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 March 2, 2007
TENARIS, S.A.
(Translation of Registrant's name into English)
TENARIS, S.A.
46a, Avenue John F. Kennedy
L-1855 Luxembourg
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or 40-F.
Form 20-F X Form 40-F
--- ---
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12G3-2(b) under the Securities Exchange Act of 1934.
Yes No X
--- ---
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-__.
The attached material is being furnished to the Securities and Exchange
Commission pursuant to Rule 13a-16 and Form 6-K under the Securities Exchange
Act of 1934, as amended. This report contains Tenaris' Consolidated Financial
Statements for the years ended December 31, 2006, 2005 and 2004.
TENARIS S.A.
CONSOLIDATED
FINANCIAL STATEMENTS
For the years ended December 31, 2006, 2005 and 2004
46a, Avenue John F. Kennedy - 2nd Floor.
L - 1855 Luxembourg
Tenaris S.A. Consolidated financial statements for the years ended December
31, 2006, 2005 and 2004
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CONSOLIDATED INCOME STATEMENTS
(all amounts in thousands of U.S. dollars, unless
otherwise stated) Year ended December 31,
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Notes 2006 2005 2004
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Continuing operations
Net sales 1 7,727,745 6,209,791 3,718,193
Cost of sales 2 (3,884,226) (3,429,365) (2,378,474)
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Gross profit 3,843,519 2,780,426 1,339,719
Selling, general and administrative expenses 3 (1,054,806) (832,315) (661,226)
Other operating income 5 (i) 13,077 12,396 152,591
Other operating expenses 5 (ii) (9,304) (14,595) (25,426)
----------------------------------------------
Operating income 2,792,486 1,945,912 805,658
Interest income 6 60,798 23,815 14,236
Interest expense 6 (92,576) (52,629) (46,161)
Other financial results 6 26,826 (79,772) 38,304
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Income before equity in earnings of associated
companies and income tax 2,787,534 1,837,326 812,037
Equity in earnings of associated companies 7 94,667 117,377 206,141
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Income before income tax 2,882,201 1,954,703 1,018,178
Income tax 8 (869,977) (567,368) (217,226)
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Income for continuing operations 2,012,224 1,387,335 800,952
Discontinued operations (see Note 30)
Income (loss) for discontinued operations 47,180 (3) 4,029
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Income for the Year 2,059,404 1,387,332 804,981
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Attributable to (1):
Equity holders of the Company 1,945,314 1,277,547 784,703
Minority interest 114,090 109,785 20,278
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2,059,404 1,387,332 804,981
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Earnings per share attributable to the equity holders
of the Company during year
Weighted average number of ordinary shares (thousands) 9 1,180,537 1,180,537 1,180,507
Earnings per share (U.S. dollars per share) 9 1.65 1.08 0.66
Earnings per ADS (U.S. dollars per ADS) 9 3.30 2.16 1.33
(1) Prior to December 31, 2004 minority interest was shown in the income
statement before net income, as required by International Financial
Reporting Standards ("IFRS") in effect. For years beginning on or after
January 1, 2005, International Accounting Standards ("IAS") 1 (revised)
requires that income for the year as shown on the income statement to not
exclude minority interest. Earnings per share, however, continue to be
calculated on the basis of net income attributable solely to the equity
holders of the Company.
The accompanying notes are an integral part of these consolidated financial
statements.
1
CONSOLIDATED BALANCE SHEETS
(all amounts in thousands of U.S. dollars) At December 31, 2006 At December 31, 2005
----------------------- ----------------------
Notes
ASSETS
Non-current assets
Property, plant and equipment, net 10 2,939,241 2,230,038
Intangible assets, net 11 2,844,498 159,099
Investments in associated companies 12 422,958 257,234
Other investments 13 26,834 25,647
Deferred tax assets 21 291,641 194,874
Receivables 14 41,238 6,566,410 65,852 2,932,744
----------- -----------
Current assets
Inventories 15 2,372,308 1,376,113
Receivables and prepayments 16 272,632 143,282
Current tax assets 17 202,718 102,455
Trade receivables 18 1,625,241 1,324,171
Other investments 19 183,604 119,907
Cash and cash equivalents 19 1,372,329 6,028,832 707,356 3,773,284
----------------------- ----------------------
Total assets 12,595,242 6,706,028
------------ -----------
EQUITY
Capital and reserves attributable to the Company's equity
holders
Share capital 1,180,537 1,180,537
Legal reserves 118,054 118,054
Share premium 609,733 609,733
Currency translation adjustments 3,954 (59,743)
Other reserves 28,757 2,718
Retained earnings 3,397,584 5,338,619 1,656,503 3,507,802
----------- -----------
Minority interest 363,011 268,071
------------ -----------
Total equity 5,701,630 3,775,873
------------ -----------
LIABILITIES
Non-current liabilities
Borrowings 20 2,857,046 678,112
Deferred tax liabilities 21 991,945 353,395
Other liabilities 22(i) 186,724 154,378
Provisions 23(ii) 92,027 43,964
Trade payables 366 4,128,108 1,205 1,231,054
----------- -----------
Current liabilities
Borrowings 20 794,197 332,180
Current tax liabilities 565,985 452,534
Other liabilities 22(ii) 187,701 138,875
Provisions 24(ii) 26,645 36,945
Customer advances 352,717 113,243
Trade payables 838,259 2,765,504 625,324 1,699,101
----------------------- ----------------------
Total liabilities 6,893,612 2,930,155
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Total equity and liabilities 12,595,242 6,706,028
------------ -----------
The accompanying notes are an integral part of these consolidated financial
statements.
2
Tenaris S.A. Consolidated financial statements for the years ended December
31, 2006, 2005 and 2004
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(all amounts in thousands of U.S. dollars)
Attributable to equity holders of the Company
Currency Retained
Share Legal Share translation Other Earnings Minority
Capital Reserves Premium adjustment Reserves (*) Interest Total
-----------------------------------------------------------------------------
Balance at January 1, 2006 1,180,537 118,054 609,733 (59,743) 2,718 1,656,503 268,071 3,775,873
-----------------------------------------------------------------------------
Currency translation differences - - - 63,697 - - 15,225 78,922
Change in equity reserves (See section III
C and Note 28 (c)) - - - - 26,039 - - 26,039
Acquisition of minority interest - - - - - - (11,181) (11,181)
Dividends paid in cash - - - - - (204,233) (23,194) (227,427)
Income for the period - - - - - 1,945,314 114,090 2,059,404
-----------------------------------------------------------------------------
Balance at December 31, 2006 1,180,537 118,054 609,733 3,954 28,757 3,397,584 363,011 5,701,630
-----------------------------------------------------------------------------
(*) The Distributable Reserve and Retained Earnings calculated according to
Luxembourg Law are disclosed in Note 26.
The accompanying notes are an integral part of these consolidated financial
statements.
3
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTD.)
(all amounts in thousands of U.S. dollars)
Attributable to equity holders of the Company
------------------------------------------------------------------------
Other Currency
Share Legal Share Distributable translation Other Retained Minority
Capital Reserves Premium Reserve adjustment Reserves Earnings Interest Total
-------------------------------------------------------------------------------------------
Balance at January 1, 2005 1,180,537 118,054 609,733 82 (30,020) - 617,538 165,271 2,661,195
Effect of adopting IFRS 3
(see Note 1) - - - - - - 110,775 - 110,775
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Adjusted balance at January
1, 2005 1,180,537 118,054 609,733 82 (30,020) - 728,313 165,271 2,771,970
Currency translation
differences - - - - (29,723) - - 7,180 (22,543)
Increase in equity reserves
in Ternium - - - - - 2,718 - - 2,718
Acquisition of minority
interest - - - - - - - 153 153
Dividends paid in cash - - - (82) - - (349,357) (14,318) (363,757)
Income for the period - - - - - - 1,277,547 109,785 1,387,332
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Balance at December 31, 2005 1,180,537 118,054 609,733 - (59,743) 2,718 1,656,503 268,071 3,775,873
-------------------------------------------------------------------------------------------
Attributable to equity holders of the Company
------------------------------------------------------------------------
Other Currency
Share Legal Share Distributable translation Other Retained Minority
Capital Reserves Premium Reserve adjustment Reserves Earnings Interest Total
-------------------------------------------------------------------------------------------
Balance at January 1, 2004 1,180,288 118,029 609,269 96,555 (34,194) - (128,667) 119,984 1,961,264
Currency translation
differences - - - - 4,174 - - 9,478 13,652
Capital increase and
acquisition of minority
interest 249 25 464 82 - - - 20,457 21,277
Dividends paid in cash - - - (96,555) - - (38,498) (4,926) (139,979)
Income for the period - - - - - - 784,703 20,278 804,981
-------------------------------------------------------------------------------------------
Balance at December 31, 2004 1,180,537 118,054 609,733 82 (30,020) - 617,538 165,271 2,661,195
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
4
Tenaris S.A. Consolidated financial statements for the years ended December
31, 2006, 2005 and 2004
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CONSOLIDATED CASH FLOW STATEMENTS
--------------------------------------------------------------------------------
Year ended December 31,
--------------------------------------------
(all amounts in thousands of U.S. dollars) Note 2006 2005 2004
--------------------------------------------
Cash flows from operating activities
Income for the year 2,059,404 1,387,332 804,981
Adjustments for:
Depreciation and amortization 10 & 11 255,004 214,227 208,119
Income tax accruals less payments 29 (ii) 56,836 149,487 44,659
Equity in earnings of associated companies (94,667) (117,377) (206,037)
Interest accruals less payments, net 29 (iii) 21,909 1,919 16,973
Income from disposal of investment and others (46,481) - 11,705
Changes in provisions 8,894 6,497 11,455
Proceeds from Fintecna arbitration award net of BHP
settlement - 66,594 (126,126)
Changes in working capital (1) 29 (i) (469,517) (433,939) (621,187)
Other, including currency translation adjustment 19,474 20,583 (46,254)
--------------------------------------------
Net cash provided by operating activities 1,810,856 1,295,323 98,288
--------------------------------------------
Cash flows from investing activities
Capital expenditures 10 & 11 (441,472) (284,474) (183,312)
Acquisitions of subsidiaries 28 (2,387,249) (48,292) (97,595)
Proceeds from disposal of subsidiary 52,995 - -
Convertible loan to associated companies - (40,358) -
Proceeds from disposal of property, plant and equipment
and intangible assets 15,347 9,995 12,054
Dividends and distributions received from associated
companies 12 - 59,127 48,598
Changes in restricted bank deposits 2,027 11,452 (13,500)
Reimbursement from trust funds - (119,907) -
Changes in investments in short terms securities (63,697) 119,666 20,359
--------------------------------------------
Net cash used in investing activities (2,822,049) (292,791) (213,396)
--------------------------------------------
Cash flows from financing activities
Dividends paid (204,233) (349,439) (135,053)
Dividends paid to minority interest in subsidiaries (23,194) (14,318) (31)
Proceeds from borrowings 3,033,230 1,222,861 632,095
Repayments of borrowings (1,105,098) (1,463,233) (326,453)
--------------------------------------------
Net cash provided by (used) in financing activities 1,700,705 (604,129) 170,558
--------------------------------------------
Increase in cash and cash equivalents 689,512 398,403 55,450
Movement in cash and cash equivalents
At the beginning of the period 680,591 293,824 238,030
Effect of exchange rate changes (5,095) (11,636) 344
Increase in cash and cash equivalents 689,512 398,403 55,450
--------------------------------------------
At December 31, 2006 29 (iv) 1,365,008 680,591 293,824
--------------------------------------------
(1) In 2004, includes $55.1 million corresponding to the first installment paid
in connection with the final settlement of BHP claim
The accompanying notes are an integral part of these consolidated financial
statements.
1
INDEX TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
I. GENERAL INFORMATION V. OTHER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Segment information
II. ACCOUNTING POLICIES ("AP") 2 Cost of sales
A Basis of presentation 3 Selling, general and administrative expenses
Labor costs (included in Cost of sales and Selling,
B Group accounting 4 general and administrative expenses)
C Segment information 5 Other operating items
D Foreign currency translation 6 Financial results
E Property, plant and equipment 7 Equity in earnings of associated companies
F Intangible assets 8 Income tax
G Impairment of non financial assets 9 Earnings and dividends per share
H Other investments 10 Property, plant and equipment, net
I Inventories 11 Intangible assets, net
J Trade receivables 12 Investments in associated companies
K Cash and cash equivalents 13 Other investments non current
L Shareholders' Equity 14 Receivables non current
M Borrowings 15 Inventories
N Income taxes - Current and Deferred 16 Receivables and prepayments
O Employee - related liabilities 17 Current tax assets
P Employees' statutory profit sharing 18 Trade receivables
Q Provisions and other liabilities 19 Cash and cash equivalents, and Other investments
R Revenue recognition 20 Borrowings
S Cost of sales and sales expenses 21 Deferred income tax
T Earnings per share 22 Other liabilities
U Derivative financial instruments 23 Non-current allowances and provisions
24 Current allowances and provisions
III. FINANCIAL RISK MANAGEMENT 25 Derivative financial instruments
Contingencies, commitments and restrictions on the
26 distribution of profits
IV. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS 27 Ordinary shares and share premium
28 Business and other acquisitions
29 Cash flow disclosures
30 Discontinued operations
31 Related party transactions
32 Principal subsidiaries
2
I. GENERAL INFORMATION
Tenaris S.A. (the "Company"), a Luxembourg corporation (societe anonyme
holding), was incorporated on December 17, 2001, as a holding company in steel
pipe manufacturing and distributing operations. The Company holds, either
directly or indirectly, controlling interests in various subsidiaries.
References in these financial statements to "Tenaris" refer to Tenaris S.A. and
its consolidated subsidiaries. A list of the Company's subsidiaries is included
in Note 32.
Tenaris shares are listed on the New York, Buenos Aires, Milan, and Mexico City
Stock Exchanges.
These consolidated financial statements were approved for issue by the Company's
Board of Directors on February 28, 2007.
II. ACCOUNTING POLICIES
A Basis of presentation
The Consolidated Financial Statements of Tenaris and its subsidiaries have been
prepared in accordance with International Financial Reporting Standards
("IFRS"). The consolidated financial statements are presented in thousands of
U.S. dollars ("$").
Certain comparative amounts have been reclassified to conform to changes in
presentation in the current year.
The preparation of consolidated financial statements in conformity with IFRS
requires management to make certain accounting estimates and assumptions that
might affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities 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
Subsidiary companies are entities which are controlled by Tenaris as a result of
its ownership of more than 50% of the voting rights or its ability to otherwise
govern an entity's financial and operating policies. Subsidiaries are
consolidated from the date on which control is exercised by the Company and are
no longer consolidated from the date that the Company ceases to have control.
The purchase method of accounting is used to account for the acquisition of
subsidiaries by Tenaris. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of acquisition, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date. The excess of the cost of acquisition over
the fair value of Tenaris share of the identifiable net assets acquired is
recorded as goodwill. If the cost of acquisition is less than the fair value of
the net assets of the subsidiary acquired, the difference is recognized directly
in the income statement.
Material intercompany transactions and balances between Tenaris subsidiaries
have been eliminated in consolidation. However, since the functional currency of
some subsidiaries is its respective local currency, some financial gains
(losses) arising from intercompany transactions are generated. These are
included in the consolidated income statement under Financial results.
See Note 32 for the list of the consolidated subsidiaries.
3
B Group accounting (Cont'd.)
(2) Associated companies
Investments in associated companies are accounted for by the equity method of
accounting and initially recognized at cost. 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. Unrealized results
on transactions between Tenaris and its associated companies are eliminated to
the extent of Tenaris' interest in the associated companies. Unrealized losses
are also eliminated but considered an impairment indicator of the asset
transferred. Accounting policies of associated companies have been changed where
necessary to ensure consistency with the policies adopted by the Company. The
Company's pro-rata share of earnings in associated companies is recorded in
Equity in earnings of associated companies. The Company's pro-rata share of
changes in other reserves is recognized in reserves in the Statement of Changes
in Equity.
The Company's investment in Ternium S.A. ("Ternium") has been accounted for
under the equity method, as Tenaris has significant influence as defined by IAS
28, Investments in Associates. At December 31, 2006, Tenaris held 11.46% of
Ternium's common stock. The Company's investment in Ternium is carried at
incorporation cost plus proportional ownership of Ternium's earnings and other
shareholders' equity accounts. Because the exchange of its holdings in Amazonia
and Ylopa for shares in Ternium was considered to be a transaction between
companies under common control of San Faustin N.V., Tenaris recorded its initial
ownership interest in Ternium at $229.7 million, the carrying value of the
investments exchanged. This value was $22.6 million less than Tenaris'
proportional ownership of Ternium's shareholders' equity at the transaction
date. As a result of this treatment, Tenaris's investment in Ternium will not
reflect its proportional ownership of Ternium's net equity position. Ternium
carried out an initial public offering of its shares on February 1, 2006,
listing its shares on the New York Stock Exchange.
See Note 12 for a list of principal associated companies.
C Segment information
Until September 30, 2006 Tenaris reported under four business segments:
Seamless, Welded and Other Metallic Products, Energy and Other. The acquisition
of Maverick Tube Corporation and its subsidiaries ("Maverick") on October 5,
2006, and the sale of a significant ownership in Dalmine Energie on December 1,
2006 led to a reassessment in the definition of operating segments previously
used by Tenaris. Together with the reassessment, Tenaris early adopted IFRS 8
"Operating Segments" as from the year ended December 31, 2006.
As from these Financial Statements, Tenaris changed its segment reporting into
three major business segments: Tubes, Projects and Other.
The Tubes segment includes the operations that consist in the production and
selling of both seamless and welded steel tubular products mainly for energy and
industrial applications.
The Projects segment includes the operations that consist in the production and
selling of welded steel pipe products mainly used in the construction of major
pipeline projects.
The Other segment includes the operations that consist in the production and
selling of sucker rods, hot briquetted iron, steel electrical conduit and other
metallic products.
Corporate general and administrative expenses have been allocated to the Tubes
segment.
Comparative amounts have been re-presented to conform to new disclosure.
4
C Segment information (Cont'd.)
Tenaris groups its geographical information in five areas: South America,
Europe, North America, Middle East and Africa, and Far East and Oceania. For
purposes of reporting geographical information, net sales are attributable to
geographical areas based on the customer's location; allocation of assets and
capital expenditures and associated depreciation and amortization are based on
the geographic location of the assets.
D Foreign Currency Translation
(1) Functional currency
IAS 21(revised) defines the functional currency as the currency of the primary
economic environment in which an entity operates.
The functional currency of Tenaris S.A. is the U.S. dollar. The U.S. dollar is
the currency that best reflects the economic substance of the underlying events
and circumstances relevant to Tenaris global operations. Generally, the
functional currency of Tenaris's subsidiaries is the respective local currency.
Tenaris Argentine operations, however, which consist of Siderca S.A.I.C.
("Siderca") and its Argentine subsidiaries, have determined their functional
currency to be the U.S. dollar, based on the following considerations:
o Sales are mainly negotiated, denominated and settled in U.S. dollars.
If priced in a currency other than the U.S. dollar, the price
considers exposure to fluctuation in the rate of exchange rate versus
the U.S. dollar;
o Prices of critical raw materials and inputs are priced and settled in
U.S. dollars;
o The exchange rate of the currency of Argentina has long-been affected
by recurring and severe economic crises; o Net financial assets and
liabilities are mainly received and maintained in U.S. dollars.
In addition to Siderca, the Company's distributing subsidiaries and intermediate
holding subsidiaries also use the U.S. dollar as their functional currency,
reflecting the transaction environment and cash flow of these operations.
(2) Translation of financial information in currencies other than the functional
currency
Results of operations for subsidiaries whose functional currencies are not the
U.S. dollar are translated into U.S. dollars at the average exchange rates for
each quarter of the year. Balance sheet positions are translated at the
end-of-year exchange rates. Translation differences are recognized in equity as
currency translation adjustments. In the case of a sale or other disposal of any
such subsidiary, any accumulated translation difference would be recognized in
income as a gain or loss from the sale.
(3) Transactions in currencies other than the functional currency
Transactions in currencies other than the functional 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, including
intercompany transactions, and from the translation of monetary assets and
liabilities denominated in currencies other than the functional currency, are
recorded as gains and losses from foreign exchange and included in Financial
results in the income statement.
E Property, plant and equipment
Property, plant and equipment are recognized at historical acquisition or
construction cost less accumulated depreciation and impairment losses. Property,
Plant and Equipment acquired through acquisitions accounted for as business
combinations have been valued initially at the fair market value of the assets
acquired.
5
E Property, plant and equipment (Cont'd.)
Major overhaul and rebuilding expenditures are capitalized as property, plant
and equipment only when the investment enhances the condition of assets beyond
its original condition. The carrying amount of the replaced part is
derecognized.
Ordinary maintenance expenses on manufacturing properties are recorded as cost
of products sold in the year in which they are incurred.
Borrowing costs that are attributable to the acquisition or construction of
certain capital assets are capitalized as part of the cost of the asset, in
accordance with IAS 23, Borrowing Costs. Capital assets for which borrowing
costs may be capitalized are those that require a substantial period of time to
prepare for their intended use.
Depreciation is calculated using the straight-line method to depreciate the cost
of each asset to its residual value over its estimated useful life, as follows:
Buildings and improvements 30-50 years
Plant and production equipment 10-20 years
Vehicles, furniture and fixtures, and other
equipment 4-10 years
The residual values and useful lives of significant plant and equipment are
reviewed, and adjusted if appropriate, at each year-end date. Any charges from
such reviews are included in Cost of sales in the income statement.
Management's reestimation of assets useful lives, performed in accordance with
IAS 16, did not materially affect depreciation expenses for 2006.
Tenaris depreciates each significant part of an item of property, plant and
equipment for its different production facilities that (i) can be properly
identified as an independent component with a cost that is significant in
relation to the total cost of the item, and (ii) has a useful operating life
that is different from another significant part of that same item of property,
plant and equipment.
Gains and losses on disposals are determined by comparing net proceeds with the
carrying amount of assets. These are included in Other operating income or Other
operating expenses in the income statement.
F Intangible assets
(1) Goodwill
Goodwill represents the excess of the acquisition cost over the fair value of
the Tenaris' share of net assets acquired as part of business combinations. In
accordance with IFRS 3, beginning January 1, 2005, goodwill is considered to
have an indefinite life and is not amortized, but is subject to annual
impairment testing. In the event of impairment, impairment losses on goodwill
are not reversed. No impairment losses related to goodwill were recorded by
Tenaris during the three years covered by these financial statements. Goodwill
is included in `Intangible assets, net' on the balance sheet.
Goodwill is allocated to cash-generating units for the purpose of impairment
testing. The allocation is made to those cash-generating units expected to
benefit from the business combination which generated the goodwill being tested.
Negative goodwill represents an excess of the fair value of identifiable net
assets acquired in a business combination over the cost of the acquisition. IFRS
3 requires negative goodwill to be recognized immediately as a gain in the
income statement.
6
F Intangible assets (Cont'd.)
(1) Goodwill (Cont'd.)
During 2004 International Financial Reporting Standard (IFRS) 3, "Business
Combinations" was issued, which was applied by Tenaris for all business
combinations that occurred after March 31, 2004.
As per this standard, prior to January 1, 2005 goodwill was amortized on a
straight line basis over its estimated useful life, not to exceed 15 years, and
tested for impairment at each balance sheet date in the event indicators of
impairment were present. As required by IFRS 3, Tenaris ceased amortization of
goodwill for periods beginning on or after January 1, 2005. In addition,
accumulated amortization as of December 31, 2004 has been netted against the
cost of the goodwill. For years ending on or after December 31, 2005 goodwill is
required to be tested annually for impairment, as well as when there are
indicators of impairment. Amortization of goodwill expense included in the year
ended December 31, 2004 amounted to $9.4 million.
Upon the adoption of IFRS 3, which must be adopted together with the revised IAS
38, Intangible Assets, and IAS 36, Impairment of Assets, previously accumulated
negative goodwill is required to be derecognized through an adjustment to
retained earnings. The derecognition of negative goodwill in this manner
resulted in an increase of $110.8 million in the opening balance of the
Company's equity at January 1, 2005. Amortization of negative goodwill in income
amounted to $9.0 million in the year ended December 31, 2004.
(2) Information systems projects
Costs associated with developing or maintaining computer software programs are
generally recognized as an expense as incurred. However, costs directly related
to the development, acquisition and implementation of information systems are
recognized as intangible assets if it is probable they have economic benefits
exceeding one year.
Information systems projects recognized as assets are amortized using the
straight-line method over their useful lives, not exceeding a period of 3 years.
Amortization charges are classified as Selling, general and administrative
expenses in the income statement.
(3) Licenses, patent and trademarks
Expenditures on acquired patents, trademarks, technology transfer and licenses
are capitalized and amortized using the straight-line method over their
estimated useful lives, not exceeding a period of 3 years. o (4) Research and
development
Research expenditures as well as development costs that do not fulfill the
criteria for capitalization are recorded as cost of sales in the income
statement as incurred. Research and development expenditures included in cost of
sales for the years 2006, 2005 and 2004 totaled $46.9 million , $34.7 million
and $26.3 million, respectively.
(5) Customer relationships intangible asset acquired in a business combination
In accordance with IFRS 3 and IAS 38, Tenaris has recognized the value of
customer relationships separately from goodwill attributable to the acquisition
of Maverick, as further disclosed in Note 28.
Customer relationships are amortized over a useful average life of approximately
14 years.
7
G Impairment of non financial assets
In accordance with IFRS 3 (Business Combinations) and the related revised
versions of IAS 36 (Impairment of Assets) and IAS 38 (Intangible Assets),
long-lived assets, including identifiable intangible assets and goodwill are
regularly reviewed for impairment.
Intangible assets with indefinite life, including goodwill, are subject to at
least an annual impairment test for possible impairment whereas, the remaining
long lived assets are tested whenever events or changes in circumstances
indicate that the balance sheet carrying amount of the asset may not be
recoverable.
To carry out these tests, assets are grouped into cash generating units (CGUs).
The value in use of these units is determined on the basis of the present value
of net future cash flows which will be generated by the assets tested. Cash
flows are discounted at discount rates that reflects specific country and
currency risks.
H Other Investments
Other investments consist primarily of investments in financial debt
instruments.
All of Tenaris investments are classified as financial assets "at fair value
through profit or loss". As explained in section IV, Tenaris applied the
transition provisions of IAS 39 and designated as "financial assets carried at
fair value through profit or loss" the investments that were previously
recognized as "available-for-sale".
Purchases and sales of financial investments are recognized as of the trade
date, which is the date that Tenaris commits to purchase or sell the investment,
and which is not significantly different from the actual settlement date. The
change in fair value of financial investments designated as held at fair value
through profit or loss is charged to Financial results in the income statement.
Income from financial investments is recognized in Financial results in the
income statement. Interest receivable on investments in debt securities is
calculated using the effective interest method.
The fair values of quoted investments are based on current mid prices. If the
market for a financial investment is not active or the securities are not
listed, Tenaris estimates fair value by using standard valuation techniques.
I Inventories
Inventories are stated at the lower of cost (calculated principally on the
first-in-first-out "FIFO" method) and net realizable value. The cost of finished
goods and goods in process is comprised of raw materials, direct labor, other
direct costs and related production overhead costs. Tenaris estimates net
realizable value of inventories item by item or by grouping, where applicable,
similar or related items. Net realizable value is the estimated selling price in
the ordinary course of business, less any estimated costs of completion and
selling expenses. Goods in transit at year end are valued at supplier invoice
cost.
Tenaris establishes an allowance for obsolete or slow-moving inventory related
to finished goods, supplies and spare parts. For slow moving or obsolete
finished products, an allowance is established for based on management's
analysis of product aging. An allowance for slow-moving inventory of supplies
and spare parts is established based on management's analysis of such items to
be used as intended and the consideration of potential obsolescence due to
technological changes.
J Trade receivables
Trade receivables are recognized initially at fair value, generally original
invoice amount. Tenaris analyzes its trade accounts receivable on a regular
basis and, when aware of a specific client's difficulty or inability to meet its
obligations to Tenaris, impairs any amounts due by means of a charge to an
allowance for doubtful accounts receivable. Additionally, this allowance is
adjusted periodically based on the aging of receivables.
8
K Cash and cash equivalents
Cash and cash equivalents are comprised of cash in banks, short-term money
market funds and highly liquid short-term securities with a maturity of less
than 90 days at the date of purchase. Assets recorded in cash and cash
equivalents are carried at fair market value, or at historical cost which
approximates fair market value.
For the purposes of the cash flow statement, cash and cash equivalents is
comprised of cash, bank accounts and short-term highly liquid investments and
overdrafts.
On the balance sheet, bank overdrafts are included in borrowings in current
liabilities.
L Shareholders' Equity
(1) Basis of presentation
The consolidated statement of changes in equity includes:
o The value of share capital, legal reserve, share premium and other
distributable reserve calculated in accordance with Luxembourg Law;
o The currency translation adjustments, retained earnings, minority
interest and other reserves calculated in accordance with IFRS;
(2) Share Capital
Ordinary shares are classified as equity.
(3) Dividends Paid by Tenaris to Shareholders
Dividends payable are recorded in Tenaris' financial statements in the year in
which they are approved by the Company's shareholders, or when interim dividends
are approved by the Board of Directors in accordance with the by-laws of the
Company.
Dividends may be paid by Tenaris to the extent that it has distributable
retained earnings, calculated in accordance with Luxembourg law. As a result,
retained earnings included in the consolidated financial statements may not be
wholly distributable. See Note 26.
M Borrowings
Borrowings are recognized initially for an amount equal to the proceeds received
net of transaction costs. In subsequent years, borrowings are stated at
amortized cost.
N Income Taxes - Current and Deferred
Under present Luxembourg law, the Company is not subject to income tax,
withholding tax on dividends paid to shareholders or capital gains tax payable
in Luxembourg as long as the Company maintains its status as a "1929 Holding
Billionaire Company". Following a previously announced decision by the European
Commission, the Grand-Duchy of Luxembourg has terminated its 1929 holding
company regime, effective January 1, 2007. However, under the implementing
legislation, pre-existing publicly listed companies -including Tenaris- will be
entitled to continue benefiting from their current tax regime until December 31,
2010.
The current income tax charge is calculated on the basis of the tax laws in
effect in the countries where the Company's subsidiaries operate and generate
taxable income. Management periodically evaluates positions taken in tax returns
with respect to situations in which applicable tax regulations are subject to
interpretation and establishes provisions when appropriate.
9
N Income Taxes - Current and Deferred (Cont.)
Deferred income taxes are calculated applying 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 fair value adjustments of assets acquired in business
combinations, the effect of currency translation on fixed assets, depreciation
on property, plant and equipment, valuation of inventories and provisions for
pensions. Deferred tax assets are also recognized for net operating loss
carry-forwards. Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the time period when the asset is realized
or the liability is expected to be settled, based on tax laws that have been
enacted or substantively enacted by 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 recognized deferred tax assets
against such income.
O Employee-related liabilities
(a) Employee severance indemnity
Employee severance indemnity costs are assessed annually using the projected
unit credit method. Employee severance indemnity obligations are measured at the
present value of the estimated future cash outflows, based on actuarial
calculations provided by independent advisors and in accordance with current
legislation and labor contracts in effect in each respective country. The cost
of this obligation is charged to the income statement over the expected service
lives of employees.
This provision is primarily related to the liability accrued for employees at
Tenaris' Italian and Mexican subsidiaries.
(b) Defined benefit pension obligations
Certain officers of Tenaris are covered by defined benefit employee retirement
plans designed to provide post-retirement, termination and other benefits.
Post-retirement costs are assessed using the projected unit credit method.
Post-retirement obligations are measured at the present value of the estimated
future cash outflows, based on actuarial calculations provided by independent
advisors.
Benefits provided under one of Tenaris's plans are provided in U.S. dollars, and
are calculated based on seven-year salary averages. Tenaris accumulates assets
for the payment of benefits expected to be disbursed by this plan in the form of
investments that are subject to time limitations for redemption. These
investments are neither part of a specific pension plan nor are they segregated
from Tenaris' other assets. As a result, this plan is considered to be
"unfunded" under IFRS definitions.
In its newly acquired Canadian subsidiary (Prudential Steel Ltd.) Tenaris
sponsors funded and unfunded non-contributory defined benefit pension plans that
cover substantially all of the employees of its company. The plans provide
defined benefits based on years of service and, in the case of salaried
employees, final average salary. In addition Tenaris provides an unfunded
non-contributory post-employment benefits plan to retirees from salaried
employment.
Certain other officers and former employees of one specific Tenaris subsidiary
are covered by a separate plan defined as "funded" under IFRS definitions.
All of Tenaris' plans recognize actuarial gains and losses over the average
remaining service lives of employees.
10
O Employee-related liabilities (Cont.)
(c) Other compensation obligations
Employee entitlements to annual leave and long-service leave are 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.
P Employee statutory profit sharing
Under Mexican law, the Company's Mexican subsidiaries are required to pay their
employees an annual benefit calculated on a basis similar to that used for local
income tax purposes. Employee statutory profit sharing is calculated using the
liability method, and is recorded in Current other liabilities and Non-current
other liabilities on the balance sheet. Because Mexican employee statutory
profit sharing is determined on a basis similar to that used for determining
local income taxes, Tenaris accounts for temporary differences arising between
the statutory calculation and reported expense as determined under IFRS in a
manner similar to the calculation of deferred income tax.
Q Provisions and other liabilities
Tenaris is subject to various claims, lawsuits and other legal proceedings,
including customer claims, in which a third party is seeking payment for alleged
damages, reimbursement for losses or indemnity. Tenaris' potential liability
with respect to such claims, lawsuits and other legal proceedings cannot be
estimated with certainty. Management periodically reviews the status of each
significant matter and assesses potential financial exposure. If a potential
loss from a claim or proceeding is considered probable and the amount can be
reasonably estimated, a liability is recorded. Accruals for loss contingencies
reflect a reasonable estimate of the losses to be incurred based on information
available to management as of the date of preparation of the financial
statements, and take into consideration Tenaris' litigation and settlement
strategies. These estimates are primarily constructed with the assistance of
legal counsel. As the scope of liabilities become better defined, there may be
changes in the estimates of future costs which could have a material adverse
effect on its results of operations, financial condition and net worth.
If Tenaris expects to be reimbursed for an accrued expense, as would be the case
for an expense or loss covered under an insurance contract, and reimbursement is
considered virtually certain, the expected reimbursement is recognized as a
receivable.
R Revenue recognition
Tenaris' products and services are sold based upon purchase orders, contracts or
upon other persuasive evidence of an arrangement with customers, including that
the sales price is known or determinable. Sales are recognized as revenue upon
delivery and when collection is reasonably assured. Delivery is defined by the
transfer of risk provision of sales contracts and may include delivery to a
storage facility located at one of the Company's subsidiaries.
Other revenues earned by Tenaris are recognized on the following bases:
o Interest income: on the effective yield basis.
o Dividend income from investments in other companies: when Tenaris'
right to collect is established.
S Cost of sales and sales expenses
Cost of sales and sales expenses are recognized in the income statement on the
accrual basis of accounting.
Commissions, freight and other selling expenses, including shipping and handling
costs, are recorded in Selling, general and administrative expenses in the
income statement.
11
T Earnings per share
Earnings per share are calculated by dividing the net income attributable to
equity holders of the Company by the daily weighted average number of common
shares outstanding during the year.
U Derivative financial instruments
Accounting for derivative financial instruments and hedging activities is
included within the Section III, "Financial Risk Management".
III. FINANCIAL RISK MANAGEMENT
The multinational nature of Tenaris' operations and customer base expose the
company to a variety of risks, including the effects of changes in foreign
currency exchange rates and interest rates. To manage the volatility related to
these exposures, management evaluates exposures on a consolidated basis to take
advantage of logical exposure netting. For a portion of the remaining exposures,
the Company or its subsidiaries may enter into various derivative transactions
in order to manage potential adverse impacts on the Tenaris' financial
performance. Such derivative transactions are executed in accordance with
internal policies in areas such as counterparty exposure and hedging practices.
A. Financial Risk Factors
(i) Foreign exchange rate risk management
Tenaris manufactures and sells its products in a number of countries throughout
the world and as a result is exposed to foreign exchange rate risk. The purpose
of Tenaris' foreign currency hedging program is to reduce the risk caused by
short-term changes in exchange rates.
Tenaris aims to neutralize the potential negative impact of currency
fluctuations in the value of other currencies with respect to the dollar.
Because a number of subsidiaries have functional currencies other than the U.S.
dollar, the results of hedging activities as reported in accordance with IFRS
may not reflect management's assessment of its foreign exchange risk hedging
program.
(ii) Interest rate risk management
Tenaris' financing strategy is to manage interest expense using a mixture of
fixed-rate and variable-rate debt. To manage this risk in a cost efficient
manner, Tenaris enters into interest rate swaps in which it agrees to exchange
with the counterparty, at specified intervals, the difference between fixed and
variable interest amounts calculated by reference to an agreed-upon notional
principal amount. Tenaris have entered into interest rate swaps related to
long-term debt to partially hedge future interest payments, as well as to
convert borrowings from floating to fixed rates.
(iii) Concentration of credit risk
No single customer comprised more than 10% of our net sales in 2006.
Tenaris' credit policies related to sales of products and services are designed
to identify customers with acceptable credit history, and to allow Tenaris to
require the use of credit insurance, letters of credit and other instruments
designed to minimize credit risk whenever deemed necessary. Tenaris maintains
allowances for impairment for potential credit losses.
Derivative counterparties and cash transactions are limited to high credit
quality financial institutions. Tenaris has established strict counterparty
credit guidelines and normally enter into transactions with investment grade
financial institutions.
(iv) Liquidity risk
Management maintains sufficient cash and marketable securities or credit
facilities to finance normal operations. Tenaris also has committed credit
facilities and has access to the market for adequately backup its short-term
working capital needs.
B. Fair value estimation
12
For purposes of estimating the fair value of financial assets and liabilities
with maturities of less than one year, the market value was considered.
Most borrowings are comprised of variable rate debt or fixed rate debt that in
general terms are comparable to market rate. As a result, the fair value of
Tenaris' borrowings approximates its current amounts and is not disclosed
separately.
C. ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Derivative financial instruments are initially recognized in the balance sheet
at fair value on the date a derivative contract is entered into and are
subsequently remeasured at fair value. As a general rule, Tenaris recognizes the
full amount related to the change in fair value of derivative financial
instruments in Financial results in the income for the year.
Beginning January 1, 2006, Tenaris has adopted hedge accounting treatment, as
established by IAS 39, for certain qualifying derivative financial instruments.
These transactions are classified as cash flow hedges (mainly currency forward
contracts on highly probable forecast transactions and interest rate swaps and
collars). The effective portion of the fair value of derivatives that are
designated and qualify as cash flow hedges is recognized in equity. Amounts
accumulated in equity are recognized in the income statement in the same period
than any offsetting losses and gains on the hedged item. The gain or loss
relating to the ineffective portion is recognized immediately in the income
statement. The fair value of Tenaris derivative financial instruments (asset or
liability) continues to be reflected on the Balance Sheet.
For transactions designated and qualifying for hedge accounting, <180>Tenaris
documents at the inception of the transaction the relationship between hedging
instruments and hedged items, as well as its risk management objectives and
strategy for undertaking various hedge transactions. At December 31, 2006, the
effective portion of designated cash flow hedges amounts to $2.1 million and is
included in Other Reserves in equity.
Tenaris does not hold or issue derivative financial instruments for speculative
trading purposes.
IV. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Standards early adopted by Tenaris
IFRS 8 "Operating Segments" replaces IAS 14 and requires an entity to report
financial and descriptive information about its reportable segments (as
aggregations of operating segments). Financial information is required to be
reported on the same basis as is used internally for evaluating operating
segment performance and deciding how to allocate resources to operating segments
also giving certain descriptive information. See Section II C.
13
Interpretations and amendments to published standards effective in 2006
(a) IAS 19, Employee Benefits: Actuarial Gains and Losses, Group Plans and
Disclosures (Amendment)
On December 16, 2004, the International Accounting Standards Board ("IASB")
issued International Accounting Standard No. 19, "Employee Benefits:
Actuarial Gains and Losses, Group Plans and Disclosures (Amendment)" ("IAS
19"). IAS 19 gives entities the option to recognize actuarial gains and
losses in full during the period in which they occur, outside of profit and
loss, in the statement of recognized income and expense. Previously,
entities were only permitted to recognize actuarial gains and losses in
profit and loss either (1) in the period in which they occur or (2) spread
over the service life of employees. As Tenaris does not intend to change
the accounting policy adopted for recognition of actuarial gains and
losses, this amendment did not impact in the Company Financial Statements.
(b) IAS 21, The Effects of Changes in Foreign Exchange Rates - Net Investment
in Foreign Operations
In December 2005, the IASB issued an amendment to IAS 21, The Effects of
Changes in Foreign Exchange Rates - Net Investment in Foreign Operations.
The amendment clarifies the requirements of IAS 21 regarding an entity's
investment in foreign operations. As per the amendment, the entity that has
a monetary item that is, in substance, a part of the entity's net
investment in that foreign operation may be any subsidiary of the group.
Exchange differences on such monetary items are reclassified to the
separate component of equity in the financial statements that include the
foreign operation and the reporting entity. The application of this
amendment from January 1, 2006 did not have a material impact in the
Company's financial statements.
Management assessed the relevance of other new standards, amendments or
interpretations and concluded that they are not relevant to Tenaris.
Interpretations and amendments to published standards that are not yet effective
and have not been early adopted
(a) IFRS 7, Financial Instruments: Disclosure, and a complementary amendment to
IAS 1, presentation of financial statements - Capital disclosure
IFRS 7 introduces new disclosures about financial instruments such as
qualitative and quantitative information about exposures to risks arising
from financial instruments. Tenaris will apply IFRS 7 and the amendment to
IAS 1 for annual periods beginning on January 1, 2007.
(b) IFRIC 9, Reassessment of Embedded Derivatives
IFRIC 9 requires an entity to assess whether an embedded derivative is
required to be separated from the host contract and accounted for as a
derivative when the entity first becomes a party to the contract.
Subsequent reassessment is prohibited unless there is a significant change
in the terms of the contract.
(c) IFRIC 10, Interim Financial Reporting and Impairment
Under this interpretation, no reversal to an impairment loss recognized in
an interim period in respect of goodwill or an investment in either an
equity instrument or a financial asset carried at cost is allowed.
Tenaris will apply IFRIC 10 from January 1, 2007, but it is not expected to
have any impact on the Company's financial statements.
Management assessed the relevance of other new standards, amendments or
interpretations not yet effective and concluded that they are not relevant to
Tenaris.
14
V. OTHER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In the notes all amount are shown in thousands of U.S. dollars, unless
otherwise stated)
1 Segment information
Reportable operating segments
------------------------------------------------------------------------------
(all amounts in thousands of U.S. Total Total
dollars) Continuing Discontinued
Tubes Projects Other Unallocated operations operations (*)
------------------------------------------------------------------------------
Year ended December 31, 2006
Net sales 6,824,338 453,536 449,871 - 7,727,745 503,051
Cost of sales (3,231,568) (326,402) (326,256) - (3,884,226) (486,312)
------------------------------------------------------------------------------
Gross profit 3,592,770 127,134 123,615 - 3,843,519 16,739
Selling, general and administrative
expenses (923,328) (71,546) (59,932) (1,054,806) (8,025)
Other operating income (expenses), net 1,022 749 2,002 - 3,773 2,469
------------------------------------------------------------------------------
Operating income 2,670,464 56,337 65,685 - 2,792,486 11,183
Segment assets 10,807,344 803,060 561,879 422,959 12,595,242 -
Segment liabilities 6,242,969 448,493 202,150 - 6,893,612 -
Capital expenditures 408,965 23,979 7,507 - 440,451 1,021
Acquisition of property, plant and
equipment and intangible assets due to
business combination 3,178,735 - - - 3,178,735
Depreciation and amortization 220,368 19,345 13,394 - 253,107 1,897
Year ended December 31, 2005
Net sales 5,123,975 789,989 295,827 - 6,209,791 526,406
Cost of sales (2,720,719) (520,404) (188,242) - (3,429,365) (513,393)
------------------------------------------------------------------------------
Gross profit 2,403,256 269,585 107,585 - 2,780,426 13,013
Selling, general and administrative
expenses (699,817) (88,422) (44,076) - (832,315) (10,259)
Other operating income (expenses), net (1,908) (1,587) 1,296 - (2,199) (220)
------------------------------------------------------------------------------
Operating income 1,701,531 179,576 64,805 - 1,945,912 2,534
Segment assets 5,404,745 540,187 356,843 257,234 6,559,009 147,019
Segment liabilities 2,414,899 212,917 178,049 - 2,805,865 124,290
Capital expenditures 252,974 25,101 5,020 - 283,095 1,379
Acquisition of property, plant and
equipment and intangible assets due to
business combination 67,980 - - - 67,980 -
Depreciation and amortization 182,478 15,545 13,690 - 211,713 2,514
Year ended December 31, 2004
Net sales 3,273,267 280,082 164,844 - 3,718,193 417,870
Cost of sales (2,075,151) (184,767) (118,556) - (2,378,474) (398,462)
------------------------------------------------------------------------------
Gross profit 1,198,116 95,315 46,288 - 1,339,719 19,408
Selling, general and administrative
expenses (571,871) (58,317) (31,038) - (661,226) (11,223)
Other operating income (expenses), net 124,764 (2) 2,403 - 127,165 (325)
------------------------------------------------------------------------------
Operating income 751,009 36,996 17,653 - 805,658 7,860
Segment assets 4,626,329 508,841 305,821 99,451 5,540,442 121,846
Segment liabilities 2,435,933 309,470 133,644 - 2,879,047 122,046
Capital expenditures 149,326 23,276 9,272 - 181,874 1,438
Acquisition of property, plant and
equipment and intangible assets due to
business combination 191,097 - - - 191,097 -
Depreciation and amortization 185,118 12,082 7,365 - 204,565 3,554
Transactions between segments, which were eliminated in consolidation,
include sales of scrap and pipe protectors from the Others segment to tubes
units for $88,118, $41,163 and $36,765 in 2006, 2005 and 2004, respectively.
15
1 Segment information (Cont'd.)
Geographical information
--------------------------------------------------------------------------------------------
(all amounts in thousands of Total
U.S. dollars) Middle Far Total Discontinued
North South East & East & Continuing operations
America America Europe Africa Oceania Unallocated operations (*)
--------------------------------------------------------------------------------------------
Year ended December 31, 2006
Net sales 2,182,936 1,520,210 1,398,458 1,957,707 668,434 - 7,727,745 503,051
Total assets 6,334,226 2,780,977 2,045,856 623,572 387,652 422,959 12,595,242 -
Trade receivables 425,734 189,779 392,060 519,022 98,646 - 1,625,241 -
Property. plant and
equipment, net 1,209,277 864,425 787,058 2,813 75,668 - 2,939,241 -
Capital expenditures 121,976 145,956 137,608 367 34,544 - 440,451 1,021
Acquisition of property,
plant and equipment and
intangible assets due to
business combination 3,096,445 73,426 8,864 - - - 3,178,735 -
Depreciation and amortization 98,967 90,224 57,037 780 6,099 - 253,107 1,897
Year ended December 31, 2005
Net sales 1,708,126 1,823,735 1,043,801 959,020 675,109 - 6,209,791 526,406
Total assets 2,213,075 2,089,419 1,355,615 289,363 354,303 257,234 6,559,009 147,019
Trade receivables 310,153 358,859 147,983 255,379 134,402 - 1,206,776 117,395
Property. plant and
equipment, net 787,937 740,391 643,656 3,583 49,235 - 2,224,802 5,236
Capital expenditures 64,274 109,180 103,286 1,498 4,857 - 283,095 1,379
Acquisition of property,
plant and equipment and
intangible assets due to
business combination - - 67,980 - - - 67,980 -
Depreciation and amortization 49,038 87,430 68,608 404 6,233 - 211,713 2,514
Year ended December 31, 2004
Net sales 1,140,326 824,800 818,925 524,874 409,268 - 3,718,193 417,870
Total assets 1,596,464 1,771,318 1,686,529 109,266 277,414 99,451 5,540,442 121,846
Trade receivables 295,896 143,731 254,642 81,369 69,307 - 844,945 91,986
Property. plant and
equipment, net 737,507 728,468 629,759 4,645 58,042 - 2,158,421 6,180
Capital expenditures 64,845 83,003 28,256 2,257 3,513 - 181,874 1,438
Acquisition of property,
plant and equipment and
intangible assets due to
business combination - 121,145 69,952 - - - 191,097 -
Depreciation and amortization 41,986 89,934 64,878 35 7,732 - 204,565 3,554
There are no revenues from external customers attributable to the Company's
country of incorporation (Luxembourg).The South American segment comprises
principally Argentina, Brazil and Venezuela. The European segment comprises
principally France, Germany, Italy, Norway, Romania and the United Kingdom,. The
North American segment comprises Canada, Mexico and USA. The Middle East and
Africa segment comprises principally Egypt, Nigeria, Saudi Arabia and United
Arab Emirates. The Far East and Oceania segment comprises principally China,
Indonesia, Japan and South Korea.
(*) Corresponds to Dalmine Energie operations.
16
2 Cost of sales
Year ended December 31,
--------------------------------------------------
(all amounts in thousands of U.S. dollars) 2006 2005 2004
--------------------------------------------------
Inventories at the beginning of the year 1,376,113 1,269,470 831,879
Plus: Charges of the year
Raw materials, energy, consumables and other 3,514,396 2,954,580 2,244,073
Increase in inventory due to business combinations 592,341 5,500 25,278
Services and fees 384,223 324,799 259,025
Labor cost 512,854 420,714 369,681
Depreciation of property, plant and equipment 187,564 182,696 174,880
Amortization of intangible assets 2,738 5,025 12,748
Maintenance expenses 120,664 99,171 82,323
Provisions for contingencies (87) 200 994
Allowance for obsolescence (8,006) 20,303 23,167
Taxes 4,568 3,170 3,088
Other 55,478 33,243 19,270
--------------------------------------------------
5,366,733 4,049,401 3,214,527
Less: Inventories at the end of the year (2,372,308) (1,376,113) (1,269,470)
--------------------------------------------------
4,370,538 3,942,758 2,776,936
--------------------------------------------------
From Discontinued operations (486,312) (513,393) (398,462)
--------------------------------------------------
3,884,226 3,429,365 2,378,474
--------------------------------------------------
3 Selling, general and administrative expense
Year ended December 31,
(all amounts in thousands of U.S. dollars) 2006 2005 2004
--------------------------------------------------
Services and fees 133,304 122,953 121,269
Labor cost 279,768 214,216 157,114
Depreciation of property, plant and equipment 9,926 10,319 10,218
Amortization of intangible assets 54,776 16,187 10,273
Commissions, freight and other selling expenses 361,655 298,101 250,085
Provisions for contingencies 13,881 14,855 12,142
Allowances for doubtful accounts 1,199 7,069 7,187
Taxes 122,789 93,782 59,256
Other 85,533 65,092 44,905
--------------------------------------------------
1,062,831 842,574 672,449
From Discontinued operations (8,025) (10,259) (11,223)
--------------------------------------------------
1,054,806 832,315 661,226
--------------------------------------------------
4 Labor costs (included in Cost of sales and Selling, general and
administrative expenses)
Year ended December 31,
(all amounts in thousands of U.S. dollars) 2006 2005 2004
--------------------------------------------------
Wages, salaries and social security costs 778,573 622,523 509,572
Employees' severance indemnity 11,588 10,617 12,907
Pension benefits - defined benefit plans 2,461 1,790 4,316
--------------------------------------------------
792,622 634,930 526,795
From Discontinued operations (4,898) (5,356) (3,673)
--------------------------------------------------
787,724 629,574 523,122
--------------------------------------------------
At the year-end, the number of employees was 21,751 in 2006, 17,693 in 2005 and
16,447 in 2004.
17
5 Other operating items
Year ended December 31,
(all amounts in thousands of U.S. dollars) 2006 2005 2004
----------------------------------
(i) Other operating income
Reimbursement from insurance companies and other third parties 1,611 1,966 3,165
Net income from other sales 4,512 5,767 16,063
Net income from sale of investments 6,933 - -
Net rents 2,490 2,501 1,362
Fintecna arbitration award, net of legal expenses, related to BHP proceedings - 1,752 123,000
Power plants - reimbursement from supplier - - 9,001
Other - 410 -
----------------------------------
15,546 12,396 152,591
From Discontinued operations (2,469) - -
----------------------------------
13,077 12,396 152,591
----------------------------------
(ii) Other operating expenses
Contributions to welfare projects and non-profits organizations 4,463 2,532 2,290
Provisions for legal claims and contingencies - 8,694 -
Loss on disposal of fixed assets and material supplies 1,424 2,146 -
Allowance for doubtful receivables (375) 1,443 2,104
Power plants - impairment and associated charges - - 18,447
Other 3,792 - 2,910
----------------------------------
9,304 14,815 25,751
From Discontinued operations - (220) (325)
----------------------------------
9,304 14,595 25,426
----------------------------------
6 Financial results
(all amounts in thousands of U.S. dollars) Year ended December 31,
2006 2005 2004
------------------------------------
Interest income 61,401 24,268 14,247
Interest expense (93,638) (53,504) (46,930)
------------------------------------
Interest net (32,237) (29,236) (32,683)
Net foreign exchange transaction gains/(losses) 29,129 (86,618) 33,127
Other (1,828) 6,116 5,358
------------------------------------
Other financial results 27,301 (80,502) 38,485
------------------------------------
Net financial results (4,936) (109,738) 5,802
From Discontinued operations (16) 1,152 577
------------------------------------
(4,952) (108,586) 6,379
------------------------------------
Each item included in this note differs from its corresponding line in the
income statement because it includes discontinued operations' results. 7 Equity
in earnings of associated companies
Year ended December 31,
(all amounts in thousands of U.S. dollars) 2006 2005 2004
------------------------------------
Equity in earnings of associated companies 95,260 117,003 123,015
Change in fair value of convertible debt option in Amazonia - - 83,126
Other (593) 374 -
------------------------------------
94,667 117,377 206,141
------------------------------------
18
8 Income tax
Year ended December 31,
(all amounts in thousands of U.S. dollars) 2006 2005 2004
---------------------------------------------------
Current tax 897,427 637,623 277,219
Deferred tax (17,386) (61,837) (44,731)
---------------------------------------------------
880,041 575,786 232,488
Effect of currency translation on tax base (a) (6,060) (7,033) (12,112)
---------------------------------------------------
873,981 568,753 220,376
From Discontinued operations (4,004) (1,385) (3,150)
---------------------------------------------------
869,977 567,368 217,226
---------------------------------------------------
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,
(all amounts in thousands of U.S. dollars) 2006 2005 2004
---------------------------------------------------
Income before income tax 2,882,201 1,954,703 1,018,178
---------------------------------------------------
Tax calculated at the tax rate in each country 901,580 591,167 265,837
Non taxable income / Non deductible expenses (32,562) (32,807) (10,518)
Changes in the tax rates in Mexico - - (25,886)
Effect of currency translation on tax base (a) (6,060) (7,033) (12,112)
Effect of taxable exchange differences 10,069 17,087 10,742
Utilization of previously unrecognized tax losses (3,050) (1,046) (10,837)
---------------------------------------------------
Tax charge 869,977 567,368 217,226
---------------------------------------------------
(a) Tenaris applies the liability method to recognize deferred income tax
expense on temporary differences between the tax bases of assets and their
carrying amounts in the financial statements. By application of this
method, Tenaris recognizes gains and losses on deferred income tax due to
the effect of the change in the value of the Argentine peso on the tax
bases of the fixed assets of its Argentine subsidiaries, which have the
U.S. dollar as their functional currency. These gains and losses are
required by IFRS even though the devalued tax basis of the relevant assets
will result in a reduced dollar value of amortization deductions for tax
purposes in future periods throughout the useful life of those assets. As a
result, the resulting deferred income tax charge does not represent a
separate obligation of Tenaris that is due and payable in any of the
relevant periods.
9 Earnings and dividends per share
Earnings per share are calculated by dividing the net income
attributable to equity holders of the Company by the daily weighted
average number of ordinary shares in issue during the year.
Year ended December 31,
2006 2005 2004
---------------------------------------------------
Net income attributable to equity holders 1,945,314 1,277,547 784,703
Weighted average number of ordinary shares in issue 1,180,537 1,180,537 1,180,507
Basic and diluted earnings per share 1.65 1.08 0.66
Basic and diluted earnings per ADS 3.30 2.16 1.33
Dividends paid (204,233) (349,439) (135,053)
Dividends per share 0.17 0.30 0.11
Dividends per ADS 0.35 0.59 0.23
Net income from discontinued operations 47,180 (3) 4,029
Basic and diluted earnings per share 0.04 0.00 0.00
Basic and diluted earnings per ADS 0.08 0.00 0.01
The shareholders' meeting held on June 7, 2006 approved the payment of a
dividend in the amount of $0.30 per share or approximately $354.1 million,
corresponding to operating results for 2005. This amount included the interim
dividend paid in November, 2005, in the amount of $0.127 per share or
approximately $149.9 million. Tenaris paid the balance of the annual dividend
amounting to approximately $204.2 million corresponding to $0.173 per share
during 2006. During 2005 Tenaris paid $199.5 million corresponding to $0.169 per
share.
The ratio of ordinary shares per American Depositary Shares (ADSs) was changed
from a ratio of one ADS equal to ten ordinary shares to a new ratio of one ADS
equal to two ordinary shares. The implementation date for this change was April
26, 2006, for shareholders of record at April 17, 2006. Earnings per ADS
reflected above have been adjusted for this change in the conversion ratio.
19
10 Property, plant and equipment, net
Vehicles,
Land, Plant and furniture Spare
building and production and Work in parts and
Year ended December 31, 2006 improvements equipment fixtures progress equipment Total
------------------------------------------------------------------------
Cost
Values at the beginning of the year 408,191 5,442,181 126,315 173,715 24,237 6,174,639
Translation differences 9,741 124,256 3,784 16,450 1,047 155,278
Additions 6,527 14,030 931 387,516 5,400 414,404
Disposals / Consumptions (11,842) (34,608) (5,434) (21) (12,559) (64,464)
Transfers / Reclassifications 12,633 171,274 19,505 (211,450) 7,731 (307)
Increase due to business combinations (see Note
28) 126,003 277,066 26,581 27,557 3,730 460,937
Disposal due to sale of subsidiaries (8,306) (2,233) (3,509) (924) (1,174) (16,146)
------------------------------------------------------------------------
Values at the end of the year 542,947 5,991,966 168,173 392,843 28,412 7,124,341
------------------------------------------------------------------------
Depreciation
Accumulated at the beginning of the year 136,231 3,700,676 100,823 - 6,871 3,944,601
Translation differences 1,865 56,212 2,197 - 330 60,604
Depreciation charge 11,094 174,279 11,332 - 785 197,490
Disposal due to sale of subsidiaries (1,478) (1,562) (2,057) - (651) (5,748)
Disposals / Consumptions (38) (8,941) (2,865) - (3) (11,847)
Transfers / Reclassifications (733) (2,723) 3,470 - (14) -
------------------------------------------------------------------------
Accumulated at the end of the year 146,941 3,917,941 112,900 - 7,318 4,185,100
------------------------------------------------------------------------
At December 31, 2006 396,006 2,074,025 55,273 392,843 21,094 2,939,241
------------------------------------------------------------------------
Vehicles,
Land, Plant and furniture Spare
building and production and Work in parts and
Year ended December 31, 2005 improvements equipment fixtures progress equipment Total
------------------------------------------------------------------------
Cost
Values at the beginning of the year 353,416 5,386,286 118,193 84,942 19,263 5,962,100
Translation differences 5,566 (104,101) (244) 388 (844) (99,235)
Additions 2,722 10,159 2,494 238,314 10,706 264,395
Disposals / Consumptions (2,043) (9,344) (3,322) - (5,119) (19,828)
Transfers / Reclassifications 24,593 118,426 6,843 (150,097) 231 (4)
Increase due to business combinations (see Note
28) 23,937 40,755 2,351 168 - 67,211
--------------------------------------------------------------------------
Values at the end of the year 408,191 5,442,181 126,315 173,715 24,237 6,174,639
--------------------------------------------------------------------------
Depreciation
Accumulated at the beginning of the year 128,148 3,568,058 94,577 - 6,716 3,797,499
Translation differences 1,778 (37,199) (158) - (376) (35,955)
Depreciation charge 13,177 170,491 8,649 - 698 193,015
Disposals / Consumptions (515) (7,047) (2,229) - (167) (9,958)
Transfers / Reclassifications (6,357) 6,373 (16) - - -
--------------------------------------------------------------------------
Accumulated at the end of the year 136,231 3,700,676 100,823 - 6,871 3,944,601
--------------------------------------------------------------------------
At December 31, 2005 271,960 1,741,505 25,492 173,715 17,366 2,230,038
--------------------------------------------------------------------------
Property, plant and equipment include capitalized interest of $19,686. The net
amount at December 31, 2006 is $2,854.
20
11 Intangible assets, net
Year ended December 31, 2006 Information Licenses, Customer
system patents and Goodwill relationships
projects trademarks (a) (a) Total
---------------------------------------------------------------------
Cost
Values at the beginning of the year 129,417 10,285 113,433 - 253,135
Translation differences 5,649 1,000 - - 6,649
Additions 26,137 931 - - 27,068
Increase due to business combinations (see Note 28) 11,811 97,900 1,114,287 1,493,800 2,717,798
Transfers / Reclassifications 307 - - - 307
Disposals (1,165) (18) - - (1,183)
Disposal due to sale of subsidiaries (17,001) (6,958) - - (23,959)
---------------------------------------------------------------------
Values at the end of the year 155,155 103,140 1,227,720 1,493,800 2,979,815
---------------------------------------------------------------------
Amortization and impairment
Accumulated at the beginning of the year 85,164 8,872 - - 94,036
Translation differences 4,175 1,131 - - 5,306
Amortization charge 20,746 9,291 - 27,477 57,514
Transfers / Reclassifications - - - - -
Disposals (1,035) (18) - - (1,053)
Disposal due to sale of subsidiaries (13,971) (6,515) - - (20,486)
---------------------------------------------------------------------
Accumulated at the end of the year 95,079 12,761 - 27,477 135,317
---------------------------------------------------------------------
At December 31,2006 60,076 90,379 1,227,720 1,466,323 2,844,498
---------------------------------------------------------------------
Year ended December 31, 2005 Information Licenses and Goodwill Negative Total
system projects patents (a) goodwill (a)
---------------------------------------------------------------------
Cost
Values at the beginning of the year 114,584 11,028 112,664 (133,886) 104,390
Effect of adopting IFRS 3 - - - 133,886 133,886
Translation differences (4,148) (1,172) - - (5,320)
Additions 19,278 801 - - 20,079
Increase due to business combinations (see Note 28) - - 769 - 769
Transfers / Reclassifications 4 - - - 4
Disposals (301) (372) - - (673)
---------------------------------------------------------------------
Values at the end of the year 129,417 10,285 113,433 - 253,135
---------------------------------------------------------------------
Amortization and impairment
Accumulated at the beginning of the year 68,989 9,301 - (23,111) 55,179
Effect of adopting IFRS 3 - - - 23,111 23,111
Translation differences (3,852) (1,066) - - (4,918)
Amortization charge 20,231 981 - - 21,212
Transfers / Reclassifications - - - - -
Disposals (204) (344) - - (548)
---------------------------------------------------------------------
Accumulated at the end of the year 85,164 8,872 - - 94,036
---------------------------------------------------------------------
At December 31,2005 44,253 1,413 113,433 - 159,099
---------------------------------------------------------------------
(a) Corresponds to the Tubes segment
21
11 Intangible assets, net (Cont'd.)
The geographical allocation of goodwill is presented below.
Year ended December 31,
------------------------------------------
2006 2005
------------------------------------------
South America 94,641 93,239
Europe 769 769
North America 1,132,310 19,425
------------------------------------------
1,227,720 113,433
------------------------------------------
Impairment tests for goodwill
Goodwill is tested at the level of the CGUs. Impairment testing of the CGU is
carried out and the value in use determined in accordance with the discounted
cash flow method. In order to perform the test, Tenaris, uses projections for
the next 5 years based on past performance and expectations of market
development. After the fifth year a perpetuity rate with no grow up increase was
utilized. The discount rates used for these tests are based on Tenaris' weighted
average cost of capital adjusted for specific country and currency risks
associated with the cash flow projections. Discount rates used range from 9% to
12%.
No impairment charge resulted from the impairment tests performed.
As explained in Note 28 Tenaris acquired Maverick on October 5, 2006. Goodwill
of $1,113 million arised from this acquisition as the difference between the
acquisition price and the fair value on the acquisition date of the identifiable
tangible and intangible assets and liabilities determined mainly by an
independent valuation. On account of the recent date of the transaction, the
company's fair value is the same as its transaction value. Accordingly, no
impairment needs to be recorded.
12 Investments in associated companies
Year ended December 31,
2006 2005
------------------------------------------
At the beginning of the year 257,234 99,451
Translation differences (4,016) (22,869)
Equity in earnings of associated companies 95,260 117,003
Dividends and distributions received - (59,127)
Reorganization of Dalmine Energie, Lomond and
others 10,014 -
Capitalization of convertible loan in Amazonia 40,505 120,058
Increase in equity reserves in Ternium 23,961 2,718
------------------------------------------
At the end of the year 422,958 257,234
------------------------------------------
The principal associated companies are:
Percentage of ownership and
voting rights at December 31, Value at December 31,
-------------------------------------------------------------
Company Country of incorporation 2006 2005 2006 2005
------------------------------------------------------------------------------------------------------------------------
Ternium S.A. Luxembourg 11.46% 15.00% 408,044 253,796
Dalmine Energie S.p.A. Italy 25.00% 0.00% 8,402 -
Others - - - 6,512 3,438
---------------------------
422,958 257,234
---------------------------
22
12 Investments in associated companies (Cont'd.)
Summarized financial information of each significant associated company,
including the aggregated amounts of assets, liabilities, revenues and profit or
loss is as follows:
Ternium S.A. Dalmine Energie S.p.A. (a)
--------------------------------------------------------------------------------------
2006 2005 2006 2005
------------------------------------------------------------------------------------------------------------------------
Non-current assets 6,124,326 6,116,423 9,174 -
Current assets 2,646,213 2,543,558 227,394 -
--------------------------------------------------------------------------------------
Total assets 8,770,539 8,659,981 236,568 -
--------------------------------------------------------------------------------------
Non-current liabilities 1,875,894 3,690,629 5,017 -
Current liabilities 1,407,504 1,393,433 197,944 -
--------------------------------------------------------------------------------------
Total liabilities 3,283,398 5,084,062 202,961 -
--------------------------------------------------------------------------------------
Minority interest 1,729,583 1,733,465 - -
Revenues 6,568,975 4,447,680 77,847 -
Gross profit 2,267,591 1,976,836 4,271 -
Profit/Loss 795,424 704,406 7,785 -
(a) Corresponds to the result of the one month period ended December 31, 2006.
13 Other investments - non current
Year ended December 31,
2006 2005
--------------------------------------
Deposits with insurance companies 13,937 12,004
Investments in other companies 12,724 12,869
Others 173 774
--------------------------------------
26,834 25,647
--------------------------------------
14 Receivables - non current
Year ended December 31,
2006 2005
--------------------------------------
Government entities 5,798 5,918
Employee advances and loans 7,768 5,053
Tax credits 11,640 6,121
Trade receivables 1,144 1,108
Receivables from related parties 2,829 3,321
Convertible loans - 40,358
Receivables on off- take contract 8,377 9,677
Other 17,802 9,746
--------------------------------------
55,358 81,302
Allowances for doubtful accounts (see Note 23 (i)) (14,120) (15,450)
--------------------------------------
41,238 65,852
--------------------------------------
23
15 Inventories
Year ended December 31,
2006 2005
--------------------------------------
Finished goods 1,060,322 479,756
Goods in process 430,828 404,518
Raw materials 421,322 183,900
Supplies 328,324 241,974
Goods in transit 210,985 151,715
--------------------------------------
2,451,781 1,461,863
Allowance for obsolescence (Note 24 (i)) (79,473) (85,750)
--------------------------------------
2,372,308 1,376,113
--------------------------------------
16 Receivables and prepayments
Year ended December 31,
2006 2005
-------------------------------------
Reimbursements and other receivable 59,346 25,044
Government entities 1,951 19,044
Employee advances and loans 8,677 7,922
Advances to suppliers 123,369 49,219
Other advances 1,531 1,624
Government tax refunds on exports 33,387 16,410
Receivables from related parties 19,160 13,695
Miscellaneous 32,995 23,411
-------------------------------------
280,416 156,369
Allowance for other doubtful accounts (see Note 24 (i)) (7,784) (13,087)
-------------------------------------
272,632 143,282
-------------------------------------
17 Current tax assets
Year ended December 31,
2006 2005
-------------------------------------
V.A.T. credits 123,366 90,000
Prepaid taxes 79,352 12,455
-------------------------------------
202,718 102,455
-------------------------------------
18 Trade receivables
Year ended December 31,
2006 2005
-------------------------------------
Current accounts 1,544,202 1,256,882
Notes receivables 83,906 60,972
Receivables from related parties 19,919 31,279
-------------------------------------
1,648,027 1,349,133
Allowance for doubtful accounts (see Note 24 (i)) (22,786) (24,962)
-------------------------------------
1,625,241 1,324,171
-------------------------------------
24
19 Cash and cash equivalents, and Other investments
Year ended December 31,
2006 2005
-------------------------------------
Other investments
Financial assets 183,604 119,907
-------------------------------------
Cash and cash equivalents
Cash and short - term liquid investments 1,372,329 707,356
-------------------------------------
20 Borrowings
Year ended December 31,
2006 2005
-------------------------------------
Non-Current
Bank borrowings 2,823,052 635,896
Other loans 50,479 38,407
Finance lease liabilities 4,565 5,425
Costs of issue of debt (21,050) (1,616)
-------------------------------------
2,857,046 678,112
Current
Bank Borrowings 707,610 238,510
Other loans 83,942 67,451
Bank Overdrafts 7,300 24,717
Finance lease liabilities 1,384 1,502
Costs of issue of debt (6,039) -
-------------------------------------
794,197 332,180
-------------------------------------
Total Borrowings 3,651,243 1,010,292
-------------------------------------
The maturity of borrowings is as follows:
1 year or 1 - 2 2 - 3 3 - 4 4 - 5 Over 5
less years years years years years Total
------------------------------------------------------------------------------------
At December 31, 2006
Financial lease 1,384 1,116 822 758 663 1,206 5,949
Other borrowings 792,813 803,381 924,647 568,965 507,030 48,458 3,645,294
------------------------------------------------------------------------------------
Total borrowings 794,197 804,497 925,469 569,723 507,693 49,664 3,651,243
------------------------------------------------------------------------------------
Significant borrowings include:
In million of $
---------------------------------------------------------------------------------------------------------------------------
Date Borrower Type Original Principal amount Outstanding principal amount Maturity
---------------------------------------------------------------------------------------------------------------------------
March 2005 Tamsa Syndicated loan 300.0 300.0 March 2010
April 2005 Siderca Syndicated loan 125.0 93.8 April 2008
October 2006 Tenaris S.A. Syndicated loan 500.0 500.0 October 2011
October 2006 Tamsa Syndicated loan 700.0 700.0 October 2011
October 2006 Siderca Syndicated loan 480.5 480.5 October 2009
October 2006 Dalmine Syndicated loan 150.0 150.0 October 2011
October 2006 Algoma Tubes Syndicated loan 100.0 100.0 October 2011
October 2006 Maverick Syndicated loan 750.0 750.0 October 2011
25
20 Borrowings (Cont'd.)
The main covenants on these loan agreements are limitations on liens and
encumbrances, restrictions in investments and capital expenditures, limitations
in the sale of certain assets and compliance with financial ratios (e.g,
leverage ratio and interest coverage ratio calculated on each subsidiary's
financial statements). In addition, Tenaris's loan agreement is secured with a
pledge of a percentage of Maverick's shares, as explained in Note 28. Tenaris is
allowed to make payments such as dividends, repurchase or redemption of shares
up to the greater of $475 million or 25% of consolidated net income for the
previous fiscal year; once the outstanding amount of Tenaris' facility is less
than $425 million, no restrictions will apply.
Tenaris' consolidated debt includes $127 million of Dalmine and $26 million of
Confab secured by certain properties of these subsidiaries.
As of December 31, 2006, Tenaris was in compliance with all of its covenants.
The weighted average interest rates before tax shown below were calculated using
the rates set for each instrument in its corresponding currency as of December
31, 2006 and 2005. These rates reflect the upward trend in the reference rates.
2006 2005
----------------- ------------------
Bank borrowings 6.12% 5.14%
Other loans 5.50% 4.51%
Finance lease liabilities 3.71% 3.14%
Breakdown of long-term borrowings by currency and rate is as follows:
Non current bank borrowings
Year ended December 31,
Currency Interest rates 2006 2005
--------------------------------------------------------------------------------------------------
USD Variable 3,140,894 546,921
USD Fixed 10,289 -
EURO Variable 40,462 93,621
EURO Fixed 6,246 30,709
JPY Variable - 23,310
JPY Fixed 11,854 17,084
BRS Variable 25,938 23,306
-----------------------------------
3,235,683 734,951
Less: Current portion of medium and long - term loans (412,631) (99,055)
-----------------------------------
Total non current bank borrowings 2,823,052 635,896
-----------------------------------
Non current other loans
Year ended December 31,
Currency Interest rates 2006 2005
-------------------------------------------------------------------------------------------------
COP Variable 622 -
USD Variable 52,853 49,332
----------------------------------
53,475 49,332
Less: Current portion of medium and long - term loans (2,996) (10,925)
----------------------------------
Total non current other loans 50,479 38,407
----------------------------------
26
20 Borrowings (Cont'd.)
Non current finance lease liabilities
Year ended December 31,
Currency Interest rates 2006 2005
--------------------------------------------------------------------------------------------------
EURO Fixed 79 29
COP Variable 185 -
JPY Fixed 5,685 6,898
-----------------------------------
5,949 6,927
Less: Current portion of medium and long - term loans (1,384) (1,502)
-----------------------------------
Total non current finance leases 4,565 5,425
-----------------------------------
The carrying amounts of Tenaris' assets pledged as collateral of
liabilities are as follows:
Year ended December 31,
2006 2005
----------------------------------
Property, plant and equipment mortages 554,078 595,627
----------------------------------
Breakdown of short-term borrowings by currency and rate is as follows:
Current bank borrowings
Year ended December 31,
Currency Interest rates 2006 2005
-------------------------------------------------------------------------------------------------
USD Variable 456,954 50,597
USD Fixed 202,620 55,946
EUR Variable 23,365 64,810
EUR Fixed 1,146 1,882
JPY Variable - 10,741
JPY Fixed 11,854 5,226
BRS Variable 8,255 5,197
ARS Fixed - 44,111
NGN Fixed 3,403 -
VEB Fixed 13 -
-----------------------------------
Total current bank borrowings 707,610 238,510
-----------------------------------
Bank overdrafts
Year ended December 31,
Currency 2006 2005
-------------------------------------------------------------------------------------------------
USD 1,855 16,406
EUR 2,558 3,298
ARS 1,839 3,193
VEB - 1,820
CAD 864 -
NOK 182 -
RON 2 -
-----------------------------------
Total current bank overdrafts 7,300 24,717
-----------------------------------
27
20 Borrowings (Cont'd.)
Current other loans
Year ended December 31,
Currency Interest rates 2006 2005
-------------------------------------------------------------------------------------------------
EUR Variable 73,183 51,333
USD Variable 10,251 16,118
USD Fixed 462 -
COP Variable 46 -
-----------------------------------
Total Current other loans 83,942 67,451
-----------------------------------
Current finance lease liabilities
Year ended December 31,
Currency Interest rates 2006 2005
--------------------------------------------------------------------------------------------------
EUR Fixed 21 29
COP Variable 121 -
JPY Fixed 1,242 1,473
------------------------------------
Total current finance leases 1,384 1,502
------------------------------------
21 Deferred income tax
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,
2006 2005
-----------------------------------
At the beginning of the year 158,521 210,802
Translation differences 2,570 8,605
Increase due to business combinations 560,450 -
Disposals 2,971 -
Income statement credit (17,386) (61,837)
Effect of currency translation on tax base (6,060) (7,033)
Deferred employees' statutory profit sharing charge (762) 7,984
-----------------------------------
At the end of the year 700,304 158,521
-----------------------------------
The evolution of deferred tax assets and liabilities during the year are as
follows:
Deferred tax liabilities
Intangible and
Fixed assets Inventories Other (a) Total
-------------------------------------------------------------------------
At the beginning of the year 227,370 45,600 80,425 353,395
Translation differences 6,670 (308) 131 6,493
Increase due to business combinations 75,455 2,286 581,097 658,838
Disposals - (6) (163) (169)
Income statement charge / (credit) 7,653 3,795 (38,060) (26,612)
-------------------------------------------------------------------------
At December 31,2006 317,148 51,367 623,430 991,945
-------------------------------------------------------------------------
28
21 Deferred income tax (Cont'd.)
Fixed assets Inventories Other (a) Total
-------------------------------------------------------------------------
At the beginning of the year 204,243 63,453 104,279 371,975
Translation differences 19,486 2,482 489 22,457
Income statement charge / (credit) 3,641 (20,335) (24,343) (41,037)
-------------------------------------------------------------------------
At December 31,2005 227,370 45,600 80,425 353,395
-------------------------------------------------------------------------
(a) Includes the effect of currency translation on tax base explained in Note 8
Deferred tax assets
Provisions and allowances Inventories Tax losses Other Total
--------------------------------------------------------------------------------
At the beginning of the year (32,631) (74,214) (11,993) (76,036) (194,874)
Translation differences (2,342) (179) (577) (825) (3,923)
Increase due to business combinations (7,005) (3,137) (1,112) (87,134) (98,388)
Disposal 975 - - 2,165 3,140
Income statement charge / (credit) (1,267) (65,313) 10,048 58,936 2,404
--------------------------------------------------------------------------------
At December 31, 2006 (42,270) (142,843) (3,634) (102,894) (291,641)
--------------------------------------------------------------------------------
Provisions and allowances Inventories Tax losses Other Total
---------------------------------------------------------------------------------
At the beginning of the year (62,629) (41,292) (15,707) (41,545) (161,173)
Translation differences (13,239) (232) 792 (1,173) (13,852)
Income statement charge / (credit) 43,237 (32,690) 2,922 (33,318) (19,849)
---------------------------------------------------------------------------------
At December 31,2005 (32,631) (74,214) (11,993) (76,036) (194,874)
---------------------------------------------------------------------------------
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 balance sheet:
Year ended December 31,
2006 2005
---------------------------------
Deferred tax assets (291,641) (194,874)
Deferred tax liabilities 991,945 353,395
---------------------------------
700,304 158,521
---------------------------------
The amounts shown in the balance sheet include the following:
Year ended December 31,
2006 2005
---------------------------------
Deferred tax assets to be recovered after more than 12 months (79,811) (49,662)
Deferred tax liabilities to be recovered after more than 12
months 849,730 225,486
29
22 Other liabilities
(i) Other liabilities - Non current
Year ended December 31,
2006 2005
------------------------------
Employee liabilities
Employee's statutory profit sharing 64,196 64,010
Employee severance indemnity 67,598 62,279
Pension benefits 36,067 10,788
------------------------------
167,861 137,077
------------------------------
Taxes payable 8,842 9,364
Miscellaneous 10,021 7,937
------------------------------
18,863 17,301
------------------------------
186,724 154,378
------------------------------
(a) Employees' severance indemnity
The amounts recognized in the balance sheet are as follows:
Year ended December 31,
2006 2005
------------------------------
Total included in non - current Employee liabilities 67,598 62,279
------------------------------
The amounts recognized in the income statement are as follows:
Year ended December 31,
2006 2005 2004
------------------------------------------
Current service cost 8,737 7,846 9,999
Interest cost 2,851 2,771 2,908
------------------------------------------
Total included in Labor costs 11,588 10,617 12,907
------------------------------------------
The principal actuarial assumptions used were as follows:
Year ended December 31,
2006 2005 2004
------------------------------------------
Discount rate 4% - 5% 5% 4%
Rate of compensation increase 2% - 4% 4% 3%
(b) Pension benefits
The amounts recognized in the balance sheet are determined as follows:
Year ended December 31,
2006 2005
------------------------------
Present value of unfunded obligations 41,156 15,707
Unrecognized actuarial losses (5,089) (4,919)
------------------------------
Liability in the balance sheet 36,067 10,788
------------------------------
30
22 Other liabilities (Cont'd.)
The amounts recognized in the income statement are as follows:
Year ended December 31,
2006 2005 2004
------------------------------------------
Current service cost 1,400 544 571
Interest cost 2,185 917 875
Net actuarial losses in the income recognized in the year (1,124) 329 2,870
------------------------------------------
Total included in Labor costs 2,461 1,790 4,316
------------------------------------------
Movement in the liability recognized in the balance sheet:
Year ended December 31,
2006 2005
------------------------------
At the beginning of the year 10,788 11,578
Transfers and new participants of the plan 992 -
Total expense 2,461 1,790
Translation differences (654) (272)
Contributions paid (2,696) (2,308)
Increase due to business combinations 25,307 -
Disposal (131) -
------------------------------
At the end of the year 36,067 10,788
------------------------------
The principal actuarial assumptions used were as follows:
Year ended December 31,
2006 2005 2004
------------------------------------------
Discount rate 5% - 7% 7% 7%
Rate of compensation increase 2% - 5% 2% 2%
(ii) Other liabilities - current
Year ended December 31,
2006 2005
------------------------------
Payroll and social security payable 148,146 102,052
Liabilities with related parties 2,237 2,688
Miscellaneous 37,318 34,135
------------------------------
187,701 138,875
------------------------------
31
23 Non-current allowances and provisions
(i) Deducted from non current receivables
Year ended December 31,
2006 2005
-------------------------------------------------
Values at the beginning of the year (15,450) (13,172)
Translation differences 153 185
Reversals / Additional allowances (*) (15) (81)
Used (*) 1,192 (2,382)
-------------------------------------------------
At December 31 (14,120) (15,450)
-------------------------------------------------
(*) Includes effect of allowances on off-take credits, which are reflected in
the Cost of sales.
(ii) Liabilities
Year ended December 31,
2006 2005
-------------------------------------------------
Values at the beginning of the year 43,964 31,776
Translation differences 2,999 406
Increase due to business combinations 11,394 -
Reversals / Additional provisions 12,146 16,015
Reclassifications 31,910 -
Used (10,386) (4,233)
-------------------------------------------------
92,027 43,964
-------------------------------------------------
24 Current allowances and provisions
(i) Deducted from assets
Year ended December 31, 2006 Allowance for doubtful Allowance for other Allowance for
accounts - Trade doubtful accounts - inventory
receivables Other receivables obsolescence
----------------------------------------------------------------------
Values at the beginning of the year (24,962) (13,087) (85,750)
Translation differences (1,274) (575) (4,151)
Increase due to business combinations (1,673) (188) (253)
Disposal due to deconsolidation 3,222 - -
Reversals / Additional allowances (1,449) 640 8,006
Used 3,350 5,426 2,675
----------------------------------------------------------------------
At December 31, 2006 (22,786) (7,784) (79,473)
----------------------------------------------------------------------
Year ended December 31, 2005
Values at the beginning of the year (24,164) (8,346) (67,122)
Translation differences 1,309 (174) 2,941
Increase due to business combinations (843) - (11,931)
Reversals / Additional allowances (4,722) (3,709) (20,303)
Used 3,458 (858) 10,665
----------------------------------------------------------------------
At December 31, 2005 (24,962) (13,087) (85,750)
----------------------------------------------------------------------
32
24 Current allowances and provisions (Cont'd.)
(ii) Liabilities
Year ended December 31, 2006 Sales risks Other claims and Total
contingencies
-----------------------------------------------------------------
Values at the beginning of the year 3,489 33,456 36,945
Translation differences 112 2,690 2,802
Increase due to business combinations 16,700 781 17,481
Reversals / Additional allowances 840 808 1,648
Reclassifications - (27,977) (27,977)
Used (1,047) (3,207) (4,254)
-----------------------------------------------------------------
At December 31, 2006 20,094 6,551 26,645
-----------------------------------------------------------------
Year ended December 31, 2005
Values at the beginning of the year 5,509 37,127 42,636
Translation differences (518) (3,849) (4,367)
Reversals / Additional allowances (493) 8,227 7,734
Used (1,009) (8,049) (9,058)
------------------------------------------------------------------
At December 31, 2005 3,489 33,456 36,945
------------------------------------------------------------------
25 Derivative financial instruments
Net fair values of derivative financial instruments
The net fair values of derivative financial instruments disclosed within Other
liabilities and Other receivables at the balance sheet date, in accordance with
IAS 39, were:
Year ended December 31,
2006 2005
-----------------------------------
Contracts with positive fair values
Interest rate swap contracts 722 3,641
Forward foreign exchange contracts 1,188 441
Contracts with negative fair values
Interest rate swap contracts (242) (921)
Forward foreign exchange contracts (1,958) (7,818)
Derivative financial instruments breakdown is as follows:
Variable interest rate swaps
Fair Value
Year ended December 31,
Notional amount Swap Term 2006 2005
------------------------------------------------------------------------------------------------------------------------
EUR 9,097 Pay fixed / Receive variable 2007 (8) (410)
EUR 1,176 Pay fixed / Receive variable 2009 (34) (82)
EUR 5,830 Pay fixed / Receive variable 2010 (190) (429)
USD 100,000 Pay fixed / Receive variable 2009 - 2,228
USD 200,000 Interest rate collar 2010 - 1,413
USD 1,500,000 Interest rate collar 2008 712 -
--------------------------------
480 2,720
--------------------------------
33
25 Derivative financial instruments (Cont'd.)
To partially hedge future interest payments, as well as to minimize the effect
of floating rates, Tenaris has entered into zero cost interest rate collars. In
these contracts, effective as from April 2007, the Company has agreed to
exchange with the counterparty, at specified intervals, the difference between
interest amounts calculated by reference to an agreed-upon notional principal
amount of USD 1,500.0 million, to the extent that it is lower than the floor or
greater than the cap established in such contracts.
Exchange rate derivatives
Fair Value
Year ended December 31,
Currencies Contract Term 2006 2005
------------------------------------------------------------------------------------------------------------------------
USD / EUR Euro Forward purchases 2008/2007 870 (1,502)
JPY / USD Japanese Yen Forward purchases 2007 (1,229) (3,579)
CAD / USD Canadian Dollar Forward sales 2007 318 -
BRL / USD Brazilian Real Forward sales 2007 - 8
ARS / USD Argentine Peso Forward purchases 2007 - (2,186)
ARS / USD Argentine Peso Forward sales 2007 (359) -
KWD / USD Kuwaiti Dinar Forward sales 2007 (370) (118)
------------------------------
(770) (7,377)
------------------------------
26 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. Based on management's assessment and the advice of legal
counsel, it is not anticipated that the ultimate resolution of pending
litigation will result in amounts in excess of recorded provisions (Notes 23
and 24) that would be material to Tenaris' consolidated financial position or
results of operations.
Conversion of tax loss carry-forwards
On December 18, 2000, the Argentine tax authorities notified Siderca S.A.I.C.
("Siderca", a subsidiary of the Company organized in Argentina) 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 ARP70.2 million
(approximately $23.0 million) at December 31, 2006 in taxes and penalties.
Based on the views of Siderca's tax advisors, Tenaris believes that the
ultimate resolution of the matter will not result in a material obligation.
Accordingly, no provision was recorded in these financial statements.
Asbestos-related Litigation
Dalmine S.p.A. ("Dalmine"), a subsidiary of the Company organized in Italy is
currently subject to thirteen civil proceedings for work-related injuries
arising from the use of asbestos in its manufacturing processes during the
period from 1960 to 1980. In addition, another eighteen asbestos related
out-of-court claims and one civil party claim have been forwarded to Dalmine.
As of December 31, 2006, the total claims pending against Dalmine were thirty
two (of which, three are covered by insurance): during 2006 two new claims
were filed four claims were dismissed and one claim was settled. Aggregate
settlement costs to date for Tenaris are Euro3.8 million. Dalmine estimates
that its potential liability in connection with the claims not yet settled is
approximately Euro 12.6 million ($ 16.6 million).
Accruals for Dalmine's potential liability are based on the average of the
amounts paid by Dalmine for asbestos-related claims plus an additional amount
related to some reimbursements requested by the social security authority.
The maximum potential liability is not determinable as in some cases the
requests for damages do not specify amounts, and instead is to be determined
by the court. The timing of payment of the amounts claimed is not presently
determinable.
26 Contingencies, commitments and restrictions on the distribution of
profits (Cont'd.)
Maverick litigation
34
On December 11, 2006, The Bank of New York ("BNY"), as trustee for the
holders of the Maverick 2004 4% Convertible Senior Subordinated Notes due
2033 issued pursuant to an Indenture between Maverick and BNY
("Noteholders"), filed a complaint against Maverick and Tenaris in the United
States District Court for the Southern District of New York. The complaint
alleges that Tenaris's acquisition of Maverick triggered the "Public Acquirer
Change of Control" provision of the Indenture. The complaint asserts breach
of contract claim against Maverick for refusing to deliver the consideration
specified in the Public Acquirer Change of Control provision of the Indenture
to Noteholders who tendered their notes for such consideration, seeks a
declaratory judgment that Tenaris' acquisition of Maverick was a Public
Acquirer Change of Control under the Indenture, and asserts claims for
tortuous interference with contract and unjust enrichment against Tenaris.
Tenaris believes that these claims are without merit. Accordingly, no
provision was recorded in these financial statements. Were plaintiff to
prevail, Tenaris estimates that the recovery would be approximately $50
million.
European Commission Fine
On January 25, 2007, the Court of Justice of the European Commission confirmed
the December 8, 1998 decision by the European Commission to fine eight
international steel pipe manufacturers, including Dalmine, for violation of
European competition laws. Pursuant to the Court's decision, Dalmine is
required to pay a fine of Euro10.1 million ($13.3 million). Since the
infringements for which the fine was imposed took place prior to the
acquisition of Dalmine by Tenaris in 1996, Dalmine's former owner, who had
instructed Dalmine to appeal, is required and has acknowledged its
responsibility to pay 84.1% of the fine. The remaining 15.9% of the fine will
be paid out of the provision that Dalmine established in 1999 for such
proceeding.
BHP litigation and arbitration proceeding against Fintecna
On December 30, 2003 Dalmine and a consortium led by BHP Billiton Petroleum
Ltd. ("BHP") settled a litigation concerning the failure of an underwater
pipeline. The pipe that was the subject of the litigation with BHP was
manufactured and sold, and the tort alleged by BHP took place, prior to the
privatization of Dalmine. According to the terms of the settlement, Dalmine
paid BHP a total of GBP 108.0 million ($207.2 million), inclusive of
expenses. Techint Investments Netherlands B.V. ("Tenet") - the subsidiary
party of the Company that was party to the Dalmine privatization contract -
commenced arbitration proceedings against Fintecna S.p.A. ("Fintecna"), an
Italian state-owned entity and successor to ILVA S.p.A., the former owner of
Dalmine, seeking indemnification from Fintecna for any amounts paid or
payable by Dalmine to BHP. On December 28, 2004, an arbitral tribunal
rendered a final award in the arbitration proceeding against Fintecna,
pursuant to which, Fintecna paid Tenaris a total amount of Euro 93.8 million
($127.2 million) on March 15, 2005. Neither party has any further oustanding
obligations in respect of the BHP litigation.
Commitments
Set forth is a description of Tenaris' main outstanding commitments:
o Tenaris has transportation capacity agreements with Transportadora de
Gas del Norte S.A. (TGN), corresponding to capacity of 1,000,000 cubic
meters per day until 2017, the outstanding value of this commitment is
approximately $68.0 million. We also expect to obtain additional gas
transportation capacity of 315,000 cubic meters per day until 2027.
This commitment is subject to the enlargement of the trunk pipelines in
Argentina that are expected to be ready by 2008.
35
26 Contingencies, commitments and restrictions on the distribution of
profits (Cont'd.)
Commitments (Cont'd.)
o In July 2004, Tenaris' subsidiary Matesi Materiales Siderurgicos S.A.
("Matesi") entered into a twenty-year agreement with C.V.G.
Electrificacion del Caroni, C.A. ("Edelca") for the purchase of
electric power under certain take-or-pay conditions, with an option to
terminate the contract at any time upon three years notice. The
outstanding value of the contract at December 31, 2006 is
approximately $65.9million.
o In August 2004 Matesi entered into a ten-year off-take contract
pursuant to which Matesi is required to sell to Sidor on a take-or-pay
basis 29.9% of Matesi's HBI production. In addition, Sidor has the
right to increase its proportion on Matesi's production by an extra
19.9% until reaching 49.8% of Matesi's HBI production. Under the
contract, the sale price is determined on a cost-plus basis. The
contract is renewable for additional three year periods unless Matesi
or Sidor objects its renewal more than a year prior to its
termination.
o Tenaris entered into a contract with Siderar for the supply of steam
generated at the power generation facility owned by Tenaris in San
Nicolas. Under this contract, Tenaris is required to provide 250
tn/hour of steam, and Siderar has the obligation to take or pay this
volume. This outsourcing contract is due to terminate in 2018. In
October 2004, Tenaris detected technical problems at its electric
power generating facility located in San Nicolas, Argentina during the
routine maintenance of the equipment. GE Energy, the generator's
manufacturer, assumed the cost of the repairs of the generator,
estimated at $9.0 million. Tenaris recognized a receivable with the
manufacturer for the cost of the repairs. Tenaris impaired the value
of these assets under Property, Plant and Equipment for $11.7 million.
The reparation of the generating facility was completed by September
2005.
o Under a lease agreement entered into in 2000 between Gade Srl (Italy)
and Dalmine relating to a building located in Sabbio Bergamasco and
used by Dalmine's former subsidiary, Tad Commerciale, Dalmine is
obligated to bid in the auction for the purchase of a building owned
by Gade for a minimum amount of EUR 8.3 million ($10.0 million). As of
the present, a date for the auction has not been announced.
Restrictions on the distribution of profits
As of December 31, 2006, shareholders' equity as defined under Luxembourg law
and regulations consisted of:
(all amounts in thousands of U.S. dollars)
Share capital 1,180,537
Legal reserve 118,054
Share premium 609,733
Retained earnings including net income for the year ended December 31,
2006 1,527,096
---------------
Total shareholders equity in accordance with Luxembourg law 3,435,420
---------------
At least 5% of the net income per year as calculated in accordance with
Luxembourg law and regulations must be allocated to the creation of a legal
reserve equivalent to 10% of share capital. As of December 31, 2006, this
reserve is fully allocated and additional allocations to the reserve are not
required under Luxembourg law. Dividends can not be paid from this reserve.
Tenaris may pay dividends to the extent that it has distributable retained
earnings and distributable reserve calculated in accordance with Luxembourg
law and regulations, and providing the compliance of the covenant related to
restricted payments stated in Note 28.
36
26 Contingencies, commitments and restrictions on the distribution of
profits (Cont'd.)
Restrictions on the distribution of profits (Cont'd.)
At December 31, 2006, the distributable reserve, including retained earnings
and profit for the financial year, of Tenaris under Luxembourg law totalled
$1,527.1 million, as detailed below.
(all amounts in thousands of U.S. dollars)
Retained earnings at December 31, 2005 under Luxembourg law 1,171,738
Dividends received 566,831
Other income and expenses for the year ended December 31, 2006 (7,240)
Dividends paid (204,233)
---------------
Retained earnings at December 31, 2006 under Luxembourg law 1,527,096
---------------
27 Ordinary shares and share premium
Number of ordinary shares
2006 2005
---------------------------------------
At January 1 and December 31 1,180,536,830 1,180,536,830
---------------------------------------
The total of issued and outstanding ordinary shares as of December 31, 2006 is
1,180,536,830 with a par value of $1.00 per share with one vote each.
28 Business combinations and other acquisitions
(a) Acquisition of Maverick Tube Corporation ("Maverick")
On October 5, 2006, Tenaris completed the acquisition of Maverick, pursuant to
which Maverick was merged with and into a wholly owned subsidiary of Tenaris. On
that date, Tenaris paid $65 per share in cash for each issued and outstanding
share of Maverick's common stock. The value of the transaction at the
acquisition date was $3,160 million, including Maverick's financial debt.
With operations in the United States, Canada and Colombia, Maverick is a
producer of oil country tubular goods (OCTG), line pipe and coiled tubing for
use in oil and natural gas wells and other applications, also producing welded
pipes for electrical conduits. Maverick has a combined annual capacity of two
million short tons of steel pipes with a size range from one-quarter inch to 16
inches. In 2005, Maverick reported net revenues of approximately $1.8 billion,
of which 82% were from its energy products division.
To finance the acquisition and the payment of related obligations, Tenaris and
some of its subsidiaries entered into syndicated loan facilities in an aggregate
of $2.7 billion; the balance was met from cash on hand. In connection with the
financing of the Maverick acquisition 75% of the issued and outstanding shares
of Maverick were pledged. Immediately upon each payment or prepayment under the
Tenaris loan agreement, the number of shares subject to the pledge shall be
reduced by the percentage by which the aggregate outstanding principal amount of
the loans under such agreement is reduced by operation of such payment or
prepayment until the aggregate outstanding principal amount of such loans is
less than or equal to $ 250 million. In addition, Tamsa and Siderca granted
drag-along rights in favor of the lenders under the Tenaris loan agreement with
respect to the remaining 25% of the issued and outstanding shares of capital
stock of Maverick.
Goodwill arising on the acquisition of Maverick, $1,113, million is the
difference between the acquisition price and the fair value on the acquisition
date of the identifiable tangible and intangible assets and liabilities
determined mainly by independent valuation. This goodwill reflects the
opportunity for Tenaris to increase its presence in North America, primarily in
the OCTG market.
Tenaris began consolidating Maverick's balance sheet and results of operations
in the fourth quarter of 2006.
37
28 Business combinations and other acquisitions (Cont'd.)
(b) Acquisition of a steel pipe business in Argentina
On January 31, 2006, Siat S.A., a subsidiary of Tenaris, completed its
acquisition of the welded pipe assets and facilities located in Villa
Constitucion, province of Santa Fe, Argentina, belonging to Industria Argentina
de Acero, S.A. ("Acindar") for $29.3 million. The facilities acquired have an
annual capacity of 80,000 tons of welded pipes.
(c) Capitalization of Convertible Debt of Consorcio Siderurgia Amazonia, Ltd.
("Amazonia") and Exchange of Interests in Amazonia and Ylopa Servicos de
Consultadoria Lda. ("Ylopa") for shares of Ternium S.A. ("Ternium")
On February 3, 2005, Ylopa exercised its option to convert the convertible debt
it held in Amazonia into common stock. In connection of this conversion, Tenaris
recognized a gain of $83.1 million in 2004. As a result, Tenaris' ownership
stake in Amazonia increased from 14.5% to 21.2%, and its indirect ownership in
Sidor C.A. ("Sidor") increased from 8.7% to 12.6%.
On September 9, 2005, the Company exchanged its interests in Amazonia and Ylopa,
for 209,460,856 shares in Ternium, a newly-formed subsidiary of San Faustin N.V.
(a Netherlands Antilles corporation and the controlling shareholder of Tenaris)
to consolidate its Latin American holdings in flat and long steel producers
Siderar S.A.I.C., Sidor C.A. and Hylsamex, S.A de C.V. As a result of the
exchange, which was carried out based on fair values as determined by an
internationally recognized investment bank engaged for this purpose, Tenaris
obtained an ownership interest of approximately 17.9% in Ternium.
Subsequently, on October 27, 2005, Usinas Siderurgicas de Minas Gerais S.A.
("Usiminas") exchanged its interests in Amazonia, Ylopa and Siderar S.A.I.C.,
plus additional consideration of approximately $114.1 million provided as a
convertible loan, for an equity stake in Ternium. As a result of this
transaction, at December 31, 2005, Tenaris' ownership stake in Ternium was
reduced to 15.0% of Ternium's outstanding common stock. As this was an equity
transaction in Ternium, the effect of $2.7 million at Tenaris' percentage of
ownership was recognized in Other reserves in equity.
Because the exchange of Tenaris' holdings in Amazonia and Ylopa for shares in
Ternium was a transaction between companies under common control, Tenaris
initially recorded its ownership interest in Ternium at the carrying value of
the investments exchanged. At the transaction date, the carrying value of
Amazonia and Ylopa was $229.7 million while Tenaris' proportional ownership in
the equity of Ternium at September 30, 2005 amounted to $252.3 million. The
difference of $22.6 million between the carrying value of Amazonia and Ylopa and
Tenaris' proportional ownership in the equity of Ternium will remain in the
future. As a result of this accounting treatment, Tenaris reported value of its
investment in Ternium will not reflect its proportional ownership of Ternium's
net equity position.
In addition, in August 2005, Tenaris extended to Ternium two subordinated
convertible loans consisting of principal amount of $39.7 million. The principal
amount of these loans at the date issued corresponded to the amount of certain
distributions received from Amazonia during the second and third quarters of
2005 in connection with Ternium's participation in Amazonia's financial debt
restructuring in 2003. At the date of Ternium's initial public offering ("IPO"),
the loans totaled approximately $40.5 million, including accrued interest.
Until September 30, 2005, Tenaris recognized its proportional earnings in
Amazonia and Ylopa, which amounted to $26.5 million. As from the quarter ended
December 31, 2005, Tenaris recognized earnings from its investment in Ternium to
the extent of its proportional ownership in Ternium.
38
28 Business combinations and other acquisitions (Cont'd.)
(c) Capitalization of Convertible Debt of Consorcio Siderurgia Amazonia, Ltd.
("Amazonia") and Exchange of Interests in Amazonia and Ylopa Servicos de
Consultadoria Lda. ("Ylopa") for shares of Ternium S.A. ("Ternium")
(Cont'd.)
On February 6, 2006, Ternium completed its IPO, issuing an additional
248,447,200 shares (equivalent to 24,844,720 ADS) at a price of $2.00 per share,
or $20.00 per ADS. Tenaris received an additional 20,252,338 shares upon the
mandatory conversion of its loans to Ternium. In addition to the shares issued
to Tenaris, Ternium issued shares to other shareholders corresponding to their
mandatory convertible loans. On February 23, 2006, the underwriters of Ternium's
IPO exercised an over allotment option under which Ternium issued an additional
37,267,080 shares (equivalent to 3,726,708 ADS). As a result of the IPO and the
conversion of loans, as of February 6, 2006, Tenaris' ownership stake in Ternium
amounted to 11.46%. The effect of these transactions resulted in an additional
increase of the Company's proportional ownership in Ternium's equity of
approximately $26.7 million, which Tenaris recognized in Other Reserves in
equity.
At December 31, 2006, the closing price of Ternium shares as quoted on the New
York Stock Exchange was $29.54 per ADS, giving Tenaris' ownership stake a market
value of approximately $679 million. At December 31, 2006, the carrying value of
Tenaris's ownership stake in Ternium was approximately $408 million.
(d) Acquisition of S.C. Donasid S.A. ("Donasid")
On May 4, 2005, Tenaris completed the acquisition of 97% of the equity in S.C.
Donasid S.A., a Romanian steel producer, for approximately $47.9 million in cash
and assumed liabilities. The shares of Siprofer A.G. and Donasid Service S.r.l.
were also acquired as part of this transaction.
(e) Minority Interest
During the year ended December 31, 2006, additional shares of Silcotub and
Dalmine were acquired from minority shareholders for approximately $11.2
million.
The assets and liabilities arising from the acquisitions are as a follows:
Maverick (*) Others Total 2006 Total 2005
-------------------------------------------------------------
Other assets and liabilities (net) (698,163) 5,207 (692,956) (41,755)
Property, plant and equipment 438,046 22,891 460,937 67,211
Customer relationships 1,493,800 - 1,493,800 -
Goodwill 1,112,885 1,402 1,114,287 769
-------------------------------------------------------------
Net assets acquired 2,346,568 29,500 2,376,068 26,225
Minority interest - 11,181 11,181 (527)
-------------------------------------------------------------
Sub-total 2,346,568 40,681 2,387,249 25,698
Cash-acquired 70,660 - 70,660 -
-------------------------------------------------------------
Purchase consideration 2,417,228 40,681 2,457,909 25,698
Liabilities paid as part of purchase agreement 743,219 - 743,219 22,594
-------------------------------------------------------------
Total disbursement 3,160,447 40,681 3,201,128 48,292
-------------------------------------------------------------
(*) Includes costs directly attributable to the acquisition.
Net cash consideration (total disbursement less cash acquired and common stock
issued in acquisition of minority interest) amounted to $ 48,292 at December 31,
2005.
The businesses acquired in 2006 contributed revenues of $432.0 million and net
income of $14.5 million to Tenaris (not including the financial cost related to
the operation recorded in other subsidiaries different from Maverick).
Businesses acquired in 2005 did not materially contribute to the Company's
revenue and income.
39
28 Business combinations and other acquisitions (Cont'd.)
Pro forma data including acquisitions for all of 2006
Had the Maverick transaction been consummated on January 1, 2006, then unaudited
pro forma 2006 twelve month Tenaris net sales and net income on continuing
operations would have been approximately $9.3 billion and $2.0 billion,
respectively. These pro forma results were prepared based on public information
and unaudited accounting records maintained under USGAAP prior to acquisition
and adjusted by depreciation and amortization of tangible and intangible assets
and interest expense of the borrowing incurred for the acquisition ($2.7
billion). Carrying amounts of assets, liabilities and contingent liabilities in
Maverick's books, determined in accordance with IFRSs, immediately before the
combination are not disclosed separately, as Maverick did not report IFRS
information. o
Subsequent event: Hydril Company ("Hydril")
On February 12, 2007, Tenaris announced that it has entered into a definitive
merger agreement to acquire Hydril for $97 per share of Hydril's common stock
and $97 per share of Hydril's Class B common stock, payable in cash.
Tenaris will finance the acquisition through a combination of cash on hand and
debt, for which bank commitments have been secured.
The agreement is subject to the receipt of clearance from U.S. antitrust
authorities, majority approval of Hydril's shareholders and other customary
conditions and is expected to close in the second quarter 2007.
Hydril is a North American manufacturer of premium connections and pressure
control products for oil and gas drilling and production. For 2006, Hydril
reported revenues of $503 million, operating income of $132.2 million and net
income of $91.3 million under US GAAP. o o 29 Cash flow disclosures o
(i) Changes in working capital Year ended December 31,
2006 2005 2004
----------------------------------------------------
Inventories (455,567) (101,143) (411,045)
Receivables and prepayments (181,878) 1,513 (82,845)
Trade receivables (226,678) (387,240) (271,225)
Other liabilities 7,605 34,526 (37,443)
Customer advances 236,446 (14,156) 72,678
Trade payables 150,555 32,561 108,693
----------------------------------------------------
(469,517) (433,939) (621,187)
----------------------------------------------------
(ii) Income tax accruals less payments
Tax accrued 873,967 568,753 220,376
Taxes paid (817,131) (419,266) (175,717)
----------------------------------------------------
56,836 149,487 44,659
----------------------------------------------------
(iii) Interest accruals less payments, net
Interest accrued 32,237 29,236 32,683
Interest received 11,150 17,227 11,986
Interest paid (21,478) (44,544) (27,696)
-----------------------------------------------------
21,909 1,919 16,973
-----------------------------------------------------
(iv) Cash and cash equivalents
Cash and bank deposits 1,372,329 707,356 311,579
Bank overdrafts (7,300) (24,717) (4,256)
Restricted bank deposits (21) (2,048) (13,500)
-----------------------------------------------------
1,365,008 680,591 293,823
-----------------------------------------------------
30 Discontinued operations
40
Sale of a 75% interest in Dalmine Energie
On December 1, 2006, Tenaris completed for $58.9 million the sale of a 75%
participation of Dalmine Energie, its Italian supply business, to E.ON Sales and
Trading GmbH, a wholly owned subsidiary of E.ON Energie AG ("E.ON") and an
indirect subsidiary of E.ON AG. Following consummation of the sale, Tenaris
maintains a 25% interest in Dalmine Energie. As a result of this transaction,
Tenaris has de-consolidated Dalmine Energie and recognized a $40.0 million gain.
As per the sale agreement, Tenaris has an irrevocable option to sell to E.ON, at
any time during the one year exercise period (in two years from the date of the
sale agreement), its 25% remaining interest in Dalmine Energie for a purchase
price in cash of EUR 13.0 million plus interests. Also, E.ON has an irrevocable
option to purchase from Tenaris, at any time during the one year exercise period
(in two years from the date of the sale agreement), Tenaris' 25% remaining
interest in Dalmine Energie for a purchase price in cash of EUR 17.5 million
plus interests and adjustments. The fair value of these options at December 31,
2006 is not material.
Analysis of the result of discontinued operations:
(all amounts in thousands of U.S. dollars, unless otherwise
stated) Year ended December 31,
----------------------------------------------
2006 (a) 2005 2004
----------------------------------------------
Net sales 503,051 526,406 417,870
Cost of sales (486,312) (513,393) (398,462)
----------------------------------------------
Gross profit 16,739 13,013 19,408
Selling, general and administrative expenses (8,025) (10,259) (11,223)
Other operating income (expenses), net 2,469 (220) (325)
----------------------------------------------
Operating income 11,183 2,534 7,860
Financial income (expenses), net 16 (1,152) (577)
----------------------------------------------
Income before equity in earnings of associated companies and 11,199 1,382 7,283
income tax
Equity in earnings of associated companies - - (104)
Gain on disposal of subsidiary 39,985 - -
----------------------------------------------
Income before income tax 51,184 1,382 7,179
Income tax (4,004) (1,385) (3,150)
----------------------------------------------
Income for the year from discontinued operations 47,180 (3) 4,029
----------------------------------------------
(a) Includes the results for the eleven month period ended November
30, 2006. The result for the one month period ended December 31,
2006 is included in Equity in earnings of associated companies in
the Consolidated Income statement.
Cash of discontinued operations increased by $2.3 million and decrease by
$1.0 million in 2006 and 2005 respectively mainly from operating activities.
31 Related party transactions
The Company is controlled by San Faustin N.V., a Netherlands Antilles
corporation, which owns 60.4% of the Company's outstanding shares, either
directly or through its wholly-owned subsidiary I.I.I. Industrial Investments
Inc., a Cayman Islands corporation. Tenaris' directors and executive officers as
a group own 0.2% of the Company's outstanding shares, while the remaining 39.4%
is publicly traded. The ultimate controlling entity of the Company is Rocca &
Partners S.A., a British Virgin Islands corporation.
41
31 Related party transactions (Cont'd.)
The following transactions were carried out with related parties: o
At December 31, 2006
Associated (1) Other Total
----------------------------------------------------
(i) Transactions
(a) Sales of goods and services
Sales of goods 120,890 56,524 177,414
Sales of services 18,852 3,664 22,516
----------------------------------------------------
139,742 60,188 199,930
----------------------------------------------------
(b) Purchases of goods and services
Purchases of goods 103,003 33,930 136,933
Purchases of services 17,168 80,485 97,653
----------------------------------------------------
120,171 114,415 234,586
----------------------------------------------------
At December 31, 2005
Associated (2) Other Total
----------------------------------------------------
(i) Transactions
(a) Sales of goods and services
Sales of goods 104,054 75,948 180,002
Sales of services 7,499 7,830 15,329
----------------------------------------------------
111,553 83,778 195,331
----------------------------------------------------
(b) Purchases of goods and services
Purchases of goods 67,814 33,949 101,763
Purchases of services 15,773 63,220 78,993
----------------------------------------------------
83,587 97,169 180,756
----------------------------------------------------
At December 31, 2004
Associated (3) Other Total
----------------------------------------------------
(i) Transactions
(a) Sales of goods and services
Sales of goods 26,088 46,844 72,932
Sales of services 15,365 9,618 24,983
----------------------------------------------------
41,453 56,462 97,915
----------------------------------------------------
(b) Purchases of goods and services
Purchases of goods 30,648 32,484 63,132
Purchases of services 7,526 51,305 58,831
----------------------------------------------------
38,174 83,789 121,963
----------------------------------------------------
At December 31, 2006
Associated (4) Other Total
----------------------------------------------------
(ii) Year-end balances
(a) Arising to sales / purchases of goods / services
Receivables from related parties 25,400 14,429 39,829
Payables to related parties (37,920) (13,388) (51,308)
----------------------------------------------------
(12,520) 1,041 (11,479)
----------------------------------------------------
(b) Other balances
Receivables 2,079 - 2,079
----------------------------------------------------
(c) Financial debt
Borrowings (7) (60,101) - (60,101)
----------------------------------------------------
42
31 Related party transactions (Cont'd.)
At December 31, 2005
Associated (5) Other Total
----------------------------------------------------
(ii) Year-end balances
(a) Arising from sales / purchases of goods / services
Receivables from related parties 30,988 15,228 46,216
Payables to related parties (21,034) (8,413) (29,447)
----------------------------------------------------
9,954 6,815 16,769
----------------------------------------------------
(b) Other balances 42,437 - 42,437
----------------------------------------------------
(c) Financial debt
Borrowings (7) (54,801) - (54,801)
----------------------------------------------------
At December 31, 2004
Associated (3) Other Total
----------------------------------------------------
(ii) Year-end balances
(a) arising from sales / purchases of goods / services
Receivables from related parties 25,593 27,070 52,663
Payables to related parties (4,914) (12,487) (17,401)
----------------------------------------------------
20,679 14,583 35,262
----------------------------------------------------
(b) Cash and cash equivalents
Time deposits - 6 6
(c) Other balances
Trust Fund - 119,666 119,666
Convertible debt instruments - Ylopa 121,955 - 121,955
----------------------------------------------------
121,955 119,666 241,621
----------------------------------------------------
(1) Includes Ternium S.A. and its subsidiaries ("Ternium"), Condusid C.A.
("Condusid"), Finma S.A.I.F ("Finma")(as from September 2006), Lomond
Holdings B.V. group ("Lomond") (as from October 2006) and Dalmine Energie
S.p.A. ("Dalmine Energie") (as from December 2006).
(2) Includes: Condusid, Ylopa, Amazonia and Sidor up to September 30, 2005. As
from October 1, 2005 it includes Ternium and Condusid.
(3) Includes: Condusid, Ylopa, Amazonia and Sidor.
(4) Includes: Condusid, Ternium, Finma, Lomond and Dalmine Energie
(5) Includes Ternium and Condusid.
(6) Includes convertible loan from Sidor to Materiales Siderurgicos S.A.
("Matesi") of $58.4 million at December 31, 2006.
(7) Includes convertible loan from Sidor C.A. to Matesi at December 31, 2005.
(8) Includes convertible loan from Sidor C.A. to Matesi of $51.5 million at
December 31, 2004.
(i) Officers and directors' compensation
The aggregate compensation of the directors and executive officers earned
during 2006 and 2005 amounts to $16.0 million and $14.3 million respectively. o
43
32 Principal subsidiaries
The following is a list of Tenaris subsidiaries and its direct and indirect
percentage of ownership of each controlled company at December 31, 2006, 2005
and 2004.
.............................................................................................................................
Company Country of Main activity Percentage of ownership at
Organization December 31,
.............................................................................................................................
.............................................................................................................................
2006 2005 2004
.............................................................................................................................
.............................................................................................................................
Algoma Tubes Inc. Canada Manufacturing of seamless steel 100% 100% 100%
pipes
.............................................................................................................................
.............................................................................................................................
Autoabastecedora de Gas Natural Bruno Mexico Trading of energy 100% - -
Pagliai S.A. de C.V. (b)
.............................................................................................................................
.............................................................................................................................
Colmena Conduit Ltda (b) (l) Colombia Manufacturing of welded steel 100% - -
pipes
.............................................................................................................................
.............................................................................................................................
Confab Industrial S.A. and subsidiaries Brazil Manufacturing of welded steel 39% 39% 39%
(c) pipes and capital goods
.............................................................................................................................
.............................................................................................................................
Dalmine Energie S.p.A. (h) (j) Italy Trading of energy - 100% 100%
.............................................................................................................................
.............................................................................................................................
Dalmine Holding B.V. and subsidiaries Netherlands Holding company 99% 99% 99%
.............................................................................................................................
.............................................................................................................................
Dalmine S.p.A. Italy Manufacturing of seamless steel 99% 99% 99%
pipes
.............................................................................................................................
.............................................................................................................................
Energy Network S.R.L. (a) Romania Trading of energy 95% 100% -
.............................................................................................................................
.............................................................................................................................
Exiros S.A. Uruguay Procurement services for 100% 100% 100%
industrial companies
.............................................................................................................................
.............................................................................................................................
Information Systems and Technologies N.V. Netherlands Software development and 75% 75% 75%
maintenance
.............................................................................................................................
.............................................................................................................................
Information Systems and Technologies S.A. Argentina Software development and 100% 100% 100%
(d) maintenance
.............................................................................................................................
.............................................................................................................................
Inmobiliaria Tamsa S.A. de C.V. Mexico Leasing of real estate 100% 100% 100%
.............................................................................................................................
.............................................................................................................................
Insirger S.A. and subsidiaries (g) Argentina Electric power generation - - 100%
.............................................................................................................................
.............................................................................................................................
Intermetal Com SRL Romania Marketing of Scrap and other raw 100% 100% 100%
materials
.............................................................................................................................
.............................................................................................................................
Inversiones Berna S.A. (a) Chile Financial company 100% 100% -
.............................................................................................................................
.............................................................................................................................
Inversiones Lucerna S.A. (a) Chile Financial company 82% 82% -
.............................................................................................................................
.............................................................................................................................
Invertub S.A. and subsidiaries (g) Argentina Holding Company - - 100%
.............................................................................................................................
.............................................................................................................................
Lomond Holdings B.V. and subsidiaries (k) Netherlands Procurement services for - 100% 100%
industrial companies
.............................................................................................................................
.............................................................................................................................
Matesi, Materiales Siderurgicos S.A. (a) Venezuela Production of hot briquetted iron 50% 50% 50%
(HBI)
.............................................................................................................................
.............................................................................................................................
Maverick Tube Corporation and U.S.A. Manufacturing of welded steel 100% - -
subsidiaries (b) pipes
.............................................................................................................................
.............................................................................................................................
Maverick Tube, L.P. (b) (l) U.S.A. Manufacturing of welded steel 100% - -
pipes
.............................................................................................................................
44
32 Principal subsidiaries (Cont'd.)
..............................................................................................................................
Company Country of Main activity Percentage of ownership at
Organization December 31,
..............................................................................................................................
..............................................................................................................................
2006 2005 2004
..............................................................................................................................
..............................................................................................................................
Metalcentro S.A. (i) Argentina Manufacturing of pipe-end - 100% 100%
protectors and lateral impact
tubes
..............................................................................................................................
..............................................................................................................................
Metalmecanica S.A. Argentina Manufacturing of steel products 100% 100% 100%
for oil extraction
..............................................................................................................................
..............................................................................................................................
NKK Tubes K.K. Japan Manufacturing of seamless steel 51% 51% 51%
pipes
..............................................................................................................................
..............................................................................................................................
Operadora Electrica S.A. (e) Argentina Electric power generation 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Quality Tubes (UK) Ltd. (h) United Kingdom Marketing of steel products 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Precision Tube Technology, L.P. (b) (l) U.S.A. Manufacturing of welded steel 100% - -
pipes
..............................................................................................................................
..............................................................................................................................
Prudential Steel Ltd. (b) (l) Canada Manufacturing of welded steel 100% - -
pipes
..............................................................................................................................
..............................................................................................................................
S.C. Donasid (a) Romania Manufacturing of steel products 99% 99% -
..............................................................................................................................
..............................................................................................................................
S.C. Silcotub S.A. Romania Manufacturing of seamless steel 97% 85% 85%
pipes
..............................................................................................................................
..............................................................................................................................
Seacat, L.P. (b) (l) U.S.A. Manufacturing of welded steel 100% - -
pipes
..............................................................................................................................
..............................................................................................................................
Scrapservice S.A. Argentina Processing of scrap 75% 75% 75%
..............................................................................................................................
..............................................................................................................................
Servicios Generales TenarisTamsa S.A. Mexico Handling and maintenance of steel 100% 100% 100%
de C.V. (f) pipes
..............................................................................................................................
..............................................................................................................................
Siat S.A. Argentina Manufacturing of welded steel 82% 82% 82%
pipes
..............................................................................................................................
..............................................................................................................................
Siderca International A.p.S. Denmark Holding company 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Siderca S.A.I.C. Argentina Manufacturing of seamless steel 100% 100% 100%
pipes
..............................................................................................................................
..............................................................................................................................
Siderestiba S.A. (m) Argentina Logistics - 99% 99%
..............................................................................................................................
..............................................................................................................................
Sidtam Limited B.V.I. Holding company 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Siprofer A.G. (a) Switzerland Holding company 100% 100% -
..............................................................................................................................
..............................................................................................................................
SO.PAR.FI Dalmine Holding S.A. Luxembourg Holding company 99% 99% 99%
..............................................................................................................................
..............................................................................................................................
Sociedad Industrial Puntana S.A. Argentina Manufacturing of steel products 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Socominter S.A. Venezuela Marketing of steel products 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Socominter Ltda. Chile Marketing of steel products 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Talta - Trading e Marketing Lda. Madeira Holding Company 100% 100% 100%
..............................................................................................................................
45
32 Principal subsidiaries (Cont'd.)
..............................................................................................................................
Company Country of Main activity Percentage of ownership at
Organization December 31,
..............................................................................................................................
..............................................................................................................................
2006 2005 2004
..............................................................................................................................
..............................................................................................................................
Tamdel LLC and subsidiaries (f) Mexico Holding company 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tamser S.A. de C.V. (f) Mexico Marketing of scrap 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tamsider LLC U.S.A. Holding company 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tamsider S.A. de C.V. and subsidiaries Mexico Promotion and organization of - - 100%
(g) steel-related companies and
marketing of steel products
..............................................................................................................................
..............................................................................................................................
Tamtrade S.A.de C.V. (g) Mexico Marketing of steel products - - 100%
..............................................................................................................................
..............................................................................................................................
Techint Investment Netherlands B.V. Netherlands Holding company 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tenaris Autopartes S.A. de C.V. Mexico Manufacturing of supplies for the 100% 100% 100%
automotive industry
..............................................................................................................................
..............................................................................................................................
Tenaris Confab Hastes de Bombeio S.A. Brazil Manufacturing of steel products 70% 70% 70%
for oil extraction
..............................................................................................................................
..............................................................................................................................
Tenaris Connections A.G. and Liechtenstein Ownership and licensing of steel 100% 100% 100%
subsidiaries technology
..............................................................................................................................
..............................................................................................................................
Tenaris Financial Services S.A. Uruguay Financial Services 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tenaris Fittings S.A. de C.V. Mexico Manufacturing of welded fittings 100% 100% 100%
(previously Empresas Riga S.A. de C.V.) for seamless steel pipes
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services B.V. Netherlands Sales agent of steel products 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services (B.V.I.) Ltd. B.V.I. Holding company 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services (Canada) Inc. Canada Marketing of steel products 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services de Bolivia Bolivia Marketing of steel products 100% 100% 100%
S.R.L.
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services Ecuador S.A. Ecuador Marketing of steel products 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services (Egypt) Ltd. Egypt Marketing of steel products 100% 100% -
(a)
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services Far East Pte. Singapore Marketing of steel products 100% 100% 100%
Ltd.
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services (Japan) K.K. Japan Marketing of steel products 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services (Kazakhstan ) Kazakhstan Marketing of steel products 100% 100% 100%
LLP
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services Korea Korea Marketing of steel products 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services LLC U.S.A. Sales agent of steel products 100% 100% 100%
..............................................................................................................................
46
32 Principal subsidiaries (Cont'd.)
..............................................................................................................................
Company Country of Main activity Percentage of ownership at
Organization December 31,
..............................................................................................................................
..............................................................................................................................
2006 2005 2004
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services Nigeria Ltd. Nigeria Marketing of steel products 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services Norway AS Norway Marketing of steel products 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services (Panama) S.A. Panama Marketing of steel products 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services S.A. Uruguay Holding company and marketing of 100% 100% 100%
steel products
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services (UK) Ltd. United Kingdom Marketing of steel products 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tenaris Global Services (U.S.A.) U.S.A. Marketing of steel products 100% 100% 100%
Corporation
..............................................................................................................................
..............................................................................................................................
Tenaris Investments Ltd. Ireland Holding company 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tenaris Qingdao Steel Pipes Ltd. (a) China Manufacturing of steel pipes and 100% 100% -
connections
..............................................................................................................................
..............................................................................................................................
Tenaris Supply Chain Services S.A. (b) Argentina Data administration services 98% - -
..............................................................................................................................
..............................................................................................................................
Tenaris West Africa Ltd. United Kingdom Finishing of steel pipes 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Texas Pipe Threaders Co. U.S.A. Finishing and marketing of steel 100% 100% 100%
pipes
..............................................................................................................................
..............................................................................................................................
Tubman Holdings (Gibraltar) LLP Gibraltar Holding company 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tubman International Ltd. Gibraltar Holding company 100% 100% 100%
..............................................................................................................................
..............................................................................................................................
Tubos de Acero de Mexico S.A. Mexico Manufacturing of seamless steel 100% 100% 100%
pipes
..............................................................................................................................
..............................................................................................................................
Tubos de Acero de Venezuela S.A. Venezuela Manufacturing of seamless steel 70% 70% 70%
pipes
..............................................................................................................................
..............................................................................................................................
Tubos del Caribe Ltda. (b) (l) Colombia Manufacturing of welded steel 100% - -
pipes
..............................................................................................................................
(a) Incorporated or acquired during 2005
(b) Incorporated or acquired during 2006
(c) Tenaris holds 99% of the voting shares of Confab Industrial S.A. and has,
directly or indirectly, the majority of voting rights in all of its
subsidiaries.
(d) Included in December 2004 as "Invertub S.A. and subsidiaries"
(e) Included in December 2004 as "Insirger S.A. and subsidiaries"
(f) Included in December 2004 as "Tamsider S.A. de C.V. and subsidiaries"
(g) Merged during 2005
(h) Included in December 2004 as "Dalmine Holding B.V. and subsidiaries"
(i) Merged during 2006
(j) Tenaris sold 75% of Dalmine Energie S.p.A. during 2006
(k) Tenaris sold 50% of Lomond Holdings B.V. during 2006 to a subsidiary of
Ternium.
(l) Subsidiary of Maverick Tube Corporation
(m) Sold during 2006
Carlos Condorelli
Chief Financial Officer
47
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: March 2, 2007
Tenaris, S.A.
By: /s/ Cecilia Bilesio
-----------------------
Cecilia Bilesio
Corporate Secretary