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 12, 2004
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 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
--- ---
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 consolidated
condensed interim financial statements for the period ended September 30, 2004.
TENARIS S.A.
CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
46a, Avenue John F. Kennedy - 2nd floor.
L - 1855 Luxembourg
2
Consolidated condensed interim income statement
(all amounts in USD thousands, unless otherwise stated) Three-month period Nine-month period
ended ended
September 30, September 30,
-------------------------------------------
Notes 2004 2003 2004 2003
(Unaudited)
Net sales 1 1,007,157 759,615 2,863,352 2,418,086
Cost of sales 2 (641,293) (508,814) (1,939,405)(1,671,470)
-------------------------------------------
Gross profit 365,864 250,801 923,947 746,616
Selling, general and administrative expenses 3 (168,922) (139,841) (476,287) (419,077)
Other operating income and expenses 4,917 (1,724) 10,482 (7,281)
-------------------------------------------
Operating income 201,859 109,236 458,142 320,258
Financial income (expenses), net 4 (3,132) (3,020) (22,455) (36,603)
-------------------------------------------
Income before equity in earnings of associated companies, income tax and
minority interest 198,727 106,216 435,687 283,655
Equity in earnings of associated companies (Note 10 (ii)) 17,300 10,630 56,969 16,273
-------------------------------------------
Income before income tax and minority interest 216,027 116,846 492,656 299,928
Income tax 5 (67,204) (53,427) (167,184) (90,048)
-------------------------------------------
Net income before minority interest 148,823 63,419 325,472 209,880
Minority interest (7,224) (1,981) (8,191) (13,255)
-------------------------------------------
Net income for the period 141,599 61,438 317,281 196,625
-------------------------------------------
Weighted average number of ordinary shares in issue (thousands) 1,180,537 1,164,107 1,180,497 1,161,849
Basic and diluted earnings per share (USD per share) 0.12 0.05 0.27 0.17
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The limited review report of the independent
auditor on these consolidated condensed interim financial statements is issued
as a separate document.
3
Consolidated condensed interim balance sheet
(all amounts in USD thousands) At September 30, 2004 At December 31, 2003
---------------------------- ---------------------------
Notes (Unaudited)
ASSETS
Non-current assets
Property, plant and equipment, net 6 2,096,917 1,960,314
Intangible assets, net 6 55,421 54,037
Investments in associated companies 62,612 45,814
Other investments 24,002 23,155
Deferred tax assets 148,046 130,812
Receivables 57,836 2,444,834 59,521 2,273,653
-------------- -------------
Current assets
Inventories 1,064,336 831,879
Receivables and prepayments 229,237 165,134
Trade receivables 7 855,530 652,782
Other investments 139,591 138,266
Cash and cash equivalents 287,424 2,576,118 247,834 2,035,895
-------------- -------------
-------------- --------------
Total assets 5,020,952 4,309,548
============== ==============
EQUITY AND LIABILITIES
Shareholders' Equity 2,007,473 1,841,280
Minority interest 147,650 119,984
Non-current liabilities
Borrowings 8 463,785 374,779
Deferred tax liabilities 413,963 418,333
Other liabilities 210,758 191,540
Provisions 36,005 23,333
Trade payables 7,907 1,132,418 11,622 1,019,607
-------------- -------------
Current liabilities
Borrowings 8 738,821 458,872
Current tax liabilities 157,798 108,071
Other liabilities 176,203 207,594
Provisions 33,962 39,624
Customers advances 87,896 54,721
Trade payables 538,731 1,733,411 459,795 1,328,677
-------------- -------------
-------------- --------------
Total liabilities 2,865,829 2,348,284
-------------- --------------
Total equity and liabilities 5,020,952 4,309,548
============== ==============
Contingencies, commitments and restrictions to the distribution of profits (Note 10)
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The limited review report of the independent
auditor on these consolidated condensed interim financial statements is issued
as a separate document.
4
Consolidated condensed interim statement of changes in shareholders' equity
(all amounts in USD thousands)
Total at September
Statutory balances according to Luxembourg Law 30,
----------------------------------------------------------------------------------------------------------------
Other Currency
Share Legal Share Distributable Retained Adjustments translation Retained
Capital Reserves Premium Reserve Earnings Total to IFRS adjustments Earnings 2004 2003
------- -------- ------- ------- -------- ----- ------- ----------- -------- ---- ----
(Unaudited)
Balance at
January 1, 1,180,288 118,029 609,269 96,555 201,480 2,205,621 (634,759) (34,194) 304,612 1,841,280 1,694,054
Currency
translation
differences - - - - - - - (16,855) - (16,855) 672
Capital
Increase
(Note 11) 249 25 464 82 - 820 - - - 820 48,135
Dividends
paid in
cash - - - (96,555) (38,498) (135,053) - - - (135,053) (115,002)
Net income - - - - 280,330 280,330 (280,330) - 317,281 317,281 196,625
----------------------------------------------------------------------------------------------------------------
Balance at
September
30, 1,180,537 118,054 609,733 82 443,312 2,351,718 (915,089) (51,049) 621,893 2,007,473 1,824,484
----------------------------------------------------------------------------------------------------------------
For additional disclosure related to the Distributable Reserve and the
Retained Earnings calculated under Luxembourg Law see Note 10 (vi).
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The limited review report of the independent
auditor on these consolidated condensed interim financial statements is issued
as a separate document.
5
Consolidated condensed interim cash flow statement
(all amounts in USD thousands) Nine-month period ended
September 30,
----------------------------------
2004 2003
Notes (Unaudited)
Net income for the period 317,281 196,625
Depreciation and amortization 150,369 145,937
Tax accruals less payments 35,936 (65,818)
Equity in earnings of associated companies (56,969) (16,273)
Interest accruals less payments 7,130 (553)
Cost of disposition of property, plant and equipment
and intangible assets 10,292 3,181
Net provisions 7,010 2,767
Minority interest 8,191 13,255
Change in working capital (1) (411,928) 3,396
Currency translation adjustment and others (10,736) (26,534)
---------------- -----------------
Net cash provided by operations 56,576 255,983
---------------- -----------------
Capital expenditure (122,478) (123,460)
Acquisitions of subsidiaries and associates net of
cash acquired 12 (97,555) (61,656)
Proceeds from associated companies - 106
Convertible loan to associated companies - (31,128)
Dividends and distributions received from associated
companies 40,595 -
---------------- -----------------
Net cash used in investment activities (179,438) (216,138)
---------------- -----------------
Dividends paid (135,053) (115,002)
Dividends paid to minority interest in subsidiaries (23) (5,976)
Proceeds from borrowings 496,703 371,298
Repayments of borrowings (202,159) (388,736)
---------------- -----------------
Net cash provided by (used in) financing activities 159,468 (138,416)
---------------- -----------------
Increase (decrease) in cash and cash equivalents 36,606 (98,571)
---------------- -----------------
Cash and cash equivalents at January 1, 247,834 304,536
Effect of exchange rate changes on cash and cash
equivalents 2,984 2,627
Increase (decrease) in cash and cash equivalents 36,606 (98,571)
---------------- -----------------
Cash and cash equivalents at September 30, 287,424 208,592
---------------- -----------------
Non-cash financing activity:
Fair value adjustment of minority interest acquired - (925)
Common stock issued in acquisition of minority interest - 48,135
Conversion of debt to equity in subsidiaries 13,072 -
---------------- -----------------
(1) Includes USD55.1 million corresponding to the first installment paid in
connection with the final settlement of BHP claim (see note 10 (i))
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The limited review report of the independent
auditor on these consolidated condensed interim financial statements is issued
as a separate document.
6
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
7
Accounting policies
The consolidated condensed interim financial statements have been prepared
in accordance with International Financial Reporting Standards ("IFRS") adopted
by the International Accounting Standards Board ("IASB") and interpretations
issued by the International Financial Reporting Interpretations Committee
("IFRIC") 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
financial statements for the year ended December 31, 2003, unless specified.
Further reference regarding the accounting policies applied is included in the
notes to the Company's consolidated financial statements for the year ended
December 31, 2003.
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
the principal holdings is included in Note 15.
These consolidated condensed interim financial statements consolidate the
financial information of Tenaris with those of its subsidiaries at September 30,
2004 and 2003 and for the nine-month periods then ended. Subsidiaries are
entities in which Tenaris has an interest of more than 50% of the voting rights
or otherwise has the power to exercise control over their operations.
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.
These consolidated condensed interim financial statements were approved by
Tenaris's Board of Directors on November 9, 2004.
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 best 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 financial statements for the year ended
December 31, 2003, the measurement currency of Siderca S.A.I.C. ("Siderca"),
Tenaris's subsidiary in Argentina, as well as Siderca's Argentine subsidiaries,
is the U.S. dollar, because:
o Siderca is located in Argentina and its local currency has been
affected by recurring severe economic crises;
o 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;
o Purchases of critical raw materials are financed in U.S. dollars
generated by financing or operating activities;
o Most of the net financial assets and liabilities are mainly obtained
and retained in U.S. dollars.
8
B Translation of financial statements and transactions in currencies other
than the measurement currency (Cont'd.)
Income statements of subsidiaries stated in currencies other than the U.S.
dollar are translated into U.S. dollars at the 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. Should any
such subsidiary be sold or otherwise disposed of, any accumulated translation
difference 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 transaction date. Gains
and losses resulting from the settlement of such transactions and from the
translation of monetary assets and liabilities denominated in currencies other
than the measurement currency 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 financial statements for the
year ended December 31, 2003.
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 financial
statements for the year ended December 31, 2003.
(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 financial
statements for the year ended December 31, 2003. Major overhaul and rebuilding
expenditures are 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 systems; 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's intangible assets average 5 years. Research
and development expenditures are 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 -when available-
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 are recorded, other than the investment in
Amazonia, as discussed in the Company's Consolidated Condensed Interim Financial
Statements at December 31, 2003 and in Note 10 (ii) to these consolidated
financial statements.
9
D Summary of accounting policies regarding specific asset and liability
categories (Cont'd.)
(3) Cash and cash equivalents, Other investments and Derivative Financial
Instruments
Cash and cash equivalents and highly liquid short-term securities are
carried at fair market value.
Under IAS 39 "Financial Instruments: Recognition and Measurement",
investments have to be classified into the following categories:
held-for-trading, held-to-maturity, originated loans and available-for-sale,
depending on the purpose for which the investments were made. Investments that
do not fulfill the specific requirements of IAS 39 for held-for-trading,
held-to-maturity or originated loan categories have to be included in the
residual "available-for-sale" category. All of Tenaris's investments, which
include primarily deposits in trust funds and insurance companies, are currently
classified as available-for-sale as defined by IFRS, despite the fact that they
are not technically available for disposition according to the terms of the
underlying contracts.
Trust funds comprise mainly financial resources placed by Argentine and
Brazilian subsidiaries 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, 2004 the trustee has informed us that it had allocated
USD62.2 million of such funds to create guarantees within the scope of the trust
agreement.
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.
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.
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.
(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 overhead costs. 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,
the capacity of such materials to be used based on their levels of preservation
and maintenance and the potential obsolescence due to technological changes. An
allowance for slow-moving inventory is made in relation to finished goods based
on management's analysis of their aging.
(5) Trade receivables
Trade receivables are carried at original invoice amount less an estimate
made for doubtful accounts. The Company analyzes its trade accounts receivable
on a regular basis and, when aware of a certain client's difficulty to meet its
commitments to Tenaris, it impairs the amounts due by means of a charge to the
provision for doubtful accounts. This provision is adjusted periodically based
on management's analysis of their aging.
(6) Borrowings
Borrowings are recognized initially for an amount equal to the proceeds
received. Transaction costs are charged to the income statement over the period
of the borrowing. Transaction costs not yet charged are exposed in borrowings
(Note 8). 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.
10
D Summary of accounting policies regarding specific asset and liability
categories (Cont'd.)
(7) Income Taxes - Current and deferred
Under 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's subsidiaries operate. Deferred
income taxes are calculated 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 financial statements for
the year ended December 31, 2003.
(8) Employee-related liabilities
(a) Employees' statutory profit sharing
Under Mexican law, Tenaris's Mexican subsidiaries are required to pay their
employees an annual benefit calculated using a similar basis to the one used for
the calculation of the income tax. Employees' statutory profit sharing is
provided under the liability method. The deferred liability within this
provision amounts to USD63.1 million at September 30, 2004 and USD51.1 million
at December 31, 2003. 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.
(b) Employees' severance indemnity
This provision comprises the liability accrued on behalf of employees at
Tenaris's Italian and Mexican subsidiaries 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 USD64.6 million and USD66.4 million at September 30, 2004
and December 31, 2003, respectively.
(c) Pension obligations
Certain Tenaris officers are covered by defined benefit employee retirement
plans designed to provide retirement, termination and other benefits to those
officers.
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 and amounts to USD11.2 million and USD8.6 million at
September 30, 2004 and December 31, 2003, respectively. Actuarial gains and
losses are recognized over the average remaining service lives of employees.
For its main plan, Tenaris 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 neither part of a particular plan nor
segregated from Tenaris's other assets, and therefore this plan is classified as
"unfunded" under the IFRS definition. Benefits provided by this plan are in U.S.
dollars, and are calculated based on a three-year or seven-year salary average
(whichever is more favorable to the beneficiary) for those executives who
retired or were terminated before December 31, 2003. After this date, the
benefits of this plan are calculated on a seven-year salary average.
Some other officers and former employees incorporated to Tenaris through
one of its subsidiaries are covered by a separate plan classified as "funded"
under IFRS definition.
11
D Summary of accounting policies regarding specific asset and liability
categories (Cont'd.)
(9) Provisions and Other liabilities
Provisions are accrued to reflect estimates 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
Sales are recognized as revenues when earned and 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 -as defined by the risk transfer
provisions of the sales contracts- has occurred, which may include delivery to
the customer storage facility at one of the Company's subsidiaries; and collect
ability is reasonably assured.
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.
12
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 Income Tax
6 Property, plant and equipment and Intangible assets, net
7 Trade receivables
8 Borrowings
9 Derivative financial instruments
10 Contingencies, commitments and restrictions to the distribution of
profits
11 2002 exchange offer and other events with impact on minority interest
12 Business and other acquisitions
13 Subsequent events
14 Related party transactions
15 Principal subsidiaries
13
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, 2004
Net sales 2,266,035 270,405 277,290 49,622 2,863,352
Cost of sales (1,444,222) (193,146) (268,936) (33,101) (1,939,405)
Gross profit 821,813 77,259 8,354 16,521 923,947
Depreciation and
amortization 134,754 9,194 2,674 3,747 150,369
Nine-month period ended
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
Tenaris's main business segment is the manufacture of seamless steel pipes.
Secondary reporting format: geographical segments
-------------------------------------------------------------------------------
South Middle East Far East &
America Europe North America & Africa Oceania Total
-------------------------------------------------------------------------------
Nine-month period ended (Unaudited)
September 30, 2004
Net sales 568,401 850,059 763,821 382,025 299,046 2,863,352
Depreciation and
amortization 67,953 48,400 29,105 22 4,889 150,369
Nine-month period ended
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
Allocation of net sales is based on the customers' location. Allocation of
depreciation and amortization is based on the related assets' location.
Although Tenaris's business is managed on a worldwide basis, the companies
forming part of Tenaris operate in the five main geographical areas detailed
above.
14
2 Cost of sales
Nine-month period ended
September 30,
------------------------------
2004 2003
---------------- -------------
(Unaudited)
Raw materials, energy and consumables used and change
in inventories 1,282,049 1,034,429
Services and fees 183,242 218,941
Labor cost 259,470 217,000
Depreciation of property, plant and equipment 127,731 125,725
Amortization of intangible assets 7,700 3,861
Maintenance expenses 57,926 36,254
Allowance for contingencies 156 3,378
Allowance for obsolescence 9,309 2,020
Taxes 1,933 3,115
Others 9,889 26,747
---------------- --------------
1,939,405 1,671,470
================ ==============
3 Selling, general and administrative expenses
Nine-month period ended
September 30,
-------------------------------
2004 2003
---------------- --------------
(Unaudited)
Commissions, freights and other selling expenses 178,317 143,979
Labor cost 107,821 98,922
Services and fees 81,347 94,871
Taxes 40,753 34,229
Depreciation of property, plant and equipment 7,910 6,863
Amortization of intangible assets 7,028 9,488
Provisions for contingencies 13,220 2,569
Allowance for doubtful accounts 9,504 1,395
Others 30,387 26,761
---------------- --------------
476,287 419,077
================ ==============
4 Financial income (expenses), net
Nine-month period ended
September 30,
-------------------------------
2004 2003
---------------- --------------
(Unaudited)
Interest expense (32,435) (24,461)
Interest income 10,388 11,596
Net foreign exchange transaction losses (6,433) (26,247)
Others 6,025 2,509
---------------- --------------
(22,455) (36,603)
================ ==============
15
5 Income Tax
Nine-month period ended
September 30,
-----------------------------------------
2004 2003
-------------------- --------------------
(Unaudited)
Current tax (a) 173,304 130,970
Deferred tax 4,482 (17,205)
Effect of currency translation on tax base (b) (10,602) (23,717)
-------------------- --------------------
167,184 90,048
=================== ====================
(a) Current tax amounts recorded during the nine-month period ended September
30, 2004 include adjustments made to the preliminary provisions recorded at
December 31, 2003, corresponding to Income Tax Filings for the year 2003.
(b) 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 gains and losses on deferred income tax due to
the effect of the change in the value of the Argentine peso on the tax
bases of the fixed assets of its Argentine subsidiaries.
6 Property, plant and equipment and Intangible assets, net
Net Property, Net Intangible
Plant and Equipment Assets
------------------- ------
(Unaudited) (Unaudited)
Nine-month period ended September 30, 2004
Opening net book amount 1,960,314 54,037
Translation differences (24,145) 1,222
Additions 107,420 15,058
Increase due to business combinations 199,086 7
Disposals (10,117) (175)
Depreciation/ Amortization charge (135,641) (14,728)
-------------------- -------------------
At September 30, 2004 2,096,917 55,421
==================== ===================
7 Trade receivables
At At
September 30, 2004 December 31,
2003
-------------------- ----------------
(Unaudited)
Current accounts 823,517 605,119
Notes receivables 63,421 71,666
-------------------- ----------------
886,938 676,785
Allowance for doubtful accounts (31,408) (24,003)
-------------------- ----------------
855,530 652,782
==================== ================
16
8 Borrowings
At September 30, At December 31,
2004 2003
-------------------- --------------------
(Unaudited)
Non-current
Bank borrowings 415,465 299,965
Debentures and other loans 40,846 65,375
Finance lease liabilities 7,474 9,439
-------------------- --------------------
463,785 374,779
-------------------- --------------------
Current
Bank borrowings 474,955 273,607
Bank overdrafts 11,219 9,804
Debentures and other loans 250,896 171,062
Finance lease liabilities 2,580 5,266
Costs for issue of debt (829) (867)
-------------------- --------------------
738,821 458,872
-------------------- --------------------
Total borrowings 1,202,606 833,651
==================== ====================
Borrowings include loans secured over certain of the properties of the
Company for a total of USD194.7 million.
9 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 At September 30, At December 31,
instruments 2004 2003
--------------------- --------------------
(Unaudited)
Contracts with positive fair values:
Interest rate swaps contracts 177 -
Forward foreign exchange contracts 4,306 2,947
Commodities contracts 2,425 1,197
Contracts with negative fair values:
Interest rate swaps contracts (3,993) (3,505)
Forward foreign exchange contracts (7,097) (2,937)
Commodities contracts (2,796) (1,592)
10 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 10 (i) below-). Based on management's assessment and the advice of
legal counsel, it is not anticipated that the ultimate resolution of pending
litigation will result in amounts in excess of recorded provisions that would be
material to Tenaris's consolidated financial position or results of operations.
17
10 Contingencies, commitments and restrictions to the distribution of profits
(Cont'd.)
(i) Claim against Dalmine
On December 30, 2003, Dalmine S.p.A. ("Dalmine") and a consortium led by
BHP Billiton ("BHP") reached a full and final settlement putting an end to a
litigation commenced in 1998. According to the terms of the settlement, a total
of GBP108.0 million (USD195.1 million) was agreed as compensation to the
consortium, inclusive of expenses. The final settlement set forth a three-year
instalments payment scheme for the amount agreed net of advances previously
made. The first instalment of GBP30.3 million was paid in January 2004, and the
two final instalments of GBP30.4 million and GBP30.4 million, are due in
December 2004 and December 2005, respectively. A Libor + 1% interest rate
applies to the outstanding amounts.
The pipe that was the subject of the litigation with BHP was manufactured
and sold, and the tort alleged by BHP took place, prior to the privatization of
Dalmine. Techint Investments Netherlands BV ("Tenet") -the Tenaris subsidiary
party to the contract pursuant to which Dalmine was privatized-has commenced
arbitration proceedings against Fintecna S.p.A. ("Fintecna") -which controlled
Dalmine prior to its privatization- to compel it to indemnify Dalmine for any
amounts Dalmine paid or payable to BHP. Fintecna has denied that it has any
contractual obligation to indemnify, 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. No assurances
can be given as to when the arbitration proceedings currently in progress will
conclude or that Fintecna will be required to reimburse any amounts paid or
payable to BHP. For additional information regarding the litigation with BHP,
refer to the Company's consolidated financial statements for the year ended
December 31, 2003.
(ii) Consorcio Siderurgia Amazonia, Ltd.
The financial restructuring of Siderurgica del Orinoco CA ("Sidor") and
Consorcio Siderurgia Amazonia, Ltd. ("Amazonia") -an associated company of
Tenaris- concluded during 2003 ("2003 Restructuring") entailed the termination
of certain guarantees and commitments to further finance Amazonia and Sidor that
Tenaris had entered into as a result of the privatization of Sidor and previous
restructuring agreements. The restructuring agreements contemplate, however,
certain continuing obligations and restrictions to protect the claims held by
the financial creditors of Sidor. These obligations and restrictions include
pledges over all of Amazonia's existing shares and shares of Sidor held in its
possession, which expire in the third quarter of 2005.
During 2003, as part of the 2003 Restructuring, Tenaris obtained a 24.4%
equity stake in Ylopa Servicos de Consultadoria Lda ("Ylopa"), a special purpose
vehicle incorporated in Madeira, created to support Sidor and Amazonia in their
financial restructuring. The acquisition was made by means of an aggregate cash
contribution of USD32.9 million, primarily in the form of subordinated
convertible debt. As a result of the consummation of the 2003 Restructuring,
Ylopa (a) became Sidor's creditor (in a "Participation Account Agreement") of a
non-interest bearing loan, payable if and when Sidor reaches certain financial
goals defined as "Excess Cash" (b) received new debt instruments of Amazonia,
convertible into 67.4% of the common stock of Amazonia at Ylopa's choice, which
were valued by these companies at their respective fair value.
The 2003 Restructuring set forth a mechanism for Sidor to repay its debts
under the "Participation Account Agreement" whereby Ylopa is entitled to receive
its percentage on the participation of Sidor's Excess Cash (determined in
accordance with a specific formula). Sidor has been distributing Excess Cash to
Ylopa on a semi-annual basis starting October 2003. During the nine-month period
ended September 30, 2004, Tenaris collected USD30.0 million from Ylopa related
to Sidor's Excess Cash.
Due to the recurring losses of Sidor that gave place to the above mentioned
financial restructuring, Amazonia recorded an impairment provision in previous
years. At September 30, 2004 Amazonia's impairment provision amounts to USD238
million (USD37 million at Tenaris participation).
Tenaris's participation in Ylopa's and Amazonia's results are included in
the income statement under "Equity in earnings of associated companies".
18
10 Contingencies, commitments and restrictions to the distribution of
profits (Cont'd.)
(iii) Tax claims
Conversion of tax-loss carry-forwards
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 ARP58.2
million (approximately USD19.6 million) at September 30, 2004 in taxes and
penalties. Based on the views of 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 these financial statements.
Application of inflation adjustment procedures
In their respective calculations of income tax liabilities for the year
ended December 31, 2002, Siderca and Siat S.A., two subsidiaries of Tenaris
domiciled in Argentina used the inflation adjustment procedure set forth in
Title VI of the Argentine Income Tax Law. The application of such procedure,
however, has been suspended since 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 above mentioned suspension, on the ground that
compliance with it would render artificial gains arising from the impact of
inflation on monetary positions during 2002 fully taxable. Moreover and in order
to protect themselves from potential legal actions from the tax authority aimed
at collection of the resulting differences, the subsidiaries have obtained an
injunction that prevents the tax authorities from obtaining summary judgment
while resolution of the proceedings is pending. The injunction has been appealed
by the Argentine Tax Authority before the Federal Court of Appeals. Irrespective
of the final result of the legal proceedings under way, the Company maintains a
reserve for the full potential tax liability on the alleged artificial gains
plus statutory interest, but excluding fines or any other potential punitive
charges. At September 30, 2004 the referred contingent reserve totalled ARP78.3
million (USD26.5 million).
On October 29, 2004, Siderca applied to enter into a regime of promotion of
capital expenditures established by Law 25.924. In order to be eligible for the
mentioned regime, Siderca has expressed its commitment to resign to the legal
procedures referred to the application of inflation adjustment described in the
previous paragraphs if and only if the benefits of such regime are received by
Siderca. At the moment no resolution regarding this application has been
announced.
(iv) Other proceedings
Dalmine is currently subject to nine civil proceedings and a consolidated
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 originally involved in the consolidated criminal
proceeding, 20 have been settled.
In addition to the civil and criminal cases, another 23 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 EUR9.4 million
(USD11.7 million).
19
10 Contingencies, commitments and restrictions to the distribution of profits
(Cont'd.)
(v) Commitments
The following are the main off-balance sheet commitments:
(a) Tenaris entered into an off-take contract with Complejo Siderurgico de
Guayana C.A. ("Comsigua") to purchase on a take-or-pay basis 75,000 tons of
hot briquetted 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, Tenaris
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, Tenaris 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, Tenaris 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, Tenaris has paid -on average-
higher-than-market prices for its HBI and according to the original
contract has accumulated a credit. During the nine-month period ended
September 30, 2004, Tenaris paid lower-than-market prices for its HBI
purchases, which resulted in a decrease to the previously recorded
amount and lower cost of sales. At September 30, 2004, Tenaris's
off-take credit amounted to approximately USD9.5 million, which was
completely offset by a provision.
In connection with Tenaris's original 6.9% equity interest in Comsigua,
Tenaris paid USD8.0 million and agreed to cover its share of
Comsigua's cash operating and debt service shortfalls. In addition,
Tenaris pledged its shares in Comsigua and provided a proportional
guarantee of USD11.7 million (USD3.2 million outstanding as of
September 30, 2004) in support of the USD156 million (USD42.0 million
outstanding as of September 30, 2004) project financing loan made by
the International Finance Corporation, or IFC, to Comsigua. Tenaris
has been also required to pay an aggregate of USD1.5 million,
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. Market conditions improved during 2003 and
therefore, Tenaris has no longer been required to pay additional
amounts as a sponsor in Comsigua. If current conditions prevail at
similar levels, Tenaris would not be required to make additional
proportional payments in respect of its participation in Comsigua and
its purchases of HBI under the off-take contract would be paid in
lower-than-market prices.
(b) In August 2001, Dalmine Energie S.p.A. ("Dalmine Energie") entered into 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.
The outstanding value of the contract at September 30, 2004 is
approximately EUR599.5 million (USD743.9 million). In August 2003 Dalmine
Energie received confirmation from Snam Rete Gas, the transportation
company, of the yearly allocation of the necessary capacity on the
international interconnection infrastructure until October 1st 2010. During
August 2004, Dalmine Energie obtained from Snam Rete Gas the confirmation
regarding the allocation of the remaining capacity on the international
interconnection required for the last year of the gas purchase contract.
(c) Under the Gas Release Program enacted by Eni S.p.A., Gas and Power
Division, in August 2004, Dalmine Energie has increased its availability of
natural gas for the period October 1st, 2004 - September 30th, 2008. The
gas purchase and sale agreements entered into with Eni S.p.A contain
customary take-or-pay conditions. The additional gas supply mentioned above
is valued at approximately EUR240 million (USD297.8 million), based on
prices prevailing as of September 2004. Dalmine Energie has also obtained,
at the Italian border, the necessary capacity on the interconnection
infrastructure to transport the natural gas to Italy for the period of the
gas supply.
20
10 Contingencies, commitments and restrictions to the distribution of
profits (Cont'd.)
(v) Commitments (Cont'd.)
Although Dalmine Energie's purchase contracts in some cases extend beyond
one year as described above, its contracts for the sale of energy to its own
clients are generally for periods of one year or less. In addition to this, the
cost of the long term purchase contracts might be affected by changes in the
market price of different fuels; Dalmine Energie might not be able to fully
incorporate the effect of these changes into its sale prices.
(d) Under a lease agreement between Gade Srl (Italy) and Dalmine, entered into
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 (USD10.3 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 has not yet been announced.
(e) On October 24, 2003 Tenaris's 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 it incorporates certain take-or-pay conditions,
Tenaris committed to purchase up to 800 million cubic meters of gas during
the life of the four-year contract, expiring at the end of 2006 at a price
to be negotiated by the parties on a yearly basis. In December 2003,
Generadora transferred all of its assets and the rights arising from the
purchase agreement with Repsol-YPF to Siderca. Considering its Campana
facility and the facilities received from Generadora, Siderca has an annual
estimated gas consumption of 800 million cubic meters. At September 30,
2004, the parties to the joint agreement had fulfilled the purchase
commitments originated therein, as a result of which all outstanding
obligations resulting from the take-or-pay provisions have ceased to exist.
(f) On April 27, 2004 Tenaris Financial Services S.A., a subsidiary of the
Company, made a deposit of USD10.0 million at Bank San Paolo IMI S.p.A. as
a collateral for a financial transaction between the mentioned bank and
another Tenaris subsidiary, generating a restriction on the availability of
such funds.
(g) In July 2004, Tenaris's subsidiary Matesi Materiales Siderurgicos S.A.
("Matesi") (formerly known as Materiales Siderurgicos Masisa S.A.) entered
into a twenty-year agreement with C.V.G. Electrificacion del Caroni, C.A.
("Edelca") for the purchase of electric power under certain take-or-pay
conditions, with an option to terminate the contract at any time upon three
years notice. The agreement establishes a start-up period until June 2005
for which the take-or-pay conditions will not be in force. The outstanding
value of the contract at September 30, 2004 is approximately USD61.4
million.
(h) Matesi entered into an off-take contract with Sidor to sell on a
take-or-pay basis 29.9% of its production of HBI. In addition, Sidor has
the right to increase it's proportion on Matesi's production by an extra
19.9% until reaching 49.8% of the total production of HBI of Matesi.
Pursuant to this contract, Sidor will be required to purchase Matesi's HBI
at a price determined on a cost-plus basis. The term of the agreement is
ten years.
(vi) 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, 2004 the Company has created this reserve in
full.
21
10 Contingencies, commitments and restrictions to the distribution of
profits (Cont'd.)
(vi) Restrictions to the distribution of profits (Cont'd.)
Shareholders' equity at September 30, 2004 under Luxembourg law and
regulations comprises the following captions:
-------------------
Thousands of USD
-------------------
Share capital 1,180,537
Legal reserve 118,054
Share premium 609,733
Other distributable reserve 82
Retained earnings including net income for the nine month
period ended September 30, 2004 443,312
-------------------
Total shareholders equity according to Luxembourg law 2,351,718
===================
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, 2004, the distributable reserve and retained earnings of
Tenaris under Luxembourg law totaled USD443.4 million - as detailed below- and
were lower than the consolidated retained earnings of the Company, calculated
under IFRS.
-------------------
Thousands of USD
-------------------
Distributable reserve and retained earnings at December 31, 298,035
2003 under Luxembourg law
Dividends and distributions received 279,258
Other income and expenses for the nine-month period ended
September 30, 2004 1,072
Increase in reserve due to capital increase
(see Note 11 (b) ) 82
Dividends paid (135,053)
-------------------
Distributable reserve and retained earnings at
September 30, 2004 under Luxembourg law 443,394
===================
11 2002 exchange offer and other events with impact on minority interest
(a) 2002 exchange offer
On October 18, 2002, Sidertubes -at that time the Company's controlling
shareholder- contributed all of its assets to Tenaris in exchange for shares of
the Company's common stock. The assets that Sidertubes contributed included the
shares and voting rights that it held directly in Siderca, Tubos de Acero de
Mexico S.A. ("Tamsa"), Dalmine, Tenaris Global Services S.A. and Invertub S.A.
Siderca held additional participations in Tamsa, Dalmine, Metalmecanica S.A and
Metalcentro S.A.
During 2002, Tenaris successfully completed an offer to exchange shares and
ADSs of its common stock for all outstanding Class A ordinary shares and ADSs of
Siderca, all outstanding common shares and ADSs of Tamsa and all outstanding
ordinary shares of Dalmine ("the 2002 Exchange Offer"). These acquisitions were
accounted for under the purchase method and the acquisition costs, totalling
USD811.3 million gave rise to a net negative goodwill of USD5.2 million.
22
11 2002 exchange offer and other events with impact on minority interest
(Cont'd.)
(b) Subsequent acquisitions and residual offers
Acquisition of Remaining Minority Interest in Tamsa and Capital Increase
On September 15, 2003 Tenaris concluded an exchange offer in the United
States for shares and ADSs of Tamsa. As per the commitment assumed by Tenaris at
the time of the 2002 Exchange Offer, the exchange ratio used was equal to that
of the 2002 Exchange Offer. Thus, in exchange for the Tamsa shares received,
Tenaris issued 19,586,870 new shares of its common stock for USD51,611 thousand.
The acquisition cost was determined on the bases of the price of Tenaris's
shares on September 12, 2003.
For the 356,392 shares of Tamsa's common stock outstanding in the Mexican
market, Tenaris and Sidertubes, established a fiduciary account with Banamex, in
which Sidertubes deposited the necessary number of Tenaris's shares to provide
for the exchange of the remaining interests in Tamsa. According to the terms of
the fiduciary account, holders of Tamsa's common stock were able to exchange
their shares under the escrow arrangement during a six-month period. At the end
of the six-month exchange offer period, investors had exchanged 235,512 shares
of Tamsa for 249,166 shares of Tenaris. As a result, Tenaris was indebted to
Sidertubes for 249,166 shares with a market value of USD0.8 million.
On February 13, 2004, Tenaris increased its capital stock by issuing
249,166 new common shares, which were transferred to Sidertubes to pay off its
outstanding loan. In accordance with Luxembourg law, the capital increase was
allocated USD0.249 million to share capital, USD0.025 million to legal reserve,
USD0.464 million to a share premium and USD0.082 million to other distributable
reserve.
As of September 30, 2004, Tenaris held, directly or indirectly, more than
99.9% of the common stock of Tamsa.
Subsequent acquisitions of Dalmine Shareholding
Pursuant to purchases made in the open market up to March 10, 2003, Tenaris
held, directly or indirectly, 90.0003% of Dalmine's common stock. On July 11,
2003, Tenaris concluded a cash offer for the remaining minority interest in
Dalmine and held, directly or indirectly, 96.8% of the shares of Dalmine. At
September 30, 2004, 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 99.2% of the shares of Dalmine.
Acquisition of Remaining Minority Interest in Siderca
On April 3, 2003 the Argentine securities regulator approved Tenaris's
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's gaining
beneficial control of 100% of the common stock of Siderca this company was
effectively delisted and its ADR program terminated.
12 Business and other acquisitions
During the nine-month period ended September 30, 2004 Tenaris acquired 0.03
% of Tamsa's capital stock and 0.31% of Dalmine's capital stock, for a
consideration of USD0.3 million -in kind as noted in Note 11 (b)- and USD0.5
million, respectively. In addition, Dalmine reduced its capital to offset
accumulated losses and shareholders made a capital contribution in Dalmine in an
amount of USD51.0 million. As a result of these transactions, as of September
30, 2004 Tenaris held 99.2% of Dalmine's capital stock.
On January 23, 2004 Tenaris Investments Limited was incorporated in Ireland
to assist the financial activities of the Company and its other subsidiaries; on
that date, Tenaris underwrote all of the common shares of the new company and
during the nine-month period ended at September 30, 2004, increased the
subsidiary's capital stock to USD50.0 million.
23
12 Business and other acquisitions (Cont'd.)
Additionally, on February 2, 2004, Tenaris completed the purchase of the
land and manufacturing facilities that were previously leased by its Canadian
operating subsidiary. The assets were acquired from Algoma Steel Inc. for the
price of approximately USD9.6 million, plus transaction costs.
On July 9, 2004 Tenaris and Sidor through their jointly owned company
Matesi, acquired from Posven, a Venezuelan company its industrial facility for
the production of pre-reduced HBI, located in Ciudad Guayana, Venezuela, for the
price of USD120.0 million. The acquisition did not give rise to significant
goodwill. As of September 30, 2004 Tenaris held 50.2% of Matesi, while Sidor
owned the remaining 49.8%.
On July 26, 2004 Tenaris acquired all of the shares of Tubman International
Ltd. ("Tubman"), a company incorporated under the laws of Gibraltar, which owns
84.86% of S. C. Silcotub S.A. ("Silcotub") and controlling interests in two
minor subsidiaries, and all of the shares of Intermetal Com S.r.l., all of them
incorporated in Romania for a total consideration of USD42.0 million. The
acquisition of these companies did not give rise to significant goodwill.
The acquired business contributed revenues of USD19.5 million and net
losses of USD2.2 million to Tenaris in the quarter ended at September 30, 2004.
The assets and liabilities arising from the acquisitions are as a follows:
Nine-month period
ended September 30,
2004
-----------------------
(Unaudited)
-----------------------
Other assets and liabilities (net) (33,695)
Property, plant and equipment 199,086
-----------------------
Net assets acquired 165,391
Minority Interests (7,428)
Total liabilities assumed (1) (60,408)
-----------------------
Purchase consideration 97,555
=======================
(1) Corresponds to Matesi's minority interest held by Sidor.
Tenaris reached an agreement with the Romanian privatization agency (AVAS)
to settle the litigation commenced by the latter against Tubman in connection
with the alleged breach of certain of Tubman's obligations under the
privatization agreement by virtue of which Tubman purchased control of S.C.
Laminorul S.A. ("Laminorul") . Pursuant to the agreement, signed on November 1st
2004, Tenaris transferred 9,931,375 shares of Laminorul to the Romanian
government, representing 69.99% of Laminorul's capital stock, and retained
2,334,145 shares (16.45% of Laminorul's capital stock). Therefore, the assets of
this company have been disclosed in the balance sheet as held-for-sale (in
Current Receivables), not significant results arose from such transfer.
On September 16, 2004 Tenaris`s Board of Directors approved an investment
to construct a gas-fired 120 MW combined heat and power plant in Dalmine, Italy
with an estimated cost of approximately EUR109 million (USD130 million). This
investment is expected to improve the competitiveness of Tenaris's Italian
seamless pipe operations by reducing its energy costs and securing a reliable
source of power. Construction of the plant is expected to begin following
receipt of final regulatory approvals and be completed over a period of 24
months.
24
13 Subsequent events
In October 2004, Tenaris detected technical problems at its electric power
generating facility located in San Nicolas, Argentina during the overhaul of the
equipment. At the moment, Tenaris is analyzing different alternatives to solve
this situation. According to the different alternatives, Tenaris is evaluating
the impact of the reparation cost with the supplier.
14 Related party transactions
The Company is controlled by I.I.I. Industrial Investments Inc. B.V.I.
which at September 30, 2004, owned 60.2% of Tenaris' shares and voting rights.
At that date the remaining 39.8% was publicly traded. The ultimate controlling
entity of the Company is Rocca & Partners S.A., a British Virgin Islands
corporation.
The following transactions were carried out with related parties:
Nine-month period ended September,
------------------------- ---------------------
2004 2003
-----------------------------------------------
(Unaudited)
(i) Transactions
(a) Sales of goods and services
Sales of goods 36,107 43,326
Sales of services 13,377 6,858
------------------------- ---------------------
49,484 50,184
========================= =====================
(b) Purchases of goods and services
Purchases of goods 44,839 57,479
Purchases of services 39,304 53,781
------------------------- ---------------------
84,143 111,260
========================= =====================
(c) Purchases of participation in
subsidiaries - 304
------------------------- ---------------------
At September 30, At December 31,
2004 2003
------------------------- ---------------------
(Unaudited)
(ii) Period-end balances
(a) Arising from sales/purchases of
goods/services
Receivables from related parties 30,909 42,116
Payables to related parties (1) (21,558) (37,219)
------------------------- ---------------------
9,351 4,897
========================= =====================
(b) Cash and cash equivalents
Time deposits 160 420
========================= =====================
(c) Other balances
Trust fund 119,232 118,087
Loan to Ylopa 37,424 33,508
------------------------- ---------------------
156,656 151,595
========================= =====================
(d) Financial debt
Borrowings and overdrafts (2) (55,549) (5,716)
Borrowings from trust fund (389) (1,789)
------------------------- ---------------------
(55,938) (7,505)
========================= =====================
(1) Includes liabilities with Ylopa (USD10,590 at December 31,2003)
(2) Includes borrowings from Sidor to Matesi (USD50,153 at September 30, 2004)
25
15 Principal subsidiaries
The following is a list of Tenaris's subsidiaries, including Tenaris's
direct or indirect percentage of ownership in each company at September 30, 2004
and 2003.
- ------------------------------------------------------------------------------------------------------------------
Company Country of Main activity Percentage of
Organization ownership at
September 30,
------------------
2004 2003
- ------------------------------------------------------------------------------------------------------------------
Algoma Tubes Inc. Canada Manufacturing of seamless steel 100% 100%
pipes
...................................................................................................................
Confab Industrial S.A. and subsidiaries Brazil Manufacturing of welded steel 39% 39%
pipes and capital goods
...................................................................................................................
...................................................................................................................
Dalmine Holding B.V. and subsidiaries Netherlands Holding company 99% 98%
...................................................................................................................
...................................................................................................................
Dalmine S.p.A. Italy Manufacturing of seamless steel 99% 98%
pipes
...................................................................................................................
...................................................................................................................
Empresas Riga S.A. de C.V. Mexico Manufacturing of welded fittings 100% 100%
for seamless steel pipes
...................................................................................................................
...................................................................................................................
Exiros S.A. (a) Uruguay Procurement services for 100% 100%
industrial companies
...................................................................................................................
...................................................................................................................
Information Systems and Technologies N.V. Netherlands Software development and 75% 75%
and subsidiaries maintenance
...................................................................................................................
...................................................................................................................
Inmobiliaria Tamsa S.A. de C.V. Mexico Leasing of real estate 100% 100%
...................................................................................................................
...................................................................................................................
Insirger S.A. and subsidiaries (a) Argentina Electric power generation 100% 100%
...................................................................................................................
...................................................................................................................
Intermetal Com SRL (b) Romania Marketing of Scrap and other raw 100% -
materials
...................................................................................................................
...................................................................................................................
Invertub S.A. and subsidiaries Argentina Holding company 100% 100%
...................................................................................................................
...................................................................................................................
Lomond Holdings B.V. and subsidiaries Netherlands Procurement services for 100% 100%
industrial companies
...................................................................................................................
...................................................................................................................
Matesi, Materiales Siderurgicos S.A. Venezuela Production of hot briquetted 50% -
(formerly Materiales Siderurgicos Masisa iron (HBI).
S.A.) (b)
...................................................................................................................
...................................................................................................................
Metalcentro S.A. Argentina Manufacturing of pipe-end 100% 100%
protectors and lateral impact
tubes
...................................................................................................................
...................................................................................................................
Metalmecanica S.A. Argentina Manufacturing steel products for 100% 100%
oil extraction
...................................................................................................................
...................................................................................................................
NKKTubes K.K. Japan Manufacturing of seamless steel 51% 51%
pipes
...................................................................................................................
...................................................................................................................
S.C. Laminorul S.A. (b) Romania Manufacturing of steel products 86% -
...................................................................................................................
...................................................................................................................
S.C. Silcotub S.A. and subsidiaries (b) Romania Manufacturing of seamless steel 85% -
pipes
...................................................................................................................
...................................................................................................................
Scrapservice S.A. Argentina Processing of scrap 75% 75%
...................................................................................................................
...................................................................................................................
Siat S.A. Argentina Manufacturing of welded steel 82% 82%
pipes
...................................................................................................................
...................................................................................................................
Siderca International A.p.S. Denmark Holding company 100% 100%
...................................................................................................................
26
15 Principal subsidiaries (Cont'd)
- ------------------------------------------------------------------------------------------------------------------
Company Country of Main activity Percentage of
Organization ownership at
September 30,
------------------
2004 2003
- ------------------------------------------------------------------------------------------------------------------
Siderca S.A.I.C. Argentina Manufacturing of seamless steel 100% 100%
pipes
...................................................................................................................
...................................................................................................................
Sidtam Limited B.V.I. Holding company 100% 97%
...................................................................................................................
...................................................................................................................
SO.PAR.FI Dalmine Holding S.A. Luxembourg Holding company 99% 98%
...................................................................................................................
...................................................................................................................
Sociedad Industrial Puntana S.A. (a) Argentina Manufacturing of steel products 100% -
...................................................................................................................
...................................................................................................................
Socominter S.A. Venezuela Marketing of steel products 100% 100%
...................................................................................................................
...................................................................................................................
Socominter Ltda. Chile Marketing of steel products 100% 100%
...................................................................................................................
...................................................................................................................
Talta - Trading e Marketing Lda. (b) Madeira Holding Company 100% -
...................................................................................................................
...................................................................................................................
Tenaris Global Services (Panama) S.A. Panama Marketing of steel products 100% 100%
...................................................................................................................
...................................................................................................................
Tamsider S.A. de C.V. and subsidiaries Mexico Promotion and organization of 100% 100%
steel-related companies and
marketing of steel products
...................................................................................................................
...................................................................................................................
Tamtrade S.A.de C.V. Mexico Marketing of steel products 100% 100%
...................................................................................................................
...................................................................................................................
Techint Investment Netherlands B.V. Netherlands Holding company 100% 100%
...................................................................................................................
...................................................................................................................
Tenaris Global Services Norway AS Norway Marketing of steel products 100% 100%
...................................................................................................................
...................................................................................................................
Tenaris Autopartes S.A. de C.V. (a) Mexico Manufacturing of supplies for 100% -
the automotive industry
...................................................................................................................
...................................................................................................................
Tenaris Confab Hastes de Bombeio (b) Brazil Manufacturing of steel products 70% -
for oil extraction
...................................................................................................................
...................................................................................................................
Tenaris Connections A.G. and subsidiaries Liechtenstein Ownership and licensing of steel 100% 99%
technology
...................................................................................................................
...................................................................................................................
Tenaris Financial Services S.A. (a) Uruguay Financial Services 100% 100%
...................................................................................................................
...................................................................................................................
Tenaris Global Services S.A. Uruguay Holding company and marketing of 100% 100%
steel products
...................................................................................................................
...................................................................................................................
Tenaris Global Services (Canada) Inc. Canada Marketing of steel products 100% 100%
...................................................................................................................
...................................................................................................................
Tenaris Global Services (U.S.A.) Corporation U.S.A. Marketing of steel products 100% 100%
...................................................................................................................
...................................................................................................................
Tenaris Global Services (UK) Ltd United Kingdom Marketing of steel products 100% 100%
...................................................................................................................
...................................................................................................................
Tenaris Global Services (Japan) K.K. Japan Marketing of steel products 100% 100%
(fomerly DST Japan K.K.)
...................................................................................................................
...................................................................................................................
Tenaris Global Services B.V. Netherlands Sales agent of steel products 100% 100%
...................................................................................................................
...................................................................................................................
Tenaris Global Services de Bolivia S.R.L. Bolivia Marketing of steel products 100% 100%
(fomerly Socominter de Bolivia S.R.L.)
...................................................................................................................
27
15 Principal subsidiaries (Cont'd)
- ------------------------------------------------------------------------------------------------------------------
Company Country of Main activity Percentage of
Organization ownership at
September 30,
------------------
2004 2003
- ------------------------------------------------------------------------------------------------------------------
...................................................................................................................
Tenaris Global Services Ecuador S.A. (a) Ecuador Marketing of steel products 100% 100%
...................................................................................................................
...................................................................................................................
Tenaris Global Services Far East Pte. Ltd. Singapore Marketing of steel products 100% 100%
...................................................................................................................
...................................................................................................................
Tenaris Global Services Korea (a) Korea Marketing of steel products 100% 100%
...................................................................................................................
...................................................................................................................
Tenaris Global Services LLC U.S.A. Sales agent of steel products 100% 100%
...................................................................................................................
...................................................................................................................
Tenaris Global Services (B.V.I.) Ltd. B.V.I. Holding company 100% 100%
...................................................................................................................
...................................................................................................................
Tenaris Global Services Nigeria Ltd. Nigeria Marketing of steel products 100% 100%
(fomerly Tubular DST Nigeria Ltd.)
...................................................................................................................
...................................................................................................................
Tenaris Investments Ltd. (b) Ireland Holding company 100% -
...................................................................................................................
...................................................................................................................
Tenaris West Africa Ltd. United Kingdom Finishing of steel pipes 100% 100%
...................................................................................................................
...................................................................................................................
Texas Pipe Threaders Co. U.S.A. Finishing and marketing of steel 100% 100%
pipes
...................................................................................................................
...................................................................................................................
Tubman International Ltd. (b) Gibraltar Holding company 100% -
...................................................................................................................
...................................................................................................................
Tubos de Acero de Mexico S.A. Mexico Manufacturing of seamless steel 100% 100%
pipes
...................................................................................................................
...................................................................................................................
Tubos de Acero de Venezuela S.A. Venezuela Manufacturing of seamless steel 70% 70%
pipes
...................................................................................................................
(a) Incorporated during 2003
(b) Incorporated during 2004
Tenaris holds 99% of the voting shares of Confab Industrial S.A. and has,
directly or indirectly, the majority of voting rights in all of its
subsidiaries.
Carlos Condorelli
Chief Financial Officer
28
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 12, 2004
Tenaris, S.A.
By: /s/ Cecilia Bilesio
- -----------------------
Cecilia Bilesio
Corporate Secretary
29