TENARIS SA | CIK:0001190723 |

 

Tenaris is from time to time subject to various claims, lawsuits and other legal proceedings, including customer claims, in which parties are seeking payment for alleged damages, reimbursement for losses, or indemnity. Management with the assistance of legal counsel periodically reviews the status of each significant matter and assesses potential financial exposure.

 

Some of these claims, lawsuits and other legal proceedings involve highly complex issues, and often these issues are subject to substantial uncertainties and, therefore, the probability of loss and an estimation of damages are difficult to ascertain. Accordingly, with respect to a large portion of such claims, lawsuits and other legal proceedings, Tenaris is unable to make a reliable estimate of the expected financial effect that will result from ultimate resolution of the proceeding. In those cases, Tenaris has accrued a provision for the potential outcome of these cases.

 

If a potential loss from a claim, lawsuit or other 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. In a limited number of ongoing cases, Tenaris was able to make a reliable estimate of the expected loss or range of probable loss and has accrued a provision for such loss, but believes that publication of this information on a case-by-case basis would seriously prejudice Tenaris’s position in the ongoing legal proceedings or in any related settlement discussions. Accordingly, in these cases, the Company has disclosed information with respect to the nature of the contingency, but has disclosed its estimate of the range of potential loss.   

 

The Company believes that the aggregate provisions recorded for potential losses in these consolidated financial statements (Notes and ) 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’s results of operations, financial condition, net worth and cash flows.

 

Below is a summary description of Tenaris’s material legal proceedings for the year ended In addition, Tenaris is subject to other legal proceedings, of which is believed to be material.

 

Dalmine S.p.A. (“Dalmine”), an Italian subsidiary of the Company, received on a tax assessment from the Italian tax authorities related to allegedly omitted withholding tax on dividend payments made in The assessment, which was for an estimated amount of million (approximately million), comprising principal, interest and penalties, was appealed with the -instance tax court in Milan. In the -instance tax court issued its decision on this tax assessment, partially reversing the assessment and lowering the claimed amount to approximately million (approximately million), including principal, interest and penalties. On the Italian tax authorities appealed against the -instance tax court decision on the assessment. On the -instance tax court accepted Dalmine’s defense arguments and rejected the appeal by the Italian tax authorities, thus reversing the entire assessment and recognizing that the dividend payment was exempt from withholding tax. The Italian tax authorities have appealed the -instance tax court decision before the Supreme Court.

 

On Dalmine received a tax assessment from the Italian tax authorities, based on the same arguments as those in the assessment, relating to allegedly omitted withholding tax on dividend payments made in – the last such distribution made by Dalmine. Dalmine appealed the assessment with the -instance tax court in Milan. On the -instance tax court rejected Dalmine’s appeal. This -instance ruling, which held that Dalmine is required to pay an amount of million (approximately million), including principal, interest and penalties, contradicts the and -instance tax court rulings in connection with the assessment. Dalmine obtained the suspension of the interim payment that would have been due, based on the -instance decision, through the filing with the tax authorities of a bank guarantee of million (approximately million), and appealed the ruling with the -instance tax court.

 

On Dalmine and the Italian tax authorities entered into a settlement agreement in connection with all withholding tax claims on and dividend payments. Under the settlement agreement, Dalmine paid to the Italian tax administration an aggregate amount of million (approximately million), net of million (approximately million) corresponding to the amount previously paid during the litigation proceeding. As a result of the settlement, during the year Tenaris recorded an additional charge to results, in excess of amounts already provisioned, of approximately million.

 

In addition, the Italian tax authorities formally notified Dalmine that, based on applicable laws and regulations, any future distributions from Dalmine out of past or future profits will be subject to Italian withholding tax.

 

 

In Confab Industrial S.A. (“Confab”), a Brazilian subsidiary of the Company 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

 

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 of the price per share paid in such acquisition, or 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 ordinary shares of Usiminas belonging to Usiminas’ control group, and Confab would have a share in that offer.

 

On the instance court dismissed the CSN lawsuit, and on the court of appeals maintained the understanding of the instance court. On CSN filed a motion for clarification against the decision of the Court of Appeals of São Paulo, which was rejected on On CSN filed an appeal to the Superior Court of Justice seeking the review and reversal of the decision issued by the Court of Appeals. The Superior Court of Justice is restricted to the analysis of alleged violations to federal laws and cannot assess matters of fact. Accordingly, the Court of Appeals must decide whether CSN’s appeal meets the requirements for submission to the Superior Court of Justice. If declared admissible, the Superior Court of Justice will also review admissibility, and, if also declared admissible, will then render a decision on the merits.

 

Tenaris continues to believe that all of CSN’s claims and allegations are groundless and without merit, as confirmed by several opinions of Brazilian legal counsel, decisions issued by the Brazilian securities regulator (CVM) in and and the and instance court decisions referred to above. Accordingly, provision was recorded in these Consolidated Financial Statements.

 

On an accident occurred in the premises of Veracel Celulose S.A. (“Veracel”) in connection with a rupture in of the tanks used in an evaporation system manufactured by Confab. The Veracel accident allegedly resulted in material damages to Veracel. Itaú Seguros S.A. (“Itaú”), Veracel’s insurer at the time of the Veracel accident, initiated a lawsuit against Confab seeking reimbursement of damages paid to Veracel in connection with the Veracel accident. Veracel initiated a lawsuit against Confab seeking reimbursement of the amount paid as insurance deductible with respect to the Veracel accident and other amounts covered by insurance. Itaú and Veracel claim that the Veracel accident was caused by failures and defects attributable to the evaporation system manufactured by Confab. Confab believes that the Veracel accident was caused by the improper handling by Veracel’s personnel of the equipment supplied by Confab in violation of Confab’s instructions. The lawsuits have been consolidated, and are now being considered by the Civil Court of São Caetano do Sul; however, each lawsuit will be adjudicated through a separate ruling. Both proceedings are currently at evidentiary stage.

 

On a court-appointed expert issued its report on certain technical matters concerning the Veracel accident. Based upon a technical opinion received from a -party expert, in Confab filed its objections to the expert’s report. In the court appointed expert filed a report reaffirming its opinion and stating that the opinion of Confab’s appointed expert was incorrect. The parties have a -day period to file their observations and/or opinions concerning the expert’s report. Approximately of the amounts claimed by Itaú and Veracel is attributable to alleged lost profits, and the contract between Confab and Veracel expressly provided that Confab would be liable for damages arising from loss profits. As of the estimated amount of Itaú’s claim was approximately million (approximately million), and the estimated amount of Veracel’s claim is approximately million (approximately million), for an aggregate amount million ( million). The final result of this claim depends largely on the court’s evaluation of technical matters arising from the expert’s opinion and the objections presented by Confab.

 

The Company has learned that Italian and Swiss authorities are investigating whether certain payments were made from accounts of entities presumably associated with affiliates of the Company to accounts controlled by an individual allegedly related with officers of Petróleo Brasileiro S.A. and whether any such payments were intended to benefit Confab. Any such payments could violate certain applicable laws, including the U.S. Foreign Corrupt Practices Act. The Company had previously reviewed certain of these matters in connection with an investigation by the Brazilian authorities related to “Operation Lava Jato” and the Audit Committee of the Company’s Board of Directors has engaged external counsel in connection with a review of the alleged payments and related matters. In addition, the Company has voluntarily notified the U.S. Securities and Exchange Commission and the U.S. Department of Justice. The Company intends to share the results of this review with the appropriate authorities, and to cooperate with any investigations that be conducted by such authorities. At this time, the Company cannot predict the outcome of these matters or estimate the range of potential loss or extent of risk, if any, to the Company’s business that result from resolution of these matters.

 

 

On Petroamazonas (“PAM”), an Ecuadorian state-owned oil company, imposed penalties to the Company’s Uruguayan subsidiary, Tenaris Global Services S.A. (“TGS”), for its alleged failure to comply with delivery terms under a pipe supply agreement. The penalties amount to approximately $ million as of the date hereof. Tenaris believes, based on the advice of counsel, that PAM has legal basis to impose the penalties and that TGS has meritorious defenses against PAM. However, in light of the prevailing political circumstances in Ecuador, the Company cannot predict the outcome of a claim against a state-owned company and it is possible to estimate the amount or range of loss in case of an unfavorable outcome.

 

 

Tenaris Bay City Inc. (“Tenaris Bay City”), a U.S. subsidiary of the Company, has received claims from a contractor for alleged additional costs in the construction of a project located in the Bay City area for a total amount in excess of million. On the contractor filed a demand for arbitration of these claims. An arbitral panel has been selected and a scheduling order issued. The parties are expected to submit statements of claim in and of Final trial hearing on this matter is scheduled for At this stage the Company cannot predict the outcome of the claim or the amount or range of loss in case of an unfavorable outcome.

 

 

Siderca S.A.I.C, an Argentine subsidiary of the Company (“Siderca”), and some of its directors, employees, former directors and employees are subject to an administrative criminal proceeding concerning alleged inaccurate information included in currency exchange declarations related to the trading of foreign currency between and in connection with exports of goods for a total amount of million. The case is now under consideration of a criminal court. Although theoretically this proceeding give rise to the application of fines in an amount up to times the value of the involved operations, Tenaris believes that it has meritorious defenses and that it is unlikely that the ultimate resolution of this matter will result in a material obligation.

 

On Siderca was notified of a claim initiated by an Argentine state-owned company for an amount of million, allegedly owed as a result in differences in the price paid for gas supplied to Siderca during months in Tenaris believes, based on the advice of counsel, that it has meritorious defenses against a substantial part of this claim, although Siderca be required to pay part of the claimed amount.

 

 

In Tubos de Acero de México S.A (“Tamsa”) and Servicios Generales Tenaris Tamsa S.A (“Segeta”), Mexican subsidiaries of the Company, were informed that the Mexican tax authorities had determined that the tax deductions associated with purchases of scrap made by the companies during amounting to million (approximately million) in the aggregate, failed to comply with applicable requirements and, accordingly, should be rejected. Tamsa and Segeta filed their respective responses and complaints against the determination, and provided additional information evidencing compliance with applicable requirements for the tax deductions that are being challenged. final decision has yet been issued on this matter. Based on the opinion of legal counsel, Tenaris believes that it is unlikely that the ultimate resolution of this tax assessment will result in a material obligation.

 

 

Set forth is a description of Tenaris’s material outstanding purchase commitments:

 

 

 

 

 

 

As of 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, 2017			16,956,761
Total equity in accordance with Luxembourg law			18,865,085

 

At least 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 of the Company’s share capital. As of this reserve is fully allocated and additional allocations to the reserve are required under Luxembourg law. Dividends be paid out of the legal reserve.

 

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

 

At distributable amount under Luxembourg law totals billion, as detailed below:

 

(all amounts in thousands of U.S. dollars)
Retained earnings at December 31, 2016 under Luxembourg law			17,493,013
Other income and expenses for the year ended December 31, 2017			(52,232	)
Dividends approved			(484,020	)
Retained earnings at December 31, 2017 under Luxembourg law			16,956,761
Share premium			609,733
Distributable amount at December 31, 2017 under Luxembourg law			17,566,494