| · | The tubes and pipes business in the United States and Canada experienced a significant consolidation process several years ago. Following the acquisitions of Maverick and Hydril by Tenaris, US Steel Corporation acquired Lone Star Steel Technologies. In 2008, Evraz Group S.A. and TMK, two Russian companies, acquired IPSCO’s Tubular | division which has both seamless and welded mills in the United States and Canada.Canada have experienced a significant consolidation process. Following the acquisitions of Maverick and Hydril by Tenaris and the earlier acquisition of North Star Steel by Vallourec, U.S. Steel Corporation acquired Lone Star Steel Technologies. In 2008, Evraz retainedGroup S.A. (“Evraz”) and TMK, two Russian companies, acquired IPSCO’s Tubular division, with Evraz retaining IPSCO’s operations in Canada whileand TMK acquiredacquiring IPSCO’s operations in the United States, as mentioned above.States. More recently, however, many new players have built, or announced plans to build, pipe mills in the United States. These include, in addition to TPCO, who is constructing a mill, Boomerang LLC, a company formed by a former Maverick executive whichthat opened a welded pipe mill in Liberty, Texas, in 2010, and2010; Benteler International A.G. (“Benteler”), a European seamless pipe producer which hasthat built a new seamless pipe mill in Louisiana, which opened in September 2015.2015; and OCT Pipe, LLC, a company building a seamless pipe mill with heat treatment and OCTG threading facilities in Norfolk, Nebraska. North American pipe producers are largely focused on supplying the U.S. and Canadian markets, where they have their production facilities.
In January 2020, TMK completed the sale of IPSCO to Tenaris. |
Korean welded pipe producers, who have a limited domestic market, have expanded capacity in recent years and targeted the U.S. market for standard applications. They have gained a relevant market position, despite the application of anti-dumping duties for unfair trading practices.
| · | Korean welded pipe producers, who have a limited domestic market, have expanded capacity in recent years and targeted the U.S. market for standard applications. They have gained a relevant market position, despite the application of anti-dumping duties for unfair trading practices and being subject to Section 232 quotas. |
Tubos Reunidos S.A. of Spain, Benteler A.G. of Germany and Voest Alpine AG of Austria each have a significant presence in the European market for seamless steel pipes for industrial applications, while the latter also has a relevant presence in the international OCTG market, and in 2016, Tubos Reunidos S.A. opened an OCTG threading facility targeting international markets. In 2006, ArcelorMittal created a tubes division through several acquisitions and has mills in North America, Eastern Europe, Venezuela, Algeria and South Africa and has built a seamless pipe mill in Saudi Arabia.
| · | Tubos Reunidos S.A. (“Tubos Reunidos”) of Spain, Benteler International A.G. of Germany and Voest Alpine A.G. of Austria each have a significant presence in the European market for seamless steel pipes for industrial applications, while the latter also has a relevant presence in the U.S. and international OCTG markets, and in 2016, Tubos Reunidos opened an OCTG threading facility targeting international markets. In 2006, ArcelorMittal S.A. (“ArcelorMittal”) created a tubes division through several acquisitions and has mills in North America, Eastern Europe, Venezuela, Algeria and South Africa and has built a seamless pipe mill in Saudi Arabia. |
| · | In the Middle East, particularly in Saudi Arabia, which has implemented policies to encourage local production for its oil and gas industry, a number of pipe mills have been established including a seamless pipe mill built by Jubail Energy Services Company (“JESCO”), a company established with majority participation from a state-backed industrial development company, and a seamless pipe mill built by ArcelorMittal. These local players have been strengthening their capabilities and are taking an increasing share of the pipes supplied to Saudi Aramco as well as exporting to other countries in the Middle East and the rest of the world. In January 2019, Tenaris acquired a controlling 47.79% participation in SSPC, a local welded pipe producer. |
Producers of steel pipe products can maintain strong competitive positions in markets where they have their pipe manufacturing facilities due to logistical and other advantages that permit them to offer value-added services and maintain strong relationships with domestic customers, particularly in the oil and gas sectors. Our subsidiaries have established strong ties with major consumers of steel pipe products in their home markets, reinforced by Rig Direct™Direct® services, as discussed above. Capital Expenditure Program During 2016,2019, our capital expenditures, including investments at our plants and investments in information systems (IT), amounted to $787$350 million, compared to $1,132$349 million in 20152018 and $1,089$558 million in 2014.2017. Of these capital expenditures, 2019 investment at our plants amountedreached $314 million compared to $757$318 million in 2016, compared to $1,0662018 and $525 million in 2015 and $1,008 million in 2014.2017. In 2016, in addition to capacity expansion in the United States,2019 we focused on improvingenhancing automation and digitalization of our finishing capabilities, mainly heat treatmentindustrial processes, improvements on safety and threading facilities, including premium products linesenvironmental issues, product differentiation and investments at our R&D centers. competitiveness. The major highlights of our capital spending program during 20162019 included: continued construction investments in our three-year global automation plan covering all of our industrial system worldwide; new greenfield seamlessequipment and related infrastructure to improve safety conditions at our entire industrial system; the revamping of the shaft furnace at the DRI plant, the expansion of the dedusting system capacity at the steel shop (still ongoing) and a capacity increase of the component center at our Campana mill in Argentina; the completion of the steel shop fumes dedusting and cooling systems project, the handling revamping - including range extension to 3.8 tons/pcs- of the multi-stand plug mill (“MPM”) hot rolling mill, innovative solutions at the Non-Destructive Tests (“NDTs”) of the FAT2 finishing lines and increase of threading capacity at the couplings plant at our Veracruz Facility in Mexico; the consolidation of the new heat treatment plant, the revamping of the main ultrasonic test equipment, and an innovative NDT inspection system for the expander mill production line at our Dalmine facility in Bay City, Texas,Italy; the revamping of the threading and phosphatizing lines in our McCarty facility in the United States;
completionUS; the steel shop capacity increase of our Calarasi plant which is still on going, the installation of a new facility forairbag production line with full automatic inspection system at our mill in Zalau, Romania and the productioninstallation of sucker rodsa new service center in Conroe, Texas, in the United States;Pindamonhangaba, Brasil. Our capital expenditure programs are being reviewed to address short-term changes in business conditions, and capital expenditures in 2020 are expected to be significantly lower than the level of 2019: they will include the completion of new premium threading linessome of the projects started in Kazakhstan; continued2019 described above, as well as the construction of a new state-of-the-artpremium threading line for premium products and new heat treatment line at our Veracruz facilityplant in Mexico;
construction ofAbu Dhabi as required under an airbag finishing facility in China;
construction of a new coupling facility in Colombia;
completed the new heat treatment and finishing lines for seamless OCTG in Colombia;
created logistic yards in Argentina and the United States;
completion of a school rig for training on field services in Veracruz, Mexico;
| • | | completion of a new central laboratory and sample preparation at our Hickman facility in Arkansas, in the United States;and |
completed the expansionagreement with ADNOC. Furthermore, as part of the steel shop continuous casting line at our Veracruz facility in Mexico.
Capital expenditures in 2017ongoing integration of IPSCO, we will assess whether any investments are expected to be lower than the level reached in 2016, even when accounting for the continuous investmentsnecessary at the greenfield seamless mill in Bay City, Texas. The new facility will include a state-of-the-art rolling mill as well as finishing and heat treatment lines. We plan to bring the 600,000 tons per year capacity mill and logistics center into operation in 2017 within a budget of approximately $1.8 billion. As of December 31, 2016, approximately $1.3 billion had already been invested and an additional $0.2 billion had been committed.
In addition to the capacity expansion in the United States, we expect our investments during 2017 to be spread among our global industrial system, in line with what already occurred during 2016. These investments will mainly aim at enhancing product differentiation, increasing local finishing capabilities, improving the efficiency of our process, enhancing plant’s safety and minimizing environmental impact, as well as increasing the infrastructure for training. Major projects for 2017 include:newly acquired business.
expansion of production capacity of cold drawn pipes and in the auto-components center in Veracruz, Mexico;
new scrap processing equipment in Veracruz, Mexico;
improvement of fumes exhaust systems at the steel shops in Veracruz, Mexico and Campana, Argentina;
increase coupling production capacity in Veracruz, Mexico and Campana, Argentina;
new automated coating & finishing line for couplings in Veracruz, Mexico;
completion of the new facility for the production of sucker rods in the United States;
continuing expansion of the North America yard network;
expansion of heat treatment capacity at Dalmine mill in Italy;
| • | | debottlenecking of the steel shop in Calarasi, Romania;and |
construction of a water treatment plant at our Campana facility in Argentina.
In addition to capital expenditures at our plants, we have invested in information systems for the integration of our production, commercial and managerial activities.activities, together with investments in cybersecurity for the protection of our information technology and our industrial systems. These investments are intended to promote the further integration of our operating facilities and enhance our ability to provide value-added services to customers worldwide. Investments in information systems totaled $29$35 million in 2016,2019, compared to $65$32 million in 20152018 and $80$28 million in 2014.2017. Raw Materials and Energy The majority of our seamless steel pipe products are manufactured in integrated steelmaking operations using the electric arc furnace route, with the principal raw materials being steel scrap, DRI, HBI,hot briquetted iron (“HBI”), pig iron and ferroalloys. In Argentina we produce our own DRI from iron ore using natural gas as a reductant. Our integrated steelmaking operations consume significant quantities of electric energy, a significant portion of which we generate in our own facilities.purchased from the local market. Our welded steel pipe products are processed from purchased steel coils and plates. Although the weight of the different steelmaking raw materials and steel, vary among the different production facilities in our industrial system, depending on the specifications of the final products and other factors, on average steel scrap, pig iron, HBI and DRI represent approximately 20%23% of our steel pipe products’ costs, while steel in the form of billets or coils represents approximately 15%17%, with direct energy accounting for approximately 5%4%. The aforementioned inputs ofabove raw material inputs are subject to price volatility caused by supply, political and economic situations, financial variables and other unpredictable factors. For further information on price volatility, see Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Industry – Increases in the cost of raw materials, energy and other costs, limitations or disruptions to the supply of raw materials and energy, and price mismatches between raw materials and our products may hurt our profitability.”profitability”. The costs of steelmaking raw materials and of steel coils and plates increased during 2016generally decreased in 2019 in comparison to 2018, continuing with high levels of volatility.volatility, with the exception of iron ore prices, which rose affected by supply restrictions following Vale’s Brumadinho mine incident discussed below. Steel scrap, pig iron and HBI Steel scrap, pig iron and HBI for our steelmaking operations are sourced from local, regional and international sources. In Argentina we produce our own DRI and source ferrous scrap domestically through a wholly owned scrap collecting and processing subsidiary. In Italy we purchase pig iron and ferrous scrap from local and regional markets. In Mexico we import our pig iron and HBI requirements and purchase scrap from domestic and international markets. In Romania we source ferrous scrap mainly from the domestic market.market and we import pig iron. International prices for steel scrap, pig iron and HBI can vary substantially in accordance with supply and demand conditions in the international steel industry. Overall costs for these materials declined slightlydecreased in 2016,2019, following a decline in world steel prices near the political and economic turmoil in Turkey, the world’s largest scrap importer. However, beginningend of 2016, scrap prices experienced some recovery from the minimum values reached in late 2015, reached a peak in May 2016 and then declined in the second half of 2016.2018. As a reference, prices for Scrap Shredded FAS U.S. East Coast, published by CRU, averaged $230$335 per ton in 20152018 and $218$274 per ton in 2016. 2019, ascending to levels around $286 per ton at the beginning of 2020.Iron ore We consume iron ore in the form of pellets, and lump ore, for the production of DRI in Argentina. OurSiderca’s annual consumption of iron ore in Argentina is close to 1 millionduring 2019 was approximately 625,000 tons, although in 2016 consumption was significantly lower due to the reduction in steel production and temporary mill shut down. Iron ore is supplied mainly from Brazil primarily byVale S.A. Prices showed highly volatility during 2016 and reached a high point towardsInternational S.A. On January 25, 2019, Vale’s Brumadinho mine dam collapsed resulting in the enddeath of 300 people. Consequently, the year, followingBrazilian government shut down other mines with similar structures, reducing the upward trend of the steel prices.iron ore market supply by 90 million tons. As a reference, prices for Iron Oreresult of such reduced iron ore supply and strong demand from China, iron ore IODEX 62% Fe (CFR North China), published by prices spiked above 120 USD/ton, a 5-year high. As mines were cleared to operate again, prices settled around 90 USD/ton, with an annual average of 93.4 USD/ton, a 34% year on year increase. In the first half of 2019, iron ore direct reduction (“DR”) grade pellet premiums continued to grow as the previous year. However, in the second half of the year demand dropped due to high prices and lower steel production from EU, pressuring premiums to lower levels. Platts DR grade pellet premium averaged $56 per metric 62 USD/ton in 20152019, fluctuating between 39 and $58 per metric ton in 2016, reaching $80 per metric ton at December 2016.76 USD/ton. Round steel bars We purchase roundmainly satisfy our steel bars and ingots requirements with materials produced in our steelmaking facilities in Romania, Italy, Mexico and Argentina. We complement this internal supply with purchases of steel bars and ingots from third parties as required, and particularly for use in our seamless steel pipe facilities in Japan, Canada, JapanMexico and Mexico.the USA. In Japan, we purchase these materials from JFE, our partner in NKKTubes. These purchases are made under a supply arrangement pursuant to which the purchase price varies in relation to changes in the cost of production. As a result of their location within a larger production complex operated by the supplier, our operations in Japan are substantially dependent on these contracts for the supply of raw materials and energy. JFE uses imported iron ore, coal and ferroalloys as principal raw materials for producing steel bars at Keihin. In Canada we purchase these materials from Rio Tinto Fer et Titane, Inc., a Canadian producer of titanium dioxide and high purity iron. We also usemainly source our steel bars produced inrequirements from our integrated facilities in Romania, Italy, Mexico and Argentina for the remainder of our round steel bar requirements.mentioned above. In Mexico, we have been sourcing steel bars from Ternium’s Mexican facilities since 2011, under a long term contract that grants us, during an eight-yeareight and a half year period until April 2020, preferential right to purchase up to 250,000 tons of round steel bars per year. Currently, a renegotiation of the contract is taking place and we expect that Ternium will continue providing steel bars to our Mexican facilities. In the United States, we currently use steel bars produced in our integrated facilities in Romania, Italy and Mexico and have been granted an exclusion from Section 232 tariffs for the imports of these steel bars. Additionally, we have a contract in place with Nucor Steel to purchase a portion of the steel bars requirements in our Tenaris Bay City mill. From 2020 Tenaris will have its first steelmaking facility in the United States in Koppel, Pennsylvania. Steel coils and plates For the production of welded steel pipe products, we purchase steel coils and steel plates principally from domestic producers for processing into welded steel pipes. We have welded pipe operations in Argentina, Brazil, Canada, Colombia and the United States. Steel coil market prices increaseddecreased in 2016.2019. As a reference, prices for hot rolled coils, HRC Midwest USA Mill, published by CRU, averaged $506$670 per metric ton in 20152019 and $571$915 per metric ton in 2016, reaching $695 per ton in March 2017.2018. For our welded pipe operations in the United States, a significant part of our requirements for steel coils are supplied by Nucor Steel and ArcelorMittal. Ourwhich is our principal supplier in the United States isStates. Nucor Steel which has a steel coil manufacturing facility in Hickman, Arkansas, near to our principal welded pipe facility in the United States. To secure a supply of steel coils for our U.S. facilities, in May 2013during 2019 we entered intorenewed a long-term purchase agreement with Nucor Steel which is due to expire at the end of 2017. In December 2014 we reached an agreement with Nucor that temporarily allows us to purchase only the steel volumes that we need.2022. In Canada, we have long-term agreements with our main steel suppliers for our welded pipe operations with prices referenced to market levels in U.S. dollars (i.e., CRU HRC index). These mainAmong such suppliers are:is ArcelorMittal Dofasco, which has steel coil manufacturing facilities in Hamilton, Ontario, and EssarOntario. Additionally, we purchase steel on a spot basis from Algoma Steel, Algoma (“Essar”), which has steel coil manufacturing facilities in Sault Ste. Marie, Ontario. In the case of Essar, the contract expired in March 2015 and since then we buy from Essar on a spot basis. We also purchase steel coils and plates for our welded pipe operations in South America (Colombia, Brazil and Argentina) principally from Usiminas and ArcelorMittalGerdau S.A. (“Gerdau”) in Brazil, from Siderar S.A.I.C.Ternium Argentina S.A. (“Ternium Argentina”), or Siderar, a subsidiary of Ternium S.A. in Argentina, and from Ternium’s facilities in Mexico. In addition, in Brazil we also source plates and coils from international suppliers when not produced domestically. Energy We consume substantial quantities of electric energy at our electric steel shops in Argentina, Italy, Mexico and Romania. In Argentina, up to the end of January 2019, we havehad a 160 megawatt power generation plant located at San Nicolás approximately 150 kilometers from Campana,that reached the end of its useful life, which together with a smaller thermo-electric power generating plant located within the Campana facility, iswas sufficient to supply the requirements of our steelmaking facility at Campana. Currently, our electric energy requirements in Argentina are mainly satisfied from the local market and by the plant located in Campana. In Dalmine, Italy, we have a 120 megawatt power generation facility which is designed to have sufficient capacity to meet most of the electric power requirements of the operations at peak load,operations. The additional energy needed to cover the peaks of consumption and the excess power isenergy produced are purchased and sold to third-party consumers andthe market while heat is sold for district heating. In Mexico, our electric power requirements are currently furnishedmainly satisfied by the Mexican government-ownedComisión Federal de Electricidad, or the Federal Electric Power Commission, and in Romania, we source power from the local market. In order to supply our Mexican operations with energy, we have entered into certain arrangements to build and operateTechgen, a natural gas-fired combined cycle electric power plant in the Pesquería area of the State of Nuevo León, Mexico. The power plant, operatedwhile a small portion of our energy requirements are furnished by Techgen, athe Mexican company in which Ternium owns a 48% interest, Tecpetrol owns a 30% interest and Tenaris owns a 22% interest, became fully operational during 2016. Ternium and Tenaris currently contract 78% and 22%, respectively, of Techgen’s power capacity of between 850 and 900 megawatts.government-owned Comisión Federal de Electricidad, or the Federal Electric Power Commission. In Romania, we source electric energy from the local market.
We consume substantial volumes of natural gas in Argentina, particularly in the generation of DRI and to operate our power generation facilities. YPF and Metroenergía areTecpetrol is our principal suppliers ofmain natural gas supplier in Argentina. The balance of our natural gas requirementsTecpetrol is supplied by several companies, including Tecpetrol, a subsidiary of San Faustin, which supplies us with natural gas under market conditions and according to local regulations. We have transportation capacity agreements with Transportadora de Gas del Norte S.A. (“TGN”), or TGN, a company in which San Faustin holds a significant but non-controlling interest, corresponding to capacity of 1,000,000 cubic meters per day until April 2018.2027. In order to meet our transportation requirements for natural gas above volumes contracted with TGN, we also have agreements with Naturgy S.A. (formerly Gas Natural Ban S.A.), or Gasban, for interruptiblea maximum transportation capacity currently corresponding to approximately 970,000 cubic meters per day. For the final transportation phase, we have a supply contract with Gasban that will beNaturgy S.A. Both contracts with Naturgy S.A are in forceplace until April 2019.2020 and are expected to be renewed. In addition to the normal amount of gas consumed at our Italian plants, we also consume substantial quantities of natural gas in connection with the operation of our power generation facility in Italy. Our natural gas requirements in Italy are currently supplied by various suppliers.Eni S.p.A. Our costs for electric energy and natural gas vary from country to country. While inIn the last few years energy costs showed an upward trend, in 2015have remained generally flat thanks to the increasing availability of natural gas from shale plays and 2016 costs declined following the collapse in oiladditional renewable energy generation at more competitive prices. However, energy costs in Argentina did not decline and over the course of the last several years, demand for electricity has increased substantially, resulting in shortages of electricity to residential and industrial users during periods of high demand. Similarly,In 2018 the cost of natural gas for industrial use in Argentina increased significantly duringbegan to decrease with the last years driven by increased local demand, changesincrease in governmentalproduction of natural gas from the Vaca Muerta gas play. In the second half of 2019, however, continuing uncertainty about the policies that the new Argentine government would implement has led to a sharp fall in investment and higher gas prices.drilling activity in Vaca Muerta. The demand for natural gas in winter continues to outpace supply, therefore supplywhich is why Argentina must import natural gas from Bolivia, Chile and Liquefied natural gas (“LNG”) from the international market, in addition to industrial users has often been restricted during the Argentine winter.using liquid fuel to generate electricity. See Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Industry – Increases in the cost of raw materials, energy and other costs, limitations or disruptions to the supply of raw materials and energy; and price mismatches between raw materials and our products may hurt our profitability” and Item 3.D. “Key Information – Risk Factors – Risks Relating to Our Business – Adverse economic or political conditions in the countries where we operate or sell our products and services may decrease our sales or disrupt our manufacturing operations, thereby adversely affecting our revenues, profitability and financial condition.”condition”. Ferroalloys For each of our steel shops we coordinate our purchases of ferroalloys worldwide. The international costs of ferroalloys can vary substantially within a short period. Our average costs ofPrices for the main ferroalloys consumed by Tenaris decreased in 2016 comparedgradually during 2019. Although some materials have started to 2015. However, a rebound was experienced in some ferroalloys and base metals pricesgain momentum upward by the endstart of year 2016 compared to 2015.2020, current prices remain below 2018 averages. Product Quality Standards Our steel pipesproducts (tubular products, accessories and sucker rods) are manufactured in accordance with the specifications of API,the American Petroleum Institute (API), the American Society for Testing and Materials or ASTM;(ASTM), the International Standardization Organization or ISO, and(ISO), the Japan Industrial Standards or JIS,(JIS), and European Standards (EN), among other standards. The products must also satisfy our proprietary standards as well as our customers’ requirements. We maintain an extensive quality assurance and control program to ensure that our products continue to satisfy proprietary and industry standards and are competitive from a product quality standpoint with products offered by our competitors. We currently maintain, for all our pipe manufacturing facilities theand services centers, a Quality Management System CertificationCertified to ISO 9001:2008 granted2015 by Lloyd’s Register Quality Assurance and the API product licenses granted by API-U.S.,API, which are requirements for selling to the major oil and gas companies, which have rigorous quality standards. In addition, the majority of our testing laboratories are certified to ISO 17025. Our quality management system,Quality Management System (QMS), based on the ISO 9001 and API Q1 specifications assures that products and services comply with customer requirements from the acquisition of raw materials to the delivery of the final product and areservices. The QMS is designed to ensure the reliability and improvement of both the product and the manufacturing operations processes as well as the associated withservices. Additionally, we are in the manufacturing operations. process of certifying the QMS to API Q2, a certification specifically developed for companies which offer services in the oil and gas industry.All of our mills involved in the manufacturing of material for the automotive market are certified according to the standard ISO/TSIATF 16949 by Lloyd’s Register Quality Assurance. Research and Development Research and development, or R&D, of new products and processes to meet the increasingly stringent requirements of our customers is an important aspect of our business. R&D activities are carried out primarily at our global R&D network with its main office in Amsterdam, the Netherlands and specialized research and testing facilities located atin Campana, Argentina, in Argentina, at Ilha do Fundao, Rio de Janeiro, Brazil, at Veracruz, Mexico, in Mexico, at Dalmine, in Italy, and at the product testing facilities of NKKTubes, Japan. Additionally, we have a Wedge Technology Center in Japan.Houston, Texas, USA. We strive to engage some of the world’s leading industrial research institutions to solve the problems posed by the complexities of oil and gas projects with innovative applications. In addition, our global technical sales team is made up of experienced engineers who work with our customers to identify solutions for each particular oil and gas drilling environment. Product development and researchR&D currently being undertaken are focused on the increasingly challenging energy markets and include: | • | · | proprietary premium joint products including Dopeless®Dopeless® technology; |
heavy wall deep water line pipe, risers and welding technology;
proprietary steels;
tubes and components for the car industry and mechanical applications;
tubes for boilers;
welded pipes for oil and gas and other applications;
| · | heavy-wall deepwater line pipe, risers and welding technology; |
| · | tubes and components for the car industry and mechanical applications; |
| · | welded pipes for oil and gas and other applications; |
coatings.
| · | large vessels for hydrogen storage and refueling stations. |
In addition to R&D aimed at new or improved products, we continuously study opportunities to optimize our manufacturing processes. Recent projects in this area include modeling of rolling and finishing process and the development of different process controls, with the goal of improving product quality and productivity at our facilities. We seek to protect our innovation, and trade secrets, through the use of patents, trade secrets, trademarks and other intellectual property tools that allow us to differentiate ourselves from our competitors. We spent $69$61 million forin R&D in 2016,2019, compared to $89$63 million in 20152018 and $107$64 million in 2014.2017. Capitalized costs were not material for the years 2019, 2018 and 2017. Environmental Regulation We are subject to a wide range of local, provincial and national laws, regulations, permit requirements and decrees relating to the protection of human health and the environment, including laws and regulations relating to hazardous materials and radioactive materials and environmental protection governing air emissions, water discharges and waste management. Laws and regulations protecting the environment have become increasingly complex and more stringent and expensive to implement in recent years. International environmental requirements vary.vary from one jurisdiction to another. The ultimate impact of complying with existing laws and regulations is not always clearly known or determinable since regulations under some of these laws haveare not yet been promulgatedeffective or are undergoing revision. The expenditures necessary to remain in compliance with these laws and regulations, including site or other remediation costs, or costs incurred from potential environmental liabilities, could have a material adverse effect on our financial condition and profitability. While we incur and will continue to incur, in expenditures to comply with applicable laws and regulations, there always remains a risk that environmental incidents or accidents may occur that may negatively affect our reputation or our operations. Compliance with applicable environmental laws and regulations is a significant factor in our business. We have not been subject to any material penalty for any material environmental violation in the last five years, and we are not aware of any current material legal or administrative proceedings pending against us with respect to environmental matters which could have an adverse material impact on our financial condition or results of operations. Insurance Insurance
We carry property damage, general liability (including employer’s, third-party and product liability) and certain other insurance coverage in line with industry practice. However, we do not carry business interruption insurance. Our current general liability coverage includes third party, employers, sudden and accidental seepage and pollution and product liability, up to a limit of $300 million. Our current property insurance program has indemnification caps up to $250 million for direct damage, depending on the different plants. In February 2015 the Company decided to increase theplants; and a deductible on the property damage insurance toof $100 million. Disclosure Pursuant to Section 13(r) of the Exchange Act Tenaris The Iran Threat Reduction and Syria Human Rights Act of 2012 or ITRA,(“ITRA”), created a new subsection (r) in Section 13 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), which requires a reporting issuer to provide disclosure if the issuer or any of its affiliates knowingly engaged in certain enumerated activities relating to Iran, including activities involving the Government of Iran. Tenaris is providing the following disclosure pursuant to Section 13(r). Previous pending payments: of the Exchange Act.
In January 2010, Tenaris Global Services S.A., or TGS, a Tenaris subsidiary,July 2015, the Islamic Republic of Iran entered into an agreementthe Joint Comprehensive Plan of Action (“JCPOA”) with China, France, Germany, Russia, the National Iranian Drilling Company, or NIDC, a company controlled byUnited Kingdom and the Government of Iran, for a total value of EUR9.4 million (approximately $10.1 million). TGS made all deliveries and collected most of its account receivables under the NIDC agreement prior to 2012. In 2012, TGS collected an amount of EUR0.75 million (approximately $0.8 million) for products delivered to NIDCU.S., which resulted in prior years. As of December 31, 2016, an outstanding balance of EUR0.172 million (approximately $0.184 million) is still due to TGS. In addition, as of December 31, 2016, TGS has not yet fully performed its obligation to allow technical visits to Tenaris’s mills by NIDC experts at TGS’s cost. Tenaris expects to fulfill these pending obligations and collect all or part of the outstanding amounts during 2017. TGS is also a party to an April 2011 agreement with Global Procurement General Trading FZE, or Global FZE, a company incorporated in United Arab Emirates, for the provision of OCTG for an amount of AED16.5 million (approximately $4.5 million). TGS has been informed by Global FZE that the end users of the products delivered under this agreement are Oil Industries Engineering and Construction Group and Pars Oil and Gas Company, which are controlled by the Government of Iran. In 2012, TGS delivered products under the Global FZE agreement for a total value of AED16.3 million (approximately $4.4 million), and collected a total amount of AED15.4 million (approximately $4.2 million). All sales of goods and services to Iran under the agreement with Global FZE have ceased. As of December 31, 2016, a balance of AED0.862 million (approximately $0.2 million) was owed to Tenaris. Tenaris expects to collect all or part of the outstanding amounts during 2017.
Tenaris recorded no sales revenue or profit in 2016 related to the activities described above.
2016 transactions and related activities:
Following the partial lifting and suspensionin January 2016 of several internationalcertain sanctions and restrictions against Iran, in mid-January 2016 (in particular, the lifting ofincluding most U.S. secondary sanctions against such country undercountry. On May 8, 2018, the Joint Comprehensive PlanU.S. announced that it would cease participation in the JCPOA and would begin re-imposing nuclear-related sanctions against Iran after a wind-down period. Following the U.S. withdrawal from the JCPOA, the European Union updated Council Regulation (EC) No. 2271/96 of Action or ‘JCPOA’ entered into22 November 1996 (the “EU Blocking Statute”), to expand its scope to cover the re-imposed U.S. nuclear-related sanctions. The EU Blocking Statute aims to counteract the effects of the U.S. secondary sanctions.
As previously reported, Tenaris ceased all deliveries of products and services to Iran by the P5+1end of October 2018, that is, during the wind-down period and before the Islamic Republicfull reinstatement of Iran), Tenaris’s non-U.S. affiliates consideredU.S. secondary sanctions on November 5, 2018. Tenaris has not, directly or indirectly, delivered any goods or services to Iran or Iranian companies during 2019 and does not intend to explore any commercial opportunities in Iran, during the year ended December 31, 2016 and engagednor does it intend to participate in certain transactionstender offers by, or dealings involving Iranissue offers to provide products or nationals of such country (as more particularly described below). Tenaris intendsservices to, continue exploring commercial opportunities in Iran in compliance with applicable U.S. and other international export control and economic sanctions laws and regulations.Iranian companies or their subsidiaries. In 2016, TGS participated in several tenders issued by the National Iranian Oil Company, or NIOC, and its subsidiariesDuring 2019 Tenaris collected certain payments for the supply of OCTG Casing, Tubing and Accessories for oil and gas projects in Iran. Moreover, during 2016 TGS and other non-U.S. affiliates of Tenaris have issued offers to NIOC and other Iranian companies for the provisionsales of goods and/or services. Except as otherwise specified below, none of such tenders or offers were accepted as of December 31, 2016. Tenaris intends to continue participating in tenders and issuing offers to NIOC, its subsidiaries or other Iranian companies through TGS or other of its non-U.S. affiliates, in compliance with applicable law. In October 2016, TGS entered into an agreement for the provision of technical field service assistance to Petropars Ltd, or Petropars, for its project located in the Salman gas field in Iran, for a total value of EUR0.039 million (approximately $0.041 million). Tenaris has been informed that Petropars operates the Salman project pursuant to a service contract with Iranian Offshore Oil Company, a subsidiary of NIOC. All services required to be performed by Tenaris for the benefit of Petropars were completed during October 2016. As of December 31, 2016, the payment amount has not yet been collected. TGS intends to collect all or part of the outstanding amounts during 2017.
In May 2016, TGS was awarded by Toos Payvand Co., a Tehran-based company, a spot purchase order for carbon steel pipes for the Isfahan Refinery project, for a total value of EUR3.5 million (approximately $3.71 million). As of December 31, 2016, certain amounts were pending collection. TGS intends to collect all or part of the outstanding amounts and to continue performing its obligations under this contract during 2017.
In December 2016, TGS entered into a distribution agreement with Petrochemical Transportation Engineering Company, or PTEC, a private Iranian company, for pipes used in downstream activities, such as refineries, petrochemical and gas processing. On December 21, 2016, PTEC placed one purchase order for a total value of EUR2.2 million (approximately $2.3 million). Tenaris made no shipments and recorded no revenues in connection with this agreement for the year ended December 31, 2016. TGS intends to fulfill its obligations and collect all or part of the outstanding amounts during 2017.
During the course of the year ended December 31, 2016, TGS entered into several confidentiality agreements for the purpose of sharing information with potential Iranian business partners, some of which were companies controlled by the Government of Iran, with the aim of exploringpast commercial opportunitiesactivities relating to the supply of goods and services to NIOC or its subsidiaries. No revenues were attributable to these activities. TGS intends to continue to explore commercial opportunities with such potential Iranian business partners in compliance with applicable law.
In June 2016, TGS entered into an Agency Agreement, expiring on June 12, 2017, with Industrials SGC Ltd., or SGC, (a U.K.-based company) for the purposes of promoting and marketing certain products manufactured by non-U.S. affiliates of Tenaris in the territory of Iran. As of December 31, 2016, no revenues or net profits were attributable to the Agency Agreement. TGS intends to continue promoting and marketing Tenaris products in Iran, under the Agency Agreement with SGC.
| • | | During 2016, certain non-U.S. employees of some non-U.S. affiliates of Tenaris visited Iran in order to discuss potential commercial opportunities with Iranian public and private entities. Moreover, during May 2016, certain of the above-referred employees attended trade shows in Iran. These included an oil & gas industry trade show (theIran Oil Show) organized by NIOC and a conference (“Iran Pipe & Tube”) organized by Metal Bulletin, at which a technical presentation was given on behalf of a non-U.S. affiliate of Tenaris. No fees were paid to NIOC or other Iranian state-owned companies in connection with such activities, other than routine amounts such as travel-related taxes and fees. No revenues were attributable to the above-referred activities. Certain of Tenaris’s non-U.S. affiliates intend to continue visiting Iran in order to develop further commercial opportunities in the country in compliance with applicable law. |
Tenaris’s total sales revenue for 2016 with regard to the foregoing transactions amounted to approximately $1.5 million. The estimated net profits from such transactions, after internal cost allocation and taxes, were in the range of $0.3 million.
as further described below. Tenaris believes that itssuch activities concerning Iran do not violate any U.S. or foreign law, andlaw. In addition, in all cases, Tenaris collected amounts owed for sales of goods or performance of services in accordance with OFAC regulations. Tenaris has procedures in place designed to ensure that such activities comply with all applicable U.S. and foreign laws.other international export control and economic sanctions laws and regulations. Previous pending payments: | · | In May 2016, TGS was awarded by Toos Payvand Co., a Tehran-based company, a spot purchase order for carbon steel pipes for the Esfahan Oil Refinery Project (end user National Iranian Oil Company or “NIOC”), for a total value of EUR3.5 million (approximately $4.0 million). TGS delivered most of the items requested under such purchase order, for which the customer made advance payments, during 2017 and during the wind-down period associated with the reinstatement of U.S. secondary sanctions. Shipments under this purchase order were suspended as of October 2018. As of December 31, 2019, TGS recorded an advance payment from Toos Payvand Co. for undelivered goods for approximately EUR 0.04 million (approximately $0.04 million). |
| · | During 2018, Dalmine was awarded spot orders from Mapna International FZE for a total value of EUR4.1 million (approximately $4.7 million) of which EUR 4.0 million (approximately $4.5 million) were collected as of December 31, 2018. By October 2018, Dalmine had delivered all ordered items. On April 18, 2019, Dalmine collected the outstanding balance of approximately EUR0.1 million (approximately $0.1 million) in compliance with OFAC regulations. No obligations are outstanding, and no amounts are due to Dalmine in connection with these purchase orders. |
| · | During 2018, Dalmine received an order from U.K.-based company BP Exploration Operating Co. Ltd. for EUR0.2 million (approximately $0.2 million) for the provision of casing and coupling to be used in the Rhum Gas Oilfield (located in the U.K.). At the time of the order, the partners in the Rhum Gas Oilfield are BP Exploration Operating Co Ltd. (50%) and Iranian Oil Co UK Ltd (50%), a subsidiary of NIOC. All items were delivered by October 2018. On May 21, 2019, Dalmine collected the outstanding balance of approximately EUR0.2 million (approximately $0.2 million) from BP Exploration Operating Co. Ltd. in compliance with OFAC regulations. No obligations are outstanding, and no amounts are due to Dalmine in connection with this purchase order. |
The aggregate amount collected during 2019 in connection with past commercial activities relating to Iran amounted to approximately $0.3 million. All revenue and profit in connection of these sales was recorded in the fiscal year in which such sales were performed and, therefore, no revenue and profit has been reported in connection with commercial activities related to Iran for the year ended December 31, 2019. Tenaris’s Affiliates Pursuant to Section 13(r) of the Exchange Act, Tenaris is also required to disclose whether any of its affiliates have engaged in certain Iran-related activities and transactions. Tenova S.p.A. (“Tenova”), or Tenova, an Italian supplier of equipment for the mining and the steelmaking industry, is indirectly controlled by San Faustin and, accordingly, is deemed an “affiliate” of Tenaris, as that term is defined in Exchange Act Rule 12b-2. In response to our inquiry, Tenova informed us that: During 2016,2019, Tenova or its subsidiaries supplied equipment and performedprovided engineering services for the steel-making and raw material handling industries to companies believed by TenovaIranian customers for agreements entered prior to be subsidiaries of development agencies2018. As a result of the Governmentreinstatement of Iran.U.S. secondary sanctions, Tenova has terminated/suspended all commercial activities related to contracts involving Iranian entities. In addition, Tenova has informed that, as of May 2019, it has formally required its employees to stop any travel to Iran and that it does not intend to explore any commercial opportunities in Iran, nor does it intend to participate in tender offers by, or its subsidiaries also issuedissue offers to provide products or services to, Iranian counterparties, none of which were accepted as of December 31, 2016. Moreover, certain employees of Tenova visited Iran during 2016 in order to discuss prospective commercial opportunities with potential Iranian business partners.companies or their subsidiaries. None of the activities performedservices provided to Iranian customers is connected to the activities described in Sections 5(a) or (b) of the Iran Sanctions Act of 1996, or SectionSections 104(c)(2), 104(d)(1) or 105A(b)(2) of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, nor were any2010. In addition, no such activities were performed in favor of persons whose property and interests in property are blocked pursuant to Executive Order 13224 (terrorists and terrorist supporters) or 13382 (weapons of mass destruction proliferators and supporters). | • | | All, nor in favor of any person or entity identified under Section 560.304 of Title 31, Code of Federal Regulations (relating to the definition of these sales and activities, when required by applicable E.U. regulations, were authorized by theComitato di Sicurezza Finanziaria- CSF, an Italian governmental committee established pursuant to Italian Decree n. 369 of October 12, 2001 (as amended by Italian Law n. 431 of December 14, 2001) under the supervision of the Italian Ministry of Economy. |
Tenova’s Iran-related contracts that were signed before 2016, are still currently being performed; any future contract between Tenova or its subsidiaries and customers controlled by the Government of Iran will continue to be made in compliance with all laws applicable to Tenova or its relevant subsidiaries.Iran).
Tenova informed us that itsreported total sales revenue for 2016 with regard2019 derived from services provided to the foregoing transactions amounted to $14.7 million, compared to $25 million in 2015. Tenova alsoIranian customers for an amount of approximately $7.8 million; and estimated that its net profits from such transactions, after internaldirect project cost allocation and taxes, were in the range of $4approximately $3.3 million. C.
No other consulted affiliate reported any Iran-related activity. | C. | Organizational Structure and Subsidiaries |
We conduct all our operations through subsidiaries. The following table shows the significant operatingprincipal subsidiaries of the Company and its direct and indirect ownership in each subsidiary as of December 31, 2016, 20152019, 2018 and 2014.2017. | | | | | | | | | | | | | | | | | | | | | | | | Percentage of
ownership | | Company | | Country of
Organization | | Main activity | | 2016 | | | 2015 | | | 2014 | | ALGOMA TUBES INC. | | Canada | | Manufacturing of seamless steel pipes | | | 100 | % | | | 100 | % | | | 100 | % | CONFAB INDUSTRIAL S.A. | | Brazil | | Manufacturing of welded steel pipes and capital goods | | | 100 | % | | | 100 | % | | | 100 | % | DALMINE S.p.A. | | Italy | | Manufacturing of seamless steel pipes | | | 100 | % | | | 99 | % | | | 99 | % | EXIROS B.V. | | Netherlands | | Procurement of raw materials and other products or services | | | 50 | % | | | 50 | % | | | 50 | % | HYDRIL COMPANY | | USA | | Manufacturing and marketing of premium connections | | | 100 | % | | | 100 | % | | | 100 | % | MAVERICK TUBE CORPORATION | | USA | | Manufacturing of welded steel pipes | | | 100 | % | | | 100 | % | | | 100 | % | METALMECANICA S.A. | | Argentina | | Manufacturing of sucker rods | | | 100 | % | | | 100 | % | | | 100 | % | NKKTUBES | | Japan | | Manufacturing of seamless steel pipes | | | 51 | % | | | 51 | % | | | 51 | % | PT SEAMLESS PIPE INDONESIA JAYA | | Indonesia | | Manufacturing of seamless steel products | | | 77 | % | | | 77 | % | | | 77 | % | PRUDENTIAL STEEL ULC | | Canada | | Manufacturing of welded steel pipes | | | 100 | % | | | 100 | % | | | 100 | % | S.C. SILCOTUB S.A. | | Romania | | Manufacturing of seamless steel pipes | | | 100 | % | | | 100 | % | | | 100 | % | SIAT SOCIEDAD ANONIMA | | Argentina | | Manufacturing of welded and seamless steel pipes | | | 100 | % | | | 100 | % | | | 100 | % | SIDERCA S.A.I.C. | | Argentina | | Manufacturing of seamless steel pipes | | | 100 | % | | | 100 | % | | | 100 | % | TENARIS COILED TUBES LLC (and predecessors) | | USA | | Manufacturing of coiled tubing | | | 100 | % | | | 100 | % | | | 100 | % | TENARIS CONNECTIONS B.V. | | Netherlands | | Ownership and licensing of technology | | | 100 | % | | | 100 | % | | | 100 | % | TENARIS FINANCIAL SERVICES S.A. | | Uruguay | | Financial company | | | 100 | % | | | 100 | % | | | 100 | % | TENARIS GLOBAL SERVICES S.A. | | Uruguay | | Holding company and marketing of steel products | | | 100 | % | | | 100 | % | | | 100 | % | TUBOS DE ACERO DE MEXICO S.A. | | Mexico | | Manufacturing of seamless steel pipes | | | 100 | % | | | 100 | % | | | 100 | % | TENARIS TUBOCARIBE LTDA. | | Colombia | | Manufacturing of welded and seamless steel pipes | | | 100 | % | | | 100 | % | | | 100 | % |
| Company | Country of Incorporation | Main activity | Percentage of ownership at December 31, (*) | | 2019 | 2018 | 2017 | | ALGOMA TUBES INC. | Canada | Manufacturing of seamless steel pipes | 100% | 100% | 100% | | CONFAB INDUSTRIAL S.A. and subsidiaries | Brazil | Manufacturing of welded steel pipes and capital goods | 100% | 100% | 100% | | DALMINE S.p.A. | Italy | Manufacturing of seamless steel pipes | 100% | 100% | 100% | | HYDRIL COMPANY and subsidiaries (except detailed) (a) | USA | Manufacture and marketing of premium connections | 100% | 100% | 100% | | KAZAKHSTAN PIPE THREADERS LIMITED LIABILITY PARTNERSHIP | Kazakhstan | Threading of premium products | 100% | 100% | 100% | | MAVERICK TUBE CORPORATION and subsidiaries | USA | Manufacturing of welded steel pipes | 100% | 100% | 100% | | NKKTUBES | Japan | Manufacturing of seamless steel pipes | 51% | 51% | 51% | | P.T. SEAMLESS PIPE INDONESIA JAYA | Indonesia | Manufacturing of seamless steel products | 89% | 89% | 89% | | PRUDENTIAL STEEL LTD. | Canada | Manufacturing of welded steel pipes | 100% | 100% | 100% | | S.C. SILCOTUB S.A. | Romania | Manufacturing of seamless steel pipes | 100% | 100% | 100% | | SAUDI STEEL PIPE CO. | Saudi Arabia | Manufacturing of welded steel pipes | 48% | NA | NA | | SIAT SOCIEDAD ANONIMA | Argentina | Manufacturing of welded and seamless steel pipes | 100% | 100% | 100% | | SIDERCA SOCIEDAD ANONIMA INDUSTRIAL Y COMERCIAL and subsidiaries | Argentina | Manufacturing of seamless steel pipes | 100% | 100% | 100% | | TALTA - TRADING E MARKETING SOCIEDADE UNIPESSOAL LDA. | Portugal | Holding Company | 100% | 100% | 100% | | TENARIS BAY CITY, INC. | USA | Manufacturing of seamless steel pipes | 100% | 100% | 100% | | TENARIS CONNECTIONS BV | Netherlands | Development, management and licensing of intellectual property | 100% | 100% | 100% | | TENARIS FINANCIAL SERVICES S.A. | Uruguay | Financial company | 100% | 100% | 100% | | TENARIS GLOBAL SERVICES (CANADA) INC. | Canada | Marketing of steel products | 100% | 100% | 100% | | TENARIS GLOBAL SERVICES (U.S.A.) CORPORATION | USA | Marketing of steel products | 100% | 100% | 100% | | TENARIS GLOBAL SERVICES (UK) LTD | United Kingdom | Holding company and marketing of steel products | 100% | 100% | 100% | | TENARIS GLOBAL SERVICES S.A. and subsidiaries (except detailed) (b) | Uruguay | Holding company and marketing of steel products | 100% | 100% | 100% | | TENARIS INVESTMENTS (NL) B.V. | Netherlands | Holding company | 100% | NA | NA | | TENARIS INVESTMENTS S.à.r.l. | Luxembourg | Holding company | 100% | 100% | 100% | | TENARIS INVESTMENTS SWITZERLAND AG and subsidiaries | Switzerland | Holding company | 100% | 100% | 100% | | TENARIS TUBOCARIBE LTDA. | Colombia | Manufacturing of welded and seamless steel pipes | 100% | 100% | 100% | | TUBOS DE ACERO DE MEXICO, S.A. | Mexico | Manufacturing of seamless steel pipes | 100% | 100% | 100% |
| (*) All percentages rounded. | | (a) Tenaris Investments S.à.r.l. holds 100% of Hydril's subsidiaries shares except for Technical Drilling & Production Services Nigeria. Ltd where it holds 80% for 2019, 2018 and 2017. | | (b) Tenaris Investments S.à.r.l. holds 97,5% of Tenaris Supply Chain S.A. and 40% of Tubular Technical Services Ltd. and Pipe Coaters Nigeria Ltd., 49% of Amaja Tubular Services Limited, 49% Tubular Services Angola Lda. |
Other Investments Ternium We have a significant investment in Ternium, one of the leading steel producers of the Americas with production facilities in Latin America. Ternium is a Luxembourg company controlled by San Faustin, and itswhose securities are listed on the New York Stock Exchange, or NYSE. As of MarchDecember 31, 2017,2019, the Company held 11.46% of Ternium’s share capital (including treasury shares). The Company is a party to a shareholders’ agreement with Techint Holdings S.àr.l., or .r.l. (“Techint Holdings,Holdings”), a wholly owned subsidiary of San Faustin and Ternium’s main shareholder, dated January 9, 2006, pursuant to which Techint Holdings willis required to take all actions inwithin its power to cause one of the members of Ternium’s board of directors to be nominated by the Company and any directors nominated by the Company onlyto be removed only pursuant to previous written instructions byfrom the Company. The Company and Techint Holdings also agreed to cause any vacancies on Ternium’s board of directors to be filled with new directors nominated by either the Company or Techint Holdings, as applicable. The shareholders’ agreement will remain in effect asso long as each of the parties holds at least 5% of the shares of Ternium or until it is terminated by either the Company or Techint Holdings pursuant to its terms. Carlos Condorelli was nominated by the Company as a director of Ternium pursuant to this shareholders’ agreement. Usiminas On January 16, 2012, Confab, acquired 5.0% of the shares with voting rights and 2.5% of the total share capital in Usiminas, a leading Brazilian producer of high quality flat steel products used in the energy, automotive and other industries. This The acquisition was part of a larger transaction pursuant to which Confab and Ternium and certain of Ternium’s subsidiaries Ternium Investments S.à.r.l., Ternium Argentina and Prosid Investments S.A. (jointly, the “Ternium Entities”) formed the so-called T/T Group and joined Usiminas’ existing control group through the acquisition of ordinary shares representing 27.7% of Usiminas’ total voting capital and 13.8% of Usiminas’ total share capital. In addition, Confab and Ternium and certain of Ternium’s subsidiariesthe T/T Group entered into an amended and restated Usiminasa shareholders’ agreement with the NSSMC Group (formed by NSSMC, Mitsubishi Corporation do Brasil S.A. and Metal One Corporation) and Caixa de Previdência dos Funcionários do Banco do Brasil—PREVI,Usiminas, an Usiminas employee fund, governing the parties’ rights within the Usiminas control group.
In April and May Following a subsequent subscription in 2016 Tenaris’s subsidiary Confab subscribed, in the aggregate, to 1.3 million Usiminas preferred shares and 11.5 million ordinary shares. The preferred andUsiminas ordinary shares, were issued in June and July 2016, respectively. Consequently, as of December 31, 2016 Tenaris owns2019, Confab owned 36.5 million ordinary shares and 1.3 million preferred shares of Usiminas, representing 5.2% of Usiminas’ total voting capital and 3.1%3.07% of Usiminas’ total share capital. Of these, 25.0
In 2014, a conflict arose within the T/T Group and NSSMC with respect to the governance of Usiminas, including with respect to the rules applicable to the appointment of senior managers, the application of the shareholders’ agreement in matters involving fiduciary duties, and generally with respect to Usiminas’ business strategy. On February 8, 2018, the dispute was resolved; on April 10, 2018, the T/T Group entities (including Confab), the NSSMC Group entities and Previdência Usiminas entered into a new shareholders’ agreement for Usiminas, amending and restating the previously existing shareholders’ agreement (“the New SHA”). Usiminas’ control group now holds, in the aggregate, 483.6 million ordinary shares are subjectbound to the Usiminas shareholders’ agreement, the remaining 12.8 million shares are not subject to the shareholders’ agreement. Following the capital increase described above, Usiminas’ control group, holds 541.7 million ordinary sharesNew SHA, representing approximately 76.8%68.6% of Usiminas’ voting capital. Of these, 322.7 million ordinarycapital, with the T/T Group holding approximately 47.1% of the total shares are subjectheld by the control group (39.5% corresponding to the Ternium Entities and the other 7.6% corresponding to Confab); the NSSMC Group holding approximately 45.9% of the total shares held by the control group; and Previdência Usiminas shareholders’ agreement,holding the remaining 7% of the total shares held by the control group.
The New SHA reflects the agreed-upon corporate governance rules for Usiminas, including, among others, an alternation mechanism for the nomination of each of the chief executive officer and 219.0 million ordinary shares are not subject to the shareholders agreement, althoughchairman of the board of directors, as well as a mechanism for the nomination of other members of Usiminas’ executive board. The New SHA also incorporates an exit mechanism consisting of a buy-and-sell procedure, exercisable at any time during the term of the New SHA after the fourth-and-a-half-year anniversary from the coming election of Usiminas’ executive board in May 2018. Such exit mechanism shall apply with respect to shares held by the NSSMC Group and the T/T Group, and would allow either Ternium (on behalf of the T/T Group) or NSSMC to purchase all or a majority of the Usiminas shares held by the other shareholder group. In connection with the execution of the New SHA, the Ternium Entities and Confab amended and restated their separate shareholders’ agreement all members of Usiminas’ control group are required to vote such shares in accordance with the control group’s decisions. Thegoverning their respective rights and obligations as members of Confabthe T/T Group to include provisions relating to the exit mechanism and Ternium and its subsidiaries within the Ternium/Tenaris Group are governed under agenerally to conform such separate shareholders’ agreement.agreement to the other provisions of the New SHA.
Techgen Techgen is a Mexican joint venture company owned 48% by Ternium, 30% by Tecpetrol International S.A. (a wholly-owned subsidiary of San Faustin S.A., the controlling shareholder of both Tenaris and Ternium) and 22% by Tenaris. Techgen builtoperates a natural gas-fired combined cycle electric power plant in the Pesquería area of the State of Nuevo León, Mexico. Tenaris, Ternium and Tecpetrol are parties to a shareholder’s agreement relating to the governance of Techgen. On February 13, 2019 Techgen entered into a $640 million syndicated loan agreement with several banks to refinance an existing loan, resulting in the release of certain corporate guarantee issued by Techgen’s shareholders. 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. TenarisSeverstal On February 5, 2019, Tenaris entered into an agreement with 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 Severstal owns the remaining 51%. The plant, became fully operationalwhich is estimated to require an investment of $280 million, is planned to have an annual production capacity of 300,000 tons. As of December 31, 2019, Tenaris contributed approximately $19.6 million in December 2016 producing and providing energy to Tenaris’s and Ternium’s Mexican facilities.the project. D.
| D. | Property, Plants and Equipment |
For a description of our property, plants and equipment, please see B. “– Business Overview – Production Process and Facilities” and “– Business Overview – Capital Expenditure Program.”Program”. | Item 4A. | Unresolved Staff Comments |
None. | Item 5. | Operating and Financial Review and Prospects |
The following discussion and analysis of our financial condition and results of operations are based on, and should be read in conjunction with, our audited consolidated financial statements and the related notes included elsewhere in this annual report. This discussion and analysis presents our financial condition and results of operations on a consolidated basis. We prepare our consolidated financial statements in conformity with IFRS. IFRS differ in certain significant respects from U.S. GAAP. Certain information contained in this discussion and analysis and presented elsewhere in this annual report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Concerning Forward-Looking Statements.”Statements”. In evaluating this discussion and analysis, you should specifically consider the various risk factors identified in Item 3.D. “Key Information – Risk Factors”, other risk factors identified elsewhere in this annual report and other factors that could cause results to differ materially from those expressed in such forward-looking statements. Overview We are a leading global manufacturer and supplier of steel pipe products and related services for the energy industry and other industries. We are a leading global manufacturer and supplier of steel pipe products and related services for the world’s energy industry as well as for other industrial applications. Our customers include mostmany of the world’s leading oil and gas companies, as well as engineering companies engaged in constructing oil and gas gathering and processing and power facilities, and power facilities.industrial companies operating in a range of industries. We operate an integrated worldwide network of steel pipe manufacturing, research, finishing and service facilities with industrial operations in the Americas, Europe, Asia and Africa and a direct presence in most major oil and gas markets. Our 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. Demand for our products and services from the global oil and gas industry, particularly for tubular products and services used in drilling operations, represents a substantial majority of our total sales.Tubes sales (84% in 2019). Our sales, therefore, depend on the condition of the oil and gas industry and our customers’ willingness to invest capital in oil and gas exploration and development as well as in associated downstream processing activities. The level of these expenditures is sensitive to oil and gas prices as well as the oil and gas industry’s view of such prices in the future. Crude oil prices fell from over $100 per barrel in June 2014 to less than $30 per barrel in February 2016, then rosebefore recovering to above $50around $80 per barrel atin the endthird quarter of 2016. Such2018, but subsequently fell 40% in the fourth quarter of 2018 before recovering in 2019. Prices have fallen again to historically low levels in the wake of the COVID-19 pandemic and the oil price increase was mainly due to an agreementconflict between OPECSaudi Arabia and some non-OPEC countries to cut production in order to accelerate the rebalancing of supply and demand and to reduce excess inventory levels. NaturalRussia. North American natural gas prices (Henry Hub) have also fallen from $4.6, which were around $4 per million BTU in June 2014, to less thanalso briefly fell below $2 per million BTU at the beginning of 2016, and recoveredbefore recovering to average levels aboveof $3 per million BTU atduring the end of 2016.past three years, but have subsequently fallen back below $2 per million BTU. In 2016,2019, worldwide drilling activity, declined 32%as represented in the number of active drilling rigs published by Baker Hughes, decreased 2% compared to the level of 2015.2018, with larger decreases concentrated in the U.S. and Canadian shale plays, partially compensated by a gradual increase in international rigs which started in the second half of 2018. In the United States the rig count in 2016 declined2019 decreased by 48%. In May 2016, approximately 4009%, with an average of 943 active rigs, were active; however, a subsequent increase in activity resulted inbut ended the year with more than 700200 fewer active rigs than at the beginning. Drilling activity in the United States declined throughout the year but has stabilized around 790 rigs in the beginning of 2017. When compared2020, prior to 2015,the most recent decline in oil prices. In Canada, the rig count in 20162019 declined by 34%,30% compared with 2018, while in the rest of the world, it declined by 18%rose 11%. A
Prior to the 2014 downturn in oil prices, a growing proportion of exploration and production spending by oil and gas companies hashad been directed at offshore, deep drilling and non-conventional drilling operations in which high-value tubular products, including special steel grades and premium connections, are usually specified. Technological advancesThe success, however, of shale drilling operators, with their inherently short investment cycles, in drilling techniquesadapting to lower oil and materials are opening up new areas for explorationgas costs and development. More complex drilling conditions are expected to continue to demand newincreasing production, and high value products and servicesthe increasing share of oil produced in most areas of the world. However,shale plays as a resultproportion of the declineglobal supply, has led to a slowdown in new developments of complex offshore projects with long investment lead times in a context of low and more volatile oil prices, in 2015 and for much of 2016,consequently affecting the level of investment by oil and gas companies in such complex projects decreased, as some of these projects were cancelled or postponed.product differentiation. Our business is highly competitive. The global market for steel pipes is highly competitive, with the primary competitive factors being price, quality, service and technology. We sell our products in a large number of countries worldwide and compete primarily against European and Japanese producers in most markets outside North America. In the United States and Canada, we compete against a wide range of local and foreign producers. CompetitionOver the past decade, substantial investments have been made, especially in markets worldwide has been increasing, particularly for products usedChina but also in standard applications, as producers in countries like China and Russiaother regions around the world, to increase production capacity of seamless steel pipe products. Production capacity for more specialized product grades has also increased. With the downturn between 2014 and enter export markets. 2016 in the price of oil and demand for tubes for oil and gas drilling, the overcapacity in steel pipe and seamless steel pipe production worldwide has become acute, and now extends beyond commodity grades. The competitive environment has, as a result, become more intense, and we expect that this will continue for some time. Effective competitive differentiation will be a key factor for Tenaris.In addition, there is an increased risk of unfairly-tradedunfairly traded steel pipe imports in markets in which we produce and sell our products. For example, inIn September 2014, the United States imposed anti-dumping duties on OCTG imports from various countries, including South Korea. Despite the duties imposed, imports from South Korea continued at a very high level. As a result, U.S. domestic producers have requested successive reviews of South Korea’s exports, which are ongoing. At the same time South Korean welded pipe producers have gained a relevant market position, despiteappealed the application ofduties imposed. Similarly, in Canada, the Canada Border Services Agency introduced anti-dumping duties for unfair trading practices.on OCTG imports from South Korea and other countries in April 2015. During 2018, in addition to anti-dumping duties, the U.S. government introduced tariffs and quotas pursuant Section 232 on the imports of steel products, including steel pipes, with the objective of strengthening domestic production capacity utilization and investment. Quotas were imposed on the imports of steel products from South Korea, Brazil and Argentina, while 25% tariffs were imposed on imports from most other countries, except Australia. The proportion of the OCTG market supplied by imports has declined from around 60% prior to the imposition of tariffs and quotas to around 35% at the end of 2019. This included, as a direct result of the fixed quota imposed on the imports of steel pipes from South Korea, that South Korean imports have halved compared to prior levels. Our production costs are sensitive to prices of steelmaking raw materials and other steel products. We purchase substantial quantities of steelmaking raw materials, including ferrous steel scrap, direct reduced iron (DRI), pig iron, iron ore and ferroalloys, for use in the production of our seamless pipe products. In addition, we purchase substantial quantities of steel coils and plateplates for use in the production of our welded pipe products. Our production costs, therefore, are sensitive to prices of steelmaking raw materials and certain steel products, which reflect supply and demand factors in the global steel industry and in the countries where we have our manufacturing facilities. The costs of steelmaking raw materials and of steel coils and plates increaseddecreased during 2016.2019. As a reference, prices for hot rolled coils, HRC Midwest USA Mill, published by CRU, averaged $571$670 per ton in 2016 and $5062019 compared to $915 per ton in 2015, with an increase of more than 50% between the beginning and the end of 2016.2018. Sale of North American Electric Conduit Business to Nucor
On January 20, 2017, we collected $328 million from the sale of our steel electric conduit business in North America, known as Republic Conduit. The after tax gain from this sale amounted to $90 million and was recorded in the first quarter of 2017. As of December 31, 2016 the conduit business was classified as a discontinued operation.
Summary of results In 2016,2019, our net sales declined 38%5% compared to 2015, affected by continued adverse market conditions. Sales of Tubes were down 38%,2018, reflecting lower drilling activity in North and South America and in offshore regions worldwide, declines in selling pricesCanada and the completionUSA and lower sales in the Middle East and Africa. Despite the integration of shipmentsSSPC and a strong level of premium sales for pipelineIndian offshore gas projects, sales in Brazilthe Middle East and Argentina afterAfrica region were affected by Aramco destocking in Saudi Arabia and did not include the first quarterextraordinary level of sales to East Mediterranean gas pipelines recorded in 2018. Operating income declined 5% in line with the year. EBITDAdecline in sales. Although gross margins were affected by lower volumes and high maintenance and start-up delays associated with the major overhauls and investments we carried out at many of our industrial facilities including Tamsa in Mexico, these were compensated by lower amortization charges. Shareholders net income declined 51% year on15% for the year, reflecting the decline in operating income and lower sales andreturns on our investment in Ternium. Cash flow provided by operating activities amounted to $1,528 million during 2019, which included a reduction in gross margins on lower average selling prices and lower absorptionworking capital of fixed costs. Net income$523 million. This amounted to a gainfree cash flow margin of $59 million in 2016 compared to a loss of $74 million in 2015, which included an impairment charge of $400 million. In spite of16%, following capital expenditures of $787 million, mainly related to$350 million. During the construction of our greenfield project in Bay City,year we reached a positive free cash flow of $77 million in 2016. Aftermade dividend payments of $508$484 million, an investment of $133 million in SSPC, and our net cash position reached $1.4 billionincreased by $495 million to $980 million at December 31, 2016, compared with $1.8 billion at December 31, 2015.2019.
Outlook As we enter 2017,
The rapid decline in economic activity and unprecedented collapse in global oil demand as a rapid recoveryresult of the measures taken to contain the spread of the COVID-19 pandemic around the world has resulted in an equally unprecedented collapse in oil prices, due to the imbalance between production, storage capacity and demand. At this moment, it is taking place in shale drillingnot possible to determine how long it will take for economic activity in the United States and Canada, as oil and gas companies increase investment following two consecutive years of declining expenditures. The recovery is supported by oil prices of around $50/bbldemand to recover and natural gas prices (Henry Hub) of around $3 per million BTU, drilling efficiencies and the relatively low cost of drilling materials, equipment and services. In addition, the late 2016 agreement between OPEC and some non-OPEC countries to cut production to accelerate the rebalancing offor supply and demand to rebalance. In this environment, investments in exploration and reduce excess inventory levels has reinforced confidence that the current levelproduction of oil prices can be sustained.and gas are being severely curtailed and are not expected to recover in the short term. In
We are taking action to preserve adequate levels of operation while protecting the health and safety of our employees, fulfill our commitments to customers, strengthen the medical response capability in the local communities where we have our operations and ensure the financial stability of the company. To mitigate the impact of expected lower sales, we are working on a worldwide rightsizing program and cost containment plan aimed at preserving financial resources and liquidity and maintaining the continuity of our operations. The actions include: | (i) | adjusting the level of our operations and workforce around the world, including the temporary closure of facilities and production lines in the USA; |
| (ii) | downsizing our fixed cost structure, including pay reductions for the board and senior management with aggregated cost savings of approximately $220 million by year end; |
| (iii) | reducing capital expenditures and R&D expenses by approximately $150 million compared to 2019; |
| (iv) | proposing to limit the payment of the dividend in respect of the 2019 fiscal year to the $153 million payment already made as an interim dividend during November; |
| (v) | reducing working capital in accordance with activity levels. |
For the second quarter of 2020, we are expecting a substantial reduction in sales and margins, particularly in the Americas, though sales in the rest of the world explorationmay remain more stable. In this highly uncertain environment, sales could be around 35% lower than the first quarter and production spending plans areour EBITDA margin, excluding restructuring charges, could fall to a high single digit. We do, however, expect to reduce working capital further and continue to generate positive free cash flow. For more subdued. In offshore areas, operators have begun to move forward with selected projects butinformation on the overall levelimpact of spending is expected to decline for a third successive year as the previous backlog of investments sanctioned prior to 2015 are completed. Onshore spending is expected to be more stableCOVID-19 pandemic and can be expected to recover in regions such as Colombia.the oil and gas crisis, see Item 5G. “Operating and Financial Review and Prospects –Recent Developments - The COVID-19 pandemic and the oil & gas crisis and their impact on Tenaris’s operations and financial condition.” We expect our sales to rise steadily through the year based on higher demand from Rig Direct™ customers in North America and a strong backlog of orders for the Eastern Hemisphere. Although prices have begun to rise in North America, increases in our average selling prices will be held back by the prices fixed in our Eastern Hemisphere backlog. Our EBITDA should rise through the year with margins improving in the second half as a result of better absorption of fixed costs.
Functional and presentation currency The functional and presentation currency of the Company is the U.S. dollar. The U.S. dollar is the currency that best reflects the economic substance of the underlying events and circumstances relevant to Tenaris’s global operations. Except for the Brazilian and Italian subsidiaries whose functional currencies are their local currencies, Tenaris determined that the functional currency of its other subsidiaries is the U.S. dollar, based on the following principal considerations: Sales are mainly negotiated, denominated and settled in U.S. dollars. If priced in a currency other than the U.S. dollar, the sales price considers exposure to fluctuation in the exchange rate versus the U.S. dollar;
Prices of their critical raw materials and inputs are priced and settled in U.S. dollars;
Transaction and operational environment and the cash flow of these operations have the U.S. dollars as reference currency;
Significant level of integration of the local operations within Tenaris’s international global distribution network;
| · | Sales are mainly negotiated, denominated and settled in U.S. dollars. If priced in a currency other than the U.S. dollar, the sales price may consider exposure to fluctuation in the exchange rate versus the U.S. dollar; |
| •· | Prices of their critical raw materials and inputs are priced and settled in U.S. dollars; |
| · | Transaction and operational environment and the cash flow of these operations have the U.S. dollars as reference currency; |
| · | Significant level of integration of local operations within Tenaris’s international global distribution network; |
| · | Net financial assets and liabilities are mainly received and maintained in U.S. dollars;and |
The exchange rate of certain legal currencies has long been affected by recurring and severe economic crises.
| · | The exchange rate of certain legal currencies has long been affected by recurring and severe economic crises. |
Critical Accounting Estimates This discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements, which have been prepared in accordance with IFRS. IFRS differs in certain significant respectsaspects from U.S. GAAP. The preparation of theseour audited consolidated financial statements and related disclosures in conformity with IFRS requires us to make estimates and assumptions that might affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses. Management evaluates its accounting estimates and assumptions, including those related to:to impairment of long-lived tangible and intangible assets; assets useful lives; deferred income tax; obsolescence of inventory; doubtful accountsaccounts; post-employment benefits; and loss contingencies, and revises them when appropriate. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Although management believes that these estimates and assumptions are reasonable, they are based upon information available at the time they are made. Actual results may differ significantly from these estimates under different assumptions or conditions. Our most critical accounting estimates are those that are most important to the portrayal of our financial condition and results of operations, and which require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our most critical accounting estimates and judgments are the following: Accounting for business combinations To account for our business combinations we use the purchaseacquisition method, which requires the acquired assets and assumed liabilities to be recorded at their respective fair value as of the acquisition date. The determination of fair values of assets acquired, liabilities and contingent liabilities assumed and determination of useful lives, requires us to make estimates and use valuation techniques, including the use of independent valuators, when market value is not readily available. The excess of the acquisition costaggregate of the consideration transferred and the amount of any non-controlling interest in the acquiree over the fair value of the identifiable net assets acquired is allocated torecorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement. Impairment and recoverability of goodwill and other assets Long-lived assets including identifiable intangible assets are reviewed for impairment at the lowest level for which there are separately identifiable cash flows (cash generating units, or CGU)“CGU”). Most of Tenaris’s principal subsidiaries that constitute a CGU have a single main production facility and, accordingly, each of such subsidiary represents the lowest level of asset aggregation that generates largely independent cash inflows. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets with indefinite useful life, including goodwill, are subject to at least an annual impairment test. In assessing whether there is any indication that a CGU may be impaired, external and internal sources of information are analyzed. Material facts and circumstances specifically considered in the analysis usually include the discount rate used in Tenaris’s cash flow projections and the business condition in terms of competitive and economic factors, such as the cost of raw materials, oil and gas prices, competitive environment, capital expenditure programs for Tenaris’s customers and the evolution of the rig count. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher ofbetween the asset’s value in use and fair value less costs to sell.of disposal. Any impairment loss is allocated to reduce the carrying amount of the assets of the CGU in the following order: (a) first, to reduce the carrying amount of any goodwill allocated to the CGU; and
| a) | first, to reduce the carrying amount of any goodwill allocated to the CGU; and |
(b) then, to the other assets of the unit (group of units) pro rata on the basis of the carrying amount of each asset in the unit (group of units), considering not to reduce the carrying amount of the asset below the highest of its fair value less cost to sell,
| b) | then, to the other assets of the unit (group of units) pro rata on the basis of the carrying amount of each asset in the unit (group of units), considering not to reduce the carrying amount of the asset below the highest of its fair value less cost of disposal, its value in use or zero. |
The value in use of each CGU is determined on the basis of the present value of net future cash flows which would be generated by such CGU. Tenaris uses cash flow projections for a five yearfive-year period with a terminal value calculated based on perpetuity and appropriate discount rates. For purposes of calculating the fair value less costs to sellof disposal Tenaris uses the estimated value of future cash flows that a market participant could generate from the corresponding CGU. Management judgment is required to estimate discounted future cash flows. Actual cash flows and values could vary significantly from the forecasted future cash flows and related values derived using discounting techniques. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible impairment-reversalreversal at each reporting date. In 2015, we recorded an
No impairment charge of $400 millionwas recorded in 2019, 2018, or 2017. For more information on the goodwill of our welded pipe assets in the United States, reflecting the decline in oil pricesimpairment and their impact on drilling activity and the demand outlook for welded pipe products in the United States. In 2014, we recorded an impairment charge of $206 million on the value of our welded pipe assets in Colombia and Canada, reflecting the severe decline in oil prices, and its impact on drilling activity and the demand outlook for welded pipe products in the regions served by these facilities. 2014 and 2015 Impairment on non-consolidated companies – Usiminas
The Company reviews periodically the recoverability of its investment in Usiminas. To determine the recoverable value, the Company estimates the value in usegoodwill and other assets, see “II. Accounting Policies G. Impairment of the investment by calculating the present value of the expected cash flows. There is a significant interaction among the principal assumptions made in estimating Usiminas’ cash flow projections, which include iron ore and steel prices, foreign exchange and interest rates, Brazilian GDP and steel consumption in the Brazilian market.
In 2015 and following the conclusion of discussions with the SEC Staff regarding their comments related to the carrying value of our investment in Usiminas under IFRS as of September 30, 2014 and subsequent periods, the Company re-evaluated and revised the assumptions used to calculate the carrying value of the Usiminas investment at September 30, 2014 and wrote down its investment in Usiminas by $161.2 million in 2014.
Additionally, Usiminas’ financial statements as of December 31, 2015 described a downgraded economic scenario for the company that caused a significant impact on its financial leverage and cash generation. In addition, KPMG, Usiminas’ external auditors, included in their report on these financial statements an emphasis of matter paragraph which, without qualifying their opinion, indicated the existence of “a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern” as a result of the risk of not achieving an action plan defined by Usiminas’ management to equalize its financial obligations with cash generation. Consequently, Tenaris, considering the guidance of IAS 36, assessed the recoverable value of its investment in Usiminas based on Usiminas ordinary shares average market price for December 2015, and impaired its investment by $29 million.
See note 12 “Investments in non-consolidated companies – b) Usiminas S.A.”,non-financial assets” to our audited consolidated financial statements included in this annual report. For more information on impairment charges on our U.S. operations, see Item 5G. “Operating and Financial Review and Prospects –Recent Developments - The COVID-19 pandemic and the investment in Usiminas, see “Item 4. Informationoil & gas crisis and their impact on the Company—C. Organizational StructureTenaris’s operations and Subsidiaries—Other Investments—Usiminas.financial condition.”
Reassessment of Property, Plant and Equipment AssetAssets Useful Lives Property, plant and equipment are stated at directly attributable historical acquisition or construction cost less accumulated depreciation and impairment losses, if any. Property, plant and equipment acquired through acquisitions accounted for as business combinations are valued initially at fair market value of the assets acquired. Depreciation of the cost of the asset (apart from land, which is not depreciated), is done using the straight-line method, to depreciate the cost of the asset to its residual value over its estimated useful life.life, is done using the straight line method. The depreciation method is reviewed at each year end. Estimating useful lives for depreciation is particularly difficult as the service lives of assets are also impacted by maintenance and changes in technology, and our ability to adapt technological innovation to the existing asset base. In accordance with IAS No. 16,Property, “Property, Plant and EquipmentEquipment”, the depreciation method, the residual value and the useful life of an asset must be reviewed at least at each financial year-end, and, if expectations differ from previous estimates, the change must be treated as a change in an accounting estimate. Management’s re-estimation of asset useful lives performed in accordance with IAS 16 (“Property, plant and equipment”) did not materially affect depreciation expense for 2016.2019. However, if management’s estimates prove incorrect, the carrying value of plant and equipment and its useful lives may be required to be reduced from amounts currently recorded. Any such reductions may materially affect asset values and results of operations. Reassessment of Useful Lives of Customer Relationships In accordance with IFRS 3, "Business Combinations" and IAS 38, “Intangible Assets” Tenaris has recognized the value of customer relationships separately from goodwill attributable to the acquisition of Maverick and Hydril groups. groups, as well as the more recent acquisition of SSPC. Customer relationships acquired in a business combination are recognized at fair value at the acquisition date, have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight line method over the initial expected useful life of approximately 14 years for Maverick, and 10 years for Hydril. Hydril and 9 years for SSPC. In 20152018 the Company reviewed the useful life of Prudential’sMaverick’s Tubes customer relationships related to Maverick’s acquisition, and decided to reduce the remaining amortization perioduseful life from 52 years to 2 years. zero, consequently a higher amortization charge of approximately $109 million was recorded in the Consolidated Income Statement under Selling, general and administrative expenses for the year ended December 31, 2018. As of December 201631, 2019, the net book value of SSPC’s customer relationship amounted to $72.9 million, with a residual valuesuseful life of Maverick and Hydril8 years. Maverick’s coiled tubing customer relationships amountamounted to $308$9.9 million and $17 million and thewith a residual useful lives are 4 years andlife of 1 year, respectively.while Hydril’s customer relationships is fully amortized. Allowance for Obsolescence of Supplies and Spare Parts and Slow-Moving Inventory We write down our inventory for estimated obsolescence or unmarketable inventory equal to
Inventories are stated at the differencelower between thecost and net realizable value. The cost of inventoryfinished goods and goods in process is comprised of raw materials, direct labor, utilities, freights and other direct costs and related production overhead costs, and it excludes borrowing costs. The allocation of fixed production costs, including depreciation and amortization charges, is based on the normal level of production capacity. Inventories cost is mainly based on the FIFO method. Tenaris estimates net realizable value taking into consideration assumptions about future demandof inventories by grouping, where applicable, similar or related items. Net realizable value is the estimated selling price in the ordinary course of business, less any estimated costs of completion and market conditions. If actual market conditionsselling expenses. Goods in transit as of year-end are less favorable than those projected by management, additional inventory write-downs may be required.valued based on the supplier’s invoice cost. In relation
Tenaris establishes an allowance for obsolete or slow-moving inventories related to finished goods, we makegoods in process, supplies and spare parts. For slow moving or obsolete finished products, an allowance for slow-moving inventoryis established based on management’s analysis of their ageingproduct aging. An allowance for obsolete and market conditions. For this purpose, stocks of finished goods produced by us, more than one year prior to the reporting date, are valued at their estimated recoverable value. In addition, we estimate the recoverability of inventoriesslow-moving inventory of supplies and spare parts is established based in part on the following criteria:
| • | | analysis of the ageing of the supplies and spare parts;and |
management's analysis of the potential of materialssuch items to be used as intended based on their stateand the consideration of condition and of their potential obsolescence due to technological changes, in the mills. Historically, losses due to obsolescenceaging and scrapping of inventory have been within expectations and the allowances established. If, however, circumstances were to materially change, such as significant changes related to the technology used in the mills, management’s estimates of the recoverability of the value of aged inventories could be materially affected. In this case, our results of operations, financial condition and net worth could be materially and adversely affected.consumption patterns.
Allowances for Doubtful Accounts and Customer Claims Management estimates
Trade and other receivables are recognized initially at fair value that corresponds to the ultimate collectabilityamount of accounts receivable. We maintain allowancesconsideration that is unconditional unless they contain significant financing components. The Company holds trade receivables with the objective of collecting the contractual cash flows and therefore measures them subsequently at amortized cost using the effective interest method. Due to the short-term nature, their carrying amount is considered to be the same as their fair value. Tenaris applies the IFRS 9 simplified approach to measure expected credit losses, which uses a lifetime expected loss allowance for doubtful accounts for estimatedall trade receivables. To measure the expected credit losses, resultingtrade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of sales over a period of three years and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.
Deferred income tax Deferred income tax is recognized applying the liability method on temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the consolidated financial statements. The principal temporary differences arise from the inabilityeffect of our customerscurrency translation on depreciable fixed assets and inventories, depreciation on property, plant and equipment, valuation of inventories, provisions for pension plans and fair value adjustments of assets acquired in business combinations. Deferred tax assets are also recognized for net operating loss carry-forwards. Deferred tax assets and liabilities are measured at the tax rates that are expected to make required payments. Ifapply in the financial conditiontime period when the asset is realized or the liability is settled, based on tax laws that have been enacted or substantively enacted at the reporting date. Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized. At the end of our customers wereeach reporting period, Tenaris reassesses unrecognized deferred tax assets. Tenaris recognizes a previously unrecognized deferred tax asset to deteriorate, negatively impacting their abilitythe extent that it has become probable that future taxable income will allow the deferred tax asset to make payments, additional allowances may be required.recovered. Trade account receivables
Deferred tax liabilities and assets are analyzednot recognized for temporary differences between the carrying amount and tax basis of investments in foreign operations where the company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a regularnet basis, or to realize the asset and when we become awaresettle the liability simultaneously. Deferred tax assets and liabilities are re-measured if tax rates change. These amounts are charged or credited to the Consolidated Income Statement or to the item Other comprehensive income for the year in the Consolidated Statement of a customer’s inabilityComprehensive Income, depending on the account to which the original amount was charged or credited. Post employment benefits The Company estimates at each year-end the provision necessary to meet its financial commitments to us, the value of the receivable is reduced through a charge to an allowance for doubtful accounts. In addition, we also record a charge to the allowance for doubtful accounts upon receipt of customer claims in connection with sales that management estimates are unlikely to be collected in full. In addition, our allowance for doubtful accounts is adjusted periodicallypost employment obligations in accordance with the ageingadvice from independent actuaries. The calculation of overdue accounts. For this purpose, trade accounts receivable overdue by more than 180 days,post employment and which are not covered by a credit collateral, guarantee, insurance or similar surety, are fully provisioned.
other employee obligations requires the application of various assumptions. The main assumptions for post employment and other employee obligations include discount rates, compensation growth rates, pension growth rates and life expectancy. Changes in the assumptions could give rise to adjustments in the results and liabilities recorded and might have an impact on the post employment and other employee obligations recognized in the future.Historically, losses from uncollectible accounts receivables have been low and within the allowances established. If, however, circumstances were to materially change, such as higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligation to us, management’s estimates of the recoverability of amounts due could be materially reduced. In this case, our results of operations, financial condition, net worth and cash flows could be materially and adversely affected.
Contingencies We are 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. Our potential liability with respect to such claims, lawsuits and other legal proceedings cannot be estimated with certainty. Management with the assistance of legal counsel periodically reviews the status of each significant matter and assesses potential financial exposure. Our potential liability with respect to such claims, lawsuits and other legal proceedings cannot be estimated with certainty. 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 consolidated financial statements and take into consideration our 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. These estimates are primarily constructed with the assistance of legal counsel.counsel, and management believes that the aggregate provisions recorded for potential losses in the consolidated financial statements are adequate based upon currently available information. However, if management’s estimates prove incorrect, current reserves could be inadequate and we could incur a charge to earnings which could have a material adverse effect on our results of operations, financial condition, net worth and cash flows. As the scope of liabilities becomes better defined, there may be changes in the estimates of future costs which could have a material adverse effect on our results of operations, financial condition, net worth and cash flows. The following discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements included elsewhere in this annual report. Accordingly, this discussion and analysis present our financial condition and results of operations on a consolidated basis. See “–Presentation“Presentation of Certain Financial and Other Information –- Accounting Principles” and II.“II. Accounting Policies A.“Basis of presentation” and B. “Group“B. Group accounting” to our audited consolidated financial statements included in this annual report. The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes included in this annual report. | | Thousands of U.S. dollars (except number of shares and per share amounts) | | For the year ended December 31, | | | | Thousands of U.S. dollars (except number of | | | For the year ended December 31, | | shares and per share amounts) | | | 2019 | | 2018 | | 2017 | | | | 2016 | | | 2015 | | | 2014 | | | | | | | | Selected consolidated income statement data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Continuing operations | | | | | | | | | | | | | | | | | | | Net sales | | | 4,293,592 | | | | 6,903,123 | | | | 10,141,459 | | | | 7,294,055 | | | | 7,658,588 | | | | 5,288,504 | | Cost of sales | | | (3,165,684 | ) | | | (4,747,760 | ) | | | (6,140,415 | ) | | | (5,107,495 | ) | | | (5,279,300 | ) | | | (3,685,057 | ) | | | | | | | | | | | | Gross profit | | | 1,127,908 | | | | 2,155,363 | | | | 4,001,044 | | | | 2,186,560 | | | | 2,379,288 | | | | 1,603,447 | | Selling, general and administrative expenses | | | (1,196,929 | ) | | | (1,593,597 | ) | | | (1,932,778 | ) | | | (1,365,974 | ) | | | (1,509,976 | ) | | | (1,270,016 | ) | Other operating income (expenses), net(1) | | | 9,964 | | | | (395,971 | ) | | | (187,734 | ) | | | 11,805 | | | | 2,501 | | | | 1,157 | | | | | | | | | | | | | Operating (loss) income | | | (59,057 | ) | | | 165,795 | | | | 1,880,532 | | | | Operating income | | | | 832,391 | | | | 871,813 | | | | 334,588 | | Finance income | | | 66,204 | | | | 34,574 | | | | 38,211 | | | | 47,997 | | | | 39,856 | | | | 47,605 | | Finance cost | | | (22,329 | ) | | | (23,058 | ) | | | (44,388 | ) | | | (43,381 | ) | | | (36,942 | ) | | | (27,072 | ) | Other financial results | | | (21,921 | ) | | | 3,076 | | | | 39,575 | | | | 14,667 | | | | 34,386 | | | | (43,550 | ) | | | | | | | | | | | | (Loss) income before equity in earnings (losses) of non-consolidated companies and income tax | | | (37,103 | ) | | | 180,387 | | | | 1,913,930 | | | Equity in earnings (losses) of non-consolidated companies (2) | | | 71,533 | | | | (39,558 | ) | | | (164,616 | ) | | | | | | | | | | | | | | Income before equity in earnings of non-consolidated companies and income tax | | | | 851,674 | | | | 909,113 | | | | 311,571 | | | Equity in earnings of non-consolidated companies | | | | 82,036 | | | | 193,994 | | | | 116,140 | | Income before income tax | | | 34,430 | | | | 140,829 | | | | 1,749,314 | | | | 933,710 | | | | 1,103,107 | | | | 427,711 | | Income tax | | | (17,102 | ) | | | (234,384 | ) | | | (580,431 | ) | | | (202,452 | ) | | | (229,207 | ) | | | 17,136 | | | Income for the year for continuing operations | | | | 731,258 | | | | 873,900 | | | | 444,847 | | | | | | | | | | | | | | | | | | | | | | | | Income (loss) for the year for continuing operations | | | 17,328 | | | | (93,555 | ) | | | 1,168,883 | | | Discontinued operations | | | | | | | | | | | | | | | | | | | Result for discontinued operations | | | 41,411 | | | | 19,130 | | | | 12,293 | | | | – | | | | – | | | | 91,542 | | | Income for the year (1) | | | | 731,258 | | | | 873,900 | | | | 536,389 | | | | | | | | | | | | | | | | | | | | | | | | Income (loss) for the year (3) | | | 58,739 | | | | (74,425 | ) | | | 1,181,176 | | | | | | | | | | | | | | Income (loss) attributable to(3): | | | | | | | | | Income (loss) attributable to (1): | | | | | | | | | | | | | | Owners of the parent | | | 55,298 | | | | (80,162 | ) | | | 1,158,517 | | | | 742,686 | | | | 876,063 | | | | 544,737 | | Non-controlling interests | | | 3,441 | | | | 5,737 | | | | 22,659 | | | | (11,428 | ) | | | (2,163 | ) | | | (8,348 | ) | | | | | | | | | | | | Income (loss) for the year(3) | | | 58,739 | | | | (74,425 | ) | | | 1,181,176 | | | | Income for the year (1) | | | | 731,258 | | | | 873,900 | | | | 536,389 | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization for continuing operations | | | (657,109 | ) | | | (653,313 | ) | | | (609,647 | ) | | | (539,521 | ) | | | (664,357 | ) | | | (608,640 | ) | Weighted average number of shares outstanding | | | 1,180,536,830 | | | | 1,180,536,830 | | | | 1,180,536,830 | | | | 1,180,536,830 | | | | 1,180,536,830 | | | | 1,180,536,830 | | Basic and diluted earnings (losses) per share for continuing operations | | | 0.01 | | | | (0.08 | ) | | | 0.97 | | | Basic and diluted earnings (losses) per share | | | 0.05 | | | | (0.07 | ) | | | 0.98 | | | Dividends per share(4) | | | 0.41 | | | | 0.45 | | | | 0.45 | | | | Basic and diluted earnings per share for continuing operations | | | | 0.63 | | | | 0.74 | | | | 0.38 | | | Basic and diluted earnings per share | | | | 0.63 | | | | 0.74 | | | | 0.46 | | | Dividends per share (2) | | | | 0.41 | | | | 0.41 | | | | 0.41 | |
(1) | Other operating income (expenses), net in 2015 includes an impairment charge of $400 million on our North American welded pipe operations and in 2014 includes an impairment charge of $206 million on our welded pipe operations in Colombia and Canada. |
(2)(1) | Equity in earnings (losses) of non-consolidated companies includes impairment charges on the Usiminas investment of $29 million in 2015 and $161 million in 2014. |
(3) | International Accounting Standard No.IAS 1 (“IAS 1”) (revised), requires that income for the year as shown on the income statement does not exclude non-controlling interests. Earnings per share, however, continue to be calculated on the basis of income attributable solely to the owners of the parent. |
(4) | (2) | Dividends per share correspond to the dividends proposed or paid in respect of the year. |
| | | | | | | | | | | | | | Thousands of U.S. dollars (except number of shares) | | At December 31, | | | | | 2016 | | | 2015 | | | 2014 | | Selected consolidated financial position data | | | | | | | | | | | | | Current assets | | | 4,817,154 | | | | 5,743,031 | | | | 7,396,322 | | Property, plant and equipment, net | | | 6,001,939 | | | | 5,672,258 | | | | 5,159,557 | | Other non-current assets | | | 3,032,765 | | | | 3,471,685 | | | | 3,954,799 | | Assets of disposal group classified as held for sale | | | 151,417 | | | | — | | | | — | | | | | | | | | | | | | | | Total assets | | | 14,003,275 | | | | 14,886,974 | | | | 16,510,678 | | | | | | | | | | | | | | | Current liabilities | | | 1,713,036 | | | | 1,754,775 | | | | 2,602,829 | | Non-current borrowings | | | 31,542 | | | | 223,221 | | | | 30,833 | | Deferred tax liabilities | | | 550,657 | | | | 750,325 | | | | 714,123 | | Other non-current liabilities | | | 276,874 | | | | 292,597 | | | | 356,579 | | Liabilities of disposal group classified as held for sale | | | 18,094 | | | | — | | | | — | | | | | | | | | | | | | | | Total liabilities | | | 2,590,203 | | | | 3,020,918 | | | | 3,704,364 | | Capital and reserves attributable to the owners of the parent | | | 11,287,417 | | | | 11,713,344 | | | | 12,654,114 | | Non-controlling interests | | | 125,655 | | | | 152,712 | | | | 152,200 | | | | | | | | | | | | | | | Total equity | | | 11,413,072 | | | | 11,866,056 | | | | 12,806,314 | | | | | | | | | | | | | | | Total liabilities and equity | | | 14,003,275 | | | | 14,886,974 | | | | 16,510,678 | | | | | | | | | | | | | | | Share capital | | | 1,180,537 | | | | 1,180,537 | | | | 1,180,537 | | Number of shares outstanding | | | 1,180,536,830 | | | | 1,180,536,830 | | | | 1,180,536,830 | |
| | | At December 31, | | Thousands of U.S. dollars (except number of shares) | | 2019 | | 2018 | | 2017 | | | | | | | | | | Selected consolidated financial position data | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current assets | | | 5,670,607 | | | | 5,464,192 | | | | 5,381,154 | | | Property, plant and equipment, net | | | 6,090,017 | | | | 6,063,908 | | | | 6,229,143 | | | Other non-current assets | | | 3,082,367 | | | | 2,723,199 | | | | 2,787,921 | | | Total assets | | | 14,842,991 | | | | 14,251,299 | | | | 14,398,218 | | | | | | | | | | | | | | | | | Current liabilities | | | 1,780,457 | | | | 1,718,363 | | | | 2,070,899 | | | Non-current borrowings | | | 40,880 | | | | 29,187 | | | | 34,645 | | | Deferred tax liabilities | | | 336,982 | | | | 379,039 | | | | 457,970 | | | Other non-current liabilities | | | 498,300 | | | | 249,218 | | | | 253,734 | | | Total liabilities | | | 2,656,619 | | | | 2,375,807 | | | | 2,817,248 | | | | | | | | | | | | | | | | | Capital and reserves attributable to the owners of the parent | | | 11,988,958 | | | | 11,782,882 | | | | 11,482,185 | | | Non-controlling interests | | | 197,414 | | | | 92,610 | | | | 98,785 | | | Total equity | | | 12,186,372 | | | | 11,875,492 | | | | 11,580,970 | | | | | | | | | | | | | | | | | Total liabilities and equity | | | 14,842,991 | | | | 14,251,299 | | | | 14,398,218 | | | | | | | | | | | | | | | | | Share capital | | | 1,180,537 | | | | 1,180,537 | | | | 1,180,537 | | | Number of shares outstanding | | | 1,180,536,830 | | | | 1,180,536,830 | | | | 1,180,536,830 | |
The following table sets forth our operating and other costs and expenses as a percentage of net sales for the periods indicated. | | Percentage of net sales | | For the year ended
December 31, | | | For the year ended December 31, | | | | 2016 | | | 2015 | | | 2014 | | | 2019 | | 2018 | | 2017 | Continuing Operations | | | | | | | | | | | | | | | | | | | Net sales | | | 100.0 | | | | 100.0 | | | | 100.0 | | | | 100.0 | | | | 100.0 | | | | 100.0 | | Cost of sales | | | (73.7 | ) | | | (68.8 | ) | | | (60.5 | ) | | | (70.0 | ) | | | (68.9 | ) | | | (69.7 | ) | | | | | | | | | | | | Gross profit | | | 26.3 | | | | 31.2 | | | | 39.5 | | | | 30.0 | | | | 31.1 | | | | 30.3 | | Selling, general and administrative expenses | | | (27.9 | ) | | | (23.1 | ) | | | (19.1 | ) | | | (18.7 | ) | | | (19.7 | ) | | | (24.0 | ) | Other operating income (expenses), net | | | 0.2 | | | | (5.7 | ) | | | (1.9 | ) | | | 0.2 | | | | 0.0 | | | | 0.0 | | | | | | | | | | | | | Operating (loss) income | | | (1.4 | ) | | | 2.4 | | | | 18.5 | | | | Operating income | | | | 11.4 | | | | 11.4 | | | | 6.3 | | Finance income | | | 1.5 | | | | 0.5 | | | | 0.4 | | | | 0.7 | | | | 0.5 | | | | 0.9 | | Finance cost | | | (0.5 | ) | | | (0.3 | ) | | | (0.4 | ) | | | (0.6 | ) | | | (0.5 | ) | | | (0.5 | ) | Other financial results | | | (0.5 | ) | | | 0.0 | | | | 0.4 | | | | 0.2 | | | | 0.4 | | | | (0.8 | ) | | | | | | | | | | | | (Loss) income before equity in earnings (losses) of non-consolidated companies and income tax | | | (0.9 | ) | | | 2.6 | | | | 18.9 | | | Equity in earnings (losses) of non-consolidated companies | | | 1.7 | | | | (0.6 | ) | | | (1.6 | ) | | | | | | | | | | | | | | Income before equity in earnings of non-consolidated companies and income tax | | | | 11.7 | | | | 11.9 | | | | 5.9 | | | Equity in earnings of non-consolidated companies | | | | 1.1 | | | | 2.5 | | | | 2.2 | | Income before income tax | | | 0.8 | | | | 2.0 | | | | 17.2 | | | | 12.8 | | | | 14.4 | | | | 8.1 | | Income tax | | | (0.4 | ) | | | (3.4 | ) | | | (5.7 | ) | | | (2.8 | ) | | | (3.0 | ) | | | 0.3 | | | Income for the year for continuing operations | | | | 10.0 | | | | 11.4 | | | | 8.4 | | | | | | | | | | | | | | | | | | | | | | | | Income (loss) for the year for continuing operations | | | 0.4 | | | | (1.4 | ) | | | 11.5 | | | Discontinued operations | | | | | | | | | | | | | | | | | | | Result for discontinued operations | | | 1.0 | | | | 0.3 | | | | 0.1 | | | | – | | | | – | | | | 1.7 | | | | | | | | | | | | | Income (loss) for the year | | | 1.4 | | | | (1.1 | ) | | | 11.6 | | | | Income for the year | | | | 10.0 | | | | 11.4 | | | | 10.1 | | | | | | | | | | | | | | | | | | | | | | | | Income (loss) attributable to: | | | �� | | | | | | | | | | | | | | | | Owners of the parent | | | 1.3 | | | | (1.2 | ) | | | 11.4 | | | | 10.2 | | | | 11.4 | | | | 10.3 | | Non-controlling interests | | | 0.1 | | | | 0.1 | | | | 0.2 | | | | (0.2 | ) | | | (0.0 | ) | | | (0.2 | ) |
Fiscal Year Ended December 31, 2016,2019, Compared to Fiscal Year Ended December 31, 20152018 The following table shows our net sales by business segment for the periods indicated below: | | Millions of U.S. dollars | | For the year ended December 31, | | Increase /
(Decrease) | | | For the year ended December 31, | | Increase / | | | | 2016 | | 2015 | | | 2019 | | 2018 | | (Decrease) | Tubes | | | 4,015 | | | | 94 | % | | 6,444 | | | | 93 | % | | (38 | %) | | | 6,870 | | | | 94 | % | | | 7,233 | | | | 94 | % | | | (5 | %) | Others | | | 278 | | | | 6 | % | | 459 | | | | 7 | % | | (39 | %) | | | 424 | | | | 6 | % | | | 426 | | | | 6 | % | | | (0 | %) | | | | | | | | | | | | | | | | | | Total | | | 4,294 | | | | 100 | % | | 6,903 | | | | 100 | % | | (38 | %) | | | 7,294 | | | | 100 | % | | | 7,659 | | | | 100 | % | | | (5 | %) |
Tubes The following table indicates, for our Tubes business segment, sales volumes of seamless and welded pipes for the periods indicated below: | | Thousands of tons | | For the year ended December 31, | | | Increase /
(Decrease) | | | For the year ended December 31, | | Increase / | | | | 2016 | | | 2015 | | | | 2019 | | 2018 | | (Decrease) | Seamless | | | 1,635 | | | | 2,028 | | | | (19 | %) | | | 2,600 | | | | 2,694 | | | | (3 | %) | Welded | | | 355 | | | | 605 | | | | (41 | %) | | | 671 | | | | 877 | | | | (23 | %) | | | | | | | | | | | | Total | | | 1,990 | | | | 2,633 | | | | (24 | %) | | | 3,271 | | | | 3,571 | | | | (8 | %) |
The following table indicates, for our Tubes business segment, net sales by geographic region, operating income and operating income as a percentage of net sales for the periods indicated below: | | Millions of U.S. dollars | | For the year ended December 31, | | Increase /
(Decrease) | | | | | | | | | | | 2016 | | 2015 | | | For the year ended December 31, | | Increase / | Net sales | | | | | | | | 2019 | | 2018 | | (Decrease) | - North America | | | 1,265 | | | 2,538 | | | (50 | %) | | | 3,307 | | | | 3,488 | | | | (5 | %) | - South America | | | 1,032 | | | 1,858 | | | (44 | %) | | | 1,240 | | | | 1,284 | | | | (3 | %) | - Europe | | | 542 | | | 695 | | | (22 | %) | | | 641 | | | | 628 | | | | 2 | % | - Middle East & Africa | | | 1,041 | | | 1,082 | | | (4 | %) | | | 1,337 | | | | 1,541 | | | | (13 | %) | - Asia Pacific | | | 136 | | | 272 | | | (50 | %) | | | 345 | | | | 292 | | | | 18 | % | | | | | | | | | | | | Total net sales | | | 4,015 | | | 6,444 | | | (38 | %) | | | 6,870 | | | | 7,233 | | | | (5 | %) | Operating (loss) income(1) | | | (71 | ) | | 138 | | | (152 | %) | | Operating (loss) income (% of sales) | | | (1.8 | %) | | 2.1 | % | | | | | Operating income | | | | 755 | | | | 777 | | | | (3 | %) | | Operating income (% of sales) | | | | 11.0 | % | | | 10.7 | % | | | | |
(1) | Tubes operating income includes severance charges of $67 million in 2016 and $164 million in 2015. Additionally, Tubes operating income in 2015 also includes an impairment charge of $400 million on our welded pipe operations in the United States. |
Net sales of tubular products and services decreased 38%5% to $4,015$6,870 million in 2016,2019, compared to $6,444$7,233 million in 2015,2018, reflecting a 24%an 8% decline in volumes and an 18% decreasea 4% increase in average selling prices. Sales were negatively affected by the adjustment in oil and gas drilling activity in response to the collapse in oil and gas prices, inventory adjustments and price declines, together with a decline of shipments to line pipe projects in South America. In North America, ourwhile sales decreased 50%, due towere higher in Mexico, they declined in Canada and the downturn in activity, inventory adjustments andUnited States reflecting lower prices.drilling activity. In South America sales declined 44% due to the downturnslightly reflecting a reduction in drilling activity in Argentina and Colombia, price declines andtowards the lackend of shipments to line pipe projects in Argentina and Brazil following the first quarter sales.year. In Europe sales declined 22%increased due to lower drilling activityhigher demand for offshore line pipe and price declines butOCTG with lower sales of industrial productsmechanical pipes and toline pipe for hydrocarbon processing industry and power generation customers were maintained at similar levels to those of 2015.process projects. In the Middle East & Africa, the acquisition of SSPC and Africaan increase in sales declined 4% as shipments toin the Middle East customers andoutside of Saudi Arabia (where destocking took place) did not compensate for the drop in sales of offshore line pipe and coating services in Africa increased strongly but sales were affected by price declines and severely reduced offshore drilling activity and inventory adjustments in Africa.following the completion of deliveries for East Mediterranean gas development projects. In Asia Pacific, while sales were affected by lower drilling activityincreased in the region, principallyChina, Indonesia and Australia, they declined in Indonesia, price declines, and lower sales of non-OCTG products.Thailand. Operating (loss) income from tubular products and services, amounted to a loss of $71$755 million in 2019, compared to a $138$777 million gain in 2015. The decline in Tubes operating2018 (including $109 million one-off charge from higher amortization of intangibles). Operating income during 2019 was due tonegatively affected by lower sales and a reduction in gross margin from 32% in 2015 to 27% in 2016. Additionally, our selling, general and administrative expenses, or SG&A, as a percentageshipment volumes after the completion of sales increased from 24% in 2015 to 29% in 2016, due to the negative effectdeliveries of fixed and semi-fixed expenses on lower sales.offshore line pipe for East Mediterranean gas development projects. Others The following table indicates, for our Others business segment, net sales, operating income and operating income as a percentage of net sales for the periods indicated below: | | Millions of U.S. dollars | | For the year ended December 31, | | Increase /
(Decrease) | | | For the year ended December 31, | | Increase / | | | | 2016 | | 2015 | | | 2019 | | 2018 | | (Decrease) | Net sales | | | 278 | | | 459 | | | (39 | %) | | | 424 | | | | 426 | | | | (0 | %) | Operating income | | | 12 | | | 28 | | | (57 | %) | | | 77 | | | | 95 | | | | (19 | %) | Operating income (% of sales) | | | 4.3 | % | | 6.1 | % | | | | | 18.2 | % | | | 22.2 | % | | | | |
Net sales of other products and services decreased 39% to $278 million in 2016, compared to $459 million in 2015, due toremained stable as lower sales of energy and excess raw materials and coiled tubing were compensated by higher sales of industrial equipment in Brazil and lower sales of energy related products, i.e., sucker rods and coiled tubing.rods.
Operating income from other products and services, decreased 57% to $12from $95 million in 2016, from $282018 to $77 million in 2015,2019, mainly due to the lower operating incomecontribution from our sucker rodssales of energy and excess raw materials and from our coiled tubing business. Selling, general and administrative expenses,or SG&A,, decreased by $397 million (25%) in 2016 from $1,594$144 million in 20152019 to $1,197$1,366 million in 2016,2019, from $1,510 million in 2018 (in 2018 included a one-off higher amortization charge of $109 million). As a percentage of sales SG&A amounted to 18.7% in 2019 compared to 19.7% in 2018. Apart from the lower amortization and depreciation charge, SG&A declined mainly due to lower logistic costs and allowance for doubtful accounts partially compensated by higher services and fees, labor costs and selling expenses. However, SG&A expenses increased as a percentage of net sales to 27.9% in 2016 compared to 23.1% in 2015, mainly due to the effect of fixed and semi fixed expenses on lower sales (e.g., depreciation and amortization and labor costs). taxes.Other operating income and expenses resulted in a gain of $10 million in 2016, compared to a loss of $396 million in 2015, mainly due to asset impairment charges in our Tubes segment, related to our welded pipe operations in the United States, amounting to $400 million in 2015.
Financial results amounted to a gain of $22$19 million in 2016,2019, compared to a$37 million in 2018. The 2019 gain corresponds mainly to an FX gain of $15$28 million in 2015. The increase was duemainly related to higher interest income partially offset by negative otherthe Argentine peso devaluation on peso denominated financial, results, mostly foreign exchange derivatives contracts results.trade, social and fiscal payables at Argentine subsidiaries which functional currency is the U.S. dollar. Equity in earnings (losses) of non-consolidated companies generated a gain of $72$82 million in 2016,2019, compared to a loss of $40$194 million in 2015. During 2015 we recorded an impairment charge of $29 million on our direct investment in Usiminas. Apart from the impairment result in 2015, these2018. These results were mainly derived from our equity investment in Ternium (NYSE:TX). Income tax charge amounted to $202 million in 2019 (24% over income before equity in earnings of non-consolidated companies and income tax), compared to $229 million in 2018 (25%). Net income for the yearcontinuing operations amounted to $59$731 million in 2016, including a gain from discontinued operations of $41 million,2019, compared with a loss of $74$874 million in 2015, including2018. The lower results reflect a gain from discontinued operationsworse operating environment and a reduction of $19 million. Net income from continuing operations amounted to a gain of $17$112 million in 2016, which compares with a loss of $94 million in 2015. The loss in 2015 included an impairment charge of $400 million. Results in 2016 and 2015 reflect a challenging operating environment affected by a reduction in drilling activity and in the demand for OCTG products, deriving in lower shipments and prices, inefficiencies associated with low utilization of production capacity and severance costs to adjust the workforce to the new market conditions.contribution from our non-consolidated investments, mainly Ternium. Income attributable to non-controlling interests was $3 million in 2016, compared to $6 million in 2015.These results are mainly attributable to NKKTubes, our Japanese subsidiary.
Fiscal Year Ended December 31, 2015,2018, Compared to Fiscal Year Ended December 31, 20142017 The following table shows our net sales by business segment for the periods indicated below: | | Millions of U.S. dollars | | For the year ended December 31, | | Increase /
(Decrease) | | | For the year ended December 31, | | Increase / | | | | 2015 | | 2014 | | | 2018 | | 2017 | | (Decrease) | Tubes | | | 6,444 | | | | 93 | % | | 9,582 | | | | 94 | % | | (33 | %) | | | 7,233 | | | | 94 | % | | | 4,966 | | | | 94 | % | | | 46 | % | Others | | | 459 | | | | 7 | % | | 560 | | | | 6 | % | | (18 | %) | | | 426 | | | | 6 | % | | | 323 | | | | 6 | % | | | 32 | % | | | | | | | | | | | | | | | | | | Total | | | 6,903 | | | | 100 | % | | 10,141 | | | | 100 | % | | (32 | %) | | | 7,659 | | | | 100 | % | | | 5,289 | | | | 100 | % | | | 45 | % |
Tubes
The following table indicates, for our Tubes business segment, sales volumes of seamless and welded pipes for the periods indicated below: | | Thousands of tons | | For the year ended December 31, | | | Increase /
(Decrease) | | | For the year ended December 31, | | Increase / | | | | 2015 | | | 2014 | | | | 2018 | | 2017 | | (Decrease) | Seamless | | | 2,028 | | | | 2,790 | | | | (27 | %) | | | 2,694 | | | | 2,157 | | | | 25 | % | Welded | | | 605 | | | | 885 | | | | (32 | %) | | | 877 | | | | 461 | | | | 90 | % | | | | | | | | | | | | Total | | | 2,633 | | | | 3,675 | | | | (28 | %) | | | 3,571 | | | | 2,618 | | | | 36 | % |
The following table indicates, for our Tubes business segment, net sales by geographic region, operating income and operating income as a percentage of net sales for the periods indicated below: | | Millions of U.S. dollars | | For the year ended December 31, | | Increase /
(Decrease) | | | For the year ended December 31, | | Increase / | | | | 2015 | | 2014 | | | 2018 | | 2017 | | (Decrease) | Net sales | | | | | | | | | | | | | | | | | | | - North America | | | 2,538 | | | 4,609 | | | (45 | %) | | | 3,488 | | | | 2,362 | | | | 48 | % | - South America | | | 1,858 | | | 1,823 | | | 2 | % | | | 1,284 | | | | 982 | | | | 31 | % | - Europe | | | 695 | | | 924 | | | (25 | %) | | | 628 | | | | 497 | | | | 26 | % | - Middle East & Africa | | | 1,082 | | | 1,817 | | | (40 | %) | | | 1,541 | | | | 921 | | | | 67 | % | - Asia Pacific | | | 272 | | | 408 | | | (33 | %) | | | 292 | | | | 204 | | | | 43 | % | | | | | | | | | | | | Total net sales | | | 6,444 | | | 9,582 | | | (33 | %) | | | 7,233 | | | | 4,966 | | | | 46 | % | Operating (loss) income(1) | | | 138 | | | 1,866 | | | (93 | %) | | Operating (loss) income (% of sales) | | | 2.1 | % | | 19.5 | % | | | | | Operating income | | | | 777 | | | | 292 | | | | 166 | % | | Operating income (% of sales) | | | | 10.7 | % | | | 5.9 | % | | | | |
(1) | Tubes operating income includes severance charges of $164 million in 2015. Additionally, in 2015 includes a goodwill impairment charge of $400 million on our welded pipe operations in the United States and in 2014 includes an impairment charge of $206 million on our welded pipe operations in Colombia and Canada.54 | |
Net sales of tubular products and services decreased 33%increased 46% to $6,444$7,233 million in 2015,2018, compared to $9,582$4,966 million in 2014,2017, reflecting a 28% decline36% increase in volumes and a 6% decrease7% increase in average selling prices. Sales were negatively affected by the adjustmentincreased mainly due to a strong increase in oil and gas drilling activity in response to the collapse in oil and gas prices and inventory adjustments taking place particularly in the Middle East and Africa anddemand in the United States. We estimate that demandStates and Canada and higher sales of line pipe for OCTG productscomplex projects, including shipments for the second Zohr offshore welded pipeline in 2015 declined 34% when compared to 2014.Egypt. In North America sales decreased 45%,increased mainly due to lower sales in the U.S. onshore and Canada, reflecting a decline in average drilling activity and pricing pressures due to inventory adjustments. In South America, sales remained stable as higher sales of tubular products for pipeline projects in Brazil and Argentina were offset by lower shipments of OCTG products in the region. In Europe, sales decreased mainly due to a lower level of salesdemand of OCTG and line pipe and the consolidation of our market position throughout the region. In South America, sales increased mainly due to higher demand of OCTG and line pipe in Argentina, associated with increased investments in Vaca Muerta shale and higher demand for OCTG in the Andean region, including sales to the Liza development in Guyana, partially offset by lower sales of OCTG in Brazil, reflecting transition to new contracts with Petrobras. In Europe, sales increased reflecting higher demand for industrial products and for OCTG products in the North Sea and continental Europe. In the Middle East and Africa sales decreased mainly dueincreased significantly, thanks to loweran exceptional level of sales for offshore line pipe for East Mediterranean gas development projects and higher sales of OCTG in the Middle East reflecting OCTG destocking and lower sales to offshore projects in sub-Saharan Africa.Caspian areas. In Asia Pacific sales decreased due to lower activityincreased following a recovery in the region.Indonesia and China from very low levels in 2017. Operating income from tubular products and services decreased 93%, amounted to $138$777 million in 2015, from $1,8662018, compared to $292 million in 2014.2017. Operating income in 2015 includes an impairment charge of $400 million on our welded pipe operations in the United States, while in 2014 it includes an impairment charge of $206 million on our welded pipe operations in Colombia and Canada. Additionally, in 2015 we had severance costs in the Tubes segment to adjust the workforce to current market conditions, which amounted to $164 million. Excluding these non-recurring events, Tubes operating income declined 66%, as itduring 2018 was negatively affected by a declinehigher customer relationships amortization charge of $109 million, after the full amortization of the residual value of Maverick’s Tubes segment customer relationships. Excluding this one off effect operating income would amount to $886 million, 12% of sales. The significant improvement in Tubes operating income reflects a better operating environment, where a 46% increase in sales improved the utilization of 33%production capacity and a decline in operating marginstherefore the absorption of 10 percentage points, mostly due to industrial inefficiencies associated with low levels of capacity utilization.fixed costs. Others The following table indicates, for our Others business segment, net sales, operating income and operating income as a percentage of net sales for the periods indicated below: | | Millions of U.S. dollars | | For the year ended December 31, | | Increase /
(Decrease) | | | For the year ended December 31, | | Increase / | | | | 2015 | | 2014 | | | 2018 | | 2017 | | (Decrease) | Net sales | | | 459 | | | 560 | | | (18 | %) | | | 426 | | | | 323 | | | | 32 | % | Operating income | | | 28 | | | 15 | | | 90 | % | | | 95 | | | | 43 | | | | 122 | % | Operating income (% of sales) | | | 6.1 | % | | 2.7 | % | | | | | 22.2 | % | | | 13.2 | % | | | | |
Net sales of other products and services decreased 18%increased 32% to $459$426 million in 2015,2018, compared to $560$323 million in 2014,2017, mainly due to lowerhigher sales of energy related products e.g., sucker rods and coiled tubing, following the decline in oil and gas drilling activity in response to the collapse in oil and gas prices.tubing.
Operating income from other products and services, increased 90% to $28from $43 million in 2015, from $152017 to $95 million in 2014,2018, while all the profit centers improved their results, the main contributors were the energy related businesses, mainly reflecting an improved operating performancesucker rods and margins at our industrial equipment business in Brazil. coiled tubing.Selling, general and administrative expenses, or SG&A, decreasedincreased by $339$240 million (18%(19%) in 20152018 from $1,933$1,270 million in 20142017 to $1,594$1,510 million in 2015, mainly reflecting lower selling expenses due2018. SG&A during 2018 includes a higher amortization charge of $109 million, after the full amortization of the residual value of Maverick’s Tubes segment customer relationships. Excluding this one off effect, SG&A amounted to the$1,401 million (18% of sales), compared to $1,270 million (24%) in 2017. The decline in sales. However,of SG&A expenses increased as a percentage of net sales to 23.1% in 2015 compared to 19.1% in 2014, mainly due toreflects the effectcontainment of fixed and semi fixedsemi-fixed expenses on lower sales (e.g., depreciation and amortization and labor costs). During 2015, SG&A labor costs include $73 million of severance charges related to workforce adjustments to the difficult market conditions.in a higher volumes environment. Other operating income and expenses resulted in losses of $396 million in 2015, compared to losses of $188 million in 2014, mainly due to asset impairment charges amounting to $400 million in 2015 and $206 million in 2014. These impairment charges mainly reflect the decline in oil prices, and its impact on drilling activity and therefore on the expected demand for OCTG products, particularly on our welded pipe operations in the United States, Colombia and Canada.
Financial results amounted to a gain of $15$37 million in 2015,2018, compared to a loss of $23 million in 2017.The 2018 gain corresponds mainly to an FX gain of $33$29 million; $24 million related to the Argentine peso devaluation on peso denominated financial, trade, social and fiscal payables at Argentine subsidiaries which functional currency is the U.S. dollar, $17 million related to the Euro depreciation on Euro denominated intercompany liabilities (offset in 2014.the currency translation reserve in equity), partially offset by a loss of $8 million due to the devaluation of the Canadian dollar. Additionally, we gained $7 million on derivatives, mainly covering net receivables in Canadian dollar and $3 million net interest on our net cash position. Equity in (losses) earnings of non-consolidated companies generated a lossgain of $40$194 million in 2015,2018, compared to a loss of $165$116 million in 2014. During 2015 we recorded an impairment charge of $29 million on our direct investment in Usiminas, while during 2014 we recorded an impairment charge of $161 million related to our direct investment in Usiminas. Apart from the impairment result, these2017. These results were mainly derived from our equity investment in Ternium (NYSE:TX). Income tax charges totaled $234 million in 2015, including a deferred tax charge of $152 million on the effect of currency translation on tax base. Net loss for the year amounted to $74$229 million in 2015,2018 (25% over income before tax), compared to a gain of $1,181$17 million in 2014.2017. In 2017 we recorded a gain of $63 million due to the reduction in income tax rates in Argentina, the United States and Colombia over deferred tax liabilities. Additionally, during 2017 we recorded an income tax charge of $29 million corresponding to a settlement agreement between Dalmine, our Italian subsidiary, and the Italian tax authorities in connection with all withholding tax claims on 2007 and 2008 dividend payments. Under such settlement agreement, Dalmine paid to the Italian tax administration an aggregate amount of EUR42.9 million (approximately $51 million), net of EUR3.2 million (approximately $4 million) corresponding to the amount previously paid during the litigation proceeding.
Net income for continuing operations amounted to $874 million in 2018, compared with $536 million in 2017. The declineimprovement in net income mainlyresults reflects a challengingbetter operating environment, affected by lower shipments and prices, inefficiencies associated with lowwhere a 45% increase in sales improved the utilization of production capacity severanceand therefore the absorption of fixed costs, to adjust the workforce to current market conditions, impairmentsbetter financial results and a high deferred-tax charge affected by the effect of currency translation on tax base.better results from our investment in Ternium. Income attributable to non-controlling interest was $6 million in 2015, compared to $23 million in 2014. These results are mainly attributable to NKKTubes, our Japanese subsidiary.
B.
| B. | Liquidity and Capital Resources |
The following table provides certain information related to our cash generation and changes in our cash and cash equivalents position for each of the last three years: | Millions of U.S. dollars | | For the year ended December 31, | | | | 2019 | | 2018 | | 2017 | | | | | | | | | | Net cash provided by (used in) operating activities | | | 1,528 | | | | 611 | | | | (22 | ) | | Net cash (used in) provided by investing activities | | | (40 | ) | | | 399 | | | | 349 | | | Net cash used in financing activities | | | (354 | ) | | | (900 | ) | | | (401 | ) | | Increase (decrease) in cash and cash equivalents | | | 1,134 | | | | 109 | | | | (74 | ) | | | | | | | �� | | | | | | | | | Cash and cash equivalents at the beginning of year (excluding overdrafts) | | | 427 | | | | 330 | | | | 399 | | | Effect of exchange rate changes | | | (6 | ) | | | (13 | ) | | | 6 | | | Increase (decrease) in cash and cash equivalents | | | 1,134 | | | | 109 | | | | (74 | ) | | Cash and cash equivalents at the end of year (excluding overdrafts) | | | 1,554 | | | | 427 | | | | 330 | | | | | | | | | | | | | | | | | Cash and cash equivalents at the end of year (excluding overdrafts) | | | 1,554 | | | | 427 | | | | 330 | | | Bank overdrafts | | | 0 | | | | 2 | | | | 0 | | | Other current investments | | | 210 | | | | 488 | | | | 1,192 | | | Non-current investments | | | 18 | | | | 114 | | | | 123 | | | Derivatives hedging borrowings and investments | | | 19 | | | | (6 | ) | | | (33 | ) | | Current and non current borrowings | | | (822 | ) | | | (539 | ) | | | (966 | ) | | Net cash at the end of the year | | | 980 | | | | 485 | | | | 647 | |
| | | | | | | | | | | | | | Millions of U.S. dollars | | For the year ended December 31, | | | | | 2016 | | | 2015 | | | 2014 | | Net cash provided by operating activities | | | 864 | | | | 2,215 | | | | 2,044 | | Net cash used in investing activities | | | (98 | ) | | | (1,774 | ) | | | (1,786 | ) | Net cash used in financing activities | | | (653 | ) | | | (535 | ) | | | (424 | ) | | | | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | | 113 | | | | (94 | ) | | | (165 | ) | Cash and cash equivalents at the beginning of year (excluding overdrafts) | | | 286 | | | | 416 | | | | 598 | | Effect of exchange rate changes | | | (0 | ) | | | (37 | ) | | | (16 | ) | Increase (decrease) in cash and cash equivalents | | | 113 | | | | (94 | ) | | | (165 | ) | | | | | | | | | | | | | | Cash and cash equivalents at the end of year (excluding overdrafts) | | | 399 | | | | 286 | | | | 416 | | | | | | | | | | | | | | | Cash and cash equivalents at the end of year (excluding overdrafts) | | | 399 | | | | 286 | | | | 416 | | Bank overdrafts | | | 1 | | | | 0 | | | | 1 | | Other current investments | | | 1,633 | | | | 2,141 | | | | 1,838 | | Non-current fixed income investments held to maturity | | | 248 | | | | 393 | | | | — | | Borrowings | | | (840 | ) | | | (972 | ) | | | (999 | ) | | | | | | | | | | | | | | Net cash | | | 1,441 | | | | 1,849 | | | | 1,257 | | | | | | | | | | | | | | |
Our financing strategy aims at maintainingto maintain adequate financial resources and access to additional liquidity. During 2016 we generated $8642019 cash flow provided by operating activities amounted to $1,528 million (including a decrease in working capital of operating cash flow,$523 million), our capital expenditures amounted to $787$350 million and we paid dividends amounting to $508$484 million. At the end of the year we had a net cash position of $1.4 billion,$980 million, compared to $1.8 billion$485 million at the beginning of the year. We believe that funds from operations, the availability of liquid financial assets and our access to external borrowing through the financial markets will be sufficient to satisfy our working capital needs, to finance our planned capital spending program, to service our debt in the foreseeable future twelve months and to address short-term changes in business conditions. For more information see Item 5.G. “Operating and Financial Review and Prospects –Recent Developments - The COVID-19 pandemic and the oil & gas crisis and their impact on Tenaris’s operations and financial condition.” We have a conservative approach to the management of our liquidity, which consists mainly of (i) cash and cash equivalents (cash in banks, liquidity funds and investments with a maturity of less than three months at the date of purchase), and (ii) Other Investments (fixed income securities, time deposits, and fund investments). At December 31, 2019, liquid financial assets as a whole (comprising cash and cash equivalents and other current investments, comprising cash in banks, liquidity funds and highly liquid short and medium-term securities. These assets are carried at fair market value, or at amortized cost which approximates fair market value. At December 31, 2016, liquid financial assets as a whole (i.e., cash and cash equivalents, other current investments and non-current fixed income investments held to maturity)investments) were 16%12% of total assets compared to 19%7% at the end of 2015.2018.
We hold investments primarily investments in liquidity funds and variable or fixed-rate securities from investment grade issuers. We hold our cash and cash equivalents primarily in U.S. dollars and in major financial centers. As of December 31, 2016,2019, and 2018, U.S. dollar denominated liquid assets represented 95% of total liquid financial assets compared to 87% at the end of 2015.assets. Fiscal Year Ended December 31, 2016,2019, Compared to Fiscal Year Ended December 31, 20152018 Operating activities Net cash provided by operations during 20162019 was $864$1,528 million, compared to $2.2 billion$611 million during 2015.2018. This 61% decreaseincrease was mainly attributable to a smaller reduction$523 million decrease in working capital. During 2016capital in 2019, while in 2018 the reductionincrease in working capital amounted to $348 million, while during 2015 it amounted to $1.4 billion.$738 million. The main yearlyannual variation was relatedmainly attributed to a reductiondecrease of $245$428 million in trade receivables, compared with an increase of $518 million in 2018. Additionally, during 2019 inventories during 2016,decreased $311 million which compares with a reductionan increase in inventory of $936$176 million in 2015, reflecting the decline in production and shipments. Additionally, during 2016 trade receivables and trade payables decreased $147 million and $60 million respectively, partially offset by a decrease of $79 million in other liabilities and of $95 million in customer advances.2018. For more information on cash flow disclosures and changes to working capital, see note 2728 “Cash flow disclosures” to our audited consolidated financial statements included in this annual report. Investing activities Net cash used in investing activities was $98$40 million in 20162019, compared to $1.8 billiona net cash provided by investing activities of $399 million in 2015. Capital expenditures decreased to $787 million from $1.1 billion in 2015, mainly related to the construction of the greenfield seamless mill in Bay City, Texas. Additionally, we2018. We reduced our financial investments by $653$390 million in 20162019 compared to an increasea reduction of $696$717 million in 2015.2018. Additionally, during 2019 we spent $133 million in acquisition of subsidiaries. Financing activities Net cash used in financing activities, including dividends paid, proceeds and repayments of borrowings and acquisitions of non-controlling interests, was $653$354 million in 2016,2019, compared to $535$900 million in 2015.2018. Dividends paid during 2016 amounted to $508
During 2019 we had net proceeds from borrowings of $174 million, while $531 million were paid in 2015. During 20162018 we had net repayments of borrowings of $115$413 million.
Dividends paid during 2019 and 2018 amounted to $484 million while in 2015 we had no significant net proceeds from or repayments of borrowings.each year. Our total liabilities to total assets ratio was 0.18:1 as of December 31, 20162019 and 0.20:0.17:1 as of December 31, 2015.2018. Fiscal Year Ended December 31, 2015,2018, Compared to Fiscal Year Ended December 31, 20142017 Operating activities Net cash provided by operations during 20152018 was $2.2 billion,$611 million, compared to $2.0 billion$22 million of net cash used in operations during 2014.2017. This 8% increase was mainly attributable to an increase in results and a decreasesmaller increase in working capital. In 2018 and 2017 the increase in working capital needs. During 2015 working capital decreased $1.4 billion, while during 2014 it increased $72 million.amounted to $738 million and $853 million respectively. The main yearly variation was related to a decreasean increase of $518 million in trade receivables, compared with an increase of $259 million in 2017, while trade payables decreased $57 million in 2018 and increased $194 million in 2017. Additionally, during 2018 inventories during 2015, amounting to $936increased $176 million which compares with an increase in inventory of $73$804 million in 2014. Additionally, during 2015 trade receivables decreased $828 million, partially offset by a decrease in trade payables of $328 million and a decrease in other liabilities of $124 million.2017. For more information on cash flow disclosures and changes to working capital, see note 2728 “Cash flow disclosures” to our audited consolidated financial statements included in this annual report.
Investing activities Net cash used inprovided by investing activities was $1.8 billion$399 million in 2015, similar2018, compared to 2014.$349 million in 2017 (including the $328 million we collected from the sale of Republic Conduit). Capital expenditures were also stable at $1.1 billion during each year, as we advanced withdecreased to $349 million from $558 million in 2017 declining following the constructionstartup of theour greenfield seamless millfacility in Bay City, Texas.Texas at the end of 2017. Additionally, we reduced our financial investments by $717 million in 2018 compared to a reduction of $565 million in 2017. Financing activities Net cash used in financing activities, including dividends paid, proceeds and repayments of borrowings and acquisitions of non-controlling interests, was $535$900 million in 2015,2018, compared to $424$401 million in 2014.2017. During 2018 we had net repayments from borrowings of $413 million, while in 2017 we had net proceeds of borrowings of $107 million. Dividends paid during 20152018 and 2017 amounted to $531$484 million equal to 2014.in each year. During 2015 we had no significant net proceeds/repayments from borrowings as our short-term facilities were mostly renewed as they became due, while in 2014 we had net proceeds from borrowings of $156 million.
Our total liabilities to total assets ratio was 0.17:1 as of December 31, 2018 and 0.20:1 as of December 31, 2015 and 0.22:1 as of December 31, 2014.2017. Principal Sources of Funding During 2016,2019, we funded our operations with operating cash flows, bank financing and bank financing.available liquid financial assets. Short-term bank borrowings were used as needed throughout the year. Financial liabilities During 2016,2019 borrowings decreasedincreased by $131$283 million to $840$822 million at December 31, 2016,2019, from $972$539 million at December 31, 2015.2018. Borrowings consist mainly of bank loans. As of December 31, 20162019, U.S. dollar-denominated borrowings plus borrowings denominated in other currencies swapped to the U.S. dollar represented 96%89% of total borrowings. For further information about our financial debt, please see note 19 “Borrowings” to our audited consolidated financial statements included in this annual report. The following table shows the composition of our financial debt at December 31, 2016, 20152019, 2018 and 2014:2017: | Millions of U.S. dollars | | | 2019 | | 2018 | | 2017 | | | | | | | | | | | | | | | Millions of U.S. dollars | | 2016 | | | 2015 | | | 2014 | | | Bank borrowings | | | 839 | | | | 971 | | | | 997 | | | | 822 | | | | 537 | | | | 966 | | Bank overdrafts | | | 1 | | | | 0 | | | | 1 | | | | 0 | | | | 2 | | | | 0 | | Finance lease liabilities | | | 0 | | | | 1 | | | | 1 | | | | | | | | | | | | | | Total borrowings | | | 840 | | | | 972 | | | | 999 | | | | 822 | | | | 539 | | | | 966 | |
Our weighted average interest rates before tax (considering hedge accounting), amounted to 1.97%3.18% at December 31, 20162019 and to 1.52%3.98% at December 31, 2015.2018. The maturity of our financial debt is as follows: | Millions of U.S. dollars | | | | | | | | | | | | | | | | | At December 31, 2019 | | | 1 year or less | | 1 - 2 years | | 2 - 3 years | | 3 - 4 years | | 4 - 5 years | | Over 5 years | | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Millions of U.S. dollars At December 31, 2016 | | 1 year or
less | | | 1 - 2
years | | | 2 - 3
years | | | 3 - 4
years | | | 4 - 5
years | | | Over 5
years | | | Total | | | Borrowings | | | 809 | | | | 1 | | | | 4 | | | | 3 | | | | 4 | | | | 20 | | | | 840 | | | | 781 | | | | 17 | | | | 24 | | | | – | | | | – | | | | – | | | | 822 | | Interests to be accrued | | | 6 | | | | 1 | | | | 1 | | | | 1 | | | | 1 | | | | 0 | | | | 11 | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest to be accrued (*) | | | | 11 | | | | 1 | | | | 0 | | | | – | | | | – | | | | – | | | | 13 | | Total | | | 815 | | | | 2 | | | | 5 | | | | 5 | | | | 5 | | | | 20 | | | | 852 | | | | 793 | | | | 18 | | | | 24 | | | | – | | | | – | | | | – | | | | 835 | | | | | | | | | | | | | | | | | | | | | | | | |
__________ | (*) | Includes the effect of hedge accounting. |
Our current borrowings to total borrowings ratio increased from 0.77:amounted to 0.95:1 as of December 31, 2015 to 0.96:1 as of2019 and December 31, 2016.2018. Our liquid financial assets exceeded our total borrowings, we had a net cash position (cash and cash equivalents, other current investments and non-current fixed income investments, held to maturityderivatives hedging borrowings and investments, less total borrowings) of $1.4 billion$980 million at December 31, 2016,2019, compared to $1.8 billion$485 million at December 31, 2015.2018. For information on our derivative financial instruments, please see Item 11. “Quantitative and Qualitative Disclosure Aboutabout Market Risk – Accounting for Derivative Financial Instruments and Hedging Activities” and note 24 “Derivative financial instruments” to our audited consolidated financial statements included in this annual report. For information regarding the extent to which borrowings are at fixed rates, please see Item 11. “Quantitative and Qualitative Disclosure About Market Risk.”Risk”. Significant Borrowings Our most significant borrowings as of December 31, 20162019 were as follows: | | | | | | | | | | | | | | Millions of U.S. dollars | | | | | | | | | | | Disbursement date | | Borrower | | Type | | | Original & Outstanding | | | Final maturity | 2016 | | Tamsa | | | Bank loans | | | | 391 | | | 2017 | 2015 | | TuboCaribe | | | Bank loan | | | | 200 | | | Jan-17 | 2016 | | Siderca | | | Bank loans | | | | 198 | | | 2017 |
| Millions of U.S. dollars | | | | | | Disbursement date | Borrower | Type | Original & Outstanding | Final maturity | | 2019 | Tamsa | Bank loans | 621 | 2020 | | 2019 | Siderca | Bank loans | 60 | 2020 |
As of December 31, 2016,2019, Tenaris was in compliance with all of its covenants.covenants under its significant borrowings, including financial covenants on leverage ratio. C.
| C. | Research and Development, Patents and Licenses, Etc. |
See Item 4.B. “Information on the Company – Business Overview – Research and Development.”Development”. D. Trend Information
Principal Factors Affecting Oil and Gas Prices and Demand for Steel Pipes from the Global Oil and Gas Industry. Sales to the oil and gas industry worldwide represent a high percentage of our total sales, and demand for steel pipes from the global oil and gas industry is a significant factor affecting the general level of volumes and prices for our products. Downward pressures on oil and gas prices usually result in lower oil and gas drilling activity and investment throughout the oil and gas industry with consequently lower demand for our steel pipe products and, in some circumstances, upward pressures can result in higher demand from our oil and gas customers. Whereas oil prices are similar in most parts of the world because oil is a fully tradable commodity, gas prices are influenced by regional factors. In North America, where gas production is extensively developed and there is an extensive regional pipeline system, these factors include available gas storage capacity and seasonal weather patterns, particularly winter temperatures in the United States. Liquefied natural gas, or LNG prices havewere traditionally been established in relation to international oil prices, particularly in the largest LNG markets in Asia. However, as the market for LNG becomes more global and the USA becomes a relevant source of LNG, LNG prices may also beare now being set increasingly in relation to gas prices prevailing at regional gas hubs. International oil prices depend on diverse factors. On the supply side, major oil- and gas-producingoil-and-gas-producing nations and companies have frequently collaborated to balance the supply (and thus the price) of oil in the international markets. A major vehicle for this collaboration has been OPEC. Many of our customers are state-owned companies in member countries of OPEC. Another factor that has affected the international price level of oil is the political and socioeconomic conditions of oil-producing countries, such as Libya, Nigeria and Venezuela and the persistence of geo-political and armed conflicts affecting the Middle East region, which is home to a substantial proportion of the world’s known oil reserves. On the demand side, economic conditions and the level of oil inventories in the leading industrial nations of the world, and more recently China, which constitute the largest oil consuming nations, also play a significant role in oil prices. A more recent factor affecting oil and gas prices has been the ability of producers in the United States and Canada to rapidly increase production from their reserves of tight oil and shale gas in response to changes in market conditions. Production from U.S. tight oil reserves has grown in recent years to represent over 5%around 10% of global liquids production, and production from shale gas plays is converting the United States into a net exporter of natural gas and a significant player in the LNG market. Following three years of relatively stable oil prices of around $100 per barrel, prices started to decline in the middle of 2014 onceas the rate of U.S. production increase began to exceed the increase in global demand and OPEC confirmed at its November 2014 meeting that it would not cut production to balance demand. PricesAs a consequence, prices reached levels below $30 per barrel in January 2016 before recovering2016. Prices then recovered to $50around $80 per barrel at the end of the yearduring 2018 once OPEC and other producers agreed to cut production levels for a period of six months to hastenaccelerate the market rebalancing process. By this time, OPEC and other producers had lifted their production cuts and U.S. oil production was increasing at a rate greater than the increase in global demand. Oil prices declined 40% in the fourth quarter of 2018 before partially recovering in 2019. In eachthe first quarter of 2020, the last three years,COVID-19 pandemic has affected global oil supply has exceeded global oil demand leading to an increase in inventories, though this imbalance was less pronounced in 2016demand. In addition, agreements between OPEC member countries and is expected to revert in 2017 following the agreementother producers (principally Russia) to cut production levels fell apart. Consequently, oil prices have collapsed to historically low levels. The 2014 collapse in oil prices led oil and gas operators to substantially reduce their exploration and production investments in 2015 and 2016to a level which is currently around 60% of the average of the 2012-14 period and this, in turn, resulted in a severe contraction in demand and pressure on pricing for steel pipes used in oil and gas drilling and associated operations. Towards the end of 2016,During 2017, however, oil and gas operators in North America, who have been very successful in reducing production costs in their shale plays, began to increaseincreased investments in response to more favorable market conditions.conditions, and U.S. operators continued to do so in 2018. However, in 2019 and during the first quarter of 2020, operators have been reducing investment in the shales as they reacted to financial market pressures in order to achieve positive cash flow returns. With the collapse of oil prices in March 2020 and continuing financial market pressures, we are likely to see further substantial reductions in their investments. Since the development of the Marcellus shale gas play, North American gas prices have remained at low followinglevels compared to previous decades. Over the 2008 economic and financial crisis (less than $6 per million BTU) and fell to levels below $2past three years, average prices have fluctuated in the range of $2.00-3.00 per million BTU, significantly below prices in the 2015-2016 winter heating season, when demand was affected by seasonally warm weather.many other major gas-consuming regions. For several years, production increases, primarily from productive shale gas deposits, have exceeded demand increases, reducing the need for imports. In 2016, however, as gas-directed drilling activity fellimports, to very low levels, production declined even as demand continued to increase, resultingthe extent that, in 2017, the U.S. became a recoverynet exporter of prices above $3 per million BTU and an increase in drilling activity going into 2017.natural gas. Low prices are encouraginghave encouraged investment in gas consuming industrial facilities and LNG export facilities as well as switching from coal to gas for electric power production, is taking place particularly with the adoption of new regulations which could force the retirement of older coal-based generating units. Additionally, facilities which had been originally designed to importWith continuing investments in LNG into the United States are being converted into export facilities, to take advantage of lowthe U.S. has become a major global LNG exporter. More recently, North American gas prices to exporthave fallen below $2 per million BTU as global demand growth for LNG fromhas been affected by warmer northern hemisphere weather and the United States.COVID-19 pandemic. Drilling activity in the United States and Canada, following several years of high activity, fell sharply through 2015 and the first half of 2016 before beginning a recovery which has acceleratedended at the beginningend of 2017. Rig2018. Drilling activity declined throughout 2019 in response to a fall in oil prices at the end of 2018 and financial market pressures to produce positive cash flow returns. Despite lower prices, production levels today are higher than before the 2014 collapse in oil prices but rig counts plunged toare around less than a quarter50% of their former level as operators cut back on investments for two consecutive years as their cash flows declined with lowthe levels they reached in 2014, reflecting the strong productivity gains made by the U.S. oil and gas prices. At the same time, they reduced drilling costs through increased efficiencies, concentrating drilling on the most productive plays, and negotiated lower supply and service costs. Rig counts are now rapidly recovering and production has started to rise even with oil prices at half the level of those seen in 2014.industry. In the rest of the world, drilling activity began to decline in the second half of 2014, and has continued to decline steadily during 2015, 2016 and 2016.2017 before beginning a gradual recovery in the second half of 2018. Although drilling activity in the Middle East has beenremained relatively stable, drilling in Latin America and offshore drilling has declined significantly.significantly, but began to recover in 2019, although drilling in Argentina declined sharply in the last quarter of 2019, in response to uncertainty about the policies that the new Argentine government would implement in respect of investments in the Vaca Muerta shale resource. Prior to the most recent2014 downturn in oil prices, a growing proportion of exploration and production spending by oil and gas companies had been directed at offshore, deep drilling and non-conventional drilling operations in which high-value tubular products, including special steel grades and premium connections, are usually specified. Technological advancesThe success, however, of shale drilling operators, with their inherently short investment cycles, in drilling techniquesadapting to lower oil and materials have opened up new areas for explorationgas costs and development. More complex drilling conditions, combined with increased regulatory pressures and more stringent industry standards following the blow-out of the Macondo well in the U.S. Gulf of Mexico, demand new and high value products and services in most areas of the world. However, the high cost and long lead times required to develop some of these projects, particularly deepwater and oil sands projects, is leadingincreasing production, led to a slowdown in new developments of suchcomplex offshore projects with long investment lead times in a context of low and more volatile oil prices, consequently affecting the level of product differentiation. At In addition, the same time, the short investment cycles inherentincreasing cost competitiveness and use of alternative renewable sources of energy could limit growth in demand for oil and gas and put downward pressure on oil and gas prices in the development of unconventional shale reserves, andlonger term. This trend could accelerate if carbon taxes or carbon pricing instruments resulting in high prices for carbon emissions are implemented around the potential for further efficiency gains, will continue to attract investment interest.world. The tables below show the annual average number of active oil and gas drilling rigs, or rig count, in the United States, Canada, International (worldwide other than the United States and Canada and excluding Iran, Sudan, onshore China, Russia Syria and up to June 2012 Iraq)Syria) and Worldwide, as published by Baker Hughes, Inc., for the years indicated and the percentage increase or decrease over the previous year. Baker Hughes, a leading oil service company, has published its rig counts on a monthly basis since 1975 as a general indicator of activity in the oil and gas sector. Rig count | | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2012 | | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 | International(*) | | | 955 | | | | 1,167 | | | | 1,337 | | | | 1,296 | | | | 1,165 | | | | 1,098 | | | | 988 | | | | 948 | | | | 955 | | | | 1,167 | | Canada | | | 128 | | | | 193 | | | | 380 | | | | 355 | | | | 365 | | | | 134 | | | | 191 | | | | 207 | | | | 128 | | | | 193 | | United States | | | 510 | | | | 977 | | | | 1,862 | | | | 1,761 | | | | 1,919 | | | | 943 | | | | 1,032 | | | | 875 | | | | 510 | | | | 977 | | | | | | | | | | | | | | | | | | | Worldwide | | | 1,593 | | | | 2,337 | | | | 3,579 | | | | 3,412 | | | | 3,449 | | | | 2,175 | | | | 2,211 | | | | 2,029 | | | | 1,593 | | | | 2,337 | | | | | | | | | | | | | | | | | | |
__________ | (*) | International rig count excludes Iran, Sudan, onshore China, Russia and Syria (discontinued in February 2013) and includes Iraq from 2013 onwards.. |
Percentage increase (decrease) over the previous year | | | | 2016 | | 2015 | | 2014 | | 2013 | | | 2019 | | 2018 | | 2017 | | 2016 | International(*) | | | (18 | %) | | (13 | %) | | 3 | % | | 11 | % | | | 11 | % | | | 4 | % | | | (1 | %) | | | (18 | %) | Canada | | | (33 | %) | | (49 | %) | | 7 | % | | (3 | %) | | | (30 | %) | | | (7 | %) | | | 62 | % | | | (34 | %) | United States | | | (48 | %) | | (48 | %) | | 6 | % | | (8 | %) | | | (9 | %) | | | 18 | % | | | 72 | % | | | (48 | %) | | | | | | | | | | | | | | | Worldwide | | | (32 | %) | | (35 | %) | | 5 | % | | (1 | %) | | | (2 | %) | | | 9 | % | | | 27 | % | | | (32 | %) | | | | | | | | | | | | | | |
__________ | (*) | International rig count excludes Iran, Sudan, onshore China, Russia and Syria (discontinued in February 2013) and includes Iraq from 2013 onwards.. |
E.
| E. | Off-Balance Sheet Arrangements |
As of year-end 2016,December 31, 2019, the Company reported the following financial commitments, consisting of guarantees in connection to its participation in the non-consolidated company Techgen: A | · | On February 13, 2019, Techgen entered into a $640 million syndicated loan agreement with several banks to refinance an existing loan, resulting in the release of certain corporate guarantee issued by Techgen’s shareholders to secure the replaced facility. |
Techgen’s obligations under the current facility, which is “non-recourse” on the sponsors, are guaranteed by a Mexican security trust covering Techgen’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 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 obligations of Techgen under a syndicated loan agreement. Proceeds from the syndicated loan were used by Techgen for the construction of the facility. For further information regarding Techgen’s facility, see Item 4.C. “Organizational Structure and Subsidiaries—Other investments—Techgen.” Asdebt service coverage ratio, which as of December 31, 2016, the $800 million loan was fully disbursed, making the Company’s guaranteed amount approximately $176 million. The main covenants under the corporate guarantee are limitations on the sale of certain assets and compliance with financial ratios (e.g., leverage ratio). As of December 31, 2016, Techgen and the Company were in compliance with all of their covenants under this syndicated loan agreement. A corporate guarantee covering 22% of the outstanding value of natural gas transportation capacity agreements entered into by Techgen with Kinder Morgan Gas Natural de Mexico S. de R.L. de C.V., and Kinder Morgan Tejas Pipeline LLC and Kinder Morgan Texas Pipeline LLC for a natural gas purchasing capacity of 150,000 million BTU per day starting on August 1, 2016 and ending on July 31, 2036. As of December 31, 2016, the outstanding value of this commitment was approximately $279 million. The Company’s exposure under the guarantee in connection with these agreements2019 amounts to $61.3 million, corresponding to 22% of the outstanding value.
$9.8 million. | · | Tenaris issued a corporate guarantee covering 22% of the outstanding value of natural gas transportation capacity agreements entered into by Techgen with Kinder Morgan Gas Natural de Mexico S. de R.L. de C.V., and Kinder Morgan Texas Pipeline LLC for a natural gas purchasing capacity of 150,000 million BTU 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 December 31, 2019, our exposure under the guarantee in connection with these agreements amounted to $51.9 million and $0.9 million respectively. |
| · | SSPC issued corporate guarantees to secure repayment of loan agreements entered into by Global Pipe Company (“GPC”), a Saudi line pipe producer, with Saudi Investment Development Fund, Saudi British Bank and Banque Saudi Fransi to finance GPC’s capital expenditures and working capital. SSPC currently owns 35% of the share capital of GPC. As of December 31, 2019, SSPC’s exposure under the guarantees amounted to $131.7 million. |
In addition, we have various off-balance sheet commitments, as described in note 25 “Contingencies, commitments and restrictions on the distribution of profits”profits – (ii) Commitments and guarantees” to our audited consolidated financial statements included in this annual report. F.
| F. | Contractual Obligations |
The following table summarizes our contractual obligations at December 31, 2016,2019, and the effect such obligations are expected to have on our liquidity and cash flow in future periods: Millions of U.S. dollars
| Millions of U.S. dollars | | | | | | | | | | | | | | | | At December 31, 2019 | | 1 year or
less | | 1 - 2
years | | 2 - 3
years | | 3 - 4
years | | 4 - 5
years | | Over 5
years | | Total | | | | | | | | | | | | | | | | | | Borrowings | | | 781 | | | | 17 | | | | 24 | | | | – | | | | – | | | | – | | | | 822 | | | Interests to be accrued (*) | | | 11 | | | | 1 | | | | 0 | | | | – | | | | – | | | | – | | | | 13 | | | Purchase commitments (**) | | | 125 | | | | 46 | | | | 46 | | | | 10 | | | | 10 | | | | 52 | | | | 289 | | | Lease Liabilities | | | 38 | | | | 31 | | | | 28 | | | | 22 | | | | 19 | | | | 92 | | | | 230 | | | Total contractual obligations and commitments | | | 956 | | | | 96 | | | | 98 | | | | 32 | | | | 29 | | | | 144 | | | | 1,354 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1 year or
less | | | 1 - 2
years | | | 2 - 3
years | | | 3 - 4
years | | | 4 - 5
years | | | Over 5
years | | | Total | | At December 31, 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Borrowings | | | 809 | | | | 1 | | | | 4 | | | | 3 | | | | 4 | | | | 20 | | | | 840 | | Interests to be accrued(*) | | | 6 | | | | 1 | | | | 1 | | | | 1 | | | | 1 | | | | 0 | | | | 11 | | Purchase commitments | | | 600 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 600 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total contractual obligations and commitments | | | 1,415 | | | | 2 | | | | 5 | | | | 5 | | | | 5 | | | | 20 | | | | 1,452 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
_________ | (*) | Includes the effect of hedge accounting. |
| (**) | Only includes material commitments. |
Purchase commitments as of December 31, 2016,2019, disclosed in the table above, consist of commitmentsa commitment to purchase steel bars in the US amounting to $107.1 million (that became effective in January 2020), a commitment to purchase iron ore in Argentina amounting to $33.6 million; a contract for the productionservice of tubesnatural gas transportation in North America,Argentina for an aggregate amount of $27.4 million; a contract for the service of oxygen and nitrogen supply amounting to $423$53.7 million, contracts for the supply of graphite electrodes amounting to $26.8 million, a rail transportation contract in Canada amounting to $18.9 million, and various contracts relating to our new greenfield seamless milla contract for the supply of argon gas in Bay City, Texas,Mexico amounting to $176$21.2 million. In addition, a Tenaris subsidiary 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 subsidiary 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 subsidiary 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 subsidiary will benefit from the proceeds of such sale. For more information on our purchase commitments as of December 31, 2019, see note 25 “Contingencies, commitments and restrictions on the distribution of profits”profits – (ii) Commitments and guarantees” to our audited consolidated financial statements included in this annual report. G. Recent Developments
Annual Dividend Proposal
Acquisition of IPSCO Tubulars, Inc. On February 22, 2017January 2, 2020, Tenaris acquired 100% of the Company’s boardshares of directors proposed,IPSCO Tubulars, Inc. (“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 is 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 March 16, 2020, Tenaris delivered, for TMK’s review, a closing statement prepared in accordance with the acquisition agreement, including Tenaris’s calculation of the closing price based on actual amounts of cash, indebtedness, working capital and certain other items as of the closing date. In case of disagreement, the parties are expected to engage in good-faith negotiations to solve any discrepancies. If the parties cannot resolve the disputed amounts, the discrepancies must be submitted to and resolved by an independent accounting firm. 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”) whereby, effective on January 2, 2020, Tenaris became the exclusive distributor of TMK’s OCTG and line pipe products in the United States and Canada. At the end of the MDA’s 6-years term, TMK will have the option to extend the duration of the MDA for an additional 12-month period. Under the MDA, Tenaris is required to purchase minimum annual volumes of TMK-manufactured OCTG and line pipe products, based on the aggregate market demand for the approvalrelevant product category in the United States in the relevant year. As of March 31, 2020, Tenaris’s commitment under the MDA totaled approximately $512 million. In light of the annual general shareholders’ meetingadverse scenario of declining oil and gas prices and unprecedented oversupply in the oil market Tenaris and TMK are engaging in good faith discussions to try and identify mutually satisfactory accommodations under the MDA to minimize the negative impact of the crisis on both parties.
The Company has begun consolidating IPSCO’s balances and results of operations as from January 2, 2020. The acquired business contributed revenues for $105 million with a minor contribution to Tenaris’s margin for the period starting January 2, 2020 and ending March 31, 2020. | b) | Fair value of net assets acquired |
The application of the purchase method requires certain estimates and assumptions, including estimates and assumptions 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, the Company will continue reviewing the allocation and make any necessary adjustments (mainly over property, plant and equipment, intangible assets) during the twelve months following the acquisition date. 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 | | | 506 | | | Intangible assets | | | 170 | | | Working capital | | | 144 | | | Cash and Cash Equivalents | | | 4 | | | Other assets | | | 46 | | | Borrowings | | | (53 | ) | | Provisions | | | (27 | ) | | Other liabilities | | | (77 | ) | | Deferred tax liabilities | | | (3 | ) | | Net assets acquired | | | 710 | |
Tenaris acquired total assets and liabilities shown above, for approximately $1,067 million. As a result of the acquisition, the Company recognized goodwill for approximately $357 million. The goodwill is not expected to be held on May 3, 2017, 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 in November 2016. If the annual dividend is approveddeductible for tax purposes. The goodwill generated by the shareholders, a dividend of $0.28 per share ($0.56 per ADS), or approximately $331 million will be paid on May 24, 2017, with an ex-dividend date of May 22, 2017 and record date on May 23, 2017. Latest developments on CSN claims relatingacquisition is mainly attributable to the January 2012 acquisition of Usiminas’ shares
In 2013, Confab was notified of a lawsuit filedsynergy created following the integration between Tenaris and IPSCO, which is expected to enhance Tenaris’s position as well as its local manufacturing presence in Brazil by Companhia Siderúrgica Nacional (CSN)the U.S. market, and various entities affiliated with CSN against Confabalso expand its product range and services capabilities. The goodwill has been allocated to the other entities that acquired a participation in Usiminas’ control group in January 2012. The CSN lawsuit alleges that, under applicable Brazilian laws and rules,Tubes segment. After 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%conclusion of the preliminary purchase price per share paid in such acquisition, orBrazilian reais 28.8,allocation determination 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 haveas a 17.9% share in that offer.
On September 23, 2013, the first instance court issued its decision finding in favor of Confab and the other defendants and dismissing the CSN lawsuit. On February 8, 2017, the court of appeals upheld the rulingconsequence of the first instance court, holding that Confabunprecedented decline in oil prices and other changes in circumstances, the other defendants did not havemanagement has decided to impair the obligation to launch a tender offer. CSN has filed a motion for clarificationgoodwill mentioned above.
Acquisition-related costs of $9.7 million were included in general and may still appeal to the Superior Court of Justice or the Federal Supreme Court. administrative expenses ($9.4 and $0.3 in 2019 and 2020 respectively). For more information on the CSN claim in relationcontingent liabilities related to the acquisition of Usiminas’s shares see Item 8. A. “Financial Information – Consolidated Statements“Consolidated and Other Financial Information – Legal Proceedings – Outstanding Legal Proceedings – CSN claims relatingProceedings”. For more information on impairment testing, see Item 5 “Operating and Financial Review and Prospects - Critical Accounting Estimates - Impairment and recoverability of goodwill and other assets”. 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 January 2012 acquisitionrest of Usiminas’ shares.”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 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, a situation of acute oversupply remains, 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. It is not known how long it will take for oil and gas demand to recover or achieve a more balanced position between supply and demand. 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. SaleStatus of North American Electric Conduit Businessour operations
We are adjusting our operations on a country-by-country basis to Nucorcomply with applicable rules and requirements and adapt to this new, rapidly evolving scenario. As of the date of this annual report, this is the status of our facilities: | · | In China, we are again fully operational, after several weeks of interruption and an extraordinary combined effort of our people and of our community. |
| · | In Italy, production was greatly reduced; although our Dalmine facility was used exclusively for the manufacturing of oxygen tanks to aid local hospitals and health centers for a limited period of time, currently the facility is gradually resuming normal operations. In Argentina, Colombia, Mexico and Saudi Arabia, Tenaris decreased its activity following the imposition of mandatory lockdowns, and our plants in these countries are currently operating at reduced levels. Although the lockdowns or restrictions to operate in these countries are expected to end or be relaxed in the next few weeks, these could be extended and/or made more stringent if so decided by the appropriate authorities as the circumstances could require. |
| · | In the United States, our facilities in Koppel and Ambridge (PA), Brookfield (OH), Blytheville (AR), Wilder (KY), and Odessa and Baytown (TX), have been or will be temporarily closed until market conditions improve. In addition, Tenaris is in the process of performing employee reductions and adjusting production levels at its other facilities in line with market demand. |
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 this annual report, 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. Without limiting the generality of the risks described in Item 3. “Key Information —D. Risk Factors—Risks Relating to our Industry”, the COVID-19 pandemic and the ongoing oil & gas crisis poses the following main risks and challenges to Tenaris: | · | Global oil or gas demand may fail to recover 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. |
Mitigating actions In order to mitigate the impact of expected lower sales, Tenaris is working on 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 U.S. 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, the board of directors resolved to propose, for approval by the Annual Shareholders Meeting to be held on June 2, 2020, 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 this annual report, 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 $271 million as of the end of March 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. For more information on liquidity and capital resources, see “—B. Liquidity and Capital Resources - Principal Sources of Funding”. Impairment of certain assets and other accounting implications In accordance with IFRS, management must test for impairment all of Tenaris’s assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets subject to testing include goodwill, intangible assets, investments in non-consolidated companies, long-lived assets and right-of-use assets. In addition, management must test goodwill for impairment at least once a year whether or not there are indicators of impairment. As a result of the severe deterioration of business conditions and in light of the presence of impairment indicators for its U.S. operations, Tenaris recorded impairment charges as of March 31, 2020, in the carrying values of goodwill and other asset values at the cash-generating units OCTG USA (Maverick), IPSCO, Rods USA and Coiled Tubing, for an aggregate amount of approximately $622 million. 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. 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. 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.
Annual Dividend Proposal
On January 20, 2017, we collected $328April 29, 2020, the Company’s board of directors resolved to propose, for approval by the annual shareholders meeting to be held on June 2, 2020, that no further dividends be distributed in respect of fiscal year 2019 beyond the interim dividend of approximately $153 million fromalready paid in November 2019. For a discussion of the sale of our steel electric conduit business in North America, known as Republic Conduit.rationale behind the dividend proposal, see Item 5G. “Operating and Financial Review and Prospects –Recent Developments - The after tax gain from this sale amounted to $90 millionCOVID-19 pandemic and was recorded in the first quarter of 2017. As of December 31, 2016 the conduit business was classified as a discontinued operation. oil & gas crisis and their impact on Tenaris’s operations and financial condition.” | Item 6. | Directors, Senior Management and Employees |
A.
| A. | Directors and Senior Management |
Board of Directors Management of the Company is vested in a board of directors with the broadest power to act on behalf of the Company and accomplish or authorize all acts and transactions of management and disposal that are within its corporate purpose and not specifically reserved in the articles of association or by applicable law to the general shareholders’ meeting.The Company’s articles of association provide for a board of directors consisting of a minimum of three and a maximum of fifteen directors; however, for as long as the Company’s shares are listed on at least one regulated market, the minimum number of directors must be five. The Company’s current board of directors is composed of nine directors; however, at the next annual general shareholders’ meeting, it will be proposed that the number of members of the board of directors be increased to ten.eleven directors. The board of directors is required to meet as often as required by the interests of the Company and at least four times per year. In 2019, the Company’s board of directors met ten times. A majority of the members of the board of directors in office present or represented at the board of directors’ meeting constitutes a quorum, and resolutions may be adopted by the vote of a majority of the directors present or represented. In the case of a tie, the chairmanChairman is entitled to cast the deciding vote. Directors are elected at the annual ordinary general shareholders’ meeting to serve one-year renewable terms, as determined by the general shareholders’ meeting. The general shareholders’ meeting also determines the number of directors that will constitute the board and their compensation. The general shareholders’ meeting may dismiss all or any one member of the board of directors at any time, with or without cause, by resolution passed by a simple majority vote, irrespective of the number of shares represented at the meeting. Under the
The Company’s articles of association until 2020,provide that the board of directors is authorized to increaseof the issued share capital in whole or in part from time to time, through issues of sharesCompany may within the limits of the authorized share capital against compensation in cash, compensation in kind at a priceapplicable law, (a) delegate to one or if shares are issued by waymore persons, whether or not members of incorporation of reserves, at an amount, which shall not be less than the par value and may include such issue premium as the board of directors, the powers necessary to carry out its decisions and to provide day-to-day management (except for approval of material transactions with related parties, which may not be delegated and shall decide. Underbe approved by the board of directors prior opinion of the audit committee), (b) confer to one or more persons, whether or not members of board of directors the powers deemed to be appropriate for the general technical administrative and commercial management of the Company, (c) constitute an audit committee formed by directors, determining its function and authority, and (d) constitute any other committee, whose members may or may not be members of the board of directors and determine their functions and authority. On May 6, 2019, the board of directors appointed the Company’s articles of association, however,chief executive as administrateur délégué and delegated to him the power to manage the Company’s existing shareholders shall have a preferential right to subscribe for any new Shares issued pursuantaffairs within the ordinary course of business, to the authorization grantedfull extent permitted by Luxembourg law, to direct and supervise the business activities of the Company’s subsidiaries and to represent the Company in relation to such matters. On May 6, 2019, the Company’s annual general shareholders’ meeting re-elected Roberto Bonatti, Carlos Condorelli, Germán Curá, Roberto Monti, Gianfelice Mario Rocca, Paolo Rocca, Jaime José Serra Puche, Yves Speeckaert, Mónica Tiuba, Amadeo Vázquez y Vázquez and Guillermo Vogel, as members of its board of directors except into serve until the following cases (in which cases no preferential subscription rights shall apply): any issuance of Shares (including, without limitation, the direct issuance of Shares or upon the exercise of options, rights convertible into shares, or similar instruments convertible or exchangeable into Shares) against a contribution other than in cash;
any issuance of Shares (including by way of free Shares or at discount), up to an amount of 1.5% of the issued share capital of the Company, to directors, officers, agents, employees of the Company, its direct or indirect subsidiaries, or its affiliates (collectively, the “Beneficiaries”), including, without limitation, the direct issuance of Shares or upon the exercise of options, rights convertible into Shares, or similar instruments convertible or exchangeable into Shares, issued for the purpose of compensation or incentive of the Beneficiaries or in relation thereto (which thenext annual shareholders’ meeting. The board of directors shall be authorized to issue upon such termssubsequently reappointed Paolo Rocca as chairman and conditionschief executive officer and Guillermo Vogel and Germán Curá as it deems fit).
vice-chairmen of the Company. The following table sets forth the name of the Company’s current directors, their respective positions on the board, their principal occupation, their years of service as board members and their age. At the next annual general shareholders’ meeting, it will be proposed that the number of members of the board of directors be increased to ten by appointing Mr. Yves Speeckaert to the board of directors, and that all of the current members of the board of directors be reappointed, each to hold office until the next annual general shareholders’ meeting that will be convened to decide on the Company’s 2017 annual accounts. | | | | | | | | | | | | | Name | | Position | | Principal Occupation | | Years as
Director | | | Age at
December 31, 2016 | | Roberto Bonatti(1) | | Director | | President of San Faustin | | | 14 | | | | 67 | | Carlos Condorelli | | Director | | Director of Tenaris and Ternium | | | 10 | | | | 65 | | Roberto Monti | | Director | | Member of the board of directors of YPF SA | | | 12 | | | | 77 | | Gianfelice Mario Rocca(1) | | Director | | Chairman of the board of directors of San Faustin | | | 14 | | | | 68 | | Paolo Rocca(1) | | Director | | Chairman and chief executive officer of Tenaris | | | 15 | | | | 64 | | Jaime Serra Puche | | Director | | Chairman of SAI Consultores | | | 14 | | | | 65 | | Alberto Valsecchi | | Director | | Director of Tenaris | | | 9 | | | | 72 | | Amadeo Vázquez y Vázquez | | Director | | Director of Tenaris | | | 14 | | | | 74 | | Guillermo Vogel | | Director | | Vice chairman of Tamsa | | | 14 | | | | 66 | |
| Name | Position | Principal Occupation | Years as Director | Age at
December 31, 2019 | | | | | | | | Mr. Roberto Bonatti (1) | Director | President of San Faustin | 17 | 70 | | Mr. Carlos Condorelli | Director | Director of Tenaris and Ternium | 13 | 68 | | Mr. Germán Curá | Director | Director and Vice Chairman of the Board of Tenaris | 2 | 57 | | Mr. Roberto Monti | Director | Director of Tenaris | 15 | 80 | | Mr. Gianfelice Mario Rocca (1) | Director | Chairman of the board of directors of San Faustin | 17 | 71 | | Mr. Paolo Rocca (1) | Director | Chairman and Chief Executive Officer of Tenaris | 18 | 67 | | Mr. Jaime José Serra Puche | Director | Chairman of SAI Derecho & Economia | 17 | 68 | | Mr. Yves Speeckaert | Director | Director of Tenaris | 3 | 59 | | Ms. Mónica Tiuba | Director | Director of Tenaris | 2 | 41 | | Mr. Amadeo Vázquez y Vázquez | Director | Director of Tenaris | 17 | 77 | | Mr. Guillermo Vogel | Director | Director and Vice Chairman of the Board of Tenaris | 17 | 69 |
__________ | (1) | Paolo Rocca and Gianfelice Mario Rocca are brothers, and Roberto Bonatti is Paolo and Gianfelice Mario Rocca’s first cousin. |
Roberto Bonatti. Mr. Bonatti is a member of the Company’s board of directors. He is a grandson of Agostino Rocca, founder of the Techint group,Group, a group of companies controlled by San Faustin. Throughout his career in the Techint groupGroup he has been involved specifically in the engineering and construction and corporate sectors. He was first employed by the Techint groupGroup in 1976, as deputy resident engineer in Venezuela. In 1984, he became a director of San Faustin, and since 2001 he has served as its president. In addition, Mr. Bonatti currently serves as president of Sadma Uruguay S.A. He is also a member of the board of directors of Ternium. Mr. Bonatti is an Italian citizen. Carlos Condorelli. Mr. Condorelli is a member of the Company’s board of directors. He served as our chief financial officerthe Company’s Chief Financial Officer from October 2002 until September 2007. He is also a board member of Ternium. He began his career within the Techint group in 1975 as an analyst in the accounting and administration department of Siderar S.A.I.C., or Siderar. He has held several positions within Tenaris, including also the Chief Financial Officer position in some of the principal Tenaris Group companies and other Techint group companies, including financemember of the Company’s audit committee between November 1, 2017 and administration director of Tamsa andMay 2, 2018. He also served as president of the board of directors of Empresa Distribuidora La Plata S.A. (“Edelap”), or Edelap, an Argentine utilities company. Mr. Condorelli is an Argentine citizen. Germán Curá. Mr. Curá is a member of the Company’s board of directors and also holds the position of Vice Chairman of the Board. He served as president of our operations in North America until May 2, 2018, a position held since 2006. He was first employed by Siderca in 1988. Previously, he served as Siderca’s exports director, Tamsa’s exports director and commercial director, sales and marketing manager of our Middle East subsidiary, president of Algoma Tubes, president and Chief Executive Officer of Maverick Tubulars and president and Chief Executive Officer of Hydril, director of our Oilfield Services global business unit and Tenaris commercial director. He was also a member of the board of directors of API and currently serves as a member of the board of directors of the American Iron and Steel Institute (AISI) and of Deep Ocean AS. He is a marine engineer from the Instituto Tecnológico de Buenos Aires and an MBA graduated from the Massachusetts Institute of Technology. Mr. Curá is an U.S. citizen. Roberto Monti. Mr. Monti is a member of the Company’s board of directors.directors and of its audit committee. He ishas served as vice president of exploration and production of Repsol YPF and as chairman and Chief Executive Officer of YPF. He was a member of the board of directors of YPF S.A. He has served as vice president of Exploration and Production of Repsol YPF and as chairman and chief executive officer of YPF.until December 2019. He was also the president of Dowell, a subsidiary of Schlumberger and the president of Schlumberger Wirewire & Testingtesting division for East Hemisphere Latin America. Mr. Monti is an Argentine citizen. Gianfelice Mario Rocca. Mr. Rocca is a member of the Company’s board of directors. He is a grandson of Agostino Rocca. He is the chairmanChairman of the board of directors of San Faustin, a member of the board of directors of Ternium, the president of the Humanitas Group and the president of Tenova S.p.A. In addition, he sits on the board of directors or executive committees of several companies, including AllianzTenova S.p.A., Brembo and Buzzi Unicem. He is president of Assolombarda, the largest territorial association of entrepreneurs Moreover, in Italy, and part of Confindustria (Italian employers’ organization). In addition, he is member of the EIT Governing Board (European Institute of Innovation and Technology). He is chairman of Humanitas University, board member of Bocconi University, and Luiss Guido Carli University,of the advisory board of Politecnico di Milano. At international level, he is member of the Harvard Business School Advisory Board and member of Politecnico di Milano, the Allianz Group, the Aspen Institute Executive Committee, the Trilateral Commission, and the European Advisory BoardRound Table of Harvard Business School.Industrialists (“ERT”). Mr. Rocca is an Italian citizen. Paolo Rocca. Mr. Rocca is the chairmanChairman of the Company’s board of directors and our chief executive officer.Chief Executive Officer. He is a grandson of Agostino Rocca. He is also the chairman of the board of directors of Ternium and a director and vice president of San Faustin, and a director of Techint Financial Corporation N.V.Faustin. He is a member of the Executive Committeeexecutive committee of the World Steel Association. Mr. Rocca is an Italian citizen. Jaime José Serra Puche. Mr. Serra Puche is a member of the Company’s board of directors.directors and of its audit committee. He is the chairman of SAI Consultores,Derecho & Economia, a Mexican consulting firm, and a member of the board of directors of the Mexico Fund, Grupo Vitro, Grupo Modelo, Rotoplas and Alpek S.A.chairman of the board of BBVA Bancomer. Mr. Serra Puche served as Mexico’s Undersecretary of Revenue, Secretary of Trade and Industry, and Secretary of Finance. He led the negotiation and implementation of NAFTA. Mr. Serra Puche is a Mexican citizen. Alberto ValsecchiYves Speeckaert. Mr. ValsecchiSpeeckaert is a member of the Company’s board of directors. He served as our chief operating officer from February 2004 until July 2007.director of KPMG Consulting in London, United Kingdom and Sao Paulo, Brazil, where he led various high-profile engagements in the telecom, energy and agri-business industries. He joined the Techint group in 1968was also director of structured finance of Banca Intesa-Sanpaolo (London). Since 2010 he is a Luxembourg-based independent director of regulated investment funds (mostly private equity, RE, and has held various positions within TenarisUCITS funds, as well as impact funds) and other Techint group companies. He has retired from his executive positions. Hehe is also a member of the board of directors of San Faustinseveral industrial holdings. He is also active in carbon offsetting and chairmanclimate change mitigation strategies with funds, governments and corporations particularly as related to Corporate Environmental and Social Responsibility (ESR). He is a member of the Luxembourg Institute of Administrators (ILA). He holds an MBA from the University of California at Berkeley and a B.A in Philosophy from the University of Louvain and is a contributing and active member of the Alumni association of UC Berkeley. Mr. Speeckaert is a Belgian citizen.
Mónica Tiuba. Ms. Tiuba is a member of the Company’s board of directors and of Dalmine,the audit committee. She is a position he assumedBrazilian qualified lawyer and accountant with over 17 years of professional experience in May 2008. Mr. ValsecchiBrazil and Luxembourg. She started her career at Barbosa, Mussnich & Aragão law firm in Rio de Janeiro, Brazil, where she practiced corporate law, M&A and tax litigation. She worked in EY and PwC, in the Brazil and Luxembourg offices, advising multinational clients, private equity houses and family offices. She gained banking experience working as international senior wealth planner at Banque Edmond de Rothschild, in Luxembourg. She holds a specialization in EU tax law from Leiden University and a Master of Laws in international taxation from Vienna University of Economics. Ms. Tiuba is an Italiana Brazilian and Luxembourgish citizen. Amadeo Vázquez y Vázquez. Mr. Vázquez y Vázquez is a member of the Company’s board of directors. He is an independent alternate directordirectors and the chairman of Gas Natural BAN, S.A, of Grupo Gas Natural Fenosa.its audit committee. He is a member of the advisory board of the Fundación de Investigaciones Económicas Latinoamericanas and member of the Asociación Empresaria Argentina. He is a business consultant and previously served as chief executive officerChief Executive Officer of Banco Río de la Plata S.A. until August 1997, independent director and chairman of the Audit Committeeaudit committee of BBVA Banco Francés S.A. until 2003, and chairmanChairman of the board of directors of Telecom Argentina S.A. until April 2007.2007 and independent alternate director of Gas Natural Ban, S.A, of Grupo Gas Natural Fenosa until April 2018. Mr. Vázquez y Vázquez is a Spanish and Argentine citizen. Guillermo Vogel. Mr. Vogel is a member of the Company’s board of directors and also holds the position of Vice PresidentChairman of Finance.the Board. He is the vice chairman of Tamsa, the chairman of Grupo Collado and Exportaciones IM Promoción, and served as president of Canacero until April 16, 2018. Mr. Vogel is also a member of the board of directors of each of Techint, S.A. de C.V., Corporación Alfa, Banco Santander (México) S.A, the Universidad Panamericana – IPADE, Rassini, Corporación Mexicana de Inversiones de Capital, Innovare, Grupo Assa and the American Iron and Steel Institute. In addition, he is a member of The Trilateral Commission and member of the International Board of The Manhattan School of Music. Mr. Vogel is a Mexican citizen. At the next annual general shareholders’ meeting, it will be proposed that the number of directors be increased to twelve, that all of the current members of the board of directors be reappointed, and that Mr. Simon Ayat be newly appointed to the board of directors, each to hold office until the next annual general shareholders’ meeting that will be convened to decide on the Company’s 2020 annual accounts. Below you will find Mr. Ayat’s biographical information. Simon Ayat. Mr. Ayat served as Schlumberger’s executive vice president and chief financial officer from 2007 until early 2020. He is currently a senior strategic advisor to the chief executive officer of Schlumberger. Mr. Ayat has held several financial and operational positions in Schlumberger, where he commenced his career in 1982. He was based in Paris, Houston and Dallas, as well as in the Middle East and Far East regions, serving as group treasurer, controller, Geomarket manager for Indonesia and drilling regional vice president for Asia Pacific. Mr. Ayat is also a member of the board of directors of Eurasia Drilling Company, the largest provider of drilling services in Russia. He is a French and Lebanese citizen. Board members Monti, Serra Puche, Speeckaert, Tiuba, Vázquez y Vázquez qualify as independent directors for purposes of the U.S. Securities Exchange Act Rule 10A-3(b)(1), and board members Messrs. Monti, Serra Puche, andSpeeckaert, Vázquez y Vázquez also qualify as independent directors under the Company’s articles of association. If appointed by the next annual general meeting of shareholders, Mr. Ayat would also qualify as independent director for purposes of the U.S. Securities Exchange Act Rule 10A-3(b)(1) and under the Company’s articles of association. DirectorDirectors’ Liability
Each director must act in the interest of the Company, and in accordance with applicable laws, regulations, and the Company’s articles of association. Directors are also bound by a general duty of care owed to the Company. Under the Luxembourg law a directorof August 10, 1915 on commercial companies, as amended, (the “Luxembourg Company Law”), directors may be liable to the Company in accordance with the general law for the execution of their mandate and for any damage caused by such director’s misconduct in the management of the Company’s management. In addition, directors will beaffairs. Directors are jointly and severally liable totowards either the Company its shareholders or otherany third parties infrom damages resulting from the event that the Company, its shareholders or such other third parties suffer a loss due to a breach by any one or moreviolation of the directors of either the Luxembourg Company Law or the Company’s articles of association, provided that the losses are independent and separate from the losses suffered by the Company. A director willassociation. Directors shall be discharged from such joint and several liability only with respect to breachesin the case of a violation to which he/she wasthey were not a party provided no misconduct is attributable to such directorthem and such director reports such breaches atviolation has been reported to the first general meeting of shareholders after such director first hasthey have acquired knowledge thereof. An
Causes of action against directors for damages may be initiated by the Company upon a resolution of the general shareholders’ meeting passed by a simple majority vote, irrespective of the number of shares represented at the meeting. In general, claims mustCauses of action against directors who misappropriate corporate assets or commit a breach of trust may be brought within five yearsby any shareholder for personal losses different from the occurrence of an action or omission for which liability may apply or, in case the action or omission was fraudulently concealed, from the date of discoverythose of the relevantCompany. An action may also be brought against the directors on behalf of the Company by shareholders who, at the general meeting which decided upon discharge of such directors or omission.members, owned voting securities representing at least ten per cent of the votes attaching to all such securities. It is customary in Luxembourg that the shareholders expressly discharge the members of the board of directors from any liability arising out of or in connection with the exercise of their mandate when approving the Company’s annual accounts of the Company at the annual shareholders’general shareholders meeting. However, any such discharge will not release the directors from liability for any damage caused to the Company by unrevealed acts of mismanagement or unrevealed breaches of the Luxembourg Company Law or the Company’s articles of association, nor will it release the directors from liability for any personal loss of ourthe shareholders independent and separate from the losses suffered by the Company due to a breach either revealed and unrevealed of either the Luxembourg Company Law or the Company’s articles of association. Under Luxembourg law, unless the decision of the board of directors relates to ordinary business entered into under normal conditions, any director having a conflictdirect or indirect financial interest conflicting with that of interestthe Company in respect of a transaction submitted for approvalwhich has to be considered by the board of directors, may not take part in the deliberations concerning such transaction and must informadvise the board of such conflictthereof and cause a record of her/his statement to be included in the minutes of the meeting. Subjectmeeting and may not take part in the deliberations. At the next following general meeting, before any other resolution is put to certain exceptions,vote, a special report must be made on any transactions in which any of the directors may have had an interest conflicting with that of the Company must be reported at the next general shareholders’ meeting following any such transaction.Company. Auditors The Company’s articles of association require the appointment of an independent audit firm in accordance with applicable law. The primary responsibility of the auditor is to audit the Company’s annual accounts and consolidated financial statements and to submit a report on the accounts to shareholders at the annual shareholders’ meeting. In accordance with applicable law, auditors are chosen from among the members of the Luxembourg Institute of Independent Auditors (Institut des réviseurs d’entreprises). Auditors are appointed by the general shareholders’ meeting upon recommendation from ourthe Company’s audit committee through a resolution passed by a simple majority vote, irrespective of the number of Sharesshares represented at the meeting, to serve one-year renewable terms. Auditors may be dismissed by the general shareholders’ meeting at any time, with or without cause. Luxembourg law does not allow directors to serve concurrently as independentexternal auditors. As part of their duties, the auditors report directly to the audit committee. The
Pursuant to its charter, the Company’s audit committee is responsible for, among other things, the oversight of the independence and performance of the Company’s independentexternal auditors. The audit committee has adopted in its charter a policyis also responsible to consider and make recommendations to the board of pre-approvaldirectors, to be put to shareholders for approval at the annual general meeting of audit and permissible non-audit services provided by its independentshareholders, regarding the appointment, re-appointment or removal of the Company’s external auditors. Under the policy,In addition, the audit committee makes its recommendationsis responsible to review the appropriateness and provision of permitted non-audit fees and to review and approve any fees (whether for audit, audit-related and non-audit services) payable to the shareholders’ meeting concerningCompany’s external auditors. On a yearly basis, in the continuingperformance of its functions, the audit committee considers the appointment or termination of the Company’s independent auditors. On a yearly basis, the audit committeeexternal auditors and reviews, together with management and the independentexternal auditor, the audit plan, audit related services and other non-audit servicesservices. The audit committee requests the board of directors to submit the audit committee’s recommendation for the appointment of the Company’s external auditor for each fiscal year and approves,ad-referendumthe payment of applicable fees, for final approval by the general shareholders’ meeting, the related fees.meeting. The general shareholders’ meeting normallyregularly approves such audit fees and authorizes the audit committee to approve any increase or reallocation of such audit fees as may be necessary, appropriate or desirable under the circumstances. The audit committee delegates to its Chairman the authority to consider and approve, on behalf of the audit committee, additional non-audit services that were not recognized at the time of engagement, which must be reported to the other members of the audit committee at its next meeting. No services outside the scope of the audit committee’s approval can be undertaken by the independentexternal auditor.
Our
The shareholders’ meeting held on May 6, 2019, re-appointed PwC Luxembourg as the Company’s independent approved statutory auditor for the fiscal year ended December 31, 2016, appointed by2019. At the next annual general shareholders’ meeting, held on May 4, 2016, was PricewaterhouseCoopers Société Coopérative,Cabinet de révision agréé, in connection with all of our annual accounts and financial statements.it will be proposed that PwC Luxembourg be re-appointed as the Company’s independent approved statutory auditors for the fiscal year ending December 31, 2020. Senior Management Our current senior management as of the date of this annual report consists of: | Name | Position | | | | | | Name
| | Position
| | Age at
December 31, 20162019 | | | | Mr. Paolo Rocca | | Chairman and Chief Executive Officer | | | 64 | 67 | Edgardo Carlos
| Ms. Alicia Móndolo | Chief Financial Officer | | | 50 | 61 | Mr. Antonio Caprera | Chief Industrial Officer | | Industrial Director | | | 56 | 59 | Mr. Gabriel Casanova | | Chief Supply Chain DirectorOfficer | | | 58 | 61 | Mr. Alejandro Lammertyn | Chief Digital and Planning Officer | | Planning Director | | | 51 | 54 | Ms. Paola Mazzoleni | | Chief Human Resources DirectorOfficer | | | 40 | 43 | Mr. Marcelo Ramos | Chief Technology Officer | | Technology Director | | | 53 | 56 | Germán Curá
Mr. Vicente Manjarrez | President, Andean | | North American Area Manager | | | 54 | 41 | Mr. Luca Zanotti | President, United States | 52 | | Mr. Sergio de la Maza | President, Mexico | | Central American Area Manager | | | 60 | 63 | Renato Catallini
Mr. Ricardo Prosperi | President, Canada | | Brazilian Area Manager | | | 50 | 57 | Mr. Renato Catallini | President, Brazil | 53 | | Mr. Javier Martínez Alvarez | President, Southern Cone | | Southern Cone Area Manager | | | 50 | 53 | Mr. Gabriel Podskubka | President, Eastern Hemisphere | | Eastern Hemisphere Area Manager | | | 43 | 46 | Mr. Michele Della Briotta | President, Europe | | European Area Manager | | | 44 | 47 |
__________ Effective as of August 5, 2019, Alicia Móndolo was appointed Chief Financial Officer replacing Edgardo Carlos, who resigned from the Company. Effective as of September 1, 2019, Guillermo G. Moreno ceased to act as President, Canada assuming new responsibilities in the Company and was replaced by Ricardo Prosperi, and Vicente Majarrez was appointed President, Andean replacing Ricardo Prosperi. Paolo Rocca. Mr. Rocca is the chairmanChairman of the Company’s board of directors and our chief executive officer.Chief Executive Officer. He is a grandson of Agostino Rocca. He is also the chairman of the board of directors of Ternium and a director and vice president of San Faustin, and a director of Techint Financial Corporation N.V.Faustin. He is a member of the Executive Committeeexecutive committee of the World Steel Association. Mr. Rocca is an Italian citizen. Edgardo CarlosAlicia Móndolo. Mr. CarlosMs. Móndolo currently serves as our chief financial officer and since May 2016 has alsoChief Financial Officer, a position she assumed responsibility over information technology. Hein August 2019. Ms. Móndolo joined the Techint Group in 19871984 and has more than 35 years of experience in accounting and reporting, audit and finance. From 2010 to 2016, she served as Chief Audit Executive of Tenaris. Previously and from 2016 to 2019, she served as financial officer in several companies in the accounting department of Siderar. After serving as financial manager for Sidor, in Venezuela, in 2001 he joined Tenaris as our financial director. In 2005 he was appointed administration and financial manager for North America and in 2007 he became administration and financial director for Central America. In 2009 he was appointed economic and financial planning director, until he assumed his current position. Mr. CarlosTechint Group. Ms. Móndolo is an Argentine and Italian citizen.
Antonio Caprera. Mr. Caprera currently serves as Tenaris’s industrial director.our Chief Industrial Officer, a position he assumed in April 2017. He joined the company in 1990. From 2000 to 2006 he served as quality director at Dalmine in Italy, where he later assumed responsibilities as production director until 2012. From that year and until 2015 he served as production director at Siderca in Argentina, after which he assumed responsibilities as Tenaris’s global industrial coordinator based in Mexico until March 2017. He assumed his current position on April 1, 2017. Mr. Caprera is an Italian citizen. Gabriel Casanova. Mr. Casanova currently serves as our supply chain director,Chief Supply Chain Officer, with responsibility for the execution of all contractual deliveries to customers. After graduating as a marine and mechanical engineer, he joined Siderca’s export department in 1987. In 1995 he became Siderca’s Chief Representative in China and from 1997 to 2009 he held several positions in the commercial area in Dalmine. In 2009 he became the head of our supply chain network and in October 2012 he assumed his current position. Mr. Casanova is an Argentine citizen. Alejandro Lammertyn. Mr. Lammertyn currently serves as our planning director, a position heChief Digital and Planning Officer. He has served as our Chief Planning and Commercial Coordination Officer since 2013 and assumed additional responsibility for digital strategy and implementation in April 2013.January 2019. Mr. Lammertyn began his career with Tenaris in 1990. Previously, he served as assistant to the CEOchief executive officer for marketing, organization and mill allocation, supply chain director, commercial director and Eastern Hemisphere area manager. Mr. Lammertyn is an Argentine citizen. Paola Mazzoleni. Ms. Mazzoleni currently serves as our human resources director,Chief Human Resources Officer, a position she assumed on January 1, 2016. After receiving a degree in Philosophy, she started her career in Dalmine in 2001 in the human resources department, working in recruitment and selection. She next coordinated the company’s Global Trainee Program and then served as the regional head in Italy of TenarisUniversity.Tenaris University. Ms. Mazzoleni was appointed as human resources director in Romania in 2008, in Italy in 2012 and in the United States in 2014. Ms. Mazzoleni is an Italian citizen. Marcelo Ramos. Mr. Ramos currently serves as our technology director,Chief Technology Officer, with responsibility over technology quality, health, safety and environment.quality. Previously he served as corporate quality director and managing director of NKKTubes in our Japanese operations.NKKTubes. He joined the Techint groupGroup in 1987 and has held various positions within Tenaris. He assumed his current position in April 2010, when both, the quality and technology departments were combined. Mr. Ramos is an Argentine citizen. Germán CuráVicente Manjarrez. Mr. CuráManjarrez is currently president of our operations in the Andean Region, Central America and the Caribbean, based in Colombia. He began his career at our Tamsa mill in Veracruz, Mexico in 2003 as part of the maintenance team and eventually adopted a leading role in the expansion of the plant in 2009 as manager of the new rolling mill. In 2015 he moved to Romania to lead the technical sales team before returning to Colombia to take on the role of senior commercial director in 2017. Mr. Manjarrez is a Mexican citizen.
Luca Zanotti. Mr. Zanotti currently serves as our North American area manager. He is a marine engineer and was first employed with Siderca in 1988. Previously, he served as Siderca’s exports director, Tamsa’s exports director and commercial director, sales and marketing managerpresident of our Middle East office, president of Algoma Tubes, presidentoperations in the United States. In 2002, he joined Exiros, the procurement company for the Techint Group, as planning and chief executive officer of Maverick Tubulars and president and chief executive officer of Hydril, director of our Oilfield Services business unit and Tenaris commercialadministration director. He was alsolater promoted to raw materials director and in July 2007 became managing director of Exiros, a memberposition he held until 2010. He served as regional manager Europe, and managing director of the board of directors of API. HeDalmine from 2011 to 2015, when he assumed his current positionposition. Before joining the Techint Group, he was a senior manager at A.T. Kearney in October 2006.Milan, where he worked from 1998 to 2002, and prior to that he held various business development positions in the Far East for Lovato Electric. Mr. CuráZanotti is a U.S.an Italian citizen. Sergio de la Maza. Mr. de la Maza currently serves as our Central American area managerpresident, Mexico and also serves as amanaging director and executive vice presidentvice-president of Tamsa. Previously he served as our Mexican area manager. He first joined Tamsa in 1980. From 1983 to 1988, Mr. de la Maza worked in several positions in Tamsa and Dalmine.Tamsa. He then became manager of Tamsa’s new pipe factory and later served as manufacturing manager and quality director of Tamsa. Subsequently, he was named manufacturing director of Siderca. He assumed his current position in 2006.2003. Mr. de la Maza is a Mexican citizen. Ricardo Prosperi. Mr. Prosperi currently serves as president of our operations in Canada. He joined the Techint Group in 1985, working in the Siderar planning department. From 1985 to 1998, Mr. Prosperi held several positions in Siderar before becoming the exports general manager of Sidor. He later went on to be the commercial director in Siderar. After a period as president of Ternium Sidor in Venezuela and then International Area Manager for Ternium, he joined Tenaris in 2010, where he has served as president of our operations in the Andean Region, Central America and the Caribbean, based in Colombia. Mr. Prosperi is an Argentine citizen. Renato Catallini. Mr. Catallini currently serves as president of our Brazilian area manager,operations in Brazil, a position that he assumed in October 2012, after having served as our supply chain director since August 2007. He joined Tenaris in 2001 in the supply management area, as a general manager of Exiros Argentina. In July 2002, he was appointed operations director and subsequently, in January 2005, became managing director of Exiros. Before joining Tenaris, he worked for ten years in the energy sector, working for TGN, Nova Gas Internacional, TransCanada Pipelines and TotalFinaElf, among others. Mr. Catallini is an Argentine and Italian citizen. Javier Martínez AlvarezÁlvarez. Mr. Martínez AlvarezÁlvarez currently serves as president of our operations in the Southern Cone, area manager, a position he assumed in June 2010, having previously served as our Andean area manager. He began his career in the Techint groupGroup in 1990, holding several positions including planning manager of Siderar and commercial director of Ternium-Sidor. In 2006, he joined Tenaris as our Venezuela area manager. Mr. Martínez Alvarez is an Argentine citizen. Gabriel Podskubka. Mr. Podskubka currently serves as president of our operations in the Eastern Hemisphere, area manager, based in Dubai. He assumed his current position in April 2013 after serving as the head of our operations in Eastern Europe for four years. After graduating as an industrial engineer Mr. Podskubka joined the Techint groupGroup in 1995 in the marketing department of Siderca. He held various positions in the marketing, commercial, and industrial areas until he was appointed as oil & gas sales director in the United States in 2006. Mr. Podskubka is an Argentine citizen. Michele Della Briotta. Mr. Della Briotta currently serves as president of our European area manager,operations in Europe, a position he assumed in July 2016. He first joined Tenaris in 1997 and has worked in areas such as industrial planning, operations, supply chain and commercial in Italy, Mexico, Argentina and the United States. Most recently he served as Tenaris’s area manager for Romania. Mr. Della Briotta is an Italian citizen. B.
The compensation ofpayable to the members of the Company’s board of directors for their performance of their services to the Company is determined at the annual ordinary general shareholders’ meeting. EachThe general meeting of shareholders held on May 6, 2019 approved the compensation paid to directors for the performance of their duties during the fiscal year 2019, and resolved that (i) each director receive a fixed compensation for an amount of $115,000; (ii) each director who is also a member of the board of directors received as compensation for their services for the year 2016 a fee of $85,000. The chairman of theCompany’s audit committee received as additional compensation a fee of $65,000 while the other members of the audit committee receivedreceives an additional fee of $55,000. Under$55,000 and; (iii) the chairman of the Company’s articles of association, the members of the audit committee are not eligiblereceives an additional fee of $10,000. No variable compensation has been paid or shall be payable to participate in anydirectors for services rendered during the year 2019 and no long-term incentive or pension plan is available to directors. The compensation plan for employeespaid to the Company’s managing director or chief executive officer is determined by the board of the Company or any of its subsidiaries. During the years ended December 31, 2016, 2015 and 2014, thedirectors. The cash compensation paid or payable to chief executive officer for the performance of his duties during the year 2019 amounts to $7 million, of which $3 million corresponds to fixed compensation and $4 million corresponds to variable compensation. No long-term incentive or pension plan is awarded to the chief executive officer.
The aggregate cash compensation paid to all directors and senior managers of the Company for the year 2019 amounted to $38.6 million, $28.8 million and $26.0 million, respectively.$33.7 million. This amount includes cash benefits paid to certain senior managers in connection with pre-existing retirement plans. In addition, directors and senior managers received 500, 540 and 567 thousandfor the year 2019, 468,558 units for a total amount of $4.8 million $5.4 million and $6.2 million, respectively, in connection with the Employee retention and long termlong-term incentive program described in note O (2) “Employee(3) “Employee benefits –Other- Other long term benefits”benefits” to our audited consolidated financial statements included in this annual report. There are no service contracts between any
The Luxembourg Parliament enacted the Luxembourg Law of August 1, 2019 (amending the Luxembourg Law of May 24, 2011) (the “Shareholders’ Rights Law”) on the exercise of certain rights of shareholders in general meetings of listed companies, which transposes EU Directive 2017/828 of the European Parliament and of the Council of May 17, 2017 (amending Directive 2007/36/EC) regarding the encouragement of long-term shareholder engagement in listed companies within the Member States of the European Union. In compliance with the Shareholders’ Rights Law, the Company’s board of directors must approve a Compensation Policy setting forth the principles and guidelines for purposes of determining the compensation payable to the members of the Company’s board of directors and the managing director or chief executive officer and Tenaris that providea Compensation Report describing the compensation paid to directors and the chief executive officer for material benefits upon terminationthe performance of employment. their duties during the year ended December 31, 2019. In accordance with the Shareholders’ Rights Law, once approved by the Company’s board of directors, the Compensation Policy and the 2019 Compensation Report will be made available on the Company’s website and will be submitted to the non-binding vote of the shareholders at the next general meeting of shareholders of the Company to be held on June 2, 2020.C.
See A. “– Directors and Senior Management – Board of Directors.”Directors”. Audit Committee Pursuant to the Company’s articles of association, as supplemented by the audit committee’s charter, for as long as the Company’sour shares are listed on at least one stock exchange,regulated market, the Company must have an audit committee composed of at least three members, allthe majority of whichwhom must qualify as independent directors, provided, however, that the composition and membership of the audit committee shall satisfy such requirements as are applicable to, and mandatory for, audit committees of issuers such as the Company under any law, rule or regulation applicable to the Company’s articlesCompany (including, without limitation, the applicable laws, rules and regulations of association.such regulated market or markets). Under the Company’s articles of association, an independent director is a director who: is not and has not been employed by us or our subsidiaries in an executive capacity for the preceding five years;
is not a person that controls us, directly or indirectly, and is not a member of the board of directors of a company controlling us, directly or indirectly;
does not have (and is not affiliated with a company or a firm that has) a significant business relationship with us, our subsidiaries or our controlling shareholder;
| · | is not and has not been employed by us or our subsidiaries in an executive capacity for the preceding five years; |
| •· | is not a person that controls us, directly or indirectly, and is not a member of the board of directors of a company controlling us, directly or indirectly; |
| · | does not have (and is not affiliated with a company or a firm that has) a significant business relationship with us, our subsidiaries or our controlling shareholder; |
| · | is not and has not been affiliated with or employed by a present or former auditor of us, our subsidiaries or our controlling shareholder for the preceding five years;and |
is not a spouse, parent, sibling or relative up to the third degree of any of the above persons.
| · | is not a spouse, parent, sibling or relative up to the third degree of any of the above persons. |
The Company’s board of directors has an audit committee consisting of three members. On May 4, 2016, the Company’s board of directors reappointedcurrently consists of four members: Roberto Monti, Jaime José Serra Puche, Mónica Tiuba and Amadeo Vázquez y Vázquez, and Roberto Montiwho were appointed to the audit committee by the Company´s board of directors on May 6, 2019. All of them qualify as members of our audit committee. All three membersindependent directors for purposes of the audit committeeU.S. Securities Exchange Act Rule 10A-3(b)(1), and Messrs. Monti, Serra Puche and Vázquez y Vázquez also qualify as independent directors under the Company’s articles of association. Under The board of directors of the Company’s articlesCompany has determined that Ms. Tiuba is competent in accounting and auditing matters. In addition, the membership of association, the audit committee is requiredas a whole has sufficient relevant knowledge of the business and financial experience to report toproperly discharge its functions.
The audit committee operates under a charter which has been amended and restated by the board of directors on its activities from timeOctober 31, 2018, to time, and on the adequacy of the systems of internal control over financial reporting once a year at the time the annual accounts are approved. In addition, the charter of the audit committee sets forth, among other things,implement adequate procedures to discharge the audit committee’s purposeduties and responsibilities.responsibilities under applicable law, including the Luxembourg Law of July 23, 2016, concerning the audit profession (“Audit Reform Law”). The audit committee assists the board of directors in its oversight responsibilities with respectrelating to our(i) the integrity of the Company’s financial statements,statements; (ii) the effectiveness of the Company’s systems of internal control, risk management and internal audit over financial reporting; and (iii) the independence and performance and fees of our independentthe Company’s external auditors. The audit committee also performs other duties entrusted to it by the Company’s board of directors.directors or required to be performed by it under applicable laws and regulations. In addition, the audit committee is required by the Company’s articles of association to review “material transactions”, as such term is defined under the Company’s articles of association to be entered into byand audit committee’s charter, between the Company or its subsidiaries withand “related parties”, as such term is defined in the Company’s articles of association, in order to determine whether their terms are consistent with market conditions or are otherwise fair to the Company and/or its subsidiaries. In the case of material transactions entered into by the Company’s subsidiaries with related parties, the Company’s audit committee willis only required to review those transactions entered into by those subsidiaries whose boards of directors do not have independent members. Under the Company’s articles of association, as supplemented by the audit committee’s charter, a material transaction is: any transaction between the Company or its subsidiaries with related parties (x) with an individual value equal to or greater than $10 million, or (y) with an individual value lower than $10 million, when the aggregate sum – as reflected in the financial statements of the four fiscal quarters of the Company preceding the date of determination – of any series of transactions for such lower value that can be deemed to be parts of a unique or single transaction (but excluding any transactions that were reviewed and approved by Company’s audit committee or board of directors, as applicable, or the independent members of the board of directors of any of its subsidiaries) exceeds 1.5% of the Company’s consolidated net sales made in the fiscal year preceding the year on which the determination is made;
| · | any transaction between the Company or its subsidiaries with related parties (i) with an individual value equal to or greater than $10 million, or (ii) with an individual value lower than $10 million, when the aggregate sum – as reflected in the financial statements of the four fiscal quarters of the Company preceding the date of determination- of any series of transactions for such lower value that can be deemed to be parts of a unique or single transaction (but excluding any transactions that were reviewed and approved by Company’s audit committee or board of directors, as applicable, or the independent members of the board of directors of any of its subsidiaries) exceeds 1.5% of the Company’s consolidated net sales made in the fiscal year preceding the year on which the determination is made; |
| • | · | any corporate reorganization transaction (including a merger, spin-off or bulk transfer of a business) affecting the Company for the benefit of, or involving, a related party;and |
| · | any corporate reorganization transaction (including a merger, spin-off or bulk transfer of a business) not reviewed and approved by the independent members of the board of directors of any of the Company’s direct or indirect subsidiaries, affecting any of the Company’s direct or indirect subsidiaries for the benefit of, or involving, a related party. |
A “related party” is, in relation to the Company or its direct or indirect subsidiaries, any of the following persons: (i) a member of the board of directors of the Company or of the board of directors or other governing body of any of the Company’s directsubsidiaries; (ii) any company or indirect subsidiaries, affecting anyperson that controls directly or indirectly the Company or is a member of the board of directors or other governing body of an entity that controls directly or indirectly the Company; (iii) any entity that directly or indirectly controls or is under common control with the Company (other than the Company’s directsubsidiaries); (iv) any entity directly or indirect subsidiaries forindirectly controlled by any member of the benefitboard of directors of the Company, or involving,of the board of directors or other governing body of any subsidiary of the Company; and (v) any spouses, parents, siblings or relatives up to the third degree of, and any person that shares a related party.home with, any person referred to in (i) or (ii). The audit committee has the power (to the maximum extent permitted by applicable laws) to request that the Company or relevant subsidiary promptly provide anyall information necessary for the audit committee to assess the material transactions with related parties that it is required to review anyreview. A material transaction. A related party transaction shall not be entered into without prior review by the Company’s audit committee and subsequent approval by the board of directors unless (i) the circumstances underlying the proposed transaction justify that it be entered into before the time it can actually be reviewed by the Company’s audit committee or approved by the board of directors and (ii) the related party agrees to unwind the transaction if the Company’s audit committee or board of directors does not approve it. The audit committee has the authority to engage independent counsel and other advisors to review specific issues as the committee may deem necessary to carry out its duties and to conduct any investigation appropriate to fulfillthe fulfillment of its responsibilities and has direct access to the Company’s internal and external auditors as well as toanyone in the Company’s management and employeesCompany and, subject to applicable laws and regulations, its subsidiaries. In addition, the audit committee may engage, at the Company’s expense, independent counsel and other internal or external advisors to review, investigate or otherwise advise on, any matter as the committee may determine to be necessary to carry out its purposes and responsibilities. D.
In addition, the Company has established at management-level a critical risk committee (“CRC”) that assists the Company’s board of directors, the audit committee and the Chief Executive Officer with the oversight of risks to which Tenaris is exposed and in the monitoring and review of the risk management framework and processes, with a focus on those risks deemed to be critical. In the performance of its functions, the critical risk committee facilitates the identification and assessment of critical risks (including cybersecurity, environmental, health and safety, product liability, intellectual property, financial reporting and regulatory risks), the development of mitigating actions, and the monitoring of action plans. The critical risk committee periodically reports to the board of directors, the audit committee and the Chief Executive Officer on its activities. More recently, the CRC has focused its attention on the main actions and mitigation plans to tackle the consequences of the global coronavirus pandemic and ensure business continuity. It is also focusing on the financial impact on the company of a collapse in demand for its products, including the cancellation of existing orders, following the collapse in oil prices in the wake of the coronavirus pandemic. The following table shows the number of persons employed by Tenaris:Tenaris as of December 31: | | | | | | | | 2019 | | 2018 | | 2017 | | | | 2016 | | | 2015 | | | 2014 | | | | | | | | | Argentina | | | | 5,405 | | | | 5,427 | | | | 5,221 | | Mexico | | | 4,968 | | | | 5,101 | | | | 5,518 | | | | 5,370 | | | | 5,595 | | | | 5,139 | | Argentina | | | 4,755 | | | | 5,388 | | | | 6,421 | | | | USA | | | | 2,255 | | | | 2,382 | | | | 1,953 | | Italy | | | 1,979 | | | | 2,030 | | | | 2,352 | | | | 2,144 | | | | 2,155 | | | | 2,088 | | United States | | | 1,636 | | | | 2,190 | | | | 3,549 | | | Romania | | | 1,631 | | | | 1,624 | | | | 1,725 | | | | 1,815 | | | | 1,852 | | | | 1,870 | | Brazil | | | 1,166 | | | | 2,050 | | | | 3,835 | | | | 1,360 | | | | 1,287 | | | | 1,382 | | Colombia | | | 750 | | | | 636 | | | | 614 | | | | 1,040 | | | | 1,082 | | | | 1,003 | | | Canada | | | | 772 | | | | 1,030 | | | | 919 | | Indonesia | | | 509 | | | | 532 | | | | 677 | | | | 616 | | | | 554 | | | | 506 | | Canada | | | 473 | | | | 546 | | | | 1,225 | | | Japan | | | 458 | | | | 508 | | | | 588 | | | | 400 | | | | 399 | | | | 410 | | Other Countries | | | 1,074 | | | | 1,136 | | | | 1,312 | | | | 2,023 | | | | 1,204 | | | | 1,114 | | | | | | | | | | | | | | 23,200 | | | | 22,967 | | | | 21,605 | | | | | 19,399 | | | | 21,741 | | | | 27,816 | | | Employees in discontinued operations | | | (323 | ) | | | (292 | ) | | | (267 | ) | | | | | | | | | | | | | Total employees | | | 19,076 | | | | 21,449 | | | | 27,549 | | | | | | | | | | | | | |
The number of our employees declined 11% during 2016 as we adjusted our operations to face the declineremained substantially stable in drilling activity and demand for pipes. During 2015 and 2016 we reduced our2019 in comparison with 2018. Our labor costs worldwide by 40% through a wide set of measures, while preserving our key competences and maintaining our focus on the relation with our communities.related to continuing operations increased 2%. Approximately 65%60% of our employees are unionized. In all the countries we have presence, we operate in full respect of the institutional rules and local norms, generating recognized agreements among all the parties involved. We believe that we enjoy good or satisfactoryforge our relations with the unions based on the premise of an open dialogue and a rich interchange of proposals. In 2017, 2018 and 2019, our employees and their unionsoperations in eachMexico experienced several days of union-led stoppages due to an internal dispute within the countrieslocal union, but the activities in which we have manufacturing facilities,our plant remain normal. Such internal dispute is ongoing and we havecannot assure it will not experienced any major strikes or other labor conflicts withcause further disruptions in our Mexican operations. With the acquisition of IPSCO Tubulars in 2020, for the first time Tenaris will be managing a material impact on our operations overunionized environment in the last five years. InUnited States in some of the countries in which we have significant production facilities (e.g., Argentina and Brazil), significant fluctuations in exchange rates, together with inflationary pressures, affect our costs, increase labor demands and could eventually generate higher levels of labor conflicts.new added facilities. E.
To our knowledge, the total number of Sharesshares (in the form of ordinary shares or ADSs) beneficially owned by our directors and senior management as of the date of this annual report was 1,200,603,921,603, which represents 0.10%0.08% of our outstanding Shares.shares. The following table provides information regarding share ownership by our directors and senior management: | | | | | Director or Officer | | Number of Shares Held | | | | Guillermo Vogel | | | 1,125,446850,446 | | Carlos Condorelli | | | 67,211 | | Edgardo Carlos
| | | 4,000 | | Gabriel Podskubka | | | 3,946 | | | | | | | Total | | | 1,200,603 | | | | | 921,603 | |
| Item 7. | Major Shareholders and Related Party Transactions.Transactions |
A.
The following table shows the beneficial ownership of our securities (in the Shares by:form of shares or ADSs) by (1) the Company’s major shareholders (persons or entities that have notified the Company of holdings in excess of 5% of the Company’s share capital), non-affiliated public shareholders, and (2) the Company’s directors and senior management as a group. The information below is based on the most recent information provided to the Company. | Identity of Person or Group | | | Number | | Percent | | | | | | | | | | Identity of Person or Group | | Number | | | Percent | | | San Faustin (1) | | | 713,605,187 | | | | 60.45 | % | | | 713,605,187 | | | | 60.45 | % | Directors and senior management as a group | | | 1,200,603 | | | | 0.10 | % | | | 921,603 | | | | 0.08 | % | Public | | | 465,731,040 | | | | 39.45 | % | | | 466,010,040 | | | | 39.47 | % | | | | | | | | | Total | | | 1,180,536,830 | | | | 100.00 | % | | | 1,180,536,830 | | | | 100.00 | % | | | | | | | | |
__________ | (1) | San Faustin owns all of its shares in the Company through its wholly-owned subsidiary Techint Holdings S.à r.l. The Dutch private foundation (Stichting) Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin (“located in the Netherlands RP STAK”)STAK holds voting rights in San Faustin sufficient in number to control San Faustin. No person or group of persons controls RP STAK. |
The voting rights of the Company’s major shareholders do not differ from the voting rights of other shareholders. None of its outstanding shares have any special control rights. There are no restrictions on voting rights, nor are there, to the Company’s knowledge, any agreements among shareholders of the Company that might result in restrictions on the transfer of securities or the exercise of voting rights. The Company does not know of any significant agreements or other arrangements to which the Company is a party and which take effect, alter or terminate in the event of a change of control of the Company. The Company does not know of any arrangements, the operation of which may at a subsequentlater date result in a change of control of the Company. B.
| B. | Related Party Transactions |
Tenaris is a party to several related party transactions as described below.in Note 30 “Related party transactions” to our Consolidated Financial Statements included in this annual report. Material related party transactions are subject to the review of the audit committee of the Company’s board of directors and the requirements of Luxembourg law. For further details on the approval process for related party transactions, see Item 6.C. “Directors, Senior Management and Employees – Board Practices – Audit Committee.”Committee”. Purchases of Steel Products and Raw Materials In the ordinary course of business, we purchase round steel bars, flat steel products and other raw materials from Ternium or its subsidiaries. These purchases are made on similar terms and conditions as sales made by these companies to unrelated third parties. These transactions include: | · | Purchases of round steel bars made under a long-term agreement, for use in our seamless steel pipe operations in Mexico, which amounted to $51 million in 2019, $102 million in 2018 and $120 million in 2017. |
Purchases of round steel bars made under a long term agreement, for use in our seamless steel pipe operations in Mexico, which amounted to $9 million in 2016, $46 million in 2015 and $170 million in 2014. Purchases of flat steel products for use in the production of welded pipes and accessories, which amounted to $18 million in 2016, $48 million in 2015 and $50 million in 2014.
| · | Purchases of flat steel products for use in the production of welded pipes and accessories, which amounted to $20 million in 2019, $38 million in 2018 and $43 million in 2017. |
Purchases of metal building components for our facilities in Mexico, which amounted to $1 million in 2015 and $3 million in 2014.
| · | Purchases of scrap and other raw materials for use in the production of seamless pipes, which amounted to $4 million in 2019 and $2 million in 2018. |
In the ordinary course of business, we purchase flat steel products for use in our welded steel pipe operations, from Usiminas. These purchases, which are made on similar terms and conditions as sales made by this company to unrelated third parties, amounted to $34$59 million in 2016, $1662019, $68 million in 20152018 and $79$43 million in 2014. 2017.Sales of Raw Materials In the ordinary course of business, we sell raw materials and other production inputs to Ternium or its subsidiaries. These sales are made on similar terms and conditions as purchases made by these companies from unrelated third parties. These transactions include: | · | Sales of ferrous scrap, and other raw materials, which amounted to $17 million in 2019, $11 million in 2018 and $26 million in 2017. |
| · | Sales of steam and operational services from our Argentine electric power generating facility in San Nicolás. These sales amounted to $1 million in 2019, $13 million in 2018 and $11 million in 2017. On January 29, 2019, the electric power generation facility was shut down. |
Purchase Agency Services and Sales of ferrous scrap,Materials Exiros B.V. (“Exiros”), in which we have 50% share ownership and Ternium has the remaining 50% share ownership, provides purchase agency services and raw materials and other raw materials, which amountedproducts to $14Tecpetrol and other companies controlled by San Faustin. Pursuant to the Exiros shareholders’ agreement, Tenaris recognizes Exiros’ assets, liabilities, revenue and expenses in relation to its interest in the joint operation. Exiros’ total sales to companies controlled by San Faustin totaled $16 million in 2016, $192019 and $16 million in 2015 and $28 million in 2014. Sales of steam and operational services from our Argentine electric power generating facility in San Nicolás. These sales amounted to $12 million in 2016, $9 million in 2015 and $2 million in 2014.
Supply of Electric Energy Techgen, is an electric power plant in Mexico, which is currently owned 48% by Ternium, 30% by Tecpetrol and 22% by Tenaris.Tenaris, operates an electric power plant in Pesquería, Mexico. Techgen became fully operational on December 1, 2016. Ternium and Tenaris currently contract 78% and 22%, respectively, of Techgen’s power capacity. Since December 1, 2016, Techgen became fully operational, itssells to third parties on behalf of Tenaris the unused electricity that Tenaris purchased from Techgen. Techgen net sales of electricity to Tenaris amounted to $4$40 million in 2016.2019, $36 million in 2018 and $29 million in 2017. Supply of Natural Gas We are party to contracts with Tecpetrol, TGN, Litoral Gas and Energy Consulting Services relating to the supply of natural gas to our operations in Argentina. Tecpetrol is a company controlled by San Faustin, is engaged in oil and gas exploration and production and has rights to various oil and gas fields in Argentina and elsewhere in Latin America. TGN, a company in which San Faustin has joint control since October 2019, operates two major pipelines in Argentina connecting the major gas basins of Neuquén and Noroeste-Bolivia to the major consumption centers in Argentina, while Litoral Gas distributesis a company that holds the regional license for gas and distribution in the Province of Santa Fe and in the northeastern section of the Province of Buenos Aires. Energy Consulting Services is a company engaged in energy and management consulting, representing one of the major natural gas traders in Argentina. San Faustin holds significant but non-controlling interests in TGN, Litoral Gas and Energy Consulting Services.Services and also held significant but non-controlling interests in TGN until October 2019. Tecpetrol supplies Siderca with natural gas requirements under market conditions and according to local regulations. Tecpetrol’s sales to Tenaris amounted to $3$49 million in 2015 and $22019, $95 million in 2014.2018 and $7 million in 2017. TGN charges Siderca a price to transport its natural gas supplies that is equivalent on a comparable basis to prices paid by other industrial users. The Argentine government regulates the general framework under which TGN operates and prices its services. TGN’s sales to Tenaris amounted to $2$4 million in 2016, $12019, $8 million in 20152018 and $1$3 million in 2014.2017. Litoral Gas’s sales to Tenaris totaled $1 million in 2019, $3 million in 2016, $22018 and $5 million in 2015 and $1 million in 2014.2017. Energy Consulting Services’s sales to Tenaris totaled $5$2 million in 2016,2018 and $7 million in 2015 and $12 million in 2014.2017. Provision of Engineering and Labor Services We contract
Tenaris contracts with certain companies controlled by San Faustin specialized in supplying engineering services and non-specialist manual labor services, such as industrial cleaning, general maintenance, handling of by-products and construction services. Fees accrued for these services in the aggregate amounted to $45$47 million in 2016, $722019, $33 million in 20152018 and $83$40 million in 2014.2017. Sales of Steel Pipes and Sucker Rods In the ordinary course of business, we sell steel pipes, sucker rods and related services to other companies controlled or under the significant influence of San Faustin. These sales, which are made principally to companies involved in the construction of gas pipelines and to Tecpetrol and joint ventures in which Tecpetrol participates, for its oil and gas drilling operations, are made on similar terms and conditions as sales to unrelated third parties. Our sales of steel pipes and sucker rods as well as logistical and certain other services to other companies controlled or under significant influence of San Faustin amounted to $34$66 million in 2016, $852019, $129 million in 20152018 and $106$95 million in 2014.2017. Sales of Other Products and Services We provide information technology and information services to companies controlled by San Faustin. Sales of these services amounted to $2 million per year in 2016, $3 million in 20152019, 2018 and $2 million in 2014. 2017.Administrative Services, Legal and LegalOther Support Services Finma S.A. (“Finma”), Arhsa S.A. (“Arhsa”) and Techinst S.A. (“Techinst”) a group of companies controlled by San Faustin in which we havethe Company has a 33% share ownership and other affiliates of San Faustin have the remaining share ownership, providesprovide administrative, and legal support services to San Faustin’s affiliates in Argentina, including us.Tenaris. During 2018, Arhsa merged with Finma, with Finma continuing to render the services previously provided by Arhsa. Fees accrued for these services amounted to $11$9 million in 2016, $142019, $10 million in 20152018 and $14$12 million in 2014.2017. Loans to Related Parties We
Tenaris financed the construction and operation of Techgen’s Pesquería project primarily in the form of subordinated loans to Techgen. Outstanding principal amount of loans to Techgen whichas of December 31, 2019 amounted to $58 million, as of December 31, 2018 amounted to $99 million, and as of December 31, 2017 amounted to $93 million. These loans generated interest gains in favor of Tenaris in an amount of $2$4 million in 2016, 12019, $5 million in 20152018 and 1$4 million in 2014. Outstanding loans to Techgen as of December 31, 2016, amounted to $86 million.2017. Other Transactions We contracted pipe coating services from Tenaris Coating do Brasil S.A. (formerly Socotherm Brasil S.A., or Socotherm), for an amount of $6 million from January 2014 to August 2014. In September 2014, Tenaris acquired 100% of the shares of Socobras Participações Ltda. (“Socobras”), a holding company that owned 50% of the shares of Socotherm. Tenaris already owned the other 50% interest in Socotherm, following completion of this transaction, Tenaris now owns 100% of Socotherm.
We entered into various contracts with Tenova (and subsidiaries), a company controlled by San Faustin, for the provision of furnaces, spare parts, accessories and related services for our facilities. Supplies received amounted to $11$2 million in 2016, $242019, $9 million in 20152018 and $29 million in 2014. We sold industrial equipment to companies controlled by San Faustin for an amount of $5 million in 2015.
We purchased industrial cleaning equipment from companies controlled by San Faustin for an amount of $3 million in 2016.2017.
In addition, in the ordinary course of business, from time to time, we carry out other transactions and enter into other arrangements with other related parties, none of which are believedconsidered to be material. C.
| C. | Interest of Experts and Counsel |
Not applicable. | Item 8. | Financial Information |
A.
| A. | Consolidated Statements and Other Financial Information |
See Item 18 and pages F-1 through F-57F-64 for our audited consolidated financial statements. Legal Proceedings 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.uncertainties and, therefore, the probability of loss and an estimation of damages are difficult to ascertain. Accordingly, our potential liability with respect to a large portion of such claims, lawsuits and other legal proceedings, cannot be estimated with certainty. Management, withTenaris is unable to make a reliable estimate of the assistanceexpected financial effect that will result from ultimate resolution of legal counsel, periodically reviews the statusproceeding. In those cases, Tenaris has not accrued a provision for the potential outcome of each significant matter and assesses potential financial exposure. 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 consolidated financial statements and take into consideration our 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 its consolidated financial statements (see notes 22 “Non-current allowances and provisions” and 23 “Current allowances and provisions” to our audited consolidated financial statements included in this annual report) are adequate based upon currently available information at the date of their preparation.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 itsTenaris’s results of operations, financial condition, net worth and cash flows. OutstandingMaterial Legal Proceedings
Set forth below
Below is a summary description of Tenaris’s ongoingmaterial legal proceedings for the year ended December 31, 2019. In addition, Tenaris is subject to other legal proceedings, none of which may have significant effects on its financial position:is believed to be material. Tax assessment in Italy
Dalmine, an Italian subsidiary of Tenaris, received on December 24, 2012 a tax assessment from the Italian tax authorities related to allegedly omitted withholding tax on dividend payments made in 2007. The assessment, which was for an estimated amount of EUR295 million (approximately $310.9 million), comprising principal, interest and penalties, was appealed with the first-instance tax court in Milan. In February 2014, the first-instance tax court issued its decision on this tax assessment, partially reversing the assessment and lowering the claimed amount to approximately EUR9 million (approximately $9.5 million), including principal, interest and penalties. On October 2, 2014, the Italian tax authorities appealed against the second-instance tax court decision on the 2007 assessment. On June 12, 2015, the second-instance tax court accepted Dalmine’s defense arguments and rejected the appeal by the Italian tax authorities, thus reversing the entire 2007 assessment and recognizing that the dividend payment was exempt from withholding tax. The Italian tax authorities have appealed the second-instance tax court decision before the Supreme Court.
On December 24, 2013, Dalmine received a second tax assessment from the Italian tax authorities, based on the same arguments as those in the first assessment, relating to allegedly omitted withholding tax on dividend payments made in 2008 – the last such distribution made by Dalmine. Dalmine appealed the assessment to the first-instance tax court in Milan. On January 27, 2016, the first-instance tax court rejected Dalmine’s appeal. This first-instance ruling, which held that Dalmine is required to pay an amount of EUR223 million (approximately $235.1 million), including principal interest and penalties, contradicts the first and second-instance tax court rulings in connection with the 2007 assessment. Dalmine obtained the suspension of the interim payment that would have been due, based on the first-instance decision, through the filing with the tax authorities of a bank guarantee, and appealed the January 2016 ruling to the second-instance tax court. The second instance tax court hearing has been scheduled for September 25, 2017.
Tenaris continues to believe that Dalmine has correctly applied the relevant legal provisions and based on, among other things, the tax court decisions on the 2007 assessment and the opinion of legal counsel, Tenaris believes that it is not probable that the ultimate resolution of either the 2007 or the 2008 tax assessment will result in a material loss.
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 issued its decision finding in favor of Confab and the other defendants and dismissingdismissed the CSN lawsuit. The claimants appealed the first instance court decision to the São Paulo court of appeals. Onlawsuit, and on February 8, 2017, the court of appeals issued its decision on the merits and maintained the understanding of the first instance court, holding that Confab and the other defendants did not have the obligation to launch a tender offer.court. On March 6, 2017, CSN has already filed a motion for clarification and may stillagainst 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 orseeking the Federal Supreme Court. Separately,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 NovemberJanuary 22, 2019, the court of appeals rejected it and ordered that the case be submitted to the Superior Court of Justice. On September 10, 2014, CSN filed2019, the Superior Court of Justice declared CSN’s appeal admissible. The Superior Court of Justice will review the case and then render a complaint with Brazil’s securities regulator Comissão de Valores Mobiliários (CVM)decision on the same grounds and with the same purpose as the lawsuit referred to above. In this complaint, CSN sought to reverse a February 2012 decision by the CVM, which had determined that the above mentioned acquisition did not trigger any tender offer requirement. On December 2, 2016, CVM issued its decision on this complaint, reaffirming its previous decision from 2012 and rejecting all the new allegations presented by CSN.
Finally, on December 11, 2014, CSN filed a claim with Brazil’s antitrust regulator, Conselho Administrativo de Defesa Econômica (“CADE”). In its claim, CSN alleged that the antitrust clearance request relatedmerits. The Superior Court of Justice is restricted to the January 2012 acquisition, which was approved by CADE without restrictions in August 2012, contained a falseanalysis of alleged violations to federal laws and deceitful descriptioncannot assess matters of the acquisition aimed at frustrating the minority shareholders’ right to a tag-along tender offer, and requested that CADE investigate and reopen the antitrust review of the acquisition and suspend the Company’s voting rights in Usiminas until the review is completed. On May 6, 2015, CADE rejected CSN’s claim. CSN did not appeal the decision and on May 19, 2015, CADE finally closed the file.
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, thetwo decisions issued by CVMthe Brazilian securities regulator (CVM) in February 2012 and December 2016, and the first and second instance courts’court decisions referred to above. Accordingly, no provision was recorded in these Consolidated Financial Statements. 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 an insurance deductible in connection with respect to the Veracel accident and other amounts not covered by insurance. Itaú and Veracel claimclaimed 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 have beenwere consolidated and are now being considered by the 6th Civil Court of São Caetano do Sul; however, each lawsuit will be adjudicated through a separate ruling. Both proceedings are currently at the evidentiary stage.separately. On MarchSeptember 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, 2016, a court-appointed expert issued its report on certain technical matters concerning the Veracel accident. Based upon a technical opinion received from a third-party expert, in August 2016,2018, Confab filed its objections to the expert’s report. Other parties have also filed their observations and/or opinions concerning the expert’s report, which are currently subject towas notified that the court examination. As of December 31, 2016, the estimated amount of Itaú’s claim is approximately BRL 74.5 million (approximately $22.9 million), and the estimated amount of Veracel’s claim is approximately BRL 47.7 million (approximately $14.6 million),had issued rulings for an aggregate amount BRL 122.2 million ($37.5 million). The final result of this claim depends largely on the court’s evaluation of technical matters arising from the expert’s opinion and objections presented by Confab. No provision has been recorded in these Consolidated Financial Statements.both lawsuits. Both decisions were unfavorable to Confab: Petroamazonas Penalties
| § | With respect to Chubb’s claim, Confab was ordered to pay an amount of approximately BRL89.8 million (approximately $21.6 million) (including interest, fees and expenses). On October 15, 2018, Confab filed a request for homologation of the settlement agreement mentioned above, as such settlement agreement remains valid and binding between the parties. On November 8, 2018, the settlement agreement was homologated by the court. |
| § | With respect to Veracel’s claim, Confab was ordered to pay the insurance deductible and other concepts not covered by insurance, currently estimated to amount to BRL62.9 million (approximately $15.6 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 BRL54.0 million (approximately $13.4 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. |
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. Tenaris believes, based on the advice of counsel, that PAM has no legal basis to impose the penalties and that TGS has meritorious defenses against PAM. However, in light of the prevailing political circumstances in Ecuador, the Company cannot predict the outcome of a claim against a state-owned company and it is not possible to estimate the amount or range of loss in case of an unfavorable outcome.
Ongoing investigation The Company has learnedis aware that Brazilian, Italian and Swiss authorities arehave been investigating whether certain payments were made from accounts of entities presumably associated with affiliates of the Company to accounts controlled by an individual allegedly linked to individuals related with officers of Petróleo Brasileiro S.A.to 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”, a new phase of which is presently ongoing, and did not uncover any information that corroborated allegations of involvement in these alleged payments by the Audit Committee ofCompany 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 Company’s Board of Directors hasaudit committee engaged external counsel in connection with athe Company’s review of the alleged payments and relatedthese matters. In addition, the Company has voluntarily notified the U.S. Securities and Exchange Commission and the U.S. Department of Justice. Justice in October 2016. In July 2019, the Company learned that the public prosecutor 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 Mario Rocca and Roberto Bonatti, and the Company’s controlling shareholder, San Faustin. 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 of directors 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 of directors 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 of directors. The Company intendscontinues to share the results of this review these matters and to respond to requests from and otherwise cooperate with the appropriate authorities, and to cooperate with any investigations that may be conducted by such 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’sCompany's business that may result from resolution of these matters. Putative class actions Following the Company’s November 27, 2018 announcement that its Chairman and chief executive officer 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 chief executive officer and Tenaris’s former chief financial officer. 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 Petrobras under a supply contract. Both companies have already filed their defenses. The estimated amount of this claim is BRL29.8 million (approximately $7.4 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 BRL56.8 million (approximately $14.1 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. Trial is set for August of 2021. At this time, the Company cannot predict the outcome of this matter or estimate the range of potential losses that may result from 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 December 31, 2019, the claim amounted to approximately EUR25 million (approximately $28 million), comprising EUR20.7 million (approximately $23.2 million) in principal and EUR4.3 million (approximately $4.8 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 December 31, 2019, 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. Based on the counsel’s advice, Tenaris believes that it is unlikely that the ultimate resolution of these matters will result in a material obligation. IPSCO product liability claims Tenaris’s recently acquired U.S. subsidiary, IPSCO Tubulars Inc, or its subsidiaries are parties to several product liability claims, which may result in damages for an aggregate amount estimated at approximately $26.6 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. Dividend Policy The Company does not have, and has no current plans to establish, a formal dividend policy governing the amount and payment of dividends. The amount and payment of dividends has to be determined byor other distributions. For a majority vote of shareholders, generally, but not necessarily, based on the recommendationdescription of the Company’s boardshareholders’ and holders of directors. The Company’s controlling shareholder hasADS’ rights to receive dividends and the discretionconditions to determine the amountdeclare and paymentpay dividends, please refer to Item 10. “Additional Information – B. Memorandum and Articles of future dividends. All Shares of the Company’s share capital rankpari passuwith respect to the payment of dividends. Association – Dividends”.The following table shows the dividends approved by the Company’s shareholders in the last five years: | | | | Approved dividend | | | Dividend payment date | | | Approved dividend | | Dividend payment date | | Shareholders’ meeting date | | Amount
(USD million) | | | Per share
(USD) | | | Per ADS
(USD) | | | Interim Dividend | | | Dividend
Balance | | | Amount
(USD million) | | Per share
(USD) | | Per ADS (USD) | | Interim Dividend | | Dividend Balance | May 2, 2012 | | | 449 | | | | 0.38 | | | | 0.76 | | | | November 2011 | | | | May 2012 | | | May 2, 2013 | | | 508 | | | | 0.43 | | | | 0.86 | | | | November 2012 | | | | May 2013 | | | May 7, 2014 | | | 508 | | | | 0.43 | | | | 0.86 | | | | November 2013 | | | | May 2014 | | | May 6, 2015 | | | 531 | | | | 0.45 | | | | 0.90 | | | | November 2014 | | | | May 2015 | | | | 531 | | | | 0.45 | | | | 0.90 | | | November 2014 | | May 2015 | May 4, 2016 | | | 531 | | | | 0.45 | | | | 0.90 | | | | November 2015 | | | | May 2016 | | | | 531 | | | | 0.45 | | | | 0.90 | | | November 2015 | | May 2016 | | May 3, 2017 | | | | 484 | | | | 0.41 | | | | 0.82 | | | November 2016 | | May 2017 | | May 2, 2018 | | | | 484 | | | | 0.41 | | | | 0.82 | | | November 2017 | | May 2018 | | May 6, 2019 | | | | 484 | | | | 0.41 | | | | 0.82 | | | November 2018 | | May 2019 |
On February 22, 2017April 29, 2020 the Company’s board of directors proposed, forannounced the approvalproposals to be submitted to the consideration of the annual general shareholders’Annual General Shareholders’ meeting, to be heldincluding its proposal on May 3, 2017, 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 in November 2016. 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 24, 2017, with an ex-dividend date of May 22, 2017.dividends. For more information, see “Item 5G. Operating and Financial Review and Prospects –Recent Developments – Annual Dividend Proposal”. The Company conducts and will continue to conduct its operations through subsidiaries and, accordingly, its main source of cash to pay dividends, among other possible sources, will be the dividends received from its subsidiaries. See Item 3.D. “Key Information – Risk Factors – Risks Relating to the Structure of the Company – As a holding company, the Company’s ability to pay cash dividends depends on the results of operations and financial condition of our subsidiaries and could be restricted by legal, contractual or other limitations.”
Dividends may be lawfully declared and paid if the Company’s profits and distributable reserves are sufficient under Luxembourg law. The board of directors has the power to initiate dividend installments pursuant to Luxembourg law, but payment of the dividends must be approved by the Company’s shareholders at the annual shareholders’ meeting, subject to the approval of the Company’s annual accounts.
Under Luxembourg law, at least 5% of the Company’s net profits per year must be allocated to the creation of a legal reserve until such reserve has reached an amount equal to 10% of our share capital. If the legal reserve later falls below the 10% threshold, at least 5% of net profits again must be allocated toward the reserve. The legal reserve is not available for distribution. At December 31, 2016, the Company’s legal reserve represented 10% of its share capital.
B.
Except as otherwise disclosed in this annual report, there has been no undisclosed significant change since the date of the annual consolidated financial statements. | Item 9. | The Offer and Listing |
A.
| A. | Offer and Listing Details |
The Sharesshares are listed on the Buenos Aires Stock Exchange and on the Mexican Stock Exchange and its ADSs are listed on the NYSE under the symbol “TS.”“TS”. Until October 11, 2019, the Company’s shares were also listed on the Buenos Aires Stock Exchange. The Sharesshares are also listed on the Italian Stock Exchange under the symbol “TEN.”“TEN” Trading on the NYSE the Buenos Aires Stock Exchange and the Mexican Stock Exchange began on December 16, 2002, and trading on the Italian Stock Exchange began on December 17, 2002. As of March 31, 2017,2020, a total of 1,180,536,830 Sharesshares were registered in the Company’s shareholder register. As of March 31, 2017,2020, a total of 209,778,772 Shares156,288,900 shares were registered in the name of the depositary for the Company’s ADR program. March 2017, month end closing sale price for the ADSs on the NYSE was $34.14, the closing sale price of the Shares on the Italian Stock Exchange was Euro 16.07, on the Buenos Aires Stock Exchange was ARS 265.00 and on the Mexico Stock Exchange was Mexican pesos 329.90. New York Stock Exchange
As of March 31, 2017, a total of 104,889,386 ADSs were registered of record. Each ADS represents two Shares of the Company’s share capital. For the year ended December 31, 2016, Deutsche Bank Trust Company Americas acted as the Company’s depositary for issuing ADS evidencing Shares. Fluctuations between the Euro and the U.S. dollar will affect the U.S. dollar equivalent of the price of the Shares on the Italian Stock Exchange and the price of the ADSs on the NYSE. Fluctuations between the Argentine peso and the U.S. dollar will affect the U.S. dollar equivalent of the price of the Shares on the Buenos Aires Stock Exchange and the price of the ADSs on the NYSE. Fluctuations between the Mexican peso and the U.S. dollar will affect the U.S. dollar equivalent of the price of the Shares on the Mexico Stock Exchange and the price of the ADSs on the NYSE.
The following table sets forth, for the periods indicated, the high and low quoted prices for the ADSs as reported by NYSE (Source: Bloomberg LP).
| | | | | | | | | | | | Price per ADS | | | 2012 | | High | | | Low | | Full year | | | 44.51 | | | | 30.50 | | | | | | | Price per ADS | | | 2013 | | High | | | Low | | Full year | | | 49.44 | | | | 38.78 | | | | | | | Price per ADS | | | 2014 | | High | | | Low | | Full year | | | 47.83 | | | | 28.18 | | | | | | | Price per ADS | | | 2015 | | High | | | Low | | First quarter | | | 31.15 | | | | 26.75 | | Second quarter | | | 32.30 | | | | 27.02 | | Third quarter | | | 26.90 | | | | 22.85 | | Fourth quarter | | | 28.65 | | | | 23.13 | | Full year | | | 32.30 | | | | 22.85 | | | | | | | Price per ADS | | | 2016 | | High | | | Low | | First quarter | | | 24.76 | | | | 19.29 | | Second quarter | | | 29.62 | | | | 23.47 | | Third quarter | | | 29.89 | | | | 25.46 | | Fourth quarter | | | 35.91 | | | | 27.50 | | Full year | | | 35.91 | | | | 19.29 | | | | | | | Price per ADS | | | Last Six Months | | High | | | Low | | October 2016 | | | 29.38 | | | | 28.20 | | November 2016 | | | 32.21 | | | | 27.50 | | December 2016 | | | 35.91 | | | | 33.17 | | January 2017 | | | 37.17 | | | | 34.86 | | February 2017 | | | 35.14 | | | | 32.71 | | March 2017 | | | 34.20 | | | | 31.10 | |
Italian Stock Exchange
The following table sets forth, for the periods indicated, the high and low quoted prices for the Shares (in Euros per share), traded on the Italian Stock Exchange (Source: Bloomberg LP).
| | | | | | | | | | | | Price per Share | | | 2012 | | High | | | Low | | Full year | | | 17.02 | | | | 12.10 | | | | | | | Price per Share | | | 2013 | | High | | | Low | | Full year | | | 18.44 | | | | 14.72 | | | | | | | Price per Share | | | 2014 | | High | | | Low | | Full year | | | 18.18 | | | | 11.36 | | | | | | | Price per Share | | | 2015 | | High | | | Low | | First quarter | | | 13.67 | | | | 11.25 | | Second quarter | | | 15.02 | | | | 12.08 | | Third quarter | | | 12.08 | | | | 9.97 | | Fourth quarter | | | 12.45 | | | | 10.60 | | Full year | | | 15.02 | | | | 9.97 | | | | | | | Price per Share | | | 2016 | | High | | | Low | | First quarter | | | 10.98 | | | | 8.64 | | Second quarter | | | 13.10 | | | | 10.33 | | Third quarter | | | 13.19 | | | | 11.29 | | Fourth quarter | | | 17.22 | | | | 12.29 | | Full year | | | 17.22 | | | | 8.64 | | | | | | | Price per Share | | | Last Six Months | | High | | | Low | | October 2016 | | | 13.45 | | | | 12.70 | | November 2016 | | | 15.07 | | | | 12.29 | | December 2016 | | | 17.22 | | | | 15.55 | | January 2017 | | | 17.23 | | | | 16.17 | | February 2017 | | | 16.27 | | | | 15.53 | | March 2017 | | | 16.14 | | | | 14.56 | |
The Italian Stock Exchange, managed by Borsa Italiana, S.p.A., uses a completely electronic trading system for the real-time execution of trades. Blue-chip securities are traded using the auction and continuous trading method from 8:00 A.M. to 5:30 P.M. each business day.
Buenos Aires Stock Exchange
The following table sets forth, for the periods indicated, the high and low quoted prices for the Shares (in nominal ARS per share), traded on the Buenos Aires Stock Exchange (Source: Bloomberg LP).
| | | | | | | | | | | | Price per Share | | | 2012 | | High | | | Low | | Full year | | | 141.00 | | | | 90.00 | | | | | | | Price per Share | | | 2013 | | High | | | Low | | Full year | | | 229.00 | | | | 141.70 | | | | | | | Price per Share | | | 2014 | | High | | | Low | | Full year | | | 346.10 | | | | 160.50 | | | | | | | Price per Share | | | 2015 | | High | | | Low | | First quarter | | | 192.00 | | | | 159.95 | | Second quarter | | | 196.10 | | | | 166.00 | | Third quarter | | | 185.00 | | | | 155.00 | | Fourth quarter | | | 197.00 | | | | 159.00 | | Full year | | | 197.00 | | | | 155.00 | | | | | | | Price per Share | | | 2016 | | High | | | Low | | First quarter | | | 184.00 | | | | 132.10 | | Second quarter | | | 218.00 | | | | 171.50 | | Third quarter | | | 222.00 | | | | 191.00 | | Fourth quarter | | | 282.00 | | | | 208.00 | | Full year | | | 282.00 | | | | 132.10 | | | | | | | Price per Share | | | Last Six Months | | High | | | Low | | October 2016 | | | 223.50 | | | | 214.20 | | November 2016 | | | 257.00 | | | | 208.00 | | December 2016 | | | 282.00 | | | | 264.00 | | January 2017 | | | 295.00 | | | | 276.75 | | February 2017 | | | 278.00 | | | | 255.40 | | March 2017 | | | 265.25 | | | | 239.00 | |
The Buenos Aires Stock Market, which is affiliated with the Buenos Aires Stock Exchange, is the largest stock market in Argentina. Trading on the Buenos Aires Stock Exchange is conducted electronically or by continuous open outcry from 11:00 A.M. to 5:00 P.M. each business day.
Although the Buenos Aires Stock Exchange is one of Latin America’s largest securities exchanges in terms of market capitalization, it remains relatively small and illiquid compared to major world markets and, therefore, subject to greater volatility.
Mexican Stock Exchange
The following table sets forth, for the periods indicated, the high and low quoted prices for the Shares (in nominal Mexican pesos per share), traded on the Mexican Stock Exchange (Source: Bloomberg LP).
| | | | | | | | | | | | Price per Share | | | 2012 | | High | | | Low | | Full year | | | 274.23 | | | | 223.01 | | | | | | | Price per Share | | | 2013 | | High | | | Low | | Full year | | | 316.90 | | | | 245.34 | | | | | | | Price per Share | | | 2014 | | High | | | Low | | Full year | | | 310.29 | | | | 208.52 | | | | | | | Price per Share | | | 2015 | | High | | | Low | | First quarter | | | 223.65 | | | | 195.00 | | Second quarter | | | 244.58 | | | | 212.28 | | Third quarter | | | 224.40 | | | | 198.35 | | Fourth quarter | | | 230.00 | | | | 208.30 | | Full year | | | 244.58 | | | | 195.00 | | | | | | | Price per Share | | | 2016 | | High | | | Low | | First quarter | | | 192.86 | | | | 178.01 | | Second quarter | | | 265.10 | | | | 192.86 | | Third quarter | | | 258.50 | | | | 250.00 | | Fourth quarter | | | 276.50 | | | | 276.50 | | Full year | | | 276.50 | | | | 178.01 | | | | | | | Price per Share | | | Last Six Months | | High | | | Low | | October 2016 | | | 276.50 | | | | 276.50 | | November 2016 | | | — | | | | — | | December 2016 | | | — | | | | — | | January 2017 | | | 391.00 | | | | 375.00 | | February 2017 | | | 326.78 | | | | 326.78 | | March 2017 | | | 329.90 | | | | 329.90 | |
The Mexican Stock Exchange is the only stock exchange in Mexico. Trading on the Mexican Stock Exchange is conducted electronically from 8:30 A.M. to 3:00 P.M. each business day.
Although the Mexican Stock Exchange is one of Latin America’s largest securities exchanges in terms of market capitalization, it remains relatively small and illiquid compared to major world markets and, therefore, subject to greater volatility.
B.
Not applicable. C.
See A. “-The“– The Offer and Listing – Offer and Listing Details.” Details”.D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable. Not applicable. Not applicable. | Item 10. | Additional Information |
A.
Not applicable. B.
| B. | Memorandum and Articles of Association |
General The following is a summary of certain rights of holders of Shares.the Company’s shares. These rights are set out in the Company’s articles of association or are provided by applicable Luxembourg law, and may differ from those typically provided to shareholders of U.S. companies under the corporation laws of some states of the United States. This summary is not exhaustive and does not contain all information that may be important to you. For more complete information, you should read the Company’s articles of association, which isare attached as an exhibit to this annual report. The Company is a public limited liability company (société anonyme) organized under the laws of Luxembourg. Its object and purpose, as set forth in Article 2 of its articles of association, is the taking of interests, in any form, in corporations or other business entities, and the administration, management, control and development thereof. The Company is registered under the number B85 203 in the LuxembourgRegistre dude Commerce et des Sociétésof Luxembourg.. The Company has an authorized share capital of a single class of 2,500,000,000 Shares with a par value of $1.00 per share upon issue. TheCompany’s authorized share capital is fixed by the Company’s articles of association as amended from time to time with the approval of shareholders onat an extraordinary general shareholders’ meeting. AsThe Company has an authorized share capital of March 31, 2017, therea single class of 2,500,000,000 shares having a nominal value of USD1.00 per share. There were 1,180,536,830 Shares issued.shares issued as of the date of this annual report. All issued Sharesshares are fully paid. The Company’s articles of association authorize the board of directors, until 2020,or any delegate(s) duly appointed by the board of directors, to increase the issued share capital in whole or in part from time to time, through issues ofissue shares within the limits of the authorized share capital against compensationcontributions in cash, compensationcontributions in kind at a price or if shares are issued by way of incorporation ofavailable reserves, at an amount, which shall not be less thansuch time and on such terms and conditions, including the par value and may include such issue premiumprice, as the board of directors, shall decide. Underor its delegate(s), may in its or their discretion resolve. The Company’s shareholders have authorized the board of directors to waive, suppress or limit any pre-emptive subscription rights of shareholders provided for by law to the extent it deems such waiver, suppression or limitation advisable for any issue or issues of shares within the authorized share capital; and have waived any pre-emptive subscription rights provided for by law and related procedures. Although the validity period of such authorization will expire on June 5, 2020, the board of directors has convened an extraordinary meeting of shareholders to be heldon June 2, 2020, which will consider the renewal of such authorization for an additional five-year period. However, under the Company’s articles of association, however, the Company’s existing shareholders shall have a preferential right to subscribe for any new Sharesshares issued pursuant to the authorization granted to its board of directors, except in the following cases (in which cases no preferentialpre-emptive subscription rights shall apply): any issuance of Shares (including, without limitation, the direct issuance of Shares or upon the exercise of options, rights convertible into shares, or similar instruments convertible or exchangeable into Shares) against a contribution other than in cash;
any issuance of Shares (including by way of free Shares or at discount), up to an amount of 1.5% of the issued share capital of the Company, to directors, officers, agents, employees of the Company, its direct or indirect subsidiaries, or its affiliates (collectively, the “Beneficiaries”), including, without limitation, the direct issuance of Shares or upon the exercise of options, rights convertible into Shares, or similar instruments convertible or exchangeable into Shares, issued for the purpose of compensation or incentive of the Beneficiaries or in relation thereto (which the board of directors shall be authorized to issue upon such terms and conditions as it deems fit).
| · | any issuance of shares (including, without limitation, the direct issuance of shares or upon the exercise of options, rights convertible into shares, or similar instruments convertible or exchangeable into shares) against a contribution other than in cash; and |
| · | any issuance of shares (including by way of free shares or at discount), up to an amount equal to 1.5% of the issued share capital of the Company, to directors, officers, agents or employees of the Company, its direct or indirect subsidiaries, or its affiliates, including, without limitation, the direct issuance of shares or upon the exercise of options, rights convertible into shares, or similar instruments convertible or exchangeable into shares, issued for the purpose of compensation or incentive for any such persons or in relation thereto (which the board of directors shall be authorized to issue upon such terms and conditions as it deems fit). |
Amendment of the Company’s articles of association requires the approval of shareholders at an extraordinary shareholders’ meeting with a two-thirds majority vote of the votes present or represented. shares represented at the meeting.Dividends Subject to applicable law, all Sharesshares (including Sharesshares underlying ADSs) are entitled to participate equally in dividends when, as and if declared by the shareholders at the annual general shareholders’ meeting, out of funds legally available for such purposes. Under Dividends may be lawfully declared and paid if the Company’s net profits and distributable reserves are sufficient under Luxembourg law, claims forlaw. The amount and payment of dividends will lapse in favor of the Company five years after the date such dividends are declared. However, we may elect to paymust be approved by a declared dividend after such period. Declared and unpaid dividends held by the Company for the account of its shareholders do not bear interest. At the annualmajority vote at a general shareholders’ meeting, which every shareholder hasgenerally, but not necessarily, based on the right to attend in person or by proxy, shareholders may declare a dividend or other distributionrecommendation of funds legally available therefor.
the Company’s board of directors. Under Article 21 of the Company’s articles of association, the board of directors has the power to distribute interim dividends out of profits, share premium or any other available reserves, in accordance with applicable law.law, in particular in accordance with the conditions set forth in Article 461-3 of the Luxembourg Company Law. Such dividend payments must be finally approved by the general shareholders’ meeting. On April 29, 2020 the board of directors announced the proposals to be submitted to the consideration of the Annual General Shareholders’ meeting, including its proposal on dividends. For more information, see “Item 5G. Operating and Financial Review and Prospects –Recent Developments – Annual Dividend Proposal”. As provided by Article 21 of the Company’s articles of association, dividends or other distributions declared by the general meeting as well as interim dividends or other distributions declared by the board of directors will be distributed at the times and places determined by the board of directors. The Company will make any and all dividend payments and any other distributions in respect of shares registered in the name of any securities settlement system or operator of such a system or in the name of any financial institution or other professional depositary of securities or any other depositary, whether in cash, shares or other assets, only to such registered holder, or otherwise in accordance with such registered holder’s instructions, and, as provided by Article 21 of the Company’s articles of association, that payment shall release the Company from any and all obligations for such payment. The Company conducts and will continue to conduct its operations through subsidiaries and, accordingly, its main source of cash to pay dividends, among other possible sources, will be the dividends received from its subsidiaries. For further information see Item 3.D. “Key Information – Risk Factors – Risks Relating to the Structure of the Company – As a holding company, the Company’s ability to pay cash dividends depends on the results of operations and financial condition of its subsidiaries and could be restricted by legal, contractual or other limitations”. Under Luxembourg law, claims for dividends will lapse in favor of the Company five years after the date such dividends are declared. However, the Company may elect to pay a declared dividend after such period. Declared and unpaid dividends held by the Company for the account of its shareholders do not bear interest. Pursuant to Luxembourg law, at least 5% of our net profits per year must be allocated to the creation of a legal reserve until such reserve has reached an amount equal to 10% of our issued share capital. If the legal reserve later falls below the 10% threshold, at least 5% (or such lower amount required to reach the 10% threshold) of net profits again must be allocated toward the reserve. TheAs of December 31, 2019, the Company’s legal reserve represented 10% of its share capital as of December 31, 2016.capital. The legal reserve is not available for distribution. Voting Rights; Shareholders’ Meetings; Election of Directors Each Shareshare entitles the holder thereof to one vote at the Company’s general shareholders’ meetings. Shareholder action by written consent is not permitted, but proxy voting is permitted. Notices of general shareholders’ meetings are governed by the provisions of Luxembourg law.law and the Company’s articles of association. Pursuant to applicable Luxembourg law, the Company must give notice of the calling of any general shareholders’ meeting at least 30 days prior to the date for which the meeting is being called, by publishing the relevant convening notice in theRecueil éléctroniqueElectronique des sociéSociétés et associationsAssociations, (Luxembourg’s electronic official gazette) and in a leading newspaper having general circulation in Luxembourg newspaper and by issuing a press release informing of the calling of such a media as may reasonably be relied upon for the effective dissemination of information to the public throughout the European Economic Area.meeting. In case Sharesthe Company’s shares are listed on a foreign regulated market, notices of general shareholders’ meetings shall also comply with the requirements (including as to content and publicity) and follow the customary practices of such regulated market. Pursuant to ourthe Company’s articles of association, for as long as the Sharesshares or other securities of the Company are listed on a regulated market within the European Union (as they currently are), and unless as may otherwise be provided by applicable law, only shareholders holding shares of the Company as of midnight, central European time, on the day that is fourteen days prior to the day of any given general shareholders’ meeting can attend and vote at such meeting. The board of directors may determine other conditions that must be satisfied by shareholders in order to participate in a general shareholders’ meeting in person or by proxy, including with respect to deadlines for submitting supporting documentation to or for the Company. No attendance quorum is required at ordinary general shareholders’ meetings, and resolutions may be adopted by a simple majority vote of the Shares represented and voted atvotes validly cast, irrespective of the meeting.number of shares present or represented. Unless as may otherwise be provided by applicable Luxembourg law, an extraordinary general shareholders’ meeting may not validly deliberate on proposed amendments to the Company’s articles of association unless a quorum of at least 50%half of the issued share capital is represented at the meeting. If a quorum is not reached suchat the first extraordinary shareholders’ meeting, a second extraordinary shareholders’ meeting may be reconvened at a later dateconvened in accordance with no quorum requirements by meansthe Company’s articles of association and applicable law and such second extraordinary general shareholders’ meeting shall validly deliberate regardless of the appropriate notification procedures described above.number of shares represented. In both cases, the Luxembourg CompaniesCompany Law and the Company’s articles of association require that any resolution of an extraordinary general shareholders’ meeting as to amendments to the Company’s articles of association isbe adopted by a two-thirds majority votes of the Shares representedvotes validly cast at the meeting and voted.meeting. If a proposed resolution consists of changing the Company’s nationality or of increasing the shareholders’ commitments, the unanimous consent of all shareholders is required. Directors are elected at ordinary general shareholders’ meetings. Cumulative voting is not permitted. The Company’s articles of association do not provide for staggered terms and directors are elected for a maximum of one year andbut may be reappointed or removed by the general shareholders’ meeting at any time, with or without cause, by the general shareholders’ meeting, by resolution passed by a simple majority vote of the Shares represented and votedshares validly cast at the meeting. In the case of a vacancy occurring in the Boardboard of Directors,directors, the remaining directors mayshall have the right to temporarily fill such vacancy with a temporary director appointed by resolution adopted with the affirmative vote of a majority of the remaining directors; provided that the next general shareholder’s meeting shall be called upon to ratify such appointment. The term of any such temporary director elected to fill a vacancy shall expire at the end of the term of office of the director whom such temporary director replaced.replaced director. The next Company’s annual general shareholders’ meeting, that will consider, among other things our audited consolidated financial statementsConsolidated Financial Statements and Annual Accounts included in this annual report, will take place in the Company’s registered office in Luxembourg, on Wednesday May 3, 2017Tuesday, June 2, 2020, at 9:30 A.M.,3:00 P.M. Central European time, Luxembourg time. A general extraordinary shareholders’ meeting will be held on the same date, immediately after the adjournment of the annual general shareholders’ meeting, to decide on the renewal for a five-year period of the authorization granted to its board of directors to issue shares within the limits of the authorized share capital without shareholder approval. The articles of association provide that annual general shareholders’ meetings shall meet in Luxembourg within six months from the end of the previous financial year at the date, place and hour indicated in the convening notice. The rights of the shareholders attending the meetings are governed by the Luxembourg law of May 24, 2011 on the exercise of certain rights of shareholders in general meetings of listed companies.Shareholders’ Rights Law. Holders of Sharesshares deposited in fungible securities accounts have the same rights and obligations as holders of Sharesshares recorded in the Company’s share register. However, in order to be able to participate in and vote at shareholders’ meetings of the Company, the former must present,submit, prior to the relevant meeting, reasonably satisfactory evidence to the Company as to the number of Sharesshares held on the applicable record date for such meeting. See section titled “HoldersFor as long as the shares or the other securities of Shares: procedures for attending and voting at one or both Meetings”the Company are listed on a regulated market within the European Union, participation in a shareholders’ general meeting shall inter alia be subject to the reportrelevant shareholder holding shares of foreign issuer (Rules 13a-16 and 15d-16) on Form 6-K, filed by the Company on April 5, 2017, (File No. 0001199073-17-000239), which is incorporatedthe fourteenth day midnight central European time prior to the meeting (unless otherwise provided for by reference herein.applicable law). Holders of ADSs only have those rights that are expressly granted to them in the deposit agreement. See Item 3.D. “Key Information – Risk Factors – Risks Relating to Sharesshares and ADSs – Holders of ADSs may not be able to exercise, or may encounter difficulties in the exercise of, certain rights afforded to shareholders.”shareholders”. Holders of record of our ADRADRs as of the relevant ADR holders’ record date set for any given general shareholders’ meeting are entitled to instruct the Depositary as to the exercise of the voting rights in respect of the Sharesshares underlying such holder’s ADRs at such meeting. Holders of ADRs maintaining non-certificated positions must follow voting instructions given by their broker or custodian bank. See section “Holders of ADRs: The notice to the annual general shareholders meeting and to the general extraordinary shareholders meeting to be held on June 2, 2020, and the Shareholder Meeting Brochure and Proxy Statement for the meetings, describing the procedures for voting at one or both Meetings”the meetings applicable to holders of ADRs will be made available on the Company’s website at www.tenaris.com/investors in accordance with applicable rules and regulations, and will be timely filed by the Company in a report of foreign issuer (Rules 13a-16 and 15d-16) on Form 6-K, filed by the Company on April 5, 2017, (File No. 0001199073-17-000239), which is incorporated by reference herein.6-K. Access to Corporate Records Luxembourg law and the Company’s articles of association do not generally provide for shareholder access to corporate records. Shareholders may inspect the annual accounts and auditors’ reports at our registered office during the fifteen dayfifteen-day period prior to a general shareholders’ meeting. Appraisal Rights In the event the Company’s shareholders approve: the delisting of the Shares from all stock exchanges where the Shares are listed at that time,
a merger in which the Company is not the surviving entity (unless the Shares or other equity securities of such entity are listed on the New York or London stock exchanges),
a sale, lease, exchange or other disposition of all or substantially all of the Company’s assets,
an amendment of our articles of association that has the effect of materially changing the Company’s corporate purpose,
| · | the delisting of the shares from all stock exchanges where the shares are listed at that time, |
| •· | a merger in which the Company is not the surviving entity (unless the shares or other equity securities of such entity are listed on the New York or London stock exchanges), |
| · | a sale, lease, exchange or other disposition of all or substantially all of the Company’s assets, |
| · | an amendment of our articles of association that has the effect of materially changing the Company’s corporate purpose, |
| · | the relocation of the Company’s domicile outside of the Grand Duchy of Luxembourg,or |
amendments to the Company’s articles of association that restrict the rights of the Company’s shareholders;
| · | amendments to the Company’s articles of association that restrict the rights of the Company’s shareholders. |
dissenting
Dissenting or absent shareholders have the right to have their Sharesshares repurchased by the Company at (i) the average market value of the Sharesshares over the 90 calendar days preceding the applicable shareholders’ meeting or (ii) in the event that the Sharesshares are not traded on a regulated market, the amount that results from applying the proportion of the Company’s equity that the Sharesshares being sold represent over the Company’s net worth as of the date of the applicable shareholders’ meeting. Dissenting or absent shareholders must present their claim within one month following the date of the shareholders’ meeting and supply the Company with evidence of their shareholding at the time of such meeting. The Company must (to the extent permitted by applicable laws and regulations and in compliance therewith) repurchase its Sharesshares within six months following the date of the shareholders’ meeting. If delisting from one or more, but not all, of the stock exchanges where the Sharesshares are listed is approved in the shareholders’ meeting, only dissenting or absent shareholders with Sharesshares held through participants in the local clearing system for that market or markets can exercise this appraisal right if: | • | · | they held the Sharesshares as of the date of the announcement by the Company of its intention to delist or as of the date of publication of the first convening notice for the general shareholders’ meeting that approved the delisting;and |
they present their claim within one month following the date of the general shareholders’ meeting and supply evidence of their shareholding as of the date of the Company’s announcement or the publication of the first convening notice to the meeting.
| · | they present their claim within one month following the date of the general shareholders’ meeting and supply evidence of their shareholding as of the date of the Company’s announcement or the publication of the first convening notice to the meeting. |
In the event a shareholder exercises its appraisal rights, applicable Luxembourg law provisions shall apply. Holders of ADSs may not be able to exercise, or may encounter difficulties in the exercise of, certain rights afforded to shareholders, including appraisal rights. See Item 3.D. “Key Information – Risk Factors – Risks Relating to Sharesshares and ADSs – Holders of ADSs may not be able to exercise, or may encounter difficulties in the exercise of, certain rights afforded to shareholders.”shareholders”. Distribution of Assets on Winding-Up In the event of the Company’s liquidation, dissolution or winding-up, the net assets remaining after allowing for the payment of all debts and expenses will be paid out to the holders of the Sharesshares in proportion to their respective holdings. Transferability and Form The Company’s articles of association do not contain any redemption or sinking fund provisions, nor do they impose any restrictions on the transfer of Shares.shares. The Sharesshares are issuable in registered form only. The ownership of registered Sharesshares is evidenced by the inscription of the name of the shareholder, the number of Sharesshares held by himsuch shareholders and the amount paid on each share in the Company’s share register. In addition, the Company’s articles of association provide that the Sharesshares may be held through fungible securities accounts with financial institutions or other professional depositaries. Shares held through fungible securities accounts may be transferred in accordance with customary procedures for the transfer of securities in book-entry form. Shares that are not held through fungible securities accounts may be transferred by a written statement of transfer signed by both the transferor and the transferee or their respective duly appointed attorney-in-fact and recorded in the Company’s share register. The transfer of Sharesshares may also be made in accordance with the provisions of Article 1690 of the Luxembourg Civil Code. As evidence of the transfer of registered Shares,shares, the Company may also accept any correspondence or other documents evidencing the agreement between transferor and transferee as to the transfer of registered Shares.shares. Repurchase of Company Sharesshares The Company may repurchase its own Sharesshares in the cases and subject to the conditions set by the Luxembourg CompaniesCompany Law and, in the case of acquisitions of Sharesshares or ADSs made through a stock exchange in which Sharesshares or ADSs are traded, with any applicable laws and regulations of such market. Please see Item 16.E. “Purchase of Equity Securities by the Issuer and Affiliated Purchasers” for morefurther information on the authorization granted on May 6, 2015, by the annual general meeting of shareholders to the Company or its subsidiaries to repurchase Sharesshares of the Company, including Sharesshares represented by ADSs. Limitation on Securities Ownership There are no limitations currently imposed by Luxembourg law or the articles of association on the rights of the Company’s non-resident or foreign shareholders to hold or vote their Shares. the Company’s shares.Change in Control None of our outstanding securities has any special control rights. The Company’s articles of association do not contain any provision that would have the effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company or any of its subsidiaries. In addition, the Company does not know of any significant agreements or other arrangements to which the Company is a party and which take effect, alter or terminate in the event of a change of control of the Company. There are no agreements between the Company and members of its board of directors or employees providing for compensation if they resign or are made redundant without reason, or if their employment ceases following a change in control of the Company. There are no rights associated with the SharesCompany’s shares other than those described above. Ownership Disclosure The Company’s articles of association do not contain any provision requiring disclosure of share ownership. However, under the Luxembourg Transparency Law investors in the Company’s securities should notify the Company and the Luxembourg securities commission on an ongoing basis whenever the proportion of voting rights held or controlled by any such investor reaches, exceeds or falls below any of the following thresholds: 5%, 10%, 15%, 20%, 25%, 33.33%, 50% and 66.66%. Failure to notify the Company and the Luxembourg securities commission of the reaching or crossing of any such thresholds may result in the suspension of the voting rights attaching to the Sharesshares exceeding the threshold which would have had to be notified. C.
For a summary of any material contract entered into by us outside the ordinary course of business during the last two years, see Item 4.B. “Information on the Company – Business Overview.”Overview”. D.
Many of the countries which are important markets for us or in which we have substantial assets have histories of substantial government intervention in currency markets, volatile exchange rates and government-imposed currency controls. These include mainly Argentina, Brazil, Indonesia, Mexico, Nigeria and Romania. Argentina
From 2002 through the end of 2015, the Argentine government maintained a “dirty” flotation ofSpecifically and regarding Argentina, the Argentine peso / U.S. dollar exchange rate through frequent interventions in the market. Since December 2015, afterwas subject to a sudden devaluation of approximately 59% during 2019. In addition, starting September 1, 2019, the Argentine peso against the U.S. dollar of approximately 34%, the current administration has been endorsing a floating rate environment with limited government intervention. Argentina often experiences high exchange rate volatility. Between 2011 and the end of its term in December 2015, the former administration imposed several formal and informal foreign exchangecertain restrictions affecting the free flow of capital, particularly on payments of dividends, imports of goods and services and royalties. These restrictions changed frequently, driven mainly by the intention of that administration to control the volatility of the Argentine peso/U.S. dollar exchange rate and to try to impede the flight of capital from Argentina. These informal controls on foreign exchange transactions, were ended soon afterincluding the current administration took office in December 2015obligation 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 the formal controls have been gradually deregulated until being almost completely lifted by January 2017. There are currently no amount limitswithin 180 days from export to third parties. As for the purchase ofservice-related exports, foreign currency byproceeds must be converted into Argentine residents (individuals or legal entities) for investment purposes, either locally or abroad. The only remaining requirements forpesos within 5 days of collection. Other restrictions related to foreign exchange transactions include the purchase ofobligation to obtain previous authorization from the Argentine Central Bank to access the foreign currencyexchange market to make payments of imports of services from related parties (including royalties). Central Bank’s authorizations are granted on a very restricted basis. There are currently no restrictions to make payments for goods 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 services, royalties, dividends and foreign financial debt entail compliance with certainconverted into Argentine pesos. As from January 17, 2020, investors making new capital contributions to local companies do not require Central Bank information systemsapproval to access the foreign exchange market to pay dividends for an amount not exceeding 30% of the investment. Access to the foreign exchange market to make any other dividend payment requires prior authorization from the Central Bank. Central Bank’s authorizations are granted on foreign indebtedness and direct investments. Repatriationa very restricted basis. Purchase and/or transfer of foreign currency collected by Argentine residentsfor investment and saving purposes is limited to minimal monthly sums. In addition, such purchases as well as credit card payments abroad and conversion thereof into Argentine pesos currently only appliesare subject to proceeds from exportsa 30% surcharge. As of goods and repatriation timeframe has been increased to 10 years from the shipment date irrespectiveDecember 31, 2019 approximately 8% of whether the export is made to affiliated or unaffiliated companies. Argentine residents are no longer required to repatriate the proceeds from exports of services.Tenaris’s consolidated net assets were located in Argentina. There can be no assurance that foreign exchange and capital controls will not be reestablished in the future by the Argentine government, or that additional restrictions of that kind will not be imposed, which could expose Tenaris to the risk of losses arising from fluctuations in the exchange rate or affect Tenaris’s ability to finance its investments and operations in Argentina or impair Tenaris’s ability to convert and transfer outside Argentina funds generated by Siderca, for example, to fund the payment of dividends or to undertake investments and other activities that require offshore payments.
For additional information regarding factors affecting the Argentine economy, see Item 3.D. “Key Information – Risk Factors – Risks Relating to Ourour Business – Adverse economic or political conditions in the countries where we operate or sell our products and services may decrease our sales or disrupt our manufacturing operations, thereby adversely affecting our revenues, profitability and financial condition.”condition”. E.
The following discussion of the material Luxembourg and U.S. federal income tax consequences of an investment in our shares and ADSs is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This discussion does not address all possible tax consequences relating to an investment in our shares or ADSs, such asincluding the tax consequences under U.S. state and local tax laws. Grand Duchy of Luxembourg This section describes the material Luxembourg tax consequences of owning or disposing of shares or ADSs. It is not intended to be, nor should it be construed to be, legal or tax advice. You should, therefore, consult your own tax advisor regarding thelocal or foreign tax consequences, including Luxembourg tax consequences of owning and disposing of Sharesshares or ADSs in your particular circumstances. As used herein, a “Luxembourg individual” means an individual resident in Luxembourg who is subject to personal income tax (impôt sur le revenu) on his or her worldwide income from Luxembourg or foreign sources, and a “Luxembourg corporate holder” means a company (that is, a fully taxable collectivité within the meaning of Article 159 of the Luxembourg Income Tax Law) resident in Luxembourg subject to Luxembourg corporate income tax (impôt sur le revenu des collectivités) and Luxembourg municipal business tax (impôt commercial communal) on its worldwide income from Luxembourg or foreign sources. For the purposes of this summary, Luxembourg individuals and Luxembourg corporate holders are collectively referred to as “Luxembourg Holders”. A “non-Luxembourg Holder” means any investor in Sharesshares or ADSs of the Company other than a Luxembourg Holder. Corporate Reorganization Tenaris S.A.
The Company was established as a Luxembourgsociété anonyme holding under Luxembourg’s 1929 holding company regime. Until termination of such regime on December 31, 2010, holding companies incorporated under the 1929 regime (including the Company) were exempt from Luxembourg corporate income tax, Luxembourg municipal business tax, Luxembourg net wealth tax and Luxembourg withholding tax over dividends distributed to shareholders. On January 1, 2011, the Company became an ordinary public limited liability company (société anonyme) and, effective as from that date, the Company is subject to all applicable Luxembourg taxes, (including, among others, Luxembourg corporate income tax on its worldwide income), and its dividend distributions will generally be subject to Luxembourg withholding tax. However, dividends received by the Company from subsidiaries in high income tax jurisdictions, as defined under Luxembourg law, will continue to be exempt from corporate income tax in Luxembourg under Luxembourg’s participation exemption.. In light of the then impending termination of Luxembourg’s 1929 holding company regime, in the fourth quarter of 2010, the Company carried out a multi-step corporate reorganization, which included, among other transactions, the contribution of most of the Company’s assets and liabilities to a wholly-owned, newly-incorporated Luxembourg subsidiary and the restructuring of indirect holdings in certain subsidiaries. The first phase of the corporate reorganization was completed in December 2010, and resulted in a non-taxable revaluation of the accounting value (under Luxembourg GAAP) of the Company’s assets, in accordance with the applicable legal provisions.assets. The second phase of the reorganization was completed in 2011. Following the completion of the first phase of the corporate reorganization, and upon its conversion into an ordinary Luxembourg holding company, the Company according to applicable law, recorded a special reserve in its tax balance sheet. Dividend distributions for the foreseeable future will be imputedcharged to the special reserve and therefore should not be subject to Luxembourg withholding tax under current Luxembourg law. tax.Tax regime applicable to realized capital gains Luxembourg Holders Luxembourg resident individual holders Capital gains realized by Luxembourg resident individuals who do not hold their Sharesshares or ADSs as part of a commercialtrade or industrial business (i.e. capital gains on private assets) and who hold (together, directly or indirectly, with his or her spouse or civil partner and underage children) no more than 10% of the share capital of the Company, at any time during the five-year period preceding the disposition will only be taxable (at a progressive rate) if they are realized on a sale of Sharesshares or ADSs that takes place before their acquisition or within the first six months following their acquisition.acquisition (i.e. speculative gain). After the six monthssix-months period, capital gains are not taxed unless the resident individual holds (together, directly or indirectly, with his or her spouse or civil partner and underage children) more than 10% of the share capital of the Company.Company at any time during the five-year period preceding the disposition. If such Sharesshares or ADSs are held as part of a commercial or industrial business, capital gains would be taxable in the same manner as income from such business. Capital gains realized by Luxembourg resident individuals holding (together(alone or together with his/herthe resident’s spouse or civil partner and underage children) directly or indirectly more than 10% of the capital of the Company1 at any time during the five years prior to the sale, (or if the Luxembourg resident individuals have received the shares for no consideration within the last five years and the former holder held at least 10% in the capital of the company at any moment during said five years) will be taxable at half of the individual’s applicable global tax rate (as determined progressively), if a holding period of six months following their acquisition elapsed.elapsed (21% for 2019). Within the six monthsix-month period, standardprogressive income tax rates apply.apply (ranging from 0 to 42%1 in 2019). Luxembourg resident corporate holders Capital gains, including currency exchange gains, realized upon the disposal of Sharesshares or ADSs by a fully taxable resident corporate holder will in principle be subject to Luxembourg corporate income tax and Luxembourg municipal business tax. The combined applicable rate (including an unemployment fund contribution) is 27.08% for the fiscal years ending 2017 for a corporate holder established in Luxembourg-City.Luxembourg-City is 24.94% for the fiscal year ending 2019. An exemption from such taxes may be available to the Luxembourg resident corporate holder pursuant to Article 1 of the Grand Ducal Decree dated December 21, 2001 as amended, in combination with article 166 of the Luxembourg Income Tax lawLaw subject to the fulfillment of the conditions set forth therein. Non-Luxembourg Holders Non-Luxembourg individual holders An individual who is a non-Luxembourg Holder of Sharesshares or ADSs (and who does not have a permanent establishment, a permanent representative or a fixed place of business in Luxembourg) will only be subject to Luxembourg taxation on capital gains arising upon disposal of such Sharesshares or ADSs if such holder has (alone or together with his or her spouse, registeredcivil partner and underage children) directly or indirectly held more than 10% of the capital of the Company at any time during the past five years preceding the disposal, and either (i) such non-Luxembourg holderHolder has been a resident of Luxembourg for tax purposes for at least 15 years and has become a non-resident within the last five years preceding the realization of the gain, subject to any applicable tax treaty, or (ii) the disposal of Sharesshares or ADSs occurs within six months from their acquisition (or prior to their actual acquisition), subject, however, to any applicable tax treaty. Non-Luxembourg corporate holders A corporate non-Luxembourg Holder (that is, acollectivité within the meaning of Article 159 of the Luxembourg Income Tax Law), which has a permanent establishment, a permanent representative or a fixed place of business in Luxembourg to which Sharesshares or ADSs are attributable, will bear Luxembourg corporate income tax and Luxembourg municipal business tax on a gain realized on a disposal of such Sharesshares or ADSs as set forth above for a Luxembourg corporate holder. However, capital gains, including currency exchange gains, realized on the sale of the Sharesshares or ADSs may benefit from the full exemption provided for by Article 1 of the Grand Ducal Decree dated December 21, 2001 as amended, in combination with articleArticle 166 of the Luxembourg Income Tax Law subject in each case to fulfillment of the conditions set out therein. ____________________________ 1 A 7% surcharge for the Employment Fund applies on the income tax due. The surcharge for the Employment Fund amounts to 9% for taxpayer in tax class 1 or 1a with taxable income exceeding EUR 150,000 (EUR 300,000 for taxpayer in tax class 2). A corporate non-Luxembourg Holder, which has no permanent establishment, permanent representative or fixed place of business in Luxembourg to which the Sharesshares or ADSs are attributable, will bear corporate incomenon-resident capital gains tax on a gain realized on a disposal of such Sharesshares or ADSs under the same conditions applicable to an individual non-Luxembourg Holder, as set out above. 1 | Or if the Luxembourg resident individuals have received the shares for no consideration within the last 5 years and that the former holder held at least 10% in the capital of the company at any moment during said five years. |
Tax regime applicable to distributions Withholding tax Distributions to holders are in principle subject to a 15% Luxembourg withholding tax computed on the gross amount distributed. The rate of the withholding tax may be reduced pursuant to double tax treaty existing between Luxembourg and the country of residence of the relevant holder, subject to the fulfillment of the conditions set forth therein. However, distributions imputed for tax purposes to the special reserve (please see above paragraph “corporate reorganization”) should be out of the scope ofexempt from Luxembourg withholding tax under the current tax law. Nevertheless, no withholding tax applies if the distribution is made to:to (as far as relevant in the case at hand): • | · | a Luxembourg resident corporate holder (that is, a fully taxablecollectivité within the meaning of article 159 of the Luxembourg Income Tax Law), |
an undertaking of collective character which is resident of a Member State of the European Union and is referred to by article 2 of the European Union Council Directive of November 30, 2011 concerning the common fiscal regime applicable to parent and subsidiary companies of different member states (2011/96/UE) as amended, (subject to the general anti-abuse rule provided for by Council Directive 2015/121/EU as implemented into Luxembourg law),
a corporation or a cooperative company resident in Norway, Iceland or Liechtenstein and subject to a tax comparable to corporate income tax as provided by the Luxembourg Income Tax Law,
a corporation or company resident in Switzerland which is subject to corporate income tax in Switzerland without benefiting from an exemption,
| · | an undertaking of collective character which is resident of a Member State of the European Union and is referred to by article 2 of the EU Council Directive of November 30, 2011 concerning the common fiscal regime applicable to parent and subsidiary companies of different member states (2011/96/UE) as amended, (subject to the general anti-abuse rule provided for by Council Directive 2015/121/EU as implemented into Luxembourg law), |
• | · | a capital company or a cooperative company resident in Norway, Iceland or Liechtenstein and subject to a tax comparable to corporate income tax as provided by the Luxembourg Income Tax Law, |
| · | a capital company resident in Switzerland which is subject to corporate income tax in Switzerland without benefiting from an exemption, |
| · | an undertaking with a collective character subject to a tax comparable to corporate income tax as provided by the Luxembourg Income Tax Law which is resident in a country that has concluded a double tax treaty with Luxembourg,and |
a Luxembourg permanent establishment of one of the above-mentioned categories, provided each time that at the date of payment, the holder holds or commits to hold directly (or through a vehicle regarded as tax transparent from a Luxembourg tax perspective), during an uninterrupted period of at least twelve months, Shares or ADSs representing at least 10% of the share capital of the Company or acquired for an acquisition price of at least EUR 1,200,000.
| · | a Luxembourg permanent establishment of one of the above-mentioned categories, provided each time that at the date of payment, the holder holds or commits to hold directly (or through a company regarded as tax transparent from a Luxembourg tax perspective), during an uninterrupted period of at least twelve months, shares or ADSs representing at least 10% of the share capital of the Company or acquired for an acquisition price of at least EUR 1,200,000. |
Luxembourg Holders With the exception of Luxembourg corporate holders benefittingbenefiting from the exemption referred to above, Luxembourg individual holders, and Luxembourg corporate holders fully subject to Luxembourg corporate tax, must include the distributions paid on the Sharesshares or ADSs in their taxable income, 50% of the amount of such dividends being exempt from tax. The applicable withholding tax can, under certain conditions, entitle the relevant Luxembourg Holder to a tax credit. Non-Luxembourg Holders Non-Luxembourg Holders of shares or ADSs and who do not have a permanent establishment, a permanent representative or a fixed place of business in Luxembourg to which the shares or ADSs would be attributable are not liable for any Luxembourg tax on dividends paid on the shares or ADSs, other than a potential withholding tax as described above. Net wealth tax Luxembourg Holders Luxembourg net wealth tax will not be levied on a Luxembourg Holder with respect to the Sharesshares or ADSs held unless (i) the Luxembourg Holder is a legal entity subject to net wealth tax in Luxembourg; or (ii) the Sharesshares or ADSs are attributable to an enterprise or part thereof which is carried on through a permanent establishment, a fixed place of business or a permanent representative in Luxembourg. Net wealth tax is levied annually at the rate of 0.5% onfor taxable net wealth not exceeding EUR 500,000,000 and at a rate of 0.05% for the net wealth exceeding EUR 500,000,000, of enterprises resident in Luxembourg, as determined for net wealth tax purposes. The Sharesshares or ADSs may be exempt from net wealth tax subject to the conditions set forth by Paragraph 60 of the Luxembourg Law of October 16, 1934 on the valuation of assets (Bewertungsgesetz), as amended. A minimum net wealth tax charge applies as of January 1, 2016 for all corporate entities having their statutory seat or central administration in Luxembourg. Subject to certain conditions, the amount of minimum net wealth tax may vary. Non-Luxembourg Holders Luxembourg net wealth tax will not be levied on a non-Luxembourg Holder with respect to the Sharesshares or ADSs held unless the Sharesshares or ADSs are attributable to an enterprise or part thereof which is carried on through a permanent establishment or a permanent representative in Luxembourg. The shares or ADSs may be exempt from net wealth tax subject to the conditions set forth by Paragraph 60 of the Luxembourg Law of October 16, 1934 on the valuation of assets (Bewertungsgesetz), as amended. Stamp and registration taxes No registration tax or stamp duty will be payable by a holder of Sharesshares or ADSs in Luxembourg solely upon the disposal of Sharesshares or ADSs by sale or exchange. Estate and gift taxes No estate or inheritance tax is levied on the transfer of Sharesshares or ADSs upon the death of a holder of Sharesshares or ADSs in cases where the deceased was not a resident of Luxembourg for inheritance tax purposes and no gift tax is levied upon a gift of Sharesshares or ADSs if the gift is not passed before a Luxembourg notary or recorded in a deed registered in Luxembourg. Where a holder of Sharesshares or ADSs is a resident of Luxembourg for tax purposes at the time of his death, the Sharesshares or ADSs are included in its taxable estate for inheritance tax or estate tax purposes. United States federal income taxation This section describes the material U.S. federal income tax consequences to a U.S. holder (as defined below) of owning Sharesshares or ADSs. It applies to you only if you hold your Sharesshares or ADSs as capital assets for U.S. federal income tax purposes. This discussion addresses only U.S. federal income taxation and does not discuss all of the tax consequences that may be relevant to you in light of your individual circumstances, including foreign, state or local tax consequences, estate and gift tax consequences, and tax consequences arising under the Medicare contribution tax on net investment income or the alternative minimum tax. This section does not apply to you if you are a member of a special class of holders subject to special rules, including: a dealer in securities,
a bank,
a trader in securities that elects to use a mark-to-market method of accounting for securities holdings,
| · | a trader in securities that elects to use a mark-to-market method of accounting for securities holdings, |
a tax-exempt organization,
| · | a tax-exempt organization, |
a person who invests through a pass-through entity, including a partnership,
| · | a person who invests through a pass-through entity, including a partnership, |
a life insurance company,
| · | a life insurance company, |
a person liable for alternative minimum tax, a former citizen or long-term resident of the United States,
a person that actually or constructively owns 10% or more of our voting stock (including ADSs),
a person that holds Shares or ADSs as part of a straddle or a hedging or conversion transaction,
| •· | a former citizen or long-term resident of the United States, |
| · | a person that actually or constructively owns 10% or more of the combined voting power of our voting stock or of the total value of our stock (including ADSs), |
| · | a person that holds shares or ADSs as part of a straddle or a hedging or conversion transaction for U.S. federal income tax purposes, |
| · | a person that purchases or sells Sharesshares or ADSs as part of a wash sale for U.S. federal income tax purposes, or |
a person whose functional currency is not the U.S. dollar.
| · | a person whose functional currency is not the U.S. dollar. |
This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, all as currently in effect, as well as on the Convention between the Government of the Grand Duchy of Luxembourg and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital (the “Treaty”). These laws are subject to change, possibly on a retroactive basis. In addition, this section is based in part upon the assumption that each obligation in the ADS deposit agreement and any related agreement will be performed in accordance with its terms. If an entity or arrangement that is treated as a partnership for U.S. federal income tax purposes holds the Sharesshares or ADSs, the U.S. federal income tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Each such partner holding the Sharesshares or ADSs is urged to consult his, her or its own tax advisor. You are a U.S. holder if you are a beneficial owner of Sharesshares or ADSs and you are, for U.S. federal income tax purposes: an individual citizen or resident of the United States,
a domestic corporation,
| · | an individual citizen or resident of the United States, |
| •· | a domestic corporation (or an entity treated as a domestic corporation), |
| · | an estate whose income is subject to U.S. federal income tax regardless of its source, or |
a trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust or (ii) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
| · | a trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust or (ii) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
You should consult your own tax advisor regarding the U.S. federal, state and local and other tax consequences of owning and disposing of Shares or ADSs in your particular circumstances.
This discussion addresses only U.S. federal income taxation.
In general, and taking into account the earlier assumptions, for U.S. federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the Sharesshares represented by those ADRs.ADSs. Exchanges of Sharesshares for ADRs, and ADRs for Shares,shares, generally will not be subject to U.S. federal income tax. The tax treatment of your shares or ADSs will depend in part on whether or not we are classified as a passive foreign investment company (“PFIC”), for United States federal income tax purposes. Except as discussed below under “PFIC Rules”, this discussion assumes that we are not classified as a PFIC for United States federal income tax purposes. You should consult your own tax advisor regarding the U.S. federal, state and local and other tax consequences of owning and disposing of shares or ADSs in your particular circumstances. Taxation of dividendsdistributions Under the U.S. federal income tax laws, and subject to the passive foreign investment company, or PFIC, rules discussed below, if you are a U.S. holder, the gross amount of any distribution we pay out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes), other than certain pro-rata distributions of our shares, including the amount of any Luxembourg tax withheld, will be treated as a dividend that is subject to U.S. federal income taxation. If you are a noncorporatenon-corporate U.S. holder, dividends paid to you that constitute qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital gains provided that you hold Sharesshares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends we pay with respect to the Sharesshares or ADSs generally will be qualified dividend income, provided that, in the year that you receive the dividend, we are eligible for the benefits of the Treaty. We believe that we are currently eligible for the benefits of the Treaty and therefore expect that dividends on the shares or ADSs will be qualified dividend income, but there can be no assurance in this regard.that we will continue to be eligible for the benefits of the Treaty. You must generally include any Luxembourg tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable to you when you receive it, or, in the case of ADSs, when the depositary receives the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the Sharesshares or ADSs and thereafter as capital gain. However, we do not expect to calculate earnings and profits in accordance with U.S. federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend (as discussed above). The amount of any dividend paid in foreign currency will equal the U.S. dollar value of the foreign currency received calculated by reference to the exchange rate in effect on the date the dividend is includible in your income, regardless of whether the foreign currency is converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.
Dividends will generally be income from sources outside the United States and, generally, will depending on your circumstances, be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to you. Subject to certain limitations, the Luxembourg tax withheld in accordance with the Treaty and paid over to Luxembourg will be creditable or deductible against your U.S. federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates. To the extent a refund of the tax withheld is available to you under Luxembourg law or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against your U.S. federal income tax liability. In certain circumstances, if you have held ADSs for less than a specified minimum period during which you are not protected from risk of loss, or are obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends that we pay. The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances. Taxation of capital gains Subject to the PFIC rules discussed below, if
If you are a U.S. holder and you sell or otherwise dispose of your Sharesshares or ADSs, you will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your Sharesshares or ADSs. Capital gain of a noncorporatenon-corporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. The deductibility of capital losses is subject to limitations.Additional U.S. Federal Income Tax Considerations PFIC rules.Based on the Company’s current and expected income and assets, we believe that the Sharesshares or ADSs should not currently be treated as stock of a PFIC for U.S. federal income tax purposes, butand we do not expect to become a PFIC in the foreseeable future. However, this conclusion is a factual determination that is made annually and thus may be subject to change. It is therefore possible that we could become a PFIC in a future taxable year. If we were to be treated as a PFIC, gain realized on the sale or other disposition of your Sharesshares or ADSs would in general not be treated as capital gain. Furthermore, if you are a U.S. holder, unless you are permitted to elect and you do elect to be taxed annually on a mark-to-market basis with respect to the Sharesshares or ADSs, upon sale or disposition of your Sharesshares or ADSs, you would generally be treated as if you had realized such gain and certain “excess distributions” ratably over your holding period for the Sharesshares or ADSs and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. With certain exceptions, your Sharesshares or ADSs will be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your Sharesshares or ADSs. Dividends that you receive from us will not be eligible for the special tax rates applicable to qualified dividend income if we are a PFIC (or are treated as a PFIC with respect to you) either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at rates applicable to ordinary income.income and subject to the excess distribution regime described above. F.
| F. | Dividends and Paying Agents |
Not applicable. G.
Not applicable. H.
The Company is required to file annual and special reports and other information with the SEC. You may read and copy any documents filed by the Company at the SEC’s public reference room at 100 F Street, N.E., Room 1580 Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains an Internet website at http://www.sec.gov which contains reports and other information regarding registrants that file electronically with the SEC. The Company is subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, as applied to foreign private issuers. Because the Company is a foreign private issuer, the SEC’s rules do not require it to deliver proxy statements or to file quarterly reports. In addition, the Company’s “insiders” are not subject to the SEC’s rules that prohibit short-swing trading. We prepare quarterly and annual reports containing consolidated financial statements.statements according to IFRS. The Company’s annual consolidated financial statements are certifiedaudited by an independent accounting firm. The Company submits quarterly financial information with the SEC on Form 6-K simultaneously with or promptly following the publication of that information in Luxembourg or any other jurisdiction in which the Company’s securities are listed, and the Company files annual reports on Form 20-F within the time period required by the SEC, which is currently four months from the close of the fiscal year on December 31. These quarterly and annual reports may be reviewed at the SEC’s public reference room. Reports and other information filed electronically with the SEC are also available at the SEC’s Internet website. As a foreign private issuer under the Securities Act, the Company is not subject to the proxy rules of Section 14 of the Exchange Act or the insider short-swing profit reporting requirements of Section 16 of the Exchange Act. For the year ended December 31, 2016,2019, the Company’s Depositary for issuing ADSs evidencing Sharesshares was Deutsche Bank Trust Company Americas. During the time there continues to be ADSs deposited with the Depositary, the Company will furnish the Depositary with: copies of all notices of shareholders’ meetings and other reports and communications that are made generally available to the Company’s shareholders.
| · | copies of all notices of shareholders’ meetings and other reports and communications that are made generally available to the Company’s shareholders. |
The Depositary will, as provided in the deposit agreement and if requested in writing by the Company, arrange for the mailing of such reports, notices and communications to all record holders of ADSs, on a basis similar to that for holders of Shares,shares, or on such other basis as the Company may advise the Depositary may be required by any applicable law or regulation or any requirement of any stock exchange to which the Company may be subject. Any reports and communications, including any proxy solicitation material, shall be furnished in English to the extent such materials are required to be translated into English pursuant to any regulations of the SEC. Any record holder of ADSs may read the reports, notices, and other communications including any proxy solicitation material at the Depositary’s office located at 60 Wall Street, New York, New York 10005. In addition, such reports, notices and other communications are made available to all shareholders and holders of ADSs on the Company’s website at: www.tenaris.com/investors.https://ir.tenaris.com/investor-relations Whenever a reference is made in this annual report to a contract or other document, please be aware that such reference is not necessarily complete and that you should refer to the exhibits that are a part of this annual report for a copy of the contract or other document. You may review a copy of the annual report at the SEC’s public reference room in Washington, D.C. I.
Not applicable. | Item 11. | Quantitative and Qualitative Disclosure Aboutabout Market Risk |
The multinational nature of our operations and customer base expose us to a variety of risks, including the effects of changes in foreign currency exchange rates, interest rates and commodity prices. In order to reduce the impact related to these exposures, management evaluates exposures on a consolidated basis to take advantage of natural exposure netting. For the residual exposures, we may enter into various derivative transactions in order to reduce potential adverse effects on our financial performance. Such derivative transactions are executed in accordance with internal policies and hedging practices. We do not enter into derivative financial instruments for trading or other speculative purposes, other than non-material investments in structured products. The following information should be read together with section III, “Financial risk management” to our audited consolidated financial statements included elsewhere in this annual report. Debt Structure The following tables provide a breakdown of our debt instruments at December 31, 20162019 and 20152018 which included fixed and variable interest rate obligations, detailed by maturity date: | At December 31, 2016 | | Expected maturity date | | | | At December 31, 2019 | | | Expected maturity date | | | | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | | | Thereafter | | | Total(1) | | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total (1) | | | | (in millions of U.S. dollars) | | | (in millions of U.S. dollars) | Non-current Debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed rate | | | — | | | | 1 | | | | 4 | | | | 3 | | | | 3 | | | | 19 | | | | 30 | | | | – | | | | 16 | | | | 23 | | | | – | | | | – | | | | – | | | | 40 | | Floating rate | | | — | | | | 0 | | | | 0 | | | | 0 | | | | 1 | | | | 0 | | | | 1 | | | | – | | | | 1 | | | | 0 | | | | – | | | | – | | | | – | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current Debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed rate | | | 790 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 790 | | | | 728 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 728 | | Floating rate | | | 18 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 18 | | | | 53 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 53 | | | | | | | | | | | | | | | | | | | | | | | | | | 781 | | | | 17 | | | | 24 | | | | – | | | | – | | | | – | | | | 822 | | | | | 809 | | | | 1 | | | | 4 | | | | 3 | | | | 4 | | | | 20 | | | | 840 | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2015 | | Expected maturity date | | | | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | Thereafter | | | Total (1) | | | | | | (in millions of U.S. dollars) | | | Non-current Debt | | | | | | | | | | | | | | | | Fixed rate | | | — | | | | 201 | | | | 1 | | | | 1 | | | | 1 | | | | 18 | | | | 223 | | | Floating rate | | | — | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | — | | | | 1 | | | Current Debt | | | | | | | | | | | | | | | | Fixed rate | | | 732 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 732 | | | Floating rate | | | 16 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 16 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 748 | | | | 201 | | | | 1 | | | | 1 | | | | 1 | | | | 18 | | | | 972 | | | | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2018 | | Expected maturity date | | | | | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total (1) | | | | (in millions of U.S. dollars) | | Non-current Debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed rate | | | – | | | | 4 | | | | 4 | | | | 20 | | | | – | | | | – | | | | 28 | | | Floating rate | | | – | | | | 0 | | | | 1 | | | | 0 | | | | – | | | | – | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Current Debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed rate | | | 493 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 493 | | | Floating rate | | | 17 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 17 | | | | | | 510 | | | | 4 | | | | 5 | | | | 20 | | | | – | | | | – | | | | 539 | |
_______________ | (1) | As most borrowings are based on short-term fixed rates, or floating rates that approximate market rates, with interest rate resetting every 3 to 6 months, the fair value of the borrowings approximates its carrying amount and is not disclosed separately. |
Our weighted average interest rates before tax (considering hedge accounting), amounted to 1.97%3.18% at December 31, 20162019 and to 1.52%3.98% at December 31, 2015.2018. Our financial liabilities (other than trade payables and derivative financial instruments) consist mainly of bank loans. As of December 31, 20162019, U.S. dollar denominated financial debt plus debt denominated in other currencies swapped to the U.S. dollar represented 96%89% of total financial debt. For further information about our financial debt, please see note 19 “Borrowings” to our audited consolidated financial statements included in this annual report. Interest Rate Risk Fluctuations in market interest rates create a degree of risk by affecting the amount of our interest payments. At December 31, 2016,2019, we had variable interest rate debt of $20$54 million and fixed rate debt of $821$768 million ($790728 million of the fixed rate debt are short-term). Foreign Exchange Rate Risk We manufacture and sell our products in a number of countries throughout the world and consequently we are exposed to foreign exchange rate risk. Since the Company’s functional currency is the U.S. dollar, the purpose of our foreign currency hedging program is mainly to reduce the risk caused by changes in the exchange rates of other currencies against the U.S. dollar. Most of our revenues are determined or influenced by the U.S. dollar. In addition, mosta relevant part of our costs correspondcorresponds to steelmaking raw materials and steel coils and plates, also determined or influenced by the U.S. dollar. However, outside the United States, a portion of our expenses is incurred in foreign currencies (e.g., labor costs). Therefore, when the U.S. dollar weakens in relation to the foreign currencies of the countries where we manufacture our products, the U.S. dollar-reported expenses increase. Had the U.S. dollar average exchange rate been weaker by 5% against the currencies of the countries where we have labor costs, operating income would have decreased approximately by $45$49 million in 2016,2019, compared with $64$50 million in 2015.2018. Our consolidated exposure to currency fluctuations is reviewed on a periodic basis. A number of hedging transactions are performed in order to achieve an efficient coverage in the absence of operative or natural hedges. Almost all of these transactions are forward exchange rate contracts. Because certain subsidiaries have functional currencies other than the U.S. dollar, the results of hedging activities as reported in the income statement under IFRS may not reflect entirely management’s assessment of its foreign exchange risk hedging needs. Also, intercompany balances between our subsidiaries may generate exchange rate results to the extent that their functional currencies differ. The value of our financial assets and liabilities is subject to changes arising out of the variation of foreign currency exchange rates. The following table provides a breakdown of our main financial assets and liabilities (including foreign exchange derivative contracts) that impact our profit and loss as of December 31, 2016.2019. | | | | | | | | All amounts in millions of U.S. dollars | | | | Currency Exposure | | Functional currency | | Long / (Short) Position | | | | | | | Currency Exposure
| | Functional currency
| | Long / (Short) Position | | Argentine Peso | | U.S. dollar | | | (6096 | ) | Euro | | U.S. dollar | | | (407104 | ) | U.S. dollar
Saudi Arabian Riyal | | Brazilian realU.S. dollar | | | 126(108 | ) |
The main relevant exposures as of December 31, 20162019 were to Argentine peso-denominated financial, trade, social and fiscal payables at our Argentine subsidiaries, for which the functional currency is the U.S. dollar, Euro-denominated intercompany liabilities at certain subsidiaries for which functional currency is the U.S. dollar, and CashSaudi Arabian Riyal-denominated financial and cash equivalent and Other investments denominated in U.S. dollars at subsidiaries for whichtrade payables. The Saudi Arabian Riyal is tied to the functional currency is the Brazilian real.dollar. Foreign Currency Derivative Contracts The net fair value of our foreign currency derivative contracts amounted to a liabilityan asset of $40$18.1 million at December 31, 20162019 and $16a liability of $2.8 million at December 31, 2015.2018. For further detail on our foreign currency derivative contracts, please see note 24 “Derivative financial instruments – Foreign exchange derivative contracts and hedge accounting” to our audited consolidated financial statements included in this annual report. Accounting for Derivative Financial Instruments and Hedging Activities Derivative financial instruments are classified as financial assets (or liabilities) at fair value through profit or loss. Their fair value is calculated using standard pricing techniques and, as a general rule, we recognize the full amount related to the change in its fair value under financial results in the current period. We designate for hedge accounting certain derivatives thatand non-derivative financial liabilities (leasing liabilities denominated in Japanese Yen) to hedge risks associated with recognized assets, liabilities or highly probable forecast transactions. These instruments are classified as cash flow hedges. The effective portion of the fair value of such derivatives is accumulated in a reserve account in equity. Similarly, the effective portion of the foreign exchange result on the designated leasing liability is recognized in equity. Amounts accumulated in equity are then recognized in the income statement in the same period when the offsetting losses and gains on the hedged item are recorded. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. The fair value of our derivative financial instruments (assets or liabilities) continues to be reflected on the consolidated statement of financial position. The lease liability is recognized on the balance sheet at each period end at the exchange rate as of the end of each month. At December 31, 2016,2019, the effective portion of designated cash flow hedges, included in other reserves in shareholders’ equity amounted to a losscredit of $5$2.6 million. Concentration of credit risk There is no significant concentration of credit from customers. No single customer comprised more than 10% of our net sales in 2016.2019. Our credit policies related to sales of products and services are designed to identify customers with acceptable credit history, and to allow us to use credit insurance, letters of credit and other instruments designed to minimize credit risk whenever deemed necessary. We maintain allowances for potential credit losses. Commodity Price Sensitivity We use commodities and raw materials that are subject to price volatility caused by supply conditions, political and economic variables and other unpredictable factors. As a consequence, we are exposed to risk resulting from fluctuations in the prices of these commodities and raw materials. Although we fix the prices of such raw materials and commodities for short-term periods, typically not in excess of one year, in general we do not hedge this risk. | Item 12. | Description of Securities Other Than Equity Securities |
A.
Not applicable. B.
Not applicable. C.
Not applicable. D.
| D. | American Depositary Shares |
According to our deposit agreement, holders of ADSs may have to pay to the Depositary, either directly or indirectly, fees or charges up to the amounts set forth below: A fee of $5.00 (or less) per 100 ADSs (or portion of 100 ADSs) for: issuance of ADSs, including issuances resulting from a distribution of Shares | · | A fee of $5.00 (or less) per 100 ADSs (or portion of 100 ADSs) for: issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property; and cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates. |
| · | A fee of $0.02 (or less) per ADSs for any cash distribution to ADS registered holders, excluding cash dividend. |
| · | Any charges for taxes and other governmental charges that the Depositary or the custodian may be required to pay on any ADS or share underlying an ADS (e.g., share transfer taxes, stamp duty or withholding taxes); and any charges incurred by the Depositary or its agents for servicing the depositary securities. |
| · | Registration or transfer fees for transfer and registration of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw shares. |
A fee of $0.02 (or less) per ADSs for any cash distribution to ADS registered holders, excluding cash dividend.
| · | Expenses of the Depositary for cable, telex and facsimile transmissions (when expressly provided in the deposit agreement); and conversion of foreign currency. |
As necessary, charges for taxes and other governmental charges the Depositary or the custodian have to pay on any ADS or Share underlying an ADS (e.g., share transfer taxes, stamp duty or withholding taxes).
| · | A fee equivalent to the fee that would be payable if securities distributed to ADS holders had been shares and the shares had been deposited for issuance of ADSs for distribution of securities distributed to holders of deposited securities which are distributed by the Depositary to ADS registered holders. |
Registration or transfer fees for transfer and registration of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw Shares.
| · | As necessary, charges for any costs incurred by the Depositary or its agents for servicing the deposited securities. |
Expenses of the Depositary for cable, telex and facsimile transmissions (when expressly provided in the deposit agreement); and conversion of foreign currency.
A fee equivalent to the fee that would be payable if securities distributed to ADS holders had been Shares and the Shares had been deposited for issuance of ADSs for distribution of securities distributed to holders of deposited securities which are distributed by the Depositary to ADS registered holders.
As necessary, charges for any costs incurred by the Depositary or its agents for servicing the deposited securities.
The Depositary collects its fees for delivery and surrender of ADSs directly from investors depositing Sharesshares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The Depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The Depositary may generally refuse to provide fee-attracting services until its fees for those services are paid. Under the deposit agreement with the Depositary, the Depositary is not liable to holders of ADSs, except that the Depositary agrees to perform its obligations specifically set forth therein without gross negligence and willful misconduct. Fees Payable by the Depositary to the Company Fees incurred in 2016
For the year ended December 31, 2016,On June 21, 2019, the Company and Deutsche Bank Trust Company Americas entered into a new five-year engagement effective as of March 13, 2018. No amendments to the existing ADS Deposit Agreement were made in connection with the new engagement letter.
Fees paid in 2019 and 2020 In 2019, the Company received $2.5 million in fees from Deutsche Bank Trust Company Americas, as the Company’s Depositary, for continuing annual stock exchange listing fees, standard out-of-pocket maintenance costsan amount of $1,077,194, for the ADSs (consisting of the expenses of postageperiod March 13, 2018 through February 28, 2019, and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls), any applicable performance indicators relating to the ADS program, underwriting fees and legal fees. Fees to be paid in the future
Deutsche Bank Trust Company Americas, has agreed to reimburse2020 the Company annuallyreceived fees from the Depositary for certain investor relations expenses or other expenses related to the maintenancean amount of the Company’s ADR Program, including for its continuing annual stock exchange listing fees, investor relations expenses, legal, accounting (including audit) and advisory expenses$1,260,803.73, in any jurisdiction, expenses related to compliance with federal or state securities laws, marketing and financial advertising expenses, public relations activities, roadshows, conferences or any other expenses related to the Company’s ADR Program. There are limitseach case based on the amountDepositary’s revenues resulting from issuance and cancellation fees charged to ADR holders, net of expenses for whichcustody and safe keeping costs. In addition, the Depositary will reimburse the Company, but the amount of reimbursement available to the Company is not necessarily tied to the amount of fees the Depositary collects from investors. The Depositary has also agreed to waivewaived the cost of providing certain administrative and reporting services, which includes preparing and filing U.S. information returns, issuing and mailing dividend checks, mailing shipment of ADRs, preparing periodic reports on the ADR Program, liaisingaccess charges in connection with the Depositary Trust Company, and distributing the Company’s reports and communications to holders of ADSs.
ADR Program.PART II | Item 13. | Defaults, Dividend Arrearages and Delinquencies |
None. | Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
None. | Item 15. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of December 31, 2016.2019). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2016,2019, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at a reasonable assurance level. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting was designed by management to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of its financial statements for external purposes in accordance with IFRS. In addition, under the Company’s articles of association, as supplemented by the audit committee’s charter, the audit committee assists the board of directors in fulfilling its oversight responsibilities relating to the effectiveness of the Company’s systems of internal control, risk management and internal audit over financial reporting. In particular, the audit committee is required to review the scope and results of the activities of the Company’s external auditors and the internal audit function relating to the Company’s internal control over financial reporting, and obtain reports on significant findings and recommendations; and is also required to assess, at least annually at the time the annual accounts are approved, the effectiveness of the Company’s systems of internal control and risk management over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements or omissions. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management conducted
On a yearly basis, management conducts its assessment of the effectiveness of ourTenaris’s internal control over financial reporting based on the framework inInternal Control—Control- Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Commission. Based
On February 18, 2020, management reported to the audit committee of the Company���s board of directors that management had conducted its assessment of the effectiveness of the Company’s internal controls over financial reporting for the year ended December 31, 2019, and that, based on this assessment,management’s evaluation and considering the inherent limitations to the effectiveness of any internal control system, management hashad concluded that Tenaris’sthe Company’s internal controlcontrols over financial reporting were effective as of December 31, 2016, is effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.2019. The effectiveness of Tenaris’s internal control over financial reporting as of December 31, 20162019 has been audited by PwC Luxembourg, as stated in their report included herein. See “—ReportAttestation of Independent Registered Public Accounting Firm.”Firm”. Attestation Report of Registered Public Accounting Firm See page F-1 of the audited consolidated financial statements included in this report. Change in Internal Control over Financial Reporting There have beenwere no changes in our internal control over financial reporting (as such term is defined in Rules 13(a)-15(f) and 15(d)-15(f) under the Exchange Act) during 2016the year ended December 31, 2019, that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting. | Item 16A. | Audit Committee Financial Expert |
The Company’s board of directors has determined that none of the audit committee members do not meetmeets the attributes defined in Item 16A of Form 20-F for an “audit committee financial experts”expert”. However, itapplicable Luxembourg law requires that at least one of the audit committee members have competence in accounting or auditing matters, and the Company’s board of directors has concludeddetermined that Ms. Mónica Tiuba has the membership ofrequisite competence. In addition, the audit committee as a whole has sufficient recentrelevant knowledge of the business and relevant financial experience to properly discharge its functions. In addition,The audit committee has the audit committee,authority to engage, from time to time and as it deems necessary, engages persons that meet all of the attributes of an “audit committee financial expert” as consultants. In addition to the
The Company has adopted a general code of conduct incorporating guidelines and standards of integrity and transparency applicable to all of our directors, officers and employees, we haveemployees. As far as the nature of each relation permits, all principles detailed in the code of conduct also apply to relations with our contractors, subcontractors, suppliers and associated persons. In addition, the Company has adopted a code of ethics for financial officers, which applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and is intended to supplement the Company’s code of conduct.conduct, and applies specifically to the principal executive officer, the principal financial officer, the principal accounting officer or controller, as well as persons performing similar functions. The text of our codes
Our code of conduct and our code of ethics isfor senior financial officers are posted on our Internet website at: https://www.tenaris.com/en/aboutus/codeofconduct.aspxsustainability/governance-and-ethics/ | Item 16C. | Principal Accountant Fees and Services |
Fees Paidpaid to the Company’s Principal Accountant In 20162019 and 2015,2018, PwC Luxembourg served as the principal external auditor for the Company. Fees payablepaid to PwC in 2016Luxembourg and 2015other PwC member firms for the years ended December 31, 2019 and December 31, 2018 are detailed below. | | | | For the year ended December 31, | | | For the year ended December 31, | | Thousands of U.S. dollars | | 2016 | | | 2015 | | | 2019 | | 2018 | | | | | | | | Audit Fees | | | 3,588 | | | | 4,372 | | | | 3,846 | | | | 3,841 | | Audit-Related Fees | | | 64 | | | | 78 | | | | 50 | | | | 43 | | Tax Fees | | | 14 | | | | 25 | | | | 7 | | | | – | | All Other Fees | | | 3 | | | | 15 | | | | 1 | | | | 7 | | | | | | | | | | Total | | | 3,669 | | | | 4,490 | | | | 3,904 | | | | 3,891 | | | | | | | | | |
Audit Fees Audit fees were paid for professional services rendered by the external auditors for the audit of the consolidated financial statements and internal control over financial reporting of the Company, the statutory financial statements of the Company and its subsidiaries, and any other audit services required forin connection with the SECCompany´s filings with the U.S. Securities and Exchange Commission or other regulatory filings. Audit-Related Fees Audit-related fees are typically services that are reasonably related to the performance of the audit or review of the consolidated financial statements of the Company and the statutory financial statements of the Company and its subsidiaries and are not reported under the audit fee item above. This item includes, among others, fees for attestation services on financial information of the Company and its subsidiaries included in their annual reports that are filed with their respectivethe applicable regulators. Tax Fees Fees
Tax fees paid for tax compliance and tax advice professional services. All Other Fees Other
Consisted primarily of fees paid for services provided in connection with training courses to PwC include fees for the support in the assessment of processes and certifications. Tenaris employees.Audit Committee’s Pre-approval Policies and Procedures The Company’s audit committee is responsible for, among other things, the oversight of the Company’s independentexternal auditors. The audit committee has adopted in its charter a policy of pre-approval of audit and permissible non-audit services provided by its independentexternal auditors. Under the policy, the audit committee makes its recommendations to the shareholders’ meeting concerning the continuing appointment or termination of the Company’s independentexternal auditors. On a yearly basis, the audit committee reviews together with management and the independentexternal auditor, the audit plan, audit related services and other non-audit services and approves,ad-referendum of the general shareholders’ meeting, the related fees. Any changes to the approved fees must be reviewed and approved by the audit committee. The general shareholders’ meeting normally approves such audit fees and authorizes the audit committee to approve any increase or reallocation of such audit fees as may be necessary, appropriate or desirable under the circumstances. The audit committee delegates to its Chairman the authority to consider and approve, on behalf of the audit committee, additional non-audit services that were not recognized at the time of engagement, which must be reported to the other members of the audit committee at its next meeting. No services outside the scope of the audit committee’s approval can be undertaken by the independentexternal auditor. The
During 2019, the audit committee did not approve any fees pursuant to thede minimis exception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X during 2016 or 2015.S-X. | Item 16D. | Exemptions from the Listing Standards for Audit Committees |
Not applicable. | Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
In 2016,2019, there were no purchases of any class of registered equity securities of the Company by the Company or, to our knowledge, by any “affiliated purchaser” (as such term is defined in Rule 10b-18(a)(3) under the Exchange Act). On May 6, 2015, at the Company’sannual ordinary general meeting of shareholders, the Company’s shareholders, authorized the Company and the Company’s subsidiaries to acquire, from time to time, Shares,shares of the Company, including shares represented by ADSs (collectively “Securities”), on the following terms and conditions: Purchases, acquisitions or receipts of securities may be made in one or more transactions as the Board of Directors or the board of directors or other governing bodies of the relevant entity, as applicable, considers advisable.
The maximum number of securities acquired pursuant to this authorization may not exceed 10% of the Company’s issued and outstanding shares or, in the case of acquisitions made through a stock exchange in which the securities are traded, such lower amount as may not be exceeded pursuant to any applicable laws or regulations of such market. The number of securities acquired as a block may amount to the maximum permitted amount of purchases.
The purchase price per share to be paid in cash may not exceed 125% (excluding transaction costs and expenses), nor may it be lower than 75% (excluding transaction costs and expenses), in each case of the average of the closing prices of the Company’s securities in the stock exchange through which the Company’s securities are acquired, during the five trading days in which transactions in the securities were recorded in such stock exchange preceding (but excluding) the day on which the Company’s securities are acquired. For over-the-counter or off-market transactions, the purchase price per ADR to be paid in cash may not exceed 125% (excluding transaction costs and expenses), nor may it be lower than 75% (excluding transaction costs and expenses), in each case of the average of the closing prices of the ADSs in the New York Stock Exchange during the five trading days in which transactions in ADSs were recorded in the New York Stock Exchange preceding (but excluding) the day on which the ADSs are acquired; and, in the case of acquisition of securities, other than in the form of ADSs, such maximum and minimum per security purchase prices shall be equal to the prices that would have applied in case of an ADS purchase pursuant to the formula above divided by the number of underlying shares represented by an ADS at the time of the relevant purchase. Compliance with maximum and minimum purchase price requirements in any and all acquisitions made pursuant to this authorization (including, without limitation, acquisitions carried out through the use of derivative financial instruments or option strategies) shall be determined on and as of the date on which the relevant transaction is entered into, irrespective of the date on which the transaction is to be settled.
The above maximum and minimum purchase prices shall, in the event of a change in the par value of the shares, a capital increase by means of a capitalization of reserves, a distribution of shares under compensation or similar programs, a stock split or reverse stock split, a distribution of reserves or any other assets, the redemption of capital, or any other transaction impacting on the Company’s equity, be adapted automatically, so that the impact of any such transaction on the value of the shares shall be reflected.
The acquisitions of securities may not have the effect of reducing the Company’s net assets below the sum of the Company’s capital stock plus its undistributable reserves.
Only fully paid-up securities may be acquired pursuant to this authorization.
The acquisitions of securities may be carried out for any purpose, as may be permitted under applicable laws and regulations, including without limitation to reduce the share capital of the Company, to offer such shares to third parties in the context of corporate mergers or acquisitions of other entities or participating interests therein, for distribution to the Company’s or the Company’s subsidiaries’ directors, officers or employees or to meet obligations arising from convertible debt instruments.
The acquisitions of securities may be carried out by any and all means, as may be permitted under applicable laws and regulations, including through any stock exchange in which the Company’s securities are traded, through public offers to all shareholders of the Company to buy securities, through the use of derivative financial instruments or option strategies, or in over-the-counter or off-market transactions or in any other manner.
The acquisitions of securities may be carried out at any time, during the duration of the authorization, including during a tender offer period, as may be permitted under applicable laws and regulations.
The authorization granted to acquire securities shall be valid for such maximum period as may be provided for under applicable Luxembourg law as in effect from time to time (such maximum period being, as of to date, 5 years).
The acquisitions of securities shall be made at such times and on such other terms and conditions as may be determined byset forth below. Although the Board of Directors or the board of directors or other governing bodies of the relevant entity, provided that, any such purchase shall comply with Article 49-2 et. seq. of the Luxembourg law of August 10, 1915 on commercial companies (or any successor law) and, in the case of acquisitions of securities made through a stock exchange in which the Company’s securities are traded, with any applicable laws and regulationsvalidity period of such authorization will expire on May 6, 2020, the general shareholders’ meeting to be held on June 2, 2020, will consider a renewal of such authorization for five additional years. | · | Purchases, acquisitions or receipts of securities may be made in one or more transactions as the board of directors of the Company or the board of directors or other governing bodies of the relevant entity, as applicable, considers advisable. |
| · | The maximum number of Securities acquired pursuant to this authorization may not exceed 10% of the Company’s issued and outstanding shares or, in the case of acquisitions made through a stock exchange in which the Securities are traded, such lower amount as may not be exceeded pursuant to any applicable laws or regulations of such market. The number of Securities acquired as a block may amount to the maximum permitted amount of purchases. |
| · | The purchase price per share to be paid in cash may not exceed 125% (excluding transaction costs and expenses), nor may it be lower than 75% (excluding transaction costs and expenses), in each case of the average of the closing prices of the Company’s Securities in the stock exchange through which the Company’s Securities are acquired, during the five trading days in which transactions in the Securities were recorded in such stock exchange preceding (but excluding) the day on which the Company’s Securities are acquired. For over-the-counter or off-market transactions, the purchase price per ADS to be paid in cash may not exceed 125% (excluding transaction costs and expenses), nor may it be lower than 75% (excluding transaction costs and expenses), in each case of the average of the closing prices of the ADSs in the New York Stock Exchange during the five trading days in which transactions in ADSs were recorded in the New York Stock Exchange preceding (but excluding) the day on which the ADSs are acquired; and, in the case of acquisition of Securities, other than in the form of ADSs, such maximum and minimum per security purchase prices shall be equal to the prices that would have applied in case of an ADS purchase pursuant to the formula above divided by the number of underlying shares represented by an ADS at the time of the relevant purchase. Compliance with maximum and minimum purchase price requirements in any and all acquisitions made pursuant to this authorization (including, without limitation, acquisitions carried out through the use of derivative financial instruments or option strategies) shall be determined on and as of the date on which the relevant transaction is entered into, irrespective of the date on which the transaction is to be settled. |
| · | The above maximum and minimum purchase prices shall, in the event of a change in the par value of the Securities, a capital increase by means of a capitalization of reserves, a distribution of Securities under compensation or similar programs, a stock split or reverse stock split, a distribution of reserves or any other assets, the redemption of capital, or any other transaction impacting on the Company’s equity, be adapted automatically, so that the impact of any such transaction on the value of the Securities shall be reflected. |
| · | The acquisitions of Securities may not have the effect of reducing the Company’s net assets below the sum of the Company’s share capital plus its undistributable reserves. |
| · | Only fully paid-up Securities may be acquired pursuant to this authorization. |
| · | The acquisitions of Securities may be carried out for any purpose, as may be permitted under applicable laws and regulations, including without limitation to reduce the share capital of the Company, to offer such shares to third parties in the context of corporate mergers or acquisitions of other entities or participating interests therein, for distribution to the Company’s or the Company’s subsidiaries’ directors, officers or employees or to meet obligations arising from convertible debt instruments. |
| · | The acquisitions of Securities may be carried out by any and all means, as may be permitted under applicable laws and regulations, including through any stock exchange in which the Company’s Securities are traded, through public offers to all shareholders of the Company to buy Securities, through the use of derivative financial instruments or option strategies, or in over-the-counter or off-market transactions or in any other manner. |
| · | The acquisitions of Securities may be carried out at any time, during the duration of the authorization, including during a tender offer period, as may be permitted under applicable laws and regulations. |
| · | The authorization granted to acquire securities shall be valid for such maximum period as may be provided for under applicable Luxembourg law as in effect from time to time (such maximum period being, as of to date, 5 years). |
| · | The acquisitions of securities shall be made at such times and on such other terms and conditions as may be determined by the board of directors of the Company or the board of directors or other governing bodies of the relevant subsidiary, provided that, any such purchase shall comply with Article 430-15 et. seq. of the Luxembourg Company Law (or any successor law) and, in the case of acquisitions of securities made through a stock exchange in which the Company’s securities are traded, with any applicable laws and regulations of such market. |
In the future, we may, on the terms and subject to the conditions above referred, initiate a stockshare capital repurchase or similar program or engage in other transactions pursuant to which we would repurchase, directly or indirectly, the Company’s securities.Securities. In addition, we or our subsidiaries may enter into transactions involving sales or purchases of derivatives or other instruments, either settled in cash or through physical delivery of securities, with returns linked to the Company’s securities.Securities. The timing and amount of repurchase transactions under any such program, or sales or purchases of derivatives or other instruments, would depend on market conditions as well as other corporate and regulatory considerations. | Item 16F. | Change in Registrant’s Certifying Accountant |
Not applicable | Item 16G. | Corporate Governance |
The Company’s corporate governance practices are governed by Luxembourg Law (including, among others, the law of August 10, 1915 on commercial companies,Luxembourg Company Law, the lawLuxembourg Law of January 11, 2008 implementingon transparency requirements for issuers, as amended (which transposes EU Directive 2004/109 of the European Union’s transparency directiveParliament and of the Council of December 15, 2004), the Shareholders’ Rights Law and the law of May 24, 2011, implementing the European Union’s directive on the exercise of certain shareholders’ rights in general meetings of listed companies)Audit Reform Law) and by the Company’s articles of association. As a Luxembourg company listed on the New York Stock Exchange (the NYSE), the Bolsa Mexicana de Valores, S.A. de C.V. (the Mexican Stock Exchange), and the Bolsa de Comercio de Buenos Aires (the Buenos Aires Stock Exchange) and Borsa Italiana S.p.A. (the Italian Stock Exchange), the Company is required to comply with some, but not all, of the corporate governance standards of these exchanges. The Company, however, believes that the Company’s corporate governance practices meet, in all material respects, the corporate governance standards that are generally required for controlled companies by all of the exchanges on which the Company’s securities trade. The following is a summary of the significant ways that the Company’s corporate governance practices differ from the corporate governance standards required for controlled companies by the NYSE. The Company’s corporate governance practices may differ in non-material ways from the standards required by the NYSE that are not detailed here. Non-management directors’ meetings Under NYSE standards, non-management directors must meet at regularly scheduled executive sessions without management present and, if such group includes directors who are not independent, a meeting should be scheduled once per year including only independent directors. Neither Luxembourg law nor the Company’s articles of association require the holding of such meetings and the Company does not have a set policy for these meetings. For additional information on board meetings, see Item 6.A. “Directors, Senior Management and Employees – Directors and Senior Management – Board of Directors.”Directors”. In addition, NYSE-listed companies are required to provide a method for interested parties to communicate directly with the non-management directors as a group. While the Company does not have such a method, it has set up a compliance line for investors and other interested parties to communicate their concerns directly to the members of our audit committee, all of whom are non-management, independent directors. Audit committee Under NYSE standards, listed U.S. companies are required to have an audit committee composed of independent directors that satisfiessatisfy the requirements of Rule 10A-3 promulgated under the Exchange Act. ThePursuant to the Company’s articles of association, currently requireas supplemented by the audit committee’s charter, for as long as our shares are listed on at least one regulated market, the Company must have an audit committee composed of at least three members, the majority of which at least twowhom must bequalify as independent directors (as defined in the Company’s articles of association), provided, however, that the composition and membership of the audit committee shall satisfy such requirements as are applicable to, and mandatory for, audit committees of issuers such as the Company under any law, rule or regulation applicable to the Company (including, without limitation, the applicable laws, rules and regulations of such regulated market or markets). The Company’s audit committee, which currently consists of four members, complies with such requirements. In accordance with NYSE standards, the Company has an audit committee entirely composed of independent directors.directors for purposes of the U.S. Securities Exchange Act Rule 10A-3(b)(1). For more information on the Company’s audit committee see Item 6.C. “Directors, Senior Management and Employees –Employees– Board Practices – Audit Committee.”Committee”. Under NYSE standards, all audit committee members of listed U.S. companies are required to be financially literate or must acquire such financial knowledge within a reasonable period and at least one of its members shall have experience in accounting or financial administration. In addition, if a member of the audit committee is simultaneously a member of the audit committee of more than three public companies, and the listed company does not limit the number of audit committees on which its members may serve, then in each case the board must determine whether the simultaneous service would prevent such member from effectively serving on the listed company’s audit committee and shall publicly disclose its decision. Luxembourg law provisions on audit committee membership require only that at least one member of the audit committee have competence in accounting or auditing.auditing matters. The Company’s board of directors of the Company has concludeddetermined that Ms. Tiuba is competent in accounting or auditing matters. In addition, the membership of the audit committee as a whole has sufficient recentrelevant knowledge of the business and relevant financial experience to properly discharge its functions. In addition,The audit committee has the audit committee,authority, from time to time and as it deems necessary, engagesto engage persons that meet all of the attributes of a financial expert as consultants. See Item 16.A. “Audit Committee Financial Expert.”Expert”. Standards for evaluating director independence Under the NYSE standards, the board is required, on a case by case basis, to express an opinion with regard to the independence or lack of independence of each individual director. Neither Luxembourg law nor the Company’s articles of association requires the board of directors to express such an opinion. In addition, the definition of “independent” under the NYSE rules differ in some non-material respects from the definition contained in the Company’s articles of association. For more information on our independent directors and the definition of “independent” under our articles of association see Item 6.A. “Directors, Senior Management and Employees – Directors and Senior Management – Board of Directors” and Item 6.C. “Directors, Senior Management and Employees – Board Practices – Audit Committee.”Committee”. Audit committee responsibilities Pursuant to the Company’s articles of association, the audit committee shall assist the board of directors in fulfilling its oversight responsibilities relating to the integrity of its consolidated financial statements, and systemthe effectiveness of its systems of internal controlscontrol, risk management and internal audit over financial reporting and the independence and performance of the independentexternal auditors. The audit committee is required to review material transactions (as defined by our articles of association) between the Company or its subsidiaries with related parties and also perform the other duties entrusted to it by the board. The NYSE requires certain matters to be set forth in the audit committee charter of U.S. listed companies. The Company’s audit committee charter provides for many of the responsibilities that are expected from such bodies under the NYSE standard;standard and in accordance with applicable Luxembourg law, including the Audit Reform Law; however, due to the Company’s equity structure and holding company nature, the charter does not contain all such responsibilities, including provisions related to procedures for the receipt and treatment of complaints (although he Company has established such procedures), funding for payment of administrative expenses and compensation to advisors (although the audit committee has the authority to engage outside advisors), setting hiring policies for employees or former employees of independentexternal auditors, discussion of risk assessment and risk management policies, and an annual performance evaluation of the audit committee. However, our audit committee from time to time monitors the effectiveness of the Company’s risk management systems. For more information on our audit committee see Item 6.C. “Directors, Senior Management and Employees – Board Practices – Audit Committee.” Committee”.Shareholder voting on equity compensation plans Under NYSE standards, shareholders must be given the opportunity to vote on equity-compensation plans and material revisions thereto, except for employment inducement awards, certain grants, plans and amendments in the context of mergers and acquisitions, and certain specific types of plans. The Company does not currently offer equity basedequity-based compensation to ourits directors, senior management or employees, and therefore does not have a policy on this matter. For more information on directors’ compensation see Item 6.B. “Directors, Senior Management and Employees – Compensation.”Compensation”. The Shareholders’ Rights Law requires the Company to adopt a Compensation Policy setting forth the principles and guidelines for purposes of determining the compensation payable to the members of the Company’s board of directors and the managing director or chief executive officer. Such Compensation Policy must be submitted to the non-binding vote of the shareholders. In addition, the Shareholders’ Rights Law provides that the Company must prepare an annual report describing the compensation paid to directors and the chief executive officer for the performance of their duties and submit such report to the shareholders for approval. The Compensation Policy and Compensation Report must be available on the Company’s website. For more information on the Compensation Policy and the 2019 Compensation Report see Item 6.B. “Directors, Senior Management and Employees – Compensation”. Disclosure of corporate governance guidelines NYSE-listed companies must adopt and disclose corporate governance guidelines. Neither Luxembourg law nor the Company’s articles of association require the adoption or disclosure of corporate governance guidelines. The Company’s board of directors follows corporate governance guidelines consistent with its equity structure and holding company nature, but the Company has not codified them and therefore does not disclose them on its website. Code of business conduct and ethics Under NYSE standards, listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. Neither Luxembourg law nor the Company’s articles of association require the adoption or disclosure of such a code of conduct. The Company, however, has adopted a code of conduct that applies to all directors, officers and employees that is posted on its website and which complies with the NYSE’s requirements, except that it does not require the disclosure of waivers of the code for directors and officers. In addition, it has adopted a supplementary code of ethics for senior financial officers, which is also posted on our website. See Item 16.B. “Code of Ethics.”Ethics”. Chief executive officerExecutive Officer certification A chief executive officerChief Executive Officer of a U.S. company listed on the NYSE must annually certify that he or she is not aware of any violation by the company of NYSE corporate governance standards. In accordance with NYSE rules applicable to foreign private issuers, the Company’s chief executive officer is not required to provide the NYSE with this annual compliance certification. However, in accordance with NYSE rules applicable to all listed companies, the Company’s chief executive officerChief Executive Officer must promptly notify the NYSE in writing after any of our executive officers becomes aware of any noncompliance with any applicable provision of the NYSE’s corporate governance standards. In addition, the Company must submit an executed written affirmation annually and an interim written affirmation upon the occurrence of any of the events listed in the foreign private issuer interim written affirmation form by the NYSE. | Item 16H. | Mine Safety Disclosure |
Not applicable. PART III | Item 17. | Financial Statements |
We have responded to Item 18 in lieu of responding to this Item. | Item 18. | Financial Statements |
See pages F-1 through F-57F-64 of this annual report. | * | IncorporatedThe Updated and Consolidated Articles of Association is incorporated by reference to the Annual ReportExhibit 1.1 on Form 20-F filed by Tenaris S.A. on June 1, 2015April 3, 2019 (File No. 001-31518- 15904531)001-31518). |
| ** | The Amended and Restated Deposit Agreement is incorporated by reference to the Registration Statement on Form F-6 filed by Tenaris S.A. on February 25, 2013 (File No. 333-186825). |
SIGNATURES
The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| | | | | May 1, 2017103 | | TENARIS S.A. | | | | | | By | | /s/ Edgardo Carlos
| | | Name: | | Edgardo Carlos | | | Title: | | Chief Financial Officer |
EXHIBIT INDEX
| | | Exhibit
Number
| | Description
| | | 1.1 | | Updated and Consolidated Articles of Association of Tenaris S.A., dated as of May 6, 2015* | | | 2.1 | | Amended and Restated Deposit Agreement entered into between Tenaris S.A. and Deutsche Bank Trust Company Americas ** | | | 7.1 | | Statement Explaining Calculation of Ratios | | | 7.2 | | Statement Explaining Alternative Performance Measures | | | 8.1 | | List of Subsidiaries of Tenaris S.A. | | | 12.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | 12.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | 13.1 | | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | 13.2 | | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* | Incorporated by reference to the Annual Report on Form 20-F, filed by Tenaris S.A. on June 1, 2015 (File No. 001-31518- 15904531) |
** | The Amended and Restated Deposit Agreement is incorporated by reference to the Registration Statement on Form F-6 filed by Tenaris S.A. on February 25, 2013 (File No. 333-186825). |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
TENARIS S.A. CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2016, 20152019, 2018 and 20142017 29, Avenue de la Porte-Neuve
26, Boulevard Royal – 3rd4th Floor. L – 22272449 Luxembourg R.C.S. Luxembourg: B 85 203 
Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholdersshareholders of Tenaris S.A.
Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting In our opinion,We have audited the accompanying consolidated statementstatements of financial position of Tenaris S.A. and its subsidiaries (the “Company”) as of 31 December 2019 and 2018, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended 31 December 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of 31 December 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tenaris S.A. and its subsidiaries atthe Company as of 31 December 20162019 and 31 December 2015,2018, and the results of theirits operations and theirits cash flows for each of the three years in the period ended 31 December 20162019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with International Financial Reporting Standards as adopted by the European Union. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of 31 December 2016,2019, based on criteria established in Internal Control –- Integrated Framework 2013(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO.
Basis for Opinions The Company’sCompany's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in “Management’s reportManagement's Report on internal controlInternal Control over financial reporting”Financial Reporting appearing under Item 15. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements and on the Company’sCompany's internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. PricewaterhouseCoopers, Société coopérative, 2 rue Gerhard Mercator, B.P. 1443, L-1014 Luxembourg T : +352 494848 1, F : +352 494848 2900, www.pwc.lu Cabinet de révision agréé. Expert-comptable (autorisation gouvernementale n°10028256) R.C.S. Luxembourg B 65 477 - TVA LU25482518 We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Recoverability of long-lived assets - U.S. seamless and welded tube businesses (Maverick and Bay City) As described in Notes 2.G, 9 and 10 to the consolidated financial statements, at 31 December 2019, the Company’s goodwill balance was 1,320 million USD and the property, plant and equipment balance was 6,090 million USD, of which 225 million USD of goodwill and a significant portion of property, plant and equipment relates to the U.S. seamless and welded tube businesses (Maverick and Bay City). Goodwill is subject to at least an annual impairment test. Assets that are subject to amortisation are reviewed for impairment by management whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Management has determined the recoverable amount of these assets based on value in use. Value in use is calculated by discounting the estimated cash flows over a five-year period based on forecasts approved by management. Management judgment is required to estimate discounted future cash flows. The main key assumptions used by management in estimating the value in use of the U.S. seamless and welded tube businesses (Maverick and Bay City) are discount rate, growth rate, oil and gas prices, average number of active oil and gas drilling rigs and raw material costs. The principal considerations for our determination that performing procedures relating to the recoverability of goodwill and property, plant and equipment of the U.S. seamless and welded tube businesses is a critical audit matter are (i) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the determination of recoverable amounts due to the significant amount of judgment by management when developing the estimates; (ii) significant audit effort was required in evaluating the significant assumptions and future cash flows related to the estimates, such as discount rate, growth rate, oil and gas prices, average number of active oil and gas drilling rigs and raw material costs; and (iii) the audit effort involved the use of professionals with specialised skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the recoverability of long-lived assets, including controls over management’s analysis of impairment indicators and controls over the review of assumptions used and discounted cash flow calculations. These procedures also included testing management’s process for determining the value in use. This included evaluating the appropriateness of the valuation method, testing the accuracy and relevance of the underlying data used in the model and evaluating the reasonableness of significant assumptions, including discount rate, growth rate, oil and gas prices, average number of active oil and gas drilling rigs and raw materials costs. Evaluating the significant assumptions related to oil and gas prices, average number of active oil and gas drilling rigs and raw material costs involved (i) evaluating whether the assumptions used were reasonable considering current and past performance of the businesses and consistency with external market and industry data and (ii) comparing actual cash flow results with previous forecasts. Professionals with specialised skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model and certain significant assumptions, including the discount rate and the growth rate. | PricewaterhouseCoopers, Société coopérative Represented by
| | Luxembourg, 1 May30 April 2020 |
Represented by Fabrice Goffin We have served as the Company’s auditor since 2011. 4 | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
/s/ Fabrice Goffin
Fabrice Goffin
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014CONSOLIDATED INCOME STATEMENT
| (all amounts in thousands of US dollars, unless otherwise stated) | | | | Year ended December 31, | | | | | Notes | | 2019 | | | 2018 | | | 2017 | | | Continuing operations | | | | | | | | | | | | | | | | Net sales | | 1 | | | 7,294,055 | | | | 7,658,588 | | | | 5,288,504 | | | Cost of sales | | 2 | | | (5,107,495 | ) | | | (5,279,300 | ) | | | (3,685,057 | ) | | Gross profit | | | | | 2,186,560 | | | | 2,379,288 | | | | 1,603,447 | | | Selling, general and administrative expenses | | 3 | | | (1,365,974 | ) | | | (1,509,976 | ) | | | (1,270,016 | ) | | Other operating income | | 5 | | | 23,004 | | | | 15,059 | | | | 10,516 | | | Other operating expenses | | 5 | | | (11,199 | ) | | | (12,558 | ) | | | (9,359 | ) | | Operating income | | | | | 832,391 | | | | 871,813 | | | | 334,588 | | | Finance income | | 6 | | | 47,997 | | | | 39,856 | | | | 47,605 | | | Finance cost | | 6 | | | (43,381 | ) | | | (36,942 | ) | | | (27,072 | ) | | Other financial results | | 6 | | | 14,667 | | | | 34,386 | | | | (43,550 | ) | | Income before equity in earnings of non-consolidated companies and income tax | | | | | 851,674 | | | | 909,113 | | | | 311,571 | | | Equity in earnings of non-consolidated companies | | 12 | | | 82,036 | | | | 193,994 | | | | 116,140 | | | Income before income tax | | | | | 933,710 | | | | 1,103,107 | | | | 427,711 | | | Income tax | | 7 | | | (202,452 | ) | | | (229,207 | ) | | | 17,136 | | | Income for continuing operations | | | | | 731,258 | | | | 873,900 | | | | 444,847 | | | | | | | | | | | | | | | | | | | Discontinued operations | | | | | | | | | | | | | | | | Result for discontinued operations | | 29 | | | - | | | | - | | | | 91,542 | | | Income for the year | | | | | 731,258 | | | | 873,900 | | | | 536,389 | | | | | | | | | | | | | | | | | | | Attributable to: | | | | | | | | | | | | | | | | Owners of the parent | | | | | 742,686 | | | | 876,063 | | | | 544,737 | | | Non-controlling interests | | | | | (11,428 | ) | | | (2,163 | ) | | | (8,348 | ) | | | | | | | 731,258 | | | | 873,900 | | | | 536,389 | | | Earnings per share attributable to the owners of the parent during the year: | | | | | | | | | | | | | | | | Weighted average number of ordinary shares (thousands) | | | | | 1,180,537 | | | | 1,180,537 | | | | 1,180,537 | | | Continuing operations | | | | | | | | | | | | | | | | Basic and diluted earnings per share (U.S. dollars per share) | | | | | 0.63 | | | | 0.74 | | | | 0.38 | | | Basic and diluted earnings per ADS (U.S. dollars per ADS) (*) | | | | | 1.26 | | | | 1.48 | | | | 0.77 | | | Continuing and discontinued operations | | | | | | | | | | | | | | | | Basic and diluted earnings per share (U.S. dollars per share) | | | | | 0.63 | | | | 0.74 | | | | 0.46 | | | Basic and diluted earnings per ADS (U.S. dollars per ADS) (*) | | | | | 1.26 | | | | 1.48 | | | | 0.92 | |
(*) Each ADS equals two shares. CONSOLIDATED INCOME STATEMENT
| | | | | | | | | | | | | | | | | | (all amounts in thousands of US dollars, unless otherwise stated) | | | | | Year ended December 31, | | | | | Notes | | | 2016 | | | 2015 | | | 2014 | | Continuing operations | | | | | | | | | | | | | | | | | Net sales | | | 1 | | | | 4,293,592 | | | | 6,903,123 | | | | 10,141,459 | | Cost of sales | | | 2 | | | | (3,165,684 | ) | | | (4,747,760 | ) | | | (6,140,415 | ) | | | | | | | | | | | | | | | | | | Gross profit | | | | | | | 1,127,908 | | | | 2,155,363 | | | | 4,001,044 | | Selling, general and administrative expenses | | | 3 | | | | (1,196,929 | ) | | | (1,593,597 | ) | | | (1,932,778 | ) | Other operating income | | | 5 | | | | 21,127 | | | | 14,603 | | | | 27,855 | | Other operating expenses | | | 5 | | | | (11,163 | ) | | | (410,574 | ) | | | (215,589 | ) | | | | | | | | | | | | | | | | | | Operating (loss) income | | | | | | | (59,057 | ) | | | 165,795 | | | | 1,880,532 | | Finance Income | | | 6 | | | | 66,204 | | | | 34,574 | | | | 38,211 | | Finance Cost | | | 6 | | | | (22,329 | ) | | | (23,058 | ) | | | (44,388 | ) | Other financial results | | | 6 | | | | (21,921 | ) | | | 3,076 | | | | 39,575 | | | | | | | | | | | | | | | | | | | (Loss) income before equity in earnings ofnon-consolidated companies and income tax | | | | | | | (37,103 | ) | | | 180,387 | | | | 1,913,930 | | Equity in earnings (losses) ofnon-consolidated companies | | | 7 | | | | 71,533 | | | | (39,558 | ) | | | (164,616 | ) | | | | | | | | | | | | | | | | | | Income before income tax | | | | | | | 34,430 | | | | 140,829 | | | | 1,749,314 | | Income tax | | | 8 | | | | (17,102 | ) | | | (234,384 | ) | | | (580,431 | ) | | | | | | | | | | | | | | | | | | Income (Loss) for continuing operations | | | | | | | 17,328 | | | | (93,555 | ) | | | 1,168,883 | | | | | | | | | | | | | | | | | | | Discontinued operations | | | | | | | | | | | | | | | | | Result for discontinued operations | | | 28 | | | | 41,411 | | | | 19,130 | | | | 12,293 | | | | | | | | | | | | | | | | | | | Income (loss) for the period | | | | | | | 58,739 | | | | (74,425 | ) | | | 1,181,176 | | | | | | | | | | | | | | | | | | | Attributable to: | | | | | | | | | | | | | | | | | Owners of the parent | | | | | | | 55,298 | | | | (80,162 | ) | | | 1,158,517 | | Non-controlling interests | | | | | | | 3,441 | | | | 5,737 | | | | 22,659 | | | | | | | | | | | | | | | | | | | | | | | | | | 58,739 | | | | (74,425 | ) | | | 1,181,176 | | | | | | | | | | | | | | | | | | | 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 | | | | 1,180,537 | | Continuing operations | | | | | | | | | | | | | | | | | Basic and diluted earnings (losses) per share (U.S. dollars per share) | | | | | | | 0.01 | | | | (0.08 | ) | | | 0.97 | | Basic and diluted earnings (losses) per ADS (U.S. dollars per ADS) (*) | | | | | | | 0.02 | | | | (0.17 | ) | | | 1.94 | | Continuing and discontinued operations | | | | | | | | | | | | | | | | | Basic and diluted earnings (losses) per share (U.S. dollars per share) | | | | | | | 0.05 | | | | (0.07 | ) | | | 0.98 | | Basic and diluted earnings (losses) per ADS (U.S. dollars per ADS) (*) | | | | | | | 0.09 | | | | (0.14 | ) | | | 1.96 | |
(*) | Each ADS equals two shares. |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | | (all amounts in thousands of U.S. dollars) | | Year ended December 31, | | | Year ended December 31, | | | | | 2016 | | 2015 | | 2014 | | | 2019 | | | 2018 | | | 2017 | | Income (loss) for the year | | | 58,739 | | | (74,425 | ) | | 1,181,176 | | | | Income for the year | | | | 731,258 | | | | 873,900 | | | | 536,389 | | Items that may be subsequently reclassified to profit or loss: | | | | | | | | | | | | | | | | | | | Currency translation adjustment | | | 37,187 | | | (256,260 | ) | | (197,711 | ) | | | (27,294 | ) | | | (96,916 | ) | | | 151,762 | | Change in value of cash flow hedges | | | (7,525 | ) | | 10,699 | | | (8,036 | ) | | Change in value of available for sale financial instruments | | | — | | | 2,486 | | | (2,447 | ) | | Share of other comprehensive income ofnon-consolidated companies: | | | | | | | | - Currency translation adjustment | | | 3,473 | | | (92,914 | ) | | (54,688 | ) | | | Change in value of cash flow hedges and instruments at fair value | | | | 3,039 | | | | (6,701 | ) | | | 4,502 | | | Income tax relating to components of other comprehensive income | | | | (707 | ) | | | 34 | | | | 23 | | | From participation in non consolidated companies: | | | | | | | | | | | | | | | - Currency translation adjustment (*) | | | | (10,781 | ) | | | 1,848 | | | | (9,548 | ) | - Changes in the fair value of derivatives held as cash flow hedges and others | | | 421 | | | (3,790 | ) | | 60 | | | | 812 | | | | (132 | ) | | | 512 | | Income tax related to cash flow hedges and available for sale financial instruments | | | (23 | ) | | (284 | ) | | 400 | | | | | | | | | | | | | | | | | 33,533 | | | | (340,063 | ) | | | (262,422 | ) | | | | | | | | | | | | | | (34,931 | ) | | | (101,867 | ) | | | 147,251 | | Items that will not be reclassified to profit or loss: | | | | | | | | | | | | | | | | | | | Remeasurements of post employment benefit obligations | | | (230 | ) | | 14,181 | | | 1,850 | | | | (9,272 | ) | | | 7,963 | | | | (8,635 | ) | Income tax on items that will not be reclassified | | | (1,760 | ) | | (4,242 | ) | | (513 | ) | | | 1,545 | | | | (1,932 | ) | | | 1,338 | | Remeasurements of post employment benefit obligations ofnon-consolidated companies | | | (5,475 | ) | | (449 | ) | | (3,917 | ) | | | (9,878 | ) | | | (3,855 | ) | | | (376 | ) | | | | | | | | | | | | | (17,605 | ) | | | 2,176 | | | | (7,673 | ) | | | | (7,465 | ) | | | 9,490 | | | | (2,580 | ) | | | | | | | | | | | | | Other comprehensive income (loss) for the year, net of tax | | | 26,068 | | | | (330,573 | ) | | | (265,002 | ) | | | | | | | | | | | | | Total comprehensive income (loss) for the year | | | 84,807 | | | | (404,998 | ) | | | 916,174 | | | | | | | | | | | | | | | Other comprehensive (loss) income for the year, net of tax | | | | (52,536 | ) | | | (99,691 | ) | | | 139,578 | | | Total comprehensive income for the year | | | | 678,722 | | | | 774,209 | | | | 675,967 | | Attributable to: | | | | | | | | | | | | | | | | | | | Owners of the parent | | | 81,702 | | | (410,187 | ) | | 894,929 | | | | 690,095 | | | | 776,713 | | | | 683,531 | | Non-controlling interests | | | 3,105 | | | 5,189 | | | 21,245 | | | | (11,373 | ) | | | (2,504 | ) | | | (7,564 | ) | | | | | | | | | | | | | 678,722 | | | | 774,209 | | | | 675,967 | | | | | 84,807 | | | | (404,998 | ) | | | 916,174 | | | | | | | | | | | | | | Total comprehensive income (loss) for the year | | | | | | | | | Total comprehensive income for the year | | | | | | | | | | | | | | attributable to Owners of the parent arises from | | | | | | | | | | | | | | | | | | | Continuing operations | | | 40,291 | | | (429,317 | ) | | 882,636 | | | | 690,095 | | | | 776,713 | | | | 591,989 | | Discontinued operations | | | 41,411 | | | 19,130 | | | 12,293 | | | | - | | | | - | | | | 91,542 | | | | | | | | | | | | | | 690,095 | | | | 776,713 | | | | 683,531 | | | | | 81,702 | | | | (410,187 | ) | | | 894,929 | | | | | | | | | | | | | |
(*) Since 2018 Tenaris recognizes its share over the effects on the adoption of IAS 29, “Financial Reporting in Hyperinflationary Economies” by Ternium in other comprehensive income as a currency translation adjustment. The accompanying notes are an integral part of these Consolidated Financial Statements. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
CONSOLIDATEDConsolidated STATEMENT OF FINANCIAL POSITION
| | (all amounts in thousands of U.S. dollars) | | | | At December 31, 2016 | | | At December 31, 2015 | | | | | At December 31, 2019 | | At December 31, 2018 | | | | Notes | | | | | | | | | | | | | | Notes | | | | | | | ASSETS | | | | | | | | | | | | | | | | | | | | | Non-current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Property, plant and equipment, net | | | 10 | | | 6,001,939 | | | | | | 5,672,258 | | | | | 9 | | | 6,090,017 | | | | | | | | 6,063,908 | | | | | | Intangible assets, net | | | 11 | | | 1,862,827 | | | | | | 2,143,452 | | | | | 10 | | | 1,561,559 | | | | | | | | 1,465,965 | | | | | | | Right-of-use assets, net | | | 11 | | | 233,126 | | | | | | | | - | | | | | | Investments innon-consolidated companies | | | 12 | | | 557,031 | | | | | | 490,645 | | | | | 12 | | | 879,965 | | | | | | | | 805,568 | | | | | | Available for sale assets | | | 31 | | | 21,572 | | | | | | 21,572 | | | | | Other investments | | | 18 | | | 249,719 | | | | | | 394,746 | | | | | 18 | | | 24,934 | | | | | | | | 118,155 | | | | | | Deferred tax assets | | | 20 | | | 144,613 | | | | | | 200,706 | | | | | 20 | | | 225,680 | | | | | | | | 181,606 | | | | | | Receivables, net | | | 13 | | | 197,003 | | | | 9,034,704 | | | | 220,564 | | | | 9,143,943 | | | 13 | | | 157,103 | | | | 9,172,384 | | | | 151,905 | | | | 8,787,107 | | | | | | | | | | | | | | | | Current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Inventories, net | | | 14 | | | 1,563,889 | | | | | | 1,843,467 | | | | | 14 | | | 2,265,880 | | | | | | | | 2,524,341 | | | | | | Receivables and prepayments, net | | | 15 | | | 124,715 | | | | | | 148,846 | | | | | 15 | | | 104,575 | | | | | | | | 155,885 | | | | | | Current tax assets | | | 16 | | | 140,986 | | | | | | 188,180 | | | | | 16 | | | 167,388 | | | | | | | | 121,332 | | | | | | Trade receivables, net | | | 17 | | | 954,685 | | | | | | 1,135,129 | | | | | 17 | | | 1,348,160 | | | | | | | | 1,737,366 | | | | | | | Derivative financial instruments | | | 24 | | | 19,929 | | | | | | | | 9,173 | | | | | | Other investments | | | 18 | | | 1,633,142 | | | | | | 2,140,862 | | | | | 18 | | | 210,376 | | | | | | | | 487,734 | | | | | | Cash and cash equivalents | | | 18 | | | 399,737 | | | | 4,817,154 | | | | 286,547 | | | | 5,743,031 | | | 18 | | | 1,554,299 | | | | 5,670,607 | | | | 428,361 | | | | 5,464,192 | | | | | | | | | | | | | | | | Assets of disposal group classified as held for sale | | | 28 | | | | | | 151,417 | | | | | | | | | | | | | | | | | | | | Total assets | | | | | | | 14,003,275 | | | | | | 14,886,974 | | | | | | | | | | 14,842,991 | | | | | | | | 14,251,299 | | | | | | | | | | | | | | | | EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Capital and reserves attributable to owners of the parent | | | | | | | 11,287,417 | | | | | | 11,713,344 | | | | | | | | | | 11,988,958 | | | | | | | | 11,782,882 | | Non-controlling interests | | | | | | | 125,655 | | | | | | 152,712 | | | | | | | | | | 197,414 | | | | | | | | 92,610 | | | | | | | | | | | | | | | | Total equity | | | | | | | 11,413,072 | | | | | | 11,866,056 | | | | | | | | | | 12,186,372 | | | | | | | | 11,875,492 | | | | | | | | | | | | | | | | LIABILITIES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-current liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Borrowings | | | 19 | | | 31,542 | | | | | | 223,221 | | | | | 19 | | | 40,880 | | | | | | | | 29,187 | | | | | | | Lease liabilities | | | 11 | | | 192,318 | | | | | | | | - | | | | | | Deferred tax liabilities | | | 20 | | | 550,657 | | | | | | 750,325 | | | | | 20 | | | 336,982 | | | | | | | | 379,039 | | | | | | Other liabilities | | | 21 | (i) | | 213,617 | | | | | | 231,176 | | | | | 21 (i) | | | 251,383 | | | | | | | | 213,129 | | | | | | Provisions | | | 22 | (ii) | | 63,257 | | | | 859,073 | | | | 61,421 | | | | 1,266,143 | | | 22 (ii) | | | 54,599 | | | | 876,162 | | | | 36,089 | | | | 657,444 | | | | | | | | | | | | | | | | Current liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Borrowings | | | 19 | | | 808,694 | | | | | | 748,295 | | | | | 19 | | | 781,272 | | | | | | | | 509,820 | | | | | | | Lease liabilities | | | 11 | | | 37,849 | | | | | | | | - | | | | | | | Derivative financial instruments | | | 24 | | | 1,814 | | | | | | | | 11,978 | | | | | | Current tax liabilities | | | 16 | | | 101,197 | | | | | | 136,018 | | | | | 16 | | | 127,625 | | | | | | | | 250,233 | | | | | | Other liabilities | | | 21 | (ii) | | 183,887 | | | | | | 222,842 | | | | | 21 (ii) | | | 176,264 | | | | | | | | 165,693 | | | | | | Provisions | | | 23 | (ii) | | 22,756 | | | | | | 8,995 | | | | | 23 (ii) | | | 17,017 | | | | | | | | 24,283 | | | | | | Customer advances | | | | 39,668 | | | | | | 134,780 | | | | | | | | 82,729 | | | | | | | | 62,683 | | | | | | Trade payables | | | | 556,834 | | | | 1,713,036 | | | | 503,845 | | | | 1,754,775 | | | | | | 555,887 | | | | 1,780,457 | | | | 693,673 | | | | 1,718,363 | | | | | | | | | | | | | | | | Liabilities of disposal group classified as held for sale | | | 28 | | | | | | 18,094 | | | | | | | | | | | | | | | | | | | | | Total liabilities | | | | | | | 2,590,203 | | | | | | 3,020,918 | | | | | | | | | | 2,656,619 | | | | | | | | 2,375,807 | | | | | | | | | | | | | | | | Total equity and liabilities | | | | | | | 14,003,275 | | | | | | 14,886,974 | | | | | | | | | | 14,842,991 | | | | | | | | 14,251,299 | | | | | | | | | | | | | | | |
Contingencies, commitments and restrictions on the distribution of profits are disclosed in Note 25. The accompanying notes are an integral part of these Consolidated Financial Statements. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(all amounts in thousands of U.S. dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | Balance at December 31, 2015 | | | 1,180,537 | | | | 118,054 | | | | 609,733 | | | | (1,006,767 | ) | | | (298,682 | ) | | | 11,110,469 | | | | 11,713,344 | | | | 152,712 | | | | 11,866,056 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income for the year | | | — | | | | — | | | | — | | | | — | | | | — | | | | 55,298 | | | | 55,298 | | | | 3,441 | | | | 58,739 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Currency translation adjustment | | | — | | | | — | | | | — | | | | 37,339 | | | | — | | | | — | | | | 37,339 | | | | (152 | ) | | | 37,187 | | Remeasurements of post employment benefit obligations, net of taxes | | | — | | | | — | | | | — | | | | — | | | | (1,781 | ) | | | — | | | | (1,781 | ) | | | (209 | ) | | | (1,990 | ) | Change in value of available for sale financial instruments and cash flow hedges net of tax | | | — | | | | — | | | | — | | | | — | | | | (7,573 | ) | | | — | | | | (7,573 | ) | | | 25 | | | | (7,548 | ) | Share of other comprehensive income ofnon-consolidated companies | | | — | | | | — | | | | — | | | | 3,473 | | | | (5,054 | ) | | | — | | | | (1,581 | ) | | | — | | | | (1,581 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income (loss) for the year | | | — | | | | — | | | | — | | | | 40,812 | | | | (14,408 | ) | | | — | | | | 26,404 | | | | (336 | ) | | | 26,068 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income (loss) for the year | | | — | | | | — | | | | — | | | | 40,812 | | | | (14,408 | ) | | | 55,298 | | | | 81,702 | | | | 3,105 | | | | 84,807 | | Acquisition ofnon-controlling interests | | | — | | | | — | | | | — | | | | — | | | | 2 | | | | — | | | | 2 | | | | (1,073 | ) | | | (1,071 | ) | Dividends paid in cash | | | — | | | | — | | | | — | | | | — | | | | — | | | | (507,631 | ) | | | (507,631 | ) | | | (29,089 | ) | | | (536,720 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2016 | | | 1,180,537 | | | | 118,054 | | | | 609,733 | | | | (965,955 | ) | | | (313,088 | ) | | | 10,658,136 | | | | 11,287,417 | | | | 125,655 | | | | 11,413,072 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share. As ofTenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016 there were 1,180,536,830 shares issued. All issued shares are fully paid.2019, 2018 and 2017 |
(2) | Other reserves include mainly the result of transactions withnon-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 available for sale financial instruments. |
(3) | The Distributable Reserve and Retained Earnings calculated according to Luxembourg Law are disclosed in Note 25. |
Consolidated statement of changes in equity | (all amounts in thousands of U.S. dollars) | | 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 | | | 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 year | | | - | | | | - | | | | - | | | | - | | | | - | | | | 742,686 | | | | 742,686 | | | | (11,428 | ) | | | 731,258 | | | Currency translation adjustment | | | - | | | | - | | | | - | | | | (27,217 | ) | | | - | | | | - | | | | (27,217 | ) | | | (77 | ) | | | (27,294 | ) | | Remeasurements of post employment benefit obligations, net of taxes | | | - | | | | - | | | | - | | | | - | | | | (7,132 | ) | | | - | | | | (7,132 | ) | | | (595 | ) | | | (7,727 | ) | | Change in value of instruments at fair value through other comprehensive income and cash flow hedges, net of taxes | | | - | | | | - | | | | - | | | | - | | | | 1,605 | | | | - | | | | 1,605 | | | | 727 | | | | 2,332 | | | From other comprehensive income of non-consolidated companies | | | - | | | | - | | | | - | | | | (10,781 | ) | | | (9,066 | ) | | | - | | | | (19,847 | ) | | | - | | | | (19,847 | ) | | Other comprehensive (loss) income for the year | | | - | | | | - | | | | - | | | | (37,998 | ) | | | (14,593 | ) | | | - | | | | (52,591 | ) | | | 55 | | | | (52,536 | ) | | Total comprehensive income (loss) for the year | | | - | | | | - | | | | - | | | | (37,998 | ) | | | (14,593 | ) | | | 742,686 | | | | 690,095 | | | | (11,373 | ) | | | 678,722 | | | Acquisition and other changes in non-controlling interests (4) | | | - | | | | - | | | | - | | | | - | | | | 1 | | | | - | | | | 1 | | | | 117,984 | | | | 117,985 | | | Dividends paid in cash | | | - | | | | - | | | | - | | | | - | | | | - | | | | (484,020 | ) | | | (484,020 | ) | | | (1,807 | ) | | | (485,827 | ) | | Balance at December 31, 2019 | | | 1,180,537 | | | | 118,054 | | | | 609,733 | | | | (957,246 | ) | | | (336,902 | ) | | | 11,374,782 | | | | 11,988,958 | | | | 197,414 | | | | 12,186,372 | |
(1) The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share. As of December 31, 2019 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 interests that do not result in a loss of control, the remeasurement of post-employment benefit obligations, the changes in value of cash flow hedges and the changes in financial instruments measured at fair value through other comprehensive income. (3) The restrictions to the distribution of profits and payment of dividends according to Luxembourg Law are disclosed in Note 25. (4) Related to Saudi Steel Pipe Company (“SSP”) acquisition. See note 27. The accompanying notes are an integral part of these Consolidated Financial Statements. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Cont.) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (all amounts in thousands of U.S. dollars) | | Attributable to owners of the parent | | | | | | | | | | | Share
Capital (1) | | | Legal
Reserves | | | Share
Premium | | | Currency
Translation
Adjustment | | | Other
Reserves
(2) | | | Retained
Earnings | | | Total | | | Non-
controlling
interests | | | Total | | Balance at December 31, 2014 | | | 1,180,537 | | | | 118,054 | | | | 609,733 | | | | (658,284 | ) | | | (317,799 | ) | | | 11,721,873 | | | | 12,654,114 | | | | 152,200 | | | | 12,806,314 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (Loss) income for the year | | | — | | | | — | | | | — | | | | — | | | | — | | | | (80,162 | ) | | | (80,162 | ) | | | 5,737 | | | | (74,425 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Currency translation adjustment | | | — | | | | — | | | | — | | | | (255,569 | ) | | | — | | | | — | | | | (255,569 | ) | | | (691 | ) | | | (256,260 | ) | Remeasurements of post employment benefit obligations, net of taxes | | | — | | | | — | | | | — | | | | — | | | | 10,213 | | | | — | | | | 10,213 | | | | (274 | ) | | | 9,939 | | Change in value of available for sale financial instruments and cash flow hedges net of tax | | | — | | | | — | | | | — | | | | — | | | | 12,484 | | | | — | | | | 12,484 | | | | 417 | | | | 12,901 | | Share of other comprehensive income ofnon-consolidated companies | | | — | | | | — | | | | — | | | | (92,914 | ) | | | (4,239 | ) | | | — | | | | (97,153 | ) | | | — | | | | (97,153 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive (loss) income for the year | | | — | | | | — | | | | — | | | | (348,483 | ) | | | 18,458 | | | | — | | | | (330,025 | ) | | | (548 | ) | | | (330,573 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive (loss) income for the year | | | — | | | | — | | | | — | | | | (348,483 | ) | | | 18,458 | | | | (80,162 | ) | | | (410,187 | ) | | | 5,189 | | | | (404,998 | ) | Acquisition ofnon-controlling interests | | | — | | | | — | | | | — | | | | — | | | | 659 | | | | — | | | | 659 | | | | (1,727 | ) | | | (1,068 | ) | Dividends paid in cash | | | — | | | | — | | | | — | | | | — | | | | — | | | | (531,242 | ) | | | (531,242 | ) | | | (2,950 | ) | | | (534,192 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2015 | | | 1,180,537 | | | | 118,054 | | | | 609,733 | | | | (1,006,767 | ) | | | (298,682 | ) | | | 11,110,469 | | | | 11,713,344 | | | | 152,712 | | | | 11,866,056 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Attributable to owners of the parent | | | | | | | | | | | Share
Capital (1) | | | Legal
Reserves | | | Share
Premium | | | Currency
Translation
Adjustment | | | Other
Reserves
(2) | | | Retained
Earnings | | | Total | | | Non-
controlling
interests | | | Total | | Balance at December 31, 2013 | | | 1,180,537 | | | | 118,054 | | | | 609,733 | | | | (406,744 | ) | | | (305,758 | ) | | | 11,094,598 | | | | 12,290,420 | | | | 179,446 | | | | 12,469,866 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income for the year | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,158,517 | | | | 1,158,517 | | | | 22,659 | | | | 1,181,176 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Currency translation adjustment | | | — | | | | — | | | | — | | | | (196,852 | ) | | | — | | | | — | | | | (196,852 | ) | | | (859 | ) | | | (197,711 | ) | Remeasurements of post employment benefit obligations, net of taxes | | | — | | | | — | | | | — | | | | — | | | | 1,503 | | | | — | | | | 1,503 | | | | (166 | ) | | | 1,337 | | Change in value of available for sale financial instruments and cash flow hedges net of tax | | | — | | | | — | | | | — | | | | — | | | | (9,694 | ) | | | — | | | | (9,694 | ) | | | (389 | ) | | | (10,083 | ) | Share of other comprehensive income ofnon-consolidated companies | | | — | | | | — | | | | — | | | | (54,688 | ) | | | (3,857 | ) | | | — | | | | (58,545 | ) | | | — | | | | (58,545 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive (loss) income for the year | | | — | | | | — | | | | — | | | | (251,540 | ) | | | (12,048 | ) | | | — | | | | (263,588 | ) | | | (1,414 | ) | | | (265,002 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income for the year | | | — | | | | — | | | | — | | | | (251,540 | ) | | | (12,048 | ) | | | 1,158,517 | | | | 894,929 | | | | 21,245 | | | | 916,174 | | Acquisition ofnon-controlling interests | | | — | | | | — | | | | — | | | | — | | | | 7 | | | | — | | | | 7 | | | | (152 | ) | | | (145 | ) | Dividends paid in cash | | | — | | | | — | | | | — | | | | — | | | | — | | | | (531,242 | ) | | | (531,242 | ) | | | (48,339 | ) | | | (579,581 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2014 | | | 1,180,537 | | | | 118,054 | | | | 609,733 | | | | (658,284 | ) | | | (317,799 | ) | | | 11,721,873 | | | | 12,654,114 | | | | 152,200 | | | | 12,806,314 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (all amounts in thousands of U.S. dollars) | | Attributable to owners of the parent | | | | | | | | | | | Share Capital (1) | | | Legal Reserves | | | Share Premium | | | Currency Translation Adjustment | | | Other Reserves (2) | | | Retained Earnings | | | Total | | | Non-controlling interests | | | Total | | | 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 (Section II AP) | | | - | | | | - | | | | - | | | | - | | | | 2,786 | | | | 5,220 | | | | 8,006 | | | | 12 | | | | 8,018 | | | Balance at December 31, 2017 restated | | | 1,180,537 | | | | 118,054 | | | | 609,733 | | | | (824,423 | ) | | | (317,783 | ) | | | 10,724,073 | | | | 11,490,191 | | | | 98,797 | | | | 11,588,988 | | | Income (loss) for the year | | | - | | | | - | | | | - | | | | - | | | | - | | | | 876,063 | | | | 876,063 | | | | (2,163 | ) | | | 873,900 | | | Currency translation adjustment | | | - | | | | - | | | | - | | | | (96,673 | ) | | | - | | | | - | | | | (96,673 | ) | | | (243 | ) | | | (96,916 | ) | | Remeasurements of post employment benefit obligations, net of taxes | | | - | | | | - | | | | - | | | | - | | | | 6,135 | | | | - | | | | 6,135 | | | | (104 | ) | | | 6,031 | | | Change in value of instruments at fair value through other comprehensive income and cash flow hedges, net of taxes | | | - | | | | - | | | | - | | | | - | | | | (6,673 | ) | | | - | | | | (6,673 | ) | | | 6 | | | | (6,667 | ) | | From other comprehensive income of non-consolidated companies | | | - | | | | - | | | | - | | | | 1,848 | | | | (3,987 | ) | | | - | | | | (2,139 | ) | | | - | | | | (2,139 | ) | | Other comprehensive (loss) for the year | | | - | | | | - | | | | - | | | | (94,825 | ) | | | (4,525 | ) | | | - | | | | (99,350 | ) | | | (341 | ) | | | (99,691 | ) | | Total comprehensive income (loss) for the year | | | - | | | | - | | | | - | | | | (94,825 | ) | | | (4,525 | ) | | | 876,063 | | | | 776,713 | | | | (2,504 | ) | | | 774,209 | | | Acquisition and other changes in non-controlling interests | | | - | | | | - | | | | - | | | | - | | | | (2 | ) | | | - | | | | (2 | ) | | | (22 | ) | | | (24 | ) | | Dividends paid in cash | | | - | | | | - | | | | - | | | | - | | | | - | | | | (484,020 | ) | | | (484,020 | ) | | | (3,661 | ) | | | (487,681 | ) | | 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 | |
(1) | The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share. As of December 31, 2015 and 2014 there were 1,180,536,830 shares issued. All issued shares are fully paid. |
(2) | Other reserves include mainly the result of transactions withnon-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 available for sale financial instruments. |
| (all amounts in thousands of U.S. dollars) | | Attributable to owners of the parent | | | | | | | | | | | Share Capital (1) | | | Legal Reserves | | | Share Premium | | | Currency Translation Adjustment | | | Other Reserves (2) | | | Retained Earnings | | | Total | | | Non-controlling interests | | | Total | | | Balance at December 31, 2016 | | | 1,180,537 | | | | 118,054 | | | | 609,733 | | | | (965,955 | ) | | | (313,088 | ) | | | 10,658,136 | | | | 11,287,417 | | | | 125,655 | | | | 11,413,072 | | | Income (loss) for the year | | | - | | | | - | | | | - | | | | - | | | | - | | | | 544,737 | | | | 544,737 | | | | (8,348 | ) | | | 536,389 | | | Currency translation adjustment | | | - | | | | - | | | | - | | | | 151,080 | | | | - | | | | - | | | | 151,080 | | | | 682 | | | | 151,762 | | | Remeasurements of post employment benefit obligations, net of taxes | | | - | | | | - | | | | - | | | | - | | | | (7,423 | ) | | | - | | | | (7,423 | ) | | | 126 | | | | (7,297 | ) | | Change in value of available for sale financial instruments and cash flow hedges net of tax | | | - | | | | - | | | | - | | | | - | | | | 4,549 | | | | - | | | | 4,549 | | | | (24 | ) | | | 4,525 | | | From other comprehensive income of non-consolidated companies | | | - | | | | - | | | | - | | | | (9,548 | ) | | | 136 | | | | - | | | | (9,412 | ) | | | - | | | | (9,412 | ) | | Other comprehensive income (loss) for the year | | | - | | | | - | | | | - | | | | 141,532 | | | | (2,738 | ) | | | - | | | | 138,794 | | | | 784 | | | | 139,578 | | | Total comprehensive income (loss) for the year | | | - | | | | - | | | | - | | | | 141,532 | | | | (2,738 | ) | | | 544,737 | | | | 683,531 | | | | (7,564 | ) | | | 675,967 | | | Acquisition and other changes in non-controlling interests | | | - | | | | - | | | | - | | | | - | | | | (4,743 | ) | | | - | | | | (4,743 | ) | | | 4,694 | | | | (49 | ) | | Dividends paid in cash | | | - | | | | - | | | | - | | | | - | | | | - | | | | (484,020 | ) | | | (484,020 | ) | | | (24,000 | ) | | | (508,020 | ) | | 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 | |
(1) The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share. As of December 31, 2018 and 2017 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 interests 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 available for sale financial instruments. The accompanying notes are an integral part of these Consolidated Financial Statements. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
CONSOLIDATED STATEMENT OF CASH FLOWS | | (all amounts in thousands of U.S. dollars) | | | | Year ended December 31, | | | | | Year ended December 31, | | | | | Notes | | 2016 | | 2015 | | 2014 | | | Notes | | 2019 | | | 2018 | | | 2017 | | Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | | Income (loss) for the year | | | | 58,739 | | | (74,425 | ) | | 1,181,176 | | | | Income for the year | | | | | | 731,258 | | | | 873,900 | | | | 536,389 | | Adjustments for: | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | | 10 & 11 | | | 662,412 | | | 658,778 | | | 615,629 | | | 9, 10 & 11 | | | 539,521 | | | | 664,357 | | | | 608,640 | | Impairment charge | | | 5 | | | | — | | | 400,314 | | | 205,849 | | | Income tax accruals less payments | | | 27(ii) | | | (128,079 | ) | | (91,080 | ) | | 79,062 | | | 28(ii) | | | (193,417 | ) | | | 58,494 | | | | (193,989 | ) | Equity in (earnings) losses ofnon-consolidated companies | | | 7 | | | (71,533 | ) | | 39,558 | | | 164,616 | | | | Equity in earnings of non-consolidated companies | | | 12 | | | (82,036 | ) | | | (193,994 | ) | | | (116,140 | ) | Interest accruals less payments, net | | | 27(iii) | | | (40,404 | ) | | (1,975 | ) | | (37,192 | ) | | 28(iii) | | | (4,381 | ) | | | 6,151 | | | | 11,550 | | Changes in provisions | | | | 15,597 | | | (20,678 | ) | | (4,982 | ) | | | 2,739 | | | | (8,396 | ) | | | (17,245 | ) | | Income from the sale of Conduit business | | | 29 | | | - | | | | - | | | | (89,694 | ) | Changes in working capital | | | 27(i) | | | 348,199 | | | 1,373,985 | | | (72,066 | ) | | 28(i) | | | 523,109 | | | | (737,952 | ) | | | (853,184 | ) | Other, including currency translation adjustment | | | | 18,634 | | | (69,473 | ) | | (88,025 | ) | | | | | | | | | | | | | | | Net cash provided by operating activities | | | | | 863,565 | | | | 2,215,004 | | | | 2,044,067 | | | | Currency translation adjustment and others | | | | | | 11,146 | | | | (51,758 | ) | | | 91,648 | | | Net cash provided by (used in) operating activities | | | | | | 1,527,939 | | | | 610,802 | | | | (22,025 | ) | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from investing activities | | | | | | | | | | | | | | | | | | | | | Capital expenditures | | | 10 & 11 | | | (786,873 | ) | | (1,131,519 | ) | | (1,089,373 | ) | | 9 & 10 | | | (350,174 | ) | | | (349,473 | ) | | | (558,236 | ) | Changes in advance to suppliers of property, plant and equipment | | | | 50,989 | | | 49,461 | | | (63,390 | ) | | | 3,820 | | | | 4,851 | | | | 7,077 | | | Proceeds from disposal of Conduit business | | | 29 | | | - | | | | - | | | | 327,631 | | | Acquisition of subsidiaries, net of cash acquired | | | 27 | | | (132,845 | ) | | | - | | | | (10,418 | ) | | Investment in companies under cost method | | | | (2,933 | ) | | | - | | | | (3,681 | ) | Investment innon-consolidated companies | | | 12 | | | (17,108 | ) | | (4,400 | ) | | (1,380 | ) | | 26 | | | (19,610 | ) | | | - | | | | - | | Acquisition of subsidiaries andnon-consolidated companies | | | 26 | | | | — | | | | — | | | (28,060 | ) | | Loan tonon-consolidated companies | | | 12 c | | | (42,394 | ) | | (22,322 | ) | | (21,450 | ) | | 12 c | | | - | | | | (14,740 | ) | | | (10,956 | ) | | Repayment of loan by non-consolidated companies | | | 12 c | | | 40,470 | | | | 9,370 | | | | 3,900 | | Proceeds from disposal of property, plant and equipment and intangible assets | | | | 23,609 | | | 10,090 | | | 11,156 | | | | 2,091 | | | | 6,010 | | | | 5,443 | | Dividends received fromnon-consolidated companies | | | 12 | | | 20,674 | | | 20,674 | | | 17,735 | | | 12 | | | 28,974 | | | | 25,722 | | | | 22,971 | | Changes in investments in securities | | | | 652,755 | | | (695,566 | ) | | (611,049 | ) | | | | | 389,815 | | | | 717,368 | | | | 565,387 | | | | | | | | | | | | | | | Net cash used in investing activities | | | | | (98,348 | ) | | | (1,773,582 | ) | | | (1,785,811 | ) | | | Net cash (used in) provided by investing activities | | | | | | (40,392 | ) | | | 399,108 | | | | 349,118 | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from financing activities | | | | | | | | | | | | | | | | | | | | | Dividends paid | | | 9 | | | (507,631 | ) | | (531,242 | ) | | (531,242 | ) | | 8 | | | (484,020 | ) | | | (484,020 | ) | | | (484,020 | ) | Dividends paid tonon-controlling interest in subsidiaries | | | | (29,089 | ) | | (2,950 | ) | | (48,339 | ) | | | (1,872 | ) | | | (3,498 | ) | | | (24,000 | ) | Acquisitions ofnon-controlling interests | | | | (1,071 | ) | | (1,068 | ) | | (145 | ) | | Proceeds from borrowings (*) | | | | 1,180,727 | | | 2,064,218 | | | 3,046,837 | | | Repayments of borrowings (*) | | | | (1,295,560 | ) | | (2,063,992 | ) | | (2,890,717 | ) | | | | | | | | | | | | | | | | Changes in non-controlling interests | | | | 1 | | | | (24 | ) | | | (49 | ) | | Payments of lease liabilities | | | 11 | | | (41,530 | ) | | | - | | | | - | | | Proceeds from borrowings | | | | 1,332,716 | | | | 1,019,302 | | | | 1,196,781 | | | Repayments of borrowings | | | | | | (1,159,053 | ) | | | (1,432,202 | ) | | | (1,090,129 | ) | Net cash used in financing activities | | | | | (652,624 | ) | | | (535,034 | ) | | | (423,606 | ) | | | | | (353,758 | ) | | | (900,442 | ) | | | (401,417 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | Increase (decrease) in cash and cash equivalents | | | | | 112,593 | | | | (93,612 | ) | | | (165,350 | ) | | | | | 1,133,789 | | | | 109,468 | | | | (74,324 | ) | | | | | | | | | | | | | | Movement in cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | At the beginning of the year | | | | 286,198 | | | 416,445 | | | 598,145 | | | | 426,717 | | | | 330,090 | | | | 398,580 | | Effect of exchange rate changes | | | | (211 | ) | | (36,635 | ) | | (16,350 | ) | | | (6,231 | ) | | | (12,841 | ) | | | 5,834 | | Increase (decrease) in cash and cash equivalents | | | | 112,593 | | | (93,612 | ) | | (165,350 | ) | | | | | 1,133,789 | | | | 109,468 | | | | (74,324 | ) | | | | | | | | | | | | | | At December 31, | | | 27(iv) | | | | 398,580 | | | | 286,198 | | | | 416,445 | | | 28(iv) | | | 1,554,275 | | | | 426,717 | | | | 330,090 | | | | | | | | | | | | | | | | | | | | | At December 31, | | | | | | | | 2016 | | 2015 | | 2014 | | | Cash and cash equivalents | | | | | | | | | | Cash and bank deposits | | | | 399,900 | | | 286,547 | | | 417,645 | | | Bank overdrafts | | | 19 | | | (1,320 | ) | | (349 | ) | | (1,200 | ) | | | | | | | | | | | | | | | | | | | | 398,580 | | | | 286,198 | | | | 416,445 | | | | | | | | | | | | | | | |
(*) | Mainly related to the renewal of short-term facilities carried out during the years 2016, 2015 and 2014. |
| | | | | At December 31, | | | Cash and cash equivalents | | | | 2019 | | | 2018 | | | 2017 | | | Cash and bank deposits | | | | | 1,554,299 | | | | 428,361 | | | | 330,221 | | | Bank overdrafts | | 18 | | | (24 | ) | | | (1,644 | ) | | | (131 | ) | | | | | | | 1,554,275 | | | | 426,717 | | | | 330,090 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
Index TO the years ended December 31, 2016, 2015 and 2014notes to the consolidated financial statements INDEX TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| I | | | | | | | I | | GENERAL INFORMATION | IV | IV | | OTHER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | | | | | 1 | | Segment information | | II | | ACCOUNTING POLICIES (“AP”) | | 2 | | Cost of sales | | A | | Basis of presentation | | 3 | | Selling, general and administrative expenses | | B | | Group accounting | | 4 | | Labor costs (included in Cost of sales and in Selling, general and administrative expenses) | | C | | Segment information | | 5 | | Other operating income and expenses | | D | | Foreign currency translation | | 6 | | Financial results | | E | | Property, plant and equipment | | 7 | | Equity in earnings (losses) ofnon-consolidated companies | F | | Intangible assets | | 8 | | Income tax | GF | | Impairment ofnon-financialIntangible assets | | 9 | 8 | Dividends distribution | HG | Impairment of non-financial assets | Other investments | | 10 | 9 | Property, plant and equipment, net | IH | Other investments | Inventories | | 11 | 10 | Intangible assets, net | JI | Inventories | 11 | Right-of-use assets, net and lease liabilities | | J | Trade and other receivables | | 12 | | Investments innon-consolidated companies | | K | | Cash and cash equivalents | | 13 | | Receivables—Receivables - non current | | L | | Equity | | 14 | | Inventories, net | | M | | Borrowings | | 15 | | Receivables and prepayments, net | | N | | Current and Deferreddeferred income tax | | 16 | | Current tax assets and liabilities | | O | | Employee benefits | | 17 | | Trade receivables, net | | P | | Provisions | | 18 | | Cash and cash equivalents and Otherother investments | | Q | | Trade and other payables | | 19 | | Borrowings | | R | | Revenue recognition | | 20 | | Deferred income tax | | S | | Cost of sales and salesother selling expenses | | 21 | | Other liabilities | | T | | Earnings per share | | 22 | | Non-current allowances and provisions | | U | | Financial instruments | | 23 | | Current allowances and provisions | | V | | | Non-current assets held for sale and discontinued operations | 24 | | Derivative financial instruments | | | | | 25 | | Contingencies, commitments and restrictions on the distribution of profits | | III | | FINANCIAL RISK MANAGEMENT | | 26 | | Acquisition of subsidiaries andnon-consolidated companiesAgreement to build a welded pipe plant in West Siberia | | | | | 27 | Business combinations | | A | Financial risk factors | 28 | Cash flow disclosures | A | | Financial Risk Factors | | 28 | | Net assets of disposal group classified as held for sale | | B | | Category of Financial Instrumentsfinancial instruments and Classification Withinclassification within the Fair Value Hierarchy | fair value hierarchy | 29 | Discontinued Operations | | C | Fair value estimation | 30 | Related party transactions | C | | Fair value estimation | | 30 | | Principal subsidiaries | | D | | Accounting for derivative financial instruments and hedging activities | | 31 | | Nationalization of Venezuelan Subsidiaries | | | | | 32 | | Fees paid to the Company’sCompany's principal accountant | | | 32 | Principal subsidiaries | | | 33 | Nationalization of Venezuelan subsidiaries | | | 34 | Delisting of Tenaris’s shares from the Buenos Aires stock exchange | | | 35 | Subsequent eventevents | | | 36 | Update as of April 29, 2020 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
I. GENERAL INFORMATION Tenaris S.A. (the “Company”) was established as a public limited liability company (societé anonyme)(societé 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 Financial Statements to “Tenaris” refer to Tenaris S.A.the Company and its consolidated subsidiaries. A list of the principal Company’s subsidiaries is included in Note 3032 to these Consolidated Financial Statements. 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 Financial Statements were approved for issuance by the Company’s Board of Directors on February 22, 2017.19, 2020. II. ACCOUNTING POLICIESAccounting policies The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. A Basis of presentation The Consolidated Financial Statements of Tenaris have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) and in accordance with IFRS as adopted by the European Union, under the historical cost convention, as modified by the revaluation of available for sale financial assets,certain financial assets and liabilities (including derivative instruments) at fair value through profit or loss and plan assets measured at fair value. The Consolidated Financial Statements are, unless otherwise noted, presented in thousands of U.S. dollars (“$”). Whenever necessary, certain comparative amounts have been reclassified to conform to changes in presentation in the current year. Following the sale of the steel electric conduit business in North America, known as Republic Conduit, in January 2017, the results of the mentioned business are presented as discontinued operations in accordance with IFRS 5,“Non-current "Non-current Assets Held for Sale and Discontinued Operations”Operations". Consequently, all comparative amounts related to discontinued operations within each line item of the Consolidated Income Statement are reclassified into discontinued operations. The Consolidated Statement of Cash Flows includes the cash flows for continuing and discontinued operations, cashoperations. Cash flows from discontinued operations and earnings per share are disclosed separately in note 28,Note 29, as well as additional information detailing net assets of disposal group classified as held for sale and discontinued operations. The preparation of Consolidated Financial Statements in conformity with IFRS requires management to make certain accounting estimates and assumptions that might affect among others, the reported amounts of assets, and liabilities, and the disclosure of contingent assets and liabilities, at the reporting dates, and the reported amounts of revenues and expenses during the reporting years.expenses. Actual results may differ from these estimates. The main areas involving significant estimates or judgements are: Impairment of goodwill and long-lived assets (note II.G); Income Taxes (note II.N); Loss contingencies (note II.P); Defined benefit obligations (note II.O), Business Combinations (notes II.B, III.27); Useful lives of property, plant and equipment and other long-lived assets (notes II.E, II.F, II.G). (1) New and amended standards not yet adopted
| (1) | | Accounting pronouncements applicable as from January 1, 2019 and relevant for Tenaris |
IFRS 15, “Revenue16, “Leases” Tenaris has adopted IFRS 16 “Leases” from contractsJanuary 1, 2019. In accordance with customers”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. In May 2014,
Upon adoption of IFRS 16, Tenaris recognized lease liabilities in relation to leases which had previously been classified as “operating leases” under the IASB issued IFRS 15, “Revenue from contracts with customers”, which sets outprinciples of IAS 17 “Leases”. These liabilities were measured at the requirements in accounting for revenue arising from contracts with customers and which is based onpresent value of the principle that revenue is recognized when controlremaining lease payments, discounted using the lessee’s incremental borrowing rate as of a good or service is transferredJanuary 1, 2019. The associated right-of-use assets were measured at the amount equal to the customer. IFRS 15 must be applied on annual periods beginning onlease liability, adjusted by the amount of any prepaid or after January 1,accrued lease payments relating to that lease recognized in the balance sheet as of December 31, 2018. IFRS 9, “Financial instruments”
In July 2014, The difference between the IASB issued IFRS 9, “Financial instruments”, which replacesamount of the guidancelease liability recognized in IAS 39. It includes requirements on the classification and measurementstatement of financial assetsposition at the date of initial application and liabilities, as well as an expected credit losses model that replaces the current incurred loss impairment model. IFRS 9 must be applied on annual periods beginning on operating lease commitments under IAS 17 is related to leases with a duration lower than 12 months, low value leases and/or after January 1, 2018.
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014leases with clauses related to variable payments.
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
A Basis of presentation (Cont.) (1) New and amended standards not yet adopted| (1) | | Accounting pronouncements applicable as from January 1, 2019 and relevant for Tenaris (Cont.) |
IFRS 16, “Leases” (Cont.) These standardsLeases 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 lease term on a straight-line basis.
Lease liabilities include the net present value of i) fixed payments, less any lease incentives receivable, ii) variable lease payments that are based on an index or a rate, iii) amounts expected to be payable by the lessee under residual value guarantees, iv) the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and v) payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. Right-of-use assets are measured at cost comprising the amount of the initial measurement of lease liability, any lease payments made at or before the commencement date less any lease incentives received and any initial direct costs incurred by the lessee. Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expenses in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value comprise mainly IT equipment and small items of office furniture. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not effective forexercise a termination option. Extension options (or periods after termination options) are only included in the financial year beginninglease term if the lease is reasonably certain to be extended (or not terminated). IFRIC 23, "Uncertainty over Income Tax Treatments" Tenaris has adopted IFRIC 23 “Uncertainty over Income Tax Treatments” from January 1, 2016 and have not been early adopted. These standards were endorsed by2019. This interpretation clarifies how the EU.
The Company’s management is currently assessing the potential impact that the application of these standards may have on the Company’s financial condition or results of operations. The management does not expect these standards to have a significant impact on the classificationrecognition and measurement requirements of its assets and liabilities.IAS 12 “Income taxes” are applied where there is uncertainty over income tax treatments.
Others
Other accounting pronouncements issuedthat became effective during 2016 and as of the date of these Consolidated Financial Statements2019 have no material effect on the Company’s financial condition or resultresults of operations. (2) New and amended standards adopted for Tenaris
The Amendment to IAS 1, “Presentation of financial statements” on the disclosure initiative, has been applied on the year starting January 1, 2016, with no significant impact on the Company’s Consolidated Financial Statements.
B Group accounting (1) Subsidiaries and transactions withnon-controlling interests
| (1) | | Subsidiaries and transactions with non-controlling interests |
Subsidiaries are all entities over which Tenaris has control. Tenaris controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is exercised by the Company and are no longer consolidated from the date control ceases. The purchaseacquisition method of accounting is used to account for the acquisition of subsidiaries by Tenaris. The cost of an acquisition is measured as the fair value of the assets given,transferred, equity instruments issued and liabilities incurred or assumed at the date of exchange. Acquisition-related costs are expensed as incurred. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Anynon-controlling interest in the acquiree is measured either at fair value or at thenon-controlling interest’s proportionate share of the acquiree’s net assets. The excess of the aggregate of the consideration transferred and the amount of anynon-controlling interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the Consolidated Income Statement. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
B Group accounting (Cont.) | (1) | | Subsidiaries and transactions with non-controlling interests (Cont.) |
Contingent consideration is classified either as equity or as a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognized in profit or loss. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognized in profit or loss. Transactions withnon-controlling interests that do not result in a loss of control are accounted as transactions with equity owners of the Company. For purchases fromnon-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals tonon-controlling interests are also recorded in equity. When the Company ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss. Material intercompany transactions, balances and unrealized gains (losses) on transactions between Tenaris 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 intercompany transactions are generated. These are included in the Consolidated Income Statement underOther financial results. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| (2) | | Non-consolidated companies |
B Group accounting (Cont.)
(2)Non-consolidated companies
Non-consolidated companies are all entities in which Tenaris has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments innon-consolidated companies (associated and joint ventures) are accounted for by the equity method of accounting and are initially recognized at cost. The Company’s investment innon-consolidated companies includes goodwill identified in acquisition, net of any accumulated impairment loss.
Unrealized
Under the equity method of accounting, the investments are initially recognized at cost and adjusted thereafter to recognize Tenaris’s share of the post-acquisition profits or losses of the investee in profit or loss, and Tenaris’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognized as a reduction in the carrying amount of the investment. If material, unrealized results on transactions between Tenaris and itsnon-consolidated companies are eliminated to the extent of Tenaris’s interest in thenon-consolidated companies. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment indicator of the asset transferred. Financial statements ofnon-consolidated companies have been adjusted where necessary to ensure consistency with IFRS. The Company’spro-rata share of earnings innon-consolidated companies is recorded in the Consolidated Income Statement underEquity in earnings (losses) of non-consolidated companiesnon-consolidated companies. The Company’spro-rata share of changes in other reservescomprehensive income is recognized in the Consolidated Statement of Changes in Equity underOther Reserves.Comprehensive Income. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
B Group accounting (Cont.) | (2) | | Non-consolidated companies (Cont.) |
Ternium At December 31, 2016,2019, Tenaris holds 11.46% of Ternium S.A (“Ternium”)’s common stock. The following factors and circumstances evidence that Tenaris has significant influence (as defined by IAS 28, “Investments in associates companies and Joint Ventures”) over Ternium, and as a result the Company’s investment in Ternium has been accounted for under the equity method: Both the Company and Ternium are under the indirect common control of San Faustin S.A.;
| § | Both the Company and Ternium are under the indirect common control of San Faustin S.A.; |
| § | Four out of eight members of Ternium’s Board of Directors (including Ternium’s Chairman) are also members of the Company’s Board of Directors; |
| § | Under the shareholders’ agreement by and between the Company and Techint Holdings S.à r.l, a wholly owned subsidiary of San Faustin S.A. and Ternium’s main shareholder, dated January 9, 2006, Techint Holdings S.à.r.l, is required to take actions within its power to cause (a) one of the members of Ternium’s Board of Directors to be nominated by the Company and (b) any director nominated by the Company to be only removed from Ternium’s Board of Directors pursuant to previous written instructions of the Company. |
Four out of eight members of Ternium’s Board of Directors (including Ternium’s chairman) are also members of the Company’s Board of Directors;
Usiminas Under the shareholders’ agreement by and between the Company and Techint Holdings S.à r.l, a wholly owned subsidiary of San Faustin S.A. and Ternium’s main shareholder, dated January 9, 2006, Techint Holdings S.à r.l, is required to take actions within its power to cause (a) one of the members of Ternium’s Board of Directors to be nominated by the Company and (b) any director nominated by the Company to be only removed from Ternium’s Board of Directors pursuant to previous written instructions of the Company.
At December 31, 2016,2019, Tenaris holds through its Brazilian subsidiary Confab Industrial S.A. (“Confab”), 5.2% of the shares with voting rights and 3.08%3.07% of Usinas Siderúrgicas de Minas Gerais S.A. Usiminas (“Usiminas”) total share capital. The acquisition of Usiminas shares was part of a larger transaction performed on January 16, 2012, pursuant to which Ternium, certain of its subsidiaries and Confab joined Usiminas’ existing control group through the acquisition of ordinary shares representing 27.7% of Usiminas’ total voting capital and 13.8% of Usiminas’ total share capital. TheA shareholders’ agreement governed the rights and obligations of Ternium and its subsidiaries and Confab within the Ternium – Tenaris Group are governed under a separate shareholders agreement. Those circumstances evidence that Tenaris has significant influence over Usiminas, consequently, accounted it for under the equity method (as defined by IAS 28).several control group members. In April and May 2016 Tenaris’s subsidiary Confab subscribed, in the aggregate, to 1.3 million preferred shares (BRL1.28 per share) for a total amount of BRL1.6 million (approximately $0.5 million) and 11.5 million ordinary shares (BRL5.00 per share) for a total amount of BRL57.5 million (approximately $16.6 million). The preferred and ordinary shares were issued on June 3, 2016 and July 19, 2016, respectively. Consequently as of December 31, 20162019 Tenaris owns 36.5 million ordinary shares and 1.3 million preferred shares of Usiminas. In 2014, a conflict arose between the T/T Group (comprising Confab and Ternium’s subsidiaries Ternium Investments, Ternium Argentina and Prosid Investments) and Nippon Steel & Sumitomo Metal Corporation (“NSSMC”) with respect to the governance of Usiminas. On February 8, 2018, Ternium Investments resolved the dispute with NSSMC, and on April 10, 2018, the T/T Group entities (including Confab), NSSMC and Previdência Usiminas entered into a new shareholders’ agreement for Usiminas, amending and restating the previously existing shareholders agreement (the “New SHA”). Usiminas’ control group now holds, in the aggregate, 483.6 million ordinary shares bound to the New SHA, representing approximately 68.6% of Usiminas’ voting capital, with the T/T Group holding approximately 47.1% of the total shares held by the control group (39.5% corresponding to the Ternium entities and the other 7.6% corresponding to Confab); NSSMC holding approximately 45.9% of the total shares held by the control group; and Previdência Usiminas holding the remaining 7% of the total shares held by the control group. The New SHA reflects the agreed-upon corporate governance rules for Usiminas, including, among others, an alternation mechanism for the nomination of each of the chief executive officer and the Chairman of the board of directors, as well as a mechanism for the nomination of other members of Usiminas’ executive board. The New SHA also incorporates an exit mechanism consisting of a buy-and-sell procedure, exercisable at any time during the term of the New SHA after the fourth-and-a-half-year anniversary from the May 2018 election of Usiminas’ executive board. Such exit mechanism shall apply with respect to shares held by NSSMC and the T/T Group, and would allow either Ternium or NSSMC to purchase all or a majority of the Usiminas shares held by the other shareholder. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
B Group accounting (Cont.) | (2) | | Non-consolidated companies (Cont.) |
Usiminas (Cont.) In connection with the execution of the New SHA, Confab and the Ternium entities amended and restated their separate shareholders’ agreement governing their respective rights and obligations as members of the T/T Group to include provisions relating to the exit mechanism and generally to conform such separate shareholders’ agreement to the other provisions of the New SHA. The rights of Confab and Ternium and its subsidiaries within the Ternium - Tenaris Group are governed under such amended and restated separate shareholders agreement. Those circumstances evidence that Tenaris has significant influence over Usiminas, and consequently, accounted it for under the equity method (as defined by IAS 28). Techgen Techgen S.A. de C.V. (“Techgen”) is a Mexican joint venture company owned 48% by Ternium, 30% by Tecpetrol International S.A. and 22% by Tenaris. Techgen operates a natural gas-fired combined electric power plant in the Pesquería area of the State of Nuevo Leon, México. Tenaris, Ternium and Tecpetrol International S.A. are parties to a shareholders’ agreement relating to the governance of Techgen. In addition, the Company, Ternium and Tecpetrol International S.A. are under the indirect common control of San Faustin S.A., consequently Tenaris accounted it’s interest under the equity method (as defined by IAS 28). Tenaris carries its investment in Ternium, Usiminas and UsiminasTechgen under the equity method, with no additional goodwill or intangible assets recognized. Tenaris reviews investments innon-consolidated companies for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable, such as a significant or prolonged decline in fair value below the carrying value.recoverable. At December 31, 2016, 20152019, 2018 and 2014,2017, no impairment provisions were recorded on Tenaris’s investment in Ternium while in 2014 and 2015, impairment charges were recorded on Tenaris’s investment in Usiminas.any of the aforementioned investments. See Note 7 and Note 12. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
C Segment information The Company is organized in one major business segment, Tubes, which is also the reportable operating segment. The Tubes segment includes the production and sale of both seamless and welded steel tubular products and related services mainly for the oil and gas industry, particularly oil country tubular goods (OCTG) used in drilling operations, and for other industrial applications with production processes that consist in the transformation of steel into tubular products. Business activities included in this segment are mainly dependent on the oil and gas industry worldwide, as this industry is a major consumer of steel pipe products, particularly OCTG used in drilling activities. Demand for steel pipe products from the oil and gas industry has historically been volatile and depends primarily upon the number of oil and natural gas wells being drilled, completed and reworked, and the depth and drilling conditions of these wells. Sales are generally made to end users, with exports being done through a centrally managed global distribution network and domestic sales are made through local subsidiaries. Corporate general and administrative expenses have been allocated to the Tubes segment. Others includes all other business activities and operating segments that are not required to be separately reported, including the production and selling of sucker rods, industrial equipment, coiled tubing, utility conduits for buildings, heat exchangers, energy and raw materials that exceed internal requirements. Tenaris’s Chief Operating Decision Maker (CEO) holds monthly meetings with senior management, in which operating and financial performance information is reviewed, including financial information that differs from IFRS principally as follows: The use of direct cost methodology to calculate the inventories, while under IFRS it is at full cost, including absorption of production overheads and depreciations;
| § | The use of direct cost methodology to calculate the inventories, while under IFRS it is at full cost, including absorption of production overheads and depreciations; |
| § | The use of costs based on previously internally defined cost estimates, while, under IFRS, costs are calculated at historical cost; |
| § | Other timing differences, if any. |
The use of costs based on previously internally defined cost estimates, while, under IFRS, costs are calculated at historical cost;
Other timing differences.
Tenaris groupspresents its geographical information in five areas: North America, South America, Europe, Middle East and Africa and Asia Pacific. For purposes of reporting geographical information, net sales are allocated to geographical areas based on the customer’s location; allocation of assets, capital expenditures and associated depreciations and amortizations are based on the geographical location of the assets. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
D Foreign currency translation (1) Functional and presentation currency
| (1) | | Functional and presentation currency |
IAS 21 (revised), “The effects of changes in foreign exchange rates” defines the functional currency as the currency of the primary economic environment in which an entity operates. The functional and presentation currency of the Company is the U.S. dollar. The U.S. dollar is the currency that best reflects the economic substance of the underlying events and circumstances relevant to Tenaris’s global operations. Except for the Brazilian and Italian subsidiaries whose functional currencies are their local currencies, Tenaris determined that the functional currency of its other subsidiaries is the U.S. dollar, based on the following principal considerations: Sales are mainly negotiated, denominated and settled in U.S. dollars. If priced in a currency other than the U.S. dollar, the sales price considers exposure to fluctuation in the exchange rate versus the U.S. dollar;
| § | Sales are mainly negotiated, denominated and settled in U.S. dollars. If priced in a currency other than the U.S. dollar, the sales price may consider exposure to fluctuation in the exchange rate versus the U.S. dollar; |
| § | Prices of their critical raw materials and inputs are priced and settled in U.S. dollars; |
| § | Transaction and operational environment and the cash flow of these operations have the U.S. dollar as reference currency; |
| § | Significant level of integration of the local operations within Tenaris’s international global distribution network; |
| § | Net financial assets and liabilities are mainly received and maintained in U.S. dollars; |
| § | The exchange rate of certain legal currencies has long-been affected by recurring and severe economic crises. |
Prices of their critical raw materials and inputs are priced and settled in U.S. dollars;
| (2) | | Transactions in currencies other than the functional currency |
Transaction and operational environment and the cash flow of these operations have the U.S. dollar as reference currency;
Significant level of integration of the local operations within Tenaris’s international global distribution network;
Net financial assets and liabilities are mainly received and maintained in U.S. dollars;
The exchange rate of certain legal currencies has long-been affected by recurring and severe economic crises.
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
D Foreign currency translation (Cont.)
(2) Transactions in currencies other than the functional currency
Transactions in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the date of the transactions or valuation where items arere-measured. At the end of each reporting period: (i) monetary items denominated in currencies other than the functional currency are translated using the closing rates;(ii) non-monetary items that are measured in terms of historical cost in a currency other than the functional currency are translated using the exchange rates prevailing at the date of the transactions; and(iii) non-monetary items that are measured at fair value in a currency other than the functional currency are translated using the exchange rates prevailing at the date when the fair value was determined. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation atyear-end exchange rates of monetary assets and liabilities denominated in currencies other than the functional currency are recorded as gains and losses from foreign exchange and included in“Other financial results”results in the Consolidated Income Statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Translation differences innon-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss as part of the “fair value gain or loss,” while translation differences onnon-monetary financial assets such as equities classified as available for sale are included in the “available for sale reserve” in equity. Tenaris had no such assets or liabilities for any of the periods presented. (3) Translation of financial information in currencies other than the functional currency
| (3) | | Translation of financial information in currencies other than the functional currency |
Results of operations for subsidiaries whose functional currencies are not the U.S. dollar are translated into U.S. dollars at the average exchange rates for each quarter of the year. Financial statement positions are translated at theend-of-year year-end exchange rates. Translation differences are recognized in a separate component of equity as currency translation adjustments. In the case of a sale or other disposal of any of such subsidiaries, any accumulated translation difference would be recognized in income as a gain or loss from the sale. Goodwill and fair value adjustments arising from the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
E Property, plant and equipment Property, plant and equipment are recognized at historical acquisition or construction cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Property, plant and equipment acquired through acquisitions accounted for as business combinations have been valued initially at the fair market value of the assets acquired. Major overhaul and rebuilding expenditures are capitalized as property, plant and equipment only when it is probable that future economic benefits associated with the item will flow to the groupCompany and the investment enhances the condition of assets beyond its original condition. The carrying amount of the replaced part is derecognized. Ordinary maintenanceMaintenance expenses on manufacturing properties are recorded as cost of products sold in the year in which they are incurred. Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Borrowing costs that are attributable to the acquisition or construction of certain capital assets are capitalized as part of the cost of the asset, in accordance with IAS 23(R), “Borrowing Costs”. Assets for which borrowing costs are capitalized are those that require a substantial period of time to prepare for their intended use. Depreciation
The depreciation method is reviewed at each year end. Depreciation is calculated using the straight-line method to depreciate the cost of each asset to its residual value over its estimated useful life, as follows: | | | Land | | No Depreciation | | Buildings and improvements | | 30-50 years | | Plant and production equipment | | 10-40 years | | Vehicles, furniture and fixtures, and other equipment | | 4-10 years |
The assets’ residual values and useful lives of significant plant and production equipment are reviewed and adjusted, if appropriate, at eachyear-end date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Management’sre-estimation of assets useful lives, performed in accordance with IAS 16, “Property, Plant and Equipment”, did not materially affect depreciation expenses for 2016, 20152019, 2018 and 2014. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
E Property, plant and equipment (Cont.)2017.
Tenaris depreciates each significant part of an item of property, plant and equipment for its different production facilities that (i) can be properly identified as an independent component with a cost that is significant in relation to the total cost of the item, and (ii) has a useful operating life that is different from another significant part of that same item of property, plant and equipment. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of assets and are recognized underOther operating incomeorOther operating expenses in the Consolidated Income Statement. F Intangible assets (1) Goodwill
Goodwill represents the excess of the acquisition cost over the fair value of Tenaris’s share of net identifiable assets acquired as part of business combinations determined mainly by independent valuations. Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Goodwill is included in the Consolidated Statement of Financial Position underIntangible assets, net. For the purpose of impairment testing, goodwill is allocated to a subsidiaryCGU or group of subsidiariesCGUs that are expected to benefit from the business combination which generated the goodwill being tested.
(2) Information systems projects Costs associated with maintaining computer software programs are generally recognized as an expense as incurred. However, costs directly related to the development, acquisition and implementation of information systems are recognized as intangible assets if it is probable that they have economic benefits exceeding one year.year and comply with the recognition criteria of IAS 38, “Intangible Assets”. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
F Intangible assets (Cont.) | (2) | | Information systems projects (Cont.) |
Information systems projects recognized as assets are amortized using the straight-line method over their useful lives, generally not exceeding a period of 3 years. Amortization charges are mainly classified asSelling, general and administrative expenses in the Consolidated Income Statement. Management’sre-estimation of assets useful lives, performed in accordance with IAS 38, “Intangible Assets”, did not materially affect depreciationamortization expenses for 2016, 20152019, 2018 and 2014.2017. (3) Licenses, patents, trademarks and proprietary technology
| (3) | | Licenses, patents, trademarks and proprietary technology |
Licenses, patents, trademarks, and proprietary technology acquired in a business combination are initially recognized at fair value at the acquisition date. Licenses, patents, proprietary technology and those trademarks that have a finite useful life are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost over their estimated useful lives, and does not exceed a period of 10 years. Amortization charges are mainly classified asSelling, general and administrative expenses in the Consolidated Income Statement. The balance of acquired trademarks that have indefinite useful lives according to external appraisal amounts to $86.7 million at December 31, 20162019, 2018 and 2015,2017, and are included in Hydril CGU. Main factors considered in the determination of the indefinite useful lives include the years that they have been in service and their recognition among customers in the industry. Management’sre-estimation of assets useful lives, performed in accordance with IAS 38, did not materially affect depreciationamortization expenses for 2016, 20152019, 2018 and 2014.2017. (4) Research and development
| (4) | | Research and development |
Research expenditures as well as development costs that do not fulfill the criteria for capitalization are recorded asCost of sales in the Consolidated Income Statement as incurred. Research and development expenditures included inCost of sales for the years 2016, 20152019, 2018 and 20142017 totaled $68.6$61.1 million, $89.0$63.4 million and $106.9$63.7 million, respectively. Tenaris S.A. Consolidated Financial StatementsCapitalized costs were not material for the years ended December 31, 2016, 20152019, 2018 and 2014
F Intangible assets2017.
(5)
| (5) | | Customer relationships |
In accordance with IFRS 3, “Business Combinations”"Business Combinations" and IAS 38, Tenaris has recognized the value of customer relationships separately from goodwill attributable to the acquisition of Maverick and Hydril groups.groups, as well as the more recent acquisition of SSP. Customer relationships acquired in a business combination are recognized at fair value at the acquisition date, have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight line method over the initial expected useful life of approximately 14 years for Maverick, and 10 years for Hydril.Hydril and 9 years for SSP. In 20152018 the Company reviewed the useful life of Prudential’sMaverick’s Tubes customer relationships related to Maverick acquisition, and decided to reduce the remaining amortization perioduseful life from 52 years to 2 years.zero, consequently a higher amortization charge of approximately $109 million was recorded in the Consolidated Income Statement under Selling, general and administrative expenses for the year ended December 31, 2018. As of December 201631, 2019 the residualnet book value of Maverick and HydrilSSP’s customer relationships amountrelationship amounts to $308$72.9 million, and $17 million and thewith a residual useful life is 4 years andof 8 years. Maverick’s coiled tubing customer relationships amounts to $9.9 million with a residual useful life of 1 year, respectively.while Hydril’s customer relationships is fully amortized.
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
G Impairment ofnon-financial assets Long-lived assets including identifiable intangible assets are reviewed for impairment at the lowest level for which there are separately identifiable cash flows (cash generating units, or CGU). Most of the Company’s principal subsidiaries that constitute a CGU have a single main production facility and, accordingly, each of such subsidiary represents the lowest level of asset aggregation that generates largely independent cash inflows. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets with indefinite useful life,lives, including goodwill, are subject to at least an annual impairment test. In assessing whether there is any indication that a CGU may be impaired, external and internal sources of information are analyzed. Material facts and circumstances specifically considered in the analysis usually include the discount rate used in Tenaris’s cash flow projections and the business condition in terms of competitive and economic factors, such as the cost of raw materials, oil and gas prices, competitive environment, capital expenditure programs for Tenaris’s customers and the evolution of the rig count. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher between the asset’s value in use and fair value less costs to sell.of disposal. Any impairment loss is allocated to reduce the carrying amount of the assets of the CGU in the following order: (a) first, to reduce the carrying amount of any goodwill allocated to the CGU; and
| (a) | | first, to reduce the carrying amount of any goodwill allocated to the CGU; and |
| (b) | | then, to the other assets of the unit (group of units) pro-rata on the basis of the carrying amount of each asset in the unit (group of units), considering not to reduce the carrying amount of the asset below the highest of its fair value less cost of disposal, its value in use or zero. |
(b) then, to the other assets of the unit (group of units)pro-rata on the basis of the carrying amount of each asset in the unit (group of units), considering not to reduce the carrying amount of the asset below the highest of its fair value less cost to sell, its value in use or zero.
The value in use of each CGU is determined on the basis of the present value of net future cash flows which would be generated by such CGU. Tenaris uses cash flow projections for a five year period with a terminal value calculated based on perpetuity and appropriate discount rates.
For purposes of calculating the fair value less costs to sell,of disposal, Tenaris uses the estimated value of future cash flows that a market participant could generate from the corresponding CGU. Management judgment is required to estimate discounted future cash flows. Actual cash flows and values could vary significantly from the forecasted future cash flows and related values derived using discounting techniques. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal at each reporting date. Tenaris S.A. Consolidated Financial Statementsregularly conducts 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 based on forecasts approved by management. For the subsequent years beyond the five-year period, a terminal value is calculated based on perpetuity. 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. For purposes of assessing key assumptions, Tenaris uses external sources of information and management judgment based on past experience. 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. Management has determined the value of each of the key assumptions as follows: - Discount rate: based on the applicable weighted average cost of capital (WACC), which is considered to be a good indicator of capital cost, taking into account the industry, country and size of the business. For each CGU where assets are allocated, a specific WACC was determined taking into account the industry, country and size of the business. In 2019, the main discount rates used were in a range between 8.2% and 15.9%. - Growth rate: considers the long-term average growth rate for the oil and gas industry, the inflation impact on prices and costs, the higher demand to offset depletion of existing fields and the Company’s expected market penetration. In 2019, a nominal growth rate of 2% was considered. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
G Impairment of non-financial assets (Cont.) - Oil and gas prices: based on industry analysts’ reports and management’s expectations of market development respectively. - Rig count: based on information published by Baker Hughes and management’s expectations. - Raw material costs: based on industry analysts’ reports and management’s expectations. The main factors that could result in additional impairment charges in future periods would be an increase in the discount rate or a decrease in growth rate used in the Company’s cash flow projections, a deterioration of the business, competitive and economic factors, such as a decrease in oil and gas prices, and the evolution of the rig count. For the CGU with significant amount of goodwill assigned in comparison to the total amount of goodwill, Tenaris has determined that the CGU for which a reasonable possible change in the key assumption would cause the CGUs’ carrying amount to exceed its recoverable amount was OCTG USA. In OCTG USA, the recoverable amount calculated based on value in use exceeded carrying value by $108 million as of December 31, 2016, 2015 and 20142019. The following changes in key assumptions, at CGU OCTG – USA, assuming unchanged values for the other assumptions, would cause the recoverable amount to be equal to the respective carrying value as of the impairment tests: | Increase in the discount rate | 95 Bps | | Decrease of the growth rate | -1.6 % | | Decrease of the cash flow projections | -15.3 % |
No impairment charge was recorded in 2019, 2018 and 2017. HOther investments Other investments consist primarily of investments in financial instruments and time deposits with a maturity of more than three months at the date of purchase. Certainnon-derivative financial assets that the Company has both the ability and the intention to hold to maturityheld not for trading have been categorized as held to maturity financial assets.assets “at fair value through other comprehensive income” (“FVOCI”). They are carried at amortized costfair value and interest income from these financial assets is included in finance income using the resultseffective interest rate method. Unrealized gains or losses are recorded as a fair value adjustment in the Consolidated Statement of Comprehensive Income and transferred to the Consolidated Income Statement when the financial asset is sold. Exchange gains and losses and impairments related to the financial assets are immediately recognized inFinancial Resultsin the Consolidated Income Statement using the effective interest method. Held to maturityStatement. FVOCI instruments with maturities greater than 12 months after the balance sheet date are included in thenon-current assets. All other
Other investments in financial instruments and time deposits are categorized as financial assets “at fair value through profit or loss” because such investments are both (i) held for trading and (ii) designated as such upon initial recognition because they are managed and their performance is evaluated on a fair value basis. The results of these investments are recognized inFinancial Results in the Consolidated Income Statement. Purchases and sales of financial investments are recognized as of their settlement date. The fair values of quoted investments are generally based on current bid prices. If the market for a financial investment is not active or the securities are not listed, Tenaris estimates the fair value by using standard valuation techniques (seetechniques. See Section III Financial Risk Management).Management.
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
I Inventories Inventories are stated at the lower between cost and net realizable value. The cost of finished goods and goods in process is comprised of raw materials, direct labor, and utilities, (based on FIFO method)freights and other direct costs and related production overhead costs, and it excludes borrowing costs. The allocation of fixed production costs, including depreciation and amortization charges, is based on the normal level of production capacity. Inventories cost is mainly based on the FIFO method. Tenaris estimates net realizable value of inventories by grouping, where applicable, similar or related items. Net realizable value is the estimated selling price in the ordinary course of business, less any estimated costs of completion and selling expenses. Goods in transit at year endas of year-end are valued based on the supplier’s invoice cost. Tenaris establishes an allowance for obsolete or slow-moving inventoryinventories related to finished goods, goods in process, supplies and spare parts. For slow moving or obsolete finished products, an allowance is established based on management’s analysis of product aging. An allowance for obsolete and slow-moving inventory of supplies and spare parts is established based on management’smanagement's analysis of such items to be used as intended and the consideration of potential obsolescence due to technological changes.changes, aging and consumption patterns. J Trade and other receivables Trade and other receivables are recognized initially at fair value generallythat corresponds to the original invoice amount. Tenaris analyzes itsamount of consideration that is unconditional unless they contain significant financing components. The Company holds trade receivables onwith the objective to collect the contractual cash flows and therefore measures them subsequently at amortized cost using the effective interest method. Due to the short-term nature, their carrying amount is considered to be the same as their fair value. Tenaris applies the IFRS 9 “Financial Instruments” simplified approach to measure expected credit losses, which uses a regular basis and, when aware of a specific counterparty’s difficulty or inability to meet its obligations, impairs any amounts due by means of a charge to anlifetime expected loss allowance for doubtful accounts. In addition,all trade accounts receivable overdue by more than 180receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of sales over a period of three years and whichthe corresponding historical credit losses experienced within this period. The historical loss rates are not covered by a credit collateral, guarantee, insurance or similar surety, are fully provisioned.adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. K Cash and cash equivalents Cash and cash equivalents are comprised of cash at banks, liquidity funds and short-term investments with a maturity of less than three months at the date of purchase which are readily convertible to known amounts of cash. Assets recorded in cash and cash equivalents are carried at fair market value or at historical cost which approximates fair market value. In the Consolidated Statement of Financial Position, bank overdrafts are included inBorrowings in current liabilities. For the purposes of the Consolidated Statement of Cash Flows, cashCash and cash equivalents includes overdrafts. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
L Equity (1) Equity components
The Consolidated Statement of Changes in Equity includes: The value of share capital, legal reserve, share premium and other distributable reserves calculated in accordance with Luxembourg law;
| § | The value of share capital, legal reserve, share premium and other distributable reserves calculated in accordance with Luxembourg law; |
| § | The currency translation adjustment, other reserves, retained earnings and non-controlling interest calculated in accordance with IFRS. |
The currency translation adjustment, other reserves, retained earnings andnon-controlling interest calculated in accordance with IFRS.
(2) Share capital
The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share.Totalshare. Total ordinary shares issued and outstanding as of December 31, 2016, 20152019, 2018 and 20142017 are 1,180,536,830 with a par value of $1.00 per share with one vote each. All issued shares are fully paid. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
L Equity (Cont.) | (3) | | (3) Dividends distribution by the Company to shareholders |
Dividends distributions are recorded in the Company’s financial statements when Company’s shareholders have the right to receive the payment, or when interim dividends are approved by the Board of Directors in accordance with theby-laws of the Company. Dividends may be paid by the Company to the extent that it has distributable retained earnings, calculated in accordance with Luxembourg law (seelaw. See Note 25 (iii)). M Borrowings Borrowings are recognized initially at fair value net of transaction costs incurred and subsequently measured at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognized in profit or loss over the period of the borrowings using the effective interest method. N Current and Deferred income tax The income tax expense or credit for the period comprisesis the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and deferred tax.liabilities attributable to temporary differences and to unused tax losses. Tax is recognized in the Consolidated Income Statement, except for tax items recognized in the Consolidated Statement of Other Comprehensive Income.other comprehensive income or directly in equity. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions when appropriate. Deferred income tax is recognized applying the liability method on temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the financial statements. The principal temporary differences arise from fair value adjustments of assets acquired in business combinations, the effect of currency translation on depreciable fixed assets and inventories, depreciation on property, plant and equipment, valuation of inventories, and provisions for pension plans.plans and fair value adjustments of assets acquired in business combinations. Deferred tax assets are also recognized for net operating loss carry-forwards. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the time period when the asset is realized or the liability is settled, based on tax laws that have been enacted or substantively enacted at the reporting date. Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized. At the end of each reporting period, Tenaris reassesses unrecognized deferred tax assets. Tenaris recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable income will allow the deferred tax asset to be recovered. Tenaris S.A.Deferred tax liabilities and assets are not recognized for temporary differences between the carrying amount and tax basis of investments in foreign operations where the company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. Deferred tax assets and liabilities are re-measured if tax rates change. These amounts are charged or credited to the Consolidated Financial StatementsIncome Statement or to the item Other comprehensive income for the years ended December 31, 2016, 2015 and 2014year in the Consolidated Statement of Comprehensive Income, depending on the account to which the original amount was charged or credited. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
O Employee benefits | (1) | | Short-term obligations |
(1) Post employment benefits
Liabilities for wages and salaries are recognized in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet. | (2) | | Post employment benefits |
The Company has defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets, if any. The defined benefit obligation is calculated annually (at year end) by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Actuarial
Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity inOther comprehensive income in the period in which they arise. Past-service costs are recognized immediately in the Income Statement. For defined benefit plans, net interest income/expense is calculated based on the surplus or deficit derived by the difference between the defined benefit obligations less fair value of plan assets. For defined contribution plans, the Company pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Company has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expenseexpenses when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available. Tenaris sponsors funded and unfunded defined benefit pension plans in certain subsidiaries. The most significant are: An unfunded defined benefit employee retirement plan for certain senior officers. The plan is designed to provide certain benefits to those officers (additional to those contemplated under applicable labor laws) in case of termination of the employment relationship due to certain specified events, including retirement. This unfunded plan provides defined benefits based on years of service and final average salary.
| § | An unfunded defined benefit employee retirement plan for certain senior officers. The plan is designed to provide certain benefits to those officers (additional to those contemplated under applicable labor laws) in case of termination of the employment relationship due to certain specified events, including retirement. This unfunded plan provides defined benefits based on years of service and final average salary. As of December 31, 2019 the outstanding liability for this plan amounts to $45.3 million. |
Employees’ service rescission indemnity: the cost of this obligation is charged to the Consolidated Income Statement over the expected service lives of employees. This provision is primarily related to the liability accrued for employees at Tenaris’s Italian subsidiary. As from January 1, 2007 as a consequence of a change in an Italian law, employees were entitled to make contributions to external funds, thus, Tenaris’s Italian subsidiary pays every year the required contribution to the funds with no further obligation. As a result, the plan changed from a defined benefit plan to a defined contribution plan effective from that date, but only limited to the contributions of 2007 onwards.
| § | Employees’ service rescission indemnity: the cost of this obligation is charged to the Consolidated Income Statement over the expected service lives of employees. This provision is primarily related to the liability accrued for employees at Tenaris’s Italian subsidiary. As from January 1, 2007 as a consequence of a change in an Italian law, employees were entitled to make contributions to external funds, thus, Tenaris’s Italian subsidiary pays every year the required contribution to the funds with no further obligation. As a result, the plan changed from a defined benefit plan to a defined contribution plan effective from that date, but only limited to the contributions of 2007 onwards. As of December 31, 2019 the outstanding liability for this plan amounts to $17.3 million. |
Funded retirement benefit plans held in Canada for salary and hourly employees hired prior a certain date based on years of service and, in the case of salaried employees, final average salary. Plan assets consist primarily of investments in equities and money market funds. Both plans were replaced for defined contribution plans. Effective June 2016 the salary plan was frozen for the purposes of credited service as well as determination of final average pay.
| § | Funded retirement benefit plans held in Canada for salary and hourly employees hired prior to a certain date based on years of service and, in the case of salaried employees, final average salary. Plan assets consist primarily of investments in equities and money market funds. Both plans were replaced for defined contribution plans. Effective June 2016 the salary plan was frozen for the purposes of credited service as well as determination of final average pay. As of December 31, 2019 the outstanding liability for this plan amounts to $9.8 million. |
Funded retirement benefit plan held in the US for the benefit of some employees hired prior a certain date, frozen for the purposes of credited service as well as determination of final average pay for the retirement benefit calculation. Plan assets consist primarily of investments in equities and money market funds. Additionally, an unfunded postretirement health and life plan that offers limited medical and life insurance benefits to the retirees, hired before a certain date.
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| § | Funded retirement benefit plan held in the US for the benefit of some employees hired prior a certain date, frozen for the purposes of credited service as well as determination of final average pay for the retirement benefit calculation. Plan assets consist primarily of investments in equities and money market funds. Additionally, an unfunded postretirement health and life plan is present that offers limited medical and life insurance benefits to the retirees, hired before a certain date. As of December 31, 2019 the outstanding liability for these plans amounts to $13.4 million. |
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
O Employee benefits (Cont.) | (3) | | Other long term benefits |
(2) Other long term benefits
During 2007, Tenaris launched an employee retention and long term incentive program(theprogram (the “Program”) applicable to certain senior officers and employees of the Company, who will be granted a number of Units throughout the duration of the Program. The value of each of these Units is based on Tenaris’s shareholders’ equity (excludingnon-controlling interest). Also, the beneficiaries of the Program are entitled to receive cash amounts based on (i) the amount of dividend payments made by Tenaris to its shareholders, and (ii) the number of Units held by each beneficiary to the Program. Units vestUntil 2017 units were vested ratably over a period of four years and will bewere mandatorily redeemed by the Company ten years after grant date, with the option of an early redemption at seven years after the grant date. AsSince 2018 units are vested ratably over the cashsame period and are mandatorily redeemed by the Company seven years after grant date. The payment of the benefit is tied to the book value of the shares, and not to their market value,value. Tenaris valued this long-term incentive program as a long term benefit plan as classified in IAS 19, “Employee Benefits”. As of December 31, 20162019 and 2015,2018, the outstanding liability corresponding to the Program amounts to $78.7$99.0 million and $84.0$91.2 million, respectively. The total value of the units granted (vested and unvested) to date under the program, considering the number of units and the book value per share as of December 31, 20162019 and 2015,2018, is $92.9$119.9 million and $105.3$106 million, respectively. (3) Other compensation obligations
Termination benefits are payable when employment is terminated by Tenaris before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. Tenaris recognizes termination benefits at the earlier of the following dates: (a) when it can no longer withdraw the offer of those benefits; and (b) when the costs for a restructuring that is within the scope of IAS 37 and involves the payment of terminations benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. | (5) | | Other compensation obligations |
Employee entitlements to annual leave, and long-service leave, sick leave and other bonuses and compensations obligations are accrued as earned. Compensation to employees in the event of dismissal is charged to income in the year in which it becomes payable. P Provisions Tenaris is subject to various claims, lawsuits and other legal proceedings, including customer claims, in which a third party is seeking payment for alleged damages, reimbursement for losses or indemnity. Tenaris’s potential liability with respect to such claims, lawsuits and other legal proceedings cannot be estimated with certainty. Management periodically reviews the status of each significant matter and assesses potential financial exposure. If, as a result of past events, a potential loss from a claim or proceeding is considered probable and the amount can be reasonablyreliably 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 Tenaris’s litigation and settlement strategies. These estimates are primarily constructed with the assistance of legal counsel. As the scope of liabilities become better defined, there may be changes in the estimates of future costs which could have a material adverse effect on its results of operations, financial condition and cash flows. If Tenaris expects to be reimbursed for an accrued expense, as would be the case for an expense or loss covered under an insurance contract, and reimbursement is considered virtually certain, the expected reimbursement is recognized as a receivable. This note should be read in conjunction with Note 25. Q Trade and other payables Trade and other payables are recognized initially at fair value, generally the nominal invoice amount.amount and subsequently measured at amortized cost. They are presented as current liabilities unless payment is not due within twelve months after the reporting period. Due to the short-term nature their carrying amounts are considered to be the same as their fair value. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
R Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and rendering of services in the ordinary course of Tenaris’s activities. RevenueThe revenue recognized by the Company is shown netmeasured at the transaction price of value-added tax,the consideration received or receivable to which the Company is entitled to, reduced by estimated returns and other customer credits, such as discounts and volume rebates, and discountsbased on the expected value to be realized and after eliminating sales within the group. Tenaris’s
Revenue is recognized at a point in time or over time from sales when control has been transferred and there is no unfulfilled performance obligation that could affect the acceptance of the product by the customer. The control is transferred upon delivery. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and services are sold based upon purchase orders, contracts or upon other persuasive evidence of an arrangementloss have been transferred and either the customer has accepted the product in accordance with customers, including that the sales price is knowncontract, the acceptance provisions have lapsed or determinable. Salesthe Company has objective evidence that all criteria for acceptance have been satisfied, including all performance obligations. These conditions are recognized as revenue upon delivery, when neither continuing managerial involvement nor effective control over the products is retaineddetermined and analyzed on a contract by contract basis to ensure that all performance obligations are fulfilled; in particular, Tenaris and when collection is reasonably assured. Delivery is defined by the transfer of risk and may include delivery to a storage facility located at oneverifies customer acceptance of the Company’s subsidiaries. goods, the satisfaction of delivery terms and any other applicable condition. For bill and hold transactionsrevenue is recognized only to the extent that (a) it is highly probable delivery willthe reason for the bill and hold arrangement must be made;substantive (for example, the customer has requested the arrangement); (b) the products have been specifically identified and are ready for delivery; (c) the sales contract specifically acknowledgesCompany does not have the deferred delivery instructions;ability to use the product or to direct it to another customer; (d) the usual payment terms apply. The Company’s contracts with customers do not provide any material variable consideration, other than discounts, rebates and right of return. Discounts and rebates are recognized based on the most likely value and rights of return are based on expected value considering past experience and contract conditions. Where the contracts include multiple performance obligations, the transaction price is allocated to each performance obligation based on the stand-alone selling prices. Where these are not directly observable, they are estimated based on the expected cost plus margin. There are no judgements applied by management that significantly affect the determination of timing of satisfaction of performance obligations, nor the transaction price and amounts allocated to different performance obligations. Tenaris provides services related to goods sold, which represent a non-material portion of sales revenue and include: Tenaris S.A. Consolidated Financial StatementsPipe Management Services. This comprises mainly preparation of the pipes ready to be run, delivery to the customer, storage services and rig return.
Field Services. Comprises field technical support and running assistance. These services are rendered in connection to the sales of goods and are attached to contracts with customers for the years ended December 31, 2016, 2015sale of goods. A significant portion of service revenue is recognized in the same period as the goods sold. There are no distinct uncertainties in the revenues and 2014cash flows of the goods sold and services rendered as they are included in the same contract, have the same counterparty and are subject to the same conditions. Revenue from providing services is recognized over time in the accounting period in which the services are rendered. The following inputs and outputs methods are applied to recognize revenue considering the nature of service: Storage services, the Company provides storage services in owned or third-party warehouses, subject to a variable fee to be invoiced. This fee is determined based on the time that the customer maintains the material in the warehouse and the amount of the material stored. In the majority of cases, to quantify the amount to be invoiced in any given month, the monthly average fee of storage per ton is multiplied by the monthly average stock stored (in tons). Freights, the Company recognized the revenue on a pro rata bases considering the units delivered and time elapsed. Field services, the revenue is recognized considering outputs method, in particular surveys of service completion provided by the customer. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
R Revenue recognition (Cont.) The percentageCompany does not expect to have any contracts where the period between the transfer of total salesthe promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, considering that were generated from bill and hold arrangementsthe contracts do not include any significant financing component, the Company does not adjust any of the transaction prices for products located in Tenaris’s storage facilities that havethe time value of money. For this reason, the Company is also applying the practical expedient not been shipped to customers amounteddisclose details on transaction prices allocated to 2.8%, 3.0% and 1.2%the remaining performance obligations as of December 31, 2016, 2015 and 2014, respectively. The Company hasthe end of the reporting period. Tenaris only provides standard quality warranties assuring that the goods sold will function as expected or are fit for their intended purpose, with no incremental service to the customer. Accordingly, warranties do not experienced any material claims requesting the cancellation of bill and hold transactions.constitute a separate performance obligation. Other revenues earned by Tenaris are recognized on the following basis: Construction contracts (mainly applicable to Tenaris Brazilian subsidiaries and amounted to 37 million, 0.86% of total sales). The revenue recognition of the contracts follows the IAS 11 “Construction Contracts” guidance, that means, when the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognized over the period of the contract by reference to the stage of completion (measured by reference to the contract costs incurred up to the end of the reporting period as a percentage of total estimated costs for each contract).
| § | Interest income: on the effective yield basis. |
| § | Dividend income from investments in other companies: when Tenaris’s right to receive payment is established. |
| § | Construction contracts revenues is recognized in accordance with the stage of the project completion. |
Interest income: on the effective yield basis.
Dividend income from investments in other companies: when Tenaris’s right to receive payment is established.
S Cost of sales and salesother selling expenses Cost of sales and salesother selling expenses are recognized in the Consolidated Income Statement on the accrual basis of accounting. Commissions, freightfreights and other selling expenses, including shipping and handling costs, are recorded inSelling, general and administrative expensesin the Consolidated Income Statement. T Earnings per share Earnings per share are calculated by dividing the income attributable to owners of the parent by the daily weighted average number of common shares outstanding during the year. There are no dilutive potential ordinary shares. U Financial instruments Non derivative financial instruments comprise investments in financial debt instruments and equity, time deposits, trade and other receivables, cash and cash equivalents, borrowings and trade and other payables. Tenaris’s non derivative The Company classifies its financial instruments are classified intoaccording to the following measurement categories: | · | those to be measured subsequently at fair value (either through OCI or through profit or loss), and |
| · | those to be measured at amortised cost |
The classification depends on the Company’s business model for managing the financial assets and contractual terms of the cash flows. Financial instrumentsassets are recognized on their settlement date. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership. At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit and loss: comprise mainly Other Investments expiringor loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expenses in less than ninety days from theprofit or loss. Subsequent measurement date (included within cash and cash equivalents) and investments in certain financialof debt instruments depends on the Company’s business model for managing the asset and time depositsthe cash flow characteristics of the asset. There are three measurement categories into which the Company classifies its debt instruments: | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
U Financial instruments (Cont.) Amortized Cost: Assets that are held for trading. Loanscollection of contractual cash flows where those cash flows represent solely payments of principal and receivables: comprise cash and cash equivalents, trade receivables and other receivables and are measured at amortized costinterest. Interest income from these financial assets is included in finance income using the effective interest rate method less any impairment.
method. Available for sale assets: compriseExchange gains and losses and impairments related to the Company’s interestfinancial assets are immediately recognized in the Venezuelan Companies (see Note 31). Held to maturity: compriseFair value through other comprehensive income: Assets that are held for collection of contractual cash flows and for selling the financial assets, thatwhere the Company has both the abilityassets’ cash flows represent solely payments of principal and the intention to hold to maturity. They are measured at amortized cost using the effective interest method. Otherinterest. Interest income from these financial liabilities: comprise borrowings, trade and other payables and are measured at amortized costassets is included in finance income using the effective interest rate method.
The categorization depends on Unrealized gains or losses are recorded as a fair value adjustment in the natureConsolidated Statement of Comprehensive Income and purpose that the Company setstransferred to the Consolidated Income Statement when the financial instrument.asset is sold.
Financial assets
Fair value through profit and liabilitiesloss (“FVPL”): Assets that do not meet the criteria for amortized cost or FVOCI. Changes in fair value of financial instruments at FVPL are immediately recognized and derecognized on their settlement date.in the Consolidated Income Statement. For equity instruments, these are subsequently measured at fair value. Accounting for derivative financial instruments and hedging activities is included within the Section III, Financial Risk Management. Tenaris S.A. Consolidated Financial StatementsV Non-current assets held for the years ended December 31, 2016, 2015sale and 2014
discontinued operations III. FINANCIAL RISK MANAGEMENTNon-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits and financial assets that are carried at fair value.
An impairment loss is recognized for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognized for any subsequent increase in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognized. Non-current assets (including those that are part of a disposal group) are not depreciated or amortized while they are classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognized. Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet. A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the Consolidated Income Statement. See Note 29. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
iii. Financial risk management The multinational nature of Tenaris’s operations and customer base exposes the Company to a variety of risks, mainly related to market risks (including the effects of changes in foreign currency exchange rates and interest rates), credit risk and capital market risk. In order to manage the volatility related to these exposures, the management evaluates exposures on a consolidated basis, taking advantage of logical exposure netting. The Company or its subsidiaries may then enter into various derivative transactions in order to prevent potential adverse impacts on Tenaris’s financial performance. Such derivative transactions are executed in accordance with internal policies and hedging practices. The Company’s objectives, policies and processes for managing these risks remained unchanged during 2016.
A. Financial Risk Factors (i) Capital Risk Management
| (i) | | Capital Risk Management |
Tenaris seeks to maintain a low debt to total equity ratio considering the industry and the markets where it operates. Theyear-end ratio of debt to total equity (where “debt” comprises financial borrowings and “total equity” is the sum of financial borrowings and equity) is 0.070.06 as of December 31, 20162019 and 0.080.04 as of December 31, 2015.2018. The Company does not have to comply with regulatory capital adequacy requirements. (ii) Foreign exchange risk
| (ii) | | Foreign exchange risk |
Tenaris manufactures and sells its products in a number of countries throughout the world and consequently is exposed to foreign exchange rate risk. Since the Company’s functional currency is the U.S. dollar the purpose of Tenaris’s foreign currency hedging program is mainly to reduce the risk caused by changes in the exchange rates of other currencies against the U.S. dollar. Tenaris’s exposure to currency fluctuations is reviewed on a periodic consolidated basis. A number of derivative transactions are performed in order to achieve an efficient coverage in the absence of operative or natural hedges. Almost all of these transactions are forward exchange rates contracts (seecontracts. See Note 24 Derivative financial instruments).24. Tenaris does not enter into derivative financial instruments for trading or other speculative purposes, other thannon-material investments in structured products. Because certain
In the case of subsidiaries havewith functional currencies other than the U.S. dollar, the results of hedging activities, reported in accordance with IFRS, may not reflect entirely the management’s assessment of its foreign exchange risk hedging program. Intercompany balances between Tenaris’s subsidiaries may generate financial gains (losses) to the extent that functional currencies differ. The value of Tenaris’s financial assets and liabilities is subject to changes arising out offrom the variation of foreign currency exchange rates. The following table provides a breakdown of Tenaris’s main financial assets and liabilities (including foreign exchange derivative contracts) which impact the Company’s profit and loss as of December 31, 20162019 and 2015:2018: | | | | | | | | | | All amounts Long / (Short) in thousands of U.S. dollars | | As of December 31, | | Currency Exposure / Functional currency | | 2016 | | | 2015 | | Argentine Peso / U.S. Dollar | | | (60,204 | ) | | | (73,399 | ) | Euro / U.S. Dollar | | | (406,814 | ) | | | (334,831 | ) | U.S. Dollar / Brazilian Real | | | 125,880 | | | | 66,826 | |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
A. Financial Risk Factors (Cont.)
(ii) Foreign exchange risk (Cont.)
| All amounts Long / (Short) in thousands of U.S. dollars | | As of December 31, | | | Currency Exposure / Functional currency | | 2019 | | | 2018 | | | Argentine Peso / U.S. Dollar | | | (95,811 | ) | | | (186,867 | ) | | Euro / U.S. Dollar | | | (103,518 | ) | | | (175,419 | ) | | Saudi Arabian Riyal / U. S. Dollar | | | (107,582 | ) | | | - | |
The main relevant exposures correspond to: Argentine Peso / U.S. dollar
| § | Argentine Peso / U.S. dollar |
As of December 31, 20162019 and 20152018 consisting primarily of Argentine Peso-denominated financial, trade, social and fiscal payables at certain Argentine subsidiaries whichwhose functional currency is the U.S. dollar. A change of 1% in the ARS/USD exchange rate would have generated apre-tax gain / loss of $0.6$1.0 million and $0.7$1.9 million as of December 31, 20162019 and 2015,2018 respectively. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
A. Financial Risk Factors (Cont.) | (ii) | | Foreign exchange risk (Cont.) |
As of December 31, 20162019 and 2015,2018, consisting primarily of Euro-denominated intercompany liabilities at certain subsidiaries whichwhose functional currency is the U.S. dollar. A change of 1% in the EUR/USD exchange rate would have generated apre-tax gain / loss of $4.1$1.0 million and $3.3$1.3 million as of December 31, 20162019 and 2015,2018, respectively, which would have been to a large extent offset by changes in currency translation adjustment included in Tenaris’s net equity position. U.S. dollar / Brazilian Real
| § | Saudi Arabian Riyal / U. S. Dollar |
As of December 31, 20162019 consisting primarily of CashSaudi Arabian Riyal-denominated financial and cash equivalent and Other investments denominated in U.S. dollar at subsidiaries which functional currencytrade payables. The Saudi Arabian Riyal is tied to the Brazilian real. A change of 1% in the BRL/USD exchange rate would generate apre-tax gain / loss of $1.3 million and $0.7 million in December 31, 2016 and 2015, respectively (including a gain / loss of $0.5 million in 2016 and $0.7 million in 2015 due to foreign exchange derivative contracts entered to preserve the U.S. dollar value of trade receivables and cash denominated in Brazilian Real), which would have been to a large extent offset by changes in currency translation adjustment included in Tenaris’s net equity position.dollar. Considering the balances held as of December 31, 20162019 on financial assets and liabilities exposed to foreign exchange rate fluctuations, Tenaris estimates that the impact of a simultaneous 1% appreciation / depreciation movement in the levels of foreign currencies exchange rates relative to the U.S. dollar, would be apre-tax gain / loss of $6.6$4.6 million (including a loss / gain of $4.0$4.9 million due to foreign exchange derivative contracts), which would be partially offset by changes to Tenaris’s net equity position of $4.2$0.6 million. For balances held as of December 31, 2015,2018, a simultaneous 1% favorable / unfavorable movement in the foreign currencies exchange rates relative to the U.S. dollar, would have generated apre-tax gain / loss of $5.1$3.6 million (including a loss / gain of $5.3$2.3 million due to foreign exchange derivative contracts), which would have been partially offset by changes to Tenaris’s net equity position of $3.9$1.9 million. The Company entered into foreign exchange derivative contracts to mitigate the exposure to fluctuations in exchange rates. | (iii) | | (iii) Interest rate risk |
Tenaris is subject to interest rate risk on its investment portfolio and its debt. The Company uses a mix of variable and fixed rate debt in combination with its investment portfolio strategy. From time to time, theThe Company may choose to enter into foreign exchange derivative contracts and / orinterestor interest rate swaps to mitigate the exposure to changes in the interest rates. The following table summarizes the proportions of variable-rate and fixed-rate debt as of each year end. | | | | | | | | | | | | | | | | | | | | As of December 31, | | | | | 2016 | | | 2015 | | | | | Amount in thousands
of U.S. dollars | | | % | | | Amount in thousands
of U.S. dollars | | | % | | Fixed rate | | | 820,600 | | | | 98 | % | | | 954,681 | | | | 98 | % | Variable rate | | | 19,636 | | | | 2 | % | | | 16,835 | | | | 2 | % | | | | | | | | | | | | | | | | | | Total (*) | | | 840,236 | | | | | | | | 971,516 | �� | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, | | | | 2019 | | 2018 | | | | Amount in thousands of U.S. dollars | | % | | Amount in thousands of U.S. dollars | | % | | Fixed rate (*) | | | 768,002 | | | | 93 | % | | | 520,471 | | | | 97 | % | | Variable rate | | | 54,150 | | | | 7 | % | | | 18,536 | | | | 3 | % | | Total | | | 822,152 | | | | | | | | 539,007 | | | | | |
(*) | As of December 31, 2016 approximately 66% of the total debt balance corresponded to fixed-rate borrowings where the original period was nonetheless equal to or less than 360 days. This compares to approximately 59% of the total outstanding debt balance as of December 31, 2015. |
(*) Out of the $768 million fixed rate borrowings, $728 million are short-term. The Company estimates that, if market interest rates applicable to Tenaris’s borrowings had been 100 basis points higher, then the additionalpre-tax loss would have been $8.8$7.7 million in 20162019 and $10.8$8.2 million in 2015. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 20142018.
A. Financial Risk Factors (Cont.)
(iv) Credit risk
Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. The Company also actively monitors the creditworthiness of its treasury, derivative and insurance counterparties in order to minimize its credit risk. There is no significant concentration of credit risk from customers. No single customer comprised more than 10% of Tenaris’s net sales in 2016, 20152019, 2018 and 2014.2017. Tenaris’s credit policies related to sales of products and services are designed to identify customers with acceptable credit history and to allow Tenaris to require the use of credit insurance, letters of credit and other instruments designed to minimize credit risks whenever deemed necessary. Tenaris maintains allowances for impairment for potential credit losses (Seelosses. See Section II J).J. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
A. Financial Risk Factors (Cont.) As of December 31, 20162019 and 20152018 trade receivables amount to $954,7$1,348.2 million and $1,135.1$1,737.4 million respectively. Trade receivables have guarantees under credit insurance of $222.1$178.7 million and $325.1$181.7 million, letter of credit and other bank guarantees of $117.8$55.2 million and $20.5$62.3 million, and other guarantees of $15.6$0.6 million and $7.9$42.2 million as of December 31, 20162019 and 20152018 respectively. As of December 31, 20162019 and 2015 past due2018, overdue trade receivables amounted to $249.0$242.7 million and $333.8$368.4 million, respectively. OutAs of those amounts $83.1 millionDecember 31, 2019 and $84.9 million are2018, overdue guaranteed trade receivables while $85.7amounted to $28.7 million and $101.5 million are included in$31.5 million; and the allowance for doubtful accounts.accounts amounted to $48.8 million and $66.5 million respectively. Both the allowance for doubtful accounts and the existing guarantees are sufficient to cover doubtful trade receivables. (v) Counterparty risk
Tenaris has investment guidelines with specific parameters to limit issuer risk on marketable securities. Counterparties for derivatives and cash transactions are limited to high credit quality financial institutions, normally investment grade. Approximately 82%96% of Tenaris’s liquid financial assets correspond to Investment Grade-rated instruments as of December 31, 2016,2019, in comparison with approximately 92%83% as of December 31, 2015.2018. (vi) Liquidity risk
Tenaris financing strategy aims to maintain adequate financial resources and access to additional liquidity. During 2016,2019, Tenaris has counted on cash flows from operations as well as additional bank financing to fund its transactions. Management maintains sufficient cash and marketable securities to finance normal operations and believes that Tenaris also has appropriate access to market for short-term working capital needs. Liquid financial assets as a whole (comprising cash and cash equivalents and other investments) were 16%12% of total assets at the end of 20162019 compared to 19%7% at the end of 2015.2018. Tenaris has a conservative approach to the management of its liquidity, which consists of i) cash and cash equivalents (cash in banks, liquidity funds and short-term investments mainly with a maturity of less than three months at the date of purchase.purchase), and ii) Other Investments (fixed income securities, time deposits, and fund investments). Tenaris holds primarily investments in money market funds and variable or fixed-rate securities from investment grade issuers. As of December 31, 20162019 and 2015,2018, Tenaris does not have direct exposure to financial instruments issued by European sovereign counterparties. Tenaris holds its investments primarily in U.S. dollars. As of December 31, 20162019 and 2015,2018, U.S. dollar denominated liquid assets represented approximately 95%and 87% of total liquid financial assets respectively. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014assets.
| (vii) | | Commodity price risk |
A. Financial Risk Factors (Cont.)
(vii) Commodity price risk
In the ordinary course of its operations, Tenaris purchases commodities and raw materials that are subject to price volatility caused by supply conditions, political and economic variables and other factors. As a consequence, Tenaris is exposed to risk resulting from fluctuations in the prices of these commodities and raw materials. Tenaris fixes the prices of such raw materials and commodities for short-term periods, typically not in excess of one year, in general Tenaris does not hedge this risk. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
B. Category of Financial Instruments and Classification Within the Fair Value Hierarchy Accounting policies for financial instruments have been applied to classify as either: loans and receivables,held-to-maturity,available-for-sale, orclassification within the fair value hierarchy
As mentioned in note II.A, the Company classifies its financial instruments in the following measurement categories: amortized cost, fair value through other comprehensive income and fair value through profit and loss. Forloss.For financial instruments that are measured in the statement of financial position at fair value, IFRS 13, “Fair value measurement” requires a disclosure of fair value measurements by level according to the following fair value measurement hierarchy: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). The following tables present the financial instruments by category and levels as of December 31, 20162019 and 2015.2018. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Measurement Categories | | | At Fair Value | | | December 31, 2016 | | Carrying
Amount | | | Loans &
Receivables | | | Held to
Maturity | | | Available
for sale | | | Assets at fair
value through
profit and loss | | | Level 1 | | | Level 2 | | | Level 3 | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | | 399,737 | | | | 92,730 | | | | — | | | | — | | | | 307,007 | | | | 307,007 | | | | — | | | | — | | Cash at banks | | | 92,730 | | | | 92,730 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Liquidity funds | | | 215,807 | | | | — | | | | — | | | | — | | | | 215,807 | | | | 215,807 | | | | — | | | | — | | Short – term investments | | | 91,200 | | | | — | | | | — | | | | — | | | | 91,200 | | | | 91,200 | | | | — | | | | — | | Other investments | | | 1,633,142 | | | | — | | | | 246,031 | | | | — | | | | 1,387,111 | | | | 607,866 | | | | 779,245 | | | | — | | Fixed Income (time-deposit, zero cupon bonds, commercial papers) | | | 782,029 | | | | — | | | | — | | | | — | | | | 782,029 | | | | 76,260 | | | | 705,769 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non - U.S. Sovereign Bills | | | 41,370 | | | | — | | | | — | | | | — | | | | 41,370 | | | | 41,370 | | | | — | | | | — | | Certificates of Deposits | | | 525,068 | | | | — | | | | — | | | | — | | | | 525,068 | | | | — | | | | 525,068 | | | | — | | Commercial Papers | | | 34,890 | | | | — | | | | — | | | | — | | | | 34,890 | | | | 34,890 | | | | — | | | | — | | Other notes | | | 180,701 | | | | — | | | | — | | | | — | | | | 180,701 | | | | — | | | | 180,701 | | | | — | | Bonds and other fixed Income | | | 841,638 | | | | — | | | | 246,031 | | | | — | | | | 595,607 | | | | 522,131 | | | | 73,476 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government securities | | | 216,732 | | | | — | | | | — | | | | — | | | | 216,732 | | | | 216,732 | | | | — | | | | — | | Non - U.S. government securities | | | 88,805 | | | | — | | | | 32,644 | | | | — | | | | 56,161 | | | | 56,161 | | | | — | | | | — | | Corporates securities | | | 462,625 | | | | — | | | | 213,387 | | | | — | | | | 249,238 | | | | 249,238 | | | | — | | | | — | | Mortgage- and Asset-backed securities | | | 73,476 | | | | — | | | | — | | | | — | | | | 73,476 | | | | — | | | | 73,476 | | | | — | | Fund Investments | | | 9,475 | | | | — | | | | — | | | | — | | | | 9,475 | | | | 9,475 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other InvestmentsNon- current | | | 249,719 | | | | — | | | | 248,049 | | | | — | | | | 1,670 | | | | — | | | | — | | | | 1,670 | | Bonds and other fixed Income | | | 248,049 | | | | — | | | | 248,049 | | | | — | | | | — | | | | — | | | | — | | | | — | | Other Investments | | | 1,670 | | | | — | | | | — | | | | — | | | | 1,670 | | | | — | | | | — | | | | 1,670 | | Trade receivables | | | 954,685 | | | | 954,685 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Receivables C and NC | | | 321,718 | | | | 176,990 | | | | — | | | | — | | | | 2,759 | | | | — | | | | 2,759 | | | | — | | Foreign exchange derivatives contracts | | | 2,759 | | | | — | | | | — | | | | — | | | | 2,759 | | | | — | | | | 2,759 | | | | — | | Other receivables | | | 176,990 | | | | 176,990 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Other receivables(non-Financial) | | | 141,969 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Available for sale assets (*) | | | 21,572 | | | | — | | | | — | | | | 21,572 | | | | — | | | | — | | | | — | | | | 21,572 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | 1,224,405 | | | | 494,080 | | | | 21,572 | | | | 1,698,547 | | | | 914,873 | | | | 782,004 | | | | 23,242 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Borrowings C and NC | | | 840,236 | | | | 840,236 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Trade payables | | | 556,834 | | | | 556,834 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Other liabilities | | | 183,887 | | | | — | | | | — | | | | — | | | | 42,635 | | | | — | | | | 42,635 | | | | — | | Foreign exchange derivatives contracts | | | 42,635 | | | | — | | | | — | | | | — | | | | 42,635 | | | | — | | | | 42,635 | | | | — | | Other liabilities(non-Financial) | | | 141,252 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | 1,397,070 | | | | — | | | | — | | | | 42,635 | | | | — | | | | 42,635 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Measurement Categories | | | At Fair Value | | | December 31, 2019 | | Carrying
amount | | | Amortized Cost | | | FVOCI | | | FVPL | | | 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 | | | | - | | | | 18,012 | | | | 6,922 | | | | 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 | | | | 211,173 | | | | 1,193,548 | | | | 1,319,699 | | | | 29,441 | | | | 55,581 | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Borrowings C and NC | | | 822,152 | | | | 822,152 | | | | - | | | | - | | | | - | | | | - | | | | - | | | Trade payables | | | 555,887 | | | | 555,887 | | | | - | | | | - | | | | - | | | | - | | | | - | | | Finance 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 | | | | - | |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014(*) Includes balances related to interest in our Venezuelan companies. See Note 33.
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
B. Category of Financial Instrumentsfinancial instruments and Classification Withinclassification within the Fair Value Hierarchyfair value hierarchy (Cont.) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Carrying
Amount | | | Measurement Categories | | | At Fair Value | | | December 31, 2015 | | | Loans &
Receivables | | | Held to
Maturity | | | Available
for sale | | | Assets at fair
value through
profit and loss | | | Level 1 | | | Level 2 | | | Level 3 | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | | 286,547 | | | | 101,019 | | | | — | | | | — | | | | 185,528 | | | | 185,528 | | | | — | | | | — | | Cash at banks | | | 101,019 | | | | 101,019 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Liquidity funds | | | 81,735 | | | | — | | | | — | | | | — | | | | 81,735 | | | | 81,735 | | | | — | | | | — | | Short – term investments | | | 103,793 | | | | — | | | | — | | | | — | | | | 103,793 | | | | 103,793 | | | | — | | | | — | | Other investments Current | | | 2,140,862 | | | | — | | | | — | | | | — | | | | 2,140,862 | | | | 1,348,268 | | | | 792,594 | | | | — | | Fixed Income (time-deposit, zero cupon bonds, commercial papers) | | | 877,436 | | | | — | | | | — | | | | — | | | | 877,436 | | | | 219,927 | | | | 657,509 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non - U.S. Sovereign Bills | | | 189,973 | | | | — | | | | — | | | | — | | | | 189,973 | | | | 189,973 | | | | — | | | | — | | Certificates of Deposits | | | 489,248 | | | | — | | | | — | | | | — | | | | 489,248 | | | | — | | | | 489,248 | | | | — | | Commercial Papers | | | 29,954 | | | | — | | | | — | | | | — | | | | 29,954 | | | | 29,954 | | | | — | | | | — | | Other notes | | | 168,261 | | | | — | | | | — | | | | — | | | | 168,261 | | | | — | | | | 168,261 | | | | — | | Bonds and other fixed Income | | | 1,203,695 | | | | — | | | | — | | | | — | | | | 1,203,695 | | | | 1,068,610 | | | | 135,085 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government securities | | | 249,124 | | | | — | | | | — | | | | — | | | | 249,124 | | | | 249,124 | | | | — | | | | — | | Non - U.S. government securities | | | 92,975 | | | | — | | | | — | | | | — | | | | 92,975 | | | | 92,975 | | | | — | | | | — | | Corporates securities | | | 726,511 | | | | — | | | | — | | | | — | | | | 726,511 | | | | 726,511 | | | | — | | | | — | | Mortgage- and Asset-backed securities | | | 82,839 | | | | — | | | | — | | | | — | | | | 82,839 | | | | — | | | | 82,839 | | | | — | | Structured Notes | | | 52,246 | | | | — | | | | — | | | | — | | | | 52,246 | | | | — | | | | 52,246 | | | | — | | Fund Investments | | | 59,731 | | | | — | | | | — | | | | — | | | | 59,731 | | | | 59,731 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other InvestmentsNon- current | | | 394,746 | | | | — | | | | 393,084 | | | | — | | | | 1,662 | | | | — | | | | — | | | | 1,662 | | Bonds and other fixed Income | | | 393,084 | | | | — | | | | 393,084 | | | | — | | | | — | | | | — | | | | — | | | | — | | Other Investments | | | 1,662 | | | | — | | | | — | | | | — | | | | 1,662 | | | | — | | | | — | | | | 1,662 | | Trade receivables | | | 1,135,129 | | | | 1,135,129 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Receivables C and NC | | | 369,410 | | | | 131,896 | | | | — | | | | — | | | | 18,248 | | | | — | | | | 18,248 | | | | — | | Foreing exchange derivatives contracts | | | 18,248 | | | | — | | | | — | | | | — | | | | 18,248 | | | | — | | | | 18,248 | | | | — | | Other receivables | | | 131,896 | | | | 131,896 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Other receivables(non-Financial) | | | 219,266 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Available for sale assets (*) | | | 21,572 | | | | — | | | | — | | | | 21,572 | | | | — | | | | — | | | | — | | | | 21,572 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | 1,368,044 | | | | 393,084 | | | | 21,572 | | | | 2,346,300 | | | | 1,533,796 | | | | 810,842 | | | | 23,234 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Borrowings C and NC | | | 971,516 | | | | 971,516 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Trade payables | | | 503,845 | | | | 503,845 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Other liabilities | | | 222,842 | | | | 14,869 | | | | — | | | | — | | | | 34,541 | | | | — | | | | 34,541 | | | | — | | Foreign exchange derivatives contracts | | | 34,541 | | | | — | | | | — | | | | — | | | | 34,541 | | | | — | | | | 34,541 | | | | — | | Other liabilities | | | 14,869 | | | | 14,869 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | Other liabilities(non-Financial) | | | 173,432 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | | | | | 1,490,230 | | | | — | | | | — | | | | 34,541 | | | | — | | | | 34,541 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Measurement Categories | | | At Fair Value | | | December 31, 2018 | | Carrying amount | | | Amortized Cost | | | FVOCI | | | FVPL | | | 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 | | | | 166,094 | | | | 21,230 | | | | 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 | | | | - | | | | 166,094 | | | | 21,230 | | | | 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 | | | | - | | | | 140,105 | | | | 2,071 | | | | 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 | | | | - | | | | 113,830 | | | | 4,326 | | | | 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 | | | | 139,474 | | | | 48,711 | | | | - | | | | - | | | | 52 | | | | 48,659 | | | Other receivables | | | 188,185 | | | | 139,474 | | | | 48,711 | | | | - | | | | - | | | | 52 | | | | 48,659 | | | Other receivables (non-financial) | | | 119,605 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | Total | | | | | | | 2,445,413 | | | | 328,635 | | | | 194,927 | | | | 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 | | | | - | |
(*) | For further detail regarding Available for sale assets, see Note 31. |
(*) Includes balances related to interest in our Venezuelan companies. See Note 33. There were no transfers between Level 1 and 2levels during the period.year. 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. 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 Available for sale assets related to Tenaris’sthe Company interest in Venezuelan companies under process of nationalization (seecompanies. See Note 31). Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 201433.
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
B. Category of Financial Instrumentsfinancial instruments and Classification Withinclassification within the Fair Value Hierarchyfair value hierarchy (Cont.) The following table presents the changes in Level 3 assets and liabilities: | | | | | | Year ended December 31, | | | | | Year ended December 31, | | | 2019 | | | 2018 | | | | | 2016 | | | 2015 | | | Assets / Liabilities | | | | | Assets / Liabilities | | | At the beginning of the period | | | 23,234 | | | | 23,111 | | | | At the beginning of the year | | | | 52,985 | | | | 26,409 | | | Addition / (Decrease) | | | | 2,933 | | | | 26,768 | | Currency translation adjustment and others | | | 8 | | | | 123 | | | | (337 | ) | | | (192 | ) | | | | | | | | | At the end of the year | | | 23,242 | | | | 23,234 | | | | 55,581 | | | | 52,985 | | | | | | | | | |
C. Fair value estimation Financial assets or liabilities classified as assets at fair value through profit or loss are measured under the framework established by the IASB accounting guidance for fair value measurements and disclosures. The fair values of quoted investments are generally based on current bid prices. If the market for a financial asset is not active or no market is available, fair values are established using standard valuation techniques. Some of Tenaris’s investments are designated as held to maturity and measured at amortized cost. Tenaris estimates that the fair value of these financial assets is 100.8% and 99% of its carrying amount including interests accrued as of December 31, 2016 and 2015 respectively.
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. Borrowings are comprised primarily of fixed rate debt and variable rate debt with a short term portion where interest has already been fixed. They are classified under other financial liabilities and measured at their amortized cost. Tenaris estimates that the fair value of its main financial liabilities is approximately 99.7%100.0% of its carrying amount including interests accrued in 20162019 as compared with 99%99.3% in 2015.2018. Fair values were calculated using standard valuation techniques for floating rate instruments and comparable market rates for discounting flows. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
The carrying amount of investments valuated at amortized cost approximates its fair value. D. Accounting for derivative financial instruments and hedging activities Derivative financial instruments are initially recognized in the statement of financial position at fair value through profit and loss on each date a derivative contract is entered into and are subsequently remeasured at fair value. Specific tools are used for calculation of each instrument’s fair value and these tools are tested for consistency on a monthly basis. Market rates are used for all pricing operations. These include exchange rates, deposit rates and other discount rates matching the nature of each underlying risk. As a general rule, Tenaris recognizes the full amount related to the change in fair value of derivative financial instruments inFinancial resultsResults in the Consolidated Income Statement. Tenaris designates certain derivatives and non derivative financial liabilities (leasing liabilities denominated in Japanese Yen) as hedges of particular risks associated with recognized assets or liabilities or highly probable forecast transactions. These transactions (mainly currency forward contracts on highly probable forecast transactions) are classified as cash flow hedges. The effective portion of the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in equity. Similarly the effective portion of the foreign exchange result on the designated leasing liability is recognized in equity Amounts accumulated in equity are then recognized in the income statement in the same period as the offsetting losses and gains on the hedged item. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. The fair value of Tenaris’s derivative financial instruments (assets or liabilities) continues to be reflected in the statement of financial position. The lease liability will be recognized on the balance sheet at each period end at the exchange rate as of the end of each month. The full fair value of a hedging derivative and the leasing liability is classified as a current ornon-current asset or liability according to its expiry date. For transactions designated and qualifying for hedge accounting, Tenaris documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. Tenaris also documents its assessment on an ongoing basis, of whether the derivatives that are used in hedging transactionsinstrument are highly effective in offsetting changes in the fair value or cash flow of hedged items. At December 31, 20162019 and 2015,2018, the effective portion of designated cash flow hedges which is included in “Other Reserves”Reserves in equity amounts to $4.7$2.6 million credit and $0.9 million debit and $2.8 million credit respectively (seerespectively. See Note 24Derivative financial instruments).24. The fair values of various derivative instruments used for hedging purposes are disclosed in Note 24. Movements inand the movements of the hedging reserve included within “Other Reserves”Reserves in equity are also showndisclosed in Note 24. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
IV. OTHER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes all amounts are shown in thousands of U.S. dollars, unless otherwise stated) 1
As mentioned in section II. AP – C, the Segment Information is disclosed as follows: Reportable operating segments (All amounts in millions of U.S. dollars) | | | | | | | | | | | | | | | | | | (all amounts in thousands of U.S. dollars) | | | | | | | | | | | | | | Year ended December 31, 2016 | | Tubes | | | Other | | | Total continuing
operations | | | Total discontinued
operations | | IFRS - Net Sales | | | 4,015,491 | | | | 278,101 | | | | 4,293,592 | | | | 234,911 | | Management View - Operating income | | | 19,630 | | | | 18,817 | | | | 38,447 | | | | 62,298 | | • Differences in cost of sales and others | | | (118,381 | ) | | | (6,962 | ) | | | (125,343 | ) | | | 3,540 | | • Differences in depreciation and amortization | | | 27,640 | | | | 199 | | | | 27,839 | | | | — | | | | | | | | | | | | | | | | | | | IFRS - Operating (loss) income | | | (71,111 | ) | | | 12,054 | | | | (59,057 | ) | | | 65,838 | | Financial income (expense), net | | | | | | | | | | | 21,954 | | | | (88 | ) | | | | | | | | | | | | | | | | | | (Loss) income before equity in earnings ofnon-consolidated companies and income tax | | | | | | | | | | | (37,103 | ) | | | 65,750 | | Equity in earnings ofnon-consolidated companies | | | | | | | | | | | 71,533 | | | | — | | | | | | | | | | | | | | | | | | | Income before income tax | | | | | | | | | | | 34,430 | | | | 65,750 | | | | | | | | | | | | | | | | | | | Capital expenditures | | | 751,854 | | | | 33,108 | | | | 784,962 | | | | 1,911 | | Depreciation and amortization | | | 642,896 | | | | 14,213 | | | | 657,109 | | | | 5,303 | | | | | | (all amounts in thousands of U.S. dollars) | | | | | | | | Year ended December 31, 2015 | | Tubes | | | Other | | | Total continuing
operations | | | Total discontinued
operations | | IFRS - Net Sales | | | 6,443,814 | | | | 459,309 | | | | 6,903,123 | | | | 197,630 | | Management View - Operating income | | | 685,870 | | | | 27,884 | | | | 713,754 | | | | 38,547 | | • Differences in cost of sales and others | | | (228,948 | ) | | | (880 | ) | | | (229,828 | ) | | | (8,914 | ) | • Differences in impairment / Depreciation and amortization | | | (319,293 | ) | | | 1,162 | | | | (318,131 | ) | | | — | | | | | | | | | | | | | | | | | | | IFRS - Operating income | | | 137,629 | | | | 28,166 | | | | 165,795 | | | | 29,633 | | Financial income (expense), net | | | | | | | | | | | 14,592 | | | | (382 | ) | | | | | | | | | | | | | | | | | | Income before equity in earnings ofnon-consolidated companies and income tax | | | | | | | | | | | 180,387 | | | | 29,251 | | Equity in losses ofnon-consolidated companies | | | | | | | | | | | (39,558 | ) | | | — | | | | | | | | | | | | | | | | | | | Income before income tax | | | | | | | | | | | 140,829 | | | | 29,251 | | | | | | | | | | | | | | | | | | | Capital expenditures | | | 1,088,901 | | | | 41,412 | | | | 1,130,313 | | | | 1,206 | | Depreciation and amortization | | | 638,456 | | | | 14,857 | | | | 653,313 | | | | 5,465 | | | | | | (all amounts in thousands of U.S. dollars) | | | | | | | | Year ended December 31, 2014 | | Tubes | | | Other | | | Total continuing
operations | | | Total discontinued
operations | | IFRS - Net Sales | | | 9,581,615 | | | | 559,844 | | | | 10,141,459 | | | | 196,503 | | Management View - Operating income | | | 2,022,429 | | | | 10,568 | | | | 2,032,997 | | | | 17,167 | | • Differences in cost of sales and others | | | (35,463 | ) | | | 4,080 | | | | (31,383 | ) | | | 1,117 | | • Differences in impairment / Depreciation and amortization | | | (121,289 | ) | | | 207 | | | | (121,082 | ) | | | — | | | | | | | | | | | | | | | | | | | IFRS - Operating income | | | 1,865,677 | | | | 14,855 | | | | 1,880,532 | | | | 18,284 | | Financial income (expense), net | | | | | | | | | | | 33,398 | | | | (361 | ) | | | | | | | | | | | | | | | | | | Income before equity in earnings ofnon-consolidated companies and income tax | | | | | | | | | | | 1,913,930 | | | | 17,923 | | Equity in losses ofnon-consolidated companies | | | | | | | | | | | (164,616 | ) | | | — | | | | | | | | | | | | | | | | | | | Income before income tax | | | | | | | | | | | 1,749,314 | | | | 17,923 | | | | | | | | | | | | | | | | | | | Capital expenditures | | | 1,051,148 | | | | 36,989 | | | | 1,088,137 | | | | 1,236 | | Depreciation and amortization | | | 593,671 | | | | 15,976 | | | | 609,647 | | | | 5,982 | |
| Year ended December 31, 2019 | | Tubes | | | Other | | | Continuing operations | | | Discontinued operations | | | IFRS - Net Sales | | | 6,870 | | | | 424 | | | | 7,294 | | | | - | | | Management view - operating income | | | 857 | | | | 73 | | | | 929 | | | | - | | | Difference in cost of sales | | | (105 | ) | | | 3 | | | | (102 | ) | | | - | | | Differences in depreciation and amortization | | | (1 | ) | | | (0 | ) | | | (1 | ) | | | - | | | Differences in selling, general and administrative expenses | | | (1 | ) | | | 1 | | | | (0 | ) | | | - | | | Differences in other operating income (expenses), net | | | 6 | | | | - | | | | 6 | | | | - | | | IFRS - operating income | | | 755 | | | | 77 | | | | 832 | | | | - | | | Financial income (expense), net | | | | | | | | | | | 19 | | | | - | | | Income before equity in earnings of non-consolidated companies and income tax | | | | | | | | | | | 852 | | | | - | | | Equity in earnings of non-consolidated companies | | | | | | | | | | | 82 | | | | - | | | Income before income tax | | | | | | | | | | | 934 | | | | - | | | Capital expenditures | | | 338 | | | | 12 | | | | 350 | | | | - | | | Depreciation and amortization | | | 523 | | | | 17 | | | | 540 | | | | - | |
| Year ended December 31, 2018 | | Tubes | | | Other | | | Continuing operations | | | Discontinued operations | | | IFRS - Net Sales | | | 7,233 | | | | 426 | | | | 7,659 | | | | - | | | Management view - operating income | | | 702 | | | | 81 | | | | 783 | | | | - | | | Difference in cost of sales | | | 112 | | | | 7 | | | | 119 | | | | - | | | Differences in depreciation and amortization | | | (34 | ) | | | - | | | | (34 | ) | | | - | | | Differences in selling, general and administrative expenses | | | (2 | ) | | | 6 | | | | 4 | | | | - | | | IFRS - operating income | | | 777 | | | | 95 | | | | 872 | | | | - | | | Financial income (expense), net | | | | | | | | | | | 37 | | | | - | | | Income before equity in earnings of non-consolidated companies and income tax | | | | | | | | | | | 909 | | | | - | | | Equity in earnings of non-consolidated companies | | | | | | | | | | | 194 | | | | - | | | Income before income tax | | | | | | | | | | | 1,103 | | | | - | | | Capital expenditures | | | 346 | | | | 3 | | | | 349 | | | | - | | | Depreciation and amortization | | | 645 | | | | 19 | | | | 664 | | | | - | |
| Year ended December 31, 2017 | | Tubes | | | Other | | | Continuing operations | | | Discontinued operations | | | IFRS - Net Sales | | | 4,966 | | | | 323 | | | | 5,289 | | | | 12 | | | Management view - operating income | | | 115 | | | | 48 | | | | 163 | | | | 3 | | | Difference in cost of sales | | | 164 | | | | 1 | | | | 165 | | | | (1 | ) | | Differences in depreciation and amortization | | | (3 | ) | | | - | | | | (3 | ) | | | - | | | Differences in selling, general and administrative expenses | | | 14 | | | | (6 | ) | | | 8 | | | | - | | | Differences in other operating income (expenses), net | | | 2 | | | | - | | | | 2 | | | | - | | | IFRS - operating income | | | 292 | | | | 43 | | | | 335 | | | | 2 | | | Financial income (expense), net | | | | | | | | | | | (23 | ) | | | - | | | Income before equity in earnings of non-consolidated companies and income tax | | | | | | | | | | | 312 | | | | 2 | | | Equity in earnings of non-consolidated companies | | | | | | | | | | | 116 | | | | - | | | Income before income tax | | | | | | | | | | | 428 | | | | 2 | | | Capital expenditures | | | 550 | | | | 8 | | | | 558 | | | | - | | | Depreciation and amortization | | | 594 | | | | 15 | | | | 609 | | | | - | |
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 $47,939, $57,468$36, $52 and $233,863$53 million in 2016, 20152019, 2018 and 2014,2017, respectively. Net
There are no material differences between total reportable segments’ revenues and the entity’s revenue under IFRS. The main differences between operating income under ManagementIFRS view amountedand the management view are mainly related to $96.1 million, while under IFRS amounted to $58.7 million income. the cost of goods sold and other timing differences. See Section II. A. C. Segment Information. 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 innon-consolidated companies and changes on the valuation of inventories according to cost estimation internally defined. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
1 Segment information (Cont.)
| 1 | Segment information (Cont.) |
Geographical information | (all amounts in thousands of U.S. dollars) | | North America | | | South America | | | Europe | | | Middle East & Africa | | | Asia Pacific | | | Unallocated (*) | | | Total continuing operations | | | Total discontinued operations | | | Year ended December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | | 3,429,911 | | | | 1,391,288 | | | | 738,880 | | | | 1,382,172 | | | | 351,804 | | | | - | | | | 7,294,055 | | | | - | | | Total assets | | | 7,885,120 | | | | 2,227,044 | | | | 2,282,775 | | | | 958,424 | | | | 609,663 | | | | 879,965 | | | | 14,842,991 | | | | - | | | Trade receivables | | | 612,809 | | | | 176,173 | | | | 149,321 | | | | 319,406 | | | | 90,451 | | | | - | | | | 1,348,160 | | | | - | | | Property, plant and equipment, net | | | 3,771,570 | | | | 1,129,260 | | | | 816,721 | | | | 254,858 | | | | 117,608 | | | | - | | | | 6,090,017 | | | | - | | | Capital expenditures | | | 169,390 | | | | 113,999 | | | | 55,169 | | | | 4,578 | | | | 7,038 | | | | - | | | | 350,174 | | | | - | | | Depreciation and amortization | | | 276,046 | | | | 105,308 | | | | 82,400 | | | | 42,520 | | | | 33,247 | | | | - | | | | 539,521 | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year ended December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | | 3,611,509 | | | | 1,462,044 | | | | 724,733 | | | | 1,559,988 | | | | 300,314 | | | | - | | | | 7,658,588 | | | | - | | | Total assets | | | 7,971,311 | | | | 2,489,522 | | | | 1,913,589 | | | | 588,746 | | | | 482,563 | | | | 805,568 | | | | 14,251,299 | | | | - | | | Trade receivables | | | 791,190 | | | | 280,801 | | | | 215,202 | | | | 383,358 | | | | 66,815 | | | | - | | | | 1,737,366 | | | | - | | | Property, plant and equipment, net | | | 3,859,060 | | | | 1,133,113 | | | | 848,178 | | | | 94,040 | | | | 129,517 | | | | - | | | | 6,063,908 | | | | - | | | Capital expenditures | | | 196,220 | | | | 68,603 | | | | 77,467 | | | | 2,047 | | | | 5,136 | | | | - | | | | 349,473 | | | | - | | | Depreciation and amortization | | | 441,705 | | | | 108,558 | | | | 82,769 | | | | 10,389 | | | | 20,936 | | | | - | | | | 664,357 | | | | - | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year ended December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | | 2,451,357 | | | | 1,142,142 | | | | 545,777 | | | | 937,439 | | | | 211,789 | | | | - | | | | 5,288,504 | | | | 11,899 | | | Total assets | | | 7,925,520 | | | | 2,975,599 | | | | 2,002,658 | | | | 391,029 | | | | 441,546 | | | | 661,866 | | | | 14,398,218 | | | | - | | | Trade receivables | | | 582,204 | | | | 234,877 | | | | 214,944 | | | | 135,524 | | | | 46,511 | | | | - | | | | 1,214,060 | | | | - | | | Property, plant and equipment, net | | | 3,914,229 | | | | 1,190,145 | | | | 878,788 | | | | 102,481 | | | | 143,500 | | | | - | | | | 6,229,143 | | | | - | | | Capital expenditures | | | 430,142 | | | | 58,949 | | | | 57,285 | | | | 7,562 | | | | 4,153 | | | | - | | | | 558,091 | | | | 145 | | | Depreciation and amortization | | | 354,091 | | | | 126,273 | | | | 93,900 | | | | 12,094 | | | | 22,282 | | | | - | | | | 608,640 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (all amounts in thousands of U.S.
dollars) | | North
America | | | South
America | | | Europe | | | Middle
East &
Africa | | | Asia Pacific | | | Unallocated
(*) | | | Total
continuing
operations | | | Total
discontinued
operations | | Year ended December 31, 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | | 1,320,297 | | | | 1,210,527 | | | | 565,173 | | | | 1,055,994 | | | | 141,601 | | | | — | | | | 4,293,592 | | | | 234,911 | | Total assets | | | 7,467,842 | | | | 2,803,848 | | | | 1,925,784 | | | | 593,649 | | | | 482,132 | | | | 578,603 | | | | 13,851,858 | | | | 151,417 | | Trade receivables | | | 229,390 | | | | 204,746 | | | | 161,291 | | | | 308,919 | | | | 50,339 | | | | — | | | | 954,685 | | | | 33,620 | | Property, plant and equipment, net | | | 3,652,032 | | | | 1,237,391 | | | | 847,318 | | | | 106,941 | | | | 158,257 | | | | — | | | | 6,001,939 | | | | 41,470 | | Capital expenditures | | | 646,545 | | | | 59,780 | | | | 35,270 | | | | 24,166 | | | | 19,201 | | | | — | | | | 784,962 | | | | 1,911 | | Depreciation and amortization | | | 381,811 | | | | 128,458 | | | | 113,875 | | | | 11,053 | | | | 21,912 | | | | — | | | | 657,109 | | | | 5,303 | | Year ended December 31, 2015 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | | 2,668,724 | | | | 2,132,221 | | | | 728,815 | | | | 1,096,688 | | | | 276,675 | | | | — | | | | 6,903,123 | | | | 197,630 | | Total assets | | | 8,625,806 | | | | 2,931,297 | | | | 1,877,429 | | | | 429,317 | | | | 423,479 | | | | 512,217 | | | | 14,799,545 | | | | 87,429 | | Trade receivables | | | 339,499 | | | | 396,834 | | | | 181,084 | | | | 137,278 | | | | 52,494 | | | | — | | | | 1,107,189 | | | | 27,940 | | Property, plant and equipment, net | | | 3,207,661 | | | | 1,269,995 | | | | 907,466 | | | | 86,181 | | | | 155,299 | | | | — | | | | 5,626,602 | | | | 45,656 | | Capital expenditures | | | 822,396 | | | | 168,140 | | | | 82,344 | | | | 36,867 | | | | 20,566 | | | | — | | | | 1,130,313 | | | | 1,206 | | Depreciation and amortization | | | 385,189 | | | | 125,754 | | | | 112,742 | | | | 9,912 | | | | 19,716 | | | | — | | | | 653,313 | | | | 5,465 | | Year ended December 31, 2014 | | | | | | | | | | | | | | | | | | | | | �� | | | | | | | | | | | | Net sales | | | 4,782,113 | | | | 2,124,607 | | | | 979,042 | | | | 1,843,778 | | | | 411,919 | | | | — | | | | 10,141,459 | | | | 196,503 | | Total assets | | | 9,433,050 | | | | 3,340,973 | | | | 1,857,285 | | | | 598,175 | | | | 498,694 | | | | 665,202 | | | | 16,393,379 | | | | 117,299 | | Trade receivables | | | 709,294 | | | | 554,542 | | | | 259,115 | | | | 340,880 | | | | 74,993 | | | | — | | | | 1,938,824 | | | | 24,570 | | Property, plant and equipment, net | | | 2,903,848 | | | | 1,303,162 | | | | 683,283 | | | | 60,354 | | | | 158,995 | | | | — | | | | 5,109,642 | | | | 49,915 | | Capital expenditures | | | 609,016 | | | | 338,995 | | | | 111,232 | | | | 10,891 | | | | 18,003 | | | | — | | | | 1,088,137 | | | | 1,236 | | Depreciation and amortization | | | 339,203 | | | | 120,905 | | | | 119,226 | | | | 10,154 | | | | 20,159 | | | | — | | | | 609,647 | | | | 5,982 | |
(*) For 2019 and 2018 includes Investments in non-consolidated companies, for 2017 includes Investments in non-consolidated companies and Other equity investments for $21.6 million. See Note 12 and 33. 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 (24.8%(31%); “South America” comprises principally Argentina (16.5%(12%), Brazil and Colombia; “Europe” comprises principally Italy, NorwayRomania and Romania;United Kingdom; “Middle East and Africa” comprises principally Kuwait,Egypt, Kazakhstan, Nigeria, EgyptIndia and Saudi Arabia and; “Asia Pacific” comprises principally China, Japan, Indonesia and Indonesia.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%, 15% and 17% in 2019, 2018 and 2017 respectively. Tubes segment revenues by market: | Revenues Tubes (in million US dollar) | | 2019 | | | 2018 | | | 2017 | | | Oil and Gas | | | 5,757 | | | | 6,042 | | | | 4,034 | | | Hydrocarbon Processing and Power Generation | | | 534 | | | | 602 | | | | 484 | | | Industrial and Other | | | 579 | | | | 589 | | | | 448 | | | Total | | | 6,870 | | | | 7,233 | | | | 4,966 | |
At December 2019, 2018 and 2017, the Company recognized contract liabilities related to customer advances in the amount of $82.7, $62.7 and $56.7 million, respectively. These amounts related to years 2018 and 2017 were reclassified to revenues during the subsequent year. In these periods, no significant adjustment in revenues were performed related to performance obligations previously satisfied.
(*) | Includes Investments innon-consolidated companiesTenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and Available for sale assets for $21.6 million in 2016, 2015 and 2014 (see Note 12 and 31).2017 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| | | Year ended December 31, | | | (all amounts in thousands of U.S. dollars) | | 2019 | | | 2018 | | | 2017 | | | | | | | | | | | | | | Inventories at the beginning of the year | | | 2,524,341 | | | | 2,368,304 | | | | 1,563,889 | | | Increase in inventory due to business combinations | | | 52,966 | | | | - | | | | - | | | Plus: Charges of the year | | | | | | | | | | | | | | Raw materials, energy, consumables and other | | | 2,709,629 | | | | 3,400,396 | | | | 2,794,503 | | | Services and fees | | | 222,415 | | | | 275,130 | | | | 244,035 | | | Labor cost | | | 870,261 | | | | 855,040 | | | | 778,408 | | | Depreciation of property, plant and equipment | | | 428,791 | | | | 432,497 | | | | 383,490 | | | Amortization of intangible assets | | | 5,948 | | | | 8,220 | | | | 18,621 | | | Depreciation of right-of-use assets | | | 28,727 | | | | - | | | | - | | | Maintenance expenses | | | 284,758 | | | | 185,782 | | | | 183,370 | | | Allowance for obsolescence | | | 29,138 | | | | 25,457 | | | | (12,917 | ) | | Taxes | | | 100,738 | | | | 133,308 | | | | 18,542 | | | Other | | | 115,663 | | | | 119,507 | | | | 88,823 | | | | | | 4,849,034 | | | | 5,435,337 | | | | 4,496,875 | | | Less: Inventories at the end of the year | | | (2,265,880 | ) | | | (2,524,341 | ) | | | (2,368,304 | ) | | From discontinued operations | | | - | | | | - | | | | (7,403 | ) | | | | | 5,107,495 | | | | 5,279,300 | | | | 3,685,057 | |
2 Cost of sales
| | | | | | | | | | | | | | | | Year ended December 31, | | | (all amounts in thousands of U.S. dollars) | | 2016 | | | 2015 | | | 2014 | | Inventories at the beginning of the year | | | 1,843,467 | | | | 2,779,869 | | | | 2,702,647 | | Plus: Charges of the period | | | | | | | | | | | | | Raw materials, energy, consumables and other | | | 1,528,532 | | | | 1,934,209 | | | | 3,944,283 | | Increase in inventory due to business combinations | | | — | | | | — | | | | 4,338 | | Services and fees | | | 199,210 | | | | 298,470 | | | | 453,818 | | Labor cost | | | 658,975 | | | | 947,997 | | | | 1,204,720 | | Depreciation of property, plant and equipment | | | 376,965 | | | | 377,596 | | | | 366,932 | | Amortization of intangible assets | | | 27,244 | | | | 24,100 | | | | 17,324 | | Maintenance expenses | | | 122,553 | | | | 184,053 | | | | 217,694 | | Allowance for obsolescence | | | 32,765 | | | | 68,669 | | | | 4,704 | | Taxes | | | 16,693 | | | | 21,523 | | | | 20,024 | | Other | | | 89,575 | | | | 92,059 | | | | 130,845 | | | | | | | | | | | | | | | | | | 3,052,512 | | | | 3,948,676 | | | | 6,364,682 | | Less: Inventories at the end of the year (*) | | | (1,593,708 | ) | | | (1,843,467 | ) | | | (2,779,869 | ) | From discontinued operations | | | (136,587 | ) | | | (137,318 | ) | | | (147,045 | ) | | | | | | | | | | | | | | | | | 3,165,684 | | | | 4,747,760 | | | | 6,140,415 | | | | | | | | | | | | | | |
(*) | Includes 29.8 million related to discontinued operations.3 | Selling, general and administrative expenses |
For the year ended December 2016 and 2015, labor cost includes approximately $35 millionand $104 million respectively of severance indemnities related to the adjustment of the workforce to market conditions.
3 Selling, general and administrative expenses
| | | Year ended December 31, | | | (all amounts in thousands of U.S. dollars) | | 2019 | | | 2018 | | | 2017 | | | | | | | | | | | | | | Services and fees | | | 153,773 | | | | 128,090 | | | | 132,301 | | | Labor cost | | | 481,854 | | | | 470,928 | | | | 443,338 | | | Depreciation of property, plant and equipment | | | 18,524 | | | | 16,968 | | | | 17,979 | | | Amortization of intangible assets | | | 41,967 | | | | 206,672 | | | | 188,550 | | | Depreciation of right-of-use assets | | | 15,564 | | | | - | | | | - | | | Commissions, freight and other selling expenses | | | 441,442 | | | | 491,555 | | | | 339,759 | | | Provisions for contingencies | | | 28,565 | | | | 23,498 | | | | 17,664 | | | Allowances for doubtful accounts | | | (16,256 | ) | | | 1,751 | | | | (5,421 | ) | | Taxes | | | 110,876 | | | | 71,110 | | | | 56,826 | | | Other | | | 89,665 | | | | 99,404 | | | | 81,061 | | | | | | 1,365,974 | | | | 1,509,976 | | | | 1,272,057 | | | From discontinued operations | | | - | | | | - | | | | (2,041 | ) | | | | | 1,365,974 | | | | 1,509,976 | | | | 1,270,016 | |
| | | | | | | | | | | | | | | | Year ended December 31, | | | (all amounts in thousands of U.S. dollars) | | 2016 | | | 2015 | | | 2014 | | Services and fees | | | 123,653 | | | | 158,541 | | | | 178,700 | | Labor cost | | | 441,355 | | | | 579,360 | | | | 594,660 | | Depreciation of property, plant and equipment | | | 16,965 | | | | 18,543 | | | | 20,197 | | Amortization of intangible assets | | | 241,238 | | | | 238,539 | | | | 211,176 | | Commissions, freight and other selling expenses | | | 243,401 | | | | 351,657 | | | | 598,138 | | Provisions for contingencies | | | 30,841 | | | | 19,672 | | | | 35,557 | | Allowances for doubtful accounts | | | (12,573 | ) | | | 36,788 | | | | 21,704 | | Taxes | | | 67,724 | | | | 129,018 | | | | 165,675 | | Other | | | 76,563 | | | | 92,157 | | | | 138,145 | | | | | | | | | | | | | | | | | | 1,229,167 | | | | 1,624,275 | | | | 1,963,952 | | From discontinued operations | | | (32,238 | ) | | | (30,678 | ) | | | (31,174 | ) | | | | | | | | | | | | | | | | | 1,196,929 | | | | 1,593,597 | | | | 1,932,778 | | | | | | | | | | | | | | |
For the year ended December 2016 and 2015, labor cost includes approximately $38 millionand $73 million respectively of severance indemnities related to the adjustment of the workforce to market conditions.
4 Labor costs (included in Cost of sales and in Selling, general and administrative expenses)
| 4 | Labor costs (included in Cost of sales and in Selling, general and administrative expenses) |
| | | | | | | | | | | | | | | | Year ended December 31, | | | (all amounts in thousands of U.S. dollars) | | 2016 | | | 2015 | | | 2014 | | Wages, salaries and social security costs | | | 1,062,535 | | | | 1,504,918 | | | | 1,743,253 | | Employees’ service rescission indemnity (including those classified as defined contribution plans) | | | 10,758 | | | | 13,286 | | | | 17,431 | | Pension benefits—defined benefit plans | | | 10,563 | | | | 14,813 | | | | 18,645 | | Employee retention and long term incentive program | | | 16,474 | | | | (5,660 | ) | | | 20,051 | | | | | | | | | | | | | | | | | | 1,100,330 | | | | 1,527,357 | | | | 1,799,380 | | From discontinued operations | | | (28,306 | ) | | | (24,665 | ) | | | (23,233 | ) | | | | | | | | | | | | | | | | | 1,072,024 | | | | 1,502,692 | | | | 1,776,147 | | | | | | | | | | | | | | |
At theyear-end, the number of employees was 19,399in 2016, 21,741 in 2015 and 27,816 in 2014.
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
4 Labor costs (included in Cost of sales and in Selling, general and administrative expenses) (Cont.)
| | | Year ended December 31, | | | (all amounts in thousands of U.S. dollars) | | 2019 | | | 2018 | | | 2017 | | | | | | | | | | | Wages, salaries and social security costs | | | 1,274,474 | | | | 1,250,783 | | | | 1,144,341 | | | Severance indemnities | | | 24,637 | | | | 25,225 | | | | 34,497 | | | Defined contribution plans | | | 12,663 | | | | 13,217 | | | | 12,401 | | | Pension benefits - defined benefit plans | | | 18,207 | | | | 15,390 | | | | 15,066 | | | Employee retention and long term incentive program | | | 22,134 | | | | 21,353 | | | | 15,441 | | | | | | 1,352,115 | | | | 1,325,968 | | | | 1,221,746 | | | From discontinued operations | | | - | | | | - | | | | (853 | ) | | | | | 1,352,115 | | | | 1,325,968 | | | | 1,220,893 | |
The following table shows the geographical distribution of the employees: | | Country | | 2016 | | | 2015 | | | 2014 | | | 2019 | | | 2018 | | | 2017 | | Argentina | | | 4,755 | | | | 5,388 | | | | 6,421 | | | | 5,405 | | | | 5,427 | | | | 5,221 | | Mexico | | | 4,968 | | | | 5,101 | | | | 5,518 | | | | 5,370 | | | | 5,595 | | | | 5,139 | | Brazil | | | 1,166 | | | | 2,050 | | | | 3,835 | | | USA | | | 1,636 | | | | 2,190 | | | | 3,549 | | | | 2,255 | | | | 2,382 | | | | 1,953 | | Italy | | | 1,979 | | | | 2,030 | | | | 2,352 | | | | 2,144 | | | | 2,155 | | | | 2,088 | | Romania | | | 1,631 | | | | 1,624 | | | | 1,725 | | | | 1,815 | | | | 1,852 | | | | 1,870 | | | Brazil | | | | 1,360 | | | | 1,287 | | | | 1,382 | | | Colombia | | | | 1,040 | | | | 1,082 | | | | 1,003 | | Canada | | | 473 | | | | 546 | | | | 1,225 | | | | 772 | | | | 1,030 | | | | 919 | | Indonesia | | | 509 | | | | 532 | | | | 677 | | | | 616 | | | | 554 | | | | 506 | | Colombia | | | 750 | | | | 636 | | | | 614 | | | Japan | | | 458 | | | | 508 | | | | 588 | | | | 400 | | | | 399 | | | | 410 | | Other | | | 1,074 | | | | 1,136 | | | | 1,312 | | | | 2,023 | | | | 1,204 | | | | 1,114 | | | | | | | | | | | | | | 23,200 | | | | 22,967 | | | | 21,605 | | | | | 19,399 | | | | 21,741 | | | | 27,816 | | | | | | | | | | | | | | From discontinued operations | | | (323 | ) | | | (292 | ) | | | (267 | ) | | | | | | | | | | | | | | | | 19,076 | | | | 21,449 | | | | 27,549 | | | | | | | | | | | | | |
5
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 5 | Other operating income and expenses |
| | | Year ended December 31, | | | (all amounts in thousands of U.S. dollars) | | 2019 | | | 2018 | | | 2017 | | | | | | | | | | | Other operating income | | | | | | | | | | | | | | Net income from other sales | | | 8,651 | | | | 3,604 | | | | 4,395 | | | Net rents | | | 5,089 | | | | 4,909 | | | | 4,325 | | | Other | | | 8,025 | | | | 6,546 | | | | 1,796 | | | Recovery on allowance for doubtful receivables | | | 1,239 | | | | - | | | | - | | | | | | 23,004 | | | | 15,059 | | | | 10,516 | | | | | | | | | | | | | | | | | Other operating expenses | | | | | | | | | | | | | | Contributions to welfare projects and non-profits organizations | | | 11,199 | | | | 11,379 | | | | 9,158 | | | Loss on fixed assets and material supplies disposed / scrapped | | | - | | | | - | | | | 118 | | | Allowance for doubtful receivables | | | - | | | | 1,179 | | | | 84 | | | | | | 11,199 | | | | 12,558 | | | | 9,360 | | | From discontinued operations | | | - | | | | - | | | | (1 | ) | | | | | 11,199 | | | | 12,558 | | | | 9,359 | |
| | | | | | | | | | | | | | | | Year ended December 31, | | | (all amounts in thousands of U.S. dollars) | | 2016 | | | 2015 | | | 2014 | | Other operating income | | | | | | | | | | | | | Net income from other sales | | | 16,275 | | | | 7,480 | | | | 8,843 | | Net rents | | | 4,852 | | | | 6,462 | | | | 4,041 | | Other | | | — | | | | 661 | | | | 14,971 | | | | | | | | | | | | | | | | | | 21,127 | | | | 14,603 | | | | 27,855 | | | | | | | | | | | | | | | Other operating expenses | | | | | | | | | | | | | Contributions to welfare projects andnon-profits organizations | | | 9,534 | | | | 9,052 | | | | 9,961 | | Provisions for legal claims and contingencies | | | 10 | | | | 1 | | | | (760 | ) | Loss on fixed assets and material supplies disposed / scrapped | | | 57 | | | | 94 | | | | 203 | | Impairment charge | | | — | | | | 400,314 | | | | 205,849 | | Allowance for doubtful receivables | | | 432 | | | | 1,114 | | | | 336 | | Other | | | 1,378 | | | | — | | | | — | | | | | | | | | | | | | | | | | | 11,411 | | | | 410,575 | | | | 215,589 | | | | | | | | | | | | | | | From discontinued operations | | | (248 | ) | | | (1 | ) | | | — | | | | | | | | | | | | | | | | | | 11,163 | | | | 410,574 | | | | 215,589 | | | | | | | | | | | | | | |
| (all amounts in thousands of U.S. dollars) | | Year ended December 31, | | | | | 2019 | | | 2018 | | | 2017 | | | | | | | | | | | | | | Interest Income | | | 48,061 | | | | 42,244 | | | | 51,525 | | | Net result on changes in FV of financial assets at FVPL | | | (64 | ) | | | (2,388 | ) | | | (3,920 | ) | | Finance income (*) | | | 47,997 | | | | 39,856 | | | | 47,605 | | | Finance cost | | | (43,381 | ) | | | (36,942 | ) | | | (27,072 | ) | | Net foreign exchange transactions results (**) | | | 27,868 | | | | 28,845 | | | | (48,955 | ) | | Foreign exchange derivatives contracts results (***) | | | (11,616 | ) | | | 6,576 | | | | (8,996 | ) | | Other | | | (1,585 | ) | | | (1,035 | ) | | | 14,392 | | | Other financial results | | | 14,667 | | | | 34,386 | | | | (43,559 | ) | | Net financial results | | | 19,283 | | | | 37,300 | | | | (23,026 | ) | | From discontinued operations | | | - | | | | - | | | | 9 | | | | | | 19,283 | | | | 37,300 | | | | (23,017 | ) |
Impairment charge
Tenaris regularly conducts assessments of the carrying values of its assets. Thevalue-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 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%. The growth rate considers the long-term average growth rate for the oil and gas industry, the higher demand to offset depletion of existing fields and the Company’s expected market penetration.
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.
For purposes of assessing key assumptions, Tenaris uses external sources of information and management judgment based on past experience.
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 the cost of raw materials, oil and gas prices, competitive environment, capital expenditure programs for Tenaris’s customers and the evolution of the rig count.
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 2016, the main discount rates used were in a range between 9.1% and 10.9%.
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014(*) Finance Income:
In 2019 and 2018 includes $7.6 and $3.6 million of interest related to instruments carried at FVPL, respectively. 5 Other operating income and expenses (Cont.(**)Net foreign exchange transactions results:
The main factors that couldIn 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.
In 2018 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, together with the positive impact from Euro depreciation against the U.S. dollar on Euro denominated intercompany liabilities in additional impairment charges in future periods would besubsidiaries with functional currency U.S. Dollar, largely offset by an increase in the discount rate / decrease in growth rate used in the Company’s cash flow projections, a further deterioration of the business, competitive and economic factors, such as the oil and gas prices and the evolution of the rig count. From the CGUs with significant amount of goodwill assigned in comparison to the total amount of goodwill, Tenaris has determined that the CGU for which a reasonable possible change in a key assumption would cause the CGUs´ carrying amount to exceed its recoverable amount was OCTG USA.currency translation adjustment reserve from our Italian subsidiary.
In OCTG USA,2017 mainly includes the recoverable amount calculated basednegative impact from Euro appreciation against the U.S. dollar on valueEuro denominated intercompany liabilities in use exceed carrying valuesubsidiaries with functional currency U.S. Dollar, largely offset by $154.6 million as of December 31, 2016. The following changesan increase in key assumptions, at CGU OCTG – USA, assuming unchanged values for the other assumptions, would cause the recoverable amount to be equal to the respective carrying value as of the impairment test:currency translation adjustment reserve from our Italian subsidiary. (***) Foreign exchange derivatives contracts results: In 2019 includes mainly losses on derivatives covering net payables in Argentine peso and in Euros and net receivables in Canadian dollar. In 2018 includes mainly gain on derivatives covering net receivables in Canadian dollar. In 2017 includes mainly losses on derivatives covering net receivables in Brazilian real and Canadian dollar and net payables in Argentine peso, partially offset by gains on derivatives covering net payables in Euro. | | | | | Increase inTenaris S.A. Consolidated Financial Statements for the discount rate
| | | 117 Bps | | Decrease of the growth rate
| | | -1.6 | % | Decrease of the cash flow projections
| | | -17.2 | % years ended December 31, 2019, 2018 and 2017 |
In 2015 and 2014, as a result of the deterioration of business conditions, the Company recorded impairment charges on its welded pipe assets of $400.3 and $205.8 respectively.
6 Financial results
| | | Year ended December 31, | | | (all amounts in thousands of U.S. dollars) | | 2019 | | | 2018 | | | 2017 | | | | | | | | | | | | | | Current tax | | | 299,692 | | | | 343,104 | | | | 184,016 | | | Deferred tax | | | (97,240 | ) | | | (113,897 | ) | | | (100,432 | ) | | | | | 202,452 | | | | 229,207 | | | | 83,584 | | | From discontinued operations | | | - | | | | - | | | | (100,720 | ) | | | | | 202,452 | | | | 229,207 | | | | (17,136 | ) |
| | | | | | | | | | | | | | (all amounts in thousands of U.S. dollars) | | Year ended December 31, | | | | | 2016 | | | 2015 | | | 2014 | | Interest Income | | | 60,405 | | | | 39,516 | | | | 34,582 | | Interest fromavailable-for-sale financial assets | | | — | | | | — | | | | 4,992 | | Net result on changes in FV of financial assets at FVTPL | | | 5,799 | | | | (4,942 | ) | | | (1,478 | ) | Net result onavailable-for-sale financial assets | | | — | | | | — | | | | 115 | | | | | | | | | | | | | | | Finance income | | | 66,204 | | | | 34,574 | | | | 38,211 | | Finance Cost | | | (22,329 | ) | | | (23,058 | ) | | | (44,388 | ) | Net foreign exchange transactions results | | | (2,146 | ) | | | (13,301 | ) | | | 50,298 | | Foreign exchange derivatives contracts results | | | (31,310 | ) | | | 30,468 | | | | (4,733 | ) | Other | | | 11,447 | | | | (14,473 | ) | | | (6,351 | ) | | | | | | | | | | | | | | Other Financial results | | | (22,009 | ) | | | 2,694 | | | | 39,214 | | | | | | | | | | | | | | | Net Financial results | | | 21,866 | | | | 14,210 | | | | 33,037 | | From discontinued operations | | | 88 | | | | 382 | | | | 361 | | | | | | | | | | | | | | | | | | 21,954 | | | | 14,592 | | | | 33,398 | | | | | | | | | | | | | | |
During 2015 Tenaris has derecognized all its fixed income financial instruments categorized as available for sale.
7 Equity in earnings (losses) ofnon-consolidated companies
| | | | | | | | | | | | | | | | Year ended December 31, | | | (all amounts in thousands of U.S. dollars) | | 2016 | | | 2015 | | | 2014 | | Fromnon-consolidated companies | | | 71,533 | | | | (10,674 | ) | | | (24,696 | ) | Gain on equity interest (see Note 26) | | | — | | | | — | | | | 21,302 | | Impairment loss onnon-consolidated companies (see Note 12) | | | — | | | | (28,884 | ) | | | (161,222 | ) | | | | | | | | | | | | | | | | | 71,533 | | | | (39,558 | ) | | | (164,616 | ) | | | | | | | | | | | | | |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
8 Income tax
| | | | | | | | | | | | | | | | Year ended December 31, | | | (all amounts in thousands of U.S. dollars) | | 2016 | | | 2015 | | | 2014 | | Current tax | | | 174,410 | | | | 164,562 | | | | 695,136 | | Deferred tax | | | (132,969 | ) | | | 79,943 | | | | (109,075 | ) | | | | | | | | | | | | | | | | | 41,441 | | | | 244,505 | | | | 586,061 | | | | | | | | | | | | | | | From discontinued operations | | | (24,339 | ) | | | (10,121 | ) | | | (5,630 | ) | | | | | | | | | | | | | | | | | 17,102 | | | | 234,384 | | | | 580,431 | | | | | | | | | | | | | | |
The tax on Tenaris’s income before tax differs from the theoretical amount that would arise using the tax rate in each country as follows: | | | | Year ended December 31, | | | Year ended December 31, | | | (all amounts in thousands of U.S. dollars) | | 2016 | | | 2015 | | | 2014 | | | 2019 | | | 2018 | | | 2017 | | | | | | | | | | | | Income before income tax | | | 34,430 | | | | 140,829 | | | | 1,749,314 | | | | 933,710 | | | | 1,103,107 | | | | 427,711 | | | | | | | | | | | | | | | | | | | | | | | | Tax calculated at the tax rate in each country (*) | | | (91,628 | ) | | | (71,588 | ) | | | 307,193 | | | Non taxable income / Non deductible expenses, net (*) | | | 51,062 | | | | 149,632 | | | | 132,442 | | | | Tax calculated at the tax rate in each country | | | | 186,752 | | | | 207,422 | | | | 6,456 | | | Effect of currency translation on tax base | | | | 53,296 | | | | 77,552 | | | | (922 | ) | Changes in the tax rates | | | 4,720 | | | | 6,436 | | | | 3,249 | | | | (13 | ) | | | 1,824 | | | | (62,968 | ) | Effect of currency translation on tax base (**) | | | 105,758 | | | | 151,615 | | | | 138,925 | | | Accrual / Utilization of previously unrecognized tax losses (***) | | | (52,810 | ) | | | (1,711 | ) | | | (1,378 | ) | | | | | | | | | | | | | | Utilization of previously unrecognized tax losses | | | | (547 | ) | | | - | | | | - | | | Tax revaluation, withholding tax and others | | | | (37,036 | ) | | | (57,591 | ) | | | 40,298 | | Tax charge | | | 17,102 | | | | 234,384 | | | | 580,431 | | | | 202,452 | | | | 229,207 | | | | (17,136 | ) | | | | | | | | | | | |
Effect of currency translation on tax base, Tenaris applies the liability method to recognize deferred income tax on temporary differences between the tax bases of assets/liabilities and their carrying amounts in the financial statements. By application of this method, Tenaris recognizes gains and losses on deferred income tax due to the effect of the change in the value on the tax basis in subsidiaries (mainly Argentina and Mexico), which have a functional currency different than their local currency. These gains and losses are required by IFRS even though the revalued / devalued tax bases of the relevant assets will not result in any deduction / obligation for tax purposes in future periods. Tax revaluation, withholding tax and others, mainly includes a net tax income of $66 and $65 million for 2019 and 2018 respectively related to the tax revaluation regime in Argentina and Mexico; it also includes a charge of $34 and $26 million for 2019 and 2018 respectively related to withholding taxes for intra group international operations. Changes in the tax rates, in 2017 it includes mainly the effect of the changes in tax rate in Argentine and US subsidiaries for approximately $46 million and $15 million respectively. (*) | Include the effect of the impairment charges of approximately $400.3 million and $205.8 million in 2015 and 2014, respectively. |
(**)8 | Tenaris applies the liability method to recognize deferred income tax on temporary differences between the tax basis of assets and their carrying amounts in the financial statements. By application of this method, Tenaris recognizes gains and losses on deferred income tax due to the effect of the change in the value on the tax basis in subsidiaries (mainly Mexican, Colombia and Argentinian), which have a functional currency different than their local currency. These gains and losses are required by IFRS even though the revalued / devalued tax basis of the relevant assets will not result in any deduction / obligation for tax purposes in future periods. |
(***) | It includes a deferred tax income of approximately $45 million booked in the last quarter of 2016 related to a capital loss generated from the dissolution of some companies which effects can be carried forward and used to offset any future capital gains in the United States.Dividends distribution |
9 Dividends distribution
On November 3, 2016,October 30, 2019, the Company’s Board of Directors approved the payment of an interim dividend of $0.13 per share ($0.26 per ADS), or approximately $153 million, paid on November 23, 2016,20, 2019, with anex-dividend date of November 21, 2016.18, 2019. On May 4, 20166, 2019, the Company’s Shareholders approved an annual dividend in the amount of $0.45$0.41 per share ($0.900.82 per ADS). The amount approved included the interim dividend previously paid in November 25, 2015 in the amount of $0.15 per share ($0.30 per ADS). The balance, amounting to $0.30 per share ($0.60 per ADS), was paid on May 25, 2016. In the aggregate, the interim dividend paid in November 2015 and the balance paid in May 2016 amounted to approximately $531.2 million. On May 6, 2015 the Company’s Shareholders approved an annual dividend in the amount of $0.45 per share ($0.90 per ADS). The amount approved included the interim dividend previously paid in November 27, 2014 in the amount of $0.15 per share ($0.30 per ADS). The balance, amounting to $0.30 per share ($0.60 per ADS), was paid on May 20, 2015. In the aggregate, the interim dividend paid in November 2014 and the balance paid in May 2015 amounted to approximately $531.2 million.
On May 7, 2014 the Company’s Shareholders approved an annual dividend in the amount of $0.43 per share ($0.86 per ADS). The amount approved included the interim dividend previously paid in November 21, 20132018 in the amount of $0.13 per share ($0.26 per ADS). The balance, amounting to $0.30$0.28 per share ($0.600.56 per ADS), was paid on May 22, 2014.2019. In the aggregate, the interim dividend paid in November 20132018 and the balance paid in May 20142019 amounted to approximately $507.6$484 million.
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
10 Property, plantOn 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 on 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 equipment, netthe balance paid in May 2018 amounted to approximately $484 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | Year ended December 31, 2016 | | Land, building
and
improvements | | | Plant and
production
equipment | | | Vehicles,
furniture
and
fixtures | | | Work in
progress | | | Spare
parts and
equipment | | | Total | | Cost | | | | | | | | | | | | | | | | | | | | | | | | | Values at the beginning of the year | | | 1,766,103 | | | | 8,419,792 | | | | 366,972 | | | | 1,217,682 | | | | 32,651 | | | | 11,803,200 | | Translation differences | | | 10,483 | | | | (2,284 | ) | | | 3,716 | | | | 2,604 | | | | (290 | ) | | | 14,229 | | Additions (*) | | | 572 | | | | 1,445 | | | | 747 | | | | 750,075 | | | | 4,656 | | | | 757,495 | | Disposals / Consumptions | | | (5,774 | ) | | | (22,306 | ) | | | (11,037 | ) | | | (4,852 | ) | | | (2,494 | ) | | | (46,463 | ) | Transfer to assets held for sale | | | (34,849 | ) | | | (61,380 | ) | | | (1,103 | ) | | | (1,407 | ) | | | (177 | ) | | | (98,916 | ) | Transfers / Reclassifications | | | 100,079 | | | | 356,420 | | | | 13,694 | | | | (474,063 | ) | | | 1,640 | | | | (2,230 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Values at the end of the year | | | 1,836,614 | | | | 8,691,687 | | | | 372,989 | | | | 1,490,039 | | | | 35,986 | | | | 12,427,315 | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and impairment | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated at the beginning of the year | | | 455,499 | | | | 5,432,715 | | | | 228,966 | | | | — | | | | 13,762 | | | | 6,130,942 | | Translation differences | | | 2,240 | | | | (6,087 | ) | | | 2,953 | | | | — | | | | (358 | ) | | | (1,252 | ) | Depreciation charge | | | 46,150 | | | | 324,886 | | | | 22,361 | | | | — | | | | 533 | | | | 393,930 | | Transfers / Reclassifications | | | 2,856 | | | | (6,761 | ) | | | (333 | ) | | | — | | | | (3,396 | ) | | | (7,634 | ) | Transfer to assets held for sale | | | (8,552 | ) | | | (47,928 | ) | | | (966 | ) | | | — | | | | — | | | | (57,446 | ) | Disposals / Consumptions | | | (3,064 | ) | | | (21,228 | ) | | | (8,872 | ) | | | — | | | | — | | | | (33,164 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated at the end of the year | | | 495,129 | | | | 5,675,597 | | | | 244,109 | | | | — | | | | 10,541 | | | | 6,425,376 | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2016 | | | 1,341,485 | | | | 3,016,090 | | | | 128,880 | | | | 1,490,039 | | | | 25,445 | | | | 6,001,939 | | | | | | | | | | | | | | | | | | | | | | | | | | |
On May 3, 2017, 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 23, 2016 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 24, 2017. In the aggregate, the interim dividend paid in November 2016 and the balance paid in May 2017 amounted to approximately $484 million. | | | | | | | | | | | | | | | | | | | | | | | | | | Year ended December 31, 2015 | | Land, building
and
improvements | | | Plant and
production
equipment | | | Vehicles,
furniture
and
fixtures | | | Work in
progress | | | Spare
parts and
equipment | | | Total | | Cost | | | | | | | | | | | | | | | | | | | | | | | | | Values at the beginning of the year | | | 1,633,797 | | | | 8,233,902 | | | | 359,554 | | | | 846,538 | | | | 38,075 | | | | 11,111,866 | | Translation differences | | | (28,711 | ) | | | (250,470 | ) | | | (9,382 | ) | | | (10,352 | ) | | | (1,919 | ) | | | (300,834 | ) | Additions (*) | | | 13,065 | | | | 16,064 | | | | 2,022 | | | | 1,036,818 | | | | (2,246 | ) | | | 1,065,723 | | Disposals / Consumptions | | | (1,892 | ) | | | (55,452 | ) | | | (8,940 | ) | | | (5,691 | ) | | | (285 | ) | | | (72,260 | ) | Transfers / Reclassifications | | | 149,844 | | | | 475,748 | | | | 23,718 | | | | (649,631 | ) | | | (974 | ) | | | (1,295 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Values at the end of the year | | | 1,766,103 | | | | 8,419,792 | | | | 366,972 | | | | 1,217,682 | | | | 32,651 | | | | 11,803,200 | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and impairment | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated at the beginning of the year | | | 418,210 | | | | 5,301,765 | | | | 216,982 | | | | — | | | | 15,352 | | | | 5,952,309 | | Translation differences | | | (8,956 | ) | | | (135,538 | ) | | | (7,528 | ) | | | — | | | | (1,093 | ) | | | (153,115 | ) | Depreciation charge | | | 45,644 | | | | 325,241 | | | | 24,313 | | | | — | | | | 941 | | | | 396,139 | | Transfers / Reclassifications | | | 2,474 | | | | (4,114 | ) | | | 1,987 | | | | — | | | | (1,485 | ) | | | (1,138 | ) | Disposals / Consumptions | | | (1,873 | ) | | | (54,639 | ) | | | (6,788 | ) | | | — | | | | 47 | | | | (63,253 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated at the end of the year | | | 455,499 | | | | 5,432,715 | | | | 228,966 | | | | — | | | | 13,762 | | | | 6,130,942 | | | | | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2015 | | | 1,310,604 | | | | 2,987,077 | | | | 138,006 | | | | 1,217,682 | | | | 18,889 | | | | 5,672,258 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 9 | Property, plant and equipment, net |
| Year ended December 31, 2019 | | Land and
civil
buildings | | Industrial
buildings,
plant and
production
equipment | | Vehicles,
furniture
and
fixtures | | Work in
progress | | Spare
parts and
equipment | | Total | | | | | | | | | | | | | | | | Cost | | | | | | | | | | | | | | | | | | | | | | | | | | Values at the beginning of the year | | | 732,578 | | | | 12,121,569 | | | | 377,260 | | | | 127,378 | | | | 63,197 | | | | 13,421,982 | | | Translation differences | | | (1,611 | ) | | | (38,961 | ) | | | (1,615 | ) | | | (864 | ) | | | (256 | ) | | | (43,307 | ) | | Increase due to business combinations (*) | | | 59,468 | | | | 115,908 | | | | 1,733 | | | | 1,630 | | | | - | | | | 178,739 | | | Additions | | | 16 | | | | 1,178 | | | | 1,107 | | | | 299,412 | | | | 12,202 | | | | 313,915 | | | Disposals / Consumptions | | | (35 | ) | | | (27,153 | ) | | | (7,110 | ) | | | (2,120 | ) | | | (2,557 | ) | | | (38,975 | ) | | Transfers / Reclassifications | | | 8,723 | | | | 296,272 | | | | 28,349 | | | | (317,128 | ) | | | (11,984 | ) | | | 4,232 | | | Values at the end of the year | | | 799,139 | | | | 12,468,813 | | | | 399,724 | | | | 108,308 | | | | 60,602 | | | | 13,836,586 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated at the beginning of the year | | | 110,914 | | | | 6,936,900 | | | | 310,260 | | | | - | | | | - | | | | 7,358,074 | | | Translation differences | | | (420 | ) | | | (24,973 | ) | | | (1,485 | ) | | | - | | | | - | | | | (26,878 | ) | | Depreciation charge | | | 11,409 | | | | 415,826 | | | | 20,080 | | | | - | | | | - | | | | 447,315 | | | Transfers / Reclassifications | | | (362 | ) | | | (38 | ) | | | - | | | | - | | | | - | | | | (400 | ) | | Disposals / Consumptions | | | (73 | ) | | | (25,580 | ) | | | (5,889 | ) | | | - | | | | - | | | | (31,542 | ) | | Accumulated at the end of the year | | | 121,468 | | | | 7,302,135 | | | | 322,966 | | | | - | | | | - | | | | 7,746,569 | | | At December 31, 2019 | | | 677,671 | | | | 5,166,678 | | | | 76,758 | | | | 108,308 | | | | 60,602 | | | | 6,090,017 | |
(*) Related to SSP acquisition. See Note 27. | Year ended December 31, 2018 | | Land and
civil
buildings | | Industrial
buildings,
plant and
production
equipment | | Vehicles,
furniture
and
fixtures | | Work in
progress | | Spare
parts and
equipment | | Total | | | | | | | | | | | | | | | | Cost | | | | | | | | | | | | | | | | | | | | | | | | | | Values at the beginning of the year | | | 712,061 | | | | 11,954,585 | | | | 370,542 | | | | 167,079 | | | | 42,413 | | | | 13,246,680 | | | Translation differences | | | (5,628 | ) | | | (117,977 | ) | | | (5,458 | ) | | | (2,269 | ) | | | (424 | ) | | | (131,756 | ) | | Additions | | | 723 | | | | 681 | | | | 1,245 | | | | 294,163 | | | | 20,756 | | | | 317,568 | | | Disposals / Consumptions | | | (221 | ) | | | (21,836 | ) | | | (10,269 | ) | | | (42 | ) | | | (3,541 | ) | | | (35,909 | ) | | Transfers / Reclassifications | | | 25,643 | | | | 306,116 | | | | 21,200 | | | | (331,553 | ) | | | 3,993 | | | | 25,399 | | | Values at the end of the year | | | 732,578 | | | | 12,121,569 | | | | 377,260 | | | | 127,378 | | | | 63,197 | | | | 13,421,982 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated at the beginning of the year | | | 101,197 | | | | 6,612,871 | | | | 303,469 | | | | - | | | | - | | | | 7,017,537 | | | Translation differences | | | (1,383 | ) | | | (72,141 | ) | | | (4,939 | ) | | | - | | | | - | | | | (78,463 | ) | | Depreciation charge | | | 11,153 | | | | 417,229 | | | | 21,083 | | | | - | | | | - | | | | 449,465 | | | Transfers / Reclassifications | | | - | | | | 173 | | | | (671 | ) | | | - | | | | - | | | | (498 | ) | | Disposals / Consumptions | | | (53 | ) | | | (21,232 | ) | | | (8,682 | ) | | | - | | | | - | | | | (29,967 | ) | | Accumulated at the end of the year | | | 110,914 | | | | 6,936,900 | | | | 310,260 | | | | - | | | | - | | | | 7,358,074 | | | At December 31, 2018 | | | 621,664 | | | | 5,184,669 | | | | 67,000 | | | | 127,378 | | | | 63,197 | | | | 6,063,908 | |
Property, plant and equipment include capitalized interests for net amounts at December 31, 20162019 and 20152018 of $25.4$35.4 million and $15.5$37.4 million, respectively. The average capitalizationThere were no interest rates applied were 1.28%capitalized during 20162019 and 1.53% during 2015.2018. (*) | The increase is mainly due to progress inTenaris S.A. Consolidated Financial Statements for the construction of the greenfield seamless facility in Bay City, Texas.years ended December 31, 2019, 2018 and 2017 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| Year ended December 31, 2019 | | Information
system projects | | Licenses,
patents and
trademarks (*) | | Goodwill | | Customer
relationships | | Total | | | | | | | | | | | | | | Cost | | | | | | | | | | | | | | | | | | | | | | Values at the beginning of the year | | | 580,622 | | | | 464,571 | | | | 2,085,936 | | | | 2,058,859 | | | | 5,189,988 | | | Translation differences | | | (1,917 | ) | | | (70 | ) | | | (968 | ) | | | - | | | | (2,955 | ) | | Increase due to business combinations (**) | | | 405 | | | | - | | | | 32,869 | | | | 81,192 | | | | 114,466 | | | Additions | | | 35,487 | | | | 772 | | | | - | | | | - | | | | 36,259 | | | Transfers / Reclassifications | | | (4,665 | ) | | | - | | | | - | | | | - | | | | (4,665 | ) | | Disposals | | | (5,062 | ) | | | (1,531 | ) | | | - | | | | - | | | | (6,593 | ) | | Values at the end of the year | | | 604,870 | | | | 463,742 | | | | 2,117,837 | | | | 2,140,051 | | | | 5,326,500 | | | | | | | | | | | | | | | | | | | | | | | | | Amortization | | | | | | | | | | | | | | | | | | | | | | Accumulated at the beginning of the year | | | 513,984 | | | | 373,466 | | | | 797,592 | | | | 2,038,981 | | | | 3,724,023 | | | Translation differences | | | (1,734 | ) | | | - | | | | - | | | | - | | | | (1,734 | ) | | Amortization charge | | | 28,937 | | | | 719 | | | | - | | | | 18,259 | | | | 47,915 | | | Disposals | | | (4,850 | ) | | | (413 | ) | | | - | | | | - | | | | (5,263 | ) | | Accumulated at the end of the year | | | 536,337 | | | | 373,772 | | | | 797,592 | | | | 2,057,240 | | | | 3,764,941 | | | At December 31, 2019 | | | 68,533 | | | | 89,970 | | | | 1,320,245 | | | | 82,811 | | | | 1,561,559 | |
| Year ended December 31, 2018 | | Information
system projects | | Licenses,
patents and
trademarks (*) | | Goodwill | | Customer
relationships | | Total | | Cost | | | | | | | | | | | | | | | | | | | | | | Values at the beginning of the year | | | 560,692 | | | | 465,963 | | | | 2,090,073 | | | | 2,058,859 | | | | 5,175,587 | | | Translation differences | | | (6,153 | ) | | | (183 | ) | | | (4,137 | ) | | | - | | | | (10,473 | ) | | Additions | | | 31,632 | | | | 273 | | | | - | | | | - | | | | 31,905 | | | Transfers / Reclassifications | | | (5,493 | ) | | | - | | | | - | | | | - | | | | (5,493 | ) | | Disposals | | | (56 | ) | | | (1,482 | ) | | | - | | | | - | | | | (1,538 | ) | | Values at the end of the year | | | 580,622 | | | | 464,571 | | | | 2,085,936 | | | | 2,058,859 | | | | 5,189,988 | | | | | | | | | | | | | | | | | | | | | | | | | Amortization | | | | | | | | | | | | | | | | | | | | | | Accumulated at the beginning of the year | | | 478,946 | | | | 372,746 | | | | 797,592 | | | | 1,865,444 | | | | 3,514,728 | | | Translation differences | | | (5,551 | ) | | | - | | | | - | | | | - | | | | (5,551 | ) | | Amortization charge | | | 40,635 | | | | 720 | | | | - | | | | 173,537 | | | | 214,892 | | | Disposals | | | (46 | ) | | | - | | | | - | | | | - | | | | (46 | ) | | Accumulated at the end of the year | | | 513,984 | | | | 373,466 | | | | 797,592 | | | | 2,038,981 | | | | 3,724,023 | | | At December 31, 2018 | | | 66,638 | | | | 91,105 | | | | 1,288,344 | | | | 19,878 | | | | 1,465,965 | |
(*) Includes Proprietary Technology. (**) Related to SSP acquisition. 11 Intangible assets, net
| | | | | | | | | | | | | | | | | | | | | | Year ended December 31, 2016 | | Information
system
projects | | | Licenses,
patents and
trademarks (*) | | | Goodwill | | | Customer
relationships | | | Total | | Cost | | | | | | | | | | | | | | | | | | | | | Values at the beginning of the year | | | 524,869 | | | | 494,662 | | | | 2,170,709 | | | | 2,059,946 | | | | 5,250,186 | | Translation differences | | | 2,264 | | | | (29 | ) | | | 4,671 | | | | — | | | | 6,906 | | Additions | | | 28,730 | | | | 648 | | | | — | | | | — | | | | 29,378 | | Transfers / Reclassifications | | | (546 | ) | | | (222 | ) | | | — | | | | — | | | | (768 | ) | Transfer to assets held for sale | | | (836 | ) | | | (32,600 | ) | | | (85,123 | ) | | | (1,000 | ) | | | (119,559 | ) | Disposals | | | (151 | ) | | | (840 | ) | | | — | | | | — | | | | (991 | ) | | | | | | | | | | | | | | | | | | | | | | Values at the end of the year | | | 554,330 | | | | 461,619 | | | | 2,090,257 | | | | 2,058,946 | | | | 5,165,152 | | | | | | | | | | | | | | | | | | | | | | | Amortization and impairment | | | | | | | | | | | | | | | | | | | | | Accumulated at the beginning of the year | | | 335,532 | | | | 364,412 | | | | 836,939 | | | | 1,569,851 | | | | 3,106,734 | | Translation differences | | | 1,325 | | | | — | | | | — | | | | — | | | | 1,325 | | Amortization charge | | | 72,632 | | | | 30,633 | | | | — | | | | 165,217 | | | | 268,482 | | Transfer to assets held for sale | | | (718 | ) | | | (32,600 | ) | | | (39,347 | ) | | | (1,000 | ) | | | (73,665 | ) | Transfers / Reclassifications | | | (245 | ) | | | (153 | ) | | | — | | | | — | | | | (398 | ) | Disposals | | | (153 | ) | | | — | | | | — | | | | — | | | | (153 | ) | | | | | | | | | | | | | | | | | | | | | | Accumulated at the end of the year | | | 408,373 | | | | 362,292 | | | | 797,592 | | | | 1,734,068 | | | | 3,302,325 | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2016 | | | 145,957 | | | | 99,327 | | | | 1,292,665 | | | | 324,878 | | | | 1,862,827 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Year ended December 31, 2015 | | Information
system
projects | | | Licenses,
patents and
trademarks (*) | | | Goodwill | | | Customer
relationships | | | Total | | Cost | | | | | | | | | | | | | | | | | | | | | Values at the beginning of the year | | | 471,935 | | | | 494,014 | | | | 2,182,004 | | | | 2,059,946 | | | | 5,207,899 | | Translation differences | | | (12,127 | ) | | | (127 | ) | | | (11,295 | ) | | | — | | | | (23,549 | ) | Additions | | | 65,022 | | | | 774 | | | | — | | | | — | | | | 65,796 | | Transfers / Reclassifications | | | 95 | | | | 1,028 | | | | — | | | | — | | | | 1,123 | | Disposals | | | (56 | ) | | | (1,027 | ) | | | — | | | | — | | | | (1,083 | ) | | | | | | | | | | | | | | | | | | | | | | Values at the end of the year | | | 524,869 | | | | 494,662 | | | | 2,170,709 | | | | 2,059,946 | | | | 5,250,186 | | | | | | | | | | | | | | | | | | | | | | | Amortization and impairment | | | | | | | | | | | | | | | | | | | | | Accumulated at the beginning of the year | | | 283,679 | | | | 332,823 | | | | 436,625 | | | | 1,397,142 | | | | 2,450,269 | | Translation differences | | | (7,454 | ) | | | — | | | | — | | | | — | | | | (7,454 | ) | Amortization charge | | | 59,342 | | | | 30,588 | | | | — | | | | 172,709 | | | | 262,639 | | Impairment charge (See Note 5) | | | — | | | | — | | | | 400,314 | | | | — | | | | 400,314 | | Transfers / Reclassifications | | | (35 | ) | | | 1,001 | | | | — | | | | — | | | | 966 | | | | | | | | | | | | | | | | | | | | | | | Accumulated at the end of the year | | | 335,532 | | | | 364,412 | | | | 836,939 | | | | 1,569,851 | | | | 3,106,734 | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2015 | | | 189,337 | | | | 130,250 | | | | 1,333,770 | | | | 490,095 | | | | 2,143,452 | | | | | | | | | | | | | | | | | | | | | | |
(*) | Includes Proprietary Technology. |
The geographical allocation of goodwill for the year ended December 31, 20162019 was $1,168.4 million for North America, $121.7$116.2 million for South America, $1.8$1.9 million for Europe and $0.7$33.7 million for Middle East & Africa. The carrying amount of goodwill allocated by CGU, as of December 31, 2016,2019, was as follows: | | (All amounts in million US dollar) | | | | | | | | | | (All amounts in million US dollar) | | | | | | | | | As of December 31, 2016 | | Tubes Segment | | | Other Segment | | | | | | | As of December 31, 2019 | | | Tubes Segment | | Other Segment | | | CGU | | Maverick
Acquisition | | | Hydril
Acquisition | | | Other | | | Maverick
Acquisition | | | Total | | | Maverick
Acquisition | | Hydril
Acquisition | | Other | | Maverick
Acquisition | | Total | OCTG (USA) | | | 225 | | | | — | | | | — | | | | — | | | | 225 | | | | 225 | | | | - | | | | - | | | | - | | | | 225 | | Tamsa (Hydril and other) | | | — | | | | 346 | | | | 19 | | | | — | | | | 365 | | | | - | | | | 346 | | | | 19 | | | | - | | | | 365 | | Siderca (Hydril and other) | | | — | | | | 265 | | | | 93 | | | | — | | | | 358 | | | | - | | | | 265 | | | | 93 | | | | - | | | | 358 | | Hydril | | | — | | | | 309 | | | | — | | | | — | | | | 309 | | | | - | | | | 309 | | | | - | | | | - | | | | 309 | | | Confab | | | | - | | | | - | | | | - | | | | - | | | | - | | Coiled Tubing | | | — | | | | — | | | | — | | | | 4 | | | | 4 | | | | - | | | | - | | | | - | | | | 4 | | | | 4 | | Socotherm | | | — | | | | — | | | | 28 | | | | — | | | | 28 | | | Other | | | — | | | | — | | | | 4 | | | | — | | | | 4 | | | | - | | | | - | | | | 59 | | | | - | | | | 59 | | | | | | | | | | | | | | | | | | | Total | | | 225 | | | | 920 | | | | 144 | | | | 4 | | | | 1,293 | | | | 225 | | | | 920 | | | | 171 | | | | 4 | | | | 1,320 | | | | | | | | | | | | | | | | | | |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
12 Investments innon-consolidated companies
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | At the beginning of the year | | | 490,645 | | | | 643,630 | | Translation differences | | | 3,473 | | | | (92,914 | ) | Equity in earnings ofnon-consolidated companies | | | 71,533 | | | | (10,674 | ) | Impairment loss innon-consolidated companies | | | — | | | | (28,884 | ) | Dividends and distributions received (a) | | | (20,674 | ) | | | (20,674 | ) | Additions | | | 17,108 | | | | 4,400 | | Decrease / increase in equity reserves | | | (5,054 | ) | | | (4,239 | ) | | | | | | | | | | At the end of the period | | | 557,031 | | | | 490,645 | | | | | | | | | | |
(a) | Related to TerniumTenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 11 | Right-of-use assets, net and lease liabilities |
Right of use assets evolution | Year ended December 31, 2019 | | Land and Civil
Buildings | | Industrial
Buildings, Plant
and Production
Equipment | | Vehicles, furniture
and fixtures | | Total | | Cost | | | | | | | | | | | | | | | | | | Opening net book amount | | | 27,713 | | | | 202,352 | | | | 8,335 | | | | 238,400 | | | Increase due to business combinations | | | 229 | | | | 2,038 | | | | - | | | | 2,267 | | | Currency translation adjustment | | | (88 | ) | | | 6 | | | | 8 | | | | (74 | ) | | Additions | | | 9,292 | | | | 24,985 | | | | 7,165 | | | | 41,442 | | | Disposals | | | (1,009 | ) | | | (4,488 | ) | | | (818 | ) | | | (6,315 | ) | | Transfers | | | - | | | | 496 | | | | (496 | ) | | | - | | | At December 31, 2019 | | | 36,137 | | | | 225,389 | | | | 14,194 | | | | 275,720 | | | | | | | | | | | | | | | | | | | | | Depreciation | | | | | | | | | | | | | | | | | | Accumulated at the beginning of the year | | | - | | | | - | | | | - | | | | - | | | Translation differences | | | (3 | ) | | | 3 | | | | 8 | | | | 8 | | | Depreciation charge | | | 8,514 | | | | 31,869 | | | | 3,908 | | | | 44,291 | | | Transfers / Reclassifications | | | - | | | | (62 | ) | | | 62 | | | | - | | | Disposals / Consumptions | | | (181 | ) | | | (1,229 | ) | | | (295 | ) | | | (1,705 | ) | | Accumulated at the end of the year | | | 8,330 | | | | 30,581 | | | | 3,683 | | | | 42,594 | | | At December 31, 2019 | | | 27,807 | | | | 194,808 | | | | 10,511 | | | | 233,126 | |
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 liability evolution | (all amounts in thousands of U.S. dollars) | | 2019 | | Year ended December 31, 2019 | | | | | | Opening net book amount | | | 234,149 | | | Increase due to business combinations | | | 2,267 | | | Translation differences | | | 2,690 | | | Additions | | | 36,957 | | | Cancellations | | | (4,688 | ) | | Repayments | | | (43,974 | ) | | Interest accrued | | | 2,766 | | | At December 31, 2019 | | | 230,167 | |
(*) The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on January 1, 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. Expense relating to short-term leases and low value leases (included in cost of sales and selling, general and administrative expenses) in the period amounted to $15.1 million and $1.3 million respectively. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 12 | Investments in non-consolidated companies |
| | | Year ended December 31, | | | | 2019 | | 2018 | | At the beginning of the year | | | 805,568 | | | | 640,294 | | | Translation differences | | | (10,781 | ) | | | 1,848 | | | Equity in earnings of non-consolidated companies | | | 82,036 | | | | 193,994 | | | Increase due to business combinations | | | 20,635 | | | | - | | | Dividends and distributions received (*) | | | (28,037 | ) | | | (26,581 | ) | | Additions | | | 19,610 | | | | - | | | Decrease / increase in equity reserves and others | | | (9,066 | ) | | | (3,987 | ) | | At the end of the year | | | 879,965 | | | | 805,568 | |
(*) Related to Ternium and Usiminas. During 2019, $29.0 million were collected. The principalnon-consolidated companies are: | | | | | | | % ownership at
December 31, | | Value at December 31, | | | | | % ownership at December 31, | | Value at December 31, | Company | | Country of incorporation | | | 2016 | | 2015 | | 2016 | | | 2015 | | | Country of incorporation | | 2019 | | 2018 | | 2019 | | 2018 | a) Ternium (*) | | | Luxembourg | | | | 11.46 | % | | 11.46 | % | | 491,285 | | | | 449,375 | | | | Luxembourg | | | | 11.46 | % | | | 11.46 | % | | | 751,105 | | | | 725,548 | | b) Usiminas (**) | | | Brazil | | | | 3.08 | % | | 2.5 | % | | 61,904 | | | | 36,109 | | | | Brazil | | | | 3.07 | % | | | 3.07 | % | | | 74,593 | | | | 72,988 | | Others | | | — | | | | — | | | | — | | | 3,842 | | | | 5,161 | | | | - | | | | - | | | | - | | | | 54,267 | | | | 7,032 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 879,965 | | | | 805,568 | | | | | | | | | | | 557,031 | | | | 490,645 | | | | | | | | | | | | | | | | |
(*) | Including treasury shares. |
(**) | At December 31, 2016 and 2015 the voting rights were 5.2% and 5.0% respectively. |
(*) Including treasury shares. (**) At December 31, 2019 and 2018 the voting rights were 5.2%. a) Ternium S.A. 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 December 31, 2016,2019, the closing price of Ternium’s ADSs as quoted on the New York Stock Exchange was $24.15$22 per ADS, giving Tenaris’s ownership stake a market value of approximately $554.8 million (Level 1).$505.4 million. At December 31, 2016,2019, the carrying value of Tenaris’s ownership stake in Ternium, based on Ternium’s IFRS financial statements,Financial Statements, was approximately $491.3$751.1 million. See Section II.B.2. The
As of December 31, 2019 the Company reviews periodicallyconcluded that the recoverability of its investment in Ternium. To determinecarrying amount does not exceed the recoverable value the Company estimates the value in use of the investment by calculating the present value of the expected cash flows. The key assumptions used by the Company are based on external and internal sources of information, and management judgment based on past experience and expectations of future changes in the market.investment. Value-in-use was calculated by discounting the estimated cash flows over a five year period based on forecasts approved by management. For the subsequent years beyond the five-year period, a terminal value was calculated based on perpetuity considering a nominal growth rate of 2%. 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. The discount rate used to test the investment in Ternium for impairment was 11.2%
Summarized selected financial information of Ternium, including the aggregated amounts of assets, liabilities, revenues and profit or loss is as follows: | | | Ternium | | | | 2019 | | 2018 | | Non-current assets | | | 8,757,320 | | | | 8,121,824 | | | Current assets | | | 4,178,213 | | | | 4,426,038 | | | Total assets | | | 12,935,533 | | | | 12,547,862 | | | Non-current liabilities | | | 3,452,535 | | | | 3,236,756 | | | Current liabilities | | | 1,768,125 | | | | 1,826,530 | | | Total liabilities | | | 5,220,660 | | | | 5,063,286 | | | | | | | | | | | | | Non-controlling interests | | | 1,103,208 | | | | 1,091,321 | | | | | | | | | | | | | Revenues | | | 10,192,818 | | | | 11,454,807 | | | Gross profit | | | 1,740,378 | | | | 2,971,479 | | | Net income for the year attributable to owners of the parent | | | 564,269 | | | | 1,506,647 | | | Total comprehensive income for the year, net of tax, attributable to owners of the parent | | | 445,473 | | | | 1,176,964 | |
| | | | | | | | | | | | Ternium | | | | | 2016 | | | 2015 | | Non-current assets | | | 5,622,556 | | | | 5,480,389 | | Current assets | | | 2,700,314 | | | | 2,582,204 | | | | | | | | | | | Total assets | | | 8,322,870 | | | | 8,062,593 | | | | | | | | | | | Non-current liabilities | | | 1,324,785 | | | | 1,558,979 | | Current liabilities | | | 1,831,492 | | | | 1,700,617 | | | | | | | | | | | Total liabilities | | | 3,156,277 | | | | 3,259,596 | | | | | | | | | | | Non-controlling interests | | | 775,295 | | | | 769,849 | | Revenues | | | 7,223,975 | | | | 7,877,449 | | Gross profit | | | 1,839,585 | | | | 1,400,177 | | Net income for the year attributable to owners of the parent | | | 595,644 | | | | 8,127 | | Total comprehensive income (loss) for the year, net of tax, attributable to owners of the parent | | | 534,827 | | | | (457,750 | ) |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
12 Investments innon-consolidated companies (Cont.)
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 12 | Investments in non-consolidated companies (Cont.) |
b) Usiminas S.A. Usiminas is a Brazilian producer of high quality flat steel products used in the energy, automotive and other industries and it is Tenaris’s principal supplier of flat steel in Brazil for its pipes and industrial equipment businesses.industries. As of December 31, 20162019, the closing price of the Usiminas’ ordinary and preferred shares, as quoted on the BM&FBovespa Stock Exchange,B3 - Brasil Bolsa Balcão S.A, was BRL8.26BRL9.83 ($2.53)2.44) and BRL4.1BRL9.51 ($1.26)2.36), respectively, giving Tenaris’s ownership stake a market value of approximately $94.1 million (Level 1).$92 million. As of that date, the carrying value of Tenaris’s ownership stake in Usiminas was approximately $61.9$74.6 million. The Company reviews periodically the recoverability of its investment in Usiminas. To determine the recoverable
value, the Company estimates the value in use of the investment by calculating the present value of the expected cash flows. There is a significant interaction among the principal assumptions made in estimating Usiminas’ cash flow projections, which include iron ore and steel prices, foreign exchange and interest rates, Brazilian GDP and steel consumption in the Brazilian market. The key assumptions used by the Company are based on external and internal sources of information, and management judgment based on past experience and expectations of future changes in the market.
During 2015 and 2014 the Company recorded an impairment charge of $28.9 million and $161.2 million respectively.
Summarized selected financial information of Usiminas, including the aggregated amounts of assets, liabilities, revenues and profit or loss is as follows: | | | Usiminas | | | | 2019 | | 2018 | | Non-current assets | | | 4,335,662 | | | | 4,696,896 | | | Current assets | | | 2,198,449 | | | | 2,148,322 | | | Total assets | | | 6,534,111 | | | | 6,845,218 | | | Non-current liabilities | | | 1,955,395 | | | | 1,933,207 | | | Current liabilities | | | 716,930 | | | | 860,862 | | | Total liabilities | | | 2,672,325 | | | | 2,794,069 | | | | | | | | | | | | | Non-controlling interests | | | 377,667 | | | | 369,333 | | | | | | | | | | | | | Revenues | | | 3,790,206 | | | | 3,766,241 | | | Gross profit | | | 478,141 | | | | 612,156 | | | Net income for the year attributable to owners of the parent | | | 52,779 | | | | 194,381 | |
| | | | | | | | | | | | Usiminas | | | | | 2016 | | | 2015 | | Non-current assets | | | 6,085,811 | | | | 5,343,038 | | Current assets | | | 1,970,015 | | | | 1,765,733 | | | | | | | | | | | Total assets | | | 8,055,826 | | | | 7,108,771 | | | | | | | | | | | Non-current liabilities | | | 2,856,883 | | | | 2,117,536 | | Current liabilities | | | 537,646 | | | | 1,151,383 | | | | | | | | | | | Total liabilities | | | 3,394,529 | | | | 3,268,919 | | | | | | | | | | | Non-controlling interests | | | 508,083 | | | | 405,880 | | Revenues | | | 2,442,596 | | | | 3,115,551 | | Gross profit | | | 150,999 | | | | 70,801 | | Net loss for the year attributable to owners of the parent | | | (166,153 | ) | | | (1,053,806 | ) |
c) Techgen S.A. de C.V. (“Techgen”)
Techgen is a Mexican company that operates a naturalgas-fired combined cycle electric power plant in the Pesquería area of the State of Nuevo León, Mexico. The company started producing energy on December 1st,1, 2016, and is fully operational, with a power capacity of between 850 and 900 megawatts. As of December 31, 2016,2019, 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 December 31, 2016,2019, Tenaris’s exposure under these agreements amounted to $61.3$51.9 million and $5.3$0.9 million respectively. Tenaris issued Furthermore, during 2018, Techgen entered a corporate guarantee covering 22%contract for the purchase of the obligations of Techgen under a syndicated loan agreement between Techgen and several banks. The loan agreement amounted to $800 million and has been used in the construction of the facility. The main covenants under the corporate guarantee are limitations on the sale of certain assets and compliance with financial ratios (e.g. leverage ratio).clean energy certificates. As of December 31, 2016,2019 Tenaris’s exposure under this agreement amounted to $18.2 million.
During 2019, Techgen repaid certain subordinated loans to Techgen’s sponsors; the loan agreement has been fully disbursed for $800 million, as a result, the amount guaranteed by Tenaris was approximately $176 million. During 2016 the shareholders of Techgen made additional investments in Techgen, in term of subsidiary loans, which in case ofpart corresponding to Tenaris amounted to $42.4$40.5 million. As of December 31, 20162019, the aggregate outstanding principal amount under these subordinated loans amount to $86.2was $58.1 million. Tenaris S.A. Consolidated Financial StatementsOn February 13, 2019, Techgen entered into a $640 million syndicated loan agreement with several banks to refinance an existing loan, resulting in the release of certain corporate guarantee issued by Techgen’s shareholders to secure the replaced facility.
Techgen’s obligations under the current facility, which is “non-recourse” on the sponsors, are guaranteed by a Mexican security trust covering Techgen’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 these type of transactions– have been entered into with third parties and affiliates, including in connection with the agreements for the years ended December 31, 2016, 2015sale of energy produced by the project and 2014 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. 13 Receivables – non current
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | Government entities | | | 913 | | | | 1,113 | | Employee advances and loans | | | 7,202 | | | | 11,485 | | Tax credits | | | 32,769 | | | | 25,660 | | Receivables from related parties | | | 91,419 | | | | 62,675 | | Legal deposits | | | 13,876 | | | | 14,719 | | Advances to suppliers and other advances | | | 19,520 | | | | 70,509 | | Others | | | 32,217 | | | | 35,515 | | | | | | | | | | | | | | 197,916 | | | | 221,676 | | Allowances for doubtful accounts (see Note 22 (i)) | | | (913 | ) | | | (1,112 | ) | | | | | | | | | | | | | 197,003 | | | | 220,564 | | | | | | | | | | |
14 Inventories
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | Finished goods | | | 653,482 | | | | 741,437 | | Goods in process | | | 375,822 | | | | 407,126 | | Raw materials | | | 160,284 | | | | 277,184 | | Supplies | | | 451,777 | | | | 503,692 | | Goods in transit | | | 162,766 | | | | 143,228 | | | | | | | | | | | | | | 1,804,131 | | | | 2,072,667 | | Allowance for obsolescence (see Note 23 (i)) | | | (240,242 | ) | | | (229,200 | ) | | | | | | | | | | | | | 1,563,889 | | | | 1,843,467 | | | | | | | | | | |
15 Receivables and prepayments
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | Prepaid expenses and other receivables | | | 28,278 | | | | 29,463 | | Government entities | | | 3,052 | | | | 3,498 | | Employee advances and loans | | | 10,458 | | | | 10,951 | | Advances to suppliers and other advances | | | 16,088 | | | | 27,823 | | Government tax refunds on exports | | | 9,350 | | | | 7,053 | | Receivables from related parties | | | 24,742 | | | | 14,249 | | Derivative financial instruments | | | 2,759 | | | | 18,155 | | Miscellaneous | | | 36,320 | | | | 44,736 | | | | | | | | | | | | | | 131,047 | | | | 155,928 | | Allowance for other doubtful accounts (see Note 23 (i)) | | | (6,332 | ) | | | (7,082 | ) | | | | | | | | | | | | | 124,715 | | | | 148,846 | | | | | | | | | | |
16 Current tax assets and liabilities
| | | | | | | | | | | | Year ended December 31, | | | Current tax assets | | 2016 | | | 2015 | | V.A.T. credits | | | 61,552 | | | | 60,730 | | Prepaid taxes | | | 79,434 | | | | 127,450 | | | | | | | | | | | | | | 140,986 | | | | 188,180 | | | | | | | | | | |
Tenaris S.A. Consolidated Financial StatementsUnder 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 years ended December 31, 2016, 2015account of Techgen’s sponsors in proportion to their respective participations in Techgen. Accordingly, the Company and 2014its 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.
16 Current tax assets and liabilities (Cont.)
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 13 | Receivables – non current |
| | | Year ended December 31, | | | | 2019 | | 2018 | | Employee advances and loans | | | 6,008 | | | | 3,740 | | | Tax credits | | | 20,065 | | | | 16,025 | | | Receivables from related parties | | | 59,999 | | | | 58,128 | | | Legal deposits | | | 12,378 | | | | 12,446 | | | Advances to suppliers and other advances | | | 3,772 | | | | 7,592 | | | Derivative financial instruments | | | - | | | | 52 | | | Receivable Venezuelan subsidiaries | | | 48,659 | | | | 48,659 | | | Others | | | 6,222 | | | | 5,263 | | | | | | 157,103 | | | | 151,905 | |
| | | Year ended December 31, | | | | 2019 | | 2018 | | Finished goods | | | 968,329 | | | | 1,025,999 | | | Goods in process | | | 612,888 | | | | 709,497 | | | Raw materials | | | 221,954 | | | | 256,816 | | | Supplies | | | 486,411 | | | | 504,286 | | | Goods in transit | | | 194,015 | | | | 237,539 | | | | | | 2,483,597 | | | | 2,734,137 | | | Allowance for obsolescence (see Note 23 (i)) | | | (217,717 | ) | | | (209,796 | ) | | | | | 2,265,880 | | | | 2,524,341 | |
| 15 | Receivables and prepayments, net |
| | | Year ended December 31, | | | | 2019 | | 2018 | | Prepaid expenses and other receivables | | | 30,579 | | | | 31,599 | | | Government entities | | | 1,867 | | | | 2,182 | | | Employee advances and loans | | | 8,189 | | | | 6,521 | | | Advances to suppliers and other advances | | | 17,180 | | | | 23,467 | | | Government tax refunds on exports | | | 670 | | | | 4,896 | | | Receivables from related parties | | | 19,837 | | | | 63,322 | | | Miscellaneous | | | 31,145 | | | | 30,682 | | | | | | 109,467 | | | | 162,669 | | | Allowance for other doubtful accounts (see Note 23 (i)) | | | (4,892 | ) | | | (6,784 | ) | | | | | 104,575 | | | | 155,885 | |
| 16 | Current tax assets and liabilities |
| | | Year ended December 31, | | Current tax assets | | 2019 | | 2018 | | V.A.T. credits | | | 112,161 | | | | 67,322 | | | Prepaid taxes | | | 55,227 | | | | 54,010 | | | | | | 167,388 | | | | 121,332 | |
| | | Year ended December 31, | | Current tax liabilities | | 2019 | | 2018 | | Income tax liabilities | | | 64,994 | | | | 182,711 | | | V.A.T. liabilities | | | 9,953 | | | | 18,091 | | | Other taxes | | | 52,678 | | | | 49,431 | | | | | | 127,625 | | | | 250,233 | |
| | | | | | | | | | | | Year ended December 31, | | | Current tax liabilities | | 2016 | | | 2015 | | Income tax liabilities | | | 55,841 | | | | 46,600 | | V.A.T. liabilities | | | 11,065 | | | | 24,661 | | Other taxes | | | 34,291 | | | | 64,757 | | | | | | | | | | | | | | 101,197 | | | | 136,018 | | | | | | | | | | |
17 Trade receivables
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | Current accounts | | | 1,026,026 | | | | 1,216,126 | | Receivables from related parties | | | 14,383 | | | | 20,483 | | | | | | | | | | | | | | 1,040,409 | | | | 1,236,609 | | Allowance for doubtful accounts (see Note 23 (i)) | | | (85,724 | ) | | | (101,480 | ) | | | | | | | | | | | | | 954,685 | | | | 1,135,129 | | | | | | | | | | |
| | | Year ended December 31, | | | | 2019 | | 2018 | | Current accounts | | | 1,387,494 | | | | 1,778,796 | | | Receivables from related parties | | | 9,448 | | | | 25,105 | | | | | | 1,396,942 | | | | 1,803,901 | | | Allowance for doubtful accounts (see Note 23 (i)) | | | (48,782 | ) | | | (66,535 | ) | | | | | 1,348,160 | | | | 1,737,366 | |
The following table sets forth details of the aging of trade receivables: | | | | | | | | | | | | | | | | | | | Past due | | | | | Trade
Receivables | | | Not Due | | | Past due | | | | Trade Receivables | | | | Not Due | | | | 1 - 180 days | | | | >180 days | | | | | 1 - 180 days | | | > 180 days | | | At December 31, 2016 | | | | | | | | | | | At December 31, 2019 | | | | | | | | | | | | | | | | | | Guaranteed | | | 355,508 | | | | 272,393 | | | | 32,241 | | | | 50,874 | | | | 234,427 | | | | 205,764 | | | | 26,899 | | | | 1,764 | | Not guaranteed | | | 684,901 | | | | 518,984 | | | | 87,379 | | | | 78,538 | | | | 1,162,515 | | | | 948,449 | | | | 157,960 | | | | 56,106 | | | | | | | | | | | | | | | | Guaranteed and not guaranteed | | | 1,040,409 | | | | 791,377 | | | | 119,620 | | | | 129,412 | | | | 1,396,942 | | | | 1,154,213 | | | | 184,859 | | | | 57,870 | | Allowance for doubtful accounts | | | (85,724 | ) | | | (62 | ) | | | (67 | ) | | | (85,595 | ) | | | | | | | | | | | | | | | | | Expected loss rate | | | | 0.09 | % | | | 0.04 | % | | | 0.24 | % | | | 0.57 | % | | Allowances for doubtful accounts | | | | (1,294 | ) | | | (529 | ) | | | (455 | ) | | | (310 | ) | | Nominative allowances for doubtful accounts | | | | (47,488 | ) | | | - | | | | (1,922 | ) | | | (45,566 | ) | Net Value | | | 954,685 | | | | 791,315 | | | | 119,553 | | | | 43,817 | | | | 1,348,160 | | | | 1,153,684 | | | | 182,482 | | | | 11,994 | | | | | | | | | | | | | | | | At December 31, 2015 | | | | | | | | | | Guaranteed | | | 353,537 | | | | 268,606 | | | | 33,706 | | | | 51,225 | | | Not guaranteed | | | 883,072 | | | | 634,250 | | | | 152,173 | | | | 96,649 | | | | | | | | | | | | | | | | | Guaranteed and not guaranteed | | | 1,236,609 | | | | 902,856 | | | | 185,879 | | | | 147,874 | | | Allowance for doubtful accounts | | | (101,480 | ) | | | — | | | | (1,664 | ) | | | (99,816 | ) | | | | | | | | | | | | | | | | Net Value | | | 1,135,129 | | | | 902,856 | | | | 184,215 | | | | 48,058 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Past due | | | | | | Trade Receivables | | | | Not Due | | | | 1 - 180 days | | | | >180 days | | | At December 31, 2018 | | | | | | | | | | | | | | | | | | Guaranteed | | | 286,250 | | | | 254,743 | | | | 30,884 | | | | 623 | | | Not guaranteed | | | 1,517,651 | | | | 1,180,788 | | | | 260,675 | | | | 76,188 | | | Guaranteed and not guaranteed | | | 1,803,901 | | | | 1,435,531 | | | | 291,559 | | | | 76,811 | | | Expected loss rate | | | 0.07 | % | | | 0.04 | % | | | 0.17 | % | | | 0.43 | % | | Allowances for doubtful accounts | | | (1,396 | ) | | | (564 | ) | | | (510 | ) | | | (322 | ) | | Nominative allowances for doubtful accounts | | | (65,139 | ) | | | - | | | | (1,436 | ) | | | (63,703 | ) | | Net Value | | | 1,737,366 | | | | 1,434,967 | | | | 289,613 | | | | 12,786 | |
Trade receivables are mainly denominated in U.S. dollars. 18 Cash and cash equivalents and Other investments
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | Cash and cash equivalents | | | | | | | | | Cash at banks | | | 92,730 | | | | 101,019 | | Liquidity funds | | | 215,807 | | | | 81,735 | | Short – term investments | | | 91,200 | | | | 103,793 | | | | | | | | | | | | | | 399,737 | | | | 286,547 | | | | | | | | | | | Other investments - current | | | | | | | | | Fixed Income (time-deposit, zero coupon bonds, commercial papers) | | | 782,029 | | | | 877,436 | | Bonds and other fixed Income | | | 841,638 | | | | 1,203,695 | | Fund Investments | | | 9,475 | | | | 59,731 | | | | | | | | | | | | | | 1,633,142 | | | | 2,140,862 | | | | | | | | | | | Other investments -Non-current | | | | | | | | | Bonds and other fixed Income | | | 248,049 | | | | 393,084 | | Others | | | 1,670 | | | | 1,662 | | | | | | | | | | | | | | 249,719 | | | | 394,746 | | | | | | | | | | |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| 18 | Cash and cash equivalents and other investments |
| | | Year ended December 31, | | | | 2019 | | 2018 | | Cash and cash equivalents | | | | | | | | | | Cash at banks | | | 118,314 | | | | 81,211 | | | Liquidity funds | | | 1,166,697 | | | | 160,198 | | | Short – term investments | | | 269,288 | | | | 186,952 | | | | | | 1,554,299 | | | | 428,361 | | | Other investments - current | | | | | | | | | | Fixed Income (time-deposit, zero coupon bonds, commercial papers) | | | 65,874 | | | | 300,410 | | | Bonds and other fixed Income | | | 144,502 | | | | 187,324 | | | | | | 210,376 | | | | 487,734 | | | Other investments - Non-current | | | | | | | | | | Bonds and other fixed Income | | | 18,012 | | | | 113,829 | | | Others | | | 6,922 | | | | 4,326 | | | | | | 24,934 | | | | 118,155 | |
19 Borrowings
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | Non-current | | | | | | | | | Bank borrowings | | | 31,544 | | | | 223,050 | | Finance lease liabilities | | | 35 | | | | 171 | | Costs of issue of debt | | | (37 | ) | | | — | | | | | | | | | | | | | | 31,542 | | | | 223,221 | | | | | | | | | | | Current | | | | | | | | | Bank borrowings and other loans including related companies | | | 807,252 | | | | 747,704 | | Bank overdrafts | | | 1,320 | | | | 349 | | Finance lease liabilities | | | 130 | | | | 371 | | Costs of issue of debt | | | (8 | ) | | | (129 | ) | | | | | | | | | | | | | 808,694 | | | | 748,295 | | | | | | | | | | | Total Borrowings | | | 840,236 | | | | 971,516 | | | | | | | | | | |
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| | | Year ended December 31, | | | | 2019 | | 2018 | | Non-current | | | | | | Bank borrowings | | | 40,896 | | | | 29,214 | | | Costs of issue of debt | | | (16 | ) | | | (27 | ) | | | | | 40,880 | | | | 29,187 | | | Current | | | | | | | | | | Bank borrowings | | | 781,258 | | | | 508,143 | | | Bank overdrafts | | | 24 | | | | 1,644 | | | Finance lease liabilities | | | - | | | | 44 | | | Costs of issue of debt | �� | | (10 | ) | | | (11 | ) | | | | | 781,272 | | | | 509,820 | | | Total Borrowings | | | 822,152 | | | | 539,007 | |
The maturity of borrowings is as follows: | | | | | | | | | | | | | | | | 1 year or
less | | 1 - 2
years | | 2 – 3
years | | 3 - 4
years | | 4 - 5
years | | Over 5
years | | Total | | | | 1 year or
less | | | 1 - 2
years | | | 2- 3
years | | | 3 - 4
years | | | 4 - 5
years | | | Over 5
years | | | Total | | | At December 31, 2016 | | | | | | | | | | | | | | | | Financial lease | | | 130 | | | | 35 | | | | — | | | | — | | | | — | | | | — | | | | 165 | | | | At December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other borrowings | | | 808,564 | | | | 1,198 | | | | 3,739 | | | | 3,360 | | | | 3,632 | | | | 19,578 | | | | 840,071 | | | | 781,272 | | | | 17,307 | | | | 23,573 | | | | - | | | | - | | | | - | | | | 822,152 | | | | | | | | | | | | | | | | | | | | | | | | | Total borrowings | | | 808,694 | | | | 1,233 | | | | 3,739 | | | | 3,360 | | | | 3,632 | | | | 19,578 | | | | 840,236 | | | | 781,272 | | | | 17,307 | | | | 23,573 | | | | - | | | | - | | | | - | | | | 822,152 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest to be accrued (*) | | | 6,461 | | | | 1,172 | | | | 1,161 | | | | 1,142 | | | | 1,116 | | | | 237 | | | | 11,289 | | | | 11,370 | | | | 1,045 | | | | 117 | | | | | | | | - | | | | - | | | | 12,532 | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 815,155 | | | | 2,405 | | | | 4,900 | | | | 4,502 | | | | 4,748 | | | | 19,815 | | | | 851,525 | | | | 792,642 | | | | 18,352 | | | | 23,690 | | | | - | | | | - | | | | - | | | | 834,684 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 1 year or
less | | | 1 - 2
years | | | 2 - 3
years | | | 3 - 4
years | | | 4 - 5
years | | | Over 5
years | | | Total | | | At December 31, 2015 | | | | | | | | | | | | | | | | Financial lease | | | 371 | | | | 138 | | | | 29 | | | | 4 | | | | — | | | | — | | | | 542 | | | Other borrowings | | | 747,924 | | | | 201,152 | | | | 1,261 | | | | 1,285 | | | | 880 | | | | 18,472 | | | | 970,974 | | | | | | | | | | | | | | | | | | | | | | | | | | Total borrowings | | | 748,295 | | | | 201,290 | | | | 1,290 | | | | 1,289 | | | | 880 | | | | 18,472 | | | | 971,516 | | | | | | | | | | | | | | | | | | | | | | | | | | Interest to be accrued (*) | | | 1,152 | | | | 1,050 | | | | 1,031 | | | | 1,010 | | | | 990 | | | | 1,046 | | | | 6,279 | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 749,447 | | | | 202,340 | | | | 2,321 | | | | 2,299 | | | | 1,870 | | | | 19,518 | | | | 977,795 | | | | | | | | | | | | | | | | | | | | | | | | | |
(*) | Includes the effect of hedge accounting. |
| | | 1 year or
less | | 1 - 2
years | | 2 – 3
years | | 3 - 4
years | | 4 - 5
years | | Over 5
years | | Total | | At December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial lease | | | 44 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 44 | | | Other borrowings | | | 509,776 | | | | 4,271 | | | | 4,771 | | | | 20,145 | | | | - | | | | - | | | | 538,963 | | | Total borrowings | | | 509,820 | | | | 4,271 | | | | 4,771 | | | | 20,145 | | | | - | | | | - | | | | 539,007 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest to be accrued (*) | | | 8,182 | | | | 1,175 | | | | 1,166 | | | | 169 | | | | - | | | | - | | | | 10,692 | | | Total | | | 518,002 | | | | 5,446 | | | | 5,937 | | | | 20,314 | | | | - | | | | - | | | | 549,699 | |
(*) Includes the effect of hedge accounting. Significant borrowings include: | | | | | | | | | | | | | | | | | | In million of USD | Disbursement date | | Borrower | | Type | | Original & Outstanding | | | Final maturity | 2016 | | Tamsa | | Bank loans | | | 391 | | | 2017 | 2015 | | TuboCaribe | | Bank loan | | | 200 | | | Jan - 17 | 2016 | | Siderca | | Bank loans | | | 198 | | | 2017 |
| | | | In million of USD | | Disbursement date | Borrower | Type | Original & Outstanding | Final maturity | | 2019 | Tamsa | Bank loans | 621 | 2020 | | 2019 | Siderca | Bank loans | 60 | 2020 | | | | | | |
As of December 31, 2016,2019, Tenaris was in compliance with all of its covenants. The weighted average interest rates before tax shown below were calculated using the rates set for each instrument in its corresponding currency as of December 31, 20162019 and 2015 (considering2018, considering hedge accounting where applicable).applicable. | | | | | | | | | | | | 2016 | | | 2015 | | Total borrowings | | | 1.97 | % | | | 1.52 | % |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
19 Borrowings (Cont.)
| | | 2019 | | 2018 | | Total borrowings | | | 3.18 | % | | | 3.98 | % |
Breakdown of long-term borrowings by currency and rate is as follows:
Non-current borrowings | | | | | Year ended December 31, | | Currency | | Interest rates | | 2019 | | 2018 | | USD | | Fixed | | | 18,370 | | | | 18,762 | | | SAR | | Fixed | | | 16,106 | | | | - | | | EUR | | Fixed | | | 5,108 | | | | 9,023 | | | EUR | | Variable | | | 1,296 | | | | 1,402 | | | Total non-current borrowings | | | | | 40,880 | | | | 29,187 | |
| | | | | | | | | | | | | | | | | | | Year ended December 31, | | Currency | | Interest rates | | | 2016 | | | 2015 | | USD | | | Fixed | | | | 19,461 | | | | 219,778 | | EUR | | | Fixed | | | | 10,701 | | | | 2,922 | | Others | | | Variable | | | | 1,380 | | | | 521 | | | | | | | | | | | | | | | Totalnon-current borrowings | | | | | | | 31,542 | | | | 223,221 | | | | | | | | | | | | | | |
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
Breakdown of short-term borrowings by currency and rate is as follows: Current borrowings | | | | | Year ended December 31, | | Currency | | Interest rates | | 2019 | | 2018 | | USD | | Variable | | | 17,092 | | | | 16,847 | | | USD | | Fixed | | | 274,799 | | | | 138,303 | | | EUR | | Variable | | | 80 | | | | 198 | | | EUR | | Fixed | | | 3,772 | | | | 4,178 | | | MXN | | Fixed | | | 424,964 | | | | 301,047 | | | ARS | | Fixed | | | 86 | | | | 49,125 | | | SAR | | Variable | | | 35,666 | | | | - | | | SAR | | Fixed | | | 24,797 | | | | - | | | Others | | Variable | | | 16 | | | | 89 | | | Others | | Fixed | | | - | | | | 33 | | | Total current borrowings | | | | | 781,272 | | | | 509,820 | |
| | | | | | | | | | | | | | | | | | | Year ended December 31, | | Currency | | Interest rates | | | 2016 | | | 2015 | | USD | | | Variable | | | | 17,081 | | | | 16,046 | | USD | | | Fixed | | | | 200,448 | | | | 2,482 | | EUR | | | Variable | | | | 99 | | | | 66 | | EUR | | | Fixed | | | | 841 | | | | 1,047 | | MXN | | | Fixed | | | | 391,318 | | | | 614,916 | | ARS | | | Fixed | | | | 197,637 | | | | 113,326 | | ARS | | | Variable | | | | 1,041 | | | | 37 | | Others | | | Variable | | | | 35 | | | | 165 | | Others | | | Fixed | | | | 194 | | | | 210 | | | | | | | | | | | | | | | Total current borrowings | | | | | | | 808,694 | | | | 748,295 | | | | | | | | | | | | | | |
20 Borrowings evolution
| | | Year ended December 31, 2019 | | | | Non current | | Current | | At the beginning of the year | | | 29,187 | | | | 509,820 | | | Translation differences | | | (229 | ) | | | 669 | | | Proceeds and repayments, net | | | (4,582 | ) | | | 203,931 | | | Interests accrued less payments | | | 304 | | | | 2,950 | | | Reclassifications | | | (11,733 | ) | | | 11,733 | | | Increase due to Business Combinations | | | 27,933 | | | | 53,789 | | | Overdrafts variation | | | - | | | | (1,620 | ) | | At the end of the year | | | 40,880 | | | | 781,272 | |
The carrying amounts of assets pledged as security for current and non-current borrowings are immaterial for the years 2019 and 2018. Deferred income taxes are calculated in full on temporary differences under the liability method using the tax rate of each country. The evolution of deferred tax assets and liabilities during the year are as follows: Deferred tax liabilities | | | | | | | | | | | | | | | | | | | | Fixed
assets | | | Inventories | | | Intangible and
Other (*) | | | Total | | At the beginning of the year | | | 299,139 | | | | 42,516 | | | | 549,557 | | | | 891,212 | | Translation differences | | | (540 | ) | | | — | | | | 44 | | | | (496 | ) | Charged directly to Other Comprehensive Income | | | — | | | | — | | | | (40 | ) | | | (40 | ) | Transfer to assets held for sale | | | (5,724 | ) | | | | | | | | | | | (5,724 | ) | Income statement credit | | | (29,819 | ) | | | (5,625 | ) | | | (34,848 | ) | | | (70,292 | ) | | | | | | | | | | | | | | | | | | At December 31, 2016 | | | 263,056 | | | | 36,891 | | | | 514,713 | | | | 814,660 | | | | | | | | | | | | | | | | | | |
| | | Fixed assets (*) | | Inventories | | Intangible and Other | | Total | | At the beginning of the year | | | 710,995 | | | | 25,048 | | | | 46,532 | | | | 782,575 | | | Translation differences | | | (347 | ) | | | - | | | | (4 | ) | | | (351 | ) | | Increase due to business combinations | | | 5,621 | | | | - | | | | 11,209 | | | | 16,830 | | | Charged directly to other comprehensive income | | | - | | | | - | | | | 423 | | | | 423 | | | Income statement charge / (credit) | | | (64,930 | ) | | | (5,652 | ) | | | 59,902 | | | | (10,680 | ) | | At December 31, 2019 | | | 651,339 | | | | 19,396 | | | | 118,062 | | | | 788,797 | |
| | | | | | | | | | | | | | | | | | | | Fixed
assets | | | Inventories | | | Intangible and
Other (*) | | | Total | | At the beginning of the year | | | 346,385 | | | | 44,234 | | | | 482,446 | | | | 873,065 | | Translation differences / reclassifications | | | (28,343 | ) | | | — | | | | 11,154 | | | | (17,189 | ) | Charged directly to Other Comprehensive Income | | | — | | | | — | | | | 3,999 | | | | 3,999 | | Income statement (credit) / charge | | | (18,903 | ) | | | (1,718 | ) | | | 51,958 | | | | 31,337 | | | | | | | | | | | | | | | | | | | At December 31, 2015 | | | 299,139 | | | | 42,516 | | | | 549,557 | | | | 891,212 | | | | | | | | | | | | | | | | | | |
| | | Fixed assets (*) | | Inventories | | Intangible and Other | | Total | | At the beginning of the year | | | 744,926 | | | | 34,934 | | | | 55,585 | | | | 835,445 | | | Effect of adoption of new standards | | | - | | | | - | | | | 35 | | | | 35 | | | Translation differences | | | (876 | ) | | | - | | | | 92 | | | | (784 | ) | | Charged directly to other comprehensive income | | | - | | | | - | | | | 288 | | | | 288 | | | Income statement charge | | | (33,055 | ) | | | (9,886 | ) | | | (9,468 | ) | | | (52,409 | ) | | At December 31, 2018 | | | 710,995 | | | | 25,048 | | | | 46,532 | | | | 782,575 | |
(*) Includes the effect of currency translation on tax base. See Note 7. (*) | IncludesTenaris S.A. Consolidated Financial Statements for the effect of currency translation on tax base explained in Note 8.years ended December 31, 2019, 2018 and 2017 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
20
| 20 | Deferred income tax (Cont.) |
Deferred tax assets | | | Provisions and
allowances | | Inventories | | Tax losses | | Other | | Total | | At the beginning of the year | | | (16,116 | ) | | | (86,585 | ) | | | (396,257 | ) | | | (86,184 | ) | | | (585,142 | ) | | Translation differences | | | 362 | | | | 306 | | | | 497 | | | | 286 | | | | 1,451 | | | Increase due to business combinations | | | (1,160 | ) | | | (1,413 | ) | | | (1,172 | ) | | | (2,238 | ) | | | (5,983 | ) | | Charged directly to other comprehensive income | | | - | | | | - | | | | - | | | | (1,261 | ) | | | (1,261 | ) | | Income statement charge / (credit) | | | (2,739 | ) | | | (5,712 | ) | | | 14,100 | | | | (92,209 | ) | | | (86,560 | ) | | At December 31, 2019 | | | (19,653 | ) | | | (93,404 | ) | | | (382,832 | ) | | | (181,606 | ) | | | (677,495 | ) |
| | | Provisions and
allowances | | Inventories | | Tax losses | | Other | | Total | | At the beginning of the year | | | (26,475 | ) | | | (89,555 | ) | | | (354,944 | ) | | | (60,033 | ) | | | (531,007 | ) | | Effect of adoption of new standards | | | 952 | | | | - | | | | - | | | | (164 | ) | | | 788 | | | Translation differences | | | 2,532 | | | | 1,447 | | | | 1,014 | | | | (38 | ) | | | 4,955 | | | Charged directly to other comprehensive income | | | 23 | | | | - | | | | - | | | | 1,587 | | | | 1,610 | | | Income statement charge / (credit) | | | 6,852 | | | | 1,523 | | | | (42,327 | ) | | | (27,536 | ) | | | (61,488 | ) | | At December 31, 2018 | | | (16,116 | ) | | | (86,585 | ) | | | (396,257 | ) | | | (86,184 | ) | | | (585,142 | ) |
In 2019 the effect of the adoption of IFRS 16 has been recognized as “Other” both for deferred tax assets and liabilities. Deferred tax assets related to taxable losses of Tenaris subsidiaries are recognized to the extent it is considered probable that future taxable profits will be available against which such losses can be utilized in the foreseeable future. This amount includes $338 million related to US subsidiaries mainly due to the recognition of accelerated fiscal depreciations. The remaining balance mainly corresponds to Japanese and Brazilian subsidiaries. These subsidiaries have incurred in fiscal losses in the past. Tenaris has concluded that these deferred tax assets will be recoverable based on the business plans and budgets. | | | | | | | | | | | | | | | | | | | | | | | | Provisions
and
allowances | | | Inventories | | | Tax
losses (*) | | | Other | | | Total | | At the beginning of the year | | | (32,425 | ) | | | (107,378 | ) | | | (99,394 | ) | | | (102,396 | ) | | | (341,593 | ) | Translation differences | | | (3,123 | ) | | | (1,347 | ) | | | (2,741 | ) | | | 14 | | | | (7,197 | ) | Transfer to assets held for sale | | | — | | | | 275 | | | | — | | | | 753 | | | | 1,028 | | Charged directly to Other Comprehensive Income | | | — | | | | — | | | | — | | | | 1,823 | | | | 1,823 | | Income statement charge / (credit) | | | 2,272 | | | | 14,274 | | | | (97,191 | ) | | | 17,968 | | | | (62,677 | ) | | | | | | | | | | | | | | | | | | | | | | At December 31, 2016 | | | (33,276 | ) | | | (94,176 | ) | | | (199,326 | ) | | | (81,838 | ) | | | (408,616 | ) | | | | | | | | | | | | | | | | | | | | | |
The expiration dates of the recognized tax losses in less than 1 year, between 2 and 5 years and in more than 5 years is 0.2%, 2.5% and 97.3% respectively. (*) | As of December 31, 2016, the recognized deferred tax assets on tax losses amount to $199.3 million and the net unrecognized deferred tax assets amount to $47.2 million. |
As of December 31, 2019, the net unrecognized deferred tax assets amount to $121.2 million. The expiration dates of the unrecognized tax losses less than 1 year, between 2 and 5 years and more than 5 years is approximately 2.8%, 20.2% and 77%. | | | | | | | | | | | | | | | | | | | | | | | | Provisions
and
allowances | | | Inventories | | | Tax
losses | | | Other | | | Total | | At the beginning of the year | | | (45,336 | ) | | | (189,709 | ) | | | (41,652 | ) | | | (150,497 | ) | | | (427,194 | ) | Translation differences / reclassifications | | | 24,411 | | | | 4,049 | | | | 6,988 | | | | 1,020 | | | | 36,468 | | Charged directly to Other Comprehensive Income | | | — | | | | — | | | | — | | | | 527 | | | | 527 | | Income statement (credit) / charge | | | (11,500 | ) | | | 78,282 | | | | (64,730 | ) | | | 46,554 | | | | 48,606 | | | | | | | | | | | | | | | | | | | | | | | At December 31, 2015 | | | (32,425 | ) | | | (107,378 | ) | | | (99,394 | ) | | | (102,396 | ) | | | (341,593 | ) | | | | | | | | | | | | | | | | | | | | | |
The estimated recovery analysis of deferred tax assets and deferred tax liabilities is as follows: | | | | Year ended December 31, | | | Year ended December 31, | | | | 2016 | | | 2015 | | | 2019 | | 2018 | Deferred tax assets to be recovered after 12 months | | | (226,431 | ) | | | (109,025 | ) | | | (538,274 | ) | | | (452,330 | ) | Deferred tax liabilities to be recovered after 12 months | | | 761,039 | | | | 843,022 | | | | Deferred tax liabilities to be settled after 12 months | | | | 766,852 | | | | 739,670 | |
Deferred income tax assets and liabilities are offset when (1) there is a legally enforceable right toset-off current tax assets against current tax liabilities and (2) when the deferred income taxes relate to the same fiscal authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. The following amounts, determined after appropriateset-off, are shown in the Consolidated Statement of Financial Position: | | | | Year ended December 31, | | | Year ended December 31, | | | | 2016 | | | 2015 | | | 2019 | | 2018 | Deferred tax assets | | | (144,613 | ) | | | (200,706 | ) | | | (225,680 | ) | | | (181,606 | ) | Deferred tax liabilities | | | 550,657 | | | | 750,325 | | | | 336,982 | | | | 379,039 | | | | | | | | | | | 111,302 | | | | 197,433 | | | | | 406,044 | | | | 549,619 | | | | | | | | | | |
The movement in the net deferred income tax liability account is as follows: | | | Year ended December 31, | | | | 2019 | | 2018 | | At the beginning of the year | | | 197,433 | | | | 304,438 | | | Effect of adoption of new standards | | | - | | | | 823 | | | Translation differences | | | 1,100 | | | | 4,171 | | | Increase due to business combinations | | | 10,847 | | | | - | | | Charged directly to Other Comprehensive Income | | | (838 | ) | | | 1,898 | | | Income statement credit | | | (97,240 | ) | | | (113,897 | ) | | At the end of the year | | | 111,302 | | | | 197,433 | |
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | At the beginning of the year | | | 549,619 | | | | 445,871 | | Translation differences | | | (7,693 | ) | | | 19,279 | | Charged directly to Other Comprehensive Income | | | 1,783 | | | | 4,526 | | Income statement credit (debit) | | | (132,969 | ) | | | 79,943 | | Transfer to assets held for sale | | | (4,696 | ) | | | — | | | | | | | | | | | At the end of the period | | | 406,044 | | | | 549,619 | | | | | | | | | | |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
21 Other liabilities
(i) Other liabilities –Non-current
| (i) | Other liabilities – Non current |
| | | | Year ended December 31, | | | Year ended December 31, | | | | 2016 | | | 2015 | | | 2019 | | 2018 | Post-employment benefits | | | 125,161 | | | | 135,880 | | | | 144,993 | | | | 115,087 | | Other-long term benefits | | | 66,714 | | | | 78,830 | | | | 85,473 | | | | 78,492 | | Miscellaneous | | | 21,742 | | | | 16,466 | | | | 20,917 | | | | 19,550 | | | | | | | | | | | 251,383 | | | | 213,129 | | | | | 213,617 | | | | 231,176 | | | | | | | | | | |
Post-employment benefits Unfunded| | | Year ended December 31, | | | | 2019 | | 2018 | | Unfunded | | | 125,573 | | | | 97,318 | | | Funded | | | 19,420 | | | | 17,769 | | | | | | 144,993 | | | | 115,087 | |
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | Values at the beginning of the period | | | 107,601 | | | | 126,733 | | Current service cost | | | 4,625 | | | | 5,918 | | Interest cost | | | 6,371 | | | | 6,164 | | Curtailments and settlements | | | 24 | | | | (128 | ) | Remeasurements (*) | | | (4,501 | ) | | | (9,743 | ) | Translation differences | | | (2,204 | ) | | | (8,418 | ) | Benefits paid from the plan | | | (13,921 | ) | | | (16,062 | ) | Other | | | (1,766 | ) | | | 3,137 | | | | | | | | | | | At the end of the year | | | 96,229 | | | | 107,601 | | | | | | | | | | |
(*) | For 2016 a loss of $0.6 million is attributable to demographic assumptions and a gain of $5.1 million to financial assumptions. For 2015 a gain of $9.1 and $0.6 million is attributable to demographic and financial assumptions, respectively.§ | Unfunded |
| | | Year ended December 31, | | | | 2019 | | 2018 | | Values at the beginning of the year | | | 97,318 | | | | 101,889 | | | Translation differences | | | (1,567 | ) | | | (3,849 | ) | | Current service cost | | | 7,978 | | | | 7,400 | | | Interest cost | | | 5,526 | | | | 5,070 | | | Remeasurements (*) | | | 7,010 | | | | (3,946 | ) | | Increase due to business combinations | | | 15,660 | | | | - | | | Benefits paid from the plan | | | (9,328 | ) | | | (9,719 | ) | | Other | | | 2,976 | | | | 473 | | | At the end of the year | | | 125,573 | | | | 97,318 | |
(*) For 2019 a loss of $1.3 million is attributable to demographic assumptions and a loss of $5.7 million to financial assumptions. For 2018 a gain of $0.2 million is attributable to demographic assumptions and a gain of $3.7 million to financial assumptions. The principal actuarial assumptions usedfor the most relevant plans were as follows: | | | | Year ended December 31, | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | | | 2019 | | | | 2018 | | Discount rate | | | 1% - 7% | | | | 2% - 7% | | | | 1% - 7% | | | | 2% - 7% | | Rate of compensation increase | | | 0% - 3% | | | | 0% - 3% | | | | 0% - 3% | | | | 0% - 3% | |
As of December 31, 2016,2019, an increase / (decrease) of 1% in the discount rate assumption of the main plans would have generated a (decrease) / increase on the defined benefit obligation of $7.1$7.4 million and $8.2$7 million respectively, and an increase / (decrease) of 1% in the rate of compensation assumption of the main plans would have generated an increase / (decrease) impact on the defined benefit obligation of $4.2$4.5 million and $3.7$4.5 million respectively. The above sensitivity analyses are based on a change in discount rate and rate of compensation while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. Funded
The amounts recognized in the statement of financial position for the current annual period and the previous annual period are as follows: | | | | Year ended December 31, | | | Year ended December 31, | | | | 2016 | | | 2015 | | | 2019 | | 2018 | Present value of funded obligations | | | 159,612 | | | | 153,974 | | | | 160,412 | | | | 146,885 | | Fair value of plan assets | | | (132,913 | ) | | | (128,321 | ) | | | (145,160 | ) | | | (132,438 | ) | | | | | | | | | Liability (*) | | | 26,699 | | | | 25,653 | | | | 15,252 | | | | 14,447 | | | | | | | | | |
(*) In 2019 and 2018, $4.2 million and $3.3 million corresponding to a plan with a surplus balance were reclassified within other non-current assets, respectively. (*) | In 2016Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2015, $2.2 million and $2.6 million corresponding to an overfunded plan were reclassified within othernon-current assets, respectively.2017 |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| 21 | Other liabilities (Cont.) |
21 Other liabilitiesPost-employment benefits (Cont.)
(i) Other liabilities –Non-current (Cont.)
The movement in the present value of funded obligations is as follows: | | | Year ended December 31, | | | | 2019 | | 2018 | | At the beginning of the year | | | 146,885 | | | | 165,485 | | | Translation differences | | | 4,542 | | | | (8,182 | ) | | Current service cost | | | 721 | | | | 1,328 | | | Interest cost | | | 5,754 | | | | 5,691 | | | Remeasurements (*) | | | 12,769 | | | | (7,984 | ) | | Benefits paid | | | (10,259 | ) | | | (9,453 | ) | | At the end of the year | | | 160,412 | | | | 146,885 | |
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | At the beginning of the year | | | 153,974 | | | | 183,085 | | Translation differences | | | 384 | | | | (18,507 | ) | Current service cost | | | 162 | | | | 1,155 | | Interest cost | | | 6,403 | | | | 6,725 | | Remeasurements (*) | | | 7,753 | | | | (6,124 | ) | Benefits paid | | | (9,064 | ) | | | (12,360 | ) | | | | | | | | | | At the end of the year | | | 159,612 | | | | 153,974 | | | | | | | | | | |
(*) For 2019 a loss of $0.4 million is attributable to demographic assumptions and a loss of $12.4 million to financial assumptions. For 2018 a loss of $0.4 million is attributable to demographic assumptions and a gain of $8.4 million to financial assumptions. respectively. (*) | For 2016 a gain of $0.9 million is attributable to demographic assumptions and a loss of $8.7 million to financial assumptions. For 2015 a gain of $1.1 and $5.0 million is attributable to demographic and financial assumptions, respectively. |
The movement in the fair value of plan assets is as follows: | | | Year ended December 31, | | | | 2019 | | 2018 | | At the beginning of the year | | | (132,438 | ) | | | (145,692 | ) | | Translation differences | | | (4,137 | ) | | | 7,514 | | | Return on plan assets | | | (5,018 | ) | | | (4,936 | ) | | Remeasurements | | | (10,507 | ) | | | 3,967 | | | Contributions paid to the plan | | | (3,589 | ) | | | (3,108 | ) | | Benefits paid from the plan | | | 10,259 | | | | 9,453 | | | Other | | | 270 | | | | 364 | | | At the end of the year | | | (145,160 | ) | | | (132,438 | ) |
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | At the beginning of the year | | | (128,321 | ) | | | (147,991 | ) | Return on plan assets | | | (7,022 | ) | | | (5,021 | ) | Remeasurements | | | (3,022 | ) | | | 1,686 | | Translation differences | | | 365 | | | | 15,651 | | Contributions paid to the plan | | | (4,374 | ) | | | (5,066 | ) | Benefits paid from the plan | | | 9,064 | | | | 12,360 | | Other | | | 397 | | | | 60 | | | | | | | | | | | At the end of the year | | | (132,913 | ) | | | (128,321 | ) | | | | | | | | | |
The major categories of plan assets as a percentage of total plan assets are as follows: | | | Year ended December 31, | | | | 2019 | | 2018 | | Equity instruments | | | 49.0 | % | | | 53.5 | % | | Debt instruments | | | 47.0 | % | | | 42.8 | % | | Others | | | 4.0 | % | | | 3.7 | % |
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | Equity instruments | | | 52.4 | % | | | 52.3 | % | Debt instruments | | | 43.9 | % | | | 44.3 | % | Others | | | 3.7 | % | | | 3.4 | % |
The principal actuarial assumptions usedfor the most relevant plans were as follows: | | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | Discount rate | | | 4% | | | | 4% | | Rate of compensation increase | | | 0% - 3% | | | | 0% - 2% | |
| | | | Year ended December 31, | | | | | 2019 | | | | 2018 | | | Discount rate | | | 3 % - 4 % | | | | 4 % - 5 % | | | Rate of compensation increase | | | 0 % - 3 % | | | | 0 % - 3 % | |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
21 Other liabilities (Cont.)
(i) Other liabilities –Non-current (Cont.)
The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected return on plan assets is determined based on long-term, prospective rates of return as of the end of the reporting period. As of December 31, 2016,2019, an increase / (decrease) of 1% in the discount rate assumption of the main plans would have generated a (decrease) / increase on the defined benefit obligation of $18.5$16.1 million and $22.8$19.8 million respectively, and an increase / (decrease) of 1% in the compensation rate assumption of the main plans would have generated an increase / (decrease) on the defined benefit obligation of $1.7$1.8 million and $1.6 million respectively. The above sensitivity analyses are based on a change in discount rate and rate of compensation while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The employer contributions expected to be paid for the year 20172020 amount approximately to $6$5.1 million. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period. (ii) Other liabilities - current
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | Payroll and social security payable | | | 125,991 | | | | 173,528 | | Liabilities with related parties | | | 135 | | | | 351 | | Derivative financial instruments | | | 42,635 | | | | 34,445 | | Miscellaneous | | | 15,126 | | | | 14,518 | | | | | | | | | | | | | | 183,887 | | | | 222,842 | | | | | | | | | | |
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
22Non-current allowances and provisions
(i) Deducted fromnon-current receivables
| 21 | Other liabilities (Cont.) |
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | Values at the beginning of the year | | | (1,112 | ) | | | (1,696 | ) | Translation differences | | | 199 | | | | 584 | | | | | | | | | | | Values at the end of the year | | | (913 | ) | | | (1,112 | ) | | | | | | | | | |
(ii) Liabilities
| (ii) | Other liabilities – current |
| | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | Values at the beginning of the year | | | 61,421 | | | | 70,714 | | Translation differences | | | 3,296 | | | | (20,725 | ) | Additional provisions | | | 6,794 | | | | 9,390 | | Reclassifications | | | (1,932 | ) | | | 6,562 | | Used | | | (6,322 | ) | | | (4,520 | ) | | | | | | | | | | Values at the end of the year | | | 63,257 | | | | 61,421 | | | | | | | | | | |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| | | Year ended December 31, | | | | 2019 | | 2018 | | Payroll and social security payable | | | 153,009 | | | | 148,069 | | | Miscellaneous | | | 23,255 | | | | 17,624 | | | | | | 176,264 | | | | 165,693 | |
| 22 | Non-current allowances and provisions |
| (i) | Deducted from non-current receivables |
| | | Year ended December 31, | | | | 2019 | | 2018 | | | | | | Values at the beginning of the year | | | - | | | | (641 | ) | | Translation differences | | | - | | | | 110 | | | Used | | | - | | | | 531 | | | Values at the end of the year | | | - | | | | - | |
| | | Year ended December 31, | | | | 2019 | | 2018 | | Values at the beginning of the year | | | 36,089 | | | | 36,438 | | | Translation differences | | | (1,571 | ) | | | (5,261 | ) | | Additional provisions | | | 19,904 | | | | 14,397 | | | Reclassifications | | | 5,641 | | | | (2,406 | ) | | Used | | | (5,464 | ) | | | (7,079 | ) | | Values at the end of the year | | | 54,599 | | | | 36,089 | |
| 23 | Current allowances and provisions |
23 Current allowances and provisions
(i) Deducted from assets | | | | | | | | | | | | | | Year ended December 31, 2016 | | Allowance for
doubtful accounts -
Trade receivables | | | Allowance for other
doubtful accounts -
Other receivables | | | Allowance
for
inventory
obsolescence | | Values at the beginning of the year | | | (101,480 | ) | | | (7,082 | ) | | | (229,200 | ) | Translation differences | | | (841 | ) | | | 75 | | | | (2,715 | ) | Reversals / (additional) allowances | | | 12,573 | | | | (432 | ) | | | (32,765 | ) | Transfer to held for sale | | | 20 | | | | — | | | | 896 | | Used | | | 4,004 | | | | 1,107 | | | | 23,542 | | | | | | | | | | | | | | | At December 31, 2016 | | | (85,724 | ) | | | (6,332 | ) | | | (240,242 | ) | | | | | | | | | | | | | |
| Year ended December 31, 2019 | | Allowance for doubtful
accounts - Trade receivables | | Allowance for other doubtful
accounts - Other receivables | | Allowance for
inventory obsolescence | | | | | | | | | | Values at the beginning of the year | | | (66,535 | ) | | | (6,784 | ) | | | (209,796 | ) | | Translation differences | | | 9 | | | | 88 | | | | 794 | | | Increase due to business combinations | | | (1,788 | ) | | | - | | | | (10,761 | ) | | Additional / reversals allowances | | | 16,256 | | | | 1,239 | | | | (29,138 | ) | | Used | | | 3,276 | | | | 565 | | | | 31,184 | | | At December 31, 2019 | | | (48,782 | ) | | | (4,892 | ) | | | (217,717 | ) |
| | | | | | | | | | | | | | Year ended December 31, 2015 | | Allowance for
doubtful accounts -
Trade receivables | | | Allowance for other
doubtful accounts -
Other receivables | | | Allowance
for
inventory
obsolescence | | Values at the beginning of the year | | | (68,978 | ) | | | (7,992 | ) | | | (193,540 | ) | Translation differences | | | 1,033 | | | | 1,732 | | | | 10,056 | | Additional allowances | | | (36,788 | ) | | | (1,114 | ) | | | (68,669 | ) | Used | | | 3,253 | | | | 292 | | | | 22,953 | | | | | | | | | | | | | | | At December 31, 2015 | | | (101,480 | ) | | | (7,082 | ) | | | (229,200 | ) | | | | | | | | | | | | | |
(ii) Liabilities
| Year ended December 31, 2018 | | | Allowance for doubtful
accounts - Trade receivables | | Allowance for other doubtful
accounts - Other receivables | | Allowance for
inventory obsolescence | | | | | | | | | | | | | | | Year ended December 31, 2016 | | Sales risks | | | Other claims and
contingencies | | | Total | | | Values at the beginning of the year | | | 6,290 | | | | 2,705 | | | | 8,995 | | | | (78,385 | ) | | | (6,255 | ) | | | (216,068 | ) | | Effect of adoption of new standards | | | | 6,423 | | | | - | | | | - | | Translation differences | | | 189 | | | | (86 | ) | | | 103 | | | | 329 | | | | 359 | | | | 3,575 | | Additional allowances | | | 16,266 | | | | 7,791 | | | | 24,057 | | | | (1,751 | ) | | | (1,179 | ) | | | (25,457 | ) | Reclassifications | | | (22 | ) | | | 1,954 | | | | 1,932 | | | Used | | | (8,838 | ) | | | (3,493 | ) | | | (12,331 | ) | | | 6,849 | | | | 291 | | | | 28,154 | | | | | | | | | | | | | At December 31, 2016 | | | 13,885 | | | | 8,871 | | | | 22,756 | | | | | | | | | | | | | | | At December 31, 2018 | | | | (66,535 | ) | | | (6,784 | ) | | | (209,796 | ) |
| | | | | | | | | | | | | | Year ended December 31, 2015 | | Sales risks | | | Other claims and
contingencies | | | Total | | Values at the beginning of the year | | | 7,205 | | | | 13,175 | | | | 20,380 | | Translation differences | | | (517 | ) | | | (973 | ) | | | (1,490 | ) | Additional allowances | | | 8,540 | | | | 1,743 | | | | 10,283 | | Reclassifications | | | 47 | | | | (6,610 | ) | | | (6,563 | ) | Used | | | (8,985 | ) | | | (4,630 | ) | | | (13,615 | ) | | | | | | | | | | | | | | At December 31, 2015 | | | 6,290 | | | | 2,705 | | | | 8,995 | | | | | | | | | | | | | | |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 23 | Current allowances and provisions (Cont.) |
| Year ended December 31, 2019 | | Sales risks | | Other claims and
contingencies | | Total | | Values at the beginning of the year | | | 6,814 | | | | 17,469 | | | | 24,283 | | | Translation differences | | | (28 | ) | | | (570 | ) | | | (598 | ) | | Increase due to business combinations | | | 505 | | | | 8,000 | | | | 8,505 | | | Additional/ reversals provisions | | | 11,880 | | | | (3,219 | ) | | | 8,661 | | | Reclassifications | | | - | | | | (5,641 | ) | | | (5,641 | ) | | Used | | | (13,304 | ) | | | (4,889 | ) | | | (18,193 | ) | | At December 31, 2019 | | | 5,867 | | | | 11,150 | | | | 17,017 | |
| Year ended December 31, 2018 | | Sales risks | | Other claims and
contingencies | | Total | | Values at the beginning of the year | | | 11,396 | | | | 20,934 | | | | 32,330 | | | Translation differences | | | (103 | ) | | | (2,205 | ) | | | (2,308 | ) | | Additional provisions | | | 2,638 | | | | 6,463 | | | | 9,101 | | | Reclassifications | | | - | | | | 2,406 | | | | 2,406 | | | Used | | | (7,117 | ) | | | (10,129 | ) | | | (17,246 | ) | | At December 31, 2018 | | | 6,814 | | | | 17,469 | | | | 24,283 | |
24 Derivative financial instruments
| 24 | Derivative financial instruments |
Net fair values of derivative financial instruments The net fair values of derivative financial instruments, disclosed within Other Receivables and Other Liabilities at the reporting date, in accordance with IAS 39,IFRS 13, are: | | | | | | | | | | | | Year ended December 31, | | | | | 2016 | | | 2015 | | Foreign exchange derivatives contracts | | | 2,759 | | | | 18,248 | | | | | | | | | | | Contracts with positive fair values | | | 2,759 | | | | 18,248 | | | | | | | | | | | Foreign exchange derivatives contracts | | | (42,635 | ) | | | (34,541 | ) | | | | | | | | | | Contracts with negative fair values | | | (42,635 | ) | | | (34,541 | ) | | | | | | | | | | Total | | | (39,876 | ) | | | (16,293 | ) | | | | | | | | | |
| | | Year ended December 31, | | | | 2019 | | 2018 | | Derivatives hedging borrowings and investments | | | 19,000 | | | | 5,604 | | | Other Derivatives | | | 929 | | | | 3,621 | | | Contracts with positive fair values (*) | | | 19,929 | | | | 9,225 | | | | | | | | | | | | | Derivatives hedging borrowings and investments | | | - | | | | (11,667 | ) | | Other Derivatives | | | (1,814 | ) | | | (311 | ) | | Contracts with negative fair values | | | (1,814 | ) | | | (11,978 | ) | | Total | | | 18,115 | | | | (2,753 | ) |
(*) In 2018 includes $52 thousand of non-current derivatives. Foreign exchange derivative contracts and hedge accounting Tenaris applies hedge accounting to certain cash flow hedges of highly probable forecast transactions. The net fair values of exchange rate derivatives and those derivatives that were designated for hedge accounting as of December 20162019 and 2015,2018, were as follows: | | | | | | | | | | Fair Value | | Hedge Accounting Reserve | | | | | Fair Value | | Hedge Accounting Reserve | Purchase currency | | Sell currency | | | Term | | | 2016 | | 2015 | | 2016 | | 2015 | | | Sell currency | | Term | | 2019 | | 2018 | | 2019 | | 2018 | MXN | | | USD | | | | 2017 | | | | (35,165 | ) | | (24,364 | ) | | 9 | | | 320 | | | USD | | | 2020 | | | | 18,999 | | | | 888 | | | | 404 | | | | (411 | ) | USD | | | MXN | | | | 2017 | | | | 694 | | | 14,466 | | | (2,280 | ) | | (21 | ) | | MXN | | | 2020 | | | | (576 | ) | | | - | | | | - | | | | - | | | ARS | | | USD | | | 2020 | | | | - | | | | (6,542 | ) | | | - | | | | (895 | ) | EUR | | | USD | | | | 2017 | | | | (360 | ) | | 331 | | | | — | | | | — | | | USD | | | 2020 | | | | 588 | | | | 203 | | | | - | | | | - | | | USD | | | JPY | | | 2030 | | | | - | | | | - | | | | 2,149 | | | | - | | USD | | | EUR | | | | 2017 | | | | (33 | ) | | 957 | | | (1,435 | ) | | (819 | ) | | BRL | | | 2020 | | | | (234 | ) | | | (131 | ) | | | - | | | | - | | JPY | | | USD | | | | 2017 | | | | (179 | ) | | (24 | ) | | 73 | | | | — | | | USD | | | 2020 | | | | (190 | ) | | | 271 | | | | - | | | | - | | USD | | | KWD | | | | 2017 | | | | (2,447 | ) | | 28 | | | (1,016 | ) | | 28 | | | KWD | | | 2020 | | | | 103 | | | | 522 | | | | 38 | | | | 390 | | USD | | | ARS | | | | 2017 | | | | (748 | ) | | | — | | | | — | | | | — | | | CAD | | | 2020 | | | | (200 | ) | | | 2,089 | | | | - | | | | - | | ARS | | | USD | | | | 2017 | | | | 318 | | | (8,639 | ) | | (93 | ) | | 3,175 | | | USD | | | BRL | | | | 2017 | | | | (1,581 | ) | | 402 | | | | — | | | | — | | | USD | | | GBP | | | | 2017 | | | | — | | | 85 | | | | — | | | | — | | | COP | | | 2020 | | | | (345 | ) | | | (23 | ) | | | - | | | | - | | Others | | | | | | | (375 | ) | | 465 | | | | — | | | 100 | | | | | | 2020 | | | | (30 | ) | | | (30 | ) | | | - | | | | - | | | | | | | | | | | | | | | | | | | | Total | | | | | | | (39,876 | ) | | | (16,293 | ) | | | (4,742 | ) | | | 2,783 | | | | | | | | 18,115 | | | | (2,753 | ) | | | 2,591 | | | | (916 | ) | | | | | | | | | | | | | | | | | | |
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 24 | Derivative financial instruments (Cont.) |
Following is a summary of the hedge reserve evolution: | | | | Equity
Reserve
Dec-14 | | Movements
2015 | | | Equity
Reserve
Dec-15 | | | Movements
2016 | | Equity
Reserve
Dec-16 | | | Equity Reserve
Dec-17 | | Movements
2018 | | Equity Reserve
Dec-18 | | Movements
2019 | | Equity Reserve
Dec-19 | Foreign Exchange | | | (7,916 | ) | | 10,699 | | | | 2,783 | | | | (7,525 | ) | | (4,742 | ) | | | (240 | ) | | | (676 | ) | | | (916 | ) | | | 3,507 | | | | 2,591 | | | | | | | | | | | | | | | | | | | Total Cash flow Hedge | | | (7,916 | ) | | | 10,699 | | | | 2,783 | | | | (7,525 | ) | | | (4,742 | ) | | | (240 | ) | | | (676 | ) | | | (916 | ) | | | 3,507 | | | | 2,591 | | | | | | | | | | | | | | | | | | |
Tenaris estimates that the cash flow hedge reserve corresponding to derivatives instruments at December 31, 20162019 will be recycled to the Consolidated Income Statement during 2017.2020. For information on lease liabilities, see Note 11. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
25
| 25 | Contingencies, commitments and restrictions on the distribution of profits |
(i) 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.uncertainties and, therefore, the probability of loss and an estimation of damages are difficult to ascertain. Accordingly, the potential liability with respect to a large portion of such claims, lawsuits and other legal proceedings, cannot be estimated with certainty. Management withTenaris is unable to make a reliable estimate of the assistanceexpected financial effect that will result from ultimate resolution of legal counsel periodically reviews the statusproceeding. In those cases, Tenaris has not accrued a provision for the potential outcome of each significant matter and assesses potential financial exposure. 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 financial statements (Notes 22 and 23)Consolidated 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. Set forth below
Below is a summary description of Tenaris’s material ongoing legal proceedings:proceedings which are outstanding as of the date of these Consolidated Financial Statements. In addition, Tenaris is subject to other legal proceedings, none of which is believed to be material. Dalmine, an Italian subsidiary of Tenaris, received on December 24, 2012 a tax assessment from the Italian tax authorities related to allegedly omitted withholding tax on dividend payments made in 2007. The assessment, which was for an estimated amount of EUR295 million (approximately $310.9 million), comprising principal, interest and penalties, was appealed with the first-instance tax court in Milan. In February 2014, the first-instance tax court issued its decision on this tax assessment, partially reversing the assessment and lowering the claimed amount to approximately EUR9 million (approximately $9.5 million), including principal, interest and penalties. On October 2, 2014, the Italian tax authorities appealed against the second-instance tax court decision on the 2007 assessment. On June 12, 2015, the second-instance tax court accepted Dalmine’s defense arguments and rejected the appeal by the Italian tax authorities, thus reversing the entire 2007 assessment and recognizing that the dividend payment was exempt from withholding tax. The Italian tax authorities have appealed the second-instance tax court decision before the Supreme Court.
On December 24, 2013, Dalmine received a second tax assessment from the Italian tax authorities, based on the same arguments as those in the first assessment, relating to allegedly omitted withholding tax on dividend payments made in 2008 – the last such distribution made by Dalmine. Dalmine appealed the assessment with the first-instance tax court in Milan. On January 27, 2016, the first-instance tax court rejected Dalmine’s appeal. This first-instance ruling, which held that Dalmine is required to pay an amount of EUR223 million (approximately $235.1 million), including principal interest and penalties, contradicts the first and second-instance tax court rulings in connection with the 2007 assessment. Dalmine obtained the suspension of the interim payment that would have been due, based on the first-instance decision, through the filing with the tax authorities of a bank guarantee, and appealed the January 2016 ruling with the second-instance tax court.
Tenaris continues to believe that Dalmine has correctly applied the relevant legal provisions and based on, among other things, the tax court decisions on the 2007 assessment and the opinion of legal counsel, Tenaris believes that it is not probable that the ultimate resolution of either the 2007 or the 2008 tax assessment will result in a material obligation.
| • | § | CSN claims relating to the January 2012 acquisition of Usiminas shares |
In 2013,
Confab was notifiedIndustrial 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)(“CSN”) and various entities affiliated with CSN against Confab and the other entitiesseveral Ternium subsidiaries that acquired a participation in Usiminas’ control group in January 2012. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
25 Contingencies, commitments and restrictions on the distribution of profits (Cont.)
(i) Contingencies (Cont.)
| • | | CSN claims relating to the January 2012 acquisition of Usiminas shares (Cont.) |
The CSN lawsuit alleges that, under applicable Brazilian laws and rules, the acquirers were required to launch atag-along tender offer to allnon-controlling holders of UsiminasUsiminas’ 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. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 25 | Contingencies, commitments and restrictions on the distribution of profits (Cont.) |
(i) Contingencies (Cont.)
| § | CSN claims relating to the January 2012 acquisition of Usiminas shares (Cont.) |
On September 23, 2013, the first instance court issued its decision finding in favor of Confab and the other defendants and dismissingdismissed the CSN lawsuit. The claimants appealed the first instance court decision with the Sao Paulo court of appeals. Onlawsuit, and on February 8, 2017, the court of appeals issued its decision on the merits and maintained the understanding of the first instance court, holding that Confab and the other defendants did not have the obligation to launch a tender offer. The decision of the court of appeals has not yet been published, andcourt. On March 6, 2017, CSN may still filefiled a motion for clarification and/oragainst 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 orseeking the Federal Supreme Court. Separately,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 NovemberJanuary 22, 2019, the court of appeals rejected it and ordered that the case be submitted to the Superior Court of Justice. On September 10, 2014, CSN filed2019, the Superior Court of Justice declared CSN’s appeal admissible. The Superior Court of Justice will review the case and then render a complaint with Brazil’s securities regulator Comissão de Valores Mobiliários (CVM)decision on the same grounds and with the same purpose as the lawsuit referred to above. In this complaint, CSN sought to reverse a February 2012 decision by the CVM, which had determined that the above mentioned acquisition did not trigger any tender offer requirement. On December 2, 2016, CVM rendered its decision on this complaint, reaffirming its previous decision from 2012 and rejecting all the new allegations presented by CSN.
Finally, on December 11, 2014, CSN filed a claim with Brazil’s antitrust regulator Conselho Administrativo de Defesa Econômica (“CADE”). In its claim, CSN alleged that the antitrust clearance request relatedmerits. The Superior Court of Justice is restricted to the January 2012 acquisition, which was approved by CADE without restrictions in August 2012, contained a falseanalysis of alleged violations to federal laws and deceitful descriptioncannot assess matters of the acquisition aimed at frustrating the minority shareholders’ right to atag-along tender offer, and requested that CADE investigate and reopen the antitrust review of the acquisition and suspend the Company’s voting rights in Usiminas until the review is completed. On May 6, 2015, CADE rejected CSN’s claim. CSN did not appeal the decision and on May 19, 2015, CADE finally closed the file.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, thetwo decisions issued by CVMthe Brazilian securities regulator (CVM) in February 2012 and December 2016, and the first and second instance court decisions referred to above. Accordingly, no provision was recorded in these Consolidated Financial Statements | • | § | Veracel Celulose Accident Litigationcelulose 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 in connection with respect to the Veracel accident and other amounts not covered by insurance. Itaú and Veracel claimclaimed 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 have beenwere consolidated and are now being considered by the 6th Civil Court of São Caetano do Sul; however, each lawsuit will be adjudicated throughseparately. On September 28, 2018 Confab and Chubb, entered into a separate ruling. Both proceedings are currently at evidentiary stage. Tenaris S.A. Consolidated Financial Statementssettlement 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 years ended December 31, 2016, 2015 and 2014
accident or the claim. 25 Contingencies, commitments and restrictions onOn October 10, 2018, Confab was notified that the distribution of profits (Cont.)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 $21.6 million) (including interest, fees and expenses). On October 15, 2018, Confab filed a request for homologation of the settlement agreement mentioned above, as such settlement agreement remains valid and binding between the parties. On November 8, 2018, the settlement agreement was homologated by the court. |
| § | With respect to Veracel’s claim, Confab was ordered to pay the insurance deductible and other concepts not covered by insurance, currently estimated to amount to BRL62.9 million (approximately $15.6 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 BRL54.0 million (approximately $13.4 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. |
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 25 | Contingencies, commitments and restrictions on the distribution of profits (Cont.) |
(i) Contingencies (Cont.) | • | | Veracel Celulose Accident Litigation (Cont.) |
On March 10, 2016, a court-appointed expert issued its report on certain technical matters concerning the Veracel accident. Based upon a technical opinion received from a third-party expert, in August 2016, Confab filed its objections to the expert’s report. Other parties have also filed their observations and/or opinions concerning the experts’ report, which are currently subject to the court examination. As of December 31, 2016, the estimated amount of Itaú’s claim is approximately BRL 74.5 million (approximately $22.9 million), and the estimated amount of Veracel’s claim is approximately BRL 47.7 million (approximately $14.6 million), for an aggregate amount BRL 122.2 million ($37.5 million). The final result of this claim depends largely on the court’s evaluation of technical matters arising from the expert’s opinion and objections presented by Confab. No provision has been recorded in these Consolidated Financial Statements.§ Ongoing investigation
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. Tenaris believes, based on the advice of counsel, that PAM has no legal basis to impose the penalties and that TGS has meritorious defenses against PAM. However, in light of the prevailing political circumstances in Ecuador, the Company cannot predict the outcome of a claim against a state-owned company and it is not possible to estimate the amount or range of loss in case of an unfavorable outcome.
The Company has learnedis aware that Brazilian, Italian and Swiss authorities arehave been investigating whether certain payments were made from accounts of entities presumably associated with affiliates of the Company to accounts controlled by an individual allegedly linked to individuals related with officers ofto Petróleo Brasileiro S.A. (“Petrobras”) and whether any such payments were intended to benefit Confab Industrial S.A., athe Company’s Brazilian subsidiary of the Company.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”, a new phase of which is presently ongoing, 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’sCompany's Board of Directors has engaged external counsel in connection with a review of the alleged payments and related matters.Company’s review. In addition, the Company has voluntarily notified the U.S. Securities and Exchange Commission and the U.S. Department of Justice. Justice in October 2016. In July 2019, the Company learned that the public prosecutor 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. 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 Company intendscontinues to share the results of this review these matters and to respond to requests from and otherwise cooperate with the appropriate authorities, and to cooperate with any investigations that may be conducted by such 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’sCompany's business that may result from resolution of these matters. § Putative class actions
Following the Company’s November 27, 2018 announcement that its Chairman and CEO Paolo Rocca had been included in an Argentine court investigation known as the Notebooks Case (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 BRL29.8 million (approximately $7.4 million). Tenaris believes, based on the advice of counsel and external consultants, that the prices charged under the Petrobras contract do not result in overprices and that it is unlikely that the ultimate resolution of this matter will result in a material obligation. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 25 | Contingencies, commitments and restrictions on the distribution of profits (Cont.) |
§ Administrative proceeding concerning Brazilian tax credits (ii)
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 BRL56.8 million (approximately $14.1 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. Trial is set for August of 2021. At this time, the Company cannot predict the outcome of this matter or estimate the range of potential losses that may result from 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 December 31, 2019, the claim amounted to approximately EUR25 million (approximately $28 million), comprising EUR20.7 million (approximately $23.2 million) in principal and EUR4.3 million (approximately $4.8 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 December 31, 2019, 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. Based on the counsel’s advice, Tenaris believes that it is unlikely that the ultimate resolution of these matters will result in a material obligation. | (ii) | Commitments and guarantees |
Set forth is a description of Tenaris’s main outstanding commitments: A Tenaris company is a party to a contract with Nucor Corporation under which it is committed to purchase on a monthly basis a minimum volume ofhot-rolled steel coils at prices that are negotiated annually by reference to prices to comparable Nucor customers. The contract became effective in January 2013 and will be in force until December 2017; provided, however, that either party may terminate the contract at any time after January 1, 2015 with a12-month prior notice. Due to the current weak pipe demand associated with the reduction in drilling activity, the parties entered into a temporary agreement pursuant to which application of the minimum volume requirements were suspended, and the company is temporarily allowed to purchase steel volumes in accordance with its needs. As of December 31, 2016, the estimated aggregate contract amount through December 31, 2017, calculated at current prices, is approximately $423 million.
| § | 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 December 31, 2019, the aggregate commitment to take or pay the committed volumes for a 9-year term totaled approximately $27.4 million. |
| § | Several Tenaris companies entered into a contract with Praxair S.A. for the service of oxygen and nitrogen supply. As of December 31, 2019, the aggregate commitment to take or pay the committed volumes for a 14-year term totalled approximately $53.7 million. |
| § | Several Tenaris companies entered into a contract with Graftech for the supply of graphite electrodes. As of December 31, 2019, the aggregate commitment to take or pay the committed volumes totalled approximately $26.8 million. |
A Tenaris company entered into various contracts with suppliers pursuant to which it committed to purchase goods and services for a total amount of approximately $175.8 million related to the investment plan to expand Tenaris’s U.S. operations with the construction of astate-of-the-art seamless pipe mill in Bay City, Texas. As of December 31, 2016 approximately $1.349 million had already been invested.Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
25
| 25 | Contingencies, commitments and restrictions on the distribution of profits (Cont.) |
| (ii) | Commitments and guarantees (Cont.) |
| § | 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 $33.6 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 $18.9 million. |
| § | A Tenaris company entered into a contract with Air Liquide Mexico, S. de R.L de C.V. for the supply of argon gas. As of December 31, 2019, the aggregate commitment totaled approximately $21.2 million. |
| § | A Tenaris company is a party to a contract with Nucor Steel Memphis Inc. under which it is committed to purchase on a monthly basis a minimum volume of steel bars at prices that will be adjusted quarterly by the parties. The contract will become effective in January 2020 and will be in force until December 2022. As of December 31, 2019, the estimated aggregate contract amount through December 31, 2022, calculated at current prices, is approximately $107.1 million. |
Additionally Tenaris has issued performance guarantees mainly related to long term commercial contracts with several customers and parent companies guarantees for approximately $2.5 billion. (iii) 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 December 31, 2016, 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, 2016
| | | 17,493,012 | | | | | | | Total equity in accordance with Luxembourg law
| | | 19,401,336 | | | | | | |
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 December 31, 2016,2019, 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, 2016, distributable amount under Luxembourg law totals $18.1 billion, as detailed below:
| 26 | 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, is planned to have an annual production capacity of 300,000 tons. During the period, Tenaris contributed approximately $19.6 million in the project. | | | | | (all amounts in thousands of U.S. dollars)
| | | | | Retained earnings at December 31, 2015 under Luxembourg law
| | | 18,024,204 | | Other income and expensesTenaris S.A. Consolidated Financial Statements for the yearyears ended December 31, 20162019, 2018 and 2017
|
Acquisition of Saudi Steel Pipe Company § Acquisition On January 21, 2019, Tenaris acquired 47.79% of the shares of SSP, a welded steel pipes producer listed on the Saudi stock market, for a total amount of SAR530 million (approximately $141 million). The amount was paid with Tenaris cash in hand. SSP’s facilities are located in the Eastern Province of the Kingdom of Saudi Arabia and have a manufacturing capacity of 360,000 tons per year. SSP started its operations in 1980 and serves energy industrial and commercial segments, is qualified to supply products with major national oil companies in the region. Upon closing of the acquisition, four Tenaris’s nominees were appointed as new members of the SSP’s board of directors and a Tenaris senior executive was appointed as managing director and chief executive officer of SSP. Such appointment was ratified at the shareholders meeting of SSP held on May 7, 2019, where the shareholders also approved the reappointment of the Tenaris’s nominees until June 6, 2022. The Company has begun consolidating SSP’s balances and results of operations as from January 21, 2019.
| § | 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 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 | | | | 179 | | | Customer relationship | | | 305 | | | | 81 | | | Investment in associated | | | 77 | | | | 21 | | | Working capital | | | 167 | | | | 45 | | | Cash and Cash Equivalents | | | 32 | | | | 9 | | | Other Receivables | | | 11 | | | | 3 | | | Borrowings | | | (304 | ) | | | (81 | ) | | Employees end of service benefits | | | (59 | ) | | | (16 | ) | | Deferred Tax Liabilities | | | (47 | ) | | | (13 | ) | | Net assets acquired | | | 853 | | | | 228 | |
Tenaris acquired 47.79% of total assets and liabilities shown above, approximately $109 million. As of the result of the acquisition, the Company recognized a Goodwill of approximately $32.9 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 $170.6 million with a minor contribution to Tenaris’s margin for the period starting January 21, 2019 and ending December 31, 2019. If the acquisition had occurred on January 1, 2019, consolidated revenue and profit after tax would have not changed significantly. The purchase price allocation has been done with the assistance of a third party expert. Acquisition of Garrett In September 2017, Tenaris acquired 100% of Garrett (a pipe services and trucking business) through the payment of a price of $10.4 million.
If the acquisition had occurred on January 1, 2017, Tenaris’s unaudited pro forma net sales and net income from continuing operations would not have changed materially.
| | | (23,561 | ) | Dividends approved
| | | (507,631 | ) | | | | | | Retained earnings at December 31, 2016 under Luxembourg law
| | | 17,493,012 | | Share premium
| | | 609,733 | | | | | | | Distributable amount at December 31, 2016 under Luxembourg law
| | | 18,102,745 | | | | | F-54 | |
26 Acquisition of subsidiaries andnon-consolidated companies
In September 2014, Tenaris completed the acquisition of the 100% of Socotherm Brasil S.A.(“Socotherm”). The purchase price amounted to $29.6 million, net assets acquired (including PPE, inventories and cash and cash equivalents) amounted to $9.6 million and goodwill for $20 million. Tenaris accounted for this transaction as a step-acquisition and consequently remeasured to fair value its ownership interest in Socotherm held before the acquisition. As a result, Tenaris recorded in “Equity in earnings (losses) ofnon-consolidated companies” a gain of approximately $21.3 million.
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
27 Cash flow disclosures
| | | | | Year ended December 31, | | (i) | | Changes in working capital | | 2019 | | 2018 | | 2017 | | | | | Inventories | | | 311,459 | | | | (176,443 | ) | | | (804,415 | ) | | | | | Receivables and prepayments and Current tax assets | | | (34,368 | ) | | | 30,144 | | | | (4,564 | ) | | | | | Trade receivables | | | 428,326 | | | | (517,579 | ) | | | (259,375 | ) | | | | | Other liabilities | | | (18,295 | ) | | | (22,984 | ) | | | 4,226 | | | | | | Customer advances | | | 16,844 | | | | 5,976 | | | | 17,039 | | | | | | Trade payables | | | (180,857 | ) | | | (57,066 | ) | | | 193,905 | | | | | | | | | 523,109 | | | | (737,952 | ) | | | (853,184 | ) | | (ii) | | | Income tax accruals less payments | | | | | | | | | | | | | | | | | Tax accrued | | | 202,452 | | | | 229,207 | | | | (17,136 | ) | | | | | Taxes paid | | | (395,869 | ) | | | (170,713 | ) | | | (176,853 | ) | | | | | | | | (193,417 | ) | | | 58,494 | | | | (193,989 | ) | | (iii) | | | Interest accruals less payments, net | | | | | | | | | | | | | | | | | Interest accrued | | | (4,616 | ) | | | (2,914 | ) | | | (20,534 | ) | | | | | Interest received | | | 30,890 | | | | 40,613 | | | | 50,001 | | | | | | Interest paid | | | (30,655 | ) | | | (31,548 | ) | | | (17,917 | ) | | | | | | | | (4,381 | ) | | | 6,151 | | | | 11,550 | | | (iv) | | | Cash and cash equivalents | | | | | | | | | | | | | | | | | Cash at banks, liquidity funds and short - term investments | | | 1,554,299 | | | | 428,361 | | | | 330,221 | | | | | | Bank overdrafts | | | (24 | ) | | | (1,644 | ) | | | (131 | ) | | | | | | | | 1,554,275 | | | | 426,717 | | | | 330,090 | |
| | | | | | | | | | | | | | | | | | | | Year ended December 31, | | | | | | | 2016 | | | 2015 | | | 2014 | | (i) | | Changes in working capital | | | | | | | | | | | | | | | Inventories | | | 244,720 | | | | 936,402 | | | | (72,883 | ) | | | Receivables and prepayments and Current tax assets | | | 70,874 | | | | 60,009 | | | | (31,061 | ) | | | Trade receivables | | | 146,824 | | | | 828,265 | | | | 20,886 | | | | Other liabilities | | | (79,046 | ) | | | (123,904 | ) | | | (61,636 | ) | | | Customer advances | | | (95,112 | ) | | | 1,171 | | | | 76,383 | | | | Trade payables | | | 59,939 | | | | (327,958 | ) | | | (3,755 | ) | | | | | | | | | | | | | | | | | | | | | 348,199 | | | | 1,373,985 | | | | (72,066 | ) | | | | | | | | | | | | | | | | (ii) | | Income tax accruals less payments | | | | | | | | | | | | | | | Tax accrued | | | 41,441 | | | | 244,505 | | | | 586,061 | | | | Taxes paid | | | (169,520 | ) | | | (335,585 | ) | | | (506,999 | ) | | | | | | | | | | | | | | | | | | | | | (128,079 | ) | | | (91,080 | ) | | | 79,062 | | | | | | | | | | | | | | | | | (iii) | | Interest accruals less payments, net | | | | | | | | | | | | | | | Interest accrued | | | (43,872 | ) | | | (11,517 | ) | | | 6,174 | | | | Interest received | | | 22,326 | | | | 28,238 | | | | 31,306 | | | | Interest paid | | | (18,858 | ) | | | (18,696 | ) | | | (74,672 | ) | | | | | | | | | | | | | | | | | | | | | (40,404 | ) | | | (1,975 | ) | | | (37,192 | ) | | | | | | | | | | | | | | | | (iv) | | Cash and cash equivalents | | | | | | | | | | | | | | | Cash at banks, liquidity funds and short - term investments | | | 399,900 | | | | 286,547 | | | | 417,645 | | | | Bank overdrafts | | | (1,320 | ) | | | (349 | ) | | | (1,200 | ) | | | | | | | | | | | | | | | | | | | | | 398,580 | | | | 286,198 | | | | 416,445 | | | | | | | | | | | | | | | | |
As of December 31, 2016, 2015 and 2014, the components of the line item “other, including currency translation adjustment” are immaterial to net cash provided by operating activities.
| 29 | Discontinued Operations |
28 Net assets of disposal group classified as held for sale
On December 15, 2016, Tenaris entered into an agreement with Nucor Corporation (NC)(“NC”) pursuant to which it has sold to NC the steel electric conduit business in North America, known as Republic Conduit for an amount of $332.4 million.$328 million (net of transaction costs). The agreementsale was subjectcompleted on January 19, 2017, with effect from January 20, 2017. The result of this transaction was an after-tax gain of $89.7 million, calculated as the net proceeds of the sale less the book value of net assets held for sale, the corresponding tax effect and related expenses. | | Year ended December 31, | | | 2017 | | Income from discontinued operations | | | 1,848 | | | After tax gain on the sale of Conduit | | | 89,694 | | | Net Income for discontinued operations | | | 91,542 | |
Details of Conduit sale | Cash received | | | 331,295 | | | Transaction and other costs | | | (3,663 | ) | | Carrying amount of net assets sold | | | (137,814 | ) | | Gain on sale before income tax | | | 189,817 | | | Income tax expense on gain | | | (100,123 | ) | | Gain on sale after income tax | | | 89,694 | |
The financial performances presented are relative to U.S. antitrust clearance and other customary conditions and was closed duringthe 19 days of January 2017. The transaction was reported as a discontinued operation due to the relevance of such business on the total net income of segment “Other”.
Analysis of the result of discontinued operations: | | Year ended December 31, | | | 2017 | | Revenues | | | 11,899 | | | Gross profit | | | 4,496 | | | Net income | | | 1,848 | |
| | | | | | | | | | | | | | (all amounts in thousands of US dollars, unless otherwise stated) | | Year ended December 31, | | | | | 2016 | | | 2015 | | | 2014 | | Net sales | | | 234,911 | | | | 197,630 | | | | 196,503 | | Cost of sales | | | (136,587 | ) | | | (137,318 | ) | | | (147,045 | ) | | | | | | | | | | | | | | Gross profit | | | 98,324 | | | | 60,312 | | | | 49,458 | | Selling, general and administrative expenses | | | (32,238 | ) | | | (30,678 | ) | | | (31,174 | ) | Other operating expenses | | | (248 | ) | | | (1 | ) | | | — | | | | | | | | | | | | | | | Operating income | | | 65,838 | | | | 29,633 | | | | 18,284 | | Other financial results | | | (88 | ) | | | (382 | ) | | | (361 | ) | | | | | | | | | | | | | | Income before income tax | | | 65,750 | | | | 29,251 | | | | 17,923 | | Income tax | | | (24,339 | ) | | | (10,121 | ) | | | (5,630 | ) | | | | | | | | | | | | | | Income for continuing operations | | | 41,411 | | | | 19,130 | | | | 12,293 | | | | | | | | | | | | | | | Earnings per share attributable to discontinued operations: | | | | | | | | | | | | | Weighted average number of ordinary shares (thousands) | | | 1,180,537 | | | | 1,180,537 | | | | 1,180,537 | | Discontinued operations: | | | | | | | | | | | | | Basic and diluted earnings per share (U.S. dollars per share) | | | 0.04 | | | | 0.02 | | | | 0.01 | | Basic and diluted earnings per ADS (U.S. dollars per ADS) (*) | | | 0.07 | | | | 0.03 | | | | 0.02 | |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
28 Net assets of disposal group classified as held for sale (Cont.)
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 29 | Discontinued Operations (Cont.) |
Summarized cash flow information is as follows: | | 2017 | | Cash at the beginning | | | 18,820 | | | Cash at the end | | | 206 | | | (Decrease) Increase in cash | | | (18,614 | ) | | | | | | | (Used in) provided by operating activities | | | (3,046 | ) | | Provided by (used in) investing activities | | | 32 | | | Used in financing activities | | | (15,600 | ) |
| | | | | | | | | | | | | | | | 2016 | | | 2015 | | | 2014 | | Cash at the beginning | | | 15,343 | | | | 13,848 | | | | 18,790 | | Cash at the end | | | 18,820 | | | | 15,343 | | | | 13,848 | | | | | | | | | | | | | | | Increase (decrease) in cash | | | 3,477 | | | | 1,495 | | | | (4,942 | ) | Provided by operating activities | | | 24,535 | | | | 42,701 | | | | 8,294 | | Used in investing activities | | | (1,058 | ) | | | (1,206 | ) | | | (1,236 | ) | Used in financing activities | | | (20,000 | ) | | | (40,000 | ) | | | (12,000 | ) |
These amounts were estimated only for disclosure purposes, as cash flows from discontinued operations were not managed separately from other cash flows. On January 20, 2017,
The following table shows carrying amounts of assets and liabilities as at the sale was completeddate of sale. Current and Tenaris estimates a net profit after bank fees and other related expenses of approximately $189.2 million. Current andnon-current assets and liabilities of disposal group
| | | | | | | | | | | | At December 31, 2016 | | ASSETS | | | | | | | | | Non-current assets | | | | | | | | | Property, plant and equipment, net | | | 41,470 | | | | | | Intangible assets, net (*) | | | 45,894 | | | | 87,364 | | | | | | | | | | | Current assets | | | | | | | | | Inventories, net | | | 29,819 | | | | | | Receivables and prepayments, net | | | 451 | | | | | | Trade receivables, net | | | 33,620 | | | | | | Cash and cash equivalents | | | 163 | | | | 64,053 | | | | | | | | | | | Total assets of disposal group classified as held for sale | | | | | | | 151,417 | | | | | | | | | | | LIABILITIES | | | | | | | | | Non-current liabilities | | | | | | | | | Deferred tax liabilities | | | 4,696 | | | | | | Other liabilities | | | 680 | | | | 5,376 | | | | | | | | | | | Current liabilities | | | | | | | | | Current tax liabilities | | | 4,100 | | | | | | Other liabilities | | | 1,668 | | | | | | Trade payables | | | 6,950 | | | | 12,718 | | | | | | | | | | | Total liabilities of disposal group classified as held for sale | | | | | | | 18,094 | | | | | | | | | | |
| | At January 19, 2017 | | Non-current assets | | | 87,332 | | | Current assets | | | 69,332 | | | Total assets of disposal group classified as held for sale | | | 156,664 | | | Non-current liabilities | | | 5,294 | | | Current liabilities | | | 13,556 | | | Total liabilities of disposal group classified as held for sale | | | 18,850 | |
(*) | Includes $45.8 million of goodwill |
29
| 30 | Related party transactions |
As of December 31, 2016:2019: | • | § | San Faustin S.A., a LuxembourgSociétéAnonyme 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..r.l., a LuxembourgSocié société à Responsabilité Limitéresponsabilité 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)located in the Netherlands (Stichting) (“RP STAK”) held voting rightsshares in San Faustin sufficient in number to control San Faustin. |
No person or group of persons controls RP STAK.
| § | 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 0.10%0.08% of the Company’s outstanding shares. Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
29 Related party transactions (Cont.)
Transactions and balances disclosed as with“non-consolidated “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 notnon-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) | | Year ended December 31, | | | | | | | 2016 | | | 2015 | | | 2014 | | (i) | | Transactions | | | | | | | (a) Sales of goods and services | | | | | | | | | | | | | | | Sales of goods tonon-consolidated parties | | | 21,174 | | | | 24,019 | | | | 33,342 | | | | Sales of goods to other related parties | | | 32,613 | | | | 87,663 | | | | 103,377 | | | | Sales of services tonon-consolidated parties | | | 9,542 | | | | 10,154 | | | | 10,932 | | | | Sales of services to other related parties | | | 2,948 | | | | 4,010 | | | | 3,264 | | | | | | | | | | | | | | | | | | | | | | 66,277 | | | | 125,846 | | | | 150,915 | | | | | | | | | | | | | | | | | | | (b) Purchases of goods and services | | | | | | | | | | | | | | | Purchases of goods tonon-consolidated parties | | | 67,048 | | | | 260,280 | | | | 302,144 | | | | Purchases of goods to other related parties | | | 20,150 | | | | 35,153 | | | | 44,185 | | | | Purchases of services tonon-consolidated parties | | | 11,528 | | | | 16,153 | | | | 27,304 | | | | Purchases of services to other related parties | | | 53,530 | | | | 78,805 | | | | 90,652 | | | | | | | | | | | | | | | | | | | | | | 152,256 | | | | 390,391 | | | | 464,285 | | | | | | | | | | | | | | | | |
| | (all amounts in thousands of U.S. dollars) | | Year ended December 31, | | | | | 2019 | | 2018 | | 2017 | | (i) | Transactions | | | | | | | (a) Sales of goods and services | | | | | | | | | Sales of goods to non-consolidated parties | | | 20,577 | | | | 23,709 | | | | 32,362 | | | | Sales of goods to other related parties | | | 69,972 | | | | 131,548 | | | | 94,624 | | | | Sales of services to non-consolidated parties | | | 5,620 | | | | 7,641 | | | | 11,637 | | | | Sales of services to other related parties | | | 4,386 | | | | 5,647 | | | | 3,751 | | | | | | | 100,555 | | | | 168,545 | | | | 142,374 | | | | (b) Purchases of goods and services | | | | | | | | | | | | | | | Purchases of goods to non-consolidated parties | | | 174,588 | | | | 245,186 | | | | 234,361 | | | | Purchases of goods to other related parties | | | 51,765 | | | | 106,624 | | | | 17,711 | | | | Purchases of services to non-consolidated parties | | | 9,404 | | | | 9,556 | | | | 12,077 | | | | Purchases of services to other related parties | | | 54,514 | | | | 46,179 | | | | 50,794 | | | | | | | 290,271 | | | | 407,545 | | | | 314,943 | |
| | | | | | | | | | | | | | (all amounts in thousands of U.S. dollars) | | At December 31, | | | | | | | 2016 | | | 2015 | | (ii) | | Period-end balances | | | | | | | | | | | (a) Arising from sales / purchases of goods / services | | | | | | | | | | | Receivables fromnon-consolidated parties | | | 117,187 | | | | 73,412 | | | | Receivables from other related parties | | | 13,357 | | | | 23,995 | | | | Payables tonon-consolidated parties | | | (21,314 | ) | | | (20,000 | ) | | | Payables to other related parties | | | (12,708 | ) | | | (19,655 | ) | | | | | | | | | | | | | | | | | 96,522 | | | | 57,752 | | | | | | | | | | | | |
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
30 Related party transactions (Cont.) | | (all amounts in thousands of U.S. dollars) | | At December 31, | | | | | 2019 | | 2018 | | (ii) | Period-end balances | | | | | | | (a) Arising from sales / purchases of goods / services | | | | | | | Receivables from non-consolidated parties | | | 78,884 | | | | 122,136 | | | | Receivables from other related parties | | | 10,400 | | | | 24,419 | | | | Payables to non-consolidated parties | | | (19,100 | ) | | | (33,197 | ) | | | Payables to other related parties | | | (7,048 | ) | | | (17,595 | ) | | | | | | 63,136 | | | | 95,763 | | | | | | | | | | | | | | | (b) Financial debt | | | | | | | | | | | Finance lease liabilities from non-consolidated parties | | | (2,064 | ) | | | - | | | | | | | (2,064 | ) | | | - | |
In addition to the tables above, Tenaris issued various guarantees and is party to a commitment in favor of Techgen: for further details, please see note 12(c) and 25(ii). No other material guarantees were issued in favor of other related parties. Directors’ and senior management compensation During the years ended December 31, 2016, 20152019, 2018 and 2014,2017, the cash compensation of Directors and Senior managers amounted to $38.6$33.7 million, $28.8$33.7 million and $26$45.8 million respectively. These amounts include cash benefits paid to certain senior managers in connection with the pre-existing retirement plans. In addition, Directors and Senior managers received 500, 540468, 558 and 567484 thousand units for a total amount of $4.8 million, $5.4$5.6 million and $6.2$4.7 million respectively in connection with the Employee retention and long term incentive program mentioned in Note O (2).Employee benefits – Other long term benefits. | 31 | Fees paid to the Company's principal accountant |
Total fees accrued for professional services rendered by PwC Network firms to Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014its subsidiaries are detailed as follows: | (all amounts in thousands of U.S. dollars) | | Year ended December 31, | | | | 2019 | | 2018 | | 2017 | | Audit fees | | | 3,846 | | | | 3,841 | | | | 3,995 | | | Audit-related fees | | | 50 | | | | 43 | | | | 88 | | | Tax fees | | | 7 | | | | - | | | | 23 | | | All other fees | | | 1 | | | | 7 | | | | 30 | | | Total | | | 3,904 | | | | 3,891 | | | | 4,136 | |
30
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
The following is a list of Tenaris’s principal subsidiaries and its direct and indirect percentage of ownership of each controlled company at December 31, 2016.2019. | Company | | Country of
Incorporation | Main activity | Percentage of ownership at
December 31, (*) | | | | | | | | | | | | | | 2019 | 2018 | 2017 | Company | | Country of
Organization | | Main activity | | Percentage of ownership at
December 31, (*) | | | | | | 2016 | | 2015 | | 2014 | | | ALGOMA TUBES INC. | | Canada | | Manufacturing of seamless steel pipes | | | 100 | % | | 100 | % | | 100 | % | Canada | Manufacturing of seamless steel pipes | 100% | 100% | CONFAB INDUSTRIAL S.A. and subsidiaries | | Brazil | | Manufacturing of welded steel pipes and capital goods | | | 100 | % | | 100 | % | | 100 | % | Brazil | Manufacturing of welded steel pipes and capital goods | 100% | SIDERCA S.A.I.C. and subsidiaries (except detailed) | | Argentina | | Manufacturing of seamless steel pipes | | | 100 | % | | 100 | % | | 100 | % | | | DALMINE S.p.A. | | Italy | Manufacturing of seamless steel pipes | 100% | HYDRIL COMPANY and subsidiaries (except detailed) (a) | | USA | | Manufacture and marketing of premium connections | | | 100 | % | | 100 | % | | 100 | % | USA | Manufacture and marketing of premium connections | 100% | DALMINE S.p.A. | | Italy | | Manufacturing of seamless steel pipes | | | 100 | % | | 99 | % | | 99 | % | | MAVERICK TUBE CORPORATION and subsidiaries (except detailed) | | USA | | Manufacturing of welded steel pipes | | | 100 | % | | 100 | % | | 100 | % | | | KAZAKHSTAN PIPE THREADERS LIMITED LIABILITY PARTNERSHIP | | Kazakhstan | Threading of premium products | 100% | | MAVERICK TUBE CORPORATION and subsidiaries | | USA | Manufacturing of welded steel pipes | 100% | NKKTUBES | | Japan | | Manufacturing of seamless steel pipes | | | 51 | % | | 51 | % | | 51 | % | Japan | Manufacturing of seamless steel pipes | 51% | PRUDENTIAL STEEL ULC | | Canada | | Manufacturing of welded steel pipes | | | 100 | % | | 100 | % | | 100 | % | | | P.T. SEAMLESS PIPE INDONESIA JAYA | | Indonesia | Manufacturing of seamless steel products | 89% | | PRUDENTIAL STEEL LTD. | | Canada | Manufacturing of welded steel pipes | 100% | | S.C. SILCOTUB S.A. | | Romania | Manufacturing of seamless steel pipes | 100% | | SAUDI STEEL PIPE CO. | | Saudi Arabia | Manufacturing of welded steel pipes | 48% | NA | SIAT SOCIEDAD ANONIMA | | Argentina | | Manufacturing of welded and seamless steel pipes | | | 100 | % | | 100 | % | | 100 | % | Argentina | Manufacturing of welded and seamless steel pipes | 100% | S.C. SILCOTUB S.A. | | Romania | | Manufacturing of seamless steel pipes | | | 100 | % | | 100 | % | | 100 | % | | PT SEAMLESS PIPE INDONESIA JAYA | | Indonesia | | Manufacturing of seamless steel products | | | 77 | % | | 77 | % | | 77 | % | | TALTA—TRADING E MARKETING SOCIEDADE UNIPESSOAL LDA. | | Madeira | | Trading and holding Company | | | 100 | % | | 100 | % | | 100 | % | | TUBOS DE ACERO DE MEXICO S.A. | | Mexico | | Manufacturing of seamless steel pipes | | | 100 | % | | 100 | % | | 100 | % | | | SIDERCA SOCIEDAD ANONIMA INDUSTRIAL Y COMERCIAL and subsidiaries | | Argentina | Manufacturing of seamless steel pipes | 100% | | TALTA - TRADING E MARKETING SOCIEDADE UNIPESSOAL LDA. | | Portugal | Holding Company | 100% | TENARIS BAY CITY, INC. | | USA | | Manufacturing of seamless steel pipes | | | 100 | % | | 100 | % | | 100 | % | USA | Manufacturing of seamless steel pipes | 100% | | TENARIS CONNECTIONS BV | | Netherlands | Development, management and licensing of intellectual property | 100% | | TENARIS FINANCIAL SERVICES S.A. | | Uruguay | Financial company | 100% | TENARIS GLOBAL SERVICES (CANADA) INC. | | Canada | | Marketing of steel products | | | 100 | % | | 100 | % | | 100 | % | Canada | Marketing of steel products | 100% | | TENARIS GLOBAL SERVICES (U.S.A.) CORPORATION | | USA | Marketing of steel products | 100% | | TENARIS GLOBAL SERVICES (UK) LTD | | United Kingdom | Holding company and marketing of steel products | 100% | | TENARIS GLOBAL SERVICES S.A. and subsidiaries (except detailed) (b) | | Uruguay | Holding company and marketing of steel products | 100% | | TENARIS INVESTMENTS (NL) B.V. | | Netherlands | Holding company | 100% | NA | TENARIS INVESTMENTS S.àr.l. | | Luxembourg | | Holding company | | | 100 | % | | 100 | % | | 100 | % | Luxembourg | Holding company | 100% | TENARIS INVESTMENTS SWITZERLAND AG and subsidiaries (except detailed) | | Switzerland | | Holding company | | | 100 | % | | 100 | % | | 100 | % | | TENARIS GLOBAL SERVICES (UK) LTD | | United Kingdom | | Marketing of steel products | | | 100 | % | | 100 | % | | 100 | % | | TENARIS GLOBAL SERVICES (U.S.A.) CORPORATION | | USA | | Marketing of steel products | | | 100 | % | | 100 | % | | 100 | % | | TENARIS FINANCIAL SERVICES S.A. | | Uruguay | | Financial company | | | 100 | % | | 100 | % | | 100 | % | | TENARIS GLOBAL SERVICES S.A. and subsidiaries (b) | | Uruguay | | Holding company and marketing of steel products | | | 100 | % | | 100 | % | | 100 | % | | TENARIS INVESTMENTS S.àr.l. LUXEMBURG, Zug Branch | | Switzerland | | Holding company and financial services | | | 100 | % | | 100 | % | | 100 | % | | | TENARIS INVESTMENTS SWITZERLAND AG and subsidiaries | | Switzerland | Holding company | 100% | TENARIS TUBOCARIBE LTDA. | | Colombia | | Manufacturing of welded and seamless steel pipes | | | 100 | % | | 100 | % | | 100 | % | Colombia | Manufacturing of welded and seamless steel pipes | 100% | | TUBOS DE ACERO DE MEXICO, S.A. | | Mexico | Manufacturing of seamless steel pipes | 100% |
(*) | (*) All percentages rounded. |
(a) | Tenaris Investments S.a.r.l. holds 100% of Hydril’s subsidiaries shares except for Technical Drilling & Production Services Nigeria. Ltd where it holds 80% for 2016, 2015 and 2014. |
(b) | Tenaris holds 97.5% of Tenaris Supply Chain S.A, 60% of Gepnaris S.A. and 40% of Tubular Technical Services and Pipe Coaters, and 49% of Amaja Tubular Services Limited |
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014
31 (a) Tenaris Investments S.à.r.l. holds 100% of Hydril's subsidiaries shares except for Technical Drilling & Production Services Nigeria. Ltd where it holds 80%.
(b) Tenaris Investments S.à.r.l holds 97,5% of Tenaris Supply Chain S.A. and 40% of Tubular Technical Services Ltd. and Pipe Coaters Nigeria Ltd., 49% of Amaja Tubular Services Limited, 49% Tubular Services Angola Lda. | 33 | Nationalization of Venezuelan Subsidiaries |
In May 2009, within the framework of Decree Law 6058, Venezuela’s President announced the nationalization of, among other companies, the Company’sCompany's majority-owned subsidiaries TAVSA - Tubos de Acero de Venezuela S.A. (“Tavsa”) and, Matesi Materiales Siderúrgicos S.A (“Matesi”), and Complejo Siderúrgico de Guayana, C.A (“Comsigua”), in which the Company has anon-controlling interest (collectively, the “Venezuelan Companies”). Tenaris 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. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 33 | Nationalization of Venezuelan Subsidiaries (Cont.) |
Matesi On January 29, 2016, the tribunal released its award on the arbitration proceeding concerning the nationalization of Matesi. The award upheld Tenaris’s and Talta’s claim that Venezuela had expropriated their investments in Matesi in violation of Venezuelan law as well as the bilateral investment treaties entered into by Venezuela with the Belgium-Luxembourg Economic Union and Portugal. The award granted compensation in the amount of $87.3 million for the breaches and ordered Venezuela to pay an additional amount of $85.5 million inpre-award interest, aggregating to a total award of $172.8 million, payable in full and net of any applicable Venezuelan tax, duty or charge. The tribunal granted Venezuela a grace period of six months from the date of the award to make payment in full of the amount due without incurring post-award interest, and resolved that if no, or no full, payment is made by then, post-award interest will apply at the rate of 9% per annum.annum compounded at six-monthly rests from the date of the award until payment in full. As of December 31, 2019, post-award interest amounted to approximately $71 million. On March 14, 2016, Venezuela requested the rectification of the award pursuant to article 49(2) of the ICSID Convention and ICSID Arbitration Rule 49. The tribunal denied Venezuela’s request on June 24, 2016, ordering Venezuela to reimburse Tenaris and Talta for their costs.costs incurred in connection with the rectification proceedings. On September 21, 2016, Venezuela submitted a request for annulment of the award as well as the stay of enforcement of the award in accordance with the ICSID Convention and Arbitration Rules. The annulment request was registeredOn March 24, 2017, an ad hoc committee constituted to decide on September 29, 2016, andVenezuela´s requests rendered its decision to lift the stay of enforcement of the award. On August 8, 2018, the ad hoc committee that will hearrejected Venezuela’s request was constituted on December 27, 2016. The parties areapplication to annul the award. On June 8, 2018, Tenaris and Talta filed an action in federal court in the processDistrict of exchanging briefs. A hearing is scheduledColumbia to be heldrecognize and enforce the award. Tenaris and Talta have effected service on Venezuela in accordance with US law, and Venezuela has failed to file an answer in the first quarterproceeding. Tenaris and Talta have moved for default judgment. Venezuela did not oppose the entry of 2017 regarding Tenaris’s and Talta’s opposition to Venezuela’s request to continue stay enforcement ofdefault judgment. Accordingly, it is expected that the award. Following that hearing, thereaward will be converted into a further exchange of briefs and an oral hearing on Venezuela’s annulment request, currently proposed tojudgment. The judgment, however, may not be heldenforced in the last quarter of 2017. Concerning the arbitration proceeding relatingU.S. to the nationalizationextent prohibited by the Venezuelan sanctions regulations issued by the U.S. Treasury Department’s Office of Tenaris’s shareholdings in Foreign Assets Control.
Tavsa and Comsigua on On December 12, 2016, the tribunal issued its award upholding Tenaris’s and Talta’s claim that Venezuela had expropriated their investments in Tavsa and Comsigua in violation of the bilateral investment treaties entered into by Venezuela with the Belgium-Luxembourg Economic Union and Portugal. The award granted compensation in the amount of $137 million and ordered Venezuela to reimburse Tenaris and Talta $3.3 million in legal fees and ICSID administrative costs. In addition, Venezuela was ordered to pay interest from April 30, 2008 until the day of effective payment at a rate equivalent to LIBOR + 4% per annum, which as of December 31, 20162019 amounted $76to approximately $118 million. The deadline for filing On April 11, 2017, Venezuela submitted a request for annulment of the award expires on April 11, 2017. Based onas well as the facts and circumstances described above and following the guidance set forth by IAS 27R, the Company ceased consolidating the resultsstay of operations and cash flowsenforcement of the Venezuelan Companies as fromaward in accordance with the ICSID Convention and Arbitration Rules. On February 23, 2018, an ad hoc committee constituted to decide on Venezuela’s requests rendered its decision to lift the stay of enforcement of the award. On December 28, 2018, the ad hoc committee rejected Venezuela’s application to annul the award.
On June 30, 2009,8, 2018, Tenaris and classified its investmentsTalta filed an action in federal court in the Venezuelan Companies as financial assets basedDistrict of Columbia to recognize and enforce the award. Tenaris and Talta have effected service on the definitions containedVenezuela in paragraphs 11(c)(i)accordance with US law, and 13 of IAS 32. The Company classified its interestsVenezuela has failed to file an answer in the proceeding. Tenaris and Talta have moved for default judgment. Venezuela did not oppose the entry of default judgment. Accordingly, it is expected that the award will be converted into a judgment. The judgment, however, may not be enforced in the U.S. to the extent prohibited by the Venezuelan Companies asavailable-for-sale investments since management believes they do not fulfilsanctions regulations issued by the requirements for classification within anyU.S. Treasury Department’s Office of the remaining categories provided by IAS 39 and such classification is the most appropriate accounting treatment applicable tonon-voluntary dispositionsForeign Assets Control.
As of assets. December 31, 2019, Tenaris or its subsidiaries have net receivables withrelated to its interest in the Venezuelan Companies as of December 31, 2016, for a total amount of approximately $27$49 million. See Note III.B. | Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 34 | Delisting of Tenaris’s shares from the Buenos Aires stock exchange |
On July 29, 2019, the General Shareholders Meeting approved the delisting of the Company’s shares from the Buenos Aires stock exchange, Bolsas y Mercados Argentinos S.A. (“BYMA”), through a voluntarily withdrawal from listing of the Argentine National Securities Commission (Comisión Nacional de Valores, or “CNV”) pursuant to Article 32, clause c), Section VIII, Chapter II of Title III of the rules (Normas) of the CNV, which permits the Company to delist from BYMA without making a delisting public tender offer. On September 19, 2019, the CNV authorized the delisting of the Company’s shares in Argentina, and such delisting became effective as of the close of business on October 10, 2019. Although shareholders holding shares through Caja de Valores S.A. (“CVSA”) on June 11, 2019 who were absent from the General Shareholders Meeting were entitled to appraisal rights provided pursuant to article 22 of the Company’s articles of association, no shareholder eligible to do so exercised such right. Acquisition of IPSCO Tubulars, Inc. On January 2, 2020, Tenaris acquired 100% of the shares of IPSCO Tubulars, Inc. (“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 is 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. 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. Its Ambridge, Pennsylvania, mill adds a second seamless manufacturing facility and complements Tenaris’s seamless plant in Bay City, Texas. In connection with the closing of the transaction, the parties entered into a 6-year master distribution agreement (the “MDA”) whereby, beginning on January 2, 2020, Tenaris will be 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 months. Under the MDA, Tenaris is required to purchase specified minimum volumes of TMK-manufactured OCTG and line pipe products. The Company recordswill begin consolidating IPSCO’s balances and results of operations as from January 2, 2020. The Company has retained a third party expert to estimate the purchase price allocation. As of the date of publication of these Consolidated Financial Statements, the purchase price allocation is still in progress. The short period of time between the acquisition date and the date of approval of these Consolidated Financial Statements, as well as the considerable size and complexity of the acquired business, makes it impracticable for the Company to provide all disclosures required by IFRS 3 applicable to a business combination that occurred subsequent to year end. Following the preparation of the initial purchase price allocation, the Company will continue its interestreview and will make any necessary adjustments during the following 12 months, in accordance with IFRS 3.
| Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 |
| 36 | Update as of April 29, 20201 |
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 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 Venezuelan Companiesenergy 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, a situation of acute oversupply remains, 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. It is not known how long it will take for oil and gas demand to recover or achieve a more balanced position between supply and demand. 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. | - | Status of our operations |
We are adjusting 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 Financial Statements, this is the status of our facilities: | · | In China, we are again fully operational, after several weeks of interruption and an extraordinary combined effort of our people and of our community. |
| · | In Italy, production was greatly reduced; although our Dalmine facility was used exclusively for the manufacturing of oxygen tanks to aid local hospitals and health centers for a limited period of time, currently the facility is gradually resuming normal operations. In Argentina, Colombia, Mexico and Saudi Arabia, Tenaris decreased its activity following the imposition of mandatory lockdowns, and our plants in these countries are currently operating at reduced levels. Although the lockdowns or restrictions to operate in these countries are expected to end or be relaxed in the next few weeks, these could be extended and/or made more stringent if so decided by the appropriate authorities as the circumstances could require. |
| · | In the United States, our facilities in Koppel and Ambridge (PA), Brookfield (OH), Blytheville (AR), Wilder (KY), and Odessa and Baytown (TX), have been or will be temporarily closed until market conditions improve. In addition, Tenaris is in the process of performing employee reductions and adjusting production levels at its other facilities in line with market demand. |
In order to safeguard the health and safety of its carrying amountemployees, 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 June 30, 2009,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 Financial Statements, remote work and other work arrangements have not at fair value, followingmaterially 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.
1 This note was added subsequent to the guidance set forthapproval of these Consolidated Financial Statements by paragraphs 46(c), AG80 and AG81the Company’s Board of IAS 39.Directors on February 19, 2020.
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2016, 20152019, 2018 and 20142017 | 36 | Update as of April 29, 2020 (Cont.) |
The COVID-19 pandemic and the oil & gas crisis and their impact on Tenaris’s operations and financial condition (Cont.) | - | 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. 32 FeesThe COVID-19 pandemic and the ongoing oil & gas crisis poses the following main risks and challenges to Tenaris:
| · | Global oil or gas demand may fail to recover 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. |
In order to mitigate the impact of expected lower sales, Tenaris is working on 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 U.S. 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, the board of directors resolved to propose, for approval by the Annual Shareholders Meeting to be held on June 2, 2020, 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 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 Company’s principal accountantcredit markets. In addition, Tenaris has a net cash position of approximately $271 million as of the end of March 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. Total fees accrued for professional services rendered by PwC Network firms to
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and its subsidiaries2017 | 36 | Update as of April 29, 2020 (Cont.) |
Acquisition of IPSCO Tubulars, Inc. On March 16, 2020, Tenaris delivered, for TMK’s review, a closing statement prepared in accordance with the acquisition agreement, including Tenaris’s calculation of the closing price based on actual amounts of cash, indebtedness, working capital and certain other items as of the closing date. In case of disagreement, the parties are detailedexpected to engage in good-faith negotiations to solve any discrepancies. If the parties cannot resolve the disputed amounts, the discrepancies must be submitted to and resolved by an independent accounting firm. | (ii) | Purchase Price Allocation |
As at March 31, 2020, the preliminary purchase price allocation was carried out with the assistance of a third-party expert. The application of the purchase method requires certain estimates and assumptions, including estimates and assumptions 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: | | | | | | | | | | | | | | (all amounts in thousands of U.S. dollars) | | Year ended December 31, | | | | | 2016 | | | 2015 | | | 2014 | | Audit Fees | | | 3,588 | | | | 4,372 | | | | 5,231 | | Audit-Related Fees | | | 64 | | | | 78 | | | | 142 | | Tax Fees | | | 14 | | | | 25 | | | | 89 | | All Other Fees | | | 3 | | | | 15 | | | | 35 | | | | | | | | | | | | | | | Total | | | 3,669 | | | | 4,490 | | | | 5,497 | | | | | | | | | | | | | | |
| Fair value of acquired assets and liabilities: | | $ million | | Property, Plant and Equipment | | | 506 | | | Intangible assets | | | 170 | | | Working capital | | | 144 | | | Cash and Cash Equivalents | | | 4 | | | Other assets | | | 46 | | | Borrowings | | | (53 | ) | | Provisions | | | (27 | ) | | Other liabilities | | | (77 | ) | | Deferred tax liabilities | | | (3 | ) | | Net assets acquired | | | 710 | |
33 Subsequent event
Tenaris acquired total assets and liabilities shown above, for approximately $1,067 million. As a result of the acquisition, the Company 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 impair the goodwill mentioned above. Following IFRS 3, the Company will continue reviewing the allocation and make any necessary adjustments (mainly over property, plant and equipment and intangible assets) during the twelve months following the acquisition date. Acquisition-related costs of $9.7 million were included in general and administrative expenses ($9.4 million and $ 0.3 million in 2019 and 2020 respectively). Annual Dividend Proposal
| (iii) | Temporary suspension of operations at certain facilities |
On February 22, 2017
Given the Company’s Board of Directors proposed,abrupt and steep decline in market demand, the facilities in Koppel and Ambridge (PA), Brookfield (OH), Blytheville (AR), Wilder (KY), and Odessa and Baytown (TX), were temporarily closed until market conditions improve. Tenaris S.A. Consolidated Financial Statements for the approvalyears ended December 31, 2019, 2018 and 2017 | 36 | Update as of April 29, 2020 (Cont.) |
Impairment of Assets
As a result of the Annual General Shareholders’ meeting to be held on May 3, 2017,severe deterioration of business conditions and in light of the paymentpresence of impairment indicators for its U.S. operations, Tenaris recorded impairment charges as of March 31, 2020, in the carrying values of goodwill and other asset values at the cash-generating units OCTG USA (Maverick), IPSCO, Rods USA and Coiled Tubing, for an annual dividendaggregate amount 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 23, 2016. 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 24, 2017, with anex-dividend date of May 22, 2017. $622 million. These Consolidated Financial Statements do not reflect these impairment charges. 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. 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. Annual Dividend Proposal
On April 29, 2020, the Company’s board of directors resolved to propose, for approval by the annual shareholders meeting to be held on June 2, 2020, that no further dividends be distributed in respect of fiscal year 2019 beyond the interim dividend of approximately $153 million already paid in November 2019. For a discussion of the rationale behind the dividend proposal, see“The COVID-19 pandemic and the oil & gas crisis and their impact on Tenaris’s operations and financial condition” included in this dividend payable.note.
Alicia Móndolo Chief Financial Officer Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 EXHIBIT INDEX | * | The Updated and Consolidated Articles of Association is incorporated by reference to Exhibit 1.1 on Form 20-F filed by Tenaris S.A. on April 3, 2019 (File No. 001-31518). |
| ** | The Amended and Restated Deposit Agreement is incorporated by reference to the Registration Statement on Form F-6 filed by Tenaris S.A. on February 25, 2013 (File No. 333-186825). |
SIGNATURES The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. | | | Edgardo CarlosApril 30, 2020 | TENARIS S.A. | | | | | By | /s/ Alicia Móndolo | | | Name: | Alicia Móndolo | | Title: | Chief Financial Officer |
F-57
|