TS

Tenaris S.A. Form 6-K Summary: Q1 2015 Restated Results

Business Context and Reporting Period

This filing presents the Restated Consolidated Condensed Interim Financial Statements for Tenaris S.A. for the three-month period ended March 31, 2015. The filing was submitted on June 1, 2015. Tenaris is a global leader in the steel pipe manufacturing and distribution business, with operations spanning North America, South America, Europe, the Middle East, Africa, and the Far East. The financial statements have been restated to correct an error regarding the carrying value of the Company's investment in Usiminas, following discussions with the SEC Staff.

Key Financial Metrics

Note: Borrowings calculated as sum of Current Borrowings ($1,154,642) and Non-current Borrowings ($27,494) for Q1 2015.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by approximately 12.6% to $2.25 billion, driven by lower volumes and pricing in key markets.
• Profitability Compression: Operating income fell 33% to $379 million. Gross margin declined from 40.8% in Q1 2014 to 36.1% in Q1 2015.
• Restatement Impact: The restatement increased Q1 2015 Net Income by $32.9 million and EPS by $0.03 (from $0.19 to $0.22) due to the reversal of a previously recorded impairment on the Usiminas investment. Without the restatement, the reported loss in equity earnings would have been significantly higher.
• Cash Flow Strength: Despite lower earnings, operating cash flow increased 43% to $878 million, primarily due to a $516 million improvement in working capital changes.
• Financial Results: Net financial results shifted from a gain of $42.5 million in Q1 2014 to a loss of $1.4 million in Q1 2015, largely due to negative foreign exchange impacts from the devaluation of the Brazilian Real against USD-denominated borrowings.

Guidance, Outlook, Risks, and Unusual Items

• Restatement Details: The filing addresses a correction of an error regarding the Usiminas investment. The Company recorded a $161.2 million impairment as of September 30, 2014, aligning the carrying value with the market price paid by affiliate Ternium. This adjustment reduced non-current assets by $104.0 million as of March 31, 2015.
• Dividends: The Annual General Shareholders' meeting approved an annual dividend of $0.45 per share ($0.90 per ADS), totaling approximately $531.2 million. A payment of $0.30 per share was made on May 20, 2015.
• Capital Expenditures: Capex increased to $261 million, primarily driven by the construction of a new seamless facility in Bay City, Texas.
• Legal Contingencies:
  • Italy Tax Assessment: Two tax assessments regarding withholding taxes on dividends (2007 and 2008) totaling approximately $276 million are under appeal. Management believes a material obligation is not probable.
  • CSN Claims (Brazil): Lawsuits regarding the 2012 Usiminas acquisition were dismissed in first instance; an antitrust claim by CSN was rejected by CADE in May 2015. No provision has been recorded.
• Investment Valuation: The carrying value of the Usiminas investment is $93.3 million, while its market value is approximately $167.5 million. The carrying value of the Ternium investment is $518.4 million versus a market value of $415.1 million.

Investor Verification Checklist

• Restatement Validity: Verify the SEC Staff's acceptance of the new impairment methodology for the Usiminas investment and the impact on future earnings.
• Working Capital Reversal: Assess the sustainability of the $516 million improvement in working capital, which significantly boosted operating cash flow despite lower sales.
• Currency Exposure: Monitor the impact of Brazilian Real and Argentine Peso devaluations on future financial results and debt servicing costs.
• Legal Outcomes: Track the resolution of the Italian tax court appeals and any potential financial exposure from the CSN litigation.
• Capex Execution: Review progress and cost overruns related to the Bay City, Texas seamless facility expansion.