6-K 1 a5017732.txt TENARIS, S.A., 6-K 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