Tenaris SA
Annual Report 2013

Plain-text annual report

Annual Report 2013 Certain defined terms Cautionary statement concerning Unless otherwise specified or if the context so requires: forward-looking statements This annual report and any other oral or written statements made by • References in this annual report to “the Company” refer exclusively us to the public may contain “forward-looking statements”. Forward to Tenaris S.A., a Luxembourg public limited liability company (société looking statements are based on management’s current views and anonyme). assumptions and involve known and unknown risks that could cause • References in this annual report to “Tenaris”, “we”, “us” or “our” actual results, performance or events to differ materially from those refer to Tenaris S.A. and its consolidated subsidiaries. See Accounting expressed or implied by those statements. Policies A, B and L to our audited consolidated financial statements included in this annual report. We use words such as “aim”, “will likely result”, “will continue”, • References in this annual report to “San Faustin” refer to San Faustin S.A., “contemplate”, “seek to”, “future”, “objective”, “goal”, “should”, a Luxembourg public limited liability company (société anonyme) and the “will pursue”, “anticipate”, “estimate”, “expect”, “project”, “intend”, Company’s controlling shareholder. “plan”, “believe” and words and terms of similar substance to • • “Shares” refers to ordinary shares, par value $1.00, of the Company. identify forward-looking statements, but they are not the only way “ADSs” refers to the American Depositary Shares, which are evidenced we identify such statements. This annual report contains forward- by American Depositary Receipts, and represent two Shares each. looking statements, including with respect to certain of our plans and • “tons” refers to metric tons; one metric ton is equal to 1,000 current goals and expectations relating to Tenaris’s future financial kilograms, 2,204.62 pounds, or 1.102 U.S. (short) tons. condition and performance. Sections of this annual report that by • • “billion”” refers to one thousand million, or 1,000,000,000. their nature contain forward-looking statements include, but are not “U.S. dollars”, “US$”, “USD” or “$” each refers to the United States dollar. limited to, “Business Overview”, “Principal Risks and Uncertainties”, and “Operating and Financial Review and Prospects”. In addition to the risks related to our business discussed under “Principal Risks Presentation of certain financial and other information and Uncertainties”, other factors could cause actual results to differ materially from those described in the forward-looking statements. ACCOUNTING PRINCIPLES These factors include, but are not limited to: We prepare our consolidated financial statements in conformity with International Financial Reporting Standards, as issued by the • our ability to implement our business strategy or to grow through International Accounting Standards Board, or IFRS, and adopted by the acquisitions, joint ventures and other investments; European Union, or E.U. • the competitive environment and our ability to price our products and services in accordance with our strategy; We publish consolidated financial statements expressed in U.S. dollars. • trends in the levels of investment in oil and gas exploration and Our consolidated financial statements included in this annual report drilling worldwide; are those as of December 31, 2013 and 2012, and for the years ended • general macroeconomic and political conditions in the countries in December 31, 2013, 2012 and 2011. which we operate or distribute pipes; and • our ability to absorb cost increases and to secure supplies of essential ROUNDING raw materials and energy. Certain monetary amounts, percentages and other figures included in this annual report have been subject to rounding adjustments. By their nature, certain disclosures relating to these and other risks are Accordingly, figures shown as totals in certain tables may not be the only estimates and could be materially different from what actually arithmetic aggregation of the figures that precede them, and figures occurs in the future. As a result, actual future gains or losses that may expressed as percentages in the text may not total 100% or, as affect our financial condition and results of operations could differ applicable, when aggregated may not be the arithmetic aggregation materially from those that have been estimated. You should not place of the percentages that precede them. undue reliance on the forward-looking statements, which speak only as of the date of this annual report. Except as required by law, we are not under any obligation, and expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. 3. t r o p e R l a u n n A Index 05. Leading indicators 06. Letter from the Chairman 08. Company profile 09. Management report 09. Information on Tenaris 09. 09. 09. 10. 13. 14. 16. 19. 35. 40. 40. 41. 42. 43. The Company Overview History and Development of Tenaris Business Overview Research and Development Tenaris in numbers Principal Risks and Uncertainties Operating and Financial Review and Prospects Quantitative and Qualitative Disclosure about Market Risk Recent Developments Environmental Regulation Related Party Transactions Employees Corporate Governance 61. Management certification Financial information 63. Consolidated Financial Statements 151. Tenaris S.A. Annual accounts (Luxembourg GAAP) 164. Investor information 4. s i r a n e T Leading indicators TUBES SALES VOLUMES (thousands of tons) Seamless Welded Total TUBES PRODUCTION VOLUMES (thousands of tons) Seamless Welded Total FINANCIAL INDICATORS (millions of $) Net sales Operating income EBITDA (1) Net income Cash flow from operations Capital expenditures BALANCE SHEET (millions of $) Total assets Total borrowings Net financial debt / (cash) (2) Total liabilities Shareholders’ equity including non-controlling interests PER SHARE / ADS DATA ($ per share / per ADS) (3) Number of shares outstanding (4) (thousands of shares) Earnings per share Earnings per ADS Dividends per share (5) Dividends per ADS (5) ADS Stock price at year-end NUMBER OF EMPLOYEES (4) 5. t r o p e R l a u n n A 2013 2012 2011 2,612 1,049 3,661 2,611 988 3,599 2,676 1,188 3,864 2,806 1,188 3,994 10,597 10,834 2,185 2,795 1,574 2,355 753 15,931 931 (911) 3,461 12,470 2,357 2,875 1,702 1,860 790 15,960 1,744 271 4,460 11,500 2,613 1,134 3,747 2,683 1,073 3,756 9,972 1,845 2,399 1,421 1,283 863 14,864 931 (324) 3,691 11,173 1,180,537 1,180,537 1,180,537 1.31 2.63 0.43 0.86 43.69 26,825 1.44 2.88 0.43 0.86 41.92 26,673 1.13 2.26 0.38 0.76 37.18 26,980 1. Defined as operating income plus depreciation, amortization and impairment charges/(reversals) and in 2012 excludes a non-recurring gain of $49 million, recorded in Other operating income corresponding to a tax related lawsuit collected in Brazil. 2. Defined as borrowings less cash and cash equivalents and other current investments. 3. Each ADS represents two shares. 5. Proposed or paid in respect of the year. 4. As of December 31. 6. s i r a n e T Letter from the Chairman Dear Shareholders, Tenaris had another good year in 2013, as we maintained our EBITDA(1) and industry-leading operating margins in line with those of the previous year, despite a slowdown in the North American market and lower prices for less differentiated products. This result was driven by an ongoing transformation in our product mix towards high-value premium OCTG products, our positioning in the Eastern Hemisphere and the performance of our industrial system, where our indicators for safety, quality, compliance and capacity utilization all showed improvement. Over the past three years, our sales of premium OCTG products have doubled in volume while sales of less differentiated products have declined. We strengthened our premium connection portfolio this year with new products for the most complex deepwater and high pressure, high temperature (HPHT) applications. Our performance in successfully meeting the exacting testing and development requirements for the Mars B project in the Gulf of Mexico with our new Wedge 623™ Dopeless® and Blue® Riser connections was recognized by Shell with its first ever Global Wells Installed Equipment Quality Award. Our operations in the Eastern Hemisphere had a record year, with sales in the Middle East and Africa growing 70% year on year. In Saudi Arabia, where drilling activity in sour and high pressure gas fields is showing strong growth, we are investing in a new heat treatment facility and expanding our local premium threading operation. In sub-Saharan Africa, we are expanding our local manufacturing and service capabilities to support the complex offshore operations of our customers with our enhanced product portfolio. In North America, however, our sales in 2013 were affected by a slowdown in drilling activity and an adverse competitive environment in the less demanding segments. Our focus is on the segments in which we can achieve differentiation on products and services: Gulf of Mexico, the main shale plays, the thermal projects in Canada and throughout Mexico. With our new rolling mill project in Bay City, we will increase our capital expenditure outlays over the next three years. We received the necessary environmental permits in July, and, since then, have made good progress, advancing with earthworks, equipment design and engineering and resource planning. Elsewhere, we started up a new integrated premium threading line in Romania and increased heat treatment capacity in Argentina. We will continue to invest in transforming our integrated industrial system to meet growing demand for premium products. The Bay City mill has been qualified by the Texas Commission for Environmental Quality as a minor source of emissions. In addition, we are following construction specifications to achieve the LEED (Leadership in Energy and Environmental Design) certification from the U.S. Green Building Council. Throughout our globally integrated industrial system, we are working to improve energy efficiency and investing to minimize the environmental impact of our operations. And we are certifying our mills under ISO 14001 and OSHAS 18000 standards for environment and safety management to ensure a consistent management approach. (1) EBITDA is defined as operating income plus depreciation, amortization and impairment charges/(reversals). 7. t r o p e R l a u n n A Our Safe Hour program, implemented two year ago, is delivering improvements in our safety indicators. Over the past three years, the rate of accidents resulting in injuries has declined over 40% but we still consider that we have room for improvement. Safety is an essential element of our competitive differentiation in the eyes of our customers and the communities where we operate. TenarisUniversity continues to expand its field of action. Today, it has its own facilities in many Tenaris plants and has created more than 1,600 proprietary courses in its six schools. It provides 1.3 million hours of training annually, accounting for 2.3% of the total number of hours worked. With a mandate to adopt the most advanced training techniques using web-based tools, we became the first company to sign an agreement to become part of the educational institutions that participate in edX, the open, online learning initiative founded by Harvard and MIT. Education is a fundamental value for Tenaris, an essential component of an industrial culture that identifies progress with that of the communities where we operate, providing a factor for integration and social mobility. In a program to strengthen technical education in the communities where we operate, we opened the first Roberto Rocca Technical School in Campana. The first intake of 60 students was selected in an open competition and all have scholarships based on their families’ financial situation. This new school will also be responsible for producing content and teaching techniques to strengthen public and private technical education in all the communities where we operate. In an environment of mixed markets, our operating and financial results for 2013 reflect the underlying strengths of the company and our continuing progress in many areas. We had an EBITDA of $2.8 billion on sales of $10.6 billion and generated $1.6 billion of free cash flow to end the year with a net cash position of $0.9 billion. Earnings per share declined 9% compared to the previous year and we are proposing to maintain the annual dividend at last year’s level. Looking ahead, we see many opportunities in a dynamic industry environment. We are well positioned to benefit from market developments with energy reform in Mexico, the shale developments in North America and Argentina, the growth in gas drilling in the Middle East and the development of complex deepwater projects worldwide. In closing, I would like to thank our employees for the commitment and dedication they have shown throughout the year. It is their contribution day after day that makes the difference. I would also like to express my thanks to our customers, suppliers and shareholders for their continuing support and confidence in Tenaris. March 28, 2014 Paolo Rocca Company profile 8. s i r a n e T Tenaris is a leading supplier of tubes and related services for the world’s energy industry and certain other industrial applications. Our mission is to deliver value to our customers through product development, manufacturing excellence and supply chain management. We seek to minimize risk for our customers and help them reduce costs, increase flexibility and improve time-to-market. Our employees around the world are committed to continuous improvement by sharing knowledge across a single global organization. Information on Tenaris The Company Our holding company’s legal and commercial name is Tenaris S.A. The Company was established as a public limited liability company (société anonyme) organized under the laws of the Grand Duchy of Luxembourg. The Company’s registered office is located at 29 avenue de la Porte-Neuve, 3rd Floor, L-2227, Luxembourg, telephone (352) 2647-8978. The Company has no branches. For information on the Company’s subsidiaries, see note 30 “Principal subsidiaries” to our audited consolidated financial statements included in this annual report. Overview We are a leading global manufacturer and supplier of steel pipe products and related services for the world’s energy industry and for other industrial applications. Our customers include most of the world’s leading oil and gas companies as well as engineering companies engaged in constructing oil and gas gathering, transportation, processing and power generation facilities. Our principal products include casing, tubing, line pipe, and mechanical and structural pipes. Over the last two decades, we have expanded our business globally through a series of strategic investments. We now operate an integrated worldwide network of steel pipe manufacturing, research, finishing and service facilities with industrial operations in the Americas, Europe, Asia and Africa and a direct presence in most major oil and gas markets. to minimize risk for our customers and help them reduce costs, increase flexibility and improve time-to-market. Our employees around the world are committed to continuous improvement by sharing knowledge across a single global organization. 9. t r o p e R l a u n n A History and Development of Tenaris Tenaris began with the formation of Siderca S.A.I.C., or Siderca, the sole Argentine producer of seamless steel pipe products, by San Faustin’s predecessor in Argentina in 1948. We acquired Siat, an Argentine welded steel pipe manufacturer, in 1986. We grew organically in Argentina and then, in the early 1990s, began to evolve beyond this initial base into a global business through a series of strategic investments. These investments included the acquisition, directly or indirectly, of controlling or strategic interests in the following companies: • • • • Tubos de Acero de México S.A., or Tamsa, the sole Mexican producer of seamless steel pipe products (June 1993); Dalmine S.p.A., or Dalmine, a leading Italian producer of seamless steel pipe products (February 1996); Tubos de Acero de Venezuela S.A., or Tavsa, the sole Venezuelan producer of seamless steel pipe products (October 1998)(1); Confab Industrial S.A., or Confab, the leading Brazilian producer of welded steel pipe products (a controlling interest in August 1999, and the remainder during the second quarter of 2012); Our mission is to deliver value to our customers through product development, manufacturing excellence, and supply chain management. We seek (1) In 2009, the Venezuelan government nationalized Tavsa and other companies in which we had investments. For more information on the Tavsa nationalization process, see note 31 “Nationalization of Venezuelan Subsidiaries” to our audited consolidated financial statements included in this annual report. 10. s i r a n e T • • • • • • • • • NKKTubes, a leading Japanese producer of seamless steel pipe products (August 2000); Algoma Tubes Inc., or AlgomaTubes, the sole Canadian producer of seamless steel pipe products (October 2000); S.C. Silcotub S.A., or Silcotub, a leading Romanian producer of seamless steel pipe products (July 2004); Maverick Tube Corporation, or Maverick, a leading North American producer of welded steel pipe products with operations in the United States, Canada and Colombia (October 2006); Hydril Company, or Hydril, a leading North American manufacturer of premium connection products for oil and gas drilling production (May 2007); Seamless Pipe Indonesia Jaya, or SPIJ, an Indonesian oil country tubular goods, or OCTG, processing business with heat treatment and premium connection threading facilities (April 2009); Pipe Coaters Nigeria Ltd, the leading company in the Nigerian coating industry (November 2011); Usinas Siderúrgicas de Minas Gerais S.A., or Usiminas, where through our subsidiary Confab, we hold an interest representing 5.0% of the shares with voting rights and 2.5% of the total share capital (January 2012); and a sucker rod business, in Campina, Romania (February 2012). In addition, we have established a global network of pipe finishing, distribution and service facilities with a direct presence in most major oil and gas markets and a global network of research and development centers. tubular products and services to the energy and other industries by: • • • • pursuing strategic investment opportunities in order to strengthen our presence in local and global markets; expanding our comprehensive range of products and developing new high-value products designed to meet the needs of customers operating in increasingly challenging environments; securing an adequate supply of production inputs and reducing the manufacturing costs of our core products; and enhancing our offer of technical and pipe management services designed to enable customers to optimize their selection and use of our products and reduce their overall operating costs. Pursuing strategic investment opportunities and alliances We have a solid record of growth through strategic investments and acquisitions. We pursue selective strategic investments and acquisitions as a means to expand our operations and presence in selected markets, enhance our global competitive position and capitalize on potential operational synergies. Our track record on companies’ acquisitions is described above (See “History and Development of Tenaris”). In addition, we are currently building a new greenfield seamless mill in Bay City, Texas. The new facility will include a state-of-the-art rolling mill as well as finishing and heat treatment lines. We plan to bring the 600,000 tons per year capacity mill and logistics center into operation in 2016, within a budget in a range of $1.5 billion to $1.8 billion. Business Overview Our business strategy is to continue expanding our operations worldwide and further consolidate our position as a leading global supplier of high-quality Developing high-value products We have developed an extensive range of high-value products suitable for most of our customers’ operations using our network of specialized 11. t r o p e R l a u n n A research and testing facilities and by investing in our manufacturing facilities. As our customers expand their operations, we seek to supply high-value products that reduce costs and enable them to operate safely in increasingly challenging environments. Securing inputs for our manufacturing operations We seek to secure our existing sources of raw material and energy inputs, and to gain access to new sources, of low-cost inputs which can help us maintain or reduce the cost of manufacturing our core products over the long term. For example, in February 2014, we entered into an agreement with our affiliates Ternium and Tecpetrol to build a natural gas-fired combined cycle electric power plant in Mexico¸ expected to be completed in 2016, which would supply Tenaris’s and Ternium’s respective Mexican industrial facilities. For information on the new power plant, see note 27 “Business combinations, other acquisitions and investments- Mexican Power Plant Investment” to our audited consolidated financial statements included in this annual report. Our Competitive Strengths We believe our main competitive strengths include: our global production, commercial and distribution capabilities, offering a full product range with flexible supply options backed up by local service capabilities in important oil and gas producing and industrial regions around the world; our ability to develop, design and manufacture technologically advanced products; our solid and diversified customer base and historic relationships with major international oil and gas companies around the world, and our strong and stable market shares in the countries in which we have manufacturing operations; our proximity to our customers; our human resources around the world with their diverse knowledge and skills; our low-cost operations, primarily at state-of-the- art, strategically located production facilities with favorable access to raw materials, energy and labor, and more than 50 years of operating experience; and our strong financial condition. • • • • • • • Enhancing our offer of technical and pipe management services We continue to enhance our offer of technical and pipe management services for our customers worldwide. Through the provision of these services, we seek to enable our customers to optimize their operations, reduce costs and to concentrate on their core businesses. They are also intended to differentiate us from our competitors and further strengthen our relationships with our customers worldwide through long-term agreements. For example, in Mexico, since 1994, we supply Pemex, the state-owned oil company, one of the world’s largest crude oil and condensates producers under just-in-time, or JIT, agreements, which allow us to provide it with comprehensive pipe management services on a continuous basis. Business Segments Tenaris has one major business segment, Tubes, which is also the reportable operating segment. The Tubes segment includes the production and sale of both seamless and welded steel tubular products and related services mainly for the oil and gas industry, particularly oil country tubular goods (OCTG) used in drilling operations, and for other industrial applications with production processes that consist in the transformation of steel into tubular products. Business activities included in this segment are mainly dependent on the oil and gas industry worldwide, as this industry is a major consumer of steel pipe products, particularly OCTG used in drilling activities. Demand for steel 12. s i r a n e T pipe products from the oil and gas industry has historically been volatile and depends primarily upon the number of oil and natural gas wells being drilled, completed and reworked, and the depth and drilling conditions of these wells. Sales are generally made to end users, with exports being done through a centrally managed global distribution network and domestic sales made through local subsidiaries. Corporate general and administrative expenses have been allocated to the Tubes segment. Others include all other business activities and operating segments that are not required to be separately reported, including the production and selling of sucker rods, welded steel pipes for electric conduits, industrial equipment, coiled tubing, energy and raw materials that exceed internal requirements. For more information on our business segments, see accounting policy C “Segment information” to our audited consolidated financial statements included in this annual report. Our Products Our principal finished products are seamless and welded steel casing and tubing, line pipe and various other mechanical and structural steel pipes for different uses. Casing and tubing are also known as oil country tubular goods or OCTG. We manufacture our steel pipe products in a wide range of specifications, which vary in diameter, length, thickness, finishing, steel grades, threading and coupling. For most complex applications, including high pressure and high temperature applications, seamless steel pipes are usually specified and, for some standard applications, welded steel pipes can also be used. Casing Steel casing is used to sustain the walls of oil and gas wells during and after drilling. Tubing Steel tubing is used to conduct crude oil and natural gas to the surface after drilling has been completed. Line pipe Steel line pipe is used to transport crude oil and natural gas from wells to refineries, storage tanks and loading and distribution centers. Mechanical and structural pipes Mechanical and structural pipes are used by general industry for various applications, including the transportation of other forms of gas and liquids under high pressure. Cold-drawn pipe The cold-drawing process permits the production of pipes with the diameter and wall thickness required for use in boilers, superheaters, condensers, heat exchangers, automobile production and several other industrial applications. Premium joints and couplings Premium joints and couplings are specially designed connections used to join lengths of steel casing and tubing for use in high temperature or high pressure environments. A significant portion of our steel casing and tubing products are supplied with premium joints and couplings. We own an extensive range of premium connections, and following the integration of Hydril’s premium connections business, we market our premium connection products under the TenarisHydril brand name. In addition, we hold licensing rights to manufacture and sell the Atlas Bradford range of premium connections outside of the United States. complexities of oil and gas projects with innovative applications. In addition, our global technical sales team is made up of experienced engineers who work with our customers to identify solutions for each particular oil and gas drilling environment. 13. t r o p e R l a u n n A Coiled tubing Coiled tubing is used for oil and gas drilling and well workovers and for subsea pipelines. Product development and research currently being undertaken are focused on the increasingly challenging energy markets and include: Other Products We also manufacture sucker rods used in oil extraction activities, industrial equipment of various specifications and diverse applications, including liquid and gas storage equipment, and welded steel pipes for electric conduits used in the construction industry. In addition, we sell raw materials that exceed our internal requirements. Research and Development Research and development, or R&D, of new products and processes to meet the increasingly stringent requirements of our customers is an important aspect of our business. R&D activities are carried out primarily at our specialized research facilities located at Campana in Argentina, at Veracruz in Mexico, at Dalmine in Italy, at the product testing facilities of NKKTubes in Japan and at the research facilities of the Centro Sviluppo Materiali S.p.A, or CSM, in Rome, in which we have a 4% interest. In addition, we are building a new R&D center at Ilha do Fundao, Rio de Janeiro, Brazil, expected to start operating in the second quarter of 2014. We strive to engage some of the world’s leading industrial research institutions to solve the problems posed by the • • • • • • • • proprietary premium joint products including Dopeless® technology; heavy wall deep water line pipe, risers and welding technology; proprietary steels; tubes and components for the car industry and mechanical applications; tubes for boilers; welded pipes for oil and gas and other applications; sucker rods; and coatings. In addition to R&D aimed at new or improved products, we continuously study opportunities to optimize our manufacturing processes. Recent projects in this area include modeling of rolling and finishing process and the development of different process controls, with the goal of improving product quality and productivity at our facilities. We seek to protect our intellectual property, from R&D and innovation, through the use of patents and trademarks that allow us to differentiate ourselves from our competitors. We spent $106 million for R&D in 2013, compared to $83 million both in 2012 and in 2011. NET SALES EARNINGS PER SHARE NET SALES BY BUSINESS SEGMENT NET SALES BY REGIONAL AREA TUBES 93% OTHER 7% MIDDLE EAST & AFRICA 20% FAR EAST & OCEANIA 5% PERSONNEL EMPLOYED PER COUNTRY ROMANIA 6% COLOMBIA 2% INDONESIA 3% CANADA 5% JAPAN 2% OTHER COUNTRIES 5% D S U 1.8 1.6 1.4 1.2 1.0 1.44 1.31 0.98 0.95 1.13 N O I L L I M D S U 12000 10000 8000 6000 10834 10597 9972 8149 7712 0.8 4000 Tenaris in numbers 2000 0.6 0.4 0.2 0 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Trend information Leading indicators RIG COUNT INTERNATIONAL EARNINGS PER SHARE NET SALES BY NET SALES BY BUSINESS SEGMENT BUSINESS SEGMENT MISC GAS OIL RIG COUNT USA AND CANADA NET SALES NET SALES NET SALES BY NET SALES BY NET SALES BY BUSINESS SEGMENT REGIONAL AREA REGIONAL AREA GAS OIL EUROPE 9% SOUTH AMERICA 24% NORTH AMERICA 42% BRAZIL 12% ITALY 9% UNITED STATES 13% ARGENTINA 24% MEXICO 20% LOST TIME ACCIDENTS INDEX EARNINGS PER SHARE EARNINGS PER SHARE PERSONNEL EMPLOYED PERSONNEL EMPLOYED NET SALES BY REGIONAL AREA PER COUNTRY PER COUNTRY RETURN ON EQUITY NET SALES BY NET SALES BY PERSONNEL EMPLOYED BUSINESS SEGMENT BUSINESS SEGMENT PER COUNTRY EBITDA MARGIN NET SALES BY NET SALES BY REGIONAL AREA REGIONAL AREA NET SALES EARNINGS PER SHARE EARNINGS PER SHARE 14. s i r a n e T D S U D S U 1.8 1.6 1.4 8149 1.2 1.8 1.6 1.4 1.2 7712 10834 10597 1.44 9972 1.44 1.31 1.31 1.0 0.98 0.98 0.95 1.13 0.95 1.13 0.8 0.6 0.4 0.2 1.0 0.8 0.6 0.4 0.2 0 0 2009 2010 2011 2012 2013 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 S G R I 1400 D S U 1200 1.8 1.6 1000 1.4 800 1.2 1.0 600 0.8 400 0.6 0.4 200 0.2 0 0 TUBES 93% TUBES 93% 41 228 897 1.13 31 238 825 0.95 24 209 764 0.98 48 226 1.44 960 50 242 1004 1.31 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 OTHER 7% TUBES OTHER 93% 7% S G R I MIDDLE EAST MIDDLE EAST & AFRICA & AFRICA N N 20% 20% O O I I L L L L I I M M D S U D S U FAR EAST & OCEANIA OTHER 5% 7% N FAR EAST MIDDLE EAST S R S O U T & OCEANIA & AFRICA I L N O L E H I 5% 20% M D N C R A C E M A P / I COLOMBIA ROMANIA ROMANIA 2% 6% 6% INDONESIA INDONESIA 3% 3% D S CANADA CANADA U 5% 5% 1.8 1.8 D S U COLOMBIA 2% JAPAN ROMANIA JAPAN FAR EAST 6% 2% 2% & OCEANIA OTHER OTHER 5% COUNTRIES COUNTRIES 5% 5% TUBES 93% INDONESIA 3% % CANADA 5% 30 COLOMBIA 2% TUBES 93% 12000 12000 10000 10000 1027 9972 658 10834 10597 10597 10834 9972 503 8000 8149 1092 8000 8149 7712 6000 921 6000 1263 7712 1621 1606 1.6 1.4 1.2 1.0 3.4 0.8 0.6 1.6 1.4 1.2 0.98 1.0 3.7 0.8 0.6 1.44 1.44 1.31 1.31 0.98 0.95 3.2 1.13 0.95 3.0 1.13 2.2 25 20 15 10 7 6 5 4 3 2 1 4000 4000 790 2000 2000 380 EUROPE 0 9% 2009 EUROPE NORTH NORTH EUROPE SOUTH SOUTH 0 0 AMERICA AMERICA 9% 9% AMERICA AMERICA 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 42% 42% 24% 24% 0.4 BRAZIL 0.2 12% 0 ITALY 9% 0.4 BRAZIL 0.2 12% MEXICO MEXICO UNITED UNITED NORTH SOUTH 0 20% 20% STATES STATES AMERICA ITALY AMERICA 13% 13% 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 42% 9% 24% ARGENTINA ARGENTINA 24% 24% 5 BRAZIL 12% 0 ITALY 9% UNITED STATES 13% 2009 2010 2011 2012 Source: Baker Hughes Source: Baker Hughes RIG COUNT INTERNATIONAL RIG COUNT USA AND CANADA RIG COUNT USA AND CANADA RIG COUNT USA AND CANADA LOST TIME ACCIDENTS INDEX LOST TIME ACCIDENTS INDEX RIG COUNT INTERNATIONAL RIG COUNT INTERNATIONAL LOST TIME ACCIDENTS INDEX RETURN ON EQUITY RETURN ON EQUITY RETURN ON EQUITY RIG COUNT USA AND CANADA EBITDA MARGIN RIG COUNT USA AND CANADA EBITDA MARGIN EBITDA MARGIN LOST TIME ACCIDENTS INDEX LOST TIME ACCIDENTS INDEX OIL OIL GAS GAS MISC MISC OIL OIL OIL GAS GAS MISC GAS OIL GAS OIL OIL GAS GAS MISC MISC OIL OIL GAS GAS 50 48 242 226 50 242 1004 960 1004 48 41 226 228 960 897 41 31 228 238 897 825 31 238 24 209 209 825 764 764 S G I R S G R I 31 238 825 24 209 764 50 242 1027 658 1004 48 226 1027 960 1092 41 228 897 1092 S G R I 658 503 503 1621 1621 1606 1606 921 921 1263 1263 790 790 380 380 2009 2010 2011 2012 2011 2010 2009 2010 2009 2013 2012 2013 2011 2012 2013 N O I L L I M R E P S R U O H N A M S T N E D C C A N O I L L I M R E P S R U O H N A M / / I S T N E D C C A I N O I L L I M R E P S R U O H N A M / S T N E D C C A I 7 6 5 4 921 3 2 1 380 0 2009 7 6 5 1092 4 3.4 3 2 790 1 1027 658 503 3.7 3.4 1263 1621 3.7 3.2 1606 3.2 3.0 3.0 2.2 2.2 0 2009 2010 2011 2012 2009 2010 2011 2012 2013 2012 2013 2010 2011 2013 7 6 5 4 3 2 1 0 S G R I S G R I 1400 % 1400 % 1200 30 1200 30 1000 25 24 1000 25 209 800 20 600 15 3.4 400 10 800 20 764 600 3.7 15 400 10 200 5 200 5 50 48 242 226 50 242 1004 960 1004 31 238 24 209 825 764 3.2 41 31 228 238 897 825 3.0 48 41 226 228 960 897 2.2 0 0 0 0 2009 2010 2011 2012 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2013 S G R I S G R I % % % 30 25 20 15 10 5 0 35 35 30 30 25 25 1027 1027 658 658 503 503 1092 1092 1621 1621 1606 1606 921 921 1263 1263 20 20 790 790 15 15 380 380 10 10 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 % 35 30 25 20 15 10 Source: Baker Hughes Source: Baker Hughes Source: Baker Hughes Source: Baker Hughes Source: Baker Hughes Source: Baker Hughes Source: Baker Hughes Source: Baker Hughes N O I L L I M R E P S R U O H N A M S T N E D C C A N O I L L I M R E P S R U O H N A M / / I S T N E D C C A I 7 6 5 4 3 2 1 7 6 5 4 3.4 3 2 1 3.7 3.4 3.7 3.2 3.2 3.0 3.0 2.2 2.2 0 0 2009 2010 2011 2012 2009 2010 2011 2012 2013 2009 2010 2011 2012 NET SALES NET SALES 10834 10834 10597 10597 10000 10000 9972 9972 8000 8000 8149 8149 7712 7712 2009 2010 2011 2012 2009 2010 2011 2012 2013 2013 RIG COUNT INTERNATIONAL RIG COUNT INTERNATIONAL N O I L L I M D S U N O I L L I M D S U 12000 12000 6000 6000 4000 4000 2000 2000 0 0 S G I R S G I R 1400 1400 1200 1200 1000 1000 24 800 800 600 600 400 400 200 200 0 0 N O I L D S U L I M 12000 10000 8000 6000 4000 2000 0 S G I R 1400 1200 1000 800 600 400 200 0 2009 2010 2011 2012 2009 2010 2011 2012 2013 2013 Source: Baker Hughes Source: Baker Hughes OTHER OTHER 7% 7% MIDDLE EAST MIDDLE EAST & AFRICA & AFRICA 20% 20% FAR EAST FAR EAST & OCEANIA & OCEANIA 5% 5% JAPAN 2% OTHER COUNTRIES 5% PERSONNEL EMPLOYED PERSONNEL EMPLOYED PER COUNTRY PER COUNTRY ROMANIA ROMANIA COLOMBIA COLOMBIA 6% 6% 2% 2% JAPAN JAPAN 2% 2% INDONESIA INDONESIA 3% 3% CANADA CANADA 5% 5% OTHER OTHER COUNTRIES COUNTRIES 5% 5% ARGENTINA 24% MEXICO 20% 2013 EUROPE EUROPE SOUTH SOUTH NORTH NORTH 10 9% 9% AMERICA AMERICA AMERICA AMERICA 2009 2010 2011 2012 2013 24% 24% 42% 42% BRAZIL BRAZIL 12% 12% ITALY ITALY 9% 9% UNITED UNITED MEXICO MEXICO STATES STATES 20% 20% 13% 13% ARGENTINA ARGENTINA 24% 24% RETURN ON EQUITY RETURN ON EQUITY EBITDA MARGIN EBITDA MARGIN % % 35 35 30 30 25 25 20 20 15 15 10 10 2013 2013 2009 2010 2011 2012 2009 2010 2011 2012 2013 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 % 35 30 25 20 15 % % 30 30 25 25 20 20 15 15 10 10 5 0 5 0 NET SALES NET SALES EARNINGS PER SHARE EARNINGS PER SHARE NET SALES NET SALES BY NET SALES BY EARNINGS PER SHARE BUSINESS SEGMENT BUSINESS SEGMENT NET SALES BY REGIONAL AREA NET SALES BY NET SALES BY REGIONAL AREA BUSINESS SEGMENT N O I L L I M N O I L L I M D S U D S U 12000 12000 6000 6000 4000 4000 2000 2000 0 0 10834 10834 10597 10597 10000 10000 9972 9972 8149 8149 8000 8000 7712 7712 1.44 9972 10834 1.44 10597 1.31 1.31 8149 1.0 1.0 0.98 0.98 0.95 7712 1.13 0.95 1.13 2009 2010 2011 2012 2009 2010 2011 2012 2013 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 D S U N O I L L I M D S D U S U 1.8 1.8 12000 1.6 1.6 1.4 10000 1.4 1.2 1.2 8000 0.8 6000 0.8 0.6 0.6 4000 0.4 0.4 0.2 2000 0.2 0 0 0 TUBES 93% TUBES 93% D S U 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0 OTHER 7% OTHER 7% MIDDLE EAST MIDDLE EAST & AFRICA & AFRICA TUBES 20% 20% 93% FAR EAST FAR EAST & OCEANIA & OCEANIA OTHER 5% 5% 7% 1.44 1.31 0.98 0.95 1.13 2009 2010 2011 2012 2013 EUROPE EUROPE 9% 9% SOUTH SOUTH AMERICA AMERICA 24% 24% NORTH NORTH AMERICA AMERICA 42% 42% PERSONNEL EMPLOYED PERSONNEL EMPLOYED NET SALES BY PER COUNTRY PER COUNTRY REGIONAL AREA ROMANIA ROMANIA 6% 6% MIDDLE EAST INDONESIA INDONESIA & AFRICA 3% 3% 20% CANADA CANADA 5% 5% COLOMBIA COLOMBIA 2% 2% JAPAN JAPAN 2% 2% FAR EAST & OCEANIA OTHER OTHER 5% COUNTRIES COUNTRIES 5% 5% 15. PERSONNEL EMPLOYED PER COUNTRY ROMANIA 6% COLOMBIA 2% INDONESIA 3% CANADA 5% t r o p e R l JAPAN 2% a OTHER u n COUNTRIES n 5% A BRAZIL 12% BRAZIL 12% ITALY 9% EUROPE ITALY 9% 9% ARGENTINA 24% ARGENTINA 24% UNITED STATES 13% UNITED STATES 13% MEXICO SOUTH 20% AMERICA 24% MEXICO 20% NORTH AMERICA 42% BRAZIL 12% ITALY 9% UNITED STATES 13% ARGENTINA 24% MEXICO 20% NET SALES EARNINGS PER SHARE RIG COUNT INTERNATIONAL RIG COUNT INTERNATIONAL NET SALES BY RIG COUNT USA AND CANADA RIG COUNT USA AND CANADA RIG COUNT INTERNATIONAL NET SALES BY BUSINESS SEGMENT REGIONAL AREA LOST TIME ACCIDENTS INDEX RIG COUNT USA AND CANADA LOST TIME ACCIDENTS INDEX PERSONNEL EMPLOYED PER COUNTRY RETURN ON EQUITY RETURN ON EQUITY LOST TIME ACCIDENTS INDEX EBITDA MARGIN EBITDA MARGIN RETURN ON EQUITY EBITDA MARGIN N O I L L I M R E P S R U O H N A M % / S T N E D C C A I % 30 25 30 7 25 6 20 5 20 % 35 % % 35 30 30 30 25 15 10 5 0 4 15 3.7 3.4 3.2 3 10 2 5 1 0 0 2009 2010 2011 2012 3.0 2.2 25 20 15 10 2009 2010 2011 2012 2009 2010 2011 2012 2013 2013 2013 20 25 15 20 10 15 5 10 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 % 35 30 25 20 15 10 2009 2010 2011 2012 2013 D S U 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0 S G I R N O I L L D S U I M 12000 10000 8000 6000 4000 2000 0 S G I R 1400 1200 1000 800 600 400 200 0 10834 10597 9972 8149 7712 1.44 1.31 0.98 0.95 1.13 OIL OIL GAS GAS MISC MISC GAS GAS GAS OTHER 7% 50 48 50 242 242 48 41 226 226 1004 1004 960 960 1200 1200 31 41 31 1000 1000 24 238 24 228 238 228 209 209 764 764 897 825 897 825 S TUBES G G S I R 93% I R 1400 1400 800 800 600 600 400 400 200 200 0 0 OIL OIL OIL MIDDLE EAST & AFRICA 20% S G I R S S G I R G 1400 I R 24 209 1092 31 41 1027 238 1027 228 658 1092 825 897 1263 1263 790 790 764 921 600 921 1200 1000 800 400 200 MISC FAR EAST & OCEANIA 5% 50 242 503 1004 48 226 658 503 960 1621 1621 1606 1606 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2009 2010 2011 2012 2013 2013 380 380 EUROPE 9% 0 SOUTH AMERICA 2009 2009 2010 2010 2011 24% 2011 2012 2013 2009 2010 2011 2012 NORTH AMERICA 2012 2013 42% 2013 OIL I / ROMANIA N N S S 6% R R S S O O U U T T I I L L N N O O INDONESIA L L E E H H I I M M D D 3% N N C C R R A A C C E E M M A A CANADA P P S G 5% R 7 7 / I I 6 5 4 3 2 6 5 4 3.4 3 2 BRAZIL 1 1 12% 0 ITALY 9% COLOMBIA GAS 2% JAPAN 2% OTHER COUNTRIES 5% 3.7 3.4 921 1092 3.7 3.2 790 1027 658 503 3.2 3.0 1263 1606 1621 3.0 2.2 2.2 ARGENTINA 24% UNITED 380 STATES 13% 2009 2010 2011 2012 2009 0 2009 2010 2011 2012 2011 MEXICO 20% 2010 2013 2013 2012 2013 Source: Baker Hughes Source: Baker Hughes Source: Baker Hughes Source: Baker Hughes Source: Baker Hughes Source: Baker Hughes RIG COUNT INTERNATIONAL RIG COUNT USA AND CANADA LOST TIME ACCIDENTS INDEX RETURN ON EQUITY EBITDA MARGIN OIL GAS MISC OIL GAS 50 242 1004 48 226 960 41 228 897 31 238 825 24 209 764 N O I L L I M R E P S R U O H / N A M S T N E D I C C A 7 6 5 4 3 2 1 0 1027 658 503 1621 1606 921 1263 1092 790 380 3.7 3.4 3.2 3.0 2.2 % 30 25 20 15 10 5 0 % 35 30 25 20 15 10 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Source: Baker Hughes Source: Baker Hughes 16. s i r a n e T Principal risks and uncertainties We face certain risks associated to our business and the industry in which we operate. We are a global steel pipe manufacturer with a strong focus on manufacturing products and related services for the oil and gas industry. Demand for our products depends primarily on the level of exploration, development and production activities of oil and gas companies which is affected by current and expected future prices of oil and natural gas. Several factors, such as the supply and demand for oil and gas, and political and global economic conditions, affect these prices. Performance may be further affected by changes in governmental policies, the impact of credit restrictions on our customers’ ability to perform their payment obligations with us and any adverse economic, political or social developments in our major markets. Furthermore, competition in the global market for steel pipe products may cause us to lose market share and hurt our sales and profitability and our profitability may be hurt if increases in the cost of raw materials and energy could not be offset by higher selling prices. In addition, there is an increased risk of unfairly-traded steel pipe imports in markets in which Tenaris produces and sells its products. A recession in the developed countries, a cooling of emerging market economies or an extended period of below-trend growth in the economies that are major consumers of steel pipe products would likely result in reduced demand of our products, adversely affecting our revenues, profitability and financial condition. We have significant operations in various countries, including Argentina, Brazil, Canada, Colombia, Italy, Japan, Mexico, Romania and the United States, and we sell our products and services throughout the world. Therefore, like other companies with worldwide operations, our business and operations have been, and could in the future be, affected from time to time to varying degrees by political, economical and social developments and changes in, laws and regulations. These developments and changes may include, among others, nationalization, expropriations or forced divestiture of assets; restrictions on production, imports and exports, interruptions in the supply of essential energy inputs; exchange and/or transfer restrictions, inability or increasing difficulties to repatriate income or capital or to make contract payments; inflation; devaluation; war or other international conflicts; civil unrest and local security concerns, including high incidences of crime and violence involving drug trafficking organizations that threaten the safe operation of our facilities and operations; direct and indirect price controls; tax increases and changes in the interpretation, application or enforcement of tax laws and other retroactive tax claims or challenges; changes in laws, norms and regulations; cancellation of contract rights; and delays or denials of governmental approvals. As a global company, a portion of our business is carried out in currencies other than the U.S. dollar, which is the Company’s functional currency. As a result, we are exposed to foreign exchange rate risk, which could adversely affect our financial position and results of operations. In 2009, Venezuela’s former President Hugo Chávez announced the nationalization of Tavsa, Matesi, Materiales Siderúrgicos S.A., or Matesi, and Complejo Siderurgico de Guayana, C.A., or Comsigua, and Venezuela formally assumed exclusive operational control over the assets of Tavsa. In 2010, Venezuela’s National Assembly declared Matesi’s assets to be of public and social 17. t r o p e R l a u n n A interest and ordered the Executive Branch to take the necessary measures for the expropriation of such assets. Our investments in Tavsa, Matesi and Comsigua are protected under applicable bilateral investment treaties, including the bilateral investment treaty between Venezuela and the Belgian-Luxembourgish Union, and Tenaris continues to reserve all of its rights under contracts, investment treaties and Venezuelan and international law. Tenaris has consented to the jurisdiction of the International Centre for Settlement of Investment Disputes, or ICSID, in connection with the nationalization process. In August 2011 and July 2012, respectively, Tenaris and its wholly-owned subsidiary Talta - Trading e Marketing Sociedad Unipessoal Lda, or Talta, initiated arbitration proceedings against Venezuela before the ICSID seeking adequate and effective compensation for the expropriation of their investments in Matesi and Tavsa and Comsigua. However, we can give no assurance that the Venezuelan government will agree to pay a fair and adequate compensation for our interest in Tavsa, Matesi and Comsigua, or that any such compensation will be freely convertible into or exchangeable for foreign currency. For further information on the nationalization of the Venezuelan subsidiaries, see note 31 “Nationalization of Venezuelan Subsidiaries” to our audited consolidated financial statements included in this annual report. A key element of our business strategy is to develop and offer higher value-added products and services and to continuously identify and pursue growth-enhancing strategic opportunities. We must necessarily base any assessment of potential acquisitions, joint ventures and investments, on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect. Failure to successfully implement our strategy, or to integrate future acquisitions and strategic investments, or to sell acquired assets or business unrelated to our business under favorable terms and conditions, could affect our ability to grow, our competitive position and our sales and profitability. In addition, failure to agree with our joint venture partner in Japan on the strategic direction of our joint operations may have an adverse impact on our operations in Japan. We may be required to record a significant charge to earnings if we must reassess our goodwill or other assets as a result of changes in assumptions underlying the carrying value of certain assets, particularly as a consequence of deteriorating market conditions. At December 31, 2013 we had $1,807 million in goodwill corresponding mainly to the acquisition of Hydril, in 2007 ($920 million) and Maverick, in 2006 ($771 million). As of December 31, 2012, an impairment test over our investment in Usiminas was performed and, subsequently, the goodwill of such investment was written down by $74 million. If our management were to determine in the future that the goodwill or other assets were impaired, particularly as a consequence of deteriorating market conditions, we would be required to recognize a non-cash charge to reduce the value of these assets, which would adversely affect our results of operations. Potential environmental, product liability and other claims arising from the inherent risks associated with the products we sell and the services we render, including well failures, line 18. s i r a n e T pipe leaks, blowouts, bursts and fires, that could result in death, personal injury, property damage, environmental pollution or loss of production could create significant liabilities for us. Environmental laws and regulations may, in some cases, impose strict liability (even joint and several strict liability) rendering a person liable for damages to natural resources or threats to public health and safety without regard to negligence or fault. In addition, we are subject to a wide range of local, provincial and national laws, regulations, permit requirements and decrees relating to the protection of human health and the environment, including laws and regulations relating to hazardous materials and radioactive materials and environmental protection governing air emissions, water discharges and waste management. Laws and regulations protecting the environment have become increasingly complex and more stringent and expensive to implement in recent years. The cost of complying with such regulations is not always clearly known or determinable since some of these laws have not yet been promulgated or are under revision. These costs, along with unforeseen environmental liabilities, may increase our operating costs or negatively impact our net worth. We conduct business in certain countries known to experience governmental corruption. Although we are committed to conducting business in a legal and ethical manner in compliance with local and international statutory requirements and standards applicable to our business, there is a risk that our employees or representatives may take actions that violate applicable laws and regulations that generally prohibit the making of improper payments to foreign government officials for the purpose of obtaining or keeping business, including laws relating to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions such as the U.S. Foreign Corrupt Practices Act, or FCPA. Particularly in respect of FCPA, in May 2011, we entered into settlements with the U.S. Department of Justice, or DOJ, and the U.S. Securities and Exchange Commission, or SEC, and we undertook several remediation efforts, including voluntary enhancements to our compliance program. Our obligations under these settlements expired in May, 2013. As a holding company, our ability to pay expenses, debt service and cash dividends depends on the results of operations and financial condition of our subsidiaries, which could be restricted by legal, contractual or other limitations, including exchange controls or transfer restrictions, and other agreements and commitments of our subsidiaries. The Company’s controlling shareholder may be able to take actions that do not reflect the will or best interests of other shareholders. Our financial risk management is described in Section III. Financial Risk Management, and our provisions and contingent liabilities are described in accounting policy P and notes 23, 24 and 26 of our audited consolidated financial statements included in this annual report. 19. t r o p e R l a u n n A Operating and financial review and prospects The following discussion and analysis of our financial condition and results of operations are based on, and should be read in conjunction with, our audited consolidated financial statements and the related notes included elsewhere in this annual report. This discussion and analysis presents our financial condition and results of operations on a consolidated basis. We prepare our consolidated financial statements in conformity with IFRS, as issued by the IASB and adopted by the E.U. Certain information contained in this discussion and analysis and presented elsewhere in this annual report, including information with respect to our plans and strategy for our business, includes forward looking statements that involve risks and uncertainties. See “Cautionary Statement Concerning Forward-Looking Statements”. In evaluating this discussion and analysis, you should specifically consider the various risk factors identified in “Principal Risks and Uncertainties”, other risk factors identified elsewhere in this annual report and other factors that could cause results to differ materially from those expressed in such forward looking statements. Overview We are a leading global manufacturer and supplier of steel pipe products and related services for the energy industry and other industries. We are a leading global manufacturer and supplier of steel pipe products and related services for the world’s energy industry as well as for other industrial applications. Our customers include most of the world’s leading oil and gas companies as well as engineering companies engaged in constructing oil and gas gathering and processing and power facilities. Over the last two decades, we have expanded our business globally through a series of strategic investments, and we now operate an integrated worldwide network of steel pipe manufacturing, research, finishing and service facilities with industrial operations in the Americas, Europe, Asia and Africa and a direct presence in most major oil and gas markets. Our main source of revenue is the sale of products and services to the oil and gas industry, and the level of such sales is sensitive to international oil and gas prices and their impact on drilling activities. Demand for our products and services from the global oil and gas industry, particularly for tubular products and services used in drilling operations, represents a substantial majority of our total sales. Our sales, therefore, depend on the condition of the oil and gas industry and our customers’ willingness to invest capital in oil and gas exploration and development as well as in associated downstream processing activities. The level of these expenditures is sensitive to oil and gas prices as well as the oil and gas industry’s view of such prices in the future. A growing proportion of exploration and production spending by oil and gas companies has been directed at offshore, deep drilling and non-conventional drilling operations in which high-value tubular products, including special steel grades and premium connections, are usually specified. Technological advances in drilling 20. s i r a n e T techniques and materials are opening up new areas for exploration and development. More complex drilling conditions are expected to continue to demand new and high value products and services in most areas of the world. In 2013, worldwide drilling activity declined 3% compared to the level of 2012. In the United States the rig count in 2013 declined by 8% but consumption of OCTG was offset by improved drilling efficiencies. In Canada the rig count declined by 3% in 2013. In the rest of the world, the rig count increased 5% in 2013. During 2013, our sales in the Middle East and Africa reached a record level led by natural gas drilling activity in the Middle East and deepwater projects in sub-Saharan Africa. Our business is highly competitive. The global market for steel pipes is highly competitive, with the primary competitive factors being price, quality, service and technology. We sell our products in a large number of countries worldwide and compete primarily against European and Japanese producers in most markets outside North America. In the United States and Canada we compete against a wide range of local and foreign producers. Competition in markets worldwide has been increasing, particularly for products used in standard applications, as producers in countries like China and Russia increase production capacity and enter export markets. In addition, there is an increased risk of unfairly- traded steel pipe imports in markets in which we produce and sell our products. In February 2014, the U.S. Department of Commerce, or DOC, imposed preliminary anti-dumping duties on OCTG imports from various countries; however, imports from Korea, which are the largest among the imports under investigation, were not subject to anti-dumping duties. However, the DOC has stated that, in its final determination (July 7, 2014), it will consider additional elements that, in our view, strongly support the case against Korean imports. Our production costs are sensitive to prices of steelmaking raw materials and other steel products. We purchase substantial quantities of steelmaking raw materials, including ferrous steel scrap, direct reduced iron (DRI), pig iron, iron ore and ferroalloys, for use in the production of our seamless pipe products. In addition, we purchase substantial quantities of steel coils and plate for use in the production of our welded pipe products. Our production costs, therefore, are sensitive to prices of steelmaking raw materials and certain steel products, which reflect supply and demand factors 21. t r o p e R l a u n n A in the global steel industry and in the countries where we have our manufacturing facilities. The costs of steelmaking raw materials and of steel coils and plates were relatively stable in 2013 and overall slightly below the average level for 2012. We expect these costs to remain stable during 2014. Outlook With the economic recovery taking hold, demand for energy is increasing and, despite higher supply in North America, oil prices remain at levels which should continue to support investments in exploration and production activity during 2014. In the United States, for 2014, we expect a similar level of onshore drilling activity and OCTG consumption but activity should increase in the Gulf of Mexico. In South America we expect sales to be affected by continuing project delays in Brazil. In the Middle East and Africa, for 2014 we expect sales to remain at a similar level than in 2013. Despite the negative impact on our sales in the U.S. market, resulting from the preliminary anti-dumping ruling made by the DOC, and the continuing project delays in Brazil, our overall results for 2014 are expected to be in line with those for 2013, supported by positive developments in the rest of the world. 22. s i r a n e T Results of Operations Millions of U.S. dollars (except number of shares and per share amounts) FOR THE YEAR ENDED DECEMBER 31 2013 2012 Selected consolidated income statement data CONTINUING OPERATIONS Net sales Cost of sales Gross profit Selling, general and administrative expenses Other operating income (expenses), net Operating income Interest income Interest expense Other financial results Income before equity in earnings of associated companies and income tax Equity in earnings (losses) of associated companies Income before income tax Income tax Income for the year (1) INCOME ATTRIBUTABLE TO (1) Owners of the parent Non-controlling interests Income for the year (1) Depreciation and amortization Weighted average number of shares outstanding Basic and diluted earnings per share Dividends per share (2) (1) International Accounting Standard No. 1 (“IAS 1”) (revised), requires that income for the year as shown on the income statement does not exclude non-controlling interests. Earnings per share, however, continue to be calculated on the basis of income attributable solely to the owners of the parent. (2) Dividends per share correspond to the dividends proposed or paid in respect of the year. 10,597 (6,457) 4,140 (1,941) (14) 2,185 33 (70) 9 2,156 46 2,202 (628) 1,574 1,551 23 1,574 10,834 (6,637) 4,197 (1,884) 44 2,357 33 (56) (28) 2,307 (63) 2,243 (542) 1,702 1,699 2 1,702 (610) (568) 1,180,536,830 1,180,536,830 1.31 0.43 1.44 0.43 Millions of U.S. dollars (except number of shares) AT DECEMBER 31 Selected consolidated financial position data Current assets Property, plant and equipment, net Other non-current assets Total assets Current liabilities Non-current borrowings Deferred tax liabilities Other non-current liabilities Total liabilities Capital and reserves attributable to the owners of the parent Non-controlling interests Total Equity Total liabilities and equity Share capital Number of shares outstanding 23. t r o p e R l a u n n A 2013 2012 6,925 4,674 4,332 6,987 4,435 4,537 15,931 15,960 2,120 246 751 344 3,461 12,290 179 12,470 2,829 532 729 370 4,460 11,328 172 11,500 15,931 15,960 1,181 1,181 1,180,536,830 1,180,536,830 24. s i r a n e T The following table sets forth our operating and other costs and expenses as a percentage of net sales for the periods indicated. Percentage of net sales FOR THE YEAR ENDED DECEMBER 31 CONTINUING OPERATIONS Net sales Cost of sales Gross profit Selling, general and administrative expenses Other operating income (expenses), net Operating income Interest income Interest expense Other financial results Income before equity in earnings of associated companies and income tax Equity in (losses) earnings of associated companies Income before income tax Income tax Income for the year INCOME ATTRIBUTABLE TO Owners of the parent Non-controlling interests 2013 2012 100.0 100.0 (60.9) 39.1 (18.3) (0.1) 20.6 0.3 (0.7) 0.1 20.3 0.4 20.8 (5.9) 14.9 14.6 0.2 (61.3) 38.7 (17.4) 0.4 21.8 0.3 (0.5) (0.3) 21.3 (0.6) 20.7 (5.0) 15.7 15.7 0.0 Fiscal year ended December 31, 2013 Compared to fiscal year ended December 31, 2012 The following table shows our net sales by business segment for the periods indicated below: Millions of U.S. dollars FOR THE YEAR ENDED DECEMBER 31 Tubes Others Total 2013 93% 7% 100% 10,023 811 10,834 2012 93% 7% 100% Increase / (Decrease) (2%) (3%) (2%) 9,812 784 10,597 25. t r o p e R l a u n n A Tubes The following table indicates, for our Tubes business segment, sales volumes of seamless and welded pipes for the periods indicated below: Thousands of tons FOR THE YEAR ENDED DECEMBER 31 2013 2012 Seamless Welded Total 2,612 1,049 3,661 2,676 1,188 3,864 Increase / (Decrease) (2%) (12%) (5%) 26. s i r a n e T The following table indicates, for our Tubes business segment, net sales by geographic region, operating income and operating income as a percentage of net sales for the periods indicated below: Millions of U.S. dollars FOR THE YEAR ENDED DECEMBER 31 2013 2012 NET SALES North America South America Europe Middle East & Africa Far East & Oceania Total net sales Operating income Operating income (% of sales) 4,077 2,237 890 2,094 513 9,812 2,097 21.4% 4,954 2,305 1,042 1,247 475 10,023 2,252 22.5% Increase / (Decrease) (18%) (3%) (15%) 68% 8% (2%) (7%) Net sales of tubular products and services decreased 2% to $9,812 million in 2013, compared to $10,023 million in 2012, as a result of a 5% decrease in volumes and a 3% increase in average selling prices, driven by an improvement in the mix of products that offset the impact of lower prices in less differentiated products. In North America, sales decreased due to lower shipments and lower prices for less differentiated products. In South America, sales decreased as sales of line pipe products stopped in the second half of the year. In Europe, sales declined mainly due to lower demand for mechanical products. In the Middle East and Africa, sales increased mainly due to higher shipments of premium OCTG products in the Middle East and for sub Saharan Africa deepwater projects. In the Far East and Oceania, sales increased slightly due to higher shipments of OCTG products in China and Indonesia. Operating income from tubular products and services decreased 7% to $2,097 million in 2013, from $2,252 million in 2012. This decrease in operating income was mainly driven by a 2% decrease in sales and a lower operating margin (21.4% in 2013 vs. 22.5% in 2012). Excluding the non-recurring gain of $49 million recorded in 2012 related to a tax lawsuit collected in Brazil, the decline in operating margin is explained by higher depreciation expenses following the finalization of investments that when available for use started to be depreciated. 27. t r o p e R l a u n n A 28. s i r a n e T Others The following table indicates, for our Others business segment, net sales, operating income and operating income as a percentage of net sales for the periods indicated below: Millions of U.S. dollars FOR THE YEAR ENDED DECEMBER 31 2013 2012 Net sales Operating income Operating income (% of sales) 784 88 811 105 11.2% 12.9% Increase / (Decrease) (3%) (16%) Net sales of other products and services decreased 3% to $784 million in 2013, compared to $811 million in 2012, mainly due to lower sales of industrial equipment in Brazil, coiled tubing and pipes for electric conduit in the United States, partially offset by higher sales of sucker rods. Operating income from other products and services decreased 16% to $88 million in 2013, from $105 million in 2012, reflecting the reduction in activity levels in our industrial equipment business in Brazil, which had a negative impact in operating performance and margins. Selling, general and administrative expenses, or SG&A, increased as a percentage of net sales to 18.3% in 2013 compared to 17.4% in 2012, mainly due to higher selling expenses associated with higher export sales to the Middle East and Africa. Other operating income and expenses resulted in expenses of $14 million in 2013, compared to income of $44 million in 2012, mainly attributable to a non-recurring gain of $49 million related to a successful tax claim in Brazil in 2012. Financial results amounted to a loss of $29 million in 2013, compared to a loss of $50 million in 2012. Net interest expenses amounted to $37 million in 2013, compared to $22 million in 2012. The increase in interest expenses was due to a higher proportion of unhedged Argentine peso-denominated debt (with higher interest rates). This was offset by better other financial results, (a gain of $9 million in 2013, compared to a loss of $28 million in 2012), mainly due to the positive impact of the devaluation of the Argentine peso against the U.S. dollar during 2013 (32.7%) on our Argentine peso-denominated debt. Equity in earnings of associated companies generated a gain of $46 million in 2013, compared to a loss of $63 million in 2012 (the 2012 loss was related to an impairment on our investment in Usiminas). The 2013 gain was mostly derived from our equity investment in Ternium S.A. (NYSE:TX). Income tax charges totalled $628 million in 2013, equivalent to 29.1% of income before equity in earnings of associated companies and income tax, compared to $542 million in 2012, or 23.5% of income before equity in earnings of associated companies and income tax. During 2013, the tax rate was negatively affected mainly by a new withholding tax on dividends from Argentina and by the effect of the Argentine peso devaluation on the tax base used to calculate deferred taxes. Income attributable to owners of the parent was $1,551 million, or $1.31 per share ($2.63 per ADS), in 2013, compared to $1,699 million, or $1.44 per share ($2.88 per ADS) in 2012. Income attributable to non-controlling interest was $23 million in 2013, compared to $2 million in 2012. The increase was mostly due to better results at our Japanese subsidiary NKKTubes. Net income decreased 7% during the year, to $1,574 million in 2013, compared to $1,701 million in 2012, mainly reflecting lower operating results and higher taxes, partially offset by higher results from associated companies and financial results. Liquidity and Capital Resources The following table provides certain information related to our cash generation and changes in our cash and cash equivalents position for each of the last two years: 29. t r o p e R l a u n n A Millions of U.S. dollars FOR THE YEAR ENDED DECEMBER 31 Net cash provided by operating activities Net cash used in investing activities Net cash used in financing activities Decrease in cash and cash equivalents Cash and cash equivalents at the beginning of year (excluding overdrafts) Effect of exchange rate changes Decrease in cash and cash equivalents Cash and cash equivalents at the end of year (excluding overdrafts) Cash and cash equivalents at the end of year (excluding overdrafts) Bank overdrafts Other investments Borrowings Net cash / (debt) 2013 2012 2,355 (1,287) (1,217) (149) 773 (26) (149) 598 598 16 1,227 (931) 911 1,860 (1,484) (426) (49) 815 7 (49) 773 773 56 644 (1,744) (271) 30. s i r a n e T Our financing strategy aims at maintaining adequate financial resources and access to additional liquidity. During 2013 we generated $2.4 billion of operating cash flow, our capital expenditures amounted to $753 million and we paid dividends amounting to $508 million. During 2013 we reduced our financial liabilities ($931 million at year end, compared to $1,744 at the beginning) and increased our financial assets ($1,842 million at year end, compared to $1,473 million at the beginning), arriving at the end of the year to a net cash position of $911 million, compared to a net debt position of $271 million at the beginning of the year. We believe that funds from operations, the availability of liquid financial assets and our access to external borrowing through the financial markets will be sufficient to satisfy our working capital needs, to finance our planned capital spending program, to service our debt in the foreseeable future and to address short-term changes in business conditions. We have a conservative approach to the management of our liquidity, which consists mainly of cash and cash equivalents and other current investments, comprising cash in banks, liquidity funds and highly liquid short and medium-term securities. These assets are carried at fair market value, or at historical cost which approximates fair market value. At December 31, 2013, liquid financial assets as a whole (i.e., cash and cash equivalents and other current investments) were 11.6% of total assets compared to 9.2% at the end of 2012. We hold primarily investments in liquidity funds and variable or fixed-rate securities from investment grade issuers. We hold our cash and cash equivalents primarily in U.S. dollars and in major financial centers. As of December 31, 2013, U.S. dollar denominated liquid assets represented 76%, of total liquid financial assets compared to 79% at the end of 2012. 31. t r o p e R l a u n n A Operating activities Net cash provided by operations during 2013 was $2.4 billion, compared to $1.9 billion during 2012. This 27% increase was mainly attributable to a reduction in working capital needs. During 2013 working capital decreased $189 million, while during 2012 it increased $303 million. The main yearly variations were related to a decline in inventories and trade receivables during 2013 ($288 million and $130 million respectively), compared to an increase in inventories and trade receivables during 2012 ($175 million and $167 million respectively). For more information on cash flow disclosures and changes to working capital, see note 28 “Cash flow disclosures” to our audited consolidated financial statements included in this annual report. Investing activities Net cash used in investing activities was $1.3 billion in 2013, compared to $1.5 billion in 2012. With capital expenditures basically stable, amounting to $753 million in 2013 compared to $790 million in 2012, the reduction was mainly due to the lack of investments in subsidiaries and associated companies during 2013, while in 2012 we invested $511 million, mainly for the acquisition of a participation in Usiminas for a total consideration of $505 million. Financing activities Net cash used in financing activities, including dividends paid, proceeds and repayments of borrowings and acquisitions of non-controlling interests, was $1.2 billion in 2013, compared to $426 million in 2012. Dividends paid during 2013 amounted to $508 million, compared to $449 million in 2012. Investments in non-controlling interest amounted to $8 million in 2013, compared to $759 million in 2012, when we acquired the remaining non- controlling interests in Confab. Net repayments of borrowings (repayments less proceeds) totaled $683 million in 2013, compared to net proceeds from borrowings of $783 million in 2012, when we took borrowings to finance the acquisition of our participation in Usiminas and the remaining non-controlling interests in Confab. Our total liabilities to total assets ratio was 0.22:1 as of December 31, 2013 compared to 0.28:1 as of December 31, 2012. Principal Sources of Funding During 2013, we funded our operations with operating cash flows and bank financing. Short-term bank borrowings were used as needed throughout the year. Financial liabilities During 2013, borrowings decreased by $813 million, to $931 million at December 31, 2013, from $1,744 million at December 31, 2012. Borrowings consist mainly of bank loans, including syndicated loans. As of December 31, 2013 U.S. dollar-denominated borrowings plus borrowings denominated in other currencies swapped to the U.S. dollar represented 68% of total borrowings. Additionally, unhedged Argentine peso denominated debt represented 26% of total borrowings as of December 31, 2013. For further information about our financial debt, please see note 20 “Borrowings” to our audited consolidated financial statements included in this annual report. 2013 2012 913 16 2 931 1,686 56 2 1,744 32. s i r a n e T The following table shows the composition of our financial debt at December 31, 2013 and 2012: Millions of U.S. dollars Bank borrowings Bank overdrafts Finance lease liabilities Total borrowings Our weighted average interest rates before tax (considering hedge accounting), amounted to 7.5% at December 31, 2013 and to 2.6% at December 31, 2012. The increase in our weighted average interest rates is explained by an increase in the proportion of unhedged, Argentine peso-denominated debt. This represented 26% of total borrowings as of December 31, 2013 and 3% as of December 31, 2012. Tenaris estimates that the impact of the Argentine peso devaluation on the Argentine peso- denominated debt balance during 2013 represented a 7.05% reduction in its weighted average interest rate before tax. This impact is recorded under net foreign exchange results in Other Financial Results. The maturity of our financial debt is as follows: Millions of U.S. dollars AT DECEMBER 31, 2013 Borrowings Interests to be accrued Total 1 year or less 685 27 711 1-2 years 99 7 107 2-3 years 92 4 96 3-4 years 46 1 47 4-5 years Over 5 years 7 – 7 2 – 2 Total 931 39 970 33. t r o p e R l a u n n A Our current borrowings to total borrowings ratio increased from 0.69:1 as of December 31, 2012 to 0.74:1 as of December 31, 2013. Activities” and note 25 “Derivative financial instruments” to our audited consolidated financial statements included in this annual report. For information on our derivative financial instruments, please see “Quantitative and Qualitative Disclosure about Market Risk – Accounting for Derivative Financial Instruments and Hedging For information regarding the extent to which borrowings are at fixed rates, please see “Quantitative and Qualitative Disclosure about Market Risk”. 34. s i r a n e T Significant borrowings Our most significant borrowings as of December 31, 2013 were as follows: Millions of U.S. dollars Disbursement date Borrower Type 2013 Mainly 2013 January 2012 Tamsa Siderca Confab Bank loans Bank loans Syndicated (**) The main covenants in these loan agreements are limitations on liens and encumbrances, limitations on the sale of certain assets, restrictions on investments, compliance with financial ratios (i.e., leverage ratio and interest coverage ratio) and restrictions on amendments. As of December 31, 2013, Tenaris was in compliance with all of the financial and other covenants. Original & Outstanding Final Maturity 420 217 193 2014 Mainly 2014 January 2017 (**) Quantitative and Qualitative Disclosure about Market Risk 35. t r o p e R l a u n n A The multinational nature of our operations and customer base expose us to a variety of risks, including the effects of changes in foreign currency exchange rates, interest rates and commodity prices. In order to reduce the impact related to these exposures, management evaluates exposures on a consolidated basis to take advantage of natural exposure netting. For the residual exposures, we may enter into various derivative transactions in order to reduce potential adverse effects on our financial performance. Such derivative transactions are executed in accordance with internal policies and hedging practices. We do not enter into derivative financial instruments for In millions of U.S. dollars EXPECTED MATURITY DATE trading or other speculative purposes, other than non-material investments in structured products. The following information should be read together with section 3, “Financial risk management” to our audited consolidated financial statements included elsewhere in this annual report. Debt Structure The following tables provide a breakdown of our debt instruments at December 31, 2013 and 2012 which included fixed and variable interest rate obligations, detailed by maturity date: AT DECEMBER 31, 2013 2014 2015 2016 2017 2018 Thereafter Total (1) NON-CURRENT DEBT Fixed rate Floating rate CURRENT DEBT Fixed rate Floating rate – – 616 69 685 16 85 – – 101 8 83 – – 91 1 45 – – 46 1 6 – – 7 1 0 – – 1 27 219 616 69 931 AT DECEMBER 31, 2012 2013 2014 2015 2016 2017 Thereafter Total (1) EXPECTED MATURITY DATE NON-CURRENT DEBT Fixed rate Floating rate CURRENT DEBT Fixed rate Floating rate – – 758 453 1,212 8 223 – – 231 8 155 – – 162 1 83 – – 84 1 45 – – 46 2 7 – – 9 20 512 758 453 1,744 (1) As most borrowings are based on short-term fixed rates, or floating rates that approximate market rates, with interest rate resetting every 3 to 6 months, the fair value of the borrowings approximates its carrying amount and is not disclosed separately. 36. s i r a n e T The weighted average interest rates before tax (calculated using the rates set for each instrument at year end, in its corresponding currency and considering derivative financial instruments designated for hedge accounting), amounted to 7.5% at December 31, 2013, compared to 2.6% at December 31, 2012. The increase in weighted average interest rates is explained by an increase in the proportion of unhedged, Argentine peso- denominated debt. This represented 26% of total borrowings as of December 31, 2013, versus 3% as of December 31, 2012. Tenaris estimates that the impact of the Argentine peso devaluation on the Argentine peso-denominated debt balance during 2013 represented a 7.05% reduction on its weighted average interest rate before tax. This impact is recorded under net foreign exchange results in Other Financial Results. Our financial liabilities (other than trade payables and derivative financial instruments) consist mainly of bank loans. As of December 31, 2013 U.S. dollar denominated financial debt plus debt denominated in other currencies swapped to the U.S. dollar represented 68% of total financial debt. For further information about our financial debt, please see note 20 “Borrowings” to our audited consolidated financial statements included in this annual report. Interest Rate Risk Fluctuations in market interest rates create a degree of risk by affecting the amount of our interest payments. At December 31, 2013, we had variable interest rate debt of $288 million and fixed rate debt of $643 million ($616 million of the fixed rate debt are short-term). This risk is to a great extent mitigated by our investment portfolio. In addition, in the past, we have entered into foreign exchange derivative contracts and/or interest rate swaps in order to mitigate the exposure to changes in interest rates, but there were no interest rate derivatives outstanding at December 31, 2013, nor at December 31, 2012. Foreign Exchange Rate Risk We manufacture and sell our products in a number of countries throughout the world and consequently we are exposed to foreign exchange rate risk. Since the Company’s functional currency is the U.S. dollar, the purpose of our foreign currency hedging program is mainly to reduce the risk caused by changes in the exchange rates of other currencies against the U.S. dollar. Most of our revenues are determined or influenced by the U.S. dollar. In addition, most of our costs 37. t r o p e R l a u n n A correspond to steelmaking raw materials and steel coils and plates, also determined or influenced by the U.S. dollar. However, outside the United States, a portion of our expenses is incurred in foreign currencies (e.g. labor costs). Therefore, when the U.S. dollar weakens in relation to the foreign currencies of the countries where we manufacture our products, the U.S. dollar-reported expenses increase. In 2013, a 5% weakening of the U.S. dollar average exchange rate against the currencies of the countries where we have labor costs would have decreased operating income by approximately 3%. Our consolidated exposure to currency fluctuations is reviewed on a periodic basis. A number of hedging transactions are performed in order to achieve an efficient coverage in the absence of operative or natural hedges. Almost all of these transactions are forward exchange rate contracts. Because certain subsidiaries have functional currencies other than the U.S. dollar, the results of hedging activities as reported in the income statement under IFRS may not reflect entirely management’s assessment of its foreign exchange risk hedging needs. Also, intercompany balances between our subsidiaries may generate exchange rate results to the extent that their functional currencies differ. The value of our financial assets and liabilities is subject to changes arising out of the variation of foreign currency exchange rates. The following table provides a breakdown of our main financial assets and liabilities (including foreign exchange derivative contracts) that impact our profit and loss as of December 31, 2013. All amounts in millions of U.S. dollars CURRENCY EXPOSURE / FUNCTIONAL CURRENCY Argentine Peso / U.S. dollar Euro / U.S. dollar U.S. dollar / Brazilian real Long / (Short) Position (369) (138) (51) The main relevant exposures as of December 31, 2013 corresponds to Argentine peso-denominated trade, social and fiscal payables at our Argentine subsidiaries which functional currency is the U.S. dollar, and Euro-denominated liabilities at certain subsidiaries which functional currency is the U.S. dollar. 38. s i r a n e T Foreign Currency Derivative Contracts The fair value of our foreign currency derivative contracts amounted to $1 million at December 31, 2013 and $4 million at December 31, 2012. For further detail on our foreign currency derivative contracts, please see note 25 “Derivative financial instruments – Foreign exchange derivative contracts and hedge accounting” to our audited consolidated financial statements included in this annual report. Accounting for Derivative Financial Instruments and Hedging Activities Derivative financial instruments are classified as financial assets (or liabilities) at fair value through profit or loss. Their fair value is calculated using standard pricing techniques and, as a general rule, we recognize the full amount related to the change in its fair value under financial results in the current period. We designate for hedge accounting certain derivatives that hedge risks associated with recognized assets, liabilities or highly probable forecast transactions. These instruments are classified as cash flow hedges. The effective portion of the fair value of such derivatives is accumulated in a reserve account in equity. Amounts accumulated in equity are then recognized in the income statement in the same period than the offsetting losses and gains on the hedged item are recorded. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. The fair value of our derivative financial instruments (assets or liabilities) continues to be reflected on the consolidated statement of financial position. At December 31, 2013, the effective portion of designated cash flow hedges, included in other reserves in shareholders’ equity amounted to a gain of $0.1 million. the prices of these commodities and raw materials. Although we fix the prices of such raw materials and commodities for short-term periods, typically not in excess of one year, in general we do not hedge this risk. In the past we have occasionally used commodity derivative instruments to hedge certain fluctuations in the market prices of raw material and energy. 39. t r o p e R l a u n n A Concentration of credit risk There is no significant concentration of credit from customers. No single customer comprised more than 10% of our net sales in 2013. Our credit policies related to sales of products and services are designed to identify customers with acceptable credit history, and to allow us to use credit insurance, letters of credit and other instruments designed to minimize credit risk whenever deemed necessary. We maintain allowances for potential credit losses. Commodity Price Sensitivity We use commodities and raw materials that are subject to price volatility caused by supply conditions, political and economic variables and other unpredictable factors. As a consequence, we are exposed to risk resulting from fluctuations in Recent developments Environmental regulation 40. s i r a n e T Annual Dividend Proposal On February 20, 2014 the Company’s board of directors proposed, for the approval of the annual general shareholders' meeting to be held on May 7, 2014, the payment of an annual dividend of $0.43 per share ($0.86 per ADS), or approximately $508 million, which includes the interim dividend of $0.13 per share ($0.26 per ADS) or approximately $153 million, paid in November 2013. If the annual dividend is approved by the shareholders, a dividend of $0.30 per share ($0.60 per ADS), or approximately $354 million will be paid on May 22, 2014, with an ex-dividend date of May 19, 2014. Our audited consolidated financial statements included in this annual report do not reflect this dividend payable. We are subject to a wide range of local, provincial and national laws, regulations, permit requirements and decrees relating to the protection of human health and the environment, including laws and regulations relating to hazardous materials and radioactive materials and environmental protection governing air emissions, water discharges and waste management. Laws and regulations protecting the environment have become increasingly complex and more stringent and expensive to implement in recent years. International environmental requirements vary. The ultimate impact of complying with existing laws and regulations is not always clearly known or determinable since regulations under some of these laws have not yet been promulgated or are undergoing revision. The expenditures necessary to remain in compliance with these laws and regulations, including site or other remediation costs, or costs incurred from potential environmental liabilities, could have a material adverse effect on our financial condition and profitability. While we incur and will continue to incur expenditures to comply with applicable laws and regulations, there always remains a risk that environmental incidents or accidents may occur that may negatively affect our reputation or our operations. Compliance with applicable environmental laws and regulations is a significant factor in our business. We have not been subject to any material penalty for any material environmental violation in the last five years, and we are not aware of any current material legal or administrative proceedings pending against us with respect to environmental matters which could have an adverse material impact on our financial condition or results of operations. Related party transactions Tenaris is a party to several related party transactions, which include, among others, purchases and sales of goods (including steel pipes, flat steel products, steel bars, raw materials, gas and electricity) and services (including engineering services and related services) from or to entities controlled by San Faustin or in which San Faustin holds significant interests. Material related party transactions, as explained in Corporate Governance – Audit Committee, are subject to the review of the audit committee of the Company’s board of directors and the requirements of the Company’s articles of association and Luxembourg law. For further detail on Tenaris’s related party transactions, see Note 29 “Related party transactions” to our audited consolidated financial statements, included in this annual report. 41. t r o p e R l a u n n A Employees 42. s i r a n e T The following table shows the number of persons employed by Tenaris: The number of our employees remained stable during 2013. AT DECEMBER 31 Argentina Mexico United States Brazil Italy Romania Canada Indonesia Colombia Japan Other Countries Total employees 2013 6,379 5,290 3,449 3,309 2,352 1,637 1,280 711 627 565 1,226 26,825 Approximately 55% of our employees are unionized. We believe that we enjoy good or satisfactory relations with our employees and their unions in each of the countries in which we have manufacturing facilities, and we have not experienced any major strikes or other labor conflicts with a material impact on our operations over the last five years. In some of the countries in which we have significant production facilities (e.g., Argentina and Brazil), significant fluctuations in exchange rates, together with inflationary pressures, affect our costs, increase labor demands and could eventually generate higher levels of labor conflicts. At December 31, 2012 and December 31, 2011, the number of persons employed by Tenaris was 26,673 and 26,980 respectively. 43. t r o p e R l a u n n A Corporate governance The Company’s corporate governance practices are governed by Luxembourg Law (including, among others, the law of August 10, 1915 on commercial companies, the law of January 11, 2008, implementing the European Union’s transparency directive, and the law of May 24, 2011, implementing the European Union’s directive on the exercise of certain shareholders’ rights in general meetings of listed companies) and the Company’s articles of association. As a Luxembourg company listed on the New York Stock Exchange (the NYSE), the Bolsa Mexicana de Valores, S.A. de C.V. (the Mexican Stock Exchange), the Bolsa de Comercio de Buenos Aires (the Buenos Aires Stock Exchange) and Borsa Italiana S.p.A. (the Italian Stock Exchange), the Company is required to comply with some, but not all, of the corporate governance standards of these exchanges. The Company, however, believes that its corporate governance practices meet, in all material respects, the corporate governance standards that are generally required for controlled companies by all of the exchanges on which the Company’s securities trade. For a summary of the significant ways in which the Company’s corporate governance practices differ from the corporate governance standards required for controlled companies by the exchanges on which the Company’s shares trade, please visit our website at http://www.tenaris.com/investors/ Shareholders’ Meetings; Voting Rights; Election of Directors Each Share entitles the holder to one vote at the Company’s general shareholders’ meetings. Shareholder action by written consent is not permitted, but proxy voting is permitted. Notices of general shareholders’ meetings are governed by the provisions of Luxembourg law. Pursuant to applicable Luxembourg law, the Company must give notice of the calling of any general shareholders’ meeting at least 30 days prior to the date for which the meeting is being called, by publishing the relevant convening notice in the Luxembourg Official Gazette and in a leading newspaper having general circulation in Luxembourg and by issuing a press release informing of the calling of such meeting. If an extraordinary general shareholders’ meeting is adjourned for lack of a quorum, a new convening notice must be published at least 17 days prior to the date for which the second-call meeting is being called. In case Shares are listed on a foreign regulated market, notices of general shareholders’ meetings shall also comply with the requirements (including as to content and publicity) and follow the customary practices of such regulated market. Pursuant to our articles of association, for as long as the Shares or other securities of the Company are listed on a regulated market within the European Union (as they currently are), and unless as may otherwise be provided by applicable law, only shareholders holding shares of the Company as of midnight, central European time, on the day that is fourteen days prior to the day of any given general shareholders’ meeting can attend and vote at such meeting. The board of directors may determine other conditions that must be satisfied by shareholders in order to participate in a general shareholders’ meeting in person or by proxy, including with respect to deadlines for submitting supporting documentation to or for the Company. No attendance quorum is required at ordinary general shareholders’ meetings, and resolutions may be adopted by a simple majority vote of the Shares represented and voted at the meeting. Unless as may otherwise be provided by applicable Luxembourg law, an extraordinary general shareholders’ meeting may not validly deliberate on proposed amendments 44. s i r a n e T to the Company’s articles of association unless a quorum of at least 50% of the issued share capital is represented at the meeting. If a quorum is not reached, such meeting may be reconvened at a later date with no quorum requirements by means of the notification procedures described above. In both cases, the Luxembourg Companies Law and the Company’s articles of association require that any resolution of an extraordinary general shareholders’ meeting as to amendments to the Company’s articles of association be adopted by a two-thirds majority votes of the Shares represented at the meeting. If a proposed resolution consists of changing the Company’s nationality or of increasing the shareholders’ commitments, the unanimous consent of all shareholders is required. Directors are elected at ordinary general shareholders’ meetings. Cumulative voting is not permitted. The Company’s articles of association do not provide for staggered terms and directors are elected for a maximum of one year and may be reappointed or removed by the general shareholders’ meeting at any time, with or without cause, by resolution passed by a simple majority vote of the Shares represented and voted at the meeting. In the case of a vacancy occurring in the Board of Directors, the remaining directors may temporarily fill such vacancy with a temporary director appointed by resolution adopted with the affirmative vote of a majority of the remaining directors; provided that the next general shareholder’s meeting shall be called upon to ratify such appointment. The term of any such temporary director shall expire at the end of the term of office of the director whom such temporary director replaced. The next Company’s annual general shareholders’ meeting that will consider, among other things, our audited consolidated financial statements and annual accounts included in this annual report will take place in Luxembourg, on Wednesday May 7, 2014 at 9:30 A.M., Luxembourg time. The rights of the shareholders attending the meetings are governed by the Luxembourg law of 24 May 2011 on the exercise of certain rights of shareholders in general meetings of listed companies. For a description of the items of the agenda of the meetings and the procedures for attending and voting the meetings, please see the “Notice of the Annual General Meeting of Shareholders” on the Company’s website at www.tenaris.com/investors. Board of Directors Management of the Company is vested in a board of directors with the broadest power to act on behalf of the Company and accomplish or authorize all acts and transactions of management and disposal that are within its corporate purpose and not specifically reserved in the articles of association or by applicable law to the general shareholders’ meeting. The Company’s articles of association provide for a board of directors consisting of a minimum of three and a maximum of fifteen directors; however, for as long as the Company’s shares are listed on at least one stock 45. t r o p e R l a u n n A exchange, the minimum number of directors must be five. The Company’s current board of directors is composed of ten directors. The board of directors is required to meet as often as required by the interests of the Company and at least four times per year. A majority of the members of the board of directors in office present or represented at the board of directors’ meeting constitutes a quorum, and resolutions may be adopted by the vote of a majority of the directors present or represented. In the case of a tie, the chairman is entitled to cast the deciding vote. Directors are elected at the annual ordinary general shareholders’ meeting to serve one-year renewable terms, as determined by the general shareholders’ meeting. The general shareholders’ meeting also determines the number of directors that will constitute the board and their compensation. The general shareholders’ meeting may dismiss all or any one member of the board of directors at any time, with or without cause, by resolution passed by a simple majority vote, irrespective of the number of shares represented at the meeting. Under the Company’s articles of association, until May 12, 2017, the board of directors is authorized to increase the issued share capital in whole or in part from time to time, through issues of shares within the limits of the authorized share capital against compensation in cash, compensation in kind at a price or if shares are issued by way of incorporation of reserves, at an amount, which shall not be less than the par value and may include such issue premium as the board of directors shall decide. However, under the Company’s articles of association, the Company’s existing shareholders shall have a preferential right to subscribe for any new Shares issued pursuant to the authorization granted to its board of directors, except in the following cases (in which cases no preferential subscription rights shall apply): • • any issuance of Shares (including, without limitation, the direct issuance of Shares or upon the exercise of options, rights convertible into shares, or similar instruments convertible or exchangeable into Shares) against a contribution other than in cash; any issuance of Shares (including by way of free Shares or at discount), up to an amount of 1.5% of the issued share capital of the Company, to directors, officers, agents, employees of the Company, its direct or indirect subsidiaries, or its affiliates (collectively, the “Beneficiaries”), including, without limitation, the direct issuance of Shares or upon the exercise of options, rights convertible into Shares, or similar instruments convertible or exchangeable into Shares, issued for the purpose of compensation or incentive of the Beneficiaries or in relation thereto (which the board of directors shall be authorized to issue upon such terms and conditions as it deems fit). Amendment of the Company’s articles of association requires the approval of shareholders at an extraordinary shareholders’ meeting with a two-thirds majority vote of the Shares present or represented at the meeting. 46. s i r a n e T The following table sets forth the name of the Company’s current directors, their respective positions on the board, their principal occupation, their years of service as board members and their age. Name Position Principal Occupation Years as Director Age at December 31, 2013 Roberto Bonatti (1) Carlos Condorelli Carlos Franck Roberto Monti Gianfelice Mario Rocca (1) Paolo Rocca (1) Jaime Serra Puche Alberto Valsecchi Director Director Director Director Director Director Director Director President of San Faustin Director of Tenaris and Ternium President of Santa María Member of the board of directors of Petrobras Energia Chairman of the board of directors of San Faustin Chairman and chief executive officer of Tenaris Chairman of SAI Consultores Director of Tenaris Amadeo Vázquez y Vázquez Director Director of Gas Natural Ban S.A. Guillermo Vogel Director Vice chairman of Tamsa (1) Paolo Rocca and Gianfelice Rocca are brothers, and Roberto Bonatti is Paolo and Gianfelice Rocca’s first cousin. 11 7 11 9 11 12 11 6 11 11 64 62 63 74 65 61 62 69 71 63 Roberto Bonatti Mr. Bonatti is a member of the Company’s board of directors. He is a grandson of Agostino Rocca, founder of the Techint group, a group of companies controlled by San Faustin. Throughout his career in the Techint group he has been involved specifically in the engineering and construction and corporate sectors. He was first employed by the Techint group in 1976, as deputy resident engineer in Venezuela. In 1984, he became a director of San Faustin, and since 2001 he has served as its president. In addition, Mr. Bonatti currently serves as president of Sadma Uruguay S.A.. He is also a member of the board of directors of Ternium. Mr. Bonatti is an Italian citizen. Carlos Condorelli Mr. Condorelli is a member of the Company’s board of directors. He served as our chief financial officer from October 2002 until September 2007. He is also a board member of Ternium. He began his career within the Techint group in 1975 as an analyst in the accounting and administration department of Siderar S.A.I.C., or Siderar. He has held several positions within Tenaris and other Techint group companies, including finance and administration director of Tamsa and president of the board of directors of Empresa Distribuidora La Plata S.A., or Edelap, an Argentine utilities company. Mr. Condorelli is an Argentine citizen. Carlos Franck Mr. Franck is a member of the Company’s board of directors. He is president of Santa María S.A.I.F. and Inverban S.A. and a member of the board of directors of Siderca, Techint Financial Corporation N.V., Techint Holdings S.à r.l. and Siderar. He has financial planning and control responsibilities in subsidiaries of San Faustin. He serves as treasurer of the board of the Di Tella University. Mr. Franck is an Argentine citizen. Roberto Monti Mr. Monti is a member of the Company’s board of directors. He is a member of the board of directors of Petrobras Energia. He has served as the vice president of Exploration and Production of Repsol YPF and as chairman and chief executive officer of YPF. He was also the president of Dowell, a subsidiary of Schlumberger and the president of Schlumberger Wire & Testing division for East Hemisphere Latin America. Mr. Monti is an Argentine citizen. 47. t r o p e R l a u n n A Gianfelice Mario Rocca Mr. Rocca is a member of the Company’s board of directors. He is a grandson of Agostino Rocca. He is the chairman of the board of directors of San Faustin, a member of the board of directors of Ternium, the president of the Humanitas Group and the president of Tenova S.p.A. In addition, he sits on the board of directors or executive committees of several companies, including Allianz S.p.A., Brembo and Buzzi Unicem. He is president of Assolombarda and chairman of the board of the Italian Institute of Technology. He is a member of the Advisory Board of Allianz Group, the Aspen Institute Executive Committee, the Trilateral Commission and the European Advisory Board of Harvard Business School. Mr. Rocca is an Italian citizen. Paolo Rocca Mr. Rocca is the chairman of the Company’s board of directors and our chief executive officer. He is a grandson of Agostino Rocca. He is also chairman of the board of directors of Tamsa. He is also the chairman of the board of directors of Ternium, a director and vice president of San Faustin, and a director of Techint Financial Corporation N.V. He is a member of the Executive Committee of the World Steel Association. Mr. Rocca is an Italian citizen. 48. s i r a n e T Jaime Serra Puche Mr. Serra Puche is a member of the Company’s board of directors. He is the chairman of SAI Consultores, a Mexican consulting firm, and a member of the board of the following listed companies: The Mexico Fund, Grupo Vitro, Grupo Modelo and Alpek. Mr. Serra Puche served as Mexico’s Undersecretary of Revenue, Secretary of Trade and Industry, and Secretary of Finance. He led the negotiation and implementation of NAFTA. Mr. Serra Puche is a Mexican citizen. Alberto Valsecchi Mr. Valsecchi is a member of the Company’s board of directors. He served as our chief operating officer from February 2004 until July 2007. He joined the Techint group in 1968 and has held various positions within Tenaris and other Techint group companies. He has retired from his executive positions. He is also a member of the board of directors of San Faustin and chairman of the board of directors of Dalmine, a position he assumed in May 2008. Mr. Valsecchi is an Italian citizen. Amadeo Vázquez y Vázquez Mr. Vázquez y Vázquez is a member of the Company’s board of directors. He is an independent member of the board of directors of Gas Natural Ban S.A. He is a member of the Asociación Empresaria Argentina, of the Fundación Mediterránea, and of the Advisory Board of the Fundación de Investigaciones Económicas Latinoamericanas. He served as chief executive officer of Banco Río de la Plata S.A. until August 1997 and was also the chairman of the board of directors of Telecom Argentina S.A. until April 2007. Mr. Vázquez y Vázquez is a Spanish and Argentine citizen. Guillermo Vogel Mr. Vogel is a member of the Company’s board of directors. He is the vice chairman of Tamsa, the chairman of Grupo Collado S.A.B. de C.V, the vice chairman of Estilo y Vanidad S.A. de C.V. and a member of the board of directors of each of Alfa S.A.B. de C.V., the American Iron and Steel Institute, the North American Steel Council, the Universidad Panamericana and the IPADE. In addition, he is a member of the board of directors and the investment committee of the Corporación Mexicana de Inversiones de Capital. Mr. Vogel is a Mexican citizen. 49. t r o p e R l a u n n A Messrs. Monti, Serra Puche and Vázquez y Vázquez qualify as independent directors under the Company’s articles of association. such resolution was adopted, such director advised the board of directors that he or she opposed the resolution and caused a record of such opposition to be included in the minutes of the meeting. Director Liability Each director must act in the interest of the Company, and in accordance with applicable laws, regulations, and the Company’s articles of association. Directors are also bound by a general duty of care owed to the Company. Under Luxembourg law, a director may be liable to the Company for any damage caused by management errors, such as wrongful acts committed during the execution of his or her mandate, and to the Company, its shareholders and third parties in the event that the Company, its shareholders or third parties suffer a loss due to an infringement of either the Luxembourg law on commercial companies or the Company’s articles of association. Under Luxembourg law, any director having a conflict of interest in respect of a transaction submitted for approval to the board of directors may not take part in the deliberations concerning such transaction and must inform the board of such conflict and cause a record of his statement to be included in the minutes of the meeting. Subject to certain exceptions, transactions in which any directors may have had an interest conflicting with that of the Company must be reported at the next general shareholders’ meeting following any such transaction. A director will not be liable for acts committed pursuant to a board resolution if, notwithstanding his or her presence at the board meeting at which Causes of action against directors for damages may be initiated by the Company upon a resolution of the general shareholders’ meeting passed by a simple majority vote, irrespective of the number of shares represented at the meeting. Causes of action against directors who misappropriate corporate assets or commit a breach of trust may be brought by any shareholder for personal losses different from those of the Company. It is customary in Luxembourg that the shareholders expressly discharge the members of the board of directors from any liability arising out of or in connection with the exercise of their mandate when approving the annual accounts of the Company at the annual general shareholders meeting. However, such discharge will not release the directors from liability for any damage caused by wrongful acts committed during the execution of their mandate or due to an infringement of either the Luxembourg law on commercial companies or the Company’s articles of association vis-à-vis third parties. Audit Committee Pursuant to the Company’s articles of association, as supplemented by the audit committee’s charter, for as long as the Company’s shares are listed on at least one stock exchange, the Company must have an audit committee composed of three members, all of which must qualify as independent directors under the Company’s articles of association. 50. s i r a n e T Under the Company’s articles of association, an independent director is a director who: • • • • • is not and has not been employed by us or our subsidiaries in an executive capacity for the preceding five years; is not a person that controls us, directly or indirectly, and is not a member of the board of directors of a company controlling us, directly or indirectly; does not have (and is not affiliated with a company or a firm that has) a significant business relationship with us, our subsidiaries or our controlling shareholder; is not and has not been affiliated with or employed by a present or former auditor of us, our subsidiaries or our controlling shareholder for the preceding five years; and is not a spouse, parent, sibling or relative up to the third degree of any of the above persons. The Company’s board of directors has an audit committee consisting of three members. On May 2, 2013, the Company’s board of directors reappointed Jaime Serra Puche, Amadeo Vázquez y Vázquez and Roberto Monti as members of our audit committee. All three members of the audit committee qualify as independent directors under the Company’s articles of association. Under the Company’s articles of association, the audit committee is required to report to the board of directors on its activities from time to time, and on the adequacy of the systems of internal control over financial reporting once a year at the time the annual accounts are approved. In addition, the charter of the audit committee sets forth, among other things, the audit committee’s purpose and responsibilities. The audit committee assists the board of directors in its oversight responsibilities with respect to our financial statements, and the independence, performance and fees of our independent auditors. The audit committee also performs other duties entrusted to it by the Company’s board of directors. In addition, the audit committee is required by the Company’s articles of association to review “material transactions”, as such term is defined under the Company’s articles of association, to be entered into by the Company or its subsidiaries with “related parties”, as such term is defined in the Company’s articles of association, in order to determine whether their terms are consistent with market conditions or are otherwise fair to the Company and/or its subsidiaries. In the case of material transactions entered into by the Company’s subsidiaries with related parties, the Company’s audit committee will review those transactions entered into by those subsidiaries whose boards of directors do not have independent members. Under the Company’s articles of association, as supplemented by the audit committee’s charter, a material transaction is: • any transaction between the Company or its subsidiaries with related parties (x) with an 51. t r o p e R l a u n n A individual value equal to or greater than $10 million, or (y) with an individual value lower than $10 million, when the aggregate sum – as reflected in the financial statements of the four fiscal quarters of the Company preceding the date of determination- of any series of transactions for such lower value that can be deemed to be parts of a unique or single transaction (but excluding any transactions that were reviewed and approved by Company’s audit committee or board of directors, as applicable, or the independent members of the board of directors of any of its subsidiaries) exceeds 1.5% of the Company’s consolidated net sales made in the fiscal year preceding the year on which the determination is made; any corporate reorganization transaction (including a merger, spin-off or bulk transfer of a business) affecting the Company for the benefit of, or involving, a related party; and any corporate reorganization transaction (including a merger, spin-off or bulk transfer of a business) not reviewed and approved by the independent members of the board of directors of any of the Company’s direct or indirect subsidiaries, affecting any of the Company’s direct or indirect subsidiaries for the benefit of, or involving, a related party. • • The audit committee has the power (to the maximum extent permitted by applicable laws) to request that the Company or relevant subsidiary provide any information necessary for it to review any material transaction. A related party transaction shall not be entered into without prior review by the Company’s audit committee and approval by the board of directors unless (i) the circumstances underlying the proposed transaction justify that it be entered into before it can be reviewed by the Company’s audit committee or approved by the board of directors and (ii) the related party agrees to unwind the transaction if the Company’s audit committee or board of directors does not approve it. The audit committee has the authority to engage independent counsel and other advisors to review specific issues as the committee may deem necessary to carry out its duties and to conduct any investigation appropriate to fulfill its responsibilities, and has direct access to the Company’s internal and external auditors as well as to the Company’s management and employees and, subject to applicable laws, its subsidiaries. 52. s i r a n e T Senior management Our current senior management as of the date of this annual report consists of: Name Position Age at December 31, 2013 Paolo Rocca Edgardo Carlos Chairman and Chief Executive Officer Chief Financial Officer Gabriel Casanova Supply Chain Director Alejandro Lammertyn Planning Director Carlos Pappier Marco Radnic Marcelo Ramos Chief Process and Information Officer Human Resources Director Technology Director Vincenzo Crapanzano Industrial Director Germán Curá Sergio de la Maza Renato Catallini North American Area Manager Central American Area Manager Brazilian Area Manager Javier Martínez Alvarez Southern Cone Area Manager Gabriel Podskubka Eastern Hemisphere Area Manager Luca Zanotti European Area Manager 61 47 55 48 52 64 50 61 51 57 47 47 40 46 Gabriel Casanova Mr. Casanova currently serves as our supply chain director, with responsibility for the execution of all contractual deliveries to customers. After graduating as a marine and mechanical engineer, he joined Siderca’s export department in 1987. In 1995 he became Siderca’s Chief Representative in China and from 1997 to 2009 he held several positions in the commercial area in Dalmine. In 2009 he became the head of our supply chain network and in October 2012 he assumed his current position. Mr. Casanova is an Argentine citizen. Alejandro Lammertyn Mr. Lammertyn currently serves as our planning director, a position he assumed in April 2013. Mr. Lammertyn began his career with Tenaris in 1990. Previously he served as assistant to the CEO for marketing, organization and mill allocation, supply chain director, commercial director and Eastern Hemisphere area manager. Mr. Lammertyn is an Argentine citizen. Paolo Rocca Mr. Rocca is the chairman of the Company’s board of directors and our chief executive officer. He is a grandson of Agostino Rocca. He is also chairman of the board of directors of Tamsa. He is also the chairman of the board of directors of Ternium, a director and vice president of San Faustin, and a director of Techint Financial Corporation N.V. He is a member of the Executive Committee of the World Steel Association. Mr. Rocca is an Italian citizen. Edgardo Carlos Mr. Carlos currently serves as our chief financial officer, a position that he assumed on July 1, 2013. He joined the Techint Group in 1987 in the accounting department of Siderar. After serving as financial manager for Sidor, in Venezuela, in 2001 he joined Tenaris as our financial director. In 2005 he was appointed administration and financial manager for North America and in 2007 he became administration and financial director for Central America. In 2009 he was appointed economic and financial planning director, until he assumed his current position. Mr. Carlos is an Argentine citizen. 53. t r o p e R l a u n n A Carlos Pappier Mr. Pappier currently serves as our chief process and information officer. Previously, he served as planning director. He began his career within the Techint group in 1984 as a cost analyst in Siderar. After holding several positions within Tenaris and other Techint group companies in 2002, he became chief of staff of Tenaris. He assumed his current position in May 2010. Mr. Pappier is an Argentine citizen. Marco Radnic Mr. Radnic currently serves as our human resources director. He began his career within the Techint group in the Industrial Engineering Department of Siderar in 1975. Later he held various positions in the technical departments of Siderca and other companies within the Techint group. After holding several positions in the marketing and procurement areas in Europe, in 1996 he became commercial director of Dalmine. In 1998, he became the director of our Process and Power Services business unit. In 2001, he was appointed chief of staff for Paolo Rocca in Buenos Aires. He assumed his current position in December 2002. Mr. Radnic is an Argentine citizen. 54. s i r a n e T Marcelo Ramos Mr. Ramos currently serves as our technology director, with responsibility over technology and quality. Previously he served as quality director and managing director of NKKTubes and our Japanese operations. He joined the Techint group in 1987 and has held various positions within Tenaris including quality control director at Siderca. He assumed his current position in April 2010, when the quality and technology departments were combined. Mr. Ramos is an Argentine citizen. Vincenzo Crapanzano Mr. Crapanzano currently serves as our industrial director, a position he assumed in April 2011. Previously he served as our European area manager, Mexican area manager and executive vice president of Tamsa. Prior to joining Tenaris, he held various positions at Grupo Falck from 1979 to 1989. When Dalmine acquired the tubular assets of Grupo Falck in 1990, he was appointed managing director of the cold drawn tubes division. He is also vice president of Centro Sviluppo Materiali S.p.A, and of Federacciai. Mr. Crapanzano is an Italian citizen. Germán Curá Mr. Curá currently serves as our North American area manager. He is a marine engineer and was first employed with Siderca in 1988. Previously, he served as Siderca’s exports director, Tamsa’s exports director and commercial director, sales and marketing manager of our Middle East office, president of Algoma Tubes, president and chief executive officer of Maverick Tubulars and president and chief executive officer of Hydril, director of our Oilfield Services business unit and Tenaris commercial director. He was also a member of the board of directors of the American Petroleum Institute (API). He assumed his current position in October 2006. Mr. Curá is a U.S. citizen. Sergio de la Maza Mr. de la Maza currently serves as our Central American area manager and also serves as a director and executive vice-president of Tamsa. Previously he served as our Mexican area manager. He first joined Tamsa in 1980. From 1983 to 1988, Mr. de la Maza worked in several positions in Tamsa and Dalmine. He then became manager of Tamsa’s new pipe factory and later served as manufacturing manager and quality director of Tamsa. Subsequently, he was named manufacturing director of Siderca. He assumed his current position in 2006. Mr. de la Maza is a Mexican citizen. 55. t r o p e R l a u n n A Renato Catallini Mr. Catallini currently serves as our Brazilian area manager, a position that he assumed in October 2012, after having served as our supply chain director since August 2007. He joined Tenaris in 2001 in the supply management area, as a general manager of Exiros Argentina. In July 2002, he was appointed operations director and subsequently, in January 2005, became managing director of Exiros. Before joining Tenaris, he worked for ten years in the energy sector, working for TGN, Nova Gas Internacional, TransCanada Pipelines and TotalFinaElf, among others. Mr. Catallini is an Argentine citizen. Javier Martínez Alvarez Mr. Martínez Alvarez currently serves as our Southern Cone area manager, a position he assumed in June 2010, having previously served as our Andean area manager. He began his career in the Techint group in 1990, holding several positions including planning manager of Siderar and commercial director of Ternium-Sidor. In 2006, he joined Tenaris as our Venezuela area manager. Mr Martínez Alvarez is an Argentine citizen. Gabriel Podskubka Mr. Podskubka currently serves as our Eastern Hemisphere area manager, based in Dubai. He assumed his current position in April 2013 after serving as the head of our operations in Eastern Europe for 4 years. After graduating as an industrial engineer Mr. Podskubka joined the Techint group in 1995 in the marketing department of Siderca. He held various positions in the marketing, commercial, and industrial areas until he was appointed as oil & gas sales director in the United States in 2006. Mr. Podskubka is an Argentine citizen. Luca Zanotti Mr. Zanotti currently serves as our European area manager, a position he assumed in April 2011. He joined Tenaris in 2002 as planning and administration director in Exiros, the supply management area. He was later appointed raw materials director and in July 2007 became managing director of Exiros, a position he held until June 2010. In July 2010 he became the senior assistant to the European area manager. Before joining Tenaris, he was a senior manager at A.T. Kearney in Milan, where he worked from 1998 to 2002, and prior to that he held various business development positions in the Far East for Lovato Electric. Mr. Zanotti is an Italian citizen. 56. s i r a n e T Directors’ and senior management compensation The compensation of the members of the Company’s board of directors is determined at the annual ordinary general shareholders’ meeting. Each member of the board of directors received as compensation for their services for the year 2013 a fee of $80,000. The chairman of the audit committee received as additional compensation a fee of $60,000 while the other members of the audit committee received an additional fee of $50,000. Under the Company’s articles of association, the members of the audit committee are not eligible to participate in any incentive compensation plan for employees of the Company or any of its subsidiaries. During the years ended December 31, 2013, 2012 and 2011, the cash compensation of directors and senior managers amounted to $27.1 million, $24.1 million and $25.7 million respectively. In addition, directors and senior managers received 534, 542 and 555 thousand units for a total amount of $5.6 million, $5.2 million and $4.9 million, respectively, in connection with the Employee retention and long term incentive program described in note O (2) “Employee benefits –Other long term benefits” to our audited consolidated financial statements included in this annual report. There are no service contracts between any director and Tenaris that provide for material benefits upon termination of employment. Auditors The Company’s articles of association require the appointment of an independent audit firm in accordance with applicable law. The primary responsibility of the auditor is to audit the Company’s annual accounts and to submit a report on the accounts to shareholders at the annual shareholders’ meeting. In accordance with applicable law, auditors are chosen from among the members of the Luxembourg Institute of Independent Auditors (Institut des réviseurs d’entreprises). Auditors are appointed by the general shareholders’ meeting upon recommendation from our audit committee through a resolution passed by a simple majority vote, irrespective of the number of Shares represented at the meeting, to serve one- year renewable terms. Auditors may be dismissed by the general shareholders meeting at any time, with or without cause. Luxembourg law does not allow directors to serve concurrently as independent auditors. As part of their duties, the auditors report directly to the audit committee. The Company’s audit committee is responsible for, among other things, the oversight of the Company’s independent auditors. The audit committee has adopted in its charter a policy of pre-approval of audit and permissible non-audit services provided by its independent auditors. Under the policy, the audit committee makes its recommendations to the shareholders’ meeting concerning the continuing appointment or termination of the Company’s independent auditors. On a yearly basis, the audit committee reviews together with management and the independent auditor, the audit plan, audit related services and other non- audit services and approves, ad-referendum of the general shareholders’ meeting, the related fees. The general shareholders’ meeting normally approves such audit fees and authorizes the audit committee to approve any increase or reallocation of such audit fees as may be necessary, appropriate or desirable under the circumstances. The audit committee delegates to its Chairman the authority 57. t r o p e R l a u n n A to consider and approve, on behalf of the audit committee, additional non-audit services that were not recognized at the time of engagement, which must be reported to the other members of the audit committee at its next meeting. No services outside the scope of the audit committee’s approval can be undertaken by the independent auditor. Our independent auditor for the fiscal year ended December 31, 2013, appointed by the shareholders’ meeting held on May 2, 2013, was PricewaterhouseCoopers Société Coopérative., Cabinet de révision agréé in connection with all of our annual accounts and financial statements. Audit-Related Fees Audit-related fees are typically services that are reasonably related to the performance of the audit or review of the consolidated financial statements of the Company and the statutory financial statements of the Company and its subsidiaries and are not reported under the audit fee item above. This item includes fees for attestation services on financial information of the Company and its subsidiaries included in their annual reports that are filed with their respective regulators. Tax Fees Fees paid for tax compliance professional services. Fees Paid to the Company’s Independent Auditor In 2013, PwC served as the principal external auditor for the Company. Fees payable to PwC in 2013 are detailed below. All Other Fees Fees paid for the support in the development of training courses. Thousands of U.S. dollars FOR THE YEAR ENDED DECEMBER 31 Audit Fees Audit-Related Fees Tax Fees All Other Fees Total 2013 5,723 143 117 51 6,034 Share Ownership To our knowledge, the total number of Shares (in the form of ordinary shares or ADSs) beneficially owned by our directors and senior management as of February 28, 2014 was 1,397,103, which represents 0.12% of our outstanding Shares. The following table provides information regarding share ownership by our directors and senior management: Audit Fees Audit fees were paid for professional services rendered by the auditors for the audit of the consolidated financial statements and internal control over financial reporting of the Company, the statutory financial statements of the Company and its subsidiaries, and any other audit services required for the SEC or other regulatory filings. Director or Officer Guillermo Vogel Carlos Condorelli Gabriel Podskubka Carlos Pappier Total Number of Shares Held 1,325,446 67,211 3,946 500 1,397,103 58. s i r a n e T Major shareholders The following table shows the beneficial ownership of the Shares by (1) the Company’s major shareholders (persons or entities that have notified the Company of holdings in excess of 5% of the Company’s voting rights), (2) non-affiliated public shareholders, and (3) the Company’s directors and senior management as a group. The information below is based on the most recent information provided to the Company. Identity of Person or Group Number Percent San Faustin (1) Aberdeen Asset Management 713,605,187 59,184,400 60.45% 5.01% PLC’s Fund Management Operating Subsidiaries (2) Directors and senior management as a group Public Total 1,397,103 0.12% 406,350,140 34.42% 1,180,536,830 100.00% (1) San Faustin owns all of its shares in the Company through its wholly-owned subsidiary Techint Holdings S.à r.l. The Dutch private foundation (Stichting) Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin ("RP STAK") holds shares in San Faustin sufficient in number to control San Faustin. No person or group of persons controls RP STAK. (2) On April 27, 2011, Aberdeen Asset Management PLC's Fund Management Operating Subsidiaries informed Tenaris, pursuant to the Luxembourg Transparency Law, that as of April 26, 2011, it is deemed to be the beneficial owner of 59,184,400 ordinary shares of Tenaris, par value U.S.$ 1.00 per share, representing 5.01% of Tenaris's issued and outstanding capital and votes. The voting rights of the Company’s major shareholders do not differ from the voting rights of other shareholders. None of its outstanding shares have any special control rights. There are no restrictions on voting rights, nor are there, to the Company’s knowledge, any agreements among shareholders of the Company that might result in restrictions on the transfer of securities or the exercise of voting rights. The Company does not know of any significant agreements or other arrangements to which the Company is a party and which take effect, alter or terminate in the event of a change of control of the Company. The Company does not know of any arrangements, the operation of which may at a subsequent date result in a change of control of the Company. Information required under the Luxembourg Law on takeovers of May 19, 2006 The Company has an authorized share capital of a single class of 2,500,000,000 shares with a par value of $ 1.00 per share. Our authorized share capital is fixed by the Company’s articles of association as amended from time to time with the approval of our shareholders in an extraordinary shareholders’ meeting. There were 1,180,536,830 shares issued as of December 31, 2013. All issued shares are fully paid. The Company’s articles of association authorize the board of directors until May 12, 2017, to increase the issued share capital in whole or in part from time to time, through issues of shares within the limits of the authorized share capital against compensation in cash, compensation in kind at a price or if shares are issued by way of incorporation of reserves, at an amount, which shall not be less than the par value and 59. t r o p e R l a u n n A may include such issue premium as the board of directors shall decide. However, under the Company’s articles of association, the Company’s existing shareholders shall have a preferential right to subscribe for any new Shares issued pursuant to the authorization granted to its board of directors, except in the following cases (in which cases no preferential subscription rights shall apply): • • any issuance of Shares (including, without limitation, the direct issuance of Shares or upon the exercise of options, rights convertible into shares, or similar instruments convertible or exchangeable into Shares) against a contribution other than in cash; any issuance of Shares (including by way of free Shares or at discount), up to an amount of 1.5% of the issued share capital of the Company, to directors, officers, agents or employees of the Company, its direct or indirect subsidiaries, or its affiliates (collectively, the “Beneficiaries”), including, without limitation, the direct issuance of Shares or upon the exercise of options, rights convertible into Shares, or similar instruments convertible or exchangeable into Shares, issued for the purpose of compensation or incentive of the Beneficiaries or in relation thereto (which the board of directors shall be authorized to issue upon such terms and conditions as it deems fit). Amendment of the Company’s articles of association requires the approval of shareholders at an extraordinary shareholders’ meeting with a two-thirds majority vote of the Shares represented at the meeting. The Company is controlled by San Faustin, which owns 60.45% of the Company’s outstanding shares, through its wholly owned subsidiary Techint Holdings S.à r.l. The Dutch private foundation (Stichting) RP STAK holds shares in San Faustin sufficient in number to control San Faustin. No person or group of persons controls RP STAK. Our directors and senior management as a group own 0.12% of the Company’s outstanding shares, while the remaining 39.43% are publicly traded. The Company’s shares trade on the Italian Stock Exchange, the Buenos Aires Stock Exchange and the Mexican Stock Exchange; in addition, the Company’s ADSs trade on the New York Stock Exchange. See “Corporate Governance – Major Shareholders”. None of the Company’s outstanding securities has any special control rights. There are no restrictions on voting rights, nor are there, to our knowledge, any agreements among our shareholders that might result in restrictions on the transfer of securities or the exercise of voting rights. The Company’s articles of association do not contain any redemption or sinking fund provisions, nor do they impose any restrictions on the transfer of the Company’s shares. There are no significant agreements to which the Company is a party and which take effect, alter or terminate in the event of a change in the control of the Company following a takeover bid, thereby 60. s i r a n e T materially and adversely affecting the Company, nor are there any agreements between us and members of our board of directors or employees that provide for compensation if they resign or are made redundant without reason, or if their employment ceases pursuant to a takeover bid. In addition, under the Company’s articles of association, the audit committee is required to report to the board of directors on its activities from time to time, and on the adequacy of the systems of internal control over financial reporting once a year at the time the annual accounts are approved. Management is vested in a board of directors. Directors are elected at the annual ordinary shareholders’ meeting to serve one-year renewable terms. See “Corporate Governance – Board of Directors”. Internal control over financial reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting. Tenaris’s internal control over financial reporting was designed by management to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of its consolidated financial statements for external purposes in accordance with IFRS. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements or omissions. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. On a yearly basis, management conducts its assessment of the effectiveness of Tenaris’s internal control over financial reporting based on the framework in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management certification 61. t r o p e R l a u n n A We confirm, to the best of our knowledge, that: 1. 2. 3. the consolidated financial statements prepared in conformity with International Financial Reporting Standards, included in this annual report, give a true and fair view of the assets, liabilities, financial position and profit or loss of Tenaris S.A. and its consolidated subsidiaries, taken as a whole; the annual accounts prepared in accordance with Luxembourg legal and regulatory requirements, included in this annual report, give a true and fair view of the assets, liabilities, financial position and profit or loss of Tenaris S.A.; and the consolidated management report, which has been combined with the management report for Tenaris S.A., included in this annual report, gives a fair review of the development and performance of the business and the position of Tenaris S.A., or Tenaris S.A. and its consolidated subsidiaries, taken as a whole, as applicable, together with a description of the principal risks and uncertainties they face. Chief Executive Officer Paolo Rocca March 28, 2014 Chief Financial Officer Edgardo Carlos March 28, 2014 62. s i r a n e T Tenaris S.A. Consolidated financial statements For the years ended December 31, 2013, 2012 and 2011 63. t r o p e R l a u n n A 64. s i r a n e T Audit report To the Shareholders of Tenaris S.A. 65. t r o p e R l a u n n A Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Tenaris S.A. and its subsidiaries, which comprise the consolidated statement of financial position as at December 31, 2013, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory information. Board of Directors’ responsibility for the consolidated financial statements The Board of Directors is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Responsibility of the “Réviseur d’entreprises agréé” Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier”. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the judgment of the “Réviseur d’entreprises agréé” including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the “Réviseur d’entreprises agréé” considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and 66. s i r a n e T the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, these consolidated financial statements give a true and fair view of the consolidated financial position of Tenaris S.A. and its subsidiaries as of December 31, 2013, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and in accordance with International Financial Reporting Standards as adopted by the European Union. Report on other legal and regulatory requirements The management report, including the corporate governance statement, which is the responsibility of the Board of Directors, is consistent with the consolidated financial statements and includes the information required by the law with respect to the corporate governance statement. Luxembourg, March 28, 2014 PricewaterhouseCoopers, Société coopérative Represented by Fabrice Goffin PricewaterhouseCoopers, Société coopérative, 400 Route d’Esch, B.P. 1443, L-1014 Luxembourg T: +352 494848 1, F: +352 494848 2900, www.pwc.lu Cabinet de révision agréé. Expert-comptable (autorisation gouvernementale n°10028256) R.C.S. Luxembourg B 65 477 - TVA LU25482518 67. t r o p e R l a u n n A Consolidated Income Statement All amounts in thousands of U.S. dollars, unless otherwise stated YEAR ENDED DECEMBER 31 Notes 2013 2012 Revised 2011 Revised CONTINUING OPERATIONS Net sales Cost of sales Gross profit Selling, general and administrative expenses Other operating income Other operating expenses Operating income Interest income Interest expense Other financial results Income before equity in earnings of associated companies and income tax Equity in earnings (losses) of associated companies Income before income tax Income tax Income for the year ATTRIBUTABLE TO Owners of the parent Non-controlling interests 1 2 3 5 5 6 6 6 7 8 10,596,781 10,834,030 9,972,478 (6,456,786) (6,637,293) (6,273,407) 4,139,995 4,196,737 3,699,071 (1,941,213) (1,883,789) (1,859,240) 14,305 (28,257) 71,380 (27,721) 11,541 (6,491) 2,184,830 2,356,607 1,844,881 33,094 (70,450) 8,677 33,459 (55,507) (28,056) 30,840 (52,407) 11,268 2,156,151 2,306,503 1,834,582 46,098 (63,206) 61,992 2,202,249 2,243,297 1,896,574 (627,877) (541,558) (475,370) 1,574,372 1,701,739 1,421,204 1,551,394 1,699,375 1,331,640 22,978 2,364 89,564 1,574,372 1,701,739 1,421,204 EARNINGS PER SHARE ATTRIBUTABLE TO THE OWNERS OF THE PARENT DURING THE PERIOD Weighted average number of ordinary shares (thousands) 1,180,537 1,180,537 1,180,537 CONTINUING OPERATIONS Basic and diluted earnings per share (U.S. dollars per share) Basic and diluted earnings per ADS (U.S. dollars per ADS) (*) (*) Each ADS equals two shares. The accompanying notes are an integral part of these Consolidated Financial Statements. 1.31 2.63 1.44 2.88 1.13 2.26 Consolidated statement of comprehensive income 68. s i r a n e T All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31 Income for the year ITEMS THAT WILL NOT BE RECLASSIFIED TO PROFIT OR LOSS Remeasurements of post employment benefit obligations, net of taxes ITEMS THAT MAY BE SUBSEQUENTLY RECLASSIFIED TO PROFIT OR LOSS Currency translation adjustment Changes in the fair value of derivatives held as cash flow hedges and others Share of other comprehensive income of associates Currency translation adjustment Changes in the fair value of derivatives held as cash flow hedges and others Income tax relating to components of other comprehensive income (*) Other comprehensive loss for the year, net of tax Total comprehensive income for the year ATTRIBUTABLE TO Owners of the parent Non-controlling interests (*) Relates to Cash flow hedges. The accompanying notes are an integral part of these Consolidated Financial Statements. 2013 2012 Revised 2011 Revised 1,574,372 1,701,739 1,421,204 13,449 13,449 (1,941) 2,941 (9,728) (9,728) (4,547) 5,631 (87,666) (108,480) 951 (618) 2,682 478 (83,506) (70,057) (19,781) (19,781) (325,792) 983 (42,684) (155) (2,231) (107,063) (369,879) (116,791) (389,660) 1,504,315 1,584,948 1,031,544 1,480,572 1,588,447 23,743 (3,499) 991,616 39,928 1,504,315 1,584,948 1,031,544 Consolidated statement of financial position All amounts in thousands of U.S. dollars AT DECEMBER 31 Notes 2013 ASSETS NON-CURRENT ASSETS Property, plant and equipment, net Intangible assets, net Investments in associated companies Other investments Deferred tax assets Receivables CURRENT ASSETS Inventories Receivables and prepayments Current tax assets Trade receivables Available for sale assets Other investments Cash and cash equivalents Total assets EQUITY Capital and reserves attributable to owners of the parent Non-controlling interests Total equity LIABILITIES NON-CURRENT LIABILITIES Borrowings Deferred tax liabilities Other liabilities Provisions CURRENT LIABILITIES Borrowings Current tax liabilities Other liabilities Provisions Customer advances Trade payables Total liabilities Total equity and liabilities 10 11 12 13 21 14 15 16 17 18 31 19 19 20 21 22 (I) 23 (II) 20 17 22 (II) 24 (II) Contingencies, commitments and restrictions to the distribution of profits are disclosed in Note 26. The accompanying notes are an integral part of these Consolidated Financial Statements. 2012 Revised 8,972,427 6,987,116 4,434,970 3,199,916 977,011 2,603 215,867 142,060 2,985,805 260,532 175,562 2,070,778 21,572 644,409 828,458 69. t r o p e R l a u n n A 9,005,498 4,673,767 3,067,236 912,758 2,498 197,159 152,080 2,702,647 220,224 156,191 1,982,979 21,572 1,227,330 614,529 6,925,472 15,930,970 15,959,543 12,290,420 179,446 12,469,866 11,328,031 171,561 11,499,592 1,341,375 246,218 751,105 277,257 66,795 684,717 266,760 250,997 25,715 56,911 834,629 2,119,729 3,461,104 15,930,970 532,407 728,541 302,444 67,185 1,211,785 254,603 318,828 26,958 134,010 883,190 1,630,577 2,829,374 4,459,951 15,959,543 Consolidated statement of changes in equity 70. s i r a n e T 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 Balance at December 31, 2012, revised (*) 1,180,537 118,054 609,733 (316,831) (314,297) Income for the year Currency translation adjustment Remeasurements of post employment benefit obligations, net of taxes Hedge reserve, net of tax Share of other comprehensive income of associates Other comprehensive (loss) income for the year Total comprehensive income for the year Acquisition of non-controlling interests Dividends paid in cash – – – – – – – – – – – – – – – – – – – – – – – – – – – – (2,247) – – (87,666) (89,913) (89,913) – – 13,449 2,960 2,682 19,091 19,091 – – (10,552) – Balance at December 31, 2013 1,180,537 118,054 609,733 (406,744) (305,758) (*) See section II.A. for changes in presentation due to the application of IAS19R. (1) The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share. As of December 31, 2013 there were 1,180,536,830 shares issued. All issued shares are fully paid. (2) The Distributable Reserve and Retained Earnings calculated according to Luxembourg Law are disclosed in Note 26. The accompanying notes are an integral part of these Consolidated Financial Statements. ATTRIBUTABLE TO OWNERS OF THE PARENT Total Retained Earnings (2) Total Non-controlling Interests 10,050,835 11,328,031 171,561 11,499,592 1,551,394 1,551,394 22,978 1,574,372 – – – – – (2,247) 13,449 2,960 (84,984) (70,822) 306 – 459 – 765 (1,941) 13,449 3,419 (84,984) (70,057) 1,551,394 1,480,572 23,743 1,504,315 – (507,631) (10,552) (507,631) 2,784 (18,642) (7,768) (526,273) 11,094,598 12,290,420 179,446 12,469,866 71. t r o p e R l a u n n A 72. s i r a n e T Consolidated statement of changes in equity (cont.) All amounts in thousands of U.S. dollars ATTRIBUTABLE TO OWNERS OF THE PARENT Share Capital (1) Legal Reserves Share Premium Currency Translation Adjustment Other Reserves Balance at December 31, 2011, revised (*) 1,180,537 118,054 609,733 (210,772) (40,911) Income for the year Currency translation adjustment Effect of adopting IAS 19R Hedge reserve, net of tax Share of other comprehensive income of associates Other comprehensive loss for the year Total comprehensive income for the year Acquisition and increase of non-controlling interests (**) Dividends paid in cash – – – – – – – – – – – – – – – – – – – – – – – – – – – – 2,421 – – (108,480) (106,059) (106,059) – – (9,664) 3,925 870 (4,869) (4,869) – – (268,517) – Balance at December 31, 2012 1,180,537 118,054 609,733 (316,831) (314,297) Balance at December 31, 2010 1,180,537 118,054 609,733 108,419 Effect of adopting IAS 19R – – – – 15,809 (30,618) Balance at December 31, 2010, revised 1,180,537 118,054 609,733 108,419 (14,809) Income for the year Currency translation adjustment Effect of adopting IAS 19R Hedge reserve, net of tax Share of other comprehensive income of associates Other comprehensive loss for the year Total comprehensive income for the year Acquisition and increase of non-controlling interests Treasury shares held by associated companies Dividends paid in cash – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (276,507) – – (42,684) (319,191) (319,191) – – – – – (19,096) (1,582) (155) (20,833) (20,833) (1,930) (3,339) – Balance at December 31, 2011 1,180,537 118,054 609,733 (210,772) (40,911) (1) The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share. As of December 31, 2012 and 2011 there were 1,180,536,830 shares issued. All issued shares are fully paid. (*) See section II.A. for changes in presentation due to the application of IAS19R. (**) See Note 27. The accompanying notes are an integral part of these Consolidated Financial Statements. ATTRIBUTABLE TO OWNERS OF THE PARENT Total 73. t r o p e R l a u n n A Retained Earnings Total Non-controlling Interests 8,800,064 10,456,705 666,031 11,122,736 1,699,375 1,699,375 2,364 1,701,739 – – – – – 2,421 (9,664) 3,925 (107,610) (110,928) 1,699,375 1,588,447 (6,968) (64) 1,088 81 (5,863) (3,499) (4,547) (9,728) 5,013 (107,529) (116,791) 1,584,948 – (448,604) (268,517) (448,604) (490,066) (905) (758,583) (449,509) 10,050,835 11,328,031 171,561 11,499,592 7,869,807 9,902,359 648,221 10,550,580 – (30,618) – (30,618) 7,869,807 9,871,741 648,221 10,519,962 1,331,640 1,331,640 89,564 1,421,204 – – – – (276,507) (49,285) (325,792) (19,096) (1,582) (42,839) (685) 334 – (19,781) (1,248) (42,839) – (340,024) (49,636) (389,660) 1,331,640 991,616 39,928 1,031,544 – – (1,930) (3,339) 577 – (1,353) (3,339) (401,383) (401,383) (22,695) (424,078) 8,800,064 10,456,705 (666,031) 11,122,736 Consolidated statement of cash flows 74. s i r a n e T All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31 CASH FLOWS FROM OPERATING ACTIVITIES Income for the year ADJUSTMENTS FOR: Depreciation and amortization Income tax accruals less payments Equity in (earnings) losses of associated companies Interest accruals less payments, net Changes in provisions Changes in working capital Other, including currency translation adjustment Net cash provided by operating activities Notes 2013 2012 Revised 2011 Revised 10 & 11 28 (ii) 7 28 (iii) 28 (i) 1,574,372 1,701,739 1,421,204 610,054 125,416 (46,098) (29,723) (1,800) 188,780 (65,883) 567,654 (160,951) 63,206 (25,305) (12,437) (303,012) 29,519 554,345 120,904 (61,992) (24,880) (2,443) (649,640) (74,194) 2,355,118 1,860,413 1,283,304 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Acquisitions of subsidiaries and associated companies Proceeds from disposal of property, plant and equipment and intangible assets Increase due to sale of associated company Dividends received from associated companies Changes in investments in short terms securities Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid Dividends paid to non-controlling interest in subsidiaries Acquisitions of non-controlling interests Proceeds from borrowings (*) Repayments of borrowings (*) Net cash used in financing activities (Decrease) / Increase in cash and cash equivalents MOVEMENT IN CASH AND CASH EQUIVALENTS At the beginning of the year Effect of exchange rate changes (Decrease) / Increase in cash and cash equivalents At December 31 CASH AND CASH EQUIVALENTS Cash and bank deposits Bank overdrafts 27 12 12 9 27 28 (iv) 19 20 10 & 11 (753,498) – 33,186 – 16,334 (789,731) (510,825) 8,012 3,140 18,708 (862,658) (9,418) 6,431 – 17,229 245,448 (582,921) (213,633) (1,286,899) (1,484,329) (602,968) (507,631) (448,604) (401,383) (18,642) (7,768) (905) (758,583) 2,460,409 2,054,090 (3,143,241) (1,271,537) (22,695) (16,606) 726,189 (953,413) (1,216,873) (425,539) (667,908) (148,654) (49,455) 12,428 772,656 (25,857) (148,654) 598,145 614,529 (16,384) 598,145 815,032 7,079 (49,455) 820,165 (17,561) 12,428 772,656 815,032 828,458 (55,802) 772,656 823,743 (8,711) 815,032 (*) For 2013, these figures include approximately $2,160 million related to the renewal of short-term local facilities carried out during the year. The accompanying notes are an integral part of these Consolidated Financial Statements. Index to the notes to the Consolidated financial statements I. General Information IV. Other notes to the Consolidated financial statements II. A. B. C. D. E. F. G. H. I. J. K. L. Accounting policies (“AP”) Basis of presentation Group accounting Segment information Foreign currency translation Property, plant and equipment Intangible assets Impairment of non financial assets Other investments Inventories Trade and other receivables Cash and cash equivalents Equity M. Borrowings 1. 2. 3. Segment information Cost of sales Selling, general and administrative expenses 4. Labor costs (included in Cost of sales and in Selling, general and administrative expenses) 5. 6. 7. 8. 9. Other operating items Financial results Equity in earnings (losses) of associated companies Income tax Dividends distribution 10. Property, plant and equipment, net 11. Intangible assets, net 12. Investments in associated companies 13. Other investments - non current 14. Receivables - non current 75. t r o p e R l a u n n A Current and Deferred income tax 15. Inventories Employee benefits Provisions Trade payables Revenue recognition Cost of sales and sales expenses Earnings per share Financial instruments III. Financial risk management Financial Risk Factors N. O. P. Q. R. S. T. U. A. B. C. D. 16. Receivables and prepayments 17. Current tax assets and liabilities 18. Trade receivables 19. Other investments and Cash and cash equivalents 20. Borrowings 21. Deferred income tax 22. Other liabilities 23. Non-current allowances and provisions 24. Current allowances and provisions 25. Derivative financial instruments Financial instruments by category 26. Contingencies, commitments and restrictions Fair value hierarchy Fair value estimation on the distribution of profits 27. Business combinations, other acquisitions and investments E. Accounting for derivative financial instruments 28. Cash flow disclosures and hedging activities 29. Related party transactions 30. Principal subsidiaries 31. Nationalization of Venezuelan Subsidiaries 32. Fees paid to the Company’s principal accountant 33. Subsequent events I. General information II. Accounting policies 76. s i r a n e T Tenaris S.A. (the “Company”) was established as a public limited liability company (Societé Anonyme) under the laws of the Grand-Duchy of Luxembourg on December 17, 2001. The Company holds, either directly or indirectly, controlling interests in various subsidiaries in the steel pipe manufacturing and distribution businesses. References in these Consolidated Financial Statements to “Tenaris” refer to Tenaris S.A. and its consolidated subsidiaries. A list of the principal Company’s subsidiaries is included in Note 30 to these Consolidated Financial Statements. The Company’s shares trade on the Buenos Aires Stock Exchange, the Italian Stock Exchange and the Mexican Stock Exchange; the Company’s American Depositary Securities (“ADS”) trade on the New York Stock Exchange. These Consolidated Financial Statements were approved for issuance by the Company’s board of directors on February 20, 2014. The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. A. Basis of presentation The Consolidated Financial Statements of Tenaris have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) and adopted by the European Union, under the historical cost convention, as modified by the revaluation of available for sale financial assets and financial assets and liabilities (including derivative instruments) at fair value through profit or loss. The Consolidated Financial Statements are, unless otherwise noted, presented in thousands of U.S. dollars (“$”). Whenever necessary, certain comparative amounts have been reclassified to conform to changes in presentation in the current year. As further described below, as from January 1, 2013, the Company adopted IAS 19 (amended 2011). The effect of these changes in the recognition and measurement of pension obligations and other post-employment obligations was $60.7 million ($77.0 million in other long term liabilities net of a deferred income tax of $22.3 million and $6.0 million related to the adoption of IAS 19 in associated companies) and $50.2 million ($63.6 million in other long term liabilities net of a deferred income tax of $18.6 million and $5.2 million related to the adoption of IAS 19 in associated companies) for 2012 and 2011, respectively. As of December 31, 2010, the effect of these changes was a decrease of total equity of $30.6 million ($36.1 million in other long term liabilities net of a deferred income tax of $10.9 million and $5.4 million related to the adoption of IAS 19 in associated companies). • The preparation of Consolidated 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 at the reporting dates, and the reported amounts of revenues and expenses during the reporting years. Actual results may differ from these estimates. • • 1. New and amended standards effective in 2013 and relevant for Tenaris IAS 1, “Financial statement presentation” In June 2011, the IASB issued IAS 1 (amended 2011), “Financial statement presentation”. The amendment requires entities to separate items presented in Other comprehensive income into two groups, based on whether or not they may be recycled to profit or loss in the future. See impact of the application in the Consolidated Statement of Other Comprehensive Income. IAS 19 (amended 2011), “Employee benefits” In June 2011, the IASB issued IAS 19 (amended 2011), “Employee benefits”, which makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits and to the disclosures for all employee benefits. IAS 19 (amended 2011) was applied retrospectively, as indicated in the transitional provisions of such IFRS. These changes are related to recognizing in other comprehensive income of the period in which they arise the actuarial gains and losses arising from past experience adjustments and changes in actuarial assumptions. Past-service costs are recognized immediately in the income statement. 77. t r o p e R l a u n n A IFRS 10, “Consolidated financial statements”, IFRS 11, “Joint arrangements” and IFRS 12, “Disclosure of interests in other entities” The application of these standards did not materially affect the Company’s financial condition or results of operations. Until December 31, 2012, Tenaris’ investment in Exiros B.V. (“Exiros”) was presented as an investment in associated companies. Starting on January 1, 2013, and in connection with an amendment in the shareholders’ agreement, the Company applied the provisions of IFRS 11 and began to recognize Exiros’s assets, liabilities, revenue and expenses in relation to its interest in the joint operation. • IFRS 13, “Fair value measurement” In May 2011, the IASB issued IFRS 13, “Fair value measurement”. This standard explains how to measure fair value and aims to enhance fair value disclosures. See section IIIC and D. B. Group accounting 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 purchase method of accounting is used to account for the acquisition of subsidiaries by Tenaris. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or 78. s i r a n e T 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. 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 inter-company 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 inter-company transactions are generated. These are included in the Consolidated Income Statement under Other financial results. 2. Associates Associates 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 associates are accounted for by the equity method of accounting and are initially recognized at cost. The Company’s investment in associates includes goodwill identified in acquisition, net of any accumulated impairment loss. Unrealized results on transactions between Tenaris and its associated companies are eliminated to the extent of Tenaris’s interest in the associated companies. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment indicator of the asset transferred. Financial statements of associated companies have been adjusted where necessary to ensure consistency with IFRS. The Company’s pro-rata share of earnings in associates is recorded in the Consolidated Income Statement under Equity in earnings of associated 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, 2013, Tenaris holds 11.46% of Ternium’s common stock. The following factors and circumstances evidence that Tenaris has significant influence (as defined by IAS 28, “Investments in Associates”) 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 the nine 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 79. t r o p e R l a u n n A 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. a significant or prolonged decline in fair value below the carrying value. Tenaris carries its investment in Ternium at its proportional equity value, with no additional goodwill or intangible assets recognized. At December 31, 2013, 2012 and 2011, no impairment provisions were recorded on Tenaris’ investment in Ternium. The Company’s investment in Ternium is carried at incorporation cost plus proportional ownership of Ternium’s earnings and other shareholders’ equity accounts. Because the exchange of its holdings in Amazonia and Ylopa for shares in Ternium was considered to be a transaction between companies under common control of San Faustin S.A. (formerly San Faustin N.V.), Tenaris recorded its initial ownership interest in Ternium at $229.7 million, the carrying value of the investments exchanged. This value was $22.6 million less than Tenaris’s proportional ownership of Ternium’s shareholders’ equity at the transaction date. As a result of this treatment, Tenaris’s investment in Ternium will not reflect its proportional ownership of Ternium’s net equity position. Ternium carried out an initial public offering (“IPO”) of its shares on February 1, 2006, listing its ADS on the New York Stock Exchange. At December 31, 2013, Tenaris holds through its Brazilian subsidiary Confab Industrial S.A. (“Confab”), 5.0% of the shares with voting rights and 2.5% of Usiminas’s total share capital. For the factors and circumstances that evidence that Tenaris has significant influence over Usiminas to account it for under the equity method (as defined by IAS 28, “Investments in Associates”), see Note 27. Tenaris reviews investments in associated companies for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable, such as Tenaris carries its investment in Usiminas at its proportional equity value, plus goodwill and intangible assets recognized. At December 31, 2013 no impairment provision was recorded. At December 31, 2012, an impairment charge was recorded on Tenaris’ investment in Usiminas. See Note 27. C. Segment information The Company is organized in one major business segment, Tubes, which is also the reportable operating segment. The Tubes segment includes the production and sale of both seamless and welded steel tubular products and related services mainly for the oil and gas industry, particularly oil country tubular goods (OCTG) used in drilling operations, and for other industrial applications with production processes that consist in the transformation of steel into tubular products. Business activities included in this segment are mainly dependent on the oil and gas industry worldwide, as this industry is a major consumer of steel pipe products, particularly OCTG used in drilling activities. Demand for steel pipe products from the oil and gas industry has historically been volatile and depends primarily upon the number of oil and natural gas wells being drilled, completed and reworked, and the depth and drilling conditions of these wells. Sales are generally made to end users, with exports being done through 80. s i r a n e T a centrally managed global distribution network and domestic sales made through local subsidiaries. Corporate general and administrative expenses have been allocated to the Tubes segment. Others include all other business activities and operating segments that are not required to be separately reported, including the production and selling of sucker rods, welded steel pipes for electric conduits, industrial equipment, coiled tubing, energy and raw materials that exceed internal requirements. Tenaris’s Chief Operating Decision Maker (CEO) holds monthly meetings with senior management, in which operating and financial performance information is reviewed, including financial information that differs from IFRS principally as follows: • • • • The use of direct cost methodology to calculate the inventories, while under IFRS it is at full cost, including absorption of production overheads and depreciations; The use of costs based on previously internally defined cost estimates, while, under IFRS, costs are calculated at historical cost; The sales of energy and surplus raw materials are considered as lower cost of goods sold, while under IFRS are considered as revenues. Other timing and no significant differences. Tenaris groups its geographical information in five areas: North America, South America, Europe, Middle East and Africa, and Far East and Oceania. For purposes of reporting geographical information, net sales are allocated to geographical areas based on the customer’s location; allocation of assets, capital expenditures and associated depreciations and amortizations are based on the geographic location of the assets. D. Foreign currency translation 1. Functional and presentation currency IAS 21 (revised) defines the functional currency as the currency of the primary economic environment in which an entity operates. The functional and presentation currency of the Company is the U.S. dollar. The U.S. dollar is the currency that best reflects the economic substance of the underlying events and circumstances relevant to Tenaris global operations. Starting January 1, 2012, the Company changed the functional currency of its Mexican, Canadian and Japanese subsidiaries from their respective local currencies to the U.S. dollar Except from the Brazilian and Italian subsidiaries whose functional currencies are their local currencies, Tenaris determined that the functional currency of its other subsidiaries is the U.S. dollar, based on the following principal considerations: • • • • • • Sales are mainly negotiated, denominated and settled in U.S. dollars. If priced in a currency other than the U.S. dollar, the sales price considers exposure to fluctuation in the exchange rate versus the U.S. dollar; Prices of their critical raw materials and inputs are priced and settled in U.S. dollars; Transaction and operational environment and the cash flow of these operations have the U.S. dollars as reference currency. Significant level of integration of the local operations within Tenaris’s international global distribution network. Net financial assets and liabilities are mainly received and maintained in U.S. dollars; The exchange rate of certain legal currencies has long-been affected by recurring and severe economic crises. 81. t r o p e R l a u n n A 2. Transactions in currencies other than the 3. Translation of financial information in functional currency Transactions in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the date of the transactions or valuation where items are re-measured. At the end of each reporting period: (i) monetary items denominated in currencies other than the functional currency are translated using the closing rates; (ii) non-monetary items that are measured in terms of historical cost in a currency other than the functional currency are translated using the exchange rates prevailing at the date of the transactions; and (iii) non-monetary items that are measured at fair value in a currency other than the functional currency are translated using the exchange rates prevailing at the date when the fair value was determined. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies other than the functional currency are recorded as gains and losses from foreign exchange and included in “Other financial results” in the Consolidated Income Statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss as part of the “fair value gain or loss,” while translation differences on non-monetary financial assets such as equities classified as available for sale are included in the “available for sale reserve” in equity. Tenaris had no such assets or liabilities for any of the periods presented. currencies other than the functional currency Results of operations for subsidiaries whose functional currencies are not the U.S. dollar are translated into U.S. dollars at the average exchange rates for each quarter of the year. Financial Statement positions are translated at the end-of-year exchange rates. Translation differences are recognized in a separate component of equity as currency translation adjustments. In the case of a sale or other disposal of any of such subsidiaries, any accumulated translation difference would be recognized in income as a gain or loss from the sale. E. Property, plant and equipment Property, plant and equipment are recognized at historical acquisition or construction cost less accumulated depreciation and impairment losses; historical cost includes expenditure that is directly attributable to the acquisition of the items. Property, plant and equipment acquired through acquisitions accounted for as business combinations have been valued initially at the fair market value of the assets acquired. Major overhaul and rebuilding expenditures are capitalized as property, plant and equipment only when it is probable that future economic benefits associated with the item will flow to the group and the investment enhances the condition of assets beyond its original condition. The carrying amount of the replaced part is derecognized. Ordinary maintenance expenses on manufacturing properties are recorded as cost of products sold in the year in which they are incurred. Borrowing costs that are attributable to the acquisition or construction of certain capital assets are capitalized as part of the cost of the asset, in 82. s i r a n e T accordance with IAS 23(R) (“Borrowing Costs”). Assets for which borrowing costs are capitalized are those that require a substantial period of time to prepare for their intended use. Depreciation method is reviewed at each year end. Depreciation is calculated using the straight-line method to depreciate the cost of each asset to its residual value over its estimated useful life, as follows: Land Buildings and improvements Plant and production equipment Vehicles, furniture and fixtures, and other equipment No Depreciation 30-50 years 10-40 years 4-10 years The asset’s residual values and useful lives of significant plant and production equipment are reviewed and adjusted, if appropriate, at each year-end date. Management’s re-estimation of assets useful lives, performed in accordance with IAS 16 (“Property plant and equipment”), did not materially affect depreciation expenses for 2013. Tenaris depreciates each significant part of an item of property, plant and equipment for its different production facilities that (i) can be properly identified as an independent component with a cost that is significant in relation to the total cost of the item, and (ii) has a useful operating life that is different from another significant part of that same item of property, plant and equipment. F. Intangible assets 1. Goodwill Goodwill represents the excess of the acquisition cost over the fair value of Tenaris’s share of net identifiable assets acquired as part of business combinations determined mainly by independent valuations. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Goodwill is included on the Consolidated Statement of Financial Position under Intangible assets, net. For the purpose of impairment testing, goodwill is allocated to a subsidiary or group of subsidiaries that are expected to benefit from the business combination which generated the goodwill being tested. 2. Information systems projects Costs associated with maintaining computer software programs are generally recognized as an expense as incurred. However, costs directly related to the development, acquisition and implementation of information systems are recognized as intangible assets if it is probable they have economic benefits exceeding one year. Information systems projects recognized as assets are amortized using the straight-line method over their useful lives, not exceeding a period of 3 years. Amortization charges are mainly classified as Selling, general and administrative expenses in the Consolidated Income Statement. 3. Licenses, patents, trademarks and Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of assets and are recognized under Other operating income or Other operating expenses in the Consolidated Income Statement. proprietary technology Licenses, patents, trademarks, and proprietary technology acquired in a business combination are initially recognized at fair value at the acquisition date. Licenses, patents, proprietary technology 83. t r o p e R l a u n n A and those trademarks that have a finite useful life are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost over their estimated useful lives, and does not exceed a period of 10 years. The balance of acquired trademarks that have indefinite useful lives according to external appraisal amounts to $86.7 million at December 31, 2013 and 2012. Main factors considered in the determination of the indefinite useful lives, include the years that they have been in service and their recognition among customers in the industry. 4. Research and development Research expenditures as well as development costs that do not fulfill the criteria for capitalization are recorded as Cost of sales in the Consolidated Income Statement as incurred. Research and development expenditures included in Cost of sales for the years 2013, 2012 and 2011 totaled $105.6 million, $83.0 million and $83.1 million, respectively. 5. Customer relationships In accordance with IFRS 3 and IAS 38, Tenaris has recognized the value of customer relationships separately from goodwill attributable to the acquisition of Maverick and Hydril. Customer relationships acquired in a business combination are recognized at fair value at the acquisition date, have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight line method over the expected life of approximately 14 years for Maverick and 10 years for Hydril. G. Impairment of non financial assets Long-lived assets including identifiable intangible assets are reviewed for impairment at the lowest level for which there are separately identifiable cash flows (cash generating units, or CGU). Most of the Company’s principal subsidiaries that constitute a CGU have a single main production facility and, accordingly, each of such subsidiary represents the lowest level of asset aggregation that generates largely independent cash inflows. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets with indefinite useful life, including goodwill, are subject to at least an annual impairment test. In assessing whether there is any indication that a CGU may be impaired, external and internal sources of information are analyzed. Material facts and circumstances specifically considered in the analysis usually include the discount rate used in Tenaris’s cash flow projections and the business condition in terms of competitive and economic factors, such as the cost of raw materials, oil and gas prices, competitive environment, capital expenditure programs for Tenaris’s customers and the evolution of the rig count. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset’s value in use and fair value less costs to sell. Any impairment loss is allocated to reduce the carrying amount of the assets of the CGU in the following order: (a) first, to reduce the carrying amount of any goodwill allocated to the CGU; and (b) then, to the other assets of the unit (group of units) pro rata on the basis of the carrying amount of each asset in the unit (group of units), considering not to reduce the carrying amount of 84. s i r a n e T the asset below the highest of its fair value less cost to sell, its value in use or zero. The value in use of each CGU is determined on the basis of the present value of net future cash flows which would be generated by such CGU. Tenaris uses cash flow projections for a five year period with a terminal value calculated based on perpetuity and appropriate discount rates. For purposes of calculating the fair value less costs to sell Tenaris uses the estimated value of future cash flows that a market participant could generate from the corresponding CGU. Tenaris uses cash flow projections for a five year period with a terminal value calculated based on perpetuity and appropriate discount rates. Management judgment is required to estimate discounted future cash flows. Actual cash flows and values could vary significantly from the forecasted future cash flows and related values derived using discounting techniques. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal at each reporting date. In 2013 and 2012, none of the Company’s CGUs including long-lived assets with finite useful lives, were tested for impairment as no impairment indicators were identified. H. Other investments Other investments consist primarily of investments in financial instruments and time deposits with a maturity of more than three months at the date of purchase. Certain fixed income financial instruments purchased by the Company since October 1, 2013 have been categorized as available for sale if designated in this category or not classified in any of the other categories. The results of these financial investments are recognized in Financial Results in the Consolidated Income Statement using the effective interest method. Unrealized gains and losses other than impairment and foreign exchange results are recognized in Other comprehensive income. On maturity or disposal, net gain and losses previously deferred in Other comprehensive income are recognized in Financial Results in the Consolidated Income Statement. All other investments in financial instruments and time deposits are categorized as financial assets “at fair value through profit or loss” and their results are recognized in Financial Results in the Consolidated Income Statement. Purchases and sales of financial investments are recognized as of their settlement date. The fair values of quoted investments are generally based on current bid prices. If the market for a financial investment is not active or the securities are not listed, Tenaris estimates the fair value by using standard valuation techniques (see Section III Financial Risk Management). I. Inventories Inventories are stated at the lower of cost and net realizable value. The cost of finished goods and goods in process is comprised of raw materials, direct labor and utilities (based on FIFO method) and other direct costs and related production overhead costs. It excludes borrowing costs. 85. t r o p e R l a u n n A Tenaris estimates net realizable value of inventories by grouping, where applicable, similar or related items. Net realizable value is the estimated selling price in the ordinary course of business, less any estimated costs of completion and selling expenses. Goods in transit at year end are valued based on supplier’s invoice cost. Tenaris establishes an allowance for obsolete or slow-moving inventory related to finished goods, supplies and spare parts. For slow moving or obsolete finished products, an allowance is established based on management’s analysis of product aging. An allowance for obsolete and slow-moving inventory of supplies and spare parts is established based on management's analysis of such items to be used as intended and the consideration of potential obsolescence due to technological changes. J. Trade and other receivables Trade and other receivables are recognized initially at fair value, generally the original invoice amount. Tenaris analyzes its trade receivables on a regular basis and, when aware of a specific counterparty’s difficulty or inability to meet its obligations, impairs any amounts due by means of a charge to an allowance for doubtful accounts. Additionally, this allowance is adjusted periodically based on the aging of receivables. K. Cash and cash equivalents Cash and cash equivalents are comprised of cash in banks, liquidity funds and short-term investments with a maturity of less than three months at the date of purchase which are readily convertible to known amounts of cash. Assets recorded in cash and cash equivalents are carried at fair market value or at historical cost which approximates fair market value. In the Consolidated Statement of Financial Position, bank overdrafts are included in Borrowings in current liabilities. For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents includes overdrafts. L. Equity 1. Equity components The Consolidated Statement of Changes in Equity includes: • • The value of share capital, legal reserve, share premium and other distributable reserves calculated in accordance with Luxembourg Law; The currency translation adjustment, other reserves, retained earnings and non-controlling interest calculated in accordance with IFRS. 2. Share capital The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share. Total ordinary shares issued and outstanding as of December 31, 2013, 2012 and 2011 are 1,180,536,830 with a par value of $1.00 per share with one vote each. All issued shares are fully paid. 3. Dividends distribution by the Company to shareholders Dividends distributions are recorded in the Company’s financial statements when Company’s shareholders have the right to receive the payment, or when interim 86. s i r a n e T dividends are approved by the Board of Directors in accordance with the by-laws of the Company. Dividends may be paid by the Company to the extent that it has distributable retained earnings, calculated in accordance with Luxembourg law (see Note 26). M. Borrowings Borrowings are recognized initially at fair value net of transaction costs incurred and subsequently measured at amortized cost. N. Current and Deferred income tax The tax expense for the period comprises current and deferred tax. Tax is recognized in the Consolidated Income Statement, except for tax items recognized in the Consolidated Statement of Other Comprehensive Income. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions when appropriate. Deferred income tax is recognized applying the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The principal temporary differences arise from fair value adjustments of assets acquired in business combinations, the effect of currency translation on fixed assets, depreciation on property, plant and equipment, valuation of inventories and provisions for pension plans. Deferred tax assets are also recognized for net operating loss carry-forwards. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the time period when the asset is realized or the liability is settled, based on tax laws that have been enacted or substantively enacted at the reporting date. Deferred tax assets are recognized to the extent it is probable that future taxable income will be available against which the temporary differences can be utilized. At the end of each reporting period, Tenaris reassesses unrecognized deferred tax assets. Tenaris recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable income will allow the deferred tax asset to be recovered. In September 2013, Argentina enacted a law that amends its Income tax law. The law includes a new 10% withholding tax on dividend distributions made by Argentine companies to foreign beneficiaries. Accordingly, as of December 31, 2013, the Company recorded an income tax provision of $39.9 million, for the deferred tax liability on reserves for future dividends at Tenaris’s Argentine subsidiaries O. Employee benefits 1. Post employment benefits The Company has defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The Company applied IAS 19 (amended 2011), “Employee benefits”, as from January 1, 2013. In accordance with the amended standard, post- employment benefits are accounted as follows: 87. t r o p e R l a u n n A The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets, if any. The defined benefit obligation is calculated annually (at year end) by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are recognized immediately in income. For defined benefit plans, net interest income/ expense is calculated based on the surplus or deficit derived by the difference between the defined benefit obligations less plan assets. For defined contribution plans, the Company pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Company has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available. As required by IAS 19, comparative figures have been adjusted to reflect the retrospective application. Tenaris sponsors funded and unfunded defined benefit pension plans in certain subsidiaries. The most significant are: • • • • Employees’ service rescission indemnity: the cost of this obligation is charged to the Consolidated Income Statement over the expected service lives of employees. This provision is primarily related to the liability accrued for employees at Tenaris’s Italian subsidiary. As from January 1, 2007 as a consequence of a change in an Italian law, employees were entitled to make contributions to external funds, thus, Tenaris’s Italian subsidiary pays every year the required contribution to the funds with no further obligation. As a result, the plan changed from a defined benefit plan to a defined contribution plan effective from that date, but only limited to the contributions of 2007 onwards. Defined benefit employees’ retirement plan for certain Tenaris’s officers designed to provide post- retirement and other benefits. This unfunded plan provides defined benefits based on years of service and final average salary. Funded retirement benefit plan held in the US to employees hired prior a certain date that considers the final average pay for retirement benefit calculation. Plan assets consist primarily of investments in equities and money market funds. Additionally, an unfunded postretirement health and life plan that offers limited medical and life insurance benefits to the retirees, hired before a certain date. Funded retirement benefit plans held in Canada for salary and hourly employees hired prior a certain date based on years of service and, in the case of salaried employees, final average salary. Both plans were replaced for defined contribution plans. 2. Other long term benefits During 2007, Tenaris launched an employee retention and long term incentive program (the “Program”) applicable to certain senior officers and employees of the Company, who will be granted a number of Units throughout the duration of the Program. The value of each 88. s i r a n e T of these Units is based on Tenaris’ shareholders’ equity (excluding non-controlling interest). Also, the beneficiaries of the Program are entitled to receive cash amounts based on (i) the amount of dividend payments made by Tenaris to its shareholders, and (ii) the number of Units held by each beneficiary to the Program. Units vest ratably over a period of four years and will be redeemed by the Company ten years after grant date, with the option of an early redemption at seven years after grant date. As the cash payment of the benefit is tied to the book value of the shares, and not to their market value, Tenaris valued this long-term incentive program as a long term benefit plan as classified in IAS 19. As of December 31, 2013 and 2012, the outstanding liability corresponding to the Program amounts to $82.4 million and $68.8 million, respectively. The total value of the units granted to date under the program, considering the number of units and the book value per share as of December 31, 2013 and 2012, is $88.6 million and $71.9 million, respectively. 3. Other compensation obligations Employee entitlements to annual leave and long- service leave are accrued as earned. Compensation to employees in the event of dismissal is charged to income in the year in which it becomes payable. P. Provisions Tenaris is subject to various claims, lawsuits and other legal proceedings, including customer claims, in which a third party is seeking payment for alleged damages, reimbursement for losses or indemnity. Tenaris’ potential liability with respect to such claims, lawsuits and other legal proceedings cannot be estimated with certainty. Management periodically reviews the status of each significant matter and assesses potential financial exposure. If, as a result of past events, a potential loss from a claim or proceeding is considered probable and the amount can be 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 Tenaris’ litigation and settlement strategies. These estimates are primarily constructed with the assistance of legal counsel. As the scope of liabilities become better defined, there may be changes in the estimates of future costs which could have a material adverse effect on its results of operations, financial condition and cash flows. If Tenaris expects to be reimbursed for an accrued expense, as would be the case for an expense or loss covered under an insurance contract, and reimbursement is considered virtually certain, the expected reimbursement is recognized as a receivable. Q. Trade payables Trade payables are recognized initially at fair value, generally the nominal invoice amount. R. Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of Tenaris’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the group. Tenaris’ products and services are sold based upon purchase orders, contracts or upon other persuasive evidence of an arrangement with 89. t r o p e R l a u n n A customers, including that the sales price is known or determinable. Sales are recognized as revenue upon delivery, when neither continuing managerial involvement nor effective control over the products is retained by Tenaris and when collection is reasonably assured. Delivery is defined by the transfer of risk and may include delivery to a storage facility located at one of the Company’s subsidiaries. For bill and hold transactions revenue is recognized only to the extent (a) it is highly probable delivery will be made; (b) the products have been specifically identified and are ready for delivery; (c) the sales contract specifically acknowledges the deferred delivery instructions; (d) the usual payment terms apply. The percentage of total sales that were generated from bill and hold arrangements for products located in Tenaris’s storage facilities that have not been shipped to customers amounted to 1.3 %, 2.2% and 1.3% as of December 31, 2013, 2012 and 2011, respectively. The Company has not experienced any material claims requesting the cancellation of bill and hold transactions. Other revenues earned by Tenaris are recognized on the following basis: • • Construction contracts (mainly applicable to Tenaris Brazilian subsidiaries): The revenue recognition of the contracts follows the IAS 11 guidance, that means ,when the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognized over the period of the contract by reference to the stage of completion (measured by reference to the contract costs incurred up to the end of the reporting period as a percentage of total estimated costs for each contract). Interest income: on the effective yield basis. • Dividend income from investments in other companies: when Tenaris’ right to receive payment is established. S. Cost of sales and sales expenses Cost of sales and sales expenses are recognized in the Consolidated Income Statement on the accrual basis of accounting. Commissions, freight and other selling expenses, including shipping and handling costs, are recorded in Selling, general and administrative expenses in the Consolidated Income Statement. T. Earnings per share Earnings per share are calculated by dividing the income attributable to owners of the parent by the daily weighted average number of common shares outstanding during the year. U. Financial instruments Non derivative financial instruments comprise investments in financial debt instruments and equity, time deposits, trade and other receivables, cash and cash equivalents, borrowings, and trade and other payables. Tenaris’s non derivative financial instruments are classified into the following categories: • • • Financial instruments at fair value through profit and loss: comprise mainly cash and cash equivalents and investments in certain financial debt instruments and time deposits held for trading. Loans and receivables: comprise trade receivables and other receivables and are measured at amortized cost using the effective interest rate method less any impairment. Available for sale assets: comprise certain fixed income financial instruments purchased by the 90. s i r a n e T Company since October 1, 2013 that have been categorized as available for sale if designated in this category or not classified in any of the other categories. It also includes the Company’s interest in the Venezuelan Companies (see Note 31). Other financial liabilities: comprise borrowings, trade and other payables and are measured at amortized cost using the effective interest rate method. • Financial assets and liabilities are recognized and derecognized on their settlement date. In accordance with IAS 39 (“Financial Instruments: Recognition and Measurement”) embedded derivatives are accounted separately from their host contracts. The result has been recognized under “Foreign exchange derivatives contracts results”. The categorization depends on the nature and purpose of the financial instrument and is determined at the time of initial recognition. Accounting for derivative financial instruments and hedging activities is included within the Section III, Financial Risk Management. 91. t r o p e R l a u n n A III. Financial risk management The multinational nature of Tenaris’s operations and customer base exposes the Company to a variety of risks, mainly related to market risks (including the effects of changes in foreign currency exchange rates and interest rates), credit risk and capital market risk. In order to manage the volatility related to these exposures, the management evaluates exposures on a consolidated basis, taking advantage of logical exposure netting. The Company or its subsidiaries may then enter into various derivative transactions in order to prevent potential adverse impacts on Tenaris’ financial performance. Such derivative transactions are executed in accordance with internal policies and hedging practices. The Company’s objectives, policies and processes for managing these risks remained unchanged during 2013. A. Financial risk factors I. Capital Market Risk Tenaris seeks to maintain a low debt to total equity ratio considering the industry and the markets where it operates. The year-end ratio of debt to total equity (where “debt” comprises financial borrowings and “total equity” is the sum of financial borrowings and equity) is 0.07 as of December 31, 2013, in comparison with 0.13 as of December 31, 2012. The Company does not have to comply with regulatory capital adequacy requirements as known in the financial services industry. II. Foreign exchange risk Tenaris manufactures and sells its products in a number of countries throughout the world and consequently is exposed to foreign exchange rate risk. Since the Company’s functional currency is the U.S. dollar the purpose of Tenaris’s foreign currency hedging program is mainly to reduce the risk caused by changes in the exchange rates of other currencies against the U.S. dollar. Tenaris’s exposure to currency fluctuations is reviewed on a periodic consolidated basis. A number of derivative transactions are performed in order to achieve an efficient coverage in the absence of operative or natural hedges. Almost all of these transactions are forward exchange rates contracts (see Note 25 Derivative financial instruments). Tenaris does not enter into derivative financial instruments for trading or other speculative purposes, other than non-material investments in structured products. Because certain subsidiaries have functional currencies other than the U.S. dollar, the results of hedging activities, reported in accordance with IFRS, may not reflect entirely the management’s assessment of its foreign exchange risk hedging program. Inter-company balances between Tenaris’s subsidiaries may generate financial gains (losses) to the extent that functional currencies differ. The value of Tenaris’s financial assets and liabilities is subject to changes arising out of the variation of foreign currency exchange rates. The following table provides a breakdown of Tenaris’s main financial assets and liabilities (including foreign exchange derivative contracts) 92. s i r a n e T which impact the Company’s profit and loss as of December 31, 2013 and 2012: would have been to a large extent offset by changes to Tenaris’ net equity position. All amounts Long / (Short) in thousands of U.S.dollars AS OF DECEMBER 31 2013 2012 CURRENCY EXPOSURE / FUNCTIONAL CURRENCY Argentine Peso / U.S. dollar Euro / U.S. dollar U.S. dollar / Brazilian Real (368,985) (137,599) (51,321) (168,816) (117,370) (27,269) The main relevant exposures correspond to: Argentine Peso / U.S. dollar As of December 31, 2013 and 2012 consisting primarily of Argentine Peso-denominated financial, trade, social and fiscal payables at certain Argentine subsidiaries which functional currency was the U.S. dollar. A change of 1% in the ARS/USD exchange rate would have generated a pre-tax gain / loss of $3.7 million and $1.7 million as of December 31, 2013 and 2012, respectively. Euro / U.S. dollar As of December 31, 2013 and 2012, consisting primarily of Euro-denominated liabilities at certain subsidiaries which functional currency was the U.S. dollar. A change of 1% in the EUR/ USD exchange rate would have generated a pre-tax gain / loss of $1.4 million and $1.2 million as of December 31, 2013 and 2012, respectively, which Considering the balances held as of December 31, 2013 on financial assets and liabilities exposed to foreign exchange rate fluctuations, Tenaris estimates that the impact of a simultaneous 1% favorable / unfavorable movement in the levels of foreign currencies exchange rates relative to the U.S. dollar, would be a pre-tax gain / loss of $6.7 million (including a gain / loss of $0.3 million due to foreign exchange derivative contracts), which would be partially offset by changes to Tenaris’s net equity position of $0.8 million. For balances held as of December 31, 2012, a simultaneous 1% favorable/unfavorable movement in the foreign currencies exchange rates relative to the U.S. dollar, would have generated a pre-tax gain / loss of $4.7 million (including a loss / gain of $10.6 million due to foreign exchange derivative contracts), which would have been partially offset by changes to Tenaris’ net equity position of $0.9 million. III. Interest rate risk Tenaris is subject to interest rate risk on its investment portfolio and its debt. The Company uses a mix of variable and fixed rate debt in combination with its investment portfolio strategy. From time to time, the Company may choose to enter into foreign exchange derivative contracts and / or interest rate swaps to mitigate the exposure to changes in the interest rates. The following table summarizes the proportions of variable-rate and fixed-rate debt as of each year end. AS OF DECEMBER 31 Fixed rate Variable rate Total (*) Amount in thousands of U.S. dollars 643,005 287,930 930,935 2013 Percentage 69% 31% Amount in thousands of U.S. dollars 778,774 965,418 1,744,192 2012 Percentage 45% 55% 93. t r o p e R l a u n n A (*) As of December 31, 2013 approximately 65% of the total debt balance corresponded to fixed-rate borrowings where the original period was nonetheless equal to or lesser than 360 days. This compares to approximately 30% of the total outstanding debt balance as of December 31, 2012. The Company estimates that, if market interest rates applicable to Tenaris’s borrowings had been 100 basis points higher, then the additional pre-tax loss would have been $10.8 million in 2013 and $10.9 million in 2012. Tenaris’s exposure to interest risk associated with its debt is also mitigated by its investment portfolio. Tenaris estimates that, if interest rates on the benchmark rates for Tenaris portfolio had been 100 basis points higher, then the additional pre-tax gain would have been $3.7 million in 2013 and $5.7 million in 2012, partially offsetting the net losses to Tenaris’s borrowing costs. IV. Credit risk Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. The Company also actively monitors the creditworthiness of its treasury, derivative and insurance counterparties in order to minimize its credit risk. There is no significant concentration of credit risk from customers. No single customer comprised more than 10% of Tenaris’s net sales in 2013 and 2012. Tenaris’s credit policies related to sales of products and services are designed to identify customers with acceptable credit history, and to allow Tenaris to require the use of credit insurance, letters of credit and other instruments designed to minimize credit risks whenever deemed necessary. Tenaris maintains allowances for impairment for potential credit losses (See Section II J). As of December 31, 2013 and 2012 trade receivables amount to $1,983.0 million and $2,070.8 million respectively. Trade receivables have guarantees under credit insurance of $537.5 million and $539.3 million, letter of credit and other bank guarantees of $36.5 million and $100.3 million, and other guarantees of $55 million and $11.8 million as of December 31, 2013 and 2012 respectively. As of December 31, 2013 and 2012 past due trade receivables amounted to $431.0 million and 94. s i r a n e T $392.8 million, respectively. Out of those amounts $147.9 million and $103.4 million are guaranteed trade receivables while $51.2 million and $29.1 million are included in the allowance for doubtful accounts. Past due receivable not provisioned relate to a number of customers for whom there is no recent history of default. The allowance for doubtful accounts and the existing guarantees are sufficient to cover doubtful trade receivables. V. Counterparty risk Tenaris has investment guidelines with specific parameters to limit issuer risk on marketable securities. Counterparties for derivatives and cash transactions are limited to high credit quality financial institutions, normally investment grade. Approximately 98.1% of Tenaris’s liquid financial assets correspond to Investment Grade- rated instruments as of December 31, 2013, in comparison with approximately 88.7% as of December 31, 2012. VI. Liquidity risk Tenaris financing strategy aims to maintain adequate financial resources and access to additional liquidity. During 2013, Tenaris has counted on cash flows from operations as well as additional bank financing to fund its transactions. Management maintains sufficient cash and marketable securities to finance normal operations and believes that Tenaris also has appropriate access to market for short-term working capital needs. Liquid financial assets as a whole (comprising cash and cash equivalents and other current investments) were 11.6 % of total assets at the end of 2013 compared to 9.2% at the end of 2012. Tenaris has a conservative approach to the management of its liquidity, which consists of cash in banks, liquidity funds and short-term investments mainly with a maturity of less than three months at the date of purchase. Tenaris holds primarily investments in money market funds and variable or fixed-rate securities from investment grade issuers. As of December 31, 2013, Tenaris does not have direct exposure to financial instruments issued by European sovereign counterparties compared to 2.1 million at the end of 2012. Tenaris holds its cash and cash equivalents primarily in U.S. dollars. As of December 31, 2013 and 2012, U.S. dollar denominated liquid assets represented approximately 76% and 79% of total liquid financial assets respectively. B. Financial instruments by category Accounting policies for financial instruments have been applied to the line items below: DECEMBER 31, 2013 Assets at fair value through profit and loss Loans and receivables Available for sale Total 95. t r o p e R l a u n n A ASSETS AS PER STATEMENT OF FINANCIAL POSITION Derivative financial instruments 9,273 – Trade receivables Other receivables Available for sale assets (See note 31) Other investments Cash and cash equivalents Total DECEMBER 31, 2013 LIABILITIES AS PER STATEMENT OF FINANCIAL POSITION Borrowings Derivative financial instruments Trade and other payables (*) Total (*) The maturity of most of trade payables is less than one year. – – – 1,184,448 614,529 1,982,979 105,950 – – – – – – 21,572 45,380 9,273 1,982,979 105,950 21,572 1,229,828 – 614,529 1,808,250 2,088,929 66,952 3,964,131 Liabilities at fair value through profit and loss Other financial liabilities Total – 8,268 – 930,935 – 869,933 930,935 8,268 869,933 8,268 1,800,868 1,809,136 96. s i r a n e T DECEMBER 31, 2012 Assets at fair value through profit and loss Loans and receivables Available for sale Total ASSETS AS PER STATEMENT OF FINANCIAL POSITION Derivative financial instruments 17,852 – Trade receivables Other receivables Available for sale assets Other investments Cash and cash equivalents Total DECEMBER 31, 2012 LIABILITIES AS PER STATEMENT OF FINANCIAL POSITION Borrowings Derivative financial instruments Trade and other payables (*) Total (*) The maturity of most of trade payables is less than one year. – – – 647,012 828,458 2,070,778 157,614 – – – – – – 21,572 – – 17,852 2,070,778 157,614 21,572 647,012 828,458 1,493,322 2,228,392 21,572 3,743,286 Liabilities at fair value through profit and loss Other financial liabilities Total – 1,744,192 1,744,192 14,031 – – 926,764 14,031 926,764 14,031 2,670,956 2,684,987 C. Fair value by hierarchy IFRS 7 requires for financial instruments that are measured in the statement of financial position at fair value, 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 table presents the assets and liabilities that are measured at fair value as of December 31, 2013 and 2012. DECEMBER 31, 2013 Level 1 Level 2 Level 3 (*) Total 97. t r o p e R l a u n n A ASSETS Cash and cash equivalents Other investments Derivatives financial instruments Available for sale assets (*) Total LIABILITIES Derivatives financial instruments Total 614,529 866,382 – – – – 614,529 360,948 2,498 1,229,828 9,273 – – 21,572 24,070 9,273 21,572 1,875,202 1,480,911 370,221 – – 8,268 8,268 – – 8,268 8,268 DECEMBER 31, 2012 Level 1 Level 2 Level 3 (*) Total ASSETS Cash and cash equivalents Other investments Derivatives financial instruments Available for sale assets (*) Total LIABILITIES Derivatives financial instruments Total (*) For further detail regarding Available for sale assets, see Note 31. 828,458 451,152 – – – 193,257 17,852 – 1,279,610 211,109 – 2,603 – 21,572 24,175 828,458 647,012 17,852 21,572 1,514,894 – – 14,031 14,031 – – 14,031 14,031 98. s i r a n e T 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 where 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 31). The following table presents the changes in Level 3 assets and liabilities: YEAR ENDED DECEMBER 31 At the beginning of the period Loss for the year Currency translation adjustment and others At the end of the year 99. t r o p e R l a u n n A Assets / Liabilities 2013 2012 24,175 24,550 – (105) (435) 60 24,070 24,175 D. Fair value estimation Financial assets or liabilities classified as assets at fair value through profit or loss are measured under the framework established by the IASB accounting guidance for fair value measurements and disclosures. The fair values of quoted investments are generally based on current bid prices. If the market for a financial asset is not active or no market is available, fair values are established using standard valuation techniques. For the purpose of estimating the fair value of Cash and cash equivalents and Other Investments expiring in less than ninety days from the measurement date, the Company usually chooses to use the historical cost because the carrying amount of financial assets and liabilities with maturities of less than ninety days approximates to their fair value. 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. 100. s i r a n e T 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 carrying amount. Tenaris estimates that the fair value of its main financial liabilities is approximately 100.2% of its carrying amount including interests accrued in 2013 as compared with 101.1% in 2012. Tenaris estimates that a change of 100 basis points in the reference interest rates would have an estimated impact of approximately 0.3% in the fair value of borrowings as of December 31, 2013 and 0.1% in 2012. Fair values were calculated using standard valuation techniques for floating rate instruments and comparable market rates for discounting flows. E. Accounting for derivative financial instruments and hedging activities Derivative financial instruments are initially recognized in the statement of financial position at fair value through profit and loss on each date a derivative contract is entered into and are subsequently remeasured at fair value. Specific tools are used for calculation of each instrument’s fair value and these tools are tested for consistency on a monthly basis. Market rates are used for all pricing operations. These include exchange rates, deposit rates and other discount rates matching the nature of each underlying risk. As a general rule, Tenaris recognizes the full amount related to the change in fair value of derivative financial instruments in Financial results in the Consolidated Income Statement. Tenaris designates certain derivatives as hedges of particular risks associated with recognized assets or liabilities or highly probable forecast transactions. These transactions (mainly currency forward contracts on highly probable forecast transactions) are classified as cash flow hedges. The effective portion of the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in equity. Amounts accumulated in equity are then recognized in the income statement in the same period than the offsetting losses and gains on the hedged item. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. The fair value of Tenaris’s derivative financial 101. t r o p e R l a u n n A instruments (assets or liabilities) continues to be reflected on the statement of financial position. The full fair value of a hedging derivative is classified as a current or non current asset or liability according to its expiry date. For transactions designated and qualifying for hedge accounting, Tenaris documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. Tenaris also documents its assessment on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair value or cash flow of hedged items. At December 31, 2013 and 2012, the effective portion of designated cash flow hedges which is included in Other Reserves in equity amounts to $0.1 million credit and $2.9 million debit (see Note 25 Derivative financial instruments). The fair values of various derivative instruments used for hedging purposes are disclosed in Note 25. Movements in the hedging reserve included within Other Reserves in equity are also shown in Note 25. IV. Other notes to the Consolidated financial statements In the notes all amounts are shown in thousands of U.S. dollars, unless otherwise stated. 102. s i r a n e T 1. Segment information As mentioned in section II. AP – C, the Segment Information is disclosed as follows: Reportable operating segments All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31, 2013 MANAGEMENT VIEW Net sales Sales of energy, surplus raw materials and others IFRS - Net Sales MANAGEMENT VIEW Operating income Differences in cost of sales and others Depreciation and amortization IFRS - Operating income Financial income (expense), net Income before equity in earnings of associated companies and income tax Equity in earnings of associated companies Income before income tax Capital expenditures Depreciation and amortization Tubes Other Total 9,812,295 – 752,796 31,690 10,565,091 31,690 9,812,295 784,486 10,596,781 2,098,160 (1,855) 711 91,265 (3,337) (114) 2,189,425 (5,192) 597 2,097,016 87,814 2,184,830 (28,679) 2,156,151 46,098 2,202,249 721,869 589,482 31,629 20,572 753,498 610,054 Transactions between segments, which were eliminated in consolidation, mainly related to sales of scrap, energy, surplus raw materials and others from the Other segment to the Tubes segment for $276,388, $345,285 and $266,806 in 2013, 2012 and 2011, respectively. Net income under Management view amounted to $ 1,495.5 million, while under IFRS amounted to $ 1,574.4 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 investment in associated companies. 103. t r o p e R l a u n n A All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31, 2012 MANAGEMENT VIEW Net sales Sales of energy, surplus raw materials and others IFRS - Net Sales MANAGEMENT VIEW Operating income Differences in cost of sales and others Depreciation and amortization IFRS - Operating income Financial income (expense), net Income before equity in earnings of associated companies and income tax Equity in losses of associated companies Income before income tax Capital expenditures Depreciation and amortization Tubes Other Total 10,022,501 741,074 10,763,575 822 69,633 70,455 10,023,323 810,707 10,834,030 2,198,704 109,385 2,308,089 (58,385) 111,509 (1,147) (3,459) (59,532) 108,050 2,251,828 104,779 2,356,607 (50,104) 2,306,503 (63,206) 2,243,297 771,734 549,130 17,997 18,524 789,731 567,654 YEAR ENDED DECEMBER 31, 2011 Tubes Other Total IFRS NET SALES OPERATING INCOME Financial income (expense), net Income before equity in earnings of associated companies and income tax Equity in earnings of associated companies Income before income tax Capital expenditures Depreciation and amortization Transactions between segments, which were eliminated in consolidation, mainly related to sales of scrap, energy, surplus raw materials and others from the Other segment to the Tubes segment for $276,388, $345,285 and $266,806 in 2013, 2012 and 2011, respectively. 9,111,691 1,702,188 860,787 142,693 9,972,478 1,844,881 (10,299) 1,834,582 61,992 1,896,574 849,362 538,921 13,296 15,424 862,658 554,345 104. s i r a n e T Geographical information All amounts in thousands of U.S. dollars North America South America Europe Middle East & Africa Far East & Oceania Unallocated (*) Total YEAR ENDED DECEMBER 31, 2013 Net sales Total assets Trade receivables Property, plant and equipment, net Capital expenditures Depreciation and amortization YEAR ENDED DECEMBER 31, 2012 Net sales Total assets Trade receivables Property, plant and equipment, net Capital expenditures Depreciation and amortization YEAR ENDED DECEMBER 31, 2011 Net sales Total assets Trade receivables Property, plant and equipment, net Capital expenditures Depreciation and amortization 958,178 2,119,896 4,412,263 8,130,799 613,735 2,586,496 3,150,000 506,044 2,561,557 364,806 2,292,811 1,098,733 1,059,887 285,413 327,344 283,265 110,496 151,550 140,180 5,270,062 7,780,873 528,443 2,717,234 3,824,931 867,223 2,222,906 1,003,871 338,827 316,158 237,456 103,537 4,350,815 7,226,605 518,272 2,051,826 496,021 294,602 2,564,518 3,373,855 545,336 892,572 150,419 113,729 1,092,642 2,327,901 273,824 985,617 185,354 116,771 1,119,887 2,396,443 320,075 882,185 176,861 117,360 562,206 373,844 59,196 5,048 10,594 1,271,585 449,056 286,212 64,632 9,720 7,989 1,349,334 522,926 377,569 64,450 22,669 2,495 519,948 592,065 124,550 163,140 28,222 21,440 482,507 578,199 115,076 157,944 18,374 23,199 587,924 651,986 139,339 162,620 16,688 26,159 – 10,596,781 934,343 15,930,970 – – – – 1,982,979 4,673,767 753,498 610,054 – 10,834,030 998,583 15,959,543 – – – – 2,070,778 4,434,970 789,731 567,654 – 9,972,478 691,820 14,863,635 – – – – 1,900,591 4,053,653 862,658 554,345 There are no revenues from external customers attributable to the Company’s country of incorporation (Luxembourg). For geographical information purposes, “North America” comprises Canada, Mexico and the USA; “South America” comprises principally Argentina, Brazil, Colombia, Ecuador and Venezuela; “Europe” comprises principally Italy, Norway, Romania; “Middle East and Africa” comprises principally Angola, Iraq, Nigeria, Saudi Arabia, United Arab Emirates and; “Far East and Oceania” comprises principally China, Indonesia and Japan. (*) Includes Investments in associated companies and Available for sale assets for $21.6 million in 2013, 2012 and 2011 (see Note 12 and 31). 2. Cost of sales All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31 2013 2012 2011 105. t r o p e R l a u n n A INVENTORIES AT THE BEGINNING OF THE YEAR 2,985,805 2,806,409 2,460,384 PLUS: CHARGES OF THE PERIOD Raw materials, energy, consumables and other Increase in inventory due to business combinations Services and fees Labor cost Depreciation of property, plant and equipment Amortization of intangible assets Maintenance expenses Allowance for obsolescence Taxes Other LESS: INVENTORIES AT THE END OF THE YEAR 3,749,921 4,330,547 4,409,698 – 422,142 1,486 433,944 10,688 368,910 1,199,351 1,256,041 1,177,067 368,507 8,263 202,338 70,970 4,956 147,180 333,466 7,091 260,274 49,907 6,793 137,140 312,601 6,561 220,240 11,067 4,958 97,642 6,173,628 6,816,689 6,619,432 (2,702,647) (2,985,805) (2,806,409) 6,456,786 6,637,293 6,273,407 106. s i r a n e T 3. Selling, general and administrative expenses All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31 Services and fees Labor cost Depreciation of property, plant and equipment Amortization of intangible assets Commissions, freight and other selling expenses Provisions for contingencies Allowances for doubtful accounts Taxes Other 4. Labor costs (included in Cost of sales and in Selling, general and administrative expenses) All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31 Wages, salaries and social security costs Employees' service rescission indenmnity (including those classified as defined contribution plans) Pension benefits - defined benefit plans Employee retention and long term incentive program At the year-end, the number of employees was 26,825 in 2013, 26,673 in 2012 and 26,980 in 2011. 2013 2012 2011 177,996 575,588 19,132 214,152 600,239 31,429 23,236 170,659 128,782 213,073 570,950 15,023 212,074 550,611 21,163 3,840 170,582 126,473 218,991 533,219 12,400 222,783 545,228 35,847 7,749 148,912 134,111 1,941,213 1,883,789 1,859,240 2013 2012 2011 1,714,471 1,772,399 1,666,176 10,978 32,112 17,378 13,939 20,808 19,845 14,923 10,300 18,887 1,774,939 1,826,991 1,710,286 107. t r o p e R l a u n n A 5. Other operating items All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31 (I) OTHER OPERATING INCOME Reimbursement from insurance companies and other third parties agreements (*) Net income from other sales Net rents Other (II) OTHER OPERATING EXPENSES 2013 2012 2011 148 10,663 3,494 – 49,495 12,314 2,988 6,583 695 5,510 2,487 2,849 14,305 71,380 11,541 Contributions to welfare projects and non-profits organizations 21,147 22,226 Provisions for legal claims and contingencies Loss on fixed assets and material supplies disposed / scrapped Allowance for doubtful receivables Other (2) 39 1,708 5,365 (668) 227 5,936 – 4,341 1,411 48 691 – 28,257 27,721 6,491 (*) In 2012, Confab Industrial S.A., a Tenaris subsidiary organized in Brazil (“Confab”) collected from the Brazilian government an amount, net of attorney fees and other related expenses, of approximately Brazilian reais (“BRL”) 99.8 million (approximately $49.2 million), recorded in other operating income. The income tax effect on this gain amounted to approximately $17.1 million. This payment was ordered by a final court judgment that represents Confab’s right to interest and monetary adjustment over a tax benefit that had been paid to Confab in 1991 and determined the amount of such right. 108. s i r a n e T 6. Financial results All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31 Interest income Interest expense Interest net Net foreign exchange transaction results Foreign exchange derivatives contracts results Other Other financial results Net financial results 7. Equity in earnings (losses) of associated companies All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31 From associated companies Gain on sale of associated companies and others Impairment loss on associated companies (see Note 27) 2013 2012 2011 33,094 (70,450) (37,356) 37,179 4,414 (32,916) 8,677 33,459 (55,507) (22,048) (10,929) (3,194) (13,933) (28,056) 30,840 (52,407) (21,567) 65,365 (49,349) (4,748) 11,268 (28,679) (50,104) (10,299) 2013 2012 2011 46,098 – – 46,098 4,545 5,899 (73,650) (63,206) 61,992 – – 61,992 8. Income tax All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31 Current tax Deferred tax 109. t r o p e R l a u n n A 2013 2012 2011 594,179 33,698 627,877 636,624 (95,066) 573,769 (98,399) 541,558 475,370 The tax on Tenaris’s income before tax differs from the theoretical amount that would arise using the tax rate in each country as follows: All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31 2013 2012 2011 Income before income tax 2,202,249 2,243,297 1,896,574 Tax calculated at the tax rate in each country Non taxable income / Non deductible expenses Changes in the tax rates Effect of currency translation on tax base (*) Utilization of previously unrecognized tax losses Tax charge (*) Tenaris applies the liability method to recognize deferred income tax on temporary differences between the tax bases of assets and their carrying amounts in the financial statements. By application of this method, Tenaris recognizes gains and losses on deferred income tax due to the effect of the change in the value on the tax basis in subsidiaries, which have a functional currency different to their local currency. These gains and losses are required by IFRS even though the revalued / devalued tax basis of the relevant assets will not result in any deduction / obligation for tax purposes in future periods. 465,029 72,768 8,287 92,695 (10,902) 627,877 456,530 80,527 4,707 5,214 418,358 43,265 (7,736) 25,000 (5,420) (3,517) 541,558 475,370 110. s i r a n e T 9. Dividends distribution On November 6, 2013, the Company’s board of directors approved the payment of an interim dividend of $0.13 per share ($0.26 per ADS), or approximately $153.5 million, on November 21, 2013, with an ex-dividend date of November 18, 2013. On May 2, 2013 the Company’s Shareholders approved an annual dividend in the amount of $0.43 per share ($0.86 per ADS). The amount approved included the interim dividend previously paid in November 22, 2012 in the amount of $0.13 per share ($0.26 per ADS). The balance, amounting to $0.30 per share ($0.60 per ADS), was paid on May 23, 2013. In the aggregate, the interim dividend paid in November 2012 and the balance paid in May 2013 amounted to approximately $507.6 million. On May 2, 2012, the Company’s shareholders approved an annual dividend in the amount of $0.38 per share ($0.76 per ADS). The amount approved included the interim dividend previously paid in November 2011, in the amount of $0.13 per share ($0.26 per ADS). The balance, amounting to $0.25 per share ($0.50 per ADS), was paid on May 24, 2012. In the aggregate, the interim dividend paid in November 2011 and the balance paid in May 2012 amounted to approximately $449 million. On June 1, 2011, the Company’s shareholders approved an annual dividend in the amount of $0.34 per share ($0.68 per ADS). The amount approved included the interim dividend previously paid in November 2010, in the amount of $0.13 per share ($0.26 per ADS). The balance, amounting to $0.21 per share ($0.42 per ADS), was paid on June 23, 2011. In the aggregate, the interim dividend paid in November 2010 and the balance paid in June 2011 amounted to approximately $401 million. 111. t r o p e R l a u n n A 112. s i r a n e T 10. Property, plant and equipment, net All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31, 2013 COST Land, building and improvements Plant and production equipment Vehicles, furniture and fixtures Work in progress Spare parts and equipment Total Values at the beginning of the year 1,417,994 7,503,358 321,271 Translation differences Additions Disposals / Consumptions Increase due to the consolidation of joint operations Transfers / Reclassifications Values at the end of the year (7,616) 10,121 (17,388) – 95,077 36,436 5,242 (30,156) – 558,533 (3,348) 4,963 (8,973) 1,301 24,100 1,498,188 8,073,413 339,314 DEPRECIATION Accumulated at the beginning of the year 331,806 4,811,325 182,169 Translation differences Depreciation charge Transfers / Reclassifications Increase due to the consolidation of joint operations Disposals / Consumptions (1,581) 43,469 1,511 – (1,901) 22,046 317,242 3,339 – (22,451) (2,402) 25,678 (1,655) 392 (6,627) Accumulated at the end of the year 373,304 5,131,501 197,555 489,894 (7,776) 641,235 – 608 (682,059) 441,902 – – – – – – – 43,674 348 5,308 (6,783) 142 (4,935) 9,776,191 18,044 666,869 (63,300) 2,051 (9,284) 37,754 10,390,571 15,921 458 1,250 (3,187) 105 (103) 5,341,221 18,521 387,639 8 497 (31,082) 14,444 5,716,804 At December 31, 2013 1,124,884 2,941,912 141,759 441,902 23,310 4,673,767 All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31, 2012 COST Land, building and improvements Plant and production equipment Vehicles, furniture and fixtures Work in progress Spare parts and equipment Total 113. t r o p e R l a u n n A Values at the beginning of the year 1,311,786 7,149,005 287,202 Translation differences Additions Disposals / Consumptions Increase due to business combinations Transfers / Reclassifications Values at the end of the year DEPRECIATION (8,824) 29,000 (1,513) – 87,545 877 14,765 (57,128) 5,325 390,514 (2,881) 3,121 (6,927) 138 40,618 1,417,994 7,503,358 321,271 Accumulated at the beginning of the year 293,438 4,580,997 164,292 Translation differences Depreciation charge Transfers / Reclassifications Disposals / Consumptions (1,869) 39,082 1,256 (101) 396 282,375 831 (53,274) (2,043) 25,702 (754) (5,028) Accumulated at the end of the year 331,806 4,811,325 182,169 318,297 (5,201) 693,729 (58) 720 (517,593) 489,894 – – – – – – 40,822 9,107,112 38 6,313 (4,060) 102 459 (15,991) 746,928 (69,686) 6,285 1,543 43,674 9,776,191 14,732 247 1,330 (377) (11) 5,053,459 (3,269) 348,489 956 (58,414) 15,921 5,341,221 At December 31, 2012 1,086,188 2,692,033 139,102 489,894 27,753 4,434,970 Property, plant and equipment include capitalized interests for net amounts at December 31, 2013 and 2012 of $3,782 and $4,038 (there were no capitalized interests during the years 2013 and 2012)), respectively. 114. s i r a n e T 11. Intangible assets, net All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31, 2013 COST Values at the beginning of the year Translation differences Additions Transfers / Reclassifications Disposals Information system projects Licenses, patents and trademarks (*) Goodwill Customer relationships Total 310,524 493,822 2,147,433 2,059,946 5,011,725 (1,362) 85,974 5,820 (468) 20 655 (1,249) (419) 61 – – (252) – – – – (1,281) 86,629 4,571 (1,139) Values at the end of the year 400,488 492,829 2,147,242 2,059,946 5,100,505 AMORTIZATION Accumulated at the beginning of the year 218,531 273,443 340,488 979,347 1,811,809 Translation differences Amortization charge Disposals Transfers / Reclassifications Accumulated at the end of the year (779) 31,104 (171) 1,231 249,916 – 30,237 – (1,236) 302,444 – – – – – (779) 161,074 222,415 – – (171) (5) 340,488 1,140,421 2,033,269 At December 31, 2013 150,572 190,385 1,806,754 919,525 3,067,236 All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31, 2012 COST Values at the beginning of the year Translation differences Additions Transfers / Reclassifications Increase due to business combinations Disposals Values at the end of the year AMORTIZATION Accumulated at the beginning of the year Translation differences Amortization charge Disposals Transfers / Reclassifications Accumulated at the end of the year 115. t r o p e R l a u n n A Information system projects Licenses, patents and trademarks (*) Goodwill Customer relationships Total 268,237 (1,277) 42,762 874 11 (83) 495,417 2,146,243 2,059,946 4,969,843 (78) 41 (1,558) – – 73 – – 1,117 – – – – – – (1,282) 42,803 (684) 1,128 (83) 310,524 493,822 2,147,433 2,059,946 5,011,725 191,571 (827) 27,808 (103) 82 243,580 340,488 818,274 1,593,913 (242) 30,284 – (179) – – – – – 161,073 – – (1,069) 219,165 (103) (97) 218,531 273,443 340,488 979,347 1,811,809 At December 31, 2012 91,993 220,379 1,806,945 1,080,599 3,199,916 (*) Includes Proprietary Technology. The geographical allocation of goodwill for the year ended December 31, 2013 was $1,614.5 million for North America, $189.4 million for South America $2.2 million for Europe, and $0.7 million for Middle East & Africa. 116. s i r a n e T The carrying amount of goodwill allocated by CGU, as of December 31, 2013, was as follows: All amounts in million U.S.dollars As of December 31, 2013 Tubes Segment Other Segment Total CGU OCTG (USA and Colombia) Tamsa (Hydril and other) Siderca (Hydril and other) Hydril Electric Conduits Coiled Tubing Other Total Maverick Acquisition Hydril Acquisition Other Maverick Acquisition 721.5 – – – 45.8 – – – 345.9 265.0 309.0 – – – 767.3 919.9 – 19.4 93.3 – – – 2.9 115.6 – – – – – 4.0 – 4.0 721.5 365.3 358.3 309.0 45.8 4.0 2.9 1,806.8 Impairment tests In 2013 and 2012, the CGU’s shown in the previous table were tested for impairment. No other CGU was tested for impairment in 2013 and 2012 as no impairment indicators were identified. Tenaris determined that the CGUs with a significant amount of goodwill in comparison to the total amount of goodwill as of December 31, 2013, were: OCTG, Tamsa, Siderca and Hydril, which represented 97.1% of total goodwill. The value-in-use was used to determine the recoverable amount for all the CGUs with a significant amount of goodwill in comparison to the total amount of goodwill. Value-in-use is calculated by discounting the estimated cash flows over a five year period based on forecasts approved by management. For the subsequent years beyond the five-year period, a terminal value is calculated based on perpetuity considering a nominal growth rate of 2%. The growth rate considers the long-term average growth rate for the oil and gas industry, the higher demand to offset depletion of existing fields and the Company’s expected market penetration. Tenaris’s main source of revenue is the sale of products and services to the oil and gas industry, and the level of such sales is sensitive to international oil and gas prices and their impact on drilling activities. The main key assumptions, 117. t r o p e R l a u n n A shared by all four CGUs are oil and natural gas prices evolution and the level of drilling activity. Tenaris uses the average number of active oil and gas drilling rigs, or rig count, as published by Baker Hughes, as a general indicator of activity in the oil and gas sector. In the case of the OCTG CGU, these assumptions are mainly related to the U.S. market. In the case of Tamsa CGU and Siderca CGU, assumptions are mainly related to the countries where they are located, Mexico and Argentina respectively, and to the international markets as both facilities export a large amount of their production. Regarding Hydril CGU, assumptions are mainly related to the worldwide market. In addition, key assumptions for OCTG CGU, Tamsa CGU and Siderca CGU also include raw materials costs as their production process consists on the transformation of steel into pipes. In the case of Tamsa CGU and Siderca CGU, steel comes from their own steel shops, therefore they consume steelmaking raw materials (e.g., iron ore and metal scrap). In the case of OCTG CGU, the main raw material is hot rolled steel coils. In the case of Hydril CGU, raw material costs are negligible. For purposes of assessing key assumptions, Tenaris uses external sources of information and management judgment based on past experience. The discount rates used are based on the respective weighted average cost of capital (WACC) which is considered to be a good indicator of capital cost. For each CGU where assets are allocated, a specific WACC was determined taking into account the industry, country and size of the business. In 2013, the discount rates used were in a range between 10% and 13%. From the CGUs with a significant amount of goodwill assigned in comparison to the total amount of goodwill, Tenaris has determined that the CGU for which a reasonable possible change in a key assumption would cause the CGUs’ carrying amount to exceed its recoverable amount was OCTG CGU. In OCTG CGU, the recoverable amount calculated based on value in use exceeded carrying value by $106 million as of December 31, 2013. The main factors that could result in impairment charges in future periods would be an increase in the discount rate / decrease in growth rate used in the Company’s cash flow projections and a deterioration of the business, competitive and economic factors, such as the cost of raw materials, oil and gas prices, competitive environment, capital expenditure program of Tenaris’s clients and the evolution of the rig count in the U.S. market. As there is a significant interaction among the principal assumptions made in estimating its cash flow projections, the Company believes that a sensitivity analysis that considers changes in one assumption at a time could be potentially misleading. A reduction in cash flows of 5.2%, a fall in growth rate to 1.3% or a rise in discount rate of 40 basis points would remove the remaining headroom. As of December 31, 2013, no cumulative amount of recognized impairment charges are subject to reversal. 118. s i r a n e T 12. Investments in associated companies YEAR ENDED DECEMBER 31 2013 2012 At the beginning of the year Translation differences Equity in earnings of associated companies Impairment loss in associated companies Dividends and distributions received Acquisitions Sale of associated company Increase in equity reserves At the end of the period 977,011 (87,666) 46,098 – (16,334) – (9,033) 2,682 664,997 (108,480) 10,444 (73,650) (18,708) 504,597 (3,140) 951 912,758 977,011 The principal associated companies are: Company Country of incorporation % ownership - voting rights at December 31 Value at December 31 Ternium S.A. Luxembourg Usiminas S.A. Brazil Others – (*) Including treasury shares 2013 2012 2013 2012 11.46% (*) 11.46% (*) 2.5% - 5% 2.5% - 5% – – 602,303 298,459 11,996 912,758 605,714 346,941 24,356 977,011 Ternium, is a steel producer in Latin America with production facilities in Mexico, Argentina, Colombia, the southern of United States and Guatemala and it is one of Tenaris´s main suppliers of round steel bars and flat steel products for its pipes business. 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. Summarized selected financial information of Ternium and Usiminas, including the aggregated amounts of assets, liabilities, revenues and profit or loss is as follows: 119. t r o p e R l a u n n A Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Non-controlling interests Revenues Gross profit Net (loss) income for the year attributable to owners of the parent 2013 2012 Usiminas S.A. Ternium S.A. Total Usiminas S.A. Ternium S.A. Total 9,347,605 4,038,373 7,153,162 3,219,462 16,500,767 10,762,700 7,211,371 17,974,071 7,257,835 5,275,579 3,655,628 8,931,207 13,385,978 10,372,624 23,758,602 16,038,279 10,866,999 26,905,278 3,174,490 2,171,729 2,185,421 1,849,159 5,359,911 4,020,888 4,334,830 2,643,954 2,306,640 2,125,446 6,641,470 4,769,400 5,346,219 4,034,580 9,380,799 6,978,784 4,432,086 11,410,870 905,847 5,970,626 676,960 (74,459) 998,009 1,903,856 932,050 1,065,730 1,997,780 8,530,012 1,929,720 455,425 14,500,638 6,502,352 8,608,054 15,110,406 2,606,680 380,966 340,380 (319,116) 1,741,675 2,082,055 142,043 (177,073) 120. s i r a n e T 13. Other investments – non current YEAR ENDED DECEMBER 31 Investments in other companies Others 14. Receivables – non current YEAR ENDED DECEMBER 31 Government entities Employee advances and loans Tax credits Receivables from related parties Legal deposits Advances to suppliers and other advances Others Allowances for doubtful accounts – see Note 23 (I) 2013 2012 2,294 204 2,498 2,293 310 2,603 2013 2012 2,232 12,841 18,396 20,716 23,589 44,986 32,299 2,962 12,583 22,352 19,349 24,312 22,752 40,745 155,059 145,055 (2,979) (2,995) 152,080 142,060 15. Inventories YEAR ENDED DECEMBER 31 Finished goods Goods in process Raw materials Supplies Goods in transit Allowance for obsolescence – see Note 24 (I) 16. Receivables and prepayments 121. t r o p e R l a u n n A 2013 2012 1,024,571 1,024,746 650,567 363,611 572,167 320,496 757,185 473,278 524,539 391,225 2,931,412 3,170,973 (228,765) (185,168) 2,702,647 2,985,805 YEAR ENDED DECEMBER 31 2013 2012 Prepaid expenses and other receivables Government entities Employee advances and loans Advances to suppliers and other advances Government tax refunds on exports Receivables from related parties Derivative financial instruments Miscellaneous Allowance for other doubtful accounts – see Note 24 (I) 57,410 3,948 15,356 70,412 25,502 11,313 9,273 36,406 229,620 (9,396) 220,224 49,456 6,600 13,421 65,843 30,206 42,361 17,852 45,309 271,048 (10,516) 260,532 122. s i r a n e T 17. Current tax assets and liabilities YEAR ENDED DECEMBER 31 CURRENT TAX ASSETS V.A.T. credits Prepaid taxes CURRENT TAX LIABILITIES Income tax liabilities V.A.T. liabilities Other taxes 18. Trade receivables YEAR ENDED DECEMBER 31 Current accounts Receivables from related parties Allowance for doubtful accounts – see Note 24 (I) 2013 2012 69,926 86,265 97,173 78,389 156,191 175,562 149,154 39,984 77,622 266,760 129,419 27,394 97,790 254,603 2013 2012 2,005,209 2,077,117 28,924 22,804 2,034,133 2,099,921 (51,154) (29,143) 1,982,979 2,070,778 The following table sets forth details of the aging of trade receivables: AT DECEMBER 31, 2013 Trade Receivables Not Due Past due 123. t r o p e R l a u n n A Guaranteed Not guaranteed Guaranteed and not guaranteed Allowance for doubtful accounts Net Value AT DECEMBER 31, 2012 Guaranteed Not guaranteed Guaranteed and not guaranteed Allowance for doubtful accounts Net Value 1 - 180 days > 180 days 628,929 1,405,204 2,034,133 481,079 1,122,078 1,603,157 (51,154) – 1,982,979 1,603,157 651,399 1,448,522 2,099,921 547,986 1,159,158 1,707,144 (29,143) – 2,070,778 1,707,144 130,316 227,317 357,633 (64) 357,569 98,475 259,165 357,640 (1,138) 356,502 17,534 55,809 73,343 (51,090) 22,253 4,938 30,199 35,137 (28,005) 7,132 19. Other investments and Cash and cash equivalents YEAR ENDED DECEMBER 31 OTHER INVESTMENTS Fixed Income (time-deposit, zero cupon bonds, commercial papers) Bonds and other fixed Income Equity & Fund Investments CASH AND CASH EQUIVALENTS Cash at banks Liquidity funds Short – term investments 2013 2012 639,538 513,075 74,717 333,658 307,711 3,040 1,227,330 644,409 123,162 95,042 396,325 285,395 301,663 241,400 614,529 828,458 124. s i r a n e T 20. Borrowings YEAR ENDED DECEMBER 31 NON-CURRENT Bank borrowings Finance lease liabilities Costs of issue of debt CURRENT Bank borrowings and other loans including related companies Bank overdrafts Finance lease liabilities Costs of issue of debt Total Borrowings The maturity of borrowings is as follows: 2013 2012 247,056 536,134 1,471 (2,309) 1,547 (5,274) 246,218 532,407 668,132 16,384 575 (374) 684,717 930,935 1,157,983 55,802 630 (2,630) 1,211,785 1,744,192 AT DECEMBER 31, 2013 1 year or less 1 - 2 years 2 - 3 years 3 - 4 years 4 - 5 years Over 5 years Total Financial lease Other borrowings Total borrowings Interest to be accrued (*) Total AT DECEMBER 31, 2012 Financial lease Other borrowings Total borrowings Interest to be accrued (*) Total (*) Includes the effect of hedge accounting. 575 684,142 684,717 26,643 711,360 630 1,211,155 1,211,785 18,615 1,230,400 520 98,891 99,411 7,244 106,655 415 231,007 231,422 12,802 244,224 490 91,202 91,692 3,924 95,616 403 161,997 162,400 5,753 168,153 274 45,860 46,134 891 47,025 372 83,599 83,971 3,344 87,315 131 7,066 7,197 251 7,448 225 45,622 45,847 748 46,595 56 1,728 1,784 21 1,805 132 8,635 8,767 2,046 928,889 930,935 38,974 969,909 2,177 1,742,015 1,744,192 230 41,492 8,997 1,785,684 Significant borrowings include: In million of $ Disbursement date Borrower Type Original & Outstanding Final maturity 2013 Mainly 2013 January 2012 Tamsa Siderca Confab Bank loans Bank loans Syndicated 420 217 193 2014 Mainly 2014 January 2017 (**) 125. t r o p e R l a u n n A (**) The main covenants on these loan agreements are limitations on liens and encumbrances, limitations on the sale of certain assets, restrictions on investments, compliance with financial ratios (i.e., leverage ratio and interest coverage ratio) and restrictions on amendments As of December 31, 2013, Tenaris was in compliance with all of its covenants. The weighted average interest rates before tax shown below were calculated using the rates set for each instrument in its corresponding currency as of December 31, 2013 and 2012 (considering hedge accounting where applicable). Total borrowings (*) The increase in weighted average interest rates is explained by an increase in the proportion of unhedged, ARS- denominated debt. This represented 25.9 % of total borrowings as of December 31, 2013 and 3.4% as of December 31, 2012. Tenaris estimates that the impact of ARS depreciation on the ARS-denominated debt balance during 2013 has been equivalent to a reduction of 7.05% to its weighted average interest rate before tax. This impact is posted under net foreign exchange results in Other Financial Results. 2013 (*) 2012 7.50% 2.60% 126. s i r a n e T Breakdown of long-term borrowings by currency and rate is as follows: Non current borrowings Currency USD ARS Others Others Total non current borrowings Interest rates Year ended December 31 Variable Fixed Variable Fixed 2013 2012 218,134 20,778 1,347 5,959 510,892 13,491 1,206 6,818 246,218 532,407 Breakdown of short-term borrowings by currency and rate is as follows: Current borrowings Currency Interest rates Year ended December 31 USD USD EURO EURO MXN ARS ARS Others Others Variable Fixed Variable Fixed Fixed Fixed Variable Variable Fixed 2013 2012 24,823 25,019 38,279 8,432 366,380 215,429 4,394 953 1,008 240,894 104,845 179,549 65,107 339,683 239,446 32,650 227 9,384 Total current borrowings 684,717 1,211,785 21. Deferred income tax Deferred income taxes are calculated in full on temporary differences under the liability method using the tax rate of each country. Deferred tax liabilities The evolution of deferred tax assets and liabilities during the year are as follows: 127. t r o p e R l a u n n A At the beginning of the year Translation differences Charged directly to Other Comprehensive Income Income statement charge At December 31, 2013 At the beginning of the year Translation differences Increase due to business combinations Charged directly to Other Comprehensive Income Income statement credit At December 31, 2012 (*) Includes the effect of currency translation on tax base explained in Note 8. Fixed assets 335,484 (1,703) – 26,427 360,208 Inventories Intangible and Other (*) Total 15,269 530,437 881,190 – – 6,257 21,526 (223) 11,441 6,564 (1,926) 11,441 39,248 548,219 929,953 354,053 25,739 578,307 958,099 541 636 – (19,746) 335,484 – – – (10,470) 15,269 (239) – (1,429) (46,202) 302 636 (1,429) (76,418) 530,437 881,190 Deferred tax assets 128. s i r a n e T Provisions and allowances Inventories Tax losses Other Total At the beginning of the year Translation differences Increase due to consolidation of joint operations Charged directly to Other Comprehensive Income Income statement charge / (credit) At December 31, 2013 At the beginning of the year Translation differences Increase due to business combinations Charged directly to Other Comprehensive Income Income statement charge / (credit) At December 31, 2012 (56,406) 6,104 (17) 753 (70,388) 2,301 (45) – (183,560) (23,141) (105,409) (368,516) 1,311 – – – – – (843) (1,442) (7,807) 6,572 (1,459) (7,054) (5,550) (4,070) 20,007 (2,669) (18,818) (53,636) (162,242) (25,810) (134,319) (376,007) (171,465) (35,196) (105,912) (382,961) 647 (189) – – – – (199) – (1,668) 2,370 2,749 (234) (1,668) 13,598 11,726 (12,553) 12,055 (56,406) (183,560) (23,141) (105,409) (368,516) The recovery analysis of deferred tax assets and deferred tax liabilities is as follows: YEAR ENDED DECEMBER 31 Deferred tax assets to be recovered after 12 months Deferred tax liabilities to be recovered after 12 months 129. t r o p e R l a u n n A 2013 2012 (119,488) 877,524 (111,616) 867,181 Deferred income tax assets and liabilities are offset when (1) there is a legally enforceable right to set- off current tax assets against current tax liabilities and (2) when the deferred income taxes relate to the same fiscal authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. The following amounts, determined after appropriate set-off, are shown in the Consolidated Statement of Financial Position: YEAR ENDED DECEMBER 31 Deferred tax assets Deferred tax liabilities The movement on the net deferred income tax liability account is as follows: YEAR ENDED DECEMBER 31 At the beginning of the year Translation differences Charged directly to Other Comprehensive Income Income statement credit Increase due to business combinations Increase due to consolidation of joint operations At the end of the period 2013 2012 (197,159) 751,105 553,946 (215,867) 728,541 512,674 2013 2012 512,674 4,646 4,387 33,698 – (1,459) 553,946 575,138 3,051 (3,097) (62,820) 402 – 512,674 130. s i r a n e T 22. Other liabilities I. Other liabilities – Non current YEAR ENDED DECEMBER 31 Post-employment benefits Other-long term benefits Taxes Payable Miscellaneous Post-employment benefits Unfunded YEAR ENDED DECEMBER 31 Values at the beginning of the period Current service cost Interest cost Curtailments and settlements Remeasurements (*) Translation differences Increase due to business combinations Benefits paid from the plan Other At the end of the year (*) For 2013, loss of $3.0 million attributable to demographic assumptions and a gain of $6.4 million attributable to financial assumptions. 2013 2012 169,215 82,439 – 25,603 277,257 184,323 68,771 2,065 47,285 302,444 2013 2012 131,475 18,373 7,220 1,212 (3,403) (1,561) – (15,299) (1,086) 136,931 120,484 12,348 3,709 – 2,140 (1,143) 1,189 (9,342) 2,090 131,475 The principal actuarial assumptions used were as follows: YEAR ENDED DECEMBER 31 Discount rate Rate of compensation increase 131. t r o p e R l a u n n A 2013 2012 3% - 7% 3% - 7% 3% - 7% 2% - 5% As of December 31, 2013, an increase / (decrease) of 1% in the discount rate assumption would have generated an impact on the defined benefit obligation of $5.5 million and $6.2 million and an increase / (decrease) of 1% in the rate of compensation assumption would have generated an impact on the defined benefit obligation of $4.5 million and $4.1 million. The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. Funded The amounts recognized in the statement of financial position for the current annual period and the previous annual period are as follows: YEAR ENDED DECEMBER 31 Present value of funded obligations Fair value of plan assets (Assets) / Liability (*) (*) In 2013 and 2012, $0.6 million and $2.2 million corresponding to an overfunded plan were reclassified within other non-current assets, respectively. 2013 2012 177,433 (145,777) 31,656 191,154 (140,550) 50,604 132. s i r a n e T The movement in the present value of funded obligations is as follows: YEAR ENDED DECEMBER 31 At the beginning of the year Translation differences Current service cost Interest cost Remeasurements (*) Benefits paid Other At the end of the year (*) For 2013, loss of $7.5 million attributable to demographic assumptions and a gain of $14.7 million attributable to financial assumptions. The movement in the fair value of plan assets is as follows: YEAR ENDED DECEMBER 31 At the beginning of the year Expected return on plan assets Remeasurements Translation differences Contributions paid to the plan Benefits paid from the plan Other At the end of the year 2013 2012 191,154 (3,208) 430 7,366 (7,174) (11,135) – 172,116 (62) 5,148 7,921 14,211 (9,636) 1,456 177,433 191,154 2013 2012 (140,550) (134,581) (2,489) (7,737) 1,632 (7,821) 11,135 53 (8,318) (2,908) 1,588 (5,972) 9,636 5 (145,777) (140,550) The major categories of plan assets as a percentage of total plan assets are as follows: AT DECEMBER, 31 Equity instruments Debt instruments Others The principal actuarial assumptions used were as follows: YEAR ENDED DECEMBER 31 Discount rate Rate of compensation increase 133. t r o p e R l a u n n A 2013 2012 47.5% 52.5% – 40.0% 43.0% 17.0% 2013 2012 4% - 5% 3% - 4% 4% - 5% 3% - 4% The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected return on plan assets is determined based on long-term, prospective rates of return as of the end of the reporting period. As of December 31, 2013, an increase / (decrease) of 1% in the discount rate assumption would have generated an impact on the defined benefit obligation of $21.1 million and $24.7 million and an increase / (decrease) of 1% in the discount rate assumption would have generated an impact on the defined benefit obligation of $2.0 million and $1.9 million. The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The employer contributions expected to be paid for the year 2014 amounts approximately to $8.0 million. 134. s i r a n e T II. Other liabilities – current YEAR ENDED DECEMBER 31 Payroll and social security payable Liabilities with related parties Derivative financial instruments Miscellaneous 23. Non-current allowances and provisions I. Deducted from non current receivables YEAR ENDED DECEMBER 31 Values at the beginning of the year Translation differences Additional provisions Used Values at the end of the year II. Liabilities YEAR ENDED DECEMBER 31 Values at the beginning of the year Translation differences Additional provisions Reclassifications Used Increase due to the consolidation of joint operations Values at the end of the year 2013 2012 207,425 261,223 22 8,268 35,282 4,023 14,031 39,551 250,997 318,828 2013 2012 (2,995) 740 (752) 28 (3,445) 450 – – (2,979) (2,995) 2013 2011 67,185 (8,065) 20,852 (3,387) (9,840) 50 66,795 72,975 (4,427) 10,871 – (12,234) – 67,185 135. t r o p e R l a u n n A 24. Current allowances and provisions I. Deducted from assets YEAR ENDED DECEMBER 31, 2013 Values at the beginning of the year Translation differences Additional allowances Increase due to the consolidation of joint operations Used At December 31, 2013 YEAR ENDED DECEMBER 31, 2012 Values at the beginning of the year Translation differences Additional allowances Increase due to business combinations Used At December 31, 2012 Allowance for doubtful accounts - Trade receivables Allowance for other doubtful accounts - Other receivables Allowance for inventory obsolescence (29,143) (17) (23,236) (7) 1,249 (51,154) (25,949) (65) (3,840) (269) 980 (29,143) (10,516) 1,282 (956) – 794 (9,396) (5,680) 359 (5,936) – 741 (10,516) (185,168) 1,589 (70,970) – 25,784 (228,765) (152,737) 985 (49,907) (604) 17,095 (185,168) 136. s i r a n e T II. Liabilities YEAR ENDED DECEMBER 31, 2013 Values at the beginning of the year Translation differences Additional allowances Reclassifications Used Increase due to the consolidation of joint operations At December 31, 2013 YEAR ENDED DECEMBER 31, 2012 Values at the beginning of the year Translation differences Additional allowances / (reversals) Reclassifications Used At December 31, 2012 Sales risks Other claims and contingencies 14,112 (335) 8,512 366 (12,985) – 9,670 11,286 (82) 16,619 344 (14,055) 14,112 12,846 490 2,063 3,021 (2,492) 117 16,045 22,319 245 (6,995) (354) (2,369) 12,846 Total 26,958 155 10,575 3,387 (15,477) 117 25,715 33,605 163 9,624 (10) (16,424) 26,958 25. Derivative financial instruments Net fair values of derivative financial instruments The net fair values of derivative financial instruments disclosed within Other Receivables and Other Liabilities at the reporting date, in accordance with IAS 39, are: YEAR ENDED DECEMBER 31 2013 2012 Foreign exchange derivatives contracts Contracts with positive fair values Foreign exchange derivatives contracts Contracts with negative fair values Total 9,273 9,273 (8,268) (8,268) 1,005 17,852 17,852 (14,031) (14,031) (3,821) 137. t r o p e R l a u n n A Foreign exchange derivative contracts and hedge accounting Tenaris applies hedge accounting to certain cash flow hedges of highly probable forecast transactions. The net fair values of exchange rate derivatives, including embedded derivatives and those derivatives that were designated for hedge accounting as of December 2013 and 2012, were as follows: Purchase currency Sell currency USD BRL BRL EUR CAD MXN USD COP USD ARS USD EUR USD USD USD MXN USD JPY Others Total Term 2014 2014 2014 2014 2014 2014 2014 2014 2014 Fair Value Hedge Accounting Reserve 2013 – 5,604 411 (456) 72 (510) (3,285) (11) (675) (145) 1,005 2012 1,301 824 1,272 (223) (105) 148 1,324 (847) (202) 329 3,821 2013 – – 244 (21) – (2) (101) – – – 120 2012 (4,043) (818) 2,913 – – – (563) – – (349) (2,860) 138. s i r a n e T Following is a summary of the hedge reserve evolution: Equity Reserve Dec-11 Movements 2012 Equity Reserve Dec-12 Movements 2013 Equity Reserve Dec-13 Foreign Exchange Total Cash flow Hedge (8,211) (8,211) 5,351 5,351 (2,860) (2,860) 2,980 2,980 120 120 Tenaris estimates that the cash flow hedge reserve at December 31, 2013 will be recycled to the Consolidated Income Statement during 2014. 26. Contingencies, commitments and restrictions on the distribution of profits Contingencies Tenaris is from time to time subject to various claims, lawsuits and other legal proceedings, including customer claims, in which third parties are seeking payment for alleged damages, reimbursement for losses or indemnity. Some of these claims, lawsuits and other legal proceedings involve highly complex issues, and often these issues are subject to substantial uncertainties. Accordingly, the 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 Tenaris’ litigation and settlement strategies. The Company believes that the aggregate provisions recorded for potential losses in these financial statements (Notes 23 and 24) 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’ results of operations, financial condition, net worth and cash flows. Tax assessment in Italy A Tenaris Italian company received on December 24, 2012 a tax assessment from the Italian 139. t r o p e R l a u n n A tax authorities related to allegedly omitted withholding tax on dividend payments made in 2007. On February 21, 2013, the company filed an appeal to this assessment with the tax court in Milan. The assessment is for an estimated amount of EUR281 million (approximately $388 million), comprising EUR76million (approximately $105 million) in principal and EUR205 million (approximately $283 million) in interest and penalties, as of December 31, 2013. The hearing on this appeal was held on October 18, 2013, and the tax court’s decision is currently pending. On December 24, 2013 the company received a new tax assessment from the Italian tax authorities related to allegedly omitted withholding tax on dividend payments made in 2008. On February 20, 2014, the company filed an appeal to the 2008 assessment with the tax court in Milan. This second assessment is for an estimated amount of EUR247 million (approximately $341 million), comprising EUR67 million (approximately $92 million) in principal and EUR180 million (approximately $248 million) in interest and penalties, as of December 31, 2013.Tenaris believes, based and confirmed by tax expert’s opinions, that it is not probable that the ultimate resolution of the matter will result in a material obligation. • • 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 May 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 12-month prior notice. As of December 31, 2013, the estimated aggregate contract amount through December 31, 2015, calculated at current prices, is approximately $556 million. A Tenaris company entered into a contract with Siderar, a subsidiary of the Company’s affiliate Ternium S.A. (“Ternium”) for the supply of steam generated at the power generation facility that Tenaris owns in the compound of the Ramallo facility of Siderar. Under this contract, Tenaris is required to provide to Siderar 250 tn/hour of steam through to 2018, and Siderar has the obligation to take or pay this volume. The amount of this gas supply agreement totals approximately $66 million. A Tenaris company, entered into various contracts with suppliers for a current total amount of approximately $236 million related to the investment plan to expand US operations with the installation of a state-of-the-art seamless pipe mill, heat treatment and premium threading facilities. 140. s i r a n e T Restrictions to the distribution of profits and payment of dividends As of December 31, 2013, equity as defined under Luxembourg law and regulations consisted of: All amounts in thousands of U.S. dollars Share capital Legal reserve Share premium Retained earnings including net income for the year ended December 31, 2013 Total equity in accordance with Luxembourg law 1,180,537 118,054 609,733 21,899,189 23,807,513 At least 5% of the Company’s net income per year, as calculated in accordance with Luxembourg law and regulations, must be allocated to the creation of a legal reserve equivalent to 10% of the Company’s share capital. As of December 31, 2013, 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, 2013, distributable amount under Luxembourg law totals $22.5 billion, as detailed below. All amounts in thousands of U.S. dollars Retained earnings at December 31, 2012 under Luxembourg law Other income and expenses for the year ended December 31, 2013 Dividends approved Retained earnings at December 31, 2013 under Luxembourg law Share premium Distributable amount at December 31, 2013 under Luxembourg law 22,411,870 (5,050) (507,631) 21,899,189 609,733 22,508,922 27. Business combinations, other acquisitions and investments Mexican Power Plant Investment Following the execution of an August 2013 memorandum of understanding for the construction and operation of a natural gas-fired combined cycle electric power plant in the Pesquería area of the State of Nuevo León, Mexico, as of February 2014, Tenaris, Ternium and Tecpetrol International S.A. (a wholly-owned subsidiary of San Faustin S.A., the controlling shareholder of both Tenaris and Ternium) have completed their initial investments in Techgen, S.A. de C.V., a Mexican project 141. t r o p e R l a u n n A company owned 48% by Ternium, 30% by Tecpetrol and 22% by Tenaris. Tenaris and Ternium have also agreed to enter into power supply and transportation agreements with Techgen, pursuant to which Ternium and Tenaris will contract 78% and 22%, respectively, of Techgen’s power capacity of between 850 and 900 megawatts. Acquisition of participation in Usinas Siderúrgicas de Minas Gerais S.A. (“Usiminas”) On January 16, 2012, Tenaris’s Brazilian subsidiary, Confab acquired 25 million ordinary shares of Usiminas, representing 5.0% of the shares with voting rights and 2.5% of the total share capital. The price paid for each ordinary share was Brazilian reais (“BRL”) 36, representing a total cost to Confab of $504.6 million. Confab financed the acquisition through an unsecured 5-year term loan in the principal amount of $350 million and cash on hand. This acquisition was part of a larger transaction pursuant to which Ternium, certain of its subsidiaries and Confab joined Usiminas’s existing control group through the acquisition of ordinary shares representing 27.7% of Usiminas’s total voting capital and 13.8% of Usiminas’s total share capital. In addition, Ternium, its subsidiaries and Confab entered into an amended and restated Usiminas shareholders’ agreement with Nippon Steel, Mitsubishi, Metal One and Previdência Usiminas, formerly known as Caixa dos Empregados da Usiminas, an Usiminas employee fund, governing the parties’ rights within the Usiminas control group. As a result of these transactions, the control group, which holds 329.4 million ordinary shares representing the majority of Usiminas’s voting rights, is now formed as follows: Nippon Group 47.2%, Ternium/Tenaris Group 42.4%, and Previdência Usiminas 10.4%. The rights of Ternium and its subsidiaries and Confab within the Ternium/Tenaris Group are governed under a separate shareholders agreement. Upon completion of its purchase price allocation procedures, in 2012, the Company determined a goodwill included within the investment balance of $142.7 million. An impairment test over the investment in Usiminas was performed as of December 31, 2012, and subsequently the goodwill of such investment was written down by $73.7 million. The impairment was mainly due to expectations of a weaker industrial environment in Brazil, where industrial production and consequently steel demand have been suffering downward adjustments. In addition, a higher degree of uncertainty regarding future prices of iron ore led to a reduction in the forecast of long term iron ore prices that affected cash flow expectations. To determine the recoverable value, the value in use was used, which was calculated as the present value of the expected cash flows, considering the expected prices for the years covered by the projection. As of December 31, 2012 the discount rate used to test the investment in Usiminas for impairment was 9.6%. As of December 31, 2012, following the impairment charges, the Company’s investment in Usiminas amounted to $346.9 million. On February 13, 2014, Usiminas published its annual accounts as of and for the year ended December 31, 2013, which state that revenues, post-tax losses from continuing operations and net assets amounted to $5.971 million, $75 million and $7.134 million, respectively. As of December 31, 2013, the Company’s investment in Usiminas, amounted to $298.5 million. This amount includes Goodwill and other tangible and intangible assets allocated in the purchase price for $44 million and $73.8 million, respectively. 142. s i r a n e T In 2013, 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 acquiring Usiminas shares in the January 2012 transaction. The CSN lawsuit alleges that, under applicable Brazilian laws and rules, the acquirers were required to launch a tag-along tender offer to all minority 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’s control group, and Confab would have a 17.9% share in the offer. On September 23, 2013, the first instance court issued its decision finding in favour of Confab and the other defendants and dismissing the CSN lawsuit. Such decision is not final and is subject to appeal. Tenaris believes that CSN's allegations are groundless and without merit, as confirmed by several opinions of Brazilian counsel and previous decisions by Brazil's securities regulator Comissão de Valores Mobiliários, including a February 2012 decision determining that the above mentioned acquisition did not trigger any tender offer requirement and, more recently, the first instance court decision on this matter referred to above. Accordingly, no provision was recorded in these Consolidated Financial Statements. Confab delisting Following a proposal by shareholders representing 32.6% of the shares held by the public in its controlled Brazilian subsidiary Confab, on March 22, 2012, Tenaris launched a delisting tender offer to acquire all of the ordinary and preferred shares held by the public in Confab for a price in cash of BRL 5.85 per ordinary or preferred share, subject to adjustments as described in the offer documents. The shareholders parties to the proposal had agreed to the offer price and had committed to tender their shares into the offer. On April 23, 2012, at the auction for the offer, a total of 216,269,261 Confab shares were tendered. As a result, Tenaris attained the requisite threshold to delist Confab from the São Paulo Stock Exchange. The final cash price paid in the auction was BRL 5.90 per ordinary or preferred share (or approximately $3.14 per ordinary or preferred share). Subsequent to the auction, on April 23, 2012, Tenaris acquired 6,070,270 additional Confab shares in the market at the same price. Upon settlement of the offer and these subsequent purchases on April 26, 2012, Tenaris held in the aggregate approximately 95.9% of Confab. Tenaris later acquired additional shares representing approximately 2.3% of Confab at the same price paid in the auction of the offer and on June 6, 2012, Confab exercised its right to redeem the remaining shares at the same price paid to the tendering shareholders (adjusted by Brazil’s SELIC rate). Confab became a wholly-owned subsidiary of Tenaris. Tenaris’s total investment in Confab shares pursuant to these transactions amounted to approximately $758.5 million. Business combinations In August 2012, Tenaris acquired 100% of the shares of Filettature attrezzature speciali tubolari S.R.L. (“Fast”), for a purchase price of $21.4 million. Net equity acquired amounts to $19.9 million (mainly cash and cash equivalents for $14.9 million and fixed assets for $6.3 million). Had this transaction been consummated on January 1, 2012, then Tenaris’s unaudited pro forma net sales and net income from continuing operations would not have changed materially. 143. t r o p e R l a u n n A 28. Cash flow disclosures YEAR ENDED DECEMBER 31 2013 2012 2011 (I) CHANGES IN WORKING CAPITAL Inventories Receivables and prepayments Trade receivables Other liabilities Customer advances Trade payables (II) INCOME TAX ACCRUALS LESS PAYMENTS Tax accrued Taxes paid (III) INTEREST ACCRUALS LESS PAYMENTS, NET Interest accrued Interest received Interest paid (IV) CASH AND CASH EQUIVALENTS Cash at banks, liquidity funds and short - term investments Bank overdrafts As of December 31, 2013, 2012 and 2011, the components of the line item “other, including currency translation adjustment” are immaterial to net cash provided by operating activities. 287,874 62,114 129,939 (151,578) (77,099) (62,470) (174,670) (26,285) (166,985) 6,202 78,446 (19,720) (335,337) 122,419 (456,874) (30,058) (16,168) 66,378 188,780 (303,012) (649,640) 627,877 (502,461) 125,416 37,356 42,091 (109,170) (29,723) 614,529 (16,384) 598,145 541,558 (702,509) (160,951) 22,048 41,996 (89,349) (25,305) 828,458 (55,802) 772,656 475,370 (354,466) 120,904 21,567 38,399 (84,846) (24,880) 823,743 (8,711) 815,032 144. s i r a n e T 29. Related party transactions As of December 31, 2013: • • • San Faustin S.A., a Luxembourg public limited liability company (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 private limited liability company (Société à Responsabilité Limitée) (“Techint”). Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin, a Dutch private foundation (Stichting) (“RP STAK”) held 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 0.12% of the Company’s outstanding shares. At December 31, 2013, the closing price of Ternium’s ADSs as quoted on the New York Stock Exchange was $31.3 per ADS, giving Tenaris’s ownership stake a market value of approximately $719 million. At December 31, 2013, the carrying value of Tenaris’ ownership stake in Ternium, based on Ternium’s IFRS financial statements, was approximately $602.3 million. See Section II.B.2. Transactions and balances disclosed as with “Associated” companies 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 Associated and which are not consolidated are disclosed as “Other”. The following transactions were carried out with related parties: All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31 I. TRANSACTIONS A. SALES OF GOODS AND SERVICES Sales of goods to associated parties Sales of goods to other related parties Sales of services to associated parties Sales of services to other related parties B. PURCHASES OF GOODS AND SERVICES Purchases of goods to associated parties Purchases of goods to other related parties Purchases of services to associated parties Purchases of services to other related parties 145. t r o p e R l a u n n A 2013 2012 2011 35,358 115,505 15,439 5,035 43,501 77,828 14,583 4,000 39,476 106,781 14,732 4,740 171,337 139,912 165,729 320,000 14,828 56,820 100,677 492,325 444,742 19,745 112,870 87,510 664,867 170,675 22,134 88,707 113,764 395,280 AT DECEMBER 31 2013 2012 II. PERIOD-END BALANCES A. ARISING FROM SALES / PURCHASES OF GOODS / SERVICES Receivables from associated parties Receivables from other related parties Payables to associated parties Payables to other related parties B. FINANCIAL DEBT Borrowings from associated parties Borrowings from other related parties 30,416 30,537 (33,503) (8,323) 19,127 – – – 64,125 20,389 (86,379) (14,123) (15,988) (3,909) (2,212) (6,121) Directors’ and senior management compensation During the years ended December 31, 2013, 2012 and 2011, the cash compensation of Directors and Senior managers amounted to $27.1 million, $24.1 million and $25.7 million respectively. In addition, Directors and Senior managers received 534, 542 and 555 thousand units for a total amount of $5.6 million, $5.2 million and $4.9 million respectively in connection with the Employee retention and long term incentive program mentioned in Note O (2). 146. s i r a n e T 30. Principal subsidiaries The following is a list of Tenaris’s principal subsidiaries and its direct and indirect percentage of ownership of each controlled company at December 31, 2013. Company Country of Incorporation Main activity Percentage of ownership at December 31 (*) Algoma Tubes Inc. Confab Industrial S.A. and subsidiaries (a) Canada Brazil Manufacturing of seamless steel pipes Manufacturing of welded steel pipes Dalmine S.p.A. Hydril Company and subsidiaries (except detailed) (b) Inversiones Berna S.A. Maverick Tube Corporation and subsidiaries (except detailed) NKKTubes PT Seamless Pipe Indonesia Jaya Prudential Steel ULC S.C. Silcotub S.A. Siat S.A. Italy USA Chile USA Japan Indonesia Canada Romania Argentina and capital goods Manufacturing of seamless steel pipes Manufacturing and marketing of premium connections Financial Company Manufacturing of welded steel pipes Manufacturing of seamless steel pipes Manufacturing of seamless steel products Manufacturing of welded steel pipes Manufacturing of seamless steel pipes Manufacturing of welded and seamless steel pipes 2013 2012 2011 100% 100% 99% 100% 100% 100% 51% 77% 100% 100% 100% 100% 100% 99% 100% 100% 100% 51% 77% 100% 100% 100% 100% 41% 99% 100% 100% 100% 51% 77% 100% 100% 82% Siderca S.A.I.C. and subsidiaries Argentina Manufacturing of seamless steel pipes 100% 100% 100% (except detailed) (c) 147. t r o p e R l a u n n A Company Country of Incorporation Main activity Percentage of ownership at December 31 (*) Talta - Trading e Marketing Sociedade Unipessoal Lda. Madeira Trading and holding Company Tenaris Financial Services S.A. Tenaris Global Services (Canada) Inc. Uruguay Canada Financial Company Marketing of steel products Tenaris Global Services (Panama) S.A. - Suc. Colombia Colombia Marketing of steel products Tenaris Global Services (U.S.A.) Corporation Tenaris Global Services Nigeria Limited Tenaris Global Services Norway A.S. Tenaris Global Services S.A. and subsidiaries (d) USA Nigeria Norway Uruguay Marketing of steel products Marketing of steel products Marketing of steel products Holding company and marketing of steel products Tenaris Global Services (Uk) Ltd United Kingdom Marketing of steel products Tenaris Investments S.ar.l. Luxembourg Holding Company Tenaris Investments S.ar.l., Zug Branch Switzerland Financial services Tenaris Investments Switzerland AG and subsidiaries Switzerland Holding Company (except detailed) Tubos de Acero de Mexico S.A. Tubos del Caribe Ltda. Mexico Colombia Manufacturing of seamless steel pipes Manufacturing of welded steel pipes 2013 2012 2011 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% (*) All percentages rounded. (a) For 2011, Tenaris holds 99% of the voting shares of Confab Industrial S.A. (b) Tenaris holds 100% of Hydril's subsidiaries shares except for Technical Drilling & Production Services Nigeria. Ltd where it holds 80% for 2013 and 60% for 2012 and 2011. (c) For 2013, Tenaris holds 100% of Siderca's subsidiaries. For 2012 and 2011, Tenaris holds 100% of Siderca's subsidiaries except for Scrapservice S.A where it holds 75%. (d) Tenaris holds 97.5% of Tenaris Supply Chain S.A, 95% of Tenaris Saudi Arabia Limited, 60% of Gepnaris S.A. and 40% of Tubular Technical Services and Pipe Coaters, and 49% of Amaja Tubular Services Limited. 148. s i r a n e T 31. Nationalization of Venezuelan Subsidiaries In May 2009, within the framework of Decree Law 6058, Venezuela’s President announced the nationalization of, among other companies, the Company'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”). In August 2009, Venezuela, acting through the transition committee appointed by the Minister of Basic Industries and Mines of Venezuela, unilaterally assumed exclusive operational control over Matesi, and in November, 2009, Venezuela, acting through PDVSA Industrial S.A. (a subsidiary of Petróleos de Venezuela S.A.), formally assumed exclusive operational control over the assets of Tavsa. Venezuela did not pay any compensation for these assets. Tenaris’s investments in the Venezuelan companies are protected under applicable bilateral investment treaties, including the bilateral investment treaty between Venezuela and the Belgium-Luxembourg Economic Union, and Tenaris continues to reserve all of its rights under contracts, investment treaties and Venezuelan and international law. Tenaris has also consented to the jurisdiction of the International Centre for Settlement of Investment Disputes (“ICSID”) in connection with the nationalization process. In August 2011, 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., pursuant to the bilateral investment treaties entered into by Venezuela with the Belgium-Luxembourg Economic Union and Portugal. In these proceedings, Tenaris and Talta seek adequate and effective compensation for the expropriation of their investment in Matesi. The parties to the arbitration have had several exchanges of written pleadings. The final hearing on jurisdiction and the merits was held from January 31, 2013 to February 7, 2014. Following the holding of a further hearing for the examination of certain legal experts provisionally scheduled for May 2014, and the submission of post-hearing briefs, the arbitral tribunal will deliberate and issue a decision. In July 2012, Tenaris and Talta initiated separate arbitration proceedings against Venezuela before the ICSID, seeking adequate and effective compensation for the expropriation of their respective investments in Tavsa and Comsigua. The tribunal in these proceedings was constituted in July 2013. Tenaris and Talta submitted their memorial on jurisdiction and the merits in October 2013. The parties to the arbitration will exchange one round of jurisdictional submissions in early 2014 and the tribunal has reserved the right to hold a jurisdictional hearing after reviewing the parties’ written submissions. This hearing has provisionally been scheduled for July 2014. Based on the facts and circumstances described above and following the guidance set forth by IAS 27R, the Company ceased consolidating the results of operations and cash flows of the Venezuelan Companies as from June 30, 2009, and classified its investments in the Venezuelan Companies as financial assets based on the definitions contained in paragraphs 11(c)(i) and 13 of IAS 32. The Company classified its interests in the Venezuelan Companies as available-for-sale investments since management believes they do not fulfill the requirements for classification within any of the remaining categories provided by IAS 39 and such classification is the most appropriate accounting treatment applicable to non-voluntary dispositions of assets. Tenaris or its subsidiaries have net receivables with the Venezuelan Companies as of December 31, 2013 for a total amount of approximately $25 million. The Company records its interest in the Venezuelan Companies at its carrying amount at June 30, 2009, and not at fair value, following the guidance set forth by paragraphs 46(c), AG80 and AG81 of IAS 39. 32. Fees paid to the Company’s principal accountant Total fees accrued for professional services rendered by PwC Network firms to Tenaris S.A. and its subsidiaries are detailed as follows: All amounts in thousands of U.S. dollars YEAR ENDED DECEMBER 31 Audit Fees Audit-Related Fees Tax Fees All Other Fees Total 149. t r o p e R l a u n n A 2013 2012 2011 5,723 143 117 51 5,446 335 137 32 5,398 99 151 4 6,034 5,950 5,652 150. s i r a n e T 33. Subsequent events Annual Dividend Proposal On February 20, 2014 the Company’s board of directors proposed, for the approval of the Annual General Shareholders' meeting to be held on May 7, 2014, the payment of an annual dividend of $0.43 per share ($0.86 per ADS), or approximately $507.6 million, which includes the interim dividend of $0.13 per share ($0.26 per ADS) or approximately $153.5 million, paid on November 21, 2013. If the annual dividend is approved by the shareholders, a dividend of $0.30 per share ($0.60 per ADS), or approximately $354.2 million will be paid on May 22, 2014, with an ex-dividend date of May 19, 2014. These Consolidated Financial Statements do not reflect this dividend payable. Chief Financial Officer Edgardo Carlos Tenaris S.A. Annual accounts Luxembourg GAAP as at December 31, 2013 151. t r o p e R l a u n n A 152. s i r a n e T Audit report To the Shareholders of Tenaris S.A. 153. t r o p e R l a u n n A Report on the annual accounts We have audited the accompanying annual accounts of Tenaris S.A., which comprise the balance sheet as at 31 December 2013, the profit and loss account for the year then ended, and a summary of significant accounting policies and other explanatory information. Board of Directors’ responsibility for the annual accounts The Board of Directors is responsible for the preparation and fair presentation of these annual accounts in accordance with Luxembourg legal and regulatory requirements relating to the preparation of the annual accounts, and for such internal control as the Board of Directors determines is necessary to enable the preparation of annual accounts that are free from material misstatement, whether due to fraud or error. Responsibility of the “Réviseur d’entreprises agréé” Our responsibility is to express an opinion on these annual accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier”. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts. The procedures selected depend on the judgment of the “Réviseur d’entreprises agréé”, including the assessment of the risks of material misstatement of the annual accounts, whether due to fraud or error. In making those risk assessments, the “Réviseur d’entreprises agréé” considers internal control relevant to the entity’s preparation and fair presentation of the annual accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the annual accounts. 154. s i r a n e T We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, these annual accounts give a true and fair view of the financial position of Tenaris S.A. as of 31 December 2013, and of the results of its operations for the year then ended in accordance with Luxembourg legal and regulatory requirements relating to the preparation of the annual accounts. Report on other legal and regulatory requirements The management report, including the corporate governance statement, which is the responsibility of the Board of Directors, is consistent with the annual accounts and includes the information required by the law with respect to the corporate governance statement. Luxembourg, March 28, 2014 PricewaterhouseCoopers, Société coopérative Represented by Fabrice Goffin PricewaterhouseCoopers, Société coopérative, 400 Route d’Esch, B.P. 1443, L-1014 Luxembourg T: +352 494848 1, F: +352 494848 2900, www.pwc.lu Cabinet de révision agréé. Expert-comptable (autorisation gouvernementale n°10028256) R.C.S. Luxembourg B 65 477 - TVA LU25482518 Balance sheet as at December 31, 2013 Expressed in United States Dollars ASSETS C. FIXED ASSETS III. Financial fixed assets 1. Shares in affiliated undertakings D. CURRENT ASSETS II. Debtors 2. Amounts owed by affiliated undertakings a) becoming due and payable within one year 4. Other receivables a) becoming due and payable within one year IV. Cash at bank and cash in hand Total assets LIABILITIES A. CAPITAL AND RESERVES I. Subscribed capital II. Share premium IV. Reserves 1. Legal reserve V. Profit brought forward VI. Loss for the financial year VII. Interim dividend D. NON-SUBORDINATED DEBTS 6. Amounts owed to affiliated undertakings a) becoming due and payable within one year b) becoming due and payable after more than one year 9. Other creditors a) becoming due and payable within one year Total liabilities The accompanying notes are an integral part of these annual accounts. 155. t r o p e R l a u n n A Note 2013 2012 4 23,827,602,627 24,346,876,393 23,827,602,627 24,346,876,393 10 3,490,592 2,797,315 – 233,271 27,500 504,986 3,723,863 3,329,801 23,831,326,490 24,350,206,194 5 5,7 5,6 1,180,536,830 1,180,536,830 609,732,757 609,732,757 118,053,683 118,053,683 22,057,709,325 22,729,060,527 (5,050,231) (163,720,365) 5,8 (153,469,789) (153,469,789) 23,807,512,575 24,320,193,643 10 10 6,048,341 15,286,899 12,292,822 16,008,192 2,478,675 1,711,537 23,813,915 30,012,551 23,831,326,490 24,350,206,194 Profit and loss account for the financial year ended December 31, 2013 156. s i r a n e T Expressed in United States Dollars A. CHARGES 5. Other operating charges 6. Value adjustments and fair value adjustments on financial fixed assets 8. Interest and other financial charges a) concerning affiliated undertakings b) other interest and charges 10. Income tax Total charges B. INCOME 6. Income from financial fixed assets a) derived from affiliated undertakings 7. Income from financial current assets a) derived from affiliated undertakings b) other income 10. Loss for the financial year Total income The accompanying notes are an integral part of these annual accounts. Note 2013 2012 11 4 9 24,162,454 34,413,375 – 157,657,389 863,600 46,360 4,268 757,215 33 2,221 25,076,682 192,830,233 12 20,000,000 29,000,000 24,254 2,197 – 109,868 5,050,231 163,720,365 25,076,682 192,830,233 157. t r o p e R l a u n n A Notes to audited annual accounts as at December 31, 2013 1. General information Tenaris S.A. (the “Company” or “Tenaris”) was established on December 17, 2001 under the name of Tenaris Holding S.A. as a public limited liability company under Luxembourg’s 1929 holding company regime (societé anonyme holding). On June 26, 2002, the Company changed its name to Tenaris S.A. On January 1, 2011, the Company became an ordinary public limited liability company (Société Anonyme). 3.2. Foreign currency translation Current and non-current assets and liabilities denominated in currencies other than the United States Dollar (“USD”) are translated into USD at the rate of exchange at the balance sheet date. The resulting gains or losses are reflected in the Profit and loss account for the financial year. Income and expenses in currencies other than the USD are translated into USD at the exchange rate prevailing at the date of each transaction. Tenaris’s object is to invest mainly in companies that manufacture and market steel tubes and other related businesses. 3.3. Financial fixed assets Shares in affiliated undertakings are stated at purchase price, adding to the price paid the expenses incidental thereto. Tenaris prepares and publishes consolidated financial statements which include further information on Tenaris and its subsidiaries. The financial statements are available at the registered office of the Company, 29, Avenue de la Porte-Neuve –L-2227-3rd Floor, Luxembourg. 2. Presentation of the comparative financial data The comparative figures for the financial year ended December 31, 2012 relating to items of balance sheet, profit and loss and the notes to the accounts are reclassified whenever necessary to ensure comparability with the figures for the financial year ended December 31, 2013. 3. Summary of significant accounting policies Whenever necessary, the Company conducts impairment tests on its fixed assets in accordance with Luxembourg regulations. In case of other than a temporary decline in respect of the fixed assets value, its carrying value will be reduced to recognize this decline. If there is a change in the reasons for which the value adjustments were made, these adjustments could be reversed, if appropriate. 3.4. Debtors Debtors are valued at their nominal value. They are subject to value adjustments where their recovery is compromised. These value adjustments are not continued if the reasons for which the value adjustments were made have ceased to apply. 3.1. Basis of presentation These annual accounts have been prepared in accordance with Luxembourg legal and regulatory requirements under the historical cost convention. 3.5. Cash at bank and cash in hand Cash at bank and cash in hand mainly comprise cash at bank and liquidity funds. Assets recorded in cash at bank and cash in hand are carried 158. s i r a n e T at fair market value or at historical cost which approximates fair market value. 3.6. Non-subordinated debts Non-subordinated debts are stated at nominal value. 4. Financial fixed assets Shares in affiliated undertakings Movements of investments in affiliated undertakings during the financial year are as follows: All amounts in United States Dollars,unless otherwise stated Company Country % of ownership Book value at December 31, 2012 Decreases Book value at December 31, 2013 Equity at 12.31.2013 Profit for the financial year ended on 12.31.2013 Tenaris Investments S.ar.l. (*) Luxembourg 100.0% 24,346,876,393 (519,273,766) 23,827,602,627 25,693,052,051 930,059,292 Shares in affiliated undertakings 24,346,876,393 (519,273,766) 23,827,602,627 25,693,052,051 930,059,292 (*) Tenaris holds directly or indirectly through its wholly-owned subsidiary Tenaris Investments S.à r.l. the 100% shares of: Confab Industrial S.A., Hydril Company, Inversiones Berna S.A., Inversiones Lucerna S.A., Maverick Tube Corporation, Siderca S.A.I.C., Talta - Trading e Marketing, Sociedade Unipessoal Lda.,Tenaris Investments Limited, Tenaris Investments Switzerland AG, Tenaris Solutions AG, Texas Pipe Threaders Co, Tubos de Acero de México S.A., Tenaris Bay City, Inc. and Tenaris Rods (USA), Inc.. Additionally, Tenaris holds through its wholly-owned subsidiary Tenaris Investments S.à r.l. the 11.5% of Ternium S.A. On December 7, 2010, Tenaris entered into a master credit agreement with Tenaris Investments pursuant to which, upon request from Tenaris, Tenaris Investments may, but shall not be required to, from time to time make loans to Tenaris. Any loan under the master credit agreement may be repaid or prepaid from time to time through a reduction of the capital of Tenaris Investments by an amount equivalent to the amount of the loan then outstanding (including accrued interest). As a result of reductions in the capital of Tenaris Investments made during the financial year ended December 31, 2013, in connection with cancellations of loans to Tenaris, the value of the participation of Tenaris in Tenaris Investments decreased by USD 519.3 million. 5. Capital and reserves Expressed in United States Dollars Item Subscribed capital Share premium Legal reserve Retained earnings Interim dividend Capital and reserves 159. t r o p e R l a u n n A Balance at the beginning of the financial year 1,180,536,830 609,732,757 118,053,683 22,565,340,162 (153,469,789) 24,320,193,643 Loss for the period Dividend paid (1) Interim dividend (2) – – – – – – – – – (5,050,231) – (5,050,231) (507,630,837) 153,469,789 (354,161,048) – (153,469,789) (153,469,789) Balance at the end of the financial year 1,180,536,830 609,732,757 118,053,683 22,052,659,094 (153,469,789) 23,807,512,575 (1) As approved by the ordinary shareholders’ meeting held on May 2, 2013. (2) As approved by the board of directors’ meeting held on November 6, 2013. The authorized capital of the Company amounts to USD 2.5 billion. The total authorized share capital of the Company is represented by 2,500,000,000 shares with a par value of USD 1 per share. The total capital issued and fully paid-up at December 31, 2013 was 1,180,536,830 shares with a par value of USD 1 per share. The board of directors is authorized until May 12, 2017, to increase the issued share capital, through issues of shares within the limits of the authorized capital. 6. Legal reserve In accordance with Luxembourg law, the Company is required to set aside a minimum of 5% of its annual net profit for each financial year to a legal reserve. This requirement ceases to be necessary once the balance on the legal reserve has reached 10% of the issued share capital. The Company’s reserve has already reached this 10%. If the legal reserve later falls below the 10% threshold, at least 5% of net profits again must be allocated toward the reserve. The legal reserve is not available for distribution to the shareholders. 7. Distributable amounts Dividends may be paid by Tenaris upon the ordinary shareholders’ meeting approval to the extent distributable retained earnings exist. At December 31, 2013, profit brought forward after deduction of the loss and the interim dividend for the financial year of Tenaris under Luxembourg law totaled approximately USD 21.9 billion. The share premium amounting to USD 0.6 billion can also be reimbursed. 8. Interim dividend paid In November 2013, the Company paid an interim dividend of USD 153.5 million based on the board of director’s decision of November 6, 2013 and in compliance with the conditions set 160. s i r a n e T out in the “Amended law of August 10, 1915 on commercial companies” regarding the payment of interim dividends. 9. Taxes For the financial year ended December 31, 2013 the Company did not realize any profits subject to tax in Luxembourg and will therefore be only subject to the minimum income tax applicable to a Soparfi (société de participations financières). The Company is also liable to the minimum Net Wealth Tax. 10. Balances with affiliated undertakings Expressed in United States Dollars ASSETS DEBTORS becoming due and payable within one year Tenaris Solutions A.G. Others Total NON-SUBORDINATED DEBTS becoming due and payable within one year Siderca Sociedad Anónima Industrial y Comercial Dalmine S.p.A. Tempur S.A. Tubos de Acero de México, S.A. Maverick Tube Corporation Tenaris Solutions AG SIAT Sociedad Anónima becoming due and payable after more than one year Tenaris Solutions AG Siderca Sociedad Anónima Industrial y Comercial SIAT Sociedad Anónima Total Within a year After more than one year Total at December 31, 2013 Total at December 31, 2012 3,490,320 272 3,490,592 1,928,661 1,635,798 378,948 364,914 230,097 86,154 1,423,769 – – – – – – – – – – 3,490,320 2,797,315 272 – 3,490,592 2,797,315 1,928,661 1,635,798 378,948 364,914 230,097 86,154 7,001,107 4,025,240 – 150,686 – 13,781 1,423,769 1,102,008 – – – 4,700,370 10,586,529 4,700,370 10,586,529 – – 3,894,780 10,542,917 1,570,495 6,048,341 15,286,899 21,335,240 28,301,014 11. Other operating charges Expressed in United States Dollars Services and fees Board of director’s accrued fees Others 161. t r o p e R l a u n n A 2013 2012 22,072,690 32,436,419 960,000 1,129,764 960,000 1,016,956 24,162,454 34,413,375 12. Income from financial fixed assets derived from affiliated undertakings In November 2013, Tenaris S.A. received a dividend from Tenaris Investments S.à r.l amounting to USD 20.0 million. 13. Parent Company As of December 31, 2013: • • San Faustin owned all of its shares in the Company through its wholly-owned subsidiary Techint Holdings S.ar.l., a Luxembourg private limited liability company (Société à Responsabilité Limitée) (“Techint”). Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin, a Dutch private foundation (Stichting) (“RP STAK”) held shares in San Faustin sufficient in number to control San Faustin. • No person or group of persons controls RP STAK. • San Faustin S.A., a Luxembourg public limited liability company (Société Anonyme) (“San Faustin”), owned 713,605,187 shares in the Company, representing 60.45% of the Company’s capital and voting rights. Based on the information most recently available to the Company, Tenaris’ directors and senior management as a group owned 0.12% of the Company’s outstanding shares. 162. s i r a n e T 14. Subsequent event Annual Dividend Proposal On February 20, 2014 the Company’s board of directors proposed, for the approval of the annual general shareholders' meeting to be held on May 7, 2014, the payment of an annual dividend of USD 0.43 per share (USD 0.86 per ADS) or approximately USD 507.6 million, which includes the interim dividend of USD 0.13 per share (USD 0.26 per ADS), or approximately USD 153.5 million, paid on November, 2013. If the annual dividend is approved by the shareholders, a dividend of USD 0.30 per share (USD 0.60 per ADS), or approximately USD 354.2 million will be paid on May 22, 2014, with an ex-dividend date of May 19, 2014. These annual accounts do not reflect this dividend payable. Chief Financial Officer Edgardo Carlos 163. t r o p e R l a u n n A 164. s i r a n e T Investor information Investor Relations Director Giovanni Sardagna General inquiries investors@tenaris.com ADS depositary bank Deutsche Bank CUSIP No. 88031M019 Internet www.tenaris.com Luxembourg Office 29 avenue de la Porte-Neuve 3rd Floor L-2227 Luxembourg (352) 26 47 89 78 tel (352) 26 47 89 79 fax Phones USA 1 888 300 5432 Argentina (54) 11 4018 2928 Italy (39) 02 4384 7654 Mexico (52) 55 5282 9929 Stock information New York Stock Exchange (TS) Mercato Telematico Azionario (TEN) Mercado de Valores de Buenos Aires (TS) Bolsa Mexicana de Valores, S.A. de C.V. (TS) www.tenaris.com 

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