the U.S. market, and also expand its product range and services capabilities. The
goodwill has been allocated to the Tubes segment. After the conclusion of the preliminary purchase price allocation determination
and as a consequence of the unprecedented decline in oil prices and other changes in circumstances, the management has decided
to fully impair the goodwill mentioned above.
Acquisition-related costs of $9.7 million were included in general and
administrative expenses ($9.4 and $0.3 in 2019 and 2020 respectively). For contingent liabilities related to the acquisition see
note 14.
|
18
|
Related party transactions
|
As of June 30, 2020:
|
§
|
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 private foundation
located in the Netherlands (Stichting) (“RP STAK”) held voting shares in San Faustin sufficient in number to control
San Faustin.
|
|
§
|
No person or group of persons controls RP STAK.
|
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
18
|
Related party transactions (Cont.)
|
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,
|
|
|
|
2020
|
|
2019
|
(i)
|
Transactions
|
|
(Unaudited)
|
|
(a) Sales of goods and services
|
|
|
|
|
|
Sales of goods to non-consolidated parties
|
|
|
8,243
|
|
|
|
9,605
|
|
|
Sales of goods to other related parties
|
|
|
13,864
|
|
|
|
43,969
|
|
|
Sales of services to non-consolidated parties
|
|
|
2,524
|
|
|
|
2,831
|
|
|
Sales of services to other related parties
|
|
|
2,350
|
|
|
|
2,134
|
|
|
|
|
|
26,981
|
|
|
|
58,539
|
|
|
(b) Purchases of goods and services
|
|
|
|
|
|
|
|
|
|
Purchases of goods to non-consolidated parties
|
|
|
46,909
|
|
|
|
86,446
|
|
|
Purchases of goods to other related parties
|
|
|
7,767
|
|
|
|
30,318
|
|
|
Purchases of services to non-consolidated parties
|
|
|
3,058
|
|
|
|
3,293
|
|
|
Purchases of services to other related parties
|
|
|
13,768
|
|
|
|
27,360
|
|
|
|
|
|
71,502
|
|
|
|
147,417
|
|
|
(all amounts in thousands of U.S. dollars)
|
|
At June 30,
|
|
At December 31,
|
|
|
|
2020
|
|
2019
|
(ii)
|
Period-end balances
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(a) Arising from sales / purchases of goods / services / others
|
|
|
|
|
|
|
|
|
|
Receivables from non-consolidated parties
|
|
|
80,119
|
|
|
|
78,884
|
|
|
Receivables from other related parties
|
|
|
6,876
|
|
|
|
10,400
|
|
|
Payables to non-consolidated parties
|
|
|
(19,616
|
)
|
|
|
(19,100
|
)
|
|
Payables to other related parties
|
|
|
(2,185
|
)
|
|
|
(7,048
|
)
|
|
|
|
|
65,194
|
|
|
|
63,136
|
|
|
(b) Financial debt
|
|
|
|
|
|
|
|
|
|
Finance lease liabilities from non-consolidated parties
|
|
|
(1,978
|
)
|
|
|
(2,064
|
)
|
|
Finance lease liabilities from other related parties
|
|
|
(786
|
)
|
|
|
-
|
|
|
|
|
|
(2,764
|
)
|
|
|
(2,064
|
)
|
In addition to the tables above, Tenaris issued various guarantees in
favor of Techgen and GPC; for further details, please see note 15 (c and d). No other material guarantees were issued in favor
of other related parties.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
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, 2020 and December 31, 2019.
|
|
Carrying
|
|
Measurement Categories
|
|
At Fair Value
|
June 30, 2020
|
|
amount
|
|
Amortized Cost
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
910,957
|
|
|
|
166,795
|
|
|
|
744,162
|
|
|
|
744,162
|
|
|
|
-
|
|
|
|
-
|
|
Other investments
|
|
|
445,217
|
|
|
|
343,258
|
|
|
|
101,959
|
|
|
|
94,895
|
|
|
|
7,064
|
|
|
|
-
|
|
Fixed income (time-deposit, zero coupon bonds, commercial papers)
|
|
|
343,258
|
|
|
|
343,258
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non - U.S. Sovereign Bills
|
|
|
197,966
|
|
|
|
197,966
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Certificates of deposits
|
|
|
94,825
|
|
|
|
94,825
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other notes
|
|
|
50,467
|
|
|
|
50,467
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Bonds and other fixed income
|
|
|
101,959
|
|
|
|
-
|
|
|
|
101,959
|
|
|
|
94,895
|
|
|
|
7,064
|
|
|
|
-
|
|
U.S. government securities
|
|
|
49,376
|
|
|
|
-
|
|
|
|
49,376
|
|
|
|
49,376
|
|
|
|
-
|
|
|
|
-
|
|
Non - U.S. government securities
|
|
|
12,136
|
|
|
|
-
|
|
|
|
12,136
|
|
|
|
5,072
|
|
|
|
7,064
|
|
|
|
-
|
|
Corporates securities
|
|
|
40,447
|
|
|
|
-
|
|
|
|
40,447
|
|
|
|
40,447
|
|
|
|
-
|
|
|
|
-
|
|
Derivative financial instruments
|
|
|
4,563
|
|
|
|
-
|
|
|
|
4,563
|
|
|
|
-
|
|
|
|
4,563
|
|
|
|
-
|
|
Other Investments Non-current
|
|
|
47,050
|
|
|
|
-
|
|
|
|
47,050
|
|
|
|
36,516
|
|
|
|
-
|
|
|
|
10,534
|
|
Bonds and other fixed income
|
|
|
36,516
|
|
|
|
-
|
|
|
|
36,516
|
|
|
|
36,516
|
|
|
|
-
|
|
|
|
-
|
|
Other investments
|
|
|
10,534
|
|
|
|
-
|
|
|
|
10,534
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,534
|
|
Trade receivables
|
|
|
1,044,768
|
|
|
|
1,044,768
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Receivables C and NC (*)
|
|
|
281,603
|
|
|
|
90,521
|
|
|
|
48,659
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48,659
|
|
Other receivables
|
|
|
139,180
|
|
|
|
90,521
|
|
|
|
48,659
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48,659
|
|
Other receivables (non-financial)
|
|
|
142,423
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
|
|
|
|
1,645,342
|
|
|
|
946,393
|
|
|
|
875,573
|
|
|
|
11,627
|
|
|
|
59,193
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings C and NC
|
|
|
698,914
|
|
|
|
698,914
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Lease Liabilities C and NC
|
|
|
264,780
|
|
|
|
264,780
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Trade payables
|
|
|
414,716
|
|
|
|
414,716
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Derivative financial instruments
|
|
|
27,224
|
|
|
|
-
|
|
|
|
27,224
|
|
|
|
-
|
|
|
|
27,224
|
|
|
|
-
|
|
Total
|
|
|
|
|
|
|
1,378,410
|
|
|
|
27,224
|
|
|
|
-
|
|
|
|
27,224
|
|
|
|
-
|
|
(*) Includes balances related to interest in our Venezuelan companies,
see Note 20.
|
|
Carrying
|
|
Measurement Categories
|
|
At Fair Value
|
December 31, 2019
|
|
amount
|
|
Amortized Cost
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,554,299
|
|
|
|
387,602
|
|
|
|
1,166,697
|
|
|
|
1,166,697
|
|
|
|
-
|
|
|
|
-
|
|
Other investments
|
|
|
210,376
|
|
|
|
65,874
|
|
|
|
144,502
|
|
|
|
134,990
|
|
|
|
9,512
|
|
|
|
-
|
|
Fixed income (time-deposit, zero coupon bonds, commercial papers)
|
|
|
65,874
|
|
|
|
65,874
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Certificates of deposits
|
|
|
20,637
|
|
|
|
20,637
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Commercial papers
|
|
|
4,993
|
|
|
|
4,993
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other notes
|
|
|
40,244
|
|
|
|
40,244
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Bonds and other fixed income
|
|
|
144,502
|
|
|
|
-
|
|
|
|
144,502
|
|
|
|
134,990
|
|
|
|
9,512
|
|
|
|
-
|
|
U.S. government securities
|
|
|
10,211
|
|
|
|
-
|
|
|
|
10,211
|
|
|
|
10,211
|
|
|
|
-
|
|
|
|
-
|
|
Non - U.S. government securities
|
|
|
28,637
|
|
|
|
-
|
|
|
|
28,637
|
|
|
|
19,125
|
|
|
|
9,512
|
|
|
|
-
|
|
Corporates securities
|
|
|
105,654
|
|
|
|
-
|
|
|
|
105,654
|
|
|
|
105,654
|
|
|
|
-
|
|
|
|
-
|
|
Derivative financial instruments
|
|
|
19,929
|
|
|
|
-
|
|
|
|
19,929
|
|
|
|
-
|
|
|
|
19,929
|
|
|
|
-
|
|
Other Investments Non-current
|
|
|
24,934
|
|
|
|
-
|
|
|
|
24,934
|
|
|
|
18,012
|
|
|
|
-
|
|
|
|
6,922
|
|
Bonds and other fixed income
|
|
|
18,012
|
|
|
|
-
|
|
|
|
18,012
|
|
|
|
18,012
|
|
|
|
-
|
|
|
|
-
|
|
Other investments
|
|
|
6,922
|
|
|
|
-
|
|
|
|
6,922
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,922
|
|
Trade receivables
|
|
|
1,348,160
|
|
|
|
1,348,160
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Receivables C and NC (*)
|
|
|
261,678
|
|
|
|
93,239
|
|
|
|
48,659
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48,659
|
|
Other receivables
|
|
|
141,898
|
|
|
|
93,239
|
|
|
|
48,659
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48,659
|
|
Other receivables (non-financial)
|
|
|
119,780
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
|
|
|
|
1,894,875
|
|
|
|
1,404,721
|
|
|
|
1,319,699
|
|
|
|
29,441
|
|
|
|
55,581
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings C and NC
|
|
|
822,152
|
|
|
|
822,152
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Trade payables
|
|
|
555,887
|
|
|
|
555,887
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Lease Liabilities C and NC
|
|
|
230,167
|
|
|
|
230,167
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Derivative financial instruments
|
|
|
1,814
|
|
|
|
-
|
|
|
|
1,814
|
|
|
|
-
|
|
|
|
1,814
|
|
|
|
-
|
|
Total
|
|
|
|
|
|
|
1,608,206
|
|
|
|
1,814
|
|
|
|
-
|
|
|
|
1,814
|
|
|
|
-
|
|
(*) Includes balances related to interest in our Venezuelan companies,
see Note 20.
There were no transfers between Levels during the period.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
19
|
Category of financial instruments and classification within the fair value hierarchy (Cont.)
|
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.
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 20).
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 100.3% of its carrying amount including interests accrued as of June 30, 2020 as compare with 100%
as of December 31, 2019. Fair values were calculated using standard valuation techniques for floating rate instruments and comparable
market rates for discounting flows.
|
20
|
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.
On June 8, 2018, Tenaris and Talta filed two actions in federal court
in the District of Columbia to recognize and enforce their awards. Tenaris and Talta effected service on Venezuela in accordance
with US law, and Venezuela failed to file an answer in the proceeding. Tenaris and Talta then moved for default judgment. Venezuela
did not oppose the entry of default judgment. On July 17, 2020, the Court entered judgment recognizing the Matesi award. The judgment
orders Venezuela to pay to Tenaris and Talta an amount of $256.4 million, including principal and post-award interest through the
judgment date, and provides for post-judgment interest to accrue on this sum at the U.S. federal statutory rate. It is expected
that the Tavsa award will also be converted into a judgment.
Both the Matesi and Tavsa judgments, however, may not be enforced in
the U.S. to the extent prohibited by the Venezuelan sanctions regulations issued by the U.S. Treasury Department’s Office
of Foreign Assets Control.
For further information on these cases, see Note 33 in the Company’s
audited consolidated financial statements for the year ended December 31, 2019.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
21
|
Closure of facilities at JFE’s Keihin steel complex
|
Our seamless pipe manufacturing facility in Asia, operated by NKKTubes,
is located in Kawasaki, Japan, in the Keihin steel complex owned by JFE Holdings Inc. (“JFE”). Steel bars and other
essential inputs and services for NKKTubes are supplied under a long-term agreement by JFE, which retains a 49% interest in NKKTubes.
On March 27, 2020, JFE informed Tenaris of its decision to permanently cease as from JFE’s fiscal year ending March 2024
the operations of certain of its steel manufacturing facilities and other facilities located at the Keihin complex. The closure
of JFE’s Keihin facilities may result in the unavailability of steel bars and other essential inputs or services used in
NKKTubes’ manufacturing process, thereby affecting its operations. Tenaris and JFE have agreed to engage in discussions to
seek mutually acceptable solutions.
|
22
|
Foreign Exchange Control measures in Argentina
|
In Argentina, since September, 2019, the government has imposed certain
restrictions on foreign exchange transactions, including the obligation to sell into the Argentine foreign exchange market any
proceeds derived from exports of goods within a period of 60 days from export to related parties, and within 180 days from export
to third parties. As for service-related exports, foreign currency proceeds must be converted into Argentine pesos within 5 days
of collection. Other restrictions related to foreign exchange transactions include the obligation to obtain previous authorization
from the Argentine Central Bank to access the foreign exchange market to make payments of imports of services from related parties
(including royalties). Central Bank’s authorizations are granted on a very restricted basis. As from June, 2020, to access
the foreign exchange market to make payments of imports, companies must divest their foreign liquid reserves (cash and/or investments
held in foreign accounts) to a minimum of $100 thousand. If in compliance with this pre-requisite, there are no other restrictions
to make payments for imports.
As for capital flows, there are no restrictions for payments of debt-service
to foreign creditors as long as funds disbursed had been previously transferred to Argentina through the foreign exchange market
and converted into Argentine pesos. As for related-party transactions, access to the foreign exchange market to make financial
payments are now subject to the prior approval of the Argentine Central Bank. Access to the foreign exchange market to make dividend
payment requires prior authorization from the Central Bank, which could be difficult to obtain.
|
23
|
The COVID-19 pandemic and the oil & gas crisis and
their impact on Tenaris’s operations and financial condition
|
A novel strain of coronavirus (SARS-CoV-2) surfaced in China in December
2019 and subsequently spread to the rest of the world in early 2020. In March 2020, the World Health Organization declared COVID-19,
the disease caused by the SARS-CoV-2 virus, a global pandemic. In response to the COVID-19 outbreak, countries have taken different
measures in relation to prevention and containment. For example, several countries introduced bans on business activities or locked
down cities or countries, including countries where Tenaris has operations (such as Argentina, China, Colombia, Italy, Mexico,
Saudi Arabia and the United States). The rapid expansion of the virus and the measures taken to contain it have triggered a severe
fall in global economic activity and a serious crisis in the energy sector.
While the extent of the effects of COVID-19 on the global economy and
oil demand were still unclear, in March 2020, the members of OPEC+ (OPEC plus other major oil producers including Russia) did not
agree to extend their agreement to cut oil production and Saudi Arabia precipitated a wave of additional supply on the market triggering
a collapse in oil prices below $30 per barrel. This exacerbated what soon became clear was an unprecedented situation of oversupply,
caused primarily by the sudden and dramatic fall in oil consumption consequent to the measures taken to contain the spread of the
virus around the world. Although OPEC+ subsequently reached an equally unprecedented agreement to cut production by as much as
9.7 million barrels per day, the situation of acute oversupply continued, causing oil prices to hit record lows. By the end of
trading on April 20, 2020, the West Texas Intermediate (WTI) forward price for delivery in May, which had to be closed out the
following day, fell to a negative value for the first time in history, as oil storage facilities were completely committed, and
producers were forced to pay buyers to take their barrels. As of June 30, 2020, the prices of oil are still low, ranging between
$35 and 40 per barrel. The worldwide demand of oil, which stood at 100 million barrels per day in December 2019, fell to around
75 million barrels per day in April 2020 before recovering above 85 million barrels per day in June 2020. It is not known how long
it will take for oil and gas demand to recover to pre-crisis levels and draw down the excess inventories that have accumulated
during the first half of the year. As a result, prices are expected to remain at low levels for an extended period. In these circumstances,
most of our customers have announced, or are making, significant cuts to their investment plans and are likely to announce further
cuts. Similarly, several of our suppliers are closing, either temporarily or permanently, some of their facilities, which may result
in unavailability or increased prices for our raw materials and other inputs.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
23
|
The COVID-19 pandemic and the oil & gas crisis and their impact on Tenaris’s operations
and financial condition (Cont.)
|
|
§
|
Status of our operations
|
We adjusted our operations on a country-by-country basis to comply with
applicable rules and requirements and adapt to this new, rapidly evolving scenario. As of the date of these Consolidated Condensed
Interim Financial Statements, this is the status of operation of our facilities:
|
·
|
In China, operations have resumed at the beginning of the second quarter, and our facilities are
fully operational after several weeks of interruptions.
|
|
·
|
In Italy, production was greatly reduced during March and April 2020, but since then our Dalmine
facility has gradually resumed normal operations and is currently fully operational.
|
|
·
|
In Saudi Arabia, following the imposition of government restrictions, our facilities reduced their
activities during most of the second quarter. Operations in our Saudi Arabia plants resumed gradually since mid-May and during
the first days of June 2020 the lockdown was relaxed and the mills returned to regular operations.
|
|
·
|
In Argentina, Colombia and Mexico, Tenaris decreased its activity following the imposition of mandatory
lockdowns and severe reduction in demand, though our plants in these countries are now operating, and are expected to continue
to operate for the rest of the year, at greatly reduced levels. Lockdowns and other restrictions to operate in these countries
remain in force, and it is currently not possible to predict whether such measures will be relaxed, reinstated or made more stringent.
|
|
·
|
In the United States, our facilities in Koppel and Ambridge (PA), Brookfield (OH), Blytheville
(AR), Wilder (KY), and Odessa and Baytown (TX), have been temporarily closed until market conditions improve.
|
|
·
|
Tenaris has adjusted production levels at its facilities, which are operating with reduced volumes
in line with market demand, and may perform additional adjustments.
|
In order to safeguard the health and safety of its employees, customers
and suppliers, Tenaris has taken preventive measures, including remote working for the majority of white collar employees, restricting
onsite access to essential operational personnel, keeping personnel levels at a minimum, implementing a special operations protocol
to ensure social distancing and providing medical assistance and supplies to onsite employees. As of the date of these Consolidated
Condensed Interim Financial Statements, remote work and other work arrangements have not materially adversely affected Tenaris’s
ability to conduct operations. In addition, these alternative working arrangements have not adversely affected our financial reporting
systems, internal control over financial reporting or disclosure controls and procedures.
|
§
|
Risks associated with the COVID-19 pandemic and the oil & gas crisis
|
Given the uncertainty around the extent and timing of the future spread
of the SARS-CoV-2 virus and the unprecedented extent of the oversupply on the oil market and the uncertainty about the timing and
extent of any recovery in demand, it is not possible at this time to predict the full magnitude of the adverse effects that these
two circumstances will have on our industry generally, nor to reasonably estimate the impact on Tenaris’s results of operations,
cash flows or financial condition.
The COVID-19 pandemic and the ongoing oil & gas crisis poses the
following main risks and challenges to Tenaris:
|
·
|
Global oil demand may fail to recover its former level or even decrease further in the future, driving down prices even more
or keeping them at very low levels, which would exert downward pressure on sales and margins of oil and gas companies, leading
to further reductions and even generalized suspension of drilling activities (in the U.S. or elsewhere) and, as a result, materially
adversely affecting our sales and financial position.
|
|
·
|
Tenaris or its employees, contractors, suppliers, customers and other business partners may be
prevented from conducting certain business activities for a prolonged or indefinite period of time. In addition, employees in some
or all of our facilities, or those of our contracts, suppliers, customers or other business partners, may refuse to work due to
health concerns while the COVID-19 outbreak is ongoing, If that happens, the continuity of our future operations may be severely
affected.
|
|
·
|
A continuing spread of COVID-19 may affect the availability and price of raw materials, energy
and other inputs used by Tenaris in its operations. Any such disruption or increased prices could adversely affect Tenaris’s
profitability.
|
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2020
|
23
|
The COVID-19 pandemic and the oil & gas crisis and their impact on Tenaris’s operations
and financial condition (Cont.)
|
In order to mitigate the impact of expected lower sales, Tenaris is
implementing a worldwide rightsizing program and cost containment plan aimed at preserving its financial resources and overall
liquidity position and maintaining the continuity of its operations. The actions include:
|
·
|
adjusting the level of our operations and workforce around the world, including through the temporary
closure of certain facilities or production lines, as indicated above;
|
|
·
|
introducing efficiency and productivity improvements throughout Tenaris’s industrial system;
|
|
·
|
downsizing our fixed cost structure, including through pay reductions for senior management and
board members, aggregating estimated total annual savings of approximately $220 million by year-end;
|
|
·
|
reducing capital expenditures and R&D expenses for approximately $150 million when compared
to 2019 levels;
|
|
·
|
reducing working capital, especially inventories, in accordance with the expected levels of activity;
and
|
|
·
|
increasing our focus on managing customer credit conditions.
|
As part of these liquidity preservation initiatives, on June 2, 2020,
the Annual Shareholders Meeting approved that no further dividends be distributed in respect of fiscal year 2019 on top of the
interim dividend of approximately $153 million already paid in November 2019.
As of the date of these Consolidated Condensed Interim Financial Statements,
our capital and financial resources, and overall liquidity position, have not been materially affected by this new scenario. Tenaris
has in place non-committed credit facilities and management believes it has adequate access to the credit markets. In addition,
Tenaris has a net cash position of approximately $670 million as of the end of June 2020 and a manageable debt amortization schedule.
Considering our financial position and the funds provided by operating activities, management believes that we have sufficient
resources to satisfy our current working capital needs, service our debt and address short-term changes in business conditions.
Considering the global situation, the Company is renegotiating existing
contractual obligations with its counterparties to adapt the commitments to the decrease in activity.
Management does not expect to disclose or incur in any material COVID-19-related
contingency, and it considers its allowance for doubtful accounts sufficient to cover risks that could arise from credits with
customers in accordance with IFRS 9.
|
Alicia Móndolo
|
|
|
Chief Financial Officer
|
|
25