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 2, 2008
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 R 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
R
If “Yes”
is marked, indicate below the file number assigned to the registrant in
connection
with Rule
12g3-2(b): 82-
The
attached material is being furnished to the Securities and Exchange Commission
pursuant to Rule 13a-16 and Form 6-K under the Securities Exchange Act of 1934,
as amended. This report contains Tenaris' notice of Annual General Meeting of
Shareholders and the Shareholder Meeting Brochure and Proxy
Statement.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date:
May 2, 2008
Tenaris,
S.A.
By: /s/ Cecilia
Bilesio
Cecilia
Bilesio
Corporate
Secretary
Tenaris
Dear
Tenaris Shareholder and ADR Holder,
I am
pleased to invite you to attend the Annual General Meeting of Shareholders of
the Company. The meeting will be held on Wednesday, June 4, 2008, at 46A, Avenue
John F. Kennedy L-1855 Luxembourg and will begin promptly at 11:00 a.m. (Central
European Time).
At the
Annual General Meeting, you will have the opportunity to hear a report on the
Company’s business, financial condition and results of operation and to vote on
various matters, including the approval of the Company’s financial statements,
the election of the members of the board of directors and the appointment of the
independent auditors.
The
Notice and Agenda for the meeting, the Shareholder Meeting Brochure and Proxy
Statement and the Company’s 2007 annual report (which includes the Company’s
consolidated financial statements for the years ended December 31, 2007, 2006
and 2005 and the Company’s annual accounts as at December 31, 2007, together
with the board of directors’ and independent auditors reports), are available
free of charge at the Company's registered office in Luxembourg and on our
website at www.tenaris.com/investors.
They may also be obtained upon request, by calling (352) 26-47-89-78 (if you are
in Luxembourg), 1-800-555-2470 (if you are in the United States), or
+1-267-468-0786 (if you are in another jurisdiction).
Even if
you only own a few shares or ADRs, I hope that you will exercise your right to
vote at the meeting. You can vote your shares personally or by proxy.
If you choose to vote by proxy, you may use the enclosed dedicated proxy
form. If you are a holder of ADRs, please see the letter from THE
BANK OF NEW YORK MELLON, depositary bank, for instructions on how to exercise
your vote by proxy.
Yours
sincerely,
Paolo
Rocca
Chairman
and Chief Executive Officer
April 25,
2008
Re:
TENARIS S.A.
|
To:
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Registered
Holders of American Depositary Receipts
(“ADRs”)
|
for
Shares of Common Stock, US$1 Par Value (“Common Stock”), of
Tenaris
S.A. (the “Company”):
The
Company has announced that its Annual General Meeting of Shareholders will be
held on June 4, 2008, at 11:00 a.m. (Central European Time). The meeting will
take place at 46A, Avenue John F. Kennedy L-1855 Luxembourg. A copy of the Company’s Notice of
Annual General Meeting of Shareholders, including the agenda for such meeting,
is enclosed.
The
Notice of Annual General Meeting of Shareholders, the Shareholder
Meeting Brochure and Proxy Statement, and the Company’s 2007 annual report
(which includes the Company’s financial statements for the years ended December
31, 2007, 2006 and 2005 and the Company’s annual accounts as at December 31,
2007, together with the Board of Directors and independent auditors reports),
are available on the website at www.tenaris.com/investors
and may also be obtained upon request, by calling 1-800-555-2470 (if you
are in the United States) or +1-267-468-0786 (if you are outside the United
States). These materials are provided to allow the shares represented by your
ADRs to be voted at the meeting.
Each
holder of ADRs as of April 28, 2008, which continues to hold such ADRs on May
21, 2008, is entitled to instruct THE BANK OF NEW YORK MELLON, as Depositary
(the “Depositary”), as to the exercise of the voting rights pertaining to the
Company’s shares of Common Stock represented by such holder’s
ADRs. Although voting instructions are sent to holders and proxy
materials are available on the website beginning on May 2, 2008, only those
holders of record at each of April 28, 2008 and May 21, 2008 will be entitled to
provide the Depositary with voting instructions. Notwithstanding that
holders of ADRs must have held ADRs on each such date, in order to avoid the
possibility of double vote, only those positions on May 21, 2008
will be counted for voting instruction purposes. Eligible ADR holders who
desire to have their shares represented by their ADRs voted at the meeting must
complete, date and sign a proxy form and return it to the Depositary at THE BANK
OF NEW YORK MELLON, Proxy Processing P.O. Box 3549, S. Hackensack,
NJ 07606-9249, U.S.A. If the Depositary receives properly completed
instructions by 3:00 p.m., New
York City time, on May 29, 2008, then it shall vote or cause to be voted
the shares underlying such ADRs in the manner prescribed by the instructions.
However, if by 3:00 p.m., New York time, on May 29, 2008, the Depositary
receives no instructions from the holder of ADRs, or the instructions are not in
proper form, then the Depositary shall deem such holder to have instructed the
Depositary to vote the
underlying shares of Common Stock of any such ADRs in favor of any proposals or
recommendations of the Company, for which purposes the Depositary shall
issue a discretionary proxy to a person appointed by the Company to vote such
shares in favor of any proposals or recommendations of the Company (including
any recommendation by the Company to vote such shares on any given issue in
accordance with the majority shareholder vote on that issue). No instruction
shall be deemed given and no discretionary proxy shall be given with respect to
any matter as to which the Company informs the Depositary (i) it does not wish
such proxy given, (ii) it has knowledge that substantial opposition exists with
respect to the action to be taken at the meeting, or (iii) the matter materially
and adversely effects the rights of the holders of ADRs.
Any
holder of ADRs is entitled to revoke any instructions which it has previously
given to the Depositary by filing with the Depositary a written revocation or
duly executed instructions bearing a later date at any time prior to 3:00 p.m., New York time, on May 29,
2008. No
instructions, revocations or revisions thereof shall be accepted by the
Depositary after that time.
IF
YOU WANT YOUR VOTE TO BE COUNTED, THE DEPOSITARY MUST RECEIVE YOUR VOTING
INSTRUCTIONS PRIOR TO 3:00 P.M. (NEW YORK CITY TIME) ON MAY 29,
2008.
THE
BANK OF NEW YORK MELLON
Depositary
April 25,
2008
New York,
New York
Tenaris
Tenaris S.A.
Société
Anonyme Holding
46A,
avenue John F. Kennedy
L-1855,
Luxembourg
RCS
Luxembourg B 85 203
Notice
of the Annual General Meeting of Shareholders to be held on June 4,
2008
Notice is
hereby given to holders of shares of common stock of Tenaris S.A. (the
“Company”) that the Annual General Meeting of Shareholders will be held on June
4, 2008, at 11:00 a.m. (Central European Time). The meeting will be held at
46A, avenue John F. Kennedy L-1855 Luxembourg. In the Annual General Meeting,
shareholders will vote with respect to the items listed below under the heading
“Annual General Meeting of Shareholders”.
Agenda
Annual
General Meeting of Shareholders
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1.
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Consideration
of the Board of Directors’ and independent auditor’s reports on the
Company’s consolidated financial statements. Approval of the Company’s
consolidated financial statements for the years ended December 31, 2007,
2006 and 2005.
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2.
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Consideration
of the Board of Directors’ and independent auditors’ reports on the
Company’s annual accounts. Approval of the Company’s annual accounts as at
December 31, 2007.
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3.
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Allocation
of results and approval of dividend
payment.
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4.
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Discharge
to the members of the Board of
Directors.
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5.
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Election
of the members of the Board of
Directors.
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6.
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Compensation
of the members of the Board of
Directors.
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7.
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Authorisation
to the Board of Directors to cause the distribution of all shareholder
communications, including its shareholder meeting and proxy materials and
annual reports to shareholders, by such electronic means as is permitted
by any applicable laws or
regulations.
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8.
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Appointment
of the independent auditors and approval of their
fees.
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Pursuant
to the Company’s Articles of Association, resolutions at the Annual General
Meeting of Shareholders will be passed by simple majority vote, irrespective of
the number of shares present or represented.
Procedures
for Attending the Meeting
Holders
of shares wishing to attend the meeting must obtain an admission ticket by
depositing their certificates representing their common stock, not later than
4:00 p.m. (local time) on May
30, 2008, at the Company’s office in Luxemburg or at the offices of any
of the Company’s subsidiaries set forth below:
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Luxembourg:
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46A,
Avenue John F. Kennedy
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L-1855
Luxembourg
Attn:
Adelia Soares
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Argentina:
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Carlos
María della Paolera 299, piso 16°
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(C1001ADA)
Buenos Aires
Attn:
Horacio de las Carreras and/or Eleonora Cimino
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Italy:
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c/o
Dalmine S.p.A.
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Piazza
Caduti 6 luglio 1944 n. 1 24044
Dalmine
(BG)
Attn:
Marco Tajana and/or Teresa Gaini
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Mexico:
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c/o
Tubos de Acero de México, S.A.
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Campos
Eliseos 400-17
Col.
Chapultepec Polanco
11560
Mexico D.F.
Attn:
Félix Todd and/or Luis Armando Leviaguirre
Holders
of shares holding their shares through fungible securities accounts wishing to
attend the meeting must present a certificate (issued by the financial
institution or professional depositary holding such shares) evidencing such
deposit and certifying the number of shares recorded in the relevant account as
of May 30, 2008. Such certificate must be filed no later than 4:00 p.m. (local time) on May 30,
2008, at any of the addresses indicated above and, in the case of shares
held in Mexico, with S.D. Indeval, S.A. de C.V. (Paseo de la Reforma #255, 2o. y
3er. piso Col. Cuauhtémoc, Mexico City).
Holders
of shares as of May 30, 2008, may also vote by proxy. To vote by proxy, holders
must file the required certificate evidencing their holdings of shares and a
completed proxy form not later than 4:00 p.m. (local time)
on May 30, 2008 at any of the addresses indicated above or, in
the case of shares held in Mexico, with S.D. Indeval, S.A. de C.V, in Mexico
City.
Holders
of American Depositary Receipts (“ADRs”) as of April 28, 2008, which continue to
hold such ADRs on May 21, 2008, are entitled to instruct THE BANK OF NEW YORK
MELLON, as Depositary (the “Depositary”), as to the exercise of the voting
rights pertaining to the Company’s shares of common stock represented by such
holder’s ADRs. Although voting instructions are sent to holders and proxy
materials are available at our website beginning on May 2, 2008, only those
holders of record as of each of April 28, 2008 and May 21, 2008 will be entitled
to provide the Depositary with voting instructions. Notwithstanding
that holders of ADRs must have held ADRs on each such date, in order to avoid
the possibility of double vote, only those positions on May 21, 2008, will be
counted for voting instruction purposes. Eligible ADR holders who desire to vote
at the meeting must complete, date and sign a proxy form and return it to the
Depositary, at THE BANK OF NEW YORK MELLON, Proxy Processing P.O. Box 3549, S.
Hackensack, NJ 07606-9249, U.S.A., by 3:00 p.m., New York City time,
on May 29, 2008.
The
Shareholder Meeting Brochure and Proxy Statement (which contains reports on each
item of the agenda for the meeting, and further details on voting procedures)
and the forms furnished by the Company in connection with the meeting, may be
obtained at any of the addresses indicated above or upon request by calling
1-800-555-2470 (if you are in the United States), +1-267-468-0786 (if
you are outside the United States) or (352) 26-47-89-78 (if you are in
Luxembourg), but also from the Depositary, Borsa Italiana SpA (Piazza degli
Affari 6, 20123, Milan, Italy) and S.D. Indeval S.A. de C.V., as from May 2,
2008, between 10:00 a.m. and 5:00 p.m. (local time).
Copies of
the Shareholder Meeting Brochure and Proxy Statement and the forms are also
available at www.tenaris.com/investors.
Copies of the Company’s 2007 annual reports (including the Company’s
consolidated financial statements for the years ended 2007, 2006 and 2005 and
the Company’s annual accounts as at December 31, 2007, the Board of Directors
and independent auditors reports, and the documents referred to in the preceding
sentence) may also be obtained free of charge at the Company's registered office
in Luxembourg or upon request by calling 1-800-555-2470 (if you are in the
United States), +1-267-468-0786 (if you are outside the United States) or (352)
26-47-89-78 (if you are in Luxembourg).
Cecilia
Bilesio
Secretary
to the Board of Directors
April 25,
2008
Luxembourg
Tenaris
S.A.
Société
Anonyme Holding
46A,
avenue John F. Kennedy
L-1855,
Luxembourg
RCS
Luxembourg B 85 203
Shareholder
Meeting Brochure and Proxy Statement
Annual
General Meeting of Shareholders to be held on June 4, 2008
This
Shareholder Meeting Brochure and Proxy Statement is furnished by Tenaris S.A.
(the “Company”) in connection with the Annual General Meeting of Shareholders to
be held, for the purposes set forth in the accompanying Notice of the Annual
General Meeting of Shareholders (the “Notice”), on June 4, 2008, starting at
11:00 a.m., at 46A, avenue John F. Kennedy L-1855 Luxembourg.
As of
April 25, 2008, there were issued and outstanding 1,180,536,830 shares of common
stock, each entitled to one vote, US$1 par value each, of the Company (the
“Common Stock”), including shares of Common Stock (the “Deposited Shares”)
deposited with various agents for THE BANK OF NEW YORK MELLON, as depositary
(the “Depositary”), under the Amended and Restated Deposit Agreement, dated as
of February 28, 2008
(the “Deposit Agreement”),
among the Company, the Depositary and all holders from time to time of
American Depositary Receipts (the “ADRs”) issued thereunder. The Deposited
Shares are represented by American Depositary Shares, which are evidenced by the
ADRs (one ADR equals two Deposited Shares).
Each
holder of shares of Common Stock is entitled to one vote per share. Holders of
shares that hold shares through fungible securities accounts and wish to attend
the meeting must present a certificate (issued by the financial institution or
professional depositary holding such shares) evidencing such deposit and
certifying the number of shares recorded in the relevant account on May 30,
2008. Such certificate must be filed no later than 4:00 p.m. (local time) on May
30, 2008, at any of the addresses indicated in the Notice, or, in the case of
shares held in Mexico, with S.D. Indeval, S.A. de C.V., in Mexico
City.
Holders
of shares as of May 30, 2008, may also vote by proxy. To vote by proxy, holders
must file the required certificate evidencing their holdings of shares and a
completed proxy form not later than 4:00 p.m. (local time), on May 30, 2008, at
any of the addresses indicated in the Notice, or, in the case of shares held in
Mexico, with S.D. Indeval, S.A. de C.V., in Mexico City.
Each
holder of ADRs as of April 28, 2008, which continues to hold such ADRs on May
21, 2008, is entitled to instruct the Depositary, as to the exercise of the
voting rights pertaining to the Company’s shares of Common Stock represented by
such holder’s ADRs. Although voting instructions are sent to holders and proxy
materials are available at our website beginning on May 2, 2008, only those
holders of record as of each of April 28, 2008 and May 21, 2008 will be entitled
to provide the Depositary with voting instructions. Notwithstanding
that holders of ADRs must have held ADRs on each such date, in order to avoid
the possibility of double vote, only those positions on May 21, 2008 will be
counted for voting instruction purposes. Eligible holders of ADRs who desire to
have their shares represented by their ADRs voted at the meeting must complete,
date and sign a proxy form and return it to the Depositary, at THE BANK OF NEW
YORK MELLON, Proxy Processing P.O. Box 3549, S. Hackensack,
NJ 07606-9249, U.S.A. If the Depositary receives properly completed
instructions by 3:00 p.m., New York City time, on May 29, 2008, then it shall
vote or cause to be voted the shares underlying such ADRs in the manner
prescribed by the instructions. However, if by 3:00 p.m., New York time, on May
29, 2008, the Depositary receives no instructions from the holder of ADRs, or
the instructions are not in proper form, then the Depositary shall deem such
holder to have instructed the Depositary to vote the underlying shares of Common
Stock of any such ADRs in favor of any proposals or recommendations of the
Company, for which purposes the Depositary shall issue a discretionary proxy to
a person appointed by the Company to vote such shares in favor of any proposals
or recommendations of the Company (including any recommendation by the Company
to vote such shares on any given issue in accordance with the majority
shareholder vote on that issue). No instruction shall be deemed given and no
discretionary proxy shall be given with respect to any matter as to which the
Company informs the Depositary (i) it does not wish such proxy given (ii) it has
knowledge that substantial opposition exists with respect to the action to be
taken at the meeting, or (iii) the matter materially and adversely effects the
rights of the holders of ADRs. Any holder of ADRs is entitled to revoke any
instructions which it has previously given to the Depositary by filing with the
Depositary a written revocation or duly executed instructions bearing a later
date at any time prior to 3:00 p.m., New York time, on May 29, 2008. No
instructions, revocations or revisions thereof shall be accepted by the
Depositary after that time.
Due to
regulatory differences and market practices in each country where the Company’s
shares or ADRs are listed, holders of shares traded on the Argentine and Italian
stock exchanges who have requested admission to the meeting, or who have issued
a voting proxy, must have their shares blocked for trading until the date of the
meeting, while holders of shares traded in the Mexican stock exchange and
holders of ADRs traded in the New York stock exchange need not have their shares
or ADRs, as the case may be, blocked for trading. However, the votes of holders
of shares traded in the Mexican stock exchange who sell their shares between May
29, 2008 and June 3, 2008, shall be disregarded for voting
purposes.
The
meeting will appoint a chairperson pro tempore to preside the
meeting. The chairperson pro
tempore will have broad authority to conduct the meeting in an orderly
and timely manner and to establish rules for shareholders who wish to address
the meeting; the chairperson may exercise broad discretion in recognizing
shareholders who wish to speak and in determining the extent of discussion on
each item of the agenda.
Pursuant
to the Company’s Articles of Association, resolutions at the Annual General
Meeting of Shareholders will be passed by majority vote, irrespective of the
number of shares present or represented.
The
meeting is called to address and vote on the following agenda:
Annual
General Meeting of Shareholders
1.
Consideration of the Board of Directors’ and independent auditor’s reports on
the Company’s consolidated financial statements. Approval of the Company’s
consolidated financial statements for the years ended December 31, 2007, 2006
and 2005.
The Board
of Directors recommends a vote FOR approval of the Company’s consolidated
financial statements for the fiscal years ended December 31, 2007, 2006 and
2005, after due consideration of the reports from each of the Board of Directors
and the independent auditors on such consolidated financial statements. The
consolidated balance sheet of the Company and its subsidiaries at December 31,
2007, 2006 and 2005 and the related consolidated statement of income,
consolidated statement of changes in shareholders’ equity, consolidated cash
flow statement and notes to the consolidated financial statements, the
independent auditors’ report on such consolidated financial statements and
management’s discussion and analysis on the Company’s results of operations and
financial condition are included in the Company’s 2007 annual report, a copy of
which is available on our website at www.tenaris.com/investors and may also be obtained
upon request, by calling (352) 26-47-89-78 (if you are in Luxembourg),
1-800-555-2470 (if you are in the United States), or +1-267-468-0786 (if you are
in another jurisdiction).
2. Consideration
of the Board of Directors’ and independent auditors’ reports on the Company’s
annual accounts. Approval of the Company’s annual accounts as at December 31,
2007.
The Board
of Directors recommends a vote FOR approval of the Company’s annual accounts as
of, and for the fiscal year ended, December 31, 2007, after due consideration of
the report from each of the Board of Directors and the independent auditors on
such annual accounts. These documents are included in the Company’s 2007 annual
report, a copy of which is available on our website at www.tenaris.com/investors
and may also be obtained upon request, by calling (352) 26-47-89-78 (if you are
in Luxembourg), 1-800-555-2470 (if you are in the United States), or
+1-267-468-0786 (if you are in another jurisdiction)..
3. Allocation
of results and approval of dividend payment.
The Board
of Directors recommends a vote FOR approval of a dividend in U.S. dollars, in
the amount of US$0.38 per share of Common Stock currently issued and outstanding
and US$0.76 per ADR currently issued and outstanding. As required by
Luxembourg law, this dividend includes the interim dividend of US$0.13 per share
(US$0.26 per ADR) paid on November 22, 2007. Accordingly, if this dividend
proposal is approved, the Company will make a dividend payment on June 26, 2008,
in the amount of US$ 0.25 per share of Common Stock currently issued and
outstanding and US$ 0.50 per ADR currently issued and outstanding.
The
aggregate amount of US$ 153,469,787.90 distributed as interim dividend on
November 22, 2007, was paid from earnings from the nine-month period ended
September 30, 2007. The aggregate amount of US$ 295,134,207.50 to be distributed
as dividends on June 26, 2008, is to be paid from profits of the year ended
December 31, 2007. The balance of the fiscal year’s profits will be allocated to
the Company’s retained earnings account.
Upon
approval of this resolution, it is proposed that the Board of Directors
determine or amend, in its discretion, the terms and conditions of the dividend
payment, including the applicable record date.
4.
Discharge to the members of the Board of Directors.
In
accordance with applicable Luxembourg law and regulations, it is proposed that,
upon approval of the Company’s accounts as at December 31, 2007, the members of
Board of Directors be discharged of any responsibilities in connection with the
management of the Company’s affairs during such year.
5. Election
of the members of the Board of Directors.
The
Company’s Articles of Association provide for the annual election by the holders of shares
of Common Stock of a Board of Directors of not less than five and not more than
fifteen members. Members of the Board of Directors have a term of office of one
year, but may be reappointed.
Under
applicable U.S. laws and regulations, effective as of July 15, 2005, the Company
is required to have an Audit Committee comprised solely of directors who are
independent.
The
present Board of Directors of the Company consists of ten directors. Three
members of the Board of Directors (Messrs. Jaime Serra Puche, Amadeo Vázquez y
Vázquez and Roberto Monti) qualify as independent directors under the Company’s
Articles of Association and applicable law and are members of the Audit
Committee.
It is
proposed that the size of the Board of Directors be maintained at ten members
and that nine of the current members of the Board of Directors be re-elected.
Mr. Bruno Marchettini is not running for re-election, and Mr. Alberto Valsecchi,
former Chief Operating Officer of the Company, is being proposed as a new member
of the Board of Directors in his stead.
Set forth
below is summary biographical information of each of the
candidates:
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1.
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Mr. Roberto Bonatti. Mr.
Bonatti, grandson of Agostino Rocca and first cousin of the Company’s
chairman, Paolo Rocca, has been involved in Techint Group businesses,
specifically in the engineering and construction and corporate sectors,
throughout his career. He was first employed by the Techint Group in 1976,
as a deputy resident engineer in Venezuela. In 1984, he became a member of
the board of directors of San Faustín N.V. (“San Faustín”), the Company’s
controlling shareholder, and, since 2001, he has served as its president.
In addition, Mr. Bonatti currently serves as president of Techint Compañía
Técnica Internacional S.A.C.I. and Tecpetrol S.A. (“Tecpetrol”), an oil
producer, and is a member of the board of directors of Siderca S.A.I.C.
(“Siderca”), Siderar S.A.I.C. (“Siderar”), and Ternium S.A. (“Ternium”),
an affiliate of the Company. Mr. Bonatti, aged 58, is an
Italian citizen.
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2.
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Mr. Carlos Condorelli.
Mr. Condorelli served as the Company’s chief financial officer, a
position that he assumed in October 2002 and held until September 30,
2007. He is also a member of the board of directors of
Ternium. He began his career within the Techint Group in 1975
as an analyst in the accounting and administration department of Siderar.
He has held several positions within the Company or its subsidiaries and
other Techint Group companies, including as finance and administration
director of Tubos de Acero de México, S.A. (“Tamsa”) and president of the
board of directors of Empresa Distribuidora La Plata S.A., an Argentine
utilities company. Mr. Condorelli, aged 57, is an Argentine
citizen.
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3.
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Mr. Carlos Manuel
Franck. Mr. Franck is the president of Santa María S.A.I.F., and
Inverban S.A., the vice president of Siderca and a member of the board of
directors of Techint Financial Corporation N.V. (“Techint Financial”),
I.I.I., Industrial Investments Inc., Siderar, Tecpetrol and Tecgas N.V. He
has financial, planning and control responsibilities in various Techint
Group companies. Mr. Franck, aged 57, is an Argentine
citizen.
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4.
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Mr. Roberto Monti. Mr.
Monti is the non-executive chairman of Trefoil Limited, a member of the
board of directors of Petrobras Energia and John Wood Group PLC. He has
served as vice president of Exploration and Production of Repsol YPF and
chairman and CEO of YPF. He was also the president of Dowell, a subsidiary
of Schlumberger and the president of Schlumberger Wire & Testing
division for East Hemisphere Latin America. Mr. Monti, aged 69, is an
Argentine citizen.
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5.
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Mr. Gianfelice Mario
Rocca. Mr. Rocca, a grandson of Agostino Rocca and brother of the
Company’s chairman, Mr. Paolo Rocca, is the chairman of the board of
directors of San Faustín, a member of the board of directors of Tamsa and
Ternium, the president of the Humanitas Group, and the president of the
board of directors of Techint Compagnia Tecnica Internazionale S.p.A. and
Tenova S.p.A. In addition, he is a member of the board of directors or
executive committees of several companies, including Allianz S.p.A, RCS
Quotidiani and Buzzi Unicem. He is the vice president of Confindustria,
the leading association of Italian industrialists. He is a member of the
Advisory Board of Allianz Group, of the Trilateral Commission and of the
European Advisory Board of the Harvard Business School. Mr. Rocca, aged
60, is an Italian citizen.
|
|
6.
|
Mr. Paolo Rocca. Mr.
Rocca, a grandson of Agostino Rocca, is the the Company’s chief executive
officer. He is also the chairman of the board of directors of Tamsa and
the vice president of Confab Industrial S.A. In addition, he is the
chairman of the board of directors of Ternium, a member of the board of
directors and vice president of San Faustín and a member of the board of
directors of Techint Financial. Mr. Rocca is a vice chairman of
the International Iron and Steel Institute and a member of the
International Advisory Committee of the New York Stock Exchange. Mr.
Rocca, aged 55, is an Italian
citizen.
|
|
7.
|
Mr. Jaime Serra Puche.
Mr. Serra Puche is the chairman of SAI Consultores, a Mexican consulting
firm, and a member of the board of directors of Chiquita Brands
International, The Mexico Fund, Grupo Vitro and Grupo Modelo. Mr. Serra
Puche served as Mexico’s Undersecretary of Revenue, Secretary of Trade and
Industry, and Secretary of Finance. He led the negotiation and
implementation of NAFTA. Mr. Serra Puche, aged 57, is a Mexican
citizen.
|
|
8.
|
Mr. Alberto Valsecchi.
Mr. Valsecchi served as the Company’s chief operating officer, a position
he assumed in February 2004 and held until July 31, 2007. He
joined the Techint Group in 1968 and has held various positions within the
Company or its subsidiaries and the Techint Group. He has retired from
executive positions. He is a member of the board of directors of San
Faustín and has been elected as the chairman of the board of directors of
Dalmine S.p.A., a position he is expected to assume in May 2008. Mr.
Valsecchi, aged 63, is an Italian
citizen.
|
|
9.
|
Mr. Amadeo Vázquez y
Vázquez. Mr. Vázquez y Vázquez is an independent member of the
board of directors and of the audit committee of Gas Natural Ban,
S.A. He is a member of the Executive Committee of the Asociación Empresaria
Argentina and of the Fundación Mediterránea,
and he is a member of the Advisory Board of the Fundación de Investigaciones
Económicas Latinoamericanas. He served as CEO of Banco Río de la
Plata S.A. until August 1997 and was also the chairman of the board of
directors of Telecom Argentina S.A. until April 2007. Mr. Vázquez y
Vázquez, aged 66, is a Spanish and Argentine
citizen.
|
|
10.
|
Mr. Guillermo F.
Vogel. Mr. Vogel is the vice chairman of Tamsa, the
chairman of Grupo Collado S.A. de C.V., the vice chairman of Estilo y
Vanidad S.A. de C.V. and a member of the board of directors of Alfa S.A.B.
de C.V., the American Iron and Steel Institute, the North American Steel
Council, the North American Competitiveness Council and the International
Iron and Steel Institute. In addition, he is a member of the
board of directors and of the investment committee of the Corporación Mexicana de
Inversiones de Capital, and a member of the board of directors and
of the audit committee of HSBC (Mexico). Mr. Vogel, aged 57, is a Mexican
citizen.
|
Each
elected director will hold office until the next Annual General Meeting of
Shareholders. Under the current Company’s Articles of Association, such meeting
is required to be held on June 3, 2009.
The
Company’s Board of Directors met eight times during 2007. On January 31, 2003,
the Board of Directors created an Audit Committee pursuant to Article 11 of the
Company’s Articles of Association. As permitted under applicable laws and
regulations, the Board of Directors does not have any executive, nominating or
compensation committee, or any committees exercising similar
functions.
6. Compensation
of the members of the Board of Directors.
It is
proposed that each of the members of the Board of Directors receive an amount of
US$ 70,000 as compensation for their services during the fiscal year 2008. It is
further proposed that the members of the Board of Directors who are members of
the Audit Committee receive an additional fee of US$50,000 and that the Chairman
of such Audit Committee receive, in addition, an additional fee of
US$10,000.
7. Authorisation
to the Board of Directors to cause the distribution of all shareholder
communications, including its shareholder meeting and proxy materials and annual
reports to shareholders, by such electronic means as is permitted by any
applicable laws or regulations.
In order
to expedite shareholder communications and ensure their timely delivery, the
Board of Directors recommends that it be authorised to cause the distribution of
all shareholder communications, including its shareholder meeting and proxy
materials and annual reports to shareholders (either in the form of a separate
annual report containing financial statements of the Company and its
consolidated subsidiaries or in the form of an annual report on Form 20-F or
similar document, as filed with the securities authorities or stock markets) by
such electronic means as are permitted or required by any applicable laws or
regulations (including any interpretations thereof), including, without
limitation, by posting such communication on the Company's website, or by
sending electronic communications (emails) with attachment(s) in a widely used
format or with a hyperlink to the applicable filing by the Company on the
website of the above referred authorities or stock markets, or by any other
existing or future electronic means of communication as is or may be permitted
by any applicable laws or regulations.
In this
resolution the Company seeks authorisation under Article 16 of the Luxembourg
Transparency Law of 11 January 2008 to give, send or supply information
(including any notice or other document) that is required or authorised to be
given, sent or supplied to a shareholder by the Company whether required under
the Company’s Articles of Association or by any applicable law or any other
rules or regulations to which the Company may be subject, by making such
information (including any notice or other document) available on the Company’s
website or through other electronic means.
8. Appointment
of independent auditors and approval of their fees.
Based on
the recommendation from the Audit Committee, the Board of Directors recommends a
vote FOR the appointment of PricewaterhouseCoopers (acting, in connection with
the Company’s annual accounts required under Luxembourg law, through
PricewaterhouseCoopers S.àr.l., Réviseur d'entreprises, and, in connection with
the Company’s annual and interim financial statements required under the laws of
any other relevant jurisdiction, through Pricewaterhouse & Co. S.R.L.) as
the Company’s independent auditors for the fiscal year ending December 31, 2008,
to be engaged until the next Annual General Meeting that will be convened to
resolve on the 2008 accounts.
With
respect to independent auditors' fees for audit, audit-related and other
services to be rendered during the fiscal year ending December 31, 2008, the
Board of Directors recommends a vote FOR approval of fees payable in US dollars
or other currency, as appropriate, up to an aggregate amount that, based on the
exchange rate between the US dollar and each applicable currency as of December
31, 2007, was equivalent to US$4,753,018. Such fees would cover the audit of the
Company's consolidated financial statements and annual accounts, the audit of
the Company's internal controls over financial reporting, audit and
audit-related services, and other services. The Board of Directors also
recommends a vote FOR the grant of an authorization to the Audit Committee of
the Board of Directors to approve any increase or reallocation of the
independent auditors' fees as may be necessary, appropriate or advisable under
the circumstances.
The
Company anticipates that the next Annual General Meeting of Shareholders will be
held on June 3, 2009. Any holder of shares who intends to present a proposal to
be considered at the next Annual General Meeting must submit its proposal in
writing to the Company at any of the offices indicated in the Notice not later
than 4:00 P.M. (local time) on March 31, 2009, or in accordance with the
procedures set forth under applicable Luxembourg law, in order for such proposal
to be considered for inclusion on the agenda for the 2009 Annual General Meeting
of Shareholders.
PricewaterhouseCoopers
are the Company’s independent auditors. A representative of the independent
auditors will be present at the meeting to respond to questions.
Cecilia
Bilesio
Secretary
to the Board of Directors
Annual
Report 2007
Company
profile
Leading
indicators
Chairman’s
letter
Business
review
Communities
and environment review
Corporate
governance
Board of
directors and executive officers
Operating
and financial review
Consolidated
financial statements
Report
and accounts of Tenaris S.A. (Luxembourg GAAP)
Corporate
information
Company
profile
Tenaris
is a leading supplier of tubes and related services for the world’s energy
industry and certain other industrial applications. Our mission is to deliver
value to our customers through product development, manufacturing excellence and
supply chain management. We minimize risk for our customers and help them reduce
costs, increase flexibility and improve time-to-market. Our employees around the
world are committed to continuous improvement by sharing knowledge across a
single global organization.
Leading
indicators
|
2007
|
2006
|
2005
|
||||||||||
|
SALES
VOLUMES (thousands of metric tons)
|
||||||||||||
|
Seamless
tubes
|
2,870 | 2,919 | 2,870 | |||||||||
|
Welded
tubes
|
1,439 | 578 | 501 | |||||||||
|
Total
steel tubes
|
4,309 | 3,497 | 3,371 | |||||||||
|
PRODUCTION
VOLUMES (thousands of metric tons)
|
||||||||||||
|
Seamless
tube
|
2,836 | 3,013 | 2,842 | |||||||||
|
Welded
pipes
|
1,408 | 642 | 476 | |||||||||
|
Total
steel tubes
|
4,244 | 3,655 | 3,318 | |||||||||
|
FINANCIAL
INDICATORS (millions of USD)
|
||||||||||||
|
Net
sales
|
10,042 | 7,728 | 6,210 | |||||||||
|
Operating
income
|
2,957 | 2,792 | 1,946 | |||||||||
|
EBITDA
(1)
|
3,449 | 3,046 | 2,158 | |||||||||
|
Net
income (2)
|
2,076 | 2,059 | 1,387 | |||||||||
|
Free
cash flow (3)
|
2,021 | 1,811 | 1,295 | |||||||||
|
Capital
expenditures
|
448 | 441 | 284 | |||||||||
|
BALANCE
SHEET (millions of USD)
|
||||||||||||
|
Total
assets
|
15,245 | 12,595 | 6,706 | |||||||||
|
Total
financial debt
|
4,020 | 3,651 | 1,010 | |||||||||
|
Net
financial debt (4)
|
2,970 | 2,095 | 183 | |||||||||
|
Total
liabilities
|
7,715 | 6,894 | 2,930 | |||||||||
|
Shareholders’
equity including minority interest
|
7,530 | 5,702 | 3,776 | |||||||||
|
PER
SHARE / ADS DATA (USD PER SHARE / PER ADS)
|
||||||||||||
|
Number of shares outstanding
(5) (thousands of shares)
|
1,180,537 | 1,180,537 | 1,180,537 | |||||||||
|
Earnings
per share
|
1.63 | 1.65 | 1.08 | |||||||||
|
Earnings
per ADS
|
3.26 | 3.30 | 2.16 | |||||||||
|
Dividends
per share (6)
|
0.38 | 0.30 | 0.30 | |||||||||
|
Dividends
per ADS (6)
|
0.76 | 0.60 | 0.60 | |||||||||
|
ADS
Stock price at year-end
|
44.73 | 49.89 | 22.90 | |||||||||
|
Number
of employees (5)
|
23,372 | 21,751 | 17,693 | |||||||||
|
(1)
|
Defined
as operating income plus depreciation and amortization from continuing
operations.
|
|
(2)
|
Defined
as borrowings less cash and cash equivalents and other current
investments.
|
|
(3)
|
On
April 26, 2006 the ratio of ADSs to ordinary shares was changed from 1:10
to 1:2. ADS data is stated using the new
ratio.
|
|
(4)
|
As
of December 31.
|
|
(5)
|
Proposed
or paid in respect of the year.
|
Chairman’s
letter
Dear
Shareholders,
This has
been another eventful year for Tenaris. We consolidated our industrial and
commercial presence in the USA and substantially enhanced our worldwide
positioning in premium connections. We strengthened relations with key global
customers including ConocoPhillips, Chevron and OMV. We put into operation
important investments to add capacity for processing high value products,
started the implementation of an integrated systems platform to improve our
response to customers and launched an ambitious project to improve all aspects
ofour industrial management.
Our
financial performance continues to be strong with record revenues of USD 10.0
billion and a 34% EBITDA margin.
Following
our US acquisitions and the lifting of trade restrictions on our imports of
seamless OCTG products, we have full access to the North American market. We are
now the only supplier able to provide to our customers a full range of products,
for every well application, in a strategic market that accounts for around 40%
of global OCTG consumption. With the backing of our supply chain and technical
services, we are working with distributors and forming alliance partnerships
with major oil and gas operators.
As the
oil and gas industry develops new reserves in complex operating environments,
project-specific solutions and multi-year development and testing programs are
increasingly required. In environments with extreme pressure, temperature and
corrosion conditions, material selection and handling are critical as errors can
cost lives and result in significant financial loss.
With
Hydril, we have a unique opportunity to enhance our leadership in servicing the
requirements of our customers in these conditions. The integrated TenarisHydril
product and technology portfolio is exceptional and offers a complete range of
options in applications from the deepest high pressure, high temperature wells
to the extended, horizontal reach wells often used to increase recovery from
existing fields. We have the people, technology and resources to support our
customers worldwide and we have reorganized our commercial team to instill
Hydril’s service-oriented focus and offer integrated technical
solutions.
The
market did not go all our way last year. Demand for high-end products used in
more complex drilling activities continued to grow worldwide and we expect that
growth to continue in the coming years. However, we had to face a difficult
situation in Canada, where the decline in gas drilling activity and demand for
OCTG products (40% lower than 2006) affected our operations in Calgary and Sault
Ste. Marie. The adjustment in Canadian demand together with inventory
adjustments in other markets resulted in a sharp slowdown in global apparent
demand. We are confident that overall OCTG apparent demand growth will resume in
2008 but it is unlikely to be at the accelerated rates seen in the three years
prior to 2007, which was to some extent influenced by the increase in
inventories in key oil-producing areas of the world.
The
competitive context of our industry has changed substantially in the past years.
The growth of the market and the globalization of trade have made possible the
emergence of new players. In addition to our traditional European and Japanese
competitors, Chinese, Russian and other producers are starting to qualify their
products beyond their domestic markets. At the same time, the consolidation of
the industry is under way, and will continue in the future, as we have seen
happening in the USA and in Canada in the last two years.
Tenaris
has had the leading role in this transformation over the past years. We have
become the example to imitate in many aspects for emerging companies, with our
ability to anticipate changes, grow and integrate our operations at a global
level. We have done so while maintaining levels of profitability that have been
consistently higher than the rest of the industry.
At the
core of our business, products for the oil and gas industry, we have managed to
maintain and increase our market share and move forward in developing and
supplying the more sophisticated products required by the market. In the power
generation sector, we have a good opportunity for growth, considering the
dynamic in demand and the capital we have invested in our industrial system. In
the industrial and structural sector, we focus on select industry niches in
which we have developed specialized know-how.
How will
we maintain our leadership? Certainly, the position we have built up, with its
global reach, access to markets and globally integrated industrial system gives
us a good start. But, moving forward, we will be working hard to differentiate
our performance in terms of improving the quality, reliability and range of
products we offer, the service we provide our customers, and our manufacturing
cost efficiency.
Competition
today takes place in a wider arena, in which the exploration and production
challenges facing the oil and gas industry, rising environment standards, the
demand for total quality and reliability all combine to set new and higher
standards for every player. I believe that Tenaris is better prepared for these
challenges than any other competitor.
After two
years of extraordinary growth, our financial results in 2007 reflect the
continuing good, though less favorable, market conditions we faced during the
year and the integration of major acquisitions. Net sales for the year rose 30%
to USD 10.0 billion and EBITDA increased by 13% to USD 3.4 billion. Earnings per
share, however, remained at the level of the previous year amounting to USD
1.63, or USD 3.26 per ADS. Based on our expectations for continued strong cash
generation from our operations and a declining debt level following two major
acquisitions, as well as the anticipated cash inflow from the divestiture of the
Hydril Pressure Control business, we propose to increase the annual dividend to
USD 0.38 per share (USD 0.76 per ADS), a 27% increase over last year, and to pay
a dividend, net of the interim we paid in November, of USD 0.25 per share (USD
0.50 per ADS) in June.
It has
been another demanding year for our employees as the company has continued to
grow and integrate new operations. Accordingly, we have strengthened our focus
on training and knowledge management, the development of new skills and the
incorporation of new recruits who can contribute to our continuing growth. I
want to thank all of our employees for their efforts and also express my thanks
to our customers, suppliers and shareholders for their continuous support and
confidence in Tenaris.
February
27, 2008
Paolo
Rocca
Business
review
Market
background and outlook
In 2007,
global demand for oil and gas continued to rise reflecting economic growth and
the importance of oil and gas in the energy matrix. Encouraged by continuing
high levels of oil prices, oil and gas companies in most regions of the world
continued to increase their level of spending and drilling activity to offset
declining rates of production from mature fields and to explore and develop new
reserves. In Canada, however, subdued North American gas prices affected gas
drilling activity.
The
international count of active drilling rigs, as published by Baker Hughes, after
rising steadily in the first three quarters of the year dipped marginally in the
fourth quarter to average 1017, an increase of 7% compared to the same quarter
of the previous year. The average increase for the full year, compared to 2006,
was 9%.
The
corresponding rig count in the USA, which is more sensitive to North American
gas prices, also showed a positive, though decelerating, trend during the year.
It showed an average annual increase of 7% in 2007 compared to 2006
and in the fourth quarter of 2007 was up 4% compared to the fourth quarter of
2006. The corresponding rig count in Canada, however, which began to decline in
the second half of 2006, showed an average annual decline of 27% compared to
2006 and a decline of 19% in the fourth quarter compared to the same period of
2006.
We
estimate that global apparent demand for OCTG in 2007 remained similar to that
in 2006, following strong growth in the previous three years, as an increase in
operative consumption was offset by inventory adjustments. We expect growth in
apparent demand to resume in 2008 based on continued growth in oil and gas
drilling activity outside North America and the maintenance of current levels of
drilling activity in North America. However, the annual growth rate is expected
to be lower than in the period 2004–2006 and may be affected by market
volatility and inventory adjustments in some markets.
Demand
for our large diameter pipes for pipeline projects in South America was strong
in 2007 as major gas pipeline infrastructure projects in Brazil and Argentina,
which had previously been delayed, went forward. Orders for new projects in
Brazil and Colombia have been received and we expect to maintain a strong level
of sales in this segment in 2008.
Steelmaking
raw material costs rose in 2007 and are expected to rise more steeply in 2008.
Energy and labor costs also rose during 2007, and may rise further in 2008, with
labor costs being affected primarily by currency-related factors. Steel costs
for our welded pipe products also rose and are expected to increase further in
2008.
We expect
our sales to increase in 2008, led by higher sales of specialized, high-end OCTG
products, and that the increase in sales will be reflected in higher operating
and net income. However, increased volatility in economic conditions and raw
material and commodity prices could affect market conditions for our products
and services and, consequently, our results in the second half of the
year.
Summary
of results
Following
several years of strong growth, earnings per share declined marginally in 2007
compared to 2006. Net sales, EBITDA and operating income, on the other hand
continued to grow, up 30%, 13% and 6% respectively. These stable results reflect
a steady overall demand for our products and services from the global oil and
gas industry. They were achieved in a context of rising costs and a severe
decline in Canadian gas drilling activity.
Oilfield
services
We supply
a comprehensive range of high quality seamless and welded casing and tubing,
premium connections, coiled tubing and accessories for use in the most demanding
oil and gas drilling and well completion activities. Using our unique network of
manufacturing, service and distribution and R&D facilities, we focus on
reducing costs for our customers through integrated supply chain management and
developing industry-leading products and technical services.
Following
the acquisition of Hydril, a leading manufacturer of premium connections for the
oil and gas industry, we are able to offer our customers worldwide a full range
of integral and
coupled premium connection products for the most demanding applications. The
combined R&D and industrial know-how of the two companies will make a
substantial contribution to expanding the frontiers of exploration and
production.
Hydril’s
strong brand and manufacturing capacity in North America completes Tenaris’s
position in the region with a full product range complementing the integration
of Maverick in
2006.
We have
also established a specialized technical sales team combining resources from
Hydril and Tenaris that will work together with our customers in order to
provide them with innovative and personalized solutions and
services.
Our
TenarisBlue® (renamed TenarisHydril Blue™) premium connection is now well
established as a leading product in the market.
With
sales in more than 35 countries, especially in the Middle East and North Africa,
TenarisHydril Blue™ has been a major factor in the growth of our sales of our
OCTG products. Its presence in the Caspian Sea and Far East was strengthened
through its introduction in Noble Oil, Azerbaijan, and in OMV, New Zealand,
along with TenarisHydril Blue™ Dopeless™. TenarisHydril Blue™ has also been
selected by ENI for its operations in India, opening the way to affirm our
presence in this significant market.
We have
also advanced in the introduction of the recently-developed TenarisHydril Blue™
Near Flush connection, which completes our offer of integral connections along
with the widely-recognized Hydril connections. New customers that started using
this technology include ENI for its operations in Angola, Libya, Pakistan and
Nigeria, Lukoil in Russia, Maersk in Angola and Repsol in Peru.
We work
with many customers under long-term framework agreements. Although the terms of
these agreements vary, our aim is to provide a secure source and comprehensive
range of tubular products backed up by integrated logistical and technical
assistance services. In October, we were awarded a contract for the provision of
Petrom’s 2008 OCTG casing requirements, thus consolidating the relationship
already existing between OMV and Tenaris.
Additionally,
we have been selected by Lukoil to provide their OCTG requirements for their
Primoria field under a long-term agreement signed in July. This agreement
includes corrosion-resistant alloy and sour service material designed to resist
the most corrosive and demanding conditions, and strengthens our presence in
Russia where we have also signed new agreements with Petroalliance and Rosneft.
During the year we renewed our worldwide agreement with Chevron, extending it to
Australia, and with Shell GTL and Qatar Gas for their corrosion-resistant alloy
requirements for the massive LNG development Qatar Gas III &
IV.
Maintaining
our long-term commitment to service customers in China, we have established a
local manufacturing facility of premium connections and couplings in Qingdao to
serve domestic operators with the high specification materials their new
developments require. From Qingdao, we will supply an ample range of OCTG pipes,
ranging from 2 3/8" to13 3/8" all in API 5CT or Tenaris proprietary grades with
TenarisHydril premium connections. These products are suitable for the most
demanding environments including high H2S content, high collapse, high
temperature/high pressure (HT/HP) well sand deepwater projects, amongst
others.
Pipeline
services
We supply
an extensive range of seamless and welded line pipe and coiled line pipe
products, complete with coatings and accessories for use in onshore and offshore
pipelines, with onsite, ready-for-installation delivery. Our focus is on
providing the risers, flow lines and subsea tubular components for the deepwater
and ultra deepwater markets where we are a major player, in the Gulf of Mexico,
West Africa, Far East, United Kingdom and Scandinavia. Our catalog also includes
pipes for complex offshore structures like platforms and rigs.
The
seamless line pipe market continues with its growth trend, mainly in the most
demanding high-end markets, such as West Africa and the deepwater Gulf of
Mexico. As conventional reserves begin to decline, developments are moving
towards more stringent conditions (e.g., deeper waters, HP/HT and Arctic
conditions) in order to fulfill future energy needs. This trend for increasing
complexity in exploration and production results in new and
more
challenging requirements for pipes: heavy wall requirements, more stringent
internal diameter tolerances and higher steel grades.
Tenaris
seeks to differentiate itself from its competitors through product quality and
innovation; focusing on high-end markets, developing agreements with key
industry players (oil and gas and engineering companies).
During
the year, we signed a 5-year agreement with StatoilHydro ASA for line pipe
supply, mainly for the Norwegian market. We won an important order to supply
19,000 tons of high specification flow lines and export lines, with the
additional wet insulation solution for the Petrobras Chinook and Cascade project
in the ultra deepwater Gulf of Mexico. This will be the first Floating Platform,
Storage and Offloading (FPSO) unit in the US, producing both oil and gas from
the Walker Ridge area, in a water depth of 2,690 meters. In addition, we have
been very active in the Indian offshore market, undertaking important projects
such as Ravva and Rajas than operated by Cairn Energy.
As the
industry continues to reach deeper waters (3,000+ meters), and exploration and
production projects enter more complex environments (Arctic and HP/HT), the
technical requirements for our products become increasingly stringent and
demanding. To overcome all the issues related to current and future critical
projects, Tenaris participates in industry standardization with research and
development and also in joint industry programs with customers, studying gaps
and finding technology solutions. These programs include research into fatigue
corrosion in sour environments, offshore welding, high strength steel grades,
extreme heavy wall materials and strain base design.
Process
and power plant services
We
provide comprehensive material planning and supply chain management services and
on-time delivery of quality products to enable customers in the process and
power plant industry meet the demanding needs of major refinery, petrochemical
and power plant contracts.
During
the year, we implemented steps to be closer to our customers and to provide
prompter responses. We introduced the Tenaris Secured Supply System, which
provides an alternative to reduce piping supply risk for hydrocarbon processing
industry (HPI) projects by meeting demanding project schedules, even with last
minute design changes, and by diminishing pipe cost volatility.
The HPI
market leveled off during 2007,with investments in gas and refinery projects on
average lower than in the prior year. Gas processing projects are taking more
time to move forward due to rising costs, geopolitical risks and capacity
constraints of major engineering companies. Refinery investments were driven
more by plant revamps than grassroots projects. The petrochemical sector showed
strength due to strong demand from Asia, mainly China and India. Major
petrochemical complexes like Sabic-Kayan and Borouge are being built in the
Middle East and China.
Our focus
of activity during 2007continued to be in the Middle East, serving gas
processing projects. Major projects during this year included Qatar Shell Pearl,
the world’s largest integrated gas to liquids (GTL) complex, in which Tenaris
worked closely with MWK/JGC and Chiyoda, and the Khurais Gas projects in Saudi
Arabia where Tenaris worked with Snamprogetti and Hyundai.
In
refineries, Tenaris continued participating in two large refinery projects, the
Reliance Jamnagar refinery in India with Bechtel and the Dung Quat refinery in
Vietnam with Technip. Reliance’s refinery expansion in India will make Jamnagar
the world’s largest single refinery site. Dung Quat’s refinery will be the first
in Vietnam and is expected to meet 40% of local demand with an annual capacity
of 6.5million metric tons.
The
ever-growing demand for energy and power has resulted in a high level of
activity in the power generation sector throughout 2007; despite plant
construction cost increases, major power plant component manufacturers have
reported strong growth over the previous year with lengthening backlogs. We are
participating in this market by supplying tubing for heat recovery steam
generators used in combined cycle plants as well as in boilers used in
coal-fired power plants. Specialty steels are being developed to support the
industry’s demand for higher efficiencies and lower costs as it revamps old
plants and builds new ones to satisfy the world’s increasing demand for
power.
Industrial
and automotive services
We
provide a wide variety of seamless pipe products for industrial applications
with a focus on segments such as automotive components, hydraulic cylinders, gas
cylinders and architectural structures where we can add value with our
specialist product development and supply chain management expertise. Sales are
concentrated in Europe, where our Italian mill has traditionally served this
market, but we also have significant sales in North America, the Far East and
South America.
Demand
for our specialized industrial products in 2007 was good, particularly for
hydraulic cylinders and hollows for gas cylinders.
We
registered a 30% increase in sales of hydraulic cylinders driven by growing
demand for earth-moving machinery for the construction and infrastructure
sectors, mainly in Europe. We opened a new component center in Romania, which
was set up to serve the hydraulic cylinder needs of Caterpillar USA. This is
already working at full capacity, producing tubes, flanges and assembled
components and has registered 100% compliance in delivery
performance.
In
hollows for gas cylinders, particularly for compressed natural gas applications,
where we are the market leader worldwide, we registered sales growth of 15%. In
this market segment, we have
been making investments in R&D and manufacturing in order to increase our
production capacity and product performance in terms of weight reduction, thus
contributing to savings in CO2 emissions,
a crucial issue in the transportation sector.
Sales to
the automotive sector were in line overall with those of last year following a
phase-out of some less profitable items, such as axles and some transmissions
applications. We registered a significant volume increase in Eastern Europe and
South America, also driven by an increase in light vehicles production.
Production volumes of tubular components for airbags at our component center in
Mexico continued to rise and reached over 27 million pieces in 2007, a 27%
increase over the previous year. Through worldwide qualification with all major
airbag manufacturers of ultra high-strength steel grade for airbag applications,
we have increased our market participation in the USA and Europe and have
started to penetrate the market in China.
2007
themes
1.
Offshore Drilling
During
the course of its ongoing global alliance with ConocoPhillips, the two companies
have been at the forefront of introducing innovative tubular technology and
services for offshore drilling applications. In 2007, the alliance had a further
success in implementing casing directional drilling for the first time in an
offshore environment.
As part
of its global alliance with ConocoPhillips, Tenaris supplied 10 ¾” and 7 ¾”
outside diameter casing with TenarisBlue® premium connections for Eldfisk Bravo,
a project that represented a first in terms of offshore drilling technology.
Using specially modified TenarisHydril Blue™ premium connections casing in an
innovative system called side-by-side wellhead and casing directional drilling,
ConocoPhillips drilled the first of two independent well bores from one
conductor in the Casing Directional Drilling mode.
Casing
Directional Drilling technology relies on the performance of the casing
connections, which are pushed to their design limits in terms of fatigue and
torque resistance. Prior to the project and in order to guarantee the
performance of the TenarisHydril Blue™ connections in such a demanding
environment, the strings' fatigue resistance was tested at an independent U.S.
laboratory in accordance with ConocoPhillips’ specifications.
For this
breakthrough project, Tenaris worked closely with ConocoPhillips in the planning
and implementation of the drilling operation. All products were manufactured
according to Tenaris's proprietary sour service specifications and threaded with
specially modified TenarisHydril Blue™ connections. During the products' initial
use in the North Sea, Tenaris provided offshore technical services and carefully
monitored the entire process.
2.
Global Trainee Program
Recognizing
that human resources are critical to its growth and success, Tenaris in recent
years has reaffirmed its commitment to the Global Trainee Program (GTP), the
Company’s strategic initiative for attracting and developing recent university
graduates.
The GTP,
where many in Tenaris’s senior management began their professional careers,
provides participants with accelerated training and development aimed at
preparing them to become the Company’s future leaders. While the program is open
to graduates from all disciplines, special emphasis is placed on recruiting
engineers with a demonstrated industrial vocation.
During
the two-year program, Global Trainees (GTs) are assigned to two different jobs,
to broaden their skills and give them exposure to different areas of the
Company. All engineering GTs spend their first year in one of the Company’s
mill, where, in addition to gaining hands-on experience, they undertake a
special project under the guidance of a tutor.
Training
plays a key role in the GTP and is continuous throughout the two years. The
highlight of this training is the TenarisUniversity Induction Camp, which brings
together GTs from around the world for one month of intensive learning at the
Company’s plant in Campana, Argentina. GTs are also coached and evaluated
closely over the course of the two years, and only those who meet the program’s
demanding requirements are allowed to graduate.
To ensure
the Company is developing the human resources required to meet its future needs,
Tenaris has significantly expanded the GTP in recent years. At the end of 2007
there were more than 750 Global Trainees, compared to 250 at the end of
2004.
3.
Technical sales
Following
the acquisition of Hydril in May 2007, an oil and gas technical sales team was
formed in Tenaris in order to provide customers with a better technical
understanding of the advantages of using Tenaris’s products and services in
specific oil and gas drilling environments. Building on Hydril’s renowned
customer-focused approach and Tenaris’s team of experienced field service
professionals, the new unit works with the drilling engineers of our customers
to help them identify the optimum technical solutions for their particular
drilling operations all over the world.
The unit
is made up of engineers who not only understand how best to select and use
premium connections and other oil and gas products but who are also aware of how
these products interact within oil and gas well-site operations. It is also
responsible for providing on-site technical and running assistance services and
will work closely with the product development team to identify areas for
product development and enhancement.
The new
organizational unit, which is led by a former Hydril executive, will reinforce
our focus on understanding the needs of our customers and serving them in the
best possible way. As drilling takes place in more complex operational
environments and the need to employ more cost-effective drilling solutions to
enhance production in mature fields increases, a detailed knowledge of how
premium connections and other oil and gas products perform in different
environments will become increasingly valuable. The ability to deploy a
knowledgeable technical sales team around the world should enhance Tenaris’s
competitive advantage in a world where there is likely to be a demographic
deficit of experienced drilling engineers.
Communities
and environment review
Tenaris’s
growth has been made possible by adhering to certain values that guide the
Company’s internal management and its relationships with customers, suppliers
and communities where the Company is present. These values are centered on a
conviction that industry plays a key role in promoting lasting and equitable
economic growth for societies and that Tenaris will add value to its operations
as well as to the wider community by interacting with employees and others in
accordance with that conviction.
Consistent
with this vision, Tenaris strives to build partnerships, both internally and
externally, that foster growth and opportunity for all involved. The importance
we place on such relationships is manifested in our commitment to protecting the
health and safety of our employees, maintaining transparent relations with
customers and suppliers and collaborating with government and non-government
organizations in the communities in which we operate.
Valuing
education, we invest continuously in the development of our own workforce and
support a wide variety of educational initiatives at primary, secondary and
university levels. Through a revitalized Global Trainee Program, where many in
Tenaris’s senior management began, Tenaris recruits recent university graduates
and develops them to be tomorrow’s senior management. At a time when demand for
skilled engineers is strong, especially in our own industry, we believe this
emphasis on attracting and developing people that have the requisite education
and skills is critical to our future growth.
In 2007,
the Company’s corporate university, TenarisUniversity, launched a technical
training project for the purpose of unifying training policies and programs for
the Company’s 16,000 non-salaried plant employees worldwide. Development plans
comprising a structured series of training activities for workers in each job
area are now being developed and training based on the project’s new guidelines
is already being delivered in multiple countries and languages.
In our
community relations we stress support for academic excellence. In Argentina and
Mexico, we are carrying out a series of projects aimed at improving the quality
of primary and secondary education in schools close to our plants in Campana and
Veracruz. Drawing on the expertise of UNESCO and international experts as well
as local universities and the active participation of school officials, students
and their families, we take an integral approach that involves investment in
infrastructure, the provision of school supplies and scholarships.
One
example of this is the “Sembrar” programme carried
out in Argentina to complement the formal education of 100 secondary-school
students from the city of Campana, reinforcing their readiness to successfully
step from school into the world of employment.
Four
state schools with an enrolment of 1,500 students from under-privileged sectors
of Campana have been targeted for an institutional development program aimed at
improving the currently poor results being shown at the different stages of the
learning process by the children that attend them. The “Schools for the
Bicentenary” program is sponsored by Tenaris, promoted by the AEA (Association
of Argentine Enterprises) and coordinated by the Universidad de San Andrés,
focusing on 100 schools across Argentina.
In the
area of higher education, we continue to support the Roberto Rocca Education
Program, which Tenaris co-founded in 2005. Designed to encourage the study of
engineering in selected countries, the Program in 2007 funded 500 Scholarships,
for undergraduate students, and 22 Fellowships, for doctoral studies at leading
international universities. As is the case with all of our community projects,
we seek to reward merit and initiative by granting these Scholarships and
Fellowships only to students who combine academic excellence with outstanding
personal qualities.
In all of
our community programs, we seek to promote social integration and leverage our
own contribution by partnering with other governmental and non-governmental
organizations on projects that involve the active participation of the project’s
beneficiaries.
With
23,500 employees drawn from dozens of countries, we view the diversity of our
workforce as one of our strengths. The combination of rational analysis and
diversity of ideas and cultures will continue to play an instrumental role in
the growth of Tenaris. Thus, we make a continuous effort to foster respect among
employees for language, cultural and gender differences and are committed to
broadening this diversity at all levels of the Company. Achieving greater
integration, awareness and understanding among all the various cultures that
coexist within Tenaris, requires the building of bridges and programs in which
to invest in cultural exchange.
This need
gave rise to the setting up of the PROA Foundation, which from its head quarters
in Buenos Aires receives support from Tenaris for the dissemination of leading
contemporary artistic trends through exhibitions, workshops, seminars and
conferences. At the same time, it organizes educational programmes and exchanges
with prestigious cultural institutions from around the world. Through PROA,
Tenaris has been responsible for several significant events, such as the second
edition of the Latin Wave festival of Latin American cinema, held in Houston in
association with the Museum of FineArts, and the “Dualidad” exhibition of
Mexican art held at its plant in Veracruz.
In Italy,
we participate in GAMEC, Associazione per la Galleria d´Arte
Moderna e Contemporanea, in Bergamo, providing support for national
andinternational artistic research andstrengthening the Gallery’s position as a
point of reference for contemporary art.
“Il futuro dell Futurismo”
stood out as one of the highlights of the exhibition season.
Health,
safety and environment
Tenaris
is committed to protecting the health and safety of its employees and the
communities in which it operates, as well as to minimizing its own impact on the
environment and supporting broader industry and public efforts to protect the
environment. In accordance with the principle of sustainable development, our
efforts in this area are focused on improving the efficiency of our operations,
designing our processes with a sustainable approach, reducing energy
consumption, minimizing and recycling waste, and employee training.
We
continue to work on the implementation and improvement of our integrated Health,
Safety and Environment (HSE) management system. Based on international standards
such as ISO 14000 and OHSA 18000, the system applies eco-efficiency and integral
safety concepts to all of our operations. Following the further development and
deployment of an integrated IT safety and environmental tool, we are able to
record, track and analyze safety and environment accidents and incidents at our
plants, follow up with corrective actions and track HSE performance. In the case
of the recently-acquired Hydril premium connection facilities around the world,
we are working to integrate them into our system.
We
believe that accidents do not happen by chance. All injuries and work-related
illnesses can and must be prevented. To achieve this objective we have
instituted innovative programs that reward safe behavior through accident
prevention and hold weekly meetings with managers, safety staff and workers at
each of our mills to discuss accidents and share ideas to improve safety. We
dedicate a percentage of working hours to safety training.
During
2007, a team brought together for this occasion, along with Tenaris experts and
external consultants, organized an assessment in order to introduce best
practices at every mill.
At
Tenaris, investments in training, processes and workplace behavior are
complemented by capital investments in the mills. A significant proportion of
our capital investment spending is allocated toward improving safety in our
operations.
Our
lost-time accidents index continued to decline in 2007, falling 8.2% in
comparison with 2006. Since 2001, this indicator has fallen 58.2%.
A
significant portion of Tenaris’s new investments contributes to reduce the
environmental impact of the Company’s operations, products and services. We
adopt the most appropriate and eco-efficient designs and technologies available
and continuously review our HSE performance so as to improve it. We monitor the
operations of our subcontractors in addition to our own, seeking to maximize the
efficiency in the use of energy and material resources, to recycle – both at our
own facilities and by third parties – , by-products, and to minimize generation
of waste, emissions and effluents in the supply chain.
Perhaps
one of our most significant contributions to the environment comes from the
delivery of products that can perform in the most demanding conditions and on
whose quality our customers rely. We work constantly on improving the quality
and reliability of our products, developing new products that help our customers
to reduce the impact of their operations on the environment, and we aim to
supply using an integrated supply chain concept that aims to reduce risk and
impact as well as costs.
We
actively participate in different governmental and non-governmental forums and
associations focused on sustainability issues. These include the environmental
commissions and working groups of organizations like the International Iron
& Steel Institute (IISI), the Latin American Iron & Steel Institute and
various national chapters of the World Business Council for Sustainable
Development. Some of the most relevant issues addressed by these organizations
are global climate change, by-products and water management, and the definition
of sustainability indexes.
Corporate
governance
Tenaris
has one class of shares, with each share having equal rights, including the
entitlement to one vote at our shareholders’ meetings. Our articles of
association provide that the annual ordinary shareholders’ meeting, which
approves our annual financial statements and appoints the Board of Directors,
take place each year on the first Wednesday of June.
Board
of Directors
Management
of Tenaris is vested in a Board of Directors. Our articles of association
provide for a Board of Directors consisting of at least five and at most fifteen
directors. The Board of Directors is required to meet as often as required by
the interests of Tenaris and at least four times per year. A majority of the
members of the directors present or represented at each Board of Directors’
meeting constitutes a quorum, and resolutions may be adopted by the vote of a
majority of the directors present or represented. In the case of a tie, the
chairman is entitled to cast the deciding vote.
Directors
are elected at the annual ordinary shareholders’ meeting to serve one-year
renewable terms, as decided by the shareholders. The shareholders may dismiss
all or any one director at anytime, with or without cause, by resolution passed
by majority vote, irrespective of the number of shares present or represented at
an ordinary shareholders’ meeting. In 2007, the Board of Directors met eight
times.
The
annual shareholders’ meeting, held on June 6, 2007, approved the appointment of
ten directors, three of whom are independent.
Audit
committee
Tenaris
has an audit committee consisting of three members, all of whom are independent
directors. The members of the audit committee are not eligible to participate in
any incentive compensation plan for employees of Tenaris or any of its
subsidiaries. Under our articles of association, as supplemented by the audit
committee charter, the audit committee:
• assists
the Board of Directors in fulfilling its oversight responsibilities relating to
the integrity of our financial statements and system of internal controls and
the independence and performance of the independent auditors
• reviews
material transactions between Tenaris and its subsidiaries with related parties
to determine whether their terms are consistent with market conditions or are
otherwise fair to Tenaris and its subsidiaries, and
•
performs the other duties entrusted to it by the Board of Directors,
particularly as regards relations with the independent auditors.
The audit
committee has the authority to conduct any investigation appropriate to
fulfilling its responsibilities, and has direct access to the independent
auditors as well as anyone at Tenaris and, subject to applicable laws, its
subsidiaries.
The audit
committee is required to report to the Board of Directors on its activities and
once a year on the adequacy of the internal control systems. In 2007, the audit
committee met seven times.
Auditors
The
annual accounts are audited by independent auditors. Auditors are appointed by
the shareholders through a resolution passed by a simple majority vote at the
annual shareholders’ meeting, irrespective of the number of shares present or
represented, on the audit committee’s recommendation. Shareholders may determine
the number and the term of office of the auditors, which may not exceed one
year. As part of their duties, the auditors report directly to the audit
committee.
PricewaterhouseCoopers
(acting, in connection with our annual accounts, through PricewaterhouseCoopers
S.àr.l., Réviseur d’entreprises, and, in connection with our consolidated
financial statements, through Price Waterhouse &Co. S.R.L.), served as our
independent auditors during the 2007 fiscal year and are proposed for
reappointment.
Compensation
The
compensation of the members of our Board of Directors is determined at the
annual ordinary shareholders’ meeting. The aggregate compensation earned by our
directors and executive officers during 2007 amounted to USD 19.0
million.
Corporate
governance standards
Our
corporate governance practices are governed by Luxembourg Law (particularly the
law of August 10, 1915 on commercial companies and the law of July 31, 1929, as
amended) and our articles of association. As a Luxembourg company listed on the
New York Stock Exchange (the NYSE), the Bolsa Mexicana de Valores, S.A. de
C.V. (the Mexican Stock Exchange), the Bolsa de Comercio de Buenos
Aires (the Buenos Aires Stock Exchange) and Borsa Italiana S.p.A. (the
Italian Stock Exchange), we are not required to comply with some of the
corporate governance standards of these exchanges. We, however, believe that our
corporate governance practices meet, in all material respects, the corporate
governance standards that are generally required for controlled companies by all
of the exchanges on which our securities trade.
Code
of Conduct
We have a
Code of Conduct incorporating guidelines and standards integrity and
transparency applicable to all our employees and directors. This Code of Conduct
establishes the ethical principles that form the basis for relations between the
company, its employees and third parties and provides the means and instruments
to give transparency to issues and problems that may have a bearing on the
management of the company. We also have a Code of Ethics for Financial Officers,
which applies to our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions and is intended to supplement our Code of Conduct.
Information
required under the LuxembourgLaw on takeovers of May 19, 2006
We have
an authorized share capital of a single class of 2,500,000,000 shares with a par
value of USD 1.00 per share. Our authorized share capital is fixed by our
articles of association as amended from time to time with the approval of our
shareholders in an extraordinary shareholders’ meeting. There were 1,180,536,830
shares issued as of December 31, 2006. All shares are fully paid.
Under our
articles of association, our Board of Directors is authorized until August 2,
2012, to increase from time to time our issued share capital wholly or in part,
within the limits of the authorized capital.
Under our
articles of association, any issuance of new shares pursuant to the
authorization granted to our Board of Directors, must grant our existing
shareholders a preferential right to subscribe for such newly-issued shares,
except:
• in
circumstances in which the shares are issued for consideration other than
money
• with
respect to shares issued as compensation to directors, officers, agents or
employees, its subsidiaries or affiliates, and
• with
respect to shares issued to satisfy conversion or option rights created to
provide compensation to directors, officers, agents or employees, its
subsidiaries or affiliates.
Any
shares to be issued as compensation or to satisfy conversion or option rights
may not exceed 1.5% of our issued capital stock.
Our
articles of association do not contain any redemption or sinking fund
provisions, nor do they impose any restrictions on the transfer of our shares.
Amendment of our articles of association requires the approval of shareholders
on an extraordinary shareholders’ meeting with a two-thirds majority of the
votes present or represented.
Tenaris
is controlled by San Faustín N.V., a Netherlands Antilles corporation, which
owns 60.4% of our outstanding shares, through its wholly-owned subsidiary I.I.I.
Industrial Investments Inc., a Cayman Islands corporation. Rocca & Partners
S.A. controls a significant portion of the voting power of San Faustín N.V. and
has the ability to influence matters affecting, or submitted to a vote of the
shareholders of, San Faustín N.V., such as the election of directors, the
approval of certain corporate transactions and other matters concerning the
company’s policies. There are no controlling shareholders for Rocca &
Partners. Our directors and executive officers as a group own 0.2% of our
outstanding shares, while the remaining 39.4% are publicly traded. Our shares
trade on the Italian Stock Exchange, the Buenos Aires Stock Exchange and the
Mexican Stock Exchange; in addition, our American Depositary Securities (ADSs)
trade on the New York Stock Exchange.
None of
our outstanding securities has any special control rights. There are no
restrictions on voting rights, nor are there, to our knowledge, any agreements
among our shareholders that might result in restrictions on the transfer of
securities or the exercise of voting rights.
There are
no significant agreements to which we are a party and which take effect, alter
or terminate in the event of a change in the control of Tenaris following a
takeover bid, there by materially and adversely affecting us, nor are there any
agreements between us and members of our Board of Directors or employees that
provide for compensation if they resign or are made redundant without reason, or
if their employment ceases pursuant to a takeover bid.
Management
is vested in a Board of Directors. Directors are elected at the annual ordinary
shareholders’ meeting to serve one-year renewable terms.
Board
of Directors
|
Chairman
and Chief Executive Officer
|
Paolo
Rocca
|
|
Vice-President
Finance
|
Guillermo
Vogel
|
|
Roberto
Bonatti
|
|
|
Carlos
Condorelli
|
|
|
Carlos
Franck
|
|
|
Bruno
Marchettini
|
|
|
Roberto
Monti (*)
|
|
|
Gianfelice
Mario Rocca
|
|
|
Jaime
Serra Puche (*)
|
|
|
Amadeo
Vázquez y Vázquez (*)
|
|
|
Secretary
|
Cecilia
Bilesio
|
(*)
Members of the audit committee
Executive
officers
|
Chief
Executive Officer
|
North
American Area Manager
|
|
Paolo
Rocca
|
Germán
Curá
|
|
Chief
Financial Officer
|
Central
American Area Manager
|
|
Ricardo
Soler
|
Sergio
de la Maza
|
|
Technology
Director
|
South
American Area Manager
|
|
Carlos
San Martin
|
Guillermo
Noriega
|
|
Commercial
Director
|
|
|
Alejandro
Lammertyn
|
|
|
Supply
Chain Director
|
European
Area Manager
|
|
Renato
Catallini
|
Vincenzo
Crapanzano
|
|
Human
Resources Director
|
Planning
Director
|
|
Marco
Radnic
|
Carlos
Pappier
|
|
Quality
Director
|
Managing
Director, Japanese Operations
|
|
Marcelo
Ramos
|
Claudio
Leali
|
|
Industrial
Coordination Director
|
|
|
Sergio
Tosato
|
Consolidated
Financial Statements
for the
years ended December 31, 2007, 2006 and 2005
Operating
and Financial Review
This
review of Tenaris’s results of operations and financial condition is based on,
and should be read in conjunction with, the audited consolidated financial
statements of Tenaris and the related notes included elsewhere in this annual
report. It compares Tenaris’s results on a consolidated basis for the fiscal
year ended December 31, 2007 with its results for the fiscal year ended December
31, 2006. Tenaris prepares its consolidated financial statements in conformity
with International Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board (IASB).
Results
of Operations
The
following table sets forth, for the periods indicated, selected financial data
from our consolidated income statement and expresses our operating and other
costs and expenses as a percentage of net sales.
|
Selected
financial data (all amounts in USD thousands)
|
||||||||||||||||||||||||
|
YEAR
ENDED DECEMBER 31
|
2007
|
2006
|
2005
|
|||||||||||||||||||||
|
Continuing
operations
|
||||||||||||||||||||||||
|
Net
sales
|
10,042,008 | 100 | % | 7,727,745 | 100 | % | 6,209,791 | 100.0 | % | |||||||||||||||
|
Cost
of sales
|
(5,515,767 | ) | (54.9 | %) | (3,884,226 | ) | (50.3 | %) | (3,429,365 | ) | (52.2 | %) | ||||||||||||
|
Gross
profit
|
4,526,241 | 45.1 | % | 3,843,519 | 49.7 | % | 2,780,426 | 44.8 | % | |||||||||||||||
|
Selling,
general and administrative expenses
|
(1,573,949 | ) | (15.7 | %) | (1,054,806 | ) | (13.6 | %) | (832,315 | ) | (13.4 | %) | ||||||||||||
|
Other
operating income and expenses
|
4,933 | 0.0 | % | 3,773 | 0.0 | % | (2,199 | ) | (0.0 | %) | ||||||||||||||
|
Operating
income
|
2,957,225 | 29.4 | % | 2,792,486 | 36.1 | % | 1,945,912 | 31.3 | % | |||||||||||||||
|
Interest
income
|
93,392 | 0.9 | % | 60,798 | 0.8 | % | 23,815 | 0.4 | % | |||||||||||||||
|
Interest
expense
|
(275,648 | ) | (2.7 | %) | (92,576 | ) | (1.2 | %) | (52,629 | ) | (0.8 | %) | ||||||||||||
|
Other
financial results
|
(22,754 | ) | (0.2 | %) | 26,826 | 0.3 | % | (79,772 | ) | (1.3 | %) | |||||||||||||
|
Income
before equity in earnings of associated companies and income
tax
|
2,752,215 | 27.4 | % | 2,787,534 | 36.1 | % | 1,837,326 | 29.6 | % | |||||||||||||||
|
Equity
in earnings of associated companies
|
113,276 | 1.1 | % | 94,667 | 1.2 | % | 117,377 | 1.9 | % | |||||||||||||||
|
Income
before income tax
|
2,865,491 | 28.5 | % | 2,882,201 | 37.3 | % | 1,954,703 | 31.5 | % | |||||||||||||||
|
Income
tax
|
(823,924 | ) | (8.2 | %) | (869,977 | ) | (11.3 | %) | (567,368 | ) | (9.1 | %) | ||||||||||||
|
Income
for continuing operations
|
2,041,567 | 20.3 | % | 2,012,224 | 26.0 | % | 1,387,335 | 22.3 | % | |||||||||||||||
|
Discontinued
operations
|
||||||||||||||||||||||||
|
Income
(loss) for discontinued operations
|
34,492 | 0.3 | % | 47,180 | 0.6 | % | (3 | ) | (0.0 | %) | ||||||||||||||
|
Income
for the Year
|
2,076,059 | 20.7 | % | 2,059,404 | 26.6 | % | 1,387,332 | 22.3 | % | |||||||||||||||
|
|
||||||||||||||||||||||||
|
Attributable
to:
|
||||||||||||||||||||||||
|
Equity
holders of the Company
|
1,923,748 | 19.2 | % | 1,945,314 | 25.2 | % | 1,277,547 | 20.6 | % | |||||||||||||||
|
Minority
interest
|
152,311 | 1.5 | % | 114,090 | 1.5 | % | 109,785 | 1.8 | % | |||||||||||||||
| 2,076,059 | 20.7 | % | 2,059,404 | 26.6 | % | 1,387,332 | 22.3 | % | ||||||||||||||||
The
following table indicates the distribution of our net sales by business segment
for the periods indicated:
|
Million
of USD
|
2007
|
2006
|
Increase
/ (Decrease)
|
||||||||||||
|
Tubes
|
8,552.6
|
85%
|
6,826.9
|
88%
|
25%
|
||||||||||
|
Projects
|
876.3
|
9%
|
453.5
|
6%
|
93%
|
||||||||||
|
Others
|
613.1
|
6%
|
447.3
|
6%
|
37%
|
||||||||||
|
Total
|
10,042.0
|
100%
|
7,727.7
|
100%
|
30%
|
The
following table indicates our sales volume of seamless and welded pipes by
business segment for the periods indicated:
|
Metric
tons
|
FY
2007
|
FY
2006
|
Increase/(Decrease)
|
||||||
|
Tubes
– Seamless
|
2,870,000
|
2,919,000
|
(2%)
|
||||||
|
Tubes
– Welded
|
965,000
|
297,000
|
225%
|
||||||
|
Tubes
– Total
|
3,835,000
|
3,216,000
|
19%
|
||||||
|
Projects
– Welded
|
474,000
|
281,000
|
69%
|
||||||
|
Total
– Tubes + Projects
|
|
4,309,000
|
3,497,000
|
23%
|
Tubes
The
following table indicates, for our Tubes business segment, net sales by
geographic region, cost of sales as a percentage of net sales, operating income
and operating income as a percentage of net sales:
|
Tubes
|
FY
2007
|
FY
2006
|
Increase/(Decrease)
|
||||||
|
Net
sales ($ million)
|
|||||||||
|
-
North America
|
2,921.7
|
1,993.0
|
47%
|
||||||
|
-
South America
|
1,221.7
|
960.3
|
27%
|
||||||
|
-
Europe
|
1,661.4
|
1,315.1
|
26%
|
||||||
|
-
Middle East & Africa
|
2,057.6
|
1,895.7
|
9%
|
||||||
|
-
Far East & Oceania
|
690.2
|
662.8
|
4%
|
||||||
|
Total
net sales
|
8,552.6
|
6,826.9
|
25%
|
||||||
|
Cost
of sales (% of sales)
|
52%
|
47%
|
|||||||
|
Operating
income ($ million)
|
2,713.9
|
2,670.5
|
2%
|
||||||
|
Operating
income (% of sales)
|
|
32%
|
39%
|
Net sales of tubular products and
services rose 25% to US$8,552.6 million in 2007, compared to US$6,826.9
million in 2006, due to a higher volume of welded pipe sales, resulting from the
incorporation of the former Maverick operations acquired in October 2006, and a
higher average selling price for our seamless pipes reflecting an enhanced
product mix and increased demand for our specialized, high-end seamless pipe
products used in the world’s more complex drilling operations and other
demanding applications. In North America, sales increased principally due to the
incorporation of sales from the former Maverick and Hydril premium connection
operations but, excluding such effects, there was a substantial decline in sales
in Canada reflecting the decline in drilling activity and consequent inventory
adjustments. In South America, sales increased due primarily to higher sales of
OCTG products in Venezuela as PDVSA began to replenish inventories and increased
sales in Colombia. In Europe, sales increased, with higher average selling
prices and volumes, reflecting higher sales to European-based process and power
plant contractors, a more specialized mix of products sold to industrial and
automotive customers, increased sales of OCTG products in continental Europe and
the appreciation of the Euro with respect to the U.S. dollar. In the Middle East
and Africa, higher average selling prices more than offset lower volumes which
were affected by lower sales of API OCTG products and inventory adjustments. In
the Far East and Oceania, sales remained stable with higher sales in South-East
Asia and South Korea offsetting lower sales in China.
Operating income from tubular
products and services rose 2% to US$2,713.9 million in 2007, from
US$2,670.5 million in 2006, as the increase in sales was substantially offset by
a reduction in the gross margin and higher expenses for the amortization of
intangible assets.
Projects
The
following table indicates, for our Projects business segment, net sales, cost of
sales as a percentage of net sales, operating income and operating income as a
percentage of net sales:
|
Projects
|
FY
2007
|
FY
2006
|
Increase/(Decrease)
|
||||||
|
Net
sales ($ million)
|
876.3
|
453.5
|
93%
|
||||||
|
Cost
of sales (% of sales)
|
71%
|
72%
|
|||||||
|
Operating
income ($ million)
|
184.8
|
56.3
|
228%
|
||||||
|
Operating
income (% of sales)
|
21%
|
12%
|
Net sales of pipes for pipeline
projects rose 93% to US$876.3 million in 2007, compared to US$453.5
million in 2006, due to higher shipments and average selling prices. Regional
demand for pipes for pipeline projects in South America improved substantially
in 2007 as large gas pipeline projects in Brazil and Argentina that had been
delayed in 2006 went ahead and orders were received for mineral slurry and
additional gas pipeline projects in Brazil.
Operating income from pipes for
pipeline projects rose 228% to US$184.8 million in 2007, from US$56.3
million in 2006, due to the increase in net sales and an increase in the
operating margin reflecting a higher proportion of sales in Brazil where sales
from our Brazilian mill have low logistics costs. Operating income in this
segment in 2007 included other operating income of US$16.4 million in respect of
the sale of surplus office space.
Others
The
following table indicates, for our Others business segment, net sales, cost of
sales as a percentage of net sales, operating income and operating income as a
percentage of net sales:
|
Others
|
FY
2007
|
FY
2006
|
Increase/(Decrease)
|
||||||
|
Net
sales ($ million)
|
613.1
|
447.3
|
37%
|
||||||
|
Cost
of sales (% of net sales)
|
76%
|
72%
|
|||||||
|
Operating
income ($ million)
|
58.5
|
65.6
|
(11%)
|
||||||
|
Operating
income (% of sales)
|
10%
|
15%
|
Net sales of other products and
services rose 37% to US$613.1 million in 2007, compared to US$447.3
million in 2006, as sales from electric conduit pipe operations acquired in
October 2006 were included for a full year. Sales of metallic
structures also increased but sales of excess raw materials and sucker rods
declined.
Selling, general and administrative
expenses, or SG&A, increased as a percentage of net sales to 15.7% in
2007 compared to 13.6% in 2006 due mainly to increased charges for amortization
of intangible assets relating principally to assets acquired in the Maverick and
Hydril acquisitions. These amortization charges amounted to US$236.0 million in
2007, or 2.4% of net sales, compared to US$54.8 million, or 0.7% of net sales,
in 2006.
Other operating income and
expenses resulted in net income of US$4.9 million in 2007, compared to
net income of US$3.8 million in 2006. The 2007 result included income of US$16.4
million in relation to the sale of surplus office space in Brazil and an expense
of US$10.3 million relating to the settlement of redemptions on Maverick’s 2005
Notes.
Net interest expenses totaled
US$182.3 million in 2007, compared to net interest expenses of US$31.8 million
in 2006. The increase in net interest expenses reflects the increase in the
average net debt position during 2007 compared to 2006, relating to debt
contracted for the Maverick and Hydril acquisitions.
Other financial results
contributed a loss of US$22.8 million in 2007, compared to a gain of
US$26.8 million during 2006. These results largely reflect gains and losses on
net foreign exchange transactions and the fair value of derivative instruments
and are to a large extent offset by changes to our net equity position. They
arise due to the fact that most of our subsidiaries prepare their financial
statements in currencies other than the US dollar in accordance with
IFRS.
Equity in earnings of associated
companies generated a gain of US$113.3 million in 2007, compared to a
gain of US$94.7 million in 2006. These gains were derived mainly from our equity
investment in Ternium but, in 2007, also included a gain of US$18.4 million
recorded on the sale of our remaining 25% participation in Dalmine
Energie.
Income tax charges of US$823.9
million were recorded during 2007, equivalent to 30% of income before equity in
earnings of associated companies and income tax, compared to income tax charges
of US$870.0 million, equivalent to 31% of income before equity in earnings of
associated companies and income tax, during 2006. The result in 2007 included
net non-recurring tax losses of US$47.3 million.
Income from discontinued
operations amounted to US$34.5 million, compared to US$47.2 million in
2006. The 2007 income corresponds to the Hydril pressure control business, which
was classified as a discontinued operation following the conclusion of an
agreement to sell this business on January 28, 2008. The 2006 income corresponds
to our former Dalmine Energie energy supply subsidiary, in which we sold a
majority participation in December 2006.
Net income rose marginally to
US$2,076.1 million in 2007, compared to US$2,059.4 million in 2006, as an
increase in operating income was largely offset by an increase in net interest
expenses.
Income attributable to equity
holders was US$1,923.7 million, or US$1.63 per share (US$3.26 per ADS),
in 2007, compared to US$1,945.3 million, or US$1.65 per share (US$3.30 per ADS)
in 2006.
Income attributable to minority
interest was US$152.3 million in 2007, compared to US$114.1 million in
2006. The increase was due primarily to higher income attributable to minority
interest at our Confab subsidiary.
B. Liquidity
and Capital Resources
The
following table provides certain information related to our cash generation and
changes in our cash and cash equivalents position for each of the last three
years:
|
Thousands
of U.S. dollars
|
For
the year ended December 31,
|
|||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Net
cash provided by operating activities
|
2,020,624 | 1,810,856 | 1,295,323 | |||||||||
|
Net
cash used in investing activities
|
(2,287,132 | ) | (2,822,049 | ) | (292,791 | ) | ||||||
|
Net
cash (used in) provided by financing activities
|
(196,684 | ) | 1,700,705 | (604,129 | ) | |||||||
|
(Decrease)
Increase in cash and cash equivalents
|
(463,192 | ) | 689,512 | 398,403 | ||||||||
|
Effect
of exchange rate changes
|
52,487 | (5,095 | ) | (11,636 | ) | |||||||
|
Cash
and cash equivalents at the beginning of year
|
1,365,008 | 680,591 | 293,824 | |||||||||
|
Cash
and cash equivalents at the end of year
|
954,303 | 1,365,008 | 680,591 | |||||||||
Our
financing strategy is to maintain adequate financial resources and access to
additional liquidity. During 2007, we have counted on cash flows from operations
as well as additional bank financing to fund our transactions including the
acquisition of Hydril. Short-term bank borrowings were used as needed throughout
the year.
We
believe that funds from operations, availability of liquid financial assets and
our access to external borrowing through the financial markets will be
sufficient to satisfy our working capital needs and to service our debt in the
foreseeable future. We also believe that our liquidity and capital resources
give us adequate flexibility to manage our planned capital spending programs, to
service our debt and to address short-term changes in business
conditions.
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. We used these funds to finance our working capital and capital
expenditure requirements, to make acquisitions and to distribute dividends to
our shareholders.
We hold
money market investments and variable or fixed-rate securities from investment
grade issuers. We concentrate our cash in major financial centers (mainly New
York and London). We hold our cash and cash equivalents primarily in U.S.
dollars, and limit our holdings of other currencies to the minimum required to
fund our cash operating needs or hedge our financial positions. As of December
31, 2007 U.S. dollar denominated liquid assets represented around 70% of total
liquid financial assets. Liquid financial assets as a whole (excluding current
investments) were 6.3% of total assets at December 31, 2007 compared to 10.9% at
the end of 2006.
Cash and
cash equivalents (excluding bank overdraft) decreased from $1,372.3 million at
December 31, 2006, to $962.5 million at December 31, 2007. In addition, we had
other current investments of $87.5 million. As of December 31, 2006, other
current investments amounted to $183.6 million.
Operating
activities
Net cash
provided by operations during 2007 rose to $2,020.6 million compared to $1,810.9
million in 2006 primarily reflecting an increase in operating income to $2,957.2
million in 2007 from $2,792.5 million in 2006. Working capital increased by
$110.4 million in 2007 compared to a $469.5 million increase in 2006. The
increase in working capital comprised mainly:
|
|
·
|
an
increase in inventories of $252.8 million, reflecting primarily an
increase in business activity and input
costs
|
|
|
·
|
an
increase in trade receivables of $115.8 million, mainly due to higher
sales; and, on the other side of the
ledger,
|
|
|
·
|
increases
in customer advances and other liabilities of $113.5 million and $127.4
million respectively.
|
Investing
activities
Net cash
used in investing activities in 2007 was $2,287.1 million, compared to $2,822.0
million in 2006. The main differences were as follows:
|
|
·
|
In
2007 we spent approximately $2.0 billion to acquire Hydril, while in 2006
we spent approximately $2.4 billion in acquisitions, mainly related to the
acquisition of Maverick.
|
|
|
·
|
In
2007 we realized $96.1 million from investments in short term securities,
while in 2006 we increased our short term securities in $63.7
million.
|
|
|
·
|
Capital
expenditures for 2007 amounted to $447.9 million, similar to the $441.5
million spent in 2006.
|
Financing
activities
Net cash
used in financing activities, including dividends paid and proceeds and
repayments of borrowings, was $196.7 million in 2007, compared to net cash
provided by financing activities in 2006 of $1,700.7 million.
Net
proceeds from borrowings (proceeds less repayments) totaled $371.2 million in
2007 compared to net proceeds from borrowings of $1,928.1 million in 2006.
Dividends paid, including dividends paid to minority interests in subsidiaries,
amounted to $567.9 million in 2007, of which $354 million were paid to equity
holders in respect of the 2006 fiscal year and $153 million were paid to equity
holders in November 2007 as an interim dividend in respect of the dividend for
the 2007 fiscal year.
This
compares to $227.4 million paid in 2006, of which $ 204.2 million was paid in
respect of the 2005 fiscal year in addition to an interim dividend paid in
November 2005.
Our total
liabilities to total assets ratio decreased to 0.51 to 1 as of December 31,
2007, compared to 0.55 to 1 as of December 31, 2006.
Principal
Sources of Funding
Financial
liabilities
Total
financial debt increased by $369.0 million to $4,020.2 million at December 31,
2007 from $3,651.2 million at December 31, 2006.
Our
financial liabilities consist mainly of bank loans. As of December 31, 2007 U.S.
dollar-denominated financial liabilities and Euro-denominated financial
liabilities represented 90.7% and 6.5%, respectively, of total financial
liabilities. For further information about our financial liabilities, please see
note 20 to our consolidated financial statements.
The
following table shows the composition of our financial liabilities at December
31, 2007 and 2006:
|
Thousands
of U.S. dollars
|
2007
|
2006
|
||||||
|
Bank
borrowings
|
3,953,696 | 3,503,573 | ||||||
|
Bank
overdrafts
|
8,194 | 7,300 | ||||||
|
Other
loans
|
56,592 | 134,421 | ||||||
|
Finance
lease liabilities
|
1,763 | 5,949 | ||||||
|
Total
borrowings
|
4,020,245 | 3,651,243 | ||||||
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,
2007 and 2006. The changes in interest rate are basically due to
changes in floating interest rate.
|
2007
|
2006
|
|||||||
|
Bank
borrowings
|
5.80 | % | 6.12 | % | ||||
|
Other
loans
|
5.50 | % | 5.50 | % | ||||
|
Finance
lease liabilities
|
2.52 | % | 3.71 | % | ||||
The
maturity of our financial liabilities is as follows:
| Thousands of U.S. dollars |
1
year or
|
1
- 2
|
2
– 3
|
3
- 4
|
4
- 5
|
Over
5
|
Total
|
|||||||||||||||||||||
|
At
December 31, 2007
|
less
|
years
|
years
|
Years
|
years
|
years
|
|
|||||||||||||||||||||
|
At
December 31, 2007
|
||||||||||||||||||||||||||||
|
Financial
lease
|
696 | 524 | 269 | 106 | 168 | - | 1,763 | |||||||||||||||||||||
|
Other
borrowings
|
1,150,083 | 1,855,887 | 503,503 | 441,345 | 45,850 | 21,814 | 4,018,482 | |||||||||||||||||||||
|
Total
borrowings
|
1,150,779 | 1,856,411 | 503,772 | 441,451 | 46,018 | 21,814 | 4,020,245 | |||||||||||||||||||||
Our
current debt to total debt ratio increased from 0.22 as of December 31, 2006 to
0.27 as of December 31 2007 due to the prepayment of long term syndicated
loans.
For
information on our derivative financial instruments, please see Item
11—“Quantitative and Qualitative Disclosure about Market Risk” and note 25 to
our consolidated financial statements.
Most
relevant Borrowings
Our most
relevant borrowings as of December 31, 2007, were assumed in relation to the
acquisition of Maverick in October 2006 and Hydril in May 2007.
|
Millions
of U.S. dollars
|
|||||||||||
|
Date
|
Borrower
|
Type
|
Original
Principal amount
|
Outstanding
Principal amount
|
Maturity
|
||||||
|
March
2005
|
Tamsa
|
Syndicated
loan
|
300.0
|
300.0
|
March
2010
|
||||||
|
October
2006
|
Maverick
|
Syndicated
loan
|
750.0
|
536.8
|
October
2011
|
||||||
|
October
2006
|
Tamsa
|
Syndicated
loan
|
700.0
|
622.2
|
October
2011
|
||||||
|
October
2006
|
Siderca
|
Syndicated
loan
|
480.5
|
416.6
|
October
2009
|
||||||
|
October
2006
|
Dalmine
|
Syndicated
loan
|
150.0
|
133.3
|
October
2011
|
||||||
|
May
2007
|
Tenaris
|
Syndicated
loan
|
1,000.0
|
1,000.0
|
May
2009 (*)
|
||||||
|
May
2007
|
Hydril
|
Syndicated
loan
|
300.0
|
300.0
|
May
2012
|
||||||
(*)This
loan may be extended at the Company's option until May 2012 at market rates,
upon notice to the agent no later than 3 business days prior to the original
maturity date.
The main
covenants in these loan agreements are limitations on liens and encumbrances,
limitations on the sale of certain assets, restrictions on investments and
compliance with financial ratios (e.g., leverage ratio and interest coverage
ratio in Hydril’s syndicated loan agreement, and leverage ratio and debt service
coverage ratio in the Company’s syndicated loan agreement). In addition,
Hydril’s syndicated loan agreement has certain restrictions on capital
expenditures. The Company’s syndicated loan agreement is secured with a pledge
of 100% of Hydril’s shares; upon each payment or prepayment under this
agreement, the number of shares subject to the pledge shall be reduced
proportionally, and the pledge will be completely released immediately after the
aggregate outstanding principal amount of the loan is less than or equal to $600
million. The Company is initially allowed to make payments such as dividends,
repurchase or redemption of shares up to the greater of $475 million or 25% of
the consolidated operating profit for the previous fiscal year; once the
outstanding amount of this facility does not exceed $1,000 million, no such
restrictions apply.
On
November 8, 2007, the Company prepaid loans under the Company’s syndicated loan
agreement in a principal amount of $0.7 billion plus accrued interest thereon to
such date. As a result of such prepayment, all dividend restrictions under the
syndicated loan agreement ceased to apply; in addition, the Company is entitled
to reduce proportionally the number of shares pledged in connection
therewith.
Tenaris
began consolidating Hydril’s balance sheet and operating results since May,
2007.
Tenaris’s
consolidated debt includes $90 million of Dalmine’s debt and $21 million of
Confab’s debt secured by certain properties of these subsidiaries.
As of
December 31, 2007, Tenaris was in compliance with all of its
covenants.
For
further information on our borrowings, please see note 20 to our consolidated
financial statements.
Price
Waterhouse & Co. S.R.L.
Bouchard
557
C1106ABG
Ciudad de Buenos Aires
Tel
(54 -11) 4850-0000
Fax
(54 -11) 4850-1800
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders of Tenaris S.A.
In our
opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in equity
present fairly, in all material respects, the financial position of Tenaris S.A.
and its subsidiaries at December 31, 2007 and 2006, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2007 in conformity with International Financial
Reporting Standards as issued by the International Accounting Standards Board.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Price
Waterhouse & Co. S.R.L.
by
Diego
Niebuhr
(Partner)
Report
of Independent Registered Public Accounting Firm
Buenos
Aires, Argentina
February
27, 2008
CONSOLIDATED
INCOME STATEMENTS
|
(all
amounts in thousands of U.S. dollars, unless otherwise
stated)
|
Year
ended December 31,
|
||||||||||||
|
Notes
|
2007
|
2006
|
2005
|
||||||||||
|
Continuing
operations
|
|||||||||||||
|
Net
sales
|
1
|
10,042,008 | 7,727,745 | 6,209,791 | |||||||||
|
Cost
of sales
|
2
|
(5,515,767 | ) | (3,884,226 | ) | (3,429,365 | ) | ||||||
|
Gross
profit
|
4,526,241 | 3,843,519 | 2,780,426 | ||||||||||
|
Selling,
general and administrative expenses
|
3
|
(1,573,949 | ) | (1,054,806 | ) | (832,315 | ) | ||||||
|
Other
operating income
|
5
(i)
|
28,704 | 13,077 | 12,396 | |||||||||
|
Other
operating expenses
|
5
(ii)
|
(23,771 | ) | (9,304 | ) | (14,595 | ) | ||||||
|
Operating
income
|
2,957,225 | 2,792,486 | 1,945,912 | ||||||||||
|
Interest
income
|
6
|
93,392 | 60,798 | 23,815 | |||||||||
|
Interest
expense
|
6
|
(275,648 | ) | (92,576 | ) | (52,629 | ) | ||||||
|
Other
financial results
|
6
|
(22,754 | ) | 26,826 | (79,772 | ) | |||||||
|
Income
before equity in earnings of associated companies and income
tax
|
2,752,215 | 2,787,534 | 1,837,326 | ||||||||||
|
Equity
in earnings of associated companies
|
7
|
113,276 | 94,667 | 117,377 | |||||||||
|
Income
before income tax
|
2,865,491 | 2,882,201 | 1,954,703 | ||||||||||
|
Income
tax
|
8
|
(823,924 | ) | (869,977 | ) | (567,368 | ) | ||||||
|
Income
for continuing operations
|
2,041,567 | 2,012,224 | 1,387,335 | ||||||||||
|
Discontinued
operations (see Note 29)
|
|||||||||||||
|
Income
(loss) for discontinued operations
|
34,492 | 47,180 | (3 | ) | |||||||||
|
Income
for the year
|
2,076,059 | 2,059,404 | 1,387,332 | ||||||||||
|
Attributable
to:
|
|||||||||||||
|
Equity
holders of the Company
|
1,923,748 | 1,945,314 | 1,277,547 | ||||||||||
|
Minority
interest
|
152,311 | 114,090 | 109,785 | ||||||||||
| 2,076,059 | 2,059,404 | 1,387,332 | |||||||||||
|
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 | 1,180,537 | |||||||||
|
Earnings
per share (U.S. dollars per share)
|
9
|
1.63 | 1.65 | 1.08 | |||||||||
|
Earnings
per ADS (U.S. dollars per ADS)
|
9
|
3.26 | 3.30 | 2.16 | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
BALANCE SHEETS
|
(all
amounts in thousands of U.S. dollars)
|
At
December 31, 2007
|
At
December 31, 2006
|
|||||||||||||||
|
Notes
|
|||||||||||||||||
|
ASSETS
|
|||||||||||||||||
|
Non-current
assets
|
|||||||||||||||||
|
Property,
plant and equipment, net
|
10
|
3,269,007 | 2,939,241 | ||||||||||||||
|
Intangible
assets, net
|
11
|
4,542,352 | 2,844,498 | ||||||||||||||
|
Investments
in associated companies
|
12
|
509,354 | 422,958 | ||||||||||||||
|
Other
investments
|
13
|
35,503 | 26,834 | ||||||||||||||
|
Deferred
tax assets
|
21
|
310,590 | 291,641 | ||||||||||||||
|
Receivables
|
14
|
63,738 | 8,730,544 | 41,238 | 6,566,410 | ||||||||||||
|
Current
assets
|
|||||||||||||||||
|
Inventories
|
15
|
2,598,856 | 2,372,308 | ||||||||||||||
|
Receivables
and prepayments
|
16
|
222,410 | 272,632 | ||||||||||||||
|
Current
tax assets
|
17
|
242,757 | 202,718 | ||||||||||||||
|
Trade
receivables
|
18
|
1,748,833 | 1,625,241 | ||||||||||||||
|
Other
investments
|
19
|
87,530 | 183,604 | ||||||||||||||
|
Cash
and cash equivalents
|
19
|
962,497 | 5,862,883 | 1,372,329 | 6,028,832 | ||||||||||||
|
Current and non current assets
held for sale
|
29
|
651,160 | - | ||||||||||||||
| 6,514,043 | 6,028,832 | ||||||||||||||||
|
Total
assets
|
15,244,587 | 12,595,242 | |||||||||||||||
|
EQUITY
|
|||||||||||||||||
|
Capital
and reserves attributable to the Company’s equity holders
|
|||||||||||||||||
|
Share
capital
|
1,180,537 | 1,180,537 | |||||||||||||||
|
Legal
reserves
|
118,054 | 118,054 | |||||||||||||||
|
Share
premium
|
609,733 | 609,733 | |||||||||||||||
|
Currency
translation adjustments
|
266,049 | 3,954 | |||||||||||||||
|
Other
reserves
|
18,203 | 28,757 | |||||||||||||||
|
Retained
earnings
|
4,813,701 | 7,006,277 | 3,397,584 | 5,338,619 | |||||||||||||
|
Minority
interest
|
523,573 | 363,011 | |||||||||||||||
|
Total
equity
|
7,529,850 | 5,701,630 | |||||||||||||||
|
LIABILITIES
|
|||||||||||||||||
|
Non-current
liabilities
|
|||||||||||||||||
|
Borrowings
|
20
|
2,869,466 | 2,857,046 | ||||||||||||||
|
Deferred
tax liabilities
|
21
|
1,233,836 | 991,945 | ||||||||||||||
|
Other
liabilities
|
22(i)
|
185,410 | 186,724 | ||||||||||||||
|
Provisions
|
23(ii)
|
97,912 | 92,027 | ||||||||||||||
|
Trade
payables
|
47 | 4,386,671 | 366 | 4,128,108 | |||||||||||||
|
Current
liabilities
|
|||||||||||||||||
|
Borrowings
|
20
|
1,150,779 | 794,197 | ||||||||||||||
|
Current
tax liabilities
|
341,028 | 565,985 | |||||||||||||||
|
Other
liabilities
|
22(ii)
|
252,204 | 187,701 | ||||||||||||||
|
Provisions
|
24(ii)
|
19,342 | 26,645 | ||||||||||||||
|
Customer
advances
|
449,829 | 352,717 | |||||||||||||||
|
Trade
payables
|
847,842 | 3,061,024 | 838,259 | 2,765,504 | |||||||||||||
|
Liabilities associated with
current and non-current assets held for sale
|
29
|
267,042 | - | ||||||||||||||
| 3,328,066 | 2,765,504 | ||||||||||||||||
|
Total
liabilities
|
7,714,737 | 6,893,612 | |||||||||||||||
|
Total
equity and liabilities
|
15,244,587 | 12,595,242 | |||||||||||||||
CONTINGENCIES,
COMMITMENTS AND RESTRICTIONS TO THE DISTRIBUTION OF PROFITS ARE DISCLOSED IN
NOTE 26.
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
(all
amounts in thousands of U.S. dollars)
|
Attributable
to equity holders of the Company
|
||||||||||||||||||||||||||||||||
|
Share
Capital
|
Legal
Reserves
|
Share
Premium
|
Currency
Translation Adjustment
|
Other
Reserves
|
Retained
Earnings (*)
|
Minority
Interest
|
Total
|
|||||||||||||||||||||||||
|
Balance
at January 1, 2007
|
1,180,537 | 118,054 | 609,733 | 3,954 | 28,757 | 3,397,584 | 363,011 | 5,701,630 | ||||||||||||||||||||||||
|
Currency
translation differences
|
- | - | - | 262,095 | - | - | 47,766 | 309,861 | ||||||||||||||||||||||||
|
Change
in equity reserves (see Section III C)
|
- | - | - | - | (10,554 | ) | - | - | (10,554 | ) | ||||||||||||||||||||||
|
Acquisition
and decrease of minority interest
|
- | - | - | - | - | - | 20,748 | 20,748 | ||||||||||||||||||||||||
|
Dividends
paid in cash
|
- | - | - | - | - | (507,631 | ) | (60,263 | ) | (567,894 | ) | |||||||||||||||||||||
|
Income
for the year
|
- | - | - | - | - | 1,923,748 | 152,311 | 2,076,059 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Balance
at December 31, 2007
|
1,180,537 | 118,054 | 609,733 | 266,049 | 18,203 | 4,813,701 | 523,573 | 7,529,850 | ||||||||||||||||||||||||
(*) 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.
Consolidated
statement of changes in equity (CONT.)
(all
amounts in thousands of U.S. dollars)
|
Attributable
to equity holders of the Company
|
||||||||||||||||||||||||||||||||
|
Share
Capital
|
Legal
Reserves
|
Share
Premium
|
Currency
Translation Adjustment
|
Other
Reserves
|
Retained
Earnings
|
Minority
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 27 (d))
|
- | - | - | - | 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 year
|
- | - | - | - | - | 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 | ||||||||||||||||||||||||
|
Attributable
to equity holders of the Company
|
||||||||||||||||||||||||||||||||||||
|
Share
Capital
|
Legal
Reserves
|
Share
Premium
|
Other
Distributable Reserve
|
Currency
Translation Adjustment
|
Other
Reserves
|
Retained
Earnings
|
Minority
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 Section II F)
|
- | - | - | - | - | - | 110,775 | - | 110,775 | |||||||||||||||||||||||||||
|
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 year
|
- | - | - | - | - | - | 1,277,547 | 109,785 | 1,387,332 | |||||||||||||||||||||||||||
|
Balance
at December 31, 2005
|
1,180,537 | 118,054 | 609,733 | - | (59,743 | ) | 2,718 | 1,656,503 | 268,071 | 3,775,873 | ||||||||||||||||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
CASH FLOW STATEMENTS
|
Year
ended December 31,
|
|||||||||||||
|
(all
amounts in thousands of U.S. dollars)
|
Note
|
2007
|
2006
|
2005
|
|||||||||
|
Cash
flows from operating activities
|
|||||||||||||
|
Income
for the year
|
2,076,059 | 2,059,404 | 1,387,332 | ||||||||||
|
Adjustments
for:
|
|||||||||||||
|
Depreciation
and amortization
|
10
& 11
|
514,820 | 255,004 | 214,227 | |||||||||
|
Income
tax accruals less payments
|
28
(ii)
|
(393,055 | ) | 56,836 | 149,487 | ||||||||
|
Equity
in earnings of associated companies
|
(94,888 | ) | (94,667 | ) | (117,377 | ) | |||||||
|
Interest
accruals less payments, net
|
28
(iii)
|
(21,302 | ) | 21,909 | 1,919 | ||||||||
|
Income
from disposal of investment and other
|
(18,388 | ) | (46,481 | ) | - | ||||||||
|
Changes
in provisions
|
(421 | ) | 8,894 | 6,497 | |||||||||
|
Proceeds
from Fintecna arbitration award net of BHP settlement
|
- | - | 66,594 | ||||||||||
|
Changes
in working capital
|
28
(i)
|
(110,425 | ) | (469,517 | ) | (433,939 | ) | ||||||
|
Other,
including currency translation adjustment
|
68,224 | 19,474 | 20,583 | ||||||||||
|
Net
cash provided by operating activities
|
2,020,624 | 1,810,856 | 1,295,323 | ||||||||||
|
Cash
flows from investing activities
|
|||||||||||||
|
Capital
expenditures
|
10
& 11
|
(447,917 | ) | (441,472 | ) | (284,474 | ) | ||||||
|
Acquisitions
of subsidiaries and minority interest
|
27
|
(1,927,262 | ) | (2,387,249 | ) | (48,292 | ) | ||||||
|
Other
disbursements relating to the acquisition of Hydril
|
(71,580 | ) | - | - | |||||||||
|
Decrease
in subsidiaries / associated
|
27,321 | 52,995 | - | ||||||||||
|
Convertible
loan to associated companies
|
- | - | (40,358 | ) | |||||||||
|
Proceeds
from disposal of property, plant and equipment and intangible
assets
|
24,041 | 15,347 | 9,995 | ||||||||||
|
Dividends
and distributions received from associated companies
|
12
|
12,170 | - | 59,127 | |||||||||
|
Changes
in restricted bank deposits
|
21 | 2,027 | 11,452 | ||||||||||
|
Reimbursement
from trust funds
|
- | - | (119,907 | ) | |||||||||
|
Investments
in short terms securities
|
96,074 | (63,697 | ) | 119,666 | |||||||||
|
Net
cash used in investing activities
|
(2,287,132 | ) | (2,822,049 | ) | (292,791 | ) | |||||||
|
Cash
flows from financing activities
|
|||||||||||||
|
Dividends
paid
|
(507,631 | ) | (204,233 | ) | (349,439 | ) | |||||||
|
Dividends
paid to minority interest in subsidiaries
|
(60,263 | ) | (23,194 | ) | (14,318 | ) | |||||||
|
Proceeds
from borrowings
|
2,718,264 | 3,033,230 | 1,222,861 | ||||||||||
|
Repayments
of borrowings
|
(2,347,054 | ) | (1,105,098 | ) | (1,463,233 | ) | |||||||
|
Net
cash (used in) provided by financing activities
|
(196,684 | ) | 1,700,705 | (604,129 | ) | ||||||||
|
(Decrease)
Increase in cash and cash equivalents
|
(463,192 | ) | 689,512 | 398,403 | |||||||||
|
Movement
in cash and cash equivalents
|
|||||||||||||
|
At
the beginning of the period
|
1,365,008 | 680,591 | 293,824 | ||||||||||
|
Effect
of exchange rate changes
|
52,487 | (5,095 | ) | (11,636 | ) | ||||||||
|
(Decrease) Increase in cash
and cash equivalents
|
(463,192 | ) | 689,512 | 398,403 | |||||||||
|
At
December 31,
|
28
(iv)
|
954,303 | 1,365,008 | 680,591 | |||||||||
|
Non-cash
financing activity
|
|||||||||||||
|
Conversion
of debt to equity in subsidiaries
|
35,140 | - | - | ||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
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
|
|
B
|
Group
accounting
|
4
|
Labor
costs (included in Cost of sales and in Selling, 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
|
Trade
payables
|
20
|
Borrowings
|
|
S
|
Revenue
recognition
|
21
|
Deferred
income tax
|
|
T
|
Cost
of sales and sales expenses
|
22
|
Other
liabilities
|
|
U
|
Earnings
per share
|
23
|
Non-current
allowances and provisions
|
|
V
|
Derivative
financial instruments
|
24
|
Current
allowances and provisions
|
|
25
|
Derivative
financial instruments
|
||
|
III.
|
FINANCIAL
RISK MANAGEMENT
|
26
|
Contingencies,
commitments and restrictions on the distribution of
profits
|
|
27
|
Business
combinations and other acquisitions
|
||
|
IV.
|
IMPACT
OF NEW ACCOUNTING PRONOUNCEMENTS
|
28
|
Cash
flow disclosures
|
|
29
|
Current
and non current assets held for sale and discontinued
operations
|
||
|
30
|
Related
party transactions
|
||
|
31
|
Principal
subsidiaries
|
I.
GENERAL INFORMATION
Tenaris
S.A. (the “Company”), a Luxembourg corporation (societé 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.
The
Company’s shares trade on the Milan Stock Exchange, the Buenos Aires Stock
Exchange and the Mexico City Stock Exchange; the Company’s American Depositary
Securities trade on the New York Stock Exchange.
These
Consolidated Financial Statements were approved for issue by the Company’s Board
of Directors on February 27,
2008.
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”), as issued by the International Accounting Standards Board under the
historical cost convention, as modified by the revaluation of financial assets
and liabilities (including derivative instruments) at fair value through profit
or loss. 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 Other financial
results.
See Note
31 for the list of the principal subsidiaries.
|
(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.
Financial statements of associated companies have been adjusted where necessary
to ensure consistency with IFRS. 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 by the
equity method, as Tenaris has significant influence as defined by IAS 28, Investments in Associates.
At December 31, 2007, Tenaris holds 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’ investment in Ternium will not reflect its proportional ownership of
Ternium’s net equity position. Ternium carried out an initial public offering
(“IPO”) of its shares on February 1, 2006, listing its ADS on the New York Stock
Exchange.
|
C
|
Segment
information
|
The
Company is organized in three major business segments: Tubes, Projects and
Other.
The Tubes
segment includes the operations that consist of the production and selling of
both seamless and welded steel tubular products and related services mainly for
energy and industrial applications.
The
Projects segment includes the operations that consist of the production and
selling of welded steel pipe products mainly used in the construction of major
pipeline projects.
The
Others segment includes the operations that consist of the production and
selling of sucker rods, welded steel pipes for electric conduits, industrial
equipment and raw materials, such as hot briquetted iron, or HBI, that exceed
Tenaris’s internal requirements.
In May
2007, Tenaris acquired Hydril Company (“Hydril”), a company engaged in
engineering, manufacturing and selling of premium connections and pressure
control products for oil and gas drilling production. Hydril’s premium
connections business was allocated to the Tubes segment and a new segment was
initially created -Pressure Control- for Hydril’s pressure control business. On
January 28, 2008, Tenaris entered into an agreement with General Electric
Company (GE) to sell the pressure control business; in accordance with IFRS 5,
the pressure control business has been disclosed as current and non current
assets and liabilities held for sale and discontinued operations.
Corporate
general and administrative expenses have been allocated to the Tubes
segment.
Tenaris
groups its geographical information in five areas: North America, South America,
Europe, Middle East and Africa, and Far East and Oceania. For purposes of
reporting geographical information, net sales are allocated 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
and presentation currency
|
IAS 21
(revised) defines the functional currency as the currency of the primary
economic environment in which an entity operates.
The
functional and presentation currency of the Company 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 the Company’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:
|
|
·
|
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;
|
|
|
·
|
Prices
of critical raw materials and inputs are priced and settled in U.S.
dollars;
|
|
|
·
|
The
exchange rate of the currency of Argentina has long-been affected by
recurring and severe economic crises;
and
|
|
|
·
|
Net
financial assets and liabilities are mainly received and maintained in
U.S. dollars.
|
In
addition to Siderca, the Colombian subsidiaries and most of the Company’s
distributing subsidiaries and intermediate holding subsidiaries have 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 Other 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.
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 are
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
(“Property plant and equipment”), did not materially affect depreciation
expenses for 2007.
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 Tenaris’
share of net assets acquired as part of business combinations determined mainly
by independent valuation. Separately recognized goodwill is tested annually for
impairment and carried at cost less accumulated impairment losses. No impairment
losses related to goodwill were recorded by Tenaris during the three years
covered by these Consolidated Financial Statements. In the event of impairment,
reversals are not allowed. Goodwill is included in Intangible
assets, net on the Balance Sheet.
Goodwill
is allocated to cash-generating units (“CGU’s”) for the purpose of impairment
testing. The allocation is made to those CGU 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
(“Business Combinations”) requires negative goodwill to be recognized
immediately as a gain in the Income Statement.
Upon the
adoption of IFRS 3, adopted together with the revised IAS 38 (“Intangible
Assets”), and IAS 36 (“Impairment of Assets”), previously accumulated negative
goodwill was 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.
|
(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,
patents, trademarks and proprietary
technology
|
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 10 years.
Trademarks
acquired through acquisitions amounting to $149.1 million at December 31, 2007,
out of which $57.1 million are disclosed within current and non current assets
held for sale, have indefinite useful lives according to external appraisal.
Main factors considered in the determination of the indefinite useful lives,
include the years that they have been in service and their recognition among
customers in the industry.
|
(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
2007, 2006 and 2005 totaled $61.7 million , $46.9 million and $34.7 million,
respectively.
|
(5)
|
Customer
relationships and backlog acquired in a business
combination
|
In
accordance with IFRS 3 and IAS 38, Tenaris has recognized the value of customer
relationships and backlog separately from goodwill attributable to the
acquisition of Maverick and Hydril, as further disclosed in Note 27 (a) and
(c).
Customer
relationships are amortized using the straight-line method over a useful average
life of approximately 14 years for Maverick and 10 years for
Hydril.
Backlog
refers to fair value calculated with the discounted cash flow method of
agreements and/or relationships that effectively represent "pre-sold" business
for Hydril pressure control. It is amortized using the straight-line method over
a useful average life of approximately 2 years.
|
G
|
Impairment
of non financial assets
|
In
accordance with IFRS 3, IAS 36 and IAS 38, long-lived assets including
identifiable intangible assets and goodwill are regularly reviewed for
impairment.
Intangible
assets with indefinite useful 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 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 rates that
reflect 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”.
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.
Results
from financial investments are recognized in Financial results in the
income statement.
The fair
values of quoted investments are based on current mid prices (see Section III.
Financial Risk Management). If the market for a financial investment is not
active or the securities are not listed, Tenaris estimates the 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 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 based on supplier’s 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 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 the 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.
|
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:
|
|
·
|
The
value of share capital, legal reserve, share premium and other
distributable reserve calculated in accordance with Luxembourg
Law;
|
|
|
·
|
The
currency translation adjustment, other reserves, retained earnings and
minority interest calculated in accordance with
IFRS.
|
|
(2)
|
Share
capital
|
Total
ordinary shares issued and outstanding as of December 31, 2007, 2006 and 2005
are 1,180,536,830 with a par value of $1.00 per share with one vote each. All
issued shares are fully paid.
|
(3)
|
Dividends
paid by the Company to shareholders
|
Dividends
payable are recorded in the Company’s 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 the Company 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 the Company- 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.
Deferred
income taxes are calculated applying the liability method on temporary
differences arising between the tax basis 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.
As from
January 1, 2007 as a consequence of a change in an Italian law, employees were
entitled to make contributions to external funds or to maintain the
contributions within the company. If the employee chooses to make contributions
to the external funds Tenaris’ Italian subsidiary pays every year the matured
contribution to the funds and no more obligation will be in charge of it. As a
consequence of the abovementioned, the structure of the plan could be changed
from a defined benefit plan to a defined contribution plan effective from the
date of the choice, but only limited to the contributions of 2007
onwards.
|
(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’ 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 one of
its Canadian subsidiaries, Tenaris sponsors funded and unfunded non-contributory
defined benefit pension plans. 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.
|
(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.
|
(d)
|
Employee
retention and long term incentive
program
|
On
January 1, 2007 Tenaris adopted an employee retention and long term incentive
program. Pursuant to this program, certain senior executives will be granted
with a number of units’ equivalent in value to the equity book value per share
(excluding minority interest). The units will be vested over four years period
and Tenaris will redeem vested units following a period of seven years from the
grant date, or when the employee ceases employment, at the equity book value per
share at the time of payment. Beneficiaries will also receive a cash amount per
unit equivalent to the dividend paid per share whenever the Company pays a cash
dividend to its shareholders.
Annual
compensation under this program is not expected to exceed 35% in average of the
total annual compensation of the beneficiaries.
The total
value of the units granted to date under the program, considering the number of
units and the book value per share as of December 31, 2007, is $8.1 million. As
of December 31, 2007, Tenaris has recorded a total liability of $11.1 million,
based on actuarial calculations provided by independent advisors.
|
P
|
Employee
statutory profit sharing
|
Under
Mexican law, the Company’s Mexican subsidiaries are required to pay to their
employees an annual benefit calculated on a similar basis 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 similar basis 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
|
Trade
payables
|
Trade
payables are recognized initially at fair value and subsequently measured at
amortized cost.
|
S
|
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.
The
Pressure Control business (disclosed as discontinued operations) and industrial
equipment (included in Other segment) recognize revenues from long term
contracts. These contracts are recognized using the percentage of completion
method measured by the percentage of costs incurred to estimated final
costs.
Other
revenues earned by Tenaris are recognized on the following bases:
|
|
·
|
Interest
income: on the effective yield
basis.
|
|
|
·
|
Dividend
income from investments in other companies: when Tenaris’ right to collect
is established.
|
|
T
|
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.
|
U
|
Earnings
per share
|
Earnings
per share are calculated by dividing the income attributable to equity holders
of the Company by the daily weighted average number of common shares outstanding
during the year.
|
V
|
Derivative
financial instruments
|
Accounting
for derivative financial instruments and hedging activities is included within
the Section III, Financial Risk Management.
Tenaris
has identified certain embedded derivatives and in accordance with IAS 39
(“Financial Instruments: Recognition and Measurement”) has accounted them
separately from their host contracts. This result has been recognized under “Net
foreign exchange transaction results and changes in fair value of derivative
instruments”.
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)
|
Capital
Risk
|
Tenaris
seeks to maintain an adequate debt to total equity ratio considering the
industry and the markets where it operates. The year end ratio of debt to total
equity (where “debt” comprises all financial borrowings and “equity” is the sum
of financial borrowings and shareholders’ equity) is 0.35 as of December 31,
2007, in comparison with 0.39 as of December 31, 2006. The Company does not have
to comply with regulatory capital adequacy requirements as known in the
financial services industry.
|
(ii)
|
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. Since the
functional currency of the Company is the U.S. dollar the purpose of Tenaris’
foreign currency hedging program is to reduce the risk caused by changes in
exchange rates against US dollar.
Tenaris’
exposure to currency fluctuations is reviewed on a periodic basis. A number of
derivative transactions are performed in order to achieve an efficient coverage.
Almost all of these hedging transactions are forward exchange rates contracts
(see Note 25 Derivative Financial Instruments).
Tenaris
does not hold or issue derivative financial instruments for speculative trading
purposes.
Because a
number of subsidiaries have functional currencies other than the U.S. dollar,
the results of hedging activities, reported in accordance with IFRS, may not
reflect management’s assessment of its foreign exchange risk hedging program.
Intercompany balances between Tenaris subsidiaries may generate financial gains
(losses) to the extent that functional currencies differ.
The
following table shows a breakdown of Tenaris’ assessed long / (short) balance
sheet exposure to currency risk as of December 31, 2007, including the effect of
forward exchange rate contracts in place. These balances include intercompany
positions where the intervening parties have different functional
currencies.
|
Exposure
to
|
Functional
Currency
|
|||||||||||||||||||||||||||||||||||||||
|
in
thousand $
|
USD
|
EUR
|
MXN
|
BRL
|
JPY
|
CAD
|
RON
|
VEB
|
CNY
|
Other
|
||||||||||||||||||||||||||||||
|
USD
|
(n/a | ) | (236,608 | ) | (278,948 | ) | 209,932 | 145,438 | 4,522 | (58,354 | ) | (38,811 | ) | (31,755 | ) | (749 | ) | |||||||||||||||||||||||
|
EUR
|
44,256 | (n/a | ) | 1,486 | 11,218 | (213 | ) | (799 | ) | (19,681 | ) | (3,832 | ) | (180 | ) | - | ||||||||||||||||||||||||
|
MXN
|
2,283 | - | (n/a | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
|
JPY
|
439 | - | - | - | (n/a | ) | (10 | ) | - | - | (107 | ) | - | |||||||||||||||||||||||||||
|
CAD
|
(62,657 | ) | 256 | 663 | - | (40 | ) | (n/a | ) | - | - | - | - | |||||||||||||||||||||||||||
|
RON
|
(19,208 | ) | - | - | - | - | - | (n/a | ) | - | - | - | ||||||||||||||||||||||||||||
|
VEB
|
16,338 | - | - | - | - | - | - | (n/a | ) | - | - | |||||||||||||||||||||||||||||
|
ARS
|
(156,359 | ) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
|
GBP
|
14,330 | 1,405 | 6 | 9 | 256 | (8 | ) | 1,667 | - | - | - | |||||||||||||||||||||||||||||
|
Other
|
(1,125 | ) | - | - | - | 19 | - | - | - | - | - | |||||||||||||||||||||||||||||
The
Company estimates that the impact under IFRS in the net exposure of a
simultaneous +/- 1% favorable / unfavorable movement in the main exchange rates
would result in a maximum pre-tax gain / loss of approximately +/- $13.4 million
for 2007 as compared with a maximum pre-tax gain / loss of approximately +/-
$13.7 million for 2006. Considering the above mentioned assumptions the maximum
effect in shareholder’s equity originated in monetary assets and liabilities
would result in approximately $5.9 million and $6.3 million for 2007 and 2006
respectively.
Additionally,
the Company has an embedded derivative related to a ten year steel supply
agreement contracted by a Canadian subsidiary of an amount of $292 million. The
company estimates that the impact of +/- 1% favorable
/ unfavorable movement in the exchange rate would result in a maximum pre-tax
gain / loss of approximately +/- $2.9 million.
|
(iii)
|
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 has 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.
The
following table summarizes the proportions of variable-rate and fixed-rate debt
as of each year end (see Note 25 - Derivative financial
instruments)
|
As
of 31 December,
|
||||||||||||||||
|
2007
|
2006
|
|||||||||||||||
|
Amount
in million
|
Percentage
|
Amount
in million
|
Percentage
|
|||||||||||||
|
Fixed
rate
|
282.9 | 7 | % | 242.5 | 7 | % | ||||||||||
|
Variable
rate
|
3,737.3 | 93 | % | 3,408.7 | 93 | % | ||||||||||
|
(iv)
|
Concentration
of credit risk
|
There is
no significant concentration of credit risk from customers. No single customer
comprised more than 10% of Tenaris’ net sales in 2007 and 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 risks whenever deemed necessary. Tenaris maintains
allowances for impairment for potential credit losses (See Section II
J).
Derivative
counterparties and cash transactions are limited to high credit quality
financial institutions normally investment grade. More than 98.6% of
Tenaris’ cash equivalents and short term investments correspond to Investment
Grade-rated instruments as of December 31, 2007, in comparison with 98.1% as of
December 31, 2006.
|
(v)
|
Liquidity
risk
|
Management
maintains sufficient cash and marketable securities or credit facilities to
finance normal operations. Tenaris also has lines of credit and
access to market for short-term working capital needs.
B.
Fair value estimation
For the
purpose of estimating the fair value of financial assets and liabilities with
maturities of less than one year, the market value is considered. Since most of
the Company’s cash and marketable securities are short-term instruments, a
change of 50 basis points in the reference interest rates would not have a
significant impact in the fair value of financial assets.
Tenaris’
borrowings are accounted for at its amortized cost. Most borrowings are
comprised of variable rate debt with a short term portion where interest has
already been fixed. Tenaris estimate that the fair value of its main financial
liabilities is approximately 100.4% in 2007 of its carrying amount including
interests accrued as compared with 101.2% in 2006. Tenaris estimates that a
change of 50 basis points in the reference interest rates would have an
estimated impact of less than 0.1% in the fair value of borrowings as of
December 31, 2007. Fair values were calculated using standard valuation
techniques for floating rate instruments and comparable market rates for
discounting flows.
Specific
derivative instruments are priced using valuation tools in order to obtain
market values.
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. Specific tools are used for calculation of each
instrument’s fair value and these tools are tested for consistency on a
quarterly basis. Market rates are used for all pricing operations. This includes
exchange rates, deposit rates and other discount rates matching the nature of
each underlying risk.
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 Statement.
Tenaris
designates certain derivatives as hedges of a particular risk associated with a
recognized asset or liability or a highly probable forecast transaction. 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, 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, 2007, the effective
portion of designated cash flow hedges amounts to $8.5 million and is included
in Other Reserves in equity (see Note 25 Derivative Financial
Instruments).
IV.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Standards
early adopted by Tenaris
Tenaris
early adopted IFRS 8 “Operating Segments” as from January 1, 2006, which
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.
Interpretations
and amendments to published standards effective in 2007
|
(a)
|
IFRS
7, Financial
Instruments: Disclosure
|
IFRS 7
introduces new disclosures about financial instruments. Tenaris has applied IFRS
7 for annual periods beginning on January 1, 2007.
|
(b)
|
Amendment
to IAS 1, Presentation of financial statements – Capital
disclosure
|
IAS 1
amendment requires new disclosures related to managing capital. Tenaris has
applied this amendment for annual periods beginning on January 1,
2007.
|
(c)
|
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.
The application of this IFRIC from January 1, 2007 did not have a material
impact in the Company’s financial statements.
|
(d)
|
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. The application of this IFRIC from
January 1, 2007 did not have a material impact in the Company’s financial
statements.
Management
assessed the relevance of other new standards, amendments or interpretations
effective for December, 2007 year-end 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)
|
IAS
1 Revised, Presentation of Financial
Statements
|
IAS 1
(effective from January 1, 2009) has been revised to enhance the usefulness of
information presented in the financial statements. The principal changes, among
others, are: the introduction of a new statement of comprehensive income;
additional disclosures about income tax, relating to each component of other
comprehensive income; the introduction of new terminology, although not
obligatory. Tenaris will apply IAS 1 Revised for annual periods beginning on
January 1, 2009.
|
(b)
|
IAS
23 Revised, Borrowing Costs
|
IAS 23
(effective from January 1, 2009) eliminates the option of expensing all
borrowing costs and requires borrowing costs to be capitalized if they are
directly attributable to the acquisition, construction or production of a
qualifying asset. These amendments apply to borrowing costs incurred on
qualifying assets for which the commencement date for capitalization is on or
after January 1, 2009. Tenaris will apply IAS 23 Revised for annual periods
beginning on January 1, 2009.
|
(c)
|
IFRIC
14 – IAS 19, The limit on a Defined Benefit Asset, minimum funding
requirements and their interaction
|
IFRIC 14
(effective from January 1, 2008) provides guidance on assessing the limit in IAS
19, on the amount of the surplus that can be recognized as an asset. It also
explains how the pension asset or liability may be affected by a statutory or
contractual minimum funding requirement. Tenaris will apply IFRIC 14 from
January 1, 2008, but it is not expected to have any impact on its
accounts.
Management
assessed the relevance of other new standards, amendments or interpretations not
yet effective and concluded that they are not relevant to Tenaris.
V.
OTHER NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In
the notes all amounts are shown in thousands of U.S. dollars, unless otherwise
stated)
|
1
|
Segment
information
|
Reportable
operating segments
|
(all
amounts in thousands of U.S. dollars)
|
Tubes
|
Projects
|
Other
|
Unallocated
|
Total
Continuing operations
|
Total
Discontinued operations (*)
|
||||||||||||||||||
|
Year
ended December 31, 2007
|
||||||||||||||||||||||||
|
Net
sales
|
8,552,641 | 876,289 | 613,078 | - | 10,042,008 | 238,220 | ||||||||||||||||||
|
Cost
of sales
|
(4,427,868 | ) | (620,836 | ) | (467,063 | ) | - | (5,515,767 | ) | (157,356 | ) | |||||||||||||
|
Gross
profit
|
4,124,773 | 255,453 | 146,015 | - | 4,526,241 | 80,864 | ||||||||||||||||||
|
Selling,
general and administrative expenses
|
(1,391,114 | ) | (94,702 | ) | (88,133 | ) | (1,573,949 | ) | (36,441 | ) | ||||||||||||||
|
Other
operating income (expenses), net
|
(19,731 | ) | 24,089 | 575 | - | 4,933 | (431 | ) | ||||||||||||||||
|
Operating
income
|
2,713,928 | 184,840 | 58,457 | - | 2,957,225 | 43,992 | ||||||||||||||||||
|
Segment
assets
|
12,453,156 | 1,085,254 | 545,663 | 509,354 | 14,593,427 | 651,160 | ||||||||||||||||||
|
Segment
liabilities
|
6,727,523 | 579,376 | 140,796 | - | 7,447,695 | 267,042 | ||||||||||||||||||
|
Capital
expenditures
|
404,545 | 17,969 | 16,822 | - | 439,336 | 8,581 | ||||||||||||||||||
|
Depreciation and
amortization
|
446,050 | 19,563 | 26,489 | - | 492,102 | 22,718 | ||||||||||||||||||
|
Year
ended December 31, 2006
|
||||||||||||||||||||||||
|
Net
sales
|
6,826,868 | 453,536 | 447,341 | - | 7,727,745 | 503,051 | ||||||||||||||||||
|
Cost
of sales
|
(3,234,015 | ) | (326,402 | ) | (323,809 | ) | - | (3,884,226 | ) | (486,312 | ) | |||||||||||||
|
Gross
profit
|
3,592,853 | 127,134 | 123,532 | - | 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
|
2,670,547 | 56,337 | 65,602 | - | 2,792,486 | 11,183 | ||||||||||||||||||
|
Segment
assets
|
10,807,345 | 803,060 | 561,879 | 422,958 | 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 | ||||||||||||||||||
|
Depreciation
and amortization
|
220,368 | 19,345 | 13,394 | - | 253,107 | 1,897 | ||||||||||||||||||
|
Year
ended December 31, 2005
|
||||||||||||||||||||||||
|
Net
sales
|
5,127,984 | 789,989 | 291,818 | - | 6,209,791 | 526,406 | ||||||||||||||||||
|
Cost
of sales
|
(2,724,550 | ) | (520,404 | ) | (184,411 | ) | - | (3,429,365 | ) | (513,393 | ) | |||||||||||||
|
Gross
profit
|
2,403,434 | 269,585 | 107,407 | - | 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
|
1,701,709 | 179,576 | 64,627 | - | 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 | ||||||||||||||||||
|
Depreciation
and amortization
|
182,478 | 15,545 | 13,690 | - | 211,713 | 2,514 | ||||||||||||||||||
Transactions
between segments, which were eliminated in consolidation, include sales of scrap
and pipe protectors from the Others segment to the Tubes segment for $109,574,
$88,118 and $41,163 in 2007, 2006 and 2005, respectively.
Geographical
information
|
(all
amounts in thousands of U.S. dollars)
|
North
America
|
South
America
|
Europe
|
Middle
East & Africa
|
Far
East & Oceania
|
Unallocated
|
Total
Continuing operations
|
Total
Discontinued operations (*)
|
||||||||||||||||||||||||
|
Year
ended December 31, 2007
|
||||||||||||||||||||||||||||||||
|
Net
sales
|
3,187,753 | 2,352,975 | 1,707,788 | 2,093,916 | 699,576 | - | 10,042,008 | 238,220 | ||||||||||||||||||||||||
|
Total
assets
|
7,471,569 | 3,342,206 | 2,315,187 | 507,331 | 447,780 | 509,354 | 14,593,427 | 651,160 | ||||||||||||||||||||||||
|
Trade
receivables
|
418,081 | 344,743 | 435,384 | 455,965 | 94,660 | - | 1,748,833 | 79,220 | ||||||||||||||||||||||||
|
Property.
plant and equipment, net
|
1,349,863 | 906,211 | 913,642 | 4,672 | 94,619 | - | 3,269,007 | 63,629 | ||||||||||||||||||||||||
|
Capital
expenditures
|
149,434 | 149,355 | 112,165 | 1,879 | 26,503 | - | 439,336 | 8,581 | ||||||||||||||||||||||||
|
Depreciation
and amortization
|
283,358 | 110,389 | 87,311 | 1,139 | 9,905 | - | 492,102 | 22,718 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
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
|
6,334,227 | 2,780,977 | 2,045,856 | 623,572 | 387,652 | 422,958 | 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 | ||||||||||||||||||||||||
|
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 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Depreciation
and amortization
|
49,038 | 87,430 | 68,608 | 404 | 6,233 | - | 211,713 | 2,514 | ||||||||||||||||||||||||
There are
no revenues from external customers attributable to the Company’s country of
incorporation (Luxembourg). For geographical information purposes, “North
America” comprises Canada, Mexico and the USA; “South America” comprises
principally Argentina, Brazil and Venezuela; “Europe” comprises principally
France, Germany, Italy, Norway, Romania and the United Kingdom; “Middle East and
Africa” comprises principally Algeria, Egypt, Nigeria, Saudi Arabia and the
United Arab Emirates; “Far East and Oceania” comprises principally China,
Indonesia, Japan and South Korea.
(*)
Corresponds to Pressure Control (year 2007) and Dalmine Energie (year 2006 and
2005) operations (See Note 29).
|
2
|
Cost
of sales
|
|
Year
ended December 31,
|
||||||||||||
|
(all
amounts in thousands of U.S. dollars)
|
2007
|
2006
|
2005
|
|||||||||
|
Inventories
at the beginning of the year
|
2,372,308 | 1,376,113 | 1,269,470 | |||||||||
|
Plus:
Charges of the year
|
||||||||||||
|
Raw
materials, energy, consumables and other
|
4,183,577 | 3,514,396 | 2,954,580 | |||||||||
|
Increase
in inventory due to business combinations
|
152,500 | 592,341 | 5,500 | |||||||||
|
Services
and fees
|
392,531 | 384,223 | 324,799 | |||||||||
|
Labor
cost
|
766,173 | 512,854 | 420,714 | |||||||||
|
Depreciation
of property, plant and equipment
|
263,813 | 187,564 | 182,696 | |||||||||
|
Amortization
of intangible assets
|
1,737 | 2,738 | 5,025 | |||||||||
|
Maintenance
expenses
|
180,502 | 120,664 | 99,171 | |||||||||
|
Provisions
for contingencies
|
3,191 | (87 | ) | 200 | ||||||||
|
Allowance
for obsolescence
|
24,371 | (8,006 | ) | 20,303 | ||||||||
|
Taxes
|
7,651 | 4,568 | 3,170 | |||||||||
|
Other
|
82,453 | 55,478 | 33,243 | |||||||||
| 6,058,499 | 5,366,733 | 4,049,401 | ||||||||||
|
Deconsolidation
/ Transfer to assets held for sale
|
(158,828 | ) | - | - | ||||||||
|
Less:
Inventories at the end of the year
|
(2,598,856 | ) | (2,372,308 | ) | (1,376,113 | ) | ||||||
| 5,673,123 | 4,370,538 | 3,942,758 | ||||||||||
|
From
Discontinued operations
|
(157,356 | ) | (486,312 | ) | (513,393 | ) | ||||||
| 5,515,767 | 3,884,226 | 3,429,365 | ||||||||||
|
3
|
Selling,
general and administrative expense
|
|
Year
ended December 31,
|
||||||||||||
|
(all
amounts in thousands of U.S. dollars)
|
2007
|
2006
|
2005
|
|||||||||
|
Services
and fees
|
193,389 | 133,304 | 122,953 | |||||||||
|
Labor
cost
|
402,919 | 279,768 | 214,216 | |||||||||
|
Depreciation
of property, plant and equipment
|
13,272 | 9,926 | 10,319 | |||||||||
|
Amortization
of intangible assets
|
235,998 | 54,776 | 16,187 | |||||||||
|
Commissions,
freight and other selling expenses
|
462,640 | 361,655 | 298,101 | |||||||||
|
Provisions
for contingencies
|
30,738 | 13,881 | 14,855 | |||||||||
|
Allowances
for doubtful accounts
|
5,035 | 1,199 | 7,069 | |||||||||
|
Taxes
|
147,326 | 122,789 | 93,782 | |||||||||
|
Other
|
119,073 | 85,533 | 65,092 | |||||||||
| 1,610,390 | 1,062,831 | 842,574 | ||||||||||
|
From
Discontinued operations
|
(36,441 | ) | (8,025 | ) | (10,259 | ) | ||||||
| 1,573,949 | 1,054,806 | 832,315 | ||||||||||
|
4
|
Labor
costs (included in Cost of sales and in Selling, general and
administrative expenses)
|
|
Year
ended December 31,
|
||||||||||||
|
(all
amounts in thousands of U.S. dollars)
|
2007
|
2006
|
2005
|
|||||||||
|
Wages,
salaries and social security costs
|
1,139,587 | 778,573 | 622,523 | |||||||||
|
Employees'
severance indemnity
|
10,931 | 11,588 | 10,617 | |||||||||
|
Pension
benefits - defined benefit plans
|
7,454 | 2,461 | 1,790 | |||||||||
|
Employee
retention and long term incentive program
|
11,120 | - | - | |||||||||
| 1,169,092 | 792,622 | 634,930 | ||||||||||
|
From
Discontinued operations
|
(43,058 | ) | (4,898 | ) | (5,356 | ) | ||||||
| 1,126,034 | 787,724 | 629,574 | ||||||||||
At the
year-end, the number of employees was 23,372 in 2007, 21,751 in 2006 and 17,693
in 2005.
|
5
|
Other
operating items
|
|
Year
ended December 31,
|
|||||||||||||
|
(all
amounts in thousands of U.S. dollars)
|
2007
|
2006
|
2005
|
||||||||||
|
(i)
|
Other
operating income
|
||||||||||||
|
Reimbursement
from insurance companies and other third parties
|
2,611 | 1,611 | 1,966 | ||||||||||
|
Net
income from other sales
|
21,957 | 4,512 | 5,767 | ||||||||||
|
Net
income from sale of investments
|
- | 6,933 | - | ||||||||||
|
Net
rents
|
2,437 | 2,490 | 2,501 | ||||||||||
|
Fintecna
arbitration award, net of legal expenses, related to BHP
proceedings
|
- | - | 1,752 | ||||||||||
|
Other
|
1,834 | - | 410 | ||||||||||
| 28,839 | 15,546 | 12,396 | |||||||||||
|
From
Discontinued operations
|
(135 | ) | (2,469 | ) | - | ||||||||
| 28,704 | 13,077 | 12,396 | |||||||||||
|
(ii)
|
Other
operating expenses
|
||||||||||||
|
Contributions
to welfare projects and non-profits organizations
|
2,283 | 4,463 | 2,532 | ||||||||||
|
Provisions
for legal claims and contingencies
|
(51 | ) | - | 8,694 | |||||||||
|
Loss
on fixed assets and material supplies disposed / scrapped
|
5,742 | 4,145 | 2,146 | ||||||||||
|
Settlement
of outstanding redemptions on Maverick’s 2005 notes
|
10,275 | - | - | ||||||||||
|
Loss
from natural disasters
|
5,693 | - | - | ||||||||||
|
Allowance
for doubtful receivables
|
395 | (375 | ) | 1,443 | |||||||||
|
Other
|
- | 1,071 | - | ||||||||||
| 24,337 | 9,304 | 14,815 | |||||||||||
|
From
Discontinued operations
|
(566 | ) | - | (220 | ) | ||||||||
| 23,771 | 9,304 | 14,595 | |||||||||||
|
6
|
Financial
results
|
|
(all
amounts in thousands of U.S. dollars)
|
Year
ended December 31,
|
|||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Interest
income
|
93,458 | 61,401 | 24,268 | |||||||||
|
Interest
expense
|
(275,763 | ) | (93,638 | ) | (53,504 | ) | ||||||
|
Interest
net
|
(182,305 | ) | (32,237 | ) | (29,236 | ) | ||||||
|
Net
foreign exchange transaction results and changes in fair value of
derivative instruments
|
(10,782 | ) | 29,129 | (86,618 | ) | |||||||
|
Other
|
(11,969 | ) | (1,828 | ) | 6,116 | |||||||
|
Other
financial results
|
(22,751 | ) | 27,301 | (80,502 | ) | |||||||
|
Net
financial results
|
(205,056 | ) | (4,936 | ) | (109,738 | ) | ||||||
|
From
Discontinued operations
|
46 | (16 | ) | 1,152 | ||||||||
| (205,010 | ) | (4,952 | ) | (108,586 | ) | |||||||
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)
|
2007
|
2006
|
2005
|
|||||||||
|
From
associated companies
|
94,888 | 95,260 | 117,003 | |||||||||
|
Gain
on sale of associated companies and other
|
18,388 | (593 | ) | 374 | ||||||||
| 113,276 | 94,667 | 117,377 | ||||||||||
|
8
|
Income
tax
|
|
Year
ended December 31,
|
||||||||||||
|
(all
amounts in thousands of U.S. dollars)
|
2007
|
2006
|
2005
|
|||||||||
|
Current
tax
|
936,831 | 897,427 | 637,623 | |||||||||
|
Deferred
tax
|
(97,799 | ) | (17,386 | ) | (61,837 | ) | ||||||
| 839,032 | 880,041 | 575,786 | ||||||||||
|
Effect
of currency translation on tax base (a)
|
(5,654 | ) | (6,060 | ) | (7,033 | ) | ||||||
| 833,378 | 873,981 | 568,753 | ||||||||||
|
From
Discontinued operations
|
(9,454 | ) | (4,004 | ) | (1,385 | ) | ||||||
| 823,924 | 869,977 | 567,368 | ||||||||||
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)
|
2007
|
2006
|
2005
|
|||||||||
|
Income
before income tax
|
2,865,491 | 2,882,201 | 1,954,703 | |||||||||
|
Tax
calculated at the tax rate in each country
|
844,191 | 901,580 | 591,167 | |||||||||
|
Non
taxable income / Non deductible expenses
|
2,860 | (32,562 | ) | (32,807 | ) | |||||||
|
Changes
in the tax rates in Italy, Colombia and Canada
|
(27,479 | ) | - | - | ||||||||
|
Effect
of currency translation on tax base (a)
|
(5,654 | ) | (6,060 | ) | (7,033 | ) | ||||||
|
Effect
of taxable exchange differences
|
11,660 | 10,069 | 17,087 | |||||||||
|
Utilization
of previously unrecognized tax losses
|
(1,654 | ) | (3,050 | ) | (1,046 | ) | ||||||
|
Tax
charge
|
823,924 | 869,977 | 567,368 | |||||||||
|
(a)
|
Tenaris
applies the liability method to recognize deferred income tax expense on
temporary differences between the tax basis 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 basis
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,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Net
income attributable to equity holders
|
1,923,748 | 1,945,314 | 1,277,547 | |||||||||
|
Weighted
average number of ordinary shares in issue
|
1,180,537 | 1,180,537 | 1,180,537 | |||||||||
|
Basic
and diluted earnings per share
|
1.63 | 1.65 | 1.08 | |||||||||
|
Basic
and diluted earnings per ADS
|
3.26 | 3.30 | 2.16 | |||||||||
|
Dividends
paid
|
(507,631 | ) | (204,233 | ) | (349,439 | ) | ||||||
|
Dividends
per share
|
0.43 | 0.17 | 0.30 | |||||||||
|
Dividends
per ADS
|
0.86 | 0.35 | 0.59 | |||||||||
|
Net
income from discontinued operations
|
34,492 | 47,180 | (3 | ) | ||||||||
|
Basic
and diluted earnings per share
|
0.03 | 0.04 | 0.00 | |||||||||
|
Basic
and diluted earnings per ADS
|
0.06 | 0.08 | 0.00 | |||||||||
On
November 7, 2007, the Company’s board of directors approved the payment of an
interim dividend of $0.13 per share ($0.26 per ADS), or approximately $153
million, on November 22, 2007, with an ex-dividend date of November
19.
On
June 6, 2007, the Company’s shareholders approved an annual dividend in the
amount of $0.30 per share of common stock currently issued and outstanding,
which in the aggregate amounted to approximately $354 million. The cash dividend
was paid on June 21, 2007.
On
June 7, 2006, the Company’s shareholders approved an annual dividend in the
amount of $0.30 per share of common stock currently issued and outstanding. The
amount approved included the interim dividend previously paid on
November 16, 2005, in the amount of $0.127 per share. Tenaris paid the
balance of the annual dividend amounting to $0.173 per share ($0.346 per ADS) on
June 16, 2006. In the aggregate, the interim dividend paid in November 2005
and the balance paid in June 2006 amounted to approximately $354
million.
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.
|
10
|
Property,
plant and equipment, net
|
|
Year
ended December 31, 2007
|
Land,
building and improvements
|
Plant
and production equipment
|
Vehicles,
furniture and fixtures
|
Work
in progress
|
Spare
parts and equipment
|
Total
|
||||||||||||||||||
|
Cost
|
||||||||||||||||||||||||
|
Values
at the beginning of the year
|
542,947 | 5,991,966 | 168,173 | 392,843 | 28,412 | 7,124,341 | ||||||||||||||||||
|
Translation
differences
|
19,840 | 184,258 | 4,845 | 20,324 | 1,345 | 230,612 | ||||||||||||||||||
|
Additions
|
10,502 | 12,321 | 2,753 | 393,579 | 6,417 | 425,572 | ||||||||||||||||||
|
Disposals
/ Consumptions
|
(9,289 | ) | (37,596 | ) | (8,230 | ) | - | (1,113 | ) | (56,228 | ) | |||||||||||||
|
Transfers
/ Reclassifications
|
48,939 | 393,632 | 23,587 | (473,857 | ) | 770 | (6,929 | ) | ||||||||||||||||
|
Increase
due to business combinations (see Note 27)
|
55,551 | 81,418 | 6,973 | 8,598 | - | 152,540 | ||||||||||||||||||
|
Deconsolidation
/ Transfer to assets held for sale
|
(42,358 | ) | (86,819 | ) | (10,622 | ) | (14,468 | ) | (13 | ) | (154,280 | ) | ||||||||||||
|
Values
at the end of the year
|
626,132 | 6,539,180 | 187,479 | 327,019 | 35,818 | 7,715,628 | ||||||||||||||||||
|
Depreciation
|
||||||||||||||||||||||||
|
Accumulated
at the beginning of the year
|
146,941 | 3,917,941 | 112,900 | - | 7,318 | 4,185,100 | ||||||||||||||||||
|
Translation
differences
|
4,842 | 84,371 | 3,400 | - | 417 | 93,030 | ||||||||||||||||||
|
Depreciation
charge
|
17,259 | 233,637 | 24,936 | - | 1,253 | 277,085 | ||||||||||||||||||
|
Transfers
/ Reclassifications
|
4 | (1,418 | ) | (4,724 | ) | - | 1,483 | (4,655 | ) | |||||||||||||||
|
Disposals
/ Consumptions
|
(2,382 | ) | (24,310 | ) | (5,992 | ) | - | - | (32,684 | ) | ||||||||||||||
|
Deconsolidation
/ Transfer to assets held for sale
|
(18,882 | ) | (45,523 | ) | (6,850 | ) | - | - | (71,255 | ) | ||||||||||||||
|
Accumulated
at the end of the year
|
147,782 | 4,164,698 | 123,670 | - | 10,471 | 4,446,621 | ||||||||||||||||||
|
At
December 31, 2007
|
478,350 | 2,374,482 | 63,809 | 327,019 | 25,347 | 3,269,007 | ||||||||||||||||||
|
Year
ended December 31, 2006
|
Land,
building and improvements
|
Plant
and production equipment
|
Vehicles,
furniture and fixtures
|
Work
in progress
|
Spare
parts and 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 27)
|
126,003 | 277,066 | 26,581 | 27,557 | 3,730 | 460,937 | ||||||||||||||||||
|
Deconsolidation
/ Transfer to assets held for sale
|
(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 | ||||||||||||||||||
|
Transfers
/ Reclassifications
|
(733 | ) | (2,723 | ) | 3,470 | - | (14 | ) | - | |||||||||||||||
|
Disposals
/ Consumptions
|
(38 | ) | (8,941 | ) | (2,865 | ) | - | (3 | ) | (11,847 | ) | |||||||||||||
|
Deconsolidation
/ Transfer to assets held for sale
|
(1,478 | ) | (1,562 | ) | (2,057 | ) | - | (651 | ) | (5,748 | ) | |||||||||||||
|
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 | ||||||||||||||||||
Property,
plant and equipment include capitalized interest for net amounts at December 31,
2007 and 2006 of $2,943 and $2,854,
respectively.
|
11
|
Intangible
assets, net
|
|
Year
ended December 31, 2007
|
Information
system projects
|
Licenses, patents
and trademarks (*)
|
Goodwill
(**)
|
Customer
relationships
|
Total
|
|||||||||||||||
|
Cost
|
||||||||||||||||||||
|
Values
at the beginning of the year
|
155,155 | 103,140 | 1,227,720 | 1,493,800 | 2,979,815 | |||||||||||||||
|
Translation
differences
|
6,988 | 1,297 | 13,188 | 77,526 | 98,999 | |||||||||||||||
|
Additions
|
22,174 | 171 | - | - | 22,345 | |||||||||||||||
|
Increase
due to business combinations (see Note 27)
|
1,600 | 497,780 | 1,042,015 | 593,800 | 2,135,195 | |||||||||||||||
|
Transfers
|
1,004 | 5,925 | - | - | 6,929 | |||||||||||||||
|
Reclassifications
|
- | 460 | (11,758 | ) | 231 | (11,067 | ) | |||||||||||||
|
Disposals
|
(506 | ) | (209 | ) | - | - | (715 | ) | ||||||||||||
|
Deconsolidation
/ Transfer to assets held for sale
|
(342 | ) | (108,041 | ) | (122,128 | ) | (93,351 | ) | (323,862 | ) | ||||||||||
|
Values
at the end of the year
|
186,073 | 500,523 | 2,149,037 | 2,072,006 | 4,907,639 | |||||||||||||||
|
Amortization
and impairment
|
||||||||||||||||||||
|
Accumulated
at the beginning of the year
|
95,079 | 12,761 | - | 27,477 | 135,317 | |||||||||||||||
|
Translation
differences
|
5,537 | 903 | - | 3,189 | 9,629 | |||||||||||||||
|
Amortization
charge
|
23,819 | 56,423 | - | 157,493 | 237,735 | |||||||||||||||
|
Transfers
|
- | 4,655 | - | - | 4,655 | |||||||||||||||
|
Disposals
|
(9 | ) | (209 | ) | - | - | (218 | ) | ||||||||||||
|
Deconsolidation
/ Transfer to assets held for sale
|
(262 | ) | (7,333 | ) | - | (14,236 | ) | (21,831 | ) | |||||||||||
|
Accumulated
at the end of the year
|
124,164 | 67,200 | - | 173,923 | 365,287 | |||||||||||||||
|
At
December 31, 2007
|
61,909 | 433,323 | 2,149,037 | 1,898,083 | 4,542,352 | |||||||||||||||
|
Year
ended December 31, 2006
|
Information
system projects
|
Licenses, patents
and trademarks
|
Goodwill
(**)
|
Customer
relationships
|
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 27)
|
11,811 | 97,900 | 1,114,287 | 1,493,800 | 2,717,798 | |||||||||||||||
|
Transfers
/ Reclassifications
|
307 | - | - | - | 307 | |||||||||||||||
|
Disposals
|
(1,165 | ) | (18 | ) | - | - | (1,183 | ) | ||||||||||||
|
Deconsolidation
/ Transfer to assets held for sale
|
(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 | ) | ||||||||||||
|
Deconsolidation
/ Transfer to assets held for sale
|
(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 | |||||||||||||||
(*) Includes
Proprietary Technology.
(**)
Goodwill at December 31, 2007 and December 31, 2006 corresponds principally to
the Tubes segment.
The
geographical allocation of goodwill is presented below.
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
South
America
|
190,778 | 94,641 | ||||||
|
Europe
|
769 | 769 | ||||||
|
North
America
|
1,957,490 | 1,132,310 | ||||||
| 2,149,037 | 1,227,720 | |||||||
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 10
years based on past performance and expectations of market
development. After the tenth 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 10% to 15%.
No
impairment charge resulted from the tests performed.
|
12
|
Investments
in associated companies
|
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
At
the beginning of the year
|
422,958 | 257,234 | ||||||
|
Translation
differences
|
3,595 | (4,016 | ) | |||||
|
Equity
in earnings of associated companies
|
94,888 | 95,260 | ||||||
|
Dividends
and distributions received
|
(12,170 | ) | - | |||||
|
Reorganization
of Dalmine Energie, Lomond and others
|
83 | 10,014 | ||||||
|
Capitalization
of convertible loan in Amazonia
|
- | 40,505 | ||||||
|
Increase
in equity reserves in Ternium
|
- | 23,961 | ||||||
|
At
the end of the year
|
509,354 | 422,958 | ||||||
The
principal associated companies are:
|
Percentage
of ownership and voting rights at December 31,
|
Value
at December 31,
|
|||||||||||||||||||
|
Company
|
Country
of incorporation
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||||
|
Ternium
S.A.
|
Luxembourg
|
11.46 | % | 11.46 | % | 487,705 | 408,044 | |||||||||||||
|
Dalmine
Energie S.p.A.
|
Italy
|
0.00 | % | 25.00 | % | - | 8,402 | |||||||||||||
|
Others
|
- | - | - | 21,649 | 6,512 | |||||||||||||||
| 509,354 | 422,958 | |||||||||||||||||||
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)
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
Non-current
assets
|
8,619,297 | 6,117,284 | - | 9,174 | ||||||||||||
|
Current
assets
|
5,148,013 | 2,653,255 | - | 227,394 | ||||||||||||
|
Total
assets
|
13,767,310 | 8,770,539 | - | 236,568 | ||||||||||||
|
Non-current
liabilities
|
5,415,071 | 1,875,894 | - | 5,017 | ||||||||||||
|
Current
liabilities
|
1,985,349 | 1,407,504 | - | 197,944 | ||||||||||||
|
Total
liabilities
|
7,400,420 | 3,283,398 | - | 202,961 | ||||||||||||
|
Minority
interest
|
1,914,210 | 1,729,583 | - | - | ||||||||||||
|
Revenues
|
8,184,381 | 6,565,582 | - | 77,847 | ||||||||||||
|
Gross
profit
|
2,388,341 | 2,268,603 | - | 4,271 | ||||||||||||
|
Net
income for the period attributable to equity holders of the
company
|
784,490 | 795,424 | - | 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,
|
||||||||
|
2007
|
2006
|
|||||||
|
Deposits
with insurance companies
|
14,661 | 13,937 | ||||||
|
Investments
in other companies
|
12,568 | 12,724 | ||||||
|
Others
|
8,274 | 173 | ||||||
| 35,503 | 26,834 | |||||||
14 Receivables
– non current
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Government
entities
|
5,637 | 5,798 | ||||||
|
Employee
advances and loans
|
10,464 | 7,768 | ||||||
|
Tax
credits
|
13,547 | 11,640 | ||||||
|
Trade
receivables
|
1,135 | 1,144 | ||||||
|
Receivables
from related parties
|
633 | 2,829 | ||||||
|
Receivables
on off- take contract
|
4,439 | 8,377 | ||||||
|
Legal
deposits
|
19,724 | 2,182 | ||||||
|
Derivative
financial instruments
|
9,677 | 414 | ||||||
|
Other
|
9,065 | 15,206 | ||||||
| 74,321 | 55,358 | |||||||
|
Allowances
for doubtful accounts (see Note 23 (i))
|
(10,583 | ) | (14,120 | ) | ||||
| 63,738 | 41,238 | |||||||
|
15
|
Inventories
|
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Finished
goods
|
1,050,634 | 1,060,322 | ||||||
|
Goods
in process
|
544,020 | 430,828 | ||||||
|
Raw
materials
|
402,476 | 421,322 | ||||||
|
Supplies
|
389,188 | 328,324 | ||||||
|
Goods
in transit
|
314,749 | 210,985 | ||||||
| 2,701,067 | 2,451,781 | |||||||
|
Allowance
for obsolescence (Note 24 (i))
|
(102,211 | ) | (79,473 | ) | ||||
| 2,598,856 | 2,372,308 | |||||||
|
16
|
Receivables
and prepayments
|
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Prepaid
expenses and other receivables
|
37,727 | 59,346 | ||||||
|
Government
entities
|
3,225 | 1,951 | ||||||
|
Employee
advances and loans
|
10,886 | 8,677 | ||||||
|
Advances
to suppliers and other advances
|
58,701 | 124,900 | ||||||
|
Government
tax refunds on exports
|
34,519 | 33,387 | ||||||
|
Receivables
from related parties
|
35,551 | 19,160 | ||||||
|
Derivative
financial instruments
|
5,581 | 1,498 | ||||||
|
Miscellaneous
|
43,504 | 31,497 | ||||||
| 229,694 | 280,416 | |||||||
|
Allowance
for other doubtful accounts (see Note 24 (i))
|
(7,284 | ) | (7,784 | ) | ||||
| 222,410 | 272,632 | |||||||
|
17
|
Current
tax assets
|
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
V.A.T.
credits
|
126,674 | 123,366 | ||||||
|
Prepaid
taxes
|
116,083 | 79,352 | ||||||
| 242,757 | 202,718 | |||||||
|
18
|
Trade
receivables
|
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Current
accounts
|
1,651,012 | 1,544,202 | ||||||
|
Notes
receivables
|
104,747 | 83,906 | ||||||
|
Receivables
from related parties
|
17,604 | 19,919 | ||||||
| 1,773,363 | 1,648,027 | |||||||
|
Allowance
for doubtful accounts (see Note 24 (i))
|
(24,530 | ) | (22,786 | ) | ||||
| 1,748,833 | 1,625,241 | |||||||
The
following table sets forth details of the age of trade receivables:
|
Trade
Receivables
|
Not
Due
|
Past
due
|
||||||||||||||
|
1
- 180 days
|
>
180 days
|
|||||||||||||||
|
At
December 31, 2007
|
||||||||||||||||
|
Guaranteed
|
886,970 | 746,722 | 97,407 | 42,841 | ||||||||||||
|
Not
guaranteed
|
886,393 | 704,031 | 158,735 | 23,627 | ||||||||||||
|
Guaranteed
and not guaranteed
|
1,773,363 | 1,450,753 | 256,142 | 66,468 | ||||||||||||
|
Allowance
for doubtful accounts
|
(24,530 | ) | - | (789 | ) | (23,741 | ) | |||||||||
|
Net
Value
|
1,748,833 | 1,450,753 | 255,353 | 42,727 | ||||||||||||
|
At
December 31, 2006
|
||||||||||||||||
|
Guaranteed
|
671,260 | 607,343 | 55,358 | 8,559 | ||||||||||||
|
Not
guaranteed
|
976,767 | 786,015 | 170,659 | 20,093 | ||||||||||||
|
Guaranteed
and not guaranteed
|
1,648,027 | 1,393,358 | 226,017 | 28,652 | ||||||||||||
|
Allowance
for doubtful accounts
|
(22,786 | ) | - | - | (22,786 | ) | ||||||||||
|
Net
Value
|
1,625,241 | 1,393,358 | 226,017 | 5,866 | ||||||||||||
No
material financial assets that are fully performing have been renegotiated in
the last year.
|
19
|
Cash
and cash equivalents, and Other
investments
|
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Other
investments
|
||||||||
|
Financial
assets
|
87,530 | 183,604 | ||||||
|
Cash
and cash equivalents
|
||||||||
|
Cash
and short - term liquid investments
|
962,497 | 1,372,329 | ||||||
|
20
|
Borrowings
|
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Non-Current
|
||||||||
|
Bank
borrowings
|
2,858,122 | 2,823,052 | ||||||
|
Other
loans
|
24,071 | 50,479 | ||||||
|
Finance
lease liabilities
|
1,067 | 4,565 | ||||||
|
Costs
of issue of debt
|
(13,794 | ) | (21,050 | ) | ||||
| 2,869,466 | 2,857,046 | |||||||
|
Current
|
||||||||
|
Bank
Borrowings
|
1,119,004 | 707,610 | ||||||
|
Other
loans
|
32,521 | 83,942 | ||||||
|
Bank
Overdrafts
|
8,194 | 7,300 | ||||||
|
Finance
lease liabilities
|
696 | 1,384 | ||||||
|
Costs
of issue of debt
|
(9,636 | ) | (6,039 | ) | ||||
| 1,150,779 | 794,197 | |||||||
|
Total
Borrowings
|
4,020,245 | 3,651,243 | ||||||
The
maturity of borrowings is as follows:
|
1
year or
less
|
1
- 2
years
|
2
– 3
years
|
3
- 4
years
|
4
- 5
years
|
Over
5
years
|
Total
|
||||||||||||||||||||||
|
At
December 31, 2007
|
||||||||||||||||||||||||||||
|
Financial
lease
|
696 | 524 | 269 | 106 | 168 | - | 1,763 | |||||||||||||||||||||
|
Other
borrowings
|
1,150,083 | 1,855,887 | 503,503 | 441,345 | 45,850 | 21,814 | 4,018,482 | |||||||||||||||||||||
|
Total
borrowings
|
1,150,779 | 1,856,411 | 503,772 | 441,451 | 46,018 | 21,814 | 4,020,245 | |||||||||||||||||||||
|
Interest
to be accrued
|
208,443 | 130,034 | 55,227 | 26,784 | 1,781 | 4,067 | 426,336 | |||||||||||||||||||||
|
Total
borrowings plus interest to be accrued
|
1,359,222 | 1,986,445 | 558,999 | 468,235 | 47,799 | 25,881 | 4,446,581 | |||||||||||||||||||||
Significant
borrowings include:
|
In
million of $
|
|||||||||||
|
Disbursement
date
|
Borrower
|
Type
|
Original
|
Outstanding
|
Maturity
|
||||||
|
May
2007
|
Tenaris
|
Syndicated
|
1,000.0 | 1,000.0 |
May
2009 (*)
|
||||||
|
October
2006
|
Siderca
|
Syndicated
|
480.5 | 416.6 |
October
2009
|
||||||
|
March
2005
|
Tamsa
|
Syndicated
|
300.0 | 300.0 |
March
2010
|
||||||
|
October
2006
|
Tamsa
|
Syndicated
|
700.0 | 622.2 |
October
2011
|
||||||
|
October
2006
|
Maverick
|
Syndicated
|
750.0 | 536.8 |
October
2011
|
||||||
|
October
2006
|
Dalmine
|
Syndicated
|
150.0 | 133.3 |
October
2011
|
||||||
|
May
2007
|
Hydril
|
Syndicated
|
300.0 | 300.0 |
May
2012
|
||||||
(*)At the
company’s option this loan may be extended at a market rate until May 2012
notifying the agent at least three labor days before original
maturity.
The main
covenants on these loan agreements are stated in Note 27 a) and c).
Tenaris’
consolidated debt includes $90 million of Dalmine and $21 million of Confab
secured by certain properties of these subsidiaries.
As of
December 31, 2007, 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,
2007 and 2006. The changes in interest rate are basically due to
changes in floating interest rate.
|
2007
|
2006
|
|||||||
|
Bank
borrowings
|
5.80 | % | 6.12 | % | ||||
|
Other
loans
|
5.50 | % | 5.50 | % | ||||
|
Finance
lease liabilities
|
2.52 | % | 3.71 | % | ||||
Breakdown
of long-term borrowings by currency and rate is as follows:
Non
current bank borrowings
|
Year
ended December 31,
|
|||||||||
|
Currency
|
Interest
rates
|
2007
|
2006
|
||||||
|
USD
|
Variable
|
3,448,850 | 3,140,894 | ||||||
|
USD
|
Fixed
|
18 | 10,289 | ||||||
|
EUR
|
Variable
|
34,268 | 40,462 | ||||||
|
EUR
|
Fixed
|
6,772 | 6,246 | ||||||
|
JPY
|
Fixed
|
- | 11,854 | ||||||
|
BRS
|
Variable
|
20,596 | 25,938 | ||||||
| 3,510,504 | 3,235,683 | ||||||||
|
Less:
Current portion of medium and long - term loans
|
(652,382 | ) | (412,631 | ) | |||||
|
Total
non current bank borrowings
|
2,858,122 | 2,823,052 | |||||||
Non
current other loans
|
Year
ended December 31,
|
|||||||||
|
Currency
|
Interest
rates
|
2007
|
2006
|
||||||
|
COP
|
Variable
|
- | 622 | ||||||
|
USD
|
Variable
|
26,412 | 52,853 | ||||||
| 26,412 | 53,475 | ||||||||
|
Less:
Current portion of medium and long - term loans
|
(2,341 | ) | (2,996 | ) | |||||
|
Total
non current other loans
|
24,071 | 50,479 | |||||||
Non
current finance lease liabilities
|
Year
ended December 31,
|
|||||||||
|
Currency
|
Interest
rates
|
2007
|
2006
|
||||||
|
EUR
|
Fixed
|
367 | 79 | ||||||
|
EUR
|
Variable
|
66 | - | ||||||
|
COP
|
Variable
|
74 | 185 | ||||||
|
USD
|
Fixed
|
14 | - | ||||||
|
JPY
|
Fixed
|
1,242 | 5,685 | ||||||
| 1,763 | 5,949 | ||||||||
|
Less:
Current portion of medium and long - term loans
|
(696 | ) | (1,384 | ) | |||||
|
Total
non current finance leases
|
1,067 | 4,565 | |||||||
The
carrying amounts of Tenaris’ assets pledged as collateral of liabilities are as
follows:
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Property,
plant and equipment mortgages
|
366,960 | 554,078 | ||||||
Breakdown
of short-term borrowings by currency and rate is as follows:
Current
bank borrowings
|
Year
ended December 31,
|
|||||||||
|
Currency
|
Interest
rates
|
2007
|
2006
|
||||||
|
USD
|
Variable
|
626,946 | 456,954 | ||||||
|
USD
|
Fixed
|
194,098 | 202,620 | ||||||
|
EUR
|
Variable
|
209,418 | 23,365 | ||||||
|
EUR
|
Fixed
|
1,432 | 1,146 | ||||||
|
JPY
|
Fixed
|
- | 11,854 | ||||||
|
BRS
|
Variable
|
6,665 | 8,255 | ||||||
|
ARS
|
Fixed
|
32,383 | - | ||||||
|
NGN
|
Fixed
|
- | 3,403 | ||||||
|
MXN
|
Fixed
|
40,981 | - | ||||||
|
VEB
|
Fixed
|
7,081 | 13 | ||||||
|
Total
current bank borrowings
|
1,119,004 | 707,610 | |||||||
Bank
overdrafts
|
Year
ended December 31,
|
||||||||
|
Currency
|
2007
|
2006
|
||||||
|
USD
|
260 | 1,855 | ||||||
|
EUR
|
40 | 2,558 | ||||||
|
ARS
|
5,523 | 1,839 | ||||||
|
VEB
|
57 | - | ||||||
|
CAD
|
9 | 864 | ||||||
|
NOK
|
- | 182 | ||||||
|
NGN
|
2,187 | - | ||||||
|
COP
|
116 | - | ||||||
|
RON
|
2 | 2 | ||||||
|
Total
current bank overdrafts
|
8,194 | 7,300 | ||||||
Current
other loans
|
Year
ended December 31,
|
|||||||||
|
Currency
|
Interest
rates
|
2007
|
2006
|
||||||
|
EUR
|
Variable
|
28,920 | 73,183 | ||||||
|
USD
|
Variable
|
3,530 | 10,251 | ||||||
|
USD
|
Fixed
|
- | 462 | ||||||
|
COP
|
Variable
|
- | 46 | ||||||
|
AED
|
Variable
|
71 | - | ||||||
|
Total
Current other loans
|
32,521 | 83,942 | |||||||
Current
finance lease liabilities
|
Year
ended December 31,
|
|||||||||
|
Currency
|
Interest
rates
|
2007
|
2006
|
||||||
|
EUR
|
Fixed
|
173 | 21 | ||||||
|
EUR
|
Variable
|
24 | - | ||||||
|
COP
|
Variable
|
74 | 121 | ||||||
|
JPY
|
Fixed
|
420 | 1,242 | ||||||
|
USD
|
Fixed
|
5 | - | ||||||
|
Total
current finance leases
|
696 | 1,384 | |||||||
|
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,
|
||||||||
|
2007
|
2006
|
|||||||
|
At
the beginning of the year
|
700,304 | 158,521 | ||||||
|
Translation
differences
|
27,666 | 2,570 | ||||||
|
Increase
due to business combinations
|
353,845 | 560,450 | ||||||
|
Deconsolidation
/ Transfer to held for sale
|
(68,086 | ) | 2,971 | |||||
|
Income
statement credit
|
(97,799 | ) | (17,386 | ) | ||||
|
Effect
of currency translation on tax base
|
(5,654 | ) | (6,060 | ) | ||||
|
Deferred
employees' statutory profit sharing charge
|
12,970 | (762 | ) | |||||
|
At
the end of the year
|
923,246 | 700,304 | ||||||
The
evolution of deferred tax assets and liabilities during the year are as
follows:
Deferred
tax liabilities
|
Fixed
assets
|
Inventories
|
Intangible
and Other (a)
|
Total
|
|||||||||||||
|
At
the beginning of the year
|
317,148 | 51,367 | 623,430 | 991,945 | ||||||||||||
|
Translation
differences
|
14,411 | 139 | 20,876 | 35,426 | ||||||||||||
|
Increase
due to business combinations
|
14,668 | 8,467 | 365,633 | 388,768 | ||||||||||||
|
Deconsolidation
/ Transfer to held for sale
|
(4,641 | ) | (7,611 | ) | (63,661 | ) | (75,913 | ) | ||||||||
|
Income
statement charge / (credit)
|
(41,127 | ) | (12,742 | ) | (52,521 | ) | (106,390 | ) | ||||||||
|
At
December 31,2007
|
300,459 | 39,620 | 893,757 | 1,233,836 | ||||||||||||
|
Fixed
assets
|
Inventories
|
Intangible
and 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 | ||||||||||||
|
Deconsolidation
/ Transfer to held for sale
|
- | (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 | ||||||||||||
(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
|
(42,270 | ) | (142,843 | ) | (3,634 | ) | (102,894 | ) | (291,641 | ) | ||||||||||
|
Translation
differences
|
(4,815 | ) | (1,033 | ) | (436 | ) | (1,476 | ) | (7,760 | ) | ||||||||||
|
Increase
due to business combinations
|
(29,919 | ) | (3,235 | ) | (235 | ) | (1,534 | ) | (34,923 | ) | ||||||||||
|
Deconsolidation
/ Transfer to assets held for sale
|
9,655 | 3,321 | 51 | (5,200 | ) | 7,827 | ||||||||||||||
|
Income
statement charge / (credit)
|
20,612 | 138 | 2,858 | (7,701 | ) | 15,907 | ||||||||||||||
|
At
December 31, 2007
|
(46,737 | ) | (143,652 | ) | (1,396 | ) | (118,805 | ) | (310,590 | ) | ||||||||||
|
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 | ) | ||||||||||
|
Deconsolidation
/ Transfer to assets held for sale
|
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 | ) | ||||||||||
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,
|
||||||||
|
2007
|
2006
|
|||||||
|
Deferred
tax assets
|
(310,590 | ) | (291,641 | ) | ||||
|
Deferred
tax liabilities
|
1,233,836 | 991,945 | ||||||
| 923,246 | 700,304 | |||||||
The
amounts shown in the balance sheet include the following:
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Deferred
tax assets to be recovered after more than 12 months
|
(74,741 | ) | (79,811 | ) | ||||
|
Deferred
tax liabilities to be recovered after more than 12 months
|
1,214,468 | 849,730 | ||||||
|
22
|
Other
liabilities
|
|
(i)
|
Other
liabilities – Non current
|
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Employee
liabilities
|
||||||||
|
Employee's
statutory profit sharing
|
51,217 | 64,196 | ||||||
|
Employee
severance indemnity
|
59,862 | 67,598 | ||||||
|
Pension
benefits
|
41,877 | 36,067 | ||||||
|
Employee
retention and long term incentive program
|
11,120 | - | ||||||
| 164,076 | 167,861 | |||||||
|
Taxes
payable
|
8,723 | 8,842 | ||||||
|
Miscellaneous
(*)
|
12,611 | 10,021 | ||||||
| 21,334 | 18,863 | |||||||
| 185,410 | 186,724 | |||||||
(*) For
2007 and 2006 includes $45 and $110 of Derivative financial instruments,
respectively.
(a)
Employees’ severance indemnity
The
amounts recognized in the balance sheet are as follows:
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Total
included in non - current Employee liabilities
|
59,862 | 67,598 | ||||||
The
amounts recognized in the income statement are as follows:
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Current
service cost
|
7,877 | 8,737 | 7,846 | |||||||||
|
Interest
cost
|
3,054 | 2,851 | 2,771 | |||||||||
|
Total
included in Labor costs
|
10,931 | 11,588 | 10,617 | |||||||||
The
principal actuarial assumptions used were as follows:
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Discount
rate
|
4% - 5 | % | 4% - 5 | % | 5 | % | ||||||
|
Rate
of compensation increase
|
2% - 4 | % | 2% - 4 | % | 4 | % | ||||||
(b)
Pension benefits
The
amounts recognized in the balance sheet are determined as
follows:
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Present
value of unfunded obligations
|
55,014 | 41,156 | ||||||
|
Unrecognized
actuarial losses
|
(13,137 | ) | (5,089 | ) | ||||
|
Liability
in the balance sheet
|
41,877 | 36,067 | ||||||
|
(i)
|
Other
liabilities – Non current (Cont.)
|
(b)
Pension benefits (Cont.)
The
amounts recognized in the income statement are as follows:
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Current
service cost
|
5,248 | 1,400 | 544 | |||||||||
|
Interest
cost
|
6,421 | 2,185 | 917 | |||||||||
|
Net
actuarial (losses) gains recognized in the year
|
(4,215 | ) | (1,124 | ) | 329 | |||||||
|
Total
included in Labor costs
|
7,454 | 2,461 | 1,790 | |||||||||
Movement
in the liability recognized in the balance sheet:
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
At
the beginning of the year
|
36,067 | 10,788 | ||||||
|
Translation
differences
|
3,864 | (654 | ) | |||||
|
Transfers
and new participants of the plan
|
(417 | ) | 992 | |||||
|
Total
expense
|
7,454 | 2,461 | ||||||
|
Contributions
paid
|
(11,272 | ) | (2,696 | ) | ||||
|
Increase
due to business combinations
|
8,631 | 25,307 | ||||||
|
Deconsolidation
/ Transfer to held for sale
|
(2,450 | ) | (131 | ) | ||||
|
At
the end of the year
|
41,877 | 36,067 | ||||||
The
principal actuarial assumptions used were as follows:
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Discount
rate
|
5% - 7 | % | 5% - 7 | % | 7 | % | ||||||
|
Rate
of compensation increase
|
2% - 5 | % | 2% - 5 | % | 2 | % | ||||||
|
(ii)
|
Other
liabilities – current
|
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Payroll
and social security payable
|
187,851 | 148,146 | ||||||
|
Liabilities
with related parties
|
7,846 | 2,237 | ||||||
|
Derivative
financial instruments
|
15,506 | 2,090 | ||||||
|
Miscellaneous
|
41,001 | 35,228 | ||||||
| 252,204 | 187,701 | |||||||
|
23
|
Non-current
allowances and provisions
|
|
(i)
|
Deducted
from non current receivables
|
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Values
at the beginning of the year
|
(14,120 | ) | (15,450 | ) | ||||
|
Translation
differences
|
141 | 153 | ||||||
|
Reversals
/ Additional allowances
|
(558 | ) | (15 | ) | ||||
|
Used
|
3,954 | 1,192 | ||||||
|
At
December 31,
|
(10,583 | ) | (14,120 | ) | ||||
|
(ii)
|
Liabilities
|
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Values
at the beginning of the year
|
92,027 | 43,964 | ||||||
|
Translation
differences
|
6,747 | 2,999 | ||||||
|
Increase
due to business combinations
|
2,997 | 11,394 | ||||||
|
Deconsolidation
/ Transfer to held for sale
|
(780 | ) | - | |||||
|
Reversals
/ Additional provisions
|
22,393 | 12,146 | ||||||
|
Reclassifications
|
(4,534 | ) | 31,910 | |||||
|
Used
|
(20,938 | ) | (10,386 | ) | ||||
|
At
December 31,
|
97,912 | 92,027 | ||||||
|
24
|
Current
allowances and provisions
|
|
(i)
|
Deducted
from assets
|
|
Year
ended December 31, 2007
|
Allowance
for doubtful accounts - Trade receivables
|
Allowance
for other doubtful accounts - Other receivables
|
Allowance
for inventory obsolescence
|
|||||||||
|
Values
at the beginning of the year
|
(22,786 | ) | (7,784 | ) | (79,473 | ) | ||||||
|
Translation
differences
|
(1,383 | ) | (385 | ) | (3,949 | ) | ||||||
|
Increase
due to business combinations
|
(1,222 | ) | (534 | ) | (13,517 | ) | ||||||
|
Deconsolidation
/ Transfer to assets held for sale
|
904 | 1 | 14,308 | |||||||||
|
Reversals
/ Additional allowances
|
(5,065 | ) | 193 | (24,371 | ) | |||||||
|
Reclassifications
|
- | - | (3,527 | ) | ||||||||
|
Used
|
5,022 | 1,225 | 8,318 | |||||||||
|
At
December 31, 2007
|
(24,530 | ) | (7,284 | ) | (102,211 | ) | ||||||
|
Year
ended December 31, 2006
|
||||||||||||
|
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 | ) | ||||||
|
Deconsolidation
/ Transfer to assets held for sale
|
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 | ) | ||||||
|
(ii)
|
Liabilities
|
|
Year
ended December 31, 2007
|
Sales
risks
|
Other
claims and contingencies
|
Total
|
|||||||||
|
Values
at the beginning of the year
|
20,094 | 6,551 | 26,645 | |||||||||
|
Translation
differences
|
350 | 1,221 | 1,571 | |||||||||
|
Increase
due to business combinations
|
3,471 | - | 3,471 | |||||||||
|
Deconsolidation
/ Transfer to held for sale
|
(3,157 | ) | - | (3,157 | ) | |||||||
|
Reversals
/ Additional allowances
|
4,035 | 7,450 | 11,485 | |||||||||
|
Reclassifications
|
(3,527 | ) | - | (3,527 | ) | |||||||
|
Used
|
(12,130 | ) | (5,016 | ) | (17,146 | ) | ||||||
|
At
December 31, 2007
|
9,136 | 10,206 | 19,342 | |||||||||
|
Year
ended December 31, 2006
|
||||||||||||
|
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 | |||||||||
|
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, are:
|
Year
ended December 31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Contracts
with positive fair values
|
||||||||
|
Interest
rate swap contracts
|
- | 722 | ||||||
|
Forward
foreign exchange contracts
|
15,258 | 1,188 | ||||||
|
Contracts
with negative fair values
|
||||||||
|
Interest
rate swap contracts
|
(3,013 | ) | (242 | ) | ||||
|
Forward
foreign exchange contracts
|
(12,538 | ) | (1,958 | ) | ||||
To
partially hedge future interest payments, as well as to minimize the effect of
floating rates, Tenaris has entered into a number of zero cost interest rate
collars. In these contracts, 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, to the
extent that it is lower than the floor or greater than the cap established in
such contracts. A total notional amount of $2,300 million was covered by these
instruments, of which $500 million remain open until the next interest rate
fixing dates, which shall occur in May 2008.
Derivative
financial instruments breakdown is as follows:
Variable
interest rate swaps
|
Fair
Value
|
||||||||||||||
|
Year
ended December 31,
|
||||||||||||||
|
Type
of derivative
|
Rate
|
Term
|
Notional
Amount
|
2007
|
2006
|
|||||||||
|
Interest
rate collars
|
Libor
|
2008
|
1,500,000 | - | 712 | |||||||||
|
Interest
rate collars
|
Libor
|
2008
|
800,000 | (2,922 | ) | - | ||||||||
|
Pay
fixed / Receive variable
|
Euribor
|
2010
|
3,756 | (91 | ) | (232 | ) | |||||||
| (3,013 | ) | 480 | ||||||||||||
Exchange
rate derivatives
In
addition to derivative transactions performed to achieve coverage against
foreign exchange rate risk, Tenaris has identified certain embedded derivatives
and in accordance with IAS 39 (“Financial Instruments: Recognition and
Measurement”) accounted them separately from their host contracts.
|
Fair
Value
|
||||||||||
|
Year
ended December 31,
|
||||||||||
|
Currencies
|
Contract
|
Term
|
2007
|
2006
|
||||||
|
USD
/ CAD
|
Embedded
Canadian Dollar Forward Purchases
|
2017
|
9,677 | - | ||||||
|
USD
/ EUR
|
Euro
Forward purchases
|
2008
|
1,408 | 870 | ||||||
|
JPY
/ USD
|
Japanese
Yen Forward purchases
|
2008
|
(1,157 | ) | (1,229 | ) | ||||
|
CAD
/ USD
|
Canadian
Dollar Forward sales
|
2008
|
3,062 | 318 | ||||||
|
BRL
/ USD
|
Brazilian
Real Forward sales
|
2008
|
(126 | ) | - | |||||
|
KWD
/ USD
|
Kuwaiti
Dinar Forward sales
|
2008
|
(10,821 | ) | (370 | ) | ||||
|
COP
/ USD
|
Colombian
Peso Forward sales
|
2008
|
111 | - | ||||||
|
RON
/ USD
|
Romanian
Leu Forward sales
|
2008
|
87 | - | ||||||
|
GBP
/ USD
|
Great
Britain Pound Forward sales
|
2008
|
152 | - | ||||||
|
USD
/ MXN
|
Mexican
Peso Forward purchases
|
2008
|
327 | - | ||||||
|
ARS
/ USD
|
Argentine
Peso Forward sales
|
2007
|
- | (359 | ) | |||||
| 2,720 | (770 | ) | ||||||||
Hedge
Accounting
Tenaris
only applies hedge accounting for certain cash flow hedges of highly probable
forecast transactions. The following are the derivatives or portions of
derivatives taken in order to hedge the gross margin of sales in currencies
other than the U.S. dollars and loans at variable rate, and the reserved amounts
designated for hedge accounting as of December 31, 2007.
|
|
·
|
Foreign
Exchange Hedge
|
|
Fair
Value
|
||||||||||
|
Year
ended December 31,
|
||||||||||
|
Currencies
|
Contract
|
Term
|
2007
|
2006
|
||||||
|
USD
/ EUR
|
Euro
Forward purchases
|
2008
|
972 | 960 | ||||||
|
KWD
/ USD
|
Kuwaiti
Dinar Forward sales
|
2008
|
(6,434 | ) | (149 | ) | ||||
| (5,462 | ) | 811 | ||||||||
|
·
|
Interest
Rate Hedge
|
|
|
Fair
Value
|
||||||||||||||||
|
Year
ended December 31,
|
|||||||||||||||||
|
Type
of Derivative
|
Rate
|
Term
|
Rate
|
Outstanding
|
2007
|
2006
|
|||||||||||
|
Interest
rate collars
|
Libor
|
2008
|
3.9%
- 5.4%
|
1,500,000 | - | 712 | |||||||||||
|
Interest
rate collars
|
Libor
|
2008
|
4.45%
- 5.4%
|
800,000 | (2,922 | ) | - | ||||||||||
|
Pay
fixed / Receive variable
|
Euribor
|
2010
|
5.72%
|
3,756 | (91 | ) | 555 | ||||||||||
| (3,013 | ) | 1,267 | |||||||||||||||
Since the
implementation of hedge accounting, first quarter 2006, there has only been
partial ineffectiveness during last period recognized in profit and loss for
$0.3 million. The following is a summary of the hedge reserve
evolution:
|
Equity
Reserve Dec-05
|
Movements
2006
|
Equity
Reserve Dec-06
|
Movements
2007
|
Equity
Reserve Dec-07
|
||||||||||||||||
|
Foreign
Exchange
|
- | 811 | 811 | (6,273 | ) | (5,462 | ) | |||||||||||||
|
Interest
Rate
|
- | 1,267 | 1,267 | (4,280 | ) | (3,013 | ) | |||||||||||||
|
Total
Cash flow Hedge
|
- | 2,078 | 2,078 | (10,553 | ) | (8,475 | ) | |||||||||||||
|
26
|
Contingencies,
commitments and restrictions on the distribution of
profits
|
Contingencies:
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.
Asbestos-related
litigation
Dalmine
S.p.A. (“Dalmine”), a Tenaris subsidiary organized in Italy is currently subject
to 13 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 43 asbestos related out-of-court claims and 1 civil party
claim have been forwarded to Dalmine.
As of
December 31, 2007, the total claims pending against Dalmine were 57 (of which, 3
are covered by insurance): during 2007, 29 new claims were filed, 2 claims were
adjudicated, 2 claims were dismissed and no claim was settled. Aggregate
settlement costs to date for Tenaris are Euro 5.1 million ($7.5 million).
Dalmine estimates that its potential liability in connection with the claims not
yet settled is approximately Euro 19.8 million ($29.1 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.
Maverick
litigation
On
December 11, 2006, The Bank of New York (“BNY”), as trustee for the holders of
Tenaris’ subsidiary Maverick Tube Corporation (“Maverick”) 2004 4% Convertible
Senior Subordinated Notes due 2033 issued pursuant to an Indenture between
Maverick and BNY (“Noteholders”), filed a complaint against Maverick and Tenaris
in the United States District Court for the Southern District of New York. The
complaint alleges that Tenaris’ acquisition of Maverick triggered the “Public
Acquirer Change of Control” provision of Indenture, asserting breach of contract
claim against Maverick for refusing to deliver the consideration specified in
the “Public Acquirer Change of Control” provision of the Indenture to
Noteholders who entered their notes for such consideration. This complaint seeks
a declaratory 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. Defendants
filed a motion to dismiss the complaint, or in the alternative, for summary
judgment on March 13, 2007. Plaintiff filed a motion for partial
summary judgment on the same date. Briefing on the motions has been completed.
Because Law Debenture Trust Company of New York has succeeded BNY as trustee
under the Indenture, on January 25, 2008 plaintiff and defendant have submitted
a stipulation on the court substituting Law Debenture for BNY.
Tenaris
believes that these claims are without merit. Accordingly, no provision was
recorded in these Consolidated Financial Statements. Were plaintiff to prevail,
Tenaris estimates that the recovery would be approximately $50
million.
Customer
Claim
A lawsuit
was filed on September 6, 2007 against Maverick, alleging negligence, gross
negligence and intentional acts characterized as fraudulent inducement
concerning allegedly defective well casing. Plaintiff alleges the complete loss
of one natural gas production well and “formation damage” that precludes further
exploration and production at the well site. Plaintiff seeks compensatory and
punitive damages of $25 million. On September 10, 2007, this lawsuit was
tendered to Maverick’s insurer and on September 26, 2007, Maverick received the
insurer’s agreement to provide a defense. The insurer has reserved
its rights regarding any potential indemnity obligation. No provision
related to this claim was recorded in these Consolidated Financial
Statements.
Conversion
of tax loss carry-forwards
On
December 18, 2000, the Argentine tax authorities notified Siderca S.A.I.C., a
Tenaris subsidiary organized in Argentina (“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 ARS 76.8 million
(approximately $24.4 million) at December 31, 2007, 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 Consolidated Financial
Statements.
European
Commission Fine
On
January 25, 2007, the Court of Justice of the European Commission confirmed the
December 8, 1998 decision by the European Commission to fine eight international
steel pipe manufacturers, including Dalmine, for violation of European
competition laws. Pursuant to the Court’s decision, Dalmine is required to pay a
fine of Euro 10.1 million plus interest (approximately $13.3 million plus
interest). 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
has reimbursed Dalmine for 84.1% of the fine. The remaining 15.9% of the fine
has been paid out in 2007 of the provision that Dalmine established in 1999
for such proceeding.
Commitments:
Set forth
is a description of Tenaris’ main outstanding commitments:
|
|
·
|
A
Tenaris company is party to a ten year raw material purchase contract with
QIT, under which it committed to purchase steel bars, with deliveries
starting in July 2007. The estimated aggregate amount of the contract at
current prices is approximately $292
million.
|
|
|
·
|
A
Tenaris company is party to a five year contract with Nucor Corporation,
under which it committed to purchase from Nucor steel coils, with
deliveries starting in January 2007. Prices are adjusted quarterly in
accordance with market conditions and the estimated aggregate amount of
the contract at current prices is approximately $1,077
million.
|
|
|
·
|
A
Tenaris company is party to a steel supply agreement with IPSCO, under
which it committed to purchase steel until 2011. Prices are adjusted
monthly or quarterly and the estimated aggregate amount of the contract at
current prices is approximately $127 million. Each party may terminate
this agreement at any time upon a one-year
notice.
|
|
|
·
|
A
Tenaris company is party to transportation capacity agreements with
Transportadora de Gas del Norte S.A. for capacity of 1,000,000 cubic
meters per day until 2017. As of December 31, 2007, the outstanding value
of this commitment was approximately $53 million. The Tenaris company also
expects to obtain additional gas transportation capacity of 315,000 cubic
meters per day until 2027. This commitment is subject to the enlargement
of certain pipelines in Argentina.
|
|
|
·
|
In
August 2004 Matesi Materiales Siderúrgicos S.A. (“Matesi”) entered into a
ten-year off-take contract pursuant to which Matesi is required to sell to
a Tenaris affiliate Sidor S.A. (“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.
|
|
|
·
|
In
July 2004, Matesi a Tenaris subsidiary organized in Venezuela, entered
into a twenty-year agreement with C.V.G. Electrificación del Caroní, 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,
2007 is approximately $44.5
million.
|
|
|
·
|
A
Tenaris company is party to a contract with Siderar for the supply of
steam generated at the power generation facility owned by Tenaris in San
Nicolás, Province of Buenos Aires, Argentina. Under this
contract, the Tenaris company is required to provide 250 tn/hour of steam
and Siderar has the obligation to take or pay this volume. The contract is
due to terminate in 2018.
|
Restrictions
on the distribution of profits:
As of
December 31, 2007, 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,
2007
|
2,399,973 | |||
|
Total
shareholders equity in accordance with Luxembourg law
|
4,308,297 |
At least
5% of the Company’s net income per year, as calculated in accordance with
Luxembourg law and regulations, must be allocated to the creation of a legal
reserve equivalent to 10% of the Company’s share capital. As of December 31,
2007, this reserve is fully allocated and additional allocations to the reserve
are not required under Luxembourg law. Dividends may not be paid out of the
legal reserve.
The
Company may pay dividends to the extent, among other conditions, that it has
distributable retained earnings calculated in accordance with Luxembourg law and
regulations.
At
December 31, 2007, the distributable reserve, including retained earnings and
profit for the financial year, of Tenaris under Luxembourg law totals $2.4
billion, as detailed below.
(all amounts in thousands of U.S. dollars)
|
Retained
earnings at December 31, 2006 under Luxembourg law
|
1,527,096 | |||
|
Dividends
received
|
1,371,625 | |||
|
Other
income and expenses for the year ended December 31, 2007
|
8,883 | |||
|
Dividends
paid
|
(507,631 | ) | ||
|
Retained
earnings at December 31, 2007 under Luxembourg law
|
2,399,973 |
|
27
|
Business
combinations and other acquisitions
|
(a)
Acquisition of Hydril Company
On May 7,
2007, Tenaris paid approximately $2.0 billion to acquire Hydril, a North
American manufacturer of premium connections and pressure control products for
the oil and gas industry. To finance the acquisition, Tenaris entered into
syndicated loans in the amount of $2.0 billion, of which $0.5 billion were used
to refinance an existing loan in the Company. The balance of the acquisition
cost was paid out of cash on hand. Of the loan amount, $1.7 billion was
allocated to the Company and the balance to Hydril.
The main
covenants on these loan agreements are limitations on liens and encumbrances,
limitations on the sale of certain assets, restrictions in investments and
compliance with financial ratios (e.g., leverage ratio and interest coverage
ratio in Hydril’s syndicated loan agreement, and leverage ratio and debt service
coverage ratio in the Company’s syndicated loan agreement). In addition,
Hydril’s syndicated loan agreement has certain restrictions in capital
expenditures. The Company’s syndicated loan agreement is secured with a pledge
of 100% of Hydril’s shares; upon each payment or prepayment under this
agreement, the number of shares subject to the pledge shall be reduced
proportionally, and the pledge will be completely released immediately after the
aggregate outstanding principal amount of the loan is less than or equal to $0.6
billion. The Company is initially allowed to make payments such as dividends,
repurchase or redemption of shares up to the greater of $0.5 billion or 25% of
the consolidated operating profit for the previous fiscal year; once the
outstanding amount of this facility does not exceed $1.0 billion, no such
restrictions apply.
On
November 8, 2007, the Company prepaid loans under the Company’s syndicated loan
agreement in a principal amount of $0.7 billion plus accrued interest thereon to
such date. As a result of such prepayment, all dividend restrictions under the
syndicated loan agreement ceased to apply; in addition, the Company is entitled
to reducing proportionally the number of shares pledged in connection
therewith.
Tenaris
began consolidating Hydril’s balance sheet and results of operations since May,
2007.
Pro
forma data including acquisitions for all of 2007
Had the
Hydril transaction been consummated on January 1, 2007, then Tenaris’s unaudited
pro forma net sales and net income from continuing operations would have been
approximately $10.1 billion and $2.0 billion, respectively. These pro forma
results were prepared based on public information and unaudited accounting
records maintained under U.S. GAAP prior to such acquisition and adjusted by
depreciation and amortization of tangible and intangible assets and interest
expense of the borrowing incurred for the acquisition as described in Note 27(a)
considering the repayment stated in Note 27(c). Carrying amounts of assets,
liabilities and contingent liabilities in Hydril’s books, determined in
accordance with IFRS, immediately before the combination are not disclosed
separately, as Hydril did not report IFRS information.
(b)
Minority Interest
During
the year ended December 31, 2007, additional shares of Silcotub and
Dalmine were acquired from minority shareholders for approximately $3.3
million.
Effective
July 12, 2007 Silcotub was delisted from the Romanian Stock
Exchange.
(c)
Acquisition of 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.
Tenaris began consolidating Maverick’s balance sheet and results of operations
in the fourth quarter of 2006.
To
finance the acquisition and the payment of related obligations, the Company and
certain Tenaris entities 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 initially pledged. Immediately upon each payment or prepayment
under the Company 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 Company loan agreement with
respect to the remaining 25% of the issued and outstanding shares of capital
stock of Maverick.
The
Company syndicated loan facility in an aggregate principal amount of $500
million, which had been incurred in connection with the Maverick acquisition,
was prepaid in its entirety in May 2007. As a result of such prepayment the
pledge on Maverick’s shares was fully released and the drag-along rights in
favor of the lenders were terminated. During 2007, Maverick’s syndicated loan
was partially prepaid in an amount of $210 million and Tenaris’s subsidiary
Algoma Tubes syndicated loan facility in an aggregate amount of $100 million was
prepaid in its entirety.
(d)
Tenaris Capitalization of Mandatory Convertible debt into shares of Ternium S.A.
(“Ternium”)
On
February 6, 2006, Ternium completed its initial public offering, 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. The Company received an additional 20,252,338
shares upon the mandatory conversion of its loans to Ternium. In addition to the
shares issued to the Company, Ternium issued shares to other shareholders
corresponding to their mandatory convertible loans. On February 23, 2006, the
underwriters of Ternium’s IPO exercised an overallotment 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, 2007, the closing price of Ternium’s ADSs as quoted on the New
York Stock Exchange was $40.11 per ADS, giving Tenaris’ ownership stake a market
value of approximately $921 million. At December 31, 2007, the carrying value of
Tenaris’ ownership stake in Ternium was approximately $488 million.
(e)
Acquisition of a steel pipe business in Argentina
On
January 31, 2006, Siat S.A., a Tenaris subsidiary organized in Argentina,
acquired the welded pipe assets and facilities located in Villa Constitución,
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.
The
assets and liabilities arising from the acquisitions are as a
follows:
|
Year
ended December 31,
|
||||||||
|
2007(*)
|
2006(*)
|
|||||||
|
Other
assets and liabilities (net)
|
(348,876 | ) | (692,956 | ) | ||||
|
Property,
plant and equipment
|
152,540 | 460,937 | ||||||
|
Customer
relationships
|
593,800 | 1,493,800 | ||||||
|
Trade
names
|
149,100 | - | ||||||
|
Proprietary
technology
|
333,400 | - | ||||||
|
Goodwill
|
1,042,015 | 1,114,287 | ||||||
|
Net
assets acquired
|
1,921,979 | 2,376,068 | ||||||
|
Minority
interest
|
5,283 | 11,181 | ||||||
|
Sub-total
|
1,927,262 | 2,387,249 | ||||||
|
Cash-acquired
|
117,326 | 70,660 | ||||||
|
Purchase
consideration
|
2,044,588 | 2,457,909 | ||||||
|
Liabilities
paid as part of purchase agreement
|
- | 743,219 | ||||||
|
Total
disbursement
|
2,044,588 | 3,201,128 | ||||||
(*)
Includes costs directly attributable to the acquisition.
During
2007, businesses acquired in that year contributed revenues of $430.8 million
and net income of $44.5 million to Tenaris. During 2006, businesses acquired in
that year contributed revenues of $432.0 million and net income of $14.5 million
to Tenaris during that period. Net income does not include financial costs
related to the operations recorded in other subsidiaries different from Hydril
and Maverick.
|
28
|
Cash
flow disclosures
|
|
(i)
|
Changes
in working capital
|
Year
ended December 31,
|
|||||||||||
|
2007
|
2006
|
2005
|
|||||||||||
|
Inventories
|
(252,810 | ) | (455,567 | ) | (101,143 | ) | |||||||
|
Receivables
and prepayments
|
2,080 | (181,878 | ) | 1,513 | |||||||||
|
Trade
receivables
|
(115,838 | ) | (226,678 | ) | (387,240 | ) | |||||||
|
Other
liabilities
|
127,434 | 7,605 | 34,526 | ||||||||||
|
Customer
advances
|
113,548 | 236,446 | (14,156 | ) | |||||||||
|
Trade
payables
|
15,161 | 150,555 | 32,561 | ||||||||||
| (110,425 | ) | (469,517 | ) | (433,939 | ) | ||||||||
|
(ii)
|
Income
tax accruals less payments
|
||||||||||||
|
Tax
accrued
|
833,378 | 873,967 | 568,753 | ||||||||||
|
Taxes
paid
|
(1,226,433 | ) | (817,131 | ) | (419,266 | ) | |||||||
| (393,055 | ) | 56,836 | 149,487 | ||||||||||
|
(iii)
|
Interest
accruals less payments, net
|
||||||||||||
|
Interest
accrued
|
183,995 | 32,237 | 29,236 | ||||||||||
|
Interest
received
|
62,697 | 11,150 | 17,227 | ||||||||||
|
Interest
paid
|
(267,994 | ) | (21,478 | ) | (44,544 | ) | |||||||
| (21,302 | ) | 21,909 | 1,919 | ||||||||||
|
(iv)
|
Cash
and cash equivalents
|
||||||||||||
|
Cash
and bank deposits
|
962,497 | 1,372,329 | 707,356 | ||||||||||
|
Bank
overdrafts
|
(8,194 | ) | (7,300 | ) | (24,717 | ) | |||||||
|
Restricted
bank deposits
|
- | (21 | ) | (2,048 | ) | ||||||||
| 954,303 | 1,365,008 | 680,591 | |||||||||||
|
29
|
Current
and non current assets held for sale and discontinued
operations
|
Subsequent
event: Sale of the pressure control business
On
January 28, 2008, Tenaris entered into an agreement with General Electric
Company (GE) pursuant to which it will sell to GE the pressure control business
acquired as part of the Hydril transaction for an amount equivalent on a
debt-free basis to $1,115 million. The agreement is subject to governmental and
regulatory approvals and other customary conditions and is expected to close
during the second quarter of 2008.
Sale
of Dalmine Energie
On
December 1, 2006, Tenaris completed 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 for a purchase price of $58.9 million.
On
November 5, 2007, Tenaris completed the sale of its remaining 25% interest in
Dalmine Energie to E.ON Sales and Trading GmbH, an indirect subsidiary of E.ON
AG (E.ON), for a purchase price of approximately $28 million.
Analysis
of the result of discontinued operations:
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Net
sales
|
238,220 | 503,051 | 526,406 | |||||||||
|
Cost
of sales
|
(157,356 | ) | (486,312 | ) | (513,393 | ) | ||||||
|
Gross
profit
|
80,864 | 16,739 | 13,013 | |||||||||
|
Selling,
general and administrative expenses
|
(36,441 | ) | (8,025 | ) | (10,259 | ) | ||||||
|
Other
operating income
|
135 | 2,469 | - | |||||||||
|
Other
operating expenses
|
(566 | ) | - | (220 | ) | |||||||
|
Operating
income
|
43,992 | 11,183 | 2,534 | |||||||||
|
Interest
income
|
66 | 603 | 453 | |||||||||
|
Interest
expense
|
(115 | ) | (1,062 | ) | (875 | ) | ||||||
|
Other
financial results
|
3 | 475 | (730 | ) | ||||||||
|
Income
before equity in earnings of associated companies and income
tax
|
43,946 | 11,199 | 1,382 | |||||||||
|
Gain
on disposal of subsidiary
|
- | 39,985 | - | |||||||||
|
Income
before income tax
|
43,946 | 51,184 | 1,382 | |||||||||
|
Income
tax
|
(9,454 | ) | (4,004 | ) | (1,385 | ) | ||||||
|
Income
for discontinued operations
|
34,492 | 47,180 | (3 | ) | ||||||||
For 2007,
cash flow from operating activities (net income plus depreciation and changes in
working capital and other) amounted to $42.1 million. Cash flows used
in investing and financing activities amounted to $8.6 and $22.0 million,
respectively. These amounts were estimated only for disclosure
purposes, as cash flows from these discontinued operations were not managed
separately from other cash flows.
Cash of
discontinued operations increased $2.3 million and decreased by $1.0 million in
2006 and 2005 respectively mainly from operating activities.
|
Current and non current assets
and liabilities held for sale
|
||||
|
Year
ended December 31, 2007
|
||||
|
Property,
plant and equipment, net
|
63,629 | |||
|
Intangible
assets, net
|
302,029 | |||
|
Inventories
|
158,828 | |||
|
Trade
receivables
|
79,220 | |||
|
Other
assets
|
47,454 | |||
|
Total current and non current
assets held for sale
|
651,160 | |||
|
Deferred
tax liabilities
|
75,913 | |||
|
Customer
advances
|
115,483 | |||
|
Trade
payables
|
54,522 | |||
|
Other
liabilities
|
21,124 | |||
|
Liabilities associated with
current and non-current assets held for sale
|
267,042 | |||
|
30
|
Related
party transactions
|
Pursuant
to recent Luxembourg legislation implementing the EU Transparency Directive, San
Faustín N.V. has notified the Company that it owns 713,605,187 shares in the
Company, representing 60.4% of the Company’s capital and voting rights. San
Faustín N.V. owns all of its shares in the Company through its wholly-owned
subsidiary I.I.I. Industrial Investments Inc.. Rocca & Partners
S.A. controls a significant portion of the voting power of San Faustín N.V. and
has the ability to influence matters affecting, or submitted to a vote of the
shareholders of, San Faustín N.V., such as the election of directors, the
approval of certain corporate transactions and other matters concerning the
company’s policies. There are no controlling shareholders for Rocca &
Partners. Tenaris’ directors and executive officers as a group own 0.2% of the
Company’s outstanding shares, while the remaining 39.4% are publicly
traded.
The
following transactions were carried out with related parties:
|
At
December 31, 2007
|
|||||||||||||
|
Associated
(1)
|
Other
|
Total
|
|||||||||||
|
(i)
|
Transactions
|
||||||||||||
|
(a)
Sales of goods and services
|
|||||||||||||
|
Sales
of goods
|
98,141 | 39,307 | 137,448 | ||||||||||
|
Sales
of services
|
18,712 | 5,110 | 23,822 | ||||||||||
| 116,853 | 44,417 | 161,270 | |||||||||||
|
(b)
Purchases of goods and services
|
|||||||||||||
|
Purchases
of goods
|
254,063 | 27,277 | 281,340 | ||||||||||
|
Purchases
of services
|
94,152 | 70,205 | 164,357 | ||||||||||
| 348,215 | 97,482 | 445,697 | |||||||||||
|
At
December 31, 2006
|
|||||||||||||
|
Associated
(2)
|
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
(3)
|
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, 2007
|
|||||||||||||
|
Associated
(4)
|
Other
|
Total
|
|||||||||||
|
(ii)
|
Year-end
balances
|
||||||||||||
|
(a)
Arising from sales / purchases of goods / services
|
|||||||||||||
|
Receivables
from related parties
|
45,773 | 8,015 | 53,788 | ||||||||||
|
Payables
to related parties
|
(61,597 | ) | (7,379 | ) | (68,976 | ) | |||||||
| (15,824 | ) | 636 | (15,188 | ) | |||||||||
|
(b)
Financial debt
|
|||||||||||||
|
Borrowings
(7)
|
(27,482 | ) | - | (27,482 | ) | ||||||||
|
At
December 31, 2006
|
|||||||||||||
|
Associated
(5)
|
Other
|
Total
|
|||||||||||
|
(ii)
|
Year-end
balances
|
||||||||||||
|
(a)
Arising from 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
(8)
|
(60,101 | ) | - | (60,101 | ) | ||||||||
|
At
December 31, 2005
|
|||||||||||||
|
Associated
(6)
|
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
(9)
|
(54,801 | ) | - | (54,801 | ) | ||||||||
(1)
Includes Ternium S.A. and its subsidiaries (“Ternium”), Condusid C.A.
(“Condusid”), Finma S.A.I.F (“Finma”), Lomond Holdings B.V. group (“Lomond”),
Dalmine Energie S.p.A. (“Dalmine Energie”) (until October 2007), Socotherm Brasil S.A.
(“Socotherm”), Hydril Jindal International Private Ltd. and TMK – Hydril
JV.
(2)
Includes Ternium, Condusid, Finma (as from September 2006), Lomond (as from
October 2006) and Dalmine Energie (as from December 2006).
(3)
Includes Condusid, Ylopa, Amazonia and Sidor C.A. (“Sidor”) up to September
2005. As from October 2005 it includes Ternium and Condusid.
(4)
Includes Ternium, Condusid, Finma, Lomond, Socotherm, Hydril Jindal
International Private Ltd. and TMK – Hydril JV.
(5)
Includes Ternium, Condusid, Finma, Lomond and Dalmine Energie.
(6)
Includes Ternium and Condusid.
(7)
Includes convertible loan from Sidor to Materiales Siderurgicos S.A. (“Matesi”)
of $26.4 million at December 31, 2007.
(8)
Includes convertible loan from Sidor to Matesi of $58.4 million at December 31,
2006.
(9)
Includes convertible loan from Sidor to Matesi at December 31,
2005.
|
(i)
|
Officers
and directors’ compensation
|
The
aggregate compensation of the directors and executive officers earned during
2007, 2006 and 2005 amounts to $19.0 million, $16.8 million and $14.3 million
respectively.
|
31
|
Principal
subsidiaries
|
The
following is a list of Tenaris principal subsidiaries and its direct and
indirect percentage of ownership of each controlled company at December 31,
2007, 2006 and 2005.
|
Company
|
Country
of Organization
|
Main
activity
|
Percentage
of ownership at December 31, (*)
|
||||||||
|
2007
|
2006
|
2005
|
|||||||||
|
ALGOMA
TUBES INC.
|
Canada
|
Manufacturing
of seamless steel pipes
|
100%
|
100%
|
100%
|
||||||
|
CONFAB
INDUSTRIAL S.A. and subsidiaries (a)
|
Brazil
|
Manufacturing
of welded steel pipes and capital goods
|
39%
|
39%
|
39%
|
||||||
|
DALMINE
S.p.A.
|
Italy
|
Manufacturing
of seamless steel pipes
|
99%
|
99%
|
99%
|
||||||
|
HYDRIL
CANADIAN COMPANY LIMITED PARTNERSHIP
|
Canada
|
Manufacturing
of steel products
|
100%
|
0%
|
0%
|
||||||
|
HYDRIL
COMPANY and subsidiaries (except detailed) (b)
|
USA
|
Manufacturing
of steel products
|
100%
|
0%
|
0%
|
||||||
|
HYDRIL
LLC
|
USA
|
Manufacturing
of pressure control products
|
100%
|
0%
|
0%
|
||||||
|
HYDRIL
S.A. DE C.V.
|
Mexico
|
Manufacturing
of steel products
|
100%
|
0%
|
0%
|
||||||
|
HYDRIL
U.K. LTD.
|
United
Kingdom
|
Manufacturing
of steel products
|
100%
|
0%
|
0%
|
||||||
|
INVERSIONES
BERNA S.A.
|
Chile
|
Financial
Company
|
100%
|
100%
|
100%
|
||||||
|
MATESI.
MATERIALES SIDERURGICOS S.A.
|
Venezuela
|
Production
of hot briquetted iron (HBI)
|
50%
|
50%
|
50%
|
||||||
|
MAVERICK
TUBE CORPORATION and subsidiaries (except detailed)
|
USA
|
Manufacturing
of welded steel pipes
|
100%
|
100%
|
0%
|
||||||
|
MAVERICK
TUBE. LLC
|
USA
|
Manufacturing
of welded steel pipes
|
100%
|
0%
|
0%
|
||||||
|
MAVERICK
TUBE. LP (c)
|
USA
|
Manufacturing
of welded steel pipes
|
0%
|
100%
|
|
0%
|
|||||
|
NKKTUBES
K.K.
|
Japan
|
Manufacturing
of seamless steel pipes
|
51%
|
51%
|
51%
|
||||||
|
PRECISION
TUBE HOLDING LLC (f)
|
USA
|
Holding
company
|
0%
|
100%
|
0%
|
||||||
|
PRECISION
TUBE TECHNOLOGY LP (f)
|
USA
|
Manufacturing
of welded steel pipes
|
0%
|
100%
|
0%
|
||||||
|
PRUDENTIAL
STEEL LTD
|
Canada
|
Manufacturing
of welded steel pipes
|
100%
|
100%
|
0%
|
||||||
|
REPUBLIC
CONDUIT MANUFACTURING
|
USA
|
Manufacturing
of welded steel pipes
|
100%
|
100%
|
0%
|
||||||
|
S.C.
DONASID S.A.
|
Romania
|
Manufacturing
of steel products
|
99%
|
99%
|
99%
|
||||||
|
S.C.
SILCOTUB S.A.
|
Romania
|
Manufacturing
of seamless steel pipes
|
100%
|
97%
|
85%
|
||||||
|
SIAT
S.A.
|
Argentina
|
Manufacturing
of welded steel pipes
|
82%
|
82%
|
82%
|
||||||
|
SIDERCA
S.A.I.C. and subsidiaries (except detailed) (d)
|
Argentina
|
Manufacturing
of seamless steel pipes
|
100%
|
100%
|
100%
|
||||||
|
SIDTAM
LTD.
|
British
Virgin Islands
|
Holding
Company
|
100%
|
100%
|
100%
|
||||||
|
SOCOMINTER
S.A.
|
Venezuela
|
Marketing
of steel products
|
100%
|
100%
|
100%
|
||||||
|
TALTA
- TRADING E MARKETING SOCIEDADE UNIPESSOAL LDA. (except detailed)
(e)
|
Madeira
|
Holding
Company
|
100%
|
100%
|
100%
|
||||||
|
TAVSA
- TUBOS DE ACERO DE VENEZUELA SA
|
Venezuela
|
Manufacturing
of seamless steel pipes
|
70%
|
70%
|
70%
|
||||||
|
TENARIS
COILED TUBES. LLC
|
USA
|
Manufacturing
of welded steel pipes
|
100%
|
|
0%
|
|
0%
|
||||
|
TENARIS
CONNECTION AG LTD. and subsidiaries (except detailed)
|
Liechtenstein
|
Ownership
and licensing of steel technology
|
100%
|
|
100%
|
100%
|
|||||
|
TENARIS
FINANCIAL SERVICES S.A.
|
Uruguay
|
Financial
Company
|
100%
|
|
100%
|
100%
|
|||||
|
TENARIS
GLOBAL SERVICES (CANADA) INC.
|
Canada
|
Marketing
of steel products
|
100%
|
100%
|
100%
|
||||||
|
TENARIS
GLOBAL SERVICES (U.S.A.) CORPORATION
|
USA
|
Marketing
of steel products
|
100%
|
100%
|
100%
|
||||||
|
TENARIS
GLOBAL SERVICES S.A. and subsidiaries (except detailed)
(g)
|
Uruguay
|
Holding
company and marketing of steel products
|
100%
|
100%
|
100%
|
||||||
|
TENARIS
HICKMAN. L.P.
|
USA
|
Manufacturing
of welded steel pipes
|
|
100%
|
100%
|
0%
|
|||||
|
TENARIS
INVESTMENTS LTD and subsidiaries (except detailed)
|
Ireland
|
Holding
company
|
|
100%
|
100%
|
100%
|
|||||
|
TUBOS
DE ACERO DE MEXICO SA
|
Mexico
|
Manufacturing
of seamless steel pipes
|
100%
|
100%
|
|
100%
|
|||||
|
TUBOS
DEL CARIBE LTDA.
|
Colombia
|
Manufacturing
of welded steel pipes
|
100%
|
100%
|
0%
|
||||||
(*) All
percentages rounded.
(a)
Tenaris holds 99% of the voting shares of Confab Industrial S.A. Tenaris holds
39% of Confab’s subsidiaries except for Tenaris Confab Hastes de Bombeio
S.A.where it holds 70%.
(b)
Tenaris holds 100% of Hydril’s subsidiaries except for Technical Drilling &
Production Services Nigeria Ltd. and Hydril Pressure Control Private Limited
where it holds 60% and 49% respectively.
(c)
Merged during 2007 into Maverick Tube, LLC.
(d)
Tenaris holds 100% of Siderca’s subsidiaries, except for Scrapservice S.A. and
Information Systems and Technologies N.V. where it holds (in both cases)
75%.
(e)
Tenaris holds 100% of Talta – Trading e Marketing Sociedade Unipessoal and
subsidiaries except for Energy Network, where it holds 95%.
(f)
Merged during 2007 into Tenaris Coiled Tubes, LLC.
(g)
Tenaris holds 100% of Tenaris Global Services S.A. and subsidiaries, except for
Tenaris Supply Chain S.A. where it holds 98%.
|
Ricardo
Soler
|
||
|
Chief
Financial Officer
|
Tenaris S.A.
Audited
Annual Accounts
as
of December 31, 2007
46a,
avenue John F. Kennedy
L-1855
Luxembourg
R.C.S.
Luxembourg: B 85 203
|
PricewaterhouseCoopers
|
|
|
Société
à responsabilité limitée
|
|
|
Réviseur
d'entreprises
|
|
|
400
Route d’Esch
|
|
|
Independent
Auditor’s report
|
B.P.
1443
|
|
L-1014
Luxembourg
|
|
|
To
the Shareholders of
|
Telephone
+352 494848-1
|
|
Facsimile
+352 494848-2900
|
|
|
www.pwc.com/lu
|
|
|
info@lu.pwc.com
|
|
Report
on the financial statements
We have
audited the accompanying financial statements of Tenaris S.A., which comprise
the balance sheet as at December 31, 2007, and the profit and loss account for
the year then ended, and a summary of significant accounting policies and other
explanatory notes.
Board
of Directors’ responsibility for the financial statements
The Board
of Directors is responsible for the preparation and fair presentation of these
financial statements in accordance with Luxembourg legal and regulatory
requirements relating to the preparation of the financial statements. This
responsibility includes: designing, implementing and maintaining internal
control relevant to the preparation and fair presentation of financial
statements that are free from material misstatement, whether due to fraud or
error; selecting and applying appropriate accounting policies; and making
accounting estimates that are reasonable in the circumstances.
Auditor’s
responsibility
Our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit in accordance with International Standards on
Auditing as adopted by the “Institut des Réviseurs d’Entreprises”. Those
standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance whether the financial statements are
free from material misstatement.
An audit
involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the
Auditor’s judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, the Auditor considers internal control relevant
to the entity’s preparation and fair presentation of the financial statements in
order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An
audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by the the Board of
Directors, as well as evaluating the overall presentation of the financial
statements.
We
believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Opinion
In our
opinion, these financial statements give a true and fair view of the financial
position of Tenaris S.A. as of December 31, 2007 and of the results of its
operations for the year then ended in accordance with Luxembourg legal and
regulatory requirements relating to the preparation of financial
statements.
Report
on other legal and regulatory requirements
The
management report, which is the responsibility of the Board of Directors, is in
accordance with the financial statements.
|
PricewaterhouseCoopers
S.à r.l.
|
Luxembourg,
February 27, 2008
|
|
Réviseur
d’entreprises
|
|
|
Represented
by
|
Mervyn R.
Martins
Tenaris
S.A.
Profit
and loss account for the financial year ended December 31, 2007
(expressed
in United States Dollars)
|
Note(s)
|
2007
|
2006
|
||||||||||
|
USD
|
USD
|
|||||||||||
|
ASSETS
|
||||||||||||
|
Fixed
assets
|
||||||||||||
|
-
Intangible assets - Reorganization cost
|
3 | 267,500 | 3,430,004 | |||||||||
|
Financial
assets
|
||||||||||||
|
-
Shares in subsidiaries and associated companies
|
5.1 | 5,301,130,193 | 4,101,243,211 | |||||||||
|
-
Loans to subsidiaries and associated companies
|
5.2 | 883,727,300 | 64,759,095 | |||||||||
|
-
Other receivables
|
4 | 1,038,855 | 2,125,190 | |||||||||
| 6,186,163,848 | 4,171,557,500 | |||||||||||
|
Current
assets
|
||||||||||||
|
-
Intercompany loans and receivables
|
6 | 32,391,204 | 92,487,571 | |||||||||
|
-
Other receivables
|
4 | 3,063,984 | 598,510 | |||||||||
|
-
Short term investments
|
7 | 612,476 | 187,166,867 | |||||||||
|
-
Cash at bank
|
283,821 | 957,038 | ||||||||||
| 36,351,485 | 281,209,986 | |||||||||||
|
Total
assets
|
6,222,515,333 | 4,452,767,486 | ||||||||||
|
LIABILITIES
|
||||||||||||
|
Shareholders'
equity
|
8 | |||||||||||
|
-
Subscribed capital
|
1,180,536,830 | 1,180,536,830 | ||||||||||
|
-
Share premium account
|
609,732,757 | 609,732,757 | ||||||||||
|
-
Legal reserve
|
9 | 118,053,683 | 118,053,683 | |||||||||
|
-
Retained earnings
|
10 | 1,019,465,873 | 967,505,416 | |||||||||
|
-
Profit for the financial year
|
1,380,507,915 | 559,591,293 | ||||||||||
| 4,308,297,058 | 3,435,419,979 | |||||||||||
|
Provisions
|
||||||||||||
|
-
Tax provision
|
12 | 419,485 | 257,427 | |||||||||
|
-
Other provisions
|
535,000 | 35,000 | ||||||||||
| 954,485 | 292,427 | |||||||||||
|
Debts
|
||||||||||||
|
-
Intercompany
|
13 | |||||||||||
|
-
due within a year
|
309,454,458 | 391,516,070 | ||||||||||
|
-
due within more than a year
|
592,006,213 | 115,122,871 | ||||||||||
|
-
Borrowings
|
14 | |||||||||||
|
-
due within a year
|
7,826,250 | 63,243,577 | ||||||||||
|
-
due within more than a year
|
1,000,000,000 | 444,444,444 | ||||||||||
|
-
Accounts payable due within a year
|
3,976,869 | 2,728,118 | ||||||||||
| 1,913,263,790 | 1,017,055,080 | |||||||||||
|
Total
liabilities
|
6,222,515,333 | 4,452,767,486 | ||||||||||
The
accompanying notes are an integral part of these annual
accounts.
Profit
and loss account for the financial year ended December 31, 2007
(expressed
in United States Dollars)
|
Note(s)
|
2007
|
2006
|
||||||||||
|
USD
|
USD
|
|||||||||||
|
CHARGES
|
||||||||||||
|
Amortization
of formation expenses
|
- | 2,384 | ||||||||||
|
Amortization
of reorganization cost
|
3 | 3,162,504 | 3,160,120 | |||||||||
|
Administrative
and general expenses
|
15 | 10,105,755 | 9,681,199 | |||||||||
|
Loss
on sale of shares in affiliated companies
|
- | 511,991 | ||||||||||
|
Interest
expense - Intercompany
|
19,459,881 | 14,525,218 | ||||||||||
|
Interest
expense - Syndicated loan
|
14 | 69,149,634 | 7,688,021 | |||||||||
|
Cost
for issue of debt
|
4 | 5,199,406 | 209,877 | |||||||||
|
Realized
loss on exchange
|
338,833 | 28,372 | ||||||||||
|
Taxes
|
12 | 3,622,001 | 1,278,441 | |||||||||
|
Profit
for the financial year
|
1,380,507,915 | 559,591,293 | ||||||||||
|
Total
charges
|
1,491,545,929 | 596,676,916 | ||||||||||
|
INCOME
|
||||||||||||
|
Dividend
income
|
16 | 1,371,625,117 | 566,831,284 | |||||||||
|
Gain
from transactions with affiliated companies
|
5.1 | 49,436,049 | - | |||||||||
|
Interest
income - Intercompany
|
17 | 39,357,776 | 12,745,140 | |||||||||
|
Interest
income - Third parties
|
18 | 11,041,551 | 14,263,531 | |||||||||
|
Realized
gain on short term investments
|
4,498,575 | 2,791,071 | ||||||||||
|
Realized
gain on exchange
|
15,586,861 | 45,890 | ||||||||||
|
Total
income
|
1,491,545,929 | 596,676,916 | ||||||||||
The
accompanying notes are an integral part of these annual
accounts.
Notes
to audited annual accounts as of December 31, 2007
Note
1 – Background and description of the business
Tenaris
S.A. (the “Company” or “Tenaris”) was incorporated on December 17, 2001 under
the name of Tenaris Holding S.A. as a limited liability company (taking
advantage of the law of July 31, 1929, on holding companies) under the laws of
Luxembourg. Then, on June 26, 2002, it changed its name to Tenaris
S.A..
Tenaris’s
objective is to invest mainly in companies that manufacture and market steel
tubes and other businesses. Tenaris and its subsidiaries are leading global
suppliers of steel tubes and related services for the world’s energy industry
and certain other industrial applications.
Tenaris
prepares and publishes consolidated financial statements which include further
information on Tenaris and its subsidiaries. They are available at the
registered office of the Company, 46a avenue John F. Kennedy, L-1855,
Luxembourg.
Note 2 – Summary of significant accounting
policies
|
2.1
|
Accounts
|
The
annual accounts have been prepared in accordance with Luxembourg legal
requirements and accounting standards, on a basis consistent to that used in the
annual accounts for the financial year ended December 31, 2006.
|
2.2
|
Foreign
currency translation
|
Loans to
subsidiaries, current assets and liabilities denominated in currencies other
than the United States dollar (“USD”) are translated into USD at the rate of
exchange at the balance sheet date. The resulting gains or losses are reflected
in the Profit and loss account for the financial year. Income and expenses in
currencies other than the USD are translated into USD at the exchange rate
prevailing at the date of each transaction.
|
2.3
|
Reorganization
cost
|
Reorganization
cost comprises mainly fees for professional services that were incurred in the
reorganization process. These costs are amortized over a period of five
years.
|
2.4
|
Financial
assets
|
Shares in
subsidiaries and associated companies are stated at cost, adding to the price
paid the expenses incidental thereto. In case of other than a temporary decline
in the value of an investment, its carrying value will be reduced to recognize
this decline. Reductions in the carrying value will be reversed in case of a
rise in the value of the investment or when the reasons for the reduction no
longer exist.
Loans to
subsidiaries and associated companies are stated at amortized cost.
|
2.5.
|
Short
term investments
|
Short
term investments are valued at market value, expressed in USD, at the balance
sheet date
|
2.6
|
Borrowings
|
Borrowings
are stated at amortized cost. The related transaction costs are initially
recognized as an asset included in Other receivables, and subsequently written
off over the period of the debt.
|
2.7
|
Interest
rate collars
|
Interest
rate collars are stated at cost. Considering the Company has entered into zero
cost interest rate collars, as mentioned in Note 14, no value has been assigned
to them at the balance sheet date.
Note
3 – Fixed assets – Intangible assets – Reorganization cost
|
2007
|
2006
|
|||||||
|
USD
|
USD
|
|||||||
|
Value
at the beginning of the financial year
|
15,800,610 | 15,800,610 | ||||||
|
Amortization
|
||||||||
|
-
at the beginning of the financial year
|
12,370,606 | 9,210,486 | ||||||
|
-
charge of the financial year
|
3,162,504 | 3,160,120 | ||||||
|
-
at the end of the financial year
|
15,533,110 | 12,370,606 | ||||||
|
Net
book value at the end of the financial year
|
267,500 | 3,430,004 | ||||||
Note
4 – Other receivables
|
2007
|
2006
|
|||||||||||||||
|
Current
|
Non-current
|
Current
|
Non-current
|
|||||||||||||
|
USD
|
USD
|
USD
|
USD
|
|||||||||||||
|
Value
at the beginning of the financial year
(1)
|
725,061 | 2,125,190 | 100,630 | - | ||||||||||||
|
Additions
(2)
|
3,073,042 | 3,288,419 | 624,431 | 2,125,190 | ||||||||||||
| 3,798,103 | 5,413,609 | 725,061 | 2,125,190 | |||||||||||||
|
Amortization
of cost for issue of debt
|
||||||||||||||||
|
-
at the beginning of the financial year
|
126,551 | - | - | - | ||||||||||||
|
-
charge of the financial year
(3)
|
607,568 | 4,374,754 | 126,551 | - | ||||||||||||
|
-
at the end of the financial year
|
734,119 | 4,374,754 | 126,551 | - | ||||||||||||
|
Net
book value at the end of the financial year
|
3,063,984 | 1,038,855 | 598,510 | 2,125,190 | ||||||||||||
(1)
corresponds to the deferred costs for issue of debt, except for prepaid expenses
included in the short term portion (2007: USD 194,126 and 2006: USD
100,630).
(2)
includes the net movement of prepaid expenses during the financial year (2007:
negative USD 69,539 and 2006: positive USD 93,496).
(3) amount
included in the caption "Cost for issue of debt" in the Profit and loss account
for the financial years ended December 31, 2007 and 2006.
Note
5 – Financial assets
|
5.1
|
Shares
in subsidiaries and associated
companies
|
Movements
of investments in subsidiaries and associated companies during the financial
year are as follows:
|
Company
|
Country
|
%
of ownership
|
Book
value at 12.31.2006
|
Additions
|
Decreases
|
Book
value at 12.31.2007
|
|||||||||||||||
|
(*)
|
USD
|
USD
|
USD
|
USD
|
|||||||||||||||||
|
Maverick
Tube Corporation
|
U.S.A.
|
100.0 | % | 1,380,421,829 | 410,000,000 | - | 1,790,421,829 | ||||||||||||||
|
Siderca
S.A.I.C.
|
Argentina
|
100.0 | % | 1,604,950,726 | - | - | 1,604,950,726 | ||||||||||||||
|
Hydril
Company
|
U.S.A.
|
100.0 | % | - | 960,208,982 | - | 960,208,982 | ||||||||||||||
|
Ternium
S.A.
|
Luxembourg
|
11.5 | % | 459,970,986 | - | - | 459,970,986 | ||||||||||||||
|
Tubos
de Acero de México S.A.
|
México
|
100.0 | % | 303,244,203 | - | - | 303,244,203 | ||||||||||||||
|
Tenaris
Investments Limited
|
Ireland
|
100.0 | % | 100,010,000 | - | - | 100,010,000 | ||||||||||||||
|
Tenaris
Global Services S.A.
|
Uruguay
|
100.0 | % | 63,047,650 | - | - | 63,047,650 | ||||||||||||||
|
Tenaris
Connections A.G.
|
Liechtenstein
|
100.0 | % | 11,567,000 | - | - | 11,567,000 | ||||||||||||||
|
Sidtam
Limited
|
B.V.I.
|
100.0 | % | 7,702,000 | - | - | 7,702,000 | ||||||||||||||
|
Talta
- Trading e Marketing, Sociedade Unipessoal Lda.
|
Madeira
|
100.0 | % | 82,576,817 | - | (82,570,000 | ) | 6,817 | |||||||||||||
|
Tamsider
LLC
|
U.S.A.
|
- | 87,752,000 | - | (87,752,000 | ) | - | ||||||||||||||
|
Hokkaido
Acquisition Inc.
|
U.S.A.
|
- | - | 950,000,500 | (950,000,500 | ) | - | ||||||||||||||
|
Shares
in subsidiaries and associated companies
|
4,101,243,211 | 2,320,209,482 | (1,120,322,500 | ) | 5,301,130,193 | ||||||||||||||||
(*) It
represents the equity interest held directly by Tenaris and through any of its
subsidiaries.
Hydril
Company (“Hydril”)
On May 7,
2007, Tenaris and its wholly owned subsidiary incorporated in February 2007,
Hokkaido Acquisition, Inc. (“Hokkaido”) paid USD 2.0 billion to acquire Hydril,
a North American manufacturer of premium connections and pressure control
products for the oil and gas industry. Pursuant to this acquisition, Hokkaido
merged with and into Hydril.
Relating
to this transaction the Company accounted for an acquisition price of USD 960.2
million which comprises USD 950.0 million for a capital contribution to Hokkaido
and USD 10.2 million of associated costs.
To
finance the acquisition, Tenaris and Hydril entered into syndicated loans of USD
1.7 billion and USD 0.3 billion, respectively, of which USD 0.5 billion were
used to refinance an existing loan in the Company (see Note 14). The balance of
the acquisition cost was paid out of cash on hand.
On
January 28, 2008, Tenaris and Hydril entered into an agreement with General
Electric Company (“GE”) pursuant to which Hydril will sell to GE its pressure
control business for an amount equivalent on a debt-free basis to USD 1.1
billion. The agreement is subject to governmental and regulatory approvals and
other customary conditions and is expected to close during the second quarter of
2008.
Tamsider
LLC (“Tamsider”)
On
November 30, 2007 Tenaris, as the sole member of Tamsider, decided to dissolve
and to cause the company to be wound up, liquidated and terminated.
Consequently, its remaining assets were distributed to Tenaris.
Earlier
on June 6, 2007 Tamsider shareholders’ meeting had resolved to decrease its
capital through a distribution of USD 137.1 million, to be offset against the
Receivables hold by this company with Tenaris.
Related
to these transactions Tenaris:
|
|
·
|
Derecognized
the carrying amount of the investment in Tamsider (USD 87.8
million).
|
|
|
·
|
Recognized
under the caption “Gain from transactions with affiliated companies” in
the Profit and loss account for the financial year ended on December 31,
2007 a gain of USD 49.4 million.
|
Talta
- Trading e Marketing, Sociedade Unipessoal Lda. (“Talta”)
On July
26, 2007 Talta shareholder’s meeting decided to reimburse the capital
contribution made by Tenaris in April 2006, for an amount of EUR 62.1 million
(USD 82.6 million).
Maverick
Tube Corporation (“Maverick”)
On
December 21, 2007 Tenaris acquired from its subsidiary, Tubos de Acero de México
S.A. (“Tamsa”), 229 ordinary shares of Maverick, each with a par value of USD 1
per share, representing 22.9% of its issued and outstanding capital. The price
of this transaction amounting to USD 410.0 million was financed by a loan
granted by Tenaris Financial Services S.A. (see Note 13).
|
5.2
|
Loans
to subsidiaries and associated
companies
|
|
2007
|
2006
|
|||||||
|
USD
|
USD
|
|||||||
|
Hydril
Company
|
773,727,300 | - | ||||||
|
Maverick
Tube Corporation
|
110,000,000 | - | ||||||
|
Talta
- Trading e Marketing, Sociedade Unipessoal Lda.
|
- | 62,679,990 | ||||||
|
Consorcio
Siderurgia Amazonia Ltd.
|
- | 2,079,105 | ||||||
| 883,727,300 | 64,759,095 | |||||||
In
connection with Hydril acquisition mentioned in Note 5.1, in May 2007 Tenaris
granted a loan to Hokkaido, subsequently merged with and into Hydril, for a
nominal amount of USD 806.6 million. This loan accrues interest at Libor plus 1%
and is payable in nine equal installments, the first one due in May 2011 and the
following eight every six months. This loan is subordinated and subject in right
of payment to the obligations of Hydril under the syndicated loan agreement
signed by Hydril on April 19, 2007 for a nominal amount of USD 300.0
million. On November 19, 2007 Hydril transferred to Tenaris USD 34.0 million to
partially prepay the loan (principal: USD 32.9 million and interest: USD 1.1
million).
On
December 27, 2007, Tenaris used the funds borrowed from Tenaris Financial
Services S.A. (see Note 13) to grant a loan to Maverick, for a nominal amount of
USD 110.0 million. That loan accrues interest at Libor plus 1%, payable every
six month. The aggregate principal amount is payable on December 27, 2012. The
loan granted by the Company is subordinated in priority of payment to the loans
granted with reference to the syndicated loan agreement dated September 21, 2006
and amended on November 24, 2006, April 20 and June 15, 2007 entered into by
Maverick for a nominal amount of USD 700.0 million.
During
the financial year, Talta repaid the two loans granted by Tenaris for the
acquisition of the Company’s equity stake in Dalmine S.p.A. (USD 90.2 million,
interest included) and for the indirect acquisition of an industrial facility in
Venezuela (USD 68.9 million, interest included).
Note
6 – Intercompany loans and receivables
|
2007
|
2006
|
|||||||
|
USD
|
USD
|
|||||||
|
Hydril
Company (1)
|
32,303,357 | - | ||||||
|
Maverick
Tube Corporation (2)
|
87,503 | - | ||||||
|
Tenaris
Investments Limited
|
188 | 2,051 | ||||||
|
Tenaris
Financial Services S.A.
|
156 | 293 | ||||||
|
Talta
- Trading e Marketing, Sociedade Unipessoal Lda.
|
- | 91,760,762 | ||||||
|
Siderca
S.A.I.C.
|
- | 724,465 | ||||||
| 32,391,204 | 92,487,571 | |||||||
(1) and
(2)
include the outstanding interests of loans mentioned in Note 5.2
Note
7 – Short term investments
|
2007
|
2006
|
|||||||
|
USD
|
USD
|
|||||||
|
Time
deposits with subsidiaries
|
102,395 | 278,274 | ||||||
|
Liquidity
funds
|
510,081 | 172,149,107 | ||||||
|
Agency
bonds
|
- | 14,739,486 | ||||||
| 612,476 | 187,166,867 | |||||||
Note
8 – Shareholders’ equity
|
Item
|
Suscribed
capital
|
Share
premium account
|
Legal reserve
|
Retained
earnings
|
Shareholders'
equity
|
|||||||||||||||
|
USD
|
USD
|
USD
|
USD
|
USD
|
||||||||||||||||
|
Balance
at the beginning of the financial year
|
1,180,536,830 | 609,732,757 | 118,053,683 | 1,527,096,709 | 3,435,419,979 | |||||||||||||||
|
Dividend
paid (1)
|
- | - | - | (354,161,049 | ) | (354,161,049 | ) | |||||||||||||
|
Interim
dividend (2)
|
- | - | - | (153,469,787 | ) | (153,469,787 | ) | |||||||||||||
|
Profit
for the financial year
|
- | - | - | 1,380,507,915 | 1,380,507,915 | |||||||||||||||
|
Balance
at the end of the financial year
|
1,180,536,830 | 609,732,757 | 118,053,683 | 2,399,973,788 | 4,308,297,058 | |||||||||||||||
(1) As
approved by the ordinary shareholders' meeting held on June 6,
2007.
(2) As
approved by the board of directors' meeting held on November 7, 2007 (see Note
11).
The
authorized capital of the Company amounts to USD 2.5 billion. The total
authorized share capital of the Company is represented by 2,500,000,000 shares
with a par value of USD 1 per share. The total capital issued and fully paid-up
at December 31, 2007 was 1,180,536,830 shares with a par value of USD 1 per
share.
The board
of directors is authorized until August 2, 2012 to increase the issued share
capital, through issues of shares within the limits of the authorized
capital.
Note 9 – Legal reserve
In
accordance with Luxembourg law, the Company is required to set aside a minimum
of 5% of its annual net profit for each financial year to a legal reserve. This
requirement ceases to be necessary once the balance on the legal reserve has
reached 10% of the issued subscribed capital. The Company’s reserve has already
reached this 10%. The legal reserve is not available for distribution to the
shareholders.
Note 10 – Retained
earnings
Dividends
may be paid by Tenaris upon the ordinary shareholders’ meeting’s approval, to
the extent distributable retained earnings exist, and providing the compliance
of the covenant related to restricted payments stated in Note 14.
At
December 31, 2007, the retained earnings and profit for the financial year of
Tenaris under Luxembourg law totalled USD 2.4 billion.
Note
11 – Interim dividend paid
In
November 2007, the Company paid an interim dividend of USD 153.5 million based
on the board of director’s decision of November 7, 2007 and in compliance with
the conditions set out in the amended law of August 10, 1915 on commercial
companies regarding the payment of interim dividends.
Note
12 – Taxes
The
Company is subject to the tax regime applicable to billionaire holdings as
defined by the law dated July 31, 1929.
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.
In
addition to the corresponding charge of the above mentioned tax regime, the
Company included the withholding taxes on dividends received, amounting to USD
3.0 million and USD 0.8 million, under the caption “Taxes” in the Profit and
loss account for the financial years ended December 31, 2007 and 2006,
respectively.
Note
13 – Debts – Intercompany
|
2007
|
2006
|
|||||||
|
USD
|
USD
|
|||||||
|
-
due within a year
|
||||||||
|
Accounts
payable (1)
|
1,199,924 | 3,187,980 | ||||||
|
Loans
for acquisition of shares in subsidiaries and associated companies (2)
|
214,628,087 | 289,719,090 | ||||||
|
Debts
for acquisition of shares in subsidiaries and associated companies (1)
|
- | 98,609,000 | ||||||
|
Other
loans (3)
|
93,626,447 | - | ||||||
| 309,454,458 | 391,516,070 | |||||||
|
2007
|
2006
|
|||||||
|
USD
|
USD
|
|||||||
|
-
due within more than a year
|
||||||||
|
Loans
for acquisition of shares in subsidiaries and associated companies (2)
|
482,006,213 | 115,122,871 | ||||||
|
Other
loans (3)
|
110,000,000 | - | ||||||
| 592,006,213 | 115,122,871 | |||||||
(1) Are
interest free and have no fixed terms of payments
Note
13 – Debts – Intercompany (Cont’d)
(2) Terms
and conditions of Loans for acquisition of shares in subsidiaries and associated
companies:
|
Lender
|
Due
|
Interest
|
Principal
|
2007
|
2006
|
|||||||||||||||||
|
rate
(*)
|
Current
|
Non-current
|
Current
|
Non-current
|
||||||||||||||||||
|
USD
|
USD
|
USD
|
USD
|
USD
|
||||||||||||||||||
|
Siderca
International ApS
|
2008
|
L +
0.3%
|
203,941,800 | 213,341,605 | - | 240,650,317 | - | |||||||||||||||
|
Tenaris
Financial Services S.A.
|
2011
|
L +
0.5%
|
65,756,213 | 910,778 | 65,756,213 | 942,323 | 65,756,213 | |||||||||||||||
|
Techint
Investments Netherlands B.V.
|
2011
|
L +
0.5%
|
6,250,000 | 86,568 | 6,250,000 | 89,566 | 6,250,000 | |||||||||||||||
|
Tenaris
Financial Services S.A.
|
2012
|
L +
0.35%
|
410,000,000 | 289,136 | 410,000,000 | - | - | |||||||||||||||
|
Tamsider
LLC
|
2007
|
L +
0.5%
|
36,529,295 | - | - | 37,425,860 | - | |||||||||||||||
|
Tenaris
Investments Limited
|
2007
|
L +
0.5%
|
9,800,000 | - | - | 9,940,440 | - | |||||||||||||||
|
Dalmine
S.p.A.
|
2011
|
L +
1.0%
|
43,116,658 | - | - | 670,584 | 43,116,658 | |||||||||||||||
|
Loans
for acquisition of shares in subsidiaries and associated
companies
|
214,628,087 | 482,006,213 | 289,719,090 | 115,122,871 | ||||||||||||||||||
(*) L:
LIBOR
(3) Terms
and conditions of Other loans:
|
Lender
|
Due
|
Interest
|
Principal
|
2007
|
2006
|
|||||||||||||||||
|
rate (*)
|
Current
|
Non-current
|
Current
|
Non-current
|
||||||||||||||||||
|
USD
|
USD
|
USD
|
USD
|
USD
|
||||||||||||||||||
|
Tenaris
Financial Services S.A.
|
2008
|
L +
0.25%
|
93,000,000 | 93,548,874 | - | - | - | |||||||||||||||
|
Tenaris
Financial Services S.A.
|
2012
|
L +
0.35%
|
110,000,000 | 77,573 | 110,000,000 | - | - | |||||||||||||||
|
Other
loans
|
93,626,447 | 110,000,000 | - | - | ||||||||||||||||||
(*) L: LIBOR
Note
14 – Borrowings
|
2007
|
2006
|
|||||||
|
USD
|
USD
|
|||||||
|
-
due within a year
|
||||||||
|
Principal
- short term portion
|
- | 55,555,556 | ||||||
|
Interest
accrued
|
7,826,250 | 7,688,021 | ||||||
| 7,826,250 | 63,243,577 | |||||||
|
2007
|
2006
|
|||||||
|
USD
|
USD
|
|||||||
|
-
due within more than a year
|
||||||||
|
Principal
- long term portion
|
1,000,000,000 | 444,444,444 | ||||||
| 1,000,000,000 | 444,444,444 | |||||||
It
corresponds to the outstanding amounts relating to the syndicated loan
agreements entered into by the Company to finance the acquisition of
Maverick and Hydril (explained in Note 5.1) and to refinance an existing
loan in the Company.
Syndicated
loan agreement for Hydril acquisition
This loan
agreement comprised two tranches under the following terms:
|
Tranche
A
|
Tranche
B
|
|||
|
Principal
|
USD
1.0 billion
|
USD
0.7 billion
|
||
|
Interest
rate (*)
|
L +
0.365% for the first 2 years, and thereafter L + 0.5%
|
L +
0.45%
|
||
|
Term
|
2
years or 5 years, subject to Tenaris' decision
|
5
years
|
||
|
Repayment
|
1
installment, due in 2 years; or 7 equal installments, the 1st one due in
May 2009 and the following 6 due every 6 months
|
9
equal installments, the 1st one due in May 2008 and the following 8 due
every 6 months
|
(*) L:
LIBOR
On
November 8, 2007 the Company prepaid the outstanding principal amount of tranche
B together with the interest accrued thereon to such date.
The main
covenants on this loan agreement are limitations on liens and encumbrances,
restrictions on investments, limitations on the sale of certain assets and
compliance with financial ratios (such as, leverage ratio and debt service
coverage ratio calculated in the Company’s consolidated and unconsolidated
financial statements, respectively). In addition, the Company’s syndicated loan
agreement was secured with a pledge of 100% of Hydril’s shares, percentage to be
reduced proportionally immediately upon each payment or prepayment under this
agreement and to be completely released immediately after the aggregate
outstanding principal amount of the loan is less than or equal to USD 600.0
million. Consequently, after Tenaris’s prepayment of tranche B, the Company is
entitled of reducing proportionally the number of shares pledged in
connection
Note
14 – Borrowings (Cont’d)
Syndicated
loan agreement for Hydril acquisition (Cont’d)
therewith.
Additionally, the Company was allowed to make payments such as dividends,
repurchase or redemption of shares up to the greater of USD 475.0 million
or 25% of the consolidated operating profit for the previous fiscal year at
any time that the outstanding aggregate principal amount of this facility
exceeds USD 1.0 billion. As a result of Tenaris’s prepayment of tranche B, such
restriction ceased to apply.
As of
December 31, 2007, Tenaris was in compliance with all of its
covenants.
Syndicated
loan agreement for Maverick acquisition
On
October 5, 2006, Tenaris and some of its subsidiaries completed the acquisition
of Maverick, pursuant to which Maverick was merged with and into a wholly owned
subsidiary of Tenaris. On
that date, Tenaris and some of its subsidiaries paid USD 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 USD 3.2 billion, including
Maverick’s financial debt.
To
finance the acquisition and the payment of related obligations, the Company and
certain Tenaris entities entered into syndicated loan facilities in an aggregate
amount of USD 2.7 billion (USD 0.5 billion allocated in Tenaris and the balance
in subsidiaries). The balance of the transaction 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 initially pledged, percentage to be reduced
immediately upon each payment or prepayment under the Company loan agreement, 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 USD 250.0 million. In addition, Tamsa and Siderca S.A.I.C. granted drag-along
rights in favor of the lenders under the Company loan agreement with respect to
the remaining 25% of the issued and outstanding shares of capital stock of
Maverick.
The
Company syndicated loan facility in an aggregate principal amount of USD 0.5
billion was prepaid in its entirety in May 2007. As a result of such prepayment
the pledge on Maverick’s shares was fully released and the drag-along rights in
favor of the lenders were terminated.
Interest
expense in the profit and loss account for the financial year ended December 31,
2007 also includes the interest corresponding to the syndicated loan entered
into for the acquisition of Maverick.
Interest
rate collars
To
partially hedge future interest payments of the Company and its subsidiaries, as
well as to minimize the effect of floating rates, Tenaris has entered into a
number of zero cost interest rate collars. In these contracts 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, to the extent that it is lower than the floor or greater than
the cap established in such contracts; ranging from 4.35% to 5.40%,
respectively. A total notional amount of USD 800.0 million was covered by these
instruments, of which USD 200.0 million remain open until the next interest rate
fixing dates, which shall occur in May 2008.
Note
15 – Administrative and general expenses
|
2007
|
2006
|
|||||||
|
USD
|
USD
|
|||||||
|
Services
and fees
|
4,730,244 | 7,133,128 | ||||||
|
Board
of directors' accrued fees
|
4,435,371 | 2,173,500 | ||||||
|
Labor
cost
|
121,474 | 104,306 | ||||||
|
Others
|
818,666 | 270,265 | ||||||
| 10,105,755 | 9,681,199 | |||||||
Note
16 – Dividend income
During
the financial year, the Company received the following dividends from its
subsidiaries and associated companies:
|
2007
|
2006
|
|||||||
|
USD
|
USD
|
|||||||
|
Siderca
S.A.I.C.
|
675,203,612 | - | ||||||
|
Tubos
de Acero de México S.A.
|
427,671,301 | 259,826,520 | ||||||
|
Tenaris
Global Services S.A.
|
100,000,000 | 280,000,000 | ||||||
|
Tenaris
Connections A.G.
|
74,347,493 | 19,500,000 | ||||||
|
Tenaris
Investments Limited
|
39,000,000 | - | ||||||
|
Talta
- Trading e Marketing, Sociedade Unipessoal Lda.
|
31,540,185 | - | ||||||
|
Sidtam
Ltd.
|
12,376,866 | 7,504,764 | ||||||
|
Ternium
S.A.
|
11,485,660 | - | ||||||
| 1,371,625,117 | 566,831,284 | |||||||
Note 17 – Interest income –
Intercompany
During
the financial year, the Company accrued the following interest from its loans to
and time deposits with subsidiaries:
|
2007
|
2006
|
|||||||
|
USD
|
USD
|
|||||||
|
Hydril
Company
|
33,428,936 | - | ||||||
|
Talta
- Trading e Marketing, Sociedade Unipessoal Lda.
|
4,670,600 | 7,883,175 | ||||||
|
Tenaris
Global Services S.A.
|
1,155,803 | - | ||||||
|
Maverick
Tube Corporation
|
87,504 | - | ||||||
|
Tenaris
Investments Limited
|
8,149 | 4,634,988 | ||||||
|
Tenaris
Financial Services S.A.
|
6,784 | 80,106 | ||||||
|
Ternium
S.A.
|
- | 146,871 | ||||||
| 39,357,776 | 12,745,140 | |||||||
Note
18 – Interest income – Third parties
During
the financial year, the Company accrued the following interest from its short
term investments:
|
2007
|
2006
|
|||||||
|
USD
|
USD
|
|||||||
|
Liquidity
funds
|
10,997,426 | 11,867,442 | ||||||
|
Agency
Bonds
|
44,125 | 2,396,089 | ||||||
| 11,041,551 | 14,263,531 | |||||||
Note 19 – Contingencies and Off balance sheet
commitments
Maverick
litigation
On
December 11, 2006, The Bank of New York (“BNY”), as trustee for the holders of
Tenaris’s subsidiary Maverick 2004 4% Convertible Senior Subordinated Notes due
2033 issued pursuant to an Indenture between Maverick and BNY (“Noteholders”),
filed a complaint against Maverick and Tenaris in the United States District
Court for the Southern District of New York. The complaint alleges that
Tenaris’s acquisition of Maverick triggered the “Public Acquirer Change of
Control” provision of Indenture, asserting breach of contract claim against
Maverick for refusing to deliver the consideration specified in the “Public
Acquirer Change of Control” provision of the Indenture to Noteholders who
entered their notes for such consideration. This complaint seeks a declaratory
judgement that Tenaris’s acquisition of Maverick was a “Public Acquirer Change
of Control” under the Indenture, and asserts claims for tortuous interference
with contract and unjust enrichment against Tenaris. Defendants filed a motion
to dismiss the complaint, or in the alternative, for summary judgment on March
13, 2007. Plaintiff filed a motion for partial summary judgment on the same
date. Briefing on the motions has been completed. Because Law Debenture Trust
Company of New York (“Law Debenture”) has succeeded BNY as trustee under the
Indenture, on January 25, 2008 plaintiff and defendant have submitted a
stipulation on the court substituting Law Debenture for BNY.
Tenaris
believes that these claims are without merit. Accordingly, no provision was
recorded in these accounts. Were plaintiff to prevail, Tenaris estimates that
the recovery would be approximately USD 50.0 million.
Maverick
Convertible Senior Subordinated Notes’ guarantee
In
addition to the covenants of the syndicated loan agreement mentioned in Note 14,
and as result of the Maverick acquisition, the Company has fully and
unconditionally guaranteed to each holder of 1.875% Convertible Senior
Subordinated Notes (the “Notes”) issued by Maverick on November 15, 2005 and due
in 2025, the due and punctual payment of the principal of and any premium and
interest on such Notes.
Note 20 – Parent Company
Pursuant
to recent Luxembourg legislation implementing the EU Transparency Directive, San
Faustín N.V. has notified the Company that it owns 713,605,187 shares in the
Company, representing 60.4% of the Company’s capital and voting rights. San
Faustín N.V. owns all of its shares in the Company through its wholly-owned
subsidiary I.I.I. Industrial Investments Inc.. Rocca & Partners S.A.
controls a significant portion of the voting power of San Faustín N.V. and has
the ability to influence matters affecting, or submitted to a vote of the
shareholders of, San Faustín N.V., such as the election of directors, the
approval of certain corporate transactions and other matters concerning the
company’s policies. There are no controlling shareholders for Rocca &
Partners S.A.. Tenaris’ directors and executive officers as a group own 0.2% of
the Company’s outstanding shares, while the remaining 39.4% are publicly
traded.
|
Ricardo
Soler
|
|
|
Chief
Financial Officer
|
Corporate
Information
Registered
Office
46A,
avenue John F. Kennedy
L-1855
Luxembourg
(352) 26
47 89 78 tel
(352) 26
47 89 79 fax
Principal
Executive Offices
Av. L. N.
Alem 1067 27th Floor
(C1001AAF)
Buenos Aires, Argentina
(54) 11
4018 4100 tel
(54) 11
4018 1000 fax
Edificio
Parque Reforma
Campos
Elíseos 400 17th Floor
11560
Mexico, D.F.
(52) 55
5282 9900 tel
(52) 55
5282 9961 fax
Piazza
Caduti 6 Luglio 1944, 1
24044
Dalmine (Bergamo)
Italia
Tel: +39
035 560 1111
Fax: +39
035 560 3827
2200 West
Loop South, Suite 800
Houston,
TX 77027
Phone:
(1) 713-767-4400
Fax: (1)
713-767-4444
Investor
Information
Investor
Relations Director
Nigel
Worsnop
General
Inquiries
investors@tenaris.com
Phones
USA 1 888
300 5432
Argentina
(54) 11 4018 4020
Italy
(39) 02 4384 7654
Mexico
(52) 55 5282 9929
Stock
Information
New York
Stock Exchange (TS)
Bolsa
Mexicana de Valores, S.A. de C.V. (TS)
Mercado
de Valores de Buenos Aires (TS)
Mercato
Telematico Azionario (TEN)
ADS
Depositary Bank
The Bank
of New York Mellon
CUSIP No.
88031M019
Internet
www.tenaris.com