FORM 6 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
As of November 10, 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 condensed
interim financial statements as of September 30, 2005.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 10, 2005
Tenaris, S.A.
By: /s/ Cecilia Bilesio
- -----------------------
Cecilia Bilesio
Corporate Secretary
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
TENARIS S.A.
CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2005
46a, Avenue John F. Kennedy - 2nd Floor.
L - 1855 Luxembourg
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
Consolidated condensed interim income statement
(all amounts in thousands of U.S. dollars, Three-month period ended Nine-month period ended
unless otherwise stated) September 30, September 30,
------------------------------------------------------------------
Notes 2005 2004 2005 2004
---------------- ---------------- -------------- -----------------
(Unaudited)
Net sales 3 1,640,385 1,007,157 4,837,623 2,863,352
Cost of sales 4 (962,929) (641,293) (2,871,831) (1,939,405)
---------------- ---------------- -------------- -----------------
Gross profit 677,456 365,864 1,965,792 923,947
Selling, general and administrative expenses 5 (205,937) (168,922) (603,530) (476,287)
Other operating income (expense), net 3,696 4,917 9,265 10,482
---------------- ---------------- -------------- -----------------
Operating income 475,215 201,859 1,371,527 458,142
Financial income (expense), net 6 (5,141) (3,132) (89,591) (22,455)
---------------- ---------------- -------------- -----------------
Income before equity in earnings (losses) of 470,074 198,727 1,281,936 435,687
associated companies and income tax
Equity in earnings of associated companies 26,502 17,300 94,944 56,969
---------------- ---------------- -------------- -----------------
Income before income tax 496,576 216,027 1,376,880 492,656
Income tax (145,678) (67,204) (404,392) (167,184)
---------------- ---------------- -------------- -----------------
Income for the period (1) 350,898 148,823 972,488 325,472
================ ================ ============== =================
Attributable to (1):
Equity holders of the Company 318,897 141,599 896,587 317,281
Minority interest 32,001 7,224 75,901 8,191
---------------- ---------------- -------------- -----------------
350,898 148,823 972,488 325,472
================ ================ ============== =================
Earnings per share attributable to the equity holders of the Company during the
period (1)
Weighted average number of ordinary shares in
issue (thousands) 1,180,537 1,180,537 1,180,537 1,180,497
Earnings per share (U.S. dollars per share) 0.27 0.12 0.76 0.27
(1) Prior to December 31, 2004 minority interest was shown in the income
statement before net income, as required by International Financial Reporting
Standards in effect. For periods beginning on or after January 1, 2005, IAS 1
(revised) requires that income for the period as shown on the income statement
not exclude minority interest. Earnings per share, however, continue to be
calculated on the basis of net income attributable solely to the equity holders
of the Company (see Note 2 (a)).
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The Report of the Independent Registered Public
Accounting Firm on these consolidated condensed interim financial statements is
issued as a separate document. These consolidated condensed interim financial
statements should be read in conjunction with our audited Consolidated Financial
Statements and notes for the fiscal year ended December 31, 2004.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
Consolidated condensed interim balance sheet
(all amounts in thousands of U.S.
dollars) At September 30, 2005 At December 31, 2004
---------------------------- ----------------------------
Notes (Unaudited)
ASSETS
Non-current assets
Property, plant and equipment, net 8 2,222,228 2,164,601
Intangible assets, net (see Note 2 (b)) 8 160,036 49,211
Investments in associated companies 233,177 99,451
Other investments 25,251 24,395
Deferred tax assets 169,560 161,173
Receivables 75,766 2,886,018 151,365 2,650,196
-------------- --------------
Current assets
Inventories 1,445,100 1,269,470
Receivables and prepayments 160,961 279,450
Current tax assets 112,188 94,996
Trade receivables 1,163,876 936,931
Other investments 144,659 119,666
Cash and cash equivalents 567,773 3,594,557 311,579 3,012,092
---------------------------- ----------------------------
Total assets 6,480,575 5,662,288
============== ==============
EQUITY (see Note 2 (a))
Capital and reserves attributable to
the Company's equity holders
Share capital 1,180,537 1,180,537
Legal reserves 118,054 118,054
Share premium 609,733 609,733
Other distributable reserve - 82
Currency translation adjustments (47,477) (30,020)
Retained earnings 1,425,471 3,286,318 617,538 2,495,924
-------------- --------------
Minority interest 252,354 165,271
-------------- --------------
Total equity 3,538,672 2,661,195
-------------- --------------
LIABILITIES
Non-current liabilities
Borrowings 642,434 420,751
Deferred tax liabilities 350,474 371,975
Other liabilities 160,454 172,442
Provisions 45,042 31,776
Trade payables 3,874 1,202,278 4,303 1,001,247
-------------- --------------
Current liabilities
Borrowings 383,971 838,591
Current tax liabilities 357,279 222,735
Other liabilities 183,736 194,945
Provisions 28,947 42,636
Customer advances 171,039 108,847
Trade payables 614,653 1,739,625 592,092 1,999,846
---------------------------- ----------------------------
Total liabilities 2,941,903 3,001,093
-------------- --------------
Total equity and liabilities 6,480,575 5,662,288
============== ==============
Contingencies, commitments and restrictions to the distribution of profits are
disclosed in Note 9.
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The Report of the Independent Registered Public
Accounting Firm on these consolidated condensed interim financial statements is
issued as a separate document. These consolidated condensed interim financial
statements should be read in conjunction with our audited Consolidated Financial
Statements and notes for the fiscal year ended December 31, 2004.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
Consolidated condensed interim statement of changes in equity
(all amounts in thousands of U.S. dollars)
-----------------------------------------------------------------------------------------
Attributable to equity holders of the Company
------------------------------------------------------------------- Minority
Other Currency Retained Interest
Share Legal Share Distributable translation Earnings (see
Capital Reserves Premium Reserve (*) adjustment (*) Note 2) Total
--------- --------- ---------- -------------- ----------- --------- -------- ------------
(Unaudited)
Balance at January 1, 2005 1,180,537 118,054 609,733 82 (30,020) 617,538 165,271 2,661,195
Effect of adopting IFRS 3 (see
Note 2 (b)) - - - - - 110,775 - 110,775
-----------------------------------------------------------------------------------------
Adjusted balance at January 1,
2005 1,180,537 118,054 609,733 82 (30,020) 728,313 165,271 2,771,970
Currency translation differences - - - - (17,457) - 18,137 680
Acquisition and increase of
minority interest - - - - - - 969 969
Dividends paid in cash - - - (82) - (199,429) (7,924) (207,435)
Income for the period - - - - - 896,587 75,901 972,488
-----------------------------------------------------------------------------------------
Balance at September 30, 2005 1,180,537 118,054 609,733 - (47,477) 1,425,471 252,354 3,538,672
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Attributable to equity holders of the Company
------------------------------------------------------------------- Minority
Other Currency Interest
Share Legal Share Distributable translation Retained (see
Capital Reserves Premium Reserve adjustments Earnings Note 2) Total
--------- --------- ---------- -------------- ----------- --------- -------- ------------
(Unaudited)
Balance at January 1, 2004 1,180,288 118,029 609,269 96,555 (34,194) (128,667) 119,984 1,961,264
Currency translation differences - - - - (16,855) - (344) (17,199)
Capital Increase and acquisition
of minority interest 249 25 464 82 - - 19,842 20,662
Dividends paid in cash - - - (96,555) - (38,498) (23) (135,076)
Income for the period - - - - - 317,281 8,191 325,472
-----------------------------------------------------------------------------------------
Balance at September 30, 2004 1,180,537 118,054 609,733 82 (51,049) 150,116 147,650 2,155,123
-----------------------------------------------------------------------------------------
(*) The Distributable Reserve and Retained Earnings calculated according to
Luxembourg Law are disclosed in Note 9 (iv).
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The Report of the Independent Registered Public
Accounting Firm on these consolidated condensed interim financial statements is
issued as a separate document. These consolidated condensed interim financial
statements should be read in conjunction with our audited Consolidated Financial
Statements and notes for the fiscal year ended December 31, 2004.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
Consolidated condensed interim cash flow statement
Nine-month period ended September 30,
-------------------------------------
(all amounts in thousands of U.S. dollars) 2005 2004
-------------------------------------
(Unaudited)
Cash flows from operating activities
Income for the period 972,488 325,472
Adjustments for:
Depreciation and amortization 156,654 150,369
Income tax accruals less payments 104,425 35,936
Equity in earnings of associated companies (94,944) (56,969)
Interest accruals less payments, net 3,006 7,130
Changes in provisions (423) 7,010
Proceeds from Fintecna arbitration award net of BHP settlement (See Note 9
(i)) 66,594 -
Changes in working capital (1) (301,376) (411,928)
Other, including currency translation adjustment 25,549 (10,736)
-------------------------------------
Net cash provided by operating activities 931,973 46,284
=====================================
Cash flows from investing activities
Capital expenditures (194,428) (122,478)
Capital increase and acquisitions of subsidiaries and associated companies
(see Note 10) (48,002) (97,555)
Convertible loan to associated companies (39,944) -
Cost of disposition of property, plant and equipment and intangible assets 5,413 10,292
Dividends and distributions received from associated companies 59,127 40,595
Changes in restricted bank deposits 10,060 -
Investments in short term securities (144,659) -
Reimbursement from trust funds 119,666 -
-------------------------------------
Net cash used in investing activities (232,767) (169,146)
=====================================
Cash flows from financing activities
Dividends paid (199,511) (135,053)
Dividends paid to minority interest in subsidiaries (7,924) (23)
Proceeds from borrowings 775,930 456,192
Repayments of borrowings (1,019,006) (163,063)
-------------------------------------
Net cash (used in) provided by financing activities (450,511) 158,053
=====================================
Increase in cash and cash equivalents 248,695 35,191
Movement in cash and cash equivalents
At beginning of the period 293,824 238,030
Effect of exchange rate changes (11,057) 2,984
Increase in cash and cash equivalents 248,695 35,191
-------------------------------------
At September 30, 531,462 276,205
=====================================
Non-cash financing activities:
Conversion of debt to equity in subsidiaries - 13,072
=====================================
Cash and cash equivalents At September 30,
--------------------------------------
2005 2004
--------------------------------------
Cash and bank deposits 567,773 287,424
Bank overdrafts (32,871) (11,219)
Restricted bank deposits (3,440) -
--------------------------------------
531,462 276,205
=====================================
(1) In 2004, includes USD55.1 million corresponding to the first installment
paid in connection with the final settlement of BHP claim
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The Report of the Independent Registered Public
Accounting Firm on these consolidated condensed interim financial statements is
issued as a separate document. These consolidated condensed interim financial
statements should be read in conjunction with our audited Consolidated Financial
Statements and notes for the fiscal year ended December 31, 2004.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
Index to the notes to the consolidated condensed interim financial
statements
1 Basis of presentation
2 Impact of New Accounting Pronouncements: International Financial
Reporting Standards
3 Segment information
4 Cost of sales
5 Selling, general and administrative expenses
6 Financial income (expenses), net
7 Dividends per share
8 Property, plant and equipment and Intangible assets, net
9 Contingencies, commitments and restrictions to the distribution of
profits
10 Business acquisitions, incorporation of subsidiaries and other
significant events
11 Related party disclosures
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
(In the notes all amounts are shown in U.S. dollars, unless otherwise stated)
1 Basis of presentation
Tenaris S.A. (the "Company" or "Tenaris"), a Luxembourg corporation (societe
anonyme holding), was incorporated on December 17, 2001 for the purpose of
holding investments in steel pipe manufacturing and distribution companies. The
Company consolidates its subsidiary companies, as detailed in Note 32 to audited
Consolidated Financial Statements for the year ended December 31, 2004, and
modified as discussed in Note 10 to these consolidated condensed interim
financial statements.
These consolidated condensed interim financial statements have been prepared in
accordance with IAS 34, "Interim Financial Reporting". The accounting policies
used in the preparation of these consolidated condensed interim financial
statements are consistent with those used in the audited consolidated financial
statements for the year ended December 31, 2004, except for the impact of
changes resulting from the adoption of new accounting pronouncements, as
discussed in Note 2. These consolidated condensed interim financial statements
should be read in conjunction with the audited Consolidated Financial Statements
for the year ended December 31, 2004.
Certain comparative amounts have been reclassified to conform to changes in
presentation in the current period.
The preparation of consolidated condensed interim 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 as of the balance sheet dates, and also the reported amounts of
revenues and expenses for the reported periods. Actual results may differ from
these estimates.
Material intercompany transactions and balances between Tenaris subsidiaries
have been eliminated in consolidation. However, the fact that the functional
currency of the Company's subsidiaries differ results in the generation of
foreign exchange gains (losses) that are included in the consolidated condensed
interim income statement under "Financial income (expense), net".
These consolidated condensed interim financial statements were approved by the
Board of Directors of Tenaris on November 8, 2005.
2 Impact of New Accounting Pronouncements: International Financial Reporting
Standards
In December 2003, as a part of the IASB's project to improve International
Financial Reporting Standards, the IASB released revisions to certain standards
including: IAS 1, "Presentation of Financial Statements"; IAS 16, "Property,
Plant and Equipment"; IAS 24, "Related Party Disclosures" and IAS 33, "Earnings
per Share". The revised standards apply to annual periods beginning on or after
January 1, 2005. In addition, during 2004 International Financial Reporting
Standard (IFRS) 3, "Business Combinations" was issued. Adoption of new or
revised standards has been made in accordance with the respective transition
provisions.
The main impacts to the Company's consolidated financial statements are:
(a) Presentation of minority interest
IAS 1 (revised) requires disclosure on the face of the income statement of an
entity's income or loss for the period and the allocation of that amount between
"income or loss attributable to minority interest" and "income or loss
attributable to equity holders of the Company". Earnings per share continue to
be calculated on the basis of net income attributable solely to the equity
holders of the entity. Also, for periods beginning on or after January 1, 2005
minority interest is included within equity in the consolidated balance sheet
and is no longer shown as a separate category in the Liabilities section of the
balance sheet. This change resulted in an increase of U.S. $165.3 million in the
Company's reported equity at January 1, 2005.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
2 Impact of New Accounting Pronouncements: International Financial Reporting
Standards (Cont'd)
(b) Goodwill and negative goodwill
Prior to January 1, 2005 goodwill was amortized on a straight line basis over
its estimated useful life, not to exceed 15 years, and tested for impairment at
each balance sheet date in the event indicators of impairment were present. As
required by IFRS 3, the Company ceased amortization of goodwill for periods
beginning on or after January 1, 2005. In addition, accumulated amortization as
of December 31, 2004 has been netted against the cost of the goodwill.
Furthermore, for years ending on or after December 31, 2005 goodwill is required
to be tested annually for impairment, as well as when there are indicators of
impairment. Amortization of goodwill expense included in the nine-month period
ended September 30, 2004 amounted to U.S. $6.7 million.
IFRS 3 also requires accumulated negative goodwill at December 31, 2004 to be
derecognized through an adjustment to retained earnings. The derecognition of
negative goodwill in this manner resulted in an increase of U.S. $110.8 million
in the beginning balance of the Company's equity at January 1, 2005.
Amortization of negative goodwill income included in the nine-month period ended
September 30, 2004 amounted to U.S. $6.4 million.
(c) Financial instruments: recognition and measurement
In accordance with the transition provisions of IAS 39 (revised), the Company
designated financial assets previously recognized as "available for sale" as
"financial assets carried at fair value through profit or loss". Accordingly,
the Company changed the classification of these financial assets using the new
designation in its financial statements.
3 Segment information
Primary reporting format: business segments
(all amounts in thousands of U.S. dollars)
-----------------------------------------------------------------------------------
Welded & Other
Metallic
Seamless Products Energy Other Total
-----------------------------------------------------------------------------------
Nine-month period ended (Unaudited)
September 30, 2005
Net sales 3,667,049 636,849 362,593 171,132 4,837,623
Cost of sales (1,987,376) (425,808) (354,959) (103,688) (2,871,831)
-----------------------------------------------------------------------------------
Gross profit 1,679,673 211,041 7,634 67,444 1,965,792
Depreciation and amortization 133,040 11,185 1,973 10,456 156,654
Nine-month period ended
September 30, 2004
Net sales 2,267,064 270,405 277,290 48,593 2,863,352
Cost of sales (1,448,587) (193,146) (268,936) (28,736) (1,939,405)
-----------------------------------------------------------------------------------
Gross profit 818,477 77,259 8,354 19,857 923,947
Depreciation and amortization 134,933 9,194 2,674 3,568 150,369
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
3 Segment information (Cont'd)
Secondary reporting format: geographical segments
(all amounts in thousands of U.S. dollars)
-----------------------------------------------------------------------------------
South Middle East Far East &
America Europe North America & Africa Oceania Total
-----------------------------------------------------------------------------------
Nine-month period ended (Unaudited)
September 30, 2005
Net sales 1,353,356 1,114,478 1,281,329 636,435 452,025 4,837,623
Depreciation and amortization 62,151 53,755 35,925 50 4,773 156,654
Nine-month period ended
September 30, 2004
Net sales 568,401 850,059 763,821 382,025 299,046 2,863,352
Depreciation and amortization 67,953 48,400 29,105 22 4,889 150,369
Allocation of net sales to geographical segments is based on customer location.
Allocation of depreciation and amortization is based on the geographical
location of the underlying assets.
4 Cost of sales
Nine-month period ended
September 30,
-----------------------------------------
(all amounts in thousands of U.S. dollars) 2005 2004
-----------------------------------------
(Unaudited)
Inventories at the beginning of the period 1,269,470 831,879
Plus: Charges of the period
Raw materials, energy, consumables and other 2,242,620 1,514,506
Services and fees 243,318 183,242
Labor cost 313,733 259,470
Depreciation of property, plant and equipment 134,778 127,731
Amortization of intangible assets 4,278 7,700
Maintenance expenses 75,507 57,926
Provisions for contingencies 1,200 156
Allowance for obsolescence 6,808 9,309
Taxes 2,317 1,933
Other 22,902 9,889
-------------------- --------------------
3,047,461 2,171,862
Less: Inventories at the end of the period (1,445,100) (1,064,336)
-------------------- --------------------
2,871,831 1,939,405
-------------------- --------------------
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
5 Selling, general and administrative expenses
Nine-month period ended
September 30,
-------------------------------
(all amounts in thousands of U.S. dollars) 2005 2004
-------------------------------
(Unaudited)
Services and fees 90,190 81,347
Labor cost 159,578 107,821
Depreciation of property, plant and equipment 7,465 7,910
Amortization of intangible assets 10,133 7,028
Commissions, freight and other selling expenses 212,174 178,317
Provisions for contingencies 9,629 13,220
Allowances for doubtful accounts 6,059 9,504
Taxes 65,282 40,753
Other 43,020 30,387
-------------------------------
603,530 476,287
===============================
6 Financial income (expense), net
Nine-month period ended
September 30,
-------------------------------
(all amounts in thousands of U.S. dollars) 2005 2004
-------------------------------
(Unaudited)
Interest expense (40,122) (32,435)
Interest income 15,449 10,388
Net foreign exchange transaction losses and changes in
fair value of derivative instruments (70,162) (6,433)
Other 5,244 6,025
-------------------------------
(89,591) (22,455)
===============================
7 Dividends per share
Dividends paid in 2005 and 2004 were approximately U.S. $199.5 million and U.S.
$135.1 million, respectively, corresponding to U.S. $0.169 and U.S. $ 0.114 per
share, respectively.
8 Property, plant and equipment and Intangible assets, net
Net Property, Net Intangible
Plant and Equipment Assets
-------------------- -------------------
(all amounts in thousands of U.S. dollars) (Unaudited) (Unaudited)
Nine-month period ended September 30, 2005
Opening net book amount 2,164,601 49,211
Effect of adopting IFRS 3 (see Note 2 (b)) - 110,775
Currency translation differences (42,828) 12
Transfers 3 (3)
Additions 180,836 13,592
Disposals (5,352) (61)
Increase due to business acquisition 67,211 921
Depreciation/ Amortization charge (142,243) (14,411)
-------------------- -------------------
At September 30, 2005 2,222,228 160,036
-------------------- -------------------
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
9 Contingencies, commitments and restrictions to the distribution of profits
This note should be read in conjunction with Note 25 included in the Company's
audited Consolidated Financial Statements for the year ended December 31, 2004.
Significant changes or events since the date of the annual report are the
following:
(i) Arbitration proceeding against Fintecna
On December 28, 2004, an arbitral tribunal rendered a final award in the
arbitration proceeding against Fintecna S.p.A. ("Fintecna"), an Italian
state-owned entity and successor to ILVA S.p.A, the former owner of Dalmine
S.p.A. ("Dalmine"). In this arbitration proceeding, Tenaris sought
indemnification from Fintecna for amounts paid or payable by Dalmine to a
consortium led by BHP Billiton Petroleum Ltd. ("BHP") as indemnification for the
failure of an underwater pipeline manufactured and sold prior to the
privatization of Dalmine. Pursuant to this final award, Fintecna paid Tenaris a
total amount of euros 93.8 million (approximately U.S. $124.9 million) on March
15, 2005. In addition, on March 29, 2005, Tenaris prepaid a total of British
pounds 30.4 million plus interest (approximately U.S. $57.0 million)
corresponding to payment in full of its liability under the terms of the
settlement agreement with BHP. No charges against income resulted from this
payment, as Tenaris had previously recorded a provision related to this matter.
As a result of these settlements, the arbitration proceedings have been
definitively concluded and Tenaris has no further oustanding obligations under
the BHP settlement agreement.
(ii) Tax matters: Application of inflationary adjustment correction deduction
On February 11, 2005, Siderca S.A.I.C. ("Siderca") was granted the right to
participate in the promotional tax regime established by Argentine Law 25,924
under which it could potentially earn certain tax benefits. As a condition to
receive these benefits, Siderca withdrew its claim against the Argentine fiscal
authorities seeking relief through the application of the inflationary
adjustment correction in the calculation of its income tax liability for the
year ended December 31, 2002. On February 21, 2005, Siderca paid ARP $69.4
million (U.S. $23.8 million). No charges against income resulted from this
payment, as Tenaris had previously recorded a provision related to this matter.
(iii) Commitments
a) On March 15, 2005 Complejo Siderurgico de Guayana C.A. ("Comsigua")
prepaid 100% of the amount owed to the International Finance
Corporation ("IFC"), for approximately U.S. $42.5 million, related
with project financing loans. Tenaris has applied to the IFC for
release from its proportional guarantee commitment of Comsigua's
project loan.
b) As discussed in Note 25 to the audited Consolidated Financial
Statements for the year ended December 31, 2004, Dalmine Energie
S.p.A. entered into two agreements with Eni S.p.A. Gas & Power
Division for the purchase of natural gas with certain take-or-pay
provisions. The outstanding value of these commitments at September
30, 2005, amount to approximately euros 1,017 million (approximately
U.S. $1,225 million).
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
9 Contingencies, commitments and restrictions to the distribution of profits
(Cont'd)
(iv) Restrictions to the distribution of profits and payment of dividends
As of September 30, 2005, shareholders' equity as defined under Luxembourg law
and regulations consisted of the following:
(all amounts in thousands of U.S. dollars)
Share capital 1,180,537
Legal reserve 118,054
Share premium 609,733
Retained earnings including net income for the nine month
period ended September 30, 2005 940,667
------------------
Total shareholders equity according to Luxembourg law 2,848,991
==================
At least 5% of the net income per year as calculated in accordance with
Luxembourg law and regulations must be allocated to the creation of a legal
reserve equivalent to 10% of share capital. As of September 30, 2005, this
reserve is fully allocated and additional allocations to the reserve are not
required under Luxembourg law. Dividends may not be paid from this reserve.
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 September 30, 2005, the distributable reserve, including retained earnings,
of Tenaris under Luxembourg law totalled U.S. $940.7 million, as detailed below.
(all amounts in thousands of U.S. dollars)
Distributable reserve at December 31, 2004 under Luxembourg law 536,541
Dividends and distributions received 285,838
Other income and expenses for the nine-month period ended
September 30, 2005 317,799
Dividends paid (199,511)
------------------
Distributable reserve at September 30, 2005 under Luxembourg law 940,667
==================
10 Business acquisitions, incorporation of subsidiaries and other significant
events
(a) The financial assets held in trust funds at December 31, 2004 (U.S. $119.7
million) were received in shares of two wholly-owned Chilean subsidiaries
(Inversiones Berna S.A. and Inversiones Lucerna S.A.) on January 1, 2005.
(b) On May 4, 2005, the Company completed the acquisition of 97% of the equity
in S.C. Donasid S.A., a Romanian steel producer, for approximately U.S.
$47.9 million in cash and assumed liabilities. The shares of Siprofer A.G.
and Donasid Service s.r.l. were also acquired as part of this transaction.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
10 Business acquisitions, incorporation of subsidiaries and other significant
events (Cont'd)
The assets and liabilities arising from the acquisitions are as a follows:
Nine-month period ended
September 30, 2005
----------------------------
(all amounts in thousands of U.S. dollars) (Unaudited)
----------------------------
Other assets and liabilities (net) (41,755)
Property, plant and equipment 67,211
Goodwill 921
----------------------------
Net assets acquired 26,377
Minority Interest (969)
----------------------------
Purchase consideration 25,408
Liabilities paid as part of purchase agreement 22,594
----------------------------
Total disbursement related to S.C. Donasid S.A. and related 48,002
companies
============================
(c) Capitalization of Convertible Debt of Consorcio Siderurgia Amazonia, Ltd.
("Amazonia") and Exchange of Interests in Amazonia and Ylopa Servicos de
Consultadoria Lda. ("Ylopa") for shares of Ternium S.A. ("Ternium")
On February 3, 2005, Ylopa exercised its option to convert the convertible
debt it held in Amazonia into common stock. As a result, Tenaris' ownership
stake in Amazonia increased from 14.5% to 21.2%, and its indirect ownership
in Sidor C.A. ("Sidor") increased from 8.7% to 12.6%.
On September 9, 2005, the Company exchanged its 21.2% equity interest in
Amazonia and its 24.4% equity interest in Ylopa, for 209,460,856 shares in
Ternium, a new company formed by the Techint group to consolidate its Latin
American holdings in flat and long steel producers Siderar S.A.I.C., Sidor
C.A. and Hylsamex, S.A de C.V. The Techint group is an international group
of companies with operations focused primarily in the steel and energy
sectors which are controlled or over which significant influence is
exercised by San Faustin N.V. (a Netherlands Antilles corporation and
controlling shareholder of Tenaris). As a result of the exchange, which was
carried out based on fair values as determined by an internationally
recognized investment bank engaged for this purpose, Tenaris obtained an
ownership interest of approximately 17.9% in Ternium.
Subsequently, on October 27, 2005, Usinas Siderurgicas de Minas Gerais S.A.
reached agreement with Ternium to exchange its interests in Amazonia, Ylopa
and Siderar S.A.I.C., plus additional consideration of approximately U.S.
$114.1 million provided as a convertible loan, for an equity stake in
Ternium. As a result of this transaction, Tenaris current ownership stake
in Ternium corresponds to 15.0% of Ternium's outstanding common stock.
In addition, as of September 30, 2005, Tenaris had also extended two loans
totaling approximately U.S. $39.9 million to Ternium. The amount of these
loans correspond to the the amount of excess cash distributions received
from Amazonia during the second and third quarters of 2005. The loans are
convertible into shares of Ternium at the discretion of Tenaris upon the
occurrence of any of two events: 1) maturity of the loan in July and August
2011; and, 2) an event of default as defined in certain loan agreements
between Ternium and its banks. The conversion price under events (1) and
(2) will be based on a fair value opinion by a major bank contracted for
that purpose by Tenaris. It is not currently possible to estimate the price
at which a conversion could take place. In the event of an initial public
offering of shares by Ternium, conversion is mandatory and the conversion
price will be the net price set at the initial public offering.
Because the exchange is a transaction between companies under common
control, Tenaris has recorded its ownership interest in Ternium at the
carrying value of the investments exchanged, Amazonia and Ylopa. At the
transaction date, the carrying value of Amazonia and Ylopa was U.S. $229.7
million.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
10 Business acquisitions, incorporation of subsidiaries and other significant
events (Cont'd)
For the quarter ended September 30, 2005, Tenaris recognized its
proportional earnings in Amazonia and Ylopa, which amounted to U.S. $26.5
millon. In the future, Tenaris will recognize earnings from its investment
in Ternium to the extent of its proportional ownership.
(d) On May 18, 2005, Siat S.A., a subsidiary of Tenaris, and Acindar Industria
Argentina de Aceros S.A. ("Acindar") signed a letter of intent pursuant to
which Siat confirmed its intention to acquire Acindar's welded pipe assets
and facilities located in Villa Constitucion, province of Santa Fe,
Argentina, for approximately U.S. $28.0 million. Completion of this
acquisition is subject to due diligence findings and negotiation of
definitive documentation and other precedent conditions, including the
approval of the Argentine antitrust authorities (Comision Nacional de
Defensa de la Competencia).
11 Related party disclosures
The Company is controlled by San Faustin N.V., a Netherlands Antilles
corporation, which owns 60.45% of the Company's outstanding shares, either
directly or through its wholly-owned subsidiary I.I.I. Industrial Investments
Inc., a Cayman Islands corporation. The Company's directors and executive
officers as a group own 0.2% of the Company's outstanding shares, while the
remaining 39.35% is publicly traded. San Faustin N.V. is controlled by Rocca &
Partners, a British Virgin Islands corporation.
Transactions and balances disclosed as with "Associated" companies are those
with companies in which Tenaris owns 20% to 50% of the voting rights or over
which Tenaris exerts significant influence, but does not have control. All other
transactions with related parties which are not Associated and which are not
consolidated are disclosed as "Other".
The following transactions were carried out with related parties:
(all amounts in thousands of U.S. dollars)
Nine-month period ended September 30, 2005
Associated (1) Other Total
(i) Transactions
(a) Sales of goods and services
Sales of goods 78,584 63,709 142,293
Sales of services 3,649 7,263 10,912
-------------------------------------------------
82,233 70,972 153,205
=================================================
(b) Purchases of goods and services
Purchases of goods 31,215 33,144 64,359
Purchases of services 12,057 46,907 58,964
-------------------------------------------------
43,272 80,051 123,323
=================================================
Nine-month period ended September 30, 2004
Associated (1) Other Total
(i) Transactions
(a) Sales of goods and services
Sales of goods 3,910 32,197 36,107
Sales of services 6,023 7,354 13,377
-------------------------------------------------
9,933 39,551 49,484
=================================================
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
11 Related party disclosures (Cont'd)
(all amounts in thousands of U.S. dollars)
(b) Purchases of goods and services
Purchases of goods 24,591 20,248 44,839
Purchases of services 3,499 35,805 39,304
-------------------------------------------------
28,090 56,053 84,143
=================================================
At September 30, 2005
Associated (1) Other Total
-------------------------------------------------
(ii) Period-end balances
(a) Related to sales/purchases of
goods/services
Receivables from related parties 24,700 18,707 43,407
Payables to related parties (18,464) (11,421) (29,885)
-------------------------------------------------
6,236 7,286 13,522
=================================================
(b) Other balances
Receivables 42,023 - 42,023
(c) Financial debt
Borrowings (2) (54,034) - (54,034)
At December 31, 2004
Associated (1) Other Total
-------------------------------------------------
(ii) Period-end balances
(a) Related to sales/purchases of
goods/services
Receivables from related parties 25,593 27,070 52,663
Payables to related parties (4,914) (12,487) (17,401)
-------------------------------------------------
20,679 14,583 35,262
=================================================
(b) Cash and cash equivalents
Time deposits - 6 6
(c) Other balances
Trust fund - 119,666 119,666
Convertible debt instruments - Ylopa 121,955 - 121,955
(d) Financial debt
Borrowings (3) (51,457) (5,449) (56,906)
(1) Includes Condusid C.A. and Ternium S.A. and its subsidiaries.
(2) Convertible loan from Sidor C.A. to Matesi (Materiales Siderurgicos S.A.).
(3) Includes convertible loan from Sidor to Matesi (Materiales Siderurgicos
S.A.) of U.S. $51.5 million at December 31, 2004.
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
nine-month period ended September 30, 2005
- --------------------------------------------------------------------------------
11 Related party disclosures (Cont'd)
(iii) Officers and director's compensation
The aggregate compensation of the directors and executive officers earned during
the nine-month period ended September 30, 2005 amounted to U.S. $10.2 million.
Carlos Condorelli
Chief Financial Officer
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Tenaris S.A.
We have reviewed the accompanying consolidated condensed interim balance sheet
of Tenaris S.A. and its subsidiaries as of September 30, 2005, and the related
consolidated condensed interim statements of income for each of the three-month
and nine-month periods ended September 30, 2005 and 2004 and the consolidated
condensed interim statements of changes in equity and of cash flows for the
nine-month periods ended September 30, 2005 and 2004. These consolidated
condensed interim financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated condensed interim financial statements
for them to be in conformity with International Accounting Standard 34 "Interim
Financial Reporting".
We have previously audited in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet of Tenaris S.A. and its subsidiaries as of December 31, 2004, and the
related consolidated statements of income, of changes in equity and of cash
flows for the year then ended (not presented herein); and in our report dated
February 23, 2005, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated condensed interim balance sheet as of December 31,
2004, is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
Buenos Aires, November 8, 2005 3.
PRICE WATERHOUSE & CO. S.R.L.
by /s/ Daniel A. Lopez Lado (Partner)
- -----------------------------------------
Daniel A. Lopez Lado