Consolidated Condensed Interim Financial Statement
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Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
Consolidated Condensed Interim Income Statement
(1) The impairment charges for the nine-month period ended September 30, 2020 correspond to an expense of US$622 million, which affects the book value of the goodwill of the cash-generating units OCTG USA, IPSCO and Coiled Tubing, respectively, of US$225 million , 357 million U.S. dollars and 4 million U.S. dollars, and the book value of fixed assets of CGU Rods USA is 36 million U.S. dollars.
(2) Each ADS is equal to two shares.
Consolidated Condensed Interim Statement of Comprehensive Income
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited consolidated financial statements and notes for the fiscal year ended December 31, 2020.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
Condensed Interim Statement of Comprehensive Financial Status
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited consolidated financial statements and notes for the fiscal year ended December 31, 2020.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
Comprehensive concise provisional statement of stock changes
(All amounts are in thousands of U.S. dollars)
(1) The authorized share capital of the company is 2.5 billion single shares, each with a par value of US$1.00. As of September 30, 2021 and 2020, 1,180,536,830 shares have been issued. All issued shares are fully paid.
(2) Other reserves mainly include the results of transactions with non-controlling interests, but did not result in loss of control, re-measurement of post-employment benefit obligations, cash flow hedging and changes in the value of financial instruments measured at fair value. Calculated by other comprehensive income.
(3) The restrictions on profit distribution and dividend payment under Luxembourg law are disclosed in Note 16.
(4) Mainly related to the construction agreement of Tenaris Baotou Steel Pipe Co., Ltd., see Note 21.
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited consolidated financial statements and notes for the fiscal year ended December 31, 2020.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
Consolidated Condensed Interim Statement of Cash Flow
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited consolidated financial statements and notes for the fiscal year ended December 31, 2020.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
Notes to Consolidated Condensed Interim Financial Statements
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
Notes to Consolidated Condensed Interim Financial Statements
(All amounts in the notes are shown in U.S. dollars, unless otherwise stated)
Tenaris SA ("the company") was established on December 17, 2001 as a public limited liability company (société anonyme) under the laws of the Grand Duchy of Luxembourg. The company directly or indirectly holds the controlling rights of many subsidiaries in the steel pipe manufacturing and distribution business. The references to "Tenaris" in these consolidated condensed interim financial statements refer to Tenaris SA and its consolidated subsidiaries. Note 31 to the Company's audited consolidated financial statements for the year ended December 31, 2020 contains a list of subsidiaries of major companies.
The company’s shares are traded on the Italian Stock Exchange and the Mexican Stock Exchange; and its American Depositary Securities ("ADS") are traded on the New York Stock Exchange.
The consolidated condensed interim financial statement was approved and issued by the company's board of directors on November 3, 2021.
These consolidated condensed interim financial statements are prepared in accordance with IAS 34 "Interim Financial Report" promulgated by the International Accounting Standards Board ("IASB") and adopted by the European Union ("EU"). The accounting policies used to prepare these consolidated condensed interim financial statements are consistent with those used in the audited consolidated financial statements for the year ended December 31, 2020. These consolidated condensed interim financial statements should be read together with the audited consolidated financial statements for the year ended December 31, 2020. They have been prepared in accordance with the International Financial Reporting Standards ("IFRS") issued by the IASB and comply with the IFRS adopted by the European Union .
The preparation of the consolidated condensed interim financial statements requires management to make certain accounting estimates and assumptions that may affect the reported amounts of assets and liabilities on the balance sheet date, the disclosure of contingent assets and liabilities, and the reporting of income and expenses Amount reporting period. Actual results may differ from these estimates. The main areas involved in major estimates or judgments are goodwill and long-term asset impairment; income tax; obsolete inventory; accidental losses; allowance for trade receivables; post-employment benefits; business mergers; real estate, plant and equipment and other long-lived assets Limitations on service life and ownership of property rights. During the reporting period, there were no major changes in major accounting estimates.
Significant intercompany transactions, balances, and unrealized gains (losses) between Tenaris subsidiaries have been eliminated in the merger. However, because the functional currencies of some subsidiaries are their respective home currencies, some financial gains (losses) generated by transactions between companies have been generated. These are included under the other financial results of the consolidated condensed interim income statement.
There were no major changes in valuation techniques during the period. Since the year ended December 31, 2020, there have been no changes in risk management policies.
The management reviewed the impact of the company’s oil and gas crisis and the COVID-19 pandemic and its impact on its business, financial condition and performance, and monitored the recoverability of long-term assets, financial risk management-especially credit and liquidity Risk-and its adequacy of reserves for contingent liabilities.
After December 31, 2020 and as of the date of this consolidated condensed interim financial statement, the applicable accounting announcements did not have a significant impact on the company's financial status or operating results.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
(All amounts are in millions of U.S. dollars)
During the nine-month period ending September 30, 2021 and 2020, the transactions between the segments that were eliminated in the merger were mainly related to the sale of waste, energy, The remaining raw materials are related to 10.7 million U.S. dollars.
The views of IFRS and management do not differ significantly in terms of total revenue and reportable segments.
The difference in operating income between the IFRS view and the management view is mainly related to the cost of goods sold, reflecting the impact of the increase in raw material prices on the replacement cost valuation considered by the management view, while the IFRS cost is calculated based on the historical cost based on the FIFO basis and other timings. difference. The main difference in other net operating income (expenses) for the nine-month period ended September 30, 2020 is attributable to the impairment of goodwill, and management believes that its residual value is different from IFRS. For more information, please refer to Note II.C "Segment Information" of the company's audited consolidated financial statements for the year ended December 31, 2020.
In addition to the above reconciliation, the main difference in net income comes from the impact of functional currencies on financial performance, deferred income tax and the result of investing in non-consolidated companies.
The net sales allocated to geographic information are based on the customer's location. The distribution of depreciation and amortization is based on the geographic location of the related assets.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
The country where the company is registered (Luxembourg) does not have revenue from external customers. The main source countries of the company's revenue are the United States, Argentina, Mexico, Canada, Brazil, Italy and Saudi Arabia.
Revenue is mainly recognized to direct customers when control has been transferred and there are no outstanding performance obligations that may affect the customer's acceptance of the product. During the nine-month period ending September 30, 2021 and 2020, government agency-related revenues accounted for approximately 24% and 23%, respectively.
Revenue of the pipe sector by market:
(*) For the nine-month period ending September 2021 and 2020, labor costs include approximately US$8.6 million and US$60.3 million in severance payments related to adjustments to labor market conditions, respectively.
(*) For the nine-month period ending September 2021 and 2020, labor costs include approximately US$11.7 million and US$45.1 million in severance payments related to labor’s adaptation to market conditions, respectively.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
(*) On May 13, 2021, the Supreme Court of Brazil issued a final judgment confirming that the calculation method for PIS and COFINS (Federal Total Social Income Contribution) tax claims to which taxpayers are entitled should exclude the total output of ICMS from its basis. Calculated by gross. This decision resulted in the Brazilian subsidiary receiving a tax credit of US$50.8 million, of which US$34.1 million was included in other operating income and US$16.7 million was included in financial performance (affecting financial income and financial costs). In addition, the taxes and fees associated with this income are $17.7 million.
The nine-month periods ending September 2021 and 2020 include US$2.2 million and US$5.1 million in interest related to instruments held under FVPL, respectively. The nine-month period ending September 2021 also includes $17.5 million in non-financial interest related to the Brazilian subsidiary’s PIS and COFINS tax recovery. For more information, see note 6.
(**) Net foreign exchange transaction results:
The nine-month period ending September 2021, which mainly included Euro-denominated intercompany liabilities of Euro-denominated subsidiaries, resulted from the depreciation of the euro against the U.S. dollar, which was mainly offset by an increase in the currency translation adjustment reserve of an Italian subsidiary. And the result of the depreciation of the Argentine peso against the U.S. dollar for trade, social and financial payables denominated in the functional currency of the Argentine subsidiary.
The nine-month period ending in September 2020 mainly includes the result of the devaluation of the Brazilian real to the U.S. dollar-denominated subsidiary's intercompany liabilities denominated in the functional currency of the Brazilian real, which is mainly converted by the currency of our Brazilian subsidiary The change in the adjustment reserve and the negative impact of the appreciation of the euro against the US dollar on the euro-denominated intercompany liabilities of the subsidiary with the functional currency of the US dollar were largely offset by the change in the currency translation adjustment reserve of an Italian subsidiary and The depreciation of the Mexican peso against the United States offsets the trade and fiscal receivables of the Mexican subsidiary denominated in pesos, with the functional currency of the U.S. dollar.
(***) Result of foreign exchange derivatives contract:
The nine-month period ending September 2021 mainly includes losses on derivatives covering net liabilities in yen and euros, partially offset by derivative gains on net accounts receivable covering Brazilian reals
The nine-month period ending September 2020 mainly includes derivative gains, covering net accounts receivable in Mexican pesos, Brazilian reals, Colombian pesos and Canadian dollars.
On May 3, 2021, the company’s shareholders approved the distribution of an annual dividend of US$0.21 per share (US$0.42 per ADS), totaling approximately US$248 million. The approved amount includes the interim dividend previously paid on November 25, 2020, in the amount of US$0.07 per share (US$0.14 per ADS). The balance is US$0.14 per share (US$0.28 per ADS), which was paid on May 26, 2021.
In 2019, the company paid approximately US$153 million in dividends, which is equivalent to the interim dividend of US$0.13 per share (US$0.26 per ADS) paid in November 2019. On June 2, 2020, the company's shareholders approved that, as a result of liquidity preservation measures, except for interim dividends, no dividends will be distributed in fiscal year 2019.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
See Note 17 for the description of certain restricted assets held by the company's subsidiary Saudi Steel Pipe Company ("SSPC") in Saudi Arabia with a book value of US$56.2 million, of which Tenaris holds 47.79%.
Right-of-use assets, net of relevant categories
The depreciation of right-of-use assets is mainly included in the pipe segment.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
The remaining repayments due for less than 1 year, 2 to 5 years, and more than 5 years accounted for approximately 17.9%, 40.7% and 41.4% of the total remaining repayments, respectively.
(*) Including 2.5 million USD of non-current derivatives.
(**) Including $300,000 of non-current derivatives.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
The following table illustrates the three levels of financial instruments measured at fair value and financial instruments measured at amortized cost as of September 30, 2021 and December 31, 2020.
(All amounts are in thousands of U.S. dollars)
(All amounts are in thousands of U.S. dollars)
(*) Including balances related to non-current derivative financial instruments and interest of our Venezuelan company, see Note 20
There was no transfer between levels during the period.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
The fair value of financial instruments traded in an active market is based on the quoted market price on the reporting date. If quotations can be obtained from exchanges, dealers, brokers, industry groups, pricing service agencies, or regulatory agencies at any time and regularly, and these prices represent actual and regular market transactions on the basis of fair transactions, the market is considered For an active market. The quoted market price used for the financial assets held by the company is the current buying price. These instruments are included in the first level and mainly include 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 deposit with an original maturity of more than three months, forwards and interest rate derivatives) adopt valuation techniques to determine observable market data, and rely as little as possible The specific estimate of the entity. If all important input values required for the valuation of an instrument are observable, the instrument is included in the second layer. The company uses buying prices, interest rate curves, broker quotes, current exchange rates, forward exchange rates, and implied volatility obtained from market participants as of the valuation date.
The fair value of all outstanding derivatives is determined using specific pricing models, which include input data that are observable in the market or can be derived or confirmed from observable data. The fair value of forward foreign exchange contracts is calculated based on the observable yield curve, converted into U.S. dollars at the spot exchange rate on the valuation date, and calculated on the basis of the net present value of the expected future cash flows of each currency.
If one or more important input data is not based on observable market data, the tool is included in layer 3. The company uses observable market input and management assumptions to value its assets and liabilities. These assumptions reflect the company's best estimate of market conditions. Participants will price assets or liabilities on the measurement date. The main balance contained in this level corresponds to the company’s interest in Venezuelan companies, see Note 20.
Borrowing mainly includes fixed-rate debt and floating-rate debt, of which the short-term part of the interest has been fixed. They are classified as other financial liabilities and measured at their amortized cost. The company estimates that the fair value of its major financial liabilities is approximately 99.9% of the book value including accrued interest as of September 30, 2021, and the fair value as of December 31, 2020 is 100.0%. The fair value uses standard valuation techniques to calculate floating interest rate instruments and comparable market interest rates used for discount flows.
This note is a supplement to note 13 of the company's audited consolidated financial statements for the year ended December 31, 2020, and should be read together with note 13.
Ternium is a steel producer with production facilities in Mexico, Argentina, Brazil, Colombia, the United States and Guatemala, and is one of Tenaris' main suppliers of round and flat steel products for its pipeline business.
As of September 30, 2021, the closing price of Ternium’s ADS on the New York Stock Exchange was US$42.3 per ADS, giving Tenaris’ ownership shares a market value of approximately US$971.7 million. As of that date, according to Ternium's IFRS financial statements, the book value of Tenaris' ownership equity in Ternium was approximately US$1.113 billion. Whenever an event or situation indicates that the carrying amount of an asset may not be recoverable, the company will review its participation in Ternium. As of September 30, 2021, the company believes that the book value does not exceed the recoverable value of the investment.
Usiminas is a Brazilian manufacturer of high-quality flat steel products used in energy, automotive and other industries.
As of September 30, 2021, the closing prices of Usiminas common stock and preferred stock reported on B3-Brasil Bolsa Balcão SA were 15.72 Brazilian Real (2.89 USD) and Brazilian Real 16.12 Brazilian Real ( 2.96 US dollars), so that Tenaris has ownership of the stock market value of approximately 109.3 million US dollars. As of that date, the book value of Tenaris' ownership stake in Usiminas was approximately US$95.8 million.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
Techgen is a Mexican company that operates a natural gas combined cycle power plant in the Pesquería region of Nuevo Leon, Mexico. The company started energy production on December 1, 2016, with a power generation capacity of 900 MW. As of September 30, 2021, Tenaris holds 22% of Techgen’s equity, and its affiliates Ternium and Tecpetrol International SA (a wholly-owned subsidiary of Tenaris and Ternium’s controlling shareholder San Faustin SA) hold 48% and 30% respectively. %. As of September 30, 2021, the book value of Tenaris' ownership stake in Techgen was approximately US$26.8 million.
Techgen has signed certain transportation capacity agreements, as well as agreements to purchase clean energy certificates. As of September 30, 2021, Tenaris' exposures under these agreements were US$46.5 million and US$17.7 million, respectively.
The promoters of Techgen provided certain subprime loans to Techgen. As of September 30, 2021, the total outstanding principal under these subprime loans was US$264.2 million, of which US$58.1 million corresponded to Tenaris’ capital contribution.
On February 13, 2019, Techgen signed a USD 640 million syndicated loan agreement with a number of banks to refinance existing loans, thereby releasing certain corporate guarantees previously issued by Techgen shareholders to secure replacement financing .
The existing syndicated loan agreement is "non-recourse" to the sponsor. Techgen's obligations are guaranteed by the Mexican Security Trust (covering stocks, assets, accounts and contract rights), account pledges, and certain direct agreements (the practice of such transactions). The commercial terms and conditions for the purchase of 22% of the energy generated by Techgen by the management company’s Mexican subsidiary Tamsa remain basically unchanged.
According to the loan agreement, Techgen promised to maintain a debt service reserve account that covers the debt service due for two consecutive quarters; this account is funded by a standby letter of credit issued for the accounts of Techgen promoters, according to their respective participation in Techgen Proportion. Therefore, the company applied for a standby letter of credit covering a debt service coverage ratio of 22%. As of September 30, 2021, the ratio was USD 10.3 million.
Global Pipe Company ("GPC") is a Saudi-German joint venture established in 2010, located in Jubail, Saudi Arabia, to produce LSAW pipes. Tenaris currently owns 35% of GPC's share capital through its subsidiary SSPC. As of September 30, 2021, the book value of Tenaris' ownership stake in GPC was approximately US$21.8 million.
The other three owners of SSPC and GPC have provided company guarantees to ensure the repayment of the loan agreements signed by GPC with the Saudi Investment and Development Fund, the Saudi British Bank, the National Commercial Bank and the Saudi Bank of France to finance GPC's capital expenditures and work capital. As of September 30, 2021, the total risk assumed by SSPC under the guarantee was US$115.1 million.
Tenaris is subject to various claims, litigation and other legal procedures from time to time, including customer, employee, tax and environmental related claims, in which third parties are seeking payment, loss compensation or compensation for the alleged damages. With the assistance of legal counsel, the management regularly reviews the status of each major event and assesses potential financial risks.
Some of these claims, litigation and other legal procedures involve highly complex issues, and these issues often have great uncertainty. Therefore, the possibility of loss and the estimation of loss are difficult to determine. Therefore, for most of these claims, litigation and other legal procedures, the company cannot reliably estimate the expected financial impact of the final settlement of the procedure. Under these circumstances, the company did not make provisions for the potential results of these circumstances.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
If the potential loss of a claim, litigation, or other procedure is deemed likely to occur and the amount can be reasonably estimated, record the reserve. The accrued expenses of loss contingencies reflect a reasonable estimate of the losses that will occur based on the information available to the management as of the date of preparation of the financial statements and considering litigation and settlement strategies. In a small number of ongoing cases, the company is able to make a reliable estimate of the expected loss or the scope of the possible loss, and has made provisions for such loss, but believes that publishing this information on a case-by-case basis will seriously harm Tenaris Position in ongoing legal proceedings or any related settlement discussions. Therefore, under these circumstances, the company has disclosed information about the nature of the contingencies, but has not disclosed its estimate of the scope of potential losses.
The company believes that, based on currently available information, the total reserves recorded for potential losses in these consolidated condensed interim financial statements are sufficient. However, if the management’s estimate proves to be incorrect, the current reserves may be insufficient, and the company may deduct it from the income, which may have a material adverse effect on its operating performance, financial condition, net worth and cash flow.
The following is a summary description of Tenaris's major legal proceedings that have not been completed as of the date of this consolidated condensed interim financial statement. In addition, the company is also facing other legal proceedings, none of which is believed to be important.
§CSN's claim related to the acquisition of Usinas Siderúrgicas de Minas Gerais SA ("Usiminas") shares in January 2012
The company’s Brazilian subsidiary, Confab, is one of the defendants of Companhia Siderúrgica Nacional ("CSN") and multiple entities associated with CSN in Brazil against Confab and several Ternium subsidiaries that acquired Usiminas’ Control Group’s right to participate in January 2012.
The CSN lawsuit alleges that, in accordance with applicable Brazilian laws and rules, the purchaser is required to initiate an additional tender offer to all non-controlling shareholders of Usiminas' common stock at a price per share equivalent to 80% of the price per share. Pay in such an acquisition, or BRL28.8, and seek an order to force the acquirer to make an offer at that price plus interest. If such an order is made, an offer must be made for 182,609,851 Usiminas common stocks that are not part of Usiminas' control group, and Confab will own 17.9% of the shares in the offer.
On September 23, 2013, the court of first instance dismissed China Southern Airlines’ claim. On February 8, 2017, the court of appeal upheld the understanding of the court of first instance. On March 6, 2017, China Southern Airlines filed a clarification motion on the ruling of the Sao Paulo Court of Appeal, which was rejected on July 19, 2017. On August 18, 2017, China Southern Airlines filed an appeal with the High Court, seeking review and revoking the decision made by the Court of Appeal. On March 5, 2018, the Court of Appeal ruled that China Southern Airlines’ appeal did not meet the requirements for submission to the High Court and rejected the appeal. On May 8, 2018, China Southern Airlines appealed against the ruling. On January 22, 2019, the Court of Appeal rejected the appeal and ordered the case to be submitted to the High Court. On September 10, 2019, the High Court announced that it could accept CSN's appeal. The High Court will review the case and then make a ruling on the merits. The High Court is limited to analyzing suspected violations of federal laws and cannot assess factual issues.
Several opinions of Brazilian legal counsel, two decisions issued by the Brazilian Securities Regulatory Agency ("CVM") in February 2012 and December 2016, and the aforementioned first and second instance court judgments.
§Veracel Cellulose Incident Litigation
On September 21, 2007, an accident occurred at the premises of Veracel Celulose SA ("Veracel"), which was related to the rupture of a storage tank used in the evaporation system manufactured by Confab. It is said that the Veracel accident caused material damage to Veracel. Itaú Seguros SA ("Itaú") was Veracel's insurance company at the time of the Veracel accident, and was subsequently replaced by Chubb Seguros Brasil S/A ("Chubb"). It filed a lawsuit against Confab for compensation for the accident-related losses paid to Veracel Villassel accident. Veracel filed a second lawsuit against Confab, demanding compensation as the insurance deductible for the Veracel accident and other amounts not covered by the insurance. Itaú and Veracel claimed that the Veracel accident was caused by malfunctions and defects caused by the evaporation system manufactured by Confab. Confab believes that the Veracel accident was caused by Veracel personnel who violated Confab's instructions and improperly handled the equipment provided by Confab. The two lawsuits were combined and heard by the Sixth Civil Court of San Caetano Sul. However, each lawsuit will be decided separately.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
§Veracel Cellulose Incident Litigation (continued)
On September 28, 2018, Confab and Chubb reached a settlement agreement. According to this, Confab paid Chubb approximately US$3.5 million on October 9, 2018, but did not assume any responsibility for the accident or claim.
On October 10, 2018, Confab learned that the court had ruled on two lawsuits. Both of these decisions are bad for Confab:
The company has been informed that the Brazilian, Italian and Swiss authorities have been investigating whether, prior to 2014, the account of an entity that may be associated with the company’s affiliated company has allegedly made payments to Petrobras SA ("Petrobras") and whether any such payments are intended to make The company's Brazilian subsidiary Confab benefited. Any such payment may violate certain applicable laws, including the US Foreign Corrupt Practices Act.
The company had previously reviewed some of these matters in connection with the investigation of the "Lava Jato operation" by the Brazilian authorities, but did not find any information that confirmed the allegations that the company or its subsidiaries were involved in these alleged payments. In addition, the company learned that Petrobras' internal investigation committee reviewed certain contracts with Confab and concluded that they did not find evidence that Petrobras benefited Confab or abused applicable local content rules.
The audit committee of the company's board of directors has hired an external legal adviser for the company's review of these matters. In addition, the company voluntarily notified the U.S. Securities and Exchange Commission ("SEC") and the U.S. Department of Justice ("DOJ") in October 2016.
In July 2019, the company was informed that the Procuratorate of Milan, Italy has completed a preliminary investigation into the suspected payment, and has included the company’s chairman and chief executive officer, two other board members, Gianfelice Rocca and Roberto Bonatti, And the company’s controlling shareholder San Faustin. The company is not a party to the lawsuit. In February 2020, the company learned that the local judge supervising the investigation decided to transfer the case to trial. The company’s external legal counsel had previously reviewed the investigation file of the Italian prosecutor and notified the board of directors that neither the file nor the decision of the magistrate provided evidence of any suspected misconduct among the three directors. Therefore, the board of directors concluded that, apart from inviting the recommended board members to continue to perform their duties with the full support of the board of directors, no special action was required at that time. The trial will begin in April 2021.
In June 2020, the company was informed that the Brazilian Public Prosecutor's Office requested prosecutions against several people including three executives or former executives of Confab and a former agent of Confab, accusing them of corruption related to the contract signed between the two parties. . Payment-related money laundering in 2007 and 2010, as well as in 2009 and 2013. The lawsuit is ongoing. Neither the company nor Confab is a party to the lawsuit.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
The company will continue to respond to the requirements of the relevant authorities and cooperate with them in other ways. The company has discussed with the SEC and DOJ to find possible investigation solutions. There is no guarantee that discussions with the SEC or DOJ will lead to the final resolution of the investigation, or if a resolution is reached, the time, scope and terms of any such resolution. At present, the company cannot predict the outcome of these matters or estimate the scope of potential losses or the degree of risk (if any) that the solution of these matters may cause to the company's business.
Following the company’s announcement on November 27, 2018 that its chairman and CEO Paolo Rocca had been included in the Argentine court investigation called the Notebooks case (the decision was subsequently overturned by a higher court), the United States filed two presumptive collectives The lawsuit was filed in the Eastern District Court of New York. On April 29, 2019, the court consolidated the complaint into a single case, titled "In re Tenaris SA Securities Litigation", and appointed the chief plaintiff and chief counsel. On July 19, 2019, the main plaintiff allegedly filed an amended complaint on behalf of purchasers of Tenaris securities during the hypothetical class period from May 1, 2014 to December 5, 2018. The individual defendants mentioned in the complaint are Tenaris' chairman and chief executive officer and Tenaris' former chief financial officer. The complaint alleges that during the class action, the company and individual defendants failed to disclose the nationalization proceeds received by Ternium (the company holds 11.46% equity) when Sidor was expropriated by Venezuela, thereby exaggerating Tenaris' share price. Or speed up due to suspected improper payments to Argentine officials. The complaint did not specify the damages sought by the plaintiff. On October 9, 2020, the court partially approved and partially rejected the defendant's motion to dismiss. The court partially approved and partially rejected the motion to dismiss the claims against the company and its chairman and chief executive officer. In addition, the court approved a motion to dismiss all claims against the former chief financial officers of San Faustin, Techint and Tenaris. The case is now being heard based on the claims that survived the motion to dismiss. The management believes that the company has adequate defenses for these claims; however, at this stage, Tenaris cannot predict the outcome of the claims or the amount or scope of losses in the event of unfavorable results.
§Administrative procedures related to Brazilian tax credits
Confab is a party involved in the administrative procedures for the recognition and transfer of tax credits, the amount of which allegedly exceeds the amount Confab is entitled to recognize and/or transfer. The lawsuit resulted in Confab being fined approximately 75% of the alleged improper credit, which Confab appealed. On January 21, 2019, Confab was informed that the administrative decision rejected Confab's appeal, thereby maintaining the tax decision and fines imposed on Confab. On January 28, 2019, Confab challenged the administrative decision and is currently awaiting a solution. If the decision is unfavorable, Confab can still appeal to the court. The estimated amount of the claim is BRL 57.4 million (approximately US$10.6 million). At this stage, the company cannot predict the outcome of this claim.
§U.S. patent infringement litigation
The company's US subsidiary Tenaris Coiled Tubes, LLC ("TCT") was sued by its competitor Global Tubing in 2017, accusing TCT of defamation and seeking to declare that certain Global Tubing products do not infringe patents held by TCT. TCT subsequently counterclaimed that certain products of Global Tubing infringed the patents held by TCT, and Global Tubing sought to invalidate these patents. On December 13, 2019, Global Tubing filed an amended complaint (with the company as the defendant), accusing TCT and the company of misleading the Patent Office and monopolizing the coiled tubing market for quenched and tempered products. On March 26, 2021, a local judge of the presiding judge of the case discovered that Global Tubing had established a case with conclusive evidence, that is, TCT failed to disclose previous attempts to quench and temper coiled tubing, thereby misleading Patent Office. On April 9, 2021, TCT filed a ruling against the magistrate to the trial judge of this case. On August 25, 2021, the chief judge of the case confirmed the magistrate’s order and found evidence of possible intent to commit fraud against the Patent Office. Such a decision is not final. TCT is considering multiple ways to challenge this decision. TCT believes that it fully defends this claim. The trial is expected in May 2022. At present, it is impossible to predict the outcome of this matter or estimate the scope of potential losses that may result from the settlement of this claim.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
§Tax assessment by Italian tax authorities
The company's Italian subsidiary Dalmine received the Italian tax authority's tax assessment for the 2014 fiscal year on December 27, 2019. As of September 30, 2021, the claim amount was approximately 26.3 million euros (approximately 30.5 million U.S. dollars), including 20.7 million euros (approximately 24 million U.S. dollars) in principal and 5.6 million euros (approximately 6.5 million U.S. dollars) in interest and fines . On June 14, 2021, Dalmine received a tax assessment related to the 2015 fiscal year on the same matter. The tax assessment confirmed the preliminary determination contained in the tax report issued by the tax authority in 2019. As of September 30, 2021, these additional claims amounted to approximately 10.3 million euros (approximately US$11.9 million), including 8 million euros (approximately US$9.2 million) in principal and 2.3 million euros (approximately US$2.7 million). Interest and fines. Therefore, the total amount of claims in the 2014 and 2015 fiscal years is approximately 36.6 million euros (approximately US$42.4 million), including 28.7 million euros (approximately US$33.2 million) in principal and 7.9 million euros (approximately US$9.2 million) in interest and fines . The claim mainly refers to compensation for certain inter-company transactions related to product sales and research and development activities involving Dalmine. On July 27, 2020, Dalmine filed a first-instance appeal with the Milan Tax Court regarding the 2014 tax assessment. The appeal hearing, originally scheduled to be held on June 21, 2021, has been postponed to November 22, 2021. According to the lawyer’s opinion, the company believes that the final settlement of these matters is unlikely to result in major obligations.
The company’s US subsidiary IPSCO or its subsidiaries are the parties to product liability claims, which may result in damages totalling approximately US$15.6 million, mainly related to litigation alleging product liability and negligent misrepresentation. The plaintiff claimed that certain IPSCO provided Defects in these casings caused three wells to fail, causing losses of approximately US$15 million. Although the company cannot predict the outcome of any of these matters at this time, the company believes that the amount of reserves recorded is sufficient to cover the potential risks under these claims.
Listed descriptions of Tenaris’ main outstanding commitments:
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
In addition, Tenaris (i) applied for standby letters of credit and corporate guarantees covering certain obligations of Techgen, as described in Note 15 (c), and (ii) issued corporate guarantees to ensure certain obligations of GPC, as described in Note 15 ( d); (iii) As of September 30, 2021, performance guarantees mainly related to long-term commercial contracts with multiple customers and parent companies amounted to approximately US$3 billion.
According to Luxembourg law, the company must convert at least 5% of its net profit in each fiscal year into a statutory reserve until the reserve equals 10% of the issued share capital.
As of September 30, 2021, this reserve has been fully allocated, and Luxembourg law does not require additional allocation of this reserve. Dividends cannot be paid from the statutory reserve.
The company can pay dividends on the condition that it has distributable retained earnings calculated in accordance with Luxembourg laws and regulations.
The company learned through the online portal of the Ministry of Justice of Saudi Arabia that the electronic title deeds of certain land parcels of its Saudi subsidiary SSPC have become invalid due to the cancellation of a court order.
The affected land plot has a total area of 811,284 square meters and is located in Dammam, Saudi Arabia. It was purchased from a private entity in February 2010 in accordance with a written purchase agreement formally signed by SSPC, in full compliance with the laws of the Kingdom of Saudi Arabia. The purchase of the land occurred before Tenaris acquired a 47.79% interest in SSPC in 2019. The affected land parcel is not part of the SSPC production facility, has been partially used as a warehouse, and has a book value of US$56.2 million in Tenaris’ financial statements.
As of the date of this announcement, neither the cancellation nor the court order has been notified to the SSPC or otherwise disclosed by the authorities, and the legal basis for the court order is unclear. On May 4, 2021, the SSPC submitted a petition to the newly established special committee of the Saudi Ministry of Justice, seeking to restore its ownership deed. At present, it is impossible to predict the outcome of this matter.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
Starting in September 2019, the Argentine government has and will continue to impose significant restrictions on foreign exchange transactions. Over time, the restrictions have tightened. The main applicable measures are described as follows:
When necessary, the Argentine Central Bank rarely obtains approval, if any.
Tenaris' Argentine subsidiary continues to enter the official foreign exchange market for all imported goods and services from unrelated parties. Therefore, as of September 30, 2021, assets and liabilities denominated in foreign currencies have been valued at the current official exchange rate.
As of September 30, 2021, Tenaris’s net short position in the Argentine peso financial situation was approximately US$96.9 million. As of September 30, 2021, the total net equity of the Argentine subsidiary accounted for approximately 8.7% of Tenaris’ total equity. For the nine months ended September 30, 2021, the Argentine subsidiary’s sales accounted for approximately 19% of Ruisi's total sales.
The management continues to closely monitor the evolution of the main variables affecting its business, determine its potential impact on its financial and economic conditions, and determine the appropriate course of action in each case. These circumstances should be taken into consideration when reading the consolidated condensed interim financial statements of the company.
As the volatility and uncertainty still exist as of the date of the issuance of this consolidated condensed interim financial statement, other Argentine central bank regulations that may be implemented in the future may further restrict our Argentine subsidiary’s ability to enter the official foreign exchange market.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
According to information recently obtained by the company, the directors and senior management of Tenaris as a group own 0.08% of the company's issued shares.
The transactions and balances disclosed with the "non-merging parties" are those with Tenaris in accordance with International Financial Reporting Standards that have significant influence or joint control over it, but do not have the right to control the transactions and balances. All other transactions and balances with non-consolidating parties and unconsolidated related parties are disclosed as "other".
The transactions with related parties are as follows:
In addition to the above table, the company also provides a number of guarantees for Techgen and GPC; please refer to Note 15(c and d) and Note 16(ii) for details. No other major guarantees were provided for other related parties.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
The Venezuelan government has placed the company in its majority-owned subsidiaries TAVSA-Tubos de Acero de Argentina SA ("Tavsa") and Matsi Materiales Siderúrgicos SA ("Matesi") and Complejo Siderúrgico de Guayana, CA ("Comsigua"), the company and its The wholly-owned subsidiary Talta-Trading e Marketing Sociedad Unipessoal Lda ("Talta") filed an arbitration procedure against Venezuela against ICSID in Washington, D.C. regarding these nationalizations, and obtained favorable rulings, which are final and cannot be further appealed. .
On June 8, 2018, Tenaris and Talta filed two lawsuits in the Federal Court of the District of Columbia to recognize and enforce their rulings. On July 17, 2020, the court issued a verdict acknowledging the Mattsey ruling. The judgment ordered Venezuela to pay Tenaris and Talta US$256.4 million, including the principal and post-judgment interest, and stipulated that the post-judgment interest of this sum should be calculated in accordance with the federal legal interest rate of the United States.
On March 29, 2021, the court approved Tenaris and Talta’s request for recognition of Tavsa’s ruling, and on August 24, 2021, the court issued a judgment in favor of Tenaris and Talta and against Venezuela in the amount of US$276.9 million. The post-judgment interest rate will be calculated at the federal statutory post-judgment interest rate from the date of judgment. On September 20, 2021, Tenaris and Talta filed a motion to amend the judgment, which will include the pre-judgment interest of US$3.7 million incurred between April 30, 2021 and August 24, 2021 in accordance with the terms of the Tavsa ruling Included, but not included in the court’s decision. Venezuela did not respond to the motion, and the parties are awaiting the court's ruling on the Tenaris and Talta motions.
However, within the scope of Venezuelan sanctions promulgated by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the judgments of Matsi and Tavsa may not be enforced in the United States.
For more information on these cases, please refer to note 38 of the company's audited consolidated financial statements for the year ended December 31, 2020.
Agreed to build a welded pipe factory in Western Siberia
In 2019, Tenaris and PAO Severstal reached an agreement to build and operate a welded pipe factory in Surgut, Western Siberia, Russian Federation to produce OCTG products. Tenaris holds 49% of the company, and PAO Severstal owns the remaining 51%. The plant is expected to have a total investment of 280 million U.S. dollars and a planned annual production capacity of 300,000 tons.
In 2019, Tenaris contributed US$19.6 million to the project. No additional contributions were subsequently made. Due to market conditions and the pandemic, construction activities have been suspended in 2020.
After analyzing the current situation of the world market and the pace of economic recovery, the joint venture partners decided to revise and update the project milestones and necessary resources to resume all activities related to the construction of the above-mentioned welded pipe factory.
Agreed to build a steel pipe special-grade joint thread factory in Baotou
In 2020, Tenaris and Inner Mongolia Baotou Steel United Co., Ltd. ("Baogang") established a joint venture to build a high-quality threaded connection device to complete the steel pipe produced by our joint venture partner in Baotou, China, for sale to the country market. According to the agreement, Tenaris holds 60% of the new joint venture, while Baotou Steel holds the remaining 40%.
The plant is expected to have a total investment of 32.6 million U.S. dollars and a planned total annual production capacity of 70,000 tons. The initial investment of US$29.8 million will enable the facility to produce 45,000 tons per year. It is expected to be completed in 2021 and start operations in early 2022. During 2020 and 2021, Tenaris contributed US$2.3 million and US$12.9 million to the project, respectively.
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
U.S. anti-dumping and countervailing duty investigations
On October 27, 2021, the U.S. Department of Commerce ("DOC") announced the launch of anti-dumping duties investigations against oil well pipes ("OCTG") from Argentina, Mexico, and Russia, as well as anti-subsidy investigations against OCTG from Russia and the South. North Korea. These investigations were initiated by the American Steel Pipe Products Company, a handful of other domestic welded oil well pipe manufacturers, and a steelworkers union.
The International Trade Commission ("ITC") needs to make a preliminary decision on damage. If the ITC's decision is negative, the investigation will be terminated. Otherwise, the investigation will continue until the DOC and ITC make a final decision.
Tenaris imports OCTG from Argentina and Mexico to supplement its large and continuously increasing production in the United States. It believes that the petition is unreasonable and intends to vigorously challenge any claim that its imports are causing or threatening damage to the domestic OCTG industry in the United States.
At present, the company cannot predict the outcome of the matter or estimate the potential impact (if any) that the resolution of the matter may have on the company's business.
The rapid spread of the COVID-19 pandemic worldwide and the containment measures taken by government authorities have triggered a severe decline in global economic activity and triggered a serious crisis in the energy sector. In the first half of 2020, global oil and gas demand dropped significantly, leading to a sharp drop in prices, severe oversupply, rapid increase in excess inventory, and a decline in investment by Tenaris oil and gas customers in drilling activities. The company acted quickly to mitigate the impact of the crisis and adjusted Tenaris' operations on a country-by-country basis to comply with applicable rules and requirements and control the impact of the global crisis. In response to the COVID-19 epidemic, many countries including the countries where Tenaris does business (such as Argentina, China, Colombia, Italy, Mexico, Saudi Arabia, and the United States) have taken mitigation and containment measures, including banning commercial activities and shutting down industries facility. The company has implemented a global restructuring plan and cost control plan, aimed at maintaining financial resources and overall liquidity, and maintaining the continuity of its operations; adjusting the production level of its facilities, including temporarily closing certain facilities or production lines and operating in multiple jurisdictions Jurisdictions lay off staff and reduce capital expenditures and working capital expenditures. In addition, the company introduced remote work and other work arrangements, and implemented special operating procedures to protect the health, safety and well-being of Tenaris employees, customers and suppliers. Although these measures have been proven to successfully mitigate the impact of the crisis on Tenaris so far, if new variants of the virus are proven resistant to existing vaccines, and new preventive measures are taken in the future, Tenaris operations may be further affected. Influence, adversely affect its results. In addition, with the emergence of new and more contagious virus variants, and the vaccination plans of many countries are still far from complete, there are still uncertainties about the future duration and extent of the pandemic.
As of the date of this consolidated condensed interim financial statement, Tenaris' capital and financial resources and overall liquidity status have not been significantly affected by this situation. Tenaris has a non-committed credit line, and management believes that it has sufficient opportunities to enter the credit market. In addition, as of September 2021, Tenaris’ net cash position is approximately 8.30 [1] million U.S. dollars, the debt amortization schedule is manageable, and existing contractual obligations have been renegotiated with counterparties in order to adjust commitments Adapt to the previous year. Taking into account Tenaris' financial situation and the funds provided by operating activities, the management believes that the company has sufficient resources to meet its current working capital needs, repay debts and respond to short-term changes in business conditions.
The management does not expect to disclose or occur any major contingencies related to COVID-19, and believes that its provision for doubtful debts is sufficient to cover the possible risks of customer credit under IFRS 9.
For more information about the impact of the COVID-19 pandemic and the measures taken in connection with it, please refer to Note 39 to the company's audited consolidated financial statements for the year ended December 31, 2020.
[1] Net cash/debt is calculated as follows:
Net cash = cash and cash equivalents + other investments (current and non-current) + /-derivatives to hedge borrowings and investments-borrowings (current and non-current).
Tenaris SA's consolidated condensed interim financial statements for the nine-month period ended September 30, 2021
Reached an agreement with MKK USA Inc. on the sale of Geneva Structural Tubes LLC
On October 13, 2021, the company and MKK USA Inc., a subsidiary of Maruichi Steel Pipe Co., Ltd., reached a final agreement on the sale of the company’s 100% ownership interest in Geneva Structural Pipe Co., Ltd. ("Geneva Co., Ltd.") The transaction was completed on November 1, 2021, with a total price of US$24.1 million, subject to post-transaction adjustments based on the deadline accounts of the Geneva LLC. Geneva LLC manufactures and sells square and rectangular welded steel pipes for structural applications from its plant in Geneva, Nebraska, and its business is disclosed in the "Other" business unit. As of September 30, 2021, Geneva LLC’s assets and liabilities are classified as held for sale in the consolidated condensed interim financial statement, and its main balance includes $11.9 million in inventory; real estate, plant and equipment, valued at 4 million U.S. dollars; $3.9 million in trade receivables; and $4.7 million in trade payables. The net assets as of the deadline were $17.8 million.
Preliminary agreement to terminate NKKTubes joint venture
On November 2, 2021, Tenaris and JFE Holdings Inc. ("JFE") reached a preliminary agreement to terminate the joint venture's operation of seamless pipe manufacturing facilities in Kawasaki, Japan. The facility is located at the Keihin Steel Plant under JFE and is operated by NKKTubes, which is owned 51% by Tenaris and 49% by JFE.
On March 27, 2020, JFE has notified Tenaris of its decision to permanently suspend operations of its steel manufacturing facility at the Keihin Complex starting from the fiscal year that JFE ends in March 2024. In view of this development, Tenaris and JFE discussed and finally determined that the project was no longer economically sustainable, so they agreed to amicably terminate their joint venture and liquidate NKKTubes. The preliminary agreement provides for the closure of NKKTubes' manufacturing business by the end of June 2022, termination of all agreements that allow the joint venture to operate, and the distribution of related dissolution and liquidation costs between the parties. Tenaris and JFE intend to continue discussing other aspects of the dissolution of the joint venture, with a view to reaching a final agreement by June 2022. Tenaris and JFE are also committed to ensuring the supply of pipes, including international customers after the closure of 13 chromium alloy products NKKTubes.
As of September 30, 2021, NKKTubes’ net asset value is US$126.8 million, including US$40.3 million in real estate, plant and equipment, US$62.9 million in net working capital and US$23.6 million in cash positions. In addition, the company also holds USD 138.7 million in currency translation adjustment reserves. At this time, based on the above facts, circumstances and assumptions, it is expected that the final economic and financial impact of the entire dissolution and liquidation transaction will not be significant, although the related accounting impact-potential impairment of fixed assets, severance and other suspensions are adjusted by currency translation. Reversal of offset expenses-will affect different reporting periods.
On November 3, 2021, the company’s board of directors approved the payment of an interim dividend of US$0.13 per share (US$0.26 per ADS), or approximately US$153 million, to be paid on November 24, 2021, and the ex-dividend date is November 22, 2021.
Tenaris SA published this content on November 5, 2021 and is solely responsible for the information contained in it. Distributed by the public at 19:28:03, November 5, 2021, UTC time, unedited and unaltered.