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Tenaris S.A. 2006 Annual Financial Summary

Business Context and Reporting Period

This Form 6-K filing, dated March 2, 2007, presents the Consolidated Financial Statements for Tenaris S.A. for the fiscal years ended December 31, 2006, 2005, and 2004. Tenaris is a global manufacturer and distributor of steel pipes and tubular products, primarily for energy and industrial applications. The company operates through three main segments: Tubes, Projects, and Other. The 2006 reporting period was significantly impacted by the acquisition of Maverick Tube Corporation in October 2006 and the sale of a 75% interest in Dalmine Energie in December 2006.

Key Financial Metrics (Year Ended Dec 31, 2006)

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 24.4% to $7.73 billion, driven primarily by the acquisition of Maverick Tube Corporation and strong market demand.
• Profitability: Operating income rose 43.5% to $2.79 billion. Net income attributable to equity holders increased 52.2% to $1.95 billion.
• Balance Sheet Expansion: Total assets nearly doubled to $12.6 billion, largely due to the $3.16 billion acquisition of Maverick, which added significant property, plant, equipment, and goodwill ($1.11 billion).
• Debt Levels: Total borrowings increased to $3.65 billion from $1.01 billion to finance the Maverick acquisition. The company secured $2.7 billion in syndicated loans specifically for this transaction.
• Segment Restructuring: The company adopted IFRS 8, redefining operating segments from four to three (Tubes, Projects, Other) effective September 30, 2006.

Outlook, Risks, and Unusual Items

• Subsequent Event (Hydril Acquisition): On February 12, 2007, Tenaris announced a definitive agreement to acquire Hydril Company for $97 per share (approx. $1.2 billion total value), expected to close in Q2 2007.
• Discontinued Operations: The sale of 75% of Dalmine Energie resulted in a $40.0 million gain. The remaining 25% interest is now accounted for as an associated company.
• Legal Contingencies:
  • Maverick Litigation: Noteholders of Maverick's 2004 Convertible Senior Subordinated Notes filed a lawsuit alleging a "Change of Control" triggered by the acquisition. Tenaris estimates potential recovery at $50 million if plaintiffs prevail but believes claims are without merit.
  • European Commission Fine: A fine of Euro 10.1 million ($13.3 million) was confirmed for Dalmine regarding competition law violations. The former owner is responsible for 84.1% of the fine; Tenaris will pay the remaining 15.9% from existing provisions.
  • Asbestos Litigation: Dalmine faces 32 pending asbestos-related claims. Estimated potential liability is approximately $16.6 million.
• Dividends: The company paid $204.2 million in dividends to shareholders in 2006 ($0.173 per share).

Investor Verification Checklist

• Debt Covenants: Verify compliance with financial ratios (leverage and interest coverage) given the significant increase in debt load post-Maverick acquisition.
• Hydril Acquisition Financing: Confirm the final terms and funding sources for the pending Hydril acquisition announced in February 2007.
• Legal Exposure: Monitor the status of the Maverick convertible note litigation and the final resolution of the European Commission fine.
• Goodwill Impairment: Assess the $1.11 billion goodwill recorded from the Maverick acquisition for potential future impairment risks.
• Working Capital: Review the $469.5 million cash outflow from changes in working capital in 2006 to ensure sustainable liquidity management.