-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bt5oeccrqXFfs6IPS42xrx0VvLddBtwL7cRnBdrxIuKrlTopPT6yyI5U6hpi5KZN nWr4+cmkj7bBknE/ilSsqA== 0001157523-06-004637.txt : 20060504 0001157523-06-004637.hdr.sgml : 20060504 20060504125611 ACCESSION NUMBER: 0001157523-06-004637 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20060504 FILED AS OF DATE: 20060504 DATE AS OF CHANGE: 20060504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TENARIS SA CENTRAL INDEX KEY: 0001190723 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-31518 FILM NUMBER: 06807195 BUSINESS ADDRESS: STREET 1: 420 FIFTH AVENUE STREET 2: 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 212-376-6500 MAIL ADDRESS: STREET 1: 23 AVENUE MONTEREY CITY: LUXEMBOURG STATE: N4 ZIP: L 2086 6-K 1 a5140055.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 May 4, 2006 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 March 31, 2006. 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: May 4, 2006 Tenaris, S.A. By: /s/ Cecilia Bilesio - ----------------------- Cecilia Bilesio Corporate Secretary 2 TENARIS S.A. CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS MARCH 31, 2006 46a, Avenue John F. Kennedy - 2nd Floor. L - 1855 Luxembourg 3 Tenaris S.A. Consolidated Condensed Interim Financial Statements for the three-month period ended March 31, 2006 - -------------------------------------------------------------------------------- CONSOLIDATED CONDENSED INTERIM INCOME STATEMENT (all amounts in thousands of U.S. dollars, unless Three-month period ended otherwise stated) March 31, --------------------------- Notes 2006 2005 --------------------------- (Unaudited) Net sales 2 1,783,152 1,452,927 Cost of sales 3 (972,492) (865,128) --------------------------- Gross profit 810,660 587,799 Selling, general and administrative expenses 4 (217,884) (185,083) Other operating income (expenses), net 8,130 2,967 --------------------------- Operating income 600,906 405,683 Financial income (expense), net 5 10,596 (41,807) --------------------------- Income before equity in earnings of associated companies and income tax 611,502 363,876 Equity in earnings of associated companies 21,521 30,163 --------------------------- Income before income tax 633,023 394,039 Income tax (191,333) (114,069) --------------------------- Income for the period 441,690 279,970 =========================== Attributable to: Equity holders of the Company 419,688 264,234 Minority interest 22,002 15,736 --------------------------- 441,690 279,970 =========================== Earnings per share attributable to the equity holders of the Company during the period Weighted average number of ordinary shares in issue (thousands) 1,180,537 1,180,537 Earnings per share (U.S. dollars per share) 0.36 0.22 Earnings per ADS (U.S. dollars per ADS) 0.71 0.45 The ratio of ordinary shares per American Depositary Shares (ADSs) was changed from a ratio of one ADS equal to ten ordinary shares to a new ratio of one ADS equal to two ordinary shares. The implementation date for this change was April 26, 2006, for shareholders of record at April 17, 2006. Earnings per ADS reflected above are adjusted for this change in the conversion ratio. 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, 2005. 1 Tenaris S.A. Consolidated Condensed Interim Financial Statements for the three-month period ended March 31, 2006 - -------------------------------------------------------------------------------- CONSOLIDATED CONDENSED INTERIM BALANCE SHEET (all amounts in thousands of U.S. dollars) At March 31, 2006 At December 31, 2005 ------------------------ ------------------------ Notes (Unaudited) ASSETS Non-current assets Property, plant and equipment, net 6 2,275,130 2,230,038 Intangible assets, net 6 159,747 159,099 Investments in associated companies 341,446 257,234 Other investments 25,579 25,647 Deferred tax assets 212,087 194,874 Receivables 32,276 3,046,265 65,852 2,932,744 ----------- ----------- Current assets Inventories 1,491,632 1,376,113 Receivables and prepayments 155,661 143,282 Current tax assets 121,138 102,455 Trade receivables 1,289,780 1,324,171 Other investments 297,557 119,907 Cash and cash equivalents 910,991 4,266,759 707,356 3,773,284 ------------------------ ------------------------ Total assets 7,313,024 6,706,028 =========== =========== EQUITY 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 Currency translation adjustments (54,818) (59,743) Other reserves 30,801 2,718 Retained earnings 2,076,191 3,960,498 1,656,503 3,507,802 ----------- ----------- Minority interest 295,470 268,071 ----------- ----------- Total equity 4,255,968 3,775,873 ----------- ----------- LIABILITIES Non-current liabilities Borrowings 639,129 678,112 Deferred tax liabilities 359,371 353,395 Other liabilities 157,492 154,378 Provisions 45,074 43,964 Trade payables 707 1,201,773 1,205 1,231,054 ----------- ----------- Current liabilities Borrowings 329,703 332,180 Current tax liabilities 517,216 452,534 Other liabilities 159,190 138,875 Provisions 36,566 36,945 Customer advances 129,291 113,243 Trade payables 683,317 1,855,283 625,324 1,699,101 ------------------------ ------------------------ Total liabilities 3,057,056 2,930,155 ----------- ----------- Total equity and liabilities 7,313,024 6,706,028 =========== =========== Contingencies, commitments and restrictions to the distribution of profits are disclosed in Note 7. 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, 2005. 2
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the three-month period ended March 31, 2006 - -------------------------------------------------------------------------------- CONSOLIDATED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY (all amounts in thousands of U.S. dollars) ------------------------------------------------------------------------------------- Attributable to equity holders of the Company --------------------------------------------------------------- Currency Retained Share Legal Share Other translation Earnings Minority Capital Reserves Premium Reserves adjustment (*) Interest Total ----------- --------- --------- -------- ----------- ---------- --------- ----------- (Unaudited) Balance at January 1, 2006 1,180,537 118,054 609,733 2,718 (59,743) 1,656,503 268,071 3,775,873 ------------------------------------------------------------------------------------- Currency translation differences - - - - 4,925 13,699 18,624 Change in equity reserves (see Notes 1 and 8) 28,083 28,083 Acquisition of minority interest - - - (721) (721) Dividends paid in cash - - - (7,581) (7,581) Income for the period - - - - 419,688 22,002 441,690 ------------------------------------------------------------------------------------- Balance at March 31, 2006 1,180,537 118,054 609,733 30,801 (54,818) 2,076,191 295,470 4,255,968 ===================================================================================== ---------------------------------------------------------------------------------------- Attributable to equity holders of the Company ------------------------------------------------------------------- Other Currency Share Legal Share Distributable translation Retained Minority Capital Reserves Premium Reserve adjustments Earnings Interest 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 1) - - - - - 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 - - - - (41,106) - (2,586) (43,692) Acquisition of minority interest - - - - - - (38) (38) Income for the period - - - - - 264,234 15,736 279,970 ---------------------------------------------------------------------------------------- Balance at March 31, 2005 1,180,537 118,054 609,733 82 (71,126) 992,547 178,383 3,008,210 ========================================================================================
(*) Retained Earnings calculated according to Luxembourg Law are disclosed in Note 7 (ii). 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, 2005. 3 Tenaris S.A. Consolidated Condensed Interim Financial Statements for the three-month period ended March 31, 2006 - -------------------------------------------------------------------------------- CONSOLIDATED CONDENSED INTERIM CASH FLOW STATEMENT Three-month period ended March 31, -------------------- (all amounts in thousands of U.S. dollars) 2006 2005 -------------------- (Unaudited) Cash flows from operating activities Income for the period 441,690 279,970 Adjustments for: Depreciation and amortization 54,675 51,977 Income tax accruals less payments 83,458 37,478 Equity in earnings of associated companies (21,521) (30,163) Interest accruals less payments, net 5,292 2,344 Income from disposal of Investment (6,933) - Changes in provisions 731 (4,285) Proceeds from Fintecna arbitration award net of BHP settlement - 66,594 Changes in working capital (24,257) (209,878) Other, including currency translation adjustment 10,947 (11,344) -------------------- Net cash provided by operating activities 544,082 182,693 ==================== Cash flows from investing activities Capital expenditures (69,529) (47,316) Acquisitions of subsidiaries (see Note 8) (29,809) (38) Proceeds from disposal of property, plant and equipment and intangible assets 1,820 1,442 Dividends and distributions received from associated companies - 19,520 Changes in restricted bank deposits 648 (27,680) Reimbursement from trust funds - 119,666 Investments in short terms securities (177,650) - -------------------- Net cash (used in) provided by investing activities (274,520) 65,594 ==================== Cash flows from financing activities Dividends paid to minority interest in subsidiaries (7,581) - Proceeds from borrowings 101,085 398,269 Repayments of borrowings (146,447) (516,422) -------------------- Net cash (used in) provided by financing activities (52,943) (118,153) ==================== Increase in cash and cash equivalents 216,619 130,134 Movement in cash and cash equivalents At beginning of the period 672,437 293,824 Effect of exchange rate changes (1,834) (298) Increase in cash and cash equivalents 216,619 130,134 -------------------- At March 31, 887,222 423,660 ==================== Cash and cash equivalents At March 31, -------------------- 2006 2005 -------------------- Cash and bank deposits 910,991 477,106 Bank overdrafts (22,369) (12,266) Restricted bank deposits (1,400) (41,180) -------------------- 887,222 423,660 ==================== 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, 2005. 4 Tenaris S.A. Consolidated Condensed Interim Financial Statements for the three-month period ended March 31, 2006 - -------------------------------------------------------------------------------- NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS Index to the notes to the consolidated condensed interim financial statements 1 General information and basis of presentation 2 Segment information 3 Cost of sales 4 Selling, general and administrative expenses 5 Financial income (expenses), net 6 Property, plant and equipment and intangible assets, net 7 Contingencies, commitments and restrictions to the distribution of profits 8 Business acquisitions, incorporation of subsidiaries and other significant events 9 Related party disclosures 5 Tenaris S.A. Consolidated Condensed Interim Financial Statements for the three-month period ended March 31, 2006 - -------------------------------------------------------------------------------- NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS (In the notes all amounts are shown in U.S. dollars, unless otherwise stated) 1 General information and basis of presentation Tenaris S.A. (the "Company" or "Tenaris"), a Luxembourg corporation (societe anonyme holding), was incorporated on December 17, 2001 as a holding company for investments in steel pipe manufacturing and distribution companies. The Company consolidates its subsidiary companies, as detailed in Note 31 to the audited Consolidated Financial Statements for the year ended December 31, 2005, and modified as discussed in Note 8 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, 2005. These consolidated condensed interim financial statements should be read in conjunction with the audited Consolidated Financial Statements for the year ended December 31, 2005, which have been prepared in accordance with International Financial Reporting Standards ("IFRS"). The preparation of consolidated condensed interim financial statements in conformity with IFRS requires management to make certain accounting 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, some financial gains and losses do arise from intercompany transactions because certain subsidiaries use their respective local currencies as their functional currency for accounting purposes. Such gains and losses are included in the consolidated income statement under Financial income (expense), net. The Company applies hedge accounting treatment for certain qualifying financial instruments. These transactions are classified as cash flow hedges (mainly currency forward contracts on highly probable forecast transactions and interest rate swaps). The effective portion of the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in equity. The gain or loss relating to the ineffective portion is recognized in the income statement. The fair value of the Company's derivative financial instruments (asset or liability) is reflected on the Balance Sheet. For transactions designated and qualifying for hedge accounting, the Company documents at the time of designation of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives. The Company also documents its assessment at hedge designation and at each period end whether the derivatives that are used in hedging transactions are expected to be effective in offsetting changes in cash flows of hedged items. At March 31, 2006, the effective portion of designated cash flow hedges amounts to $0.4 million and is included in Other reserves in equity. Upon the adoption of IFRS 3, which was adopted together with the revised IAS 38, "Intangible Assets", and IAS 36, "Impairment of Assets", previously accumulated negative goodwill is required to be derecognized through an adjustment to retained earnings. The derecognition of negative goodwill in this manner resulted in an increase of $110.8 million in the beginning balance of the Company's equity at January 1, 2005. These consolidated condensed interim financial statements were approved for issue by the Tenaris Board of Directors on May 2, 2006. 6 Tenaris S.A. Consolidated Condensed Interim Financial Statements for the three-month period ended March 31, 2006 - -------------------------------------------------------------------------------- 2 Segment information Primary reporting format: business segments (all amounts in thousands of U.S. dollars) ----------------------------------------------------- Welded & Other Metallic Seamless Products Energy Other Total ----------------------------------------------------- Three-month period ended (Unaudited) March 31, 2006 Net sales 1,440,969 114,596 161,622 65,965 1,783,152 Cost of sales (693,879) (75,525) (156,491) (46,597) (972,492) ----------------------------------------------------- Gross profit 747,090 39,071 5,131 19,368 810,660 Depreciation and amortization 46,831 4,547 433 2,864 54,675 Three-month period ended March 31, 2005 Net sales 1,105,252 160,434 143,972 43,269 1,452,927 Cost of sales (601,517) (101,631) (137,484) (24,496) (865,128) ----------------------------------------------------- Gross profit 503,735 58,803 6,488 18,773 587,799 Depreciation and amortization 44,363 3,622 799 3,193 51,977 Secondary reporting format: geographical segments (all amounts in thousands of U.S. dollars) -------------------------------------------------------- Middle Far South North East & East & America Europe America Africa Oceania Total -------------------------------------------------------- Three-month period (Unaudited) ended March 31, 2006 Net sales 343,374 467,813 467,599 331,070 173,296 1,783,152 Depreciation and amortization 22,510 15,049 15,422 209 1,485 54,675 Three-month period ended March 31, 2005 Net sales 354,590 405,743 414,058 146,623 131,913 1,452,927 Depreciation and amortization 21,083 17,781 11,477 11 1,625 51,977 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. 7 Tenaris S.A. Consolidated Condensed Interim Financial Statements for the three-month period ended March 31, 2006 - -------------------------------------------------------------------------------- 3 Cost of sales Three-month period ended March 31, ------------------------ (all amounts in thousands of U.S. dollars) 2006 2005 ------------------------ (Unaudited) Inventories at the beginning of the period 1,376,113 1,269,470 Plus: Charges of the period Raw materials, energy, consumables and other 807,014 706,519 Services and fees 84,348 73,495 Labor cost 108,987 99,060 Depreciation of property, plant and equipment 47,740 44,812 Amortization of intangible assets 1,130 1,711 Maintenance expenses 25,080 23,048 Provisions for contingencies - 1,200 Allowance for obsolescence 4,946 1,264 Taxes 1,013 975 Other 7,753 4,282 ------------------------ 1,088,011 956,366 Less: Inventories at the end of the period (1,491,632) (1,360,708) ------------------------ 972,492 865,128 ======================== 4 Selling, general and administrative expenses Three-month period ended March 31, ------------------------ (all amounts in thousands of U.S. dollars) 2006 2005 ------------------------ (Unaudited) Services and fees 25,438 31,487 Labor cost 58,650 46,035 Depreciation of property, plant and equipment 1,896 2,479 Amortization of intangible assets 3,909 2,975 Commissions, freight and other selling expenses 87,593 68,024 Provisions for contingencies 211 1,878 Allowances for doubtful accounts 1,901 5,314 Taxes 21,350 16,822 Other 16,936 10,069 ------------------------ 217,884 185,083 ======================== 5 Financial income (expense), net Three-month period ended March 31, ------------------------ (all amounts in thousands of U.S. dollars) 2006 2005 ------------------------ (Unaudited) Interest expense (11,883) (12,442) Interest income 12,481 2,959 Net foreign exchange transaction losses and changes in fair value of derivative instruments 8,805 (33,879) Other 1,193 1,555 ------------------------ 10,596 (41,807) ======================== 8 Tenaris S.A. Consolidated Condensed Interim Financial Statements for the three-month period ended March 31, 2006 - -------------------------------------------------------------------------------- 6 Property, plant and equipment and intangible assets, net Net Property, Net Plant and Intangible Equipment Assets ----------- ----------- (all amounts in thousands of U.S. dollars) (Unaudited) (Unaudited) Three-month period ended March 31, 2006 Opening net book amount 2,230,038 159,099 Currency translation differences 20,393 524 Transfers (124) 124 Additions 65,653 3,876 Disposals (14,086) Increase due to business acquisition 22,892 1,163 Depreciation/ Amortization charge (49,636) (5,039) ----------- ----------- At March 31, 2006 2,275,130 159,747 =========== =========== 7 Contingencies, commitments and restrictions to the distribution of profits This note should be read in conjunction with Note 26 included in the Company's audited Consolidated Financial Statements for the year ended December 31, 2005. Significant changes or events since the date of the annual report are the following: (i) Commitments (a) In August 2001, Dalmine Energie S.p.A. ("Dalmine Energie") entered into a ten-year contract ending October 1, 2011 with Eni S.p.A. Gas & Power Division ("Eni") for the purchase of natural gas with certain take-or-pay conditions. The outstanding value of these commitments at March 31, 2006 amounts to approximately EUR 770.2 million ($932.3 million). (b) Under the Gas Release Program enacted by Eni, in August 2004, Dalmine Energie increased its supply of natural gas for the period from October 1, 2004 to September 30, 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 EUR 247.5 million ($299.6 million), based on prices prevailing at March 2006. Dalmine Energie has also obtained the necessary capacity on the interconnection infrastructure at the Italian border to transport the natural gas to Italy for the supply period. (c) Dalmine Energie has entered into arrangements and expects to obtain additional gas transportation capacity on the Trans Austria Gasleitung GmbH ("TAG") pipeline, which is presently under construction. This capacity will allow Dalmine Energie to import an incremental 1,176.5 million cubic meters of natural gas per year. The additional transportation capacity, which is subject to "ship or pay" provisions, will be available on a firm basis on the TAG pipeline beginning October 2008 and through September 2028. The expected annual value of this "ship or pay" commitment is approximately EUR 5.0 million per year. Tenaris provided bank guarantees in the amount of EUR 15.1 million in support of Dalmine Energie. The value of the bank guarantees corresponds to the termination penalties that would be due TAG in the event of termination or non-utilization of the transportation capacity. 9 Tenaris S.A. Consolidated Condensed Interim Financial Statements for the three-month period ended March 31, 2006 - -------------------------------------------------------------------------------- 7 Contingencies, commitments and restrictions to the distribution of profits (Cont'd) (ii) Restrictions to the distribution of profits and payment of dividends As of March 31, 2006, 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 three month period ended March 31, 2006 1,173,773 ----------- Total shareholders equity according to Luxembourg law 3,082,097 =========== 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 March 31, 2006, 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, among other conditions, that it has distributable retained earnings calculated in accordance with Luxembourg law and regulations. At March 31, 2006, the retained earnings of Tenaris under Luxembourg law totalled $1,173.8 million, as detailed below. (all amounts in thousands of U.S. dollars) Retained earnings at December 31, 2005 under Luxembourg law 1,171,738 Other income and expenses for the three-month period ended March 31, 2006 2,035 ----------- Retained earnings at March 31, 2006 under Luxembourg law 1,173,773 =========== 8 Business acquisitions, incorporation of subsidiaries and other significant events (a) Investment in Ternium S.A. ("Ternium") On September 9, 2005, the Company exchanged its 21.2% equity interest in Consorcio Siderurgia Amazonia Ltd. ("Amazonia") and its 24.4% equity interest in Ylopa Servicos de Consultadoria Ltda. ("Ylopa"), for 209,460,856 shares in Ternium, the company into which San Faustin N.V. (a Netherlands Antilles corporation and the controlling shareholder of Tenaris) consolidated its Latin American holdings in flat and long steel producers Siderar S.A.I.C. ("Siderar"), Sidor C.A. ("Sidor") and Hylsamex, S.A de C.V. 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 initial ownership interest of approximately 17.9% in Ternium. Subsequently, on October 27, 2005, Usinas Siderurgicas de Minas Gerais S.A. reached an agreement with Ternium to exchange its interests in Amazonia, Ylopa and Siderar, plus additional consideration of approximately $114.1 million provided as a convertible loan, for an equity stake in Ternium. As a consequence of the additional shares issued under this transaction, Tenaris' ownership stake was reduced to 15.0% of Ternium's outstanding common stock at December 31, 2005. The effect of this transaction resulted in an increase of the Company's proportional ownership in Ternium's equity of approximately $2.7 million, which Tenaris recognized in Other Reserves in equity. 10 Tenaris S.A. Consolidated Condensed Interim Financial Statements for the three-month period ended March 31, 2006 - -------------------------------------------------------------------------------- 8 Business acquisitions, incorporation of subsidiaries and other significant events (Cont'd) In addition, in August 2005 Tenaris extended to Ternium two subordinated convertible loans consisting of principal amount of $39.7 million. The principal amount of these loans at the date issue corresponded to the amount of certain distributions received from Amazonia during the second and third quarters of 2005 in connection with Ternium's participation in Amazonia's financial debt restructuring in 2003. At the date of Ternium's initial public offering ("IPO"), the loans totaled approximately $40.5 million, including accrued interest. On February 1, 2006, Ternium completed its IPO, issuing an additional 248,447,200 shares (equivalent to 24,844,720 ADS) at a price of $2.00 per share, or $20.00 per ADS. Tenaris received an additional 20,252,338 shares upon the mandatory conversion of its loans to Ternium. In addition to the shares issued to Tenaris, Ternium issued shares to other shareholders corresponding to their mandatory convertible loans. On February 23, 2006, the underwriters of Ternium's IPO exercised an overallotment option under which Ternium issued an additional 37,267, 080 shares (equivalent to 3,726,708 ADS). As a result of the IPO and the conversion of loans, as of February 1, 2006, Tenaris' ownership stake in Ternium amounted to 11.46%. The effect of these transactions resulted in an additional increase of the Company's proportional ownership in Ternium's equity of approximately $27.7 million, which Tenaris recognized in Other Reserves in equity. At March 31, 2006, the closing price of Ternium shares as quoted on the New York Stock Exchange was $28.35 per ADS, giving Tenaris' ownership stake a market value of approximately $651 million. At March 31, 2006, the carrying value of Tenaris's ownership stake in Ternium was approximately $338.0 million. (b) Acquisition of Welded Pipe Business in Argentina On January 31, 2006, Siat S.A., a subsidiary of Tenaris, completed its acquisition of the welded pipe assets and facilities located in Villa Constitucion, province of Santa Fe, Argentina, belonging to Industria Argentina de Acero, S.A. ("Acindar") for $29.1 million. The acquisition was approved by the Argentine antitrust authorities (Comision Nacional de Defensa de la Competencia). The facilities acquired have an annual capacity of 80,000 tons of welded pipes whose small diameter range largely complements the range of welded pipes that Tenaris produces in Argentina. The acquired business did not materially contribute to the Company's revenue and income. The fair value of acquired assets and liabilities were: Three-month period ended March 31, 2006 -------------------- (all amounts in thousands of U.S. dollars) Unaudited) -------------------- Other assets and liabilities (net) 5,033 Property, plant and equipment 22,892 Goodwill 1,163 -------------------- Net assets acquired 29,088 (c) Minority Interest During the quarter ended march 31, 2006, additional shares of Silcotub and Dalmine were acquired from minority shareholders for approximately $0.7 million. 11 Tenaris S.A. Consolidated Condensed Interim Financial Statements for the three-month period ended March 31, 2006 - -------------------------------------------------------------------------------- 9 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 $) Three-month period ended March 31, 2006 Associated Other Total (1) (i) Transactions (a) Sales of goods and services Sales of goods 24,902 14,391 39,293 Sales of services 3,544 631 4,175 --------------------------- 28,446 15,022 43,468 =========================== (b) Purchases of goods and services Purchases of goods 19,441 5,510 24,951 Purchases of services 2,116 13,141 15,257 --------------------------- 21,557 18,651 40,208 =========================== Three-month period ended March 31, 2005 Associated Other Total (2) (i) Transactions (a) Sales of goods and services Sales of goods 181 40,686 40,867 Sales of services 235 2,854 3,089 --------------------------- 416 43,540 43,956 =========================== (b) Purchases of goods and services Purchases of goods 27 17,649 17,676 Purchases of services 40 16,239 16,279 --------------------------- 67 33,888 33,955 =========================== 12 Tenaris S.A. Consolidated Condensed Interim Financial Statements for the three-month period ended March 31, 2006 - -------------------------------------------------------------------------------- 9 Related party disclosures (Cont'd) At March 31, 2006 Associated Other Total --------------------------- (ii) Period-end balances (a) Related to sales/purchases of goods/services Receivables from related parties 24,982 22,954 47,936 Payables to related parties (23,072) (9,599) (32,671) --------------------------- 1,910 13,355 15,265 =========================== (b) Other balances Receivables 2,080 - 2,080 (c) Financial debt Borrowings (4) (55,623) - (55,623) At December 31, 2005 Associated Other Total --------------------------- (ii) Period-end balances (a) Related to sales/purchases of goods/services Receivables from related parties 30,988 15,228 46,216 Payables to related parties (21,034) (8,413) (29,447) -------------------------- 9,954 6,815 16,769 ========================== (b) Other balances (3) 42,437 - 42,437 (c) Financial debt Borrowings (4) (54,801) - (54,801) (1) Includes Ternium S.A. and its subsidiaries and Condusid C.A. (2) Up to September 30, 2005 includes: Condusid, Ylopa, Amazonia and Sidor. From October 1, 2005 includes: Condusid and Ternium (3) Includes convertible loan to Ternium S.A. of $40.4 million at December 31, 2005. (4) Convertible loan from Sidor C.A. to Matesi (Materiales Siderurgicos S.A.). (iii) Officers and director's compensation The aggregate compensation of the directors and executive officers earned during the three-month period ended March 31, 2006 amounted to $3.2 million. Carlos Condorelli Chief Financial Officer 13 -----END PRIVACY-ENHANCED MESSAGE-----