6-K 1 a5465091.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 August 6, 2007 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 for the six-month period ended June 30, 2007. TENARIS S.A. CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS JUNE 30, 2007 46a, Avenue John F. Kennedy - 2nd Floor. L - 1855 Luxembourg
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six -month period ended June 30, 2007 -------------------------------------------------------------------------------------------------------------- CONSOLIDATED CONDENSED INTERIM INCOME STATEMENT (all amounts in thousands of U.S. dollars, Three-month period ended Six-month period ended unless otherwise stated) June 30 June 30 -------------------------------------------------- Notes 2007 2006 2007 2006 -------------------------------------------------- Continuing operations (Unaudited) Net sales 2 2,604,206 1,841,346 5,029,505 3,463,237 Cost of sales 2 & 3 (1,404,558) (903,261) (2,696,056)(1,719,588) -------------------------------------------------- Gross profit 1,199,648 938,085 2,333,449 1,743,649 Selling, general and administrative expenses 2 & 4 (408,511) (246,142) (782,778) (462,782) Other operating income (expense), net 2 (10,723) (1,880) (12,660) 6,305 -------------------------------------------------- Operating income 780,414 690,063 1,538,011 1,287,172 Interest income 5 20,208 13,221 42,399 25,616 Interest expense 5 (67,996) (14,437) (125,723) (26,076) Other financial results 5 15,121 5,386 2,078 15,083 -------------------------------------------------- Income before equity in earnings of associated companies and income tax 747,747 694,233 1,456,765 1,301,795 Equity in earnings of associated companies 29,398 25,551 55,305 47,072 -------------------------------------------------- Income before income tax 777,145 719,784 1,512,070 1,348,867 Income tax (242,659) (225,739) (468,190) (415,765) -------------------------------------------------- Income for continuing operations 534,486 494,045 1,043,880 933,102 Discontinued operations Income for discontinued operations - 1,719 - 4,352 -------------------------------------------------- Income for the period 534,486 495,764 1,043,880 937,454 -------------------------------------------------- Attributable to: Equity holders of the Company 495,950 471,771 976,254 891,459 Minority interest 38,536 23,993 67,626 45,995 -------------------------------------------------- 534,486 495,764 1,043,880 937,454 -------------------------------------------------- Earnings per share attributable to the equity holders of the Company during the period Weighted average number of ordinary shares (thousands) 1,180,537 1,180,537 1,180,537 1,180,537 Earnings per share (U.S. dollars per share) 0.42 0.40 0.83 0.76 Earnings per ADS (U.S. dollars per ADS) 0.84 0.80 1.65 1.51
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, 2006. 1
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six -month period ended June 30, 2007 -------------------------------------------------------------------------------------------------------------- CONSOLIDATED CONDENSED INTERIM BALANCE SHEET (all amounts in thousands of U.S. dollars) At June 30, 2007 At December 31, 2006 ------------------- ----------------------- Notes (Unaudited) ASSETS Non-current assets Property, plant and equipment, net 6 3,228,277 2,939,241 Intangible assets, net 6 4,925,668 2,844,498 Investments in associated companies 478,663 422,958 Other investments 40,829 26,834 Deferred tax assets 337,460 291,641 Receivables 43,879 9,054,776 41,238 6,566,410 --------- ------------- Current assets Inventories 2,640,572 2,372,308 Receivables and prepayments 258,930 272,632 Current tax assets 200,650 202,718 Trade receivables 1,818,443 1,625,241 Other investments 169,411 183,604 Cash and cash equivalents 891,159 5,979,165 1,372,329 6,028,832 ------------------- ----------------------- Total assets 15,033,941 12,595,242 ---------- ---------- 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 141,928 3,954 Other reserves 27,931 28,757 Retained earnings 4,019,677 6,097,860 3,397,584 5,338,619 ------------------- ----------------------- Minority interest 427,557 363,011 ---------- ---------- Total equity 6,525,417 5,701,630 ---------- ---------- LIABILITIES Non-current liabilities Borrowings 3,955,243 2,857,046 Deferred tax liabilities 1,358,852 991,945 Other liabilities 218,543 186,724 Provisions 92,899 92,027 Trade payables 343 5,625,880 366 4,128,108 --------- ------------- Current liabilities Borrowings 867,049 794,197 Current tax liabilities 397,853 565,985 Other liabilities 261,535 187,701 Provisions 24,453 26,645 Customer advances 488,649 352,717 Trade payables 843,105 2,882,644 838,259 2,765,504 ------------------- ----------------------- Total liabilities 8,508,524 6,893,612 ---------- ---------- Total equity and liabilities 15,033,941 12,595,242 ---------- ---------- Contingencies, commitments and restrictions to the distribution of profits are disclosed in Note 8.
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, 2006. 2
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the six -month period ended June 30, 2007 -------------------------------------------------------------------------------------------------------------- CONSOLIDATED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY (all amounts in thousands of U.S. dollars) Attributable to equity holders of the Company ------------------------------------------------------------------------ Currency Share Legal Share Other translation Retained Minority Capital Reserves Premium Reserves adjustment Earnings(*) Interest Total ----------------------------------------------------------------------------------------------- (Unaudited) Balance at January 1, 2007 1,180,537 118,054 609,733 28,757 3,954 3,397,584 363,011 5,701,630 ----------------------------------------------------------------------------------------------- Currency translation differences - - - - 137,974 - 16,014 153,988 Change in equity reserves - - - (826) - - - (826) Acquisition and decrease of minority interest - - - - - - 20,828 20,828 Dividends paid in cash - - - - - (354,161) (39,922) (394,083) Income for the period - - - - - 976,254 67,626 1,043,880 ----------------------------------------------------------------------------------------------- Balance at June 30, 2007 1,180,537 118,054 609,733 27,931 141,928 4,019,677 427,557 6,525,417 -----------------------------------------------------------------------------------------------
Attributable to equity holders of the Company ------------------------------------------------------------------------ Currency Share Legal Share Other translation Retained Minority Capital Reserves Premium Reserves adjustment Earnings 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 - - - - (2,475) - 16,131 13,656 Change in equity reserves - - - 26,613 - - - 26,613 Acquisition and increase of minority interest - - - - - - (9,671) (9,671) Dividends paid in cash - - - - - (204,233) (16,001) (220,234) Income for the period - - - - - 891,459 45,995 937,454 ----------------------------------------------------------------------------------------------- Balance at June 30, 2006 1,180,537 118,054 609,733 29,331 (62,218) 2,343,729 304,525 4,523,691 -----------------------------------------------------------------------------------------------
(*) Retained Earnings calculated in accordance with Luxembourg Law are disclosed in Note 8. 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, 2006. 3
CONSOLIDATED CONDENSED INTERIM CASH FLOW STATEMENT Six-month period ended June 30, -------------------------------------- (all amounts in thousands of U.S. dollars) 2007 2006 -------------------------------------- (Unaudited) Cash flows from operating activities Income for the period 1,043,880 937,454 Adjustments for: Depreciation and amortization 230,771 109,790 Income tax accruals less payments (249,793) (90,160) Equity in earnings of associated companies (55,305) (47,072) Interest accruals less payments, net 4,865 (1,464) Income from disposal of investment - (6,933) Changes in provisions (3,480) 5,531 Changes in working capital (125,365) (219,541) Other, including currency translation adjustment 53,803 26,472 -------------------------------------- Net cash provided by operating activities 899,376 714,077 -------------------------------------- Cash flows from investing activities Capital expenditures (229,149) (169,101) Acquisitions of subsidiaries and minority interest (see Note 9) (1,927,182) (39,110) Other disbursements relating to the acquisition of Hydril (71,580) - Decrease in subsidiaries (1,195) - Proceeds from disposal of property, plant and equipment and intangible assets 4,596 3,388 Dividends received 11,496 - Changes in restricted bank deposits - 627 Investments in short terms securities 14,193 (176,530) -------------------------------------- Net cash used in investing activities (2,198,821) (380,726) -------------------------------------- Cash flows from financing activities Dividends paid (354,161) (204,233) Dividends paid to minority interest in subsidiaries (39,922) (16,001) Proceeds from borrowings 2,208,026 234,563 Repayments of borrowings (1,018,713) (270,159) -------------------------------------- Net cash provided by (used in) financing activities 795,230 (255,830) -------------------------------------- (Decrease) Increase in cash and cash equivalents (504,215) 77,521 Movement in cash and cash equivalents At beginning of the period 1,365,008 680,591 Effect of exchange rate changes 22,249 (5,853) (Decrease) Increase in cash and cash equivalents (504,215) 77,521 -------------------------------------- At June 30, 883,042 752,259 -------------------------------------- At June 30, ------------------------------------ Cash and cash equivalents 2007 2006 ------------------------------------ Cash and bank deposits 891,159 776,146 Bank overdrafts (8,096) (22,466) Restricted bank deposits (21) (1,421) ------------------------------------ 883,042 752,259 ------------------------------------ Non-cash financing activity Conversion of debt to equity in subsidiaries 35,140 -
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, 2006. 1 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 Dividends per share 8 Contingencies, commitments and restrictions to the distribution of profits 9 Business acquisitions, incorporation of subsidiaries and other significant events 10 Discontinued operations 11 Related party disclosures 2 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"), a Luxembourg corporation (societe anonyme holding), was incorporated on December 17, 2001 as a holding company for investments in steel pipe manufacturing and distributing operations. The Company holds, either directly or indirectly, controlling interests in various subsidiaries. References in these financial statements to "Tenaris" refer to Tenaris S.A. and its consolidated subsidiaries. A list of the Company's subsidiaries is included in Note 32 to the audited Consolidated Financial Statements for the year ended December 31, 2006 and updated in Note 9 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, 2006. These consolidated condensed interim financial statements should be read in conjunction with the audited Consolidated Financial Statements for the year ended December 31, 2006, which have been prepared in accordance with International Financial Reporting Standards ("IFRS"). Certain comparative amounts have been reclassified to conform to changes in presentation in the current year. In May 2007, Tenaris acquired Hydril Company ("Hydril"), a company engaged in engineering, manufacturing and selling of premium connections and pressure control products for oil and gas drilling production. Hydril's premium connections business was allocated to the Tubes segment and a new segment was created -Pressure Control- for Hydril's pressure control business. The Tubes segment includes the operations that consist in the production and selling of both seamless and welded steel tubular products and services mainly for energy and industrial applications. The Projects segment includes the operations that consist in the production and selling of welded steel pipe products mainly used in the construction of major pipeline projects. The Pressure Control segment includes the operations that consist in the production and selling of products such as blowout preventers, subsea control systems and related products used in oil and gas drilling applications. The Others segment includes the operations that consist in the production and selling of sucker rods, welded steel pipes for electric conduits, industrial equipment and raw materials, such as hot briquetted iron, or HBI, that exceed Tenaris internal requirements. Corporate general and administrative expenses have been allocated to the Tubes segment. 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, since the functional currency of some subsidiaries is its respective local currency, some financial gains (losses) arising from intercompany transactions are generated. These are included in the consolidated condensed interim income statement under Other Financial results. These consolidated condensed interim financial statements were approved for issue by Tenaris's Board of Directors on August 3, 2007. 3 2 Segment information Reportable operating segments
-------------------------------------------------------------------- (all amounts in thousands of U.S. Total Total dollars) Pressure Continuing Discontinued Tubes Projects Control Others operations operations(*) -------------------------------------------------------------------- Six-month period ended June 30, 2007 (Unaudited) Net sales 4,337,062 325,254 49,238 317,951 5,029,505 - Cost of sales (2,183,935) (227,126) (30,240)(254,755) (2,696,056) - -------------------------------------------------------------------- Gross profit 2,153,127 98,128 18,998 63,196 2,333,449 - Selling, general and administrative expenses (695,727) (35,194) (9,502) (42,355) (782,778) - Other operating income (expenses), net (15,873) 1,714 (308) 1,807 (12,660) - -------------------------------------------------------------------- Operating income 1,441,527 64,648 9,188 22,648 1,538,011 - Depreciation and amortization 202,444 9,309 5,738 13,280 230,771 - Six-month period ended June 30, 2006 Net sales 3,099,412 201,024 - 162,801 3,463,237 282,180 Cost of sales (1,456,997) (139,903) - (122,688) (1,719,588) (271,940) -------------------------------------------------------------------- Gross profit 1,642,415 61,121 - 40,113 1,743,649 10,240 Selling, general and administrative expenses (400,207) (34,316) - (28,259) (462,782) (3,594) Other operating income (expenses), net 6,781 518 - (994) 6,305 (114) -------------------------------------------------------------------- Operating income 1,248,989 27,323 - 10,860 1,287,172 6,532 Depreciation and amortization 93,662 9,435 - 5,708 108,805 985
Geographical information
(all amounts in thousands of U.S. dollars) Total Middle Far Total Discontinued North South East & East & Continuing operations America America Europe Africa Oceania operations (*) --------------------------------------------------------------------------- Six-month period ended June 30, 2007 (Unaudited) Net sales 1,572,839 1,020,398 874,882 1,168,005 393,381 5,029,505 - Depreciation and amortization 131,496 57,247 37,889 505 3,634 230,771 - Six-month period ended June 30, 2006 Net sales 919,647 701,398 664,442 828,315 349,435 3,463,237 282,180 Depreciation and amortization 30,469 45,233 29,773 387 2,943 108,805 985
(*) Corresponds to Dalmine Energie operations. Allocation of net sales to geographical information is based on customer location. Allocation of depreciation and amortization is based on the geographical location of the underlying assets. 4 2 Segment information (Cont'd) There are no revenues from external customers attributable to the Company's country of incorporation (Luxembourg). The North American segment comprises Canada, Mexico and the USA. The South American segment comprises principally Argentina, Brazil and Venezuela. The European segment comprises principally France, Germany, Italy, Norway, Romania and the United Kingdom. The Middle East and Africa segment comprises principally Algeria, Egypt, Nigeria, Saudi Arabia and the United Arab Emirates. The Far East and Oceania segment comprises principally China, Indonesia, Japan and South Korea. 3 Cost of sales
Six-month period ended June 30, ---------------------- (all amounts in thousands of U.S. dollars) 2007 2006 ---------------------- (Unaudited) Inventories at the beginning of the period 2,372,308 1,376,113 Plus: Charges of the period Raw materials, energy, consumables and other 1,995,595 1,583,658 Increase in inventory due to business combinations 152,500 5,033 Services and fees 204,376 177,990 Labor cost 349,472 227,144 Depreciation of property, plant and equipment 121,728 95,175 Amortization of intangible assets 671 1,508 Maintenance expenses 93,488 55,202 Provisions for contingencies 4,300 - Allowance for obsolescence 6,080 (2,395) Taxes 2,999 1,959 Other 33,111 20,845 ---------------------- 2,964,320 2,166,119 Less: Inventories at the end of the period (2,640,572)(1,550,704) ---------------------- 2,696,056 1,991,528 From Discontinued operations - (271,940) ---------------------- 2,696,056 1,719,588 ----------------------
4 Selling, general and administrative expenses
Six-month period ended June 30, ------------------------- (all amounts in thousands of U.S. dollars) 2007 2006 ------------------------- (Unaudited) Services and fees 97,696 56,380 Labor cost 199,343 124,272 Depreciation of property, plant and equipment 6,856 4,400 Amortization of intangible assets 101,516 8,707 Commissions, freight and other selling expenses 225,358 175,385 Provisions for contingencies 19,741 5,587 Allowances for doubtful accounts (188) 2,288 Taxes 72,954 50,115 Other 59,502 39,242 ------------------------- 782,778 466,376 From Discontinued operations - (3,594) ------------------------- 782,778 462,782 -------------------------
5 5 Financial income (expenses), net
Six-month period ended June 30, ---------------------------- (all amounts in thousands of U.S. dollars) 2007 2006 ---------------------------- (Unaudited) Interest expense (125,723) (26,502) Interest income 42,399 25,868 ---------------------------- Interest net (83,324) (634) Net foreign exchange transaction results and changes in fair value of derivative instruments 6,484 15,007 Other (4,406) 288 ---------------------------- Other financial results 2,078 15,295 ---------------------------- Net financial results (81,246) 14,661 From Discontinued operations - (38) ---------------------------- (81,246) 14,623 ----------------------------
Each comparative item included in this note differs from its corresponding line in the income statement because it includes discontinued operations' results. 6 Property, plant and equipment and Intangible assets, net
(all amounts in thousands of U.S. dollars) Net Property, Net Plant and Intangible Equipment Assets ----------------- --------------- (Unaudited) (Unaudited) Six-month period ended June 30, 2007 Opening net book amount 2,939,241 2,844,498 Currency translation differences 71,293 48,431 Additions 217,852 11,297 Increase due to business combinations 152,540 2,135,196 Disposals (4,573) (23) Transfers (96) 96 Reclassifications (19,396) (11,640) Depreciation / Amortization charge (128,584) (102,187) ----------------- --------------- At June 30, 2007 3,228,277 4,925,668 ----------------- ---------------
7 Dividends per share On June 6, 2007, the Company's shareholders approved an annual dividend in the amount of $0.30 per share of common stock currently issued and outstanding, which in the aggregate amounted to approximately $354 million. The cash dividend was paid on June 21, 2007. On June 7, 2006, the Company's shareholders approved an annual dividend in the amount of $0.30 per share of common stock currently issued and outstanding. The amount approved included the interim dividend previously paid on November 16, 2005, in the amount of $0.127 per share. Tenaris paid the balance of the annual dividend amounting to $0.173 per share ($0.346 per ADS) on June 16, 2006. In the aggregate, the interim dividend paid in November 2005 and the balance paid in June 2006 amounted to approximately $354 million. 6 8 Contingencies, commitments and restrictions to the distribution of profits This note should be read in conjunction with Note 26 to the Company's audited Consolidated Financial Statements for the year ended December 31, 2006. Significant changes or events since the date of such financial statements are the following: Asbestos-related Litigation In addition to the previously known 14 civil proceedings for work-related injuries arising from the use of asbestos in its manufacturing processes during the period from 1960 to 1980, 39 asbestos-related out-of-court claims and 1 civil party claim, 2 new asbestos-related out-of-court claims and 1 asbestos civil proceedings have been notified to Tenaris's subsidiary Dalmine during 2007; 3 claims were adjudicated, dismissed or settled. Accordingly, as of June 30, 2007, the total asbestos-related claims pending against Dalmine are 53 (of which, 3 are covered by insurance). Aggregate settlement costs to date are Euro 5.1 million. Dalmine estimates that its potential liability in connection with the claims above that are not yet settled is approximately Euro 21.5 million ($29 million) of which Euro 8.9 million ($12 million) relate to the claims and proceedings notified to Dalmine during 2007. Accruals for Dalmine's potential liability are based on the average of the amounts paid by Dalmine for asbestos-related claims plus an additional amount related to some reimbursements requested by the social security authority. The maximum potential liability is not determinable as in some cases the requests for damages do not specify amounts, and instead is to be determined by the court. The timing of payment of the amounts claimed is not presently determinable. Maverick litigation On December 11, 2006, The Bank of New York ("BNY"), as trustee for the holders of Tenaris's subsidiary Maverick Tube Corporation ("Maverick") 2004 4% Convertible Senior Subordinated Notes due 2033 issued pursuant to an Indenture between Maverick and BNY ("Noteholders"), filed a complaint against Maverick and Tenaris in the United States District Court for the Southern District of New York. The complaint alleges that Tenaris's acquisition of Maverick triggered the "Public Acquirer Change of Control" provision of Indenture, asserting breach of contract claim against Maverick for refusing to deliver the consideration specified in the Public Acquirer Change of Control provision of the Indenture to Noteholders who entered their notes for such consideration. This complaint seeks a declaratory judgement that Tenaris's acquisition of Maverick was a Public Acquirer Change of Control under the Indenture, and asserts claims for tortuous interference with contract and unjust enrichment against Tenaris. Defendants filed a motion to dismiss the complaint, or in the alternative, for summary judgment on March 13, 2007. Plaintiff filed a motion for partial summary judgment on the same date. Briefing on the motions has been completed. Tenaris believes that these claims are without merit. Accordingly, no provision was recorded in these financial statements. Were plaintiff to prevail, Tenaris estimates that the recovery would be approximately $50 million. European Commission Fine On January 25, 2007, the Court of Justice of the European Commission confirmed the December 8, 1998 decision by the European Commission to fine eight international steel pipe manufacturers, including Dalmine, for violation of European competition laws. Pursuant to the Court's decision, Dalmine is required to pay a fine of Euro 10.1 million ($13.3 million). Since the infringements for which the fine was imposed took place prior to the acquisition of Dalmine by Tenaris in 1996, Dalmine's former owner, who had instructed Dalmine to appeal, is required and has acknowledged its responsibility to pay 84.1% of the fine. The remaining 15.9% of the fine has been paid out in 2007 of the provision that Dalmine established in 1999 for such proceeding. 7 8 Contingencies, commitments and restrictions to the distribution of profits (Cont'd) Employee retention and long term incentive program On January 1, 2007 Tenaris adopted an employee retention and long term incentive program. Pursuant to this program, certain senior executives will be granted a number of units equivalent in value to the equity book value per share (excluding minority interest). The units will be vested over a period of four years and Tenaris will redeem vested units following a period of ten years from the grant date, or when the employee ceases employment, at the equity book value per share at the time of payment. Beneficiaries will also receive a cash amount per unit equivalent to the dividend paid per share whenever the Company pays a cash dividend to its shareholders. Compensation under this program is not expected to exceed 35% in average of the total annual compensation of the beneficiaries. The total value of the units granted to date under the program, considering the number of units and the book value per share as of June 30, 2007, is $7.3 million. As of June 30, 2007, Tenaris has recorded a total liability of $14.9 million taking into account expected industry growth and discount rate. Commitments Set forth is a description of Tenaris's main outstanding commitments: o Tenaris is party to a five year contract with Nucor Corporation, under which it committed to purchase from Nucor approximately 435,000 tons of steel coils per year, with deliveries starting in January 2007. Prices are adjusted quarterly in accordance with market conditions and the estimated aggregate amount of the contract at current prices is approximately $1,432 million. o Tenaris is party to a steel supply agreement with IPSCO, under which it is committed to purchase around 55,000 tons of steel per year, until 2011. Prices are adjusted monthly or quarterly and the estimated aggregate amount of the contract at current prices is approximately $213 million. Each party may terminate this agreement at any time upon one year notice. o Tenaris is party to a contract with Nacion Fideicomisos, an Argentine governmental agency, to deliver welded steel pipes for the project Loops (2006-2008 Expansions) which are partially guaranteed by a stand-by letter of credit of $51.1 million. In addition, Tenaris entered into a purchase contract with Usiminas in order to secure the source of steel to produce the pipes. At June 30, 2007, Tenaris maintained in stock pipes and plates for this project amounting to $77.5 million. Delivery and invoicing of this project have been delayed. Any cancellation of the project, in total or in part, could result in an impairment charge to the stock. o Tenaris is party to transportation capacity agreements with Transportadora de Gas del Norte S.A. for capacity of 1,000,000 cubic meters per day until 2017. As of June 30, 2007, the outstanding value of this commitment was approximately $58 million. Tenaris also expects to obtain additional gas transportation capacity of 315,000 cubic meters per day until 2027. This commitment is subject to the enlargement of certain pipelines in Argentina. o Tenaris is party to a contract with Siderar for the supply of steam generated at the power generation facility owned by Tenaris in San Nicolas. Under this contract, Tenaris is required to provide 250 tn/hour of steam, and Siderar has the obligation to take or pay this volume. This outsourcing contract is due to terminate in 2018. 8 8 Contingencies, commitments and restrictions to the distribution of profits (Cont'd) Restrictions to the distribution of profits and payment of dividends As of June 30, 2007, shareholders' equity as defined under Luxembourg law and regulations consisted of the following:
(all amounts in thousands of U.S. dollars) (unaudited) Share capital 1,180,537 Legal reserve 118,054 Share premium 609,733 Retained earnings including net income for the six-month period ended June 30, 2007 2,067,391 -------------------------- Total shareholders equity in accordance with Luxembourg law 3,975,715 --------------------------
At least 5% of the Company's 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 the Company's share capital. As of June 30, 2007, this reserve is fully allocated and additional allocations to the reserve are not required under Luxembourg law. Dividends may not be paid out of the legal 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 and providing the compliance of the covenant related to restricted payments stated in Note 9. At June 30, 2007, retained earnings under Luxembourg law totalled $2,067.4 million, as detailed below.
(all amounts in thousands of U.S. dollars) (unaudited) Retained earnings at December 31, 2006 under Luxembourg law 1,527,096 Dividends received 865,570 Other income and expenses for the six-month period ended June 30, 2007 28,886 Dividends paid (354,161) -------------------------- Retained earnings at June 30, 2007 under Luxembourg law 2,067,391 --------------------------
9 Business acquisitions, incorporation of subsidiaries and other significant events (a) Acquisition of Hydril Company On May 7, 2007, Tenaris paid $2.0 billion to acquire Hydril, a North American manufacturer of premium connections and pressure control products for the oil and gas industry. To finance the acquisition, Tenaris entered into syndicated loans in the amount of $2.0 billion, of which $0.5 billion were used to refinance an existing loan in the Company. The balance of the acquisition cost was paid out of cash on hand. Of the loan amount, $1.7 billion was allocated to the Company and the balance to Hydril. The main covenants on these loan agreements are limitations on liens and encumbrances, restrictions on investments and capital expenditures, limitations on the sale of certain assets and compliance with financial ratios (e.g, leverage ratio and interest coverage ratio in Hydril's syndicated loan agreement, and leverage ratio and debt service coverage ratio in the Company's syndicated loan agreement). In addition, the Company's syndicated loan agreement is secured with a pledge of 100% of Hydril's shares; immediately upon each payment or prepayment under this agreement, the number of shares subject to the pledge shall be reduced proportionally, and the pledge will be completely released immediately after the aggregate outstanding principal amount of the loan is less than or equal to $600 million. The Company is allowed to make payments such as dividends, repurchase or redemption of shares up to the greater of $475 million or 25% of the consolidated operating profit for the previous fiscal year; once the outstanding amount of this facility is less than $1,000 million, no such restrictions will apply. Tenaris began consolidating Hydril's balance sheet and results of operations since May, 2007. 9 9 Business acquisitions, incorporation of subsidiaries and other significant events (Cont'd) (b) Acquisition of Maverick On October 5, 2006, Tenaris completed its acquisition of Maverick, pursuant to which, Maverick merged with and into a wholly owned subsidiary of Tenaris. On that date, Tenaris paid $65 per share in cash for each issued and outstanding share of Maverick's common stock. The value of the transaction at the acquisition date was $3,160 million, including Maverick's financial debt. Tenaris began consolidating Maverick's balance sheet and results of operations in the fourth quarter of 2006. Tenaris syndicated loan facility credit in an aggregate principal amount of $500 million, which had been incurred in connection with the Maverick acquisition, was prepaid in its entirety in May 2007, and upon such prepayment the previous pledge on Maverick's shares was released. (c) Minority Interest During the six-month period ended June 30, 2007, additional shares of Silcotub and Dalmine were acquired from minority shareholders for an aggregate purchase price of approximately $3.2 million. Effective July 12, 2007 Silcotub was delisted from the Romanian Stock Exchange. The assets and liabilities arising from the acquisitions are as a follows:
Six-month period ended June 30, ------------------------------ ------------------------ 2007 2006 ------------------------------ ------------------------ Other assets and liabilities (net) (348,876) 5,033 Property, plant and equipment 152,540 22,892 Customer relationships / Backlog 593,800 - Trade names 149,100 - Proprietary technology 333,400 - Goodwill 1,042,015 1,163 ------------------------------ ------------------------ Net assets acquired 1,921,979 29,088 Minority interest 5,203 9,671 ------------------------------ ------------------------ Sub-total 1,927,182 38,759 Cash-acquired 117,326 - ------------------------------ ------------------------ Purchase consideration 2,044,508 38,759 ------------------------------ ------------------------
The businesses acquired as of June 30, 2007 contributed revenues of $103.7 million and an operating income of $12.7 million. Businesses acquired as of June 30, 2006 did not materially contribute to the Tenaris's revenue and operating income. 10 10 Discontinued operations Sale of a 75% interest in Dalmine Energie On December 1, 2006, Tenaris completed for $58.9 million the sale of a 75% participation of Dalmine Energie, its Italian supply business, to E.ON Sales and Trading GmbH, a wholly owned subsidiary of E.ON Energie AG ("E.ON") and an indirect subsidiary of E.O.N AG. Following consummation of the sale, Tenaris maintains a 25% interest in Dalmine Energie. This note should be read in conjunction with Note 30 to the Company's audited Consolidated Financial Statements for the year ended December 31, 2006. Analysis of the result of discontinued operations:
June 30, 2006 ------------------------ Net sales 282,180 Cost of sales (271,940) ------------------------ Gross profit 10,240 Selling, general and administrative expenses (3,594) Other operating income (expense), net (114) ------------------------ Operating income 6,532 Interest income 252 Interest expense (426) Other financial results 212 ------------------------ Income before equity in earnings of associated companies and income tax 6,570 Equity in earnings of associated companies - ------------------------ Income before income tax 6,570 Income tax (2,218) ------------------------ Income for the period from discontinued operations 4,352 ------------------------
Cash from discontinued operations increased by $1.4 million in the six-months period ended June 30, 2006. 11 Related party disclosures The Company is controlled by San Faustin N.V., a Netherlands Antilles corporation, which owns 60.4% of the Company's outstanding shares through its wholly-owned subsidiary I.I.I. Industrial Investments Inc., a Cayman Islands corporation. Tenaris' directors and executive officers as a group own 0.2% of the Company's shares, while the remaining 39.4% is publicly traded. The ultimate controlling entity of the Company is Rocca & Partners. At June 30, 2007, the closing price of Ternium ADS as quoted on the New York Stock Exchange was $30.29 per ADS, giving Tenaris' ownership stake a market value of approximately $696 million. At June 30, 2007, the carrying value of Tenaris' ownership stake in Ternium was approximately $450 million. Transactions and balances disclosed as with "Associated" companies are those companies over which Tenaris exerts significant influence in accordance with IFRS, but does not have control. All other transactions with related parties which are not Associated and which are not consolidated are disclosed as "Other". 11 11 Related party disclosures (Cont'd) The transactions and balances with related parties are shown below: (all amounts in thousands of U.S. dollars)
Six-month period ended June 30, 2007 Associated (1) Other Total ---------------------------------------------------- (i) Transactions (a) Sales of goods and services Sales of goods 48,345 22,157 70,502 Sales of services 16,591 2,979 19,570 ---------------------------------------------------- 64,936 25,136 90,072 ---------------------------------------------------- (b) Purchases of goods and services Purchases of goods 124,519 9,686 134,205 Purchases of services 42,140 39,724 81,864 ---------------------------------------------------- 166,659 49,410 216,069 ---------------------------------------------------- Six-month period ended June 30, 2006 Associated (2) Other Total ---------------------------------------------------- (i) Transactions (a) Sales of goods and services Sales of goods 59,285 27,974 87,259 Sales of services 7,887 1,741 9,628 ---------------------------------------------------- 67,172 29,715 96,887 ---------------------------------------------------- (b) Purchases of goods and services Purchases of goods 41,623 12,384 54,007 Purchases of services 2,419 33,545 35,964 ----------------------------------------------------- 44,042 45,929 89,971 ----------------------------------------------------- At June 30, 2007 Associated (1) Other Total ----------------------------------------------------- (ii) Period-end balances (a) Related to sales / purchases of goods / services Receivables from related parties 53,553 9,163 62,716 Payables to related parties (45,425) (10,487) (55,912) ----------------------------------------------------- 8,128 (1,324) 6,804 ----------------------------------------------------- (b) Other balances - - - (c) Financial debt Borrowings (4) (27,931) - (27,931)
12
11 Related party disclosures (Cont'd) At December 31, 2006 Associated (3) Other Total ----------------------------------------------------- (ii) Period-end balances (a) Related to sales / purchases of goods / services Receivables from related parties 25,400 14,429 39,829 Payables to related parties (37,920) (13,388) (51,308) ----------------------------------------------------- (12,520) 1,041 (11,479) ----------------------------------------------------- (b) Other balances 2,079 - 2,079 (c) Financial debt Borrowings (5) (60,101) - (60,101)
(1) Includes Ternium S.A. and its subsidiaries ("Ternium"), Condusid C.A. ("Condusid"), Finma S.A.I.F ("Finma"), Lomond Holdings B.V. group ("Lomond"), Dalmine Energie S.p.A. ("Dalmine Energie"), Socotherm Brasil S.A. ("Socotherm"), Hydril Jindal International Private Ltd. and TMK - Hydril JV. (2) Includes Ternium and Condusid. (3) Includes Ternium, Condusid, Finma, Lomond and Dalmine Energie. (4) Includes convertible loan from Sidor to Materiales Siderurgicos S.A. ("Matesi") of $25.5 million at June 30, 2007. During second quarter 2007, $34.9 million were capitalized. (5) Includes convertible loan from Sidor to Matesi of $58.4 million at December 31, 2006. Carlos Condorelli Chief Financial Officer 13 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: August 6, 2007 Tenaris, S.A. By: /s/ Cecilia Bilesio ----------------------- Cecilia Bilesio Corporate Secretary