Tenaris S.A. Form 6-K Summary: Restated Financials for Nine Months Ended September 30, 2014
Business Context and Reporting Period
This filing presents the Restated Consolidated Condensed Interim Financial Statements for Tenaris S.A. for the nine-month period ended September 30, 2014. The filing was submitted on June 1, 2015. The financial statements have been restated to correct an error regarding the carrying value of the Company's investment in Usiminas (Usinas Siderúrgicas de Minas Gerais S.A.) following discussions with the SEC Staff. The restatement reduced the carrying value of the Usiminas investment to align with a transaction price of BRL12 per share paid by affiliate Ternium S.A. in October 2014.
Key Financial Metrics (Nine Months Ended Sept 30, 2014)
| Metric | 2014 (Restated) | 2013 (Unaudited) |
|---|---|---|
| Net Sales | $7,661,457 | $7,922,636 |
| Gross Profit | $3,033,369 | $3,055,055 |
| Operating Income | $1,548,657 | $1,595,461 |
| Net Income (Total) | $934,934 | $1,166,570 |
| Net Income (Parent Owners) | $911,599 | $1,142,764 |
| Diluted EPS (Parent) | $0.77 | $0.97 |
| Operating Cash Flow | $1,837,776 | $1,913,413 |
| Cash and Cash Equivalents | $584,270 | $614,529 |
| Total Borrowings (Current + Non-Current) | $1,127,192 | $684,717 (Current) + $246,218 (Non-Current) |
Note: All amounts in thousands of U.S. dollars unless otherwise stated.
Material Changes and Restatement Impact
- Restatement Adjustment: The Company recorded an impairment of $161.2 million related to its direct participation in Usiminas and an additional $75.2 million adjustment through Ternium's participation. This resulted in a total reduction of $236.4 million to non-current assets and accumulated income.
- Earnings Impact: The restatement reduced the nine-month Net Income attributable to owners of the parent from $1,148.0 million (as previously reported) to $911.6 million. Consequently, Basic and Diluted EPS decreased from $0.97 to $0.77.
- Revenue Decline: Net sales decreased by approximately 3.3% year-over-year, primarily driven by lower volumes in the Tubes segment.
- Equity in Earnings: The "Equity in earnings of non-consolidated companies" line item swung from a positive $33.95 million in 2013 to a negative $193.22 million in 2014 due to the Usiminas impairment.
- Financial Results: Net financial results improved significantly to a net gain of $39.4 million in 2014 compared to a net expense of $36.8 million in 2013, largely due to positive foreign exchange results from the Argentine peso devaluation.
Outlook, Risks, and Contingencies
- Legal Proceedings:
- Italy Tax Assessment: A tax assessment regarding omitted withholding tax on 2008 dividends remains outstanding at approximately EUR248 million ($312 million). Tenaris believes a material obligation is not probable based on a favorable 2014 court decision regarding a similar 2007 assessment.
- CSN Lawsuit (Brazil): A lawsuit by Companhia Siderúrgica Nacional (CSN) regarding a tag-along tender offer for Usiminas shares was dismissed in the first instance. CSN filed appeals and separate claims with regulators (CVM and CADE). CADE rejected CSN's claim in May 2015. Tenaris believes the claims are groundless.
- Commitments: Significant commitments include a contract to purchase hot-rolled steel coils from Nucor (approx. $339 million through 2015) and capital commitments for the Bay City, Texas seamless pipe mill expansion (approx. $490 million).
- Dividends: The Company paid an annual dividend of $0.43 per share in 2014. A subsequent interim dividend of $0.15 per share was approved in November 2014, and an annual dividend of $0.45 per share was approved in May 2015.
- Investment Valuation: The restated carrying value of the Usiminas investment is $122.4 million, while its market value based on share price was approximately $67.7 million as of September 30, 2014.
Investor Verification Checklist
- Usiminas Impairment: Verify the assumptions used in the "value in use" calculation for the Usiminas investment, specifically the discount rate (10.4%) and growth rates, given the significant write-down.
- Argentina Exposure: Assess the impact of the Argentine peso devaluation on future financial results and the sustainability of the positive foreign exchange gains recorded in 2014.
- Legal Reserves: Monitor the status of the Italian tax assessment and the CSN lawsuit in Brazil to determine if additional provisions will be required.
- Cash Flow vs. Earnings: Note the divergence between operating cash flow ($1.84B) and net income ($0.93B), driven largely by the non-cash impairment charge.
- Capital Expenditures: Review progress on the Bay City, Texas facility, which accounts for a significant portion of the $714 million in capital expenditures for the period.