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 27, 2003
TENARIS, S.A.
(Translation of Registrant's name into English)
TENARIS, S.A.
23 Avenue Monterey
2086 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' notice of extraordinary
and ordinary general meeting of shareholders and proxy statement.
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 27, 2003
Tenaris, S.A.
By: /s/ Cecilia Bilesio
Cecilia Bilesio
Corporate Secretary
Dear Shareholder
We invite you to attend the annual meeting of shareholders on Wednesday, May 28,
2003, in Luxembourg City. The meeting will begin promptly at 11:00 a.m. At the
meeting, you will hear a report on our business and have a chance to meet the
President and Chief Executive Officer.
This booklet includes the formal notice of the meeting, the proxy statement,
annual reports and financial statements. The proxy statement tells you about the
agenda, procedures and rules of conduct for the meeting.
Even if you only own a few shares, we want your shares to be represented at the
meeting. You can vote your shares personally or by proxy. For the latter you may
use the enclosed dedicated proxy form.
Sincerely yours
Paolo Rocca
President and Chief Executive Officer
April 30, 2003
JPMORGAN CHASE BANK
1 Chase Manhattan Plaza Floor 40
New York, N.Y. 10081
RE: TENARIS, S.A.
To: Registered Holders of American Depositary
Receipts for Shares of Common Stock,
US$1 Par Value ("Common Stock"), of
Tenaris, S.A.:
The Depositary is forwarding to holders of American Depositary Receipts the
enclosed Notice of Annual General Meeting of Shareholders and Proxy Statement of
Tenaris, S.A. (the "Company") and is providing the enclosed proxy form pursuant
to its obligation to make available to such holders information with respect to
meetings of shareholders of the Company and to receive instructions from such
holders as to the manner in which the voting rights pertaining to the Company's
shares of common stock represented by such Receipts should be exercised.
Holders of ADRs as of May 5, 2003 who desire to vote at the Meeting must
complete, date and sign a proxy form and return it to JPMorgan Chase Bank (the
"Depositary") P.O Box 43062, Providence, RI 02940-5115. The Depositary, in
cooperation with the Company, will thereupon vote the shares underlying such
ADRs. However, pursuant to Section 12 of the Deposit Agreement, if no
instructions are received by the Depositary from any holder of ADRs by 3:30
p.m., New York time, on May 21, 2003, then the Depositary shall deem such holder
to vote such underlying shares in favor of any proposals or recommendations of
the Company, for which purposes the Depositary, on the deemed instruction of
such holder, shall issue a discretionary proxy to a person appointed by the
Company to vote such shares in favor of any proposals or recommendations of the
Company (including any recommendation by the Company to vote such shares on any
given issue in accordance with the majority shareholder vote on that issue);
provided, however, that no instruction shall be deemed given and no
discretionary proxy shall be given with respect to any matter as to which the
Company informs the Depositary does not wish such proxy given or if the proposal
has, in the discretion of the Depositary, a materially adverse effect on the
rights of the holders of shares.
Any holder of ADRs is entitled to revoke any instructions which it has
previously given by filing with the Depositary a written revocation or duly
executed instructions bearing a later date at any time prior to 3:30 p.m., New
York time, on May 21, 2003.
No instructions or revocations or revisions thereof shall be accepted by the
Depositary after 3:30 p.m., New York time, on May 21, 2003.
JPMORGAN CHASE BANK
Depositary
April 30, 2003
New York, New York
TENARIS S.A.
SOCIETE ANONYME HOLDING
23 AVENUE MONTEREY
L-2086, LUXEMBOURG
RCS LUXEMBOURG B 85 203
---------------------
NOTICE OF THE ANNUAL GENERAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 28, 2003
---------------------
Notice is hereby given to holders of shares of common stock of Tenaris S.A. (the
"Company") that the Annual General Meeting of Shareholders (the "Meeting") will
be held on May 28, 2003, at 11:00 a.m., at Banque Generale du Luxembourg at 50,
av. J.F. Kennedy L-2951 Luxembourg. The agenda is made of the items listed
below.
AGENDA
1. Approval of the Company's annual financial statements for the
fiscal year ended December 31, 2002. Approval of the report of the
Board of Directors and of the independent auditor on such
financial statements.
2. Approval of the Company's consolidated combined annual financial
statements for the fiscal year ended December 31, 2002. Approval
of the report of the Board of Directors and of the independent
auditor on such financial statements.
3. Allocation of results. Approval of dividend payment.
4. Discharge of Directors' responsibilities.
5. Election of members of the Board of Directors.
6. Authorization to the Board of Directors to delegate the day-to-day
management of the business to one or more of its members.
7. Determination of compensation to the members of the Board of
Directors.
8. Confirmation and appointment of independent auditors and approval
of their fees.
9. Miscellaneous.
According to the Company's Articles of Association, resolutions at
ordinary general meetings will be passed by majority vote, irrespective of the
number of shares present or represented.
In order to attend the Meeting, holders of shares must obtain an
admission ticket by depositing their certificates representing their common
stock, not later than 4:00 p.m. (Luxembourg, Buenos Aires, Mexico City or Rome
time, as the case may be) on May 23, 2003 at the Company's offices in Luxembourg
(23, Avenue Monterey, L-2086 Luxembourg) (the "Office"), or at any of the
following Tenaris offices: (i) Argentina: Leandro N. Alem 1067, 15(degree),
Buenos Aires, Attn: Horacio de las Carreras and/or Eleonora Cimino; (ii) Italy:
c/o Dalmine S.p.A., Piazza Caduti 6 luglio 1944 n. 1 24044 Dalmine (BG), Attn:
Maria Grazia Uglietti and/or Massimo Angeli; and (iii) Mexico: c/o Tubos de
Acero de Mexico S.A., Campos Eliseos 400-17 Col. Chapultepec Polanco, Mexico
D.F., Attn: Felix Todd and/or Andres Felix (the "National Offices").
Holders of shares that hold shares through fungible securities accounts
and wish to attend the Meeting must present a certificate (issued by the
financial institution or professional depositary holding such shares) evidencing
such deposit and certifying the number of shares recorded in the relevant
account on May 23, 2003. Such certificate must be filed no later than 4:00 p.m.
(Luxembourg, Buenos Aires, Mexico City or Rome time, as the case may be), on May
23, 2003 with (1) any of the Office or the National Offices or (2) in the case
of Mexico, with the Office or the National Offices or S.D. Indeval, S.A. de C.V.
(Paseo de la Reforma #255, 2o. y 3er piso Col. Cuauhtemoc), in Mexico City.
Holder of shares as of May 23, 2003, may also vote by proxy. To that
effect, such holders must file the abovementioned certificate and file complete
proxy forms not later than 4:00 p.m. (Luxembourg, Buenos Aires, Mexico City or
Rome time, as the case may be), on May 23, 2003 with (1) any of the Office or
the National Offices or (2) in the case of Mexico, with the Office or the the
National Offices or S.D. Indeval, S.A. de C.V. in Mexico City.
Holders of American Depositary Receipts (the "ADRs") as of May 5, 2003
who desire to vote at the Meeting must complete, date and sign a proxy form and
return it to JP Morgan Chase Bank (the "Depositary") P.O. Box 43062, Providence,
RI 02940-5115 by 3:30 p.m., New York City time, on May 21, 2003.
The Meeting Brochure, containing reports on each item of the agenda for
the shareholders' meeting, further details on voting procedures and the annual
financial statements and consolidated combined cnnual financial statements for
the year ending December 31, 2002, and the proxy statement and forms furnished
by the Company in connection with the Meeting may be obtained as from May 8,
2003 from any of the Office, the National Offices, the Depositary , Borsa
Italiana SpA (Piazza degli Affari 6, 20123, Milan, Italy ) or S.D. Indeval S.A.
de C.V., where the holders of shares and ADRs may exercise their rights
mentioned hereby from 10:00 a.m. until 5:00 p.m. local time of each country
above referred.
Copies of the Meeting Brochure and Proxy Statement and forms, are also
available at www.tenaris.com/investors
CECILIA BILESIO
SECRETARY OF THE BOARD OF DIRECTORS
April 30, 2003
Luxembourg
TENARIS S.A.
SOCIETE ANONYME HOLDING
23 AVENUE MONTEREY
L-2086, LUXEMBOURG
RCS LUXEMBOURG B 85 203
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SHAREHOLDER MEETING BROCHURE AND PROXY STATEMENT
-------------------
ANNUAL GENERAL MEETING OF SHAREHOLDERS TO
BE HELD ON MAY 28, 2003.
-------------------
This Shareholder Meeting Brochure and Proxy Statement is furnished by Tenaris,
S.A. (the "Company") in connection with the Annual General Meeting of
Shareholders (the "Meeting") to be held on May 28, 2003, for the purposes set
forth in the accompanying Notice of Meeting at Banque Generale du Luxembourg at
50, av. J.F. Kennedy L-2951 Luxembourg.
As of April 30, 2003, there were issued and outstanding 1,160,700,794 shares of
common stock (US$1 par value) (the "Common Stock") of the Company, including
shares of Common Stock (the "Deposited Shares") deposited with Banque Generale
du Luxembourg, as agent for JPMorgan Chase Bank, (the "Depositary"), under the
Deposit Agreement, dated as of November 11, 2002 (the "Deposit Agreement"),
among the Company, the Depositary and all holders from time to time of American
Depositary Receipts (the "ADRs") issued thereunder. The Deposited Shares are
represented by American Depositary Shares (the "American Depositary Shares" or
the "ADSs"), which are evidenced by the ADRs (one ADR equals ten Deposited
Shares).
Each holder of shares of Common Stock is entitled to one vote per share. Holders
of shares that hold shares through fungible securities accounts and wish to
attend the Meeting must present a certificate (issued by the financial
institution or professional depositary holding such shares) evidencing such
deposit and certifying the number of shares recorded in the relevant account on
May 23, 2003. Such certificate must be filed no later than 4:00 p.m.
(Luxembourg, Buenos Aires, Mexico City or Rome time, as the case may be), on May
23, 2003 with (1) any of the Office or the National Offices, as defined in the
notice to the Meeting, or (2) in the case of Mexico, with the Office or the
National Offices or S.D. Indeval, S.A. de C.V., in Mexico City.
Holders of shares as of May 23, 2003, may also vote by proxy. To that effect,
such holders must file the abovementioned certificate and file complete proxy
forms not later than 4:00 p.m. (Luxembourg, Buenos Aires, Mexico City or Rome
time, as the case may be), on May 23, 2003 with (1) any of the Office or the
National Offices or (2) in the case of Mexico with the Office or the National
Offices or S.D. Indeval, S.A. de C.V. in Mexico City.
Holders of ADRs as of May 5, 2003 who desire to vote at the Meeting must
complete, date and sign a proxy form and return it to JPMorgan Chase Bank (the
"Depositary") P.O Box 43062, Providence, RI 02940-5115. The Depositary, in
cooperation with the Company, will thereupon vote the shares underlying such
ADRs. However, pursuant to Section 12 of the Deposit Agreement, if no
instructions are received by the Depositary from any holder of ADRs by 3:30
p.m., New York time, on May 21, 2003, then the Depositary shall deem such holder
to vote such underlying shares in favor of any proposals or recommendations of
the Company, for which purposes the Depositary, on the deemed instruction of
such holder, shall issue a discretionary proxy to a person appointed by the
Company to vote such shares in favor of any proposals or recommendations of the
Company (including any recommendation by the Company to vote such shares on any
given issue in accordance with the majority shareholder vote on that issue);
provided, however, that no instruction shall be deemed given and no
discretionary proxy shall be given with respect to any matter as to which the
Company informs the Depositary does not wish such proxy given or if the proposal
has, in the discretion of the Depositary, a materially adverse effect on the
rights of the holders of shares. Any holder of ADRs is entitled to revoke any
instructions which it has previously given by filing with the Depositary a
written revocation or duly executed instructions bearing a later date at any
time prior to 3:30 p.m., New York time, on May 21, 2003. No instructions or
revocations or revisions thereof shall be accepted by the Depositary after 3:30
p.m., New York time, on May 21, 2003. In order to avoid the possibility of
double vote, the Tenaris S.A. ADRs books will be closed for cancellations from
May 5, 2003 until May 23, 2003.
Due to regulatory differences and market practices in each country where the
Company's shares are listed, the holders of shares traded in the Argentine and
Italian stock exchanges who have requested admission to the Meeting or have
issued a voting proxy will have their shares blocked for trading until the date
of the Meeting, while holders of shares traded in the Mexican stock exchange and
holders of ADRs traded in the New York stock exchange will not have their shares
or ADRs,
as the case may be, blocked for trading. However, the votes of holders of shares
traded in the Mexican stock exchange who sell their shares between May 23, 2003
and May 27, 2003, shall be disregarded.
The Meeting will appoint a chairman pro tempore to preside the Meeting. The
chairman pro tempore will have broad authority to conduct the Meeting in an
orderly and timely manner; this authority includes establishing rules for
holders of shares who wish to address the Meeting and exercising broad
discretion in recognizing shareholders who wish to speak and in determining the
extent of discussion on each item of the agenda.
According to the Company's Articles of Association, resolutions at ordinary
general meetings will be passed by majority vote, irrespective of the number of
shares present or represented.
The Meeting is called to address and vote on the following items.
1. APPROVAL OF THE COMPANY'S ANNUAL FINANCIAL STATEMENTS FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2002. APPROVAL OF THE REPORT BY THE BOARD OF DIRECTORS AND BY
THE INDEPENDENT AUDITOR ON SUCH FINANCIAL STATEMENTS
The Board of Directors recommends a vote FOR approval of the Company's annual
financial statements for the fiscal year ended December 31, 2002, and FOR the
approval of the report by the Board of Directors and by the independent auditor
on such financial statements. A copy of said documents is enclosed herewith.
2. APPROVAL OF THE COMPANY'S CONSOLIDATED COMBINED ANNUAL FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002. APPROVAL OF THE REPORT BY THE BOARD
OF DIRECTORS AND BY THE INDEPENDENT AUDITOR ON SUCH FINANCIAL STATEMENTS
The Board of Directors recommends a vote FOR approval of the Company's
consolidated combined annual financial statements for the fiscal year ended
December 31, 2002, and FOR the approval of the report by the Board of Directors
and by the independent auditor on such financial statements. The consolidated
accounts of financial position of the Company and its subsidiaries for the year
ended December 31, 2002, the related consolidated statements of earnings,
consolidated statements of changes in financial position and notes, the
auditors' report on such financial statements and management's discussion and
analysis of results of operations and financial condition are included in the
report mentioned above, a copy of which is enclosed herewith.
3. ALLOCATION OF RESULTS. APPROVAL OF DIVIDEND PAYMENT
The Board of Directors further recommends a vote FOR ratification of the interim
cash dividend paid by the Company on August 27, 2002 for a total amount of US$
9,270,000.
The Board of Directors further recommends a vote FOR approval of a cash dividend
payable in U.S. dollars in the amount of US$115,000,000 (equivalent to
US$0.09908 per share currently issued and outstanding and US$0.9908 per ADR
currently issued and outstanding), which shall be paid from the Company's other
distributable reserve account of US$206,744,261. Upon approval of this
resolution, the Board of Directors shall determine, in its discretion, the terms
and conditions of the dividend payment, including the applicable record date.
4. DISCHARGE OF DIRECTORS' RESPONSIBILITIES
In accordance with article 59 of Luxembourg's Law of Commercial Corporations, it
is proposed that, upon approval of the Company's accounts for the year ended
December 31, 2002 the members of Board of Directors be discharged of any
responsibilities in connection with the management of the Company's affairs
during such year.
5. ELECTION OF THE MEMBERS OF THE BOARD OF DIRECTORS
The Company's Articles of Association provide, in case the shares of the Company
are listed on a regulated market, for the annual election by the holders of
Common Stock of a Board of Directors, of not less than five and a maximum of
fifteen members. Members of the Board of Directors have a term of office of one
year, but may be reappointed.
The present Board of Directors of the Company consists of 10 directors. Other
than Mr. Paolo Rocca, who was elected on October 18, 2002, the other members of
the Board of Directors were elected on December 14, 2002, 2002 and took office
on January 31, 2003. It is proposed that the current members of the Board of
Directors listed below be re-elected:
1) Mr. Roberto Bonatti
2) Mr. Carlos Manuel Franck
3) Mr. Pedro Pablo Kuczynski
4) Mr. Bruno Marchettini
5) Mr. Gianfelice Mario Rocca
6) Mr. Paolo Rocca
7) Mr. Roberto Rocca
8) Mr. Jaime Serra Puche
9) Mr. Amadeo Vazquez
10) Mr. Guillermo F. Vogel
Each elected director will hold office until the annual shareholders' meeting to
be held on the fourth Wednesday of May 2004 that will consider and approve the
annual financial statements of the Company for the year ended December 31, 2003.
The Board of Directors of the Company met fourteen times during 2002. On January
31, 2003, the Board of Director created an Audit Committee pursuant to article
11 of the Articles of Association. The Board of Directors has no executive,
nominating or compensation committee, or any committees exercising similar
functions.
6. AUTHORIZATION TO THE BOARD OF DIRECTORS TO DELEGATE THE DAY-TO-DAY MANAGEMENT
OF THE BUSINESS TO ONE OR MORE OF ITS MEMBERS.
It is proposed that the day-to-day business be delegated to Mr. Paolo Rocca,
President and Chief Executive Officer of the Company.
7. DETERMINATION OF COMPENSATION TO THE BOARD OF DIRECTORS
It is proposed that each of the members of the Board of Directors in office be
compensated with US$ 50,000 for the fiscal year 2003.
8. CONFIRMATION AND APPOINTMENT OF INDEPENDENT AUDITORS AND APPROVAL OF THEIR
FEES
The Board of Directors of the Company recommends a vote FOR (i) ratification of
the fees of US$80,000 paid to PricewaterhouseCoopers S.a.r.l. for audit services
rendered during the fiscal year ended December 31, 2002, and (ii) approval of
the fees of US$ 80,000 to be paid for audit services rendered during the fiscal
year ending December 31, 2003.
In addition, the Board of Directors recommends a vote FOR the reappointment of
PricewaterhouseCoopers S.a.r.l. as independent auditors of the Company for the
fiscal year ending December 31, 2003.
9. MISCELLANEOUS
Management is not aware of any matters that may properly come before the Meeting
other than those set forth in the agenda for the Meeting or relating thereto.
Should any additional matter may properly come before the Meeting, the holders
who voted through proxy forms provided by the Company will vote "abstain" on
such matters.
The Company anticipates that the next Annual General Meeting of Shareholders
will be held on May 26, 2004. A holder of shares who intends to present a
proposal at the next Annual General Meeting must submit the proposal in writing
to the Company at any of the Office or the National Offices not later than 4:00
P.M. (Luxembourg, Buenos Aires, Mexico City or Rome time, as the case may be) on
March 31, 2004, in order for such proposal to be considered for inclusion in the
agenda for such shareholder meeting.
------------------------------------
PricewaterhouseCoopers S.a.r.l. are the independent auditors of the Company. A
representative of the independent auditors will be present at the Meeting who
will respond to appropriate questions.
Cecilia Bilesio
Secretary of the Board of Directors
[TENARIS LOGO]
Annual Report 2002
Index & Content
1 Company profile
2 Leading indicators
3 Letter to shareholders
4 The exchange offer and creation of Tenaris
5 Financial and business review
6 Communities and environment review
7 Corporate governance
8 Board of directors and executive officers
9 Management discussion and analysis
10 Consolidated combined financial statements
11 Report and accounts of Tenaris S.A. (Luxembourg GAAP)
12 Corporate information
1. Company profile
Tenaris S.A. (TS: NYSE, Buenos Aires, Mexico, and TEN: MTA Italy) is a leading
global manufacturer of seamless steel pipe products and provider of pipe
handling, stocking and distribution services to the oil and gas, energy and
mechanical industries. Our customers include most of the world's leading oil and
gas companies as well as a large number of leading engineering and industrial
companies. We are also a leading regional supplier of welded steel pipes for gas
pipelines in South America.
Organized in Luxembourg, we have manufacturing facilities in Argentina, Brazil,
Canada, Italy, Japan, Mexico and Venezuela and a network of customer service
centers present in over 20 countries worldwide. Our annual manufacturing
capacity is three million tons of seamless and 850 thousand tons of welded
pipes. With this infrastructure, we offer customers a service that integrates
manufacturing, procurement, distribution and on-time delivery of high quality
products throughout the world.
2. Leading indicators
SALES VOLUMES (thousands of metric tons) 2002 2001
---------------------------------------- ---- ----
Seamless tubes 2,283 2,673
Welded tubes 585 432
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Total steel pipes 2,868 3,105
PRODUCTION VOLUMES (thousands of metric tons)
---------------------------------------------
Seamless tubes 2,245 2,470
Welded tubes 561 475
----- ------
Total steel tubes 2,806 2,945
FINANCIAL INDICATORS (millions of USD)
--------------------------------------
Net sales 3,219 3,174
Operating income 472 442
Net income before income tax and minority interest 444 375
Net income before minority interest attributable to 194 136
participations acquired in the exchange offer (1)
Net income 94 81
Free cash flow (2) 328 361
BALANCE SHEET (millions of USD)
-------------------------------
Total assets 4,017 3,838
Total financial debt 716 765
Net financial debt (3) 411 552
Total liabilities 2,137 2,044
Shareholders' equity including minority interest 1,881 1,794
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Number of shares outstanding (4) 1,160,700,794
Comparable earnings per share (5) (USD per share) 0.17 0.12
(USD per ADS) 1.67 1.17
Number of employees 13,841 14,127
(1) Net income before minority interest attributable to participations in
consolidated subsidiaries acquired in the exchange offer. This is net
income as if the exchange offer had taken place on January 1, 2001. See
Note 8 (II) of the Consolidated Combined Financial Statements.
(2) Defined as net cash from operations (USD 461 million) less net capital
expenditure and investment in intangible assets (USD 133 million).
(3) In addition, Tenaris had investments (USD 136 million in 2002 and USD 103
million in 2001) in trust funds to support its Argentine and Brazilian
operations.
(4) As a result of the exchange offer, the number of shares outstanding
increased from 710,747,187 to 1,160,700,794.
(5) Defined as net income before minority interest in subsidiaries acquired in
the exchange offer divided by 1,160,700,794 shares. See Note 8 (II) of the
Consolidated Combined Financial Statements.
3. Letter to shareholders
Dear Shareholders,
Tenaris became a public company on December 16, 2002, when its shares began to
trade on the New York, Buenos Aires, Italian and Mexican stock exchanges. This
followed the successful conclusion of our multi-jurisdictional exchange offer
through which we brought together international, Argentine, Mexican and Italian
investors into a single company. We are now completing this process by seeking
the delisting of the shares of Siderca, Tamsa and Dalmine from their respective
stock exchanges so that we can focus our efforts on managing Tenaris as a single
organization.
I believe that we have created something special: a company that is genuinely
multicultural in its roots and global in its reach; one that has a powerful
industrial and technological base that is leading advances in its industry as it
strives to serve its customers better; one with strong ties to the communities
in which it operates; and one with a solid financial platform to pursue future
opportunities for growth and to reward its shareholders; effectively, a company
that can thrive in today's uncertain and challenging world.
Tenaris may have had only a few months of existence as a public company but it
has a rich industrial heritage in the various countries where its manufacturing
operations are concentrated. A heritage which is personified by the late
Agostino Rocca, who, having been managing director at Dalmine in the 1930s, was
the protagonist in the founding of Siderca in Argentina and Tamsa in Mexico. His
was the philosophy of continuous investment in facilities, processes and
products that, combined with almost 50 years of dedicated operating and
management experience, allows us to offer our customers an outstanding range of
high-quality and proprietary products.
But Tenaris' strengths go far beyond its products. Through our global network of
service centers we work hand-in-hand with our customers, managing all aspects of
the handling, stocking and distribution of pipes and accessories to ensure
on-time delivery not only of pipes but of whole pipe assemblies no matter how
complex the environment in which our customers are operating. From the remote
reaches of the Caspian Sea to the deepwater off the West African coast, Tenaris'
proposal is in essence one of service and involves no less than the redesign of
the industry supply chain integrating manufacturing, procurement, distribution
and assembly in a seamless, transparent system.
Tenaris has grown while maintaining strict capital discipline. Using the strong
cash flows from our highly competitive operations, we have expanded
progressively over the past ten years acquiring manufacturing facilities in
Mexico, Italy, Venezuela, Brazil, Canada and Japan and investing in the working
capital used by our global network of service centers to provide stocking and
distribution services to customers worldwide. At the same time, we have
continued to make substantial investments to enhance the competitiveness of our
industrial facilities and the quality of our products while maintaining dividend
payments to shareholders. Today, Tenaris has net assets of USD 4.0 billion and a
net debt of USD 411 million. With operating income of USD 472 million recorded
for the year 2002 and an annual free cash flow in excess of USD 300 million, we
have ample financial capacity to continue investing in growth opportunities and
improving the competitiveness of our business as well as to offer an attractive
dividend yield to our shareholders. Based on our solid 2002 results, and
considering that Tenaris has a distributable reserve of USD 207 million, we are
proposing to pay a dividend of USD 115 million (USD 0.099 per share, USD 0.99
per ADS), subject to your approval as our shareholders.
One of Tenaris' great strengths is that it is a global business with solid local
roots. And since its roots are found in several different countries it is a
genuinely multicultural enterprise. The services that we provide our customers
were first developed in our local markets and would not be possible without a
strong local presence. Knowledge is shared among our various operating
subsidiaries, and working teams invariably have a
multicultural make-up. And we work hard to ensure that the opportunities that
come with our success are shared within our local communities, which provide the
majority of our employees.
As with any company, Tenaris' employees are at the heart of its success. Their
dedication to detail is the guarantee of the outstanding quality of our
products. Their determination and resourcefulness are the guarantee that those
products reach their required destination on time, ready for use. Their
innovation is what drives Tenaris forward as it continues to set the standards
for its industry.
As a result of the exchange offer, Tenaris has the opportunity to consolidate a
single, unified organization. Operating and management synergies will release
additional cash, and provide further opportunities, to develop new products,
services and markets. Customers will see more clearly what we can offer them
wherever they are in the world. And we will be a more visible and transparent
entity to investors as we report our consolidated results in a single currency
and under a single set of accounting standards. We have every reason to face the
future with confidence notwithstanding the immense uncertainties generated by
war in the Middle East.
I would like to thank all those who have helped to create what Tenaris is today,
our customers and employees, as well as the former shareholders of Siderca,
Tamsa and Dalmine who elected to exchange their shares and those who have become
shareholders since.
March 2003
Roberto Rocca
Chairman
4. The exchange offer and creation of Tenaris
Tenaris became a public company on December 16, 2002 following the completion of
a simultaneous exchange offer carried out in four jurisdictions which allowed
the shareholders of Siderca S.A.I.C., an Argentine company, Tubos de Acero de
Mexico S.A., a Mexican company, and Dalmine S.p.A., an Italian company, to
exchange their shares for shares in Tenaris S.A., a company organized in
Luxembourg. As a result of the exchange offer, Tenaris increased its ownership
of Siderca, Tamsa and Dalmine to 99.1%, 94.5% and 88.4% respectively and the
former public shareholders of these three companies became holders of 38.8% of
the share capital of Tenaris.
The exchange offer formed part of a corporate reorganization project which had
as its objective the consolidation of all the interests of Tenaris' controlling
shareholder in the Tenaris steel pipes business and the alignment of those
interests with the public shareholders of its principal constituents. The new
corporate structure will facilitate the management of Tenaris' business, open up
opportunities for additional operating and management synergies, strengthen its
global standing and position it to take advantage of future growth
opportunities. At the same time, Tenaris will be a larger and more visible
public company than its predecessors.
The origins of Tenaris lie firstly with the formation of Siderca in Argentina in
1948 and, more recently, with the expansion of Siderca's pipe business beyond
Argentina, starting with the expansion of its production facilities in the late
1980s and followed by a series of strategic acquisitions in pipe manufacturing
facilities worldwide and the building up of a global network of steel pipe
distribution facilities and sales offices. Today, Tenaris operates a network of
steel pipe manufacturing facilities in South America, North America, Europe and
Asia with a combined annual production capacity of over three million tons of
seamless steel pipes and 850 thousand tons of welded steel pipes as well as a
global network of pipe distribution and service facilities with a direct
presence in most major oil and gas markets.
With this infrastructure and the operating and management know-how gained with
the benefit of some 50 years experience, Tenaris supplies its customers with an
exceptional range of high-quality pipe products and accessories all over the
world on terms which do away with the need to carry wasteful inventories, to
coordinate between manufacturers, distributors and service providers, or even to
specify the grade and type of product required. Tenaris effectively offers a
unique service, one that integrates the tubular supply chain under a single
responsibility and, with its web-based TenarisTracking service, gives its
customers the added assurance of knowing where their pipes are.
Just as service is central to what Tenaris offers its customers, so is
technology. Not just the technology to process steel of flawless quality but
also the technology to design pipes whose properties enable them to perform
safely in the vastly differing and increasingly corrosive environments in which
oil and gas drilling takes place, to withstand the pressures encountered at
2,700 meters beneath the ocean waves or to house the air that inflates an air
bag. Using specialist laboratories and multicultural teams, Tenaris designs
industry-leading products offering outstanding performance and environmental
sensitivity.
This business, focused on technology and service, whose capability is much
greater than the sum of its parts, adopted the Tenaris name in May 2001. Derived
from the Latin tenax, the new name symbolizes the tenacity and determination of
our employees to overcome the challenges that they face on a daily basis to
ensure on-time delivery of high quality tubes in the far from standard
environments where our customers operate. Likewise, our multicultural identity,
and source of so many of our creative solutions, finds an express-ion in the
multibar symbol, which accompanies the Tenaris name.
Tenaris, then, may be a new company but it has a substantial history behind it.
The launch of the Tenaris brand and the subsequent exchange offer effectively
mark a new beginning. Although some of the integration process has already been
achieved, there remains much to be done. The finance and administrative
structures of what were previously three separate public companies will be
unified, the order allocation process, established to satisfy the requirements
of competing sets of shareholders will be streamlined, the manufacturing
facilities will
be increasingly focused on particular product areas, and more flexible financial
planning strategies will be used. The resulting synergies will help to increase
operating margins and free up additional cash flow for investments in new
products and services as well as paying dividends to shareholders.
5. Financial and business review
Business environment and outlook
The business environment for Tenaris' seamless pipes business was less favorable
in 2002 than in the previous year, particularly during the second half. Although
oil prices remained at levels which, under typical circumstances, would be
expected to result in sustained levels of investment in oil and gas drilling,
global demand for seamless pipes fell due to lower levels of oil and gas
drilling activity, as indicated by the global rig count, as well as persistently
lower levels of industrial production in the principal industrial regions of
North America, Europe and Japan. Oil and gas exploration and production activity
was affected by increased uncertainty over the future level of oil prices given
the possibility of military action against Iraq as well as OPEC production
cutbacks. In addition, demand for seamless pipes in Tenaris' local markets was
affected by the political crises in Venezuela and Argentina and the low level of
the North American gas price at the start of the main Canadian drilling season.
In 2003, the year has begun with a sharp rise in global oil and North American
gas prices but, even at the current high levels of prices, investment in oil and
gas exploration and production is not showing significant signs of growth. The
intense uncertainty caused by the prospect, and current reality, of military
action against Iraq remains. This is reflected in a general reluctance to make
investment commitments, irrespective of current price levels, and is also
preventing or postponing any general recovery in global economic demand. On the
other hand, demand for seamless pipes in Tenaris' local markets is showing signs
of improvement in Argentina, Mexico and Canada, but in Venezuela a national
strike brought the oil and gas industry to a virtual halt in January and it will
take time for demand to recover to the levels recorded in 2001. In Italy and
Japan, demand continues to be affected by stagnant levels of industrial
activity. Demand for Tenaris' welded pipes remains strong, despite the
completion of deliveries to the major gas pipeline projects in Ecuador and Peru
that Tenaris supplied in 2002, due to increased demand for oil and gas pipelines
in the Brazilian market.
Results
Despite the unfavorable business environment for its core seamless pipes
business, which led to a 15% decline in overall seamless pipe sales volumes
including a 34% decline in South American seamless pipe sales volumes, Tenaris
successfully managed to increase revenues, operating income and net income over
the respective levels recorded for 2001 on a comparable basis. This strong
performance was made possible through an increase in the value of our seamless
pipe products, which enabled us to increase average selling prices in a
difficult pricing environment, a reduction in operating costs at our Argentine
operations following the devaluation of the Argentine peso, strong demand for
our welded pipes from South American gas pipeline construction projects and a
near doubling of sales at our new energy business.
Net sales in 2002 rose 1.4% to USD 3,219.4 million from USD 3,174.3 million in
2001. Operating income rose 6.9% to USD 471.9 million (14.7% of net sales) from
USD 441.6 million (13.9% of net sales) in 2001. Operating income plus
depreciation and amortization rose 7.4% to USD 648.2 million (20.1% of net
sales) compared to USD 603.3 million (19.0% of net sales) in 2001. Margins on
seamless pipe sales increased significantly (the gross margin rose to 36.6% from
33.4%), but the effect of this on overall margins was largely offset by a higher
proportion of low-margin energy (gross margin of 5.6%) and other steel products
sales in the composition of overall net sales.
Income before income tax and minority interest in 2002 rose 18.6% to USD 444.5
million (13.8% of net sales) from USD 374.7 million in 2001. Net income, which
rose 16.0% to USD 94.3 million from USD 81.3 million,
was negatively affected by additional income tax charges reflecting the impact
of the devaluation of the Argentine peso and minority interests. Net income
before minority interest attributable to participations in consolidated
subsidiaries acquired in the exchange offer completed on December 13, 2002 rose
42.7% to USD 193.8 million from USD 135.8 million in 2001, and corresponding
earnings per share were USD 0.17 (USD 1.67 per ADS).
Free cash flow (net cash provided by operations less net capital expenditure)
declined 9.2% to USD 328.2 million from USD 361.3 million. Although net capital
expenditure declined to USD 133.2 million, a substantial increase of USD 124.3
million was recorded in working capital, principally reflecting an increase in
trade receivables.
Tenaris' positive free cash flow allowed it to strengthen still further its
financial position during the year. As of December 31, 2002, Tenaris had total
assets of USD 4,017.4 million, total financial debt of USD 715.9 million and net
financial debt of USD 411.4 million. In addition, Tenaris had USD 135.3 million
invested in trust funds established to support its Argentine and Brazilian
operations.
For a more detailed analysis of Tenaris' financial condition and results of
operations, please see the section entitled "Management discussion and
analysis". There follows a discussion featuring developments in our main
business areas.
Oilfield Services
Tenaris continues to make progress in increasing the level of value-added in its
products and services and forging long-term relations with its main customers.
In May, a five-year agreement, valued at USD 80 million annually, was concluded
with ChevronTexaco. Under the agreement, Tenaris will supply the OCTG
requirements of most of ChevronTexaco's operating affiliates outside of the
United States with services such as pipe design, distribution and inventory
management included. In the same month, the TenarisTracking service was
launched: this service, which is included within the services provided under the
ChevronTexaco agreement, facilitates the efficient and transparent management of
orders for tubes throughout the supply chain process.
Tenaris increased its on-the-ground presence in two growing markets. We opened a
new center at Atyrau in Kazakhstan to meet increasing demand in the Caspian Sea
area, where ChevronTexaco and Eni operate fields. In Nigeria, we are installing
a new pipe threading and finishing facility and expanding our stockyard at the
Onne Free Oil and Gas Zone, which will add a substantial element of local
content to the services we offer in the country and provide employment to some
100 Nigerians.
In China, we began supplying complete tubular columns for the ConocoPhillips
operations at Bohai Bay, in association with Weatherford. This follows the
successful introduction of this new service in the North Sea.
In October, we launched our new TenarisBlue premium joint. We have high
expectations that this product, which shows the strength of our multicultural
research and development capabilities and offers outstanding performance with
enhanced environmental sensitivity, will become the new reference for premium
joints in the industry.
Pipeline Services
Perspectives in this sector remain promising, in spite of a year of relatively
weak demand, particularly in regions such as the Gulf of Mexico and the Middle
East, and the increasing use of welded pipes in on-shore applications. The
technical specifications required for today's complex deep-water projects play
to Tenaris' technological strengths. Already, Tenaris' product development
efforts have established it as the industry reference in the Gulf of Mexico and
West Africa. The year saw Tenaris develop products with special specifications
for BP's Thunder Horse project and win an order for the Falcon project featuring
its new double jointing service, both in the Gulf of Mexico. Elsewhere, there
were several orders for projects featuring pipes with coatings and bends in the
North Sea and the Middle East.
Deliveries were made to a number of important projects, including Shell's Bonga
and Marathon's Alba projects in West Africa, Devil's Tower in the Gulf of
Mexico, Juno, CMS III and Gryphon in the North Sea and BHP's ROD project in
North Africa. Tenaris puts on-line a web-based project center to facilitate the
management of complex projects and continued research into advanced welding
techniques, structural integrity of deepwater linepipe and insulation coatings.
Process & Power Plant Services
Demand in this sector was affected by a small decline in investment in
refineries and petrochemical plants. In addition, demand for gas processing
plants connected with LNG projects was strong but there was lower demand for
power generation projects amid a general reassessment of future energy demand
trends following the exposure of artificial trading activity among certain U.S.
energy trading companies.
Tenaris continued to make progress in establishing itself as a project manager
capable of managing the supply of complete tubular packages for major projects.
A number of web-based services, which simplify the generation of bills of
materials and reduce the cost of sourcing tubes, were introduced. Frame
agreements were signed with major engineering companies such as Snamprogetti and
Technip-Coflexip. Newly developed T91 and T23 high-alloy grade pipes were
developed, which will allow Tenaris to offer complete pipe packages for boilers
and thus increase penetration in this market segment.
Industrial & Automotive Services
Demand in this sector was affected by weak levels of industrial activity in
North America, Europe and Japan. In particular, apparent consumption of seamless
tubes in the EU market fell by 13%. However, Tenaris gained market share in
Italy and continued to make progress in developing sales to the automotive
segment in North America. The 3% increase in Italian market share and overall
sales volume of 322 thousand tons reflects the successful reorganization of its
sales and distribution activities in Italy, which has allowed it to concentrate
on developing a better service for its regular customers and serve smaller
customers through exclusive regional distributors. Tenaris plans to extend this
concept to its operations in other EU countries such as France, Germany and the
UK.
In North America, with its new auto-components plant and expanded cold rolling
mill at Veracruz, Tenaris is increasing its capabilities to serve the automotive
market in North America. Tenaris was qualified as a sub-supplier for half shafts
to the Toyota 500 N platform and increased its market shares of tubes for
airbags and for trailer axles. Elsewhere, leveraging on its experience in the
Argentine market, Tenaris began selling tubes for compressed natural gas
cylinders in India.
Local markets (Argentina, Canada, Mexico and Venezuela)
In Argentina, investment in oil and gas drilling activity was affected by
regulatory uncertainty, including the application of export taxes on oil
exports, the non-adjustment of gas tariffs following the devaluation of the
local currency, and the difficulty of accessing credit from the financing
system. New oil and gas wells drilled during the year fell 28% from the level of
the previous year. Demand from other sectors was similarly affected by the
severe domestic recession and economic uncertainty. However, in the second half
of the year, there were higher levels of oil drilling activity and a slight
pick-up in industrial activity (from extremely low levels) associated with the
improving outlook for the agricultural sector as well as increased demand for
compressed natural gas cylinders due to the price difference between this fuel
and standard petroleum derivatives. Tenaris continued to expand the scope of
services it offers its principal customers in Argentina and opened a new
logistics center in Neuquen. Sales of seam-less pipes totaled 164 thousand tons,
a decline of 23% from the levels of the previous year.
In Mexico, sales of seamless pipes totaled 156 thousand tons, an increase of 12%
from the levels of the previous year, reflecting an increase in oil and gas
drilling activity -the average number of active rigs was up 22% over the
previous year- and a slight decline in sales to the non-oil sector. Pemex was
granted a significant increase in its annual budget, thereby providing funds for
increased exploration and production activity in the southern region and for its
strategic natural gas program in the northern region. This was reflected in
increased levels of drilling activity particularly towards the end of the year.
In Venezuela, OPEC production quota cutbacks and adverse political and economic
developments led to a substantial decline in exploration and production activity
in the oil and gas sector during the year, resulting in a 37% decline in the
average rig count compared to the previous year. Additionally, PDVSA, the
state-owned oil company, decided to implement a significant reduction in its
inventories of seamless pipes. These factors resulted in a 65% decline of
Tenaris' sales of seamless pipes in the country. The Tavsa plant operated at a
low level of capacity utilization throughout most of the year and in January of
2003 was forced to stop operations due to the collapse in demand during the
national strike called by oil workers and other opposition leaders against the
government.
In Canada, the level of oil and gas drilling activity was affected by low prices
in the North American gas market at the start of the year, which is the key
season for drilling in Canada, as well as unfavorable weather at the end of the
year. Tenaris was affected and sales of seamless pipes in Canada fell 28% for
the year. Particular efforts were made during the year to develop the capability
of the AlgomaTubes plant to produce high-value products such as special sour
service and chromium grades as well as premium connections.
Welded
2002 was a particularly strong year for Tenaris' welded pipe business. Although
demand in Argentina fell to low levels due to the impact of the Argentine crisis
on investments in gas pipelines and other activities, this was more than
compensated by strong demand for Tenaris' welded pipes for gas pipeline projects
including OCP (Oleoducto de Crudos Pesados) in Ecuador, Camisea in Peru and
Gasyrg in Bolivia. Confab, Tenaris' plant in Brazil, operated at close to
capacity levels for much of the year and its order books remain high as orders
from new oil and gas pipeline projects in Brazil substitute for the
now-completed OCP project in Ecuador. In Brazil, a contract was concluded with
Petrobras, valued at USD 113 million, under which Tenaris will supply specially
coated pipes in 2003 for two pipelines connected with Petrobras' oil and gas
operations, and a second contract, valued at USD 100 million over five years,
was concluded for the supply of pipes on a just-in-time basis to Petrobras' oil
and gas operations at Macae.
Energy
Tenaris, through its subsidiary Dalmine Energie, has developed a small energy
business in Italy following moves to partially deregulate the energy market.
Originally formed to supply electricity to Tenaris' Italian operations at
Dalmine and to other users in the Bergamo area, it has rapidly expanded and
currently supplies energy to many industrial companies in north and central
Italy. Electricity and natural gas are purchased at wholesale market prices and
then sold to customers. Sales rose 86% to USD 210 million during 2002,
reflecting the start of natural gas sales and increased sales of electric power.
In February 2003, Tenaris purchased a 160MW electric power generating plant in
Argentina with the purpose of further integrating its operations at Siderca by
becoming self-sufficient in electric power. Tenaris plans to sell power surplus
to Siderca's requirements on the open market in Argentina.
6. Communities and environment review
Tenaris' history is deeply entwined with that of the communities where it has
its roots. As a long-term industrial project, the essential framework governing
its relations with its communities was established many years ago. It departs
from the deeply-held conviction of Tenaris' founding family that the continuing
strength of the company depends on an active participation that links its own
development to that of its suppliers, customers, employees, and the communities
in which it resides.
This framework encompasses continuous commitments to promoting health and safety
among employees, to minimizing the impact of operations on the environment, to
maintaining transparent relations with suppliers, customers, employees and the
local communities, and to working with local authorities and non-governmental
organizations to promote education and foster self-reliance.
Human resources policies are designed to select and promote individuals based on
their professional abilities, interpersonal skills and commitment. A work
environment that rewards innovation, initiative and teamwork reinforces those
policies.
The Tenaris young professionals program provides promising university graduates
an opportunity to join and grow with an organization that has a tradition of
nurturing young talent. A more recent initiative is the corporate university we
founded last year. Using a combination of on-site and e-learning methodologies,
this initiative enables employees from multiple countries and cultures to
acquire new skills as well as interact with one another to share knowledge and
best practices.
Our rich cultural diversity, as represented in the varied nationalities of our
employees, is one of our key assets. To capitalize on it, we organize regular
employee exchanges that allow staff to travel to our plants and offices around
the world to see how colleagues deal with common challenges in research,
engineering, production, sales and marketing, communications and all aspects of
our business. Cross-organizational work groups are formed taking this cultural
diversity into account. And respect for cultural, gender and language
differences is a guiding principle for relations among employees at all levels
of the company.
Tenaris also works to extend the benefits of its multicultural diversity to its
local communities through cultural programs. Working through the PROA
Foundation, housed in the La Boca district of Buenos Aires, and the Association
for the Modern and Contemporary Art Gallery of Bergamo as well as agreements
with Mexican, Brazilian and Japanese cultural institutions, Tenaris promotes
cultural exchanges in its local communities through art exhibits, seminars and
other initiatives.
In the wake of the profound economic and social crisis that erupted in Argentina
at the end of 2001, Tenaris introduced its "Plan Alentar" program for the
Campana area. With a budget of ten million Argentine pesos over 20 months, the
emergency program is designed to help meet impoverished community members' basic
needs in terms of food, clothing, medical care and housing, as well as to
promote micro-enterprises. This program runs in addition to Tenaris' ongoing
social programs that promote education and self-help in the Campana area.
In Mexico, the Tamsa Foundation supports educational, health and cultural
initiatives in the state of Veracruz. In addition, Tamsa supported the "Bridges
of Hope" initiative to build 100 bridges (30 were built in 2002) to provide
communication to isolated impoverished communities.
In Italy, the Dalmine Foundation was established three years ago to preserve and
expand Dalmine's historical archive, representing almost 100 years of Italian
industrial history. And in keeping with its policy of forging close relations
with educational institutions, Tenaris has formed, with the Polytechnic of
Milan, a partnership whose purpose is to advance scientific research and the
training of experts in the iron metallurgy sector.
Health, safety and environment
Tenaris works constantly to improve its safety performance concentrating on two
levels. On one, we upgrade the physical conditions of the workplace by
continuously investing in new technologies, infrastructure and maintenance. On
another, we work on attitudes and behavior relative to safety. We do this
through innovative programs that reward safe behavior and by holding weekly
meetings with managers, safety staff and workers at each of our plants to
discuss accidents and share ideas for improving safety.
As part of our ongoing efforts to integrate activities across all levels of the
company, we have developed uniform management control parameters to be applied
in all our plants. We are now in the process of standardizing accident
indicators and reporting procedures across plants and operating units. Safety
indicators improved significantly last year in comparison to 2001. The total
number of accidents fell by 14% and the number of accidents with working days
lost dropped by 19%.
Environmental policy at Tenaris is based on the principles of sustainable
development. Our plants are located in areas with a strong industrial tradition,
like Tokyo, Bergamo or Ontario, or in more recent centers of development like
Veracruz, Campana, Pindamonhangaba and Puerto Ordaz. At all of these sites
rigorous standards for environmental and natural resources protection are
followed. A significant portion of new investment is destined to reduce the
environmental impact of manufacturing, introducing innovations in technology and
processes; training programs for the prevention and management of possible
emergencies are organized for technicians and workers.
Tenaris constantly reviews its operations to maximize the efficiency of its use
of energy resources and the re-use, both in its own operations and by third
parties, of by-products and waste. This is a contribution that combines the need
to reduce the environmental impact of energy generation and the use of resources
with the demand to optimize these critical factors for competitiveness in its
operations. Tenaris also has programs through which it collaborates with local
institutions in the communities where it operates, for the purpose of
identifying, reducing and eliminating possible risks.
Tenaris' concern for environmental protection does not stop at the factory
gates. Supplying its own customers products and services that limit
environmental impact and reduce potential risks has become a fundamental part of
the Tenaris mission. So is designing tubes for use in extreme conditions, in
drilling as well as in transportation; special joints that reduce or eliminate
the use of chemical additives; and transportation, assistance and installation
services employed in sensitive areas that require rigorous respect for
environmental protection.
7. Corporate governance
Tenaris has one class of shares, with each share having equal rights including
the entitlement to one vote at our shareholders' meetings. Our articles of
association provide that the annual ordinary shareholders' meeting, which
approves the annual financial statements and appoints the board of directors,
shall occur on the fourth Wednesday during the month of May.
Resolutions made at ordinary shareholders' meetings will be passed by majority
vote, irrespective of the number of shares present or represented. Extraordinary
shareholders' meetings held to consider proposed amendments to the company's
articles of association can only meet after the first call if at least half of
the share capital is present or represented. If the required quorum is not met,
a second meeting may be convened by means of notices published twice, at twenty
days interval at least and twenty days before the meeting, in the Memorial,
Recueil des Societes et Associations. The second meeting can validly decide
regardless of the quorum present or shares
represented. Resolutions may only be passed by a two thirds majority of the
votes of the shareholders present or represented.
Board of directors
Management of the company is vested in a board of directors. Our articles of
association provide for a board of directors consisting of at least five and at
most fifteen directors. The board of directors is required to meet as often as
required by the interests of Tenaris and at least four times per year. A
majority of the members of the board constitutes a quorum, and resolutions may
be adopted by the vote of a majority of the directors present. In the case of a
tie, the chairman is entitled to cast the deciding vote. Directors are elected
at the annual ordinary shareholders' meeting to serve one-year renewable terms,
as decided by the shareholders.
Our current board of directors is comprised of ten directors, three of whom are
independent directors.
Audit committee
Tenaris has an audit committee composed of three members, two of whom are
independent directors. The members of the audit committee are not eligible to
participate in any incentive compensation plan for employees of the company or
any of its subsidiaries. The audit committee shall:
o assist the board of directors in fulfilling its oversight
responsibilities relating to the integrity of the financial statements
of the company, the company's system of internal controls and the
independence and performance of the company's independent auditors;
o review material transactions between the company and its subsidiaries
with related parties to determine whether their terms are consistent
with market conditions or are otherwise fair to the company and its
subsidiaries, and
o perform the other duties entrusted to it by the board of directors,
particularly as regards relations with the independent auditor.
The audit committee has the authority to conduct any investigation appropriate
to fulfilling its responsibilities, and it shall have direct access to the
independent auditors as well as anyone in the company and, subject to applicable
laws, its subsidiaries. The audit committee has to report to the board of
directors on its activities and the adequacy of the internal control system at
least every six months, at the time the annual and semi-annual accounts are
approved.
Auditors
The annual accounts shall be audited by one or more independent auditors,
appointed by the annual ordinary shareholders' meeting from among the members of
the Institute of Independent Auditors (Institut des reviseurs d'entreprises) in
Luxembourg. The ordinary shareholders' meeting shall determine their number and
the term of their office, which shall not exceed one year. They may be
reappointed and dismissed at any time.
Compensation
The compensation of the directors is determined at the annual ordinary
shareholders' meeting. A total of USD 739 thousand was paid to our Chief
Executive Officer, Chief Financial Officer and the members of the board of
directors who were in office in 2002.
8. Board of directors
The current members of the board of directors took office on January 31, 2003.
Chairman Roberto Rocca
President and Chief Executive Officer Paolo Rocca
Vice-president Finance Guillermo Vogel (*)
Roberto Bonatti
Carlos Franck
Pedro Pablo Kuczynski
Bruno Marchettini
Gianfelice Mario Rocca
Jaime Serra Puche (*)
Amadeo Vazquez y Vazquez (*)
Secretary Cecilia Bilesio
(*) Members of the Audit Committee
Executive officers
President and Chief Executive Officer Paolo Rocca
Chief Financial Officer Carlos Condorelli
Commercial Director German Cura
Supply Chain Director Alejandro Lammertyn
Human Resources Director Marco Radnic
Technology Director Carlos San Martin
European Area Manager Alberto Valsecchi
Argentine Area Manager Guillermo Noriega
Mexican Area Manager Vincenzo Crapanzano
Managing Director, Japanese Operations Marcelo Ramos
Managing Director, Welded Pipe Operations Ricardo Soler
9. Management discussion and analysis
The following discussion, which compares Tenaris' results of operations and
financial condition for the fiscal year ended December 31, 2002 against that for
the fiscal year ended December 31, 2001, should be read in conjunction with
Tenaris' consolidated combined financial statements and the related notes
thereto. Tenaris prepares its financial statements in conformity with
International Accounting Standards (IAS), which differ in certain significant
respects from U.S. GAAP, and other national accounting standards.
Results of operations
The following table sets forth, for the periods indicated, selected financial
data from Tenaris' consolidated combined income statements.
YEAR ENDED DECEMBER 31,
--------------------------------------
All amounts in USD thousands 2002 2001 2000
---------------------------- ---- ---- ----
Net sales 3,219,384 3,174,299 2,361,319
Cost of sales (2,168,594) (2,165,568) (1,692,412)
---------- ---------- ----------
Gross profit 1,050,790 1,008,731 668,907
Selling, general and administrative expenses (568,149) (502,747) (433,617)
Other operating (expenses) income, net (10,764) (64,352) 5,877
---------- ---------- ----------
Operating profit 471,877 441,632 241,167
Financial (expenses) income, net (20,597) (25,595) (47,923)
---------- ---------- ----------
Income before income tax and equity in earnings (losses) 451,280 416,037 193,244
of associated companies
Equity in (losses) of associated companies (6,802) (41,296) (3,827)
---------- ---------- ----------
Income before income tax and minority interest 444,478 374,741 189,417
Recovery of income tax 36,783 - -
Income tax (219,288) (108,956) (63,299)
Effect of currency translation on tax base (25,266) (109,882) (2,011)
---------- ---------- ----------
Net income before minority interest 236,707 155,903 124,107
Minority interest (142,403) (74,557) (47,401)
---------- ---------- ----------
NET INCOME 94,304 81,346 76,706
========== ========== ==========
The following table sets forth, for the periods indicated, Tenaris' operating
and other costs and expenses as a percentage of net sales for the periods
indicated.
YEAR ENDED DECEMBER 31,
--------------------------
Percentage of net sales 2002 2001 2000
----------------------- ---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales (67.4%) (68.2%) (71.7%)
------ ------ ------
Gross profit 32.6% 31.8% 28.3%
Selling, general and administrative expenses (17.6%) (15.8%) (18.4%)
Other operating (expenses) income, net (0.3%) (2.0%) 0.2%
------ ------ ------
Operating profit 14.7% 13.9% 10.2%
Financial (expenses) income, net (0.6%) (0.8%) (2.0%)
------ ------ ------
Income before income tax and equity in earnings (losses)
of associated companies 14.0% 13.1% 8.2%
Equity in (losses) of associated companies (0.2%) (1.3%) (0.2%)
------ ------ ------
Income before income tax and minority interest 13.8% 11.8% 8.0%
Recovery of income tax 1.1%
Income tax (6.8%) (3.4%) (2.7%)
Effect of currency translation on tax base (0.8%) (3.5%) (0.1%)
------ ------ ------
Net income before minority interest 7.4% 4.9% 5.3%
Minority interest (4.4%) (2.3%) (2.0%)
------ ------ ------
Net income 2.9% 2.6% 3.2%
====== ====== ======
Sales volume
The following table shows Tenaris' sales volume of seamless and welded pipe
products by geographical region for the periods indicated.
Thousands of tons
YEAR ENDED DECEMBER 31, 2002 2001 INCREASE/(DECREASE)
----------------------- ---- ---- ------------------
South America 324 490 (34%)
North America 401 438 (8%)
Europe 644 715 (10%)
Middle East & Africa 522 582 (10%)
Far East & Oceania 392 448 (13%)
----- ----- ----
Total seamless pipes 2,283 2,673 (15%)
===== ===== ====
WELDED PIPES 585 432 35%
----- ----- ----
Total steel pipes 2,868 3,105 (8%)
===== ===== ====
Tenaris' sales volume of seamless pipe products decreased by 15% to 2,283,000
tons in 2002 from 2,673,000 tons in 2001. This significant decrease in sales
volume primarily reflected the effects of lower levels of oil and gas drilling
activity worldwide, as well as persistently lower levels of industrial
production in the principal industrial regions of North America, Europe and
Japan. Although oil prices remained at levels which, under typical
circumstances, would have been expected to result in sustained levels of
investment in oil and gas drilling, oil and gas exploration and production
activity was affected by increased uncertainty over the future level of oil
prices as a result of the prospect of military action against Iraq and
production cutbacks established by OPEC.
Sales volume of seamless pipe products decreased in all of Tenaris' markets as a
result of the contraction affecting the oil and gas and industrial sectors
worldwide. Sales of seamless pipe products were further affected in South
America than in the other markets as a result of the political and economic
developments that affected Argentina and Venezuela, Tenaris' main South American
markets.
Sales volume of welded pipe products increased by 35% to 585,000 tons in 2002
from 432,000 in 2001, reflecting a period of high demand for welded pipes in
connection with South American gas pipeline projects in Ecuador, Peru and
Bolivia, which more than offset reduced sales in the Argentine market.
Sales of electric energy (all in Italy) increased by 11% to 2,060 GWh in 2002
from 1,848 GWh in 2001. This 11% increase reflected an increase in volumes of
electricity sold mainly as a result of the expansion of the customer base. Sales
of natural gas (all in Italy) increased to 456 million scm in 2002 from 21
million scm in 2001. This increase was attributable to the inclusion of sales of
natural gas for an entire year following the commencement of these sales in
December 2001.
Sales of other steel products (mainly sales of Sidor's flat products by Tenaris
Global Services in Europe and North America) increased by 133% to 401,000 tons
in 2002 from 172,000 tons in 2001. Sales of other steel products have been
discontinued following the reorganization of Tenaris Global Services as a
subsidiary of Tenaris.
Net sales
Net sales in 2002 totaled USD 3,219.4 million, compared to USD 3,174.3 million
in 2001. This 1.4% increase resulted from increased sales volumes for welded
pipes, increased sales of electricity and natural gas, increased sales of other
steel products and increased average net sales prices for seamless pipes, which
offset the effect of an overall reduction in seamless pipe sales volumes.
Net sales (by business segment)
The following table shows Tenaris' net sales by business segment in terms of
U.S. dollars for the periods indicated.
Millions of USD
YEAR ENDED DECEMBER 31, 2002 2001 INCREASE/(DECREASE)
----------------------- ---- ---- -------------------
Seamless pipes 2,241.4 2,496.5 (10%)
Welded pipes 580.0 432.6 34%
Energy 210.4 113.4 86%
Others 187.6 132.0 42%
------- ------- ---
Total 3,219.4 3,174.3 1%
======= ======= ===
The following table indicates the distribution of Tenaris' net sales by business
segment for the periods indicated.
Percentage of total net sales
YEAR ENDED DECEMBER 31, 2002 2001
----------------------- ---- ----
Seamless pipes 70% 79%
Welded pipes 18% 14%
Energy 7% 4%
Others 6% 4%
---- ----
Total 100% 100%
==== ====
Net sales of seamless pipe products in 2002 amounted to USD 2,241.4 million,
compared to USD 2,496.5 million in 2001. This 10% decrease was due to a 14.6%
overall reduction in sales volumes, partially offset by increased average net
sales prices. Despite declining global market prices for seamless pipe products
and lower prices in the Argentine market, average net sales prices for Tenaris'
seamless pipe products increased as a result of higher U.S. dollar market prices
in Europe; in addition, Tenaris sold a higher proportion of seamless pipes with
significant value added in terms of heat treatment, finishing and services.
Net sales of welded pipe products in 2002 amounted to USD 580.0 million,
compared to USD 432.6 million in 2001. This 34% increase was primarily
attributable to higher sales volumes. Sales of welded pipes included sales of
metal structures made by Tenaris' Brazilian welded pipe subsidiary in the amount
of USD 83.5 million in 2002, compared to USD 70.5 million in 2001.
Net sales of other products and services amounted to USD 187.6 million in 2002,
compared to USD 132.0 million in 2001. This 42% increase was mainly due to
increased sales of other steel products by Tenaris Global Services, which
amounted to USD 129.3 million in 2002, compared to USD 56.9 million in 2001.
Sales of these other steel products have been discontinued following the
reorganization of Tenaris Global Services as a subsidiary of Tenaris.
Net sales of energy (sales of electricity and natural gas in Italy to
unaffiliated parties) totaled USD 210.4 million in 2002, compared to USD 113
million in 2001. This 86% increase reflected an increase in volumes of
electricity sold, a contemporaneous increase in energy prices and the inclusion
of revenues generated by sales of natural gas for an entire year following the
commencement of these sales in December 2001.
Net sales (by geographical segment)
The following table shows Tenaris' net sales by region in terms of U.S. dollars
for the periods indicated.
Millions of USD
YEAR ENDED DECEMBER 31, 2002 2001 INCREASE/(DECREASE)
----------------------- ---- ---- -------------------
South America 956.4 971.1 (2%)
North America 577.3 611.7 (6%)
Europe 829.7 680.5 22%
Middle East & Africa 511.1 520.9 (2%)
Far East & Oceania 344.9 390.1 (12%)
------- ------- ----
Total 3,219.4 3,174.3 1%
======= ======= ====
The following table indicates the percentage market distribution of Tenaris' net
sales by region for the periods indicated.
Percentage of total net sales
YEAR ENDED DECEMBER 31, 2002 2001
----------------------- ---- ----
South America 30% 31%
North America 18% 19%
Europe 26% 21%
Middle East & Africa 16% 16%
Far East & Oceania 11% 12%
---- ----
Total 100% 100%
==== ====
Net sales in South America amounted to USD 956.4 million in 2002, compared to
USD 971.1 million in 2001. This 2% decrease resulted from a significant
reduction in sales volumes of seamless pipe products largely offset by a
significant increase in sales volumes of welded pipe products.
Net sales in North America amounted to USD 577.3 million in 2002, compared to
USD 611.7 million in 2001. This 6% decrease was attributable to a reduction in
sales volumes of seamless pipes, partially offset by an increase in sales of
other steel products.
Net sales in Europe totaled USD 829.7 million in 2002, compared to USD 680.5
million in 2001. This 22% increase was attributable to increased sales of
electricity and natural gas by Dalmine Energie, increased sales of other steel
products and higher U.S. dollar sales prices for Tenaris' seamless pipe products
in Europe, which more than offset a reduced sales volume of seamless pipe
products.
Net sales in the Middle East and Africa totaled USD 511.1 million in 2002,
compared to USD 520.9 million in 2001. This 2% decrease was the result of
reduced sales volumes of seamless pipes, partially offset by higher average
selling prices.
Net sales in the Far East and Oceania totaled USD 344.9 million in 2002,
compared to USD 390.1 million in 2001. This 12% decrease was due to a reduction
in sales volume.
Cost of sales
Cost of sales, expressed as a percentage of net sales, decreased to 67.4% for
the fiscal year ended December 31, 2002, from 68.2% for the previous fiscal
year. This decrease resulted from lower cost of sales for seamless and welded
pipe products, partially offset by higher sales of energy products and
low-margin other steel products.
Cost of sales for seamless steel pipe products, expressed as a percentage of net
sales, decreased to 63.4% in 2002 from 66.6% in 2001. This improvement is
explained principally by a sharply-reduced cost of sales at Tenaris' operations
in Argentina, partially offset by a higher cost of sales at Tenaris' operations
in Mexico and Italy. The reduced costs in Argentina reflected the effects of the
substantial devaluation of the Argentine peso on those costs denominated in
Argentine pesos, the effects of which were offset only in part by concurrent
inflation over the period. The increased costs in Mexico were the result of
higher energy and raw material costs, while the increased costs in Italy were
attributable to the appreciation of the euro against the U.S. dollar.
Cost of sales for welded pipe products, expressed as a percentage of net sales,
decreased to 65.4% in 2002 from 67.9% in 2001. This improvement is explained
principally by higher volumes leading to lower fixed and semi-fixed costs on a
per ton basis.
Cost of sales for energy products, expressed as a percentage of net sales,
decreased marginally to 94.4% in 2002 from 95.1% in 2001.
Cost of sales for other products and services, expressed as a percentage of net
sales, increased to 90.5% in 2002 from 76.3% in 2001. This increase was due to
sharply-increased sales volumes of low-margin other steel products.
Selling, general and administrative expenses
Selling, general and administrative expenses, or SG&A, increased significantly
to USD 568.1 million, or 17.6% of net sales, compared to USD 502.7 million, or
15.8% of net sales, during 2001. This increase resulted primarily from increased
selling expenses at Tenaris' welded pipe operations in Brazil (a net increase of
USD 55.1 million in 2002), newly-introduced exports, financial transactions and
other non-income related taxes in Argentina (USD 28.3 million) and higher
selling expenses associated with an increased supply of value-added services to
customers, which more than offset a reduction in general and administration
expenses at Tenaris' subsidiaries in Argentina following the substantial
devaluation of the Argentine peso. Tenaris' increased selling expenses in Brazil
were attributable to higher export sales, changes in selling conditions and
costs incurred in settling a contractual claim.
Other operating income (expenses), net
Other operating income and expenses showed a net loss of USD 10.8 million in
2002, compared to a net loss of USD 64.4 million in 2001. The improvement was
mainly attributable to higher other operating income and the effect of
provisions recorded in respect of the BHP litigation.
Other operating income of USD 15.6 million in 2002, compared to USD 0.6 million
in 2001, resulted from insurance reimbursements, gains on government securities
and proceeds from the sale of warehouses.
Other operating expenses amounted to USD 26.3 million in 2002, compared to USD
64.9 million in 2001. Other operating expenses in 2001 included USD 41.1 million
corresponding to a provision established at Dalmine in respect of the BHP
proceedings, while other operating expenses in 2002 primarily reflected a USD
18.9 million increase in such provision.
Financial income (expenses), net
Financial results showed a net loss of USD 20.6 million in 2002, compared to a
net loss of USD 25.6 million in 2001. This improvement was mainly attributable
to reduced net interest expenses of USD 20.3 million in 2002, com-pared to USD
41.1 million in 2001, as a result of lower net debt.
Equity in earnings (losses) of associated companies
Tenaris' share in the results of associated companies generated a loss of USD
6.8 million in 2002, compared to a loss of USD 41.3 million in 2001. This
decreased loss was primarily attributable to lower losses associated with
Tenaris' investment in Amazonia (USD 7.7 million in 2002, compared to USD 31.3
million in 2001). In addition, in 2001 Tenaris disposed of its interests in
Siderar and DMV Stainless, which had generated losses of USD 9.8 million in
2001.
Income tax
Tenaris recorded an income tax provision of USD 219.3 million in 2002, compared
to an income tax provision of USD 109.0 million in 2001. In 2002, Tenaris also
recovered USD 36.8 million in income taxes following a favorable tax judgment in
a claim brought by Tenaris' main subsidiary in Mexico. The 101% increase in
Tenaris' income tax provision mainly reflected the higher operating income of
Tenaris' subsidiaries in Argentina as a result of the sharp reduction in their
costs of sales following the devaluation of the Argentine peso and the other
income arising as a result of the effect of the devaluation of the Argentine
peso on the monetary position in foreign currency (including assets held in
trust funds) of Tenaris' subsidiaries in Argentina.
Effect of currency translation on tax bases
In 2001, Tenaris' net income was negatively affected by a deferred tax charge of
USD 109.9 million due to the effect of the devaluation of the Argentine peso on
the tax bases of the non-monetary assets of its subsidiaries in Argentina. In
2002, Tenaris' net income was negatively affected by a further deferred tax
charge of USD 25.3 million for the same concept. See Note 7 (II) to Tenaris'
audited combined consolidated financial statements at, and for the fiscal year
ended December 31, 2002.
Minority interest
Minority interest showed a loss of USD 142.4 million in 2002, compared to a loss
of USD 74.6 million in 2001. This increased loss is primarily due to the
improvement in the results of most of the Tenaris companies and the consequent
increases in the amounts attributable to minority interests in those companies,
especially in:
o Tamsa, where minority shareholders shared USD 63.6 million of Tamsa's
income in 2002, compared to USD 34.7 million in 2001;
o Siderca, where minority shareholders shared USD 39.7 million of
Siderca's income in 2002, compared to USD 25.6 million in 2001;
o Confab, where minority shareholders shared USD 31.0 million of
Confab's income in 2002, compared to USD 12.6 million of Confab's
losses in 2001; and
o Dalmine, where minority shareholders shared USD 6.4 million of
Dalmine's income in 2002, compared to USD 1.4 million of Dalmine's
income in 2001.
Minority interest attributable to participations in Tamsa, Siderca and Dalmine
acquired in the exchange offer showed a loss of USD 99.5 million in 2002,
compared to a loss of USD 54.5 million in 2001.
Net income (loss)
Tenaris recorded net income of USD 94.3 million in 2002, compared to USD 81.3
million in 2001. Net income before deduction of minority interest attributable
to participations in consolidated subsidiaries acquired in the
exchange offer increased to USD 193.8 million in 2002, compared to USD 135.8
million in 2001. This improvement was attributable to a variety of factors,
including improved operating and financial results, reduced losses in associated
companies and an income tax recovery at Tenaris' principal Mexican subsidiary.
Liquidity and capital resources
Thousands of USD
YEAR ENDED DECEMBER 31,
-------------------------------
2002 2001 2000
---- ---- ----
Net cash provided by operations 461,436 544,228 274,195
Net cash (used in) provided by investment activities (180,606) (284,340) (263,762)
Net cash (used in) provided by financing activities (184,376) (138,021) 6,018
-------- -------- --------
Increase (decrease) in cash and cash equivalents 96,454 121,867 16,451
Effect of exchange rate differences on cash position (5,732) (4,943) (10,360)
-------- -------- --------
Cash and cash equivalents at the beginning of period 213,814 96,890 90,799
======== ======== ========
Cash and cash equivalents at the end of period 304,536 213,814 96,890
Tenaris' cash and cash equivalents increased by USD 90.7 million to USD304.5
million from USD 213.8 million at December 31, 2001. In addition, Tenaris had
investments of USD 135.8 million in trust funds established to support the
operations of its subsidiaries in Argentina and Brazil. Net cash provided by
operations was USD 461.4 million in 2002.
Net cash used in investing activities was USD 180.6 million during the fiscal
year ended December 31, 2002. The principal uses of funds in investing
activities during the period included USD 124.6 million in investments in
property, plant and equipment, USD 23.0 million in investments in intangible
assets, USD 32.3 million in investments in trust funds established to support
Tenaris' operations in Argentina and Brazil, and USD 14.8 million in costs
relating to the exchange offer completed in December 2002, partially offset by
USD 14.4 million provided by sales of property, plant and equipment. Net capital
expenditure (inclusive of investment in intangible assets) was USD 133.2
million, compared to a net capital expenditure of USD 183.0 million in 2001.
Net cash used in financing activities was USD 184.4 million, consisting of net
repayment of bank and financial loans of USD 103.6 million and dividend payments
of USD 80.8 million.
Net working capital, calculated as the excess of current assets over current
liabilities, increased by USD 124.3 million reflecting an increase in trade and
other receivables (USD 156.2 million) and decreases in inventories (USD 46.1
million), advances from customers (USD 32.3 million) and trade payables (USD
28.9 million).
Tenaris' debt to total assets ratio remained stable at 0.53 to 1 at December 31,
2002, compared to 0.53 to 1 at December 31, 2001.
Financing
Tenaris' consolidated financial debt at December 31, 2002, net of cost of
issuance of debt, was USD 715.9 million, compared to USD 765.5 million at
December 31, 2001. Of this amount, USD 288.9 million was denominated in U.S.
dollars and USD 427.0 million was non-USD denominated.
Of Tenaris' debt at December 31, 2002, USD 393.7 million was short-term, and USD
322.2 million, long-term.
Of Tenaris' total consolidated financial debt, USD 641.0 million were bank
borrowings with an average interest rate of 3.61%, USD 9.6 million were bank
overdrafts with an average interest rate of 4.30%, USD 54.2 million were
debentures and other loans with an average interest rate of 3.99%, and USD 11.6
million were finance lease liabilities with an average interest rate of 3.56%.
The cost of issuance of debt amounted to 0.5 million.
Neither Tenaris nor any of its subsidiaries has any limitation on investments in
property, plant and equipment or in other companies. Dividend payments and
repurchase of shares are not prohibited by any event of default or covenants
under any present loan agreement. At December 31, 2002, Tenaris and all of its
subsidiaries were in compliance with all applicable financial and other
covenants.
PricewaterhouseCoopers
Societe a responsabilite limitee
Reviseur d'entreprises
400, route d'Esch
B.P. 1443
L-1014 Luxembourg
Telephone +352 494848-1
Facsimile +352 494848-2900
[PRICEWATERHOUSECOOPERS LOGO]
Report of independent auditors
To the Board of Directors and Shareholders of Tenaris S.A.
In our opinion, the accompanying consolidated combined balance sheets and the
related consolidated combined statements of income, of cash flow and of changes
in shareholders' equity, all expressed in US dollars, present fairly, in all
material respects, the financial position of Tenaris S.A. and its subsidiaries
at December 31, 2002 and 2001, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2002 in
conformity with International Accounting Standards. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of the consolidated combined financial statements in
accordance with auditing standards generally accepted in the United States of
America which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statements presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
LUXEMBOURG, MARCH 6, 2003
PRICEWATERHOUSECOOPERS
Reviseur d'entreprises
Represented by
/s/ Ian Whitecourt
Ian Whitecourt
Consolidated combined financial statements
DECEMBER 31, 2002, 2001 AND 2000
CONSOLIDATED COMBINED INCOME STATEMENT
YEAR ENDED DECEMBER 31,
--------------------------------------
(all amounts in USD thousands) NOTES 2002 2001 2000
------------------------------ ----- ---- ---- ----
Net sales 1 3,219,384 3,174,299 2,361,319
Cost of sales 2 (2,168,594) (2,165,568) (1,692,412)
---------- ---------- ----------
Gross profit 1,050,790 1,008,731 668,907
Selling, general and administrative expenses 3 (568,149) (502,747) (433,617)
Other operating income 5 (I) 15,589 585 11,690
Other operating expenses 5 (II) (26,353) (64,937) (5,813)
---------- ---------- ----------
Operating profit 471,877 441,632 241,167
Financial income (expenses), net 6 (I) (11,145) (18,417) (39,550)
Other exchange rate differences 6 (II) (9,452) (7,178) (8,373)
---------- ---------- ----------
Income before income tax and equity in
earnings (losses) of associated companies 451,280 416,037 193,244
Equity in (losses) of associated companies 11 (6,802) (41,296) (3,827)
---------- ---------- ----------
Income before income tax and minority interest 444,478 374,741 189,417
Recovery of income tax 7 (I) 36,783 - -
Income tax 7 (II) (219,288) (108,956) (63,299)
Effect of currency translation on tax base 7 (III) (25,266) (109,882) (2,011)
---------- ---------- ----------
Net income before minority interest 236,707 155,903 124,107
Minority interest (1) 26 (42,881) (20,107) (681)
---------- ---------- ----------
Net income before other minority interest 193,826 135,796 123,426
Other minority interest (2) 26 (99,522) (54,450) (46,720)
---------- ---------- ----------
Net income 94,304 81,346 76,706
========== ========== ==========
Number of shares and earnings per share: see Note 8.
(1) Minority interest represents the participation of minority
shareholders of those consolidated subsidiaries not included in the
exchange transaction (including Confab Industrial, NKK Tubes and Tubos
de Acero de Venezuela), as well as the participation at December 31,
2002, of minority shareholders of Siderca, Dalmine and Tamsa that did
not exchanged their participation.
(2) Other minority interest represents the participation of minority
shareholders attributable to the exchanged shares, since January 1,
2002 until the Exchange date.
The accompanying notes are an integral part of these consolidated combined
financial statements.
CONSOLIDATED COMBINED BALANCE SHEET
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- -----------------
(all amounts in USD thousands) NOTES
------------------------------ -----
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment, net 9 1,934,237 1,971,318
Intangible assets, net 10 32,684 47,631
Investments in associated companies 11 14,327 27,983
Other investments 12 159,303 127,202
Deferred tax assets 19 49,412 24,187
Receivables 13 16,902 2,206,865 20,497 2,218,818
--------- ---------
CURRENT ASSETS
Inventories 14 680,113 735,574
Receivables and prepayments 15 155,706 124,221
Trade receivables 16 670,226 545,527
Cash and cash equivalents 17 304,536 1,810,581 213,814 1,619,136
--------- --------- --------- ---------
TOTAL ASSETS 4,017,446 3,837,954
--------- ---------
EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY 1,694,054 875,401
MINORITY INTEREST 26 186,783 918,981
NON-CURRENT LIABILITIES
Borrowings 18 322,205 393,051
Deferred tax liabilities 19 320,753 262,963
Deferred tax - Effect of currency translation
on tax base 19 114,826 89,560
Employee liabilities 20(I) 123,023 153,458
Provisions 21(II) 33,874 38,080
Trade payables 18,650 933,331 21,547 958,659
--------- ---------
CURRENT LIABILITIES
Borrowings 18 393,690 372,416
Current tax liabilities 161,704 60,150
Other liabilities 20(II) 53,428 80,596
Provisions 22
(II) 73,953 78,297
Customers advances 37,085 69,440
Trade payables 483,418 1,203,278 424,014 1,084,913
--------- ---------
TOTAL LIABILITIES 2,136,609 2,043,572
--------- ---------
TOTAL EQUITY AND LIABILITIES 4,017,446 3,837,954
========= =========
Contingencies, commitments and restrictions on the distribution of profits (Note
24).
The accompanying notes are an integral part of these consolidated combined
financial statements.
CONSOLIDATED COMBINED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(ALL AMOUNTS IN USD THOUSANDS)
------------------------------
Year ended December 31, 2000
Balance at January 1, 2000 954,864
Currency translation differences (7,061)
Change in ownership in Exchange Companies 11,617
Dividends paid in cash (110,768)
Net income 76,706
---------
Balance at December 31, 2000 925,358
=========
Year ended December 31, 2001
Balance at January 1, 2001 925,358
Effect of adopting IAS 39 (Note 23) (1,007)
Currency translation differences (10,453)
Change in ownership in Exchange Companies (10,558)
Dividends paid in cash and in kind (109,285)
Net income 81,346
---------
Balance at December 31, 2001 875,401
=========
Year ended December 31, 2002
Balance at January 1, 2002 875,401
Currency translation differences (34,503)
Change in ownership in Exchange Companies 1,724
Dividends paid in cash (39,290)
Effect of the Exchange transaction 796,418
Net income 94,304
---------
Balance at December 31, 2002 1,694,054
=========
Shareholders' equity under International Accounting Standards at December 31,
2002 comprises the following captions:
Share capital 1,160,701
Legal reserve 116,070
Share premium 587,493
Other distributable reserves 206,744
Adjustments from Luxembourg GAAP to International
Accounting Standards (376,954)
---------
Total shareholders' equity 1,694,054
=========
The shareholders equity in accordance with Luxembourg regulations is disclose in
Note 24 (viii).
Dividends may be paid by Tenaris to the extent distributable retained earnings
calculated in accordance with Luxembourg GAAP exist. Therefore, retained
earnings included in the consolidated combined financial statements may not be
wholly distributable. See Note 24 (viii).
The accompanying notes are an integral part of these consolidated combined
financial statements.
CONSOLIDATED COMBINED CASH FLOW STATEMENT
Year ended December 31,
------------------------------------
(all amounts in USD thousands) NOTES 2002 2001 2000
------------------------------ ----- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 94,304 81,346 76,706
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property, plant and equipment 9 160,958 148,939 148,640
Amortization of intangible assets 10 15,357 12,771 8,003
Provision from BHP Proceedings 5 (II) 18,923 41,061 -
Equity in losses of associated companies 11 6,802 41,296 3,827
Minority interest in net loss of subsidiaries 26 142,403 74,557 47,401
Allowance for doubtful accounts 22 (I) 2,287 5,372 4,905
Allowance for receivables 22 (I) 1,334 13,617 4,564
Provision for legal claims and contingencies and
restructuring-non current 21 (II) 4,307 12,113 5,119
Provision for obsolescence 22 (I) 19,042 6,985 3,963
Provision-current 22 (II) 8,122 7,666 -
Income tax 7 (II) 219,288 108,956 63,299
Effect of currency translation on tax base 7 (II) 25,266 109,882 2,011
Interest expenses 6 34,480 43,676 36,148
Decrease (increase) in assets (A)
Trade receivables (126,986) (40,045) (34,063)
Inventories 46,074 (61,049) (129,330)
Receivables (29,224) 17,622 10,583
Dividends received from associated companies - - 1,489
Increase (decrease) in liabilities and others (A)
Trade payables and others (28,934) 11,282 159,013
Customer advances (32,355) 53,587 (9,309)
Provisions (22,228) (5,187) (15,079)
Payment to BHP related to interim damages (22,485) - -
Currency translations adjustments 24,477 (36,311) (13,041)
-------- ------- --------
Cash provided by operations 561,212 648,136 374,849
-------- ------- --------
Carried forward 561,212 648,136 374,849
======== ======= ========
(A) Includes the effect the fair value of net assets and liabilities acquired
on the exchange transaction.
CONSOLIDATED COMBINED CASH FLOW STATEMENT (CONT'D)
Year ended December 31,
------------------------------------
(all amounts in USD thousands) NOTES 2002 2001 2000
------------------------------ ----- ---- ---- ----
Brought forward 561,212 648,136 374,849
-------- ------- --------
Income tax paid (70,076) (69,648) (61,093)
Interest paid (29,700) (34,260) (39,561)
-------- ------- --------
NET CASH PROVIDED BY OPERATIONS 461,436 544,228 274,195
======== ======= ========
CASH FLOWS FROM INVESTMENT ACTIVITIES
Additions of property, plant and equipment 9 (124,605) (200,011) (225,851)
Proceeds from disposition of property, plant and equipment 9 14,427 39,893 26,385
Additions of intangible assets 10 (22,972) (22,838) (39,458)
Cost of exchange offer (14,787) - -
Acquisitions of investments in associated companies 11 (320) - (28,592)
Proceeds from sales of investments in associated companies 11 - 2,054 -
Proceeds from sales of investments under cost method - - 3,754
Changes in trust fund (32,349) (103,438) -
-------- ------- --------
NET CASH USED IN INVESTMENT ACTIVITIES (180,606) (284,340) (263,762)
======== ======= ========
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend paid to Minority interest 26 (41,484) (46,622) (103,347)
Dividends paid in cash (39,290) (66,090) (110,768)
Change in ownership in Exchange Companies - (10,558) 11,617
Proceeds from borrowings 425,268 253,071 450,664
Repayments of borrowings (528,870) (267,822) (242,148)
-------- ------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (184,376) (138,021) 6,018
======== ======= ========
INCREASE IN CASH AND CASH EQUIVALENTS 96,454 121,867 16,451
MOVEMENT IN CASH AND CASH EQUIVALENTS
At beginning of year 17 213,814 96,890 90,799
Effect of exchange rate changes on cash and cash equivalents (5,732) (4,943) (10,360)
Increase 96,454 121,867 16,451
-------- ------- --------
At December 31, 17 304,536 213,814 96,890
======== ======= ========
NON-CASH FINANCING ACTIVITY:
Common stock issued in acquisition of minority interest 796,418 - -
Dividends paid in kind to majority shareholders
(shares of Siderar) - 43,195 -
Dividends paid in kind to minority interest
(shares of Siderar) - 17,497 -
The accompanying notes are an integral part of these consolidated combined
financial statements.
ACCOUNTING POLICIES
INDEX TO ACCOUNTING POLICIES
A Business of the Company and basis of presentation
B Group accounting
C Foreign currency translation
D Property, plant and equipment
E Impairment
F Intangible assets
G Other investments
H Inventories
I Trade receivables
J Cash and cash equivalents
K Shareholders' equity
L Borrowings
M Deferred income taxes
N Employee liabilities
O Provisions
P Revenue recognition
Q Cost of sales and expenses
R Earnings per share
S Financial instruments
T Segment information
ACCOUNTING POLICIES
The following is a summary of the principal accounting policies followed in
the preparation of these consolidated combined financial statements:
A BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION
(1) Business of the Company
Tenaris S.A. (the "Company"), a Luxembourg corporation, was incorporated on
December 17, 2001, to hold investments in steel pipe manufacturing and
distributing companies.
Upon Tenaris incorporation in December 2001, the Company issued 30,107 shares,
all of them held by Sidertubes S.A. ("Sidertubes"). On October 18, 2002, the
parent company Sidertubes S.A. ("Sidertubes") contributed all of its assets to
the Company in exchange for shares of Tenaris. The assets of Sidertubes
contributed to the Company included the shares that Sidertubes held directly or
indirectly in Siderca S.A.I.C. ("Siderca") (71.17%), Tubos de Acero de Mexico
S.A. ("Tamsa") (6.94%), Dalmine S.p.A. ("Dalmine") (0.22%) and Abeluz S.A., a
company to be renamed as Tenaris Global Services S.A. ("Tenaris Global
Services") (100%). Siderca held an additional 43.83% of Tamsa, an additional
47.00% of Dalmine, an additional 73.00% of Metalmecanica and an additional
48.00% of Metalcentro. Tenaris issued 710,747,090 shares in exchange for the
contribution and 30,010 shares were cancelled.
On November 11, 2002 Tenaris announced the commencement of its offer to exchange
its ordinary shares and ADSs for all outstanding Class A ordinary shares and
ADSs of Siderca, all outstanding common shares and ADSs of Tamsa and all
outstanding ordinary shares of Dalmine. The exchange offer was concluded
successfully on December 13, 2002. As a result of the transaction, the Company
acquired 27.94% of Siderca shares and ADSs, 43.73% of Tamsa shares and ADSs and
41.19% of Dalmine shares. Therefore, after the conclusion of the exchange offer,
Tenaris holds directly or indirectly 99.11%, 94.50% and 88.41% of the share
capital of Siderca, Tamsa and Dalmine, respectively.
As a consideration of the exchange transaction, Tenaris issued 449,953,607
common shares, accordingly, Tenaris has a total of 1,160,700,794 shares issued
and outstanding, with 61.23% held by Sidertubes, and 38.77% held by the public.
Since December 16, 2002, Tenaris ordinary shares started trading in the Buenos
Aires, Mexican and Italian stock exchanges and its ADSs in the New York Stock
Exchange under the symbol TS.
As a result of Tenaris' new ownership level in Siderca and Tamsa, in accordance
with Argentine and Mexican laws, Tenaris is entitled, and may also be required,
to make further offers to the investors that did not exchange their shares.
Additionally, Tenaris has committed with Borsa Italiana to take steps aimed at
causing the delisting of Dalmine within the next 12 months.
On February 21, 2003, Tenaris announced a plan for the acquisition of remaining
minority interests (0.89%) in Siderca for six Argentine pesos (ARP6.00) per
Siderca share or sixty Argentine pesos (ARP60.00) per Siderca ADS. Tenaris will
not consummate the compulsory acquisition of Siderca shares and ADSs until it
obtains the approval of the Argentine securities regulators.
(2) Basis of presentation of the consolidated combined financial statements
The consolidated combined financial statements have been prepared in accordance
with International Accounting Standards ("IAS") adopted by the International
Accounting Standards Board ("IASB") and interpretations issued by the Standing
Interpretations Committee ("SIC") of the IASB. The consolidated combined
financial statements are presented in thousands of U.S. dollars ("USD").
At December 31, 2002 the financial statements of Tenaris and its subsidiaries
have been consolidated. For comparative purposes, and as Siderca, Dalmine, Tamsa
and Tenaris Global Services were under the common control of Sidertubes until
October 18, 2002 their consolidated financial statements have been retroactively
combined with those of the Company and presented as one company ("Tenaris") in
these
consolidated combined financial statements for the period ended October 18, 2002
and for the years ended December 31, 2001 and 2000. The percentages of ownership
and voting rights considered in the preparation of these consolidated combined
financial statements correspond to those of the parent company at those
period/years end. The percentage of ownership and voting rights considered in
the preparation of the consolidated financial statements correspond to those of
Tenaris as from October 18, 2002 and as at December 31, 2002.
The assets and liabilities of Siderca, Dalmine, Tamsa and Tenaris Global
Services at December 31, 2001 have been accounted for at the relevant
predecessor's cost, reflecting the carrying amount of such assets and
liabilities contributed to the Company. Accordingly, the consolidated combined
financial statements include the financial statements of Siderca, Dalmine, Tamsa
and Tenaris Global Services at historical book values on a carryover basis as
though the contribution had taken place on January 1, 2000, and no adjustment
has been made to reflect fair values at the time of the contribution. As
explained in Note B (1), at December 31, 2002 assets and liabilities have been
adjusted for the effect of the purchase method of accounting applied to the
exchange transaction.
Dalmine and Tamsa were consolidated due to the control exercised by Sidertubes
through the appointment of the majority of the directors and key management even
in those years when Sidertubes did not own more than 50% of the voting rights.
Certain reclassifications of balances and elimination of all material
intercompany transactions and balances between the Company and the other
companies and their respective subsidiaries have been made.
Where necessary, comparative figures have been adjusted to conform with changes
in presentation in the current year.
The preparation of financial statements requires management to make estimates
and assumptions regarding the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the balance sheet dates, and
the reported amounts of revenues and expenses during the reporting years. Actual
results may differ from these estimates.
B GROUP ACCOUNTING
(1) Subsidiary companies
These consolidated combined financial statements include the financial
statements of Tenaris' subsidiary companies. Subsidiary companies are those
entities in which Tenaris has an interest of more than 50% of the voting rights
or otherwise has the power to exercise control over the operations.
Subsidiaries are consolidated from the date on which control is transferred to
the Company and are no longer consolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of
subsidiaries. The cost of an acquisition is measured as the fair value of the
assets given up, shares issued or liabilities undertaken at the date of
acquisition plus costs directly attributable to the acquisition. The excess of
the cost of acquisition over the fair value of the net assets of the subsidiary
acquired is recorded as goodwill.
As explained in Note A (1), on December 13, 2002 the Company acquired additional
interests in Siderca, Tamsa and Dalmine. This acquisition was accounted for
under the purchase method mentioned above. The acquisition cost was determined
on the basis of the opening price of Tenaris shares on its first day on the
trading market, December 16, 2002, and the exchange relationship of each of
Siderca, Tamsa and Dalmine proposed in the exchange offer. The acquisition costs
amounted to USD457.3 million for Siderca, USD278.9 million for Tamsa and USD75.1
million for Dalmine and include the cost of the issuance of Tenaris shares. As a
result of the purchase method of accounting, a goodwill of USD100.1 million was
determined for the acquisition of the additional interest in Siderca and
negative goodwill amounting to USD67.1 million and USD38.2 million was
determined for the acquisition of the additional interest of Tamsa and Dalmine,
respectively.
All intercompany transactions, balances and unrealised results on transactions
between Tenaris' subsidiaries are eliminated, to the extent of Tenaris' interest
in those subsidiary companies. Where necessary, accounting policies for
subsidiaries have been changed to ensure consistency with the policies adopted
by Tenaris.
See Note 29 for the list of the consolidated subsidiaries.
(2) Associated companies
Investments in associated companies are accounted for by the equity method of
accounting. Associated companies are companies in which Tenaris owns between 20%
and 50% of the voting rights or over which Tenaris has significant influence,
but does not have control (see Note B (1)). Unrealised results on transactions
between Tenaris and its associated companies are eliminated to the extent of
Tenaris' interest in the associated companies.
Tenaris' investments in shares of Consorcio Siderurgia Amazonia Ltd.
("Amazonia") (14.11% during the years ended December 31, 2002, 2001 and 2000)
and Siderar S.A.I.C. (10.71% until November 27, 2001) were also accounted for
under the equity method as Tenaris has significant influence in Amazonia.
Management periodically evaluates the carrying value of its investments in
associated companies for impairment. The carrying value of these investments is
considered impaired when a permanent decrease in the value of the investments
has occurred.
See Note 11 for the list of principal associated companies.
CFOREIGN CURRENCY TRANSLATION
(1) Translation of financial statements in currencies other than the U.S.
Dollar; measurement currencies SIC-19 states that the measurement currency
should provide information about the enterprise that is useful and reflects the
economic substance of the underlying events and circumstances relevant to the
enterprise.
The measurement currency of Tenaris is the U.S. dollar. Although the Company is
located in Luxembourg, Tenaris operates in several countries with different
currencies. The U.S. dollar is the currency that better reflects the economic
substance of the underlying events and circumstances relevant to Tenaris as a
whole. Generally, the measurement currencies of the main companies in these
financial statements are the respective local currencies. In the case of
Siderca, however, the measurement currency is the U.S. dollar, because:
- Siderca is located in Argentina and its local currency is affected by
recurring severe economic crisis
- sales are denominated and settled in U.S. dollars or, if in a currency
other than the U.S. dollar, the price is sensitive to movements in the
exchange rate with the U.S. dollar;
- purchases of critical raw materials are financed in U.S. dollars generated
by financing or operating activities;
- most of the net financial assets and liabilities are mainly obtained and
retained in U.S. dollars.
Income statements of subsidiary companies stated in currencies other than the
U.S. dollar are translated into U.S. dollars at the weighted average exchange
rates for the year, while balance sheets are translated at the exchange rates at
December 31. Translation differences are recognized in shareholders' equity.
Upon sale or other disposition of any such subsidiary, any accumulated
translation differences are recognized in the income statement as part of the
gain or loss on sale.
In the case of Tamsa, which reported in the currency of a hyperinflationary
economy until December 31, 1998, the financial statements up to that date were
restated in constant local currency in accordance with IAS 29.
(2) Transactions in currencies other than the measurement currency
Transactions in currencies other than the measurement currency are accounted for
at the exchange rates prevailing at the date of the transactions. Gains and
losses resulting from the settlement of such transactions and from the
translation of monetary assets and liabilities denominated in foreign currencies
are recognized in the income statement. Net foreign exchange transaction
gains/losses of subsidiaries with a measurement
currency different from the USD have been disclosed in the Consolidated Combined
Income Statement under the caption "Other exchange rate differences".
D PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recognized at historical acquisition or
construction cost. Land and buildings comprise mainly factories and offices and
are shown at historical cost less depreciation. In the case of business
acquisitions proper consideration to the fair value of the assets has been given
as explained in Note B(1).
Major overhaul and rebuilding expenditure that improve the condition of an asset
beyond its original condition is capitalized as property, plant and equipment
and depreciated over the useful life of the related assets.
Ordinary maintenance expenses on manufacturing properties are recorded as cost
of products sold in the period in which they are incurred.
Special maintenance expenses incurred to maintain the production capacity of the
industrial facilities are recorded as deferred expenses when incurred and
amortized over a period of 12 to 24 months, which corresponds to the period in
which the benefits of the maintenance are expected to be realized.
Interest relating to the financing of relevant construction in progress is
capitalized based upon long-term debt related interest expense incurred in
connection with such construction in progress during the period of time that is
required to complete and prepare the asset for its intended use.
Depreciation is calculated using the straight-line method to amortize the cost
of each asset to its residual values over its estimated useful life as follows:
Land No Depreciation
Buildings and improvements 30-50 years
Plant and production equipment 10-20 years
Vehicles, furniture and fixtures
and other equipment 4-10 years
Restricted tangible assets in Dalmine with a net book value at December 31, 2002
of USD 4.5 million are assets that will be returned to the Italian government
authorities upon expiration of the underlying contract. These assets are
depreciated over the shorter of their estimated useful economic lives and the
period of contract.
In all cases where the carrying amount of an asset is greater than its estimated
recoverable amount, it is written down immediately to its recoverable amount.
However, management considers that there has been no impairment in the carrying
value of property, plant and equipment.
E IMPAIRMENT
Circumstances affecting the recoverability of tangible and intangible assets may
change. If this happens, the recoverable amount of the relevant assets is
estimated. The recoverable amount is determined as the higher of the asset's net
selling price and the present value of the estimated future cash flows. If the
recoverable amount of the asset has dropped below its carrying amount the asset
is written down immediately to its recoverable amount.
No impairment provision were recorded, other than the investment in Amazonia
(see Note 11).
F INTANGIBLE ASSETS
(1) Goodwill
Goodwill represents the excess of the acquisition cost over the fair value of
Tenaris' participation in the acquired company's net assets at the acquisition
date. Goodwill is amortized using the straight-line method over its estimated
useful life, not exceeding 20 years. Amortization is included in cost of sales.
Goodwill and fair value adjustments arising in connection with acquisitions of a
foreign entity are treated as measurement currency assets and liabilities of the
acquiring entity.
(2) Negative goodwill
Negative goodwill represents the excess of the fair values of Tenaris'
participation in the acquired company's net assets at the acquisition date over
the acquisition cost. Negative goodwill is recognized as income on a systematic
basis over the remaining weighted average useful life of the identifiable
acquired depreciable assets. This income is included in cost of sales.
(3) Information system projects
Generally, costs associated with developing or maintaining computer software
programs are recognized as an expense as incurred. However, costs directly
related to development, acquisition and implementation of information systems
are recognized as intangible assets if they have a probable economic benefit
exceeding the cost beyond one year.
Information system projects recognized as assets is amortized using the
straight-line method over their useful lives, not exceeding a period of 3 years.
(4) Research and development
Research expenditures are recognized as expenses as incurred. In accordance with
IAS 38, development costs during the years ended on December 31, 2002, 2001 and
2000, were charged to income as incurred because they did not fulfil the
criteria for capitalization.
(5) Licences and patents
Expenditures on acquired patents, trademarks, technology transfer and licenses
are capitalized and amortized using the straight-line method over their useful
lives, but not exceeding 20 years.
G OTHER INVESTMENTS
On January 1, 2001 Tenaris adopted IAS 39-Financial Instruments: Recognition and
Measurement. The total impact on shareholders' equity on that date amounted to a
loss of USD1,007 thousand.
Under IAS 39, investments have to be classified into the following categories:
held-to-maturity, trading, or available-for-sale, depending on the purpose for
acquiring the investments. Investment that do not fulfil the specific
requirements of IAS 39 for trading or held-to-maturity categories have to be
included as "available-for-sale". All the investments of Tenaris, as explained
in Financial risk management section, are currently classified as
available-for-sale in non-current assets, because they do not meet the criteria
established by IAS 39 for classification as held for trading or held to
maturity.
Siderca, Siat and Confab have placed financial resources within trusts whose
objective is exclusively to ensure that the financial needs for normal
development of their operations are met. The funds mainly comprise time deposits
and commercial papers. The trust agreements expire on December, 2004.
Investments in companies for which fair values cannot be measured reliably are
reported at cost less impairment.
All purchases and sales of investments are recognized on the trade date, not
significantly different from the settlement date, which is the date that Tenaris
commits to purchase or sell the investment. Costs include transaction costs.
Subsequent to their acquisition, available-for-sale investments are carried at
fair value. Realized and unrealised gains and losses arising from changes in the
fair value in those investments are included in the income statement for the
period in which they arise.
H INVENTORIES
Inventories are stated at the lower of cost and net realizable value (calculated
principally using the average cost method). The cost of finished goods and work
in progress comprises raw materials, direct labor, other direct costs and
related production overheads including amortization. Net realizable value is the
estimated selling price in the ordinary course of business, less the costs of
completion and selling expenses. In the case of business acquisitions proper
consideration to the fair value of the assets has been given as explained in
Note B(1).
An allowance for obsolescence or slow-moving inventory is made based on the
management's analysis of inventory levels and future sales forecasts.
Goods in transit at year-end are valued at supplier invoice cost.
I TRADE RECEIVABLES
Trade receivables are carried at original invoice amount less an estimate made
for doubtful receivables.
The allowance for doubtful accounts is recognized when, based on current
information and events, it is probable that the company will be unable to
collect all amounts due according to the terms of the agreement.
Tenaris specifically analyses accounts receivable and historical bad debts,
customer concentrations, customer creditworthiness, current economic trends and
changes in customer payment terms when evaluating the adequacy of the allowance
for doubtful accounts.
J CASH AND CASH EQUIVALENTS
Cash and cash equivalents are carried in the balance sheet at cost. Highly
liquid short-term securities are carried at fair market value.
For the purposes of the cash flow statement, cash and cash equivalents comprise
cash, bank current accounts and short-term highly liquid investments (original
maturity of less than 90 days).
In the balance sheet, bank overdrafts are included in borrowings in current
liabilities.
K SHAREHOLDERS' EQUITY
(1) Basis of combination
The consolidated combined statement of changes in shareholders' equity was
prepared based on the following:
o Currency translation differences due to the translation of the financial
statements in currencies of the combined consolidated companies are shown in a
separate line;
o Changes in ownership in Exchange Companies comprises the net increase or
decrease in the percentage of ownership that Sidertubes owned in these
companies;
o Dividends paid include the dividends paid by Siderca, Tamsa, Dalmine or
Tenaris Global Services to Sidertubes prior to the contribution of Sidertubes'
assets to the Company, as if they had been paid by Tenaris to Sidertubes, as
well as the dividends effectively paid by Tenaris to its shareholders.
(2) Dividends
Dividends are recorded in Tenaris financial statements in the period in which
they are approved by Tenaris shareholders, or when decided interim dividends by
the Board of Directors in accordance to the authority given to them by the
by-laws of the Company.
On August 27, 2002 the Board of Directors approved the payment of an interim
dividend of USD 9,270 thousand.
Dividends may be paid by Tenaris to the extent distributable retained earnings
calculated in accordance with Luxembourg GAAP exist. Therefore, retained
earnings included in the consolidated combined financial statements may not be
wholly distributable. See Note 24 (viii).
L BORROWINGS
Borrowings are recognized initially for an amount equal to the proceeds received
net of transaction costs. In subsequent periods, borrowings are stated at
amortized cost; any difference between proceeds and the redemption value is
recognized in the income statement over the period of the borrowings.
M DEFERRED INCOME TAXES
Under present Luxembourg law, so long as the Company maintains its status as a
holding company, no income tax, withholding tax (including with respect to
dividends), or capital gain tax is payable in Luxembourg by the Company.
The current income tax charge is calculated on the basis of the tax laws
existing in the countries in which Tenaris "subsidiaries" operate.
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the financial statements. The principal temporary
differences arise from the effect of currency translation on tax base,
depreciation on property, plant and equipment, inventories valuation and
provisions for pensions; and, in relation to acquisitions, on the difference
between the fair values of the net assets acquired and their tax base. Deferred
income tax provisions are determined based on tax rates in effect at the balance
sheet date.
Deferred tax assets are recognized to the extent it is probable that future
taxable income will be available to utilize those temporary differences
recognized as deferred tax assets against such income.
N EMPLOYEE LIABILITIES
(1) Employees' statutory profit sharing
Under Mexican law, Tenaris' Mexican subsidiary companies are required to pay an
annual benefit to their employees, which is calculated on the basis of the
performance of each company. Employees' statutory profit sharing is provided
under the liability method. Temporary differences arise between the "statutory"
bases of assets and liabilities used in the determination of the profit sharing
and their carrying amounts in the financial statements.
(2) Employees' severance indemnity
This provision comprises the liability accrued on behalf of Dalmine and Tamsa
employees at the balance sheet date in accordance with current legislation and
the labor contracts in effect in the respective countries.
Employees' severance indemnity costs are assessed using the projected unit
credit method: the cost of providing this obligation is charged to the income
statement over the service lives of employees in accordance with the advice of
the actuaries. This provision is measured at the present value of the estimated
future cash outflows using applicable interest rates.
(3) Pension obligations
Siderca implemented a defined benefit employee retirement plan for Siderca's and
certain other officers throughout the world on August 1, 1995. The plan is
designed to provide retirement, termination, and other
benefits to those officers. Under certain circumstances the plan can be modified
or discontinued by the company. In such cases, beneficiaries would still have
rights under the plan, but only according to the benefits accrued up to the date
when the modification or interruption has occurred. Siderca is accumulating
assets for the ultimate payment on those benefits in the form of investments
that carry time limitation for their redemption. These investments amounted to
USD9,397 thousand and USD9,095 thousand at December 31, 2002 and December 31,
2001 respectively. Siderca may use the investments for other purposes. If
Siderca redeems or makes use of such investments prior to defined dates and for
purposes other than the payment of the above mentioned benefit, amounts invested
will be subject to penalties. The investments are not part of a particular plan
nor segregated from Siderca's other assets. Due to these conditions, the plan is
classified as "unfunded" under International Accounting Standards definition.
Retirement cost are assessed using the project unit credit method: the cost of
providing retirement benefits is charged to the income statements over the
services lives of employees, based on actuarial calculations. This provision is
measured at the present value of the estimated future cash outflows using
applicable interest rate. Actuarial gains and losses are recognized over the
average remaining services lives of employees.
The prior service cost at the inception of the plan has been amortized based on
the projected years to retirement for each of the initial employees, as from
August 1, 1995. Siderca amortizes the prior service cost each of new participant
over the remaining vesting period, as from the date they are included in the
plan.
Periodically, Siderca revises its assumptions regarding discount rate and rate
of compensation increase. As of December 31, 2002, this revision generated an
actuarial gain. When the accumulated amount of actuarial gains and losses
exceeds 10% of the Benefit Obligation, only the excess over the 10% is
recognized as profit or loss over the services lives of employees. During the
year ended on December 31, 2002 Tenaris recognized a gain of USD511 thousand.
Benefits provided by the plan are in U.S. Dollars, but depend on a three-year or
seven years salary average (the better option for the beneficiary) if the event
of retirement happened between January 1, 2002 and December 31, 2003 and, after
this date, the benefits of the plan depend on a seven-year salary average, in
the currency of the country where the relevant company is established.
(4) Other compensation obligations
Employee entitlements to annual leave and long-service leave is accrued as
earned.
Other length of service based compensation to employees in the event of
dismissal or death is charged to income in the year in which it becomes payable.
O PROVISIONS
Provisions are accrued when there is reasonably certainty that the expenses will
be incurred but uncertainty relating to the amount or the date on which they
will arise. Accruals for such liabilities reflect a reasonable estimate of the
expenses to be incurred based on information available as of the date of
preparation of the financial statements. If Tenaris expects a provision to be
reimbursed (for example under an insurance contract), and the reimbursement is
virtually certain, the reimbursement is recognized as an asset.
Tenaris has certain contingent liabilities with respect to existing or potential
claims, lawsuits and other proceedings, including those involving labor and
other matters. Unless otherwise specified, Tenaris accrues liabilities when it
is probable that future cost could be incurred and that cost can be reasonably
estimated. Generally, accruals are based on developments to date, Tenaris'
estimates of the outcomes of these matters and Tenaris' legal advisers in
contesting, litigating and settling other matters. As the scope of the
liabilities becomes better defined, there will be changes in the estimates of
future costs, which could have a material effect on Tenaris' future results of
operations and financial conditions or liquidity.
(1) Legal claims and contingencies
From time to time, Tenaris is involved in litigation arising in the ordinary
course of business (exception made of the litigation with the consortium led by
BHP -see Note 24 (i) -. This provision covers reasonably the risk of legal
claims and other contingencies.
(2) Restructuring
Restructuring provisions mainly comprise employee termination benefits which are
recognized only when Tenaris has a constructive obligation to effect a
restructuring plan, generally occurs when an agreement has been reached with
employee representatives on the terms of redundancy and the number of employees
affected or after individual employees have been advised of the specific terms.
P REVENUE RECOGNITION
Revenues are recognized as sales when revenue is earned and is realized or
realizable. This includes satisfying the following criteria: the arrangement
with the customer is evident, usually through the receipt of a purchase order;
the sales price is fixed or determinable; delivery has occurred, which may
include delivery to the customer storage warehouse location at one of the
Company's subsidiaries; and collectibility is reasonably assured.
Other revenues earned by Tenaris are recognized on the following bases:
- Interest income: on an effective yield basis.
- Dividend income from investments in companies under cost method: when Tenaris'
right to receive collection is established.
Q COST OF SALES AND EXPENSES
Under the accrual basis of accounting, cost of sales and expenses are recognized
in the income statement on the basis of a direct association to the earning of
specific item of income.
Tax reimbursements on exports are treated as a reduction of tax expenses,
included in Cost of Sales.
R EARNINGS PER SHARE
Earnings per share are calculated by dividing the net income attributable to
shareholders by the daily weighted average number of ordinary shares issued
during the year. See Note 8.
S FINANCIAL INSTRUMENTS
Tenaris adopted IAS 39 - Financial Instruments: Recognition and Measurement, on
January 1, 2001. The financial effects of adopting IAS 39 are explained in Note
23.
Information about accounting for derivative financial instruments and hedging
activities is included within the section "Financial risk management" below.
T SEGMENT INFORMATION
Business segments provide products or services that are subject to risks and
returns that are different from those of other business segments. Geographical
segments provide products or services within a particular economic environment
that is subject to risks and returns that are different from those of components
operating in other economic environments.
FINANCIAL RISK MANAGEMENT
(1) FINANCIAL RISK FACTORS
Tenaris' activities expose it to a variety of financial risks, including the
effects of changes in debt and equity market prices, foreign currency exchange
rates and interest rates. The overall risk management program of the
Tenaris's subsidiaries focuses on the unpredictability of financial markets
and seeks to minimize potential adverse effects on Tenaris' financial
performance, using derivative financial instruments, such as foreign exchange
contracts and interest rate swaps, to hedge certain exposures.
Risk management is carried out by treasury departments in Tenaris' subsidiaries
and associated companies. The treasury departments identify, evaluate and hedge
financial risks in close cooperation with the operating units.
(i) Foreign exchange rate risk
Tenaris operates internationally and is exposed to foreign exchange rate risk
arising from various currency exposures. Certain Tenaris's subsidiaries use
forward contracts in certain occasions to hedge their exposure to exchange rate
risk.
Management at the Tenaris's subsidiaries decides, case by case and based on
actual sales and purchases orders, the mechanism to be used in order to hedge
primarily to U.S. Dollars.
Tenaris has a number of investments in subsidiaries whose financial statements
are stated in currencies other than the U.S. dollar. The net assets of those
subsidiaries are exposed to foreign exchange rate risk. Generally, management
sets a policy to hedge to U.S. dollars the net current receivables and
liabilities of those subsidiaries.
(ii) Interest rate risk
Tenaris' income and operating cash flows are substantially independent from
changes in market interest rates. The Tenaris's subsidiaries generally
borrow at variable rates and, in some cases (such as in the case of Dalmine) use
interest rate swaps for long term debts as a hedge of future interest payments,
converting borrowings from floating rates to fixed rates.
(iii) Concentration of credit risk
Tenaris has no significant concentrations of credit risk. No single customer
accounts for more than ten percent of Tenaris' sales.
The Tenaris' subsidiaries have policies in place to ensure that sales of
products and services are made to customers with an appropriate credit history,
or using credit insurance, letters of credit and other instruments to reduce
credit risk whenever deemed necessary, and maintain allowances for potential
credit losses.
Derivative counter parties and cash transactions are limited to high credit
quality financial institutions.
(iv) Liquidity risk
Prudent liquidity risk management recommends maintaining sufficient cash and
marketable securities, the availability of funding through an adequate amount of
committed credit facilities and the ability to close out market positions. Due
to the dynamic nature of the underlying businesses, Tenaris aims at maintaining
flexibility in funding by keeping committed credit lines available and a trust
fund as explained in Note G.
(2) ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Derivative financial instruments are initially recognized in the balance sheet
at cost and subsequently marked to market unless they qualify for hedge
accounting. Tenaris does not hedge its net investments in foreign entities.
Derivative transactions and other financial instruments, while providing
economic hedges under risk management policies, do not qualify for hedge
accounting under the specific rules in IAS 39. Changes in the fair value of any
derivative instruments that do not qualify for hedge accounting under IAS 39 are
recognized immediately in the income statement.
The fair values of derivative instruments are disclosed in Note 23.
(3) FAIR VALUE ESTIMATION
The estimated fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. The following methods and
assumptions were used to estimate the fair value of each class of financial
instrument for which it is practicable to estimate that value:
The face values less any estimated credit adjustments for financial assets and
liabilities with a maturity of less than one year is estimated to approximate
their fair values.
The fair value of investments classified as non-current available for sale
investments (such as the trust fund) is based on quoted market price.
In assessing the fair value of non-traded derivatives and other financial
instruments, Tenaris uses a variety of method, such as option pricing models and
estimated discounted value of future cash flows, and makes assumptions that are
based on market conditions existing at each balance sheet date.
The fair value of the forward contracts is estimated based on forwards exchange
market rates at year-end.
The fair value of interest rate swaps is calculated as the present value of the
estimated future cash flows.
The fair value of option contracts are estimated based on appropriate valuation
models, such as Black-Scholes and other methods.
NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS
INDEX TO THE NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS
1 Segment information
2 Cost of sales
3 Selling, general and administrative expenses
4 Labor costs
5 Other operating items
6 Financial income (expenses), net
7 Tax charge
8 Earnings per share
9 Property, plant and equipment, net
10 Intangible assets, net
11 Investments in associated companies
12 Other investments
13 Receivables
14 Inventories
15 Receivables and prepayments
16 Trade receivables
17 Cash and cash equivalents
18 Borrowings
19 Deferred income taxes
20 Employee liabilities and other liabilities
21 Non-current provisions
22 Current provisions
23 Financial instruments
24 Contingencies, commitments and restrictions on the distribution of profits
25 Ordinary shares and share premium
26 Minority interest
27 Acquisitions
28 Related party transactions
29 Principal subsidiaries
30 Post balance sheet events
NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS (ALL AMOUNTS ARE SHOWN
IN USD THOUSANDS, UNLESS OTHERWISE STATED)
1 SEGMENT INFORMATION
PRIMARY REPORTING FORMAT - BUSINESS SEGMENTS
WELDED AND
OTHER
METALLIC
SEAMLESS PRODUCTS ENERGY OTHERS UNALLOCATED TOTAL
---------- ---------- -------- -------- ----------- -----
YEAR ENDED DECEMBER 31, 2002
Net sales 2,241,362 580,001 210,415 187,606 - 3,219,384
Cost of sales (1,420,629) (379,384) (198,727) (169,854) - (2,168,594)
---------- -------- -------- -------- ------- ----------
Gross profit 820,733 200,617 11,688 17,752 - 1,050,790
Segment assets 3,273,969 354,069 41,155 135,212 213,041 4,017,446
Segment liabilities 1,368,716 212,689 49,909 69,716 435,579 2,136,609
Capital expenditure 108,547 27,053 5,623 6,354 - 147,577
Depreciation and amortization 162,120 7,668 2,768 3,759 - 176,315
YEAR ENDED DECEMBER 31, 2001
Net sales 2,496,479 432,647 113,140 132,033 - 3,174,299
Cost of sales (1,663,385) (293,938) (107,552) (100,693) - (2,165,568)
---------- -------- -------- -------- ------- ----------
Gross profit 833,094 138,709 5,588 31,340 - 1,008,731
Segment assets 3,057,316 445,401 45,007 97,715 192,515 3,837,954
Segment liabilities 1,356,849 214,173 39,119 80,908 352,523 2,043,572
Capital expenditure 201,452 16,749 3,391 1,257 - 222,849
Depreciation and amortization 155,145 3,717 1,539 1,309 - 161,710
YEAR ENDED DECEMBER 31, 2000
Net sales 1,991,897 208,982 58,720 101,720 - 2,361,319
Cost of sales (1,394,049) (169,721) (50,126) (78,516) - (1,692,412)
---------- -------- -------- -------- ------- ----------
Gross profit 597,848 39,261 8,594 23,204 - 668,907
Segment assets 3,095,737 318,428 27,402 92,036 110,934 3,644,537
Segment liabilities 1,305,058 115,428 21,107 65,027 292,849 1,799,469
Capital expenditure 245,213 11,586 4,306 4,204 - 265,309
Depreciation and amortization 147,533 6,502 1,443 1,165 - 156,643
Tenaris' main business segment is the manufacture of seamless pipes.
Intersegment net sales from "Energy" to "Seamless" amounted to USD50,021,
USD37,067 and USD7,552 in 2002, 2001 and 2000, respectively. Intersegment
net sales from "Welded" to "Seamless" amounted to USD 4,577 in 2002.
Intersegment net sales from "Other" to "Seamless" amounted to USD 22,269,
USD 34,934 and USD 40,542 in 2002, 2001 and 2000, respectively.
Intersegment net sales from "Other" to "Welded" amounted to USD 141 in
2002.
1 SEGMENT INFORMATION (CONT'D)
SECONDARY REPORTING FORMAT - GEOGRAPHICAL SEGMENTS
YEAR ENDED DECEMBER 31, 2002
--------------------------------------------------------------------------------------------
SOUTH NORTH MIDDLE EAST FAR EAST
AMERICA EUROPE AMERICA AND AFRICA AND OCEANIA UNALLOCATED TOTAL
--------- ------ ------- ----------- ----------- ----------- -----------
Net sales 956,382 829,744 577,279 511,119 344,860 - 3,219,384
Total assets 1,362,304 874,185 1,238,179 129,143 200,594 213,041 4,017,446
Trade receivables 249,308 145,864 123,572 121,663 29,819 - 670,226
Property, plant and
equipment 624,159 471,580 784,104 2,512 51,882 - 1,934,237
Capital expenditure 73,157 39,985 25,629 2,515 6,291 - 147,577
Depreciation and
amortization 83,347 48,078 39,914 19 4,957 - 176,315
YEAR ENDED DECEMBER 31, 2001
--------------------------------------------------------------------------------------------
SOUTH NORTH MIDDLE EAST FAR EAST
AMERICA EUROPE AMERICA AND AFRICA AND OCEANIA UNALLOCATED TOTAL
--------- ------ ------- ----------- ----------- ----------- -----------
Net sales 971,101 680,524 611,655 520,916 390,103 - 3,174,299
Total assets 1,230,766 742,982 1,365,007 97,630 209,054 192,515 3,837,954
Trade receivables 169,006 118,772 104,370 86,965 66,414 - 545,527
Property, plant and
equipment 607,458 397,665 911,310 13 54,872 - 1,971,318
Capital expenditure 85,160 44,076 92,336 - 1,277 - 222,849
Depreciation and
amortization 76,277 41,046 41,568 1 2,818 - 161,710
YEAR ENDED DECEMBER 31, 2000
--------------------------------------------------------------------------------------------
SOUTH NORTH MIDDLE EAST FAR EAST
AMERICA EUROPE AMERICA AND AFRICA AND OCEANIA UNALLOCATED TOTAL
--------- ------ ------- ----------- ----------- ----------- -----------
Net sales 668,152 590,935 421,550 428,980 251,702 - 2,361,319
Total assets 1,105,082 783,272 1,254,118 202,114 189,017 110,934 3,644,537
Trade receivables 144,507 131,096 89,423 91,493 54,335 - 510,854
Property, plant and
equipment 629,588 423,427 826,362 17 62,420 - 1,941,814
Capital expenditure 100,452 54,398 44,658 8 65,793 - 265,309
Depreciation and
amortization 80,390 38,003 36,753 1 1,496 - 156,643
Allocation of net sales is based on the customers' location. Allocation of
assets and capital expenditure are based on the assets' location.
Although Tenaris' business is managed on a worldwide basis, the
Tenaris's subsidiaries operate in five main geographical areas.
2 COST OF SALES
YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
---- ---- ----
Raw materials and consumables used and
change in inventories 1,407,694 1,459,967 980,056
Services and fees 219,392 177,513 182,762
Labor cost 244,471 285,203 286,464
Depreciation of property, plant and
equipment 150,536 146,306 144,979
Amortization of intangible assets 5,230 2,266 1,003
Maintenance expenses 50,234 43,625 44,388
Provisions for contingencies 4,307 2,021 3,489
Allowance for obsolescence 19,042 6,985 3,963
Taxes 3,160 2,185 1,598
Others 64,528 39,497 43,710
--------- --------- ---------
2,168,594 2,165,568 1,692,412
========= ========= =========
3 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
---- ---- ----
Services and fees 93,744 94,392 74,663
Labor cost 118,886 126,849 124,662
Depreciation of property, plant and
equipment 10,422 2,633 3,661
Amortization of intangible assets 10,127 10,505 7,000
Commissions, freights and other selling
expenses 270,810 187,370 170,358
Provisions for contingencies 8,122 10,092 1,630
Allowances for doubtful accounts 2,287 5,372 4,905
Taxes 33,335 8,278 6,572
Others 20,416 57,256 40,166
--------- --------- ---------
568,149 502,747 433,617
========= ========= =========
4 LABOR COSTS (INCLUDED IN COST OF SALES AND SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES)
YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
---- ---- ----
Wages, salaries and social security costs 356,576 403,438 402,233
Employees' severance indemnity (Note 20.
(a)) 6,453 6,913 7,072
Pension benefits - defined benefit plans
(Note 20. (b)) 328 1,701 1,821
--------- --------- ---------
363,357 412,052 411,126
========= ========= =========
At year-end, the number of employees was 13,841 in 2002, 14,127 in 2001 and
13,140 in 2000.
5 OTHER OPERATING ITEMS
YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
---- ---- ----
(I) OTHER OPERATING INCOME
Reimbursement from insurance companies and
other third parties 6,814 - 6,750
Income from disposition of warehouses 3,132 - 3,838
Gain from government securities 5,643 - -
Net rents from investment properties - 585 1,102
--------- --------- ---------
15,589 585 11,690
========= ========= =========
(II) OTHER OPERATING EXPENSES
Provision for BHP proceedings 18,923 41,061 -
Allowance for receivables 1,334 13,617 4,564
Contributions to welfare projects and
non-profits organizations 2,241 1,100 1,100
Allowance for legal claims and contingencies - 7,666 -
Miscellaneous 3,855 1,493 149
--------- --------- ---------
26,353 64,937 5,813
========= ========= =========
6 FINANCIAL INCOME (EXPENSES), NET
YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
---- ---- ----
(I) FINANCIAL INCOME (EXPENSES)
Interest expense (34,480) (43,676) (36,148)
Interest income 14,201 2,586 17,017
Net foreign exchange transaction
gains/(losses) 21,019 24,078 (16,908)
Financial discount on trade receivables (8,810) - -
Others (3,075) (1,405) (3,511)
--------- --------- ---------
(11,145) (18,417) (39,550)
========= ========= =========
(II) OTHER EXCHANGE RATE DIFFERENCES
Net foreign exchange transaction
gains/losses of subsidiaries with a
measurement currency different from the USD (9,452) (7,178) (8,373)
========= ========= =========
7 TAX CHARGE
(I) RECOVERY OF INCOME TAX
In 2002 Tamsa succeeded in its income tax claim to the Mexican tax authorities,
resulting in a recovery of income tax of previous years of MXN 355.6 million
(USD36.8 million).
(II) INCOME TAX
YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
---- ---- ----
Current tax 192,862 148,823 46,614
Deferred tax (Note 19) 26,426 (39,867) 16,685
--------- --------- ---------
219,288 108,956 63,299
Effect of currency translation on tax base 25,266 109,882 2,011
--------- --------- ---------
244,554 218,838 65,310
========= ========= =========
The tax on Tenaris' income before tax differs from the theoretical amount that
would arise using the tax rate in each country as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
---- ---- ----
Income before tax 444,478 374,741 189,417
========= ========= =========
Tax calculated at the tax rate in each
country 184,201 143,408 88,157
Non taxable income (54,780) (45,415) (35,286)
Non deductible expenses 17,310 12,418 12,169
Effect of currency translation on tax base 25,266 109,882 2,011
Effect of taxable exchange differences 79,362 - -
Utilization of previously unrecognized tax
losses (6,805) (1,455) (1,741)
--------- --------- ---------
Tax charge 244,554 218,838 65,310
========= ========= =========
YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
---- ---- ----
(III) EFFECT OF CURRENCY TRANSLATION ON TAX BASE 25,266 109,882 2,011
========= ========= =========
As shown in Note 7(ii) of these consolidated combined financial statements,
Tenaris, using the liability method, recognizes a deferred income tax charge on
temporary differences between the tax bases of its assets and their carrying
amounts in the financial statements. By application of this method, Tenaris
recognized an increased deferred income tax charge due to the effect of the
devaluation of the Argentine peso on the tax bases of the fixed assets of its
Argentine subsidiaries. These charges were mandated by IAS even though the
reduced tax bases of the relevant assets will only result in reduced
amortization deductions for tax purposes in future periods throughout the useful
life of those assets and, consequently, the resulting deferred income tax charge
does not represent a separate obligation of Tenaris that was due and payable in
any of the relevant periods.
8 EARNINGS PER SHARE
(I) Under IAS, Earnings per share are calculated by dividing the net income
attributable to shareholders by the daily weighted average number of
ordinary shares issued during the year. The weighted average number of
ordinary shares was determined considering that the 710,747,090 shares
issued for Sidertubes contribution (see Note A (1)) were issued and
outstanding as of January 1, 2000.
YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
---- ---- ----
Net income attributable to shareholders 94,304 81,346 76,706
Weighted average number of ordinary shares in issue
(thousands) 732,936 710,747 710,747
Basic and diluted earnings per share 0.13 0.11 0.11
(II) As explained in Note A (1) the Sidertubes contribution and the exchange
transaction took place in 2002. For a better understanding of the reader
and future comparisons the Company has calculated the pro-forma Earnings
per share as if these transactions had taken place on January 1, 2000, as
follows:
YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
---- ---- ----
Net income attributable to shareholders 193,826 135,796 123,426
Weighted average number of ordinary shares in issue
(thousands) 1,160,701 1,160,701 1,160,701
Basic and diluted earnings per share 0.17 0.12 0.11
PROPERTY, PLANT AND EQUIPMENT, NET
LAND, PLANT AND VEHICLES, SPARE PARTS
BUILDING AND PRODUCTION FURNITURE WORK IN AND TOTAL
YEAR ENDED DECEMBER 31, 2002 IMPROVEMENTS EQUIPMENT AND FIXTURES PROGRESS EQUIPMENT (A)
---------------------------- ------------ ---------- ------------ -------- ----------- ---------
COST
Values at the beginning of the year 264,914 4,759,427 90,308 156,378 8,937 5,279,964
Translation differences (29,973) (67,439) (2,404) (16,374) 647 (115,543)
Additions (B) 1,820 108,309 2,918 71,009 6,268 190,324
Disposals / Consumptions (5,479) (13,258) (1,036) (507) (6,015) (26,295)
Transfers 16,212 37,084 7,831 (62,664) 250 (1,287)
------- --------- ------- -------- ------- ---------
Values at the end of the year 247,494 4,824,123 97,617 147,842 10,087 5,327,163
------- --------- ------- -------- ------- ---------
DEPRECIATION
Accumulated at the beginning of
the year 27,857 3,196,743 77,240 - 6,806 3,308,646
Translation differences (2,689) (61,180) (1,371) - 430 (64,810)
Depreciation charge 5,444 149,430 5,518 - 566 160,958
Disposals / Consumptions (1,359) (7,915) (482) - (2,112) (11,868)
Transfers 66 - (66) - - -
------- --------- ------- -------- ------- ---------
Accumulated at the end of the year 29,319 3,277,078 80,839 - 5,690 3,392,926
------- --------- ------- -------- ------- ---------
AT DECEMBER 31, 2002 218,175 1,547,045 16,778 147,842 4,397 1,934,237
======= ========= ======= ======== ======= =========
(A) Includes a net amount of USD16.9 million of finance leases of Dalmine.
(B) Includes USD 65.7 million attributable to the fair value of Property, plant
and equipment of Dalmine, Siderca and Tamsa acquired on the exchange
transaction (see note 27).
LAND, PLANT AND VEHICLES, SPARE PARTS
BUILDING AND PRODUCTION FURNITURE WORK IN AND TOTAL
YEAR ENDED DECEMBER 31, 2001 IMPROVEMENTS EQUIPMENT AND FIXTURES PROGRESS EQUIPMENT (A)
---------------------------- ------------ ---------- ------------ -------- ----------- ---------
COST
Values at the beginning of the year 240,607 4,634,108 91,158 112,675 12,602 5,091,150
Translation differences 18,639 35,191 6,284 (20,211) (261) 39,642
Additions 1,007 12,943 2,712 174,977 8,372 200,011
Disposals / Consumptions (593) (25,345) (11,500) (1,219) (12,182) (50,839)
Transfers 5,254 102,530 1,654 (109,844) 406 -
------- --------- ------- -------- ------- ---------
Values at the end of the year 264,914 4,759,427 90,308 156,378 8,937 5,279,964
------- --------- ------- -------- ------- ---------
DEPRECIATION
Accumulated at the beginning of 19,354 3,048,118 74,459 - 7,405 3,149,336
the year
Translation differences 3,314 19,354 (1,182) - (169) 21,317
Depreciation charge 5,189 138,654 4,262 - 834 148,939
Disposals / Consumptions - (9,383) (299) - (1,264) (10,946)
------- --------- ------- -------- ------- ---------
Accumulated at the end of the year 27,857 3,196,743 77,240 - 6,806 3,308,646
------- --------- ------- -------- ------- ---------
AT DECEMBER 31, 2001 237,057 1,562,684 13,068 156,378 2,131 1,971,318
======= ========= ======= ======== ======= =========
Property, plant and equipment include interest capitalized for USD17,372 and
USD12,039 for the years ended December 31, 2002 and 2001, respectively.
10 INTANGIBLE ASSETS, NET
INFORMATION
INFORMATION SYSTEM
SYSTEM PROJECTS IN LICENSES AND NEGATIVE
YEAR ENDED DECEMBER 31, 2002 PROJECTS PROGRESS PATENTS GOODWILL GOODWILL TOTAL
---------------------------- ----------- ----------- ------------ -------- -------- -----
COST
Values at the beginning of the year 13,165 7,482 46,673 27,863 (21,414) 73,769
Translation differences (411) (823) 1,864 (1,046) - (416)
Additions (a) 8,466 6,182 3,026 105,407 (105,321) 17,760
Disposals - - (21,182) - - (21,182)
Transfers 6,559 (5,272) - - - 1,287
------ ----- ------ ------- -------- ------
Values at the end of the year 27,779 7,569 30,381 132,224 (126,735) 71,218
------ ----- ------ ------- -------- ------
DEPRECIATION
Accumulated at the beginning of
the year 10,707 - 11,221 7,598 (3,388) 26,138
Translation differences (602) - 2,036 (2,276) - (842)
Amortization charge 5,468 - 5,014 6,675 (1,800) 15,357
Disposals - - (2,119) - - (2,119)
------ ----- ------ ------- -------- ------
Accumulated at the end of the year 15,573 - 16,152 11,997 (5,188) 38,534
------ ----- ------ ------- -------- ------
AT DECEMBER 31, 2002 12,206 7,569 14,229 120,227 (121,547) 32,684
====== ===== ====== ======= ======== ======
(a) Includes USD 5.2 million attributable to the fair value of Intangible assets
of Dalmine, Siderca and Tamsa acquired on the exchange transaction (see note
27).
INFORMATION
INFORMATION SYSTEM
SYSTEM PROJECTS IN LICENSES AND NEGATIVE
YEAR ENDED DECEMBER 31, 2001 PROJECTS PROGRESS PATENTS GOODWILL GOODWILL TOTAL
---------------------------- ----------- ----------- ------------ -------- -------- -----
COST
Values at the beginning of the year 13,165 3,735 25,996 27,367 (21,414) 48,849
Translation differences - - 1,821 261 - 2,082
Additions - 3,747 18,856 235 - 22,838
------ ----- ------ ------- -------- ------
Values at the end of the year 13,165 7,482 46,673 27,863 (21,414) 73,769
------ ----- ------ ------- -------- ------
DEPRECIATION
Accumulated at the beginning of
the year 6,931 - 4,462 3,562 (1,588) 13,367
Amortization charge 3,776 - 6,759 4,036 (1,800) 12,771
------ ----- ------ ------- -------- ------
Accumulated at the end of the year 10,707 - 11,221 7,598 (3,388) 26,138
------ ----- ------ ------- -------- ------
AT DECEMBER 31, 2001 2,458 7,482 35,452 20,265 (18,026) 47,631
====== ===== ====== ======= ======== ======
11 INVESTMENTS IN ASSOCIATED COMPANIES
YEAR ENDED DECEMBER 31,
--------------------------
2002 2001
------ -------
At the beginning of year 27,983 140,726
Translation differences (7,174) (8,701)
Equity in losses of associated companies (6,802) (41,296)
Acquisitions 320 -
Sales - (2,054)
Other movements (A) - (60,692)
------ -------
AT THE END OF YEAR 14,327 27,983
====== =======
(A) Corresponds to the dividend in kind with Siderar shares distributed
by Siderca.
The principal associated companies are:
COUNTRY OF PERCENTAGE OF OWNERSHIP AND
COMPANY ORGANIZATION VOTING RIGHTS AT DECEMBER 31, VALUE AT DECEMBER 31,
--------------------- --------------- ----------------------------- -----------------------
2002 2001 2002 2001
----- ---- ---- ----
Consorcio Siderurgia
Amazonia Ltd. (A) Cayman Islands 14.11% 14.11% 13,229 19,402
Condusid C.A. Venezuela 20.00% 20.00% 553 3,909
Others 545 4,672
------ ------
14,327 27,983
====== ======
(A) The value at December 31, 2002 and 2001 are net of an impairment provision
of USD 13,260 and 15,098, respectively.
12 OTHER INVESTMENTS
YEAR ENDED DECEMBER 31,
-----------------------
AVAILABLE-FOR-SALE 2002 2001
------------------ ---- ----
Trust funds with specific objective (Note G) 135,787 103,438
Deposits with insurance companies 9,791 9,095
Investments in companies under cost method 13,515 13,241
Others 210 1,428
------- -------
159,303 127,202
======= =======
13 RECEIVABLES
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001
------- -------
Government entities 4,820 13,816
Employee advances and loans 3,050 12,040
Tax credits 8,624 9,663
Trade receivables 8,113 4,439
Miscellaneous 1,123 1,778
------- -------
25,730 41,736
Allowances for doubtful accounts - Note 21 (i) (8,828) (21,239)
------- -------
16,902 20,497
======= =======
14 INVENTORIES
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001
------- -------
Finished goods 327,328 425,315
Goods in process 111,125 95,595
Raw materials 127,647 145,927
Supplies 128,709 102,801
Goods in transit 36,925 18,096
------- -------
731,734 787,734
Allowance for obsolescence - Note 22 (i) (51,621) (52,160)
------- -------
680,113 735,574
======= =======
15 RECEIVABLES AND PREPAYMENTS
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001
------- -------
V.A.T. credits 43,298 22,432
Prepaid taxes 20,560 18,815
Reimbursements and other services receivable 19,787 19,583
Government entities 11,381 5,751
Employee advances and loans 5,595 4,836
Advances to suppliers 29,876 18,092
Other advances 12,308 20,858
Miscellaneous 18,898 19,812
------- -------
161,703 130,179
Allowance for other doubtful accounts -
Note 22 (i) (5,997) (5,958)
------- -------
155,706 124,221
======= =======
16 TRADE RECEIVABLES
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001
------- -------
Current accounts 632,146 528,720
Notes receivables 42,336 32,116
Government tax refunds on exports 16,977 8,572
------- -------
691,459 569,408
Allowance for doubtful accounts - Note 22 (i) (21,233) (23,881)
------- -------
670,226 545,527
======= =======
17 CASH AND CASH EQUIVALENTS
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001
------- -------
Cash and short-term highly liquid investments 279,878 145,839
Time deposits with related parties 24,658 67,975
------- -------
304,536 213,814
======= =======
18 BORROWINGS
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001
------- -------
NON-CURRENT
Bank borrowings 260,596 338,928
Debentures 54,187 46,228
Finance lease liabilities 7,422 7,895
------- -------
322,205 393,051
------- -------
CURRENT
Bank borrowings 380,380 322,464
Bank overdrafts 9,649 53,225
Finance lease liabilities 4,176 272
Costs for issue of debt (515) (3,545)
------- -------
393,690 372,416
------- -------
TOTAL BORROWINGS 715,895 765,467
======= =======
The maturity of borrowings is as follows:
1 - 5 YEARS
----------------------------------------------------------
1 YEAR 1 - 2 2 - 3 3 - 4 4 - 5 OVER 5
OR LESS YEARS YEARS YEARS YEARS YEARS TOTAL
-------- ----- ----- ----- ----- ------ -----
AT DECEMBER 31, 2002
Financial lease 4,176 3,820 1,288 622 376 1,316 11,598
Other borrowings 389,514 195,662 41,725 29,152 22,398 25,846 704,297
------- ------- ------ ------ ------ ------ -------
TOTAL BORROWINGS 393,690 199,482 43,013 29,774 22,774 27,162 715,895
======= ======= ====== ====== ====== ====== =======
The weighted average interest rates at the balance sheet date were as
follows:
2002 2001
----- -----
Bank overdrafts 4.30% 4.00%
Bank borrowings 3.61% 4.75%
Debentures and other loans 3.99% 5.15%
Finance lease liabilities 3.56% 4.25%
On December 14, 2001, Tamsa entered into a loan agreement in the amount of
USD130 million with a term of two and a half years. The most significant
financial covenants under this loan syndicated agreement are as follows:
o Maintenance of minimum levels of working capital ratio;
o Maintenance of maximum levels of total indebtedness; and
o Compliance with debt service ratios.
On August 3, 2001, Dalmine entered into a loan agreement in the amount of
EUR39.5 million (USD41.4 million) with a term of seven years. The most
significant financial covenant under this loan agreement is the maintenance of
maximum levels of total indebtedness.
At December 31, 2002, both companies were in compliance with all of their
financial covenants.
Breakdown of long-term borrowings by currency and rate is as follows:
BANK BORROWINGS
CURRENCY INTEREST RATES DECEMBER 31,
-------- -------------- ------------------
2002 2001
------- -------
USD Variable 130,000 130,000
USD Fixed 57,782 51,486
EURO Fixed 156,419 199,826
JPY Fixed 37,882 23,283
BRS Variable 30,093 23,365
412,176 427,960
Less: Current portion of medium and long-term loans (151,580) (89,032)
------- -------
TOTAL BANK BORROWINGS 260,596 338,928
======= =======
DEBENTURES
CURRENCY INTEREST RATES DECEMBER 31,
-------- -------------- ------------------
2002 2001
------- -------
EURO Variable 54,187 46,228
------- -------
Total Debentures 54,187 46,228
======= =======
Debentures issued on January 1998, at a face value of ITL100,000, million with
interest linked to the 3-month Libor.
FINANCE LEASE LIABILITIES
CURRENCY INTEREST RATES DECEMBER 31,
-------- -------------- ------------------
2002 2001
------- -------
EURO Fixed 6,042 8,167
JPY Fixed 5,556 -
Less: Current portion of medium and
long-term loans (4,176) (272)
------- -------
Total finance leases 7,422 7,895
------- -------
Total long-term borrowings 322,205 393,051
======= =======
As most borrowings include variable rates or fixed rates that approximate to
market rates and the contractual reprising occurs between every 3 and 6 months,
the fair value of the borrowings approximates to its carrying amount and it is
not disclosed separately.
The carrying amounts of Tenaris' assets pledged as collateral of liabilities are
as follows:
YEAR ENDED DECEMBER 31,
------------------------
2002 2001
------- -------
Property, plant and equipment mortgages 344,122 305,844
======= =======
19 DEFERRED INCOME TAXES
Deferred income taxes are calculated in full on temporary differences under the
liability method using the tax rate of each country.
The movement on the deferred income tax account is as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001
-------- --------
At beginning of year 328,336 255,144
Translation differences (21,395) 3,963
Acquisition of minority interest in subsidiaries charged
to equity (Note A(1)) 27,534 -
Effect of adopting IAS 39 - (786)
Income statement charge /(credit) 26,426 (39,867)
Effect of currency translation on tax base 25,266 109,882
-------- --------
AT END OF YEAR 386,167 328,336
-------- --------
The movement in deferred tax assets and liabilities (prior to offsetting the
balances within the same tax jurisdiction) during the year is as follows:
DEFERRED TAX LIABILITIES
TOTAL AT
FIXED DECEMBER 31,
ASSETS INVENTORIES OTHER 2002
------- --------- ------- ------------
At beginning of year 296,195 51,429 6,298 353,922
Translation differences (18,927) (5,985) 189 (24,723)
Acquisition of minority interest in subsidiaries
(Note A(1)) 25,298 3,716 - 29,014
Income statement (credit)/charge (19,551) 19,630 26,913 26,992
-------- -------- -------- --------
AT END OF YEAR 283,015 68,790 33,400 385,205
======== ======== ======== ========
EFFECT OF CURRENCY TRANSLATION ON TAX BASE
AT DECEMBER 31,
2002
---------------
At beginning of year 89,560
Income statement charge 25,266
---------------
AT END OF YEAR 114,826
===============
DEFERRED TAX ASSETS
PROVISIONS
AND
ALLOWANCES INVENTORIES TAX LOSSES OTHER TOTAL
------------- -------------- ------------- ------------- --------------
At beginning of year (77,072) (23,574) (4,340) (10,160) (115,146)
Translation differences (234) 1,573 1,867 122 3,328
Acquisition of minority interest in
subsidiaries (Note A(1)) - (197) - (1,283) (1,480)
Income statement charge/(credit) 2,480 165 (3,600) 389 (566)
------- ------- ------ ------- --------
AT END OF YEAR (74,826) (22,033) (6,073) (10,932) (113,864)
======= ======= ====== ======= ========
Deferred income tax assets and liabilities are offset when (1) there is a
legally enforceable right to setoff current tax assets against current tax
liabilities and (2) the deferred income taxes relate to the same fiscal
authority. The following amounts, determined after appropriate setoff, are shown
in the consolidated combined balance sheet:
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001
-------- --------
Deferred tax assets (49,412) (24,187)
Deferred tax liabilities 320,753 262,963
Deferred tax- Effect of currency translation
on tax base(See Note 7 (iii)) 114,826 89,560
-------- --------
386,167 328,336
-------- --------
The amounts shown in the balance sheet include the following:
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001
------- -------
Deferred tax assets to be recovered after more than 12 months (23,461) (11,039)
Deferred tax liabilities to be settled after more than 12 months 372,730 351,608
20 EMPLOYEE LIABILITIES AND OTHER LIABILITIES
YEAR ENDED DECEMBER 31,
-------------------------
2002 2001
------ ------
(I) EMPLOYEE LIABILITIES - NON-CURRENT
Employees' statutory profit sharing 60,962 87,217
Employees' severance indemnity (A) 50,728 42,479
Pension benefits (B) 11,069 13,098
------- -------
122,759 142,794
Miscellaneous 264 10,664
------- -------
123,023 153,458
======= =======
(A) EMPLOYEES' SEVERANCE INDEMNITY
The amounts recognized in the balance sheet are as follows:
YEAR ENDED DECEMBER 31,
--------------------------
2002 2001
------ ------
Total included in Other liabilities non-current 50,728 42,479
====== ======
The amounts recognized in the income statement are as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------
2002 2001 2000
----- ----- -----
Current service cost 4,518 5,142 4,898
Interest cost 1,935 1,771 2,174
----- ----- -----
TOTAL INCLUDED IN LABOR COSTS 6,453 6,913 7,072
===== ===== =====
The principal actuarial assumptions used were as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------
2002 2001 2000
----- ----- -----
Discount rate 4.8% 5.0% 5.0%
Rate of compensation increase 3.5% 2.0% 2.0%
(B) PENSION BENEFITS
The amounts recognized in the balance sheet are determined as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001
-------- ------
Present value of unfunded obligations 9,522 5,779
Unrecognised actuarial gains (losses) 1,547 7,319
------- ------
LIABILITY IN THE BALANCE SHEET 11,069 13,098
======= ======
The amounts recognized in the income statement are as follows:
YEAR ENDED DECEMBER 31,
------------------------------------
2002 2001 2000
---- ----- -----
Current service cost 255 611 723
Interest cost 584 1,105 1,031
Net actuarial (gains) losses recognized in the year (511) (15) 67
---- ----- -----
TOTAL INCLUDED IN LABOR COSTS 328 1,701 1,821
==== ===== =====
Movement in the liability recognized in the balance sheet:
YEAR ENDED DECEMBER 31,
----------------------
2002 2001
------- -------
At the beginning of the year 13,098 12,755
Transfers and new participants of the plan 215 (316)
Total expense 328 1,701
Contributions paid (2,572) (1,042)
------- -------
AT THE END OF YEAR 11,069 13,098
======= =======
The principal actuarial assumptions used were as follows:
YEAR ENDED DECEMBER 31,
------------------------------------
2002 2001 2000
---- ---- ----
Discount rate 7% 10% 7%
Rate of compensation increase 2% 3% 5%
YEAR ENDED DECEMBER 31,
----------------------
2002 2001
------ ------
(II) OTHER LIABILITIES - CURRENT
Payroll and social security payable 51,737 62,351
Voluntary redundancy plan 751 4,169
Miscellaneous 940 14,076
------ ------
53,428 80,596
====== ======
21 NON-CURRENT PROVISIONS
(I) DEDUCTED FROM ASSETS
ALLOWANCE FOR
DOUBTFUL ACCOUNTS-
TRADE RECEIVABLES
------------------
YEAR ENDED DECEMBER 31, 2002
Values at the beginning of the year (21,239)
Translation differences 2,796
Used 9,615
----------------
AT DECEMBER 31, 2002 (8,828)
================
YEAR ENDED DECEMBER 31, 2001
Values at the beginning of the year (13,151)
Translation differences 1,497
Additional provisions (12,847)
Used 3,262
----------------
AT DECEMBER 31, 2001 (21,239)
================
(II) LIABILITIES
LEGAL CLAIMS AND
CONTINGENCIES
------------------
YEAR ENDED DECEMBER 31, 2002
Values at the beginning of the year 38,080
Translation differences (5,959)
Reversals (4,008)
Additional provisions 8,315
Used (2,554)
----------------
AT DECEMBER 31, 2002 33,874
================
YEAR ENDED DECEMBER 31, 2001
Values at the beginning of the year 36,475
Translation differences (5,321)
Additional provisions 12,113
Used (5,187)
----------------
AT DECEMBER 31, 2001 38,080
================
22 CURRENT PROVISIONS
(I) DEDUCTED FROM ASSETS
ALLOWANCE FOR ALLOWANCE FOR OTHER ALLOWANCE FOR
DOUBTFUL ACCOUNTS- DOUBTFUL ACCOUNTS- INVENTORY
TRADE RECEIVABLES OTHER RECEIVABLES OBSOLESCENCE
------------------ ------------------- -------------
YEAR ENDED DECEMBER 31, 2002
Values at the beginning of the year (23,881) (5,958) (52,160)
Translation differences 898 1,148 158
Reversals 3,628 2,600 148
Additional provisions (5,915) (3,934) (19,190)
Used 4,037 147 19,423
---------------- ---------------- -----------
AT DECEMBER 31, 2002 (21,233) (5,997) (51,621)
================ ================ ===========
YEAR ENDED DECEMBER 31, 2001
Values at the beginning of the year (21,194) (7,669) (44,474)
Translation differences 93 774 (870)
Additional provisions (5,372) (770) (6,985)
Used 2,592 1,707 169
---------------- ---------------- -----------
AT DECEMBER 31, 2001 (23,881) (5,958) (52,160)
================ ================ ===========
(II) LIABILITIES
COST RELATED LEGAL CLAIMS
BHP TO FACTORY AND
PROVISION DAMAGES SALES RISKS RESTRUCTURING CONTINGENCIES TOTAL
--------- ------------ ----------- ------------- ------------- ------
YEAR ENDED DECEMBER 31, 2002
Values at the beginning of the
year 40,279 4,513 3,476 2,550 27,479 78,297
Translation differences 7,349 257 617 84 2,463 10,770
Reversals - - - - (1,064) (1,064)
Additional provisions 18,923 - 1,896 146 7,144 28,109
Used (22,485) (4,770) (1,730) (1,845) (11,329) (42,159)
------- ------ ------ ------ ------- -------
AT DECEMBER 31, 2002 44,066 - 4,259 935 24,693 73,953
======= ====== ====== ====== ======= =======
YEAR ENDED DECEMBER 31, 2001
Values at the beginning of the
year - - 3,336 10,020 31,312 44,668
Translation differences (782) (97) (125) (244) 49 (1,199)
Reversals - - - - (7,165) (7,165)
Additional provisions 41,061 4,610 2,555 2,292 5,374 55,892
Used - - (2,290) (9,518) (2,091) (13,899)
------- ------ ------ ------ ------- -------
AT DECEMBER 31, 2001 40,279 4,513 3,476 2,550 27,479 78,297
======= ====== ====== ====== ======= =======
23 FINANCIAL INSTRUMENTS
Tenaris adopted IAS 39 at the beginning of the fiscal year ended December 31,
2001. The total impact on shareholders' equity on that date amounts to a loss of
USD1,007 thousand. That impact arises from the remeasurement to fair value of
derivatives related to non-qualifying hedges. In accordance with IAS 39, the
comparative financial statement for the year ended December 31, 2000 is not
restated.
NET FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS
The net fair values of derivative financial instruments at the balance
sheet date were:
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001
---- ----
CONTRACTS WITH POSITIVE FAIR VALUES:
Interest rate swaps 556 566
Forward foreign exchange contracts 2,867 614
Commodities contracts 639 585
CONTRACTS WITH NEGATIVE FAIR VALUES:
Interest rate swap contracts (3,274) (1,729)
Forward foreign exchange contracts (777) (8,114)
Commodities contracts (3,511) (2,832)
Derivative financial instruments breakdown are as follows:
VARIABLE INTEREST RATE SWAPS
Year ended December 31, 2002
NOTIONAL AMOUNT
(IN THOUSANDS) SWAP TERM FAIR VALUE
---------------------------- ----------------- ---- -----------
EURO 11,620 5.68% 2007 (528)
EURO 2,083 5.72% 2009 (101)
EURO 9,485 5.72% 2010 (457)
EURO 50,000 3.40%/4.20%/4.67% 2005 (1,492)
EURO 25,823 3.74% 2007 (376)
EURO 51,646 Euribor 3M + 0.70% 2005 556
EURO 30,987 3.44% 2005 (320)
---------
(2,718)
=========
Year ended December 31, 2001
NOTIONAL AMOUNT
(IN THOUSANDS) SWAP TERM FAIR VALUE
---------------------------- ----------------- ---- -----------
EURO 258,228 From 3.81% to 5.44 % 2002 (409)
EURO 12,911 5.68% 2007 (516)
EURO 2,380 5.72% 2009 (99)
EURO 10,117 5.72% 2010 (444)
EURO 51,646 4.62% 2005 (261)
USD 11,359 From 6.85 % to 11.85 % 2002 566
---------
(1,163)
=========
EXCHANGE RATE DERIVATIVES
Year ended December 31, 2002
NOTIONAL AMOUNT
(IN THOUSANDS) DERIVATIVES TERM FAIR VALUE
------------------------------ ----------------- ---- ----------
EURO/USD (10,824) Forward sales 2003 (605)
EURO/USD 30,558 Forward purchases 2003 2,283
JPY/USD 1,965,459 Forward purchases 2003 452
CAD/USD (36,000) Forward sales 2003 46
GBP/EURO (2,000) Forward sales 2003 86
BRL/USD (35,077) Forward sales 2003 (172)
------
2,090
======
Year ended December 31, 2001
NOTIONAL AMOUNT
(IN THOUSANDS) DERIVATIVES TERM FAIR VALUE
------------------------------ ----------------- ---- ----------
CAD/USD (21,850) Forward sales 2002 259
EURO/USD (13,800) Forward sales 2002 15
GBP/EURO (12,000) Forward sales 2002 (175)
JPY/CAD 1,235,856 Forward purchases 2002 (1,004)
JPY/USD 4,779,936 Forward purchases 2002 (2,728)
USD/EURO (100,000) Forward sales 2002 (3,106)
USD/EURO 10,000 Knock-in forward 2002
option (100)
USD/JPY 6,900 Forward purchases 2002 (491)
USD/JPY 523,000 Call option 2002 170
USD/MXP 5,000 Forward purchases 2002 170
USD/BRS 6,382 Swap 2002 (510)
------
(7,500)
======
COMMODITIES PRICE DERIVATIVES
Year ended December 31, 2002
NOTIONAL AMOUNT
(IN THOUSANDS) DERIVATIVES TERM FAIR VALUE
------------------------------ ----------------- ---- ----------
MM BTU 3,840,000 Gas call option 2003 (2,749)
MM BTU 3,840,000 Gas put option 2003 611
MM BTU 7,680,000 Gas put option 2005 (762)
MM BTU 480,000 Gas cap option 2003 28
------
(2,872)
======
Year ended December 31, 2001
NOTIONAL AMOUNT
(IN THOUSANDS) DERIVATIVES TERM FAIR VALUE
------------------------------ ----------------- ---- ----------
Tons 1,650 Zinc forwards purchases 2002 (342)
Barrels 1,800 Oil call option 2002 585
Barrels 1,200 Oil put option 2002 (2,490)
------
(2,247)
======
24 CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF
PROFITS
Tenaris is involved in litigation arising from time to time in the ordinary
course of business (exception made of the litigation with the consortium led by
BHP -see (i) below-. Based on management's assessment and the advice of legal
counsel, it is not anticipated that the ultimate resolution of existing
litigation will result in amounts in excess of recorded provisions (Notes 21 and
22) that would be material to the Tenaris' consolidated combined financial
position or income statement.
(I) Claim against Dalmine
In June 1998, British Steel plc ("British Steel") and Dalmine were sued by a
consortium led by BHP Petroleum Ltd. ("BHP") before the Commercial Court of the
High Court of Justice Queen's Bench Division of London. The action concerns the
failure of an underwater pipeline built in 1994 in the Bay of Liverpool.
Dalmine, at that time a subsidiary of Ilva S.p.A. ("Ilva"), supplied pipe
products to British Steel, which, in turn, resold them to BHP for use in
constructing the Bay of Liverpool pipeline. BHP claimed that British Steel
breached the contract of sale relating to the pipe and that the pipe was
defectively manufactured by Dalmine.
The products sold were valued at 1.9 million British pounds ("GBP") and
consisted of pipe for use in maritime applications. Dalmine received court
notice of the action more than two years after the contractual warranty covering
the pipe had expired and four years after the pipe was delivered and placed into
operation. British Steel and Dalmine denied the claim on the basis that the
warranty period had expired and, in the alternative, that the amount claimed
exceeded the contractual limitation of liability (equal to GBP300 thousand, or
approximately 15% of the value of the products supplied).
The Commercial Court dismissed the contract claim against British Steel. The
decision was subsequently confirmed by the Court of Appeals in a ruling issued
on April 7, 2000, as a result of which the claim against British Steel was
definitively dismissed. BHP's product liability claim against Dalmine remained
outstanding.
On November 24, 2000, the Commercial Court granted BHP permission to amend its
pleading against Dalmine to include a deceit tort claim under English law based
on inconsistencies between the results of internal chemical tests performed by
Dalmine on the pipe and the results shown in the quality certificates issued to
BHP by Dalmine. In May 2002, the trial court issued a judgment in favor of BHP,
holding that the products supplied by Dalmine were the cause for the failure of
the gas pipeline and that Dalmine was liable for damages to BHP. The court's
judgment was limited to the issue of liability, and the amount of damages to be
awarded to BHP is being determined in a separate proceeding. Dalmine's petition
to the trial court for leave to appeal its judgment was denied, but subsequently
granted by the Court of Appeals. However, on February 5, 2003, the Court of
Appeals dismissed Dalmine's appeal, closing the dispute on the issue of
liability.
BHP has indicated in court proceedings that it will seek damages of
approximately GBP35 million to cover the cost of replacing the pipeline, GBP70
million to compensate for consequential damages, GBP73 million to cover loss or
deferred revenues, GBP31 million to compensate for increased income tax
resulting from a change in law plus interest and costs for unspecified amounts.
Subsequent to the court's judgment in favor of BHP on the issue of liability,
BHP petitioned the court for an interim judgment of damages in the amount of
approximately GBP37 million to cover the cost of replacing the pipeline. On July
31, 2002, Dalmine agreed to pay BHP GBP 15 million (approximately USD22.5
million) in interim damages. The court is now expected to hear arguments
regarding, and issue its final judgment on, total damages during the first half
of 2004.
Based on the information provided so far by BHP, Dalmine considers that the
compensation requested to cover the cost of replacing the pipeline exceeds the
cost actually incurred for such purpose. Taking into consideration such
information and the preliminary views expressed by independent experts, Dalmine
believes that certain of the other claims fail to show an appropriate connection
with the events for which Dalmine was found responsible, while others appear to
exceed the damage actually incurred.
Dalmine created a provision in the amount of EUR45 million (USD41.3 million) in
its results for 2001 to account for potential losses as a result of BHP's
lawsuit. In light of the practical difficulties to come to a precise estimate of
the liability in view of the complexity and diversity of the elements brought to
the proceedings by BHP, Dalmine has decided to increase the amount of the
provision by EUR20 million (USD18.9 million), inclusive of interest accrued and
legal expenses incurred in connection with such proceedings. Dalmine has stated
that the provision was created and increased as a prudent way of complying with
applicable accounting principles, and should therefore not be regarded as an
admission of indemnification payable to the plaintiffs.
The pipe that is the subject of this lawsuit was manufactured and sold, and the
tort alleged by BHP took place, prior to the privatization of Dalmine, and
Techint Investments Netherlands BV ("Tenet") -the Siderca subsidiary party to
the contract pursuant to which Dalmine was privatized- believes that, under the
Dalmine privatization contract, Tenet should be entitled to recover from
Fintecna S.p.A. ("Fintecna") on behalf of Dalmine (as a third party beneficiary
under the Dalmine privatization contract) 84.08% of any damages it may be
required to pay BHP. Tenet has commenced arbitration proceedings against
Fintecna to compel it to indemnify Dalmine for any amounts Dalmine may be
required to pay BHP. Fintecna has denied that it has any contractual obligation
to indemnify Dalmine, asserting that the indemnification claim is time-barred
under the terms of the privatization contract and, in any event, subject to a
cap of EUR13 million. Tenet disputes this assertion. The arbitration proceedings
were suspended at a preliminary stage pending a decision by the British trial
court in BHP's lawsuit against Dalmine. Tenet and Dalmine intend to petition the
arbitration panel to resume the proceedings in light of the court of appeal's
recent decision to dismiss Dalmine's appeal against the judgment of liability in
favor of BHP.
(II) Consorcio Siderurgia Amazonia, Ltd.
In January 1998, Amazonia purchased a 70% equity interest in CVG Siderurgica del
Orinoco C.A. ("Sidor") from the Venezuelan government. Tamsider, a wholly-owned
subsidiary of Tamsa had an initial 12.50% equity interest in Amazonia, which
increased to 14.11% in March 2000 as a result of additional investments as
described below. As of December 31, 2002, Tamsider's equity interest in Amazonia
remained at 14.11%. The Venezuelan government continues to own a 30% equity
interest in Sidor.
Sidor, located in the city of Guayana in southeast Venezuela, is the largest
integrated steel producer in Venezuela and the sixth largest integrated steel
producer in Latin America, with an installed capacity of more than 3.5 million
tons of liquid steel per year. In 2001, Sidor shipped 2.9 million tons of steel.
Sidor has experienced significant financial losses and other problems since the
acquisition by Amazonia in January 1998, despite a significant reduction in
Sidor's workforce and management's efforts to improve the production process and
reduce operating costs. In 1999, due to negative conditions in the international
steel market, a sustained and intensifying domestic recession in Venezuela,
deteriorating conditions in the credit markets, an increase in the value of the
Venezuelan currency relative to the U.S. Dollar and other adverse factors, Sidor
and Amazonia incurred substantial losses and were unable to make payments due
under loan agreements with their respective creditors. In 2000, these loan
agreements were restructured. Despite continued efforts by Sidor's management to
improve technology and optimize production levels, in late 2001 Sidor and
Amazonia were again unable to make payments due under the restructured loan
agreements, following a continuation and aggravation of the same negative
factors described above accompanied by increased competition from steel imports
in Venezuela. Sidor and Amazonia are currently involved in discussions with
their creditors and the Venezuelan government regarding a possible restructuring
of their loan agreements. As of December 31, 2002, Sidor had approximately
USD1.58 billion of indebtedness (secured in part by fixed assets valued at
USD827.0 million as determined at the time Sidor's loans were restructured in
March 2000) and Amazonia had approximately USD313 million of indebtedness.
We cannot give you any assurance as to whether Sidor or Amazonia will succeed in
restructuring their existing indebtedness, or that their lenders will not
accelerate any defaulted indebtedness in accordance with the terms of the
applicable loan agreements or foreclose on any of the assets of Sidor or
Amazonia pledged as collateral.
As a result of the adverse trends discussed above, Tamsider made additional
capital contributions to Amazonia, resulting from the restructuring concluded in
2000, while recording significant losses in the value of its investment. In
addition to its initial capital contribution of USD87.8 million, Tamsider was
required to make capital contributions in the amount of USD36.1 million (of
which USD18.0 million took the form of a convertible subordinated loan to
Amazonia, as described below) in connection with the restructuring of Amazonia's
loan agreements in 2000. The value of Tamsider's investments (as recorded in
Tamsa's consolidated combined financial statements) has decreased significantly
since 1998, from USD94.2 million as of December 31, 1998, to USD13.2 million as
of December 31, 2002. Further losses and provisions may be recorded in respect
of Tamsider's investment in Amazonia. Subject to various conditions it is
currently contemplated that Tamsider would make additional capital contributions
as a part of a restructuring of Sidor's and Amazonia's existing indebtedness.
In addition to the risk of further losses in the equity value of its investment,
Tamsider has significant exposure in respect of its investment in Amazonia under
several agreements and guarantees. Below is a description of the nature and
extent of this exposure. We cannot predict whether Tamsider will be required to
make payments or will otherwise incur losses under these agreements and
guarantees.
o The Sidor purchase agreement between Amazonia and the Venezuelan government
requires the shareholders of Amazonia, including Tamsider, to indemnify the
government for breaches by Amazonia of the Purchase Agreement up to a maximum
amount of USD150.0 million for five years from the acquisition date. In
connection with this indemnity, the shareholders of Amazonia are required to
maintain a performance bond (which Tamsa has guaranteed directly) for five
years, beginning in 1998, in the amount of USD150.0 million during the first
three years, USD125 million in the fourth year and USD75.0 million in the fifth
year. Tamsider's maximum liability under the indemnity would be USD18.8 million,
as its obligations with respect to the indemnity are proportional to its initial
12.50% equity interest in Amazonia.
o The Sidor purchase agreement further requires the shareholders of Amazonia to
guarantee, also on a proportional basis, the principal and a portion of the
interest payable under a loan made to Sidor by the Venezuelan government.
Tamsider's maximum liability under this guarantee, which continues to apply to
the loan as restructured in 2000, is USD92.2 million.
o The loan agreement between Amazonia and a group of private lenders (the
proceeds of which were used by Amazonia to finance the acquisition of its equity
interest in Sidor) required the shareholders of Amazonia, including Tamsider, to
pledge their shares in Amazonia as security and also required Amazonia to pledge
its shares in Sidor as security. These pledges continue to apply to the loan as
restructured in 2000.
o As discussed above, in connection with the restructuring of Amazonia's loan
agreements in 2000, the shareholders of Amazonia, including Tamsider, were
required to make additional capital contributions in part by making subordinated
loans convertible into additional shares of Amazonia. Tamsider made a
subordinated loan of USD18 million to Amazonia as a result of this requirement.
o Also in connection with the restructuring of Amazonia's loan agreements in
2000, the parent companies of several shareholders of Amazonia, including
Tamsider, were required to enter into a put agreement pursuant to which they
agreed to purchase, upon certain conditions and in no case prior to December 31,
2007, up to USD25 million in loans payable by Amazonia to its private lenders.
The shareholders of Amazonia also delivered a letter to these lenders
contemplating the possibility of additional capital contributions of up to USD20
million in the event of extreme financial distress at Sidor. Tamsa's obligations
under the put agreement, and Tamsider's share of any capital contribution under
the letter, are limited in proportion to its interest in Amazonia when the put
is exercised or the contribution is made. Based on Tamsider's current 14.1%
equity interest in Amazonia, Tamsa's aggregate liability under the put agreement
would be limited to a maximum of USD3.5 million and Tamsider's share of any
capital contribution under the letter would be limited to a maximum of USD2.8
million.
(III) Tax claims
(a) Siderca
On December 18, 2000, the Argentine tax authorities notified Siderca of an
income tax assessment related to the conversion of tax loss carry-forwards into
Debt Consolidation Bonds under Argentine Law No. 24,073. The adjustments
proposed by the tax authorities represent an estimated contingency of ARP41.7
million (approximately USD12.8 million) at December 31, 2002 in tax and
penalties. On the basis of information from Siderca's tax advisors, Tenaris
believes that the ultimate resolution of the matter will not result in a
material obligation. Accordingly, no provision was recorded in the financial
statements.
(b) Dalmine
For the tax years from 1996 and the years thereafter, Dalmine was subject to an
audit conducted by the regional tax police of Milan. Their report, issued in
July 1999, disallowed certain costs and expenses while also alleging that
goods-in-transit were not accounted for on the accrual basis. Dalmine believes
that, with regard to in-transit inventory items, the tax effect is negligible,
and with regards to non-deductible costs, any additional tax amounts that may be
due would be compensated for with existing net operating losses. Dalmine has
been informed by the Department of Revenue that no further action regarding
goods-in-transit will be pursued.
During 2001, Dalmine reached a settlement with the local Department of Revenue
in Bergamo as far as fiscal years from 1994 to 1998 are concerned.
The settlement mandated payment of approximately EUR1.1 million (USD1.2 million)
in taxes, interest and fines. Of this, Fintecna (in liquidation) paid
approximately EUR0.5 million (USD0.5 million), on the basis of the risk assumed
under the contract for the sale of its previous controlling interest in Dalmine.
As for the litigation pending with the Italian tax authorities for assessments
received or still to be received from the VAT or direct tax offices of Milan and
Bergamo based on the reports made by the Revenue Guard Corps in December 1995, a
provision has been created that is considered sufficient to meet any eventual
tax expenses (net of the portion of the risk attributable to Fintecna). Such
provision has also been calculated considering the largely favourable outcomes
of the appeals filed by Dalmine and examined to date by the Tax Commissions.
(IV) European Antitrust Commission
On December 8, 1999 the Commission of the European Union imposed fines on
Dalmine and several others manufactures of seamless pipes in Europe for alleged
violations of fair trade practices under the EEC treaty. The fine imposed on
Dalmine was EUR10.8 million (USD11.4 million) and related to pre-1996 activity.
As such, Dalmine accrued this amount in provisions and the 84.08% to be
reimbursed by Fintecna in other receivables at December 31, 1999. In March 2000,
Dalmine filed an appeal against the ruling.
(V) Other Proceedings
Dalmine is currently subject to a criminal proceeding before the Court of
Bergamo, Italy, and two civil proceedings for work-related injuries arising from
its use of asbestos in its manufacturing processes from 1960 to 1980. In
addition, some other asbestos related out-of-court claims have been forwarded to
Dalmine. Of the 39 claims (inclusive of the out-of-court claims), 13 incidents
have already been settled or are to be covered by Dalmine's insurer. Dalmine
estimates that its potential liability in connection with the remaining cases
not yet settled or covered by insurance is approximately EUR7.0 million (USD7.4
million). This amount was recognized as a provision for liabilities and expenses
as of December 31, 2002.
(VI) Contingent liabilities
Tenaris had the following contingent liabilities at each year end:
YEAR ENDED DECEMBER 31,
--------------------------------------
2002 2001 2000
---- ---- ----
Third party assets held in custody by Tenaris 17,603 3,860 512
Discounted documents - 1,210 1,210
Deposit guarantees and other guarantees 179,924 119,088 122,526
------- ------- -------
Total 197,527 124,158 124,248
======= ======= =======
(VII) Commitments
The following are the main off-balance sheet commitments:
(a) Tamsa entered into an off-take contract with Complejo Siderurgico de Guayana
C.A. ("Comsigua") to purchase on a take-and-pay basis 75,000 tons of hot
briquette iron, or HBI, annually for twenty years beginning in April 1998 with
an option to terminate the contract at any time after the tenth year upon one
year's notice. Pursuant to this off-take contract, Tamsa would be required to
purchase the HBI at a formula price reflecting Comsigua's production costs
during the first eight contract years; thereafter, it would purchase the HBI at
a slight discount to market price.
The agreements among the joint venture parties provide that, if during the
eight-year period the average market price is lower than the formula price paid
during such period, Tamsa would be entitled to a reimbursement of the difference
plus interest, payable after the project financing and other specific credits
are repaid. In addition, under the joint venture arrangements, Tamsa has the
option to purchase on an annual basis up to a further 80,000 tons of HBI
produced by Comsigua at market prices. Under its off-take contract with
Comsigua, as a result of weak market prices for HBI, Tamsa has paid
higher-than-market prices for its HBI and accumulated a credit that, at December
31, 2001, amounted to approximately USD9.8 million. This credit, however, is
offset by a provision for an equal amount recorded as a result of Comsigua's
weak financial condition.
In connection with Tamsa's original 6.9% equity interest in the joint venture
company, Tamsa paid USD8.0 million and agreed to cover its proportional (7.5%)
share of Comsigua's cash operating and debt service shortfalls. In addition,
Tamsa pledged its shares in Comsigua and provided a proportional guarantee in
support of the USD156 million (USD100.1 million outstanding as of March 31,
2002) project financing loan made by the International Finance Corporation, or
IFC, to Comsigua. In February 2002, Tamsa was required to pay USD1.3 million,
representing its share of a shortfall of USD14.7 million payable by Comsigua
under the IFC loan and additional operating shortfalls of USD2.8 million.
Comsigua's financial condition has been adversely affected by the consistently
weak international market conditions for HBI since its start-up in 1998 and,
unless market conditions improve substantially, Tamsa may be required to make
additional proportional payments in respect of its participation in the Comsigua
joint venture and continue to pay higher-than-market prices for its HBI pursuant
to its off-take contract.
b) Tamsa purchases from Pemex, at prevailing international prices, natural gas
used for the furnaces that reheat steel ingots in the pipe making process.
Natural gas rates increased approximately 74% in 2000 and 4% in 2001. In
February, 2001, Tamsa signed an agreement with Pemex, for the supply of 296,600
million BTUs (British Thermal Units) of natural gas from January 1, 2001 until
December 31, 2003, at a fixed price of USD4.00 per million of BTUs. In order to
cover a decrease in natural gas prices, in March 2001, Tamsa entered into a
forward contract with Enron North America Corp.("Enron"), with the option to
sell up to 200,000 million BTUs per month of natural gas, at a minimum base
price of USD4.05 per million of BTUs, from March 2002, through December 2003.
As a result of Enron's bankruptcy in late 2001, no reasonable prospect exists of
exercising Tamsa's option under this contract. The premium paid to Enron of
USD1.7 million for this put option was fully amortized during the fourth quarter
of 2001. In order to reduce its exposure to above-market prices under the
natural gas supply agreement with Pemex, Tamsa entered into agreements with
Citibank, N.A., New York ("Citibank") and JPMorgan Chase Bank ("JPMorgan
Chase"), in March 2002 and April 2002. The economic effect of the
agreements with Citibank and JPMorgan Chase is to permit Tamsa to purchase
320,000 million BTUs per month at market price instead of at the USD4.00 per
million BTU rate charged by Pemex, resulting in a more favourable price to Tamsa
for natural gas so long as the market price remains below USD4.00.
Under the agreements, Tamsa must continue to make its purchase of natural gas at
market price even if the market price rise above USD4.00 per million BTUs,
thereby exposing Tamsa to a later risk of above-market prices. Also, under the
agreements, Tamsa must continue to make purchases at the USD4.00 per million BTU
rate if the market price of natural gas falls to USD2.00 per million BTUs or
lower (during the period from May 1, 2002 to February 28, 2003) or to USD2.25
per million BTUs or lower (during the period from March 1, 2003 to December 31,
2003). In addition, under each of the agreements with Citibank and JPMorgan
Chase, Tamsa is require to purchase 160,000 million BTUs of natural gas per
month from January 1, 2004, to December 31, 2005, at price of USD2.7 per million
BTUs.
(c) In August 2001, Dalmine Energie S.p.A. signed an agreement for the purchase
of natural gas with certain take or pay conditions. The agreement began on
October 1, 2001, and will expire 10 years later on October 1, 2011. Total volume
of natural gas still to be purchased as at December 31, 2001 is estimated to be
5,800 million cubic meters equal to approximately EUR900 million (USD806 million
at December 31, 2001, based on natural gas prices at the end of 2001). At the
date, Dalmine Energie S.p.A. has not contracted all the transportation capacity
for selling the gas within the Italian market for the period October 2003 to
September 2011.
(d) Under a lease agreement between Gade Srl (Italy) and Dalmine, executed in
2001, relating to a building site in Sabbio Bergamasco used by Dalmine's former
subsidiary Tad Commerciale, Dalmine is obligated to bid in the auction for the
purchase of a building from Gade for a minimum amount of EUR8.3 million (USD7.4
million at December 31, 2001). The notice of the auction, according to the
contract, was not to take place before January 1, 2003. Up to the date of these
financial statements, the auction was not yet announced.
(VIII) Restrictions on the distribution of profits
Under Luxembourg law, at least 5% of the net income per year calculated in
accordance with Luxembourg law and regulations must be allocated to the creation
of a reserve until such reserve has reached to an amount equal to 10% of the
share capital. At December 31, 2002 the Company has created this reserve in
full.
Dividends may be paid by Tenaris to the extent distributable retained earnings
and distributable reserves calculated in accordance with Luxembourg law and
regulations exist. Therefore, retained earnings included in the consolidated
combined financial statements may not be wholly distributable.
Shareholders' equity under Luxembourg law and regulations comprises the
following captions (amounts in USD):
Share capital 1,160,700,794
Legal reserve 116,070,080
Share premium 587,492,789
Other distributable reserves 206,744,261
-------------
Total shareholders equity under Luxembourg GAAP 2,071,007,924
=============
25 ORDINARY SHARES AND SHARE PREMIUM
NUMBER OF ORDINARY
SHARES
------------------
At January 1, 2002 30,107
Net issue of shares of October 18, 2002 710,717,080
Net issue of shares of December 13, 2002 449,953,607
----------------
At December 31, 2002 1,160,700,794
================
The total of issued and outstanding ordinary shares as of December 31, 2002 is
1,160,700,794 with a par value of USD1 per share.
26 MINORITY INTEREST
YEAR ENDED DECEMBER 31,
-------------------------------------------
2002 2001 2000
---- ---- ----
At beginning of year 918,981 919,710 979,067
Currency translations differences (62,816) (11,167) (3,411)
Effect of adopting IAS 39 - (408) -
Share of net loss (profit) of subsidiaries 142,403 74,557 47,401
Acquisition - 17,042 15,610
Exchange of shares of Siderca, Dalmine
and Tamsa (768,577) - -
Sales (2,020) (22,262) (57,367)
Dividends paid (41,188) (58,491) (61,590)
-------- ------- -------
At end of year 186,783 918,981 919,710
======== ======= =======
27 ACQUISITIONS
All the acquisitions were accounted under the purchase method, in accordance
with IAS 22.
On December 13, 2002 the Company acquired 27.94% of the Siderca shares or ADSs,
43.73% of the Tamsa shares or ADSs and 41.19% of the Dalmine shares through the
exchange of shares of the Company.
Details of net assets acquired and goodwill are as follows:
2002
------------------------------------------------
SIDERCA TAMSA DALMINE TOTAL
------- ------- ------- -------
Purchase consideration 457,259 278,894 75,052 811,205
Fair value of minority interest acquired 357,150 345,980 113,287 816,417
------- ------- ------- -------
Goodwill (Negative Goodwill) 100,109 (67,086) (38,235) (5,212)
======= ======= ======= =======
The assets and liabilities arising from the acquisition are as follows:
2002
------------------------------------------------
SIDERCA TAMSA DALMINE TOTAL
------- ------- ------- -------
Property, plant and equipment 47,972 (4,228) 21,975 65,719
Goodwill 100,109 (67,086) (38,235) (5,212)
Other non-current assets - 1,480 - 1,480
Current assets 320 9,335 - 9,655
------- ------- ------- -------
Total assets acquired 148,401 (60,499) (16,260) 71,642
Minority interest in Siderca, Tamsa and
Dalmine 325,760 342,660 100,157 768,577
Total non-current liabilities (16,902) (3,267) (8,845) (29,014)
------- ------- ------- -------
Total liabilities assumed (16,902) (3,267) (8,845) (29,014)
------- ------- ------- -------
Purchase consideration 457,259 278,894 75,052 811,205
======= ======= ======= =======
During 2002 the Company acquired 0.26% of shares of Tamsa from minority
shareholders for USD1.7 million.
During 2001 the Company acquired 4.34% of shares of Tamsa from minority
shareholders for USD31.0 million. The fair value of net assets acquired was
USD31.2 million giving rise to negative goodwill of USD0.2 million.
Minor acquisitions of Empresas Riga S.A. (by Tamsa) during 2001 did not give
rise to any significant goodwill due to the purchase method of accounting.
During 2000 the Company acquired 6.90% of shares of Tamsa from minority
shareholders for USD63.8 million. The fair value of net assets acquired was
USD51.6 million giving rise to goodwill of USD12.2 million.
28 RELATED PARTY TRANSACTIONS
The following transactions were carried out with related parties:
YEAR ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
------ ------ ------
(I) TRANSACTIONS
(A) SALES OF GOODS AND SERVICES
Sales of goods 258,083 74,145 66,785
Sales of services 6,934 3,444 4,577
------- ------- -------
265,017 77,589 71,362
======= ======= =======
(B) PURCHASES OF GOODS AND SERVICES
Purchases of goods 160,792 46,202 30,779
Purchases of services 103,858 95,216 74,300
------- ------- -------
264,650 141,418 105,079
======= ======= =======
AT DECEMBER 31,
--------------------------------------------
2002 2001 2000
------ ------ ------
(II) YEAR-END BALANCES
(A) ARISING FROM SALES/PURCHASES OF
GOODS/SERVICES
Receivables from related parties 59,490 34,439 31,753
Payables to related parties (92,133) (43,957) (26,325)
------- ------- -------
(32,643) (9,518) 5,428
------- ------- -------
(B) CASH AND CASH EQUIVALENTS
Time deposits 24,658 67,975 10,974
------- ------- -------
(C) OTHER BALANCES
Trust fund 115,787 103,438 -
------- ------- -------
(D) FINANCIAL DEBT
Borrowings and overdrafts 49,452 55,331 45,461
------- ------- -------
(E) DEPOSIT GUARANTEES AND OTHER
GUARANTEES
Guarantees receipt 6,000 - -
------- ------- -------
(III) OFFICERS AND DIRECTORS COMPENSATIONS
The aggregate compensation of the directors and executive officers accrued
during 2002 amount USD 739 thousand.
29 PRINCIPAL SUBSIDIARIES
Detailed below are the companies whose consolidated financial statements have
been included in these consolidated financial statements, and the percentage of
ownership and voting rights held, directly or indirectly, by Tenaris in these
companies at the end of 2002. For years 2001 and 2000, the percentages of
ownership and voting rights considered in the preparation of those consolidated
financial statements correspond to those of ultimate parent company at each year
end.
PERCENTAGE OF OWNERSHIP AND
VOTING RIGHTS AT DECEMBER 31,
COUNTRY OF ---------------------------------
COMPANY ORGANIZATION MAIN ACTIVITY 2002 2001 2000
----------------------------- ---------------- ---------------------------------- ------- ------- -------
Siderca Argentina Manufacturing of seamless steel 99.11% 71.17% 72.61%
pipes
Tamsa Mexico Manufacturing of seamless steel 94.50% 50.51% 46.18%
pipes
Dalmine Italy Manufacturing of seamless steel 88.41% 47.22% 47.22%
pipes
Tenaris Global Services Uruguay Holding of investments in steel 100.00% 100.00% 100.00%
(and predecessors) pipe distributing companies
Invertub Argentina Holding of investments 100.00% 100.00% -
The consolidated financial statements of Siderca include the financial
statements of Siderca and its subsidiaries, which are shown below:
PERCENTAGE OF OWNERSHIP AND
VOTING RIGHTS AT DECEMBER 31,
COUNTRY OF ---------------------------------
COMPANY ORGANIZATION MAIN ACTIVITY 2002 2001 2000
----------------------------- ---------------- ---------------------------------- ------- ------- -------
NKK Tubes K.K. Japan Manufacturing of seamless steel 51.00% 51.00% 51.00%
pipes
Algoma Tubes Inc. (A) Canada Manufacturing of seamless steel 80.00% 80.00% 80.00%
pipes
Confab Industrial S.A. and Brazil Manufacturing of welded steel 38.99% 38.99% 38.99%
subsidiaries pipes and capital goods
Siat S.A. (B) Argentina Manufacturing of welded steel 70.00% 70.00% 70.00%
pipes
Metalmecanica S.A. (C) Argentina Manufacturing steel products for 73.00% 73.00% 73.00%
----------------------
oil extraction
Scrapservice S.A. Argentina Processing of scrap 74.84% 74.84% 74.84%
Texas Pipe Threaders Co. U.S.A. Finishing and marketing of steel 100.00% 100.00% 100.00%
pipes
Socover S.A. Mexico Sale of seamless steel pipe - - 99.33%
Siderca International Denmark Holding company 100.00% 100.00% 100.00%
A.p.S. (D)
Techint Investment Netherlands Holding company 100.00% 100.00% 100.00%
Netherlands B.V.
Sidtam Limited LLC (E) U.S.A. Holding company 51.00% 51.00% 51.00%
(A) Tamsa holds the remaining 20.00% of Algoma Tubes Inc.'s ("Algoma")
capital stock and voting rights which is also consolidated in these
combined consolidated financial statements.
(B) Confab Industrial S.A. ("Confab") holds the remaining 30.00% of Siat
S.A.'s ("Siat") capital stock and voting rights.
(C) Invertub holds the remaining 27.00% of Metalmecanica's capital stock
and voting rights.
(D) On January 31, 2002 Siderca International A.p.S. and Siderca Denmark
A.p.S. were merged.
(E) Tamsa holds the remaining 49.00% of Sidtam Limited LLC's ("Sidtam")
capital stock and voting rights.
The consolidated financial statements of Tamsa include the financial statements
of Tamsa and its subsidiaries, which are shown below:
PERCENTAGE OF OWNERSHIP AND
VOTING RIGHTS AT DECEMBER 31,
COUNTRY OF --------------------------------
COMPANY ORGANIZATION MAIN ACTIVITY 2002 2001 2000
----------------------------- ---------------- ---------------------------------- ------- ------- -------
Tamsider S.A. and subsidiaries Mexico Promotion and organization of 100.00% 100.00% 100.00%
steel-related companies
Inmobiliaria Tamsa S.A. Mexico Leasing of real estate 100.00% 100.00% 100.00%
Tubos de Acero de Venezuela Venezuela Manufacturing of seamless steel 70.00% 70.00% 70.00%
S.A. (Tavsa) pipes
Corporacion Tamsa S.A. (A) Mexico Sale of seamless steel pipe 100.00% 100.00% 100.00%
Tamtrade S.A. Mexico Sale of seamless steel pipe 100.00% 100.00% 100.00%
Empresas Riga S.A. (B) Mexico Manufacturing of welded fittings 100.00% 100.00% -
for seamless steel pipes
Socover S.A. (C) Mexico Sale of seamless steel pipe 100.00% 100.00% -
Algoma Tubes Inc. (D) Canada Manufacturing of seamless steel 20.00% 20.00% 20.00%
pipes
(a) Ceased operations during 2002. In process of liquidation.
(b) Company acquired during 2001.
(c) Shares acquired from Siderca during 2001.
(d) Siderca holds the remaining 80.00% of Algoma Tube's capital stock and
voting rights.
The consolidated financial statements of Dalmine include the financial
statements of Dalmine and its subsidiaries, which are shown below:
PERCENTAGE OF OWNERSHIP AND
VOTING RIGHTS AT DECEMBER 31,
COUNTRY OF ---------------------------------
COMPANY ORGANIZATION MAIN ACTIVITY 2002 2001 2000
----------------------------- ---------------- ---------------------------------- ------- ------- -------
Dalmine Energie S.p.A. Italy Marketing of electricity and gas 100.00% 100.00% 100.00%
i-Dalmine S.p.A. Italy Network information and 100.00% 85.00% 85.00%
telematic systems
SO.PAR.FI. Dalmine Holding S.A. Luxembourg Holding company 100.00% 100.00% 100.00%
Dalmine Holding B.V. Netherlands Holding company 100.00% 100.00% 100.00%
Dalmine France Sarl France Marketing of steel products 100.00% 100.00% 100.00%
Dalmine Benelux B.V. (A) Netherlands Marketing of steel products 100.00% 100.00% 100.00%
Quality Tubes Ltd. United Marketing of steel products 100.00% 100.00% 100.00%
Kingdom
Eurotube Ltd. (B) United Marketing of steel products 100.00% 100.00% 100.00%
Kingdom
Quickflo Services Ltd. (A) (G) United Marketing of steel products 100.00% 100.00% 100.00%
Kingdom
Dalmine Deutschland Gmbh Germany Marketing of steel products 100.00% 70.00% 70.00%
Tad Chacin S.A. (C) Venezuela Marketing of steel products - - 80.00%
Socominter Far East Ltd. Singapore Marketing of steel products - - 55.00%
(previously Tad Far East Ltd.)
Metal Tad Venezuela (D) Venezuela Marketing of steel products - 100.00% 100.00%
Dalmine Canada Ltd. (E) Canada Marketing of steel products 100.00% 100.00% 100.00%
Tad USA Inc. (D) U.S.A. Marketing of steel products - 100.00% 100.00%
Tad Metal Iberica S.R.L. (F) Spain Marketing of steel products - - 100.00%
(a) In process of liquidation.
(b) In process of reorganization.
(c) Socominter S.A. and Tad Chacin C.A, were merged during 2002.
(d) Ceased operations during 2001. Liquidated during 2002.
(e) Ceased operations during 2001. In process of liquidation.
(f) Liquidated during 2001.
(g) During 2002, shares in Quickflo Services Ltd. ("Quickflo") (33.33%)
were purchased from third parties.
The consolidated financial statements of Tenaris Global Services include the
financial tatements of Tenaris Global Services and its subsidiaries, which are
shown below:
PERCENTAGE OF OWNERSHIP AND
VOTING RIGHTS AT DECEMBER 31,
COUNTRY OF ---------------------------------
COMPANY ORGANIZATION MAIN ACTIVITY 2002 2001 2000
----------------------------- ---------------- ---------------------------------- ------- ------- -------
DST Europe Ltd. United Marketing of steel products 100.00% 100.00% -
Kingdom
Tenaris Global Services B.V. Netherlands Sales agent of steel products 100.00% 100.00% -
Tenaris Global Services LLC U.S.A. Sales agent of steel products 100.00% - -
(A)
Tenaris Global Services Ltd. B.V.I. Holding company 100.00% 100.00% -
Siderca Corporation U.S.A. Marketing of steel products 100.00% 100.00% 100.00%
DST Japan K.K. Japan Marketing of steel products 99.83% 99.83% 99.83%
Techintrade Canada Inc. 100.00% 100.00% 100.00%
(previously DST Tubulars
Inc.) Canada Marketing of steel products
Techintrade Norway AS Norway Marketing of steel products 100.00% 100.00% 100.00%
Socominter Trading Inc. Panama Marketing of steel products 100.00% 100.00% 100.00%
Socominter de Bolivia S.R.L. Bolivia Marketing of steel products 100.00% 99.00% 99.00%
Socominter Soc. Com. 99.00% 99.00% 99.00%
Internacional Ltda. (B) Chile Marketing of steel products
Socominter S.A. Venezuela Marketing of steel products 100.00% 100.00% 100.00%
Siderca Pte. Ltd. Singapore Marketing of steel products 100.00% 100.00% 100.00%
Tubular DST Nigeria Ltd. Nigeria Marketing of steel products 100.00% 100.00% 100.00%
Tad Chacin C.A. (C) Venezuela Marketing of steel products - 100.00% -
Socominter Far East Ltd. 100.00% 100.00% -
(previously Tad Far East
Ltd.) Singapore Marketing of steel products
(a) Created during 2002.
(b) Ceased operations during 2002.
(c) Socominter S.A. and Tad Chacin C.A. were merged during 2002.
The combined consolidated financial statements of Tenaris also include the
financial statements of the following companies:
PERCENTAGE OF OWNERSHIP AND
VOTING RIGHTS AT DECEMBER 31,
COUNTRY OF ---------------------------------
COMPANY ORGANIZATION MAIN ACTIVITY 2002 2001 2000
----------------------------- ---------------- ---------------------------------- ------- ------- -------
Metalcentro S.A. Argentina Manufacturing of pipe-end 100.00% 100.00% 100.00%
protectors and lateral impact
tubes
Siderestiba Argentina 99.00% 99.00% 99.00%
Tenaris Connections A.G. and Liechtenstein Ownership and licensing of steel 100.00% 100.00% 100.00%
subsidiary technology
Lomond Holdings B.V. and Netherlands Procurement services for 75.00% 75.00% -
subsidiaries industrial companies
Information Systems and Netherlands Software development and 75.00% 75.00%
Technologies B.V. and maintenance
subsidiaries
30 POST BALANCE SHEET EVENTS
On February 19, 2003 Siderca has acquired Reliant Energy Cayman Holdings, Ltd, a
company whose principal asset is an electric power generating facility located
in San Nicolas, 300 kms to the west of Buenos Aires, Argentina. The price paid
was USD23.1 million.
The power plant in San Nicolas is a fully modern gas turbine facility which came
on stream in 1998 and has a power generation capacity of 160MW and steam
production capacity of 250 tons per hour. As a result of the purchase, Tenaris'
operations at Siderca, which consume around 160MW at peak production and an
average of 90MW, will become self-sufficient in electric power requirements.
Power which is excess to
Siderca's requirements will be sold on the open market and steam will continue
to be sold to Siderca's affiliate, Siderar, which operates a steel production
facility in San Nicolas.
This acquisition will enable Tenaris to further consolidate the competitive
position of its operations at Siderca through an even deeper integration.
As explained in Note A (1) on February 21, 2003, Tenaris announced a plan for
the acquisition of remaining minority interests (0.89%) in Siderca for six
Argentine pesos (ARP6.00) per Siderca share or sixty Argentine pesos (ARP60.00)
per Siderca ADS.
Paolo Rocca
President
Report and accounts of Tenaris, S.A.
Luxembourg GAAP
Report for the period December 17, 2001 (date of incorporation) to December 31,
2002
The Board of Directors of Tenaris S.A. submit the annual report and the annual
account in accordance with the Luxembourg legal and regulatory requirements for
the period: December 17, 2001 (date of incorporation) to December 31, 2002.
As of December 31, 2002, Tenaris S.A. (Tenaris or the Company) had investments
in affiliated companies for USD 2,071,373,951. These financial assets became
part of Tenaris as a result of the contributions of all Sidertubes S.A.'s
(Tenaris' parent company) holdings in the mentioned companies made on 18/10/2002
and 19/12/2002.
The second contribution was the consequence of the exchange offer of Siderca
S.A.I.C., Tamsa S.A. and Dalmine S.p.A. shares for Tenaris shares held by the
public. As a result of that exchange offer, which concluded on December 13,
2002, 27.94% of Siderca shares and ADSs, 43.73% of Tamsa shares and ADSs and
41.19% of Dalmine shares were incorporated to Tenaris' assets.
After the contributions above mentioned Tenaris, the Company's shareholders
equity was:
OTHER PROFIT
SHARE LEGAL SHARE DISTRIBUTABLE FOR THE SHAREHOLDER
ITEM CAPITAL RESERVE PREMIUM RESERVE PERIOD EQUITY
---- ------- ------- ------- ------------- -------- -----------
USD USD USD USD USD USD
Balance at the date of 30,107 - - - - 30,107
incorporation
As decided by the Board of
Directors' meeting held on
October 18, 2002:
- Allocation of
contribution 710,747,090 71,074,719 365,680,826 127,500,292 - 1,275,002,927
- Cancellation of shares (30,010) - - - - (30,010)
As decided by the Board of
Directors' meeting held on
December 19, 2002:
- Allocation of
contribution 710,747,090 71,074,709 355,992,818 126,423,846 - 1,264,238,463
- Cancellation of shares (260,793,483) (26,079,348) (134,180,855) (46,783,743) - (467,837,429)
Profit for the period - - - - 8,873,866 8,873,866
As decided by the Board of
Directors' meeting held on
August 27, 2002:
Interim dividend (*) - - - (396,134) (8,873,866) (9,270,000)
------------- ----------- ------------ ----------- ---------- -------------
Balance at the end of the
period after proposed
allocation of profit 1,160,700,794 116,070,080 587,492,789 206,744,261 - 2,071,007,924
(*) Amount subject to the approval of the General Meeting of Shareholders to be
held on May 28, 2003.
The specified financial assets consist of:
BOOK VALUE
% OF AS AT BOOK VALUE AS
COMPANY COUNTRY OWNERSHIP 17.12.2001 ADDITIONS AT 31.12.2002
------- ------- --------- ---------- ------------- ---------------
USD USD USD
Invertub S.A. Argentina 99.97 % - 320,559,994 320,559,994
Siderca S.A.I.C. (*) Argentina 99.11 % - 1,306,123,727 1,306,123,727
Dalmine S.p.A. (*) Italy 88.41 % - 66,068,542
66,068,542
Tubos de Acero de Mexico (Tamsa) -
(*) Mexico 94.50 % 315,574,038 315,574,038
Abeluz S.A. Uruguay 100.00 % - 63,047,650
63,047,650
------------- -------------
SHARES IN AFFILIATED COMPANIES - 2,071,373,951 2,071,373,951
============= =============
(*) Includes direct and indirect ownership.
Costs related to the exchange offer were reported as "Reorganization Costs" and
will be amortized over a period of five years starting in 2003. These expenses
were financed mainly with USD 8,948,012 in borrowings from Tenaris'
subsidiaries.
Net income for the period was USD 8,873,866 as a result of dividends received in
the amount of USD 9,470,714 and USD 9,270,000 paid as interim dividend (subject
to approval of the Shareholders' Meeting).
Tenaris has recorded a provision of USD 504,414 for taxes corresponding to the
year 2002, and has qualified as a Millardaire Holding Company, according to
Luxembourg law, starting January 1, 2003.
On February 21, 2003, Tenaris announced a plan for the acquisition of the
remaining minority interest (0,89%) in Siderca for six Argentine pesos (ARP
6.00) per Siderca share or sixty Argentine pesos (ARP 60.00) per Siderca ADS.
Tenaris will not consummate the squeeze out of Siderca shares until the approval
of the Argentine securities authorities is obtained.
Paolo Rocca
President and
Chief Executive Officer
[PRICEWATERHOUSECOOPERS LOGO] PricewaterhouseCoopers
Societe a responsabilite limitee
Reviseur d'enterprises
400, route d'Esch
B.P. 1443
L-1014 Luxembourg
Telephone +352 494848-1
Facsimile +352 494848-2900
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of Tenaris S.A.
1) We have audited the annual accounts of Tenaris S.A. for the period from
December 17, 2001 (date of incorporation) to December 31, 2002 on pages 134 to
141 and have read the related annual report on pages 129 to 131. These annual
accounts and the management report are the responsibility of the Board of
Directors. Our responsibility is to express an opinion on these annual accounts
based on our audit and to check the consistency of the annual report with them.
2) We conducted our audit in accordance with International Standards on
Auditing. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the annual accounts are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the annual accounts. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall annual accounts presentation. We
believe that our audit provides a reasonable basis for our opinion.
3) In our opinion, the attached annual accounts give, in conformity with the
Luxembourg legal and regulatory requirements, a true and fair view of the
financial position of Tenaris S.A. as of December 31, 2002 and of the results of
its operations for the period then ended.
4) The annual report is in accordance with the annual accounts.
LUXEMBOURG, MARCH 6, 2003
PRICEWATERHOUSECOOPERS S. A R.L.
Reviseur d'entreprises
Represented by
/s/ Ian Whitecourt
Ian Whitecourt
AUDITED ACCOUNTS FOR THE PERIOD FROM
DECEMBER 17, 2001 (DATE OF INCORPORATION)
TO DECEMBER 31, 2002
Balance sheet as at December 31, 2002
Expressed in USD Notes 2002
---------------- ----- ----
ASSETS
-------------
FORMATION EXPENSES 3 9,548
-------------
REORGANIZATION COSTS 14,777,137
-------------
FINANCIAL ASSETS
Shares in affiliated companies 4 2,071,373,951
-------------
CURRENT ASSETS
Short term investments 602,000
Cash at banks 106,579
-------------
708,579
-------------
Total assets 2,086,869,215
=============
LIABILITIES
SHAREHOLDER'S EQUITY
Share capital 5 1,160,700,794
Share premium 5 587,492,789
Legal reserve 5,6 116,070,080
Other distributable reserve 5,6 207,140,395
Interim dividend 5 (9,270,000)
-------------
2,062,134,058
=============
PROVISIONS
Tax provision 7 501,833
Other provisions 2,905,000
-------------
3,406,833
=============
CREDITORS
Intercompany 8 8,984,012
Other creditors 3,470,446
-------------
12,454,458
=============
Profit for the period 8,873,866
-------------
TOTAL LIABILITIES 2,086,869,215
=============
The accompanying notes form an integral part of these annual accounts.
PROFIT AND LOSS ACCOUNT FOR THE PERIOD
FROM DECEMBER 17, 2001 (DATE OF INCORPORATION)
TO DECEMBER 31, 2002
Expressed in USD Notes 2002
---------------- ----- ----
CHARGES
Amortization of formation expenses 3 2,387
Administrative and general
expenses 73,154
Interest on current accounts 17,916
Realized loss on exchange 5,794
Taxes 7 504,414
-------------
PROFIT FOR THE PERIOD 8,873,866
-------------
Total charges 9,477,531
=============
INCOME
Dividend income 9 9,470,714
Interest on current accounts 652
Realized gain on exchange 6,165
-------------
Total income 9,477,531
=============
The accompanying notes form an integral part of these annual accounts.
NOTES TO THE ACCOUNTS AS AT DECEMBER 31, 2002
1 BACKGROUND AND DESCRIPTION OF THE BUSINESS
Tenaris S.A. (the "Company") was incorporated on December 17, 2001 under the
name of Tenaris Holding S.A. as a limited liability company under the laws of
Luxembourg.
The Company changed its name into Tenaris S.A. on June 26, 2002.
The Company's purpose is to take participation, in any form whatsoever, in any
commercial participation, contribution, underwriting, purchase, option, or
negotiation or in any other way and, in particular, to make loans or otherwise
assist the companies in which it holds a direct or indirect participation or
which form part of the same group of companies as the Company; finally, to
perform any operation which is directly or indirectly related to its purpose,
taking advantage of the law of July 31, 1929 on holding companies. The Company
can perform all commercial, technical and financial operations, connected
directly or indirectly in all areas as described above in order to facilitate
the accomplishment of its purpose.
The activities of the Tenaris group include the manufacture and supply of steel
pipes and associated services related to the oil and gas, energy and other
industries.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Accounts
The accounts have been prepared in accordance with Luxembourg legal requirements
and accounting standards.
2.2 Foreign currency translation
The accounting records of the Company were held in EUR from its date of
incorporation until June 26, 2002. The accounts have been converted to USD on
that date and are held since in USD.
Financial assets, current assets and creditors denominated in foreign currencies
are translated in USD at the rate of exchange at the balance sheet date. The
resulting gains or losses are reflected in the profit and loss account for the
year. Income and expenses in foreign currencies are translated into USD at
exchange rate prevailing at the transaction date.
2.3 Formation expenses
Formation expenses costs are amortized over a period of 5 years.
2.4 Reorganization costs
Reorganization costs comprise mainly fees for professional services that were
incurred in the reorganization process. These costs will be amortized over a
period of 5 years when the reorganization process is completed.
2.5 Financial assets
Financial assets are stated at cost. Should there be other than a temporary
decline in the value of the investment, the carrying value will be reduced to
recognize this decline. Reductions in the carrying value will be reversed should
there be a rise in the value of the investment or should the reasons for the
reduction no longer exist.
3 FORMATION EXPENSES
USD
---
COST 12,467
ADJUSTMENT (532)
------
11,935
AMORTIZATION
Change for the period 2,387
At the end of the period 2,387
------
Net book value at the end of the period 9,548
4 SHARES IN AFFILIATED COMPANIES
Investment in subsidiary companies as at December 31, 2002.
Expressed in USD
Book value
% of as at Book value as at
COMPANY COUNTRY ownership 17.12.2001 Additions 31.12.2002
------- ------- --------- ---------- ------------- ----------------
USD USD USD
Invertub S.A. Argentina 99.97 % - 320,559,994 320,559,994
Siderca S.A.I.C. Argentina 99.11 % - 1,306,123,727 1,306,123,727
(*)
Dalmine S.p.A. (*) Italy 88.41 % - 66,068,542 66,068,542
Tubos de Acero de
Mexico (Tamsa) (*) Mexico 94.50 % - 315,574,038 315,574,038
Abeluz S.A. Uruguay 100.00 % - 63,047,650 63,047,650
------------- -------------
SHARES IN AFFILIATED COMPANIES - 2,071,373,951 2,071,373,951
============= =============
(*) Includes direct and indirect ownership.
5 SHAREHOLDERS' EQUITY
The Company has been constituted with a share capital of EUR 31,000 represented
by 310 shares having a nominal value of EUR 100 each. The share capital has been
fully paid up upon incorporation.
The Extraordinary General Meeting of shareholders held on June 26, 2002 has
converted the currency of the share capital of the Company from EUR to USD. The
share capital of EUR 31,000 has been converted into USD 30,107 generating an
exchange loss of USD 2,137. This exchange difference has been booked into profit
and loss account.
The Extraordinary General Meeting of shareholders also decided that the share
capital of USD 30,107 be represented by 30,107 shares with a par value of USD 1
per share. The shares previously issued in EUR have been cancelled.
On August 27, 2002, the Company declared an interim dividend amounting to USD
9,270,000. This dividend was paid on August 27, 2002.
On October 18, 2002, the parent company, Sidertubes S.A. ("Sidertubes")
contributed all its assets and liabilities to the Company in exchange for
shares. The assets of Sidertubes contributed to the Company included the shares
that Sidertubes held directly in Siderca S.A.I.C. ("Siderca") (51.96%), Tubos de
Acero de Mexico S.A. ("Tamsa") (6.94%), Dalmine S.p.A. ("Dalmine") (0.22%) and
Abeluz S.A. ("Abeluz") (100%) for a total amount of USD 1,275,002,927. Tenaris
issued 710,747,090 shares in remuneration of this contribution and 30,010
previously existing shares, which were held by Sidertubes and have also been
contributed, were cancelled.
The General Meeting of the board of directors held on December 19, 2002 resolved
to accept the contribution in kind consisting of all the assets and liabilities
of Sidertubes S.A. to the Company in exchange for the issuance of 710,747,090
new shares of the Company to Sidertubes S.A., taking into consideration that the
entirety of the assets and liabilities being valued at USD 1,264,238,463
include: a credit against the Company of USD 796,401,034 corresponding to
449,953,607 shares of Tenaris S.A. property of Sidertubes delivered, through the
Exchange Agents, to the investors which have exchanged 476,466,244 shares of
Dalmine, 279,397,133 shares of Siderca and 146,300,208 shares of Tamsa that have
been received by the Company, pursuant to the terms of the Exchange Offer and
the Corporate Reorganization Agreement executed by Tenaris S.A. and Sidertubes
S.A. on September 13, 2002. As part of this reorganization, the Company also
received 260,793,483 of its own shares with a par value of one US dollar (USD
1). These shares have been cancelled.
Tenaris issued 710,747,090 shares for the contribution and 260,793,483 shares
were cancelled.
The authorized capital of the Company as at December 31, 2002 amounts to USD
2,500,000,000. The total authorized share capital of the Company is represented
by 2,500,000,000 shares with a par value of USD 1 per share. The total capital
issued and fully paid-up corresponds to 1,160,700,794 shares with a par value of
USD 1 per share.
The board of directors is authorized for a period of 5 years, starting June 26,
2002, to increase the issued share capital, through issues of shares within the
limits of the authorized capital.
Other
Share Legal Distributable Profit for Shareholder's
ITEM Capital Reserve Share Premium Reserve the period Equity
---- ------- ------- ------------- ------------- ---------- -------------
USD USD USD USD USD USD
Balance at the date of
incorporation 30,107 - - - - 30,107
------------- ----------- ------------ ----------- ---------- -------------
As decided by the Board of
Directors' meeting held on
October 18, 2002
Allocation of contribution 710,747,090 71,074,719 365,680,826 127,500,292 - 1,275,002,927
Cancellation of shares (30,010) - - - - (30,010)
------------- ----------- ------------ ----------- ---------- -------------
As decided by the Board of
Directors' meeting held on
December 19, 2002
Allocation of contribution 710,747,090 71,074,709 355,992,818 126,423,846 - 1,264,238,463
Cancellation of shares (260,793,483) (26,079,348) (134,180,855) (46,783,743) - (467,837,429)
------------- ----------- ------------ ----------- ---------- -------------
Profit for the period - - - - 8,873,866 8,873,866
------------- ----------- ------------ ----------- ---------- -------------
As decided by the Board of
Directors' meeting held on
August 27, 2002
Interim dividend (*) - - - (396,134) (8,873,886) (9,270,000)
------------- ----------- ------------ ----------- ---------- -------------
Balance at the end of
the period after
proposed allocation of profit 1,160,700,794 116,070,080 587,492,789 206,744,261 - 2,071,007,924
(*) Amount subject to the approval of the General Meeting of Shareholders to be
held on May 28, 2003.
6 LEGAL AND OTHER DISTRIBUTABLE RESERVES
In accordance with Luxembourg law, the Company is required to set aside a
minimum of 5% of its annual net profit for each financial period to a legal
reserve. This requirement ceases to be necessary once the balance on the legal
reserve has reached 10% of the issued subscribed capital. The Company reached
this 10% in the current year. The legal reserve is not available for
distribution to the shareholders.
The amount included under "Other distributable reserve" is fully distributable
upon approval of the General Shareholders' Meeting.
7 TAXES
The Company is subject to the tax regime applicable as defined by the law dated
July 31, 1929.
From January 1, 2003 onwards, the Company will be taxed as a millardaire holding
as defined by the law dated July 31, 1929.
8 INTERCOMPANY CREDITORS
USD
---
a) Creditors 1,977,523
b) Loans 7,006,489
---------
Intercompany creditors 8,984,012
=========
a) are interest free and have no fixed terms of repayment.
b) principal amount of USD 7,000,000, accrues
interest rate at LIBOR plus 2%.
9 DIVIDEND INCOME
On August 5, 2002, the Company received a dividend from its
subsidiary Invertub S.A. amounting to USD 9,470,714.
10 PARENT COMPANY
The parent company of Tenaris S.A. is Sidertubes S.A., a company
incorporated and existing under the laws of the Grand Duchy of
Luxembourg.
11 SUBSEQUENT EVENTS
On February 21, 2003, Tenaris announced a plan for the acquisition of
remaining minority interest (0.89%) in Siderca for six Argentine
pesos (ARP 6.00) per Siderca share or sixty Argentine pesos (ARP
60.00) per Siderca ADS. Tenaris will not consummate the compulsory
acquisition of Siderca shares and ADSs until it obtains the approval
of the Argentine securities regulators.
/s/ Paolo Rocca
Paolo Rocca
President and Chief Executive Officer
CORPORATE INFORMATION
REGISTERED OFFICE
23 Avenue Monterey
L-2086 Luxembourg
(352) 4661 11 3815 tel
PRINCIPAL EXECUTIVE OFFICES
Av. L. N. Alem 1067 27th Floor Edificio Parque Reforma Via Monte Rosa, 93
(C1001AAF) Buenos Aires, Argentina Campos Eliseos 400 Piso 17 20149 Milan, Italy
(54) 11 4018 4100 tel 11560 Mexico, D.F. (39) 02 4384 7654 tel
(54) 11 4018 1000 fax (52) 55 5282 9900 tel (39) 02 4384 7670 fax
(52) 55 5282 9961 fax
INVESTOR INFORMATION
INVESTOR RELATIONS DIRECTOR GENERAL INQUIRIES
Gerardo Varela investors@tenaris.com
gvarela@tenaris.com
PHONES
Argentina (54) 11 4018 4020
Italy (39) 02 4384 7654
Mexico (52) 55 5282 9913
USA 1 888 300 5432
STOCK INFORMATION
New York Stock Exchange (TS)
Bolsa Mexicana de Valores, S.A. de C.V. (TS)
Mercado de Valores de Buenos Aires (TS)
Mercato Telematico Azionario (TEN)
ADS DEPOSITARY BANK
Morgan Guaranty Trust of New York
CUSIP Number 88031M019
INTERNET
www.tenaris.com
CAUTIONARY STATEMENT
Some of the statements contained in this annual report are "forward-looking
statements". Forward-looking statements are based on management's current (March
2003) views and assumptions and involve known and unknown risks that could ause
actual results, performance or events to differ materially from those expressed
or implied by those statements. These risks include, but are not limited to,
risks arising from uncertainties as to future oil prices and their impact on
investment programs by oil companies.