FORM 6 - K

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a - 16 or 15d - 16 of

the Securities Exchange Act of 1934

 

 

As of May 2, 2019

 

TENARIS, S.A.

(Translation of Registrant's name into English)

 

TENARIS, S.A.

29, Avenue de la Porte-Neuve 3rd floor

L-2227 Luxembourg

(Address of principal executive offices)

 

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or 40-F.

 

Form 20-F  Ö         Form 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.

 

Yes             No  Ö 

 

 

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 three-month period ended March 31, 2019.

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Date: May 2, 2019.

 

 

Tenaris, S.A.

 

 

By: /s/ Cecilia Bilesio

Cecilia Bilesio

Corporate Secretary

 

 

 

 

 

 

 

 

 

 

 

 

TENARIS S.A.

 

 

 

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

 

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

29, Avenue de la Porte-Neuve – 3rd Floor.

L - 2227 Luxembourg

R.C.S. Luxembourg: B 85 203

 

CONSOLIDATED CONDENSED INTERIM INCOME STATEMENT

 

(all amounts in thousands of U.S. dollars, unless otherwise stated)						Three-month period ended March 31,
		Notes				2019				2018
Continuing operations						(Unaudited)
Net sales			3				1,871,759				1,866,235
Cost of sales			4				(1,271,799	)			(1,305,506	)
Gross profit							599,960				560,729
Selling, general and administrative expenses			5				(345,366	)			(349,634	)
Other operating income (expense), net							4,422				1,102
Operating income							259,016				212,197
Finance Income			6				10,461				9,373
Finance Cost			6				(6,982	)			(10,174	)
Other financial results			6				20,915				(7,066	)
Income before equity in earnings of non-consolidated companies and income tax							283,410				204,330
Equity in earnings of non-consolidated companies							29,135				46,026
Income before income tax							312,545				250,356
Income tax							(69,956	)			(15,122	)
Income for the period							242,589				235,234
Attributable to:
Owners of the parent							242,879				234,983
Non-controlling interests							(290	)			251
							242,589				235,234
Earnings per share attributable to the owners of the parent during the period:
Weighted average number of ordinary shares (thousands)							1,180,537				1,180,537
Continuing operations
Basic and diluted earnings per share (U.S. dollars per share)							0.21				0.20
Basic and diluted earnings per ADS (U.S. dollars per ADS) (1)							0.41				0.40

 

(1) Each ADS equals two shares.

 

CONSOLIDATED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME

 

(all amounts in thousands of U.S. dollars)		Three-month period ended March 31,
		2019				2018
		(Unaudited)
Income for the period			242,589				235,234
Items that may be subsequently reclassified to profit or loss:
Currency translation adjustment			(19,079	)			32,464
Change in value of cash flow hedges and instruments at fair value			2,213				(1,883	)
From participation in non consolidated companies:
- Currency translation adjustment			(3,730	)			(4,952	)
- Changes in the fair value of derivatives held as cash flow hedges and others			(37	)			11
Income tax relating to components of other comprehensive income			(23	)			21
			(20,656	)			25,661
Items that will not be reclassified to profit or loss:
Remeasurements of post employment benefit obligations			(9	)			-
Income tax on items that will not be reclassified			3				(16	)
Remeasurements of post employment benefit obligations of non-consolidated companies			(49	)			(56	)
			(55	)			(72	)
Other comprehensive (loss) income for the period, net of tax			(20,711	)			25,589
Total comprehensive income for the period			221,878				260,823
Attributable to:
Owners of the parent			222,249				260,429
Non-controlling interests			(371	)			394
			221,878				260,823

 

The accompanying notes are an integral part of these Consolidated Condensed Interim Financial Statements. These Consolidated Condensed Interim Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the fiscal year ended December 31, 2018.

 

CONSOLIDATED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION

 

(all amounts in thousands of U.S. dollars)						At March 31, 2019								At December 31, 2018
		Notes				(Unaudited)
ASSETS
Non-current assets
Property, plant and equipment, net			8				6,197,512								6,063,908
Intangible assets, net			9				1,576,436								1,465,965
Right-of-use assets, net			10				233,899								-
Investments in non-consolidated companies			14				851,442								805,568
Other investments			11				111,119								118,155
Deferred tax assets							163,231								181,606
Receivables, net							156,954				9,290,593				151,905				8,787,107
Current assets
Inventories, net							2,462,762								2,524,341
Receivables and prepayments, net							141,985								155,885
Current tax assets							117,958								121,332
Trade receivables, net							1,528,467								1,737,366
Derivative financial instruments			12				11,614								9,173
Other investments			11				432,604								487,734
Cash and cash equivalents			11				897,767				5,593,157				428,361				5,464,192
Total assets											14,883,750								14,251,299
EQUITY
Capital and reserves attributable to owners of the parent											12,005,132								11,782,882
Non-controlling interests											211,041								92,610
Total equity											12,216,173								11,875,492
LIABILITIES
Non-current liabilities
Borrowings							56,980								29,187
Lease liabilities			10				193,745								-
Deferred tax liabilities							364,938								379,039
Other liabilities							228,306								213,129
Provisions							37,511				881,480				36,089				657,444
Current liabilities
Borrowings							622,735								509,820
Lease liabilities			10				35,959								-
Derivative financial instruments			12				3,462								11,978
Current tax liabilities							238,622								250,233
Other liabilities							202,057								165,693
Provisions							29,496								24,283
Customer advances							57,234								62,683
Trade payables							596,532				1,786,097				693,673				1,718,363
Total liabilities											2,667,577								2,375,807
Total equity and liabilities											14,883,750								14,251,299

 

The accompanying notes are an integral part of these Consolidated Condensed Interim Financial Statements. These Consolidated Condensed Interim Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the fiscal year ended December 31, 2018.

 

 

CONSOLIDATED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY

 

		Attributable to owners of the parent
		Share Capital (1)				Legal Reserves				Share Premium				Currency Translation Adjustment				Other Reserves (2)				Retained Earnings (3)				Total				Non-controlling interests				Total
																																			(Unaudited)
Balance at December 31, 2018			1,180,537				118,054				609,733				(919,248	)			(322,310	)			11,116,116				11,782,882				92,610				11,875,492
Income (loss) for the period			-				-				-				-				-				242,879				242,879				(290	)			242,589
Currency translation adjustment			-				-				-				(18,998	)			-				-				(18,998	)			(81	)			(19,079	)
Remeasurements of post employment benefit obligations, net of taxes			-				-				-				-				(6	)			-				(6	)			-				(6	)
Change in value of instruments at fair value through other comprehensive income and cash flow hedges, net of taxes			-				-				-				-				2,190				-				2,190				-				2,190
From other comprehensive income of non-consolidated companies			-				-				-				(3,730	)			(86	)			-				(3,816	)			-				(3,816	)
Other comprehensive (loss) income for the period			-				-				-				(22,728	)			2,098				-				(20,630	)			(81	)			(20,711	)
Total comprehensive income (loss) for the period			-				-				-				(22,728	)			2,098				242,879				222,249				(371	)			221,878
Changes in non-controlling interests (*)			-				-				-				-				1				-				1				118,802				118,803
Balance at March 31, 2019			1,180,537				118,054				609,733				(941,976	)			(320,211	)			11,358,995				12,005,132				211,041				12,216,173

 

		Attributable to owners of the parent
		Share Capital (1)				Legal Reserves				Share Premium				Currency Translation Adjustment				Other Reserves (2)				Retained Earnings (3)				Total				Non-controlling interests				Total
																																			(Unaudited)
Balance at December 31, 2017			1,180,537				118,054				609,733				(824,423	)			(320,569	)			10,718,853				11,482,185				98,785				11,580,970
Changes in accounting policies			-				-				-				-				2,786				5,220				8,006				12				8,018
Balance at December 31, 2017			1,180,537				118,054				609,733				(824,423	)			(317,783	)			10,724,073				11,490,191				98,797				11,588,988
Income for the period			-				-				-				-				-				234,983				234,983				251				235,234
Currency translation adjustment			-				-				-				32,314				-				-				32,314				150				32,464
Remeasurements of post employment benefit obligations, net of taxes			-				-				-				-				10				-				10				(26	)			(16	)
Change in value of instruments at fair value through other comprehensive income and cash flow hedges, net of taxes			-				-				-				-				(1,881	)			-				(1,881	)			19				(1,862	)
From other comprehensive income of non-consolidated companies			-				-				-				(4,952	)			(45	)			-				(4,997	)			-				(4,997	)
Other comprehensive income (loss) for the period			-				-				-				27,362				(1,916	)			-				25,446				143				25,589
Total comprehensive income (loss) for the period			-				-				-				27,362				(1,916	)			234,983				260,429				394				260,823
Balance at March 31, 2018			1,180,537				118,054				609,733				(797,061	)			(319,699	)			10,959,056				11,750,620				99,191				11,849,811

 

(1) The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of USD1.00 per share. As of March 31, 2019 and 2018 there were 1,180,536,830 shares issued. All issued shares are fully paid.

 

(2) Other reserves include mainly the result of transactions with non-controlling interest that do not result in a loss of control, the remeasurement of post-employment benefit obligations and the changes in value of cash flow hedges and in financial instruments measured at fair value through other comprehensive income.

 

(3) The Distributable Reserve and Retained Earnings as of March 31, 2019 calculated in accordance with Luxembourg Law are disclosed in Note 13.

 

(*) Related to Saudi Steel Pipe Company acquisition, see Note 16.

 

The accompanying notes are an integral part of these Consolidated Condensed Interim Financial Statements. These Consolidated Condensed Interim Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the fiscal year ended December 31, 2018.

 

 

CONSOLIDATED CONDENSED INTERIM STATEMENT OF CASH FLOWS

 

(all amounts in thousands of U.S. dollars)						Three-month period ended March 31,
		Notes				2019				2018
Cash flows from operating activities						(Unaudited)
Income for the period							242,589				235,234
Adjustments for:
Depreciation and amortization			8, 9 & 10				131,335				141,802
Income tax accruals less payments							9,951				(24,816	)
Equity in earnings of non-consolidated companies							(29,135	)			(46,026	)
Interest accruals less payments, net							560				620
Changes in provisions							(1,870	)			1,527
Changes in working capital							199,489				(363,552	)
Currency translation adjustment and others							(5,303	)			25,644
Net cash provided by (used in) operating activities							547,616				(29,567	)
Cash flows from investing activities
Capital expenditures			8 & 9				(85,686	)			(91,938	)
Changes in advance to suppliers of property, plant and equipment							501				(414	)
Acquisition of subsidiaries, net of cash acquired			16				(132,845	)			-
Loan to non-consolidated companies			14				-				(2,200	)
Repayment of loan by non-consolidated companies			14				40,470				1,950
Proceeds from disposal of property, plant and equipment and intangible assets							262				1,484
Changes in investments in securities			11				66,777				84,616
Net cash (used in) investing activities							(110,521	)			(6,502	)
Cash flows from financing activities
Changes in non-controlling interests							1				-
Payments of lease liabilities			10				(10,171	)			-
Proceeds from borrowings							184,396				277,711
Repayments of borrowings							(139,052	)			(248,041	)
Net cash provided by financing activities							35,174				29,670
Increase (decrease) in cash and cash equivalents							472,269				(6,399	)
Movement in cash and cash equivalents
At the beginning of the period							426,717				330,090
Effect of exchange rate changes							(1,484	)			1,050
Increase (decrease) in cash and cash equivalents							472,269				(6,399	)
At March 31,							897,502				324,741

 

		At March 31,
Cash and cash equivalents		2019				2018
Cash and bank deposits			897,767				328,675
Bank overdrafts			(265	)			(3,934	)
			897,502				324,741

 

The accompanying notes are an integral part of these Consolidated Condensed Interim Financial Statements. These Consolidated Condensed Interim Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the fiscal year ended December 31, 2018.

 

 

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	Agreement for acquisition and other business agreements
16	Business combinations
17	Related party transactions
18	Category of financial instruments and classification within the fair value hierarchy
19	Nationalization of Venezuelan Subsidiaries

 

 

 

 

 

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

(In the notes all amounts are shown in U.S. dollars, unless otherwise stated)

 

1

General information

 

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 May 2, 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.

 

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.

 

 

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.)

 

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.

 

3        Segment information

 

Reportable operating segment

(All amounts in millions of U.S. dollars)

 

Three-month period ended March 31, 2019		Tubes				Other				Total
IFRS - Net Sales			1,763				109				1,872
Management view - operating income			255				19				274
Difference in cost of sales			(23	)			1				(22	)
Differences in depreciation and amortization			1				-				1
Differences in selling, general and administrative expenses			-				1				1
Differences in other operating income (expenses), net			5				-				5
IFRS - operating income			238				21				259
Financial income (expense), net											24
Income before equity in earnings of non-consolidated companies and income tax											283
Equity in earnings of non-consolidated companies											29
Income before income tax											313
Capital expenditures			83				3				86
Depreciation and amortization			126				5				131

 

Three-month period ended March 31, 2018		Tubes				Other				Total
IFRS - Net Sales			1,766				100				1,866
Management view - operating income			149				10				159
Difference in cost of sales			46				2				48
Differences in depreciation and amortization			(1	)			-				(1	)
Differences in selling, general and administrative expenses			-				6				6
IFRS - operating income			194				18				212
Financial income (expense), net											(8	)
Income before equity in earnings of non-consolidated companies and income tax											204
Equity in earnings of non-consolidated companies											46
Income before income tax											250
Capital expenditures			91				1				92
Depreciation and amortization			138				4				142

 

 

3        Segment information (Cont.)

 

Reportable operating segment (Cont.)

 

In the three-month period ended March 31, 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 $6 and $10 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
Three-month period ended March 31, 2019
Net sales			924,363				367,855				184,964				311,457				83,120				1,871,759
Capital expenditures			42,520				31,630				8,375				1,611				1,550				85,686
Depreciation and amortization			67,864				26,959				20,351				7,927				8,234				131,335
Three-month period ended March 31, 2018
Net sales			834,144				326,309				179,764				458,032				67,986				1,866,235
Capital expenditures			62,335				16,543				11,505				403				1,152				91,938
Depreciation and amortization			83,400				28,476				21,938				2,596				5,392				141,802

 

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.

 

4       Cost of sales

 

		Three-month period ended March 31,
(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			642,240				826,735
Services and fees			56,430				78,573
Labor cost			213,191				216,233
Depreciation of property, plant and equipment			106,227				108,458
Amortization of intangible assets			1,405				2,562
Depreciation of right-of-use assets			6,657				-
Maintenance expenses			56,474				52,929
Allowance for obsolescence			8,605				(1,614	)
Taxes			35,581				6,367
Other			26,414				31,370
			1,210,220				1,321,613
Less: Inventories at the end of the period			(2,462,762	)			(2,384,411	)
			1,271,799				1,305,506

 

 

5       Selling, general and administrative expenses

 

		Three-month period ended March 31,
(all amounts in thousands of U.S. dollars)		2019				2018
		(Unaudited)
Services and fees			34,662				32,367
Labor cost			122,420				122,261
Depreciation of property, plant and equipment			4,415				4,208
Amortization of intangible assets			9,809				26,574
Depreciation of right-of-use assets			2,822				-
Commissions, freight and other selling expenses			120,072				125,422
Provisions for contingencies			4,530				4,367
Allowances for doubtful accounts			(392	)			(5,748	)
Taxes			25,541				18,313
Other			21,487				21,870
			345,366				349,634

 

6       Financial results

 

(all amounts in thousands of U.S. dollars)		Three-month period ended March 31,
		2019				2018
		(Unaudited)
Interest Income			10,459				11,267
Net result on changes in FV of financial assets at FVTPL			2				(1,894	)
Finance Income (*)			10,461				9,373
Finance Cost			(6,982	)			(10,174	)
Net foreign exchange transactions results (**)			25,973				(11,262	)
Foreign exchange derivatives contracts results			(5,012	)			4,501
Other			(46	)			(305	)
Other Financial results			20,915				(7,066	)
Net Financial results			24,394				(7,867	)

 

 

(*) The three-month period ended March 2019 includes $1.5 million of interest related to instruments carried at FVTPL.

(**)The three-month period ended March 2019 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 three-month period ended March 2018 includes the negative impact from Euro appreciation 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.

 

7       Dividend distribution

 

On February 20, 2019 the Company’s board of directors proposed, for the approval of the Annual General Shareholders' meeting to be held on May 6, 2019, the payment of an annual dividend of $0.41 per share ($0.82 per ADS), or approximately $484 million, which includes the interim dividend of $0.13 per share ($0.26 per ADS) or approximately $153 million, paid on November 21, 2018. If the annual dividend is approved by the shareholders, a dividend of $0.28 per share ($0.56 per ADS), or approximately $331 million will be paid on May 22, 2019, with an ex-dividend date of May 20, 2019. These Consolidated Condensed Interim Financial Statements do not reflect this dividend payable.

 

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)
Three-month period ended March 31,
Opening net book amount			6,063,908				6,229,143
Increase due to business combinations			178,739				-
Currency translation adjustment			(11,238	)			15,192
Additions			77,771				84,690
Disposals			(2,605	)			(1,080	)
Transfers			1,579				2,999
Depreciation charge			(110,642	)			(112,666	)
At March 31,			6,197,512				6,218,278

 

9       Intangible assets, net

 

(all amounts in thousands of U.S. dollars)		2019				2018
		(Unaudited)
Three-month period ended March 31,
Opening net book amount			1,465,965				1,660,859
Increase due to business combinations			114,101				-
Currency translation adjustment			(376	)			217
Additions			7,915				7,248
Disposals			(239	)			(404	)
Transfers			284				(2,999	)
Amortization charge			(11,214	)			(29,136	)
At March 31,			1,576,436				1,635,785

 

10       Right-of-use assets, net and lease liabilities

 

Right-of-use assets evolution

 

(all amounts in thousands of U.S. dollars)		2019
		(Unaudited)
Three-month period ended March 31,
Opening net book amount			238,400
Increase due to business combinations			2,267
Additions			2,711
Depreciation charge			(9,479	)
At March 31,			233,899

 

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.

 

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)
Three-month period ended March 31,
Opening net book amount			234,149
Increase due to business combinations			2,267
Additions			2,711
Repayments			(10,171	)
Interest accrued			748
At March 31, (*)			229,704

 

(*) 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 16%, 44% and 40% of the total remaining payments, respectively.

 

 

11       Cash and cash equivalents and other investments

 

(all amounts in thousands of U.S. dollars)		At March 31,				At December 31,
		2019				2018
Cash and cash equivalents		(Unaudited)
Cash at banks			91,538				81,211
Liquidity funds			109,707				160,198
Short – term investments			696,522				186,952
			897,767				428,361
Other investments - current
Bonds and other fixed Income			184,477				187,324
Fixed Income (time-deposit, zero coupon bonds, commercial papers)			248,127				300,410
			432,604				487,734
Other investments - non-current
Bonds and other fixed Income			106,945				113,829
Others			4,174				4,326
			111,119				118,155

 

12       Derivative financial instruments

 

(all amounts in thousands of U.S. dollars)		At March 31,				At December 31,
		2019				2018
Assets		(Unaudited)
Derivatives hedging borrowings and investments			9,389				5,604
Other Derivatives (*)			2,225				3,621
			11,614				9,225
Liabilities
Derivatives hedging borrowings and investments			1,205				11,667
Other Derivatives			2,257				311
			3,462				11,978

 

(*) At December 31, 2018 includes $52 thousand of non-current derivatives.

 

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.

 

 

13       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 subsdiaries 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.

 

§

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 $23.2 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.

 

 

13       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 BRL58.8 million (approximately $15.1 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 BRL50.5 million (approximately $12.9 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. 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 has learned that Italian and Swiss authorities are 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 officers of Petróleo Brasileiro S.A. and whether any such payments were intended to benefit 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 has engaged external counsel in connection with a review of the alleged payments and related matters. In addition, the Company has voluntarily notified the U.S. Securities and Exchange Commission and the U.S. Department of Justice. 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.

 

§

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. The penalties amount to approximately $22.5 million as of the date hereof. 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. The claim is currently in evidentiary stage before the arbitration panel. Tenaris believes, based on the advice of counsel, that PAM had no legal basis to impose the penalties and that TGS has meritorious defenses against PAM. However, the Company cannot predict the outcome of a claim against a state-owned company.

 

§

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. An arbitral panel was selected and a scheduling order issued. The parties have already submitted statements of claim and responses to the other party’s claim. The final trial hearings on this matter have begun in February 2019 and an award is expected to be issued by June 2019. 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.

 

 

13       Contingencies, commitments and restrictions to the distribution of profits (Cont.)

 

Contingencies (Cont.)

 

§

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 $79 million) for Segeta and MXN3,751 million (approximately $194 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, Segeta was notified that the tax authorities had reversed and left without effects their former tax determination. Tenaris believes, based on the advice of counsel and on the recent favorable resolution regarding Segeta, that it is unlikely that the ultimate resolution of either tax assessment will result in a material obligation.

 

§

Putative class actions

 

The Company is aware that, following its November 27, 2018 announcement that its Chairman and CEO Paolo Rocca was 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 purportedly on behalf of purchasers of Tenaris securities from May 1, 2014 through November 27, 2018. The individual defendants named in the complaint are Tenaris’s Chairman and CEO and Tenaris’s CFO. Each complaint alleges that during the class period (May 2014-November 2018), 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 alleged improper payments made to Argentine officials. The complaint does not specify the damages that plaintiff is seeking. 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. 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 BRL28.1 million (approximately $7.2 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 BRL56.2 million (approximately $14.4 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 March 31, 2019, the aggregate commitment to take or pay the committed volumes for a 9-year term totaled approximately $41.7 million.

 

 

13       Contingencies, commitments and restrictions to the distribution of profits (Cont.)

 

Commitments and guarantees (Cont.)

 

§

Several Tenaris companies entered into a contract with Praxair S.A. for the service of oxygen and nitrogen supply. As of March 31, 2019, the aggregate commitment to take or pay the committed volumes for a 14-year term totalled approximately $56.3 million.

 

§

Several Tenaris companies entered into a contract with Graftech for the supply of graphite electrodes. As of March 31, 2019, the aggregate commitment to take or pay the committed volumes totalled approximately $50.7 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 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 $131.4 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 $22 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 March 31, 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 $2.3 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

 

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 March 31, 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.

 

a)

Ternium

 

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 March 31, 2019, the closing price of Ternium’s ADSs as quoted on the New York Stock Exchange was $27.22 per ADS, giving Tenaris’s ownership stake a market value of approximately $625.3 million. At March 31, 2019, the carrying value of Tenaris’s ownership stake in Ternium, based on Ternium’s IFRS financial statements under IFRS, was approximately $748.1 million.

 

b)

Usiminas

 

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 March 31, 2019, the closing price of the Usiminas’ ordinary and preferred shares, as quoted on the B3, was BRL11.65 ($2.99) and BRL10.04 ($2.58), respectively, giving Tenaris’s ownership stake a market value of approximately $112.4 million. As that date, the carrying value of Tenaris’s ownership stake in Usiminas was approximately $74.1 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 March 31, 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 March 31, 2019, Tenaris’s exposure under these agreements amounted to $54.3 million and $1.8 million respectively. Furthermore, during 2018, Techgen entered a contract for the purchase of clean energy certificates. As of March 31, 2019 Tenaris’s exposure under this agreement amounted to $17.1 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 March 31, 2019, the aggregate outstanding principal amount under these subordinated loans was $58.1 million.

 

Tenaris had previously issued a corporate guarantee covering 22% of the obligations of Techgen under a syndicated loan agreement between Techgen and several banks, which was used in the construction of the facility. On February 13, 2019, Techgen entered into a $640 million loan agreement with several banks to refinance its obligations under the existing syndicated loan. The proceeds of the new loan were used to repay all loans outstanding under the existing facility and, accordingly, Tenaris’s corporate guarantee thereunder has been released.

 

Techgen’s obligations under the new 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        Agreement for acquisition and other business agreements

 

Agreement for acquisition of IPSCO Tubulars

 

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 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 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 commencement of the project is subject to regulatory approvals and other customary conditions. 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.

 

16        Business combinations

 

Acquisition of Saudi Steel Pipe Company

 

a)

Acquisition

 

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 senior executive with Tenaris was appointed as managing director and chief executive officer of SSP.

 

The Company has begun consolidating SSP’s balances and results of operations as from January 21, 2019.

 

b)

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

 

 

16        Business combinations (Cont.)

 

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 $43.7 million with a minor contribution to Tenaris’s margin for the period starting 21 January 2019 and ending 31 March 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, 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.

 

17        Related party transactions

 

As of March 31, 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)		Three-month period ended March 31,
			2019				2018
(i)	Transactions		(Unaudited)
	(a) Sales of goods and services
	Sales of goods to non-consolidated parties			5,210				8,341
	Sales of goods to other related parties			27,075				31,108
	Sales of services to non-consolidated parties			1,569				1,867
	Sales of services to other related parties			1,089				1,447
				34,943				42,763
	(b) Purchases of goods and services
	Purchases of goods to non-consolidated parties			35,461				66,354
	Purchases of goods to other related parties			14,887				17,713
	Purchases of services to non-consolidated parties			1,632				2,839
	Purchases of services to other related parties			11,949				10,284
				63,929				97,190

 

	(all amounts in thousands of U.S. dollars)		At March 31,				At December 31,
			2019				2018
(ii)	Period-end balances		(Unaudited)
	Arising from sales / purchases of goods / services / others
	Receivables from non-consolidated parties			83,659				122,136
	Receivables from other related parties			23,796				24,419
	Payables to non-consolidated parties			(22,011	)			(33,197	)
	Payables to other related parties			(13,400	)			(17,595	)
				72,044				95,763

 

 

18        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 March 31, 2019 and December 31, 2018.

 

		Carrying				Measurement Categories								At Fair Value
March 31, 2019		amount				Amortized Cost				Fair Value				Level 1				Level 2				Level 3
Assets
Cash and cash equivalents			897,767				788,060				109,707				109,707				-				-
Other investments			432,604				248,126				184,478				165,126				19,352				-
Fixed income (time-deposit, zero coupon bonds, commercial papers)			248,126				248,126				-				-				-				-
Certificates of deposits			129,829				129,829				-				-				-				-
Commercial papers			57,894				57,894				-				-				-				-
Other notes			60,403				60,403				-				-				-				-
Bonds and other fixed income			184,478				-				184,478				165,126				19,352				-
U.S. government securities			1,086				-				1,086				1,086				-				-
Non - U.S. government securities			35,245				-				35,245				35,245				-				-
Corporates securities			128,795				-				128,795				128,795				-				-
Structured notes			19,352				-				19,352				-				19,352				-
Derivative financial instruments			11,614				-				11,614				-				11,614				-
Other Investments Non-current			111,119				-				111,119				106,945				-				4,174
Bonds and other fixed income			106,945				-				106,945				106,945				-				-
Other investments			4,174				-				4,174				-				-				4,174
Trade receivables			1,528,467				1,528,467				-				-				-				-
Receivables C and NC (*)			298,939				95,446				48,659				-				-				48,659
Other receivables			144,105				95,446				48,659				-				-				48,659
Other receivables (non-financial)			154,834				-				-				-				-				-
Total							2,660,099				465,577				381,778				30,966				52,833
Liabilities
Borrowings C and NC			679,715				679,715				-				-				-				-
Lease Liabilities C and NC			229,704				229,704				-				-				-				-
Trade payables			596,532				596,532				-				-				-				-
Derivative financial instruments			3,462				-				3,462				-				3,462				-
Total							1,505,951				3,462				-				3,462				-

 

		Carrying				Measurement Categories								At Fair Value
December 31, 2018		amount				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 19.

 

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.

 

 

18        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 19).

 

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 99.6% of its carrying amount including interests accrued as of March 31, 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.

 

19       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 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.

 

 

 

 

 

 

	Edgardo Carlos
	Chief Financial Officer

 

 

 

 

 

 

 

 

20