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 November 14, 2003
TENARIS, S.A.
(Translation of Registrant's name into English)
TENARIS, S.A.
23 Avenue Monterey
2086 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 X 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 X
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' consolidated condensed
interim financial statements
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: November 14, 2003
Tenaris, S.A.
By: /s/ Cecilia Bilesio
Cecilia Bilesio
Corporate Secretary
2
TENARIS S.A.
CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
Rue Beaumont 13
L - 1219 Luxembourg
3
Consolidated condensed interim income statement
Nine-month period ended
September 30,
----------------------------------
(all amounts in USD thousands) Notes 2003 2002
----------------------------------
(Unaudited)
Net sales 1 2,418,086 2,360,357
Cost of sales 2 (1,671,470) (1,575,745)
----------------- ----------------
Gross profit 746,616 784,612
Selling, general and administrative expenses 3 (419,077) (423,212)
Other operating income and expenses (7,281) (2,429)
----------------- ----------------
Operating income 320,258 358,971
Financial income (expenses), net 4 (36,603) (27,114)
----------------- ----------------
Income before tax, equity in losses of associated 283,655 331,857
companies and minority interest
Equity in earnings (losses) of associated companies 16,273 (4,163)
----------------- ----------------
Income before income tax and minority interest 299,928 327,694
Recovery of income tax 5 (i) - 35,392
Income tax 5(ii) (90,048) (225,657)
----------------- ----------------
Net income before minority interest 209,880 137,429
Minority interest (1) (13,255) (30,677)
----------------- ----------------
Net income before other minority interest 196,625 106,752
Other minority interest (2) - (65,095)
----------------- ----------------
Net income for the period (3) 196,625 41,657
----------------- ----------------
(1) Minority interest represents the participation of minority
shareholders of those consolidated subsidiaries not included in the
exchange transaction completed on December 13, 2002 (including Confab
Industrial, NKK Tubes and Tubos de Acero de Venezuela), as well as
the participation at September 30, 2003, of minority shareholders of
Siderca, Dalmine and Tamsa that did not exchange their participation.
(2) Other minority interest represents the participation of minority
shareholders attributable to the exchanged shares, since January 1,
2002 until the end of the period.
(3) See note 6 for Earnings per share calculation.
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The limited review report of independent auditor
on these consolidated condensed interim financial statements is issued as a
separate document.
1
Consolidated condensed interim balance sheet
(all amounts in USD thousands) At September 30, 2003 At December 31, 2002
---------------------------- ---------------------------
Notes (Unaudited)
ASSETS
Non-current assets
Property, plant and equipment, net 7 1,942,691 1,934,237
Intangible assets, net 7 53,817 32,684
Investments in associated companies 34,524 14,327
Other investments 160,787 159,303
Deferred tax assets 53,374 49,412
Receivables 56,813 2,302,006 16,902 2,206,865
-------------- -------------
Current assets
Inventories 728,401 680,113
Receivables 170,115 172,683
Trade receivables 8 621,866 653,249
Cash and cash equivalents 208,592 1,728,974 304,536 1,810,581
-------------- -------------
-------------- --------------
Total assets 4,030,980 4,017,446
-------------- --------------
EQUITY AND LIABILITIES
Shareholders' Equity 1,824,484 1,694,054
Minority interest 125,468 186,783
Non-current liabilities
Borrowings 9 224,010 322,205
Deferred tax liabilities 292,866 320,753
Effect of currency translation on
tax base 91,109 114,826
Employee liabilities 129,162 123,023
Provisions 30,262 33,874
Trade payables 15,691 783,100 18,650 933,331
-------------- -------------
Current liabilities
Borrowings 9 513,057 393,690
Current tax liabilities 108,202 161,704
Other liabilities 103,036 53,428
Provisions 87,992 73,953
Customers advances 29,945 37,085
Trade payables 455,696 1,297,928 483,418 1,203,278
-------------- -------------
-------------- --------------
Total liabilities 2,081,028 2,136,609
--------------
--------------
Total equity and liabilities 4,030,980 4,017,446
-------------- --------------
Contingencies, commitments and restrictions to the distribution of profits (Note 11)
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The limited review report of independent auditor
on these consolidated condensed interim financial statements is issued as a
separate document.
2
Consolidated condensed interim statement of changes in shareholders' equity
(all amounts in USD
thousands)
Statutory balances according to Total at September
Luxembourg Law 30,
----------------------------------------- ------------------
Other Currency
Share Legal Share Distributable Adjustments translation Retained
Capital Reserves Premium Reserve to IAS adjustments Earnings 2003 2002
-------------------------------------------------------------------------------------------
(Unaudited)
Balance at January 1, 1,160,701 116,070 587,493 206,744 (376,954) - - 1,694,054 875,401
Currency translation
differences - - - - - 672 - 672 (35,857)
Change in ownership in
Exchange Companies - - - - - - - - 1,724
Capital Increase 19,587 1,959 21,776 4,813 - - - 48,135 -
Dividends paid in cash - - - (115,002) - - - (115,002)(39,290)
Net income - - - - - - 196,625 196,625 41,657
-------------------------------------------------------------------------------------------
Balance at September 30, 1,180,288 118,029 609,269 96,555 (376,954) 672 196,625 1,824,484 843,635
-------------------------------------------------------------------------------------------
The Distributable Reserve and the Retained Earnings calculated under Luxembourg
Law are disclosed in Note 11 (vii).
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The limited review report of independent auditor
on these consolidated condensed interim financial statements is issued as a
separate document.
3
Consolidated condensed interim cash flow statement
(all amounts in USD thousands) Nine-month period ended
September 30,
----------------------------------
2003 2002
(Unaudited)
Net income for the period 196,625 41,657
Depreciation and amortization 145,937 128,650
Tax accruals less payments (65,818) 134,756
Equity in earnings (losses) of associated companies (16,273) 4,163
Interest accruals less payments (553) (52)
Net provisions 2,767 (23,883)
Minority interest 13,255 95,772
Change in working capital 3,396 2,374
Currency translation adjustment and others (26,534) (42,056)
---------------- -----------------
Net cash provided by operations 252,802 341,380
---------------- -----------------
Capital expenditure (123,460) (100,272)
Acquisitions of subsidiaries and
Associates (67,875) (320)
Proceeds from disposition of property, plant and
equipment 3,181 10,308
Proceeds from associated companies 106 -
Convertible loan to associated companies (31,128) -
Changes in Trust fund - (11,907)
---------------- -----------------
Net cash used in investment activities (219,176) (102,191)
---------------- -----------------
Dividends paid (115,002) (39,290)
Dividends paid to minority interest in subsidiaries (5,976) (38,223)
Proceeds from borrowings 371,298 348,070
Repayments of borrowings (388,736) (409,094)
---------------- -----------------
Net cash (used in) provided by financing activities (138,416) (138,537)
---------------- -----------------
(Decrease) / Increase in cash and cash equivalents (104,790) 100,652
---------------- -----------------
Cash and cash equivalents at January 1, 304,536 213,814
Effect of exchange rate changes on cash
and cash equivalents 2,627 (4,187)
Increase in cash and cash equivalents provided by
business acquisitions 6,219 -
(Decrease) / Increase in cash and cash equivalents (104,790) 100,652
---------------- -----------------
Cash and cash equivalents at September 30, 208,592 310,279
---------------- -----------------
Non-cash financing activity:
Fair value adjustment of minority interest 47,210 -
acquired
---------------- -----------------
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The limited review report of independent auditor
on these consolidated condensed interim financial statements is issued as a
separate document.
4
Accounting policies
Index to accounting policies
A Business of the Company and basis of presentation
B Translation of financial statements and transactions in currencies
other than the measurement currency
C Use of estimates
D Summary of accounting policies regarding specific asset and liability
categories E Revenue recognition F Earnings per share
5
Accounting policies
The consolidated condensed interim financial statements have been prepared in
accordance with International Accounting Standards ("IAS") adopted by the
International Accounting Standards Board ("IASB") and interpretations issued by
the Standing Interpretations Committee ("SIC") of the IASB.
These consolidated condensed interim financial statements have been prepared in
accordance with IAS 34, "Interim Financial Reporting". The accounting policies
used in the preparation of the consolidated condensed interim financial
statements are consistent with those used in the consolidated combined financial
statements for the year ended December 31, 2002, unless specified.
The following is a summary of the principal accounting policies followed in the
preparation of these consolidated condensed interim financial statements. This
summary has been included for the convenience of the reader and should not be
regarded as a complete explanation of the accounting policies used by the
Company.
A Business of the Company and basis of presentation
Tenaris S.A. (the "Company" or "Tenaris"), a Luxembourg corporation, was
incorporated on December 17, 2001, to hold investments in steel pipe
manufacturing and distributing companies. The Company holds, either
directly or indirectly, controlling interests in certain subsidiary
companies. A detail of these holdings is included in Note 15.
On November 11, 2002, Tenaris announced the commencement of its offer to
exchange its ordinary shares and ADSs for all outstanding Class A
ordinary shares and ADSs of Siderca S.A.I.C. (Siderca), all outstanding
common shares and ADSs of Tubos de Acero de Mexico S. A. de C.V (Tamsa)
and all outstanding ordinary shares of Dalmine S.p.A. (Dalmine) ("the
Exchange Offer"). The Exchange Offer was concluded successfully on
December 13, 2002. As a result of the transaction, the Company acquired
27.94% of Siderca shares and ADSs, 43.73% of Tamsa shares and ADSs and
41.19% of Dalmine shares. Therefore, at the conclusion of the Exchange
Offer, Tenaris held directly or indirectly 99.11%, 94.50% and 88.41% of
the share capital of Siderca, Tamsa and Dalmine, respectively. As
explained in Note 12 to these consolidated condensed interim financial
statements, during the nine-month period ended September 30, 2003, the
Company carried out different plans aimed at acquiring the remaining
minority interest in Siderca, Dalmine and Tamsa. At September 30, 2003,
following these initiatives Tenaris held, directly or indirectly, 100%,
99.9% and 98.3% of the share capital of Siderca, Tamsa and Dalmine,
respectively.
At September 30, 2003, the financial statements of Tenaris and its
subsidiaries have been consolidated. At September 30, 2002, and up to
October 18, 2002, Tenaris' subsidiaries were under the common control of
Sidertubes S.A. Thus, for comparative purposes, the consolidated
financial statements of Siderca, Dalmine, Tamsa and Tenaris Global
Services and their respective subsidiaries at September 30, 2002, have
been retroactively combined at the relevant predecessor's cost,
reflecting the carrying amount of such assets and liabilities with those
of the Company and presented as one company ("Tenaris") in the
consolidated combined condensed interim financial statements at that
date. The percentages of ownership and voting rights considered in the
preparation of such consolidated combined financial statements correspond
to those of the parent company at that period-end.
Certain comparative amounts have been reclassified to conform to changes
in presentation in the current period. Elimination of all material
intercompany transactions and balances among the Company and its
consolidated subsidiaries has been made.
6
Accounting policies (Cont'd.)
B Translation of financial statements and transactions in currencies other
than the measurement currency
The measurement currency of Tenaris is the U.S. dollar. Although the
Company is located in Luxembourg, Tenaris operates in several countries
with different currencies. The U.S. dollar is the currency that better
reflects the economic substance of the underlying events and
circumstances relevant to Tenaris as a whole. Generally, the measurement
currency of the main companies in these financial statements is the
respective local currency. As further explained in the Company's
consolidated combined financial statements for the year ended December
31, 2002, the measurement currency for Siderca is the U.S. dollar,
because:
- Siderca is located in Argentina and its local currency is affected by
recurring severe economic crisis;
- sales are denominated and settled in U.S. dollars or, if in a currency
other than the U.S. dollar, the price is sensitive to movements in the
exchange rate with the U.S. dollar;
- purchases of critical raw materials are financed in U.S. dollars
generated by financing or operating activities;
- most of the net financial assets and liabilities are mainly obtained
and retained in U.S. dollars.
Income statements of subsidiary companies stated in currencies other than
the U.S. dollar are translated into U.S. dollars at the weighted average
exchange rates for the quarter, while balance sheets are translated at
the exchange rates at period end. Translation differences are recognized
in shareholders' equity. Income statement information relating to the
comparative equivalent period of the previous year was translated using
weighted average exchange rates for the nine-month period. In case of
sale or other disposition of any such subsidiary, any accumulated
translation differences would be recognized in the income statement as
part of the gain or loss on sale.
Transactions in currencies other than the measurement currency are
accounted for at the exchange rates prevailing at the date of the
transactions, and their corresponding exchange gains and losses are
recognized in the income statement. Further reference regarding the
accounting policies applied for the translation of financial statements
and transactions subject to the consolidation process is included in the
notes to the Company's consolidated combined financial statements for the
year ended December 31, 2002.
C Use of estimates
The preparation of financial statements requires management to make
estimates and assumptions that might affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the balance sheet dates, and the reported amounts of
revenues and expenses during the reporting periods. Actual results may
differ from these estimates.
D Summary of accounting policies regarding specific asset and liability
categories
An overview of relevant accounting policies applied in the recognition
and valuation of assets and liabilities is described below. A more
detailed description is included in the notes to the Company's
consolidated combined financial statements for the year ended December
31, 2002.
7
Accounting policies (Cont'd.)
D Summary of accounting policies regarding specific asset and liability
categories (Cont'd)
(1) Property, plant and equipment and Intangible assets
Property, plant and equipment are recognized at historical acquisition or
construction cost less depreciation, calculated using the straight line
method to amortize the cost of each asset over its estimated useful life.
In the case of business acquisitions proper consideration to the fair
value of the assets has been given as explained in the notes to the
consolidated combined financial statements for the year ended December
31, 2002. Expenditure is capitalized as property, plant and equipment
only when the investment enhances the condition of an asset beyond its
original condition.
Intangible assets including goodwill; certain costs directly related to
the development, acquisition and implementation of information system;
and expenditures on acquired patents, trademarks, technology transfer and
licenses are capitalized and amortized using the straight line method
over their useful lives; the useful lives of Tenaris' intangible assets
average 4 years. Research and development expenditure is recognized as
expenses as incurred. Negative goodwill is recognized as income on a
systematic basis over the remaining weighted average useful life of the
identifiable acquired depreciable assets.
(2) Impairment
Circumstances affecting the recoverability of tangible and intangible
assets and investments in other companies may change. If this happens,
the recoverable amount of the relevant assets is estimated. The
recoverable amount is determined as the higher of the asset's net selling
price and the present value of the estimated future cash flows. If the
recoverable amount of the asset has dropped below its carrying amount the
asset is written down immediately to its recoverable amount.
No impairment provisions were recorded, other than the investment in
Amazonia, as reflected in Note 11 (ii).
(3) Other investments
All the Company's investments are currently classified as
available-for-sale in non-current assets in accordance with IAS 39.
Other investments comprise mainly financial resources placed by Siderca,
Siat and Confab within trusts, the objective of which is exclusively to
ensure that the financial needs for normal development of their
operations are met. At September 30, 2003 the trustee has used USD 35.9
million of such funds to create guarantees within the scope of the trust
agreement.
Derivative financial instruments are initially recognized in the balance
sheet at cost and subsequently remeasured at fair value. Changes in the
fair value of any derivative instruments are recognized immediately in
the income statements as financial results.
All purchases and sales of investments are recognized on the trade date,
not significantly different from the settlement date, which is the date
that Tenaris commits to purchase or sell the investment. Costs include
transaction costs.
Subsequent to their acquisition, available-for-sale investments are
carried at fair value. Realized and unrealized gains and losses arising
from changes in the fair value in those investments are included in the
income statement for the period in which they arise. Investments in
companies for which fair values cannot be measured reliably are reported
at cost.
8
Accounting policies (Cont'd.)
D Summary of accounting policies regarding specific asset and liability
categories (Cont'd)
(4) Inventories
Inventories are stated at the lower of cost and net realizable value as a
whole. The cost of finished goods and work in progress comprises raw
materials, direct labor, other direct costs and related production
overheads. Net realizable value is estimated collectively for inventories
as the selling price in the ordinary course of business, less the costs
of completion and selling expenses. Goods in transit at period end are
valued at supplier invoice cost. An allowance for obsolescence or
slow-moving inventory is made in relation to supplies and spare parts and
based on the management's analysis of their aging.
(5) Trade receivables
Trade receivables are carried at original invoice amount less an estimate
made for doubtful receivables.
This estimate is calculated based on current information and events
suggesting that the Company will be unable to collect all amounts due. A
provision for customer claims is constituted when a claim is made and
management estimates that despite its efforts, the amount due is unlikely
to be collected in full.
At September 30, 2003 the allowance for doubtful accounts and provision
for customer claims that were deducted from the corresponding gross
accounts receivable totaled USD31.2 million.
(6) Borrowings
Borrowings are recognized initially for an amount equal to the proceeds
received net of transaction costs. In subsequent periods, borrowings are
stated at amortized cost; any difference between proceeds and the
redemption value is recognized in the income statement over the period of
the borrowings.
(7) Deferred income taxes
Under present Luxembourg law, so long as the Company maintains its status
as a holding billionaire company, no income tax, withholding tax
(including with respect to dividends), or capital gain tax is payable in
Luxembourg by the Company. The current income tax charge is calculated on
the basis of the tax laws in force in the countries where Tenaris'
subsidiaries operate. Deferred income tax is provided in full, using the
liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the financial
statements. A more detailed description of temporary differences can be
found in the Company's consolidated combined financial statements for the
year ended December 31, 2002.
(8) Employee-related liabilities
(a) Employees' statutory profit sharing
Under Mexican law, Tenaris' Mexican subsidiary companies are required to
pay an annual benefit to their employees, which is calculated using a
similar basis to the ones used for the calculation of the income tax.
Employees' statutory profit sharing is provided under the liability
method. Temporary differences arise between the "statutory" bases of
assets and liabilities used in the determination of the profit sharing
and their carrying amounts in the financial statements.
9
Accounting policies (Cont'd.)
D Summary of accounting policies regarding specific asset and liability
categories (Cont'd)
(8) Employee-related liabilities (Cont'd)
(b) Employees' severance indemnity
An employees' severance indemnity provision is recorded, which comprises
the liability accrued on behalf of Tenaris' Italian and Mexican
subsidiaries employees at the balance sheet date in accordance with
current legislation and the labor contracts in effect in the respective
countries.
Employees' severance indemnity costs are assessed annually using the
projected unit credit method: the cost of providing this obligation is
charged to the income statement over the service lives of employees in
accordance with the advice of the actuaries. This provision is measured
at the present value of the estimated future cash outflows using
applicable interest rates. This provision amounts to USD59.0 million at
September 30, 2003.
(c) Pension obligations
Certain Siderca officers are encompassed by a defined benefit employee
retirement plan (the "Siderca Plan") designed to provide retirement,
termination and other benefits to those officers.
Siderca is accumulating assets for the ultimate payment of those benefits
in the form of investments that carry time limitation for their
redemption. The investments are not part of a particular plan nor
segregated from Siderca's other assets. Due to these conditions, the plan
is classified as "unfunded" under International Accounting Standards
definition.
Retirement costs are assessed using the projected unit credit method: the
cost of providing retirement benefits is charged to the income statement
over the service lives of employees based on actuarial calculations. This
provision is measured at the present value of the estimated future cash
outflows using applicable interest rates. Actuarial gains and losses are
recognized over the average remaining service lives of employees.
Benefits provided by the plan are in U.S. Dollars, but depend on a
three-year or seven-year salary average (the better option for the
beneficiary) if the event of retirement happened between January 1, 2002
and December 31, 2003 and, after this date, the benefits of the plan
depend on a seven-year salary average.
(9) Provisions and Other liabilities
Provisions are accrued to reflect estimations of amounts due relating to
expenses as they are incurred based on information available as of the
date of preparation of the financial statements. Furthermore, Tenaris
accrues liabilities when it is probable that future cost could be
incurred and that cost can be reasonably estimated in relation to a
contingent liability or potential claim, resulting from lawsuits and
other proceedings.
E Revenue recognition
Revenues are recognized as sales when revenue is earned and is realized
or realizable. This includes satisfying the following criteria: the
arrangement with the customer is evident, usually through the receipt of
a purchase order; the sales price is fixed or determinable; delivery has
occurred.
Other revenues earned by Tenaris are recognized on the following bases:
- Interest income: on an effective yield basis.
- Dividend income from investments in companies under cost method: when
Tenaris' right to receive collection is established.
10
Accounting policies (Cont'd.)
F Earnings per share
Earnings per share are calculated by dividing the net income attributable
to shareholders by the daily weighted average number of ordinary shares
issued during the period. See Note 6.
11
Notes to the consolidated condensed interim financial statements
Index to the notes to the consolidated condensed interim financial statements
1 Segment information
2 Cost of sales
3 Selling, general and administrative expenses
4 Financial income (expenses), net
5 Tax charge
6 Earnings per share
7 Property, plant and equipment and Intangible assets, net
8 Trade receivables
9 Borrowings
10 Derivative financial instruments
11 Contingencies, commitments and restrictions to the distribution
of profits
12 Capital increase and other events with impact on minority
interest
13 Acquisitions
14 Related party transactions
15 Principal subsidiaries
12
Notes to the consolidated condensed interim financial statements (In the notes
all amounts are shown in USD thousands, unless otherwise stated)
1 Segment information
Primary reporting format: business segments
----------------------------------------------------------------------------------
Welded & Other
Metallic
Seamless Products Energy Other Total
----------------------------------------------------------------------------------
Nine-month period ended (Unaudited)
September 30, 2003
Net sales 1,782,684 299,747 233,999 101,656 2,418,086
Cost of sales (1,134,362) (231,236) (224,790) (81,082) (1,671,470)
Gross profit 648,322 68,511 9,209 20,574 746,616
Depreciation and
amortization 131,198 7,787 2,792 4,160 145,937
Nine-month period ended
September 30, 2002
Net sales 1,654,808 445,227 145,091 115,231 2,360,357
Cost of sales (1,052,766) (282,490) (135,723) (104,766) (1,575,745)
Gross profit 602,042 162,737 9,368 10,465 784,612
Depreciation and
amortization 117,672 6,398 1,744 2,836 128,650
Tenaris's main business segment is the manufacture of seamless steel pipes.
Secondary reporting format: geographical segments
-------------------------------------------------------------------------------
South Europe North America Middle East Far East & Total
America & Africa Oceania
-------------------------------------------------------------------------------
Nine-month period ended (Unaudited)
September 30, 2003
Net sales 590,697 705,355 558,307 314,333 249,394 2,418,086
Depreciation and
amortization 77,906 40,520 23,089 10 4,412 145,937
Nine-month period ended
September 30, 2002
Net sales 704,370 614,048 438,765 336,072 267,102 2,360,357
Depreciation and
amortization 65,760 32,396 26,871 19 3,604 128,650
Allocation of net sales is based on the customers' location. Allocation of
depreciation and amortization are based on the related assets' location.
Although Tenaris's business is managed on a worldwide basis, the companies
forming part of Tenaris operate in five main geographical areas, as shown
above.
13
Notes to the consolidated condensed interim financial statements (Cont'd.)
2 Cost of sales
Nine-month period ended
September 30,
------------------------------
2003 2002
---------------- -------------
(Unaudited)
Raw materials, energy and consumables used and change
in inventories 1,034,429 1,012,75
Services and fees 218,941 160,413
Labor cost 217,000 176,647
Depreciation of property, plant and equipment 125,725 115,415
Amortization of intangible assets 3,861 3,269
Maintenance expenses 36,254 39,073
Provisions for contingencies 3,378 3,788
Allowance for obsolescence 2,020 12,206
Taxes 3,115 2,854
Others 26,747 49,328
---------------- -------------
1,671,470 1,575,745
---------------- -------------
3 Selling, general and administrative expenses
Nine-month period ended
September 30,
-------------------------------
2003 2002
---------------- --------------
(Unaudited)
Commissions, freights and other selling expenses 143,979 209,693
Labor cost 98,922 89,682
Services and fees 94,871 76,438
Taxes 34,229 20,203
Depreciation of property, plant and equipment 6,863 2,582
Amortization of intangible assets 9,488 7,384
Provisions for contingencies 2,569 1,850
Allowance for doubtful accounts 1,395 2,626
Others 26,761 12,754
---------------- --------------
419,077 423,212
---------------- --------------
4 Financial income (expenses), net
Nine-month period ended
September 30,
-------------------------------
2003 2002
---------------- --------------
(Unaudited)
Interest expense (24,461) (27,146)
Interest income 11,596 12,813
Net foreign exchange transaction losses (1) (26,247) (3,939)
Financial discount on trade receivables - (8,810)
Others 2,509 (32)
---------------- --------------
(36,603) (27,114)
---------------- --------------
(1) Net foreign exchange transactions losses for the nine-month periods
ended September 30, 2003 and 2002 do not include the impact of
currency fluctuations on income tax provisions.
14
Notes to the consolidated condensed interim financial statements (Cont'd.)
5 Tax charge
(i) Recovery of income tax
In 2002, Tamsa succeeded in its income tax claim to the Mexican tax
authorities, resulting in a recovery of income tax of previous years of
MXN338.7 million (USD35.4 million).
(ii) Income tax
Nine-month period ended
September 30,
---------------------------------
2003 2002
--------------- -----------------
(Unaudited)
Current tax 130,970 149,388
Deferred tax (17,205) 37,316
Effect of currency translation on tax base (a) (23,717) 38,953
--------------- -----------------
90,048 225,657
--------------- -----------------
(a) As discussed in Note D (7), Tenaris, using the liability method, recognizes
a deferred income tax charge on temporary differences between the tax bases
of its assets and their carrying amounts in the financial statements. By
application of this method, Tenaris recognized the impact of deferred income
tax due to the effect of the fluctuation of the Argentine peso on the tax
bases of the non-monetary assets of its Argentine subsidiaries.
6 Earnings per share
(i) Under IAS, earnings per share are calculated by dividing the net income
attributable to shareholders by the daily weighted average number of
ordinary shares issued during the period. The weighted average number of
ordinary shares for the nine-month period ended September 30, 2002 was
determined considering that the 710,747,090 shares issued for Sidertubes
contribution were issued and outstanding as of January 1, 2002.
Nine-month period ended September
30,
----------------- ----------------
2003 2002
----------------- ----------------
(Unaudited)
Net income attributable to shareholders 196,625 41,657
Weighted average number of ordinary shares in issue
(thousands) 1,161,849 710,747
Basic and diluted earnings per share 0.17 0.06
(ii) As explained in the notes to the consolidated combined financial statements
for the year ended December 31, 2002 the Sidertubes contribution and the
exchange transaction took place in 2002. For a better understanding of the
reader and future comparisons the Company has calculated the pro-forma
Earnings per share as if these transactions had taken place on January 1,
2002, as follows:
Nine-month period ended
September 30,
----------------------------------
2003 2002
----------------- ----------------
(Unaudited)
Net income attributable to shareholders 196,625 106,752
Weighted average number of ordinary shares in issue
(thousands) 1,161,849 1,160,701
Basic and diluted earnings per share 0.17 0.09
15
Notes to the consolidated condensed interim financial statements (Cont'd.)
7 Property, plant and equipment and Intangible assets, net
Net Property, Net Intangible
Plant and Assets
Equipment
--------------- ----------------
(Unaudited) (Unaudited)
Nine-month period ended September 30, 2003
Opening net book amount 1,934,237 32,684
Translation differences 19,599 2,252
Additions 103,599 19,861
Increase due to business combinations 27,205 6,190
Disposals (3,182) -
Transfers (6,179) 6,179
Depreciation/ Amortization charge (132,588) (13,349)
--------------- ----------------
At September 30, 2003 1,942,691 53,817
--------------- ----------------
8 Trade receivables
At September 30, At December 31,
2003 2002
-------------------- -------------------
(Unaudited)
Current accounts 602,804 632,146
Notes receivables 36,236 42,336
-------------------- -------------------
639,040 674,482
Allowance for doubtful accounts (17,174) (21,233)
-------------------- -------------------
621,866 653,249
-------------------- -------------------
9 Borrowings
At September 30, At December 31,
2003 2002
-------------------- --------------------
(Unaudited)
Non-current
Bank borrowings 154,218 260,596
Debentures 60,178 54,187
Finance lease liabilities 9,614 7,422
-------------------- --------------------
224,010 322,205
-------------------- --------------------
Current
Bank borrowings 497,700 380,380
Bank overdrafts 10,580 9,649
Finance lease liabilities 5,524 4,176
Costs for issue of debt (747) (515)
-------------------- --------------------
513,057 393,690
-------------------- --------------------
Total borrowings 737,067 715,895
-------------------- --------------------
16
Notes to the consolidated condensed interim financial statements (Cont'd.)
10 Derivative financial instruments
The net fair values of derivative financial instruments at the balance
sheet date, in accordance with IAS 39, were:
Net fair value of derivative financial instruments At September 30, At December 31,
2003 2002
--------------------- --------------------
(Unaudited)
Contracts with positive fair values:
Interest rate swaps contracts 559 556
Forward foreign exchange contracts 4,289 2,867
Commodities contracts 1,251 639
Contracts with negative fair values:
Interest rate swaps contracts (6,073) (3,274)
Forward foreign exchange contracts (1,831) (777)
Commodities contracts (1,791) (3,511)
11 Contingencies, commitments and restrictions to the distribution of profits
Tenaris is involved in litigation arising from time to time in the
ordinary course of business (exception made of the litigation with the
consortium led by BHP -see (i) below-). Based on management's assessment
and the advice of legal counsel, it is not anticipated that the ultimate
resolution of existing litigation will result in amounts in excess of
recorded provisions that would be material to the Tenaris's consolidated
financial position or income statement.
(i) Claim against Dalmine
In June 1998, British Steel plc ("British Steel") and Dalmine were sued
by a consortium led by BHP Billiton Petroleum Ltd. ("BHP") before the
Commercial Court of the High Court of Justice Queen's Bench Division of
London. The action concerns the failure of an underwater pipeline built
in 1994 in the Bay of Liverpool. Dalmine, at that time a subsidiary of
Ilva S.p.A. ("Ilva"), supplied pipe products to British Steel, which, in
turn, resold them to BHP for use in constructing the Bay of Liverpool
pipeline. BHP claimed that British Steel breached the contract of sale
relating to the pipe and that the pipe was defectively manufactured by
Dalmine.
The products sold were valued at 1.9 million British pounds ("GBP") and
consisted of pipe for use in maritime applications. Dalmine received
court notice of the action more than two years after the contractual
warranty covering the pipe had expired and four years after the pipe was
delivered and placed into operation. British Steel and Dalmine denied the
claim on the basis that the warranty period had expired and, in the
alternative, that the amount claimed exceeded the contractual limitation
of liability (equal to GBP300 thousand, or approximately 15% of the value
of the products supplied).
The Commercial Court dismissed the contract claim against British Steel.
The decision was subsequently confirmed by the Court of Appeals in a
ruling issued on April 7, 2000, as a result of which the claim against
British Steel was definitively dismissed. BHP's product liability claim
against Dalmine remained outstanding.
17
Notes to the consolidated condensed interim financial statements (Cont'd.)
11 Contingencies, commitments and restrictions to the distribution of
profits (Cont'd.)
On November 24, 2000, the Commercial Court granted BHP permission to
amend its pleading against Dalmine to include a deceit tort claim under
English law based on inconsistencies between the results of internal
chemical tests performed by Dalmine on the pipe and the results shown in
the quality certificates issued to BHP by Dalmine. In May 2002, the trial
court issued a judgment in favor of BHP, holding that the products
supplied by Dalmine were the cause for the failure of the gas pipeline
and that Dalmine was liable for damages to BHP. The court's judgment was
limited to the issue of liability, and the amount of damages to be
awarded to BHP is being determined in a separate proceeding. Dalmine's
petition to the trial court for leave to appeal its judgment was denied,
but subsequently granted by the Court of Appeals. However, on February 5,
2003, the Court of Appeals dismissed Dalmine's appeal, closing the
dispute on the issue of liability.
BHP has indicated in court proceedings that it will seek damages of
approximately GBP35 million to cover the cost of replacing the pipeline,
GBP70 million to compensate for consequential damages, GBP73 million to
cover loss or deferred revenues, GBP31 million to compensate for
increased income tax resulting from a change in law plus interest and
costs for unspecified amounts. Additionally, BHP has introduced some
further claims in respect of costs associated with the installation of
additional equipment as a result of the pipeline failure (GBP5 million)
and losses due to increase in applicable tax on litigation proceeds for
unspecified amounts. Subsequent to the court's judgment in favor of BHP
on the issue of liability, BHP petitioned the court for an interim
judgment of damages in the amount of approximately GBP37 million to cover
the cost of replacing the pipeline. On July 31, 2002, Dalmine agreed to
pay BHP GBP15 million (approximately USD22.5 million) in interim damages.
The court is now expected to hear arguments regarding, and issue its
final judgment on, total damages during the second half of 2004.
Based on the information provided so far by BHP, Dalmine considers that
the compensation requested to cover the cost of replacing the pipeline
exceeds the cost actually incurred for such purpose. Taking into
consideration such information and the preliminary views expressed by
independent experts, Dalmine believes that certain of the other claims
fail to show an appropriate connection with the events for which Dalmine
was found responsible, while others appear to exceed the damage actually
incurred.
Dalmine created a provision in its results for 2001 to account for
potential losses as a result of BHP's lawsuit. This provision is
periodically revised and adjusted based on the developments of the case,
the evaluations of the Company's independent advisors and other evidence
available to management. At September 30, 2003 this provision amounts to
USD76.4 million (from which USD25.0 has been paid as interim award),
inclusive of interest accrued and legal expenses incurred in connection
with such proceedings. Dalmine has stated that the provision was created
and subsequently increased as a prudent way of complying with applicable
accounting principles, and should therefore not be regarded as an
admission of indemnification payable to the plaintiffs.
18
Notes to the consolidated condensed interim financial statements (Cont'd.)
11 Contingencies, commitments and restrictions to the distribution of
profits (Cont'd.)
The pipe that is the subject of this lawsuit was manufactured and sold,
and the tort alleged by BHP took place, prior to the privatization of
Dalmine, and Techint Investments Netherlands BV ("Tenet") -the Siderca
subsidiary party to the contract pursuant to which Dalmine was
privatized- believes that, under the Dalmine privatization contract,
Tenet should be entitled to recover from Fintecna S.p.A. ("Fintecna") on
behalf of Dalmine (as a third party beneficiary under the Dalmine
privatization contract) 84.08% of any damages it may be required to pay
BHP. Tenet has commenced arbitration proceedings against Fintecna to
compel it to indemnify Dalmine for any amounts Dalmine may be required to
pay BHP. Fintecna has denied that it has any contractual obligation to
indemnify Dalmine, asserting that the indemnification claim is
time-barred under the terms of the privatization contract and, in any
event, subject to a cap of EUR13 million. Tenet disputes this assertion.
The arbitration proceedings were suspended at a preliminary stage pending
a decision by the British trial court in BHP's lawsuit against Dalmine.
Upon request by Tenet and Dalmine, the arbitration panel decided to
resume the proceedings in light of the court of appeal's recent decision
to dismiss Dalmine's appeal against the judgment of liability in favor of
BHP.
(ii) Consorcio Siderurgia Amazonia, Ltd.
In January 1998, Consorcio Siderurgia Amazonia Ltd. (Amazonia) purchased
a 70.0% equity interest in Siderurgica del Orinoco C.A. (Sidor) from the
Venezuelan government, which retained the remaining 30%. Tamsider LLC
(Tamsider) held an initial 12.5% equity interest in Amazonia, which
increased to 14.1% in March 2000 as a result of additional investments.
As part of the 2003 restructuring of Sidor and Amazonia's debt discussed
below, Tamsider capitalized a convertible subordinated loan made to
Amazonia in connection with previous restructuring efforts, increasing
its equity interest to 14.5 %.
Also in connection with the 2003 restructuring, a 24.4% equity interest
in Ylopa Servicos de Consultadoria Ltda. (Ylopa) was purchased; Ylopa is
a special-purpose corporation incorporated in Madeira. After the
consummation of the restructuring on June 20, 2003, Ylopa held new debt
instruments of Amazonia convertible at Ylopa's option at any time after
June 20, 2005, into 67.4% of the common stock of Amazonia. In addition,
the Venezuelan government's ownership in Sidor increased to 40.3%, while
Amazonia's beneficial ownership in Sidor decreased to 59.7%. All of
Amazonia's shares, as well as all the shares of Sidor held by Amazonia,
were placed in a guarantee trust and pledged to secure the Sidor
financial lenders.
Sidor, located in Guayana in southeast Venezuela, is the largest
integrated steel producer in Venezuela and the sixth largest integrated
steel producer in Latin America, with an installed capacity of more than
3.5 million tons of liquid steel per year. Sidor shipped 2.9 million tons
of steel in 2001 and 3.2 million tons in 2002.
19
Notes to the consolidated condensed interim financial statements (Cont'd.)
11 Contingencies, commitments and restrictions to the distribution of
profits (Cont'd.)
Expiration of Performance Bond. The Sidor purchase agreement (signed in
December 1997) between Amazonia and the Venezuelan government required
the shareholders of Amazonia, including Tamsider, to indemnify the
government for breaches by Amazonia of the Sidor purchase agreement up to
a maximum amount of USD150 million, for five years from the acquisition.
In connection with this indemnity, the shareholders of Amazonia were
required to maintain a performance bond (which Tamsa guaranteed directly
in proportion to its interest in Amazonia) for five years, beginning in
1998, in the amount of USD150 million during the first three years,
USD125 million in the fourth year and USD75 million in the fifth year.
Additionally, on June 20, 2003 Banco Nacional de Desarrollo Economico y
Social (Bandes) and Corporacion Venezolana de Guayana notified Tamsa of
the release of the said guarantee.
2003 Restructuring. On June 20, 2003, Sidor, Amazonia and their creditors
(including the Venezuelan government) consummated a restructuring of the
Sidor and Amazonia debt. Under the terms of the restructuring:
o Ylopa purchased all of Amazonia's bank debt and a portion of Sidor's
bank debt for a total amount of USD133.5 million;
o Sidor purchased a portion of its own bank debt for a total amount of
USD37.9 million;
o the remainder of Sidor's bank debt was refinanced and the lenders
agreed to the payment by Sidor of lower interest rates and a longer
tenor;
o Ylopa assigned to Amazonia all of the debt it purchased in exchange
for debt instruments of Amazonia convertible into a 67.4% equity
interest in Amazonia at Ylopa's option;
o the Venezuelan government capitalized approximately half of the debt
owed to it by Sidor and consequently increased its equity ownership
interest in Sidor to 40.3%;
o the remainder of the debt owed to the Venezuelan government was
refinanced;
o certain agreements entered to in connection with the 2000
restructuring were terminated and the Amazonia shareholders, including
Tamsider, were released from:
o the guarantees they had provided with respect to the principal and a
portion of the interest payable under the loan made to Sidor by the
Venezuelan government;
o their obligations under a certain put agreement that previously
required them to purchase up to USD25 million in loans payable by
Amazonia to its private lenders; and
o their obligations under a letter to these lenders contemplating the
possibility of additional capital contributions of up to USD20 million
in the event of extreme financial distress of Sidor;
20
Notes to the consolidated condensed interim financial statements (Cont'd.)
11 Contingencies, commitments and restrictions to the distribution of
profits (Cont'd.)
o Sidor's excess cash (determined in accordance with the Restructuring
agreement) is to be applied 30% to repay Sidor's financial debt, and
the remaining 70%, to be split between Ylopa (or Amazonia) and the
Venezuelan government according to their equity stakes in Sidor (59.7%
and 40.3%, respectively); this provision to be effective only after
the first USD11.0 million of Sidor's excess cash are applied to repay
its financial debt.
On October 16, 2003, Tenaris received USD10.5 million of excess cash for
the six month period ended on June 30, 2003, which were reflected as
results from associated companies in the income statement for the nine
month period ended September 30, 2003.
In the context of the 2003 restructuring an aggregate cash contribution
of USD 32.9 million was made to Ylopa (mainly in the form of subordinated
convertible debt); in addition to this, convertible debt previously held
by Tamsa in the amount of USD18.0 million was capitalized in Amazonia.
Tenaris's indirect participation in Amazonia increased from 14.1% to
14.5% and may further increase up to 21.2% if and when all of its
subordinated convertible debt is converted into equity.
Following completion of the restructuring between Sidor, Amazonia and
their creditors (including the Venezuelan government), Sidor had
approximately USD829.0 million of indebtedness outstanding and Amazonia
had no bank debt outstanding at June 30, 2003. Sidor's financial
indebtedness was made up of three tranches, one of USD350.5 million to be
repaid over 8 years with one year of grace, one of USD26.3 million to be
repaid over 12 years with one year of grace and the remaining tranche of
USD366.1 million, to be repaid over 15 years with one year of grace. In
addition, Sidor's commercial indebtedness with certain Venezuelan
government-owned suppliers amounted to USD42.2 million, to be repaid over
the next five years.
After consummation of the 2003 restructuring, Tenaris (directly or
indirectly) continues to bear the risk of further losses in the equity
value of its investment in Amazonia as well as losses in the equity value
of its investment in Ylopa, but none of Tenaris or Ylopa guarantees the
restructured indebtedness of Sidor. The restructuring agreements
contemplate, however, certain continuing obligations and restrictions,
including:
o pledges and guarantee trusts to the Sidor financial lenders of Sidor
and Amazonia shares, which will remain in effect for two years from
the date of the restructuring so long as no event of default has
occurred and is continuing under Sidor's refinanced loan agreements;
o pledges to the Sidor financial lenders of any future debt of Amazonia,
which will remain in effect until such time as the pledges of the
Amazonia and Sidor shares referred to above are released;
o negative pledges not to create, incur or suffer to exist a lien (other
than certain permitted liens) over any of the equity or debt of
Amazonia held by, or owed to, the Amazonia shareholders or over the
shares of Sidor held by Amazonia; and
o restrictions on the ability to institute or join a proceeding seeking
the liquidation, bankruptcy or reorganization of Amazonia or Sidor.
21
Notes to the consolidated condensed interim financial statements (Cont'd.)
11 Contingencies, commitments and restrictions to the distribution of
profits (Cont'd.)
During the nine-month period ended September 30, 2003, Tenaris recorded
gains in its investments in Ylopa and Amazonia of USD 17.0 million. These
gains were comprised of USD6.5 million originated in the Tenaris' equity
in the net result of these companies (including the net gain originated
in the 2003 Restructuring) and USD10.5 million in relation to the excess
cash provisions.
(iii) Tax claims
Siderca
On December 18, 2000, the Argentine tax authorities notified 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 ARP49.5 million (approximately USD17.6 million)
at September 30, 2003 in tax and penalties. On the basis of information
from Siderca's tax advisors, Tenaris believes that the ultimate
resolution of the matter will not result in a material obligation.
Accordingly, no provision was recorded in the financial statements.
Argentine subsidiaries
In their respective calculations of income tax liabilities for the year
ended December 31, 2002, Siderca and Siat, two Argentine subsidiaries of
Tenaris used the inflation adjustment procedure set forth in Title VI of
the Argentine Income Tax Law. The application of the inflation adjustment
procedure, notwithstanding, had been suspended in March 1992, pursuant to
article 39 of Law 24.073, which was passed in the context of price
stability prompted by the introduction of the convertibility regime that
pegged the peso to the United States dollar at a fixed rate of ARP1=USD1.
Both subsidiaries have started legal proceedings objecting to the
constitutional grounds for the abovementioned suspension, insomuch as its
compliance would render fictitious gains arising from the impact of
inflation on monetary positions during 2002 fully taxable. Moreover and
in order to protect themselves from potential actions by the fiscal
authority aimed at demanding collection of the resulting differences, the
subsidiaries have obtained an injunction measure that would inhibit the
authorities to summarily execute their claims while resolution on the
proceedings remains pending. Such measure has been appealed by the Tax
Authority before the Federal Court of Appeals. Irrespective of the final
result of the legal proceedings under way, the Company has maintained its
reserve for the full amount of the taxable amount on the alleged
fictitious gains plus interest according to regulation in force excluding
any other potential punitive charges. At September 30, 2003 the referred
contingent reserve totaled ARP61.5 million (approximately USD21.8
million).
(iv) Other proceedings
Dalmine is currently subject to two civil proceedings and a criminal
proceeding before the Court of Bergamo, Italy, for work-related injuries
arising from the use of asbestos in its manufacturing processes from 1960
to 1980. Of the 21 cases involved in such criminal proceeding, 20 have
already been settled.
In addition to the civil and criminal cases, other 28 asbestos related
out-of-court claims have been forwarded to Dalmine. Dalmine estimates
that its potential liability in connection with the claims not yet
settled or covered by insurance is approximately EUR8.4 million (USD 9.8
million).
22
Notes to the consolidated condensed interim financial statements (Cont'd.)
11 Contingencies, commitments and restrictions to the distribution of
profits (Cont'd.)
(v) Contingent liabilities
Tenaris had the following contingent liabilities at the corresponding
period ends:
At September 30, At December 31, 2002
2003
--------------------------------------------
(Unaudited)
Third party assets held in custody by Tenaris 4,297 17,603
Deposit guarantees and other guarantees 202,984 179,924
--------------------------------------------
Total 207,281 197,527
--------------------------------------------
(vi) Commitments
The following are the main off-balance sheet commitments:
(a) Tamsa entered into an off-take contract with Complejo Siderurgico
de Guayana C.A. ("Comsigua") to purchase on a take-and-pay basis
75,000 tons of hot briquette iron, or HBI, annually for twenty
years beginning in April 1998 with an option to terminate the
contract at any time after the tenth year upon one year's notice.
Pursuant to this off-take contract, Tamsa would be required to
purchase the HBI at a formula price reflecting Comsigua's
production costs during the first eight contract years; thereafter,
it would purchase the HBI at a slight discount to market price.
The agreements among the parties provide that, if during the
eight-year period the average market price is lower than the
formula price paid during such period, Tamsa would be entitled to a
reimbursement of the difference plus interest, payable after the
project financing and other specific credits are repaid. In
addition, under the shareholders' agreements, Tamsa has the option
to purchase on an annual basis up to a further 80,000 tons of HBI
produced by Comsigua at market prices. Under its off-take contract
with Comsigua, as a result of weak market prices for HBI , Tamsa
has paid higher-than-market prices for its HBI and according to the
original contract accumulated a credit that, at September 30, 2003,
amounted to approximately USD13.8 million. This credit, however, is
offset by a provision for an equal amount recorded.
In connection with Tamsa's original 6.9% equity interest in
Comsigua, Tamsa paid USD8.0 million and agreed to cover its share
of Comsigua's cash operating and debt service shortfalls. In
addition, Tamsa pledged its shares in Comsigua and provided a
proportional guarantee of USD11.7 million (USD4.9 million
outstanding as of September 30, 2003) in support of the USD156
million (USD65.3 million outstanding as of September 30, 2003)
project financing loan made by the International Finance
Corporation, or IFC, to Comsigua. In February and December 2002,
Tamsa was required to pay USD1.3 million and USD0.2 million
respectively, representing its share of a shortfall of USD14.7
million payable by Comsigua under the IFC loan and additional
operating shortfalls of USD5.3 million. Comsigua's financial
condition was adversely affected by the consistently weak
international market conditions for HBI since its start-up in 1998
until the end of 2002 and, if market conditions were to weaken
again, Tamsa may be required to make additional proportional
payments in respect of its participation in Comsigua and pay
higher-than-market prices for its HBI pursuant to its off-take
contract.
23
Notes to the consolidated condensed interim financial statements (Cont'd.)
11 Contingencies, commitments and restrictions to the distribution of
profits (Cont'd.)
(b) Tamsa purchases from Pemex, at prevailing international prices,
natural gas used for the furnaces that reheat steel ingots in the
pipe making process. In February, 2001, Tamsa signed an agreement
with Pemex, for the monthly supply of 296,600 million BTUs (British
Thermal Units per month) of natural gas from January 1, 2001 until
December 31, 2003, at a fixed price of USD4.00 per million of BTUs.
In order to cover a decrease in natural gas prices, in March 2001,
Tamsa entered into a forward contract with Enron North America
Corp.("Enron"), with the option to sell up to 200,000 million BTUs
per month of natural gas, at a minimum base price of USD4.05 per
million of BTUs, from March 2002, through December 2003.
As a result of Enron's bankruptcy in late 2001, no reasonable
prospect exists of exercising Tamsa's option under this contract.
The premium paid to Enron of USD2.3 million for this put option was
written-off during the fourth quarter of 2001. In order to reduce
its exposure to above-market prices under the natural gas supply
agreement with Pemex, Tamsa entered into agreements with Citibank,
N.A., New York ("Citibank") and JPMorgan Chase Bank ("JPMorgan
Chase"), in March 2002 and April 2002. The economic effect of the
agreements with Citibank and JPMorgan Chase is to permit Tamsa to
purchase 320,000 million BTUs per month at market price instead of
at the USD4.00 per million BTU rate charged by Pemex, resulting in
a more favourable price to Tamsa for natural gas so long as the
market price remains below USD4.00.
Under the agreements, Tamsa must continue to make its purchase of
natural gas at market price even if the market price rise above
USD4.00 per million BTUs, thereby exposing Tamsa to a later risk of
above-market prices. Also, under the agreements, Tamsa must
continue to make purchases at the USD4.00 per million BTU rate if
the market price of natural gas falls to USD2.00 per million BTUs
or lower (during the period from May 1, 2002 to February 28, 2003)
or to USD2.25 per million BTUs or lower (during the period from
March 1, 2003 to December 31, 2003). In addition, under each of the
agreements with Citibank and JPMorgan Chase, Tamsa is required to
purchase 160,000 million BTUs of natural gas per month from January
1, 2004, to December 31, 2005, at price of USD2.8 per million BTUs.
(c) In August 2001, Dalmine Energie S.p.A. signed a ten year agreement
with Eni S.p.A. Gas & Power Division for the purchase of natural gas
with certain take or pay conditions until October 1st, 2011. In August
2003 Dalmine Energie S.p.A. received confirmation from Snam Rete Gas,
the transportation company, of the yearly allocation of the necessary
capacity on the international connection infrastructure until October
1st 2010. The outstanding value of the contract is approximately
EUR590 million (USD687 million) taking into consideration prices
prevailing as of the time of the confirmation. In due course, Dalmine
Energie S.p.A will be requesting Snam Rete Gas, the necessary capacity
for the last year of purchase contract. Such capacity is allocated
following regulations enacted by the Italian energy regulatory
authority taking into consideration all allocation capacity requests.
(d) Under a lease agreement between Gade Srl (Italy) and Dalmine,
executed in 2001, relating to a building site in Sabbio Bergamasco
used by Dalmine's former subsidiary Tad Commerciale, Dalmine is
obligated to bid in the auction for the purchase of a building from
Gade for a minimum amount of EUR8.3 million (USD9.7 million). The
notice of the auction, according to the contract, was not to take
place before January 1, 2003. Up to the date of these financial
statements, the auction was not yet announced.
24
Notes to the consolidated condensed interim financial statements (Cont'd.)
11 Contingencies, commitments and restrictions to the distribution of
profits (Cont'd.)
(e) On October 24, 2003, Tenaris subsidiaries Siderca and Generadora del
Parana S.A. ("Generadora"), together with Siderar, a related party to
Tenaris, entered into a joint gas purchase agreement with Repsol-YPF.
Under the agreement, which incorporates certain take-or-pay
conditions, Tenaris commited to purchase up to 800 million cubic
meters of gas during the life of the contract, which expires in the
end of 2006 at a price to be negotiated by the parties on a yearly
basis. These two companies have an annual estimated gas consumption of
800 million cubic meters. Tenaris' share of the outstanding value of
the contract resulting from the take-or-pay conditions totals USD 10.0
million.
(vii) Restrictions to the distribution of profits
Under Luxembourg law, at least 5% of the net income per year calculated
in accordance with Luxembourg law and regulations must be allocated to
the creation of a reserve until such reserve has reached to an amount
equal to 10% of the share capital. At September 30, 2003 the Company has
created this reserve in full.
Shareholders' equity at September 30, 2003 under Luxembourg law and
regulations comprises the following captions (amounts in USD thousand):
Share capital 1,180,288
Legal reserve 118,029
Share premium 609,269
Other distributable reserve 96,555
Retained earnings 161,304
--------------------
Total shareholders equity under Luxembourg GAAP 2,165,445
--------------------
Dividends may be paid by Tenaris to the extent distributable retained
earnings and distributable reserve calculated in accordance with
Luxembourg law and regulations exist.
At September 30, 2003, the distributable reserve and retained earnings of
Tenaris under Luxembourg Law totalled USD257.9 million - as detailed
below- and were higher than the consolidated retained earnings of the
Company, calculated under IAS.
Thousands of USD
--------------------
Distributable reserve and retained earnings at December 31, 206,744
2002 under Luxembourg Law
Dividends received 168,268
Other income and expenses for the nine-month period ended
September 30, 2003 (6,964)
Dividends paid
(115,002)
Increase in reserve due to capital increase
(see Note 12 (i) ) 4,813
--------------------
Distributable reserve and retained earnings at
September 30, 2003 under Luxembourg Law 257,859
--------------------
25
Notes to the consolidated condensed interim financial statements (Cont'd.)
12 Capital increase and other events with impact on minority interest
(i) Plan for the Acquisition of Remaining Minority Interest in Tamsa
and Capital Increase
On March 31, 2003 Tenaris announced a plan for the acquisition of the
remaining minority interest in Tamsa, which amounted to 5.6% of the
shares of such company, and to cause the delisting of Tamsa from the
Mexican Stock Exchange and the American Stock Exchange, the termination
of its ADR facility and, if and when applicable, the termination of
Tamsa's registration with the U.S. Securities Exchange Commission (the
SEC).
On August 11, 2003, following the required approvals by the Mexican
securities regulator and the SEC, Tenaris announced an exchange offer
to acquire all remaining shares and ADSs of Tamsa. In order to comply
with Mexican regulations, an escrow arrangement was set up in Mexico to
effect the exchange of shares throughout a six month period.
On September 15, 2003 Tenaris announced the conclusion of the exchange
offer in the United States and the termination of Tamsa's ADR program.
In exchange for the Tamsa shares received Tenaris S.A. issued
19,586,870 new shares of its common stock of par value USD 1.00 for a
total consideration of USD 48,135,113. In accordance with Luxembourg
legislation, this issuance resulted in an increase of USD 1,958,687,
USD 4,813,511 and USD21,776,045 to the Company's legal reserve,
distributable reserve and non-distributable share premium reserve,
respectively.
For the common stock of Tamsa outstanding in the Mexican market -which
comprises 356,392 shares-, Tenaris and Sidertubes constituted a trust
fund with Banamex, in which Sidertubes deposited the necessary number
of Tenaris' shares to provide for the exchange of the remaining
interests in Tamsa. According to the terms of the trust, holders of
Tamsa's common stock can exchange their shares under the escrow
arrangement until February 12, 2004. At September 30, 2003, holders of
123,500 shares of Tamsa had exchanged their holdings. At the expiration
of such arrangement, Tenaris will increase its capital in the amount of
shares effectively exchanged to reimburse the shares lent by
Sidertubes.
As a result of the abovementioned transactions at September 30, 2003,
Tenaris held 99.9% of the common stock of Tamsa. The fair value of the
net assets acquired as part of the transactions performed during the
nine-month period ended September 30, 2003 totalled USD 46.1 million,
giving rise to goodwill of USD 3.5 million.
26
Notes to the consolidated condensed interim financial statements (Cont'd.)
12 Capital increase and other events with impact on minority interest
(Cont'd.)
(ii) Dalmine Shareholding
Pursuant to purchases made in the market up to March 10, 2003, Tenaris
increased its holding of Dalmine's common stock to 90.0003%.
Accordingly, on March 11, 2003 Tenaris announced its intention to
launch, in accordance with Italian regulations, a residual public offer
for the remaining shares of Dalmine at a price to be determined by the
Italian securities' regulator ("CONSOB").
On June 23, 2003 Tenaris launched a cash offer for the remaining
minority interest in Dalmine (9.9997% of Dalmine's ordinary shares)
at a price of Euros 0.172 per share. On July 11, 2003, closing date for
the offer, Tenaris announced that it held directly or indirectly, 96.8%
of the shares of Dalmine and subsequently announced the delisting of
Dalmine from the Italian Mercato Telematico Azionario. At September 30,
2003, as a result of shares accepted and effectively paid during the
tender offer as well as shares purchased in subsequent transactions,
Tenaris held directly or indirectly 98.3% of the shares of Dalmine. The
fair value of the net assets acquired as part of the transactions
performed during the nine-month period ended September 30, 2003
totalled USD 27.2 million, giving rise to negative goodwill of USD 4.5
million.
(iii) Acquisition of Remaining Minority Interest in Siderca
On April 3, 2003 the Argentine securities regulator ("CNV") approved
Tenaris' previously announced proposal to acquire the remaining
minority interest in Siderca, which amounted to 0.89% of the shares of
such company. As a result of Tenaris' gaining beneficial control of
100% of the common stock of Siderca this company was effectively
delisted and its ADR program terminated. The fair value of net assets
acquired as part of this transaction totalled USD11.9 million giving
rise to goodwill of USD7.2 million.
Notwithstanding, on April 11, 2003 Tenaris was served with a claim from
four Siderca shareholders and a preliminary order from a commercial
court sitting in Buenos Aires preventing Tenaris from acquiring the
shares held by such shareholders until a final decision on their claim
is made by the courts. The plaintiffs, who hold 0.01% of the shares of
Siderca, argue that the provisions of Decree 677/01 that authorize
Tenaris to purchase unilaterally the shares of minority holders
contravene their property rights protected by the Argentine
Constitution. Following the court order, the administrative step
necessary for Tenaris to consummate the acquisition was delayed,
therefore preventing the Company from completing the acquistion.
Subsequently Tenaris agreed with the plaintiffs to replace the referred
order by an attachment of shares of Siderca owned by Tenaris for an
amount equivalent to those held by the plaintiffs (USD0.2 million). In
light of such agreement, the CNV authorized the resumption of the
acquisition process (which would also include the acquisition of the
plaintiff's shares). On April 24, 2003 Tenaris successfully completed
the acquisition of all the remaining minority interests in Siderca at a
price of six Argentine pesos (ARP6.00) per Siderca share and sixty
Argentine pesos (ARP 60.00) per Siderca ADS, plus ARP 0.16 per share
and ARP 1.60 per ADS in dividends approved by the Extraordinary General
Meeting of Shareholders of Siderca held on April 28, 2003, totalling
USD 19.1 million.
27
Notes to the consolidated condensed interim financial statements (Cont'd.)
12 Capital increase and other events with impact on minority interest
(Cont'd.)
With respect to the plaintiffs' claim, Tenaris has argued before the
competent courts its view that the provisions of Decree 677/01 do not
violate any constitutionally protected rights of such persons.
13 Acquisitions
As explained in Note 12 (i), Note 12 (ii) and Note 12 (iii), during the
nine-month period ended September 30, 2003 Tenaris acquired 5.49% of
Tamsa, 9.94% of Dalmine and 0.89% of Siderca.
Additionally, during the nine-month period ended September 30, 2003
Siderca acquired Reliant Energy Cayman Holdings, Ltd., a company whose
principal asset is an electric power generating facility located in
Argentina, with a capacity of 160MW, for a total amount of USD 23.1
million, which approximates with the fair value of the net assets
acquired. The acquisition was performed with the intention of ensuring
self-sufficiency of electrical power requirements in Siderca's
operations, which consume around 160 MW at peak production. The
acquisition of Reliant Energy Cayman Holdings, Ltd. did not give rise to
significant goodwill.
The assets and liabilities arising from the acquisitions are as follows:
Nine-month period ended
September 30, 2003
--------------------------
(Unaudited)
Other assets and liabilities, net 2,734
Property, plant and equipment 27,205
Goodwill 6,190
--------------------------
Net assets acquired 36,129
Minority interest 80,975
Total non-current liabilities (2,561)
--------------------------
Total liabilities assumed (2,561)
--------------------------
Purchase consideration 114,543
--------------------------
28
Notes to the consolidated condensed interim financial statements (Cont'd.)
14 Related party transactions
The following transactions were carried out with related parties:
Nine-month period ended September
30,
------------------ ------------------
2003 2002
(i) Transactions
(a) Sales of goods and services
Sales of goods 43,326 122,586
Sales of services 6,858 6,344
------------------ ------------------
50,184 128,930
------------------ ------------------
(b) Purchases of goods and services
Purchases of goods (57,479) (121,301)
Purchases of services (53,781) (159,918)
------------------ ------------------
(111,260) (281,219)
------------------ ------------------
(c) Purchases of participation in
subsidiaries (304) -
------------------ ------------------
At September 30, At December 31,
------------------ ------------------
2003 2002
(ii) Period-end balances
(a) Arising from sales/purchases of
goods/services
Receivables from related parties 50,628 59,490
Payables to related parties (20,266) (92,133)
------------------ ------------------
(32,643)
30,362
------------------ ------------------
(b) Cash and cash equivalents
Time deposits 1,739 8,893
------------------ ------------------
(c) Other balances
Trust fund 117,618 115,787
Convertible loan 31,128 -
------------------ ------------------
148,746 115,787
------------------ ------------------
(d) Financial debt
Borrowings and overdrafts (35,153) (33,687)
(e) Deposit guarantees and other
guarantees
Guarantees received 3,000 6,000
------------------ ------------------
29
Notes to the consolidated condensed interim financial statements (Cont'd.)
15 Principal subsidiaries
Tenaris' direct subsidiaries are listed below. The Company's percentage of
ownership and voting rights held in these companies, directly or indirectly, by
at September 30, 2003 and September 30, 2002 is disclosed.
----------------------------------- ----------------- ------------------------------ ---------------------------
Company Country of Main activity Percentage of ownership
Organization and voting rights at
September 30,
------------- -------------
2003 2002
----------------------------------- ----------------- ------------------------------ ------------- -------------
Siderca S.A.I.C. Argentina Manufacturing of seamless 100.00% 71.17%
steel pipes
Tamsa S.A. de C.V. Mexico Manufacturing of seamless 99.93% 51.84%
steel pipes
Dalmine S.p.A. Italy Manufacturing of seamless 98.34% 47.22%
steel pipes
Tenaris Global Services S.A. (and Uruguay Holding of investments in 100.00% 100.00%
predecessors) steel pipe distributing
companies
Invertub S.A. Argentina Holding of investments 99.97% 99.97%
----------------------------------- ----------------- ------------------------------ ------------- -------------
30
Notes to the consolidated condensed interim financial statements (Cont'd.)
15 Principal subsidiaries (Cont'd.)
Siderca's subsidiaries are listed below:
----------------------------------- ----------------- ------------------------------ ---------------------------
Company Country of Main activity Percentage of ownership
Organization and voting rights at
September 30,
------------- -------------
2003 2002
----------------------------------- ----------------- ------------------------------ ------------- -------------
NKK Tubes K.K. Japan Manufacturing of seamless 51.00% 51.00%
steel pipes
Algoma Tubes Inc. (a) Canada Manufacturing of seamless 80.00% 80.00%
steel pipes
Confab Industrial S.A. and Brazil Manufacturing of welded 38.99% 38.99%
subsidiaries (b) steel pipes and capital goods
Siat S.A. (c) Argentina Manufacturing of welded 70.00% 70.00%
steel pipes
Metalmecanica S.A. (d) Argentina Manufacturing steel products 73.00% 73.00%
for oil extraction
Scrapservice S.A. Argentina Processing of scrap 74.84% 74.84%
Texas Pipe Threaders Co. U.S.A. Finishing and marketing of 100.00% 100.00%
steel pipes
Insirger Cayman Ltd and Cayman Is. Electric power generation 100.00% -
subsidiaries (previously
Reliant Energy Cayman Holdings,
Ltd.(e)
Siderca International A.p.S. Denmark Holding company 100.00% 100.00%
Techint Investment Netherlands Netherlands Holding company 100.00% 100.00%
B.V.
Sidtam Limited (f) B.V.I. Holding company 51.00% 51.00%
Tenaris West Africa Ltd. (g) United Kingdom Seamless tubes finishing and 80.00% 80.00%
marketing
----------------------------------- ----------------- ------------------------------ ------------- -------------
(a) Tamsa holds the remaining 20.00% of Algoma Tubes Inc.'s ("Algoma")
capital stock and voting rights.
(b) Siderca has the 99.2226% of the voting rights.
(c) Confab Industrial S.A. ("Confab") holds the remaining 30.00% of Siat
S.A.'s ("Siat") capital stock and voting rights.
(d) Invertub holds the remaining 27.00% of Metalmecanica's capital stock
and voting rights.
(e) Acquired on February 2003 (See Note 13).
(f) Tamsa holds the remaining 49.00% of Sidtam Limited's ("Sidtam")
capital stock and voting rights.
(g) Tamsa holds the remaining 20.00% of Tenaris West Africa Ltd. ("TWA")'s
capital stock and voting rights
31
Notes to the consolidated condensed interim financial statements (Cont'd.)
15 Principal subsidiaries (Cont'd.)
Tamsa's subsidiaries are detailed below:
----------------------------------- ----------------- ------------------------------ ---------------------------
Company Country of Main activity Percentage of ownership
Organization and voting rights at
September 30,
------------- -------------
2003 2002
----------------------------------- ----------------- ------------------------------ ------------- -------------
Tamsider S.A. and subsidiaries Mexico Promotion and organization 100.00% 100.00%
of steel-related companies
Inmobiliaria Tamsa S.A. Mexico Leasing of real estate 100.00% 100.00%
Tubos de Acero de Venezuela S.A. Venezuela Manufacturing of seamless 70.00% 70.00%
(Tavsa) steel pipes
Tamtrade S.A. Mexico Sale of seamless steel pipe 100.00% 100.00%
Empresas Riga S.A. Mexico Manufacturing of weldable 100.00% 100.00%
fittings for seamless steel
pipes
Socover S.A. (a) Mexico Sale of seamless steel pipe - 100.00%
----------------------------------- ----------------- ------------------------------ ------------- -------------
(a) Merged with Tamtrade S.A. on January 2003.
Dalmine`s subsidiaries are listed below:
----------------------------------- ----------------- ------------------------------ ---------------------------
Company Country of Main activity Percentage of ownership
Organization and voting rights at
September 30,
------------- -------------
2003 2002
----------------------------------- ----------------- ------------------------------ ------------- -------------
Dalmine Energie S.p.A. Italy Marketing of electricity and 100.00% 100.00%
gas
i-Dalmine S.p.A. Italy Network information and 100.00% 85.00%
telematic systems
SO.PAR.FI. Dalmine Holding S.A. Luxembourg Holding company 100.00% 100.00%
Dalmine Holding B.V. Netherlands Holding company 100.00% 100.00%
Dalmine France Sarl France Marketing of steel products 100.00% 100.00%
Dalmine Benelux B.V. (a) Netherlands Marketing of steel products 100.00% 100.00%
Quality Tubes Ltd. United Kingdom Marketing of steel products 100.00% 100.00%
Eurotube Ltd. (b) United Kingdom Marketing of steel products 100.00% 100.00%
Quickflo Services Ltd. (c) United Kingdom Marketing of steel products - 100.00%
Dalmine Deutschland Gmbh Germany Marketing of steel products 100.00% 100.00%
Metal Tad Venezuela (c) Venezuela Marketing of steel products - 100.00%
Dalmine Canada Ltd. (a) Canada Marketing of steel products 100.00% 100.00%
Tad USA Inc. (c) U.S.A. Marketing of steel products - 100.00%
----------------------------------- ----------------- ------------------------------ ------------- -------------
(a) In process of liquidation.
(b) In process of reorganization.
(c) Liquidated during 2002.
32
Notes to the consolidated condensed interim financial statements (Cont'd.)
15 Principal subsidiaries (Cont'd.)
Tenaris Global Services' subsidiaries are detailed below:
----------------------------------- ----------------- ------------------------------ ---------------------------
Company Country of Main activity Percentage of ownership
Organization and voting rights at
September 30,
---------------------------
2003 2002
----------------------------------- ----------------- ------------------------------ ------------- -------------
Tenaris Global Services (UK) Ltd United Kingdom Marketing of steel products 100.00% 100.00%
(previously DST Europe Ltd)
Tenaris Global Services B.V. Netherlands Sales agent of steel products 100.00% 100.00%
Tenaris Global Services LLC U.S.A. Sales agent of steel 100.00% -
products
Tenaris Global Services Ltd. B.V.I. Holding company 100.00% 100.00%
(previously Techintrade Ltd)
Tenaris Global Services (U.S.A.) U.S.A. Marketing of steel products 100.00% 100.00%
(previously Siderca Corporation)
DST Japan K.K. Japan Marketing of steel products 99.83% 99.83%
Techintrade Canada Inc. Canada Marketing of steel products 100.00% 100.00%
(previously DST Tubulars Inc.)
Tenaris Global Servicies Norway Norway Marketing of steel products 100.00% 100.00%
AS (previously Techintrade
Norway AS)
Tenaris Global Services (Panama) Panama Marketing of steel products 100.00% 100.00%
S.A. (previously Socominter
Trading Inc. )
Socominter de Bolivia S.R.L. Bolivia Marketing of steel products 100.00% 100.00%
Socominter Soc. Com. Chile Marketing of steel products 99.00% 99.00%
Internacional Ltda. (a)
Socominter S.A. Venezuela Marketing of steel products 100.00% 100.00%
Tenaris Global Services Far East Singapore Marketing of steel products 100.00% 100.00%
Pte. Ltd. (previously Siderca Pte. Ltd.)
Tubular DST Nigeria Ltd. Nigeria Marketing of steel products 100.00% 100.00%
Tad Chacin C.A. (b) Venezuela Marketing of steel products - 100.00%
Socominter Far East Ltd. Singapore Marketing of steel products - 100.00%
(previously Tad Far East Ltd.)
(c)
Tenaris Financial Services S.A. Uruguay Financial Servicies 100.00% -
(previously Grostar S.A.) (d)
Exiros S.A. (previously Surpoint Uruguay Procurement Servicies 100.00% -
S.A.) (d)
Tenaris Global Services Ecuador Ecuador Marketing of steel products 100.00% -
S.A. (d)
----------------------------------- ----------------- ------------------------------ ------------- -------------
(a) Ceased operations during 2002.
(b) Socominter S.A. and Tad Chacin C.A. were merged during 2002.
(c) Under liquidation
(d) Incorporated during 2003.
33
Notes to the consolidated condensed interim financial statements (Cont'd.)
15 Principal subsidiaries (Cont'd.)
Tenaris's consolidated financial statements financial also comprise the
following companies:
----------------------------------- ----------------- ------------------------------ ---------------------------
Company Country of Main activity Percentage of ownership
Organization and voting rights at
September 30,
------------- -------------
2003 2002
----------------------------------- ----------------- ------------------------------ ------------- -------------
Metalcentro S.A. Argentina Manufacturing of pipe-end 100.00% 100.00%
protectors and lateral
impact tubes
Tenaris Connections A.G. and Liechtenstein Ownership and licensing of 100.00% 100.00%
subsidiaries steel technology
Lomond Holdings B.V. and Netherlands Procurement services for 100.00% 75.00%
subsidiaries industrial companies
Information Systems and Netherlands Software development and 75.00% 75.00%
Technologies B.V. and maintenance
subsidiaries
Siderestiba S.A. Argentina Logistics 99.00% 99.00%
----------------------------------- ----------------- ------------------------------ ------------- -------------
Carlos Condorelli
Chief Financial Officer
34