FORM 6 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
As of May 9, 2003
TENARIS, S.A.
(Translation of Registrant's name into English)
TENARIS, S.A.
23 Avenue Monterey
2086 Luxembourg
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or 40-F.
Form 20-F X Form 40-F
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12G3-2(b) under the Securities Exchange Act of 1934.
Yes ___ No X
---
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- .
The attached material is being furnished to the Securities and Exchange
Commission pursuant to Rule 13a-16 and Form 6-K under the Securities Exchange
Act of 1934, as amended. This report contains Tenaris' consolidated condensed
interim financial statements
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 9, 2003
Tenaris, S.A.
By: /s/ Cecilia Bilesio
Cecilia Bilesio
Corporate Secretary
TENARIS S.A.
CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
MARCH 31, 2003
Consolidated interim income statement
Three-month period ended
March 31,
--------------------------------
(all amounts in USD thousands) Notes 2003 2002
--------------------------------
(Unaudited)
Net sales 1 789,579 810,205
Cost of sales 2 (558,534) (544,637)
--------------------------------
Gross profit 231,045 265,568
Selling, general and administrative expenses 3 (132,998) (135,170)
Other operating income and expenses 521 (1,482)
--------------------------------
Operating income 98,568 128,916
Financial income (expenses), net 4 (22,691) (19,272)
--------------------------------
Income before tax, equity in losses of associated 75,877 109,644
companies and minority interest
Equity in losses of associated companies (9,034) (6,368)
--------------------------------
Income before income tax and minority interest 66,843 103,276
Income tax 5 (17,927) (129,148)
--------------------------------
Net income before minority interest 48,916 (25,872)
Minority interest (1) (3,404) (9,459)
--------------------------------
Net income before other minority interest 45,512 (35,331)
Other minority interest (2) - (133)
--------------------------------
Net income (loss) for the period (3) 45,512 (35,464)
================================
(1) Minority interest represents the participation of minority shareholders of
those consolidated subsidiaries not included in the exchange transaction
completed on December 13, 2002 (including Confab Industrial, NKK Tubes and
Tubos de Acero de Venezuela), as well as the participation at March 31,
2003, of minority shareholders of Siderca, Dalmine and Tamsa that did not
exchange their participation.
(2) Other minority interest represents the participation of minority
shareholders attributable to the exchanged shares, since January 1, 2002
until the end of the period.
(3) See note 6 for Earnings per share calculation.
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The limited review Report of independent auditor
on these consolidated condensed interim financial statements is issued as a
separate document.
Consolidated interim balance sheet
(all amounts in USD thousands) At March 31, 2003 At December 31, 2002
--------------------------- --------------------------
Notes (Unaudited)
ASSETS
Non-current assets
Property, plant and equipment, net 7 1,935,579 1,934,237
Intangible assets, net 7 32,939 32,684
Investments in associated companies 5,267 14,327
Other investments 158,434 159,303
Deferred tax assets 53,140 49,412
Receivables 25,096 2,210,455 16,902 2,206,865
------------- ------------
Current assets
Inventories 675,108 680,113
Receivables 140,764 155,706
Trade receivables 685,082 670,226
Cash and cash equivalents 390,051 1,891,005 304,536 1,810,581
------------- ------------
------------- --------------
Total assets 4,101,460 4,017,446
============= ==============
EQUITY AND LIABILITIES
Shareholders' Equity 1,722,972 1,694,054
Minority interest 189,388 186,783
Non-current liabilities
Borrowings 8 317,391 322,205
Deferred tax liabilities 296,198 320,753
Effect of currency translation on
tax base 100,664 114,826
Employee liabilities 117,185 123,023
Provisions 35,665 33,874
Trade payables 19,252 886,355 18,650 933,331
-------------- ------------
Current liabilities
Borrowings 8 397,282 393,690
Current tax liabilities 204,512 161,704
Other liabilities 74,199 53,428
Provisions 83,025 73,953
Customers advances 41,489 37,085
Trade payables 502,238 1,302,745 483,418 1,203,278
------------- ------------
------------- --------------
Total liabilities 2,189,100 2,136,609
------------- --------------
Total equity and liabilities 4,101,460 4,017,446
============= ==============
Contingencies and commitments (Note 10)
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The limited review Report of independent auditor
on these consolidated condensed interim financial statements is issued as a
separate document.
2
Consolidated interim statement of changes in shareholders' equity
(all amounts in USD
thousands)
Statutory balances according to Luxembourg Law Total at March 31,
---------------------------------------------- ------------------
Other Currency Retained
Share Legal Share Distributable Adjustments translation Earnings
Capital Reserves Premium Reserves to IAS adjustments (1) 2003 2002
------- -------- ------- ------------- ----------- ----------- -------- ---- ----
(Unaudited)
Balance at January 1, 1,160,701 116,070 587,493 206,744 (376,954) -- -- 1,694,054 875,401
Currency translation
differences (16,594) (16,594) (533)
Change in ownership in
Exchange Companies 1,724
Net income (loss) 45,512 45,512 (35,464)
Balance at March 31, 1,160,701 116,070 587,493 206,744 (376,954) (16,594) 45,512 1,722,972 841,128
(1) Dividends may be paid by Tenaris to the extent distributable retained
earnings calculated in accordance with Luxembourg GAAP exist. Therefore,
retained earnings included in the consolidated financial statements may
not be wholly distributable.
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The limited review Report of independent auditor
on these consolidated condensed interim financial statements is issued as a
separate document.
3
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Consolidated interim cash flow statement
(all amounts in USD thousands) Three-month period ended
March 31,
------------------------
2003 2002
(Unaudited)
Net income (loss) for the period 45,512 (35,464)
Depreciation and amortization 47,867 42,916
Tax accruals less payments 4,338 116,747
Equity in losses of associated companies 9,034 6,368
Interest accruals less payments 2,426 (7,069)
Net provisions 3,203 (8,329)
Minority interest 3,404 9,592
Change in working capital 42,280 (57,987)
-------- --------
Net cash provided by operations 158,064 66,774
-------- --------
Capital expenditure (43,611) (24,531)
Acquisitions of subsidiaries (26,232) --
Proceeds from disposition of property, plant and
equipment 658 2,185
Changes in Trust fund -- (10,565)
-------- --------
Net cash used in investment activities (69,185) (32,911)
-------- --------
Proceeds from borrowings 84,493 97,184
Repayments of borrowings (94,374) (86,469)
-------- --------
Net cash (used in) provided by financing (9,881) 10,715
activities --
Increase in cash and cash equivalents 78,998 44,578
-------- --------
Cash at January 1, 304,536 213,814
Effect of exchange rate changes on cash
and cash equivalents 298 (75)
Increase in cash and cash equivalents provided by
business acquisitions 6,219 --
Increase 78,998 44,578
-------- --------
Cash at March 31, 390,051 258,317
-------- --------
Non-cash financing activity:
Fair value adjustment of minority interest
acquired 748 --
-------- --------
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. The limited review Report of independent auditor
on these consolidated condensed interim financial statements is issued as a
separate document.
4
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Accounting policies
Index to accounting policies
A Business of the Company and basis of presentation
B Translation of financial statements and transactions in currencies
other than the measurement currency
C Use of estimates
D Summary of accounting policies regarding specific asset and liability
categories
E Revenue recognition
F Earnings per share
5
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Accounting policies
The consolidated condensed interim financial statements have been prepared in
accordance with International Accounting Standards ("IAS") adopted by the
International Accounting Standards Board ("IASB") and interpretations issued by
the Standing Interpretations Committee ("SIC") of the IASB.
These consolidated condensed interim financial statements have been prepared in
accordance with IAS 34, "Interim Financial Reporting". The accounting policies
used in the preparation of the interim financial statements are consistent with
those used in the consolidated combined financial statements for the year ended
31 December 2002, unless specified. These interim financial statements should be
read in conjunction with the said consolidated combined annual financial
statements for the year ended December 31, 2002.
The following is a summary of the principal accounting policies followed in the
preparation of these consolidated condensed interim financial statements. This
summary has been included for the convenience of the reader and should not be
regarded as a complete explanation of the accounting policies used by the
Company.
A Business of the Company and basis of presentation
Tenaris S.A. (the "Company" or "Tenaris"), a Luxembourg corporation, was
incorporated on December 17, 2001, to hold investments in steel pipe
manufacturing and distributing companies. The Company holds, either
directly or indirectly, controlling interests in certain subsidiary
companies. A detail of these holdings is included in Note 29 to the
consolidated combined financial statements for the year ended December 31,
2002.
On November 11, 2002 Tenaris announced the commencement of its offer to
exchange its ordinary shares and ADSs for all outstanding Class A ordinary
shares and ADSs of Siderca, all outstanding common shares and ADSs of
Tamsa and all outstanding ordinary shares of Dalmine ("the Exchange
Offer"). The Exchange Offer was concluded successfully on December 13,
2002. As a result of the transaction, the Company acquired 27.94% of
Siderca shares and ADSs, 43.73% of Tamsa shares and ADSs and 41.19% of
Dalmine shares. Therefore, at the conclusion of the Exchange Offer,
Tenaris held directly or indirectly 99.11%, 94.50% and 88.41% of the share
capital of Siderca, Tamsa and Dalmine, respectively. Changes occurred to
Tenaris' holdings in subsidiaries during the three-month period ended
March 31, 2003 are described in Note 12 to these consolidated financial
statements.
At March 31, 2003 the financial statements of Tenaris and its subsidiaries
have been consolidated. At March 31, 2002 and up to October 18, 2002,
Tenaris' subsidiaries were under the common control of Sidertubes S.A.
Thus, for comparative purposes, the consolidated financial statements of
Siderca, Dalmine, Tamsa and Tenaris Global Services and their respective
subsidiaries at March 31, 2002 have been retroactively combined at the
relevant predecessor's cost, reflecting the carrying amount of such assets
and liabilities with those of the Company and presented as one company
("Tenaris") in the consolidated combined condensed interim financial
statements at that date. The percentages of ownership and voting rights
considered in the preparation of such consolidated combined financial
statements correspond to those of the parent company at that period-end.
Certain reclassifications of balances and elimination of all material
intercompany transactions and balances between the Company and the other
consolidated companies and their respective subsidiaries have been made.
6
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Accounting policies (Cont'd.)
B Translation of financial statements and transactions in currencies other
than the measurement currency
The measurement currency of Tenaris is the U.S. dollar. Although the
Company is located in Luxembourg, Tenaris operates in several countries
with different currencies. The U.S. dollar is the currency that better
reflects the economic substance of the underlying events and circumstances
relevant to Tenaris as a whole. Generally, the measurement currency of the
main companies in these financial statements is the respective local
currency. As further explained in the Company's consolidated combined
financial statements for the year ended December 31, 2002, the measurement
currency for Siderca is the U.S. dollar, because:
- Siderca is located in Argentina and its local currency is affected
by recurring severe economic crisis
- sales are denominated and settled in U.S. dollars or, if in a
currency other than the U.S. dollar, the price is sensitive to
movements in the exchange rate with the U.S. dollar;
- purchases of critical raw materials are financed in U.S. dollars
generated by financing or operating activities;
- most of the net financial assets and liabilities are mainly obtained
and retained in U.S. dollars.
Income statements of subsidiary companies stated in currencies other than
the U.S. dollar are translated into U.S. dollars at the weighted average
exchange rates for the period, while balance sheets are translated at the
exchange rates at period end. Translation differences are recognized in
shareholders' equity. In case of sale or other disposition of any such
subsidiary, any accumulated translation differences would be recognized in
the income statement as part of the gain or loss on sale.
Transactions in currencies other than the measurement currency are
accounted for at the exchange rates prevailing at the date of the
transactions, and their corresponding exchange gains and losses are
recognized in the income statement. Further reference regarding the
accounting policies applied for the translation of financial statements
and transactions subject to the consolidation process is included in the
notes to the Company's consolidated combined financial statements for the
year ended December 31, 2002.
C Use of estimates
The preparation of financial statements requires management to make
estimates and assumptions that 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 periods. Actual results may differ from these
estimates.
D Summary of accounting policies regarding specific asset and liability
categories
An overview of relevant accounting policies applied in the recognition and
valuation of assets and liabilities is described below. A more detailed
description is included in the notes to the Company's consolidated
combined financial statements for the year ended December 31, 2002.
7
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Accounting policies (Cont'd.)
D Summary of accounting policies regarding specific asset and liability
categories (Cont'd)
(1) Property, plant and equipment and Intangible assets
Property, plant and equipment are recognized at historical acquisition or
construction cost less depreciation, calculated using the straight line
method to amortize the cost of each asset over its estimated useful life.
In the case of business acquisitions proper consideration to the fair
value of the assets has been given as explained in the notes to the
consolidated combined financial statements for the year ended December 31,
2002. Expenditure is capitalized as property, plant and equipment only
when the investment enhances the condition of an asset beyond its original
condition.
Intangible assets including goodwill; certain costs directly related to
the development, acquisition and implementation of information system; and
expenditures on acquired patents, trademarks, technology transfer and
licenses are capitalized and amortized using the straight line method over
their useful lives; the useful lives of Tenaris' intangible assets average
4 years and none exceeds 20 years. Research and development expenditure is
recognized as expenses as incurred. Negative goodwill is recognized as
income on a systematic basis over the remaining weighted average useful
life of the identifiable acquired depreciable assets.
In all cases where the carrying amount of an asset is greater than its
estimated recoverable amount, it is written down immediately to its
recoverable amount. However, management considers that there has been no
reason to effect an impairment in the carrying value of property, plant
and equipment or intangible assets.
(2) Impairment
Circumstances affecting the recoverability of tangible and intangible
assets may change. If this happens, the recoverable amount of the relevant
assets is estimated. The recoverable amount is determined as the higher of
the asset's net selling price and the present value of the estimated
future cash flows. If the recoverable amount of the asset has dropped
below its carrying amount the asset is written down immediately to its
recoverable amount.
No impairment provisions were recorded, other than the investment in
Amazonia, as reflected in Note 11 to the consolidated combined financial
statements for the year ended December 31, 2002.
(3) Other investments
All the Company's investments are currently classified as
available-for-sale in non-current assets in accordance with IAS 39.
Other investments comprise mainly financial resources placed by Siderca,
Siat and Confab within trusts, the objective of which is exclusively to
ensure that the financial needs for normal development of their operations
are met.
All purchases and sales of investments are recognized on the trade date,
not significantly different from the settlement date, which is the date
that Tenaris commits to purchase or sell the investment. Costs include
transaction costs.
Subsequent to their acquisition, available-for-sale investments are
carried at fair value. Realized and unrealized gains and losses arising
from changes in the fair value in those investments are included in the
income statement for the period in which they arise. Investments in
companies for which fair values cannot be measured reliably are reported
at cost less impairment.
8
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Accounting policies (Cont'd.)
D Summary of accounting policies regarding specific asset and liability
categories (Cont'd)
(4) Inventories
Inventories are stated at the lower of cost and net realizable value
(calculated principally using the average cost method). The cost of
finished goods and work in progress comprises raw materials, direct labor,
other direct costs and related production overheads. Net realizable value
is estimated collectively for inventories as the selling price in the
ordinary course of business, less the costs of completion and selling
expenses. Goods in transit at period end are valued at supplier invoice
cost. An allowance for obsolescence or slow-moving inventory is made in
relation to supplies and spare parts and based on the management's
analysis of their aging.
(5) Trade receivables
Trade receivables are carried at original invoice amount less an estimate
made for doubtful receivables.
This estimate is calculated as a percentage of sales based on historical
statistics and on the probability, based on current information and
events, that the Company will be unable to collect all amounts due. A
provision for customer claims is constituted when a claim is made and
management estimates that despite its efforts, the amount due is unlikely
to be collected in full.
At March 31, 2003 the allowance for doubtful accounts and provision for
customer claims that were deducted from the corresponding gross accounts
receivable totaled USD33.7 million.
(6) Borrowing
Borrowings are recognized initially for an amount equal to the proceeds
received net of transaction costs. In subsequent periods, borrowings are
stated at amortized cost; any difference between proceeds and the
redemption value is recognized in the income statement over the period of
the borrowings.
(7) Deferred income taxes
Under present Luxembourg law, so long as the Company maintains its status
as a holding billionaire company, no income tax, withholding tax
(including with respect to dividends), or capital gain tax is payable in
Luxembourg by the Company. The current income tax charge is calculated on
the basis of the tax laws in force in the countries where Tenaris'
subsidiaries operate. Deferred income tax is provided in full, using the
liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the financial
statements. A more detailed description of temporary differences can be
found in the Company's consolidated combined financial statements for the
year ended December 31, 2002.
(8) Employee-related liabilities
(a) Employees' statutory profit sharing
Under Mexican law, Tenaris's Mexican subsidiary companies are required to
pay an annual benefit to their employees, which is calculated on the basis
of the performance of each company. Employees' statutory profit sharing is
provided under the liability method. Temporary differences arise between
the "statutory" bases of assets and liabilities used in the determination
of the profit sharing and their carrying amounts in the financial
statements.
9
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Accounting policies (Cont'd.)
D Summary of accounting policies regarding specific asset and liability
categories (Cont'd)
(8) Employee-related liabilities (Cont'd)
(b) Employees' severance indemnity
An employees' severance indemnity provision is recorded, which comprises
the liability accrued on behalf of Dalmine and Tamsa employees at the
balance sheet date in accordance with current legislation and the labor
contracts in effect in the respective countries.
Employees' severance indemnity costs are assessed using the projected unit
credit method: the cost of providing this obligation is charged to the
income statement over the service lives of employees in accordance with
the advice of the actuaries. This provision is measured at the present
value of the estimated future cash outflows using applicable interest
rates.
(c) Pension obligations
Certain Siderca officers are encompassed by a defined benefit employee
retirement plan (the "Siderca Plan") designed to provide retirement,
termination and other benefits to those officers.
Siderca is accumulating assets for the ultimate payment of those benefits
in the form of investments that carry time limitation for their
redemption. The investments are not part of a particular plan nor
segregated from Siderca's other assets. Due to these conditions, the plan
is classified as "unfunded" under International Accounting Standards
definition.
Retirement costs are assessed using the projected unit credit method: the
cost of providing retirement benefits is charged to the income statement
over the service lives of employees based on actuarial calculations. This
provision is measured at the present value of the estimated future cash
outflows using applicable interest rates. Actuarial gains and losses are
recognized over the average remaining service lives of employees.
Benefits provided by the plan are in U.S. Dollars, but depend on a
three-year or seven years salary average (the better option for the
beneficiary) if the event of retirement happened between January 1, 2002
and December 31, 2003 and, after this date, the benefits of the plan
depend on a seven-year salary average.
(9) Provisions and Other liabilities
Provisions are accrued to reflect estimations of amounts due relating to
incurred expenses for which billing remains outstanding based on
information available as of the date of preparation of the financial
statements. Furthermore, Tenaris accrues liabilities when it is probable
that future cost could be incurred and that cost can be reasonably
estimated in relation to a contingent liability or potential claim,
resulting from lawsuits and other proceedings.
Restructuring provisions mainly comprise employee termination benefits
which are recognized only when Tenaris has a constructive obligation to
effect a restructuring plan, generally occurs when an agreement has been
reached with employee representatives on the terms of redundancy and the
number of employees affected or after individual employees have been
advised of the specific terms.
10
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Accounting policies (Cont'd.)
E Revenue recognition
Revenues are recognized as sales when revenue is earned and is realized or
realizable. This includes satisfying the following criteria: the
arrangement with the customer is evident, usually through the receipt of a
purchase order; the sales price is fixed or determinable; delivery has
occurred.
Other revenues earned by Tenaris are recognized on the following bases:
- Interest income: on an effective yield basis.
- Dividend income from investments in companies under cost method:
when Tenaris' right to receive collection is established.
F Earnings per share
Earnings per share are calculated by dividing the net income attributable
to shareholders by the daily weighted average number of ordinary shares
issued during the period. See Note 6.
11
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements
Index to the notes to the consolidated condensed interim financial statements
1 Segment information
2 Cost of sales
3 Selling, general and administrative expenses
4 Financial income (expenses), net
5 Tax charge
6 Earnings per share
7 Property, plant and equipment and Intangible assets, net
8 Borrowings
9 Derivative financial instruments
10 Contingencies and commitments
11 Other events with potential impact on minority interest
12 Acquisitions
12
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements (In the notes
all amounts are shown in USD thousands, unless otherwise stated)
1 Segment information
Primary reporting format-business segments
Welded &
Other
Metallic
Seamless Products Energy Other Total
Three-month period (Unaudited)
ended March 31, 2003
Net sales 565,565 98,521 72,081 53,412 789,579
Cost of sales (375,174) (66,189) (71,310) (45,861) (558,534)
Gross profit 190,391 32,332 771 7,551 231,045
Depreciation and
amortization 43,564 2,008 1,133 1,162 47,867
Three-month period
ended March 31, 2002
Net sales 567,317 145,269 47,677 49,942 810,205
Cost of sales (360,508) (95,390) (44,883) (43,856) (544,637)
Gross profit 206,809 49,879 2,794 6,086 265,568
Depreciation and
amortization 39,261 2,299 473 883 42,916
Tenaris's main business segment is the manufacture of seamless pipes.
Intersegment net sales from "Energy" to "Seamless" amounted to USD 16,893
and USD 12,862 for the three-month periods ended March 31, 2003 and 2002,
respectively.
Intersegment net sales from "Welded" to "Seamless" amounted to USD 296 and
USD 1,582 for the three-month periods ended March 31, 2003 and 2002,
respectively.
Intersegment net sales from "Other" to "Seamless" amounted to USD 16,616
and USD 10,735 for the three-month periods ended March 31, 2003 and 2002,
respectively.
Intersegment net sales from "Seamless" to "Other" amounted to USD 1,096
and USD 833 for the three-month periods ended March 31, 2003 and 2002,
respectively.
13
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements (Cont'd.)
1 Segment information (Cont'd)
Secondary reporting format-geographical segments
------------------------------------------------------------
South Europe North Middle East Far East & Total
America America and Africa Oceania
------------------------------------------------------------
Three-month period ended (Unaudited)
March 31, 2003
Net sales 189,557 226,371 182,792 90,801 100,058 789,579
Depreciation and
amortization 28,752 11,914 5,811 3 1,387 47,867
Three-month period ended
March 31, 2002
Net sales 240,608 205,114 135,159 135,033 94,291 810,205
Depreciation and
amortization 21,239 10,339 10,214 -- 1,124 42,916
Allocation of net sales is based on the customers' location. Allocation of
depreciation and amortization are based on the related assets' location.
Although Tenaris's business is managed on a worldwide basis, the companies
forming part of Tenaris operate in five main geographical areas, as shown
above.
2 Cost of sales
Three-month period ended
March 31,
------------------------
2003 2002
------- -------
(Unaudited)
Raw materials and consumables used and
change in inventories 352,505 354,745
Services and fees 75,705 61,037
Labor cost 65,967 63,232
Depreciation of property, plant and
equipment 39,490 37,040
Amortization of intangible assets 1,160 1,472
Maintenance expenses 12,042 13,536
Provisions for contingencies 1,783 2,736
Allowance for obsolescence 520 1,521
Taxes 1,150 993
Others 8,212 8,325
------- -------
558,534 544,637
------- -------
14
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements (Cont'd.)
3 Selling, general and administrative expenses
Three-month
period ended
March 31,
-----------------
2003 2002
------- -------
(Unaudited)
Commissions, freights and other selling expenses 45,783 68,575
Labor cost 30,788 30,291
Services and fees 28,639 20,049
Taxes 9,422 2,765
Depreciation of property, plant and equipment 4,412 2,731
Amortization of intangible assets 2,805 1,673
Provisions for contingencies 1,356 601
Allowance for doubtful accounts 248 2,654
Others 9,545 5,831
------- -------
132,998 135,170
------- -------
4 Financial income (expenses), net
Three-month
period ended
March 31,
-----------------
2003 2002
------- -------
(Unaudited)
Interest expense (7,591) (7,455)
Interest income 2,265 3,457
Net foreign exchange transaction losses (1) (16,581) (6,278)
Financial discount on trade receivables -- (8,810)
Others (784) (186)
------- -------
(22,691) (19,272)
------- -------
(1) Net foreign exchange transactions losses for the three-month periods ended
March 31, 2003 and 2002 do not include the impact of currency fluctuations on
income tax provisions.
5 Tax charge
Three-month
period ended
March 31,
-----------------
2003 2002
------- -------
(Unaudited)
Current tax 48,101 86,288
Deferred tax (16,012) 1,688
Effect of currency translation on tax base (a) (14,162) 41,172
-------- --------
17,927 129,148
-------- --------
(a) As discussed in Note D (7), Tenaris, using the liability method, recognizes
a deferred income tax charge on temporary differences between the tax bases of
its assets and their carrying amounts in the financial statements. By
application of this method, Tenaris recognized the impact of deferred income tax
due to the effect of the devaluation of the Argentine peso on the tax bases of
the non-monetary assets of its Argentine subsidiaries.
15
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements (Cont'd.)
6 Earnings per share
(i) Under IAS, Earnings per share are calculated by dividing the net income
attributable to shareholders by the daily weighted average number of
ordinary shares issued during the period. The weighted average number of
ordinary shares for the three-month period ended March 31, 2002 was
determined considering that the 710,747,090 shares issued for Sidertubes
contribution were issued and outstanding as of January 1, 2002.
Three-month period ended
March 31,
2003 2002
------------------------
(Unaudited)
Net income attributable to shareholders 45,512 (35,464)
Weighted average number of ordinary
shares in issue (thousands) 1,160,701 710,747
Basic and diluted earnings per share
0.04 (0.05)
(ii) As explained in the notes to the consolidated combined financial
statements for the year ended December 31, 2002 the Sidertubes
contribution and the exchange transaction took place in 2002. For a better
understanding of the reader and future comparisons the Company has
calculated the pro-forma Earnings per share as if these transactions had
taken place on January 1, 2002, as follows:
Three-month period ended
March 31,
2003 2002
------------------------
(Unaudited)
Net income attributable to shareholders 45,512 (35,331)
Weighted average number of ordinary
shares in issue (thousands) 1,160,701 1,160,701
Basic and diluted earnings per share 0.04 (0.03)
7 Property, plant and equipment and Intangible assets, net
Net Property, Net
Plant and Intangible
Equipment Assets
------------- -----------
Three-month period ended March 31, 2003 (Unaudited) (Unaudited)
Opening net book amount 1,934,237 32,684
Translation differences (13,855) 459
Additions 38,542 3,761
Increase due to business combinations 21,215 --
Disposals (658) --
Depreciation/ Amortization charge (43,902) (3,965)
--------- ------
At March 31, 2003 1,935,579 32,939
--------- ------
16
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements (Cont'd.)
8 Borrowings
At March 31, At December 31,
2003 2002
------------ ---------------
(Unaudited)
Non-current
Bank borrowings 250,328 260,596
Debentures 56,268 54,187
Finance lease liabilities 10,795 7,422
-------- --------
317,391 322,205
-------- --------
Current
Bank borrowings 385,714 380,380
Bank overdrafts 7,636 9,649
Finance lease liabilities 4,781 4,176
Costs for issue of debt (849) (515)
-------- --------
397,282 393,690
-------- --------
Total borrowings 714,673 715,895
-------- --------
9 Derivative financial instruments
The net fair values of derivative financial instruments at the balance
sheet date, in accordance with IAS 39, were:
Net fair value of derivative financial At March 31, At December 31,
instruments 2003 2002
------------ ---------------
(Unaudited)
Contracts with positive fair values:
Interest rate swaps 385 556
Forward foreign exchange contracts 2,035 2,867
Commodities contracts 182 639
Contracts with negative fair values:
Interest rate swap contracts (5,092) (3,274)
Forward foreign exchange contracts (1,910) (777)
Commodities contracts (3,390) (3,511)
10 Contingencies and commitments
Tenaris is involved in litigation arising from time to time in the
ordinary course of business (exception made of the litigation with the
consortium led by BHP -see (i) below-. Based on management's assessment
and the advice of legal counsel, it is not anticipated that the ultimate
resolution of existing litigation will result in amounts in excess of
recorded provisions that would be material to the Tenaris's consolidated
financial position or income statement.
17
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements (Cont'd.)
10 Contingencies and commitments (Cont'd.)
(i) Claim against Dalmine
In June 1998, British Steel plc ("British Steel") and Dalmine were sued by
a consortium led by BHP Petroleum Ltd. ("BHP") before the Commercial Court
of the High Court of Justice Queen's Bench Division of London. The action
concerns the failure of an underwater pipeline built in 1994 in the Bay of
Liverpool. Dalmine, at that time a subsidiary of Ilva S.p.A. ("Ilva"),
supplied pipe products to British Steel, which, in turn, resold them to
BHP for use in constructing the Bay of Liverpool pipeline. BHP claimed
that British Steel breached the contract of sale relating to the pipe and
that the pipe was defectively manufactured by Dalmine.
The products sold were valued at 1.9 million British pounds ("GBP") and
consisted of pipe for use in maritime applications. Dalmine received court
notice of the action more than two years after the contractual warranty
covering the pipe had expired and four years after the pipe was delivered
and placed into operation. British Steel and Dalmine denied the claim on
the basis that the warranty period had expired and, in the alternative,
that the amount claimed exceeded the contractual limitation of liability
(equal to GBP300 thousand, or approximately 15% of the value of the
products supplied).
The Commercial Court dismissed the contract claim against British Steel.
The decision was subsequently confirmed by the Court of Appeals in a
ruling issued on April 7, 2000, as a result of which the claim against
British Steel was definitively dismissed. BHP's product liability claim
against Dalmine remained outstanding.
On November 24, 2000, the Commercial Court granted BHP permission to amend
its pleading against Dalmine to include a deceit tort claim under English
law based on inconsistencies between the results of internal chemical
tests performed by Dalmine on the pipe and the results shown in the
quality certificates issued to BHP by Dalmine. In May 2002, the trial
court issued a judgment in favor of BHP, holding that the products
supplied by Dalmine were the cause for the failure of the gas pipeline and
that Dalmine was liable for damages to BHP. The court's judgment was
limited to the issue of liability, and the amount of damages to be awarded
to BHP is being determined in a separate proceeding. Dalmine's petition to
the trial court for leave to appeal its judgment was denied, but
subsequently granted by the Court of Appeals. However, on February 5,
2003, the Court of Appeals dismissed Dalmine's appeal, closing the dispute
on the issue of liability.
BHP has indicated in court proceedings that it will seek damages of
approximately GBP35 million to cover the cost of replacing the pipeline,
GBP70 million to compensate for consequential damages, GBP73 million to
cover loss or deferred revenues, GBP31 million to compensate for increased
income tax resulting from a change in law plus interest and costs for
unspecified amounts. Subsequent to the court's judgment in favor of BHP on
the issue of liability, BHP petitioned the court for an interim judgment
of damages in the amount of approximately GBP37 million to cover the cost
of replacing the pipeline. On July 31, 2002, Dalmine agreed to pay BHP
GBP15 million (approximately USD22.5 million) in interim damages. The
court is now expected to hear arguments regarding, and issue its final
judgment on, total damages during the first half of 2004.
18
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements (Cont'd.)
10 Contingencies and commitments (Cont'd.)
Based on the information provided so far by BHP, Dalmine considers that
the compensation requested to cover the cost of replacing the pipeline
exceeds the cost actually incurred for such purpose. Taking into
consideration such information and the preliminary views expressed by
independent experts, Dalmine believes that certain of the other claims
fail to show an appropriate connection with the events for which Dalmine
was found responsible, while others appear to exceed the damage actually
incurred.
Dalmine created a provision in the amount of EUR45 million (USD41.3
million) in its results for 2001 to account for potential losses as a
result of BHP's lawsuit. During 2002, in light of the practical
difficulties to come to a precise estimate of the liability in view of the
complexity and diversity of the elements brought to the proceedings by
BHP, Dalmine has decided to increase the amount of the provision by EUR20
million (USD18.9 million), inclusive of interest accrued and legal
expenses incurred in connection with such proceedings. Dalmine has stated
that the provision was created and increased as a prudent way of complying
with applicable accounting principles, and should therefore not be
regarded as an admission of indemnification payable to the plaintiffs.
The pipe that is the subject of this lawsuit was manufactured and sold,
and the tort alleged by BHP took place, prior to the privatization of
Dalmine, and Techint Investments Netherlands BV ("Tenet") -the Siderca
subsidiary party to the contract pursuant to which Dalmine was privatized-
believes that, under the Dalmine privatization contract, Tenet should be
entitled to recover from Fintecna S.p.A. ("Fintecna") on behalf of Dalmine
(as a third party beneficiary under the Dalmine privatization contract)
84.08% of any damages it may be required to pay BHP. Tenet has commenced
arbitration proceedings against Fintecna to compel it to indemnify Dalmine
for any amounts Dalmine may be required to pay BHP. Fintecna has denied
that it has any contractual obligation to indemnify Dalmine, asserting
that the indemnification claim is time-barred under the terms of the
privatization contract and, in any event, subject to a cap of EUR13
million. Tenet disputes this assertion. The arbitration proceedings were
suspended at a preliminary stage pending a decision by the British trial
court in BHP's lawsuit against Dalmine. Upon request by Tenet and Dalmine,
the arbitration panel decided to resume the proceedings in light of the
court of appeal's recent decision to dismiss Dalmine's appeal against the
judgment of liability in favor of BHP.
(ii) Consorcio Siderurgia Amazonia, Ltd.
In January 1998, Amazonia purchased a 70% equity interest in CVG
Siderurgica del Orinoco C.A. ("Sidor") from the Venezuelan government.
Tamsider, a wholly-owned subsidiary of Tamsa had an initial 12.50% equity
interest in Amazonia, which increased to 14.11% in March 2000 as a result
of additional investments as described below. As of March 31, 2003,
Tamsider's equity interest in Amazonia remained at 14.11%. The Venezuelan
government continues to own a 30% equity interest in Sidor.
Sidor, located in the city of Guayana in southeast Venezuela, is the
largest integrated steel producer in Venezuela and the sixth largest
integrated steel producer in Latin America, with an installed capacity of
more than 3.5 million tons of liquid steel per year. In 2002, Sidor
shipped 3.2 million tons of steel.
19
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements (Cont'd.)
10 Contingencies and commitments (Cont'd.)
Sidor has experienced significant financial losses and other problems
since the acquisition by Amazonia in January 1998, despite a significant
reduction in Sidor's workforce and management's efforts to improve the
production process and reduce operating costs. In 1999, due to negative
conditions in the international steel market, a sustained and intensifying
domestic recession in Venezuela, deteriorating conditions in the credit
markets, an increase in the value of the Venezuelan currency relative to
the U.S. Dollar and other adverse factors, Sidor and Amazonia incurred
substantial losses and were unable to make payments due under loan
agreements with their respective creditors. In 2000, these loan agreements
were restructured. Despite continued efforts by Sidor's management to
improve technology and optimize production levels, in late 2001 Sidor and
Amazonia were again unable to make payments due under the restructured
loan agreements, following a continuation and aggravation of the same
negative factors described above accompanied by increased competition from
steel imports in Venezuela. Sidor and Amazonia are currently involved in
discussions with their creditors and the Venezuelan government regarding a
possible restructuring of their loan agreements. As of December 31, 2002,
Sidor had approximately USD1.58 billion of indebtedness (secured in part
by fixed assets valued at USD827.0 million as determined at the time
Sidor's loans were restructured in March 2000) and Amazonia had
approximately USD313 million of indebtedness. We cannot give you any
assurance as to whether Sidor or Amazonia will succeed in restructuring
their existing indebtedness, or that their lenders will not accelerate any
defaulted indebtedness in accordance with the terms of the applicable loan
agreements or foreclose on any of the assets of Sidor or Amazonia pledged
as collateral.
As a result of the adverse trends discussed above, Tamsider made
additional capital contributions to Amazonia, resulting from the
restructuring concluded in 2000, while recording significant losses in the
value of its investment. In addition to its initial capital contribution
of USD87.8 million, Tamsider was required to make capital contributions in
the amount of USD36.1 million (of which USD18.0 million took the form of a
convertible subordinated loan to Amazonia, as described below) in
connection with the restructuring of Amazonia's loan agreements in 2000.
The value of Tamsider's investments (as recorded in Tamsa's consolidated
financial statements) has decreased significantly since 1998, from USD94.2
million as of December 31, 1998, to USD4.2 million as of March 31, 2003.
Further losses and provisions may be recorded in respect of Tamsider's
investment in Amazonia. Subject to various conditions it is currently
contemplated that Tamsider would make additional capital contributions as
a part of a restructuring of Sidor's and Amazonia's existing indebtedness.
In addition to the risk of further losses in the equity value of its
investment, Tamsider has significant exposure in respect of its investment
in Amazonia under several agreements and guarantees. Below is a
description of the nature and extent of this exposure. We cannot predict
whether Tamsider will be required to make payments or will otherwise incur
losses under these agreements and guarantees.
20
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements (Cont'd.)
10 Contingencies and commitments (Cont'd.)
o The Sidor purchase agreement between Amazonia and the Venezuelan
government requires the shareholders of Amazonia, including
Tamsider, to indemnify the government for breaches by Amazonia of
the Purchase Agreement up to a maximum amount of USD150.0 million
for five years from the acquisition date. In connection with this
indemnity, the shareholders of Amazonia are required to maintain a
performance bond (which Tamsa has guaranteed directly) for five
years, beginning in 1998, in the amount of USD150.0 million during
the first three years, USD125 million in the fourth year and USD75.0
million in the fifth year. Tamsider's maximum liability under the
indemnity would be USD18.8 million, as its obligations with respect
to the indemnity are proportional to its initial 12.50% equity
interest in Amazonia. The five-year period covered by the
indemnification clause included in the purchase agreement expired on
January 26, 2003; all events occurred after the date of expiration
are not subject to the provisions of the said clause.
o The Sidor purchase agreement further requires the shareholders of
Amazonia to guarantee, also on a proportional basis, the principal
and a portion of the interest payable under a loan made to Sidor by
the Venezuelan government. Tamsider's maximum liability under this
guarantee, which continues to apply to the loan as restructured in
2000, is USD92.2 million.
o The loan agreement between Amazonia and a group of private lenders
(the proceeds of which were used by Amazonia to finance the
acquisition of its equity interest in Sidor) required the
shareholders of Amazonia, including Tamsider, to pledge their shares
in Amazonia as security and also required Amazonia to pledge its
shares in Sidor as security. These pledges continue to apply to the
loan as restructured in 2000.
o As discussed above, in connection with the restructuring of
Amazonia's loan agreements in 2000, the shareholders of Amazonia,
including Tamsider, were required to make additional capital
contributions in part by making subordinated loans convertible into
additional shares of Amazonia. Tamsider made a subordinated loan of
USD18 million to Amazonia as a result of this requirement.
o Also in connection with the restructuring of Amazonia's loan
agreements in 2000, the parent companies of several shareholders of
Amazonia, including Tamsider, were required to enter into a put
agreement pursuant to which they agreed to purchase, upon certain
conditions and in no case prior to December 31, 2007, up to USD25
million in loans payable by Amazonia to its private lenders. The
shareholders of Amazonia also delivered a letter to these lenders
contemplating the possibility of additional capital contributions of
up to USD20 million in the event of extreme financial distress at
Sidor. Tamsa's obligations under the put agreement, and Tamsider's
share of any capital contribution under the letter, are limited in
proportion to its interest in Amazonia when the put is exercised or
the contribution is made. Based on Tamsider's current 14.1% equity
interest in Amazonia, Tamsa's aggregate liability under the put
agreement would be limited to a maximum of USD3.5 million and
Tamsider's share of any capital contribution under the letter would
be limited to a maximum of USD2.8 million.
21
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements (Cont'd.)
10 Contingencies and commitments (Cont'd.)
(iii) Tax claims
Siderca
On December 18, 2000, the Argentine tax authorities notified Siderca of an
income tax assessment related to the conversion of tax loss carry-forwards
into Debt Consolidation Bonds under Argentine Law No. 24,073. The
adjustments proposed by the tax authorities represent an estimated
contingency of ARP44.5 million (approximately USD14.9 million) at March
31, 2003 in tax and penalties. On the basis of information from Siderca's
tax advisors, Tenaris believes that the ultimate resolution of the matter
will not result in a material obligation. Accordingly, no provision was
recorded in the financial statements.
(iv) Other proceedings
Dalmine is currently subject to a criminal proceeding before the Court of
Bergamo, Italy, and two civil proceedings for work-related injuries
arising from its use of asbestos in its manufacturing processes from 1960
to 1980. In addition, some other asbestos related out-of-court claims have
been forwarded to Dalmine. Of the 39 claims (inclusive of the out-of-court
claims), 13 incidents have already been settled or are to be covered by
Dalmine's insurer. Dalmine estimates that its potential liability in
connection with the remaining cases not yet settled or covered by
insurance is approximately EUR7.0 million (USD7.6 million). This amount
was recognized as a provision for liabilities and expenses as of December
31, 2002.
(v) Contingent liabilities
Tenaris had the following contingent liabilities at the corresponding
period ends:
-----------------------------
At March 31, At December 31,
2003 2002
-----------------------------
(Unaudited)
Third party assets held in
custody by Tenaris 8,559 17,603
Deposit guarantees and
other guarantees 246,724 179,924
-------- ---------
Total 255,283 197,527
-------- ---------
(vi) Commitments
The following are the main off-balance sheet commitments:
(a) Tamsa entered into an off-take contract with Complejo Siderurgico de
Guayana C.A. ("Comsigua") to purchase on a take-and-pay basis 75,000
tons of hot briquette iron, or HBI, annually for twenty years
beginning in April 1998 with an option to terminate the contract at
any time after the tenth year upon one year's notice. Pursuant to
this off-take contract, Tamsa would be required to purchase the HBI
at a formula price reflecting Comsigua's production costs during the
first eight contract years; thereafter, it would purchase the HBI at
a slight discount to market price.
22
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements (Cont'd.)
10 Contingencies and commitments (Cont'd.)
The agreements among the parties provide that, if during the eight-year
period the average market price is lower than the formula price paid
during such period, Tamsa would be entitled to a reimbursement of the
difference plus interest, payable after the project financing and other
specific credits are repaid. In addition, under the shareholders'
agreements, Tamsa has the option to purchase on an annual basis up to a
further 80,000 tons of HBI produced by Comsigua at market prices. Under
its off-take contract with Comsigua, as a result of weak market prices for
HBI , Tamsa has paid higher-than-market prices for its HBI and according
to the original contract accumulated a credit that, at December 31, 2002,
amounted to approximately USD12.6 million. This credit, however, is offset
by a provision for an equal amount recorded.
In connection with Tamsa's original 6.9% equity interest in Comsigua,
Tamsa paid USD8.0 million and agreed to cover its proportional (7.5%)
share of Comsigua's cash operating and debt service shortfalls. In
addition, Tamsa pledged its shares in Comsigua and provided a proportional
guarantee in support of the USD156 million (USD76.8 million outstanding as
of March 31, 2003) project financing loan made by the International
Finance Corporation, or IFC, to Comsigua. In February and December 2002,
Tamsa was required to pay USD1.3 million and USD0.2 million respectively,
representing its share of a shortfall of USD14.7 million payable by
Comsigua under the IFC loan and additional operating shortfalls of USD5.3
million. Comsigua's financial condition has been adversely affected by the
consistently weak international market conditions for HBI since its
start-up in 1998 and, unless market conditions improve substantially,
Tamsa may be required to make additional proportional payments in respect
of its participation in Comsigua and continue to pay higher-than-market
prices for its HBI pursuant to its ff-take contract.
(b) Tamsa purchases from Pemex, at prevailing international prices, natural
gas used for the furnaces that reheat steel ingots in the pipe making
process. In February, 2001, Tamsa signed an agreement with Pemex, for the
supply of 296,600 million BTUs (British Thermal Units per month) of
natural gas from January 1, 2001 until December 31, 2003, at a fixed price
of USD4.00 per million of BTUs. In order to cover a decrease in natural
gas prices, in March 2001, Tamsa entered into a forward contract with
Enron North America Corp.("Enron"), with the option to sell up to 200,000
million BTUs per month of natural gas, at a minimum base price of USD4.05
per million of BTUs, from March 2002, through December 2003.
As a result of Enron's bankruptcy in late 2001, no reasonable prospect
exists of exercising Tamsa's option under this contract. The premium paid
to Enron of USD2.3 million for this put option was written-off during the
fourth quarter of 2001. In order to reduce its exposure to above-market
prices under the natural gas supply agreement with Pemex, Tamsa entered
into agreements with Citibank, N.A., New York ("Citibank") and JPMorgan
Chase Bank ("JPMorgan Chase"), in March 2002 and April 2002. The economic
effect of the agreements with Citibank and JPMorgan Chase is to permit
Tamsa to purchase 320,000 million BTUs per month at market price instead
of at the USD4.00 per million BTU rate charged by Pemex, resulting in a
more favourable price to Tamsa for natural gas so long as the market price
remains below USD4.00.
23
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements (Cont'd.)
10 Contingencies and commitments (Cont'd.)
Under the agreements, Tamsa must continue to make its purchase of natural
gas at market price even if the market price rise above USD4.00 per
million BTUs, thereby exposing Tamsa to a later risk of above-market
prices. Also, under the agreements, Tamsa must continue to make purchases
at the USD4.00 per million BTU rate if the market price of natural gas
falls to USD2.00 per million BTUs or lower (during the period from May 1,
2002 to February 28, 2003) or to USD2.25 per million BTUs or lower (during
the period from March 1, 2003 to December 31, 2003). In addition, under
each of the agreements with Citibank and JPMorgan Chase, Tamsa is required
to purchase 160,000 million BTUs of natural gas per month from January 1,
2004, to December 31, 2005, at price of USD2.8 per million BTUs.
(c) In August 2001, Dalmine Energie S.p.A. signed an agreement for the
purchase of natural gas with certain take or pay conditions. The agreement
began on October 1, 2001, and will expire 10 years later on October 1,
2011. The outstanding value of the contract is approximately EUR685
million (USD746 million) taking into consideration prices prevailing as of
March 31, 2003. Dalmine Energie S.p.A. has contracted transportation
capacity until August 31, 2003 and will be requesting Snam Rete Gas, the
transportation company, the necessary capacity for the following six
years. Such capacity is allocated following regulations enacted by the
Italian energy regulatory authority taking into consideration all
allocation capacity requests filed by August 1st, 2003.
(d) Under a lease agreement between Gade Srl (Italy) and Dalmine, executed in
2001, relating to a building site in Sabbio Bergamasco used by Dalmine's
former subsidiary Tad Commerciale, Dalmine is obligated to bid in the
auction for the purchase of a building from Gade for a minimum amount of
EUR8.3 million (USD9.0 million). The notice of the auction, according to
the contract, was not to take place before January 1, 2003. Up to the date
of these financial statements, the auction was not yet announced.
11 Other events with potential impact on minority interest
(i) Plan for the Acquisition of Remaining Minority Interest in Tamsa
On March 31, 2003 Tenaris announced a Plan for the acquisition of the
remaining minority interest in Tamsa, which comprised 5.5% of the shares
and ADSs of the said company, and to cause the delisting of Tamsa from the
Mexican Stock Exchange and the American Stock Exchange, the termination of
its ADR facility and, if and when applicable, the termination of Tamsa's
registration with the U.S. Securities Exchange Commission (the SEC). The
plan was subjected to prior approval by the Mexican securities regulator
and Tamsa's extraordinary shareholders meeting. Tenaris currently does not
expect to obtain the requisite approvals, and consequently be in a
position to effect any exchange of shares and ADSs prior to June 2003.
24
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements (Cont'd.)
11 Other events with potential impact on minority interest (Cont'd.)
(ii) Dalmine Shareholding
Pursuant to purchases made in the market, during the three-month period
ended on March 31, 2003 Tenaris increased its shareholding in Dalmine so
that it now holds over 90% of Dalmine's ordinary shares. Accordingly, on
March 11, 2003 Tenaris announced its intention to launch, in accordance
with Italian regulations, a residual public offer for the remaining shares
of Dalmine at a price to be determined by the Italian securities'
regulator ("CONSOB"). On March 31, 2003 a filing with the CONSOB was made
in relation to the said residual public offer, upon the conclusion of
which, Dalmine's shares will be delisted.
(iii) Plan for the Acquisition of Remaining Minority Interest in Siderca
On February 21, 2003 Tenaris announced a Plan for the unilateral
acquisition of the remaining minority interest in Siderca, which comprised
0.89% of the shares and ADSs of the said company, and to cause the
delisting of Siderca. The acquisition procedure is based on the authority
granted to Tenaris by Decree 677/01 of the Argentine Government, which
entitles controlling shareholders holding 95% or more of the shares of a
public company to compel the sale of the shares held by minority
investors. On April 3, 2003 the Argentine securities regulator ("CNV")
approved Tenaris' proposal to effect such acquisition. Simultaneously,
Siderca's ADR program was terminated.
Notwithstanding, on April 11, 2003 Tenaris was served with a claim from
four Siderca shareholders and a preliminary order from a commercial court
sitting in Buenos Aires preventing Tenaris from acquiring the shares held
by such shareholders until a final decision on their claim is made by the
courts. The plaintiffs, who hold 0.01% of the shares of Siderca, argue
that the provisions of Decree 677/01 that authorize Tenaris to purchase
unilaterally the shares of minority holders contravene their property
rights protected by the Argentine Constitution. Following the court order,
the administrative step necessary for Tenaris to consummate the
acquisition was delayed, therefore preventing the Company from completing
the acquistion. Subsequently Tenaris agreed with the plaintiffs to replace
the referred order by an attachment of shares of Siderca owned by Tenaris
for an amount equivalent to those held by the plaintiffs. In light of such
agreement, the CNV authorized the resumption of the acquisition process
(which would also include the acquisition of the plaintiff's shares). On
April 24, 2003 Tenaris successfully completed the acquisition of all the
remaining minority interests in Siderca at a price of six Argentine pesos
(ARP6.00) per Siderca share and sixty Argentine pesos (ARP 60.00) per
Siderca ADS, plus ARP 0.16 per share and ARP 1.60 per ADS in dividends
approved by the Extraordinary General Meeting of Shareholders of Siderca
held on April 28, 2003, totalling USD 19.1 million.
With respect to the plaintiffs' claim, Tenaris will argue before the
competent courts its view that the provisions of Decree 677/01 do not
violate any constitutionally protected rights of such persons.
25
Tenaris S.A. Consolidated Condensed Interim Financial Statements for the
three-month period ended March 31, 2003
--------------------------------------------------------------------------------
Notes to the consolidated condensed interim financial statements (Cont'd.)
12 Acquisitions
During the three-month period ended March 31, 2003 the Company acquired
1.59% of shares of Dalmine from minority shareholders for USD 3.1 million.
The fair value of net assets acquired was USD 4.4 million giving rise to
negative goodwill of USD 1.3 million.
Also during the three-month period ended March 31, 2003 Siderca acquired
Reliant Energy Cayman Holdings, Ltd., a company whose principal asset is
an electric power generating facility located in Argentina, with a
capacity of 160MW, for a total amount of USD 23.1 million, which
approximates with the fair value of the net assets acquired. The
acquisition was performed with the intention of ensuring self-sufficiency
of electrical power requirements in Siderca's operations, which consume
around 160 MW at peak production. The acquisitions of Reliant Energy
Cayman Holdings, Ltd. did not give rise to significant goodwill.
The assets and liabilities arising from the acquisitions are as follows:
Three-month
period ended
March 31, 2003
-----------------
(Unaudited)
-----------------
Other assets and liabilities, net 2,734
Property, plant and equipment 21,215
Goodwill (1,308)
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Net assets acquired 22,641
Minority interest 3,880
Total non-current liabilities (289)
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Total liabilities assumed (289)
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Purchase consideration 26,232
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Carlos Condorelli
Chief Financial Officer
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