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Tenaris S.A. Form 6-K Summary

Business Context and Reporting Period

Tenaris S.A., a global steel pipe manufacturer, filed this Form 6-K on November 3, 2016, furnishing its Consolidated Condensed Interim Financial Statements for the nine-month period ended September 30, 2016. The company operates primarily in the tubes and other segments, with significant exposure to the oil and gas industry. The financial statements are prepared in accordance with IFRS.

Key Financial Metrics (Nine Months Ended Sept 30, 2016)

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

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by approximately 40% year-over-year, dropping from $5.68 billion to $3.43 billion, driven by lower volumes and prices in the oil and gas sector.
• Profitability Shift: The company moved from a net loss of $29.4 million in the prior year to a net profit of $34.3 million. This turnaround was primarily due to the absence of a $400.3 million impairment charge recorded in Q3 2015 related to U.S. welded pipe assets.
• Operating Performance: Operating income turned negative at $(11.5) million compared to $171.0 million in 2015. However, under the "Management View" (excluding certain IFRS adjustments), operating income was positive at $76.7 million.
• Cost Reductions: Labor costs included $32.2 million in severance indemnities in 2016, down significantly from $85.6 million in 2015. SG&A expenses also decreased by roughly 25%.
• Balance Sheet: Total borrowings decreased by approximately $225 million. Cash and cash equivalents increased by roughly $182 million.

Guidance, Outlook, Risks, and Unusual Items

• Dividends: The Board approved an interim dividend of $0.13 per share ($0.26 per ADS), totaling approximately $153 million, payable November 23, 2016. This follows the full payment of the 2015 annual dividend ($0.45/share) in May 2016.
• Investment Activity: Capital expenditures were $629 million, primarily driven by the construction of a greenfield seamless facility in Bay City, Texas. The company has committed to an additional $238 million for this expansion.
• Legal Contingencies:
  • Venezuela Arbitration: Tenaris received a favorable ICSID award of $172.8 million regarding the nationalization of its subsidiary Matesi. Venezuela has requested annulment of the award; payment is pending.
  • Corporate Investigation: Italian and Swiss authorities are investigating potential payments related to affiliates and Petrobras. Tenaris has voluntarily notified the SEC and DOJ and is cooperating.
  • Italian Tax Assessment: A dispute regarding withholding tax on dividends (2007 and 2008 assessments) remains pending with the Italian Supreme Court. Management believes a material obligation is not probable.
  • CSN Claims: Litigation regarding the 2012 acquisition of Usiminas shares is ongoing, though Tenaris believes the claims are groundless.
• Impairment Sensitivity: While no impairment was recorded in 2016, management notes that a 100 basis point increase in the discount rate for the OCTG-USA Cash Generating Unit could trigger a $98 million impairment charge.

Key Facts for Investor Verification

• Revenue Volatility: Verify the correlation between global oil prices, rig counts, and Tenaris's sales volume, given the 40% revenue drop.
• Impairment Risk: Monitor the "Management View" vs. IFRS operating income reconciliation and the sensitivity of U.S. assets to discount rate changes.
• Legal Exposure: Track the status of the Venezuela arbitration award enforcement and the outcome of the Italian tax court appeals.
• Cash Flow Sustainability: Assess the ability to maintain dividend payments ($0.45/share annually) while funding the Bay City, Texas expansion ($1.2 billion invested to date) amidst lower operating cash flows.
• Related Party Transactions: Review the significant transactions with Ternium and Usiminas, which are major suppliers and non-consolidated affiliates.