Tenaris SA
Annual Report 2016

Plain-text annual report

TENARIS S.A. ANNUAL REPORT 2016 TABLE OF CONTENTS Company Profile .............................................................................................................................................. 2 Letter From The Chairman .............................................................................................................................. 3 Management Report ........................................................................................................................................ 5 Leading Indicators ....................................................................................................................................... 7 Information on Tenaris ................................................................................................................................ 8 The Company .............................................................................................................................................. 8 ................................................................................................................................................ 8 Overview History and Development of Tenaris ........................................................................................................... 8 Business Overview ...................................................................................................................................... 9 Research and Development ....................................................................................................................... 12 Principal Risks and Uncertainties .............................................................................................................. 15 Operating and Financial Review and Prospects ......................................................................................... 18 Quantitative and Qualitative Disclosure about Market Risk...................................................................... 27 Recent Developments ................................................................................................................................ 29 Environmental Regulation ......................................................................................................................... 30 Related Party Transactions ........................................................................................................................ 30 .............................................................................................................................................. 30 Employees Corporate Governance ............................................................................................................................... 31 Management Certification .......................................................................................................................... 43 Financial Information .................................................................................................................................... 44 Consolidated Financial Statements ............................................................................................................ 44 Tenaris S.A. Annual Accounts (Luxembourg GAAP) ............................................................................ 102 Exhibit I – Alternative performance measures ......................................................................................... 112 COMPANY PROFILE 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. 2 LETTER FROM THE CHAIRMAN Dear Shareholders, In December, we closed what was a very difficult year for Tenaris, and I am pleased to say that the prospects for 2017 are much more promising. Tenaris has weathered this industry-changing downturn exceptionally well and I am proud of the way our employees have responded to the changes in market conditions and the circumstances of the company. This is reflected in our financial results. Over the past two years during this unprecedented downturn in our sector, our sales have fallen 57% from $10.1 billion to $4.3 billion. Even so, for 2016, we were able to post a positive net income of $59 million. Our cash flow performance and our management of working capital has been very effective. In the two years of the downturn, we generated $3.1 billion in cash flow from operations, spent $1.9 billion on investments strengthening our regional deployment particularly in the US market, paid $1 billion in dividends to our shareholders, and we increased our net cash by $0.2 billion to end 2016 with a net cash position of $1.4 billion. We have further strengthened our balance sheet with the sale of our Republic Conduit business to Nucor in January for $332 million, a price which reflects its excellent performance over the past three years. Considering this outstanding financial performance, we are proposing a total dividend of $0.41 per share ($0.82 per ADS) for the year. In the Eastern Hemisphere, at a time when new project developments have been limited, we have been particularly successful in complex projects and have become clear leaders in the Eastern Mediterranean. Here the development of offshore, sour gas reserves is proceeding apace. In January, we completed deliveries of 72 thousand tons for two pipelines connecting the deepwater Zohr reserve to onshore processing facilities in Egypt. Based on our performance in meeting the tight delivery schedule and demanding specifications required for this fast track project, we are winning further large orders in the region. These include a complex welded pipeline, which will be fabricated in our Confab mill in Brazil. Our success in these and similar developments are supporting our plant load through 2017 and into 2018 and will reinforce our track record for future complex projects. In North America, our mill in Bay City is starting heat treatment and pipe threading operations this month and is scheduled to roll its first seamless pipe during September. It will be the most modern, most automated, productive and environmentally efficient mill in our industrial system and throughout the world. The Bay City mill is located close to the main shale plays that are leading the rapid expansion we are seeing unfold in the North American market. It will become the heart of our US Rig Direct™ program, which has been expanding rapidly in a market where rigs have been increasing at a rate of 13 rigs per week over the past four months. In an industry looking for sustainable cost reductions, we offer a differentiated solution based on a shorter and more efficient supply chain with a comprehensive product range. This, together with technical assistance and field support, is helping our customers to reduce overall drilling costs, streamline processes and lower their environmental footprint. With the improvement in market conditions and the growth of our Rig Direct™ program worldwide, our agenda has changed substantially from that of the past two years. We currently serve over 100 customers and close to 300 rigs with our Rig Direct™ service. We are focused on compliance in meeting customer commitments and managing a rapidly increasing plant load in our industrial system. We are bringing back employees and hiring new ones as our operations ramp up. Price levels fell to unsustainable levels during the downturn and we are now starting to see prices rise with the increase in demand in North America and following the impact of higher raw material costs. We are working with our Rig Direct™ customers to minimize the impact of higher material costs with innovative products and services that improve operational efficiencies. This year, we expect the market recovery to be concentrated on shale drilling in the USA and Canada. Looking further ahead, we see signs that various projects will move forward in offshore regions of the Eastern Hemisphere and some recovery can be expected in this important market for 2018. In Argentina, drilling activity has been affected by extended stoppages in the southern region but we expect that there will be recovery during the year led by investments in the Vaca Muerta shale play. In Mexico, Pemex has 3 cut back activity to a very low level and we expect to see a recovery only in 2018 consequent to the energy reform process. We have focused for many years on improving our safety performance, introducing and strengthening safety management routines and tools, challenging attitudes and behavior and installing an agenda of continuous improvements. Our safety indicators have improved over these years and 2016 was no exception. However, despite this growing dedication and commitment, in the first months of 2017, we registered three fatal accidents in different locations. All our team deeply regret the pain and suffering caused by these accidents to the families and communities affected. Safety is, and always will be, an absolute priority in every aspect of our activities and these tragic events will continue to strengthen our commitment in this regard. To better prepare the company for the challenges ahead, we are renewing our agenda at TenarisUniversity. For more than 10 years, our corporate university has played a key role in unifying knowledge and values across our global organization, providing a common curriculum and extensive training for our employees and stakeholders at all levels. TenarisUniversity will retain its core management and leadership development programs, but will now increasingly focus on inspiring employees to seek excellence in knowledge, encouraging them to customize their training in accordance with specific interests and creating high quality networking opportunities. The downturn of the past two years has had a profound impact on our employees and our communities. We have made many difficult decisions to secure the future growth and competitiveness of the company. Now we have a more positive agenda in front of us but one that will continue to bring major challenges. I want to thank our employees for the commitment and support that that they have shown through this period and look forward to seeing their continuing contributions in the time ahead. I would also like to express my thanks to our customers, suppliers and shareholders for their continuing support and confidence in Tenaris. March 30, 2017 /s/ Paolo Rocca Paolo Rocca 4 MANAGEMENT REPORT CERTAIN DEFINED TERMS Unless otherwise specified or if the context so requires:          References in this annual report to “the Company” refer exclusively to Tenaris S.A., a Luxembourg public limited liability company (société anonyme). References in this annual report to “Tenaris”, “we”, “us” or “our” refer to Tenaris S.A. and its consolidated subsidiaries. See Accounting Policies A, B and L to our audited consolidated financial statements included in this annual report. References in this annual report to “San Faustin” refer to San Faustin S.A., a Luxembourg Société Anonyme and the Company’s controlling shareholder. “Shares” refers to ordinary shares, par value $1.00, of the Company. “ADSs” refers to the American Depositary Shares, which are evidenced by American Depositary Receipts, and represent two Shares each. “OCTG” refers to oil country tubular goods. “tons” refers to metric tons; one metric ton is equal to 1,000 kilograms, 2,204.62 pounds, or 1.102 U.S. (short) tons. “billion” refers to one thousand million, or 1,000,000,000. “U.S. dollars”, “US$”, “USD” or “$” each refers to the United States dollar. PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION Accounting Principles We prepare our consolidated financial statements in conformity with International Financial Reporting Standards, as issued by the International Accounting Standards Board, or IFRS, and as adopted by the European Union, or E.U. Additionally, this annual report includes non-IFRS alternative performance measures such as EBITDA, Net cash/debt position and Free Cash Flow. See Exhibit I for more details on these alternative performance measures. Following the sale of our steel electric conduit business in North America, known as Republic Conduit, the results of the mentioned business are presented as discontinued operations in accordance with IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations". Consequently, all amounts related to discontinued operations within each line item of the consolidated income statement are reclassified into discontinued operations. The consolidated statement of cash flows includes the cash flows for continuing and discontinued operations; cash flows from discontinued operations and earnings per share are disclosed separately in note 28 “Net assets of disposal group classified as held for sale” to our audited consolidated financial statements included in this annual report, as well as additional information detailing net assets of disposal group classified as held for sale and discontinued operations. We publish consolidated financial statements expressed in U.S. dollars. Our consolidated financial statements included in this annual report are those as of December 31, 2016 and 2015, and for the years ended December 31, 2016, 2015 and 2014. Rounding Certain monetary amounts, percentages and other figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them. 5 CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS This annual report and any other oral or written statements made by us to the public may contain “forward- looking statements”. Forward looking statements are based on management’s current views and assumptions and involve known and unknown risks that could cause actual results, performance or events to differ materially from those expressed or implied by those statements. We use words such as “aim”, “will likely result”, “will continue”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “should”, “will pursue”, “anticipate”, “estimate”, “expect”, “project”, “intend”, “plan”, “believe” and words and terms of similar substance to identify forward-looking statements, but they are not the only way we identify such statements. This annual report contains forward-looking statements, including with respect to certain of our plans and current goals and expectations relating to Tenaris’s future financial condition and performance. Sections of this annual report that by their nature contain forward-looking statements include, but are not 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 and Uncertainties”, other factors could cause actual results to differ materially from those described in the forward- looking statements. These factors include, but are not limited to:        our ability to implement our business strategy or to grow through acquisitions, joint ventures and other investments; the competitive environment in our business and our industry; our ability to price our products and services in accordance with our strategy; our ability to absorb cost increases and to secure supplies of essential raw materials and energy; our ability to adjust fixed and semi-fixed costs to fluctuations in product demand; trends in the levels of investment in oil and gas exploration and drilling worldwide; and general macroeconomic and political conditions in the countries in which we operate or distribute pipes. By their nature, certain disclosures relating to these and other risks are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses that may affect our financial condition and results of operations could differ materially from those that have been estimated. You should not place 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. 6 Item 1. 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 (loss) income EBITDA (1) Net income (loss) Cash flow from operations Capital expenditures BALANCE SHEET (millions of $) Total assets Total borrowings Net cash position (2) Total liabilities Shareholders’ equity including non-controlling interests PER SHARE / ADS DATA ($ PER SHARE / PER ADS) (3) Number of shares outstanding (4) (thousands of shares) Earnings (loss) per share Earnings (loss) per ADS Dividends per share (5) Dividends per ADS (5) ADS Stock price at year-end Number of employees (4) 2016 2015 2014 1,635 355 1,990 2,028 605 2,633 2,790 885 3,675 1,735 305 2,040 1,780 633 2,413 2,940 908 3,848 4,294 (59) 598 59 864 787 6,903 166 1,219 (74) 2,215 1,132 14,003 840 1,441 2,590 11,413 14,887 972 1,849 3,021 11,866 10,141 1,881 2,696 1,181 2,044 1,089 16,511 999 1,257 3,704 12,806 1,180,537 0.05 0.09 0.41 0.82 35.71 19,399 1,180,537 (0.07) (0.14) 0.45 0.90 23.80 21,741 1,180,537 0.98 1.96 0.45 0.90 30.21 27,816 (1) Defined as operating income plus depreciation, amortization and impairment charges/(reversals). See Exhibit I. In 2015, the EBITDA figure excludes an impairment charge of $400 million on our North American welded pipe operations and in 2014 excludes an impairment charge of $206 million on our welded pipe operations in Colombia and Canada. EBITDA includes severance charges of $74 and $177 million in 2016 and 2015 respectively. If these charges were not included, EBITDA would have been $672 and $1,396 million. (2) Defined as cash and cash equivalents, other current investments and fixed income investments held to maturity less total borrowings. See Exhibit I. (3) Each ADS represents two shares. (4) As of December 31. (5) Proposed or paid in respect of the year. 7 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 holds, either directly or indirectly, controlling interests in various subsidiaries in the steel pipe manufacturing and distribution businesses. For information on the Company’s subsidiaries, see note 30 “Principal subsidiaries” to our audited consolidated financial statements included in this annual report. 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. 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. We operate an integrated worldwide network of steel pipe manufacturing, research, finishing and service facilities with industrial operations in the Americas, Europe, Asia and Africa and a direct presence in most major oil and gas markets. Our 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. 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. As of to date, our investments include controlling or strategic interests in, among others, the following operating businesses:         Tubos de Acero de México S.A., or Tamsa, the sole Mexican producer of seamless steel pipe products; Dalmine S.p.A., or Dalmine, a leading Italian producer of seamless steel pipe products; Confab Industrial S.A., or Confab, the leading Brazilian producer of welded steel pipe products; NKKTubes, a leading Japanese producer of seamless steel pipe products; Algoma Tubes Inc., or AlgomaTubes, the sole Canadian producer of seamless steel pipe products; S.C. Silcotub S.A., or Silcotub, a leading Romanian producer of seamless steel pipe products; Maverick Tube Corporation, or Maverick, a leading North American producer of welded steel pipe products with operations in the United States, Canada and Colombia; Hydril Company, or Hydril, a leading North American manufacturer of premium connection products for oil and gas drilling production; 8     Seamless Pipe Indonesia Jaya, or SPIJ, an Indonesian oil country tubular goods, or OCTG, processing business with heat treatment and premium connection threading facilities; Pipe Coaters Nigeria Ltd, the leading company in the Nigerian coating industry; Usinas Siderúrgicas de Minas Gerais S.A., or Usiminas, a Brazilian producer of high quality flat steel products used in the energy, automotive and other industries; and a sucker rod business, in Campina, Romania. 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. 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 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 select 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 continue to build 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 2017, within a budget of approximately $1.8 billion. As of December 31, 2016, approximately $1.3 billion had already been invested and an additional $176 million had been committed. 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 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 S.A., or Ternium and Tecpetrol International S.A. (a wholly-owned subsidiary of San Faustin, the controlling shareholder of both Tenaris and Ternium) to build a natural gas-fired combined cycle electric power plant in Mexico for the supply of Tenaris’s and Ternium’s respective Mexican industrial facilities. The new power plant became fully operational during 2016. For more information on the new power plant, see note 12 c) “Investments in non-consolidated companies – Techgen S.A. de C.V.” to our audited consolidated financial statements included in this annual report. 9 Enhancing our offer of technical and pipe management services - Rig DirectTM - and extending their global deployment We continue to enhance our offer of technical and pipe management services, which we now call Rig Direct™ services, and extend their deployment worldwide. For many years, we have provided these services, managing customer inventories and directly supplying pipes to their rigs on a just-in-time basis in markets like Mexico and Argentina. Now, in response to changes in market conditions and the increased focus of customers on reducing costs and improving the efficiency of their operations, we have extended the deployment of our Rig Direct™ services throughout North America and in other markets throughout the world (e.g. North Sea, Romania and Thailand). Through the provision of Rig Direct™ 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. 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 60 years of operating experience; and our strong financial condition. 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 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, 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. 10 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 products are also commonly referred to as OCTG products. We manufacture our steel pipe products in a wide range of specifications, which vary in diameter, length, thickness, finishing, steel grades, coating, 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 the premium connections business of Hydril, 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. Coiled tubing. Coiled tubing is used for oil and gas drilling and well workovers and for subsea pipelines. 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. In addition, we sell raw materials that exceed our internal requirements. 11 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 Ilha do Fundao, Rio de Janeiro, Brazil, at Veracruz in Mexico, at Dalmine in Italy, and at the product testing facilities of NKKTubes in Japan. We strive to engage some of the world’s leading industrial research institutions to solve the problems posed by the complexities of oil and gas projects with innovative applications. In addition, our global technical sales team is made up of experienced engineers who work with our customers to identify solutions for each particular oil and gas drilling environment. Product development and research currently being undertaken are focused on the increasingly challenging energy markets and include: • • • • • • • • 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 innovation and trade secrets, through the use of patents, trademarks and other intellectual property tools that allow us to differentiate ourselves from our competitors. We spent $69 million for R&D in 2016, compared to $89 million in 2015 and $107 million in 2014. 12 TENARIS IN NUMBERS Trend information Leading indicators 13 14 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 and the corresponding capital spending by oil and gas companies depends primarily on current and expected future prices of oil and natural gas and is sensitive to the industry’s view of future economic growth and the resulting impact on demand for oil and natural gas. The level of drilling activity and the investments by the oil and gas companies declined in 2016 for the second consecutive year as they continued to be severely affected by the strong decline in 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, and may continue to affect, these prices. Inventory levels of steel pipe in the oil and gas industry can vary significantly and these fluctuations can affect demand for our products. When oil and gas prices fall, as has recently happened, oil and gas companies draw from existing inventory and are generally expected to hold or reduce purchases of additional steel pipe products.Furthermore, competition in the global market for steel pipe products may cause us to lose market share and hurt our sales and, if increases in the cost of raw materials and energy cannot be offset by higher selling prices, our profitability may be hurt. In addition, there is an increased risk that unfairly-traded steel pipe imports in markets in which Tenaris produces and sells its products may affect Tenaris’s market share, deteriorate the pricing environment and hurt sales and profitability. 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. During the last two years we have temporarily suspended some of our operations given the impact to our business of the sharp decline of oil prices and high levels of unfairly traded imports of products. Temporary suspensions of operations may give rise to labor conflicts and affect operations, profitability and may trigger impairment assessments of assets. Performance may also be 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. We have significant operations in various countries, including Argentina, Brazil, Canada, Colombia, Italy, Japan, Mexico, Nigeria, 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, economic 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. Beginning in 2009, Venezuela nationalized our investments in, and assumed exclusive operation control over the assets of, Tubos de Acero de Venezuela S.A. or Tavsa, Matesi, Materiales Siderúrgicos S.A., or Matesi, and Complejo Siderurgico de Guayana, C.A., or Comsigua. 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. The Company and its wholly-owned subsidiary Talta - Trading e Marketing Sociedad Unipessoal Lda, or Talta, initiated arbitration proceedings against Venezuela before the International Centre for Settlement of Investment Disputes, or ICSID, seeking adequate and effective compensation for the expropriation of their investments in Matesi, Tavsa and Comsigua. On January 29, 2016, the tribunal released its award for the expropriation of our investment in Matesi, granted compensation in the amount of $87 million for the breaches and ordered Venezuela to pay an additional amount of $86 million in pre- award interest, aggregating to a total award of $173 million, payable in full and net of any applicable Venezuelan tax, duty or charge. Similarly, on December 12, 2016, the tribunal issued its award for the expropriation of our investments in Tavsa and Comsigua, granted compensation in the amount of $137 million and ordered Venezuela to reimburse Tenaris and Talta $3.3 million in legal fees and ICSID administrative costs. In addition, Venezuela was ordered to pay interest from April 30, 2008 until the day of effective payment at a rate equivalent to LIBOR 15 + 4% per annum, which as of December 31, 2016 amounted $76 million. However, given the current economic and political situation of Venezuela, we can give no assurance that the Venezuelan government will honor the award for the expropriation of our investments in Matesi nor agree to pay a fair and adequate compensation for our interest in Tavsa 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 continue to pursue growth-enhancing strategic opportunities. Any of the components of our overall business strategy could cost more than anticipated or may not be successfully implemented or could be delayed or abandoned. 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. 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, 2016 we had $1,293 million in goodwill corresponding mainly to the acquisition of Hydril, in 2007 ($920 million) and Maverick, in 2006 ($229 million). As of December 31, 2015, we recorded an impairment charge of $400 million on the goodwill of our welded pipe assets in the United States, reflecting the decline in oil prices, and their impact on drilling activity and the demand outlook for welded pipe products in the United States. Additionally, as of December 31, 2015 we also recorded a $29 million impairment on the carrying value of our investment in Usiminas. 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 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, and the U.K Bribery Act 2010. For a discussion of an ongoing investigation by the audit committee of the Company’s board of directors of certain matters related to these laws, see note 25 “Contingencies, commitments and restrictions on the distribution of profits – (i) Contingencies – Ongoing investigation” to our audited consolidated financial statements included in this annual report. Violations of these laws could result in monetary or other penalties against us or our subsidiaries, including potential criminal sanctions, and could damage our reputation and, therefore, our ability to do business. 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 16 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 22, 23 and 25 of our audited consolidated financial statements included in this annual report. 17 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 as 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. We operate an integrated worldwide network of steel pipe manufacturing, research, finishing and service facilities with industrial operations in the Americas, Europe, Asia and Africa and a direct presence in most major oil and gas markets. Our main source of revenue is the sale of products and services to the oil and gas industry, and the level of such sales is sensitive to international oil and gas prices and their impact on drilling activities. Demand for our products and services from the global oil and gas industry, particularly for tubular products and services used in drilling operations, represents a substantial majority of our total sales. Our sales, therefore, depend on the condition of the oil and gas industry and our customers’ willingness to invest capital in oil and gas exploration and development as well as in associated downstream processing activities. The level of these expenditures is sensitive to oil and gas prices as well as the oil and gas industry’s view of such prices in the future. Crude oil prices fell from over $100 per barrel in June 2014 to less than $30 per barrel in February 2016, then rose to above $50 per barrel at the end of 2016. Such price increase was mainly due to an agreement between OPEC and some non-OPEC countries to cut production in order to accelerate the rebalancing of supply and demand and to reduce excess inventory levels. Natural gas prices (Henry Hub) have also fallen to less than $2 per million BTU at the beginning of 2016 and recovered to levels above $3 per million BTU at the end of 2016. In 2016, worldwide drilling activity declined 32% compared to the level of 2015. In the United States the rig count in 2016 declined by 48%. In May 2016 approximately 400 rigs were active; however, a subsequent increase in activity resulted in more than 700 active rigs at the beginning of 2017. When compared to 2015, in Canada the rig count in 2016 declined by 34%, while in the rest of the world, it declined 18%. 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 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. However, as a result of the decline in oil prices in 2015 and for much of 2016, the level of investments by oil and gas companies in such complex projects decreased, as some of these projects were cancelled or postponed. 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. 18 In addition, there is an increased risk of unfairly-traded steel pipe imports in markets in which we produce and sell our products. In August 2014, the United States imposed anti-dumping duties on OCTG imports from various countries, including Korea. However, despite the trade case ruling, imports from Korea continued at a very high level for some months and in September 2015 the petitioners filed for the initiation of the annual review, with a final determination expected during April 2017. Similarly, in Canada, the Canada Border Services Agency introduced anti-dumping duties on OCTG imports from Korea and other countries in March 2015. 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 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 increased during 2016. As a reference, prices for hot rolled coils, HRC Midwest USA Mill, published by CRU, averaged $571 per ton in 2016 and $506 per ton in 2015, with an increase of more than 50% between the beginning and the end of 2016. Sale of North American Electric Conduit Business to Nucor On January 20, 2017, we completed the sale of our steel electric conduit business in North America, known as Republic Conduit, to Nucor Corporation for a total consideration of $332 million, subject to a working capital adjustment. The gain, net of fees and expenses arising from this sale is currently estimated to be approximately $189 million and will be recorded in the first quarter of 2017. As of December 31, 2016 the conduit business was classified as a discontinued operation. Summary of results In 2016, our net sales declined 38% compared to 2015, affected by continued adverse market conditions. Sales of Tubes were down 38%, reflecting lower drilling activity in North and South America and in offshore regions worldwide, declines in selling prices and the completion of shipments for pipeline projects in Brazil and Argentina after the first quarter of the year. EBITDA declined 51% year on year, reflecting lower sales and a reduction in gross margins on lower average selling prices and lower absorption of fixed costs. Net income amounted to a gain of $59 million in 2016 compared to a loss of $74 million in 2015, which included an impairment charge of $400 million. In spite of capital expenditures of $787 million, mainly related to the construction of our greenfield project in Bay City, we reached a positive free cash flow of $77 million in 2016. After dividend payments of $508 million, our net cash position reached $1.4 billion at December 31, 2016, compared with $1.8 billion at December 31, 2015. Outlook As we enter 2017, in the United States and Canada, a rapid recovery is taking place in shale drilling activity, as oil and gas companies increase investments following two consecutive years of declining expenditure. The recovery is supported by oil prices around $50/bbl and natural gas prices (Henry Hub) around $3 per million BTU, drilling efficiencies and the relatively low cost of drilling materials, equipment and services. In addition, the agreement between OPEC and some non-OPEC countries late last year to cut production to accelerate the rebalancing of supply and demand and reduce excess inventory levels has reinforced confidence that the current level of oil prices can be sustained. In the rest of the world, exploration and production spending plans are more subdued. In offshore areas, operators have begun to move forward with selected projects but the overall level of spending is expected to decline for a third successive year as the previous backlog of investments sanctioned prior to 2015 are completed. Onshore spending is expected to be more stable and can be expected to recover in regions such as Colombia. We expect our sales to rise steadily through the year based on higher demand from Rig Direct™ customers in North America and a strong backlog of orders for the Eastern Hemisphere. Although prices have begun to rise in North America, increases in our average selling prices will be held back by the prices fixed in our Eastern Hemisphere backlog. Our EBITDA, following the first quarter, should also rise steadily through the year with margins improving in the second half as a result of better absorption of fixed costs. 19 Results of Operations Millions of U.S. dollars (except number of shares and per share amounts) For the year ended December 31, 2016 2015 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 (loss) income Finance income Finance cost Other financial results (Loss) income before equity in earnings (losses) of non- consolidated companies and income tax Equity in earnings (losses) of non-consolidated companies Income before income tax Income tax Income (loss) for the year for continuing operations Discontinued operations Result for discontinued operations Income (loss) for the year (1) Income (loss) attributable to (1): Owners of the parent Non-controlling interests Income (loss) for the year (1) 4,294 (3,166) 1,128 (1,197) 10 (59) 66 (22) (22) (37) 72 34 (17) 17 41 59 55 3 59 6,903 (4,748) 2,155 (1,594) (396) 166 35 (23) 3 180 (40) 141 (234) (94) 19 (74) (80) 6 (74) Depreciation and amortization for continuing operations Weighted average number of shares outstanding Basic and diluted earnings (losses) per share for continuing operations Basic and diluted earnings (losses) per share Dividends per share (2) (657) 1,180,536,830 (653) 1,180,536,830 0.01 0.05 0.41 (0.08) (0.07) 0.45 _______________ (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. 20 Millions of U.S. dollars (except number of shares) Selected consolidated financial position data Current assets Property, plant and equipment, net Other non-current assets Assets of disposal group classified as held for sale Total assets Current liabilities Non-current borrowings Deferred tax liabilities Other non-current liabilities Liabilities of disposal group classified as held for sale Total liabilities Capital and reserves attributable to the owners of the parent Non-controlling interests Total equity At December 31, 2016 2015 4,817 6,002 3,033 151 14,003 1,713 32 551 277 18 2,590 11,287 126 11,413 5,743 5,672 3,472 - 14,887 1,755 223 750 293 - 3,021 11,713 153 11,866 Total liabilities and equity 14,003 14,887 Share capital Number of shares outstanding 1,181 1,180,536,830 1,181 1,180,536,830 21 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, 2016 2015 Continuing Operations Net sales Cost of sales Gross profit Selling, general and administrative expenses Other operating income (expenses), net Operating (loss) income Finance income Finance cost Other financial results (Loss) income before equity in earnings (losses) of non- consolidated companies and income tax Equity in earnings (losses) of non-consolidated companies Income before income tax Income tax Income (loss) for the year for continuing operations Discontinued operations Result for discontinued operations Income (loss) for the year Income (loss) attributable to: Owners of the parent Non-controlling interests 100.0 (73.7) 26.3 (27.9) 0.2 (1.4) 1.5 (0.5) (0.5) (0.9) 1.7 0.8 (0.4) 0.4 1.0 1.4 1.3 0.1 100.0 (68.8) 31.2 (23.1) (5.7) 2.4 0.5 (0.3) 0.0 2.6 (0.6) 2.0 (3.4) (1.4) 0.3 (1.1) (1.2) 0.1 Fiscal Year Ended December 31, 2016, Compared to Fiscal Year Ended December 31, 2015 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, 2016 2015 Increase / (Decrease) Tubes Others Total Tubes 4,015 278 4,294 94% 6% 100% 6,444 459 6,903 93% 7% 100% (38%) (39%) (38%) 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, 2016 2015 Increase / (Decrease) Seamless Welded Total 1,635 355 1,990 2,028 605 2,633 (19%) (41%) (24%) 22 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, 2016 2015 Net sales - North America - South America - Europe - Middle East & Africa - Asia Pacific Total net sales Operating (loss) income (1) Operating (loss) income (% of sales) _______________ 1,265 1,032 542 1,041 136 4,015 (71) (1.8%) 2,538 1,858 695 1,082 272 6,444 138 2.1% Increase / (Decrease) (50%) (44%) (22%) (4%) (50%) (38%) (152%) (1) Tubes operating income includes severance charges of $67 million in 2016 and $164 million in 2015. Additionally, Tubes operating income in 2015 also includes an impairment charge of $400 million on our welded pipe operations in the United States. Net sales of tubular products and services decreased 38% to $4,015 million in 2016, compared to $6,444 million in 2015, reflecting a 24% decline in volumes and an 18% decrease in average selling prices. Sales were negatively affected by the adjustment in oil and gas drilling activity in response to the collapse in oil and gas prices, inventory adjustments and price declines, together with a decline of shipments to line pipe project in South America. In North America, our sales decreased 50%, due to the downturn in activity, inventory adjustments and lower prices. In South America, sales declined 44% due to the downturn in drilling activity in Argentina and Colombia, price declines and the lack of shipments to line pipe project in Argentina and Brazil following the first quarter sales. In Europe, sales declined 22% due to lower drilling activity and price declines but sales of industrial products and to hydrocarbon process industry and power generation customers were maintained at similar levels to those of 2015. In the Middle East and Africa sales declined 4% as shipments to Middle East customers and sales of offshore line pipe and coating services in Africa increased strongly but sales were affected by price declines and severely reduced offshore drilling activity and inventory adjustments in Africa. In Asia Pacific, sales were affected by lower drilling activity in the region, principally in Indonesia, price declines, and lower sales of non-OCTG products in the region. Operating (loss) income from tubular products and services, amounted to a loss of $71 million, compared to a $138 million gain in 2015. The decline in Tubes operating income was due to lower sales and a reduction in gross margin from 32% in 2015 to 27% in 2016. Additionally, our selling, general and administrative expenses, or SG&A, as a percentage of sales increased from 24% in 2015 to 29% in 2016, due to the negative effect of fixed and semi-fixed expenses on lower sales. 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, 2016 2015 Increase / (Decrease) Net sales Operating income Operating income (% of sales) 278 12 4.3% 459 28 6.1% (39%) (57%) Net sales of other products and services decreased 39% to $278 million in 2016, compared to $459 million in 2015, due to lower sales of industrial equipment in Brazil and lower sales of energy related products, i.e., sucker rods and coiled tubing. Operating income from other products and services, decreased 57% to $12 million in 2016, from $28 million in 2015, mainly due to lower operating income from our sucker rods business. 23 Selling, general and administrative expenses, or SG&A, decreased by $397 million (25%) in 2016 from $1,594 million in 2015 to $1,197 million in 2016, mainly due to lower labor costs and selling expenses. However, SG&A expenses increased as a percentage of net sales to 27.9% in 2016 compared to 23.1% in 2015, mainly due to the effect of fixed and semi fixed expenses on lower sales (e.g., depreciation and amortization and labor costs). Other operating income and expenses resulted in a gain of $10 million in 2016, compared to a loss of $396 million in 2015, mainly due to asset impairment charges in our Tubes segment, related to our welded pipe operations in the United States, amounting to $400 million in 2015. Financial results amounted to a gain of $22 million in 2016, compared to a gain of $15 million in 2015. The increase was due to higher interest income partially offset by negative other financial results, mostly foreign exchange derivatives contracts results. Equity in earnings (losses) of non-consolidated companies generated a gain of $72 million in 2016, compared to a loss of $40 million in 2015. During 2015 we recorded an impairment charge of $29 million on our direct investment in Usiminas. Apart from the impairment result in 2015, these results were mainly derived from our equity investment in Ternium (NYSE:TX). Net income for the year amounted to $59 million in 2016, including a gain from discontinued operations of $41 million, compared with a loss of $74 million, including a gain from discontinued operations of $19 million. Net income from continuing operations amounted to a gain of $17 million in 2016, which compares with a loss of $94 million in 2015. The loss in 2015 included an impairment charge of $400 million. Results in 2016 and 2015 reflect a challenging operating environment affected by a reduction in drilling activity and in the demand for OCTG products, deriving in lower shipments and prices, inefficiencies associated with low utilization of production capacity and severance costs to adjust the workforce to the new market conditions. Income attributable to non-controlling interests was $3 million in 2016, compared to $6 million in 2015.These results are mainly attributable to NKKTubes, our Japanese subsidiary. 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: Millions of U.S. dollars For the year ended December 31, 2016 2015 Net cash provided by operating activities Net cash used in investing activities Net cash used in financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of year (excluding overdrafts) Effect of exchange rate changes Increase (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 current investments Non-current fixed income investments held to maturity Borrowings Net cash 864 (98) (653) 113 286 (0) 113 399 399 1 1,633 248 (840) 1,441 2,215 (1,774) (535) (94) 416 (37) (94) 286 286 0 2,141 393 (972) 1,849 Our financing strategy aims at maintaining adequate financial resources and access to additional liquidity. During 2016 we generated $864 million of operating cash flow, our capital expenditures amounted to $787 24 million and we paid dividends amounting to $508 million. At the end of the year we had a net cash position of $1.4 billion, compared to $1.8 billion 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 amortized cost which approximates fair market value. At December 31, 2016, liquid financial assets as a whole (i.e., cash and cash equivalents, other current investments and non-current fixed income investments held to maturity) were 16% of total assets compared to 19% at the end of 2015. 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, 2016, U.S. dollar denominated liquid assets represented 95% of total liquid financial assets compared to 87% at the end of 2015. Operating activities Net cash provided by operations during 2016 was $864 million, compared to $2.2 billion during 2015. This 61% decrease was mainly attributable to a smaller reduction in working capital. During 2016 the reduction in working capital amounted to $348 million, while during 2015 it amounted to $1.4 billion. The main yearly variation was related to a reduction of $245 million in inventories during 2016, which compares with a reduction in inventory of $936 million in 2015, reflecting the decline in production and shipments. Additionally, during 2016 trade receivables and trade payables decreased $147 million and $60 million respectively, partially offset by an increase of $79 million in other liabilities and of $95 million in customer advances. For more information on cash flow disclosures and changes to working capital, see note 27 “Cash flow disclosures” to our audited consolidated financial statements included in this annual report. Investing activities Net cash used in investing activities was $98 million in 2016 compared to $1.8 billion in 2015. Capital expenditures decreased to $787 million from $1.1 billion in 2015, mainly related to the construction of the greenfield seamless mill in Bay City, Texas. Additionally, we reduced our financial investments by $653 million in 2016 compared to an increase of $696 million in 2015. Financing activities Net cash used in financing activities, including dividends paid, proceeds and repayments of borrowings and acquisitions of non-controlling interests, was $653 million in 2016, compared to $535 million in 2015. Dividends paid during 2016 amounted to $508 million, while $531 million were paid in 2015. During 2016 we had net repayments of borrowings of $115 million, while in 2015 we had no significant net proceeds/repayments from borrowings. Our total liabilities to total assets ratio was 0.18:1 as of December 31, 2016 and 0.20:1 as of December 31, 2015. Principal Sources of Funding During 2016, we funded our operations with operating cash flows and bank financing. Short-term bank borrowings were used as needed throughout the year. 25 Financial liabilities During 2016, borrowings decreased by $131 million, to $840 million at December 31, 2016, from $972 million at December 31, 2015. Borrowings consist mainly of bank loans. As of December 31, 2016 U.S. dollar-denominated borrowings plus borrowings denominated in other currencies swapped to the U.S. dollar represented 96% of total borrowings. For further information about our financial debt, please see note 19 “Borrowings” to our audited consolidated financial statements included in this annual report. The following table shows the composition of our financial debt at December 31, 2016 and 2015: Millions of U.S. dollars 2016 2015 Bank borrowings Bank overdrafts Finance lease liabilities Total borrowings 839 1 0 840 971 0 1 972 Our weighted average interest rates before tax (considering hedge accounting), amounted to 1.97% at December 31, 2016 and to 1.52% at December 31, 2015. The maturity of our financial debt is as follows: Millions of U.S. dollars At December 31, 2016 Borrowings Interests to be accrued Total 1 year or less 1 - 2 years 2 - 3 years 3 - 4 years 4 - 5 years Over 5 years Tota l 809 6 815 1 1 2 4 1 5 3 1 5 4 1 5 20 840 0 20 11 852 Our current borrowings to total borrowings ratio increased from 0.77:1 as of December 31, 2015 to 0.96:1 as of December 31, 2016. Our liquid financial assets exceeded our total borrowings, we had a net cash position (cash and cash equivalents, other current investments and non-current fixed income investments held to maturity less total borrowings) of $1.4 billion at December 31, 2016, compared to $1.8 billion at December 31, 2015. For information on our derivative financial instruments, please see “Quantitative and Qualitative Disclosure about Market Risk – Accounting for Derivative Financial Instruments and Hedging Activities” and note 24 “Derivative financial instruments” to our audited consolidated financial statements included in this annual report. For information regarding the extent to which borrowings are at fixed rates, please see “Quantitative and Qualitative Disclosure about Market Risk”. Significant Borrowings Our most significant borrowings as of December 31, 2016 were as follows: Millions of U.S. dollars Disbursement date 2016 2015 2016 Borrower Tamsa TuboCaribe Siderca Type Bank loans Bank loan Bank loans Original & Outstanding 391 200 198 Final maturity 2017 Jan-17 2017 As of December 31, 2016, Tenaris was in compliance with all of its covenants. 26 Quantitative and Qualitative Disclosure about Market Risk The multinational nature of our operations and customer base expose us to a variety of risks, including the effects of changes in foreign currency exchange rates, interest rates and commodity prices. In order to reduce the impact related to these exposures, management evaluates exposures on a consolidated basis to take advantage of natural exposure netting. For the residual exposures, we may enter into various derivative transactions in order to reduce potential adverse effects on our financial performance. Such derivative transactions are executed in accordance with internal policies and hedging practices. We do not enter into derivative financial instruments for trading or other speculative purposes, other than non-material investments in structured products. The following information should be read together with section III, “Financial risk management” to our audited consolidated financial statements included elsewhere in this annual report. Debt Structure The following tables provide a breakdown of our debt instruments at December 31, 2016 and 2015 which included fixed and variable interest rate obligations, detailed by maturity date: At December 31, 2016 Expected maturity date 2017 2018 2019 2020 (in millions of U.S. dollars) 2021 Thereafter Total (1) Non-current Debt Fixed rate Floating rate Current Debt Fixed rate Floating rate - - 790 18 809 1 0 - - 1 4 0 - - 4 3 0 - - 3 3 1 - - 4 19 0 - - 20 30 1 790 18 840 At December 31, 2015 Expected maturity date 2016 2017 2018 2020 (in millions of U.S. dollars) 2019 Thereafter Total (1) Non-current Debt Fixed rate Floating rate Current Debt Fixed rate Floating rate _______________ - - 201 0 732 16 748 - - 201 1 0 - - 1 1 0 - - 1 1 0 - - 1 18 - 223 1 - - 18 732 16 972 (1) As most borrowings are based on short-term fixed rates, or floating rates that approximate market rates, with interest rate resetting every 3 to 6 months, the fair value of the borrowings approximates its carrying amount and is not disclosed separately. Our weighted average interest rates before tax (considering hedge accounting), amounted to 1.97% at December 31, 2016 and to 1.52% at December 31, 2015. Our financial liabilities (other than trade payables and derivative financial instruments) consist mainly of bank loans. As of December 31, 2016 U.S. dollar denominated financial debt plus debt denominated in other currencies swapped to the U.S. dollar represented 96% of total financial debt. For further information about our financial debt, please see note 19 “Borrowings” to our audited consolidated financial statements included in this annual report. 27 Interest Rate Risk Fluctuations in market interest rates create a degree of risk by affecting the amount of our interest payments. At December 31, 2016, we had variable interest rate debt of $20 million and fixed rate debt of $821 million ($790 million of the fixed rate debt are short-term). Foreign Exchange Rate Risk We manufacture and sell our products in a number of countries throughout the world and consequently we are exposed to foreign exchange rate risk. Since the Company’s functional currency is the U.S. dollar, the purpose of our foreign currency hedging program is mainly to reduce the risk caused by changes in the exchange rates of other currencies against the U.S. dollar. Most of our revenues are determined or influenced by the U.S. dollar. In addition, most of our costs 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. Had the U.S. dollar average exchange rate been weaker by 5% against the currencies of the countries where we have labor costs, operating income would have decreased approximately by $45 million in 2016, compared with $64 million in 2015. Our consolidated exposure to currency fluctuations is reviewed on a periodic basis. A number of hedging transactions are performed in order to achieve an efficient coverage in the absence of operative or natural hedges. Almost all of these transactions are forward exchange rate contracts. Because certain subsidiaries have functional currencies other than the U.S. dollar, the results of hedging activities as reported in the income statement under IFRS may not reflect entirely management’s assessment of its foreign exchange risk hedging needs. Also, intercompany balances between our subsidiaries may generate exchange rate results to the extent that their functional currencies differ. The value of our financial assets and liabilities is subject to changes arising out of the variation of foreign currency exchange rates. The following table provides a breakdown of our main financial assets and liabilities (including foreign exchange derivative contracts) that impact our profit and loss as of December 31, 2016. All amounts in millions of U.S. dollars Currency Exposure Functional currency Long / (Short) Position Argentine Peso Euro U.S. dollar U.S. dollar U.S. dollar Brazilian real (60) (407) 126 The main relevant exposures as of December 31, 2016 were to Argentine peso-denominated financial, trade, social and fiscal payables at our Argentine subsidiaries, for which the functional currency is the U.S. dollar, Euro- denominated intercompany liabilities at certain subsidiaries for which functional currency is the U.S. dollar and Cash and cash equivalent and Other investments denominated in U.S. dollars at subsidiaries for which the functional currency is the Brazilian real. Foreign Currency Derivative Contracts The net fair value of our foreign currency derivative contracts amounted to a liability of $40 million at December 31, 2016 and $16 million at December 31, 2015. For further detail on our foreign currency derivative contracts, please see note 24 “Derivative financial instruments – Foreign exchange derivative contracts and hedge accounting” to our audited consolidated financial statements included in this annual report. 28 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 when the offsetting losses and gains on the hedged item are recorded. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. The fair value of our derivative financial instruments (assets or liabilities) continues to be reflected on the consolidated statement of financial position. At December 31, 2016, the effective portion of designated cash flow hedges, included in other reserves in shareholders’ equity amounted to a loss of $5 million. Concentration of credit risk There is no significant concentration of credit from customers. No single customer comprised more than 10% of our net sales in 2016. Our credit policies related to sales of products and services are designed to identify customers with acceptable credit history, and to allow us to use credit insurance, letters of credit and other instruments designed to minimize credit risk whenever deemed necessary. We maintain allowances for potential credit losses. Commodity Price Sensitivity We use commodities and raw materials that are subject to price volatility caused by supply conditions, political and economic variables and other unpredictable factors. As a consequence, we are exposed to risk resulting from fluctuations in the prices of these commodities and raw materials. Although we fix the prices of such raw materials and commodities for short-term periods, typically not in excess of one year, in general we do not hedge this risk. Recent Developments Annual Dividend Proposal On February 22, 2017 the Company’s board of directors proposed, for the approval of the annual general shareholders' meeting to be held on May 3, 2017, the payment of an annual dividend of $0.41 per share ($0.82 per ADS), or approximately $484 million, which includes the interim dividend of $0.13 per share ($0.26 per ADS) or approximately $153 million, paid in November 2016. If the annual dividend is approved by the shareholders, a dividend of $0.28 per share ($0.56 per ADS), or approximately $331 million will be paid on May 24, 2017, with an ex-dividend date of May 22, 2017 and record date on May 23, 2017. Latest developments on CSN claims relating to the January 2012 acquisition of Usiminas shares 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 that acquired a participation in Usiminas’ control group in January 2012. The CSN lawsuit alleges that, under applicable Brazilian laws and rules, the acquirers were required to launch a tag-along tender offer to all non-controlling holders of Usiminas ordinary shares for a price per share equal to 80% of the price per share paid in such acquisition, or Brazilian reais 28.8, and seeks an order to compel the acquirers to launch an offer at that price plus interest. If so ordered, the offer would need to be made to 182,609,851 ordinary shares of Usiminas not belonging to Usiminas’ control group, and Confab would have a 17.9% share in that offer. On September 23, 2013, the first instance court issued its decision finding in favor of Confab and the other defendants and dismissing the CSN lawsuit. On February 8, 2017, the court of appeals issued its decision on the merits and upheld the ruling of the first instance court, holding that Confab and the other defendants did not have 29 the obligation to launch a tender offer. CSN has filed a motion for clarification and may still appeal to the Superior Court of Justice or the Federal Supreme Court. Environmental Regulation We are subject to a wide range of local, provincial and national laws, regulations, permit requirements and decrees relating to the protection of human health and the environment, including laws and regulations relating to hazardous materials and radioactive materials and environmental protection governing air emissions, water discharges and waste management. Laws and regulations protecting the environment have become increasingly complex and more stringent and expensive to implement in recent years. International environmental requirements vary. 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. Employees The following table shows the number of persons employed by Tenaris: Mexico Argentina Italy United States Romania Brazil Colombia Indonesia Canada Japan Other Countries Employees in discontinued operations Total employees At December 31, 2016 4,968 4,755 1,979 1,636 1,631 1,166 750 509 473 458 1,074 19,399 (323) 19,076 30 At December 31, 2015 and December 31, 2014, the number of persons employed by Tenaris was 21,741 and 27,816 respectively. The number of our employees declined 11% during 2016 as we adjusted our operations to face the decline in drilling activity and demand of pipes. During 2015 and 2016 we reduced our labor costs worldwide by 40% through a wide set of measures, while preserving our key competences and maintaining our focus on the relation with our communities. Approximately 65% 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. 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.B. de C.V. (the Mexican Stock Exchange), the Bolsa de Comercio de Buenos Aires (the Buenos Aires Stock Exchange) and the 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 thereof to one vote at the Company’s general shareholders’ meetings. Shareholder action by written consent is not permitted, but proxy voting is permitted. Notices of general shareholders’ meetings are governed by the provisions of Luxembourg law. 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 Recueil Electronique des Sociétés et Associations (Luxembourg’s electronic 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. 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 otherwise provided by applicable law, only shareholders holding Shares 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 validly cast at the meeting. Unless otherwise provided by applicable law, an extraordinary general shareholders’ meeting may not validly deliberate on proposed amendments to the Company’s articles of association unless a quorum of at least half of the Shares is represented at the meeting. If a quorum is not reached at the first extraordinary shareholders’ meeting, a second extraordinary shareholders’ meeting may be convened in accordance with the Company’s articles of association and applicable law and such second extraordinary general shareholders’ meeting shall validly deliberate regardless of the number of Shares 31 represented. 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 of the votes validly cast 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 validly cast 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 consolidated financial statements and annual accounts included in this report, will take place in the Company’s registered office in Luxembourg, on Wednesday May 3, 2017, 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 meeting and the procedures for attending and voting the meeting, 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 regulated market, the minimum number of directors must be five. The Company’s current board of directors is composed of nine 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 the board of directors is authorized until 2020, 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. Under the Company’s articles of association, however, 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, 32 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). The following table sets forth the name of the Company’s current directors, their respective positions on the board, their principal occupation, their years of service as board members and their age. At the next annual general shareholders’ meeting, it will be proposed that the number of members of the Board of Directors be increased to ten (10) by appointing Mr. Yves Speeckaert to the Board of Directors, and that all of the current members of the Board of Directors be reappointed, each to hold office until the next annual general shareholders’ meeting that will be convened to decide on the Company’s 2017 annual accounts. Name Position Principal Occupation Roberto Bonatti (1) Carlos Condorelli Director President of San Faustin Director Director of Tenaris and Ternium Roberto Monti Director Gianfelice Mario Rocca (1) Director Member of the board of directors of YPF SA Chairman of the board of directors of San Faustin Chairman and chief executive officer of Tenaris Paolo Rocca (1) Director Director Chairman of SAI Consultores Jaime Serra Puche Alberto Valsecchi Director Director of Tenaris Amadeo Vázquez y Vázquez Director Director of Tenaris Guillermo Vogel Director Vice chairman of Tamsa Years as Director Age at December 31, 2016 14 10 12 14 15 14 9 14 14 67 65 77 68 64 65 72 74 66 ___________ (1) Paolo Rocca and Gianfelice Rocca are brothers, and Roberto Bonatti is Paolo and Gianfelice Rocca’s first cousin. Roberto Bonatti. Mr. Bonatti is a member of the Company’s board of directors. He is a grandson of Agostino Rocca, founder of the Techint group, 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. Roberto Monti. Mr. Monti is a member of the Company’s board of directors. He is a member of the board of directors of YPF SA. He has served as 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. 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, the largest territorial association of entrepreneurs in Italy and part of Confindustria (Italian employers’ organization). In addition, he is member of the EIT Governing Board (European Institute of Innovation and Technology). He is chairman of Humanitas University, board member of Bocconi 33 University, member of the Advisory Board of Politecnico di Milano, the 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 the chairman of the board of directors of Ternium, a director and vice president of San Faustin, and a director of Techint Financial Corporation. He is a member of the Executive Committee of the World Steel Association. Mr. Rocca is an Italian citizen. 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 directors of the Mexico Fund, Grupo Vitro, Rotoplas and Alpek S.A.. 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 alternate director of Gas Natural BAN, S.A, of Grupo Gas Natural Fenosa. He is a member of the advisory board of the Fundación de Investigaciones Económicas Latinoamericanas and member of the Asociación Empresaria Argentina. He served as chief executive officer of Banco Río de la Plata S.A. until August 1997, independent director and chairman of the Audit Committee of BBVA Banco Francés S.A. until 2003, and 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 and holds the position of Vice President of Finance. He is the vice chairman of Tamsa, the chairman of Grupo Collado, Exportaciones IM Promoción and Canacero, a member of the board of directors of each of Techint, S.A. de C.V., Corporación Alfa, the Universidad Panamericana – IPADE, Rassini, Corporación Mexicana de Inversiones de Capital, Innovare, Grupo Assa and the American Iron and Steel Institute. In addition, he is a member of The Trilateral Commission and member of the International Board of The Manhattan School of Music. Mr. Vogel is a Mexican citizen. Messrs. Monti, Serra Puche and Vázquez y Vázquez qualify as independent directors under the Company’s articles of association. 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 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. 34 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 regulated market, 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. 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 4, 2016, the Company’s board of directors reappointed Jaime Serra Puche, Amadeo Vázquez y Vázquez and Roberto Monti as members of the Company’s 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 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 35 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 material 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. Senior Management Our current senior management as of the date of this annual report consists of: Name Position Age at December 31, 2016 Paolo Rocca Edgardo Carlos Gabriel Casanova Vincenzo Crapanzano (1) Alejandro Lammertyn Paola Mazzoleni Marcelo Ramos Germán Curá Sergio de la Maza Renato Catallini Javier Martínez Alvarez Gabriel Podskubka Michele Della Briotta __________ Chairman and Chief Executive Officer Chief Financial Officer Supply Chain Director Industrial Director Planning Director Human Resources Director Technology Director North American Area Manager Central American Area Manager Brazilian Area Manager Southern Cone Area Manager Eastern Hemisphere Area Manager European Area Manager 64 50 58 64 51 40 53 54 60 50 50 43 44 (1) Effective as of April 1, 2017, Mr. Antonio Caprera will replace Mr. Vincenzo Crapanzano as industrial director. 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 the chairman of the board of directors of Ternium, a director and vice president of San Faustin, and a director of Techint Financial Corporation. 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 and since May 2016 has also assumed responsibility over information technology. 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 36 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. 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. 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. Mr. Crapanzano is an Italian citizen. Antonio Caprera. As of April 1, 2017, Mr. Caprera will serve as Tenaris’s industrial director. He joined the company in 1990. From 2000 to 2006 he served as quality director at Dalmine in Italy, where he later assumed responsibilities as production director until 2012. From that year and until 2015 he served as production director at Siderca in Argentina, after which he assumed responsibilities as global industrial coordinator based in Mexico until March 2017. Mr. Caprera is an Italian 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. Paola Mazzoleni. Ms. Mazzoleni currently serves as our human resources director, a position she assumed on January 1, 2016. After receiving a degree in Philosophy, she started her career in Dalmine in 2001 in the human resources department, working in recruitment and selection. She next coordinated the company’s Global Trainee Program and then served as the regional head in Italy of TenarisUniversity. Ms. Mazzoleni was appointed as human resources director in Romania in 2008, in Italy in 2012 and in the United States in 2014. Ms. Mazzoleni is an Italian citizen Marcelo Ramos. Mr. Ramos currently serves as our technology director, with responsibility over technology and quality. Previously he served as corporate quality director and managing director of NKKTubes in our Japanese operations. He joined the Techint group in 1987 and has held various positions within Tenaris. He assumed his current position in April 2010, when both, the quality and technology departments were combined. Mr. Ramos is an Argentine citizen. Germán 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 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. 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 and Italian citizen. 37 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 four 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. Michele Della Briotta. Mr. Della Briotta currently serves as our European area manager, a position he assumed in July 2016. He first joined Tenaris in 1997 and has worked in areas such as industrial planning, operations, supply chain and commercial in Italy, Mexico, Argentina and the United States. Most recently he served as Tenaris’s area manager for Romania. Mr. Della Briotta is an Italian citizen. 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 2016 a fee of $85,000. The chairman of the audit committee received as additional compensation a fee of $65,000 while the other members of the audit committee received an additional fee of $55,000. 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, 2016, 2015 and 2014, the cash compensation of directors and senior managers amounted to $38.6 million, $28.8 million and $26 million, respectively. In addition, directors and senior managers received 500, 540 and 567 thousand units for a total amount of $4.8 million, $5.4 million and $6.2 million, respectively, in connection with the Employee retention and long 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 consolidated financial statements and to submit a report on the accounts to shareholders at the annual shareholders’ meeting. In accordance with applicable law, auditors are chosen from among the members of the Luxembourg Institute of Independent Auditors (Institut des réviseurs d’entreprises). Auditors are appointed by the general shareholders’ meeting upon recommendation from 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 regularly approves such audit fees and authorizes the audit committee to approve any increase or reallocation of such audit fees as may be necessary, appropriate or desirable under the circumstances. The audit committee delegates to its Chairman the authority to consider and approve, on behalf of the audit committee, additional non-audit services that were not recognized at the time of engagement, which must be reported to the other members of the audit 38 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, 2016, appointed by the shareholders’ meeting held on May 4, 2016, was PricewaterhouseCoopers Société Coopérative., Cabinet de révision agréé, in connection with all of our annual accounts and consolidated financial statements. Fees Paid to the Company’s Independent Auditor In 2016, PwC served as the principal external auditor for the Company. Fees payable to PwC in 2016 are detailed below. Thousands of U.S. dollars For the year ended December 31, 2016 Audit Fees Audit-Related Fees Tax Fees All Other Fees Total Audit Fees 3,588 64 14 3 3,669 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. 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. All Other Fees Fees paid for the support in the development of training courses. 39 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 the date of this annual report, was 1,200,603, which represents 0.10% of our outstanding Shares. The following table provides information regarding share ownership by our directors and senior management: Director or Officer Number of Shares Held Guillermo Vogel Carlos Condorelli Edgardo Carlos Gabriel Podskubka Total Major Shareholders 1,125,446 67,211 4,000 3,946 1,200,603 The following table shows the beneficial ownership of the Shares by: the Company’s major shareholders (persons or entities that have notified the Company of holdings in excess of 5% of the Company’s share capital), non- affiliated public shareholders, and 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) Directors and senior management as a group Public Total __________ 713,605,187 1,200,603 465,731,040 60.45% 0.10% 39.45% 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 voting rights in San Faustin sufficient to control San Faustin. No person or group of persons controls RP STAK. The voting rights of the Company’s major shareholders do not differ from the voting rights of other shareholders. None of its outstanding shares have any special control rights. There are no restrictions on voting rights, nor are there, to the Company’s knowledge, any agreements among shareholders of the Company that might result in restrictions on the transfer of securities or the exercise of voting rights. The Company does not know of any significant agreements or other arrangements to which the Company is a party and which take effect, alter or terminate in the event of a change of control of the Company. The Company does not know of any arrangements, the operation of which may at a 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, 2016. All issued shares are fully paid. The Company’s articles of association authorize the board of directors until 2020, 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): 40 • • 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). 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. 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 voting rights in San Faustin sufficient to control San Faustin. No person or group of persons controls RP STAK. Our directors and senior management as a group own 0.10% of the Company’s outstanding shares, while the remaining 39.45% 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. 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 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. 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. 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. 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. 41 On February 22, 2017, management reported to the audit committee of the Company’s board of directors that management had conducted its assessment of the effectiveness of the Company’s internal controls over financial reporting for the year ended December 31, 2016, and that, based on management’s evaluation and considering the inherent limitations to the effectiveness of any internal control system, management had concluded that the Company’s internal controls over financial reporting were effective as of December 31, 2016. 42 MANAGEMENT CERTIFICATION We confirm, to the best of our knowledge, that: 1. 2. 3. the consolidated financial statements prepared in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and as adopted by the European Union, 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 on the consolidated financial statements included in this annual report, which has been combined with the management report on the annual accounts 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. /s/ Paolo Rocca Chief Executive Officer Paolo Rocca March 30, 2017 /s/ Edgardo Carlos Chief Financial Officer Edgardo Carlos March 30, 2017 43 FINANCIAL INFORMATION Consolidated Financial Statements For the years ended December 31, 2016, 2015 and 2014 44 45 46 CONSOLIDATED INCOME STATEMENT (all amounts in thousands of US dollars, unless otherwise stated) Continuing operations Net sales Cost of sales Gross profit Selling, general and administrative expenses Other operating income Other operating expenses Operating (loss) income Finance Income Finance Cost Other financial results (Loss) income before equity in earnings of non-consolidated companies and income tax Equity in earnings (losses) of non-consolidated companies Income before income tax Income tax Income (Loss) for continuing operations Discontinued operations Result for discontinued operations Income (loss) for the period Attributable to: Owners of the parent Non-controlling interests Notes 1 2 3 5 5 6 6 6 7 8 28 Earnings per share attributable to the owners of the parent during the period: Weighted average number of ordinary shares (thousands) Continuing operations Basic and diluted earnings (losses) per share (U.S. dollars per share) Basic and diluted earnings (losses) per ADS (U.S. dollars per ADS) (*) Continuing and discontinued operations Basic and diluted earnings (losses) per share (U.S. dollars per share) Basic and diluted earnings (losses) per ADS (U.S. dollars per ADS) (*) (*) Each ADS equals two shares. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (all amounts in thousands of U.S. dollars) Income (loss) for the year Items that may be subsequently reclassified to profit or loss: Currency translation adjustment Change in value of cash flow hedges Change in value of available for sale financial instruments Share of other comprehensive income of non-consolidated companies: - Currency translation adjustment - Changes in the fair value of derivatives held as cash flow hedges and others Income tax related to cash flow hedges and available for sale financial instruments Items that will not be reclassified to profit or loss: Remeasurements of post employment benefit obligations Income tax on items that will not be reclassified Remeasurements of post employment benefit obligations of non-consolidated companies Other comprehensive income (loss) for the year, net of tax Total comprehensive income (loss) for the year Attributable to: Owners of the parent Non-controlling interests Total comprehensive income (loss) for the year attributable to Owners of the parent arises from Continuing operations Discontinued operations Year ended December 31, 2015 2014 2016 4,293,592 (3,165,684) 1,127,908 (1,196,929) 21,127 (11,163) (59,057) 66,204 (22,329) (21,921) 6,903,123 (4,747,760) 2,155,363 (1,593,597) 14,603 (410,574) 165,795 34,574 (23,058) 3,076 (37,103) 71,533 34,430 (17,102) 17,328 41,411 58,739 55,298 3,441 58,739 180,387 (39,558) 140,829 (234,384) (93,555) 19,130 (74,425) (80,162) 5,737 (74,425) 10,141,459 (6,140,415) 4,001,044 (1,932,778) 27,855 (215,589) 1,880,532 38,211 (44,388) 39,575 1,913,930 (164,616) 1,749,314 (580,431) 1,168,883 12,293 1,181,176 1,158,517 22,659 1,181,176 1,180,537 1,180,537 1,180,537 0.01 0.02 0.05 0.09 (0.08) (0.17) (0.07) (0.14) 0.97 1.94 0.98 1.96 2016 Year ended December 31, 2015 (74,425) 58,739 2014 1,181,176 37,187 (7,525) - (256,260) 10,699 2,486 3,473 421 (23) 33,533 (230) (1,760) (5,475) (7,465) 26,068 84,807 81,702 3,105 84,807 (92,914) (3,790) (284) (340,063) 14,181 (4,242) (449) 9,490 (330,573) (404,998) (410,187) 5,189 (404,998) (197,711) (8,036) (2,447) (54,688) 60 400 (262,422) 1,850 (513) (3,917) (2,580) (265,002) 916,174 894,929 21,245 916,174 40,291 41,411 81,702 (429,317) 19,130 (410,187) 882,636 12,293 894,929 The accompanying notes are an integral part of these Consolidated Financial Statements. 47 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (all amounts in thousands of U.S. dollars) At December 31, 2016 At December 31, 2015 ASSETS Non-current assets Property, plant and equipment, net Intangible assets, net Investments in non-consolidated companies Available for sale assets Other investments Deferred tax assets Receivables, net Current assets Inventories, net Receivables and prepayments, net Current tax assets Trade receivables, net Other investments Cash and cash equivalents Assets of disposal group classified as held for sale 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 Notes 10 11 12 31 18 20 13 14 15 16 17 18 18 28 19 20 21 (i) 22 (ii) 19 16 21 (ii) 23 (ii) 6,001,939 1,862,827 557,031 21,572 249,719 144,613 197,003 1,563,889 124,715 140,986 954,685 1,633,142 399,737 31,542 550,657 213,617 63,257 808,694 101,197 183,887 22,756 39,668 556,834 Liabilities of disposal group classified as held for sale 28 Total liabilities Total equity and liabilities Contingencies, commitments and restrictions on the distribution of profits are disclosed in Note 25. The accompanying notes are an integral part of these Consolidated Financial Statements. 5,672,258 2,143,452 490,645 21,572 394,746 200,706 220,564 1,843,467 148,846 188,180 1,135,129 2,140,862 286,547 223,221 750,325 231,176 61,421 748,295 136,018 222,842 8,995 134,780 503,845 9,143,943 5,743,031 14,886,974 11,713,344 152,712 11,866,056 1,266,143 1,754,775 3,020,918 14,886,974 9,034,704 4,817,154 151,417 14,003,275 11,287,417 125,655 11,413,072 859,073 1,713,036 18,094 2,590,203 14,003,275 48 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (all amounts in thousands of U.S. dollars) Balance at December 31, 2015 Income for the year Currency translation adjustment Remeasurements of post employment benefit obligations, net of taxes Change in value of available for sale financial instruments and cash flow hedges net of tax Share of other comprehensive income of non- consolidated companies Other comprehensive income (loss) for the year Total comprehensive income (loss) for the year Acquisition of non-controlling interests Dividends paid in cash Balance at December 31, 2016 Attributable to owners of the parent Share Capital (1) 1,180,537 Legal Reserves 118,054 Share Premium 609,733 Currency Translation Adjustment (1,006,767) Other Reserves (2) (298,682) Retained Earnings (3) 11,110,469 Total 11,713,344 Non- controlling interests 152,712 Total 11,866,056 - - - - - - - - - - - - - 37,339 - - 55,298 - 55,298 37,339 3,441 (152) 58,739 37,187 - - (1,781) (7,573) - - (1,781) (209) (1,990) (7,573) 25 (7,548) - - - - - 1,180,537 - - - - - 118,054 - - - - - 609,733 3,473 40,812 40,812 - - (965,955) (5,054) (14,408) (14,408) 2 - (313,088) - - 55,298 - (507,631) 10,658,136 (1,581) 26,404 81,702 2 (507,631) 11,287,417 - (336) 3,105 (1,073) (29,089) 125,655 (1,581) 26,068 84,807 (1,071) (536,720) 11,413,072 (1) The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share. As of December 31, 2016 there were 1,180,536,830 shares issued. All issued shares are fully paid. (2) Other reserves include mainly the result of transactions with non-controlling interest that do not result in a loss of control, the remeasurement of post-employment benefit obligations and the changes in value of cash flow hedges and in available for sale financial instruments. (3) The Distributable Reserve and Retained Earnings calculated according to Luxembourg Law are disclosed in Note 25. The accompanying notes are an integral part of these Consolidated Financial Statements. 49 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Cont.) (all amounts in thousands of U.S. dollars) Attributable to owners of the parent Balance at December 31, 2014 (Loss) income for the year Currency translation adjustment Remeasurements of post employment benefit obligations, net of taxes Change in value of available for sale financial instruments and cash flow hedges net of tax Share of other comprehensive income of non-consolidated companies Other comprehensive (loss) income for the year Total comprehensive (loss) income for the year Acquisition of non-controlling interests Dividends paid in cash Balance at December 31, 2015 Balance at December 31, 2013 Income for the year Currency translation adjustment Remeasurements of post employment benefit obligations, net of taxes Change in value of available for sale financial instruments and cash flow hedges net of tax Share of other comprehensive income of non-consolidated companies Other comprehensive (loss) income for the year Total comprehensive income for the year Acquisition of non-controlling interests Dividends paid in cash Balance at December 31, 2014 Share Capital (1) 1,180,537 Legal Reserves 118,054 Share Premium 609,733 Currency Translation Adjustment (658,284) Other Reserves (2) (317,799) - - - - - - - - - 1,180,537 Share Capital (1) 1,180,537 - - - - - - - - - - - - - - - - - - 118,054 - - - - - - - - - - (255,569) - - (92,914) (348,483) (348,483) - - - - 10,213 12,484 (4,239) 18,458 18,458 659 - 609,733 (1,006,767) (298,682) Attributable to owners of the parent Legal Reserves 118,054 Share Premium 609,733 Currency Translation Adjustment (406,744) Other Reserves (2) (305,758) - - - - - - - - - - - - - - - - - - - (196,852) - - - - 1,503 (9,694) (54,688) (251,540) (251,540) - - (3,857) (12,048) (12,048) 7 - 1,180,537 118,054 609,733 (658,284) (317,799) Retained Earnings 11,721,873 (80,162) - - - - - (80,162) - (531,242) 11,110,469 Retained Earnings 11,094,598 1,158,517 - - - - - 1,158,517 - (531,242) 11,721,873 Total 12,654,114 (80,162) (255,569) 10,213 12,484 (97,153) (330,025) (410,187) 659 (531,242) 11,713,344 Total 12,290,420 1,158,517 (196,852) 1,503 (9,694) (58,545) (263,588) 894,929 7 (531,242) 12,654,114 Non- controlling interests 152,200 5,737 (691) (274) 417 - (548) 5,189 (1,727) (2,950) 152,712 Non- controlling interests 179,446 22,659 (859) (166) (389) - (1,414) 21,245 (152) (48,339) 152,200 Total 12,806,314 (74,425) (256,260) 9,939 12,901 (97,153) (330,573) (404,998) (1,068) (534,192) 11,866,056 Total 12,469,866 1,181,176 (197,711) 1,337 (10,083) (58,545) (265,002) 916,174 (145) (579,581) 12,806,314 (1) The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share. As of December 31, 2015 and 2014 there were 1,180,536,830 shares issued. All issued shares are fully paid. (2) Other reserves include mainly the result of transactions with non-controlling interest that do not result in a loss of control, the remeasurement of post-employment benefit obligations and the changes in value of cash flow hedges and in available for sale financial instruments. The accompanying notes are an integral part of these Consolidated Financial Statements. 50 CONSOLIDATED STATEMENT OF CASH FLOWS (all amounts in thousands of U.S. dollars) Cash flows from operating activities Income (loss) for the year Adjustments for: Depreciation and amortization Impairment charge Income tax accruals less payments Equity in (earnings) losses of non-consolidated companies Interest accruals less payments, net Changes in provisions Changes in working capital Other, including currency translation adjustment Net cash provided by operating activities Cash flows from investing activities Capital expenditures Changes in advance to suppliers of property, plant and equipment Investment in non-consolidated companies Acquisition of subsidiaries and non-consolidated companies Loan to non-consolidated companies Proceeds from disposal of property, plant and equipment and intangible assets Dividends received from non-consolidated companies Changes in investments in 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 Increase (decrease) in cash and cash equivalents Movement in cash and cash equivalents At the beginning of the year Effect of exchange rate changes Increase (decrease) in cash and cash equivalents At December 31, Cash and cash equivalents Cash and bank deposits Bank overdrafts Notes 10 & 11 5 27(ii) 7 27(iii) 27(i) Year ended December 31, 2015 2016 2014 58,739 (74,425) 1,181,176 662,412 - (128,079) (71,533) (40,404) 15,597 348,199 18,634 863,565 658,778 400,314 (91,080) 39,558 (1,975) (20,678) 1,373,985 (69,473) 2,215,004 615,629 205,849 79,062 164,616 (37,192) (4,982) (72,066) (88,025) 2,044,067 10 & 11 (786,873) (1,131,519) (1,089,373) 12 26 12 c 12 9 27(iv) 19 50,989 (17,108) - (42,394) 49,461 (4,400) - (22,322) (63,390) (1,380) (28,060) (21,450) 23,609 20,674 652,755 (98,348) 10,090 20,674 (695,566) (1,773,582) 11,156 17,735 (611,049) (1,785,811) (507,631) (29,089) (1,071) 1,180,727 (1,295,560) (652,624) (531,242) (2,950) (1,068) 2,064,218 (2,063,992) (535,034) (531,242) (48,339) (145) 3,046,837 (2,890,717) (423,606) 112,593 (93,612) (165,350) 286,198 (211) 112,593 398,580 416,445 (36,635) (93,612) 286,198 598,145 (16,350) (165,350) 416,445 At December 31, 2015 286,547 (349) 286,198 2016 399,900 (1,320) 398,580 2014 417,645 (1,200) 416,445 (*) Mainly related to the renewal of short-term facilities carried out during the years 2016, 2015 and 2014. The accompanying notes are an integral part of these Consolidated Financial Statements. 51 INDEX TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I GENERAL INFORMATION IV OTHER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Segment information II ACCOUNTING POLICIES (“AP”) 2 Cost of sales A Basis of presentation B Group accounting C Segment information 3 Selling, general and administrative expenses 4 Labor costs (included in Cost of sales and in Selling, general and administrative expenses) 5 Other operating income and expenses D Foreign currency translation 6 Financial results E Property, plant and equipment 7 Equity in earnings (losses) of non-consolidated companies F G Intangible assets 8 Income tax Impairment of non-financial assets 9 Dividends distribution H Other investments I Inventories J Trade and other receivables 10 Property, plant and equipment, net 11 12 Intangible assets, net Investments in non-consolidated companies K Cash and cash equivalents 13 Receivables - non current L Equity M Borrowings 14 Inventories 15 Receivables and prepayments N Current and Deferred income tax 16 Current tax assets and liabilities O Employee benefits P Provisions Q Trade payables 17 Trade receivables 18 Cash and cash equivalents and Other investments 19 Borrowings R Revenue recognition 20 Deferred income tax S Cost of sales and sales expenses 21 Other liabilities T Earnings per share U Financial instruments 22 Non-current allowances and provisions 23 Current allowances and provisions 24 Derivative financial instruments III FINANCIAL RISK MANAGEMENT 26 Acquisition of subsidiaries and non-consolidated companies 25 Contingencies, commitments and restrictions on the distribution of profits A Financial Risk Factors 28 Net assets of disposal group classified as held for sale 27 Cash flow disclosures B Category of Financial Instruments and Classification Within the Fair Value Hierarchy C Fair value estimation D Accounting for derivative financial instruments 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 event 52 I. GENERAL INFORMATION 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 22, 2017. II. ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. A Basis of presentation The Consolidated Financial Statements of Tenaris have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) and adopted by the European Union, under the historical cost convention, as modified by the revaluation of available for sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit or loss and plan assets measured at fair value. The Consolidated Financial Statements are, unless otherwise noted, presented in thousands of U.S. dollars (“$”). Whenever necessary, certain comparative amounts have been reclassified to conform to changes in presentation in the current year. Following the sale of the steel electric conduit business in North America, known as Republic Conduit, the results of the mentioned business are presented as discontinued operations in accordance with IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations". Consequently, all amounts related to discontinued operations within each line item of the Consolidated Income Statement are reclassified into discontinued operations. The Consolidated Statement of Cash Flows includes the cash flows for continuing and discontinued operations, cash flows from discontinued operations and earnings per share are disclosed separately in note 28, as well as additional information detailing net assets of disposal group classified as held for sale and discontinued operations. The preparation of Consolidated Financial Statements in conformity with IFRS requires management to make certain accounting estimates and assumptions that might affect 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 not yet adopted and relevant for Tenaris IFRS 15, “Revenue from contracts with customers” In May 2014, the IASB issued IFRS 15, "Revenue from contracts with customers", which sets out the requirements in accounting for revenue arising from contracts with customers and which is based on the principle that revenue is recognized when control of a good or service is transferred to the customer. IFRS 15 must be applied on annual periods beginning on or after January 1, 2018. IFRS 9, “Financial instruments” In July 2014, the IASB issued IFRS 9, "Financial instruments", which replaces the guidance in IAS 39. It includes requirements on the classification and measurement of financial assets and liabilities, as well as an expected credit losses model that replaces the current incurred loss impairment model. IFRS 9 must be applied on annual periods beginning on or after January 1, 2018. 53 A (1) Basis of presentation (Cont.) New and amended standards not yet adopted and relevant for Tenaris (Cont.) These standards are not effective for the financial year beginning January 1, 2016 and have not been early adopted. These standards were endorsed by the EU. The Company's management is currently assessing the potential impact that the application of these standards may have on the Company's financial condition or results of operations. The management does not expect these standards to have a significant impact on the classification and measurement of its assets and liabilities. Others accounting pronouncements issued during 2016 and as of the date of these Consolidated Financial Statements have no material effect on the Company’s financial condition or result of operations. (2) New and amended standards adopted for Tenaris The Amendment to IAS 1, “Presentation of financial statements” on the disclosure initiative, has been applied on the year starting January 1, 2016, with no significant impact on the Company’s Consolidated Financial Statements. B Group accounting (1) Subsidiaries and transactions 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 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 intercompany transactions, balances and unrealized gains (losses) on transactions between Tenaris subsidiaries have been eliminated in consolidation. However, since the functional currency of some subsidiaries is its respective local currency, some financial gains (losses) arising from intercompany transactions are generated. These are included in the Consolidated Income Statement under Other financial results. 54 B Group accounting (Cont.) (2) Non-consolidated companies Non-consolidated companies are all entities in which Tenaris has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in non-consolidated companies (associated and joint ventures) are accounted for by the equity method of accounting and are initially recognized at cost. The Company’s investment in non-consolidated companies includes goodwill identified in acquisition, net of any accumulated impairment loss. Unrealized results on transactions between Tenaris and its non-consolidated companies are eliminated to the extent of Tenaris’s interest in the non-consolidated companies. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment indicator of the asset transferred. Financial statements of non-consolidated companies have been adjusted where necessary to ensure consistency with IFRS. The Company’s pro-rata share of earnings in non-consolidated companies is recorded in the Consolidated Income Statement under Equity in earnings (losses) of non-consolidated companies. The Company’s pro-rata share of changes in other reserves is recognized in the Consolidated Statement of Changes in Equity under Other Reserves. At December 31, 2016, Tenaris holds 11.46% of Ternium S.A (“Ternium”)’s common stock. The following factors and circumstances evidence that Tenaris has significant influence (as defined by IAS 28, “Investments in associates companies and Joint Ventures”) over Ternium, and as a result the Company’s investment in Ternium has been accounted for under the equity method:  Both the Company and Ternium are under the indirect common control of San Faustin S.A.;  Four out of eight members of Ternium’s Board of Directors (including Ternium’s chairman) are also members of the Company’s Board of Directors;  Under the shareholders’ agreement by and between the Company and Techint Holdings S.à r.l, a wholly owned subsidiary of San Faustin S.A. and Ternium’s main shareholder, dated January 9, 2006, Techint Holdings S.à r.l, is required to take actions within its power to cause (a) one of the members of Ternium’s Board of Directors to be nominated by the Company and (b) any director nominated by the Company to be only removed from Ternium’s Board of Directors pursuant to previous written instructions of the Company. At December 31, 2016, Tenaris holds through its Brazilian subsidiary Confab Industrial S.A. (“Confab”), 5.2% of the shares with voting rights and 3.08% of Siderúrgicas de Minas Gerais S.A. Usiminas (“Usiminas”) total share capital. The acquisition of Usiminas shares was part of a larger transaction performed on January 16, 2012, pursuant to which Ternium, certain of its subsidiaries and Confab joined Usiminas’ existing control group through the acquisition of ordinary shares representing 27.7% of Usiminas’ total voting capital and 13.8% of Usiminas’ total share capital. The rights of Ternium and its subsidiaries and Confab within the Ternium - Tenaris Group are governed under a separate shareholders agreement. Those circumstances evidence that Tenaris has significant influence over Usiminas, consequently, accounted it for under the equity method (as defined by IAS 28). In April and May 2016 Tenaris’s subsidiary Confab subscribed, in the aggregate, to 1.3 million preferred shares (BRL1.28 per share) for a total amount of BRL1.6 million (approximately $0.5 million) and 11.5 million ordinary shares (BRL5.00 per share) for a total amount of BRL57.5 (approximately $16.6 million). The preferred and ordinary shares were issued on June 3, 2016 and July 19, 2016, respectively. Consequently as of December 31, 2016 Tenaris owns 36.5 million ordinary shares and 1.3 million preferred shares of Usiminas. Tenaris carries its investment in Ternium and Usiminas under the equity method, with no additional goodwill or intangible assets recognized. Tenaris reviews investments in non-consolidated companies for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable, such as a significant or prolonged decline in fair value below the carrying value. At December 31, 2016, 2015 and 2014, no impairment provisions were recorded on Tenaris’s investment in Ternium while in 2014 and 2015, impairment charges were recorded on Tenaris’s investment in Usiminas. See Note 7 and Note 12. 55 C Segment information The Company is organized in one major business segment, Tubes, which is also the reportable operating segment. The Tubes segment includes the production and sale of both seamless and welded steel tubular products and related services mainly for the oil and gas industry, particularly oil country tubular goods (OCTG) used in drilling operations, and for other industrial applications with production processes that consist in the transformation of steel into tubular products. Business activities included in this segment are mainly dependent on the oil and gas industry worldwide, as this industry is a major consumer of steel pipe products, particularly OCTG used in drilling activities. Demand for steel pipe products from the oil and gas industry has historically been volatile and depends primarily upon the number of oil and natural gas wells being drilled, completed and reworked, and the depth and drilling conditions of these wells. Sales are generally made to end users, with exports being done through a centrally managed global distribution network and domestic sales are made through local subsidiaries. Corporate general and administrative expenses have been allocated to the Tubes segment. Others includes all other business activities and operating segments that are not required to be separately reported, including the production and selling of sucker rods, industrial equipment, coiled tubing, 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;  Other timing differences. Tenaris groups its geographical information in five areas: North America, South America, Europe, Middle East and Africa and Asia Pacific. For purposes of reporting geographical information, net sales are allocated to geographical areas based on the customer’s location; allocation of assets, capital expenditures and associated depreciations and amortizations are based on the geographical location of the assets. D Foreign currency translation (1) Functional and presentation currency IAS 21 (revised) “The effects of changes in foreign exchange rates” defines the functional currency as the currency of the primary economic environment in which an entity operates. The functional and presentation currency of the Company is the U.S. dollar. The U.S. dollar is the currency that best reflects the economic substance of the underlying events and circumstances relevant to Tenaris’s global operations. Except for the Brazilian and Italian subsidiaries whose functional currencies are their local currencies, Tenaris determined that the functional currency of its other subsidiaries is the U.S. dollar, based on the following principal considerations:  Sales are mainly negotiated, denominated and settled in U.S. dollars. If priced in a currency other than the U.S. dollar, the sales price considers exposure to fluctuation in the exchange rate versus the U.S. dollar;  Prices of their critical raw materials and inputs are priced and settled in U.S. dollars;  Transaction and operational environment and the cash flow of these operations have the U.S. dollar as reference currency;  Significant level of integration of the local operations within Tenaris’s international global distribution network;  Net financial assets and liabilities are mainly received and maintained in U.S. dollars;  The exchange rate of certain legal currencies has long-been affected by recurring and severe economic crises. 56 D Foreign currency translation (Cont.) (2) Transactions in currencies other than the functional currency Transactions in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the date of the transactions or valuation where items 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 in 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. (3) Translation of financial information in currencies other than the functional currency Results of operations for subsidiaries whose functional currencies are not the U.S. dollar are translated into U.S. dollars at the average exchange rates for each quarter of the year. Financial statement positions are translated at 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 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 assets’ 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 2016, 2015 and 2014. 57 E Property, plant and equipment (Cont.) Tenaris depreciates each significant part of an item of property, plant and equipment for its different production facilities that (i) can be properly identified as an independent component with a cost that is significant in relation to the total cost of the item, and (ii) has a useful operating life that is different from another significant part of that same item of property, plant and equipment. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of assets and are recognized under Other operating income or Other operating expenses in the Consolidated Income Statement. F Intangible assets (1) Goodwill Goodwill represents the excess of the acquisition cost over the fair value of Tenaris’s share of net identifiable assets acquired as part of business combinations determined mainly by independent valuations. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Goodwill is included in the Consolidated Statement of Financial Position 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 that they have economic benefits exceeding one year. Information systems projects recognized as assets are amortized using the straight-line method over their useful lives, generally not exceeding a period of 3 years. Amortization charges are mainly classified as Selling, general and administrative expenses in the Consolidated Income Statement. Management’s re-estimation of assets useful lives, performed in accordance with IAS 38 “Intangible Assets”, did not materially affect depreciation expenses for 2016, 2015 and 2014. (3) Licenses, patents, trademarks and proprietary technology Licenses, patents, trademarks, and proprietary technology acquired in a business combination are initially recognized at fair value at the acquisition date. Licenses, patents, proprietary technology and those trademarks that have a finite useful life are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost over their estimated useful lives, and does not exceed a period of 10 years. Amortization charges are mainly classified as Selling, general and administrative expenses in the Consolidated Income Statement. The balance of acquired trademarks that have indefinite useful lives according to external appraisal amounts to $86.7 million at December 31, 2016 and 2015, included in Hydril CGU. Main factors considered in the determination of the indefinite useful lives, include the years that they have been in service and their recognition among customers in the industry. Management’s re-estimation of assets useful lives, performed in accordance with IAS 38, did not materially affect depreciation expenses for 2016, 2015 and 2014. (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 2016, 2015 and 2014 totaled $68.6 million, $89.0 million and $106.9 million, respectively. F Intangible assets (5) Customer relationships In accordance with IFRS 3 "Business Combinations" and IAS 38, Tenaris has recognized the value of customer relationships separately from goodwill attributable to the acquisition of Maverick and Hydril groups. 58 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. In 2015 the Company reviewed the useful life of Prudential’s customer relationships, related to Maverick acquisition, and decided to reduce the remaining amortization period from 5 years to 2 years. As of December 2016 the residual value of Maverick and Hydril customer relationships amount to $308 million and $17 million and the residual useful life is 4 years and 1 year respectively. 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 between 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 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. 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. 59 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 non-derivative financial assets that the Company has both the ability and the intention to hold to maturity have been categorized as held to maturity financial assets. They are carried at amortized cost and the results are recognized in Financial Results in the Consolidated Income Statement using the effective interest method. Held to maturity instruments with maturities greater than 12 months after the balance sheet date are included in the non- current assets. All other investments in financial instruments and time deposits are categorized as financial assets “at fair value through profit or loss” because such investments are both (i) held for trading and (ii) designated as such upon initial recognition because they are managed and their performance is evaluated on a fair value basis. The results of these investments are recognized 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 between cost and net realizable value. The cost of finished goods and goods in process is comprised of raw materials, direct labor and utilities (based on FIFO method) and other direct costs and related production overhead costs, and it excludes borrowing costs. 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, goods in process, supplies and spare parts. For slow moving or obsolete finished products, an allowance is established based on management’s analysis of product aging. An allowance for obsolete and slow-moving inventory of supplies and spare parts is established based on management'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. In addition, trade accounts receivable overdue by more than 180 days and which are not covered by a credit collateral, guarantee, insurance or similar surety, are fully provisioned. K Cash and cash equivalents Cash and cash equivalents are comprised of cash at banks, liquidity funds and short-term investments with a maturity of less than three months at the date of purchase which are readily convertible to known amounts of cash. Assets recorded in cash and cash equivalents are carried at fair market value or at historical cost which approximates fair market value. In the Consolidated Statement of Financial Position, bank overdrafts are included in Borrowings in current liabilities. For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents includes overdrafts. 60 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, 2016, 2015 and 2014 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 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 25 (iii)). 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 basis of assets and liabilities and their carrying amounts in the financial statements. The principal temporary differences arise from fair value adjustments of assets acquired in business combinations, the effect of currency translation on depreciable fixed assets and inventories, depreciation on property, plant and equipment, valuation of inventories and provisions for pension plans. 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. 61 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 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 the Income Statement. For defined benefit plans, net interest income/expense is calculated based on the surplus or deficit derived by the difference between the defined benefit obligations less fair value of plan assets. For defined contribution plans, the Company pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Company has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit 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. Tenaris sponsors funded and unfunded defined benefit pension plans in certain subsidiaries. The most significant are:  An unfunded defined benefit employee retirement plan for certain senior officers. The plan is designed to provide certain benefits to those officers (additional to those contemplated under applicable labor laws) in case of termination of the employment relationship due to certain specified events, including retirement. This unfunded plan provides defined benefits based on years of service and final average salary.  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.  Funded retirement benefit plans held in Canada for salary and hourly employees hired prior a certain date based on years of service and, in the case of salaried employees, final average salary. Plan assets consist primarily of investments in equities and money market funds. Both plans were replaced for defined contribution plans. Effective June 2016 the salary plan was frozen for the purposes of credited service as well as determination of final average pay.  Funded retirement benefit plan held in the US for the benefit of some employees hired prior a certain date, frozen for the purposes of credited service as well as determination of final average pay for the retirement benefit calculation. Plan assets consist primarily of investments in equities and money market funds. Additionally, an unfunded postretirement health and life plan that offers limited medical and life insurance benefits to the retirees, hired before a certain date. 62 O Employee benefits (Cont.) (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 of these Units is based on Tenaris’s 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 “Employee Benefits”. As of December 31, 2016 and 2015, the outstanding liability corresponding to the Program amounts to $78.7 million and $84.0 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, 2016 and 2015, is $92.9 million and $105.3 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’s potential liability with respect to such claims, lawsuits and other legal proceedings cannot be estimated with certainty. Management periodically reviews the status of each significant matter and assesses potential financial exposure. If, as a result of past events, a potential loss from a claim or proceeding is considered probable and the amount can be 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’s litigation and settlement strategies. These estimates are primarily constructed with the assistance of legal counsel. As the scope of liabilities become better defined, there may be changes in the estimates of future costs which could have a material adverse effect on its results of operations, financial condition and cash flows. If Tenaris expects to be reimbursed for an accrued expense, as would be the case for an expense or loss covered under an insurance contract, and reimbursement is considered virtually certain, the expected reimbursement is recognized as a receivable. 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’s products and services are sold based upon purchase orders, contracts or upon other persuasive evidence of an arrangement with 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. 63 R Revenue recognition (Cont.) 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 2.8%, 3.0% and 1.2% as of December 31, 2016, 2015 and 2014, 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 and amounted to 37 million, 0.86% of total sales). The revenue recognition of the contracts follows the IAS 11 ”Construction Contracts" guidance, that means, when the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognized over the period of the contract by reference to the stage of completion (measured by reference to the contract costs incurred up to the end of the reporting period as a percentage of total estimated costs for each contract). Interest income: on the effective yield basis.   Dividend income from investments in other companies: when Tenaris’s right to receive payment is established. 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 Other Investments expiring in less than ninety days from the measurement date (included within cash and cash equivalents) and investments in certain financial debt instruments and time deposits held for trading.  Loans and receivables: comprise cash and cash equivalents, 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 the Company’s interest in the Venezuelan Companies (see Note 31).  Held to maturity: comprise financial assets that the Company has both the ability and the intention to hold to maturity. They are measured at amortized cost using the effective interest method.  Other financial liabilities: comprise borrowings, trade and other payables and are measured at amortized cost using the effective interest rate method. The categorization depends on the nature and purpose that the Company sets to the financial instrument. Financial assets and liabilities are recognized and derecognized on their settlement date. Accounting for derivative financial instruments and hedging activities is included within the Section III, Financial Risk Management. 64 III. FINANCIAL RISK MANAGEMENT The multinational nature of Tenaris’s operations and customer base exposes the Company to a variety of risks, mainly related to market risks (including the effects of changes in foreign currency exchange rates and interest rates), credit risk and capital market risk. In order to manage the volatility related to these exposures, the management evaluates exposures on a consolidated basis, taking advantage of logical exposure netting. The Company or its subsidiaries may then enter into various derivative transactions in order to prevent potential adverse impacts on Tenaris’s financial performance. Such derivative transactions are executed in accordance with internal policies and hedging practices. The Company’s objectives, policies and processes for managing these risks remained unchanged during 2016. A. Financial Risk Factors (i) Capital Risk Management 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, 2016 and 0.08 as of December 31, 2015. The Company does not have to comply with regulatory capital adequacy requirements. (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 24 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. Intercompany balances between Tenaris’s subsidiaries may generate financial gains (losses) to the extent that functional currencies differ. The value of Tenaris’s financial assets and liabilities is subject to changes arising out 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) which impact the Company’s profit and loss as of December 31, 2016 and 2015: All amounts Long / (Short) in thousands of U.S. dollars Currency Exposure / Functional currency Argentine Peso / U.S. Dollar Euro / U.S. Dollar U.S. Dollar / Brazilian Real As of December 31, 2016 (60,204) (406,814) 125,880 2015 (73,399) (334,831) 66,826 65 A. Financial Risk Factors (Cont.) (ii) Foreign exchange risk (Cont.) The main relevant exposures correspond to:  Argentine Peso / U.S. dollar As of December 31, 2016 and 2015 consisting primarily of Argentine Peso-denominated financial, trade, social and fiscal payables at certain Argentine subsidiaries which functional currency is the U.S. dollar. A change of 1% in the ARS/USD exchange rate would have generated a pre-tax gain / loss of $0.6 million and $0.7 million as of December 31, 2016 and 2015, respectively.  Euro / U.S. dollar As of December 31, 2016 and 2015, consisting primarily of Euro-denominated intercompany liabilities at certain subsidiaries which functional currency is the U.S. dollar. A change of 1% in the EUR/USD exchange rate would have generated a pre-tax gain / loss of $4.1 million and $3.3 million as of December 31, 2016 and 2015, respectively, which would have been to a large extent offset by changes in currency translation adjustment included in Tenaris’s net equity position.  U.S. dollar / Brazilian Real As of December 31, 2016 consisting primarily of Cash and cash equivalent and Other investments denominated in U.S. dollar at subsidiaries which functional currency is the Brazilian real. A change of 1% in the BRL/USD exchange rate would generate a pre-tax gain / loss of $1.3 million and $0.7 million in December 31, 2016 and 2015, respectively (including a gain / loss of $0.5 million in 2016 and $0.7 million in 2015 due to foreign exchange derivative contracts entered to preserve the U.S. dollar value of trade receivables and cash denominated in Brazilian Real), which would have been to a large extent offset by changes in currency translation adjustment included in Tenaris’s net equity position. Considering the balances held as of December 31, 2016 on financial assets and liabilities exposed to foreign exchange rate fluctuations, Tenaris estimates that the impact of a simultaneous 1% appreciation / depreciation movement in the levels of foreign currencies exchange rates relative to the U.S. dollar, would be a pre-tax gain / loss of $6.6 million (including a loss / gain of $4.0 million due to foreign exchange derivative contracts), which would be partially offset by changes to Tenaris’s net equity position of $4.2 million. For balances held as of December 31, 2015, 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 $5.1 million (including a loss / gain of $5.3 million due to foreign exchange derivative contracts), which would have been partially offset by changes to Tenaris’s net equity position of $3.9 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. Fixed rate Variable rate Total (*) As of December 31, 2016 Amount in thousands of U.S. dollars 820,600 19,636 840,236 % 98% 2% 2015 Amount in thousands of U.S. dollars 954,681 16,835 971,516 % 98% 2% (*) As of December 31, 2016 approximately 66% of the total debt balance corresponded to fixed-rate borrowings where the original period was nonetheless equal to or less than 360 days. This compares to approximately 59% of the total outstanding debt balance as of December 31, 2015. 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 $8.8 million in 2016 and $10.8 million in 2015. 66 A. Financial Risk Factors (Cont.) (iv) Credit risk Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. The Company also actively monitors the creditworthiness of its treasury, derivative and insurance counterparties in order to minimize its credit risk. There is no significant concentration of credit risk from customers. No single customer comprised more than 10% of Tenaris’s net sales in 2016, 2015 and 2014. 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, 2016 and 2015 trade receivables amount to $954,7 million and $1,135.1 million respectively. Trade receivables have guarantees under credit insurance of $222.1 million and $325.1 million, letter of credit and other bank guarantees of $117.8 million and $20.5 million, and other guarantees of $15.6 million and $7.9 million as of December 31, 2016 and 2015 respectively. As of December 31, 2016 and 2015 past due trade receivables amounted to $249.0 million and $333.8 million, respectively. Out of those amounts $83.1 million and $84.9 million are guaranteed trade receivables while $85.7 million and $101.5 million are included in the allowance for doubtful accounts. Both the allowance for doubtful accounts and the existing guarantees are sufficient to cover doubtful trade receivables. (v) Counterparty risk Tenaris has investment guidelines with specific parameters to limit issuer risk on marketable securities. Counterparties for derivatives and cash transactions are limited to high credit quality financial institutions, normally investment grade. Approximately 82% of Tenaris’s liquid financial assets correspond to Investment Grade-rated instruments as of December 31, 2016, in comparison with approximately 92% as of December 31, 2015. (vi) Liquidity risk Tenaris financing strategy aims to maintain adequate financial resources and access to additional liquidity. During 2016, Tenaris has counted on cash flows from operations as well as additional bank financing to fund its transactions. Management maintains sufficient cash and marketable securities to finance normal operations and believes that Tenaris also has appropriate access to market for short-term working capital needs. Liquid financial assets as a whole (comprising cash and cash equivalents and other investments) were 16% of total assets at the end of 2016 compared to 19% at the end of 2015. 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, 2016 and 2015, Tenaris does not have direct exposure to financial instruments issued by European sovereign counterparties. Tenaris holds its investments primarily in U.S. dollars. As of December 31, 2016 and 2015, U.S. dollar denominated liquid assets represented approximately 95% and 87% of total liquid financial assets respectively. 67 A. Financial Risk Factors (Cont.) (vii) Commodity price risk In the ordinary course of its operations, Tenaris purchases commodities and raw materials that are subject to price volatility caused by supply conditions, political and economic variables and other factors. As a consequence, Tenaris is exposed to risk resulting from fluctuations in the prices of these commodities and raw materials. Tenaris fixes the prices of such raw materials and commodities for short-term periods, typically not in excess of one year, in general Tenaris does not hedge this risk. B. Category of Financial Instruments and Classification Within the Fair Value Hierarchy Accounting policies for financial instruments have been applied to classify as either: loans and receivables, held-to- maturity, available-for-sale, or fair value through profit and loss. For financial instruments that are measured in the statement of financial position at fair value, IFRS 13 requires a disclosure of fair value measurements by level according to the following fair value measurement hierarchy: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). The following tables present the financial instruments by category and levels as of December 31, 2016 and 2015. December 31, 2016 Assets Cash and cash equivalents Cash at banks Liquidity funds Short – term investments Other investments Fixed Income (time-deposit, zero cupon bonds, commercial papers) Non - U.S. Sovereign Bills Certificates of Deposits Commercial Papers Other notes Bonds and other fixed Income U.S. government securities Non - U.S. government securities Corporates securities Mortgage- and Asset-backed securities Fund Investments Other Investments Non- current Bonds and other fixed Income Other Investments Trade receivables Receivables C and NC Foreign exchange derivatives contracts Other receivables Other receivables (non-Financial) Available for sale assets (*) Total Liabilities Borrowings C and NC Trade payables Other liabilities Foreign exchange derivatives contracts Other liabilities (non-Financial) Total Carrying Amount 399,737 92,730 215,807 91,200 1,633,142 782,029 41,370 525,068 34,890 180,701 841,638 216,732 88,805 462,625 73,476 9,475 249,719 248,049 1,670 954,685 321,718 2,759 176,990 141,969 21,572 840,236 556,834 183,887 42,635 141,252 Measurement Categories At Fair Value Loans & Receivables Held to Maturity Available for sale Assets at fair value through profit and loss Level 1 Level 2 Level 3 307,007 307,007 - - 215,807 91,200 1,387,111 215,807 91,200 607,866 - - - - 779,245 - - - - - 782,029 41,370 525,068 34,890 180,701 595,607 216,732 56,161 249,238 73,476 9,475 1,670 - 1,670 - 2,759 2,759 - - - 1,698,547 - - 42,635 42,635 - 42,635 - - - - - - - - - - - 76,260 41,370 705,769 - - 525,068 34,890 - - 180,701 73,476 - - - - 73,476 522,131 216,732 56,161 249,238 9,475 - - - - - - - - - 914,873 - 1,670 - - - - 1,670 - - - 2,759 - 2,759 - - - - - 21,572 23,242 782,004 - - - - - - - - 42,635 42,635 - 42,635 - - - - - - 92,730 92,730 - - - - - - - - - - - - - - - - - 954,685 176,990 - 176,990 - - 1,224,405 840,236 556,834 - - - 1,397,070 - - - - 246,031 - - - - - 246,031 - 32,644 213,387 - - 248,049 248,049 - - - - - - - 494,080 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 21,572 21,572 - - - - - - 68 B. Category of Financial Instruments and Classification Within the Fair Value Hierarchy (Cont.) December 31, 2015 Assets Cash and cash equivalents Cash at banks Liquidity funds Short – term investments Other investments Current Fixed Income (time-deposit, zero cupon bonds, commercial papers) Non - U.S. Sovereign Bills Certificates of Deposits Commercial Papers Other notes Bonds and other fixed Income U.S. government securities Non - U.S. government securities Corporates securities Mortgage- and Asset-backed securities Structured Notes Fund Investments Other Investments Non- current Bonds and other fixed Income Other Investments Trade receivables Receivables C and NC Foreing exchange derivatives contracts Other receivables Other receivables (non-Financial) Available for sale assets (*) Total Liabilities Borrowings C and NC Trade payables Other liabilities Foreign exchange derivatives contracts Other liabilities Other liabilities (non-Financial) Total Carrying Amount 286,547 101,019 81,735 103,793 2,140,862 877,436 189,973 489,248 29,954 168,261 1,203,695 249,124 92,975 726,511 82,839 52,246 59,731 394,746 393,084 1,662 1,135,129 369,410 18,248 131,896 219,266 21,572 971,516 503,845 222,842 34,541 14,869 173,432 Measurement Categories At Fair Value Loans & Receivables Held to Maturity Available for sale Assets at fair value through profit and loss Level 1 Level 2 Level 3 101,019 101,019 - - - - - - - - - - - - - - - - - - 1,135,129 131,896 - 131,896 - - 1,368,044 971,516 503,845 14,869 - 14,869 - 1,490,230 - - - - - - - - - - - - - - - - - 393,084 393,084 - - - - - - - 393,084 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 185,528 185,528 - - 81,735 103,793 2,140,862 81,735 103,793 1,348,268 - - - - 792,594 - - - - - - - - - - - - - - - - - - - - 21,572 21,572 - - - - - - - 877,436 189,973 489,248 29,954 168,261 1,203,695 249,124 92,975 726,511 82,839 52,246 59,731 1,662 - 1,662 - 18,248 18,248 - - - 2,346,300 - - 34,541 34,541 - - 34,541 219,927 189,973 657,509 - - 489,248 29,954 - - 168,261 135,085 1,068,610 249,124 92,975 726,511 - - - - - 82,839 52,246 59,731 - - - - - - - - - 1,533,796 - - - - - 1,662 - 1,662 - - - - - - - - 21,572 23,234 18,248 18,248 810,842 - - - - - - - - - 34,541 34,541 - - 34,541 - - - - - - - (*) For further detail regarding Available for sale assets, see Note 31. There were no transfers between Level 1 and 2 during the period. The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by Tenaris is the current bid price. These instruments are included in Level 1 and comprise primarily corporate and sovereign debt securities. The fair value of financial instruments that are not traded in an active market (such as certain debt securities, certificates of deposits with original maturity of more than three months, forward and interest rate derivative instruments) is determined by using valuation techniques which maximize the use of observable market data when available and rely as little as possible on entity specific estimates. If all significant inputs required to value an instrument are observable, the instrument is included in Level 2. Tenaris values its assets and liabilities included in this level using bid prices, interest rate curves, broker quotations, current exchange rates, forward rates and implied volatilities obtained from market contributors as of the valuation date. If one or more of the significant inputs are not based on observable market data, the instruments are included in Level 3. Tenaris values its assets and liabilities in this level using observable market inputs and management assumptions which reflect the Company’s best estimate on how market participants would price the asset or liability at measurement date. Main balances included in this level correspond to Available for sale assets related to Tenaris’s interest in Venezuelan companies under process of nationalization (see Note 31). 69 B. Category of Financial Instruments and Classification Within the Fair Value Hierarchy (Cont.) The following table presents the changes in Level 3 assets and liabilities: At the beginning of the period Currency translation adjustment and others At the end of the year C. Fair value estimation Year ended December 31, 2015 2016 Assets / Liabilities 23,234 8 23,242 23,111 123 23,234 Financial assets or liabilities classified as assets at fair value through profit or loss are measured under the framework established by the IASB accounting guidance for fair value measurements and disclosures. The fair values of quoted investments are generally based on current bid prices. If the market for a financial asset is not active or no market is available, fair values are established using standard valuation techniques. Some of Tenaris’s investments are designated as held to maturity and measured at amortized cost. Tenaris estimates that the fair value of these financial assets is 100.8% and 99% of its carrying amount including interests accrued as of December 31, 2016 and 2015 respectively. The fair value of all outstanding derivatives is determined using specific pricing models that include inputs that are observable in the market or can be derived from or corroborated by observable data. The fair value of forward foreign exchange contracts is calculated as the net present value of the estimated future cash flows in each currency, based on observable yield curves, converted into U.S. dollars at the spot rate of the valuation date. Borrowings are comprised primarily of fixed rate debt and variable rate debt with a short term portion where interest has already been fixed. They are classified under other financial liabilities and measured at their amortized cost. Tenaris estimates that the fair value of its main financial liabilities is approximately 99.7% of its carrying amount including interests accrued in 2016 as compared with 99% in 2015. Fair values were calculated using standard valuation techniques for floating rate instruments and comparable market rates for discounting flows. 70 D. Accounting for derivative financial instruments and hedging activities Derivative financial instruments are initially recognized in the statement of financial position at fair value through profit and loss on each date a derivative contract is entered into and are subsequently remeasured at fair value. Specific tools are used for calculation of each instrument’s fair value and these tools are tested for consistency on a monthly basis. Market rates are used for all pricing operations. These include exchange rates, deposit rates and other discount rates matching the nature of each underlying risk. As a general rule, Tenaris recognizes the full amount related to the change in fair value of derivative financial instruments 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 as the offsetting losses and gains on the hedged item. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. The fair value of Tenaris’s derivative financial instruments (assets or liabilities) continues to be reflected in the statement of financial position. The 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, 2016 and 2015, the effective portion of designated cash flow hedges which is included in “Other Reserves” in equity amounts to $4.7 million debit and $2.8 million credit respectively (see Note 24 Derivative financial instruments). The fair values of various derivative instruments used for hedging purposes are disclosed in Note 24. Movements in the hedging reserve included within “Other Reserves” in equity are also shown in Note 24. 71 IV. OTHER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In the notes all amounts are shown in thousands of U.S. dollars, unless otherwise stated) 1 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, 2016 IFRS - Net Sales Management View - Operating income · Differences in cost of sales and others · Differences in depreciation and amortization IFRS - Operating (loss) income Financial income (expense), net (Loss) income before equity in earnings of non-consolidated companies and income tax Equity in earnings of non-consolidated companies Income before income tax Capital expenditures Depreciation and amortization (all amounts in thousands of U.S. dollars) Year ended December 31, 2015 IFRS - Net Sales Management View - Operating income · Differences in cost of sales and others · Differences in impairment / Depreciation and amortization IFRS - Operating income Financial income (expense), net Income before equity in earnings of non-consolidated companies and income tax Equity in losses of non-consolidated companies Income before income tax Capital expenditures Depreciation and amortization (all amounts in thousands of U.S. dollars) Year ended December 31, 2014 IFRS - Net Sales Management View - Operating income · Differences in cost of sales and others · Differences in impairment / Depreciation and amortization IFRS - Operating income Financial income (expense), net Income before equity in earnings of non-consolidated companies and income tax Equity in losses of non-consolidated companies Income before income tax Capital expenditures Depreciation and amortization Tubes Other 4,015,491 19,630 (118,381) 27,640 (71,111) 278,101 18,817 (6,962) 199 12,054 751,854 642,896 33,108 14,213 Tubes Other 6,443,814 685,870 (228,948) (319,293) 137,629 459,309 27,884 (880) 1,162 28,166 1,088,901 638,456 41,412 14,857 Tubes Other 9,581,615 2,022,429 (35,463) (121,289) 1,865,677 559,844 10,568 4,080 207 14,855 1,051,148 593,671 36,989 15,976 Total continuing operations Total discontinued operations 4,293,592 38,447 (125,343) 27,839 (59,057) 21,954 (37,103) 71,533 34,430 784,962 657,109 234,911 62,298 3,540 - 65,838 (88) 65,750 - 65,750 1,911 5,303 Total continuing operations Total discontinued operations 6,903,123 713,754 (229,828) (318,131) 165,795 14,592 180,387 (39,558) 140,829 1,130,313 653,313 197,630 38,547 (8,914) - 29,633 (382) 29,251 - 29,251 1,206 5,465 Total continuing operations Total discontinued operations 10,141,459 2,032,997 (31,383) (121,082) 1,880,532 33,398 1,913,930 (164,616) 1,749,314 1,088,137 609,647 196,503 17,167 1,117 - 18,284 (361) 17,923 - 17,923 1,236 5,982 Transactions between segments, which were eliminated in consolidation, are mainly related to sales of scrap, energy, surplus raw materials and others from the Other segment to the Tubes segment for $47,939, $57,468 and $233,863 in 2016, 2015 and 2014, respectively. Net income under Management view amounted to $96.1 million, while under IFRS amounted to $58.7 million income. 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 non-consolidated companies and changes on the valuation of inventories according to cost estimation internally defined. 72 1 Segment information (Cont.) Geographical information North America (all amounts in thousands of U.S. dollars) Year ended December 31, 2016 1,320,297 Net sales 7,467,842 Total assets Trade receivables 229,390 Property, plant and equipment, net 3,652,032 646,545 Capital expenditures 381,811 Depreciation and amortization Year ended December 31, 2015 2,668,724 Net sales 8,625,806 Total assets Trade receivables 339,499 Property, plant and equipment, net 3,207,661 822,396 Capital expenditures Depreciation and amortization 385,189 Year ended December 31, 2014 4,782,113 Net sales 9,433,050 Total assets 709,294 Trade receivables Property, plant and equipment, net 2,903,848 609,016 Capital expenditures 339,203 Depreciation and amortization South America Europe Middle East & Africa Asia Pacific Unallocated (*) Total continuing operations Total discontinued operations 1,210,527 2,803,848 204,746 1,237,391 59,780 128,458 2,132,221 2,931,297 396,834 1,269,995 168,140 125,754 2,124,607 3,340,973 554,542 1,303,162 338,995 120,905 565,173 1,055,994 593,649 308,919 106,941 24,166 11,053 1,925,784 161,291 847,318 35,270 113,875 728,815 1,096,688 429,317 137,278 86,181 36,867 9,912 1,877,429 181,084 907,466 82,344 112,742 979,042 1,843,778 598,175 340,880 60,354 10,891 10,154 1,857,285 259,115 683,283 111,232 119,226 141,601 482,132 50,339 158,257 19,201 21,912 276,675 423,479 52,494 155,299 20,566 19,716 411,919 498,694 74,993 158,995 18,003 20,159 - 578,603 - - - - - 512,217 - - - - 4,293,592 13,851,858 954,685 6,001,939 784,962 657,109 6,903,123 14,799,545 1,107,189 5,626,602 1,130,313 653,313 665,202 - 10,141,459 16,393,379 1,938,824 5,109,642 1,088,137 609,647 - - - - 234,911 151,417 33,620 41,470 1,911 5,303 197,630 87,429 27,940 45,656 1,206 5,465 196,503 117,299 24,570 49,915 1,236 5,982 There are no revenues from external customers attributable to the Company’s country of incorporation (Luxembourg). For geographical information purposes, “North America” comprises Canada, Mexico and the USA (24.8%); “South America” comprises principally Argentina (16.5%), Brazil and Colombia; “Europe” comprises principally Italy, Norway and Romania; “Middle East and Africa” comprises principally Kuwait, Nigeria, Egypt and Saudi Arabia and; “Asia Pacific” comprises principally China, Japan and Indonesia. (*) Includes Investments in non-consolidated companies and Available for sale assets for $21.6 million in 2016, 2015 and 2014 (see Note 12 and 31). 73 2 Cost of sales (all amounts in thousands of U.S. dollars) Inventories at the beginning of the year 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 (*) From discontinued operations Year ended December 31, 2015 2014 2016 1,843,467 2,779,869 2,702,647 1,528,532 - 199,210 658,975 376,965 27,244 122,553 32,765 16,693 89,575 3,052,512 (1,593,708 ) (136,587) 3,165,684 1,934,209 - 298,470 947,997 377,596 24,100 184,053 68,669 21,523 92,059 3,948,676 (1,843,467 ) (137,318) 4,747,760 3,944,283 4,338 453,818 1,204,720 366,932 17,324 217,694 4,704 20,024 130,845 6,364,682 (2,779,869 ) (147,045) 6,140,415 (*) Includes 29.8 million related to discontinued operations. For the year ended December 2016 and 2015, labor cost includes approximately $35 million and $104 million respectively of severance indemnities related to the adjustment of the workforce to market conditions. 3 Selling, general and administrative expenses (all amounts in thousands of U.S. dollars) 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 From discontinued operations Year ended December 31, 2015 2014 2016 123,653 441,355 16,965 241,238 243,401 30,841 (12,573) 67,724 76,563 1,229,167 (32,238) 1,196,929 158,541 579,360 18,543 238,539 351,657 19,672 36,788 129,018 92,157 1,624,275 (30,678) 1,593,597 178,700 594,660 20,197 211,176 598,138 35,557 21,704 165,675 138,145 1,963,952 (31,174) 1,932,778 For the year ended December 2016 and 2015, labor cost includes approximately $38 million and $73 million respectively of severance indemnities related to the adjustment of the workforce to market conditions. 4 Labor costs (included in Cost of sales and in Selling, general and administrative expenses) (all amounts in thousands of U.S. dollars) Wages, salaries and social security costs Employees' service rescission indemnity (including those classified as defined contribution plans) Pension benefits - defined benefit plans Employee retention and long term incentive program From discontinued operations Year ended December 31, 2015 2016 2014 1,062,535 1,504,918 1,743,253 10,758 10,563 16,474 1,100,330 (28,306) 1,072,024 13,286 14,813 (5,660) 1,527,357 (24,665) 1,502,692 17,431 18,645 20,051 1,799,380 (23,233) 1,776,147 At the year-end, the number of employees was 19,399 in 2016, 21,741 in 2015 and 27,816 in 2014. 74 4 Labor costs (included in Cost of sales and in Selling, general and administrative expenses) (Cont.) The following table shows the geographical distribution of the employees: Country 2016 2015 2014 Argentina Mexico Brazil USA Italy Romania Canada Indonesia Colombia Japan Other From discontinued operations 5 Other operating income and expenses (all amounts in thousands of U.S. dollars) Other operating income Net income from other sales Net rents Other Other operating expenses Contributions to welfare projects and non-profits organizations Provisions for legal claims and contingencies Loss on fixed assets and material supplies disposed / scrapped Impairment charge Allowance for doubtful receivables Other From discontinued operations Impairment charge 4,755 4,968 1,166 1,636 1,979 1,631 473 509 750 458 1,074 19,399 (323) 19,076 5,388 5,101 2,050 2,190 2,030 1,624 546 532 636 508 1,136 21,741 (292) 21,449 6,421 5,518 3,835 3,549 2,352 1,725 1,225 677 614 588 1,312 27,816 (267) 27,549 Year ended December 31, 2015 2014 2016 16,275 4,852 - 21,127 9,534 10 57 - 432 1,378 11,411 (248) 11,163 7,480 6,462 661 14,603 9,052 1 94 400,314 1,114 - 410,575 (1) 410,574 8,843 4,041 14,971 27,855 9,961 (760) 203 205,849 336 - 215,589 - 215,589 Tenaris regularly conducts assessments of the carrying values of its assets. The value-in-use was used to determine the recoverable value. Value-in-use is calculated by discounting the estimated cash flows over a five year period based on forecasts approved by management. For the subsequent years beyond the five-year period, a terminal value is calculated based on perpetuity considering a nominal growth rate of 2%. The growth rate considers the long-term average growth rate for the oil and gas industry, the higher demand to offset depletion of existing fields and the Company’s expected market penetration. Tenaris’s main source of revenue is the sale of products and services to the oil and gas industry and the level of such sales is sensitive to international oil and gas prices and their impact on drilling activities. For purposes of assessing key assumptions, Tenaris uses external sources of information and management judgment based on past experience. The main key assumptions, used in estimating the value in use are discount rate, growth rate and competitive and economic factors applied to determine Tenaris’s cash flow projections, such as the cost of raw materials, oil and gas prices, competitive environment, capital expenditure programs for Tenaris’s customers and the evolution of the rig count. The discount rates used are based on the respective weighted average cost of capital (WACC) which is considered to be a good indicator of capital cost. For each CGU where assets are allocated, a specific WACC was determined taking into account the industry, country and size of the business. In 2016, the main discount rates used were in a range between 9.1% and 10.9%. 75 5 Other operating income and expenses (Cont.) The main factors that could result in additional 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, a further deterioration of the business, competitive and economic factors, such as the oil and gas prices and the evolution of the rig count. From the CGUs with significant amount of goodwill assigned in comparison to the total amount of goodwill, Tenaris has determined that the CGU for which a reasonable possible change in a key assumption would cause the CGUs´ carrying amount to exceed its recoverable amount was OCTG USA. In OCTG USA, the recoverable amount calculated based on value in use exceed carrying value by $154.6 million as of December 31, 2016. The following changes in key assumptions, at CGU OCTG - USA, assuming unchanged values for the other assumptions, would cause the recoverable amount to be equal to the respective carrying value as of the impairment test: Increase in the discount rate Decrease of the growth rate Decrease of the cash flow projections 117 Bps -1.6% -17.2% In 2015 and 2014, as a result of the deterioration of business conditions, the Company recorded impairment charges on its welded pipe assets of $400.3 and $205.8 respectively. 6 Financial results (all amounts in thousands of U.S. dollars) Interest Income Interest from available-for-sale financial assets Net result on changes in FV of financial assets at FVTPL Net result on available-for-sale financial assets Finance income Finance Cost Net foreign exchange transactions results Foreign exchange derivatives contracts results Other Other Financial results Net Financial results From discontinued operations Year ended December 31, 2015 2016 60,405 - 5,799 - 66,204 (22,329) (2,146) (31,310) 11,447 (22,009) 21,866 88 21,954 39,516 - (4,942) - 34,574 (23,058) (13,301) 30,468 (14,473) 2,694 14,210 382 14,592 2014 34,582 4,992 (1,478) 115 38,211 (44,388) 50,298 (4,733) (6,351) 39,214 33,037 361 33,398 During 2015 Tenaris has derecognized all its fixed income financial instruments categorized as available for sale. Year ended December 31, 2015 (10,674) - (28,884) (39,558) 2016 71,533 - - 71,533 2014 (24,696) 21,302 (161,222) (164,616) 7 Equity in earnings (losses) of non-consolidated companies (all amounts in thousands of U.S. dollars) From non-consolidated companies Gain on equity interest (see Note 26) Impairment loss on non-consolidated companies (see Note 12) 76 8 Income tax (all amounts in thousands of U.S. dollars) Current tax Deferred tax From discontinued operations Year ended December 31, 2015 2016 2014 174,410 (132,969) 41,441 (24,339) 17,102 164,562 79,943 244,505 (10,121) 234,384 695,136 (109,075) 586,061 (5,630) 580,431 The tax on Tenaris’s income before tax differs from the theoretical amount that would arise using the tax rate in each country as follows: (all amounts in thousands of U.S. dollars) Income before income tax Tax calculated at the tax rate in each country (*) Non taxable income / Non deductible expenses, net (*) Changes in the tax rates Effect of currency translation on tax base (**) Accrual / Utilization of previously unrecognized tax losses (***) Tax charge 2016 Year ended December 31, 2015 140,829 (71,588) 149,632 6,436 151,615 (1,711) 234,384 34,430 (91,628) 51,062 4,720 105,758 (52,810) 17,102 2014 1,749,314 307,193 132,442 3,249 138,925 (1,378) 580,431 (*) Include the effect of the impairment charges of approximately $400.3 million and $205.8 million in 2015 and 2014, respectively. (**) Tenaris applies the liability method to recognize deferred income tax on temporary differences between the tax basis of assets and their carrying amounts in the financial statements. By application of this method, Tenaris recognizes gains and losses on deferred income tax due to the effect of the change in the value on the tax basis in subsidiaries (mainly Mexican, Colombia and Argentinian), which have a functional currency different than their local currency. These gains and losses are required by IFRS even though the revalued / devalued tax basis of the relevant assets will not result in any deduction / obligation for tax purposes in future periods. (***) It includes a deferred tax income of approximately $45 million booked in the last quarter of 2016 related to a capital loss generated from the dissolution of some companies which effects can be carried forward and used to offset any future capital gains in the United States. 9 Dividends distribution On November 3, 2016, the Company’s Board of Directors approved the payment of an interim dividend of $0.13 per share ($0.26 per ADS), or approximately $153 million, paid on November 23, 2016, with an ex-dividend date of November 21, 2016. On May 4, 2016 the Company’s Shareholders approved an annual dividend in the amount of $0.45 per share ($0.90 per ADS). The amount approved included the interim dividend previously paid in November 25, 2015 in the amount of $0.15 per share ($0.30 per ADS). The balance, amounting to $0.30 per share ($0.60 per ADS), was paid on May 25, 2016. In the aggregate, the interim dividend paid in November 2015 and the balance paid in May 2016 amounted to approximately $531.2 million. On May 6, 2015 the Company’s Shareholders approved an annual dividend in the amount of $0.45 per share ($0.90 per ADS). The amount approved included the interim dividend previously paid in November 27, 2014 in the amount of $0.15 per share ($0.30 per ADS). The balance, amounting to $0.30 per share ($0.60 per ADS), was paid on May 20, 2015. In the aggregate, the interim dividend paid in November 2014 and the balance paid in May 2015 amounted to approximately $531.2 million. On May 7, 2014 the Company’s Shareholders approved an annual dividend in the amount of $0.43 per share ($0.86 per ADS). The amount approved included the interim dividend previously paid in November 21, 2013 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 22, 2014. In the aggregate, the interim dividend paid in November 2013 and the balance paid in May 2014 amounted to approximately $507.6 million. 77 10 Property, plant and equipment, net Year ended December 31, 2016 Cost Values at the beginning of the year Translation differences Additions (*) Disposals / Consumptions Transfer to assets held for sale Transfers / Reclassifications Values at the end of the year Depreciation and impairment Accumulated at the beginning of the year Translation differences Depreciation charge Transfers / Reclassifications Transfer to assets held for sale Disposals / Consumptions Accumulated at the end of the year At December 31, 2016 Land, building and improvements Plant and production equipment Vehicles, furniture and fixtures Work in progress Spare parts and equipment Total 1,766,103 10,483 572 (5,774) (34,849) 100,079 1,836,614 455,499 2,240 46,150 2,856 (8,552) (3,064) 495,129 1,341,485 8,419,792 (2,284) 1,445 (22,306) (61,380) 356,420 8,691,687 5,432,715 (6,087) 324,886 (6,761) (47,928) (21,228) 5,675,597 3,016,090 366,972 1,217,682 2,604 750,075 (4,852) (1,407) (474,063) 372,989 1,490,039 3,716 747 (11,037) (1,103) 13,694 32,651 11,803,200 (290) 14,229 757,495 4,656 (46,463) (2,494) (98,916) (177) (2,230) 1,640 35,986 12,427,315 - 228,966 - 2,953 - 22,361 - (333) - (966) - (8,872) 244,109 - 128,880 1,490,039 13,762 (358) 533 (3,396) - - 10,541 25,445 6,130,942 (1,252) 393,930 (7,634) (57,446) (33,164) 6,425,376 6,001,939 Year ended December 31, 2015 Cost Values at the beginning of the year Translation differences Additions (*) Disposals / Consumptions Transfers / Reclassifications Values at the end of the year Depreciation and impairment Accumulated at the beginning of the year Translation differences Depreciation charge Transfers / Reclassifications Disposals / Consumptions Accumulated at the end of the year At December 31, 2015 Land, building and improvements Plant and production equipment Vehicles, furniture and fixtures 1,633,797 (28,711) 13,065 (1,892) 149,844 1,766,103 418,210 (8,956) 45,644 2,474 (1,873) 455,499 1,310,604 8,233,902 (250,470) 16,064 (55,452) 475,748 8,419,792 5,301,765 (135,538) 325,241 (4,114) (54,639) 5,432,715 2,987,077 359,554 (9,382) 2,022 (8,940) 23,718 366,972 216,982 (7,528) 24,313 1,987 (6,788) 228,966 138,006 Work in progress 846,538 (10,352) 1,036,818 (5,691) (649,631) 1,217,682 - - - - - - 1,217,682 Spare parts and equipment 38,075 (1,919) (2,246) (285) (974) 32,651 15,352 (1,093) 941 (1,485) 47 13,762 18,889 Total 11,111,866 (300,834) 1,065,723 (72,260) (1,295) 11,803,200 5,952,309 (153,115) 396,139 (1,138) (63,253) 6,130,942 5,672,258 Property, plant and equipment include capitalized interests for net amounts at December 31, 2016 and 2015 of $25.4 million and $15.5 million, respectively. The average capitalization interest rates applied were 1.28% during 2016 and 1.53% during 2015. (*) The increase is mainly due to progress in the construction of the greenfield seamless facility in Bay City, Texas. 78 11 Intangible assets, net Year ended December 31, 2016 Cost Values at the beginning of the year Translation differences Additions Transfers / Reclassifications Transfer to assets held for sale Disposals Values at the end of the year Amortization and impairment Accumulated at the beginning of the year Translation differences Amortization charge Transfer to assets held for sale Transfers / Reclassifications Disposals Accumulated at the end of the year At December 31, 2016 Year ended December 31, 2015 Cost Values at the beginning of the year Translation differences Additions Transfers / Reclassifications Disposals Values at the end of the year Amortization and impairment Accumulated at the beginning of the year Translation differences Amortization charge Impairment charge (See Note 5) Transfers / Reclassifications Accumulated at the end of the year At December 31, 2015 (*) Includes Proprietary Technology. Information system projects Licenses, patents and trademarks (*) Goodwill Customer relationships Total 524,869 2,264 28,730 (546) (836) (151) 554,330 335,532 1,325 72,632 (718) (245) (153) 408,373 145,957 494,662 (29) 648 (222) (32,600) (840) 461,619 2,170,709 4,671 - - (85,123) - 2,090,257 2,059,946 5,250,186 6,906 29,378 (768) (119,559) (991) 2,058,946 5,165,152 - - - (1,000) - 364,412 - 30,633 (32,600) (153) - 362,292 99,327 836,939 - - (39,347) - - 797,592 1,292,665 - 165,217 (1,000) - - 1,569,851 3,106,734 1,325 268,482 (73,665) (398) (153) 1,734,068 3,302,325 324,878 1,862,827 Information system projects Licenses, patents and trademarks (*) Goodwill Customer relationships Total 471,935 (12,127) 65,022 95 (56) 524,869 283,679 (7,454) 59,342 - (35) 335,532 189,337 494,014 (127) 774 1,028 (1,027) 494,662 2,182,004 (11,295) - - - 2,170,709 2,059,946 5,207,899 - (23,549) 65,796 - 1,123 - - (1,083) 2,059,946 5,250,186 332,823 - 30,588 - 1,001 364,412 130,250 436,625 - - 400,314 - 836,939 1,333,770 1,397,142 2,450,269 (7,454) - 262,639 172,709 - 400,314 - 966 1,569,851 3,106,734 490,095 2,143,452 The geographical allocation of goodwill for the year ended December 31, 2016 was $1,168.4 million for North America, $121.7 million for South America, $1.8 million for Europe and $0.7 million for Middle East & Africa. The carrying amount of goodwill allocated by CGU, as of December 31, 2016, was as follows: (All amounts in million US dollar) As of December 31, 2016 CGU OCTG (USA) Tamsa (Hydril and other) Siderca (Hydril and other) Hydril Coiled Tubing Socotherm Other Total Maverick Acquisition 225 - - - - - - 225 Tubes Segment Hydril Acquisition - 346 265 309 - - - 920 Other - 19 93 - - 28 4 144 Other Segment Maverick Acquisition - - - - 4 - - 4 Total 225 365 358 309 4 28 4 1,293 79 12 Investments in non-consolidated companies At the beginning of the year Translation differences Equity in earnings of non-consolidated companies Impairment loss in non-consolidated companies Dividends and distributions received (a) Additions Decrease / increase in equity reserves At the end of the period  Related to Ternium The principal non-consolidated companies are: Company a) Ternium (*) b) Usiminas (**) Others Country of incorporation Luxembourg Brazil - Year ended December 31, 2016 490,645 3,473 71,533 - (20,674) 17,108 (5,054) 557,031 2015 643,630 (92,914) (10,674) (28,884) (20,674) 4,400 (4,239) 490,645 % ownership at December 31, 2015 11.46% 2.5% - 2016 11.46% 3.08% - Value at December 31, 2016 491,285 61,904 3,842 557,031 2015 449,375 36,109 5,161 490,645 (*) Including treasury shares. (**)At December 31, 2016 and 2015 the voting rights were 5.2% and 5.0% respectively. a) Ternium S.A. Ternium S.A. (“Ternium”), is a steel producer with production facilities in Mexico, Argentina, Colombia, United States and Guatemala and is one of Tenaris’s main suppliers of round steel bars and flat steel products for its pipes business. At December 31, 2016, the closing price of Ternium’s ADSs as quoted on the New York Stock Exchange was $24.15 per ADS, giving Tenaris’s ownership stake a market value of approximately $554.8 million (Level 1). At December 31, 2016, the carrying value of Tenaris’s ownership stake in Ternium, based on Ternium’s IFRS financial statements, was approximately $491.3 million. See Section II.B.2. The Company reviews periodically the recoverability of its investment in Ternium. To determine the recoverable value, the Company estimates the value in use of the investment by calculating the present value of the expected cash flows. The key assumptions used by the Company are based on external and internal sources of information, and management judgment based on past experience and expectations of future changes in the market. Value-in-use was calculated by discounting the estimated cash flows over a five year period based on forecasts approved by management. For the subsequent years beyond the five-year period, a terminal value was calculated based on perpetuity considering a nominal growth rate of 2%. The discount rates used are based on the respective weighted average cost of capital (WACC), which is considered to be a good indicator of capital cost. The discount rate used to test the investment in Ternium for impairment was 11.2% Summarized selected financial information of Ternium, including the aggregated amounts of assets, liabilities, revenues and profit or loss is as follows: Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Non-controlling interests Revenues Gross profit Net income for the year attributable to owners of the parent Total comprehensive income (loss) for the year, net of tax, attributable to owners of the parent 80 Ternium 2016 5,622,556 2,700,314 8,322,870 1,324,785 1,831,492 3,156,277 2015 5,480,389 2,582,204 8,062,593 1,558,979 1,700,617 3,259,596 775,295 769,849 7,223,975 1,839,585 595,644 534,827 7,877,449 1,400,177 8,127 (457,750) 12 Investments in non-consolidated companies (Cont.) b) Usiminas S.A. Usiminas is a Brazilian producer of high quality flat steel products used in the energy, automotive and other industries and it is Tenaris’s principal supplier of flat steel in Brazil for its pipes and industrial equipment businesses. As of December 31, 2016 the closing price of the Usiminas’ ordinary and preferred shares, as quoted on the BM&FBovespa Stock Exchange, was BRL8.26 ($2.53) and BRL4.1 ($1.26), respectively, giving Tenaris’s ownership stake a market value of approximately $94.1 million (Level 1). As that date, the carrying value of Tenaris’s ownership stake in Usiminas was approximately $61.9 million. The Company reviews periodically the recoverability of its investment in Usiminas. To determine the recoverable value, the Company estimates the value in use of the investment by calculating the present value of the expected cash flows. There is a significant interaction among the principal assumptions made in estimating Usiminas’ cash flow projections, which include iron ore and steel prices, foreign exchange and interest rates, Brazilian GDP and steel consumption in the Brazilian market. The key assumptions used by the Company are based on external and internal sources of information, and management judgment based on past experience and expectations of future changes in the market. During 2015 and 2014 the Company recorded an impairment charge of $28.9 million and $161.2 million respectively. Summarized selected financial information of Usiminas, including the aggregated amounts of assets, liabilities, revenues and profit or loss is as follows: Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Non-controlling interests Revenues Gross profit Net loss for the year attributable to owners of the parent c) Techgen, S.A. de C.V. (“Techgen”) Usiminas 2016 6,085,811 1,970,015 8,055,826 2,856,883 537,646 3,394,529 2015 5,343,038 1,765,733 7,108,771 2,117,536 1,151,383 3,268,919 508,083 405,880 2,442,596 150,999 (166,153) 3,115,551 70,801 (1,053,806) Techgen is a Mexican natural gas-fired combined cycle electric power plant in the Pesquería area of the State of Nuevo León, Mexico. The company started producing energy on December 1st, 2016 and is fully operational, with a power capacity of between 850 and 900 megawatts. As of December 31, 2016, Tenaris held 22% of Techgen’s share capital, and its affiliates Ternium and Tecpetrol International S.A. (a wholly-owned subsidiary of San Faustin S.A., the controlling shareholder of both Tenaris and Ternium) held 48% and 30% respectively. Techgen is a party to transportation capacity agreements for a purchasing capacity of 150,000 MMBtu/Gas per day starting on August 1, 2016 and ending on July 31, 2036, and a party to a contract for the purchase of power generation equipment and other services related to the equipment. As of December 31, 2016, Tenaris’s exposure under these agreements amounted to $61.3 million and $5.3 million respectively. Tenaris issued a corporate guarantee covering 22% of the obligations of Techgen under a syndicated loan agreement between Techgen and several banks. The loan agreement amounted to $800 million and has been used in the construction of the facility. The main covenants under the corporate guarantee are limitations on the sale of certain assets and compliance with financial ratios (e.g. leverage ratio). As of December 31, 2016, the loan agreement has been fully disbursed for $800 million, as a result, the amount guaranteed by Tenaris was approximately $176 million. During 2016 the shareholders of Techgen made additional investments in Techgen, in term of subsidiary loans, which in case of Tenaris amounted to $42.4 million. As of December 31, 2016 these loans amount to $86.2 million. 81 Year ended December 31, 2016 2015 913 7,202 32,769 91,419 13,876 19,520 32,217 197,916 (913) 197,003 1,113 11,485 25,660 62,675 14,719 70,509 35,515 221,676 (1,112) 220,564 Year ended December 31, 2016 653,482 375,822 160,284 451,777 162,766 1,804,131 (240,242) 1,563,889 2015 741,437 407,126 277,184 503,692 143,228 2,072,667 (229,200) 1,843,467 Year ended December 31, 2016 2015 28,278 3,052 10,458 16,088 9,350 24,742 2,759 36,320 131,047 (6,332) 124,715 29,463 3,498 10,951 27,823 7,053 14,249 18,155 44,736 155,928 (7,082) 148,846 Year ended December 31, 2016 61,552 79,434 140,986 2015 60,730 127,450 188,180 13 Receivables – non current 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 22 (i)) 14 Inventories Finished goods Goods in process Raw materials Supplies Goods in transit Allowance for obsolescence (see Note 23 (i)) 15 Receivables and prepayments 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 23 (i)) 16 Current tax assets and liabilities Current tax assets V.A.T. credits Prepaid taxes 82 16 Current tax assets and liabilities (Cont.) Current tax liabilities Income tax liabilities V.A.T. liabilities Other taxes 17 Trade receivables Current accounts Receivables from related parties Allowance for doubtful accounts (see Note 23 (i)) The following table sets forth details of the aging of trade receivables: Year ended December 31, 2016 55,841 11,065 34,291 101,197 2015 46,600 24,661 64,757 136,018 Year ended December 31, 2016 1,026,026 14,383 1,040,409 (85,724) 954,685 2015 1,216,126 20,483 1,236,609 (101,480) 1,135,129 At December 31, 2016 Guaranteed Not guaranteed Guaranteed and not guaranteed Allowance for doubtful accounts Net Value At December 31, 2015 Guaranteed Not guaranteed Guaranteed and not guaranteed Allowance for doubtful accounts Net Value Trade Receivables Not Due Past due 1 - 180 days > 180 days 355,508 684,901 1,040,409 (85,724) 954,685 353,537 883,072 1,236,609 (101,480) 1,135,129 272,393 518,984 791,377 (62) 791,315 268,606 634,250 902,856 - 902,856 32,241 87,379 119,620 (67) 119,553 33,706 152,173 185,879 (1,664) 184,215 50,874 78,538 129,412 (85,595) 43,817 51,225 96,649 147,874 (99,816) 48,058 Trade receivables are mainly denominated in U.S. dollars. 18 Cash and cash equivalents and Other investments Cash and cash equivalents Cash at banks Liquidity funds Short – term investments Other investments - current Fixed Income (time-deposit, zero coupon bonds, commercial papers) Bonds and other fixed Income Fund Investments Other investments - Non-current Bonds and other fixed Income Others Year ended December 31, 2016 2015 92,730 215,807 91,200 399,737 101,019 81,735 103,793 286,547 782,029 841,638 9,475 1,633,142 877,436 1,203,695 59,731 2,140,862 248,049 1,670 249,719 393,084 1,662 394,746 83 19 Borrowings 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: Year ended December 31, 2016 2015 31,544 35 (37) 31,542 807,252 1,320 130 (8) 808,694 840,236 223,050 171 - 223,221 747,704 349 371 (129) 748,295 971,516 At December 31, 2016 Financial lease Other borrowings Total borrowings Interest to be accrued (*) Total At December 31, 2015 Financial lease Other borrowings Total borrowings 1 year or less 1 - 2 years 2 – 3 years 3 - 4 years 4 - 5 years Over 5 years Total 130 808,564 808,694 6,461 815,155 35 1,198 1,233 1,172 2,405 - 3,739 3,739 - 3,360 3,360 - 3,632 3,632 - 19,578 19,578 165 840,071 840,236 1,161 4,900 1,142 4,502 1,116 4,748 237 19,815 11,289 851,525 1 year or less 1 - 2 years 2 – 3 years 3 - 4 years 4 - 5 years Over 5 years Total 371 747,924 748,295 138 201,152 201,290 29 1,261 1,290 4 1,285 1,289 - 880 880 - 18,472 18,472 542 970,974 971,516 Interest to be accrued (*) Total 1,152 749,447 1,050 202,340 1,031 2,321 1,010 2,299 990 1,870 1,046 19,518 6,279 977,795 (*) Includes the effect of hedge accounting. Significant borrowings include: Disbursement date 2016 2015 2016 Borrower Tamsa TuboCaribe Siderca Type Bank loans Bank loan Bank loans Original & Outstanding 391 200 198 Final maturity 2017 Jan-17 2017 In million of USD As of December 31, 2016, 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, 2016 and 2015 (considering hedge accounting where applicable). Total borrowings 2016 1.97% 2015 1.52% 84 19 Borrowings (Cont.) Breakdown of long-term borrowings by currency and rate is as follows: Non-current borrowings Currency USD EUR Others Total non-current borrowings Interest rates Fixed Fixed Variable Breakdown of short-term borrowings by currency and rate is as follows: Year ended December 31, 2016 19,461 10,701 1,380 31,542 2015 219,778 2,922 521 223,221 Current borrowings Currency USD USD EUR EUR MXN ARS ARS Others Others Total current borrowings 20 Deferred income tax Variable Fixed Variable Fixed Fixed Fixed Variable Variable Fixed Interest rates Year ended December 31, 2016 2015 17,081 200,448 99 841 391,318 197,637 1,041 35 194 808,694 16,046 2,482 66 1,047 614,916 113,326 37 165 210 748,295 Deferred income taxes are calculated in full on temporary differences under the liability method using the tax rate of each country. The evolution of deferred tax assets and liabilities during the year are as follows: Deferred tax liabilities At the beginning of the year Translation differences Charged directly to Other Comprehensive Income Transfer to assets held for sale Income statement credit At December 31, 2016 Fixed assets 299,139 (540) - (5,724) (29,819) 263,056 Inventories 42,516 - - (5,625) 36,891 Fixed assets Inventories Intangible and Other (*) 549,557 44 (40) (34,848) 514,713 Intangible and Other (*) At the beginning of the year Translation differences / reclassifications Charged directly to Other Comprehensive Income Income statement (credit) / charge At December 31, 2015 346,385 (28,343) - (18,903) 299,139 44,234 - - (1,718) 42,516 482,446 11,154 3,999 51,958 549,557 (*) Includes the effect of currency translation on tax base explained in Note 8. Total 891,212 (496) (40) (5,724) (70,292) 814,660 Total 873,065 (17,189) 3,999 31,337 891,212 85 20 Deferred income tax (Cont.) Deferred tax assets At the beginning of the year Translation differences Transfer to assets held for sale Charged directly to Other Comprehensive Income Income statement charge / (credit) Provisions and allowances (32,425) (3,123) - - 2,272 Inventories (107,378) (1,347) 275 - 14,274 At December 31, 2016 (33,276) (94,176) Tax losses (*) (99,394) (2,741) - - (97,191) (199,326 ) Other Total (102,396) 14 753 1,823 17,968 (341,593) (7,197) 1,028 1,823 (62,677) (81,838) (408,616) (*) As of December 31, 2016, the recognized deferred tax assets on tax losses amount to $199.3 million and the net unrecognized deferred tax assets amount to $47.2 million. At the beginning of the year Translation differences / reclassifications Charged directly to Other Comprehensive Income Income statement (credit) / charge At December 31, 2015 Provisions and allowances (45,336) 24,411 Inventories (189,709) 4,049 - - (11,500) (32,425) 78,282 (107,378) Tax losses Other Total (41,652) 6,988 - (64,730) (99,394) (150,497) 1,020 527 46,554 (102,396) (427,194) 36,468 527 48,606 (341,593) The recovery analysis of deferred tax assets and deferred tax liabilities is as follows: Deferred tax assets to be recovered after 12 months Deferred tax liabilities to be recovered after 12 months Year ended December 31, 2016 (226,431) 761,039 2015 (109,025) 843,022 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: Deferred tax assets Deferred tax liabilities The movement in the net deferred income tax liability account is as follows: At the beginning of the year Translation differences Charged directly to Other Comprehensive Income Income statement credit (debit) Transfer to assets held for sale At the end of the period 86 Year ended December 31, 2016 (144,613) 550,657 406,044 2015 (200,706) 750,325 549,619 Year ended December 31, 2016 549,619 (7,693) 1,783 (132,969) (4,696) 406,044 2015 445,871 19,279 4,526 79,943 - 549,619 21 (i) Other liabilities Other liabilities – Non-current Post-employment benefits Other-long term benefits Miscellaneous Post-employment benefits  Unfunded Values at the beginning of the period Current service cost Interest cost Curtailments and settlements Remeasurements (*) Translation differences Benefits paid from the plan Other At the end of the year Year ended December 31, 2016 125,161 66,714 21,742 213,617 2015 135,880 78,830 16,466 231,176 Year ended December 31, 2016 107,601 4,625 6,371 24 (4,501) (2,204) (13,921) (1,766) 96,229 2015 126,733 5,918 6,164 (128) (9,743) (8,418) (16,062) 3,137 107,601 (*) For 2016 a loss of $0.6 million is attributable to demographic assumptions and a gain of $5.1 million to financial assumptions. For 2015 a gain of $9.1 and $0.6 million is attributable to demographic and financial assumptions, respectively. The principal actuarial assumptions used were as follows: Discount rate Rate of compensation increase Year ended December 31, 2016 1% - 7% 0% - 3% 2015 2% - 7% 0% - 3% As of December 31, 2016, an increase / (decrease) of 1% in the discount rate assumption would have generated a (decrease) / increase on the defined benefit obligation of $7.1 million and $8.2 million respectively, and an increase / (decrease) of 1% in the rate of compensation assumption would have generated an increase / (decrease) impact on the defined benefit obligation of $4.2 million and $3.7 million respectively. The above sensitivity analyses are based on a change in discount rate and rate of compensation while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated.  Funded The amounts recognized in the statement of financial position for the current annual period and the previous annual period are as follows: Present value of funded obligations Fair value of plan assets Liability (*) Year ended December 31, 2016 159,612 (132,913) 26,699 2015 153,974 (128,321) 25,653 (*) In 2016 and 2015, $2.2 million and $2.6 million corresponding to an overfunded plan were reclassified within other non- current assets, respectively. 87 21 (i) Other liabilities (Cont.) Other liabilities – Non-current (Cont.) The movement in the present value of funded obligations is as follows: At the beginning of the year Translation differences Current service cost Interest cost Remeasurements (*) Benefits paid At the end of the year Year ended December 31, 2016 153,974 384 162 6,403 7,753 (9,064) 159,612 2015 183,085 (18,507) 1,155 6,725 (6,124) (12,360) 153,974 (*) For 2016 a gain of $0.9 million is attributable to demographic assumptions and a loss of $8.7 million to financial assumptions. For 2015 a gain of $1.1 and $5.0 million is attributable to demographic and financial assumptions, respectively. The movement in the fair value of plan assets is as follows: At the beginning of the year Return on plan assets Remeasurements Translation differences Contributions paid to the plan Benefits paid from the plan Other At the end of the year Year ended December 31, 2016 (128,321) (7,022) (3,022) 365 (4,374) 9,064 397 (132,913) 2015 (147,991) (5,021) 1,686 15,651 (5,066) 12,360 60 (128,321) The major categories of plan assets as a percentage of total plan assets are as follows: Equity instruments Debt instruments Others The principal actuarial assumptions used were as follows: Discount rate Rate of compensation increase Year ended December 31, 2015 2016 52.4% 43.9% 3.7% 52.3% 44.3% 3.4% Year ended December 31, 2015 4% 0 % - 2 % 2016 4% 0 % - 3 % 88 21 (i) Other liabilities (Cont.) Other liabilities – Non-current (Cont.) The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected return on plan assets is determined based on long-term, prospective rates of return as of the end of the reporting period. As of December 31, 2016, an increase / (decrease) of 1% in the discount rate assumption would have generated a (decrease) / increase on the defined benefit obligation of $18.5 million and $22.8 million respectively, and an increase / (decrease) of 1% in the compensation rate assumption would have generated an increase / (decrease) on the defined benefit obligation of $1.7 million and $1.6 million respectively. The above sensitivity analyses are based on a change in discount rate and rate of compensation while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The employer contributions expected to be paid for the year 2017 amount approximately to $6 million. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period. Year ended December 31, 2016 125,991 135 42,635 15,126 183,887 2015 173,528 351 34,445 14,518 222,842 Year ended December 31, 2016 2015 (1,112) 199 (913) (1,696) 584 (1,112) Year ended December 31, 2016 2015 61,421 3,296 6,794 (1,932) (6,322) 63,257 70,714 (20,725) 9,390 6,562 (4,520) 61,421 (ii) Other liabilities – current Payroll and social security payable Liabilities with related parties Derivative financial instruments Miscellaneous 22 (i) Non-current allowances and provisions Deducted from non-current receivables Values at the beginning of the year Translation differences Values at the end of the year (ii) Liabilities Values at the beginning of the year Translation differences Additional provisions Reclassifications Used Values at the end of the year 89 23 (i) Current allowances and provisions Deducted from assets Year ended December 31, 2016 Values at the beginning of the year Translation differences Reversals / (additional) allowances Transfer to held for sale Used At December 31, 2016 Allowance for doubtful accounts - Trade receivables Allowance for other doubtful accounts - Other receivables Allowance for inventory obsolescence (101,480) (841) 12,573 20 4,004 (85,724) (7,082) 75 (432) - 1,107 (6,332) (229,200) (2,715) (32,765) 896 23,542 (240,242) Year ended December 31, 2015 Values at the beginning of the year Translation differences Additional allowances Used At December 31, 2015 Allowance for doubtful accounts - Trade receivables Allowance for other doubtful accounts - Other receivables Allowance for inventory obsolescence (68,978) 1,033 (36,788) 3,253 (101,480) (7,992) 1,732 (1,114) 292 (7,082) (193,540) 10,056 (68,669) 22,953 (229,200) (ii) Liabilities Year ended December 31, 2016 Values at the beginning of the year Translation differences Additional allowances Reclassifications Used At December 31, 2016 Year ended December 31, 2015 Values at the beginning of the year Translation differences Additional allowances Reclassifications Used At December 31, 2015 Sales risks 6,290 189 16,266 (22) (8,838) 13,885 Sales risks Other claims and contingencies 2,705 (86) 7,791 1,954 (3,493) 8,871 Other claims and contingencies 7,205 (517) 8,540 47 (8,985) 6,290 13,175 (973) 1,743 (6,610) (4,630) 2,705 Total 8,995 103 24,057 1,932 (12,331) 22,756 Total 20,380 (1,490) 10,283 (6,563) (13,615) 8,995 90 24 Derivative financial instruments Net fair values of derivative financial instruments The net fair values of derivative financial instruments disclosed within Other Receivables and Other Liabilities at the reporting date, in accordance with IAS 39, are: Foreign exchange derivatives contracts Contracts with positive fair values Foreign exchange derivatives contracts Contracts with negative fair values Total Year ended December 31, 2016 2,759 2,759 (42,635) (42,635) (39,876) 2015 18,248 18,248 (34,541) (34,541) (16,293) Foreign exchange derivative contracts and hedge accounting Tenaris applies hedge accounting to certain cash flow hedges of highly probable forecast transactions. The net fair values of exchange rate derivatives and those derivatives that were designated for hedge accounting as of December 2016 and 2015, were as follows: Purchase currency Sell currency MXN USD EUR USD JPY USD USD ARS USD USD Others Total USD MXN USD EUR USD KWD ARS USD BRL GBP Term 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 Fair Value Hedge Accounting Reserve 2016 (35,165) 694 (360) (33) (179) (2,447) (748) 318 (1,581) - (375) (39,876) 2015 (24,364) 14,466 331 957 (24) 28 - (8,639) 402 85 465 (16,293) 2016 2015 9 (2,280) - (1,435) 73 (1,016) - (93) - - - (4,742) 320 (21) - (819) - 28 - 3,175 - - 100 2,783 Following is a summary of the hedge reserve evolution: Equity Reserve Dec-14 Movements 2015 Equity Reserve Dec-15 Movements 2016 Equity Reserve Dec-16 Foreign Exchange Total Cash flow Hedge (7,916) (7,916) 10,699 10,699 2,783 2,783 (7,525) (7,525) (4,742) (4,742) Tenaris estimates that the cash flow hedge reserve at December 31, 2016 will be recycled to the Consolidated Income Statement during 2017. 91 25 (i) 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 litigation and settlement strategies. The Company believes that the aggregate provisions recorded for potential losses in these financial statements (Notes 22 and 23) are adequate based upon currently available information. However, if management’s estimates prove incorrect, current reserves could be inadequate and Tenaris could incur a charge to earnings which could have a material adverse effect on Tenaris’s results of operations, financial condition, net worth and cash flows. Set forth below is a description of Tenaris’s material ongoing legal proceedings:  Tax assessment in Italy Dalmine, an Italian subsidiary of Tenaris, received on December 24, 2012 a tax assessment from the Italian tax authorities related to allegedly omitted withholding tax on dividend payments made in 2007. The assessment, which was for an estimated amount of EUR295 million (approximately $310.9 million), comprising principal, interest and penalties, was appealed with the first-instance tax court in Milan. In February 2014, the first- instance tax court issued its decision on this tax assessment, partially reversing the assessment and lowering the claimed amount to approximately EUR9 million (approximately $9.5 million), including principal, interest and penalties. On October 2, 2014, the Italian tax authorities appealed against the second-instance tax court decision on the 2007 assessment. On June 12, 2015, the second-instance tax court accepted Dalmine’s defense arguments and rejected the appeal by the Italian tax authorities, thus reversing the entire 2007 assessment and recognizing that the dividend payment was exempt from withholding tax. The Italian tax authorities have appealed the second-instance tax court decision before the Supreme Court. On December 24, 2013, Dalmine received a second tax assessment from the Italian tax authorities, based on the same arguments as those in the first assessment, relating to allegedly omitted withholding tax on dividend payments made in 2008 – the last such distribution made by Dalmine. Dalmine appealed the assessment with the first-instance tax court in Milan. On January 27, 2016, the first-instance tax court rejected Dalmine’s appeal. This first-instance ruling, which held that Dalmine is required to pay an amount of EUR223 million (approximately $235.1 million), including principal interest and penalties, contradicts the first and second- instance tax court rulings in connection with the 2007 assessment. Dalmine obtained the suspension of the interim payment that would have been due, based on the first-instance decision, through the filing with the tax authorities of a bank guarantee, and appealed the January 2016 ruling with the second-instance tax court. Tenaris continues to believe that Dalmine has correctly applied the relevant legal provisions and based on, among other things, the tax court decisions on the 2007 assessment and the opinion of legal counsel, Tenaris believes that it is not probable that the ultimate resolution of either the 2007 or the 2008 tax assessment will result in a material obligation.  CSN claims relating to the January 2012 acquisition of Usiminas shares In 2013, Confab was notified of a lawsuit filed in Brazil by Companhia Siderúrgica Nacional (CSN) and various entities affiliated with CSN against Confab and the other entities that acquired a participation in Usiminas’ control group in January 2012. 92 25 (i) Contingencies, commitments and restrictions on the distribution of profits (Cont.) Contingencies (Cont.)  CSN claims relating to the January 2012 acquisition of Usiminas shares (Cont.) The CSN lawsuit alleges that, under applicable Brazilian laws and rules, the acquirers were required to launch a tag-along tender offer to all non-controlling holders of Usiminas ordinary shares for a price per share equal to 80% of the price per share paid in such acquisition, or BRL28.8, and seeks an order to compel the acquirers to launch an offer at that price plus interest. If so ordered, the offer would need to be made to 182,609,851 ordinary shares of Usiminas not belonging to Usiminas’ control group, and Confab would have a 17.9% share in that offer. On September 23, 2013, the first instance court issued its decision finding in favor of Confab and the other defendants and dismissing the CSN lawsuit. The claimants appealed the first instance court decision with the Sao Paulo court of appeals. On February 8, 2017, the court of appeals issued its decision on the merits and maintained the understanding of the first instance court, holding that Confab and the other defendants did not have the obligation to launch a tender offer. The decision of the court of appeals has not yet been published, and CSN may still file a motion for clarification and/or appeal to the Superior Court of Justice or the Federal Supreme Court. Separately, on November 10, 2014, CSN filed a complaint with Brazil’s securities regulator Comissão de Valores Mobiliários (CVM) on the same grounds and with the same purpose as the lawsuit referred to above. In this complaint, CSN sought to reverse a February 2012 decision by the CVM, which had determined that the above mentioned acquisition did not trigger any tender offer requirement. On December 2, 2016, CVM rendered its decision on this complaint, reaffirming its previous decision from 2012 and rejecting all the new allegations presented by CSN. Finally, on December 11, 2014, CSN filed a claim with Brazil’s antitrust regulator Conselho Administrativo de Defesa Econômica (“CADE”). In its claim, CSN alleged that the antitrust clearance request related to the January 2012 acquisition, which was approved by CADE without restrictions in August 2012, contained a false and deceitful description of the acquisition aimed at frustrating the minority shareholders’ right to a tag-along tender offer, and requested that CADE investigate and reopen the antitrust review of the acquisition and suspend the Company’s voting rights in Usiminas until the review is completed. On May 6, 2015, CADE rejected CSN’s claim. CSN did not appeal the decision and on May 19, 2015, CADE finally closed the file. Tenaris continues to believe that all of CSN's claims and allegations are groundless and without merit, as confirmed by several opinions of Brazilian legal counsel, the decisions issued by CVM in February 2012 and December 2016, and the first and second instance court decisions referred to above. Accordingly, no provision was recorded in these Consolidated Financial Statements  Veracel Celulose Accident Litigation On September 21, 2007, an accident occurred in the premises of Veracel Celulose S.A. (“Veracel”) in connection with a rupture in one of the tanks used in an evaporation system manufactured by Confab. The Veracel accident allegedly resulted in material damages to Veracel. Itaú Seguros S.A. (“Itaú”), Veracel’s insurer at the time of the Veracel accident, initiated a lawsuit against Confab seeking reimbursement of damages paid to Veracel in connection with the Veracel accident. Veracel initiated a second lawsuit against Confab seeking reimbursement of the amount paid as insurance deductible in connection with the Veracel accident and other amounts not covered by insurance. Itaú and Veracel claim that the Veracel accident was caused by failures and defects attributable to the evaporation system manufactured by Confab. Confab believes that the Veracel accident was caused by the improper handling by Veracel’s personnel of the equipment supplied by Confab in violation of Confab’s instructions. The two lawsuits have been consolidated, and are now being considered by the 6th Civil Court of São Caetano do Sul; however, each lawsuit will be adjudicated through a separate ruling. Both proceedings are currently at evidentiary stage. 93 25 (i) Contingencies, commitments and restrictions on the distribution of profits (Cont.) Contingencies (Cont.)  Veracel Celulose Accident Litigation (Cont.) On March 10, 2016, a court-appointed expert issued its report on certain technical matters concerning the Veracel accident. Based upon a technical opinion received from a third-party expert, in August 2016, Confab filed its objections to the expert’s report. Other parties have also filed their observations and/or opinions concerning the experts’ report, which are currently subject to the court examination. As of December 31, 2016, the estimated amount of Itaú’s claim is approximately BRL 74.5 million (approximately $22.9 million), and the estimated amount of Veracel’s claim is approximately BRL 47.7 million (approximately $14.6 million), for an aggregate amount BRL 122.2 million ($37.5 million). The final result of this claim depends largely on the court’s evaluation of technical matters arising from the expert’s opinion and objections presented by Confab. No provision has been recorded in these Consolidated Financial Statements.  Petroamazonas Penalties On January 22, 2016, Petroamazonas (“PAM”), an Ecuadorian state-owned oil company, imposed penalties to the Company’s Uruguayan subsidiary, Tenaris Global Services S.A. (“TGS”), for its alleged failure to comply with delivery terms under a pipe supply agreement. The penalties amount to approximately $ 22.5 million as of the date hereof. Tenaris believes, based on the advice of counsel, that PAM has no legal basis to impose the penalties and that TGS has meritorious defenses against PAM. However, in light of the prevailing political circumstances in Ecuador, the Company cannot predict the outcome of a claim against a state-owned company and it is not possible to estimate the amount or range of loss in case of an unfavorable outcome.  Ongoing investigation The Company has learned that Italian and Swiss authorities are investigating whether certain payments were made from accounts of entities presumably associated with affiliates of the Company to accounts controlled by an individual allegedly related with officers of Petróleo Brasileiro S.A. and whether any such payments were intended to benefit Confab Industrial S.A., a Brazilian subsidiary of the Company. Any such payments could violate certain applicable laws, including the U.S. Foreign Corrupt Practices Act. The Company had previously reviewed certain of these matters in connection with an investigation by the Brazilian authorities related to “Operation Lava Jato” and the Audit Committee of the Company’s Board of Directors has engaged external counsel in connection with a review of the alleged payments and related matters. In addition, the Company has voluntarily notified the U.S. Securities and Exchange Commission and the U.S. Department of Justice. The Company intends to share the results of this review with the appropriate authorities, and to cooperate with any investigations that may be conducted by such authorities. At this time, the Company cannot predict the outcome of these matters or estimate the range of potential loss or extent of risk, if any, to the Company’s business that may result from resolution of these matters. (ii) Commitments Set forth is a description of Tenaris’s main outstanding commitments:  A Tenaris company is a party to a contract with Nucor Corporation under which it is committed to purchase on a monthly basis a minimum volume of hot-rolled steel coils at prices that are negotiated annually by reference to prices to comparable Nucor customers. The contract became effective in January 2013 and will be in force until December 2017; provided, however, that either party may terminate the contract at any time after January 1, 2015 with a 12-month prior notice. Due to the current weak pipe demand associated with the reduction in drilling activity, the parties entered into a temporary agreement pursuant to which application of the minimum volume requirements were suspended, and the company is temporarily allowed to purchase steel volumes in accordance with its needs. As of December 31, 2016, the estimated aggregate contract amount through December 31, 2017, calculated at current prices, is approximately $423 million.  A Tenaris company entered into various contracts with suppliers pursuant to which it committed to purchase goods and services for a total amount of approximately $175.8 million related to the investment plan to expand Tenaris’s U.S. operations with the construction of a state-of-the-art seamless pipe mill in Bay City, Texas. As of December 31, 2016 approximately $1.349 million had already been invested. 94 25 Contingencies, commitments and restrictions on the distribution of profits (Cont.) (iii) Restrictions to the distribution of profits and payment of dividends As of December 31, 2016, equity as defined under Luxembourg law and regulations consisted of: (all amounts in thousands of U.S. dollars) Share capital Legal reserve Share premium Retained earnings including net income for the year ended December 31, 2016 Total equity in accordance with Luxembourg law 1,180,537 118,054 609,733 17,493,01 2 19,401,33 6 At least 5% of the Company’s net income per year, as calculated in accordance with Luxembourg law and regulations, must be allocated to the creation of a legal reserve equivalent to 10% of the Company’s share capital. As of December 31, 2016, this reserve is fully allocated and additional allocations to the reserve are not required under Luxembourg law. Dividends may not be paid out of the legal reserve. The Company may pay dividends to the extent, among other conditions, that it has distributable retained earnings calculated in accordance with Luxembourg law and regulations. At December 31, 2016, distributable amount under Luxembourg law totals $18.1 billion, as detailed below: (all amounts in thousands of U.S. dollars) Retained earnings at December 31, 2015 under Luxembourg law Other income and expenses for the year ended December 31, 2016 Dividends approved Retained earnings at December 31, 2016 under Luxembourg law Share premium Distributable amount at December 31, 2016 under Luxembourg law 26 Acquisition of subsidiaries and non-consolidated companies 18,024,20 4 (23,561) (507,631) 17,493,01 2 609,733 18,102,74 5 In September 2014, Tenaris completed the acquisition of the 100% of Socotherm Brasil S.A.(“Socotherm”). The purchase price amounted to $29.6 million, net assets acquired (including PPE, inventories and cash and cash equivalents) amounted to $9.6 million and goodwill for $20 million. Tenaris accounted for this transaction as a step- acquisition and consequently remeasured to fair value its ownership interest in Socotherm held before the acquisition. As a result, Tenaris recorded in “Equity in earnings (losses) of non-consolidated companies” a gain of approximately $21.3 million. 95 27 Cash flow disclosures (i) (ii) (iii) Changes in working capital Inventories Receivables and prepayments and Current tax assets Trade receivables Other liabilities Customer advances Trade payables Income tax accruals less payments Tax accrued Taxes paid 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 Year ended December 31, 2015 936,402 60,009 828,265 (123,904) 1,171 (327,958) 1,373,985 2016 244,720 70,874 146,824 (79,046) (95,112) 59,939 348,199 2014 (72,883) (31,061) 20,886 (61,636) 76,383 (3,755) (72,066) 41,441 (169,520) (128,079) 244,505 (335,585) (91,080) 586,061 (506,999) 79,062 (43,872) 22,326 (18,858) (40,404) 399,900 (1,320) 398,580 (11,517) 28,238 (18,696) (1,975) 286,547 (349) 286,198 6,174 31,306 (74,672) (37,192) 417,645 (1,200) 416,445 As of December 31, 2016, 2015 and 2014, the components of the line item “other, including currency translation adjustment” are immaterial to net cash provided by operating activities. 28 Net assets of disposal group classified as held for sale On December 15, 2016, Tenaris entered into an agreement with Nucor Corporation (NC) pursuant to which it has sold to NC the steel electric conduit business in North America, known as Republic Conduit for an amount of $332.4 million. The agreement was subject to U.S. antitrust clearance and other customary conditions and was closed during January 2017. The transaction was reported as a discontinued operation due to the relevance of such business on the total net income of segment “Other”. Analysis of the result of discontinued operations: (all amounts in thousands of US dollars, unless otherwise stated) Net sales Cost of sales Gross profit Selling, general and administrative expenses Other operating expenses Operating income Other financial results Income before income tax Income tax Income for continuing operations Earnings per share attributable to discontinued operations: Weighted average number of ordinary shares (thousands) Discontinued operations: Basic and diluted earnings per share (U.S. dollars per share) Basic and diluted earnings per ADS (U.S. dollars per ADS) (*) 96 2014 196,503 (147,045) 49,458 (31,174) Year ended December 31, 2015 197,630 (137,318) 60,312 (30,678) (1) 29,633 (382) 29,251 (10,121) 19,130 2016 234,911 (136,587) 98,324 (32,238) (248) 65,838 (88) 65,750 (24,339) 41,411 18,284 (361) 17,923 (5,630) 12,293 - 1,180,537 1,180,537 1,180,537 0.04 0.07 0.02 0.03 0.01 0.02 28 Net assets of disposal group classified as held for sale (Cont.) Summarized cash flow information is as follows: Cash at the beginning Cash at the end Increase (decrease) in cash Provided by operating activities Used in investing activities Used in financing activities 2016 15,343 18,820 3,477 24,535 (1,058) (20,000) 2015 13,848 15,343 1,495 42,701 (1,206) (40,000) 2014 18,790 13,848 (4,942) 8,294 (1,236) (12,000) These amounts were estimated only for disclosure purposes, as cash flows from discontinued operations were not managed separately from other cash flows. On January 20, 2017, the sale was completed and Tenaris estimates a net profit after bank fees and other related expenses of approximately $189.2 million. Current and non-current assets and liabilities of disposal group ASSETS Non-current assets Property, plant and equipment, net Intangible assets, net (*) Current assets Inventories, net Receivables and prepayments, net Trade receivables, net Cash and cash equivalents Total assets of disposal group classified as held for sale LIABILITIES Non-current liabilities Deferred tax liabilities Other liabilities Current liabilities Current tax liabilities Other liabilities Trade payables Total liabilities of disposal group classified as held for sale (*) Includes $45.8 million of goodwill 29 Related party transactions As of December 31, 2016: At December 31, 2016 41,470 45,894 29,819 451 33,620 163 4,696 680 4,100 1,668 6,950 87,364 64,053 151,417 5,376 12,718 18,094  San Faustin S.A., a Luxembourg Société Anonyme (“San Faustin”), owned 713,605,187 shares in the Company, representing 60.45% of the Company’s capital and voting rights.  San Faustin owned all of its shares in the Company through its wholly-owned subsidiary Techint Holdings S.à r.l., a Luxembourg Société à Responsabilité Limitée, who is the holder of record of the above-mentioned Tenaris shares.  Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin, a Dutch private foundation (Stichting) (“RP STAK”) held voting rights in San Faustin sufficient 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 0.10% of the Company’s outstanding shares. 97 29 Related party transactions (Cont.) Transactions and balances disclosed as with “non-consolidated parties” are those with companies over which Tenaris exerts significant influence or joint control in accordance with IFRS, but does not have control. All other transactions and balances with related parties which are not non-consolidated parties and which are not consolidated are disclosed as “Other”. The following transactions were carried out with related parties: (all amounts in thousands of U.S. dollars) (i) Transactions (a) Sales of goods and services Sales of goods to non-consolidated parties Sales of goods to other related parties Sales of services to non-consolidated parties Sales of services to other related parties (b) Purchases of goods and services Purchases of goods to non-consolidated parties Purchases of goods to other related parties Purchases of services to non-consolidated parties Purchases of services to other related parties (all amounts in thousands of U.S. dollars) (ii) Period-end balances (a) Arising from sales / purchases of goods / services Receivables from non-consolidated parties Receivables from other related parties Payables to non-consolidated parties Payables to other related parties Directors’ and senior management compensation Year ended December 31, 2015 2014 2016 21,174 32,613 9,542 2,948 66,277 24,019 87,663 10,154 4,010 125,846 33,342 103,377 10,932 3,264 150,915 67,048 20,150 11,528 53,530 152,256 260,280 35,153 16,153 78,805 390,391 302,144 44,185 27,304 90,652 464,285 At December 31, 2016 2015 117,187 13,357 (21,314) (12,708) 96,522 73,412 23,995 (20,000) (19,655) 57,752 During the years ended December 31, 2016, 2015 and 2014, the cash compensation of Directors and Senior managers amounted to $38.6 million, $28.8 million and $26 million respectively. In addition, Directors and Senior managers received 500, 540 and 567 thousand units for a total amount of $4.8 million, $5.4 million and $6.2 million respectively in connection with the Employee retention and long term incentive program mentioned in Note O (2). 98 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, 2016. Company Country of Organization Main activity Canada Brazil Argentina USA Italy USA Japan Canada Argentina Romania Indonesia Madeira Mexico USA ALGOMA TUBES INC. CONFAB INDUSTRIAL S.A. and subsidiaries SIDERCA S.A.I.C. and subsidiaries (except detailed) HYDRIL COMPANY and subsidiaries (except detailed) (a) DALMINE S.p.A. MAVERICK TUBE CORPORATION and subsidiaries (except detailed) NKKTUBES PRUDENTIAL STEEL ULC SIAT SOCIEDAD ANONIMA S.C. SILCOTUB S.A. PT SEAMLESS PIPE INDONESIA JAYA TALTA - TRADING E MARKETING SOCIEDADE UNIPESSOAL LDA. TUBOS DE ACERO DE MEXICO S.A. TENARIS BAY CITY, INC. TENARIS GLOBAL SERVICES (CANADA) INC. TENARIS INVESTMENTS S.àr.l. TENARIS INVESTMENTS SWITZERLAND AG and subsidiaries (except detailed) TENARIS GLOBAL SERVICES (UK) LTD TENARIS GLOBAL SERVICES (U.S.A.) CORPORATION TENARIS FINANCIAL SERVICES S.A. TENARIS GLOBAL SERVICES S.A. and subsidiaries (b) TENARIS INVESTMENTS S.àr.l. LUXEMBURG, Zug Branch TENARIS TUBOCARIBE LTDA. Colombia (*) All percentages rounded. Manufacturing of seamless steel pipes Manufacturing of welded steel pipes and capital goods Manufacturing of seamless steel pipes Manufacture and marketing of premium connections Manufacturing of seamless steel pipes Manufacturing of welded steel pipes Manufacturing of seamless steel pipes Manufacturing of welded steel pipes Manufacturing of welded and seamless steel pipes Manufacturing of seamless steel pipes Manufacturing of seamless steel products Percentage of ownership at December 31, (*) 2015 100% 2016 100% 2014 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 99% 100% 99% 100% 51% 100% 100% 51% 100% 100% 51% 100% 100% 100% 100% 100% 100% 100% 77% 77% 77% Trading and holding Company Manufacturing of seamless steel pipes Manufacturing of seamless steel pipes 100% 100% 100% 100% 100% 100% 100% 100% 100% Canada Luxembourg Marketing of steel products Holding company 100% 100% 100% 100% 100% 100% Switzerland United Kingdom USA Uruguay Uruguay Switzerland Holding company 100% 100% 100% Marketing of steel products 100% 100% 100% Marketing of steel products Financial company Holding company and marketing of steel products Holding company and financial services Manufacturing of welded and seamless steel pipes 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% (a) Tenaris Investments S.a.r.l. holds 100% of Hydril's subsidiaries shares except for Technical Drilling & Production Services Nigeria. Ltd where it holds 80% for 2016, 2015 and 2014. (b) Tenaris holds 97,5% of Tenaris Supply Chain S.A, 60% of Gepnaris S.A. and 40% of Tubular Technical Services and Pipe Coaters, and 49% of Amaja Tubular Services Limited 99 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”). Tenaris and its wholly-owned subsidiary Talta - Trading e Marketing Sociedad Unipessoal Lda (“Talta”), initiated arbitration proceedings against Venezuela before the ICSID in Washington D.C. in connection with these nationalizations. On January 29, 2016, the tribunal released its award on the arbitration proceeding concerning the nationalization of Matesi. The award upheld Tenaris’s and Talta’s claim that Venezuela had expropriated their investments in Matesi in violation of Venezuelan law as well as the bilateral investment treaties entered into by Venezuela with the Belgium-Luxembourg Economic Union and Portugal. The award granted compensation in the amount of $87.3 million for the breaches and ordered Venezuela to pay an additional amount of $85.5 million in pre-award interest, aggregating to a total award of $172.8 million, payable in full and net of any applicable Venezuelan tax, duty or charge. The tribunal granted Venezuela a grace period of six months from the date of the award to make payment in full of the amount due without incurring post-award interest, and resolved that if no, or no full, payment is made by then, post-award interest will apply at the rate of 9% per annum. On March 14, 2016, Venezuela requested the rectification of the award pursuant to article 49(2) of the ICSID Convention and ICSID Arbitration Rule 49. The tribunal denied Venezuela’s request on June 24, 2016, ordering Venezuela to reimburse Tenaris and Talta for their costs. On September 21, 2016, Venezuela submitted a request for annulment of the award as well as the stay of enforcement of the award in accordance with the ICSID Convention and Arbitration Rules. The annulment request was registered on September 29, 2016, and the ad hoc committee that will hear Venezuela’s request was constituted on December 27, 2016. The parties are in the process of exchanging briefs. A hearing is scheduled to be held in the first quarter of 2017 regarding Tenaris’s and Talta’s opposition to Venezuela’s request to continue stay enforcement of the award. Following that hearing, there will be a further exchange of briefs and an oral hearing on Venezuela’s annulment request, currently proposed to be held in the last quarter of 2017. Concerning the arbitration proceeding relating to the nationalization of Tenaris’s shareholdings in Tavsa and Comsigua, on December 12, 2016, the tribunal issued its award upholding Tenaris’s and Talta’s claim that Venezuela had expropriated their investments in Tavsa and Comsigua in violation of the bilateral investment treaties entered into by Venezuela with the Belgium-Luxembourg Economic Union and Portugal. The award granted compensation in the amount of $137 million and ordered Venezuela to reimburse Tenaris and Talta $3.3 million in legal fees and ICSID administrative costs. In addition, Venezuela was ordered to pay interest from April 30, 2008 until the day of effective payment at a rate equivalent to LIBOR + 4% per annum, which as of December 31, 2016 amounted $76 million. The deadline for filing a request for annulment of the award expires on April 11, 2017. 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 fulfil 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, 2016, for a total amount of approximately $27 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. 100 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) Audit Fees Audit-Related Fees Tax Fees All Other Fees Total 33 Subsequent event Annual Dividend Proposal 2016 2014 Year ended December 31, 2015 4,372 78 25 15 4,490 3,588 64 14 3 3,669 5,231 142 89 35 5,497 On February 22, 2017 the Company’s Board of Directors proposed, for the approval of the Annual General Shareholders' meeting to be held on May 3, 2017, the payment of an annual dividend of $0.41 per share ($0.82 per ADS), or approximately $484 million, which includes the interim dividend of $0.13 per share ($0.26 per ADS) or approximately $153 million, paid on November 23, 2016. If the annual dividend is approved by the shareholders, a dividend of $0.28 per share ($0.56 per ADS), or approximately $331 million will be paid on May 24, 2017, with an ex-dividend date of May 22, 2017. These Consolidated Financial Statements do not reflect this dividend payable. /s/ Edgardo Carlos Chief Financial Officer Edgardo Carlos 101 Tenaris S.A. Annual Accounts (Luxembourg GAAP) As at December 31, 2016 102 103 104 Tenaris S.A. Balance sheet as at December 31, 2016 (expressed in United States Dollars) ASSETS Fixed assets C. III. Financial assets 1. Shares in affiliated undertakings Current assets D. II. Debtors 2. Amounts owed by affiliated undertakings a) becoming due and payable within one year Other debtors a) becoming due and payable within one year 4. IV. Cash at bank and in hand Total assets CAPITAL, RESERVES AND LIABILITIES Capital and reserves Subscribed capital Share premium account A. I. II. IV. Reserves 1. V. VI. Loss for the financial year Interim dividends VII. Legal reserve Profit brought forward C. 6. 8. Creditors Amounts owed to affiliated undertakings a) becoming due and payable within one year b) becoming due and payable after more than one year Other creditors c) Other creditors i) becoming due and payable within one year Total capital, reserves and liabilities Note(s) 2016 USD 2015 USD 4 19,416,584,381 19,416,584,381 19,955,026,411 19,955,026,411 10 1,431 4,305,445 186,161 4,459,865 4,647,457 19,421,231,838 85,725 551,150 4,942,320 19,959,968,731 5 5 5&6 5&8 1,180,536,830 609,732,757 1,180,536,830 609,732,757 118,053,683 17,670,043,441 (23,560,717) (153,469,788) 19,401,336,206 118,053,683 20,718,019,221 (2,516,734,206) (177,080,525) 19,932,527,760 10 10 4,386,749 9,427,992 7,035,793 18,460,359 6,080,891 19,895,632 19,421,231,838 1,944,819 27,440,971 19,959,968,731 The accompanying notes are an integral part of these annual accounts 105 Tenaris S.A. Profit and loss account for the year ended December 31, 2016 (expressed in United States Dollars) 8. Other operating expenses 11. Other interest receivable and similar income a) derived from affiliated undertakings b) other interest and similar income 14. 13. Value adjustments in respect of financial assets and of investments held as current assets Interest payable and similar expenses a) concerning affiliated undertakings b) other interest and similar expenses 15. Tax on profit or loss 16. Loss after taxation 17. Other taxes not shown under items 1 to 16 18. Loss for the period Note 2016 USD 2015 USD 11 (22,604,137) (22,982,837) 251,660 - - (1,123,858) (77,552) - (23,553,887) (6,830) (23,560,717) 70,835 6,653 (2,493,111,324) (713,713) (125) (3,626) (2,516,734,137) (69) (2,516,734,206) 4 9 9 . The accompanying notes are an integral part of these annual accounts 106 Tenaris S.A. Notes to the audited annual accounts Note 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). Tenaris’s object is to invest mainly in companies that manufacture and market steel tubes and other related businesses. The financial year starts on January 1 and ends on December 31 of each year. 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. Note 2 – Presentation of the comparative financial data The comparative figures for the financial year ended December 31, 2015 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, 2016. Note 3 – Summary of significant accounting policies 3.1 Basis of presentation These annual accounts have been prepared in accordance with Luxembourg legal and regulatory requirements under the historical cost convention. Accounting policies and valuation rules are, besides the ones laid down by the law of 19 December 2002, determined and applied by the Board of Directors. The preparation of these annual accounts 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 income and charges during the reporting years. Actual results may differ from these estimates. 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. Non-current assets remain at the exchange rate on the day of incorporation. 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. 3.3 Financial assets Shares in affiliated undertakings are stated at purchase price, adding to the price paid the expenses incidental thereto. Whenever necessary, the Company conducts impairment tests on its financial assets in accordance with Luxembourg regulations. In case of other than a temporary decline in respect of the financial 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. 107 Tenaris S.A. Notes to the audited annual accounts Note 3 – Summary of significant accounting policies (Cont.) 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. 3.5 Cash at bank and 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 at fair market value or at historical cost which approximates fair market value. 3.6 Creditors Creditors are stated at nominal value. Note 4 – Financial assets Shares in affiliated undertakings Tenaris holds the 100% shares of Tenaris Investments S.à r.l. (Tenaris Investments) with registered office in Luxembourg and holds, indirectly through this wholly-owned subsidiary, the 100% shares of Confab Industrial S.A., Hydril Company, Inversiones Lucerna Limitada, Maverick Tube Corporation, Siderca S.A.I.C., Talta - Trading e Marketing, Sociedade Unipessoal Lda., Tenaris Investments Switzerland AG, Tenaris Solutions AG in Liquidation, Tubos de Acero de México S.A., Tenaris Bay City, Inc., Tenaris Rods (USA), Inc., Algoma Tubes Inc., Siderca International ApS, Socobras Participações Ltda., Tubman Holdings S.à r.l and Tenaris Connections BV, the 50% shares of Exiros B.V and the 11.5% of Ternium S.A. Movements during the financial year are as follows: Gross book value - opening balance Decreases for the financial year (a) Gross book value - closing balance USD 22,894,317,755 (538,442,030) 22,355,875,725 Accumulated value adjustments - opening balance Allocations for the financial year Accumulated value adjustments - closing balance (2,939,291,344) - (2,939,291,344) Net book value - closing balance Net book value - opening balance 19,416,584,381 19,955,026,411 (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, 2016, in connection with cancellations of loans to Tenaris, the value of the participation of Tenaris in Tenaris Investments decreased by USD 538.4 million. As of December 31, 2016 Tenaris Investments reported an equity of USD 20.2 billion and a profit for the financial year of USD 0.8 billion. 108 Tenaris S.A. Notes to the audited annual accounts Note 5 – Capital and reserves Item Subscribed capital Share premium Legal reserve Retained earnings Interim dividend Capital and reserves USD Balance at the beginning of the financial year Loss for the financial year Dividend paid (1) Interim Dividend (2) Balance at the end of the financial year 1,180,536,830 609,732,757 118,053,683 18,201,285,015 (177,080,525) 19,932,527,760 - - - - - - - - - (23,560,717) - (23,560,717) (531,241,574) 177,080,525 (354,161,049) - (153,469,788) (153,469,788) 1,180,536,830 609,732,757 118,053,683 17,646,482,724 (153,469,788) 19,401,336,206 (1) (2) As approved by the ordinary shareholders’ meeting held on May 4, 2016. As approved by the board of directors’ meeting held on November 3, 2016. 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, 2016 was 1,180,536,830 shares with a par value of USD 1 per share. The board of directors is authorized until June 5, 2020, to increase the issued share capital, through issues of shares within the limits of the authorized capital. Note 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. Note 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, 2016, profit brought forward after deduction of the loss and the interim dividend for the financial year of Tenaris under Luxembourg law totaled approximately USD 17.5 billion. The share premium amounting to USD 0.6 billion can also be reimbursed. Note 8 – Interim dividend paid In November 2016, the Company paid an interim dividend of USD 153.5 million based on the board of directors’ decision of November 3, 2016 and in compliance with the conditions set out in the “Amended law of August 10, 1915 on commercial companies” regarding the payment of interim dividends. Note 9 – Taxes For the financial year ended December 31, 2016 the Company did not realize any profits subject to tax in Luxembourg. The Company is liable to the minimum Net Wealth Tax. 109 Tenaris S.A. Notes to the audited annual accounts Note 10 – Balances with affiliated undertakings Within a year USD After more than one year and within five years USD After more than five years Total at December 31, 2016 Total at December 31, 2015 USD USD USD - 1,431 1,431 - - - - - - - 1,431 1,431 4,304,708 737 4,305,445 1,300,000 1,284,868 119,982 100,000 900,000 680,580 - - 1,319 4,386,749 6,788,102 - 179,600 372,188 260,663 - - - - 7,600,553 890,775 - 278,815 79,969 577,880 - - - - 1,827,439 8,978,877 1,284,868 578,397 552,157 1,738,543 680,580 - - 1,319 13,814,741 14,809,044 1,425,235 609,913 482,368 1,550,104 - 6,514,874 103,740 874 25,496,152 2016 USD 20,921,590 968,333 714,214 22,604,137 2015 USD 21,241,982 1,025,000 715,855 22,982,837 Assets Debtors Tenaris Solutions AG in Liquidation Others Total Creditors Siderca Sociedad Anónima Industrial y Comercial Dalmine S.p.A. Tenaris Solutions Uruguay S.A. Tubos de Acero de México, S.A. Maverick Tube Corporation Confab Industrial S.A. Tenaris Solutions AG in Liquidation SIAT Sociedad Anónima Others Total Note 11 – Other operating charges Services and fees Board of directors' accrued fees Others Note 12 – Parent Company Tenaris’s controlling shareholders as of December 31, 2016 were as follows:  San Faustin S.A., a Luxembourg Société Anonyme (“San Faustin”), owned 713,605,187 shares in the Company, representing 60.45% of the Company’s capital and voting rights.  San Faustin owned all of its shares in the Company through its wholly-owned subsidiary Techint Holdings S.à r.l., a Luxembourg Société à Responsabilité Limitée, who is the holder of record of the above-mentioned Tenaris shares.  Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin, a Dutch private foundation (Stichting) (“RP STAK”) held 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 0.10% of the Company’s outstanding shares. 110 Tenaris S.A. Notes to the audited annual accounts Note 13 – Subsequent event Annual Dividend Proposal On February 22, 2017 the Company’s board of directors proposed, for the approval of the annual general shareholders' meeting to be held on May 3, 2017, the payment of an annual dividend of USD 0.41 per share (USD 0.82 per ADS) or approximately USD 484.0 million, which includes the interim dividend of USD 0.13 per share (USD 0.26 per ADS), or approximately USD 153.5 million, paid in November 2016. If the annual dividend is approved by the shareholders, a dividend of USD 0.28 per share (USD 0.56 per ADS), or approximately USD 330.5 million will be paid on May 24, 2017, with an ex-dividend date of May 22, 2017. These annual accounts do not reflect this dividend payable. /s/ Edgardo Carlos Chief Financial Officer Edgardo Carlos 111 EXHIBIT I – ALTERNATIVE PERFORMANCE MEASURES EBITDA, Earnings before interest, tax, depreciation and amortization. EBITDA provides an analysis of the operating results excluding depreciation and amortization and impairments, as they are non-cash variables which can vary substantially from company to company depending on accounting policies and the accounting value of the assets. EBITDA is an approximation to pre-tax operating cash flow and reflects cash generation before working capital variation. EBITDA is widely used by investors when evaluating businesses (multiples valuation), as well as by rating agencies and creditors to evaluate the level of debt, comparing EBITDA with net debt. EBITDA is calculated in the following manner: EBITDA = Operating results + Depreciation and amortization + Impairment charges/(reversals). Millions of U.S. dollars For the year ended December 31, 2016 2015 Operating (loss) income Depreciation and amortization Depreciation and amortization from discontinued operations Impairment EBITDA (59) 662 (5) - 598 166 659 (5) 400 1,219 Net cash/(debt) position This is the net balance of cash and cash equivalents, other current investments and fixed income investments held to maturity less total borrowings. It provides a summary of the financial solvency and liquidity of the company. Net cash / (debt) is widely used by investors and rating agencies and creditors to assess the company’s leverage, financial strength, flexibility and risks. Net cash/(debt) position is calculated in the following manner: Net cash/(debt) = Cash and cash equivalents + Other investments (Current) + Fixed income investments held to maturity – Borrowings (Current and Non-current). Millions of U.S. dollars Cash and cash equivalents Other current investments Non-current fixed income investments held to maturity Borrowings -current and non current- Net cash position At December 31, 2016 2015 400 1,633 248 (840) 1,441 287 2,141 393 (972) 1,849 112 Free Cash Flow Free cash flow is a measure of financial performance, calculated as operating cash flow less capital expenditures. FCF represents the cash that a company is able to generate after spending the money required to maintain or expand its asset base. Free cash flow is calculated in the following manner: Free cash flow = Net cash (used in) provided by operating activities – Capital expenditures. Millions of U.S. dollars Net cash provided by operating activities Capital expenditures Free cash flow For the year ended December 31, 2016 2015 864 (787) 77 2,215 (1,132) 1,083 113 INVESTOR INFORMATION Investor Relations Director Giovanni Sardagna 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 General Inquiries investors@tenaris.com Stock Information New York Stock Exchange (TS) Mercato Telematico Azionario (TEN) Mercado de Valores de Buenos Aires (TS) Bolsa Mexicana de Valores, S.A.B. de C.V. (TS) ADS Depositary Bank Deutsche Bank CUSIP No. 88031M019 Internet www.tenaris.com 114 

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