FORM 6 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
As of February 28, 2005
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 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 financial
statements as of December 31, 2004 and 2003 and for the years ended December 31,
2004, 2003 and 2002.
TENARIS S.A.
CONSOLIDATED
FINANCIAL STATEMENTS
As of December 31, 2004 and 2003
and
for the years ended December 31, 2004, 2003 and 2002
46a, Avenue John F. Kennedy - 2nd Floor.
L - 1855 Luxembourg
Tenaris S.A. Consolidated financial statements for the years ended December
31, 2004, 2003 and 2002
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CONSOLIDATED INCOME STATEMENT
Year ended December 31,
------------------------------------------------
(all amounts in USD thousands, unless otherwise stated) Notes 2004 2003 2002
Net sales 1 4,136,063 3,179,652 3,219,384
Cost of sales 2 (2,776,936) (2,207,827) (2,169,228)
--------------- ---------------- ---------------
Gross profit 1,359,127 971,825 1,050,156
Selling, general and administrative expenses 3 (672,449) (566,835) (567,515)
Other operating income 5 (i) 152,591 8,859 18,003
Other operating expenses 5 (ii) (25,751) (125,659) (28,767)
--------------- ---------------- ---------------
Operating income 813,518 288,190 471,877
Financial income (expenses), net 6 5,802 (29,420) (20,597)
--------------- ---------------- ---------------
Income before equity in earnings (losses) of associated
companies, income tax and minority interest 819,320 258,770 451,280
Equity in earnings (losses) of associated companies 7 206,037 27,585 (6,802)
--------------- ---------------- ---------------
Income before income tax and minority interest 1,025,357 286,355 444,478
Income tax 8 (220,376) (63,918) (207,771)
--------------- ---------------- ---------------
Net income before minority interest 804,981 222,437 236,707
Minority interest (1) 27 (20,278) (12,129) (42,881)
--------------- ---------------- ---------------
Net income before other minority interest 784,703 210,308 193,826
Other minority interest (2) 27 - - (99,522)
--------------- ---------------- ---------------
Net income 784,703 210,308 94,304
--------------- ---------------- ---------------
Weighted average number of ordinary shares in issue
(thousands) 9 1,180,507 1,167,230 732,936
Basic and diluted earnings per share (USD per share) 9 0.66 0.18 0.13
--------------- ---------------- ---------------
(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 S.A., NKKTubes
K.K. and Tubos de Acero de Venezuela S.A., as well as the participation at
December 31, 2002, of minority shareholders of Siderca S.A.I.C., Dalmine
S.p.A. and Tubos de Acero de Mexico S.A. 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 date of the 2002 Exchange Offer (see Note 28 (a)).
The accompanying notes are an integral part of these consolidated financial statements.
1
CONSOLIDATED BALANCE SHEET
At December 31, 2004 At December 31, 2003
(all amounts in USD thousands) Notes
ASSETS
Non-current assets
Property, plant and equipment, net 10 2,164,601 1,960,314
Intangible assets, net 11 49,211 54,037
Investments in associated companies 12 99,451 45,814
Other investments 13 24,395 23,155
Deferred tax assets 20 161,173 130,812
Receivables 14 151,365 2,650,196 59,521 2,273,653
------------ ------------
Current assets
Inventories 15 1,269,470 831,879
Receivables and prepayments 16 374,446 165,134
Trade receivables 17 936,931 652,782
Other investments 18 (i) 119,666 138,266
Cash and cash equivalents 18 (ii) 311,579 3,012,092 247,834 2,035,895
------------ ------------ ------------ ------------
Total assets 5,662,288 4,309,548
------------ ------------
EQUITY AND LIABILITIES
Shareholders' Equity 2,495,924 1,841,280
Minority interest 27 165,271 119,984
Non-current liabilities
Borrowings 19 420,751 374,779
Deferred tax liabilities 20 371,975 418,333
Other liabilities 21 (i) 172,442 191,540
Provisions 22 (ii) 31,776 23,333
Trade payables 4,303 1,001,247 11,622 1,019,607
------------ ------------
Current liabilities
Borrowings 19 838,591 458,872
Current tax liabilities 222,735 108,071
Other liabilities 21(ii) 176,393 207,594
Provisions 23(ii) 42,636 39,624
Customers advances 127,399 54,721
Trade payables 592,092 1,999,846 459,795 1,328,677
------------ ------------ ------------ ------------
Total liabilities 3,001,093 2,348,284
------------ ------------
Total equity and liabilities 5,662,288 4,309,548
------------ ------------
Contingencies, commitments and restrictions on the distribution of profits are disclosed in Note 25.
The accompanying notes are an integral part of these consolidated financial statements.
2
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(all amounts in USD thousands)
Tenaris S.A. Consolidated financial statements for the years ended December 31, 2004, 2003 and 2002
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Statutory balances according to Luxembourg Law Total at December 31,
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Other Currency
Share Legal Share Distributable Retained Adjustments translation Retained
Capital Reserves Premium Reserve Earnings Total to IFRS adjustments Earnings 2004 2003 2002
------------------------------------------------------------------------------------------------------------------------
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 1,694,054 875,401
Currency
translation
differences - - - - - - - 4,174 - 4,174 309 (34,503)
Change in
ownership
in Exchange
Companies
(Note 28) - - - - - - - - - - - 1,724
Capital
Increase
and
Exchange
Transaction
(Note 28) 249 25 464 82 - 820 - - - 820 51,611 796,418
Dividends
paid in
cash - - - (96,555) (38,498) (135,053) - - - (135,053) (115,002) (39,290)
Net income - - - - 373,477 373,477 (373,477) - 784,703 784,703 210,308 94,304
------------------------------------------------------------------------------------------------------------------------
Balance at
December
31, 1,180,537 118,054 609,733 82 536,459 2,444,865 (1,008,236) (30,020)1,089,315 2,495,924 1,841,280 1,694,054
------------------------------------------------------------------------------------------------------------------------
The Distributable Reserve and Retained Earnings calculated according to Luxembourg Law are disclosed in Note 25 (vi)
The accompanying notes are an integral part of these consolidated financial statements.
3
Tenaris S.A. Consolidated financial statements for the years ended December 31, 2004, 2003 and 2002
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CONSOLIDATED CASH FLOW STATEMENT
Year ended December 31,
-----------------------------------------
(all amounts in USD thousands) Notes 2004 2003 2002
Cash flows from operating activities
Net income 784,703 210,308 94,304
Depreciation and amortization 10 & 11 208,119 199,799 176,315
Provision for BHP proceeding 5 (ii) & 25 (i) - 114,182 18,923
Fintecna arbitration award 25 (i) (126,126) - -
Income tax accruals less payments 31 (ii) 44,659 (138,570) 174,478
Equity in (earnings) losses of associated companies 7 (206,037) (27,585) 6,802
Interest accruals less payments, net 31 (iii) 16,973 (3,032) 4,780
Net provisions 22 & 23 11,455 (13) (27,473)
Power plant impairment 25 (v) (i) 11,705 - -
Result from disposition of investment in associated
companies 5 (i) - (1,018) -
Minority interest 27 20,278 12,129 142,403
Change in working capital 31 (i) (621,187) (107,156) (100,842)
Currency translation adjustment and others (46,254) 16,592 (28,254)
------------ --------------- ------------
Net cash provided by operating activities 98,288 275,636 461,436
------------ --------------- ------------
Cash flows from investing activities
Capital expenditures 10 & 11 (183,312) (162,624) (147,577)
Acquisitions of subsidiaries and associates, net of cash
provided by business acquisitions (97,595) (65,283) (15,107)
Cost of disposition of property, plant and equipment and
intangible assets 10 & 11 12,054 5,965 14,427
Proceeds from sales of investments in associated
companies - 1,124 -
Convertible loan to associated companies - (31,128) -
Dividends and distributions received from associated
companies 48,598 - -
Acquisitions of minority interest - (299) -
Changes in trust fund 20,359 - (32,349)
------------ --------------- ------------
Net cash used in investing activities (199,896) (252,245) (180,606)
------------ --------------- ------------
Cash flows from financing activities
Dividends paid in cash (135,053) (115,002) (39,290)
Dividends paid to minority interest in subsidiaries 27 (31) (14,064) (41,484)
Proceeds from borrowings 676,862 590,490 425,268
Repayments of borrowings (376,768) (544,606) (528,870)
------------ --------------- ------------
Net cash provided by (used in) financing activities 165,010 (83,182) (184,376)
------------ --------------- ------------
Increase / (Decrease) in cash and cash equivalents 63,402 (59,791) 96,454
Movement in cash and cash equivalents
At beginning of the year 247,834 304,536 213,814
Effect of exchange rate changes 343 3,089 (5,732)
Increase / (Decrease) in cash and cash equivalents 63,402 (59,791) 96,454
------------ --------------- ------------
At December 31, 311,579 247,834 304,536
------------ --------------- ------------
Non-cash financing activity
Fair value adjustment of minority interest acquired - (925) -
Common stock issued in acquisition of minority interest 820 51,611 796,418
Conversion of debt to equity in subsidiaries 13,072 - -
The accompanying notes are an integral part of these consolidated financial statements.
4
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
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ACCOUNTING POLICIES ("AP")
Index to accounting policies
A Business of the Company and basis of presentation
B Group accounting
C Foreign currency translation
D Property, plant and equipment
E Impairment
F Intangible assets
G Other investments
H Inventories
I Trade receivables
J Cash and cash equivalents
K Shareholders' equity
L Borrowings
M Income taxes - Current and Deferred
N Employee - related liabilities
O Employees' statutory profit sharing
P Provisions and other liabilities
Q Revenue recognition
R Cost of sales and expenses
S Earnings per share
T Derivative financial instruments
U Segment information
5
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
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ACCOUNTING POLICIES
The following is a summary of the main accounting policies followed in the
preparation of these consolidated financial statements:
A Business of the Company and basis of presentation
Tenaris S.A. (the "Company" or "Tenaris"), a Luxembourg corporation
(societe anonyme holding), was incorporated on December 17, 2001, to hold
investments in steel pipe manufacturing and distributing companies, as explained
in Note 28. The Company holds, either directly or indirectly, controlling
interests in various subsidiaries. A list of these holdings is included in Note
32.
At December 31, 2004, 2003 and 2002, the financial statements of Tenaris
and its subsidiaries have been consolidated. The consolidated 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. The Company has
applied IFRS 3 for all business combinations that occurs after March 31, 2004.
The consolidated financial statements are presented in thousands of U.S. dollars
("USD").
Certain comparative amounts have been reclassified to conform to changes in
presentation in the current year.
The preparation of consolidated 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.
These consolidated financial statements were approved by Tenaris's Board of
Directors on February 23, 2005.
B Group accounting
(1) Subsidiary companies
The consolidated financial statements include the financial statements of
Tenaris's subsidiary companies. Subsidiary companies 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. Subsidiaries are
consolidated from the date on which control is transferred to the Company and
are no longer consolidated from the date that the Company ceases to have
control. The purchase method of accounting is used to account for the
acquisition of subsidiaries.
The purchase method of accounting is used to account for the acquisition of
subsidiaries by the Group. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of any minority
interest. The excess of the cost of acquisition over the fair value of the
Group's share of the identifiable net assets acquired is recorded as goodwill.
If the cost of acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognized directly in the income
statement.
Material intercompany transactions and balances between Tenaris's
subsidiaries have been eliminated in consolidation. However, the fact that the
measurement currency of some subsidiaries is their respective local currency,
generates some financial gains (losses) arising from intercompany transactions,
that are included in the consolidated income statement under Financial income
(expenses), net.
See Note 32 for the list of the consolidated subsidiaries.
6
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
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B Group accounting (Cont'd.)
(2) Associated companies
Investments in associated companies are accounted for by the equity method
of accounting. Associated companies are companies in which Tenaris owns between
20% and 50% of the voting rights or over which Tenaris has significant
influence, but does not have control (see AP B (1)). Unrealized results on
transactions between Tenaris and its associated companies are eliminated to the
extent of Tenaris's interest in the associated companies.
Tenaris's investment in Consorcio Siderurgia Amazonia Ltd. ("Amazonia") was
accounted for under the equity method, as Tenaris has significant influence. At
December 31, 2004, Tenaris holds a 14.5% of Amazonia. As explained in Note 25
(ii), as from February 15, 2005 Tenaris has increased its participation in
Amazonia to 21.2%.
See Note 12 for a list of principal associated companies.
C Foreign Currency Translation
(1) Translation of financial statements in currencies other than the
measurement currency
IASB's Standing Interpretation Committee's interpretation number 19
("SIC-19") states that the measurement currency should provide information about
the enterprise that is useful and reflects the economic substance of the
underlying events and circumstances relevant to the enterprise.
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 Tenaris's
subsidiaries is the respective local currency. In the case of Siderca S.A.I.C.
("Siderca"), Tenaris's subsidiary in Argentina, as well as Siderca's Argentine
subsidiaries, the measurement currency is the U.S. dollar, because:
o Siderca and its subsidiaries are located in Argentina and its local
currency has been affected by recurring severe economic crises;
o Sales are mainly 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 Prices of critical raw materials are settled in U.S. dollars; and
o Most of the net financial assets and liabilities are mainly obtained
and retained in U.S. dollars.
In addition, Tenaris Global Services S.A. ("TGS"), TGS's commercial network
subsidiaries, and the intermediate holding subsidiaries of Tenaris use the U.S.
dollar as their measurement currency, which reflects these entities' cash flow
and transactions being primarily determined in U.S. dollars.
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 each
quarter of the year, while balance sheets are translated at the exchange rates
at December 31. Translation differences are recognized in shareholders' equity
as currency translation adjustments. In the case of a sale or other disposition
of any such subsidiary, any accumulated translation difference would be
recognized in the income statement as part of the gain or loss of the sale.
(2) Transactions in currencies other than the measurement currency
Transactions in currencies other than the measurement currency are
accounted for at the exchange rates prevailing at the date of the transactions.
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, including
the foreign exchange gains and losses from intercompany transactions.
7
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
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D Property, plant and equipment
Property, plant and equipment are recognized at historical acquisition or
construction cost. Land and buildings comprise mainly factories and offices and
are shown at historical cost less depreciation. In the case of business
acquisitions proper consideration to the fair value of the assets acquired has
been given.
Major overhaul and rebuilding expenditures are capitalized as property,
plant and equipment only when the investment enhances the condition of assets
beyond its original condition.
Ordinary maintenance expenses on manufacturing properties are recorded as
cost of products sold in the year in which they are incurred.
Borrowing costs from the financing of relevant construction in progress is
capitalized during the period of time that is required to complete and prepare
the asset for its intended use.
Depreciation is calculated using the straight-line method to amortize the
cost of each asset to its residual value over its estimated useful life as
follows:
Land No Depreciation
Buildings and improvements 30-50 years
Plant and production equipment 10-20 years
Vehicles, furniture and fixtures, and other equipment 4-10 years
Restricted tangible assets in Dalmine S.p.A. ("Dalmine") with a net book
value at December 31, 2004 of USD6.2 million are assets that will be returned to
the Italian government authorities upon expiration of the underlying contract.
These assets are depreciated over their estimated useful economic lives.
In cases where the carrying amount of an asset is greater than its
estimated recoverable amount, it is written down to its recoverable amount (see
AP E).
E Impairment
Circumstances affecting the recoverability of tangible and intangible
assets including investments in associated and in other companies may change. If
this happens, the recoverable amount of the relevant asset 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. Management periodically evaluates
the carrying value of its tangible and intangible assets for impairment. The
carrying value of these assets is considered impaired when an other than
temporary decrease in the value of the assets has occurred.
At December 31, 2004, no impairment provisions were recorded other than the
one on the electric power generating facility, as explained in Note 25 (v)(i).
The impairment provision recorded in previous years by Amazonia on its
investment in Siderurgica del Orinoco CA ("Sidor"), was reversed in 2004 and
included in Equity in earnings (losses) of associated companies, as explained in
Note 12.
F Intangible assets
(1) Goodwill
Goodwill represents the excess of the acquisition cost over the fair value
of Tenaris's participation in acquired companies' net assets at the acquisition
date. Goodwill is amortized using the straight-line method over its estimated
useful life, not to exceed 15 years. Amortization is included in Cost of sales.
See Note 33 for the impact of new IFRS as from January 1, 2005.
8
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
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F Intangible assets (Cont'd.)
(2) Negative goodwill
Negative goodwill represents the excess of the fair values of Tenaris'
participation in acquired companies' net assets at the acquisition date over the
acquisition cost. Negative goodwill is recognized as income on a systematic
basis over the remaining weighted average useful life of the identifiable
acquired depreciable assets, not to exceed 15 years. This income is included in
Cost of sales. See Note 33 for the impact of new IFRS as from January 1, 2005.
(3) Information systems projects
Generally, costs associated with developing or maintaining computer
software programs are recognized as an expense as incurred. However, costs
directly related to development, acquisition and implementation of information
systems are recognized as intangible assets if they have a probable economic
benefit exceeding the cost beyond one year.
Information systems projects recognized as assets are amortized using the
straight-line method over their useful lives, not exceeding a period of 3 years.
Amortization charges are classified as selling, general and administrative
expenses.
(4) Research and development
Research expenditures are recognized as expenses as incurred. Development
costs are recorded as cost of sales in the income statement as incurred because
they do not fulfill the criteria for capitalization. Research and development
expenditures for the years ended 2004, 2003 and 2002 totaled USD26.3, USD21.9
and USD14.0 million respectively.
(5) Licenses and patents
Expenditures on acquired patents, trademarks, technology transfer and
licenses are capitalized and amortized using the straight-line method over their
useful lives, but not exceeding 20 years.
G Other investments
Under IAS 39 "Financial Instruments: Recognition and Measurement",
financial assets 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 Other investments,
which include primarily deposits in trust funds and insurance companies, are
currently classified as available-for-sale as defined by IFRS, without
considerating if they are technically available for disposition according to the
terms of the underlying contracts.
The financial resources that were placed in trust funds up to December 31,
2004, have been contributed to two wholly-owned subsidiaries (Inversiones Berna
S.A. and Inversiones Lucerna S.A.) as from January 1, 2005.
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 financial assets 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 other companies in which Tenaris has less than 20% of the
voting rights or over which Tenaris does not have significant influence, are
reported at cost.
9
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
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H Inventories
Inventories are stated at the lower of cost (calculated using principally
the first-in-first-out "FIFO" method) 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 year 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 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 and
goods in process based on management's analysis of the aging.
I Trade receivables
Trade receivables are recognized initially at original invoice amount. 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. Additionally, this provision is adjusted periodically based on
management's analysis of the aging.
J Cash and cash equivalents
Cash and cash equivalents and highly liquid short-term securities are
carried at fair market value.
For the purposes of the cash flow statement, cash and cash equivalents is
comprised of cash, bank current accounts and short-term highly liquid
investments (original maturity of less than 90 days).
On the balance sheet, bank overdrafts are included in borrowings in current
liabilities.
K Shareholders' equity
(1) Basis of presentation
The balances of the consolidated statement of changes in shareholders'
equity include:
o The value of share capital, legal reserve, share premium, other
distributable reserve and retained earnings in accordance with
Luxembourg Law;
o The currency translation adjustments and retained earnings of Tenaris'
subsidiaries under IFRS;
o The adjustment of the preceding items to value the balances by
application of IFRS.
The combined consolidated statement of changes in shareholders' equity
for the year 2002 was prepared based on the following:
o Currency translation differences due to the translation of the
financial statements in currencies of the combined consolidated
companies are shown in a separate line;
o Changes in ownership in the Exchange Companies -as defined in Note 28-
comprises the net increase or decrease in the percentage of ownership
that Sidertubes -at that time Tenaris's controlling shareholder- owned
in these companies;
o Dividends paid prior to the 2002 Exchange Offer (see Note 28) include
the dividends paid by Siderca, Tamsa, Dalmine or Tenaris Global
Services to Sidertubes prior to the contribution of Sidertubes' assets
to the Company, as if they had been paid by Tenaris to Sidertubes, as
well as the dividends effectively paid by Tenaris to its shareholders.
10
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
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K Shareholders' equity (Cont'd.)
(2) Dividends
Dividends are recorded in Tenaris's financial statements in the period in
which they are approved by Tenaris's shareholders, or when interim dividends are
approved by the Board of Directors in accordance to the authority given to them
by the by-laws of the Company.
Dividends may be paid by Tenaris to the extent that it has distributable
retained earnings, calculated in accordance with Luxembourg legal requirements.
Therefore, retained earnings included in the consolidated financial statements
may not be wholly distributable. See Note 25 (vi).
L Borrowings
Borrowings are recognized initially for an amount equal to the proceeds
received. 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.
M Income Taxes - Current and Deferred
Under present Luxembourg law, so long as the Company maintains its status
as a holding billionaire company, no income tax, withholding tax (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. Management
evaluates positions taken in tax returns with respect to situations in which
applicable tax regulations is subject to interpretation. A liability is recorded
for tax benefits that were taken in tax return but have been not recognized for
financial reporting.
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. The principal temporary
differences arise from the effect of currency translation on fixed assets,
depreciation on property, plant and equipment -originated in both difference in
valuation and useful lives considered by accounting standards and tax
regulations-, inventories valuation, provisions for pensions and tax losses
carry-forward. Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply to the period when the asset is realized or the
liability is settled, based on tax rates and tax laws that have been enacted or
substantially enacted by the balance sheet date.
Deferred tax assets are recognized to the extent it is probable that future
taxable income will be available to utilize those temporary differences
recognized as deferred tax assets against such income.
N Employee-related liabilities
(a) 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 USD71.8 million at December 31, 2004 and USD66.4 million at
December 31, 2003.
11
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
N Employee-related liabilities (Cont'd.)
(b) 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 USD11.6 million and USD8.6 million at
December 31, 2004 and 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 a 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.
Additionally, certain other officers and former employees of one of Tenaris
subsidiaries are covered by a separate plan classified as "funded" under IFRS
definition.
(c) Other compensation obligations
Employee entitlements to annual leave and long-service leave is accrued as
earned.
Other length of service based compensation to employees in the event of
dismissal or death is charged to income in the year in which it becomes payable.
O 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 USD68.9 million at December 31, 2004 and USD51.1 million at
December 31, 2003, and it is included in Non current other liabilities.
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.
P 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. If Tenaris expects a provision to be
reimbursed (for example under an insurance contract), and the reimbursement is
virtually certain, the reimbursement is recognized as an asset.
Tenaris has certain contingent liabilities with respect to existing or
potential claims, lawsuits and other proceedings. Unless otherwise specified,
Tenaris accrues liabilities when it is probable that future cost could be
incurred and that cost can be reasonably estimated. Generally, accruals are
based on developments to date, Tenaris' estimates of the outcomes of these
matters and the advice of Tenaris' legal advisors. As the scope of the
liabilities becomes better defined, there may be changes in the estimates of
future costs, which could have a material effect on Tenaris' future results of
operations and financial conditions or liquidity.
12
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
Q 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, through the receipt of a purchase order; the sales price is
known and arranged; delivery -as defined by the risk transfer provision of the
sales contracts- has occurred, which may include delivery to the customer
storage facility at one of the Company's subsidiaries; and the collection is
reasonably assured.
Other revenues earned by Tenaris are recognized on the following bases:
o Interest income: on an effective yield basis.
o Dividend income from investments in other companies: when Tenaris's
right to collect is established.
R Cost of sales and sales expenses
Cost of sales and expenses are recognized in the income statement on the
accrual basis of accounting.
Shipping and handling costs related to client orders are classified as
selling, general and administrative expenses.
S 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 year. There were no potential ordinary shares outstanding at December
31, 2004, 2003 and 2002. See Note 9.
T Derivative financial instruments
Information about accounting for derivative financial instruments and
hedging activities is included within the section "Financial Risk Management"
below.
U Segment information
Business segments: for management purposes, the Company is organized on a
worldwide basis into the following segments: Seamless, Welded and other metallic
products, Energy and Others.
The secondary reporting format is based on a geographical location.
Although, Tenaris's business is managed on a worldwide basis, Tenaris operates
in five main geographical areas: South America, Europe, North America, Middle
East and Africa, and Far East and Oceania.
13
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
FINANCIAL RISK MANAGEMENT
(1) Financial risk factors
Tenaris's activities expose it to a variety of financial risks, including
the effects of changes in foreign currency exchange rates and interest rates.
Tenaris's subsidiaries use derivative financial instruments to minimize
potential adverse effects on Tenaris's financial performance, by hedging certain
exposures.
(i) Foreign exchange rate risk
Tenaris operates internationally and is exposed to foreign exchange rate
risk arising from various currency exposures. Certain of Tenaris's subsidiaries
use forward contracts in order to hedge their exposure to exchange rate risk
primarily in U.S. dollars.
Tenaris aims to neutralize the negative impact of fluctuations in the value
of other currencies with respect to the U.S. dollars. However, the fact that a
number of subsidiaries have measurement currencies other than the U.S. dollars
can sometimes distort the result of these efforts as reported under IFRS.
(ii) Interest rate risk
Dalmine and Tamsa have entered into interest rate swaps for long-term debt
to partially hedge future interest payments, converting borrowings from floating
rates to fixed rates.
(iii) Concentration of credit risk
Tenaris has no significant concentration of credit risk from customers. Our
single largest customer is Petroleos Mexicanos, or Pemex. Sales to Pemex, as a
percentage of our total sales, amounted to 11% in 2004.
Tenaris has policies in place to ensure that sales of products and services
are made to customers with an appropriate credit history, or use credit
insurance, letters of credit and other instruments to reduce credit risk
whenever deemed necessary. Tenaris maintains allowances for potential credit
losses.
Derivative counterparties and cash transactions are limited to high credit
quality financial institutions.
(iv) Liquidity risk
Management maintains sufficient cash and marketable securities,
availability of funding through an adequate amount of committed credit
facilities and the ability to close out market positions.
(2) Accounting for derivative financial instruments and hedging activities
Derivative financial instruments are initially recognized in the balance
sheet at cost and subsequently remeasured at fair value.
Derivative transactions and other financial instruments, while providing
economic hedges under risk management policies, do not qualify for hedge
accounting under the specific rules in IAS 39. Changes in the fair value of any
derivative instruments that do not qualify for hedge accounting under IAS 39 are
recognized immediately in the income statement. The fair values of derivative
instruments included in Other liabilities and Receivables are disclosed in Note
24.
14
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
FINANCIAL RISK MANAGEMENT (CONT'D.)
(3) Fair value estimation
For the purpose of estimating the fair value of financial assets and
liabilities with maturities of less than one year, the market value less any
estimated credit adjustments was considered.
As most borrowings include variable rates or fixed rates that approximate
market rates and the contractual repricing occurs every 3 to 6 months, the fair
value of the borrowings approximates its carrying amount and it is not disclosed
separately.
In assessing the fair value of derivatives and other financial instruments,
Tenaris uses a variety of methods, including -but not limited to- estimated
discounted value of future cash flows using assumptions based on market
conditions existing at each balance sheet date.
15
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
INDEX TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Segment information
2 Cost of sales
3 Selling, general and administrative expenses
4 Labor costs (included in Cost of sales and Selling, general and
administrative expenses)
5 Other operating items
6 Financial income (expenses), net
7 Equity in earnings (losses) of associated companies
8 Income tax
9 Earnings and dividends per share
10 Property, plant and equipment, net
11 Intangible assets, net
12 Investments in associated companies
13 Other investments -non current
14 Receivables -non current
15 Inventories
16 Receivables and prepayments
17 Trade receivables
18 Cash and cash equivalents, and Other investments
19 Borrowings
20 Deferred income tax
21 Other liabilities
22 Non-current provisions
23 Current provisions
24 Derivative financial instruments
25 Contingencies, commitments and restrictions on the distribution
of profits
26 Ordinary shares and share premium
27 Minority interest
28 2002 Exchange Offer and other events with impact on minority
interest
29 Business and other acquisitions
30 Related party transactions
31 Cash flow disclosures
32 Principal subsidiaries
33 Impact of New Accounting Pronouncements: International Financial
Reporting Standards
16
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
Notes to the consolidated financial statements
(In the notes all amount are shown in USD thousands, unless otherwise stated)
1 Segment information
Primary reporting format: business segments
Welded and
other
metallic
Seamless products Energy Others Unallocated Total
------------- -------------- ------------ ------------ --------------- ------------
Year ended December 31, 2004
Net sales 3,273,267 348,137 417,870 96,789 - 4,136,063
Cost of sales (2,075,164) (249,471) (398,462) (53,839) - (2,776,936)
------------- -------------- ------------ ------------ --------------- ------------
Gross profit 1,198,103 98,666 19,408 42,950 - 1,359,127
Segment assets 4,322,982 510,669 121,846 610,162 96,629 5,662,288
Segment liabilities 2,430,935 313,600 122,046 134,512 - 3,001,093
Capital expenditures 149,326 23,276 1,438 9,272 - 183,312
Depreciation and amortization 185,118 12,665 3,554 6,782 - 208,119
Year ended December 31, 2003
Net sales 2,388,177 350,745 333,207 107,523 - 3,179,652
Cost of sales (1,531,995) (274,643) (316,566) (84,623) - (2,207,827)
------------- -------------- ------------ ------------ --------------- ------------
Gross profit 856,182 76,102 16,641 22,900 - 971,825
Segment assets 3,434,547 370,260 105,629 217,846 181,266 4,309,548
Segment liabilities 1,959,274 252,993 91,982 44,035 - 2,348,284
Capital expenditures 129,405 24,245 5,380 3,594 - 162,624
Depreciation and amortization 180,855 10,896 3,706 4,342 - 199,799
Year ended December 31, 2002
Net sales 2,244,138 580,001 210,415 184,830 - 3,219,384
Cost of sales (1,421,262) (379,384) (198,727) (169,855) - (2,169,228)
------------- -------------- ------------ ------------ --------------- ------------
Gross profit 822,876 200,617 11,688 14,975 - 1,050,156
Segment assets 3,388,977 365,743 41,155 122,045 163,978 4,081,898
Segment liabilities 1,860,338 223,240 49,909 67,574 - 2,201,061
Capital expenditures 110,739 27,053 5,623 4,162 - 147,577
Depreciation and amortization 162,444 7,669 2,768 3,434 - 176,315
Tenaris's main business segment is the manufacture of seamless pipes.
The main transactions between segments, which were eliminated in the
consolidation, relate to sales of Energy to Seamless units for USD86,721 in
2004, USD62,755 in 2003 and USD50,021 in 2002. Other transactions include sales
of scrap and pipe protectors from the Others segment to Seamless units for
USD36,765, USD37,647 and USD22,269 in 2004, 2003 and 2002, respectively.
17
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
1 Segment information (Cont'd.)
Secondary reporting format: geographical segments
South Europe North America Middle East Far East Unallocated Total
America and Africa and Oceania
--------------------------------------------------------------------------------------------
Year ended December 31, 2004
Net sales 824,800 1,236,795 1,140,326 524,874 409,268 - 4,136,063
Total assets 1,773,958 1,808,557 1,596,464 109,266 277,414 96,629 5,662,288
Trade receivables 143,731 346,628 295,896 81,369 69,307 - 936,931
Property, plant and
equipment, net 728,468 635,939 737,507 4,645 58,042 - 2,164,601
Capital expenditures 83,003 29,694 64,845 2,257 3,513 - 183,312
Depreciation and amortization 89,934 68,432 41,986 35 7,732 - 208,119
Year ended December 31, 2003
Net sales 752,175 958,772 754,262 392,707 321,736 - 3,179,652
Total assets 1,326,569 1,193,960 1,310,471 90,699 206,583 181,266 4,309,548
Trade receivables 123,969 286,651 138,899 69,216 34,047 - 652,782
Property, plant and
equipment, net 624,542 557,637 716,952 2,376 58,807 - 1,960,314
Capital expenditures 63,636 47,965 42,988 358 7,677 - 162,624
Depreciation and amortization 103,548 58,196 31,908 16 6,131 - 199,799
Year ended December 31, 2002
Net sales 956,382 829,744 577,279 511,119 344,860 - 3,219,384
Total assets 1,355,217 921,215 1,268,689 169,810 202,989 163,978 4,081,898
Trade receivables 208,313 145,863 123,572 145,681 29,820 - 653,249
Property, plant and
equipment, net 624,115 471,580 784,104 2,556 51,882 - 1,934,237
Capital expenditures 73,121 39,985 25,628 2,551 6,292 - 147,577
Depreciation and amortization 83,344 48,078 39,913 23 4,957 - 176,315
Allocation of net sales is based on the customers' location. Allocation of
assets and capital expenditure are based on the assets' location. Allocation of
depreciation and amortization is based on the related assets' location.
The South American segment comprises principally Argentina, Venezuela and
Brazil. The European segment comprises principally Italy, France, United
Kingdom, Germany, Romania and Norway. The North American segment comprises
principally Mexico, USA and Canada. The Middle East and Africa segment includes
Egypt, United Arab Emirates, Saudi Arabia and Nigeria. The Far East and Oceania
segment comprises principally China, Japan, Indonesia and South Korea.
18
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
2 Cost of sales
Year ended December 31,
--------------- ---------------- ----------------
2004 2003 2002
Inventories at the beginning of the year 831,879 680,113 735,574
Plus: Charges of the year
Raw materials, energy,
consumables and other movements 2,269,351 1,515,990 1,370,417
Services and fees 259,025 272,313 227,090
Labor cost 369,681 286,748 235,902
Depreciation of property, plant and
equipment 174,880 171,896 154,794
Amortization of intangible assets 12,748 6,763 2,370
Maintenance expenses 82,323 54,335 50,234
Provisions for contingencies 994 3,802 4,307
Allowance for obsolescence 23,167 6,011 19,042
Taxes 3,088 4,273 3,160
Others 19,270 37,462 46,451
--------------- ---------------- ----------------
3,214,527 2,359,593 2,113,767
Less: Inventories at the end of the year (1,269,470) (831,879) (680,113)
--------------- ---------------- ----------------
2,776,936 2,207,827 2,169,228
--------------- ---------------- ----------------
3 Selling, general and administrative expenses
Year ended December 31,
----------------- ---------------- -----------------
2004 2003 2002
Services and fees 121,269 129,237 101,566
Labor cost 157,114 134,769 117,975
Depreciation of property, plant and
equipment 10,218 8,477 6,164
Amortization of intangible assets 10,273 12,663 12,987
Commissions, freights and other selling
expenses 250,085 189,353 261,249
Provisions for contingencies 12,142 2,005 8,122
Allowances for doubtful accounts 7,187 5,704 6,387
Taxes 59,256 45,337 33,335
Others 44,905 39,290 19,730
----------------- ---------------- -----------------
672,449 566,835 567,515
----------------- ---------------- -----------------
19
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
4 Labor costs (included in Cost of sales and Selling, general and
administrative expenses)
Year ended December 31,
-------------- -------------- ---------------
2004 2003 2002
Wages, salaries and social security costs 509,572 410,458 347,096
Employees' severance indemnity (Note 21 (i)(a)) 12,907 9,988 6,453
Pension benefits - defined benefit plans (Note 21
(i)(b)) 4,316 1,071 328
-------------- -------------- ---------------
526,795 421,517 353,877
-------------- -------------- ---------------
At year-end, the number of employees was 16,447 in 2004, 14,391 in 2003 and
13,841 in 2002.
5 Other operating items
Year ended December 31,
--------------- -------------- --------------
2004 2003 2002
(i) Other operating income
Reimbursement from insurance companies and other third
parties 3,165 1,544 6,814
Net income from other sales 16,063 4,075 3,132
Net income from disposition of investments in
associated companies - 1,018 -
Net rents 1,362 2,222 2,414
Gain on government securities - - 5,643
Fintecna arbitration award, net of legal expenses
(Note 25 (i)) 123,000 - -
Power plant - reimbursement from supplier
(Note 25 (v)(i)) 9,001 - -
--------------- -------------- --------------
152,591 8,859 18,003
--------------- -------------- --------------
(ii) Other operating expenses
Provision for BHP proceedings - 114,182 18,923
Allowance for doubtful receivables 2,104 1,728 1,334
Power plant - impairment and associated charges
(Note 25 (v)(i)) 18,447 - -
Miscellaneous 5,200 9,749 8,510
--------------- -------------- --------------
25,751 125,659 28,767
--------------- -------------- --------------
6 Financial income (expenses), net
Year ended December 31,
-------------- -------------- ---------------
2004 2003 2002
Interest expense (46,930) (33,134) (34,480)
Interest income 14,247 16,426 14,201
Net foreign exchange transaction gains/ (losses) and
changes in fair value of derivative instruments 33,127 (16,165) 11,567
Financial discount on trade receivables - - (8,810)
Miscellaneous 5,358 3,453 (3,075)
-------------- -------------- ---------------
5,802 (29,420) (20,597)
-------------- -------------- ---------------
20
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
7 Equity in earnings (losses) of associated companies
Year ended December 31,
-------------- -------------- ---------------
2004 2003 2002
Equity in earnings (losses) of associated companies
(Note 12) 122,911 27,585 (6,802)
Convertible debt option Amazonia (Note 25 (ii)) 83,126 - -
-------------- -------------- ---------------
206,037 27,585 (6,802)
-------------- -------------- ---------------
8 Income tax
Year ended December 31,
-------------- -------------- ---------------
2004 2003 2002
Current tax 277,219 148,240 192,862
Deferred tax (Note 20) (44,731) (63,862) 26,426
-------------- -------------- ---------------
232,488 84,378 219,288
Effect of currency translation on tax base (Note 20) (12,112) (20,460) 25,266
-------------- -------------- ---------------
Subtotal 220,376 63,918 244,554
Recovery of Income Tax (a) - - (36,783)
-------------- -------------- ---------------
220,376 63,918 207,771
-------------- -------------- ---------------
(a) In 2002 Tamsa succeeded in an income tax claim against the Mexican tax
authorities, resulting in a recovery of income tax of previous years
of MXN355.6 million (USD36.8 million).
The tax on Tenaris's income before tax differs from the theoretical amount
that would arise using the tax rate in each country as follows:
Year ended December 31,
-------------- -------------- ---------------
2004 2003 2002 (b)
Income before tax and minority interest 1,025,357 286,355 444,478
-------------- -------------- ---------------
Tax calculated at the tax rate in each country 268,488 99,060 184,201
Non taxable income / Non deductible expenses (10,019) (27,907) (37,470)
Changes in the tax rates in Mexico (25,886) - -
Effect of currency translation on tax base (a) (12,112) (20,460) 25,266
Effect of taxable exchange differences 10,742 13,367 79,362
Utilization of previously unrecognized tax losses (10,837) (142) (6,805)
-------------- -------------- ---------------
Tax charge 220,376 63,918 244,554
-------------- -------------- ---------------
(a) 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 recognizes 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.
These gains and losses are required by IFRS even though the reduced
tax bases of the relevant assets will only result in reduced
amortization deductions for tax purposes in future periods throughout
the useful life of those assets and, consequently, the resulting
deferred income tax charge does not represent a separate obligation of
Tenaris that was due and payable in any of the relevant periods.
(b) Does not include tax recovery of USD36.8 million
21
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
9 Earnings and dividends per share
(i) 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 year.
Year ended December 31,
----------------------------------------------------
2004 2003 2002
Net income attributable to shareholders 784,703 210,308 94,304
Weighted average number of ordinary
shares in issue (thousands) 1,180,507 1,167,230 732,936
Basic and diluted earnings per share 0.66 0.18 0.13
Dividends paid (135,053) (115,002) -
Dividends per share 0.11 0.10 -
(ii) As explained in Note 28 (a) the Sidertubes contribution and the
exchange offer transaction took place in 2002. For purposes of
comparison, the Company has calculated the pro-forma earnings per
share for year 2002 as if these transactions had taken place on
January 1, 2002. Moreover, with respect to subsequent acquisitions and
residual offers carried out during 2003 (see Note 28 (b)) the Company
has calculated the pro-forma earnings per share for year 2003 as if
these transactions had all taken place on January 1, 2003. The
pro-forma earnings per share thus calculated are shown below:
Year ended December 31,
----------------- ---------------- -----------------
2004 2003 2002
----------------------------------------------------
(Unaudited)
Net income attributable to shareholders 784,703 210,308 193,826
Weighted average number of ordinary
shares in issue (thousands) 1,180,507 1,180,288 1,160,701
Basic and diluted earnings per share 0.66 0.18 0.17
Dividends paid (135,053) (115,002) -
Dividends per share 0.11 0.10 -
22
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
10 Property, plant and equipment, net
Land, building Plant and Vehicles, Work in Spare parts Total
and improvements production furniture and progress and
Year ended December 31, 2004 equipment fixtures equipment
----------------------------------------------------------------------------------------
Cost
Values at the beginning of the
year 303,929 5,031,525 112,371 86,193 12,799 5,546,817
Translation differences 6,938 87,970 2,520 2,107 643 100,178
Additions 11,547 10,744 2,509 133,193 5,165 163,158
Disposals / Consumptions (3,928) (16,587) (4,521) (1,258) (828) (27,122)
Transfers / Reclassifications 20,039 111,674 1,824 (135,293) 1,433 (323)
Increase due to business
combinations 14,891 172,665 3,490 - 51 191,097
----------------------------------------------------------------------------------------
Values at the end of the year 353,416 5,397,991 118,193 84,942 19,263 5,973,805
----------------------------------------------------------------------------------------
Depreciation
Accumulated at the beginning of
the year 112,693 3,378,536 89,222 - 6,052 3,586,503
Translation differences 1,836 37,514 1,773 - 135 41,258
Depreciation charge 14,246 162,726 7,497 - 629 185,098
Disposals / Consumptions (603) (11,083) (3,567) - (17) (15,270)
Transfers / Reclassifications (24) 365 (348) - (83) (90)
----------------------------------------------------------------------------------------
Accumulated at the end of the 128,148 3,568,058 94,577 - 6,716 3,797,499
year
----------------------------------------------------------------------------------------
Impairment (Note 25 (v)(i)) - (11,705) - - - (11,705)
----------------------------------------------------------------------------------------
At December 31, 2004 225,268 1,818,228 23,616 84,942 12,547 2,164,601
----------------------------------------------------------------------------------------
Year ended December 31, 2003 Land, building Plant and Vehicles, Work in Spare parts Total
and improvements production furniture and progress and
equipment fixtures equipment
----------------------------------------------------------------------------------------
Cost
Values at the beginning of the
year 296,608 4,801,316 99,200 141,861 10,087 5,349,072
Translation differences (7,736) 64,472 4,595 (1,353) 3,332 63,310
Additions 455 23,107 4,420 106,057 3,426 137,465
Disposals / Consumptions (1,664) (27,612) (3,312) (135) (1,882) (34,605)
Transfers 15,819 139,939 7,454 (160,237) (2,164) 811
Increase due to business
combinations 447 30,303 14 - - 30,764
----------------------------------------------------------------------------------------
Values at the end of the year 303,929 5,031,525 112,371 86,193 12,799 5,546,817
----------------------------------------------------------------------------------------
Depreciation
Accumulated at the beginning of
the year 98,616 3,228,390 82,139 - 5,690 3,414,835
Translation differences 843 9,248 2,474 - 977 13,542
Depreciation charge 7,519 165,403 6,769 - 682 180,373
Disposals / Consumptions (921) (24,255) (2,243) - (1,221) (28,640)
Transfers 6,636 (250) 83 - (76) 6,393
----------------------------------------------------------------------------------------
Accumulated at the end of the 112,693 3,378,536 89,222 - 6,052 3,586,503
year
----------------------------------------------------------------------------------------
At December 31, 2003 191,236 1,652,989 23,149 86,193 6,747 1,960,314
Property, plant and equipment includes interest capitalized for USD19,686
and USD19,159 for the years ended December 31, 2004 and 2003, respectively.
During 2004 and 2003, Tenaris capitalized borrowing costs of USD527 and
USD1,787, respectively.
23
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
11 Intangible assets, net
Year ended December 31, 2004 Information Licenses Goodwill (a) Negative Total
system projects and patents goodwill
(a)
---------------------------------------------------------------------
Cost
Values at the beginning of the year 88,802 10,490 142,904 (130,692) 111,504
Translation differences 3,850 579 164 (3,194) 1,399
Additions 20,022 132 - - 20,154
Transfers / Reclassifications 2,657 (173) - - 2,484
Disposals (747) - - - (747)
---------------------------------------------------------------------
Values at the end of the year 114,584 11,028 143,068 (133,886) 134,794
---------------------------------------------------------------------
Amortization
Accumulated at the beginning of the year 42,101 8,561 20,882 (14,077) 57,467
Translation differences 2,695 522 172 - 3,389
Amortization charge 21,600 1,105 9,350 (9,034) 23,021
Transfers/ Reclassifications 3,138 (887) - - 2,251
Disposals (545) - - - (545)
---------------------------------------------------------------------
Accumulated at the end of the year 68,989 9,301 30,404 (23,111) 85,583
---------------------------------------------------------------------
At December 31, 2004 45,595 1,727 112,664 (110,775) 49,211
---------------------------------------------------------------------
Year ended December 31, 2003 Information Licenses Goodwill (a) Negative Total
system and patents goodwill
projects (a)
---------------------------------------------------------------------
Cost
Values at the beginning of the year 35,348 30,381 132,224 (126,735) 71,218
Translation differences 5,185 4,030 - (2,944) 6,271
Additions 23,687 1,472 - - 25,159
Transfers 24,582 (25,393) - - (811)
Increase due to business acquisitions - - 10,680 (1,013) 9,667
---------------------------------------------------------------------
Values at the end of the year 88,802 10,490 142,904 (130,692) 111,504
---------------------------------------------------------------------
Amortization
Accumulated at the beginning of the year 15,573 16,152 11,997 (5,188) 38,534
Translation differences 2,391 3,509 - - 5,900
Amortization charge 14,580 4,850 8,885 (8,889) 19,426
Transfers 9,557 (15,950) - - (6,393)
---------------------------------------------------------------------
Accumulated at the end of the year 42,101 8,561 20,882 (14,077) 57,467
---------------------------------------------------------------------
At December 31, 2003 46,701 1,929 122,022 (116,615) 54,037
---------------------------------------------------------------------
(a) Corresponds to the Seamless segment
12 Investments in associated companies
Year ended December 31,
--------------------------------------
2004 2003
At the beginning of year 45,814 14,327
Translation differences (21,094) 2,197
Equity in earnings (losses) of associated companies 122,911 27,585
Dividends and distributions received (48,598) -
Acquisitions 418 1,811
Sales - (106)
------------------ -------------------
At the end of year 99,451 45,814
------------------ -------------------
24
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
12 Investments in associated companies (Cont'd.)
The principal associated companies are:
Percentage of ownership and Value at December 31,
Country of
Company incorporation voting rights at December 31,
-------------------------- ------------------- ---------------------------------- ---------------------------
2004 2003 2004 2003
Consorcio Siderurgia
Amazonia Ltd. (a) Cayman Islands 14.49% 14.49% 76,007 23,500
Ylopa Servicos de
Consultadoria Lda. (b) Madeira 24.40% 24.40% 20,622 19,500
Condusid C.A. Venezuela 20.00% 20.00% 2,375 2,708
Others 447 106
-------------- ------------
99,451 45,814
-------------- ------------
(a) The value at December 31, 2003 is net of an impairment provision of
USD51.9 million, prompted by the effect of negative conditions in the
international steel markets, the recession in Venezuela, and the
revaluation of the Venezuelan currency against the U.S. dollar on the
operations of its subsidiary Sidor, which are factors that led to the
2003 Restructuring. The impairment provision was reversed in 2004 due
to better conditions in the economic environment market of Sidor,
based on projections of future cash flows estimated by Amazonia's
management -See Note 25 (ii)-.
(b) At December 31, 2004 and 2003 the retained earnings of Ylopa Servicos
de Consultadoria Lda. ("Ylopa") totalled USD77.1 million and USD72.5
million, respectively.
13 Other investments - non current
Year ended December 31,
----------------- ------------------
2004 2003
Deposits with insurance companies 11,315 9,866
Investments in other companies 12,702 12,855
Others 378 434
----------------- ------------------
24,395 23,155
----------------- ------------------
14 Receivables - non current
Year ended December 31,
------------------ ------------------
2004 2003
Government entities 4,064 2,239
Employee advances and loans 5,086 3,269
Tax credits 8,455 9,495
Trade receivables 1,112 5,966
Advances to suppliers 4,750 11,535
Ylopa Convertible Loan (Note 25 (ii)) 121,955 33,508
Receivables on off-take Contract 7,338 13,419
Miscellaneous 11,777 1,348
------------------ ------------------
164,537 80,779
Allowances for doubtful accounts (Note 22 (i)) (13,172) (21,258)
------------------ ------------------
151,365 59,521
------------------ ------------------
25
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
15 Inventories
Year ended December 31,
------------------ ------------------
2004 2003
Finished goods 526,623 360,190
Goods in process 256,203 158,918
Raw materials 196,141 111,988
Supplies 214,604 173,738
Goods in transit 143,021 74,788
------------------ ------------------
1,336,592 879,622
Allowance for obsolescence (Note 23 (i)) (67,122) (47,743)
------------------ ------------------
1,269,470 831,879
16 Receivables and prepayments
Year ended December 31,
------------------ -----------------
2004 2003
V.A.T. credits 82,580 34,225
Prepaid taxes 12,416 29,141
Reimbursements and other services receivable 33,306 11,782
Government entities 15,999 14,532
Employee advances and loans 8,281 13,660
Advances to suppliers 35,397 19,382
Other advances 21,222 18,472
Government tax refunds on exports 19,683 14,530
Fintecna arbitration award (Note 25 (i)) 126,126 -
Miscellaneous 27,782 15,171
------------------ -----------------
382,792 170,895
Allowance for other doubtful accounts (Note 23 (i)) (8,346) (5,761)
------------------ -----------------
374,446 165,134
------------------ -----------------
17 Trade receivables
Year ended December 31,
------------------- ----------------
2004 2003
Current accounts 877,213 605,119
Notes receivables 83,882 71,666
------------------- ----------------
961,095 676,785
Allowance for doubtful accounts (Note 23 (i)) (24,164) (24,003)
------------------- ----------------
936,931 652,782
------------------- ----------------
26
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
18 Cash and cash equivalents, and Other investments
Year ended December 31,
----------------- ------------------
2004 2003
(i) Other investments
Trust funds 119,666 138,266
----------------- ------------------
(ii) Cash and cash equivalents
Cash and short-term highly liquid investments 311,573 247,414
Time deposits with related parties 6 420
----------------- ------------------
311,579 247,834
----------------- ------------------
19 Borrowings
Year ended December 31,
----------------- -----------------
2004 2003
Non-current
Bank borrowings 372,275 299,965
Debentures and other loans 40,845 65,375
Finance lease liabilities 7,631 9,439
----------------- -----------------
420,751 374,779
----------------- -----------------
Current
Bank borrowings 530,949 272,740
Bank overdrafts 4,255 9,804
Debentures and other loans 300,856 171,062
Finance lease liabilities 2,531 5,266
----------------- -----------------
838,591 458,872
----------------- -----------------
Total Borrowings 1,259,342 833,651
----------------- -----------------
The maturity of borrowings is as follows:
At December 31, 2004 1 year 1 - 2 2 - 3 3 - 4 4 - 5 Over 5
or less years years Years years Years Total
------------------------------------------------------------------------
Financial lease 2,531 1,632 1,300 1,059 794 2,846 10,162
Other borrowings 836,060 183,460 116,543 51,660 25,158 36,299 1,249,180
------------------------------------------------------------------------
Total borrowings 838,591 185,092 117,843 52,719 25,952 39,145 1,259,342
------------------------------------------------------------------------
Significant borrowings obtained in previous years include a USD150.0
million three-year syndicated loan obtained by Tamsa in 2003 and maturing in
December 2006. The most significant financial covenants under the Tamsa loan
agreement are the maintenance of minimum levels of working capital, the
commitment not to incur in additional indebtedness above agreed limits or
pledges on certain assets and compliance with debt service ratios calculated on
Tamsa's financial statements.
Borrowings include loans for an outstanding principal value of USD201.2
million secured over certain of the properties of Dalmine and Confab. Only one
of these loans has covenants, the most significant of which relate to
maintenance of limited total indebtedness and compliance with debt service
ratios.
27
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
19 Borrowings (Cont'd.)
As of December 31, 2004 Tenaris was in compliance with all of its financial
covenants. Management estimates that current covenants allow it a high degree of
operational and financial flexibility and do not impair its ability to obtain
additional financing at competitive rates.
In January 2005, Dalmine repaid USD65.4 million corresponding to a 7-year
Euro-denominated bullet bond recorded under current bank borrowings.
The nominal average interest rates shown below were calculated using the
rates set for each instrument in its corresponding currency and weighted using
the dollar-equivalent outstanding principal amount of said instruments at
December 31, 2004.
2004 2003
----------------- ------------------
Bank borrowings 3.89% 2.94%
Debentures and other loans 3.48% 2.69%
Finance lease liabilities 2.99% 1.94%
Breakdown of long-term borrowings by currency and rate is as follows:
Bank borrowings non current
Currency Interest rates Year ended December 31,
--------------------------------------------------------------------------------------------
2004 2003
USD Variable 215,730 240,928
EUR Variable 160,026 160,399
EUR Fixed 9,794 -
JPY Variable 48,170 -
JPY Fixed 27,065 45,082
BRS Variable 24,099 15,783
MXN Variable 24,406 -
-------------------------------------
509,290 462,192
Less: Current portion of medium and long-term loans (137,015) (162,227)
-------------------------------------
Total Bank borrowings non current 372,275 299,965
-------------------------------------
Debentures and other loans non current
Currency Interest rates Year ended December 31,
--------------------------------------------------------------------------------------------
2004 2003
EUR Variable 70,811 66,156
USD Variable 45,382 -
USD Fixed 5,449 -
-------------------------------------
121,642 66,156
Less: Current portion of medium and long-term loans (80,797) (781)
-------------------------------------
Total Debentures and other loans non current 40,845 65,375
-------------------------------------
The Debentures were issued on January 1998, at a face value of ITL100,000
million with interest linked to the 3-month Libor
28
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
19 Borrowings (Cont'd.)
Finance lease liabilities non current
Currency Interest rates Year ended December 31,
--------------------------------------------------------------------------------------------
2004 2003
EUR Variable 573 3,777
EUR Fixed 78 -
SGD Fixed 9 -
JPY Fixed 9,502 10,928
--------------------------------------
10,162 14,705
Less: Current portion of medium and
long-term loans (2,531) (5,266)
--------------------------------------
Total finance leases non current 7,631 9,439
--------------------------------------
The carrying amounts of Tenaris's assets pledged as collateral of
liabilities are as follows:
Year ended December 31,
-------------------------------------
2004 2003
Property, plant and equipment mortgages 573,513 417,126
------------------ ------------------
20 Deferred income tax
Deferred income taxes are calculated in full on temporary differences under
the liability method using the tax rate of each country.
The movement on the deferred income tax account is as follows:
Year ended December 31,
-------------------------------------
2004 2003
At beginning of year 287,521 386,167
Translation differences (926) (17,157)
Increase due to business combinations 392 (1,925)
Income statement credit (44,731) (63,862)
Effect of currency translation on tax base (12,112) (20,460)
Deferred employees statutory profit sharing charge (19,342) 4,758
------------------ ------------------
At end of year 210,802 287,521
------------------ ------------------
The movement in deferred tax assets and liabilities (prior to offsetting
the balances within the same tax jurisdiction) during the year is as follows:
Deferred tax liabilities
Fixed assets Inventories Other (a) Total at 2004
--------------- -------------- ------------ -----------------
At beginning of year 232,791 52,637 132,905 418,333
Translation differences 6,449 94 2,076 8,619
Increase due to business combinations - - 392 392
Acquisition of minority interest in subsidiaries 20 276 (338) (42)
Income statement (credit)/charge (35,017) 10,446 (30,756) (55,327)
--------------- -------------- ------------ -----------------
At end of year 204,243 63,453 104,279 371,975
--------------- -------------- ------------ -----------------
(a) Includes the effect of currency translation on tax base explained in Note 8
29
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
20 Deferred income tax (Cont'd.)
Deferred tax assets
Provisions Inventories Tax losses Other Total at
and (a) 2004
allowances
------------- -------------- ------------- ------------- --------------
At beginning of year (75,925) (28,307) (8,287) (18,293) (130,812)
Translation differences (7,365) (316) (351) (1,513) (9,545)
Acquisition of minority interest in
subsidiaries (49) - - 91 42
Income statement charge/(credit) 20,710 (12,669) (7,069) (21,830) (20,858)
------------- -------------- ------------- ------------- --------------
At end of year (62,629) (41,292) (15,707) (41,545) (161,173)
------------- -------------- ------------- ------------- --------------
(a) The tax loss carry-forwards arising from the BHP settlement is
included under each voice that originated them.
Deferred income tax assets and liabilities are offset when (1) there is a
legally enforceable right to setoff current tax assets against current tax
liabilities and (2) the deferred income taxes relate to the same fiscal
authority. The following amounts, determined after appropriate setoff, are shown
in the consolidated balance sheet:
Year ended December 31,
------------------------------------
2004 2003
Deferred tax assets (161,173) (130,812)
Deferred tax liabilities 371,975 418,333
------------------- ----------------
210,802 287,521
------------------- ----------------
The amounts shown in the balance sheet include the following:
Year ended December 31,
--------------------------------
2004 2003
Deferred tax assets to be recovered after more than 12 months (31,869) (20,385)
Deferred tax liabilities to be settled after more than 12 months 246,072 300,733
21 Other liabilities
Year ended December 31,
------------------ ----------------
(i) Non-current 2004 2003
Employee liabilities
Employees' statutory profit sharing 68,917 51,110
Employees' severance indemnity (a) 71,759 66,426
Pension benefits (b) 11,578 8,569
------------------ ----------------
152,254 126,105
------------------ ----------------
Accounts payable - Settlement BHP (Note 25 (i)) - 54,691
------------------ ----------------
Other liabilities
Taxes payable 8,757 8,345
Miscellaneous 11,431 2,399
------------------ ----------------
20,188 10,744
------------------ ----------------
172,442 191,540
------------------ ----------------
30
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
21 Other liabilities (Cont'd.)
(a) Employees' severance indemnity
The amounts recognized in the balance sheet are as follows:
Year ended December 31,
------------------ ---------------
2004 2003
Total included in non-current Employee liabilities 71,759 66,426
------------------ ---------------
The amounts recognized in the income statement are as follows:
Year ended December 31,
------------------ ---------------- ---------------
2004 2003 2002
Current service cost 9,999 7,291 4,518
Interest cost 2,908 2,697 1,935
------------------ ---------------- ---------------
Total included in Labor costs 12,907 9,988 6,453
------------------ ---------------- ---------------
The principal actuarial assumptions used were as follows:
Year ended December 31,
------------------------------------------------
2004 2003 2002
Discount rate 4% 5% 5%
Rate of compensation increase 3% 4% 4%
(b) Pension benefits
The amounts recognized in the balance sheet are determined as follows:
Year ended December 31,
----------------- --------------
2004 2003
Present value of unfunded obligations 16,478 12,134
Unrecognized actuarial gains (losses) (4,900) (3,565)
----------------- --------------
Liability in the balance sheet 11,578 8,569
----------------- --------------
The amounts recognized in the income statement are as follows:
Year ended December 31,
----------------- -------------- ---------------
2004 2003 2002
Current service cost 571 381 255
Interest cost 875 637 584
Net actuarial (gains) losses recognized in the year 2,870 53 (511)
----------------- -------------- ---------------
Total included in Labor costs 4,316 1,071 328
----------------- -------------- ---------------
31
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
21 Other liabilities (Cont'd.)
(b) Pension benefits(Cont'd.)
Movement in the liability recognized in the balance sheet:
Year ended December 31,
----------------- --------------
2004 2003
At the beginning of the year 8,569 11,069
Transfers and new participants of the plan 1,244 (103)
Total expense 4,316 1,071
Translation differences 167 -
Contributions paid (2,718) (3,468)
----------------- --------------
At the end of year 11,578 8,569
----------------- --------------
The principal actuarial assumptions used were as follows:
Year ended December 31,
------------------------------------------------
2004 2003 2002
Discount rate 7% 7% 7%
Rate of compensation increase 2% 2% 2%
Year ended December 31,
----------------- --------------
2004 2003
(ii) Other liabilities - current
Payroll and social security payable 86,189 61,900
Accounts payable- BHP Settlement (Note 25 (i)) 61,965 109,257
Loan from Ylopa (Note 25 (ii)) - 10,590
Liabilities with related parties 1,432 3,742
Miscellaneous 26,807 22,105
----------------- --------------
176,393 207,594
----------------- --------------
22 Non-current provisions
(i) Deducted from assets
Allowance for
doubtful accounts-
Receivables
----------------------
Year ended December 31, 2004
Values at the beginning of the year (21,258)
Translation differences 154
Reversals / Additional provisions (*) 154
Used (*) 7,778
----------------------
At December 31, 2004 (13,172)
----------------------
Year ended December 31, 2003
Values at the beginning of the year (21,394)
Translation differences (846)
Reversals / Additional provisions (*) (3,547)
Used (*) 4,529
----------------------
At December 31, 2003 (21,258)
----------------------
(*) Includes effect of provisions on off-take credits, which are reflected
in the Cost of sales.
32
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
22 Non-current provisions (Cont'd.)
(ii) Liabilities
Legal claims and
contingencies
----------------------
Year ended December 31, 2004
Values at the beginning of the year 23,333
Translation differences 800
Increased due to business combinations 2,355
Reversals / Additional provisions 7,438
Used (2,150)
----------------------
At December 31, 2004 31,776
----------------------
Year ended December 31, 2003
Values at the beginning of the year 33,874
Translation differences 2,990
Reversals / Additional provisions (379)
Used (13,152)
----------------------
At December 31, 2003 23,333
----------------------
23 Current provisions
(i) Deducted from assets
Allowance for Allowance for other Allowance for
doubtful accounts- doubtful accounts- inventory
Trade receivables Other receivables obsolescence
---------------------- --------------------- ----------------------
Year ended December 31, 2004
Values at the beginning of the year (24,003) (5,761) (47,743)
Translation differences (611) (83) (1,814)
Reversals /Additional provisions (7,402) (2,043) (23,167)
Increase due to business combinations (835) (484) (6,334)
Used 8,687 25 11,936
---------------------- --------------------- ----------------------
At December 31, 2004 (24,164) (8,346) (67,122)
---------------------- --------------------- ----------------------
Year ended December 31, 2003
Values at the beginning of the year (25,333) (5,997) (51,621)
Translation differences (1,321) (327) (1,626)
Reversals /Additional provisions (5,282) 544 (6,011)
Used 7,933 19 11,515
---------------------- --------------------- ----------------------
At December 31, 2003 (24,003) (5,761) (47,743)
---------------------- --------------------- ----------------------
33
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
23 Current provisions (Cont'd.)
(ii) Liabilities
BHP Provision Sales risks Other claims and Total
contingencies
--------------------------------------------------------------------
Year ended December 31, 2004
Values at the beginning of the year - 4,065 35,559 39,624
Translation differences - 341 2,878 3,219
Reversals / Additional provisions - 6,254 (556) 5,698
Used - (5,151) (1,673) (6,824)
Increase due to business combinations - - 919 919
--------------------------------------------------------------------
At December 31, 2004 - 5,509 37,127 42,636
--------------------------------------------------------------------
Year ended December 31, 2003
Values at the beginning of the year 44,066 4,259 25,628 73,953
Translation differences 6,015 715 4,885 11,615
Reversals / Additional provisions 5,995 3,087 3,099 12,181
Used (*) (56,076) (3,996) (5,713) (65,785)
Increase due to business combinations - - 7,660 7,660
--------------------------------------------------------------------
At December 31, 2003 - 4,065 35,559 39,624
--------------------------------------------------------------------
(*) In the case of BHP, the provision was reclassified into Other
Liabilities (see Note 21) following the settlement agreement explained
in Note 25 (i)
24 Derivative financial instruments
Net fair values of derivative financial instruments
The net fair values of derivative financial instruments disclosed in Other
liabilities and Other receivables at the balance sheet date, in accordance with
IAS 39, were:
Year ended December 31,
--------------- --------------
2004 2003
Contracts with positive fair values:
Interest rate swap contracts 192 -
Forward foreign exchange contracts 12,163 2,947
Commodities contracts - 1,197
Contracts with negative fair values:
Interest rate swap contracts (3,595) (3,505)
Forward foreign exchange contracts (3,749) (2,937)
Commodities contracts (283) (1,592)
34
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
24 Derivative financial instruments (Cont'd.)
Derivative financial instruments breakdown is as follows:
Variable interest rate swaps
Fair Value
Notional amount
(in thousands) Swap Term December 31,
---------------------------
2004 2003
----------------------------------------------------------------------------------------------
EUR 111,975 Pay fixed/Receive variable 2005 (1,493) (1,916)
EUR 22,608 Pay fixed/Receive variable 2007 (853) (770)
MXN 275,000 Pay fixed/Receive variable 2007 (148) -
EUR 1,488 Pay fixed/Receive variable 2009 (152) -
EUR 6,956 Pay fixed/Receive variable 2010 (757) (819)
---------------------------
(3,403) (3,505)
---------------------------
Exchange rate derivatives
Fair Value
Currencies Contract December 31,
---------------------------
2004 2003
----------------------------------------------------------------------------------------------
USD/EUR Euro Forward sales (107) (365)
USD/EUR Euro Forward purchases 1,083 -
USD/EUR Currency options and collars - (1,435)
JPY/USD Japanese Yen Forward purchases 5,388 2,661
JPY/EUR Japanese Yen Forward purchases - (83)
CAD/USD Canadian Dollar Forward sales (1,108) (1,054)
BRL/USD Brazilian Real Forward sales (1,885) 6
ARS/USD Argentine Peso Forward purchases 2,154 280
GBP/USD Pound Sterling Forward purchases 3,449 -
USD/MXN Mexican Peso Forward sales (560) -
---------------------------
8,414 10
---------------------------
Commodities price derivatives
Fair Value
Contract Terms December
---------------------------
2004 2003
----------------------------------------------------------------------------------------------
Gas call options 2004 - (213)
Gas put options 2004-2005 (283) (246)
Oil call options 2004 - 1,066
Oil put options 2004 - (1,087)
Oil call options 2004 - 131
Oil put options 2004 - (46)
---------------------------
(283) (395)
---------------------------
25 Contingencies, commitments and restrictions on 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 Billiton ("BHP")-see 25 (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
(Notes 22 and 23) that would be material to Tenaris's consolidated financial
position or results of operations.
35
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
25 Contingencies, commitments and restrictions on the distribution of
profits (Cont'd.)
(i) BHP litigation and arbitration proceeding against Fintecna
On December 30, 2003 Dalmine and a consortium led by BHP settled their
litigation concerning the failure of an underwater pipeline. According to the
terms of the settlement, Dalmine will pay BHP a total of GBP108.0 million
(USD207.2 million), inclusive of expenses, which amount (net of advances
previously made) is payable in three annual installments. The first two
installments of GBP30.3 million and GBP 30.4 million were paid in January and
December 2004, respectively, and the final installment of GBP30.4 million is due
in December 2005. 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- commenced
arbitration proceedings against Fintecna S.p.A. ("Fintecna"), an Italian
state-owned entity and successor to ILVA S.p.A., the former owner of Dalmine,
seeking indemnification from Fintecna for any amounts paid or payable by Dalmine
to BHP. On December 28, 2004, the arbitral tribunal rendered its final award in
the arbitration proceedings. Pursuant to the award, Fintecna is required to pay
to Tenaris the sum of EUR92.6 million (approximately USD126 million). Under
applicable rules of the International Chamber of Commerce, the award is binding
on the parties and must be carried out without delay, although that requests for
clarification or other petitions could delay compliance with the terms of the
award. Income from this award is included in "Other operating income".
(ii) Consorcio Siderurgia Amazonia, Ltd.
The financial restructuring of Sidor and Amazonia, an associated company of
Tenaris which concluded during 2003 (the "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 are due to expire in the third quarter of
2005.
During 2003, as part of the 2003 Restructuring, Tenaris acquired a 24.4%
equity stake in 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 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", and (b) received debt
instruments of Amazonia, convertible into 67.4% of the common stock of Amazonia
at Ylopa's choice ("the convertible debt instrument"), which were valued by
these companies at their respective fair value.
On February 3, 2005 Ylopa exercised its option to convert its convertible
debt instruments into Amazonia's common stock. In connection with this
conversion, Tenaris recorded a gain of USD83.1 million. In determining the value
of the debt instruments, management considered the information available
provided by Amazonia, comprising the financial statements of Amazonia and the
discounted cash flow projections prepared for purposes of assessing the
impairment of Amazonia's investment in Sidor. Both values do not differ
significantly.
As a result, Tenaris's participation in Amazonia increased from 14.5% to
21.2%, thereby increasing its indirect participation in Sidor from 8.7% to
12.6%.
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 of the participation of Sidor's Excess Cash (determined in
accordance with a specific formula). Sidor had been distributing Excess Cash to
Ylopa on a semi-annual basis starting October 2003. As from January, 2005 Sidor
will distribute Excess Cash on a quarterly basis. During the year ended December
31, 2004, Tenaris obtained USD38.0 million from Ylopa related to Sidor's Excess
Cash.
36
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
25 Contingencies, commitments and restrictions on 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 ARP59.4
million (approximately USD20.3 million) at December 31, 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 tax returns for the year ended December 31, 2002,
Siderca and Siat S.A., (another subsidiary of Tenaris domiciled in Argentina),
used the inflation adjustment procedure set forth in Title VI of the Argentine
Income Tax Law to reflect the impact of inflation on their monetary positions.
The application of such procedure, however, had been suspended in March 1992
following the introduction of the convertibility regime that pegged the Peso to
the United States dollar at a fixed rate of ARP1=USD1 and was not reinstated
after the termination of the convertibility regime.
Both subsidiaries have (i) 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) and (ii) obtained an
injunction that prevents the tax authorities from summarily executing their
claim 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 provision for the full potential tax liability on the alleged
artificial gains plus statutory interest, but excluding fines or any other
potential punitive charges. At December 31, 2004 the provision totaled ARP80.3
million (USD27.5 million).
On October 29, 2004, Siderca applied to join the promotional regime
established by Argentine Law 25.924 and committed to dismiss the legal
proceedings described in the previous paragraphs if and only if the benefits of
such regime are received by Siderca. On February 11, 2005, Argentine Government
approved these benefits. For this reason, Siderca has to pay its liability. No
charges arose from this payment, as Tenaris had previously recorded a provision
for this claim as described above.
(iv) Other Proceedings
Dalmine is currently subject to eleven civil proceedings and three former
Dalmine managers are subject to 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 civil
parties related to the above consolidated criminal proceeding, 20 have been
settled.
In addition to the civil and criminal cases, another 21 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
(USD12.8 million).
37
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
25 Contingencies, commitments and restrictions on the distribution of
profits (Cont'd.)
(v) Commitments
The following are the Company's 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 year ended at December 31, 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.
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 December 31, 2004) in support of the USD156 million
(USD42.5 million outstanding as of December 31, 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 December 31, 2004 is approximately EUR588.0
million (USD800.9 million).
(c) Under the Gas Release Program enacted by Eni S.p.A., Gas and Power
Division, in August 2004, Dalmine Energie increased its availability of natural
gas for the period from October 1st, 2004 to September 30th, 2008. The gas
purchase and sale agreements entered into with Eni contain customary take-or-pay
conditions. The additional gas supply mentioned above is valued at approximately
EUR230.0 million (USD313.3 million), based on prices prevailing as of December
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.
(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
(USD11.3 million). Up to the date of these financial statements, the auction has
not yet been announced.
38
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
25 Contingencies, commitments and restrictions on the distribution of
profits (Cont'd.)
(v) Commitments (Cont'd.)
(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 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 an annual 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 December 31, 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
collateral for a financial transaction between the mentioned bank and Siderca,
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") 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 December 31, 2004 is approximately USD75.2 million.
(h) On August 20, 2004 Matesi entered into a ten-year off-take contract
pursuant to which Matesi is required to sell to Sidor on a take-or-pay basis
29.9% of Matesi's HBI production. In addition, Sidor has the right to increase
its proportion on Matesi's production by an extra 19.9% until reaching 49.8% of
Matesi's HBI production. Under the contract, the sale price is determined on a
cost-plus basis.
(i) In October 2004, Tenaris detected technical problems at its electric
power generating facility located in San Nicolas, Argentina during the routine
maintenance of the equipment. GE Energy, the generator's manufacturer, assumed
the repairs costs of the generator estimated in USD9.0 million. Tenaris
recognized a Receivable with the manufacturer for the cost of the repairs. The
Company impaired the value of these assets under Property, plant and equipment
for USD11.7 million. The reparation is expected to be completed by September
2005. In addition, Tenaris recorded a loss of USD6.7 million due to commitments
to deliver steam vapor and gas and the related penalties.
(j) 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 (USD148
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.
(vi) Restrictions on the distribution of profits
Under Luxembourg law, at least 5% of 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 December 31, 2004 the Company has created this reserve in
full.
Shareholders' equity at December 31, 2004 under Luxembourg law and
regulations comprises the following captions:
Share capital 1,180,537
Legal reserve 118,054
Share premium 609,733
Other distributable reserves 82
Retained earnings 536,459
--------------
Total shareholders equity according Luxembourg law 2,444,865
--------------
39
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
25 Contingencies, commitments and restrictions on the distribution of
profits (Cont'd.)
(vi) Restrictions on the distribution of profits (Cont'd.)
Tenaris may pay dividends to the extent that it has distributable retained
earnings and distributable reserve calculated in accordance with Luxembourg law
and regulations.
At December 31, 2004, the distributable reserve and retained earnings of
Tenaris under Luxembourg Law totaled USD536.5 million, as detailed below.
Distributable reserve and retained earnings at December 31, 2003 under 298,035
Luxembourg Law
Dividends and distribution received 292,589
Other income and expenses for the year 2004 80,888
Dividends paid (135,053)
Increase in reserve due to capital increase (see Note 28 (b)) 82
--------------
Distributable reserve and retained earnings at December 31, 2004 under
Luxembourg law 536,541
--------------
26 Ordinary shares and share premium
Number of Ordinary shares
-----------------------------------------
2004 2003
At January 1 1,180,287,664 1,160,700,794
Net issue of shares (see Note 28 (b)) 249,166 19,586,870
-----------------------------------------
At December 31 1,180,536,830 1,180,287,664
-----------------------------------------
The total of issued and outstanding ordinary shares as of December 31, 2004
is 1,180,536,830 with a par value of USD1 per share with one vote each.
27 Minority interest
Year ended December 31,
----------------------------------------------------
2004 2003 2002
At beginning of year 119,984 186,783 918,981
Currency translations differences 9,478 16,738 (62,816)
Share of net profit of subsidiaries 20,278 12,129 142,403
Acquisition and increases 21,106 458 -
Exchange of shares of Siderca, Dalmine
and Tamsa - (44,887) (768,577)
Sales (649) (37,173) (2,020)
Dividends (*) (4,926) (14,064) (41,188)
----------------- ----------------- ----------------
At end of year 165,271 119,984 186,783
----------------- ----------------- ----------------
(*) Includes dividends approved not paid for USD4.9 million in 2004.
40
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
28 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, Tamsa, Dalmine, TGS
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 and gave rise to a net negative goodwill of USD5.2 million.
(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 USD249 to share capital, USD25 to legal reserve, USD464 to a share
premium and USD82 to other distributable reserve.
As of December 31, 2004, Tenaris held, directly or indirectly, more than
99.9% of the common stock of Tamsa.
Subsequent acquisition of Dalmine Shareholding
Pursuant to purchases made in the open market up to March 10, 2003, Tenaris
held, directly or indirectly, 90.0% 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 December
31, 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.
41
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
29 Business and other acquisitions
As a result of the transactions explained in Note 28, Tenaris acquired
0.03% of Tamsa, 0.5% of Dalmine during 2004, and 5.5% of Tamsa, 9.9% of Dalmine
and 0.9% of Siderca during 2003.
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
increased the subsidiary's capital stock to USD50.0 million.
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.
As described in AP A, management applied IFRS 3 for the business
combination detailed below.
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 generate goodwill. As of
December 31, 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 owned
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 generate goodwill.
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 1,
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).
The acquired business contributed revenues of USD93.2 million and net gains
of USD6.1 million to Tenaris in the year ended at December 31, 2004.
The assets and liabilities arising from acquisitions are as follows:
Year ended December 31,
2004 2003
--------------------- -------------------
Other assets and liabilities (net) (25,060) (3,612)
Property, plant and equipment 191,097 30,764
Goodwill - 9,667
--------------------- -------------------
Net assets acquired 166,037 36,819
Minority interest (8,034) 31,025
Total non-current liabilities (*) (60,408) (2,561)
--------------------- -------------------
Total liabilities assumed (60,408) (2,561)
--------------------- -------------------
Sub-total 97,595 65,283
--------------------- -------------------
Cash - acquired 5,177 5,687
Fair value adjustment of minority interest acquired - (925)
Common stock issued in acquisition of minority interest 820 51,611
--------------------- -------------------
Purchase consideration 103,592 121,656
--------------------- -------------------
(*) Year ended at December 31, 2004 includes Matesi's liability with Sidor
(minority shareholder of Matesi).
42
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
29 Business and other acquisitions (Cont'd.)
Details of net assets acquired and goodwill are as follows:
Year ended December 31,
-----------------------------------------------------
2004 2003
Purchase consideration 103,592 121,656
Fair value of acquired business (103,592) (111,989)
--------------------------- -------------------------
Goodwill - 9,667
--------------------------- -------------------------
30 Related party transactions
The Company is controlled by I.I.I. Industrial Investments Inc. B.V.I.,
which at December 31, 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:
Year ended December 31,
----------------- ----------------- ----------------
2004 2003 2002
(i) Transactions
(a) Sales of goods and services
Sales of goods 72,932 57,865 258,083
Sales of services 24,983 11,811 6,934
----------------- ----------------- ----------------
97,915 69,676 265,017
----------------- ----------------- ----------------
(b) Purchases of goods and services
Purchases of goods 63,132 70,984 160,792
Purchases of services 58,831 64,793 103,858
----------------- ----------------- ----------------
121,963 135,777 264,650
----------------- ----------------- ----------------
(c) Acquisitions of subsidiaries - (304) -
----------------- ----------------- ----------------
At December 31,
----------------- ------------------
2004 2003
(ii) Year-end balances
(a) Arising from sales/purchases of
goods/services
Receivables from related parties 52,663 42,116
Payables to related parties (1) (17,401) (37,219)
----------------- ------------------
35,262 4,897
----------------- ------------------
(b) Cash and cash equivalents
Time deposits 6 420
----------------- ------------------
43
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
30 Related party transactions (Cont'd.)
At December 31,
----------------- ------------------
2004 2003
(c) Other balances
Trust fund 119,666 118,087
Convertible debt instruments - Ylopa 121,955 33,508
----------------- ------------------
241,621 151,595
----------------- ------------------
(d) Financial debt
Borrowings and overdrafts (2) (56,906) (5,716)
Borrowings from trust fund - (1,789)
----------------- ------------------
(56,906) (7,505)
----------------- ------------------
(1) Includes liabilities with Ylopa (USD10,590 at December 31, 2003)
(2) Includes borrowings from Sidor to Matesi (USD51,457 at December 31, 2004)
(iii) Officers and director's compensation
The aggregate compensation of the directors and executive officers earned
during 2004 and 2003 amounts to USD9.8 million and USD8.6 million respectively.
31 Cash flow disclosures
Year ended December 31,
---------------------------------------------------
2004 2003 2002
(i) Changes in working capital
Inventories (411,045) (151,766) 55,461
Receivables and prepayments (82,845) 10,900 (31,485)
Trade receivables (271,225) 4,142 (124,699)
Other liabilities (37,443) 39,585 (27,168)
Customer advances 72,678 17,636 (32,355)
Trade payables 108,693 (27,653) 59,404
---------------- --------------- ------------------
(621,187) (107,156) (100,842)
---------------- --------------- ------------------
(ii) Income tax accruals less payments
Tax accrued (*) 220,376 63,918 244,554
Taxes paid (175,717) (202,488) (70,076)
---------------- --------------- ------------------
44,659 (138,570) 174,478
---------------- --------------- ------------------
(*) In 2002 does not include a tax recovery of USD36.8 millions (see Note 8)
(iii) Interest accruals less payments, net
Interest accrued 32,683 16,708 20,279
Interest paid net (15,710) (19,740) (15,499)
---------------- --------------- ------------------
16,973 (3,032) 4,780
---------------- --------------- ------------------
44
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
32 Principal subsidiaries
The following is a list of Tenaris's subsidiaries and its direct or
indirect percentage of ownership of each company at December 31, 2004, 2003 and
2002 is disclosed.
............................................................................................................................
Company Country of Main activity Percentage of ownership
Organization at December 31,
............................................................................................................................
............................................................................................................................
2004 2003 2002
............................................................................................................................
............................................................................................................................
Algoma Tubes Inc. Canada Manufacturing of seamless steel 100% 100% 98%
pipes
............................................................................................................................
............................................................................................................................
Confab Industrial S.A. and subsidiaries Brazil Manufacturing of welded steel 39% 39% 39%
(b) pipes and capital goods
............................................................................................................................
............................................................................................................................
Corporacion Tamsa S.A. Mexico Sale of seamless steel pipes - - 94%
............................................................................................................................
............................................................................................................................
Dalmine Holding B.V. and subsidiaries Netherlands Holding company 99% 99% 88%
............................................................................................................................
............................................................................................................................
Dalmine S.p.A. Italy Manufacturing of seamless steel 99% 99% 88%
pipes
............................................................................................................................
............................................................................................................................
Empresas Riga S.A. de C.V. Mexico Manufacturing of welded fittings 100% 100% 94%
for seamless steel pipes
............................................................................................................................
............................................................................................................................
Exiros S.A. Uruguay Procurement services for 100% 100% -
industrial companies
............................................................................................................................
............................................................................................................................
Information Systems and Technologies N.V. Netherlands Software development and 75% 75% 70%
and subsidiaries maintenance
............................................................................................................................
............................................................................................................................
Inmobiliaria Tamsa S.A. de C.V. Mexico Leasing of real estate 100% 100% 94%
............................................................................................................................
............................................................................................................................
Insirger S.A. and subsidiaries Argentina Electric power generation 100% 100% -
............................................................................................................................
............................................................................................................................
Intermetal Com SRL (a) Romania Marketing of Scrap and other raw 100% - -
materials
............................................................................................................................
............................................................................................................................
Invertub S.A. and subsidiaries Argentina Holding company 100% 100% 100%
............................................................................................................................
............................................................................................................................
Lomond Holdings B.V. and subsidiaries Netherlands Procurement services for 100% 100% 70%
industrial companies
............................................................................................................................
............................................................................................................................
Matesi, Materiales Siderurgicos S.A. (a) Venezuela Production of hot briquetted iron 50% - -
(HBI).
............................................................................................................................
............................................................................................................................
Metalcentro S.A. Argentina Manufacturing of pipe-end 100% 100% 100%
protectors and lateral impact
tubes
............................................................................................................................
............................................................................................................................
Metalmecanica S.A. Argentina Manufacturing steel products for 100% 100% 99%
oil extraction
............................................................................................................................
............................................................................................................................
NKKTubes K.K. Japan Manufacturing of seamless steel 51% 51% 51%
pipes
............................................................................................................................
............................................................................................................................
S.C. Silcotub S.A. and subsidiary (a) Romania Manufacturing of seamless steel 85% - -
pipes
............................................................................................................................
............................................................................................................................
Scrapservice S.A. Argentina Processing of scrap 75% 75% 74%
............................................................................................................................
............................................................................................................................
Siat S.A. Argentina Manufacturing of welded steel 82% 82% 81%
pipes
............................................................................................................................
............................................................................................................................
Siderca International A.p.S. Denmark Holding company 100% 100% 99%
............................................................................................................................
............................................................................................................................
Siderca S.A.I.C. Argentina Manufacturing of seamless steel 100% 100% 99%
pipes
............................................................................................................................
45
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
32 Principal subsidiaries (Cont'd.)
...........................................................................................................................
Company Country of Main activity Percentage of ownership at
Organization December 31,
...........................................................................................................................
...........................................................................................................................
2004 2003 2002
...........................................................................................................................
...........................................................................................................................
Siderestiba S.A. Argentina Logistics 99% 99% 99%
...........................................................................................................................
...........................................................................................................................
Sidtam Limited B.V.I. Holding company 100% 100% 97%
...........................................................................................................................
...........................................................................................................................
SO.PAR.FI Dalmine Holding S.A. Luxembourg Holding company 99% 99% 88%
...........................................................................................................................
...........................................................................................................................
Sociedad Industrial Puntana S.A. Argentina Manufacturing of steel 100% 100% -
products
...........................................................................................................................
...........................................................................................................................
Socominter Far East Ltd. Singapore Marketing of steel products - - 100%
...........................................................................................................................
...........................................................................................................................
Socominter Ltda. Chile Marketing of steel products 100% 100% 100%
...........................................................................................................................
...........................................................................................................................
Socominter S.A. Venezuela Marketing of steel products 100% 100% 100%
...........................................................................................................................
...........................................................................................................................
Socover S.A. de C.V. Mexico Marketing of steel products - - 94%
...........................................................................................................................
...........................................................................................................................
Talta - Trading e Marketing Lda. (a) Madeira Holding Company 100% - -
...........................................................................................................................
...........................................................................................................................
Tamsider LLC USA Holding company 100% 100% 100%
...........................................................................................................................
...........................................................................................................................
Tamsider S.A. de C.V. and subsidiaries Mexico Promotion and organization of 100% 100% 94%
steel-related companies and
marketing of steel products
...........................................................................................................................
...........................................................................................................................
Tamtrade S.A.de C.V. Mexico Marketing of steel products 100% 100% 94%
...........................................................................................................................
...........................................................................................................................
Techint Investment Netherlands B.V. Netherlands Holding company 100% 100% 99%
...........................................................................................................................
...........................................................................................................................
Tenaris Autopartes S.A. de C.V. Mexico Manufacturing of supplies for 100% 100% -
the automotive industry
...........................................................................................................................
...........................................................................................................................
Tenaris Confab Hastes de Bombeio (a) Brazil Manufacturing of steel 70% - -
products for oil extraction
...........................................................................................................................
...........................................................................................................................
Tenaris Connections A.G. and subsidiaries Liechtenstein Ownership and licensing of 100% 99% 94%
steel technology
...........................................................................................................................
...........................................................................................................................
Tenaris Financial Services S.A. Uruguay Financial Services 100% 100% -
...........................................................................................................................
...........................................................................................................................
Tenaris Global Services B.V. Netherlands Sales agent of steel products 100% 100% 100%
...........................................................................................................................
...........................................................................................................................
Tenaris Global Services (Canada) Inc. Canada Marketing of steel products 100% 100% 100%
...........................................................................................................................
...........................................................................................................................
Tenaris Global Services de Bolivia S.R.L. Bolivia Marketing of steel products 100% 100% 100%
(previously Socominter de Bolivia S.R.L.)
...........................................................................................................................
...........................................................................................................................
Tenaris Global Services (Japan) K.K. Japan Marketing of steel products 100% 100% 100%
(previously DST Japan K.K.)
...........................................................................................................................
...........................................................................................................................
Tenaris Global Services Norway AS Norway Marketing of steel products 100% 100% 100%
...........................................................................................................................
...........................................................................................................................
Tenaris Global Services (Panama) S.A. Panama Marketing of steel products 100% 100% 100%
...........................................................................................................................
46
32 Principal subsidiaries (Cont'd.)
.........................................................................................................................
Company Country of Main activity Percentage of ownership
Organization at December 31,
.........................................................................................................................
.........................................................................................................................
2004 2003 2002
.........................................................................................................................
.........................................................................................................................
Tenaris Global Services (UK) Ltd United Kingdom Marketing of steel products 100% 100% 100%
.........................................................................................................................
.........................................................................................................................
Tenaris Global Services S.A. Uruguay Holding company and marketing 100% 100% 100%
of steel products
.........................................................................................................................
.........................................................................................................................
Tenaris Global Services Ecuador S.A. Ecuador Marketing of steel products 100% 100% -
.........................................................................................................................
.........................................................................................................................
Tenaris Global Services Far East Pte. Ltd. Singapore Marketing of steel products 100% 100% 100%
.........................................................................................................................
.........................................................................................................................
Tenaris Global Services Korea Korea Marketing of steel products 100% 100% -
.........................................................................................................................
.........................................................................................................................
Tenaris Global Services LLC U.S.A. Sales agent of steel products 100% 100% 100%
.........................................................................................................................
.........................................................................................................................
Tenaris Global Services (B.V.I.) Ltd. B.V.I. Holding company 100% 100% 100%
.........................................................................................................................
.........................................................................................................................
Tenaris Global Services Nigeria Ltd. Nigeria Marketing of steel products 100% 100% 100%
(Previously Tubular DST Nigeria Ltd.)
.........................................................................................................................
.........................................................................................................................
Tenaris Global Services (Kazakhstan ) LLP Kazakhstan Marketing of steel products 100% - -
(a)
.........................................................................................................................
.........................................................................................................................
Tenaris Investments Ltd. (a) Ireland Holding company 100% - -
.........................................................................................................................
.........................................................................................................................
Tenaris West Africa Ltd. United Kingdom Finishing of steel pipes 100% 100% 98%
.........................................................................................................................
.........................................................................................................................
Texas Pipe Threaders Co. U.S.A. Finishing and marketing of 100% 100% 99%
steel pipes
.........................................................................................................................
.........................................................................................................................
Tubman International Ltd. (a) Gibraltar Holding company 100% - -
.........................................................................................................................
.........................................................................................................................
Tubman Holdings (Gibraltar) LLP (a) Gibraltar Holding company 100% - -
.........................................................................................................................
.........................................................................................................................
Tubos de Acero de Mexico S.A. Mexico Manufacturing of seamless 100% 100% 94%
steel pipes
.........................................................................................................................
.........................................................................................................................
Tubos de Acero de Venezuela S.A. Venezuela Manufacturing of seamless 70% 70% 66%
steel pipes
.........................................................................................................................
(a) Incorporated or acquired during 2004
(b) 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.
47
Tenaris S.A. Consolidated financial statements for the years ended December 31,
2004, 2003 and 2002
- --------------------------------------------------------------------------------
33 Impact of New Accounting Pronouncements: International Financial
Reporting Standards
In December 2003, as a part of the IASB's project to improve International
Accounting Standards, the IASB released revisions to the following standards
that supersede the previously released versions of those standards: IAS1,
Presentation of Financial Statements; IAS 2, Inventories; IAS 8, Accounting
Policies, Changes in Accounting Estimates and Errors; IAS 10, Events after the
Balance Sheet Date; IAS 16, Property, Plant and Equipment; IAS 17, Leases; IAS
21, The Effects of Changes in Foreign Exchange Rates; IAS 24, Related Party
Disclosures; IAS 27, Consolidated and Separate Financial Statements; IAS 28,
Investments in Associates; IAS 31, Interests in Joint Ventures; IAS 33, Earnings
per Share and IAS 40, Investment Property. The revised standards must be applied
for annual periods beginning on or after January 1, 2005. During 2004 the
following International Financial Reporting Standards (IFRS) were issued: IFRS
2, Share-Based Payments; IFRS 3, Business Combinations; IFRS 4, Insurance
Contracts; IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations
and IFRS 6, Exploration for and Evaluation of Mineral Resources. Following is a
summary of those changes which could result in a material impact on the Tenaris
consolidated financial statements from applying these revised standards.
(a) Presentation of minority interests to be changed
IAS 1 (revised) requires disclosure, on the face of the income statement,
of the entity's profit or loss for the period and the allocation of that amount
between "profit or loss attributable to minority interest" and "profit or loss
attributable to equity holders of the parent". As from January 1, 2005, minority
interests will be included as equity in the consolidated balance sheet and not
shown as a separate category. The effect of this is to increase the Company's
equity at January 1, 2005 by USD165.3 million. Earnings per share will continue
to be calculated on the net income attributable solely to the equity holders of
Tenaris.
(b) IFRS 3 on business combinations and related goodwill amortization
Under IFRS 3, with effect from January 1, 2005, goodwill is considered to
have an indefinite life and is not amortized, but is subject to annual
impairment testing.
Goodwill of USD112.7 million recorded at December 31, 2004, will not be
amortized.
IFRS 3 requires accumulated negative goodwill at December 31, 2004 to be
derecognized with a corresponding adjustments to Retained earnings. The effect
of this is an increase in the opening balance of the Company's equity at January
1, 2005 of USD110.8 million.
During 2004, Tenaris incurred USD0.3 million of goodwill and negative
goodwill amortization expense.
(c) IAS 16 Property, Plant and Equipment
IAS 16 requires that the Company determines the depreciation charge
separately for each significant part of an item of property, plant and
equipment.
An entity is required to measure the residual value of an item of property,
plant and equipment as the amount it estimates it would receive currently for
the asset if the asset were already of the age and in the condition expected at
the end of its useful life.
Carlos Condorelli
Chief Financial Officer
48
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: February 28, 2005
Tenaris, S.A.
By: /s/ Cecilia Bilesio
- -----------------------
Cecilia Bilesio
Corporate Secretary