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 7, 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 three -month period ended March 31, 2007.
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 7, 2007
Tenaris, S.A.
By: /s/ Cecilia Bilesio
-----------------------
Cecilia Bilesio
Corporate Secretary
TENARIS S.A.
CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
MARCH 31, 2007
46a, Avenue John F. Kennedy - 2nd Floor.
L - 1855 Luxembourg
CONSOLIDATED CONDENSED INTERIM INCOME STATEMENT
(all amounts in thousands of U.S. dollars, unless otherwise stated) Three-month period ended
March 31,
---------------------------------------
Notes 2007 2006
---------------------------------------
Continuing operations (Unaudited)
Net sales 2 2,425,299 1,621,891
Cost of sales 2 & 3 (1,291,498) (816,327)
---------------------------------------
Gross profit 1,133,801 805,564
Selling, general and administrative expenses 2 & 4 (374,267) (216,640)
Other operating income (expense), net 2 (1,937) 8,185
---------------------------------------
Operating income 757,597 597,109
Interest income 5 22,191 12,395
Interest expense 5 (57,727) (11,639)
Other financial results 5 (13,043) 9,697
---------------------------------------
Income before equity in earnings of associated
companies and income tax 709,018 607,562
Equity in earnings of associated companies 25,907 21,521
---------------------------------------
Income before income tax 734,925 629,083
Income tax (225,531) (190,026)
---------------------------------------
Income for continuing operations 509,394 439,057
Discontinued operations
Income for discontinued operations - 2,633
---------------------------------------
Income for the period 509,394 441,690
---------------------------------------
Attributable to:
Equity holders of the Company 480,304 419,688
Minority interest 29,090 22,002
---------------------------------------
509,394 441,690
---------------------------------------
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
Earnings per share (U.S. dollars per share) 0.41 0.36
Earnings per ADS (U.S. dollars per ADS) 0.81 0.71
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 have been 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, 2006.
CONSOLIDATED CONDENSED INTERIM BALANCE SHEET
(all amounts in thousands of U.S. dollars) At March 31, 2007 At December 31, 2006
-------------------------------- ----------------------------------
Notes (Unaudited)
ASSETS
Non-current assets
Property, plant and equipment, net 6 2,978,406 2,939,241
Intangible assets, net 6 2,826,641 2,844,498
Investments in associated companies 453,483 422,958
Other investments 26,807 26,834
Deferred tax assets 293,353 291,641
Receivables 39,330 6,618,020 41,238 6,566,410
-------------- --------------
Current assets
Inventories 2,437,796 2,372,308
Receivables and prepayments 268,845 272,632
Current tax assets 160,676 202,718
Trade receivables 1,642,841 1,625,241
Other investments 188,688 183,604
Cash and cash equivalents 1,634,812 6,333,658 1,372,329 6,028,832
-------------------------------- ----------------------------------
Total assets 12,951,678 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 29,023 3,954
Other reserves 28,143 28,757
Retained earnings 3,877,888 5,843,378 3,397,584 5,338,619
-------------------------------- ----------------------------------
Minority interest 387,552 363,011
------------------ --------------------
Total equity 6,230,930 5,701,630
------------------ --------------------
LIABILITIES
Non-current liabilities
Borrowings 2,765,327 2,857,046
Deferred tax liabilities 978,204 991,945
Other liabilities 193,339 186,724
Provisions 84,405 92,027
Trade payables 354 4,021,629 366 4,128,108
-------------- --------------
Current liabilities
Borrowings 632,858 794,197
Current tax liabilities 693,545 565,985
Other liabilities 217,241 187,701
Provisions 22,729 26,645
Customer advances 365,861 352,717
Trade payables 766,885 2,699,119 838,259 2,765,504
-------------------------------- ----------------------------------
Total liabilities 6,720,748 6,893,612
------------------ --------------------
Total equity and liabilities 12,951,678 12,595,242
------------------ --------------------
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, 2006.
CONSOLIDATED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY
(all amounts in thousands of U.S. dollars)
-------------------------------------------------------------------------------------------
Attributable to equity holders of the Company
-------------------------------------------------------------------
Other Currency Retained
Share Legal Share Reserves translation Earnings Minority
Capital Reserves Premium (**) adjustment (*) 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 - - - - 25,069 - 9,389 34,458
Change in equity reserves - - - (614) - - - (614)
Acquisition and decrease of
minority interest - - - - - - (10,579) (10,579)
Dividends paid in cash - - - - - - (3,359) (3,359)
Income for the period - - - - - 480,304 29,090 509,394
-------------------------------------------------------------------------------------------
Balance at March 31, 2007 1,180,537 118,054 609,733 28,143 29,023 3,877,888 387,552 6,230,930
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Attributable to equity holders of the Company
-------------------------------------------------------------------
Other Currency
Share Legal Share Reserves translation Retained Minority
Capital Reserves Premium (**) 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 - - - - 4,925 - 13,699 18,624
Change in equity reserves - - - 28,083 - - - 28,083
Acquisition and increase 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
-------------------------------------------------------------------------------------------
(*) Retained Earnings calculated in accordance with Luxembourg Law are disclosed in Note 7.
(**) See Note 1. See also Note 28 (c) of our audited Consolidated Financial Statements for the fiscal year ended
December 31, 2006.
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.
CONSOLIDATED CONDENSED INTERIM CASH FLOW STATEMENT
Three-month period ended
March 31,
-----------------------------------------
(all amounts in thousands of U.S. dollars) 2007 2006
-----------------------------------------
(Unaudited)
Cash flows from operating activities
Income for the period 509,394 441,690
Adjustments for:
Depreciation and amortization 100,487 54,675
Income tax accruals less payments 125,377 83,458
Equity in earnings of associated companies (25,907) (21,521)
Interest accruals less payments, net 45,429 5,292
Income from disposal of investment - (6,933)
Changes in provisions (7,230) 731
Changes in working capital (90,519) (24,257)
Other, including currency translation adjustment 31,243 10,947
-----------------------------------------
Net cash provided by operating activities 688,274 544,082
-----------------------------------------
Cash flows from investing activities
Capital expenditures (119,912) (69,529)
Acquisitions of subsidiaries and minority interest (see Note 8) (1,750) (29,809)
Decrease in subsidiaries (1,195) -
Proceeds from disposal of property, plant and equipment and intangible assets 2,693 1,820
Changes in restricted bank deposits - 648
Investments in short terms securities (5,084) (177,650)
-----------------------------------------
Net cash used in investing activities (125,248) (274,520)
-----------------------------------------
Cash flows from financing activities
Dividends paid to minority interest in subsidiaries (3,359) (7,581)
Proceeds from borrowings 48,174 101,085
Repayments of borrowings (360,899) (154,601)
-----------------------------------------
Net cash used in financing activities (316,084) (61,097)
-----------------------------------------
Increase in cash and cash equivalents 246,942 208,465
Movement in cash and cash equivalents
At beginning of the period 1,365,008 680,591
Effect of exchange rate changes 2,736 (1,834)
Increase in cash and cash equivalents 246,942 208,465
-----------------------------------------
At March 31, 1,614,686 887,222
-----------------------------------------
At March 31,
-----------------------------------------
Cash and cash equivalents 2007 2006
-----------------------------------------
Cash and bank deposits 1,634,812 910,991
Bank overdrafts (20,105) (22,369)
Restricted bank deposits (21) (1,400)
-----------------------------------------
1,614,686 887,222
-----------------------------------------
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.
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 Discontinued operations
10 Related party disclosures
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 32 to the audited
Consolidated Financial Statements for the year ended December 31, 2006.
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.
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 Other financial results.
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. Amounts
accumulated in equity are charged in the income statement in the periods when
the hedged item affects profit or loss. 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 of 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, 2007, the effective portion of designated cash flow hedges amounts to
$1.5 million and is included in Other reserves in equity.
These consolidated condensed interim financial statements were approved for
issue by the Tenaris Board of Directors on May 4, 2007.
2 Segment information
Reportable operating segments
---------------------------------------------------------------------------
(all amounts in thousands of U.S. dollars) Total Continuing Total Discontinued
Tubes Projects Other operations operations (*)
---------------------------------------------------------------------------
Three-month period ended March 31, 2007 (Unaudited)
Net sales 2,144,728 124,410 156,161 2,425,299 -
Cost of sales (1,081,759) (82,216) (127,523) (1,291,498) -
---------------------------------------------------------------------------
Gross profit 1,062,969 42,194 28,638 1,133,801 -
Selling, general and administrative expenses (337,215) (17,642) (19,410) (374,267) -
Other operating income (expenses), net (3,726) 1,758 31 (1,937) -
---------------------------------------------------------------------------
Operating income 722,028 26,310 9,259 757,597 -
Depreciation and amortization 89,720 4,425 6,342 100,487 -
Three-month period ended March 31, 2006
Net sales 1,448,044 96,225 77,622 1,621,891 161,261
Cost of sales (693,903) (63,025) (59,399) (816,327) (156,165)
---------------------------------------------------------------------------
Gross profit 754,141 33,200 18,223 805,564 5,096
Selling, general and administrative expenses (190,211) (17,206) (9,223) (216,640) (1,244)
Other operating income (expenses), net 8,302 316 (433) 8,185 (55)
---------------------------------------------------------------------------
Operating income 572,232 16,310 8,567 597,109 3,797
Depreciation and amortization 46,710 4,865 2,667 54,242 433
Geographical information
(all amounts in thousands of U.S. dollars) Middle Total Total
North South East & Far East & Continuing Discontinued
America America Europe Africa Oceania operations operations (*)
--------------------------------------------------------------------------
Three-month period ended March 31, 2007 (Unaudited)
Net sales 802,140 428,775 426,615 601,250 166,519 2,425,299 -
Depreciation and amortization 59,319 24,439 14,848 197 1,684 100,487 -
Three-month period ended March 31, 2006
Net sales 467,599 343,374 306,552 331,070 173,296 1,621,891 161,261
Depreciation and amortization 15,422 22,510 14,616 209 1,485 54,242 433
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.
There are no revenues from external customers attributable to the Company's
country of incorporation (Luxembourg). 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
North American segment comprises Canada, Mexico and the USA. The Middle East and
Africa segment comprises principally Egypt, Nigeria, Saudi Arabia and the United
Arab Emirates. The Far East and Oceania segment comprises principally China,
Indonesia, Japan and South Korea.
(*) Corresponds to Dalmine Energie operations.
3 Cost of sales
Three-month period ended
March 31,
-----------------------------------------
(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 960,370 807,014
Services and fees 106,826 84,348
Labor cost 164,570 108,987
Depreciation of property, plant and equipment 56,798 47,740
Amortization of intangible assets 404 1,130
Maintenance expenses 47,194 25,080
Provisions for contingencies 4,735 -
Allowance for obsolescence (2,768) 4,946
Taxes 988 1,013
Other 17,869 7,753
-----------------------------------------
1,356,986 1,088,011
Less: Inventories at the end of the period (2,437,796) (1,491,632)
-----------------------------------------
1,291,498 972,492
From Discontinued operations - (156,165)
-----------------------------------------
1,291,498 816,327
-----------------------------------------
4 Selling, general and administrative expenses
Three-month period ended
March 31,
-----------------------------------------
(all amounts in thousands of U.S. dollars) 2007 2006
-----------------------------------------
(Unaudited)
Services and fees 43,348 25,438
Labor cost 92,333 58,650
Depreciation of property, plant and equipment 2,692 1,896
Amortization of intangible assets 40,593 3,909
Commissions, freight and other selling expenses 117,337 87,593
Provisions for contingencies 14,122 211
Allowances for doubtful accounts 3,705 1,901
Taxes 34,672 21,350
Other 25,465 16,936
-----------------------------------------
374,267 217,884
From Discontinued operations - (1,244)
-----------------------------------------
374,267 216,640
-----------------------------------------
5 Financial income (expenses), net
Three-month period ended
March 31,
-----------------------------------------
(all amounts in thousands of U.S. dollars) 2007 2006
-----------------------------------------
(Unaudited)
Interest expense (57,727) (11,883)
Interest income 22,191 12,481
-----------------------------------------
Interest net (35,536) 598
Net foreign exchange transaction results and changes in
fair value of derivative instruments (11,122) 8,805
Other (1,921) 1,193
-----------------------------------------
Other financial results (13,043) 9,998
-----------------------------------------
Net financial results (48,579) 10,596
From Discontinued operations - (143)
-----------------------------------------
(48,579) 10,453
-----------------------------------------
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, Plant and Net Intangible
Equipment Assets
------------------------ -----------------
(Unaudited) (Unaudited)
Three-month period ended March 31, 2007
Opening net book amount 2,939,241 2,844,498
Currency translation differences 6,191 10,626
Transfers (94) 94
Additions 114,647 5,265
Disposals (2,693) -
Reclassifications (19,396) 7,155
Depreciation / Amortization charge (59,490) (40,997)
------------------------ ------------------
At March 31, 2007 2,978,406 2,826,641
------------------------ ------------------
7 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 13 civil proceedings for work-related
injuries arising from the use of asbestos in its manufacturing processes during
the period from 1960 to 1980, 18 asbestos-related out-of-court claims and 1
civil party claim, 21 new asbestos-related out-of-court claims and 1 asbestos
civil proceedings have been notified to Dalmine during 2007; no claims were
dismissed or settled. Accordingly, as of March 31, 2007, the total
asbestos-related claims pending against Dalmine are 54 (of which, 3 are covered
by insurance). Aggregate settlement costs to date are Euro 3.8 million. Dalmine
estimates that its potential liability in connection with the claims above that
are not yet settled is approximately Euro 20.4 million ($ 27.2 million) of which
Euro 7.8 million ($10.4 million) relate to the claims and proceedings notified
to Dalmine during 2007.
7 Contingencies, commitments and restrictions to the distribution of
profits (Cont'd)
Asbestos-related Litigation (Cont'd)
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 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. Opposition papers to the
motions were filed due April 20, 2007, and reply papers are due May 15, 2007.
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.
Employee retention and incentive program
Tenaris has adopted an employee retention and long term incentive program
effective from January 1, 2007. 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 the Company will redeem vested units following a
period of ten years from the grant date, or when the employee leaves the
Company, 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 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 March 31, 2007, is $4.7
million. The Company has recorded a total liability of $5.8 million taking into
account expected industry growth and discount rate.
7 Contingencies, commitments and restrictions to the distribution of
profits (Cont'd)
Transportation commitment
Tenaris entered into 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 March 31, 2007, the outstanding value of this commitment was approximately
$61.0 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, which enlargement is
expected to be completed by 2008.
Restrictions to the distribution of profits and payment of dividends
As of March 31, 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 three-month period
ended March 31, 2007 1,976,626
-------------
Total shareholders equity in accordance with Luxembourg law 3,884,950
-------------
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 March 31,
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.
At March 31, 2007, Tenaris' retained earnings under Luxembourg law totalled
$1,976.6 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 458,698
Other income and expenses for the three-month period ended March 31, 2007 (9,168)
---------------
Retained earnings at March 31, 2007 under Luxembourg law 1,976,626
---------------
8 Business acquisitions, incorporation of subsidiaries and other
significant events
(a) Acquisition of Hydril Company ("Hydril")
On February 12, 2007, Tenaris announced that is has entered into a definitive
merger agreement to acquire Hydril for $97 per share of Hydril's common stock
and $97 per share of Hydril's Class B common stock, payable in cash.
On May 2, 2007, Hydril's shareholders meeting approved the merger agreement.
Closing will occur in May 7, 2007. To finance the acquisition and the payment of
related obligations and to refinance existing debt, Tenaris and the subsidiary
that will merge with and into Hydril have entered into syndicated term loan
facilities in an aggregate principal amount of $2.0 billion.
Hydril is a North American manufacturer of premium connections and pressure
control products for oil and gas drilling and production. For 2006, Hydril
reported revenues of $503 million, operating income of $132.2 million and net
income of $91.3 million under US GAAP.
8 Business acquisitions, incorporation of subsidiaries and other
significant events (Cont'd)
(b) Acquisition of Maverick Tube Corporation ("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.
Goodwill arising on the acquisition of Maverick, $1,125 million is the
difference between the acquisition price and the fair value on the acquisition
date of the identifiable tangible and intangible assets and liabilities
determined mainly by independent valuation. This goodwill reflects the
opportunity for Tenaris to increase its presence in North America, primarily in
the OCTG market.
(c) Minority Interest
During the three-month period ended March 31, 2007, additional shares of
Silcotub and Dalmine were acquired from minority shareholders for an aggregate
purchase price of approximately $1.8 million.
9 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. As a result of this transaction,
Tenaris has de-consolidated Dalmine Energie and recognized a $40.0 million gain
in the fourth quarter of 2006.
As per the sale agreement, Tenaris has an irrevocable option to sell to E.ON, at
any time during the one year exercise period (in two years from the date of the
sale agreement), its 25% remaining interest in Dalmine Energie for a purchase
price in cash of EUR 13.0 million plus interests. Also, E.ON has an irrevocable
option to purchase from Tenaris, at any time during the one year exercise period
(in two years from the date of the sale agreement), Tenaris' 25% remaining
interest in Dalmine Energie for a purchase price in cash of EUR 17.5 million
plus interests and adjustments.
Analysis of the result of discontinued operations:
March 31, 2006
------------------
Net sales 161,261
Cost of sales (156,165)
------------------
Gross profit 5,096
Selling, general and administrative expenses (1,244)
Other operating income (expense), net (55)
------------------
Operating income 3,797
Interest income 86
Interest expense (244)
Other financial results 301
------------------
Income before equity in earnings of associated companies and income tax 3,940
Equity in earnings of associated companies -
------------------
Income before income tax 3,940
Income tax (1,307)
------------------
Income for the period from discontinued operations 2,633
------------------
Cash from discontinued operations increased by $2.5 million in the period ended March 31, 2006.
10 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 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 outstanding shares, while the remaining 39.4% is publicly traded.
The ultimate controlling entity of the Company is Rocca & Partners S.A., a
British Virgin Islands corporation.
At March 31, 2007, the closing price of Ternium shares as quoted on the New York
Stock Exchange was $27.94 per ADS, giving Tenaris' ownership stake a market
value of approximately $642 million. At March 31, 2007, the carrying value of
Tenaris' ownership stake in Ternium was approximately $429 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".
The transactions and balances with related parties are shown below:
(all amounts in thousands of U.S. dollars)
Three-month period ended March 31, 2007
Associated (1) Other Total
--------------------------------------------------
(i) Transactions
(a) Sales of goods and services
Sales of goods 26,237 12,727 38,964
Sales of services 8,377 1,331 9,708
--------------------------------------------------
34,614 14,058 48,672
--------------------------------------------------
(b) Purchases of goods and services
Purchases of goods 66,521 6,459 72,980
Purchases of services 16,881 20,618 37,499
--------------------------------------------------
83,402 27,077 110,479
--------------------------------------------------
Three-month period ended March 31, 2006
Associated (2) Other Total
--------------------------------------------------
(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
--------------------------------------------------
10 Related party disclosures (Cont'd)
At March 31, 2007
Associated (1) Other Total
--------------------------------------------------
(ii) Period-end balances
(a) Related to sales / purchases of
goods / services
Receivables from related parties 54,205 13,162 67,367
Payables to related parties (49,351) (9,004) (58,355)
--------------------------------------------------
4,854 4,158 9,012
--------------------------------------------------
(b) Other balances
Receivables 2,079 - 2,079
(c) Financial debt
Borrowings (4) (61,636) - (61,636)
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") and
Socotherm Brasil S.A. ("Socotherm").
(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 $59.5 million at
March 31, 2007.
(5) Includes convertible loan from Sidor to Matesi of $58.4 million at December 31, 2006.
Carlos Condorelli
CHIEF FINANCIAL OFFICER