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Tenaris S.A. Form 6-K Summary

Business Context and Reporting Period

This Form 6-K, filed on February 28, 2005, furnishes Tenaris S.A.'s consolidated financial statements for the years ended December 31, 2004, 2003, and 2002. Tenaris is a Luxembourg-based holding company engaged in the manufacture and distribution of steel pipes, primarily seamless and welded products, with operations across South America, Europe, North America, the Middle East, Africa, and the Far East.

Key Financial Metrics (Year Ended Dec 31, 2004)

Margins: Gross margin improved to 32.9% in 2004 from 30.6% in 2003. Operating margin expanded significantly to 19.7% from 9.1%.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 30% year-over-year, driven by higher volumes and improved pricing in the seamless pipe segment, which generated $3.27 billion in sales.
• Profitability Surge: Net income more than tripled to $784.7 million. This was significantly aided by a $123 million gain from a Fintecna arbitration award and a $83.1 million gain from the conversion of convertible debt instruments in an associated company (Amazonia).
• Working Capital: Operating cash flow decreased to $98.3 million from $275.6 million, primarily due to a $621.2 million increase in working capital requirements (inventory and receivables) to support higher sales volumes.
• Debt Levels: Total borrowings increased by $425.7 million to $1.26 billion, reflecting increased financing for capital expenditures and acquisitions.

Outlook, Risks, and Unusual Items

• Unusual Items:
  • Fintecna Arbitration: A $126 million award (net of expenses) was received from Fintecna regarding indemnification for a BHP pipeline settlement.
  • Amazonia Conversion: A $83.1 million gain was recorded upon converting debt instruments into equity in Consorcio Siderurgia Amazonia Ltd., increasing Tenaris's stake to 21.2%.
  • Impairment: A $11.7 million impairment was recorded on an electric power generating facility in Argentina due to technical problems.
• Contingencies and Risks:
  • BHP Litigation: A settlement with BHP Billiton requires payments totaling $207.2 million (GBP 108 million) over three years. Tenaris is pursuing indemnification from Fintecna for these costs.
  • Asbestos Claims: Dalmine faces civil and criminal proceedings regarding asbestos exposure; estimated potential liability for unsettled claims is approximately $12.8 million.
  • Tax Claims: Argentine tax authorities have assessed Siderca regarding tax-loss carry-forwards and inflation adjustments. Provisions totaling $27.5 million have been recorded for the inflation adjustment claim.
• Commitments: Significant off-balance sheet commitments include take-or-pay contracts for natural gas (Dalmine) and hot briquetted iron (Comsigua), with outstanding values totaling over $1.1 billion.
• Accounting Changes: Effective January 1, 2005, Tenaris will adopt new IFRS standards (IFRS 3), which will stop goodwill amortization and reclassify minority interest as equity.

Investor Verification Checklist

• Verify the sustainability of the $206 million in non-recurring gains (Fintecna award and Amazonia conversion) when assessing core operating profitability.
• Monitor the $621 million working capital outflow to ensure it aligns with inventory turnover and receivables collection trends.
• Review the status of the BHP settlement payments and the enforceability of the Fintecna indemnification award.
• Assess the impact of the new IFRS 3 standard on future earnings per share due to the cessation of goodwill amortization.
• Confirm compliance with financial covenants on the $1.26 billion debt load, particularly regarding working capital and debt service ratios.