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
April 27, 2010
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 ü 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 ü
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 and the
Company’s 2009 annual report (which includes the Company’s consolidated
financial statements for the years ended December 31, 2009, 2008 and 2007 and
the Company’s annual accounts as at December 31, 2009, together with the
independent auditors’ reports and the Board of Directors’ management report and
certification).
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:
April 27, 2010
Tenaris,
S.A.
By: /s/ Cecilia
Bilesio
Cecilia
Bilesio
Corporate
Secretary
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 2, 2010, 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 consolidated 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 2009 annual report (which includes the Company’s
consolidated financial statements for the years ended December 31, 2009, 2008
and 2007, and the Company’s annual accounts as at December 31, 2009, together
with the independent auditors’ reports and the Board of Directors’ management
report and certifications), 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 any other 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 23,
2010
Re:
TENARIS S.A.
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To:
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Registered
Holders of American Depositary Receipts
(“ADRs”)
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for
ordinary shares, US$1 Par Value (the “Shares”),
of
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Tenaris
S.A. (the “Company”):
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The
Company has announced that its Annual General Meeting of Shareholders (the
“Meeting”) will be held on June 2, 2010, 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 the Meeting, is enclosed.
The
Notice of Annual General Meeting of Shareholders, the Shareholder Meeting
Brochure and Proxy Statement, and the Company’s 2009 annual report (which
includes the Company’s consolidated financial statements for the years ended
December 31, 2009, 2008 and 2007, and the Company’s annual accounts as at
December 31, 2009, together with the independent auditors’ reports and the Board
of Directors’ management report and certifications), are available on the
Company’s 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 each of April 23, 2010, and May 17, 2010, 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 Shares represented by such
holder’s ADRs. Although voting instructions are sent to ADR holders
and proxy materials are available on the Company’s website beginning on April
23, 2010, only those holders of record at each of April 23, 2010, and May 17,
2010, 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 17, 2010,
will be counted for voting instruction purposes. Eligible ADR holders who
desire to give voting instructions with respect to their Shares represented by
their ADRs 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 5:00
p.m., New York City time, on May 27, 2010, then it shall vote, or cause
to be voted, the Shares represented by such ADRs in the manner prescribed by the
instructions. However, if by 5:00 p.m., New York time, on May 27, 2010, the
Depositary receives no instructions from the holder of ADRs, or the instructions
received by the Depositary are not in proper form, then the Depositary shall
deem such ADR holder to have instructed the Depositary to vote the Shares represented by any
such ADRs in favor of any proposals or recommendations of the Company,
for which purposes the Depositary shall issue a proxy to a person appointed by
the Company to vote such Shares represented by such ADRs in favor of any
proposals or recommendations of the Company (including any recommendation by the
Company to vote such Shares represented by such ADRs on any given issue in
accordance with the majority shareholder vote on that issue). No proxy shall be
given, and no instruction shall be deemed given, with respect to any matter as
to which the Company informs the Depositary that (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 entitled to provide the Depositary with voting instructions in
respect of the Shares represented by its ADRs, is also 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 5:00 p.m., New York time, on May 27, 2010. 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 5:00 P.M. (NEW YORK CITY TIME) ON MAY 27,
2010.
THE BANK OF NEW YORK
MELLON
Depositary
April 23,
2010
New York,
New York
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 2,
2010
Notice is
hereby given to holders of ordinary shares (the “Shares”) of Tenaris S.A. (the
“Company”) that the Annual General Meeting of Shareholders (the “Meeting”) will
be held on June 2, 2010, at 11:00 a.m. (Central European Time). The Meeting will
be held at 46A, avenue John F. Kennedy L-1855 Luxembourg. In the 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’ management report and certifications and the
independent auditors’ reports on the Company’s consolidated financial
statements for the years ended December 31, 2009, 2008 and 2007, and the
Company’s annual accounts as at December 31,
2009.
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2.
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Approval
of the Company’s consolidated financial statements for the years ended
December 31, 2009, 2008 and 2007.
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3.
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Approval
of the Company’s annual accounts as at December 31,
2009.
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4.
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Allocation
of results and approval of dividend payment for the year ended December
31, 2009.
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5.
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Discharge
of the members of the Board of Directors for the exercise of their mandate
during the year ended December 31,
2009.
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6.
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Election
of members of the Board of
Directors.
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7.
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Compensation
of members of the Board of
Directors.
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8.
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Appointment
of the independent auditors for the fiscal year ending December 31, 2010
and approval of their fees.
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9.
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Authorisation
to the Company, or any subsidiary, to from time to time purchase, acquire
or receive shares of the Company, in accordance with Article 49-2 of the
Luxembourg law of 10 August 1915 and with applicable laws and
regulations.
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10.
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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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Pursuant
to the Company’s Articles of Association, resolutions at the Meeting will be
passed by a simple majority of the votes cast, irrespective of the number of
Shares present or represented.
Procedures
for Attending the Meeting
Any
shareholder registered in the Company’s share register on May 28, 2010 (the
“Record Date”) shall be admitted to the Meeting and may attend the Meeting in
person.
Any
shareholder registered in the Company’s share register on the Record Date may
also vote by proxy. To vote by proxy, holders of Shares must file a completed
proxy form not later than 4:00 p.m. (local time) on the Record Date at any of
the addresses indicated below or, 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 holding their Shares through fungible securities accounts wishing to
attend the Meeting in person must present a certificate (issued by the financial
institution or professional depositary holding such Shares) evidencing deposit
of their Shares and certifying the number of Shares recorded in the relevant
account as of the Record Date. Certificates certifying the number of
Shares recorded in the relevant account as of a date other than the Record Date
will not be accepted and such shareholders will not be admitted to the
Meeting. Each certificate must (i) indicate the stock exchange on
which the Shares evidenced by such certificate trade, and (ii) in case of
certificates evidencing Shares trading on the Argentine or Italian stock
exchanges, certify that such Shares have been blocked for trading until the date
of the Meeting. Certificates must be filed not later than 4:00 p.m.
(local time) on the Record Date, at any of the addresses indicated below or, in
the case of Shares held through fungible securities accounts 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 holding their Shares through fungible securities accounts may also
vote by proxy. To do so, holders of Shares must present a certificate (issued by
the financial institution or professional depositary holding such Shares)
evidencing deposit of their Shares and certifying the number of Shares recorded
in the relevant account as of the Record Date. Certificates certifying the
number of Shares recorded in the relevant account as of a date other than the
Record Date will not be accepted and such shareholders will not be admitted to
the Meeting. Each certificate must (i) indicate the stock exchange on
which the Shares evidenced by such certificate trade, and (ii) in case of
certificates evidencing Shares trading on the Argentine or Italian stock
exchanges, certify that such Shares have been blocked for trading until the date
of the Meeting. In addition, such holders of Shares wishing to vote
by proxy must also present a completed proxy form. Such certificate and proxy
form must be filed not later than 4:00 p.m. (local time) on the Record Date, at
any of the addresses indicated below and, in the case of Shares held through
fungible securities accounts in Mexico, with S.D. Indeval, S.A. de C.V. (Paseo
de la Reforma #255, 2o. y 3er. piso Col. Cuauhtémoc, Mexico City).
In the
event of Shares owned by a corporation or any other legal entity, individuals
representing such entity who wish to attend the Meeting in person and vote at
the Meeting on behalf of such entity, must present evidence of their authority
to attend, and vote at, the Meeting by means of a proper document (such as a
general or special power-of-attorney) issued by the respective
entity. A copy of such power of attorney or other proper document
must be filed not later than 4:00 p.m. (local time) on the Record Date, at any
of the addresses indicated below. The original documentation evidencing the
authority to attend, and vote at, the Meeting, or a notarized and legalized copy
thereof, must be presented at the Meeting.
Luxembourg: 46A,
Avenue John F. Kennedy
L-1855
Luxembourg
Attn:
Adélia Soares
Argentina: c/o
Siderca S.A.I.C.
Carlos
María della Paolera 299, piso 16°
(C1001ADA)
Buenos Aires
Attn:
Horacio de las Carreras and/or Eleonora Cimino
Italy: c/o
Dalmine S.p.A.
Piazza
Caduti 6 luglio 1944 n. 1 24044
Dalmine
(BG)
Attn:
Marco Tajana and/or Teresa Gaini
Mexico: c/o
Tubos de Acero de México, S.A.
Campos
Elíseos 400-17
Col.
Chapultepec Polanco
11560
México D.F.
Attn:
Félix Todd and/or Cecilia Pérez Valencia
Those
shareholders who have sold their Shares between the Record Date and the date of
the Meeting cannot attend the Meeting or vote by proxy. In case of breach of
such prohibition, criminal sanctions may apply.
Holders
of American Depositary Receipts (“ADRs”) as of each of April 23, 2010, and May
17, 2010, 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 represented by such holder’s ADRs. Although voting instructions
are sent to holders and proxy materials are available on the Company’s website
beginning on April 23, 2010, only those holders of record as of each of April
23, 2010 and May 17, 2010, 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 17, 2010, will be counted for voting instruction
purposes. Eligible ADR holders who desire to give voting instructions with
respect of the Shares represented by their ADRs 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 5:00 p.m., New York City time, on May 27, 2010.
Under
Luxembourg legislation implementing the EU Transparency Directive, investors in
the Company’s securities should notify the Company and the Luxembourg Commission
de Surveillance du Secteur Financier (CSSF) on an ongoing basis whenever their
direct or indirect ownership or other control rights over shares of the
Company’s capital or rights to vote such shares either reaches, exceeds or falls
below any of the following thresholds: 5%, 10%, 15%, 20%, 25%, 33.33%, 50% and
66.66%. The total number of issued and outstanding shares and votes set forth in
the second paragraph of the Shareholder Meeting Brochure and Proxy Statement
should be used for purposes of determining whether an investor reaches or
exceeds each such threshold. Any such notification shall be made as indicated in
the Company’s website at www.tenaris.com/investors and in accordance with CSSF
regulations. Failure to make such notification will cause the suspension of the
exercise of voting rights relating to the shares exceeding the fraction that
should have been notified.
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
(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 any other jurisdiction), 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 April 23, 2010, 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 2009 annual
report (including the Company’s consolidated financial statements for the years
ended December 31, 2009, 2008 and 2007, and the Company’s annual accounts as at
December 31, 2009, together with the independent auditors’ reports and
management report and certifications, 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 (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 any other jurisdiction).
Cecilia
Bilesio
Secretary
to the Board of Directors
April 23,
2010
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 2, 2010
This
Shareholder Meeting Brochure and Proxy Statement is furnished by Tenaris S.A.
(the “Company”) in connection with the Annual General Meeting of Shareholders
(the “Meeting”) to be held, for the purposes set forth in the accompanying
Notice of the Annual General Meeting of Shareholders (the “Notice”), on June 2,
2010, starting at 11:00 a.m., at 46A, avenue John F. Kennedy L-1855
Luxembourg.
As of
April 23, 2010, there were issued and outstanding 1,180,536,830 ordinary shares,
US$1 par value each, of the Company (the “Shares”), including the Shares (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
Share entitles the holder thereof to one vote at the Meeting.
Any
shareholder registered in the Company’s share register on May 28, 2010 (the
“Record Date”) shall be admitted to the Meeting and may attend the Meeting in
person. Any shareholder registered in the Company’s share register on the Record
Date may also vote by proxy. To vote by proxy, holders of Shares must file a
completed proxy form not later than 4:00 p.m. (local time) on the Record Date at
any of the addresses indicated in the Notice.
Holders
of Shares holding their Shares through fungible securities accounts wishing to
attend the Meeting in person must present a certificate (issued by the financial
institution or professional depositary holding such Shares) evidencing deposit
of their Shares and certifying the number of Shares recorded in the relevant
account as of the Record Date. Certificates certifying the number of
Shares recorded in the relevant account as of a date other than the Record Date
will not be accepted and such shareholders will not be admitted to the
Meeting. Each certificate must (i) indicate the stock exchange on
which the Shares evidenced by such certificate trade, and (ii) in case of
certificates evidencing Shares trading on the Argentine or Italian stock
exchanges, certify that such Shares have been blocked for trading until the date
of the Meeting. Certificates must be filed not later than 4:00 p.m.
(local time) on the Record Date, at any of the addresses indicated in the
Notice.
Holders
of Shares holding their Shares through fungible securities accounts may also
vote by proxy. To do so, such holders of Shares must present a certificate
(issued by the financial institution or professional depositary holding such
Shares) evidencing deposit of their Shares and certifying the number of Shares
recorded in the relevant account as of the Record Date. Certificates certifying
the number of Shares recorded in the relevant account as of a date other than
the Record Date will not be accepted and such shareholders will not be admitted
to the Meeting. Each certificate must (i) indicate the stock exchange
on which the Shares evidenced by such certificate trade, and (ii) in case of
certificates evidencing Shares trading on the Argentine or Italian stock
exchanges, certify that such Shares have been blocked for trading until the date
of the Meeting. In addition, such holders of Shares must also present
a completed proxy form. Such certificate and proxy form must be filed not later
than 4:00 p.m. (local time) on the Record Date, at any of the addresses
indicated in the Notice.
In the
event of Shares owned by a corporation or any other legal entity, individuals
representing such entity who wish to attend the Meeting in person and vote at
the Meeting on behalf of such entity, must present evidence of their authority
to attend, and vote at, the Meeting by means of a proper document (such as a
general or special power-of-attorney) issued by the respective
entity. A copy of such power of attorney or other proper document
must be filed not later than 4:00 p.m. (local time) on the Record Date, at any
of the addresses indicated in the Notice. The original documentation evidencing
the authority to attend, and vote at, the Meeting, or a notarized and legalized
copy thereof, must be presented at the Meeting.
Each
holder of ADRs as of each of April 23, 2010, and May 17, 2010, is entitled to
instruct the Depositary, as to the exercise of the voting rights pertaining to
the Shares represented by such holder’s ADRs. Although voting instructions are
sent to holders and proxy materials are available at the Company’s website
beginning on April 23, 2010, only those holders of record as of each of April
23, 2010 and May 17, 2010, 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 17, 2010, will be counted for voting instruction purposes.
Eligible holders of ADRs who wish to give voting instructions in respect of the
Shares represented by their ADRs 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 5:00 p.m., New York City time, on
May 27, 2010, then it shall vote or cause to be voted the Shares underlying such
ADRs in the manner prescribed by the instructions. However, if by 5:00 p.m., New
York time, on May 27, 2010, the Depositary receives no instructions from the
holder of ADRs, or the instructions are not in proper form, then the Depositary
shall deem such ADR holder to have instructed the Depositary to vote the Shares
represented by any such ADRs in favor of any proposals or recommendations of the
Company, for which purposes the Depositary shall issue a proxy to a person
appointed by the Company to vote such Shares represented by such ADRs in favor
of any proposals or recommendations of the Company (including any recommendation
by the Company to vote such underlying shares on any given issue in accordance
with the majority shareholder vote on that issue). No proxy shall be given, and
no instruction shall be deemed given, with respect to any matter as to which the
Company informs the Depositary that (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 entitled to provide the
Depositary with voting instructions in respect of the Shares represented by its
ADRs, is also 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 5:00 p.m., New
York time, on May 27, 2010. No instructions, revocations or revisions thereof
shall be accepted by the Depositary after that time.
Holders
of ADRs maintaining non-certificated positions must follow voting instructions
given by their broker or custodian bank.
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
27, 2010, and June 1, 2010, shall be disregarded for voting
purposes.
Under
Luxembourg legislation implementing the EU Transparency Directive, investors in
the Company’s securities should notify the Company and the Luxembourg Commission
de Surveillance du Secteur Financier (CSSF) on an ongoing basis whenever their
direct or indirect ownership or other control rights over shares of the
Company’s capital or rights to vote such shares either reaches, exceeds or falls
below any of the following thresholds: 5%, 10%, 15%, 20%, 25%, 33.33%, 50% and
66.66%. The total number of issued and outstanding shares and votes set forth in
the second paragraph of this Shareholder Meeting Brochure and Proxy Statement
should be used for purposes of determining whether an investor reaches or
exceeds each such threshold. Any such notification shall be made as indicated in
the Company’s website at www.tenaris.com/investors and in accordance with CSSF
regulations. Failure to make such notification will cause the suspension of the
exercise of voting rights relating to the shares exceeding the fraction that
should have been notified.
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 Meeting will be
passed by simple majority of the votes cast, 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’ management report and certifications
and the independent auditors’ reports on the Company’s consolidated financial
statements for the years ended December 31, 2009, 2008 and 2007, and the
Company’s annual accounts as at December 31, 2009.
The Board
of Directors recommends a vote FOR approval of the Board of Directors’
management report and certifications and the independent auditors’ reports on
the Company’s consolidated financial statements for the years ended December 31,
2009, 2008 and 2007, and the Company’s annual accounts as at December 31, 2009.
The Board of Directors’ management report on such consolidated financial
statements -which has been combined with its management report on the Company’s
annual accounts- management’s certifications and the independent auditors’
reports to such consolidated financial statements and annual accounts are
included in the Company’s 2009 annual report, a copy of which is available on
the Company’s 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 any other jurisdiction).
2. Approval
of the Company’s consolidated financial statements for the years ended December
31, 2009, 2008 and 2007.
The Board
of Directors recommends a vote FOR approval of the Company’s consolidated
financial statements for the years ended December 31, 2009, 2008 and 2007, after
due consideration of the Board of Directors’ management report and
certifications and the independent auditor’s reports on such consolidated
financial statements. The consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in equity and
the notes to such consolidated financial statements are included in the
Company’s 2009 annual report, a copy of which is available on the Company’s
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 any other jurisdiction).
3.
Approval of the Company’s annual accounts as at December 31, 2009.
The Board
of Directors recommends a vote FOR approval of the Company’s annual accounts as
at December 31, 2009, after due consideration of the of the Board of Directors’
management report and certifications and the independent auditor’s reports on
such annual accounts. The balance sheet, the profit and loss account and the
notes to such annual accounts are included in the Company's 2009 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 any other jurisdiction).
4. Allocation
of results and approval of dividend payment for the year ended December 31,
2009.
The Board
of Directors recommends a vote FOR approval of a dividend in U.S. dollars, in
the amount of US$0.34 per Share currently issued and outstanding and US$0.68 per
ADR currently issued and outstanding. As required by Luxembourg law,
this dividend includes the interim dividend of US$0.13 per Share (US$0.26 per
ADR) paid on November 26, 2009. Accordingly, if this dividend proposal is
approved, the Company will make a dividend payment on June 24, 2010, in the
amount of US$ 0.21 per Share currently issued and outstanding and US$ 0.42 per
ADR currently issued and outstanding.
The
aggregate amount of US$ 153,469,787.90 distributed as interim dividend on
November 26, 2009, was paid from reserves of earnings from the nine-month period
ended September 30, 2009. The aggregate amount of US$ 247,912,734.30 to be
distributed as dividend on June 24, 2010, is to be paid from profits earned
during the year ended December 31, 2009. 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 be
authorized to determine or amend, in its discretion, the terms and conditions of
the dividend payment.
5.
Discharge to the members of the Board of Directors for the exercise of their
mandate during the year ended December 31, 2009.
In
accordance with applicable Luxembourg law and regulations, it is proposed that,
upon approval of the Company’s annual accounts as at December 31, 2009, the
members of the Board of Directors be discharged from any liability in connection
with the management of the Company’s affairs during such year.
6. Election
of the members of the Board of Directors.
The
Company’s Articles of Association provide for the annual election by the
shareholders
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 the
Company’s Articles of Association and 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 number of members of the Board of Directors be maintained at
ten and that all of the current members of the Board of Directors be re-elected.
Set forth
below is summary biographical information of each of the candidates:
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1.
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Roberto Bonatti. Mr.
Bonatti is a member of the Company’s board of directors. He is a grandson
of Agostino Rocca, founder of the Techint group, a group of companies
controlled by San Faustin N.V. (“San Faustin”).Throughout his career in
the Techint group he has been involved specifically in the engineering and
construction and corporate sectors. He was first employed by the Techint
group in 1976, as deputy resident engineer in Venezuela. In 1984, he
became a director of San Faustin, and since 2001 he has served as its
president. In addition, Mr. Bonatti currently serves as president of
Tecpetrol S.A. (“Tecpetrol”) and Techint Compañia Técnica Internacional
S.A.C.I. He is also a member of the board of directors of Ternium S.A.
(“Ternium”), Siderca S.A.I.C. (“Siderca”) and Siderar S.A.I.C.
(“Siderar”). Mr. Bonatti is an Italian
citizen.
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2.
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Carlos Condorelli. Mr.
Condorelli is a member of the Company’s board of directors. He served as
our chief financial officer from October 2002 until September 2007.
He is also a board member 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
Tenaris and other Techint group companies, including 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., or Edelap, an Argentine utilities company. Mr. Condorelli is an
Argentine citizen.
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3.
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Carlos Franck. Mr.
Franck is a member of the Company’s board of directors. He is president of
Santa María S.A.I.F. and Inverban S.A., vice president of Siderca and a
member of the board of directors of Techint Financial Corporation N.V.,
III Industrial Investments Inc., Siderar, Tecpetrol and Tecgas N.V. He has
financial, planning and control responsibilities in subsidiaries of San
Faustin. He serves as a member of the Board in the Di Tella University.
Mr. Franck is an Argentine citizen.
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4.
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Roberto Monti. Mr. Monti
is a member of the Company’s board of directors. He is the non-executive
chairman of Trefoil Limited and a member of the board of directors of
Petrobras Energia. He has served as vice president of Exploration
and Production of Repsol YPF and chairman and CEO of YPF. He was also
president of Dowell, a subsidiary of Schlumberger and president of
Schlumberger Wire & Testing division for East Hemisphere Latin
America. Mr. Monti is an Argentine
citizen.
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5.
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Gianfelice Mario Rocca.
Mr. Rocca is a member of the Company’s board of directors. He is a
grandson of Agostino Rocca. He is chairman of the board of directors of
San Faustin, a member of the board of directors of Ternium, president of
the Humanitas Group and president of the board of directors of Techint
Compagnia Tecnica Internazionale S.p.A. and Tenova S.p.A. In
addition, he sits on the board of directors or executive committees of
several companies, including Allianz S.p.A and Buzzi Unicem. He is vice
president of Confindustria, the leading association of Italian
industrialists. He is a member of the Advisory Board of Allianz Group, the
Trilateral Commission and the European Advisory Board of the Harvard
Business School. Mr. Rocca is an Italian
citizen.
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6.
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Paolo Rocca. Mr. Rocca
is chairman of the Company’s board of directors and our chief executive
officer. He is a grandson of Agostino Rocca. He is also chairman of the
board of directors of Tamsa. He is also chairman of the board of directors
of Ternium, director and vice president of San Faustin and director of
Techint Financial Corporation N.V. Mr. Rocca is the chairman of the World
Steel Association and member of the International Advisory Committee of
the NYSE Euronext (New York Stock Exchange). Mr. Rocca is an Italian
citizen.
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7.
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Jaime Serra Puche. Mr.
Serra Puche is a member of the Company’s board of directors. He is
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 is a Mexican citizen.
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8.
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Alberto Valsecchi. Mr.
Valsecchi is a member of the Company’s board of directors. He served as
our chief operating officer from February 2004 until July 2007. He joined
the Techint group in 1968 and has held various positions within Tenaris
and other Techint group companies. He has retired from his executive
positions. He is also a member of the board of directors of San Faustin
and has been elected as the chairman of the board of directors of Dalmine,
a position he assumed in May 2008. Mr. Valsecchi is an Italian
citizen.
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9.
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Amadeo Vázquez y Vázquez.
Mr. Vázquez y Vázquez is a member of the Company’s board of
directors. He is an independent member of the board of directors of Gas
Natural Ban S.A. He is a member 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 the 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 is a Spanish and Argentine
citizen.
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10.
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Guillermo Vogel. Mr.
Vogel is a member of the Company’s board of directors. He is vice chairman
of Tamsa, chairman of Grupo Collado S.A.B. de C.V, vice chairman of
Estilo y Vanidad S.A. de C.V. and 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 Universidad Panamericana and the IPADE. 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 the audit committee of HSBC
(México). Mr. Vogel is a Mexican
citizen.
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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 1st,
2011.
The
Company’s Board of Directors met eleven times during 2009. 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.
7. 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 2010. 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, further, an additional fee of
US$10,000.
8.
Appointment of the independent auditors for the fiscal year ending December 31,
2010, 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 and annual consolidated financial statements
required under Luxembourg law, through PricewaterhouseCoopers S.àr.l., Réviseur
d'entreprises, and, in connection with the Company’s annual and interim
consolidated 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, 2010, to be engaged
until the next Annual General Meeting of Shareholders that will be convened to
decide on the 2010 accounts.
In
addition, the Board of Directors recommends a vote FOR approval of the
independent auditors’ fees for audit, audit-related and other services to be
rendered during the fiscal year ending December 31, 2010, broken-down into five
currencies (Argentine Pesos, Euro, Mexican Pesos, Brazilian reais and U.S.
Dollars), up to a maximum amount for each currency equal to AR$7,533,962,
€472,297, MX$4,237,309, BR$345,000 and US$1,408,735. 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 as
mandated by the Sarbanes-Oxley Act of 2002, other audit-related services, and
other services rendered by the independent auditors. For information purposes,
based on the exchange rate between the U.S. Dollar and each applicable other
currency as of December 14, 2009, the aggregate amount of fees for audit,
audit-related and other services to be rendered by the independent auditors
during the fiscal year ending December 31, 2010, is equivalent to US$4,611,249.
The Board of Directors also recommends that its Audit Committee be authorised to
approve any increase or reallocation of the independent auditors’ fees as may be
necessary, appropriate or desirable under the circumstances.
9.
Authorisation to the Company, or any subsidiary, to from time to time purchase,
acquire or receive shares of the Company, in accordance with Article 49-2 of the
Luxembourg law of 10 August 1915 and with applicable laws and
regulations.
It is
recommended that the authorisation to the Company and to the Company’s
subsidiaries to acquire, from time to time, Shares, including Shares represented
by ADRs (collectively, “Securities”) granted by the General Meeting of
Shareholders held on June 3, 3009, be cancelled and that a new authorization be
granted to the Company and to the Company’s subsidiaries to purchase, acquire or
receive, from time to time, Securities, on the following terms and
conditions:
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1.
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Purchases,
acquisitions or receptions of Securities may be made in one or more
transactions as the Board of Directors or the board of directors or other
governing bodies of the relevant entity, as applicable, considers
advisable.
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2.
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The
maximum number of Securities acquired pursuant to this authorization may
not exceed 10% of the Company’s issued and outstanding Shares or, in the
case of acquisitions made through a stock exchange in which the Securities
are traded, such lower amount as may not be exceeded pursuant to any
applicable laws or regulations of such market. The number of Securities
acquired as a block may amount to the maximum permitted amount of
purchases.
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3.
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The
purchase price per share to be paid in cash may not exceed 125% (excluding
transaction costs and expenses), nor may it be lower than 75% (excluding
transaction costs and expenses), in each case of the average of the
closing prices of the Company’s Securities in the stock exchange through
which the Company’s Securities are acquired, during the five trading days
in which transactions in the Securities were recorded in such stock
exchange preceding (but excluding) the day on which the Company’s
Securities are acquired. For over-the-counter or off-market
transactions, the purchase price per ADR to be paid in cash may not exceed
125% (excluding transaction costs and expenses), nor may it be lower than
75% (excluding transaction costs and expenses), in each case of the
average of the closing prices of the Company’s ADRs in the New York Stock
Exchange during the five trading days in which transactions in ADRs were
recorded in the New York Stock Exchange preceding (but excluding) the day
on which the Company’s ADRs are acquired; and, in the case of acquisition
of Securities, other than in the form of ADRs, such maximum and minimum
purchase prices shall be calculated based on the number of underlying
Shares represented by such ADRs. Compliance with maximum and minimum
purchase price requirements in any and all acquisitions made pursuant to
this authorization (including, without limitation, acquisitions carried
out through the use of derivative financial instruments or option
strategies) shall be determined on and as of the date on which the
relevant transaction is entered into, irrespective of the date on which
the transaction is to be settled.
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4.
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The
above maximum and minimum purchase prices shall, in the event of a change
in the par value of the Shares, a capital increase by means of a
capitalization of reserves, a distribution of Shares under compensation or
similar programs, a stock split or reverse stock split, a distribution of
reserves or any other assets, the redemption of capital, or any other
transaction impacting on the Company’s equity be adapted automatically, so
that the impact of any such transaction on the value of the Shares shall
be reflected.
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5.
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The
acquisitions of Securities may not have the effect of reducing the
Company’s net assets below the sum of the Company’s capital stock plus its
undistributable reserves.
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6.
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Only
fully paid-up Securities may be acquired pursuant to this
authorisation.
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7.
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The
acquisitions of Securities may be carried out for any purpose, as may be
permitted under applicable laws and regulations, including without
limitation to reduce the share capital of the Company, to offer such
shares to third parties in the context of corporate mergers or
acquisitions of other entities or participating interests therein, for
distribution to the Company’s or the Company’s subsidiaries’ directors,
officers or employees or to meet obligations arising from convertible debt
instruments.
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8.
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The
acquisitions of Securities may be carried out by any and all means, as may
be permitted under applicable laws and regulations, including through any
stock exchange in which the Company’s Securities are traded, through
public offers to all shareholders of the Company to buy Securities,
through the use of derivative financial instruments or option strategies,
or in over the counter or off-market transactions or in any other
manner.
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9.
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The
acquisitions of Securities may be carried out at any time, during the
duration of the authorisation, including during a tender offer period, as
may be permitted under applicable laws and
regulations.
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10.
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The
authorisation granted to acquire Securities shall be valid for such
maximum period as may be provided for under applicable Luxembourg law as
in effect from time to time (such maximum period being, as of to date, 5
years).
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11.
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The
acquisitions of Securities shall be made at such times and on such other
terms and conditions as may be determined by the Board of Directors or the
board of directors or other governing bodies of the relevant entity,
provided that, any such purchase shall comply with Article 49-2 et.seq. of the
Luxembourg Law of 10 August 1915 on commercial companies, as amended (or
any successor law) and, in the case of acquisitions of Securities made
through a stock exchange in which the Company’s Securities are traded,
with any applicable laws and regulations of such
market.
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It is
recommended that the Meeting grant this authorization and further grant all
powers to the Board of Directors and to the board of directors or other
governing bodies of the Company’s subsidiaries, in each case with powers to
delegate in accordance with applicable laws, the Company’s Articles of
Association or the articles of association of other applicable organizational
documents of the relevant Company’s subsidiary, to decide on and implement this
authorisation, to define, if necessary, the terms and procedures for carrying
out any purchase, acquisition or reception of Securities, and, in particular, to
place any stock exchange orders, conclude any agreements, including for keeping
registers of purchases and sales of Securities, make any declarations to the
applicable regulatory authorities, carry out all formalities and, generally, do
all such other acts and things as may be necessary, appropriate or desirable
under the circumstances. The Board of Directors is expressly authorized to
delegate to its Chairman, with the latter having the option to sub-delegate to
any other person(s), the performance of the actions entrusted to the Board of
Directors, pursuant to, or in connection with, this authorisation.
10.
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.
* * * * *
The
Company anticipates that the next Annual General Meeting of Shareholders will be
held on June 1, 2011. Any holder of Shares who intends to present a proposal to
be considered at the next Annual General Meeting of Shareholders is requested to
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, 2011, 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
2011 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
TENARIS
S.A.
ANNUAL
REPORT 2009
TABLE
OF CONTENTS
| COMPANY PROFILE | 2 |
| LETTER FROM THE CHAIRMAN | 3 |
| MANAGEMENT REPORT | 5 |
| Leading indicators | 7 |
| Information on Tenaris | 8 |
| TenarisHydril | 13 |
| Tenaris in numbers | 16 |
| Principal Risks and Uncertainties | 18 |
| Operating and Financial Review and Prospects | 20 |
| Recent Developments | 30 |
| Environmental Regulation | 30 |
| Related Party Transactions | 30 |
| Corporate Governance | 30 |
| MANAGEMENT CERTIFICATION | 41 |
| FINANCIAL INFORMATION | 42 |
| Consolidated Financial Statements | 42 |
| Tenaris S.A. Annual Accounts (Luxembourg GAAP) | 105 |
| CORPORATE INFORMATION | 121 |
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.
2
Letter
From The Chairman
Dear
Shareholders,
In 2009,
we felt the impact of the global economic and financial crisis on demand for our
products and services. Pipe shipments were down 41% compared to 2008. Tenaris
responded well, adjusting production levels, reducing working capital and
structural costs, while continuing with our investments to strengthen our
positioning in a more competitive marketplace. Our employees made remarkable
efforts to support the difficult adjustment that we had to execute, when our
average level of plant utilization fell to around 40 % of that in
2008.
Our
results for the year reflect a good performance in spite of the difficult
comparison with the exceptional results of the previous years. With an EBITDA of
$2.3 billion on net sales of $8.1 billion and a strong balance sheet with $0.7
billion in net cash, we are well positioned for the recovery of demand which we
are starting to see particularly in North America and in the Middle
East.
In the US
market, attractive oil prices and the exploitation of leases for productive
shale gas drilling is leading activity higher although rising natural gas
production levels and falling prices may limit the extent of the recovery. At
the same time, OCTG inventories have adjusted to more normal levels after
reaching unsustainable levels following the surge in Chinese imports that took
place in the second half of 2008 and first half of 2009.
In the
Middle East, reactivation in Iraq and the development of deep and sour gas
reserves in various parts of the region is driving activity. Meanwhile, the
adjustment of inventory levels continued in the region in 2009 and inventories
of premium products are now relatively low. We also expect activity levels to
increase in other regions as oil and gas companies increase or maintain their
budgets for exploration and production activity while drilling costs have come
down.
The
investments we have under way position us well for the recovery. In the US, we
have been investing to transform the quality performance of our mills and we are
completing new tubing and finishing facilities. We are currently ramping up
production to meet the increase in demand. The construction of our new rolling
mill in Veracruz is on schedule and we expect to begin operations in October.
Following the agreement we concluded with the unions and the government in
December in Italy, we will now go forward with a significant investment at our
Dalmine mill aimed at increasing product differentiation and improving
industrial efficiency.
With new
production capacity continuing to come into the market all over the world and
global demand for OCTG unlikely to recover the level seen in 2008 any time soon,
the competitive environment over the coming years is expected to be fierce. We
are pleased, however, that the governments of the US, Canada and the European
Union have recognized the injury, and threat thereof, to local industrial
production from subsidized Chinese imports.
A clear
priority is to be close to our customers. Over the past few years, we have been
building up local production and service capabilities in various key markets
around the world. Over the past year, we have integrated into Tenaris, the heat
treatment and premium finishing operations we acquired in Indonesia and have
established a strong local presence. In May, we will start production at our new
premium finishing facility in Saudi Arabia and the recruiting and training of
local personnel is well under way. We will now reinforce this priority by making
Dubai the center of our oil and gas commercial operations of the Eastern
hemisphere.
Notwithstanding
a more difficult competitive environment, the fundamentals of our business
remain solid. We are capable of differentiating our products and services
consistently from those of our competitors, in an environment in which the
demand for more sophisticated products for complex applications is increasing.
The decline in market prices that started towards the end of 2008 has largely
taken its course and the raw material cost dynamics are starting to be reflected
in price increases. We remain confident that Tenaris will continue to perform
strongly.
3
We
propose, however, to adjust the dividend payout to bring it more in line with
the level of results we had this year. Accordingly, we are proposing a dividend
of US$0.34 per share (US$0.68 per ADS), which includes the interim dividend of
US$0.13 per share (US$0.26 per ADS) paid in November. The balance of the
dividend will be payable in June.
As we
went into 2009, the economic and financial crisis was still unfolding and there
was considerable uncertainty as to the depth and course it would take. I wish to
thank our employees for their extraordinary commitment and sense of
responsibility in responding to the crisis and for their efforts to sustain and
enhance the competitive position of the company. I also thank our customers,
suppliers and shareholders for their continuing support and confidence in
Tenaris.
April 22,
2010
Paolo
Rocca
4
Management
Report
CERTAIN
DEFINED TERMS
Unless
otherwise specified or if the context so requires:
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·
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References
in this annual report to “the Company” refer exclusively to Tenaris S.A.,
a Luxembourg joint stock corporation (société anonyme
holding).
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·
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References
in this annual report to “Tenaris”, “we”, “us” or “our” refer to Tenaris
S.A. and its consolidated subsidiaries. See Accounting Policies A, B and L
to our audited consolidated financial statements included in this annual
report.
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·
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References
in this annual report to “San Faustin” refer to San Faustin N.V., a
Netherlands Antilles corporation and the Company’s controlling
shareholder.
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·
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“Shares”
refers to ordinary shares, par value $1.00 of the
Company.
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·
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“ADSs”
refers to the American Depositary Shares, which are evidenced by American
Depositary Receipts.
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·
|
“tons”
refers to metric tons; one metric ton is equal to 1,000 kilograms,
2,204.62 pounds, or 1.102 U.S. (short)
tons.
|
|
·
|
“billion”
refers to one thousand million, or
1,000,000,000.
|
|
·
|
“dollars”,
“U.S. dollars”, “US$” or “$” each refers to the United States
dollar
|
PRESENTATION
OF CERTAIN FINANCIAL AND OTHER INFORMATION
Accounting
Principles
We
prepare our consolidated financial statements in conformity with International
Financial Reporting Standards, as issued by the International Accounting
Standards Board and adopted by the European Union, or IFRS.
We
publish consolidated financial statements expressed in U.S. dollars. Our
consolidated financial statements included in this annual report are those for
the years ended December 31, 2009, 2008 and 2007.
Rounding
Certain
monetary amounts, percentages and other figures included in this annual report
have been subject to rounding adjustments. Accordingly, figures shown as totals
in certain tables may not be the arithmetic aggregation of the figures that
precede them, and figures expressed as percentages in the text may not total
100% or, as applicable, when aggregated may not be the arithmetic aggregation of
the percentages that precede them.
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This
annual report and any other oral or written statements made by us to the public
may contain “forward-looking statements”. Forward looking statements
are based on management’s current views and assumptions and involve known and
unknown risks that could cause actual results, performance or events to differ
materially from those expressed or implied by those statements.
We use
words such as “aim”, “will likely result”, “will continue”, “contemplate”, “seek
to”, “future”, “objective”, “goal”, “should”, “will pursue”, “anticipate”,
“estimate”, “expect”, “project”, “intend”, “plan”, “believe” and words and terms
of similar substance to identify forward-looking statements, but they are not
the only way we identify such statements. This annual report contains
forward-looking statements, including with respect to certain of our plans and
current goals and expectations relating to Tenaris’s future financial condition
and performance. Sections of this annual report that by their nature contain
forward-looking statements include, but are not limited to, “Business Overview”,
“Principal Risks and Uncertainties”, and “Operating and Financial Review and
Prospects”. In addition to the risks related to our business discussed under
“Principal Risks and Uncertainties”, other factors could cause actual results to
differ materially from those described in the forward-looking statements. These
factors include, but are not limited to:
5
|
·
|
our
ability to implement our business strategy or to grow through
acquisitions, joint ventures and other
investments;
|
|
·
|
our
ability to price our products and services in accordance with our
strategy;
|
|
·
|
trends
in the levels of investment in oil and gas exploration and drilling
worldwide;
|
|
·
|
general
macroeconomic and political conditions in the countries in which we
operate or distribute pipes; and
|
|
·
|
our
ability to absorb cost increases and to secure supplies of essential raw
materials and energy.
|
By their
nature, certain disclosures relating to these and other risks are only estimates
and could be materially different from what actually occurs in the future. As a
result, actual future gains or losses that may affect our financial condition
and results of operations could differ materially from those that have been
estimated. You should not place undue reliance on the forward-looking
statements, which speak only as of the date of this annual report. Except as
required by law, we are not under any obligation, and expressly disclaim any
obligation, to update or alter any forward-looking statements, whether as a
result of new information, future events or otherwise.
6
Leading
indicators
|
2009
|
2008
|
2007
|
||||||||||
|
SALES
VOLUMES (thousands of metric tons)
|
||||||||||||
|
Tubes-Seamless
|
1,970 | 2,818 | 2,818 | |||||||||
|
Tubes-Welded
|
346 | 1,057 | 965 | |||||||||
|
Tubes-Total
|
2,316 | 3,875 | 3,783 | |||||||||
|
Projects-Welded
|
334 | 591 | 474 | |||||||||
|
Total
–Tubes+Projects
|
2,650 | 4,466 | 4,257 | |||||||||
|
PRODUCTION
VOLUMES (thousands of metric tons)
|
||||||||||||
|
Tubes-Seamless
|
1,770 | 3,005 | 2,836 | |||||||||
|
Tubes-Welded
|
249 | 999 | 909 | |||||||||
|
Tubes-Total
|
2,019 | 4,004 | 3,745 | |||||||||
|
Projects-Welded
|
291 | 548 | 499 | |||||||||
|
Total
–Tubes+Projects
|
2,310 | 4,552 | 4,244 | |||||||||
|
FINANCIAL
INDICATORS (millions of US$)
|
||||||||||||
|
Net
sales
|
8,149 | 11,988 | 9,874 | |||||||||
|
Operating
income
|
1,814 | 3,126 | 2,917 | |||||||||
|
EBITDA
(1)
|
2,318 | 4,044 | 3,401 | |||||||||
|
Net
income
|
1,208 | 2,276 | 2,076 | |||||||||
|
Cash
flow from operations
|
3,064 | 1,465 | 2,021 | |||||||||
|
Capital
expenditures
|
461 | 443 | 448 | |||||||||
|
BALANCE
SHEET (millions of US$)
|
||||||||||||
|
Total
assets
|
13,483 | 15,101 | 15,245 | |||||||||
|
Total
financial debt
|
1,447 | 2,977 | 4,020 | |||||||||
|
Net
financial debt/ (cash) (2)
|
(676 | ) | 1,392 | 2,970 | ||||||||
|
Total
liabilities
|
3,762 | 6,399 | 7,715 | |||||||||
|
Shareholders’
equity including minority interest
|
9,721 | 8,702 | 7,530 | |||||||||
|
PER
SHARE / ADS DATA (US$ PER SHARE / PER ADS)
|
||||||||||||
|
Number
of shares outstanding (3) (thousands of shares)
|
1,180,537 | 1,180,537 | 1,180,537 | |||||||||
|
Earnings
per share
|
0.98 | 1.80 | 1.63 | |||||||||
|
Earnings
per ADS
|
1.97 | 3.60 | 3.26 | |||||||||
|
Dividends
per share (4)
|
0.34 | 0.43 | 0.38 | |||||||||
|
Dividends
per ADS (4)
|
0.68 | 0.86 | 0.76 | |||||||||
|
ADS
Stock price at year-end
|
42.65 | 20.98 | 44.73 | |||||||||
|
Number
of employees (3)
|
22,591 | 23,873 | 23,372 | |||||||||
|
1.
|
Defined
as operating income plus depreciation, amortization and impairment
charges.
|
|
2.
|
Defined
as borrowings less cash and cash equivalents and other current
investments.
|
|
3.
|
As
of December 31.
|
|
4.
|
Proposed
or paid in respect of the year.
|
7
Information
on Tenaris
Overview
We are a
leading global manufacturer and supplier of steel pipe products and related
services for the world’s energy industry as well as for other industrial
applications. Our customers include most of the world’s leading oil and gas
companies as well as engineering companies engaged in constructing oil and gas
gathering, transportation, processing and power generation facilities. Our
principal products include casing, tubing, line pipe, and mechanical and
structural pipes.
Over the
last two decades, we have expanded our business globally through a series of
strategic investments. We now operate an integrated worldwide network of steel
pipe manufacturing, research, finishing and service facilities with industrial
operations in North and South America, Europe, Asia and Africa and a direct
presence in most major oil and gas markets.
Our
business is organized in two main business segments: Tubes and
Projects.
|
·
|
Tubes
includes our operations that consist in the production, distribution and
sale of seamless and welded tubular products and related services mainly
for energy and select industrial
applications.
|
|
·
|
Projects
includes our operations that consist in the production, distribution and
sale of welded pipes mainly used in the construction of major pipeline
projects.
|
A third
business segment (Others) includes all other business activities and operating
segments that are not required under IFRS to be separately reported, such as the
production, distribution and sale of sucker rods, welded steel pipes for
electric conduits, industrial equipment and raw materials that exceed our
internal requirements.
History
and Development of Tenaris
Tenaris
began with the formation of Siderca S.A.I.C., or Siderca, the sole Argentine
producer of seamless steel pipe products, by San Faustin’s predecessor in
Argentina in 1948. Siat, an Argentine welded steel pipe manufacturer, was
acquired in 1986. We grew organically in Argentina and then, in the early 1990s,
began to evolve beyond this initial base into a global business through a series
of strategic investments. These investments included the acquisition, directly
or indirectly, of controlling or substantial interests in the following
companies:
|
·
|
Tubos
de Acero de México S.A., or Tamsa, the sole Mexican producer of seamless
steel pipe products (June 1993);
|
|
·
|
Dalmine
S.p.A., or Dalmine, a leading Italian producer of seamless steel pipe
products (February 1996);
|
|
·
|
Tubos
de Acero de Venezuela S.A., or Tavsa, the sole Venezuelan producer of
seamless steel pipe products (October 1998)1;
|
|
·
|
Confab
Industrial S.A., or Confab, the leading Brazilian producer of welded steel
pipe products (August 1999);
|
|
·
|
NKKTubes,
a leading Japanese producer of seamless steel pipe products (August
2000);
|
|
·
|
Algoma
Tubes Inc., or AlgomaTubes, the sole Canadian producer of seamless steel
pipe products (October 2000);
|
1 In
2009, the Venezuelan government announced the nationalization of Tavsa. For more
information on the Tavsa nationalization process, see note 32 (b) “Processes in
Venezuela-Nationalization of Venezuelan Subsidiaries” to our consolidated
financial statements included in this annual report.
8
|
·
|
S.C.
Silcotub S.A., or Silcotub, a leading Romanian producer of seamless steel
pipe products (July 2004);
|
|
·
|
Maverick
Tube Corporation, or Maverick, a leading North American producer of welded
steel pipe products with operations in the U.S., Canada and Colombia
(October 2006);
|
|
·
|
Hydril
Company, or Hydril, a leading North American manufacturer of premium
connection products for oil and gas drilling production (May 2007); and
|
|
·
|
Seamless
Pipe Indonesia Jaya, or SPIJ, an Indonesian OCTG processing business with
heat treatment and premium connection threading facilities (April
2009).
|
In
addition, we have established a global network of pipe finishing, distribution
and service facilities with a direct presence in most major oil and gas markets
and a global network of research and development centers.
Business
Overview
Our
business strategy is to continue expanding our operations worldwide and further
consolidate our position as a leading global supplier of high-quality tubular
products and services to the energy and other industries by:
|
·
|
pursuing
strategic investment opportunities in order to strengthen our presence in
local and global markets;
|
|
·
|
expanding
our comprehensive range of products and developing new high-value products
designed to meet the needs of customers operating in increasingly
challenging environments;
|
|
·
|
securing
an adequate supply of production inputs and reducing the manufacturing
costs of our core products; and
|
|
·
|
enhancing
our offer of technical and pipe management services designed to enable
customers to optimize their selection and use of our products and reduce
their overall operating costs.
|
Pursuing
strategic investment opportunities and alliances
We have a
solid record of growth through strategic investments and acquisitions. We pursue
selective strategic investments and acquisitions as a means to expand our
operations and presence in selected markets, enhance our global competitive
position and capitalize on potential operational synergies. For example, we are
building new capacity at our seamless pipe facility in Mexico in order to
enhance our ability to serve local and global markets. Our track record on
companies’ acquisitions is described above (See “History and Development of
Tenaris”).
9
Developing
high-value products
We have
developed an extensive range of high-value products suitable for most of our
customers’ operations using our network of specialized research and testing
facilities and by investing in our manufacturing facilities. As our customers
expand their operations, we seek to supply high-value products that reduce costs
and enable them to operate safely in increasingly challenging
environments.
Securing
inputs for our manufacturing operations
We seek
to secure our existing sources of raw material and energy inputs, and to gain
access to new sources, of low-cost inputs which can help us maintain or reduce
the cost of manufacturing our core products over the long term.
Enhancing
our offer of technical and pipe management services
We
continue to enhance our offer of technical and pipe management services for our
customers worldwide. Through the provision of these services, we seek to enable
our customers to optimize their operations, reduce costs and to concentrate on
their core businesses. They are also intended to differentiate us from our
competitors and further strengthen our relationships with our customers
worldwide through long-term agreements.
Our
Competitive Strengths
We
believe our main competitive strengths include:
|
·
|
our
global production, commercial and distribution capabilities, offering a
full product range with flexible supply options backed up by local service
capabilities in important oil and gas producing and industrial regions
around the world;
|
|
·
|
our
ability to develop, design and manufacture technologically advanced
products;
|
|
·
|
our
solid and diversified customer base and historic relationships with major
international oil and gas companies around the world, and our strong and
stable market shares in the countries in which we have manufacturing
operations;
|
|
·
|
our
human resources around the world with their diverse knowledge and
skills;
|
|
·
|
our
low-cost operations, primarily at state-of-the-art, strategically located
production facilities with favorable access to raw materials, energy and
labor, and 50 years of operating experience; and
|
|
·
|
our
strong balance sheet.
|
Business
Segments
Our
business is organized in two main business segments: Tubes and
Projects.
|
·
|
Tubes
includes our operations that consist in the production, distribution and
sale of seamless and welded tubular products and related services mainly
for energy and select industrial
applications.
|
|
·
|
Projects
includes our operations that consist in the production, distribution and
sale of welded pipes mainly used in the construction of major pipeline
projects.
|
A third
business segment (Others) includes all other business activities and operating
segments that are not required under IFRS to be separately reported, such as the
production, distribution and sale of sucker rods, welded steel pipes for
electric conduits, industrial equipment and raw materials that exceed our
internal requirements.
Our
Products
Our
principal finished products are seamless and welded steel casing and tubing,
line pipe and various other mechanical and structural steel pipes for different
uses. Casing and tubing are also known as oil country tubular goods or OCTG. In
our Projects business segment we also produce large diameter welded steel pipes
for oil and gas pipelines. We manufacture our steel pipe products in a wide
range of specifications, which vary in diameter, length, thickness, finishing,
steel grades, threading and coupling. For most complex applications, including
high pressure and high temperature applications, seamless steel pipes are
usually specified and, for some standard applications, welded steel pipes can
also be used.
10
Casing. Steel casing is used
to sustain the walls of oil and gas wells during and after
drilling.
Tubing. Steel tubing is used
to conduct crude oil and natural gas to the surface after drilling has been
completed.
Line pipe. Steel line pipe is
used to transport crude oil and natural gas from wells to refineries, storage
tanks and loading and distribution centers.
Mechanical and structural
pipes. Mechanical and structural pipes are used by general industry for
various applications, including the transportation of other forms of gas and
liquids under high pressure.
Cold-drawn pipe. The
cold-drawing process permits the production of pipes with the diameter and wall
thickness required for use in boilers, superheaters, condensers, heat
exchangers, automobile production and several other industrial
applications.
Premium joints and couplings.
Premium joints and couplings are specially designed connections used to join
lengths of steel casing and tubing for use in high temperature or high pressure
environments. A significant portion of our steel casing and tubing products are
supplied with premium joints and couplings. We own an extensive range of premium
connections, and following the integration of Hydril’s premium connections
business, we market our premium connection products under the TenarisHydril
brand name. In addition, we hold licensing rights to manufacture and sell the
Atlas Bradford range of premium connections outside of the United
States.
Coiled tubing. Coiled tubing
is used for oil and gas drilling and well workovers and for subsea
pipelines.
Other Products. We also
manufacture sucker rods used in oil extraction activities, industrial equipment
of various specifications and diverse applications, including liquid and gas
storage equipment, and welded steel pipes for electric conduits used in the
construction industry. In addition, we sell raw materials that exceed our
internal requirements.
.
11
Research
and Development
Research
and development, or R&D, of new products and processes to meet the
increasingly stringent requirements of our customers is an important aspect of
our business.
R&D
activities are carried out primarily at our specialized research facilities
located at our Campana plant in Argentina, at our Veracruz plant in Mexico, at
our Dalmine plant in Italy, at the product testing facilities of NKKTubes in
Japan and at the research facilities of the Centro Sviluppo Materiali S.p.A,
or CSM, in Rome. We have an 8% interest in CSM, which was acquired in
1997. Product development and research currently being undertaken are focused on
the increasingly challenging energy markets and include:
|
·
|
proprietary
premium joint products including Dopeless®
technology;
|
|
·
|
heavy
wall deep water line pipe and
risers;
|
|
·
|
proprietary
steels;
|
|
·
|
tubes
and components for the car industry and mechanical
applications;
|
|
·
|
tubes
for boilers; and
|
|
·
|
welded
pipes for oil and gas and other
applications.
|
In
addition to R&D aimed at new or improved products, we continuously study
opportunities to optimize our manufacturing processes. Recent projects in this
area include modeling of rolling and finishing process and the development of
different process controls, with the goal of improving product quality and
productivity at our facilities.
We spent
$62.7 million for R&D in 2009, compared to $77.3 million in
2008.
12
TenarisHydril TenarisHydril is today a byword for a secure source of superior
premium connection technology. The complete TenarisHydril offer is geared towards meeting customer
needs for high-performance applications in even the most extreme environments.
The comprehensive range of premium connections products and services
is the achievement following on from Tenaris's acquisition of Hydril, a leading
manufacturerer of connections for the oil and gas industry in 2007. Together,
under the brand TenarisHydril, we offer an integrated package of products,
services and technical assistance able to perform in the most demanding well
conditions ranging from severe sour enviroments to high pressure and high
temperature conditions as well as extreme locations such as ultra-deep water
wells in the Gulf of Mexico or drilling in the Arctic. TenarisHydril provides
proven market-leading solutions, including both the Blue(TM) Series and Wedge
Series 500(TM) technology to serve the sophisticated needs of today's energy
industry. We have entered into direct agreements built on long-term agreements
with oil and gas engineering companies, many of which now require groundbreaking
technologies to explore new fields in increasingly harsh environments. We
service this challenging market with quality products developed by specialist
teams of highly-qualified industry and technical experts dedicated to finding
solutions by continuous improvement and innovation in our Research &
Development Centers which are located in strategic markets. This global network
of expertise taps into some of the world's leading industrial research
institutions ensuring that the best minds in the field are involved in solving
the problems posed by the complexities of E&P projects with innovative
applications.
Global customer support We have a wide international network of licensed threading shops
enabling it to efficiently service every area where TenarisHydril products are
used. This means that a swift and flexible response can be provided when changes
occur in required specifications and any other unexpected conditions arise
during project operations, ensuring that industry quality standards are met.
Connections are threaded as close as possible to customer operations, at the
manufacturing centers and finishing facilities which form part of the network
designed to provide the flexibility required to meet customer needs. All
facilities are highly qualified and regularly audited by Tenaris technicians to
make sure standards are maintained at all times. Our global technical sales team is made up of experienced engineers
who work with our customers to identify the most appropriate product and
technology solutions for each particular oil and gas drilling environment. Our
engineers not only know how to best apply connections and OCTG products but also
understand how the products interact in different environments and operations,
providing customers with seasoned advice and informed
recommendations.
Our global technical sales team is made up of
experienced engineers who work with our customers to identify the most
appropriate product and technology solutions for each particular oil and gas
drilling environment. Our engineers not only know how to best apply connections
and OCTG products but also understand how the products interact in different
environments and operations, providing customers with seasoned advice and
informed recommendations.
Product technology Our porfolio of TenarisHydril premium connectins is a broad range of
proven products designed to deliver a long-lasting quality performance in the
complicated and tough environments that are part of today's E&P industry
scenario.Manufactured in Tenaris's global network of production facilities,
all products are endorsed by the single integrated quality management system
underlying design, production, treatment and finishing which ensures consistency
and reliability the world over.Furthermore, all of our technology is extensively tested both in our
laboratories and in the field, thus guaranteeing the performance of our premium
connections and also acting as a basis for future R&D work. Our premium connection products are supported by a global network of
field services and licensed threading shops. Dopeless(R) technology Constant research and development of new technologies ensures that
products are at the cutting edge of design and performance. Dopeless(R)
technology is an example of Tenaris's ability to respond to new requirements and
offer customers the opportunity to acquire differential operational and
environmental advantages. Originally designed in response to stringent
environmental requirements for offshore operations in the North Sea, this
technology is free of liquid-based lubricants, using a dope-free coating applied
at the mill guaranteed to last through the life cycle of the connection and
ensuring it remains corrosion-free.Tenaris's unmatched expertise with Dopeless(R) technology is
supported by its global network of field services and technical sales teams
which provide complete well design and running
support.
14
Blue(TM) Series The TenarisHydril Blue(TM) Series incorporates the most advanced
premium connection technolgoy available today and is a product leader in the
OCTG market. Its success in environmentally sensitive and extremely
complex wells has brought it to the forefront of the market. The Series includes
coupled and integral configurations, and is available with Dopeless(R)
technology, which play to the application's strength and reliability as a major
factor in reducing drilling risks. Wedge Series 500(TM) Specifically designed for use where torque strength is critical, the
Wedge Series 500(TM) connections are the leading choice for demanding
applications in which highly deviated wells require strings to be pushed and
rotated into place. Wedge Series 500(TM) connections provide superior
compression and bending resistance and are several times the torque strength of
the other technologies currently available on the market. Full-scale testing and finite element analysis throughout design and
production ensures the connections' structural reliability and an optimum
performance even on pipes with thin walls. This makes them an ideal option for
tight clearance applications, generating cost savings for customers as well as
guaranteeing easy operational handling and an exceptional performance.
Legacy Series TenarisHydril Legacy Series includes tried and proven performers
which have been at the forefront of premium conncetion design and technology for
several decades, providing consistent and reliable service in challenging
drilling environments around the world.
15
Tenaris
in numbers
16
17
Principal
Risks and Uncertainties
We face
certain risks associated to our business and the industry in which we operate.
We are a global steel pipe manufacturer with a strong focus on manufacturing
products and related services for the oil and gas industry. Demand for our
products depends primarily on the level of exploration, development and
production activities of oil and gas companies which is affected by current and
expected future prices of oil and natural gas. Several factors, such as the
supply and demand for oil and gas, and political and global economic conditions,
affect these prices. The recent global financial and economic crisis, which
started in September 2008 and lasted through much of 2009, resulted in a
significant decline in oil and gas prices, affected the level of drilling
activity and triggered efforts to reduce inventories, adversely affecting demand
for our products and services. This had, and to some extent continues to have, a
negative impact on our business, revenues, profitability and financial position.
Similarly, our sales of steel pipe products for pipeline projects have also been
adversely affected, as they depend mainly on the implementation of major
regional projects, which are likely to be adversely affected by changes in
governmental policies, the impact of credit restrictions on our customers’
ability to perform their payment obligations with us and any adverse economic,
political or social developments in our major markets. In turn, increases in the
cost of raw materials and energy may hurt our profitability if we are not able
to recover them through increased prices of our products. We responded to the
crisis by adjusting production levels and reducing working capital and
structural costs. These measures helped us weather the crisis; in addition,
demand, production levels and prices have started to recover in certain segments
and markets; however, the extent, timing and duration of the recovery still
remain uncertain.
We have
significant operations in various countries, including Argentina, Brazil,
Canada, Colombia, Italy, Japan, Mexico, Romania and the United States, and we
sell our products and services throughout the world. Therefore, like other
companies with worldwide operations, we are exposed to risks from fluctuations
in foreign currency exchange rates, interest rates and inflation, governmental
policies regarding spending, exchange controls, regulatory and taxation changes,
and other adverse political, economic or social developments in such countries,
which could affect our revenues, profitability and financial condition. As a
global company, a portion of our business is carried out in currencies other
than the U.S. dollar, which is the Company’s functional currency. As a result,
we are exposed to foreign exchange rate risk, which could adversely affect our
financial position and results of operations.
In
addition, our business and operations have been, and could in the future be,
affected from time to time to varying degrees by political developments, events,
laws and regulations. Both the likelihood of such occurrences and their overall
impact upon us vary greatly from country to country and are not
predictable. On May
22, 2009, Venezuela’s President Hugo Chávez announced the nationalization of
Tavsa, Matesi and Comsigua. In August 2009, Venezuela, acting through the
transition committee appointed by the Venezuelan Ministry of Basic Industries
and Mining, unilaterally assumed exclusive operational control over the assets
of Matesi. In November 2009, Venezuela, acting through PDVSA Industrial S.A. (a
subsidiary of Petroleos de Venezuela S.A.), formally assumed exclusive
operational control over the assets of Tavsa. Our investments in Tavsa, Matesi
and Comsigua are protected under applicable bilateral investment treaties,
including the bilateral investment treaty between Venezuela and the
Belgian-Luxembourgish Union, and Tenaris continues to reserve all of its rights
under contracts, investment treaties and Venezuelan and international law, and
to consent to the jurisdiction of the ICSID in connection with the
nationalization process. However, we can give no assurance that the Venezuelan
government will agree to pay a fair and adequate compensation for our interest
in Tavsa, Matesi and Comsigua, or that any such compensation will be freely
convertible into or exchangeable for foreign currency. We may be forced to
engage in litigation procedures to enforce our rights under contracts,
investment treaties and Venezuelan and international law, and the time, costs
and management efforts associated with such litigation may be significant. For
further information on the nationalization of the Venezuelan subsidiaries, see
note 32 (b) “Processes in
Venezuela-Nationalization of Venezuelan Subsidiaries” to our consolidated
financial statements included in this annual report.
A key
element of our business strategy is to develop and offer higher value-added
products and services and to continuously identify and pursue growth-enhancing
strategic opportunities. Failure to successfully implement our strategy or to
integrate future acquisitions and strategic partnerships could affect our
ability to grow, our competitive position and our sales and profitability. In
addition, failure to agree with our joint venture partner in Japan on the
strategic direction of our joint operations, may have an adverse impact on our
operations in Japan.
18
At
December 31, 2009, we had $1,804.7 million in goodwill corresponding mainly to
the acquisition of Maverick ($771.3 million) and Hydril ($919.9 million). In
2008 we recorded an impairment charge for $502.9 million (of which $394.3
million correspond to Maverick). No impairment charge was recorded in 2009;
however, we cannot assure that further impairment charges will not be required
in the future.
Potential
environmental, product liability and other claims arising from the inherent
risks associated with the products we sell and the services we render, including
well failures, line pipe leaks, bursts and fires, that could result in death,
personal injury, property damage, environmental pollution or loss of production
could create significant liabilities for us. In addition, we are subject to a
wide range of local, provincial and national laws, regulations, permit
requirements and decrees relating to the protection of human health and the
environment and the cost of complying with such regulations as well as
unforeseen environmental liabilities may increase our operating costs or
negatively impact our net worth.
We
conduct business in certain countries known to experience governmental
corruption. Although we are committed to conducting business in a
legal and ethical manner in compliance with local and international statutory
requirements and standards applicable to our business, there is a risk that our
employees or representatives may take actions that violate applicable laws and
regulations that generally prohibit the making of improper payments to foreign
government officials for the purpose of obtaining or keeping business, including
laws relating to the 1997 OECD Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions such as the U.S. Foreign
Corrupt Practices Act.
As a
holding company, our ability to pay expenses, debt service and cash dividends
depends on the results of operations and financial condition of our
subsidiaries, which could be restricted by legal, contractual or other
limitations, including exchange controls or transfer restrictions, and other
agreements and commitments of our subsidiaries.
The
Company’s controlling shareholder may be able to take actions that do not
reflect the will or best interests of other shareholders.
The
Company’s tax-exempt status will terminate on December 31, 2010. If we are
unable to mitigate the consequences of the termination of the preferential tax
regime applying to the Company, we may be subject to a higher tax burden in the
future and our shareholders may be subject to tax withholdings.
Our
financial risk management is described in Section III. Financial Risk
Management, and our provisions and contingent liabilities are described in
accounting policy Q and notes 23, 24 and 26 of our consolidated financial
statements included in this annual report.
19
Operating
and Financial Review and Prospects
The
following discussion and analysis of our financial condition and results of
operations are based on, and should be read in conjunction with, our audited
consolidated financial statements and the related notes included elsewhere in
this annual report. This discussion and analysis presents our financial
condition and results of operations on a consolidated basis. We prepare our
consolidated financial statements in conformity with IFRS, as issued by the IASB
and adopted by the European Union.
Certain
information contained in this discussion and analysis and presented elsewhere in
this annual report, including information with respect to our plans and strategy
for our business, includes forward-looking statements that involve risks and
uncertainties. See “Cautionary Statement Concerning Forward-Looking Statements”.
In evaluating this discussion and analysis, you should specifically consider the
various risk factors identified in “Principal Risks and Uncertainties”, other
risk factors identified elsewhere in this annual report and other factors that
could cause results to differ materially from those expressed in such
forward-looking statements.
Overview
We
are a leading global manufacturer and supplier of steel pipe products and
related services for the energy industry and other industries.
We are a
leading global manufacturer and supplier of steel pipe products and related
services for the world’s energy industry as well as for other industrial
applications. Our customers include most of the world’s leading oil and gas
companies as well as engineering companies engaged in constructing oil and gas
gathering and processing and power facilities. Over the last two decades, we
have expanded our business globally through a series of strategic investments,
and, we now operate an integrated worldwide network of steel pipe manufacturing,
research, finishing and service facilities with industrial operations in North
and South America, Europe, Asia and Africa and a direct presence in most major
oil and gas markets.
Our
main source of revenue is the sale of products and services to the oil and gas
industry, and the level of such sales is sensitive to international oil and gas
prices and their impact on drilling activities.
Demand
for our products and services from the global oil and gas industry, particularly
for tubular products and services used in drilling operations, represents a
substantial majority of our total sales. Our sales, therefore, depend on the
condition of the oil and gas industry and our customers’ willingness to invest
capital in oil and gas exploration and development as well as in associated
downstream processing activities. The level of these expenditures is sensitive
to oil and gas prices as well as the oil and gas industry’s view of such prices
in the future. With the onset of the global economic and financial crisis and
its impact on global consumption of oil and gas, oil and gas prices collapsed in
the second half of 2008. This followed four years during which persistently high
oil and gas prices encouraged oil and gas companies to increase their spending
and drilling activity to offset declining rates of production from mature fields
and to explore and develop new reserves. In 2009, global oil prices rose from
their low of $30 per barrel and subsequently have fluctuated within a $70-$90
per barrel range as global oil demand, led by increased consumption in non-OECD
countries, began to recover in the second half of the year and OPEC producers
adjusted their production output. North American gas prices, however, have
remained low fluctuating within a range of $3-$6 per million BTU. Advances in
drilling technology have encouraged producers to develop productive gas shale
deposits which resulted in an increase in US gas production in 2009 despite a
substantial drop in gas drilling activity. This development has also impacted
gas prices in the rest of the world as it coincides with an increase in LNG
capacity, much of which was built in the expectation of growing demand for gas
imports in the USA. Drilling activity decreased in 2009; the annual average of
the international count of active drilling rigs, published by Baker Hughes,
decreased 8% in 2009 compared to 2008 while the corresponding rig count in the
U.S. and Canada, decreased 42% in 2009 compared to 2008. Oil drilling activity
has since recovered in the US and Canada but gas drilling activity remains at
substantially lower levels than in the five years preceding 2009 due to
extensive drilling of productive shale deposits. Drilling activity in the rest
of the world has also begun to recover.
A growing
proportion of exploration and production spending by oil and gas companies has
been directed at offshore, deep drilling and non-conventional drilling
operations in which high-value tubular products, including special steel grades
and premium connections, are usually specified. Technological advances in
drilling techniques and materials are opening up new areas for exploration and
development. More complex drilling conditions are expected to continue to demand
new and high value products and services in most areas of the
world.
20
We
estimate that apparent demand for OCTG worldwide declined by more than 30% in
2009, reflecting the decline in oil and gas drilling activity and efforts made
to adjust inventory levels, particularly in the US.
With
activity levels now recovering and inventories at more reasonable levels, we can
expect shipments in our Tubes segment to show a recovery in 2010 from the low
level recorded in 2009. In our Projects segment, however, we expect lower
shipments since the order backlog for our large-diameter pipes for pipeline
projects in South America declined throughout the year and ended at a low
level.
Our
business is highly competitive.
The
global market for steel pipes is highly competitive, with the primary
competitive factors being price, quality, service and technology. We sell our
products in a large number of countries worldwide and compete primarily against
European and Japanese producers in most markets outside North America. In the
United States and Canada we compete against a wide range of local and foreign
producers. Competition in markets worldwide has been increasing, particularly
for products used in standard applications, as producers in countries like China
and Russia increase production capacity and enter export markets.
Our
production costs are sensitive to prices of steelmaking raw materials and other
steel products.
We
purchase substantial quantities of steelmaking raw materials, including ferrous
steel scrap, direct reduced iron (DRI), pig iron, iron ore and ferroalloys, for
use in our production of our seamless pipe products. In addition, we purchase
substantial quantities of steel coils and plate for use in the production of our
welded pipe products. Our production costs, therefore, are sensitive to prices
of steelmaking raw materials and certain steel products, which reflect supply
and demand factors in the global steel industry and in the countries where we
have our manufacturing facilities.
The costs
of steelmaking raw materials and of steel coils and plates, which have decreased
steeply during the second half of 2008, as the recessionary environment had an
almost immediate impact on global steelmaking activity, stabilized during the
first part of 2009 and started an upward trend in the second part of 2009. In
the first part of 2010, raw material costs have risen sharply. Pipe prices are
expected to rise following the increase in raw material costs but there can be
no assurance that such price increases will be sufficient to offset raw material
cost increases.
Results
of Operations
The
following discussion and analysis of our financial condition and results of
operations are based on our audited consolidated financial statements included
elsewhere in this annual report. Accordingly, this discussion and analysis
present our financial condition and results of operations on a consolidated
basis. See accounting policies A and B to our audited consolidated financial
statements included in this annual report. The following discussion should be
read in conjunction with our audited consolidated financial statements and the
related notes included in this annual report.
21
|
Thousands
of U.S. dollars (except number of shares and per share
amounts)
|
For
the year ended December 31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Selected
consolidated income statement data
|
||||||||
|
IFRS
|
||||||||
|
Continuing
Operations
|
||||||||
|
Net
sales
|
8,149,320 | 11,987,760 | ||||||
|
Cost
of sales
|
(4,864,922 | ) | (6,698,285 | ) | ||||
|
Gross
profit
|
3,284,398 | 5,289,475 | ||||||
|
Selling,
general and administrative expenses
|
(1,473,791 | ) | (1,787,952 | ) | ||||
|
Other
operating income (expenses), net
|
3,000 | (375,873 | ) | |||||
|
Operating
income
|
1,813,607 | 3,125,650 | ||||||
|
Interest
income
|
30,831 | 48,711 | ||||||
|
Interest
expense
|
(118,301 | ) | (179,885 | ) | ||||
|
Other
financial results
|
(64,230 | ) | (99,850 | ) | ||||
|
Income before
equity in earnings of associated companies and income tax
|
1,661,907 | 2,894,626 | ||||||
|
Equity
in earnings of associated companies
|
87,041 | 89,423 | ||||||
|
Income
before income tax
|
1,748,948 | 2,984,049 | ||||||
|
Income
tax
|
(513,211 | ) | (1,015,334 | ) | ||||
|
Income
for continuing operations (1)
|
1,235,737 | 1,968,715 | ||||||
|
Discontinued
Operations
|
||||||||
|
Income
(loss) for discontinued operations
|
(28,138 | ) | 306,905 | |||||
|
Income
for the year (1)
|
1,207,599 | 2,275,620 | ||||||
|
Income
attributable to (1):
|
||||||||
|
Equity
holders of the Company……………………...
|
1,161,555 | 2,124,802 | ||||||
|
Minority
interest
|
46,044 | 150,818 | ||||||
|
Income
for the year(1)
|
1,207,599 | 2,275,620 | ||||||
|
Depreciation
and amortization
|
(504,837 | ) | (532,934 | ) | ||||
|
Weighted
average number of shares
outstanding
|
1,180,536,830 | 1,180,536,830 | ||||||
|
Basic
and diluted earnings per share for continuing operations
|
1.00 | 1.49 | ||||||
|
Basic
and diluted earnings per share
|
0.98 | 1.80 | ||||||
|
Dividends
per share(2)
|
0.34 | 0.43 | ||||||
|
|
_______________
|
|
(1)
|
International
Accounting Standard No. 1 (“IAS 1”) (revised), requires that income for
the year as shown on the income statement not exclude minority interest.
Earnings per share, however, continue to be calculated on the basis of
income attributable solely to the equity holders of the
Company.
|
|
(2)
|
Dividends
per share correspond to the dividends proposed or paid in respect of the
year.
|
22
|
Thousands
of U.S. dollars (except number of shares)
|
At
December 31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Selected
consolidated balance sheet data
|
||||||||
|
IFRS
|
||||||||
|
Current
assets
|
5,621,841 | 7,252,417 | ||||||
|
Property,
plant and equipment, net
|
3,254,587 | 2,982,871 | ||||||
|
Other
non-current assets
|
4,606,880 | 4,865,424 | ||||||
|
Total
assets
|
13,483,308 | 15,100,712 | ||||||
|
Current
liabilities
|
1,970,470 | 3,790,017 | ||||||
|
Non-current
borrowings
|
655,181 | 1,241,048 | ||||||
|
Deferred
tax liabilities
|
860,787 | 1,053,838 | ||||||
|
Other
non-current liabilities
|
276,034 | 313,922 | ||||||
|
Total
liabilities
|
3,762,472 | 6,398,825 | ||||||
|
Capital
and reserves attributable to the Company’s equity holders
|
9,092,164 | 8,176,571 | ||||||
|
Minority
interest
|
628,672 | 525,316 | ||||||
|
Total
liabilities and equity
|
13,483,308 | 15,100,712 | ||||||
|
Number
of shares outstanding
|
1,180,536,830 | 1,180,536,830 | ||||||
23
|
|
The
following table sets forth our operating and other costs and expenses as a
percentage of net sales for the periods
indicated.
|
|
Percentage
of net sales
|
For
the year ended December 31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Continuing
Operations
|
||||||||
|
Net
sales
|
100.0 | 100.0 | ||||||
|
Cost
of sales
|
(59.7 | ) | (55.9 | ) | ||||
|
Gross
profit
|
40.3 | 44.1 | ||||||
|
Selling,
general and administrative expenses
|
(18.1 | ) | (14.9 | ) | ||||
|
Other
operating income (expenses), net
|
0.0 | (3.1 | ) | |||||
|
Operating
income
|
22.3 | 26.1 | ||||||
|
Interest
income
|
0.4 | 0.4 | ||||||
|
Interest
expense
|
(1.5 | ) | (1.5 | ) | ||||
|
Other
financial results
|
(0.8 | ) | (0.8 | ) | ||||
| Income before equity in earnings of associated companies and income tax | 20.4 | 24.1 | ||||||
|
Equity
in earnings of associated companies
|
1.1 | 0.7 | ||||||
|
Income
before income tax
|
21.5 | 24.9 | ||||||
|
Income
tax
|
(6.3 | ) | (8.5 | ) | ||||
|
Income
for continuing operations
|
15.2 | 16.4 | ||||||
|
Discontinued
Operations
|
||||||||
|
Income
(loss) for discontinued operations
|
(0.3 | ) | 2.6 | |||||
|
Income
for the year
|
14.8 | 19.0 | ||||||
|
Income
attributable to:
|
||||||||
|
Equity
holders of the Company
|
14.3 | 17.7 | ||||||
|
Minority
interest
|
0.6 | 1.3 | ||||||
Fiscal
Year Ended December 31, 2009, Compared to Fiscal Year Ended December 31,
2008
Net
Sales, Cost of Sales and Operating Income
The
following table shows our net sales by business segment for the periods
indicated below:
|
Millions
of U.S. dollars
|
For
the year ended December 31,
|
|||||||||||||||||||
|
2009
|
2008
|
Increase
/ (Decrease)
|
||||||||||||||||||
|
Tubes
|
6,670.9 | 82 | % | 10,010.1 | 84 | % | (33 | %) | ||||||||||||
|
Projects
|
986.5 | 12 | % | 1,270.9 | 11 | % | (22 | %) | ||||||||||||
|
Others
|
491.8 | 6 | % | 706.8 | 6 | % | (30 | %) | ||||||||||||
|
Total
|
8,149.3 | 100 | % | 11,987.8 | 100 | % | (32 | %) | ||||||||||||
The
following table indicates our sales volume of seamless and welded pipes by
business segment for the periods indicated below:
|
Thousands
of tons
|
For
the year ended December 31,
|
|||||||||||
|
2009
|
2008
|
Increase
/ (Decrease)
|
||||||||||
|
Tubes
– Seamless
|
1,970 | 2,818 | (30 | %) | ||||||||
|
Tubes
– Welded
|
346 | 1,057 | (67 | %) | ||||||||
|
Tubes
– Total
|
2,316 | 3,875 | (40 | %) | ||||||||
|
Projects
– Welded
|
334 | 591 | (43 | %) | ||||||||
|
Total
– Tubes + Projects
|
2,650 | 4,466 | (41 | %) | ||||||||
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 for the periods indicated
below:
24
|
Millions
of U.S. dollars
|
For
the year ended December 31,
|
|||||||||||
|
2009
|
2008
|
Increase
/ (Decrease)
|
||||||||||
|
Net
sales
|
||||||||||||
|
-
North America
|
2,756.1 | 4,519.3 | (39 | %) | ||||||||
|
-
South America
|
981.9 | 1,248.7 | (21 | %) | ||||||||
|
-
Europe
|
828.8 | 1,705.6 | (51 | %) | ||||||||
|
-
Middle East & Africa
|
1,622.6 | 1,809.9 | (10 | %) | ||||||||
|
-
Far East & Oceania
|
481.5 | 726.6 | (34 | %) | ||||||||
|
Total
net sales
|
6,670.9 | 10,010.1 | (33 | %) | ||||||||
|
Cost
of sales (% of sales)
|
57 | % | 53 | % | ||||||||
|
Operating
income
|
1,576.8 | 2,827.0 | (44 | %) | ||||||||
|
Operating
income (% of sales)
|
24 | % | 28 | % | ||||||||
Net sales of tubular products and
services decreased 33% to US$6,670.9 million in 2009, compared to
US$10,010.1 million in 2008, due to a sharp reduction in volumes (down 40%).
This reduction in shipments was partially offset by higher average selling
prices (up 12%), reflecting, in part, a higher proportion of sales of
specialized high-end products and the lagged effect of price variations as
average selling prices rose to a peak in the second quarter of 2009. In North
America, notwithstanding higher demand for OCTG products in Mexico, sales
decreased 39%, due primarily to substantially lower demand for OCTG and line
pipe products in the US and Canada, reflecting the decline in drilling activity
and inventory adjustments following the surge in imports of Chinese products in
the second half of 2008 and first half of 2009. In South America, sales
decreased reflecting sharply lower demand from all sectors in Argentina and for
OCTG in Venezuela. In Europe, sales were affected by lower demand from all
sectors, including the process and power plant sector, the industrial and
automotive sector and the oil and gas sector. Sales in the Middle East and
Africa declined by 10% as reduced demand for OCTG products was partially offset
by higher sales of deepwater linepipe products in West Africa. In the Far East
and Oceania, sales decreased in China and demand for all our products decreased
in the rest of the region.
Cost of sales of tubular products
and services,
expressed as a percentage of net sales, rose from 53% to 57%, mainly due
to the negative effect of low production capacity utilization rates, on
efficiency, absorption of fixed and semi-fixed costs and on the time lag between
raw material cost decreases and their impact on the cost of sales.
Operating income from tubular
products and services,
decreased 44% to US$1,576.8 million in 2009, from US$2,827.0 million in
2008, mainly due to a significant decrease in volumes. While operating income in
2008 included impairment charges amounting to US$354.9 million, there was no
impairment charge in 2009.
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 for the periods indicated below:
|
Millions
of U.S. dollars
|
For
the year ended December 31,
|
|||||||||||
|
2009
|
2008
|
Increase
/ (Decrease)
|
||||||||||
|
Net
sales
|
986.5 | 1,270.9 | (22 | %) | ||||||||
|
Cost
of sales (% of sales)
|
71 | % | 70 | % | ||||||||
|
Operating
income
|
208.6 | 249.0 | (16 | %) | ||||||||
|
Operating
income (% of sales)
|
21 | % | 20 | % | ||||||||
Net sales of pipes for pipeline
projects decreased 22% to US$986.5 million in 2009, compared to
US$1,270.9 million in 2008, reflecting a sharp decrease in shipments to gas and
other pipeline projects in Brazil, Argentina and Colombia partially offset by
higher average selling prices particularly for offshore projects in
Brazil.
25
Operating income from pipes for
pipeline projects decreased 16% to
US$208.6 million in 2009, from US$249.0 million in 2008, due to the decrease in
net sales and a stable operating margin.
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 for the periods indicated below:
|
Millions
of U.S. dollars
|
For
the year ended December 31,
|
|||||||||||
|
2009
|
2008
|
Increase
/ (Decrease)
|
||||||||||
|
Net
sales
|
491.8 | 706.8 | (30 | %) | ||||||||
|
Cost
of sales (% of sales)
|
79 | % | 73 | % | ||||||||
|
Operating
income
|
28.1 | 49.6 | (43 | %) | ||||||||
|
Operating
income (% of sales)
|
6 | % | 7 | % | ||||||||
Net sales of other products and
services decreased 30% to US$491.8 million in 2009, compared to US$706.8
million in 2008, mainly due to lower sales of welded pipes for electric conduits
in USA as well as sucker rods.
Operating income from other products
and services, decreased 43% to US$28.1 million in 2009, from US$49.6
million in 2008, due to the decrease in net sales.
Selling, general and administrative
expenses, or SG&A, increased as a percentage of net sales to 18.1% in
2009 compared to 14.9% in 2008, mainly due to the effect of fixed and semi-fixed
expenses over lower revenues. However, in absolute terms SG&A decreased
US$314.2 million to US$1,473.8 million in 2009, from US$1,788.0 million in 2008,
mainly due to lower commissions, freight and other selling expenses, taxes and
labor costs, reflecting lower activity in terms of net sales.
Other operating income and
expenses resulted in net income of US$3.0 million in 2009, compared to a
net loss of US$375.9 million in 2008, which loss was mainly related to
impairment charges at our North American operations.
Net interest expenses
totalled US$87.5 million in 2009, compared to net interest expenses of US$131.2
million in 2008, reflecting the change in our net debt position and lower
interest rates.
Other financial results
generated a loss of US$64.2 million in 2009, compared to a loss of US$99.8
million during 2008. These results largely reflect 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. These losses are
mainly attributable to variations in the exchange rates between our
subsidiaries’ functional currencies (other than the US dollar) and the US dollar
in accordance with IFRS.
Equity in earnings of associated
companies generated a gain of US$87.0 million in 2009, compared to a gain
of US$89.4 million in 2008. These gains were derived mainly from our equity
investment in Ternium S.A., or Ternium.
Income tax charges of
US$513.2 million were recorded during 2009, equivalent to 31% of income before
equity in earnings of associated companies and income tax, like in 2008, when
excluding the effect of impairment losses during the year amounting to US$394.3
million, the tax rate was also 31%.
Results for discontinued
operations reflected a loss of US$28.1 million in 2009, relating to the
discontinuation of Tavsa and Matesi’s operations following their nationalization
by the Venezuelan government, compared to a gain of US$306.9 million in 2008,
relating to income from discontinued operations, mainly derived from the sale of
Hydril’s pressure control business.
Net income decreased to
US$1,207.6 million in 2009, compared to US$2,275.6 million in 2008, mainly
reflecting lower operating results.
26
Income attributable to equity
holders was US$1,161.6 million, or US$0.98 per share (US$1.97 per ADS),
in 2009, compared to US$2,124.8 million, or US$1.80 per share (US$3.60 per ADS)
in 2008.
Income attributable to minority
interest was US$46.0 million in 2009, compared to US$150.8 million in
2008, mainly reflecting lower results at Confab and losses at
NKKTubes.
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 two
years:
|
Millions
of U.S. dollars
|
For
the year ended December 31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Net
cash provided by operating activities
|
3,063.9 | 1,465.0 | ||||||
|
Net
cash provided by (used in) investing activities
|
(1,040.6 | ) | 722.4 | |||||
|
Net
cash (used in) provided by financing activities
|
(2,019.1 | ) | (1,570.4 | ) | ||||
|
Increase
(Decrease) in cash and cash equivalents
|
4.3 | 617.0 | ||||||
|
Effect
of exchange rate changes
|
9.1 | (46.3 | ) | |||||
|
Decrease
in cash due to deconsolidation
|
(9.7 | ) | - | |||||
|
Cash
and cash equivalents at the beginning of year
|
1,525.0 | 954.3 | ||||||
|
Cash
and cash equivalents at the end of year
|
1,528.7 | 1,525.0 | ||||||
Our
financing strategy is to maintain adequate financial resources and access to
additional liquidity. During 2009, we have counted mainly on cash flows from
operations to fund our transactions. 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. Net financial debt during 2009, decreased by $2,068.1
million to a positive net cash position of $675.7 million at December 31, 2009.
We 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.
We have a
conservative approach to the management of our liquidity, which consist mainly
of cash and cash equivalents and other current investments, comprising cash in
banks, short-term money market funds and highly liquid short & medium-term
securities. These assets are carried at fair market value, or at historical cost
which approximates fair market value.
We hold
primarily 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. As of December 31, 2009, U.S. dollar denominated liquid assets
represented around 82%. At December 31, 2009, liquid financial assets as a whole
were 15.8% of total assets (excluding Available for sale assets) compared to
10.2% at the end of 2008.
Cash and
cash equivalents (excluding bank overdraft) increased slightly to $1,542.8
million at December 31, 2009, compared with $1,538.8 million at December 31,
2008. In addition, Other current investments increased $533.8 million to $579.7
million as of December 31, 2009 from $45.9 million as of December 31,
2008.
Fiscal
Year Ended December 31, 2009, Compared to Fiscal Year Ended December 31,
2008
Operating
activities
In 2009,
notwithstanding the decrease in operating income, net cash provided by
operations increased to $3,063.9 million compared to $1,465.0 million in 2008,
primarily reflecting a decrease in working capital. Working capital decreased by
$1,737.3 million in 2009, compared to an increase of $1,051.6 million in 2008.
The decrease in working capital comprised mainly:
27
|
·
|
a
decrease in inventories of $1,414.2 million, reflecting primarily a
decrease in business activity;
|
|
·
|
a
decrease in trade receivables of $792.3 million, mainly due to lower
sales; and
|
|
·
|
a
decrease in trade payables and customer advances of $316.9 million, and
$180.5 million respectively, also due to the lower level of
activity.
|
Investing
activities
Net cash
used in investing activities in 2009 was $1,040.6 million, compared to net cash
provided by investing activities amounting to $722.4 million in 2008, with the
main differences being:
|
·
|
in
2008, we received the proceeds from the sale of Hydril’s pressure control
business, amounting to approximately $1.1 billion; and
|
|
·
|
in
2009, we invested $533.8 million in short term securities, compared to net
proceeds of $41.7 million in 2008.
|
Capital
expenditures increased slightly to $460.9 million in 2009, compared to $443.2
million in 2008.
Financing
activities
Net cash
used in financing activities, including dividends paid, proceeds and repayments
of borrowings, was $2,019.1 million in 2009, compared to $1,570.4 million in
2008.
Dividends
paid, including dividends paid to minority shareholders in subsidiaries,
amounted to $553.7 million in 2009, of which $354 million were paid to equity
holders in respect of the 2008 fiscal year, while $153 million were paid to
equity holders in November 2009, as an interim dividend in respect of the
dividend corresponding to the 2009 fiscal year. This compares to $535.8 million
paid in 2008, of which $295 million were paid in respect of the 2007 fiscal year
and $153 million were paid to equity holders in November 2008, as an interim
dividend for the 2008 fiscal year.
Net
repayments of borrowings (repayments less proceeds) totaled $1,465.4 million in
2009, compared to $1,034.6 million in 2008.
Our total
liabilities to total assets ratio decreased to 0.28:1 as of December 31, 2009,
compared to 0.42:1 as of December 31, 2008.
Principal
Sources of Funding
During
2009, we have counted mainly on cash flows from operations to fund our
transactions and short-term bank borrowings were used as needed throughout the
year.
Financial
liabilities
Total
financial debt decreased by $1,530.3 million to $1,446.8 million at December 31,
2009, from $2,977.0 million at December 31, 2008.
Our
financial liabilities (other than trade payables and derivative financial
instruments) consist mainly of bank loans. As of December 31, 2009 U.S.
dollar-denominated financial debt and Euro-denominated financial debt
represented 73.8% and 6.1%, respectively, of total financial debt. For further
information about our financial debt, please see note 20 “Borrowings” to our
consolidated financial statements included in this annual report.
The
following table shows the composition of our financial debt at December 31, 2009
and 2008:
28
|
Thousands
of U.S. dollars
|
2009
|
2008
|
||||||
|
Bank
borrowings
|
1,422,762 | 2,820,398 | ||||||
|
Bank
overdrafts
|
14,122 | 13,747 | ||||||
|
Other
loans
|
9,294 | 141,938 | ||||||
|
Finance
lease
liabilities
|
586 | 932 | ||||||
|
Total
borrowings
|
1,446,764 | 2,977,015 | ||||||
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,
2009 and 2008. The changes in interest rate are basically due to
changes in floating interest rate.
|
2009
|
2008
|
|||||||
|
Bank
borrowings
|
3.97 | % | 5.23 | % | ||||
|
Other
loans
|
4.00 | % | 4.99 | % | ||||
|
Finance
lease
liabilities
|
8.02 | % | 7.74 | % | ||||
The
maturity of our financial debt is as follows:
|
Thousands
of U.S. dollars
At
December 31, 2009
|
1
year or less
|
1
- 2
years
|
2
– 3 years
|
3
- 4
years
|
4
- 5 years
|
Over
5 years
|
Total
|
|||||||||||||||||||||
|
Financial
lease
|
179 | 324 | 83 | - | - | - | 586 | |||||||||||||||||||||
|
Other
borrowings
|
791,404 | 390,638 | 186,625 | 32,700 | 7,579 | 37,232 | 1,446,178 | |||||||||||||||||||||
|
Total
borrowings
|
791,583 | 390,962 | 186,708 | 32,700 | 7,579 | 37,232 | 1,446,764 | |||||||||||||||||||||
|
Estimated
interests to be accrued
|
39,056 | 13,246 | 8,199 | 3,532 | 2,719 | 7,357 | 74,109 | |||||||||||||||||||||
|
Estimated
interest rate derivative contract
|
12,452 | 5,286 | - | - | - | - | 17,738 | |||||||||||||||||||||
|
Total
borrowings plus estimated interests to be accrued
|
843,091 | 409,494 | 194,907 | 36,232 | 10,298 | 44,589 | 1,538,611 | |||||||||||||||||||||
Our
current debt to total debt ratio decreased from 0.58:1 as of December 31, 2008
to 0.55:1 as of December 31 2009.
For
information on our derivative financial instruments, please see note 25
“Derivative financial instruments” to our audited consolidated financial
statements included in this annual report.
Significant
Borrowings
Our most
significant borrowings as of December 31, 2009 are as follows:
|
Millions
of U.S. dollars
|
|||||||||||
|
Date
|
Borrower
|
Type
|
Original
Principal
Amount
|
Outstanding
Principal
amount
as of
December
31, 2009
|
Maturity
|
||||||
|
March
2005
|
Tamsa
|
Syndicated
loan
|
300.0 | 60.0 |
March
2010
|
||||||
|
September
2006
|
Tamsa
|
Syndicated
loan
|
700.0 | 311.1 |
October
2011(*)
|
||||||
|
September
2006
|
Dalmine
|
Syndicated
loan
|
150.0 | 66.7 |
October
2011(*)
|
||||||
|
April
2007
|
Tenaris
|
Syndicated
loan
|
1,700.0 | 178.6 |
May
2012
|
||||||
|
April
2007
|
Hydril
|
Syndicated
loan
|
300.0 | 166.7 |
May
2012
|
||||||
|
June
2008
|
Dalmine
|
Bilateral
|
150.0 | 150.0 |
June
2013
|
||||||
29
As of
December 31, 2009, Tenaris was in compliance with all of its financial and other covenants.
Recent
Developments
Dividend
payment
In
February 2010, our board of directors proposed, for the approval of the annual
general shareholders’ meeting to be held on June 2, 2010, the payment of an
annual dividend of $0.34 per share ($0.68 per ADS), or approximately $401
million, which includes the interim dividend of $0.13 per share ($0.26 per ADS)
paid in November 2009. If the annual dividend is approved by the shareholders, a
dividend of $0.21 per share ($0.42 per ADS), or approximately $248 million will
be paid on June 24, 2010, with an ex-dividend date of June 21,
2010.
Environmental
Regulation
We are
subject to a wide range of local, provincial and national laws, regulations,
permits and decrees in the countries where we have manufacturing operations
concerning, among other things, human health, discharges to the air and water
and the handling and disposal of solid and hazardous wastes. Compliance with
these environmental laws and regulations is a significant factor in our
business.
We have
not been subject to any material penalty for any material environmental
violation in the last five years, and we are not aware of any current material
legal or administrative proceedings pending against us with respect to
environmental matters which could have an adverse material impact on our
financial condition or results of operations.
Related
Party Transactions
Tenaris
is a party to several related party transactions, which include, among others,
purchases and sales of goods (including steel pipes, flat steel products, steel
bars, raw materials, gas and electricity) and services (including engineering
services and related services) from or to entities controlled by San Faustin or
in which San Faustin holds significant interests. Material related party
transactions are subject to the review of the audit committee of the Company’s
board of directors and the requirements of the Company’s articles of association
and Luxembourg law, as explained below. For further detail on Tenaris’s related
party transactions, see Note 30 “Related party transactions” to our consolidated
financial statements, included in this annual report.
Corporate
Governance
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 required to comply with some, but not all, 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.
30
For a
summary of the significant ways in which our corporate governance practices
differ from the corporate governance standards required for controlled companies
by the exchanges on which our shares trade, please visit our website at
http://www.tenaris.com/investors/
Board
of Directors
Management
of the Company is vested in a board of directors with the broadest power to act on behalf of the
Company and accomplish or authorize all acts and transactions of management and
disposal that are within its corporate purpose and which are not specifically
reserved in the articles of association or by applicable law to the general
shareholders’ meeting. The Company’s articles of association provide for
a board of directors consisting of a minimum
of three and a maximum of fifteen
directors; however, if the Company’s shares are listed on a stock exchange, the
minimum number of directors must be five. The board of directors meets at least
four times per year, or as often as required by the interests of the Company. A
majority of the members of the board constitutes a quorum, and resolutions may
be adopted by the vote of a majority of the directors present or represented. In the case of a tie, the
chairman is entitled to cast the deciding vote.
Directors
are elected at the annual ordinary general shareholders’ meeting to serve
one-year renewable terms, as determined by
the shareholders. The general shareholders’
meeting may dismiss all or any one member of the board of directors at any time,
with or without cause, by resolution passed by a simple majority vote.
for as long as our shares are
listed on at least one stock exchange, the Company must have an audit committee
composed of three members, all of which must qualify as independent directors
under the Company’s articles of association.
Under the
Company’s articles of association, an independent director is a director
who:
|
·
|
is
not and has not been employed by us or our subsidiaries in an executive
capacity for the preceding five
years;
|
|
·
|
is
not a person that controls us, directly or indirectly, and is not a member
of the board of directors of a company controlling us, directly or
indirectly;
|
|
·
|
does
not have (and is not affiliated with a company or a firm that has) a
significant business relationship with us, our subsidiaries or our
controlling shareholder;
|
|
·
|
is
not and has not been affiliated with or employed by a present or former
auditor of us, our subsidiaries or our controlling shareholder for the
preceding five years; and
|
|
·
|
is
not a spouse, parent, sibling or relative up to the third degree of any of
the above persons.
|
The following table sets forth the name of
the Company’s current directors, their respective positions on the board, their
principal occupation, their years of service as board members and their
age.
|
Name
|
Position
|
Principal
Occupation
|
Years
as
Director
|
Age
at
December
31, 2009
|
||||||||
|
Roberto
Bonatti(1)
|
Director
|
President
of San Faustin
|
7 | 60 | ||||||||
|
Carlos
Condorelli
|
Director
|
Director
of Tenaris and Ternium
|
3 | 58 | ||||||||
|
Carlos
Franck
|
Director
|
President
of Santa María
|
7 | 59 | ||||||||
|
Roberto
Monti
|
Director
|
Non-executive
chairman of Trefoil Limited and member of the board of directors of
Petrobras Energia
|
5 | 70 | ||||||||
|
Gianfelice
Mario Rocca(1)
|
Director
|
Chairman
of the board of directors of San Faustin
|
7 | 61 | ||||||||
|
Paolo
Rocca(1)
|
Director
|
Chairman
and chief executive officer of Tenaris
|
8 | 57 | ||||||||
|
Jaime
Serra Puche
|
Director
|
Chairman
of SAI Consultores
|
7 | 58 | ||||||||
|
Alberto
Valsecchi
|
Director
|
Director
of Tenaris
|
2 | 65 | ||||||||
|
Amadeo
Vázquez y Vázquez
|
Director
|
Director
of Gas Natural Ban S.A. and member of Asociación Empresaria
Argentina
|
7 | 67 | ||||||||
|
Guillermo
Vogel
|
Director
|
Vice
chairman of Tamsa
|
7 | 59 | ||||||||
|
|
___________
|
|
(1)
|
Paolo
Rocca and Gianfelice Rocca are brothers, and Roberto Bonatti is Paolo and
Gianfelice Rocca’s first cousin.
|
31
Roberto Bonatti. Mr. Bonatti is a member
of our board of directors. He is a grandson of Agostino Rocca, founder of the
Techint group, a group of companies controlled by San Faustin. Throughout his
career in the Techint group he has been involved specifically in the engineering
and construction and corporate sectors. He was first employed by the Techint
group in 1976, as deputy resident engineer in Venezuela. In 1984, he became a
director of San Faustin, and since 2001 he has served as its president. In
addition, Mr. Bonatti currently serves as president of Tecpetrol S.A. and
Techint Compañia Técnica Internacional S.A.C.I. He is also a member of the board
of directors of Ternium, Siderca and Siderar S.A.I.C., or
Siderar. Mr. Bonatti is an Italian citizen.
Carlos
Condorelli. Mr. Condorelli is a
member of our board of directors. He served as our chief financial officer from
October 2002 until September 2007. He is also a board member 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 Tenaris and other Techint group companies, including
finance and administration director of Tamsa and president of the board of
directors of Empresa Distribuidora La Plata S.A., or Edelap, an Argentine
utilities company. Mr. Condorelli is an Argentine citizen.
Carlos Franck. Mr.
Franck is a member of our board of directors. He is president of Santa María
S.A.I.F. and Inverban S.A., vice president of Siderca and a member of the board
of directors of Techint Financial Corporation N.V., III Industrial Investments
Inc., Siderar, Tecpetrol and Tecgas N.V. He has financial planning and control
responsibilities in subsidiaries of San Faustin. He serves as a member of the
board of the Di Tella University. Mr. Franck is an Argentine
citizen.
Roberto Monti. Mr. Monti is a member of
our board of directors. He is the non-executive chairman of Trefoil Limited and
a member of the board of directors of Petrobras Energia. He has served as
vice president of Exploration and Production of Repsol YPF and chairman and
CEO of YPF. He was also president of Dowell, a subsidiary of Schlumberger
and president of Schlumberger Wire & Testing division for East
Hemisphere Latin America. Mr. Monti is an Argentine citizen.
Gianfelice Mario
Rocca. Mr. Rocca is a member of our board of directors. He is a grandson
of Agostino Rocca. He is chairman of the board of directors of San Faustin, a
member of the board of directors of Ternium, president of the Humanitas Group
and president of the board of directors of Techint Compagnia Tecnica
Internazionale S.p.A. and Tenova S.p.A. In addition, he sits on the
board of directors or executive committees of several companies, including
Allianz S.p.A and Buzzi Unicem. He is vice president of Confindustria, the
leading association of Italian industrialists. He is a member of the Advisory
Board of Allianz Group, the Trilateral Commission and the European Advisory
Board of the Harvard Business School. Mr. Rocca is an Italian
citizen.
Paolo Rocca. Mr. Rocca is chairman of
our board of directors and our chief executive officer. He is a grandson of
Agostino Rocca. He is also chairman of the board of directors of Tamsa. He is
also chairman of the board of directors of Ternium, director and vice president
of San Faustin and director of Techint Financial Corporation N.V. Mr. Rocca is
the chairman of the World Steel Association and member of the International
Advisory Committee of the NYSE Euronext (New York Stock Exchange). Mr. Rocca is
an Italian citizen.
32
Jaime Serra
Puche. Mr.
Serra Puche is a member of our board of directors. He is chairman of SAI
Consultores, a Mexican consulting firm, and a member of the board of directors
of Chiquita Brands International, the Mexico Fund, 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 is a Mexican citizen.
Alberto Valsecchi.
Mr. Valsecchi is a member of our board of directors. He served as our chief
operating officer from February 2004 until July 2007. He joined the Techint
group in 1968 and has held various positions within Tenaris and other Techint
group companies. He has retired from his executive positions. He is also a
member of the board of directors of San Faustin and has been elected as the
chairman of the board of directors of Dalmine, a position he assumed in May
2008. Mr. Valsecchi is an Italian citizen.
Amadeo Vázquez y
Vázquez. Mr.
Vázquez y Vázquez is a member of our board of directors. He is an independent
member of the board of directors of Gas Natural Ban S.A. He is a member 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 the 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 is a Spanish and
Argentine citizen.
Guillermo Vogel. Mr. Vogel is a member of
our board of directors. He is vice chairman of Tamsa, chairman of Grupo
Collado S.A.B. de C.V, vice chairman of Estilo y Vanidad S.A. de C.V. and
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 and the Universidad
Panamericana and the IPADE. 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 the audit committee
of HSBC (México). Mr. Vogel is a Mexican citizen.
Director
Liability
Under
Luxembourg law, a director may be liable to us for any damage caused by
management errors, such as wrongful acts committed during the execution of his
or her mandate, and to the Company, its shareholders and third parties in the
event that the Company, its shareholders or third parties suffer a loss due to
an infringement of either the Luxembourg Company Law or the Company’s articles
of association. Under Luxembourg law, related-party transactions involving
directors may be subject to approval procedures established by Luxembourg law
and are to be reported at the next following shareholders’ meeting.
Under
Luxembourg law, any director having a conflict of interest in respect of a
transaction submitted for approval to the board of directors may not take part
in the deliberations concerning such transaction and must inform the board of
such conflict. Subject to certain exceptions, transactions in which any
directors may have had an interest conflicting with that of the Company must be
reported at the next shareholders’ meeting following any such
transaction.
The
general shareholders meeting may dismiss all or any one member of the board of
directors at any time, with or without cause, by resolution passed by a simple
majority vote, irrespective of the number of shares present or represented at
the meeting.
A
director will not be liable if, notwithstanding his presence at the board
meeting at which a resolution was adopted or notwithstanding his opposition to
that resolution, he advised the board of directors of his knowledge thereto and
caused a record of his statement to be included in the minutes of the meeting.
The director must report his opposition at the next shareholders’ meeting before
any other resolution is voted on.
The
Company may initiate actions against directors for damages with the approval of
shareholders by a vote of more than 50% of votes cast and without the presence
of a quorum. Actions against directors who misappropriate corporate assets or
commit a breach of trust may be brought by any shareholder.
Audit
Committee
The
Company’s board of directors has an audit committee consisting of three members.
On June 3, 2009, the Company’s board of directors reappointed Jaime Serra Puche,
Amadeo Vázquez y Vázquez and Roberto Monti as members of our audit committee.
All three members of the audit committee qualify as independent directors under
the Company’s articles of association.
33
Under the
Company’s articles of association, the audit committee is required to report to
the board of directors on its activities from time to time, and on the adequacy
of the systems of internal control over financial reporting once a year at the
time the annual accounts are approved. In addition, the charter of the audit
committee sets forth, among other things, the audit committee’s purpose and
responsibilities. The audit committee assists the board of directors in its
oversight responsibilities with respect to our financial statements, and the
independence, performance and fees of our independent auditors. The audit
committee also performs other duties entrusted to it by the Company’s board of
directors.
In
addition, the audit committee is required by the Company’s articles of
association to review “material transactions”, as such term is defined under the
Company’s articles of association, to be entered into by the Company or its
subsidiaries with “related parties”, as such term is defined in the Company’s
articles of association, in order to determine whether their terms are
consistent with market conditions or are otherwise fair to the Company and/or
its subsidiaries. In the case of material transactions entered into by the
Company’s subsidiaries with related parties, the Company’s audit committee will
review those transactions entered into by those subsidiaries whose boards of
directors do not have independent members. Confab is currently our only
subsidiary with independent board members.
Under the
Company’s articles of association, as supplemented by the audit committee’s
charter, a material transaction is:
|
·
|
any
transaction between the Company or its subsidiaries with related parties
(x) with an individual value equal to or greater than $10 million, or (y)
with an individual value lower than $10 million, when the aggregate sum –
as reflected in the financial statements of the four fiscal quarters of
the Company preceding the date of determination- of any series of
transactions for such lower value that can be deemed to be parts of a
unique or single transaction (but excluding any transactions that were
reviewed and approved by Company’s audit committee or board of directors,
as applicable, or the independent members of the board of directors of any
of its subsidiaries) exceeds 1.5% of the Company’s consolidated net sales
made in the fiscal year preceding the year on which the determination is
made;
|
|
·
|
any
corporate reorganization transaction (including a merger, spin-off or bulk
transfer of a business) affecting the Company for the benefit of, or
involving, a related party; and
|
|
·
|
any
corporate reorganization transaction (including a merger, spin-off or bulk
transfer of a business) not reviewed and approved by the independent
members of the board of directors of any of the Company’s direct or
indirect subsidiaries, affecting any of the Company’s direct or indirect
subsidiaries for the benefit of, or involving, a related
party.
|
The audit
committee has the power (to the maximum extent permitted by applicable laws) to
request that the Company or relevant subsidiary provide any information
necessary for it to review any material transaction. A related party transaction
shall not be entered into unless (i) the circumstances underlying the proposed
transaction justify that it be entered into before it can be reviewed by the
Company’s audit committee or approved by the board of directors and (ii) the
related party agrees to unwind the transaction if the Company’s audit committee
or board of directors does not approve it.
The audit committee has the
authority to conduct any investigation appropriate to fulfill its
responsibilities, and has direct access to the Company’s internal and external
auditors as well as to the Company’s management and employees and, subject to
applicable laws, its subsidiaries.
34
Senior
Management
Our
current senior management as of April 2010, consists of:
|
Name
|
Position
|
Age
at
December 31, 2009 |
|
Paolo
Rocca
|
Chairman
and Chief Executive Officer
|
57
|
|
Ricardo
Soler
|
Chief
Financial Officer
|
58
|
|
Marcelo
Ramos
|
Technology
Director
|
46
|
|
Alejandro
Lammertyn
|
Commercial
Director
|
44
|
|
Renato
Catallini
|
Supply
Chain Director
|
43
|
|
Marco
Radnic
|
Human
Resources Director
|
60
|
|
Sergio
Tosato
|
Industrial
Coordination Director
|
60
|
|
Carlos
Pappier
|
Planning
Director
|
48
|
|
Germán
Curá
|
North
American Area Manager
|
47
|
|
Sergio
de la Maza
|
Central
American Area Manager
|
53
|
|
Guillermo
Noriega
|
South
American Area Manager
|
59
|
|
Vincenzo
Crapanzano
|
European
Area Manager
|
57
|
|
Claudio
Leali
|
North
East Asia Area Manager
|
59
|
Paolo Rocca. Mr. Rocca is chairman of
our board of directors and our chief executive officer. He is a grandson of
Agostino Rocca. He is also chairman of the board of directors of Tamsa. He is
also chairman of the board of directors of Ternium, director and vice president
of San Faustin and director of Techint Financial Corporation N.V. Mr. Rocca is
the chairman of the World Steel Association and member of the International
Advisory Committee of the NYSE Euronext (New York Stock Exchange). Mr. Rocca is
an Italian citizen.
Ricardo
Soler. Mr Soler currently serves as our chief financial
officer, a position that he assumed in October 2007. Previously he served as
chief executive officer of Hydril and from 1999 until November 2006 served as
managing director of our welded pipe operations in South America and as
executive vice-president of Confab and Siat. He started his career in the
Techint group in 1973 as a planning analyst at Siderar. He served as Siderca’s
financial director from 1993 until 1995. Mr. Soler is an Argentine
citizen.
Marcelo
Ramos. Mr. Ramos currently serves as our technology director,
with responsibility over technology and quality. Previously he served as quality
director and managing director of NKKTubes and our Japanese operations. He
joined the Techint group in 1987 and has held various positions within Tenaris
including quality control director at Siderca. He assumed his current position
in April 2010, when the quality and technology departments were combined. Mr.
Ramos is an Argentine citizen.
Alejandro
Lammertyn. Mr. Lammertyn currently serves as our commercial
director. Previously he served as supply chain director. He began his career
with Tenaris in 1990 as special projects analyst in Siderca. In 2000, he was
assistant to the CEO for marketing, organizational model and mill allocation
matters. He assumed his current position in August 2007. Mr. Lammertyn is an
Argentine citizen.
Renato
Catallini. Mr. Catallini currently serves as our supply chain
director, with responsibility for the execution of all contractual deliveries to
customers. He joined Tenaris in 2001 in the supply management area, as a general
manager of Exiros Argentina. In July 2002, he was appointed operations director
and subsequently, in January 2005, became managing director of Exiros. Before
joining Tenaris, he worked for ten years in the energy sector, working for TGN,
Nova Gas Internacional, TransCanada Pipelines and TotalFinaElf, among others. He
assumed his current position in August 2007. Mr. Catallini is an Argentine
citizen.
Marco
Radnic. Mr. Radnic currently serves as our human resources
director. He began his career within the Techint group in the Industrial
Engineering Department of Siderar in 1975. Later he held several positions in
the technical departments of Siderca and various companies within the Techint
group. After holding several positions in the marketing and procurement areas in
Europe, in 1996 he became commercial director of Dalmine. In 1998, he became the
director of our Process and Power Services business unit. In 2001, he was
appointed chief of staff for Paolo Rocca in Buenos Aires. He assumed his current
position in December 2002. Mr. Radnic is an Argentine citizen.
35
Sergio
Tosato. Mr. Tosato currently serves as our industrial
coordination director. He first joined Dalmine in 1974 in the personnel
organization area, and has held many positions within Tenaris, including
director of operations in Siderca and manufacturing director in Dalmine, before
assuming his current position in 2003. Mr. Tosato is an Italian
citizen.
Carlos Pappier. Mr. Pappier currently
serves as our planning director, a position that he assumed in October 2006. He
began his career within the Techint group in 1984 as a cost analyst in Siderar.
After holding several positions within Tenaris and other Techint group companies
in 2002 he became chief of staff of Tenaris. Mr. Pappier is an Argentine
citizen.
Germán
Curá. Mr. Curá currently serves as our North American area
manager. He is a marine engineer and was first employed with Siderca in 1988.
Previously, he served as Siderca’s exports director, Tamsa’s exports director
and commercial director, sales and marketing manager of our Middle East office,
president of Algoma Tubes, director of our Oilfield Services business unit and
commercial director. He is also a member of the board of directors of the
American Petroleum Institute (API). He assumed his current position in October
2006. Mr. Curá is an Argentine citizen.
Sergio de la
Maza. Mr. de la Maza currently serves as our Central American
area manager and also serves as a director and executive vice-president of
Tamsa. Previously he served as our Mexican area manager. He first joined Tamsa
in 1980. From 1983 to 1988, Mr. de la Maza worked in several positions in Tamsa
and Dalmine. He then became manager of Tamsa’s new pipe factory and later served
as manufacturing manager and quality director of Tamsa. Subsequently, he was
named manufacturing director of Siderca. He assumed his current position in
2006. Mr. de la Maza is a Mexican citizen.
Guillermo
Noriega. Mr.
Noriega currently serves as our South American area manager and also serves as
managing director of Siderca. He began his career at Siderca as an industrial
engineer in 1981. Previously, he served as Siderca’s commercial director for the
Argentine market. He assumed his current position with Siderca in 2000. Mr.
Noriega is an Argentine citizen.
Vincenzo
Crapanzano. Mr. Crapanzano currently
serves as our European area manager and also serves as managing director of
Dalmine. Previously he served as our Mexican area manager and executive vice
president of Tamsa. Prior to joining Tenaris, he held various positions at Grupo
Falck from 1979 to 1989. When Dalmine acquired the tubular assets of Grupo Falck
in 1990, he was appointed managing director of the cold drawn tubes division. He
is also vice president of Centro Sviluppo Materiali S.p.A, and of Federacciai.
He assumed his current position in January 2004. Mr. Crapanzano is an Italian
citizen.
Claudio
Leali. Mr. Leali currently serves as our North East Asia area
manager, a position that he assumed in 2009, after having served as director of
our Japanese operations since November 2006. He began his career at Dalmine as a
development product technician in 1976. From March 1994 to October 1995 he
served as technical managing director of DMV, a joint venture between Dalmine,
Vallourec and Mannesmann. Before assuming his current position he also served as
quality director and as executive assistant of the technology department. Mr.
Leali is an Italian citizen.
Upon the
retirement of Mr. San Martín from his executive functions as technology
director, the technology and quality departments have been merged into the
technology department under the responsibility of Marcelo Ramos.
Compensation
The
compensation of the members of the Company’s board of directors is determined at
the annual ordinary general shareholders’ meeting. Each member of the board of
directors received as compensation for such position a fee of $70
thousand.
The
chairman of the audit committee received as additional compensation a fee of $60
thousand, while the other members of the audit committee received an additional
fee of $50 thousand. Under the Company’s articles of association, the members of
the audit committee are not eligible to participate in any incentive
compensation plan for employees of the Company or any of its
subsidiaries.
36
The
aggregate compensation earned by directors and senior management during 2009
amounted to $18.2 million.
There are
no service contracts between any director and Tenaris that provide for benefits
upon termination of employment.
Employee
retention and incentive program
On
January 1, 2007, we adopted an employee retention and long term incentive
program. Pursuant to this program, certain senior executives have been granted a
number of units equivalent in value to the equity book value per share
(excluding minority interest). The units will be vested over a period of four
years and 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 the payment. Beneficiaries 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%, on average, of the total annual compensation of
the beneficiaries.
The total
value of the units granted under the program, based on the number of units and
the book value per share as of December 31, 2009, was $27.6 million. As of
December 31, 2009, we have recorded a total liability of $19.6 million, based on
actuarial calculations provided by independent advisors.
Auditors
The
Company’s articles of association require the appointment of at least one
independent auditor chosen from among the members of the Luxembourg Institute of
Independent Auditors. The primary responsibility of the independent auditor is
to audit the Company’s annual accounts and to submit a report on the accounts to
shareholders at the annual shareholders’ meeting. Following a recommendation
from our audit committee, auditors are appointed by the general shareholders’
meeting through a resolution passed by a simple majority vote, irrespective of
the number of shares present or represented. Shareholders may determine the
number and the term of office of the auditors at the ordinary general
shareholders’ meeting, provided however that an auditor’s term shall not exceed
one year and that any auditor may be reappointed or dismissed by the general
shareholders meeting at any time, with or without cause. Luxembourg law does not
allow directors to serve concurrently as independent auditors. As
part of their duties, the auditors report directly to the audit
committee.
PricewaterhouseCoopers
(acting, in connection with the Company’s annual accounts and annual
consolidated financial statements required under Luxembourg law, through
PricewaterhouseCoopers S.á.r.l., Réviseur d’entreprises and,
in connection with the Company’s annual and interim consolidated financial
statements required under the laws of any other relevant jurisdiction, through
Price Waterhouse & Co. S.R.L.) were appointed as the Company’s independent
auditors for the fiscal year ending December 31, 2009, at the ordinary general
shareholders’ meeting held on June 3, 2009.
The
Company’s audit committee is responsible for, among other things, the oversight
of the Company’s independent auditors. The audit committee has adopted in its
charter a policy of pre-approval of audit and permissible non-audit services
provided by its independent auditors. Under the policy, the audit
committee makes its recommendations to the shareholders’ meeting concerning the
continuing appointment or termination of the Company’s independent auditors. On
a yearly basis, the audit committee reviews together with management and the
independent auditor, the audit plan, audit related services and other non-audit
services and approves the related fees. Any changes to the approved fees must be
reviewed and approved by the audit committee. In addition, the audit committee
delegates to its Chairman the authority to consider and approve, on behalf of
the audit committee, additional non-audit services that were not recognized at
the time of engagement, which must be reported to the other members of the audit
committee at its next meeting. No services outside the scope of the audit
committee’s approval can be undertaken by the independent auditor.
Fees
Paid to the Company’s Principal Accountant
37
In 2009,
PricewaterhouseCoopers served as the principal external auditor for the Company.
Fees payable to PricewaterhouseCoopers in 2009 are detailed below.
|
Thousands
of U.S. dollars
|
For
the year ended
December 31, 2009 |
|||
|
Audit
Fees
|
3,743 | |||
|
Audit-Related
Fees
|
490 | |||
|
Tax
Fees
|
129 | |||
|
All
Other Fees
|
- | |||
|
Total
|
4,362 | |||
Audit
Fees
Audit
fees were paid for professional services rendered by the auditors for the audit
of the consolidated financial statements and internal control over financial
reporting of the Company, the statutory financial statements of the Company and
its subsidiaries, and any other audit services required for US Securities and
Exchange Commission or other regulatory filings.
Audit-Related
Fees
Audit-related
fees are typically services that are reasonably related to the performance of
the audit or review of the consolidated financial statements of the Company and
the statutory financial statements of the Company and its subsidiaries and are
not reported under the audit fee item above. This item includes fees for
attestation services on financial information of the Company and its
subsidiaries included in their annual reports that are filed with their
respective regulators.
Tax
Fees
Tax fees
paid for tax compliance professional services.
All
Other Fees
In 2009,
PricewaterhouseCoopers did not perform any services other than those described
above.
Employees
The
following table shows the number of persons employed by Tenaris:
|
At
December 31,
|
||||
|
2009
|
||||
|
Argentina
|
6,396 | |||
|
Mexico
|
3,809 | |||
|
Italy
|
2,870 | |||
|
Brazil
|
2,544 | |||
|
United
States
|
2,320 | |||
|
Romania
|
1,107 | |||
|
Canada
|
1,061 | |||
|
Japan
|
636 | |||
|
Other
Countries
|
1,848 | |||
|
Total
employees
|
22,591 | |||
At
December 31, 2008 and December 31, 2007, the number of persons employed by
Tenaris was 23,873 and 23,372 respectively.
The
number of our employees decreased during 2009, from 23,873 at December 2008, to
22,591 at December 2009. The addition of SPIJ’s employees in April 2009, was
more than offset by employee departures as a result of a reduction in activity
levels as a consequence of the global economic and financial crisis and the
discontinuation of the operations of our production facilities in Venezuela,
Tavsa and Matesi, following their nationalization by the Venezuelan
government.
38
Approximately
55% of our employees are unionized. We believe that we enjoy good or
satisfactory relations with our employees and their unions in each of the
countries in which we have manufacturing facilities, and we have not experienced
any major strikes or other labor conflicts with a material impact on our
operations over the last five years.
Share
Ownership
To our
knowledge, the total number of the Company’s shares (in the form of ordinary
shares or ADSs) beneficially owned by our directors and senior management as of
March 31, 2010 was 1,400,839, which represents 0.1% of our outstanding
shares.
The
following table provides information regarding share ownership by our directors
and senior management:
|
Director
or Officer
|
Number
of Shares Held
|
|||
|
Guillermo
Vogel
|
1,325,446 | |||
|
Carlos
Condorelli
|
67,211 | |||
|
Ricardo
Soler
|
8,182 | |||
|
Total
|
1,400,839 | |||
Major
Shareholders
The
following table shows the beneficial ownership of the Company’s ordinary shares,
as of March 31, 2010, by (1) the Company’s principal shareholders (persons or
entities that own beneficially 5% or more of the Company’s shares), (2)
non-affiliated public shareholders, and (3) the Company’s directors and senior
management as a group.
|
Identity
of Person or Group
|
Number
|
Percent
|
||||||
|
San
Faustin(1)
|
713,605,187 | 60.4 | % | |||||
|
Directors
and senior management as a group
|
1,400,839 | 0.1 | % | |||||
|
Public
|
465,530,804 | 39.4 | % | |||||
|
Total
|
1,180,536,830 | 100.0 | % | |||||
|
(1)
|
Shares
held by III CI, a wholly-owned subsidiary of San Faustin. Rocca &
Partners S.A. controls a significant portion of the voting power of San
Faustin and has the ability to influence matters affecting, or submitted
to a vote of, the shareholders of San
Faustin.
|
The
voting rights of the Company’s major shareholders do not differ from the voting
rights of other shareholders. None of its outstanding shares have any special
control rights. There are no restrictions on voting rights, nor are there, to
the Company’s knowledge, any agreements among shareholders of the Company that
might result in restrictions on the transfer of securities or the exercise of
voting rights.
The
Company does not know of any significant agreements or other arrangements to
which the Company is a party and which take effect, alter or terminate in the
event of a change of control of the Company. The Company does not know of any
arrangements, the operation of which may at a subsequent date result in a change
of control of the Company.
Information
required under the Luxembourg Law 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 US$ 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, 2009. 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.
Tenaris
is controlled by San Faustin, which owns 60.45% of our outstanding shares,
through its wholly owned subsidiary I.I.I. Industrial Investments Inc., a Cayman
Islands corporation. Rocca & Partners S.A., or Rocca & Partners,
controls a significant portion of the voting power of San Faustin and has the
ability to influence matters affecting, or submitted to a vote of the
shareholders of, San Faustin, 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 senior management as a group own 0.1% 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. See “Corporate Governance – Major Shareholders”.
39
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, thereby 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.
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.
40
Management
Certification
We
confirm, to the best of our knowledge, that:
|
1.
|
the
consolidated financial statements prepared in conformity with
International Financial Reporting Standards, included in this annual
report, give a true and fair view of the assets, liabilities, financial
position and profit or loss of Tenaris S.A. and its consolidated
subsidiaries, taken as a whole;
|
|
2.
|
the
annual accounts prepared in accordance with Luxembourg legal and
regulatory requirements, included in this annual report, give a true and
fair view of the assets, liabilities, financial position and profit or
loss of Tenaris S.A.; and
|
|
3.
|
the
consolidated management report, which has been combined with the
management report for Tenaris S.A., included in this annual report, gives
a fair review of the development and performance of the business and the
position of Tenaris S.A., or Tenaris S.A. and its consolidated
subsidiaries, taken as a whole, as applicable, together with a description
of the principal risks and uncertainties they
face.
|
Chief
Executive Officer
Paolo
Rocca
April 22,
2010
Chief
Financial Officer
Ricardo
Soler
April 22,
2010
41
Financial
Information
Consolidated
Financial Statements
For
the years ended December 31, 2009, 2008 and 2007
42
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Shareholders of
Tenaris
S.A.
In
our opinion, the accompanying consolidated statement of financial position and
the related consolidated statements of income, comprehensive income, changes in
equity and cash flows present fairly, in all material respects, the financial
position of Tenaris S.A. and its subsidiaries at December 31, 2009 and 2008, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2009 in conformity with International Financial
Reporting Standards as issued by the International Accounting Standards Board
and in conformity with International Financial Reporting Standards as adopted by
the European Union. 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.
Buenos
Aires, Argentina
April
22, 2010
| PRICE WATERHOUSE & CO. S.R.L. | |
| by | (Partner) |
|
Diego
Niebuhr
|
|
43
CONSOLIDATED INCOME
STATEMENT
|
(all
amounts in thousands of U.S. dollars, unless otherwise
stated)
|
Year
ended December 31,
|
|||||||||||||||
|
Notes
|
2009
|
2008
|
2007
|
|||||||||||||
|
Continuing
operations
|
||||||||||||||||
|
Net
sales
|
1 | 8,149,320 | 11,987,760 | 9,874,312 | ||||||||||||
|
Cost
of sales
|
1
& 2
|
(4,864,922 | ) | (6,698,285 | ) | (5,408,984 | ) | |||||||||
|
Gross
profit
|
3,284,398 | 5,289,475 | 4,465,328 | |||||||||||||
|
Selling,
general and administrative expenses
|
1
& 3
|
(1,473,791 | ) | (1,787,952 | ) | (1,551,836 | ) | |||||||||
|
Other
operating income
|
5 (i) | 7,673 | 35,140 | 27,251 | ||||||||||||
|
Other
operating expenses
|
5
(ii)
|
(4,673 | ) | (411,013 | ) | (23,771 | ) | |||||||||
|
Operating
income
|
1,813,607 | 3,125,650 | 2,916,972 | |||||||||||||
|
Interest
income
|
6 | 30,831 | 48,711 | 92,733 | ||||||||||||
|
Interest
expense
|
6 | (118,301 | ) | (179,885 | ) | (270,705 | ) | |||||||||
|
Other
financial results
|
6 | (64,230 | ) | (99,850 | ) | (22,358 | ) | |||||||||
|
Income
before equity in earnings of associated companies and income
tax
|
1,661,907 | 2,894,626 | 2,716,642 | |||||||||||||
|
Equity
in earnings of associated companies
|
7 | 87,041 | 89,423 | 113,062 | ||||||||||||
|
Income
before income tax
|
1,748,948 | 2,984,049 | 2,829,704 | |||||||||||||
|
Income
tax
|
8 | (513,211 | ) | (1,015,334 | ) | (805,773 | ) | |||||||||
|
Income
for continuing operations
|
1,235,737 | 1,968,715 | 2,023,931 | |||||||||||||
|
Discontinued
operations
|
||||||||||||||||
|
Result
for discontinued operations
|
29 | (28,138 | ) | 306,905 | 52,128 | |||||||||||
|
Income
for the year
|
1,207,599 | 2,275,620 | 2,076,059 | |||||||||||||
|
Attributable
to:
|
||||||||||||||||
|
Equity
holders of the Company
|
1,161,555 | 2,124,802 | 1,923,748 | |||||||||||||
|
Minority
interest
|
46,044 | 150,818 | 152,311 | |||||||||||||
| 1,207,599 | 2,275,620 | 2,076,059 | ||||||||||||||
|
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 | ||||||||||||
|
Continuing
and Discontinued operations
|
||||||||||||||||
|
Basic
and diluted earnings per share (U.S. dollars per share)
|
9 | 0.98 | 1.80 | 1.63 | ||||||||||||
|
Basic
and diluted earnings per ADS (U.S. dollars per ADS)
|
9 | 1.97 | 3.60 | 3.26 | ||||||||||||
|
Continuing
operations
|
||||||||||||||||
|
Basic
and diluted earnings per share (U.S. dollars per share)
|
1.00 | 1.49 | 1.58 | |||||||||||||
|
Basic
and diluted earnings per ADS (U.S. dollars per ADS)
|
2.00 | 2.99 | 3.17 | |||||||||||||
44
CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
|
(all
amounts in thousands of U.S. dollars)
|
Year
ended December 31,
|
|||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Income
for the year
|
1,207,599 | 2,275,620 | 2,076,059 | |||||||||
|
Other
comprehensive income:
|
||||||||||||
|
Currency
translation adjustment
|
357,511 | (486,636 | ) | 306,266 | ||||||||
|
Cash
flow hedges
|
1,384 | (8,513 | ) | (10,554 | ) | |||||||
|
Share
of other comprehensive income of associates
|
||||||||||||
|
Currency
translation adjustment
|
(1,302 | ) | (51,004 | ) | 3,595 | |||||||
|
Cash
flow hedges
|
2,722 | (6,044 | ) | - | ||||||||
|
Income
tax relating to components of other comprehensive income
(*)
|
2,089 | 3,003 | - | |||||||||
|
Other
comprehensive income for the year, net of tax
|
362,404 | (549,194 | ) | 299,307 | ||||||||
|
Total
comprehensive income for the year
|
1,570,003 | 1,726,426 | 2,375,366 | |||||||||
|
Attributable
to:
|
||||||||||||
|
Equity
holders of the Company
|
1,423,986 | 1,620,640 | 2,175,289 | |||||||||
|
Minority
interest
|
146,017 | 105,786 | 200,077 | |||||||||
| 1,570,003 | 1,726,426 | 2,375,366 | ||||||||||
(*) Relates to Cash flow
hedges.
The
accompanying notes are an integral part of these Consolidated Financial
Statements.
45
CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
|
(all
amounts in thousands of U.S. dollars)
|
At
December 31, 2009
|
At
December 31, 2008
|
||||||||||||||||||
|
Notes
|
||||||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
Non-current
assets
|
||||||||||||||||||||
|
Property,
plant and equipment, net
|
10 | 3,254,587 | 2,982,871 | |||||||||||||||||
|
Intangible
assets, net
|
11 | 3,670,920 | 3,826,987 | |||||||||||||||||
|
Investments
in associated companies
|
12 | 602,572 | 527,007 | |||||||||||||||||
|
Other
investments
|
13 | 34,167 | 38,355 | |||||||||||||||||
|
Deferred
tax assets
|
21 | 197,603 | 390,323 | |||||||||||||||||
|
Receivables
|
14 | 101,618 | 7,861,467 | 82,752 | 7,848,295 | |||||||||||||||
|
Current
assets
|
||||||||||||||||||||
|
Inventories
|
15 | 1,687,059 | 3,091,401 | |||||||||||||||||
|
Receivables
and prepayments
|
16 | 220,124 | 251,481 | |||||||||||||||||
|
Current
tax assets
|
17 | 260,280 | 201,607 | |||||||||||||||||
|
Trade
receivables
|
18 | 1,310,302 | 2,123,296 | |||||||||||||||||
|
Available
for sale assets
|
32 | 21,572 | - | |||||||||||||||||
|
Other
investments
|
19 | 579,675 | 45,863 | |||||||||||||||||
|
Cash
and cash equivalents
|
19 | 1,542,829 | 5,621,841 | 1,538,769 | 7,252,417 | |||||||||||||||
|
Total
assets
|
13,483,308 | 15,100,712 | ||||||||||||||||||
|
EQUITY
|
||||||||||||||||||||
|
Capital
and reserves attributable to the Company’s equity holders
|
9,092,164 | 8,176,571 | ||||||||||||||||||
|
Minority
interest
|
628,672 | 525,316 | ||||||||||||||||||
|
Total
equity
|
9,720,836 | 8,701,887 | ||||||||||||||||||
|
LIABILITIES
|
||||||||||||||||||||
|
Non-current
liabilities
|
||||||||||||||||||||
|
Borrowings
|
20 | 655,181 | 1,241,048 | |||||||||||||||||
|
Deferred
tax liabilities
|
21 | 860,787 | 1,053,838 | |||||||||||||||||
|
Other
liabilities
|
22 (i) | 192,467 | 223,142 | |||||||||||||||||
|
Provisions
|
23
(ii)
|
80,755 | 89,526 | |||||||||||||||||
|
Trade
payables
|
2,812 | 1,792,002 | 1,254 | 2,608,808 | ||||||||||||||||
|
Current
liabilities
|
||||||||||||||||||||
|
Borrowings
|
20 | 791,583 | 1,735,967 | |||||||||||||||||
|
Current
tax liabilities
|
17 | 306,539 | 610,313 | |||||||||||||||||
|
Other
liabilities
|
22
(ii)
|
192,190 | 242,620 | |||||||||||||||||
|
Provisions
|
24
(ii)
|
28,632 | 28,511 | |||||||||||||||||
|
Customer
advances
|
95,107 | 275,815 | ||||||||||||||||||
|
Trade
payables
|
556,419 | 1,970,470 | 896,791 | 3,790,017 | ||||||||||||||||
|
Total
liabilities
|
3,762,472 | 6,398,825 | ||||||||||||||||||
|
Total
equity and liabilities
|
13,483,308 | 15,100,712 | ||||||||||||||||||
|
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.
46
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 (*)
|
Total
|
Minority
Interest
|
Total
|
||||||||||||||||||||||||||||
|
Balance
at January 1, 2009
|
1,180,537 | 118,054 | 609,733 | (223,779 | ) | 2,127 | 6,489,899 | 8,176,571 | 525,316 | 8,701,887 | ||||||||||||||||||||||||||
|
Income
for the year
|
- | - | - | - | - | 1,161,555 | 1,161,555 | 46,044 | 1,207,599 | |||||||||||||||||||||||||||
|
Other
comprehensive income for the year
|
- | - | - | 253,312 | 9,119 | - | 262,431 | 99,973 | 362,404 | |||||||||||||||||||||||||||
|
Total
comprehensive income for the year
|
- | - | - | 253,312 | 9,119 | 1,161,555 | 1,423,986 | 146,017 | 1,570,003 | |||||||||||||||||||||||||||
|
Acquisition
and decrease of minority interest
|
- | - | - | - | (783 | ) | - | (783 | ) | 3,425 | 2,642 | |||||||||||||||||||||||||
|
Change
in equity reserves
|
- | - | - | - | 21 | - | 21 | - | 21 | |||||||||||||||||||||||||||
|
Dividends
paid in cash
|
- | - | - | - | - | (507,631 | ) | (507,631 | ) | (46,086 | ) | (553,717 | ) | |||||||||||||||||||||||
|
Balance
at
December
31, 2009
|
1,180,537 | 118,054 | 609,733 | 29,533 | 10,484 | 7,143,823 | 9,092,164 | 628,672 | 9,720,836 | |||||||||||||||||||||||||||
(*) 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.
47
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
|
Total
|
Minority
Interest
|
Total
|
||||||||||||||||||||||||||||
|
Balance
at January 1, 2008
|
1,180,537 | 118,054 | 609,733 | 266,049 | 18,203 | 4,813,701 | 7,006,277 | 523,573 | 7,529,850 | |||||||||||||||||||||||||||
|
Income
for the year
|
- | - | - | - | - | 2,124,802 | 2,124,802 | 150,818 | 2,275,620 | |||||||||||||||||||||||||||
|
Other
comprehensive income for the year
|
- | - | - | (489,828 | ) | (14,334 | ) | - | (504,162 | ) | (45,032 | ) | (549,194 | ) | ||||||||||||||||||||||
|
Total
comprehensive income for the year
|
- | - | - | (489,828 | ) | (14,334 | ) | 2,124,802 | 1,620,640 | 105,786 | 1,726,426 | |||||||||||||||||||||||||
|
Acquisition
and decrease of minority interest
|
- | - | - | - | (1,742 | ) | - | (1,742 | ) | (16,843 | ) | (18,585 | ) | |||||||||||||||||||||||
|
Dividends
paid in cash
|
- | - | - | - | - | (448,604 | ) | (448,604 | ) | (87,200 | ) | (535,804 | ) | |||||||||||||||||||||||
|
Balance
at December 31, 2008
|
1,180,537 | 118,054 | 609,733 | (223,779 | ) | 2,127 | 6,489,899 | 8,176,571 | 525,316 | 8,701,887 | ||||||||||||||||||||||||||
|
Attributable
to equity holders of the Company
|
||||||||||||||||||||||||||||||||||||
|
Share
Capital
|
Legal
Reserves
|
Share
Premium
|
Currency
Translation Adjustment
|
Other
Reserves
|
Retained
Earnings
|
Total
|
Minority
Interest
|
Total
|
||||||||||||||||||||||||||||
|
Balance
at January 1, 2007
|
1,180,537 | 118,054 | 609,733 | 3,954 | 28,757 | 3,397,584 | 5,338,619 | 363,011 | 5,701,630 | |||||||||||||||||||||||||||
|
Income
for the year
|
- | - | - | - | - | 1,923,748 | 1,923,748 | 152,311 | 2,076,059 | |||||||||||||||||||||||||||
|
Other
comprehensive income for the year
|
- | - | - | 262,095 | (10,554 | ) | - | 251,541 | 47,766 | 299,307 | ||||||||||||||||||||||||||
|
Total
comprehensive income for the year
|
- | - | - | 262,095 | (10,554 | ) | 1,923,748 | 2,175,289 | 200,077 | 2,375,366 | ||||||||||||||||||||||||||
|
Acquisition
and decrease of minority interest
|
- | - | - | - | - | - | - | 20,748 | 20,748 | |||||||||||||||||||||||||||
|
Dividends
paid in cash
|
- | - | - | - | - | (507,631 | ) | (507,631 | ) | (60,263 | ) | (567,894 | ) | |||||||||||||||||||||||
|
Balance
at December 31, 2007
|
1,180,537 | 118,054 | 609,733 | 266,049 | 18,203 | 4,813,701 | 7,006,277 | 523,573 | 7,529,850 | |||||||||||||||||||||||||||
The
accompanying notes are an integral part of these Consolidated Financial
Statements
48
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
Year
ended December 31,
|
||||||||||||||||
|
(all
amounts in thousands of U.S. dollars)
|
Note
|
2009
|
2008
|
2007
|
||||||||||||
|
Cash
flows from operating activities
|
||||||||||||||||
|
Income
for the year
|
1,207,599 | 2,275,620 | 2,076,059 | |||||||||||||
|
Adjustments
for:
|
||||||||||||||||
|
Depreciation
and amortization
|
10
& 11
|
504,864 | 532,934 | 514,820 | ||||||||||||
|
Income
tax accruals less payments
|
28
(ii)
|
(458,086 | ) | (225,038 | ) | (393,055 | ) | |||||||||
|
Equity
in earnings of associated companies
|
(86,179 | ) | (89,556 | ) | (94,888 | ) | ||||||||||
|
Interest
accruals less payments, net
|
28
(iii)
|
(24,167 | ) | 55,492 | (21,302 | ) | ||||||||||
|
Income
from disposal of investment and other
|
- | (394,323 | ) | (18,388 | ) | |||||||||||
|
Changes
in provisions
|
(7,268 | ) | 783 | (421 | ) | |||||||||||
|
Impairment
charge
|
5 | - | 502,899 | - | ||||||||||||
|
Changes
in working capital
|
28 (i) | 1,737,348 | (1,051,632 | ) | (110,425 | ) | ||||||||||
|
Other,
including currency translation adjustment
|
189,837 | (142,174 | ) | 68,224 | ||||||||||||
|
Net
cash provided by operating activities
|
3,063,948 | 1,465,005 | 2,020,624 | |||||||||||||
|
Cash
flows from investing activities
|
||||||||||||||||
|
Capital
expenditures
|
10
& 11
|
(460,927 | ) | (443,238 | ) | (447,917 | ) | |||||||||
|
Acquisitions
of subsidiaries and minority interest
|
27 | (73,584 | ) | (18,585 | ) | (1,927,262 | ) | |||||||||
|
Other
disbursements relating to the acquisition of Hydril
|
- | - | (71,580 | ) | ||||||||||||
|
Proceeds
from the sale of pressure control business (*)
|
29 | - | 1,113,805 | - | ||||||||||||
|
Decrease
in subsidiaries / associated
|
- | - | 27,321 | |||||||||||||
|
Proceeds
from disposal of property, plant and equipment and intangible
assets
|
16,310 | 17,161 | 24,041 | |||||||||||||
|
Dividends
and distributions received from associated companies
|
12 | 11,420 | 15,032 | 12,170 | ||||||||||||
|
Changes
in restricted bank deposits
|
- | - | 21 | |||||||||||||
|
Investments
in short terms securities
|
(533,812 | ) | 41,667 | 96,074 | ||||||||||||
|
Other
|
- | (3,428 | ) | - | ||||||||||||
|
Net
cash (used in) provided by investing activities
|
(1,040,593 | ) | 722,414 | (2,287,132 | ) | |||||||||||
|
Cash
flows from financing activities
|
||||||||||||||||
|
Dividends
paid
|
(507,631 | ) | (448,604 | ) | (507,631 | ) | ||||||||||
|
Dividends
paid to minority interest in subsidiaries
|
(46,086 | ) | (87,200 | ) | (60,263 | ) | ||||||||||
|
Proceeds
from borrowings
|
631,544 | 1,087,649 | 2,718,264 | |||||||||||||
|
Repayments
of borrowings
|
(2,096,925 | ) | (2,122,268 | ) | (2,347,054 | ) | ||||||||||
|
Net
cash used in financing activities
|
(2,019,098 | ) | (1,570,423 | ) | (196,684 | ) | ||||||||||
|
Increase
(decrease) in cash and cash equivalents
|
4,257 | 616,996 | (463,192 | ) | ||||||||||||
|
Movement
in cash and cash equivalents
|
||||||||||||||||
|
At
the beginning of the period
|
1,525,022 | 954,303 | 1,365,008 | |||||||||||||
|
Effect
of exchange rate changes
|
9,124 | (46,277 | ) | 52,487 | ||||||||||||
|
Decrease
in cash due to deconsolidation
|
32 | (9,696 | ) | - | - | |||||||||||
|
Increase
(decrease) in cash and cash equivalents
|
4,257 | 616,996 | (463,192 | ) | ||||||||||||
|
At
December 31,
|
28
(iv)
|
1,528,707 | 1,525,022 | 954,303 | ||||||||||||
|
Non-cash
financing activity
|
||||||||||||
|
Conversion
of debt to equity in subsidiaries
|
- | - | 35,140 | |||||||||
(*)
Includes $394 million of after-tax gain, $381 million of assets and liabilities
held for sale and $339 million of income tax charges and related
expenses.
49
The
accompanying notes are an integral part of these Consolidated Financial
Statements.
INDEX
TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
I.
|
GENERAL
INFORMATION
|
IV.
|
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
and other receivables
|
12
|
Investments
in associated companies
|
|
K
|
Cash
and cash equivalents
|
13
|
Other
investments - non current
|
|
L
|
Equity
|
14
|
Receivables
- non current
|
|
M
|
Borrowings
|
15
|
Inventories
|
|
N
|
Current
and Deferred income tax
|
16
|
Receivables
and prepayments
|
|
O
|
Employee
benefits
|
17
|
Current
tax assets and liabilities
|
|
P
|
Employees’
statutory profit sharing
|
18
|
Trade
receivables
|
|
Q
|
Provisions
|
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
|
Financial
instruments
|
24
|
Current
allowances and provisions
|
|
25
|
Derivative
financial instruments
|
||
|
26
|
Contingencies,
commitments and restrictions on the distribution of
profits
|
||
|
III.
|
FINANCIAL
RISK MANAGEMENT
|
27
|
Business
combinations and other acquisitions
|
|
28
|
Cash
flow disclosures
|
||
|
A
|
Financial
Risk Factors
|
29
|
Discontinued
operations
|
|
B
|
Financial
instruments by category
|
30
|
Related
party transactions
|
|
C
|
Fair
value by hierarchy
|
31
|
Principal
subsidiaries
|
|
D
|
Fair
value estimation
|
32
|
Processes
in Venezuela
|
|
E
|
Accounting
for derivatives financial instruments and hedging
activities
|
33
|
Subsequent
events
|
50
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 (“ADS”) trade on the New York Stock Exchange.
These
Consolidated Financial Statements were approved for issue by the Company’s Board
of Directors on February 24, 2010.
II.
ACCOUNTING POLICIES
The
principal accounting policies applied in the preparation of these Consolidated
Financial Statements are set out below. These policies have been consistently
applied to all the years presented, unless otherwise stated.
A Basis
of presentation
The
Consolidated Financial Statements of Tenaris have been prepared in accordance
with International Financial Reporting Standards (“IFRS”), as issued by the
International Accounting Standards Board (“IASB”) and adopted by the European
Union, 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.
|
(1)
|
New
and amended standards effective in 2009 and relevant for
Tenaris
|
|
§
|
IFRS
7, “Financial Instruments – Disclosures
(amendment)”
|
This
amendment, effective 1 January 2009, requires enhanced disclosures about fair
value measurement and liquidity risk. In particular, the amendment requires
disclosure of fair value measurements by level of a fair value measurement
hierarchy. As the change in accounting policy only results in additional
disclosures, there is no impact on earnings per share.
|
§
|
IFRS
8, “Operating segments”
|
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
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.
|
§
|
IAS
1 Revised, “Presentation of Financial
Statements”
|
IAS 1 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 and not mandatory
introduction of new terminology.
51
|
§
|
IAS
23 Revised, “Borrowing Costs”
|
IAS 23
revised, 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. This amendment
has no material effect on the Company’s financial condition or results of
operations.
|
(2)
|
Interpretations
and amendments to published standards that are not yet effective and have
not been early adopted
|
|
§
|
IAS
27 Revised, “Consolidated and separate financial
statements”
|
This
revised standard requires the effects of all transactions with non-controlling
interests to be recorded in equity if there is no change in control and these
transactions will no longer result in goodwill or gains and losses. The standard
also specifies the accounting when control is lost. Any remaining
interest in the entity is re-measured to fair value, and a gain or loss is
recognized in profit or loss. The Company will apply IAS 27 revised
prospectively to transactions with non-controlling interests from January 1,
2010.
|
§
|
IFRS
3 (revised January 2008), “Business
Combinations”
|
In
January 2008, the IASB issued IFRS 3 (revised January 2008), “Business
Combinations” (“IFRS 3 - revised”). IFRS 3 revised includes amendments that are
meant to provide guidance for applying the acquisition method.
IFRS 3
revised replaces IFRS 3 (as issued in 2004) and comes into effect for business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after July
1, 2009.
This
standard does not impact the current financial statements, and future impact is
dependent on the existence of business combinations.
|
§
|
Amendment
to IFRS 5 “Non-current Assets held for sale and Discontinued
Operations”
|
In May
2008, the IASB amended IFRS 5 “Non-current Assets held for sale and Discontinued
Operations” by requiring this classification although the entity retains a
non-controlling interest.
Entities
shall apply these amendments for annual periods beginning on or after July 1,
2009. Earlier application is permitted, provided that IAS 27 – amended is
applied at the same time.
This
standard does not impact the current financial statements, and future impact is
dependent on the existence of discontinued operations.
|
§
|
IFRS
9, “Financial Instruments”
|
In
November 2009, the IASB issued IFRS 9 “Financial Instruments” which establishes
principles for the financial reporting of financial assets by simplifying their
classification and measurement.
This
interpretation is applicable for annual periods beginning on or after 1 January
2013. Earlier application is not permitted for entities that prepare financial
statements in accordance with IFRS as adopted by the EU, since the
interpretation is not yet adopted by the EU.
The
Company’s management has not yet assessed the potential impact that the
application of IFRS 9 will have on the Company’s financial
statements.
52
|
§
|
Improvements
to International Financial Reporting
Standards
|
In April
2009, the IASB issued “Improvements to International Financial Reporting
Standards” by which it amended several international accounting and financial
reporting standards. Entities shall apply these amendments for annual periods
beginning on or after January 1, 2010. Earlier application is not permitted for
entities that prepare financial statements in accordance with IFRS as adopted by
the EU, since these improved standards are not yet adopted by the
EU.
The
Company’s management estimates that the application of these amendments will not
have a material effect on the Company’s financial condition or results of
operations.
Management
assessed the relevance of other new standards, amendments or interpretations not
yet effective and concluded that they are not relevant to Tenaris.
B Group
accounting
(1) Subsidiaries
Subsidiaries
are all entities which are controlled by Tenaris as a result of its ability to
govern an entity’s financial and operating policies generally accompanying a
shareholding of more than 50% of the voting rights. Subsidiaries are
consolidated from the date on which control is exercised by the Company and are
no longer consolidated from the date control ceases.
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 exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired, liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of any minority
interest. 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
inter-company transactions, balances and unrealized gains (losses) on
transactions 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 inter-company
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) Associates
Associates
are all entities in which Tenaris has significant influence but not control,
generally accompanying a shareholding of between 20% and 50% of the voting
rights. Investments in associates are accounted for by the equity method of
accounting and are initially recognized at cost.
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 unless the transaction provides evidence
of 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 associates is recorded in the
Consolidated Income Statement under Equity in earnings of associated
companies. The Company’s pro-rata share of changes in other reserves is
recognized in the Consolidated Statement of Changes in Equity under Other Reserves.
53
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, 2009, 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.
Tenaris
review investments in associated companies for impairment whenever events or
changes in circumstances indicate that the asset’s balance sheet carrying amount
may not be recoverable, such as a significant or prolonged decline in fair value
below the carrying value. Tenaris carries its investment in Ternium at its
proportional equity value, with no additional goodwill or intangible assets
recognized. At December 31, 2009, 2008 and 2007, no impairment provisions were
recorded on Tenaris’ investment in Ternium.
C Segment
information
The
Company is organized in two major business segments: Tubes and
Projects.
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 Other
segment includes all other business activities and operating segments that are
not required to be separately reported, including the operations that consist of
the production and selling of sucker rods, welded steel pipes for electric
conduits, industrial equipment and raw materials that exceed Tenaris’ internal
requirements.
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.
54
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 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 a separate component
of equity as currency translation adjustments. In the case of a sale or other
disposal of any of such subsidiaries, 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 inter-company
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
Consolidated 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; historical cost
includes expenditure that is directly attributable to the acquisition of the
items. 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.
55
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(R) (“Borrowing
Costs”). Assets for which borrowing costs are capitalized are
those that require a substantial period of time to prepare for their intended
use.
Land is
not depreciated. Depreciation on other assets 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
asset’s residual values and useful lives of significant plant and production
equipment are reviewed, and adjusted if appropriate, at each year-end
date.
Management’s
re-estimation of assets useful lives, performed in accordance with IAS 16
(“Property plant and equipment”), did not materially affect depreciation
expenses for 2009.
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 the proceeds with the carrying
amount of assets and are recognized under Other operating income or
Other operating
expenses in the Consolidated Income Statement.
F Intangible
assets
(1) Goodwill
Goodwill
represents the excess of the acquisition cost over the fair value of Tenaris’
share of net identifiable assets acquired as part of business combinations
determined mainly by independent valuations. Goodwill is tested annually for
impairment and carried at cost less accumulated impairment losses. Impairment
losses on goodwill are not reversed. Goodwill is included on the Consolidated
Statement of Financial Position under Intangible assets,
net.
Goodwill
is allocated to cash-generating units (“CGU’s”) for the purpose of impairment
testing, which represents a subsidiary or group of subsidiaries that are
expected to benefit from the business combination which generated the goodwill
being tested.
(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 Consolidated Income Statement.
56
(3) Licenses,
patents, trademarks and proprietary technology
Licenses,
patents, trademarks, and proprietary technology acquired in a business
combination are initially recognized at fair value at the acquisition date, and
subsequently shown at historical cost.
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.
The
balance of acquired trademarks amounts to $88.0 million and $85.3
million at December 31, 2009 and 2008 respectively, 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
Consolidated Income Statement as incurred. Research and development expenditures
included in Cost of
sales for the years 2009, 2008 and 2007 totaled $62.7 million, $77.3
million and $61.7 million, respectively.
|
(5)
|
Customer
relationships
|
In
accordance with IFRS 3 and IAS 38, Tenaris has recognized the value of customer
relationships separately from goodwill attributable to the acquisition of
Maverick and Hydril.
Customer
relationships acquired in a business combination are recognized at fair value at
the acquisition date. Customer relationships acquired in a business combination
have a finite useful life and are carried at cost less accumulated amortization.
Amortization is calculated using the straight line method over the expected life
of approximately 14 years for Maverick and 10 years for Hydril.
G Impairment
of non financial assets
Long-lived
assets including identifiable intangible assets and goodwill are regularly
reviewed for impairment.
Assets
that are subject to amortization are reviewed for impairment whenever events or
changes in circumstances indicate that the balance sheet carrying amount may not
be recoverable.
Intangible
assets with indefinite useful life, including goodwill, are subject to at least
an annual impairment test.
The
recoverable amount is the higher of an asset’s value in use and fair value less
cost to sell.
Tenaris
uses cash flow projections for a five year period with a terminal value
calculated based on perpetuity. Management judgment is required to estimate
discounted future cash flows and appropriate discount rates. Accordingly, actual
cash flows and values could vary significantly from the forecasted future cash
flows and related values derived using discounting techniques.
H Other investments
Other
investments consist primarily of investments in financial debt instruments and
time deposits with an original maturity of more than three months.
These
investments are classified as financial assets “at fair value through profit or
loss”.
Purchases
and sales of financial investments are recognized as of the 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
Consolidated Income Statement.
57
Results
from financial investments are recognized in Financial Results in the
Consolidated Income Statement.
The fair
values of quoted investments are based on current bid prices. 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 (see Section III
Financial Risk Management).
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
and other receivables
Trade and
other 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 counterparty’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 three
months 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 Consolidated Statement of Cash Flows, cash and cash equivalents
is comprised of cash, bank accounts and short-term highly liquid investments and
overdrafts.
On the
Consolidated Statement of Financial Position, bank overdrafts are included in
Borrowings in current
liabilities.
L Equity
(1) Equity
components
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, 2009, 2008 and 2007
are 1,180,536,830 with a par value of $1.00 per share with one vote each. All
issued shares are fully paid.
58
(3)
Dividends distribution by the Company to shareholders
Dividends
distributions are recorded in the Company’s financial statements when Company’s
shareholders have the right to receive the payment, 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 at fair value net of transaction costs incurred. In
subsequent years, borrowings are stated at amortized cost.
N Current
and Deferred income tax
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 tax
expense for the period comprises current and deferred tax. Tax is recognized in
the Consolidated Income Statement, except to the extent that it relates to items
recognized in the Consolidated Statement of Other Comprehensive Income. In this
case, the tax is also recognized in the Consolidated Statement of Other
Comprehensive Income.
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 tax is recognized 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 pension plans.
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 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 against which the temporary differences can be
utilized.
O Employee
benefits
(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 Consolidated Income Statement over the expected
service lives of employees.
59
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
Defined
benefit plans determine an amount of pension benefit that an employee will
receive on retirement, usually dependent on one or more factors such as age,
years of service and compensation.
The
liability recognized in the Consolidated Statement of Financial Position in
respect of defined benefit pension plans is the present value of the defined
benefit obligation at the end of the reporting year less the fair value of plan
assets together with adjustments for unrecognized past-service costs and
unrecognized actuarial gains and losses. Post-retirement obligations are
measured at the present value of the estimated future cash outflows. The present
value of the defined benefit pension obligation is calculated, at least annually
by independent advisors using the projected unit credit method based on
actuarial calculations provided by independent advisors.
Certain
officers of Tenaris are covered by defined benefit employee retirement plans
designed to provide post-retirement and other benefits.
Benefits
under this plan 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.
Tenaris
sponsors other four funded and unfunded non-contributory defined benefit pension
plans in certain subsidiaries. The plans provide defined benefits based on years
of service and, in the case of salaried employees, final average
salary.
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.
60
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 amounts to $27.6 million and $16.8
million at December 31, 2009 and 2008, respectively. As of December 31, 2009,
and 2008 Tenaris has recorded a total liability of $19.6 million and $10.4
million, respectively, 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 in the Consolidated Statement of Financial Position. 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
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
provision 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
Revenue
comprises the fair value of the consideration received or receivable for the
sale of goods and services in the ordinary course of Tenaris’ activities.
Revenue is shown net of value-added tax, returns, rebates and discounts and
after eliminating sales within the group.
Tenaris’
products and services are sold based upon purchase orders, contracts or upon
other persuasive evidence of an arrangement with customers, including that the
sales price is known or determinable. Sales are recognized as revenue upon
delivery and when collection is reasonably assured. Delivery is defined by the
transfer of risk, provision of sales contracts and may include delivery to a
storage facility located at one of the Company’s subsidiaries.
Other
revenues earned by Tenaris are recognized on the following bases:
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·
|
Interest
income: on the effective yield
basis.
|
|
·
|
Dividend
income from investments in other companies: when Tenaris’ right to receive
payment is established.
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61
T Cost
of sales and sales expenses
Cost of
sales and sales expenses are recognized in the Consolidated 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 Consolidated
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 Financial
instruments
Non
derivative financial instruments comprise investment in equity and debt
securities, trade and other receivables, cash and cash equivalents, borrowings,
and trade and other payables. Tenaris non derivative financial instruments are
classified into the following categories:
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·
|
Financial
instruments at fair value through profit and loss: comprises mainly cash
and cash equivalents and investments in debt securities held for
trading.
|
|
·
|
Loans
and receivables: measured at amortized cost using the effective interest
rate method less any impairment.
|
|
·
|
Available
for sale assets: See Note 32 (b)
|
|
·
|
Other
financial liabilities: measured at amortized cost using the effective
interest rate method.
|
The
classification depends on the nature and purpose of the financial instrument and
is determined at the time of initial recognition.
Financial
assets and liabilities are recognized and derecognized on the settlement
date.
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
“Foreign exchange derivatives
contracts results”.
III.
FINANCIAL RISK MANAGEMENT
The
multinational nature of Tenaris’ operations and customer base expose the Company
to a variety of risks, mainly related to market risks (including the effects of
changes in foreign currency exchange rates and interest rates) and capital risk.
To manage the volatility related to these exposures, management evaluates
exposures on a consolidated basis to take advantage of logical exposure netting.
For 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 financial borrowings and “equity” is the sum of
financial borrowings and equity) is 0.13 as of December 31, 2009, in comparison
with 0.25 as of December 31, 2008. The Company does not have to comply with
regulatory capital adequacy requirements as known in the financial services
industry.
62
(ii) Foreign
exchange risk
Tenaris
manufactures and sells its products in a number of countries throughout the
world and consequently is exposed to foreign exchange rate risk. Since the
Company’s functional currency is the U.S. dollar the purpose of Tenaris’ foreign
currency hedging program is mainly to reduce the risk caused by changes in
exchange rates against the U.S. 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.
Inter-company 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, 2009, including the effect of
forward exchange rate contracts in place. These balances also include
inter-company positions where the intervening parties have different functional
currencies.
|
Monetary
position
|
Functional
Currency (in thousand $)
|
||||||||
|
exposure
|
USD
|
EUR
|
MXN
|
GBP
|
BRL
|
JPY
|
CAD
|
RON
|
CNY
|
|
USD
|
(n/a)
|
(211,143)
|
(183,143)
|
(417)
|
393,521
|
89,911
|
211,236
|
5,369
|
(34,706)
|
|
EUR
|
(22,113)
|
(n/a)
|
32,236
|
-
|
361
|
(489)
|
(115)
|
(11,311)
|
1
|
|
MXN
|
(1)
|
-
|
(n/a)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
GBP
|
2,291
|
(2,642)
|
(18)
|
(n/a)
|
-
|
(100)
|
-
|
686
|
-
|
|
BRL
|
-
|
-
|
-
|
-
|
(n/a)
|
-
|
-
|
-
|
-
|
|
JPY
|
344
|
(49)
|
(3)
|
-
|
-
|
(n/a)
|
-
|
-
|
(1,782)
|
|
CAD
|
(67,972)
|
-
|
136
|
-
|
1,476
|
(19)
|
(n/a)
|
-
|
-
|
|
RON
|
(4,017)
|
-
|
-
|
-
|
-
|
-
|
-
|
(n/a)
|
-
|
|
VEF
|
(731)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
ARS
|
(74,527)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Other
|
10,285
|
(7)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
The
Company estimates that the impact under IFRS in the net exposure at December 31,
2009 of a simultaneous 1% favorable / unfavorable movement in the main exchange
rates would result in a maximum pre-tax gain / loss of approximately $12.6
million as compared with a maximum pre-tax gain / loss of approximately $15.8
million at December 31, 2008.
Considering
the above mentioned assumptions the maximum effect in equity originated in
monetary assets and liabilities would result in approximately $4.3 million and
$7.8 million for 2009 and 2008, respectively.
Additionally,
the Company has recognized an embedded derivative in connection to a ten year
steel supply agreement signed in 2007 by a Canadian subsidiary which as of
December 31, 2009 has an estimated outstanding amount of $275.8 million. The
Company estimates that the impact of 1% favorable / unfavorable movement in
USD/CAD the exchange rate would result in a maximum pre-tax gain / loss of
approximately $2.4 million. See fair value of this embedded derivative in Note
25.
63
|
(iii)
|
Interest
rate risk
|
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 December 31,
|
||||||||||||||||
|
2009
|
2008
|
|||||||||||||||
|
Amount
in million of $
|
Percentage
|
Amount
in million of $
|
Percentage
|
|||||||||||||
|
Fixed
rate
|
287.7 | 20 | % | 222.9 | 7 | % | ||||||||||
|
Variable
rate
|
1,159.1 | 80 | % | 2,754.1 | 93 | % | ||||||||||
Considering
the above, if interest rates on the aggregate average notional of variable rate
borrowings held during 2009, would have been 100 basis points higher with all
other variables held constant, total profit for the year ended December 31, 2009
would have been $19.3 million lower.
Tenaris’
financing strategy is to manage interest expense using a mixture of fixed-rate
and variable-rate debt.
In order
to partially hedge future interest payments related to long-term debt, as well
as to convert borrowings from floating to fixed rates, Tenaris has entered into
interest rate swaps and swaps with an embedded knock-in option (See Note
25).
(iv) Credit
risk
Credit
risk arises from cash and cash equivalents, deposits with banks and financial
institutions, as well as credit exposures to customers, including outstanding
receivables and committed transactions. The Company has established credit
guidelines in place to ensure that derivative and treasury counterparties are
limited to high credit quality financial institutions.
There is
no significant concentration of credit risk from customers. No single customer
comprised more than 10% of Tenaris’ net sales in 2009 and 2008.
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).
As of
December 31, 2009 trade receivables amount to $1,310.3 million. These trade
receivables have guarantees under letter of credit and other bank guarantees of
$222.6 million, credit insurance of $317.7 million and other guarantees of $48.6
million.
As of
December 31, 2009 trade receivables amounting to $274.1 million were past due
but not impaired. These relate to a number of customers for whom there is no
recent history of default.
The
amount of the allowance for doubtful accounts was $40.2 million as of December
31, 2009. This allowance for doubtful accounts and the existing guarantees are
sufficient to cover doubtful overdue trade receivables.
(v) Counterparty
risk
Tenaris
has investments guidelines with specific parameters to limit issuer risk on
marketable securities and counterparty risk on financial institutions.
Derivative counterparties and cash transactions are limited to high credit
quality financial institutions, normally investment grade.
More than
97.5% of Tenaris’ liquid financial assets correspond to Investment Grade-rated
instruments as of December 31, 2009, in comparison with 94.9% as of December
31,2008.
64
(vi) Liquidity
risk
Tenaris
has a conservative approach to the management of its liquidity, which consists
of cash and cash equivalents, comprising cash in banks, short-term money market
funds and highly liquid short-term securities with a maturity of no more than
three months at the date of purchase.
Tenaris
holds primarily liquidity money market investments and variable or fixed-rate
securities from investment grade issuers. Tenaris holds its cash and cash
equivalents primarily in U.S. dollar. As of December 31, 2009 and 2008, U.S.
dollar denominated liquid assets represented around 82% and 70% of total liquid
financial assets respectively. Liquid financial assets as a whole (excluding
Available for sale assets) were 15.8% of total assets at the end of 2009
compared to 10.2% at the end of 2008.
Tenaris
financing strategy is to maintain adequate financial resources and access to
additional liquidity. During 2009, Tenaris has counted on cash flows from
operations as well as additional bank financing to fund its
transactions.
Management
maintains sufficient cash and marketable securities to finance normal operations
and believes that Tenaris also has access to market for short-term working
capital needs.
B.
Financial instruments by category
The
accounting policies for financial instruments have been applied to the line
items below:
|
December
31, 2009
|
Assets
at fair value through profit and loss
|
Loans
and receivables
|
Available
for sale
|
Total
|
||||||||||||
|
Assets
as per balance sheet
|
||||||||||||||||
|
Derivative
financial instruments
|
16,873 | - | - | 16,873 | ||||||||||||
|
Trade
receivables
|
- | 1,310,302 | - | 1,310,302 | ||||||||||||
|
Other
receivables
|
- | 102,348 | - | 102,348 | ||||||||||||
|
Available
for sale assets
|
- | - | 21,572 | 21,572 | ||||||||||||
|
Other
investments
|
613,842 | - | - | 613,842 | ||||||||||||
|
Cash
and cash equivalents
|
1,542,829 | - | - | 1,542,829 | ||||||||||||
|
Total
|
2,173,544 | 1,412,650 | 21,572 | 3,607,766 | ||||||||||||
|
Liabilities
at fair value through profit and loss
|
Other
financial liabilities
|
Total
|
||||||||||
|
December
31, 2009
|
||||||||||||
|
Liabilities
as per balance sheet
|
||||||||||||
|
Borrowings
|
- | 1,446,764 | 1,446,764 | |||||||||
|
Derivative
financial instruments
|
23,990 | - | 23,990 | |||||||||
|
Trade
and other payables (*)
|
- | 596,897 | 596,897 | |||||||||
|
Total
|
23,990 | 2,043,661 | 2,067,651 | |||||||||
|
December
31, 2008
|
Assets
at fair value through profit and loss
|
Loans
and receivables
|
Total
|
|||||||||
|
Assets
as per balance sheet
|
||||||||||||
|
Derivative
financial instruments
|
41,509 | - | 41,509 | |||||||||
|
Trade
receivables
|
- | 2,123,296 | 2,123,296 | |||||||||
|
Other
receivables
|
- | 97,683 | 97,683 | |||||||||
|
Other
investments
|
84,218 | - | 84,218 | |||||||||
|
Cash
and cash equivalents
|
1,538,769 | - | 1,538,769 | |||||||||
|
Total
|
1,664,496 | 2,220,979 | 3,885,475 | |||||||||
65
|
Liabilities
at fair value through profit and loss
|
Other
financial liabilities
|
Total
|
||||||||||
|
December
31, 2008
|
||||||||||||
|
Liabilities
as per balance sheet
|
||||||||||||
|
Borrowings
|
- | 2,977,015 | 2,977,015 | |||||||||
|
Derivative
financial instruments
|
77,792 | - | 77,792 | |||||||||
|
Trade
and other payables (*)
|
- | 952,660 | 952,660 | |||||||||
|
Total
|
77,792 | 3,929,675 | 4,007,467 | |||||||||
(*) The
maturity of trade payables is of one year or less.
C.
Fair value by hierarchy
Effective
1 January 2009, Tenaris adopted the amendment to IFRS 7 for financial
instruments that are measured in the balance sheet at fair value, which requires
disclosure of fair value measurements by level of the following fair value
measurement hierarchy:
Level 1-
Quoted prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2-
Inputs other than quoted prices included within level 1 that are observable for
the asset or liability, either directly (that is, as prices) or indirectly (that
is, derived from prices).
Level 3-
Inputs for the asset or liability that are not based on observable market data
(that is, unobservable inputs).
Comparative
information is not presented for the first year of application, as permitted by
the transitional provisions of the standard.
The
following table presents the assets and liabilities that are measured at fair
value at 31 December 2009.
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
|
Assets
|
||||||||||||||||
|
Cash
and cash equivalents
|
1,542,829 | - | - | 1,542,829 | ||||||||||||
|
Other
investments
|
456,209 | 155,137 | 2,496 | 613,842 | ||||||||||||
|
Foreign
exchange derivatives contracts
|
- | 16,873 | - | 16,873 | ||||||||||||
|
Available
for sale assets*
|
- | - | 21,572 | 21,572 | ||||||||||||
|
Total
|
1,999,038 | 172,010 | 24,068 | 2,195,116 | ||||||||||||
|
Liabilities
|
||||||||||||||||
|
Foreign
exchange derivatives contracts
|
- | 3,434 | - | 3,434 | ||||||||||||
|
Interest
rate derivatives financial instruments
|
- | 17,738 | - | 17,738 | ||||||||||||
|
Embedded
derivative (See Note 25)
|
- | - | 2,818 | 2,818 | ||||||||||||
|
Total
|
- | 21,172 | 2,818 | 23,990 | ||||||||||||
* For
further detail regarding Available for sale assets, see Note 32
(b).
The fair
value of financial instruments traded in active markets is based on quoted
market prices at the balance sheet date. A market is regarded as active if
quoted prices are readily and regularly available from an exchange, dealer,
broker, industry group, pricing service, or regulatory agency, and those prices
represent actual and regularly occurring market transactions on an arm’s length
basis. The quoted market price used for financial assets held by Tenaris is the
current bid price. These instruments are included in level 1 and comprise
primary corporate and sovereign debt securities.
66
The fair
value of financial instruments that are not traded in an active market (such as
certain debt securities, certificates of deposits with original maturity of more
than three months, forward and interest rate derivative instruments) is
determined by using valuation techniques. These valuation techniques maximize
the use of observable market data where it is available and rely as little as
possible on entity specific estimates. If all significant inputs required to
value an instrument are observable, the instrument is included in level
2.
If one or
more of the significant inputs is not based on observable market data, the
instruments are included in level 3. The following table presents the changes in
level 3 assets and liabilities:
|
Year
ended December 31, 2009
|
||||||||
|
Assets
|
Liabilities
|
|||||||
|
At
the beginning of the year
|
12,370 | (30,758 | ) | |||||
|
Available
for sale assets
|
11,578 | - | ||||||
|
Gain
for the year
|
- | 27,940 | ||||||
|
Currency
translation adjustment
|
120 | - | ||||||
|
At
the end of the year
|
24,068 | (2,818 | ) | |||||
D.
Fair value estimation
The
paragraphs below describe the fair value estimation for significant financial
instruments included in different categories than those valued at fair value
through profit and loss.
The
carrying amount of financial assets and liabilities with maturities of less than
one year approximates to their fair value.
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.
Most
borrowings are comprised of variable rate debt with a short term portion where
interest has already been fixed. Tenaris estimates that the fair value of its
main financial liabilities is approximately 99.0% of its carrying amount
including interests accrued in 2009 as compared with 98.9% in 2008. 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, 2009 and 0.1% in 2008. 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.
E.
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. These include
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
Consolidated 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). 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 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.
67
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, 2009, the effective
portion of designated cash flow hedges amounts to $16.7 million, not including
tax effect, and is included in Other Reserves in equity (see
Note 25 Derivative financial instruments). Tenaris also documents its assessment
on an ongoing basis, of whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash
flow of hedged items.
The fair
values of various derivative instruments used for hedging purposes are disclosed
in Note 25. Movements in the hedging reserve included within Other Reserves in equity are
also shown in Note 25. The full fair value of a hedging derivative is classified
as a non current asset or liability when the remaining hedged item is more than
12 months and as a current asset or liability when the remaining maturity of the
hedged item is less than 12 months.
68
IV.
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, 2009
|
||||||||||||||||||||||||
|
Net
sales
|
6,670,929 | 986,548 | 491,843 | - | 8,149,320 | 18,558 | ||||||||||||||||||
|
Cost
of sales
|
(3,769,895 | ) | (704,238 | ) | (390,789 | ) | - | (4,864,922 | ) | (31,866 | ) | |||||||||||||
|
Gross
profit
|
2,901,034 | 282,310 | 101,054 | - | 3,284,398 | (13,308 | ) | |||||||||||||||||
|
Selling,
general and administrative expenses
|
(1,325,441 | ) | (75,841 | ) | (72,509 | ) | - | (1,473,791 | ) | (9,540 | ) | |||||||||||||
|
Other
operating income (expenses), net
|
1,249 | 2,165 | (414 | ) | - | 3,000 | (179 | ) | ||||||||||||||||
|
Operating
income
|
1,576,842 | 208,634 | 28,131 | - | 1,813,607 | (23,027 | ) | |||||||||||||||||
|
Segment
assets
|
11,365,861 | 971,783 | 521,520 | 624,144 | 13,483,308 | - | ||||||||||||||||||
|
Segment
liabilities
|
3,463,294 | 234,549 | 64,629 | - | 3,762,472 | - | ||||||||||||||||||
|
Capital
expenditures
|
425,545 | 30,820 | 4,562 | - | 460,927 | - | ||||||||||||||||||
|
Depreciation and
amortization
|
464,841 | 18,593 | 21,403 | - | 504,837 | 27 | ||||||||||||||||||
|
Year
ended December 31, 2008
|
||||||||||||||||||||||||
|
Net
sales
|
10,010,066 | 1,270,915 | 706,779 | - | 11,987,760 | 242,464 | ||||||||||||||||||
|
Cost
of sales
|
(5,300,257 | ) | (883,534 | ) | (514,494 | ) | - | (6,698,285 | ) | (158,616 | ) | |||||||||||||
|
Gross
profit
|
4,709,809 | 387,381 | 192,285 | - | 5,289,475 | 83,848 | ||||||||||||||||||
|
Selling,
general and administrative expenses
|
(1,549,466 | ) | (136,923 | ) | (101,563 | ) | - | (1,787,952 | ) | (44,858 | ) | |||||||||||||
|
Other
operating income (expenses), net
|
(333,302 | ) | (1,415 | ) | (41,156 | ) | - | (375,873 | ) | (109,770 | ) | |||||||||||||
|
Operating
income
|
2,827,041 | 249,043 | 49,566 | - | 3,125,650 | (70,780 | ) | |||||||||||||||||
|
Segment
assets
|
13,154,333 | 941,519 | 477,853 | 527,007 | 15,100,712 | - | ||||||||||||||||||
|
Segment
liabilities
|
5,860,736 | 377,497 | 160,592 | - | 6,398,825 | - | ||||||||||||||||||
|
Capital
expenditures
|
412,298 | 17,284 | 13,656 | - | 443,238 | 3,429 | ||||||||||||||||||
|
Depreciation and
amortization
|
481,953 | 20,084 | 22,426 | - | 524,463 | 17,436 | ||||||||||||||||||
|
Impairment
charge
|
354,905 | - | 39,347 | - | 394,252 | 108,647 | ||||||||||||||||||
|
Year
ended December 31, 2007
|
||||||||||||||||||||||||
|
Net
sales
|
8,433,166 | 876,289 | 564,857 | - | 9,874,312 | 405,916 | ||||||||||||||||||
|
Cost
of sales
|
(4,360,781 | ) | (620,836 | ) | (427,367 | ) | - | (5,408,984 | ) | (264,139 | ) | |||||||||||||
|
Gross
profit
|
4,072,385 | 255,453 | 137,490 | - | 4,465,328 | 141,777 | ||||||||||||||||||
|
Selling,
general and administrative expenses
|
(1,373,773 | ) | (94,702 | ) | (83,361 | ) | - | (1,551,836 | ) | (58,554 | ) | |||||||||||||
|
Other
operating income (expenses), net
|
(19,611 | ) | 24,089 | (998 | ) | - | 3,480 | 1,022 | ||||||||||||||||
|
Operating
income
|
2,679,001 | 184,840 | 53,131 | - | 2,916,972 | 84,245 | ||||||||||||||||||
|
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
|
443,712 | 19,563 | 20,956 | - | 484,231 | 30,589 | ||||||||||||||||||
Transactions
between segments, which were eliminated in consolidation, include sales of scrap
and pipe protectors from the Other segment to the Tubes segment for $113,408,
$191,036 and $109,574 in 2009, 2008 and 2007, respectively.
69
1 Segment
information (Cont.)
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, 2009
|
||||||||||||||||||||||||||||||||
|
Net
sales
|
2,891,523 | 2,285,677 | 866,692 | 1,623,541 | 481,887 | - | 8,149,320 | 18,558 | ||||||||||||||||||||||||
|
Total
assets
|
6,722,816 | 2,790,249 | 2,469,042 | 386,242 | 490,815 | 624,144 | 13,483,308 | - | ||||||||||||||||||||||||
|
Trade
receivables
|
344,548 | 361,976 | 235,708 | 327,924 | 40,146 | - | 1,310,302 | - | ||||||||||||||||||||||||
|
Property,
plant and equipment, net
|
1,387,146 | 826,028 | 864,612 | 14,357 | 162,444 | - | 3,254,587 | - | ||||||||||||||||||||||||
|
Capital
expenditures
|
261,781 | 99,521 | 68,394 | 5,580 | 25,651 | - | 460,927 | - | ||||||||||||||||||||||||
|
Depreciation
and amortization
|
272,677 | 100,089 | 108,770 | 1,367 | 21,934 | - | 504,837 | 27 | ||||||||||||||||||||||||
|
Year
ended December 31, 2008
|
||||||||||||||||||||||||||||||||
|
Net
sales
|
4,809,330 | 2,815,578 | 1,824,684 | 1,810,695 | 727,473 | - | 11,987,760 | 242,464 | ||||||||||||||||||||||||
|
Total
assets
|
7,083,508 | 3,460,729 | 3,033,555 | 436,179 | 559,734 | 527,007 | 15,100,712 | - | ||||||||||||||||||||||||
|
Trade
receivables
|
786,867 | 432,987 | 379,794 | 386,786 | 136,862 | - | 2,123,296 | - | ||||||||||||||||||||||||
|
Property,
plant and equipment, net
|
1,180,738 | 796,009 | 861,892 | 10,128 | 134,104 | - | 2,982,871 | - | ||||||||||||||||||||||||
|
Capital
expenditures
|
159,990 | 141,174 | 101,050 | 6,705 | 34,319 | - | 443,238 | 3,429 | ||||||||||||||||||||||||
|
Depreciation
and amortization
|
298,240 | 99,261 | 111,040 | 1,246 | 14,676 | - | 524,463 | 17,436 | ||||||||||||||||||||||||
|
Year
ended December 31, 2007
|
||||||||||||||||||||||||||||||||
|
Net
sales
|
3,187,753 | 2,185,279 | 1,707,788 | 2,093,916 | 699,576 | - | 9,874,312 | 405,916 | ||||||||||||||||||||||||
|
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 | 102,518 | 87,311 | 1,139 | 9,905 | - | 484,231 | 30,589 | ||||||||||||||||||||||||
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, Colombia, Ecuador and Venezuela; “Europe”
comprises principally Italy, Norway, Romania and Russia; “Middle East and
Africa” comprises principally Algeria, Angola, Iraq, Lybia, Nigeria and Saudi
Arabia; “Far East and Oceania” comprises principally China, Indonesia and
Japan.
(*)
Corresponds to the Venezuelan Companies (years 2009, 2008 and 2007) and Pressure
Control (years 2008 and 2007) operations (See Notes 29 and 32).
(**)
Includes Investments in associated companies and Available for sale assets for
$21.6 million in 2009 (See Note 32 (b)).
70
2 Cost
of sales
|
Year
ended December 31,
|
||||||||||||
|
(all
amounts in thousands of U.S. dollars)
|
2009
|
2008
|
2007
|
|||||||||
|
Inventories
at the beginning of the year
|
3,091,401 | 2,598,856 | 2,372,308 | |||||||||
|
Plus:
Charges of the year
|
||||||||||||
|
Raw
materials, energy, consumables and other
|
1,948,596 | 5,430,147 | 4,183,577 | |||||||||
|
Increase
in inventory due to business combinations
|
53,541 | - | 152,500 | |||||||||
|
Services
and fees
|
240,346 | 395,104 | 392,531 | |||||||||
|
Labor
cost
|
737,883 | 927,132 | 766,173 | |||||||||
|
Depreciation
of property, plant and equipment
|
263,634 | 282,407 | 263,813 | |||||||||
|
Amortization
of intangible assets
|
2,813 | 2,170 | 1,737 | |||||||||
|
Maintenance
expenses
|
145,413 | 203,207 | 180,502 | |||||||||
|
Provisions
for contingencies
|
1,984 | 12 | 3,191 | |||||||||
|
Allowance
for obsolescence
|
89,041 | (2,055 | ) | 24,371 | ||||||||
|
Taxes
|
6,799 | 8,655 | 7,651 | |||||||||
|
Other
|
46,122 | 102,667 | 82,453 | |||||||||
| 3,536,172 | 7,349,446 | 6,058,499 | ||||||||||
|
Deconsolidation
/ Transfer to assets held for sale
|
(43,726 | ) | - | (158,828 | ) | |||||||
|
Less:
Inventories at the end of the year
|
(1,687,059 | ) | (3,091,401 | ) | (2,598,856 | ) | ||||||
| 4,896,788 | 6,856,901 | 5,673,123 | ||||||||||
|
From
Discontinued operations
|
(31,866 | ) | (158,616 | ) | (264,139 | ) | ||||||
| 4,864,922 | 6,698,285 | 5,408,984 | ||||||||||
3 Selling,
general and administrative expenses
|
Year
ended December 31,
|
||||||||||||
|
(all
amounts in thousands of U.S. dollars)
|
2009
|
2008
|
2007
|
|||||||||
|
Services
and fees
|
207,202 | 214,010 | 193,389 | |||||||||
|
Labor
cost
|
407,235 | 447,150 | 402,919 | |||||||||
|
Depreciation
of property, plant and equipment
|
14,524 | 12,096 | 13,272 | |||||||||
|
Amortization
of intangible assets
|
223,893 | 245,226 | 235,998 | |||||||||
|
Commissions,
freight and other selling expenses
|
368,451 | 571,823 | 462,640 | |||||||||
|
Provisions
for contingencies
|
33,880 | 37,101 | 30,738 | |||||||||
|
Allowances
for doubtful accounts
|
13,837 | 13,823 | 5,035 | |||||||||
|
Taxes
|
114,976 | 167,686 | 147,326 | |||||||||
|
Other
|
99,333 | 123,895 | 119,073 | |||||||||
| 1,483,331 | 1,832,810 | 1,610,390 | ||||||||||
|
From
Discontinued operations
|
(9,540 | ) | (44,858 | ) | (58,554 | ) | ||||||
| 1,473,791 | 1,787,952 | 1,551,836 | ||||||||||
71
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)
|
2009
|
2008
|
2007
|
|||||||||
|
Wages,
salaries and social security costs
|
1,113,757 | 1,347,667 | 1,139,587 | |||||||||
|
Employees'
severance indemnity
|
13,436 | 19,168 | 10,931 | |||||||||
|
Pension
benefits - defined benefit plans
|
8,734 | 8,161 | 7,454 | |||||||||
|
Employee
retention and long term incentive program
|
9,191 | (714 | ) | 11,120 | ||||||||
| 1,145,118 | 1,374,282 | 1,169,092 | ||||||||||
|
From
Discontinued operations
|
(23,024 | ) | (55,835 | ) | (57,565 | ) | ||||||
| 1,122,094 | 1,318,447 | 1,111,527 | ||||||||||
5 Other
operating items
|
Year
ended December 31,
|
|||||||||||||
|
(all
amounts in thousands of U.S. dollars)
|
2009
|
2008
|
2007
|
||||||||||
|
(i)
|
Other
operating income
|
||||||||||||
|
Reimbursement
from insurance companies and other third parties
|
76 | 10,511 | 2,611 | ||||||||||
|
Net
income from other sales
|
2,130 | 23,704 | 21,957 | ||||||||||
|
Net
rents
|
3,538 | 1,971 | 2,437 | ||||||||||
|
Other
|
1,750 | - | 1,834 | ||||||||||
| 7,494 | 36,186 | 28,839 | |||||||||||
|
From
Discontinued operations
|
179 | (1,046 | ) | (1,588 | ) | ||||||||
| 7,673 | 35,140 | 27,251 | |||||||||||
|
(ii)
|
Other
operating expenses
|
||||||||||||
|
Contributions
to welfare projects and non-profits organizations
|
2,758 | 2,871 | 2,283 | ||||||||||
|
Provisions
for legal claims and contingencies
|
- | (22 | ) | (51 | ) | ||||||||
|
Loss
on fixed assets and material supplies disposed / scrapped
|
27 | 461 | 5,742 | ||||||||||
|
Settlement
of outstanding redemptions on Maverick’s 2005 notes
|
- | - | 10,275 | ||||||||||
|
Loss
from natural disasters
|
- | 1,743 | 5,693 | ||||||||||
|
Allowance
for doubtful receivables
|
1,888 | (184 | ) | 395 | |||||||||
|
Losses
on prepayment to suppliers
|
- | 3,830 | - | ||||||||||
|
Impairment
charge
|
- | 502,899 | - | ||||||||||
|
Other
|
- | 10,231 | - | ||||||||||
| 4,673 | 521,829 | 24,337 | |||||||||||
|
From
Discontinued operations
|
- | (110,816 | ) | (566 | ) | ||||||||
| 4,673 | 411,013 | 23,771 | |||||||||||
Impairment
charge
Long-lived
assets including identifiable intangible assets and goodwill are regularly
reviewed for impairment.
Long-lived
assets are tested for impairment whenever events or changes in circumstances
indicate that the balance sheet carrying amount of an asset may not be
recoverable. Intangible assets with indefinite useful life, including goodwill
are subject to at least an annual impairment test.
The
recoverable amount is the higher of the value in use and the fair value less
cost to sell.
72
The
present value of future cash flows involves highly sensitive estimates and
assumptions specific to the nature of CGU’s activities such as the selected
discount rate, the expected changes in market prices and the expected changes in
the demand of Tenaris products and services.
Tenaris
uses cash flow projections for a five year period with a terminal value
calculated based on perpetuity.
The
discount rates are the respective weighted average cost of capital (WACC) which
is considered to be a good indicator of the capital cost. For each CGU where the
assets are allocated a specific WACC was determined taking into account the
industry, the country and the size of the business.
In 2008,
Tenaris recorded an impairment charge of $502.9 million; of which $394.3 million
corresponds to intangible assets originated in the acquisition of Maverick in
2006. This charge impacted the following CGU: OCTG (USA and Colombia), Coiled
Tubing, Prudential (Canada) and Electric Conduits.
The
pretax rates used in the calculation ranged from 11% to 14% per annum and for
the cash flows beyond the fifth year an inflation and growth rate of 2% was
considered.
These
impairment charges primarily arose in connection with the Company’s operations
in the United States and Canada, mainly due to recessionary environment, the
abrupt decline in oil and gas prices, and its impact on drilling activity and
therefore on demand for OCTG products.
In
particular, the main factors that precipitated the impairment charges in the
United States and Canada were the steep reduction in the average number of
active oil and drilling rigs, or rig count, in these markets, which are
sensitive to North American gas prices and the worldwide financial and economic
crisis. In 2008, North American gas prices rose rapidly during the first half of
the year, peaking in excess of $12 per million BTU, before falling even more
steeply to levels below $4 per million BTU. This collapse in North American gas
prices had an immediate effect on the U.S. and Canadian rig counts. The rig
count in the United States, which is more sensitive to North American gas
prices, increased 6% in 2008, compared to 2007, rising steadily in the first
part of the year to peak at 2,031 during the month of September and falling in
the fourth quarter to end the year at 1,623 (a 20% decrease over that period);
by the end of March 2009, rig count in the United States had fallen to 1,039, an
additional 36% decrease. This decrease in drilling activity and the high level
of inventories put downward pressure on the tubes price.
Accordingly,
in December 2008, the Company expected that the current decrease in apparent
demand of OCTG products in North America would continue, due to the decline in
oil and gas drilling activity and its customers’ efforts to reduce
inventories.
Tenaris’
Venezuelan operations, today nationalized and consequently disclosed as
discontinued operations, also contributed to this impairment charge of 2008.
Although during the first half of 2008 most of the business indicators of the
Venezuelan subsidiaries were favorable, in the second half of the year the steep
decline in the prices of raw materials affected the operations of Matesi, a
hot-briquetted iron producer; and the lower investments in drilling activity in
Venezuela led to a decline in the projected sales in Tavsa. Also, the operating
disruptions at the production facilities of each of Tenaris former subsidiaries,
Matesi and Tavsa, precipitated this impairment charge.
At
December 31, 2008, the carrying value of the total remaining assets (in thousand
of U.S. dollars) of the impaired businesses was:
|
Total
Assets before impairment
|
Impairment
|
Total
Assets after impairment (*)
|
||||||||||
|
Oil
Country Tubular Goods ("OCTG")
|
2,506,332 | (192,707 | ) | 2,313,625 | ||||||||
|
Prudential
|
736,772 | (138,466 | ) | 598,306 | ||||||||
|
Coiled
Tubing
|
259,722 | (23,732 | ) | 235,990 | ||||||||
|
Electric
Conduits
|
250,106 | (39,347 | ) | 210,759 | ||||||||
|
Total
U.S. and Canadian Operations
|
3,752,932 | (394,252 | ) | 3,358,680 | ||||||||
|
Venezuelan
Operations
|
266,758 | (108,647 | ) | 158,111 | ||||||||
|
Total
|
4,019,690 | (502,899 | ) | 3,516,791 | ||||||||
73
(*) These
amounts include total assets of the operation (e.g. short and long lived
assets), including goodwill and other intangible assets at December 31,
2008.
For the
2009 impairment tests, Tenaris considered that the activity levels will continue
to recover, with better competitive conditions, and the rig counts and oil and
gas prices in North America higher than those of 2009. Accordingly, no
impairment charge was recorded in 2009 financial statements. The discount rates
used for these tests were in a range between 10% and 13%, based on Tenaris’
weighted average cost of capital taking into account the industry, the country
and the size of the business.
The main
factors that could result in additional impairment charges in future periods in
connection with the Company’s continuing operations would be an increase in the
discount rate used in the Company’s cash flow projections and a further
deterioration of the business, competitive and economic factors discussed in
2008, such as the cost of raw materials, oil and gas prices, competitive
environment, capital expenditure program of our clients and the evolution of the
rig count.
Had the
Company used a discount rate 1% higher for its cash flow projections for its
continuing operations, it would have suffered an impairment charge of
approximately $152 million in 2009 and an additional $291 million in 2008. As
there is a significant interaction of the main assumptions made in estimating
its cash flow projections, Tenaris believes that any sensitivity analysis
considering changes in one assumption at a time could potentially be
misleading.
6 Financial
results
|
(all
amounts in thousands of U.S. dollars)
|
Year
ended December 31,
|
|||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Interest
income
|
30,986 | 49,114 | 93,458 | |||||||||
|
Interest
expense (*)
|
(121,881 | ) | (185,851 | ) | (275,763 | ) | ||||||
|
Interest
net
|
(90,895 | ) | (136,737 | ) | (182,305 | ) | ||||||
|
Net
foreign exchange transaction results
|
(73,015 | ) | (120,515 | ) | 5,908 | |||||||
|
Foreign
exchange derivatives contracts results (**)
|
10,467 | 35,993 | (16,690 | ) | ||||||||
|
Other
|
(2,564 | ) | (19,738 | ) | (11,969 | ) | ||||||
|
Other
financial results
|
(65,112 | ) | (104,260 | ) | (22,751 | ) | ||||||
|
Net
financial results
|
(156,007 | ) | (240,997 | ) | (205,056 | ) | ||||||
|
From
Discontinued operations
|
4,307 | 9,973 | 4,726 | |||||||||
| (151,700 | ) | (231,024 | ) | (200,330 | ) | |||||||
Each item
included in this note differs from its corresponding line in the income
statement because it includes discontinued operations’ results.
Net
foreign exchange transaction results include those amounts that affect the gross
margin of certain subsidiaries which functional currencies are different from
the U.S. dollar.
(*)
Interest rate swaps included under “Interest expense” for the years 2009, 2008
and 2007 amount to a loss of $21.7 million, a loss of $9.7 million and a gain
of $0.7 million, respectively.
The
Company estimates that the impact under IFRS of a decrease of up to 1% in the
reference interest rates on the outstanding interest rate derivatives as of
December 31, 2009 would result in a maximum pre-tax loss of approximately $3.3
million.
As
further described in “Section III.A. Financial Risk Factors”, in order to
partially hedge future interest payments related to long-term debt, as well as
to convert borrowings from floating to fixed rates, Tenaris has entered into
interest rate swaps and swaps with an embedded knock-in options. A total
notional amount of $500 million was covered by these instruments which coverage
has begun between April and June, 2009 and expires between April and June, 2011.
Between September and December 2009, a Tenaris subsidiary partially prepaid the
syndicated loan facility entered into to finance the acquisition of Maverick in
an aggregate amount of $320 million. Accordingly, Tenaris derecognized the
corresponding portion of its hedge reserve designation (notional of $150
million) on interest rate swaps derivatives recording a loss for an amount of
$8.2 million, included in the total amount of $21.7 million of interest rate
swaps losses for the year ended December 31, 2009.
74
(**) Tenaris
has identified certain embedded derivatives and in accordance with IAS 39
(“Financial Instruments: Recognition and Measurement”) has accounted for them
separately from their host contracts. A net gain of $27.9 million, a loss of
$40.7 million and a gain of $9.7 million arising from the valuation of these
contracts have been recognized for 2009, 2008 and 2007,
respectively.
7 Equity
in earnings of associated companies
|
Year
ended December 31,
|
||||||||||||
|
(all
amounts in thousands of U.S. dollars)
|
2009
|
2008
|
2007
|
|||||||||
|
From
associated companies
|
87,159 | 89,556 | 94,888 | |||||||||
|
(Loss)
gain on sale of associated companies and other
|
(980 | ) | - | 18,388 | ||||||||
| 86,179 | 89,556 | 113,276 | ||||||||||
|
From
Discontinued operations
|
862 | (133 | ) | (214 | ) | |||||||
| 87,041 | 89,423 | 113,062 | ||||||||||
8 Income
tax
|
Year
ended December 31,
|
||||||||||||
|
(all
amounts in thousands of U.S. dollars)
|
2009
|
2008
|
2007
|
|||||||||
|
Current
tax
|
541,818 | 1,255,759 | 936,831 | |||||||||
|
Deferred
tax
|
(32,962 | ) | (244,331 | ) | (97,799 | ) | ||||||
| 508,856 | 1,011,428 | 839,032 | ||||||||||
|
Effect
of currency translation on tax base (a)
|
4,297 | 10,704 | (5,654 | ) | ||||||||
| 513,153 | 1,022,132 | 833,378 | ||||||||||
|
From
Discontinued operations
|
58 | (6,798 | ) | (27,605 | ) | |||||||
| 513,211 | 1,015,334 | 805,773 | ||||||||||
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)
|
2009
|
2008
|
2007
|
|||||||||
|
Income
before income tax
|
1,748,948 | 2,984,049 | 2,829,704 | |||||||||
|
Tax
calculated at the tax rate in each country
|
525,844 | 918,200 | 835,738 | |||||||||
|
Non
taxable income / Non deductible expenses (*)
|
(25,760 | ) | 85,950 | (6,838 | ) | |||||||
|
Changes
in the tax rates
|
837 | (4,476 | ) | (27,479 | ) | |||||||
|
Effect
of currency translation on tax base (a)
|
4,297 | 10,704 | (5,654 | ) | ||||||||
|
Effect
of taxable exchange differences
|
8,906 | 8,878 | 11,660 | |||||||||
|
Utilization
of previously unrecognized tax losses
|
(913 | ) | (3,922 | ) | (1,654 | ) | ||||||
|
Tax
charge
|
513,211 | 1,015,334 | 805,773 | |||||||||
(*)
Includes the effect of the impairment charge for 2008.
|
(a)
|
Tenaris
applies the liability method to recognize deferred income tax expense on
temporary differences between the tax bases of assets and their carrying
amounts in the financial statements. By application of this method,
Tenaris recognizes gains and losses on deferred income tax due to the
effect of the change in the value of the Argentine peso on the tax bases
of the fixed assets of its Argentine subsidiaries, which have the U.S.
dollar as their functional currency. These gains and losses are required
by IFRS even though the devalued tax basis of the relevant assets will
result in a reduced dollar value of amortization deductions for tax
purposes in future periods throughout the useful life of those assets. As
a result, the resulting deferred income tax charge does not represent a
separate obligation for Tenaris that is due and payable in any of the
relevant periods.
|
75
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,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
income attributable to equity holders
|
1,161,555 | 2,124,802 | 1,923,748 | |||||||||
|
Weighted
average number of ordinary shares in issue (thousands)
|
1,180,537 | 1,180,537 | 1,180,537 | |||||||||
|
Basic
and diluted earnings per share ( U.S. dollars per share)
|
0.98 | 1.80 | 1.63 | |||||||||
|
Basic
and diluted earnings per ADS ( U.S. dollars per ADS) (*)
|
1.97 | 3.60 | 3.26 | |||||||||
|
Dividends
paid
|
(507,631 | ) | (448,604 | ) | (507,631 | ) | ||||||
|
Basic
and diluted dividends per share (U.S. dollars per share)
|
0.43 | 0.38 | 0.43 | |||||||||
|
Basic
and diluted dividends per ADS (U.S. dollars per ADS) (*)
|
0.86 | 0.76 | 0.86 | |||||||||
|
Result
for discontinued operations attributable to equity holders
|
||||||||||||
|
Basic
and diluted earnings per share (U.S. dollars per share)
|
(0.01 | ) | 0.31 | 0.04 | ||||||||
|
Basic
and diluted earnings per ADS (U.S. dollars per ADS) (*)
|
(0.03 | ) | 0.61 | 0.09 | ||||||||
(*)
Each ADS equals to two shares
On
November 5, 2009, 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 26, 2009, with an ex-dividend date of November 23,
2009.
On June
3, 2009, the Company’s shareholders approved an annual dividend in the amount of
$0.43 per share ($0.86 per ADS). The amount approved included the interim
dividend previously paid in November 2008, in the amount of $0.13 per share
($0.26 per ADS). The balance, amounting to $0.30 per share ($0.60 per ADS), was
paid on June 25, 2009. In the aggregate, the interim dividend paid in November
2008 and the balance paid in June 2009 amounted to approximately $507
million.
On
November 6, 2008 Tenaris’ 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 27, 2008 (or, only in those jurisdictions where such date is not a
business day, on November 28, 2008), with an ex-dividend date of November
24.
On June
4, 2008, the Company’s shareholders approved an annual dividend in the amount of
$0.38 per share ($0.76 per ADS) of common stock currently issued and
outstanding. This amount approved included the interim dividend previously paid
in November 2007, in the amount of $0.13 per share ($0.26 per ADS). The balance,
amounting to $0.25 per share ($0.50 per ADS), was paid on June 26, 2008. In the
aggregate, the interim dividend paid in November 2007 and the balance paid in
June 2008 amounted to approximately $449 million.
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.
76
10 Property,
plant and equipment, net
|
Year
ended December 31, 2009
|
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
|
689,173 | 6,238,423 | 195,628 | 235,857 | 38,450 | 7,397,531 | ||||||||||||||||||
|
Translation
differences
|
30,682 | 155,286 | 8,091 | 13,967 | 1,795 | 209,821 | ||||||||||||||||||
|
Additions
|
2,741 | 3,613 | 1,194 | 427,170 | 5,749 | 440,467 | ||||||||||||||||||
|
Disposals
/ Consumptions
|
(3,358 | ) | (10,591 | ) | (3,750 | ) | - | (7,850 | ) | (25,549 | ) | |||||||||||||
|
Increase
due to business acquisitions
|
12,083 | 11,507 | 46 | 487 | - | 24,123 | ||||||||||||||||||
|
Transfers
/ Reclassifications
|
31,603 | 194,760 | (12,859 | ) | (218,954 | ) | 2,886 | (2,564 | ) | |||||||||||||||
|
Deconsolidation
/ Transfers to Available for sale assets
|
(4,435 | ) | (137,874 | ) | (793 | ) | (7,508 | ) | (5,237 | ) | (155,847 | ) | ||||||||||||
|
Values
at the end of the year
|
758,489 | 6,455,124 | 187,557 | 451,019 | 35,793 | 7,887,982 | ||||||||||||||||||
|
Depreciation
and impairment
|
||||||||||||||||||||||||
|
Accumulated
at the beginning of the year
|
158,443 | 4,136,038 | 99,113 | 7,200 | 13,866 | 4,414,660 | ||||||||||||||||||
|
Translation
differences
|
9,419 | 84,364 | 6,684 | - | 252 | 100,719 | ||||||||||||||||||
|
Depreciation
charge
|
19,350 | 232,927 | 24,529 | - | 1,352 | 278,158 | ||||||||||||||||||
|
Transfers
/ Reclassifications
|
194 | 1,183 | (1,377 | ) | - | - | - | |||||||||||||||||
|
Disposals
/ Consumptions
|
(33 | ) | (7,884 | ) | (2,420 | ) | - | (18 | ) | (10,355 | ) | |||||||||||||
|
Deconsolidation
/ Transfers to Available for sale assets
|
(3,550 | ) | (135,809 | ) | (584 | ) | (7,200 | ) | (2,644 | ) | (149,787 | ) | ||||||||||||
|
Accumulated
at the end of the year
|
183,823 | 4,310,819 | 125,945 | - | 12,808 | 4,633,395 | ||||||||||||||||||
|
At
December 31, 2009
|
574,666 | 2,144,305 | 61,612 | 451,019 | 22,985 | 3,254,587 | ||||||||||||||||||
|
Year
ended December 31, 2008
|
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
|
642,269 | 6,570,777 | 196,538 | 327,019 | 35,818 | 7,772,421 | ||||||||||||||||||
|
Translation
differences
|
(87,144 | ) | (436,811 | ) | (9,720 | ) | (26,315 | ) | (2,008 | ) | (561,998 | ) | ||||||||||||
|
Additions
|
16,125 | 7,769 | 2,110 | 381,375 | 4,603 | 411,982 | ||||||||||||||||||
|
Disposals
/ Consumptions
|
(7,986 | ) | (161,804 | ) | (49,958 | ) | - | (3,796 | ) | (223,544 | ) | |||||||||||||
|
Transfers
/ Reclassifications
|
125,909 | 258,492 | 56,658 | (446,222 | ) | 3,833 | (1,330 | ) | ||||||||||||||||
|
Values
at the end of the year
|
689,173 | 6,238,423 | 195,628 | 235,857 | 38,450 | 7,397,531 | ||||||||||||||||||
|
Depreciation
and impairment
|
||||||||||||||||||||||||
|
Accumulated
at the beginning of the year
|
163,919 | 4,196,295 | 132,729 | - | 10,471 | 4,503,414 | ||||||||||||||||||
|
Translation
differences
|
(25,416 | ) | (249,212 | ) | (6,729 | ) | - | (339 | ) | (281,696 | ) | |||||||||||||
|
Depreciation
charge
|
19,431 | 239,990 | 31,622 | - | 1,206 | 292,249 | ||||||||||||||||||
|
Transfers
/ Reclassifications
|
558 | 10,186 | (10,744 | ) | - | - | - | |||||||||||||||||
|
Disposals
/ Consumptions
|
(2,628 | ) | (157,296 | ) | (47,914 | ) | - | (116 | ) | (207,954 | ) | |||||||||||||
|
Impairment
charge (see Note 5)
|
2,579 | 96,075 | 149 | 7,200 | 2,644 | 108,647 | ||||||||||||||||||
|
Accumulated
at the end of the year
|
158,443 | 4,136,038 | 99,113 | 7,200 | 13,866 | 4,414,660 | ||||||||||||||||||
|
At
December 31, 2008
|
530,730 | 2,102,385 | 96,515 | 228,657 | 24,584 | 2,982,871 | ||||||||||||||||||
Property,
plant and equipment include capitalized interests for net amounts at December
31, 2009 and 2008 of $3,371 (out of which $975 were capitalized during the year
2009) and $2,548, respectively.
77
11 Intangible
assets, net
|
Year
ended December 31, 2009
|
Information
system projects
|
Licenses, patents
and trademarks (*)
|
Goodwill
(**)
|
Customer
relationships
|
Total
|
|||||||||||||||
|
Cost
|
||||||||||||||||||||
|
Values
at the beginning of the year
|
203,612 | 495,657 | 2,130,799 | 1,975,254 | 4,805,322 | |||||||||||||||
|
Translation
differences
|
6,679 | 3,170 | 11,963 | 70,418 | 92,230 | |||||||||||||||
|
Additions
|
20,385 | 75 | - | - | 20,460 | |||||||||||||||
|
Deconsolidation
/ Transfers to Available for sale assets
|
(430 | ) | - | - | - | (430 | ) | |||||||||||||
|
Transfers
/ Reclassifications
|
2,564 | - | - | - | 2,564 | |||||||||||||||
|
Disposals
|
(626 | ) | (583 | ) | - | - | (1,209 | ) | ||||||||||||
|
Values
at the end of the year
|
232,184 | 498,319 | 2,142,762 | 2,045,672 | 4,918,937 | |||||||||||||||
|
Amortization
and impairment
|
||||||||||||||||||||
|
Accumulated
at the beginning of the year
|
133,974 | 130,167 | 325,440 | 388,754 | 978,335 | |||||||||||||||
|
Translation
differences
|
5,713 | 204 | 12,652 | 24,500 | 43,069 | |||||||||||||||
|
Amortization
charge
|
20,815 | 54,736 | - | 151,155 | 226,706 | |||||||||||||||
|
Disposals
|
(56 | ) | (37 | ) | - | - | (93 | ) | ||||||||||||
|
Accumulated
at the end of the year
|
160,446 | 185,070 | 338,092 | 564,409 | 1,248,017 | |||||||||||||||
|
At
December 31, 2009
|
71,738 | 313,249 | 1,804,670 | 1,481,263 | 3,670,920 | |||||||||||||||
|
Year
ended December 31, 2008
|
Information
system projects
|
Licenses, patents
and trademarks (*)
|
Goodwill
(**)
|
Customer
relationships
|
Total
|
|||||||||||||||
|
Cost
|
||||||||||||||||||||
|
Values
at the beginning of the year
|
186,073 | 500,523 | 2,149,037 | 2,072,006 | 4,907,639 | |||||||||||||||
|
Translation
differences
|
(9,906 | ) | (7,469 | ) | (16,836 | ) | (100,264 | ) | (134,475 | ) | ||||||||||
|
Additions
|
26,970 | 4,286 | - | - | 31,256 | |||||||||||||||
|
Transfers
/ Reclassifications
|
635 | (1,606 | ) | - | 3,512 | 2,541 | ||||||||||||||
|
Disposals
|
(160 | ) | (77 | ) | (1,402 | ) | - | (1,639 | ) | |||||||||||
|
Values
at the end of the year
|
203,612 | 495,657 | 2,130,799 | 1,975,254 | 4,805,322 | |||||||||||||||
|
Amortization
and impairment
|
||||||||||||||||||||
|
Accumulated
at the beginning of the year
|
124,164 | 67,200 | - | 173,923 | 365,287 | |||||||||||||||
|
Translation
differences
|
(8,041 | ) | (163 | ) | (684 | ) | (14,144 | ) | (23,032 | ) | ||||||||||
|
Amortization
charge
|
17,851 | 63,198 | - | 159,636 | 240,685 | |||||||||||||||
|
Transfers
/ Reclassifications
|
- | - | - | 1,211 | 1,211 | |||||||||||||||
|
Impairment
charge (see Note 5)
|
- | - | 326,124 | 68,128 | 394,252 | |||||||||||||||
|
Disposals
|
- | (68 | ) | - | - | (68 | ) | |||||||||||||
|
Accumulated
at the end of the year
|
133,974 | 130,167 | 325,440 | 388,754 | 978,335 | |||||||||||||||
|
At
December 31, 2008
|
69,638 | 365,490 | 1,805,359 | 1,586,500 | 3,826,987 | |||||||||||||||
(*) Includes
Proprietary Technology.
(**)
Goodwill at December 31, 2009 and December 31, 2008 corresponds principally to
the Tubes segment.
78
The geographical allocation of goodwill is presented below.
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
South
America
|
189,376 | 189,376 | ||||||
|
Europe
|
769 | 769 | ||||||
|
North
America
|
1,614,525 | 1,615,214 | ||||||
| 1,804,670 | 1,805,359 | |||||||
Out of
$1,804.7 million of goodwill, $771.3 million and $919.9 million correspond to
the acquisitions of Maverick and Hydril, respectively. For the purpose of the
impairment test, goodwill is allocated to each of the Tenaris’ CGU’s that are
expected to benefit from the synergies of the combination.
12 Investments
in associated companies
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
At
the beginning of the year
|
527,007 | 509,354 | ||||||
|
Translation
differences
|
(1,302 | ) | (51,004 | ) | ||||
|
Equity
in earnings of associated companies
|
87,159 | 89,556 | ||||||
|
Dividends
and distributions received
|
(11,420 | ) | (15,032 | ) | ||||
|
Transfer
to Available for sale assets
|
(1,615 | ) | - | |||||
|
Increase
in equity reserves in Ternium and other
|
2,743 | (5,867 | ) | |||||
|
At
the end of the year
|
602,572 | 527,007 | ||||||
The
principal associated companies are:
|
Percentage
of ownership and voting rights at December 31,
|
Value
at December 31,
|
|||||||||||||||||||
|
Company
|
Country
of incorporation
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||
|
Ternium
S.A.
|
Luxembourg
|
11.46 | % | 11.46 | % | 584,389 | 504,288 | |||||||||||||
| - | - | - | 18,183 | 22,719 | ||||||||||||||||
| 602,572 | 527,007 | |||||||||||||||||||
Summarized
selected financial information of Ternium, including the aggregated amounts of
assets, liabilities, revenues and profit or loss is as follows:
|
Ternium
S.A.
|
||||||||
|
2009
|
2008
|
|||||||
|
Non-current
assets
|
5,250,135 | 5,491,408 | ||||||
|
Current
assets
|
5,042,538 | 5,179,839 | ||||||
|
Total
assets
|
10,292,673 | 10,671,247 | ||||||
|
Non-current
liabilities
|
2,872,667 | 3,374,964 | ||||||
|
Current
liabilities
|
1,158,767 | 1,734,819 | ||||||
|
Total
liabilities
|
4,031,434 | 5,109,783 | ||||||
|
Minority
interest
|
964,897 | 964,094 | ||||||
|
Revenues
|
4,958,983 | 8,464,885 | ||||||
|
Gross
profit
|
848,613 | 2,336,858 | ||||||
|
Income
from discontinued operations
|
428,023 | 157,095 | ||||||
|
Net
income for the period attributable to equity holders of the
company
|
717,400 | 715,418 | ||||||
79
13 Other
investments – non current
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Deposits
with insurance companies
|
23,482 | 18,487 | ||||||
|
Investments
in other companies
|
2,496 | 12,370 | ||||||
|
Others
|
8,189 | 7,498 | ||||||
| 34,167 | 38,355 | |||||||
14 Receivables
– non current
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Government
entities
|
4,666 | 5,138 | ||||||
|
Employee
advances and loans
|
13,682 | 13,512 | ||||||
|
Tax
credits
|
17,575 | 10,013 | ||||||
|
Trade
receivables
|
298 | 208 | ||||||
|
Receivables
from related parties
|
375 | 495 | ||||||
|
Receivables
on off- take contract
|
104 | 114 | ||||||
|
Legal
deposits
|
22,545 | 15,812 | ||||||
|
Advances
to suppliers and other advances
|
25,181 | 38,862 | ||||||
|
Other
|
21,917 | 3,615 | ||||||
| 106,343 | 87,769 | |||||||
|
Allowances
for doubtful accounts (see Note 23 (i))
|
(4,725 | ) | (5,017 | ) | ||||
| 101,618 | 82,752 | |||||||
15 Inventories
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Finished
goods
|
715,906 | 1,122,147 | ||||||
|
Goods
in process
|
353,367 | 665,982 | ||||||
|
Raw
materials
|
297,834 | 659,973 | ||||||
|
Supplies
|
378,876 | 430,488 | ||||||
|
Goods
in transit
|
125,847 | 306,155 | ||||||
| 1,871,830 | 3,184,745 | |||||||
|
Allowance
for obsolescence (See Note 24 (i))
|
(184,771 | ) | (93,344 | ) | ||||
| 1,687,059 | 3,091,401 | |||||||
16 Receivables
and prepayments
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Prepaid
expenses and other receivables
|
55,473 | 41,244 | ||||||
|
Government
entities
|
11,739 | 3,793 | ||||||
|
Employee
advances and loans
|
14,380 | 14,552 | ||||||
|
Advances
to suppliers and other advances
|
15,894 | 33,063 | ||||||
|
Government
tax refunds on exports
|
35,379 | 35,319 | ||||||
|
Receivables
from related parties
|
16,561 | 45,735 | ||||||
|
Derivative
financial instruments
|
16,873 | 41,509 | ||||||
|
Miscellaneous
|
60,769 | 41,513 | ||||||
| 227,068 | 256,728 | |||||||
|
Allowance
for other doubtful accounts (see Note 24 (i))
|
(6,944 | ) | (5,247 | ) | ||||
| 220,124 | 251,481 | |||||||
80
17 Current
tax assets and liabilities
|
Year
ended December 31,
|
||||||||
|
Current
tax assets
|
2009
|
2008
|
||||||
|
V.A.T.
credits
|
78,925 | 167,691 | ||||||
|
Prepaid
taxes
|
146,524 | 33,916 | ||||||
|
Carry-backs
|
34,831 | - | ||||||
| 260,280 | 201,607 | |||||||
|
Year
ended December 31,
|
||||||||
|
Current
tax liabilities
|
2009
|
2008
|
||||||
|
Income
tax liabilities
|
202,111 | 474,640 | ||||||
|
V.A.T.
liabilities
|
33,382 | 28,274 | ||||||
|
Other
taxes
|
71,046 | 107,399 | ||||||
| 306,539 | 610,313 | |||||||
18 Trade
receivables
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Current
accounts
|
1,341,942 | 2,138,146 | ||||||
|
Receivables
from related parties
|
8,532 | 19,278 | ||||||
| 1,350,474 | 2,157,424 | |||||||
|
Allowance
for doubtful accounts (see Note 24 (i))
|
(40,172 | ) | (34,128 | ) | ||||
| 1,310,302 | 2,123,296 | |||||||
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, 2009
|
||||
|
Guaranteed
|
588,935
|
479,352
|
98,074
|
11,509
|
|
Not
guaranteed
|
761,539
|
556,805
|
163,344
|
41,390
|
|
Guaranteed
and not guaranteed
|
1,350,474
|
1,036,157
|
261,418
|
52,899
|
|
Allowance
for doubtful accounts
|
(40,172)
|
-
|
(183)
|
(39,989)
|
|
Net
Value
|
1,310,302
|
1,036,157
|
261,235
|
12,910
|
|
At
December 31, 2008
|
||||
|
Guaranteed
|
929,566
|
742,854
|
173,687
|
13,025
|
|
Not
guaranteed
|
1,227,858
|
914,784
|
281,946
|
31,128
|
|
Guaranteed
and not guaranteed
|
2,157,424
|
1,657,638
|
455,633
|
44,153
|
|
Allowance
for doubtful accounts
|
(34,128)
|
(246)
|
(2,997)
|
(30,885)
|
|
Net
Value
|
2,123,296
|
1,657,392
|
452,636
|
13,268
|
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,
|
||||||||
|
2009
|
2008
|
|||||||
|
Other
investments
|
||||||||
|
Fixed
income instruments and certificates of deposit
|
579,675 | 45,863 | ||||||
|
Cash
and cash equivalents
|
||||||||
|
Cash
at banks, liquidity funds and short - term investments
|
1,542,829 | 1,538,769 | ||||||
81
20 Borrowings
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Non-Current
|
||||||||
|
Bank
borrowings
|
663,256 | 1,225,267 | ||||||
|
Other
loans
|
220 | 22,803 | ||||||
|
Finance
lease liabilities
|
407 | 564 | ||||||
|
Costs
of issue of debt
|
(8,702 | ) | (7,586 | ) | ||||
| 655,181 | 1,241,048 | |||||||
|
Current
|
||||||||
|
Bank
Borrowings
|
771,024 | 1,608,467 | ||||||
|
Other
loans
|
9,074 | 119,135 | ||||||
|
Bank
Overdrafts
|
14,122 | 13,747 | ||||||
|
Finance
lease liabilities
|
179 | 368 | ||||||
|
Costs
of issue of debt
|
(2,816 | ) | (5,750 | ) | ||||
| 791,583 | 1,735,967 | |||||||
|
Total
Borrowings
|
1,446,764 | 2,977,015 | ||||||
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, 2009
|
||||||||
|
Financial
lease
|
179
|
324
|
83
|
-
|
-
|
-
|
586
|
|
|
Other
borrowings
|
791,404
|
390,638
|
186,625
|
32,700
|
7,579
|
37,232
|
1,446,178
|
|
|
Total
borrowings
|
791,583
|
390,962
|
186,708
|
32,700
|
7,579
|
37,232
|
1,446,764
|
|
|
Interest
to be accrued
|
39,056
|
13,246
|
8,199
|
3,532
|
2,719
|
7,357
|
74,109
|
|
|
Interest
rate derivatives contract
|
12,452
|
5,286
|
-
|
-
|
-
|
-
|
17,738
|
|
|
Total
|
843,091
|
409,494
|
194,907
|
36,232
|
10,298
|
44,589
|
1,538,611
|
Significant
borrowings include:
|
In
million of $
|
|||||||||||
|
Disbursement
date
|
Borrower
|
Type
|
Original
|
Outstanding
|
Final
maturity
|
||||||
|
October
2006
|
Tamsa
|
Syndicated
|
700.0 | 311.1 |
October 2011 (**)
|
||||||
|
May
2007
|
Tenaris
|
Syndicated
|
1,700.0 | 178.6 |
May 2012 (*)
|
||||||
|
May
2007
|
Hydril
|
Syndicated
|
300.0 | 166.7 |
May 2012
|
||||||
|
June
2008
|
Dalmine
|
Bilateral
|
150.0 | 150.0 |
June 2013
|
||||||
|
October
2006
|
Dalmine
|
Syndicated
|
150.0 | 66.7 |
October 2011 (**)
|
||||||
|
March
2005
|
Tamsa
|
Syndicated
|
300.0 | 60.0 |
March 2010
|
||||||
(*) In
May 2009, the Company has elected the option to extend the loan until May
2012.
(**) The
main covenants on these loan agreements are limitations on liens and
encumbrances, limitations on the sale of certain assets, certain restrictions on
capital expenditures, restrictions on investments and compliance with financial
ratios (e.g., leverage ratio and interest coverage ratio).
The main
covenants on Hydril’s loan agreement are stated in Note 27 b).
As of
December 31, 2009, Tenaris was in compliance with all of its
covenants.
82
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,
2009 and 2008. The changes in interest rate are basically due to
changes in floating interest rate.
|
2009
|
2008
|
|||||||
|
Bank
borrowings
|
3.97 | % | 5.23 | % | ||||
|
Other
loans
|
4.00 | % | 4.99 | % | ||||
|
Finance
lease liabilities
|
8.02 | % | 7.74 | % | ||||
Breakdown
of long-term borrowings by currency and rate is as follows:
Non
current bank borrowings
|
Year
ended December 31,
|
|||||||||
|
Currency
|
Interest
rates
|
2009
|
2008
|
||||||
|
USD
|
Variable
|
1,026,288 | 2,268,381 | ||||||
|
USD
|
Fixed
|
20 | 20 | ||||||
|
EUR
|
Variable
|
12,525 | 14,310 | ||||||
|
EUR
|
Fixed
|
4,525 | 5,133 | ||||||
|
BRL
|
Fixed
|
52,979 | - | ||||||
|
BRL
|
Variable
|
- | 11,397 | ||||||
| 1,096,337 | 2,299,241 | ||||||||
|
Less:
Current portion of medium and long - term loans
|
(433,081 | ) | (1,073,974 | ) | |||||
|
Total
non current bank borrowings
|
663,256 | 1,225,267 | |||||||
Non
current other loans
|
Year
ended December 31,
|
|||||||||
|
Currency
|
Interest
rates
|
2009
|
2008
|
||||||
|
USD
|
Variable
|
- | 28,032 | ||||||
|
AED
|
Variable
|
220 | - | ||||||
| 220 | 28,032 | ||||||||
|
Less:
Current portion of medium and long - term loans
|
- | (5,229 | ) | ||||||
|
Total
non current other loans
|
220 | 22,803 | |||||||
Non
current finance lease liabilities
|
Year
ended December 31,
|
|||||||||
|
Currency
|
Interest
rates
|
2009
|
2008
|
||||||
|
EUR
|
Fixed
|
10 | 195 | ||||||
|
USD
|
Fixed
|
572 | 737 | ||||||
| 582 | 932 | ||||||||
|
Less:
Current portion of medium and long - term loans
|
(175 | ) | (368 | ) | |||||
|
Total
non current finance leases
|
407 | 564 | |||||||
The
carrying amounts of Tenaris’ assets pledged as collateral of liabilities are as
follows:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Property,
plant and equipment mortgages
|
167,357 | 247,143 | ||||||
Tenaris’
consolidated debt includes $35.9 million of Dalmine secured by certain of its
properties.
83
Breakdown
of short-term borrowings by currency and rate is as follows:
Current
bank borrowings
|
Year
ended December 31,
|
|||||||||
|
Currency
|
Interest
rates
|
2009
|
2008
|
||||||
|
USD
|
Variable
|
463,370 | 1,134,416 | ||||||
|
USD
|
Fixed
|
674 | 76,472 | ||||||
|
EUR
|
Variable
|
75,001 | 251,138 | ||||||
|
EUR
|
Fixed
|
878 | 837 | ||||||
|
CNY
|
Variable
|
- | 3,951 | ||||||
|
BRL
|
Variable
|
291 | 5,370 | ||||||
|
NGN
|
Fixed
|
669 | - | ||||||
|
ARS
|
Fixed
|
230,141 | 115,541 | ||||||
|
VEB
|
Variable
|
- | 20,509 | ||||||
|
VEB
|
Fixed
|
- | 233 | ||||||
|
Total
current bank borrowings
|
771,024 | 1,608,467 | |||||||
Bank
overdrafts
|
Year
ended December 31,
|
||||||||
|
Currency
|
2009
|
2008
|
||||||
|
USD
|
7,121 | 51 | ||||||
|
EUR
|
762 | 24 | ||||||
|
ARS
|
896 | 8,871 | ||||||
|
VEB
|
- | 44 | ||||||
|
NGN
|
5,152 | 4,051 | ||||||
|
NOK
|
6 | - | ||||||
|
COP
|
157 | 706 | ||||||
|
RON
|
28 | - | ||||||
|
Total
current bank overdrafts
|
14,122 | 13,747 | ||||||
Current
other loans
|
Year
ended December 31,
|
|||||||||
|
Currency
|
Interest
rates
|
2009
|
2008
|
||||||
|
EUR
|
Variable
|
265 | 111,448 | ||||||
|
USD
|
Variable
|
2,733 | 2,186 | ||||||
|
USD
|
Fixed
|
5,610 | 5,229 | ||||||
|
CAD
|
Variable
|
- | 1 | ||||||
|
AED
|
Variable
|
466 | 271 | ||||||
|
Total
Current other loans
|
9,074 | 119,135 | |||||||
Current
finance lease liabilities
|
Year
ended December 31,
|
|||||||||
|
Currency
|
Interest
rates
|
2009
|
2008
|
||||||
|
EUR
|
Fixed
|
14 | 189 | ||||||
|
USD
|
Fixed
|
165 | 179 | ||||||
|
Total
current finance leases
|
179 | 368 | |||||||
84
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,
|
||||||||
|
2009
|
2008
|
|||||||
|
At
the beginning of the year
|
663,515 | 923,246 | ||||||
|
Translation
differences
|
9,991 | (49,022 | ) | |||||
|
Deconsolidation
/ Transfer to held for sale
|
24,250 | (464 | ) | |||||
|
Charged
directly to Other Comprehensive Income
|
(5,684 | ) | 2,421 | |||||
|
Income
statement credit
|
(32,962 | ) | (240,754 | ) | ||||
|
Effect
of currency translation on tax base
|
4,297 | 10,704 | ||||||
|
Deferred
employees' statutory profit sharing charge
|
(223 | ) | 17,384 | |||||
|
At
the end of the year
|
663,184 | 663,515 | ||||||
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
|
242,426 | 49,176 | 762,236 | 1,053,838 | ||||||||||||
|
Translation
differences
|
11,247 | 577 | 11,619 | 23,443 | ||||||||||||
|
Deconsolidation
/ Transfer to held for sale
|
- | - | (149 | ) | (149 | ) | ||||||||||
|
Charged
directly to Other Comprehensive Income
|
- | - | (1,265 | ) | (1,265 | ) | ||||||||||
|
Income
statement charge / (credit)
|
(2,499 | ) | (11,017 | ) | (63,800 | ) | (77,316 | ) | ||||||||
|
At
December 31,2009
|
251,174 | 38,736 | 708,641 | 998,551 | ||||||||||||
|
Fixed
assets
|
Inventories
|
Intangible
and Other (a)
|
Total
|
|||||||||||||
|
At
the beginning of the year
|
300,459 | 39,620 | 893,757 | 1,233,836 | ||||||||||||
|
Translation
differences
|
(37,609 | ) | (5,137 | ) | (22,281 | ) | (65,027 | ) | ||||||||
|
Deconsolidation
/ Transfer to held for sale
|
- | - | (464 | ) | (464 | ) | ||||||||||
|
Income
statement charge / (credit)
|
(20,424 | ) | 14,693 | (108,776 | ) | (114,507 | ) | |||||||||
|
At
December 31,2008
|
242,426 | 49,176 | 762,236 | 1,053,838 | ||||||||||||
(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
|
(59,063 | ) | (218,969 | ) | (1,744 | ) | (110,547 | ) | (390,323 | ) | ||||||||||
|
Translation
differences
|
(8,663 | ) | (1,500 | ) | (352 | ) | (2,937 | ) | (13,452 | ) | ||||||||||
|
Deconsolidation
/ Transfer to held for sale
|
2,809 | 10,260 | - | 11,330 | 24,399 | |||||||||||||||
|
Charged
directly to Other Comprehensive Income
|
- | - | - | (4,419 | ) | (4,419 | ) | |||||||||||||
|
Income
statement charge / (credit)
|
13,760 | 70,238 | (33,676 | ) | (1,894 | ) | 48,428 | |||||||||||||
|
At
December 31, 2009
|
(51,157 | ) | (139,971 | ) | (35,772 | ) | (108,467 | ) | (335,367 | ) | ||||||||||
85
|
Provisions
and allowances
|
Inventories
|
Tax
losses
|
Other
|
Total
|
||||||||||||||||
|
At
the beginning of the year
|
(46,737 | ) | (143,652 | ) | (1,396 | ) | (118,805 | ) | (310,590 | ) | ||||||||||
|
Translation
differences
|
5,243 | 211 | 46 | 10,505 | 16,005 | |||||||||||||||
|
Charged
directly to Other Comprehensive Income
|
- | - | - | 2,421 | 2,421 | |||||||||||||||
|
Income
statement charge / (credit)
|
(17,569 | ) | (75,528 | ) | (394 | ) | (4,668 | ) | (98,159 | ) | ||||||||||
|
At
December 31, 2008
|
(59,063 | ) | (218,969 | ) | (1,744 | ) | (110,547 | ) | (390,323 | ) | ||||||||||
Deferred
income tax assets and liabilities are offset when (1) there is a legally
enforceable right to set off 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,
|
||||||||
|
2009
|
2008
|
|||||||
|
Deferred
tax assets
|
(197,603 | ) | (390,323 | ) | ||||
|
Deferred
tax liabilities
|
860,787 | 1,053,838 | ||||||
| 663,184 | 663,515 | |||||||
The
amounts shown in the balance sheet include the following:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Deferred
tax assets to be recovered after 12 months
|
(106,862 | ) | (71,849 | ) | ||||
|
Deferred
tax liabilities to be recovered after 12 months
|
936,732 | 1,002,325 | ||||||
22 Other
liabilities
(i)
Other
liabilities – Non current
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Employee
liabilities
|
||||||||
|
Employee's
statutory profit sharing
|
26,369 | 26,381 | ||||||
|
Employee
severance indemnity (a)
|
52,725 | 56,939 | ||||||
|
Pension
benefits (b)
|
46,473 | 39,130 | ||||||
|
Employee
retention and long term incentive program
|
19,597 | 10,406 | ||||||
| 145,164 | 132,856 | |||||||
|
Taxes
payable
|
3,360 | 12,605 | ||||||
|
Derivative
financial instruments
|
20,533 | 55,926 | ||||||
|
Miscellaneous
|
23,410 | 21,755 | ||||||
| 47,303 | 90,286 | |||||||
| 192,467 | 223,142 | |||||||
86
(a)
Employees’ severance indemnity
The
amounts recognized in the balance sheet are as follows:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Total
included in non - current Employee liabilities
|
52,725 | 56,939 | ||||||
The
amounts recognized in the income statement are as follows:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Current
service cost
|
10,809 | 16,343 | ||||||
|
Interest
cost
|
2,627 | 2,825 | ||||||
|
Total
included in Labor costs
|
13,436 | 19,168 | ||||||
The
principal actuarial assumptions used were as follows:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Discount
rate
|
4% - 8 | % | 4% - 5 | % | ||||
|
Rate
of compensation increase
|
3% - 6 | % | 2% - 4 | % | ||||
(b)
Pension benefits
|
§
|
Unfunded
|
The
amounts recognized in the balance sheet are determined as follows:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Present
value of unfunded obligations
|
44,261 | 40,339 | ||||||
|
Unrecognized
past service cost
|
- | (68 | ) | |||||
|
Unrecognized
actuarial losses
|
(11,235 | ) | (14,512 | ) | ||||
|
Liability
in the balance sheet
|
33,026 | 25,759 | ||||||
The
amounts recognized in the income statement are as follows:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Current
service cost
|
1,356 | 1,342 | ||||||
|
Interest
cost
|
2,855 | 2,319 | ||||||
|
Net
actuarial losses (gains) recognized in the year
|
681 | 405 | ||||||
|
Past
service cost recognized
|
189 | 30 | ||||||
|
Curtailments
and settlements
|
- | 170 | ||||||
|
Total
included in Labor costs
|
5,081 | 4,266 | ||||||
87
Movement
in the present value of unfunded obligation:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
At
the beginning of the year
|
40,339 | 37,329 | ||||||
|
Translation
differences
|
1,146 | (1,669 | ) | |||||
|
Transfers,
reclassifications and new participants of the plan
|
2,662 | 605 | ||||||
|
Total
expense
|
4,211 | 3,831 | ||||||
|
Actuarial
(gains) losses
|
(2,482 | ) | 2,104 | |||||
|
Contributions
paid
|
- | (791 | ) | |||||
|
Benefits
paid
|
(1,615 | ) | (1,070 | ) | ||||
|
At
the end of the year
|
44,261 | 40,339 | ||||||
The
principal actuarial assumptions used were as follows:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Discount
rate
|
6% - 7 | % | 6% - 7 | % | ||||
|
Rate
of compensation increase
|
2% - 3 | % | 2% - 3 | % | ||||
|
■
|
Funded
|
The
amounts recognized in the balance sheet are as follows:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Present
value of funded obligations
|
144,005 | 117,463 | ||||||
|
Unrecognized
actuarial losses
|
(10,053 | ) | (4,581 | ) | ||||
|
Fair
value of plan assets (*)
|
(120,505 | ) | (99,511 | ) | ||||
|
Liability
in the balance sheet
|
13,447 | 13,371 | ||||||
(*)
Mainly balanced strategy through mutual funds and money markets.
The
amounts recognized in the income statement are as follows:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Current
service cost
|
1,775 | 2,329 | ||||||
|
Interest
cost
|
7,640 | 7,682 | ||||||
|
Net
actuarial (gains) losses recognized in the year
|
(168 | ) | 1,156 | |||||
|
Expected
return on plan assets
|
(5,594 | ) | (7,232 | ) | ||||
|
Past
service cost recognized
|
- | 291 | ||||||
|
Curtailments
and settlements
|
- | (331 | ) | |||||
|
Total
included in Labor costs
|
3,653 | 3,895 | ||||||
88
Movement
in the present value of funded obligations:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
At
the beginning of the year
|
117,463 | 138,736 | ||||||
|
Translation
differences
|
14,204 | (21,672 | ) | |||||
|
Transfers,
reclassifications and new participants of the plan
|
- | 8,250 | ||||||
|
Total
expense
|
9,415 | 9,680 | ||||||
|
Actuarial
losses (gains)
|
11,827 | (11,787 | ) | |||||
|
Benefits
paid
|
(8,817 | ) | (5,709 | ) | ||||
|
Other
|
(87 | ) | (35 | ) | ||||
|
At
the end of the year
|
144,005 | 117,463 | ||||||
Movement
in the fair value of plan assets:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
At
the beginning of the year
|
(99,511 | ) | (122,196 | ) | ||||
|
Translation
differences
|
(10,762 | ) | 18,209 | |||||
|
Transfers,
reclassifications and new participants of the plan
|
- | (6,531 | ) | |||||
|
Expected
return on plan assets
|
(5,594 | ) | (7,232 | ) | ||||
|
Actuarial
(gains) losses
|
(7,694 | ) | 18,820 | |||||
|
Contributions
paid
|
(5,845 | ) | (6,405 | ) | ||||
|
Benefits
paid
|
8,817 | 5,709 | ||||||
|
Other
|
84 | 115 | ||||||
|
At
the end of the year
|
(120,505 | ) | (99,511 | ) | ||||
The
principal actuarial assumptions used were as follows:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Discount
rate
|
6 | % | 6% - 7 | % | ||||
|
Rate
of compensation increase
|
3% - 4 | % | 2% - 3 | % | ||||
(i) Other
liabilities – current
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Payroll
and social security payable
|
151,067 | 166,139 | ||||||
|
Liabilities
with related parties
|
1,142 | 1,424 | ||||||
|
Derivative
financial instruments
|
3,457 | 21,866 | ||||||
|
Miscellaneous
|
36,524 | 53,191 | ||||||
| 192,190 | 242,620 | |||||||
89
23 Non-current
allowances and provisions
(i) Deducted
from non current receivables
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Values
at the beginning of the year
|
(5,017 | ) | (10,583 | ) | ||||
|
Translation
differences
|
276 | 1,157 | ||||||
|
Reversals
/ Additional allowances
|
(2 | ) | (71 | ) | ||||
|
Reclassifications
|
- | (551 | ) | |||||
|
Used
|
18 | 5,031 | ||||||
|
At
December 31,
|
(4,725 | ) | (5,017 | ) | ||||
(ii) Liabilities
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Values
at the beginning of the year
|
89,526 | 97,912 | ||||||
|
Translation
differences
|
9,805 | (12,636 | ) | |||||
|
Deconsolidation
/ Transfer to held for sale
|
(1,380 | ) | - | |||||
|
Reversals
/ Additional provisions
|
(7,170 | ) | 25,604 | |||||
|
Reclassifications
|
129 | (8,408 | ) | |||||
|
Used
|
(10,155 | ) | (12,946 | ) | ||||
|
At
December 31,
|
80,755 | 89,526 | ||||||
24 Current
allowances and provisions
(i) Deducted
from assets
|
Year
ended December 31, 2009
|
Allowance
for doubtful accounts - Trade receivables
|
Allowance
for other doubtful accounts - Other receivables
|
Allowance
for inventory obsolescence
|
|||||||||
|
Values
at the beginning of the year
|
(34,128 | ) | (5,247 | ) | (93,344 | ) | ||||||
|
Translation
differences
|
(333 | ) | (238 | ) | (4,186 | ) | ||||||
|
Reversals
/ Additional allowances
|
(13,960 | ) | (1,763 | ) | (89,041 | ) | ||||||
|
Used
|
3,756 | 304 | 218 | |||||||||
|
Deconsolidation
/ Transfer to held for sale
|
4,493 | - | 1,582 | |||||||||
|
At
December 31, 2009
|
(40,172 | ) | (6,944 | ) | (184,771 | ) | ||||||
|
Year
ended December 31, 2008
|
||||||||||||
|
Values
at the beginning of the year
|
(24,530 | ) | (7,284 | ) | (102,211 | ) | ||||||
|
Translation
differences
|
709 | 208 | 6,552 | |||||||||
|
Reversals
/ Additional allowances
|
(13,901 | ) | 238 | 2,355 | ||||||||
|
Reclassifications
|
- | 551 | - | |||||||||
|
Used
|
3,594 | 1,040 | (40 | ) | ||||||||
|
At
December 31, 2008
|
(34,128 | ) | (5,247 | ) | (93,344 | ) | ||||||
90
(ii) Liabilities
|
Year
ended December 31, 2009
|
Sales
risks
|
Other
claims and contingencies
|
Total
|
|||||||||
|
Values
at the beginning of the year
|
9,318 | 19,193 | 28,511 | |||||||||
|
Translation
differences
|
722 | 871 | 1,593 | |||||||||
|
Reversals
/ Additional allowances
|
20,586 | 19,158 | 39,744 | |||||||||
|
Reclassifications
|
- | (129 | ) | (129 | ) | |||||||
|
Used
|
(23,603 | ) | (17,484 | ) | (41,087 | ) | ||||||
|
At
December 31, 2009
|
7,023 | 21,609 | 28,632 | |||||||||
|
Year
ended December 31, 2008
|
||||||||||||
|
Values
at the beginning of the year
|
9,136 | 10,206 | 19,342 | |||||||||
|
Translation
differences
|
3 | (1,369 | ) | (1,366 | ) | |||||||
|
Reversals
/ Additional allowances
|
5,222 | 6,667 | 11,889 | |||||||||
|
Reclassifications
|
- | 8,408 | 8,408 | |||||||||
|
Used
|
(5,043 | ) | (4,719 | ) | (9,762 | ) | ||||||
|
At
December 31, 2008
|
9,318 | 19,193 | 28,511 | |||||||||
25 Derivative
financial instruments
Net
fair values of derivative financial instruments
The net
fair values of derivative financial instruments disclosed within Other
liabilities and Receivables at the balance sheet date, in accordance with IAS
39, are:
|
Year
ended December 31,
|
||||||||
|
|
2009
|
2008
|
||||||
|
Contracts
with positive fair values
|
||||||||
|
Foreign
exchange derivatives contracts
|
16,873 | 41,509 | ||||||
|
Contracts
with negative fair values
|
||||||||
|
Interest
rate derivatives contracts
|
(17,738 | ) | (29,220 | ) | ||||
|
Foreign
exchange derivatives contracts
|
(3,434 | ) | (17,814 | ) | ||||
|
Embedded
Canadian Dollar forward purchases
|
(2,818 | ) | (30,758 | ) | ||||
91
Foreign
exchange derivatives contracts
The net
fair values of exchange rate derivatives, including embedded derivatives, were
as follows:
|
Currencies
|
Contract
|
Term
|
Fair
Value at Dec-09
|
Fair
Value at Dec-08
|
|
USD/JPY
|
Japanese
Yen Purchases
|
2009
|
-
|
217
|
|
KWD/USD
|
Kuwaiti
Dinar Sales
|
2009
|
-
|
857
|
|
BRL/EUR
|
Euro
Purchases
|
2009
|
-
|
4,901
|
|
RON/USD
|
Romanian
Leu Sales
|
2010
|
6
|
(984)
|
|
GBP/USD
|
Great
Britain Pound Sales
|
2010
|
19
|
-
|
|
USD/MXN
|
Mexican
Peso Purchases
|
2010
|
(305)
|
-
|
|
CAD/USD
|
Canadian
Dollar Sales
|
2010
|
(398)
|
(1,631)
|
|
COP/USD
|
Colombian
Peso Sales
|
2010
|
589
|
-
|
|
BRL/USD
|
Brazilian
Real Sales
|
2010
|
(585)
|
11,109
|
|
MXN/EUR
|
Euro
Purchases
|
2010
|
(674)
|
8,186
|
|
USD/EUR
|
Euro
Purchases
|
2010
|
1,186
|
11,320
|
|
USD/ARS
|
Argentine
Peso Purchases
|
2010
|
13,601
|
(10,280)
|
|
Subtotal
|
13,439
|
23,695
|
||
|
USD/CAD
|
Embedded
Canadian Dollar Purchases
|
2017
|
(2,818)
|
(30,758)
|
|
Total
|
10,621
|
(7,063)
|
Interest
rate derivatives contracts
In order
to minimize the volatility effect of floating rates on future interest rate
payments, Tenaris has entered into a number of swaps with knock in, partially
hedging the outstanding debt. A knock-in swap is a type of barrier option, which
is activated if the reference rate reaches a set level (“knock in”) at the end
of certain period. A total notional amount of $500 million was covered by these
instruments out of which $350 million are outstanding as of December 31,
2009.
Derivative
financial instruments breakdown is as follows:
|
Type
of derivative
|
Receive
Reference rate
|
Term
|
Notional
amount
|
Fair
Value at Dec-09
|
Fair
Value at Dec-08
|
|
Pay
fixed/Receive variable
|
Euribor
|
2010
|
911
|
(22)
|
(82)
|
|
Swaps
with KI (2.50%)
|
Libor
6M
|
2011
|
150,000
|
-
|
(8,852)
|
|
Swaps
with KI (2.50%)
|
Libor
6M
|
2011
|
350,000
|
(17,716)
|
(20,286)
|
|
500,911
|
(17,738)
|
(29,220)
|
92
Hedge
Accounting
Tenaris
applies hedge acccounting for certain cash flow hedges of highly probable
forecast transactions. The following are the derivatives that were designated
for hedge accounting as of December 31, 2009 and 2008.
|
·
|
Foreign
Exchange Hedge
|
|
Fair
Value
|
Hedge
Accounting Reserve
|
|||||||||||||||||
|
Year
ended December 31,
|
Year
ended December 31,
|
|||||||||||||||||
|
Currencies
|
Contract
|
Term
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
|
USD/EUR
|
Euro
Forward Purchases
|
2010
|
(506 | ) | - | (506 | ) | - | ||||||||||
|
BRL/EUR
|
Euro
Forward Purchases
|
2009
|
- | 4,901 | - | 6,716 | ||||||||||||
|
BRL/USD
|
Brazilian
Real Forward Sales
|
2008
|
- | - | - | 362 | ||||||||||||
|
MXN/EUR
|
Euro
Forward Purchases
|
2010
|
(674 | ) | 5,432 | 1,511 | 5,671 | |||||||||||
| (1,180 | ) | 10,333 | 1,005 | 12,749 | ||||||||||||||
|
·
|
Interest
Rate Hedge
|
|
Fair
Value
|
Hedge
Accounting Reserve
|
|||||||||||||||||||||||||
|
Type
of
|
Notional
|
Year
ended December 31,
|
Year
ended December 31,
|
|||||||||||||||||||||||
|
Derivative
|
Rate
|
Term
|
Rate
|
Amount
|
2009
|
2008
|
2009
|
2008
|
||||||||||||||||||
|
Pay
fixed / Receive variable
|
Euribor
|
2010
|
5.72 | % | 911 | (22 | ) | (82 | ) | - | (106 | ) | ||||||||||||||
|
Swaps
with KI (2.50%)
|
Libor
6M
|
2011
|
4.79% - 5.01 | % | 150,000 | - | (8,852 | ) | - | (8,852 | ) | |||||||||||||||
|
Swaps
with KI (2.50%)
|
Libor
6M
|
2011
|
4.60% - 5.08 | % | 350,000 | (17,716 | ) | (20,286 | ) | (17,716 | ) | (20,779 | ) | |||||||||||||
| (17,738 | ) | (29,220 | ) | (17,716 | ) | (29,737 | ) | |||||||||||||||||||
The
following is a summary of the hedge reserve evolution not including tax
effect:
|
Equity
Reserve Dec-07
|
Movements
2008
|
Equity
Reserve Dec-08
|
Movements
2009
|
Equity
Reserve Dec-09
|
||||||||||||||||
|
Foreign
Exchange
|
(5,462 | ) | 18,211 | 12,749 | (11,744 | ) | 1,005 | |||||||||||||
|
Interest
Rate (Euribor)
|
(91 | ) | (15 | ) | (106 | ) | 106 | - | ||||||||||||
|
Interest
Rate Collars
|
(2,922 | ) | 2,922 | - | - | - | ||||||||||||||
|
Interest
Rate (swaps with KI – notional $150 million)
|
- | (8,852 | ) | (8,852 | ) | 8,852 | - | |||||||||||||
|
Interest
Rate (swaps with KI – notional $350 million)
|
- | (20,779 | ) | (20,779 | ) | 3,063 | (17,716 | ) | ||||||||||||
|
Total
Cash flow Hedge
|
(8,475 | ) | (8,513 | ) | (16,988 | ) | 277 | (16,711 | ) | |||||||||||
26 Contingencies,
commitments and restrictions to the distribution of profits
Contingencies
Tenaris
is involved in litigations 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.
93
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 32 asbestos related out-of-court claims have been forwarded to
Dalmine.
As of
December 31, 2009, the total claims pending against Dalmine were 45 (of which,
none are covered by insurance): during 2009, 12 new claims were filed, no claims were adjudicated,
6 claims were
settled all of which were paid, 3 claims were rejected and
13 claims were
dismissed.
Aggregate
settlement costs to date for Tenaris are Euro 8.5 million ($12.3 million).
Dalmine estimates that its potential liability in connection with the claims not
yet settled is approximately Euro 12.8 million ($18.4 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.
U.S.
income tax return
The U.S.
Internal Revenue Service (the “IRS”) is currently conducting its field
examination of the Maverick Tube Corporation (“Maverick”) 2005 and 2006 U.S. tax
returns. In connection with such field examination, the IRS has
issued several Notices of Proposed Adjustment (NOPAs), which reflect
the IRS’s opening position considering the facts and law as the IRS has
developed them to date. The NOPAs seek to disallow, in full or in part,
certain interest expense deductions taken in 2005 and 2006 of $1.0 million
and $87.3 million, respectively, and to assess interest on any resulting
underpayment of income tax. In particular, the NOPAs relating to the
2006 tax return propose an upward adjustment to Maverick’s income
ranging from $23.2 million to $87.3 million, based on three alternative
arguments. The Company believes that the Maverick 2005
and 2006 tax returns comply with applicable tax law and will vigorously
defend its tax returns with IRS appeal and litigate the matter if
necessary.
Maverick
litigation
On
November 22, 2006, Maverick Tube Corporation (“Maverick”) received a letter from
The Bank of New York as trustee (“the Trustee”) for the holders of 2004 4%
Convertible Senior Subordinated Notes due 2033 issued by Maverick (“the 2004
Notes”), concerning an alleged breach of the indenture entered into on December
30, 2004, between Maverick and the Trustee, and governing the 2004 Notes (as
amended, the “Indenture”). The alleged breach of the Indenture was based on
Maverick’s refusal to grant the holders of the 2004 Notes conversion rights
provided by the “Public Acquirer Change of Control” provision of the
Indenture.
On
December 11, 2006, the Trustee filed a complaint against Maverick and Tenaris in
the United States District Court for the Southern District of New York. The
complaint alleged that Tenaris’ acquisition of Maverick triggered the “Public
Acquirer Change of Control” provision and asserted a breach of contract claim
against Maverick for refusing to accept the 2004 Notes for conversion for the
consideration specified in the “Public Acquirer Change of Control” provision.
The complaint also seeks a declaratory judgment that Tenaris’ acquisition of
Maverick was a “Public Acquirer Change of Control” under the Indenture, and
therefore triggers the above mentioned conversion rights, and asserts claims for
tortious 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. On January 25, 2008, Law Debenture Trust Company of
New York (as successor to BNY as trustee under the Indenture) was
substituted for The Bank of New York as plaintiff. On October 15,
2008, the court denied Law Debenture’s motion for partial summary judgment and
granted defendants’ motion for summary judgment dismissing the complaint in its
entirety.
94
On
February 19, 2010, the United States Court of Appeals for the Second
Circuit affirmed the District Court's judgment. The plaintiff is entitled
to file a motion for rehearing, or rehearing en banc, with the Court of Appeals,
or a petition for certiorari with the U.S. Supreme Court. The
Company believes that the plaintiff's chances of prevailing on further appeal
are remote.
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 91.0 million
(approximately $24.1 million) at December 31, 2009, in taxes and penalties.
Based on the views of Siderca’s tax advisors, Tenaris believes that it is not
probable that the ultimate resolution of the matter will result in an
obligation. Accordingly, no provision was recorded in these Consolidated
Financial Statements.
Customer
Claim
A lawsuit
was filed on September 6, 2007, against three Tenaris’ subsidiaries, alleging
negligence, gross negligence and intentional acts characterized as fraudulent
inducement concerning allegedly defective well casing. Plaintiff alleged the
complete loss of one natural gas production well and formation damage that
precludes further exploration and production at the well site and sought
compensatory and punitive damages of $25 million. The lawsuit was subsequently
amended to add the Company and other of its subsidiaries as defendants and to
change the claims to be breach of contract and fraud. On October 22, 2008, the
Plaintiff again amended its petition to add new counts (including strict
liability) and increase its prayer for damages to $245 million, plus punitive
damages, treble damages and attorney fees. Each petition was tendered to a
Tenaris subsidiary insurer, and the Tenaris subsidiary received the insurer’s
agreement to provide a defense. The insurer reserved its rights with respect to
its indemnity obligations. On July 20, 2009 the lawsuit was settled for an
amount of $15 million and thus a Tenaris subsidiary recorded a loss of $12.7
million in addition to the previously recorded of $2.3 million. As of the date
of these Consolidated Financial Statements, the insurer is not participating in
this settlement. On September 11, 2009 certain Tenaris subsidiaries initiated
legal proceedings against the insurer. According to IAS 37, no
expected reimbursement from the insurer has been registered yet.
Ongoing
investigation
The
Company has learned from one of its customers in Central Asia that certain sales
agency payments made by one of the Company’s subsidiaries may have improperly
benefited employees of the customer and other persons. These payments may have
violated certain applicable laws, including the U.S. FCPA (“Foreign corrupt
practices act”). The Audit Committee of the Company’s Board of Directors has
engaged external counsel in connection with a review of these payments and
related matters, and the Company has voluntarily notified the U.S. Securities
and Exchange Commission and the U.S. Department of Justice. The Company will
share the results of this review with the appropriate regulatory agencies, and
will cooperate with any investigations that may be conducted by such agencies.
At this time, the Company cannot predict the outcome of these matters or
estimate the range of potential loss or extent of risk, if any, to the Company’s
business that may result from resolution of these matters.
Commitments
Set forth
is a description of Tenaris’ main outstanding commitments:
|
·
|
A
Tenaris company is a 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 on a monthly basis. The Tenaris
company has negotiated and obtained from Nucor a waiver of the monthly
committed volumes. The Company is reviewing its steel purchasing
requirements with Nucor each quarter, therefore, the current waiver of
monthly commitments is valid until March 31,
2010.
|
95
|
·
|
A
Tenaris company is a 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 remaining
commitments on the contract at current prices is approximately $275.8
million. The contract allows the Tenaris company to claim lower
commitments in market downturns and severe market downturns subject to
certain limitations.
|
|
·
|
A
Tenaris company is a party to a contract with Siderar for the supply of
steam generated at the power generation facility owned by Tenaris in San
Nicolas, 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
to the distribution of profits and payment of dividends
As of
December 31, 2009, 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,
2009
|
3,916,482 | |||
|
Total
equity in accordance with Luxembourg law
|
5,824,806 |
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,
2009, 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, 2009, distributable amount for the financial period of Tenaris
under Luxembourg law totals $4.5 billion, as detailed below.
(all
amounts in thousands of U.S. dollars)
|
Retained
earnings at December 31, 2008 under Luxembourg law
|
3,174,932 | |||
|
Dividends
received
|
1,265,460 | |||
|
Other
income and expenses for the year ended December 31, 2009
|
(16,279 | ) | ||
|
Dividends
paid
|
(507,631 | ) | ||
|
Retained
earnings at December 31, 2009 under Luxembourg law
|
3,916,482 | |||
|
Share
premium
|
609,733 | |||
|
Distributable
amount at December 31, 2009 under Luxembourg law
|
4,526,215 |
27 Business
combinations and other acquisitions
(a)
Tenaris acquired control of Seamless Pipe Indonesia Jaya
In April
2009, Tenaris completed the acquisition from Bakrie & Brothers TbK, Green
Pipe International Limited and Cakrawala Baru of a 77.45% holding in Seamless
Pipe Indonesia Jaya (“SPIJ”), an Indonesian OCTG processing business with heat
treatment and premium connection threading facilities, for a purchase price of
$69.5 million, with $21.9 million being payable as consideration for SPIJ's
equity and $47.6 million as consideration for the assignment of certain sellers'
loan to SPIJ. Tenaris began consolidating SPIJ’s balance sheet and results of
operations since April 2009.
96
Pro
forma data including acquisitions for all of 2009
Had the
SPIJ transaction been consummated on January 1, 2009, then Tenaris’ unaudited
pro forma net sales and net income from continuing operations would not have
changed materially.
(b)
Acquisition of Hydril Company (“Hydril”)
On May 7,
2007, Tenaris paid $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 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 in capital
expenditures.
In
November 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. In May and July 2008, the Company prepaid loans under the Company’s
syndicated loan agreement in a principal amount of $0.75 billion plus accrued
interest thereon. In May 2009, the Company has elected to extend until May 2012
the due date of the $250 million outstanding principal amount of the Tranche A
loans under the Company’s syndicated loan agreement.
Tenaris
began consolidating Hydril’s balance sheet and results of operations as from
May, 2007.
(c)
Minority Interest
During
the year ended December 31, 2009, 2008 and 2007 additional shares of certain
Tenaris subsidiaries were acquired from minority shareholders for approximately
$ 9.5 million, $18.6 million and $3.3 million respectively.
The
assets and liabilities determined arising from the acquisitions are as
follows:
|
Year
ended December 31, 2009
|
||||
|
Other
assets and liabilities (net)
|
(1,309 | ) | ||
|
Property,
plant and equipment
|
24,123 | |||
|
Net
assets acquired
|
22,814 | |||
|
Minority
interest
|
3,170 | |||
|
Sub-total
|
25,984 | |||
|
Assumed
liabilities
|
47,600 | |||
|
Sub-total
|
73,584 | |||
|
Cash
acquired
|
5,501 | |||
|
Purchase
consideration
|
79,085 | |||
The
businesses acquired during the year ended December 31, 2009 contributed revenues
of $92.5 million and an operating income of $0.9 million.
97
28 Cash
flow disclosures
|
(i)
|
Changes
in working capital
|
Year
ended December 31,
|
|||||||||||
|
2009
|
2008
|
2007
|
|||||||||||
|
Inventories
|
1,414,157 | (492,545 | ) | (252,810 | ) | ||||||||
|
Receivables
and prepayments
|
(52,395 | ) | 12,079 | 2,080 | |||||||||
|
Trade
receivables
|
792,345 | (374,463 | ) | (115,838 | ) | ||||||||
|
Other
liabilities
|
80,696 | (71,638 | ) | 127,434 | |||||||||
|
Customer
advances
|
(180,531 | ) | (174,014 | ) | 113,548 | ||||||||
|
Trade
payables
|
(316,924 | ) | 48,949 | 15,161 | |||||||||
| 1,737,348 | (1,051,632 | ) | (110,425 | ) | |||||||||
|
(ii)
|
Income
tax accruals less payments
|
||||||||||||
|
Tax
accrued (*)
|
513,153 | 1,011,675 | 833,378 | ||||||||||
|
Taxes
paid
|
(971,239 | ) | (1,236,713 | ) | (1,226,433 | ) | |||||||
| (458,086 | ) | (225,038 | ) | (393,055 | ) | ||||||||
|
|
(*) Does
not include tax accrued on the sale of Pressure Control disclosed as
discontinued operations.
|
(iii)
|
Interest
accruals less payments, net
|
||||||||||||
|
Interest
accrued
|
90,896 | 136,737 | 183,995 | ||||||||||
|
Interest
received
|
26,900 | 83,241 | 62,697 | ||||||||||
|
Interest
paid
|
(141,963 | ) | (164,486 | ) | (267,994 | ) | |||||||
| (24,167 | ) | 55,492 | (21,302 | ) | |||||||||
|
(iv)
|
Cash
and cash equivalents
|
||||||||||||
|
Cash
at banks, liquidity funds and
short
- term investments
|
1,542,829 | 1,538,769 | 962,497 | ||||||||||
|
Bank
overdrafts
|
(14,122 | ) | (13,747 | ) | (8,194 | ) | |||||||
| 1,528,707 | 1,525,022 | 954,303 | |||||||||||
29 Discontinued
operations
Nationalization
of Venezuelan Subsidiaries
The
results of operations and cash flows generated by the Venezuelan Companies (as
defined in Note 32 (b)) are presented as discontinued operations in these
Consolidated Financial Statements. For further information see Note 32
(b).
Sale
of Hydril pressure control business
On April 1, 2008, Tenaris sold to
General Electric Company (GE) the pressure control business included as part of
the acquisition of Hydril Company undertaken on May 2007. The pressure control
business was sold, for an amount equivalent on a debt-free basis to $1,114
million. The result of this transaction was an after-tax gain of $394.3 million,
calculated as the net proceeds of the sale less the book value of net assets
held for sale, the corresponding tax effect and related
expenses.
98
Book
value of the Assets and Liabilities disposed:
|
At
March 31, 2008
|
||||
|
Property,
plant and equipment, net
|
64,556 | |||
|
Intangible
assets, net
|
295,371 | |||
|
Inventories
|
173,110 | |||
|
Trade
receivables
|
78,018 | |||
|
Other
assets
|
39,643 | |||
|
Total
current and non current assets held for sale
|
650,698 | |||
|
Deferred
tax liabilities
|
71,434 | |||
|
Customer
advances
|
128,975 | |||
|
Trade
payables
|
54,175 | |||
|
Other
liabilities
|
15,291 | |||
|
Liabilities
associated with current and non-current assets held for
sale
|
269,875 | |||
Analysis
of the result of discontinued operations:
(i)
Result for discontinued operations
|
(all
amounts in thousands of U.S. dollars)
|
(*)
Year ended December 31,
|
|||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
(Loss)
income for discontinued operations
|
(28,138 | ) | (87,418 | ) | 52,128 | |||||||
|
After
tax gain on disposal of operations
|
- | 394,323 | - | |||||||||
|
Net
(loss) income for discontinued operations
|
(28,138 | ) | 306,905 | 52,128 | ||||||||
(*)
Corresponds to the Venezuelan Companies (years 2009, 2008 and 2007) and Pressure
Control (years 2008 and 2007) operations.
(ii)
Net cash flows attributable to discontinued operations
|
(*)
Year ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
cash provided by operating activities
|
1,788 | 20,786 | 41,678 | |||||||||
|
Net
cash used in investing activities
|
(801 | ) | (7,330 | ) | (21,854 | ) | ||||||
|
Net
cash provided by (used in) financing activities
|
5,306 | 9,046 | (10,796 | ) | ||||||||
(*)
Corresponds to the Venezuelan Companies (years 2009, 2008 and 2007) and Pressure
Control (years 2008 and 2007) operations.
All
amounts were estimated only for disclosure purposes, as cash flows from these
discontinued operations were not managed separately from other cash
flows.
30 Related
party transactions
Based on
the information most recently available to the Company, as of December 31,
2009:
|
·
|
San
Faustin N.V. owned 713,605,187 shares in the Company, representing 60.45%
of the Company’s capital and voting
rights.
|
|
·
|
San
Faustin N.V. owned all of its shares in the Company through its
wholly-owned subsidiary I.I.I. Industrial Investments
Inc.
|
|
·
|
Rocca
& Partners S.A. controlled a significant portion of the voting power
of San Faustín N.V. and had 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 were
no controlling shareholders for Rocca & Partners
S.A.
|
99
Based on
the information most recently available to the Company, as of December 31, 2009
Tenaris’ directors and senior management as a group owned 0.14% of the Company’s
outstanding shares, while the remaining 39.41% were publicly
traded.
At
December 31, 2009, the closing price of Ternium’s ADSs as quoted on the New York
Stock Exchange was $35.42 per ADS, giving Tenaris’ ownership stake a market
value of approximately $813.6 million. At December 31, 2009, the carrying value
of Tenaris’ ownership stake in Ternium, based on Ternium’s IFRS financial
statements, was approximately $584.4 million. See Section II.B.2.
Transactions
and balances disclosed as with “Associated” companies are those with companies
over which Tenaris exerts significant influence or joint control in accordance
with IFRS, but does not have control. All other transactions and balances with
related parties which are not Associated and which are not consolidated are
disclosed as “Other”. The following transactions were carried out with related
parties:
|
Year
ended December 31, 2009
|
|||||||||||||
|
Associated
(1)
|
Other
|
Total
|
|||||||||||
|
(i)
|
Transactions
(2)
|
||||||||||||
|
(a)
Sales of goods and services
|
|||||||||||||
|
Sales
of goods
|
25,561 | 75,097 | 100,658 | ||||||||||
|
Sales
of services
|
12,752 | 4,352 | 17,103 | ||||||||||
| 38,313 | 79,449 | 117,762 | |||||||||||
|
(b)
Purchases of goods and services
|
|||||||||||||
|
Purchases
of goods
|
40,171 | 9,705 | 49,877 | ||||||||||
|
Purchases
of services
|
89,023 | 71,541 | 160,564 | ||||||||||
| 129,194 | 81,247 | 210,441 | |||||||||||
|
Year
ended December 31, 2008
|
|||||||||||||
|
Associated
(1)
|
Other
|
Total
|
|||||||||||
|
(i)
|
Transactions
(3)
|
||||||||||||
|
(a)
Sales of goods and services
|
|||||||||||||
|
Sales
of goods
|
74,420 | 37,636 | 112,056 | ||||||||||
|
Sales
of services
|
19,444 | 4,205 | 23,649 | ||||||||||
| 93,864 | 41,841 | 135,705 | |||||||||||
|
(b)
Purchases of goods and services
|
|||||||||||||
|
Purchases
of goods
|
123,704 | 24,161 | 147,865 | ||||||||||
|
Purchases
of services
|
125,161 | 79,037 | 204,198 | ||||||||||
| 248,865 | 103,198 | 352,063 | |||||||||||
|
Year
ended December 31, 2007
|
|||||||||||||
|
Associated
(4)
|
Other
|
Total
|
|||||||||||
|
(i)
|
Transactions
(5)
|
||||||||||||
|
(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 | |||||||||||
100
|
At
December 31, 2009
|
|||||||||||||
|
Associated
(1)
|
Other
|
Total
|
|||||||||||
|
(ii)
|
Year-end
balances
|
||||||||||||
|
(a)
Arising from sales / purchases of goods / services
|
|||||||||||||
|
Receivables
from related parties
|
18,273 | 7,093 | 25,366 | ||||||||||
|
Payables
to related parties
|
(23,898 | ) | (5,856 | ) | (29,754 | ) | |||||||
| (5,625 | ) | 1,237 | (4,388 | ) | |||||||||
|
(b)
Financial debt
|
|||||||||||||
|
Borrowings
|
(2,907 | ) | - | (2,907 | ) | ||||||||
|
At
December 31, 2008
|
|||||||||||||
|
Associated
(1)
|
Other
|
Total
|
|||||||||||
|
(ii)
|
Year-end
balances
|
||||||||||||
|
(a)
Arising from sales / purchases of goods / services
|
|||||||||||||
|
Receivables
from related parties
|
50,137 | 15,504 | 65,641 | ||||||||||
|
Payables
to related parties
|
(44,470 | ) | (5,974 | ) | (50,444 | ) | |||||||
| 5,667 | 9,530 | 15,197 | |||||||||||
|
(b)
Financial debt
|
|||||||||||||
|
Borrowings
|
(2,294 | ) | - | (2,294 | ) | ||||||||
|
At
December 31, 2007
|
|||||||||||||
|
Associated
(1)
|
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
(6)
|
(27,482 | ) | - | (27,482 | ) | ||||||||
(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”),
Socotherm Brasil S.A. (“Socotherm”) and Hydril Jindal International Private
Ltd.
(2)
Includes $2.5 million of purchases of nationalized Venezuelan
subsidiaries.
(3)
Includes $12.9 million of sales and $9.5 million of purchases of nationalized
Venezuelan subsidiaries.
(4)
Includes Ternium, Condusid, Finma, Lomond, Dalmine Energie S.p.A. (“Dalmine
Energie”) (until October 2007), Socotherm, Hydril Jindal
International Private Ltd. and TMK – Hydril JV.
(5)
Includes $52.5 million of sales and $56.1 million of purchases of nationalized
Venezuelan subsidiaries.
(6)
Includes loan from Sidor to Matesi of $26.4 million at December 31,
2007.
Directors’
and senior management compensation
The
aggregate compensation earned by directors and senior management during 2009,
2008 and 2007 amounts to $18.2 million, $22.5 million and $20.0 million
respectively.
101
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,
2009.
|
Company
|
Country
of Organization
|
Main
activity
|
Percentage
of ownership at December 31, (*)
|
||
|
2009
|
2008
|
2007
|
|||
|
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
|
40%
|
40%
|
39%
|
|
DALMINE
S.p.A.
|
Italy
|
Manufacturing
of seamless steel pipes
|
99%
|
99%
|
99%
|
|
HYDRIL
COMPANY and subsidiaries (except detailed) (b)
|
USA
|
Manufacture
and marketing of premium connections
|
100%
|
100%
|
100%
|
|
HYDRIL
U.K. LTD.
|
United
Kingdom
|
Manufacturing
of steel products
|
100%
|
100%
|
100%
|
|
INVERSIONES
BERNA S.A.
|
Chile
|
Financial
Company
|
100%
|
100%
|
100%
|
|
MAVERICK
TUBE CORPORATION and subsidiaries (except detailed)
|
USA
|
Manufacturing
of welded steel pipes
|
100%
|
100%
|
100%
|
|
MAVERICK
TUBE, LLC
|
USA
|
Manufacturing
of welded steel pipes
|
100%
|
100%
|
100%
|
|
NKKTUBES
|
Japan
|
Manufacturing
of seamless steel pipes
|
51%
|
51%
|
51%
|
|
PRUDENTIAL
STEEL ULC
|
Canada
|
Manufacturing
of welded steel pipes
|
100%
|
100%
|
100%
|
|
S.C.
SILCOTUB S.A.
|
Romania
|
Manufacturing
of seamless steel pipes
|
100%
|
100%
|
99%
|
|
SIAT
S.A.
|
Argentina
|
Manufacturing
of welded and seamless steel pipes
|
82%
|
82%
|
82%
|
|
SIDERCA
S.A.I.C. and subsidiaries (except detailed) (c)
|
Argentina
|
Manufacturing
of seamless steel pipes
|
100%
|
100%
|
100%
|
|
SIDTAM
LTD.
|
British
Virgin Islands
|
Holding
Company
|
100%
|
100%
|
100%
|
|
TALTA
- TRADING E MARKETING SOCIEDADE UNIPESSOAL LDA.
|
Madeira
|
Holding
Company
|
100%
|
100%
|
100%
|
|
TENARIS
CONNECTION Limited and subsidiaries (except detailed)
|
St.
Vincent & the Grenadines
|
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 (PANAMA) S.A. - Suc. Colombia
|
Colombia
|
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 NORWAY A.S.
|
Norway
|
Marketing
of steel products
|
100%
|
100%
|
100%
|
|
TENARIS
GLOBAL SERVICES S.A. and subsidiaries (except detailed)
(d)
|
Uruguay
|
Holding
company and marketing of steel products
|
100%
|
100%
|
100%
|
|
TENARIS
INVESTMENTS LTD and subsidiaries (except detailed)
|
Ireland
|
Holding
company and financial services
|
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%
|
100%
|
102
(*) All
percentages rounded.
(a)
Tenaris holds 99% of the voting shares of Confab Industrial S.A. Tenaris holds
40% 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. where it holds 60%.
(c)
Tenaris holds 100% of Siderca’s subsidiaries, except for Scrapservice S.A. where
it holds 75%.
(d)
Tenaris holds 95% of Tenaris Supply Chain S.A and 95% of Tenaris Saudi Arabia
Limited.
32 Processes
in Venezuela
(a)
Investment in Ternium: Sidor nationalization process
On May 7,
2009, Ternium completed the transfer of its entire 59.7% interest in Sidor to
CVG. The transfer was effected as a result of Venezuela’s Decree Law 6058, which
ordered that Sidor and its subsidiaries and associated companies be transformed
into state-owned enterprises and declared the activities of such companies of
public and social interest. While CVG had assumed operational control of Sidor
on July 12, 2008, Ternium had retained formal title over the shares until May 7,
2009. Ternium agreed to receive an aggregate amount of $1.97 billion as
compensation for its Sidor shares. Of that amount, CVG paid $400 million in cash
on May 7, 2009. The balance was divided in two tranches: the first tranche, of
$945 million, is being paid in six equal quarterly installments, while the
second tranche will be paid at maturity in November 2010, subject to quarterly
mandatory prepayment events based on the increase of the WTI crude oil price
over its May 6, 2009 level.
As of the
date of these financial statements, Ternium has not yet received the Sidor
compensation payments required to be made by CVG on February 8, 2010. These
payments consist of a $157.5 million principal installment, plus interest, due
under the first tranche, and a $141.4 million mandatory prepayment, plus
interest, due under the second tranche1. The total balance of the Sidor compensation
payments outstanding as of December 31, 2009 amounted to $1.02 billion, plus
interest.
(b)
Nationalization of Venezuelan Subsidiaries
Within
the framework of Decree Law 6058, on May 22, 2009, Venezuela’s President Hugo
Chávez announced the nationalization of, among other companies, the Company’s
majority-owned subsidiaries TAVSA – Tubos de Acero de Venezuela S.A. (“Tavsa”)
and, Matesi, Materiales Siderurgicos S.A (“Matesi”), and Complejo Siderurgico de
Guayana, C.A (“Comsigua”), in which the Company has a minority interest
(collectively, “the Venezuelan Companies”). On May 25, 2009, the Minister of
Basic Industries and Mines of Venezuela (“MIBAM”) issued official communications
N°230/09 and 231/09, appointing the MIBAM’s representatives to the transition
committees charged with overseeing the nationalization processes of Tavsa and
Matesi. On May 29, 2009, the Company sent response letters to the MIBAM
acknowledging the Venezuelan government’s decision to nationalize Tavsa and
Matesi, appointing its representatives to the transition committees, and
reserving all of its rights under contracts, investment treaties and Venezuelan
and international law and the right to submit any controversy between the
Company or its subsidiaries and Venezuela relating to Tavsa and Matesi’s
nationalization to international arbitration, including arbitration administered
by ICSID.
On July
14, 2009, President Chávez issued Decree 6796, which orders the acquisition of
the Venezuelan Companies’ assets and provides that Tavsa’s assets will be held
by the Ministry of Energy and Oil, while Matesi and Comsigua’s assets will be
held by MIBAM. Decree 6796 also requires the Venezuelan government to create
certain committees at each of the Venezuelan Companies; each transition
committee must ensure the nationalization of each Venezuelan Company and the
continuity of its operations, and each technical committee (to be composed of
representatives of Venezuela and the private sector) must negotiate over a
60-day period (extendable by mutual agreement) a fair price for each Venezuelan
Company to be transferred to Venezuela. In the event the parties fail to reach
agreement by the expiration of the 60-day period (or any extension thereof), the
applicable Ministry will assume control and exclusive operation of the relevant
Venezuelan Company, and the Executive Branch will order their expropriation in
accordance with the Venezuelan Expropriation Law. The Decree also specifies that
all facts and activities there under are subject to Venezuelan law and any
disputes relating thereto must be submitted to Venezuelan courts.
103
On August
19, 2009, the Company announced that Venezuela, acting through the transition
committee appointed by the MIBAM, unilaterally assumed exclusive operational
control over Matesi.
On
November 17, 2009, the Company announced that Venezuela acting through PDVSA
Industrial S.A. (a subsidiary of Petroleos de Venezuela S.A.), formally assumed
exclusive operational control over the assets of Tavsa. Following this formal
change in operational control, PDVSA Industrial has assumed complete
responsibility over Tavsa’s operations and management and since then Tavsa’s
operations are being managed by the transition committee previously appointed by
Venezuela. The Company’s representatives in Tavsa’s board of directors have
ceased in their functions.
The
Company’s investments in Tavsa, Matesi and Comsigua are protected under
applicable bilateral investment treaties, including the bilateral investment
treaty between Venezuela and the Belgian-Luxembourgish Union, and, as noted
above, Tenaris continues to reserve all of its rights under contracts,
investment treaties and Venezuelan and international law, and to consent to the
jurisdiction of the ICSID in connection with the nationalization
process.
Based on
the facts and circumstances described above and following the guidance set forth
by IAS 27, the Company ceased consolidating the Venezuelan Companies results of
operations and cash flows as from June 30, 2009 and classified its investments
in the Venezuelan Companies as financial assets based on the definitions
contained in paragraphs 11(c)(i) and 13 of IAS 32.
The
Company classified its interests in the Venezuelan Companies as
available-for-sale investments since management believes they do not fulfill the
requirements for classification within any of the remaining categories provided
by IAS 39 and such classification is the most appropriate accounting treatment
applicable to non-voluntary dispositions of assets.
Tenaris
subsidiaries have also net receivables with the Venezuelan Companies as of
December 31, 2009 for a total amount of $27.7 million.
The
Company records its interest in the Venezuelan Companies at its carrying amount
at June 30, 2009, and not at fair value, following the guidance set forth by
paragraphs 46(c), AG80 and AG81 of IAS 39.
33 Subsequent
events
Annual
Dividend Proposal
On
February 24, 2010 the Company’s board of directors proposed, for the approval of
the annual general shareholders' meeting to be held on June 2, 2010, the payment
of an annual dividend of $0.34 per share ($0.68 per ADS), or approximately $401
million, which includes the interim dividend of $0.13 per share ($0.26 per ADS)
paid on November 26, 2009. If the annual dividend is approved by the
shareholders, a dividend of $0.21 per share ($0.42 per ADS), or approximately
$248 million will be paid on June 24, 2010, with an ex-dividend date of June 21,
2010. These Consolidated Financial Statements do not reflect this dividend
payable.
|
Ricardo
Soler
|
||
|
Chief
Financial Officer
|
104
Tenaris
S.A. Annual Accounts (Luxembourg GAAP)
As
at December 31, 2009
105
We have
audited the accompanying annual accounts of Tenaris S.A., which comprise the
balance sheet as at December 31, 2009, 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 annual accounts
The Board
of Directors is responsible for the preparation and fair presentation of these
annual accounts in accordance with Luxembourg legal and regulatory requirements
relating to the preparation of the annual accounts. This responsibility
includes: designing, implementing and maintaining internal control relevant to
the preparation and fair presentation of annual accounts 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 annual accounts 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 annual accounts are free
from material misstatement.
An audit
involves performing procedures to obtain audit evidence about the amounts and
disclosures in the annual accounts. The procedures selected depend on the
Auditor’s judgment, including the assessment of the risks of material
misstatement of the annual accounts, 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 annual accounts 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 Board of Directors,
as well as evaluating the overall presentation of the annual
accounts.
106
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 annual accounts give a true and fair view of the financial
position of Tenaris S.A. as of December 31, 2009 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 annual
accounts.
Report
on other legal and regulatory requirements
The
management report, which is the responsibility of the Board of Directors, is in
accordance with the annual accounts.
| PricewaterhouseCoopers
S.à r.l.
Réviseur
d’entreprises
Represented
by
|
Luxembourg, April 22, 2010 |
Mervyn R.
Martins
107
Tenaris
S.A.
Balance
Sheet as at December 31, 2009
(expressed
in United States Dollars)
|
2009
|
2008
|
|||||||||||
|
Note
|
USD
|
USD
|
||||||||||
|
ASSETS
|
||||||||||||
|
Fixed
assets
|
||||||||||||
|
Shares
in affiliated undertakings
|
4.1 | 5,178,485,164 | 5,178,465,164 | |||||||||
|
Loans
to affiliated undertakings
|
4.2 | 647,227,300 | 243,727,300 | |||||||||
|
Other
receivables
|
3 | 336,677 | - | |||||||||
| 5,826,049,141 | 5,422,192,464 | |||||||||||
|
Current
assets
|
||||||||||||
|
Loans
to affiliated undertakings
|
5 | 53,382,238 | 35,998,143 | |||||||||
|
Other
receivables
|
3 | 499,899 | 408,643 | |||||||||
|
Short
term investments
|
6 | 37,047,072 | - | |||||||||
|
Cash
at banks, cash in hand and cash equivalents
|
6 | 337,831,372 | 204,715,687 | |||||||||
| 428,760,581 | 241,122,473 | |||||||||||
|
Total
assets
|
6,254,809,722 | 5,663,314,937 | ||||||||||
|
LIABILITIES
|
||||||||||||
|
Equity
|
7 | |||||||||||
|
Subscribed
capital
|
1,180,536,830 | 1,180,536,830 | ||||||||||
|
Share
premium account
|
609,732,757 | 609,732,757 | ||||||||||
|
Legal
reserve
|
8 | 118,053,683 | 118,053,683 | |||||||||
|
Retained
earnings
|
9 | 2,667,301,597 | 1,951,369,792 | |||||||||
|
Profit
for the financial year
|
1,249,181,146 | 1,223,562,643 | ||||||||||
| 5,824,806,013 | 5,083,255,705 | |||||||||||
|
Provisions
|
||||||||||||
|
Tax
provision
|
11 | 572,186 | 513,042 | |||||||||
|
Other
provisions
|
875,959 | 659,494 | ||||||||||
| 1,448,145 | 1,172,536 | |||||||||||
|
Creditors
|
||||||||||||
|
Amounts
owed to affiliated undertakings
|
12 | |||||||||||
|
-
due and payable within a year
|
239,147,777 | 315,434,121 | ||||||||||
|
-
due and payable within more than a year
|
6,250,000 | 6,250,000 | ||||||||||
|
Amounts
owed to credit institutions
|
13 | |||||||||||
|
-
due and payable within a year
|
71,515,215 | 252,607,552 | ||||||||||
|
-
due and payable within more than a year
|
107,142,857 | - | ||||||||||
|
Other
creditors due and payable within a year
|
4,499,715 | 4,595,023 | ||||||||||
| 428,555,564 | 578,886,696 | |||||||||||
|
Total
liabilities
|
6,254,809,722 | 5,663,314,937 | ||||||||||
The
accompanying notes are an integral part of these annual accounts.
108
Tenaris
S.A.
Profit
and loss account for the financial year ended December 31, 2009
(expressed
in United States Dollars)
|
2009
|
2008
|
|||||||||||
|
Note
|
USD
|
USD
|
||||||||||
|
CHARGES
|
||||||||||||
|
Amortization
of reorganization cost
|
- | 267,500 | ||||||||||
|
Administrative
and general expenses
|
14 | 17,654,147 | 7,843,048 | |||||||||
|
Value
adjustments in respect of financial assets
|
4.1 | - | 72,665,029 | |||||||||
|
Interest
expense - affiliated undertakings
|
15 | 5,900,158 | 28,300,129 | |||||||||
|
Interest
expense - syndicated loan
|
4,226,576 | 25,657,583 | ||||||||||
|
Cost
for issue of debt
|
3 | 441,252 | 3,753,050 | |||||||||
|
Realized
loss on exchange
|
388,389 | 81,495 | ||||||||||
|
Other
financial results
|
- | 2,802,000 | ||||||||||
|
Taxes
|
11 | 2,839,310 | 1,958,553 | |||||||||
|
Profit
for the financial year
|
1,249,181,146 | 1,223,562,643 | ||||||||||
|
Total
charges
|
1,280,630,978 | 1,366,891,030 | ||||||||||
|
INCOME
|
||||||||||||
|
Dividend
income
|
16 | 1,265,459,659 | 1,338,867,500 | |||||||||
|
Interest
income - affiliated undertakings
|
17 | 13,698,526 | 26,928,964 | |||||||||
|
Interest
income - third parties
|
18 | 1,452,857 | 968,962 | |||||||||
|
Realized
gain on short term investments
|
- | 64,384 | ||||||||||
|
Realized
gain on exchange
|
19,936 | 61,220 | ||||||||||
|
Total
income
|
1,280,630,978 | 1,366,891,030 | ||||||||||
The
accompanying notes are an integral part of these annual accounts.
109
Tenaris
S.A.
Notes
to audited annual accounts as at December 31,
2009
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 related businesses.
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, 2008.
Certain
comparative amounts have been reclassified to conform to changes in presentation
in the current year.
2.2 Foreign
currency translation
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 Fixed
assets
Shares in
affiliated undertakings are stated at cost, adding to the price paid the
expenses incidental thereto.
Loans to
affiliated undertakings are stated at amortized cost.
Whenever
necessary, the Company conducts impairment tests on its fixed assets in
accordance with Luxembourg regulations.
In case
of other than a temporary decline in respect of the fixed assets value, its
carrying value will be reduced to recognize this decline. If there is a change
in the reasons for which the value adjustments were made, these adjustments
could be reversed, if appropriate.
2.4 Short
term investments, Cash at banks, cash in hand and cash equivalents
Short
term investments and liquidity funds are valued at market value or at historical
cost which approximates fair market value expressed in USD, at the balance sheet
date.
110
Tenaris
S.A.
Notes
to audited annual accounts as at December 31, 2009
(Cont’d)
2.5 Financial
liabilities
Financial
liabilities are stated at amortized cost. The related transaction costs are
initially recognized as an asset included in “Other receivables”, and
subsequently amortized over the period of the debt, taking into account
prepayments, if any.
Note
3 – Other receivables
|
2009
|
2008
|
|||||||||||||||
|
Current
|
Non-current
|
Current
|
Non-current
|
|||||||||||||
|
Cost
|
USD
|
USD
|
USD
|
USD
|
||||||||||||
|
Values
at the beginning of the period
(1)
|
3,824,457 | 5,413,609 | 3,798,103 | 5,413,609 | ||||||||||||
|
Additions
(2)
|
348,958 | 500,227 | 26,354 | - | ||||||||||||
| 4,173,415 | 5,913,836 | 3,824,457 | 5,413,609 | |||||||||||||
|
Amortization
of cost for issue of debt
|
||||||||||||||||
|
-
at the beginning of the financial year
|
3,415,814 | 5,413,609 | 734,119 | 4,374,754 | ||||||||||||
|
-
charge of the financial year (3)
|
257,702 | 163,550 | 2,681,695 | 1,038,855 | ||||||||||||
|
-
at the end of the period
|
3,673,516 | 5,577,159 | 3,415,814 | 5,413,609 | ||||||||||||
|
Net
book value at the end of the period
|
499,899 | 336,677 | 408,643 | - | ||||||||||||
(1)
Corresponds to the deferred costs for issue of debt, except for prepaid expenses
included in the short term portion (2009: USD 150,943 and 2008:
124,587).
(2)
Includes the net movement of prepaid expenses during the financial year (2009:
USD 99,183 and 2008: USD 26,354).
(3)
Amounts included in the caption "Cost for issue of debt" in the Profit and loss
account for the fiscal year ended December 31, 2009 and 2008.
111
Tenaris
S.A.
Notes
to audited annual accounts as at December 31, 2009
(Cont’d)
Note
4 – Fixed assets
4.1 Shares
in affiliated undertakings
Movements
of investments in affiliated undertakings during the financial year are as
follows:
|
Company
|
Country
|
%
of ownership
|
Book
value at 12.31.2008
|
Additions
|
Decreases
|
Book
value at 12.31.2009
|
|||||||||||||||
| (*) |
USD
|
||||||||||||||||||||
|
Maverick
Tube Corporation
|
U.S.A.
|
100.0 | % | 1,717,756,800 | - | (136,157,993 | ) | 1,581,598,807 | |||||||||||||
|
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 | - | (873,790,174 | ) | 86,418,808 | |||||||||||||
|
Ternium
S.A.
|
Luxembourg
|
11.5 | % | 459,970,986 | - | - | 459,970,986 | ||||||||||||||
|
Tubos
de Acero de México S.A.
|
Mexico
|
100.0 | % | 303,244,203 | - | - | 303,244,203 | ||||||||||||||
|
Tenaris
Investments Limited
|
Ireland
|
100.0 | % | 50,010,000 | 1,009,968,167 | - | 1,059,978,167 | ||||||||||||||
|
Tenaris
Global Services S.A.
|
Uruguay
|
100.0 | % | 63,047,650 | - | - | 63,047,650 | ||||||||||||||
|
Tenaris
Connections Limited
|
St
Vincent & The Grenadines
|
100.0 | % | 11,567,000 | - | - | 11,567,000 | ||||||||||||||
|
Sidtam
Limited
|
British
Virgin Islands
|
100.0 | % | 7,702,000 | - | - | 7,702,000 | ||||||||||||||
|
Talta
- Trading e Marketing, Sociedade Unipessoal Lda.
|
Madeira
|
100.0 | % | 6,817 | - | - | 6,817 | ||||||||||||||
|
CAD
Investments International S.R.L.
|
Barbados
|
0.0 | % | - | 1,009,968,167 | (1,009,968,167 | ) | - | |||||||||||||
|
Shares
in affiliated undertakings
|
5,178,465,164 | 2,019,936,334 | (2,019,916,334 | ) | 5,178,485,164 | ||||||||||||||||
(*) It
represents the equity interest held directly by Tenaris and through any of its
subsidiaries.
On
January 23, 2009, Tenaris established CAD Investments International S.R.L. (“CAD
Investments”) a wholly-owned subsidiary. On January 28, 2009 Tenaris
transferred to CAD Investments 910 shares of Hydril Company (“Hydril”),
representing 91% of the issued and outstanding shares of Hydril in exchange for
newly issued shares in CAD Investments. On September 22, 2009 Tenaris
transferred to CAD Investments 63,412 shares of Maverick Tube Corporation
(“Maverick”), representing 6.3412% of the issued and outstanding shares of
Maverick.
112
Tenaris
S.A.
Notes
to audited annual accounts as at December 31, 2009 (Cont’d)
On
September 25, 2009, Tenaris transferred to its wholly-owned Irish subsidiary,
Tenaris Investment Limited (“Tenaris Investment”) all of CAD Investments’
quotas, in exchange for a newly issued share of Tenaris Investment. On December
28, 2009, CAD Investments was dissolved.
These
transfers were recorded at book value.
On
December 15, 2009, the Company´s subsidiary previously named Tenaris Connections
A.G. and originally incorporated under the jurisdiction of Liechtenstein, was
registered in St Virgin & the Grenadines, under the name of Tenaris
Connections Limited.
Maverick
Tube Corporation (“Maverick”)
At
December 31, 2008 Tenaris determined that, due to changes in economic and
financial market conditions, the carrying value of the shares in Maverick
exceeded its recoverable amount. As a consequence, the Company recognized an
impairment charge of USD 72.7 million under the caption "Value adjustments in
respect of financial assets" in the Profit and loss account for the financial
year
ended
December 31, 2008.
4.2 Loans
to affiliated undertakings
|
2009
|
2008
|
|||||||
|
USD
|
USD
|
|||||||
|
Maverick
Tube Corporation
|
475,500,000 | 110,000,000 | ||||||
|
Hydril
Company
|
171,727,300 | 133,727,300 | ||||||
| 647,227,300 | 243,727,300 | |||||||
In
connection with Hydril acquisition, in May 2007 Tenaris granted a loan to
Hokkaido, a company subsequently merged with and into Hydril, for a principal
amount of USD 806.6 million, which was partially prepaid; the principal amount
outstanding as of December 31, 2009 was USD101.7 million. This loan accrues
interest at Libor plus 1% with a final maturity on November 7, 2012. During
2009, Tenaris granted additional loans to Hydril for a principal amount
of USD 95.0 million (principal amount of USD 25.0 million disclosed
as current in Note 5: "Current assets – Loans to affiliated
undertakings”), which remained outstanding as of December 31, 2009. All loans
are subordinated and subject in right of payment to the obligations of Hydril
under the USD 300.0 million syndicated loan agreement signed by Hydril on April
19, 2007, as amended. As of December 31, 2009, the principal outstanding amount
under Hydril syndicated loan totaled USD 166.7 million.
On
December 27, 2007, Tenaris granted a loan to Maverick, for a principal amount of
USD 110.0 million, out of which the principal amount of USD 90.0 million is
outstanding as of December 31, 2009. This loan accrues interest at Libor plus
1%, is payable semiannually and matures on December 27, 2012. During 2009,
Tenaris granted additional loans to Maverick for a principal amount of USD 410.5
million (principal amount of USD 25.0 million disclosed as current in Note 5:
"Current assets – Loans
to affiliated undertakings”), which remained outstanding as of December 31,
2009. Maverick syndicated loan was fully prepaid in December 2009.
113
Tenaris
S.A.
Notes
to audited annual accounts as at December 31, 2009 (Cont’d)
Note
5 – Current assets – Loans to affiliated undertakings
|
2009
|
2008
|
|||||||
|
USD
|
USD
|
|||||||
|
Hydril
Company (1)
|
27,512,639 | 35,954,504 | ||||||
|
Maverick
Tube Corporation (2)
|
25,869,599 | 43,542 | ||||||
|
Tenaris
Investments Limited
|
- | 97 | ||||||
| 53,382,238 | 35,998,143 | |||||||
|
(1)
|
Includes
the outstanding interests of the loans mentioned in Note 4.2 (2009: USD
2,512,639 and 2008: 3,545,654).
|
|
(2)
|
Includes
the outstanding interests of the loans mentioned in Note 4.2 (2009: USD
869,599 and 2008: 43,542).
|
Note
6 – Short term investments, Cash at banks, cash in hand and cash
equivalents
|
2009
|
2008
|
|||||||
|
USD
|
USD
|
|||||||
|
Short
term securities investments
|
37,047,072 | - | ||||||
|
Liquidity
funds & Cash at banks
|
337,797,702 | 204,654,264 | ||||||
|
Time
deposits with affiliated undertakings
|
33,670 | 61,423 | ||||||
| 374,878,444 | 204,715,687 | |||||||
Note
7 –Equity
|
Item
|
Suscribed
capital
|
Share
premium account
|
Legal reserve
|
Retained
earnings
|
Equity
|
|||||||||||||||
|
USD
|
||||||||||||||||||||
|
Balance
at the beginning of the year
|
1,180,536,830 | 609,732,757 | 118,053,683 | 3,174,932,435 | 5,083,255,705 | |||||||||||||||
|
Dividend
paid (1)
|
- | - | - | (354,161,050 | ) | (354,161,050 | ) | |||||||||||||
|
Interim
dividend (2)
|
- | - | - | (153,469,788 | ) | (153,469,788 | ) | |||||||||||||
|
Profit
for the financial year
|
- | - | - | 1,249,181,146 | 1,249,181,146 | |||||||||||||||
|
Balance
at the end of the period
|
1,180,536,830 | 609,732,757 | 118,053,683 | 3,916,482,743 | 5,824,806,013 | |||||||||||||||
|
(1)
|
As
approved by the ordinary shareholder’s meeting held on June 3,
2009.
|
|
(2)
|
As
approved by the board of director’s meeting held on November 5,
2009.
|
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, 2009 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.
114
Tenaris
S.A.
Notes
to audited annual accounts as at December 31, 2009 (Cont’d)
Note 8 – 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 9 – Distributable
amounts
Dividends
may be paid by Tenaris upon the ordinary shareholders’ meeting’s approval to the
extent distributable retained earnings exist.
At
December 31, 2009, the retained earnings and profit for the financial year of
Tenaris under Luxembourg law totaled USD 3.9 billion.
The share
premium account amounting to USD 0.6 billion can also be
reimbursed.
Note
10 – Interim dividend paid
In
November 2009, the Company paid an interim dividend of USD 153 million based on
the board of director’s decision of November 5, 2009 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
11 – 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
2.1 million and USD 1.3 million, under the caption “Taxes” in the Profit and
loss account for the financial years ended December 31, 2009 and 2008,
respectively.
115
Tenaris
S.A.
Notes
to audited annual accounts as at December 31, 2009 (Cont’d)
Note
12 – Creditors – Amounts owed to affiliated undertakings
|
|
2009
|
2008
|
||||||
|
USD
|
USD
|
|||||||
|
-
due and payable within a year
|
||||||||
|
Other
creditors
|
12,718,012 | 1,608,051 | ||||||
|
Loans
for acquisition of shares in subsidiaries companies (1)
|
226,429,765 | 313,823,361 | ||||||
|
Overdrafts
|
- | 2,709 | ||||||
| 239,147,777 | 315,434,121 | |||||||
|
-
due and payable within more than a year
|
||||||||
|
Loans
for acquisition of shares in subsidiaries companies (1)
|
6,250,000 | 6,250,000 | ||||||
| 6,250,000 | 6,250,000 | |||||||
(1) Terms
and conditions of Loans for acquisition of shares in subsidiaries companies are
as follows:
|
2009
|
2008
|
||||||
|
Lender
|
Due
|
Interest
rate (*)
|
Current
|
Non-current
|
Current
|
Non-current
|
|
|
USD
|
|||||||
|
Siderca
International ApS
|
2010
|
L
+ 0.35%
|
226,413,103
|
-
|
220,715,607
|
-
|
|
|
Techint
Investments Netherlands B.V.
|
2011
|
L
+ 0.50%
|
16,662
|
6,250,000
|
67,971
|
6,250,000
|
|
|
Tenaris
Financial Services S.A.
|
2012
|
L
+ 0.35%
|
-
|
-
|
93,039,783
|
-
|
|
|
Loans
for acquisition of shares in subsidiaries companies
|
226,429,765
|
6,250,000
|
313,823,361
|
6,250,000
|
|||
(*) L:
LIBOR
During
the fiscal year ended December 31, 2009, Tenaris fully prepaid the remaining
outstanding of USD 93.0 million of the loan granted by Tenaris Financial
Services S.A. on December 27, 2007, for a principal amount of USD 410.0
million.
Note
13 – Creditors – Amounts owed to credit institutions
|
2009
|
2008
|
|||||||
|
USD
|
USD
|
|||||||
|
-
due and payable within a year
|
||||||||
|
Principal
- short term portion
|
71,428,572 | 250,000,000 | ||||||
|
Interest
accrued
|
86,643 | 2,607,552 | ||||||
| 71,515,215 | 252,607,552 | |||||||
|
-
due and payable within more than a year
|
||||||||
|
Principal
- long term portion
|
107,142,857 | - | ||||||
| 107,142,857 | - | |||||||
116
Tenaris
S.A.
Notes
to audited annual accounts as at December 31, 2009
(Cont’d)
It
corresponds to the outstanding amounts relating to the syndicated loan agreement
entered into by the Company to finance the acquisition of Hydril and to
refinance an existing loan in the Company.
This
borrowing accrues interest at Libor plus 0.5% and is payable in seven equal
installments, the first one due in May 2009 and the each following every six
months.
Note
13 – Creditors – Amounts owed to credit institutions (Cont’d)
The main
covenants on this syndicated loan agreement 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 debt
service coverage ratio calculated in the Company’s consolidated and
unconsolidated financial statements, respectively). As at December 31, 2009,
Tenaris was in compliance with all of its covenants.
Note
14 – Administrative and general expenses
|
2009
|
2008
|
|||||||
|
USD
|
USD
|
|||||||
|
Services
and fees
|
13,812,815 | 2,446,032 | ||||||
|
Board
of director's accrued fees
|
3,629,120 | 4,510,150 | ||||||
|
Others
|
212,212 | 886,866 | ||||||
| 17,654,147 | 7,843,048 | |||||||
In 2009
there was an increase of USD 9.8 million in administrative and general expenses
attributable to higher corporate expenses mainly comprised of personnel costs,
legal and other fees.
Note 15 – Interest expense – affiliated
undertakings
During
the financial year ended December 31, 2009, the Company accrued the following
interest from its debts and overdrafts with affiliated
undertakings:
|
2009
|
2008
|
|||||||
|
USD
|
USD
|
|||||||
|
Siderca
International ApS
|
5,697,495 | 7,374,002 | ||||||
|
Techint
Investments Netherlands B.V.
|
162,446 | 264,845 | ||||||
|
Tenaris
Financial Services S.A.
|
40,160 | 20,661,257 | ||||||
|
Tenaris
Investments Limited
|
57 | 25 | ||||||
| 5,900,158 | 28,300,129 | |||||||
Note
16 – Dividend income
During
the financial year ended December 31, 2009 and December 31, 2008, the Company
received dividends from its affiliated undertakings amounting to USD 1,265.5
million and USD 1,338.9 million, respectively.
117
Tenaris
S.A.
Notes
to audited annual accounts as at December 31, 2009 (Cont’d)
Note 17 – Interest income – affiliated
undertakings
During
the financial year ended December 31, 2009, the Company accrued the following
interest from its loans to and time deposits with affiliated
undertakings:
|
2009
|
2008
|
|||||||
|
USD
|
USD
|
|||||||
|
Maverick
Tube Corporation
|
7,043,572 | 5,512,777 | ||||||
|
Hydril
Company
|
6,654,443 | 21,281,199 | ||||||
|
Tenaris
Financial Services S.A.
|
257 | 367 | ||||||
|
Tenaris
Investments Limited
|
254 | 5,446 | ||||||
|
Tenaris
Global Services S.A.
|
- | 129,175 | ||||||
| 13,698,526 | 26,928,964 | |||||||
Note
18 – Interest income – third parties
During
the financial year ended December 31, 2009, the Company accrued the following
interest from its cash equivalents and its short term investments:
|
2009
|
2008
|
|||||||
|
USD
|
USD
|
|||||||
|
Liquidity
funds
|
1,374,883 | 931,500 | ||||||
|
Others
|
77,974 | 37,462 | ||||||
| 1,452,857 | 968,962 | |||||||
Note 19 – Contingencies and Off balance sheet
commitments
Maverick
litigation
On
November 22, 2006, Maverick received a letter from The Bank of New York as
trustee (“the Trustee”) for the holders of 2004 4% Convertible Senior
Subordinated Notes due 2033 issued by Maverick (“the 2004 Notes”), concerning an
alleged breach of the indenture entered into on December 30, 2004, between
Maverick and the Trustee, and governing the 2004 Notes (as amended, the
“Indenture”). The alleged breach of the Indenture was based on Maverick’s
refusal to grant the holders of the 2004 Notes conversion rights provided by the
“Public Acquirer Change of Control” provision of the Indenture.
On
December 11, 2006, the Trustee filed a complaint against Maverick and Tenaris in
the United States District Court for the Southern District of New York. The
complaint alleged that Tenaris’ acquisition of Maverick triggered the “Public
Acquirer Change of Control” provision and asserted a breach of contract claim
against Maverick for refusing to accept the 2004 Notes for conversion for the
consideration specified in the “Public Acquirer Change of Control” provision.
The complaint also seeks a declaratory judgment that Tenaris’ acquisition of
Maverick was a “Public Acquirer Change of Control” under the Indenture, and
therefore triggers the above mentioned conversion rights, and asserts claims for
tortious interference with contract and unjust enrichment against
Tenaris.
118
Tenaris
S.A.
Notes
to audited annual accounts as at December 31, 2009 (Cont’d)
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. On January 25, 2008, Law Debenture Trust Company of
New York (as successor to BNY as trustee under the Indenture) was
substituted for The Bank of New York as plaintiff. On October 15,
2008, the court denied Law Debenture’s motion for partial summary judgment and
granted defendants’ motion for summary judgment dismissing the complaint in its
entirety.
On
February 19, 2010, the United States Court of Appeals for the Second
Circuit affirmed the District Court's judgment. The plaintiff is entitled
to file a motion for rehearing, or rehearing en banc, with the Court of Appeals,
or a petition for certiorari with the U.S. Supreme Court. The
Company believes that the plaintiff's chances of prevailing on further appeal
are remote.
Customer
Claim
A lawsuit
was filed on September 6, 2007, against three Tenaris’ subsidiaries, alleging
negligence, gross negligence and intentional acts characterized as fraudulent
inducement concerning allegedly defective well casing. Plaintiff alleged the
complete loss of one natural gas production well and formation damage that
precludes further exploration and production at the well site and sought
compensatory and punitive damages of USD 25 million. The lawsuit was
subsequently amended to add the Company and other of its subsidiaries as
defendants and to change the claims to be breach of contract and fraud. On
October 22, 2008, the Plaintiff again amended its petition to add new counts
(including strict liability) and increase its prayer for damages to USD 245
million, plus punitive damages, treble damages and attorney fees. Each petition
was tendered to a Tenaris subsidiary insurer, and the Tenaris subsidiary
received the insurer’s agreement to provide a defense. The insurer reserved its
rights with respect to its indemnity obligations. On July 20, 2009 the lawsuit
was settled for an amount of USD 15 million and thus a Tenaris subsidiary
recorded a loss of USD 12.7 million in addition to the previously recorded of
USD 2.3 million. As of the date of these annual accounts, the insurer is not
participating in this settlement. On September 11, 2009 certain Tenaris
subsidiaries initiated legal proceedings against the insurer.
Ongoing
investigation
The
Company has learned from one of its customers in Central Asia that certain sales
agency payments made by one of the Company’s subsidiaries may have improperly
benefited employees of the customer and other persons. These payments may have
violated certain applicable laws, including the U.S. FCPA (“Foreign corrupt
practices act”). The Audit Committee of the Company’s Board of Directors has
engaged external counsel in connection with a review of these payments and
related matters, and the Company has voluntarily notified the U.S. Securities
and Exchange Commission and the U.S. Department of Justice. The Company will
share the results of this review with the appropriate regulatory agencies, and
will cooperate with any investigations that may be conducted by such agencies.
At this time, the Company cannot predict the outcome of these matters or
estimate the range of potential loss or extent of risk, if any, to the Company’s
business that may result from resolution of these matters.
119
Tenaris
S.A.
Notes
to audited annual accounts as at December 31, 2009
(Cont’d)
Maverick
Convertible Senior Subordinated Notes’ guarantee
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
Based on
the information most recently available to the Company, as of December 31,
2009:
|
§
|
San
Faustin N.V. owned 713,605,187 shares in the Company, representing 60.45%
of the Company’s capital and voting
rights.
|
|
§
|
San
Faustin N.V. owned all of its shares in the Company through its
wholly-owned subsidiary I.I.I. Industrial Investments
Inc.
|
|
§
|
Rocca
& Partners S.A. controlled a significant portion of the voting power
of San Faustin N.V. and had the ability to influence matters affecting, or
submitted to a vote of the shareholders of San Faustin N.V., such as the
election of directors, the approval of certain corporate transactions and
other matters concerning the company’s
policies.
|
|
§
|
There
were no controlling shareholders for Rocca & Partners
S.A.
|
Based on
the information most recently available to the Company, as of December 31, 2009,
Tenaris’ directors and senior management as a group owned 0.14% of the Company’s
outstanding shares, while the remaining 39.41% were publicly
traded.
Note 21 – Subsequent
events
Annual
Dividend Proposal
On
February 24, 2010 the Company’s board of directors proposed, for the approval of
the annual general shareholders' meeting to be held on June 2, 2010, the payment
of an annual dividend of USD 0.34 per share (USD 0.68 per ADS) or approximately
USD 401 million, which includes the interim dividend of USD 0.13 per share (USD
0.26 per ADS) paid in November, 2009. If the annual dividend is approved by the
shareholders, a dividend of USD 0.21 per share (USD 0.42 per ADS), or
approximately USD 248 million will be paid on June 24, 2010, with an ex-dividend
date of June 21, 2010. These annual accounts do not reflect this dividend
payable.
|
Ricardo
Soler
Chief
Financial Officer
|
120
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
Offices
Av.
L. N. Alem 1067 27th Floor
(C1001AAF)
Buenos Aires, Argentina
(54)
11 4018 4100 tel
(54)
11 4018 1000 fax
|
2200
West Loop South, Suite 800
Houston,
TX 77027, USA
(1)
713 767 4400 tel
(1)
713 767 4444 fax
|
|
Piazza
Caduti 6 Luglio 1944, 1
24044
Dalmine (Bergamo), Italy
(39)
035 560 1111 tel
(39)
035 560 3827 fax
|
Edificio
Parque Reforma
Campos
Elíseos 400 17th Floor
11560
Mexico, D.F.
(52)
55 5282 9900 tel
(52)
55 5282 9961 fax
|
INVESTOR
INFORMATION
Investor
Relations Director
Giovanni
Sardagna
|
Phones
USA
1 888 300 5432
Argentina
(54) 11 4018 2928
Italy
(39) 02 4384 7654
Mexico
(52) 55 5282 9929
|
General
Inquiries
investors@tenaris.com
|
|
Stock
Information
New
York Stock Exchange (TS)
Mercato
Telematico Azionario (TEN)
Mercado
de Valores de Buenos Aires (TS)
Bolsa
Mexicana de Valores, S.A. de C.V. (TS)
|
ADS
Depositary Bank
The
Bank of New York
CUSIP
No. 88031M019
|
Internet
www.tenaris.com
121