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 September 1, 2009
TENARIS, S.A.
(Translation of Registrant's name into English)
TENARIS, S.A.
46a, Avenue John F. Kennedy
L-1855 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 ü 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 ü
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 half-year report.
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: September 1, 2009
Tenaris, S.A.
By: /s/ Cecilia Bilesio
Cecilia Bilesio
Corporate Secretary
TENARIS S.A.
HALF-YEAR REPORT 2009
NY12527:166450.2
TABLE OF CONTENTS
INTERIM MANAGEMENT REPORT | 2 |
Company OVERVIEW | 4 |
PRINCIPAL RISKS AND UNCERTAINTIES | 5 |
business overview | 7 |
Related Party Transactions | 14 |
MANAGEMENT CERTIFICATION | 15 |
FINANCIAL INFORMATION | 16 |
Consolidated Condensed Interim Financial Statements | 16 |
CORPORATE INFORMATION | 36 |
Investor information | 36 |
Tenaris S.A. Half-year report 2009-Interim management report
Interim Management Report
· | CERTAIN DEFINED TERMS |
Unless otherwise specified or if the context so requires:
· | References in this half-year report to “the Company” refer exclusively to Tenaris S.A., a Luxembourg joint stock corporation (société anonyme holding). |
· | References in this half-year report to “Tenaris”, “we”, “us” or “our” refer to Tenaris S.A. and its consolidated subsidiaries. |
· | References in this half-year report to “San Faustin” refer to San Faustin N.V., a Netherlands Antilles corporation and the Company’s controlling shareholder. |
· | “Shares” refers to ordinary shares, par value $1.00 of the Company. |
· | “ADSs” refers to the American Depositary Shares, which are evidenced by American Depositary Receipts. |
· | “tons” refers to metric tons; one metric ton is equal to 1,000 kilograms, 2,204.62 pounds, or 1.102 U.S. (short) tons. |
· | “billion” refers to one thousand million, or 1,000,000,000. |
· | “dollars”, “U.S. dollars”, “US$” or “$” each refers to the United States dollar. |
· | PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION |
Accounting Principles
We prepare our consolidated financial statements in conformity with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, and adopted by the European Union.
We publish consolidated financial statements expressed in U.S. dollars. The unaudited consolidated condensed interim financial statements included in this half-year report have been prepared in accordance with IAS 34, “Interim Financial Reporting”. These unaudited consolidated condensed interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2008, which have been prepared in accordance with IFRS, as issued by the IASB and adopted by the European Union. See Note 2 “Accounting Policies and Basis of Presentation” to our unaudited consolidated condensed interim financial statements included in this half-year report.
The unaudited consolidated condensed interim financial statements included in this half-year report have been reviewed by PricewaterhouseCoopers through Price Waterhouse & Co. S.R.L., for purposes of complying with the requirements of the different jurisdictions where the Company is publicly listed.
Rounding
Certain monetary amounts, percentages and other figures included in this half-year report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
· | CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS |
This half-year report and any other oral or written statements made by us to the public may contain “forward-looking statements”. Forward looking statements are based on management’s current views and assumptions and involve known and unknown risks that could cause actual results, performance or events to differ materially from those expressed or implied by those statements.
We use words such as “aim”, “will likely result”, “will continue”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “should”, “will pursue”, “anticipate”, “estimate”, “expect”, “project”, “intend”, “plan”, “believe” and words and terms of similar substance to identify forward-looking statements, but they are not the only way we identify such statements. This half-year report contains forward-looking statements, including with respect to certain of our plans and current goals and expectations relating to Tenaris’s future financial condition and performance. Sections of this half-year report that by their nature contain forward-looking statements include, but are not limited to, “Principal Risks and Uncertainties”, and “Operating and Financial Review and Prospects”. In addition to the risks related to our business discussed under “Principal Risks and Uncertainties”, other factors could cause actual results to differ materially from those described in the forward-looking statements. These factors include, but are not limited to:
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Tenaris S.A. Half-year report 2009-Interim management report
· | our ability to implement our business strategy or to grow through acquisitions, joint ventures and other investments; |
· | our ability to price our products and services in accordance with our strategy; |
· | trends in the levels of investment in oil and gas exploration and drilling worldwide; |
· | general macroeconomic and political conditions in the countries in which we operate or distribute pipes; and |
· | our ability to absorb cost increases and to secure supplies of essential raw materials and energy. |
By their nature, certain disclosures relating to these and other risks are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses that may affect our financial condition and results of operations could differ materially from those that have been estimated. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this half-year report. Except as required by law, we are not under any obligation, and expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
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Tenaris S.A. Half-year report 2009-Interim management report
COMPANY OVERVIEW
We are a leading global manufacturer and supplier of steel pipe products and related services for the world’s energy industry as well as for other industrial applications. Our customers include most of the world’s leading oil and gas companies as well as engineering companies engaged in constructing oil and gas gathering, transportation and processing facilities. Our principal products include casing, tubing, line pipe, and mechanical and structural pipes.
In the last fifteen years, we have expanded our business globally through a series of strategic investments, and, in the last three years, we have transformed our presence in the North American market through the acquisitions of Maverick, a leading North American producer of steel pipe products for the oil and gas industry with operations in the U.S., Canada and Colombia, and Hydril, a leading North American manufacturer of premium connections for steel pipe products used in the oil and gas industry with an established reputation worldwide. We now operate an integrated worldwide network of steel pipe manufacturing, research, finishing and service facilities with industrial operations in North and South America, Europe, Asia and Africa and a direct presence in most major oil and gas markets.
Our business is organized in three business segments: Tubes, Projects, and Others.
· | Tubes includes our operations that consist in the production, distribution and sale of seamless and welded tubular products and related services mainly for energy and select industrial applications. |
· | Projects includes our operations that consist in the production, distribution and sale of welded pipes mainly used in the construction of major pipeline projects. |
· | Others includes our operations that consist mainly in the production, distribution and sale of sucker rods, welded steel pipes for electric conduits, industrial equipment and raw materials, such as hot briquetted iron, or HBI, that exceed our internal requirements. |
For more information on the Company, including its competitive strengths, business segments and products see our annual report for the year ended December 31, 2008, and for a discussion and analysis of our of our financial condition and results of operations see “Business overview - Operating and Financial Review and Prospects” in this half-year report.
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Tenaris S.A. Half-year report 2009-Interim management report
PRINCIPAL RISKS AND UNCERTAINTIES
We face certain risks associated to our business and the industry in which we operate. We are a global steel pipe manufacturer with a strong focus on manufacturing products and related services for the oil and gas industry. Demand for our products depends primarily on the level of exploration, development and production activities of oil and gas companies which is affected by current and expected future prices of oil and natural gas. Several factors, such as the supply and demand for oil and gas, and political and global economic conditions, affect these prices. The recent worldwide financial and credit crisis that caused the current economic downturn may negatively affect our business and could have a material adverse effect on our revenues, profitability and financial position. For example, the current global economic crisis has resulted in a significant decline in oil and gas prices, which affected the level of drilling activity, triggered efforts to reduce inventories and thus reduced demand for our products and services. Similarly, our sales of steel pipe products for pipeline projects depend mainly on the implementation of major regional projects, which are likely to be adversely affected by changes in governmental policies, the impact of the credit crisis on our customers’ ability to perform their payment obligations with us and any adverse economic, political or social developments in our major markets. In turn, increases in the cost of raw materials and energy may hurt our profitability if we are not able to recover them through increased prices of our products.
We have significant operations in various countries, including Argentina, Brazil, Canada, Colombia, Italy, Japan, Mexico, Romania and the United States, and we sell our products and services throughout the world. Therefore, like other companies with worldwide operations, we are exposed to risks from fluctuations in foreign currency exchange rates, interest rates and inflation, governmental policies regarding spending, exchange controls, regulatory and taxation changes, and other adverse political, economic or social developments in such countries, which could affect our revenues, profitability and financial condition. As a global company, a portion of our business is carried out in currencies other than the U.S. dollar, which is the Company’s functional currency. As a result, we are exposed to foreign exchange rate risk, which could adversely affect our financial position and results of operations.
On May 22, 2009, Venezuela’s President Hugo Chávez announced the nationalization of Tavsa, Matesi and Comsigua. The Company’s investments in Tavsa, Matesi and Comsigua are protected under applicable bilateral investment treaties, including the bilateral investment treaty between Venezuela and the Belgian-Luxembourgish Union, and Tenaris continues to reserve all of its rights under contracts, investment treaties and Venezuelan and international law, and to consent to the jurisdiction of the ICSID in connection with the nationalization process. However, we can give no assurance that the Venezuelan government will agree to pay a fair and adequate compensation for our interest in Tavsa, Matesi and Comisigua, or that any such compensation will be freely convertible into or exchangeable for foreign currency. We may be forced to engage in litigation procedures to enforce our rights under contracts, investment treaties and Venezuelan and international law, and the time, costs and management efforts associated with such litigation may be significant. For further information on the nationalization of the Venezuelan subsidiaries, see “Business overview -Main events of the semester – Developments in Venezuela” in this half-year report and Note 14 “Processes in Venezuela” to our unaudited consolidated condensed interim financial statements included in this half-year report.
A key element of our business strategy is to develop and offer higher value-added products and services and to continuously identify and pursue growth-enhancing strategic opportunities. Failure to successfully implement our strategy or to integrate future acquisitions and strategic partnerships could affect our ability to grow, our competitive position and our sales and profitability. In addition, failure to agree with our joint venture partner in Japan on the strategic direction of our joint operations, may have an adverse impact on our operations in Japan.
At December 31, 2008, we had $1,890.6 million in goodwill and intangible assets with indefinite useful life, which are exposed to impairment tests and correspond mainly to the acquisition of Maverick ($772.0 million) and Hydril ($919.9 million). In 2008 we recorded an impairment charge for $502.9 million (of which $394.3 million correspond to Maverick); however, we can give no assurance that further impairment charges will not be required in the future.
Potential environmental, product liability and other claims arising from the inherent risks associated with the products we sell and the services we render, including well failures, line pipe leaks, bursts and fires, that could result in death, personal injury, property damage, environmental pollution or loss of production could create significant liabilities for us. In addition, we are subject to a wide range of local, provincial and national laws, regulations, permit requirements and decrees relating to the protection of human health and the environment and the cost of complying with such regulations as well as unforeseen environmental liabilities may increase our operating costs or negatively impact our net worth. Similarly, we conduct business in certain countries known to experience governmental corruption. Although we are committed to conducting business in a legal and ethical manner in compliance with local and international statutory requirements and standards applicable to our business, there is a risk that our employees or representatives may take actions that violate applicable laws and regulations that generally prohibit the making of improper payments to foreign government officials for the purpose of obtaining or keeping business, including laws relating to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions such as the U.S. Foreign Corrupt Practices Act.
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Tenaris S.A. Half-year report 2009-Interim management report
As a holding company, our ability to pay expenses, debt service and cash dividends depends on the results of operations and financial condition of our subsidiaries, which could be restricted by legal, contractual or other limitations, including exchange controls or transfer restrictions, and other agreements and commitments of our subsidiaries.
The Company’s controlling shareholder may be able to take actions that do not reflect the will or best interests of other shareholders.
The Company’s tax-exempt status will terminate on December 31, 2010. If we are unable to mitigate the consequences of the termination of the preferential tax regime applying to the Company, we may be subject to a higher tax burden in the future and our shareholders may be subject to tax withholdings.
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Tenaris S.A. Half-year report 2009-Interim management report
BUSINESS OVERVIEW
Operating and Financial Review and Prospects
The following discussion and analysis should be read in conjunction with the audited consolidated financial statements and the related notes included in our annual report for the year ended December 31, 2008, and is based on, and should be read in conjunction with, the unaudited consolidated condensed interim financial statements for the six-month period ended June 30, 2009, included in this half-year report.
Certain information contained in this discussion and analysis and presented elsewhere in this half-year report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Concerning Forward-Looking Statements” in this half-year report. In evaluating this discussion and analysis, you should specifically consider the various risk factors identified in “Principal Risks and Uncertainties”, other risk factors identified elsewhere in this half-year report and other factors that could cause results to differ materially from those expressed in such forward-looking statements.
Market Background and Outlook
Following their collapse in the second half of 2008 to a low of around $40 per barrel at the end of the year, global oil prices have risen during the first half of 2009 and have reached the level of $60-70 per barrel. This reflects increased optimism for a recovery in global economic growth led by China together with an expected decline in non-OPEC production and ongoing OPEC actions to cut production. North American gas prices, however, have fallen during the first half of 2009 to current levels of around $3.00 per million BTU as the carry over increases of 2008 U.S. production combined with reduced demand has resulted in high levels of gas in storage.
The international count of active drilling rigs, as published by Baker Hughes, continued to decline during the first semester of 2009, averaging 1,004 during such period, 8% lower than the second semester and 6% lower than the first semester of 2008. The corresponding rig count in the U.S., which is more sensitive to North American gas prices, fell sharply in the first half of the year and at June 2009, was down 56% from its high in September 2008 but since July 2009, has shown signs of stabilizing. It averaged 1,131 during the first semester of 2009, 42% lower than the second semester and 38% lower than the first semester of 2008. In Canada, the corresponding rig count, which is affected by seasonal drilling patterns, averaged 210 during the first semester of 2009, a decrease of 38% compared to the first semester of 2008.
Demand for our pipes from the global energy industry has been affected by the decline in oil and gas drilling activity and the actions taken by customers to adjust to reduced cash flows and a less favorable market outlook, including procurement delays and cancellations and the postponement of new project activity. Demand in the U.S. and Canada has been further affected by extraordinarily high levels of OCTG inventories. Demand for pipes from the industrial and power generation segments remain at low levels.
We expect shipments for our large-diameter pipes for pipeline projects in South America, in the second half of the year, to remain close to the levels shown during the first half, however the order backlog continues to decline as new projects are postponed.
Steel and steelmaking raw material costs have stabilized and in recent weeks have shown some increase. However our costs, particularly at our North American welded pipe operations, will continue to be adversely affected by low production levels and the high cost of raw material inventories procured under different market conditions, partially offset by the actions taken to reduce our structural costs.
With low levels of demand likely to persist until the end of the year and prices adjusting downwards we expect that our sales and operating income will be lower in the second half of the year than the first. We expect that there will be a recovery in our shipments going into 2010 but that our revenues may not recover to the same extent considering the lagged effect of price declines in our results.
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Tenaris S.A. Half-year report 2009-Interim management report
Results of Operations
Unaudited Consolidated condensed interim income statement
(all amounts in thousands of U.S. dollars, unless otherwise stated) | Six-month period ended June 30, | |||||||||||||||
Continuing operations | 2009 | 2008 | ||||||||||||||
% | % | |||||||||||||||
Net sales | 4,530,632 | 100.0 | 5,710,424 | 100.0 | ||||||||||||
Cost of sales | (2,628,211 | ) | (58.0 | ) | (3,302,831 | ) | (57.8 | ) | ||||||||
Gross profit | 1,902,421 | 42.0 | 2,407,593 | 42.2 | ||||||||||||
Selling, general and administrative expenses | (783,006 | ) | (17.3 | ) | (878,038 | ) | (15.4 | ) | ||||||||
Other operating income (expense), net | 3,024 | 0.1 | (4,947 | ) | (0.1 | ) | ||||||||||
Operating income | 1,122,439 | 24.8 | 1,524,608 | 26.7 | ||||||||||||
Interest income | 12,737 | 0.3 | 28,681 | 0.5 | ||||||||||||
Interest expense | (63,582 | ) | (1.4 | ) | (100,124 | ) | (1.8 | ) | ||||||||
Other financial results | (52,266 | ) | (1.2 | ) | (9,572 | ) | (0.2 | ) | ||||||||
Income before equity in earnings of associated companies and income tax | 1,019,328 | 22.5 | 1,443,593 | 25.3 | ||||||||||||
Equity in earnings of associated companies | 57,935 | 1.3 | 97,963 | 1.7 | ||||||||||||
Income before income tax | 1,077,263 | 23.8 | 1,541,556 | 27.0 | ||||||||||||
Income tax | (319,592 | ) | (7.1 | ) | (428,464 | ) | (7.5 | ) | ||||||||
Income for continuing operations | 757,671 | 16.7 | 1,113,092 | 19.5 | ||||||||||||
Discontinued operations | ||||||||||||||||
Result for discontinued operations | (28,138 | ) | (0.6 | ) | 416,906 | 7.3 | ||||||||||
Income for the period | 729,533 | 16.1 | 1,529,998 | 26.8 | ||||||||||||
Attributable to: | ||||||||||||||||
Equity holders of the Company | 709,315 | 15.7 | 1,460,514 | 25.6 | ||||||||||||
Minority interest | 20,218 | 0.4 | 69,484 | 1.2 | ||||||||||||
729,533 | 16.1 | 1,529,998 | 26.8 | |||||||||||||
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Tenaris S.A. Half-year report 2009-Interim management report
Selected consolidated financial position data
Thousands of U.S. dollars (except number of shares) | June 30, | December 31, | |||||
2009 | 2008 | ||||||
Current assets | (1)6,037,734 | 7,252,417 | |||||
Property, plant and equipment, net | 3,122,122 | 2,982,871 | |||||
Other non-current assets | 4,644,218 | 4,865,424 | |||||
Total assets | 13,804,074 | 15,100,712 | |||||
Current liabilities | 2,440,999 | 3,790,017 | |||||
Non-current borrowings | 998,251 | 1,241,048 | |||||
Deferred tax liabilities | 867,000 | 1,053,838 | |||||
Other non-current liabilities | 291,253 | 313,922 | |||||
Total liabilities | 4,597,503 | 6,398,825 | |||||
Capital and reserves attributable to the Company’s equity holders | 8,637,036 | 8,176,571 | |||||
Minority interest | 569,535 | 525,316 | |||||
Total liabilities and equity | 13,804,074 | 15,100,712 | |||||
Number of shares outstanding | 1,180,536,830 | 1,180,536,830 | |||||
(1) At June 30, 2009, current assets include assets available for sale amounting to $21.6 million.
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Tenaris S.A. Half-year report 2009-Interim management report
Six-month period ended June 30, 2009, compared to six-month period ended June 30, 2008
Summary
Net income attributable to equity holders in the Company during the first semester of 2009 was $709.3 million, or $0.60 per share ($1.20 per ADS), which compares with net income attributable to equity holders in the Company during the first semester of 2008 of $1,460.5 million, or $1.24 per share ($2.47 per ADS). Operating income was $1,122.4 million, or 25% of net sales during the first semester of 2009, compared to $1,524.6 million, or 27% of net sales during the fist semester of 2008. Operating income plus depreciation and amortization for this semester was $1,370.5 million, or 30% of net sales, compared to $1,789.3 million, or 31% of net sales during the first semester of 2008.
During the quarter, we re-presented the results of our Venezuelan operations that are in the process of being nationalized as discontinued operations.
Net Sales, Cost of Sales and Operating Income by segment
The following table shows our net sales by business segment for the periods indicated below:
Millions of U.S. dollars | For the six-month period ended June 30, | |||||||||||||||||||
2009 | 2008 | Increase / (Decrease) | ||||||||||||||||||
Tubes | 3,809.4 | 84 | % | 4,681.2 | 82 | % | (19 | %) | ||||||||||||
Projects | 476.6 | 11 | % | 639.8 | 11 | % | (26 | %) | ||||||||||||
Others | 244.7 | 5 | % | 389.4 | 7 | % | (37 | %) | ||||||||||||
Total | 4,530.6 | 100 | % | 5,710.4 | 100 | % | (21 | %) |
The following table indicates our sales volume of seamless and welded pipes by business segment for the periods indicated below:
Thousands of tons | For the six-month period ended June 30, | |||||||||||
2009 | 2008 | Increase / (Decrease) | ||||||||||
Tubes – Seamless | 1,076 | 1,457 | (26 | %) | ||||||||
Tubes – Welded | 175 | 552 | (68 | %) | ||||||||
Tubes – Total | 1,251 | 2,009 | (38 | %) | ||||||||
Projects – Welded | 174 | 302 | (42 | %) | ||||||||
Total – Tubes + Projects | 1,424 | 2,311 | (38 | %) |
Tubes
The following table indicates, for our Tubes business segment, net sales by geographic region, cost of sales as a percentage of net sales, operating income and operating income as a percentage of net sales for the periods indicated below:
Millions of U.S. dollars | For the six-month period ended June 30, | |||||||||||
2009 | 2008 | Increase / (Decrease) | ||||||||||
Net sales | ||||||||||||
- North America | 1,676.8 | 1,819.1 | (8 | %) | ||||||||
- South America | 494.3 | 528.8 | (7 | %) | ||||||||
- Europe | 484.9 | 928.4 | (48 | %) | ||||||||
- Middle East & Africa | 848.0 | 1,041.3 | (19 | %) | ||||||||
- Far East & Oceania | 305.4 | 363.7 | (16 | %) | ||||||||
Total net sales | 3,809.4 | 4,681.2 | (19 | %) | ||||||||
Cost of sales (% of sales) | 55 | % | 55 | % | ||||||||
Operating income | 1,026.3 | 1,342.0 | (24 | %) | ||||||||
Operating income (% of sales) | 27 | % | 29 | % |
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Tenaris S.A. Half-year report 2009-Interim management report
Net sales of tubular products and services decreased 19% to $3,809.4 million in the first half of 2009, compared to $4,681.2 million in the first half of 2008, due to a sharp reduction in volumes, which was partially offset by higher average selling prices, reflecting in part a higher proportion of sales of specialized high-end products.
Cost of sales of tubular products and services, expressed as a percentage of net sales, remained stable at 55%.
Operating income from tubular products and services decreased 24% to $1,026.3 million in the first half of 2009, from $1,342.0 million in the first half of 2008, mainly due to the reduction in sales. Operating income expressed as a percentage of net sales decreased to 27% in the first half of 2009, compared to 29% in the first half of 2008, mainly due to the effect of fixed and semi-fixed selling, general and administrative expenses, over lower revenues.
Projects
The following table indicates, for our Projects business segment, net sales, cost of sales as a percentage of net sales, operating income and operating income as a percentage of net sales for the periods indicated below:
Millions of U.S. dollars | For the six-month period ended June 30, | |||||||||||
2009 | 2008 | Increase / (Decrease) | ||||||||||
Net sales | 476.6 | 639.8 | (26 | %) | ||||||||
Cost of sales (% of sales) | 72 | % | 71 | % | ||||||||
Operating income | 94.5 | 128.9 | (27 | %) | ||||||||
Operating income (% of sales) | 20 | % | 20 | % |
Net sales of pipes for pipeline projects decreased 26% to $476.6 million in the first half of 2009, compared to $639.8 million in the first half of 2008, reflecting lower deliveries in Brazil and Argentina to gas and other pipeline projects.
Operating income from pipes for pipeline projects decreased 27% to $94.5 million in the first half of 2009, from $128.9 million in the first half of 2008, mainly in line with the decline in revenues, and as a percentage of net sales it remained stable at 20%.
Others
The following table indicates, for our Others business segment, net sales, cost of sales as a percentage of net sales, operating income and operating income as a percentage of net sales for the periods indicated below:
Millions of U.S. dollars | For the six-month period ended June 30, | |||||||||||
2009 | 2008 | Increase / (Decrease) | ||||||||||
Net sales | 244.7 | 389.4 | (37 | %) | ||||||||
Cost of sales (% of sales) | 84 | % | 72 | % | ||||||||
Operating income | 1.6 | 53.7 | (97 | %) | ||||||||
Operating income (% of sales) | 1 | % | 14 | % |
Net sales of other products and services decreased 37% to $244.7 million in the first half of 2009, compared to $389.4 million in the first half of 2008, mainly reflecting lower sales of welded pipes for electric conduits in the U.S. and sucker rods.
Operating income from other products and services decreased 97% to $1.6 million in the first half of 2009, compared to $53.7 million during the first half of 2008, mainly due to recorded losses on our electric conduits operations in the U.S.
Selling, general and administrative expenses, or SG&A, increased as a percentage of net sales to 17.3% in the semester ended June 30, 2009, compared to 15.4% in the corresponding semester of 2008, mainly due to the effect of fixed and semi-fixed expenses over lower revenues.
Net interest expenses decreased to $50.8 million in the first half of 2009, compared to $71.4 million in the same period of 2008 reflecting a lower net debt position and lower interest rates.
Other financial results recorded a loss of $52.3 million during the first half of 2009, compared to a loss of $9.6 million during the first half of 2008. These results largely reflect gains and losses on net foreign exchange transactions and the fair value of derivative instruments and are partially offset by changes to our net equity position. These gains and losses are mainly attributable to variations in the exchange rates between our subsidiaries’ functional currency (other than the U.S. dollar) and the U.S. dollar, in accordance with IFRS.
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Tenaris S.A. Half-year report 2009-Interim management report
Equity in earnings of associated companies generated a gain of $57.9 million in the first half of 2009, compared to a gain of $98.0 million in the first half of 2008. These gains were derived mainly from our equity investment in Ternium.
Income tax charges totaled $319.6 million in the first half of 2009, equivalent to 31% of income before equity in earnings of associated companies and income tax, compared to $428.5 million in the first half of 2008, equivalent to 30% of income before equity in earnings of associated companies and income tax.
Income from discontinued operations amounted to a loss of $28.1 million in the first half of 2009 corresponding to our Venezuelan operations that are being nationalized, compared to a gain of $416.9 million in the corresponding period of 2008, of which $394.3 million corresponded to the result of the sale of Hydril’s pressure control business. See Note 12 “Discontinued Operations” to our unaudited consolidated condensed interim financial statements included in this half-year report.
Income attributable to minority interest amounted to $20.2 million in the first half of 2009, compared to $69.5 million in the corresponding semester of 2008, mainly reflecting lower results at NKKTubes and at our Venezuelan subsidiaries.
Liquidity and Capital Resources
The following table provides certain information related to our cash generation and changes in our cash and cash equivalents position for the periods indicated below:
Millions of U.S. dollars | For the six-month period ended June 30, | |||||||
2009 | 2008 | |||||||
Net cash provided by operating activities | 1,874.6 | 842.9 | ||||||
Net cash (used in) provided by investing activities | (511.9 | ) | 661.2 | |||||
Net cash (used in) financing activities | (1,267.0 | ) | (1,252.9 | ) | ||||
Increase in cash and cash equivalents | 95.7 | 251.2 | ||||||
Cash and cash equivalents at the beginning of year | 1,525.0 | 954.3 | ||||||
Effect of exchange rate changes | (2.3 | ) | 113.6 | |||||
(Decrease) due to deconsolidation | (9.7 | ) | - | |||||
Increase in cash and cash equivalents | 95.7 | 251.2 | ||||||
Cash and cash equivalents at period end | 1,608.7 | 1,319.0 |
Net cash provided by operations during the first half of 2009 was $1.9 billion, compared to $842.9 million in the first half of 2008. Working capital decreased by $1.2 billion during the semester, as we reduced our inventories by $940.6 million and trade receivables by $586.3 million, which was partially offset by a decrease in trade payables $365.2 million.
Capital expenditures amounted to $226.3 million in the first half of 2009, compared to $205.4 million in the first half of 2008.
During the first half of 2009, total financial debt decreased by $1.0 billion to $2.0 billion at June 30, 2009 from $3.0 billion at December 31, 2008. Net financial debt (total financial debt less cash and other current investments) decreased by $1.3 billion in the first half of 2009, to $0.1 billion at June 30, 2009, from $1.4 billion at December 31, 2008.
12
Tenaris S.A. Half-year report 2009-Interim management report
Main Events of the Semester
Acquisition of Seamless Pipe Indonesia Jaya
In April 2009, we acquired from Bakrie & Brothers TbK, Green Pipe International Limited and Cakrawala Baru a 77.45% holding in Seamless Pipe Indonesia Jaya, or SPIJ, an Indonesian OCTG processing business with heat treatment and premium connection threading facilities, for a purchase price of $69.5 million, with $21.9 million payable as consideration for SPIJ’s equity and $47.6 million payable as consideration for the assignment of certain sellers’ loan to SPIJ. SPIJ has an annual processing capacity of 120,000 tons and has had a commercial alliance with us for more than a decade. SPIJ employs around 500 persons and had revenues of approximately $140 million in 2008.
Developments in Venezuela
Sidor Nationalization Process
On June 30, 2009, the Company held 11.46% of the capital stock of Ternium S.A.
On May 7, 2009, Ternium completed the transfer of its entire 59.7% interest in Sidor to CVG. The transfer was effected as a result of Venezuela’s Decree Law 6058, which ordered that Sidor and its subsidiaries and associated companies be transformed into state-owned enterprises and declared the activities of such companies of public and social interest. While CVG had assumed operational control of Sidor on July 12, 2008, Ternium had retained formal title over the shares until May 7, 2009. Ternium agreed to receive an aggregate amount of $1.97 billion as compensation for its Sidor shares. Of that amount, CVG paid $400 million in cash on May 7, 2009. The balance was divided in two tranches: the first tranche, of $945 million, will be paid in six equal quarterly installments, while the second tranche will be paid at maturity in November 2010, subject to quarterly mandatory prepayment events based on the increase of the WTI crude oil price over its May 6, 2009 level.
Nationalization of Venezuelan Subsidiaries
Within the framework of Decree Law 6058, on May 22, 2009, Venezuela’s President Hugo Chávez 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 Siderurgicos S.A (“Matesi”), and Complejo Siderurgico de Guayana, C.A (“Comsigua”), in which the Company has a minority interest (collectively, “the Venezuelan Companies”). On May 25, 2009, the Minister of Basic Industries and Mines of Venezuela (“MIBAM”) issued official communications N°230/09 and 231/09, appointing the MIBAM’s representatives to the transition committees charged with overseeing the nationalization processes of Tavsa and Matesi. On May 29, 2009, the Company sent response letters to the MIBAM acknowledging the Venezuelan government’s decision to nationalize Tavsa and Matesi, appointing its representatives to the transition committees, and reserving all of its rights under contracts, investment treaties and Venezuelan and international law and the right to submit any controversy between the Company or its subsidiaries and Venezuela relating to Tavsa and Matesi’s nationalization to international arbitration, including arbitration administered by ICSID.
On July 14, 2009, President Chávez issued Decree 6796, which orders the acquisition of the Venezuelan Companies and provides that Tavsa will be held by the Ministry of Energy and Oil, while Matesi and Comsigua will be held by MIBAM. Decree 6796 also requires the Venezuelan government to create certain committees at each of the Venezuelan Companies; each transition committee must ensure the nationalization of each Venezuelan Company and the continuity of its operations, and each technical committee (to be composed of representatives of Venezuela and the private sector) must negotiate over a 60-day period (extendable by mutual agreement) a fair price for each Venezuelan Company to be transferred to Venezuela. In the event the parties fail to reach agreement by the expiration of the 60-day period (or any extension thereof), the applicable Ministry will assume control and exclusive operation of the relevant Venezuelan Company, and the Executive Branch will order its expropriation in accordance with the Venezuelan Expropriation Law. The Decree also specifies that all facts and activities there under are subject to Venezuelan law and any disputes relating thereto must submitted to Venezuelan courts.
On August 19, 2009, we announced that Venezuela, acting through the transition committee appointed by the Venezuelan Ministry of Basic Industries and Mining, unilaterally assumed exclusive operational control over Matesi. While continuing to reserve all of its rights under investment treaties and Venezuelan and international law, Tenaris is prepared to engage in discussions with the Venezuelan government regarding the fair and adequate terms and conditions for the transfer of Matesi to Venezuela.
The Company’s investments in Tavsa, Matesi and Comsigua are protected under applicable bilateral investment treaties, including the bilateral investment treaty between Venezuela and the Belgian-Luxembourgish Union, and, as noted above, Tenaris continues to reserve all of its rights under contracts, investment treaties and Venezuelan and international law, and to consent to the jurisdiction of the ICSID in connection with the nationalization process. For further information on the nationalization of the Venezuelan subsidiaries, see Note 14 “Processes in Venezuela” to our unaudited consolidated condensed interim financial statements included in this half-year report.
13
Tenaris S.A. Half-year report 2009-Interim management report
Annual General Meeting of Shareholders
On June 3, 2009, the Annual General Meeting of shareholders of the Company approved all resolutions on its agenda. Among other resolutions adopted at the meeting, the shareholders approved the consolidated financial statements and annual accounts for the year ended December 31, 2008, as well as the payment of an annual dividend of $0.43 per share ($0.86 per ADS), or approximately $507 million. The amount approved includes the interim dividend previously paid in November 2008, in the amount of $0.13 per share ($0.26 per ADS). The balance of the annual dividend amounting to $0.30 per share ($0.60 per ADS), or approximately $354 million, was paid on June 25, 2009, with an ex-dividend date of June 22, 2009.
In addition, the Annual General Meeting of shareholders re-elected the then current members of the board of directors to serve until the next annual shareholders meeting (to be held in June 2010); and re-appointed PricewaterhouseCoopers as Tenaris’s independent auditors for the 2009 fiscal year.
The Annual General Meeting of shareholders also resolved to authorize the Company and the Company’s subsidiaries to acquire shares of the Company, including shares represented by ADSs, at such times and on such other terms and conditions as may be determined by the board of directors of the Company or the board of directors or other governing body of the relevant Company subsidiary.
For more information on the Annual General Meeting of Shareholders held on June 3, 2009, see the minutes of such meeting available on our website at http://www.tenaris.com/investors/.
RELATED PARTY TRANSACTIONS
Tenaris is a party to several related party transactions, which include, among others, purchases and sales of goods (including steel pipes, flat steel products, steel bars, raw materials, gas and electricity) and services (including engineering services and related services) from or to entities controlled by San Faustin or in which San Faustin holds significant interests. Material related party transactions are subject to the review of the audit committee of the Company’s board of directors and the requirements of the Company’s articles of association and Luxembourg law. For further detail on Tenaris’s related party transactions, see Note 13 “Related party transactions” to our unaudited consolidated condensed interim financial statements included in this half-year report.
14
Management Certification
We confirm, to the best of our knowledge, that:
1. | the unaudited consolidated condensed interim financial statements prepared in conformity with International Financial Reporting Standards included in this half year report, give a true and fair view of the assets, liabilities, financial position and profit or loss of Tenaris S.A. and its consolidated subsidiaries, taken as a whole; and |
2. | the interim management report included in this half year report, includes a fair review of the important events that have occurred during the six-month period ended June 30, 2009, and their impact on the unaudited consolidated condensed interim financial statements for such period, material related party transactions and a description of the principal risks and uncertainties they face. |
/s/ Paolo Rocca
Chief Executive Officer
Paolo Rocca
August 31, 2009
/s/ Ricardo Soler
Chief Financial Officer
Ricardo Soler
August 31, 2009
15
Tenaris S.A. Half-year report 2009-Consolidated Condensed Interim Financial Statements
Financial Information
CONSOLIDATED CONDENSED INTERIM FINANCIAL
STATEMENTS
Six-month period ended June 30, 2009
16
Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Tenaris S.A.
We have reviewed the accompanying consolidated condensed interim statement of financial position of Tenaris S.A. and its subsidiaries as of June 30, 2009, and the related consolidated condensed interim statements of income and of comprehensive income for each of the three-month and six-month periods ended June 30, 2009 and 2008, and the consolidated condensed interim statements of changes in equity and of cash flows for the six-month periods ended June 30, 2009 and 2008. These consolidated condensed interim financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated condensed interim financial statements for them to be in conformity with International Accounting Standard 34 “Interim Financial Reporting” as issued by the International Accounting Standards Board and adopted by the European Union.
We previously audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2008, and the related consolidated statements of income, of changes in equity and of cash flows for the year then ended (not presented herein); and in our report dated February 25, 2009, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed statement of financial position as of December 31, 2008, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
Buenos Aires, August 5, 2009 | |
PRICE WATERHOUSE & CO. S.R.L. | |
by /s/ Diego M. Niebuhr | |
(Partner) | |
Diego M. Niebuhr | |
17
Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
CONSOLIDATED CONDENSED INTERIM INCOME STATEMENT
(all amounts in thousands of U.S. dollars, unless otherwise stated) | Three-month period ended June 30, | Six-month period ended June 30, | |||
Notes | 2009 | 2008 | 2009 | 2008 | |
Continuing operations | (Unaudited) | (Unaudited) | |||
Net sales | 3 | 2,096,344 | 3,110,103 | 4,530,632 | 5,710,424 |
Cost of sales | 3 & 4 | (1,264,899) | (1,820,717) | (2,628,211) | (3,302,831) |
Gross profit | 831,445 | 1,289,386 | 1,902,421 | 2,407,593 | |
Selling, general and administrative expenses | 3 & 5 | (395,926) | (469,669) | (783,006) | (878,038) |
Other operating income (expense), net | 3 | 1,278 | (3,708) | 3,024 | (4,947) |
Operating income | 436,797 | 816,009 | 1,122,439 | 1,524,608 | |
Interest income | 6 | 8,163 | 16,493 | 12,737 | 28,681 |
Interest expense | 6 | (24,435) | (33,962) | (63,582) | (100,124) |
Other financial results | 6 | (15,907) | 4,235 | (52,266) | (9,572) |
Income before equity in earnings of associated companies and income tax | 404,618 | 802,775 | 1,019,328 | 1,443,593 | |
Equity in earnings of associated companies | 66,514 | 48,102 | 57,935 | 97,963 | |
Income before income tax | 471,132 | 850,877 | 1,077,263 | 1,541,556 | |
Income tax | (114,518) | (219,339) | (319,592) | (428,464) | |
Income for continuing operations | 356,614 | 631,538 | 757,671 | 1,113,092 | |
Discontinued operations | |||||
Result for discontinued operations | 12 | (20,176) | 398,497 | (28,138) | 416,906 |
Income for the period | 336,438 | 1,030,035 | 729,533 | 1,529,998 | |
Attributable to: | |||||
Equity holders of the Company | 343,268 | 987,471 | 709,315 | 1,460,514 | |
Minority interest | (6,830) | 42,564 | 20,218 | 69,484 | |
336,438 | 1,030,035 | 729,533 | 1,529,998 | ||
Earnings per share attributable to the equity holders of the Company during year | |||||
Weighted average number of outstanding ordinary shares (thousands) | 7 | 1,180,537 | 1,180,537 | 1,180,537 | 1,180,537 |
Earnings per share (U.S. dollars per share) | 7 | 0.29 | 0.84 | 0.60 | 1.24 |
Earnings per ADS (U.S. dollars per ADS) | 7 | 0.58 | 1.67 | 1.20 | 2.47 |
18
Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
CONSOLIDATED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME
(all amounts in thousands of U.S. dollars, unless otherwise stated) | Three-month period ended June 30, | Six-month period ended June 30, | ||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Income for the period | 336,438 | 1,030,035 | 729,533 | 1,529,998 | ||||||||||||
Other comprehensive income: | ||||||||||||||||
Currency translation adjustment | 295,277 | 72,355 | 161,862 | 176,272 | ||||||||||||
Cash flow hedges | 3,169 | (8,294 | ) | (8,349 | ) | (6,365 | ) | |||||||||
Share of other comprehensive income of associates | ||||||||||||||||
Currency translation adjustment | 12,093 | 17,137 | (4,430 | ) | 20,481 | |||||||||||
Cash flow hedges | 1,176 | (296 | ) | 1,815 | (296 | ) | ||||||||||
Income tax relating to components of other comprehensive income | 180 | 4,023 | 2,876 | 4,023 | ||||||||||||
Other comprehensive income for the period, net of tax | 311,895 | 84,925 | 153,774 | 194,115 | ||||||||||||
Total comprehensive income for the period | 648,333 | 1,114,960 | 883,307 | 1,724,113 | ||||||||||||
Attributable to: | ||||||||||||||||
Equity holders of the Company | 592,430 | 1,058,717 | 815,388 | 1,613,624 | ||||||||||||
Minority interest | 55,903 | 56,243 | 67,919 | 110,489 | ||||||||||||
648,333 | 1,114,960 | 883,307 | 1,724,113 |
The accompanying notes are an integral part of these Consolidated Condensed Interim Financial Statements. These Consolidated Condensed Interim Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the fiscal year ended December 31, 2008.
19
Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
CONSOLIDATED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION
(all amounts in thousands of U.S. dollars) | At June 30, 2009 | At December 31, 2008 | ||||||||||||||||||
Notes | (Unaudited) | |||||||||||||||||||
ASSETS | ||||||||||||||||||||
Non-current assets | ||||||||||||||||||||
Property, plant and equipment, net | 8 | 3,122,122 | 2,982,871 | |||||||||||||||||
Intangible assets, net | 9 | 3,736,821 | 3,826,987 | |||||||||||||||||
Investments in associated companies | 575,628 | 527,007 | ||||||||||||||||||
Other investments | 29,488 | 38,355 | ||||||||||||||||||
Deferred tax assets | 217,686 | 390,323 | ||||||||||||||||||
Receivables | 84,595 | 7,766,340 | 82,752 | 7,848,295 | ||||||||||||||||
Current assets | ||||||||||||||||||||
Inventories | 2,150,785 | 3,091,401 | ||||||||||||||||||
Receivables and prepayments | 228,791 | 251,481 | ||||||||||||||||||
Current tax assets | 203,244 | 201,607 | ||||||||||||||||||
Trade receivables | 1,536,984 | 2,123,296 | ||||||||||||||||||
Available for sale assets | 14 | 21,572 | - | |||||||||||||||||
Other investments | 273,450 | 45,863 | ||||||||||||||||||
Cash and cash equivalents | 1,622,908 | 6,037,734 | 1,538,769 | 7,252,417 | ||||||||||||||||
Total assets | 13,804,074 | 15,100,712 | ||||||||||||||||||
EQUITY | ||||||||||||||||||||
Capital and reserves attributable to the Company’s equity holders | 8,637,036 | 8,176,571 | ||||||||||||||||||
Minority interest | 569,535 | 525,316 | ||||||||||||||||||
Total equity | 9,206,571 | 8,701,887 | ||||||||||||||||||
LIABILITIES | ||||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||
Borrowings | 998,251 | 1,241,048 | ||||||||||||||||||
Deferred tax liabilities | 867,000 | 1,053,838 | ||||||||||||||||||
Other liabilities | 209,365 | 223,142 | ||||||||||||||||||
Provisions | 79,470 | 89,526 | ||||||||||||||||||
Trade payables | 2,418 | 2,156,504 | 1,254 | 2,608,808 | ||||||||||||||||
Current liabilities | ||||||||||||||||||||
Borrowings | 1,019,972 | 1,735,967 | ||||||||||||||||||
Current tax liabilities | 333,638 | 610,313 | ||||||||||||||||||
Other liabilities | 247,478 | 242,620 | ||||||||||||||||||
Provisions | 51,385 | 28,511 | ||||||||||||||||||
Customer advances | 256,922 | 275,815 | ||||||||||||||||||
Trade payables | 531,604 | 2,440,999 | 896,791 | 3,790,017 | ||||||||||||||||
Total liabilities | 4,597,503 | 6,398,825 | ||||||||||||||||||
Total equity and liabilities | 13,804,074 | 15,100,712 |
Contingencies, commitments and restrictions to the distribution of profits are disclosed in Note 10.
The accompanying notes are an integral part of these Consolidated Condensed Interim Financial Statements. These Consolidated Condensed Interim Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the fiscal year ended December 31, 2008.
20
Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
CONSOLIDATED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY
(all amounts in thousands of U.S. dollars)
Attributable to equity holders of the Company | ||||||||||||||||||||||||||||||||||||
Share Capital | Legal Reserves | Share Premium | Currency Translation Adjustment | Other Reserves | Retained Earnings (*) | Total | Minority Interest | Total | ||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||
Balance at January 1, 2009 | 1,180,537 | 118,054 | 609,733 | (223,779 | ) | 2,127 | 6,489,899 | 8,176,571 | 525,316 | 8,701,887 | ||||||||||||||||||||||||||
Income for the period | - | - | - | - | - | 709,315 | 709,315 | 20,218 | 729,533 | |||||||||||||||||||||||||||
Other comprehensive income por the period | - | - | - | 106,799 | (726 | ) | - | 106,073 | 47,701 | 153,774 | ||||||||||||||||||||||||||
Total comprehensive income por the period | - | - | - | 106,799 | (726 | ) | 709,315 | 815,388 | 67,919 | 883,307 | ||||||||||||||||||||||||||
Acquisition and decrease of minority interest | - | - | - | - | (783 | ) | - | (783 | ) | 3,476 | 2,693 | |||||||||||||||||||||||||
Change in equity reserves | - | - | - | - | 21 | - | 21 | - | 21 | |||||||||||||||||||||||||||
Dividends paid in cash | - | - | - | - | - | (354,161 | ) | (354,161 | ) | (27,176 | ) | (381,337 | ) | |||||||||||||||||||||||
Balance at June 30, 2009 | 1,180,537 | 118,054 | 609,733 | (116,980 | ) | 639 | 6,845,053 | 8,637,036 | 569,535 | 9,206,571 |
Attributable to equity holders of the Company | ||||||||||||||||||||||||||||||||||||
Share Capital | Legal Reserves | Share Premium | Currency Translation Adjustment | Other Reserves | Retained Earnings | Total | Minority Interest | Total | ||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||||||||
Balance at January 1, 2008 | 1,180,537 | 118,054 | 609,733 | 266,049 | 18,203 | 4,813,701 | 7,006,277 | 523,573 | 7,529,850 | |||||||||||||||||||||||||||
Income for the period | - | - | - | - | - | 1,460,514 | 1,460,514 | 69,484 | 1,529,998 | |||||||||||||||||||||||||||
Other comprehensive income por the period | - | - | - | 150,986 | 2,124 | - | 153,110 | 41,005 | 194,115 | |||||||||||||||||||||||||||
Total comprehensive income por the period | - | - | - | 150,986 | 2,124 | 1,460,514 | 1,613,624 | 110,489 | 1,724,113 | |||||||||||||||||||||||||||
Acquisition and decrease of minority interest | - | - | - | - | - | - | - | (1,865 | ) | (1,865 | ) | |||||||||||||||||||||||||
Dividends paid in cash | - | - | - | - | - | (295,134 | ) | (295,134 | ) | (55,136 | ) | (350,270 | ) | |||||||||||||||||||||||
Balance at June 30, 2008 | 1,180,537 | 118,054 | 609,733 | 417,035 | 20,327 | 5,979,081 | 8,324,767 | 577,061 | 8,901,828 |
(*) Retained Earnings as of December 31, 2008 calculated in accordance with Luxembourg Law are disclosed in Note 10.
The accompanying notes are an integral part of these Consolidated Condensed Interim Financial Statements. These Consolidated Condensed Interim Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the fiscal year ended December 31, 2008.
21
Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
CONSOLIDATED CONDENSED INTERIM STATEMENT OF CASH FLOWS
Six-month period ended June 30, | ||||||||||||
(all amounts in thousands of U.S. dollars) | Note | 2009 | 2008 | |||||||||
Cash flows from operating activities | (Unaudited) | (Unaudited) | ||||||||||
Income for the period | 729,533 | 1,529,998 | ||||||||||
Adjustments for: | ||||||||||||
Depreciation and amortization | 8 & 9 | 248,061 | 268,873 | |||||||||
Income tax accruals less payments | (329,690 | ) | 89,747 | |||||||||
Equity in earnings of associated companies | (57,073 | ) | (98,096 | ) | ||||||||
Income from the sale of pressure control business | - | (394,323 | ) | |||||||||
Interest accruals less payments, net | (23,698 | ) | (7,894 | ) | ||||||||
Changes in provisions | 14,200 | 15,243 | ||||||||||
Changes in working capital | 1,175,460 | (545,614 | ) | |||||||||
Other, including currency translation adjustment | 117,792 | (15,017 | ) | |||||||||
Net cash provided by operating activities | 1,874,585 | 842,917 | ||||||||||
Cash flows from investing activities | ||||||||||||
Capital expenditures | 8 & 9 | (226,335 | ) | (205,366 | ) | |||||||
Acquisitions of subsidiaries and minority interest | 11 | (73,535 | ) | (1,865 | ) | |||||||
Proceeds from the sale of pressure control business (*) | 12 | - | 1,113,805 | |||||||||
Proceeds from disposal of property, plant and equipment and intangible assets | 10,328 | 8,826 | ||||||||||
Investments in short terms securities | (227,587 | ) | (264,401 | ) | ||||||||
Dividends received | 5,223 | 13,636 | ||||||||||
Other | - | (3,428 | ) | |||||||||
Net cash (used in) provided by investing activities | (511,906 | ) | 661,207 | |||||||||
Cash flows from financing activities | ||||||||||||
Dividends paid | (354,161 | ) | (295,134 | ) | ||||||||
Dividends paid to minority interest in subsidiaries | (27,176 | ) | (55,136 | ) | ||||||||
Proceeds from borrowings | 263,841 | 430,088 | ||||||||||
Repayments of borrowings | (1,149,484 | ) | (1,332,755 | ) | ||||||||
Net cash used in financing activities | (1,266,980 | ) | (1,252,937 | ) | ||||||||
Increase in cash and cash equivalents | 95,699 | 251,187 | ||||||||||
Movement in cash and cash equivalents | ||||||||||||
At the beginning of the period | 1,525,022 | 954,303 | ||||||||||
Effect of exchange rate changes | (2,330 | ) | 113,559 | |||||||||
Decrease due to deconsolidation | (9,696 | ) | - | |||||||||
Increase in cash and cash equivalents | 95,699 | 251,187 | ||||||||||
At June 30, | 1,608,695 | 1,319,049 | ||||||||||
At June 30, | ||||||||||||
Cash and cash equivalents | 2009 | 2008 | ||||||||||
Cash and bank deposits | 1,622,908 | 1,337,838 | ||||||||||
Bank overdrafts | (14,213 | ) | (18,789 | ) | ||||||||
1,608,695 | 1,319,049 |
(*) Includes $394 million of after-tax gain, $381 million of assets and liabilities held for sale and $339 million of income tax charges and related expenses.
The accompanying notes are an integral part of these Consolidated Condensed Interim Financial Statements. These Consolidated Condensed Interim Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the fiscal year ended December 31, 2008.
22
Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
1 | General information |
2 | Accounting policies and basis of presentation |
3 | Segment information |
4 | Cost of sales |
5 | Selling, general and administrative expenses |
6 | Financial results |
7 | Earnings and dividends per share |
8 | Property, plant and equipment, net |
9 | Intangible assets, net |
10 | Contingencies, commitments and restrictions on the distribution of profits |
11 | Business combinations and other acquisitions |
12 | Discontinued operations |
13 | Related party transactions |
14 | Processes in Venezuela |
23
Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
(In the notes all amounts are shown in U.S. dollars, unless otherwise stated)
1 | General information |
Tenaris S.A. (the “Company”), a Luxembourg corporation (societé anonyme holding), was incorporated on December 17, 2001 as a holding company in steel pipe manufacturing and distributing operations. The Company holds, either directly or indirectly, controlling interests in various subsidiaries. References in these Consolidated Condensed Interim 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 31 to the audited Consolidated Financial Statements for the year ended December 31, 2008.
These Consolidated Condensed Interim Financial Statements were approved for issue by the Company’s Board of Directors on August 5, 2009.
2 | Accounting policies and basis of presentation |
These Consolidated Condensed Interim Financial Statements have been prepared in accordance with IAS 34, “Interim Financial Reporting”. These Consolidated Condensed Interim Financial Statements should be read in conjunction with the audited Consolidated Financial Statements for the year ended December 31, 2008, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standard Board and adopted by the European Union.
Considering the comments described below, the accounting policies used in the preparation of these Consolidated Condensed Interim Financial Statements are consistent with those used in the audited Consolidated Financial Statements for the year ended December 31, 2008.
The following standards’ amendment is mandatory for the financial year beginning 1 January, 2009:
IAS 1 (revised), “Presentation of financial statements”: The revised standard prohibits the presentation of items of income and expenses (that is “non-owner changes in equity”) in the statement of changes in equity, requiring them to be presented separately from owner changes in equity. Entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and the statement of comprehensive income). The Company has elected to present two statements: an income statement and a statement of comprehensive income. These interim financial statements have been prepared under the revised disclosure requirements.
Certain comparative amounts have been reclassified to conform to changes in presentation in the current year.
The preparation of Consolidated Condensed Interim 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 as of the balance sheet dates, and the reported amounts of revenues and expenses for the reported periods. Actual results may differ from these estimates.
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 Condensed Interim Income Statement under Other financial results.
24
Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
3 Segment information
Reportable operating segments
(Unaudited) |
(all amounts in thousands of U.S. dollars) | Tubes | Projects | Other | Total Continuing operations | Total Discontinued operations (*) |
Six-month period ended June 30, 2009 | |||||
Net sales | 3,809,353 | 476,624 | 244,655 | 4,530,632 | 18,558 |
Cost of sales | (2,077,069) | (345,108) | (206,034) | (2,628,211) | (31,866) |
Gross profit | 1,732,284 | 131,516 | 38,621 | 1,902,421 | (13,308) |
Selling, general and administrative expenses | (707,979) | (38,476) | (36,551) | (783,006) | (9,540) |
Other operating income (expenses), net | 2,002 | 1,458 | (436) | 3,024 | (179) |
Operating income | 1,026,307 | 94,498 | 1,634 | 1,122,439 | (23,027) |
Depreciation and amortization | 227,226 | 8,381 | 12,427 | 248,034 | 27 |
Six-month period ended June 30, 2008 | |||||
Net sales | 4,681,221 | 639,848 | 389,355 | 5,710,424 | 162,536 |
Cost of sales | (2,564,622) | (456,549) | (281,660) | (3,302,831) | (98,481) |
Gross profit | 2,116,599 | 183,299 | 107,695 | 2,407,593 | 64,055 |
Selling, general and administrative expenses | (773,278) | (54,067) | (50,693) | (878,038) | (27,431) |
Other operating income (expenses), net | (1,308) | (316) | (3,323) | (4,947) | 409 |
Operating income | 1,342,013 | 128,916 | 53,679 | 1,524,608 | 37,033 |
Depreciation and amortization | 242,715 | 10,432 | 11,501 | 264,648 | 13,190 |
Geographical information
(Unaudited) |
(all amounts in thousands of U.S. dollars) | North America | South America | Europe | Middle East & Africa | Far East & Oceania | Total Continuing operations | Total Discontinued operations (*) |
Six-month period ended June 30, 2009 | |||||||
Net sales | 1,744,014 | 1,125,490 | 507,205 | 848,525 | 305,398 | 4,530,632 | 18,558 |
Depreciation and amortization | 137,582 | 48,123 | 52,543 | 622 | 9,164 | 248,034 | 27 |
Six-month period ended June 30, 2008 | |||||||
Net sales | 1,994,333 | 1,309,551 | 1,000,841 | 1,041,299 | 364,400 | 5,710,424 | 162,536 |
Depreciation and amortization | 151,081 | 50,076 | 55,958 | 621 | 6,912 | 264,648 | 13,190 |
(*) Corresponds to pressure control operations and the nationalization Venezuelan subsidiaries.
Allocation of net sales to geographical information is based on customer location. Allocation of depreciation and amortization is based on the geographical location of the underlying assets.
There are no revenues from external customers attributable to the Company’s country of incorporation (Luxembourg). For geographical information purposes, “North America” comprises principally Canada, Mexico and the USA; “South America” comprises principally Argentina, Brazil, Colombia, Venezuela, Peru and Ecuador; “Europe” comprises principally Italy and Norway; “Middle East and Africa” comprises principally Egypt and Saudi Arabia; “Far East and Oceania” comprises principally China, Indonesia and Japan.
25
Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
4 Cost of sales
Six-month period ended June 30, | ||||||||
(all amounts in thousands of U.S. dollars) | 2009 | 2008 | ||||||
(Unaudited) | ||||||||
Inventories at the beginning of the period | 3,091,401 | 2,598,856 | ||||||
Plus: Charges of the period | ||||||||
Raw materials, energy, consumables and other | 981,233 | 2,825,458 | ||||||
Increase in inventory due to business combinations | 53,541 | - | ||||||
Services and fees | 123,894 | 204,830 | ||||||
Labor cost | 346,720 | 463,678 | ||||||
Depreciation of property, plant and equipment | 126,330 | 144,107 | ||||||
Amortization of intangible assets | 1,257 | 1,061 | ||||||
Maintenance expenses | 82,756 | 105,953 | ||||||
Provisions for contingencies | 1,374 | 12 | ||||||
Allowance for obsolescence | 20,614 | (10,259 | ) | |||||
Taxes | 3,576 | 4,953 | ||||||
Other | 21,892 | 54,513 | ||||||
1,763,187 | 3,794,306 | |||||||
Transfer to assets available for sale | (43,726 | ) | - | |||||
Less: Inventories at the end of the period | (2,150,785 | ) | (2,991,850 | ) | ||||
2,660,077 | 3,401,312 | |||||||
From Discontinued operations | (31,866 | ) | (98,481 | ) | ||||
2,628,211 | 3,302,831 |
5 Selling, general and administrative expenses
Six-month period ended June 30, | ||||||||
(all amounts in thousands of U.S. dollars) | 2009 | 2008 | ||||||
(Unaudited) | ||||||||
Services and fees | 106,450 | 108,024 | ||||||
Labor cost | 220,461 | 221,264 | ||||||
Depreciation of property, plant and equipment | 5,517 | 6,402 | ||||||
Amortization of intangible assets | 114,957 | 126,268 | ||||||
Commissions, freight and other selling expenses | 208,554 | 283,484 | ||||||
Provisions for contingencies | 16,346 | 15,632 | ||||||
Allowances for doubtful accounts | 10,094 | 4,881 | ||||||
Taxes | 59,275 | 77,928 | ||||||
Other | 50,892 | 61,586 | ||||||
792,546 | 905,469 | |||||||
From Discontinued operations | (9,540 | ) | (27,431 | ) | ||||
783,006 | 878,038 |
26
Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
6 Financial results
(all amounts in thousands of U.S. dollars) | Six-month period ended June 30, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Interest income | 12,892 | 29,020 | ||||||
Interest expense | (67,162 | ) | (102,285 | ) | ||||
Interest net | (54,270 | ) | (73,265 | ) | ||||
Net foreign exchange transaction results and changes in fair value of derivative instruments (*) | (49,688 | ) | (5,714 | ) | ||||
Other | (3,460 | ) | (7,430 | ) | ||||
Other financial results | (53,148 | ) | (13,144 | ) | ||||
Net financial results | (107,418 | ) | (86,409 | ) | ||||
From Discontinued operations | 4,307 | 5,394 | ||||||
(103,111 | ) | (81,015 | ) |
Each comparative item included in this note differs from its corresponding line in the Consolidated Condensed Interim Income Statement because it includes discontinued operations’ results.
Net foreign exchange transaction results include those amounts that affect the gross margin of certain subsidiaries which functional currencies are different from the U.S. dollar.
(*) Tenaris has identified certain embedded derivatives and in accordance with IAS 39 (“Financial Instruments: Recognition and Measurement”) has accounted them separately from their host contracts. Results arising from the valuation of these contracts have been recognized under “Net foreign exchange transaction results and changes in fair value of derivative instruments”.
7 Earnings and dividends per share
Earnings per share are calculated by dividing the net income attributable to equity holders of the Company by the daily weighted average number of ordinary shares in issue during the period.
Six-month period ended June 30, | ||||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Income attributable to equity holders | 709,315 | 1,460,514 | ||||||
Weighted average number of ordinary shares in issue (thousand) | 1,180,537 | 1,180,537 | ||||||
Basic and diluted earnings per share ( U.S. dollars per share) | 0.60 | 1.24 | ||||||
Basic and diluted earnings per ADS ( U.S. dollars per ADS) (*) | 1.20 | 2.47 | ||||||
Result for discontinued operations | (28,138 | ) | 416,906 | |||||
Basic and diluted earnings per share | (0.02 | ) | 0.35 | |||||
Basic and diluted earnings per ADS (*) | (0.05 | ) | 0.71 |
(*) Each ADS equals to two shares
On June 3, 2009, 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 2008, 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 June 25, 2009. In the aggregate, the interim dividend paid in November 2008 and the balance paid in June 2009 amounted to approximately $507 million.
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Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
8 Property, plant and equipment, net
(all amounts in thousands of U.S. dollars) | 2009 | 2008 | ||||||
(Unaudited) | ||||||||
Six-month period ended June 30, | ||||||||
Opening net book amount | 2,982,871 | 3,269,007 | ||||||
Currency translation differences | 47,637 | 125,124 | ||||||
Increase due to business combinations | 24,123 | - | ||||||
Additions | 217,169 | 185,440 | ||||||
Disposals | (9,782 | ) | (7,338 | ) | ||||
Transfers | (1,989 | ) | (906 | ) | ||||
Depreciation charge | (131,847 | ) | (148,255 | ) | ||||
Disposals due to deconsolidation | (6,060 | ) | - | |||||
At June 30, | 3,122,122 | 3,423,072 |
9 Intangible assets, net
(all amounts in thousands of U.S. dollars) | 2009 | 2008 | ||||||
(Unaudited) | ||||||||
Six-month period ended June 30, | ||||||||
Opening net book amount | 3,826,987 | 4,542,352 | ||||||
Currency translation differences | 15,869 | (13,592 | ) | |||||
Additions | 9,166 | 19,926 | ||||||
Disposals | (546 | ) | (1,488 | ) | ||||
Transfers | 1,989 | 906 | ||||||
Amortization charge | (116,214 | ) | (120,618 | ) | ||||
Disposals due to deconsolidation | (430 | ) | - | |||||
At June 30, | 3,736,821 | 4,427,486 |
10 Contingencies, commitments and restrictions to the distribution of profits
Contingencies
This note should be read in conjunction with Note 26 to the Company’s audited Consolidated Financial Statements for the year ended December 31, 2008.
Asbestos-related litigation
Dalmine S.p.A. (“Dalmine”), a Tenaris subsidiary organized in Italy is currently subject to 12 civil proceedings for work-related injuries arising from the use of asbestos in its manufacturing processes during the period from 1960 to 1980. In addition, another 30 asbestos related out-of-court claims have been forwarded to Dalmine.
As of June 30, 2009, the total claims pending against Dalmine were 42 (of which, none are covered by insurance): during the six month period ended June 30, 2009, 7 new claims were filed, no claims were adjudicated, and 5 claims were settled out of which 4 were paid, 3 claim were rejected, and 13 claims were dismissed.
Aggregate settlement costs to date for Tenaris are Euro 8.0 million ($11.3 million). Dalmine estimates that its potential liability in connection with the claims not yet settled is approximately Euro 12.2 million ($17.3 million).
Accruals for Dalmine’s potential liability are based on the average of the amounts paid by Dalmine for asbestos related claims plus an additional amount related to some reimbursements requested by the social security authority. The maximum potential liability is not determinable as in some cases the requests for damages do not specify amounts, and instead is to be determined by the court. The timing of payment of the amounts claimed is not presently determinable.
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Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
Maverick litigation
On November 22, 2006, Maverick Tube Corporation (“Maverick”) received a letter from The Bank of New York as trustee (“the Trustee”) for the holders of 2004 4% Convertible Senior Subordinated Notes due 2033 issued by Maverick (“the 2004 Notes”), concerning an alleged breach of the indenture entered into on December 30, 2004, between Maverick and the Trustee, and governing the 2004 Notes (as amended, the “Indenture”). The alleged breach of the Indenture was based on Maverick’s refusal to grant the holders of the 2004 Notes conversion rights provided by the “Public Acquirer Change of Control” provision of the Indenture.
On December 11, 2006 the Trustee filed a complaint against Maverick and Tenaris in the United States District Court for the Southern District of New York. The complaint alleges that Tenaris’s acquisition of Maverick triggered the “Public Acquirer Change of Control” provision and asserted a breach of contract claim against Maverick for refusing to accept the 2004 Notes for conversion for the consideration specified in the “Public Acquirer Change of Control” provision. The complaint also seeks a declaratory judgment that Tenaris’s acquisition of Maverick was a “Public Acquirer Change of Control” under the Indenture and therefore triggers the above mentioned conversion rights, and asserts claims for tortuous interference with contract and unjust enrichment against Tenaris.
Defendants filed a motion to dismiss the complaint, or in the alternative, for summary judgment on March 13, 2007. Plaintiff filed a motion for partial summary judgment on the same date. On January 25, 2008, Law Debenture Trust Company of New York, (as successor to The Bank of New York as trustee under the Indenture) was substituted for The Bank of New York as plaintiff. On October 15, 2008, the court denied Law Debenture’s motion for partial summary judgment and granted defendants’ motion for summary judgment dismissing the complaint in its entirety. On November 20, 2008, Law Debenture filed a notice of appeal in the United States Court of Appeals for the Second Circuit. Law Debenture’s opening brief on appeal was filed on March 30, 2009, the brief for Maverick and Tenaris was filed on May 28, 2009 and Law Debenture’s reply brief was filed on June 28, 2009. The case has not yet been scheduled for oral arguments.
Tenaris believes that these claims are without merit. Accordingly, no provision was recorded in these Consolidated Condensed Interim Financial Statements. Were plaintiff to prevail, Tenaris estimates that the recovery would be approximately $50 million, plus interest.
Conversion of tax loss carry-forwards
On December 18, 2000, the Argentine tax authorities notified Siderca S.A.I.C., a Tenaris subsidiary organized in Argentina (“Siderca”), of an income tax assessment related to the conversion of tax loss carry-forwards into Debt Consolidation Bonds under Argentine Law No. 24.073. The adjustments proposed by the tax authorities represent an estimated contingency of ARS87 million (approximately $23 million) at June 30, 2009, in taxes and penalties. Based on the views of Siderca’s tax advisors, Tenaris believes that it is not probable that the ultimate resolution of the matter will result in an obligation. Accordingly, no provision was recorded in these Consolidated Condensed Interim Financial Statements.
Customer Claim
A lawsuit was filed on September 6, 2007, against three Tenaris’ subsidiaries, alleging negligence, gross negligence and intentional acts characterized as fraudulent inducement concerning allegedly defective well casing. Plaintiff alleged the complete loss of one natural gas production well and formation damage that precludes further exploration and production at the well site and sought compensatory and punitive damages of $25 million. The lawsuit was subsequently amended to add the Company and other of its subsidiaries as defendants and to change the claims to be breach of contract and fraud. On October 22, 2008, the Plaintiff again amended its petition to add new counts (including strict liability) and increase its prayer for damages to $245 million, plus punitive damages, treble damages and attorney fees. Each petition was tendered to a Tenaris subsidiary insurer, and the Tenaris subsidiary received the insurer’s agreement to provide a defense. The insurer reserved its rights with respect to its indemnity obligations and made an offer for coverage that the Tenaris subsidiary considers insufficient. On July 20, 2009 the lawsuit was settled for an amount of $15 million and thus a Tenaris subsidiary recorded a provision of $12.7 million in addition to the previously recorded of $2.3 million and according to IAS 37, no expected reimbursement from the insurer has been registered yet. As of the date of these Consolidated Condensed Interim Financial Statements, the insurer is not participating in this settlement, and the Tenaris subsidiary has initiated legal proceedings against the insurer.
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Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
Ongoing investigation |
The Company has learned from one of its customers in Central Asia that certain sales agency payments made by one of the Company’s subsidiaries may have improperly benefited employees of the customer and other persons. These payments may have violated certain applicable laws, including the U.S. FCPA. The Audit Committee of the Company’s Board of Directors has engaged external counsel in connection with a review of these payments and related matters, and the Company has voluntarily notified the U.S. Securities and Exchange Commission and the U.S. Department of Justice. The Company will share the results of this review with the appropriate regulatory agencies, and will cooperate with any investigations that may be conducted by such agencies. 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 may result from resolution of these matters.
Commitments
Set forth is a description of Tenaris’s main outstanding commitments:
· | A Tenaris company is a party to a five-year contract with Nucor Corporation, under which it committed to purchase from Nucor steel coils, with deliveries starting in January 2007 on a monthly basis. As a result of current global downturn and the lower level of steel coil purchases planned for future months, the Tenaris company has negotiated and obtained from Nucor a waiver of the monthly committed volumes. The Company is reviewing its steel purchasing requirements with Nucor each quarter, therefore, the current waiver of monthly commitments is valid until September 30, 2009. |
· | A Tenaris company is a party to a ten-year raw material purchase contract with QIT, under which it committed to purchase steel bars, with deliveries starting in July 2007. The estimated aggregate amount of the contract at current prices is approximately $277.7 million. The contract allows the Tenaris company to claim lower commitments in market downturns and severe market downturns subject to certain limitations. |
· | A Tenaris company is a party to a contract with SMS Meer GmbH for the purchase of equipment, engineering, training and other services related to the equipment for an outstanding amount of approximately EUR84.7 (approximately $119.7 million). The Tenaris company may terminate the contract at any time paying a cancellation fee in the amount of EUR48.0 million (approximately $67.8 million). |
· | A Tenaris company is a party to transportation capacity agreements with Transportadora de Gas del Norte S.A. for purchasing capacity of 1,000,000 cubic meters per day until 2017. As of June 30, 2009, the outstanding value of this commitment was approximately $29.2 million. The Tenaris company also expects to obtain additional gas transportation capacity of 315,000 cubic meters per day until 2027. This additional commitment is subject to completion of the enlargement of certain pipelines in Argentina. |
· | A Tenaris company is a party to a contract with Siderar for the supply of steam generated at the power generation facility owned by Tenaris in San Nicolas, Argentina. Under this contract, the Tenaris company is required to provide 250 tn/hour of steam and Siderar has the obligation to take or pay this volume. The contract terminates in 2018. |
Restrictions to the distribution of profits and payment of dividends
As of December 31, 2008, shareholders' equity as defined under Luxembourg law and regulations consisted of:
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Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
(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, 2008 | 3,174,932 |
Total shareholders equity in accordance with Luxembourg law | 5,083,256 |
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, 2008, 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, 2008, retained earnings and result for the financial period of Tenaris under Luxembourg law totals $3.2 billion, as detailed below.
(all amounts in thousands of U.S. dollars)
Retained earnings at December 31, 2007 under Luxembourg law | 2,399,973 |
Dividends received | 1,338,868 |
Other income and expenses for the year ended December 31, 2008 | (115,305) |
Dividends paid | (448,604) |
Retained earnings at December 31, 2008 under Luxembourg law | 3,174,932 |
11 Business combinations and other acquisitions
(a) Tenaris acquired control of Seamless Pipe Indonesia Jaya
In April 2009, Tenaris completed the acquisition from Bakrie & Brothers TbK, Green Pipe International Limited and Cakrawala Baru of a 77.45% holding in Seamless Pipe Indonesia Jaya (“SPIJ”), an Indonesian OCTG processing business with heat treatment and premium connection threading facilities, for a purchase price of $69.5 million, with $21.9 million being payable as consideration for SPIJ's equity and $47.6 million as consideration for the assignment of certain sellers' loan to SPIJ. Tenaris began consolidating SPIJ’s balance sheet and results of operations since its acquisition date.
11 Business combinations and other acquisitions (Cont.)
(b) Minority Interest
During the six-month period ended June 30, 2009, additional shares of Confab and Dalmine were acquired from minority shareholders for approximately $9.5 million.
The assets and liabilities provisionally determined arising from the acquisitions are as follows:
Six month period ended June 30, 2009 | ||||
Other assets and liabilities (net) | (1,309 | ) | ||
Property, plant and equipment | 24,123 | |||
Net assets acquired | 22,814 | |||
Minority interest | 3,121 | |||
Sub-total | 25,935 | |||
Assumed liabilities | 47,600 | |||
Sub-total | 73,535 | |||
Cash-acquired | 5,501 | |||
Purchase consideration | 79,036 |
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Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
The businesses acquired as of June 30, 2009 contributed revenues of $33.0 million and an operating income of $1.2 million.
12 Discontinued operations
Nationalization of Venezuelan Subsidiaries
The results of operations and cash flows generated by the Venezuelan Companies are presented as discontinued operations in these Consolidated Condensed Interim Financial Statements. For further information see Note 14.
Sale of Hydril pressure control business
On April 1, 2008, Tenaris sold to General Electric Company (GE) the pressure control business included as part of the acquisition of Hydril Company undertaken on May 2007. The pressure control business was sold, for an amount equivalent on a debt-free basis to $1,114 million. The result of this transaction was an after-tax gain of $394.3 million, calculated as the net proceeds of the sale less the book value of net assets held for sale, the corresponding tax effect and related expenses.
Analysis of the result of discontinued operations
(i) Income for discontinued operations
(all amounts in thousands of U.S. dollars) | Six-month period ended June 30, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
Gross (loss) profit | (13,308 | ) | 64,055 | |||||
Operating (loss) income | (23,027 | ) | 37,033 | |||||
After tax gain on the sale of pressure control business | - | 394,323 | ||||||
Result for discontinued operations | (28,138 | ) | 416,906 | |||||
(ii) Net cash flows attributable to discontinued operations
Cash flows provided by operating activities in 2009 amounted to $1.8 million. Cash flow used in investing activities amounted to $0.8. Cash flow provided by financing activities amounted to $5.3. These amounts were estimated only for disclosure purposes, as cash flows from these discontinued operations were not managed separately from other cash flows.
Cash and cash equivalents from discontinued operations increased by $6.3 million in 2009.
Cash flows provided by operating activities in 2008 amounted to $28.8 million. Cash flow used in investing activities amounted to $5.6 million. Cash flow provided by financing activities amounted to $4.8. These amounts were estimated only for disclosure purposes, as cash flows from these discontinued operations were not managed separately from other cash flows.
Cash and cash equivalents from discontinued operations increased by $28.0 million in 2008.
13 Related party transactions
Based on the information most recently available to the Company, as of June 30, 2009:
· | San Faustin N.V. owned 713,605,187 shares in the Company, representing 60.45% of the Company’s capital and voting rights. |
· | San Faustín N.V. owned all of its shares in the Company through its wholly-owned subsidiary I.I.I. Industrial Investments Inc. |
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Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
· | Rocca & Partners S.A. controlled a significant portion of the voting power of San Faustín N.V. and had the ability to influence matters affecting, or submitted to a vote of the shareholders of San Faustín N.V., such as the election of directors, the approval of certain corporate transactions and other matters concerning the company’s policies. |
· | There were no controlling shareholders for Rocca & Partners S.A. |
· | Tenaris’s directors and executive officers as a group owned 0.17% of the Company’s outstanding shares, while the remaining 39.38% were publicly traded. |
At June 30, 2009, the closing price of Ternium S.A. (“Ternium”) ADS as quoted on the New York Stock Exchange was $17.26 per ADS, giving Tenaris’s ownership stake a market value of approximately $396.5 million. At June 30, 2009, the carrying value of Tenaris’s ownership stake in Ternium was approximately $553.4 million.
Transactions and balances disclosed as with “Associated” companies 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 with related parties which are not Associated 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) | (Unaudited) | |||
Six month period ended June 30, 2009 | ||||
Associated (1) | Other | Total | ||
(i) | Transactions (3) | |||
(a) Sales of goods and services | ||||
Sales of goods | 8,789 | 60,150 | 68,939 | |
Sales of services | 7,134 | 2,795 | 9,929 | |
15,923 | 62,945 | 78,868 | ||
(b) Purchases of goods and services | ||||
Purchases of goods | 20,611 | 6,313 | 26,924 | |
Purchases of services | 48,670 | 32,849 | 81,519 | |
69,281 | 39,162 | 108,443 |
(Unaudited) | ||||
Six month period ended June 30, 2008 | ||||
Associated (2) | Other | Total | ||
(i) | Transactions (4) | |||
(a) Sales of goods and services | ||||
Sales of goods | 32,893 | 17,365 | 50,258 | |
Sales of services | 11,711 | 1,985 | 13,696 | |
44,604 | 19,350 | 63,954 | ||
(b) Purchases of goods and services | ||||
Purchases of goods | 45,501 | 7,460 | 52,961 | |
Purchases of services | 55,390 | 31,818 | 87,208 | |
100,891 | 39,278 | 140,169 |
33
Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
(Unaudited) | ||||
At June 30, 2009 | ||||
Associated (1) | Other | Total | ||
(ii) | Period-end balances | |||
(a) Arising from sales / purchases of goods / services | ||||
Receivables from related parties | 20,607 | 14,674 | 35,281 | |
Payables to related parties | (28,282) | (5,354) | (33,636) | |
(7,675) | 9,320 | 1,645 | ||
(b) Financial debt | ||||
Borrowings | (1,621) | - | (1,621) |
At December 31, 2008 | ||||
Associated (1) | Other | Total | ||
(ii) | Year-end balances | |||
(a) Arising from sales / purchases of goods / services | ||||
Receivables from related parties | 50,137 | 15,504 | 65,641 | |
Payables to related parties | (44,470) | (5,974) | (50,444) | |
5,667 | 9,530 | 15,197 | ||
(b) Financial debt | ||||
Borrowings | (2,294) | - | (2,294) |
(1) Includes Ternium S.A. and its subsidiaries (“Ternium”), Condusid C.A. (“Condusid”), Finma S.A.I.F (“Finma”), Lomond Holdings B.V.
group (“Lomond”), Socotherm Brasil S.A. (“Socotherm”) and Hydril Jindal International Private Ltd (“Hydril Jindal”).
(2) Includes Ternium, Condusid, Finma, Lomond, Socotherm, Hydril Jindal and TMK – Hydril JV.
(3) Includes $2.5 million of puchases of nationalized Venezuelan subsidiaries.
(4) Includes $12.9 million of sales and $6.6 million of puchases of nationalized Venezuelan subsidiaries.
14 Processes in Venezuela
(a) Investment in Ternium: Sidor nationalization process
On May 7, 2009, Ternium completed the transfer of its entire 59.7% interest in Sidor to CVG. The transfer was effected as a result of Venezuela’s Decree Law 6058, which ordered that Sidor and its subsidiaries and associated companies be transformed into state-owned enterprises and declared the activities of such companies of public and social interest. While CVG had assumed operational control of Sidor on July 12, 2008, Ternium had retained formal title over the shares until May 7, 2009. Ternium agreed to receive an aggregate amount of $1.97 billion as compensation for its Sidor shares. Of that amount, CVG paid $400 million in cash on May 7, 2009. The balance was divided in two tranches: the first tranche, of $945 million, will be paid in six equal quarterly installments, while the second tranche will be paid at maturity in November 2010, subject to quarterly mandatory prepayment events based on the increase of the WTI crude oil price over its May 6, 2009 level.
(b) Nationalization of Venezuelan Subsidiaries
Within the framework of Decree Law 6058, on May 22, 2009, Venezuela’s President Hugo Chávez 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 Siderurgicos S.A (“Matesi”), and Complejo Siderurgico de Guayana, C.A (“Comsigua”), in which the Company has a minority interest (collectively, “the Venezuelan Companies”). On May 25, 2009, the Minister of Basic Industries and Mines of Venezuela (“MIBAM”) issued official communications N°230/09 and 231/09, appointing the MIBAM’s representatives to the transition committees charged with overseeing the nationalization processes of Tavsa and Matesi. On May 29, 2009, the Company sent response letters to the MIBAM acknowledging the Venezuelan government’s decision to nationalize Tavsa and Matesi, appointing its representatives to the transition committees, and reserving all of its rights under contracts, investment treaties and Venezuelan and international law and the right to submit any controversy between the Company or its subsidiaries and Venezuela relating to Tavsa and Matesi’s nationalization to international arbitration, including arbitration administered by ICSID.
On July 14, 2009, President Chávez issued Decree 6796, which orders the acquisition of the Venezuelan Companies and provides that Tavsa will be held by the Ministry of Energy and Oil, while Matesi and Comsigua will be held by MIBAM. Decree 6796 also requires the Venezuelan government to create certain committees at each of the Venezuelan Companies; each transition committee must ensure the nationalization of each Venezuelan Company and the continuity of its operations, and each technical committee (to be composed of representatives of Venezuela and the private sector) must negotiate over a 60-day period (extendable by mutual agreement) a fair price for each Venezuelan Company to be transferred to Venezuela. In the event the parties fail to reach agreement by the expiration of the 60-day period (or any extension thereof), the applicable Ministry will assume control and exclusive operation of the relevant Venezuelan Company, and the Executive Branch will order their expropriation in accordance with the Venezuelan Expropriation Law. The Decree also specifies that all facts and activities there under are subject to Venezuelan law and any disputes relating thereto must submitted to Venezuelan courts.
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Tenaris S.A - Half-year report 2009
Consolidated Condensed Interim Financial Statements for the six-month period ended June 30, 2009
The Company’s investments in Tavsa, Matesi and Comsigua are protected under applicable bilateral investment treaties, including the bilateral investment treaty between Venezuela and the Belgian-Luxembourgish Union, and, as noted above, Tenaris continues to reserve all of its rights under contracts, investment treaties and Venezuelan and international law, and to consent to the jurisdiction of the ICSID in connection with the nationalization process.
Based on the facts and circumstances described above and following the guidance set forth by IAS 27, the Company ceased consolidating the Venezuelan Companies results of operations and cash flows 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.
(b) Nationalization of Venezuelan Subsidiaries (Cont.)
The Company classified its interests in the Venezuelan Companies as available-for-sale investments since management believes they do not fulfill 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.
In addition to the disclosed amounts, Tenaris subsidiaries have also net receivables with the Venezuelan Companies as of June 30, 2009 for a total amount of $25.4 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.
/s/ Ricardo Soler | |
Ricardo Soler | |
Chief Financial Officer |
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Corporate Information
Registered Office
46A, avenue John F. Kennedy
L-1855 Luxembourg
(352) 26 47 89 78 tel
(352) 26 47 89 79 fax
Principal Offices | |
Av. L. N. Alem 1067 27th Floor | 2200 West Loop South, Suite 800 |
(C1001AAF) Buenos Aires, Argentina | Houston, TX 77027, USA |
(54) 11 4018 4100 tel | (1) 713 767 4400 tel |
(54) 11 4018 1000 fax | (1) 713 767 4444 fax |
Piazza Caduti 6 Luglio 1944, 1 | Edificio Parque Reforma |
24044 Dalmine (Bergamo), Italy | Campos Elíseos 400 17th Floor |
(39) 035 560 1111 tel | 11560 Mexico, D.F. |
(39) 035 560 3827 fax | (52) 55 5282 9900 tel |
(52) 55 5282 9961 fax | |
INVESTOR INFORMATION
Investor Relations Director
Giovanni Sardagna
Phones | General Inquiries |
USA 1 888 300 5432 | investors@tenaris.com |
Argentina (54) 11 4018 2928 | |
Italy (39) 02 4384 7654 | |
Mexico (52) 55 5282 9929 |
Stock Information | ADS Depositary Bank |
New York Stock Exchange (TS) | The Bank of New York |
Mercato Telematico Azionario (TEN) | CUSIP No. 88031M019 |
Mercado de Valores de Buenos Aires (TS) | |
Bolsa Mexicana de Valores, S.A. de C.V. (TS) |
Internet
www.tenaris.com
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