FORM 6 - K



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934



As of February 24, 2016

TENARIS, S.A.
(Translation of Registrant's name into English)

TENARIS, S.A.
29, Avenue de la Porte-Neuve 3rd floor
L-2227 Luxembourg
(Address of principal executive offices)


Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or 40-F.

Form 20-F  Ö   Form 40-F

 
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12G3-2(b) under the Securities Exchange Act of 1934.

Yes         No  Ö


If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-
 
 


 
The attached material is being furnished to the Securities and Exchange Commission pursuant to Rule 13a-16 and Form 6-K under the Securities Exchange Act of 1934, as amended. This report contains Tenaris S.A Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013.

SIGNATURE




Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Date: February 24, 2016.



Tenaris, S.A.




By: /s/ Cecilia Bilesio
Cecilia Bilesio
Corporate Secretary





Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013








TENARIS S.A.







CONSOLIDATED
FINANCIAL STATEMENTS




For the years ended December 31, 2015, 2014 and 2013













29, Avenue de la Porte-Neuve – 3rd Floor.
L – 2227 Luxembourg
R.C.S. Luxembourg: B 85 203
 
 

 
Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013

(all amounts in thousands of U.S. dollars, unless otherwise stated)
 
Year ended December 31,
 
Notes
2015
2014
2013
Continuing operations
   
 
 
Net sales
1
7,100,753
10,337,962
10,596,781
Cost of sales
2
 (4,885,078)
 (6,287,460)
 (6,456,786)
Gross profit
 
2,215,675
4,050,502
4,139,995
Selling, general and administrative expenses
3
 (1,624,275)
 (1,963,952)
 (1,941,213)
Other operating income
5
14,603
27,855
14,305
Other operating expenses
5
 (410,575)
 (215,589)
 (28,257)
Operating income
 
195,428
1,898,816
2,184,830
Finance Income
6
34,574
38,211
34,767
Finance Cost
6
 (23,058)
 (44,388)
 (70,450)
Other financial results
6
2,694
39,214
7,004
Income before equity in earnings of non-consolidated companies and income tax
 
209,638
1,931,853
2,156,151
Equity in earnings (losses) of non-consolidated companies
7
 (39,558)
 (164,616)
46,098
Income before income tax
 
170,080
1,767,237
2,202,249
Income tax
8
 (244,505)
 (586,061)
 (627,877)
(Loss) Income for the year
 
 (74,425)
1,181,176
1,574,372
Attributable to:
 
 
   
Owners of the parent
 
 (80,162)
1,158,517
1,551,394
Non-controlling interests
 
5,737
22,659
22,978
   
 (74,425)
1,181,176
1,574,372
Earnings per share attributable to the owners of the parent during the period:
 
 
   
Weighted average number of ordinary shares (thousands)
 
1,180,537
1,180,537
1,180,537
Continuing operations
       
Basic and diluted (loss) earnings per share (U.S. dollars per share)
 
(0.07)
0.98
1.31
Basic and diluted (loss) earnings per ADS (U.S. dollars per ADS) (*)
 
(0.14)
1.96
2.63

 (*) Each ADS equals two shares.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(all amounts in thousands of U.S. dollars)
Year ended December 31,
 
2015
2014
2013
   
 
 
(Loss) Income for the year
(74,425)
1,181,176
1,574,372
       
Items that will not be reclassified to profit or loss:
     
Remeasurements of post employment benefit obligations
14,181
1,850
18,314
Income tax on items that will not be reclassified
(4,242)
(513)
(4,865)
 
9,939
1,337
13,449
Items that may be subsequently reclassified to profit or loss:
 
   
Currency translation adjustment
(256,260)
(197,711)
(1,941)
Change in value of cash flow hedges and available for sale financial instruments
13,185
(10,483)
2,941
Share of other comprehensive income of non-consolidated companies:
 
   
 - Currency translation adjustment
(92,914)
(54,688)
(87,666)
 - Changes in the fair value of derivatives held as cash flow hedges and others
(4,239)
(3,857)
2,682
Income tax related to cash flow hedges and available for sale financial instruments
(284)
400
478
 
(340,512)
(266,339)
(83,506)
Other comprehensive (loss) for the year, net of tax
(330,573)
(265,002)
(70,057)
Total comprehensive (loss) income for the year
(404,998)
916,174
1,504,315
Attributable to:
 
   
Owners of the parent
(410,187)
894,929
1,480,572
Non-controlling interests
5,189
21,245
23,743
 
(404,998)
916,174
1,504,315

The accompanying notes are an integral part of these Consolidated Financial Statements.

1

Tenaris S.A. Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(all amounts in thousands of U.S. dollars)
 
At December 31, 2015
 
At December 31, 2014
 
Notes
     
 
ASSETS
 
 
 
     
Non-current assets
 
 
 
     
  Property, plant and equipment, net
10
5,672,258
 
 
5,159,557
 
  Intangible assets, net
11
2,143,452
 
 
2,757,630
 
  Investments in non-consolidated companies
12
490,645
 
 
643,630
 
  Available for sale assets
30
21,572
 
 
21,572
 
  Other investments
18
394,746
 
 
1,539
 
  Deferred tax assets
20
200,706
 
 
268,252
 
  Receivables
13
220,564
9,143,943
 
262,176
9,114,356
Current assets
 
 
 
 
 
 
  Inventories
14
1,843,467
 
 
2,779,869
 
  Receivables and prepayments
15
148,846
 
 
267,631
 
  Current tax assets
16
188,180
 
 
129,404
 
  Trade receivables
17
1,135,129
 
 
1,963,394
 
  Other investments
18
2,140,862
 
 
1,838,379
 
  Cash and cash equivalents
18
286,547
5,743,031
 
417,645
7,396,322
Total assets
 
 
14,886,974
 
 
16,510,678
EQUITY
 
 
 
 
 
 
Capital and reserves attributable to owners of the parent
 
 
11,713,344
 
 
12,654,114
Non-controlling interests
 
 
152,712
 
 
152,200
Total equity
 
 
11,866,056
 
 
12,806,314
LIABILITIES
 
 
 
 
 
 
Non-current liabilities
 
 
 
 
 
 
  Borrowings
19
223,221
 
 
30,833
 
  Deferred tax liabilities
20
750,325
 
 
714,123
 
  Other liabilities
21 (i)
231,176
 
 
285,865
 
  Provisions
22 (ii)
61,421
1,266,143
 
70,714
1,101,535
Current liabilities
 
 
 
 
 
 
  Borrowings
19
748,295
 
 
968,407
 
  Current tax liabilities
16
136,018
 
 
352,353
 
  Other liabilities
21 (ii)
222,842
 
 
296,277
 
  Provisions
23 (ii)
8,995
 
 
20,380
 
  Customer advances
 
134,780
 
 
133,609
 
  Trade payables
 
503,845
1,754,775
 
831,803
2,602,829
Total liabilities
 
 
3,020,918
 
 
3,704,364
Total equity and liabilities
 
 
14,886,974
 
 
16,510,678
 


Contingencies, commitments and restrictions on the distribution of profits are disclosed in Note 25.

The accompanying notes are an integral part of these Consolidated Financial Statements.
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(all amounts in thousands of U.S. dollars)

   
Attributable to owners of the parent
   
   
 
   
Share Capital (1)
   
Legal Reserves
   
Share Premium
   
Currency Translation Adjustment
   
Other Reserves (2)
   
Retained Earnings (3)
   
Total
   
Non-controlling interests
   
Total
 
Balance at December 31, 2014
   
1,180,537
     
118,054
     
609,733
     
(658,284
)
   
(317,799
)
   
11,721,873
     
12,654,114
     
152,200
     
12,806,314
 
                                                                         
(Loss) income for the year
   
-
     
-
     
-
     
-
     
-
     
(80,162
)
   
(80,162
)
   
5,737
     
(74,425
)
Currency translation adjustment
   
-
     
-
     
-
     
(255,569
)
   
-
     
-
     
(255,569
)
   
(691
)
   
(256,260
)
Remeasurements of post employment benefit obligations, net of taxes
   
-
     
-
     
-
     
-
     
10,213
     
-
     
10,213
     
(274
)
   
9,939
 
Change in value of available for sale financial instruments and cash flow hedges net of tax
   
-
     
-
     
-
     
-
     
12,484
     
-
     
12,484
     
417
     
12,901
 
Share of other comprehensive income of non-consolidated companies
   
-
     
-
     
-
     
(92,914
)
   
(4,239
)
   
-
     
(97,153
)
   
-
     
(97,153
)
Other comprehensive (loss) income for the year
   
-
     
-
     
-
     
(348,483
)
   
18,458
     
-
     
(330,025
)
   
(548
)
   
(330,573
)
Total comprehensive (loss) income for the year
   
-
     
-
     
-
     
(348,483
)
   
18,458
     
(80,162
)
   
(410,187
)
   
5,189
     
(404,998
)
Acquisition of non-controlling interests
   
-
     
-
     
-
     
-
     
659
     
-
     
659
     
(1,727
)
   
(1,068
)
Dividends paid in cash
   
-
     
-
     
-
     
-
     
-
     
(531,242
)
   
(531,242
)
   
(2,950
)
   
(534,192
)
Balance at December 31, 2015
   
1,180,537
     
118,054
     
609,733
     
(1,006,767
)
   
(298,682
)
   
11,110,469
     
11,713,344
     
152,712
     
11,866,056
 

(1) The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share. As of December 31, 2015 there were 1,180,536,830 shares issued. All issued shares are fully paid.

(2) Other reserves include mainly the result of transactions with non-controlling interest that do not result in a loss of control, the remeasurement of post-employment benefit obligations and the changes in value of cash flow hedges and in available for sale financial instruments.

(3) The Distributable Reserve and Retained Earnings calculated according to Luxembourg Law are disclosed in Note 25.


The accompanying notes are an integral part of these Consolidated Financial Statements.

 
 
2

 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Cont.)
·
 (all amounts in thousands of U.S. dollars)
 
Attributable to owners of the parent
   
   
 
   
Share Capital (1)
   
Legal Reserves
   
Share Premium
   
Currency Translation Adjustment
   
Other Reserves (2)
   
Retained Earnings
   
Total
   
Non-controlling interests
   
Total
 
Balance at December 31, 2013
   
1,180,537
     
118,054
     
609,733
     
(406,744
)
   
(305,758
)
   
11,094,598
     
12,290,420
     
179,446
     
12,469,866
 
                                                                         
Income for the year
   
-
     
-
     
-
     
-
     
-
     
1,158,517
     
1,158,517
     
22,659
     
1,181,176
 
Currency translation adjustment
   
-
     
-
     
-
     
(196,852
)
   
-
     
-
     
(196,852
)
   
(859
)
   
(197,711
)
Remeasurements of post employment benefit obligations, net of taxes
   
-
     
-
     
-
     
-
     
1,503
     
-
     
1,503
     
(166
)
   
1,337
 
Change in value of available for sale financial instruments and cash flow hedges net of tax
   
-
     
-
     
-
     
-
     
(9,694
)
   
-
     
(9,694
)
   
(389
)
   
(10,083
)
Share of other comprehensive income of non-consolidated companies
   
-
     
-
     
-
     
(54,688
)
   
(3,857
)
   
-
     
(58,545
)
   
-
     
(58,545
)
Other comprehensive (loss) income for the year
   
-
     
-
     
-
     
(251,540
)
   
(12,048
)
   
-
     
(263,588
)
   
(1,414
)
   
(265,002
)
Total comprehensive income for the year
   
-
     
-
     
-
     
(251,540
)
   
(12,048
)
   
1,158,517
     
894,929
     
21,245
     
916,174
 
Acquisition of non-controlling interests
   
-
     
-
     
-
     
-
     
7
     
-
     
7
     
(152
)
   
(145
)
Dividends paid in cash
   
-
     
-
     
-
     
-
     
-
     
(531,242
)
   
(531,242
)
   
(48,339
)
   
(579,581
)
Balance at December 31, 2014
   
1,180,537
     
118,054
     
609,733
     
(658,284
)
   
(317,799
)
   
11,721,873
     
12,654,114
     
152,200
     
12,806,314
 

   
Attributable to owners of the parent
   
   
 
   
Share Capital (1)
   
Legal Reserves
   
Share Premium
   
Currency Translation Adjustment
   
Other Reserves (2)
   
Retained Earnings
   
Total
   
Non-controlling interests
   
Total
 
Balance at December 31, 2012
   
1,180,537
     
118,054
     
609,733
     
(316,831
)
   
(314,297
)
   
10,050,835
     
11,328,031
     
171,561
     
11,499,592
 
                                                                         
Income for the year
   
-
     
-
     
-
     
-
     
-
     
1,551,394
     
1,551,394
     
22,978
     
1,574,372
 
Currency translation adjustment
   
-
     
-
     
-
     
(2,247
)
   
-
     
-
     
(2,247
)
   
306
     
(1,941
)
Effect of adopting IAS 19R
   
-
     
-
     
-
     
-
     
13,449
     
-
     
13,449
     
-
     
13,449
 
Hedge reserve, net of tax
   
-
     
-
     
-
     
-
     
2,960
     
-
     
2,960
     
459
     
3,419
 
Share of other comprehensive income of non-consolidated companies
   
-
     
-
     
-
     
(87,666
)
   
2,682
     
-
     
(84,984
)
   
-
     
(84,984
)
Other comprehensive (loss) income for the year
   
-
     
-
     
-
     
(89,913
)
   
19,091
     
-
     
(70,822
)
   
765
     
(70,057
)
Total comprehensive income for the year
   
-
     
-
     
-
     
(89,913
)
   
19,091
     
1,551,394
     
1,480,572
     
23,743
     
1,504,315
 
Acquisition of non-controlling interests
   
-
     
-
     
-
     
-
     
(10,552
)
   
-
     
(10,552
)
   
2,784
     
(7,768
)
Dividends paid in cash
   
-
     
-
     
-
     
-
     
-
     
(507,631
)
   
(507,631
)
   
(18,642
)
   
(526,273
)
Balance at December 31, 2013
   
1,180,537
     
118,054
     
609,733
     
(406,744
)
   
(305,758
)
   
11,094,598
     
12,290,420
     
179,446
     
12,469,866
 

(1) The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share. As of December 31, 2014 and 2013 there were 1,180,536,830 shares issued. All issued shares are fully paid.

(2) Other reserves include mainly the result of transactions with non-controlling interest that do not result in a loss of control, the remeasurement of post-employment benefit obligations and the changes in value of cash flow hedges and in available for sale financial instruments.

The accompanying notes are an integral part of these Consolidated Financial Statements.
3

 
CONSOLIDATED STATEMENT OF CASH FLOWS

(all amounts in thousands of U.S. dollars)
 
Year ended December 31,
 
Notes
2015
2014
2013
Cash flows from operating activities
   
 
 
(Loss) income for the year
 
(74,425)
1,181,176
1,574,372
Adjustments for:
 
     
Depreciation and amortization
10 & 11
658,778
615,629
610,054
Impairment charge
5
400,314
205,849
 -
Income tax accruals less payments
27(ii)
(91,080)
79,062
125,416
Equity in (earnings) losses of non-consolidated companies
7
39,558
164,616
(46,098)
Interest accruals less payments, net
27(iii)
(1,975)
(37,192)
(29,723)
Changes in provisions
 
(20,678)
(4,982)
(1,800)
Changes in working capital
27(i)
1,373,985
(72,066)
188,780
Other, including currency translation adjustment
 
(69,473)
(88,025)
(43,649)
Net cash provided by operating activities
 
2,215,004
2,044,067
2,377,352
 
 
     
Cash flows from investing activities
 
     
Capital expenditures
10 & 11
(1,131,519)
(1,089,373)
(753,498)
Changes in advance to suppliers of property, plant and equipment
 
49,461
(63,390)
(22,234)
Investment in non-consolidated companies
12 c
(4,400)
(1,380)
 -
Acquisition of subsidiaries and non-consolidated companies
26
 -
(28,060)
 -
Net loan to non-consolidated companies
 
(22,322)
(21,450)
 -
Proceeds from disposal of property, plant and equipment and intangible assets
 
10,090
11,156
33,186
Dividends received from non-consolidated companies
12
20,674
17,735
16,334
Changes in investments in securities
 
(695,566)
(611,049)
(582,921)
Net cash used in investing activities
 
(1,773,582)
(1,785,811)
(1,309,133)
 
 
     
Cash flows from financing activities
 
     
Dividends paid
9
(531,242)
(531,242)
(507,631)
Dividends paid to non-controlling interest in subsidiaries
 
(2,950)
(48,339)
(18,642)
Acquisitions of non-controlling interests
 
(1,068)
(145)
(7,768)
Proceeds from borrowings (*)
 
2,064,218
3,046,837
2,460,409
Repayments of borrowings (*)
 
(2,063,992)
(2,890,717)
(3,143,241)
Net cash used in financing activities
 
(535,034)
(423,606)
(1,216,873)
 
 
     
Decrease in cash and cash equivalents
 
(93,612)
(165,350)
(148,654)
Movement in cash and cash equivalents
 
     
At the beginning of the year
 
416,445
598,145
772,656
Effect of exchange rate changes
 
(36,635)
(16,350)
(25,857)
Decrease in cash and cash equivalents
 
(93,612)
(165,350)
(148,654)
At December 31,
27(iv)
286,198
416,445
598,145
 
 
     
 
 
At December 31,
Cash and cash equivalents
 
2015
2014
2013
Cash and bank deposits
18
286,547
417,645
614,529
Bank overdrafts
19
(349)
(1,200)
(16,384)
 
 
286,198
416,445
598,145

(*) Mainly related to the renewal of short-term local facilities carried out during the years 2015, 2014 and 2013.

The accompanying notes are an integral part of these Consolidated Financial Statements.
 
 
4

 
INDEX TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

I.
GENERAL INFORMATION
IV.
OTHER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   
1
Segment information
II.
ACCOUNTING POLICIES ("AP")
2
Cost of sales
A
Basis of presentation
3
Selling, general and administrative expenses
B
Group accounting
4
Labor costs (included in Cost of sales and in Selling, general and administrative expenses)
C
Segment information
5
Other operating income and expenses
D
Foreign currency translation
6
Financial results
E
Property, plant and equipment
7
Equity in earnings (losses) of non-consolidated companies
F
Intangible assets
8
Income tax
G
Impairment of non-financial assets
9
Dividends distribution
H
Other investments
10
Property, plant and equipment, net
I
Inventories
11
Intangible assets, net
J
Trade and other receivables
12
Investments in non-consolidated companies
K
Cash and cash equivalents
13
Receivables - non current
L
Equity
14
Inventories
M
Borrowings
15
Receivables and prepayments
N
Current and Deferred income tax
16
Current tax assets and liabilities
O
Employee benefits
17
Trade receivables
P
Provisions
18
Cash and cash equivalents and Other investments
Q
Trade payables
19
Borrowings
R
Revenue recognition
20
Deferred income tax
S
Cost of sales and sales expenses
21
Other liabilities
T
Earnings per share
22
Non-current allowances and provisions
U
Financial instruments
23
Current allowances and provisions
   
24
Derivative financial instruments
   
25
Contingencies, commitments and restrictions on the distribution of profits
III.
FINANCIAL RISK MANAGEMENT
26
Acquisition of subsidiaries and non-consolidated companies
   
27
Cash flow disclosures
A
Financial Risk Factors
28
Related party transactions
B
Financial instruments by category
29
Principal subsidiaries
C
Fair value hierarchy
30
Nationalization of Venezuelan Subsidiaries
D
Fair value estimation
31
Fees paid to the Company's principal accountant
E
Accounting for derivative financial instruments and hedging activities
32
Subsequent event
       
       
       
 
 
5


 
 I. GENERAL INFORMATION
Tenaris S.A. (the "Company") was established as a public limited liability company (societé anonyme) under the laws of the Grand-Duchy of Luxembourg on December 17, 2001. The Company holds, either directly or indirectly, controlling interests in various subsidiaries in the steel pipe manufacturing and distribution businesses. References in these Consolidated Financial Statements to "Tenaris" refer to Tenaris S.A. and its consolidated subsidiaries. A list of the principal Company's subsidiaries is included in Note 29 to these Consolidated Financial Statements.

The Company's shares trade on the Buenos Aires Stock Exchange, the Italian Stock Exchange and the Mexican Stock Exchange; the Company's American Depositary Securities ("ADS") trade on the New York Stock Exchange.

These Consolidated Financial Statements were approved for issuance by the Company's Board of Directors on February 24, 2016.

Restatement of 2014 Financial Statements
On May 28, 2015, the Company restated its Consolidated Financial Statements for the year ended December 31, 2014 to reduce the carrying amount of the Company's investment in Usinas Siderúrgicas de Minas Gerais S.A. Usiminas ("Usiminas"). All information as of December 31, 2014 included in these Consolidated Financial Statements is derived from the Company's audited Restated Consolidated Financial Statements for the year ended December 31, 2014.

II. ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
A            Basis of presentation
The Consolidated Financial Statements of Tenaris have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB") and adopted by the European Union, under the historical cost convention, as modified by the revaluation of available for sale financial assets and financial assets and liabilities (including derivative instruments) at fair value through profit or loss. The Consolidated Financial Statements are, unless otherwise noted, presented in thousands of U.S. dollars ("$").

Whenever necessary, certain comparative amounts have been reclassified to conform to changes in presentation in the current year.

The preparation of Consolidated Financial Statements in conformity with IFRS requires management to make certain accounting estimates and assumptions that might affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the reporting dates, and the reported amounts of revenues and expenses during the reporting years. Actual results may differ from these estimates.

(1) New and amended standards not yet adopted and relevant for Tenaris

IFRS 15, "Revenue from contracts with customers"

In May 2014, the IASB issued IFRS 15, "Revenue from contracts with customers", which sets out the requirements in accounting for revenue arising from contracts with customers and which is based on the principle that revenue is recognized when control of a good or service is transferred to the customer. IFRS 15 must be applied on annual periods beginning on or after January 1, 2018.

IFRS 9, "Financial instruments"

In July 2014, the IASB issued IFRS 9, "Financial instruments", which replaces the guidance in IAS 39. It includes requirements on the classification and measurement of financial assets and liabilities, as well as an expected credit losses model that replaces the current incurred loss impairment model. IFRS 9 must be applied on annual periods beginning on or after January 1, 2018.
 
 
6

 

 
A            Basis of presentation (Cont.)
(1) New and amended standards not yet adopted and relevant for Tenaris (Cont.)

Amendments to IFRS 10, "Consolidated financial statements" and IAS 28, "Investments in associates and joint ventures"

In September 2014, the IASB issued the Amendments to IFRS 10, "Consolidated financial statements" and IAS 28, "Investments in associates and joint ventures", which addresses an acknowledged inconsistency between the requirements of both standards in dealing with the sale or contribution of assets between an investor and its associate or joint venture. These amendments must be applied on annual periods beginning on or after January 1, 2016.

These standards are not effective for the financial year beginning January 1, 2015 and have not been early adopted.

These standards have not been endorsed by the EU.

The Company's management has not yet assessed the potential impact that the application of these standards may have on the Company's financial condition or results of operations.

(2) New and amended standards adopted for Tenaris

Amendments to IAS 32, 'Financial instruments: Presentation', IAS 36, 'Impairment of assets' and IAS 39, 'Financial instruments: Recognition and measurement'.

All the amendments to the standards IAS 32, 'Financial instruments: Presentation' – Offsetting financial assets and financial liabilities, IAS 36, 'Impairment of assets' – Recoverable amount disclosures for non-financial assets and IAS 39, 'Financial instruments: Recognition and measurement' – Novation of derivatives and continuation of hedge accounting have been analyzed by the Company. The application of these standards did not materially affect the Company's financial condition or results of operations.

B            Group accounting
(1)            Subsidiaries and transactions with non-controlling interests

Subsidiaries are all entities over which Tenaris has control. Tenaris controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is exercised by the Company and are no longer consolidated from the date control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by Tenaris. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Acquisition-related costs are expensed as incurred. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Any non-controlling interest in the acquiree is measured either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. The excess of the aggregate of the consideration transferred and the amount of any non-controlling interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the Consolidated Income Statement.

Transactions with non-controlling interests that do not result in a loss of control are accounted as transactions with equity owners of the Company. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

Material inter-company transactions, balances and unrealized gains (losses) on transactions between Tenaris subsidiaries have been eliminated in consolidation. However, since the functional currency of some subsidiaries is its respective local currency, some financial gains (losses) arising from inter-company transactions are generated. These are included in the Consolidated Income Statement under Other financial results.
 
 
7


 
B            Group accounting (Cont.)
(2)            Non-consolidated companies

Non-consolidated companies are all entities in which Tenaris has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in non-consolidated companies (associated and joint ventures) are accounted for by the equity method of accounting and are initially recognized at cost. The Company's investment in non-consolidated companies includes goodwill identified in acquisition, net of any accumulated impairment loss.

Unrealized results on transactions between Tenaris and its non-consolidated companies are eliminated to the extent of Tenaris' interest in the non-consolidated companies. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment indicator of the asset transferred. Financial statements of non-consolidated companies have been adjusted where necessary to ensure consistency with IFRS.

The Company's pro-rata share of earnings in non-consolidated companies is recorded in the Consolidated Income Statement under Equity in earnings (losses) of non-consolidated companies. The Company's pro-rata share of changes in other reserves is recognized in the Consolidated Statement of Changes in Equity under Other Reserves.

At December 31, 2015, Tenaris holds 11.46% of Ternium's common stock. The following factors and circumstances evidence that Tenaris has significant influence (as defined by IAS 28, "Investments in associates companies") over Ternium, and as a result the Company's investment in Ternium has been accounted for under the equity method:

§ Both the Company and Ternium are under the indirect common control of San Faustin S.A.;
§ Four out of eight members of Ternium's Board of Directors (including Ternium's chairman) are also members of the Company's Board of Directors;
§ Under the shareholders' agreement by and between the Company and Techint Holdings S.à r.l, a wholly owned subsidiary of San Faustin S.A. and Ternium's main shareholder, dated January 9, 2006, Techint Holdings S.à r.l, is required to take actions within its power to cause (a) one of the members of Ternium's Board of Directors to be nominated by the Company and (b) any director nominated by the Company to be only removed from Ternium's Board of Directors pursuant to previous written instructions of the Company.

The Company's investment in Ternium is carried at incorporation cost plus proportional ownership of Ternium's earnings and other shareholders' equity accounts. Because the exchange of its holdings in Amazonia and Ylopa for shares in Ternium was considered to be a transaction between companies under common control of San Faustin S.A. (formerly San Faustin N.V.), Tenaris recorded its initial ownership $22.6 million less than its proportional ownership of Ternium's shareholders' equity at the transaction date. As a result of this treatment, Tenaris' investment in Ternium will not reflect its proportional ownership of Ternium's net equity position.

At December 31, 2015, Tenaris holds through its Brazilian subsidiary Confab Industrial S.A. ("Confab"), 5.0% of the shares with voting rights and 2.5% of Usiminas's total share capital. The acquisition of Usiminas shares was part of a larger transaction performed on January 16, 2012, pursuant to which Ternium, certain of its subsidiaries and Confab joined Usiminas's existing control group through the acquisition of ordinary shares representing 27.7% of Usiminas' total voting capital and 13.8% of Usiminas' total share capital. The rights of Ternium and its subsidiaries and Confab within the Ternium/Tenaris Group are governed under a separate shareholders agreement. Those circumstances evidence that Tenaris has significant influence over Usiminas, consequently, accounted it for under the equity method (as defined by IAS 28, "Investments in Associates and Joint Ventures").

Tenaris reviews investments in non-consolidated companies for impairment whenever events or changes in circumstances indicate that the asset's carrying amount may not be recoverable, such as a significant or prolonged decline in fair value below the carrying value.

Tenaris carries its investment in Ternium and Usiminas at its proportional equity value, with no additional goodwill or intangible assets recognized. At December 31, 2015, 2014 and 2013, no impairment provisions were recorded on Tenaris' investment in Ternium while in 2014 and 2015, impairment charges were recorded on Tenaris' investment in Usiminas. See Note 7 and Note 12.
 

 
8


C            Segment information

The Company is organized in one major business segment, Tubes, which is also the reportable operating segment.

The Tubes segment includes the production and sale of both seamless and welded steel tubular products and related services mainly for the oil and gas industry, particularly oil country tubular goods (OCTG) used in drilling operations, and for other industrial applications with production processes that consist in the transformation of steel into tubular products. Business activities included in this segment are mainly dependent on the oil and gas industry worldwide, as this industry is a major consumer of steel pipe products, particularly OCTG used in drilling activities. Demand for steel pipe products from the oil and gas industry has historically been volatile and depends primarily upon the number of oil and natural gas wells being drilled, completed and reworked, and the depth and drilling conditions of these wells. Sales are generally made to end users, with exports being done through a centrally managed global distribution network and domestic sales are made through local subsidiaries. Corporate general and administrative expenses have been allocated to the Tubes segment.

Others include all other business activities and operating segments that are not required to be separately reported, including the production and selling of sucker rods, welded steel pipes for electric conduits, industrial equipment, coiled tubing, energy and raw materials that exceed internal requirements.

Tenaris' Chief Operating Decision Maker (CEO) holds monthly meetings with senior management, in which operating and financial performance information is reviewed, including financial information that differs from IFRS principally as follows:

§ The use of direct cost methodology to calculate the inventories, while under IFRS it is at full cost, including absorption of production overheads and depreciations;
§ The use of costs based on previously internally defined cost estimates, while, under IFRS, costs are calculated at historical cost;
§ Other timing differences.

Tenaris groups its geographical information in five areas: North America, South America, Europe, Middle East and Africa, and Far East and Oceania. For purposes of reporting geographical information, net sales are allocated to geographical areas based on the customer's location; allocation of assets, capital expenditures and associated depreciations and amortizations are based on the geographical location of the assets.

D            Foreign currency translation
(1)            Functional and presentation currency
IAS 21 (revised) defines the functional currency as the currency of the primary economic environment in which an entity operates.

The functional and presentation currency of the Company is the U.S. dollar. The U.S. dollar is the currency that best reflects the economic substance of the underlying events and circumstances relevant to Tenaris global operations.

Except for the Brazilian and Italian subsidiaries whose functional currencies are their local currencies, Tenaris determined that the functional currency of its other subsidiaries is the U.S. dollar, based on the following principal considerations:

§ Sales are mainly negotiated, denominated and settled in U.S. dollars. If priced in a currency other than the U.S. dollar, the sales price considers exposure to fluctuation in the exchange rate versus the U.S. dollar;
§ Prices of their critical raw materials and inputs are priced and settled in U.S. dollars;
§ Transaction and operational environment and the cash flow of these operations have the U.S. dollars as reference currency;
§ Significant level of integration of the local operations within Tenaris' international global distribution network;
§ Net financial assets and liabilities are mainly received and maintained in U.S. dollars;
§ The exchange rate of certain legal currencies has long-been affected by recurring and severe economic crises.
 

 
9


§ D Foreign currency translation (Cont.)
 (2)            Transactions in currencies other than the functional currency

Transactions in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the date of the transactions or valuation where items are re-measured.
At the end of each reporting period: (i) monetary items denominated in currencies other than the functional currency are translated using the closing rates; (ii) non-monetary items that are measured in terms of historical cost in a currency other than the functional currency are translated using the exchange rates prevailing at the date of the transactions; and (iii) non-monetary items that are measured at fair value in a currency other than the functional currency are translated using the exchange rates prevailing at the date when the fair value was determined.

Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies other than the functional currency are recorded as gains and losses from foreign exchange and included in "Other financial results" in the Consolidated Income Statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Translation differences in non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss as part of the "fair value gain or loss," while translation differences on non-monetary financial assets such as equities classified as available for sale are included in the "available for sale reserve" in equity. Tenaris had no such assets or liabilities for any of the periods presented.

(3)            Translation of financial information in currencies other than the functional currency
Results of operations for subsidiaries whose functional currencies are not the U.S. dollar are translated into U.S. dollars at the average exchange rates for each quarter of the year. Financial Statement positions are translated at the end-of-year exchange rates. Translation differences are recognized in a separate component of equity as currency translation adjustments. In the case of a sale or other disposal of any of such subsidiaries, any accumulated translation difference would be recognized in income as a gain or loss from the sale.

E            Property, plant and equipment
Property, plant and equipment are recognized at historical acquisition or construction cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Property, plant and equipment acquired through acquisitions accounted for as business combinations have been valued initially at the fair market value of the assets acquired.

Major overhaul and rebuilding expenditures are capitalized as property, plant and equipment only when it is probable that future economic benefits associated with the item will flow to the group and the investment enhances the condition of assets beyond its original condition. The carrying amount of the replaced part is derecognized. Ordinary maintenance expenses on manufacturing properties are recorded as cost of products sold in the year in which they are incurred.

Borrowing costs that are attributable to the acquisition or construction of certain capital assets are capitalized as part of the cost of the asset, in accordance with IAS 23(R) ("Borrowing Costs"). Assets for which borrowing costs are capitalized are those that require a substantial period of time to prepare for their intended use.

Depreciation method is reviewed at each year end. Depreciation is calculated using the straight-line method to depreciate the cost of each asset to its residual value over its estimated useful life, as follows:

 
Land
No Depreciation
 
Buildings and improvements
30-50 years
 
Plant and production equipment
10-40 years
 
Vehicles, furniture and fixtures, and other equipment
  4-10 years

The assets' residual values and useful lives of significant plant and production equipment are reviewed and adjusted, if appropriate, at each year-end date.

Management's re-estimation of assets useful lives, performed in accordance with IAS 16 ("Property, Plant and Equipment"), did not materially affect depreciation expenses for 2015, 2014 and 2013.
 
 
10

 
E            Property, plant and equipment (Cont.)
Tenaris depreciates each significant part of an item of property, plant and equipment for its different production facilities that (i) can be properly identified as an independent component with a cost that is significant in relation to the total cost of the item, and (ii) has a useful operating life that is different from another significant part of that same item of property, plant and equipment.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of assets and are recognized under Other operating income or Other operating expenses in the Consolidated Income Statement.

F            Intangible assets
(1)            Goodwill
Goodwill represents the excess of the acquisition cost over the fair value of Tenaris' share of net identifiable assets acquired as part of business combinations determined mainly by independent valuations. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Goodwill is included in the Consolidated Statement of Financial Position under Intangible assets, net.
For the purpose of impairment testing, goodwill is allocated to a subsidiary or group of subsidiaries that are expected to benefit from the business combination which generated the goodwill being tested.
(2)            Information systems projects
Costs associated with maintaining computer software programs are generally recognized as an expense as incurred. However, costs directly related to the development, acquisition and implementation of information systems are recognized as intangible assets if it is probable that they have economic benefits exceeding one year.

Information systems projects recognized as assets are amortized using the straight-line method over their useful lives, generally not exceeding a period of 3 years. Amortization charges are mainly classified as Selling, general and administrative expenses in the Consolidated Income Statement.

Management's re-estimation of assets useful lives, performed in accordance with IAS 38 ("Intangible Assets"), did not materially affect depreciation expenses for 2015, 2014 and 2013.

(3)            Licenses, patents, trademarks and proprietary technology
Licenses, patents, trademarks, and proprietary technology acquired in a business combination are initially recognized at fair value at the acquisition date. Licenses, patents, proprietary technology and those trademarks that have a finite useful life are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost over their estimated useful lives, and does not exceed a period of 10 years.

The balance of acquired trademarks that have indefinite useful lives according to external appraisal amounts to $86.7 million at December 31, 2015 and 2014, included in Hydril CGU. Main factors considered in the determination of the indefinite useful lives, include the years that they have been in service and their recognition among customers in the industry.

Management's re-estimation of assets useful lives, performed in accordance with IAS 38 ("Intangible Assets"), did not materially affect depreciation expenses for 2015, 2014 and 2013.

(4)            Research and development

Research expenditures as well as development costs that do not fulfill the criteria for capitalization are recorded as Cost of sales in the Consolidated Income Statement as incurred. Research and development expenditures included in Cost of sales for the years 2015, 2014 and 2013 totaled $89.0 million, $106.9 million and $105.6 million, respectively.
 
 
11


 
F            Intangible assets
(5) Customer relationships

In accordance with IFRS 3 and IAS 38, Tenaris has recognized the value of customer relationships separately from goodwill attributable to the acquisition of Maverick and Hydril groups.

Customer relationships acquired in a business combination are recognized at fair value at the acquisition date, have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight line method over the expected life of approximately 14 years for Maverick and 10 years for Hydril.

Prudential, a welded pipe mill producing OCTG and line pipe products in Canada, has been negatively affected by current market conditions (including an increase in unfairly traded imports of OCTG and line pipe products), reflected in a loss of market share and in the decline in the level of its profitability. Based on these circumstances, the Company has reviewed the useful life of Prudential's customer relationships and decided to reduce the remaining amortization period from 5 years to 2 years, consequently a higher amortization charge of approximately $31.2 million was included in Consolidated Income Statement under Selling, general and administrative expenses for the year ended December 31, 2015.

G            Impairment of non-financial assets
Long-lived assets including identifiable intangible assets are reviewed for impairment at the lowest level for which there are separately identifiable cash flows (cash generating units, or CGU). Most of the Company's principal subsidiaries that constitute a CGU have a single main production facility and, accordingly, each of such subsidiary represents the lowest level of asset aggregation that generates largely independent cash inflows.

Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets with indefinite useful life, including goodwill, are subject to at least an annual impairment test.

In assessing whether there is any indication that a CGU may be impaired, external and internal sources of information are analyzed. Material facts and circumstances specifically considered in the analysis usually include the discount rate used in Tenaris' cash flow projections and the business condition in terms of competitive and economic factors, such as the cost of raw materials, oil and gas prices, competitive environment, capital expenditure programs for Tenaris' customers and the evolution of the rig count.

An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher between the asset's value in use and fair value less costs to sell. Any impairment loss is allocated to reduce the carrying amount of the assets of the CGU in the following order:

(a) first, to reduce the carrying amount of any goodwill allocated to the CGU; and
(b) then, to the other assets of the unit (group of units) pro-rata on the basis of the carrying amount of each asset in the unit (group of units), considering not to reduce the carrying amount of the asset below the highest of its fair value less cost to sell, its value in use or zero.

The value in use of each CGU is determined on the basis of the present value of net future cash flows which would be generated by such CGU. Tenaris uses cash flow projections for a five year period with a terminal value calculated based on perpetuity and appropriate discount rates.

For purposes of calculating the fair value less costs to sell, Tenaris uses the estimated value of future cash flows that a market participant could generate from the corresponding CGU.

Management judgment is required to estimate discounted future cash flows. Actual cash flows and values could vary significantly from the forecasted future cash flows and related values derived using discounting techniques.

Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal at each reporting date.
 

 
12


H            Other investments

Other investments consist primarily of investments in financial instruments and time deposits with a maturity of more than three months at the date of purchase.

Certain non-derivative financial assets that the Company has both the ability and the intention to hold to maturity have been categorized as held to maturity financial assets. They are carried at amortized cost and the results are recognized in "Financial Results" in the Consolidated Income Statement using the effective interest method. Held to maturity instruments with maturities greater than 12 months after the balance sheet date are included in the non-current assets.

All other investments in financial instruments and time deposits are categorized as financial assets "at fair value through profit or loss" because such investments are both (i) held for trading and (ii) designated as such upon initial recognition because they are managed and their performance is evaluated on a fair value basis. The results of these investments are recognized in Financial Results in the Consolidated Income Statement.

Purchases and sales of financial investments are recognized as of their settlement date.

The fair values of quoted investments are generally based on current bid prices. If the market for a financial investment is not active or the securities are not listed, Tenaris estimates the fair value by using standard valuation techniques (see Section III Financial Risk Management).

I            Inventories
Inventories are stated at the lower between cost and net realizable value. The cost of finished goods and goods in process is comprised of raw materials, direct labor and utilities (based on FIFO method) and other direct costs and related production overhead costs. It excludes borrowing costs. Tenaris estimates net realizable value of inventories by grouping, where applicable, similar or related items. Net realizable value is the estimated selling price in the ordinary course of business, less any estimated costs of completion and selling expenses. Goods in transit at year end are valued based on supplier's invoice cost.

Tenaris establishes an allowance for obsolete or slow-moving inventory related to finished goods, supplies and spare parts. For slow moving or obsolete finished products, an allowance is established based on management's analysis of product aging. An allowance for obsolete and slow-moving inventory of supplies and spare parts is established based on management's analysis of such items to be used as intended and the consideration of potential obsolescence due to technological changes.

J            Trade and other receivables

Trade and other receivables are recognized initially at fair value, generally the original invoice amount. Tenaris analyzes its trade receivables on a regular basis and, when aware of a specific counterparty's difficulty or inability to meet its obligations, impairs any amounts due by means of a charge to an allowance for doubtful accounts. For this purpose, trade accounts receivable overdue by more than 180 days and which are not covered by a credit collateral, guarantee, insurance or similar surety, are fully provisioned.

K            Cash and cash equivalents
Cash and cash equivalents are comprised of cash in banks, liquidity funds and short-term investments with a maturity of less than three months at the date of purchase which are readily convertible to known amounts of cash. Assets recorded in cash and cash equivalents are carried at fair market value or at historical cost which approximates fair market value.

In the Consolidated Statement of Financial Position, bank overdrafts are included in Borrowings in current liabilities.

For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents includes overdrafts.
 

 
13


L            Equity

(1)            Equity components
The Consolidated Statement of Changes in Equity includes:

§ The value of share capital, legal reserve, share premium and other distributable reserves calculated in accordance with Luxembourg law;
§ The currency translation adjustment, other reserves, retained earnings and non-controlling interest calculated in accordance with IFRS.

(2)             Share capital
The Company has an authorized share capital of a single class of 2.5 billion shares having a nominal value of $1.00 per share. Total ordinary shares issued and outstanding as of December 31, 2015, 2014 and 2013 are 1,180,536,830 with a par value of $1.00 per share with one vote each. All issued shares are fully paid.
(3)             Dividends distribution by the Company to shareholders
Dividends distributions are recorded in the Company's financial statements when Company's shareholders have the right to receive the payment, or when interim dividends are approved by the Board of Directors in accordance with the by-laws of the Company.

Dividends may be paid by the Company to the extent that it has distributable retained earnings, calculated in accordance with Luxembourg law (see Note 25).

M            Borrowings
Borrowings are recognized initially at fair value net of transaction costs incurred and subsequently measured at amortized cost.
N            Current and Deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the Consolidated Income Statement, except for tax items recognized in the Consolidated Statement of Other Comprehensive Income.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the countries where the Company's subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions when appropriate.

Deferred income tax is recognized applying the liability method on temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the financial statements. The principal temporary differences arise from fair value adjustments of assets acquired in business combinations, the effect of currency translation on depreciable fixed assets and inventories, depreciation on property, plant and equipment, valuation of inventories and provisions for pension plans. Deferred tax assets are also recognized for net operating loss carry-forwards. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the time period when the asset is realized or the liability is settled, based on tax laws that have been enacted or substantively enacted at the reporting date.

Deferred tax assets are recognized to the extent it is probable that future taxable income will be available against which the temporary differences can be utilized. At the end of each reporting period, Tenaris reassesses unrecognized deferred tax assets. Tenaris recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable income will allow the deferred tax asset to be recovered.

 
14


 
O            Employee benefits

(1) Post employment benefits
The Company has defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The Company applied IAS 19 (amended 2011), "Employee Benefits", as from January 1, 2013. In accordance with the amended standard, post-employment benefits are accounted as follows.

The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets, if any. The defined benefit obligation is calculated annually (at year end) by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in "Other comprehensive income" in the period in which they arise. Past-service costs are recognized immediately in the income statement.

For defined benefit plans, net interest income/expense is calculated based on the surplus or deficit derived by the difference between the defined benefit obligations less plan assets. For defined contribution plans, the Company pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Company has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.

Tenaris sponsors funded and unfunded defined benefit pension plans in certain subsidiaries. The most significant are:

§ An unfunded defined benefit employee retirement plan for certain senior officers. The plan is designed to provide certain benefits to those officers (additional to those contemplated under applicable labor laws) in case of termination of the employment relationship due to certain specified events, including retirement. This unfunded plan provides defined benefits based on years of service and final average salary.

§ Employees' service rescission indemnity: the cost of this obligation is charged to the Consolidated Income Statement over the expected service lives of employees. This provision is primarily related to the liability accrued for employees at Tenaris' Italian subsidiary. As from January 1, 2007 as a consequence of a change in an Italian law, employees were entitled to make contributions to external funds, thus, Tenaris' Italian subsidiary pays every year the required contribution to the funds with no further obligation. As a result, the plan changed from a defined benefit plan to a defined contribution plan effective from that date, but only limited to the contributions of 2007 onwards.

§ Funded retirement benefit plans held in Canada for salary and hourly employees hired prior a certain date based on years of service and, in the case of salaried employees, final average salary. Plan assets consist primarily of investments in equities and money market funds. Both plans were replaced for defined contribution plans. Effective June 2016 the salary plan will be frozen for the purposes of credited service as well as determination of final average pay.

§ Funded retirement benefit plan held in the US for the benefit of some employees hired prior a certain date, frozen for the purposes of credited service as well as determination of final average pay for the retirement benefit calculation. Plan assets consist primarily of investments in equities and money market funds. Additionally, an unfunded postretirement health and life plan that offers limited medical and life insurance benefits to the retirees, hired before a certain date.
 

 
15


O            Employee benefits (Cont.)
(2) Other long term benefits
During 2007, Tenaris launched an employee retention and long term incentive program (the "Program") applicable to certain senior officers and employees of the Company, who will be granted a number of Units throughout the duration of the Program. The value of each of these Units is based on Tenaris' shareholders' equity (excluding non-controlling interest). Also, the beneficiaries of the Program are entitled to receive cash amounts based on (i) the amount of dividend payments made by Tenaris to its shareholders, and (ii) the number of Units held by each beneficiary to the Program. Units vest ratably over a period of four years and will be redeemed by the Company ten years after grant date, with the option of an early redemption at seven years after grant date. As the cash payment of the benefit is tied to the book value of the shares, and not to their market value, Tenaris valued this long-term incentive program as a long term benefit plan as classified in IAS 19.

As of December 31, 2015 and 2014, the outstanding liability corresponding to the Program amounts to $84.0 million and $98.1 million, respectively. The total value of the units granted to date under the program, considering the number of units and the book value per share as of December 31, 2015 and 2014, is $105.3 million and $107.4 million, respectively.

(3) Other compensation obligations
Employee entitlements to annual leave and long-service leave are accrued as earned.

Compensation to employees in the event of dismissal is charged to income in the year in which it becomes payable.

P            Provisions
Tenaris is subject to various claims, lawsuits and other legal proceedings, including customer claims, in which a third party is seeking payment for alleged damages, reimbursement for losses or indemnity. Tenaris' potential liability with respect to such claims, lawsuits and other legal proceedings cannot be estimated with certainty. Management periodically reviews the status of each significant matter and assesses potential financial exposure. If, as a result of past events, a potential loss from a claim or proceeding is considered probable and the amount can be reasonably estimated, a provision is recorded. Accruals for loss contingencies reflect a reasonable estimate of the losses to be incurred based on information available to management as of the date of preparation of the financial statements, and take into consideration Tenaris' litigation and settlement strategies. These estimates are primarily constructed with the assistance of legal counsel. As the scope of liabilities become better defined, there may be changes in the estimates of future costs which could have a material adverse effect on its results of operations, financial condition and cash flows.

If Tenaris expects to be reimbursed for an accrued expense, as would be the case for an expense or loss covered under an insurance contract, and reimbursement is considered virtually certain, the expected reimbursement is recognized as a receivable.

Q            Trade payables
Trade payables are recognized initially at fair value, generally the nominal invoice amount.

R            Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of Tenaris' activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the group.
Tenaris' products and services are sold based upon purchase orders, contracts or upon other persuasive evidence of an arrangement with customers, including that the sales price is known or determinable. Sales are recognized as revenue upon delivery, when neither continuing managerial involvement nor effective control over the products is retained by Tenaris and when collection is reasonably assured. Delivery is defined by the transfer of risk and may include delivery to a storage facility located at one of the Company's subsidiaries. For bill and hold transactions revenue is recognized only to the extent (a) it is highly probable delivery will be made; (b) the products have been specifically identified and are ready for delivery; (c) the sales contract specifically acknowledges the deferred delivery instructions; (d) the usual payment terms apply.
 

 
16


R            Revenue recognition (Cont.)
The percentage of total sales that were generated from bill and hold arrangements for products located in Tenaris' storage facilities that have not been shipped to customers amounted to 2.9%, 1.1% and 1.3% as of December 31, 2015, 2014 and 2013, respectively. The Company has not experienced any material claims requesting the cancellation of bill and hold transactions.

Other revenues earned by Tenaris are recognized on the following basis:
§ Construction contracts (mainly applicable to Tenaris Brazilian subsidiaries and amounted to 1.55% of total sales). The revenue recognition of the contracts follows the IAS 11 guidance, that means, when the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognized over the period of the contract by reference to the stage of completion (measured by reference to the contract costs incurred up to the end of the reporting period as a percentage of total estimated costs for each contract).
§ Interest income: on the effective yield basis.
§ Dividend income from investments in other companies: when Tenaris' right to receive payment is established.

S            Cost of sales and sales expenses
Cost of sales and sales expenses are recognized in the Consolidated Income Statement on the accrual basis of accounting.

Commissions, freight and other selling expenses, including shipping and handling costs, are recorded in "Selling, general and administrative expenses" in the Consolidated Income Statement.

T            Earnings per share

Earnings per share are calculated by dividing the income attributable to owners of the parent by the daily weighted average number of common shares outstanding during the year.

U            Financial instruments

Non derivative financial instruments comprise investments in financial debt instruments and equity, time deposits, trade and other receivables, cash and cash equivalents, borrowings and trade and other payables. Tenaris' non derivative financial instruments are classified into the following categories:

§ Financial instruments at fair value through profit and loss: comprise mainly Other Investments expiring in less than ninety days from the measurement date (included within cash and cash equivalents) and investments in certain financial debt instruments and time deposits held for trading.
§ Loans and receivables: comprise cash and cash equivalents, trade receivables and other receivables and are measured at amortized cost using the effective interest rate method less any impairment.
§ Available for sale assets: comprise the Company's interest in the Venezuelan Companies (see Note 30).
§ Held to maturity: comprise financial assets that the Company has both the ability and the intention to hold to maturity. They are measured at amortized cost using the effective interest method.
§ Other financial liabilities: comprise borrowings, trade and other payables and are measured at amortized cost using the effective interest rate method.

The categorization depends on the nature and purpose that the Company sets to the financial instrument.

Financial assets and liabilities are recognized and derecognized on their settlement date.

Accounting for derivative financial instruments and hedging activities is included within the Section III, Financial Risk Management.
 
 
17

 
 
III. FINANCIAL RISK MANAGEMENT

The multinational nature of Tenaris' operations and customer base exposes the Company to a variety of risks, mainly related to market risks (including the effects of changes in foreign currency exchange rates and interest rates), credit risk and capital market risk. In order to manage the volatility related to these exposures, the management evaluates exposures on a consolidated basis, taking advantage of logical exposure netting. The Company or its subsidiaries may then enter into various derivative transactions in order to prevent potential adverse impacts on Tenaris' financial performance. Such derivative transactions are executed in accordance with internal policies and hedging practices. The Company's objectives, policies and processes for managing these risks remained unchanged during 2015.

A. Financial Risk Factors

(i)            Capital Risk Management
Tenaris seeks to maintain a low debt to total equity ratio considering the industry and the markets where it operates. The year-end ratio of debt to total equity (where "debt" comprises financial borrowings and "total equity" is the sum of financial borrowings and equity) is 0.08 as of December 31, 2015 and 0.07 as of December 31, 2014. The Company does not have to comply with regulatory capital adequacy requirements as known in the financial services industry.

(ii)            Foreign exchange risk
Tenaris manufactures and sells its products in a number of countries throughout the world and consequently is exposed to foreign exchange rate risk. Since the Company's functional currency is the U.S. dollar the purpose of Tenaris' foreign currency hedging program is mainly to reduce the risk caused by changes in the exchange rates of other currencies against the U.S. dollar.

Tenaris' exposure to currency fluctuations is reviewed on a periodic consolidated basis. A number of derivative transactions are performed in order to achieve an efficient coverage in the absence of operative or natural hedges. Almost all of these transactions are forward exchange rates contracts (see Note 24 Derivative financial instruments).

Tenaris does not enter into derivative financial instruments for trading or other speculative purposes, other than non-material investments in structured products.

Because certain subsidiaries have functional currencies other than the U.S. dollar, the results of hedging activities, reported in accordance with IFRS, may not reflect entirely the management's assessment of its foreign exchange risk hedging program. Inter-company balances between Tenaris' subsidiaries may generate financial gains (losses) to the extent that functional currencies differ.

The value of Tenaris' financial assets and liabilities is subject to changes arising out of the variation of foreign currency exchange rates. The following table provides a breakdown of Tenaris' main financial assets and liabilities (including foreign exchange derivative contracts) which impact the Company's profit and loss as of December 31, 2015 and 2014:

All amounts Long / (Short) in thousands of U.S. dollars
 
As of December 31,
 
Currency Exposure / Functional currency
 
2015
   
2014
 
Argentine Peso / U.S. Dollar
   
(73,399
)
   
(191,095
)
Euro / U.S. Dollar
   
(334,831
)
   
(189,366
)
Brazilian Real / U.S. Dollar
   
(66,826
)
   
150,486
 
                 
 

 
18


A. Financial Risk Factors (Cont.)

(ii)            Foreign exchange risk (Cont.)
The main relevant exposures correspond to:

§ Argentine Peso / U.S. dollar

As of December 31, 2015 and 2014 consisting primarily of Argentine Peso-denominated financial, trade, social and fiscal payables at certain Argentine subsidiaries which functional currency is the U.S. dollar. A change of 1% in the ARS/USD exchange rate would have generated a pre-tax gain / loss of $0.7 million and $1.9 million as of December 31, 2015 and 2014, respectively.

§ Euro / U.S. dollar

As of December 31, 2015 and 2014, consisting primarily of Euro-denominated intercompany liabilities at certain subsidiaries which functional currency is the U.S. dollar. A change of 1% in the EUR/USD exchange rate would have generated a pre-tax gain / loss of $3.3 million and $1.9 million as of December 31, 2015 and 2014, respectively, which would have been to a large extent offset by changes to Tenaris' net equity position.

Considering the balances held as of December 31, 2015 on financial assets and liabilities exposed to foreign exchange rate fluctuations, Tenaris estimates that the impact of a simultaneous 1% favorable / unfavorable movement in the levels of foreign currencies exchange rates relative to the U.S. dollar, would be a pre-tax gain / loss of $5.1 million (including a loss / gain of $5.3 million due to foreign exchange derivative contracts), which would be partially offset by changes to Tenaris' net equity position of $3.9 million. For balances held as of December 31, 2014, a simultaneous 1% favorable / unfavorable movement in the foreign currencies exchange rates relative to the U.S. dollar, would have generated a pre-tax gain / loss of $7.5 million (including a loss / gain of $2.8 million due to foreign exchange derivative contracts), which would have been partially offset by changes to Tenaris' net equity position of $1.8 million.

(iii)            Interest rate risk
Tenaris is subject to interest rate risk on its investment portfolio and its debt. The Company uses a mix of variable and fixed rate debt in combination with its investment portfolio strategy. From time to time, the Company may choose to enter into foreign exchange derivative contracts and / or interest rate swaps to mitigate the exposure to changes in the interest rates.
The following table summarizes the proportions of variable-rate and fixed-rate debt as of each year end.

   
As of December 31,
 
   
2015
   
2014
 
   
Amount in thousands of U.S. dollars
   
%
   
Amount in thousands of U.S. dollars
   
%
 
Fixed rate (short term financing)
   
954,681
     
98
%
   
755,498
     
76
%
Variable rate
   
16,835
     
2
%
   
243,742
     
24
%
Total (*)
   
971,516
             
999,240
         

 (*) As of December 31, 2015 approximately 59% of the total debt balance corresponded to fixed-rate borrowings where the original period was nonetheless equal to or less than 360 days. This compares to approximately 73% of the total outstanding debt balance as of December 31, 2014.

The Company estimates that, if market interest rates applicable to Tenaris' borrowings had been 100 basis points higher, then the additional pre-tax loss would have been $10.8 million in 2015 and $6.3 million in 2014.


19


A. Financial Risk Factors (Cont.)

 (iv)            Credit risk
Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. The Company also actively monitors the creditworthiness of its treasury, derivative and insurance counterparties in order to minimize its credit risk.

There is no significant concentration of credit risk from customers. No single customer comprised more than 10% of Tenaris' net sales in 2015, 2014 and 2013.

Tenaris' credit policies related to sales of products and services are designed to identify customers with acceptable credit history, and to allow Tenaris to require the use of credit insurance, letters of credit and other instruments designed to minimize credit risks whenever deemed necessary. Tenaris maintains allowances for impairment for potential credit losses (See Section II J).

As of December 31, 2015 and 2014 trade receivables amount to $1,135.1 million and $1,963.4 million respectively. Trade receivables have guarantees under credit insurance of $325.1 million and $460.5 million, letter of credit and other bank guarantees of $20.5 million and $98.4 million, and other guarantees of $7.9 million and $12.3 million as of December 31, 2015 and 2014 respectively.

As of December 31, 2015 and 2014 past due trade receivables amounted to $333.8 million and $350.1 million, respectively. Out of those amounts $84.9 million and $75.8 million are guaranteed trade receivables while $101.5 million and $69.0 million are included in the allowance for doubtful accounts. Past due receivable not provisioned relate to a number of customers for whom there is no recent history of default. The allowance for doubtful accounts and the existing guarantees are sufficient to cover doubtful trade receivables.

(v)            Counterparty risk
Tenaris has investment guidelines with specific parameters to limit issuer risk on marketable securities. Counterparties for derivatives and cash transactions are limited to high credit quality financial institutions, normally investment grade.

Approximately 92% of Tenaris' liquid financial assets correspond to Investment Grade-rated instruments as of December 31, 2015, in comparison with approximately 89% as of December 31, 2014.

(vi)            Liquidity risk

Tenaris financing strategy aims to maintain adequate financial resources and access to additional liquidity. During 2015, Tenaris has counted on cash flows from operations as well as additional bank financing to fund its transactions.

Management maintains sufficient cash and marketable securities to finance normal operations and believes that Tenaris also has appropriate access to market for short-term working capital needs.

Liquid financial assets as a whole (comprising cash and cash equivalents and other investments) were 19% of total assets at the end of 2015 compared to 14% at the end of 2014.

Tenaris has a conservative approach to the management of its liquidity, which consists of cash in banks, liquidity funds and short-term investments mainly with a maturity of less than three months at the date of purchase.

Tenaris holds primarily investments in money market funds and variable or fixed-rate securities from investment grade issuers. As of December 31, 2015 and 2014, Tenaris does not have direct exposure to financial instruments issued by European sovereign counterparties.

Tenaris holds its investments primarily in U.S. dollars. As of December 31, 2015 and 2014, U.S. dollar denominated liquid assets represented approximately 87% and 83% of total liquid financial assets respectively.
 
 
20


 
A. Financial Risk Factors (Cont.)

(vii)            Commodity price risk

In the ordinary course of its operations, Tenaris purchases commodities and raw materials that are subject to price volatility caused by supply conditions, political and economic variables and other factors. As a consequence, Tenaris is exposed to risk resulting from fluctuations in the prices of these commodities and raw materials. Tenaris fixes the prices of such raw materials and commodities for short-term periods, typically not in excess of one year, in general Tenaris does not hedge this risk.

B. Financial instruments by category

Accounting policies for financial instruments have been applied to the line items below:

December 31, 2015
 
Assets at fair value through profit and loss
   
Held to maturity
   
Loans and receivables
   
Available for sale
   
Total
 
Assets as per statement of financial position
                   
Derivative financial instruments
   
18,248
     
-
     
-
     
-
     
18,248
 
Trade receivables
   
-
     
-
     
1,135,129
     
-
     
1,135,129
 
Other receivables
   
-
     
-
     
131,896
     
-
     
131,896
 
Available for sale assets (See note 30)
   
-
     
-
     
-
     
21,572
     
21,572
 
Other investments
   
2,142,524
     
393,084
     
-
     
-
     
2,535,608
 
Cash and cash equivalents
   
185,528
     
-
     
101,019
     
-
     
286,547
 
Total
   
2,346,300
     
393,084
     
1,368,044
     
21,572
     
4,129,000
 

December 31, 2015
 
Liabilities at fair value through profit and loss
   
Other financial liabilities
   
Total
 
Liabilities as per statement of financial position
           
Borrowings
   
-
     
971,516
     
971,516
 
Derivative financial instruments
   
34,540
     
-
     
34,540
 
Trade and other payables
   
-
     
518,714
     
518,714
 
Total
   
34,540
     
1,490,230
     
1,524,770
 

December 31, 2014
 
Assets at fair value through profit and loss
   
Loans and receivables
   
Available for sale
   
Total
 
Assets as per statement of financial position
               
Derivative financial instruments
   
25,588
     
-
     
-
     
25,588
 
Trade receivables
   
-
     
1,963,394
     
-
     
1,963,394
 
Other receivables
   
-
     
172,190
     
-
     
172,190
 
Available for sale assets (See note 30)
   
-
     
-
     
21,572
     
21,572
 
Other investments
   
1,452,159
     
-
     
387,759
     
1,839,918
 
Cash and cash equivalents
   
296,873
     
120,772
     
-
     
417,645
 
Total
   
1,774,620
     
2,256,356
     
409,331
     
4,440,307
 

December 31, 2014
 
Liabilities at fair value through profit and loss
   
Other financial liabilities
   
Total
 
Liabilities as per statement of financial position
           
Borrowings
   
-
     
999,240
     
999,240
 
Derivative financial instruments
   
56,834
     
-
     
56,834
 
Trade and other payables
   
-
     
866,688
     
866,688
 
Total
   
56,834
     
1,865,928
     
1,922,762
 


21


C. Fair value hierarchy

IFRS 13 requires for financial instruments that are measured in the statement of financial position at fair value, a disclosure of fair value measurements by level according to the following fair value measurement hierarchy:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The following table presents the assets and liabilities that are measured at fair value as of December 31, 2015 and 2014.

December 31, 2015
 
Level 1
   
Level 2
   
Level 3 (*)
   
Total
 
Assets
 
   
   
   
 
Cash and cash equivalents
   
185,528
     
-
     
-
     
185,528
 
Other investments
   
1,348,269
     
792,593
     
1,662
     
2,142,524
 
Derivatives financial instruments
   
-
     
18,250
     
-
     
18,250
 
Available for sale assets (*)
   
-
     
-
     
21,572
     
21,572
 
Total
   
1,533,797
     
810,843
     
23,234
     
2,367,874
 
Liabilities
                               
Derivatives financial instruments
   
-
     
34,540
     
-
     
34,540
 
Total
   
-
     
34,540
     
-
     
34,540
 

December 31, 2014
 
Level 1
   
Level 2
   
Level 3 (*)
   
Total
 
Assets
               
Cash and cash equivalents
   
296,873
     
-
     
-
     
296,873
 
Other investments
   
1,277,465
     
560,914
     
1,539
     
1,839,918
 
Derivatives financial instruments
   
-
     
25,588
     
-
     
25,588
 
Available for sale assets (*)
   
-
     
-
     
21,572
     
21,572
 
Total
   
1,574,338
     
586,502
     
23,111
     
2,183,951
 
Liabilities
                               
Derivatives financial instruments
   
-
     
56,834
     
-
     
56,834
 
Total
   
-
     
56,834
     
-
     
56,834
 

(*) For further detail regarding Available for sale assets, see Note 30.

There were no transfers between Level 1 and 2 during the period.

The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held by Tenaris is the current bid price. These instruments are included in Level 1 and comprise primarily corporate and sovereign debt securities.

The fair value of financial instruments that are not traded in an active market (such as certain debt securities, certificates of deposits with original maturity of more than three months, forward and interest rate derivative instruments) is determined by using valuation techniques which maximize the use of observable market data when available and rely as little as possible on entity specific estimates. If all significant inputs required to value an instrument are observable, the instrument is included in Level 2. Tenaris values its assets and liabilities included in this level using bid prices, interest rate curves, broker quotations, current exchange rates, forward rates and implied volatilities obtained from market contributors as of the valuation date.
 
 
22


 
C. Fair value hierarchy (Cont.)

If one or more of the significant inputs are not based on observable market data, the instruments are included in Level 3. Tenaris values its assets and liabilities in this level using observable market inputs and management assumptions which reflect the Company's best estimate on how market participants would price the asset or liability at measurement date. Main balances included in this level correspond to Available for sale assets related to Tenaris' interest in Venezuelan companies under process of nationalization (see Note 30).

The following table presents the changes in Level 3 assets and liabilities:

   
Year ended December 31,
 
   
2015
   
2014
 
   
Assets / Liabilities
 
At the beginning of the period
   
23,111
     
24,070
 
Currency translation adjustment and others
   
123
     
(959
)
At the end of the year
   
23,234
     
23,111
 

D. Fair value estimation

Financial assets or liabilities classified as assets at fair value through profit or loss are measured under the framework established by the IASB accounting guidance for fair value measurements and disclosures.

The fair values of quoted investments are generally based on current bid prices. If the market for a financial asset is not active or no market is available, fair values are established using standard valuation techniques.

Some of Tenaris investments are designated as held to maturity and measured at amortized cost. Tenaris estimates that the fair value of these financial assets is 99% of its carrying amount including interests accrued as of December 31, 2015.

The fair value of all outstanding derivatives is determined using specific pricing models that include inputs that are observable in the market or can be derived from or corroborated by observable data. The fair value of forward foreign exchange contracts is calculated as the net present value of the estimated future cash flows in each currency, based on observable yield curves, converted into U.S. dollars at the spot rate of the valuation date.

Borrowings are comprised primarily of fixed rate debt and variable rate debt with a short term portion where interest has already been fixed. They are classified under other financial liabilities and measured at their amortized cost. Tenaris estimates that the fair value of its main financial liabilities is approximately 99% of its carrying amount including interests accrued in 2015 as compared with 100% in 2014. Fair values were calculated using standard valuation techniques for floating rate instruments and comparable market rates for discounting flows.
 

 
23


E. Accounting for derivative financial instruments and hedging activities

Derivative financial instruments are initially recognized in the statement of financial position at fair value through profit and loss on each date a derivative contract is entered into and are subsequently remeasured at fair value. Specific tools are used for calculation of each instrument's fair value and these tools are tested for consistency on a monthly basis. Market rates are used for all pricing operations. These include exchange rates, deposit rates and other discount rates matching the nature of each underlying risk.
As a general rule, Tenaris recognizes the full amount related to the change in fair value of derivative financial instruments in Financial results in the Consolidated Income Statement.
Tenaris designates certain derivatives as hedges of particular risks associated with recognized assets or liabilities or highly probable forecast transactions. These transactions (mainly currency forward contracts on highly probable forecast transactions) are classified as cash flow hedges. The effective portion of the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in equity. Amounts accumulated in equity are then recognized in the income statement in the same period than the offsetting losses and gains on the hedged item. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. The fair value of Tenaris' derivative financial instruments (assets or liabilities) continues to be reflected in the statement of financial position. The full fair value of a hedging derivative is classified as a current or non current asset or liability according to its expiry date.

For transactions designated and qualifying for hedge accounting, Tenaris documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. Tenaris also documents its assessment on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair value or cash flow of hedged items. At December 31, 2015 and 2014, the effective portion of designated cash flow hedges which is included in "Other Reserves" in equity amounts to $2.8 million credit and $7.9 million debit (see Note 24 Derivative financial instruments).

The fair values of various derivative instruments used for hedging purposes are disclosed in Note 24. Movements in the hedging reserve included within "Other Reserves" in equity are also shown in Note 24.
 
 
24


 

IV. OTHER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In the notes all amounts are shown in thousands of U.S. dollars, unless otherwise stated)

1            Segment information
As mentioned in section II. AP – C, the Segment Information is disclosed as follows:

Reportable operating segments

(all amounts in thousands of U.S. dollars)
 
   
   
 
Year ended December 31, 2015
 
Tubes
   
Other
   
Total
 
             
IFRS - Net Sales
   
6,443,814
     
656,939
     
7,100,753
 
Management View - Operating income
   
685,870
     
66,431
     
752,301
 
·   Differences in cost of sales and others
   
(228,948
)
   
(9,794
)
   
(238,742
)
·   Differences in impairment / Depreciation and amortization
   
(319,293
)
   
1,162
     
(318,131
)
IFRS - Operating income
   
137,629
     
57,799
     
195,428
 
Financial income (expense), net
                   
14,210
 
Income before equity in earnings of non-consolidated companies and income tax
                   
209,638
 
Equity in losses of non-consolidated companies
                   
(39,558
)
Income before income tax
                   
170,080
 
                         
Capital expenditures
   
1,088,901
     
42,618
     
1,131,519
 
Depreciation and amortization
   
638,456
     
20,322
     
658,778
 

(all amounts in thousands of U.S. dollars)
 
 
Year ended December 31, 2014
 
Tubes
   
Other
   
Total
 
             
IFRS - Net Sales
   
9,581,615
     
756,347
     
10,337,962
 
                         
Management View - Operating income
   
2,022,429
     
27,735
     
2,050,164
 
·   Differences in cost of sales and others
   
(35,463
)
   
5,197
     
(30,266
)
·   Depreciation and amortization/Impairment
   
(121,289
)
   
207
     
(121,082
)
IFRS - Operating income
   
1,865,677
     
33,139
     
1,898,816
 
Financial income (expense), net
                   
33,037
 
Income before equity in earnings of non-consolidated companies and income tax
                   
1,931,853
 
Equity in losses of non-consolidated companies
                   
(164,616
)
Income before income tax
                   
1,767,237
 
                         
Capital expenditures
   
1,051,148
     
38,225
     
1,089,373
 
Depreciation and amortization
   
593,671
     
21,958
     
615,629
 

(all amounts in thousands of U.S. dollars)
 
 
Year ended December 31, 2013
 
Tubes
   
Other
   
Total
 
IFRS - Net Sales
   
9,812,295
     
784,486
     
10,596,781
 
                         
Management View - Operating income
   
2,098,160
     
91,265
     
2,189,425
 
·   Differences in cost of sales and others
   
(1,855
)
   
(3,337
)
   
(5,192
)
·   Depreciation and amortization
   
711
     
(114
)
   
597
 
IFRS - Operating income
   
2,097,016
     
87,814
     
2,184,830
 
Financial income (expense), net
                   
(28,679
)
Income before equity in earnings of non-consolidated companies and income tax
                   
2,156,151
 
Equity in earnings of non-consolidated companies
                   
46,098
 
Income before income tax
                   
2,202,249
 
                         
Capital expenditures
   
721,869
     
31,629
     
753,498
 
Depreciation and amortization
   
589,482
     
20,572
     
610,054
 


Transactions between segments, which were eliminated in consolidation, mainly related to sales of scrap, energy, surplus raw materials and others from the Other segment to the Tubes segment for $57,468, $233,863 and $276,388 in 2015, 2014 and 2013, respectively.

Net income under Management view amounted to $18.2 million, while under IFRS amounted to $74.4 million loss. In addition to the amounts reconciled above, the main differences arise from the impact of functional currencies on financial result, deferred income taxes as well as the result of investment in non-consolidated companies and changes on the valuation of inventories according to cost estimation internally defined.
 
25


 
1            Segment information (Cont.)

Geographical information

(all amounts in thousands of U.S. dollars)
 
North America
   
South America
   
Europe
   
Middle East & Africa
   
Far East & Oceania
   
Unallocated (*)
   
Total
 
Year ended December 31, 2015
 
   
   
   
   
         
Net sales
   
2,865,041
     
2,133,534
     
728,815
     
1,096,688
     
276,675
     
-
     
7,100,753
 
Total assets
   
8,713,235
     
2,931,297
     
1,877,429
     
429,317
     
423,479
     
512,217
     
14,886,974
 
Trade receivables
   
367,439
     
396,834
     
181,084
     
137,278
     
52,494
     
-
     
1,135,129
 
Property, plant and equipment, net
   
3,253,317
     
1,269,995
     
907,466
     
86,181
     
155,299
     
-
     
5,672,258
 
Capital expenditures
   
823,602
     
168,140
     
82,344
     
36,867
     
20,566
     
-
     
1,131,519
 
Depreciation and amortization
   
390,654
     
125,754
     
112,742
     
9,912
     
19,716
     
-
     
658,778
 
                                                         
Year ended December 31, 2014
                                                       
Net sales
   
4,977,239
     
2,125,984
     
979,042
     
1,843,778
     
411,919
     
-
     
10,337,962
 
Total assets
   
9,550,349
     
3,340,973
     
1,857,285
     
598,175
     
498,694
     
665,202
     
16,510,678
 
Trade receivables
   
733,864
     
554,542
     
259,115
     
340,880
     
74,993
     
-
     
1,963,394
 
Property, plant and equipment, net
   
2,953,763
     
1,303,162
     
683,283
     
60,354
     
158,995
     
-
     
5,159,557
 
Capital expenditures
   
610,252
     
338,995
     
111,232
     
10,891
     
18,003
     
-
     
1,089,373
 
Depreciation and amortization
   
345,185
     
120,905
     
119,226
     
10,154
     
20,159
     
-
     
615,629
 
                                                         
Year ended December 31, 2013
                                                       
Net sales
   
4,412,263
     
2,586,496
     
958,178
     
2,119,896
     
519,948
     
-
     
10,596,781
 
Total assets
   
8,130,812
     
3,150,000
     
2,561,557
     
562,206
     
592,065
     
934,330
     
15,930,970
 
Trade receivables
   
613,735
     
506,044
     
364,806
     
373,844
     
124,550
     
-
     
1,982,979
 
Property, plant and equipment, net
   
2,292,811
     
1,098,733
     
1,059,887
     
59,196
     
163,140
     
-
     
4,673,767
 
Capital expenditures
   
285,413
     
283,265
     
151,550
     
5,048
     
28,222
     
-
     
753,498
 
Depreciation and amortization
   
327,344
     
110,496
     
140,180
     
10,594
     
21,440
     
-
     
610,054
 
                                                         

There are no revenues from external customers attributable to the Company's country of incorporation (Luxembourg). For geographical information purposes, "North America" comprises Canada, Mexico and the USA (27.4%); "South America" comprises principally Argentina (18.8%), Brazil and Colombia; "Europe" comprises principally Italy, Norway and Romania; "Middle East and Africa" comprises principally Angola, Nigeria and Saudi Arabia and; "Far East and Oceania" comprises principally China, Japan and Indonesia.


(*) Includes Investments in non-consolidated companies and Available for sale assets for $21.6 million in 2015, 2014 and 2013 (see Note 12 and 30).

 
26


 
2            Cost of sales

   
Year ended December 31,
 
(all amounts in thousands of U.S. dollars)
 
2015
   
2014
   
2013
 
   
     
Inventories at the beginning of the year
   
2,779,869
     
2,702,647
     
2,985,805
 
                         
Plus: Charges of the period
                       
Raw materials, energy, consumables and other
   
1,934,209
     
3,944,283
     
3,749,921
 
Increase in inventory due to business combinations
   
-
     
4,338
     
-
 
Services and fees
   
298,470
     
453,818
     
422,142
 
Labor cost
   
947,997
     
1,204,720
     
1,199,351
 
Depreciation of property, plant and equipment
   
377,596
     
366,932
     
368,507
 
Amortization of intangible assets
   
24,100
     
17,324
     
8,263
 
Maintenance expenses
   
184,053
     
217,694
     
202,338
 
Allowance for obsolescence
   
68,669
     
4,704
     
70,970
 
Taxes
   
21,523
     
20,024
     
4,956
 
Other
   
92,059
     
130,845
     
147,180
 
     
3,948,676
     
6,364,682
     
6,173,628
 
                         
Less: Inventories at the end of the year
   
(1,843,467
)
   
(2,779,869
)
   
(2,702,647
)
     
4,885,078
     
6,287,460
     
6,456,786
 

For the year ended December 2015, labor cost includes approximately $104 million of severance indemnities related to the adjustment of the workforce to current market conditions.

3            Selling, general and administrative expenses

   
Year ended December 31,
 
(all amounts in thousands of U.S. dollars)
 
2015
   
2014
   
2013
 
   
     
Services and fees
   
158,541
     
178,700
     
177,996
 
Labor cost
   
579,360
     
594,660
     
575,588
 
Depreciation of property, plant and equipment
   
18,543
     
20,197
     
19,132
 
Amortization of intangible assets
   
238,539
     
211,176
     
214,152
 
Commissions, freight and other selling expenses
   
351,657
     
598,138
     
600,239
 
Provisions for contingencies
   
19,672
     
35,557
     
31,429
 
Allowances for doubtful accounts
   
36,788
     
21,704
     
23,236
 
Taxes
   
129,018
     
165,675
     
170,659
 
Other
   
92,157
     
138,145
     
128,782
 
     
1,624,275
     
1,963,952
     
1,941,213
 

For the year ended December 2015, labor cost includes approximately $73 million of severance indemnities related to the adjustment of the workforce to current market conditions.

4 Labor costs (included in Cost of sales and in Selling, general and administrative expenses)

   
Year ended December 31,
 
(all amounts in thousands of U.S. dollars)
 
2015
   
2014
   
2013
 
   
     
Wages, salaries and social security costs
   
1,504,918
     
1,743,253
     
1,714,471
 
Employees' service rescission indemnity (including those classified as defined contribution plans)
   
13,286
     
17,431
     
10,978
 
Pension benefits - defined benefit plans
   
14,813
     
18,645
     
32,112
 
Employee retention and long term incentive program
   
(5,660
)
   
20,051
     
17,378
 
     
1,527,357
     
1,799,380
     
1,774,939
 

At the year-end, the number of employees was 21,741 in 2015, 27,816 in 2014 and 26,825 in 2013.

 
27


 
4 Labor costs (included in Cost of sales and in Selling, general and administrative expenses) (Cont.)

The following table shows the geographical distribution of the employees:

Country
 
2015
   
2014
   
2013
 
Argentina
   
5,388
     
6,421
     
6,379
 
Mexico
   
5,101
     
5,518
     
5,290
 
Brazil
   
2,050
     
3,835
     
3,309
 
USA
   
2,190
     
3,549
     
3,449
 
Italy
   
2,030
     
2,352
     
2,352
 
Romania
   
1,624
     
1,725
     
1,637
 
Canada
   
546
     
1,225
     
1,280
 
Indonesia
   
532
     
677
     
711
 
Colombia
   
636
     
614
     
627
 
Japan
   
508
     
588
     
565
 
Other
   
1,136
     
1,312
     
1,226
 
     
21,741
     
27,816
     
26,825
 

5            Other operating income and expenses

   
Year ended December 31,
 
(all amounts in thousands of U.S. dollars)
 
2015
   
2014
   
2013
 
   
     
Other operating income
           
Net income from other sales
   
7,480
     
8,843
     
10,663
 
Net rents
   
6,462
     
4,041
     
3,494
 
Other
   
661
     
14,971
     
148
 
     
14,603
     
27,855
     
14,305
 
                         
Other operating expenses
                       
Contributions to welfare projects and non-profits organizations
   
9,052
     
9,961
     
21,147
 
Provisions for legal claims and contingencies
   
1
     
(760
)
   
(2
)
Loss on fixed assets and material supplies disposed / scrapped
   
94
     
203
     
39
 
Impairment charge
   
400,314
     
205,849
     
-
 
Allowance for doubtful receivables
   
1,114
     
336
     
1,708
 
Other
   
-
     
-
     
5,365
 
     
410,575
     
215,589
     
28,257
 
                         


Impairment charge

Tenaris' main source of revenue is the sale of products and services to the oil and gas industry, and the level of such sales is sensitive to international oil and gas prices and their impact on drilling activities.

A continuous decline in oil prices and futures resulted in reductions in Tenaris customers` investments. Drilling activity and demand of products and services, particularly in North America, continues to decline. Selling prices of products in North America were also affected by high levels of unfairly traded imported products (including the accumulation of excess inventories of imported products).

Tenaris regularly conducts assessments of the carrying values of its assets. The value-in-use was used to determine the recoverable value. Value-in-use is calculated by discounting the estimated cash flows over a five year period based on forecasts approved by management. For the subsequent years beyond the five-year period, a terminal value is calculated based on perpetuity considering a nominal growth rate of 2%. The growth rate considers the long-term average growth rate for the oil and gas industry, the higher demand to offset depletion of existing fields and the Company's expected market penetration.

The main key assumptions, used in estimating the value in use are oil and natural gas prices evolution, the level of drilling activity and Tenaris' market share.

For purposes of assessing key assumptions, Tenaris uses external sources of information and management judgment based on past experience.
 
 
28


 
5            Other operating income and expenses (Cont.)

The discount rates used are based on the respective weighted average cost of capital (WACC) which is considered to be a good indicator of capital cost. For each CGU where assets are allocated, a specific WACC was determined taking into account the industry, country and size of the business. In 2015, the main discount rates used were in a range between 9% and 13%.

During the third quarter 2015 and as a result of the deterioration of business conditions for its welded pipe assets in the United States, Tenaris decided to write down the goodwill value on these assets recording an impairment charge of  $400.3 million. Consequently, the carrying value of the assets impaired was as follows:

(all amounts in thousands of U.S. dollars)
 Assets before impairment
 Impairment
 Assets after impairment
 OCTG - USA
1,382,993
(400,314)
982,679

The main factors that could result in additional impairment charges in future periods would be an increase in the discount rate / decrease in growth rate used in the Company's cash flow projections and a further deterioration of the business, competitive and economic factors, such as the oil and gas prices, capital expenditure program of Tenaris' clients, the evolution of the rig count, the competitive environment and the cost of raw materials.

As of December 31, 2015 for the OCTG – USA CGU an increase of 100 Bps in the discount rate, a decline of 100 Bps in the growth rate or a decline of 5% in the cash flow projections, would not generate a material effect on the carrying amount of the CGU as of that date.

Following the requirements of IAS 36, Tenaris has determined the CGU for which a reasonable possible change in a key assumptions would cause the CGU's carrying amount to exceed its recoverable amount. For Tubocaribe an increase of 100 Bps in the discount rate would generate an impairment of $32 million; a decline of 100 Bps in the growth rate would generate an impairment of $19 million; and a decline of 5% in the cash flow projections would generate an impairment of $14 million.

At December 31, 2014, the Company recorded an impairment charge over its welded pipe assets in Colombia and Canada. The carrying value of the assets impaired (i.e., property, plant and equipment and intangible assets) was as follows:

 (all amounts in thousands of U.S. dollars)
 
Assets before impairment
   
Impairment
   
Assets after impairment
 
 Tubocaribe – Colombia
   
255,060
     
(174,239
)
   
80,821
 
 Prudential – Canada
   
261,497
     
(31,610
)
   
229,887
 
Total
   
516,557
     
(205,849
)
   
310,708
 

6            Financial results

(all amounts in thousands of U.S. dollars)
 
Year ended December 31,
 
   
2015
   
2014
   
2013
 
   
     
     Interest Income
   
39,516
     
34,582
     
34,046
 
     Interest from available-for-sale financial assets
   
-
     
4,992
     
191
 
     Net result on changes in FV of financial assets at FVTPL
   
(4,942
)
   
(1,478
)
   
540
 
     Net result on available-for-sale financial assets
   
-
     
115
     
(10
)
Finance income
   
34,574
     
38,211
     
34,767
 
Finance Cost
   
(23,058
)
   
(44,388
)
   
(70,450
)
     Net foreign exchange transactions results
   
(13,301
)
   
50,298
     
37,179
 
     Foreign exchange derivatives contracts results
   
30,468
     
(4,733
)
   
4,414
 
     Other
   
(14,473
)
   
(6,351
)
   
(34,589
)
Other Financial results
   
2,694
     
39,214
     
7,004
 
Net Financial results
   
14,210
     
33,037
     
(28,679
)


During the period Tenaris has derecognized all its fixed income financial instruments categorized as available for sale. Following is an evolution of the available for sale financial assets reserve in Other Comprehensive Income.

   
Equity Reserve Dec-13
   
Movements 2014
   
Equity Reserve Dec-14
   
Movements 2015
   
Equity Reserve Dec-15
 
Available for sale
   
(39
)
   
(2,447
)
   
(2,486
)
   
2,486
     
-
 
Total Available for sale reserve
   
(39
)
   
(2,447
)
   
(2,486
)
   
2,486
     
-
 
 
 
29


 
7            Equity in earnings (losses) of non-consolidated companies

   
Year ended December 31,
 
(all amounts in thousands of U.S. dollars)
 
2015
   
2014
   
2013
 
             
 From non-consolidated companies
   
(10,674
)
   
(24,696
)
   
46,098
 
 Gain on equity interest (see Note 26)
   
-
     
21,302
     
-
 
 Impairment loss on non-consolidated companies (see Note 12)
   
(28,884
)
   
(161,222
)
   
-
 
     
(39,558
)
   
(164,616
)
   
46,098
 

8            Income tax

   
Year ended December 31,
 
(all amounts in thousands of U.S. dollars)
 
2015
   
2014
   
2013
 
   
   
     
Current tax
   
164,562
     
695,136
     
594,179
 
Deferred tax
   
79,943
     
(109,075
)
   
33,698
 
     
244,505
     
586,061
     
627,877
 

The tax on Tenaris' income before tax differs from the theoretical amount that would arise using the tax rate in each country as follows:
   
Year ended December 31,
 
(all amounts in thousands of U.S. dollars)
 
2015
   
2014
   
2013
 
             
Income before income tax
   
170,080
     
1,767,237
     
2,202,249
 
                         
Tax calculated at the tax rate in each country (*)
   
(61,624
)
   
312,714
     
465,029
 
Non taxable income / Non deductible expenses, net (*)
   
149,789
     
132,551
     
72,768
 
Changes in the tax rates
   
6,436
     
3,249
     
8,287
 
Effect of currency translation on tax base (**)
   
151,615
     
138,925
     
92,695
 
Utilization of previously unrecognized tax losses
   
(1,711
)
   
(1,378
)
   
(10,902
)
Tax charge
   
244,505
     
586,061
     
627,877
 

(*) Include the effect of the impairment charges of approximately $400.3 million and $205.8 million in 2015 and 2014, respectively.

(**) Tenaris applies the liability method to recognize deferred income tax on temporary differences between the tax basis of assets and their carrying amounts in the financial statements. By application of this method, Tenaris recognizes gains and losses on deferred income tax due to the effect of the change in the value on the tax basis in subsidiaries (mainly Argentinian, Colombia and Mexican), which have a functional currency different than their local currency. These gains and losses are required by IFRS even though the revalued / devalued tax basis of the relevant assets will not result in any deduction / obligation for tax purposes in future periods.

9            Dividends distribution

On November 4, 2015, the Company's Board of Directors approved the payment of an interim dividend of $0.15 per share ($0.30 per ADS), or approximately $177 million, on November 25, 2015, with an ex-dividend date of November 23, 2015.

On May 6, 2015 the Company's Shareholders approved an annual dividend in the amount of $0.45 per share ($0.90 per ADS). The amount approved included the interim dividend previously paid in November 27, 2014 in the amount of $0.15 per share ($0.30 per ADS). The balance, amounting to $0.30 per share ($0.60 per ADS), was paid on May 20, 2015. In the aggregate, the interim dividend paid in November 2014 and the balance paid in May 2015 amounted to approximately $531.2 million.

On May 7, 2014 the Company's Shareholders approved an annual dividend in the amount of $0.43 per share ($0.86 per ADS). The amount approved included the interim dividend previously paid in November 21, 2013 in the amount of $0.13 per share ($0.26 per ADS). The balance, amounting to $0.30 per share ($0.60 per ADS), was paid on May 22, 2014. In the aggregate, the interim dividend paid in November 2013 and the balance paid in May 2014 amounted to approximately $507.6 million.

On May 2, 2013, the Company's shareholders approved an annual dividend in the amount of $0.43 per share ($0.86 per ADS). The amount approved included the interim dividend previously paid in November 2012, in the amount of $0.13 per share ($0.26 per ADS). The balance, amounting to $0.30 per share ($0.60 per ADS), was paid on May 23, 2013. In the aggregate, the interim dividend paid in November 2012 and the balance paid in May 2013 amounted to approximately $507.6 million.
 

 
30


10            Property, plant and equipment, net

Year ended December 31, 2015
 
Land,
building and improvements
   
Plant and production equipment
   
Vehicles, furniture and fixtures
   
Work in progress
   
Spare parts and equipment
   
Total
 
                         
Cost
                       
Values at the beginning of the year
   
1,633,797
     
8,233,902
     
359,554
     
846,538
     
38,075
     
11,111,866
 
Translation differences
   
(28,711
)
   
(250,470
)
   
(9,382
)
   
(10,352
)
   
(1,919
)
   
(300,834
)
Additions (*)
   
13,065
     
16,064
     
2,022
     
1,036,818
     
(2,246
)
   
1,065,723
 
Disposals / Consumptions
   
(1,892
)
   
(55,452
)
   
(8,940
)
   
(5,691
)
   
(285
)
   
(72,260
)
Transfers / Reclassifications
   
149,844
     
475,748
     
23,718
     
(649,631
)
   
(974
)
   
(1,295
)
Values at the end of the year
   
1,766,103
     
8,419,792
     
366,972
     
1,217,682
     
32,651
     
11,803,200
 
                                                 
Depreciation and impairment
                                               
Accumulated at the beginning of the year
   
418,210
     
5,301,765
     
216,982
     
-
     
15,352
     
5,952,309
 
Translation differences
   
(8,956
)
   
(135,538
)
   
(7,528
)
   
-
     
(1,093
)
   
(153,115
)
Depreciation charge
   
45,644
     
325,241
     
24,313
     
-
     
941
     
396,139
 
Transfers / Reclassifications
   
2,474
     
(4,114
)
   
1,987
     
-
     
(1,485
)
   
(1,138
)
Disposals / Consumptions
   
(1,873
)
   
(54,639
)
   
(6,788
)
   
-
     
47
     
(63,253
)
Accumulated at the end of the year
   
455,499
     
5,432,715
     
228,966
     
-
     
13,762
     
6,130,942
 
At December 31, 2015
   
1,310,604
     
2,987,077
     
138,006
     
1,217,682
     
18,889
     
5,672,258
 


Year ended December 31, 2014
 
Land,
building and improvements
   
Plant and production equipment
   
Vehicles, furniture and fixtures
   
Work in progress
   
Spare parts and equipment
   
Total
 
                         
Cost
                       
Values at the beginning of the year
   
1,498,188
     
8,073,413
     
339,314
     
441,902
     
37,754
     
10,390,571
 
Translation differences
   
(15,137
)
   
(241,044
)
   
(4,445
)
   
(7,719
)
   
(854
)
   
(269,199
)
Additions (*)
   
56,078
     
3,359
     
4,959
     
937,927
     
5,823
     
1,008,146
 
Disposals / Consumptions
   
(2,179
)
   
(32,567
)
   
(6,436
)
   
-
     
(4,922
)
   
(46,104
)
Increase due to business combinations
   
5,059
     
20,803
     
2,758
     
859
     
31
     
29,510
 
Transfers / Reclassifications
   
91,788
     
409,938
     
23,404
     
(526,431
)
   
243
     
(1,058
)
Values at the end of the year
   
1,633,797
     
8,233,902
     
359,554
     
846,538
     
38,075
     
11,111,866
 
                                                 
Depreciation and impairment
                                               
Accumulated at the beginning of the year
   
373,304
     
5,131,501
     
197,555
     
-
     
14,444
     
5,716,804
 
Translation differences
   
(5,996
)
   
(134,723
)
   
(3,677
)
   
-
     
(256
)
   
(144,652
)
Depreciation charge
   
47,132
     
313,745
     
25,088
     
-
     
1,164
     
387,129
 
Transfers / Reclassifications
   
23
     
(38
)
   
603
     
-
     
-
     
588
 
Increase due to business combinations
   
2,044
     
12,745
     
2,291
     
-
     
-
     
17,080
 
Impairment charge (See Note 5)
   
3,019
     
7,905
     
-
     
-
     
-
     
10,924
 
Disposals / Consumptions
   
(1,316
)
   
(29,370
)
   
(4,878
)
   
-
     
-
     
(35,564
)
Accumulated at the end of the year
   
418,210
     
5,301,765
     
216,982
     
-
     
15,352
     
5,952,309
 
At December 31, 2014
   
1,215,587
     
2,932,137
     
142,572
     
846,538
     
22,723
     
5,159,557
 

Property, plant and equipment include capitalized interests for net amounts at December 31, 2015 and 2014 of $15.5 million and $3.3 million, respectively.

(*) The increase is mainly due to progress in the construction of the greenfield seamless facility in Bay City, Texas.
 
 
31


 
11            Intangible assets, net

Year ended December 31, 2015
 
Information system projects
   
Licenses, patents and trademarks (*)
   
Goodwill
   
Customer relationships
   
Total
 
                     
Cost
                   
Values at the beginning of the year
   
471,935
     
494,014
     
2,182,004
     
2,059,946
     
5,207,899
 
Translation differences
   
(12,127
)
   
(127
)
   
(11,295
)
   
-
     
(23,549
)
Additions
   
65,022
     
774
     
-
     
-
     
65,796
 
Transfers / Reclassifications
   
95
     
1,028
     
-
     
-
     
1,123
 
Disposals
   
(56
)
   
(1,027
)
   
-
     
-
     
(1,083
)
Values at the end of the year
   
524,869
     
494,662
     
2,170,709
     
2,059,946
     
5,250,186
 
                                         
Amortization and impairment
                                       
Accumulated at the beginning of the year
   
283,679
     
332,823
     
436,625
     
1,397,142
     
2,450,269
 
Translation differences
   
(7,454
)
   
-
     
-
     
-
     
(7,454
)
Amortization charge
   
59,342
     
30,588
     
-
     
172,709
     
262,639
 
Impairment charge (See Note 5)
   
-
     
-
     
400,314
     
-
     
400,314
 
Transfers / Reclassifications
   
(35
)
   
1,001
     
-
     
-
     
966
 
Accumulated at the end of the year
   
335,532
     
364,412
     
836,939
     
1,569,851
     
3,106,734
 
At December 31, 2015
   
189,337
     
130,250
     
1,333,770
     
490,095
     
2,143,452
 

Year ended December 31, 2014
 
Information system projects
   
Licenses, patents and trademarks (*)
   
Goodwill
   
Customer relationships
   
Total
 
                     
Cost
                   
Values at the beginning of the year
   
400,488
     
492,829
     
2,147,242
     
2,059,946
     
5,100,505
 
Translation differences
   
(9,590
)
   
(63
)
   
(6,481
)
   
-
     
(16,134
)
Additions
   
79,983
     
1,244
     
-
     
-
     
81,227
 
Transfers / Reclassifications
   
1,090
     
556
     
-
     
-
     
1,646
 
Increase due to business combinations
   
28
     
-
     
41,243
     
-
     
41,271
 
Disposals
   
(64
)
   
(552
)
   
-
     
-
     
(616
)
Values at the end of the year
   
471,935
     
494,014
     
2,182,004
     
2,059,946
     
5,207,899
 
                                         
Amortization and impairment
                                       
Accumulated at the beginning of the year
   
249,916
     
302,444
     
340,488
     
1,140,421
     
2,033,269
 
Translation differences
   
(6,425
)
   
-
     
-
     
-
     
(6,425
)
Amortization charge
   
40,188
     
30,379
     
-
     
157,933
     
228,500
 
Impairment charge (See Note 5)
   
-
     
-
     
96,137
     
98,788
     
194,925
 
Accumulated at the end of the year
   
283,679
     
332,823
     
436,625
     
1,397,142
     
2,450,269
 
At December 31, 2014
   
188,256
     
161,191
     
1,745,379
     
662,804
     
2,757,630
 

 (*) Includes Proprietary Technology.
The geographical allocation of goodwill for the year ended December 31, 2015 was $1.214.3 million for North America, $116.9 million for South America $1.9 million for Europe, and $0.7 million for Middle East & Africa.

The carrying amount of goodwill allocated by CGU, as of December 31, 2015, was as follows:

As of December 31, 2015
 
Tubes Segment
   
Other Segment
   
 
CGU
 
Maverick Acquisition
   
Hydril Acquisition
   
Other
   
Maverick Acquisition
   
Total
 
OCTG (USA)
   
225
     
-
     
-
     
-
     
225
 
Tamsa (Hydril and other)
   
-
     
346
     
19
     
-
     
365
 
Siderca (Hydril and other)
   
-
     
265
     
93
     
-
     
358
 
Hydril
   
-
     
309
     
-
     
-
     
309
 
Electric Conduits
   
46
     
-
     
-
     
-
     
46
 
Coiled Tubing
   
-
     
-
     
-
     
4
     
4
 
Other
   
-
     
-
     
26
     
-
     
26
 
Total
   
271
     
920
     
139
     
4
     
1,334
 
 
 
32


 
12            Investments in non-consolidated companies

 
 
Year ended December 31,
 
 
 
2015
   
2014
 
 
 
     
At the beginning of the year
   
643,630
     
912,758
 
Translation differences
   
(92,914
)
   
(54,688
)
Equity in earnings of non-consolidated companies
   
(10,674
)
   
(24,696
)
Impairment loss in non-consolidated companies
   
(28,884
)
   
(161,222
)
Dividends and distributions received
   
(20,674
)
   
(17,735
)
Additions (c)
   
4,400
     
1,380
 
Decrease due to consolidation (*)
   
-
     
(8,310
)
Decrease / increase in equity reserves
   
(4,239
)
   
(3,857
)
At the end of the period
   
490,645
     
643,630
 

 (*) See Note 26

The principal non-consolidated companies are:

   
% ownership - voting rights at December 31,
Value at December 31,
Company
Country of incorporation
2015
2014
2015
2014
a) Ternium S.A.
Luxembourg
11.46% (*)
11.46% (*)
449,375
527,080
b) Usiminas S.A.
Brazil
2.5% - 5%
2.5% - 5%
36,109
113,099
     Others
-
-
-
5,161
3,451
       
490,645
643,630

 (*) Including treasury shares.
a) Ternium S.A.

Ternium S.A. ("Ternium"), is a steel producer with production facilities in Mexico, Argentina, Colombia, United States and Guatemala and is one of Tenaris' main suppliers of round steel bars and flat steel products for its pipes business.
At December 31, 2015, the closing price of Ternium's ADSs as quoted on the New York Stock Exchange was $12.4 per ADS, giving Tenaris' ownership stake a market value of approximately $285.5 million (Level 1). At December 31, 2015, the carrying value of Tenaris' ownership stake in Ternium, based on Ternium's IFRS financial statements, was approximately $449.4 million. See Section II.B.2.

The Company reviews periodically the recoverability of its investment in Ternium. To determine the recoverable value, the Company estimates the value in use of the investment by calculating the present value of the expected cash flows. The key assumptions used by the Company are based on external and internal sources of information, and management judgment based on past experience and expectations of future changes in the market.

Value-in-use was calculated by discounting the estimated cash flows over a five year period based on forecasts approved by management. For the subsequent years beyond the five-year period, a terminal value was calculated based on perpetuity considering a nominal growth rate of 2%. The discount rates used are based on the respective weighted average cost of capital (WACC), which is considered to be a good indicator of capital cost. The discount rate used to test the investment in Ternium for impairment was 10.6%.

b) Usiminas S.A.

Usiminas is a Brazilian producer of high quality flat steel products used in the energy, automotive and other industries and it is Tenaris' principal supplier of flat steel in Brazil for its pipes and industrial equipment businesses.

At December 31, 2015, the closing price of the Usiminas' ordinary shares as quoted on the BM&F Bovespa Stock Exchange was BRL 4.0 (approximately $1.03) per share, giving Tenaris' ownership stake a market value of approximately $25.7 million (Level 1). At December 31, 2015, the carrying value of Tenaris' ownership stake in Usiminas, was approximately $36.1 million.
 

 
33


12 Investments in non-consolidated companies (Cont.)

b) Usiminas S.A. (Cont.)

The Company reviews periodically the recoverability of its investment in Usiminas. To determine the recoverable value, the Company estimates the value in use of the investment by calculating the present value of the expected cash flows. There is a significant interaction among the principal assumptions made in estimating Usiminas' cash flow projections, which include iron ore and steel prices, foreign exchange and interest rates, Brazilian GDP and steel consumption in the Brazilian market. The key assumptions used by the Company are based on external and internal sources of information, and management judgment based on past experience and expectations of future changes in the market.

Usiminas' financial statements as of December 31, 2015 described a downgraded economic scenario for the company that caused a significant impact on its financial leverage and cash generation. In addition, Usiminas' auditors included in their report on these financial statements an emphasis of matter paragraph which, without qualifying their opinion, indicated the existence of "a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern" as a result of the risk of  not achieving an action plan defined by Usiminas' management to equalize its financial obligations with cash generation. Consequently, Tenaris, in a conservative approach and considering the guidance of IAS 36, assessed the recoverable value of its investment in Usiminas based on Usiminas ordinary shares average market price for December 2015, and impaired its investment by $28.9 million.

c) Techgen, S.A. de C.V. ("Techgen")
 
Techgen is a Mexican company currently undertaking the construction and operation of a natural gas-fired combined cycle electric power plant in the Pesquería area of the State of Nuevo León, Mexico, with a power capacity of between 850 and 900 megawatts. As of February 2014, Tenaris completed the initial investments in Techgen of 22% of its share capital, the remaining ownership is held by Ternium and Tecpetrol International S.A. (a wholly-owned subsidiary of San Faustin S.A., the controlling shareholder of both Tenaris and Ternium) by 48% and 30% respectively.

Techgen is a party to transportation capacity agreements for a purchasing capacity of 150,000 MMBtu/Gas per day starting on June 1, 2016 and ending on May 31, 2036, and a party to a contract for the purchase of power generation equipment and other services related to the equipment. As of December 31, 2015, Tenaris exposure under these agreements amount to $62.6 million and $2.2 million respectively.

Tenaris issued a Corporate Guarantee covering 22% of the obligations of Techgen under a syndicated loan agreement between Techgen and several banks. The loan agreement amounted to $800 million to be used in the construction of the facility. The main covenants under the Corporate Guarantee are limitations on the sale of certain assets and compliance with financial ratios (e.g. leverage ratio). As of December 31, 2015, disbursements under the loan agreement amounted $800 million, as a result the amount guaranteed by Tenaris was approximately $176 million.

Summarized selected financial information of Ternium and Usiminas, including the aggregated amounts of assets, liabilities, revenues and profit or loss is as follows:

   
2015
   
2014
 
 
 
Usiminas S.A.
   
Ternium S.A.
   
Usiminas S.A.
   
Ternium S.A.
 
Non-current assets
   
5,343,038
     
5,480,389
     
8,372,431
     
6,341,290
 
Current assets
   
1,765,733
     
2,582,204
     
3,104,137
     
3,348,869
 
Total assets
   
7,108,771
     
8,062,593
     
11,476,568
     
9,690,159
 
Non-current liabilities
   
2,117,536
     
1,558,979
     
2,617,657
     
1,964,070
 
Current liabilities
   
1,151,383
     
1,700,617
     
1,795,583
     
2,091,386
 
Total liabilities
   
3,268,919
     
3,259,596
     
4,413,240
     
4,055,456
 
Non-controlling interests
   
405,880
     
769,849
     
768,749
     
937,502
 
Revenues
   
3,115,551
     
7,877,449
     
5,016,528
     
8,726,057
 
Gross profit
   
70,801
     
1,400,177
     
447,311
     
1,800,888
 
                                 
Net (loss) income for the year attributable to owners of the parent
   
(1,053,806
)
   
8,127
     
61,531
     
(198,751
)
Total comprehensive loss for the year, net of tax, attributable to owners of the parent
           
(457,750
)
           
(495,603
)
 
 
34


 
13            Receivables – non current
 
 
Year ended December 31,
 
 
 
2015
   
2014
 
 
 
 
Government entities
   
1,113
     
1,697
 
Employee advances and loans
   
11,485
     
12,214
 
Tax credits
   
25,660
     
29,997
 
Receivables from related parties
   
62,675
     
43,093
 
Legal deposits
   
14,719
     
21,313
 
Advances to suppliers and other advances
   
70,509
     
119,970
 
Others
   
35,515
     
35,588
 
 
   
221,676
     
263,872
 
Allowances for doubtful accounts (see Note 22 (i))
   
(1,112
)
   
(1,696
)
 
   
220,564
     
262,176
 

14            Inventories

 
 
Year ended December 31,
 
 
 
2015
   
2014
 
 
 
 
Finished goods
   
741,437
     
1,012,297
 
Goods in process
   
407,126
     
622,365
 
Raw materials
   
277,184
     
396,847
 
Supplies
   
503,692
     
554,946
 
Goods in transit
   
143,228
     
386,954
 
 
   
2,072,667
     
2,973,409
 
Allowance for obsolescence (see Note 23 (i))
   
(229,200
)
   
(193,540
)
 
   
1,843,467
     
2,779,869
 

15            Receivables and prepayments
 
 
Year ended December 31,
 
 
 
2015
   
2014
 
 
 
 
Prepaid expenses and other receivables
   
29,463
     
40,377
 
Government entities
   
3,498
     
3,189
 
Employee advances and loans
   
10,951
     
16,478
 
Advances to suppliers and other advances
   
27,823
     
42,832
 
Government tax refunds on exports
   
7,053
     
16,956
 
Receivables from related parties
   
14,249
     
63,733
 
Derivative financial instruments
   
18,155
     
25,588
 
Miscellaneous
   
44,736
     
66,470
 
 
   
155,928
     
275,623
 
Allowance for other doubtful accounts (see Note 23 (i))
   
(7,082
)
   
(7,992
)
 
   
148,846
     
267,631
 

16            Current tax assets and liabilities

 
 
Year ended December 31,
 
Current tax assets
 
2015
   
2014
 
V.A.T. credits
   
60,730
     
74,129
 
Prepaid taxes
   
127,450
     
55,275
 
 
   
188,180
     
129,404
 

 
 
Year ended December 31,
 
Current tax liabilities
 
2015
   
2014
 
Income tax liabilities
   
46,600
     
239,468
 
V.A.T. liabilities
   
24,661
     
27,156
 
Other taxes
   
64,757
     
85,729
 
 
   
136,018
     
352,353
 
 

 
35


17            Trade receivables
 
 
Year ended December 31,
 
 
 
2015
   
2014
 
Current accounts
   
1,216,126
     
2,002,867
 
Receivables from related parties
   
20,483
     
29,505
 
 
   
1,236,609
     
2,032,372
 
Allowance for doubtful accounts (see Note 23 (i))
   
(101,480
)
   
(68,978
)
 
   
1,135,129
     
1,963,394
 


The following table sets forth details of the aging of trade receivables:

 
         
Past due
 
   
Trade Receivables
   
Not Due
   
1 - 180 days
   
> 180 days
 
At December 31, 2015
 
   
   
   
 
Guaranteed
   
353,537
     
268,606
     
33,706
     
51,225
 
Not guaranteed
   
883,072
     
634,250
     
152,173
     
96,649
 
Guaranteed and not guaranteed
   
1,236,609
     
902,856
     
185,879
     
147,874
 
Allowance for doubtful accounts
   
(101,480
)
   
-
     
(1,664
)
   
(99,816
)
Net Value
   
1,135,129
     
902,856
     
184,215
     
48,058
 
 
                               
At December 31, 2014
                               
Guaranteed
   
571,170
     
495,336
     
70,239
     
5,595
 
Not guaranteed
   
1,461,202
     
1,186,958
     
203,116
     
71,128
 
Guaranteed and not guaranteed
   
2,032,372
     
1,682,294
     
273,355
     
76,723
 
Allowance for doubtful accounts
   
(68,978
)
   
-
     
(902
)
   
(68,076
)
Net Value
   
1,963,394
     
1,682,294
     
272,453
     
8,647
 

Trade receivables are mainly denominated in U.S. dollar
18            Cash and cash equivalents and Other investments
 
 
Year ended December 31,
 
 
 
2015
   
2014
 
Cash and cash equivalents
 
   
 
Cash at banks
   
101,019
     
120,772
 
Liquidity funds
   
81,735
     
110,952
 
Short – term investments
   
103,793
     
185,921
 
 
   
286,547
     
417,645
 
Other investments - current
               
Fixed Income (time-deposit, zero coupon bonds, commercial papers)
   
877,436
     
718,877
 
Bonds and other fixed Income
   
1,203,695
     
817,823
 
Fund Investments
   
59,731
     
301,679
 
 
   
2,140,862
     
1,838,379
 
Other investments - Non-current
               
Bonds and other fixed Income
   
393,084
     
-
 
Others
   
1,662
     
1,539
 
 
   
394,746
     
1,539
 

 
36


 
19            Borrowings
 
 
Year ended December 31,
 
 
 
2015
   
2014
 
Non-current
     
 
Bank borrowings
   
223,050
     
30,104
 
Finance lease liabilities
   
171
     
729
 
 
   
223,221
     
30,833
 
Current
               
Bank borrowings and other loans including related companies
   
747,704
     
966,741
 
Bank overdrafts
   
349
     
1,200
 
Finance lease liabilities
   
371
     
486
 
Costs of issue of debt
   
(129
)
   
(20
)
 
   
748,295
     
968,407
 
 
               
Total Borrowings
   
971,516
     
999,240
 

The maturity of borrowings is as follows:

   
1 year or less
   
1 - 2 years
   
2 – 3 years
   
3 - 4 years
   
4 - 5 years
   
Over 5 years
   
Total
 
At December 31, 2015
                           
Financial lease
   
371
     
138
     
29
     
4
     
-
     
-
     
542
 
Other borrowings
   
747,924
     
201,152
     
1,261
     
1,285
     
880
     
18,472
     
970,974
 
Total borrowings
   
748,295
     
201,290
     
1,290
     
1,289
     
880
     
18,472
     
971,516
 
 
                                                       
Interest to be accrued (*)
   
1,152
     
1,050
     
1,031
     
1,010
     
990
     
1,046
     
6,279
 
Total
   
749,447
     
202,340
     
2,321
     
2,299
     
1,870
     
19,518
     
977,795
 

   
1 year or less
   
1 - 2 years
   
2 – 3 years
   
3 - 4 years
   
4 - 5 years
   
Over 5 years
   
Total
 
At December 31, 2014
                           
Financial lease
   
487
     
392
     
219
     
97
     
21
     
-
     
1,216
 
Other borrowings
   
967,920
     
7,117
     
1,147
     
1,259
     
1,207
     
19,374
     
998,024
 
Total borrowings
   
968,407
     
7,509
     
1,366
     
1,356
     
1,228
     
19,374
     
999,240
 
 
                                                       
Interest to be accrued (*)
   
19,398
     
2,586
     
1,074
     
1,057
     
1,055
     
2,168
     
27,338
 
Total
   
987,805
     
10,095
     
2,440
     
2,413
     
2,283
     
21,542
     
1,026,578
 

(*) Includes the effect of hedge accounting.

Significant borrowings include:

 
 
 
In million of USD
Disbursement date
Borrower
Type
Original & Outstanding
Final maturity
2015
Tamsa
Bank loans
607
2016
Mainly 2015
Siderca
Bank loans
105
2016
2015
TuboCaribe
Bank loan
200
Jan-17

As of December 31, 2015, Tenaris was in compliance with all of its covenants.

The weighted average interest rates before tax shown below were calculated using the rates set for each instrument in its corresponding currency as of December 31, 2015 and 2014 (considering hedge accounting where applicable).

 
 
2015
   
2014
 
Total borrowings
   
1.52
%
   
1.89
%


 
37


 
19            Borrowings (Cont.)

Breakdown of long-term borrowings by currency and rate is as follows:

Non current borrowings
 
  
 
Year ended December 31,
 
Currency
Interest rates
 
2015
   
2014
 
USD
Fixed
   
219,778
     
21,079
 
ARS
Fixed
   
-
     
4,933
 
EUR
Fixed
   
2,922
     
3,981
 
Others
Variable
   
521
     
840
 
Total non-current borrowings
 
   
223,221
     
30,833
 

Breakdown of short-term borrowings by currency and rate is as follows:

Current borrowings

 
  
 
Year ended December 31,
 
Currency
Interest rates
 
2015
   
2014
 
USD
Variable
   
16,046
     
184,103
 
USD
Fixed
   
2,482
     
14,577
 
EUR
Variable
   
66
     
24,030
 
EUR
Fixed
   
1,047
     
1,272
 
MXN
Fixed
   
614,916
     
522,225
 
ARS
Fixed
   
113,326
     
184,791
 
BRL
Variable
   
-
     
34,446
 
ARS
Variable
   
37
     
71
 
Others
Variable
   
165
     
252
 
Others
Fixed
   
210
     
2,640
 
Total current borrowings
 
   
748,295
     
968,407
 

20            Deferred income tax
Deferred income taxes are calculated in full on temporary differences under the liability method using the tax rate of each country.
The evolution of deferred tax assets and liabilities during the year are as follows:

Deferred tax liabilities
 
 
Fixed assets
   
Inventories
   
Intangible and Other (*)
   
Total
 
 
 
 
At the beginning of the year
   
346,385
     
44,234
     
482,446
     
873,065
 
Translation differences
   
(13,641
)
   
-
     
11,154
     
(2,487
)
Charged directly to Other Comprehensive Income
   
-
     
-
     
3,999
     
3,999
 
Income statement credit / (charge)
   
(18,903
)
   
(1,718
)
   
51,958
     
31,337
 
At December 31, 2015
   
313,841
     
42,516
     
549,557
     
905,914
 

 
 
Fixed assets
   
Inventories
   
Intangible and Other (*)
   
Total
 
 
 
   
   
   
 
At the beginning of the year
   
360,208
     
21,526
     
548,219
     
929,953
 
Translation differences
   
(3,067
)
   
-
     
849
     
(2,218
)
Charged directly to Other Comprehensive Income
   
-
     
682
     
(906
)
   
(224
)
Income statement credit / (charge)
   
(10,756
)
   
22,026
     
(65,716
)
   
(54,446
)
At December 31, 2014
   
346,385
     
44,234
     
482,446
     
873,065
 

(*) Includes the effect of currency translation on tax base explained in Note 8.

 
38

20            Deferred income tax (Cont.)
Deferred tax assets
 
 
Provisions and allowances
   
Inventories
   
Tax losses (*)
   
Other
   
Total
 
 
 
 
At the beginning of the year
   
(45,336
)
   
(189,709
)
   
(41,652
)
   
(150,497
)
   
(427,194
)
Translation differences
   
9,709
     
4,049
     
6,988
     
1,020
     
21,766
 
Charged directly to Other Comprehensive Income
   
-
     
-
     
-
     
527
     
527
 
Income statement charge / (credit)
   
(11,500
)
   
78,282
     
(64,730
)
   
46,554
     
48,606
 
At December 31, 2015
   
(47,127
)
   
(107,378
)
   
(99,394
)
   
(102,396
)
   
(356,295
)

(*) As of December 31, 2015, the recognized deferred tax assets on tax losses amount to $99.4 million  and the net unrecognized deferred tax assets amount to $33.7 million.

 
 
Provisions and allowances
   
Inventories
   
Tax losses
   
Other
   
Total
 
 
 
 
At the beginning of the year
   
(53,636
)
   
(162,242
)
   
(25,810
)
   
(134,319
)
   
(376,007
)
Translation differences
   
4,317
     
2,334
     
1,500
     
322
     
8,473
 
Increase due to business combinations
   
(1,255
)
   
(297
)
   
(3,535
)
   
(281
)
   
(5,368
)
Charged directly to Other Comprehensive Income
   
979
     
(682
)
   
-
     
40
     
337
 
Income statement charge / (credit)
   
4,259
     
(28,822
)
   
(13,807
)
   
(16,259
)
   
(54,629
)
At December 31, 2014
   
(45,336
)
   
(189,709
)
   
(41,652
)
   
(150,497
)
   
(427,194
)

The recovery analysis of deferred tax assets and deferred tax liabilities is as follows:
 
 
Year ended December 31,
 
 
 
2015
   
2014
 
 
 
 
Deferred tax assets to be recovered after 12 months
   
(109,025
)
   
(119,192
)
Deferred tax liabilities to be recovered after 12 months
   
843,022
     
868,289
 

Deferred income tax assets and liabilities are offset when (1) there is a legally enforceable right to set-off current tax assets against current tax liabilities and (2) when the deferred income taxes relate to the same fiscal authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. The following amounts, determined after appropriate set-off, are shown in the Consolidated Statement of Financial Position:

 
 
Year ended December 31,
 
 
 
2015
   
2014
 
 
 
 
Deferred tax assets
   
(200,706
)
   
(268,252
)
Deferred tax liabilities
   
750,325
     
714,123
 
 
   
549,619
     
445,871
 

The movement in the net deferred income tax liability account is as follows:

 
 
Year ended December 31,
 
 
 
2015
   
2014
 
 
 
 
At the beginning of the year
   
445,871
     
553,946
 
Translation differences
   
19,279
     
6,255
 
Charged directly to Other Comprehensive Income
   
4,526
     
113
 
Income statement credit (debit)
   
79,943
     
(109,075
)
Increase due to business combinations
   
-
     
(5,368
)
At the end of the period
   
549,619
     
445,871
 
 
 
39


 
21            Other liabilities
(i)            Other liabilities – Non current
 
 
Year ended December 31,
 
 
 
2015
   
2014
 
Post-employment benefits
   
135,880
     
164,217
 
Other-long term benefits
   
78,830
     
98,069
 
Miscellaneous
   
16,466
     
23,579
 
 
   
231,176
     
285,865
 

Post-employment benefits
§ Unfunded
 
 
Year ended December 31,
 
 
 
2015
   
2014
 
Values at the beginning of the period
   
126,733
     
136,931
 
Current service cost
   
5,918
     
7,582
 
Interest cost
   
6,164
     
9,254
 
Curtailments and settlements
   
(128
)
   
(236
)
Remeasurements (*)
   
(9,743
)
   
(9,824
)
Translation differences
   
(8,418
)
   
(8,665
)
Benefits paid from the plan
   
(16,062
)
   
(8,006
)
Other
   
3,137
     
(303
)
At the end of the year
   
107,601
     
126,733
 

(*) For 2015 and 2014, a gain of $9.1 and $12.2 million respectively is attributable to demographic assumptions, and a gain of $0.6 and a loss of $2.4 million respectively is attributable to financial assumptions.

The principal actuarial assumptions used were as follows:

 
Year ended December 31,
 
2015
2014
Discount rate
2% - 7%
2% - 7%
Rate of compensation increase
0% - 3%
2% - 3%
     

As of December 31, 2015, an increase / (decrease) of 1% in the discount rate assumption would have generated a (decrease) / increase on the defined benefit obligation of $8.6 million and $9.1 million respectively, and an increase / (decrease) of 1% in the rate of compensation assumption would have generated an increase / (decrease) impact on the defined benefit obligation of $4.7 million and $4.2 million respectively. The above sensitivity analyses are based on a change in discount rate and rate of compensation while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated.

§ Funded

The amounts recognized in the statement of financial position for the current annual period and the previous annual period are as follows:

   
Year ended December 31,
 
   
2015
   
2014
 
Present value of funded obligations
   
153,974
     
183,085
 
Fair value of plan assets
   
(128,321
)
   
(147,991
)
Liability (*)
   
25,653
     
35,094
 

(*) In 2015 and 2014, $2.6 million and $2.4 million corresponding to an overfunded plan were reclassified within other non-current assets, respectively.
 
 
40


 
21            Other liabilities (Cont.)

(i)            Other liabilities – Non current (Cont.)

The movement in the present value of funded obligations is as follows:

   
Year ended December 31,
 
   
2015
   
2014
 
At the beginning of the year
   
183,085
     
177,433
 
Translation differences
   
(18,507
)
   
(10,000
)
Current service cost
   
1,155
     
2,266
 
Interest cost
   
6,725
     
7,621
 
Remeasurements (*)
   
(6,124
)
   
16,104
 
Benefits paid
   
(12,360
)
   
(10,339
)
Movement in the fair value of plan assets
   
153,974
     
183,085
 

 (*)For 2015 and 2014, a gain of $1.1 and a loss of $1.5 million respectively is attributable to demographic assumptions, and a gain of $5 and a loss of $ 14.6 million respectively is attributable to financial assumptions.

The movement in the fair value of plan assets is as follows:
 
 
Year ended December 31,
 
 
 
2015
   
2014
 
At the beginning of the year
   
(147,991
)
   
(145,777
)
Return on plan assets
   
(5,021
)
   
(7,842
)
Remeasurements
   
1,686
     
(8,130
)
Translation differences
   
15,651
     
8,911
 
Contributions paid to the plan
   
(5,066
)
   
(5,548
)
Benefits paid from the plan
   
12,360
     
10,339
 
Other
   
60
     
56
 
 
   
(128,321
)
   
(147,991
)

The major categories of plan assets as a percentage of total plan assets are as follows:
 
 
Year ended December 31,
 
 
 
2015
   
2014
 
Equity instruments
   
52.3
%
   
52.7
%
Debt instruments
   
44.3
%
   
43.7
%
Others
   
3.4
%
   
3.6
%

The principal actuarial assumptions used were as follows:

 
Year ended December 31,
 
2015
2014
Discount rate
4%
4%
Rate of compensation increase
0 % - 2 %
2 % - 3 %
 
 
41


 
21            Other liabilities (Cont.)

(i)            Other liabilities – Non current (Cont.)

The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected return on plan assets is determined based on long-term, prospective rates of return as of the end of the reporting period.

As of December 31, 2015, an increase / (decrease) of 1% in the discount rate assumption would have generated a (decrease) / increase on the defined benefit obligation of $18 million and $22.2 million respectively, and an increase / (decrease) of 1% in the compensation rate assumption would have generated an increase / (decrease) on the defined benefit obligation of $2.2 million and $2 million respectively. The above sensitivity analyses are based on a change in discount rate and rate of compensation while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated.

The employer contributions expected to be paid for the year 2016 amount approximately to $3.9 million.

The expected maturity of undiscounted post- employment benefits is as follows:

At 31 December 2015
 
Less than 1 year
   
1 - 2 years
   
2 - 3 years
   
3 - 4 years
   
4 - 5 years
   
Over 5 years
 
Unfunded Post-employment benefits
   
10,488
     
5,334
     
16,694
     
5,587
     
5,343
     
234,606
 
Funded Post-employment benefits
   
8,144
     
8,437
     
8,768
     
9,001
     
9,239
     
290,089
 
Total
   
18,632
     
13,771
     
25,462
     
14,588
     
14,582
     
524,695
 

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.

(ii)            Other liabilities – current

 
 
Year ended December 31,
 
 
 
2015
   
2014
 
Payroll and social security payable
   
173,528
     
204,558
 
Liabilities with related parties
   
351
     
5,305
 
Derivative financial instruments
   
34,445
     
56,834
 
Miscellaneous
   
14,518
     
29,580
 
 
   
222,842
     
296,277
 

22            Non-current allowances and provisions

(i) Deducted from non current receivables
 
 
Year ended December 31,
 
 
 
2015
   
2014
 
 
 
 
Values at the beginning of the year
   
(1,696
)
   
(2,979
)
Translation differences
   
584
     
534
 
Used
   
-
     
749
 
Values at the end of the year
   
(1,112
)
   
(1,696
)

(ii)            Liabilities
 
 
Year ended December 31,
 
 
 
2015
   
2014
 
 
 
 
Values at the beginning of the year
   
70,714
     
66,795
 
Translation differences
   
(20,725
)
   
(10,253
)
Additional provisions
   
9,390
     
18,029
 
Reclassifications
   
6,562
     
(2,276
)
Used
   
(4,520
)
   
(5,146
)
Increase due to business combinations
   
-
     
3,565
 
Values at the end of the year
   
61,421
     
70,714
 
 
 
42

 
23            Current allowances and provisions
(i)            Deducted from assets
Year ended December 31, 2015
 
Allowance for doubtful accounts - Trade receivables
   
Allowance for other doubtful accounts - Other receivables
   
Allowance for inventory obsolescence
 
 
           
Values at the beginning of the year
   
(68,978
)
   
(7,992
)
   
(193,540
)
Translation differences
   
1,033
     
1,732
     
10,056
 
Additional allowances
   
(36,788
)
   
(1,114
)
   
(68,669
)
Used
   
3,253
     
292
     
22,953
 
At December 31, 2015
   
(101,480
)
   
(7,082
)
   
(229,200
)
 
                       
 
                       
Year ended December 31, 2014
 
Allowance for doubtful accounts - Trade receivables
   
Allowance for other doubtful accounts - Other receivables
   
Allowance for inventory obsolescence
 
 
                       
Values at the beginning of the year
   
(51,154
)
   
(9,396
)
   
(228,765
)
Translation differences
   
384
     
1,335
     
5,141
 
Additional allowances
   
(21,704
)
   
(336
)
   
(4,704
)
Increase due to business combinations
   
(88
)
   
(38
)
   
(875
)
Used
   
3,584
     
443
     
35,663
 
At December 31, 2014
   
(68,978
)
   
(7,992
)
   
(193,540
)

(ii) Liabilities

Year ended December 31, 2015
 
Sales risks
   
Other claims and contingencies
   
Total
 
 
 
   
   
 
Values at the beginning of the year
   
7,205
     
13,175
     
20,380
 
Translation differences
   
(517
)
   
(973
)
   
(1,490
)
Additional allowances
   
8,540
     
1,743
     
10,283
 
Reclassifications
   
47
     
(6,610
)
   
(6,563
)
Used
   
(8,985
)
   
(4,630
)
   
(13,615
)
At December 31, 2015
   
6,290
     
2,705
     
8,995
 
 
                       
Year ended December 31, 2014
 
Sales risks
   
Other claims and contingencies
   
Total
 
 
                       
Values at the beginning of the year
   
9,670
     
16,045
     
25,715
 
Translation differences
   
(747
)
   
(1,777
)
   
(2,524
)
Additional allowances
   
14,100
     
2,668
     
16,768
 
Reclassifications
   
-
     
2,275
     
2,275
 
Used
   
(15,818
)
   
(6,036
)
   
(21,854
)
At December 31, 2014
   
7,205
     
13,175
     
20,380
 

 
43


 
24            Derivative financial instruments

Net fair values of derivative financial instruments
The net fair values of derivative financial instruments disclosed within Other Receivables and Other Liabilities at the reporting date, in accordance with IAS 39, are:

   
Year ended December 31,
 
   
2015
   
2014
 
Foreign exchange derivatives contracts
   
18,247
     
25,588
 
Contracts with positive fair values
   
18,247
     
25,588
 
                 
Foreign exchange derivatives contracts
   
(34,540
)
   
(56,834
)
Contracts with negative fair values
   
(34,540
)
   
(56,834
)
Total
   
(16,293
)
   
(31,246
)

Foreign exchange derivative contracts and hedge accounting
Tenaris applies hedge accounting to certain cash flow hedges of highly probable forecast transactions. The net fair values of exchange rate derivatives and those derivatives that were designated for hedge accounting as of December 2015 and 2014, were as follows:

     
Fair Value
Hedge Accounting Reserve
Purchase currency
Sell currency
Term
2015
2014
2015
2014
MXN
USD
2016
 (24,364)
 (45,061)
320
120
USD
MXN
2016
14,466
18,105
 (21)
 (66)
EUR
USD
2016
331
 (6,186)
 -
 (6,186)
USD
EUR
2016
957
982
 (819)
 -
EUR
BRL
2016
 -
 (96)
 -
138
JPY
USD
2016
 (24)
 (5,079)
 -
 (1,797)
USD
KWD
2016
28
1,908
28
630
ARS
USD
2016
 (8,639)
1,632
3,175
 (1,245)
USD
BRL
2016
402
1,089
 -
 -
USD
CNH
2016
 -
95
 -
87
USD
GBP
2016
85
438
 -
403
Others
 
 
465
927
100
 -
Total
 
 
 (16,293)
 (31,246)
2,783
 (7,916)
             

Following is a summary of the hedge reserve evolution:

   
Equity Reserve Dec-13
   
Movements 2014
   
Equity Reserve Dec-14
   
Movements 2015
   
Equity Reserve Dec-15
 
Foreign Exchange
   
120
     
(8,036
)
   
(7,916
)
   
10,699
     
2,783
 
Total Cash flow Hedge
   
120
     
(8,036
)
   
(7,916
)
   
10,699
     
2,783
 

Tenaris estimates that the cash flow hedge reserve at December 31, 2015 will be recycled to the Consolidated Income Statement during 2016.
 
 
44

 
 
25            Contingencies, commitments and restrictions on the distribution of profits

Contingencies

Tenaris is from time to time subject to various claims, lawsuits and other legal proceedings, including customer claims, in which third parties are seeking payment for alleged damages, reimbursement for losses or indemnity. Some of these claims, lawsuits and other legal proceedings involve highly complex issues, and often these issues are subject to substantial uncertainties. Accordingly, the potential liability with respect to a large portion of such claims, lawsuits and other legal proceedings cannot be estimated with certainty. Management with the assistance of legal counsel periodically reviews the status of each significant matter and assesses potential financial exposure. If a potential loss from a claim, lawsuit or proceeding is considered probable and the amount can be reasonably estimated, a provision is recorded. Accruals for loss contingencies reflect a reasonable estimate of the losses to be incurred based on information available to management as of the date of preparation of the financial statements, and take into consideration litigation and settlement strategies. The Company believes that the aggregate provisions recorded for potential losses in these financial statements (Notes 22 and 23) are adequate based upon currently available information. However, if management's estimates prove incorrect, current reserves could be inadequate and Tenaris could incur a charge to earnings which could have a material adverse effect on Tenaris' results of operations, financial condition, net worth and cash flows.

Set forth below is a description of Tenaris' material ongoing legal proceedings:

§ Tax assessment in Italy

An Italian subsidiary of Tenaris, received on December 24, 2012 a tax assessment from the Italian tax authorities related to allegedly omitted withholding tax on dividend payments made in 2007. The assessment, which was for an estimated amount of EUR292 million (approximately $318 million), comprising principal, interest and penalties, was appealed with the first-instance tax court in Milan. In February 2014, the first-instance tax court issued its decision on this tax assessment, partially reversing the assessment and lowering the claimed amount to approximately EUR9 million (approximately $10 million), including principal, interest and penalties. On October 2, 2014, the Italian tax authorities appealed against the second-instance tax court decision on the 2007 assessment. On June 12, 2015, the second-instance tax court accepted the Tenaris subsidiary defense arguments and rejected the appeal by the Italian tax authorities, thus reversing the entire 2007 assessment and recognizing that the dividend payment was exempt from withholding tax. The Italian tax authorities have appealed the second-instance tax court decision before the Supreme Court.

On December 24, 2013, the Italian subsidiary received a second tax assessment from the Italian tax authorities, based on the same arguments as those in the first assessment, relating to allegedly omitted withholding tax on dividend payments made in 2008 – the last such distribution made by the Italian subsidiary. The assessment, which was for an estimated amount of EUR254 million (approximately $276 million), comprising principal interest and penalties, was appealed with the first-instance tax court in Milan. On January 27, 2016, the first-instance tax court rejected the appeal filed by the Italian subsidiary. This first-instance ruling, which held that the Italian subsidiary is required to pay an amount of EUR220 million (approximately $240 million) including principal interest and penalties, contradicts the first- and second-instance tax court rulings in connection with the 2007 assessment. Tenaris continues to believe that the Italian subsidiary has correctly applied the relevant legal provisions; accordingly, the Italian subsidiary will appeal the January 2016 first-instance ruling against the second-instance tax court and will also request the suspension of its effects.

Based, among other things, on the tax court decisions on the 2007 assessment and the opinion of counsels, Tenaris believes that it is not probable that the ultimate resolution of either the 2007 or the 2008 tax assessment will result in a material obligation.

§ CSN claims relating to the January 2012 acquisition of Usiminas shares

In 2013, Confab was notified of a lawsuit filed in Brazil by Companhia Siderúrgica Nacional (CSN) and various entities affiliated with CSN against Confab and the other entities that acquired a participation in Usiminas' control group in January 2012.
 

 
45


25            Contingencies, commitments and restrictions on the distribution of profits (Cont.)

Contingencies (Cont.)

§ CSN claims relating to the January 2012 acquisition of Usiminas shares (Cont.)

The CSN lawsuit alleges that, under applicable Brazilian laws and rules, the acquirers were required to launch a tag-along tender offer to all non-controlling holders of Usiminas ordinary shares for a price per share equal to 80% of the price per share paid in such acquisition, or BRL28.8, and seeks an order to compel the acquirers to launch an offer at that price plus interest. If so ordered, the offer would need to be made to 182,609,851 ordinary shares of Usiminas not belonging to Usiminas' control group, and Confab would have a 17.9% share in that offer.

On September 23, 2013, the first instance court issued its decision finding in favor of Confab and the other defendants and dismissing the CSN lawsuit. The claimants appealed the court decision and the defendants filed their response to the appeal. It is currently expected that the court of appeals will issue its judgment on the appeal in the first half of 2016.

The Company is aware that on November 10, 2014, CSN filed a separate complaint with Brazil's securities regulator Comissão de Valores Mobiliários (CVM) on the same grounds and with the same purpose as the lawsuit referred to above. The CVM proceeding is underway and the Company has not yet been served with process or requested to provide its response.

Finally, on December 11, 2014, CSN filed a claim with Brazil's antitrust regulator Conselho Administrativo de Defesa Econômica (CADE). In its claim, CSN alleged that the antitrust clearance request related to the January 2012 acquisition, which was approved by CADE without restrictions in August 2012, contained a false and deceitful description of the acquisition aimed at frustrating the minority shareholders' right to a tag-along tender offer, and requested that CADE investigate and reopen the antitrust review of the acquisition and suspend the Company's voting rights in Usiminas until the review is completed. On May 6, 2015, CADE rejected CSN's claim. CSN did not appeal the decision and on May 19, 2015, CADE finally closed the file.

Tenaris believes that all of CSN's claims and allegations are groundless and without merit, as confirmed by several opinions of Brazilian legal counsel and previous decisions by CVM, including a February 2012 decision determining that the above mentioned acquisition did not trigger any tender offer requirement, and, more recently, the first instance court decision on this matter first referred to above. Accordingly, no provision was recorded in these Consolidated Financial Statements.


Commitments

Set forth is a description of Tenaris' main outstanding commitments:

§ A Tenaris company is a party to a contract with Nucor Corporation under which it is committed to purchase on a monthly basis a minimum volume of hot-rolled steel coils at prices that are negotiated annually by reference to prices to comparable Nucor customers. The contract became effective in May 2013 and will be in force until December 2017; provided, however, that either party may terminate the contract at any time after January 1, 2015 with a 12-month prior notice. Due to the current weak pipe demand associated with the reduction in drilling activity, the parties entered into a temporary agreement pursuant to which application of the minimum volume requirements were suspended, and Tenaris is temporarily allowed to purchase steel volumes in accordance with its needs. As of December 31, 2015, the estimated aggregate contract amount through December 31, 2016, calculated at current prices, is approximately $221 million.

§ A Tenaris company entered into various contracts with suppliers pursuant to which it committed to purchase goods and services for a total amount of approximately $347.9 million related to the investment plan to expand Tenaris' U.S. operations with the construction of a state-of-the-art seamless pipe mill in Bay City, Texas. As of December 31, 2015 approximately $836.5 million had already been invested.


46


25            Contingencies, commitments and restrictions on the distribution of profits (Cont.)

Restrictions to the distribution of profits and payment of dividends

As of December 31, 2015, equity as defined under Luxembourg law and regulations consisted of:

(all amounts in thousands of U.S. dollars)
   
Share capital
   
1,180,537
 
Legal reserve
   
118,054
 
Share premium
   
609,733
 
Retained earnings including net income for the year ended December 31, 2015
   
18,024,204
 
Total equity in accordance with Luxembourg law
   
19,932,528
 

At least 5% of the Company's net income per year, as calculated in accordance with Luxembourg law and regulations, must be allocated to the creation of a legal reserve equivalent to 10% of the Company's share capital. As of December 31, 2015, this reserve is fully allocated and additional allocations to the reserve are not required under Luxembourg law. Dividends may not be paid out of the legal reserve.

The Company may pay dividends to the extent, among other conditions, that it has distributable retained earnings calculated in accordance with Luxembourg law and regulations.

At December 31, 2015, distributable amount under Luxembourg law totals $18.6 billion, as detailed below:

(all amounts in thousands of U.S. dollars)
   
Retained earnings at December 31, 2014 under Luxembourg law
   
21,072,180
 
Other income and expenses for the year ended December 31, 2015 (*)
   
(2,516,734
)
Dividends approved
   
(531,242
)
Retained earnings at December 31, 2015 under Luxembourg law
   
18,024,204
 
Share premium
   
609,733
 
Distributable amount at December 31, 2015 under Luxembourg law
   
18,633,937
 

(*) In 2015 result under Luxembourg GAAP was affected by the written down of the value of its investment.

26            Acquisition of subsidiaries and non-consolidated companies

In September 2014, Tenaris closed the acquisition of 100% of the shares of Socobras Participações Ltda. ("Socobras"), a holding company that owned 50% of the shares of Socotherm Brasil S.A.("Socotherm"). Tenaris already owned the other 50% interest in Socotherm, following completion of this transaction, Tenaris now owns 100% of Socotherm.

The purchase price amounted to $29.6 million, net assets acquired (including PPE, inventories and cash and cash equivalents) amounted to $9.6 million and goodwill for $20 million.

Tenaris accounted for this transaction as a step-acquisition whereby Tenaris' ownership interest in Socotherm held before the acquisition was remeasured to fair value at that date. As a result, Tenaris recorded a result of approximately $21.3 million resulting from the difference between the carrying value of its initial investments in Socotherm and the fair value which was included in "Equity in earnings (losses) of non-consolidated companies" in the Consolidated Income Statement.

Had the transaction been consummated on January 1, 2014, then Tenaris' unaudited pro forma net sales and net income from continuing operations would not have changed materially.

 
47


 
27            Cash flow disclosures

      
Year ended December 31,
 
(i)
Changes in working capital
 
2015
   
2014
   
2013
 
Inventories
   
936,402
     
(72,883
)
   
287,874
 
Receivables and prepayments and Current tax assets
   
60,009
     
(31,061
)
   
62,114
 
Trade receivables
   
828,265
     
20,886
     
129,939
 
Other liabilities
   
(123,904
)
   
(61,636
)
   
(151,578
)
Customer advances
   
1,171
     
76,383
     
(77,099
)
Trade payables
   
(327,958
)
   
(3,755
)
   
(62,470
)
       
1,373,985
     
(72,066
)
   
188,780
 
                           
                           
(ii)
Income tax accruals less payments
                       
Tax accrued
   
244,505
     
586,061
     
627,877
 
Taxes paid
   
(335,585
)
   
(506,999
)
   
(502,461
)
       
(91,080
)
   
79,062
     
125,416
 
                           
(iii)
Interest accruals less payments, net
                       
Interest accrued
   
(11,517
)
   
6,174
     
37,356
 
Interest received
   
28,238
     
31,306
     
42,091
 
Interest paid
   
(18,696
)
   
(74,672
)
   
(109,170
)
       
(1,975
)
   
(37,192
)
   
(29,723
)
                           
(iv)
Cash and cash equivalents
                       
Cash at banks, liquidity funds and short - term investments
   
286,547
     
417,645
     
614,529
 
Bank overdrafts
   
(349
)
   
(1,200
)
   
(16,384
)
       
286,198
     
416,445
     
598,145
 

As of December 31, 2015, 2014 and 2013, the components of the line item "other, including currency translation adjustment" are immaterial to net cash provided by operating activities.

28            Related party transactions

As of December 31, 2015:

§ San Faustin S.A., a Luxembourg Société Anonyme ("San Faustin"), owned 713,605,187 shares in the Company, representing 60.45% of the Company's capital and voting rights.

§ San Faustin owned all of its shares in the Company through its wholly-owned subsidiary Techint Holdings S.à r.l., a Luxembourg Société à Responsabilité Limitée ("Techint"), who is the holder of record of the above-mentioned Tenaris shares.

§ Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin, a Dutch private foundation (Stichting) ("RP STAK") held shares in San Faustin sufficient in number to control San Faustin.

§ No person or group of persons controls RP STAK.

Based on the information most recently available to the Company, Tenaris' directors and senior management as a group owned 0.13% of the Company's outstanding shares.

 
48


 
28            Related party transactions (Cont.)

Transactions and balances disclosed as with "non-consolidated parties" are those with companies over which Tenaris exerts significant influence or joint control in accordance with IFRS, but does not have control. All other transactions and balances with related parties which are not non-consolidated parties and which are not consolidated are disclosed as "Other". The following transactions were carried out with related parties:

 (all amounts in thousands of U.S. dollars)
 
Year ended December 31,
 
 
 
 
2015
   
2014
   
2013
 
(i)
  
Transactions
 
   
 
(a) Sales of goods and services
 
   
   
 
Sales of goods to non-consolidated parties
   
24,019
     
33,342
     
35,358
 
Sales of goods to other related parties
   
87,663
     
103,377
     
115,505
 
Sales of services to non-consolidated parties
   
10,154
     
10,932
     
15,439
 
Sales of services to other related parties
   
4,010
     
3,264
     
5,035
 
 
 
   
125,846
     
150,915
     
171,337
 
 
 
                       
(b) Purchases of goods and services
                       
Purchases of goods to non-consolidated parties
   
260,280
     
302,144
     
320,000
 
Purchases of goods to other related parties
   
35,153
     
44,185
     
14,828
 
Purchases of services to non-consolidated parties
   
16,153
     
27,304
     
56,820
 
Purchases of services to other related parties
   
78,805
     
90,652
     
100,677
 
 
 
   
390,391
     
464,285
     
492,325
 

 (all amounts in thousands of U.S. dollars)
 
At December 31,
 
 
 
 
2015
   
2014
 
(ii)
Period-end balances
 
   
 
(a) Arising from sales / purchases of goods / services
 
   
 
Receivables from non-consolidated parties
   
73,412
     
104,703
 
Receivables from other related parties
   
23,995
     
31,628
 
Payables to non-consolidated parties
   
(20,000
)
   
(53,777
)
Payables to other related parties
   
(19,655
)
   
(28,208
)
 
 
   
57,752
     
54,346
 
 
 
               
(b) Financial debt
               
Borrowings from other related parties
   
-
     
(200
)
 
 
   
-
     
(200
)

Directors' and senior management compensation

During the years ended December 31, 2015, 2014 and 2013, the cash compensation of Directors and Senior managers amounted to $29.6 million, $25.6 million and $27.1 million respectively. In addition, Directors and Senior managers received 540, 567 and 534 thousand units for a total amount of $5.4 million, $6.2 million and $5.6 million respectively in connection with the Employee retention and long term incentive program mentioned in Note O (2).

 
49


 
29            Principal subsidiaries

The following is a list of Tenaris' principal subsidiaries and its direct and indirect percentage of ownership of each controlled company at December 31, 2015.

Company
Country of
Main activity
Percentage of ownership at December 31, (*)
 
Incorporation
 
2015
2014
2013
ALGOMA TUBES INC.
Canada
Manufacturing of seamless steel pipes
100%
100%
100%
CONFAB INDUSTRIAL S.A. and subsidiaries
Brazil
Manufacturing of welded steel pipes and capital goods
100%
100%
100%
DALMINE S.p.A.
Italy
Manufacturing of seamless steel pipes
99%
99%
99%
HYDRIL COMPANY and subsidiaries (except detailed) (a)
USA
Manufacture and marketing of premium connections
100%
100%
100%
MAVERICK TUBE CORPORATION and subsidiaries (except detailed)
USA
Manufacturing of welded steel pipes
100%
100%
100%
NKKTUBES
Japan
Manufacturing of seamless steel pipes
51%
51%
51%
PT SEAMLESS PIPE INDONESIA JAYA
Indonesia
Manufacturing of seamless steel products
77%
77%
77%
PRUDENTIAL STEEL ULC
Canada
Manufacturing of welded steel pipes
100%
100%
100%
S.C. SILCOTUB S.A.
Romania
Manufacturing of seamless steel pipes
100%
100%
100%
SIAT SOCIEDAD ANONIMA
Argentina
Manufacturing of welded and seamless steel pipes
100%
100%
100%
SIDERCA S.A.I.C. and subsidiaries (except detailed)
Argentina
Manufacturing of seamless steel pipes
100%
100%
100%
TALTA - TRADING E MARKETING SOCIEDADE UNIPESSOAL LDA.
Madeira
Trading and holding Company
100%
100%
100%
TENARIS BAY CITY, INC.
USA
Manufacturing of seamless steel pipes
100%
100%
100%
TENARIS FINANCIAL SERVICES S.A.
Uruguay
Financial company
100%
100%
100%
TENARIS GLOBAL SERVICES (CANADA) INC.
Canada
Marketing of steel products
100%
100%
100%
TENARIS GLOBAL SERVICES (U.S.A.) CORPORATION
USA
Marketing of steel products
100%
100%
100%
TENARIS GLOBAL SERVICES NIGERIA LIMITED
Nigeria
Marketing of steel products
100%
100%
100%
TENARIS GLOBAL SERVICES S.A. and subsidiaries (b)
Uruguay
Holding company and marketing of steel products
100%
100%
100%
TENARIS GLOBAL SERVICES (UK) LTD
United Kingdom
Marketing of steel products
100%
100%
100%
TENARIS INVESTMENTS S.àr.l.
Luxembourg
Holding company
100%
100%
100%
TENARIS INVESTMENTS S.àr.l. LUXEMBURG, Zug Branch
Switzerland
Holding company and financial services
100%
100%
100%
TENARIS INVESTMENTS SWITZERLAND AG and subsidiaries (except detailed)
Switzerland
Holding company
100%
100%
100%
TUBOS DE ACERO DE MEXICO S.A.
Mexico
Manufacturing of seamless steel pipes
100%
100%
100%
TENARIS TUBOCARIBE LTDA.
Colombia
Manufacturing of welded and seamless steel pipes
100%
100%
100%

(*) All percentages rounded.

(a) Tenaris Investments S.a.r.l. holds 100% of Hydril's subsidiaries shares except for Technical Drilling & Production Services Nigeria. Ltd where it holds 80% for 2015, 2014 and 2013.
(b) Tenaris holds 97,5% of Tenaris Supply Chain S.A,  60% of Gepnaris S.A. and 40% of Tubular Technical Services and Pipe Coaters, and 49% of Amaja Tubular Services Limited
 
 
50

 
 
30        Nationalization of Venezuelan Subsidiaries

In May 2009, within the framework of Decree Law 6058, Venezuela's President announced the nationalization of, among other companies, the Company's majority-owned subsidiaries TAVSA - Tubos de Acero de Venezuela S.A. ("Tavsa") and, Matesi Materiales Siderúrgicos S.A ("Matesi"), and Complejo Siderúrgico de Guayana, C.A ("Comsigua"), in which the Company has a non-controlling interest (collectively, the "Venezuelan Companies").

In August 2009, Venezuela, acting through the transition committee appointed by the Minister of Basic Industries and Mines of Venezuela, unilaterally assumed exclusive operational control over Matesi, and in November, 2009, Venezuela, acting through PDVSA Industrial S.A. (a subsidiary of Petróleos de Venezuela S.A.), formally assumed exclusive operational control over the assets of Tavsa. Venezuela did not pay any compensation for these assets.

Tenaris' investments in the Venezuelan Companies are protected under applicable bilateral investment treaties, including the bilateral investment treaty between Venezuela and the Belgium-Luxembourg Economic Union, and Tenaris continues to reserve all of its rights under contracts, investment treaties and Venezuelan and international law. Tenaris has also consented to the jurisdiction of the International Centre for Settlement of Investment Disputes ("ICSID") in connection with the nationalization process.

In August 2011, Tenaris and its wholly-owned subsidiary Talta - Trading e Marketing Sociedad Unipessoal Lda ("Talta"), initiated arbitration proceedings against Venezuela before the ICSID in Washington D.C., seeking adequate and effective compensation for the expropriation of their investment in Matesi. On January 29, 2016, the tribunal released its award. The award upheld Tenaris' and Talta's claim that Venezuela had expropriated their investments in Matesi in violation of Venezuelan law as well as the bilateral investment treaties entered into by Venezuela with the Belgium-Luxembourg Economic Union and Portugal. The award granted compensation in the amount of $87.3 million for the breaches and ordered Venezuela to pay an additional amount of $85.5 million in pre-award interest, aggregating to a total award of $172.8 million, payable in full and net of any applicable Venezuelan tax, duty or charge. The tribunal granted Venezuela a grace period of six months from the date of the award to make payment in full of the amount due without incurring post-award interest, and resolved that if no, or no full, payment is made by then, post-award interest would apply at the rate of 9% per annum.

In July 2012, Tenaris and Talta initiated separate arbitration proceedings against Venezuela before the ICSID, seeking adequate and effective compensation for the expropriation of their respective investments in Tavsa and Comsigua. The tribunal in these proceedings was constituted in July 2013. Following the exchange of further written submissions by the Parties, an oral hearing was held on June 15-23, 2015 in Washington DC. The parties submitted their post-hearing briefs on September 11, 2015; in their brief Tenaris and Talta claimed a principal sum of $243.7 million plus pre-award interest of $471.1 million, plus post-award interest. There is no procedural deadline by which the award must be rendered.

Based on the facts and circumstances described above and following the guidance set forth by IAS 27R, the Company ceased consolidating the results of operations and cash flows of the Venezuelan Companies as from June 30, 2009, and classified its investments in the Venezuelan Companies as financial assets based on the definitions contained in paragraphs 11(c)(i) and 13 of IAS 32.

The Company classified its interests in the Venezuelan Companies as available-for-sale investments since management believes they do not fulfil the requirements for classification within any of the remaining categories provided by IAS 39 and such classification is the most appropriate accounting treatment applicable to non-voluntary dispositions of assets.

Tenaris or its subsidiaries have net receivables with the Venezuelan Companies as of December 31, 2015, for a total amount of approximately $27.0 million.

The Company records its interest in the Venezuelan Companies at its carrying amount at June 30, 2009, and not at fair value, following the guidance set forth by paragraphs 46(c), AG80 and AG81 of IAS 39.
 
 
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31            Fees paid to the Company's principal accountant

Total fees accrued for professional services rendered by PwC Network firms to Tenaris S.A. and its subsidiaries are detailed as follows:

(all amounts in thousands of U.S. dollars)
Year ended December 31,
 
2015
2014
2013
Audit Fees
4,372
5,231
5,723
Audit-Related Fees
78
142
143
Tax Fees
25
89
117
All Other Fees
15
35
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Total
4,490
5,497
6,034

32            Subsequent event

Annual Dividend Proposal

On February 24, 2016 the Company's Board of Directors proposed, for the approval of the Annual General Shareholders' meeting to be held on May 4, 2016, the payment of an annual dividend of $0.45 per share ($0.90 per ADS), or approximately $531.2 million, which includes the interim dividend of $0.15 per share ($0.30 per ADS) or approximately $177.1 million, paid on November 25, 2015. If the annual dividend is approved by the shareholders, a dividend of $0.30 per share ($0.60 per ADS), or approximately $354.1 million will be paid on May 25, 2016, with an ex-dividend date of May 24, 2016. These Consolidated Financial Statements do not reflect this dividend payable.















 
Edgardo Carlos
 
 
Chief Financial Officer
 

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