| ( 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 acquisition 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 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. Any non-controlling interest in the acquiree is measured either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. The excess of the aggregate 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 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.
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 with non-controlling interests that do
not
result in a loss of control are accounted as transactions with equity owners of the Company. For purchases from non-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 to non-controlling interests are also recorded in equity.
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 under
Other financial results
.
| | 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 in non-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 in non-consolidated companies includes goodwill identified in acquisition, net of any accumulated impairment loss.
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.
Unrealized results on transactions between Tenaris and its non-consolidated companies are eliminated to the extent of Tenaris’s interest in the non-consolidated companies. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment indicator of the asset transferred. Financial statements of non-consolidated companies have been adjusted where necessary to ensure consistency with IFRS.
The Company’s pro-rata share of earnings in non-consolidated companies is recorded in the Consolidated Income Statement under
Equity in earnings (losses) of non-consolidated companies
. The Company’s pro-rata share of changes in other reserves is recognized in the Consolidated Statement of Changes in Equity under
Other Reserves.
At
December 31, 2017,
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.; |
| § | 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. |
At
December 31, 2017,
Tenaris holds through its Brazilian subsidiary Confab Industrial S.A. (“Confab”),
5.2%
of the shares with voting rights and
3.08%
of Usinas Siderúrgicas de Minas Gerais S.A. (“Usiminas”) total share capital.
The acquisition of Usiminas shares was part of a larger transaction performed
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.
The rights 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
).
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, 2017
Tenaris owns
36.5
million ordinary shares and
1.3
million preferred shares of Usiminas.
Tenaris carries its investment in Ternium and Usiminas under the equity method, with
no
additional goodwill or intangible assets recognized. Tenaris reviews investments in non-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. At
December 31, 2017,
2016
and
2015,
impairment provisions were recorded on Tenaris’s investment in Ternium while in
2015,
an impairment charge was recorded on Tenaris’s investment in Usiminas. See Note
7
and Note
12.
