FORM 6 - K

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Report of Foreign Private Issuer

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

the Securities Exchange Act of 1934

 

 

As of November 1, 2017

 

TENARIS, S.A.

(Translation of Registrant's name into English)

 

TENARIS, S.A.

29, Avenue de la Porte-Neuve 3rd floor

L-2227 Luxembourg

(Address of principal executive offices)

 

 

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

 

Form 20-F Ö Form 40-F ___

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12G3-2(b) under the Securities Exchange Act of 1934.

 

Yes ___ No Ö

 

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-_____.

 

The attached material is being furnished to the Securities and Exchange Commission pursuant to Rule 13a-16 and Form 6-K under the Securities Exchange Act of 1934, as amended. This report contains Tenaris S.A. Consolidated Condensed Interim Financial Statements for the nine-month period ended September 30, 2017.

 

 

 

SIGNATURE

 

 

 

 

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

 

 

 

Date: November 1, 2017.

 

 

 

Tenaris, S.A.

 

 

 

 

By: /s/ Cecilia Bilesio

Cecilia Bilesio

Corporate Secretary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TENARIS S.A.

 

 

 

 

 

 

CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

 

 

September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

L - 2227 Luxembourg

R.C.S. Luxembourg: B 85 203

 

CONSOLIDATED CONDENSED INTERIM INCOME STATEMENT

 

(all amounts in thousands of U.S. dollars, unless otherwise stated)						Three-month period ended September 30,								Nine-month period ended September 30,
		Notes				2017				2016				2017				2016
Continuing operations						(Unaudited)								(Unaudited)
Net sales			3				1,302,924				986,525				3,699,588				3,247,792
Cost of sales			4				(918,338	)			(731,450	)			(2,607,923	)			(2,408,135	)
Gross profit							384,586				255,075				1,091,665				839,657
Selling, general and administrative expenses			5				(304,723	)			(304,469	)			(926,286	)			(916,477	)
Other operating income (expense), net							(808	)			16,717				1,180				11,943
Operating income (loss)							79,055				(32,677	)			166,559				(64,877	)
Finance Income			6				11,776				14,226				35,762				58,333
Finance Cost			6				(6,501	)			(6,913	)			(18,459	)			(16,031	)
Other financial results			6				(12,549	)			(3,427	)			(44,631	)			(43,355	)
Income (loss) before equity in earnings of non-consolidated companies and income tax							71,781				(28,791	)			139,231				(65,930	)
Equity in earnings of non-consolidated companies							24,752				26,586				90,153				56,925
Income (loss) before income tax							96,533				(2,205	)			229,384				(9,005	)
Income tax							(1,307	)			5,732				53,295				9,707
Income for continuing operations							95,226				3,527				282,679				702
Discontinued operations
Result for discontinued operations			13				-				11,961				91,542				33,559
Income for the period							95,226				15,488				374,221				34,261
Attributable to:
Owners of the parent							104,854				16,603				384,505				21,498
Non-controlling interests							(9,628	)			(1,115	)			(10,284	)			12,763
							95,226				15,488				374,221				34,261
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				1,180,537
Continuing operations
Basic and diluted earnings (loss) per share (U.S. dollars per share)							0.09				0.00				0.25				(0.01	)
Basic and diluted earnings (loss) per ADS (U.S. dollars per ADS) (1)							0.18				0.01				0.50				(0.02	)
Continuing and discontinued operations
Basic and diluted earnings per share (U.S. dollars per share)							0.09				0.01				0.33				0.02
Basic and diluted earnings per ADS (U.S. dollars per ADS) (1)							0.18				0.03				0.65				0.04

 

(1) Each ADS equals two shares.

 

CONSOLIDATED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME

 

(all amounts in thousands of U.S. dollars)		Three-month period ended September 30,								Nine-month period ended September 30,
		2017				2016				2017				2016
		(Unaudited)								(Unaudited)
Income for the period			95,226				15,488				374,221				34,261
Items that may be subsequently reclassified to profit or loss:
Currency translation adjustment			55,681				1,704				145,978				104,167
Change in value of cash flow hedges			(4,418	)			(167	)			7,648				(5,901	)
Income tax relating to components of other comprehensive income			-				-				23				-
Share of other comprehensive income of non-consolidated companies:
- Currency translation adjustment			3,273				(2,177	)			(589	)			5,828
- Changes in the fair value of derivatives held as cash flow hedges and others			(4,590	)			75				62				155
			49,946				(565	)			153,122				104,249
Items that will not be reclassified to profit or loss:
Remeasurements of post employment benefit obligations			-				-				605				1,433
Income tax on items that will not be reclassified			-				-				(219	)			(763	)
Remeasurements of post employment benefit obligations of non-consolidated companies			(35	)			(222	)			1,426				(1,098	)
			(35	)			(222	)			1,812				(428	)
Other comprehensive Income (loss) for the period, net of tax			49,911				(787	)			154,934				103,821
Total comprehensive income for the period			145,137				14,701				529,155				138,082
Attributable to:
Owners of the parent			154,579				15,790				538,866				125,178
Non-controlling interests			(9,442	)			(1,089	)			(9,711	)			12,904
			145,137				14,701				529,155				138,082
Total comprehensive income for the period
attributable to Owners of the parent arises from
Continuing operations			154,579				3,829				447,324				91,619
Discontinued operations			-				11,961				91,542				33,559
			154,579				15,790				538,866				125,178

 

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, 2016.

 

CONSOLIDATED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION

 

(all amounts in thousands of U.S. dollars)						At September 30, 2017								At December 31, 2016
		Notes				(Unaudited)
ASSETS
Non-current assets
Property, plant and equipment, net			8				6,192,271								6,001,939
Intangible assets, net			9				1,729,391								1,862,827
Investments in non-consolidated companies			12				625,105								557,031
Available for sale assets							21,572								21,572
Other investments			10				227,927								249,719
Deferred tax assets							152,059								144,613
Receivables, net							187,571				9,135,896				197,003				9,034,704
Current assets
Inventories, net							2,204,815								1,563,889
Receivables and prepayments, net							182,292								124,715
Current tax assets							188,287								140,986
Trade receivables, net							1,066,522								954,685
Other investments			10				1,146,153								1,633,142
Cash and cash equivalents			10				436,359				5,224,428				399,737				4,817,154
Assets of disposal group classified as held for sale			13								-								151,417
Total assets											14,360,324								14,003,275
EQUITY
Capital and reserves attributable to owners of the parent											11,495,733								11,287,417
Non-controlling interests											96,710								125,655
Total equity											11,592,443								11,413,072
LIABILITIES
Non-current liabilities
Borrowings							34,977								31,542
Deferred tax liabilities							507,612								550,657
Other liabilities							222,315								213,617
Provisions							38,072				802,976				63,257				859,073
Current liabilities
Borrowings							796,556								808,694
Current tax liabilities							106,529								101,197
Other liabilities							228,221								183,887
Provisions							25,973								22,756
Customer advances							85,818								39,668
Trade payables							721,808				1,964,905				556,834				1,713,036
Liabilities of disposal group classified as held for sale			13								-								18,094
Total liabilities											2,767,881								2,590,203
Total equity and liabilities											14,360,324								14,003,275

 

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, 2016.

 

CONSOLIDATED CONDENSED INTERIM 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
																																		(Unaudited)
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 period			-				-				-				-				-				384,505				384,505				(10,284	)			374,221
Currency translation adjustment			-				-				-				145,381				-				-				145,381				597				145,978
Remeasurements of post employment benefit obligations, net of taxes			-				-				-				-				386				-				386				-				386
Change in value of available for sale financial instruments and cash flow hedges, net of taxes			-				-				-				-				7,695				-				7,695				(24	)			7,671
Share of other comprehensive income of non-consolidated companies			-				-				-				(589	)			1,488				-				899				-				899
Other comprehensive income for the period			-				-				-				144,792				9,569				-				154,361				573				154,934
Total comprehensive income (loss) for the period			-				-				-				144,792				9,569				384,505				538,866				(9,711	)			529,155
Acquisition of non-controlling interests			-				-				-				-				-				-				-				(34	)			(34	)
Dividends paid in cash			-				-				-				-				-				(330,550	)			(330,550	)			(19,200	)			(349,750	)
Balance at September 30, 2017			1,180,537				118,054				609,733				(821,163	)			(303,519	)			10,712,091				11,495,733				96,710				11,592,443

 

 

		Attributable to owners of the parent
		Share Capital (1)				Legal Reserves				Share Premium				Currency Translation Adjustment				Other Reserves (2)				Retained Earnings (3)				Total				Non-controlling interests				Total
																																		(Unaudited)
Balance at December 31, 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 period			-				-				-				-				-				21,498				21,498				12,763				34,261
Currency translation adjustment			-				-				-				104,026				-				-				104,026				141				104,167
Remeasurements of post employment benefit obligations, net of taxes			-				-				-				-				670				-				670				-				670
Change in value of available for sale financial instruments and cash flow hedges, net of taxes			-				-				-				-				(5,901	)			-				(5,901	)			-				(5,901	)
Share of other comprehensive income of non-consolidated companies			-				-				-				5,828				(943	)			-				4,885				-				4,885
Other comprehensive income for the period			-				-				-				109,854				(6,174	)			-				103,680				141				103,821
Total comprehensive income for the period			-				-				-				109,854				(6,174	)			21,498				125,178				12,904				138,082
Acquisition of non-controlling interests			-				-				-				-				(12	)			-				(12	)			(774	)			(786	)
Dividends paid in cash			-				-				-				-				-				(354,161	)			(354,161	)			(28,311	)			(382,472	)
Balance at September 30, 2016			1,180,537				118,054				609,733				(896,913	)			(304,868	)			10,777,806				11,484,349				136,531				11,620,880

 

(1) The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of USD1.00 per share. As of September 30, 2017 and 2016 there were 1,180,536,830 shares issued. All issued shares are fully paid.

(2) Other reserves include mainly the result of transactions with non-controlling interest that do not result in a loss of control, the remeasurement of post-employment benefit obligations and the changes in value of cash flow hedges and in available for sale financial instruments.

(3) The Distributable Reserve and Retained Earnings as of September 30, 2017 calculated in accordance with Luxembourg Law are disclosed in Note 11.

 

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, 2016.

 

CONSOLIDATED CONDENSED INTERIM STATEMENT OF CASH FLOWS

 

(all amounts in thousands of U.S. dollars)						Nine-month period ended September 30,
		Notes				2017				2016
Cash flows from operating activities						(Unaudited)
Income for the period							374,221				34,261
Adjustments for:
Depreciation and amortization			8 & 9				457,359				494,638
Income tax accruals less payments							(160,622	)			(115,778	)
Equity in earnings of non-consolidated companies							(90,153	)			(56,925	)
Interest accruals less payments, net							7,572				(12,848	)
Changes in provisions							(21,968	)			13,847
Income from the sale of Conduit business			13				(89,694	)			-
Changes in working capital							(581,148	)			559,187
Currency translation adjustment and Others							95,307				26,004
Net cash (used in) provided by operating activities							(9,126	)			942,386
Cash flows from investing activities
Capital expenditures			8 & 9				(437,162	)			(628,799	)
Changes in advance to suppliers of property, plant and equipment							6,209				41,974
Proceeds from disposal of Conduit business			13				327,631				-
Investment in non-consolidated companies			12				-				(17,108	)
Loan to non-consolidated companies			12				(7,056	)			(35,398	)
Acquisition of subsidiaries			8				(10,418	)			-
Investment in companies under cost method			10				(3,681	)			-
Proceeds from disposal of property, plant and equipment and intangible assets							4,398				22,232
Dividends received from non-consolidated companies							22,971				20,674
Changes in investments in securities							512,046				419,523
Net cash provided by (used in) investing activities							414,938				(176,902	)
Cash flows from financing activities
Dividends paid			7				(330,550	)			(354,161	)
Dividends paid to non-controlling interest in subsidiaries							(19,200	)			(28,311	)
Acquisitions of non-controlling interests							(34	)			(786	)
Proceeds from borrowings							862,118				770,971
Repayments of borrowings							(888,670	)			(976,228	)
Net cash (used in) financing activities							(376,336	)			(588,515	)
Increase in cash and cash equivalents							29,476				176,969
Movement in cash and cash equivalents
At the beginning of the period							398,580				286,198
Effect of exchange rate changes							6,722				4,956
Increase in cash and cash equivalents							29,476				176,969
At September 30,							434,778				468,123
							At September 30,
Cash and cash equivalents							2017				2016
Cash and bank deposits							436,359				468,613
Bank overdrafts							(1,581	)			(490	)
							434,778				468,123

  

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, 2016.

 

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

 

1	General information
2	Accounting policies and basis of presentation
3	Segment information
4	Cost of sales
5	Selling, general and administrative expenses
6	Financial results
7	Dividend distribution
8	Property, plant and equipment, net
9	Intangible assets, net
10	Cash and cash equivalents and other investments
11	Contingencies, commitments and restrictions to the distribution of profits
12	Investments in non-consolidated companies
13	Net assets of disposal group classified as held for sale
14	Related party transactions
15	Category of financial instruments and classification within the fair value hierarchy
16	Nationalization of Venezuelan subsidiaries
17	Subsequent event

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS

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

 

1

General information

 

Tenaris S.A. (the "Company") was established as a public limited liability company (société anonyme) under the laws of the Grand-Duchy of Luxembourg on December 17, 2001. The Company holds, either directly or indirectly, controlling interests in various subsidiaries in the steel pipe manufacturing and distribution businesses. References in these Consolidated Condensed Interim Financial Statements to "Tenaris" refer to Tenaris S.A. and its consolidated subsidiaries. A list of the principal Company’s subsidiaries is included in Note 30 to the Company’s audited Consolidated Financial Statements for the year ended December 31, 2016.

 

The Company’s shares trade on the Buenos Aires Stock Exchange, the Italian Stock Exchange and the Mexican Stock Exchange; the Company’s American Depositary Securities (“ADS”) trade on the New York Stock Exchange.

 

These Consolidated Condensed Interim Financial Statements were approved for issuance by the Company’s Board of Directors on November 1, 2017.

 

2

Accounting policies and basis of presentation

 

These Consolidated Condensed Interim Financial Statements have been prepared in accordance with IAS 34, “Interim Financial Reporting”. The accounting policies used in the preparation of these Consolidated Condensed Interim Financial Statements are consistent with those used in the audited Consolidated Financial Statements for the year ended December 31, 2016. These Consolidated Condensed Interim Financial Statements should be read in conjunction with the audited Consolidated Financial Statements for the year ended December 31, 2016, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standard Board (“IASB”) and in conformity with IFRS as adopted by the European Union (“EU”).

 

The preparation of Consolidated Condensed Interim Financial Statements in conformity with IFRS requires management to make certain accounting estimates and assumptions that might affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet dates, and the reported amounts of revenues and expenses for the reported periods. Actual results may differ from these estimates.

 

Material inter-company transactions, balances and unrealized gains (losses) on transactions between Tenaris’s subsidiaries have been eliminated in consolidation. However, since the functional currency of some subsidiaries is its respective local currency, some financial gains (losses) arising from inter-company transactions are generated. These are included in the Consolidated Condensed Interim Income Statement under Other financial results.

 

There were no changes in valuation techniques during the period and there have been no changes in any risk management policies since the year ended December 31, 2016.

 

Whenever necessary, certain comparative amounts have been reclassified to conform to changes in presentation in the current period.

 

Following the sale of the steel electric conduit business in North America, known as Republic Conduit, the results of the mentioned business are presented as discontinued operations in accordance with IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations". Consequently, all amounts related to discontinued operations within each line item of the Consolidated Condensed Interim Income Statement are reclassified into discontinued operations. The Consolidated Condensed Interim Statement of Cash Flows includes the cash flows for continuing and discontinued operations, cash flows from discontinued operations and earnings per share are disclosed separately in Note 13, as well as additional information detailing net assets of disposal group classified as held for sale and discontinued operations.

 

None of the accounting pronouncements issued after December 31, 2016 and as of the date of these Consolidated Condensed Interim Financial Statements have a material effect on the Company’s financial condition or result of operations.

 

2

Accounting policies and basis of presentation (Cont.)

 

New and amended standards not yet adopted and relevant for Tenaris

 

IFRS 15

 

In May 2014, the IASB issued IFRS 15, "Revenue from contracts with customers", which sets out the requirements in accounting for revenue arising from contracts with customers and which is based on the principle that revenue is recognized when control of a good or service is transferred to the customer. IFRS 15 must be applied on annual periods beginning on or after January 1, 2018.

 

The Company expects to adopt the standard using the modified retrospective method, under which prior years’ results are not restated, but supplemental information on the impact of the new standard is provided for 2017 results.

Management is finalizing its assessment of the impact. It is not practicable to provide a reasonable financial estimate of the effect until management completes the review.

 

IFRS 9

 

In July 2014, the IASB issued IFRS 9, "Financial instruments", which replaces the guidance in IAS 39. It includes requirements on the classification and measurement of financial assets 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 or after January 1, 2018.

 

Management is finalizing its assessment of the impact. It is not practicable to provide a reasonable financial estimate of the effect until management completes the review.

 

3

Segment information

 

Reportable operating segment

 

(all amounts in thousands of U.S. dollars)		(Unaudited)
Nine-month period ended September 30, 2017		Tubes				Other				Total continuing operations				Total discontinued operations
IFRS - Net Sales			3,487,897				211,691				3,699,588				11,899
Management View - Operating (loss) income			(14,689	)			24,770				10,081				3,372
·   Differences in cost of sales and others			159,851				(774	)			159,077				(918	)
·   Depreciation and amortization			(3,003	)			404				(2,599	)			-
IFRS - Operating income			142,159				24,400				166,559				2,454
Financial income (expense), net											(27,328	)			(9	)
Income before equity in earnings of non-consolidated companies and income tax											139,231				2,445
Equity in earnings of non-consolidated companies											90,153				-
Income before income tax											229,384				2,445
Capital expenditures			430,905				6,112				437,017				145
Depreciation and amortization			447,452				9,907				457,359				-

 

(all amounts in thousands of U.S. dollars)		(Unaudited)
Nine-month period ended September 30, 2016		Tubes				Other				Total continuing operations				Total discontinued operations
IFRS - Net Sales			3,032,533				215,259				3,247,792				178,662
Management View - Operating income			12,333				16,233				28,566				48,153
·   Differences in cost of sales and others			(115,259	)			(5,028	)			(120,287	)			5,263
·   Depreciation and amortization			26,691				153				26,844				-
IFRS - Operating (loss) income			(76,235	)			11,358				(64,877	)			53,416
Financial income (expense), net											(1,053	)			(35	)
(Loss) income before equity in earnings of non-consolidated companies and income tax											(65,930	)			53,381
Equity in earnings of non-consolidated companies											56,925				-
(Loss) income before income tax											(9,005	)			53,381
Capital expenditures			599,047				28,615				627,662				1,137
Depreciation and amortization			479,766				10,791				490,557				4,081

 

3

Segment information (Cont.)

 

In the nine-month period ended September 30, 2017, net income under management view amounted to $225.1 million, while under IFRS it amounted to $374.2 million. In addition to the amounts reconciled above, the main differences arise from the impact of functional currencies on financial result, deferred income taxes as well as the result of investments in non-consolidated companies and changes on the valuation of inventories according to cost estimation internally defined.

 

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 $38.8 million and $33.8 million in the nine-month period ended in September 2017 and 2016, respectively.

 

Geographical information

 

		(Unaudited)
(all amounts in thousands of U.S. dollars)		North America				South America				Europe				Middle East & Africa				Asia Pacific				Total continuing operations				Total discontinued operations
Nine-month period ended September 30, 2017
Net sales			1,719,211				801,636				379,727				642,545				156,469				3,699,588				11,899
Capital expenditures			349,688				44,639				33,154				6,416				3,120				437,017				145
Depreciation and amortization			262,755				94,706				73,718				9,132				17,048				457,359				-
Nine-month period ended September 30, 2016
Net sales			966,159				961,483				438,379				778,933				102,838				3,247,792				178,662
Capital expenditures			513,941				52,880				27,784				19,099				13,958				627,662				1,137
Depreciation and amortization			285,683				96,015				84,589				8,078				16,192				490,557				4,081

 

Allocation of net sales to geographical information is based on customer location. Allocation of depreciation and amortization is based on the geographical location of the underlying assets.

 

There are no revenues from external customers attributable to the Company’s country of incorporation (Luxembourg). For geographical information purposes, “North America” comprises Canada, Mexico and the United States; “South America” comprises principally Argentina, Brazil and Colombia; “Europe” comprises principally Italy, Norway and Romania; “Middle East and Africa” comprises principally Kazakhstan, United Arab Emirates, Nigeria and Saudi Arabia and “Asia Pacific” comprises principally Thailand, China and Japan.

 

4

Cost of sales

 

		Nine-month period ended September 30,
(all amounts in thousands of U.S. dollars)		2017				2016
		(Unaudited)
Inventories at the beginning of the period			1,563,889				1,843,467
Plus: Charges of the period
Raw materials, energy, consumables and other			2,019,681				999,185
Services and fees			175,708				145,801
Labor cost			556,813				497,824
Depreciation of property, plant and equipment			281,348				280,319
Amortization of intangible assets			15,274				21,532
Maintenance expenses			140,568				91,111
Allowance for obsolescence			(15,704	)			43,724
Taxes			13,371				11,895
Other			69,193				72,580
			3,256,252				2,163,971
Less: Inventories at the end of the period			(2,204,815	)			(1,498,624	)
From discontinued operations			(7,403	)			(100,679	)
			2,607,923				2,408,135

 

5

Selling, general and administrative expenses

 

		Nine-month period ended September 30,
(all amounts in thousands of U.S. dollars)		2017				2016
		(Unaudited)
Services and fees			101,747				92,428
Labor cost			329,970				347,927
Depreciation of property, plant and equipment			13,311				12,713
Amortization of intangible assets			147,426				180,074
Commissions, freight and other selling expenses			236,433				178,825
Provisions for contingencies			5,929				23,788
Allowances for doubtful accounts			(4,143	)			(7,964	)
Taxes			41,384				56,293
Other			56,270				56,960
			928,327				941,044
From discontinued operations			(2,041	)			(24,567	)
			926,286				916,477

 

6

Financial results

 

(all amounts in thousands of U.S. dollars)		Nine-month period ended September 30,
		2017				2016
		(Unaudited)
Interest Income			37,763				48,186
Net result on changes in FV of financial assets at FVTPL			(2,001	)			10,147
Finance Income			35,762				58,333
Finance Cost			(18,459	)			(16,031	)
Net foreign exchange transactions results (*)			(47,690	)			(21,804	)
Foreign exchange derivatives contracts results (**)			(8,636	)			(30,313	)
Other			11,686				8,727
Other Financial results			(44,640	)			(43,390	)
Net Financial results			(27,337	)			(1,088	)
From discontinued operations			9				35
			(27,328	)			(1,053	)

 

(*)The nine-month period ended September 2017 and 2016 includes the negative impact from Euro appreciation against the U.S. dollar on Euro denominated intercompany liabilities in subsidiaries with functional currency U.S. Dollar, largely offset by an increase in currency translation adjustment reserve from an Italian subsidiary.

(**) The nine-month period ended September 2017 and 2016 includes the negative impact from Brazilian Real appreciation against the U.S. dollar on hedging instruments and of Cash and cash equivalent and Other investments denominated in U.S. dollar in subsidiaries which functional currency is the Brazilian real, partially offset by an increase in currency translation adjustment reserve from the Brazilian subsidiaries.

 

7

Dividend distribution

 

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 in 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 $484.0 million.

 

On May 4, 2016 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 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.

  

8

Property, plant and equipment, net

 

(all amounts in thousands of U.S. dollars)		2017				2016
		(Unaudited)
Nine-month period ended September 30,
Opening net book amount			6,001,939				5,672,258
Currency translation adjustment			68,588				48,403
Additions (*)			410,622				604,572
Disposals			(3,373	)			(11,314	)
Increase due to business combinations (**)			9,081				-
Transfers			73				5,820
Depreciation charge			(294,659	)			(293,032	)
At September 30,			6,192,271				6,026,707

 

(*) Mainly due to the progress in the construction of the greenfield seamless facility in Bay City, Texas.

(**)In September 2017, Tenaris acquired Garrett LLC (a pipe services company) for a price of $10.4 million.

 

9

Intangible assets, net

 

(all amounts in thousands of U.S. dollars)		2017				2016
		(Unaudited)
Nine-month period ended September 30,
Opening net book amount			1,862,827				2,143,452
Currency translation adjustment			2,454				6,318
Additions			26,395				24,227
Disposals			(849	)			(615	)
Transfers			(73	)			(781	)
Increase due to business combinations (Note 8)			1,337				-
Amortization charge			(162,700	)			(201,606	)
At September 30,			1,729,391				1,970,995

 

10

Cash and cash equivalents and other investments

 

(all amounts in thousands of U.S. dollars)		At September 30,				At December 31,
		2017				2016
Cash and cash equivalents			(Unaudited)
Cash at banks			107,130				92,730
Liquidity funds			199,946				215,807
Short – term investments			129,283				91,200
			436,359				399,737
Other investments - current
Fixed Income (time-deposit, zero coupon bonds, commercial papers)			438,101				782,029
Bonds and other fixed Income			708,052				841,638
Fund Investments			-				9,475
			1,146,153				1,633,142
Other investments - Non-current
Bonds and other fixed Income			222,992				248,049
Others			4,935				1,670
			227,927				249,719

 

11

Contingencies, commitments and restrictions to the distribution of profits

 

Contingencies

 

This note should be read in conjunction with Note 25 to the Company’s audited Consolidated Financial Statements for the year ended December 31, 2016.

 

Tenaris is from time to time subject to various claims, lawsuits and other legal proceedings, including customer claims, in which third parties are seeking payment for alleged damages, reimbursement for losses or indemnity. Some of these claims, lawsuits and other legal proceedings involve highly complex issues, and often these issues are subject to substantial uncertainties. Accordingly, potential liability with respect to a large portion of 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. If a potential loss from a claim, lawsuit or 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. The Company believes that the aggregate provisions recorded for potential losses in these 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 is a description of Tenaris's material ongoing legal proceedings:

 

§

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 EUR297 million (approximately $351 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 $10.6 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 EUR225 million (approximately $266 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 of EUR175 million (approximately $206), and appealed the January 2016 ruling with the second-instance tax court. The hearing in the second instance tax court, which was initially scheduled to be held in September 2017, was postponed at the request of the parties.

 

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 additional obligation.

 

§

CSN claims relating to the January 2012 acquisition of Usiminas shares

 

In 2013, Confab Industrial S.A., a Brazilian subsidiary of the Company (“Confab”) was notified of a lawsuit filed in Brazil by Companhia Siderúrgica Nacional (CSN) and various entities affiliated with CSN against Confab and the other entities that acquired a participation in Usiminas’ control group in January 2012.

 

11

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

 

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 a tag-along tender offer to all non-controlling holders of Usiminas’ ordinary shares for a price per share equal to 80% of the price per share paid in such acquisition, or BRL28.8, and seeks an order to compel the acquirers to launch an offer at that price plus interest. If so ordered, the offer would need to be made to 182,609,851 ordinary shares of Usiminas not belonging to Usiminas’ control group, and Confab would have a 17.9% share in that offer.

 

On September 23, 2013, the first instance court dismissed the CSN lawsuit, and on February 8, 2017, the court of appeals maintained the understanding of the first instance court. On March 6, 2017, CSN filed a motion for clarification against the decision of the court of appeals, which was rejected on July 19, 2017. On August 18, 2017, CSN filed a special appeal seeking the review and reversal of the court of appeal’s decision by the Superior Court of Justice. The court of appeals has not yet ruled on the appeal’s admissibility. If declared admissible, CSN’s special appeal will be submitted to the Superior Court of Justice for a decision on its merits, and the court of appeals will need to consider CSN’s special appeal and decide whether or not it will be submitted to the Superior Court of Justice. For further information on the CSN lawsuit, see Note 25 to the Consolidated Financial Statements for the year ended December 31, 2016.

 

Tenaris continues to believe that all of CSN’s claims and allegations are groundless and without merit, as confirmed by several opinions of Brazilian legal counsel, two decisions issued by the Brazilian securities regulator (CVM) in February 2012 and December 2016, and the first and second instance court decisions referred to above. Accordingly, no provision was recorded in these Consolidated Condensed Interim 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, 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 the Veracel accident and other amounts not covered by insurance. Itaú and Veracel claim 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 been 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 evidentiary stage.

 

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 expert’s report, which are currently subject to the court examination. As of September 30, 2017, the estimated amount of Itaú’s claim is approximately BRL79.9 million (approximately $25.2 million), and the estimated amount of Veracel’s claim is approximately BRL51 million (approximately $16.1 million), for an aggregate amount BRL130.9 million ($41.3 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 Condensed Interim Financial Statements.

 

§

Petroamazonas penalties

 

On January 22, 2016, Petroamazonas (“PAM”), an Ecuadorian state-owned oil company, imposed penalties to the Company’s Uruguayan subsidiary, Tenaris Global Services S.A. (“TGS”), for its alleged failure to comply with delivery terms under a pipe supply agreement. The penalties amount to approximately $ 22.5 million as of the date hereof. 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.

 

11

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

 

Contingencies (Cont.)

 

§

Ongoing investigation

 

The Company has learned that Italian and Swiss authorities are investigating whether certain payments were made from accounts of entities presumably associated with affiliates of the Company to accounts controlled by an individual allegedly related with officers of Petróleo Brasileiro S.A. and whether any such payments were intended to benefit Confab. Any such payments could violate certain applicable laws, including the U.S. Foreign Corrupt Practices Act. The Company had previously reviewed certain of these matters in connection with an investigation by the Brazilian authorities related to “Operation Lava Jato” and the Audit Committee of the Company’s Board of Directors has engaged external counsel in connection with a review of the alleged payments and related matters. In addition, the Company has voluntarily notified the U.S. Securities and Exchange Commission and the U.S. Department of Justice. The Company intends to share the results of this review 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’s business that may result from resolution of these matters.

 

§

Contractor claim for additional costs

 

Tenaris Bay City Inc. (“Tenaris Bay City”), a U.S. subsidiary of the Company, has received claims from a contractor for alleged additional costs in the construction of a project located in the Bay City area for a total amount in excess of $36 million. On June 30, 2017, the contractor filed a demand for arbitration of these claims. The parties are in the process of selecting mediators and arbitrators. 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. No provision has been recorded in these Consolidated Condensed Interim Financial Statements.

 

Commitments

 

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 of hot-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 a 12-month prior notice. Due to the 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 September 30, 2017, the estimated aggregate contract amount through December 31, 2017, calculated at current prices, is approximately $428.7 million.

 

11

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

 

Commitments(Cont.)

 

§

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 $69.9 million related to the investment plan to expand Tenaris’s U.S. operations with the construction of a state-of-the-art seamless pipe mill in Bay City, Texas. As of September 30, 2017 approximately $1,637 million had already been invested.

 

§

A Tenaris company entered into a contract with Transportadora de Gas del Norte S.A. for the service of natural gas transportation to Tenaris Siderca facilities in Argentina. The obligation to take or pay the committed volume for the term of 10 years, as of September 30, 2017 totals approximately $80.9 million.

 

§

A Tenaris company entered into various contracts with suppliers in order to provide natural gas to Tenaris Siderca facilities until April 2018. As of September 30, 2017 the agreement to take or pay the gas supply totals approximately $34.2 million.

 

§

A Tenaris company entered into a 25-year contract (effective as of December 1, 2016, through December 1, 2041) with Techgen, S.A. de C.V. 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 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 Tenaris will benefit from the proceeds of such sale.

 

Restrictions to the distribution of profits and payment of dividends

 

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 September 30, 2017, 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:

 

(all amounts in thousands of U.S. dollars)
Retained earnings at December 31, 2015 under Luxembourg law			18,024,204
Other income and expenses for the year ended December 31, 2016			(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

 

12

Investments in non-consolidated companies

 

a)

Ternium

 

Ternium S.A. (“Ternium”), is a steel producer with production facilities in Mexico, Argentina, 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 September 30, 2017, the closing price of Ternium’s ADSs as quoted on the New York Stock Exchange was $30.93 per ADS, giving Tenaris’s ownership stake a market value of approximately $710.5 million (Level 1). At September 30, 2017, the carrying value of Tenaris’s ownership stake in Ternium, based on Ternium’s IFRS financial statements, was approximately $549.4 million.

 

b)

Usiminas

 

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.

 

As of September 30, 2017 the closing price of the Usiminas’ ordinary and preferred shares, as quoted on the BM&FBovespa Stock Exchange, was BRL10.05 ($3.17) and BRL7.78 ($2.46), respectively, giving Tenaris’s ownership stake a market value of approximately $119 million (Level 1). As of that date, the carrying value of Tenaris’s ownership stake in Usiminas was approximately $73.1 million.

 

c)

Techgen, S.A. de C.V. (“Techgen”)

 

Techgen is a Mexican company that operates a natural gas-fired combined cycle electric power plant in the Pesquería area of the State of Nuevo León, Mexico. The company started producing energy on December 1, 2016 and is fully operational, with a power capacity of 900 megawatts. As of September 30, 2017, 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 September 30, 2017, Tenaris’s exposure under these agreements amounted to $59 million and $4.2 million respectively.

 

Tenaris issued a corporate guarantee covering 22% of the obligations of Techgen under a syndicated loan agreement between Techgen and several banks for an outstanding aggregate amount of $720 million which 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). As of September 30, 2017, the facility agreement had been fully disbursed and, accordingly, the amount guaranteed by Tenaris was approximately $158.4 million. During the nine-month period ended September 30, 2017, Techgen’s shareholders made additional investments in Techgen, through subordinated loans, which in the case of Tenaris amounted to $7 million. As of September 30, 2017, the aggregate outstanding principal amount under these loans was $93.2 million.

 

13

Net assets of disposal group classified as held for sale

 

On December 15, 2016, Tenaris entered into an agreement with Nucor Corporation (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 $328 million (net of transaction costs). The sale was completed 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.

 

		Nine-month period ended September 30,
		2017				2016
Income from discontinued operations			1,848				33,559
After tax gain on the sale of Conduit			89,694				-
Net Income for discontinued operations			91,542				33,559
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 the 19 days of January 2017 and the nine-month period ended September 30, 2016.

 

(all amounts in thousands of US dollars, unless otherwise stated)
		2017				2016
Net sales			11,899				178,662
Cost of sales			(7,403	)			(100,679	)
Gross profit			4,496				77,983
Selling, general and administrative expenses			(2,041	)			(24,567	)
Other operating income & expenses			(1	)			-
Operating income			2,454				53,416
Finance Income (expenses), net			(9	)			(35	)
Income before income tax			2,445				53,381
Income tax			(597	)			(19,822	)
Net income			1,848				33,559

 

The following table shows the current and non-current assets and liabilities of disposal group as at 31, December 2016 and the carrying amounts of assets and liabilities as at the date of sale.

 

ASSETS		At January 19, 2017								At December 31, 2016
Non-current assets
Property, plant and equipment, net			41,438								41,470
Intangible assets, net			45,894				87,332				45,894				87,364
Current assets
Inventories, net			29,349								29,819
Receivables and prepayments, net			1,157								451
Trade receivables, net			38,620								33,620
Cash and cash equivalents			206				69,332				163				64,053
Total assets of disposal group classified as held for sale							156,664								151,417
LIABILITIES
Non-current liabilities
Deferred tax liabilities			5,294								4,696
Other liabilities			-				5,294				680				5,376
Current liabilities
Current tax liabilities			65								4,100
Other liabilities			2,913								1,668
Trade payables			10,578				13,556				6,950				12,718
Total liabilities of disposal group classified as held for sale							18,850								18,094

 

Summarized cash flow information is as follows:

		2017				2016
Cash at the beginning			18,820				15,343
Cash at the end			206				20,187
(Decrease) Increase in cash			(18,614	)			4,844
(Used in) provided by operating activities			(3,046	)			25,860
Provided by (used in) investing activities			32				(1,016	)
Used in financing activities			(15,600	)			(20,000	)

 

14

Related party transactions

 

As of September 30, 2017:

 

§

San Faustin S.A., a Luxembourg société anonyme (“San Faustin”), owned 713,605,187 shares in the Company, representing 60.45% of the Company’s capital and voting rights.

 

§

San Faustin owned all of its shares in the Company through its wholly-owned subsidiary Techint Holdings S.à r.l., a Luxembourg société à responsabilité limitée (“Techint”), who is the holder of record of the above-mentioned Tenaris shares.

 

§

Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin, a Dutch private foundation (Stichting) (“RP STAK”) held voting shares in San Faustin sufficient in number to control San Faustin.

 

§

No person or group of persons controls RP STAK.

 

Based on the information most recently available to the Company, Tenaris’s directors and senior management as a group owned 0.08% of the Company’s outstanding shares.

 

Transactions and balances disclosed as with “non-consolidated parties” are those with companies over which Tenaris exerts significant influence or joint control in accordance with IFRS, but does not have control. All other transactions and balances with related parties which are not non-consolidated parties and which are not consolidated are disclosed as “Other”.

 

The following transactions were carried out with related parties:

 

(all amounts in thousands of U.S. dollars)		Nine-month period ended September 30,
		2017				2016
(i) Transactions		(Unaudited)
(a) Sales of goods and services
Sales of goods to non-consolidated parties			25,485				15,651
Sales of goods to other related parties			43,344				22,324
Sales of services to non-consolidated parties			8,789				6,913
Sales of services to other related parties			2,667				2,216
			80,285				47,104
(b) Purchases of goods and services
Purchases of goods to non-consolidated parties			168,666				38,180
Purchases of goods to other related parties			9,906				13,900
Purchases of services to non-consolidated parties			9,748				7,565
Purchases of services to other related parties			37,199				40,089
			225,519				99,734

 

(all amounts in thousands of U.S. dollars)		At September 30,				At December 31,
		2017				2016
(ii) Period-end balances			(Unaudited)
Arising from sales / purchases of goods / services / others
Receivables from non-consolidated parties			122,647				117,187
Receivables from other related parties			25,238				13,357
Payables to non-consolidated parties			(50,967	)			(21,314	)
Payables to other related parties			(9,950	)			(12,708	)
			86,968				96,522

 

15

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, or fair value through profit and loss. For financial instruments that are measured in the statement of financial position at fair value, IFRS 13 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 September 30, 2017 and December 31, 2016.

 

						Measurement Categories																At Fair Value
September 30, 2017		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			436,359				107,130				-				-				329,229				329,229				-				-
Cash at banks			107,130				107,130				-				-				-				-				-				-
Liquidity funds			199,946				-				-				-				199,946				199,946				-				-
Short – term investments			129,283				-				-				-				129,283				129,283				-				-
Other investments Current			1,146,153				-				202,590				-				943,563				455,310				488,253				-
Fixed Income (time-deposit, zero coupon bonds, commercial papers)			438,101				-				-				-				438,101				9,977				428,124				-
Non - U.S. Sovereign Bills			-				-				-				-				-				-				-				-
Certificates of Deposits			328,049				-				-				-				328,049				-				328,049				-
Commercial Papers			9,977				-				-				-				9,977				9,977				-				-
Other notes			100,075				-				-				-				100,075				-				100,075				-
Bonds and other fixed Income			708,052				-				202,590				-				505,462				445,333				60,129				-
U.S. government securities			128,747				-				-				-				128,747				128,747				-				-
Non - U.S. government securities			157,675				-				21,787				-				135,888				135,888				-				-
Corporates securities			361,501				-				180,803				-				180,698				180,698				-				-
Structured Notes			40,273				-				-				-				40,273				-				40,273				-
Mortgage and Asset-backed securities			19,856				-				-				-				19,856				-				19,856				-
Other Investments Non- current			227,927				-				222,992				-				4,935				-				-				4,935
Bonds and other fixed Income			222,992				-				222,992				-				-				-				-				-
Other Investments			4,935				-				-				-				4,935				-				-				4,935
Trade receivables			1,066,522				1,066,522				-				-				-				-				-				-
Receivables C and NC			369,863				184,638				-				-				33,272				-				33,272				-
Foreign exchange derivatives contracts			33,272				-				-				-				33,272				-				33,272				-
Other receivables			184,638				184,638				-				-				-				-				-				-
Other receivables (non-Financial)			151,953				-				-				-				-				-				-				-
Available for sale assets (*)			21,572				-				-				21,572				-				-				-				21,572
Total							1,358,290				425,582				21,572				1,310,999				784,539				521,525				26,507
Liabilities
Borrowings C and NC			831,533				831,533				-				-				-				-				-				-
Trade payables			721,808				721,808				-				-				-				-				-				-
Other liabilities C and NC			450,536				-				-				-				10,849				-				10,849				-
Foreign exchange derivatives contracts			10,849				-				-				-				10,849				-				10,849				-
Other liabilities (non-Financial)			439,687				-				-				-				-				-				-				-
Total							1,553,341				-				-				10,849				-				10,849				-

 

15

Category of financial instruments and classification within the fair value hierarchy (Cont.)

 

 

						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 Current			1,633,142				-				246,031				-				1,387,111				607,866				779,245				-
Fixed Income (time-deposit, zero coupon 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 Investments Non- 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				-

 

(*) For further detail regarding Available for sale assets, see Note 16.

 

There were no transfers between Level 1 and 2 during the period.

 

The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by Tenaris is the current bid price. These instruments are included in Level 1 and comprise primarily corporate and sovereign debt securities.

 

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’s interest in Venezuelan companies under process of nationalization (see Note 16).

 

15

Category of financial instruments and classification within the fair value hierarchy (Cont.)

 

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 101.0% of its carrying amount including interests accrued as of September 30, 2017.

 

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 99.8% of its carrying amount including interests accrued as of September 30, 2017 and as of December 31, 2016. Fair values were calculated using standard valuation techniques for floating rate instruments and comparable market rates for discounting flows.

 

16

Nationalization of Venezuelan Subsidiaries

 

In May 2009, Venezuela’s President announced the nationalization of, among other companies, the Company'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 a non-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. For further information, see Note 31 in the Company’s audited Consolidated Financial Statements for the year ended December 31, 2016.

 

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 in pre-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 was made by then, post-award interest would apply at the rate of 9% per annum.

 

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. 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, and an ad hoc committee to hear Venezuela’s request was constituted on December 27, 2016. On March 24, 2017, the ad hoc committee rendered its decision to lift the stay of enforcement of the award. The ad hoc committee has not reserved its right to reopen that decision and no appeal against such decision is provided under ICSID’s Arbitration Rules. The final hearing on Venezuela’s annulment request is expected to be held in December 2017. There is no deadline by which the ad hoc committee must render its decision.

 

16

Nationalization of Venezuelan Subsidiaries (Cont.)

 

Tavsa and Comsigua

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, 2016 amounted to $76 million. On April 11, 2017, 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. Venezuela’s annulment request was registered on April 14, 2017. The ad hoc committee that will hear Venezuela’s request was constituted on October 17, 2017 and, on October 19, Tenaris and Talta filed an opposition to Venezuela’s request to continue the stay of enforcement of the award. The ad hoc committee has extended the provisional stay of enforcement of the award until the committee’s first session and hearing, expected to be held in December 2017. There is no procedural deadline by which the ad hoc committee must render its decision.

 

17

Subsequent event

 

On November 1, 2017, 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, payable on November 22, 2017, with and ex-dividend date of November 20, 2017.

 

 

 

 

Edgardo Carlos

Chief Financial Officer

 

 

 

 

 

 

 

 

22