Tenaris SA Annual Report 2017

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FY2017 Annual Report · Tenaris SA

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Annual Report
2017

Certain defined terms

Cautionary statement concerning

Unless otherwise specified or if the context so requires:

forward-looking statements

•

References in this annual report to “the Company” refer exclusively

This annual report and any other oral or written statements made by

to Tenaris S.A., a Luxembourg public limited liability company (société

us to the public may contain “forward-looking statements” under

anonyme).

applicable securities laws. Forward-looking statements are based on

•

References in this annual report to “Tenaris”, “we”, “us” or “our”

management’s current views and assumptions and are provided to allow

refer to Tenaris S.A. and its consolidated subsidiaries. See “II.

potential investors the opportunity to understand management’s beliefs

Accounting Policies A. Basis of presentation” and “II. Accounting

and opinions in respect of the future so that they may use such beliefs

Policies B. Group accounting” to our audited consolidated financial

and opinions as one factor in evaluating an investment. Forward-looking

statements included in this annual report.

statements involve known and unknown risks that could cause actual

•

References in this annual report to “San Faustin” refer to San Faustin S.A.,

results, performance or events to differ materially from those expressed

a Luxembourg public limited liability company (société anonyme) and the

or implied by those statements.

Company’s controlling shareholder.

•

“shares” refers to ordinary shares, par value $1.00, of the Company.

We use words such as “aim”, “will likely result”, “will continue”,

“ADSs” refers to the American Depositary Shares, which are evidenced

“contemplate”, “seek to”, “future”, “objective”, “goal”, “should”,

by American Depositary Receipts, and represent two shares each.

“will pursue”, “anticipate”, “estimate”, “expect”, “project”,

“OCTG” refers to oil country tubular goods.

“intend”, “plan”, “believe” and words and terms of similar substance

“tons” refers to metric tons; one metric ton is equal to 1,000

to identify forward-looking statements, but they are not the only way

kilograms, 2,204.62 pounds, or 1.102 U.S. (short) tons.

we identify such statements. This annual report contains forward-

“billion” refers to one thousand million, or 1,000,000,000.

looking statements, including with respect to certain of our plans and

“U.S. dollars”, “US$”, “USD” or “$” each refers to the United States dollar.

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

Presentation of certain financial and other information

limited to, “Business Overview”, “Principal Risks and Uncertainties”,

ACCOUNTING PRINCIPLES

and “Operating and Financial Review and Prospects”. In addition

to the risks related to our business discussed under “Principal Risks

We prepare our consolidated financial statements in accordance with

and Uncertainties”, other factors could cause actual results to differ

International Financial Reporting Standards, or IFRS, as issued by the

materially from those described in the forward-looking statements.

International Accounting Standards Board, or IASB, and in accordance

These factors include, but are not limited to:

with IFRS as adopted by the European Union. Additionally, this annual

report includes non-IFRS alternative performance measures such as

•

our ability to implement our business strategy or to grow through

EBITDA, Net cash/debt position and Free Cash Flow. See Exhibit I for

acquisitions, joint ventures and other investments;

more details on these alternative performance measures.

Following the sale of our steel electric conduit business in North America,

•

the competitive environment in our business and our industry;

our ability to price our products and services in accordance with our

known as Republic Conduit, the results of the conduit business are

strategy;

presented as discontinued operations in accordance with IFRS 5

•

our ability to absorb cost increases and to secure supplies of essential

“Non-current Assets Held for Sale and Discontinued Operations”.

raw materials and energy;

Consequently, all amounts related to discontinued operations within

•

our ability to adjust fixed and semi-fixed costs to fluctuations in

each line item of the consolidated income statement are reclassified

product demand;

into discontinued operations. The consolidated statement of cash flows

•

trends in the levels of investment in oil and gas exploration and drilling

includes the cash flows for continuing and discontinued operations; cash

worldwide;

flows from discontinued operations and earnings per share are disclosed

•

general macroeconomic and political conditions in the countries in

separately in note 28 “Net assets of disposal group classified as held for

which we operate or distribute pipes; and

sale” to our audited consolidated financial statements included in this

•

changes to applicable laws and regulations, including the imposition of

annual report, as well as additional information detailing net assets of

tariffs or quotas or other trade barriers.

disposal group classified as held for sale and discontinued operations.

We publish consolidated financial statements expressed in U.S. dollars.

By their nature, certain disclosures relating to these and other risks

Our consolidated financial statements included in this annual report

are only estimates and could be materially different from what actually

are those as of December 31, 2017 and 2016, and for the years ended

occurs in the future. As a result, actual future gains or losses that may

December 31, 2017, 2016 and 2015.

affect our financial condition and results of operations could differ

ROUNDING

materially from those that have been estimated. You should not place

undue reliance on the forward-looking statements, which speak only

Certain monetary amounts, percentages and other figures included

as of the date of this annual report. Except as required by law, we

in this annual report have been subject to rounding adjustments.

are not under any obligation, and expressly disclaim any obligation to

Accordingly, figures shown as totals in certain tables may not be the

update or alter any forward-looking statements, whether as a result of

arithmetic aggregation of the figures that precede them, and figures

changes of circumstances or management’s estimates or opinions, new

expressed as percentages in the text may not total 100% or, as

information, future events or otherwise.

applicable, when aggregated may not be the arithmetic aggregation

of the percentages that precede them.

Index

05.

Leading indicators

06.

Letter from the Chairman

08.

Company profile

09.

Management report

09.

Information on Tenaris

24.

26.

40.

63.

71.

72.

93.

96.

97.

Tenaris in numbers

Principal Risks and Uncertainties

Operating and Financial Review and Prospects

Quantitative and Qualitative Disclosure

about Market Risk

Outstanding Legal Proceedings

Recent Developments

Corporate Governance Statement

Related Party Transactions

Dividend Policy

Non-financial Information

99.

Management certification

101.

Financial information

101.

Consolidated Financial Statements

211.

Annual Accounts (Luxembourg GAAP)

228.

Exhibit I – Alternative performance measures

231.

Investor information

Annual Report4.

TenarisLeading indicators

TUBES SALES VOLUMES (thousands of tons)

Seamless

Welded

Total

TUBES PRODUCTION VOLUMES (thousands of tons)

Seamless

Welded

Total

FINANCIAL INDICATORS (millions of $)

Net sales

Operating income (loss)

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 (4)

NUMBER OF EMPLOYEES (4)

2017

2016

2015

2,157

461

2,618

2,347

544

2,890

5,289

335

943

536

(22)

558

1,635

355

1,990

1,735

305

2,040

4,294

(59)

598

864

787

2,028

605

2,633

1,780

633

2,413

6,903

166

1,219

(74)

2,215

1,132

14,398

14,003

14,887

966

680

2,817

11,581

840

1,441

2,590

972

1,849

3,021

11,413

11,866

1,180,537

0.46

0.92

0.41

0.82

0.05

0.09

0.41

0.82

31.86

35.71

(0.07)

(0.14)

0.45

0.90

23.80

21,605

19,399

21,741

1. Defined as operating income plus depreciation, amortization and impairment charges/(reversals).

2. Defined as cash and cash equivalents, other current investments and fixed income

See Exhibit I.
In 2015, the EBITDA figure excludes an impairment charge of $400 million on our North American
welded pipe operations. 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 million and
$1,396 million in 2016 and 2015 respectively.

investments held to maturity less total borrowings. See Exhibit I.

3. Each ADS represents two shares.

4. As of December 31 of each year.

5. Proposed or paid in respect of the year.

Annual Report

Letter from the Chairman

Dear Shareholders,

2017 has been an important year for Tenaris in which we have put the Company back on a growth path, after
two very difficult ones. The market has begun to recover, our mills have been put back to work and we have Bay
City up and running. We have made excellent progress with advancing our Rig Direct® program around the
world and our financial and economic results are improving rapidly.

The recovery has so far been concentrated in North America, where oil and gas companies have increased
their investment spending in new shale wells thanks to remarkable improvements in well productivities and
drilling efficiencies as well as lower supply costs. This year, the recovery has begun to spread across most of
our markets, and should extend to offshore markets in 2019. Longer-term, higher energy efficiencies and the
ongoing transition to a lower-carbon energy matrix will limit the growth in oil and gas demand worldwide
although it is likely to be many years before we see any decline in consumption.

The technological advances in shale drilling over the past three years, with the use of longer laterals, multiple
fracturing stages, and pad drilling, have contributed not only to extraordinary gains in well productivities
but also to changing product requirements. Tenaris has been at the forefront of developing new products to
accompany these advances, such as our TenarisHydril Wedge XP™ connections, BlueCoil® coiled tubing
products, and AlphaRod® sucker rods.

The start up of our Bay City mill marks the culmination of an intense collaborative effort over three and a
half years. It represents much of the best of Tenaris in terms of the scale and planning of the undertaking, the
innovation of the design, the sharing of expertise across generations, the integration with the local community
and the final achievement. The world’s most advanced seamless pipe mill, representing an investment outlay of
$1.8 billion, is now ramping up to serve its most dynamic market, just as the US government is imposing Section
232 tariffs to reduce steel imports.

At the inauguration ceremony held on 11th December, 2017, members of the US government expressed their
support for the investment and their hope that Tenaris would continue to play a role in the American energy
revolution and manufacturing revival, while community leaders praised the Company for keeping its promises.

Now we have our industrial and service infrastructure fully prepared to support our Rig Direct® strategy. This is
aimed at reducing overall drilling costs and simplifying the operations of our oil and gas customers, integrating
and shortening the supply chain. We have made important progress over the year, not only in the USA and
Canada, where the market has been growing rapidly, but throughout the world. In December, we provided Rig
Direct® services to 360 rigs worldwide, up 50% from a year previously, covering 150 customers.

In North America, we opened new service centers in Midland, Oklahoma and Grand Prairie, and major oil
companies and many large independents now use our Rig Direct® services. In Latin America, we extended the
range of our Rig Direct® services as we renewed long-term agreements with YPF, Ecopetrol and Pemex.
In the Eastern Hemisphere, we established Rig Direct® operations in Thailand, Italy and Indonesia, expanded
our services in the North Sea and Romania, opened a new premium Dopeless® threading facility in Kazakhstan
and will start new operations in the UAE and for Shell’s unconventional drilling operations in China.

This expansion is transforming the relation that Tenaris has with many of its customers and provides further
opportunities for competitive differentiation.

Our offshore line pipe business had an excellent year. We have booked the majority of the relevant projects that
have been sanctioned over the past two years, including ENI’s Zohr project, which achieved an offshore record of
two and half years to go from discovery to first production. We supplied line pipe for Anadarko’s Constellation
project in the Gulf of Mexico and ENI’s Sankofa development in Ghana and were awarded the Tenghizchevroil

TenarisFuture Growth Project in Kazakhstan. We have a large backlog to deliver in 2018. Overall, for the two years,
this represents a volume of around 500,000 tons, a notable achievement even if prices reflect a highly competitive
environment.

During the year, we made an important step in upgrading the environmental performance of our mills,
approving and initiating investments amounting to over $50 million dedicated to this purpose. Our newer
facilities in Bay City, Tamsa and Colombia have been constructed to the highest environmental standards and
we will continue to invest in our more established facilities to upgrade their performance. Through our global
industrial system based on electric furnace steel making and our Rig Direct® service capabilities, we offer
arguably the most environmentally-efficient supply of tubular products to the energy industry.

As we started operations at Bay City, restarted and ramped up operations at our other mills, and expanded our
Rig Direct® operations, we delivered a record 1.4 million hours of training through the year. We achieved this,
even as we renewed the entire curriculum at TenarisUniversity to put our employees at the center of developing
their knowledge, skills and careers. This emphasis on individual empowerment and responsibility as well as
an increased transparency in the Company’s relationship with each employee is at the heart of our efforts to
enhance employee engagement and performance at all levels.

Our economic and financial results improved through the year. In the fourth quarter, we were able to recover
a 20% EBITDA margin and, for the year, we recorded a positive net income of $536 million, which included a
gain on the sale of our Republic Conduit business at the beginning of the year.

Our financial position remains very solid. We ended the year with net cash of $680 million on our balance sheet,
while maintaining our strategic investments. Working capital has increased to support a growing level of sales, the
expansion of our Rig Direct® program and production for offshore pipelines that inevitably have a long lead-time.
Our Board of Directors is proposing to maintain our annual dividend pay out at $0.41 per share ($0.82 per ADS),
amounting to 89% of earnings for the year, based on our financial position and the strong prospects we see ahead.

Coming out from a profound crisis, and after completing a substantial investment program, these results
demonstrate a strong differentiation from our competitors, and leave us well placed to continue increasing our
service level to our customers and respond to the various challenges of our markets.

The recent US governmental ruling to implement Section 232 tariffs on steel imports could create a structural
change in our most dynamic market. To the extent, however, that it is aimed at reducing imports, it should be
positive for us given our extensive domestic capacity. We aim to take full leverage of the investments we have
made to consolidate and strengthen our position throughout North America and worldwide.

As we move forward, I sense a renewed spirit of satisfaction among our employees with what we have accomplished
during the year. In a year that was also marked by catastrophic events, I was particularly impressed by the way our
employees in Houston and Bay City responded in very difficult personal circumstances at the time of Hurricane
Harvey and by the solidarity of our Mexican employees for the victims of the earthquakes. I want to thank all of
them for the commitment and support 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 27, 2018

/s/ Paolo Rocca

Paolo Rocca

Annual ReportCompany profile

s
i
r
a
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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.

Bienfait

AlgomaTubes

St. John’s

Grande Prairie

Leduc

Nisku

Calgary

Fort McMurray

Edmonton

Red Deer

Prudential

Denver

Bakersfield

Hickman

Oklahoma City

Conroe

Midland

Houston

Bay City

Monterrey

Poza Rica

Guadalajara

Reynosa
Tamsa

Freeport

Toronto

Pittsburgh

Westwego

Mexico City

Villahermosa

Dos Bocas

Comalcalco

Ciudad del Carmen

Hammerfest

Tananger

Stavanger

Aberdeen

Esbjerg

Copenhagen

Moscow

Paris

Dalmine

Munich

Lugano

Silcotub

Campina
Ploiesti

Bucharest

Ankara

Algiers

Aksai

Aktau

Ashgabat

Alexandria
Cairo

Dammam

Erbil

Basra

Bahrain

Dubai

Abu Dhabi

Maracaibo

TuboCaribe
Barrancabermeja
Bogotá

Caracas

Barcelona
Villavicencio

Quito

Machachi

Coca

Lima

Sta. Cruz de la Sierra

Lagos

Onne

Accra

Takoradi

Natal

Luanda

Confab

Rio das Ostras

Rio de Janeiro

Mendoza

Santiago

Siderca

Villa Mercedes

Montevideo

Siat

Senillosa

Neuquén

Comodoro Rivadavia

Punta Arenas

Beijing

Yulin

Qingdao

Seoul

NKKTubes

Bangkok

Songkhla

Ho Chi Minh

Kuala Lumpur

Singapore

Batam

Balikpapan

SPIJ

Jakarta

Broome

Perth

Manufacturing Centers

R&D Centers

Service Centers

Commercial Offices

t
r
o
p
e
R

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A

Information
on Tenaris

The Company
Our holding company’s legal and commercial
name is Tenaris S.A. The Company is 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
and other related businesses. For information on
the Company’s subsidiaries, see note 30 “Principal
subsidiaries” to our audited consolidated financial
statements included in this annual report.

Our shares are traded on the Buenos Aires
Stock Exchange, the Italian Stock Exchange and
the Mexican Stock Exchange; the Company’s
American Depositary Shares, or ADS, are traded
on the New York Stock Exchange, or NYSE.

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 the date of this
annual report, 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;

10.

•

S.C. Silcotub S.A., or Silcotub, a leading Romanian
producer of seamless steel pipe products;
Maverick Tube Corporation, or Maverick, a leading
U.S. producer of welded steel pipe products;
Prudential Steel Ltd., or Prudential, a welded
pipe mill producing oil country tubular goods, or
OCTG, and line pipe products in Canada;
Tenaris Tubocaribe Ltda., or Tubocaribe, a welded
pipe mill producing OCTG, and line pipe products
in Colombia;
Hydril Company, or Hydril, a leading North
American manufacturer of premium connection
products for oil and gas drilling production;
PT Seamless Pipe Indonesia Jaya, or SPIJ, an
Indonesian OCTG processing business with heat
treatment and premium connection threading
facilities;
Pipe Coaters Nigeria Ltd., the leading company in
the Nigerian coating industry;
Ternium S.A., or Ternium, one of the leading flat
steel producers of the Americas with operating
facilities in Mexico, Brazil, Argentina, Colombia,
the southern United States and Central America;
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;
Techgen S.A. de C.V., or Techgen, an electric power
plant in Mexico; 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 consolidate our position
as a leading global supplier of integrated product

and service solutions to the energy and other
industries by:

•

pursuing strategic investment opportunities in
order to further strengthen our presence in local
and global markets;
expanding our comprehensive range of products and
developing new products designed to meet the needs
of customers operating in challenging environments;
enhancing our Rig Direct® 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; and
securing an adequate supply of production inputs
and reducing the manufacturing costs of our core
products.

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, in 2017 we have inaugurated
a new greenfield seamless mill in Bay City, Texas.
The new facility includes a state-of-the-art rolling
mill with a capacity of 600,000 tons per year as well
as finishing and heat treatment lines and logistics
center. From a budget of approximately $1.8
billion, as of December 31, 2017, approximately
$1.7 billion had already been invested.

Expanding our range of 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

Tenaris11.

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 challenging environments, including
for complex offshore and unconventional operations.

Enhancing our offer of technical and pipe
management services - Rig Direct® - 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, providing technical advice and
assistance on the selection of materials and their
use in the field, 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 around 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.

Securing inputs for our manufacturing operations
We seek to secure our existing sources of raw
material and energy inputs, and to gain access to
new sources, of low-cost inputs which can help us
maintain or reduce the cost of manufacturing our

core products over the long term. For example, in
February 2014, we entered into an agreement with
our affiliates Ternium and Tecpetrol 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.

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.

•

•
•

•

Annual Report12.

Business Segments
Tenaris has one major business segment, Tubes,
which is also the reportable operating segment.

For more information on our business segments, see
“II. Accounting Policies C. Segment information”
to our audited consolidated financial statements
included in this annual report.

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 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.

The Others segment 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, utility conduits for
buildings, energy and raw materials that exceed
internal requirements.

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.

TenarisMechanical 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 and 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.

Production Process and Facilities
We operate relatively low-cost production facilities,
which we believe is the result of:

13.

•
•

•

state-of-the-art, strategically located plants;
favorable access to high quality raw materials,
energy and labor at competitive costs;
operating history of more than 60 years, which
translates into solid industrial know-how;
constant benchmarking and best-practices sharing
among the different facilities;
increasing specialization of each of our facilities in
specific product ranges; and
extensive use of information technology in our
production processes.

Our seamless pipes production facilities are located
in North and South America, Europe and Asia and
our welded pipes production facilities are located
in North and South America. In addition, we
have tubular accessories facilities, such as sucker
rods, in Argentina, Brazil, Mexico, Romania,
and the United States. We produce couplings in
Argentina, China, Colombia, Indonesia, Mexico
and Romania, and pipe fittings in Mexico. In
addition to our pipe threading and finishing
facilities at our integrated pipe production
facilities, we also have pipe threading facilities for
steel pipes manufactured in accordance with the
specifications of the American Petroleum Institute,
or API, and premium joints in the United States,
Canada, China, Denmark, Ecuador, Kazakhstan,
Indonesia, Nigeria, the United Kingdom and
Saudi Arabia.

The following table shows our aggregate installed
production capacity of seamless and welded steel
pipes and steel bars at the dates indicated as well
as the aggregate actual production volumes for the

Annual Report14.

periods indicated. The figures for effective annual
capacity are based on our estimates of effective
annual production capacity under present conditions.

Thousands of tons

AT OR FOR THE YEAR ENDED DECEMBER 31

2017

2016

2015

STEEL BARS

Effective Capacity (annual) (1)

Actual Production

TUBES – SEAMLESS

Effective Capacity (annual) (1)

Actual Production

TUBES – WELDED

Effective Capacity (annual) (1)

Actual Production

3,835

2,793

3,680

2,347

2,620

544

3,835

2,010

3,680

1,735

2,620

305

3,835

1,875

3,820

1,780

2,620

633

1. Effective annual production capacity is calculated based on standard productivity of production
lines, theoretical product mix allocations, the maximum number of possible working shifts and a
continued flow of supplies to the production process.

In December 2017, we inaugurated a new greenfield
seamless mill in Bay City, Texas. The new facility
includes a state-of-the-art rolling mill as well as
finishing and heat treatment lines and logistics
center. The Bay City mill will add a seamless pipe
production capacity of approximately 600,000 tons
per year.

Competition
The global market for steel pipe products is highly
competitive. Seamless steel pipe products, which
are used extensively in the oil and gas industry
particularly for high pressure, high stress and other
complex applications, are produced in specialized
mills using round steel billets and specially produced
ingots. Welded steel pipe products are produced
in mills which process steel coils and plates into
steel pipes. Steel companies that manufacture steel

coils and other steel products but do not operate
specialized seamless steel mills are generally not
competitors in the market for seamless steel pipe
products, although they often produce welded steel
pipes or sell steel coils and plates used to produce
welded steel pipes.

The production of steel pipe products following
the stringent requirements of major oil and gas
companies requires the development of specific
skills and significant investments in manufacturing
facilities. By contrast, steel pipe products for
standard applications can be produced in most
seamless pipe mills worldwide and sometimes
compete with welded pipe products for such
applications including OCTG applications.
Welded pipe, however, is not generally considered
a satisfactory substitute for seamless steel pipe in
high-pressure or high-stress applications.

Tenaris

15.

Over the past decade, substantial investments
have been made, especially in China but also
in other regions around the world, to increase
production capacity of seamless steel pipe
products. Production capacity for more specialized
product grades has also increased. With the
downturn between 2014 and 2016 in the price of
oil and demand for tubes for oil and gas drilling,
the overcapacity in steel pipe and seamless steel
pipe production worldwide has become acute,
and now extends beyond commodity grades. The
competitive environment has, as a result, become
more intense, and we expect that this will continue
for some time. Effective competitive differentiation
will be a key factor for Tenaris.

•

Our principal competitors in steel pipe markets
worldwide are described below.
Vallourec, a French company, has mills in Brazil,
China, Germany and the United States. Vallourec
has a strong presence in the European market for
seamless pipes for industrial use and a significant
market share in the international market with
customers primarily in Europe, the United
States, Brazil, China, the Middle East and Africa.
Vallourec is an important competitor in the
international OCTG market, particularly for high-
value premium joint products, where it operates
a technology partnership for VAM® premium
connections with Nippon Steel & Sumitomo
Metal Corporation, or NSSMC. Prior to the
collapse in oil prices in 2014 to 2016, Vallourec
increased its production capacity by building a
new mill in Brazil jointly with NSSMC, which
is aimed primarily at export markets and was
commissioned in 2011, and a second seamless pipe
rolling mill at its existing facility in Youngstown,
Ohio, which began commercial production at the
end of 2012. In addition to the construction of the
new Youngstown mill, Vallourec has reinforced
its positioning in the United States through the

acquisition of three tubular businesses from Grant
Prideco: Atlas Bradford® Premium Threading
& Services, TCA® and Tube-Alloy. Vallourec has
also strengthened its position in the Middle East
through the acquisition of heat treatment and
threading facilities in Saudi Arabia in 2011 and, in
2010, it concluded an agreement with a Chinese
seamless steel producer, Tianda Oil Pipe Company,
or Tianda, under which it began to distribute
products from Tianda in markets outside China.
In early 2016, in response to accumulating losses,
Vallourec announced a $1 billion capital increase,
more than half of which was provided by a French
government fund and NSSMC, who each agreed to
increase their equity participation to 15%. At the
same time, an industrial restructuring program was
announced under which Vallourec reduced capacity
in Europe, closing its rolling mills in France,
combined its operations in Brazil with that of the
new mill held with NSSMC, acquired a majority
position in Tianda and bought out the remaining
minority interest, and strengthened its cooperation
with NSSMC for the development and testing of
premium connection products and technology.
Japanese players NSSMC and JFE together enjoy
a significant share of the international market,
having established strong positions in markets
in the Far East and the Middle East. They are
internationally recognized for their supply of high-
alloy grade pipe products. In recent years, NSSMC
has increased its capacity to serve international
markets through the construction with Vallourec
of a new seamless pipe mill in Brazil, and has
further strengthened its ties with Vallourec through
participating in Vallourec’s capital increase and
combining their respective Brazilian operations.
In recent years, TMK, a Russian company, has led
consolidation of the Russian steel pipe industry,
invested to modernize and expand its production
capacity in Russia and expanded internationally
through acquisitions into Eastern Europe and

•

Annual Report16.

the United States where it acquired a significant
position in the U.S. market through its acquisition
of IPSCO’s tubular operations comprising both
seamless and welded pipe mills and the Ultra family
of connections. In 2012, TMK opened a research
and development center in Houston and has
been expanding its capacity to produce premium
connection products. TMK also expanded in the
Middle East through the acquisition of a controlling
interest in Gulf International Pipe Industry LLC, a
welded pipe producer in Oman.
Over the past decade, Chinese producers have
increased production capacity substantially and
strongly increased their exports of steel pipe
products around the world. Due to unfair trading
practices, many countries, including the United
States, the European Union, Canada, Mexico
and Colombia, have imposed anti-dumping
restrictions on Chinese imports to those regions.
The largest Chinese producer of seamless steel
pipes, TPCO, is currently building a new seamless
pipe facility in the United States; heat treatment
and pipe finishing facilities have been constructed
and steelmaking and hot rolling facilities are
currently under construction in Corpus Christi,
Texas. Although producers from China compete
primarily in the “commodity” sector of the
market, some of these producers, including TPCO,
have been upgrading their facilities and processes
with the intention of entering into the market for
more specialized products.
The tubes and pipes business in the United States
and Canada experienced a significant consolidation
process several years ago. Following the acquisitions
of Maverick and Hydril by Tenaris, US Steel

•

Corporation acquired Lone Star Steel Technologies.
In 2008, Evraz Group S.A. and TMK, two Russian
companies, acquired IPSCO’s Tubular division
which has both seamless and welded mills in the
United States and Canada. Evraz retained IPSCO’s
operations in Canada while TMK acquired IPSCO’s
operations in the United States, as mentioned above.
More recently, however, many new players have
built, or announced plans to build, pipe mills in the
United States. These include, in addition to TPCO,
Boomerang LLC, a company formed by a former
Maverick executive that opened a welded pipe mill
in Liberty, Texas, in 2010, Benteler, a European
seamless pipe producer that built a new seamless
pipe mill in Louisiana, which opened in September
2015, and OCT Pipe, LLC, a company building a
seamless pipe mill with heat treatment and OCTG
threading facilities in Norfolk, Nebraska. North
American pipe producers are largely focused on
supplying the U.S. and Canadian markets, where
they have their production facilities.
Korean welded pipe producers, who have a limited
domestic market, have expanded capacity in recent
years and targeted the U.S. market for standard
applications. They have gained a relevant market
position, despite the application of anti-dumping
duties for unfair trading practices.
Tubos Reunidos S.A. of Spain, Benteler A.G. of
Germany and Voest Alpine AG of Austria each
have a significant presence in the European market
for seamless steel pipes for industrial applications,
while the latter also has a relevant presence in
the international OCTG market, and in 2016,
Tubos Reunidos S.A. opened an OCTG threading
facility targeting international markets. In 2006,

•

Tenaris17.

•

ArcelorMittal created a tubes division through several
acquisitions and has mills in North America, Eastern
Europe, Venezuela, Algeria and South Africa and has
built a seamless pipe mill in Saudi Arabia.
In the Middle East, particularly in Saudi Arabia,
which has implemented policies to encourage local
production for its oil and gas industry, a number of
pipe mills have been established including a seamless
pipe mill built by Jubail Energy Services Company
(JESCO), a company established with majority
participation from a state-backed industrial
development company, and the seamless pipe mill
built by ArcelorMittal. These local players have
been strengthening their capabilities and are taking
an increasing share of the pipes supplied to Saudi
Aramco as well as exporting to other countries in
the Middle East and the rest of the world.

Producers of steel pipe products can maintain
strong competitive positions in markets where
they have their pipe manufacturing facilities due to
logistical and other advantages that permit them
to offer value-added services and maintain strong
relationships with domestic customers, particularly
in the oil and gas sectors. Our subsidiaries have
established strong ties with major consumers of
steel pipe products in their home markets, reinforced
by Rig Direct® services, as discussed above.

Capital Expenditure Program
During 2017, our capital expenditures, including
investments at our plants and investments in
information systems, amounted to $558 million,
compared to $787 million in 2016 and $1,132

million in 2015. Of these capital expenditures,
investment at our plants amounted to $525 million
in 2017, compared to $757 million in 2016 and
$1,066 million in 2015.

In 2017, in addition to capacity expansion in
the United States, we focused on improving our
finishing capabilities, mainly heat treatment and
threading facilities, including premium products
lines and investments at our R&D centers. The
major highlights of our capital spending program
during 2017 included:

•

the construction of our new greenfield seamless
facility in Bay City, Texas, in the United States,
which was inaugurated in December 2017;
the completion of the construction of a new state-of-
the-art threading line for premium products and new
heat treatment line at our Veracruz facility in Mexico;
created logistic yards in Canada (Grande Prairie) and
the United States (Midland and Oklahoma City);
the beginning of the revamping and debottlenecking
of the steel shop in Calarasi (Romania);
the revamping of our heavy wall line pipe and
coating capacity at our Pindamonhangaba mill in
Brazil (Zohr Project);
the increase in production capacity in our coupling
shop in Colombia; and
the beginning of the expansion of heat treatment
capacity at our mill in Italy.

Capital expenditures in 2018 are expected to be
lower than the level reached in 2017, mainly focus
on enhancing automation at our industrial process,
product differentiation, increasing local finishing

Annual Report18.

capabilities, as well as enhancing plant’s safety and
minimizing environmental impact.

In addition to capital expenditures at our plants,
we have invested in information systems for the
integration of our production, commercial and
managerial activities. These investments are
intended to promote the further integration of
our operating facilities and enhance our ability
to provide value-added services to customers
worldwide. Investments in information systems
totaled $28 million in 2017, compared to $29
million in 2016 and $65 million in 2015.

Research and Development
Research and development, or R&D, of new
products and processes to meet the increasingly
stringent requirements of our customers is an
important aspect of our business.

R&D activities are carried out primarily at our
specialized research facilities located at Campana
in Argentina, at Veracruz in Mexico, at Dalmine
in Italy, 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 R&D currently being undertaken are
focused on the increasingly challenging energy
markets and include:

•

•
•

•
•
•
•
•

proprietary premium joint products including
Dopeless® technology;
heavy-wall deepwater 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;
coiled tubing; 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, through the
use of patents, trade secrets, trademarks and
other intellectual property tools that allow us to
differentiate ourselves from our competitors.

We spent $64 million in R&D in 2017, compared
to $69 million in 2016 and $89 million in 2015.

TenarisEnvironmental 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 from one jurisdiction to another.

The ultimate impact of complying with existing
laws and regulations is not always clearly known
or determinable since regulations under some of
these laws are not yet effective 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, in 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.

19.

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.

Insurance
We carry property damage, general liability and
certain other insurance coverage in line with
industry practice. Our current general liability
coverage includes third party, employers, sudden
and accidental seepage and pollution and product
liability, up to a limit of $300 million. Our current
property insurance has indemnification caps up to
$250 million for direct damage, depending on the
different plants; and a deductible of $100 million.

Annual Report20.

Organizational Structure and Subsidiaries
We conduct all our operations through subsidiaries.
The following table shows the significant operating
subsidiaries of the Company and its direct
and indirect ownership in each subsidiary as
of December 31, 2017, 2016 and 2015.

Main activity

Percentage of ownership

Company

Algoma Tubes Inc.

Confab Industrial S.A.

Dalmine S.p.A.

Exiros B.V.

Country of

Organization

Canada

Brazil

Italy

Manufacturing of seamless steel pipes

Manufacturing of welded steel pipes and capital goods

Manufacturing of seamless steel pipes

Netherlands

Procurement of raw materials and other products

Hydril Company

Maverick Tube Corporation

Metalmecanica S.A.

NKKTubes

USA

Argentina

Japan

or services

Manufacture and marketing of premium connections

Manufacturing of welded steel pipes

Manufacturing of sucker rods

Manufacturing of seamless steel pipes

P.T. Seamless Pipe Indonesia Jaya

Indonesia

Manufacturing of seamless steel products

Prudential Steel Ltd.

S.C. Silcotub S.A.

Siat Sociedad Anonima

Siderca S.A.I.C.

Tenaris Bay City, Inc.

Tenaris Coiled Tubes LLC

Canada

Romania

Argentina

USA

Manufacturing of welded steel pipes

Manufacturing of seamless steel pipes

Manufacturing of welded and seamless steel pipes

Manufacturing of seamless steel pipes

Manufacturing of coiled tubing

Tenaris Connections B.V.

Netherlands

Development, management and licensing

Tenaris Financial Services S.A.

Tenaris Global Services S.A.

Tenaris Tubocaribe Ltda.

Uruguay

Colombia

of intellectual property

Financial company

Holding company and marketing of steel products

Manufacturing of welded and seamless steel pipes

Tubos de Acero de Mexico S.A.

Mexico

Manufacturing of seamless steel pipes

2017

100%

50%

100%

51%

89%

100%

2016

100%

50%

100%

51%

77%

100%

2015

100%

99%

50%

100%

51%

77%

100%

Tenaris

21.

Other Investments

Ternium
We have a significant investment in Ternium, a
Luxembourg company controlled by San Faustin,
whose securities are listed on the NYSE. As of
December 31, 2017, the Company held 11.46% of
Ternium’s share capital (including treasury shares).

The Company is a party to a shareholders’
agreement with Techint Holdings S.àr.l., or
Techint Holdings, a wholly owned subsidiary of
San Faustin, pursuant to which Techint Holdings
will take all actions in its power to cause one of
the members of Ternium’s board of directors to
be nominated by the Company and any directors
nominated by the Company only to be removed
pursuant to written instructions by the Company.
The Company and Techint Holdings also agreed
to cause any vacancies on Ternium’s board of
directors to be filled with new directors nominated
by either the Company or Techint Holdings, as
applicable. The shareholders’ agreement will
remain in effect as long as each of the parties holds
at least 5% of the shares of Ternium or until it
is terminated by either the Company or Techint
Holdings pursuant to its terms. Carlos Condorelli
was nominated as a director of Ternium pursuant
to this shareholders’ agreement.

Usiminas
On January 16, 2012, the Company’s subsidiary,
Confab, acquired 5.0% of the shares with voting
rights and 2.5% of the total share capital in
Usiminas, a leading Brazilian producer of high
quality flat steel products used in the energy,
automotive and other industries. The acquisition
was part of a larger transaction pursuant to which
Confab and Ternium and certain of Ternium’s
subsidiaries 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.
In addition, Confab and Ternium and certain of
Ternium’s subsidiaries entered into a shareholders’
agreement with NSSMC, Mitsubishi, Metal One
and Previdência Usiminas, an Usiminas employee
fund, governing the parties’ rights within the
Usiminas control group.

Following the subscription in 2016 to 1.3 million
Usiminas preferred shares and 11.5 million
Usiminas ordinary shares by Confab, as of
December 31, 2017, Tenaris owned 36.5 million
ordinary shares and 1.3 million preferred shares
of Usiminas, representing 5.2% of Usiminas’
total voting capital and 3.1% of Usiminas’ total
share capital. Of these, 25.0 million ordinary
shares are subject to the Usiminas shareholders’
agreement and the remaining 12.8 million shares
are not subject to the shareholders’ agreement.
Usiminas’ control group now holds 541.7 million
ordinary shares representing approximately
76.8% of Usiminas’ voting capital. Of these,
322.7 million ordinary shares are subject to the
Usiminas shareholders’ agreement, and 219.0
million ordinary shares are not subject to the
shareholders agreement, although during the
term of the Usiminas shareholders’ agreement
all members of Usiminas’ control group are
required to vote such shares in accordance with
the control group’s decisions. For a discussion of
the recent developments concerning the Usiminas
shareholders’ agreement, see note 33 “Subsequent
event - Agreement regarding governance of
Usiminas” to our audited consolidated financial
statements included in this annual report.

The rights and obligations of Confab and Ternium
and its subsidiaries within the Ternium/Tenaris
Group are governed under a separate shareholders’
agreement.

Annual Report22.

Techgen
Techgen is a joint venture company owned 48% by
Ternium, 30% by Tecpetrol International S.A. and
22% by Tenaris. Techgen built a natural gas-fired
combined cycle electric power plant in the Pesquería
area of the State of Nuevo León, Mexico. The
plant became fully operational in December 2016

AT DECEMBER 31

Argentina

Mexico

Italy

United States

Romania

Brazil

Colombia

Canada

Indonesia

Japan

Other Countries

Employees in discontinued operations

Total employees in continuing operations

producing and providing energy to Tenaris’s and
Ternium’s Mexican facilities.

Employees
The following table shows the number of persons
employed by Tenaris:

2017

2016

2015

5,221

5,139

2,088

1,953

1,870

1,382

1,003

919

506

410

4,755

4,968

1,979

1,636

1,631

1,166

750

473

509

458

1,114

21,605

1,074

19,399

–

(323)

5,388

5,101

2,030

2,190

1,624

2,050

636

546

532

508

1,136

21,741

(292)

21,605

19,076

21,449

Tenaris
23.

The number of our employees increased 11%
during 2017 as we adjusted our operations to
face the increase in drilling activity and demand
of pipes. After two years of reduction, our labor
costs worldwide related to continuing operations
increased 14%.

Approximately 65% of our employees are
unionized. For many years, we have enjoyed 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 major strikes or other labor conflicts
with a material impact on our operations over the
last five years. In 2017, however, our operations
in Mexico experienced a few days of union-led
stoppages due to an internal dispute within the local
union; such internal dispute is ongoing, and we
cannot assure it will not cause further disruptions in
Mexico. 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.

Annual ReportNET SALES

EARNINGS PER SHARE

NET SALES BY

BUSINESS SEGMENT

NET SALES BY

GEOGRAPHIC AREA

N
O
I
L
L
I
M

D
S
U

12000

10000

8000

10424

10141

6903

D
S
U

1.4

1.2

1.0

0.8

1.31

0.98

6000

Tenaris in numbers

4000

5289

4294

0.6

0.2

0.4

0.46

2000

-0.2

-0.07

0.05

2013 2014 2015 2016

2017

2013 2014 2015 2016

2017

Trend information

Leading indicators

TUBES
94%

OTHER
6%

EUROPE
10%

PERSONNEL EMPLOYED

PER COUNTRY

ROMANIA

COLOMBIA

JAPAN

OTHER

COUNTRIES

MIDDLE EAST
& AFRICA
18%

ASIA

PACIFIC

INDONESIA

CANADA

SOUTH
AMERICA
22%

NORTH

AMERICA

46%

ITALY

10%

BRAZIL

MEXICO

24%

UNITED

STATES

ARGENTINA

24%

LOST TIME ACCIDENTS INDEX
EARNINGS PER SHARE
EARNINGS PER SHARE
PERSONNEL EMPLOYED
PERSONNEL EMPLOYED
NET SALES BY
GEOGRAPHIC AREA
PER COUNTRY
PER COUNTRY

RETURN ON EQUITY
NET SALES BY
NET SALES BY
PERSONNEL EMPLOYED
BUSINESS SEGMENT
BUSINESS SEGMENT
PER COUNTRY

EBITDA MARGIN

NET SALES BY

GEOGRAPHIC AREA

PERSONNEL EMPLOYED

PER COUNTRY

NET SALES

EARNINGS PER SHARE

24.

D
S
U

12000

1.4

10424
1.2

1.4

1.31

1.2
10141

1.31

1.0

0.98

0.8

6903

6000

0.6

0.4

0.2

5289

0.46

4294

0.05

-0.07

-0.2

-0.2
2013 2014 2015 2016

-0.07

2017
2013 2014 2015 2016

2013 2014 2015 2016
2017

2017

RIG COUNT INTERNATIONAL
EARNINGS PER SHARE

NET SALES BY
NET SALES BY
BUSINESS SEGMENT
BUSINESS SEGMENT
MISC
GAS

OIL

TUBES
94%

242
1.31

1004

248

1050

0.98

229

894

203

196

699

711

0.46

0.05

2013 2014
2016
2013 2014 2015 2016

-0.07
2015

2017
2017

S
D
G
S
I
U
R
1200
1.4

1000
1.2

1.0
800
0.8
600
0.6

400
0.4

0.2
200
0
0
-0.2

OIL

RIG COUNT USA AND CANADA
NET SALES
NET SALES
NET SALES BY
NET SALES BY
NET SALES BY
BUSINESS SEGMENT
GEOGRAPHIC AREA
GEOGRAPHIC AREA
GAS
EUROPE
10%
N
O
I
L
L
I
M

EUROPE
10%
N
O
I
L
L
I
M

MIDDLE EAST
MIDDLE EAST
OTHER
& AFRICA
& AFRICA
6%
18%
18%

D
S
U

S
G
R

OTHER
6%

TUBES
OTHER
94%
6%

2500

12000

10424
10000
494

10000
503

2000

10424
10141

10141

1500

1000

8000
1606
6000

8000

1745

6000

4000

334

835

500

2000

166
471

6903

5289

5289
4294

4294
269

813

3.5

2.5

1.5

NORTH
NORTH
SOUTH
SOUTH
0
0
AMERICA
AMERICA
AMERICA
AMERICA
2015
2014
2016 2017
2013
2013 2014 2015 2016
2017
2013 2014 2015 2016
2017
46%
46%
22%
22%

EUROPE
N
S
10%
R
S
O
U
T
I
N
L
O
L
E
H
I
M
D
N
C
R
A
C
E
M
A
P

COLOMBIA
COLOMBIA
ROMANIA
ROMANIA
MIDDLE EAST
5%
5%
9%
9%
& AFRICA
INDONESIA
INDONESIA
18%
2%
2%
D
S
CANADA
CANADA
U
4%
4%
1.4
1.4
1.31

JAPAN
ROMANIA
JAPAN
9%
2%
2%
OTHER
OTHER
COUNTRIES
COUNTRIES
ASIA
5%
5%
PACIFIC
4%

TUBES
94%
INDONESIA
2%
%
CANADA
4%
25

1.31

D
S
U

ASIA
PACIFIC
4%

COLOMBIA
TUBES
5%
94%

1.2

1.0

0.8
2.2
0.6

1.0
2.7
0.8

0.6

0.4

0.98
2.8

0.98

2.3

2.4

0.46

0.2
0.2
UNITED
UNITED
0
0
STATES
STATES
9%
9%
NORTH
-0.07
-0.07
-0.2
-0.2
BRAZIL
BRAZIL
MEXICO
ITALY
ITALY
MEXICO
AMERICA
2017
2013 2014 2015 2016
2013 2014 2015 2016
2013 2014 2015 2016
2017
6%
6%
10%
10%
24%
24%
46%

0.05

0.5
SOUTH
0
AMERICA
22%

0.05
ARGENTINA
ARGENTINA
24%
24%

UNITED
STATES
9%
-5
ITALY
10%

2017

MEXICO
2013 2014 2015 2016
24%

BRAZIL
6%

Source: Baker Hughes

RIG COUNT INTERNATIONAL

RIG COUNT USA AND CANADA

LOST TIME ACCIDENTS INDEX

RIG COUNT INTERNATIONAL
RIG COUNT INTERNATIONAL
LOST TIME ACCIDENTS INDEX
RETURN ON EQUITY
RETURN ON EQUITY

RETURN ON EQUITY

RIG COUNT USA AND CANADA
EBITDA MARGIN

EBITDA MARGIN

LOST TIME ACCIDENTS INDEX

OIL

GAS

MISC

OIL

OIL
GAS

GAS

MISC
GAS

OIL

GAS

OIL

GAS

MISC

OIL

GAS

N
O
I
L
L
I
M
R
E
P

S
R
U
O
H
N
A
M

S
T
N
E
D
C
C
A

N
O
I
L
L
I
M
R
E
P

S
R
U
O
H
N
A
M

S
T
N
E
D
C
C
A

S
G
R

229
494
503

894
1745
1606

494
53

203
1745

699

196

711

334

269

835

835
166
471

813
166
471

813

2500

2000

1500

1000

500

3.5
503
3

3.5
494
3

2.5
1606
2

2.5
1745
2.2
2

1.5

0.5

2.4
2.3

2.4

2.7

2.2

334

835

2.8

2.3

269

813

2.8
2.7

166
471

1200

S
G
R

2500
242

248
2500

2000
1004

1050
2000
503

1500

1606

1000

500

800

600

400

200

2013 2014

2015

2016

2017

2013 2014
2013

2015
2014
2013

2016
2015
2014

2017
2016 2017
2015

2016 2017

0
2013

0
2013 2014 2015 2016
2013 2014 2015 2016
2017
2016 2017
2014
2015

2017

N
O
I
L
L
I
M
R
E
P

S
R
U
O
H
N
A
M

S
T
N
E
D
C
C
A

3.5

2.5

1.5

0.5

S
G
R

50
%

1200
25

1200
242
25

38
50
248
242

1000
20

1000
20
1004

1050
1004

248
44

229
1050

2.8

894

2.3

800
15

2.2
600
10

800
2.7
15

600
10

400
5

200
0

229
53

203
894

2.4
699

41
53

196
203

196

711
699

711

0
-5

0
-5
2013 2014
2015
2016
2017
2013 2014
2015
2016
2013 2014 2015 2016
2017
2013 2014 2015 2016
2017
2013 2014 2015 2016

2017
2017

S
G
R

2500
30

2000
25

503

494
503

494

-5

20
1500

20
1500
1606

1745
1606

1745

15
1000

10
500
5

334

269

835

813

835
166
471

813
166
471

0
2016 2017
2013
2014
2015
2016 2017
2013
2014
2015
2013 2014 2015 2016
2017
2013 2014 2015 2016 2017
2013 2014 2015 2016 2017

N
O
I
L
L
I
M
R
E
P

S
R
U
O
H
N
A
M

S
T
N
E
D
C
C
A

N
O
I
L
L
I
M
R
E
P

S
R
U
O
H
N
A
M

S
T
N
E
D
C
C
A

2.8

2.7

2.8

2.7

2.2

2.3

2.4

2.3

2.4

3.5

2.5

2.2
2

1.5

0.5

0
2013 2014 2015 2016
2013 2014 2015 2016 2017

2013 2014 2015 2016

Source: Baker Hughes

JAPAN

OTHER

EUROPE

10%

MIDDLE EAST

& AFRICA

18%

OTHER

COUNTRIES

ROMANIA

COLOMBIA

JAPAN

ASIA

PACIFIC

INDONESIA

CANADA

OTHER

COUNTRIES

ARGENTINA

24%

2017

SOUTH

AMERICA

22%

2013 2014 2015 2016 2017

NORTH

AMERICA

46%

UNITED

STATES

ARGENTINA

24%

ITALY

10%

BRAZIL

MEXICO

24%

RETURN ON EQUITY

EBITDA MARGIN

2017

2013 2014 2015 2016

2017

2013 2014 2015 2016 2017

-5

NET SALES

12000

8000

6000

4000

2000

10000

10424

10141

6903

5289

4294

10000

8000

4000

2000

2013 2014 2015 2016

2017

RIG COUNT INTERNATIONAL

1200

242

248

242

1000

1004

1050

1004

248

229

1050

229

1000

894

203

894

196

203

196

699

711

699

711

800

600

400

200

Source: Baker Hughes

Tenaris

NET SALES

EARNINGS PER SHARE

NET SALES

NET SALES BY
NET SALES BY
EARNINGS PER SHARE
BUSINESS SEGMENT
BUSINESS SEGMENT

NET SALES BY
NET SALES BY
NET SALES BY
GEOGRAPHIC AREA
GEOGRAPHIC AREA
BUSINESS SEGMENT

TUBES
94%

OTHER
6%

EUROPE
10%

EUROPE
TUBES
10%
94%

MIDDLE EAST
MIDDLE EAST
& AFRICA
& AFRICA
18%
18%

OTHER
6%
ASIA
ASIA
PACIFIC
PACIFIC
4%
4%

ROMANIA
9%

PERSONNEL EMPLOYED
PERSONNEL EMPLOYED
NET SALES BY
PER COUNTRY
PER COUNTRY
GEOGRAPHIC AREA
ROMANIA
COLOMBIA
COLOMBIA
5%
5%
9%
EUROPE
INDONESIA
INDONESIA
10%
2%
2%
CANADA
CANADA
4%
4%

MIDDLE EAST
& AFRICA
18%

JAPAN
JAPAN
2%
2%
OTHER
OTHER
COUNTRIES
COUNTRIES
ASIA
5%
5%
PACIFIC
4%

25.
PERSONNEL EMPLOYED
PER COUNTRY

ROMANIA
9%

COLOMBIA
5%

INDONESIA
2%
CANADA
4%

JAPAN
2%
OTHER
COUNTRIES
5%

UNITED
STATES
9%
ITALY
10%

ARGENTINA
24%

BRAZIL
6%

MEXICO
24%

SOUTH
SOUTH
AMERICA
AMERICA
22%
22%

NORTH
NORTH
AMERICA
AMERICA
46%
46%

UNITED
UNITED
STATES
STATES
9%
9%
SOUTH
ITALY
ITALY
AMERICA
10%
10%
22%

ARGENTINA
24%

BRAZIL
6%

MEXICO
24%

NORTH
AMERICA
46%

NET SALES

EARNINGS PER SHARE

RIG COUNT INTERNATIONAL

NET SALES BY

RIG COUNT USA AND CANADA

RIG COUNT USA AND CANADA
RIG COUNT INTERNATIONAL

NET SALES BY

LOST TIME ACCIDENTS INDEX
RIG COUNT USA AND CANADA

LOST TIME ACCIDENTS INDEX
PERSONNEL EMPLOYED
PER COUNTRY

RETURN ON EQUITY

RETURN ON EQUITY
LOST TIME ACCIDENTS INDEX

EBITDA MARGIN

EBITDA MARGIN
RETURN ON EQUITY

EBITDA MARGIN

2017
2017

2013 2014 2015 2016

2017
2013 2014 2015 2016
2013 2014 2015 2016

6903

0.46
5289

0.46
4294

0.05

-0.07

D
S
U

1.4

1.2

1.0

0.8

0.6

0.4

0.2

-0.2

1.31

0.98

0.46

0.05

-0.07

2013 2014 2015 2016

2017

12000

8000

6000

4000

2000

10000

10424

10141

6903

5289

4294

2013 2014 2015 2016

2017

1.4

12000

1.31

10424

10141

0.98

1.2

10000

1.0

0.8

8000

0.8

0.6

6000

0.4

4000

0.2

2000

-0.2

BUSINESS SEGMENT

OIL

GAS

MISC

TUBES

94%

OTHER

GEOGRAPHIC AREA

OIL

GAS

1200

242

248

229

1000

1050

1004

2000

1000

503

248

242

494

503

1004

494

1050

894

203

894

196

203

196

699

711

699

711

10424

10141

6903

5289

4294

1.31

0.98

800

600

400

200

0.46

0.05

-0.07

2013 2014 2015 2016

2017

2013 2014 2015 2016

2017

2013 2014

2015

2016

2017

Source: Baker Hughes

2013

2014

2015

2013 2014

Source: Baker Hughes

12000

10000

8000

6000

4000

2000

1200

1000

800

600

400

200

1.4

1.2

1.0

0.8

0.6

0.4

0.2

-0.2

2500

1000

500

Source: Baker Hughes

RIG COUNT INTERNATIONAL

RIG COUNT USA AND CANADA

LOST TIME ACCIDENTS INDEX

RETURN ON EQUITY

EBITDA MARGIN

OIL

GAS

MISC

OIL

GAS

248

242

1050

1004

229

196

894

203

699

711

2000

503

1500

1606

494

1745

3.5

2.5

1.5

0.5

2.7

2.8

2.2

2.3

2.4

334

835

269

813

166

471

-5

2013 2014

2015

2016

2017

2013

2014

2015

2016 2017

2013 2014 2015 2016

2017

2013 2014 2015 2016

2017

2013 2014 2015 2016 2017

Source: Baker Hughes

MIDDLE EAST

& AFRICA

18%

MISC

ASIA
PACIFIC
4%

229

1500

800

1500

1606

1745

894

203

196

334

835

699

711

269

813

166
471

166

471

NORTH
AMERICA
2016 2017
2016 2017
46%
2017
2016

2015

EUROPE

10%

2500

1200

600

1000

500

400

500

200

SOUTH

AMERICA

22%

2.8

2.3

2.4

2.3

2.4

334

835

269

813
ARGENTINA
24%

166
471

COLOMBIA
5%

GAS

JAPAN
2%
OTHER
COUNTRIES
5%

2000
3

2.5

2.5
2.2
1500
2

503
2.7

2.2
1606

494
2.8
2.7

1745

ROMANIA
9%
N
N
S
S
R
R
S
O
O
INDONESIA
U
U
T
I
I
N
L
L
O
O
L
L
2%
E
H
H
I
I
M
M
D
N
N
C
R
R
A
A
CANADA
C
S
E
E
M
M
G
A
P
P
4%
R
4

1.5
1000
1
1
UNITED
500
0.5
0.5
STATES
9%
0
ITALY
10%

0
MEXICO
2013 2014 2015 2016
24%
2015

BRAZIL
2013 2014 2015 2016
6%
2013

2017
2016 2017

4
2500
3.5

S
T
N
E
D
C
C
A

2014

2017

3.5

1.5

OIL

N
O
I
L
L
I
M
%
R
E
P

S
R
U
O
H
N
A
M

S
T
N
E
D
C
C
A

25
4

20
3.5

-5

2.7

2.8

2.2

2.3

2.4

3
15
2.5
10
2

5
1.5

1
0
0.5
-5
0
2013 2014 2015 2016

2013 2014 2015 2016
2013 2014 2015 2016

2017

2017
2017

%
%

30
25

25
20

20
15

15
10

10
5

5
0

0
-5
2013 2014 2015 2016 2017

2013 2014 2015 2016 2017
2013 2014 2015 2016
2017

2013 2014 2015 2016 2017

Annual Report

26.

Principal risks
and uncertainties

You should carefully consider the risks and
uncertainties described below, together with all
other information contained in this annual report,
before making any investment decision involving
our shares or ADSs. Any of these risks and
uncertainties could have a material adverse effect
on our business, revenues, financial condition and
results of operations, which could in turn affect the
price of shares and ADSs.

Risks Relating to Our Industry
Sales and profitability may fall as a result of
downturns in the international price of oil
and gas and other circumstances affecting the
oil and gas industry.
We are a global steel pipe manufacturer with a
strong focus on manufacturing products and related
services for the oil and gas industry. The oil and gas
industry is a major consumer of steel pipe products
worldwide, particularly for products manufactured
under high quality standards and demanding
specifications. 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. The level of exploration,
development and production activities of, and
the corresponding capital spending by, oil and
gas companies, including national oil 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. Several factors, such as the supply and demand
for oil and gas, and political and global economic
conditions, affect these prices. When the price of
oil and gas falls, oil and gas companies generally
reduce spending on production and exploration
activities and, accordingly, make fewer purchases of

steel pipe products. Major oil-and gas-producing
nations and companies have frequently collaborated
to balance the supply (and thus the price) of oil
in the international markets. A major vehicle for
this collaboration has been the Organization of
Petroleum Exporting Countries, or OPEC. Many
of our customers are state-owned companies in
member countries of OPEC. A more recent factor
affecting oil and gas prices has been the ability
of producers in the United States and Canada to
rapidly increase production from their reserves of
tight oil and shale gas in response to changes in
market conditions. Other circumstances – such as
geopolitical events and hostilities in the Middle East
and elsewhere – may also affect drilling activity and,
as a result, cause steel pipe consumption to decline,
and thus have a material impact on our revenues,
profitability and financial condition. 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;
accordingly, oil and gas companies may cut their
investment plans and consequently, demand for our
products could decline.

Climate change legislation or regulations could
curtail demand for fossil fuels and therefore
demand for our products and services could
be reduced.
There is an increased attention on greenhouse
gas emissions and climate change from different
sectors of society. Existing or future legislation and
regulations related to greenhouse gas emissions and
climate change, as well as government initiatives to
promote the use of alternative energy sources (with
many jurisdictions implementing tax advantages
and other subsidies to promote the development
of renewable energy sources, or even requiring
minimum thresholds for power generation from
renewable sources), may significantly curtail

Tenaris27.

demand for and production of fossil fuels such
as oil and natural gas. These initiatives, together
with the growing social awareness regarding
climate change and other environmental matters,
have resulted in increased investor and consumer
demand for renewable energy and additional
compliance requirements for fossil energy projects,
which are likely to become more stringent over time
and to result in substantial increases in costs for the
oil and natural gas industry. Furthermore, ongoing
technological developments in the renewable energy
industry are making renewable energy increasingly
competitive against fossil-fuels. If this trend
continues, energy demand could shift increasingly
towards “cleaner” sources such as hydroelectrical,
solar, wind and other renewable energies, which
would, in turn, reduce demand for oil and natural
gas, thus negatively affecting demand for our
products and services and, ultimately, our future
results of operations.

Competition in the global market for steel pipe
products may cause us to lose market share and
hurt our sales and profitability.
The global market for steel pipe products is
highly competitive, with the primary competitive
factors being price, quality, service and technology.
In recent years, substantial investments have
been made, especially but not only in China, to
increase production capacity of seamless steel
pipe products. New production capacity continues
to be installed and there is significant excess
production capacity, particularly for “commodity”
or standard product grades. Capacity for the
production of more specialized product grades
has also increased. At the same time, the high
cost and long lead times required to develop the
most complex projects, particularly deepwater
and oil sands projects, has led to a slowdown in
the sanctioning of new developments in a context

of low and more volatile oil prices. Despite our
efforts to develop products and services that
differentiate us from our competitors, reduced
demand for steel pipe products from these complex
projects means that the competitive environment
is expected to remain intense in the coming years
and effective competitive differentiation will be a
key success factor for Tenaris. In addition, there
is an increasing risk of unfairly traded steel pipe
imports in markets in which Tenaris produces
and sells its products and, despite the application
of antidumping duties and tariffs, we can give
no assurance with respect to the effectiveness of
these actions. Therefore, we may not continue to
compete effectively against existing or potential
producers and preserve our current shares of
geographic or product markets, and increased
competition may have a material impact on the
pricing of our products and services, which could
in turn adversely affect our revenues, profitability
and financial condition.

Increases in the cost of raw materials, energy and
other costs, limitations or disruptions to the supply
of raw materials and energy, and price mismatches
between raw materials and our products may hurt
our profitability.
The manufacture of seamless steel pipe products
requires substantial amounts of steelmaking raw
materials and energy; welded steel pipe products,
in turn, are processed from steel coils and plates.
The availability and pricing of a significant portion
of the raw materials and energy we require are
subject to supply and demand conditions, which
can be volatile, and to tariffs and other government
regulation, which can affect continuity of supply
and prices. In addition, disruptions, restrictions or
limited availability of energy resources in markets
where we have significant operations could lead
to higher costs of production and eventually

Annual Report28.

to production cutbacks at our facilities in such
markets. For example, shortages of energy and
natural gas in Argentina and the resulting supply
restrictions imposed by the government could
lead to production cutbacks at our facilities in
Argentina. Similarly, in Mexico, the decrease
in the national production of natural gas and
constraints in natural gas transportation capacity
have led to increased imports of natural gas
which have resulted in increased natural gas
transportation costs and, thus, higher steel pipe
products production costs. See “Risks Relating
to Our Business – Adverse economic or political
conditions in the countries where we operate or sell
our products and services may decrease our sales
or disrupt our manufacturing operations, thereby
adversely affecting our revenues, profitability and
financial condition.” At any given time, we may be
unable to obtain an adequate supply of critical raw
materials with price and other terms acceptable
to us. The availability and prices of raw materials
may also be negatively affected by new laws and
regulations, including import controls, allocation
by suppliers, interruptions in production, accidents
or natural disasters, changes in exchange rates,
worldwide price fluctuations, and the availability
and cost of transportation. Moreover, we are
dependent on a few suppliers for a significant
portion of our requirements for steel coils at our
welded pipe operations in North America and
the loss of any of these suppliers could result in
increased production costs, production cutbacks
and reduced competitiveness at these operations.

We may not be able to recover, partially or fully,
increased costs of raw materials and energy
through increased selling prices on our products,

or it may take an extended period of time to do
so, and limited availability could force us to curtail
production, which could adversely affect our sales
and profitability.

Our results of operations and financial conditions
could be adversely affected by low levels of
capacity utilization.
Like other manufacturers of steel-related products,
we have fixed and semi-fixed costs (e.g., labor and
other operating and maintenance costs) that cannot
adjust rapidly to fluctuations in product demand.
If demand for our products falls significantly,
these costs may adversely affect our profitability
and financial condition. For example, during 2015
and 2016, in response to the downturn of the oil
and gas industry, we implemented temporary
suspensions of certain of our operations, mostly
in the United States and Canada. Temporary
suspensions of operations generally lead to layoffs
of employees which may in turn give rise to
labor conflicts and impact operations. Moreover,
temporary suspensions may also affect profitability
and result in charges for asset impairments.

Risks Relating to Our Business
Adverse economic or political conditions in
the countries where we operate or sell our products
and services may decrease our sales or disrupt our
manufacturing operations, thereby adversely affecting
our revenues, profitability and financial condition.
We have significant operations in various countries,
including Argentina, Brazil, Canada, Colombia,
Indonesia, Italy, Japan, Mexico, Nigeria, Romania,
Saudi Arabia and the United States, and we sell

Tenaris29.

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, expropriation
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;
cancellation of contract rights; and delays or denials
of governmental approvals. Both the likelihood of
such occurrences and their overall impact upon us
vary greatly from country to country and are not
predictable. Realization of these risks could have
an adverse impact on the results of operations and
financial condition of our subsidiaries located in the
affected country.

For example, our business and operations in
Argentina may be materially and adversely affected
by economic, political, social, fiscal and regulatory
developments. Argentina is subject to high inflation
rates and our business and operations in Argentina
may be adversely affected by increases in services

and labor costs inflation or by the measures that
may be adopted by the government to address
inflation. In addition, an increased level of labor
demands prompted by a growing inflation rate
could trigger higher levels of labor conflicts, and
eventually result in strikes or work stoppages. Any
such disruption of operations could have an adverse
effect on our operations and financial results.
Other developments that may have an adverse effect
on our operations and financial results include
increased taxes, exchange controls, restrictions
on capital flows, and export and import taxes
or restrictions. In addition, in recent years, our
operations in Argentina experienced constraints
in their electricity and natural gas supply
requirements on many occasions. Shortages of
energy and natural gas in Argentina have lead in the
past (and could lead in the future) to production
cutbacks negatively affecting our revenues and
profitability; we could also face increased costs
when using alternative sources of energy.

In Mexico, our business could be materially and
adversely affected by economic, political, social,
fiscal and regulatory developments. The Mexican
government exercises significant influence over the
Mexican economy and, therefore, governmental
actions concerning the economy and state-owned
enterprises could have a significant impact on
Mexico’s private sector and on our Mexican-
related operations. In addition, changes to the
North American Free Trade Agreement, about
which there have been discussions among the
United States, Mexico and Canada, could adversely
affect the investment climate and economic activity
in Mexico and/or in the United States and impact
our results of operations and net results. Similarly,

Annual Report30.

our Mexican operations could be affected by
criminal violence, primarily due to the activities
of drug cartels and related organized crime that
Mexico has experienced and may continue to
experience. The city of Veracruz, where our facility
is located, has experienced several incidents of
violence. Although the Mexican government has
implemented various security measures and has
strengthened its military and police forces, drug-
related crime continues to exist in Mexico. Our
business may be materially and adversely affected
by these activities, their possible escalation and the
violence associated with them.

If we do not successfully implement our business
strategy, our ability to grow, our competitive
position and our sales and profitability may suffer.
We plan to continue implementing our business
strategy of developing integrated product and
service solutions designed to differentiate our
offering from those of our competitors and meet
the needs of our customers for lower operational
costs and reliable performance even in the most
demanding environments, as well as continuing
to pursue strategic investment opportunities.
Any of the components of our overall business
strategy could cost more than anticipated, may
not be successfully implemented or could be
delayed or abandoned. For example, we may
fail to create sufficient differentiation in our Rig
Direct® services to compensate the added costs
of providing such services, or fail to find suitable
investment opportunities, including acquisition
targets that enable us to continue to grow and

improve our competitive position. Even if we
successfully implement our business strategy, it
may not yield the expected results.

We could be subject to regulatory risks associated
with our international operations.
The shipment of goods and services across
international borders subjects us to extensive
trade laws and regulations. Our import and
export activities are governed by customs laws
and regulations in each of the countries where we
operate. Moreover, the European Union, the United
States and other countries control the import and
export of certain goods and services and impose
related import and export recordkeeping and
reporting obligations. Those governments also
may impose economic sanctions against certain
countries, persons and other entities that may
restrict or prohibit transactions involving such
countries, persons and entities. Similarly, we are
subject to the U.S. anti-boycott laws. These laws and
regulations are complex and frequently changing,
and they may be enacted, amended, enforced or
interpreted in a manner that could materially impact
our operations. For example, on March 8, 2018,
under Section 232 of the Trade Expansion Act of
1962, the U.S. President imposed a 25% tariff on
steel articles imported from all countries; however,
the US administration announced that imports from
Argentina, Australia, Brazil, Canada, the European
Union, Mexico and South Korea, will be temporarily
exempted. There is considerable uncertainty
surrounding the eventual scope and impact of these
measures and its corresponding exemptions.

TenarisFinally, failure to comply with applicable legal and
regulatory obligations also could result in criminal
and civil penalties and sanctions.

the markets where profits are effectively made and
business is effectively performed.

31.

Changes in applicable tax regulations and
resolutions of tax disputes could negatively affect
our financial results.
We are subject to tax laws in numerous foreign
jurisdictions where we operate. However, the
integrated nature of our worldwide operations can
produce conflicting claims from revenue authorities
in different countries as to the profits to be taxed in
the individual countries, including disputes relating to
transfer pricing. The majority of the jurisdictions in
which we operate have double tax treaties with other
foreign jurisdictions, which provide a framework
for mitigating the impact of double taxation on our
results. However, mechanisms developed to resolve
such conflicting claims are largely untried, and can be
expected to be very lengthy.

In recent years, tax authorities around the world
have increased their scrutiny of company tax
filings, and have become more rigid in exercising
any discretion they may have. As part of this, the
Organization for Economic Co-operation and
Development (OECD) has proposed a number
of tax law changes under its Base Erosion and
Profit Shifting (BEPS) Action Plans to address
issues of transparency, coherence and substance.
At the same time, the European Commission is
finalizing its Anti Tax Avoidance Directive, which
seeks to prevent tax avoidance by companies and
to ensure that companies pay appropriate taxes in

Changes to tax laws and regulations in the countries
where we operate require us to continually assess
our organizational structure and could lead to
increased risk of international tax disputes. Our
interpretations and application of the tax laws
could differ from that of the relevant governmental
taxing authority, which could result in the payment
of additional taxes, penalties or interest, negatively
affecting our profitability and financial condition.

Future acquisitions, strategic partnerships and
capital investments may not perform in accordance
with expectations or may disrupt our operations
and hurt our profits.
One element of our business strategy is to
identify and pursue growth-enhancing strategic
opportunities. As part of that strategy, we
regularly make significant capital investments
and acquire interests in, or businesses of,
various companies. For example, in December
2017, with an investment of $1.8 billion, we
inaugurated our new greenfield seamless mill
in Bay City, Texas, the United States. We will
continue to consider strategic acquisitions,
investments and partnerships from time to time.
We must necessarily base any assessment of
potential acquisitions, joint ventures and capital
investments on assumptions with respect to
operations, profitability and other matters that
may subsequently prove to be incorrect. Our past
or future acquisitions, significant investments

Annual Report32.

and alliances may not perform in accordance
with our expectations and could adversely affect
our operations and profitability. In addition,
new demands on our existing organization and
personnel resulting from the integration of new
acquisitions could disrupt our operations and
adversely affect our operations and profitability.
Moreover, as part of future acquisitions, we may
acquire assets that are unrelated to our business,
and we may not be able to integrate these assets or
sell them under favorable terms and conditions.

Disruptions to our manufacturing processes could
adversely affect our operations, customer service
levels and financial results.
Our steel pipe manufacturing processes depend
on the operation of critical steel-making
equipment, such as electric arc furnaces,
continuous casters, rolling mills, heat treatment
and various operations that support them,
such as our power generation facilities. Despite
the investments we make to maintain critical
production equipment, such equipment may incur
downtime as a result of unanticipated failures
or other events, such as fires, explosions, floods,
accidents and severe weather conditions.

Similarly, natural disasters or severe weather
conditions could significantly damage our
production facilities and general infrastructure
or affect the normal course of business. For
example, our Mexican production facility located
in Veracruz is located in or close to regions prone
to earthquakes, and our Bay City facility in Texas,
United States is located in an area prone to strong
winds and hurricanes, and occasional floods. More
generally, changing weather patterns and climatic
conditions in recent years have added to the
unpredictability and frequency of natural disasters.

Our operations may also be adversely affected as
a result of stoppages or other labor conflicts. In
2017, our operations in Mexico experienced a few
days of union-led stoppages due to an internal
dispute within the local union; such internal
dispute is ongoing and we cannot assure it will not
cause further disruptions in Mexico. In addition, 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.

Some of the previously described events could
result in death or injury to persons. They could also
result in damage to property, delays in production
and liability for Tenaris. To the extent that lost
production as a result of such events cannot be
compensated for by unaffected facilities, such events
could have an adverse effect on our profitability and
financial condition. Additionally, the insurance we
maintain for property damage and general liability
may not be adequate or available to protect us
under such events, its coverage may be limited, or
the amount of our insurance may be less than the
related loss. For more information on our insurance
coverage see “Information on Tenaris – B. Business
overview – Insurance.

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.
Assets that are subject to amortization are reviewed
for impairment whenever events or changes in
circumstances indicate that the carrying amount may

Tenarisnot be recoverable. Intangible assets with indefinite
useful life, including goodwill, are subject to at least
an annual impairment test. At December 31, 2017
we had $1,292 million in goodwill corresponding
mainly to the acquisition of Hydril, in 2007 ($920
million) and Maverick, in 2006 ($229 million). If our
management was 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.

local and international statutory requirements
and standards applicable to our business, there
is a risk that our employees or representatives
may take actions that violate applicable laws and
regulations that generally prohibit the making
of improper payments to foreign government
officials for the purpose of obtaining or keeping
business, including laws relating to the 1997
OECD Convention on Combating Bribery of
Foreign Public Officials in International Business
Transactions such as the U.S. Foreign Corrupt
Practices Act, or FCPA.

33.

Our results of operations and financial condition
could be adversely affected by movements in
exchange rates.
As a global company we manufacture and sell
products in a number of countries throughout the
world and a portion of our business is carried out
in currencies other than the U.S. dollar, which is the
Company’s functional and presentation currency.
As a result, we are exposed to foreign exchange
rate risk. Changes in currency values and foreign
exchange regulations could adversely affect our
financial condition and results of operations. For
information on our foreign exchange rate risk,
please see “Quantitative and Qualitative Disclosure
About Market Risk – Foreign Exchange Rate Risk.”

If we do not comply with laws and regulations
designed to combat governmental corruption in
countries in which we sell our products, we could
become subject to fines, penalties or other sanctions
and our sales and profitability could suffer.
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

The cost of complying with environmental
regulations and potential environmental and
product liabilities may increase our operating
costs and negatively impact our business, financial
condition, results of operations and prospects.
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. Additionally, international
environmental requirements vary. While standards
in the European Union, Canada, and Japan are
generally comparable to U.S. standards, other
nations, particularly developing nations, including
China, have substantially lesser requirements that
may give competitors in such nations a competitive
advantage. It is possible that any international
agreement to regulate emissions may provide
exemptions and lesser standards for developing
nations. In such case, we may be at a competitive

Annual Report34.

disadvantage relative to competitors having more or
all of their production in such developing nations.

Environmental laws and regulations may, in some
cases, impose strict liability rendering a person
liable for damages to natural resources or threats
to public health and safety without regard to
negligence or fault. Some environmental laws
provide for joint and several strict liability for
remediation of spills and releases of hazardous
substances. These laws and regulations may
expose us to liability for the conduct of or
conditions caused by others or for acts that were
in compliance with all applicable laws at the time
they were performed.

Compliance with applicable requirements and
the adoption of new requirements could have
a material adverse effect on our consolidated
financial condition, results of operations or cash
flows. The costs and ultimate impact of complying
with environmental laws and regulations are
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 as
a result of potential violations of environmental
laws 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.

Our oil and gas casing, tubing and line pipe
products are sold primarily for use in oil and gas
drilling, gathering, transportation, processing
and power generation facilities, which are subject
to inherent risks, 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.
Any of these hazards and risks can result in
environmental liabilities, personal injury claims and
property damage from the release of hydrocarbons.

Defects in specialty tubing products could result
in death, personal injury, property damage,
environmental pollution, damage to equipment
and facilities or loss of production.

We normally warrant the oilfield products and
specialty tubing products we sell or distribute
in accordance with customer specifications, but
as we pursue our business strategy of providing
customers with additional services, such as Rig
Direct®, we may be required to warrant that the
goods we sell and services we provide are fit for
their intended purpose. Actual or claimed defects
in our products may give rise to claims against us
for losses suffered by our customers and expose us
to claims for damages. The insurance we maintain
will not be available in cases of gross negligence
or willful misconduct, in other cases may not be
adequate or available to protect us in the event
of a claim, its coverage may be limited, canceled
or otherwise terminated, or the amount of our
insurance may be less than the related impact on
enterprise value after a loss. Similarly, our sales
of tubes and components for the automobile

Tenaris35.

industry subject us to potential product liability
risks that could extend to being held liable for
the costs of the recall of automobiles sold by car
manufacturers and their distributors.

Limitations on our ability to protect our
intellectual property rights, including our trade
secrets, could cause a loss in revenue and any
competitive advantage we hold.
Some of our products or services, and the processes
we use to produce or provide them, have been
granted patent protection, have patent applications
pending, or are trade secrets. Our business may be
adversely affected if our patents are unenforceable,
the claims allowed under our patents are not
sufficient to protect our technology, our patent
applications are denied or our trade secrets are not
adequately protected. Our competitors may be
able to develop technology independently that is
similar to ours without infringing on our patents
or gaining access to our trade secrets, which could
adversely affect our financial condition, results of
operations and cash flows.

Cyberattacks could have a material adverse impact
on our business and results of operation.
We rely heavily on information systems to conduct
our business. Although we devote significant
resources to protect our systems and data, we
have experienced and will continue to experience
varying degrees of cyber incidents in the normal
conduct of our business, which may occasionally
include sophisticated cybersecurity threats such
as unauthorized access to data and systems, loss

or destruction of data, computer viruses or other
malicious code, phishing and/or cyber attacks.
These threats often arise from numerous sources,
not all of which are within our control, such as
fraud or malice from third parties, failures of
computer servers or other accidental technological
failure, electrical or telecommunication outages or
other damage to our property or assets. Given the
rapidly evolving nature of cyber threats, there can
be no assurance that the systems we have designed
to prevent or limit the effects of cyber incidents or
attacks will be sufficient to prevent or detect such
incidents or attacks, or to avoid a material adverse
impact on our systems when such incidents or
attacks do occur. While we attempt to mitigate these
risks, we remain vulnerable to additional known or
unknown threats, including theft, misplacement or
loss of data, programming errors, employee errors
and/or dishonest behaviour that could potentially
lead to the compromising of sensitive information,
improper use of our systems or networks, as well as
unauthorized access, use, disclosure, modification
or destruction of such information, systems and/
or networks. If our systems for protecting against
cybersecurity risks are circumvented or breached,
this could also result in disruptions to our business
operations (including but not limited to, defective
products or production downtimes), access to our
financial reporting systems, the loss of access to
critical data or systems, misuse or corruption of
critical data and proprietary information (including
our intellectual property and customer data),
as well as damage to our reputation with our
customers and the market, failure to meet customer
requirements, customer dissatisfaction and/or other
financial costs and losses. In addition, given that

Annual Report36.

cybersecurity threats continue to evolve, we may be
required to devote additional resources in the future
to enhance our protective measures or to investigate
and/or remediate any cybersecurity vulnerabilities.
Moreover, any investigation of a cyber attack
would take time before completion, during which
we would not necessarily know the extent of the
actual or potential harm or how best to remediate
it, and certain errors or actions could be repeated or
compounded before duly discovered and remediated
(all or any of which could further increase the costs
and consequences arising out of such cyber attack).
Tenaris does not maintain any specific insurance
coverage to protect against cybersecurity risks. Even
if we contracted such coverage in the future, we
cannot ensure that it will be sufficient to cover any
particular losses resulting from a cyberattack.

condition and could be restricted by applicable
corporate and other laws and regulations,
including those imposing foreign exchange controls
or restrictions on the repatriation of capital or the
making of dividend payments and agreements and
commitments of such subsidiaries. If earnings and
cash flows of the Company’s operating subsidiaries
are substantially reduced, the Company may not be
in a position to meet its operational needs or to pay
dividends. For information concerning limitations
on payments of dividends, see “Risks Relating
to Our Business – Adverse economic or political
conditions in the countries where we operate or sell
our products and services may decrease our sales
or disrupt our manufacturing operations, thereby
adversely affecting our revenues, profitability and
financial condition.”

Risks Relating to the Structure of the Company
As a holding company, the Company’s ability
to pay cash dividends depends on the results
of operations and financial condition of its
subsidiaries and could be restricted by legal,
contractual or other limitations.
The Company conducts its operations through
subsidiaries. Dividends or other intercompany
transfers of funds from those subsidiaries are
the Company’s primary source of funds to pay
its expenses, debt service and dividends and to
repurchase shares or ADSs.

The ability of the Company’s subsidiaries to pay
dividends and make other payments to us will
depend on the results of operations and financial

In addition, the Company’s ability to pay dividends
to shareholders is subject to legal and other
requirements and restrictions in effect at the
holding company level. For example, the Company
may only pay dividends out of net profits, retained
earnings and distributable reserves and premiums,
each as defined and calculated in accordance with
Luxembourg law and regulations.

The Company’s controlling shareholder may be
able to take actions that do not reflect the will or
best interests of other shareholders.
As of the date of this annual report, San Faustin
beneficially owned 60.45% of our shares. Rocca &
Partners Stichting Administratiekantoor Aandelen
San Faustin, or RP STAK, controls a significant

Tenarisportion of the voting power of San Faustin and
has the ability to influence matters affecting, or
submitted to a vote of, the shareholders of San
Faustin. As a result, RP STAK is indirectly able
to elect a substantial majority of the members
of the Company’s board of directors and has
the power to determine the outcome of most
actions requiring shareholder approval, including,
subject to the requirements of Luxembourg
law, the payment of dividends. The decisions of
the controlling shareholder may not reflect the
will or best interests of other shareholders. For
example, the Company’s articles of association
permit the Company’s board of directors to waive,
limit or suppress preemptive rights in certain
cases. Accordingly, the Company’s controlling
shareholder may cause its board of directors to
approve in certain cases an issuance of shares for
consideration without preemptive rights, thereby
diluting the minority interest in the Company. See
“Risks Relating to shares and ADSs – Holders of
shares and ADSs in the United States may not be
able to exercise preemptive rights in certain cases.”

Risks Relating to shares and ADSs
Holders of shares or ADSs may not have access to
as much information about us as they would in the
case of a domestic issuer.
There may be less publicly available information
about us than is regularly published by or about
domestic issuers. Also, corporate and securities
regulations governing Luxembourg companies
may not be as extensive as those in effect in other
jurisdictions. Furthermore, IFRS, the accounting

standards in accordance with which we prepare
our consolidated financial statements, differ
in certain significant aspects from local GAAP,
including U.S. GAAP.

37.

Holders of ADSs may not be able to exercise, or
may encounter difficulties in the exercise of, certain
rights afforded to shareholders.
Certain shareholders’ rights under Luxembourg
law, including the rights to participate and vote
at general meetings of shareholders, to include
items on the agenda for the general meetings
of shareholders, to receive dividends and
distributions, to bring actions, to examine our
books and records and to exercise appraisal rights
may not be available to holders of ADSs, or may
be subject to restrictions and special procedures for
their exercise, as holders of ADSs only have those
rights that are expressly granted to them in the
deposit agreement. Deutsche Bank Trust Company
Americas, as depositary under the ADS deposit
agreement, or the Depositary, through its custodian
agent, is the registered shareholder of the deposited
shares underlying the ADSs, and therefore only the
Depositary can exercise the shareholders’ rights in
connection with the deposited shares. For example,
if we make a distribution in the form of securities,
the Depositary is allowed, at its discretion, to
sell that right to acquire those securities on your
behalf and instead distribute the net proceeds to
you. Also, under certain circumstances, such as
our failure to provide the Depositary with properly
completed voting instructions on a timely basis,
you may not be able to vote at general meetings

Annual Report38.

of shareholders by giving instructions to the
Depositary. If the Depositary does not receive
voting instructions from the holder of ADS by the
prescribed deadline, or the instructions are not in
proper form, then the Depositary shall deem such
holder of ADS to have instructed the Depositary
to vote the underlying shares represented by ADSs
in favor of any proposals or recommendations of
the Company (including any recommendation by
the Company to vote such underlying shares on
any given issue in accordance with the majority
shareholder vote on that issue), for which purposes
the Depositary shall issue a proxy to a person
appointed by the Company to vote such underlying
shares represented by ADSs in favor of any
proposals or recommendations of the Company.
Under the ADS deposit agreement, no instruction
shall be deemed given and no proxy shall be
given with respect to any matter as to which the
Company informs the Depositary that (i) it does
not wish such proxy given, (ii) it has knowledge
that substantial opposition exists with respect to
the action to be taken at the meeting, or (iii) the
matter materially and adversely affects the rights
of the holders of ADSs.

Holders of shares and ADSs in the United States
may not be able to exercise preemptive rights in
certain cases.
Pursuant to Luxembourg corporate law, existing
shareholders of the Company are generally entitled
to preferential subscription rights (preemptive
rights) in the event of capital increases and issues
of shares against cash contributions. Under the
Company’s articles of association, the board of
directors has been authorized to waive, limit or
suppress such preemptive subscription rights until
2020. The Company may, however, issue shares
without preemptive subscription rights only
if (i) 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) are issued against a contribution other
than in cash; (ii) 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, are
issued to directors, officers, agents, employees of
the Company, its direct or indirect subsidiaries
or its affiliates (or, collectively, the Beneficiaries),
for the purpose of compensation or incentive of

Tenaris39.

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),
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.

Holders of ADSs in the United States may, in any
event, not be able to exercise any preemptive rights,
if granted, for shares underlying their ADSs unless
additional shares and ADSs are registered under
the U.S. Securities Act of 1933, as amended, or
the Securities Act, with respect to those rights, or
an exemption from the registration requirements
of the Securities Act is available. We intend to
evaluate, at the time of any rights offering, the
costs and potential liabilities associated with
the exercise by holders of shares and ADSs of
the preemptive rights for shares, and any other
factors we consider appropriate at the time, and
then to make a decision as to whether to register
additional shares. We may decide not to register
any additional shares, requiring a sale by the
Depositary of the holders’ rights and a distribution
of the proceeds thereof. Should the Depositary
not be permitted or otherwise be unable to sell
preemptive rights, the rights may be allowed to
lapse with no consideration to be received by the
holders of the ADSs.

It may be difficult to enforce judgments against us
outside Luxembourg.
The Company is a société anonyme organized
under the laws of Luxembourg, and most of
its assets are located in other jurisdictions.
Furthermore, most of the Company’s directors
and officers named in this annual report reside in
different jurisdictions. As a result, investors may
not be able to effect service of process upon us
or our directors or officers. Investors may also
not be able to enforce against us or our directors
or officers in the investors’ domestic courts,
judgments predicated upon the civil liability
provisions of the domestic laws of the investors’
home countries. Likewise, it may be difficult
for investors not domiciled in Luxembourg to
bring an original action in a Luxembourg court
predicated upon the civil liability provisions
of other securities laws, including U.S. federal
securities laws, against the Company, its directors
and officers. There is also uncertainty with
regard to the enforceability of original actions of
civil liabilities predicated upon the civil liability
provisions of securities laws, including U.S. federal
securities laws, outside the jurisdiction where such
judgments have been rendered; and enforceability
will be subject to compliance with procedural
requirements under applicable local law, including
the condition that the judgment does not violate
the public policy of the applicable jurisdiction.

Annual Report40.

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 in accordance with IFRS
as adopted by the European Union.

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, before recovering to
around $60 per barrel at the end of 2017. 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

Tenaris41.

levels. North American natural gas prices (Henry
Hub), which were around $4 per million BTU in
2014, also briefly fell below $2 per million BTU at
the beginning of 2016, before recovering to average
levels of $3 per million BTU during 2017.

In 2017, worldwide drilling activity, as represented
in the number of active drilling rigs published
by Baker Hughes, a GE company, increased 27%
compared to the level of 2016, with the increase
concentrated in North America. In the United
States the rig count in 2017 increased by 72%, with
an average of 875 active rigs. Drilling activity in the
United States rose strongly in the first half of the
year before stabilizing above 900 active rigs in the
second half and has since begun to increase again
at the beginning of 2018. In Canada, the rig count
in 2017 increased by 62% compared with 2016,
while in the rest of the world, it declined 1%.

Prior to the most recent downturn in oil prices,
a growing proportion of exploration and
production spending by oil and gas companies
had 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. The success, however, of shale drilling
operators, with their inherently short investment
cycles, in adapting to lower oil and gas costs and
increasing production, has led to a slowdown in new
developments of complex offshore projects with
long investment lead times in a context of low and
more volatile oil prices, consequently affecting the
level of product differentiation.

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. Over the past decade,
substantial investments have been made, especially
in China but also in other regions around the
world, to increase production capacity of seamless
steel pipe products. Production capacity for more
specialized product grades has also increased.
With the downturn between 2014 and 2016 in the
price of oil and demand for tubes for oil and gas
drilling, the overcapacity in steel pipe and seamless
steel pipe production worldwide has become acute,
and now extends beyond commodity grades. The
competitive environment has, as a result, become
more intense, and we expect that this will continue
for some time. Effective competitive differentiation
will be a key factor for Tenaris.

In addition, there is an increased risk of unfairly
traded steel pipe imports in markets in which we
produce and sell our products. In September 2014,
the United States imposed anti-dumping duties on
OCTG imports from various countries, including
South Korea. Despite the duties imposed, imports
from South Korea continue at a very high level. As
a result, U.S. domestic producers have requested
successive reviews of South Korea’s exports, which
are ongoing. At the same time South Korean

Annual Report42.

producers have appealed the duties imposed.
Similarly, in Canada, the Canada Border Services
Agency introduced anti-dumping duties on OCTG
imports from South Korea and other countries in
April 2015.

In addition to anti-dumping duties, a 25% tariff
on steel articles imported from all countries was
imposed under Section 232 of the Trade Expansion
Act of 1962. However, the U.S. administration
announced that imports from Argentina, Australia,
Brazil, Canada, the European Union, Mexico and
South Korea, will be temporarily exempted.

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 plates 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 2017. As a
reference, prices for hot rolled coils, HRC Midwest
USA Mill, published by CRU, averaged $680 per
ton in 2017 compared to $571 per ton in 2016.

Sale of North American Electric Conduit Business
to Nucor
On January 19, 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 $328
million, net of transaction costs. The after-tax
gain from this sale amounted to $90 million.
The result of the sale as well as those results
relative to the conduit business for the 19 days
of January 2017 and the financial years ended
December 31, 2016 and 2015 were classified as
a discontinued operation.

Summary of results
In 2017, our net sales rose steadily through the
year, rising 23% compared to 2016, with the fourth
quarter up 52% compared to the fourth quarter
of 2016. While sales rose strongly during the
year to Rig Direct® customers in United States,
Canada, Colombia and Thailand as well as in
Saudi Arabia, there were significant declines in
sales of line pipe in Brazil, shipments of OCTG
to other national oil company customers in the
Middle East and sales for offshore projects in sub-
Saharan Africa. EBITDA rose 58% year on year,
with margins recovering on higher volumes and
better absorption of fixed costs. Shareholders’ net
income rose strongly to $545 million, benefitting
from higher operating income, a good return on
our investment in Ternium, a tax benefit due to the
reduction in tax rates in Argentina and the United
States, and a gain on the sale of our Republic
Conduit business at the beginning of the year.

TenarisOur net cash position declined during the year to
$680 million at December 31, 2017, compared to
$1.4 billion at December 31, 2016, as we completed
construction of our Bay City mill, built up
working capital to support our growth in sales and
maintained dividend payments.

Outlook
As we enter 2018, shale drilling activity in the
United States and Canada, which had fallen
slightly in the fourth quarter of 2017, has resumed
growth. In the rest of the world, more projects
are moving forward and conditions in markets
like the Middle East and the North Sea have been
improving but any recovery in 2018 will be gradual.
In Latin America, drilling activity in Colombia
and in the Vaca Muerta shale play in Argentina
has been picking up. In Mexico, however, despite
further positive results of the energy reform
program, a significant recovery in activity remains
unlikely this year. Growth in global OCTG
demand, following a 40% increase in 2017, will
be more modest in 2018 and concentrated in the
major markets of United States, China, Russia and
the Middle East.

We expect our sales in 2018 to increase in most
regions and product lines compared to 2017,
with strong year on year growth in each quarter.
Raw material costs have risen significantly in the
last few months and we expect that there will
be a compensating increase in prices as demand
gradually increases.

The recent U.S. governmental ruling to implement
Section 232 tariffs at a rate of 25% on steel imports
could create a structural change in our most

dynamic market. To the extent, however, that it is
aimed at reducing imports, it should be positive for
us given our extensive domestic capacity. However,
there is considerable uncertainty surrounding the
eventual scope and impact of these tariffs.

43.

Functional and presentation currency
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; and
The exchange rate of certain legal currencies has long
been affected by recurring and severe economic crises.

Annual Report44.

Critical Accounting Estimates
This discussion and analysis of our financial
condition and results of operations are based on our
audited consolidated financial statements, which
have been prepared in accordance with IFRS.

subjective judgments, often as a result of the need
to make estimates of matters that are inherently
uncertain. Our most critical accounting estimates
and judgments are the following:

The preparation of our audited consolidated
financial statements and related disclosures in
conformity with IFRS requires us to make estimates
and assumptions that might affect the reported
amounts of assets and liabilities, the disclosure of
contingent assets and liabilities and the reported
amounts of revenue and expenses. Management
evaluates its accounting estimates and assumptions,
including those related to: impairment of long-lived
tangible and intangible assets; assets useful lives;
deferred income tax; obsolescence of inventory;
doubtful accounts and loss contingencies, and
revises them when appropriate. Management bases
its estimates on historical experience and on various
other assumptions it believes to be reasonable under
the circumstances. These estimates form the basis
for making judgments about the carrying values
of assets and liabilities that are not readily apparent
from other sources. Although management
believes that these estimates and assumptions
are reasonable, they are based upon information
available at the time they are made. Actual results
may differ significantly from these estimates under
different assumptions or conditions.

Our most critical accounting estimates are those
that are most important to the portrayal of our
financial condition and results of operations, and
which require us to make our most difficult and

Accounting for business combinations
To account for our business combinations we use
the acquisition method, which requires the acquired
assets and assumed liabilities to be recorded at their
respective fair value as of the acquisition date.
The determination of fair values of assets acquired,
liabilities and contingent liabilities assumed and
determination of useful lives, requires us to make
estimates and use valuation techniques, including
the use of independent valuators, when market
value is not readily available. 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 income statement.

Impairment and recoverability of goodwill and
other 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 Tenaris’s principal subsidiaries that constitute
a CGU have a single main production facility and,
accordingly, each such subsidiary represents the
lowest level of asset aggregation that generates
largely independent cash inflows.

TenarisAssets 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, capital
expenditure programs for Tenaris’s customers and
the evolution of the rig count.

An impairment loss is recognized for the amount
by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is
the higher of the asset’s value in use and fair value
less costs to sell. Any impairment loss is allocated
to reduce the carrying amount of the assets of the
CGU in the following order:

a) first, to reduce the carrying amount of any
goodwill allocated to the CGU; and
b) then, to the other assets of the unit (group of
units) pro rata on the basis of the carrying amount
of each asset in the unit (group of units), with a
view to avoid reducing 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
of disposal Tenaris uses the estimated value of
future cash flows that a market participant could
generate from the corresponding CGU.

45.

Management judgment is required to estimate
discounted future cash flows. Actual cash flows
and values could vary significantly from the
forecasted future cash flows and related values
derived using discounting techniques.

Non-financial assets other than goodwill that
suffered an impairment are reviewed for possible
reversal at each reporting date.

In 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. No impairment charge was
recorded in 2016 or 2017.

2015 Impairment on non-consolidated companies –
Usinas Siderúrgicas de Minas Gerais S.A. (Usiminas)
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 or its fair value less costs of disposal.

In 2015 the Company assessed the recoverable value
of its investment in Usiminas based on the December
2015 average market price of Usiminas ordinary
shares and impaired its investment by $29 million.

Usiminas’ financial restructuring process, which
started in April 2016 with a capital increase,
was completed by the end of August 2017. The
completion of this process, together with the

Annual Report46.

increase in the share price since June 2016 and the
improvement in business conditions, may lead to
an increase in the carrying value of the investment
in Usiminas in future periods.

plant and equipment and its useful lives may be
required to be reduced from amounts currently
recorded. Any such reductions may materially
affect asset values and results of operations.

See note 12 “Investments in non-consolidated
companies – b) Usiminas S.A.”, to our audited
consolidated financial statements included in this
annual report.

Reassessment of Property, Plant and Equipment
Assets Useful Lives
Property, plant and equipment are stated at directly
attributable historical acquisition or construction
cost less accumulated depreciation and impairment
losses, if any. Property, plant and equipment
acquired through acquisitions accounted for as
business combinations are valued initially at fair
market value of the assets acquired. Depreciation
of the cost of the asset (apart from land, which
is not depreciated) to its residual value over its
estimated useful life, is done using the straight-
line method. The depreciation method is reviewed
at each year end. Estimating useful lives for
depreciation is particularly difficult as the service
lives of assets are also impacted by maintenance
and changes in technology, and our ability to adapt
technological innovation to the existing asset
base. In accordance with IAS 16 “Property, Plant
and Equipment”, the depreciation method, the
residual value and the useful life of an asset must
be reviewed at least at each financial year-end,
and, if expectations differ from previous estimates,
the change must be treated as a change in an
accounting estimate. Management’s re-estimation
of asset useful lives performed in accordance
with IAS 16 did not materially affect depreciation
expense for 2017. However, if management’s
estimates prove incorrect, the carrying value of

Reassessment of Useful Lives of Customer
Relationships
In accordance with IFRS 3 “Business combinations”
and IAS 38 “Intangible assets”, Tenaris has
recognized the value of customer relationships
separately from goodwill attributable to the
acquisition of Maverick and Hydril groups.
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’s acquisition, and decided to reduce
the remaining amortization period from 5 years
to 2 years, ending in December 2017. As of
December 2017, the residual values of Maverick’s
customer relationships amount to $193 million
and the residual useful life is 3 years, while Hydril’s
customer relationships is fully amortized.

Allowance for Obsolescence of Supplies and Spare
Parts and Slow-Moving Inventory
We write down our inventory for estimated
obsolescence or unmarketable inventory equal to
the difference between the cost of inventory and
the net realizable value taking into consideration
assumptions about future demand and market
conditions. If actual market conditions are less
favorable than those projected by management,
additional inventory write-downs may be required.

Tenaris47.

In relation to finished goods, we establish an
allowance for obsolete or slow-moving inventory
based on management’s analysis of product aging.
For this purpose, stocks of finished goods produced
by us, more than one year prior to the reporting
date are valued at their estimated recoverable value.
In addition, we establish an allowance for obsolete
or slow-moving supplies and spare parts, based on
management’s analysis of such items to be used as
intended and the consideration of their potential
obsolescence due to technological changes, aging
and consumption patterns.

Historically, losses due to obsolescence and
scrapping of inventory have been within
expectations and the allowances established. If,
however, circumstances were to materially change,
such as significant changes related to the technology
used in the mills, management’s estimates of the
recoverability of the value of aged inventories could
be materially affected. In this case, our results of
operations, financial condition and net worth could
be materially and adversely affected.

Allowances for Doubtful Accounts and
Customer Claims
Management estimates the ultimate collectability
of accounts receivable. We maintain allowances for
doubtful accounts for estimated losses resulting
from the inability of our customers to make
required payments. If the financial condition of our
customers were to deteriorate, negatively impacting
their ability to make payments, additional allowances
may be required.

Trade account receivables are analyzed on a regular
basis and when we become aware of a customer’s
inability to meet its financial commitments to us,
the value of the receivable is reduced through a
charge to an allowance for doubtful accounts. We
also record a charge to the allowance for doubtful

accounts upon receipt of customer claims in
connection with sales that management estimates
are unlikely to be collected in full. In addition,
our allowance for doubtful accounts is adjusted
periodically in accordance with the aging of
overdue accounts. For this purpose, trade accounts
receivable overdue by more than 180 days which
are not covered by a credit collateral, guarantee,
insurance or similar surety, are provisioned.

Historically, losses from uncollectible accounts
receivables have been low and within the allowances
established. If, however, circumstances were to
materially change, such as higher than expected
defaults or an unexpected material adverse change
in a major customer’s ability to meet its financial
obligation to us, management’s estimates of the
recoverability of amounts due could be materially
reduced. In this case, our results of operations,
financial condition, net worth and cash flows could
be materially and adversely affected.

Deferred income tax
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.

Annual Report48.

Deferred tax assets are recognized to the extent
that 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.

Deferred tax liabilities and assets are not
recognized for temporary differences between the
carrying amount and tax basis of investments in
foreign operations where the company is able to
control the timing of the reversal of the temporary
differences and it is probable that the differences
will not reverse in the foreseeable future.

Contingencies
We are 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. Management with the
assistance of legal counsel periodically reviews
the status of each significant matter and assesses
potential financial exposure. Our potential liability
with respect to such claims, lawsuits and other legal
proceedings cannot be estimated with certainty.

uncertainties and, therefore, the probability of
loss and an estimation of damages are difficult
to ascertain. Accordingly, with respect to a
large portion of such claims, lawsuits and other
legal proceedings Tenaris is unable to make a
reliable estimate of the expected financial effect
that will result from ultimate resolution of the
proceeding. In those cases, Tenaris has not accrued
a provision for the potential outcome of these
cases. If a potential loss from a claim, lawsuit or
other 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. In a limited number of
ongoing cases, Tenaris was able to make a reliable
estimate of the expected loss or range of probable
loss and has accrued a provision for such loss,
but believes that publication of this information
on a case-by-case basis would seriously prejudice
Tenaris’s position in the ongoing legal proceedings
or in any related settlement discussions.
Accordingly, in these cases, the Company has
disclosed information with respect to the nature
of the contingency, but has not disclosed its
estimate of the range of potential loss.

Some of these claims, lawsuits and other legal
proceedings involve highly complex issues, and
often these issues are subject to substantial

These estimates are primarily constructed with
the assistance of legal counsel, and management
believes that the aggregate provisions recorded

Tenaris49.

for potential losses in the consolidated financial
statements are adequate based upon currently
available information. However, if management’s
estimates prove incorrect, current reserves could
be inadequate and we could incur a charge to
earnings which could have a material adverse effect
on our results of operations, financial condition,
net worth and cash flows. As the scope of liabilities
becomes better defined, there may be changes in
the estimates of future costs which could have a
material adverse effect on our results of operations,
financial condition, net worth and cash flows.

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.

On February 21, 2018, 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, 2017, 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, 2017.

Annual Report50.

Results of Operations

Millions of U.S. dollars (except number of shares and per share amounts)

FOR THE YEAR ENDED DECEMBER 31

2017

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 income (loss)

Finance income

Finance cost

Other financial results

Income (loss) 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)

5,289

(3,685)

1,603

(1,270)

4,294

(3,166)

1,128

(1,197)

6,903

(4,748)

2,155

(1,594)

335

(27)

(44)

312

116

428

445

536

545

(8)

536

(59)

(22)

(37)

(17)

(396)

166

(23)

180

(40)

141

(234)

(94)

(74)

(80)

(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)

(609)

(657)

(653)

1,180,536,830

0.38

0.46

0.41

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.

Tenaris

Millions of U.S. dollars (except number of shares)

AT DECEMBER 31

Selected consolidated financial position data

Current assets

Property, plant and equipment, net

Other non-current assets

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

51.

2017

2016

2015

5,381

6,229

2,788

–

4,817

6,002

3,033

151

5,743

5,672

3,472

–

14,398

14,003

14,887

2,071

1,713

1,755

458

254

–

551

277

223

750

293

–

2,817

2,590

3,021

11,482

11,581

11,287

126

11,413

11,713

153

11,866

Total liabilities and equity

14,398

14,003

14,887

Share capital

Number of shares outstanding

1,181

1,180,536,830

Annual Report

52.

The following table sets forth our operating and
other costs and expenses as a percentage of net
sales for the periods indicated.

Percentage of net sales

FOR THE YEAR ENDED DECEMBER 31

CONTINUING OPERATIONS

Net sales

Cost of sales

Gross profit

Selling, general and administrative expenses

Other operating income (expenses), net

Operating income (loss)

Finance income

Finance cost

Other financial results

Income (loss) 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

2017

2016

2015

100.0

(69.7)

30.3

(24.0)

0.0

6.3

0.9

(0.5)

(0.8)

5.9

2.2

8.1

0.3

8.4

1.7

10.1

10.3

(0.2)

100.0

(73.7)

26.3

(27.9)

0.2

(1.4)

1.5

(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

Tenaris

Fiscal year ended December 31, 2017,
compared to fiscal year ended December 31, 2016

The following table shows our net sales by business
segment for the periods indicated below:

53.

Millions of U.S. dollars

FOR THE YEAR ENDED DECEMBER 31

Tubes

Others

Total

2017

94%

100%

4,015

278

4,294

2016

94%

100%

Increase /
(Decrease)

24%

16%

23%

4,966

323

5,289

Tubes
The following table indicates, for our Tubes
business segment, sales volumes of seamless and
welded pipes for the periods indicated below:

Thousands of tons

FOR THE YEAR ENDED DECEMBER 31

Seamless

Welded

Total

2017

2016

Increase /
(Decrease)

2,157

461

2,618

1,635

355

1,990

32%

30%

32%

Annual Report
54.

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

NET SALES

North America

South America

Europe

Middle East & Africa

Asia Pacific

Total net sales

Operating income (loss) (1)

Operating income (loss) (% of sales)

(1) Tubes operating income includes severance charges of $67 million in 2016.

2017

2016

Increase /
(Decrease)

2,362

982

497

921

204

1,265

1,032

542

1,041

136

4,966

4,015

292

5.9%

(71)

(1.8%)

87%

(5%)

(8%)

(11%)

50%

24%

510%

TenarisNet sales of tubular products and services increased
24% to $4,966 million in 2017, compared to $4,015
million in 2016, reflecting a 32% increase in volumes
and a 6% decrease in average selling prices. Sales
increased mainly due to a strong increase in demand
in the United States and Canada, partially offset by
lower sales in the rest of the world, apart from Asia
Pacific. In North America, our sales increased 87%,
due to the recovery in shale drilling in the United
States and Canada. In the rest of the world, recovery
remained more elusive, apart from Asia Pacific due
to higher Rig Direct® sales in Thailand.

Operating income (loss) from tubular products
and services, amounted to a gain of $292 million
in 2017, compared to a loss of $71 million in 2016.
The recovery in Tubes operating income reflects a
better operating environment, where a 32% increase
in shipments improved the utilization of production
capacity and therefore the absorption of fixed costs
and a reduction in severance costs ($67 million in
2016 vs. $32 million in 2017). Additionally, our
selling, general and administrative expenses, or
SG&A, as a percentage of sales declined from
29.0% in 2016 to 24.8% in 2017.

55.

Annual Report56.

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

Net sales

Operating income

Operating income (% of sales)

2017

2016

323

13.2%

278

4.3%

Increase /
(Decrease)

16%

254%

Net sales of other products and services increased
16% to $323 million in 2017, compared to $278
million in 2016, mainly due to higher sales of energy
related products e.g., sucker rods and coiled tubing
and excess raw materials and energy.

foreign exchange charge corresponding to the Euro
appreciation on Euro denominated intercompany
liabilities (fully offset in the currency translation
reserve in equity), compensated by a net finance
income of $21 million.

Operating income from other products and
services, increased from $12 million in 2016 to
$43 million in 2017, mainly due to improved
profitability from our coiled tubing business
together with higher results from sales of excess
raw materials and energy.

Selling, general and administrative expenses, or
SG&A, increased by $73 million (6%) in 2017
from $1,197 million in 2016 to $1,270 million in
2017. However, SG&A expenses decreased as a
percentage of net sales to 24.0% in 2017 compared
to 27.9% in 2016, mainly due to the effect of fixed
and semi fixed expenses on higher sales (e.g.,
depreciation and amortization and labor costs).

Financial results amounted to a loss of $23 million
in 2017, compared to a gain of $22 million in 2016.
The 2017 loss is mostly related to a $49 million

Equity in earnings of non-consolidated companies
generated a gain of $116 million in 2017, compared
to $72 million in 2016. These results were mainly
derived from our equity investment in Ternium
(NYSE:TX).

Income tax for the year was positive amounting
to $17 million. In 2017 we recorded a gain of $63
million due to the reduction in income tax rates in
Argentina, the United States and Colombia over
net deferred tax liabilities. Additionally, during
2017 we recorded an income tax charge of $29
million corresponding to a settlement agreement
between Dalmine, our Italian subsidiary, and
the Italian tax authorities in connection with all
withholding tax claims on 2007 and 2008 dividend
payments. Under such settlement agreement,
Dalmine paid to the Italian tax administration
an aggregate amount of EUR42.9 million

Tenaris57.

(approximately $51 million), net of EUR3.2
million (approximately $4 million) corresponding
to the amount previously paid during the
litigation proceeding.

Net income for the year amounted to $536 million
in 2017, including a gain from discontinued
operations of $92 million, compared with a gain
in 2016 of $59 million, including a gain from
discontinued operations of $41 million. The
improvement in results reflects a better operating
environment, where a 32% increase in shipments
improved the utilization of production capacity
and therefore the absorption of fixed costs, a
reduction in severance costs ($74 million in 2016
vs. $34 million in 2017), a positive income tax

of $17 million reflecting primarily the effect of
the changes in income tax rates in Argentina
and the United States on deferred tax positions,
better results from our investment in associated
companies (mainly Ternium) and a gain of $92
million from discontinued operations. Net income
from continuing operations amounted to a gain of
$445 million in 2017, which compares with a gain
of $17 million in 2016.

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 three years:

Millions of U.S. dollars

FOR THE YEAR ENDED DECEMBER 31

Net cash (used in) provided by operating activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents at the beginning of year (excluding overdrafts)

Effect of exchange rate changes

(Decrease) increase in cash and cash equivalents

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 at the end of the year

2017

2016

2015

(22)

349

(401)

(74)

399

(74)

330

1,192

123

(966)

680

864

(98)

(653)

113

286

(0)

113

399

1,633

248

(840)

1,441

2,215

(1,774)

(535)

(94)

416

(37)

(94)

286

2,141

393

(972)

1,849

Annual Report

58.

Our financing strategy aims to maintain adequate
financial resources and access to additional liquidity.
During 2017 cash flow used in operating activities
amounted to $22 million (including an increase
in working capital of $855 million), our capital
expenditures amounted to $558 million and we paid
dividends amounting to $484 million. At the end of
the year we had a net cash position of $680 million
(including the $328 million we collected from the
sale of Republic Conduit), compared to $1.4 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 (i) cash
and cash equivalents (cash in banks, liquidity funds
and investments with a maturity of less than three
months at the date of purchase), and (ii) other
investments (fixed income securities, time deposits,
and fund investments).

At December 31, 2017, liquid financial assets as
a whole (comprising cash and cash equivalents
and other investments) were 11% of total assets
compared to 16% at the end of 2016.

We hold investments primarily 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, 2017,
U.S. dollar denominated liquid assets represented
93% of total liquid financial assets compared to
95% at the end of 2016.

TenarisFiscal year ended December 31, 2017,
compared to fiscal year ended December 31, 2016

59.

Operating activities
Net cash used by operations during 2017 was $22
million, compared to $864 million of net cash
provided by operations during 2016. This 103%
decrease was mainly attributable to an increase in
working capital. During 2017 the increase in working
capital amounted to $855 million, while during 2016
the reduction in working capital amounted to $348
million. The main yearly variation was related to an
increase of $804 million in inventories during 2017,
which compares with a reduction in inventory of
$245 million in 2016. Additionally, during 2017 trade
receivables increased $259 million and trade payables
increased $194 million. 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.

Financing activities
Net cash used in financing activities, including
dividends paid, proceeds and repayments of
borrowings and acquisitions of non-controlling
interests, was $401 million in 2017, compared to
$653 million in 2016.

Dividends paid during 2017 amounted to $484
million, while $508 million were paid in 2016.

During 2017 we had net proceeds from borrowings
of $107 million, while in 2016 we had net
repayments of borrowings of $115 million.

Our total liabilities to total assets ratio was
0.20:1 as of December 31, 2017 and 0.18:1 as of
December 31, 2016.

Investing activities
Net cash provided by investing activities was
$349 million in 2017 (including the $328 million
we collected from the sale of Republic Conduit)
compared to $98 million used in 2016. Capital
expenditures decreased to $558 million from $787
million in 2016, mainly related to the construction
of the greenfield seamless mill in Bay City, Texas.
Additionally, we reduced our financial investments
by $565 million in 2017 compared to a reduction
of $653 million in 2016.

Principal Sources of Funding
During 2017, we funded our operations with
operating cash flows, bank financing, proceeds
from sales of assets and available liquid financial
assets. Short-term bank borrowings were used as
needed throughout the year.

Financial liabilities
During 2017, borrowings increased by $126
million, to $966 million at December 31, 2017,
from $840 million at December 31, 2016.

Annual Report60.

Borrowings consist mainly of bank loans. As
of December 31, 2017, U.S. dollar-denominated
borrowings plus borrowings denominated in other
currencies swapped to the U.S. dollar represented
93% 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, 2017, 2016 and 2015:

Millions of U.S. dollars

Bank borrowings

Bank overdrafts

Finance lease liabilities

Total borrowings

Our weighted average interest rates before tax
(considering hedge accounting), amounted to
3.73% at December 31, 2017 and to 1.97% at
December 31, 2016.

2017

2016

2015

966

839

840

971

972

TenarisThe maturity of our financial debt is as follows:

Millions of U.S. dollars

AT DECEMBER 31, 2017

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

931

946

–

61.

Total

966

984

Our current borrowings to total borrowings ratio
remained at 0.96:1 as of December 31, 2017 and
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 $680 million at
December 31, 2017, compared to $1.4 billion at
December 31, 2016.

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”.

Annual Report

62.

Significant borrowings
Our most significant borrowings as of December 31,
2017 were as follows:

Millions of U.S. dollars

Disbursement date

Borrower

Type

2017

Dec-17

Tamsa

Siderca

TuboCaribe

Bank loans

Bank loan

As of December 31, 2017, Tenaris was in compliance
with all of its covenants.

Original
& Outstanding

Final Maturity

404

311

150

2018

Dec-18

Tenaris

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

In millions of U.S. dollars

EXPECTED MATURITY DATE

trading or other speculative purposes, other than
non-material investments in structured products.

63.

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, 2017 and 2016
which included fixed and variable interest rate
obligations, detailed by maturity date:

AT DECEMBER 31, 2017

2018

2019

2020

2021

2022

Thereafter

Total (1)

NON-CURRENT DEBT

Fixed rate

Floating rate

CURRENT DEBT

Fixed rate

Floating rate

–

913

931

–

913

966

AT DECEMBER 31, 2016

2017

2018

2019

2020

2021

Thereafter

Total (1)

EXPECTED MATURITY DATE

NON-CURRENT DEBT

Fixed rate

Floating rate

CURRENT DEBT

Fixed rate

Floating rate

–

790

809

–

790

840

(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.

Annual Report
64.

Our weighted average interest rates before tax
(considering hedge accounting), amounted to
3.73% at December 31, 2017 and to 1.97% at
December 31, 2016.

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.

Our financial liabilities (other than trade payables
and derivative financial instruments) consist
mainly of bank loans. As of December 31, 2017,
U.S. dollar denominated financial debt plus debt
denominated in other currencies swapped to the
U.S. dollar represented 93% 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.

Interest Rate Risk
Fluctuations in market interest rates create a
degree of risk by affecting the amount of our
interest payments. At December 31, 2017, we had
variable interest rate debt of $20 million and fixed
rate debt of $946 million ($913 million of the fixed
rate debt are short-term).

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 $51
million in 2017, compared with $45 million in 2016.

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.

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

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

Tenaris65.

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, 2017.

All amounts in millions of U.S. dollars

CURRENCY EXPOSURE / FUNCTIONAL CURRENCY

Long / (Short) Position

Argentine Peso / U.S. dollar

Euro / U.S. dollar

(64)

(366)

The main relevant exposures as of December 31,
2017 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, and Euro-denominated intercompany
liabilities at certain subsidiaries for which functional
currency is the U.S. dollar.

Foreign Currency Derivative Contracts
The net fair value of our foreign currency
derivative contracts amounted to a liability of

$32 million at December 31, 2017 and $40 million
at December 31, 2016. 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.

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)

Annual Report66.

continues to be reflected on the consolidated
statement of financial position.

At December 31, 2017, the effective portion of
designated cash flow hedges, included in other
reserves in shareholders’ equity amounted to a
debit of $0.2 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 2017.

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.

Trend Information

Principal Factors Affecting Oil and Gas Prices and

Demand for Steel Pipes from the Global Oil and

Gas Industry.
Sales to the oil and gas industry worldwide
represent a high percentage of our total sales, and
demand for steel pipes from the global oil and gas
industry is a significant factor affecting the general
level of volumes and prices for our products.
Downward pressures on oil and gas prices usually
result in lower oil and gas drilling activity and
investment throughout the oil and gas industry
with consequently lower demand for our steel
pipe products and, in some circumstances, upward
pressures can result in higher demand from our oil
and gas customers.

Whereas oil prices are similar in most parts of the
world because oil is a fully tradable commodity,
gas prices are influenced by regional factors. In
North America, where gas production is extensively
developed and there is an extensive regional pipeline
system, these factors include available gas storage
capacity and seasonal weather patterns, particularly
winter temperatures in the United States. Liquefied
natural gas, or LNG, prices have traditionally been
established in relation to international oil prices,
particularly in the largest LNG markets in Asia.
However, as the market for LNG becomes more
global and the USA becomes a relevant source of
LNG, LNG prices are also starting to be set in
relation to prices prevailing at regional gas hubs.

Tenaris67.

International oil prices depend on diverse
factors. On the supply side, major oil- and gas-
producing nations and companies have frequently
collaborated to balance the supply (and thus the
price) of oil in the international markets. A major
vehicle for this collaboration has been OPEC.
Many of our customers are state-owned companies
in member countries of OPEC. Another factor that
has affected the international price level of oil is
the political and socioeconomic conditions of oil-
producing countries, such as Libya, Nigeria and
Venezuela and the persistence of geo-political and
armed conflicts affecting the Middle East region,
which is home to a substantial proportion of the
world’s known oil reserves. On the demand side,
economic conditions and the level of oil inventories
in the leading industrial nations of the world, and
more recently China, which constitute the largest
oil consuming nations, also play a significant role
in oil prices.

A more recent factor affecting oil and gas prices
has been the ability of producers in the United
States and Canada to rapidly increase production
from their reserves of tight oil and shale gas
in response to changes in market conditions.
Production from U.S. tight oil reserves has grown
in recent years to represent close to 10% of global
liquids production, and production from shale
gas plays is converting the United States into a net
exporter of natural gas and a significant player in
the LNG market.

Following three years of relatively stable oil prices
of around $100 per barrel, prices started to decline
in the middle of 2014, once OPEC confirmed at
its November 2014 meeting that it would not cut
production to balance demand. Prices reached
levels below $30 per barrel in January 2016 and
have since recovered to $60 per barrel once OPEC
and other producers agreed to cut production
levels to accelerate the market rebalancing process.
After several years of global oil supply exceeding
global oil demand, inventories declined in the
second half of 2017. The collapse in oil prices led
oil and gas operators to substantially reduce their
exploration and production investments to a level
which is currently around 60% of the average of
the 2012-14 period and this, in turn, resulted in
a severe contraction in demand and pressure on
pricing for steel pipes used in oil and gas drilling
and associated operations. During 2017, however,
oil and gas operators in North America, who
have been very successful in reducing production
costs in their shale plays, increased investments in
response to more favorable market conditions.

Since the development of the prolific Marcellus
shale gas play, North American gas prices have
remained at low levels compared to previous
decades. For the past three years, prices have
fluctuated in the range of $2.00-3.50 per million
BTU, significantly below prices in many other
major gas-consuming regions. For several years,
production increases, primarily from productive

Annual Report68.

shale gas deposits, have exceeded demand
increases, reducing the need for imports, to the
extent that, in 2017, the US became a net exporter
of natural gas. Low prices have encouraged
investment in gas consuming industrial facilities
and LNG export facilities as well as switching
from coal to gas for electric power production,
particularly with the adoption of new regulations
which could force the retirement of older coal-
based generating units.

Drilling activity in the United States and Canada,
following several years of high activity, fell sharply
through 2015 and the first half of 2016 before
beginning a strong recovery which plateaued during
the second half of 2017. Rig counts plunged to less
than a quarter of their former level as operators
cut back on investments for two consecutive years
as their cash flows declined with low oil and gas
prices. At the same time, they reduced drilling costs
through increased efficiencies, concentrating drilling
on the most productive plays, and negotiated lower
supply and service costs. Despite lower prices,
production levels are now higher than before the
collapse in oil prices but rig counts are at half the
levels they reached in 2014, reflecting the strong
productivity gains made by the US oil and gas
drilling industry. In the rest of the world, drilling
activity began to decline in the second half of 2014

and has continued to decline during 2015, 2016 and
2017. Although drilling activity in the Middle East
has been relatively stable, drilling in Latin America
and offshore drilling has declined significantly.

Prior to the most recent downturn in oil prices,
a growing proportion of exploration and
production spending by oil and gas companies
had 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. The success, however, of shale drilling
operators, with their inherently short investment
cycles, in adapting to lower oil and gas costs and
increasing production, has led to a slowdown in
new developments of complex offshore projects
with long investment lead times in a context of low
and more volatile oil prices, consequently affecting
the level of product differentiation.

In addition, the increasing cost competitiveness
and use of alternative renewable sources of energy,
could limit growth in demand for oil and gas and
put downward pressure on oil and gas prices in the
longer term. This trend could accelerate if carbon
taxes or carbon pricing instruments resulting in
high prices for carbon emissions are implemented
around the world.

TenarisThe tables below show the annual average number
of active oil and gas drilling rigs, or rig count,
in the United States, Canada, International
(worldwide other than the United States and
Canada and excluding Iran, Sudan, onshore China,
Russia and Syria) and Worldwide, as published

by Baker Hughes, a GE company, for the years
indicated and the percentage increase or decrease
over the previous year. Baker Hughes, a leading oil
service company, has published its rig counts on a
monthly basis since 1975 as a general indicator of
activity in the oil and gas sector.

69.

RIG COUNT

International (*)

Canada

United States

Worldwide

2017

2016

2015

2014

2013

948

207

875

955

128

510

1,167

193

977

2,029

1,593

2,337

1,337

380

1,862

3,578

1,296

355

1,761

3,412

(*) International rig count excludes Syria (discontinued in February 2013) and includes Iraq from 2013 onwards.

PERCENTAGE INCREASE (DECREASE) OVER THE PREVIOUS YEAR

2017

2016

2015

2014

International (*)

Canada

United States

Worldwide

(1%)

62%

72%

27%

(18%)

(34%)

(48%)

(32%)

(13%)

(49%)

(48%)

(35%)

(*) International rig count excludes Syria (discontinued in February 2013) and includes Iraq from 2013 onwards.

Annual Report70.

Off-Balance Sheet Arrangements
As of December 31, 2017, the Company reported
the following financial commitments, consisting of
guarantees in connection to its participation in the
non-consolidated company Techgen:

•

A corporate guarantee covering 22% of the
obligations of Techgen under a syndicated loan
agreement. Proceeds from the syndicated loan
amounted to $800 million and were used by
Techgen for the construction of the facility. As
of December 31, 2017, the outstanding loan
amounted to $720 million and, as a result,
the amount guaranteed by the Company
was approximately $158 million. The main
covenants under the corporate guarantee include
the Company’s commitment to maintain its
participation in Techgen or the right to purchase
at least 22% of Techgen’s firm energy, and
compliance with a maximum permitted leverage

ratio. The Company is in compliance with
such covenants.

A corporate guarantee covering 22% of the
outstanding value of natural gas transportation
capacity agreements entered into by Techgen with
Kinder Morgan Gas Natural de Mexico S. de R.L.
de C.V., and Kinder Morgan Texas Pipeline LLC for
a natural gas purchasing capacity of 150,000 million
BTU per day starting on August 1, 2016 and ending
on July 31, 2036. As of December 31, 2017, our
exposure under the guarantee in connection with
these agreements amounted to $58.2 million.

In addition, we have various off-balance
sheet commitments, as described in note 25
“Contingencies, commitments and restrictions on
the distribution of profits – (ii) Commitments and
other purchase orders” to our audited consolidated
financial statements included in this annual report.

TenarisOutstanding
Legal
Proceedings

Note 25 “Contingencies, commitments and
restrictions on the distribution of profits – (i)
Contingencies” to our consolidated financial
statements included in this annual report includes
a summary description of Tenaris’s material legal
proceedings for the year ended December 31, 2017.

71.

Annual Report72.

Recent
developments

Annual Dividend Proposal
On February 21, 2018 the Company’s board of
directors proposed, for the approval of the annual
general shareholders’ meeting to be held on May 2,
2018, 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 2017. 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
23, 2018, with an ex-dividend date of May 21, 2018
and record date on May 22, 2018.

Corporate
Governance
Statement

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 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 are traded.

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 are traded, please visit
our website at www.tenaris.com/investors/

The Company has adopted a code of conduct
incorporating guidelines and standards of
integrity and transparency applicable to all of
our directors, officers and employees. In addition,
we have adopted a supplementary code of ethics,
which applies to our principal executive officer,

Tenaris73.

principal financial officer, principal accounting
officer or controller, or persons performing similar
functions and which is intended to supplement the
Company’s code of conduct. The text of our codes
of conduct and code of ethics is posted on our
Internet website at: www.tenaris.com/en/aboutus/
codeofconduct.aspx

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 the Company’s 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 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

Annual Report74.

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 2, 2018, at 9:30 A.M., Luxembourg
time. A general extraordinary shareholders’ meeting

will be held on the same date immediately after the
adjournment of the annual general shareholders’
meeting to decide on certain amendments to the
Company’s articles of association.

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 such meetings and the procedures for
attending and voting at the meetings, please see
the “Notice of the Annual General Meeting of
Shareholders and of an Extraordinary 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

Tenaris75.

directors must be five. The Company’s current board
of directors is composed of ten directors.

The board of directors is required to meet as often
as required by the interests of the Company and
at least four times per year. A majority of the
members of the board of directors in office present
or represented at the board of directors’ meeting
constitutes a quorum, and resolutions may be
adopted by the vote of a majority of the directors
present or represented. In the case of a tie, the
Chairman is entitled to cast the deciding vote.

Directors are elected at the annual ordinary general
shareholders’ meeting to serve one-year renewable
terms, as determined by the general shareholders’
meeting. The general shareholders’ meeting also
determines the number of directors that will
constitute the board and their compensation. The
general shareholders’ meeting may dismiss all or
any one member of the board of directors at any
time, with or without cause, by resolution passed by
a simple majority vote, irrespective of the number
of shares represented at the meeting.

Under the Company’s articles of association 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 (or,
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).

Annual Report76.

The following table sets forth the name of the
Company’s current directors, their respective
positions on the board, their principal occupation,
their years of service as board members and their age.

Name

Position

Principal Occupation

Years as Director

Age at
December 31, 2017

Mr. Roberto Bonatti (1)

Mr. Carlos Condorelli

Mr. Roberto Monti

Mr. Gianfelice Mario Rocca (1)

Mr. Paolo Rocca (1)

Mr. Jaime Serra Puche

Mr. Yves Speeckaert

Mr. Alberto Valsecchi

Mr. Amadeo Vázquez y Vázquez

Mr. Guillermo Vogel

Director

President of San Faustin

Director of Tenaris and Ternium

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

Chairman of SAI Consultores

Director of Tenaris

Vice chairman of Tamsa

(1) Paolo Rocca and Gianfelice Rocca are brothers, and Roberto Bonatti is Paolo and Gianfelice Rocca’s first cousin.

Tenaris

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.

77.

Carlos Condorelli
Mr. Condorelli is a member of the
Company’s board of directors and
of the audit committee. He served
as the Company’s 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, including also the chief
financial officer position in some
of the principal Tenaris group
companies; he also served as
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 and of
the audit committee. 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 chairman of the board of
directors of San Faustin, member
of the board of directors of Ternium,
president of the Humanitas Group
and president of the board of
directors of Tenova S.p.A. From June
2013 to June 2017 he was President
of Assolombarda, and from May
2004 to May 2012 Vice President
for Education of Confindustria.
Moreover, in Italy, he is member of
the Board of Directors of Allianz
SpA, Brembo SpA, Buzzi Unicem
SpA., Bocconi University, LUISS
University, Museo Nazionale Scienza
e Tecnologia Leonardo Da Vinci and
member of the Advisory Board of
Politecnico di Milano. At international
level, he is member of the Allianz
SE Advisory Board, of the Aspen
Institute Executive Committee, of the
Harvard Business School Advisory
Board, of the BIDMC’s Cancer Center
International Executive Board and
member of the European Round Table
of Industrialists (ERT). In June 2007
he was appointed Cavaliere del Lavoro
of the Italian Republic and in March
2009 he received a Honoris Causa
degree in management engineering
from Politecnico di Milano. Gianfelice
Rocca graduated cum laude in Physics
at University of Milan and earned
a PMD at Harvard Business School.
Mr. Rocca is an Italian citizen.

Annual Report78.

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
and of the audit committee. 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.

Yves Speeckaert
Mr. Speeckaert is a member of
the Company’s board of directors.
He started his career as management
consultant. While serving as director
of KPMG Consulting in London
and Sao Paulo, Brazil, he led various
high-profile engagements in the
telecoms, energy and agri-business
industries; and as a director of
structured finance of Banca Intesa-
Sanpaolo (London), he worked with
leaders of the telecom companies and
vendors, to structure new operators
funding in Spain and Latin America.
Since 2010 he is a Luxembourg-based
independent director of regulated
investment funds (including related
to Rothschild, UBS, KBL, among
others) and is a member of the board
of directors of several industrial
holdings. He is also a member
of the Luxembourg Institute of
Administrators (ILA). Mr. Speeckaert
holds an MBA from the University
of California at Berkeley, and is a
contributing and active member
of its alumni association.
Mr. Speeckaert is a Belgian 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
and the chairman of the audit
committee. 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.

TenarisGuillermo 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.

At the next annual general shareholders’ meeting,
it will be proposed that the number of directors
be increased to eleven, that all of the current
directors, except Mr. Alberto Valsecchi, be
reappointed and that Mr. Germán Curá and
Ms. Mónica Tiuba be newly appointed to the
board of directors, each to hold office until the
next annual general shareholders’ meeting that
will be convened to decide on the Company’s 2018
annual accounts. Below you will find Ms. Tiuba’s
and Mr. Cura’s biographical information.

79.

Germán Curá
Mr. Curá currently serves as president of our
operations in North America, a position he holds
since 2006. He 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 subsidiary, 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 global
business unit and Tenaris commercial director. He
was also a member of the board of directors of API
and currently serves as a member of the board of
director of QRI llc. He is a Marine Engineer from
the Instituto Tecnológico de Buenos Aires and a
MBA graduated from the Massachusetts Institute of
Technology. Mr. Curá is a U.S. citizen.

Mónica Tiuba
Ms. Tiuba is a Brazilian qualified lawyer and
accountant with over 16 years of professional
experience in Brazil and Luxembourg. She started
her career at Barbosa, Mussnich & Aragão law
firm in Rio de Janeiro, Brazil, where she practiced
corporate law, M&A and tax litigation. She has
more than 10 years working experience in EY
and PwC, in the Brazil and Luxembourg offices,
advising multinational clients and family offices
in connection with their international structuring;
she has also advised private equity houses in M&A
transactions. She worked for the global trust services
firm, Vistra, where she headed the French & Ibero-
Latin American team and served as board member
of Ibero-LatAm origin clients. Ms. Tiuba gained
banking experience working as international senior
wealth planner at Banque Edmond de Rothschild, in
Luxembourg. She holds a specialization in EU Tax
law from Leiden University and a Master of Laws
in international taxation from Vienna University of
Economics. Ms. Tiuba is a Brazilian citizen.

Annual Report80.

Messrs. Condorelli, Monti, Serra Puche, Speeckaert
and Vázquez y Vázquez qualify as independent
directors for purposes of the U.S. Securities
Exchange Act Rule 10A-3(b)(1), and Messrs.
Monti, Serra Puche, Speeckaert and Vázquez y
Vázquez qualify as independent directors under the
Company’s articles of association. If appointed by
the next annual general meeting of shareholders,
Ms. Tiuba would also qualify as independent
director for purposes of the U.S. Securities Exchange
Act Rule 10A-3(b)(1).

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.

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

Tenaris81.

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 our shares are listed on at least one
regulated market, the Company must have an audit
committee composed of three members, at least
two 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.

However, in response to the requirements set
forth in the Luxembourg law of July 23, 2016,
concerning the audit profession as to composition
of the audit committee, or the Audit Reform Law,
the Company’s board of directors appointed
to the committee an additional member with
competence in accounting or auditing matters,
who will serve in the audit committee until the
general meeting of shareholders to be held on May
2, 2018. The board of directors has convened an
extraordinary general meeting of shareholders
to be held on May 2, 2018, immediately after the
annual general meeting of shareholders, to decide
on the amendment of the Company’s articles of
association, for purposes of providing that the
audit committee shall be composed of at least
three members, the majority of whom shall qualify
as independent directors, provided, however,
that the composition and membership of the
audit committee shall satisfy such requirements
as are applicable to, and mandatory for, audit
committees of issuers such as the Company
under any law, rule or regulation applicable to
the Company (including, without limitation, the
applicable laws, rules and regulations of such
regulated market or markets).

As a result, the audit committee of the Company’s
board of directors currently consists of four
members. Messrs. Jaime Serra Puche, Amadeo
Vázquez y Vázquez and Roberto Monti were
appointed to the audit committee on May 3,
2017, while Mr. Carlos Condorelli was appointed
to the audit committee on November 1, 2017 to

Annual Report82.

satisfy the requirements under the Audit Reform
Law. Messrs. Condorelli, Monti, Serra Puche
and Vázquez y Vázquez qualify as independent
directors for purposes of the U.S. Securities
Exchange Act Rule 10A-3(b)(1), and Messrs.
Monti, Serra Puche and Vázquez y Vázquez qualify
as independent directors under the Company’s
articles of association. In addition, Mr. Condorelli
is competent in accounting or auditing matters.

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. The audit
committee operates under a charter which has been
amended and restated by the board of directors
on November 1, 2017, to implement adequate
procedures to discharge the audit committee’s
duties and responsibilities under applicable
law, including the Audit Reform Law. The audit
committee assists the board of directors in its
oversight responsibilities relating to (i) the integrity
of the Company’s financial statements; (ii) the
effectiveness of the Company’s systems of internal
control, risk management and internal audit over
financial reporting; and (iii) the independence and

performance of the Company’s external auditors.
The audit committee also performs other duties
entrusted to it by the Company’s board of directors
or required to be performed by it under applicable
laws and regulations.

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

Tenaris83.

individual value equal to or greater than $10 million,
or (y) with an individual value lower than $10 million,
when the aggregate sum – as reflected in the financial
statements of the four fiscal quarters of the Company
preceding the date of determination- of any series of
transactions for such lower value that can be deemed
to be parts of a unique or single transaction (but
excluding any transactions that were reviewed and
approved by Company’s audit committee or board of
directors, as applicable, or the independent members
of the board of directors of any of its subsidiaries)
exceeds 1.5% of the Company’s consolidated net
sales made in the fiscal year preceding the year on
which the determination is made;
any corporate reorganization transaction (including
a merger, spin-off or bulk transfer of a business)
affecting the Company for the benefit of, or involving,
a related party; and
any corporate reorganization transaction (including
a merger, spin-off or bulk transfer of a business) not
reviewed and approved by the independent members
of the board of directors of any of the Company’s
direct or indirect subsidiaries, affecting any of the
Company’s direct or indirect subsidiaries for the
benefit of, or involving, a related party.

•

The audit committee has the power (to the
maximum extent permitted by applicable laws)

to request that the Company or relevant subsidiary
promptly provide all information necessary
for the audit committee to assess the material
transactions with related parties that it is required
to review. A material related party transaction
shall not be entered into without prior review by
the Company’s audit committee and subsequent
approval by the board of directors unless (i) the
circumstances underlying the proposed transaction
justify that it be entered into before the time it
can actually 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 board of directors
does not approve it.

The audit committee has the authority to conduct
any investigation appropriate to the fulfillment
of its responsibilities, and has direct access to the
Company’s external auditors as well as anyone in
the Company and, subject to applicable laws and
regulations, its subsidiaries. In addition, the audit
committee may engage, at the Company’s expense,
independent counsel and other internal or external
advisors to review, investigate or otherwise advise
on, any matter as the committee may determine
to be necessary to carry out its purposes and
responsibilities.

Annual Report84.

Senior management
Our current senior management as of the date
of this annual report consists of:

Name

Position

Age at
December 31, 2017

Mr. Paolo Rocca

Chairman and Chief Executive Officer

Mr. Edgardo Carlos

Chief Financial Officer

Mr. Antonio Caprera

Chief Industrial Officer

Mr. Gabriel Casanova

Chief Supply Chain Officer

Mr. Alejandro Lammertyn

Chief Planning and Commercial Coordination Officer

Ms. Paola Mazzoleni

Chief Human Resources Officer

Mr. Marcelo Ramos

Chief Technology Officer

Mr. Germán Curá (1)

President, North America

Mr. Sergio de la Maza

President, Central America

Mr. Renato Catallini

President, Brazil

Mr. Javier Martínez Alvarez

President, Southern Cone

Mr. Gabriel Podskubka

President, Eastern Hemisphere

Mr. Michele Della Briotta

President, Europe

(1) Effective as of May 2, 2018, Germán Curá will cease to act as president of our North American
operations and he will be proposed to Tenaris’s shareholders’ meeting to be appointed as
member of the board of directors. His position will be dissolved and Mr. Luca Zanottti will
continue to act as the president of our U.S. operations and Guillermo Moreno will continue to
act as the president of our Canadian operations.

Tenaris

85.

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 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.

Antonio Caprera
Mr. Caprera currently serves as our
chief industrial officer, a position
he assumed in April 2017. 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.

Gabriel Casanova
Mr. Casanova currently serves as
our chief supply chain officer, with
responsibility for the execution of all
contractual deliveries to customers.
After graduating as a marine and
mechanical engineer, he joined
Siderca’s export department in
1987. In 1995 he became Siderca’s
Chief Representative in China and
from 1997 to 2009 he held several
positions in the commercial area
in Dalmine. In 2009 he became the
head of our supply chain network
and in October 2012 he assumed his
current position. Mr. Casanova is an
Argentine citizen.

Alejandro Lammertyn
Mr. Lammertyn currently serves
as our chief planning and
commercial coordination officer, a
position he assumed in April 2013.
Mr. Lammertyn began his career
with Tenaris in 1990. Previously
he served as assistant to the Chief
Executive Officer 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 chief human resources officer,
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
Tenaris University. 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.

Annual Report86.

Marcelo Ramos
Mr. Ramos currently serves as
our chief technology officer, 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 president
of our operations in North America,
a position he holds since 2006. He
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 subsidiary, 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 global
business unit and Tenaris commercial
director. He was also a member of
the board of directors of API and
currently serves as a member of
the board of director of QRI llc.
He is a Marine Engineer from the
Instituto Tecnológico de Buenos
Aires and a MBA graduated from
the Massachusetts Institute of
Technology. Mr. Curá is a U.S. citizen.

Guillermo Moreno
Mr. Moreno currently serves as
president of our operations in Canada.
He first joined Siderca in 1987 and
gained progressive responsibilities in
finance and marketing positions until
1993. From 1993 to 1996, he became
responsible for sales in Latin America.
In 1996 he became Tamsa’s exports
sales director. In 1999 he became
the director of the Pipeline Services
business unit, and eventually took over
the position of director of Oilfield
Services business unit in 2004. He served
as planning director from 2010 to 2012,
when he assumed his current position.
Mr. Moreno is an Argentine citizen.

Luca Zanotti
Mr. Zanotti currently serves as
president of our operations in the
United States. In 2002, he joined
Exiros, the procurement company for
the Techint Group, as planning and
administration director. He was later
promoted to raw materials director
and in July 2007 became managing
director of Exiros, a position he held
until 2010. He served as regional
manager, Europe, and managing
director of Dalmine S.p.A. from 2011
to 2015, when he assumed his current
position. Before joining the Techint
Group, he was a senior manager
at A.T. Kearney in Milan, where
he worked from 1998 to 2002, and
prior to that he held various business
development positions in the Far East
for Lovato Electric. Mr. Zanotti is an
Italian citizen.

Sergio de la Maza
Mr. de la Maza currently serves
as president of our operations in
Central America 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
president of our operations in
Brazil, 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.

Tenaris87.

Michele Della Briotta
Mr. Della Briotta currently serves
as president of our operations in
Europe, 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

Javier Martínez Alvarez
Mr. Martínez Alvarez currently
serves as president of our operations
in the Southern Cone, 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
president of our operations in the
Eastern Hemisphere, 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.

Annual Report88.

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
2017 a fee of $115,000. 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, 2017, 2016
and 2015, the cash compensation of directors
and senior managers amounted to $45.8 million,
$38.6 million and $28.8 million, respectively. These
amounts include cash benefits paid to certain
senior managers in connection with the vesting
of pre-existing retirement plans. In addition,
directors and senior managers received 484, 500
and 540 thousand units for a total amount of $4.7
million, $4.8 million and $5.4 million, respectively,
in connection with the Employee retention and
long-term incentive program described in note O
(3) “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
independence and performance 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 is responsible for the procedure
for the selection of the independent auditors and
considers and makes recommendations to the board
of directors, to be put to shareholders for approval
at the annual general meeting of shareholders,
regarding the appointment, re-appointment or
removal of the 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

Tenaris89.

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. 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, 2017, appointed by the
shareholders’ meeting held on May 3, 2017, 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 2017, PwC served as the principal external
auditor for the Company. Fees for the year ended
December 31, 2017 are detailed below.

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.

Thousands of U.S. dollars

FOR THE YEAR ENDED DECEMBER 31

Audit Fees

Audit-Related Fees

Tax Fees

All Other Fees

Total

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 925,603,
which represents 0.08% of our outstanding shares.

The following table provides information
regarding share ownership by our directors and
senior management:

2017

3,995

4,136

Audit Fees
Audit fees were paid for professional services
rendered by the auditors for the audit of the
consolidated financial statements and internal
control over financial reporting of the Company,
the statutory financial statements of the Company
and its subsidiaries, and any other audit services
required for the U.S. Securities and Exchange
Commission or other regulatory filings.

Director or Officer

Guillermo Vogel

Carlos Condorelli

Edgardo Carlos

Gabriel Podskubka

Total

Number of
Shares Held

850,446

67,211

4,000

3,946

925,603

Annual Report
90.

Major shareholders
The following table shows the beneficial ownership
of the shares by (1) the Company’s major
shareholders (persons or entities that have notified
the Company of holdings in excess of 5% of the
Company’s share capital), non-affiliated public
shareholders, and (2) 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 (2)

Public

Total

713,605,187

60.45%

925,603

466,006,040

0.08%

39.47%

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, or 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, 2017. 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

Tenaris

91.

Company’s articles of association, the Company’s
existing shareholders shall have a preferential right
to subscribe for any new shares issued pursuant to
the authorization granted to its board of directors,
except in the following cases (in which cases no
preferential subscription rights shall apply):

•

any issuance of shares (including, without
limitation, the direct issuance of shares or upon the
exercise of options, rights convertible into shares, or
similar instruments convertible or exchangeable into
shares) against a contribution other than in cash;
any issuance of shares (including by way of free
shares or at discount), up to an amount of 1.5%
of the issued share capital of the Company, to
directors, officers, agents or employees of the
Company, its direct or indirect subsidiaries, or
its affiliates (or, 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 our 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 our 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 0.08% of the Company’s outstanding shares,
while the remaining 39.47% are publicly traded.
Our 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 NYSE. See “Corporate Governance –
Major Shareholders”.

Annual Report92.

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”.

Diversity
Tenaris embraces diversity in all its forms, on the
understanding that diverse points of view and
perspectives contribute to the rational solution
of problems and the effective accomplishment of
goals. Diversity based on ethnicity, gender, creed,
race and nationality is part of Tenaris’s DNA and
constitutes an important differentiation aspect of

our uniqueness as a global enterprise. Tenaris, as a
global organization that draws its workforce from
diverse cultures and backgrounds, values cultural
and geographic adaptability among its employees.

The Company’s Code of Conduct prohibits
unlawful discrimination in employment
relationship and grants all persons the right to
apply for a position in Tenaris or to be considered
for a new position in accordance with opening
requirements and merit criteria, without any
arbitrary discrimination. All employees, at every
level, must cooperate to maintain a respectful
environment should there be personal differences.

Similarly, the Company’s Human Resources Policy
promotes equal opportunity and provides that
hiring, promotion, transfer and other employment
decisions will be adopted without regard to race,
color, religion, gender, age, disability, national
origin, immigration status or sexual orientation.
Compensation in Tenaris is strictly based on each
employee’s duties and personal performance,
competencies and behavior. In addition, Tenaris
conducts periodic employees’ opinion surveys on
diversity for purposes of testing employees’ views
on equal gender opportunities for promotion,
and management’s commitment with diversity
and respect for the value of human, cultural and
lifestyle differences. Finally, Tenaris has organized
local diversity committees in certain regions
working on specific regional objectives on diversity.

Tenaris93.

Related party
transactions

Tenaris is a party to several related party
transactions, as described below, from or to entities
controlled by San Faustin or in which San Faustin
holds significant interests. Material related party
transactions are subject to the review of the audit
committee of the Company’s board of directors
and the requirements of Luxembourg law. For
further details on the approval process for related
party transactions, see “Corporate Governance –
Audit Committee.”

Purchases of Steel Products and Raw Materials
In the ordinary course of business, we purchase
round steel bars, flat steel products and other
raw materials from Ternium or its subsidiaries.
These purchases are made on similar terms and
conditions as sales made by these companies to
unrelated third parties. These transactions include:

•

Purchases of round steel bars made under a long-
term agreement, for use in our seamless steel pipe
operations in Mexico, which amounted to $120
million in 2017, $9 million in 2016 and $46 million
in 2015.
Purchases of flat steel products for use in the
production of welded pipes and accessories, which
amounted to $43 million in 2017, $18 million in
2016 and $48 million in 2015.
Purchases of metal building components for our
facilities in Mexico, which amounted to $1 million
in 2015.

In the ordinary course of business, we purchase
flat steel products for use in our welded steel pipe
operations, from Usiminas. These purchases, which
are made on similar terms and conditions as sales
made by this company to unrelated third parties,
amounted to $43 million in 2017, $34 million in
2016 and $166 million in 2015.

Sales of Raw Materials
In the ordinary course of business, we sell raw
materials and other production inputs to Ternium
or its subsidiaries. These sales are made on similar
terms and conditions as purchases made by these
companies from unrelated third parties. These
transactions include:

•

Sales of ferrous scrap, and other raw materials,
which amounted to $26 million in 2017, $14
million in 2016 and $19 million in 2015.
Sales of steam and operational services from our
Argentine electric power generating facility in San
Nicolás. These sales amounted to $11 million in
2017, $12 million in 2016 and $9 million in 2015.

Supply of Electric Energy
Techgen is an electric power plant in Mexico,
which is currently owned 48% by Ternium, 30%
by Tecpetrol and 22% by Tenaris. Techgen became
fully operational in December 1, 2016. Ternium
and Tenaris currently contract 78% and 22%,
respectively, of Techgen’s power capacity. Sales to
Tenaris amounted to $29 million in 2017 and $4
million in 2016.

Supply of Natural Gas
We are party to contracts with Tecpetrol, TGN,
Litoral Gas and Energy Consulting Services
relating to the supply of natural gas to our
operations in Argentina. Tecpetrol, a company
controlled by San Faustin, is engaged in oil and
gas exploration and production and has rights
to various oil and gas fields in Argentina and
elsewhere in America. TGN operates two major
pipelines in Argentina connecting the major gas
basins of Neuquén and Noroeste-Bolivia to the
major consumption centers in Argentina, while
Litoral Gas distributes gas in the Province of Santa

Annual Report94.

Fe and in the northeastern section of the Province
of Buenos Aires. Energy Consulting Services is
a company engaged in energy and management
consulting, representing one of the major natural
gas traders in Argentina. San Faustin holds
significant but non-controlling interests in TGN,
Litoral Gas and Energy Consulting Services.

Tecpetrol supplies Siderca with natural gas
requirements under market conditions and
according to local regulations. Tecpetrol’s sales
to Tenaris amounted to $7 million in 2017 and $3
million in 2015.

TGN charges Siderca a price to transport its
natural gas supplies that is equivalent on a
comparable basis to prices paid by other industrial
users. The Argentine government regulates the
general framework under which TGN operates
and prices its services. TGN’s sales to Tenaris
amounted to $3 million in 2017, $2 million in 2016
and $1 million in 2015.

Litoral Gas’s sales to Tenaris totaled $5 million in
2017, $3 million in 2016 and $2 million in 2015.

Energy Consulting Services’s sales to Tenaris
totaled $7 million in 2017, $5 million in 2016 and
$7 million in 2015.

Provision of Engineering and Labor Services
We contract with certain companies controlled
by San Faustin engineering and non-specialist
manual labor services, such as industrial cleaning,
general maintenance, handling of by-products and
construction services. Fees accrued for these services
in the aggregate amounted to $40 million in 2017,
$45 million in 2016 and $72 million in 2015.

Sales of Steel Pipes and Sucker Rods
In the ordinary course of business, we sell steel
pipes, sucker rods and related services to other
companies controlled or under the significant
influence of San Faustin. These sales, which are
made principally to companies involved in the
construction of gas pipelines and to Tecpetrol and
joint ventures in which Tecpetrol participates, for
its oil and gas drilling operations, are made on
similar terms and conditions as sales to unrelated
third parties. Our sales of steel pipes and sucker
rods as well as logistical and certain other services

Tenaristo other companies controlled or under significant
influence of San Faustin amounted to $95 million in
2017, $34 million in 2016 and $85 million in 2015.

in an amount of $4 million in 2017, $2 million in
2016 and $1 million in 2015. Outstanding loans to
Techgen as of December 31, 2017, amounted to
$93 million.

95.

Sales of Other Products and Services
We provide information technology services to
companies controlled by San Faustin. Sales of these
services amounted to $2 million in 2017, $2 million
in 2016 and $3 million in 2015.

Administrative, Legal and Other Support Services
Finma S.A., Arhsa S.A. and Techinst S.A. a group
of companies controlled by San Faustin in which
we have a 33% share ownership and other affiliates
of San Faustin have the remaining share ownership,
provides administrative, legal and other support
services to San Faustin’s affiliates in Argentina,
including us. Fees accrued for these services
amounted to $12 million in 2017, $11 million in
2016 and $14 million in 2015.

Other Transactions
We entered into various contracts with Tenova
(and subsidiaries), a company controlled by San
Faustin, for the provision of furnaces, spare parts,
accessories and related services for our facilities.
Supplies received amounted to $3 million in 2017,
$11 million in 2016 and $24 million in 2015.

We sold industrial equipment to companies
controlled by San Faustin for an amount of $5
million in 2015.

We purchased industrial cleaning equipment
from companies controlled by San Faustin for an
amount of $3 million in 2016.

Loans to Related Parties
We financed Techgen’s Pesquería project primarily
in the form of subordinated loans to Techgen,
which generated interest gains in favor of Tenaris

In addition, in the ordinary course of business, from
time to time, we carry out other transactions and
enter into other arrangements with other related
parties, none of which are believed to be material.

Annual ReportDividend
Policy

96.

The Company does not have, and has no current
plans to establish, a formal dividend policy governing
the amount and payment of dividends. The amount
and payment of dividends has to be determined by
a majority vote of shareholders, generally, but not
necessarily, based on the recommendation of the
Company’s board of directors. The Company’s

controlling shareholder has the discretion to
determine the amount and payment of future
dividends. All shares of the Company rank pari
passu with respect to the payment of dividends.

The following table shows the dividends approved
by the Company’s shareholders in the last five years:

Approved dividend

Dividend payment date

Amount (USD million)

Per share (USD)

Per ADS (USD)

Interim Dividend

Dividend Balance

May 2, 2013

May 7, 2014

May 6, 2015

May 4, 2016

May 3, 2017

508

531

484

0.43

0.45

0.41

0.86

0.90

0.82

November 2012

November 2013

November 2014

November 2015

November 2016

May 2013

May 2014

May 2015

May 2016

May 2017

On February 21, 2018 the Company’s board of
directors proposed, for the approval of the annual
general shareholders’ meeting to be held on May 2,
2018, 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 2017. 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 23,
2018, with an ex-dividend date of May 21, 2018.

our subsidiaries and could be restricted by legal,
contractual or other limitations.

Dividends may be lawfully declared and paid if
the Company’s profits and distributable reserves
are sufficient under Luxembourg law. The board
of directors has the power to initiate dividend
installments pursuant to Luxembourg law, but
payment of the dividends must be approved
by the Company’s shareholders at the annual
shareholders’ meeting, subject to the approval of
the Company’s annual accounts.

The Company conducts and will continue to
conduct its operations through subsidiaries
and, accordingly, its main source of cash to pay
dividends, among other possible sources, will
be the dividends received from its subsidiaries
(see Section –Principal Risks and Uncertainties–
Risks Relating to the Structure of the Company
– above). As a holding company, the Company’s
ability to pay cash dividends depends on the
results of operations and financial condition of

Under Luxembourg law, at least 5% of the
Company’s net profits per year must be allocated
to the creation of a legal reserve until such reserve
has reached an amount equal to 10% of our
share capital. 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. At
December 31, 2017, the Company’s legal reserve
represented 10% of its share capital.

TenarisNon-financial
Information

Tenaris is committed to building a culture of
transparency and integrity, based on ethical behavior
and compliance with the law. We believe this is
essential for the sustainability of our activities.
The non-financial information required by article
1730-1 of the Luxembourg law of August 10, 1915
on commercial companies, as amended, and article
68 and 68bis of the Luxemburg law of December 19,
2002 on the commercial and companies register and
on the accounting records and annual accounts of
undertakings, as amended, will be included in our
annual sustainability report, which will be published
on or prior to June 30, 2018, and will be available on
http://ir.tenaris.com/reports.cfm.

97.

Annual Report98.

TenarisManagement
certification

We confirm, to the best of our knowledge, that:

99.

the consolidated financial statements prepared in accordance with International
Financial Reporting Standards, or IFRS, as issued by the International Accounting
Standards Board and in accordance with IFRS 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 27, 2018

/s/ Edgardo Carlos

Chief Financial Officer
Edgardo Carlos

March 27, 2018

Annual Report100.

TenarisTenaris S.A.
Consolidated
Financial Statements

For the years ended December 31, 2017, 2016 and 2015

101.

Annual Report102.

TenarisAudit report

To the Shareholders

of Tenaris S.A.

103.

Report on the audit of the consolidated financial statements

Our opinion
In our opinion, the accompanying consolidated financial statements give a
true and fair view of the consolidated financial position of Tenaris S.A. (the
“Company”) and its subsidiaries (the “Group”) as at 31 December 2017, and
of its consolidated financial performance and its consolidated cash flows for
the year then ended in accordance with International Financial Reporting
Standards (IFRSs) as issued by the International Accounting Standards Board
(IASB) and in accordance with IFRS as adopted by the European Union.

Our opinion is consistent with our additional report to the Audit Committee
of the Company’s Board of Directors (the “Audit Committee”).

What we have audited
The Group’s consolidated financial statements comprise:
the consolidated statement of financial position as at 31 December 2017;
the consolidated income statement for the year then ended;
the consolidated statement of comprehensive income for the year then ended;
the consolidated statement of changes in equity for the year then ended;
the consolidated statement of cash flows for the year then ended; and
the notes to the consolidated financial statements, which include a summary
of significant accounting policies.

•
•
•
•
•
•

Basis for opinion
We conducted our audit in accordance with the EU Regulation No 537/2014,
the Law of 23 July 2016 on the audit profession (Law of 23 July 2016) and
with International Standards on Auditing (ISAs) as issued by the International
Auditing and Assurance Standards Board (IAASB) and as adopted for
Luxembourg by the “Commission de Surveillance du Secteur Financier”
(CSSF). Our responsibilities under those Regulation, Law and standards are
further described in the “Responsibilities of the “Réviseur d’entreprises agréé”
for the audit of the consolidated financial statements” section of our report.

Annual Report104.

We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.

We are independent of the Group in accordance with the International Ethics
Standards Board for Accountants’ Code of Ethics for Professional Accountants
(IESBA Code) as adopted for Luxembourg by the CSSF together with the
ethical requirements that are relevant to our audit of the consolidated financial
statements. We have fulfilled our other ethical responsibilities under those
ethical requirements.

To the best of our knowledge and belief, we declare that we have not provided
non-audit services that are prohibited under Article 5(1) of Regulation (EU)
No 537/2014.

The non-audit services that we have provided to the Group, for the year
ended 31 December 2017, all of which have been pre-approved by the Audit
Committee, are disclosed in Note 32 to the consolidated financial statements.

Key audit matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the consolidated financial statements of
the current period, and include the most significant assessed risks of material
misstatement (whether or not due to fraud). These matters were addressed in
the context of our audit of the consolidated financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion
on these matters.

TenarisKey audit matter

How our audit addressed the Key audit matter

105.

We challenged the cash flow projections included
in the impairment test. Our audit procedures
included, among others, the involvement of
an internal valuation specialist to assist us in
evaluating the assumptions and the valuation
methodology used by the Group. We furthermore
assessed the appropriateness of other data used
by comparing them to external and historical
data, when available, such as analyst reports
and evolution of rig counts and by analyzing
sensitivities in the valuation model, evaluating
whether a reasonably possible change in
assumptions could cause the carrying amount
to exceed its recoverable amount and compared
actual cash flow results with previous forecasts.

In addition, we evaluated and tested controls in
place over the analysis of impairment indicators
on non-financial assets, review of assumptions
used and DCF calculations.

We finally assessed the adequacy of the disclosures
in the consolidated financial statements.

Recoverability of long-lived assets
The Group’s balance sheet includes goodwill
(USD 1,292.5 million) and other long-lived assets
(USD 6,229.8 million Property, Plant & Equipment,
USD 281.7 million finite-life intangible assets and
USD 86.7 million other indefinite life intangible
assets). The Group is required to test the amount of
goodwill and other indefinite life intangible assets
for impairment at least annually. Other long-lived
assets are tested in case of impairment triggers.

During the year, Management has tested for
impairment those cash generating units (CGUs)
containing goodwill and those where impairment
indicators were identified.

We focused our audit effort on the U.S. welded
tubes business (Maverick CGU) due to its
significance (USD 225 million remaining goodwill
as of 31 Dec. 2017) and the small headroom
observed in prior periods between the recoverable
amount as determined using a discounted cash
flow (DCF) model and the carrying value. In
addition, due to a general deterioration in the U.S.
oil & gas industry, an impairment of USD 400
million was recorded in 2015.

The impairment test was significant to our
audit due to its complexity, as judgments and
assumptions are involved in the assessment of the
recoverable amount of Maverick CGU and its
business is affected by strong competition, with
sales volumes and prices being highly dependent
on the oil & gas market conditions.

Due to the conditions described above, Tenaris
prepared 2 scenarios for Maverick to determine the
value in use of this CGU.

Annual Report106.

Key audit matter

How our audit addressed the Key audit matter

•

Our audit approach included the following audit
procedures:

We inquired management about the Company’s
main investigative actions.

We had periodic meetings with the Business
Conduct Compliance Officer (BCCO) and periodic
calls with the external counsel to understand the
status of the investigation.

We discussed the investigations with the Audit
Committee and the Company's legal advisors
and evaluated whether the disclosures in the
notes to the consolidated financial statements are
consistent with the results of those investigations.

•

We obtained from Tenaris’ Legal Counsel a letter
related to this matter.

The disclosures related to this matter are included
in Notes 5 and 11 to the consolidated financial
statements.

Ongoing investigation
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 to officers of Petróleo Brasileiro S.A.
(“Petrobras”) and whether such alleged payments
were intended to ultimately benefit Confab Industrial
S.A., a Brazilian subsidiary of the Company.

The Audit Committee has engaged an external
counsel in order to proceed with an internal
investigation intended to determine whether the
alleged payments were initiated from the Group’s
officials. In addition, the Company has voluntarily
notified the U.S. Securities and Exchange Commission
and the U.S. Department of Justice about the current
judicial action initiated by the Italian and the Swiss
authorities and has informed them about the ongoing
internal investigation of the external counsel.

The ongoing investigation was considered as a key
audit matter due to the pervasive financial effects
that the alleged charges may have on the Company
in case they are proved by the authorities and the
nature and extent of communications about this
matter with those charged with governance.

There is no final conclusion over the ongoing
investigation from the external counsel.

The disclosures related to this matter are included in
Note 25 (i) to the consolidated financial statements.

TenarisOther information
The Board of Directors is responsible for the other information. The other
information comprises the information stated in the Annual Report, including
the management report and the Corporate Governance Statement, but does
not include the consolidated financial statements and our audit report thereon.

107.

Our opinion on the consolidated financial statements does not cover the other
information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information identified above and, in doing
so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If, based on the work we have
performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in
this regard.

Responsibilities of the Board of Directors and those charged with

governance for the consolidated financial statements
The Board of Directors is responsible for the preparation and fair presentation
of the consolidated financial statements in accordance with IFRSs as issued by
the IASB and in accordance with IFRS as adopted by the European Union, and
for such internal control as the Board of Directors determines is necessary to
enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Board of Directors is
responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the Board of Directors either intends to
liquidate the Group or to cease operations, or has no realistic alternative but
to do so.

Those charged with governance are responsible for overseeing the Group’s
financial reporting process.

Annual Report108.

Responsibilities of the “Réviseur d’entreprises agréé” for the audit of the

consolidated financial statements
The objectives of our audit are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an audit report that
includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with the EU Regulation
No 537/2014, the Law of 23 July 2016 and with ISAs as issued by the IAASB
and as adopted for Luxembourg by the CSSF will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these consolidated financial statements.

As part of an audit in accordance with the EU Regulation No 537/2014, the
Law of 23 July 2016 and with ISAs as issued by the IAASB and as adopted for
Luxembourg by the CSSF, we exercise professional judgment and maintain
professional scepticism throughout the audit. We also:

•

identify and assess the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control;
obtain an understanding of internal control relevant to the audit in order to
design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Group’s
internal control;
evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by the
Board of Directors;

Tenaris109.

•

conclude on the appropriateness of the Board of Directors’ use of the going
concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the Group’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw
attention in our audit report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the
date of our audit report. However, future events or conditions may cause the
Group to cease to continue as a going concern;
evaluate the overall presentation, structure and content of the consolidated
financial statements, including the disclosures, and whether the consolidated
financial statements represent the underlying transactions and events in a
manner that achieves fair presentation;
obtain sufficient appropriate audit evidence regarding the financial
information of the entities and business activities within the Group to express
an opinion on the consolidated financial statements. We are responsible for the
direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.

We communicate with those charged with governance regarding, among
other matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.

We also provide those charged with governance with a statement that we
have complied with relevant ethical requirements regarding independence,
and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable,
related safeguards.

From the matters communicated with those charged with governance, we
determine those matters that were of most significance in the audit of the
consolidated financial statements of the current period and are therefore the
key audit matters. We describe these matters in our audit report unless law or
regulation precludes public disclosure about the matter.

Annual Report110.

Report on other legal and regulatory requirements
The management report is consistent with the consolidated financial statements
and has been prepared in accordance with applicable legal requirements.

The Corporate Governance Statement is included in the management report.
The information required by Article 68ter Paragraph (1) Letters c) and d) of
the Law of 19 December 2002 on the commercial and companies register and
on the accounting records and annual accounts of undertakings, as amended,
is consistent with the consolidated financial statements and has been prepared
in accordance with applicable legal requirements.

We have been appointed as “Réviseur d’Entreprises Agréé” of the Group
by the General Meeting of the Shareholders on 3 May 2017 and the
duration of our uninterrupted engagement, including previous renewals and
reappointments, is 16 years.

Other matter
The Corporate Governance Statement includes the information required by
Article 68ter Paragraph (1) Letters a), b), e), f) and g) of the Law of 19 December
2002 on the commercial and companies register and on the accounting records
and annual accounts of undertakings, as amended.

The information required by the Article 1730-1 Paragraph (2) of the amended
law of 15 August 1915 on Commercial Companies is expected to be made
publicly available after the date of our audit report. If this information is not
made publicly available within a reasonable period of time, not exceeding
six months after the balance sheet date, we are required to communicate the
matter to those charged with governance.

Luxembourg, 27 March 2018

PricewaterhouseCoopers, Société coopérative

Represented by

/s/ Fabrice Goffin

Fabrice Goffin

Tenaris111.

Consolidated Income Statement

All amounts in thousands of U.S. dollars, unless otherwise stated

YEAR ENDED DECEMBER 31

Notes

2017

2016

2015

CONTINUING OPERATIONS

Net sales

Cost of sales

Gross profit

Selling, general and administrative expenses

Other operating income

Other operating expenses

Operating income (loss)

Finance Income

Finance Cost

Other financial results

Income (loss) 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 year

ATTRIBUTABLE TO

Owners of the parent

Non-controlling interests

5,288,504

4,293,592

6,903,123

(3,685,057)

(3,165,684)

(4,747,760)

1,603,447

1,127,908

2,155,363

(1,270,016)

(1,196,929)

(1,593,597)

10,516

(9,359)

334,588

47,605

(27,072)

(43,550)

21,127

(11,163)

(59,057)

66,204

(22,329)

(21,921)

14,603

(410,574)

165,795

34,574

(23,058)

3,076

311,571

(37,103)

180,387

116,140

427,711

17,136

444,847

71,533

34,430

(17,102)

17,328

(39,558)

140,829

(234,384)

(93,555)

91,542

536,389

41,411

58,739

19,130

(74,425)

544,737

(8,348)

536,389

55,298

3,441

58,739

(80,162)

5,737

(74,425)

EARNINGS PER SHARE ATTRIBUTABLE TO THE OWNERS

OF THE PARENT DURING THE YEAR

Weighted average number of ordinary shares (thousands)

1,180,537

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.

The accompanying notes are an integral part of these Consolidated Financial Statements.

0.38

0.77

0.46

0.92

0.01

0.02

0.05

0.09

(0.08)

(0.17)

(0.07)

(0.14)

Annual Report

112.

Consolidated Statement of Comprehensive Income

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

2017

2016

2015

Income (loss) for the year

536,389

58,739

(74,425)

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

Income tax relating to components of other comprehensive income

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

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

The accompanying notes are an integral part of these Consolidated Financial Statements.

151,762

4,502

–

(9,548)

512

37,187

(7,525)

–

(23)

3,473

421

(256,260)

10,699

2,486

(284)

(92,914)

(3,790)

147,251

33,533

(340,063)

(8,635)

1,338

(376)

(7,673)

139,578

675,967

683,531

(7,564)

675,967

591,989

91,542

683,531

(230)

(1,760)

(5,475)

(7,465)

26,068

84,807

81,702

3,105

84,807

40,291

41,411

81,702

14,181

(4,242)

(449)

9,490

(330,573)

(404,998)

(410,187)

5,189

(404,998)

(429,317)

19,130

(410,187)

Tenaris

Consolidated Statement of Financial Position

All amounts in thousands of U.S. dollars

AT DECEMBER 31

Notes

2017

2016

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

21 (I)

21 (II)

23 (II)

Liabilities of disposal group classified as held for sale

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.

113.

9,034,704

6,229,143

1,660,859

640,294

21,572

128,335

153,532

183,329

2,368,304

143,929

132,334

1,214,060

1,192,306

9,017,064

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

330,221

5,381,154

399,737

4,817,154

–

14,398,218

11,482,185

98,785

11,580,970

746,349

151,417

14,003,275

11,287,417

125,655

11,413,072

859,073

31,542

550,657

213,617

63,257

808,694

101,197

183,887

22,756

39,668

34,645

457,970

217,296

36,438

931,214

102,405

197,504

32,330

56,707

750,739

2,070,899

556,834

1,713,036

–

2,817,248

14,398,218

18,094

2,590,203

14,003,275

Annual Report

Consolidated Statement of Changes in Equity

All amounts in thousands of U.S. dollars

ATTRIBUTABLE TO OWNERS OF THE PARENT

Share
Capital (1)

Legal
Reserves

Share
Premium

Currency
Translation
Adjustment

Other
Reserves (2)

Balance at December 31, 2016

1,180,537

118,054

609,733

(965,955)

(313,088)

114.

Income (loss) 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 for the year

Total comprehensive income (loss) for the year

Acquisitionand other changes in

non-controlling interests

Dividends paid in cash

–

151,080

–

(7,423)

4,549

–

(9,548)

136

–

141,532

–

(2,738)

(4,743)

–

Balance at December 31, 2017

1,180,537

118,054

609,733

(824,423)

(320,569)

(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, 2017 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.

Tenaris

ATTRIBUTABLE TO OWNERS OF THE PARENT

Total

Retained
Earnings (3)

Total

Non-controlling
Interests

10,658,136

11,287,417

125,655

11,413,072

544,737

(8,348)

536,389

–

544,737

151,080

(7,423)

682

126

151,762

(7,297)

4,549

(24)

4,525

(9,412)

–

(9,412)

138,794

683,531

784

(7,564)

139,578

675,967

–

(4,743)

4,694

(49)

(484,020)

(24,000)

(508,020)

10,718,853

11,482,185

98,785

11,580,970

115.

Annual Report

Consolidated Statement of Changes in Equity (cont.)

All amounts in thousands of U.S. dollars

ATTRIBUTABLE TO OWNERS OF THE PARENT

Share
Capital (1)

Legal
Reserves

Share
Premium

Currency
Translation
Adjustment

Other
Reserves (2)

Balance at December 31, 2015

1,180,537

118,054

609,733

(1,006,767)

(298,682)

116.

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

–

37,339

–

(1,781)

(7,573)

3,473

(5,054)

40,812

(14,408)

–

Balance at December 31, 2016

1,180,537

118,054

609,733

(965,955)

(313,088)

Balance at December 31, 2014

1,180,537

118,054

609,733

(658,284)

(317,799)

(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) for the year

Total comprehensive (loss) income for the year

Acquisition of non-controlling interests

Dividends paid in cash

–

(255,569)

–

10,213

12,484

(92,914)

(4,239)

(348,483)

18,458

–

659

–

Balance at December 31, 2015

1,180,537

118,054

609,733

(1,006,767)

(298,682)

(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 and 2015 there were 1,180,536,830 shares issued. All issued shares are fully paid.

The accompanying notes are an integral part of these Consolidated Financial Statements.

Tenaris

ATTRIBUTABLE TO OWNERS OF THE PARENT

Total

117.

Retained
Earnings

Total

Non-controlling
Interests

11,110,469

11,713,344

152,712

11,866,056

55,298

3,441

58,739

–

55,298

37,339

(1,781)

(7,573)

(1,581)

26,404

81,702

(152)

(209)

–

(336)

3,105

37,187

(1,990)

(7,548)

(1,581)

26,068

84,807

–

(507,631)

(1,073)

(29,089)

(1,071)

(536,720)

10,658,136

11,287,417

125,655

11,413,072

11,721,873

12,654,114

152,200

12,806,314

(80,162)

5,737

(74,425)

(255,569)

10,213

(691)

(274)

(256,260)

9,939

12,484

417

12,901

(97,153)

–

(97,153)

–

(330,025)

(80,162)

(410,187)

–

659

(531,242)

(548)

5,189

(1,727)

(2,950)

(330,573)

(404,998)

(1,068)

(534,192)

11,110,469

11,713,344

152,712

11,866,056

Annual Report

Consolidated Statement of Cash Flows

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

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

Income from the sale of Conduit business

Changes in working capital

Currency translation adjustment and others

Net cash (used in) provided by operating activities

118.

Notes

2017

2016

2015

536,389

58,739

(74,425)

10 & 11

608,640

662,412

27 (ii)

27 (iii)

27 (i)

–

(193,989)

(116,140)

11,550

(17,245)

(89,694)

(855,282)

93,746

(22,025)

–

(128,079)

(71,533)

(2,567)

15,597

–

348,199

(19,203)

658,778

400,314

(91,080)

39,558

26,622

(20,678)

–

1,373,985

(98,070)

863,565

2,215,004

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures

Changes in advance to suppliers of property, plant and equipment

Proceeds from disposal of Conduit business

Investment in non-consolidated companies

Acquisition of subsidiaries

Investment in companies under cost method

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 provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid

Dividends paid to non-controlling interest in subsidiaries

Acquisitions of non-controlling interests

Proceeds from borrowings

Repayments of borrowings

Net cash used in financing activities

(Decrease) increase in cash and cash equivalents

MOVEMENT IN CASH AND CASH EQUIVALENTS

At the beginning of the year

Effect of exchange rate changes

(Decrease) increase in cash and cash equivalents

At December 31

CASH AND CASH EQUIVALENTS

Cash and bank deposits

Bank overdrafts

The accompanying notes are an integral part of these Consolidated Financial Statements.

10 & 11

(558,236)

(786,873)

(1,131,519)

12c

7,077

327,631

–

(10,418)

(3,681)

(7,056)

5,443

22,971

565,387

349,118

(484,020)

(24,000)

(49)

50,989

–

(17,108)

–

(42,394)

23,609

20,674

652,755

49,461

–

(4,400)

–

(22,322)

10,090

20,674

(695,566)

(98,348)

(1,773,582)

(507,631)

(531,242)

(29,089)

(1,071)

(2,950)

(1,068)

1,196,781

1,180,727

2,064,218

(1,090,129)

(1,295,560)

(2,063,992)

(401,417)

(652,624)

(535,034)

(74,324)

112,593

(93,612)

398,580

5,834

(74,324)

27 (iv)

330,090

330,221

(131)

330,090

286,198

(211)

112,593

398,580

399,900

(1,320)

398,580

416,445

(36,635)

(93,612)

286,198

286,547

(349)

286,198

Tenaris

Index to the notes to the
Consolidated Financial Statements

General Information

IV.

Other notes to the Consolidated Financial Statements

II.

Accounting policies (“AP”)

Basis of presentation

Group accounting

Segment information

Foreign currency translation

Property, plant and equipment

Intangible assets

Impairment of non-financial assets

Other investments

Inventories

Trade and other receivables

Cash and cash equivalents

Equity

Borrowings

Current and deferred income tax

Employee benefits

Provisions

Trade payables

Revenue recognition

Earnings per share

Financial instruments

Non-current assets held for sale

and discontinued operations

III.

Financial risk management

Financial Risk Factors

Segment information

Cost of sales

Selling, general and administrative expenses

Labor costs (included in Cost of sales and in Selling,

general and administrative expenses)

Other operating income and expenses

Financial results

Equity in earnings (losses) of non-consolidated companies

119.

Income tax

Dividends distribution

10.

Property, plant and equipment, net

11.

Intangible assets, net

12.

Investments in non-consolidated companies

13.

Receivables - non current

14.

Inventories

15.

Receivables and prepayments

16.

Current tax assets and liabilities

17.

Trade receivables

18.

Cash and cash equivalents and other investments

19.

Borrowings

21.

Other liabilities

22.

Non-current allowances and provisions

23.

Current allowances and provisions

24.

Derivative financial instruments

25.

Contingencies, commitments and restrictions

on the distribution of profits

26.

Acquisition of subsidiaries

Cost of sales and other selling expenses

20.

Deferred income tax

Category of Financial Instruments and

27.

Cash flow disclosures

Classification Within the Fair Value Hierarchy

28.

Net assets of disposal group classified as held for sale

Fair value estimation

29.

Related party transactions

Accounting for derivative financial instruments

30.

Principal subsidiaries

and hedging activities

31.

Nationalization of Venezuelan Subsidiaries

32.

Fees paid to the Company's principal accountant

33.

Subsequent event

Annual Report
I. General information

II. Accounting policies

120.

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 the Company 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 21, 2018.

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 in accordance with IFRS as 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.

TenarisThe 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 9, “Financial instruments”
In July 2014, the IASB issued IFRS 9, “Financial
instruments”, which replaces the guidance in
IAS 39. IFRS 9 includes new requirements on the
classification and measurement of financial assets
and liabilities, as well as a new impairment model
based on expected credit losses rather than the
incurred loss impairment model of IAS 39. It also
introduces new rules for hedge accounting. IFRS 9
must be applied on annual periods beginning on or
after January 1, 2018.

The Company will apply the new rules
retrospectively from 1 January 2018. Comparative
amounts for previous years will not be restated.

The Company has reviewed its financial assets
and liabilities and is expecting that the other
investments categorized as held to maturity
and carried at amortized cost will qualify
for classification at fair value through other
comprehensive income. Accordingly, Tenaris
expects an increase in the valuation of its financial
assets of approximately $3 million.

The new impairment model requires recognition
of impairment provisions based on expected credit
losses rather than on incurred credit losses. Based

on the assessments undertaken, Tenaris expects
a decrease of $ 6 million in the allowance for
doubtful accounts.

121.

The Company does not expect any significant
impact related to the new hedge accounting rules.

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.

The Company has assessed the effects of
applying the new standard and the main areas
affected will be the accounting for sales of
shipping services, free of charge services and
rights of return.

The impact of the adoption as of January 1, 2018
on the aggregate of revenues, cost of sales and
selling expenses is expected to be a decrease of
$0.7 million net.

The Company intends to adopt this standard using
the modified retrospective approach, meaning
that the cumulative impact of the adoption will be
recognized in retained earnings as of January 1,
2018 and that comparatives will not be restated.

IFRS 16, “Leases”
In January 2016, the IASB issued IFRS 16,
“Leases”. The new standard will result in almost
all leases recognized on the balance sheet, as the
distinction between operating and finance leases
is removed. IFRS 16 must be applied on annual
periods beginning on or after January 1, 2019.

Annual Report122.

The Company’s management is currently assessing
the potential impact that the application of this
standard may have on the Company's financial
condition or results of operations.

These standards were endorsed by the EU.

Other accounting pronouncements that became
effective during 2017 have no material effect on
the Company’s financial condition or results of
operations.

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 acquisition method of accounting is used
to account for the acquisition of subsidiaries by
Tenaris. The cost of an acquisition is measured
as the fair value of the assets transferred, equity
instruments issued and liabilities incurred or
assumed at the date of exchange. Acquisition-
related costs are expensed as incurred. Identifiable
assets acquired, liabilities and contingent liabilities
assumed in a business combination are measured
initially at their fair values at the acquisition
date. Any non-controlling interest in the acquiree
is measured either at fair value or at the non-
controlling interest’s proportionate share of the
acquiree’s net assets. The excess of the aggregate

of the consideration transferred and the amount
of any non-controlling interest in the acquiree
over the fair value of the identifiable net assets
acquired is recorded as goodwill. If this is less than
the fair value of the net assets of the subsidiary
acquired, the difference is recognized directly in
the Consolidated Income Statement.

Contingent consideration is classified either as
equity or as a financial liability. Amounts classified
as a financial liability are subsequently remeasured
to fair value with changes in fair value recognized
in profit or loss.

If the business combination is achieved in stages,
the acquisition date carrying value of the acquirer’s
previously held equity interest in the acquiree is
remeasured to fair value at the acquisition date. Any
gains or losses arising from such remeasurement are
recognized in profit or loss.

Transactions with non-controlling interests that
do not result in a loss of control are accounted as
transactions with equity owners of the Company.
For purchases from non-controlling interests, the
difference between any consideration paid and the
relevant share acquired of the carrying value of net
assets of the subsidiary is recorded in equity. Gains
or losses on disposals to non-controlling interests
are also recorded in equity.

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

Tenaris123.

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.

Under the equity method of accounting, the
investments are initially recognized at cost and
adjusted thereafter to recognize Tenaris’s share of
the post-acquisition profits or losses of the investee
in profit or loss, and Tenaris’s share of movements
in other comprehensive income of the investee in
other comprehensive income. Dividends received
or receivable from associates and joint ventures are
recognized as a reduction in the carrying amount
of the investment.

Unrealized results on transactions between
Tenaris and its non-consolidated companies are
eliminated to the extent of Tenaris’s interest in
the non-consolidated companies. Unrealized
losses are also eliminated unless the transaction
provides evidence of an impairment indicator of
the asset transferred. Financial statements of non-
consolidated companies have been adjusted where
necessary to ensure consistency with IFRS.

The Company’s pro-rata share of earnings in
non-consolidated companies is recorded in the
Consolidated Income Statement under Equity in
earnings (losses) of non-consolidated companies.
The Company’s pro-rata share of changes in other
reserves is recognized in the Consolidated Statement
of Changes in Equity under Other Reserves.

At December 31, 2017, Tenaris holds 11.46% of
Ternium S.A (“Ternium”)’s common stock. The
following factors and circumstances evidence that
Tenaris has significant influence (as defined by
IAS 28, “Investments in associates companies and
Joint Ventures”) over Ternium, and as a result
the Company’s investment in Ternium has been
accounted for under the equity method:

•

Both the Company and Ternium are under the
indirect common control of San Faustin S.A.;
Four out of eight members of Ternium’s Board of
Directors (including Ternium’s chairman) are also
members of the Company’s Board of Directors;
Under the shareholders’ agreement by and between
the Company and Techint Holdings S.à r.l, a
wholly owned subsidiary of San Faustin S.A. and
Ternium’s main shareholder, dated January 9,
2006, Techint Holdings S.à r.l, is required to take
actions within its power to cause (a) one of the
members of Ternium’s Board of Directors to be
nominated by the Company and (b) any director
nominated by the Company to be only removed
from Ternium’s Board of Directors pursuant to
previous written instructions of the Company.

At December 31, 2017, Tenaris holds through
its Brazilian subsidiary Confab Industrial S.A.
(“Confab”), 5.2% of the shares with voting rights
and 3.08% of Usinas Siderúrgicas de Minas Gerais
S.A. (“Usiminas”) total share capital.

The acquisition of Usiminas shares was part of
a larger transaction performed 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

Annual Report

124.

are governed under a separate shareholders
agreement. Those circumstances evidence that
Tenaris has significant influence over Usiminas,
consequently, accounted it for under the equity
method (as defined by IAS 28).

In April and May 2016 Tenaris’s subsidiary Confab
subscribed, in the aggregate, to 1.3 million preferred
shares (BRL1.28 per share) for a total amount of
BRL1.6 million (approximately $0.5 million) and
11.5 million ordinary shares (BRL5.00 per share) for
a total amount of BRL57.5 million (approximately
$16.6 million). The preferred and ordinary shares
were issued on June 3, 2016 and July 19, 2016,
respectively. Consequently as of December 31, 2017
Tenaris owns 36.5 million ordinary shares and 1.3
million preferred shares of Usiminas.

Tenaris carries its investment in Ternium and
Usiminas under the equity method, with no
additional goodwill or intangible assets recognized.
Tenaris reviews investments in non-consolidated
companies for impairment whenever events or
changes in circumstances indicate that the asset’s
carrying amount may not be recoverable, such as a
significant or prolonged decline in fair value below
the carrying value. At December 31, 2017, 2016
and 2015, no impairment provisions were recorded
on Tenaris’s investment in Ternium while in 2015,
an impairment charge was recorded on Tenaris’s
investment in Usiminas. See Note 7 and Note 12.

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, utility conduits for buildings, 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;

Tenaris
125.

•

The use of costs based on previously internally
defined cost estimates, while, under IFRS, costs are
calculated at historical cost;
Other timing differences, if any.

Tenaris presents 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.

•

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.

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.

•

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 may consider
exposure to fluctuation in the exchange rate versus
the U.S. dollar;

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

Annual Report
126.

Consolidated Income Statement, except when
deferred in equity as qualifying cash flow hedges
and qualifying net investment hedges.

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 year-
end 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.

amount of the replaced part is derecognized.
Maintenance expenses on manufacturing
properties are recorded as cost of products sold
in the year in which they are incurred.

Cost may also include transfers from equity of
any gains or losses on qualifying cash flow hedges
of foreign currency purchases of property, plant
and equipment.

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.

Goodwill and fair value adjustments arising from
the acquisition of a foreign operation are treated as
assets and liabilities of the foreign operation and
translated at the closing rate.

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:

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

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. An asset’s carrying amount is
written down immediately to its recoverable
amount if the asset’s carrying amount is greater
than its estimated recoverable amount.

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 2017, 2016 and 2015.

Tenaris127.

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.

During 2017, the Company decided to redefine the
subcategories within property, plant and equipment
items, in order to better reflect the nature and
intended use of the assets. Comparative figures were
reclassified following the new subcategories.

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.

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
and comply with the recognition criteria of IAS 38.

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 amortization
expenses for 2017, 2016 and 2015.

F. Intangible assets

3. Licenses, patents, trademarks and

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 at least 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.

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.

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.

The balance of acquired trademarks that have
indefinite useful lives according to external
appraisal amounts to $86.7 million at December 31,

Annual Report
128.

2017 and 2016, 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 amortization expenses for 2017,
2016 and 2015.

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 2017, 2016 and 2015 totaled $63.7
million, $68.6 million and $89.0 million, respectively.

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.

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.

As of December 2017 the residual value of
Maverick’s customer relationships amount to $193
million and the residual useful life is 3 years, while
Hydril’s customer relationships is fully amortized.

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 lives, including goodwill, are
subject to at least an annual impairment test.

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, ending December 2017.

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 of disposal. Any impairment loss

Tenaris

129.

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
of disposal, 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
of disposal, Tenaris uses the estimated value of
future cash flows that a market participant could
generate from the corresponding CGU.

Non-financial assets other than goodwill that
suffered an impairment are reviewed for possible
reversal at each reporting date.

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, utilities, freights and other
direct costs and related production overhead costs,
and it excludes borrowing costs. Allocation of
fixed production costs is based on the normal level

Annual Report130.

of production capacity. Supplies and raw material
cost is mainly based on FIFO method while goods
in progress and finished goods cost is mainly based
on specific historical production costs for each
production order. 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. Third parties goods in transit
as of year-end are valued based on the supplier’s
invoice cost.

Tenaris establishes an allowance for obsolete
or slow-moving inventories 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, aging
and consumption patterns.

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 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.

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, 2017,
2016 and 2015 are 1,180,536,830 with a par value
of $1.00 per share with one vote each. All issued
shares are fully paid.

Tenaris
131.

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. Any difference
between the proceeds (net of transaction costs) and
the redemption amount is recognized in profit or
loss over the period of the borrowings using the
effective interest method.

N. Current and Deferred income tax
The income tax expense or credit for the period
is the tax payable on the current period’s taxable
income based on the applicable income tax rate for
each jurisdiction adjusted by changes in deferred
tax assets and liabilities attributable to temporary
differences and to unused tax losses. 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.

Annual Report132.

Deferred tax assets and liabilities are offset when
there is a legally enforceable right to offset current
tax assets and liabilities and when the deferred
tax balances relate to the same taxation authority.
Current tax assets and tax liabilities are offset
where the entity has a legally enforceable right
to offset and intends either to settle on a net
basis, or to realize the asset and settle the liability
simultaneously.

O. Employee benefits

1. Short-term obligations
Liabilities for wages and salaries are recognized in
respect of employees’ services up to the end of the
reporting period and are measured at the amounts
expected to be paid when the liabilities are settled.
The liabilities are presented as current employee
benefit obligations in the balance sheet.

2. 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.

Remeasurement 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 expenses 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. As of December 31, 2017 the outstanding
liability for this plan amounts to $46.8 million.

Tenaris133.

•

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. As of December 31, 2017 the outstanding
liability for this plan amounts to $19.3 million.

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. As of December 31, 2017 the outstanding
liability for this plan amounts to $16.7 million.

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 is present that
offers limited medical and life insurance benefits
to the retirees, hired before a certain date. As of
December 31, 2017 the outstanding liability for
this plan amounts to $12.3 million.

3. 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 mandatorily redeemed by the Company ten
years after grant date, with the option of an early
redemption at seven years after the 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, 2017 and 2016, the outstanding
liability corresponding to the Program amounts
to $79.2 million and $78.7 million, respectively.
The total value of the units granted (vested and
unvested) to date under the program, considering
the number of units and the book value per share
as of December 31, 2017 and 2016, is $94.8 million
and $92.9 million, respectively.

4. Termination benefits
Terminations benefits are payable when
employment is terminated by Tenaris before the
normal retirement date, or when an employee
accepts voluntary redundancy in exchange for
these benefits. Tenaris recognizes termination
benefits at the earlier of the following dates: (a)
when it can no longer withdraw the offer of those
benefits; and (b) when the costs for a restructuring

Annual Report134.

that is within the scope of IAS 37 and involves the
payment of terminations benefits. In the case of
an offer made to encourage voluntary redundancy,
the termination benefits are measured based on the
number of employees expected to accept the offer.

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.

5. 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 reliably 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.

This note should be read in conjunction with Note 25.

Q. Trade and other payables
Trade and other payables are recognized initially
at fair value, generally the nominal invoice amount
and subsequently measured at amortised cost.
They are presented as current liabilities unless
payment is not due within 12 months after the
reporting period.

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

Tenaris
for delivery; (c) the sales contract specifically
acknowledges the deferred delivery instructions;
(d) the usual payment terms apply.

The percentage of total sales that were generated
from bill and hold arrangements for products
located in Tenaris’s storage facilities that have not
been shipped to customers amounted to 3.3%,
2.8% and 3.0% as of December 31, 2017, 2016
and 2015, 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
$11 million, 0.21% 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 other selling expenses
Cost of sales and other selling expenses are
recognized in the Consolidated Income Statement
on the accrual basis of accounting.

Commissions, freights and other selling expenses,
including shipping and handling costs, are
recorded in Selling, general and administrative
expenses in the Consolidated Income Statement.

135.

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.

There are no dilutive potential ordinary shares.

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
current, investments in certain financial debt
instruments and time deposits held for trading
expiring in less than ninety days from the
measurement date (included within cash and
cash equivalents).
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

Annual Report136.

•

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.

group) to fair value less costs to sell. A gain is
recognized for any subsequent increases in fair
value less costs to sell of an asset (or disposal
group), but not in excess of any cumulative
impairment loss previously recognized.

The classification 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.

V. Non-current assets held for sale and

discontinued operations
Non-current assets (or disposal groups) are classified
as held for sale if their carrying amount will be
recovered principally through a sale transaction
rather than through continuing use and a sale is
considered highly probable. They are measured at
the lower of their carrying amount and fair value
less costs to sell, except for assets such as deferred
tax assets, assets arising from employee benefits and
financial assets that are carried at fair value.

An impairment loss is recognized for any initial or
subsequent write-down of the asset (or disposal

Non-current assets (including those that are
part of a disposal group) are not depreciated or
amortized while they are classified as held for sale.
Interest and other expenses attributable to the
liabilities of a disposal group classified as held for
sale continue to be recognized.

Non-current assets classified as held for sale and
the assets of a disposal group classified as held
for sale are presented separately from the other
assets in the balance sheet. The liabilities of
a disposal group classified as held for sale are
presented separately from other liabilities in the
balance sheet.

A discontinued operation is a component of the
entity that has been disposed of or is classified as
held for sale and that represents a separate line
of business or geographical area of operations,
is part of a single coordinated plan to dispose of
such a line of business or area of operations, or is
a subsidiary acquired exclusively with a view to
resale. The results of discontinued operations are
presented separately in the Consolidated Income
Statement. See Note 28.

TenarisIII. Financial risk management

137.

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, management
evaluates exposures on a consolidated basis, taking
advantage of 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.

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 0.08 as of
December 31, 2017 and 0.07 as of December 31,
2016. 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.

In the case of subsidiaries with 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 from 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, 2017 and 2016:

All amounts Long / (Short) in thousands of U.S.dollars

AS OF DECEMBER 31

2017

2016

CURRENCY EXPOSURE / FUNCTIONAL CURRENCY

Argentine Peso / U.S. dollar

(64,482)

(60,204)

Euro / U.S. dollar

(365,926)

(406,814)

U.S. Dollar / Brazilian Real

(183)

125,880

Annual Report

138.

The main relevant exposures correspond to:

•

Argentine Peso / U.S. dollar
As of December 31, 2017 and 2016 consisting
primarily of Argentine Peso-denominated financial,
trade, social and fiscal payables at certain Argentine
subsidiaries whose 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 as of December 31, 2017 and 2016.

Euro / U.S. dollar
As of December 31, 2017 and 2016, consisting
primarily of Euro-denominated intercompany
liabilities at certain subsidiaries whose 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 $3.7 million and $4.1 million
as of December 31, 2017 and 2016, 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 whose
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
in December 31, 2016 (including a gain / loss
of $0.5 million in 2016 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, 2017 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 $5.3
million (including a loss / gain of $6.7 million due
to foreign exchange derivative contracts), which
would be partially offset by changes to Tenaris’s
net equity position of $3.4 million. For balances
held as of December 31, 2016, 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 $6.6
million (including a loss / gain of $4.0 million due
to foreign exchange derivative contracts), which
would have been partially offset by changes to
Tenaris’s net equity position of $4.2 million.

TenarisIII. 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

AS OF DECEMBER 31

Fixed rate (*)

Variable rate

Total

(*) Out of the $946 million fixed rate borrowings $913 million are short-term.

exchange derivative contracts and / or interest rate
swaps to mitigate the exposure to changes in the
interest rates.

139.

The following table summarizes the proportions of
variable-rate and fixed-rate debt as of each year end.

Amount in
thousands of
U.S. dollars

946,215

19,644

965,859

2017

Percentage

98%

Amount in
thousands of
U.S. dollars

820,600

19,636

840,236

2016

Percentage

98%

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 $8.0 million in 2017 and $8.8
million in 2016.

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 2017, 2016
and 2015.

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, 2017 and 2016 trade receivables
amount to $1,214.1 million and $954.7 million
respectively. Trade receivables have guarantees
under credit insurance of $190.7 million and $222.1
million, letter of credit and other bank guarantees
of $42.2 million and $117.8 million, and other

Annual Report

140.

guarantees of $14.1 million and $15.6 million as of
December 31, 2017 and 2016 respectively.

As of December 31, 2017 and 2016 past due
trade receivables amounted to $230.9 million and
$249.0 million, respectively. Out of those amounts
$27.3 million and $83.1 million are guaranteed
trade receivables while $78.4 million and $85.7
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 71% of Tenaris’s liquid financial
assets correspond to Investment Grade-rated
instruments as of December 31, 2017, in comparison
with approximately 82% as of December 31, 2016.

VI. Liquidity risk
Tenaris financing strategy aims to maintain
adequate financial resources and access to
additional liquidity. During 2017, 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
11% of total assets at the end of 2017 compared to
16% at the end of 2016.

Tenaris has a conservative approach to the
management of its liquidity, which consists of i)
cash and cash equivalents (cash in banks, liquidity
funds and investments with a maturity of less
than three months at the date of purchase), and ii)
Other Investments (fixed income securities, time
deposits, and fund investments).

Tenaris
141.

Tenaris holds primarily investments in money
market funds and variable or fixed-rate securities
from investment grade issuers. As of December
31, 2017 and 2016, 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, 2017 and 2016, U.S.
dollar denominated liquid assets represented
approximately 93% and 95% of total liquid
financial assets respectively.

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).

Annual Report142.

The following tables present the financial
instruments by category and levels as of December
31, 2017 and 2016.

DECEMBER 31, 2017

MEASUREMENT CATEGORIES

Carrying
Amount

Loans &
Receivables

Held to
Maturity

Available
for sale

ASSETS

CASH AND CASH EQUIVALENTS

Cash at banks

Liquidity funds

Short – term investments

OTHER INVESTMENTS CURRENT

Fixed Income (time-deposit, zero coupon bonds, commercial papers)

Certificates of Deposits

Commercial Papers

Other notes

Bonds and other fixed income

U.S. government securities

Non - U.S. government securities

Corporates securities

Structured notes

Mortgage and asset-backed securities

Others

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 (non-financial)

Total

(*) For further detail regarding Available for sale assets, see Note 31.

–

220,838

–

220,838

–

36,283

184,555

–

123,498

–

330,221

150,948

66,033

113,240

1,192,306

437,406

297,788

9,943

129,675

754,800

130,477

161,063

378,831

68,044

16,385

100

128,335

123,498

4,837

150,948

–

1,214,060

327,258

176,716

–

176,716

–

8,230

176,716

142,314

21,572

965,859

750,739

197,504

39,799

157,705

1,541,724

344,336

965,859

750,739

–

1,716,598

–

21,572

–

Tenaris

MEASUREMENT CATEGORIES

AT FAIR VALUE

Fair value
through profit
and loss

Level 1

Level 2

Level 3

143.

179,273

–

66,033

113,240

971,468

437,406

297,788

9,943

129,675

533,962

130,477

124,780

194,276

68,044

16,385

100

4,837

–

4,837

–

8,230

–

66,033

113,240

459,476

9,943

–

9,943

–

449,533

130,477

124,780

194,276

–

511,992

427,463

297,788

–

129,675

84,429

–

68,044

16,385

100

–

8,230

–

1,163,808

638,749

520,222

–

39,799

–

39,799

–

39,799

–

39,799

–

4,837

–

4,837

–

21,572

26,409

–

Annual Report

144.

DECEMBER 31, 2016

MEASUREMENT CATEGORIES

Carrying
Amount

Loans &
Receivables

Held to
Maturity

Available
for sale

ASSETS

CASH AND CASH EQUIVALENTS

Cash at banks

Liquidity funds

Short – term investments

OTHER INVESTMENTS CURRENT

Fixed Income (time-deposit, zero coupon 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

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 (non-financial)

Total

(*) For further detail regarding Available for sale assets, see Note 31.

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

92,730

–

954,685

176,990

–

176,990

–

246,031

–

246,031

–

32,644

213,387

–

248,049

–

1,224,405

494,080

840,236

556,834

–

1,397,070

–

21,572

–

Tenaris

MEASUREMENT CATEGORIES

AT FAIR VALUE

145.

Fair value
through profit
and loss

Level 1

Level 2

Level 3

307,007

–

215,807

91,200

1,387,111

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

–

215,807

91,200

607,866

76,260

41,370

–

34,890

–

522,131

216,732

56,161

249,238

–

9,475

–

779,245

705,769

–

525,068

–

180,701

73,476

–

73,476

–

2,759

–

1,698,547

914,873

782,004

–

42,635

–

42,635

–

42,635

–

42,635

–

1,670

–

1,670

–

21,572

23,242

–

Annual Report146.

There were no transfers between Levels during
the year.

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).

TenarisThe following table presents the changes in Level 3
assets and liabilities:

147.

YEAR ENDED DECEMBER 31

At the beginning of the year

Acquisition

Decrease due to write down

Currency translation adjustment and others

At the end of the year

Assets / Liabilities

2017

2016

23,242

3,681

(564)

23,234

–

26,409

23,242

C. Fair value estimation
Financial assets or liabilities classified 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 100.9% and 100.8% of its
carrying amount including interests accrued as of
December 31, 2017 and 2016 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

Annual Report
148.

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 99.4% of its carrying
amount including interests accrued in 2017 as
compared with 99.7% in 2016. Fair values were
calculated using standard valuation techniques for
floating rate instruments and comparable market
rates for discounting flows.

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

Tenaris
149.

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, 2017
and 2016, the effective portion of designated cash
flow hedges which is included in “Other Reserves”
in equity amounts to $0.2 million debit and $4.7
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.

Annual ReportIV. Other notes to the
Consolidated financial statements

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

150.

1. Segment information
As mentioned in section II. AP – C, the Segment
Information is disclosed as follows:

Reportable operating segments

All amounts in million U.S. dollar

YEAR ENDED DECEMBER 31, 2017

IFRS - Net Sales

MANAGEMENT VIEW - Operating income

Differences in cost of sales

Direct cost and others

Absorption

Differences in depreciation and amortization

Differences in selling, general and administrative expenses

Differences in other operating income (expenses), net

IFRS - Operating income

Financial income (expense), net

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

Tubes

Other

Continuing
operations

Discontinued
operations

4,966

323

5,289

115

164

115

(3)

292

550

594

–

(6)

–

163

165

115

(3)

335

(23)

312

116

428

558

609

(1)

–

Tenaris

All amounts in million U.S. dollar

YEAR ENDED DECEMBER 31, 2016

IFRS - Net Sales

MANAGEMENT VIEW - Operating income

Differences in cost of sales

Direct cost and others

Absorption

Differences in Depreciation and Amortization

Differences in Selling, general and administrative expenses

Differences in Other operating income (expenses), net

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

YEAR ENDED DECEMBER 31, 2015

IFRS - Net Sales

MANAGEMENT VIEW - Operating income

Differences in cost of sales

Direct cost and others

Absorption

Differences in Depreciation and Amortization

Differences in Selling, general and administrative expenses

Differences in Other operating income (expenses), net

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

Continuing
operations

Discontinued
operations

151.

4,015

(108)

(114)

(5)

(71)

278

(8)

–

752

643

4,294

(116)

(122)

(4)

(5)

(59)

(37)

785

657

235

–

Tubes

Other

Continuing
operations

Discontinued
operations

6,444

686

(225)

(184)

(41)

(319)

(4)

–

138

1,089

638

459

–

6,903

713

(225)

(184)

(41)

(318)

(4)

–

166

181

(40)

141

1,130

653

198

(9)

–

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 $53, $47 and $57 million in 2017, 2016 and 2015, respectively.

In addition to the amounts reconciled above, the main differences in net income 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.

Annual Report

152.

Geographical information

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31, 2017

Net sales

Total assets

Trade receivables

Property, plant and

equipment, net

Capital expenditures

Depreciation and amortization

YEAR ENDED DECEMBER 31, 2016

Net sales

Total assets

Trade receivables

Property, plant and

equipment, net

Capital expenditures

Depreciation and amortization

YEAR ENDED DECEMBER 31, 2015

Net sales

Total assets

Trade receivables

Property, plant and

equipment, net

Capital expenditures

Depreciation and amortization

North
America

South
America

Europe

Middle East
& Africa

Asia
Pacific

Unallocated
(*)

Total
continuing
operations

Total
discontinued
operations

2,451,357

1,142,142

545,777

7,925,520

2,975,599

2,002,658

582,204

234,877

3,914,229

1,190,145

430,143

354,091

58,949

126,273

214,944

878,788

57,285

93,900

937,439

391,029

135,524

102,481

7,562

12,094

1,320,297

1,210,527

565,173

1,055,994

7,467,842

2,803,848

1,925,784

229,390

204,746

3,652,032

1,237,391

646,545

381,811

59,780

128,458

161,291

847,318

35,270

113,875

593,649

308,919

106,941

24,166

11,053

2,668,724

2,132,221

728,815

1,096,688

8,625,806

2,931,297

1,877,429

339,499

396,834

3,207,661

1,269,995

822,396

385,189

168,140

125,754

181,084

907,466

82,344

112,742

429,317

137,278

86,181

36,867

9,912

211,789

441,546

46,511

143,500

4,153

22,282

141,601

482,132

50,339

158,257

19,201

21,912

276,675

423,479

52,494

155,299

20,566

19,716

–

5,288,504

11,899

661,866

14,398,218

–

1,214,060

6,229,143

558,092

608,640

–

4,293,592

578,603

13,851,858

–

954,685

6,001,939

784,962

657,109

–

145

–

234,911

151,417

33,620

41,470

1,911

5,303

–

6,903,123

197,630

512,217

14,799,545

–

1,107,189

5,626,602

1,130,313

653,313

87,429

27,940

45,656

1,206

5,465

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 (31.8%); “South America” comprises principally
Argentina (14.0%), Brazil and Colombia; “Europe” comprises principally Italy and Romania;
“Middle East and Africa” comprises principally Kazakhstan, United Arab Emirates, Nigeria
and Saudi Arabia and; “Asia Pacific” comprises principally China, Japan and Thailand.

(*) Includes Investments in non-consolidated companies and Available for sale assets for $21.6

million in 2017, 2016 and 2015 (see Note 12 and 31).

Tenaris

2. Cost of sales

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

153.

2017

2016

2015

INVENTORIES AT THE BEGINNING OF THE YEAR

1,563,889

1,843,467

2,779,869

PLUS: CHARGES OF THE YEAR

Raw materials, energy, consumables and other

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

(*) Inventories as of December 31, 2016 include $ 29.8 million related to discontinued operations.

2,794,503

1,528,532

1,934,209

244,035

778,408

383,490

18,621

183,370

(12,917)

18,542

88,823

199,210

658,975

376,965

27,244

122,553

32,765

16,693

89,575

298,470

947,997

377,596

24,100

184,053

68,669

21,523

92,059

4,496,875

3,052,512

3,948,676

(2,368,304)

(1,593,708)

(1,843,467)

(7,403)

(136,587)

(137,318)

3,685,057

3,165,684

4,747,760

Annual Report154.

3. Selling, general and administrative expenses

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

Services and fees

Labor cost

Depreciation of property, plant and equipment

Amortization of intangible assets

Commissions, freight and other selling expenses

Provisions for contingencies

Allowances for doubtful accounts

Taxes

Other

From discontinued operations

2017

2016

2015

132,301

443,338

17,979

188,550

339,759

17,664

(5,421)

56,826

81,061

123,653

441,355

16,965

241,238

243,401

30,841

(12,573)

67,724

76,563

158,541

579,360

18,543

238,539

351,657

19,672

36,788

129,018

92,157

1,272,057

1,229,167

1,624,275

(2,041)

(32,238)

(30,678)

1,270,016

1,196,929

1,593,597

Tenaris4. Labor costs (included in Cost of sales and in

Selling, general and administrative expenses)

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

155.

2017

2016

2015

Wages, salaries and social security costs

1,144,341

988,794

1,327,968

Severance indemnities

Defined contribution plans

Pension benefits - defined benefit plans

Employee retention and long term incentive program

From discontinued operations

At year-end, the number of employees was 21,605
in 2017, 19,399 in 2016 and 21,741 in 2015.

The following table shows the geographical
distribution of the employees:

COUNTRY

Argentina

Mexico

Brazil

USA

Italy

Romania

Canada

Indonesia

Colombia

Japan

Other

From discontinued operations

34,497

12,401

15,066

15,441

73,741

10,758

10,563

16,474

176,950

13,286

14,813

(5,660)

1,221,746

1,100,330

1,527,357

(853)

(28,306)

(24,665)

1,220,893

1,072,024

1,502,692

2017

2016

2015

5,221

5,139

1,382

1,953

2,088

1,870

919

506

1,003

410

1,114

21,605

–

21,605

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

Annual Report156.

5. Other operating income and expenses

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

OTHER OPERATING INCOME

Net income from other sales

Net rents

Other

OTHER OPERATING EXPENSES

2017

2016

2015

4,395

4,325

1,796

10,516

16,275

4,852

–

21,127

7,480

6,462

661

14,603

9,052

400,314

1,114

–

410,575

(1)

410,574

Contributions to welfare projects and non-profits organizations

9,158

9,534

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

–

118

–

9,360

(1)

9,359

–

432

1,378

11,411

(248)

11,163

Tenaris

Impairment charge
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%.

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 oil
and gas prices, average number of active oil and gas
drilling rigs (rig count), capital expenditure programs
for Tenaris’s customers, and raw material costs.

Management has determined the value of each of
the key assumptions as follows:

•

Discount rate: based on the applicable weighted
average cost of capital (WACC), which is
considered to be a good indicator of capital cost,
taking into account the industry, country and size
of the business. For each CGU where assets are
allocated, a specific WACC was determined taking

into account the industry, country and size of the
business. In 2017, the main discount rates used
were in a range between 9.4% and 11.2%.

157.

•

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.

Oil and gas prices and customer’s capital
expenditures: based on industry analysts’ reports
and management’s expectations of market
development respectively.

Rig count: based on information published by
Baker Hughes and management’s expectations.

Raw material costs: based on industry analysts’
reports and management’s expectations.

The main factors that could result in additional
impairment charges in future periods would be
an increase in the discount rate or a decrease in
growth rate used in the Company’s cash flow
projections, a further deterioration of the business,
competitive and economic factors, such as a
decrease in oil and gas prices and the evolution
of the rig count.

As of December 31, 2017, for those CGUs carrying
goodwill, a reasonably possible change in key
assumptions would not cause the carrying amount
to exceed recoverable amount.

In 2015, as a result of the deterioration of business
conditions, the Company recorded impairment
charges on its welded pipe assets of $400.3 million.
No impairment charge was recorded in 2016 or 2017.

Annual Report

158.

6. Financial results

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

Interest Income

Net result on changes in FV of financial assets at FVTPL

Finance Income

Finance Cost

Net foreign exchange transactions results (*)

Foreign exchange derivatives contracts results (**)

Other

Other financial results

Net financial results

From discontinued operations

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

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

During 2015 Tenaris has derecognized all its fixed
income financial instruments categorized as available
for sale.

2017

2016

2015

51,525

(3,920)

47,605

60,405

5,799

66,204

39,516

(4,942)

34,574

(27,072)

(22,329)

(23,058)

(48,955)

(8,996)

14,392

(2,146)

(31,310)

11,447

(43,559)

(22,009)

(23,026)

(23,017)

21,866

21,954

(13,301)

30,468

(14,473)

2,694

14,210

382

14,592

Tenaris7. Equity in earnings (losses) of non-consolidated

companies

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

From non-consolidated companies

Impairment loss on non-consolidated companies (see Note 12)

8. Income tax

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

Current tax

Deferred tax

From discontinued operations

159.

2017

2016

2015

116,140

–

71,533

–

(10,674)

(28,884)

116,140

71,533

(39,558)

2017

2016

2015

184,016

(100,432)

83,584

(100,720)

(17,136)

174,410

(132,969)

41,441

(24,339)

17,102

164,562

79,943

244,505

(10,121)

234,384

Annual Report160.

The tax on Tenaris’s income before tax differs
from the theoretical amount that would arise using
the tax rate in each country as follows:

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

2017

2016

2015

Income before income tax

427,711

34,430

140,829

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

6,456

40,298

(62,968)

(922)

–

(17,136)

(91,628)

51,062

4,720

105,758

(52,810)

17,102

(71,588)

149,632

6,436

151,615

(1,711)

234,384

(*) Include the effect of the impairment charges of approximately $400.3 million in 2015.

(**) 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 Mexico, Argentina and
Colombia), 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. Amount was carried forward in line with US Regulation in force,
and offset in 2017 Capital Gains.

Changes in the tax rates: On December 29, 2017
Argentina enacted amendments to several tax
laws, including among others a reduction in the
corporate income tax rate from 35% to 30%
for fiscal years starting 1 January 2018 to 31
December 2019 and to 25% going forward. The
impact booked in the Company income tax charge
of the year was a gain of approximately $46
million of deferred tax income.

On December 22, 2017 the U.S. enacted significant
changes to U.S. tax law. The reform is complex
and considers significant changes to the U.S.
corporate income tax system by, among others,
reducing the Federal corporate income tax rate
from 35% to 21%. The Company has made a

reasonable estimate of the financial impacts of the
reform. However, given its significant changes and
complexities, and considering that more accurate
information on the impact and the modalities
of its application will be obtained in subsequent
reporting periods, certain measurement
adjustments could be needed.

The impact booked in the Company income tax
charge of the year was a gain of approximately
$15.2 million of deferred tax income.

Tax charge of the year has been affected by an
extraordinary charge related to the settlement
agreement with the Italian tax authorities (see
Note 25).

Tenaris161.

9. Dividends distribution
On November 1, 2017, the Company’s Board of
Directors approved the payment of an interim
dividend of $0.13 per share ($0.26 per ADS), or
approximately $153 million, paid on November 22,
2017, with an ex-dividend date of November 20, 2017.

On May 3, 2017, the Company’s Shareholders
approved an annual dividend in the amount of $0.41
per share ($0.82 per ADS). The amount approved
included the interim dividend previously paid in
November 23, 2016 in the amount of $0.13 per share
($0.26 per ADS). The balance, amounting to $0.28
per share ($0.56 per ADS), was paid on May 24,
2017. In the aggregate, the interim dividend paid in
November 2016 and the balance paid in May 2017
amounted to approximately $484.0 million.

On May 4, 2016 the Company’s Shareholders
approved an annual dividend in the amount of $0.45

per share ($0.90 per ADS). The amount approved
included the interim dividend previously paid in
November 25, 2015 in the amount of $0.15 per share
($0.30 per ADS). The balance, amounting to $0.30
per share ($0.60 per ADS), was paid on May 25,
2016. In the aggregate, the interim dividend paid in
November 2015 and the balance paid in May 2016
amounted to approximately $531.2 million.

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.

Annual Report162.

10. Property, plant and equipment, net

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31, 2017

COST

Land
and civil
buildings

Industrial buildings,
plant and production
equipment

Vehicles,
furniture and
fixtures

Work in
progress

Spare
parts and
equipment

Total

Values at the beginning of the year

599,710

10,034,500

346,486

1,492,572

25,404

12,498,672

Translation differences

Additions

Disposals / Consumptions

Increase due to business combinations (*)

Transfers / Reclassifications

Values at the end of the year

DEPRECIATION

Accumulated at the beginning of the year

Translation differences

Depreciation charge

Transfers / Reclassifications

Disposals / Consumptions

5,493

(1,293)

2,187

105,901

712,061

89,274

1,204

9,406

1,699

(386)

178,598

7,423

(3,966)

5,654

1,732,376

5,518

1,252

(7,319)

2,444

22,161

284

497,423

(94)

–

(1,823,106)

331

18,490

(1,812)

–

190,224

524,651

(14,484)

10,285

37,332

11,954,585

370,542

167,079

42,413

13,246,680

6,125,552

281,907

114,675

368,850

7,575

(3,781)

4,959

23,213

(405)

(6,205)

–

6,496,733

120,838

401,469

8,869

(10,372)

7,017,537

Accumulated at the end of the year

101,197

6,612,871

303,469

At December 31, 2017

610,864

5,341,714

67,073

167,079

42,413

6,229,143

(*) Related to Garrett LLC acquisition, see Note 26.

Tenaris

163.

All amounts in thousands of U.S. dollars

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

Land
and civil
buildings

Industrial buildings,
plant and production
equipment

Vehicles,
furniture and
fixtures

Work in
progress

Spare
parts and
equipment

Total

609,190

2,601

639

(2,296)

(34,849)

24,425

9,683,181

340,835

1,219,369

18,330

11,870,905

6,737

1,384

(26,073)

(61,380)

430,651

2,445

784

(10,751)

(1,103)

14,276

2,644

750,038

(4,850)

(1,407)

(473,222)

4,650

(2,494)

(177)

5,042

14,480

757,495

(46,464)

(98,916)

1,172

Values at the end of the year

599,710

10,034,500

346,486

1,492,572

25,404

12,498,672

DEPRECIATION

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

88,270

508

9,621

(160)

(8,552)

(413)

89,274

5,844,657

(3,318)

359,516

(3,328)

(47,928)

(24,047)

265,487

1,831

24,260

–

(966)

(8,705)

6,125,552

281,907

–

231

(20)

533

(744)

–

6,198,645

(999)

393,930

(4,232)

(57,446)

(33,165)

6,496,733

At December 31, 2016

510,436

3,908,948

64,579

1,492,572

25,404

6,001,939

Property, plant and equipment include capitalized
interests for net amounts at December 31, 2017
and 2016 of $39.5 million and $25.4 million,
respectively. The average capitalization interest
rates applied were 1.97% during 2017 and 1.28%
during 2016.

Annual Report

164.

11. Intangible assets, net

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31, 2017

COST

Values at the beginning of the year

Translation differences

Additions

Transfers / Reclassifications

Increase due to business combinations (**)

Disposals

Values at the end of the year

AMORTIZATION

Information
system
projects

Licenses,
patents and
trademarks (*)

Goodwill

Customer
relationships

Total

554,330

6,265

28,335

(28,371)

133

–

461,619

2,090,257

2,058,946

5,165,152

483

5,105

(92)

–

(1,152)

(184)

–

(87)

–

6,477

33,440

(28,463)

133

(1,152)

560,692

465,963

2,090,073

2,058,859

5,175,587

Accumulated at the beginning of the year

408,373

362,292

797,592

1,734,068

3,302,325

Translation differences

Amortization charge

Transfers / Reclassifications

5,232

65,249

–

10,546

(92)

–

131,376

–

5,232

207,171

–

Accumulated at the end of the year

478,946

372,746

797,592

1,865,444

3,514,728

At December 31, 2017

81,746

93,217

1,292,481

193,415

1,660,859

(*) Includes Proprietary Technology.

(**) Related to Garrett LLC acquisition.

Tenaris

All amounts in thousands of U.S. dollars

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

Accumulated at the beginning of the year

Translation differences

Amortization charge

Transfers / Reclassifications

Transfer to assets held for sale

Disposals

165.

Information
system
projects

Licenses,
patents and
trademarks (*)

Goodwill

Customer
relationships

Total

524,869

2,264

28,730

(546)

(836)

(151)

494,662

2,170,709

2,059,946

5,250,186

(29)

648

(222)

(32,600)

(840)

4,671

–

6,906

29,378

(768)

(85,123)

(1,000)

(119,559)

–

(991)

554,330

461,619

2,090,257

2,058,946

5,165,152

335,532

1,325

72,632

(245)

(718)

(153)

364,412

836,939

1,569,851

3,106,734

–

30,633

(153)

(32,600)

–

(39,347)

–

165,217

–

(1,000)

–

1,325

268,482

(398)

(73,665)

(153)

Accumulated at the end of the year

408,373

362,292

797,592

1,734,068

3,302,325

At December 31, 2016

145,957

99,327

1,292,665

324,878

1,862,827

(*) Includes Proprietary Technology.

The geographical allocation of goodwill for the year
ended December 31, 2017 was $1,168.5 million for
North America, $121.2 million for South America,
$2.0 million for Europe and $0.7 million for Middle
East & Africa.

Annual Report

166.

The carrying amount of goodwill allocated by
CGU, as of December 31, 2017, was as follows:

All amounts in million U.S.dollars

As of December 31, 2017

Tubes Segment

Other Segment

Total

CGU

OCTG (USA)

Tamsa (Hydril and other)

Siderca (Hydril and other)

Hydril

Coiled Tubing

Confab

Other

Total

Maverick
Acquisition

Hydril
Acquisition

Other

Maverick
Acquisition

225

–

225

–

346

265

309

–

920

–

143

–

225

365

358

309

1,292

12. Investments in non-consolidated companies

YEAR ENDED DECEMBER 31

At the beginning of the year

Translation differences

Equity in earnings of non-consolidated companies

Dividends and distributions received (*)

Additions

Decrease / increase in equity reserves and others

At the end of the year

(*) Related to Ternium.

2017

2016

557,031

(9,548)

116,140

(22,971)

–

(358)

490,645

3,473

71,533

(20,674)

17,108

(5,054)

640,294

557,031

Tenaris

The principal non-consolidated companies are:

167.

Company

Country of incorporation

% ownership at December 31,

Value at December 31,

a) Ternium (*)

b) Usiminas (**)

Others

Luxembourg

Brazil

–

(*) Including treasury shares

(**) At December 31, 2017 and 2016 the voting rights were 5.2%.

2017

2016

2017

2016

11.46%

3.08%

–

11.46%

3.08%

–

563,735

70,642

5,917

640,294

491,285

61,904

3,842

557,031

a) Ternium S.A.
Ternium S.A. (“Ternium”), is a steel producer with
production facilities in Mexico, Argentina, Brazil,
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, 2017, the closing price of
Ternium’s ADSs as quoted on the New York Stock
Exchange was $31.59 per ADS, giving Tenaris’s
ownership stake a market value of approximately
$725.7 million. At December 31, 2017, the carrying
value of Tenaris’s ownership stake in Ternium,
based on Ternium’s IFRS financial statements, was
approximately $563.7 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 on
management’s 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.
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 11.5%.

Annual Report

168.

Summarized selected financial information of
Ternium, including the aggregated amounts of assets,
liabilities, revenues and profit or loss is as follows:

TERNIUM

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 for the year, net of tax, attributable to owners of the parent

2017

2016

7,727,283

4,395,283

5,622,556

2,700,314

12,122,566

8,322,870

3,442,521

2,827,275

1,324,785

1,831,492

6,269,796

3,156,277

842,347

775,295

9,700,296

2,297,271

886,219

815,434

7,223,975

1,839,585

595,644

534,827

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.

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 or its fair value less
costs of disposal.

As of December 31, 2017 the closing price of
the Usiminas’ ordinary and preferred shares, as
quoted on the BM&FBovespa Stock Exchange, was
BRL10.83 ($3.27) and BRL9.1 ($2.75), respectively,
giving Tenaris’s ownership stake a market value
of approximately $123.0 million. As of that date,
the carrying value of Tenaris’s ownership stake in
Usiminas was approximately $70.6 million.

Usiminas financial restructuring process (that
started in April 2016 with the capital increase)
was completed by the end of August 2017. The
completion of this process together with the
increase in the share price since June 2016 and the
improvement in business conditions may lead to an
increase in the value of the investment in Usiminas
in future periods.

Tenaris

During 2015 the Company recorded an impairment
charge of $28.9 million.

Summarized selected financial information of
Usiminas, including the aggregated amounts of assets,
liabilities, revenues and profit or loss is as follows:

169.

USIMINAS

Non-current assets

Current assets

Total assets

Non-current liabilities

Current liabilities

Total liabilities

Non-controlling interests

Revenues

Gross profit

Net income (loss) for the year attributable to owners of the parent

c) Techgen, S.A. de C.V. (“Techgen”)
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 1, 2016
and is fully operational, power capacity of 900
megawatts. As of December 31, 2017, Tenaris held
22% of Techgen’s share capital, and its affiliates,
Ternium and Tecpetrol International S.A. (a
wholly-owned subsidiary of San Faustin S.A.,
the controlling shareholder of both Tenaris and
Ternium), held 48% and 30% respectively.

Techgen is a party to transportation capacity
agreements for a purchasing capacity of 150,000
MMBtu/Gas per day starting on August 1, 2016
and ending on July 31, 2036, and a party to a
contract for the purchase of power generation
equipment and other services related to the
equipment. As of December 31, 2017, Tenaris’s

2017

2016

5,661,947

2,193,096

6,085,811

1,970,015

7,855,043

8,055,826

2,344,042

2,856,883

920,924

537,646

3,264,966

3,394,529

425,988

508,083

3,367,937

2,442,596

513,712

99,853

150,999

(166,153)

exposure under these agreements amounted to
$58.2 million and $3.9 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 $720 million and
has been used in the construction of the facility. The
main covenants under the corporate guarantee are
Tenaris’s commitment to maintain its participation
in Techgen or the right to purchase at least 22%
of Techgen’s firm energy, and compliance with a
maximum permitted leverage ratio. As of December
31, 2017, the loan agreement had been fully disbursed
and, as a result, the amount guaranteed by Tenaris
was approximately $158.4 million. During 2017 the
shareholders of Techgen made additional investments
in Techgen, in form of subordinated loans, which
in case of Tenaris amounted to $7 million. As of
December 31, 2017, the aggregate outstanding
principal amount under these loans was $93.2 million.

Annual Report

170.

13. Receivables – non current

YEAR ENDED DECEMBER 31

Government entities

Employee advances and loans

Tax credits

Receivables from related parties

Legal deposits

Advances to suppliers and other advances

Others

Allowances for doubtful accounts – see Note 22 (I)

14. Inventories

YEAR ENDED DECEMBER 31

Finished goods

Goods in process

Raw materials

Supplies

Goods in transit

Allowance for obsolescence – see Note 23 (I)

2017

2016

641

5,891

29,404

88,595

13,568

12,443

33,428

913

7,202

32,769

91,419

13,876

19,520

32,217

183,970

197,916

(641)

(913)

183,329

197,003

2017

2016

923,316

619,796

281,083

486,002

274,175

653,482

375,822

160,284

451,777

162,766

2,584,372

1,804,131

(216,068)

(240,242)

2,368,304

1,563,889

Tenaris15. Receivables and prepayments

171.

YEAR ENDED DECEMBER 31

2017

2016

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)

36,587

2,085

12,205

25,205

17,353

28,397

8,230

20,122

28,278

3,052

10,458

16,088

9,350

24,742

2,759

36,320

150,184

131,047

(6,255)

(6,332)

143,929

124,715

Annual Report
172.

16. Current tax assets and liabilities

YEAR ENDED DECEMBER 31

CURRENT TAX ASSETS

V.A.T. credits

Prepaid taxes

CURRENT TAX LIABILITIES

Income tax liabilities

V.A.T. liabilities

Other taxes

17. Trade receivables

YEAR ENDED DECEMBER 31

Current accounts

Receivables from related parties

Allowance for doubtful accounts – see Note 23 (I)

2017

2016

76,714

55,620

61,552

79,434

132,334

140,986

35,210

14,313

52,882

55,841

11,065

34,291

102,405

101,197

2017

2016

1,240,769

1,026,026

51,676

14,383

1,292,445

1,040,409

(78,385)

1,214,060

(85,724)

954,685

TenarisThe following table sets forth details of the aging
of trade receivables:

173.

AT DECEMBER 31, 2017

Trade Receivables

Not Due

Past due

1 - 180 days

> 180 days

Guaranteed

Not guaranteed

Guaranteed and not guaranteed

247,079

1,045,366

1,292,445

219,764

841,737

1,061,501

22,978

115,245

138,223

Allowance for doubtful accounts

(78,385)

–

Net Value

1,214,060

1,061,501

138,223

AT DECEMBER 31, 2016

Guaranteed

Not guaranteed

Guaranteed and not guaranteed

Allowance for doubtful accounts

Net Value

355,508

684,901

1,040,409

(85,724)

954,685

272,393

518,984

791,377

(62)

791,315

32,241

87,379

119,620

(67)

119,553

4,337

88,384

92,721

(78,385)

14,336

50,874

78,538

129,412

(85,595)

43,817

Trade receivables are mainly denominated in
U.S. dollar.

Annual Report

174.

18. Cash and cash equivalents and Other investments

YEAR ENDED DECEMBER 31

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

Others

OTHER INVESTMENTS - NON-CURRENT

Bonds and other fixed Income

Others

2017

2016

150,948

66,033

113,240

330,221

437,406

754,800

–

100

92,730

215,807

91,200

399,737

782,029

841,638

9,475

–

1,192,306

1,633,142

123,498

4,837

128,335

248,049

1,670

249,719

Tenaris

19. Borrowings

YEAR ENDED DECEMBER 31

NON-CURRENT

Bank borrowings

Finance lease liabilities

Costs of issue of debt

CURRENT

Bank borrowings

Bank overdrafts

Finance lease liabilities

Costs of issue of debt

Total Borrowings

175.

2017

2016

34,626

31,544

(40)

(37)

34,645

31,542

930,957

131

138

(12)

931,214

965,859

807,252

1,320

130

(8)

808,694

840,236

Annual Report
176.

The maturity of borrowings is as follows:

AT DECEMBER 31, 2017

1 year or less

1 - 2 years

2 - 3 years

3 - 4 years

4 - 5 years

Over 5 years

Total

Financial lease

Other borrowings

Total borrowings

Interest to be accrued (*)

Total

AT DECEMBER 31, 2016

Financial lease

Other borrowings

Total borrowings

Interest to be accrued (*)

Total

(*)

Includes the effect of hedge accounting.

138

931,076

931,214

14,512

945,726

130

808,564

808,694

6,461

815,155

4,876

4,935

1,212

6,147

1,198

1,233

1,172

2,405

–

4,484

1,203

5,687

–

3,739

1,161

4,900

–

4,978

1,190

6,168

–

3,360

1,142

4,502

–

20,248

174

20,422

–

3,632

1,116

4,748

–

19,578

237

19,815

197

965,662

965,859

18,290

984,149

165

840,071

840,236

11,289

851,525

Tenaris

Significant borrowings include:

In million of USD

Disbursement date

Borrower

Type

Original &
Outstanding

Final maturity

2017

Dec-17

Tamsa

Siderca

Bank loans

TuboCaribe

Bank loan

404

311

150

2018

Dec-18

177.

As of December 31, 2017, 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, 2017 and 2016 (considering hedge
accounting where applicable).

2017

2016

Total borrowings

3.73%

1.97%

Annual Report178.

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

Year ended December 31

Fixed

Variable

2017

2016

19,120

13,828

1,697

34,645

19,461

10,701

1,380

31,542

Breakdown of short-term borrowings by currency
and rate is as follows:

Current borrowings

Currency

Interest rates

Year ended December 31

USD

EUR

MXN

ARS

Others

Variable

Fixed

Variable

Fixed

Variable

Fixed

2017

2016

17,640

187,872

169

839

412,719

311,829

–

138

17,081

200,448

841

391,318

197,637

1,041

194

Total current borrowings

931,214

808,694

Tenaris

Borrowings evolution

Year ended December 31, 2017

At the beginning of the year

Translation differences

Proceeds and repayments, net

Interests Accrued less payments

Reclassifications

Other Movements

Overdrafts variation

At the end of the year

179.

Non current

Current

31,542

1,649

1,510

(19)

(309)

272

–

34,645

808,694

(3,622)

105,142

21,880

309

–

(1,189)

931,214

20. Deferred income tax
Deferred income taxes are calculated in full on
temporary differences under the liability method
using the tax rate of each country.

Deferred tax liabilities

The evolution of deferred tax assets and
liabilities during the year are as follows:

At the beginning of the year

Translation differences

Charged directly to other comprehensive income

Income statement credit (charge)

At December 31, 2017

At the beginning of the year

Translation differences

Charged directly to other comprehensive income

Transfer to assets held for sale

Income statement charge

At December 31, 2016

(*)

Includes the effect of currency translation on tax base (see Note 8).

Fixed
assets

Inventories

Intangible
and Other (*)

Total

263,056

36,891

514,713

814,660

2,243

–

207,605

472,904

(2)

–

(1,955)

34,934

(583)

(186,544)

327,607

2,262

(583)

19,106

835,445

299,139

42,516

549,557

891,212

(540)

–

(5,724)

(29,819)

263,056

–

(40)

–

(5,625)

36,891

(34,848)

514,713

(496)

(40)

(5,724)

(70,292)

814,660

Annual Report

180.

Deferred tax assets

Provisions and
allowances

Inventories

Tax
losses (*)

Other

Total

At the beginning of the year

Translation differences

Charged directly to other comprehensive income

Income statement charge / (credit)

At December 31, 2017

(33,276)

(94,176)

(199,326)

(81,838)

(408,616)

(223)

–

7,024

(972)

–

5,593

322

–

(606)

(778)

(1,479)

(778)

(155,940)

23,189

(120,134)

(26,475)

(89,555)

(354,944)

(60,033)

(531,007)

At the beginning of the year

Translation differences

Transfer to assets held for sale

Charged directly to other comprehensive income

Income statement charge / (credit)

At December 31, 2016

(32,425)

(3,123)

–

(107,378)

(1,347)

275

–

(99,394)

(2,741)

–

2,272

14,274

(97,191)

(102,396)

(341,593)

753

1,823

17,968

(7,197)

1,028

1,823

(62,677)

(33,276)

(94,176)

(199,326)

(81,838)

(408,616)

(*) As of December 31, 2017, the net unrecognized deferred tax assets amount to $98.8 million.

Tenaris

The recovery analysis of deferred tax assets and
deferred tax liabilities is as follows:

YEAR ENDED DECEMBER 31

Deferred tax assets to be recovered after 12 months

Deferred tax liabilities to be recovered after 12 months

181.

2017

2016

(405,416)

808,108

(226,431)

761,039

Deferred income tax assets and liabilities are offset
when (1) there is a legally enforceable right to set-
off current tax assets against current tax liabilities
and (2) when the deferred income taxes relate
to the same fiscal authority on either the same

taxable entity or different taxable entities where
there is an intention to settle the balances on a net
basis. The following amounts, determined after
appropriate set-off, are shown in the Consolidated
Statement of Financial Position:

YEAR ENDED DECEMBER 31

Deferred tax assets

Deferred tax liabilities

The movement in the net deferred income tax
liability account is as follows:

YEAR ENDED DECEMBER 31

At the beginning of the year

Translation differences

Charged directly to Other Comprehensive Income

Income statement credit

Transfer to assets held for sale

At the end of the year

2017

2016

(153,532)

457,970

304,438

(144,613)

550,657

406,044

2017

2016

406,044

783

(1,361)

549,619

(7,693)

1,783

(101,028)

(132,969)

–

304,438

(4,696)

406,044

Annual Report182.

21. Other liabilities

I. Other liabilities – Non current

YEAR ENDED DECEMBER 31

Post-employment benefits

Other-long term benefits

Miscellaneous

Post-employment benefits

Unfunded

YEAR ENDED DECEMBER 31

Values at the beginning of the year

Translation differences

Current service cost

Interest cost

Curtailments and settlements

Remeasurements (*)

Benefits paid from the plan

Other

At the end of the year

(*) For 2017 a loss of $0.08 million is attributable to demographic assumptions and a loss of $10.6

million to financial assumptions. For 2016 a loss of $0.6 and a gain of $5.1 million is
attributable to demographic and financial assumptions, respectively.

2017

2016

125,012

68,244

24,040

125,161

66,714

21,742

217,296

213,617

2017

2016

96,229

2,893

7,851

5,462

10,907

(22,107)

633

101,889

107,601

(2,204)

4,625

6,371

(4,501)

(13,921)

(1,766)

96,229

TenarisThe principal actuarial assumptions used
were as follows:

YEAR ENDED DECEMBER 31

Discount rate

Rate of compensation increase

183.

2017

2016

1% - 7%

0% - 3%

1% - 7%

0% - 3%

As of December 31, 2017, an increase / (decrease)
of 1% in the discount rate assumption of the main
plans would have generated a (decrease) / increase
on the defined benefit obligation of $8.2 million and
$7.2 million respectively, and an increase / (decrease)
of 1% in the rate of compensation assumption of
the main plans would have generated an increase /
(decrease) impact on the defined benefit obligation
of $4.0 million and $4.2 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:

YEAR ENDED DECEMBER 31

Present value of funded obligations

Fair value of plan assets

Liability (*)

(*) In 2017 and 2016, $3.3 million and $2.2 million corresponding to an overfunded plan were

reclassified within other non-current assets, respectively.

2017

2016

165,486

(145,692)

19,794

159,612

(132,913)

26,699

Annual Report184.

The movement in the present value of funded
obligations is as follows:

YEAR ENDED DECEMBER 31

At the beginning of the year

Translation differences

Current service cost

Interest cost

Remeasurements (*)

Benefits paid

At the end of the year

(*) For 2017 a gain of $0.4 million is attributable to demographic assumptions and a loss
of $4.1 million to financial assumptions. For 2016 a gain of $0.9 and a loss of $8.7
million is attributable to demographic and financial assumptions, respectively.

The movement in the fair value of plan assets
is as follows:

YEAR ENDED DECEMBER 31

At the beginning of the year

Translation differences

Return on plan assets

Remeasurements

Contributions paid to the plan

Benefits paid from the plan

Other

At the end of the year

2017

2016

159,612

153,974

7,300

592

6,034

3,602

384

162

6,403

7,753

(11,654)

165,486

(9,064)

159,612

2017

2016

(132,913)

(128,321)

(6,802)

(5,849)

(5,874)

(6,230)

11,654

323

365

(7,022)

(3,022)

(4,374)

9,064

397

(145,692)

(132,913)

TenarisThe major categories of plan assets as a percentage
of total plan assets are as follows:

185.

YEAR ENDED DECEMBER 31

Equity instruments

Debt instruments

Others

The principal actuarial assumptions used
were as follows:

YEAR ENDED DECEMBER 31

Discount rate

Rate of compensation increase

2017

2016

53.4%

42.9%

3.7%

52.4%

43.9%

3.7%

2017

2016

0 % - 3 %

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.

/ (decrease) on the defined benefit obligation of
$2.2 million and $1.8 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 2018 amount approximately to $3.5 million.

The methods and types of assumptions used in
preparing the sensitivity analysis did not change
compared to the previous period.

Annual Report186.

II. Other liabilities – current

YEAR ENDED DECEMBER 31

Payroll and social security payable

Liabilities with related parties

Derivative financial instruments

Miscellaneous

22. Non-current allowances and provisions

I. Deducted from non current receivables

YEAR ENDED DECEMBER 31

Values at the beginning of the year

Translation differences

Used

Values at the end of the year

2017

2016

141,886

125,991

39,799

15,768

135

42,635

15,126

197,504

183,887

2017

2016

(913)

106

166

(641)

(1,112)

199

–

(913)

TenarisII. Liabilities

YEAR ENDED DECEMBER 31

Values at the beginning of the year

Translation differences

Additional provisions

Reclassifications

Used

Values at the end of the year

23. Current allowances and provisions

I. Deducted from assets

187.

2017

2016

63,257

366

3,994

(7,591)

(23,588)

36,438

61,421

3,296

6,794

(1,932)

(6,322)

63,257

YEAR ENDED DECEMBER 31, 2017

Values at the beginning of the year

Translation differences

Reversals / (additional) allowances

Used

At December 31, 2017

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

(85,724)

(345)

5,421

2,263

(78,385)

(101,480)

(841)

12,573

4,004

(85,724)

(6,332)

(220)

(84)

381

(6,255)

(7,082)

(432)

–

1,107

(6,332)

(240,242)

(3,575)

12,917

14,832

(216,068)

(229,200)

(2,715)

(32,765)

896

23,542

(240,242)

Annual Report188.

II. Liabilities

YEAR ENDED DECEMBER 31, 2017

Values at the beginning of the year

Translation differences

Additional provisions

Reclassifications

Used

At December 31, 2017

YEAR ENDED DECEMBER 31, 2016

Values at the beginning of the year

Translation differences

Additional provisions

Reclassifications

Used

At December 31, 2016

Sales risks

Other claims and
contingencies

13,885

247

4,238

–

(6,974)

11,396

6,290

189

16,266

(22)

(8,838)

13,885

8,871

227

9,432

7,591

(5,187)

20,934

2,705

(86)

7,791

1,954

(3,493)

8,871

Total

22,756

474

13,670

7,591

(12,161)

32,330

8,995

103

24,057

1,932

(12,331)

22,756

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:

YEAR ENDED DECEMBER 31

Foreign exchange derivatives contracts

Contracts with positive fair values

Foreign exchange derivatives contracts

Contracts with negative fair values

Total

2017

2016

8,230

(39,799)

(31,569)

2,759

(42,635)

(39,876)

Tenaris
189.

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
2017 and 2016, were as follows:

Purchase currency

Sell currency

USD

MXN

USD

EUR

USD

KWD

ARS

USD

BRL

CAD

MXN

USD

EUR

USD

JPY

USD

ARS

USD

Others

Total

Term

2018

Fair Value

Hedge Accounting Reserve

2017

2016

(20,447)

(35,165)

490

5,660

(367)

(101)

(630)

(13,715)

(17)

(2,072)

(392)

694

(360)

(33)

(179)

(2,447)

(748)

318

(1,581)

(225)

(150)

2017

(534)

–

1,881

–

(520)

–

(1,067)

–

2016

(2,280)

–

(1,435)

(1,016)

–

(93)

–

(31,569)

(39,876)

(240)

(4,742)

Following is a summary of the hedge
reserve evolution:

Equity Reserve Dec-15

Movements 2016

Equity Reserve Dec-16

Movements 2017

Equity Reserve Dec-17

Foreign Exchange

Total Cash flow Hedge

2,783

(7,525)

(4,742)

4,502

(240)

Tenaris estimates that the cash flow hedge reserve
at December 31, 2017 will be recycled to the
Consolidated Income Statement during 2018.

Annual Report190.

25. Contingencies, commitments and restrictions

on the distribution of profits

I. 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.
Management with the assistance of legal counsel
periodically reviews the status of each significant
matter and assesses potential financial exposure.

Some of these claims, lawsuits and other legal
proceedings involve highly complex issues, and
often these issues are subject to substantial
uncertainties and, therefore, the probability of
loss and an estimation of damages are difficult
to ascertain. Accordingly, with respect to a large
portion of such claims, lawsuits and other legal
proceedings, Tenaris is unable to make a reliable
estimate of the expected financial effect that will
result from ultimate resolution of the proceeding.
In those cases, Tenaris has not accrued a provision
for the potential outcome of these cases.

If a potential loss from a claim, lawsuit or other
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. In a limited number of
ongoing cases, Tenaris was able to make a reliable
estimate of the expected loss or range of probable
loss and has accrued a provision for such loss,
but believes that publication of this information
on a case-by-case basis would seriously prejudice
Tenaris’s position in the ongoing legal proceedings

or in any related settlement discussions.
Accordingly, in these cases, the Company has
disclosed information with respect to the nature of
the contingency, but has not disclosed its estimate
of the range of potential loss.

The Company believes that the aggregate
provisions recorded for potential losses in these
consolidated 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.

Below is a summary description of Tenaris’s
material legal proceedings for the year ended
December 31, 2017. In addition, Tenaris is subject
to other legal proceedings, none of which is
believed to be material.

•

Tax assessment in Italy
Dalmine S.p.A. (“Dalmine”), an Italian subsidiary of
the Company, 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 EUR298 million
(approximately $357 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 $11 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

Tenaristax 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 EUR226
million (approximately $271 million), including
principal, interest and penalties, contradicts the first
and second-instance tax court rulings in connection
with the 2007 assessment. Dalmine obtained the
suspension of the interim payment that would
have been due, based on the first-instance decision,
through the filing with the tax authorities of a bank
guarantee of EUR175 million (approximately $210
million), and appealed the January 2016 ruling with
the second-instance tax court.

On December 21, 2017, Dalmine and the Italian
tax authorities entered into a settlement agreement
in connection with all withholding tax claims
on 2007 and 2008 dividend payments. Under
the settlement agreement, Dalmine paid to the
Italian tax administration an aggregate amount
of EUR42.9 million (approximately $51 million),
net of EUR3.2 million (approximately $4 million)
corresponding to the amount previously paid
during the litigation proceeding. As a result of the
settlement, during the year Tenaris recorded an

additional charge to results, in excess of amounts
already provisioned, of approximately $29 million.

191.

In addition, the Italian tax authorities formally
notified Dalmine that, based on applicable laws
and regulations, any future distributions from
Dalmine out of past or future profits will not be
subject to Italian withholding tax.

•

CSN claims relating to the January 2012
acquisition of Usiminas shares
In 2013, Confab Industrial S.A. (“Confab”),
a Brazilian subsidiary of the Company 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 BRL28.8, and seeks an order to compel the
acquirers to launch an offer at that price plus
interest. If so ordered, the offer would need to be
made to 182,609,851 ordinary shares of Usiminas
not belonging to Usiminas’ control group, and
Confab would have a 17.9% share in that offer.

On September 23, 2013, the first instance court
dismissed the CSN lawsuit, and on February
8, 2017, the court of appeals maintained the
understanding of the first instance court. On
March 6, 2017, CSN filed a motion for clarification
against the decision of the Court of Appeals of
São Paulo, which was rejected on July 19, 2017.
On August 18, 2017, CSN filed an appeal to the
Superior Court of Justice seeking the review and

Annual Report
192.

reversal of the decision issued by the Court of
Appeals. The Superior Court of Justice is restricted
to the analysis of alleged violations to federal laws
and cannot assess matters of fact. Accordingly,
the Court of Appeals must decide whether CSN’s
appeal meets the requirements for submission to the
Superior Court of Justice. If declared admissible,
the Superior Court of Justice will also review
admissibility, and, if also declared admissible, will
then render a decision on the merits.

Tenaris continues to believe that all of CSN’s
claims and allegations are groundless and without
merit, as confirmed by several opinions of
Brazilian legal counsel, two decisions issued by the
Brazilian securities regulator (CVM) in February
2012 and December 2016, and the first and
second instance court decisions referred to above.
Accordingly, no provision was recorded in these
Consolidated 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 with respect to the Veracel accident
and other amounts not covered by insurance. Itaú
and Veracel claim that the Veracel accident was
caused by failures and defects attributable to the
evaporation system manufactured by Confab.
Confab believes that the Veracel accident was
caused by the improper handling by Veracel’s

personnel of the equipment supplied by Confab
in violation of Confab’s instructions. The two
lawsuits have been consolidated, and are now
being considered by the 6th Civil Court of São
Caetano do Sul; however, each lawsuit will be
adjudicated through a separate ruling. Both
proceedings are currently at evidentiary stage.

On March 10, 2016, a court-appointed expert
issued its report on certain technical matters
concerning the Veracel accident. Based upon a
technical opinion received from a third-party
expert, in August 2016, Confab filed its objections
to the expert’s report. In November 2017, the court
appointed expert filed a second report reaffirming
its opinion and stating that the opinion of Confab’s
appointed expert was incorrect. The parties have
a 90-day period to file their observations and/or
opinions concerning the expert’s second report.
Approximately 54% of the amounts claimed by
Itaú and Veracel is attributable to alleged lost
profits, and the contract between Confab and
Veracel expressly provided that Confab would not
be liable for damages arising from loss profits. As
of December 31, 2017, the estimated amount of
Itaú’s claim was approximately BRL81.9 million
(approximately $24.8 million), and the estimated
amount of Veracel’s claim is approximately
BRL52 million (approximately $15.7 million), for
an aggregate amount BRL133.9 million ($40.5
million). The final result of this claim depends
largely on the court’s evaluation of technical
matters arising from the expert’s opinion and the
objections presented by Confab.

•

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

Tenaris•

•

individual allegedly related with officers of
Petróleo Brasileiro S.A. and whether any such
payments were intended to benefit Confab. Any
such payments could violate certain applicable
laws, including the U.S. Foreign Corrupt Practices
Act. The Company had previously reviewed
certain of these matters in connection with an
investigation by the Brazilian authorities related to
“Operation Lava Jato” and the Audit Committee
of the Company’s Board of Directors has engaged
external counsel in connection with a review
of the alleged payments and related matters. In
addition, the Company has voluntarily notified
the U.S. Securities and Exchange Commission and
the U.S. Department of Justice. The Company
intends to share the results of this review with the
appropriate authorities, and to cooperate with
any investigations that may be conducted by such
authorities. At this time, the Company cannot
predict the outcome of these matters or estimate
the range of potential loss or extent of risk, if any,
to the Company’s business that may result from
resolution of these matters.

•

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.

193.

Contractor claim for additional costs
Tenaris Bay City Inc. (“Tenaris Bay City”), a U.S.
subsidiary of the Company, has received claims
from a contractor for alleged additional costs in the
construction of a project located in the Bay City
area for a total amount in excess of $77 million.
On June 30, 2017, the contractor filed a demand
for arbitration of these claims. An arbitral panel
has been selected and a scheduling order issued.
The parties are expected to submit statements of
claim in February and March of 2018. Final trial
hearing on this matter is scheduled for February
2019. At this stage the Company cannot predict the
outcome of the claim or the amount or range of
loss in case of an unfavorable outcome.

Investigation concerning currency exchange
declarations.
Siderca S.A.I.C, an Argentine subsidiary of the
Company (“Siderca”), and some of its directors,
employees, former directors and employees are
subject to an administrative criminal proceeding
concerning alleged inaccurate information included
in 15 currency exchange declarations related to
the trading of foreign currency between August
and October 2008 in connection with exports of
goods for a total amount of $268 million. The case
is now under consideration of a criminal court.
Although theoretically this proceeding may give rise
to the application of fines in an amount up to ten
times the value of the involved operations, Tenaris
believes that it has meritorious defenses and that
it is unlikely that the ultimate resolution of this
matter will result in a material obligation.

•

Claim for differences on gas supply prices
On July 7, 2016, Siderca was notified of a claim
initiated by an Argentine state-owned company
for an amount of $25.4 million, allegedly owed
as a result in differences in the price paid for gas
supplied to Siderca during three months in 2013.

Annual Report194.

Tenaris believes, based on the advice of counsel,
that it has meritorious defenses against a substantial
part of this claim, although Siderca may be required
to pay part of the claimed amount.

•

Tax assessment in Mexico
In August 2017, Tubos de Acero de México S.A
(“Tamsa”) and Servicios Generales Tenaris Tamsa
S.A (“Segeta”), two Mexican subsidiaries of the
Company, were informed that the Mexican tax
authorities had determined that the tax deductions
associated with purchases of scrap made by the
companies during 2013, amounting to MXN1,800
million (approximately $91.2 million) in the
aggregate, failed to comply with applicable
requirements and, accordingly, should be rejected.
Tamsa and Segeta filed their respective responses
and complaints against the determination, and
provided additional information evidencing
compliance with applicable requirements for the
tax deductions that are being challenged. No final
decision has yet been issued on this matter. Based
on the opinion of legal counsel, Tenaris believes
that it is unlikely that the ultimate resolution of this
tax assessment will result in a material obligation.

•

II. Commitments and other purchase orders
Set forth is a description of Tenaris’s material
outstanding purchase commitments:

•

A Tenaris company entered into a contract with
the supplier Voest Alpine Grobblech Gmb to
which it committed to purchase carbon steel for a
total amount of approximately $137 million to use
for manufacturing pipes related to the Zohr gas
field project.

•

A Tenaris company entered into a contract
with Transportadora de Gas del Norte S.A.

for the service of natural gas transportation to
the facilities of Siderca S.A.I.C., an Argentine
subsidiary of Tenaris. As of December 31, 2017,
the aggregate commitment to take or pay the
committed volumes for a 10-year term totalled
approximately $77.5 million.

A Tenaris company entered into a contract with
Praxair S.A. for the service of oxygen and nitrogen
supply. As of December 31, 2017, the aggregate
commitment to take or pay the committed volumes
for a 14-year term totalled approximately
$43.9 million.

Several Tenaris companies entered into a
contract with Graftech for the supply of graphite
electrodes. As of December 31, 2017, the aggregate
commitment to take or pay the committed volumes
totalled approximately $78.3 million.

A Tenaris company entered into a 25-year contract
(effective as of December 1, 2016, through
December 1, 2041) with Techgen for the supply
of 197 MW (which represents 22% of Techgen’s
capacity). Monthly payments are determined
on the basis of capacity charges, operation
costs, back-up power charges, and transmission
charges. As of the seventh contract year (as long
as Techgen’s existing or replacing bank facility has
been repaid in full), the Tenaris company has the
right to suspend or early terminate the contract
if the rate payable under the agreement is higher
than the rate charged by the Comisión Federal de
Electricidad (“CFE”) or its successors. The Tenaris
company may instruct Techgen to sell to any
affiliate, to CFE, or to any other third party all or
any part of unused contracted energy under the
agreement and the Tenaris company will benefit
from the proceeds of such sale.

TenarisIII. Restrictions to the distribution of profits and

payment of dividends
As of December 31, 2017, 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, 2017

Total equity in accordance with Luxembourg law

195.

1,180,537

118,054

609,733

16,956,761

18,865,085

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,
2017, this reserve is fully allocated and additional
allocations to the reserve are not required under

Luxembourg law. Dividends may not be paid out
of the legal reserve.

The Company may pay dividends to the extent,
among other conditions, that it has distributable
retained earnings calculated in accordance with
Luxembourg law and regulations.

Annual Report196.

At December 31, 2017, distributable amount
under Luxembourg law totals $17.6 billion,
as detailed below:

All amounts in thousands of U.S. dollars

Retained earnings at December 31, 2016 under Luxembourg law

Other income and expenses for the year ended December 31, 2017

Dividends approved

Retained earnings at December 31, 2017 under Luxembourg law

Share premium

Distributable amount at December 31, 2017 under Luxembourg law

17,493,013

(52,232)

(484,020)

16,956,761

609,733

17,566,494

26. Acquisition of subsidiaries

In September 2017, Tenaris acquired 100% of
Garrett (a pipe services and trucking business)
through the payment of a price of $10.4 million.

If the acquisition had occurred on January 1, 2017,
Tenaris’s unaudited pro forma net sales and net
income from continuing operations would not have
changed materially

Tenaris27. Cash flow disclosures

197.

YEAR ENDED DECEMBER 31

2017

2016

2015

(I) CHANGES IN WORKING CAPITAL

Inventories

Receivables and prepayments and Current tax assets

Trade receivables

Other liabilities

Customer advances

Trade payables

(II) INCOME TAX ACCRUALS LESS PAYMENTS

Tax accrued

Taxes paid

(III) INTEREST ACCRUALS LESS PAYMENTS, NET

Interest accrued

Interest received

Interest paid

(IV) CASH AND CASH EQUIVALENTS

Cash at banks, liquidity funds and short - term investments

Bank overdrafts

(804,415)

(6,662)

(259,375)

4,226

17,039

193,905

244,720

70,874

146,824

(79,046)

(95,112)

59,939

936,402

60,009

828,265

(123,904)

1,171

(327,958)

(855,282)

348,199

1,373,985

(17,136)

(176,853)

41,441

(169,520)

(193,989)

(128,079)

(20,534)

50,001

(17,917)

11,550

330,221

(131)

330,090

(43,872)

60,163

(18,858)

(2,567)

399,900

(1,320)

398,580

244,505

(335,585)

(91,080)

(11,517)

56,835

(18,696)

26,622

286,547

(349)

286,198

Annual Report

198.

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 $328 million (net of
transaction costs). The sale was completed on
January 19, 2017, with effect from January 20, 2017.
The result of this transaction was an after-tax gain
of $89.7 million, calculated as the net proceeds of
the sale less the book value of net assets held for sale,
the corresponding tax effect and related expenses.

2017

2016

1,848

89,694

91,542

41,411

–

41,411

YEAR ENDED DECEMBER 31

Income from discontinued operations

After tax gain on the sale of Conduit

Net Income for discontinued operations

Details of Conduit sale

Cash received

Transaction and other costs

Carrying amount of net assets sold

Gain on sale before income tax

Income tax expense on gain

Gain on sale after income tax

331,295

(3,663)

(137,814)

189,817

(100,123)

89,694

The financial performances presented are relative
to the 19 days of January 2017 and for the years
ended December 31, 2016 and 2015.

TenarisAnalysis of the result of discontinued operations

All amounts in thousands of U.S. dollars, unless otherwise stated

199.

YEAR ENDED DECEMBER 31

2017

2016

2015

Net sales

Cost of sales

Gross profit

Selling, general and administrative expenses

Other operating income & expenses

Operating income

Finance Income (expenses), net

Income before income tax

Income tax

Net income

11,899

(7,403)

4,496

(2,041)

(1)

2,454

(9)

2,445

(597)

1,848

234,911

197,630

(136,587)

(137,318)

98,324

(32,238)

(248)

65,838

(88)

65,750

(24,339)

41,411

60,312

(30,678)

(1)

29,633

(382)

29,251

(10,121)

19,130

EARNINGS PER SHARE ATTRIBUTABLE TO DISCONTINUED OPERATIONS

Weighted average number of ordinary shares (thousands)

1,180,537

DISCONTINUED OPERATIONS

Basic and diluted earnings per share (U.S. dollars per share)

Basic and diluted earnings per ADS (U.S. dollars per ADS)

0.00

0.04

0.07

0.02

0.03

Annual Report

200.

Summarized cash flow information is as follows:

Cash at the beginning

Cash at the end

(Decrease) Increase in cash

(Used in) provided by operating activities

Provided by (used in) investing activities

Used in financing activities

2017

2016

2015

18,820

206

(18,614)

(3,046)

(15,600)

15,343

18,820

3,477

24,535

(1,058)

(20,000)

13,848

15,343

1,495

42,701

(1,206)

(40,000)

These amounts were estimated only for disclosure
purposes, as cash flows from discontinued
operations were not managed separately from
other cash flows.

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

TenarisCurrent and non-current assets and liabilities of disposal group

201.

AT JANUARY 19, 2017

AT DECEMBER 31, 2016

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

41,438

45,894

29,349

1,157

38,620

206

5,294

–

2,913

10,578

87,332

69,332

156,664

5,294

13,556

18,850

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

Annual Report

202.

29. Related party transactions

As of December 31, 2017:

•

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

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

•

Rocca & Partners Stichting Administratiekantoor
Aandelen San Faustin, a Dutch private foundation

(Stichting) (“RP STAK”) held voting shares in San
Faustin sufficient in number to control San Faustin.

•

No person or group of persons controls RP STAK.

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

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

Tenarisas “Other”. The following transactions were carried
out with related parties:

203.

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

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

2017

2016

2015

32,362

94,624

11,637

3,751

142,374

234,361

17,711

12,077

50,794

21,174

32,613

9,542

2,948

66,277

67,048

20,150

11,528

53,530

24,019

87,663

10,154

4,010

125,846

260,280

35,153

16,153

78,805

314,943

152,256

390,391

AT DECEMBER 31

2017

2016

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

117,853

50,815

(49,354)

(14,475)

104,839

117,187

13,357

(21,314)

(12,708)

96,522

Directors’ and senior management compensation
During the years ended December 31, 2017, 2016
and 2015, the cash compensation of Directors
and Senior managers amounted to $45.8 million,
$38.6 million and $28.8 million respectively. These
amounts include cash benefits paid to certain
senior managers in connection with the vesting

of pre-existing retirement plans. In addition,
Directors and Senior managers received 484, 500
and 540 thousand units for a total amount of $4.7
million, $4.8 million and $5.4 million respectively
in connection with the Employee retention and
long term incentive program mentioned in Note O
Employee benefits – Other long term benefits.

Annual Report

204.

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, 2017.

Company

Country of
Incorporation

Main activity

Percentage of ownership
at December 31 (*)

Algoma Tubes Inc.

Confab Industrial S.A. and subsidiaries

Dalmine S.p.A.

Hydril Company and subsidiaries (except detailed) (a)

Maverick Tube Corporation and subsidiaries

NKKTubes

P.T. Seamless Pipe Indonesia Jaya

Prudential Steel Ltd.

S.C. Silcotub S.A.

Siat Sociedad Anónima

Canada

Brazil

Italy

USA

Japan

Indonesia

Canada

Romania

Argentina

Manufacturing of seamless steel pipes

Manufacturing of welded steel pipes

and capital goods

Manufacturing of seamless steel pipes

Manufacturing and marketing of

premium connections

Manufacturing of welded steel pipes

Manufacturing of seamless steel pipes

Manufacturing of seamless steel products

Manufacturing of welded steel pipes

Manufacturing of seamless steel pipes

Manufacturing of welded and seamless

steel pipes

2017

2016

2015

100%

51%

89%

100%

51%

77%

100%

99%

100%

51%

77%

100%

Siderca S.A.I.C. and subsidiaries

Argentina

Manufacturing of seamless steel pipes

100%

(*) All percentages rounded.

(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 2017, 2016 and 2015.

Tenaris

Company

Country of
Incorporation

Main activity

Percentage of ownership
at December 31 (*)

205.

Talta - Trading e Marketing Sociedade Unipessoal Lda.

Portugal

Holding Company

Tenaris Bay City, Inc.

Tenaris Financial Services S.A.

Tenaris Global Services (Canada) Inc.

Tenaris Global Services (U.S.A.) Corporation

USA

Uruguay

Canada

USA

Manufacturing of seamless steel pipes

Financial company

Marketing of steel products

Tenaris Global Services (UK) Ltd

United Kingdom

Holding company and marketing of

steel products

2017

2016

2015

100%

Tenaris Global Services S.A. and subsidiaries

Uruguay

Holding company and marketing of

100%

(except detailed) (b)

Tenaris Investments S.àr.l.

steel products

Luxembourg

Holding company

Tenaris Investments Switzerland AG and subsidiaries

Switzerland

Holding company

Tenaris Connections BV

Netherlands

Development, management and

licensing of intellectual property

100%

Tenaris TuboCaribe Ltda.

Colombia

Manufacturing of welded and seamless

100%

Tubos de Acero de Mexico S.A.

Mexico

Manufacturing of seamless steel pipes

100%

steel pipes

(*) All percentages rounded.

(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.

Annual Report

206.

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.

Matesi
On January 29, 2016, the tribunal released its
award on the arbitration proceeding concerning
the nationalization of Matesi. The award upheld
Tenaris’s and Talta’s claim that Venezuela had
expropriated their investments in Matesi in
violation of Venezuelan law as well as the bilateral
investment treaties entered into by Venezuela with
the Belgium-Luxembourg Economic Union and
Portugal. The award granted compensation in
the amount of $87.3 million for the breaches and
ordered Venezuela to pay an additional amount
of $85.5 million in pre-award interest, aggregating
to a total award of $172.8 million, payable in full
and net of any applicable Venezuelan tax, duty or
charge. The tribunal granted Venezuela a grace
period of six months from the date of the award to

make payment in full of the amount due without
incurring post-award interest, and resolved that
if no, or no full, payment is made by then, post-
award interest will apply at the rate of 9% per
annum. As of December 31, 2017, post-award
interest amounted to $31.9 million.

On March 14, 2016, Venezuela requested the
rectification of the award pursuant to article 49(2)
of the ICSID Convention and ICSID Arbitration
Rule 49. The tribunal denied Venezuela’s request
on June 24, 2016, ordering Venezuela to reimburse
Tenaris and Talta for their costs. On September 21,
2016, Venezuela submitted a request for annulment
of the award as well as the stay of enforcement
of the award in accordance with the ICSID
Convention and Arbitration Rules, and the ad hoc
committee that will hear Venezuela’s request was
constituted on December 27, 2016. On March 24,
2017, the ad hoc committee rendered its decision
to lift the stay of enforcement of the award. The ad
hoc committee has not reserved its right to reopen
that decision and no appeal against such decision
is provided under ICSID’s Arbitration Rules.

The parties exchanged two rounds of written
submissions on Venezuela’s request for annulment.
Following the resignation of one of the ad
hoc committee members, the committee was
reconstituted on November 3, 2017, and the final
hearing on Venezuela’s annulment request was
rescheduled for March 22-23, 2018. Following
the hearing, the ad hoc committee will deliberate
and issue a decision on Venezuela’s annulment
application. While there is no deadline by which

Tenaris207.

the ad hoc committee must render its decision, it is
presently expected that the ad hoc committee will
render a decision between June and September 2018.

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, 2017 amounted to $88 million.

On April 11, 2017, Venezuela submitted a request
for annulment of the award as well as the stay
of enforcement of the award in accordance with
the ICSID Convention and Arbitration Rules.
Venezuela’s annulment request was registered
on April 14, 2017. The ad hoc committee that
will hear Venezuela’s request was constituted on
October 17, 2017. On October 19, 2017, Tenaris
and Talta filed an opposition to Venezuela’s
request to continue the stay of enforcement of
the award, which was followed by the exchange
of additional written submissions between the
parties. The ad hoc committee has extended the
provisional stay of enforcement of the award
until it rules on Venezuela’s request. A hearing

on Venezuela’s request to continue the stay of
enforcement of the award was held on February
1, 2018, and will be followed by a decision from
the ad hoc committee. The final hearing for
Venezuela’s annulment request is scheduled for
August 27-28, 2018. Following the hearing, the ad
hoc committee will deliberate and issue a decision
on Venezuela’s annulment application. While there
is no deadline by which the ad hoc committee must
render its decision, it is presently expected that the
ad hoc committee will render a decision between
November 2018 and February 2019.

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,
2017, for a total amount of approximately
$27 million.

Annual Report208.

The Company records its interest in the Venezuelan
Companies at its carrying amount at June 30, 2009,
and not at fair value, following the guidance set
forth by paragraphs 46(c), AG80 and AG81 of
IAS 39.

32. Fees paid to the Company’s principal accountant

Total fees accrued for professional services
rendered by PwC Network firms to Tenaris S.A.
and its subsidiaries are detailed as follows:

All amounts in thousands of U.S. dollars

YEAR ENDED DECEMBER 31

Audit Fees

Audit-Related Fees

Tax Fees

All Other Fees

Total

2017

2016

2015

3,995

3,588

4,372

4,136

3,669

4,490

Tenaris209.

33. Subsequent events

Agreement regarding governance of Usiminas
On February 8, 2018, the Company’s affiliate
Ternium announced that its subsidiary Ternium
Investments S.à r.l. had entered into a binding and
immediately effective agreement (the “Agreement”)
with Nippon Steel & Sumitomo Metal Corporation
(“NSSMC”), establishing certain new governance
rules for Usiminas as well as certain undertakings for
the settlement of legal disputes. The new governance
rules for Usiminas include, among others, an
alternation mechanism for the nomination of each
of the CEO and the Chairman of the Usiminas
board of directors, as well as a new mechanism for
the nomination of other members of Usiminas’
executive board. In addition, the Agreement
incorporates an exit mechanism.

Under the Agreement, the right to nominate the
CEO and the Chairman will alternate between
Ternium and NSSMC at a 4-year interval,
comprising two consecutive 2-year terms. For
the initial four years, Ternium will be entitled to
nominate the CEO and NSSMC will be entitled
to nominate the Chairman. Initially, Ternium
and NSSMC intend to nominate Sergio Leite
as Usiminas’ CEO and Ruy Hirschheimer as
Usiminas’ Chairman of the Board, respectively.
The executive board will be composed of six
members, including the CEO and five Vice-
Presidents, with Ternium and NSSMC nominating
three members each. The Agreement includes
an exit mechanism consisting of a buy-and-sell

procedure, exercisable at any time during the term
of the existing Usiminas shareholders' agreement
after the fourth-and-a-half-year anniversary from
the coming election of Usiminas’ executive board
in May 2018. Such buy-and-sell procedure would
allow either Ternium or NSSMC to purchase all
or a majority of the Usiminas shares held by the
other party.

The Company’s subsidiary Confab Industrial,
together with Ternium Investments S.à r.l. and
its subsidiaries Siderar S.A.I.C. and Prosid
Investments, is a party to the T/T Group within
the Usiminas controlling group. Pursuant to the
Agreement, the T/T Group members, including
Confab, will use their reasonable best efforts to
negotiate and execute an amended and restated
Usiminas’ shareholders’ agreement together
with the other minority shareholders of the
control group, Previdência Usiminas, Metal One
Corporation and Mitsubishi Corporation do Brasil
S.A., having the same termination date as the
existing Usiminas shareholders’ agreement. If any
non-affiliated controlling group shareholder for
any reason does not enter into the new shareholders
agreement on or before April 10, 2018, the T/T
Group members, including Confab, will enter
into a separate Usiminas’ shareholders’ agreement
only among themselves and their affiliates that
are shareholders of Usiminas, which will operate
as an upper-level agreement in respect of the
existing shareholders agreement and will more fully
reflect and implement the new governance rules as
between them and their affiliates.

Annual Report210.

Annual Dividend Proposal
On February 21, 2018 the Company’s Board of
Directors proposed, for the approval of the Annual
General Shareholders' meeting to be held on May
2, 2018, 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
22, 2017. 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 23, 2018, with an ex-dividend date
of May 21, 2018. These Consolidated Financial
Statements do not reflect this dividend payable.

/s/ Edgardo Carlos

Chief Financial Officer
Edgardo Carlos

TenarisTenaris S.A.
Société Anonyme
Annual accounts

Audited Annual Accounts as at December 31, 2017

211.

Annual Report212.

TenarisAudit report

To the Shareholders

of Tenaris S.A.

213.

Report on the audit of the annual accounts

Our opinion
In our opinion, the accompanying annual accounts give a true and fair
view of the financial position of Tenaris S.A. (the “Company”) as at 31
December 2017, and of the results of its operations for the year then ended in
accordance with Luxembourg legal and regulatory requirements relating to the
preparation and presentation of the annual accounts.

Our opinion is consistent with our additional report to the Audit Committee
of the Company’s Board of Directors (the “Audit Committee”).

What we have audited
The Company’s annual accounts comprise:
the balance sheet as at 31 December 2017;
the profit and loss account for the year then ended; and
the notes to the annual accounts, which include a summary of significant
accounting policies.

•
•
•

Annual Report214.

We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.

We are independent of the Company in accordance with the International
Ethics Standards Board for Accountants’ Code of Ethics for Professional
Accountants (IESBA Code) as adopted for Luxembourg by the CSSF together
with the ethical requirements that are relevant to our audit of the annual
accounts. We have fulfilled our other ethical responsibilities under those
ethical requirements.

To the best of our knowledge and belief, we declare that we have not provided
non-audit services that are prohibited under Article 5(1) of Regulation (EU)
No 537/2014.

The non-audit services that we have provided to the Company, for the year
ended 31 December 2017, all of which have been pre-approved by the Audit
Committee, are disclosed in Note 9 to the annual accounts.

The non-audit services rendered by PwC Network firms to Tenaris S.A. and
its controlled undertakings for the year then ended, all of which have been pre-
approved by the Audit Committee, are disclosed in Note 32 to the Company’s
consolidated financial statements.

Key audit matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the annual accounts of the current period,
and include the most significant assessed risks of material misstatement
(whether or not due to fraud). These matters were addressed in the context
of our audit of the annual accounts as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

TenarisKey audit matter

How our audit addressed the Key audit matter

215.

Our audit approach included assessing the
recoverability of Tenaris Investments S.à r.l by
comparing its carrying value with its net assets as
obtained from Tenaris Investments S.à r.l. audited
annual accounts.

Recoverability of investment in subsidiary -
Tenaris Investments S.à r.l.
Note 3 to the annual accounts indicates that
as of 31 December 2017, Tenaris S.A. holds a
100% interest in the unlisted company Tenaris
Investments S.à r.l. This investment represents
99.99% of the total assets of the Company.
The carrying value of the investment amounts to
18,901 million USD.

We focused our audit on the recoverability of this
investment given its financial significance over the
total assets.

Annual Report216.

Other information
The Board of Directors is responsible for the other information. The other
information comprises the information stated in the Annual Report, including
the management report and the Corporate Governance Statement, but does
not include the annual accounts and our audit report thereon.

Our opinion on the annual accounts does not cover the other information and
we do not express any form of assurance conclusion thereon.

In connection with our audit of the annual accounts, our responsibility is to
read the other information identified above and, in doing so, consider whether
the other information is materially inconsistent with the annual accounts or
our knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors and those charged with

governance for the annual accounts
The Board of Directors is responsible for the preparation and fair presentation
of the annual accounts in accordance with Luxembourg legal and regulatory
requirements relating to the preparation and presentation of the annual
accounts, and for such internal control as the Board of Directors determines
is necessary to enable the preparation of annual accounts that are free from
material misstatement, whether due to fraud or error.

In preparing the annual accounts, the Board of Directors is responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the Board of Directors either intends to liquidate the
Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s
financial reporting process.

Tenaris217.

Responsibilities of the “Réviseur d’entreprises agréé” for the audit of the

annual accounts
The objectives of our audit are to obtain reasonable assurance about whether the
annual accounts as a whole are free from material misstatement, whether due to
fraud or error, and to issue an audit report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the EU Regulation No 537/2014, the Law of 23
July 2016 and with ISAs as issued by the IAASB and as adopted for Luxembourg
by the CSSF will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these annual accounts.

•

identify and assess the risks of material misstatement of the annual accounts,
whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control;
obtain an understanding of internal control relevant to the audit in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's internal control;
evaluate the appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by the Board of Directors;

Annual Report218.

•

conclude on the appropriateness of the Board of Directors' use of the going
concern basis of accounting and, based on the audit evidence obtained, whether a
material uncertainty exists related to events or conditions that may cast significant
doubt on the Company's ability to continue as a going concern. If we conclude
that a material uncertainty exists, we are required to draw attention in our audit
report to the related disclosures in the annual accounts or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our audit report. However, future events or
conditions may cause the Company to cease to continue as a going concern;
evaluate the overall presentation, structure and content of the annual accounts,
including the disclosures, and whether the annual accounts represent the
underlying transactions and events in a manner that achieves fair presentation.

We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we
determine those matters that were of most significance in the audit of the
annual accounts of the current period and are therefore the key audit matters.
We describe these matters in our audit report unless law or regulation
precludes public disclosure about the matter.

TenarisReport on other legal and regulatory requirements
The management report is consistent with the annual accounts and has been
prepared in accordance with applicable legal requirements.

219.

The Corporate Governance Statement is included in the management report.
The information required by Article 68ter Paragraph (1) Letters c) and d) of
the Law of 19 December 2002 on the commercial and companies register and
on the accounting records and annual accounts of undertakings, as amended,
is consistent with the annual accounts and has been prepared in accordance
with applicable legal requirements.

We have been appointed as “Réviseur d’Entreprises Agréé” of the Company
by the General Meeting of the Shareholders on 3 May 2017 and the
duration of our uninterrupted engagement, including previous renewals and
reappointments, is 16 years.

The information required by the Article 68bis Paragraph (2) of the Law of 19
December 2002 on the commercial and companies register and on the accounting
records and annual accounts of undertakings, as amended, is expected to be
made publicly available after the date of our audit report. If this information is
not made publicly available within a reasonable period of time, not exceeding six
months after the balance sheet date, we are required to communicate the matter
to those charged with governance.

Luxembourg, 27 March 2018

PricewaterhouseCoopers, Société coopérative

Represented by

/s/ Fabrice Goffin

Fabrice Goffin

Annual Report220.

Balance Sheet
as at December 31, 2017

Expressed in United States Dollars

ASSETS

C. FIXED ASSETS

III. Financial assets

1. Shares in affiliated undertakings

D. CURRENT ASSETS

II. Debtors

2. Amounts owed by affiliated undertakings

a) becoming due and payable within one year

4. Other debtors

a) becoming due and payable within one year

IV. Cash at bank and in hand

Total assets

CAPITAL, RESERVES AND LIABILITIES

A. CAPITAL AND RESERVES

I. Subscribed capital

II. Share premium account

IV. Reserves

1. Legal reserve

V. Profit brought forward

VI. Loss for the financial year

VII. Interim dividend

C. CREDITORS

6. Amounts owed to affiliated undertakings

a) becoming due and payable within one year

b) becoming due and payable after more than one year

8. Other creditors

c) Other creditors

i) becoming due and payable within one year

Total capital, reserves and liabilities

The accompanying notes are an integral part of these annual accounts.

Note(s)

2017

2016

18,901,294,713

19,416,584,381

18,901,294,713

19,416,584,381

–

1,431

50,317

2,604,919

2,655,236

186,161

4,459,865

4,647,457

18,903,949,949

19,421,231,838

1,180,536,830

609,732,757

4,5

118,053,683

17,162,462,624

17,670,043,441

(52,231,813)

(23,560,717)

4,7

(153,469,788)

18,865,084,293

19,401,336,206

12,994,846

13,055,356

4,386,749

9,427,992

12,815,454

6,080,891

38,865,656

19,895,632

18,903,949,949

19,421,231,838

Tenaris

Profit and loss account
for the year ended December 31, 2017

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. Interest payable and similar expenses

a) concerning affiliated undertakings

b) other interest and similar expenses

16. Loss after taxation

17. Other taxes not shown under items 1 to 16

18. Loss for the period

The accompanying notes are an integral part of these annual accounts.

Note

2017

2016

221.

(50,919,271)

(22,604,137)

1,584

200,596

251,660

–

(1,294,907)

(1,123,858)

(212,265)

(77,552)

(52,224,263)

(23,553,887)

(7,550)

(6,830)

(52,231,813)

(23,560,717)

Annual Report

222.

Notes to the audited annual accounts
as at December 31, 2017

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 (société 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
consolidated financial statements are available at
the registered office of the Company, 29, Avenue de
la Porte-Neuve –L-2227– 3rd Floor, Luxembourg.

2. Summary of significant accounting policies

2.1. 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.

2.2. 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.

2.3. 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.

Tenaris3. Financial assets

223.

Shares in affiliated undertakings
Tenaris holds 100% of the shares of Tenaris
Investments S.à r.l. (“Tenaris Investments”) with
registered office in Luxembourg and holds,
indirectly through this wholly-owned subsidiary,
100% of the shares of Confab Industrial S.A.,
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.,
Algoma Tubes Inc., Siderca International ApS,
Socobras Participações Ltda., S.C. Silcotub S.A.
and Tenaris Connections BV, 50% of the shares of
Exiros B.V and 11.5% of the shares of Ternium S.A.

Movements during the financial year are as follows:

22,355,875,725

(515,289,668)

21,840,586,057

(2,939,291,344)

–

(2,939,291,344)

18,901,294,713

19,416,584,381

2.4. 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.

2.5. Cash at bank and in hand
Cash at bank and 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.

Expressed in United States Dollars

Gross book value - opening balance

Decreases for the financial year (a)

Gross book value - closing balance

Accumulated value adjustments - opening balance

Allocations for the financial year

Accumulated value adjustments - closing balance

Net book value - closing balance

Net book value - opening balance

(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, 2017, in connection with cancellations of loans to Tenaris, the value of the
participation of Tenaris in Tenaris Investments decreased by USD 515.3 million.

Annual Report224.

As of December 31, 2017 Tenaris Investments
reported an equity of USD 20.2 billion and a profit
for the financial year of USD 0.5 billion.

4. Capital and reserves

Expressed in United States Dollars

Item

Subscribed
capital

Share
premium

Legal
reserve

Retained
earnings

Interim
dividend

Capital and
reserves

Balance at the beginning of the financial year

1,180,536,830

609,732,757

118,053,683

17,646,482,724

(153,469,788)

19,401,336,206

Loss for the financial year

Dividend paid (1)

Interim Dividend (2)

–

(52,231,813)

–

(52,231,813)

(484,020,100)

153,469,788

(330,550,312)

–

(153,469,788)

Balance at the end of the financial year

1,180,536,830

609,732,757

118,053,683

17,110,230,811

(153,469,788)

18,865,084,293

(1) As approved by the ordinary shareholders’ meeting held on May 3, 2017.

(2) As approved by the board of directors’ meeting held on November 1, 2017.

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, 2017 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.

Tenaris

5. Legal reserve

6. Distributable amounts

225.

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 must be allocated again toward
the reserve. The legal reserve is not available for
distribution to the shareholders.

Dividends may be paid by Tenaris upon the
ordinary shareholders’ meeting approval to the
extent distributable retained earnings exist.

At December 31, 2017, profit brought forward after
deduction of the loss and the interim dividend for
the financial year of Tenaris under Luxembourg law
totaled approximately USD 17.0 billion.

The share premium amounting to USD 0.6 billion
can also be reimbursed.

7. Interim dividend paid

In November 2017, the Company paid an interim
dividend of USD 153.5 million based on the
board of directors’ decision of November 1,
2017 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.

Annual Report226.

8. Balances with affiliated undertakings

Expressed in United States Dollars

CREDITORS BECOMING DUE AND PAYABLE

Siderca Sociedad Anónima Industrial y Comercial

Tenaris Investments S.à r.l.

Tenaris Solutions Uruguay S.A.

Maverick Tube Corporation

Tubos de Acero de México, S.A.

Dalmine S.p.A.

Confab Industrial S.A.

Others

Total

9. Other operating charges

Expressed in United States Dollars

Services and fees (*) (**)

Board of director’s accrued fees

Others

Within a year

After more than
one year and
within five years

After more than
five years

Total at
December 31,
2017

Total at
December 31,
2016

1,659,010

7,505,239

835,711

1,825,058

425,576

734,576

–

9,676

5,106,112

3,358,968

10,124,090

8,978,877

–

157,511

–

2,786,621

1,364,796

281,348

–

7,505,239

3,622,332

3,189,854

864,435

734,576

–

9,676

–

578,397

1,738,543

552,157

1,284,868

680,580

1,319

12,994,846

5,263,623

7,791,733

26,050,202

13,814,741

2017

2016

48,795,557

20,921,590

1,295,833

827,881

968,333

714,214

50,919,271

22,604,137

(*) Includes compensations of senior management (USD 36.9 million in 2017 versus USD 19.2 million in 2016), and other

services and fees (USD 11.9 million in 2017 versus USD 1.7 million in 2016).

(**) In addition to the audit fees, during the financial year the Company received from the statutory auditor audit-related

services for a total amount of USD 20 thousand. No tax-related fees or other fees for services rendered by the statutory
auditor were accrued during the financial year.

Total fees accrued for professional services rendered by PwC Network firms to Tenaris S.A. and its subsidiaries are

disclosed in note 32 to the Company’s consolidated financial statements.

Tenaris

10. Taxes

12. Off balance sheet commitments

227.

For the financial year ended December 31, 2017
the Company did not realize any profits subject to
tax in Luxembourg. The Company is liable to the
minimum Net Wealth Tax.

11. Parent Company

Tenaris’s controlling shareholders as of December 31,
2017 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 0.08% of the
Company’s outstanding shares.

The Company issued a guarantee covering the
22% of the obligation of Techgen S.A. de C.V.
(“Techgen”), a Mexican natural gas-fired combined
cycle electric power plant in the Pesquería area
of the State of Nuevo Leon, Mexico, under a
syndicated loan agreement between Techgen and
several banks. As of December 31, 2017 the amount
guaranteed was approximately USD 158.4 million.

The Company issued a guarantee to cover Tenaris
Tubocaribe Ltda. obligations under a loan
agreement for an amount of USD 150.0 million.

13. Subsequent event

Annual Dividend Proposal
On February 21, 2018 the Company’s board
of directors proposed, for the approval of the
annual general shareholders' meeting to be
held on May 2, 2018, 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 2017. 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 330.6 million will be
paid on May 23, 2018, with an ex-dividend date
of May 21, 2018. These annual accounts do not
reflect this dividend payable.

/s/ Edgardo Carlos

Chief Financial Officer
Edgardo Carlos

Annual ReportExhibit I – Alternative
Performance Measures

228.

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

Operating income (loss)

Depreciation and amortization

Depreciation and amortization from discontinued operations

Impairment

EBITDA

2017

2016

2015

335

609

–

943

(59)

662

(5)

–

598

166

659

(5)

400

1,219

TenarisNet 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

Millions of U.S. dollars

AT DECEMBER 31

Cash and cash equivalents

Other current investments

Non-current fixed income investments held to maturity

Borrowings -current and non current-

Net cash position

company’s leverage, financial strength, flexibility
and risks. Net cash/(debt) position is calculated in
the following manner:

229.

Net cash/(debt) = Cash and cash equivalents +
Other investments (Current) + Fixed income
investments held to maturity – Borrowings
(Current and Non-current).

2017

2016

2015

330

1,192

123

(966)

680

400

1,633

248

(840)

1,441

287

2,141

393

(972)

1,849

Annual Report230.

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

FOR THE YEAR ENDED DECEMBER 31

Net cash (used in) provided by operating activities

Capital expenditures

Free cash flow

2017

2016

2015

(22)

(558)

(580)

864

(787)

2,215

(1,132)

1,083

TenarisInvestor information

Investor Relations Director
Giovanni Sardagna

General inquiries
investors@tenaris.com

231.

ADS depositary bank
Deutsche Bank
CUSIP No. 88031M019

Internet
www.tenaris.com

Luxembourg Office
29 avenue de la Porte-Neuve
3rd Floor
L-2227 Luxembourg
(352) 26 47 89 78 tel
(352) 26 47 89 79 fax

Phones
USA 1 888 300 5432
Argentina (54) 11 4018 2928
Italy (39) 02 4384 7654
Mexico (52) 55 5282 9929

Stock information
New York Stock Exchange (TS)
Mercato Telematico Azionario (TEN)
Mercado de Valores de Buenos Aires (TS)
Bolsa Mexicana de Valores, S.A.B. de C.V. (TS)

Annual Reportwww.tenaris.com