SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE TO ISSUER TENDER OFFER STATEMENT UNDER SECTION 14(d)(1) OR 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 SIDERCA S.A.I.C. TUBOS DE ACERO DE MEXICO, S.A. (Name of Subject Company (Issuer)) TENARIS S.A. (Name of Filing Person (Offeror)) SIDERCA CLASS A ORDINARY SHARES, NOMINAL VALUE ARP 1.00 PER SHARE AND SIDERCA AMERICAN DEPOSITARY SHARES (EACH REPRESENTING 10 CLASS A ORDINARY SHARES) AND TUBOS DE ACERO DE MEXICO, S.A. ("TAMSA") COMMON SHARES, NO PAR VALUE AND TAMSA AMERICAN DEPOSITARY SHARES (EACH REPRESENTING 5 ORDINARY SHARES) (Title of Class of Securities) SIDERCA AMERICAN DEPOSITARY SHARES: 825863103 TAMSA AMERICAN DEPOSITARY SHARES: 898592506 (CUSIP Number of Class of Securities) GIOVANNI GALLO TECHINT INC. 420 FIFTH AVENUE, 18TH FLOOR NEW YORK, NEW YORK 10018 (212) 376-6500 (Name, Address and Telephone Numbers of Person Authorized to Receive Notices and Communications on Behalf of Filing Persons) with a copy to: SERGIO J. GALVIS, ESQ. SULLIVAN & CROMWELL 125 BROAD STREET NEW YORK, NEW YORK 10004-2498 (212) 558-4000 (Name, address, and telephone numbers of person authorized to receive notices and communications on behalf of filing persons) ------------------------------------------------------------------------------ CALCULATION OF FILING FEE Transaction Valuation(1) Amount of Filing Fee(2) USD502,315,916.42 USD46,213.06 - ---------- (1) For purposes of calculating fee only. This amount is based upon (a) the total estimated number of Class A ordinary shares of Siderca to be cancelled in the transaction based on the average of the high and low prices per share reported on the Buenos Aires Stock Exchange on September 12, 2002; (b) the total estimated number of ADSs of Siderca to be cancelled in the transaction based on the average of the high and low prices per ADS reported on the New York Stock Exchange, or NYSE, on September 12, 2002; (c) the total estimated number of common shares of Tamsa to be cancelled in the transaction based on the average of the high and low prices per share reported on the Mexican Stock Exchange on September 12, 2002; and (d) the total estimated number of ADSs of Tamsa to be cancelled in the transaction based on the average of the high and low prices per ADS reported on the American Stock Exchange on September 12, 2002. (2) Calculated as .000092 of the Transaction Valuation. ------------------------------------------------------------------------------ [X] Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: USD46,510.94 Form or Registration No.: 333-99769 Filing Party: Tenaris S.A. Date Filed: September 18, 2002 [ ] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer Check the appropriate boxes below to designate any transactions to which the statement relates: [X] third-party tender offer subject to Rule 14d-1. [ ] issuer tender offer subject to Rule 13e-4. [ ] going-private transaction subject to Rule 13e-3. [ ] amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer: [ ] This Tender Offer Statement on Schedule TO is filed by Tenaris S.A., a corporation organized under the laws of the Grand Duchy of Luxembourg. This Schedule TO relates to an exchange offer by Tenaris to exchange its ordinary shares ("Tenaris shares"), par value USD1.00 per share, and its American Depositary Shares ("ADSs") each representing 10 Tenaris ordinary shares, for Class A ordinary shares ("Siderca shares") nominal value ARP1.00 per share, of Siderca S.A.I.C., a corporation organized under the laws of the Republic of Argentina, and Siderca ADSs (each representing 10 Siderca shares), and ordinary shares ("Tamsa shares"), having no par value, of Tubos de Acero de Mexico S.A. ("Tamsa"), a corporation organized under the laws of the United Mexican States, and Tamsa ADSs (each representing 5 Tamsa shares), at an exchange ratio of (a) one Tenaris share for every 1.0933 Siderca shares, (b) one Tenaris ADS for every 1.0933 Siderca ADSs, (c) one Tenaris share for every 0.9452 Tamsa shares and (d) one Tenaris ADS for every 1.8904 Tamsa ADSs, upon the terms and subject to the conditions set forth in the prospectus, dated November 8, 2002 (the "Prospectus"), and the related Siderca form of acceptance, Siderca ADS letter of transmittal, Tamsa form of acceptance and Tamsa ADS letter of transmittal, all of which were mailed to investors and copies of which are attached hereto as Exhibits (a)(1), (a)(2), (a)(3), (a)(6) and (a)(8), respectively. In addition to the offer for Siderca and Tamsa securities to which this Schedule TO relates, Tenaris is offering to exchange one Tenaris share for every 12.0267 ordinary shares, nominal value E0.16 per share, of Dalmine S.p.A. ITEM 1. SUMMARY TERM SHEET. The information set forth in the Prospectus is hereby expressly incorporated herein by reference. ITEM 2. SUBJECT COMPANY INFORMATION. The information set forth in the Prospectus is hereby expressly incorporated herein by reference. ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON. The information set forth in the Prospectus is hereby expressly incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION. The information set forth in the Prospectus is hereby expressly incorporated herein by reference. ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS. The information set forth in the Prospectus is hereby expressly incorporated herein by reference. ITEM 6. PURPOSE OF THE TRANSACTION AND PLANS OR PROPOSALS. The information set forth in the Prospectus is hereby expressly incorporated herein by reference. ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) The information set forth in the Prospectus is hereby expressly incorporated herein by reference. (b) AND (d) Not applicable. ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. The information set forth in the Prospectus is hereby expressly incorporated herein by reference. ITEM 9. PERSONS/ASSETS, RETAINED, EMPLOYED COMPENSATED OR USED. The information set forth in the Prospectus is hereby expressly incorporated herein by reference. ITEM 10. FINANCIAL STATEMENTS. The information set forth in the Prospectus is hereby expressly incorporated herein by reference. ITEM 11. ADDITIONAL INFORMATION. The information set forth in the Prospectus is hereby expressly incorporated herein by reference. ITEM 12. EXHIBITS. (a)(1) Prospectus mailed to investors, dated November 8, 2002 (a)(2) Siderca Form of Acceptance (English translation) (a)(3) Siderca ADS Letter of Transmittal (a)(4) Siderca ADS Letter to be Used by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to Their Clients (a)(5) Siderca ADS Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (a)(6) Tamsa Form of Acceptance (English translation) (a)(7) Tamsa Shareholder Letter of Instructions to Custodian (English translation) (a)(8) Tamsa ADS Letter of Transmittal (a)(9) Tamsa ADS Letter to be Used by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to Their Clients (a)(10) Tamsa ADS Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (a)(11) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (a)(12) Text of press release announcing commencement of the exchange offer, dated November 11, 2002 (a)(13) Text of press release announcing that Tenaris will seek approvals for listing of its shares and an offer to exchange Tenaris shares for shares of Siderca, Tamsa and Dalmine, dated September 13, 2002 (previously filed under Rule 425 under the Securities Act of 1933, as amended) (a)(14) Presentation to Investors, dated October 24, 2002 (previously filed under Rule 425 under the Securities Act of 1933, as amended) (a)(15) Text of press release announcing that Tenaris will launch an exchange offer and list its shares on stock exchanges in Milan, New York, Buenos Aires and Mexico City, dated October 24, 2002 (previously filed under Rule 425 under the Securities Act of 1933, as amended) (English translation) (a)(16) Summary newspaper advertisement, dated November 12, 2002, published in the Wall Street Journal (b) Not applicable (d) Not applicable (g) Not applicable (h)(1) Opinion of Sullivan & Cromwell as to certain tax matters (previously filed with the Commission as part of Amendment No.3 to Tenaris's Registration Statement on Form F-4 (File No. 333-99769)) (h)(2) Opinion of Arendt & Medernach as to certain Luxembourg tax matters (previously filed with the Commission as part of Amendment No.3 to Tenaris's Registration Statement on Form F-4 (File No. 333-99769)) (h)(3) Opinion of Bruchou, Fernandez Madero, Lombardi y Mitrani as to certain Argentine tax matters (previously filed with the Commission as part of Amendment No.3 to Tenaris's Registration Statement on Form F-4 (File No. 333-99769)) (h)(4) Opinion of Chevez, Ruiz, Zamarripa y Cia. S.C. as to certain Mexican tax matters (previously filed with the Commission as part of Amendment No.3 to Tenaris's Registration Statement on Form F-4 (File No. 333-99769)) (h)(5) Opinion of KPMG S.p.A. as to certain Italian tax matters (previously filed with the Commission as part of Amendment No.3 to Tenaris's Registration Statement on Form F-4 (File No. 333-99769)) ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3. Not applicable. After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct /s/ Fernando Mantilla -------------------------------------- Name: Fernando Mantilla Title: Director Date: November 8, 2002 INDEX TO EXHIBITS
EXHIBIT DESCRIPTION ------- ----------- (a)(1) Prospectus mailed to investors, dated November 8, 2002 (a)(2) Siderca Form of Acceptance (English translation) (a)(3) Siderca ADS Letter of Transmittal (a)(4) Siderca ADS Letter to be Used by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to Their Clients (a)(5) Siderca ADS Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (a)(6) Tamsa Form of Acceptance (English translation) (a)(7) Tamsa Shareholder Letter of Instructions to Custodian (English translation) (a)(8) Tamsa ADS Letter of Transmittal (a)(9) Tamsa ADS Letter to be Used by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to Their Clients (a)(10) Tamsa ADS Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (a)(11) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (a)(12) Text of press release announcing commencement of the exchange offer, dated November 11, 2002 (a)(13) Text of press Release announcing that Tenaris will seek approvals for listing of its shares and an offer to exchange Tenaris shares for shares of Siderca, Tamsa and Dalmine, dated September 13, 2002 (previously filed under Rule 425 under the Securities Act of 1933, as amended) (a)(14) Presentation to Investors, dated October 24, 2002 (previously filed under Rule 425 under the Securities Act of 1933, as amended) (a)(15) Text of press Release announcing that Tenaris will launch an exchange offer and list its shares on stock exchanges in Milan, New York, Buenos Aires and Mexico City, dated October 24, 2002 (previously filed under Rule 425 under the Securities Act of 1933, as amended) (English translation) (a)(16) Summary newspaper advertisement, dated November 12, 2002, published in the Wall Street Journal (h)(1) Opinion of Sullivan & Cromwell as to certain tax matters (previously filed with the Commission as part of Amendment No.3 to Tenaris's Registration Statement on Form F-4 (File No. 333-99769)) (h)(2) Opinion of Arendt & Medernach as to certain Luxembourg tax matters (previously filed with the Commission as part of Amendment No.3 to Tenaris's Registration Statement on Form F-4 (File No. 333-99769)) (h)(3) Opinion of Bruchou, Fernandez Madero, Lombardi y Mitrani as to certain Argentine tax matters (previously filed with the Commission as part of Amendment No.3 to Tenaris's Registration Statement on Form F-4 (File No. 333-99769))
(h)(4) Opinion of Chevez, Ruiz, Zamarripa y Cia. S.C. as to certain Mexican tax matters (previously filed with the Commission as part of Amendment No.3 to Tenaris's Registration Statement on Form F-4 (File No. 333-99769)) (h)(5) Opinion of KPMG S.p.A. as to certain Italian tax matters (previously filed with the Commission as part of Amendment No.3 to Tenaris's Registration Statement on Form F-4 (File No. 333-99769))
Exhibit (a)(1) Prospectus [TENARIS LOGO] OFFER TO EXCHANGE ORDINARY SHARES AND AMERICAN DEPOSITARY SHARES We are offering to exchange: - - one ordinary share for every 1.0933 Siderca Class A ordinary shares tendered; - - one ADS (representing 10 of our ordinary shares) for every 1.0933 Siderca ADSs tendered; - - one ordinary share for every 0.9452 Tamsa common shares tendered; - - one ADS (representing 10 of our ordinary shares) for every 1.8904 Tamsa ADSs tendered; and - - one ordinary share for every 12.0267 Dalmine ordinary shares tendered. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. (NEW YORK CITY TIME) ON DECEMBER 13, 2002, UNLESS EXTENDED. YOU MAY WITHDRAW ANY SECURITIES TENDERED AT ANY TIME PRIOR TO THE EXPIRATION DATE. We will not be required to consummate the exchange offer with respect to any of Siderca S.A.I.C., or Siderca, Tubos de Acero de Mexico S.A., or Tamsa, and Dalmine S.p.A., or Dalmine, unless a sufficient number of Siderca's total outstanding Class A ordinary shares (in the form of shares or ADSs) and Tamsa's total outstanding common shares (in the form of shares or ADSs) are validly tendered and not withdrawn so that, after consummation of the exchange offer with respect to Siderca and Tamsa, we hold, directly or indirectly, more than 80% of Siderca's total outstanding Class A ordinary shares and more than 80% of Tamsa's total outstanding common shares (in each case, in the form of shares or ADSs). In addition, we will not be required to consummate the exchange offer with respect to Dalmine unless a sufficient number of Dalmine's ordinary shares are validly tendered and not withdrawn so that, after consummation of the exchange offer with respect to Dalmine, we hold, directly or indirectly, more than 90% of Dalmine's total outstanding shares. The completion of the exchange offer with respect to Siderca, Tamsa and Dalmine are each subject to certain other conditions. For a discussion of these conditions, see "Part Three--The Exchange Offer--Conditions to completion of the exchange offer." We reserve the right to modify or waive any of these conditions in our discretion, subject to certain limitations and applicable law. Siderca's Class A ordinary shares are listed on the Buenos Aires Stock Exchange and Siderca's ADSs are listed on the New York Stock Exchange, or NYSE. Tamsa's common shares are listed on the Mexican Stock Exchange and Tamsa's ADSs are listed on the American Stock Exchange, or AMEX. Dalmine's ordinary shares are listed on the Milan Stock Exchange. Our ADSs have been, subject to the satisfaction of certain requirements, approved to trade on the NYSE under the symbol "TS", and our ordinary shares have been, subject to the satisfaction of certain requirements, approved to trade on the Buenos Aires Stock Exchange and the Mexican Stock Exchange. We expect that our ordinary shares will be, subject to the satisfaction of certain requirements, approved to trade on the Milan Stock Exchange. Our shares and ADSs will begin to trade on these exchanges promptly, in accordance with market practice, after announcement of the results of the exchange offer. FOR A DISCUSSION OF RISK FACTORS WHICH YOU SHOULD CONSIDER IN EVALUATING THE EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE II-1. NEITHER THE SECURITIES AND EXCHANGE COMMISSION, OR THE SEC, NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE EXCHANGE OFFER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DEALER MANAGER FOR THE EXCHANGE OFFER IS: JPMORGAN November 8, 2002 CERTAIN DEFINED TERMS Unless otherwise specified or if the context so requires: - - References in this prospectus to the "exchange offer" refer collectively to the exchange offers for securities of each of Siderca, Tamsa and Dalmine described in this prospectus. - - References in this prospectus to "the Company," "we," "us" or "our" refer exclusively to Tenaris S.A., a Luxembourg corporation. - - References in this prospectus to "Tenaris" refer to the steel pipe business of various companies under the common control of San Faustin N.V. (a Netherlands Antilles corporation and the Company's controlling shareholder). On October 18, 2002, these companies, which include the Tenaris companies and Tenaris Global Services, were reorganized as subsidiaries of the Company. See notes A and B to the audited combined consolidated financial statements of Tenaris included elsewhere in this prospectus and "Part Four--Information about Tenaris--Related Party Transactions--Corporate reorganization transactions." - - References in this prospectus to "the Tenaris companies" refer to Tenaris's manufacturing subsidiaries, including Siderca, Tamsa and Dalmine and their respective subsidiaries. - - References in this prospectus to "Tenaris Global Services" refer to the various non-publicly traded companies, representative offices and assets, owned directly or indirectly by San Faustin, that provide sales and marketing services primarily to the Tenaris companies. On October 18, 2002, these companies, representative offices and other assets were separated from the "Techint commercial network," an extensive commercial network with operations worldwide providing sales and marketing services to the Techint group, and reorganized as subsidiaries, representative offices and other assets of Abeluz S.A., a Uruguayan corporation that, after settlement of the exchange offer, will be renamed Tenaris Global Services S.A. Furthermore, on October 15, 2002, the export agency agreements that the Tenaris companies were parties to with companies in the Techint commercial network not subject to the reorganization described above were assigned to Abeluz or its subsidiaries, subject to the completion of the exchange offer and effective as of the settlement date. Accordingly, after settlement of the exchange offer, all of the sales and marketing services provided to the Tenaris companies by companies, representative offices and other assets formerly part of the Techint commercial network will be provided by Tenaris Global Services and not by any company remaining in the Techint commercial network. See "Part Four--Information about Tenaris--Business--Sales and marketing" and "--Related Party Transactions--Corporate reorganization transactions." - - References in this prospectus to the "Techint group" refer to an international group of companies with operations in the steel, energy, infrastructure, engineering, construction and public service sectors over which San Faustin exercises either control or significant influence. INFORMATION INCORPORATED BY REFERENCE This prospectus incorporates important business and financial information about Siderca and Tamsa by reference and, as a result, this information is not included in or delivered with this prospectus. Documents incorporated by reference are available from us without charge. You may also obtain documents incorporated by reference into this prospectus by requesting them in writing or by telephone from the information agent: GEORGESON SHAREHOLDER 17 STATE STREET -- 10TH FLOOR NEW YORK, N.Y. 10004 BANKS AND BROKERS CALL (212) 440-9800 ALL OTHERS CALL: (866) 423-4875 (REGARDING SIDERCA) (866) 423-4876 (REGARDING TAMSA) (39-06) 4217-1770 (REGARDING DALMINE) TO OBTAIN TIMELY DELIVERY OF THESE DOCUMENTS, YOU MUST REQUEST THEM NO LATER THAN DECEMBER 6, 2002. For a list of those documents that are incorporated by reference into this prospectus, see "Part Nine--Additional Information for Shareholders--Incorporation of Certain Documents by Reference." In addition, you may obtain additional information on Siderca, Tamsa and Dalmine from various public sources. For a list of such sources, please see "Part Nine--Additional Information for Shareholders--Where You Can Find More Information." TABLE OF CONTENTS Through and including December 3, 2002 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as underwriter and with respect to an unsold allotment or subscription.
PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION............. ii CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS........ v WHO CAN HELP ANSWER MY QUESTIONS?... vi QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER.................... vii PART ONE SUMMARY.................... I-1 The Company and Tenaris........... I-1 Reasons for the Exchange Offer.... I-2 Terms of the Exchange Offer....... I-2 Effects of the Exchange Offer..... I-5 Shareholders' Rights.............. I-6 Summary Selected Historical Combined Consolidated Financial Data of Tenaris................ I-7 Summary Selected Historical Consolidated Financial Data of Siderca........................ I-12 Summary Selected Consolidated Financial Data of Tamsa........ I-18 Summary Selected Consolidated Financial Data of Dalmine...... I-24 Summary Unaudited Pro Forma Condensed Combined Consolidated Financial Data of Tenaris...... I-29 Recent Market Prices.............. I-38 Summary Selected Comparative Per Share Data..................... I-39 PART TWO RISK FACTORS............... II-1 PART THREE THE EXCHANGE OFFER....... III-1 Material Tax Considerations....... III-19 Market Price and Dividends........ III-33 Unaudited Pro Forma Condensed Combined Consolidated Financial Data........................... III-46 PART FOUR INFORMATION ABOUT TENARIS........................... IV-1 Business.......................... IV-1 Selected Historical Combined Consolidated Financial Data of Tenaris........................ IV-39 Management's Discussion and Analysis of Financial Condition and Results of Operations...... IV-44 Risk Management................... IV-61 Principal Shareholders............ IV-63 Related Party Transactions........ IV-63 Management........................ IV-67 PART FIVE INFORMATION ABOUT SIDERCA........................... V-1 Overview.......................... V-1 Selected Historical Consolidated Financial Data................. V-1 Management's Discussion and Analysis of Financial Condition and Results of Operations...... V-8 Risk Management................... V-29 PART SIX INFORMATION ABOUT TAMSA.... VI-1 Overview.......................... VI-1 Selected Historical Consolidated Financial Data................. VI-1 Management's Discussion and Analysis of Financial Condition and Results of Operations...... VI-6 Risk Management................... VI-21 PART SEVEN INFORMATION ABOUT DALMINE........................... VII-1 Selected Historical Consolidated Financial Data................. VII-1 Management's Discussion and Analysis of Financial Condition and Results of Operations...... VII-6 Risk Management................... VII-19 Business.......................... VII-23 Principal Shareholders............ VII-38 Management........................ VII-38 PART EIGHT LEGAL INFORMATION........ VIII-1 Comparison of Shareholder Rights.. VIII-1 Description of Our Shares......... VIII-8 Description of Our American Depositary Receipts............ VIII-11 Validity of the Securities........ VIII-18 Tax Matters....................... VIII-18 Experts........................... VIII-18 PART NINE ADDITIONAL INFORMATION FOR SHAREHOLDERS...................... IX-1 Where You Can Find More Information.................... IX-1 Incorporation of Certain Documents by Reference................... IX-3 Exchange Rates.................... IX-5 Additional Information Required by Tender Offer Rules............. IX-8 Service of Process and Enforceability of Civil Liabilities under U.S. Securities Laws................ IX-10 PART TEN REGULATORY MATTERS......... X-1 FINANCIAL STATEMENTS................ F-1 PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION ACCOUNTING PRINCIPLES TENARIS Tenaris prepares its financial statements in conformity with International Accounting Standards, or IAS. IAS differ in certain significant respects from generally accepted accounting principles in the United States, commonly referred to as U.S. GAAP. See notes R and 28 to Tenaris's audited combined consolidated financial statements included in this prospectus, which provide a description of the principal differences between IAS and U.S. GAAP as they relate to Tenaris's audited combined consolidated financial statements and a reconciliation of net income (loss) and shareholders' equity for the years and at the dates indicated. Although we were organized in December 2001, the audited combined consolidated financial statements of Tenaris included in this prospectus combine, at each of the dates and for each of the periods presented therein, the consolidated financial statements of each of Siderca, Tamsa, Dalmine and Tenaris Global Services, as well as the consolidated financial statements of four smaller companies (Metalcentro S.A., Tenaris Connections A.G., Lomond Holdings B.V. and Information Systems and Technologies B.V.), on the basis that all of these companies were under the common control of San Faustin at each such date and for each such period. See notes A and B to Tenaris's audited combined consolidated financial statements included in this prospectus. The effect of this presentation is to show the combined historical results, financial condition and other data of the various steel pipe manufacturing and distributing companies under the common control of San Faustin as though these companies had been our subsidiaries at the dates and during the periods presented. Prior to the date of this prospectus, these companies, which include the Tenaris companies and Tenaris Global Services, were reorganized as subsidiaries of the Company. Tenaris's combined consolidated financial statements combine, for the twelve months ended December 31, 2001, 2000 and 1999, and for the six months ended June 30, 2002 and 2001, the financial statements for the corresponding twelve months or six months, as the case may be, of Siderca, Tamsa, Dalmine, Tenaris Global Services, their respective consolidated subsidiaries and the other companies listed in note B(6) to Tenaris's combined consolidated financial statements. SIDERCA Siderca prepares its financial statements in conformity with generally accepted accounting principles in Argentina, commonly referred to as "Argentine GAAP." Argentine GAAP differ in significant respects from U.S. GAAP. See notes 16 and 17 to Siderca's audited consolidated financial statements included in this prospectus for a description of the principal differences between Argentine GAAP and U.S. GAAP as they relate to Siderca and for a reconciliation of net income (loss) and shareholders' equity for the years and at the dates indicated. Inflation in Argentina is measured based on changes in the Wholesale Price Index, known as the "WPI," published by the Argentine Instituto Nacional de Estadistica y Censos, the National Institute of Statistics and Census. Under Argentine GAAP, financial statements are required to be adjusted for inflation for any fiscal year if the changes in the WPI for such year exceed 8%. As the annualized changes in the WPI from August 31, 1995, to December 31, 2001, were less than 8%, financial statements prepared in accordance with Argentine GAAP were not required to be adjusted for inflation during that period. In 2002 to date, Argentina has experienced a high rate of inflation (121.3% ii through September 30, 2002). As the change in the WPI since January 1, 2002, has exceeded 8%, financial statements prepared in accordance with Argentine GAAP are required to be adjusted for inflation since that date. Accordingly, Siderca has adjusted for inflation and restated in constant Argentine pesos as of June 30, 2002, its financial statements as of and for the six-month period ended June 30, 2002. In addition, for comparative purposes, Siderca has also restated in constant Argentine pesos as of June 30, 2002, all other financial statements of Siderca included elsewhere in this prospectus and all other Siderca financial data included throughout this prospectus and relating to dates or periods covered by the audited financial statements. References in this prospectus to "fiscal year" in the case of Siderca refer to Siderca's fiscal year, which means, for periods prior to April 1, 2001, the fiscal year beginning on April 1 and ending March 31; for example, "fiscal year 2001" means Siderca's fiscal year ended March 31, 2001. In the second half of 2001, Siderca changed its fiscal year end from March 31 to December 31. For avoidance of confusion, in the case of Siderca the term "fiscal year" is not used for any periods beginning on or after April 1, 2001. References in this prospectus to "transition period" in the case of Siderca refer to the nine-month transition period that began on April 1, 2001, and ended on December 31, 2001, and resulted from a change in Siderca's fiscal year end from March 31 to December 31. TAMSA Tamsa prepares its financial statements in conformity with generally accepted accounting principles in Mexico, commonly referred to as "Mexican GAAP." Mexican GAAP differ in significant respects from U.S. GAAP. See note 12 to Tamsa's audited consolidated financial statements included in this prospectus for a description of the principal differences between Mexican GAAP and U.S. GAAP as they relate to Tamsa and for a reconciliation of net income (loss) and shareholders' equity for the years and at the dates indicated. The financial statements of Tamsa included in this prospectus were prepared giving effect to Bulletin B-10 "Recognition of Effect of Inflation on Financial Information," as amended, and Bulletin B-12, "Statements of Changes in Financial Position," issued by the Mexican Institute of Public Accountants, or the MIPA, each of which became effective in 1990, and Bulletin B-15, "Foreign Currency Transactions and Translation of Financial Statements of Foreign Operations," also issued by the MIPA and adopted by Tamsa in 1998. Generally, Bulletin B-10 provides for the recognition of the effects of inflation by requiring Mexican companies to restate inventories and fixed assets at current replacement cost, to restate all other non-monetary assets and non-monetary liabilities as well as the components of shareholders' equity using the Mexican consumer price index and to record gains or losses in purchasing power from holding monetary liabilities or assets. The Third Amendment to Bulletin B-10 requires restatement of all financial statements to constant Mexican pesos as of the date of the most recent balance sheet presented. The Fifth Amendment to Bulletin B-10 was issued effective January 1, 1997, by the MIPA. Under the Fifth Amendment, Mexican companies are no longer permitted to restate fixed assets at current replacement cost, but are instead required to restate them using the Mexican consumer price index or inflation factors of the country of origin in the case of imported assets. Bulletin B-12 specifies the appropriate presentation of the statement of changes in financial position when the financial statements have been adjusted for inflation and restated in constant Mexican pesos in accordance with Bulletin B-10. Bulletin B-12 identifies the sources and applications of resources representing differences between beginning and ending financial statement balances in constant Mexican pesos. Bulletin B-15 prescribes the methodology for foreign currency transactions and the recognition of inflation in the financial information of foreign subsidiaries. Unless otherwise noted, all data in the audited financial statements included in this prospectus and all other Tamsa financial data included throughout this prospectus and relating to dates or periods covered by iii the audited financial statements have been adjusted for inflation and restated in constant Mexican pesos as of June 30, 2002. DALMINE Dalmine prepares its financial statements in conformity with generally accepted accounting principles in Italy, commonly referred to as "Italian GAAP." Italian GAAP differ in significant respects from U.S. GAAP. See note 16 to Dalmine's audited consolidated financial statements included in this prospectus for a description of the principal differences between Italian GAAP and U.S. GAAP as they relate to Dalmine and for a reconciliation of net income (loss) and shareholders' equity for the years and at the dates indicated. CURRENCIES In this prospectus, unless otherwise specified or the context otherwise requires: - - "dollars," "U.S. dollars" or "USD" each refers to the United States dollar; - - "Argentine pesos" or "ARP" each refers to the Argentine peso; - - "Mexican pesos" or "MXP" each refers to the Mexican peso; and - - "E" or "euros" each refers to the euro, the single currency established for participants in the European Economic and Monetary Union, or the EMU, commencing January 1, 1999. The Republic of Italy is a participant in the EMU. The euro replaced the Italian lira as the official currency of Italy on that date. On November 5, 2002, the exchange rate between the Argentine peso and the U.S. dollar (as published by Banco Central de la Republica Argentina, or the Argentine Central Bank) was ARP3.54=USD1.00, and on November 7, 2002, the Federal Reserve Bank of New York noon buying rate for the Mexican peso was MXP10.25=USD1.00 and the Federal Reserve Bank of New York noon buying rate for the euro was E0.9909=USD1.00. See "Part Nine--Additional Information for Shareholders--Exchange Rates--Argentine peso," "--Mexican peso" and "--Euro" for additional information regarding the exchange rates between the U.S. dollar and the Argentine peso, the Mexican peso and the euro, respectively. ROUNDING; COMPARABILITY OF DATA Certain monetary amounts, percentages and other figures included in this prospectus 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. The data provided in this prospectus for the sales volumes and revenues of Tenaris is not necessarily comparable to similar information provided for each of Siderca, Tamsa and Dalmine. This difference is mainly due to the timing of each company's recognition of the sale of its products. Tenaris recognizes the sale of its products at the time they are sold by the reseller to the end user (or at the expiration of the acceptance period, if applicable) in accordance with IAS, while each of Siderca, Tamsa and Dalmine recognizes the sale of its products at the time they are sold to the reseller in accordance with their respective GAAPs. iv NO INTERNET SITE IS PART OF THIS PROSPECTUS Each of Tenaris, Siderca, Tamsa and Dalmine maintains an Internet site at www.tenaris.com, www.siderca.com, www.tamsa.com.mx and www.dalmine.it, respectively. Information contained in or otherwise accessible through these websites is not a part of this prospectus. All references in this prospectus to these Internet sites are inactive textual references to these URLs, or "uniform resource locators" and are for your informational reference only. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS This prospectus contains certain statements that we consider to be "forward-looking statements." The statements appear throughout this prospectus and are subject to risks and uncertainties. These statements include information regarding: - - management strategy; - - capital spending; - - development and growth of the seamless steel pipe and oil and gas industries; - - trends and other prospective data, including trends regarding the levels of investment in oil and gas drilling worldwide and the business development and operations of Dalmine Energie; - - general economic conditions in Argentina, Mexico and Italy and other countries in which Tenaris operates and distributes pipes; and - - any synergies and benefits as a result of Tenaris's corporate reorganization or the cooperation among the Tenaris companies. Sections of this prospectus that by their nature contain forward-looking statements include "Questions and Answers About the Exchange Offer," "Part One--Summary," "Part Two--Risk Factors," "Part Three--The Exchange Offer," "Part Four--Information about Tenaris--Business," "Part Four--Information about Tenaris--Management's Discussion and Analysis of Financial Condition and Results of Operations," "Part Four--Information about Tenaris--Risk Management," "Part Five--Information about Siderca--Management's Discussion and Analysis of Financial Condition and Results of Operations," "Part Five--Information about Siderca--Risk Management," "Part Six--Information about Tamsa--Management's Discussion and Analysis of Financial Condition and Results of Operations," "Part Six--Information about Tamsa--Risk Management," "Part Seven--Information about Dalmine--Management's Discussion and Analysis of Financial Condition and Results of Operations," "Part Seven--Information about Dalmine--Business" and "Part Seven--Information about Dalmine--Risk Management." Forward-looking statements also may be identified by the use of words such as "believes," "expects," "anticipates," "projects," "intends," "should," "seeks," "estimates," "probability," "risk," "target," "goal," "objective," "future" or similar expressions or variations of such expressions. The forward-looking statements contained in this prospectus speak only as of the date of this document, and we do not undertake to update any forward-looking statement to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events. v WHO CAN HELP ANSWER MY QUESTIONS? If you have more questions about the exchange offer, you should contact the information agent at the address or telephone numbers set forth in the inside front cover of this prospectus under "Information Incorporated by Reference." Additional copies of this prospectus, the ADS letters of transmittal and the forms of acceptance may be obtained from the information agent, brokers, dealers, commercial banks or trust companies. To obtain timely delivery of these documents, you must request them no later than December 6, 2002. vi QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER Q: WHAT IS THE PURPOSE OF THE EXCHANGE OFFER? A: By further combining the businesses of Siderca, Tamsa, Dalmine and Tenaris Global Services through the corporate reorganization of Tenaris and the exchange offer, Tenaris seeks to improve its global competitive standing and be in a better position to capitalize on future growth opportunities. Our goals in the corporate reorganization and the exchange offer are to: - - consolidate Tenaris's corporate identity as a global company; - - increase the visibility of Tenaris's business by streamlining its corporate structure and its financial reporting; - - align the interests of all shareholders across the Tenaris companies; - - generate further operating and management synergies; and - - provide a more attractive investment opportunity in the steel pipe sector by creating a larger, more diversified global company. Q: WHAT WILL I RECEIVE IN THE EXCHANGE OFFER? A: You will receive: - - one newly issued ordinary share of the Company for every 1.0933 Siderca ordinary shares you tender. - - one newly issued ADS of the Company for every 1.0933 Siderca ADSs you tender. - - one newly issued ordinary share of the Company for every 0.9452 Tamsa common shares you tender. - - one newly issued ADS of the Company for every 1.8904 Tamsa ADSs you tender. - - one newly issued ordinary share of the Company for every 12.0267 Dalmine ordinary shares you tender. Q: IS THE COMPANY A PUBLICLY LISTED COMPANY? A: Not yet. Although our ADSs have been, subject to the satisfaction of certain requirements, approved to trade on the NYSE under the symbol "TS", and our ordinary shares have been, subject to the satisfaction of certain requirements, approved to trade on the Buenos Aires Stock Exchange, the Mexican Stock Exchange and the Milan Stock Exchange, our shares and ADSs will begin to trade on these exchanges promptly, in accordance with market practice, after announcement of the results of the exchange offer. Q: WHO MAY PARTICIPATE IN THE EXCHANGE OFFER? A: All holders of Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares may participate in the exchange offer. Q: WILL ALL OF THE SECURITIES THAT I TENDER BE ACCEPTED? A: Unless we determine not to consummate the exchange offer with respect to Siderca, Tamsa or Dalmine because an insufficient number of Siderca or Tamsa securities is tendered or one of the other conditions is not met, or unless we determine not to consummate the exchange offer with respect to the Dalmine shares because an insufficient number of Dalmine shares is tendered, we will accept all of the securities that you properly tender pursuant to the exchange offer. We reserve the right to revise upward or downward the minimum number of each security that must be tendered in order for the exchange offer to proceed, subject to applicable law. Q: DOES THE COMPANY OWN ANY EQUITY SECURITIES OF SIDERCA, TAMSA AND DALMINE? A: Yes. As of October 18, 2002, we owned, directly or indirectly, approximately 71.17% of Siderca's total outstanding shares, approximately 50.77% of Tamsa's total outstanding shares and approximately 47.22% of Dalmine's total vii outstanding shares. Most of our shares of Tamsa and Dalmine were held through Siderca. Q: HAS ANY OF SIDERCA, TAMSA OR DALMINE OR THEIR BOARDS OF DIRECTORS MADE ANY RECOMMENDATION REGARDING THE EXCHANGE OFFER? A: Yes. We have informed Siderca, Tamsa and Dalmine and their respective boards of directors of the terms of the exchange offer in accordance with applicable law. On October 30, 2002, the board of directors of Dalmine stated its position in favor of the exchange offer with respect to Dalmine and indicated that the proposed ratio for the exchange of our shares for Dalmine shares is fair to Dalmine shareholders. The boards of directors of each of Siderca and Tamsa are also required to state their respective positions regarding the exchange offer within ten days of the commencement of the exchange offer in accordance with applicable law. Each board is required to express its opinion in respect of the exchange offer, and recommend that the shareholders either accept or reject the offer. In each case, the board has to explain the reasons for its position. Directors with conflicts of interest must abstain from discussing and voting on these matters in the relevant board meeting. Q: DOES THE COMPANY REQUIRE ANY APPROVALS FROM ITS SHAREHOLDERS IN ORDER TO ACCEPT SIDERCA, TAMSA AND DALMINE SECURITIES FOR EXCHANGE AND TO ISSUE AND DELIVER THE SECURITIES OF THE COMPANY PURSUANT TO THE EXCHANGE OFFER? A: No. On June 26, 2002, the Company's shareholders authorized an increase in its capital stock to 2,500,000,000 shares having a par value of USD1.00 per share. No further shareholder approvals are required under Luxembourg law to issue and deliver shares or ADSs of the Company pursuant to the exchange offer. On September 13, 2002, the Company's board of directors authorized the exchange offer. Following the expiration of this offer, if we accept the Siderca, Tamsa and Dalmine securities tendered, the board of directors of the Company will implement this capital increase and will issue the new shares of the Company (to be delivered in the form of shares and ADSs). Tenaris also must register the capital increase with the Commercial Registry of Luxembourg. Q: DOES THE COMPANY REQUIRE ANY APPROVALS FROM ANY GOVERNMENTAL AUTHORITIES OR ANY THIRD PARTIES IN ORDER TO ACCEPT SIDERCA, TAMSA AND DALMINE SECURITIES FOR EXCHANGE AND TO ISSUE AND DELIVER NEW SECURITIES PURSUANT TO THE EXCHANGE OFFER? A: The exchange offer may not be completed until the SEC has declared effective the registration statement of which this prospectus is a part. Prior to the date of this prospectus, we have obtained the following approvals: - - approval of the NYSE to list our securities, subject to the satisfaction of certain requirements; - - approval of the Comision Nacional de Valores, or the Argentine Securities Commission, to publicly offer our securities and make the exchange offer; - - approval of the Buenos Aires Stock Exchange to list our securities, subject to the satisfaction of certain requirements; - - approval of the Comision Nacional Bancaria y de Valores, or the Mexican Banking and Securities Commission, to register our securities with the Mexican Securities Registry; - - approval of the Mexican Stock Exchange to list our securities, subject to the satisfaction of certain requirements; and - - approval of the Mexican antitrust authorities. As of the date of this prospectus, we have not yet obtained the following approvals: - - approval of the Commissione Nazionale per le Societa e la Borsa, or the Italian Securities Commission, to publicly offer our securities and make the exchange offer with respect to Dalmine in Italy; and - - approval of the Milan Stock Exchange to list our securities, subject to the satisfaction of certain requirements. viii We expect to obtain these approvals shortly; there can be no assurance, however, as to whether or when such approvals will be obtained. For more information see "Part Ten--Regulatory Matters." Q: WHAT WILL BE THE CONSEQUENCES FOR ME IF I CHOOSE NOT TO PARTICIPATE IN THE EXCHANGE OFFER OR IF I FORGET, OR MY BROKER FORGETS, TO TENDER MY SECURITIES BEFORE THE EXPIRATION OF THE EXCHANGE OFFER? A: In order to participate in the exchange offer, you must tender your securities in the manner described in this prospectus before 5:00 p.m., New York City time (in the case of Siderca or Tamsa shares or ADSs), and before 4:40 p.m., Milan time (in the case of Dalmine shares), in all cases on the expiration date, December 13, 2002 (or, if the exchange offer is extended, on the new expiration date, which will be publicly announced). If you do not, you will retain ownership of your Siderca, Tamsa or Dalmine securities. See "Part Three--The Exchange Offer." Q: IF I DO NOT PARTICIPATE IN THE EXCHANGE OFFER, WILL MY SIDERCA SHARES AND ADSS, TAMSA SHARES AND ADSS AND DALMINE SHARES CONTINUE TO BE LISTED? A: If we acquire a sufficient number of Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares pursuant to the exchange offer, Siderca, Tamsa and Dalmine may not continue to meet the listing criteria of the exchanges on which their securities are listed. We believe that the minimum conditions for completion of the exchange offer will not cause Siderca and Tamsa to fail to continue to meet such listing criteria. However, the minimum closing conditions for completion of the exchange offer with respect to Dalmine, if met, could, under certain circumstances, cause Dalmine to fail to meet the listing criteria of the Milan Stock Exchange. In addition, although we have not made a decision in this respect, we may petition, or cause Siderca, Tamsa and Dalmine to petition, these exchanges to delist these securities, subject to applicable law. The liquidity of your Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares will be adversely affected if they are delisted. Q: WHAT WILL BE THE ACCOUNTING TREATMENT OF THE EXCHANGE OFFER? A: Tenaris prepares its financial statements in accordance with IAS. Under IAS, the purchase method applies to this transaction. See "Part Three--The Exchange Offer--Accounting Treatment." Q: WHAT ARE MY TAX CONSEQUENCES SHOULD I DECIDE TO PARTICIPATE IN THE EXCHANGE OFFER IF I AM A U.S. SHAREHOLDER? A: We believe, and the discussion in this prospectus regarding the U.S. federal income tax consequences of the exchange assumes, that your exchange of Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares for our shares or ADSs pursuant to the exchange offer should qualify for "nonrecognition" of gain or loss as described in section 351(a) of the U.S. Internal Revenue Code of 1986, as amended. Accordingly, subject to certain qualifications and exceptions described in "Part Three--The Exchange Offer--Material Tax Considerations--U.S. tax consequences" in this prospectus, you should not recognize any gain or loss for U.S. federal income tax purposes upon the receipt of our shares or ADSs pursuant to the exchange offer (except with respect to the receipt of cash in lieu of a fractional interest in one of our shares or ADSs). Your receipt of cash in lieu of a fractional interest in one of our shares or ADSs will be treated as though the fractional interest was distributed to you and then sold for cash. You will recognize gain or loss in an amount equal to the difference between the cash received and the basis in the fractional interest deemed sold on the date the fractional interest is sold. Whether or not the exchange will be taxable for Argentine, Mexican or Italian tax purposes will depend upon your individual circumstances. For information about the material U.S. federal income tax and Luxembourg, Argentine, ix Mexican and Italian tax consequences of the exchange offer, see "Part Three--The Exchange Offer--Material Tax Considerations," which reflects the opinions received from Sullivan & Cromwell as to certain matters of U.S. federal income tax law and from Luxembourg, Argentine, Mexican and Italian counsel as to certain matters of Luxembourg, Argentine, Mexican and Italian tax law. Q: WILL I RECEIVE MY 2002 DIVIDENDS, OR DIVIDENDS WITH RESPECT TO LATER PERIODS, ON MY SIDERCA, TAMSA OR DALMINE SECURITIES? A: You will retain the dividend rights associated with your Siderca, Tamsa or Dalmine securities after you tender them and until we accept them pursuant to the exchange offer. Once we accept them in the exchange offer, we will become the owner of your Siderca, Tamsa or Dalmine securities and will acquire all rights associated with those securities. If any dividends are declared on the Siderca, Tamsa or Dalmine securities tendered in the exchange offer before the date on which we acquire ownership, the registered holder of those securities as of the record date specified in connection with such dividend declaration will receive the dividends. Q: WILL I RECEIVE DIVIDENDS ON THE COMPANY'S SHARES I RECEIVE IN CONNECTION WITH THE EXCHANGE OFFER? A: The new shares of the Company issued in connection with the exchange offer will have the same dividend and other rights as our other ordinary shares. We may elect to pay dividends on these shares at a future time. See "Part Three--The Exchange Offer--Market Price and Dividends--Dividends--Our shares and ADSs." Q: IF I TENDER MY SIDERCA, TAMSA OR DALMINE SECURITIES IN EXCHANGE FOR SECURITIES OF THE COMPANY, HOW WILL MY RIGHTS AS A SHAREHOLDER CHANGE? A: Similar to Siderca, Tamsa and Dalmine, we have one single class of shares granting the same voting and economic rights to all shareholders. Nevertheless, there are differences between the rights of our securityholders and those of Siderca, Tamsa and Dalmine. The most significant of these differences are explained in "Part Eight--Legal Information--Comparison of Shareholder Rights." You should also read "Part Eight--Legal Information--Description of Our Shares" and "--Description of Our American Depositary Receipts." Q: AFTER THE EXCHANGE OFFER, WILL I HAVE THE SAME OWNERSHIP AND VOTING PERCENTAGES IN THE COMPANY AS I NOW HAVE IN SIDERCA, TAMSA AND DALMINE? A: No. After completion of the exchange offer, you will hold securities of a larger company than any of Siderca, Tamsa or Dalmine. Accordingly, you will have lower ownership and voting percentages in the Company than you now have in Siderca, Tamsa or Dalmine. Q: HOW DO I PARTICIPATE IN THE EXCHANGE OFFER? A: This will depend on the type of security of Siderca, Tamsa or Dalmine that you want to exchange. For a description of the procedures for tendering each type of security, see "Part Three--The Exchange Offer." Q: CAN I CHANGE MY MIND AND DECIDE NOT TO PARTICIPATE IN THE EXCHANGE OFFER AFTER I TENDER MY SECURITIES? A: Yes. You may withdraw your tender of Siderca or Tamsa shares or ADSs at any time before 5:00 p.m., New York City time, and your tender of Dalmine shares at any time before 4:40 p.m., Milan time, in all cases on December 13, 2002, the expiration date of the exchange offer. If the exchange offer is extended, you may also withdraw your tendered securities during the extension period and prior to the new expiration date, which will be publicly announced. If we provide a subsequent offering period, we may not allow you to withdraw any securities tendered during that subsequent offering period. x Q: ARE THERE ANY CONDITIONS TO THE COMPANY'S OBLIGATION TO COMPLETE THE EXCHANGE OFFER? A: Yes. The exchange offer is subject to a number of conditions. For example, we will not be required to accept any tenders of Siderca or Tamsa shares or ADSs or Dalmine shares unless a sufficient number of Siderca and Tamsa securities are tendered so that, after consummation of the exchange offer with respect to Siderca or Tamsa, we hold, directly or indirectly, the minimum number of Siderca or Tamsa securities specified on the cover of this prospectus. In addition, we will not be required to accept any tenders of Dalmine shares unless a sufficient number of Dalmine shares are tendered so that, after consummation of the exchange offer, we hold, directly or indirectly, the number of Dalmine securities specified on the cover of this prospectus. Also, subject to applicable law, we will not be required to consummate the exchange offer with respect to Siderca, Tamsa and Dalmine if any legal restraints or prohibitions are imposed on the exchange offer, or if required government approvals, including the required listing approvals, are not received, and we will not be required to consummate the exchange offer with respect to Siderca or Tamsa if a material adverse change occurs in the businesses of Tenaris, Siderca, Tamsa or Dalmine. The consummation of the exchange offer with respect to Siderca is conditioned on the consummation of the exchange offer with respect to Tamsa and the consummation of the exchange offer with respect to Tamsa is conditioned on the consummation of the exchange offer with respect to Siderca. The consummation of the exchange offer with respect to Dalmine is conditioned on the consummation of the exchange offer with respect to both Siderca and Tamsa, but the consummation of the exchange offer with respect to Siderca and Tamsa is not conditioned on the consummation of the exchange offer with respect to Dalmine. We reserve the right to modify or waive any of these conditions in our discretion, subject to certain limitations and applicable law. For additional information on these conditions and limitations, see "Part Three--The Exchange Offer." Q: CAN THE COMPANY EXTEND OR TERMINATE THE EXCHANGE OFFER OR CHANGE ITS TERMS? A: Although we reserve the right, at any time or from time to time, to extend or terminate the exchange offer, we do not intend to terminate the exchange offer unless, in our reasonable judgment, the conditions for completion of the exchange offer set forth in this prospectus are not met. We also reserve the right, at any time and from time to time, to amend the exchange offer in any respect in accordance with applicable law. We may elect, although we have not yet made a final decision in this respect, to provide a subsequent offering period in all jurisdictions where we are making the exchange offer. We will promptly accept all securities tendered during that period, we will not provide withdrawal rights and we will provide the same consideration being offered during the initial offering period. Q: WHEN WILL I KNOW THE OUTCOME OF THE EXCHANGE OFFER? A: We will issue a press release announcing the results of the exchange offer promptly after the expiration date of the exchange offer. We will file that press release with the SEC and the other regulatory authorities in accordance with applicable law. Q: HOW WILL FRACTIONAL SHARES BE HANDLED IN THE EXCHANGE OFFER? A: We will not issue fractional shares or ADSs to holders of Siderca shares and ADSs, Tamsa shares and ADSs or Dalmine shares in connection with the exchange offer. Instead, fractional shares and ADSs will be aggregated and the resulting shares and ADSs of the Company will be sold in the open market with the net proceeds of such sale paid to the holders of Siderca shares and ADSs, Tamsa shares and ADSs or Dalmine shares in an amount equal to the equivalent, in the applicable currency, of the xi holder's proportionate interest in the aggregated fractional entitlement. You will receive the amount you are entitled to as soon as practicable after settlement of the exchange offer. Q: WHEN WILL I RECEIVE MY SHARES OR ADSS OF THE COMPANY? A: Assuming the exchange offer is consummated, we intend to deliver our shares and ADSs to be issued in exchange for properly tendered Siderca, Tamsa and Dalmine securities promptly, in accordance with market practice, after the expiration date of the exchange offer. Q: WILL I HAVE TO PAY BROKERAGE COMMISSIONS? A: Neither we nor any exchange agent will charge any commission to holders of Siderca, Tamsa and Dalmine securities in connection with their participation in the exchange offer. If your Siderca, Tamsa or Dalmine securities are held through your bank, broker or other financial intermediary, you should consult with them as to whether or not they will charge any transaction fee or service charges. Q: IS THE COMPANY PLANNING TO LAUNCH A SUBSEQUENT TENDER OFFER FOR ANY REMAINING SIDERCA SHARES OR ADSS, TAMSA SHARES OR ADSS OR DALMINE SHARES OR TO TAKE ANY OTHER ACTION TO ELIMINATE ANY REMAINING MINORITY INTERESTS IN SIDERCA, TAMSA OR DALMINE? A: Although we believe that the benefits of streamlining Tenaris's corporate structure and generating further operating and management synergies would be further enhanced through the elimination of any remaining public minority interests in Siderca, Tamsa and Dalmine, we have not made a decision at this point regarding a potential subsequent tender offer for any securities of Siderca and Tamsa or any other action to eliminate such remaining interests. In addition, the minimum conditions for completion of the exchange offer do not give us sufficient authority to approve, on our own, any subsequent reorganization of any of Siderca, Tamsa or Dalmine to eliminate any remaining public minority interests. Argentine and Italian laws do not permit us to eliminate any remaining public minority interests unless we gain control of more than 95% of the capital stock of Siderca or 98% of the capital stock of Dalmine, as applicable, while Mexican law does not permit us to eliminate any remaining public minority interests under any circumstances. Under Argentine law, if we gain control of more than 95% of the capital stock of Siderca, any minority shareholder of Siderca may require us to launch a subsequent tender offer for any remaining Siderca shares. Under Mexican law, if we gain control of more than 85% of the capital stock of Tamsa, we may be required to launch a subsequent tender offer for any remaining Tamsa shares or ADSs. Under Italian law, if we gain control of more than 90% of the capital stock of Dalmine, we will be required to launch a subsequent tender offer for any remaining Dalmine shares unless we elect to sell or otherwise dispose of, within four months of the consummation of the exchange offer with respect to Dalmine, a number of Dalmine shares sufficient to ensure regular trading of Dalmine's capital stock. We do not currently intend to sell or otherwise dispose of Dalmine's capital stock if we gain control of more than 90% of its stock. See "Part Ten--Regulatory Matters--Securities laws--Argentina", "--Mexico" and "--Italy". If we elect or are required to launch a subsequent tender offer or any other transaction to eliminate any remaining public minority interests in Siderca, Tamsa or Dalmine, the amount and form of any future consideration that we may offer might be, to the extent permitted by or required under applicable law, different than the consideration offered in the exchange offer. xii Q: IS THE COMPANY PLANNING TO CAUSE SIDERCA TO TRANSFER ITS EQUITY HOLDINGS IN TAMSA AND DALMINE TO THE COMPANY AFTER COMPLETION OF THE EXCHANGE OFFER? A: We are not currently planning to cause a transfer to us of Siderca's equity holdings in Tamsa and Dalmine immediately following the completion of the exchange offer. Any future decision regarding such transfer will take into account all relevant circumstances, including any adverse tax implications for us or our shareholders. xiii PART ONE SUMMARY To understand the exchange offer and the businesses of Tenaris more fully, you should read this entire prospectus carefully, including "Cautionary Statement concerning Forward-Looking Statements," "Part Two--Risk Factors" and the combined consolidated financial statements of Tenaris and notes thereto included elsewhere in this prospectus. THE COMPANY AND TENARIS The Company is a Luxembourg corporation organized on December 17, 2001, to hold Tenaris's steel pipe manufacturing and distribution business. Tenaris is a leading global manufacturer and supplier of seamless steel pipe products and associated services to the oil and gas, energy and other industries, with production, distribution and service capabilities in key markets worldwide, that carries out its operations through Siderca, Tamsa, Dalmine and Tenaris Global Services and their respective subsidiaries. Tenaris's principal products include casing, tubing, line pipe, and mechanical and structural pipes. In the last decade, Tenaris has successfully expanded its business through a series of strategic investments. Tenaris now operates a worldwide network of seamless steel pipe operations with manufacturing facilities in South America, North America, Europe and Asia and an annual production capacity of over three million metric tons, or tons, of seamless steel pipe products, compared to 800,000 tons in the early 1990s. In addition, through Tenaris Global Services, Tenaris has developed competitive and far reaching global distribution capabilities, with a direct presence in most major oil and gas markets. In 2001, Tenaris had net sales of USD3,119.3 million, operating income of USD441.6 million and net income of USD81.3 million, while in the first half of 2002 it had net sales of USD1,569.5 million, operating income of USD278.0 million and net income of USD17.2 million. Siderca is the sole Argentine producer and a leading global producer of seamless steel pipe products, including casing, tubing and line pipe, which are used primarily in the oil and gas business. As of December 31, 2001, and June 30, 2002, Siderca had an annual production capacity of 820,000 tons of seamless steel pipe products, and, in 2001 and the first half of 2002, exported more than 73% and 80%, respectively, of its seamless steel pipe shipments to over 60 countries worldwide. Tamsa is the sole Mexican producer and a leading global producer of seamless steel pipe products, including casing, tubing, line pipe and various other mechanical and structural seamless pipes for different uses. As of December 31, 2001, and June 30, 2002, Tamsa had an annual production capacity of 780,000 tons of seamless steel pipe products, and, in 2001 and the first half of 2002, exported more than 70% and 81%, respectively, of its seamless steel pipe shipments to over 50 countries worldwide. Dalmine is the leading Italian and a leading European producer of seamless steel pipe products, concentrating on pipe products for oil and gas wells, petrochemical and thermal applications and for the mechanical, automotive and machinery industries. As of December 31, 2001, and June 30, 2002, Dalmine had an annual production capacity of 950,000 tons of seamless steel pipe products, and, in 2001 and the first half of 2002, exported more than 38% and 33%, respectively, of its seamless steel pipe shipments outside of the European Union, or EU, market to over 70 countries worldwide. Tenaris Global Services is a network of companies, representative offices and other assets that provide sales and marketing services primarily to the Tenaris companies and has a physical presence in 18 countries. In 2001, Tenaris Global Services handled product orders representing 879,000 tons of I-1 steel pipes and 121,000 tons of other steel products, while in the first half of 2002 it handled product orders representing 294,000 tons of steel pipes and 221,000 tons of other steel products. REGISTERED OFFICE AND PRINCIPAL EXECUTIVE OFFICES Our registered office is located at 23 Avenue Monterey, L-2086, Luxembourg. Our telephone number is (352) 4661-11-3815. Siderca's principal executive offices are located at Av. Leandro N. Alem 1067, C1001AAF Buenos Aires, Argentina. Siderca's telephone number is (54) 11-4018-2244. Tamsa's principal executive offices are located at Edificio Parque Reforma, Campos Eliseos 400 - Piso 17, Col. Chapultepec Polanco, 11560 Mexico, D.F., Mexico. Tamsa's telephone number is (52) 555-282-9913. Dalmine's principal executive offices are located at Piazza Caduti 6 Luglio 1944 n.1, 24044 Dalmine (BG), Italy. Dalmine's telephone number is (39) ###-##-####. Tenaris Global Services' registered office is located at La Cumparsita 1373, 6th floor, 11200 Montevideo, Uruguay. Tenaris Global Services' telephone number is (59) 82-902-1196. REASONS FOR THE EXCHANGE OFFER The exchange offer is a key component of our strategy to reorganize Tenaris's investments in the steel pipe sector, further establishing Tenaris as a global company and positioning Tenaris for future growth. Through the corporate reorganization and the exchange offer, we intend to consolidate Tenaris's operations in the steel pipe sector, currently carried out through Siderca, Tamsa, Dalmine and Tenaris Global Services, under a new publicly-traded holding company, creating a global, larger and more diversified company. We believe that implementing Tenaris's corporate reorganization and completing the exchange offer will generate a number of benefits and will create value for the shareholders of the Tenaris companies who elect to participate in the exchange offer. Among these anticipated benefits, we seek to: - - consolidate Tenaris's corporate identity as a global company; - - increase the visibility of its business by streamlining its corporate structure and its financial reporting; - - align the interests of all shareholders across the Tenaris companies; - - generate further operating and management synergies; and - - provide a more attractive investment opportunity in the steel pipe sector by creating a larger, more diversified global company. TERMS OF THE EXCHANGE OFFER EXCHANGE RATIOS Upon the terms and subject to the conditions set forth in this prospectus and the related letters of transmittal, we are offering to exchange: - - one newly issued share of the Company, par value USD1.00 per share, for every 1.0933 Siderca Class A ordinary shares, nominal value ARP1.00 per share, tendered by you; I-2 - - one newly issued ADS of the Company (representing 10 of the Company's ordinary shares) for every 1.0933 Siderca ADSs tendered by you; - - one newly issued share of the Company, par value USD1.00 per share, for every 0.9452 Tamsa common shares, no par value, tendered by you; - - one newly issued ADS of the Company (representing 10 of the Company's ordinary shares) for every 1.8904 Tamsa ADSs tendered by you; and - - one newly issued share of the Company, par value USD1.00 per share, for every 12.0267 Dalmine ordinary shares, nominal value E0.16 per share, tendered by you. The primary factors considered in connection with the determination of these exchange ratios were: - - the average of the daily relative valuations among Siderca, Tamsa and Dalmine over the 180-day period immediately prior to September 13, 2002, the business day on which we announced the exchange offer, which were calculated by comparing the total market capitalization of each of Siderca, Tamsa and Dalmine, based on the closing prices of Siderca's ADSs on the NYSE, Tamsa's ADSs on the AMEX and Dalmine's shares on the Milan Stock Exchange on each trading date in the period; and - - the value (approximately USD70 million) attributed to our holdings in other companies as of the date of this prospectus, which include 100% of Tenaris Global Services, 27% of Metalmecanica S.A. and 52% of Metalcentro S.A. If all of the shares and ADSs of Siderca and Tamsa and shares of Dalmine held by the public are tendered pursuant to the exchange offer, the Company will have a total of approximately 1,200,000,000 ordinary shares (in the form of shares or ADSs) issued and outstanding. If fewer than all of those shares and ADSs are tendered, the number of shares to be issued by the Company in connection with the exchange offer will be adjusted accordingly. Only the valid tender without subsequent withdrawal of your Siderca, Tamsa or Dalmine securities, in each case in accordance with the procedures set forth in "Part Three--The Exchange Offer--Procedures for tendering shares and ADSs", will entitle you to receive our shares or ADSs. CERTAIN CONDITIONS We will not be required to consummate the exchange offer with respect to any of Siderca, Tamsa and Dalmine, unless a sufficient number of Siderca's total outstanding shares (in the form of shares or ADSs) and Tamsa's total outstanding shares (in the form of shares or ADSs) are validly tendered and not withdrawn so that, after consummation of the exchange offer with respect to Siderca and Tamsa, we hold, directly or indirectly, more than 80% of Siderca's total outstanding shares and more than 80% of Tamsa's total outstanding shares (in each case, in the form of shares or ADSs). Accordingly, the exchange offer with respect to Siderca, Tamsa and Dalmine is conditioned on the valid tender without subsequent withdrawal of more than 8.83% of Siderca's total outstanding shares and more than 28.16% of Tamsa's total outstanding shares. In addition, we will not be required to consummate the exchange offer with respect to Dalmine unless a sufficient number of Dalmine's total outstanding shares are validly tendered and not withdrawn so that, after consummation of this exchange offer with respect to Dalmine, we hold, directly or indirectly, more than 90% of Dalmine's total outstanding shares. Accordingly, the exchange offer with respect to Dalmine is conditioned on the valid tender without subsequent withdrawal of more than 42.78% of Dalmine's total outstanding shares. Also, subject to applicable law, we will not be required to consummate the exchange offer with respect to Siderca, Tamsa or Dalmine if any legal restraints or prohibitions are imposed on the exchange offer, or I-3 if required government approvals, including the required listing approvals, are not received, and we will not be required to consummate the exchange offer with respect to Siderca or Tamsa if a material adverse change occurs in the businesses of Tenaris, Siderca, Tamsa or Dalmine. The consummation of the exchange offer with respect to Siderca is conditioned on the consummation of the exchange offer with respect to Tamsa and the consummation of the exchange offer with respect to Tamsa is conditioned on the consummation of the exchange offer with respect to Siderca. The consummation of the exchange offer with respect to Dalmine is conditioned on the consummation of the exchange offer with respect to both Siderca and Tamsa, but the consummation of the exchange offer with respect to Siderca and Tamsa is not conditioned on the consummation of the exchange offer with respect to Dalmine. We reserve the right to modify or waive any of these conditions in our discretion, subject to certain limitations and applicable law. For additional information on these conditions and limitations, see "Part Three--The Exchange Offer." EXPIRATION DATE The exchange offer with respect to Siderca and Tamsa will expire at 5:00 p.m., New York City time (or 7:00 p.m., Buenos Aires time, and 4:00 p.m., Mexico City time), and the exchange offer with respect to Dalmine will expire at 10:40 a.m., New York City time (or 4:40 p.m., Milan time), on December 13, 2002, unless we choose to extend the offer, as permitted by applicable law and subject to applicable regulatory approvals. If we decide to extend the period of the exchange offer, subject to applicable law, then the expiration date means the latest time and date on which the exchange offer expires. I-4 EFFECTS OF THE EXCHANGE OFFER CORPORATE STRUCTURE BEFORE THE EXCHANGE OFFER Prior to the exchange offer, the public and San Faustin (directly or indirectly) owned different proportions of each of Siderca, Tamsa and Dalmine. Upon the successful completion of the exchange offer, we seek to concentrate all of the ownership of the Tenaris companies held by the public and by San Faustin at a single corporate level. Below is a simplified diagram of Tenaris's corporate structure, as reflected in, and forming the basis for the preparation of, the audited combined consolidated financial statements of Tenaris included elsewhere in this prospectus. [TENARIS CORPORATE STRUCTURE CHART] - -------------------------------------------------------------------------------- (1) As of October 18, 2002, Tenaris also held a 27.00% participation in Metalmecanica (with Siderca holding the remaining 73.00%) and a 52.00% participation in Metalcentro (with Siderca holding the remaining 48.00%). (2) The remainder of Confab is owned by the public. As of October 18, 2002, Siderca held 99.22% of Confab's voting stock. (3) As of October 18, 2002, the remainder of NKKTubes was owned by NKK Corporation. (4) As of October 18, 2002, the remainder of Tavsa was owned by the Republic of Venezuela through the Corporacion Venezolana de Guayana. For a complete list of Tenaris's subsidiaries and investments in other companies, see note B to Tenaris's audited combined consolidated financial statements included elsewhere in this prospectus. For a discussion of certain corporate reorganization transactions that have been carried out between us and certain of our affiliates prior to settlement of the exchange offer, see "Part Four--Information about Tenaris--Related Party Transactions--Corporate reorganization transactions." I-5 CORPORATE STRUCTURE AFTER THE EXCHANGE OFFER A simplified diagram of Tenaris's corporate structure after consummation of the exchange offer, assuming that all the shares of Siderca, Tamsa and Dalmine that may be tendered are validly tendered and not withdrawn, is shown below. [TENARIS CORPORATE STRUCTURE AFTER EXCHANGE OFFER CHART] SHAREHOLDERS' RIGHTS We have only one class of shares. Subject to applicable law, all shares are entitled to participate equally in dividends when, as and if declared by the annual ordinary shareholders' meeting out of funds legally available for such purposes, and each share of the Company entitles the holder to one vote at the Company's shareholders' meetings. For a discussion of material differences between the rights of holders of our shares (including shares underlying our ADSs), Siderca shares (including Siderca shares underlying Siderca ADSs), Tamsa shares (including Tamsa shares underlying Tamsa ADSs) and Dalmine shares, see "Part Eight--Legal Information--Comparison of Shareholder Rights." I-6 SUMMARY SELECTED HISTORICAL COMBINED CONSOLIDATED FINANCIAL DATA OF TENARIS The following summary selected historical combined consolidated financial and other data for Tenaris should be read in conjunction with "Part Three--The Exchange Offer--Unaudited Pro Forma Condensed Combined Consolidated Financial Data" and "Part Four--Information about Tenaris--Business" and "--Management's Discussion and Analysis of Financial Condition and Results of Operations" and the combined consolidated financial statements and the notes thereto included elsewhere in this prospectus, and are qualified in their entirety by reference to the information therein. The summary selected combined consolidated financial data of Tenaris have been derived from its combined consolidated financial statements, which are prepared in accordance with IAS (unless otherwise indicated) for each of the periods and at the dates indicated. The combined consolidated financial statements as of June 30, 2002, and for the six-month period ended June 30, 2002, and the combined consolidated financial statements as of December 31, 2001, 2000 and 1999, and for the years ended December 31, 2001, 2000 and 1999, included in this prospectus, have been audited by PricewaterhouseCoopers S.a.r.l., independent accountants in Luxembourg and member firm of PricewaterhouseCoopers. Tenaris's results for the six-month period ended June 30, 2002, are not necessarily indicative of the results expected for the fiscal year ended December 31, 2002, or any other period. IAS differ in certain significant respects from U.S. GAAP. See notes R and 28 to Tenaris's audited combined consolidated financial statements included in this prospectus, which provide a description of the principal differences between IAS and U.S. GAAP as they relate to Tenaris's combined consolidated financial statements and a reconciliation to U.S. GAAP of net income (loss) and shareholders' equity for the periods and at the dates indicated therein. For a discussion of the currencies used in this prospectus, exchange rates and accounting principles affecting the financial information contained in this prospectus, see "Part Nine--Additional Information for Shareholders--Exchange Rates" and "Presentation of Certain Financial and Other Information." I-7 (1) Upon its incorporation in December 2001, the Company issued 30,107 shares. On October 18, 2002, Sidertubes S.A., a wholly-owned subsidiary of San Faustin, contributed all of its assets (including 30,010 shares of the Company) and liabilities to the Company, in exchange for 710,747,090 shares of the Company. The 30,010 shares contributed by Sidertubes to the Company were cancelled and, accordingly, upon consummation of this contribution the Company had a total of 710,747,187 shares issued and outstanding. (2) Tenaris's combined earnings (loss) per share before effect of accounting changes, cumulative effect of accounting changes per share and combined earnings per share for each of the periods presented have been calculated based on the assumption that 710,747,187 shares were issued and outstanding in each of the periods presented. I-8
- ----------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED JUNE 30, --------------------------- THOUSANDS OF U.S. DOLLARS 2002 2001 - ----------------------------------------------------------------------------------------- (UNAUDITED) SUMMARY SELECTED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net sales................................................... 1,569,532 1,525,611 Cost of sales............................................... (1,054,841) (1,051,882) --------------------------- Gross profit................................................ 514,691 473,729 Selling, general and administrative expenses................ (226,079) (237,339) Other operating income (expenses), net...................... (10,566) (4,940) --------------------------- Operating income (loss)..................................... 278,046 231,450 Financial income (expenses), net............................ (41,503) (52,479) --------------------------- Income (loss) before income tax, effect of currency translation on tax bases, equity in earnings (losses) of associated companies and minority interest.................. 236,543 178,971 Equity in earnings (losses) of associated companies......... (5,142) (15,653) --------------------------- Income (loss) before income tax, effect of currency translation on tax bases and minority interest.............. 231,401 163,318 Income tax.................................................. (101,017) (64,234) Effect of currency translation on tax bases................. (49,083) (2,527) --------------------------- Net income (loss) before minority interest.................. 81,301 96,557 Minority interest........................................... (64,144) (41,495) --------------------------- Net income (loss)........................................... 17,157 55,062 --------------------------- Depreciation and amortization............................... (83,572) (73,045) Weighted average number of shares outstanding(1)............ 710,747,187 710,747,187 Combined earnings (loss) per share(2)....................... 0.02 0.08 U.S. GAAP Net sales................................................... 1,160,212 1,142,813 Cost of sales............................................... (731,625) (753,061) Operating income (loss)..................................... 239,606 189,881 Income before cumulative effect of accounting changes....... 52,130 56,784 Cumulative effect of accounting changes..................... (17,417) (1,007) Net income (loss)........................................... 34,713 55,777 Weighted average number of shares outstanding(1)............ 710,747,187 710,747,187 Combined earnings (loss) per share before effect of accounting changes(2)....................................... 0.07 0.08 Cumulative effect of accounting changes per share(2)........ (0.02) (0.00) Combined earnings (loss) per share(2)....................... 0.05 0.08 - ----------------------------------------------------------------------------------------- (1) Upon its incorporation in December 2001, the Company issued 30,107 shares. On October 18, 2002, Sidertubes contributed all of its assets (including 30,010 shares of the Company) and liabilities to the Company, in exchange for 710,747,090 shares of the Company. The 30,010 shares contributed by Sidertubes to the Company were cancelled and, accordingly, upon consummation of this contribution the Company had a total of 710,747,187 shares issued and outstanding. (2) Tenaris's combined earnings (loss) per share before effect of accounting changes, cumulative effect of accounting changes per share and combined earnings per share for each of the periods presented have been calculated based on the assumption that 710,747,187 shares were issued and outstanding in each of the periods presented. I-9
- --------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- THOUSANDS OF U.S. DOLLARS 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------- SUMMARY SELECTED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net sales........................... 3,119,343 2,311,290 1,835,211 2,839,382 2,667,077 Cost of sales....................... (2,165,568) (1,692,412) (1,481,552) (2,095,260) (1,927,052) ------------------------------------------------------------------- Gross profit........................ 953,775 618,878 353,659 744,122 740,025 Selling, general and administrative expenses............................ (447,791) (383,588) (306,471) (348,712) (322,941) Other operating income (expenses), net................................. (64,352) 5,877 (55,084) 123,889 139,954 ------------------------------------------------------------------- Operating income (loss)............. 441,632 241,167 (7,896) 519,299 557,038 Financial income (expenses), net.... (25,595) (47,923) (37,118) (68,182) (71,962) ------------------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases, equity in earnings (losses) of associated companies and minority interest................... 416,037 193,244 (45,014) 451,117 485,076 Equity in earnings (losses) of associated companies................ (41,296) (3,827) (39,296) (17,436) 40,622 ------------------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and minority interest..... 374,741 189,417 (84,310) 433,681 525,698 Income tax.......................... (108,956) (63,299) (6,065) (65,663) (161,363) Effect of currency translation on tax bases........................... (109,882) (2,011) (2,961) (3,198) (3,046) ------------------------------------------------------------------- Net income (loss) before minority interest............................ 155,903 124,107 (93,336) 364,820 361,289 Minority interest................... (74,557) (47,401) 38,521 (211,245) (168,459) ------------------------------------------------------------------- Net income (loss)................... 81,346 76,706 (54,815) 153,575 192,830 ------------------------------------------------------------------- Depreciation and amortization....... (161,710) (156,643) (165,847) (167,348) (169,920) Weighted average number of shares outstanding(1)...................... 710,747,187 710,747,187 710,747,187 710,747,187 710,747,187 Combined earnings (loss) per share(2)............................ 0.11 0.11 (0.08) 0.22 0.27 U.S. GAAP Net sales........................... 2,313,162 1,166,293 Cost of sales....................... (1,551,124) (932,632) Operating income (loss)............. 422,014 102,740 Income before cumulative effect of accounting changes.................. 163,921 77,333 Cumulative effect of accounting changes............................. (1,007) - Net income (loss)................... 162,914 77,333 Weighted average number of shares outstanding(1)...................... 710,747,187 710,747,187 Combined earnings (loss) per share before effect of accounting changes(2).......................... 0.23 0.11 Cumulative effect of accounting changes per share(2)................ (0.00) - Combined earnings (loss) per share(2)............................ 0.23 0.11 - --------------------------------------------------------------------------------------------------------- (1) Upon its incorporation in December 2001, the Company issued 30,107 shares. On October 18, 2002, Sidertubes contributed all of its assets (including 30,010 shares of the Company) and liabilities to the Company, in exchange for 710,747,090 shares of the Company. The 30,010 shares contributed by Sidertubes to the Company were cancelled and, accordingly, upon consummation of this contribution the Company had a total of 710,747,187 shares issued and outstanding. (2) Tenaris's combined shareholders' equity per share at each date presented has been calculated based on the assumption that 710,747,187 shares were issued and outstanding at each date presented. I-10
- ----------------------------------------------------------------------------------------------------- THOUSANDS OF U.S. DOLLARS AT JUNE 30, 2002 AT DECEMBER 31, 2001 - ----------------------------------------------------------------------------------------------------- SUMMARY SELECTED COMBINED CONSOLIDATED BALANCE SHEET DATA IAS Current assets.............................................. 1,788,180 1,619,136 Property, plant and equipment, net.......................... 1,894,723 1,971,318 Other non-current assets.................................... 255,810 247,500 --------------------------------------- Total assets................................................ 3,938,713 3,837,954 --------------------------------------- Current liabilities......................................... 1,227,450 1,084,913 Non-current borrowings...................................... 358,058 393,051 Deferred tax liabilities.................................... 260,964 262,963 Other non-current liabilities............................... 338,310 302,645 --------------------------------------- Total liabilities........................................... 2,184,782 2,043,572 --------------------------------------- Minority interest........................................... 908,139 918,981 Shareholders' equity........................................ 845,792 875,401 --------------------------------------- Total liabilities and shareholders' equity.................. 3,938,713 3,837,954 --------------------------------------- Weighted average number of shares outstanding(1)............ 710,747,187 710,747,187 Shareholders' equity per share(2)........................... 1.19 1.23 U.S. GAAP Total assets................................................ 3,075,798 3,075,455 Net assets.................................................. 1,746,162 1,781,814 Total shareholders' equity.................................. 930,817 941,926 Weighted average number of shares outstanding(1)............ 710,747,187 710,747,187 Combined shareholders' equity per share(2).................. 1.31 1.33 - ----------------------------------------------------------------------------------------------------- (1) Upon its incorporation in December 2001, the Company issued 30,107 shares. On October 18, 2002, Sidertubes contributed all of its assets (including 30,010 shares of the Company) and liabilities to the Company, in exchange for 710,747,090 shares of the Company. The 30,010 shares contributed by Sidertubes to the Company were cancelled and, accordingly, upon consummation of this contribution the Company had a total of 710,747,187 shares issued and outstanding. (2) Tenaris's combined shareholders' equity per share at each date presented has been calculated based on the assumption that 710,747,187 shares were issued and outstanding at each date presented. I-11
- --------------------------------------------------------------------------------------------------------- AT DECEMBER 31, ------------------------------------------------------------------------ THOUSANDS OF U.S. DOLLARS 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------- SUMMARY SELECTED COMBINED CONSOLIDATED BALANCE SHEET DATA IAS Current assets................. 1,619,136 1,419,747 1,270,109 1,650,643 1,614,389 Property, plant and equipment, net............................ 1,971,318 1,941,814 1,909,924 1,955,426 1,947,985 Other non-current assets....... 247,500 282,976 246,317 395,800 470,437 ------------------------------------------------------------------------ Total assets................... 3,837,954 3,644,537 3,426,350 4,001,869 4,032,811 ------------------------------------------------------------------------ Current liabilities............ 1,084,913 951,444 792,716 883,728 1,147,484 Non-current borrowings......... 393,051 355,628 212,012 449,169 426,783 Deferred tax liabilities....... 262,963 292,849 290,727 354,611 378,022 Other non-current liabilities.................... 302,645 199,548 196,964 176,532 183,493 ------------------------------------------------------------------------ Total liabilities.............. 2,043,572 1,799,469 1,492,419 1,864,040 2,135,782 ------------------------------------------------------------------------ Minority interest.............. 918,981 919,710 979,067 1,023,165 936,154 Shareholders' equity........... 875,401 925,358 954,864 1,114,664 960,875 ------------------------------------------------------------------------ Total liabilities and shareholders' equity........... 3,837,954 3,644,537 3,426,350 4,001,869 4,032,811 ------------------------------------------------------------------------ Weighted average number of shares outstanding(1).......... 710,747,187 710,747,187 710,747,187 710,747,187 710,747,187 Shareholders' equity per share(2)....................... 1.23 1.30 1.34 1.57 1.35 U.S. GAAP Total assets................... 3,075,455 1,905,732 Net assets..................... 1,781,814 1,341,854 Total shareholders' equity..... 941,926 908,872 Weighted average number of shares outstanding(1).......... 710,747,187 710,747,187 Combined shareholders' equity per share(2)................... 1.33 1.28 - --------------------------------------------------------------------------------------------------------- SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF SIDERCA The following summary selected historical consolidated financial and other data for Siderca should be read in conjunction with "Part Five--Information about Siderca--Management's Discussion and Analysis of Financial Condition and Results of Operations" and the information about Siderca and the consolidated financial statements and the notes thereto included in this prospectus, and are qualified in their entirety by reference to the information therein. Siderca's summary selected historical consolidated financial data have been derived from its consolidated financial statements, which are prepared in accordance with Argentine GAAP (unless otherwise indicated) for each of the periods and at the dates indicated. In the second half of 2001, Siderca changed its fiscal year end from March 31 to December 31. Accordingly, Siderca has prepared financial statements for the transition period that began on April 1, 2001, and ended on December 31, 2001. Prior to the transition period ended December 31, 2001, for purposes of the consolidation of subsidiaries and the calculation of the equity value of investee companies, Siderca prepared its consolidated financial statements based on information derived from the financial statements of its subsidiaries and investee companies at a date three months prior to the end of each of the periods covered by Siderca's consolidated financial statements. For the transition period ended December 31, 2001, Siderca prepared its consolidated financial statements based on information derived from the financial statements of its subsidiaries and investee companies at the end of each of the periods covered by Siderca's consolidated financial statements. In order to provide a consistent presentation for all periods covered by the consolidated financial statements included in this prospectus, Siderca adjusted its income statement and balance sheet figures for all periods, including periods prior to the transition period ended December 31, 2001, based on information derived from the financial statements of its subsidiaries and investee companies at the end of each of those periods. See note 2.6 to Siderca's audited consolidated financial statements at December 31, 2001, March 31, 2001, and March 31, 2000, and for the transition period ended December 31, 2001, and the fiscal years ended March 31, 2001 and 2000, and note 2.1 to Siderca's audited consolidated financial statements for the six-month period ended June 30, 2002, included in this prospectus. Siderca's consolidated financial statements as of June 30, 2002, and for the six-month period ended June 30, 2002, Siderca's consolidated financial statements as of December 31, 2001, and the nine-month transition period ended December 31, 2001, and Siderca's consolidated financial statements as of March 31, 2001 and 2000, and for the fiscal years ended March 31, 2001, 2000 and 1999, included in this prospectus, have been audited by Price Waterhouse & Co., independent accountants in Argentina and a member firm of PricewaterhouseCoopers. Siderca's results for the six-month period ended June 30, 2002, are not necessarily indicative of the results expected for the fiscal year ended December 31, 2002, or any other period. Argentine GAAP differ in significant respects from U.S. GAAP. See notes 16 and 17 to Siderca's audited consolidated financial statements included in this prospectus, which provide a description of the principal differences between Argentine GAAP and U.S. GAAP as they relate to its financial statements and a reconciliation to U.S. GAAP of its net income (loss) and shareholders' equity for the periods and at the dates indicated therein. Under Argentine GAAP, financial statements are required to be adjusted for inflation for any fiscal year if the changes in the WPI for such year exceed 8%. As the annualized changes in the WPI from August 31, 1995, to December 31, 2001, were less than 8%, financial statements prepared in accordance with Argentine GAAP were not required to be adjusted for inflation during that period. In 2002 to date, Argentina has experienced a high rate of inflation (121.3% through September 30, 2002). As the change in the WPI since January 1, 2002, has exceeded 8%, financial statements prepared in accordance with Argentine GAAP were required to be adjusted for inflation since that date. Accordingly, Siderca has adjusted for inflation and restated in I-12 constant Argentine pesos as of June 30, 2002, its financial statements as of and for the six-month period ended June 30, 2002. In addition, for comparative purposes, Siderca has also restated in constant Argentine pesos as of June 30, 2002, all other financial statements of Siderca included elsewhere in this prospectus and all other Siderca financial data included throughout this prospectus and relating to dates or periods covered by the audited financial statements. For a discussion of the currencies used in this prospectus, exchange rates and accounting principles affecting the financial information contained in this prospectus, see "Part Nine--Additional Information for Shareholders--Exchange Rates" and "Presentation of Certain Financial and Other Information." (1) Basic earnings (loss) per share and diluted earnings (loss) per share are identical. I-13
- ---------------------------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD FOR THE NINE-MONTH TRANSITION THOUSANDS OF CONSTANT JUNE 30, ENDED JUNE 30, PERIOD ENDED DECEMBER 31, 2002 ARGENTINE PESOS, EXCEPT SHARE ----------------------------- ----------------------------- AND PER SHARE AMOUNTS 2002 2001 2001 2000 - ---------------------------------------------------------------------------------------------------------- (UNAUDITED) (UNAUDITED) SUMMARY SELECTED CONSOLIDATED INCOME STATEMENT DATA ARGENTINE GAAP Net sales.................................. 2,534,030 1,385,901 2,259,535 1,390,144 Cost of sales.............................. (1,432,999) (952,652) (1,533,413) (1,000,015) Selling, general and administrative expenses................................... (389,894) (234,658) (306,000) (247,837 ------------------------------------------------------------- Operating income (loss).................... 711,137 198,591 420,122 142,293 Financial income (expenses) and holding gains (losses), net........................ 154,320 (55,879) (37,264) (14,238) Income tax................................. (219,870) (43,508) (119,348) (33,764) Equity in earnings (losses) of investee companies, net............................. 160,151 41,443 40,846 33,738 Effect of currency translation into Argentine pesos of financial statements in foreign currency........................... 919,294 - - - Net income (loss).......................... 1,608,882 142,089 232,434 120,690 ------------------------------------------------------------- Depreciation and amortization.............. (91,723) (88,880) (126,746) (121,813) Weighted average number of shares outstanding................................ 1,000,000,000 1,000,000,000 1,000,000,000 1,000,000,000 Earnings (loss) per share(1)............... 1.61 0.14 0.23 0.12 U.S. GAAP Net sales.................................. 2,440,177 1,326,250 2,201,287 Cost of sales.............................. (1,129,040) (902,149) (1,461,344) Operating income (loss).................... 905,357 168,429 408,912 Income before cumulative effect of accounting changes......................... 435,838 123,838 231,622 Cumulative effect of accounting changes.... (81,399) 10,111 21,748 Net income (loss).......................... 354,439 133,949 253,370 Earnings (loss) per share before effect of accounting changes......................... 0.44 0.12 0.23 Cumulative effect of accounting changes per share...................................... (0.08) 0.01 0.02 Earnings (loss) per share(1)............... 0.35 0.13 0.25 - ---------------------------------------------------------------------------------------------------------- (1) Basic earnings (loss) per share and diluted earnings (loss) per share are identical. I-14
- ------------------------------------------------------------------------------------------------------------- THOUSANDS OF CONSTANT JUNE 30, FOR THE FISCAL YEAR ENDED MARCH 31, 2002 ARGENTINE PESOS, EXCEPT SHARE ------------------------------------------------------------------------- AND PER SHARE AMOUNTS 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------- SUMMARY SELECTED CONSOLIDATED INCOME STATEMENT DATA ARGENTINE GAAP Net sales........................ 1,975,321 1,611,878 2,100,049 2,109,223 1,944,135 Cost of sales.................... (1,414,021) (1,358,473) (1,671,561) (1,533,417) (1,477,755) Selling, general and administrative expenses.......... (359,382) (269,971) (304,622) (287,912) (300,459) ------------------------------------------------------------------------- Operating income (loss).......... 201,918 (16,566) 123,866 287,894 165,920 Financial income (expenses) and holding gains (losses), net...... (37,414) 25,261 (9,792) (13,825) 1,221 Income tax....................... (35,504) (20,047) (19,041) (16,533) (10,378) Equity in earnings (losses) of investee companies, net.......... 41,155 (17,931) 115,776 142,626 166,391 Net income (loss)................ 188,379 (62,861) 96,006 637,967 342,693 ------------------------------------------------------------------------- Depreciation and amortization.... (171,762) (181,604) (176,855) (148,207) (169,156) Weighted average number of shares outstanding...................... 1,000,000,000 1,000,000,000 1,000,000,000 981,982,153 932,200,885 Earnings (loss) per share(1)..... 0.19 (0.06) 0.10 0.65 0.37 U.S. GAAP Net sales........................ 1,900,782 1,546,440 2,017,540 Cost of sales.................... (1,322,292) (1,316,700) (1,597,604) Operating income (loss).......... 191,841 (95,756) 64,108 Income before cumulative effect of accounting changes............... 213,436 (101,653) 243,473 Cumulative effect of accounting changes.......................... - - - Net income (loss)................ 213,436 (101,653) 243,473 Earnings (loss) per share before effect of accounting changes..... 0.21 (0.10) 0.24 Cumulative effect of accounting changes per share................ - - - Earnings (loss) per share(1)..... 0.21 (0.10) 0.24 - ------------------------------------------------------------------------------------------------------------- (1) Certain reclassifications have been made to the balance sheet dated as of June 30, 2001, for the information to be consistent with the balance sheet dated as of June 30, 2002. I-15
- ---------------------------------------------------------------------------------------------------------- THOUSANDS OF CONSTANT JUNE 30, AT JUNE 30, AT DECEMBER 31, 2002 ARGENTINE PESOS, EXCEPT SHARE ----------------------------- ----------------------------- AND PER SHARE AMOUNTS 2002 2001(1) 2001 2000 - ---------------------------------------------------------------------------------------------------------- (UNAUDITED) (UNAUDITED) SUMMARY SELECTED CONSOLIDATED BALANCE SHEET DATA ARGENTINE GAAP Current assets............................. 3,185,259 1,533,702 1,499,463 1,331,174 Property, plant and equipment, net......... 1,642,395 1,547,162 1,510,274 1,615,406 Investments................................ 2,190,476 1,140,749 1,088,382 1,108,962 Other assets............................... 583,700 167,323 318,415 121,186 ------------------------------------------------------------- Total assets............................... 7,601,831 4,388,936 4,416,533 4,176,728 ------------------------------------------------------------- Current liabilities........................ 2,296,049 1,000,600 1,136,680 889,267 Long-term financial debt................... 278,606 103,280 96,389 120,955 Other non-current liabilities.............. 183,057 126,271 128,573 121,333 ------------------------------------------------------------- Total liabilities.......................... 2,757,712 1,230,151 1,361,642 1,131,555 ------------------------------------------------------------- Minority interest in consolidated subsidiaries............................... 457,807 227,325 255,390 249,112 Shareholders' equity....................... 4,386,311 2,931,459 2,799,501 2,796,062 ------------------------------------------------------------- Weighted average number of shares outstanding................................ 1,000,000,000 1,000,000,000 1,000,000,000 1,000,000,000 Shareholders' equity per share............. 4.39 2.93 2.80 2.80 U.S. GAAP Total assets............................... 7,034,726 4,026,572 5,605,352 Net assets................................. 4,017,329 2,730,191 3,425,566 Shareholders' equity....................... 3,570,564 2,495,580 3,008,765 Shareholders' equity per share............. 3.57 2.50 3.01 - ---------------------------------------------------------------------------------------------------------- (1) Certain reclassifications have been made to the balance sheet dated as of March 31, 2001, for the information to be consistent with the balance sheet dated as of March 31, 2002. I-16
- ----------------------------------------------------------------------------------------------------------- THOUSANDS OF CONSTANT JUNE 30, 2002 ARGENTINE AT MARCH 31, PESOS, EXCEPT SHARE AND ------------------------------------------------------------------------- PER SHARE AMOUNTS 2001(1) 2000 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------- SUMMARY SELECTED CONSOLIDATED BALANCE SHEET DATA ARGENTINE GAAP Current assets.................. 1,313,275 1,135,030 943,431 1,288,662 997,886 Property, plant and equipment, net............................. 1,587,127 1,563,229 1,530,044 1,511,211 1,590,336 Investments..................... 1,146,133 983,651 1,077,723 1,133,449 986,387 Other assets.................... 160,979 128,763 94,649 72,559 83,696 ------------------------------------------------------------------------- Total assets.................... 4,207,514 3,810,673 3,645,847 4,005,881 3,658,305 ------------------------------------------------------------------------- Current liabilities............. 878,173 486,240 347,860 623,009 397,998 Long-term financial debt........ 108,475 8,617 - - - Other non-current liabilities... 116,859 95,814 43,292 42,147 145,248 ------------------------------------------------------------------------- Total liabilities............... 1,103,507 590,671 391,152 665,156 543,246 ------------------------------------------------------------------------- Minority interest in consolidated subsidiaries....... 244,931 234,955 88,683 37,762 54,485 Shareholders' equity............ 2,859,076 2,985,047 3,166,012 3,302,963 3,060,574 ------------------------------------------------------------------------- Weighted average number of shares outstanding.............. 1,000,000,000 1,000,000,000 1,000,000,000 981,982,153 932,200,885 Shareholders' equity per share........................... 2.86 2.99 3.17 3.36 3.28 U.S. GAAP Total assets.................... 3,938,538 3,476,747 3,423,228 Net assets...................... 2,672,414 2,764,351 2,863,684 Shareholders' equity............ 2,426,640 2,535,075 2,758,816 Shareholders' equity per share........................... 2.43 2.54 2.76 - -----------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------- AT OR FOR THE NINE-MONTH TRANSITION AT OR FOR THE SIX-MONTH PERIOD ENDED PERIOD ENDED JUNE 30, DECEMBER 31, ----------------------- --------------------- THOUSANDS OF TONS, EXCEPT EMPLOYEE DATA 2002 2001 2001 2000 - -------------------------------------------------------------------------------------------------- (UNAUDITED) KEY OPERATING DATA Number of employees........................ 3,532 3,545 3,561 3,624 Seamless steel pipe capacity (annual)...... 820 820 820 820 Seamless steel pipe sales Domestic sales volume.................... 73 110 157 155 Export sales volume...................... 293 283 440 445 NKKTubes and AlgomaTubes................. 141 127 226 37 ----------------------------------------------------- Total seamless sales volume................ 507 520 823 637 Welded steel pipe sales volume............. 305 217 348 167 ----------------------------------------------------- Total sales volume......................... 812 737 1,171 804 - -------------------------------------------------------------------------------------------------- I-17
- ----------------------------------------------------------------------------------------- AT OR FOR THE FISCAL YEAR ENDED MARCH 31, --------------------------- THOUSANDS OF TONS, EXCEPT EMPLOYEE DATA 2001 2000 1999 - ----------------------------------------------------------------------------------------- (UNAUDITED) KEY OPERATING DATA Number of employees......................................... 3,618 3,253 3,466 Seamless steel pipe capacity (annual)....................... 820 820 820 Seamless steel pipe sales Domestic sales volume.................................... 209 125 146 Export sales volume...................................... 574 425 457 NKKTubes and AlgomaTubes................................. 88 - - --------------------------- Total seamless sales volume................................. 871 550 603 Welded steel pipe sales volume.............................. 253 243 284 --------------------------- Total sales volume.......................................... 1,124 793 887 - ----------------------------------------------------------------------------------------- SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA OF TAMSA The following summary selected historical consolidated financial and other data for Tamsa should be read in conjunction with "Part Six--Information about Tamsa--Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the notes thereto included in this prospectus, and are qualified in their entirety by reference to the information therein. The summary historical consolidated financial data of Tamsa have been derived from its consolidated financial statements, which are prepared in accordance with Mexican GAAP (unless otherwise indicated) for each of the periods and at the dates indicated. Tamsa's consolidated financial statements as of June 30, 2002 and for the six-month period ended June 30, 2002, Tamsa's consolidated financial statements as of December 31, 2001 and 2000, and for the years ended December 31, 2001, 2000 and 1999, included in this prospectus, have been audited by PricewaterhouseCoopers, independent accountants in Mexico. Tamsa's results for the six-month period ended June 30, 2002, are not necessarily indicative of the results for the year ending December 31, 2002, or any other period. Tamsa's consolidated financial statements are prepared in accordance with Mexican GAAP, which differ in significant respects from U.S. GAAP. See note 12 to Tamsa's audited consolidated statements included in this prospectus, which provides a description of the principal differences between Mexican GAAP and U.S. GAAP as they relate to Tamsa's financial statements and a reconciliation to U.S. GAAP of net income (loss) and shareholders' equity for the periods and at the dates indicated therein. The summary audited historical consolidated financial data of Tamsa are stated in constant Mexican pesos as of June 30, 2002. For a discussion of the currencies used in this prospectus, exchange rates and accounting principles affecting the financial information contained in this prospectus, see "Part Nine--Additional Information for Shareholders--Exchange Rates" and "Presentation of Certain Financial and Other Information." I-18 (1) Mainly corresponding to Tamsa's equity participation in the Consorcio Siderurgia Amazonia Ltd., or Amazonia. See note 11 to Tamsa's audited consolidated financial statements included in this prospectus. (2) Amounts exclude 3,650,000 shares for 1999, 2000 and 2001 and the first six months of 2002 held since November 30, 1988 by a wholly-owned subsidiary of Tamsa. Tamsa purchased 10,100,000 shares which were canceled on April 28, 1999. On July 10, 2001, each outstanding share of Tamsa's common stock was split into five shares; concurrently, the American Depositary Receipt, or ADR, ratio was modified from one ADR for each share of common stock to one ADR for five shares of common stock. For comparative purposes, the number of shares shown for prior years has been adjusted to reflect the split retroactively. See note 5 to Tamsa's audited consolidated financial statements included in this prospectus. (3) Basic earnings (loss) per share and diluted earnings (loss) per share are identical. I-19
- --------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED JUNE 30, THOUSANDS OF CONSTANT JUNE 30, 2002 MEXICAN ------------------------- PESOS, EXCEPT SHARE AND PER SHARE AMOUNTS 2002 2001 - --------------------------------------------------------------------------------------- (UNAUDITED) SUMMARY SELECTED CONSOLIDATED INCOME STATEMENT DATA MEXICAN GAAP Net sales................................................... 3,004,486 3,555,950 Cost of products sold....................................... (1,832,291) (2,088,752) Selling, general and administrative expenses................ (545,286) (653,930) ------------------------- Operating profit............................................ 626,909 813,268 Comprehensive financing result.............................. (165,180) 1,882 Income tax, asset tax and employees' statutory profit sharing.................................................. 42,774 (292,859) Equity in loss of associated companies(1)................... (2,261) (45,547) Net income (loss)........................................... 497,987 467,977 ------------------------- Weighted average number of shares outstanding(2)............ 339,284,120 339,284,120 Earnings (loss) per share(3)................................ 1.47 1.38 U.S. GAAP(3) Net sales................................................... 3,081,434 3,483,140 Cost of sales............................................... (1,839,131) (2,061,365) Operating income (loss)..................................... 697,017 767,845 Net income (loss)........................................... 596,122 556,947 Earnings (loss) per share................................... 1.76 1.64 - --------------------------------------------------------------------------------------- (1) Mainly corresponding to Tamsa's equity participation in the Amazonia. See note 11 to Tamsa's audited consolidated financial statements for the year ended December 31, 2001. (2) Amounts exclude 3,650,000 shares for 1999, 2000 and 2001 and the first six months of 2002 held since November 30, 1988 by a wholly-owned subsidiary of Tamsa. Tamsa purchased 10,100,000 shares which were canceled on April 28, 1999. On July 10, 2001, each outstanding share of Tamsa's common stock was split into five shares; concurrently, the American Depositary Receipt, or ADR, ratio was modified from one ADR for each share of common stock to one ADR for five shares of common stock. For comparative purposes, the number of shares shown for prior years has been adjusted to reflect the split retroactively. See note 5 to Tamsa's audited consolidated financial statements included in this prospectus. (3) Basic earnings (loss) per share and diluted earnings (loss) per share are identical. (4) Amounts in 2000 and 1999 have been restated as described in note 12 to Tamsa's annual audited consolidated financial statements included in this prospectus. I-20
- --------------------------------------------------------------------------------------------------------- THOUSANDS OF CONSTANT JUNE 30, 2002 MEXICAN FOR THE YEAR ENDED DECEMBER 31, PESOS, EXCEPT SHARE AND ------------------------------------------------------------------- PER SHARE AMOUNTS 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------- SUMMARY SELECTED CONSOLIDATED INCOME STATEMENT DATA MEXICAN GAAP Net sales........................... 6,698,756 6,275,394 4,955,173 8,029,152 8,934,257 Cost of products sold............... (3,949,394) (4,108,798) (3,496,344) (4,704,182) (5,242,372) Selling, general and administrative expenses............................ (1,251,363) (1,140,988) (914,661) (989,038) (1,038,557) ------------------------------------------------------------------- Operating profit.................... 1,497,999 1,025,608 544,166 2,335,932 2,653,328 Comprehensive financing result...... (40,885) (85,974) (141,809) (475,541) 14,635 Income tax, asset tax and employees' statutory profit sharing............ (575,504) (469,701) (395,459) (802,679) (1,020,550) Equity in loss of associated companies(1)........................ (282,485) (51,081) (368,129) (226,644) (19,409) Net income (loss)................... 561,839 409,260 (90,175) 1,901,149 2,289,855 ------------------------------------------------------------------- Weighted average number of shares outstanding(2)...................... 339,284,120 339,284,120 339,409,820 345,462,065 346,107,940 Earnings (loss) per share(3)........ 1.66 1.21 (0.27) 5.50 6.62 U.S. GAAP(3,4) Net sales........................... 6,704,882 5,994,729 4,955,173 Cost of sales....................... (4,000,323) (3,956,548) (3,560,531) Operating income (loss)............. 1,453,196 897,193 479,981 Net income (loss)................... 713,436 486,007 (33,397) Earnings (loss) per share........... 2.10 1.43 (0.10) - --------------------------------------------------------------------------------------------------------- (1) Includes a deferred tax liability in 2000, 2001 and the first six months of 2002 resulting from the adoption of Statement D-4 (deferred income tax) under Mexican GAAP effective January 1, 2000. (2) Amounts exclude 3,650,000 shares for 1999, 2000, 2001 and the first six months of 2002 held since November 30, 1988 by a wholly-owned subsidiary of Tamsa. Tamsa purchased 10,100,000 shares which were canceled on April 28, 1999. On July 10, 2001, each outstanding share of Tamsa's common stock was split into five shares; concurrently, the ADR ratio was modified from one ADR for each share of common stock to one ADR for five shares of common stock. For comparative purposes, the number of shares shown for prior years has been adjusted to reflect the split retroactively. See note 5 to Tamsa's audited consolidated financial statements included in this prospectus. (3) Amounts in 2000 and 1999 have been restated as described in note 12 to Tamsa's audited consolidated financial statements included in this prospectus. I-21
- --------------------------------------------------------------------------------------- AT JUNE 30, THOUSANDS OF CONSTANT JUNE 30, 2002 MEXICAN ------------------------- PESOS, EXCEPT SHARE AND PER SHARE AMOUNTS 2002 2001 - --------------------------------------------------------------------------------------- (UNAUDITED) SUMMARY SELECTED CONSOLIDATED BALANCE SHEET DATA MEXICAN GAAP Current assets.............................................. 4,861,255 3,839,096 Investments in associated companies......................... 561,494 860,821 Property, plant and equipment, net.......................... 8,022,829 7,504,197 Other assets................................................ 75,542 61,978 ----------- ----------- Total assets................................................ 13,521,120 12,266,092 ------------------------- Current liabilities......................................... 1,899,016 2,590,878 Long-term debt.............................................. 1,083,728 25,165 Other liabilities(1)........................................ 2,491,964 2,266,039 ------------------------- Total liabilities........................................... 5,474,708 4,882,082 ------------------------- Equity of majority shareholders............................. 8,052,218 7,343,225 Minority interest in consolidated subsidiaries.............. (5,806) 40,785 ------------------------- Total shareholders' equity.................................. 8,046,412 7,384,010 ------------------------- Weighted average number of shares outstanding(2)............ 339,284,120 339,284,120 Total shareholders' equity per share........................ 23.72 21.76 U.S. GAAP(3) Total assets................................................ 16,049,494 15,125,110 Net assets.................................................. 8,876,856 8,340,425 Total shareholders' equity.................................. 8,888,364 8,299,644 Total shareholders' equity per share........................ 26.20 24.46 - --------------------------------------------------------------------------------------- (1) Includes a deferred tax liability in 2000, 2001 and the first six months of 2002 resulting from the adoption of Statement D-4 (deferred income tax) under Mexican GAAP effective January 1, 2000. (2) Amounts exclude 3,650,000 shares for 1999, 2000, 2001 and the first six months of 2002 held since November 30, 1988 by a wholly-owned subsidiary of Tamsa. Tamsa purchased 10,100,000 shares which were canceled on April 28, 1999. On July 10, 2001, each outstanding share of Tamsa's common stock was split into five shares; concurrently, the ADR ratio was modified from one ADR for each share of common stock to one ADR for five shares of common stock. For comparative purposes, the number of shares shown for prior years has been adjusted to reflect the split retroactively. See note 5 to Tamsa's audited consolidated financial statements included in this prospectus. (3) Amounts in 2000 and 1999 have been restated as described in note 12 to Tamsa's audited consolidated financial statements included in this prospectus. I-22
- --------------------------------------------------------------------------------------------------------- THOUSANDS OF CONSTANT JUNE 30, 2002 MEXICAN AT DECEMBER 31, PESOS, EXCEPT SHARE AND ------------------------------------------------------------------- PER SHARE AMOUNTS 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------- SUMMARY SELECTED CONSOLIDATED BALANCE SHEET DATA MEXICAN GAAP Current assets...................... 3,839,569 3,894,451 3,863,538 5,228,205 4,580,995 Investments in associated companies........................... 596,517 1,005,303 806,753 1,331,762 115,116 Property, plant and equipment, net................................. 7,697,987 7,532,743 8,076,141 9,290,311 9,056,051 Other assets........................ 79,077 - - - - ------------------------------------------------------------------- Total assets........................ 12,213,150 12,432,497 12,746,432 15,850,278 13,752,162 ------------------------------------------------------------------- Current liabilities................. 1,205,843 1,444,450 2,202,227 2,576,388 1,456,384 Long-term debt...................... 1,322,060 1,025,679 - 646,820 1,386,214 Other liabilities(1)................ 2,278,052 2,401,639 161,416 176,421 115,390 ------------------------------------------------------------------- Total liabilities................... 4,805,955 4,871,768 2,363,643 3,399,629 2,957,988 ------------------------------------------------------------------- Equity of majority shareholders..... 7,378,208 7,530,588 10,352,693 12,383,448 10,783,077 Minority interest in consolidated subsidiaries........................ 28,987 30,141 30,096 67,201 11,097 ------------------------------------------------------------------- Total shareholders' equity.......... 7,407,195 7,560,729 10,382,789 12,450,649 10,794,174 ------------------------------------------------------------------- Weighted average number of shares outstanding(2)...................... 339,284,120 339,284,120 339,409,820 345,467,065 346,107,940 Total shareholders' equity per share............................... 21.83 22.28 30.59 36.04 31.19 U.S. GAAP(3) Total assets........................ 15,110,988 14,943,510 14,704,982 Net assets.......................... 8,440,408 8,313,175 8,400,734 Total shareholders' equity.......... 8,411,421 8,283,036 8,370,638 Total shareholders' equity per share............................... 24.79 24.41 24.66 - --------------------------------------------------------------------------------------------------------- I-23
- --------------------------------------------------------------------------------------------------------- AT OR FOR THE SIX-MONTH AT OR FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, ------------------------ ----------------------------- TONS, EXCEPT EMPLOYEE DATA 2002 2001 2001 2000 1999 - --------------------------------------------------------------------------------------------------------- (UNAUDITED) KEY OPERATING DATA Number of employees....................... 2,789 3,197 2,982 2,939 2,731 Seamless steel pipe capacity (annual)..... 780,000 780,000 780,000 780,000 780,000 Seamless steel pipe sales Domestic sales volume................... 61,109 64,689 138,725 167,068 163,742 Export sales volume (substantially all to oil-related customers) and Tubos de Acero de Venezuela, S.A................. 274,107 327,651 575,129 498,696 276,072 Other products and Empresas Riga S.A. de C.V., or Riga............................. 9,957 7,849 19,091 14,186 7,309 ---------------------------------------------------------- Total sales volume........................ 345,173 400,189 732,945 679,950 447,123 - --------------------------------------------------------------------------------------------------------- SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA OF DALMINE The following summary selected historical consolidated financial and other data for Dalmine should be read in conjunction with "Part Seven--Information about Dalmine--Management's Discussion and Analysis of Financial Condition and Results of Operations" and "--Business" and the consolidated financial statements and the notes thereto included elsewhere in this prospectus, and are qualified in their entirety by reference to the information therein. The summary historical consolidated financial data of Dalmine have been derived from its financial statements, which are prepared in accordance with Italian GAAP (unless otherwise indicated) for each of the periods and at the dates indicated. Dalmine's consolidated financial statements as of June 30, 2002 and for the six-month period ended June 30, 2002, and Dalmine's financial statements as of December 31, 2001 and 2000, and for the years ended December 31, 2001, 2000 and 1999, included in this prospectus have been audited by Price Waterhouse S.p.A., independent accountants in Italy and member firm of PricewaterhouseCoopers. Dalmine's results for the six-month period ended June 30, 2002, are not necessarily indicative of the results expected for the year ended December 31, 2002, or any other period. Italian GAAP differ in significant respects from U.S. GAAP. See note 16 to Dalmine's consolidated financial statements, which provides a description of the principal differences between Italian GAAP and U.S. GAAP as they relate to Dalmine's financial statements and a reconciliation to U.S. GAAP of net income (loss) and total shareholders' equity for the periods and at the dates indicated therein. Beginning on January 1, 1999, Dalmine adopted the euro as its reporting currency. All balances prior to January 1, 1999 have been converted into euros at the rate of 1,936.27 Italian lire per euro, the official rate announced by the European Council of Ministers on December 31, 1998, in connection with the adoption of the euro. Accordingly, the amounts presented in euros depict the same trends that would have been depicted had they been presented in Italian lire. However, because the euro amounts for 1998 and 1997 were originally prepared using Italian lire, they are not necessarily comparable to amounts shown in euros for the same periods relating to a company that originally prepared its financial statements in a currency other than the Italian lire and converted them to euros. For a discussion of the currencies used in this prospectus, exchange rates and accounting principles affecting the financial information contained in this prospectus, see "Part Nine--Additional Information for Shareholders--Exchange Rates" and "Presentation of Certain Financial and Other Information." I-24 - -------------------------------------------------------------------------------- (1) Basic earnings (loss) per share and diluted earnings (loss) per share are identical. I-25
- ------------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED JUNE 30, ----------------------------- THOUSANDS OF EURO, EXCEPT SHARE AND PER SHARE AMOUNTS 2002 2001 - ------------------------------------------------------------------------------------------- (UNAUDITED) SUMMARY SELECTED CONSOLIDATED INCOME STATEMENT DATA ITALIAN GAAP Net sales................................................... 492,115 493,621 Operating cost and expenses................................. (447,205) (451,460) ----------------------------- Operating income (loss)..................................... 44,910 42,161 Comprehensive financing (cost) income....................... (6,433) (23,552) Equity in income (loss) of associated companies............. 1,276 (3,277) Other income (expense), net................................. 667 1,466 Income tax (expense) benefit................................ (19,198) (11,959) Income (loss) before extraordinary items.................... 21,222 4,839 Extraordinary items......................................... - 2,045 ----------------------------- Net income (loss)........................................... 21,222 6,884 ----------------------------- Weighted average number of shares outstanding............... 1,156,680,000 1,156,680,000 Income (loss) per share before extraordinary items.......... 0.02 0.00 Extraordinary items per share............................... - 0.00 ----------------------------- Earnings (loss) per share(1)................................ 0.02 0.01 ----------------------------- Dividends paid per share.................................... - - U.S. GAAP Net sales................................................... 478,662 501,586 Cost of sales............................................... (385,813) (400,116) Operating income............................................ 43,266 39,823 Net income (loss)........................................... 21,882 4,630 Earnings (loss) per share(1)................................ 0.02 0.00 (1) Basic earnings (loss) per share and diluted earnings (loss) per share are identical. I-26
- --------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, THOUSANDS OF EURO, EXCEPT SHARE ----------------------------------------------------------------------------- AND PER SHARE AMOUNTS 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- SUMMARY SELECTED CONSOLIDATED INCOME STATEMENT DATA ITALIAN GAAP Net sales....................... 944,750 834,101 693,727 905,140 824,741 Operating cost and expenses..... (867,560) (785,384) (667,162) (837,435) (764,418) ----------------------------------------------------------------------------- Operating income (loss).......................... 77,190 48,717 26,565 67,705 60,323 Comprehensive financing (cost) income.......................... (23,949) (32,507) (42,638) (29,812) (47,859) Equity in income (loss) of associated companies............ (5,358) (1,725) (2,319) 430 (1,494) Other income (expense), net..... (42,492) 5,086 2,320 2,042 5,856 Income tax (expense) benefit.... (6,722) (19,418) 6,478 (25,379) (3,449) Income (loss) before extraordinary items............. (1,331) 153 (9,594) 14,986 13,377 Extraordinary items............. (1,867) 6,986 (16,180) - - ----------------------------------------------------------------------------- Net income (loss)............... (3,198) 7,139 (25,774) 14,986 13,377 ----------------------------------------------------------------------------- Weighted average number of shares outstanding.............. 1,156,680,000 1,156,680,000 1,156,680,000 1,156,680,000 1,156,680,000 Income (loss) per share before extraordinary items............. (0.00) 0.00 (0.01) 0.01 0.01 Extraordinary items per share... (0.00) 0.01 (0.01) - - ----------------------------------------------------------------------------- Earnings (loss) per share(1).... (0.00) 0.01 (0.02) 0.01 0.01 ----------------------------------------------------------------------------- Dividends paid per share........ - - - - - U.S. GAAP Net sales....................... 961,763 811,039 692,934 Cost of sales................... (761,900) (684,147) (589,589) Operating income................ 77,477 47,429 30,030 Net income (loss)............... (5,937) 5,941 (27,637) Earnings (loss) per share(1).... (0.01) 0.01 (0.02) - --------------------------------------------------------------------------------------------------------------- I-27
- ------------------------------------------------------------------------------------------- AT JUNE 30, ----------------------------- THOUSANDS OF EURO, EXCEPT SHARE AND PER SHARE AMOUNTS 2002 2001 - ------------------------------------------------------------------------------------------- SUMMARY SELECTED CONSOLIDATED BALANCE SHEET DATA (UNAUDITED) ITALIAN GAAP Current assets.............................................. 513,023 498,006 Property, plant and equipment, net.......................... 432,543 444,159 Intangible fixed assets..................................... 22,763 20,643 Investments and long-term receivables....................... 7,997 15,382 ----------------------------- Total assets................................................ 976,326 978,190 ----------------------------- Current liabilities......................................... 494,892 493,474 Long-term debt.............................................. 191,756 197,893 Other long-term liabilities................................. - - Employees' severance indemnity.............................. 51,270 58,318 ----------------------------- Total liabilities........................................... 737,918 749,685 ----------------------------- Equity of majority shareholders............................. 238,549 227,928 Minority interest........................................... (141) 577 ----------------------------- Total shareholders' equity.................................. 238,408 228,505 ----------------------------- Weighted average number of shares outstanding............... 1,156,680,000 1,156,680,000 Total shareholders' equity per share........................ 0.21 0.19 U.S. GAAP Total assets................................................ 942,992 943,875 Net assets.................................................. 217,503 207,426 Total shareholders' equity.................................. 217,503 207,426 Total shareholders' equity per share........................ 0.19 0.18 - -------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------- AT DECEMBER 31, THOUSANDS OF EURO, EXCEPT SHARE ----------------------------------------------------------------------------- AND PER SHARE AMOUNTS 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- SUMMARY SELECTED CONSOLIDATED BALANCE SHEET DATA ITALIAN GAAP Current assets.................. 497,985 455,599 395,639 437,335 428,293 Property, plant and equipment, net............................. 442,519 453,480 456,526 459,304 475,587 Intangible fixed assets......... 22,618 18,557 7,175 3,549 7,169 Investments and long-term receivables..................... 7,968 15,715 17,589 32,491 31,427 ----------------------------------------------------------------------------- Total assets.................... 971,090 943,351 876,929 932,679 942,476 ----------------------------------------------------------------------------- Current liabilities............. 474,224 440,776 383,853 389,624 487,442 Long-term debt.................. 226,665 215,584 206,657 242,680 167,986 Other long-term liabilities..... - - 8,165 - - Employees' severance indemnity....................... 53,044 60,728 60,984 61,705 61,611 ----------------------------------------------------------------------------- Total liabilities............... 753,933 717,088 659,659 694,009 717,039 ----------------------------------------------------------------------------- Equity of majority shareholders.................... 216,573 224,645 214,762 236,710 223,487 Minority interest............... 584 1,618 2,508 1,960 1,950 ----------------------------------------------------------------------------- Total shareholders' equity...... 217,157 226,263 217,270 238,670 225,437 ----------------------------------------------------------------------------- Weighted average number of shares outstanding.............. 1,156,680,000 1,156,680,000 1,156,680,000 1,156,680,000 1,156,680,000 Total shareholders' equity per share........................... 0.19 0.20 0.19 0.21 0.20 U.S. GAAP Total assets.................... 939,400 906,321 837,566 Net assets...................... 195,592 207,437 199,642 Total shareholders' equity...... 195,592 207,437 199,642 Total shareholders' equity per share........................... 0.17 0.18 0.17 - --------------------------------------------------------------------------------------------------------------- I-28
- ------------------------------------------------------------------------------------------------------------ AT OR FOR THE SIX-MONTH AT OR FOR THE YEAR ENDED PERIOD ENDED JUNE 30, DECEMBER 31, ------------------------ -------------------------- THOUSANDS OF TONS, EXCEPT EMPLOYEE DATA 2002 2001 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------ (UNAUDITED) KEY OPERATING DATA Number of employees................................. 3,185 3,493 3,272 3,640 3,631 Seamless steel pipe capacity (annual)............... 950 950 950 950 950 Seamless steel pipe sales European Union sales volume..................... 273 320 547 579 605 Export sales volume............................. 137 164 332 299 192 ------------------------------------------------------ Total sales volume.................................. 410 484 879 878 797 - ------------------------------------------------------------------------------------------------------------ SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL DATA OF TENARIS INTRODUCTORY NOTE The following summary unaudited pro forma condensed combined consolidated financial data (prepared under IAS with a reconciliation to U.S. GAAP) give pro forma effect to the exchange offer, after giving effect to certain pro forma adjustments. The summary unaudited pro forma condensed combined consolidated financial data have been prepared from, and should be read in conjunction with, the unaudited pro forma condensed combined consolidated financial data, the combined consolidated financial statements of Tenaris included elsewhere in this prospectus and the historical consolidated financial statements and notes thereto of Siderca, Tamsa and Dalmine, which are included elsewhere in this prospectus. In each presentation of the summary unaudited pro forma condensed combined consolidated data shown below, the first column shows the data arising from Tenaris's audited combined consolidated financial statements. The second, third and fourth columns reflect the effect of the exchange offer assuming the valid tender without subsequent withdrawal of the number of Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares, as the case may be, necessary for Tenaris to hold the percentages of Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares stated therein. The following summary unaudited pro forma condensed combined consolidated financial data give pro forma effect to different scenarios of acceptance of the exchange offer. The first scenario assumes that, at January 1, 2001, or June 30, 2002, as the case may be, Tenaris held 80% of the shares or ADSs of Siderca (having thus acquired 8.83% of the Siderca shares or ADSs pursuant to the exchange offer), 80% of the shares or ADSs of Tamsa (having thus acquired 28.16% of the Tamsa shares or ADSs pursuant to the exchange offer) and 90% of the shares of Dalmine (having thus acquired 42.78% of the shares of Dalmine pursuant to the exchange offer), which are the minimum ownership percentages of Siderca, Tamsa and Dalmine required to consummate the exchange offer. The second scenario assumes that, at January 1, 2001, or June 30, 2002, as the case may be, Tenaris held 100% of the shares or ADSs of Siderca (having thus acquired 28.83% of the Siderca shares or ADSs pursuant to the exchange offer), 100% of the shares or ADSs of Tamsa (having thus acquired 48.16% of the Tamsa shares or ADSs pursuant to the exchange offer) and 100% of the shares of Dalmine (having thus acquired 52.78% of the shares of Dalmine pursuant to the exchange offer). The following unaudited pro forma combined consolidated financial data also contain a sensitivity analysis, which addresses the impact of acquiring incremental 5% ownership interests in Siderca, Tamsa and Dalmine. The pro forma income statement data for the year ended December 31, 2001, and for the six-month period ended June 30, 2002, assume that the exchange offer occurred on January 1, 2001, while the pro forma balance sheet data as of June 30, 2002, assume that the exchange offer occurred on June 30, 2002. The summary unaudited pro forma condensed combined consolidated financial data are provided for illustrative purposes only and do not purport to represent the actual results of operations or what Tenaris's financial position would have been had the exchange offer occurred on the date assumed, nor is it necessarily indicative of Tenaris's future operating results or combined consolidated financial position. The pro forma transactions are based upon available information and upon certain assumptions that we believe are reasonable. I-29 SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL DATA ASSUMING 80% OWNERSHIP OF SIDERCA, 80% OWNERSHIP OF TAMSA AND 90% OWNERSHIP OF DALMINE The following summary unaudited pro forma condensed combined consolidated income statement data for the six-month period ended June 30, 2002, and the year ended December 31, 2001, assume the acquisition of an 8.83% interest in Siderca, a 28.16% interest in Tamsa and a 42.78% interest in Dalmine, resulting in 80% ownership of Siderca, 80% ownership of Tamsa and 90% ownership of Dalmine at January 1, 2001. (1) See Notes 28 and 29 to Tenaris's audited combined consolidated interim financial statements for the six-month period ended June 30, 2002. I-30
- ----------------------------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2002 -------------------------------------------------------- HISTORICAL PRO FORMA ADJUSTMENTS COMBINED --------------------------- THOUSANDS OF U.S. DOLLARS CONSOLIDATED SIDERCA TAMSA DALMINE PRO FORMA - ----------------------------------------------------------------------------------------------------------- SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net sales........................................ 1,569,532 1,569,532 Cost of sales.................................... (1,054,841) (1,675) 755 302 (1,055,459) -------------------------------------------------------- Gross profit..................................... 514,691 (1,675) 755 302 514,073 Selling, general and administrative expenses..... (226,079) (226,079) Other operating income........................... 477 477 Other operating expenses......................... (11,043) (11,043) -------------------------------------------------------- Operating income (loss).......................... 278,046 (1,675) 755 302 277,428 Financial expenses, net.......................... (41,503) (41,503) -------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and equity in earnings (losses) of associated companies and minority interest................................ 236,543 (1,675) 755 302 235,925 Equity in earnings (losses) of associated companies..................................... (5,142) (5,142) -------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and minority interest......................................... 231,401 (1,675) 755 302 230,783 Income tax....................................... (101,017) 90 (118) 328 (100,717) Effect of currency translation on tax bases...... (49,083) (49,083) -------------------------------------------------------- Income (loss) before minority interest........... 81,301 (1,585) 637 630 80,983 Minority interest in Siderca, Tamsa and Dalmine....................................... (46,940) 1,886 17,886 8,637 (18,531) Minority interest in other subsidiaries.......... (17,204) (17,204) -------------------------------------------------------- Net income....................................... 17,157 301 18,523 9,267 45,248 -------------------------------------------------------- Number of shares (thousands)..................... 710,747 80,775 102,183 41,148 934,853 Combined earnings (loss) per share............... 0.02 0.05 U.S. GAAP Net income under IAS............................. 17,157 301 18,523 9,267 45,248 Adjustments(1)................................... 34,973 34,973 Property, plant and equipment.................... 439 1,375 1,814 Goodwill......................................... 1,418 1,418 Deferred income tax.............................. (300) (1,003) (1,303) -------------------------------------------------------- Income before cumulative effect of accounting changes.......................................... 52,130 1,719 18,662 9,639 82,150 Cumulative effect of accounting changes(1)....... (17,417) (17,417) -------------------------------------------------------- Net income under U.S. GAAP....................... 34,713 1,719 18,662 9,639 64,733 -------------------------------------------------------- Combined earnings per share before effect of accounting changes............................... 0.07 0.09 Cumulative effect of accounting changes per share......................................... (0.02) (0.02) Combined earnings (loss) per share............... 0.05 0.07 - ----------------------------------------------------------------------------------------------------------- (1) See Notes 28 and 29 to Tenaris's audited combined consolidated interim financial statements for the year ended December 31, 2001. I-31
- ------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 2001 -------------------------------------------------------- HISTORICAL PRO FORMA ADJUSTMENTS COMBINED --------------------------- THOUSANDS OF U.S. DOLLARS CONSOLIDATED SIDERCA TAMSA DALMINE PRO FORMA - ------------------------------------------------------------------------------------------------------- SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net sales.................................... 3,119,343 3,119,343 Cost of sales................................ (2,165,568) (3,350) 1,510 604 (2,166,804) -------------------------------------------------------- Gross profit................................. 953,775 (3,350) 1,510 604 952,539 Selling, general and administrative expenses.................................. (447,791) (447,791) Other operating income....................... 585 585 Other operating expenses..................... (64,937) (64,937) -------------------------------------------------------- Operating income (loss)...................... 441,632 (3,350) 1,510 604 440,396 Financial expenses, net...................... (25,595) (25,595) -------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and equity in earnings (losses) of associated companies and minority interest........................ 416,037 (3,350) 1,510 604 414,801 Equity in earnings (losses) of associated companies................................. (41,296) (41,296) -------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and minority interest............................ 374,741 (3,350) 1,510 604 373,505 Income tax................................... (108,956) 180 (235) 656 (108,355) Effect of currency translation on tax bases..................................... (109,882) (109,882) -------------------------------------------------------- Income (loss) before minority interest....... 155,903 (3,170) 1,275 1,260 155,268 Minority interest in Siderca, Tamsa and Dalmine................................... (58,981) 7,847 20,691 (1,105) (31,548) Minority interest in other subsidiaries...... (15,576) (15,576) -------------------------------------------------------- Net income................................... 81,346 4,677 21,966 155 108,144 -------------------------------------------------------- Number of shares (thousands)................. 710,747 80,775 102,183 41,148 934,853 Combined earnings (loss) per share........... 0.11 0.12 U.S. GAAP Net income under IAS......................... 81,346 4,677 21,966 155 108,144 Adjustments(1)............................... 82,575 82,575 Property, plant and equipment................ 878 2,750 3,628 Goodwill..................................... 2,836 2,836 Deferred income tax.......................... (600) (2,006) (2,606) -------------------------------------------------------- Income before cumulative effect of accounting changes...................................... 163,921 7,513 22,244 899 194,577 Cumulative effect of accounting changes(1)... (1,007) (1,007) -------------------------------------------------------- Net income under U.S. GAAP................... 162,914 7,513 22,244 899 193,570 -------------------------------------------------------- Combined earnings per share before effect of accounting changes........................... 0.23 0.21 Cumulative effect of accounting changes per share..................................... (0.00) (0.00) Combined earnings (loss) per share........... 0.23 0.21 - ------------------------------------------------------------------------------------------------------- The following summary unaudited pro forma condensed combined consolidated balance sheet data at June 30, 2002, assume the acquisition of an 8.83% interest in Siderca, a 28.16% interest in Tamsa and a 42.78% interest in Dalmine, resulting in 80% ownership of Siderca, 80% ownership of Tamsa and 90% ownership of Dalmine at June 30, 2002. (1) See Notes 28 and 29 to Tenaris's audited combined consolidated interim financial statements at June 30, 2002. I-32
- ----------------------------------------------------------------------------------------------------------- AT JUNE 30, 2002 -------------------------------------------------------- HISTORICAL PRO FORMA ADJUSTMENTS COMBINED ----------------------------- THOUSANDS OF U.S. DOLLARS CONSOLIDATED SIDERCA TAMSA DALMINE PRO FORMA - ----------------------------------------------------------------------------------------------------------- SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET DATA IAS Non-current assets: Property, plant and equipment, net............... 1,894,723 7,702 (10,077) 24,450 1,916,798 Intangible assets, net........................... 49,700 56,734 (16,743) (44,671) 45,020 Other non current assets......................... 176,228 176,228 Deferred tax assets.............................. 29,882 3,527 33,409 -------------------------------------------------------- Total non-current assets......................... 2,150,533 64,436 (23,293) (20,221) 2,171,455 Current assets: Inventories...................................... 661,783 360 662,143 Trade receivables................................ 713,252 713,252 Other current assets............................. 413,145 413,145 -------------------------------------------------------- Total current assets............................. 1,788,180 360 1,788,540 -------------------------------------------------------- Total assets..................................... 3,938,713 64,796 (23,293) (20,221) 3,959,995 -------------------------------------------------------- Shareholders' equity............................. 845,792 157,351 193,691 71,838 1,268,672 Minority interest in Siderca, Tamsa and Dalmine....................................... 802,608 (95,377) (216,984) (101,900) 388,347 Minority interest in other subsidiaries.......... 105,531 105,531 Non-current liabilities: Borrowings....................................... 358,058 358,058 Deferred tax liabilities......................... 260,964 2,822 9,841 273,627 Effect of currency translation on tax bases...... 138,643 138,643 Other liabilities................................ 199,667 199,667 -------------------------------------------------------- Total non-current liabilities.................... 957,332 2,822 9,841 969,995 Current liabilities: Borrowings....................................... 448,486 448,486 Trade payables................................... 451,781 451,781 Other liabilities................................ 327,183 327,183 -------------------------------------------------------- Total current liabilities........................ 1,227,450 1,227,450 -------------------------------------------------------- Total liabilities................................ 2,184,782 2,822 9,841 2,197,445 -------------------------------------------------------- Total equity and liabilities..................... 3,938,713 64,796 (23,293) (20,221) 3,959,995 -------------------------------------------------------- U.S. GAAP Shareholders' equity under IAS................... 845,792 157,351 193,691 71,838 1,268,672 Adjustments(1)................................... 85,025 85,025 Total shareholders' equity under U.S. GAAP....... 930,817 157,351 193,691 71,838 1,353,697 - ----------------------------------------------------------------------------------------------------------- SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL DATA ASSUMING 100% OWNERSHIP OF EACH OF SIDERCA, TAMSA AND DALMINE The following summary unaudited pro forma condensed combined consolidated income statement data for the six-month period ended June 30, 2002, and the year ended December 31, 2001, assume the acquisition of a 28.83% interest in Siderca, a 48.16% interest in Tamsa and a 52.78% interest in Dalmine, resulting in 100% ownership of Siderca, Tamsa and Dalmine at January 1, 2001. (1) See Notes 28 and 29 to Tenaris's audited combined consolidated interim financial statements for the six-month period ended June 30, 2002. I-33
- ---------------------------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JUNE 30, 2002 ------------------------------------------------------- HISTORICAL PRO FORMA ADJUSTMENTS COMBINED --------------------------- THOUSANDS OF U.S. DOLLARS CONSOLIDATED SIDERCA TAMSA DALMINE PRO FORMA - ---------------------------------------------------------------------------------------------------------- SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net sales........................................ 1,569,532 1,569,532 Cost of sales.................................... (1,054,841) (5,469) 1,271 372 (1,058,667) ------------------------------------------------------- Gross profit..................................... 514,691 (5,469) 1,271 372 510,865 Selling, general and administrative expenses..... (226,079) (226,079) Other operating income........................... 477 477 Other operating expenses......................... (11,043) (11,043) ------------------------------------------------------- Operating income (loss).......................... 278,046 (5,469) 1,271 372 274,220 Financial expenses, net.......................... (41,503) (41,503) ------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and equity in earnings (losses) of associated companies and minority interest................................ 236,543 (5,469) 1,271 372 232,717 Equity in earnings (losses) of associated companies..................................... (5,142) (5,142) ------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and minority interest......................................... 231,401 (5,469) 1,271 372 227,575 Income tax....................................... (101,017) 293 (198) 405 (100,517) Effect of currency translation on tax bases...... (49,083) (49,083) ------------------------------------------------------- Income (loss) before minority interest........... 81,301 (5,176) 1,073 777 77,975 Minority interest in Siderca, Tamsa and Dalmine....................................... (46,940) 6,159 30,126 10,655 Minority interest in other subsidiaries.......... (17,204) (17,204) ------------------------------------------------------- Net income....................................... 17,157 983 31,199 11,432 60,771 ------------------------------------------------------- Number of shares (thousands)..................... 710,747 263,708 174,746 50,765 1,199,966 Combined earnings (loss) per share............... 0.02 0.05 U.S. GAAP Net income under IAS............................. 17,157 983 31,199 11,432 60,771 Adjustments(1)................................... 34,973 34,973 Property, plant and equipment.................... 741 1,696 2,437 Goodwill......................................... 4,631 4,631 Deferred income tax.............................. (506) (1,237) (1,743) ------------------------------------------------------- Income before cumulative effect of accounting changes.......................................... 52,130 5,614 31,434 11,891 101,069 Cumulative effect of accounting changes(1)....... (17,417) (17,417) ------------------------------------------------------- Net income under U.S. GAAP....................... 34,713 5,614 31,434 11,891 83,652 ------------------------------------------------------- Combined earnings per share before effect of accounting changes............................... 0.07 0.08 Cumulative effect of accounting changes per share......................................... (0.02) (0.01) Combined earnings (loss) per share............... 0.05 0.07 - ---------------------------------------------------------------------------------------------------------- (1) See Notes 28 and 29 to Tenaris's audited combined consolidated interim financial statements for the year ended December 31, 2001. I-34
- ----------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 2001 ------------------------------------------------------- HISTORICAL PRO FORMA ADJUSTMENTS COMBINED --------------------------- THOUSANDS OF U.S. DOLLARS CONSOLIDATED SIDERCA TAMSA DALMINE PRO FORMA - ----------------------------------------------------------------------------------------------------------- SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net sales......................................... 3,119,343 3,119,343 Cost of sales..................................... (2,165,568) (10,938) 2,542 744 (2,173,220) ------------------------------------------------------- Gross profit...................................... 953,775 (10,938) 2,542 744 946,123 Selling, general and administrative expenses...... (447,791) (447,791) Other operating income............................ 585 585 Other operating expenses.......................... (64,937) (64,937) ------------------------------------------------------- Operating income (loss)........................... 441,632 (10,938) 2,542 744 433,980 Financial expenses, net........................... (25,595) (25,595) ------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and equity in earnings (losses) of associated companies and minority interest................................. 416,037 (10,938) 2,542 744 408,385 Equity in earnings (losses) of associated companies...................................... (41,296) (41,296) ------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and minority interest.......................................... 374,741 (10,938) 2,542 744 367,089 Income tax........................................ (108,956) 587 (396) 810 (107,955) Effect of currency translation on tax bases....... (109,882) (109,882) ------------------------------------------------------- Income (loss) before minority interest............ 155,903 (10,351) 2,146 1,554 149,252 Minority interest in Siderca, Tamsa and Dalmine... (58,981) 25,621 34,724 (1,364) Minority interest in other subsidiaries........... (15,576) (15,576) ------------------------------------------------------- Net income........................................ 81,346 15,270 36,870 190 133,676 ------------------------------------------------------- Number of shares (thousands)...................... 710,747 263,708 174,746 50,765 1,199,966 Combined earnings (loss) per share................ 0.11 0.11 U.S. GAAP Net income under IAS.............................. 81,346 15,270 36,870 190 133,676 Adjustments(1).................................... 82,575 82,575 Property, plant and equipment..................... 1,482 3,392 4,874 Goodwill.......................................... 9,262 9,262 Deferred income tax............................... (1,012) (2,474) (3,486) ------------------------------------------------------- Income before cumulative effect of accounting changes........................................... 163,921 24,532 37,340 1,108 226,901 Cumulative effect of accounting changes(1)........ (1,007) (1,007) ------------------------------------------------------- Net income under U.S. GAAP........................ 162,914 24,532 37,340 1,108 225,894 ------------------------------------------------------- Combined earnings per share before effect of accounting changes................................ 0.23 0.19 Cumulative effect of accounting changes per share.......................................... (0.00) (0.00) Combined earnings (loss) per share................ 0.23 0.19 - ----------------------------------------------------------------------------------------------------------- The following summary unaudited pro forma condensed combined consolidated balance sheet data at June 30, 2002, assume the acquisition of a 28.83% interest in Siderca, a 48.16% interest in Tamsa and a 52.78% interest in Dalmine, resulting in 100% ownership of each of Siderca, Tamsa and Dalmine at June 30, 2002. (1) See Notes 28 and 29 to Tenaris's audited combined consolidated interim financial statements at June 30, 2002. I-35
- ----------------------------------------------------------------------------------------------------------- AT JUNE 30, 2002 --------------------------------------------------------- HISTORICAL PRO FORMA ADJUSTMENTS COMBINED ------------------------------ THOUSANDS OF U.S. DOLLARS CONSOLIDATED SIDERCA TAMSA DALMINE PRO FORMA - ----------------------------------------------------------------------------------------------------------- SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET DATA IAS Non-current assets: Property, plant and equipment, net.............. 1,894,723 25,150 (16,972) 30,165 1,933,066 Intangible assets, net.......................... 49,700 185,248 (28,200) (55,112) 151,636 Other non current assets........................ 176,228 176,228 Deferred tax assets............................. 29,882 5,940 35,822 --------------------------------------------------------- Total non-current assets........................ 2,150,533 210,398 (39,232) (24,947) 2,296,752 Current assets: Inventories..................................... 661,783 1,177 662,960 Trade receivables............................... 713,252 713,252 Other current assets............................ 413,145 413,145 --------------------------------------------------------- Total current assets............................ 1,788,180 1,177 1,789,357 --------------------------------------------------------- Total assets.................................... 3,938,713 211,575 (39,232) (24,947) 4,086,109 --------------------------------------------------------- Shareholders' equity............................ 845,792 513,791 326,228 88,628 1,774,439 Minority interest in Siderca, Tamsa and Dalmine...................................... 802,608 (311,431) (365,460) (125,717) Minority interest in other subsidiaries......... 105,531 105,531 Non-current liabilities: Borrowings...................................... 358,058 358,058 Deferred tax liabilities........................ 260,964 9,215 12,142 282,321 Effect of currency translation on tax bases..... 138,643 138,643 Other liabilities............................... 199,667 199,667 --------------------------------------------------------- Total non-current liabilities................... 957,332 9,215 12,142 978,689 Current liabilities: Borrowings...................................... 448,486 448,486 Trade payables.................................. 451,781 451,781 Other liabilities............................... 327,183 327,183 --------------------------------------------------------- Total current liabilities....................... 1,227,450 1,227,450 --------------------------------------------------------- Total liabilities............................... 2,184,782 9,215 12,142 2,206,139 --------------------------------------------------------- Total equity and liabilities.................... 3,938,713 211,575 (39,232) (24,947) 4,086,109 --------------------------------------------------------- U.S. GAAP Shareholders' equity under IAS.................. 845,792 513,791 326,228 88,628 1,774,439 Adjustments(1).................................. 85,025 85,025 Total shareholders' equity under U.S. GAAP...... 930,817 513,791 326,228 88,628 1,859,464 - ----------------------------------------------------------------------------------------------------------- SENSITIVITY ANALYSIS The following sensitivity analysis addresses the impact of acquiring incremental 5% ownership interests in Siderca, Tamsa and Dalmine in the unaudited pro forma condensed combined consolidated income statement data for the six months ended June 30, 2002. The following sensitivity analysis addresses the impact of acquiring incremental 5% ownership interests in Siderca, Tamsa and Dalmine in the unaudited pro forma condensed combined consolidated income statement data for the year ended December 31, 2001.
- ------------------------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED JUNE 30, 2002 ---------------------------------------------- PRO FORMA ADJUSTMENTS REFLECTING THE EFFECT OF A 5% INCREASE IN OWNERSHIP FOR ---------------------------------------------- THOUSANDS OF U.S. DOLLARS SIDERCA TAMSA DALMINE TOTAL - ------------------------------------------------------------------------------------------------------------ SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net income.................................................. 171 3,169 1,083 4,423 ---------------------------------------------- U.S. GAAP Net income under IAS........................................ 171 3,169 1,083 4,423 Property, plant and equipment............................... 74 160 234 Goodwill.................................................... 803 803 Deferred income tax......................................... (51) (117) (168) ---------------------------------------------- Net income under U.S. GAAP.................................. 974 3,192 1,126 5,292 - ------------------------------------------------------------------------------------------------------------ I-36
- ------------------------------------------------------------------------------------------------------------ FOR THE YEAR ENDED DECEMBER 31, 2001 ---------------------------------------------- PRO FORMA ADJUSTMENTS REFLECTING THE EFFECT OF A 5% INCREASE IN OWNERSHIP FOR ---------------------------------------------- THOUSANDS OF U.S. DOLLARS SIDERCA TAMSA DALMINE TOTAL - ------------------------------------------------------------------------------------------------------------ SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net income.................................................. 2,650 3,910 19 6,579 ---------------------------------------------- U.S. GAAP Net income under IAS........................................ 2,650 3,910 19 6,579 Property, plant and equipment............................... 148 320 468 Goodwill.................................................... 1,606 1,606 Deferred income tax......................................... (102) (234) (336) ---------------------------------------------- Net income under U.S. GAAP.................................. 4,256 3,956 105 8,317 - ------------------------------------------------------------------------------------------------------------ The following sensitivity analysis addresses the impact of acquiring incremental 5% ownership interests in Siderca, Tamsa and Dalmine in the unaudited pro forma combined consolidated balance sheet data at June 30, 2002. I-37
- ------------------------------------------------------------------------------------------------------ AT JUNE 30, 2002 ---------------------------------------- PRO FORMA ADJUSTMENTS REFLECTING THE EFFECT OF A 5% INCREASE IN OWNERSHIP FOR ---------------------------------------- THOUSANDS OF U.S. DOLLARS SIDERCA TAMSA DALMINE TOTAL - ------------------------------------------------------------------------------------------------------ SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET DATA IAS Total assets................................................ 36,695 (3,985) (2,363) 30,347 ---------------------------------------- Shareholders' equity........................................ 89,110 33,134 8,396 130,640 Minority interest in Siderca, Tamsa and Dalmine............. (54,013) (37,119) (11,909) (103,041) Total liabilities........................................... 1,598 1,150 2,748 ---------------------------------------- Total equity and liabilities................................ 36,695 (3,985) (2,363) 30,347 ---------------------------------------- U.S. GAAP Shareholders' equity under IAS.............................. 89,110 33,134 8,396 130,640 Total shareholders' equity under U.S. GAAP.................. 89,110 33,134 8,396 130,640 - ------------------------------------------------------------------------------------------------------ RECENT MARKET PRICES No trading market for the shares or ADS of the Company exists or has ever existed. Accordingly, no historical data can be provided regarding the market prices of the Company's shares and ADSs. The following table presents the closing market prices per security for Siderca and Tamsa shares and ADSs and Dalmine shares in nominal Argentine pesos, Mexican pesos, euros or U.S. dollars, as the case may be: - - as reported on the Buenos Aires Stock Exchange for Siderca shares; - - as reported on the NYSE for Siderca ADSs; - - as reported on the Mexican Stock Exchange for Tamsa shares; - - as reported on the AMEX for Tamsa ADSs; and - - as reported on the Milan Stock Exchange for Dalmine shares. In each case the prices given are, first, as of September 12, 2002, which was the last full trading day prior to the public announcement of this proposed exchange offer and, second, as of November 7, 2002, the most recent practicable trading day prior to the date of this prospectus. See "Part Three--The Exchange Offer--Market Price and Dividends" for further information about historical market prices and average daily trading volumes. I-38
- ---------------------------------------------------------------------------------------------------------- SIDERCA SIDERCA TAMSA TAMSA DALMINE ORDINARY SHARES ADSS COMMON SHARES ADSS ORDINARY SHARES (PER SHARE) (PER ADS) (PER SHARE) (PER ADS) (PER SHARE) --------------- --------- ------------- --------- --------------- ARP USD MXP USD E - ---------------------------------------------------------------------------------------------------------- September 12, 2002............. 7.46 19.25 18.65 9.45 0.15 November 7, 2002............... 6.18 16.60 18.50 9.12 0.14 - ---------------------------------------------------------------------------------------------------------- SUMMARY SELECTED COMPARATIVE PER SHARE DATA Set forth below are net income, cash dividends and book value data for: - - Tenaris shares and ADSs on a historical basis; - - Siderca shares and ADSs on an historical basis; - - Tamsa shares and ADSs on an historical basis; - - Dalmine shares on an historical basis; - - Tenaris per Siderca equivalent share, and Tenaris per Siderca equivalent ADS, on a pro forma basis; - - Tenaris per Tamsa equivalent share, and Tenaris per Tamsa equivalent ADS, on a pro forma basis; and - - Tenaris per Dalmine equivalent share on a pro forma basis. The Tenaris pro forma data in each column shown were derived as described under "Part Three--The Exchange Offer--Unaudited Pro Forma Condensed Combined Consolidated Financial Data." The Tenaris per Siderca equivalent share and ADS, Tenaris per Tamsa equivalent share and ADS and Tenaris per Dalmine equivalent share information show the effect of the exchange offer from the perspective of an owner of Siderca shares or ADSs, of Tamsa shares or ADSs or of Dalmine shares, as the case may be. The information was computed by multiplying the Tenaris per share and the Tenaris per ADS pro forma data by the exchange ratio of shares of the Company for Siderca shares, Tamsa shares or Dalmine shares and ADSs of the Company for Siderca ADSs or Tamsa ADSs, as the case may be. You should read the information below together with the audited historical financial statements and related notes contained herein. The unaudited pro forma data below is presented for illustrative purposes only. You should not rely on this information as being indicative of the historical results that would have been achieved had we completed the exchange offer on January 1, 2001. See "Part Three--The Exchange Offer--Unaudited Pro Forma Condensed Combined Consolidated Financial Data." I-39 (1) With respect to Siderca, the nine-month transition period ended December 31, 2001, and, with respect to Tenaris, the fiscal year ended December 31, 2001. (2) Upon its incorporation in December 2001, the Company issued 30,107 shares. On October 18, 2002, Sidertubes contributed all of its assets (including 30,010 shares of the Company) and liabilities to the Company, in exchange for 710,747,090 shares of the Company. The 30,010 shares contributed by Sidertubes to the Company were cancelled and, accordingly, upon consummation of this contribution the Company had a total of 710,747,187 shares issued and outstanding. Tenaris's historical per share and per ADS data for the six-month period ended June 30, 2002, and the year ended December 31, 2001, have been calculated based on the assumption that 710,747,187 shares were issued and outstanding in each of the periods presented. (3) In 2001, Tenaris also paid a dividend in shares of Siderar of USD0.06 per share. (4) In 2001, Tenaris also paid a dividend in shares of Siderar of USD0.61 per ADS. (5) In 2001, Siderca also paid a dividend in shares of Siderar of ARP0.12 per share. (6) In 2001, Siderca also paid a dividend in shares of Siderar of USD0.32 per ADS. I-40
- --------------------------------------------------------------------------------------------- SIX-MONTH PERIOD YEAR ENDED ENDED JUNE 30, DECEMBER 31, HISTORICAL PER SHARE DATA: 2002 2001(1) - --------------------------------------------------------------------------------------------- U.S. dollars TENARIS COMBINED PER SHARE DATA(2) IAS Net income............................................... 0.02 0.11 Cash dividends(3)........................................ 0.01 0.09 Book value............................................... 1.19 1.23 U.S. GAAP Net income............................................... 0.05 0.23 Cash dividends(3)........................................ 0.01 0.09 Book value............................................... 1.31 1.33 U.S. dollars TENARIS COMBINED PER ADS DATA(2) IAS Net income............................................... 0.24 1.14 Cash dividends(4)........................................ 0.06 0.93 Book value............................................... 11.90 12.32 U.S. GAAP Net income............................................... 0.49 2.29 Cash dividends(4)........................................ 0.06 0.93 Book value............................................... 13.10 13.25 Constant June 30, 2002 Argentine pesos SIDERCA PER SHARE DATA ARGENTINE GAAP Net income............................................... 1.61 0.23 Cash dividends(5)........................................ - 0.16 Book value............................................... 4.39 2.80 U.S. GAAP Net income............................................... 0.35 0.25 Cash dividends(5)........................................ - 0.16 Book value............................................... 3.57 3.01 U.S. dollars SIDERCA PER ADS DATA ARGENTINE GAAP Net income............................................... 4.35 0.63 Cash dividends(6)........................................ - 0.42 Book value............................................... 11.85 7.57 U.S. GAAP Net income............................................... 0.96 0.68 Cash dividends(6)........................................ - 0.42 Book value............................................... 9.65 8.13 - --------------------------------------------------------------------------------------------- (1) With respect to Tamsa and Dalmine, the fiscal year ended December 31, 2001. I-41
- --------------------------------------------------------------------------------------------- SIX-MONTH PERIOD YEAR ENDED ENDED JUNE 30, DECEMBER 31, HISTORICAL PER SHARE DATA: 2002 2001(1) - --------------------------------------------------------------------------------------------- Constant June 30, 2002 Mexican pesos TAMSA PER SHARE DATA MEXICAN GAAP Net income............................................... 1.47 1.66 Cash dividends........................................... 0.80 0.89 Book value............................................... 23.73 21.75 U.S. GAAP Net income............................................... 1.76 2.10 Cash dividends........................................... 0.80 0.89 Book value............................................... 26.20 24.79 U.S. dollars TAMSA PER ADS DATA MEXICAN GAAP Net income............................................... 0.73 0.83 Cash dividends........................................... 0.40 0.45 Book value............................................... 11.87 10.87 U.S. GAAP Net income............................................... 0.88 1.05 Cash dividends........................................... 0.40 0.45 Book value............................................... 13.10 12.40 Euro DALMINE PER SHARE DATA ITALIAN GAAP Net income (loss)........................................ 0.02 0.00 Cash dividends........................................... - - Book value............................................... 0.21 0.19 U.S. GAAP Net income (loss)........................................ 0.02 (0.01) Cash dividends........................................... - - Book value............................................... 0.19 0.17 - --------------------------------------------------------------------------------------------- (1) Pro forma effect of the exchange offer, assuming that only the Siderca, Tamsa and Dalmine securities necessary to meet the minimum thresholds set forth on the cover of this prospectus are validly tendered and not withdrawn. (2) Pro forma effect of the exchange offer, assuming that all the securities of Siderca, Tamsa and Dalmine that may be tendered are validly tendered and not withdrawn. I-42
- ---------------------------------------------------------------------------------------------------------- SIX-MONTH PERIOD SIX-MONTH PERIOD YEAR ENDED YEAR ENDED ENDED JUNE 30, ENDED JUNE 30, DECEMBER 31, DECEMBER 31, PRO-FORMA PER SHARE DATA: 2002(1) 2002(2) 2001(1) 2001(2) - ---------------------------------------------------------------------------------------------------------- U.S. dollars TENARIS PER SHARE DATA IAS Net income.......................... 0.05 0.05 0.12 0.11 Book value.......................... 1.36 1.48 U.S. GAAP Net income.......................... 0.07 0.07 0.21 0.19 Book value.......................... 1.45 1.55 TENARIS PER ADS DATA IAS Net income.......................... 0.48 0.51 1.16 1.11 Book value.......................... 13.57 14.79 U.S. GAAP Net income.......................... 0.69 0.70 2.07 1.88 Book value.......................... 14.48 15.50 TENARIS PER SIDERCA EQUIVALENT SHARE DATA IAS Net income.......................... 0.04 0.05 0.11 0.10 Book value.......................... 1.24 1.35 U.S. GAAP Net income.......................... 0.06 0.06 0.19 0.17 Book value.......................... 1.32 1.42 TENARIS PER SIDERCA EQUIVALENT ADS DATA IAS Net income.......................... 0.44 0.46 1.06 1.02 Book value.......................... 12.41 13.53 U.S. GAAP Net income.......................... 0.63 0.64 1.89 1.72 Book value.......................... 13.24 14.17 TENARIS PER TAMSA EQUIVALENT SHARE DATA IAS Net income.......................... 0.05 0.05 0.12 0.12 Book value.......................... 1.44 1.56 U.S. GAAP Net income.......................... 0.07 0.07 0.22 0.20 Book value.......................... 1.53 1.64 TENARIS PER TAMSA EQUIVALENT ADS DATA IAS Net income.......................... 0.26 0.27 0.61 0.59 Book value.......................... 7.18 7.82 U.S. GAAP Net income.......................... 0.37 0.37 1.10 1.00 Book value.......................... 7.66 8.20 TENARIS PER DALMINE EQUIVALENT SHARE DATA IAS Net income.......................... 0.00 0.00 0.01 0.01 Book value.......................... 0.11 0.12 U.S. GAAP Net income.......................... 0.01 0.01 0.02 0.02 Book value.......................... 0.12 0.13 - ---------------------------------------------------------------------------------------------------------- PART TWO RISK FACTORS You should carefully consider the following risks and the risk factors incorporated by reference in this prospectus, together with the other information contained in this prospectus, before making any decision concerning the terms of the exchange offer or whether to accept it. Any of these risks could have a material adverse effect on our business, financial condition and results of operations, which could in turn affect the price of our ordinary shares and ADSs. RISKS RELATING TO THE EXCHANGE OFFER TENARIS MAY BE UNABLE TO REALIZE THE BENEFITS THAT WE ANTICIPATE FROM FURTHER INTEGRATING THE BUSINESSES OF SIDERCA, TAMSA, DALMINE AND TENARIS GLOBAL SERVICES. As a result of the corporate reorganization and the exchange offer, we hope to realize a number of benefits, including the further integration of Tenaris. See "Part Three--The Exchange Offer--Reasons for the exchange offer." These benefits, however, may be difficult to realize. The difficulties of further integrating Siderca's, Tamsa's, Dalmine's and Tenaris Global Services' businesses include: - - the ability to further integrate successfully operations currently conducted by related but separate large companies; and - - the ability to further rationalize and reduce the expenses of the combined operations. We cannot give you any assurance that Tenaris will realize any benefits from the completion of the corporate reorganization and the exchange offer. Tenaris could be required to invest more capital than it is expecting or more time and effort by management than it is expecting in order to realize the benefits Tenaris is projecting from the transaction. As a result of these and other factors, the completion of Tenaris's corporate reorganization may be more difficult than expected and may not result in: - - increased operating and management synergies, - - enhancement of its global competitive position, or - - increased revenues and earnings growth or other benefits to its shareholders. If we fail to manage the further integration of the businesses of Siderca, Tamsa, Dalmine and Tenaris Global Services effectively, Tenaris's operations and financial results after the corporate reorganization and the exchange offer may be affected, both materially and adversely. THE PROPOSED TERMS OF THE EXCHANGE OFFER MAY NOT RESULT IN A FAIR EXCHANGE OF OUR SHARES OR ADSS FOR SHARES OR ADSS OF SIDERCA OR TAMSA OR SHARES OF DALMINE. Although the boards of directors of each of Siderca, Tamsa and Dalmine are required to state their respective positions regarding the exchange offer in accordance with applicable law, as of the date of this prospectus only the board of directors of Dalmine has stated its position in favor of the exchange offer with respect to Dalmine and indicated that the proposed ratio for the exchange of our shares for Dalmine shares is fair to Dalmine shareholders. We have no legal obligation to ensure and we can give you no assurance that our method of determining the exchange ratios will result in a fair exchange of our shares or ADSs for shares or ADSs of Siderca or Tamsa or shares of Dalmine or that they will accurately reflect the market value of our securities if and when they begin to trade. II-1 THE EXCHANGE RATIOS ARE FIXED AND WILL NOT BE UPDATED TO REFLECT MARKET FLUCTUATIONS. We are offering you our shares and ADSs in exchange for Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares at fixed exchange ratios, and, unless we amend the terms of the exchange offer, we will not revise these ratios upward or downward during the exchange offer based on changes in the market value of any of the securities involved. The market values of the Siderca shares and ADSs, the Tamsa shares and ADSs and the Dalmine shares at the time of the completion of the offer may vary significantly from the date of this prospectus. THE INTERNAL REVENUE SERVICE HAS NOT BEEN AND WILL NOT BE ASKED TO RULE ON THE TAX CONSEQUENCES OF THE EXCHANGE OFFER, AND THE INTERNAL REVENUE SERVICE OR A COURT COULD DETERMINE THAT THE EXCHANGE OF SIDERCA SHARES OR ADSS, TAMSA SHARES OR ADSS OR DALMINE SHARES FOR OUR SHARES OR ADSS IS NOT TAX-FREE. If the exchange of Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares for our shares or ADSs were not to qualify as a tax-free exchange, U.S. holders that participate in the exchange offer would recognize gain or loss equal to the difference between the market value of our shares or ADSs and their tax basis in their Siderca shares or ADSs, Tamsa shares or ADSs and Dalmine shares. While there is no authority or precedent on point, Sullivan & Cromwell has rendered an opinion that subject to the conditions and limitations set forth in "Part Three--The Exchange Offer--Material Tax Considerations--U.S. tax consequences--Exchange of Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares for our shares," U.S. holders that exchange Siderca shares or ADSs, Tamsa shares or ADSs and Dalmine shares for our shares or ADSs pursuant to the exchange offer should not recognize gain or loss for U.S. federal income tax purposes. The Internal Revenue Service, or IRS, however, has not been and will not be asked to rule on the tax consequences of the exchange offer, and there can be no assurance that the IRS or a court will not take a position contrary to the opinion described above. THE LIQUIDITY OF SIDERCA, TAMSA AND DALMINE SECURITIES THAT ARE NOT TENDERED IN THE EXCHANGE OFFER MAY BE ADVERSELY AFFECTED AFTER THE EXCHANGE OFFER. One of our objectives in launching the exchange offer is to acquire the largest possible equity interest in Siderca, Tamsa and Dalmine and to further integrate the businesses of these three companies. As of the date of this prospectus, however, we have not made a decision as to whether or how to acquire any Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares which are not tendered in the exchange offer. Therefore, after the completion of the exchange offer, untendered Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares may remain outstanding indefinitely. Even if we decide to acquire these securities in the future, a substantial period of time could elapse between the expiration of the offer and the subsequent acquisition. Any market for the remaining Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares could be less liquid than the market before the exchange offer and the market value for these securities could be substantially lower than their value before the exchange offer expires. In addition, if we acquire a sufficient number of Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares pursuant to the exchange offer, Siderca, Tamsa and Dalmine may not continue to meet the listing criteria of the exchanges on which their securities are listed. We believe that the minimum closing conditions for completion of the exchange offer will not cause Siderca and Tamsa to fail to continue to meet such listing criteria. However, the minimum closing conditions for completion of the exchange offer with respect to Dalmine, if met, could under certain circumstances, cause Dalmine to fail to continue to meet the listing criteria of the Milan Stock Exchange. In addition, although we have not made a decision in this respect, we may petition, or cause Siderca, Tamsa and Dalmine to petition, these exchanges to delist these securities, subject to II-2 applicable law. The liquidity of the Siderca shares and ADSs, the Tamsa shares and ADSs and the Dalmine shares will be further adversely affected if they are delisted. TENARIS MAY INCUR INTEGRATION-RELATED COSTS IN CONNECTION WITH THE EXCHANGE OFFER. If the exchange offer is consummated, Tenaris may incur charges to operations to reflect costs associated with further integrating the operations of Siderca, Tamsa and Dalmine, and these charges could be significant. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, will offset additional expenses over time, we cannot assure you that a net benefit will be achieved as a result of Tenaris's corporate reorganization, in the near term or at all. THE FURTHER CONSOLIDATION OF TENARIS'S OWNERSHIP IN SIDERCA, TAMSA, DALMINE AND TENARIS GLOBAL SERVICES COULD ADVERSELY AFFECT ITS RETURN ON EQUITY. Although Tenaris expects the further consolidation of Tenaris's ownership in Siderca, Tamsa, Dalmine and Tenaris Global Services to be accretive to its earnings after the exchange offer, the transaction could adversely affect Tenaris's return on equity if Tenaris substantially underperforms following the exchange offer. The impact of the exchange offer on Tenaris's return on equity could adversely affect the future market price of our shares and ADSs. If you exchange your Siderca, Tamsa or Dalmine securities for the Company's securities, the Company's securities may have lower return on equity than the shares of Siderca, Tamsa or Dalmine. YOUR OWNERSHIP AND VOTING PERCENTAGES WILL BE LOWER AFTER THE EXCHANGE OFFER. After completion of the exchange offer, you will hold securities of a larger company than any of Siderca, Tamsa and Dalmine. Accordingly, the ownership and voting percentages of current shareholders in Siderca, Tamsa and Dalmine will be diluted from their current ownership. After completion of Tenaris's corporate reorganization, assuming all of the securities of Siderca, Tamsa and Dalmine held by their public shareholders are exchanged for our securities and based on the exchange ratios and capitalization of Siderca, Tamsa and Dalmine immediately following the exchange offer, the former public shareholders of Siderca, Tamsa and Dalmine will own securities representing: - - in the case of former public shareholders of Siderca, 22.0% of our outstanding shares; - - in the case of former public shareholders of Tamsa, 14.6% of our outstanding shares; and - - in the case of former public shareholders of Dalmine, 4.2% of our outstanding shares. OUR CONTROLLING SHAREHOLDER MAY BE ABLE TO TAKE ACTIONS THAT DO NOT REFLECT THE WILL OR BEST INTERESTS OF OTHER SHAREHOLDERS. As of October 18, 2002, San Faustin, a company ultimately controlled by Roberto Rocca, beneficially owned 71.17% of Siderca's outstanding voting stock, 50.77% of Tamsa's outstanding voting stock, 47.22% of Dalmine's outstanding voting stock and 100% of Tenaris Global Services. As a result, Mr. Rocca is indirectly able to elect a substantial majority of the members of the board of directors of Siderca, Tamsa and Dalmine and has the power to determine the outcome of most actions requiring shareholder approval. Since the contribution to us on October 18, 2002, of the shares beneficially owned by Mr. Rocca, Mr. Rocca has been able to elect a substantial majority of the members of our board of directors and will have the power to determine the outcome of most actions requiring shareholder approval, including, subject to the requirements of Luxembourg law, the payment of II-3 dividends by us. The decisions of the controlling shareholder, including decisions with respect to the exchange offer, may not reflect the will or best interests of other shareholders. CONTINUED MINORITY INTERESTS MAY DELAY OR ADVERSELY AFFECT THE COMPLETION OF TENARIS'S CORPORATE REORGANIZATION AND OUR ABILITY TO CARRY OUT OUR STRATEGY. We cannot assure you that all holders of Siderca, Tamsa and Dalmine securities will tender their securities. Argentine and Italian laws do not permit us to eliminate any remaining public minority interests unless we gain control of more than 95% of the capital stock of Siderca or 98% of the capital stock of Dalmine, as applicable, while Mexican law does not permit us to eliminate any remaining public minority interests under any circumstances. Under Argentine law, if we gain control of more than 95% of the capital stock of Siderca, any minority shareholder of Siderca may require us to launch a subsequent tender offer for any remaining Siderca shares. Under Mexican law, if we gain control of more than 85% of the capital stock of Tamsa, we may be required to launch a subsequent tender offer for any remaining Tamsa shares or ADSs. Under Italian law, if we gain control of more than 90% of the capital stock of Dalmine, we will be required to launch a subsequent tender offer for any remaining Dalmine shares unless we elect to sell or otherwise dispose of, within four months of the consummation of the exchange offer with respect to Dalmine, a number of Dalmine shares sufficient to ensure regular trading of Dalmine's capital stock. We do not currently intend to sell or otherwise dispose of Dalmine's capital stock if we gain control of more than 90% of its stock. See "Part Ten--Regulatory Matters--Securities laws--Argentina," "--Mexico" and "--Italy." As a result, continued minority interests may remain after completion of the exchange offer in Siderca, Tamsa and Dalmine and may prevent us from taking actions that, while beneficial to Tenaris, might not be beneficial at the level of any of our individual subsidiaries. RISKS RELATING TO THE SEAMLESS STEEL PIPE INDUSTRY Holders of Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares are currently exposed to risks relating to the seamless steel pipe industry in general. If the exchange offer is successfully completed, holders of our shares and ADSs will be exposed to these same risks by virtue of our ownership positions in Siderca, Tamsa and Dalmine. SALES AND REVENUES MAY FALL AS A RESULT OF DOWNTURNS IN THE INTERNATIONAL PRICE OF OIL. The oil and gas industry is the largest consumer of seamless steel pipe products worldwide. This industry has historically been volatile, and downturns in the oil and gas markets adversely affect the demand for seamless steel pipe products. Demand for these products depends primarily upon the number of oil and natural gas wells being drilled, completed and reworked, and the depth and drilling conditions of these wells. The level of these activities depends primarily on current and expected future prices of oil and natural gas. Several factors, such as the supply and demand for oil and natural gas and general economic conditions, affect these prices. When the price of oil and gas falls, oil and gas companies generally reduce spending on production and exploration activities and, accordingly, make fewer purchases of seamless steel pipe products. For example, toward the end of 1998, world drilling activity and consequently pipe consumption began to decline as major oil and gas companies reduced their spending budgets and investment programs in response to a sharp and sustained fall in oil prices. This situation persisted until the end of 1999, when oil prices began to rise as a result of coordinated reductions in production by major oil and gas producers and other factors. Due in part to this downward cycle in the price of oil, Siderca's II-4 sales volume of seamless steel pipes for fiscal year 2000 decreased 28% compared to fiscal year 1998, Tamsa's sales volume of seamless steel pipes for the year ended December 31, 1999, decreased 26% compared to the previous year and Dalmine's sales volume of seamless steel pipes for the year ended December 31, 1999, decreased 16% compared to the previous year. In the future, sales and revenues may again fall as a result of downturns in the international price of oil. SALES AND REVENUES MAY FALL AS A RESULT OF FLUCTUATIONS IN INDUSTRY INVENTORY LEVELS. Inventory levels of seamless steel pipe in the oil and gas industry can vary significantly from period to period. These fluctuations can affect the demand for our products, as customers draw from existing inventory during periods of low investments in drilling and other activities and accumulate inventory during periods of high investments. Even if the prices of oil and gas rise or remain stable, oil and gas companies may not purchase additional seamless steel pipe products or maintain their current purchasing volume. COMPETITION IN THE GLOBAL MARKET FOR SEAMLESS STEEL PIPE PRODUCTS MAY CAUSE TENARIS TO LOSE MARKET SHARE IN PARTICULAR MARKETS AND HURT ITS SALES AND REVENUES. The global market for the seamless steel pipe products is highly competitive, with the primary competitive factors being price, quality and service. Tenaris competes against four major exporters of premium-quality steel pipe products worldwide. In addition, a large number of producers manufacture and export generally lower quality steel pipes. These lower-end producers, particularly those from Russia, China and the Ukraine, have, at times, adversely affected Tenaris by offering products at significantly lower prices. In addition, these producers are improving the range and quality of pipes, thereby increasing their ability to compete with Tenaris. Tenaris may not continue to compete effectively against existing or potential producers and preserve their current shares of the relevant geographic or product markets. In addition, if import restrictions are imposed upon Tenaris's competitors in its domestic markets, they may increase their marketing efforts in other countries where Tenaris sells its products and thus increase the competitive pressure on Tenaris in such markets. Furthermore, because two of Tenaris's four major competitors are Japanese companies, any fall in the value of the Japanese yen relative to the U.S. dollar could make those Japanese companies more competitive. ARGENTINA, MEXICO AND ITALY ARE REMOVING BARRIERS TO IMPORTED PRODUCTS WHICH WILL LEAD TO INCREASED COMPETITION IN THESE COUNTRIES AND MAY HURT TENARIS'S SALES AND REVENUES. As part of the increasing globalization of major economic markets, some countries are lifting quotas and other restrictions on imports, including seamless steel pipe products, and forming trade blocs. Argentina is a member of the Mercado Comun del Sur, or Mercosur, Mexico is party to the North American Free Trade Agreement, or NAFTA, and Italy is a member of the EU. In addition, Argentina, Mexico and Italy are each party to bilateral and multilateral trade agreements (for example, Mexico's trade agreement with the EU) that remove barriers to the import of foreign products. As import barriers have fallen, the domestic markets in Argentina, Mexico and Italy for seamless steel pipe products have become more competitive. Tenaris may not be able to maintain its share of its domestic markets as foreign producers take advantage of recent trade liberalization and the future elimination of remaining barriers to foreign trade in their respective domestic markets. Furthermore, while trade liberalization may also provide Tenaris with greater access to foreign markets, increases in sales to those foreign markets may not adequately offset any loss in domestic sales arising from increased foreign competition. II-5 AS A RESULT OF ANTIDUMPING AND COUNTERVAILING DUTY PROCEEDINGS AND OTHER IMPORT RESTRICTIONS, TENARIS MAY NOT BE ALLOWED TO SELL ITS PRODUCTS IN IMPORTANT GEOGRAPHIC MARKETS SUCH AS THE UNITED STATES. Local producers have filed antidumping, countervailing duty actions and safeguard actions against the Tenaris companies and other producers in their home countries in several instances in the past. Some of these actions led to significant penalties, including the imposition of antidumping and countervailing duties, in the United States. Certain seamless steel products manufactured by the Tenaris companies have been and continue to be subject to such duties in the United States. Antidumping or countervailing duty proceedings or any resulting penalties or any other form of import restriction may impede Tenaris's access to one or more important export markets for its products and in the future additional markets could be closed to Tenaris as a result of similar proceedings. The U.S. market is effectively closed to some of Tenaris's principal products, limiting Tenaris's current business and potential growth in that market. ADVERSE ECONOMIC CONDITIONS IN THE COUNTRIES WHERE TENARIS OPERATES OR SELLS ITS PRODUCTS MAY DECREASE ITS SALES AND REVENUES. Producers of seamless steel pipe products, including Tenaris, are exposed to adverse economic conditions in the countries where they operate or sell their products. The economies of these countries are in different stages of socioeconomic development. Consequently, like other companies with significant international operations, Tenaris is exposed to risks from changes in foreign currency exchange rates, interest rates, inflation, governmental spending, social instability and other political, economic or social developments in the countries in which it operates or that may adversely affect sales volume or revenues from exports and, as a result, its financial condition and results of operations. For example, recent adverse political and economic developments in Argentina, one of Siderca's most important markets, and Venezuela, one of Tamsa's most important markets, have already had an adverse impact on Siderca's and Tamsa's sales in those countries. In addition, because we will operate or sell our products in a greater number of countries than any of Siderca, Tamsa or Dalmine, holders of securities in these companies will be exposed to certain country-specific risks they were not previously exposed to. CONSOLIDATION AMONG OIL AND GAS COMPANIES MAY FORCE TENARIS TO REDUCE ITS PRICES AND HURT ITS PROFITS. A large percentage of Tenaris's sales are directed to international oil and gas companies. Recently, oil and gas companies throughout the world have experienced a high level of consolidation which has reduced the number of companies dedicated to providing these services. To the extent this consolidation trend continues, the surviving companies may enjoy significant bargaining power that could affect the prices of Tenaris's products and services. FLUCTUATIONS IN THE COST OF RAW MATERIALS AND ENERGY MAY HURT TENARIS'S PROFITS. The manufacturing of seamless steel pipe products requires substantial amounts of raw materials and energy from domestic and foreign suppliers. The availability and price of a significant portion of the raw materials and energy required by Tenaris are subject to government regulation and market conditions affecting supply and demand that can affect their continuity and cost of production. Increased costs of production may not be recoverable through increased product prices, and could adversely affect Tenaris's profitability. II-6 TENARIS'S INABILITY TO REDUCE SOME OF ITS COSTS IN RESPONSE TO LOWER SALES VOLUME MAY HURT ITS PROFITS. Like other manufacturers of steel-related products, the Tenaris companies have fixed and semi-fixed costs that cannot adjust rapidly to fluctuations in the demand for their products. Tenaris estimates that Siderca's fixed and semi-fixed costs (excluding depreciation and amortization) represented approximately 9% of its total costs in the first half of 2002, 13% in fiscal year 2001 and 11% for the transition period ended December 31, 2001, Tamsa's fixed and semi-fixed costs represented approximately 17% of its total costs in the first half of 2002 and 15% in 2001 and Dalmine's fixed and semi-fixed costs represented approximately 16% of its total costs both in the first half of 2002 and in 2001. If demand for Tenaris's products falls significantly, these costs may adversely affect Tenaris's profitability. POTENTIAL ENVIRONMENTAL, PRODUCT LIABILITY AND OTHER CLAIMS MAY CREATE SIGNIFICANT LIABILITIES FOR TENARIS THAT WOULD HURT ITS NET WORTH. Tenaris's oil and gas casing, tubing and line pipe products are sold primarily for use in oil and gas drilling and transportation activities, which are subject to inherent risks, including well failures, line pipe leaks and fires, that could result in death, personal injury, property damage, environmental pollution or loss of production. Any of these hazards and risks can result in the loss of hydrocarbons, environmental liabilities, personal injury claims and property damage. Correspondingly, defects in specialty tubing products could result in death, personal injury, property damage, environmental pollution or damage to equipment and facilities. Tenaris warrants the oilfield products and specialty tubing products it sells or distributes in accordance with customer specifications. Actual or claimed defects in its products may give rise to claims against Tenaris for losses and expose it to claims for damages. The insurance maintained by Tenaris may not be adequate or available to protect it in the event of a claim or its coverage may be canceled or otherwise terminated. THE COST OF COMPLYING WITH ENVIRONMENTAL REGULATIONS AND PAYING UNFORESEEN ENVIRONMENTAL LIABILITIES MAY INCREASE TENARIS'S OPERATING COSTS OR HURT ITS NET WORTH. The Tenaris companies are subject to a wide range of local, provincial and national laws, regulations, permits and decrees in their respective jurisdictions relating to the protection of human health and the environment. In Argentina, Italy, Mexico, Venezuela, Brazil, Canada and Japan, Tenaris will continue to incur expenditures to comply with those regulations. The expenditures necessary for Tenaris to remain in compliance with environmental laws and regulations, including site or other remediation costs, or unforeseen environmental liabilities, could have a material adverse effect on its financial condition and results of operations. RISKS RELATING TO TENARIS'S BUSINESS IF WE DO NOT SUCCESSFULLY IMPLEMENT OUR BUSINESS STRATEGY, TENARIS'S ABILITY TO GROW AND COMPETITIVE POSITION MAY SUFFER. We plan to continue implementing Tenaris's business strategy of further integrating the operating and marketing activities of the Tenaris companies, developing value-added services and continuing to pursue strategic acquisition opportunities. As part of this business strategy, Tenaris established business units to coordinate the commercial activities of the Tenaris companies and recently made acquisitions in Japan and Canada. Any of these components or Tenaris's overall business strategy may not be successfully implemented. Even if we successfully implement Tenaris's business strategy, it may not yield the desired goals. For example, we may fail to find suitable acquisition targets or to consummate II-7 those acquisitions under favorable conditions, or we may be unable to successfully integrate any acquired businesses into our operations. RECENT AND FUTURE ACQUISITIONS AND STRATEGIC PARTNERSHIPS MAY DISRUPT TENARIS'S OPERATIONS AND HURT ITS PROFITS. In the past five years, Tenaris has acquired interests in various companies and engaged in strategic partnerships. Tenaris has invested in NKKTUBES K.K., or NKKTubes, Algoma Tubes Inc., or AlgomaTubes, Confab Industrial, S.A., or Confab, and Tubos de Acero de Venezuela S.A., or Tavsa. Tenaris may not be successful in its plans regarding the operation of these companies and strategic partnerships or they could be affected by developments affecting Tenaris's partners. For example, on September 27, 2002, Tenaris's partner in NKKTubes consummated a business combination with one of Tenaris's principal competitors through which they became subsidiaries of a newly-formed holding company, and the new company is expected to continue operating that competitor's seamless steel pipe business in competition with NKKTubes. See "Part Four--Information about Tenaris--Business--Competition--Global market--Japan." We will continue to actively consider other strategic acquisitions and partnerships from time to time. We must necessarily base any assessment of potential acquisitions and partnerships on assumptions with respect to operations, profitability and other matters that may subsequently prove to be incorrect. Our acquisition and partnership activities may not perform in accordance with our expectations and could adversely affect Tenaris's operations and profitability. OUR ABILITY TO PAY CASH DIVIDENDS DEPENDS ON THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF OUR SUBSIDIARIES AND MAY BE RESTRICTED BY LEGAL, CONTRACTUAL OR OTHER LIMITATIONS. We will conduct all of our operations through subsidiaries. Dividends or other intercompany transfers of funds from our subsidiaries are expected to be our primary source of funds to pay our expenses and dividends. While we do not anticipate conducting operations at the holding company level, any expenses that we incur, in excess of minimum levels, that cannot be otherwise financed will reduce amounts available to be distributed to our shareholders. This may result in us not being able to pay a cash dividend on our shares or ADSs. The ability of our subsidiaries to pay dividends and make other payments to us will depend on their results of operations and financial conditions and may be restricted by, among other things, applicable corporate and other laws and regulations (including those imposing exchange controls or transfer restrictions, such as the transfer restrictions currently in effect in Argentina) and agreements and commitments of such subsidiaries. In addition, our ability to pay dividends will be subject to legal and other requirements and restrictions at the holding company level. For example, on October 18, 2002, our board of directors resolved that only a portion (approximately USD127.5 million) of the value of Sidertubes' first contribution to us would be allocated to the freely-distributable issuance premium out of which the Company may pay dividends. See "Part Three--The Exchange Offer--Market Price and Dividends" and "Part Four--Information about Tenaris--Related Party Transactions--Corporate reorganization transactions." TENARIS'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED BY MOVEMENTS IN EXCHANGE RATES. The Tenaris companies have primarily U.S. dollar-denominated revenues and a significant portion of their costs are denominated in local currency. As a result, movements in the exchange rate of the U.S. dollar against their respective local currencies can have a significant impact on Tenaris's revenue, results and financial condition. A rise in the value of the local currencies relative to the U.S. dollar will increase Tenaris's relative production costs, thereby creating a competitive disadvantage for Tenaris II-8 relative to some of its competitors. Conversely, a decrease in the value of the local currencies relative to the U.S. dollar will decrease their relative production costs, as has happened in Argentina beginning in January 2002. TENARIS'S RELATED PARTY TRANSACTIONS WITH MEMBERS OF THE TECHINT GROUP MAY NOT ALWAYS BE ON TERMS AS FAVORABLE AS THOSE THAT COULD BE OBTAINED FROM UNAFFILIATED THIRD PARTIES. Some of Tenaris's sales and purchases are made to and from other Techint group companies. These sales and purchases are primarily made in the ordinary course of business and we believe that they are made on terms no less favorable than those Tenaris could obtain from unaffiliated third parties. Tenaris will continue to engage in related party transactions in the future, but no assurance can be given that these transactions will be on terms as favorable as those that could be obtained from unaffiliated third parties. TENARIS'S SALES OF WELDED STEEL PIPE PRODUCTS ARE VOLATILE AND DEPENDENT ON SPECIFIC PROJECTS. Tenaris's sales of welded products depend substantially on securing contracts to supply major pipeline projects and fluctuate significantly from year to year based on the number of active pipeline projects under contract and their rate of progress. For example, in 2000, demand for Tenaris's welded products was substantially below levels of previous years due to the postponement of several regional gas pipeline projects. Tenaris's welded pipe revenues may fluctuate significantly in future years depending on its success at winning large supply contracts or if specific projects are postponed or delayed due to adverse economic, political or other factors. ANY DECLINE IN PURCHASES BY TAMSA'S LARGEST CUSTOMER MAY HURT TENARIS'S SALES AND REVENUES IN THE FUTURE. Tamsa enjoys a strong relationship with Petroleos Mexicanos, or Pemex, one of the world's largest crude oil and condensates producers. Pemex has been Tamsa's single largest customer. Sales to Pemex, including drilling companies contracted by Pemex, as a percentage of Tamsa's total sales volume, amounted to 11.3% in 2001. The volume of sales to Pemex has fluctuated historically and may continue to fluctuate in the future in response to diverse factors, such as changes in the amounts budgeted by Pemex for exploration and production and changes in drilling activity by Pemex or the drilling companies contracted by Pemex, as they may not maintain their current volume of purchases of Tamsa's products. The loss of Pemex as a customer or a reduction in the volume of sales to Pemex (or drilling companies contracted by Pemex) would have a material adverse effect on Tamsa's results of operations and, consequently, on Tenaris. TAMSA MAY CONTINUE TO LOSE THE VALUE OF ITS INVESTMENT IN SIDERURGICA DEL ORINOCO, C.A., OR SIDOR, AND BE REQUIRED TO MAKE PAYMENTS UNDER GUARANTEES, WHICH WOULD HAVE A NEGATIVE IMPACT ON TENARIS'S NET WORTH. In January 1998, an international consortium of companies, the Consorcio Siderurgia Amazonia Ltd., or Amazonia, purchased a 70.0% equity interest in Sidor from the Venezuelan government. Tamsider LLC, Tamsa's wholly-owned subsidiary, had an initial 12.5% equity interest in Amazonia, which increased to 14.1% in March 2000, as a result of additional investments as described below. As of October 18, 2002, Tamsider's equity interest in Amazonia remained at 14.1%. The Venezuelan government continues to own a 30% equity interest in Sidor. Sidor has experienced significant financial losses and other problems since its acquisition by Amazonia in January 1998, despite a significant reduction in Sidor's workforce and management's efforts to II-9 improve the production process and reduce operating costs. In 1999, due to negative conditions in the international steel market, a sustained and intensifying domestic recession in Venezuela, deteriorating conditions in the credit markets, an increase in the value of the Venezuelan currency relative to the U.S. dollar and other adverse factors, Sidor and Amazonia incurred substantial losses and were unable to make payments due under loan agreements with their respective creditors. In 2000, these loan agreements were restructured. Despite continued efforts by Sidor's management to improve technology and optimize production levels, in late 2001, Sidor and Amazonia were again unable to make payments due under the restructured loan agreements, due to a continuation and aggravation of the same negative factors described above accompanied by increased competition from steel imports in Venezuela. Sidor and Amazonia are currently involved in discussions with their creditors and the Venezuelan government regarding a possible restructuring of their loan agreements. As of June 30, 2002, Sidor had approximately USD1.4 billion of long-term indebtedness (secured in part by fixed assets valued at USD827 million as determined at the time Sidor's loans were restructured in March 2000), and Amazonia had approximately USD284 million of long-term indebtedness as of June 30, 2002, compared to approximately USD253 million as of December 31, 2001. We cannot give you any assurance as to whether Sidor or Amazonia will succeed in restructuring their existing indebtedness, or whether their respective lenders will choose to accelerate any defaulted indebtedness in accordance with the terms of the applicable loan agreements or foreclose on any of the assets of Sidor or Amazonia pledged as collateral. As a result of the adverse trends discussed above, Tamsider made additional capital contributions to Amazonia, resulting from the restructuring concluded in 2000, while recording significant losses in the value of its investment. In addition to its initial capital contribution of USD87.8 million, Tamsider was required to make capital contributions in the amount of USD36.1 million (of which USD18.0 million took the form of a convertible subordinated loan to Amazonia, as described below) in connection with the restructuring of Amazonia's loan agreements in 2000. The value of Tamsider's investments (as recorded in Tamsa's consolidated financial statements) has decreased significantly since 1998, from MXP883,881 thousand as of December 31, 1998, to MXP409,882 thousand as of December 31, 1999, MXP630,970 thousand as of December 31, 2000, MXP231,319 thousand as of December 31, 2001 and MXP206,103 thousand as of June 30, 2002. Tamsa's results for December 31, 2001, and June 30, 2002, include an allowance for the investments in Amazonia in the amount of MXP140,744 thousand, and MXP9,253 thousand, respectively. Further losses and provisions may be recorded in respect of Tamsider's investment in Amazonia and we cannot predict whether Tamsider will make additional capital contributions as a condition to successfully negotiating a restructuring of Sidor's or Amazonia's existing indebtedness. In addition to the risk of further losses in the equity value of its investment, Tamsider has significant exposure in respect of its investment in Amazonia under several agreements and guarantees. Set forth below is a description of the nature and extent of the exposure, as well as of these agreements and guarantees. We cannot give you any assurance as to whether Tamsider will be required to make payments or otherwise incur losses under these agreements and guarantees. - - The Sidor purchase agreement between Amazonia and the Venezuelan government requires the shareholders of Amazonia, including Tamsider, to indemnify the government for breaches by Amazonia of the purchase agreement up to a maximum amount of USD150 million. In connection with this indemnity, the shareholders of Amazonia are required to maintain a performance bond (which Tamsa has guaranteed directly) for five years, beginning in 1998, in the amount of USD150 million during the first three years, USD125 million in the fourth year and USD75 million in the fifth year. Tamsider's maximum liability under the indemnity would be USD18.8 million, as its II-10 obligations with respect to the indemnity are proportional to its initial 12.5% equity interest in Amazonia. - - The Sidor purchase agreement further requires the shareholders of Amazonia to guarantee, also on a proportional basis, the principal and a portion of the interest payable under a loan made to Sidor by the Venezuelan government. Tamsider's maximum liability under the guarantee, which continues to apply to the loan as restructured in 2000, is USD95.4 million. - - The loan agreement between Amazonia and a group of private lenders (the proceeds of which were used by Amazonia to finance the acquisition of its equity interest in Sidor), required the shareholders of Amazonia, including Tamsider, to pledge their shares in Amazonia as security and also required Amazonia to pledge its shares in Sidor as security. These pledges continue to apply to the loan as restructured in 2000. - - As discussed above, in connection with the restructuring of Amazonia's loan agreements in 2000, the shareholders of Amazonia, including Tamsider, were required to make additional capital contributions in part by making subordinated loans convertible into additional shares of Amazonia. Tamsider made a subordinated loan of USD18 million to Amazonia as a result of this requirement. - - Also in connection with the restructuring of Amazonia's loan agreements in 2000, the parent companies of several shareholders of Amazonia, including Tamsider, were required to enter into a put agreement pursuant to which they agreed to purchase, upon certain conditions and in no case prior to December 31, 2007, up to USD25 million in loans payable by Amazonia to its private lenders. The shareholders of Amazonia also delivered a letter to these lenders contemplating the possibility of additional capital contributions of up to USD20 million in the event of extreme financial distress at Sidor. Tamsa's obligations under the put agreement, and Tamsider's share of any capital contribution under the letter, are limited in proportion to its interest in Amazonia when the put is exercised or the contribution is made. Based on Tamsider's current 14.1% equity interest in Amazonia, Tamsa's aggregate liability under the put agreement would be limited to a maximum of USD3.5 million and Tamsider's share of any capital contribution under the letter would be limited to a maximum of USD2.8 million. DALMINE'S SIGNIFICANT INDEBTEDNESS COULD LIMIT ITS ABILITY TO COMPETE EFFECTIVELY IN THE FUTURE OR TO OPERATE SUCCESSFULLY UNDER ADVERSE ECONOMIC CONDITIONS. As of June 30, 2002, Dalmine had total indebtedness of E334.5 million, including short-term financial indebtedness and current maturities of long-term financial debt of E142.8 million. Dalmine's percent of net liabilities to capitalization was approximately 67% as of June 30, 2002. Dalmine's amount of total financial debt presents the risk that Dalmine might not have sufficient cash to service its indebtedness or might not have access to the capital or bank markets to refinance its indebtedness or incur additional indebtedness and that Dalmine's leveraged capital structure could limit its ability to finance acquisitions, capital expenditures or additional projects to compete effectively in the future or to operate successfully under adverse economic conditions. Dalmine is not currently in violation of any financial covenant under any of its loan facilities. DALMINE'S RESULTS OF OPERATIONS, FINANCIAL CONDITION AND NET WORTH MAY SUFFER AS A RESULT OF A LAWSUIT IN GREAT BRITAIN. A consortium led by BHP Petroleum Limited, or BHP, has sued Dalmine before the Commercial Court of the High Court of Justice Queen's Bench Division of London in connection with alleged defects in pipe manufactured by Dalmine for use in constructing a submarine gas pipeline. BHP has alleged inconsistencies between the results of internal chemical tests performed by Dalmine on the pipe and the II-11 results shown in the quality certificates issued to BHP by Dalmine. In May 2002, the trial court issued a judgment in favor of BHP, holding that the products supplied by Dalmine were the cause for the failure of the gas pipeline and that Dalmine was liable for damages to BHP. The court's judgment was limited to the issue of liability, and the amount of damages to be awarded to BHP will be determined in a separate proceeding. Dalmine's petition to the trial court for leave to appeal its judgment was denied, but on August 5, 2002, the Court of Appeals granted Dalmine leave to appeal the trial court's judgment. The appeal will be heard and the Court of Appeals' judgment is expected to be issued in 2003. BHP has indicated in court proceedings that it will seek damages of approximately 35 million British pounds to cover the cost of replacing the pipeline. In addition, although neither party has yet presented evidence with respect to these damages, BHP has indicated that it will also seek damages of approximately 39 million British pounds to cover investigation and related costs and approximately 140 million British pounds to cover the cost of deferred revenues assessed by reference to the prevailing oil price at the day of judgment. Subsequent to the court's recent judgment in favor of BHP on the issue of liability, BHP has petitioned the court for an interim judgment of damages in the amount of approximately 37 million British pounds to cover the cost of replacing the pipeline. On July 31, 2002, Dalmine agreed to pay BHP15 million British pounds (approximately E23 million) in interim damages. The court is expected to hear arguments regarding, and issue its final judgment on, total damages in 2003. Dalmine has created a provision in the amount of E45 million in its results for 2001 to account for probable losses as a result of BHP's lawsuit, which had a substantial adverse effect on its earnings for the year. The amount of this provision relates mostly to BHP's claim for direct damages of approximately 35 million British pounds incurred to replace the damaged pipeline. As the proceedings for the determination of damages have not yet been substantially completed, Dalmine is not currently in a position to make an estimate of the possible loss or range of loss, if any, in excess of the amount currently accrued in its financial statements as of June 30, 2002. The pipe that is the subject of this lawsuit was manufactured and sold, and the tort alleged by BHP took place, prior to the privatization of Dalmine, and Techint Investments Netherlands B.V. (the Siderca subsidiary party to the contract pursuant to which Dalmine was privatized) believes that, under the Dalmine privatization contract, Techint Investments should be entitled to recover from Fintecna S.p.A., an Italian state-owned corporation whose indirect predecessor formerly owned Dalmine, on behalf of Dalmine (as a third party beneficiary under the Dalmine privatization contract), 84.08% of any damages it may be required to pay BHP. Techint Investments has commenced arbitration proceedings against Fintecna to compel it to indemnify Dalmine for any amounts Dalmine may be required to pay BHP. Fintecna has denied that it has any contractual obligation to indemnify Dalmine, asserting that the indemnification claim is time-barred under the terms of the privatization contract and, in any event, subject to a cap of E13 million. Techint Investments disputes this assertion. The arbitration proceedings were suspended at a preliminary stage pending a decision by the British trial court in BHP's lawsuit against Dalmine. If Dalmine were required to pay damages to BHP substantially in excess of its provision of E45 million (including consequential damages or deferred revenues), and those damages were not reimbursed to Dalmine by Fintecna, Dalmine's (and, consequently, Tenaris's) results of operations, financial condition and net worth would be further materially and adversely affected. RISKS RELATING TO ARGENTINA AND MEXICO Holders of Siderca shares and ADSs are currently exposed to country-specific risks relating to developments in Argentina and Mexico, while holders of Tamsa shares and ADSs are currently II-12 exposed to country-specific risks relating to developments in Mexico but not in Argentina, and holders of Dalmine shares are not currently exposed to country-specific risks relating to developments in either Argentina or Mexico. If the exchange offer is completed, holders of our shares and ADSs will be exposed to all these risks. NEGATIVE ECONOMIC, POLITICAL AND REGULATORY DEVELOPMENTS IN ARGENTINA MAY HURT SIDERCA'S FINANCIAL CONDITION, REVENUES AND SALES VOLUME AND DISRUPT ITS MANUFACTURING OPERATIONS, THEREBY ADVERSELY AFFECTING TENARIS'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION. Many of Siderca's manufacturing operations and assets are located in Argentina, and approximately one third of Siderca's sales have historically been made in Argentina. Siderca's business may be materially and adversely affected by economic, political and regulatory developments in Argentina. The discussion of recent developments in Argentina that follows was mainly derived from information filed by the Argentine government with the SEC and statements of Argentine public officials. Additional information about these risks is available in Siderca's report on Form 20-F for the transition period ended on December 31, 2001, which is incorporated by reference into this prospectus. - - Economic and political situation. After decades of major volatility, with periods of low or negative economic growth, inflation reaching three and even four digit levels and repeated devaluations of the Argentine currency, in 1991 the Argentine government launched a plan aimed at controlling inflation and restructuring the economy, whose centerpiece was the "Convertibility Law." The Convertibility Law fixed the exchange rate at one Argentine peso per U.S. dollar and required that the Argentine Central Bank maintain reserves in gold and foreign currency at least equivalent to the monetary base. As a result, inflation declined steadily and the economy experienced growth through most of the period from 1991 to 1997. Nevertheless, starting in the fourth quarter of 1998, the Argentine economy entered into a recession which led to a cumulative drop in the gross domestic product in excess of 8% and a deterioration of other variables such as GDP per capita, unemployment rate and tax collections by the end of 2001. In the second half of 2001, this sustained deterioration culminated in severe social, monetary and financial turmoil and the resignation of President de la Rua on December 21, 2001. After three interim presidents in rapid succession, Senator Eduardo Duhalde, a member of the opposition Peronist party, was elected by the Legislative Assembly and assumed the presidency on January 2, 2002. The Duhalde administration quickly adopted a series of emergency measures, including: - ratifying the suspension of payments on a significant portion of Argentina's sovereign external debt declared on December 23, 2001; - ending the Convertibility Law and establishing a framework for the resulting devaluation of the Argentine peso; - converting U.S. dollar-denominated debts and bank deposits into Argentine peso-denominated debts and bank deposits at exchange rates of ARP1.00 or ARP1.40 per U.S. dollar depending on the financial instrument; - restructuring bank deposits and continuing or expanding restrictions on bank withdrawals (including a freeze on withdrawals from U.S. dollar accounts) and transfers abroad; - introducing legislation requiring U.S. dollar revenues from export sales of Argentine products to be repatriated and exchanged for Argentine pesos at a free-floating exchange rate; - enacting an amendment to the Argentine Central Bank's charter to allow it to print currency in excess of the amount of foreign reserves it holds, make short-term advances to the federal II-13 government and provide financial assistance to financial institutions with liquidity constraints or solvency problems; and - imposing a 5% tax on exports of manufactured goods and a 20% tax on oil exports (the tax on oil exports has recently been reduced to 5% and gasoline is no longer taxed). On July 2, 2002, the Duhalde administration announced it would bring forward by six months, to March 2003, the date of Argentina's next general election. As a result, Argentina is expected to have a new president beginning in May 2003. The recent political and economic instability has significantly curtailed commercial and financial activities in Argentina and blocked the country's access to international financing. This recessionary environment has been further complicated by the reluctance of the International Monetary Fund, or the IMF, and other lenders to provide any significant financial aid until a sustainable economic program has been presented. In addition, the degree of internal support for the new Argentine government currently seems uncertain. These factors have also affected the ability of the Argentine government to implement the reforms to restore stability, economic growth and public confidence. Among other factors, this uncertainty and Argentina's past experiences prior to the Convertibility Plan of 1991 have resulted in a general loss of public confidence which has led to a devaluation of the Argentine peso, resurgent inflation (the WPI increased by 121.3% in the first nine months of 2002) and a weakening of the Argentine financial system due to the massive deposits withdrawal (partially contained by the imposition of the restrictions on bank withdrawals). - - Siderca's business environment. The current crisis and the Argentine government's response to it have affected the country's economy and, by extension, Siderca's business and operations. For example, Siderca exports a very large percentage of its products and accepts payment in U.S. dollars. Until current emergency measures are removed or revised, Siderca is required to repatriate any U.S. dollars collected in connection with these exports (including U.S. dollars obtained through advance payment and pre-financing facilities) into Argentina and convert them into Argentine pesos at the market-based floating exchange rate applicable on the conversion date. This requirement subjects Siderca to exchange rate fluctuations and generates additional transactional costs. Also, under current emergency measures, the Argentine Central Bank is requiring up to 360 days to approve payments abroad for some products imported into Argentina. While Siderca has attempted to mitigate any potential impact of this requirement by establishing a trust fund outside Argentina to pay for imported products, the Argentine government may take steps in the future to prohibit or severely reduce the effectiveness of this mechanism. Siderca has also experienced reduced domestic sales in the last quarter of 2001 and the first six months of 2002 (which it expects to continue in the foreseeable future) fueled by the economic slowdown and the export tariffs imposed on the oil sector, which have impacted its local customers' investment programs. Furthermore, the 5% tax on Siderca's exports and any additional taxes or surcharges on Siderca's products the Argentine government may choose to impose in the future, represent an additional burden on Siderca's results of operation. - - Government control of the economy. The Argentine government has historically exercised significant influence over the economy. Due to the current Argentine crisis, since December 2001, the Argentine government has promulgated numerous far-reaching and sometimes ambiguous laws and regulations affecting the economy. We cannot assure you that laws and regulations currently governing the economy will not continue to change in the future, particularly in light of the continuing economic crisis, or that any changes will not adversely affect Siderca's business, financial condition or results of operations. II-14 Due to the current social and political crisis, investing in companies with Argentine operations entails risks of loss resulting from: - - nation-wide protests, road blockades, rioting, widespread social unrest and strikes; - - potential interruptions in the supply of electricity, gas or other utilities; - - expropriation, nationalization and forced renegotiation or modification of existing contracts; - - restrictions on repatriation of investments and transfer of funds (including dividend payments) abroad; - - exchange and price controls; - - taxation policies, including royalty and tax increases; and - - changes in Argentine laws and policies affecting foreign trade, taxation and investment. Several of the recent steps taken by the Argentine government as described above may have had and could continue to have an adverse effect on the ability of Siderca to make payment of dividends or other amounts to its equity holders. Pursuant to recent decrees and implementing regulations of the Argentine Central Bank, Argentine individuals and companies, including Siderca, are subject to restrictions on the making of certain transfers of funds abroad and to the prior approval of the Argentine Central Bank. Accordingly, unless the restriction on transfers of U.S. dollars outside Argentina is removed or revised, Siderca is unlikely to be able to transfer funds in U.S. dollars outside Argentina for the purpose of making payments of dividends or other amounts. Holders of Siderca ADSs have already been adversely affected by these risks. On December 4, 2001, Siderca distributed a dividend consisting of cash and shares of Siderar S.A.I.C. Instead of distributing the unregistered Siderar shares directly to holders of the ADSs, the depositary, pursuant to the Siderca ADR deposit agreement, chose to liquidate the Siderar shares in the Argentine market and deliver the cash proceeds to holders of Siderca ADSs. Due to the Argentine government's emergency measures, however, the depositary has not yet been able to transfer out of Argentina either the ADS holders' cash payments or the proceeds from the sale of the Siderar shares. The depositary has made application to the Argentine Central Bank to permit those funds to be transferred outside Argentina but has not yet received authorization to do so. The Argentine Central Bank has not yet responded to the depositary's application, which is required under the Argentine government's emergency measures in order to make certain transfers of U.S. dollars out of Argentina. Neither Siderca nor the depositary can provide any estimates as to when, if ever, the Argentine Central Bank will respond to the depositary's application. Until such time, if ever, that the Argentine Central Bank approves the depositary's application, holders of Siderca's ADSs will be unable to receive any of the cash proceeds relating to Siderca's December 4, 2001 dividend. NEGATIVE ECONOMIC, POLITICAL AND REGULATORY DEVELOPMENTS IN MEXICO MAY HURT TAMSA'S DOMESTIC SALES VOLUME AND DISRUPT ITS MANUFACTURING PROCESS, THEREBY ADVERSELY AFFECTING TENARIS'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION. Most of Tamsa's manufacturing operations and assets are located in Mexico and a substantial portion of its sales are made in Mexico. Tamsa's business may be affected by economic, political and regulatory developments in Mexico. The discussion of recent developments in Mexico that follows was mainly derived from information recently filed by the Mexican government and Pemex with the SEC. - - Economic situation. Beginning in December 1994, and continuing through 1995, Mexico experienced an economic crisis characterized by exchange rate instability, a devaluation of the Mexican peso, II-15 high inflation, high domestic interest rates, economic contraction, a reduction of international capital flows, reduced consumer purchasing power and high unemployment. In response to the economic crisis, the Mexican government implemented broad economic reform programs which improved economic conditions in 1996 and 1997. However, a combination of factors led to a reduction of Mexico's economic growth in 1998, including the economic crises in Asia, Russia, Brazil and other emerging markets that began in late 1997. In 1999, GDP grew by 3.6% and in 2000, by 6.6%. The Mexican government estimates that GDP decreased by 0.3% in 2001. During 2001, the Mexican economy experienced a slowdown, which was mainly due to a decline in global and domestic consumption. The Mexican government currently estimates that GDP will grow by 1.6% in real terms in 2002. A deterioration in Mexico's economic conditions may adversely affect Tamsa's business, results of operations, financial condition, liquidity or prospects. - - Impact of significant inflation and interest rates. In recent years, Mexico has experienced high levels of inflation. The annual rate of inflation, as measured by changes in the Mexican consumer price index, was 12.3% for 1999, 9.0% during 2000 and 4.4% in 2001. Banco de Mexico, or the Mexican Central Bank, currently estimates that the annual rate of inflation for 2002, as measured by changes in the Mexican consumer price index, will be 4.7%, which is above the official target established for the year of 4.5%. Interest rates on 28-day Mexican treasury bills, or Cetes, averaged 21.29% during 1999, 15.27% in 2000, 11.26% in 2001, and 6.93% for the first six months of 2002. If inflation in Mexico is not maintained within the government's projections, the Mexican economy and, consequently, Tamsa's financial condition and results of operations may be adversely affected. - - Price controls. Seamless steel pipe products, like most products in Mexico, historically were subject to price controls imposed by the Mexican government. Although seamless steel pipe prices were officially decontrolled in September 1989, the Mexican government maintained other price restrictions until August 1990 as an inflation reduction measure. In 1995, as part of its response to the Mexican economic crisis, the Mexican government sought to minimize inflation by promoting the gradual implementation of domestic price increases. Currently, domestic steel pipe prices are not regulated; if any price control regulations were reimposed in the future, Tamsa's sales revenues may be adversely affected. - - Government control of the economy. The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Mexican government actions concerning the economy may have adverse effects on private sector entities in general and on Tamsa in particular. Further, the Mexican government exercises significant influence over Pemex and its budget for exploration, which largely determines the volume of Pemex's purchase of seamless steel pipe products from Tamsa. Economic plans of the Mexican government in the past have not, in many respects, fully achieved their objectives, and these and other economic plans of the Mexican government may not achieve their stated goals. Similarly, it is not possible to determine what effect those plans or their implementation will have on the Mexican economy or on Tamsa's financial condition or results of operations. - - Political events. Mexican political events may also affect Tamsa's financial condition and results of operations and the performance of securities issued by Mexican companies. The Mexican political environment is in a period of change. In July 2000, Vicente Fox, a member of the Partido Accion Nacional, or National Action Party or PAN, the oldest opposition party in the country, won the Presidential election. He took office on December 1, 2000, ending 71 years of rule by the Partido Revolucionario Institucional, or Institutional Revolutionary Party or PRI. In addition, parties II-16 opposed to the PRI increased their representation in the Mexican Congress, and, as a result, the PRI lost its congressional majority. Currently, no party has a working majority in either house of the Mexican Congress, which has made governability and the passage of legislation more difficult. The next major federal election will be held in July 2003, when all seats in the Chamber of Deputies will be at stake. The Senate will maintain its current composition until 2006. If neither the PAN (which currently holds 206 of the 500 seats), nor the PRI (which currently holds 211 of the 500 seats) gains a working majority in the Chamber of Deputies, problems of gridlock will persist in both houses of the Mexican Congress. RISKS RELATING TO OUR SHARES AND ADSS THERE HAS BEEN NO PUBLIC MARKET FOR OUR SHARES AND ADSS. Our shares and ADSs will be a new issue of securities, with no established trading market or history. We cannot give you any assurance that our shares and ADSs will enjoy liquidity similar to or greater than the Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares we are seeking to acquire pursuant to the exchange offer and we cannot predict at what prices our shares and ADSs will trade. In particular, we cannot assure you that you will be able to resell our shares or ADSs at or above the trading price of your Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares at the time you tendered them pursuant to the exchange offer. We cannot assure you that our market capitalization will not be less than the combined aggregate market capitalization of Siderca, Tamsa and Dalmine. THE TRADING PRICE OF OUR SHARES AND ADSS MAY SUFFER AS A RESULT OF LOWER LIQUIDITY IN THE ARGENTINE AND MEXICAN EQUITY MARKETS. We have been approved, subject to the satisfaction of certain requirements, to list our shares on several exchanges after the exchange offer, including the Buenos Aires Stock Exchange and the Mexican Stock Exchange, and the liquidity of our ADSs on the NYSE will be determined in part by the liquidity of our shares on the Buenos Aires Stock Exchange and the Mexican Stock Exchange. The Argentine and Mexican equity markets are less liquid than that of the United States and other major world markets. Prices in publicly-traded Argentine equity securities have been more volatile than in many other markets, despite an increase in total capitalization from USD44.7 billion as of December 31, 1996, to USD165.8 billion as of December 31, 2000, to USD192.5 billion as of December 31, 2001, and USD104.8 billion as of June 28, 2002. The average volume of shares traded daily on the Buenos Aires Stock Exchange decreased from USD125.3 million in 1996 to USD37.0 million in 1999, and further decreased to USD24.1 million in 2000, USD17.4 million in 2001 and USD7.4 million in the first six months of 2002, due to the decrease in capital inflows in 1999, 2000, 2001 and the first six months of 2002. Prices in publicly-traded Mexico equity securities have been more volatile than in many other markets, despite an increase in total capitalization from USD106.8 billion as of December 31, 1996, to USD126.6 billion as of December 31, 2001, and USD114.4 billion as of June 28, 2002. The average daily trading volume of shares included in the principal equity index on the Mexican Stock Exchange decreased from USD144.6 million in 1996 to USD137.8 million in 1999, increased to USD165.1 million in 2000 and decreased to USD150.9 million in 2001 and USD100.6 million in the first six months of 2002, due to the fluctuation in capital inflows in 1999, 2000, 2001 and the first six months of 2002. II-17 THE TRADING PRICE OF OUR SHARES AND ADSS MAY SUFFER AS A RESULT OF DEVELOPMENTS IN EMERGING MARKETS. Although we are organized as a Luxembourg corporation, a substantial portion of our assets and operations will be located in Latin America. Financial and securities markets for companies with a substantial portion of their assets and operations in Latin America are, to varying degrees, influenced by economic and market conditions in emerging market countries. Although economic conditions are different in each country, investor reaction to developments in one country can have significant effects on the securities of issuers with assets or operations in other emerging markets, including Argentina, Brazil, Venezuela and Mexico. In late October 1997, prices of Latin American debt securities and Latin American equity securities dropped substantially, precipitated by a sharp drop in value of Asian markets. Similarly, in the second half of 1998, prices of Latin American securities were adversely affected by the economic crises in Russia and in Brazil. IN DECIDING WHETHER TO PURCHASE, HOLD OR SELL OUR SHARES OR ADSS, YOU MAY NOT BE ABLE TO ACCESS AS MUCH INFORMATION ABOUT US AS YOU WOULD IN THE CASE OF A U.S. COMPANY. A principal objective of the securities laws of Luxembourg, like those of the United States, is to promote the full and fair disclosure of all material information. There may, however, be less publicly available information about Luxembourg issuers of securities than is regularly published by or about U.S. issuers. Further, Luxembourg regulations governing the securities of Luxembourg companies may not be as extensive as those in effect in the United States, and Luxembourg law and regulations in respect of corporate governance matters might not be as protective of minority shareholders as state corporations laws in the United States. HOLDERS OF OUR ADSS MAY ENCOUNTER DIFFICULTIES IN THE EXERCISE OF DIVIDEND AND VOTING RIGHTS. You may encounter difficulties in the exercise of some of your rights as a shareholder if you hold ADSs rather than ordinary shares. If we make a distribution in the form of securities and you have the right to acquire a portion of them, the depositary is allowed, in its discretion, to sell on your behalf that right to acquire those securities and instead distribute the net proceeds to you. Also, under some circumstances, such as our failure to provide the depositary with voting materials on a timely basis, you may not be able to vote by giving instructions to the depositary on how to vote for you. HOLDERS OF OUR ADSS IN THE UNITED STATES MAY NOT BE ABLE TO EXERCISE PREEMPTIVE RIGHTS IN CERTAIN CASES. Under our articles of association, we are generally required, in the event of a capital increase, to offer rights to our existing shareholders to subscribe for a number of shares sufficient to maintain the holders' existing proportionate holdings of shares of that class. We may, however, issue shares without preemptive rights, if the newly-issued shares are issued for consideration other than money, are issued as compensation to directors, officers, agents or employees of the Company, its subsidiaries or its affiliates, or are issued to satisfy conversion or option rights created to provide compensation to directors, officers, agents or employees of the Company, its subsidiaries or its affiliates. Furthermore, holders of our ADSs in the United States may, in any event, not be able to exercise any preemptive rights, if granted, for ordinary shares underlying their ADSs unless additional ordinary shares and ADSs are registered under the U.S. Securities Act of 1933, as amended, with respect to those rights or an exemption from registration is available. We intend to evaluate at the time of any rights offering the costs and potential liabilities associated with the exercise by holders of ADSs of the preemptive rights for ordinary shares underlying their ADSs and any other factors we consider appropriate at the time II-18 and then to make a decision as to whether to register additional ordinary shares and ADSs. We may decide not to register any additional ordinary shares or ADSs, requiring a sale by the depositary of the holders' rights and a distribution of the proceeds thereof. Should the depositary not be permitted or otherwise be unable to sell preemptive rights, the rights may be allowed to lapse with no consideration to be received by the holders of the ADSs. IT MAY BE DIFFICULT TO ENFORCE JUDGMENTS AGAINST US IN U.S. COURTS. We are a corporation organized under the laws of Luxembourg, and most of Tenaris's assets are located in Argentina, Mexico and Italy. Furthermore, most of our directors and officers and some experts named in this prospectus reside outside the United States. As a result, investors may not be able to effect service of process within the United States upon us or our directors or officers or some experts or to enforce against us or them in U.S. courts judgments predicated upon the civil liability provisions of U.S. federal securities law. There is doubt as to the enforceability in original actions in Luxembourg, Argentine, Mexican and Italian courts of civil liabilities predicated solely upon U.S. federal securities laws, and the enforceability in Luxembourg, Argentine, Mexican and Italian courts of judgments entered by U.S. courts predicated upon the civil liability provisions of U.S. federal securities law will be subject to compliance with procedural requirements under applicable local law, including the condition that the judgment does not violate the public policy of the applicable jurisdiction. II-19 PART THREE THE EXCHANGE OFFER REASONS FOR THE EXCHANGE OFFER The exchange offer is a key component of our strategy to reorganize Tenaris's investments in the steel pipe sector, further establish Tenaris as a global company, and better position it to capitalize on future growth opportunities. Through Tenaris's corporate reorganization and the exchange offer, we intend to consolidate Tenaris's operations in the steel pipe sector, currently carried out through Siderca, Tamsa, Dalmine and Tenaris Global Services, under a new publicly-traded holding company, creating a global, larger and more diversified company. We believe that implementing Tenaris's corporate reorganization and completing the exchange offer will generate a number of benefits and will create value for the shareholders of the Tenaris companies who elect to participate in the exchange offer. Among these anticipated benefits, we seek to: - - consolidate Tenaris's corporate identity as a global company; - - increase the visibility of its business by streamlining its corporate structure and its financial reporting; - - align the interests of all shareholders across the Tenaris companies; - - generate further operating and management synergies; and - - provide a more attractive investment opportunity in the steel pipe sector by creating a larger, more diversified global company. CONSOLIDATING A GLOBAL COMPANY The markets in which Tenaris operates have been experiencing increased consolidation and globalization, requiring steel pipe suppliers to develop global capabilities and a complete range of products and services to remain competitive. The Tenaris companies have already taken several actions to integrate their businesses and operate as a global company. These actions included the formation of a strategic alliance among Dalmine, Siderca and Tamsa and the unification of the Tenaris companies under the Tenaris brand in May 2001. Through these integration steps, the Tenaris companies have been able to offer a more complete range of products and services worldwide while enhancing their global marketing and distribution capabilities, reducing their procurement, marketing and research and development costs, and adding valuable technological capabilities. Although significant integration has already been achieved through their alliance, we believe further integration and the consolidation of the Tenaris companies in one single, larger and more visible corporate group will allow Tenaris to maximize its global brand leverage, enhance its global competitive position and better position it to capitalize on future growth and industry consolidation opportunities. STREAMLINING CORPORATE STRUCTURE AND FINANCIAL REPORTING Another important objective of Tenaris's corporate reorganization and the exchange offer is to simplify Tenaris's corporate structure by organizing all of its operations in the steel pipe sector as subsidiaries of one company. We expect this will contribute to a better understanding by investors of Tenaris's business, strategy and financial performance by allowing investors to follow Tenaris's business through the results of a single publicly-traded company. III-1 ALIGNING THE INTERESTS OF ALL SHAREHOLDERS We believe that Tenaris's corporate reorganization and, if successful, the exchange offer, will promote the alignment of interests of all shareholders across the Tenaris companies. Currently, the Tenaris companies have different shareholder groups with interests that may diverge because they hold different assets. We believe that consolidation of the interests of these different shareholder groups at a single corporate level will allow Tenaris to eliminate any perception of potential conflicts and, depending on the level of acceptance of the exchange offer, fully integrate its operations, maximizing operating synergies among the Tenaris companies and increasing Tenaris's ability to quickly respond to changes in the market environment by centralizing business decisions. In addition, the exchange offer will allow the public shareholders of the Tenaris companies to fully participate from the benefits of integrating Tenaris Global Services with the operations of the Tenaris companies. Tenaris Global Services is an essential part of Tenaris's strategy and a key competitive advantage as it provides the Tenaris companies with global reach to distribute their products and offer value-added services worldwide, as well as direct access to end users. See "Part Four--Information about Tenaris--Business--Sales and marketing--Tenaris Global Services." FURTHER OPERATING AND MANAGEMENT SYNERGIES We believe Tenaris has already realized important synergies through the integration of its operations; nevertheless, Tenaris's current corporate structure has prevented it from realizing further synergies. Tenaris's corporate reorganization and the exchange offer, by aligning shareholder interests, would allow greater sharing of management resources and better align the interests of the management personnel engaged in the same business at each of the Tenaris companies. If the exchange offer is successful, following the integration of Tenaris's operations and the alignment of interests of the different shareholder groups of the Tenaris companies, we will seek to generate additional synergies arising from: - - optimization of production plans and allocation of resources; - - better positioning at the time of negotiating long-term agreements with customers; - - additional overhead and administrative cost savings associated with the elimination of duplicative corporate functions; - - better rationalization of capital investments; and - - increased financial and tax planning flexibility. MORE ATTRACTIVE INVESTMENT OPPORTUNITY We believe that if the exchange offer is successful, Tenaris will be a more attractive investment vehicle than Siderca, Tamsa and Dalmine currently are as stand-alone entities, as it will be a larger, more diversified global company. By completing Tenaris's corporate reorganization through the exchange offer, we aim to: - - broaden the Tenaris companies' investor base; and - - enhance Tenaris's visibility and attract increased attention from the international investor community. We believe these steps will provide Tenaris with better access to the international capital markets, widening the range of available financing alternatives and establishing our shares as a valuable acquisition currency going forward. III-2 CHRONOLOGY OF THE DECISION-MAKING PROCESS FOR THE EXCHANGE OFFER From time to time, we and J.P. Morgan Securities Inc., or JPMorgan, have reviewed the strategic alternatives for achieving our business strategy of establishing Tenaris as the leading global supplier of high-quality tubular products and services, including alternatives involving further consolidation of the operations, marketing and management of the Tenaris companies. On June 4, 2002, Siderca, Tamsa and Dalmine published press releases stating that the Techint group was in the process of evaluating the convenience, timing and design of a reorganization of the group of companies forming the alliance known as Tenaris. On June 26, 2002, our shareholders approved an increase in our authorized capital stock to 2,500,000,000 shares, par value USD1.00 per share. On September 13, 2002, our board of directors authorized the exchange offer. On September 13, 2002, we announced that we would seek approvals to make the exchange offer and to list our securities. On September 18, 2002, we filed with the SEC the registration statement on Form F-4 of which this prospectus forms a part. On September 19, 2002, we filed an application with the Argentine Securities Commission to publicly offer our shares and we filed an application with the Buenos Aires Stock Exchange for the listing of our shares. On October 31, 2002, we filed an application with the Argentine Securities Commission for authorization of the exchange offer. On November 6, 2002, the Argentine Securities Commission approved the public offering of our shares in Argentina and the exchange offer. On November 7, 2002, the Buenos Aires Stock Exchange approved the listing of our shares, subject to the satisfaction of certain requirements. On September 19, 2002, we filed an application with the Mexican Banking and Securities Commission for registration of our shares and for authorization of the exchange offer, and we filed an application with the Mexican Stock Exchange for the same purposes. On October 31, 2002, the Mexican Stock Exchange approved the listing of our shares, subject to the satisfaction of certain requirements, and the exchange offer. On November 7, 2002, the Mexican Banking and Securities Commission granted approval of our application. On September 18, 2002, we filed an application to publish a prospectus with the Italian Securities Commission and an application to list our shares with the Milan Stock Exchange. On October 17, 2002, we filed an application for authorization of the exchange offer with respect to the Dalmine shares. As of the date of this prospectus, the Italian Securities Commission has not yet authorized the publication of the prospectus and the exchange offer with respect to the Dalmine shares in Italy and the Milan Stock Exchange has not yet approved the listing of our shares. We expect to obtain these approvals shortly; there can be no assurance, however, as to whether or when such approvals will be obtained. On October 30, 2002, we filed an application with the NYSE for listing of our ADSs. On November 4, 2002, the NYSE approved the listing of our ADSs, subject to the satisfaction of certain requirements. On November 8, 2002, the SEC declared the registration statement effective. III-3 HISTORY OF TENARIS AND BACKGROUND OF THE EXCHANGE OFFER San Faustin's predecessor entered into the steel pipe business for the first time in 1948 with the formation of Siderca in Argentina. Since that date, San Faustin's holdings in the steel pipe business have expanded significantly to also include controlling or substantial interests in Tamsa, Dalmine and a number of smaller steel pipe manufacturers, as well as a global network of companies, representative offices and other assets that provide sales and marketing services to Siderca, Tamsa and Dalmine. See "Part Four--Information about Tenaris--Business--History and corporate organization." Beginning in 1996, Siderca, Tamsa and Dalmine formed a strategic alliance, known as DST, in an effort to enhance the ability and competitiveness of each company in an increasingly global industry. Subsequently, Siderca acquired controlling interests in Confab, NKKTubes and AlgomaTubes, and Tamsa acquired a controlling interest in Tavsa. With this expanded network of steel pipe manufacturing facilities, Siderca, Tamsa and Dalmine extended the DST concept and unified their commercial strategy by launching, in May 2001, the Tenaris brand. This exchange offer and related corporate reorganization are further steps in realizing our goal of creating the leading global steel pipe company. On October 18, 2002, the equity holdings in the steel pipe manufacturing and distribution companies controlled by San Faustin were contributed to the Company, a recently incorporated holding company wholly-owned by San Faustin. See "Part Four-- Information about Tenaris--Related Party Transactions--Corporate reorganization transactions." The exchange offer, if successful, will significantly advance us in our goal of creating the leading global steel pipe company by concentrating all shareholdings in the Tenaris companies at the holding company level and substantially reducing the level of minority shareholdings at the operating company level. See "--Reasons for the exchange offer". PLANS OR PROPOSALS Except as stated in this prospectus, we presently do not have any plans or proposals with respect to Siderca, Tamsa or Dalmine which relate to or would result in: - - an extraordinary corporate transaction such as a merger, reorganization or liquidation; - - a sale or transfer of a material amount of assets; - - any change in the board of directors or management; - - any material change in the capitalization or dividend policy; or - - any other material change in the corporate structure or business. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this prospectus and the related letters of transmittal, we are offering to exchange: - - one newly issued share of the Company, par value USD1.00 per share, for every 1.0933 Siderca Class A ordinary shares, nominal value ARP1.00 per share, tendered by you; - - one newly issued ADS of the Company (representing 10 of the Company's ordinary shares) for every 1.0933 Siderca ADSs tendered by you; - - one newly issued share of the Company, par value USD1.00 per share, for every 0.9452 Tamsa common shares, no par value, tendered by you; III-4 - - one newly issued ADS of the Company (representing 10 of the Company's ordinary shares) for every 1.8904 Tamsa ADSs tendered by you; and - - one newly issued share of the Company, par value USD1.00 per share, for every 12.0267 Dalmine ordinary shares, nominal value E0.16 per share, tendered by you. The primary factors considered in connection with the determination of these exchange ratios were: - - the average of the daily relative valuations among Siderca, Tamsa and Dalmine over the 180-day period immediately prior to September 13, 2002, the business day on which we announced the exchange offer, which were calculated by comparing the total market capitalization of each of Siderca, Tamsa and Dalmine, based on the closing prices of Siderca's ADSs on the NYSE, Tamsa's ADSs on the AMEX and Dalmine's shares on the Milan Stock Exchange on each trading date in the period; and - - the value (approximately USD70 million) attributed to our holdings in other companies as of the date of this prospectus, which include 100% of Tenaris Global Services, 27% of Metalmecanica and 52% of Metalcentro. If all of the shares and ADSs of Siderca and Tamsa and shares of Dalmine held by the public are tendered pursuant to the exchange offer, the Company will have a total of approximately 1,200,000,000 ordinary shares (in the form of shares or ADSs) issued and outstanding. If fewer than all of those shares and ADSs are tendered, the number of shares to be issued by the Company in connection with the exchange offer will be adjusted accordingly. Only the valid tender without subsequent withdrawal of your Siderca, Tamsa or Dalmine securities, in each case in accordance with the procedures set forth below, will entitle you to receive our shares or ADSs. FRACTIONAL SHARES AND ADSS We will not issue fractional shares or ADSs to holders of Siderca shares and ADSs, Tamsa shares and ADSs or Dalmine shares in connection with the exchange offer. Instead, fractional shares and ADSs will be aggregated and the resulting new shares and ADSs will be sold in the open market with the net proceeds of such sale paid to the holders of Siderca shares and ADSs, Tamsa shares and ADSs or Dalmine shares in an amount equal to the equivalent, in the applicable currency, of the holder's proportionate interest in the aggregated fractional entitlement. You will receive the amount you are entitled to as soon as practicable after settlement of the exchange offer. CONDITIONS TO COMPLETION OF THE EXCHANGE OFFER We will not be required to accept for exchange or exchange any tendered Siderca or Tamsa shares or ADSs or Dalmine shares and may terminate the offer with respect to these securities, if, at the expiration date of the exchange offer, 8.83% or less of Siderca's outstanding shares (in the form of shares or ADSs) have been validly tendered and not withdrawn or 28.16% or less of Tamsa's outstanding shares (in the form of shares or ADSs) have been validly tendered and not withdrawn. We will not be required to accept for exchange or exchange any tendered Dalmine shares and may terminate the exchange offer with respect to these securities, if, at the expiration date of the exchange offer, 42.78% or less of Dalmine's outstanding shares have been validly tendered and not withdrawn. We will not be required to accept for exchange or exchange any tendered Siderca or Tamsa shares or ADSs and may terminate the exchange offer with respect to any of these securities if at any time prior to the expiration date of the exchange offer or, in the case of conditions dependent upon the receipt III-5 and maintenance in full effect of a required regulatory approval, at any time prior to the date of the actual exchange, any of the following conditions exists: - - any provision of applicable law or regulation or any judgment, injunction or decree prohibits the consummation of the exchange offer in whole or in part; - - any material required approval, including any required regulatory license and any definitive listing approval, has not been obtained or has been withdrawn or rescinded, or any required approval has not remained in full force and effect or any governmental authority has: - imposed, in connection with granting any required approval, any condition, which, when taken together with all other conditions imposed by governmental authorities in connection with the required approvals, would reasonably be expected to have, individually or in the aggregate, a material adverse effect on Tenaris's operations (including Siderca, Tamsa, Dalmine and their respective subsidiaries) after the exchange date; or - required the taking of any action after the settlement date which itself requires prior approvals or actions by a governmental authority if that action or approval could not be taken or obtained and the failure to take those actions or obtain those approvals would reasonably be expected, individually or in the aggregate, to have a material adverse effect on Tenaris's operations (including the operations of Siderca, Tamsa, Dalmine and their respective subsidiaries); or - - since the date of this prospectus any event, occurrence, development or state of circumstances or facts has occurred that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on Tenaris or any of Siderca, Tamsa or Dalmine; which, in our reasonable judgment, makes it inadvisable to proceed with such acceptance for exchange or exchange. We will not be required to accept for exchange or exchange any tendered Dalmine shares and may terminate the exchange offer with respect to these securities if, at any time prior to the date of the actual exchange, any of the following conditions exists: - - any provision of applicable law or regulation or any judgment, injunction or decree prohibits the consummation of the exchange offer with respect to Dalmine; or - - the definitive listing approval of the Milan Stock Exchange has not been obtained or has been withdrawn or rescinded. The consummation of the exchange offer with respect to Siderca shares and ADSs is conditioned on the consummation of the exchange offer with respect to Tamsa shares and ADSs and the consummation of the exchange offer with respect to Tamsa shares and ADSs is conditioned on the consummation of the exchange offer with respect to Siderca shares and ADSs. The consummation of the exchange offer with respect to Dalmine shares is conditioned on the consummation of the exchange offer with respect to both Siderca shares and ADSs and Tamsa shares and ADSs, but the consummation of the exchange offer with respect to Siderca shares and ADSs and Tamsa shares and ADSs is not conditioned on the consummation of the exchange offer with respect to Dalmine shares. Upon the occurrence of any of these conditions, we expressly reserve the right to terminate the exchange offer in whole or in part, not accept for exchange any tendered Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares and not issue any shares or ADSs of the Company. If we terminate the exchange offer in whole or in part and do not accept any Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares for exchange, we will give notice to the applicable exchange agents and make a timely public announcement to that effect. III-6 We may waive any of these conditions, in whole or in part, in our discretion, except that we will not waive the condition to completion of the exchange offer with respect to Dalmine that more than 42.78% of Dalmine's outstanding shares are tendered and not withdrawn and we will not accept for exchange or exchange any Dalmine shares tendered unless more than 2.78% of Dalmine's outstanding shares are tendered and not validly withdrawn at the expiration date of the exchange offer. Any determination we make concerning an event, development or circumstance described above will be final and binding on all parties to the offer. Our failure at any time to exercise any of these rights will not be deemed a waiver of such right. EXPIRATION DATE The exchange offer with respect to Siderca and Tamsa will expire at 5:00 p.m., New York City time (or 7:00 p.m., Buenos Aires time, and 4:00 p.m., Mexico City time), and the exchange offer with respect to Dalmine will expire at 10:40 a.m., New York City time (or 4:40 p.m., Milan time), on December 13, 2002, unless we choose to extend the offer, as permitted by applicable law and subject to applicable regulatory approvals. If we decide to extend the period of the exchange offer, subject to applicable law, then the expiration date means the latest time and date on which the exchange offer expires. EXTENSION, TERMINATION AND AMENDMENT We may extend the exchange offer with notice to each of the U.S. exchange agent, the Argentine exchange agent, the Mexican exchange agent and the Italian exchange agent at any time or from time to time, subject to applicable law, on or prior to the date then fixed for the expiration of the exchange offer. We will publicly announce any extension of the exchange offer in a timely manner but, unless otherwise required by applicable law or regulation, we will not have any obligation to communicate that public announcement other than by making a release to the Dow Jones News Service and to a similar press service in Argentina, Mexico and Italy and, where required by applicable law, by publishing an announcement in a newspaper of widespread circulation. During any extension of the exchange offer, all Siderca and Tamsa shares and ADSs and Dalmine shares previously tendered will remain tendered subject to the exchange offer and may continue to be withdrawn. We reserve the right to terminate the exchange offer under certain conditions described above. If we modify the terms of the exchange offer, in accordance with applicable law, we will make those modified terms available to you, whether or not your Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares have been tendered prior to that modification. We will disclose any material modifications in accordance with the applicable rules of the SEC and Luxembourg, Argentine, Mexican and Italian regulatory authorities. We will extend the exchange offer in accordance with the applicable rules of the SEC, which generally require us to maintain the exchange offer open for at least five business days from the date any material modification is disclosed. In addition, we will extend the exchange offer if required by the applicable rules of the Luxembourg, Argentine, Mexican or Italian regulatory authorities or if, in our opinion, an extension is necessary to permit you to have adequate time to consider that modification. SUBSEQUENT OFFERING PERIOD We may elect to provide an optional subsequent offering period in all jurisdictions where we are making the exchange offer. An optional subsequent offering period, where allowed by applicable law, is different than an extension of the expiration date. Siderca and Tamsa shares and ADSs and Dalmine shares validly tendered and not withdrawn on or prior to the expiration date for the initial offering III-7 period may not be withdrawn during any optional subsequent offering period, as we will accept and exchange those shares and ADSs for our shares and ADSs promptly after the expiration date of the initial offering period in accordance with the terms of the exchange offer. Also, Siderca and Tamsa shares and ADSs and Dalmine shares validly tendered during any optional subsequent offering period may not be withdrawn, as we will accept and exchange those shares and ADSs for our shares and ADSs as they are tendered. We are required to provide during any optional subsequent offering period the same consideration being offered during the initial offering period. We have not at this time made a final decision whether to provide an optional subsequent offering period. That decision will be made in our sole discretion, and there is no assurance that we will or will not provide such an optional subsequent offering period. In the event we elect or are required to include a subsequent offering period, we will notify holders of Siderca and Tamsa shares and ADSs and Dalmine shares in a manner consistent with applicable law and regulations and in any event no later than 9:00 a.m., New York City time (or 11:00 a.m., Buenos Aires time and 8:00 a.m., Mexico City time), in the case of a subsequent offering period for the exchange offer with respect to Siderca and Tamsa, and no later than 9:00 a.m., Milan time, in the case of a subsequent offering period for the exchange offer with respect to Dalmine on the next business day after the scheduled expiration date for the initial offering period, and we will immediately begin the subsequent offering period. To the extent permitted under applicable law and regulations, we may extend any initial subsequent offering period by any period or periods. We will publicly announce any extension, termination or amendment of an optional subsequent offering period for the exchange offer with respect to Siderca and Tamsa no later than 5:00 p.m., New York City time (7:00 p.m., Buenos Aires time, and 4:00 p.m., Mexico City time) and we will publicly announce any extension, termination or amendment of an optional subsequent offering period for the exchange offer with respect to Dalmine no later than 10:40 a.m., New York City time (4:40 p.m., Milan time), in all cases on the business day immediately preceding the previously scheduled expiration date. We will publicly announce any subsequent offering period and any extension, termination or amendment thereof in a timely manner but, unless otherwise required by applicable law or regulation, we will not have any obligation to communicate that public announcement other than by making a release to the Dow Jones News Service and to a similar press service in Argentina, Mexico and Italy and, where required by applicable law, by publishing an announcement in a newspaper of widespread circulation. ACCOUNTING TREATMENT Under IAS, the purchase method applies to this transaction. Under this method, the value paid by us in excess of the fair value of the net assets acquired is treated as goodwill and amortized over a period generally not exceeding 20 years and periodically reviewed and amortized under the impairment method. Under U.S. GAAP, as from January 1, 2002, goodwill will not be amortized but will be subject to periodic tests for impairment. PROCEDURES FOR TENDERING SHARES AND ADSS The procedures for tendering your securities will depend on whether you are tendering ADSs or shares and, in the case of shares, whether you are tendering Siderca, Tamsa or Dalmine shares. III-8 SIDERCA ADSS AND TAMSA ADSS If you wish to tender Siderca ADSs or Tamsa ADSs, you must deliver or cause to be delivered to the U.S. exchange agent (whose address appears on the back cover of this prospectus) for receipt on or prior to the expiration date: - - a properly completed and duly executed ADS letter of transmittal (or a copy thereof) with respect to your Siderca ADSs or Tamsa ADSs being tendered, together with any required signature guarantees, or an agent's message (as described below) in connection with a book-entry delivery of ADSs, and any other required documents; and - - the ADRs evidencing the Siderca ADSs or Tamsa ADSs being tendered by mail or pursuant to the procedures for book-entry transfer set forth below (together with a confirmation of receipt of such ADRs). By delivering to the U.S. exchange agent an ADS letter of transmittal with respect to your Siderca ADSs or Tamsa ADSs being tendered, the ADRs evidencing the Siderca ADSs or Tamsa ADSs being tendered and other required documents, you will be deemed to accept (without any further action by the U.S. exchange agent) the exchange offer with respect to your tendered Siderca ADSs or Tamsa ADSs subject to the terms and conditions set forth in this prospectus and the ADS letter of transmittal. Your acceptance of the exchange offer, subject to your withdrawal rights described below, will constitute a binding agreement between you and us. If you tender your Siderca ADSs or Tamsa ADSs pursuant to the exchange offer, you may not also tender the Siderca ordinary shares or Tamsa common shares, as the case may be, underlying those Siderca ADSs or Tamsa ADSs. If your Siderca ADSs or Tamsa ADSs are held through the book-entry transfer facility (as described below), they must be tendered by means of delivery of an ADS letter of transmittal by agent's message and of the ADSs pursuant to the procedures for book-entry transfer to an account opened and maintained for such purpose by the U.S. exchange agent within The Depository Trust & Clearing Corporation, or DTCC. BOOK-ENTRY TRANSFER The U.S. exchange agent will establish an account at DTCC for purposes of the exchange offer promptly after the commencement of the exchange offer. Siderca ADSs and Tamsa ADSs held in book-entry form must be delivered through DTCC. Any financial institution that is a participant in DTCC may make book-entry delivery of Siderca ADSs or Tamsa ADSs by causing DTCC to transmit an agent's message and to transfer such ADSs into the U.S. exchange agent's account at DTCC in accordance with DTCC's procedure for such transfer. The term "agent's message" means a message transmitted by DTCC to, and received by, the U.S. exchange agent that states that the appropriate participant in DTCC has delivered an express acknowledgment that such participant has received and agrees to be bound by the terms of the ADS letter of transmittal. Delivery of documents to DTCC in accordance with DTCC's procedures does not constitute delivery to the U.S. exchange agent. As a tendering holder of Siderca ADSs or Tamsa ADSs, you will elect the method and assume the risks of delivering or causing the delivery of the ADS letter of transmittal, the ADSs (and the ADRs evidencing them) and all other required documents. Your Siderca ADSs or Tamsa ADSs will not be deemed as having been delivered until the U.S. exchange agent actually receives them. If delivery is by mail, registered mail with return receipt requested and proper insurance is recommended. You should make delivery as soon as possible after deciding to tender your Siderca ADSs or Tamsa ADSs in the exchange offer, but in no event later than 5:00 p.m., New York City time (or 7:00 p.m., Buenos Aires time and 4:00 p.m., Mexico City time) or, if the exchange offer is extended, by the date and time specified in the notice of extension. III-9 SIGNATURE GUARANTEES No signature guarantee is required on the ADS letter of transmittal if: - - the registered holder of the Siderca ADSs or Tamsa ADSs being tendered pursuant to that ADS letter of transmittal signs it and the registered holder has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Issuance Instructions" in the ADS letter of transmittal; or - - the Siderca ADSs or Tamsa ADSs being tendered pursuant to that ADS letter of transmittal are tendered for the account of a financial institution, including most banks, savings and loan associations and brokerage houses which is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Program or the Stock Exchange Medallion Program, each an eligible institution. In all other cases, all signatures on ADS letters of transmittal must be guaranteed by an eligible institution in accordance with the instructions provided in the ADS letter of transmittal. If the Siderca ADSs or Tamsa ADSs are registered in the name of a person other than the signer of the ADS letter of transmittal, then the ADRs evidencing those Siderca ADSs or Tamsa ADSs being tendered must be endorsed or accompanied by appropriate stock powers, signed exactly as the name or names of the registered owner or owners appear on those ADRs, with the signatures on those ADRs or stock powers guaranteed as described above and in accordance with the instructions provided in the ADS letter of transmittal. PARTIAL TENDERS If you wish to tender fewer than all of the Siderca ADSs or Tamsa ADSs evidenced by any ADRs delivered to the U.S. exchange agent, you must indicate this in the ADS letter of transmittal by completing the box entitled "Number of ADSs Tendered". In the case of a partial tender, a new ADR for the remainder of the ADSs represented by the old ADR will be sent to the person who signed the applicable ADS letter of transmittal (or delivered as that person properly indicates) as promptly as practicable after the tendered Siderca ADSs and Tamsa ADSs are accepted for exchange pursuant to the exchange offer. All Siderca ADSs or Tamsa ADSs evidenced by ADRs delivered to the U.S. exchange agent will be deemed to have been tendered unless otherwise indicated. In the case of partial tenders, Siderca ADSs or Tamsa ADSs not tendered will not be reissued to a person other than the registered holder. Notwithstanding any other provision hereof, we will issue our ADSs to you in exchange for your Siderca ADSs or Tamsa ADSs accepted pursuant to the exchange offer only after the U.S. exchange agent received within the allotted time: - - the ADRs evidencing those ADSs (or, in the case of ADSs held in book-entry form, timely confirmation of a book-entry transfer of those ADSs into the U.S. exchange agent's account at DTCC pursuant to the procedures set forth above); - - a properly completed and duly executed ADS letter of transmittal with any required signature guarantees (or, in the case of a book-entry transfer, an agent's message); and - - any other required documents. If you have any doubts about the procedure for tendering your Siderca ADSs or your Tamsa ADSs, or if you have any questions or require assistance please contact the information agent or the U.S. exchange agent at their respective telephone numbers set forth on the back cover of this prospectus. III-10 SIDERCA SHARES If you wish to tender Siderca shares held in the Caja de Valores S.A., or the Caja de Valores, you must deliver or cause to be delivered to the Argentine exchange agent (whose address appears on the back cover of this prospectus) for receipt on or prior to the expiration date: - - a properly completed and duly executed Siderca form of acceptance with respect to your Siderca shares being tendered, setting forth the number of Siderca shares you wish to tender; and - - a certificado, or certificate, issued by the Caja de Valores evidencing the transfer of the Siderca shares being tendered to the account established at the Caja de Valores by the Argentine exchange agent for the purposes of the exchange offer. If you wish to tender Siderca shares directly held at Siderca's shareholders' registry maintained by Santa Maria S.A.I.F., and you do not already have an account opened in your name at the Caja de Valores, you must open any such account through either the Argentine exchange agent or any other custodian and instruct Santa Maria to transfer your Siderca shares to that account. The account at the Caja de Valores will be opened, free of charge for 90 days, for any holder of Siderca shares that wishes to tender Siderca shares pursuant to the exchange offer. The Argentine exchange agent will establish an account at the Caja de Valores for purposes of the exchange offer promptly after the commencement of the exchange offer. The certificado issued by the Caja de Valores must indicate the date of transfer, the number of Siderca shares transferred and the name, corporate identification number or registration data in the Argentine Public Registry of Commerce, as applicable, and taxpayer identification of the tendering holder. In order to obtain a certificado, a holder of Siderca shares must instruct the Caja de Valores through the bank, broker dealer or other entity through which it holds its Siderca shares at the Caja de Valores, each a Caja de Valores participant, to effect the transfer of the Siderca shares to the Argentine exchange agent's account and to request that the Caja de Valores issue the certificado immediately after completion of the transfer. The Siderca shares tendered by holders shall be held by the Argentine exchange agent in its account at Caja de Valores for the benefit of us and such holders until our shares are issued in exchange for those Siderca shares or any such holder exercises withdrawal rights in accordance with the terms of the exchange offer or the exchange offer is terminated without any exchange. We will issue, and the Argentine exchange agent will deliver, our shares exchanged for Siderca shares only to the person identified in the certificado as the transferor of the tendered Siderca shares or his or her assignees and the person so identified or his or her assignees shall be treated by us and the Argentine exchange agent as the exclusive beneficial owner of the tendered Siderca shares. As a tendering holder of Siderca shares, you will elect the method and assume the risks of delivering (or causing the delivery of) the Siderca form of acceptance, the Siderca shares, the certificado and all other required documents. Your Siderca shares will not be deemed as having been delivered until the Argentine exchange agent actually receives them. You should make delivery as soon as possible after deciding to tender your Siderca shares in the exchange offer, but in no event later than 5:00 p.m., New York City time (or 7:00 p.m., Buenos Aires time) or, if the exchange offer is extended, by the date and time specified in the notice of extension. PARTIAL TENDERS If you wish to tender fewer than all of your Siderca shares delivered to the Argentine exchange agent, you must indicate this in the Siderca form of acceptance by completing the box entitled "Number of Siderca Shares Tendered." In the case of a partial tender, a new certificate of title for the untendered Siderca shares may be requested by the person who signed the applicable Siderca form of acceptance III-11 (or delivered as that person properly indicates) as promptly as practicable after the tendered Siderca shares are accepted for exchange pursuant to the exchange offer. All Siderca shares delivered to the Argentine exchange agent will be deemed to have been tendered unless otherwise indicated. If you have any doubts about the procedure for tendering your Siderca shares or if you have any questions or require assistance, please contact the Argentine exchange agent at the telephone number set forth on the back cover of this prospectus. TAMSA SHARES If you wish to tender your Tamsa shares, you must cause the participant who appears as the owner of those shares on the books and records of S.D. Indeval, S.A. de C.V., Institucion para el Deposito de Valores, the depositary for the Mexican securities clearing system, or Indeval, to deliver to the Mexican exchange agent (whose address appears on the back cover of this prospectus) for receipt on or prior to the expiration date: - - a properly completed and duly executed Tamsa form of acceptance, the form of which will be provided by the Mexican exchange agent to each Indeval participant promptly after the commencement of the exchange offer; and - - the Tamsa shares that you wish to tender, by book-entry transfer, into the account established at Indeval by the Mexican exchange agent for the purposes of the exchange offer. The Mexican exchange agent will establish an account at Indeval for purposes of the exchange offer promptly after the commencement of the exchange offer. The Tamsa shares tendered by holders shall be held by the Mexican exchange agent in its account at Indeval for the benefit of us and such holders until our shares are issued in exchange for those Tamsa shares or any such holder exercises withdrawal rights in accordance with the terms of the exchange offer or the exchange offer is terminated without any exchange. We will issue, and the Mexican exchange agent will deliver, our shares exchanged for Tamsa shares only to the Indeval participant that tendered the Tamsa shares or its assignee and that Indeval participant or its assignee shall be treated by us and the Mexican exchange agent as the exclusive beneficial owner of the tendered Tamsa shares. As a tendering holder of Tamsa shares, you will elect the method and assume the risks of delivering (or causing the delivery of) the Tamsa form of acceptance, the Tamsa shares and all other required documents. Your Tamsa shares will not be deemed as having been delivered until the Mexican exchange agent actually receives them. You should make delivery as soon as possible after deciding to tender your Tamsa shares in the exchange offer, but in no event later than 5:00 p.m., New York City time (or 7:00 p.m., Mexico City time) or, if the exchange offer is extended, by the date and time specified in the notice of extension. If you have any doubts about the procedure for tendering your Tamsa shares, or if you have any questions or require assistance, please contact the Mexican exchange agent at the telephone number set forth on the back cover of this prospectus. III-12 DALMINE SHARES If you wish to tender your Dalmine shares, you must deliver or cause to be delivered to any of the Italian brokers appointed by us in connection with the exchange offer with respect to Dalmine for receipt on or prior to the expiration date: - - a properly completed and duly executed Dalmine form of acceptance with respect to your Dalmine shares being tendered; and - - the Dalmine shares that you wish to tender, by book-entry transfer, into an account opened in your name for the purposes of the exchange offer by the applicable Italian appointed broker. Each Italian appointed broker will send the forms of acceptance to the Italian exchange agent (whose address appears on the back cover of this prospectus). Any Dalmine shares that you tender shall be held in such account until our shares are issued in exchange for those Dalmine shares or you exercise withdrawal rights in accordance with the terms of the exchange offer or the exchange offer is terminated without any exchange. Upon settlement of the exchange offer, the appointed broker through which you tendered your Dalmine shares will deliver those shares to us through the Italian exchange agent, and we will issue, and the Italian exchange agent will deliver, our shares exchanged for Dalmine shares to the Italian appointed broker through which you tendered your Dalmine shares for deposit into the account opened in your name by such Italian appointed broker. As a tendering holder of Dalmine shares, you will elect the method and assume the risks of delivering (or causing the delivery of) the Dalmine form of acceptance, the Dalmine shares and all other required documents. Your Dalmine shares will not be deemed as having been delivered until the Italian appointed broker actually receives them. You should make delivery as soon as possible after deciding to tender your Dalmine shares in the exchange offer, but in no event later than 10:40 a.m., New York City time (or 4:40 p.m., Milan time), or, if the exchange offer is extended, by the date and time specified in the notice of extension. If you have any doubts about the procedure for tendering your Dalmine shares, or if you have any questions or require assistance, please contact the Italian exchange agent at the telephone number set forth on the back cover of this prospectus or any Italian appointed broker. REPRESENTATIONS, WARRANTIES AND AGREEMENTS By executing and delivering (or causing the execution and delivery of) a form of acceptance or ADS letter of transmittal with respect to your Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares as described above and effective from the date your shares or ADSs are tendered thereby, you acknowledge, represent, warrant and agree to and with us as follows with respect to all of your shares or ADSs so tendered or deemed to be tendered (except for any shares or ADSs that you have validly withdrawn): - - you accept the exchange offer in respect of the number of shares or ADSs indicated in the form of acceptance or ADS letter of transmittal and you will execute all other documents deemed by us to be necessary or desirable to perfect the transfer of title in respect of those shares or ADSs, subject only to the withdrawal rights described below; - - you have the full power and authority to tender and assign your shares or ADSs; - - your shares or ADSs are being transferred to us free from all liens, equities, charges and encumbrances and together with all rights that they now have or may acquire in the future, III-13 including voting rights and the right to all dividends, other distributions and interest payments hereafter declared, made or paid; - - unless you withdraw your shares or ADSs from the exchange offer, you irrevocably authorize and instruct the applicable exchange agent to deliver your shares or ADSs to us upon confirmation of receipt by the applicable exchange agent of our shares or ADSs deliverable to you in exchange for those shares or ADSs and, further, to do all such other acts and things as may in its opinion be necessary or expedient for the purposes of, or in connection with, the consummation of the exchange offer and the transfer to us or our nominee of all of your shares or ADSs and all rights attaching to those shares or ADSs; - - unless you withdraw your shares or ADSs from the exchange offer, you irrevocably authorize and instruct us and our agents to record and act upon any instructions with regard to notices and payments which have been recorded in our records in respect of your shares or ADSs; - - you have been advised to consult with your own advisors as to the consequences of participating or not participating in the exchange offer; - - unless you withdraw your shares or ADSs from the exchange offer, you will deliver to the applicable exchange agent on or prior to the expiration date all required documents in respect of your shares or ADSs; - - you will ratify each and every act that may be done or performed by us, Siderca, Tamsa, Dalmine, as the case may be, and any of our or their directors or agents in the proper exercise of all powers and authorities granted to them by you as a result of your participation in the exchange offer; - - neither you nor any of your agents nor any person on whose behalf you are tendering shares or ADSs has granted to any person any right to acquire any of the shares of ADSs that you are tendering or any other right with respect to these shares or ADSs; - - you will receive your shares or ADSs of the Company from us or from any person we may appoint to deliver those shares or ADSs to you; and - - all authority herein conferred or agreed to be conferred by you shall not be affected by, and shall survive, your death or incapacity, and all of your obligations hereunder shall be binding upon your heirs, personal representatives, successors and assigns. All shares and ADSs delivered to an exchange agent will be deemed to have been tendered unless otherwise indicated. WITHDRAWAL RIGHTS You may withdraw: - - the Siderca or Tamsa ADSs you tendered to the U.S. exchange agent at any time prior to 5:00 p.m., New York City time, on December 13, 2002; - - the Siderca shares you tendered to the Argentine exchange agent at any time prior to 7:00 p.m., Buenos Aires time, on December 13, 2002; - - the Tamsa shares you tendered to the Mexican exchange agent at any time prior to 4:00 p.m., Mexico City time, on December 13, 2002; and - - the Dalmine shares you tendered through the applicable Italian appointed broker at any time prior to 4:40 p.m., Milan time, on December 13, 2002. III-14 If the exchange offer is extended, you may also withdraw your tendered securities during the extension period and prior to the new expiration date, which will be publicly announced. If we provide a subsequent offering period, we may not allow you to withdraw your tendered securities during that subsequent offering period. WITHDRAWAL PROCEDURES In order to withdraw your Siderca shares or ADSs or Tamsa shares or ADSs, the exchange agent or, in the case of Dalmine shares, the applicable Italian appointed broker, to whom you submitted your letter of transmittal must receive a timely written or facsimile transmission notice of withdrawal at the address of the applicable exchange agent or, in the case of the Dalmine shares, the applicable Italian appointed broker. Any such notice must specify the name of the person who tendered the Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares to be withdrawn, the number of Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares to be withdrawn and, in the case of the Siderca ADSs or Tamsa ADSs, the name of the registered holder if different from that of the person who tendered such Siderca ADSs or Tamsa ADSs. If you tendered your Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares through an agent and wish to withdraw them, you will need to make arrangements for withdrawal with your agent. Your ability to withdraw the tender of your Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares will depend upon the terms of the arrangements you have made with your agent and, if your agent is not the entity that tendered your securities, the arrangements between your agent and the entity that tendered your securities, including any arrangements involving intermediaries between your agent and that entity. If you withdraw the tender of your Siderca or Tamsa shares or ADSs or your Dalmine shares, you will bear any costs and expenses associated with withdrawing such tender and ensuring that your shares or ADSs are returned to you and credited to the account from which your shares or ADSs were transferred. We will determine all questions as to the validity, including, without limitation, questions with regard to timeliness, of notices of withdrawal in respect of Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares that have been delivered to the applicable exchange agent, and that determination will be final and binding on the parties. You and your agent bear the risks arising in connection with the procedures for withdrawal, and we disclaim any liabilities or obligations in connection with these risks. None of us, the dealer manager, the U.S. exchange agent, the Argentine exchange agent, the Mexican exchange agent or the Italian exchange agent will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or incur any liability for failure to give any such notification. ACCEPTANCE AND DELIVERY Subject to the terms and conditions of the exchange offer and unless we elect to terminate the exchange offer in accordance with its terms, we will accept Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares validly tendered and not withdrawn promptly after the expiration date. We will accept the tendered securities by delivery of notice to that effect to the applicable exchange agent. Subject to the Exchange Act, the applicable rules of the SEC and the Argentine, Mexican and Italian regulatory authorities, we reserve the right to delay acceptance of the tendered Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares upon the occurrence of any of the conditions set forth in "--Conditions to completion of the exchange offer." Tendering your Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares pursuant to the procedures set forth in "--Procedures for tendering shares and ADSs" will constitute your acceptance III-15 of the exchange offer, upon the terms set forth herein. Our acceptance for exchange of the securities tendered in the exchange offer will constitute a binding agreement between us and the tendering holder upon the terms and subject to the conditions of the exchange offer. If any tendered Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares are not accepted because of an invalid tender or because we do not accept any securities for exchange, the tendered and unaccepted securities will be returned, in the case of the Siderca and Tamsa securities, by the U.S. exchange agent, the Argentine exchange agent or the Mexican exchange agent, as applicable, to the DTCC, Caja de Valores or Indeval participant who previously delivered those securities to the U.S. exchange agent, the Argentine exchange agent or the Mexican exchange agent and, in the case of Dalmine shares, by the applicable Italian appointed broker, without expense, but at the risk of the tendering holder. The return of your tendered and unaccepted Siderca shares or ADSs or Tamsa shares or ADSs by the Indeval, Caja de Valores or DTCC participant to your account is subject to the arrangements between you and your agent and the arrangements between your agent and that participant, including any arrangements involving intermediaries between your agent and that participant. The return of your tendered and unaccepted Dalmine shares by the applicable Italian appointed broker is subject to the arrangements between you and your agent and the arrangements between your agent and that Italian appointed broker, including any arrangements involving intermediaries between your agent and that Italian appointed broker. We disclaim any liabilities or obligations in connection with those arrangements. Subject to the terms and conditions of the exchange offer, the applicable exchange agent shall, in exchange for validly tendered securities, deliver the whole number of new securities promptly, in accordance with market practice, after announcement of the results of the exchange offer, upon the following terms: - - for Siderca ADSs and Tamsa ADSs tendered to the U.S. exchange agent, the U.S. exchange agent shall deliver our ADSs by book-entry transfer to the accounts of the participants in DTCC who tendered those Siderca ADSs and Tamsa ADSs pursuant to the exchange offer; - - for Siderca shares tendered to the Argentine exchange agent, the Argentine exchange agent shall deliver our shares by book-entry transfer to the account at the Caja de Valores from which the shares were transferred; - - for Tamsa shares tendered to the Mexican exchange agent, the Mexican exchange agent shall deliver our shares by book-entry transfer to the account of the Indeval participant designated in the Tamsa form of acceptance; and - - for Dalmine shares tendered to the Italian exchange agent, the Italian exchange agent shall deliver our shares by book-entry transfer to the account opened in your name by the applicable Italian appointed broker. We will pay, or cause to be paid, all security transfer taxes, if any, with respect to the issuance of any new securities pursuant to the exchange offer, unless the holder tendering old securities differs from the person receiving new securities in exchange therefor or if a transfer tax is imposed for any reason other than the issuance of new securities pursuant to the exchange offer, in which case the transferor will need to pay the amount of any transfer taxes. III-16 RETURN OF TENDERED SECURITIES In case your Siderca, Tamsa or Dalmine securities are not accepted for any reason for exchange pursuant to the terms and conditions of the exchange offer, we will cause your: - - Siderca ADSs tendered in book-entry form to be credited to the DTCC account of your agent; - - Siderca ADSs tendered in certificated form to be returned to you; - - Siderca shares tendered in book-entry form to be credited to the account from which the shares were transferred in accordance with Argentine regulations and practice; - - Tamsa ADSs tendered in book-entry form to be credited to the DTCC account of your agent; - - Tamsa ADSs tendered in certificated form to be returned to you; - - Tamsa shares tendered in book-entry form to be credited to the account from which the shares were transferred in accordance with Mexican regulations and practice; and - - Dalmine shares tendered in book-entry form to be credited to the account from which the shares were transferred in accordance with Italian regulations and practice. CONSIDERATION If, prior to the expiration date, we increase the consideration offered to any holder of Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares, then we will pay the increased consideration to all holders of those securities whose securities are exchanged in the exchange offer, whether or not the tendered securities were tendered prior to the announcement of the increase in consideration. INTERESTS OF RELATED PERSONS IN THE EXCHANGE OFFER A number of our directors, officers, subsidiaries and affiliates, and some affiliates of the dealer manager, the financial advisors and their respective customers, have or may have significant holdings of Siderca shares or ADSs, Tamsa shares or ADSs and Dalmine shares, and they may choose to participate in the exchange offer. In addition, as of October 18, 2002, San Faustin owned, directly or indirectly, approximately 71.17% of Siderca's total outstanding shares, approximately 50.77% of Tamsa's total outstanding shares and approximately 47.22% of Dalmine's total outstanding shares. JPMorgan is acting as financial advisor in connection with the exchange offer, dealer manager in connection with the exchange offer in the United States and sponsor in connection with the listing of our shares on the Milan Stock Exchange. Certain affiliates and departments of the dealer manager may engage in various trading activities in the securities of Siderca, Tamsa and Dalmine during the course of the exchange offer, in accordance with applicable law. As of October 18, 2002, certain affiliates of the dealer manager owned 589 ADSs of Tamsa purchased in the open market. In addition, JPMorgan Chase Bank, or JPMorgan Chase, an affiliate of the dealer manager, is a lender under credit facilities with both Sidor and Amazonia and its proportionate share of the outstanding amounts owed under such facilities amount to approximately USD29.1 million and USD52.4 million, respectively. Certain affiliates of the dealer manager are also currently parties to agreements with Tamsa relating to natural gas supplies. See note 23(8) to Tenaris's audited combined consolidated financial statements included in this prospectus. III-17 FEES AND EXPENSES We will pay certain fees and expenses incurred in connection with the exchange offer. Estimated fees and expenses incurred or to be incurred by us in connection with this transaction (which include, among other things, legal and auditing fees, dealer manager fees, exchange agent fees and listing fees) are approximately USD9.5 million. We will also pay certain fees or commissions to brokers, dealers, commercial banks and trust companies in connection with the solicitation of Siderca, Tamsa and Dalmine shareholders pursuant to the transaction and, upon request, we will reimburse such brokers, dealers, commercial banks and trust companies for reasonable and customary costs and expenses incurred by them in forwarding materials to their customers. BROKERAGE COMMISSIONS You do not have to pay any brokerage fees or commissions as long as you have your Siderca, Tamsa and Dalmine securities registered in your name and tender them directly to the applicable exchange agent. If your Siderca, Tamsa and Dalmine securities are held through your bank or broker, you should consult with them as to whether or not they charge any transaction fees or service charges. STOCK EXCHANGES Our ADSs have been, subject to the satisfaction of certain requirements, approved to trade on the NYSE, and our ordinary shares have been, subject to the satisfaction of certain requirements, approved to trade on the Buenos Aires Stock Exchange and the Mexican Stock Exchange. We expect that our ordinary shares will be, subject to the satisfaction of certain requirements, approved to trade on the Milan Stock Exchange. Our shares and ADSs will begin to trade on these exchanges promptly, in accordance with market practice, after announcement of the results of the exchange offer. Siderca's Class A ordinary shares are listed on the Buenos Aires Stock Exchange and Siderca's ADSs are listed on the NYSE. Tamsa's common shares are listed on the Mexican Stock Exchange and Tamsa's ADSs are listed on the AMEX. Dalmine's ordinary shares are listed on the Milan Stock Exchange. If we acquire a sufficient number of Siderca and Tamsa shares and ADSs and Dalmine shares pursuant to the exchange offer, Siderca, Tamsa and Dalmine may not continue to meet the listing criteria of the exchanges on which their securities are listed. We believe that the minimum conditions for completion of the exchange offer will not cause Siderca and Tamsa to fail to continue to meet such listing criteria. However, the minimum closing conditions for completion of the exchange offer with respect to Dalmine, if met, could, under certain circumstances, cause Dalmine to fail to continue to meet the listing criteria of the Milan Stock Exchange. In addition, although we have not made a decision in this respect, we may petition, or cause Siderca, Tamsa and Dalmine to petition, these exchanges to delist these securities, subject to applicable law. The liquidity of Siderca's and Tamsa's shares and ADSs and Dalmine's shares will be adversely affected if they are delisted. III-18 MATERIAL TAX CONSIDERATIONS GENERAL The following discussion is a summary of the material U.S. federal income, Luxembourg, Argentine, Mexican and Italian tax consequences to you of participating in the exchange offer and of the ownership and disposition of our shares and ADSs that you receive in the exchange offer. This discussion is the opinion of Sullivan & Cromwell insofar as it relates to matters of U.S. federal income tax law, the opinion of Arendt & Medernach insofar as it relates to matters of Luxembourg tax law, the opinion of Bruchou, Fernandez Madero, Lombardi y Mitrani insofar as it relates to matters of Argentine tax law, the opinion of Chevez, Ruiz, Zamarripa y Cia. S.C. insofar as it relates to matters of Mexican tax law and the opinion of Studio Associato, a member firm of KPMG International, insofar as it relates to matters of Italian tax law. The following discussion does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to exchange your Siderca shares or ADSs, your Tamsa shares or ADSs or your Dalmine shares for our shares or ADSs. The discussion is based on the tax laws of the United States, including the Internal Revenue Code of 1986, as amended, or the Code, its legislative history, existing and proposed regulations, published rulings and court decisions, the tax laws of Luxembourg, Argentina, Mexico and Italy as currently in effect, as well as on the Italian-U.S. and Mexican-U.S. treaties for the avoidance of double taxation, all as currently in effect and all subject to change at any time, perhaps with retroactive effect. This discussion is also based in part on the representations by the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. IF YOU ARE A HOLDER OF SIDERCA SHARES OR ADSS, TAMSA SHARES OR ADSS OR DALMINE SHARES, YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE TAX CONSEQUENCES OF THE EXCHANGE OF SIDERCA SHARES OR ADSS, TAMSA SHARES OR ADSS OR DALMINE SHARES AND OF THE OWNERSHIP AND DISPOSITION OF OUR SHARES OR ADSS IN LIGHT OF YOUR PARTICULAR SITUATION. U.S. TAX CONSEQUENCES The discussion relating to U.S. tax consequences only applies to you if you are a U.S. holder, as defined below, and you acquire your shares or ADSs of the Company in this exchange offer and hold your shares or ADSs of the Company as capital assets for United States federal income tax purposes. This discussion does not apply to you if you are a member of a special class of holders subject to special rules, including: - - a dealer in securities; - - a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings; - - a tax-exempt organization; - - a life insurance company; - - a person liable for alternative minimum tax; - - a person that actually or constructively owns 10% or more of our voting stock; - - a person that holds shares or ADSs as part of a hedging or straddle or conversion transaction; or - - a person whose functional currency is not the U.S. dollar. III-19 You are a U.S. holder if you are a beneficial owner of our shares or ADSs, Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares and you are: - - a citizen or resident of the United States; - - a domestic corporation; - - an estate whose income is subject to United States federal income tax regardless of its source; or - - a trust if a United States court can exercise primary supervision over the trust's administration and one or more United States persons are authorized to control all substantial decisions of the trust. This discussion addresses only United States federal income taxation; the effect of any applicable United States state or local tax laws is not discussed herein. For U.S. federal income tax purposes if you hold ADRs evidencing ADSs, you will be treated as the owner of the underlying shares represented by those ADSs, and exchanges of shares for ADSs, and ADSs for shares, will not be subject to United States federal income tax. EXCHANGE OF SIDERCA SHARES OR ADSS, TAMSA SHARES OR ADSS OR DALMINE SHARES FOR OUR SHARES OR ADSS GENERAL The opinion of Sullivan & Cromwell is based in part upon certain assumptions and certain factual representations made by Tenaris and Sidertubes, including the representations by Tenaris and Sidertubes that the corporate reorganization transactions which will be effected pursuant to a corporate reorganization agreement entered into between Tenaris and Sidertubes, described in "Part Four--Information about Tenaris--Related Party Transactions--Corporate reorganization transactions," will be completed within one year from the date the first transaction effected pursuant to such agreement commences, which representations Sullivan & Cromwell assumes to be true, correct and complete. The opinion of Sullivan & Cromwell will not be binding on the IRS or the courts, either of which can take a contrary position, and there can be no assurance that the IRS will not contest the conclusions described herein. Based upon and subject to the foregoing, we believe, and the remainder of this discussion assumes, that your exchange of Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares for our shares or ADSs pursuant to the exchange offer should not be a taxable event for U.S. federal income tax purposes pursuant to Section 351(a) of the Code. As a result, U.S. holders that exchange Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares for our shares or ADSs pursuant to the exchange offer should not recognize gain or loss for U.S. federal income tax purposes. You should be aware that this opinion that U.S. holders should not recognize gain or loss for U.S. federal income tax purposes does not reflect as strong a conclusion as would be reflected in an opinion that concluded that U.S. holders will not recognize gain or loss for U.S. federal income tax purposes. This opinion does, however, reflect a stronger conclusion than an opinion stating that it is more likely than not that U.S. holders will not recognize gain or loss for U.S. federal income tax purposes. The IRS has not been and will not be asked to rule on the tax consequences of the exchange offer and there can be no assurance that the IRS or a court will not take a position contrary to the opinion described above. See "Part Two--Risk Factors--Risks relating to the exchange offer--The Internal Revenue Service has not been able and will not be asked to rule on the tax consequences of the exchange offer, and the Internal Revenue Service or a court could determine that the exchange of Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares for our shares or ADSs is not tax-free." Moreover, U.S. holders may III-20 recognize gain for U.S. federal income tax purposes with respect to any transfer taxes, fees or other expenses incurred in connection with the exchange offer and paid by the Company. Subject to the discussions below regarding Section 367 and the passive foreign investment company, or PFIC, rules, you should not recognize any gain or loss upon the receipt of our shares or ADSs pursuant to the exchange offer (except with respect to the receipt of cash in lieu of a fractional interest in one of our shares or ADSs). Your holding period for our shares and ADSs received in the exchange offer should include your holding period for the Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares, as the case may be, surrendered in exchange for those shares and ADSs, and you should have an initial tax basis in our shares and ADSs equal to your adjusted tax basis in such Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares immediately before the exchange offer, reduced by any basis allocable to a fractional interest in one of our shares or ADSs. Your receipt of cash in lieu of a fractional interest in one of our shares or ADSs will be treated as though the fractional interest was distributed to you and then sold for cash. You will recognize gain or loss in an amount equal to the difference between the cash received and the basis in the fractional interest deemed sold on the date the fractional interest is sold and, if the purchase price is paid in currency other than the U.S. dollar, you will recognize gain or loss resulting from currency exchange fluctuations during the period from the date you include the cash payment in income to the date such cash is converted into U.S. dollars in the manner described below in "--Ownership and disposition of our shares or ADSs--Dividends." SECTION 367 In general, Section 367 of the Code restricts U.S. persons transferring stock or other property to non-U.S. corporations from benefiting from nonrecognition provisions of the Code, including Section 351(a). Under Section 367, you will be eligible for nonrecognition under Section 351(a) only if either (1) you own (directly, indirectly or by attribution) less than 5% of both the total voting power and the total value of our stock immediately after the consummation of the exchange offer, or (2) you own (directly, indirectly or by attribution) 5% or more of either the total voting power or the total value of our stock immediately after the consummation of the exchange offer and you enter into a five-year gain recognition agreement with the IRS and file that agreement with your tax return for the taxable year that includes the date of the exchange. That agreement generally would provide that if we dispose of stock in Siderca, Tamsa or Dalmine (depending on which of these companies issued the securities tendered by you in this exchange offer) at any time during the five years following the exchange offer (or other specified events occur), you would be required to recognize and pay tax on the gain that you realized on the exchange together with interest from the taxable year of the exchange offer even though you did not dispose of our shares or ADSs. REPORTING REQUIREMENTS Section 351 requires that U.S. holders file along with their U.S. federal income tax return for the taxable year in which the exchange offer occurs certain information regarding the exchange offer, including (i) a description of the shares or ADSs transferred by the U.S. holders in the exchange offer and the holder's basis in those shares or ADSs, (ii) a description of the shares or ADSs received by the U.S. holders in the exchange offer and the fair market value of those shares or ADSs, and (iii) the amount of cash, if any, received in the exchange offer. III-21 OWNERSHIP AND DISPOSITION OF OUR SHARES OR ADSS DIVIDENDS Subject to the PFIC rules discussed below, if you are a U.S. holder you must include in your gross income the gross amount of any dividend paid by us out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). The dividend is ordinary income that you must include in income when you, in the case of shares, or the depositary, in the case of ADSs, receive the dividend, either actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations. Distributions in excess of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the ADSs or shares and thereafter as capital gain. The amount of the dividend distribution that you must include in your income, if paid in currency other than the U.S. dollar, will be the U.S. dollar value of the foreign currency payments made, determined at the spot foreign currency/U.S. dollar rate on the date such dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date such payment is converted into U.S. dollars will be treated as ordinary income or loss. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. For foreign tax credit purposes, the dividend will be income from sources outside the United States, but generally will be "passive income" or "financial services income" which is treated separately from other types of income for purposes of computing the foreign tax credit allowable to you. No U.S. foreign tax credit will be allowed to U.S. holders of shares or ADSs in respect of any personal property or similar tax imposed by Luxembourg (or any taxing authority thereof or therein). Distributions of additional shares to U.S. holders with respect to their shares or ADSs that are made as part of a pro rata distribution to all our shareholders generally will not be subject to U.S. federal income tax. TAXATION OF CAPITAL GAIN Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell or otherwise dispose of your shares or ADSs, you will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the U.S. dollar value of the amount realized and your tax basis (determined in U.S. dollars) in such shares or ADSs. Generally such gain or loss will be long-term capital gain or loss if your holding period for such shares or ADSs exceeds one year. Long-term capital gain of a non-corporate U.S. holder is generally subject to a maximum tax rate of 20% where the property is held more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. PFIC RULES We believe that, as of the date of this prospectus, Siderca shares and ADSs, Tamsa shares and ADSs, and Dalmine shares should not be treated as stock of a PFIC for U.S. federal income tax purposes. We believe that our shares and ADSs should not be treated as stock of a PFIC for U.S. federal income tax purposes, but this conclusion is a factual determination made annually and thus may be subject to change. III-22 In general, if you are a U.S. holder we will be a PFIC with respect to you if, for any taxable year in which you held our ADSs or shares: - - at least 75% of our gross income for the taxable year is passive income; or - - at least 50% of the value, determined on the basis of a quarterly average, of our assets is attributable to assets that produce or are held for the production of passive income. Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the other corporation's assets, and as receiving directly its proportionate share of the other corporation's income. If you are a U.S. holder that did not make a mark-to-market election and we are treated as a PFIC, you would be subject to special rules with respect to: - - any gain realized on the sale or other disposition of our shares or ADSs; and - - any "excess distribution" that we make to you (generally, any distributions to you during a single taxable year that are greater than 125% of the average annual distributions received by you in respect of the shares or ADSs during the three preceding taxable years or, if shorter, your holding period for the shares or ADSs). Under these rules: - - the gain or excess distribution would be allocated ratably over your holding period for our shares or ADSs; - - the amount allocated to the taxable year in which the gain or excess distribution was realized would be taxable as ordinary income; - - the amount allocated to each prior year, with certain exceptions, would be subject to tax as ordinary income at the highest applicable tax rate in effect for that year; and - - the interest charge generally applicable to underpayments of tax would be imposed in respect of the tax attributable to each such year. If you own shares in a PFIC that are treated as marketable stock, you may also make a mark-to-market election. Although stock traded on a "qualified" foreign exchange may be considered "marketable stock," the United States Internal Revenue Service has not yet identified specific foreign exchanges that are "qualified" for this purpose. If you make this election, you will not be subject to the PFIC rules described above. Instead, in general, you will include as ordinary income each year the excess, if any, of the fair market value of your shares or ADSs at the end of the taxable year over your adjusted basis in your shares or ADSs. You will also be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of your shares or ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). Your basis in the shares or ADSs will be adjusted to reflect any such income or loss amounts. If you are a U.S. holder who owns our shares or ADSs during any year that we are a PFIC, you must file Internal Revenue Service Form 8621. III-23 BACKUP WITHHOLDING AND INFORMATION REPORTING If you are a non-corporate U.S. holder, information reporting requirements, on Internal Revenue Service Form 1099, generally will apply to: - - dividend payments or other taxable distributions made to you by a U.S. paying agent or other U.S. intermediary, or otherwise within the United States; and - - the payment of proceeds to you from the sale of shares or ADSs effected at a United States office of a broker. Additionally, backup withholding may apply to such payments if you: - - fail to provide an accurate taxpayer identification number; - - are notified by the Internal Revenue Service that you have failed to report all interest and dividends required to be shown on your federal income tax returns; or - - in certain circumstances, fail to comply with applicable certification requirements. You generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed your income tax liability by filing a refund claim with the United States Internal Revenue Service. LUXEMBOURG TAX CONSEQUENCES TAX CONSEQUENCES FOR THE COMPANY TAX TREATMENT OF THE COMPANY We were incorporated as a tax exempt holding company according to the law of July 31, 1929. If, as a result of this exchange offer or otherwise, our share capital exceeds E24 million, we may opt for the special status of a billionaire holding company provided for by the grand-ducal decree of December 17, 1938. These companies can carry out a limited number of activities, including holding shares and securities of as well as financing affiliated companies. As a billionaire holding company, we will not be subject to corporate income tax, municipal business tax, net wealth tax or capital gains tax in Luxembourg, and will not be subject to the subscription tax for holding companies. We will, however, be subject to taxation in Luxembourg on dividends, interest paid to holders of bonds and other securities and on certain fees paid to non-resident directors (or statutory auditors or liquidators). This tax will be calculated as follows: - - Where the total interest paid each year to holders of bonds and on other comparable securities amounts to or exceeds E2.4 million: - 3% on interest paid to holders of bonds and other securities; - 1.8% on dividends, profit quotas and remuneration on the first E1.2 million; and - 0.1% on any surplus dividends, profit quotas and remuneration. III-24 - - Where the total interest paid each year to holders of bonds and on other comparable securities is less than E2.4 million: - 3% on interest paid to holders of bonds and other securities; - 3% on dividends, profit quotas and remuneration, up to a maximum amount corresponding to the difference between E2.4 million and the total interest paid to holders of bonds and on other comparable negotiable securities; - 1.8% on any surplus dividends, profit quotas and remuneration on the first E1.2 million; and - 0.1% on any surplus dividends, profit quotas and remuneration. As a billionaire holding company, we will in all cases be subject to a minimum annual charge of E48,000. INCREASE IN THE COMPANY'S CAPITAL STOCK The exchange or contribution of Siderca shares or ADSs, Tamsa shares or ADSs, Dalmine shares and other assets for our shares or ADSs represents an increase in our capital stock, which is subject to a 1% tax payable by us under Luxembourg law of December 29, 1971 on capital duty, as amended. However, according to article 4-1 of this law, the Luxembourg tax authorities can grant relief from this capital duty when a company organized in an EU member country contributes all of its assets and liabilities or one or several lines of business to a Luxembourg company. We are currently consulting with the Luxembourg tax authorities whether the corporate reorganization transactions carried out by us and Sidertubes, which is incorporated in Luxembourg, meet the requirements of article 4-1. See "Part Four--Information about Tenaris--Related Party Transactions--Corporate reorganization transactions." If we fail to obtain relief from the Luxembourg tax authorities, we will be subject to a 1% capital duty on the amount exchanged by holders of Siderca, Tamsa and Dalmine securities pursuant to the exchange offer. If all the holders of Siderca and Tamsa shares and ADSs and Dalmine shares exchange their securities for our securities pursuant to the exchange offer, the applicable capital duty would amount to approximately USD9.0 million. OWNERSHIP AND DISPOSITION OF OUR SHARES OR ADSS Holders of our shares or ADSs will not be subject to Luxembourg income tax, wealth tax or capital gains tax in respect of those shares or ADSs, except for individuals resident (or, in certain circumstances, formerly resident) in Luxembourg, entities organized in Luxembourg or entities having a permanent establishment in Luxembourg. For purposes of Luxembourg tax law, you are deemed to be an individual resident in Luxembourg, subject to treaty provisions, if you have your domicile or your usual place of abode in Luxembourg. Non-resident holders of our shares or ADSs are not subject to Luxembourg income tax, wealth tax or capital gains tax in respect of those shares or ADSs, provided, however, that a non-resident holder who owns more than 10% of our capital will be subject to Luxembourg tax on capital gains derived from the disposition of our shares or ADSs held for six months or less. No inheritance tax is payable by a holder of our shares or ADSs except if the deceased holder was a resident of Luxembourg at the time of death. There is no Luxembourg transfer or stamp tax on the purchase or disposition of our shares or ADSs. III-25 ARGENTINE TAX CONSEQUENCES This discussion relating to Argentine tax consequences only applies to you if you are an individual resident in Argentina, an undivided estate domiciled in Argentina, an entity organized in Argentina or a foreign entity having a permanent establishment in Argentina. Broadly defined, for purposes of Argentine tax law, if you are an individual, you are deemed to be resident in Argentina if: - - being born in Argentina, you do not remain abroad for a period exceeding twelve months and do not acquire a permanent residence in another country; or - - being a foreign citizen, you acquire a permanent residence in Argentina or are present in Argentina for at least a twelve-month period. Undivided estates domiciled in Argentina are estates originated from the death of an Argentine resident. Because there is currently no tax treaty or convention in effect between Argentina and the United States, the Argentine tax consequences described in this section will, to the extent applicable to a holder of our shares or ADSs that is a U.S. holder for U.S. tax purposes, apply without modification to that holder. Similarly, there is currently no tax treaty or convention in effect between Argentina and Luxembourg and it is not clear when, if ever, a treaty will be ratified or enter into effect. As a result, the Argentine tax consequences described in this section will also apply, without modification, to a holder of our shares or ADSs that is a Luxembourg resident for Luxembourg tax purposes. This discussion addresses only Argentine federal taxation; the effect of any applicable Argentine provincial tax laws is not discussed herein. EXCHANGE OF SIDERCA SHARES OR ADSS FOR OUR SHARES OR ADSS Individuals resident in Argentina and undivided estates domiciled in Argentina (and their foreign beneficiaries) are exempt from income tax on any capital gains derived from the exchange of Siderca shares or ADSs for our shares or ADSs. Capital gains realized by entities organized in Argentina and foreign entities having a permanent establishment in Argentina from the exchange of Siderca shares and ADSs for our shares and ADSs are subject to income tax at a rate of 35%. In general terms, the taxable capital gain (loss) is determined by adding the fair market value of our shares or ADSs received pursuant to the exchange and any cash received, and deducting the tax basis for the Siderca shares or ADSs tendered in the exchange. For Argentine income tax purposes, the fair market value of our shares or ADSs received pursuant to the exchange will be determined by the exchange ratio as of the closing of the exchange offer. Losses arising from the exchange can be offset only against the same type of income (i.e., income derived from the sale, exchange or other disposition of shares or ADSs). Pension funds organized in Argentina or having a permanent establishment in Argentina are not subject to any capital gains tax on the funds under administration. OWNERSHIP AND DISPOSITION OF OUR SHARES OR ADSS TAXATION OF DIVIDENDS AND OTHER INCOME Dividends paid on our shares and ADSs (whether in cash, property or other equity securities) are subject to income tax in Argentina. III-26 If you are an individual resident in Argentina or an undivided estate domiciled in Argentina, the applicable tax rate varies from 9% to 35%. If you are an entity organized in Argentina or a foreign entity having a permanent establishment in Argentina, the applicable tax rate is 35%. Income derived from dividends paid by us will qualify as foreign source income for income tax purposes. The Company is organized under the laws of Luxembourg, which is designated as a tax haven for income tax purposes in Argentina. Consequently, certain passive income rules apply by which, if you are an individual resident in Argentina, an undivided estate domiciled in Argentina, an entity organized in Argentina or a foreign entity having a permanent establishment in Argentina, you will be subject to income tax in Argentina for your share of the passive income (such as interest, royalties or dividends) generated by us, at the end of the fiscal year, even if those profits were not distributed to you in the form of dividends. If dividends related to those profits are distributed to you in the future, you will not be required to pay income taxes in Argentina in respect of any passive income for which you previously paid income tax. The amount of the dividend distribution that you must include in your income, if paid in a currency other than Argentine pesos, will be the Argentine peso value of the foreign currency payment made, determined at the spot foreign currency/Argentine peso rate on the date such dividend distribution is includible in your income, regardless of whether the payment is in fact converted into Argentine pesos. TAXATION OF ASSETS (MINIMUM PRESUMPTIVE INCOME TAX) Resident individuals and undivided estates domiciled in Argentina are out of the scope of the Minimum Presumptive Income Tax on shares or ADSs. In the case of entities organized in Argentina and foreign entities having a permanent establishment in Argentina, the ownership of foreign shares or ADSs, such as our shares and ADSs, is subject to a minimum presumptive income tax, at a rate of 1% of the market value of such shares or ADSs at the end of each fiscal year. This tax will only be owed if the income tax determined for any fiscal year does not equal or exceed the amount owed under the Minimum Presumptive Income Tax. In such case, only the difference between the Minimum Presumptive Income Tax and the income tax, both determined for the same fiscal year, shall be paid. Any Minimum Presumptive Income Tax paid will be applied as a credit toward income tax owed in the immediately following ten fiscal years. TAX ON PERSONAL PROPERTY Pursuant to the Argentine Personal Property Tax Law, as amended, and its regulations, individuals and undivided estates domiciled in Argentina that are the "direct owners" of securities issued by entities domiciled outside of Argentina, such as the Company, are subject to an annual personal property tax at a rate of 0.5% or 0.75% (depending on the total taxable assets of the relevant taxpayer) of the market value of the securities at the end of each fiscal year. Individuals and undivided estates domiciled in Argentina who hold our shares are subject to this personal property tax if they have personal property in excess of ARP102,300 and only to the extent of such excess. It is unclear whether the term "direct ownership" means record ownership or beneficial ownership. Accordingly, it is unclear whether a holder of ADRs evidencing ADSs would be deemed to be the "direct owner" of the underlying shares represented by those ADSs and be subject to the personal property tax on that basis. To date, the Argentine tax authority has not issued any resolution or non-binding opinion addressing the applicability of the personal property tax to holders of ADSs. The III-27 discussion regarding Argentine tax consequences in this prospectus assumes that the beneficial owners of the ADSs will be treated as the "direct owner" of the underlying shares. TAXATION OF CAPITAL GAINS Capital gains derived from future sales, exchanges or other dispositions of our shares are subject to the same Argentine tax regime as capital gains from the exchange of Siderca shares for our shares. For a discussion of this tax regime, see "--Exchange of Siderca shares or ADSs for our shares or ADSs" above. VALUE ADDED TAX The sale, exchange or other disposition of our shares or ADSs is exempt from value added tax in Argentina. TRANSFER TAXES The sale, exchange or other disposition of our shares or ADSs is not subject to transfer taxes in Argentina. DEPOSIT AND WITHDRAWAL OF SHARES IN EXCHANGE OF ADSS No Argentine tax is imposed on the deposit or withdrawal of shares in exchange for ADSs. FINANCIAL TRANSACTIONS TAX Tenaris will not be subject to the financial transactions tax in connection with the exchange offer. The tax is imposed at a rate of 0.6% on each bank account debit and credit. The future dispositions or sales of, or dividends on our shares or ADSs will be subject to the financial transactions tax payable by us only if the funds involved in these transactions are payable or collected through Argentine bank accounts. OTHER TAXES There are no Argentine inheritance or succession taxes applicable to the ownership, transfer or disposition of ADSs or shares. There are no Argentine stamp, issue, registration or similar taxes or duties payable by holders of ADSs or shares. MEXICAN TAX CONSEQUENCES This discussion relating to Mexican tax consequences only applies to you if you are a resident of Mexico. If you are a Mexican citizen, you are presumed to be resident in Mexico for tax purposes unless you prove otherwise. If you are a non-Mexican citizen with a permanent residence in Mexico, you are resident in Mexico for tax purposes, unless you have resided 184 days or more in any calendar year period in another country, and you have obtained residence for tax purposes in such country. A company is considered a resident of Mexico if it was organized under Mexican law or if its principal executive offices or its headquarters are located in Mexico. EXCHANGE OF TAMSA SHARES OR ADSS FOR OUR SHARES OR ADSS If you are a Mexican individual or a non-Mexican company, any gain you realize from the exchange of Tamsa shares for our shares will be exempt from income tax if such exchange is conducted through the Mexican Stock Exchange and the Mexican Banking and Securities Commission issues a certificate III-28 attesting satisfaction of certain requirements. While we believe that the requirements necessary for this exemption are satisfied, we cannot provide any assurance as to whether and when the certificate described above will be issued. This exemption does not apply to the sale, exchange or other disposition of our ADSs. If you are a company organized in Mexico, or if your principal executive offices or your headquarters are located in Mexico, any gain you realize from the exchange of Tamsa shares or ADSs for our shares or ADSs will be subject to income tax at the corporate tax rate applicable to you. Upon application to the Mexican tax authorities, a Mexican company that participates in the exchange may be permitted to assign the same tax basis in our shares or ADSs as it had in the Tamsa shares or ADSs. In general terms, the taxable capital gain (loss) is determined by adding the fair market value of our shares or ADSs received pursuant to the exchange and any cash received, and deducting the tax basis for the Tamsa shares or ADSs tendered in the exchange. For Mexican tax purposes, the fair market value of our shares or ADSs received pursuant to the exchange will be determined by the exchange ratio as of the closing of the exchange offer. Losses arising from the exchange can be offset only against the same type of income (i.e., income derived from the sale, exchange or other disposition of shares or ADSs), provided that certain other requirements are met. OWNERSHIP AND DISPOSITION OF OUR SHARES OR ADSS The tax treaty between Mexico and Luxembourg does not apply to dividends paid by us or to the disposition of our shares or ADSs because we are not considered to be resident in Luxembourg for the purposes of that treaty as a result of our status as a tax exempt entity under Luxembourg law. TAXATION OF DIVIDENDS If you are a Mexican resident (individual or company), dividends paid to you on our shares or ADSs (whether paid in cash, property or other equity securities) are required to be included in your income and will be subject to tax at the individual or corporate rate applicable to you. The amount of the dividend distribution that you must include in your income, if paid in a currency other than Mexican pesos, will be the Mexican peso value of the foreign currency payment made, determined at the spot foreign currency/Mexican peso rate on the date such dividend distribution must be included in your income, regardless of whether the payment is in fact converted into Mexican pesos. Individuals are allowed a credit for any taxes withheld by us. Mexican companies are allowed a credit for any taxes withheld by us and any corporate taxes paid by us or by any of our direct subsidiaries in another jurisdiction with which Mexico has entered into a treaty regarding exchange of tax information, if those companies owned, during the six-month period preceding the relevant dividend payment date, either a direct interest of no less than 10% in our capital stock (in the case of a tax withheld or paid by us) or an indirect interest of no less than 5% in the respective subsidiary's capital stock (in the case of a tax paid by that direct subsidiary). ASSETS TAX Mexican companies subject to Mexican income tax are also subject to Mexican assets tax at the rate of 1.8% on the company's net assets. Because these two taxes are creditable against each other, Mexican companies are effectively subject to the higher of the two taxes. Our shares and ADSs must be included in the assets tax basis. III-29 TAXATION OF CAPITAL GAINS Capital gains derived from future sales, exchanges or other dispositions of our shares are subject to the same Mexican tax regime as capital gains from the exchange of Tamsa shares or ADSs for our shares or ADSs. For a discussion of this tax regime, see "--Exchange of Tamsa shares or ADSs for our shares or ADSs" above. VALUE ADDED TAX The sale, exchange or other disposition of our shares or ADSs is exempt from value added tax in Mexico. INHERITANCE TAX There is no Mexican inheritance tax applicable to the transfer of our shares by hereditary succession. OTHER TAXES Mexico imposes no additional taxes on the ownership, transfer, exchange or disposition of our shares or ADSs. In addition, Mexico imposes no tax or fee to stamp, seal, issue or register our shares or ADSs. ITALIAN TAX CONSEQUENCES This discussion relating to Italian tax consequences generally only applies to you if you are an individual resident in Italy or a company organized in Italy or a foreign entity having a permanent establishment in Italy. For purposes of Italian tax law, an individual is deemed to be resident in Italy if, for the greater part of the tax period, the individual is registered in the Office of Records of the Resident Population or is resident or domiciled within the territory of the state within the meaning of the Italian Civil Code. A company is deemed to be resident in Italy if, for the greater part of the tax period, it has its legal or administrative office or its principal purpose within the Italian territory. The principal purpose is determined by the articles of association, if in the form of a public deed or an authenticated private agreement or, in the absence thereof, on the basis of the activity in which it is actually engaged. The Italian government has entered into treaties for the avoidance of double taxation with a large number of countries, including Argentina, Mexico, the United States and all other member countries of the EU. These treaties generally provide for taxation of capital gains and dividends in the holder's country of residence. However, dividends may also be taxed in the contracting state of which the company paying dividends is a resident and according to the laws of that state, but the tax so charged normally does not exceed a certain percentage, generally ranging from 5% to 15%, of the gross amount of the dividends. The treaties entered into with Argentina and Mexico provide for a 15% maximum tax rate, whereas the treaty entered into with the United States provides for a withholding tax rate, which may vary from 5% to 15% depending on percentage of stock ownership and period of stock holding. This discussion addresses only Italian national taxation; the effect of any applicable regional or municipal tax laws is not discussed herein. III-30 EXCHANGE OF DALMINE SHARES FOR OUR SHARES The exchange of Dalmine shares for our shares is a taxable transaction for Italian income tax purposes. In general terms, the taxable capital gain (loss) is determined as the difference between the fair market value of our shares received pursuant to the exchange and any cash received, and the tax basis for the Dalmine shares tendered in the exchange. For Italian income tax purposes, the fair market value of our shares received pursuant to the exchange will be determined by the exchange ratio as of the closing of the exchange offer. If you are an individual resident in Italy, you are subject to a 27% or 12.5% substitute tax (depending on whether the stock ownership percentage meets the threshold established for a shareholding to be classified as "qualified" or "non-qualified") on capital gains realized in the exchange of Dalmine shares for our shares. "Qualified shareholding" means stock ownership representing more than 2% of the company's voting stock or more than 5% of the company's share capital. "Non-qualified shareholding" means stock ownership representing 2% or less of the company's voting stock or 5% or less of the company's share capital. Losses arising from the exchange may be offset against the same type of income in the year of the exchange and in the four subsequent tax years. If you are an entrepreneur resident in Italy, carrying out commercial activities and have included Dalmine shares in the assets pertaining to your business activities, you must include any relevant capital gains or losses in your individual taxable income and apply the applicable progressive tax rates. Progressive tax rates for personal income tax, or IRPEF, may vary from 18% to 44.5% (44% from January 1, 2003). If you are an Italian company or a foreign entity with a permanent establishment in Italy, any gain you realize in the exchange of Dalmine shares for our shares is subject to ordinary corporate income tax, or IRPEG, at a rate of 36% (which will be reduced to 35% for companies with a fiscal year beginning before the exchange and ending after January 1, 2003). An additional 4.75% regional tax on productive activities, or IRAP, is levied on entities carrying out banking and financial activities. You can use any capital losses to offset ordinary income in the year of the exchange and in the five subsequent tax periods. Gains realized by Italian investment or pension funds are subject to a substitute tax of 12.5% and 11%, respectively, which is levied on the fund's accrued income during the year. Non-Italian residents may be subject to taxation in Italy for gains realized from the exchange of Dalmine shares for our shares. In the case of holders resident in a country that has entered into a treaty with Italy, they are generally not subject to Italian taxation on the capital gains arising from the exchange of Dalmine shares for our shares. Individuals and companies resident in a country that has not entered into a treaty with Italy, however, as well as non-Italian investment and pension funds (whether or not resident in a country that has entered into a treaty with Italy) are subject to a substitute tax of 27% on capital gains, but only when there is an exchange of stock ownerships representing more than 2% of the company's voting stock or more than 5% of the company's share capital. OWNERSHIP AND DISPOSITION OF OUR SHARES TAXATION OF DIVIDENDS Dividends paid on our shares (whether paid in cash, property or other equity securities) are subject to income tax in Italy. III-31 If you are an Italian individual not carrying out business activities, dividends paid to you are subject to a 12.5% withholding tax, levied by the financial intermediary as advance payment of your personal income tax and then included in your individual taxable income subject to the IRPEF progressive tax rates. Income from these dividends will qualify as foreign source income and a tax credit will be granted for taxes paid abroad. Individuals who deposit their securities with a financial intermediary and opt for the application of the "Risparmio Gestito" regime, are subject to a 12.5% substitute tax on the net realized and unrealized income (including dividend distributions) from securities. No tax credit is granted in respect of any withholding tax levied abroad. If you are an individual entrepreneur, carrying out commercial activities, and have included our shares in the assets pertaining to your business activities, you must include dividends on our shares in your individual taxable income and apply the IRPEF progressive tax rates. Income from these dividends qualifies as foreign source income and a tax credit is granted for any tax paid abroad. If you are an Italian company or a foreign entity with a permanent establishment in Italy, you are subject to IRPEG on dividends received from us. Income from these dividends qualifies as foreign source income for income tax purposes. Dividends paid to Italian investment funds and pension funds are subject to a 12.5% and 11% substitute tax, respectively, which is levied on the fund's accrued income during the year. TAXATION OF CAPITAL GAINS Capital gains from future sales, exchanges or other dispositions of our shares are subject to the same tax regime as capital gains from the exchange of Dalmine shares for our shares. For a discussion of this tax regime, see "--Exchange of Dalmine shares for our shares" above. VALUE ADDED TAX The sale, exchange or other disposition of our shares is exempt from value added tax in Italy. TRANSFER TAXES Transfers of our shares will not be subject to Italian transfer taxes. INHERITANCE TAX There is no Italian inheritance tax applicable to the transfer of our shares by hereditary succession. GIFT TAX There is no Italian gift tax applicable to the transfer of our shares by gifts made to parents, children and relatives and some relatives-in-law. However, gifts made to non-relatives could be subject to a registration tax at the fixed amount of E129. An exemption from this registration tax is granted for amounts up to E180,760. OTHER TAXES There are no Italian stamp, issue, registration or similar taxes or duties payable by the shareholders on the transfer, exchange, disposition or ownership of our shares. III-32 MARKET PRICE AND DIVIDENDS MARKET PRICE OUR SHARES AND ADSS No trading market for our shares or ADSs exists or has ever existed. Accordingly, no historical data can be provided regarding the market prices of our shares and ADSs. SIDERCA SHARES AND ADSS Siderca's shares are listed on the Buenos Aires Stock Exchange and its ADSs are listed on the NYSE under the symbol "SDT." BUENOS AIRES STOCK EXCHANGE The principal trading market for Siderca's shares is the Buenos Aires Stock Exchange. Set forth in the following table are reported high and low official prices (in nominal Argentine pesos per share) of Siderca's shares on the Buenos Aires Stock Exchange for the stated periods. III-33
- ----------------------------------------------------------------------------- PRICE PER SHARE --------------- HIGH LOW - ----------------------------------------------------------------------------- 2002 First quarter............................................ 5.95 2.45 Second quarter........................................... 6.49 4.60 Third quarter............................................ 7.46 6.00 2001 First quarter............................................ 2.28 1.91 Second quarter........................................... 2.14 1.91 Third quarter............................................ 1.97 1.31 Fourth quarter........................................... 2.53 1.08 2000 First quarter............................................ 2.39 1.95 Second quarter........................................... 2.37 1.63 Third quarter............................................ 2.38 1.92 Fourth quarter........................................... 2.30 1.92 1999 First quarter............................................ 1.14 0.85 Second quarter........................................... 1.80 1.17 Third quarter............................................ 1.90 1.25 Fourth quarter........................................... 2.13 1.81
- ----------------------------------------------------------------------------- PRICE PER SHARE --------------- HIGH LOW - ----------------------------------------------------------------------------- 1998 First quarter............................................ 2.82 2.24 Second quarter........................................... 1.65 1.70 Third quarter............................................ 2.17 0.80 Fourth quarter........................................... 1.56 1.06 1997 First quarter............................................ 2.14 1.68 Second quarter........................................... 2.47 1.86 Third quarter............................................ 3.28 2.45 Fourth quarter........................................... 3.33 2.33 - ----------------------------------------------------------------------------- As of October 18, 2002, a total of 1,000,000,000 shares were registered in Siderca's shareholders register in the name of more than 8,300 holders. As of October 18, 2002, a total of 54,581,040 shares of Siderca were registered in the name of the depositary for Siderca's ADR program. On November 7, 2002, the closing sales price for Siderca's shares was ARP6.18. The Buenos Aires Stock Market, which is affiliated with the Buenos Aires Stock Exchange, is the largest stock market in Argentina. The Buenos Aires Stock Market is a corporation whose approximately 176 shareholder members are the only individuals and entities authorized to trade in securities listed on the Buenos Aires Stock Exchange. Trading on the Buenos Aires Stock Exchange is conducted by continuous open outcry from 12:00 P.M. to 5:00 P.M. each business day. The Buenos Aires Stock Exchange also operates a continuous market system from 9:30 A.M. to 6:00 P.M. each business day, on which privately arranged trades are registered and made public. Although the Buenos Aires Stock Exchange is one of Latin America's largest securities exchanges in terms of market capitalization, it remains relatively small and illiquid compared to major world markets and, therefore, subject to greater volatility. To control price volatility in the Buenos Aires Stock Exchange, the Buenos Aires Stock Market operates a system which suspends dealing in shares of a particular issuer for one half-hour when the price of the issuer's shares increases or decreases by 10% relative to that day's opening price and for the remainder of the day when the price increases or decreases by 15% relative to that day's opening price. Investors in the Argentine securities market are mostly individuals, mutual and pension funds and companies. However, institutional investors, III-34
- ----------------------------------------------------------------------------- PRICE PER SHARE --------------- HIGH LOW - ----------------------------------------------------------------------------- MONTHS IN 2002 May...................................................... 5.50 4.62 June..................................................... 6.49 4.60 July..................................................... 6.90 6.00 August................................................... 7.03 6.40 September................................................ 7.46 6.24 October.................................................. 6.38 5.90 - ----------------------------------------------------------------------------- consisting of a limited number of mutual funds, represent a growing percentage of trading activity. The Argentine Congress passed amendments to the social security laws, effective July 1, 1994, which partially privatized the government social security system and have increased substantially the assets of Argentine institutional pension funds and the volume of trading on the Buenos Aires Stock Exchange. In addition, pursuant to amendments to the social security laws, Argentine institutional pension funds may now invest in securities issued in connection with initial public offerings. The information regarding the Argentine equities market set forth in the following table was obtained from the Buenos Aires Stock Exchange. (1) At December 31 for each year shown, except for 2002, which is at June 30. (2) End-of-period figures for shares traded on the Buenos Aires Stock Exchange. (3) Including trading of equity on the Buenos Aires Stock Exchange. NEW YORK STOCK EXCHANGE As of October 18, 2002, a total of 5,458,104 Siderca ADSs were registered of record. Each Siderca ADS represents 10 Siderca shares. JPMorgan Chase, as successor to Morgan Guaranty Trust Company of New York, or Morgan Guaranty, acts as Siderca's depositary for issuing ADRs evidencing the Siderca ADSs. Fluctuations between the Argentine peso and the U.S. dollar will affect the U.S. dollar equivalent of the price of the shares on the Buenos Aires Stock Exchange and the price of the ADSs on the NYSE. On November 7, 2002, the closing price of the Siderca ADSs on the NYSE was USD16.60.
- ------------------------------------------------------------------------------------------------ ARGENTINE EQUITIES MARKET(1) -------------------------------------------------- 2002 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------ Market capitalization (U.S. dollars in billions)(2)................................ 104.83 192.50 165.80 83.88 45.29 59.24 Average daily trading volume (U.S. dollars in millions)(3)............................. 7.38 17.35 24.11 36.96 105.00 153.81 Number of listed companies.................. 115 119 125 125 131 136 - ------------------------------------------------------------------------------------------------ III-35
- --------------------------------------------------------------------------- PRICE PER ADS ------------- HIGH LOW - --------------------------------------------------------------------------- 2002 First quarter............................................ 21.00 15.00 Second quarter........................................... 19.05 12.00 Third quarter............................................ 19.29 15.44 2001 Second quarter (from May 17, 2001)....................... 20.56 18.54 Third quarter............................................ 19.65 13.20 Fourth quarter........................................... 18.03 10.74 - --------------------------------------------------------------------------- TAMSA SHARES AND ADSS Tamsa's shares are listed on the Mexican Stock Exchange and its ADSs are listed on the AMEX. MEXICAN STOCK EXCHANGE The principal trading market for Tamsa's shares is the Mexican Stock Exchange. Set forth in the following table are reported high and low official prices (in nominal Mexican pesos per share) of Tamsa's shares on the Mexican Stock Exchange for the stated periods. For comparative purposes, the amounts shown below have been adjusted retroactively to reflect the stock split that occurred in July 2001.
- --------------------------------------------------------------------------- PRICE PER ADS ------------- HIGH LOW - --------------------------------------------------------------------------- MONTHS IN 2002 May...................................................... 16.20 13.00 June..................................................... 15.81 12.00 July..................................................... 18.92 15.85 August................................................... 19.29 17.90 September................................................ 19.25 15.44 October.................................................. 16.90 15.28 - --------------------------------------------------------------------------- III-36
- ----------------------------------------------------------------------------- PRICE PER SHARE --------------- HIGH LOW - ----------------------------------------------------------------------------- 2002 First quarter............................................ 19.52 15.91 Second quarter........................................... 19.59 17.50 Third quarter............................................ 19.45 16.15 2001 First quarter............................................ 31.00 20.64 Second quarter........................................... 25.00 19.80 Third quarter............................................ 24.10 17.20 Fourth quarter........................................... 20.80 14.35 2000 First quarter............................................ 31.60 23.80 Second quarter........................................... 30.80 22.57 Third quarter............................................ 32.70 25.82 Fourth quarter........................................... 31.98 23.46 1999 First quarter............................................ 17.32 12.36 Second quarter........................................... 22.80 16.72 Third quarter............................................ 23.60 17.40 Fourth quarter........................................... 26.66 20.00
- ----------------------------------------------------------------------------- PRICE PER SHARE --------------- HIGH LOW - ----------------------------------------------------------------------------- 1998 First quarter............................................ 34.78 25.60 Second quarter........................................... 31.50 23.00 Third quarter............................................ 24.60 9.40 Fourth quarter........................................... 19.60 12.80 1997 First quarter............................................ 28.44 24.30 Second quarter........................................... 29.20 25.70 Third quarter............................................ 38.20 28.00 Fourth quarter........................................... 45.50 31.20 - ----------------------------------------------------------------------------- On November 7, 2002, the closing sales price for Tamsa's shares was MXP18.50. As of October 18, 2002, there were 342,934,120 issued and outstanding shares of common stock of Tamsa, including 129,753,565 shares deposited with Banco Nacional de Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero Banamex Accival, or Banamex, as agent for JPMorgan Chase (as successor to Morgan Guaranty), or the depositary, as depositary under the Deposit Agreement dated January 1, 1964 as amended and restated as of July 1, 1993, among Tamsa, the depositary and all holders from time to time of Tamsa's ADSs. As of October 18, 2002, 174,114,015 shares of common stock (representing 50.77% of the total capital stock of Tamsa) had been registered with the National Foreign Investment Registry maintained by the Secretaria de Comercio y Fomento Industrial, or SECOFI (now called Secretaria de Economia), as being owned directly or indirectly by the Company. These amounts exclude 3,650,000 shares for 1999, 2000, 2001 and through October 18, 2002 held since November 30, 1988 by a wholly-owned subsidiary of Tamsa. Tamsa is a 49.0% shareholder of Sidtam, a limited liability company organized under the laws of the British Virgin Islands. Siderca holds the remaining 51.0% of the capital stock of Sidtam. The purpose of Tamsa's investment in Sidtam is to participate in different types of investment projects, including, among others, the purchase of shares of Tamsa. Tamsa's board of directors has authorized a capital contribution to Sidtam in an amount sufficient for Tamsa to participate proportionately in the III-37
- ----------------------------------------------------------------------------- PRICE PER SHARE --------------- HIGH LOW - ----------------------------------------------------------------------------- MONTHS IN 2002 May...................................................... 20.45 18.20 June..................................................... 19.32 17.50 July..................................................... 18.69 17.00 August................................................... 18.00 16.15 September................................................ 19.45 17.50 October.................................................. 18.50 17.22 - ----------------------------------------------------------------------------- purchase by Sidtam of 2,000,000 shares of Tamsa's capital stock. As of October 18, 2002, Sidtam held 9,700,000 shares of Tamsa. On March 2, 2001, Tamsa's board of directors proposed a five-for-one stock split. Tamsa's shareholders approved at the extraordinary shareholders' meeting held on April 27, 2001, the five-for one stock split effective as of July 10, 2001. As a result, holders received five shares for each share held by them. Additionally, a modification of the ratio of ADSs to shares, from one ADS for each share to one ADS for each five shares, was approved. The increase in the number of shares issued and outstanding did not modify the capital stock. Tamsa issued 342,934,120 shares in exchange for the then outstanding 68,586,824 shares. New shares issued as a result of the stock split have the same rights as the shares then issued and outstanding. The Mexican Stock Exchange is the only stock exchange in Mexico. It is organized as a corporation whose shareholders are the only entities authorized to trade in securities listed on the Mexican Stock Exchange. Trading on the Mexican Stock Exchange is conducted electronically from 8:30 A.M. to 3:00 P.M. each business day. Although the Mexican Stock Exchange is one of Latin America's largest securities exchanges in terms of market capitalization, it remains relatively small and illiquid compared to major world markets, and, therefore, subject to greater volatility. Investors in the Mexican Securities Market are mostly individuals, mutual and pension funds and companies. The information regarding the Mexican equities market set forth in the following table was obtained from the Mexican Stock Exchange. (1) At December 31 for each year shown, except for 2002, which is at June 30. (2) End-of-period figures for shares traded on the Mexican Stock Exchange. (3) Including trading of equity on the Mexican Stock Exchange. AMERICAN STOCK EXCHANGE As of October 18, 2002, a total of 25,950,713 ADSs were registered of record. Each ADS represents five shares of common stock of Tamsa. JPMorgan Chase, as successor to Morgan Guaranty, acts as depositary for issuing ADRs evidencing the ADSs. Fluctuations between the Mexican peso and the U.S. dollar will affect the U.S. dollar equivalent of the price of the shares on the Mexican Stock Exchange and the price of the ADSs on the AMEX. On November 7, 2002, the closing price of the Tamsa ADSs on the AMEX was USD9.12. III-38
- ------------------------------------------------------------------------------------------------ MEXICAN EQUITIES MARKET(1) --------------------------------------------------- 2002 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------ Market capitalization (U.S. dollars in billions)(2)............................... 114.41 126.62 125.68 153.49 91.98 156.18 Average daily trading volume (U.S. dollars in millions)(3)............................ 100.59 150.94 165.05 137.80 121.91 195.69 Number of listed companies................. 172 172 177 190 195 198 - ------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------- PRICE PER ADS --------------- HIGH LOW - ----------------------------------------------------------------------------- 2002 First quarter............................................ 10.700 8.650 Second quarter........................................... 10.999 9.199 Third quarter............................................ 9.95 8.25 2001 First quarter............................................ 16.250 10.800 Second quarter........................................... 13.890 10.010 Third quarter............................................ 13.250 9.000 Fourth quarter........................................... 11.250 7.850 2000 First quarter............................................ 16.875 12.375 Second quarter........................................... 16.375 12.188 Third quarter............................................ 17.438 13.688 Fourth quarter........................................... 16.940 12.570 1999 First quarter............................................ 9.000 6.000 Second quarter........................................... 12.438 8.563 Third quarter............................................ 12.563 9.125 Fourth quarter........................................... 14.375 10.438 1998 First quarter............................................ 21.125 15.313 Second quarter........................................... 19.000 12.188 Third quarter............................................ 13.625 4.500 Fourth quarter........................................... 9.875 6.375 1997 First quarter............................................ 18.250 15.375 Second quarter........................................... 18.563 16.250 Third quarter............................................ 24.750 17.875 Fourth quarter........................................... 29.188 18.563 - ----------------------------------------------------------------------------- III-39
- ----------------------------------------------------------------------------- PRICE PER ADS --------------- HIGH LOW - ----------------------------------------------------------------------------- MONTHS IN 2002 May...................................................... 10.90 9.49 June..................................................... 10.10 9.20 July..................................................... 9.55 8.51 August................................................... 9.09 8.25 September................................................ 9.95 8.56 October.................................................. 9.40 8.45 - ----------------------------------------------------------------------------- DALMINE SHARES The principal trading market for the Dalmine ordinary shares is the Milan Stock Exchange. The table below sets forth, for the periods indicated, reported high and low official prices of the Dalmine ordinary shares on the Milan Stock Exchange. On January 4, 1999, the shares began trading on the Milan Stock Exchange in euro. The data provided in the following table for the period prior to January 1999 is based on noon buying rates for the Italian lira converted into the euro at fixed rate established by the European Council of Ministers of Italian lire 1,936.27=E1.00. III-40
- ----------------------------------------------------------------------------- PRICE PER SHARE --------------- HIGH LOW - ----------------------------------------------------------------------------- 2002 First quarter............................................ 0.22 0.18 Second quarter........................................... 0.21 0.15 Third quarter............................................ 0.15 0.11 2001 First quarter............................................ 0.37 0.30 Second quarter........................................... 0.35 0.31 Third quarter............................................ 0.32 0.17 Fourth quarter........................................... 0.22 0.17 2000 First quarter............................................ 0.33 0.18 Second quarter........................................... 0.32 0.24 Third quarter............................................ 0.37 0.30 Fourth quarter........................................... 0.41 0.31 1999 First quarter............................................ 0.27 0.21 Second quarter........................................... 0.26 0.22 Third quarter............................................ 0.23 0.21 Fourth quarter........................................... 0.22 0.19 1998 First quarter............................................ 0.46 0.24 Second quarter........................................... 0.47 0.29 Third quarter............................................ 0.34 0.20 Fourth quarter........................................... 0.27 0.18 1997 First quarter............................................ 0.21 0.17 Second quarter........................................... 0.20 0.19 Third quarter............................................ 0.23 0.19 Fourth quarter........................................... 0.27 0.21 - ----------------------------------------------------------------------------- On November 7, 2002, the closing sales price for Dalmine's shares was E0.14. As of October 18, 2002, a total of 1,156,680,000 Dalmine ordinary shares were registered in the Dalmine shareholders register. These shares represent 100% of the total outstanding Dalmine ordinary shares. The information regarding the Italian equities market set forth in the following table was obtained from the Milan Stock Exchange.
- ----------------------------------------------------------------------------- PRICE PER SHARE --------------- HIGH LOW - ----------------------------------------------------------------------------- MONTHS IN 2002 May...................................................... 0.20 0.17 June..................................................... 0.17 0.15 July..................................................... 0.15 0.11 August................................................... 0.15 0.13 September................................................ 0.15 0.11 October.................................................. 0.14 0.11 - ----------------------------------------------------------------------------- (1) At December 31 for each year shown, except for 2002, which is at June 30. (2) End-of-period figures for shares traded on the Milan Stock Exchange. (3) Including trading of equity on the Milan Stock Exchange. DIVIDENDS THE COMPANY We do not have, and have no current plans to establish, a formal dividend policy governing the amount and payment of dividends. The amount and payment of dividends will be determined by a majority vote of our shareholders, generally, but not necessarily, based on the recommendation of our board of directors. If the exchange offer is successful, the current controlling shareholder of Siderca, Tamsa and Dalmine will beneficially own a controlling interest in our capital stock and will have the discretion to determine the amount and payment of future dividends. All shares of our capital stock rank pari passu with respect to the payment of dividends. On August 27, 2002, we distributed to our shareholders an interim cash dividend of USD9.3 million, which equals the amount of the dividend we received on August 5, 2002, from Siderca. Under Luxembourg law, interim dividend distributions must be ratified by our annual shareholders' meeting. Our controlling shareholder has informed us that it intends to cause a future shareholders' meeting to ratify the interim dividend distribution, and that such ratification will not provide for any adjustment to or redistribution of any portion of such dividend to shares issued by us after August 27, 2002. III-41
- -------------------------------------------------------------------------------------------------- ITALIAN EQUITIES MARKET(1) ------------------------------------------------------------- 2002 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------------------------- Market capitalization (U.S. dollars in billions)(2).................... 526.83 526.85 771.51 731.10 566.08 343.02 Average daily trading volume (U.S. dollars in millions)(3)............ 2,281.97 2,249.14 3,127.16 2,110.65 1,863.99 784.25 Number of listed companies......... 297 294 297 270 243 239 - -------------------------------------------------------------------------------------------------- We will conduct all of our operations through subsidiaries and, accordingly, our main source of cash to pay dividends will be the dividends received from our subsidiaries. See "Part Two--Risk Factors--Risks relating to Tenaris's Business--Our ability to pay cash dividends depends on the results of operations and financial condition of our subsidiaries and may be restricted by legal, contractual or other limitations." These dividend payments will likely depend on the subsidiaries' results of operations, financial condition, cash and capital requirements, future growth prospects and other factors deemed relevant by their respective boards of directors, as well as on any applicable legal restrictions. See "Part Two--Risk Factors--Risks relating to Argentina and Mexico" and "Part Eight--Legal Information--Description of Our Shares--Dividends" for a discussion of the current Argentine restrictions on the payment of dividends. Dividends may be lawfully declared and paid if our profits and distributable reserves are sufficient under Luxembourg law. The board of directors has power to initiate dividend installments pursuant to Luxembourg law, but payment of the dividends must be approved by our shareholders at the annual general meeting, subject to the approval of our annual accounts. Under Luxembourg law, at least 5% of our net profits per year must be allocated to the creation of a legal reserve until such reserve has reached an amount equal to 10% of our share capital. If the legal reserve later falls below the 10% threshold, at least 5% of net profits again must be allocated toward the reserve. The legal reserve is not available for distribution. On October 18, 2002, our board of directors resolved that only a portion (approximately USD127.5 million) of the value of Sidertubes' first contribution to us would be allocated to the freely-distributable issuance premium out of which the Company may pay dividends. See "Part Four--Information about Tenaris--Related Party Transactions--Corporate reorganization transactions." SIDERCA Siderca does not have a formal policy governing the amount and payment of dividends. However, it has paid dividends regularly in the past several years. The amount and payment of dividends are determined by majority vote of the shareholders of Siderca, generally, but not necessarily, on the recommendation of Siderca's board of directors. Since San Faustin beneficially owned 71.17% of the capital stock of Siderca as of October 18, 2002, it has and will continue to have the discretion to determine the amount and payment of future dividends. The payment of future dividends will also depend on Siderca's earnings, financial condition and other factors, including the requirements of Argentine law. All shares of Siderca's capital stock rank pari passu with respect to the payment of dividends. Siderca paid aggregate dividends as follows: - - Fiscal year 1999: ARP212.9 million (ARP0.21 per share). Of this amount, ARP97.8 million was paid in cash and ARP115.0 million was paid in kind. - - Fiscal year 2000: ARP97.8 million (ARP0.10 per share). This entire amount was paid in cash. - - Fiscal year 2001: ARP293.5 million (ARP0.29 per share). This entire amount was paid in cash. - - Transition period ended December 31, 2001: ARP275.8 million (ARP0.28 per share). Of this amount, ARP156.5 million was paid in cash and ARP119.3 million was paid in kind (with shares of Siderar). In addition, on July 26, 2002, Siderca announced a cash dividend of ARP180.0 million (ARP0.18 per share), which was paid on August 5, 2002. Shareholders were given the option to receive their dividend in U.S. dollars at an exchange rate of ARP3.65 per U.S. dollar, which was the bank selling III-42 rate offered by Banco de la Nacion Argentina for converting Argentine pesos into U.S. dollars at the close of business on July 25, 2002. No assurances are given that Siderca will provide such an option with respect to the currency of payment of any cash dividends in the future. Dividends may be lawfully declared and paid only out of Siderca's retained earnings reflected in its annual financial statements and approved by a shareholders' meeting as described below. The board of directors of Siderca may declare an anticipatory dividend, in which case each member of the board of directors and of the supervisory council is jointly and severally liable for the repayment of the dividend if retained earnings at the close of the fiscal year in which the dividend was paid would not have been sufficient to permit the payment of the dividend. The board of directors submits the financial statements of Siderca for the preceding fiscal year, together with reports thereon by the supervisory council, to the annual ordinary shareholders' meeting for approval. Within four months of the end of each fiscal year, an ordinary shareholders' meeting must be held to approve the financial statements and determine the allocation of Siderca's net income for the preceding fiscal year. Under Argentine law, the shareholders are required to allocate not less than 5% of net income per year to the legal reserve until the amount of the reserve equals 20% of Siderca's subscribed capital stock plus adjustments to capital stock. If the legal reserve is subsequently reduced, dividends may not be paid until the legal reserve has been restored to its former level. The legal reserve is not available for distribution. At June 30, 2002, Siderca's legal reserve represented 11.4% of Siderca's subscribed capital stock, as adjusted. Under Siderca's by-laws, after the allocation to the legal reserve has been made, an amount will be segregated to pay the fees of the members of the board of directors and of the supervisory council and, if any preferred stock is then outstanding (Siderca currently has no preferred stock outstanding), an amount will be segregated to pay dividends on preferred stock. The remainder of the retained earnings for the year may be distributed as dividends on capital stock or retained as a voluntary dividend reserve, contingency reserve or other account, or any combination thereof, all as determined by the shareholders at the ordinary shareholders' meeting. Certain regulations issued in Argentina in response to the economic and political crisis in that country may continue to affect Siderca's ability to pay dividends. For example, on December 4, 2001, Siderca distributed a dividend consisting of cash and shares of Siderar. Instead of distributing the unregistered Siderar shares directly to holders of the ADSs, the depositary, pursuant to the Siderca ADR deposit agreement, chose to liquidate the Siderar shares in the Argentine market and deliver the cash proceeds to holders of Siderca ADSs. Due to the Argentine government's emergency measures, however, the depositary has not yet been able to transfer out of Argentina either the ADS holders' cash payments or the proceeds from the sale of the Siderar shares out of Argentina. The depositary has made application to the Argentine Central Bank to permit those funds to be transferred outside Argentina. The Argentine Central Bank has not yet responded to the depositary's application, which is required under the Argentine government's emergency measures in order to make certain transfers of U.S. dollars out of Argentina. Neither Siderca nor the depositary can provide any estimates as to when, if ever, the Argentine Central Bank will respond to the depositary's application. Until such time, if ever, that the Argentine Central Bank approves the depositary's application, holders of Siderca's ADSs will be unable to receive any of the cash proceeds relating to Siderca's December 4, 2001 dividend. See "Part Two--Risk Factors--Risks relating to Argentina and Mexico" and the risk factors included in Siderca's transition report on Form 20-F incorporated by reference into this prospectus. TAMSA Tamsa does not have a formal policy governing the amount and payment of dividends. The amount and payment of dividends are determined by majority vote of the shareholders of Tamsa, generally, but not necessarily, on the recommendation of Tamsa's board of directors. Since Tamsa's controlling III-43 shareholder beneficially owned 50.77% of the capital stock of Tamsa as of October 18, 2002, it effectively has and will continue to effectively have the discretion to determine the amount and payment of future dividends. The payment of future dividends will also depend on Tamsa's earnings, financial condition and other factors, including the requirements of Mexican law. All shares of Tamsa's capital stock rank pari passu with respect to the payment of dividends. Tamsa paid dividends as follows: - - Fiscal year 1999: USD30 million (or USD0.4374 per share at the exchange rate of MXP9.3125 per dollar). This amount was paid on May 31, 2000, in cash. - - Fiscal year 2000: USD30 million (or USD0.4374 per share at the exchange rate of MXP9.7025 per dollar). This amount was paid on May 31, 2001, in cash. - - Fiscal year 2001: USD30 million (or USD0.08748 per share, after the stock split, at the exchange rate of MXP9.1182 per dollar). This amount was paid on May 31, 2002, in cash. The board of directors submits the consolidated financial statements of Tamsa for the preceding fiscal year, together with reports thereon by the statutory auditor, to the annual ordinary shareholders' meeting for approval. Holders of Tamsa's ADSs are entitled to vote at any shareholders' meeting that may resolve on the payment of dividends, except that if Tamsa does not provide the depositary with the necessary voting materials on a timely basis, such holders of ADSs might not be able to exercise their voting rights. Tamsa has never failed to provide voting materials on a timely basis. On or before April 30 of each fiscal year, an ordinary shareholders' meeting must be held to approve the consolidated financial statements and determine the allocation of Tamsa's net income for the preceding fiscal year. Under Mexican law, the shareholders are required to allocate not less than 5% of net income per year to the legal reserve until the amount of the reserve equals 20% of Tamsa's subscribed capital stock. If the legal reserve is subsequently reduced, dividends may not be paid until the legal reserve has been restored to its former level. The legal reserve is not available for distribution. At June 30, 2002, Tamsa's legal reserve represented 8.64% of Tamsa's subscribed capital stock, as adjusted. Under Tamsa's by-laws, after the allocation to the legal reserve has been made, amounts may be segregated to fund additional reserves as determined by the shareholders' meeting. The remainder of the retained earnings for the year may be distributed as dividends on capital stock or retained as a voluntary reserve, contingency reserve or other account, or any combination thereof, all as determined by the shareholders at the ordinary shareholders' meeting. DALMINE Dalmine does not have a formal policy governing the amount and payment of dividends. The amount and payment of dividends are determined by a majority vote of the shareholders of Dalmine, only on the recommendation of Dalmine's board of directors. Before dividends may be paid out of Dalmine's unconsolidated net profits in any year, an amount equal to 5% of net profits must be allocated to Dalmine's legal reserve until the reserve is at least equal to 20% of the par value of Dalmine's issued share capital. The board of directors may authorize the distribution of interim dividends, subject to certain statutory and legal limitations. The payment of future dividends will depend on Dalmine's earnings, financial condition and other factors, including the requirements of Italian law. See "Part Two--Risk Factors--Risks relating to Tenaris's business--Dalmine's net worth may suffer as a result of a lawsuit in Great Britain." All shares of Dalmine's capital stock rank pari passu with respect to the payment of dividends. The board of directors submits the financial statements of Dalmine for the preceding fiscal year, together with reports thereon prepared by the board of directors and the board of auditors by the end III-44 of March (or, in certain cases, May) of each year to the ordinary shareholders' meeting for approval. On or before the end of April (or, in certain cases, June) of each year, an ordinary shareholders' meeting must be held to approve the financial statements and determine the allocation of Dalmine's net income for the preceding fiscal year. Dalmine has not paid dividends since 1993. Dalmine's controlling shareholder has the ability to cause Dalmine to declare and pay dividends, subject to applicable law. At June 30, 2002, Dalmine's legal reserve represented 7.06% of Dalmine's issued share capital. EFFECT OF THE EXCHANGE OFFER ON MARKET FOR SECURITIES If completed, the exchange offer will reduce the number of holders of Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares and the number of Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares that might otherwise trade publicly. This could in turn diminish the liquidity and market value of the Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares that are not tendered and accepted in the exchange offer. Further, as discussed below, the Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares may be delisted from the exchanges on which they currently trade depending on the results of the exchange offer. This would in turn further diminish the liquidity and market value of these securities as well as the continued availability of publicly available information about Siderca, Tamsa and Dalmine and their securities. In addition, our shares and ADSs will be a new issue of securities with no established trading market or history, and we cannot provide any assurance that our shares and ADSs will enjoy liquidity similar to or greater than the Siderca shares and ADSs, Tamsa shares and ADSs and Dalmine shares. See "Part Two--Risk Factors--Risks relating to the exchange offer." III-45 UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL DATA INTRODUCTORY NOTE The following unaudited pro forma condensed combined consolidated financial data (prepared under IAS with a reconciliation to U.S. GAAP) give pro forma effect to the exchange offer, after giving effect to the pro forma adjustments described in the notes included below. The unaudited pro forma condensed combined consolidated financial data have been prepared from, and should be read in conjunction with, the combined consolidated financial statements of Tenaris included elsewhere in this prospectus and the historical consolidated financial statements and notes thereto of Siderca, Tamsa and Dalmine, which are included elsewhere in this prospectus. In each presentation of the unaudited pro forma condensed combined consolidated data shown below, the first column shows the data arising from Tenaris's audited combined consolidated financial statements. The second, third and fourth columns reflect the effect of the exchange offer assuming the valid tender without subsequent withdrawal of the number of Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares, as the case may be, necessary for Tenaris to hold the percentages of Siderca shares or ADSs, Tamsa shares or ADSs or Dalmine shares stated therein. The following unaudited pro forma condensed combined consolidated financial data give pro forma effect to different scenarios of acceptance of the exchange offer. The first scenario assumes that, at January 1, 2001, or June 30, 2002, as the case may be, Tenaris held 80% of the shares or ADSs of Siderca (having thus acquired 8.83% of the Siderca shares or ADSs pursuant to the exchange offer), 80% of the shares or ADSs of Tamsa (having thus acquired 28.16% of the Tamsa shares or ADSs pursuant to the exchange offer) and 90% of the shares of Dalmine (having thus acquired 42.78% of the shares of Dalmine pursuant to the exchange offer), which are the minimum ownership percentages of Siderca, Tamsa and Dalmine required to consummate the exchange offer. The second scenario assumes that, at January 1, 2001, or June 30, 2002, as the case may be, Tenaris held 100% of the shares or ADSs of Siderca (having thus acquired 28.83% of the Siderca shares or ADSs pursuant to the exchange offer), 100% of the shares or ADSs of Tamsa (having thus acquired 48.16% of the Tamsa shares or ADSs pursuant to the exchange offer) and 100% of the shares of Dalmine (having thus acquired 52.78% of the shares of Dalmine pursuant to the exchange offer). The following unaudited pro forma combined consolidated financial data also contain a sensitivity analysis, which addresses the impact of acquiring incremental 5% ownership interests in Siderca, Tamsa and Dalmine. The pro forma income statement data for the year ended December 31, 2001, and for the six-month period ended June 30, 2002, assume that the exchange offer occurred on January 1, 2001, while the pro forma balance sheet data as of June 30, 2002, assume that the exchange offer occurred on June 30, 2002. The unaudited pro forma condensed combined consolidated financial data are provided for illustrative purposes only and do not purport to represent the actual results of operations or what Tenaris's financial position would have been had the exchange offer occurred on the date assumed, nor is it necessarily indicative of Tenaris's future operating results or combined consolidated financial position. The pro forma transactions are based upon available information and upon certain assumptions that we believe are reasonable. III-46 DETERMINATION AND ALLOCATION OF COST OF ACQUISITION On September 13, 2002, we announced that we would seek the approvals necessary to make the exchange offer and to list our securities. The exchange offer is a key component of our strategy to reorganize Tenaris's investments in the steel pipe sector, further establish Tenaris as a global company, and better position it to capitalize on future growth opportunities. Our goals in the transaction include consolidating Tenaris's corporate identity as a global company, increasing the visibility of the Tenaris steel pipe business, aligning the interests of all shareholders across the Tenaris companies, generating further management and operating synergies and providing a more attractive investment opportunity in the steel pipe sector. In the absence of a trading market for the Company's securities to be issued in connection with the exchange offer, cost of acquisition for purposes of the preparation of these unaudited pro forma condensed combined consolidated financial data has been determined utilizing the average market capitalization of each of Siderca, Tamsa and Dalmine over the three trading day period before and the two trading day period after the announcement of the terms of the exchange offer on September 13, 2002, based on the average market prices of Siderca ADSs on the NYSE, Tamsa ADSs on the AMEX and Dalmine shares on the Milan Stock Exchange. The average market capitalizations used for each company are USD1,782.2 million for Siderca, USD662.7 million for Tamsa and USD167.9 million for Dalmine. These average market capitalizations result in a purchase price of USD157 million, USD194 million and USD72 million, respectively, in case of the acquisition of an 8.83% interest in Siderca, a 28.16% interest in Tamsa and a 42.78% interest in Dalmine, respectively, at June 30, 2002, and USD514 million, USD326 million and USD89 million, respectively, in case of the acquisition of a 28.83% interest in Siderca, a 48.16% interest in Tamsa and a 52.78% interest in Dalmine, respectively, at June 30, 2002. The following tables summarize the estimated fair value adjustments of the assets and liabilities resulting from the acquisition of minority interest at the acquisition date in each of the scenarios described above. The first table assumes the acquisition of an 8.83% interest in Siderca, a 28.16% interest in Tamsa and a 42.78% interest in Dalmine at June 30, 2002, and the second table assumes the acquisition of a 28.83% interest in Siderca, a 48.16% interest in Tamsa and a 52.78% interest in Dalmine at June 30, 2002. III-47
- --------------------------------------------------------------------------------------------------- AT JUNE 30, 2002 ------------------------------------- SIDERCA TAMSA DALMINE THOUSANDS OF U.S. DOLLARS 8.83% 28.16% 42.78% TOTAL - --------------------------------------------------------------------------------------------------- IAS Property, plant and equipment, net.......................... 7,702 (10,077) 24,450 22,075 Goodwill.................................................... 56,734 (16,743) (44,671) (4,680) Other non-current assets.................................... - 3,527 - 3,527 Current assets.............................................. 360 - - 360 ------------------------------------- Total assets acquired....................................... 64,796 (23,293) (20,221) 21,282 Minority interest in Siderca, Tamsa and Dalmine............. 95,377 216,984 101,900 414,261 Total non-current liabilities............................... (2,822) - (9,841) (12,663) ------------------------------------- Total liabilities assumed................................... (2,822) - (9,841) (12,663) ------------------------------------- Fair value of interest acquired............................. 157,351 193,691 71,838 422,880 - --------------------------------------------------------------------------------------------------- III-48
- --------------------------------------------------------------------------------------------------- AT JUNE 30, 2002 ------------------------------------- SIDERCA TAMSA DALMINE THOUSANDS OF U.S. DOLLARS 28.83% 48.16% 52.78% TOTAL - --------------------------------------------------------------------------------------------------- IAS Property, plant and equipment, net.......................... 25,150 (16,972) 30,165 38,343 Goodwill.................................................... 185,248 (28,200) (55,112) 101,936 Other non-current assets.................................... - 5,940 - 5,940 Current assets.............................................. 1,177 - - 1,177 ------------------------------------- Total assets acquired....................................... 211,575 (39,232) (24,947) 147,396 Minority interest in Siderca, Tamsa and Dalmine............. 311,431 365,460 125,717 802,608 Total non-current liabilities............................... (9,215) - (12,142) (21,357) ------------------------------------- Total liabilities assumed................................... (9,215) - (12,142) (21,357) ------------------------------------- Fair value of interest acquired............................. 513,791 326,228 88,628 928,647 - --------------------------------------------------------------------------------------------------- UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL DATA ASSUMING 80% OWNERSHIP OF SIDERCA, 80% OWNERSHIP OF TAMSA AND 90% OWNERSHIP OF DALMINE The following unaudited pro forma condensed combined consolidated income statement data for the six-month period ended June 30, 2002, and the year ended December 31, 2001, assume the acquisition of an 8.83% interest in Siderca, a 28.16% interest in Tamsa and a 42.78% interest in Dalmine, resulting in 80% ownership of Siderca, 80% ownership of Tamsa and 90% ownership of Dalmine at January 1, 2001. (1) See Notes 28 and 29 to Tenaris's audited combined consolidated interim financial statements for the six-month period ended June 30, 2002. III-49
- ------------------------------------------------------------------------------------------------------------------ FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2002 ------------------------------------------------------- HISTORICAL PRO FORMA ADJUSTMENTS COMBINED --------------------------- THOUSANDS OF U.S. DOLLARS NOTES CONSOLIDATED SIDERCA TAMSA DALMINE PRO FORMA - ------------------------------------------------------------------------------------------------------------------ UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net sales........................................ 1,569,532 1,569,532 Cost of sales.................................... 1, 2 (1,054,841) (1,675) 755 302 (1,055,459) ------------------------------------------------------- Gross profit..................................... 514,691 (1,675) 755 302 514,073 Selling, general and administrative expenses..... (226,079) (226,079) Other operating income........................... 477 477 Other operating expenses......................... (11,043) (11,043) ------------------------------------------------------- Operating income (loss).......................... 278,046 (1,675) 755 302 277,428 Financial expenses, net.......................... (41,503) (41,503) ------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and equity in earnings (losses) of associated companies and minority interest................................ 236,543 (1,675) 755 302 235,925 Equity in earnings (losses) of associated companies........................................ (5,142) (5,142) ------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and minority interest......................................... 231,401 (1,675) 755 302 230,783 Income tax....................................... 3 (101,017) 90 (118) 328 (100,717) Effect of currency translation on tax bases...... (49,083) (49,083) ------------------------------------------------------- Income (loss) before minority interest........... 81,301 (1,585) 637 630 80,983 Minority interest in Siderca, Tamsa and Dalmine.......................................... 4 (46,940) 1,886 17,886 8,637 (18,531) Minority interest in other subsidiaries.......... (17,204) (17,204) ------------------------------------------------------- Net income....................................... 17,157 301 18,523 9,267 45,248 ------------------------------------------------------- Number of shares (thousands)..................... 710,747 80,775 102,183 41,148 934,853 Combined earnings (loss) per share............... 0.02 0.05 U.S. GAAP Net income under IAS............................. 17,157 301 18,523 9,267 45,248 Adjustments(1)................................... 34,973 34,973 Property, plant and equipment.................... 1 439 1,375 1,814 Goodwill......................................... 2 1,418 1,418 Deferred income tax.............................. 3 (300) (1,003) (1,303) ------------------------------------------------------- Income before cumulative effect of accounting changes.......................................... 52,130 1,719 18,662 9,639 82,150 Cumulative effect of accounting changes(1)....... (17,417) (17,417) ------------------------------------------------------- Net income under U.S. GAAP....................... 34,713 1,719 18,662 9,639 64,733 ------------------------------------------------------- Combined earnings per share before effect of accounting changes............................... 0.07 0.09 Cumulative effect of accounting changes per share............................................ (0.02) (0.02) Combined earnings (loss) per share............... 0.05 0.07 - ------------------------------------------------------------------------------------------------------------------ (1) See Notes 28 and 29 to Tenaris's audited combined consolidated interim financial statements for the year ended December 31, 2000 III-50
- ------------------------------------------------------------------------------------------------------------------ FOR THE YEAR ENDED DECEMBER 31, 2001 ------------------------------------------------------- HISTORICAL PRO FORMA ADJUSTMENTS COMBINED --------------------------- THOUSANDS OF U.S. DOLLARS NOTES CONSOLIDATED SIDERCA TAMSA DALMINE PRO FORMA - ------------------------------------------------------------------------------------------------------------------ UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net sales........................................ 3,119,343 3,119,343 Cost of sales.................................... 1, 2 (2,165,568) (3,350) 1,510 604 (2,166,804) ------------------------------------------------------- Gross profit..................................... 953,775 (3,350) 1,510 604 952,539 Selling, general and administrative expenses..... (447,791) (447,791) Other operating income........................... 585 585 Other operating expenses......................... (64,937) (64,937) ------------------------------------------------------- Operating income (loss).......................... 441,632 (3,350) 1,510 604 440,396 Financial expenses, net.......................... (25,595) (25,595) ------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and equity in earnings (losses) of associated companies and minority interest......................................... 416,037 (3,350) 1,510 604 414,801 Equity in earnings (losses) of associated companies........................................ (41,296) (41,296) ------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and minority interest......................................... 374,741 (3,350) 1,510 604 373,505 Income tax....................................... 3 (108,956) 180 (235) 656 (108,355) Effect of currency translation on tax bases...... (109,882) (109,882) ------------------------------------------------------- Income (loss) before minority interest........... 155,903 (3,170) 1,275 1,260 155,268 Minority interest in Siderca, Tamsa and Dalmine.......................................... 4 (58,981) 7,847 20,691 (1,105) (31,548) Minority interest in other subsidiaries.......... (15,576) (15,576) ------------------------------------------------------- Net income....................................... 81,346 4,677 21,966 155 108,144 ------------------------------------------------------- Number of shares (thousands)..................... 710,747 80,775 102,183 41,148 934,853 Combined earnings (loss) per share............... 0.11 0.12 U.S. GAAP Net income under IAS............................. 81,346 4,677 21,966 155 108,144 Adjustments(1)................................... 82,575 82,575 Property, plant and equipment.................... 1 878 2,750 3,628 Goodwill......................................... 2 2,836 2,836 Deferred income tax.............................. 3 (600) (2,006) (2,606) ------------------------------------------------------- Income before cumulative effect of accounting changes.......................................... 163,921 7,513 22,244 899 194,577 Cumulative effect of accounting changes(1)....... (1,007) (1,007) ------------------------------------------------------- Net income under U.S. GAAP....................... 162,914 7,513 22,244 899 193,570 ------------------------------------------------------- Combined earnings per share before effect of accounting changes............................... 0.23 0.21 Cumulative effect of accounting changes per share............................................ (0.00) (0.00) Combined earnings (loss) per share............... 0.23 0.21 - ------------------------------------------------------------------------------------------------------------------ The following unaudited pro forma condensed combined consolidated balance sheet data at June 30, 2002, assume the acquisition of an 8.83% interest in Siderca, a 28.16% interest in Tamsa and a 42.78% interest in Dalmine, resulting in 80% ownership of Siderca, 80% ownership of Tamsa and 90% ownership of Dalmine at June 30, 2002. (1) See Notes 28 and 29 to Tenaris's audited combined consolidated interim financial statements at June 30, 2002. III-51
- ------------------------------------------------------------------------------------------------------------------ AT JUNE 30, 2002 -------------------------------------------------------- HISTORICAL PRO FORMA ADJUSTMENTS COMBINED ----------------------------- PRO THOUSANDS OF U.S. DOLLARS NOTES CONSOLIDATED SIDERCA TAMSA DALMINE FORMA - ------------------------------------------------------------------------------------------------------------------ UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET DATA IAS Non-current assets: Property, plant and equipment, net.............. 5 1,894,723 7,702 (10,077) 24,450 1,916,798 Intangible assets, net.......................... 6 49,700 56,734 (16,743) (44,671) 45,020 Other non-current assets........................ 176,228 176,228 Deferred tax assets............................. 8 29,882 3,527 33,409 -------------------------------------------------------- Total non-current assets........................ 2,150,533 64,436 (23,293) (20,221) 2,171,455 Current assets: Inventories..................................... 7 661,783 360 662,143 Trade receivables............................... 713,252 713,252 Other current assets............................ 413,145 413,145 -------------------------------------------------------- Total current assets............................ 1,788,180 360 1,788,540 -------------------------------------------------------- Total assets.................................... 3,938,713 64,796 (23,293) (20,221) 3,959,995 -------------------------------------------------------- Shareholders' equity............................ 845,792 157,351 193,691 71,838 1,268,672 Minority interest in Siderca, Tamsa and Dalmine......................................... 9 802,608 (95,377) (216,984) (101,900) 388,347 Minority interest in other subsidiaries......... 105,531 105,531 Non-current liabilities: Borrowings...................................... 358,058 358,058 Deferred tax liabilities........................ 8 260,964 2,822 9,841 273,627 Effect of currency translation on tax bases..... 138,643 138,643 Other liabilities............................... 199,667 199,667 -------------------------------------------------------- Total non-current liabilities................... 957,332 2,822 9,841 969,995 Current liabilities: Borrowings...................................... 448,486 448,486 Trade payables.................................. 451,781 451,781 Other liabilities............................... 327,183 327,183 -------------------------------------------------------- Total current liabilities....................... 1,227,450 1,227,450 -------------------------------------------------------- Total liabilities............................... 2,184,782 2,822 9,841 2,197,445 -------------------------------------------------------- Total equity and liabilities.................... 3,938,713 64,796 (23,293) (20,221) 3,959,995 -------------------------------------------------------- U.S. GAAP Shareholders' equity under IAS.................. 845,792 157,351 193,691 71,838 1,268,672 Adjustments(1).................................. 85,025 85,025 Total shareholders' equity under U.S. GAAP...... 930,817 157,351 193,691 71,838 1,353,697 - ------------------------------------------------------------------------------------------------------------------ UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL DATA ASSUMING 100% OWNERSHIP OF EACH OF SIDERCA, TAMSA AND DALMINE The following unaudited pro forma condensed combined consolidated income statement data for the six-month period ended June 30, 2002, and the year ended December 31, 2001, assume the acquisition of a 28.83% interest in Siderca, a 48.16% interest in Tamsa and a 52.78% interest in Dalmine, resulting in 100% ownership of each of Siderca, Tamsa and Dalmine at January 1, 2001. (1) See Notes 28 and 29 to Tenaris's audited combined consolidated interim financial statements for the six-month period ended June 30, 2002. III-52
- ------------------------------------------------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED JUNE 30, 2002 ------------------------------------------------------- HISTORICAL PRO FORMA ADJUSTMENTS COMBINED --------------------------- THOUSANDS OF U.S. DOLLARS NOTES CONSOLIDATED SIDERCA TAMSA DALMINE PRO FORMA - ------------------------------------------------------------------------------------------------------------------ UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net sales........................................ 1,569,532 1,569,532 Cost of sales.................................... 1, 2 (1,054,841) (5,469) 1,271 372 (1,058,667) ------------------------------------------------------- Gross profit..................................... 514,691 (5,469) 1,271 372 510,865 Selling, general and administrative expenses..... (226,079) (226,079) Other operating income........................... 477 477 Other operating expenses......................... (11,043) (11,043) ------------------------------------------------------- Operating income (loss).......................... 278,046 (5,469) 1,271 372 274,220 Financial expenses, net.......................... (41,503) (41,503) ------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and equity in earnings (losses) of associated companies and minority interest................................ 236,543 (5,469) 1,271 372 232,717 Equity in earnings (losses) of associated companies........................................ (5,142) (5,142) ------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and minority interest......................................... 231,401 (5,469) 1,271 372 227,575 Income tax....................................... 3 (101,017) 293 (198) 405 (100,517) Effect of currency translation on tax bases...... (49,083) (49,083) ------------------------------------------------------- Income (loss) before minority interest........... 81,301 (5,176) 1,073 777 77,975 Minority interest in Siderca, Tamsa and Dalmine.......................................... 4 (46,940) 6,159 30,126 10,655 Minority interest in other subsidiaries.......... (17,204) (17,204) ------------------------------------------------------- Net income....................................... 17,157 983 31,199 11,432 60,771 ------------------------------------------------------- Number of shares (thousands)..................... 710,747 263,708 174,746 50,765 1,199,966 Combined earnings (loss) per share............... 0.02 0.05 U.S. GAAP Net income under IAS............................. 17,157 983 31,199 11,432 60,771 Adjustments(1)................................... 34,973 34,973 Property, plant and equipment.................... 1 741 1,696 2,437 Goodwill......................................... 2 4,631 4,631 Deferred income tax.............................. 3 (506) (1,237) (1,743) ------------------------------------------------------- Income before cumulative effect of accounting changes.......................................... 52,130 5,614 31,434 11,891 101,069 Cumulative effect of accounting changes(1)....... (17,417) (17,417) ------------------------------------------------------- Net income under U.S. GAAP....................... 34,713 5,614 31,434 11,891 83,652 ------------------------------------------------------- Combined earnings per share before effect of accounting changes............................... 0.07 0.08 Cumulative effect of accounting changes per share............................................ (0.02) (0.01) Combined earnings (loss) per share............... 0.05 0.07 - ------------------------------------------------------------------------------------------------------------------ (1) See Notes 28 and 29 to Tenaris's audited combined consolidated interim financial statements for the year ended December 31, 2001. III-53
- ----------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 2001 ------------------------------------------------------- HISTORICAL PRO FORMA ADJUSTMENTS COMBINED --------------------------- THOUSANDS OF U.S. DOLLARS NOTES CONSOLIDATED SIDERCA TAMSA DALMINE PRO FORMA - ----------------------------------------------------------------------------------------------------------------- UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net sales....................................... 3,119,343 3,119,343 Cost of sales................................... 1, 2 (2,165,568) (10,938) 2,542 744 (2,173,220) ------------------------------------------------------- Gross profit.................................... 953,775 (10,938) 2,542 744 946,123 Selling, general and administrative expenses.... (447,791) (447,791) Other operating income.......................... 585 585 Other operating expenses........................ (64,937) (64,937) ------------------------------------------------------- Operating income (loss)......................... 441,632 (10,938) 2,542 744 433,980 Financial expenses, net......................... (25,595) (25,595) ------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and equity in earnings (losses) of associated companies and minority interest............................... 416,037 (10,938) 2,542 744 408,385 Equity in earnings (losses) of associated companies.................................... (41,296) (41,296) ------------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and minority interest........................................ 374,741 (10,938) 2,542 744 367,089 Income tax...................................... 3 (108,956) 587 (396) 810 (107,955) Effect of currency translation on tax bases..... (109,882) (109,882) ------------------------------------------------------- Income (loss) before minority interest.......... 155,903 (10,351) 2,146 1,554 149,252 Minority interest in Siderca, Tamsa and Dalmine...................................... 4 (58,981) 25,621 34,724 (1,364) Minority interest in other subsidiaries......... (15,576) (15,576) ------------------------------------------------------- Net income...................................... 81,346 15,270 36,870 190 133,676 ------------------------------------------------------- Number of shares (thousands).................... 710,747 263,708 174,746 50,765 1,199,966 Combined earnings (loss) per share.............. 0.11 0.11 U.S. GAAP Net income under IAS............................ 81,346 15,270 36,870 190 133,676 Adjustments (1)................................. 82,575 82,575 Property, plant and equipment................... 1 1,482 3,392 4,874 Goodwill........................................ 2 9,262 9,262 Deferred income tax............................. 3 (1,012) (2,474) (3,486) ------------------------------------------------------- Income before cumulative effect of accounting changes......................................... 163,921 24,532 37,340 1,108 226,901 Cumulative effect of accounting changes(1)...... (1,007) (1,007) ------------------------------------------------------- Net income under U.S. GAAP...................... 162,914 24,532 37,340 1,108 225,894 ------------------------------------------------------- Combined earnings per share before effect of accounting changes.............................. 0.23 0.19 Cumulative effect of accounting changes per share........................................ (0.00) (0.00) Combined earnings (loss) per share.............. 0.23 0.19 - ----------------------------------------------------------------------------------------------------------------- The following unaudited pro forma condensed combined consolidated balance sheet data at June 30, 2002, assume the acquisition of a 28.83% interest in Siderca, a 48.16% interest in Tamsa and a 52.78% interest in Dalmine, resulting in 100% ownership of each of Siderca, Tamsa and Dalmine at June 30, 2002. (1) See Notes 28 and 29 to Tenaris's audited combined consolidated interim financial statements at June 30, 2002. III-54
- ----------------------------------------------------------------------------------------------------------------- AT JUNE 30, 2002 --------------------------------------------------------- HISTORICAL PRO FORMA ADJUSTMENTS COMBINED ------------------------------ PRO THOUSANDS OF U.S. DOLLARS NOTES CONSOLIDATED SIDERCA TAMSA DALMINE FORMA - ----------------------------------------------------------------------------------------------------------------- UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET DATA IAS Non-current assets: Property, plant and equipment, net............. 5 1,894,723 25,150 (16,972) 30,165 1,933,066 Intangible assets, net......................... 6 49,700 185,248 (28,200) (55,112) 151,636 Other non-current assets....................... 176,228 176,228 Deferred tax assets............................ 8 29,882 5,940 35,822 --------------------------------------------------------- Total non-current assets....................... 2,150,533 210,398 (39,232) (24,947) 2,296,752 Current assets: Inventories.................................... 7 661,783 1,177 662,960 Trade receivables.............................. 713,252 713,252 Other current assets........................... 413,145 413,145 --------------------------------------------------------- Total current assets........................... 1,788,180 1,177 1,789,357 --------------------------------------------------------- Total assets................................... 3,938,713 211,575 (39,232) (24,947) 4,086,109 --------------------------------------------------------- Shareholders' equity........................... 845,792 513,791 326,228 88,628 1,774,439 Minority interest in Siderca, Tamsa and Dalmine........................................ 9 802,608 (311,431) (365,460) (125,717) Minority interest in other subsidiaries........ 105,531 105,531 Non-current liabilities: Borrowings..................................... 358,058 358,058 Deferred tax liabilities....................... 8 260,964 9,215 12,142 282,321 Effect of currency translation on tax bases.... 138,643 138,643 Other liabilities.............................. 199,667 199,667 --------------------------------------------------------- Total non-current liabilities.................. 957,332 9,215 12,142 978,689 Current liabilities: Borrowings..................................... 448,486 448,486 Trade payables................................. 451,781 451,781 Other liabilities.............................. 327,183 327,183 --------------------------------------------------------- Total current liabilities...................... 1,227,450 1,227,450 --------------------------------------------------------- Total liabilities.............................. 2,184,782 9,215 12,142 2,206,139 --------------------------------------------------------- Total equity and liabilities................... 3,938,713 211,575 (39,232) (24,947) 4,086,109 --------------------------------------------------------- U.S. GAAP Shareholders' equity under IAS................. 845,792 513,791 326,228 88,628 1,774,439 Adjustments(1)................................. 85,025 85,025 Total shareholders' equity under U.S. GAAP..... 930,817 513,791 326,228 88,628 1,859,464 - ----------------------------------------------------------------------------------------------------------------- SENSITIVITY ANALYSIS The following sensitivity analysis addresses the impact of acquiring incremental 5% ownership interests in Siderca, Tamsa and Dalmine in the unaudited pro forma condensed combined consolidated income statement data for the six months ended June 30, 2002. The following sensitivity analysis addresses the impact of acquiring incremental 5% ownership interests in Siderca, Tamsa and Dalmine in the unaudited pro forma condensed combined consolidated income statement data for the year ended December 31, 2001.
- -------------------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JUNE 30, 2002 --------------------------------- PRO FORMA ADJUSTMENTS REFLECTING THE EFFECT OF A 5% INCREASE IN OWNERSHIP FOR --------------------------------- THOUSANDS OF U.S. DOLLARS NOTES SIDERCA TAMSA DALMINE TOTAL - -------------------------------------------------------------------------------------------------- UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net income............................................. 171 3,169 1,083 4,423 --------------------------------- U.S. GAAP Net income under IAS................................... 171 3,169 1,083 4,423 Property, plant and equipment.......................... 1 74 160 234 Goodwill............................................... 2 803 803 Deferred income tax.................................... 3 (51) (117) (168) --------------------------------- Net income under U.S. GAAP............................. 974 3,192 1,126 5,292 - -------------------------------------------------------------------------------------------------- III-55
- ---------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 2001 ------------------------------------- PRO FORMA ADJUSTMENTS REFLECTING THE EFFECT OF A 5% INCREASE IN OWNERSHIP FOR ------------------------------------- THOUSANDS OF U.S. DOLLARS NOTES SIDERCA TAMSA DALMINE TOTAL - ---------------------------------------------------------------------------------------------------- UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net income........................................... 2,650 3,910 19 6,579 ------------------------------------- U.S. GAAP Net income under IAS................................. 2,650 3,910 19 6,579 Property, plant and equipment........................ 1 148 320 468 Goodwill............................................. 2 1,606 1,606 Deferred income tax.................................. 3 (102) (234) (336) ------------------------------------- Net income under U.S. GAAP........................... 4,256 3,956 105 8,317 - ---------------------------------------------------------------------------------------------------- The following sensitivity analysis addresses the impact of acquiring incremental 5% ownership interests in Siderca, Tamsa and Dalmine in the unaudited pro forma combined consolidated balance sheet data at June 30, 2002. NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT AND BALANCE SHEET The pro forma adjustments consist of: 1. ADJUSTMENT TO RECOGNIZE THE EFFECT OF FAIR VALUES OF PROPERTY, PLANT AND EQUIPMENT ON DEPRECIATION IAS. This adjustment reflects the effect of recording the variation in the depreciation of property, plant and equipment, derived from recognizing the fair value of those assets in the balance sheet, in the proportion attributable to the shares acquired from minority shareholders as a consequence of the exchange offer. Depreciation was computed by the straight-line method on the basis of the related useful life of the assets. U.S. GAAP. As the excess of the fair value of the net assets acquired over the cost of acquisition has been allocated to reduce proportionally the value assigned to non-current assets in determining the fair values, the adjustment reflects the effect in depreciation. 2. ADJUSTMENT TO RECOGNIZE THE EFFECT OF AMORTIZATION OF GOODWILL IAS. This adjustment reflects the effect of recording the amortization expense for the twelve-month or six-month period, as applicable, related to the goodwill (positive and negative) determined in connection with the acquisition of shares from minority shareholders as a consequence of the exchange offer. Amortization was computed by the straight-line method on the basis of 20 years of useful life. U.S. GAAP. This adjustment reflects the difference between the treatment of negative goodwill under U.S. GAAP and the amortization expense determined under IAS. Under U.S. GAAP, negative goodwill III-56
- --------------------------------------------------------------------------------------------- AT JUNE 30, 2002 -------------------------------------- PRO FORMA ADJUSTMENTS REFLECTING THE EFFECT OF A 5% INCREASE IN OWNERSHIP FOR -------------------------------------- THOUSANDS OF U.S. DOLLARS NOTES SIDERCA TAMSA DALMINE TOTAL - --------------------------------------------------------------------------------------------- UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET DATA IAS Total assets................................. 36,695 (3,985) (2,363) 30,347 -------------------------------------- Shareholders' equity......................... 89,110 33,134 8,396 130,640 Minority interest in Siderca, Tamsa and Dalmine...................................... 9 (54,013) (37,119) (11,909) (103,041) Total liabilities............................ 1,598 1,150 2,748 -------------------------------------- Total equity and liabilities................. 36,695 (3,985) (2,363) 30,347 -------------------------------------- U.S. GAAP Shareholders' equity under IAS............... 89,110 33,134 8,396 130,640 Total shareholders' equity under U.S. GAAP... 89,110 33,134 8,396 130,640 - --------------------------------------------------------------------------------------------- represents a lower value of fixed assets and, as result, amortization is computed by the straight-line method on the basis of the related of useful life of the assets. Positive goodwill was not amortized. 3. DEFERRED INCOME TAX IAS AND U.S. GAAP. This adjustment reflects the tax effect on the adjustments described above. 4. ADJUSTMENT IN THE MINORITY INTEREST IN SIDERCA, TAMSA AND DALMINE IAS AND U.S. GAAP. This adjustment reflects the change in the minority interest in Siderca, Tamsa and Dalmine as a result of recognizing different percentages of ownership of the capital stock under the different pro forma scenarios. 5. ADJUSTMENT IN VALUATION OF PROPERTY, PLANT AND EQUIPMENT IAS. This adjustment reflects the effect of recognizing the fair value of those assets in the balance sheet in the proportion attributable to the shares acquired from minority shareholders as a consequence of the exchange offer. The fair values used were calculated based on technical appraisals and are USD621.9 million for all of Siderca's property, plant and equipment, USD801.9 million for all of Tamsa's property, plant and equipment and USD487.2 million for all of Dalmine's property, plant and equipment. U.S. GAAP. This adjustment reflects the effect of recognizing the fair value of those assets in the balance sheet in the proportion attributable to the shares acquired from the minority shareholders as a consequence of the exchange offer, including the effect of negative goodwill as a lower value of property, plant and equipment. 6. RECOGNITION OF GOODWILL IAS AND U.S. GAAP. This adjustment recognizes the effect of booking the difference between the purchase price over the fair value adjustment of the assets and liabilities resulting from the acquisition of minority interest. This goodwill was allocated to the seamless steel pipe business. In the absence of a trading market for the Company's securities to be issued in connection with the exchange offer, cost of acquisition for purposes of the preparation of these unaudited pro forma condensed combined consolidated financial data has been determined utilizing the average market capitalization of each of Siderca, Tamsa and Dalmine over the three trading day period before and the two trading day period after the announcement of the terms of the exchange offer on September 13, 2002, based on the average market prices of Siderca ADSs on the NYSE, Tamsa ADSs on the AMEX and Dalmine shares on the Milan Stock Exchange. The average market capitalizations used for each company are USD1,782.2 million for Siderca, USD662.7 million for Tamsa and USD167.9 million for Dalmine. 7. ADJUSTMENT TO VALUATION OF INVENTORIES IAS AND U.S. GAAP. This adjustment reflects the effect of recognizing the fair value of the inventories in the balance sheet in the proportion attributable to the shares acquired from minority shareholders as a consequence of the exchange offer. The fair value of inventories equals their replacement cost. Since Tamsa and Dalmine's replacement cost is similar to the book value an adjustment was made only for Siderca. The fair value of Siderca's inventories used in the preparation of these pro forma data is USD97.3 million. III-57 8. DEFERRED INCOME TAX IAS AND U.S. GAAP. This adjustment reflects the tax effect on the adjustments described above. 9. ADJUSTMENT IN THE MINORITY INTEREST IAS AND U.S. GAAP. This adjustment reflects the change in the minority interest as a result of recognizing different percentages of ownership of the capital stock in the different scenarios. III-58 PART FOUR INFORMATION ABOUT TENARIS BUSINESS The discussion of Tenaris's business that follows is based on the combined consolidated financial statements of Tenaris included elsewhere in this prospectus. Accordingly, this discussion presents Tenaris's business on a combined and consolidated basis with certain other companies commonly controlled by San Faustin. See "Presentation of Certain Financial and Other Information--Accounting Principles--Tenaris" and notes A and B to the combined consolidated financial statements of Tenaris included elsewhere in this prospectus. OVERVIEW The Company is a recently incorporated Luxembourg corporation, created to hold Tenaris's steel pipe manufacturing and distribution businesses. Tenaris is a leading global manufacturer and supplier of seamless steel pipe products and associated services to the oil and gas, energy and other industries, with production, distribution and service capabilities in key markets worldwide, that carries out its operations through Siderca, Tamsa, Dalmine and Tenaris Global Services, and their respective subsidiaries. Tenaris's principal products include casing, tubing, line pipe, and mechanical and structural pipes. In the last decade, Tenaris has successfully expanded its business through a series of strategic investments. Tenaris now operates a worldwide network of seamless steel pipe operations with manufacturing facilities in South America, North America, Europe and Asia and an annual production capacity of over three million tons of seamless steel pipe products, compared to 800,000 tons in the early 1990s. In addition, through Tenaris Global Services, Tenaris has developed competitive and far reaching global distribution capabilities, with a direct presence in most major oil and gas markets. In the first half of 2002, Tenaris had net sales of USD1,569.5 million, operating income of USD278.0 million and net income of USD17.2 million. In 2001, Tenaris had net sales of USD3,119.3 million, operating income of USD441.6 million and net income of USD81.3 million. Tenaris believes that it is a leading player in the international trade market of seamless pipes based on estimated market share, with particular strength in the international trade market of seamless casing and tubing for the oil and gas industry, which are collectively known as oil country tubular goods, or OCTGs. Tenaris provides tubular products and associated services to its customers around the world through global business units serving specific market segments and local business units serving the local markets where it has production facilities. The global business units include: - - Tenaris Oilfield Services, responding to the tubular needs of oil and gas companies in their drilling activities; - - Tenaris Pipeline Services, responding to the tubular needs of oil and gas and other energy companies in their activities of transporting fluids and gases; - - Tenaris Process and Power Plant Services, responding to the tubular needs of refineries, petrochemical companies and energy generating plants for construction and maintenance purposes; and - - Tenaris Industrial and Automotive Services, responding to the tubular needs of automobile and other industrial manufacturers. IV-1 In addition to its investments in seamless steel pipe operations worldwide, Tenaris has a 100% interest in Siat S.A.I.C., or Siat, and holds 99.2% of the voting stock of Confab. We believe that Siat and Confab are the leading producers of welded steel pipes in Argentina and Brazil, respectively, with a combined annual production capacity of 850,000 tons. HISTORY AND CORPORATE ORGANIZATION Tenaris began with the formation of Siderca by San Faustin's predecessor in Argentina in 1948. Siat, an Argentine welded steel pipe manufacturer, was acquired in 1986. Tenaris grew organically in Argentina and then, in the early 1990s, began to evolve beyond its initial base in Argentina into a global business through a series of strategic investments. These investments included the acquisition of controlling or substantial interests in: - - Tamsa, the sole Mexican producer of seamless steel pipe products (June 1993); - - Dalmine, a leading Italian producer of seamless steel pipe products (February 1996); - - Tavsa, the sole Venezuelan producer of seamless steel pipe products (October 1998); - - Confab, the leading Brazilian producer of welded steel pipe products (August 1999); - - NKKTubes, a leading Japanese producer of seamless steel pipe products and source of advanced seamless steel pipe manufacturing technology (August 2000); and - - AlgomaTubes, the sole Canadian producer of seamless steel pipe products (October 2000). These steel pipe producers coordinate their commercial and other activities and operate using the common Tenaris brand. The Tenaris companies benefit from the dedicated sales and marketing support of Tenaris Global Services to reach and provide local services to customers in markets in which they do not have established local operations. IV-2 Below is a simplified diagram of Tenaris's corporate structure, as reflected in, and forming the basis for the preparation and presentation of, Tenaris's audited combined consolidated financial statements included in this prospectus. [FLOW CHART] - -------------------------------------------------------------------------------- (1) As of October 18, 2002, Tenaris also held a 27.00% participation in Metalmecanica (with Siderca holding the remaining 73.00%) and a 52.00% participation in Metalcentro (with Siderca holding the remaining 48.00%). (2) The remainder of Confab is owned by the public. As of October 18, 2002, Siderca held 99.22% of Confab's voting stock. (3) As of October 18, 2002, the remainder of NKKTubes was owned by NKK Corporation. (4) As of October 18, 2002, the remainder of Tavsa was owned by the Republic of Venezuela through the Corporacion Venezolana de Guayana. OUR COMPETITIVE STRENGTHS Tenaris believes its main competitive strengths include: - - its 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; - - its ability to provide value-added services worldwide; - - its ability to design and manufacture technologically advanced products; - - its solid and diversified customer base and historic relationships with major international oil and gas companies around the world; - - its low-cost operations, primarily at state-of-the-art, strategically located production facilities with favorable access to raw materials, energy and labor, and more than 45 years of operating experience; and - - its strong balance sheet. IV-3 TENARIS'S BUSINESS STRATEGY Tenaris's business strategy is to continue expanding its operations internationally and further consolidate its position as a leading supplier of high-quality tubular products and services worldwide to the oil and gas and other industries by: - - further integrating the operations of its subsidiaries to provide customers a complete range of products worldwide and to maximize operational flexibility and synergies; - - developing a comprehensive range of value-added services designed to enable customers to reduce working capital and inventory requirements while integrating Tenaris's production activities with the customer supply chain; and - - continuing to pursue strategic acquisition opportunities. INTEGRATING THE OPERATIONS OF ITS SUBSIDIARIES Tenaris believes that further integrating the operations of its subsidiaries will reinforce its strong position in the international seamless steel pipe market and its leading presence in the domestic markets of its subsidiaries. Tenaris has already taken several steps to integrate these operations, including: - - the reorganization of the commercial activities of its subsidiaries under global and local customer-focused business units; - - the adoption of a joint policy among the Tenaris companies for the allocation of orders; - - the common use of the Tenaris brand, launched in May 2001, with which Tenaris is positioning itself as an integrated supplier of high-value products and industry-leading services; - - the increased use of Tenaris Global Services to provide services to Tenaris's global customers; - - the sharing of operational technology and coordination of Tenaris's research and development activities; and - - the reorganization of Tenaris's procurement, information technology, or IT, and premium joint licensing activities. By aligning the interest of all shareholders across the Tenaris companies through the exchange offer and the related corporate reorganization under a single, consolidated corporate entity, Tenaris seeks to achieve further integration of its operations and thereby to increase flexibility and synergies across six seamless and two welded pipe mills and Tenaris Global Services. See "Part Three--The Exchange Offer--Reasons for the exchange offer." DEVELOPING VALUE-ADDED SERVICES Tenaris continues to develop its capabilities to supply value-added services to its customers worldwide. These services seek to enable its customers to reduce costs and concentrate on their core businesses. They are also intended to enable Tenaris to differentiate itself from its competition, further strengthen Tenaris's relationship with its customers worldwide through long-term agreements and to capture more of the value in the supply chain. These value-added services include: - - working with its customers to anticipate their needs and develop customized products for particular applications; IV-4 - - providing comprehensive pipe management services, including just-in-time, or JIT, delivery and stocking programs; and - - developing integrated supply chain management services through alliances with specialist service providers and extensive use of information technology. PURSUING STRATEGIC ACQUISITION OPPORTUNITIES Tenaris has a solid record of growth through strategic acquisitions. Tenaris is actively pursuing selective strategic acquisitions as a means to expand its operations, enhance its global competitive position and capitalize on potential operational synergies. TENARIS'S PRODUCTS Tenaris's principal finished products are seamless steel pipes casing and tubing, seamless steel line pipe and various other mechanical and structural seamless pipes for different uses. Tenaris also produces welded steel pipes for oil and gas pipelines and industrial uses, as well as pipe accessories. Tenaris manufactures most of its seamless steel products in a wide range of specifications, which vary in width, length, thickness, finishings and grades. Seamless steel casing. Seamless steel casing is used to sustain the walls of oil and gas wells during and after drilling. Seamless steel tubing. Seamless steel tubing is used to extract crude oil and natural gas after drilling has been completed. Seamless steel line pipe. Seamless steel line pipe is used to transport crude oil and natural gas from wells to refineries, storage tanks and loading and distribution centers. Seamless steel mechanical and structural pipes. Seamless steel mechanical and structural pipes are used by the 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 pipe 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 seamless steel casing and tubing for use in high temperature or high pressure environments. A significant portion of our seamless steel casing and tubing products are supplied with premium joints and couplings. Tenaris owns the intellectual property rights to the Antares and NKK range of premium connections and holds licensing rights to manufacture and sell the Atlas Bradford range of premium connections outside of the United States. Welded steel pipes. Welded steel pipes are processed from steel sheets and plates and are used for the conveying of fluids at low, medium and high pressure, and for mechanical and structural purposes. PRODUCTION PROCESS AND FACILITIES Tenaris believes its primarily low-cost production facilities are a result of: - - state-of-the-art, strategically located plants; - - favorable access to high quality raw materials, energy and labor at competitive costs; - - operating history of more than 45 years, which translates into solid industrial know-how; IV-5 - - constant benchmarking and best-practices sharing among the different facilities; - - increasing specialization of each of our facilities in specific product ranges; and - - intensive use of information technology in our production processes. Tenaris's production facilities are located in South America, North America, Europe and Asia. In addition, Tenaris manufactures welded pipe products in Siat's and Confab's facilities in Argentina and Brazil, and tubular accessories such as sucker rods (used in oil and gas drilling) and couplings in Argentina and pipe fittings in Mexico. The following table shows Tenaris's aggregate installed production capacity of seamless and welded steel pipes and steel bars at the dates indicated as well as the aggregate actual production volumes for the periods indicated. The figures for effective annual capacity are based on Tenaris's estimates of effective annual production capacity under present conditions. SOUTH AMERICA Tenaris's principal manufacturing facility in South America, operated by Siderca, is a fully integrated, strategically located plant on the banks of the Parana river near the town of Campana, approximately 80 kilometers from Buenos Aires, Argentina. The Campana plant was inaugurated in 1954. Situated on over 300 hectares, the plant includes a state-of-the-art seamless pipe mill and has an effective annual production capacity of 820,000 tons of seamless steel pipe (with an outside diameter range of 1 1/4 to 11 inches) and 1,100,000 tons of steel bars. The Campana facility comprises: - - a Midrex direct reduced iron, or DRI, production plant; - - a steel shop with two production lines, each including an electric arc furnace, refining equipment, four-strand continuous caster and a cooling bed; - - two continuous mandrel mills, each including a rotary furnace, direct piercing equipment, a stretch reducing mill and a cooling bed; - - six finishing lines, including heat treatment facilities, upsetting machines, threading and inspection equipment and make-up facilities; IV-6
- ----------------------------------------------------------------------------------------------- AT OR FOR THE SIX-MONTH PERIOD ENDED AT OR FOR THE YEAR ENDED JUNE 30, DECEMBER 31, ------------- ------------------------ THOUSANDS OF TONS 2002 2001 2001 2000 1999 - ----------------------------------------------------------------------------------------------- (UNAUDITED) Seamless Steel Pipe Effective Capacity (annual)....................... 3,125 3,100 3,125 3,100 2,840 Actual Production................................. 1,150 1,275 2,470 2,146 1,428 Steel Bars Effective Capacity (annual)....................... 2,850 2,850 2,850 2,850 2,850 Actual Production................................. 1,204 1,313 2,544 2,381 1,680 Welded Steel Pipe Effective Capacity (annual)....................... 850 850 850 850 850 Actual Production................................. 251 236 475 257 221 - ----------------------------------------------------------------------------------------------- - - a cold-drawn mill; and - - a port on the Parana river for the supply of raw materials and the shipment of finished products. The major operational units at the Campana facility and corresponding effective annual production capacity (in thousands of tons per year) as of June 30, 2002, the year operations commenced and the year of the latest major overhaul, are as follows: In addition to the Campana facility, Tenaris has manufacturing facilities, operated by Metalmecanica and Metalcentro, at Villa Mercedes in the province of San Luis, Argentina, for the production of tubular accessories such as sucker rods and pipe protectors. In South America, Tenaris also has a seamless steel pipe plant in Venezuela, operated by Tavsa and located within the Sidor manufacturing complex on the banks of the Orinoco river in the eastern part of the country. Situated on an area of 38 hectares, the plant includes a pilger mill and finishing line (including threading facilities) and produces seamless pipe products with an outside diameter range of 6 to 16 inches. The plant was operated as part of Sidor until shortly before it was privatized and sold to Tamsa in 1998. After conclusion of a modernization program in 2000, Tavsa reached an annual production capacity of 65,000 tons. Steel bars used to produce seamless steel pipe in Venezuela are supplied by Sidor. NORTH AMERICA Tenaris's principal manufacturing facility in North America, operated by Tamsa, is an integrated plant located near Pemex's major exploration and drilling operations, about thirteen kilometers from the port of Veracruz. Veracruz is located on the east coast of Mexico, approximately 400 kilometers from Mexico City. The Veracruz plant was inaugurated in 1954. Situated on an area of 200 hectares, the plant includes a state-of-the-art seamless pipe mill and has an installed annual production capacity of 780,000 tons of seamless steel pipes (with an outside diameter range of 2 to 20 inches) and 850,000 tons of steel bars. The plant is served by two highways and a railroad and is close to the port of Veracruz. The Veracruz facility comprises: - - a steel shop, including an electric arc furnace, refining equipment, four-strand continuous caster and a cooling bed; - - a multi-stand pipe mill, including a continuous mandrel mill, rotary furnace, direct piercing equipment and a cooling bed; - - a pilger pipe mill, including a rotary furnace, direct piercing equipment, a reheating furnace and a cooling bed; IV-7
- ----------------------------------------------------------------------------------------------------- EFFECTIVE PRODUCTION YEAR OPERATIONS YEAR OF LATEST CAPACITY (ANNUAL) COMMENCED MAJOR OVERHAUL - ----------------------------------------------------------------------------------------------------- DRI......................................... 820 1976 1997 Steel Shop Production Line I........................ 400 1971 1988 Production Line II....................... 700 1987 1988 Mandrel Mill I........................... 300 1977 1988 Mandrel Mill II.......................... 520 1988 1988 Cold-Drawn Mill.......................... 20 1962 1997 - ----------------------------------------------------------------------------------------------------- - - six finishing lines, including heat treatment facilities, upsetting machines and threading and inspection equipment; - - a stretch reducing mill, including cutting saws and a cooling bed; - - a cold-drawn mill; and - - automotive components production machinery. The major operational units at the Veracruz facility and corresponding annual installed production capacity (in thousands of tons per year) as of June 30, 2002, and the year operations commenced, are as follows: In addition to the Veracruz facility, Tamsa operates a recently-acquired manufacturing facility near Monterrey in the state of Nuevo Leon, Mexico, for the production of pipe fittings. Tenaris also has a seamless steel pipe manufacturing facility in Canada, operated by AlgomaTubes and located adjacent to the Algoma Steel manufacturing complex in Sault Ste. Marie near the mouth of Lake Superior in the province of Ontario. The facility includes a retained mandrel mill, a stretch reducing mill and heat treatment and finishing facilities producing seamless pipe products with an outside diameter range of 2 to 7 inches. The effective annual capacity of the facility is 250,000 tons. The plant was originally inaugurated in 1986 and was operated as part of Algoma Steel until shortly before it was leased to Tenaris in 2000. Steel bars are sourced from excess steelmaking capacity at the Campana and Veracruz plants and from third party suppliers. EUROPE Tenaris's principal manufacturing facility in Europe, operated by Dalmine, is an integrated plant located in the town of Dalmine close to the industrial region of Bergamo, about 40 kilometers from Milan in northern Italy. Situated on an area of 150 hectares, the plant includes a state-of-the-art seamless pipe mill and has an annual production capacity of 800,000 tons of seamless steel pipes and 900,000 tons of steel bars. The main Dalmine facility comprises: - - a steel shop, including an electric arc furnace, two ladle furnaces, two continuous casters and a cooling bed; - - a continuous floating mandrel mill with two finishing lines; - - a retained mandrel mill with three finishing lines; - - a rotary expander with a finishing line; - - a pilger pipe mill with a finishing line; and IV-8
- --------------------------------------------------------------------------------------------- INSTALLED YEAR PRODUCTION OPERATIONS CAPACITY (ANNUAL) COMMENCED - --------------------------------------------------------------------------------------------- Steel Shop.................................................. 850 1986 Multi-Stand Pipe Mill....................................... 700 1983 Pilger Mill................................................. 80 1954 Cold-Drawn Mill............................................. 10 1963 Auto Components Facility.................................... 5 2001 - --------------------------------------------------------------------------------------------- - - cold drawing facilities. The major operational units at the main Dalmine facility and corresponding annual effective production capacity (in thousands of tons per year) as of June 30, 2002, the year operations commenced and the year of the latest major overhaul, are as follows: The main Dalmine facility manufactures seamless steel pipes with an outside diameter range of 17 to 711 mm (0.67 to 27.99 inches), mainly from carbon, low alloy and high alloy steels for diverse applications. The Dalmine facility also manufactures steel bars for processing at our other facilities in Italy. Together, the Dalmine facility and Tenaris's other production facilities in Europe, all in Italy, have an effective annual production capacity of 950,000 tons of seamless steel pipes. These other facilities include: - - the Costa Volpino facility, which covers an area of approximately 31 hectares and comprises a cold-drawn mill and an auto components facility producing cold-drawn carbon, low alloy and high alloy steel pipes with an outside diameter range of 12 to 273 mm (0.47 to 10.75 inches), mainly for automotive, mechanical and machinery companies in Europe and the United States. The Costa Volpino facility has an annual production capacity of approximately 95,000 tons; - - the Arcore facility, which covers an area of approximately 16 hectares and comprises a Deischer mill with associated finishing lines and multiple cold pilger pipe mills for cold-drawn pipes. Production is concentrated in heavy-wall mechanical pipes with an outside diameter range of 48 to 203 mm (1.89 to 7.99 inches). The Arcore facility has an annual production capacity of approximately 160,000 tons; and - - the Piombino facility, which covers an area of approximately 67 hectares and comprises a welded pipe production line (Fretz Moon type) with a hot stretch reducing mill, two hot dip galvanizing lines and associated finishing facilities. Production is focused on welded pipe and finishing of small diameter seamless and welded pipe for sanitation applications in the domestic market, such as residential water and gas transport. The Piombino facility has an annual production capacity of approximately 178,000 tons. FAR EAST Tenaris's manufacturing facility in Asia, operated by NKKTubes, is a seamless steel pipe plant located in Kawasaki, Japan, in the Keihin steel complex owned by NKK Corporation, or NKK. The facility includes a retained mandrel mill, a plug mill and heat treatment, upsetting, threading and cold drawing facilities producing seamless pipe products with an outside diameter range of 1 to 17 inches. The effective annual capacity of the facility is 260,000 tons. The plant was operated by NKK until its acquisition by Tenaris in 2000. Steel bars and other essential inputs and services are supplied by NKK IV-9
- --------------------------------------------------------------------------------------------------- EFFECTIVE YEAR YEAR OF PRODUCTION OPERATIONS LATEST MAJOR CAPACITY (ANNUAL) COMMENCED OVERHAUL - --------------------------------------------------------------------------------------------------- Steel Shop.......................................... 900 1976 1995 Pilger Mill......................................... 110 1937 1968 Continuous Floating Mandrel Mill Small Diameter................................... 140 1952 1992 Medium Diameter.................................. 550 1978 1991 - --------------------------------------------------------------------------------------------------- which retains a 49% interest in NKKTubes. The NKKTubes facility produces a wide range of carbon, alloy and stainless steel pipes for the local market and high value-added products for export markets. For a discussion of NKK's business combination with Kawasaki Steel Corporation, see "--Competition--Global market." WELDED PIPES Tenaris has two major welded pipe facilities, one in Brazil and one in Argentina. The Brazilian facility, operated by Confab, is located at Pindamonhangaba, 160 kilometers from the city of Sao Paulo. The facility includes an ERW (electric resistant welding) rolling mill and a SAW (submerged arc welding) rolling mill. The facility, which was originally inaugurated in 1959, processes steel plates and coils to produce welded steel pipes with an outside diameter range of 4 1/2 to 100 inches for various applications, including oil, petrochemical and gas applications. The facility has an annual production capacity of 500,000 tons. The Argentine facility, operated by Siat, is located at Valentin Alsina just south of the city of Buenos Aires. The facility includes ERW and SAW rolling mills. The facility was originally inaugurated in 1948 and processes steel plates and coils to produce welded steel pipes with an outside diameter range of 4 1/2 to 80 inches, which are used for the conveying of fluids at low, medium and high pressure and for mechanical and structural purposes. The facility also supplies anticorrosion pipe coating made of extruded polyethylene or polypropylene, external and internal fusion bonded epoxy and paint for internal pipe coating. The facility has an annual production capacity of 350,000 tons. SALES AND MARKETING Tenaris conducts its commercial activities primarily through an extensive network comprised of the domestic sales and distribution networks of the Tenaris companies in Argentina, Mexico and Italy and the global distribution network of Tenaris Global Services. The following table shows Tenaris's sales by product and geographic region in terms of volume for the periods indicated. IV-10
- ------------------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD FOR THE YEAR ENDED JUNE 30, ENDED DECEMBER 31, ----------------- ------------------------ THOUSANDS OF TONS 2002 2001 2001 2000 1999 - ------------------------------------------------------------------------------------------------- (UNAUDITED) Seamless Steel Pipe Sales South America.................................... 138 226 490 435 221 North America.................................... 162 322 438 350 314 Europe........................................... 348 372 715 664 663 Middle East and Africa........................... 267 188 582 451 213 Far East......................................... 209 222 448 262 159 -------------------------------------------- Total Seamless Pipe Sales.......................... 1,124 1,330 2,673 2,162 1,570 Welded Steel Pipe Sales............................ 298 197 432 253 243 -------------------------------------------- Total Sales........................................ 1,423 1,527 3,105 2,415 1,813 - ------------------------------------------------------------------------------------------------- The following table shows Tenaris's total net sales by geographical region in terms of U.S. dollars for the periods indicated. SEAMLESS STEEL PIPES The following table indicates the percentage market distribution of Tenaris's seamless steel pipe sales volume by region for the periods shown.
- ------------------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, -------------------- ------------------------ MILLIONS OF U.S. DOLLARS 2002 2001 2001 2000 1999 - ------------------------------------------------------------------------------------------------- (UNAUDITED) South America................................... 448 480 966 664 529 North America................................... 270 309 597 402 390 Europe.......................................... 404 346 679 590 615 Middle East and Africa.......................... 246 182 497 411 198 Far East........................................ 202 208 380 244 103 ----------------------------------------------- Total Sales..................................... 1,570 1,526 3,119 2,311 1,835 - ------------------------------------------------------------------------------------------------- SOUTH AMERICA Sales to Tenaris's customers in South America accounted for 12% of Tenaris's total consolidated sales volume of seamless steel pipe products in the first half of 2002, 18% in 2001, 20% in 2000 and 14% in 1999. Tenaris's largest markets in South America are Argentina and Venezuela, countries in which Tenaris has manufacturing subsidiaries. Tenaris's sales in the Argentine and Venezuelan markets are sensitive to the international price of oil and gas and its impact on the drilling activity of participants in the domestic oil and gas sectors, as well as to general economic conditions in these countries. In addition, sales in Argentina, as well as export sales from Tenaris's manufacturing facilities in Argentina, are affected by government actions and policies, including recent measures adopted in response to the crisis in Argentina such as the taxation of oil revenues, restrictions on the transfer of currency abroad, forced repatriation of export revenues and other matters affecting the investment climate. See "Part Two--Risk Factors--Risks relating to Argentina and Mexico." Sales in Venezuela are also affected by IV-11
- ---------------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD FOR THE YEAR ENDED JUNE 30, ENDED DECEMBER 31, ---------------- -------------------- PERCENTAGE OF TOTAL SEAMLESS STEEL PIPE SALES VOLUME 2002 2001 2001 2000 1999 - ---------------------------------------------------------------------------------------------- (UNAUDITED) South America....................................... 12 17 18 20 14 North America....................................... 14 24 16 16 20 Europe.............................................. 31 28 27 31 42 Middle East and Africa.............................. 24 14 22 21 14 Far East............................................ 19 17 17 12 10 ---------------------------------------- 100 100 100 100 100 - ---------------------------------------------------------------------------------------------- government actions and policies, including agreements to vary domestic production pursuant to quotas established by the Organization of Petroleum Exporting Countries, or OPEC, measures relating to the taxation of oil and gas production activities and other matters affecting the investment climate. A principal component of Tenaris's marketing strategy in the Argentine and Venezuelan markets is the establishment of long-term supply agreements with significant local and international oil and gas companies operating in those markets. In recent years, Tenaris has sought to retain and expand its sales to those customers by offering value-added services. In Argentina, Siderca has enjoyed a sustained, close business relationship with Repsol YPF S.A., an integrated oil and gas company engaged in all aspects of the oil and gas business. Repsol YPF, one of the world's ten largest oil and gas companies, was created as a result of the acquisition in 1999 of YPF S.A., the leading oil and gas producer in Argentina, by Repsol S.A., a Spanish oil and gas producer. Siderca has strengthened its relationships with Repsol YPF and other participants in the Argentine oil sector through JIT agreements, which allow Tenaris to provide these customers with comprehensive pipe management services on a continuous basis. These agreements provide for delivery of pipe to our customers on short notice, usually within 72 hours. Under JIT and stocking supply arrangements, Tenaris is kept informed of its customers' drilling program and pipe requirements. In addition, Tenaris is permitted to bring its engineers to the customers' drilling locations in order to maintain adequately supplied warehouse inventories. In June 2001, Siderca renewed and extended the scope of its JIT agreement with Repsol YPF for a period of five years. Siderca also serves the demand for seamless steel pipes for other applications in the Argentine market. Although demand for seamless steel pipes for industrial, process plant and construction applications has shown a steady decline over the past three years as a result of the prolonged recession affecting Argentina, this has been more than offset by increased demand from its domestic oil and gas customers. Beginning in the last quarter of 2001, however, demand from Siderca's oil and gas customers has been adversely affected by the political and economic crisis in Argentina. In Venezuela, Tenaris has a significant share of the market for OCTG products. Tenaris enjoys ongoing business relationships with Petroleos de Venezuela S.A., or PDVSA, the state-owned oil company, and many private-sector operators in the oil and gas sector. Tenaris is working towards converting these relationships into JIT arrangements. Towards the end of 2001, sales in Venezuela began to decline in response to cutbacks in OPEC quotas and economic and political difficulties which led to strikes at PDVSA and increased taxes on oil and gas production. Sales of seamless pipe for other applications have also declined recently in response to the adverse economic and political situation affecting the country. NORTH AMERICA Sales to customers in North America accounted for 14% of Tenaris's total consolidated sales volume of seamless steel pipe products in the first half of 2002, 16% in 2001 and in 2000 and 20% in 1999. Tenaris's largest markets in North America are Mexico and Canada, countries in which Tenaris has manufacturing subsidiaries. Since 1954, Tamsa has enjoyed a long and mutually beneficial relationship with Pemex, one of the world's largest crude oil and condensates producers. In 1994, Tamsa began supplying Pemex under JIT arrangements, similar to Siderca's JIT arrangements with Repsol YPF. In March 2001, Tamsa and Pemex signed a new three-year JIT agreement. Combined sales to Pemex (including drilling companies contracted by Pemex) represented 11.3% of Tamsa's total sales volume in 2001, compared to 11.2% in 2000 and 18.8% in 1999. IV-12 Sales to non-oil related customers in Mexico are made directly to those customers or through authorized distributors. The principal Mexican end users other than Pemex (including drilling companies contracted by Pemex) rely on Tenaris's products primarily for automotive, thermal, mechanical, conduction and hydraulic uses. In 2001, Tenaris's sales to domestic non-oil related customers declined reflecting the direct relationship this market maintains with the Mexican and U.S. economies, which experienced a slowdown during 2001. Tenaris's sales in Canada are mainly directed to the oil and gas drilling and transportation sectors and are primarily made through distributors. During 2001, Tenaris's sales in Canada increased following a recovery in oil and gas drilling activity and the start-up of our Canadian subsidiary. Towards the end of 2001, demand from the oil and gas sector began to decline as falling oil and particularly gas prices led to a sharp slowdown in drilling activity. Sales to Canadian oil and gas drilling customers are also affected by seasonal factors relating to the difficulty of conducting oil and gas drilling activities during the spring thaw. Tenaris's sales to the United States are mainly directed to the industrial sector and are affected by trends in industrial activity since anti-dumping duties apply in respect of the import of OCTGs produced by Tenaris's main manufacturing subsidiaries. EUROPE Sales to Tenaris's customers in Europe accounted for 31% of Tenaris's total consolidated sales volume of seamless steel pipe products in the first half of 2002, 27% in 2001, 31% in 2000 and 42% in 1999. Tenaris's largest single country market in Europe is Italy. The market for seamless pipes in Italy (as in most of the EU) is affected by general industrial production trends, including investment in power generation, petrochemical and oil refining facilities. The European market also includes the North Sea area, which is affected by oil and gas prices in the international markets and their consequent impact on oil and gas drilling activities in that area. During 1999, EU production of seamless steel pipes decreased by more than 25% compared to 1998, the lowest point recorded in the last 30 years. Production levels were affected by a substantial decrease in seamless pipe consumption in the EU market and a decrease in global demand for seamless tube products particularly for OCTGs. EU demand was affected by the general slowdown in industrial production experienced in almost all the EU economies and a decline in investments in power generation, petrochemical and oil refining facilities. In 2000, production levels increased as consumption in the EU market rose and demand for seamless pipes in the global market recovered. The increase in demand in the EU market reflected increased demand from the energy sector and mechanical industry. However, demand for seamless pipes for petrochemical plant construction remained subdued due to a lack of investment activity in this sector. In 2001, EU seamless pipe demand again increased and prices for higher value products continued to show gains. Higher EU consumption of seamless pipes in 2001 reflected increased demand from the energy sector. In the second half of the year, demand from the industrial sector began to decline following the global and EU economic slowdown exacerbated by the events of September 11, 2001, which led to decreased capital expenditures and consumer and industry confidence. In addition, EU producers of seamless steel pipes, including Dalmine, have seen their overall share of the EU Market for seamless steel pipes decline while maintaining their market share in higher value products for petrochemical and mechanical applications. This trend is explained by an increase in low-priced imports from producers in Russia, Ukraine and other Eastern European countries. IV-13 MIDDLE EAST AND AFRICA Sales to customers in the Middle East and Africa accounted for 24% of Tenaris's total consolidated sales volume of seamless steel pipe products in the first half of 2002, 22% in 2001, 21% in 2000 and 14% in 1999. Tenaris's sales in the Middle East and Africa are sensitive to the international price of oil and its impact on drilling activities as well as to the production policies pursued by OPEC, many of whose members are located in this region. After a downturn in 1998 and 1999 as a result of the decline in oil prices, drilling activity in the Middle East and Africa began to recover in 2000 and sales of seamless steel pipes have increased. In 2001, an increase in oil and gas exploration and production activity in 2001 (particularly in West Africa) resulted in higher sales of seamless pipes. In addition, Tenaris's sales in the Middle East could be adversely affected if military action or other events in the region were to materially impact the operations of companies active in the region's oil and gas industry. FAR EAST Sales to customers in the Far East accounted for 19% of Tenaris's total consolidated sales volume of seamless steel pipe products in the first half of 2002, 17% in 2001, 12% in 2000 and 10% in 1999. Tenaris's largest markets in the Far East are China and Japan. Tenaris's seamless steel pipe sales in China are predominantly OCTGs for use in the Chinese oil and gas drilling industry. Sales have grown in this market in the past years as China increased investment in oil and gas exploration and production activities. In Japan, NKKTubes competes against other domestic producers. The market for seamless steel pipe products in Japan is mostly industrial and depends on general factors affecting domestic investment, including production activity. In recent years, demand has weakened in line with the general downturn in the Japanese economy. Sales to other markets in the Far East are affected by the level of oil and gas drilling activity in countries such as Indonesia and engineering activity particularly related to investment in petrochemical plants and oil refineries. WELDED STEEL PIPES We believe that Tenaris is the leading supplier of welded pipes in Brazil and Argentina for gas pipeline construction and industrial applications and the leading supplier of welded steel pipe products for gas pipeline construction in South America. Tenaris also supplies welded steel pipes to selected gas pipeline construction projects worldwide. Demand for Tenaris's welded steel pipes is principally affected by investment in gas pipeline projects, especially in South America. Currently, activity in this area is high due to the construction of large pipeline projects such as those in Ecuador and Peru as well as ongoing regional pipeline network integration projects such as the Buenos Aires--Montevideo pipeline. In 2000, demand for welded steel pipe products from Confab and Siat was substantially below levels of previous years due to the postponement of several regional gas pipeline projects. Since then, pipeline construction activity has recovered, and in 2001, sales of welded steel pipes increased to 432,000 tons compared to 253,000 tons in 2000 while in the first half of 2002, they increased to 298,000 tons compared to 197,000 tons in the first half of 2001. IV-14 TRENDS IN OIL AND GAS PRICES As discussed above, sales to oil and gas companies worldwide represent a high percentage of Tenaris's total sales and demand for seamless steel pipes from the global oil and gas industry is a significant factor affecting the general level of prices for our products. Downward pressures on oil and gas prices in the international markets usually result in lower demand for our seamless steel pipe products from Tenaris's oil and gas customers and, in some circumstances, upward pressures can result in higher demand from these customers. Major oil and gas producing nations and companies frequently collaborate to control the supply (and thus the price) of oil in the international markets. A major vehicle for this collaboration is OPEC. Many of Tenaris's larger customers are state-owned companies in member countries of OPEC, or otherwise cooperate with OPEC in controlling the supply and price of oil. In response to depressed oil prices in 1998, major oil producing countries began to cooperate closely and intensely to raise prices. In March 1998, Mexico, Venezuela and Saudi Arabia, encouraged by proposals of other oil producers to strengthen world oil markets, announced that they would reduce the oil supply. A second reduction was agreed upon in June 1998. In March 1999, OPEC and several non-OPEC oil producers ratified an agreement to cut crude oil production by 2,104,000 barrels per day in the aggregate. Oil prices increased significantly as a result of these production cuts. Subsequently, oil consuming nations began to pressure OPEC to raise production to ease the upward pressure on oil prices. In April 2000, OPEC (excluding Iran) announced an increase in production by 1,452,000 barrels per day. This was followed by additional increases of 708,000 barrels per day in June 2000, 800,000 barrels per day in September 2000 and 500,000 barrels per day in October 2000. In 2001, in response to weakening price pressures, OPEC (excluding Iran) announced a reduction in production of 1,500,000 barrels per day, effective February 1, 2001, of 1,000,000 barrels per day, effective April 1, 2001, of 1,000,000 barrels a day, effective September 1, 2001, and of 1,500,000 barrels a day, effective January 1, 2002. We are unable to forecast the direction of international oil and gas prices in the future, and the consequent impact on investment programs and purchases, including pipe purchases, by Tenaris's oil and gas customers. TENARIS GLOBAL SERVICES Tenaris Global Services has extensive on-the-ground expertise developed over many years of marketing seamless pipe products supplied primarily by the Tenaris companies. It has distribution facilities and sales offices handling Tenaris's products and providing logistics and commercial services in Azerbaijan, Bolivia, Canada, Chile, China, Colombia, Ecuador, Indonesia, Japan, Malaysia, Nigeria, Norway, Russia, Singapore, the United Arab Emirates, the United Kingdom, the United States and Venezuela and employed, as of June 30, 2002, 259 full-time employees. Tenaris Global Services organizes stocking programs and pipe finishing activities, and provides logistics, buy-back, inspection and restocking services as well as essential commercial services such as credit risk analysis. Through Tenaris Global Services, Tenaris is extending pipe management services to customers beyond the domestic markets of its manufacturing subsidiaries, allowing Tenaris to offer long-term contractual arrangements on a regional and worldwide basis. In 2001, Tenaris Global Services handled steel pipe-related products equivalent to 879,000 tons compared to 491,000 tons in 2000 and 126,000 tons in 1999, mostly from the Tenaris companies, and other steel products equivalent to 121,000 tons compared to 70,000 tons in 2000 and no sales in 1999, from other companies in the Techint group. In the first half of 2002, Tenaris Global Services handled steel pipe-related products equivalent to 294,000 tons compared to 392,000 tons in the first half of 2001, and other steel products equivalent to 221,000 tons compared to 45,000 tons in the first IV-15 half of 2001. At June 30, 2002, Tenaris Global Services' net worth was USD14.3 million, compared to USD17.9 million at December 31, 2001, USD6.6 million at December 31, 2000, and USD0.9 million at December 31, 1999. Tenaris Global Services' total assets were USD264.8 million at June 30, 2002, USD262.6 million at December 31, 2001, USD241.7 million at December 31, 2000, and USD94.3 million at December 31, 1999. In connection with the services provided by Tenaris Global Services, the Tenaris companies have entered into export agency contracts with certain Techint group companies that have not been reorganized as subsidiaries of Tenaris Global Services. Set forth below is a description of the significant export agency agreements. - - Siderca, Tamsa and Dalmine export agency agreements. Pursuant to these agreements, restated as of September 27, 2000, September 29, 2000 and October 4, 2000, respectively, each of Siderca, Tamsa and Dalmine has appointed a Techint group company as its non-exclusive agent for the sale of all of its products in all countries except Argentina, Mexico and Italy and, in the case of Dalmine, excluding also the other member countries of the EU and certain other countries. The respective Techint group companies are entitled to a commission equal to 3% of the FOB value of their sales of Siderca's, Tamsa's and Dalmine's products, and to be reimbursed by Siderca, Tamsa and Dalmine, as the case may be, for a portion of the total general expenses incurred by such companies and for special sales costs. Siderca's and Tamsa's agreements expire on September 30, 2003, and Dalmine's on October 1, 2003, and all of them are automatically renewable for successive three-year terms unless either of the respective parties notifies the other in advance of its intention not to renew the agreement. Amounts accrued under these agreements (and their predecessor agreements) totaled, in the case of Siderca, USD18.2 million in 1999, USD24.4 million in 2000, USD16.6 million in 2001, and USD7.6 million in the first half of 2002; in the case of Tamsa, USD8.2 million in 1999, USD10.1 million in 2000, USD12.7 million in 2001, and USD5.7 million in the first half of 2002; and in the case of Dalmine, USD1.8 million in 1999, USD2.3 million in 2000, USD4.7 million in 2001, and USD2.0 million in the first half of 2002. - - Confab and Siat export agency agreements. Confab and Siat have appointed a Techint group company as their non-exclusive agent for the sale of all of their products in all countries except Brazil, in the case of Confab, and Argentina, Brazil, Italy and Mexico, in the case of Siat. The Techint group company is entitled to a commission equal to 5% of the FOB value of its sales of Confab's and Siat's products. The agreements expire on January 1, 2003, and September 30, 2004, and are automatically renewable for successive one-year and three-year terms, respectively. Amounts accrued under these agreements totaled approximately USD0.7 million in 2000, USD4.4 million in 2001, and USD6.1 million in the first half of 2002, in the case of Confab, and USD0.6 million in 2000, USD2.7 million in 2001, and USD1.5 million in the first half of 2002, in the case of Siat. Payments made by the Tenaris companies under these export agency agreements were treated as selling expenses associated with the sales of Tenaris's products. On October 15, 2002, all these contracts were assigned to Tenaris Global Services or its subsidiaries, subject to the completion of the exchange offer and effective as of the settlement date. NKKTubes has appointed a Tenaris Global Services company as its non-exclusive agent for the sale of its products in all countries outside Japan. The Tenaris Global Services company is entitled to a commission on its sales of NKKTubes' products in an amount agreed upon on a case-by-case basis in accordance with the nature of the sales agency transaction. The agreement has a term of fifteen years. Siderca, Tamsa and Dalmine have entered into numerous agreements with member companies of Tenaris Global Services in various countries around the world pursuant to which one or more of them agrees to sell, and one or more of Tenaris Global Services companies agrees to buy, seamless steel pipe IV-16 products for resale under stocking programs (and other similar programs) to oil and gas companies or other buyers or end users which operate in their territories (as defined in each agreement). The selling party under these agreements generally agrees to assume any and all risks of the operation. To this end, under specified circumstances (e.g., failure to consummate resale, product rejection, customer delay), the selling party would be required to repurchase the pipes sold to the reseller. COMPETITION GLOBAL MARKET The global market for seamless steel pipe products is highly competitive, with the primary competitive factors being price, quality and service. Seamless steel pipe products are produced in specialized mills using round steel billets and ingots, which are produced almost exclusively for seamless steel pipe applications. Steel companies that manufacture steel sheet and wire rods and bars and other steel products but do not operate specialized seamless steel mills are generally not competitors in the market for seamless steel pipe products, although they often produce welded steel pipes or sell steel sheets and plates used to produce welded steel pipe. The production of seamless steel pipe products which meet the stringent requirements of major oil and gas companies requires the development of specialized skills and significant investments in manufacturing facilities. By contrast, the seamless pipe products for standard applications can be produced in most seamless pipe mills worldwide and sometimes compete with welded pipe products for such applications. Welded pipe, however, is not generally considered a satisfactory substitute for seamless steel pipe in high-pressure or high-stress applications, which constitute a significant source of our business. Tenaris's principal competitors in the international seamless steel pipe markets can be grouped by origin as described below. - - Japan. Sumitomo Metal Industries Ltd. and Kawasaki Steel in the aggregate enjoy a significant share of the international market, having established strong positions in markets in the Far East and the Middle East. They are internationally recognized for the high quality of their products and for their supply of high-alloy grade pipe products. In April 2001, Nippon Steel Corporation, in connection with ongoing rationalization measures, withdrew from the export market for seamless steel pipe products and shut down its seamless steel pipe facility in Yawata, Japan. On September 27, 2002, Kawasaki Steel and NKK, Tenaris's partner in NKKTubes, consummated a business combination through which they became subsidiaries of a newly-formed holding company, known as JFE Holdings, Inc. The combined entity, JFE Holdings Inc., is expected to continue operating Kawasaki Steel's seamless steel pipe business in competition with NKKTubes. - - Western Europe. Vallourec & Mannesman Tubes, or V&M Tubes, a Franco-German venture, has mills in Brazil, Germany and France. V&M Tubes has a strong presence in the European market for seamless pipes for industrial use and a significant market share in the international market with customers primarily in Europe, the United States and the Middle East. It is an important competitor in the international OCTG market, particularly for high-value premium joint products. In May 2002, V&M Tubes announced that it had agreed to purchase the seamless tubes division of North Star Steel, a leading U.S. producer of OCTGs for the domestic market. Tubos Reunidos S.A. of Spain and Voest Alpine AG of Austria each has a significant presence in the European market for seamless steel pipes for industrial applications while the latter also has a presence in the international OCTG market with sales mostly directed to the United States and the Commonwealth of Independent States, or CIS. IV-17 - - United States. U.S. steel producers, including US Steel Corporation and North Star Steel, are largely focused on supplying the U.S. market. Some of them, however, periodically enter the international market in response to decreased domestic demand or perceived opportunities in the export markets. As mentioned above, V&M Tubes announced in May 2002 that it had agreed to purchase the seamless tubes division of North Star Steel. - - Eastern Europe, CIS and China. Producers from these regions compete in the "commodity" sector of the market and have been increasing their participation in the international market for standard products where quality and service are not the prime consideration. See "Part Seven--Information about Dalmine--Business--Sales and marketing--European Union market." DOMESTIC MARKETS Tenaris competes against importers of seamless steel pipe products and, to a lesser extent, against welded steel pipe products in the domestic markets of its manufacturing subsidiaries in Argentina, Venezuela, Mexico and Canada (countries in which it is the sole domestic producer), and against domestic, regional and other competitors in Italy and Japan. Producers of seamless steel pipe products can maintain a strong competitive position in their domestic markets due to logistical and other advantages which permit them to offer value-added services and maintain strong relationships with domestic customers, particularly in the oil and gas sector. Tenaris's subsidiaries have established strong ties with major consumers of steel pipe products in their home markets, reinforced by JIT arrangements as discussed above. ARGENTINA Siderca is the sole producer of seamless steel pipe in Argentina. Accordingly, Tenaris's competition in the Argentine seamless steel pipe products market is limited to imported products manufactured by foreign companies. In recent years, Tenaris has faced increased competitive challenges from outside Argentina as a result of the Argentine government's trade liberalization policies. In early 1991, the Argentine government reduced import tariffs and eliminated most non-tariff restrictions on trade as part of an effort to open the Argentine economy to foreign competition. Argentina, Brazil, Uruguay and Paraguay entered into the Treaty of Asuncion in March 1991, formally establishing Mercosur, a common market organization composed of the four signatory nations. The Mercosur treaty and other subsequent related agreements provide for the gradual economic integration of the member countries, the creation of a free trade zone, the elimination or significant reduction, in some cases over a period of years, of import duties, tariffs and other barriers to trade among the four nations and the creation of a common external tariff. Tariffs on seamless steel pipe products were eliminated progressively by January 1, 1999, between Brazil and Argentina and by January 1, 2000, among all four member nations. The tariff applicable to seamless steel pipe products imported from outside Mercosur was 16% as of January 1, 2002. In addition, a supplemental tariff of 1.5% currently applies to these imports. VENEZUELA Tenaris competes in the Venezuelan market as a domestic producer and as an importer against imported products manufactured by foreign companies. Venezuela applies tariffs ranging from 5% to 15% to steel imports, including seamless steel pipe products, from countries with which it does not have free trade agreements. In April 2002, for a temporary period of four months, the Venezuelan government increased its standard tariff from 20% IV-18 to 30%. This tariff was subsequently extended for three additional months. No tariff applies to steel imports from member countries of the Andean pact or from Chile, and imports from Mexico are subject to a reduced tariff. As a result of an antidumping investigation, Venezuela imposed antidumping duties of 87.0% on steel pipe imports from Japan in 1996. The preliminary determination was confirmed in June 2000 and continues to apply. MEXICO Tamsa is the only producer of seamless steel pipe in Mexico. Accordingly, Tenaris's competition in the Mexican market is limited to imported products manufactured by foreign companies. Competition in the Mexican market has been increasing in recent years, as the Mexican government has entered into free trade agreements that reduce trade barriers and gradually eliminate tariffs on steel imports from these countries, including seamless steel pipes. In December 1992, Mexico became party to NAFTA, which became effective in January 1994. Under NAFTA, duties on OCTG products have been reduced from 15% in 1993 to their current level of 1.5%, and will be fully eliminated in 2003. In 2000, Mexico signed a trade agreement with the EU, as a result of which EU seamless steel pipe imports have been subject to a 7% duty since 2002. This duty will be gradually eliminated by 2007. In addition to the NAFTA and EU agreements, the Mexican government has signed trade agreements with various countries such as Chile, Bolivia, Nicaragua, Costa Rica and Uruguay. Mexico also participates with Colombia and Venezuela in the Group of Three, or the G-3. Under the G-3 agreements, duties on seamless steel pipes are being eliminated by means of a reduction of 1.08% and 0.72% (depending on the product) per year over a ten-year period beginning in 1995. Furthermore, under the agreement, there is an acceleration clause allowing acceleration of the tariff reduction as deemed convenient upon acceptance by two of the parties. Beginning July 1, 2002, the import tariff for the G-3 is set at 2.1% and 1.4% depending on the product. Presently, Mexican products exported to Chile are not subject to any import tariff. On January 1, 1999, a new tariff of 18% became applicable to seamless steel pipe from other countries with which Mexico does not have trade agreements; this represents an increase of 3% from the previous tariff of 15%, which had been effective since 1989. This tariff of 18% was temporarily increased for some steel products (including seamless pipes) to 25% in September 2001 and again to 35% in March 2002. This temporary increase is currently scheduled to lapse in September 2002, at which time the tariff would return to 18%. On October 5, 1993, Tamsa formally requested that SECOFI initiate an antidumping investigation into the importation of seamless steel pipes from the United States. On October 11, 1995, SECOFI published a final determination, in which Mexico's Commerce Ministry imposed a dumping tariff of 82.4% on specified U.S.-made seamless steel cold-drawn pipes. On May 22, 2001, the Secretaria de Economia published in the Official Gazette a resolution revoking the antidumping duties against cold-drawn carbon steel pipes produced in the United States. On March 11, 1999, Tamsa formally requested that SECOFI initiate an antidumping investigation into the import of seamless steel line pipes from Japan. This investigation led to the imposition of preliminary dumping duties of 99.9% in November 1999, and to definitive duties in the same amount in November 2000, and continues to apply to these products. CANADA Tenaris makes domestic sales in Canada through AlgomaTubes, the sole producer of seamless steel pipe in Canada, as well as export sales to Canada by Tenaris's other manufacturing companies. In both IV-19 cases, Tenaris competes in the Canadian market against other Canadian welded pipe producers and against other importers of seamless and welded pipe. Canada does not impose significant tariffs on seamless steel pipe imports, creating a competitive market that resembles the international markets for those products. ITALY In Italy and elsewhere in the EU, Tenaris competes against European and non-European producers of seamless steel pipe products, most notably V&M Tubes. In Italy, Dalmine faces additional competition in the commercial, gas and standard pipe sector from Pietra S.p.A, a privately-owned Italian tube producer. As import barriers have fallen, the Italian and other EU markets for seamless steel pipe products have become increasingly competitive. During 1999, imports of seamless pipes into the EU from countries outside of the EU were again strong, which, given the fall in demand, further increased their share of the market in products of medium-to-low quality. Tenaris's sales in Italy were adversely affected by these imports because they were often offered at prices significantly lower than Tenaris's prices. In August 1999, the European Commission granted the requests of the European seamless pipe industry and acknowledged that competing exports from Ukraine and Croatia were being dumped into the EU and were causing serious injury to EU manufacturers. As a result, substantial antidumping duties and restrictions were imposed on both these countries in August 1999. This action followed a successful similar proceeding brought by the European seamless steel pipe industry against producers in Russia, Poland, the Czech Republic, Slovakia, Romania and Hungary, which resulted in antidumping penalties and other equitable remedies. JAPAN NKKTubes is a leading producer of seamless steel pipes in Japan. In the domestic market, it competes against Sumitomo Metal, Kawasaki Steel and Nippon Steel. On September 27, 2002, Kawasaki Steel and NKK, Siderca's partner in NKKTubes, consummated a business combination through which they became subsidiaries of JFE Holdings. JFE Holdings is expected to continue operating Kawasaki Steel's seamless steel pipe business in competition with NKKTubes. CAPITAL EXPENDITURE PROGRAM In recent years, Tenaris has undertaken a major round of capital investment projects at its three integrated facilities in Argentina, Mexico and Italy. The focus of these major capital investment projects has been to upgrade these facilities to state-of-the-art status in terms of automation and quality control, and to expand Tenaris's capacity to produce premium quality and other high-grade products. At Tenaris's Campana facility in Argentina, as a result of a three year program completed in 2000 at a cost of approximately USD160 million, Tenaris added new heat treatment facilities, completed the modernization of the steel shop, expanded rolling mill capacity that allowed production of products with restricted tolerances, expanded the finishing line for premium joints and added processes in the mid-range cold rolling mill to simplify production flows and optimize manufacturing times. Subsequently, Tenaris added a new threading line for premium joints, installed a phosphorus coating plant, expanded coupling producing facilities and installed electromagnetic stirring capabilities. At Tenaris's Veracruz facility in Mexico, approximately USD175 million was invested in the capital expenditure program over the last three years. Tenaris completed improvements in the melt shop and in the continuous casting process, where a new vacuum degassing system was installed and a new IV-20 vibramold oscillator was added. In addition, in the finishing areas, Tenaris completed improvements for wall thickness assurance and threading and finishing lines, and added a new hydraulic testing system and a new straightening machine. Tenaris also expanded and modernized the heat treatment facilities by: - - adding new furnaces, a quenching head, a straightening machine, a finishing line and additional floor space to the heat treatment area; - - installing a new lathe and carousel in the coupling factory; - - automating the continuous casting control system; - - upgrading the electric and ladle furnaces in the melt shop; - - automating the process in the multi-pipe mill; and - - constructing a new 12,000 square meter office complex and a new auto components facility with an annual capacity of five million parts. At Tenaris's Dalmine facility in Italy, as a result of a three year program expected to be completed during 2002 at a cost of approximately USD166 million, Tenaris is substantially restructuring the small diameter pipe mill by modernizing the hot-rolling and finishing areas, installing new systems for wrapping and delivering pipes, initiating a new line for pipe inspection, and installing a new finishing line for quality and boiler pipes. At Tenaris's other facilities in Italy, Tenaris has invested in quality control and cost reduction initiatives. Capital expenditure projects planned for 2002 and 2003 include further enhancements to the premium joint finishing lines at the Campana facility, enhancement of the cold-rolling mill and coupling production facilities at the Veracruz facility, improving the medium sized rolling mill's productivity and finishing line dimensional tolerances at Dalmine, updating automation and process control at NKKTubes, increasing finishing line capacity at AlgomaTubes, and new heat treatment facilities at Confab. The total amount budgeted by Tenaris for capital investment programs and regular maintenance in 2002 is USD130 million, of which USD53.6 million was spent in the first half of the year. In addition to major projects under Tenaris's capital expenditure program, Tenaris makes regular expenditures at all of its facilities to respond to changes in market environment, maintain flexible operations and improve environmental and safety conditions. The amounts of these expenditures are included in the above discussions of Tenaris's facilities in this "--Capital expenditure program" section. INFORMATION TECHNOLOGY In addition to Tenaris's capital expenditures at its plants, Tenaris has invested in developing its e-business capabilities and in the integration of its production, commercial and managerial activities. These investments are intended to promote the further integration of Tenaris's operating facilities and enhance Tenaris's ability to provide value-added services to its customers worldwide. These investments, which totaled USD24.8 million include: - - the establishment of an Internet portal for procurement to reduce purchasing costs and enhance logistics; - - the establishment of a new centralized data center to improve the quality, speed and reliability of the information and IT services; IV-21 - - the installation of new globally integrated commercial systems to improve customer service capabilities, including an order tracking system available to major customers via Internet; and - - the implementation of various IT improvements. The Internet portal, known as Exiros, is owned by Lomond Holdings, in which Tenaris holds 75% of the shares (through Siderca, Tamsa and Dalmine), and Siderar, a Techint group company producing flat steel in Argentina, which holds 25%. Through this company and the Exiros portal, Tenaris has centralized the procurement activities of the Tenaris companies and provides procurement agency services to Siderar and other industrial companies principally in Latin America. SUBSIDIARIES Tenaris operates primarily through subsidiary companies and investments in other companies. For a complete list of Tenaris's subsidiaries and a description of Tenaris's investments in other companies, see notes B and 10 to Tenaris's six-month audited combined consolidated financial statements included in this prospectus. SEAMLESS STEEL PIPE MANUFACTURERS SIDERCA Tenaris has held a large majority position in Siderca since that company's inception in 1948. As of October 18, 2002, Tenaris beneficially owned directly or indirectly 71.17% of Siderca's ordinary stock. Siderca is the sole producer of seamless steel pipe products in Argentina. TAMSA In June 1993, through a subsidiary of Siderca that held a 5.65% interest in Tamsa, Tenaris invested USD67.1 million to acquire an additional 17.51% interest in Tamsa. Since this investment, Tenaris, directly or indirectly, has made additional purchases of Tamsa's ordinary stock. As of October 18, 2002, Tenaris beneficially owned directly or indirectly 50.77% of Tamsa's ordinary stock. Tamsa is the sole producer of seamless steel pipe products in Mexico. DALMINE In February 1996, through a subsidiary of Siderca, Tenaris acquired a 37.15% interest in Dalmine. Since this initial investment, Tenaris, directly or indirectly, has made additional purchases of Dalmine's ordinary stock. As of October 18, 2002, Tenaris beneficially owned directly or indirectly 47.22% of Dalmine's ordinary stock. Dalmine is the leading producer of seamless steel products in Italy and a leading producer of seamless steel products in the EU. TAVSA On October 9, 1998, Tamsa and the Venezuelan government entered into a joint venture agreement, pursuant to which Tamsa acquired 70% of Tavsa, a company formed to run the seamless pipe business formerly part of Sidor, for an initial equity contribution of USD11.7 million. The Venezuelan government holds the remaining 30% of Tavsa. In June 2000, Tamsa made an additional cash contribution of USD4.4 million. ALGOMATUBES On June 14, 2000, Siderca and Algoma Steel entered into an agreement pursuant to which Siderca, through its newly incorporated Canadian subsidiary, AlgomaTubes, leases and operates Algoma Steel's IV-22 seamless steel pipe manufacturing facilities in Sault Ste. Marie, Ontario, Canada. The lease agreement, which came into effect on October 1, 2000, has a term of 20 years, and contemplates a purchase option by Siderca. Siderca also has the right to terminate the lease at any time upon 24 months' notice or, in specified circumstances, upon shorter notice. AlgomaTubes is the sole seamless steel pipe producer in Canada. NKKTUBES On May 24, 2000, Siderca and NKK agreed to form a new company, NKKTubes, to take over NKK's seamless steel pipe business. Siderca and NKK own 51% and 49% respectively of NKKTubes, which took over NKK's seamless steel pipe manufacturing facilities and began operations on August 1, 2000. Under the terms of the agreement, NKK has agreed to transfer its seamless steel pipe manufacturing technology and license its trademarks to Tenaris. Siderca paid USD15 million for its 51% interest in NKKTubes. NKKTubes entered into a 10-year term loan in the amount of Japanese yen 3,000 million (USD25.0 million) with the Development Bank of Japan to finance the purchase of assets and additional bank loans with terms of 2 years in the amount of Japanese yen 3,000 million (USD25.0 million) to finance working capital requirements. Siderca has guaranteed the repayment of these loans by NKKTubes up to a maximum of Japanese yen 2,524.5 million (USD21.1 million). In connection with NKK and Kawasaki Steel's business combination, effective on September 27, 2002, NKK's 49% interest in NKKTubes was transferred to a subsidiary of JFE Holdings. On September 25, 2002, Siderca and NKK reached an agreement that amends certain provisions of the various agreements relating to the creation and governance of the NKKTubes joint venture. The parties are currently negotiating the terms of a proposed termination of the licensing agreements relating to NKK's technology. See "--Related Party Transactions--Agreements relating to NKK's technology." WELDED STEEL PIPE MANUFACTURERS SIAT In 1986, Tenaris acquired through Siderca 100% of Siat. Since this initial investment, Siderca has exercised control of Siat. In December 1992, Siderca transferred a 30% interest in Siat to Confab in exchange for a 30% interest in Confab's then subsidiary, Confab Tubos S.A. CONFAB In August 1999, Tenaris acquired through Siderca a 38.99% interest (99.22% of voting capital) in Confab for USD43.5 million. Since this initial investment, Siderca has exercised control of Confab. In addition to its main welded tubes business, Confab also manufactures and sells industrial equipment of various specifications and for diverse applications, including liquid and gas storage equipment, standard and high-pressure vessels, pulping equipment and direct fire heaters. TENARIS GLOBAL SERVICES Over a number of years, San Faustin or its predecessor established various companies, representative offices and other assets around the world that provide sales and marketing services primarily to the Tenaris companies. On October 18, 2002, these companies, representative offices and other assets were separated from the Techint commercial network and reorganized as subsidiaries, representative offices and other assets of Tenaris Global Services. Furthermore, on October 15, 2002, all the export agency agreements that the Tenaris companies were parties to with companies in the Techint commercial network not subject to the reorganization described above were assigned to Tenaris Global Services or its subsidiaries, subject to the completion of the exchange offer and effective as of the settlement date. IV-23 OTHER INVESTMENTS AMAZONIA In January 1998, Amazonia purchased a 70.0% equity interest in Sidor from the Venezuelan government. Tamsider, a wholly-owned subsidiary of Tamsa had an initial 12.5% equity interest in Amazonia, which increased to 14.1% in March 2000 as a result of additional investments as described below. As of October 18, 2002, Tamsider's equity interest in Amazonia remained at 14.1%. As of October 18, 2002, other Techint group companies held an additional 25.4% in Amazonia. The Venezuelan government continues to own a 30% equity interest in Sidor. Sidor, located in the city of Guyana in southeast Venezuela, is the largest integrated steel producer in Venezuela and the sixth largest integrated steel producer in Latin America, with an installed capacity of more than 3.5 million tons of liquid steel per year. Sidor shipped 2.9 million tons of steel in 2001, and 1.6 million tons in the first half of 2002. Sidor has experienced significant financial losses and other problems since the acquisition by Amazonia in January 1998, despite a significant reduction in Sidor's workforce and management's efforts to improve the production process and reduce operating costs. In 1999, due to negative conditions in the international steel market, a sustained and intensifying domestic recession in Venezuela, deteriorating conditions in the credit markets, an increase in the value of the Venezuelan currency relative to the U.S. dollar and other adverse factors, Sidor and Amazonia incurred substantial losses and were unable to make payments due under loan agreements with their respective creditors. In 2000, these loan agreements were restructured. Despite continued efforts by Sidor's management to improve technology and optimize production levels, in late 2001 Sidor and Amazonia were again unable to make payments due under the restructured loan agreements, following a continuation and aggravation of the same negative factors described above accompanied by increased competition from steel imports in Venezuela. Sidor and Amazonia are currently involved in discussions with their creditors and the Venezuelan government regarding a possible restructuring of their loan agreements. As of June 30, 2002, Sidor had approximately USD1.4 billion of long-term indebtedness (secured in part by fixed assets valued at USD827 million as determined at the time Sidor's loans were restructured in March 2000) and Amazonia had approximately USD284 million of long-term indebtedness. We cannot give you any assurance as to whether Sidor or Amazonia will succeed in restructuring their existing indebtedness, or that their lenders will not accelerate any defaulted indebtedness in accordance with the terms of the applicable loan agreements or foreclose on any of the assets of Sidor or Amazonia pledged as collateral. As a result of the adverse trends discussed above, Tamsider made additional capital contributions to Amazonia, resulting from the restructuring concluded in 2000, while recording significant losses in the value of its investment. In addition to its initial capital contribution of USD87.8 million, Tamsider was required to make capital contributions in the amount of USD36.1 million (of which USD18.0 million took the form of a convertible subordinated loan to Amazonia, as described below) in connection with the restructuring of Amazonia's loan agreements in 2000. The value of Tamsider's investments (as recorded in Tamsa's consolidated financial statements) has decreased significantly since 1998, from MXP883,881 thousand as of December 31, 1998, to MXP409,882 thousand as of December 31, 1999, MXP630,970 thousand as of December 31, 2000, MXP231,319 thousand as of December 31, 2001 and MXP206,103 thousand as of June 30, 2002. Tamsa's results for December 31, 2001, and June 30, 2002, include an allowance for the investments in Amazonia in the amount of MXP140,744 thousand, and MXP9,253 thousand, respectively. Further losses and provisions may be recorded in respect of Tamsider's investment in Amazonia and we cannot predict whether Tamsider will make IV-24 additional capital contributions as a condition to successfully negotiating a restructuring of Sidor's or Amazonia's existing indebtedness. In addition to the risk of further losses in the equity value of its investment, Tamsider has significant exposure in respect of its investment in Amazonia under several agreements and guarantees. Below is a description of the nature and extent of this exposure. We cannot predict whether Tamsider will be required to make payments or will otherwise incur losses under these agreements and guarantees. - - The Sidor purchase agreement between Amazonia and the Venezuelan government requires the shareholders of Amazonia, including Tamsider, to indemnify the government for breaches by Amazonia of the Sidor purchase agreement up to a maximum amount of USD150 million, for five years from the acquisition date. In connection with this indemnity, the shareholders of Amazonia are required to maintain a performance bond (which Tamsa has guaranteed directly) for five years, beginning in 1998, in the amount of USD150 million during the first three years, USD125 million in the fourth year and USD75 million in the fifth year. Tamsider's maximum liability under the indemnity would be USD18.8 million, as its obligations with respect to the indemnity are proportional to its initial 12.5% equity interest in Amazonia. - - The Sidor purchase agreement further requires the shareholders of Amazonia to guarantee, also on a proportional basis, the principal and a portion of the interest payable under a loan made to Sidor by the Venezuelan government. Tamsider's maximum liability under this guarantee, which continues to apply to the loan as restructured in 2000, is USD92.2 million. - - The loan agreement between Amazonia and a group of private lenders (the proceeds of which were used by Amazonia to finance the acquisition of its equity interest in Sidor) required the shareholders of Amazonia, including Tamsider, to pledge their shares in Amazonia as security and also required Amazonia to pledge its shares in Sidor as security. These pledges continue to apply to the loan as restructured in 2000. - - As discussed above, in connection with the restructuring of Amazonia's loan agreements in 2000, the shareholders of Amazonia, including Tamsider, were required to make additional capital contributions in part by making subordinated loans convertible into additional shares of Amazonia. Tamsider made a subordinated loan of USD18 million to Amazonia as a result of this requirement. - - Also in connection with the restructuring of Amazonia's loan agreements in 2000, the parent companies of several shareholders of Amazonia, including Tamsider, were required to enter into a put agreement pursuant to which they agreed to purchase, upon certain conditions and in no case prior to December 31, 2007, up to USD25 million in loans payable by Amazonia to its private lenders. The shareholders of Amazonia also delivered a letter to these lenders contemplating the possibility of additional capital contributions of up to USD20 million in the event of extreme financial distress at Sidor. Tamsa's obligations under the put agreement, and Tamsider's share of any capital contribution under the letter, are limited in proportion to Tamsider's interest in Amazonia when the put is exercised or the contribution is made. Based on Tamsider's 14.1% equity interest in Amazonia, Tamsa's aggregate liability under the put agreement would be limited to a maximum of USD3.5 million and Tamsider's share of any capital contribution under the letter would be limited to a maximum of USD2.8 million. DALMINE ENERGIE S.P.A. Dalmine Energie S.p.A. was established by Dalmine in the second half of 1999, following the partial deregulation of the energy sector by the Italian government and began to operate in 2000. Initially formed to supply electricity to Dalmine and to other users in the Bergamo area forming the Consorzio IV-25 Orobie Energie, a consortium of area companies, it has rapidly expanded and currently supplies electricity to many industrial companies in north and central Italy. Dalmine Energie purchases electricity principally from GRTN Gestore della Rete di Trasmissione Nazionale S.p.A., or GRTN, formerly known as Enel Distribuzione S.p.A., at wholesale market prices under volume and delivery conditions that closely match those at which it sells to its customers. At June 30, 2002, Dalmine Energie had approximately 350 customers and traded three Twh (Billions of Kilowatt/hour). Dalmine Energie enjoyed a high operating margin in its first year of business due to its position as a first mover, but in 2001 its operating margins declined as the business matured and competition increased. In 2001, Dalmine Energie began operating in the natural gas and telecom services businesses. Dalmine Energie purchases its natural gas requirements from Snam S.p.A. under a long-term contract that expires on September 1, 2011, and contains annual, quarterly and daily "take-or-pay" provisions. Dalmine Energie recognizes revenue only upon delivery of electricity and gas and other services to its customers. Revenues are calculated based on actual consumption, which is measured by meter readings carried out at set intervals. Of its E165 million in revenues in 2001, 24.7% were derived from sales to Dalmine and the remainder represented sales to third parties (of which 95.9% represented sales of electricity and the remainder represented sales of natural gas). Of its E133 million in revenues in the first half of 2002 (compared to E69 million in the first half of 2001), 20.7% were derived from sales to Dalmine (27.1% in the first half of 2001) and the remainder represented sales to third parties (of which 62.6% represented sales of electricity and the remainder represented sales of natural gas). SIDERAR With a total annual production capacity of two million tons of hot- and cold-rolled coils and sheets, Siderar is the principal integrated manufacturer of flat steel products in Argentina. Siderar produces crude steel which is sold directly to steel processors as hot-rolled coil or is further processed by Siderar to produce high value-added products such as cold-rolled coil and sheet, tin plate, electrogalvanized sheet, hot-dipped galvanized sheet or pre-painted sheet. Tenaris no longer owns any interest in Siderar. On December 4, 2001, Siderca disposed of its interest in Siderar through a dividend to Siderca shareholders. Immediately prior to the dividend, Siderca owned 10.71% of Siderar. As of December 4, 2001, when Siderca disposed of its interest in Siderar, Industrial Investments Ltd. and Inversiones Industriales Argentinas (Jersey) Ltd., other companies within the Techint group, owned directly or indirectly an additional 42.3% of Siderar's ordinary stock. MISCELLANEOUS Tenaris also has investments in: - - Metalmecanica, an Argentine manufacturer of oil well sucker rods, couplings and accessories with total sales of USD32.7 million and profits of USD9.9 million in 2001, and total sales of USD10.5 million and losses of USD2.8 million in the first half of 2002. Metalmecanica has production facilities in the Argentine province of San Luis and is the leading producer of sucker rods for the oil and gas industry in Latin America. Metalmecanica has an annual production capacity of 800,000 sucker rods and also produces couplings, accessories, weighted and polished bars all to the high specifications demanded by the oil and gas industry. At June 30, 2002, Metalmecanica's net worth was USD24.6 million, compared to USD27.0 million at December 31, 2001, USD25.8 million at December 31, 2000, and USD16.4 million at December 31, 1999. Metalmecanica's total assets were USD29.8 million at June 30, 2002, USD30.7 million at December 31, 2001, USD29.3 million at December 31, 2000, and USD21.3 million at December 31, 1999. IV-26 - - Metalcentro, an Argentine manufacturer of pipe-end protectors and lateral impact tubes with total sales of USD15.5 million and net income of USD2.8 million in 2001, and total sales of USD2.8 million and losses of USD1.4 million in the first half of 2002. At June 30, 2002, Metalcentro's net worth was USD6.7 million, compared to USD8.1 million at December 31, 2001, USD12.3 million at December 31, 2000, and USD8.1 million at December 31, 1999. Metalcentro's total assets were USD7.4 million at June 30, 2002, USD9.6 million at December 31, 2001, USD14.5 million at December 31, 2000, and USD12.8 million at December 31, 1999. Tenaris's share of these companies' total capital stock as of October 18, 2002, was 27% of Metalmecanica and 52% of Metalcentro. As of October 18, 2002, Siderca held an additional 73% of Metalmecanica and an additional 48% of Metalcentro. RAW MATERIALS AND ENERGY At Tenaris's integrated seamless steel pipe facilities in Argentina, Mexico and Italy, Tenaris's principal raw materials are ferrous scrap, metallic iron in the form of DRI and pig iron and ferroalloys. These are processed in electric furnace steel shops into steel bars and ingots which are then further processed in our rolling mills and finishing lines into seamless steel products. In Argentina, Tenaris produces its own DRI using iron ore imported from neighboring Brazil and sources its ferrous scrap domestically through Scrapservice S.A., its Argentine scrap collecting and processing subsidiary. In Mexico, Tenaris imports most of its pig iron and DRI requirements and purchases ferrous scrap from domestic and international markets. In Italy, Tenaris purchases pig iron and ferrous scrap from European and international markets as well as special metals for certain products. Tenaris coordinates its purchases of ferroalloys worldwide. Below we have provided a more complete description of the raw material and energy situation at Tenaris's integrated facilities in these three countries. At Tenaris's other seamless steel facilities, Tenaris uses round steel bars and ingots as its principal raw materials. In Japan, NKKTubes purchases these materials from NKK Corporation, and in Venezuela, Tavsa purchases these materials from Sidor. In each case, those purchases are made under supply arrangements pursuant to which the purchase price varies in relation to changes in the costs of production. As a result of their location within a larger production complex operated by the supplier, both NKKTubes and Tavsa are substantially dependent on these contracts for the supply of raw materials and energy. NKK uses imported iron ore, coal and ferroalloys as principal raw materials for producing steel bars at Keihin and Sidor uses domestic iron ore and domestic and imported ferroalloys as its principal raw materials. In Canada, AlgomaTubes uses steel billets currently supplied by Tenaris's integrated facilities in Argentina and Mexico. In its welded facilities, Tenaris purchases steel sheets and steel plates principally from domestic producers for processing into welded steel pipes. INTEGRATED PRODUCTION FACILITY IN ARGENTINA At its Campana facility in Argentina, operated by Siderca, Tenaris varies within limits the proportion of ferrous scrap iron to DRI that it uses to manufacture its products based on the relative price of these inputs. Tenaris consumed 487,000 tons of DRI and 624,000 tons of scrap in 2001 (compared to 303,000 tons of DRI and 387,000 tons of scrap in 2000). Tenaris operates a Midrex DRI production plant to generate DRI. Tenaris purchases its raw material requirements for manufacturing DRI in the form of pellets and lump ore under long-term contracts from suppliers in neighboring Brazil. Prices under these contracts are fixed on an annual basis in accordance with market conditions and follow the prices agreed between the major iron ore exporters and their main steel industry clients. Tenaris's annual consumption of iron ore in Argentina ranges IV-27 between 900,000 and 1,200,000 tons and is supplied primarily by Companhia Vale do Rio Doce, Mineracoes Brasileiras Reunidas and Samarco Mineracao S.A. Tenaris transports the iron ore itself, taking advantage of dry bulk cargo vessels on their return from Europe and utilizing its own port facilities. Tenaris has the capacity to store approximately 350,000 tons of iron ore, or enough to supply its manufacturing activity in Argentina for four months. Tenaris's average cost of iron ore increased by 5.4% in 2001 compared to 2000. Tenaris obtains a small portion of its ferrous scrap requirements from its internal operations. To meet the remainder of its requirements for ferrous scrap at competitive prices, Tenaris created Scrapservice, which is engaged in the processing of ferrous scrap from automobiles. Scrapservice processes approximately 300,000 tons of ferrous scrap per year. Tenaris's average cost of ferrous scrap at Campana increased 6.6% in 2001 compared to 2000, though the recent Argentine peso devaluation has led to a substantial drop in terms of the U.S. dollar price of these inputs. Tenaris consumes large quantities of electricity (approximately 1,000,000 megawatts per year) for its manufacturing activities at the Campana facility, particularly in the operation of the electric furnaces used to melt DRI and ferrous scrap. Argentina has a number of large hydroelectric, nuclear and other electricity-generating facilities that Tenaris believes will continue to ensure a reliable source of electric power. Moreover, the electricity-generation market was deregulated in 1989, which has stimulated investments in expanding capacity, greater competition and competitive prices. Tenaris obtains its requirements of electric power in Argentina through self-generation at its thermoelectric plant (26% of total in 2001), supply contracts with local generators (67% of total in 2001) and spot purchases (7% of total in 2001). Tenaris's average cost of electricity in Argentina increased by 2.8% in 2001 compared to 2000, though the recent Argentine peso devaluation has led to a substantial drop in terms of the U.S. dollar price of these inputs. Tenaris also consumes substantial volumes of natural gas, particularly in the generation of DRI and to operate the thermoelectric plant. The natural gas market in Argentina was deregulated in 1992 and divided into three sectors: production, transportation and distribution. Tenaris has entered into long-term supply arrangements with Repsol YPF and Tecpetrol S.A., a Techint group company, for the purchase of natural gas produced by these companies at market prices; these contracts will expire in 2002 and may be renewed at that time. Tenaris has also entered into transportation and distribution agreements with Transportadora de Gas del Norte S.A., or TGN, and Gas Natural Ban S.A., or Gasban; these contracts will expire in 2004 and may be renewed at that time. The Techint group has a significant investment in TGN. Finally, for the distribution phase, Tenaris has entered into a supply contract with Gasban that expires in 2004. At times when the cost of natural gas is high, Tenaris can reduce its production of DRI by using more ferrous scrap and replace natural gas with fuel oil to operate the thermoelectric plant. Tenaris's average cost of natural gas (including transportation and distribution) remained stable in 2001 compared to 2000. INTEGRATED PRODUCTION FACILITY IN MEXICO At Tenaris's Veracruz facility in Mexico, operated by Tamsa, Tenaris obtains its supply of DRI and pig iron mainly from foreign suppliers. During 2000 and 2001, the percentage of DRI and pig iron used in the steel shop represented 22% and 21%, respectively, by weight, of the total metal requirements. Tenaris obtained the rest of its metal requirements for 2000, 2001 and the first half of 2002 from the following principal sources (in percentage of total metal required): - - 26% and 27%, respectively, from domestic market scrap mainly in southeast Mexico and internal recycling; and IV-28 - - 36% for each of 2000 and 2001, from imported scrap mainly from the east coast of the United States, Europe, Russia and Ukraine and the remaining portion from local market sources. Reflecting the effects of the steel crisis worldwide, the average cost of our metallic raw materials, including ferroalloys, experienced a 16% reduction in 1999. A gradual recovery in prices generated an 8% increase in raw material costs for 2000 and a 14% increase in raw material costs for 2001. Tenaris's purchases of raw materials are made pursuant to primarily short-term supply arrangements. However, to secure a long-term supply of DRI in hot briquetted form, or HBI, Tenaris became a party to a joint venture in Venezuela, Complejo Siderurgico de Guayana C.A., or Comsigua. Under the terms of the joint venture, Tamsa entered into an off-take contract with Comsigua to purchase on a take-and-pay basis 75,000 tons of HBI annually for twenty years beginning in April 1998 with an option to terminate the contract at any time after the tenth year upon one year's notice. Pursuant to this off-take contract, Tamsa would be required to purchase the HBI at a formula price reflecting Comsigua's production costs during the first eight contract years; thereafter, it would purchase the HBI at a slight discount to market price. The agreements among the joint venture parties provide that, if during the eight-year period the average market price is lower than the formula price paid during such period, Tamsa would be entitled to a reimbursement of the difference plus interest, payable after the project financing and other specific credits are repaid. In addition, under the joint venture arrangements, Tamsa has the option to purchase on an annual basis up to a further 80,000 tons of HBI produced by Comsigua at market prices. Under its off-take contract with Comsigua, as a result of weak market prices for HBI, Tamsa has paid higher-than-market prices for its HBI and accumulated a credit that, at December 31, 2001, amounted to approximately USD9.8 million. This credit, however, is offset by a provision for an equal amount recorded as a result of Comsigua's weak financial condition. In connection with Tenaris's original 6.9% equity interest in the joint venture company, Tamsa paid USD8.0 million and agreed to cover its proportional share (7.5%) of Comsigua's cash operating and debt service shortfalls. In addition, Tamsa pledged its shares in Comsigua and provided a proportional guarantee in support of the USD156 million (USD100.1 million outstanding as of June 30, 2002) project financing loan made by the International Finance Corporation, or IFC, to Comsigua. In February 2002, Tamsa was required to pay USD1.3 million, representing its share of a shortfall of USD14.7 million payable by Comsigua under the IFC loan and additional operating shortfalls of USD2.8 million. Comsigua's financial condition has been adversely affected by the consistently weak international market conditions for HBI since its start-up in 1998 and, unless market conditions improve substantially, Tamsa may be required to make additional proportional payments in respect of its participation in the Comsigua joint venture and continue to pay higher-than-market prices for its HBI pursuant to its off-take contract. Tenaris's Veracruz facility consumes large quantities of electric power, particularly in operating the electric furnaces used to produce steel. This electric power is furnished by the Mexican government-owned Comision Federal de Electricidad, or the Federal Electric Power Commission. Tenaris's cost of electric power in Mexico increased by approximately 22% in 2000 and 4% in 2001. This increase is primarily due to higher electric power rates resulting from higher fuel prices and the appreciation of the Mexican peso. Tenaris purchases from Pemex, at prevailing international prices, natural gas used for the furnaces that reheat steel ingots in the pipemaking process. Natural gas rates increased approximately 74% in 2000 and 4% in 2001. On February 22, 2001, Tamsa entered into an agreement with Pemex for the supply of 296,600 million British Thermal Units, or BTUs, per month of natural gas from January 1, 2001, until December 31, 2003, at a fixed price of USD4.00 per million of BTUs. In order to cover a decrease in natural gas prices, in March 2001, Tamsa entered into a forward contract with Enron IV-29 North America Corp., or Enron, with the option to sell up to 200,000 million BTUs per month of natural gas at a minimum base price of USD4.05 per million BTUs from March 2002, through December 2003. As a result of Enron's bankruptcy in late 2001, no reasonable prospect exists of exercising Tamsa's option under this contract. The premium paid to Enron of USD1.7 million for this put option was fully amortized during the fourth quarter of 2001. In order to reduce its exposure to above-market prices under the natural gas supply agreement with Pemex, Tamsa entered into agreements with Citibank, N.A., New York, or Citibank, and JPMorgan Chase in March 2002 and April 2002. The economic effect of the agreements with Citibank and JPMorgan Chase is to permit Tamsa to purchase 320,000 million BTUs per month at market prices instead of at the USD4.00 per million BTU rate charged by Pemex, resulting in a more favorable price to Tamsa for natural gas so long as the market price remains below USD4.00. Under the agreements, Tamsa must continue to make its purchases of natural gas at market prices even if the market price rises above USD4.00 per million BTUs, thereby exposing Tamsa to the risk in the future of above-market prices. Also, under the agreements, Tamsa must continue to make purchases at the USD4.00 per million BTU rate if the market price of natural gas falls to USD2.00 per million BTUs or lower (during the period from May 1, 2002, to February 28, 2003) or to USD2.25 per million BTUs or lower (during the period from March 1, 2003, to December 31, 2003). In addition, under each of the agreements with Citibank and JPMorgan Chase, Tamsa is required to purchase 160,000 million BTUs of natural gas per month from January 1, 2004, to December 31, 2005, at a price of USD2.70 per million BTUs. INTEGRATED PRODUCTION FACILITY IN ITALY At its facilities in Italy, operated by Dalmine, Tenaris purchases approximately 65% of its ferrous scrap requirements from the Italian market, 30% from the EU (excluding Italy) and the remainder from other parts of the world. Tenaris purchases its pig iron requirements primarily from Algeria, Turkey and the Ukraine; unlike ferrous scrap purchases, which are primarily denominated in euros, Tenaris's pig iron purchases are usually denominated in U.S. dollars and therefore subject to greater exchange rate risk. High-alloy and other special quality steels are supplied under annual contracts, with prices closely linked to prevailing ferrous scrap prices. Ferrous scrap, pig iron, ferroalloys and special-quality steel represented approximately 39% of our total production costs in 2001 and 2000 and 37% in 1999. Tenaris's main Dalmine facility consumes large quantities of electric power, particularly in operating the electric furnace to produce steel. Until recently, Tenaris purchased its electric power requirements from Enel at prices established for industrial users. In the first half of 1999, the Italian government instituted deregulation measures; in July 1999, Dalmine created a wholly-owned subsidiary, Dalmine Energie, to acquire electrical and other forms of energy at lower rates for Dalmine and for other companies in the Bergamo area belonging to the Consorzio Orobie Energia. Dalmine Energie began to operate in January 2000, after having identified sources for the purchase of electrical energy and entered into supply contracts with companies in the consortium. Today, all of Tenaris's electric and gas power requirements are supplied by Dalmine Energie. Until recently, Tenaris purchased natural gas used to power the furnaces that reheat steel billets in the pipe manufacturing process from Snam S.p.A. In October 2001, Tenaris began to purchase natural gas from Dalmine Energie, which has begun to provide natural gas in addition to the other forms of energy it supplies. In 2001, Tenaris's energy costs in Italy were approximately 15% of total production costs, compared to 12% in 2000. IV-30 EMPLOYEES The following table shows the number of persons employed by Tenaris and its consolidated subsidiaries worldwide at the dates indicated. ARGENTINA At June 30, 2002, Siderca had 3,532 employees of whom about 71% are represented by the Union Obrera Metalurgica de la Republica Argentina, or UOMRA, the most important labor union in the steel manufacturing industry in Argentina, and 7% are represented by the Asociacion de Supervisores de la Industria Metalmecanica de la Republica Argentina, or ASIMRA. Employees represented by UOMRA are included in a collective labor contract first entered into in 1975 that encompasses all workers in the steel and metallurgical industry. These employees are also included in supplemental agreements entered into between Siderca and them. These agreements regulate company-specific labor organization issues and compensation structures linked to performance, productivity, attendance, production levels, quality and company results. These supplemental agreements are subject to amendment on a periodic basis in accordance with changing circumstances and have been continuously updated to address competitiveness, quality, security and efficiency goals. Employees represented by ASIMRA are subject only to Siderca's collective labor agreement entered into with ASIMRA. This collective labor agreement specifically establishes regulations relating to compensation, work organization, authorized absences, holidays, benefits and labor relations. Basic salary levels in the steel industry remained stable during the period in which the Convertibility Law was effective. The recent Argentine peso devaluation has led to a substantial drop in terms of the U.S. dollar values of these agreements. The regulatory framework for employee termination allows an employer to discharge employees without cause if severance is paid based on the length of employment and determined pursuant to a specified formula. Additionally, Argentine Law No. 24,557, referred to as the Work Risk Law, establishes a compulsory insurance scheme to cover work-related injuries and illnesses. The Work Risk Law, which became effective on July 1, 1996, excludes employers from civil liability for work-related injuries and illnesses except in cases of employer fraud or, depending on judicial interpretation, gross negligence. The constitutionality of the Work Risk Law is currently being challenged. In response to lower production levels brought about by the sharp and severe decline in oil prices late in 1998, Siderca instituted a voluntary employee reduction program in connection with the elimination of its fourth production shift and productivity enhancement measures. This program offered some employees the option to leave Siderca on more favorable terms than those offered to employees terminated without cause under Argentine law and was carried out without union resistance or labor conflicts. Subsequently, Siderca reinstated its fourth production shift without a significant increase in the total number of employees. IV-31
- ----------------------------------------------------------------------------------------------- AT JUNE 30, AT DECEMBER 31, --------------- ------------------------ 2002 2001 2001 2000 1999 - ----------------------------------------------------------------------------------------------- Siderca............................................ 3,532 3,545 3,561 3,624 3,253 Tamsa.............................................. 2,789 3,197 2,982 2,939 2,731 Dalmine............................................ 3,185 3,493 3,272 3,640 3,631 Others............................................. 4,547 4,032 4,312 2,937 2,654 ------ ------ ------ ------ ------ Total employees.................................... 14,053 14,267 14,127 13,140 12,269 - ----------------------------------------------------------------------------------------------- Tenaris believes that it enjoys good relations with its employees and their unions in Argentina. The last strike by our Argentine employees took place from July to September 1992 and was organized by shop-floor workers. ASIMRA, which represents most of Siderca's job supervisors, has not called a strike in the last 15 years. MEXICO At June 30, 2002, Tamsa had 2,789 employees in Mexico, including temporary workers, of whom 1,904 were production, quality assurance and maintenance personnel. Approximately 1,390 employees are represented by a local affiliate of the Mexican Confederation of Workers, or MCW, the principal labor union in Mexico, with which Tamsa has had collective bargaining agreements since 1953. Wages and benefits for unionized employees are fixed by contracts covering a one-year period beginning May 1 of each year. Negotiations with the MCW in 1999, 2000 and 2001 resulted in wage increases of 16%, 12% and 10%, respectively. Negotiations for 2002 concluded in April 2002, resulting in a 6% wage increase. On March 31, 2002, Tamsa determined a statutory profit sharing liability of MXP97,797 thousand for fiscal year 2001 that was paid in May 2002. Tenaris believes that it enjoys satisfactory relations with its employees and the MCW in Mexico. Our ability to adapt to changing market conditions in 1998 and 1999 was made possible by the implementation of temporary shutdowns, which allowed for the adjustment of production levels to market demand while maintaining efficiency and operating margins. The technical suspensions, which are contemplated by Mexican labor law, were endorsed by the MCW. ITALY At June 30, 2002, Dalmine had 3,185 employees, including temporary employees. Most of Dalmine's employees belong to labor unions, the three largest of which are: - - the Federazione Italiana Metalmeccanici, or the Italian Federation of Metalworks, a member of the Confederazione Italiana Sindacato Lavoratori, or the Italian Federation of Labor Unions; - - the Federazione Impiegati e Operai Metalmeccanici, or the Italian Federation of Workers and Employees in Metalworks, a member of the Confederazione Generale Italiana del Lavoro, or the General Italian Federation of Labor; and - - the Unione Italiana dei Lavoratori Metalmeccanici, or the Italian Union of Metal Workers, a member of the Unione Italiana del Lavoro, or the Italian Labor Union. Dalmine has specific agreements with these labor unions for all employee categories governed by the Contratto Collettivo Nazionale di Lavoro, or the master national labor contract; these specific agreements address matters including salary levels, working hours and benefits. Dalmine also has supplementary agreements with these unions dealing with specific issues, such as incentive programs and workshift restructurings. In April 1999, an agreement was signed between Dalmine and the trade unions to implement a two-year reorganization plan to manage lay-offs and personnel reduction plans. The agreement involves the payment of extraordinary unemployment benefits until April 2001, for lay-offs over the two-year period and the use of various tools (mobility, retirement, incentives, outplacements, professional re-training, new work arrangements) to reduce excess personnel by approximately 580 employees. The reorganization plan resulted in an accrual of E15 million, recorded under extraordinary expenses in 1999. IV-32 This reorganization plan was completed during the first half of 2001, achieving 80% success in reducing the workforce. However, in March 2001, the Ministry of Labor and Social Security issued guidelines on the application of Laws 257/92 and 271/93 concerning the payment of social security benefits to workers exposed to asbestos while working in its factories. Because of these early retirements, Dalmine decided not to request an extension of the agreement in order to fully implement its personnel reduction agreement. Tenaris believes that it enjoys satisfactory relations with its employees and their labor unions in Italy. Other than work stoppages for an aggregate period of 32 hours, 26 of which were organized by labor unions nationally at the industry level (and not specifically targeted at Dalmine), Dalmine has not experienced any work stoppages or other organized disruptions involving its employees in Italy in the last three years. PRODUCT QUALITY STANDARDS Tenaris's seamless steel pipes are manufactured in accordance with the specifications of the American Petroleum Institute, or API, and the American Society for Testing and Materials, or ASTM. The products must also satisfy Tenaris's proprietary standards as well as its customers' requirements. Tenaris maintains an extensive quality control program to ensure that its products continue to satisfy proprietary and industry standards and are competitive from a product quality standpoint with products offered by its competitors. Currently Tenaris maintains ISO 9001 certification from Det Norske Veritas, a requirement for selling to the major oil and gas companies which have rigorous quality standards. The ISO 9001 quality management system assures that the product complies with customer requirements from the acquisition of raw material to the delivery of the final product. ISO 9001 is designed to ensure the reliability of both the product and the processes associated with the manufacturing operation. In October 2001, Tenaris obtained a global ISO 9001 certification issued by Lloyds Register Quality Assurance and applicable to all of Tenaris's business. This ISO 9001 certification expires on December 14, 2003, at which time Tenaris intends to renew the certification. RESEARCH AND DEVELOPMENT Research and development, or R&D, of new products and processes to meet the increasingly stringent requirements of its customers is an important aspect of Tenaris's business. Tenaris's R&D network and technological capabilities were recently strengthened as a result of Tenaris's agreements with NKK relating to the NKKTubes investment. As part of these agreements, NKK has agreed to license all of its existing steel (for seamless pipe) and seamless pipe-making technology to Tenaris and to provide Tenaris with access to its R&D laboratory and technicians. As a result of NKK and Kawasaki Steel's business combination, effective on September 27, 2002, however, the licensing agreements are expected to be terminated. Under the terms of the proposed termination (which are still being negotiated among the parties), Tenaris would not have access to NKK's technology and know-how in the future, but would continue to be able to use the technology and know-how already licensed to Tenaris. See "--Related Party Transactions--Agreements relating to NKK's technology." Tenaris shares R&D activities among its subsidiaries in order to achieve greater efficiencies and better access to each company's particular strengths. Siderca retains responsibility for the development of OCTG products, while Tamsa is responsible for the development of line pipe products and Dalmine for the development of mechanical pipe products. R&D activities are carried out primarily at specialized research facilities located at the Campana plant, operated by the Fundacion para el Desarrollo Tecnologico, or Fudetec, and at the research facilities of IV-33 the Centro Sviluppo Materiali S.p.A., or CSM, in Rome. Fudetec was founded in 1989 by members of the Techint group to promote industrial and technological development in Argentina. In May 1997, Dalmine invested Italian lire 1.4 billion (E0.7 million) for an 8.3% interest in CSM. Product development and research currently being undertaken include: - - proprietary premium joint products; - - high collapse deep water line pipe; - - high strength mechanical tubing; and - - internal metallic coating of tubing by plasma powder welding. In addition to R&D aimed at new or improved products, Tenaris continuously studies opportunities to optimize its manufacturing processes. Recent projects in this area include ongoing studies for the addition of electromagnetic stirring to continuous casting with the goal of improving product quality and range. Tenaris has budgeted USD18.5 million for R&D for the year ending December 31, 2002, compared to USD9.7 million actually spent in 2001, USD9.3 million in 2000 and USD7.1 million in 1999. ENVIRONMENTAL REGULATION Tenaris is subject to a wide range of local, provincial and national laws, regulations, permits and decrees in the countries where it has 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 Tenaris's business. Tenaris has not been fined for any environmental violation in the last five years, and is not aware of any current material legal or administrative proceedings pending against it with respect to environmental matters which could have an adverse material impact on its financial condition or results of operations. Tenaris has not been required or requested, nor is it aware of any obligation, to conduct remedial activities at any of its sites or facilities. In 1991, Tamsa initiated a series of studies regarding the effects of its industrial operations on the environment. In early 1992, Tamsa began projects to implement the recommendations of these studies and to maintain compliance with the latest laws and regulations of the Secretaria de Medio Ambiente y Recursos Naturales, the Mexican environmental regulatory agency more commonly known as the SEMARNAT (formerly Secretaria del Medio Ambiente, Recursos Naturales y Pesca, or SEMARNAP), regarding air, water and soil pollution control. In 1994, Tamsa requested a voluntary review of its facilities by the SEMARNAP. In 1995, Tamsa entered into an agreement with the SEMARNAP pursuant to which it agreed to conduct periodic internal audits and undertake a number of environmental improvements. The review concluded that Tamsa was in compliance with all but two defined environmental targets. Tamsa, in cooperation with the SEMARNAT, is currently working towards meeting the two outstanding targets, which relate to levels of dust generated by Tamsa's manufacturing activities in Veracruz and soil conditions at Tamsa's waste management site in Villa Rica. In an effort to meet environmental targets regarding dust levels, under a proposal approved by the SEMARNAT, Tamsa completed construction of a dust storage facility in December 2001. The facility is currently operational. IV-34 INSURANCE Tenaris carries property, accident, fire, third party liability and other insurance (such as vehicle insurance) in amounts which are customary in the steel products industry. In some cases, insurers have the option to replace damaged or destroyed plant and equipment rather than to pay Tenaris the insured amount. Tenaris does not carry loss-of-profit or business interruption insurance. LITIGATION BHP PROCEEDINGS In June 1998, British Steel and Dalmine were sued by a consortium led by BHP before the Commercial Court of the High Court of Justice Queen's Bench Division of London. The action concerns the failure of an underwater pipeline built in 1994 in the Bay of Liverpool. Dalmine, at that time a subsidiary of Ilva S.p.A., supplied pipe products to British Steel, which, in turn, resold them to BHP for use in constructing the Bay of Liverpool pipeline. BHP claimed that British Steel breached the contract of sale relating to the pipe and that the pipe was defectively manufactured by Dalmine. The products sold were valued at 1.9 million British pounds and consisted of pipe for use in maritime applications. Dalmine received court notice of the action more than two years after the contractual warranty covering the pipe had expired and four years after the pipe was delivered and placed into operation. British Steel and Dalmine denied the claim on the basis that the warranty period had expired and, in the alternative, that the amount claimed exceeded the contractual limitation of liability (equal to 300,000 British pounds, or approximately 15% of the value of the products supplied). The Commercial Court dismissed the contract claim against British Steel. The decision was subsequently confirmed by the Court of Appeals in a ruling issued on April 7, 2000, as a result of which the claim against British Steel was definitively dismissed. BHP's product liability claim against Dalmine remained outstanding. On November 24, 2000, the Commercial Court granted BHP permission to amend its pleading against Dalmine to include a deceit tort claim under English law based on inconsistencies between the results of internal chemical tests performed by Dalmine on the pipe and the results shown in the quality certificates issued to BHP by Dalmine. In May 2002, the trial court issued a judgment in favor of BHP, holding that the products supplied by Dalmine were the cause for the failure of the gas pipeline and that Dalmine was liable for damages to BHP. The court's judgment was limited to the issue of liability, and the amount of damages to be awarded to BHP is being determined in a separate proceeding. Dalmine's petition to the trial court for leave to appeal its judgment was denied, but on August 5, 2002, the Court of Appeals granted Dalmine leave to appeal the trial court's judgment. The appeal will be heard and the Court of Appeals' judgment is expected to be issued in 2003. BHP has indicated in court proceedings that it will seek damages of approximately 35 million British pounds to cover the cost of replacing the pipeline. In addition, although neither party has yet presented evidence with respect to these damages, BHP has indicated that it will also seek damages of approximately 39 million British pounds to cover investigation and related costs and approximately 140 million British pounds to cover the cost of deferred revenues assessed by reference to the prevailing oil price at the day of judgment. Subsequent to the court's recent judgment in favor of BHP on the issue of liability, BHP has petitioned the court for an interim judgment of damages in the amount of approximately 37 million British pounds to cover the cost of replacing the pipeline. IV-35 On July 31, 2002, Dalmine agreed to pay BHP 15 million British pounds (approximately E23 million) in interim damages. The court is expected to hear arguments regarding, and issue its final judgment on, total damages in 2003. Dalmine has created a provision in the amount of E45 million in its results for 2001 to account for potential losses as a result of BHP's lawsuit, which had a substantial adverse effect on its earnings for the year. The amount of this provision relates mostly to BHP's claim for direct damages of approximately 35 million British pounds incurred to replace the damaged pipeline. As the proceedings for the determination of damages have not yet been substantially completed, Dalmine is not currently in a position to make an estimate of the possible loss or range of loss, if any, in excess of the amount currently accrued in its financial statements as of June 30, 2002. The pipe that is the subject of this lawsuit was manufactured and sold, and the tort alleged by BHP took place, prior to the privatization of Dalmine, and Techint Investments (the Siderca subsidiary party to the contract pursuant to which Dalmine was privatized) believes that, under the Dalmine privatization contract, Techint Investments should be entitled to recover from Fintecna on behalf of Dalmine (as a third party beneficiary under the Dalmine privatization contract) 84.08% of any damages it may be required to pay BHP. Techint Investments has commenced arbitration proceedings against Fintecna to compel it to indemnify Dalmine for any amounts Dalmine may be required to pay BHP. Fintecna has denied that it has any contractual obligation to indemnify Dalmine, asserting that the indemnification claim is time-barred under the terms of the privatization contract and, in any event, subject to a cap of E13 million. Techint Investments disputes this assertion. The arbitration proceedings were suspended at a preliminary stage pending a decision by the British trial court in BHP's lawsuit against Dalmine. If Dalmine were required to pay damages to BHP substantially in excess of its provision of E45 million (including consequential damages or deferred revenues), and those damages were not reimbursed to Dalmine by Fintecna, Dalmine's (and, consequently, Tenaris's) results of operations, financial condition and net worth would be further materially and adversely affected. U.S. SEAMLESS STEEL PIPE ANTIDUMPING AND COUNTERVAILING DUTY PROCEEDINGS OCTGs and some of Tenaris's other products have been the subject of administrative proceedings in the United States based on allegations that Tenaris sold those products in the United States at less than fair value ("antidumping proceedings") or that Tenaris received unfair government subsidies ("countervailing duty proceedings"). As a result, OCTGs and some of Tenaris's other products are subject to substantial protective tariffs in the United States, essentially closing the U.S. market to many of Tenaris's principal products and limiting Tenaris's growth opportunities in an important market for seamless steel pipe products. Tenaris has repeatedly challenged the imposition of those tariffs and intends to continue to challenge them, but we cannot assure you that they will be reduced or eliminated in the future. We have provided an overview of these proceedings and their current status below. - - Argentina. Since August 1995, an antidumping duty of 1.4% has been applicable to any OCTG exports by Tenaris to the United States from Argentina. Although this tariff is relatively low, the U.S. Department of Commerce could later modify its determination and apply additional antidumping duties retroactively, making any sales of Argentine-manufactured OCTG products to the United States excessively risky. Also since August 1995, an antidumping duty of 108.1% has been applicable to any seamless standard, line and pressure, or SL&P, pipe exports by Tenaris to the United States from Argentina. After a "sunset" review, in July 2001, the U.S. government determined IV-36 to renew the antidumping penalties applicable to Tenaris's OCTG and seamless SL&P pipe exports from Argentina for an additional five years. - - Mexico. Since June 1995, an antidumping duty of 23.8% (which was later adjusted to 21.7%) was applicable to any OCTG exports by Tenaris to the United States from Mexico. This duty was lowered to 0% as of March 1999, and this rate continues to date. After a "sunset" review, which began in August 2000, the U.S. government renewed the antidumping penalties on Tenaris's OCTG exports from Mexico for an additional five years. Since August 2000, an antidumping duty of 15.05% has been applicable to any large-diameter seamless line pipe exports by Tenaris to the United States, except with respect to a specific type of line pipe used for deep water applications that is not manufactured by any U.S. producer. This penalty marks the last stage of an investigative process that began on June 30, 1999, with the filing of petitions for antidumping relief by U.S. steel companies. The U.S. petitioners targeted imports of large-diameter seamless SL&P pipe from Japan, Romania, South Africa, Mexico and the Czech Republic. As a result of these proceedings, Tamsa's exports of covered large-diameter line pipe to the United States have been substantially eliminated. - - Italy. Since July 1994, an antidumping duty of 49.78% has been applicable to any OCTG exports by Tenaris to the United States from Italy. After a "sunset" review, in July 2000, the U.S. government determined to renew the antidumping penalties applicable to Tenaris's OCTG exports from Italy for an additional five years. From July 1994 until July 2000, an antidumping duty of 1.84% (which was later adjusted to 1.27%) and a countervailing duty of 1.47% was applicable to any seamless SL&P pipe exports by Tenaris to the United States from Italy. The antidumping penalties applicable to Tenaris's seamless SL&P pipe exports to the United States from Italy were rescinded in July 2000, as a result of a "sunset" review. ARGENTINE TAX DISPUTE On December 18, 2000, Siderca was notified by the Argentine tax authorities that, in its view, Siderca's taxable income in each of fiscal year 1995 and fiscal year 1997 was understated by ARP78.9 million. As of September 30, 2002, Siderca's exposure in connection with this tax dispute was ARP52.1 million, including ARP24.0 million in principal and ARP28.1 million in interest accrued on the amount in controversy through such date. The allegedly unpaid principal will continue to accrue interest at the rate of 4% per month. Siderca believes that the amount of the alleged understatement, which related to the conversion of tax write-offs into debt consolidation bonds, was not taxable and, accordingly, has not recorded any provision in its financial statements. Siderca has appealed the Argentina tax authority's decision to the federal tax court. OTHER PROCEEDINGS Three of Dalmine's former managers have been named as defendants in a criminal proceeding, arising from the death of, or, in some cases, injuries to certain employees, before the Court of Bergamo, Italy, based on alleged negligence in having omitted to inform the employees working in a specific area of the mill of the risks connected with the use of asbestos and for having omitted to take any measures to prevent the risks connected with the use of asbestos in certain areas of Dalmine's manufacturing facilities from 1960 to the early 1980s. If its former managers are held responsible, Dalmine will be liable for damages to the 20 affected employees or their respective estates, as applicable. Dalmine is also a defendant in two civil proceedings for work-related injuries arising from its use of asbestos. The first of these proceedings was instituted on February 14, 2001, before the Court of Bergamo, Italy, by the estate of Luigi Pedruzzi, for damages in an aggregate amount of approximately E640,000. The IV-37 other proceeding was instituted on June 5, 2001, before the Commissione Provinciale di Conciliazione of Bergamo, Italy, the mediation commission for the province of Bergamo, by the estate of Elio Biffi for an aggregate amount of approximately E770,000. In addition, some other asbestos-related out-of-court claims have been forwarded to Dalmine. The aggregate relief currently sought in out-of-court claims is approximately E3.8 million, although damages have not yet been specified in some cases. Of the 39 claims (inclusive of the 20 claims of the affected employees relating to the criminal proceeding and the out-of-court claims), 16 incidents have already been settled, either by Dalmine or by Dalmine's insurer. Dalmine estimates that its potential liability in connection with the remaining cases not yet settled or covered by insurance is approximately E6.3 million. This amount was recognized as a provision for liabilities and expenses as of June 30, 2002. While Dalmine may be subject to additional asbestos-related claims in the future, Tenaris, based on recent trends at Dalmine, does not believe that asbestos-related liabilities arising from claims already filed against Dalmine or from future asbestos-related claims are reasonably likely to be, individually or in the aggregate, material to its results of operations, liquidity and financial condition. Tenaris and its subsidiaries are also involved in legal proceedings incidental to the normal conduct of their business, for which we have made provisions in accordance with our corporate policy and any applicable rules. Tenaris believes its provisions are adequate. Tenaris does not believe that liabilities relating to these proceedings are likely to be, individually or in the aggregate, material to its consolidated financial position. IV-38 SELECTED HISTORICAL COMBINED CONSOLIDATED FINANCIAL DATA OF TENARIS The following selected historical combined consolidated financial and other data for Tenaris should be read in conjunction with "Part Three--The Exchange Offer--Unaudited Pro Forma Condensed Combined Consolidated Financial Data," "--Management's Discussion and Analysis of Financial Condition and Results of Operations," and "--Business" and the combined consolidated financial statements and the notes thereto included elsewhere in this prospectus, and are qualified in their entirety by reference to the information therein. The selected consolidated financial data of Tenaris have been derived from its combined consolidated financial statements, which are prepared in accordance with IAS (unless otherwise indicated) for each of the periods and at the dates indicated. The combined consolidated financial statements as of June 30, 2002, and for the six-month period ended June 30, 2002, and the combined consolidated financial statements as of December 31, 2001, 2000 and 1999, and for the years ended December 31, 2001, 2000 and 1999, included in this prospectus have been audited by PricewaterhouseCoopers S.a.r.l., independent accountants in Luxembourg and member firm of PricewaterhouseCoopers. Tenaris's results for the six-month period ended June 30, 2002, are not necessarily indicative of the results expected for the fiscal year ended December 31, 2002 or any other period. IAS differ in certain significant respects from U.S. GAAP. See note R and note 28 to Tenaris's audited combined consolidated financial statements included in this prospectus, which provide a description of the principal differences between IAS and U.S. GAAP as they relate to Tenaris's audited combined consolidated financial statements and a reconciliation to U.S. GAAP of net income (loss) and shareholders' equity for the periods and at the dates indicated therein. For a discussion of the currencies used in this prospectus, exchange rates and accounting principles affecting the financial information contained in this prospectus, see "Part Nine--Additional Information for Shareholders--Exchange Rates" and "Presentation of Certain Financial and Other Information." IV-39 (1) Upon its incorporation in December 2001, the Company issued 30,107 shares. On October 18, 2002, Sidertubes contributed all of its assets (including 30,010 shares of the Company) and liabilities to the Company, in exchange for 710,747,090 shares of the Company. The 30,010 shares contributed by Sidertubes to the Company were cancelled and, accordingly, upon consummation of this contribution the Company had a total of 710,747,187 shares issued and outstanding. (2) Tenaris's combined earnings (loss) per share before effect of accounting changes, cumulative effect of accounting change per share and combined earnings per share for each of the periods presented have been calculated based on the assumption that 710,747,187 shares were issued and outstanding in each of the periods presented. IV-40
- ------------------------------------------------------------------------------------------------------ FOR THE SIX-MONTH PERIOD ENDED JUNE 30, --------------------------------------- THOUSANDS OF U.S. DOLLARS 2002 2001 - ------------------------------------------------------------------------------------------------------ (UNAUDITED) SELECTED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net sales................................................... 1,569,532 1,525,611 Cost of sales............................................... (1,054,841) (1,051,882) --------------------------------------- Gross profit................................................ 514,691 473,729 Selling, general and administrative expenses................ (226,079) (237,339) Other operating income (expenses) net....................... (10,566) (4,940) --------------------------------------- Operating income (loss)..................................... 278,046 231,450 Financial income (expenses), net............................ (41,503) (52,479) --------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases, equity in earnings (losses) of associated companies and minority interest.................. 236,543 178,971 Equity in earnings (losses) of associated companies......... (5,142) (15,653) --------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and minority interest.............. 231,401 163,318 Income tax.................................................. (101,017) (64,234) Effect of currency translation on tax bases................. (49,083) (2,527) --------------------------------------- Net income (loss) before minority interest.................. 81,301 96,557 Minority interest........................................... (64,144) (41,495) --------------------------------------- Net income (loss)........................................... 17,157 55,062 --------------------------------------- Depreciation and amortization............................... (83,572) (73,045) Weighted average number of shares outstanding(1)............ 710,747,187 710,747,187 Combined earnings (loss) per share(2)....................... 0.02 0.08 U.S. GAAP Net sales................................................... 1,160,212 1,142,813 Cost of sales............................................... (731,625) (753,061) Operating income (loss)..................................... 239,606 189,881 Income before cumulative effect of accounting changes....... 52,130 56,784 Cumulative effect of accounting changes..................... (17,417) (1,007) Net income (loss)........................................... 34,713 55,777 Weighted average number of shares outstanding(1)............ 710,747,187 710,747,187 Combined earnings per share before effect of accounting changes(2).................................................. 0.07 0.08 Cumulative effect of accounting changes per share(2)........ (0.02) (0.00) Combined earnings (loss) per share(2)....................... 0.05 0.08 - ------------------------------------------------------------------------------------------------------ (1) Upon its incorporation in December 2001, the Company issued 30,107 shares. On October 18, 2002, Sidertubes contributed all of its assets (including 30,010 shares of the Company) and liabilities to the Company, in exchange for 710,747,090 shares of the Company. The 30,010 shares contributed by Sidertubes to the Company were cancelled and, accordingly, upon consummation of this contribution the Company had a total of 710,747,187 shares issued and outstanding. (2) Tenaris's combined earnings (loss) per share before effect of accounting changes, cumulative effect of accounting change per share and combined earnings per share for each of the periods presented have been calculated based on the assumption that 710,747,187 shares were issued and outstanding in each of the periods presented. IV-41
- --------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ THOUSANDS OF U.S. DOLLARS 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------- SELECTED COMBINED CONSOLIDATED INCOME STATEMENT DATA IAS Net sales...................... 3,119,343 2,311,290 1,835,211 2,839,382 2,667,077 Cost of sales.................. (2,165,568) (1,692,412) (1,481,552) (2,095,260) (1,927,052) ------------------------------------------------------------------------ Gross profit................... 953,775 618,878 353,659 744,122 740,025 Selling, general and administrative expenses........ (447,791) (383,588) (306,471) (348,712) (322,941) Other operating income (expenses), net................ (64,352) 5,877 (55,084) 123,889 139,954 ------------------------------------------------------------------------ Operating income (loss)........ 441,632 241,167 (7,896) 519,299 557,038 Financial income (expenses), net.......................... (25,595) (47,923) (37,118) (68,182) (71,962) ------------------------------------------------------------------------ Income (loss) before income tax, effect of currency translation on tax bases, equity in earnings (losses) of associated companies and minority interest.............. 416,037 193,244 (45,014) 451,117 485,076 Equity in earnings (losses) of associated companies........... (41,296) (3,827) (39,296) (17,436) 40,622 ------------------------------------------------------------------------ Income (loss) before income tax, effect of currency translation on tax bases and minority interest.............. 374,741 189,417 (84,310) 433,681 525,698 Income tax..................... (108,956) (63,299) (6,065) (65,663) (161,363) Effect of currency translation on tax bases................... (109,882) (2,011) (2,961) (3,198) (3,046) ------------------------------------------------------------------------ Net income (loss) before minority interest.............. 155,903 124,107 (93,336) 364,820 361,289 Minority interest.............. (74,557) (47,401) 38,521 (211,245) (168,459) ------------------------------------------------------------------------ Net income (loss).............. 81,346 76,706 (54,815) 153,575 192,830 ------------------------------------------------------------------------ Depreciation and amortization................. (161,710) (156,643) (165,847) (167,348) (169,920) Weighted Average number of shares outstanding(1).......... 710,747,187 710,747,187 710,747,187 710,747,187 710,747,187 Combined earnings (loss) per share(2)....................... 0.11 0.11 (0.08) 0.22 0.27 U.S. GAAP Net sales...................... 2,313,162 1,166,293 Cost of sales.................. (1,551,124) (932,632) Operating income (loss)........ 422,014 102,740 Income before cumulative effect of accounting changes.......... 163,921 77,333 Cumulative effect of accounting changes........................ (1,007) - Net income (loss).............. 162,914 77,333 Weighted Average number of shares outstanding(1).......... 710,747,187 710,747,187 Combined earnings per share before effect of accounting changes(2)..................... 0.23 0.11 Cumulative effect of accounting changes per share(2)........... (0.00) - Combined earnings (loss) per share(2)....................... 0.23 0.11 - --------------------------------------------------------------------------------------------------------- (1) Upon its incorporation in December 2001, the Company issued 30,107 shares. On October 18, 2002, Sidertubes contributed all of its assets (including 30,010 shares of the Company) and liabilities to the Company, in exchange for 710,747,090 shares of the Company. The 30,010 shares contributed by Sidertubes to the Company were cancelled and, accordingly, upon consummation of this contribution the Company had a total of 710,747,187 shares issued and outstanding. (2) Tenaris's combined shareholders' equity per share at each date presented has been calculated based on the assumption that 710,747,187 shares were issued and outstanding at each date presented. IV-42
- ------------------------------------------------------------------------------------------------ AT JUNE 30, AT DECEMBER 31, THOUSANDS OF U.S. DOLLARS 2002 2001 - ------------------------------------------------------------------------------------------------ SELECTED COMBINED CONSOLIDATED BALANCE SHEET DATA IAS Current assets.............................................. 1,788,180 1,619,136 Property, plant and equipment, net.......................... 1,894,723 1,971,318 Other non-current assets.................................... 255,810 247,500 -------------------------------- Total assets................................................ 3,938,713 3,837,954 -------------------------------- Current liabilities......................................... 1,227,450 1,084,913 Non-current borrowings...................................... 358,058 393,051 Deferred tax liabilities.................................... 260,964 262,963 Other non-current liabilities............................... 338,310 302,645 -------------------------------- Total liabilities........................................... 2,184,782 2,043,572 -------------------------------- Minority interest........................................... 908,139 918,981 Shareholders' equity........................................ 845,792 875,401 -------------------------------- Total liabilities and shareholders' equity.................. 3,938,713 3,837,954 -------------------------------- Weighted average number of shares outstanding(1)............ 710,747,187 710,747,187 Shareholders' equity per share(2)........................... 1.19 1.23 U.S. GAAP Total assets................................................ 3,075,798 3,075,455 Net assets.................................................. 1,746,162 1,781,814 Total shareholders' equity.................................. 930,817 941,926 Weighted average number of shares outstanding(1)............ 710,747,187 710,747,187 Combined shareholders' equity per share(2).................. 1.31 1.33 - ------------------------------------------------------------------------------------------------ (1) Upon its incorporation in December 2001, the Company issued 30,107 shares. On October 18, 2002, Sidertubes contributed all of its assets (including 30,010 shares of the Company) and liabilities to the Company, in exchange for 710,747,090 shares of the Company. The 30,010 shares contributed by Sidertubes to the Company were cancelled and, accordingly, upon consummation of this contribution the Company had a total of 710,747,187 shares issued and outstanding. (2) Tenaris's combined shareholders' equity per share at each date presented has been calculated based on the assumption that 710,747,187 shares were issued and outstanding at each date presented. IV-43
- ----------------------------------------------------------------------------------------------------- AT DECEMBER 31, ------------------------------------------------------------------- THOUSANDS OF U.S. DOLLARS 2001 2000 1999 1998 1997 - ----------------------------------------------------------------------------------------------------- SELECTED COMBINED CONSOLIDATED BALANCE SHEET DATA IAS Current assets.................. 1,619,136 1,419,747 1,270,109 1,650,643 1,614,389 Property, plant and equipment, net............................. 1,971,318 1,941,814 1,909,924 1,955,426 1,947,985 Other non-current assets........ 247,500 282,976 246,317 395,800 470,437 ------------------------------------------------------------------- Total assets.................... 3,837,954 3,644,537 3,426,350 4,001,869 4,032,811 ------------------------------------------------------------------- Current liabilities............. 1,084,913 951,444 792,716 883,728 1,147,484 Non-current borrowings.......... 393,051 355,628 212,012 449,169 426,783 Deferred tax liabilities........ 262,963 292,849 290,727 354,611 378,022 Other non-current liabilities... 302,645 199,548 196,964 176,532 183,493 ------------------------------------------------------------------- Total liabilities............... 2,043,572 1,799,469 1,492,419 1,864,040 2,135,782 ------------------------------------------------------------------- Minority interest............... 918,981 919,710 979,067 1,023,165 936,154 Shareholders' equity............ 875,401 925,358 954,864 1,114,664 960,875 ------------------------------------------------------------------- Total liabilities and shareholders' equity............ 3,837,954 3,644,537 3,426,350 4,001,869 4,032,811 ------------------------------------------------------------------- Weighted Average number of shares outstanding(1)........... 710,747,187 710,747,187 710,747,187 710,747,187 710,747,187 Shareholders' equity per share(2)........................ 1.23 1.30 1.34 1.57 1.35 U.S. GAAP Total assets.................... 3,075,455 1,905,732 Net assets...................... 1,781,814 1,341,854 Total shareholders' equity...... 941,926 908,872 Weighted Average number of shares outstanding(1)........... 710,747,187 710,747,187 Combined shareholders' equity per share(2).................... 1.33 1.28 - ----------------------------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OPERATING RESULTS The following discussion and analysis of Tenaris's financial condition and results of operations are based on the combined consolidated financial statements of Tenaris included elsewhere in this prospectus. Accordingly, this discussion and analysis present Tenaris's financial condition and results of operations on a combined and consolidated basis. See "Presentation of Certain Financial and Other Information--Accounting Principles--Tenaris" and notes A and B to the combined consolidated financial statements of Tenaris included in this prospectus. The following discussion should be read in conjunction with Tenaris's combined consolidated financial statements and the related notes included in this prospectus. Tenaris prepares its combined consolidated financial statements in conformity with IAS, which differ in certain significant respects from U.S. GAAP. See notes R and 28 to Tenaris's combined consolidated financial statements included in this prospectus, which include a description of the principal differences between IAS and U.S. GAAP as they relate to Tenaris's combined consolidated financial statements and a reconciliation of net income and shareholders' equity for the periods and at the dates indicated. The following discussion should also be read in conjunction with the financial statements and discussion and analysis of the financial condition and results of operations of Siderca, Tamsa and Dalmine included in this prospectus. Those financial statements and discussions and analysis provide further detail regarding the trends that affected Tenaris's financial condition and results of operation during the periods discussed below. Siderca's, Tamsa's and Dalmine's accounting policies are conducted, and their financial statements are prepared, in accordance with Argentine, Mexican and Italian GAAP, respectively, while Tenaris's financial statements are prepared, in accordance with IAS. See "Presentation of Certain Financial and Other Information--Accounting Principles--Siderca," "--Tamsa" and "--Dalmine." See note S to the audited combined consolidated financial statements of Tenaris included in this prospectus for a summary description of certain differences between IAS and Argentine, Mexican and Italian GAAP, as they relate to Siderca's, Tamsa's and Dalmine's financial statements, respectively. IV-44 The following table sets forth Tenaris's operating and other costs and expenses as a percentage of net sales for the periods indicated. IV-45
- ------------------------------------------------------------------------------------------------ FOR THE SIX-MONTH PERIOD FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ---------------------------- --------------------- PERCENTAGE OF NET SALES 2002 2001 2001 2000 1999 - ------------------------------------------------------------------------------------------------ (UNAUDITED) Net sales................................. 100.0 100.0 100.0 100.0 100.0 Cost of sales............................. (67.2) (68.9) (69.4) (73.2) (80.7) ---------------------------------------------------- Gross profit.............................. 32.8 31.1 30.6 26.8 19.3 Selling, general and administrative expenses.................................. (14.4) (15.6) (14.4) (16.6) (16.7) Other operating income (expenses), net.... (0.7) (0.3) (2.1) 0.3 (3.0) ---------------------------------------------------- Operating income (loss)................... 17.7 15.2 14.2 10.4 (0.4) Financial income (expenses), net.......... (2.6) (3.4) (0.8) (2.1) (2.0) ---------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases, equity in earnings (losses) of associated companies and minority interest........... 15.1 11.7 13.3 8.4 (2.5) Equity in earnings (losses) of associated companies................................. (0.3) (1.0) (1.3) (0.2) (2.1) ---------------------------------------------------- Income (loss) before income tax, effect of currency translation on tax bases and minority interest......................... 14.7 10.7 12.0 8.2 (4.6) Income tax................................ (6.4) (4.2) (3.5) (2.7) (0.3) Effect of currency translation on tax bases..................................... (3.1) (0.2) (3.5) (0.1) (0.2) ---------------------------------------------------- Net income (loss) before minority interest.................................. 5.2 6.3 5.0 5.4 (5.1) Minority interest......................... (4.1) (2.7) (2.4) (2.1) 2.1 ---------------------------------------------------- Net income (loss)......................... 1.1 3.6 2.6 3.3 (3.0) - ------------------------------------------------------------------------------------------------ The table below shows Tenaris's total sales volume by product and market for the periods indicated. The following table indicates the percentage market distribution of Tenaris's seamless steel pipe sales volume by region for the periods shown.
- ------------------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED FOR THE YEAR ENDED JUNE 30, DECEMBER 31, ------------------------------- --------------------- THOUSANDS OF TONS 2002 2001 2001 2000 1999 - ------------------------------------------------------------------------------------------------- (UNAUDITED) Seamless Steel Pipe Sales Siderca Domestic............................. 73 110 211 192 113 Exports.............................. 225 269 490 426 363 NKKTubes and AlgomaTubes................ 141 127 288 88 - Tamsa Domestic............................. 61 65 139 167 164 Exports and Tavsa.................... 212 249 591 414 178 Dalmine European Union....................... 273 319 547 579 605 Exports.............................. 121 164 331 276 142 Other Seamless.......................... 18 26 76 20 5 ------------------------------------------------------- Total Seamless Steel Pipe Sales......... 1,124 1,330 2,673 2,162 1,570 Welded Steel Pipe Sales................. 298 197 432 253 243 ------------------------------------------------------- Total Sales............................. 1,423 1,527 3,105 2,415 1,813 - ------------------------------------------------------------------------------------------------- IV-46
- ------------------------------------------------------------------------------------------------------ FOR THE SIX-MONTH PERIOD ENDED FOR THE YEAR ENDED JUNE 30, DECEMBER 31, PERCENTAGE OF TOTAL SEAMLESS STEEL PIPE SALES ------------------------------- --------------------- VOLUME 2002 2001 2001 2000 1999 - ------------------------------------------------------------------------------------------------------ (UNAUDITED) South America............................. 12 17 18 20 14 North America............................. 14 24 16 16 20 Europe.................................... 31 28 27 31 42 Middle East and Africa.................... 24 14 22 21 14 Far East.................................. 19 17 17 12 10 ------------------------------------------------------- 100 100 100 100 100 - ------------------------------------------------------------------------------------------------------ The table below shows Tenaris's sales by product and market for the periods indicated. SIX MONTHS ENDED JUNE 30, 2002, COMPARED TO SIX MONTHS ENDED JUNE 30, 2001 SALES VOLUME Tenaris's sales volume of seamless steel pipe products in the first half of 2002 decreased by 15.5% to 1,124,000 tons from 1,330,000 tons in the same period of 2001. This significant decrease in sales volume primarily reflects the effect of the general slowdown in global industrial production and, in particular, the effects of the Argentine crisis on Siderca's domestic sales, as well as OPEC production cuts. Although for most of the year to date, oil prices have remained at levels which, under typical circumstances, would be expected to result in sustained levels of investment in oil and gas drilling worldwide, demand for seamless steel pipes for the rest of the year is currently expected to be lower than the levels recorded in 2001 as a result of increased uncertainty about the future level of oil prices given the possibility of military action or other events in the Middle East, as well as the continuing weakness of recovery in demand in the main industrialized economies. Sales by Siderca, Tamsa and Dalmine in their respective domestic markets totaled 407,000 tons in the first six months of 2002, compared to 494,000 tons in the first six months of 2001. This 17.6% decrease in domestic sales was due to the sharp decline in Siderca's domestic market sales due to the effects of the Argentine crisis and reduced demand from the industrial sector in Dalmine's and Tamsa's domestic markets, partially offset by an increase in demand from the oil sector in Tamsa's domestic market. Tenaris's export sales volume for seamless steel pipe products totaled 558,000 tons for the first half of 2002, compared to 692,000 tons for the first half of 2001. The 19.4% decrease in export sales by IV-47
- -------------------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, -------------------------- --------------------------- MILLIONS OF U.S. DOLLARS 2002 2001 2001 2000 1999 - -------------------------------------------------------------------------------------------------- (UNAUDITED) Seamless Steel Pipe Sales Siderca Domestic............................. 93.4 149.9 287.4 242.9 148.9 Exports.............................. 186.3 227.4 452.2 336.8 293.3 NKKTubes and AlgomaTubes................ 149.8 120.4 262.3 88.1 - Tamsa Domestic............................. 80.7 84.4 189.9 212.2 206.6 Exports and Tavsa.................... 192.2 234.7 448.6 311.4 132.3 Dalmine Domestic (European Union)............ 238.7 272.2 477.4 469.9 590.9 Exports.............................. 102.3 119.9 262.8 253.2 132.3 Other Seamless.......................... 37.9 34.2 60.9 27.4 3.5 -------------------------------------------------------- Total Seamless Steel Pipe Sales......... 1,081.3 1,243.1 2,441.5 1,941.9 1,507.8 Welded Steel Pipe Sales................. 247.8 171.5 399.3 193.5 217.3 Other................................... 240.4 111.0 278.5 175.9 110.1 -------------------------------------------------------- Total Sales............................. 1,569.5 1,525.6 3,119.3 2,311.3 1,835.2 - -------------------------------------------------------------------------------------------------- Siderca, Tamsa and Dalmine is attributable to reduced demand in Venezuela and North America, partially offset by higher sales in the Middle East and Africa. Sales by NKKTubes and AlgomaTubes totaled 141,000 tons for the six months ended June 30, 2002, compared to 127,000 tons for the six months ended June 30, 2001. This 11.0% increase was due to higher demand for NKKTubes' value-added products. Welded pipe sales volume in the first half of 2002 rose 51.3% to 298,000 tons from 197,000 tons in the first half of 2001, reflecting a period of high demand for welded pipes in connection with South American gas pipeline projects in Ecuador, Peru and Bolivia, which more than offset reduced sales in the Argentine market. Welded pipe sales volume is not expected to continue to increase in the second half of 2002. NET SALES Net sales in the first half of 2002 totaled USD1,569.5 million, compared to USD1,525.6 million in the first half of 2001. This 2.9% increase primarily resulted from increased sales volumes and average selling prices for welded steel pipes, increased sales of electricity and natural gas by Dalmine Energie, increased sales of other steel products (principally Sidor's flat products) by Tenaris Global Services and increased average net sales prices for seamless steel pipes, which more than offset the effect of the 15.5% overall reduction in sales volumes of seamless steel pipes. COST OF SALES Cost of sales, expressed as a percentage of net sales, decreased to 67.2% for the six months ended June 30, 2002, from 68.9% for the six months ended June 30, 2001. This improvement is explained principally by sharply-reduced cost of sales at Tenaris's subsidiaries in Argentina, reflecting the effects of the substantial devaluation of the Argentine peso on those costs denominated in Argentine pesos, the effects of which were offset only in part by concurrent inflation over the period. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses, or SG&A, during the first six months of 2002 were USD226.1 million, or 14.4% of net sales, compared to USD237.3 million, or 15.6% of net sales, for the first six months of 2001. This improvement primarily reflects reduced general and administration costs at Tenaris's subsidiaries in Argentina as a result of the devaluation of the Argentine peso, partially offset by increased selling expenses associated with our increased supply of value-added services (such as management services, including JIT delivery and stocking programs) to customers. OTHER OPERATING INCOME (EXPENSES), NET Other operating income and expenses showed a net loss of USD10.6 million for the first half of 2002, compared to a net loss of USD4.9 million in the first half of 2001. This increased net loss was mainly attributable to an increase in provisions related to the impairment of certain credits with the Argentine government of USD6.4 million which, as a result, are currently fully provisioned. FINANCIAL INCOME (EXPENSES), NET Financial results for the first six months of 2002 showed a net financial loss of USD41.5 million, compared to USD52.5 million for the first six months of 2001. This improvement was mainly attributable to increased interest income as a result of a higher position in cash and cash equivalents, with interest expense remaining stable. IV-48 EQUITY IN EARNINGS (LOSSES) OF ASSOCIATED COMPANIES Tenaris's share in the results of associated companies generated a loss of USD5.1 million for the first six months of 2002, compared to a loss of USD15.7 million for the first six months of 2001. This decreased loss was attributable to lower losses associated with Tenaris's investment in Amazonia (USD4.2 million in the first six months of 2002, compared to USD9.3 million in the first six months of 2001). In addition, in 2001 Tenaris disposed of its interests in Siderar and DMV Stainless, which had generated losses of USD6.4 million in the first six months of 2001. INCOME TAX During the first six months of 2002, Tenaris recorded an income tax provision of USD101.0 million, compared to an income tax provision of USD64.2 million for the first six months of 2001. This 57.3% increase mainly reflected the income arising as a result of the effect of the devaluation of the Argentine peso on the monetary position in foreign currency (including assets held in trust funds) of Tenaris's subsidiaries in Argentina and the higher operating income of Tenaris's subsidiaries in Argentina as a result of the sharp reduction in their cost of sales described above. EFFECT OF CURRENCY TRANSLATION ON TAX BASES Tenaris, using the liability method, recognizes a deferred income tax charge on temporary differences between the tax bases of its assets and their carrying amounts in the financial statements. By application of this method, Tenaris recognized an increased deferred income tax charge of USD49.1 million in the first half of 2002, (compared to USD2.5 million in the first half of 2001) due to the effect of the devaluation of the Argentine peso on the tax bases of the non-monetary assets of its Argentine subsidiaries. See note 7(ii) to Tenaris's audited combined consolidated financials at, and for the six-month period ended June 30, 2002, included in this prospectus. MINORITY INTEREST Minority interest for the first six months of 2002 showed a loss of USD64.1 million, compared to a loss of USD41.5 million in the first six months of 2001. This increased loss is primarily due to the improvement in the results of most of the Tenaris companies and the consequent increases in the amounts attributable to minority interests in those companies, especially in: - - Tamsa, where minority shareholders shared USD30.1 million of Tamsa's income in the first six months of 2002, compared to USD21.0 million in the first six months of 2001; - - Confab, where minority shareholders shared USD16.0 million of Confab's income in the first six months of 2002, compared to USD3.5 million of Confab's losses in the first six months of 2001; - - Dalmine, where minority shareholders shared USD10.7 million of Dalmine's income in the first six months of 2002, compared to USD4.2 million of Dalmine's income in the first six months of 2001; and - - NKKTubes, where minority shareholders shared USD5.6 million of NKKTubes's income in the first six months of 2002, compared to USD2.1 million of NKKTubes's losses in the first six months of 2001. This increased loss was partially offset by a decrease in the amount attributable to minority interest in Siderca, where minority shareholders shared USD6.2 million of Siderca's income in the first six months of 2002, compared to USD19.0 million in the first six months of 2001. IV-49 NET INCOME (LOSS) Tenaris recorded net income of USD17.2 million for the first six months of 2002, compared to net income of USD55.1 million for the first six months of 2002. This 68.8% decrease was primarily the result of the increased deferred tax charge due to the effect of the devaluation of the Argentine peso on the tax bases of the non-monetary assets of Tenaris's subsidiaries in Argentina. FISCAL YEAR ENDED DECEMBER 31, 2001, COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2000 SALES VOLUME Tenaris's sales volume of seamless steel pipe products in 2001 increased by 23.6% to 2,673,000 tons from 2,162,000 tons in 2000. This significant increase in sales volume reflects the inclusion of sales from NKKTubes and AlgomaTubes for the entire period, as well as the strong demand for Tenaris's seamless steel products in the export markets as a result of increased drilling activity in the international oil and gas sector motivated by favorable oil prices. Demand for Tenaris's seamless steel pipe products began to decline in the last quarter of 2001 as a result of lower and more volatile oil prices and the slowdown in global industrial production exacerbated by the events of September 11, 2001. Sales by Siderca, Tamsa and Dalmine in their respective domestic markets totaled 897,000 tons for the fiscal year ended December 31, 2001, compared to 938,000 tons for the previous fiscal year. This 4.4% decrease in domestic sales was due to a decrease in Tamsa's and Dalmine's domestic sales, partially offset by an increase in Siderca's domestic sales. Tamsa's domestic sales decreased as a result of a reduction in sales to non-oil related customers due to the effect of the slowdown in the Mexican and U.S. economies and the impact of imports from Eastern Europe, offset in part by a moderate increase in Tamsa's sales to oil-related customers due to the resumption of normal operations by Pemex in late June 2001 following the delayed approval of its budget and the national strategic gas program. Dalmine's domestic sales declined as a result of increased imports from Eastern European producers of standard quality products. Tenaris's export sales volume for seamless steel pipe products totaled 1.46 million tons for the fiscal year ended December 31, 2001, compared to 1.11 million tons for the previous fiscal year. The 31.6% increase in export sales by Siderca, Tamsa and Dalmine is attributable to sustained demand from export oil and gas customers reflecting strong investment in exploration and production activities. Sales by NKKTubes and AlgomaTubes totaled 288,000 tons for the fiscal year ended December 31, 2001, compared to 88,000 tons for the previous fiscal year. This 227.3% increase was due to the inclusion in Tenaris's sales of these companies for an entire year following the commencement of operations at NKKTubes in August 2000 and at AlgomaTubes in October 2000. Welded pipe sales volume in 2001 rose 70.8% to 432,000 tons from 253,000 tons in 2000, reflecting high demand for Tenaris's products from pipeline projects in the Americas and the Middle East. NET SALES Net sales in 2001 totaled USD3,119.3 million, an increase of 35.0% compared to USD2,311.3 million in 2000, primarily due to higher sales volumes and higher average selling prices for both seamless and welded pipe products. In addition, there were increased sales of electricity and natural gas by Dalmine Energie and of other steel products (principally flat products from Sidor) by Tenaris Global Services, which in 2001 and 2000 represented 3.6% and 1.8%, respectively, of Tenaris's total net sales. IV-50 COST OF SALES Cost of sales, expressed as a percentage of net sales, decreased to 69.4% for the fiscal year ended December 31, 2001, from 73.2% for the previous fiscal year. This improvement is explained by higher average selling prices and higher absorption of fixed and semi-fixed costs due to increased sales volume. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A during 2001 were USD447.8 million, or 14.4% of net sales, compared to USD383.6 million, or 16.6% of net sales, for 2000. This improvement reflects a reduction in general and administrative expenses as a percentage of net sales resulting from higher absorption of these expenses. Selling expenses, which relate primarily to export sales and are inherently variable, increased in U.S. dollar terms due mainly to higher export volumes resulting in higher selling costs (including sales commissions), but remained stable as a percentage of net sales. OTHER OPERATING INCOME (EXPENSES), NET Other operating income and expenses showed a net loss of USD64.4 million for the fiscal year ended December 31, 2001, compared to a net gain of USD5.9 million in the previous fiscal year. This significant deterioration was mainly attributable to the creation of a provision at Dalmine in respect of the BHP litigation (USD41.1 million), an additional provision by Siderca related to the impairment of certain credits with the Argentine government (USD9.0 million) and a non-recurring provision by Confab (USD7.7 million) representing the entirety of an amount in controversy in connection with a tax dispute. FINANCIAL INCOME (EXPENSES), NET Financial results for the fiscal year ended December 31, 2001, showed a net financial loss of USD25.6 million, compared to USD47.9 million in the previous fiscal year. This variation was mainly attributable to the effect of the Argentine peso devaluation on Argentine peso-denominated net liabilities, which, in spite of having occurred in January 2002, was required to be recorded in the fiscal year ended December 31, 2001. This effect was partially offset by higher net interest payments principally due to higher net financial debt. EQUITY IN EARNINGS (LOSSES) OF ASSOCIATED COMPANIES Tenaris's share in the results of associated companies generated a loss of USD41.3 million for the fiscal year ended December 31, 2001, compared to a loss of USD3.8 million for the previous fiscal year. This increased loss was primarily due to the performance of Tenaris's investments in: - - Amazonia, which generated a loss of USD31.3 million in 2001, compared to a loss of USD5.0 million in 2000; - - Siderar, which generated a loss of USD4.9 million in 2001, compared to a gain of USD2.0 million in 2000; and - - DMV Stainless B.V., which generated a loss of USD4.9 million in 2001, compared to a loss of USD1.7 million in 2000. Tenaris no longer owns any interest in either Siderar or DMV Stainless. IV-51 INCOME TAX During the fiscal year ended December 31, 2001, Tenaris recorded an income tax provision of USD109.0 million, compared to an income tax provision of USD63.3 million for the fiscal year ended December 31, 2000. This 72.2% increase was mainly due to improved operating results. EFFECT OF CURRENCY TRANSLATION ON TAX BASES This charge of USD109.9 million reflects an increased deferred income tax charge in the fiscal year ended December 31, 2001, due to the effect of the devaluation of the Argentine peso on the tax bases of the non-monetary assets of its Argentine subsidiaries. See note 7(ii) to Tenaris's audited combined consolidated financial statements at, and for the fiscal year ended December 31, 2001. MINORITY INTEREST Minority interest for the fiscal year ended December 31, 2001, showed a loss of USD74.6 million compared to a loss of USD47.4 million in the previous fiscal year. This increased loss is primarily due to the improvement in the results of most of the Tenaris companies and the consequent increases in the amounts attributable to minority interests in those companies, especially in: - - Tamsa, where minority shareholders shared USD34.7 million of Tamsa's income in 2001, compared to USD21.5 million in 2000; - - Siderca, where minority shareholders shared USD25.6 million of Siderca's income in 2001, compared to USD26.1 million in 2000; - - Confab, where minority shareholders shared USD12.6 million of Confab's income in 2001, compared to USD2.7 million of Confab's losses in 2000; and - - Dalmine, where minority shareholders shared USD1.4 million of Dalmine's losses in 2001, compared to USD3.5 million of Dalmine's income in 2000. NET INCOME (LOSS) Tenaris recorded net income of USD81.3 million for the fiscal year ended December 31, 2001, compared to net income of USD76.7 million for the fiscal year ended December 31, 2000. This 6.0% increase was due to improved operating results, partially offset by the effect of the devaluation of the Argentine peso on the tax bases of the non-monetary assets of its Argentine subsidiaries, an increase in income tax provision and losses from Tenaris's investment in Amazonia. FISCAL YEAR ENDED DECEMBER 31, 2000, COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1999 SALES VOLUME Tenaris's sales volume of seamless steel pipe products in 2000 increased by 37.7% to 2,162,000 tons from 1,570,000 tons in 1999. This increase in sales volume from the depressed levels prevailing in 1999 reflects higher demand for these products as a result of a recovery in drilling activity in the oil and gas sector following the rise in oil prices. The increase in seamless pipe products sales volume also reflects the inclusion of a partial year of sales by NKKTubes and AlgomaTubes, which began operations in August 2000 and October 2000, respectively. Sales by Siderca, Tamsa and Dalmine in their respective domestic markets totaled 938,000 tons for the fiscal year ended December 31, 2000, compared to 882,000 tons for the previous fiscal year. This 6.3% increase was mainly attributable to increases in Siderca's domestic sales (primarily as a result of the recovery of investment in the domestic oil and gas industry) and Tamsa's sales to non-oil related IV-52 customers, which were partially offset by slight decreases in Dalmine's domestic sales (as a result of lower sales to petrochemical plants and engineering customers) and Tamsa's sales to oil-related customers. Tenaris's export sales volume for seamless steel pipe products totaled 1,111,000 tons for the fiscal year ended December 31, 2000, compared to 683,000 tons for the previous fiscal year. The 62.7% increase in export sales by Siderca, Tamsa and Dalmine reflects the recovery in research and drilling activity worldwide and its positive effects on the market for seamless pipes used in the processing and treatment of oil (downstream and upstream). Initial sales from NKKTubes and AlgomaTubes totaled 88,000 tons for the fiscal year ended December 31, 2000, most of which derived from NKKTubes. Welded pipe sales volume in 2000 increased by 4.1% to 253,000 tons from 243,000 tons in the previous fiscal year. This slight increase in sales volume reflects the inclusion of sales by Confab for the entire period, which offset significantly reduced sales volume for these products in South America as a result of the postponement of several gas pipeline projects. NET SALES Net sales in 2000 totaled USD2,311.3 million, an increase of 25.9% compared to USD1,835.2 million in 1999. This increase resulted from higher seamless steel pipe sales, which more than offset a decrease in welded pipe sales, and an initial contribution from Dalmine Energie, which began operations in 2000. The rise in seamless steel pipe sales reflects higher sales volume and improved prices in the export markets (offset in part by lower prices in the domestic markets). The decrease in welded pipe sales was mainly due to a reduction in sales volume by Siat and lower prices, partially offset by the inclusion of Confab's sales for the entire period. COST OF SALES Cost of sales, expressed as a percentage of net sales, decreased to 73.2% for the fiscal year ended December 31, 2000, from 80.7% for the previous fiscal year. This improvement was mainly caused by higher absorption of fixed and semi-fixed costs due to increased sales volume. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A during 2000 were USD383.6 million, or 16.6% of net sales, compared to USD306.5 million, or 16.7% of net sales, for 1999. SG&A remained stable as a percentage of net sales. The increase in U.S. dollar terms reflects the inclusion of new subsidiaries (NKKTubes, AlgomaTubes and Dalmine Energie), increased export sales (with a consequent increase in selling costs including sales commissions), additional expenses associated with investments in e-business and other systems and the restructuring of Dalmine's sales and distribution networks. OTHER OPERATING INCOME (EXPENSES), NET Other operating income and expenses showed a net gain of USD5.9 million for the fiscal year ended December 31, 2000, compared to a net loss of USD55.1 million in the previous fiscal year. The improvement was mainly attributable to non-recurring costs relating to Siderca's and Dalmine's voluntary personnel reduction plans recorded in 1999 (USD46.2 million), increased reimbursements from insurance companies, a lower provision for doubtful accounts and income from the disposition of a Dalmine warehouse. IV-53 FINANCIAL INCOME (EXPENSES), NET Financial results for the fiscal year ended December 31, 2000, showed a net financial expense of USD47.9 million, compared to a net financial expense of USD37.1 million, for the previous fiscal year. This increase in absolute terms was mainly a result of the increased net financial debt and the effect of the devaluation of the euro vis-a-vis the U.S. dollar on Dalmine's primarily U.S. dollar-denominated net financial debt. EQUITY IN EARNINGS (LOSSES) OF ASSOCIATED COMPANIES Tenaris's share in the results of associated companies generated a loss of USD3.8 million for the fiscal year ended December 31, 2000, compared to a loss of USD39.3 million for the previous fiscal year. This reduced loss was primarily due to the performance of Tenaris's investments in: - - Amazonia, which generated a loss of USD5.0 million in 2000, compared to a loss of USD32.5 million in 1999; and - - Siderar, which generated a gain of USD2.0 million in 2000, compared to a loss of USD3.1 million in 1999. INCOME TAX During the fiscal year ended December 31, 2000, Tenaris recorded an income tax provision of USD63.3 million, compared to an income tax provision of USD6.1 million for the fiscal year ended December 31, 1999. This increase was mainly due to the recovery in operating results. MINORITY INTEREST Minority interest for the fiscal year ended December 31, 2000, showed a loss of USD47.4 million compared to a gain of USD38.5 million in the previous fiscal year. This change is primarily due to the improvement in the results of most of the Tenaris companies and the consequent variations in the amounts attributable to minority interests in these companies, especially in: - - Siderca, where minority shareholders shared USD26.1 million of Siderca's income in 2000, compared to USD11.2 million of Siderca's losses in 1999; - - Tamsa, where minority shareholders shared USD21.5 million of Tamsa's income in 2000, compared to USD5.5 million of Tamsa's losses in 1999; - - Dalmine, where minority shareholders shared USD3.5 million of Dalmine's income in 2000, compared to USD20.9 million of Dalmine's losses in 1999; and - - Confab, where minority shareholders shared USD2.7 million of Confab's losses in 2000, compared to USD11.2 million of Confab's income in 1999. NET INCOME (LOSS) Tenaris recorded net income of USD76.7 million for the fiscal year ended December 31, 2000, compared to a net loss of USD54.8 million for the fiscal year ended December 31, 1999. This substantial improvement was mainly due to the recovery in operating results at Tenaris's seamless steel pipe manufacturing subsidiaries and reduced losses from Tenaris's investment in Amazonia, partially offset by higher income tax charges, higher financial expenses and lower operating results from Tenaris's welded pipe business. IV-54 LIQUIDITY AND CAPITAL RESOURCES SIX MONTHS ENDED JUNE 30, 2002, COMPARED TO SIX MONTHS ENDED JUNE 30, 2001 Tenaris's cash and cash equivalents at June 30, 2002, increased to USD271.0 million from USD140.2 million at June 30, 2001. Net cash provided by operations was USD69.2 million during the first six months of 2002. Net cash used in investment activities was USD49.1 million during the six months ended June 30, 2002. The principal uses of funds in investment activities during this period included USD53.6 million in investments in property, plant and equipment, USD11.2 million transferred to a trust fund outside Argentina and USD8.9 million in intangible asset acquisitions. Investment activities provided USD25.0 million from sales of property, plant and equipment. Net cash provided by financing activities was USD49.4 million, consisting principally of new bank and financial loans (USD209.1 million), partially offset by repayment of bank and financial loans (USD134.2 million), a net decrease in minority interest (USD22.9 million), and payments of cash dividends (USD4.4 million). The net decrease in minority interest reflects a reduction of minority interest in Tamsa (USD16.8 million) and Confab (USD6.1 million) as a result of the payment of dividends to minority shareholders by Tamsa and Confab, respectively. Net working capital, calculated as the excess of current assets over current liabilities, was USD560.7 million at June 30, 2002, compared to USD534.2 million at June 30, 2001. The principal reasons for this variation were an increase in trade receivables and in cash and cash equivalents and a decrease in other liabilities, partially offset by an increase in borrowing, income tax provision and trade payables and a decrease in inventories. For this period and the other periods covered in this prospectus, Tenaris's working capital was sufficient to satisfy its short-term liquidity needs. Tenaris's debt to total assets ratio, measured as total liabilities to total assets, was 0.55 to 1 at June 30, 2002, compared to 0.53 to 1 at December 31, 2001. IV-55
- --------------------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- --------------------------------- THOUSANDS OF U.S. DOLLARS 2002 2001 2001 2000 1999 - --------------------------------------------------------------------------------------------------- (UNAUDITED) Net cash provided by operations....... 69,207 176,724 544,228 274,195 115,698 Net cash (used in) provided by investment activities................. (49,072) (102,115) (284,340) (263,762) (48,728) Net cash (used in) provided by financing activities.................. 49,369 (27,221) (138,021) 6,018 (207,350) ----------------------------------------------------------- Increase (decrease) in cash and cash equivalents........................... 69,504 47,388 121,867 16,451 (140,380) Effect of exchange rates on cash and cash equivalents...................... (12,366) (4,035) (4,943) (10,360) 3,664 Cash and cash equivalents at the beginning of period................... 213,814 96,890 96,890 90,799 227,515 ----------------------------------------------------------- Cash and cash equivalents at the end of period............................. 270,952 140,243 213,814 96,890 90,799 - --------------------------------------------------------------------------------------------------- FISCAL YEAR ENDED DECEMBER 31, 2001, COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2000 Tenaris's cash and cash equivalents at December 31, 2001, increased to USD213.8 million from USD96.9 million at December 31, 2000. Net cash provided by operations was USD544.2 million during the fiscal year ended December 31, 2001. Net cash used in investment activities was USD284.3 million during the fiscal year ended December 31, 2001. The principal uses of funds in investment activities during this period included USD200.0 million in investments in property, plant and equipment, USD103.4 million in the creation of a trust fund outside Argentina and USD22.8 million in intangible asset acquisitions. Investment activities provided USD39.9 million from sales of property, plant and equipment. Net cash used in financing activities was USD138.0 million, consisting principally of payments of cash dividends primarily by Siderca and Tamsa (USD66.1 million), a net decrease in minority interest (USD46.6 million), a net change in ownership in Siderca, Tamsa and Dalmine (USD10.6 million) and net repayments of bank and financial loans (USD14.8 million). Net working capital, calculated as the excess of current assets over current liabilities, was USD534.2 million at December 31, 2001, compared to USD468.3 million at December 31, 2000. The principal reasons for this variation were an increase in cash and cash equivalents, inventories and trade receivables and a decrease in borrowings, partially offset by an increase in other liabilities, trade payables and provisions. For this period and the other periods covered in this prospectus, Tenaris's working capital was sufficient to satisfy its short-term liquidity needs. Tenaris's debt to total assets ratio was 0.53 to 1 at December 31, 2001, compared to 0.49 to 1 at December 31, 2000. FISCAL YEAR ENDED DECEMBER 31, 2000, COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1999 Tenaris's cash and cash equivalents at December 31, 2000, increased to USD96.9 million from USD90.8 million at December 31, 1999. Net cash provided by operations was USD274.2 million during the fiscal year ended December 31, 2000. Net cash used in investment activities was USD263.8 million during the fiscal year ended December 31, 2000. The principal uses of funds in investment activities during this period included USD225.9 million in investments in property, plant and equipment, USD39.5 million in intangible asset acquisitions and USD28.6 million used for contributions in Amazonia, partially offset by USD30.1 million provided from sales of property, plant and equipment and other investments. Net cash provided by financing activities was USD6.0 million, consisting principally of a net increase in borrowings (USD208.5 million) and net change in ownership of Siderca, Tamsa and Dalmine (USD11.6 million), partially offset by a net decrease in minority interest (USD103.3 million) and payments of cash dividends (USD110.8 million). Net working capital, calculated as the excess of current assets over current liabilities, was USD468.3 million at December 31, 2000, compared to USD477.4 million at December 31, 1999. The principal reasons for this decrease were an increase in trade payables and borrowings partially offset by an increase in inventories and trade receivables and a decrease in other liabilities. For this period and the other periods covered in this prospectus, Tenaris's working capital was sufficient to satisfy its short-term liquidity needs. IV-56 Tenaris's debt to total assets ratio was 0.49 to 1 at December 31, 2000, compared to 0.44 to 1 at December 31, 1999. FINANCINGS Tenaris's consolidated financial debt at June 30, 2002, net of cost of issuance of debt, was USD806.5 million, compared to USD765.5 million at December 31, 2001. Of this amount, USD382.6 million was denominated in U.S. dollars and USD423.9 million was non-USD denominated. Of Tenaris's debt at June 30, 2002, USD448.5 million was short-term and USD358.1 million long-term. The debt is held principally in Dalmine (USD330.4 million), Tamsa (USD163.2 million), Siderca (USD101.3 million), Confab (USD84.8 million), Siderca Denmark A.p.S. (USD38.0 million), NKKTubes (USD50.1 million), AlgomaTubes (USD17.8 million) and Siat (USD10.4 million). Of Tenaris's total consolidated financial debt, USD618.5 million were bank borrowings with an average interest rate of 4.08%, USD129.9 million were bank overdrafts with an average interest rate of 5.65%, USD51.0 million were debentures and other loans with an average interest rate of 4.04% and USD7.1 million were finance lease liabilities with an average interest rate of 5.05%. Cash and cash equivalents at June 30, 2002, which totaled USD271.0 million, were held principally in Tamsa (USD70.4 million), Confab (USD55.8 million), Siderca (USD40.9 million), Dalmine (USD35.8 million) and NKKTubes (USD25.8 million). Neither Tenaris nor any of its subsidiaries has any limitation on investments in property, plant and equipment or in other companies. Dividend payments and repurchase of shares are not prohibited by any event of default or covenants under any present loan agreement. At June 30, 2002, Tenaris and all of its subsidiaries were in compliance with all applicable financial and other covenants. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following table summarizes Tenaris's contractual obligations at June 30, 2002, and the effect such obligations are expected to have on its liquidity and cash flow in future periods: IV-57
- ----------------------------------------------------------------------------------------------- PAYMENTS DUE BY PERIOD AS OF JUNE 30, 2002 --------------------------------------------- LESS THAN 1 1-3 4-5 AFTER 5 MILLIONS OF U.S. DOLLARS TOTAL YEAR YEARS YEARS YEARS - ----------------------------------------------------------------------------------------------- Contractual Obligations Short-Term Debt............................... 296.5 296.5 - - - Long-Term Debt................................ 502.9 149.3 188.1 117.4 48.1 Finance Lease Obligations..................... 7.1 2.7 4.4 - - Total Contractual Cash Obligations.............. 806.5 448.5 192.6 117.4 48.1 - ----------------------------------------------------------------------------------------------- Off-balance sheet commitments are discussed in note 23(7) to Tenaris's interim combined consolidated financial statements of Tenaris included in this prospectus. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Tenaris's operating and financial review and prospects are based on Tenaris's audited combined consolidated financial statements, which have been prepared in accordance with IAS. The use of IAS as opposed to U.S. GAAP has an impact on Tenaris's critical accounting policies and estimates. The application of U.S. GAAP would have affected the determination of combined consolidated net income (loss) for the periods ended December 31, 2001 and 2000, and the determination of combined consolidated shareholders' equity and combined consolidated financial position as of December 31, 2001 and 2000. See notes R and 28 to Tenaris's audited combined consolidated financial statements included in this prospectus, which provide a reconciliation to U.S. GAAP of Tenaris's results of operations and shareholders' equity. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to doubtful accounts, impairment of long-term investments and contingencies. Management bases its estimates on historical experience of the Tenaris companies and on various other assumptions that it believes to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies and estimates affect Tenaris's more significant judgments and estimates used in the preparation of its combined consolidated financial statements. ALLOWANCES FOR DOUBTFUL ACCOUNTS Management makes estimates of the uncollectability of its accounts receivable, including receivables from government entities. Management specifically analyzes accounts receivable and historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. If circumstances change (i.e., higher than expected defaults or an unexpected material adverse change in a major customer's ability to meet its financial obligation to Tenaris), management's estimates of the recoverability of amounts due to it could be reduced by a material amount. IV-58
- ------------------------------------------------------------------------------------------------- AMOUNT OF COMMITMENT EXPIRATION PER PERIOD AS OF JUNE 30, 2002 TOTAL ------------------------------------- AMOUNTS LESS THAN 1 1-3 4-5 AFTER 5 MILLIONS OF U.S. DOLLARS COMMITTED YEAR YEARS YEARS YEARS - ------------------------------------------------------------------------------------------------- Other Commercial Commitments Guarantees.................................. 216.0 161.7 42.8 2.2 9.3 Other Commercial Commitments................ 59.7 22.7 24.2 12.8 - ------------------------------------------------- Total Commercial Commitments.................. 275.7 184.4 67.0 15.0 9.3 - ------------------------------------------------------------------------------------------------- LOSS CONTINGENCIES Loss contingencies are accrued when it is reasonably certain that the loss will be incurred, but uncertainty exists relating to the amount or the date on which they will arise. Accruals for such contingencies reflect a reasonable estimate of the losses to be incurred based on information available as of the date of preparation of the financial statements. IMPAIRMENT OF LONG-TERM INVESTMENTS Tenaris holds, through its subsidiaries, minority interests in non-publicly traded companies having operations in areas related to its main activity. The value of these companies is difficult to determine. Tenaris records an investment impairment charge when management believes an investment has experienced a decline in value that is other than temporary. Future adverse changes in market conditions or poor operating results of these investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment's current carrying value, thereby possibly requiring an impairment charge in the future. As a consequence of certain adverse economic and operating factors experienced by Amazonia, as of December 31, 2001, Tenaris recorded an allowance of USD15.0 million to account for potential losses in the value of its investment and subordinated convertible debentures in that company. NET INCOME (LOSS) AND SHAREHOLDERS' EQUITY INFORMATION ON A U.S. GAAP BASIS Tenaris's combined consolidated financial statements have been prepared in accordance with IAS, which, as applied to Tenaris, differ in significant respects from U.S. GAAP. Under U.S. GAAP, Tenaris recorded net income of USD34.7 million for the first half of 2002 (compared to net income of USD17.2 million under IAS), USD162.9 million for the fiscal year ended December 31, 2001 (compared to net income of USD81.3 million under IAS), and net income of USD77.3 million for the fiscal year ended December 31, 2000 (compared to net income of USD76.7 million under IAS). The principal differences between IAS and U.S. GAAP that affected Tenaris's results of operations were: - - differences in the basis of the calculation of the deferred income tax related to assets and liabilities that are remeasured from local currency into the functional currency; - - differences in the recognition of prior service costs related to pension benefits; - - differences in equity in investments in associated companies, mostly relating to restructuring costs; - - differences in purchase accounting, which had an effect on the accounting for the acquisitions of Tavsa and Amazonia; - - differences in accounting for changes in the fair value of available-for-sale financial assets; - - differences in recognition of goodwill; and - - the effects on deferred taxes and minority interest of the above reconciling items. Shareholders' equity determined in accordance with U.S. GAAP was USD930.8 million as of June 30, 2002, compared to USD845.8 million under IAS, USD941.9 million as of December 31, 2001, compared to USD875.4 million under IAS, and USD908.9 million as of December 31, 2000, compared to USD925.4 million under IAS. The principal differences affecting the determination of shareholders' equity are those described above. IV-59 For a discussion of the principal differences between IAS and U.S. GAAP as they relate to Tenaris's consolidated net income (loss) and shareholders' equity, see note R to Tenaris's audited combined consolidated financial statements included in this prospectus. For a quantitative reconciliation of these differences, see note 28 to Tenaris's audited combined consolidated financial statements included in this prospectus. RECENT EVENTS On August 27, 2002, we distributed to our shareholders an interim cash dividend of USD9.3 million, which equals the amount of the dividend we received on August 5, 2002, from Siderca. Under Luxembourg law, interim dividend distributions must be ratified by our annual shareholders' meeting. Our controlling shareholder has informed us that it intends to cause a future shareholders' meeting to ratify the interim dividend distribution, and that such ratification will not provide for any adjustment to or redistribution of any portion of such dividend to shares issued by us after August 27, 2002. IV-60 RISK MANAGEMENT The Company was organized in December 2001. Accordingly, to date Tenaris's risk management activities have been determined and carried out by each company forming part of Tenaris. The discussion set forth below provides information, on a combined and consolidated basis, with respect to Tenaris's sensitivity to changes in interest rates, foreign exchange rates and market prices. In addition, in the ordinary course of business Tenaris also faces risks with respect to financial instruments that are either non-financial or non-quantifiable; such risks principally include country risk and credit risk and are not presented in the following analysis. For a discussion of the risk management policies of, and risk management activities carried out by, each of Siderca, Tamsa and Dalmine, see "Part Five--Information about Siderca--Risk Management," "Part Six--Information about Tamsa--Risk Management" and "Part Seven--Information about Dalmine--Risk Management." The analysis shown below presents the hypothetical loss/earnings on the fair value of the financial instruments and derivative instruments which were held by Tenaris at June 30, 2002 and are sensitive to changes. None of these instruments are held for trading purposes. Actual results could differ due to the nature of these financial transactions. The risk analysis sets forth the sensitivity of Tenaris's financial instruments to selected changes in interest rates, foreign exchange rates or quoted market prices. INTEREST RATE SENSITIVITY The following table provides information about Tenaris's short- and long-term debt obligations at June 30, 2002, which included fixed and variable interest rate. (1) As most borrowings include variable rates or fixed rates that approximate to market rates and the contractual repricing occurs between every 3 and 6 months, the fair value of the borrowings approximates to its carrying amount and it is not disclosed separately. The variable portion of some of Tenaris's debt obligations was under LIBOR (USD104.0 million) and under Tokyo Interbank Offering Rate, or TIBOR, (USD70.2 million), with fixed spreads. A change in LIBOR and TIBOR of 10% would represent a change in interest charges of approximately USD0.8 million per year. IV-61
- -------------------------------------------------------------------------------------------------------- FAVORABLE (UNFAVORABLE) CARRYING FAIR EFFECT IN FAIR VALUE AVERAGE MILLIONS OF U.S. DOLLARS VALUE VALUE(1) U.S. DOLLARS INTEREST RATE - -------------------------------------------------------------------------------------------------------- Financial instrument Short-term debt obligations Fixed-rate obligations................... 203.3 203.3 2.0/(2.0) 4.54% Current portion of long-term obligations........................... 245.2 245.2 ------------------- Total short-term debt obligations........... 448.5 448.5 Long-term debt obligations Fixed-rate obligations................... 429.1 429.1 1.9/(1.9) 4.43% Floating-rate obligations................ 174.2 174.2 4.79% Current portion of medium and long-term obligations.............................. (245.2) (245.2) ------------------- Total long-term debt obligations............ 358.1 358.1 ------------------- Total....................................... 806.5 806.5 - -------------------------------------------------------------------------------------------------------- At June 30, 2002, Tenaris's temporary investment portfolio consisted primarily of fixed short-term deposits. Given the short-term nature of these instruments, an increase in interest rates would not significantly decrease their market value. FOREIGN EXCHANGE RATE RISK The total fair value of Tenaris's foreign exchange rate contracts is a gain of USD6.3 million. At June 30, 2002, Tenaris's financial obligations in currencies other than the U.S. Dollar and subject to exchange rate fluctuations amounted to USD592.6 million. The following table provides information at June 30, 2002, about Tenaris's exposure under each currency and the effect on Tenaris's shareholders' equity of a 10% appreciation or depreciation in each currency. COMMODITY DERIVATIVE INSTRUMENTS For a discussion of the forward contracts to hedge the change in the market price related to raw materials commodities and combustible commodities entered into by the Tenaris companies, see "Part Six--Information about Tamsa--Risk Management--Commodity derivative instruments" and "Part Seven--Information about Dalmine--Risk Management--Commodity derivative instruments." IV-62
- -------------------------------------------------------------------------------------------------- EFFECT OF A EFFECT OF AN EXPOSURE DEPRECIATION OF 10% APPRECIATION OF 10% MILLIONS OF U.S. DOLLARS AMOUNT IN EACH CURRENCY IN EACH CURRENCY - -------------------------------------------------------------------------------------------------- Argentine Peso.............................. (81.3) 7.4 (9.0) Brazilian Real.............................. 36.7 (3.3) 4.0 Canadian Dollar............................. 19.1 (1.7) 2.1 Euro........................................ (350.2) 31.8 (38.9) British Pound............................... (3.8) 0.4 (0.4) Japanese Yen................................ 0.3 (0.03) 0.03 Mexican Peso................................ (212.2) 19.3 (23.6) Venezuelan Bolivar.......................... 1.1 (0.1) 0.1 Nigerian Naira.............................. (2.3) 0.2 (0.3) ---------------------------------------------------- Total....................................... (592.6) 53.9 (65.8) - -------------------------------------------------------------------------------------------------- PRINCIPAL SHAREHOLDERS The following table shows the beneficial ownership of our ordinary shares, as of October 18, 2002, by (1) our principal shareholders (persons or entities that own beneficially 5% or more of our shares), (2) our directors and executive officers as a group, and (3) non-affiliated public shareholders. (1) Includes 97 shares held directly by San Faustin and 710,747,090 shares held by Sidertubes S.A.; Sidertubes is a wholly-owned subsidiary of San Faustin, and San Faustin is controlled by Roberto Rocca. As of October 18, 2002, no ordinary shares were registered in the name of any holder resident in the United States. The following table shows the beneficial ownership of our ordinary shares that will result upon completion of the exchange offer, assuming that we acquire all of the outstanding shares of Siderca, Tamsa and Dalmine that we do not already own.
- ----------------------------------------------------------------------------------- IDENTITY OF PERSON OR GROUP NUMBER PERCENT - ----------------------------------------------------------------------------------- San Faustin(1).............................................. 710,747,187 100.0 Directors and executive officers as a group................. - - Public...................................................... - - --------------------- Total....................................................... 710,747,187 100.0 - ----------------------------------------------------------------------------------- (1) Includes 97 shares held directly by San Faustin and 710,747,090 shares held by Sidertubes S.A.; Sidertubes is a wholly-owned subsidiary of San Faustin, and San Faustin is controlled by Roberto Rocca. RELATED PARTY TRANSACTIONS CORPORATE REORGANIZATION TRANSACTIONS The Company and certain of its affiliates have entered into the transactions summarized below as part of the implementation of Tenaris's corporate reorganization and in preparation for the exchange offer. On November 22, 2001, Sidertubes acquired from a wholly-owned subsidiary of San Faustin a 57.00% interest in Santa Maria S.A.I.F. (an Argentine corporation that held, among other assets, 19.21% of Siderca, 27.00% of Metalmecanica and 52.00% of Metalcentro) for USD152.3 million, which was the historical book value of those assets. On December 17, 2001, the Company was organized as a Luxembourg corporation, with Sidertubes holding a 99.68% interest and San Faustin holding a 0.32% interest. On December 21, 2001, Sidertubes transferred its entire interest in Santa Maria to the Company. Pursuant to an agreement between Sidertubes and the Company, dated May 23, 2002, the transfer was treated as a credit on account of future capital contributions in the amount of USD152.3 million. The IV-63
- ------------------------------------------------------------------------------------- IDENTITY OF PERSON OR GROUP NUMBER PERCENT - ------------------------------------------------------------------------------------- San Faustin(1).............................................. 710,747,187 59.2 Directors and executive officers as a group................. - - Public...................................................... 489,219,325 40.8 ----------------------- Total....................................................... 1,199,966,512 100.00 - ------------------------------------------------------------------------------------- parties also agreed that the amount of the credit would be adjusted as necessary in the future based on the value of Santa Maria's assets related to the steel pipe business. On December 31, 2001, Santa Maria approved a spin-off of its assets related to the steel pipe business (including its interests in Siderca, Metalmecanica and Metalcentro) to Invertub S.A., a newly-formed Argentine corporation. The spin-off was completed on July 10, 2002. In connection with the spin-off, the Company received a 99.9% interest in Invertub concurrently with the cancellation of the Company's shares in Santa Maria, while the other shareholders of Santa Maria retained a 100% interest in Santa Maria. As of December 31, 2001, Sidertubes held directly or indirectly all of the companies, representative offices and other assets comprising the Techint commercial network. On April 24, 2002, Sidertubes acquired from Santa Maria for USD32,774 a 100% interest in Abeluz, a Uruguayan corporation with no significant assets or liabilities, which will be renamed Tenaris Global Services S.A. after settlement of the exchange offer. On June 18, 2002, Sidertubes approved the separation of Tenaris Global Services from the rest of the assets comprising the Techint commercial network. Accordingly, Sidertubes caused its direct or indirect subsidiaries in the Techint commercial network to: - - transfer to Abeluz all those companies and other assets that provide sales and marketing services primarily to the Tenaris companies for the aggregate amount of USD19.4 million, and - - enter into contracts that would assign to Abeluz or its subsidiaries, subject to the completion of the exchange offer, those export agency agreements entered into between the Tenaris companies and those Techint group companies that were not reorganized as subsidiaries of Abeluz. On June 18, 2002, after the consummation of the transactions describe above, Sidertubes sold all of its assets not relating to the steel pipe business, as well as all of its liabilities, to an affiliate of Sidertubes for USD320.8 million. On September 13, 2002, the Company entered into a corporate reorganization agreement with Sidertubes pursuant to which Sidertubes agreed: - - to contribute all of its assets and liabilities (consisting primarily of Sidertubes' remaining 52% interest in Siderca, a 6.9% interest in Tamsa, a 0.2% interest in Dalmine, a 100% interest in Tenaris Global Services, its interest in the Company and the credit against the Company associated with the transfer of Invertub to the Company) to the Company in exchange for 710,747,090 shares newly issued by the Company; - - upon settlement of the exchange offer, to satisfy the Company's obligation to deliver shares of the Company pursuant to the exchange offer by delivering to the tendering shareholders of Siderca, Tamsa and Dalmine whose shares in those companies were accepted for exchange, shares of the Company received by Sidertubes in connection with the contribution made by it to the Company; and - - following Sidertubes' delivery of shares of the Company to the tendering shareholders, to make a second capital contribution to the Company of all of Sidertubes' assets and liabilities (consisting of any remaining shares in the Company and a credit arising from Sidertubes' delivery of shares of the Company to tendering shareholders upon settlement of the exchange offer) in exchange for 710,747,090 shares newly issued by the Company. Under the corporate reorganization agreement, the per-share value of the assets and liabilities contributed to the Company as described above is to be allocated USD1.00 to share capital and USD0.10 to legal reserve, with the balance being allocated to share premium. Sidertubes made the first IV-64 contribution described above on October 18, 2002. The value of this contribution (USD1,275 million) was allocated as follows: - - USD710.7 million to share capital; - - USD71.1 million to the legal reserve; - - USD127.5 million to the freely-distributable issuance premium; and - - the balance (USD365.7 million) to the issuance premium distributable only in accordance with Luxembourg laws and regulations applicable to capital reductions. Sidertubes will make the second contribution described above as soon as practicable after settlement of the exchange offer. EXPORT AGENCY AGREEMENTS For a discussion of certain export agency agreements entered into between the Tenaris companies and companies in the Techint commercial network, see "--Business--Sales and marketing--Tenaris Global Services--Siderca, Tamsa and Dalmine export agency agreements" and "--Confab and Siat export agency agreements." AGREEMENTS RELATING TO NKK'S TECHNOLOGY Under the agreements relating to Siderca's purchase on May 24, 2000, of a 51% shareholding in NKKTubes, NKK agreed to license to Tenaris its manufacturing technology, patents and trademarks for manufacturing steel (for use in the manufacturing of seamless steel pipe) and seamless steel pipe. Under the licensing arrangements, NKK has agreed to provide reasonable technical assistance as necessary to enable Tenaris rapidly to assimilate NKK's technology. These licensing agreements, which have a term of fifteen years effective August 1, 2000, were made between NKK and Tenaris Connections, a company owned in equal shares by Siderca, Tamsa and Dalmine. NKK also agreed to license its manufacturing technology, patents and trademarks for making premium connections to Tenaris. Tenaris paid Japanese yen 548,625,000 and USD0.1 million in 2000 under these agreements and Japanese yen 112.2 million and USD0.8 million in 2001. In February 2002, Tenaris acquired NKK's manufacturing technology, patents and trademarks for making premium connections for USD1.9 million. In connection with NKK and Kawasaki Steel's business combination, effective on September 27, 2002, Siderca and NKK reached on September 25, 2002 an agreement that amends certain provisions of the various agreements relating to the creation and governance of the NKKTubes joint venture. The parties are currently negotiating the terms of the proposed termination of the licensing agreements relating to NKK's technology and have agreed to use best efforts to complete such negotiations promptly. While Tenaris would not have access to NKK's technology and know-how in the future, a termination of the licensing agreements would not affect Tenaris's ability to continue to use the technology and know- how already licensed to it. In addition, a termination of the licensing agreements would not affect Tenaris's rights to the NKK range of premium connections, which Tenaris acquired in 2002. For a discussion of NKK and Kawasaki Steel's business combination, see "--Business--Competition--Global market--Japan." SUPPLY OF NATURAL GAS Siderca is party to contracts with Tecpetrol and TGN relating to the supply of natural gas to Siderca's operations. IV-65 Tecpetrol is a Techint group company engaged in oil and gas exploration and production and has rights to various oil and gas fields in Argentina and elsewhere in Latin America. Tecpetrol supplies natural gas to Siderca, and has entered into an agreement with Repsol YPF pursuant to which Repsol YPF supplies Siderca with such of Siderca's requirements as Tecpetrol cannot meet directly. Tecpetrol charges Siderca the same price at which Tecpetrol obtains natural gas from Repsol YPF. Tecpetrol's sales to Siderca in fiscal year 1999 amounted to 15.0 million, ARP12.6 million in fiscal year 2000, ARP11.8 million in fiscal year 2001, ARP6.5 million during the transition period ended December 31, 2001, and ARP0.0 million in the first half of 2002. TGN holds a gas transportation license in Argentina and operates two major pipelines which connect two major gas basins, Neuquen and Noroeste-Bolivia, to the largest consumption centers in Argentina. TGN charges Siderca a price that is consistent with prices paid by other industrial users, and the Argentine government regulates the general framework under which TGN operates. The Techint group holds a significant but non-controlling interest in TGN. TGN's sales to Siderca in fiscal year 1999 amounted to 13.3 million, ARP13.6 million in fiscal year 2000, ARP10.0 million in fiscal year 2001, ARP7.0 million in the transition period ended December 31, 2001 and ARP3.3 million in the first half of 2002. SALES OF WELDED STEEL PIPES From time to time, Tenaris sells welded steel pipes in the ordinary course of business to other Techint group companies. These sales are made principally for specific gas pipeline projects to Techint International Construction Corp. (TENCO), a Techint group company specialized in the design and construction of pipelines worldwide, and TGN. These sales are made on similar terms and conditions to sales made to unrelated third parties. Tenaris's sales of welded steel pipes to other Techint group companies amounted in the aggregate to USD103.0 million in the first half of 2002, USD35.9 million in 2001, USD24.7 million in 2000 and USD37.0 million in 1999. SALES OF SEAMLESS STEEL PIPES In the ordinary course of business, Tenaris sells seamless steel pipes and related services to other Techint group companies. These sales, which are made principally to Techint group companies involved in the construction of gas pipelines and to Tecpetrol and its subsidiaries for its oil and gas drilling operations, are made on similar terms and conditions to sales made to unrelated third parties. Tenaris's sales of seamless steel pipes and related services to other companies in the Techint group amounted in the aggregate to USD20.9 million in the first half of 2002, USD38.2 million in 2001, USD42.1 million in 2000 and USD18.2 million in 1999. In addition, until the end of 2001, Tenaris made sales to a Techint commercial network company that has not been reorganized as a subsidiary of Tenaris. These sales amounted to USD10.8 million in 2001, USD21.8 million in 2000 and USD6.2 million in 1999. FINANCIAL AND ADMINISTRATIVE SERVICES Santa Maria, a financial services company and member of the Techint group, provides various financial and treasury services to Siderca, including share registration services. Siderca pays Santa Maria fees and transaction charges at rates comparable to those that can be obtained from third parties. Fees accrued under this agreement amounted to approximately ARP6.4 million in 1999, ARP6.6 million in 2000, ARP4.5 million in 2001 and ARP1.0 million in the first six months of 2002. In addition, Siderca maintains funds in accounts with Santa Maria. At June 30, 2002, time deposits held with Santa Maria amounted to USD92.7 million. IV-66 Finma S.A., a company owned by various Techint group executives, provides administrative and legal support services to Techint group companies, including Siderca. Fees accrued under this agreement amounted to approximately ARP16.4 million in 1999, ARP15.2 million in 2000, ARP12.9 million in 2001 and ARP3.0 million in the first six months of 2002. SHARING OF IT SYSTEMS Siderca and Siderar have shared the data-processing costs of their respective information systems in Argentina since December 1995 through a project company under the name of A.C.E. TECSIS--Tecnologia en Sistemas. PROVISION OF ENGINEERING AND LABOR SERVICES Siderca contracts Techint group companies to provide engineering and non-specialist manual labor services, such as cleaning, general maintenance and light construction services. These services can usually be provided by other Techint group companies at more competitive prices than if they were performed by Siderca itself, and are contracted out at market rates. Fees accrued for these services amounted to an aggregate amount of ARP61.3 million in fiscal year 1999, ARP25.7 million in fiscal year 2000, ARP46.8 million in fiscal year 2001 and ARP22.7 million in the transition period ended December 31, 2001, and ARP18.8 million in the first six months of 2002 for these services. FUNDACION HNOS. AGUSTIN Y ENRIQUE ROCCA The Fundacion Hnos. Agustin y Enrique Rocca is a nonprofit foundation that undertakes social welfare projects in areas where the Techint group operates. The foundation is funded by member companies of the Techint group. Siderca contributed ARP0.4 million to the foundation's budget in fiscal year 1999, ARP0.6 million in fiscal year 2000, ARP0.6 million in fiscal year 2001, ARP0.6 million in the transition period ended December 31, 2001 and ARP1.0 million in the first six months of 2002. MANAGEMENT BOARD OF DIRECTORS Management of the Company is vested in a board of directors. Our articles of association provide for a board of directors consisting of at least three and at most fifteen directors; however if our shares are listed on a stock exchange, the minimum number of directors shall be five. The board of directors is required to meet as often as required by the interests of Tenaris and at least four times per year. A majority of the members of the board constitutes a quorum, and resolutions may be adopted by the vote of a majority of the directors present. In the case of a tie, the chairman is entitled to cast the deciding vote. Directors are elected at the annual ordinary shareholders' meeting to serve one-year renewable terms, as decided by the shareholders. Our current board of directors is comprised of four directors. Three of our directors were appointed at our initial shareholders' meeting held on December 17, 2001. Paolo Rocca, our fourth director, was appointed by our shareholders' meeting on October 18, 2002. IV-67 The following table sets forth our current directors, their respective positions on the board, their principal occupation, their years of service as board members and their year of birth. (1) Paolo Rocca and Enrico Bonatti are first cousins. Our articles of association provide that in case the shares of the Company are listed on at least one stock exchange, the Company must have an audit committee composed of three members, two of whom, at least, must qualify as independent directors. Under our 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. As our securities will be listed on at least one stock exchange upon consummation of the exchange offer, our shareholders' meeting will appoint new directors, including independent directors, prior to settlement of the exchange offer to comply with the requirement that the Company have, under these circumstances, a minimum of five directors and an audit committee with at least two independent members. The audit committee will report to the board of directors on its activities and the adequacy of the internal control systems at least every six months, when the annual and six-month financial statements are approved. The Company's audit committee will assist the board of directors in its oversight responsibilities with respect to the Company's financial statements, the Company's system of internal controls and the independence and performance of the Company's internal and independent auditors. The audit committee will also perform other duties entrusted to it by the board of directors, particularly with respect to the Company's relations with its independent auditors. Furthermore, the audit committee will review material transactions between the Company or its subsidiaries and related parties. 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 the mandate granted to them by us, and to IV-68
- --------------------------------------------------------------------------------------------------- YEARS AS YEAR OF NAME POSITION PRINCIPAL OCCUPATION DIRECTOR BIRTH - --------------------------------------------------------------------------------------------------- Paolo Rocca(1)............................. Director Chief Executive Officer - 1952 of Tenaris Renato Lorenzin............................ Director Sole Director of San - 1941 Faustin Lugano S.A. Enrico Bonatti(1).......................... Director Director of Techint - 1958 Finanziaria S.r.l. Fernando Mantilla.......................... Director Secretary of San Faustin - 1948 N.V. - --------------------------------------------------------------------------------------------------- us, our shareholders and third parties in the event that we, our shareholders, or third parties suffer a loss due to an infringement of either the Luxembourg Company Law or our articles of association. Under Luxembourg law, related party transactions involving directors are subject to approval procedures established by Luxembourg law and are to be reported at the next following shareholders' meeting. Any director may be removed from or reappointed to office at any time by a shareholders' resolution passed by 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 meeting at which a resolution was adopted or 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 directors must report his opposition at the next shareholders' meeting before any other resolution is voted on. Causes of action against directors for damages may be initiated by us upon a resolution of the shareholders' meeting with a 50% vote and without the presence of a quorum. Causes of action against directors who misappropriate corporate assets or commit a breach of trust may be brought by any shareholder. AUDITORS Our 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 our annual accounts and to submit a report on the accounts to the annual shareholders' meeting. Auditors are appointed by the shareholders through a resolution to be passed by a majority vote, irrespective of the number of shares present or represented. Shareholders can determine the number and the term of office of the auditors at the general meeting. Luxembourg law does not allow directors to serve concurrently as independent auditors. An auditor's term shall not exceed one year and they may be reappointed and dismissed at any time. PricewaterhouseCoopers S.a.r.l. was appointed as our current independent auditor at our shareholders' meeting held on September 11, 2002. As a result of the appointment of an independent auditor, we are not required under Luxembourg law or our articles of association to have a statutory auditor. SENIOR MANAGEMENT Our current senior management consists of Paolo Rocca, as chief executive officer, and Carlos Condorelli, as chief financial officer. IV-69 We have been informed by San Faustin that it intends to cause the Company to appoint the following persons as additional executive officers in the following positions upon consummation of the exchange offer. PAOLO ROCCA. Mr. Rocca currently serves as our chief executive officer. He is also a member of our board of directors, chief executive officer of Siderca, chairman of the board of directors of Tamsa, executive vice president of the board of directors of Dalmine, president of the board of directors of Siat and vice president of the board of directors of Confab. He is also chief executive officer of the Techint group, president of the board of directors of Siderar and a member of the board of directors of Amazonia. He was first employed with the Techint group in 1985 as assistant to the chairman of the board of directors of Techint Financing Corporation. In 1986, he became a member of the board of directors of Siderca and, in 1990, he became executive vice president of Siderca. Mr. Rocca was born in 1952. CARLOS CONDORELLI. Mr. Condorelli currently serves as our chief financial officer. He is also a director of each of AlgomaTubes, Lomond Holdings, Siderca International ApS, Metalcentro, Metalmecanica and Invertub. 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 Sociedad Anonima, or Edelap, an Argentine utilities company formerly controlled by the Techint group. Mr. Condorelli was born in 1951. GERMAN CURA. Mr. Cura currently coordinates the commercial activities of Tenaris. He is a naval engineer and was first employed with Siderca in 1988. Previously, he has served as Siderca's Export Director and Director of the Tenaris Oilfield Services business unit. Mr. Cura was born in 1962. MARCELO RANIERI. Mr. Ranieri currently serves as Director of the Tenaris Oilfield Services business unit. He joined the Techint group in 1987 and has held various positions within Tenaris including head of the South East Asian operations of Tenaris Global Services. Mr. Ranieri was born in 1962. GUILLERMO MORENO. Mr. Moreno currently serves as Director of the Tenaris Pipeline Services business unit. He also serves as the export sales manager of Tamsa. He began his career with Tenaris in 1987 IV-70
- ------------------------------------------------------------------------------------------------- NAME POSITION - ------------------------------------------------------------------------------------------------- German Cura................................ Commercial Director Marcelo Ranieri............................ Director of Tenaris Oilfield Services Guillermo Moreno........................... Director of Tenaris Pipeline Services Roland Balkenende.......................... Director of Tenaris Process & Power Plant Services Alejandro Garcia Villamil.................. Director of Tenaris Industrial & Automotive Services Alejandro Lammertyn........................ Commercial Planning Director Julio Gonzalez............................. Human Resources Director Carlos San Martin.......................... Quality Assurance and R&D Director Alberto Valsecchi.......................... Managing Director of Dalmine Guillermo Noriega.......................... Managing Director of Siderca Vincenzo Crapanzano........................ Managing Director of Tamsa Marcelo Ramos.............................. Managing Director of NKKTubes Ricardo Soler.............................. Managing Director of Confab and Siat - ------------------------------------------------------------------------------------------------- as an analyst in the economic and financial planning department of Siderca. Mr. Moreno was born in 1964. ROLAND BALKENENDE. Mr. Balkenende currently serves as Director of the Tenaris Process & Power Plant Services business unit. He also serves as export (ex-EU) sales manager of Dalmine and head of the U.S. operations of Tenaris Global Services. He joined Tenaris in 2001, having previously worked as a consultant in the seamless pipes business. Mr. Balkenende was born in 1957. ALEJANDRO GARCIA VILLAMIL. Mr. Villamil currently serves as Director of the Tenaris Industrial & Automotive Services business unit. He started his career with Tenaris as a commercial planning analyst at Siderca. Mr. Villamil was born in 1960. ALEJANDRO LAMMERTYN. Mr. Lammertyn currently coordinates the commercial planning activities of Tenaris. He began his career with Tenaris in 1990 as a special projects analyst in Siderca. Mr. Lammertyn was born in 1965. JULIO GONZALEZ. Mr. Gonzalez currently coordinates the human resources activities of Tenaris. Before joining Tenaris in 1998, he worked in other multinational companies such as Pirelli and Philip Morris. Mr. Gonzalez was born in 1958. CARLOS SAN MARTIN. Mr. San Martin currently coordinates the quality assurance and R&D activities of Tenaris as well as acting as Honorary Chairman of NKKTubes. He joined the Techint group in 1968 and has held various positions within the Techint group and Tenaris, including Marketing Director of Siderca and Managing Director of NKKTubes. Mr. San Martin was born in 1943. ALBERTO VALSECCHI. Mr. Valsecchi currently serves as Managing Director of Dalmine. He joined the Techint group in 1968 and has held various positions within Tenaris and the Techint group, including managing director of Siderca. He assumed his current position with Dalmine in 1996. Mr. Valsecchi was born in 1944. GUILLERMO NORIEGA. Mr. Noriega currently 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 was born in 1950. VINCENZO CRAPANZANO. Mr. Crapanzano currently serves as Director, Executive Vice President and Managing Director of Tamsa. Prior to joining Tamsa, 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 later became commercial director of the end user business unit of Tenaris. He assumed his current position in 2000 with Tamsa. Mr. Crapanzano was born in 1952. MARCELO RAMOS. Mr. Ramos currently serves as Managing Director of NKKTubes. 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 with NKKTubes in 2002. Mr. Ramos was born in 1963. RICARDO SOLER. Mr. Soler currently serves as Managing Director and Executive Vice President of Confab and Siat. He started his career in the Techint group in 1974 as a planning analyst at Siderar. He assumed his current position in 1999 with Confab. Mr. Soler was born in 1951. COMPENSATION The compensation of the directors is determined at the annual ordinary shareholders' meeting. Our first fiscal year is still in progress and therefore, no compensation has been determined or paid to any of our directors. IV-71 PART FIVE INFORMATION ABOUT SIDERCA OVERVIEW The following description includes information excerpted from Siderca's transition report on Form 20-F for the nine months ended December 31, 2001. Additional information regarding Siderca is available in these and Siderca's other filings with the SEC, some of which are incorporated into this prospectus by reference. You may inspect these filings and obtain copies as described in "Part Nine--Additional Information for Shareholders--Where You Can Find More Information" beginning on page IX-1. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The following selected historical consolidated financial and other data for Siderca should be read in conjunction with the information about Siderca and the consolidated financial statements and the notes thereto included in this prospectus, and are qualified in their entirety by reference to the information therein. The selected consolidated financial data of Siderca have been derived from its consolidated financial statements, which are prepared in accordance with Argentine GAAP (unless otherwise indicated) for each of the periods and at the dates indicated. Prior to the transition period ended December 31, 2001, for purposes of the consolidation of subsidiaries and the calculation of the equity value of investee companies, Siderca prepared its consolidated financial statements based on information derived from the financial statements of its subsidiaries and investee companies at a date three months prior to the end of each of the periods covered by Siderca's consolidated financial statements. For the transition period ended December 31, 2001, Siderca prepared its consolidated financial statements based on information derived from the financial statements of its subsidiaries and investee companies at the end of each of the periods covered by Siderca's consolidated financial statements. In order to provide a consistent presentation for all periods covered by the consolidated financial statements included in this prospectus, Siderca adjusted its income statement and balance sheet figures for all periods, including periods prior to the transition period ended December 31, 2001, based on information derived from the financial statements of its subsidiaries and investee companies at the end of each of those periods. See note 2.6 to Siderca's audited consolidated financial statements at December 31, 2001, March 31, 2001 and March 31, 2000, and for the transition period ended December 31, 2001, and the fiscal years ended March 31, 2001 and 2000 and note 2.1 to Siderca's audited consolidated financial statements for the six-month period ended June 30, 2002, included in this prospectus. Siderca's consolidated financial statements as of June 30, 2002, and for the six-month period ended June 30, 2002, Siderca's consolidated financial statements as of December 31, 2001, and the nine-month transition period ended December 31, 2001, and Siderca's consolidated financial statements as of March 31, 2001 and 2000, and for the fiscal years ended March 31, 2001, 2000 and 1999, included in this prospectus, have been audited by Price Waterhouse & Co., independent accountants in Argentina and member firm of PricewaterhouseCoopers. Siderca's results for the six-month period ended June 30, 2002, are not necessarily indicative of the results expected for the fiscal year ended December 31, 2002, or any other period. Argentine GAAP differ in significant respects from U.S. GAAP. See notes 16 and 17 to Siderca's audited financial statements included in this prospectus, which provide a description of the principal differences between Argentine GAAP and U.S. GAAP as they relate to Siderca's financial statements and a reconciliation to U.S. GAAP of net income (loss) and shareholders' equity for the periods and at the dates indicated therein. Under Argentine GAAP, V-1 financial statements are required to be adjusted for inflation for any fiscal year if the changes in the WPI for such year exceed 8%. As the annualized changes in the WPI from August 31, 1995, to December 31, 2001, were less than 8%, financial statements prepared in accordance with Argentine GAAP were not required to be adjusted for inflation during that period. In 2002 to date, Argentina has experienced a high rate of inflation (121.3% through September 30, 2002). As the change in the WPI since January 1, 2002, has exceeded 8%, financial statements prepared in accordance with Argentine GAAP are required to be adjusted for inflation since that date. Accordingly, Siderca has adjusted for inflation and restated in constant Argentine pesos as of June 30, 2002, its financial statements as of and for the six-month period ended June 30, 2002. In addition, for comparative purposes, Siderca has also restated in constant Argentine pesos as of June 30, 2002 all other financial statements of Siderca included elsewhere in this prospectus and all other Siderca financial data included throughout this prospectus and relating to dates or periods covered by the audited financial statements. For a discussion of the currencies used in this prospectus, exchange rates and accounting principles affecting the financial information contained in this prospectus, see "Part Nine--Additional Information for Shareholders--Exchange Rates" and "Presentation of Certain Financial and Other Information." V-2 (1) Basic earnings (loss) per share and diluted earnings (loss) per share are identical. V-3
- ---------------------------------------------------------------------------------------------------------- FOR THE SIX-MONTH FOR THE NINE-MONTH TRANSITION THOUSANDS OF CONSTANT JUNE 30, 2002 PERIOD ENDED JUNE 30, PERIOD ENDED DECEMBER 31, ARGENTINE PESOS, EXCEPT ----------------------------- ----------------------------- SHARE AND PER SHARE AMOUNTS 2002 2001 2001 2000 - ---------------------------------------------------------------------------------------------------------- (UNAUDITED) (UNAUDITED) SELECTED CONSOLIDATED INCOME STATEMENT DATA ARGENTINE GAAP Net sales.................................. 2,534,030 1,385,901 2,259,535 1,390,144 Cost of sales.............................. (1,432,999) (952,652) (1,533,413) (1,000,015) ------------------------------------------------------------- Gross profit............................... 1,101,031 433,249 726,122 390,130 Selling, general and administrative expenses................................... (389,894) (234,658) (306,000) (247,837) ------------------------------------------------------------- Operating income (loss).................... 711,137 198,591 420,122 142,293 Financial (expenses) income and holding gains (losses), net........................ 154,320 (55,879) (37,264) (14,238) Other income (expenses), net............... (21,703) (9,217) (35,855) (13,310) ------------------------------------------------------------- Income (loss) before income tax, minority interest and equity in earnings (losses) of investee companies......................... 843,754 133,495 347,003 114,746 Income tax................................. (219,870) (43,508) (119,348) (33,764) Minority interest in losses (earnings) of consolidated subsidiaries.................. (94,447) 10,659 (36,067) 5,971 Equity in earnings (losses) of investee companies, net............................. 160,151 41,443 40,846 33,738 Effect of translation into Argentine pesos of financial statements in foreign currency................................... 919,294 - - - ------------------------------------------------------------- Net income (loss).......................... 1,608,882 142,089 232,434 120,690 ------------------------------------------------------------- Depreciation and amortization.............. (91,723) (88,880) (126,746) (121,813) Weighted average number of shares outstanding................................ 1,000,000,000 1,000,000,000 1,000,000,000 1,000,000,000 Earnings (loss) per share(1)............... 1.61 0.14 0.23 0.12 U.S. GAAP Net sales.................................. 2,440,177 1,326,250 2,201,287 Cost of sales.............................. (1,129,040) (902,149) (1,461,344) Operating income (loss).................... 905,357 168,429 408,912 Income before cumulative effect of accounting changes......................... 435,838 123,838 231,622 Cumulative effect of accounting changes.... (81,399) 10,111 21,748 Net income (loss).......................... 354,439 133,949 253,370 Earnings (loss) per share before effect of accounting changes......................... 0.44 0.12 0.23 Cumulative effect of accounting changes per share...................................... (0.08) 0.01 0.02 Earnings (loss) per share(1)............... 0.35 0.13 0.25 - ---------------------------------------------------------------------------------------------------------- (1) Basic earnings (loss) per share and diluted earnings (loss) per share are identical. V-4
- ------------------------------------------------------------------------------------------------------------- THOUSANDS OF CONSTANT JUNE 30, FOR THE FISCAL YEAR ENDED MARCH 31, 2002 ARGENTINE PESOS, EXCEPT SHARE ------------------------------------------------------------------------- AND PER SHARE AMOUNTS 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------- SELECTED CONSOLIDATED INCOME STATEMENT DATA ARGENTINE GAAP Net sales......................... 1,975,321 1,611,878 2,100,049 2,109,223 1,944,135 Cost of sales..................... (1,414,021) (1,358,473) (1,671,561) (1,533,417) (1,477,755) ------------------------------------------------------------------------- Gross profit...................... 561,300 253,405 428,488 575,806 466,380 Selling, general and administrative expenses........... (359,382) (269,971) (304,622) (287,912) (300,459) ------------------------------------------------------------------------- Operating income (loss)........... 201,918 (16,566) 123,866 287,894 165,920 Financial (expenses) income and holding gains (losses), net....... (37,414) 25,261 (9,792) (13,825) 1,221 Other income (expenses), net...... 8,772 (8,466) (97,568) 238,488 28,394 ------------------------------------------------------------------------- Income (loss) before income tax, minority interest and equity in earnings (losses) of investee companies......................... 173,274 229 16,506 512,557 195,536 Income tax........................ (35,504) (20,047) (19,041) (16,533) (10,378) Minority interest in losses (earnings) of consolidated subsidiaries...................... 9,454 (25,112) (17,235) (683) (8,854) Equity in earnings (losses) of investee companies, net........... 41,155 (17,931) 115,776 142,626 166,391 ------------------------------------------------------------------------- Net income (loss)................. 188,379 (62,861) 96,006 637,967 342,693 ------------------------------------------------------------------------- Depreciation and amortization..... (171,762) (181,604) (176,855) (148,207) (169,156) Weighted average number of shares outstanding....................... 1,000,000,000 1,000,000,000 1,000,000,000 981,982,153 932,200,885 Earnings (loss) per share(1)...... 0.19 (0.06) 0.10 0.65 0.37 Dividends per share............... 0.29 0.10 0.22 0.37 0.29 U.S. GAAP Net sales......................... 1,900,782 1,546,440 2,017,540 Cost of sales..................... (1,322,292) (1,316,700) (1,597,604) Operating income (loss)........... 191,841 (95,756) 64,108 Income before cumulative effect of accounting changes................ 213,436 (101,653) 243,473 Cumulative effect of accounting changes........................... - - - Net income (loss)................. 213,436 (101,653) 243,473 Earnings (loss) per share before effect of accounting changes...... 0.21 (0.10) 0.24 Cumulative effect of accounting changes per share................. - - - Earnings (loss) per share(1)...... 0.21 (0.10) 0.24 - ------------------------------------------------------------------------------------------------------------- (1) Certain reclassifications have been made to the consolidated balance sheet data as of June 30, 2001, for the information to be consistent with the balance sheet dated as of June 30, 2002. V-5
- ------------------------------------------------------------------------------------------------------- THOUSANDS OF CONSTANT JUNE 30, 2002 ARGENTINE AT JUNE 30, AT DECEMBER 31, PESOS, EXCEPT SHARE AND ----------------------------- ----------------------------- PER SHARE AMOUNTS 2002 2001(1) 2001 2000 - ------------------------------------------------------------------------------------------------------- (UNAUDITED) (UNAUDITED) SELECTED CONSOLIDATED BALANCE SHEET DATA ARGENTINE GAAP Current assets.......................... 3,185,259 1,533,702 1,499,463 1,331,174 Property, plant and equipment, net...... 1,642,395 1,547,162 1,510,274 1,615,406 Investments............................. 2,190,476 1,140,749 1,088,382 1,108,962 Other assets............................ 583,700 167,323 318,415 121,186 ------------------------------------------------------------- Total assets............................ 7,601,831 4,388,936 4,416,533 4,176,728 ------------------------------------------------------------- Current liabilities..................... 2,296,049 1,000,600 1,136,680 889,267 Long-term financial debt................ 278,606 103,280 96,389 120,955 Other non-current liabilities........... 183,057 126,271 128,573 121,333 ------------------------------------------------------------- Total liabilities....................... 2,757,712 1,230,151 1,361,642 1,131,555 ------------------------------------------------------------- Minority interest in consolidated subsidiaries............................ 457,807 227,325 255,390 249,112 Shareholders' equity.................... 4,386,311 2,931,459 2,799,501 2,796,062 ------------------------------------------------------------- Weighted average number of shares outstanding............................. 1,000,000,000 1,000,000,000 1,000,000,000 1,000,000,000 Shareholders' equity per share.......... 4.39 2.93 2.80 2.80 U.S. GAAP Total assets............................ 7,034,726 4,026,572 5,605,352 Net assets.............................. 4,017,329 2,730,191 3,425,566 Shareholders' equity.................... 3,570,564 2,495,580 3,008,765 Shareholders' equity per share.......... 3.57 2.50 3.01 - ------------------------------------------------------------------------------------------------------- (1) Certain reclassifications have been made to the consolidated balance sheet data as of March 31, 2001, for the information to be consistent with the balance sheet dated as of March 31, 2002. V-6
- -------------------------------------------------------------------------------------------------------------- THOUSANDS OF CONSTANT JUNE 30, AT MARCH 31, 2002 ARGENTINE PESOS, EXCEPT SHARE ------------------------------------------------------------------------- AND PER SHARE AMOUNTS 2001(1) 2000 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------- SELECTED CONSOLIDATED BALANCE SHEET DATA ARGENTINE GAAP Current assets.................... 1,313,275 1,135,030 943,431 1,288,662 997,886 Property, plant and equipment, net............................... 1,587,127 1,563,229 1,530,044 1,511,211 1,590,336 Investments....................... 1,146,133 983,651 1,077,723 1,133,449 986,387 Other assets...................... 160,979 128,763 94,649 72,559 83,696 ------------------------------------------------------------------------- Total assets...................... 4,207,514 3,810,673 3,645,847 4,005,881 3,658,305 ------------------------------------------------------------------------- Current liabilities............... 878,173 486,240 347,860 623,009 397,998 Long-term financial debt.......... 108,475 8,617 - - - Other non-current liabilities..... 116,859 95,814 43,292 42,147 145,248 ------------------------------------------------------------------------- Total liabilities................. 1,103,507 590,671 391,152 665,156 543,246 ------------------------------------------------------------------------- Minority interest in consolidated subsidiaries...................... 244,931 234,955 88,683 37,762 54,485 Shareholders' equity.............. 2,859,076 2,985,047 3,166,012 3,302,963 3,060,574 ------------------------------------------------------------------------- Weighted average number of shares outstanding....................... 1,000,000,000 1,000,000,000 1,000,000,000 981,982,153 932,200,885 Shareholders' equity per share.... 2.86 2.99 3.17 3.36 3.28 U.S. GAAP Total assets...................... 3,938,538 3,476,747 3,423,228 Net assets........................ 2,672,414 2,764,351 2,863,684 Shareholders' equity.............. 2,426,640 2,535,075 2,758,816 Shareholders' equity per share.... 2.43 2.54 2.76 - --------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------- AT OR FOR THE NINE-MONTH AT OR FOR THE TRANSITION SIX-MONTH PERIOD PERIOD ENDED ENDED JUNE 30, DECEMBER 31, ---------------- ------------- THOUSANDS OF TONS, EXCEPT EMPLOYEE DATA 2002 2001 2001 2000 - ---------------------------------------------------------------------------------------------- (UNAUDITED) KEY OPERATING DATA Number of employees......................................... 3,532 3,545 3,561 3,624 Seamless steel pipe capacity (annual)....................... 820 820 820 820 Seamless steel pipe sales Domestic sales volume..................................... 73 110 157 155 Export sales volume....................................... 293 283 440 445 NKKTubes and AlgomaTubes.................................. 141 127 226 37 -------------------------------- Total seamless sales volume................................. 507 520 823 637 Welded steel pipe sales volume.............................. 305 217 348 167 -------------------------------- Total sales volume.......................................... 812 737 1,171 804 - ---------------------------------------------------------------------------------------------- V-7
- ------------------------------------------------------------------------------------------ AT OR FOR THE FISCAL YEAR ENDED MARCH 31, --------------------------- THOUSANDS OF TONS, EXCEPT EMPLOYEE DATA 2001 2000 1999 - ------------------------------------------------------------------------------------------ (UNAUDITED) KEY OPERATING DATA Number of employees......................................... 3,618 3,253 3,466 Seamless steel pipe capacity (annual)....................... 820 820 820 Seamless steel pipe sales Domestic sales volume..................................... 209 125 146 Export sales volume....................................... 574 425 457 NKKTubes and AlgomaTubes.................................. 88 - - --------------------------- Total seamless sales volume................................. 871 550 603 Welded steel pipe sales volume.............................. 253 243 284 --------------------------- Total sales volume.......................................... 1,124 793 887 - ------------------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Siderca is the sole producer of seamless steel pipe in Argentina. Siderca has an annual production capacity of 820,000 tons of finished product, and exports more than 70% of its production in Argentina to over 60 countries worldwide. Siderca's principal products include casing and tubing for the oil and gas industry, seamless steel line pipe and various other mechanical and structural seamless pipes for different uses. Demand for these products depends primarily on the general condition of the world oil and related products market, which has experienced significant fluctuations in recent years. For example, toward the end of 1998, world drilling activity and consequently seamless steel pipe consumption began to decline as major oil and gas companies reduced their spending budgets and investment programs in response to a sharp and sustained fall in oil prices. Due in part to this downward cycle in the price of oil, Siderca's seamless steel pipe sales volume for fiscal year 2000 decreased by 28% compared to fiscal year 1998. This situation persisted until the end of 1999, when oil prices began to rise as a result of coordinated reductions in production by major oil and gas producers and other factors. Siderca's seamless steel pipe sales volume in fiscal year 2001 increased by 58% compared to fiscal year 2000 and by 29% for the nine-month transition period ended December 31, 2001, compared to the same period of 2000, due to the recovery in oil and gas prices and the consequent increase in major oil and gas companies' spending budgets and drilling programs, and decreased by 2.5% for the six-month period ended June 30, 2002, compared to the same period of 2001, due to the reduction in domestic consumption as a result of the crisis in Argentina. Although for most of the year to date oil prices have remained at levels which, under typical circumstances, would be expected to result in sustained levels of investment in oil and gas drilling worldwide, demand for seamless steel pipes for the rest of the year is currently expected to be lower than the levels recorded in 2001 as a result of increased uncertainty about the future level of oil prices given the possibility of military action or other events in the Middle East, as well as the continuing weakness of recovery in demand in the main industrialized economies. The domestic market for most of Siderca's products is becoming increasingly competitive. In recent years, Siderca has faced increased competitive challenges from abroad as a result of Argentina's trade liberalization policies. Siderca's sales in the domestic market are sensitive to the price of oil and gas and its impact on the drilling activity of participants in the domestic oil and gas sector. As drilling levels in Argentina have dropped beginning in the second half of 2001, Siderca's domestic seamless steel pipe sales, as a percentage of total seamless steel pipe sales volume, declined to 19% for the nine-month transition period ended December 31, 2001, from 24% in the same period of 2000 and declined to 14% for the six-month period ended June 30, 2002, from 21% in the same period of 2001. The export market for seamless steel pipe products is also highly competitive, with the primary competitive factors being price, quality and service. Siderca competes worldwide against primarily four foreign producers of seamless steel pipe products. The current crisis and the Argentine government's response to it have affected the country's economy and, by extension, Siderca's business and operations. For example, Siderca exports a very large percentage of its products and accepts payment in U.S. dollars. Until current emergency measures are removed or revised, Siderca is required to repatriate any U.S. dollars collected in connection with these exports (including U.S. dollars obtained through advance payment and pre-financing facilities) into V-8 Argentina and convert them into Argentine pesos at the market-based floating exchange rate applicable on the conversion date. This requirement subjects Siderca to exchange rate fluctuations and generates additional transactional costs. Also, under current emergency measures, the Argentine Central Bank is requiring up to 360 days to approve payments abroad for some products imported into Argentina. While Siderca has attempted to mitigate any potential impact of this requirement by establishing a trust fund outside Argentina to pay for imported products, the Argentine government may take steps in the future to prohibit or severely reduce the effectiveness of this mechanism. For a more complete description of Siderca's business and market position and of the competitive and other factors that could affect Siderca's financial condition and results of operations, see the information about Siderca incorporated by reference into this prospectus. OPERATING RESULTS The following discussion should be read in conjunction with Siderca's financial statements and the related notes included in this prospectus. Siderca prepares its financial statements in conformity with Argentine GAAP, which differ in some important respects from U.S. GAAP. See notes 16 and 17 to Siderca's audited financial statements included in this prospectus for a description of the principal differences between Argentine GAAP and U.S. GAAP as they relate to Siderca and for a reconciliation of net income (loss) and shareholders' equity for the periods and at the dates indicated. Under Argentine GAAP, financial statements are required to be adjusted for inflation for any fiscal year if the changes in the WPI for such year exceed 8%. As the annualized changes in the WPI from August 31, 1995, to December 31, 2001, were less than 8%, financial statements prepared in accordance with Argentine GAAP were not required to be adjusted for inflation during that period. In 2002 to date, Argentina has experienced a high rate of inflation (121.3% through September 30, 2002). As the change in the WPI since January 1, 2002, has exceeded 8%, financial statements prepared in accordance with Argentine GAAP are required to be adjusted for inflation since that date. Accordingly, Siderca has adjusted for inflation and restated in constant Argentine pesos as of June 30, 2002, its financial statements as of, and for the six-month period ended, June 30, 2002. In addition, for comparative purposes, Siderca has also restated in constant Argentine pesos as of June 30, 2002 all other financial statements of Siderca included elsewhere in this prospectus and all other Siderca financial data included throughout this prospectus. V-9 The following tables set forth Siderca's operating and other costs and expenses as a percentage of net sales for the periods indicated. V-10
- ------------------------------------------------------------------------------------------ FOR THE SIX-MONTH PERIOD ENDED JUNE 30, ------------------------ PERCENTAGE OF NET SALES 2002 2001 - ------------------------------------------------------------------------------------------ (UNAUDITED) Net sales................................................... 100.0 100.0 Cost of sales............................................... (56.6) (68.7) ------------------------ Gross profit................................................ 43.4 31.3 Selling, general and administrative expenses................ (15.4) (16.9) ------------------------ Operating income (loss)..................................... 28.1 14.3 Financial (expenses) income and holding gains (losses), net....................................................... 6.1 (4.0) Other income (expenses), net................................ (0.9) (0.7) ------------------------ Income (loss) before income tax, minority interest and equity in earnings (losses) of investee companies, net...... 33.3 9.6 Income tax.................................................. (8.7) (3.1) Minority interest in losses (earnings) of consolidated subsidiaries.............................................. (3.7) 0.8 Equity in losses (earnings) of investee companies, net...... 6.3 3.0 Effect of translation into Argentine pesos of financial statements in foreign currency.............................. 36.3 - ------------------------ Net income (loss)........................................... 63.5 10.3 - ------------------------------------------------------------------------------------------ The tables below show Siderca's total sales volume by product and market for the periods indicated.
- ---------------------------------------------------------------------------------------------- FOR THE NINE-MONTH TRANSITION PERIOD FOR THE FISCAL YEAR ENDED DECEMBER 31, ENDED MARCH 31, -------------------- --------------------- PERCENTAGE OF NET SALES 2001 2000 2001 2000 1999 - ---------------------------------------------------------------------------------------------- (UNAUDITED) Net sales....................................... 100.0 100.0 100.0 100.0 100.0 Cost of sales................................... (67.9) (71.9) (71.6) (84.3) (79.6) -------------------------------------------- Gross profit.................................... 32.1 28.1 28.4 15.7 20.4 Selling, general and administrative expenses.... (13.5) (17.8) (18.2) (16.7) (14.5) -------------------------------------------- Operating income (loss)......................... 18.6 10.2 10.2 (1.0) 5.9 Financial (expenses) income and holding gains (losses), net................................... (1.6) (1.0) (1.9) 1.6 (0.5) Other income (expenses), net.................... (1.6) (1.0) 0.4 (0.5) (4.6) -------------------------------------------- Income (loss) before income tax, minority interest and equity in earnings (losses) of investee companies, net......................... 15.4 8.3 8.8 0.0 0.8 Income tax...................................... (5.3) (2.4) (1.8) (1.2) (0.9) Minority interest in losses (earnings) of consolidated subsidiaries....................... (1.6) 0.4 0.5 (1.6) (0.8) Equity in losses (earnings) of investee companies, net................................ 1.8 2.4 2.1 (1.1) 5.5 Effect of translation into Argentine pesos of financial statements in foreign currency........ - - - - - -------------------------------------------- Net income (loss)............................... 10.3 8.7 9.5 (3.9) 4.6 - ---------------------------------------------------------------------------------------------- V-11
- ---------------------------------------------------------------------------- FOR THE SIX- MONTH PERIOD ENDED JUNE 30, -------------- THOUSANDS OF TONS 2002 2001 - ---------------------------------------------------------------------------- (UNAUDITED) Seamless Steel Pipe Sales Domestic sales (Argentina)............................... 73 110 Export sales............................................. 293 283 NKKTubes and AlgomaTubes................................. 141 127 -------------- Total seamless steel pipe sales............................. 507 520 Welded Steel Pipe Sales..................................... 305 217 -------------- Total Sales................................................. 812 737 - ---------------------------------------------------------------------------- The following tables indicate the percentage market distribution of Siderca's exports of seamless steel pipe by region for the periods shown.
- ---------------------------------------------------------------------------------------------- FOR THE NINE- MONTH TRANSITION PERIOD ENDED FOR THE FISCAL YEAR DECEMBER 31, ENDED MARCH 31, ---------------- ------------------- THOUSANDS OF TONS 2001 2000 2001 2000 1999 - ---------------------------------------------------------------------------------------------- (UNAUDITED) Seamless Steel Pipe Sales Domestic sales (Argentina)......................... 157 155 209 125 146 Export sales....................................... 440 445 574 425 457 NKKTubes and AlgomaTubes........................... 226 37 88 - - -------------------------------------- Total seamless steel pipe sales....................... 823 637 871 550 603 Welded Steel Pipe Sales............................... 348 167 253 243 284 -------------------------------------- Total Sales........................................... 1,171 804 1,124 793 887 - ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------- FOR THE SIX- MONTH PERIOD ENDED JUNE 30, --------------- PERCENTAGE OF TOTAL EXPORT SALES VOLUMES 2002 2001 - ----------------------------------------------------------------------------- (UNAUDITED) South America (except Argentina)............................ 13 19 North America............................................... 16 19 Far East.................................................... 28 23 Middle East................................................. 27 18 Other....................................................... 16 21 --------------- 100 100 - ----------------------------------------------------------------------------- V-12
- ------------------------------------------------------------------------------------------------- FOR THE NINE- MONTH TRANSITION PERIOD ENDED FOR THE FISCAL YEAR DECEMBER 31, ENDED MARCH 31, ---------------- --------------------- PERCENTAGE OF TOTAL EXPORT SALES VOLUMES 2001 2000 2001 2000 1999 - ------------------------------------------------------------------------------------------------- (UNAUDITED) South America (except Argentina)....................... 18 17 18 12 16 North America.......................................... 15 24 24 16 13 Far East............................................... 26 22 21 30 29 Middle East............................................ 19 21 21 21 24 Other.................................................. 22 16 16 21 18 ---------------------------------------- 100 100 100 100 100 - ------------------------------------------------------------------------------------------------- The tables below show Siderca's net sales by product and market for the periods indicated.
- --------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED JUNE 30, ------------------- MILLIONS OF CONSTANT JUNE 30, 2002 ARGENTINE PESOS 2002 2001 - --------------------------------------------------------------------------------- (UNAUDITED) Seamless Steel Pipe Sales Domestic sales (Argentina)............................... 319 294 Export sales............................................. 798 426 NKKTubes and AlgomaTubes................................. 428 236 ------------------- Total seamless steel pipe sales............................. 1,545 956 Welded Steel Pipe Sales..................................... 840 341 Other(1).................................................... 149 88 ------------------- Total Sales................................................. 2,534 1,386 - --------------------------------------------------------------------------------- (1) Consists mostly of resales of seamless and welded pipe by Siderca Corporation, with the remainder derived from sales of industrial equipment and pump valves for oil extraction and other activities not related to Siderca's principal business. Siderca sold its interest in Siderca Corporation in September 2000, which has resulted in a significant decrease in net sales attributable to "Other." SIX MONTHS ENDED JUNE 30, 2002, COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2001 Siderca's results for the six months ended June 30, 2002, were significantly affected by the rapid and substantial devaluation of the Argentine peso that occurred during the period. SALES VOLUME Overall sales volume for the six months ended June 30, 2002, increased 10.2% to 811,800 tons from 736,900 tons in the same period of 2001, reflecting a strong increase (40.6%) in welded pipe sales volumes, partially offset by a small decrease (2.5%) in seamless pipe sales volumes. In the domestic market, seamless pipe sales volumes declined by 33.7% with the Argentine crisis affecting adversely local drilling activity and sales to Siderca's oil and gas and commercial customers. Siderca's export V-13
- --------------------------------------------------------------------------------------------------- FOR THE NINE-MONTH TRANSITION PERIOD ENDED FOR THE FISCAL YEAR DECEMBER 31, ENDED MARCH 31, ----------------------- --------------------- MILLIONS OF CONSTANT JUNE 30, 2002 ARGENTINE PESOS 2001 2000 2001 2000 1999 - --------------------------------------------------------------------------------------------------- (UNAUDITED) Seamless Steel Pipe Sales Domestic sales (Argentina).................. 423 379 520 322 388 Export sales................................ 685 606 796 536 757 NKKTubes and AlgomaTubes.................... 400 69 172 - - ----------------------------------------------- Total seamless steel pipe sales................ 1,508 1,054 1,488 858 1,145 Welded Steel Pipe Sales........................ 643 236 378 425 547 Other(1)....................................... 109 100 109 328 408 ----------------------------------------------- Total Sales.................................... 2,260 1,390 1,975 1,612 2,100 - --------------------------------------------------------------------------------------------------- sales of 293,200 tons increased by 3.7% compared to 282,700 tons in the same period of 2001, while sales by its seamless pipe subsidiaries (principally NKKTubes) rose 10.7% to 140,800 tons. During the first half of 2002, demand for seamless pipes remained strong, as increased oil and gas drilling activity in the Middle East, Asia and Africa partly offset lower drilling activity in Canada, Venezuela and Argentina. Siderca's export sales and sales by its seamless pipe subsidiaries are not expected to continue to increase in the second half of 2002. Welded pipe sales volumes rose to 304,600 tons from 216,700 tons in the same period of 2001, reflecting high demand for welded pipes from regional pipeline projects in Ecuador, Peru and Bolivia. However, welded pipe sales volumes are not expected to continue to increase in the second half of 2002. NET SALES Net sales for the six months ended June 30, 2002, rose to ARP2,534.0 million from ARP1,385.9 million in the same period of 2001. While most of this increase was due to the effects of the devaluation of the Argentine peso on the conversion of foreign currency export sales and foreign currency sales by its seamless and welded subsidiaries, net sales also rose in U.S. dollar terms. The increase in U.S. dollar terms was a result of an increase in U.S. dollar terms of exports by Siderca due to higher sales volumes and higher average export selling prices (even after giving effect to a 5% export sales tax and a reduction in tax reimbursements put into effect by the Argentine government during the first quarter of 2002), an increase in U.S. dollar terms in sales by NKKTubes and AlgomaTubes due to higher sales volumes and higher average selling prices at NKKTubes, and an increase in U.S. dollar terms in sales by Confab and Siat due to higher sales volumes and higher average selling prices. The above-mentioned increases more than offset lower domestic sales revenues in U.S. dollar terms due to lower sales volumes and lower average selling prices. The higher average selling prices on Siderca's exports and NKKTubes' sales reflect an increase in sales of higher value products. COST OF SALES Cost of sales for the six months ended June 30, 2002, expressed as a percentage of net sales, decreased to 56.6% from 68.7% in the same period of 2001, reflecting the positive effect of the devaluation of the Argentine peso on Siderca's production costs in Argentina. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A for the six months ended June 30, 2002, represented 15.4% of net sales, compared to 16.9% of net sales in the same period of 2001. Selling expenses increased as a percentage of net sales reflecting the higher proportion of export sales in the sales mix, and general and administrative expenses declined in comparison to the same period of 2001 reflecting reduced costs in Argentina. FINANCIAL INCOME (EXPENSES) AND HOLDING GAINS (LOSSES), NET Financial income (expenses) and holding gains (losses) for the six months ended June 30, 2002, represented a net gain of ARP154.3 million, compared to a net loss of ARP55.9 million in the same period of 2001. This result principally reflects the effect of the devaluation of the Argentine peso on the value of Siderca's net monetary assets (excluding equity holdings) held in foreign currency (a gain of ARP458.3 million), the effect of Argentine inflation on the value of its net monetary assets held in Argentine pesos (a loss of ARP345.3 million) and the effect of the devaluation of the Argentine peso and Argentine inflation on the value of its inventories (a gain of ARP31.6 million). V-14 OTHER INCOME (EXPENSES), NET Other income (expenses) for the six months ended June 30, 2002, showed a net loss of ARP21.7 million against a net loss of ARP9.2 million in the same period of 2001, mainly due to an increase in provisions by Siderca related to the impairment of certain credits with the Argentine government, which are now fully provisioned. INCOME TAX Income tax charges for the six months ended June 30, 2002, rose to ARP219.9 million from ARP43.5 million in the same period of 2001, reflecting higher earnings. EQUITY IN EARNINGS (LOSSES) OF INVESTEE COMPANIES Equity in earnings from investee companies for the six months ended June 30, 2002, rose to ARP160.2 million compared to ARP41.4 million in the same period of 2001 and reflects the returns on Siderca's investments in: - - Tamsa, which generated a gain to Siderca of ARP110.6 million for the six months ended June 30, 2002, compared to a gain of ARP55.4 million for the same period of 2001; and - - Dalmine, which generated a gain to Siderca of ARP41.4 million for the six months ended June 30, 2002, compared to a loss of ARP10.4 million for the same period of 2001. Earnings from investments in investee companies also included a gain of ARP6.1 million on Siderca's investment in Tenaris Connections. EFFECT OF TRANSLATION INTO ARGENTINE PESOS OF FINANCIAL STATEMENTS IN FOREIGN CURRENCY As a result of the devaluation of the Argentine peso, Siderca recorded in the first half of 2002 a gain, net of inflation, of ARP919.3 million generated by the conversion into Argentine pesos of the financial statements of its consolidated subsidiaries and investee companies. NET INCOME Net income for the six months ended June 30, 2002, rose to ARP1,608.9 million from ARP142.1 million in the same period of 2001. The increase in net income includes an unrealized gain of ARP919.3 million arising from the conversion of the financial statements of Siderca's foreign equity holdings, a net gain of ARP154.3 million on financial income, and holding gains arising principally on foreign currency denominated holdings (excluding equity holdings) and inventory. The increase also reflects higher operating profits in Siderca's seamless and welded businesses, partially offset by increased income tax provisions. NINE-MONTH TRANSITION PERIOD ENDED DECEMBER 31, 2001, COMPARED TO THE NINE-MONTH PERIOD ENDED DECEMBER 31, 2000 SALES VOLUME Sales volume for the transition period ended December 31, 2001, increased 45.6% to 1,171,000 tons from 804,000 tons in the same period of 2000. Domestic sales volume for seamless steel pipe products totaled 157,000 tons for the transition period ended December 31, 2001, compared to 155,000 tons for the same period of 2000. This high level of sales volume reflects sustained demand from domestic oil and gas customers as a result of investment in exploration and production activity. V-15 Export sales volume for seamless steel pipe products totaled 440,000 tons for the transition period ended December 31, 2001, compared to 445,000 tons for the same period in 2000. This high level of sales volume reflects sustained demand from export oil and gas customers as a result of investment in exploration and production activity. Sales by NKKTubes and AlgomaTubes totaled 226,000 tons for the transition period ended December 31, 2001, compared to 37,000 tons for the same period of 2000. This increase was mainly due to the inclusion of these companies' sales for the full nine-month period following the commencement of operations at NKKTubes in August 2000 and at AlgomaTubes in October 2000. Welded pipe sales volumes rose 108.4% to 348,000 tons from 167,000 tons in the same period of 2000, reflecting high demand for Confab's and Siat's welded pipes from pipeline projects in the Americas and the Middle East. NET SALES Total net sales for the transition period ended December 31, 2001, rose 62.5% to ARP2,259.5 million compared to ARP1,390.1 million for the same period of 2000, due to higher sales volumes and higher average selling prices for both seamless and welded pipes. For seamless pipes, this reflected the inclusion for the full nine-month period of sales by our new subsidiaries NKKTubes and AlgomaTubes (which increased to ARP400.1 million for the transition period ended December 31, 2001, from ARP68.8 million for the nine-month period ended December 31, 2000), higher average selling prices due to increased market prices and changes in product mix. For welded pipes, the consolidated net sales of Confab and Siat rose to ARP642.7 million for the transition period ended December 31, 2001, from ARP236.4 million for the same period of 2000 due to sharply higher sales volumes and higher average selling prices resulting from project-specific changes in product mix. COST OF SALES Cost of sales, expressed as a percentage of net sales, decreased to 67.9% for the transition period ended December 31, 2001, from 71.9% for the same period of 2000. This improvement was due mainly to higher average selling prices and higher absorption of fixed and semi-fixed costs at Confab and Siat as a result of higher sales volumes. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A represented 13.5% of net sales for the transition period ended December 31, 2001, compared to 17.8% of net sales for the same period of 2000. This improvement reflects the impact of higher selling prices and higher sales volumes. SG&A increased in absolute terms by 23.5% due mainly to the inclusion of costs from NKKTubes and AlgomaTubes and increased selling expenses at Confab and Siat. FINANCIAL INCOME (EXPENSES) AND HOLDING GAINS (LOSSES), NET Financial and holding results for the transition period ended December 31, 2001, showed a net loss of ARP37.3 million, or 1.6% of net sales, compared to a loss of ARP14.2 million, or 1.0% of net sales, for the same period of 2000. The main factors that contributed to this result were the conversion of Confab's and NKKTubes' financial statements, higher interest payments due to increased average indebtedness and higher exchange-related losses. V-16 OTHER INCOME (EXPENSES), NET Other income (expenses) represented a net loss of ARP35.9 million for the transition period ended December 31, 2001, compared to a loss of ARP13.3 million in the same period of 2000. This loss was due mainly to an incremental provision by Siderca of ARP26.4 million relating to the impairment of certain credits with the Argentine government and a provision of ARP15.1 million by Confab representing the entirety of the amount in controversy in connection with a tax dispute, partially offset by the amortization of negative goodwill of ARP10.2 million. INCOME TAX Income tax is recorded on the basis of the estimated tax liability for each fiscal year. The Argentine income tax rate applicable to the nine-month periods ended December 31, 2001, and 2000 and the fiscal years ended March 31, 2001, and 2000 was 35% of taxable income, calculated in accordance with the applicable tax regulations. During the transition period ended December 31, 2001, Siderca and its subsidiaries recorded a tax provision of ARP119.3 million, compared to a tax provision of ARP33.8 million for the same period of 2000. This increase was mainly due to higher consolidated net income and the use of tax loss carryforwards in 2000. EQUITY IN EARNINGS (LOSSES) OF INVESTEE COMPANIES Equity in earnings of investee companies rose by 21.1% to ARP40.8 million from ARP33.7 million for the same period of the previous year. Siderca's investment in Tamsa generated a gain of ARP39.7 million, up from ARP32.4 million for the same period of 2000. This gain includes positive adjustments of ARP8.2 million resulting from the conversion of Tamsa's financial statements to Argentine GAAP. Siderca's investment in Dalmine generated a gain of ARP2.1 million, compared to a loss of ARP4.1 million for the same period of 2000. This gain includes positive adjustments of ARP8.3 million resulting from the conversion of Dalmine's financial statements to Argentine GAAP. See note 2 to Siderca's audited financial statements included in this prospectus for a description of these adjustments. Siderca's investment in Siderar generated a loss of ARP8.2 million compared to a gain of ARP4.4 million for the same period of 2000. On December 4, 2001, Siderca distributed all of its shares of Siderar to its shareholders in the form of a dividend. NET INCOME (LOSS) Siderca reported net income of ARP232.4 million for the transition period ended December 31, 2001, compared to net income of ARP 120.7 million for the same period of 2000. This increase reflects substantially higher operating profits in Siderca's seamless and welded businesses, partially offset by increased income tax provisions, a provision for non-commercial credits at Siderca and the above- referenced provision for a tax dispute at Confab. FISCAL YEAR ENDED MARCH 31, 2001, COMPARED TO FISCAL YEAR ENDED MARCH 31, 2000 SALES VOLUME Sales volume for seamless steel pipe products for the fiscal year ended March 31, 2001, increased by 58% as compared to the fiscal year ended March 31, 2000, primarily due to a recovery in the markets V-17 for these products resulting from increased drilling activity in the oil and gas sector motivated by an increase in oil prices as well as the inclusion of sales from Siderca's new subsidiaries, NKKTubes and AlgomaTubes. Domestic sales volume for seamless steel pipe products totaled 209,000 tons for the fiscal year ended March 31, 2001, compared to 125,000 tons for the previous fiscal year. This 67% increase was a result of the recovery of investment in the domestic oil and gas industry in response to sustained higher oil prices. Export sales volume for seamless steel pipe products totaled 574,000 tons for the fiscal year ended March 31, 2001, compared to 425,000 tons for the previous fiscal year. This 35% increase reflects the continuing recovery in the principal OCTG market over the fiscal year. Initial sales from Siderca's two new subsidiaries, NKKTubes and AlgomaTubes, totaled 88,000 tons for the fiscal year ended March 31, 2001, most of which derived from NKKTubes. The volume of sales of welded pipe products increased by 4% compared to the previous fiscal year despite a 56% reduction in sales by Siat. This slight increase is attributable to the full inclusion of Confab's sales for the entire period following Siderca's acquisition of Confab in August 1999, which offset significantly reduced sales volume for these products in South America as a result of the postponement of several gas pipeline projects. NET SALES Total net sales for the fiscal year ended March 31, 2001, totaled ARP1,975.3 million, compared to ARP1,611.9 million for the fiscal year ended March 31, 2000. Seamless steel pipe sales increased 73%, primarily due to a continued recovery in prices and sales volume as a result of improved conditions in the oil sector both in domestic and export markets as well as an initial contribution from NKKTubes and AlgomaTubes. Welded steel pipe sales decreased 11%, mainly due to a reduction in sales volume of Siat and lower prices, partially offset by the inclusion of Confab's sales for the entire period. COST OF SALES Cost of sales, expressed as a percentage of net sales, was 71.6% for the fiscal year ended March 31, 2001, compared to 84.3% for the fiscal year ended March 31, 2000, due mainly to a recovery in sales prices, lower costs and increased efficiencies in manufacturing processes resulting from higher production volume. The increase in sales volume reduced the relative weight of fixed and semi-fixed costs, thereby improving margins. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A, expressed as a percentage of net sales, was 18.2% for the fiscal year ended March 31, 2001, compared to 16.7% for the fiscal year ended March 31, 2000. Administrative expenses increased, due to the inclusion of costs associated with Confab, NKKTubes and AlgomaTubes and certain additional costs associated with the development of e-business and other systems. Commercial expenses were higher in absolute terms in the period due to increased sales volume. FINANCIAL INCOME (EXPENSES) AND HOLDING GAINS (LOSSES), NET Financial results for the fiscal year ended March 31, 2001, showed a loss of ARP37.4 million, or 1.9% of net sales, compared to a gain of ARP25.3 million, or 1.6% of net sales, for the fiscal year ended March 31, 2000. The change was mainly due to (i) exchange rate losses of ARP61.3 million on the conversion of Confab's financial statements mainly due to the devaluation of the Brazilian real, V-18 (ii) lower interest gains (net) of ARP11.7 million reflecting higher levels of indebtedness due to higher net working capital and the payment of a cash dividend, and (iii) a lower loss of ARP12.6 million generated by non-recurrent changes in the value of inventory after the decrease in the price of some inputs recorded during the previous year. OTHER INCOME (EXPENSES), NET Other income (expenses) for the fiscal year ended March 31, 2001, was a result of allowances for bad credits and for property, plant and equipment retirement (losses of ARP11.7 million and ARP9.0 million, respectively) partially offset by the amortization of negative goodwill from Confab (gain of ARP13.4 million) and a gain on the purchase of Siderca's participation in Tamsa (ARP5.6 million). Other income (expenses) for the fiscal year ended March 31, 2000, was mainly generated by allowances for bad credits and voluntary job reductions implemented by Siderca (loss of ARP13.0 million and ARP12.7 million, respectively), partially offset by the amortization of negative goodwill from Confab (gain of ARP9.9 million). INCOME TAX During the fiscal year ended March 31, 2001, Siderca and its subsidiaries recorded a tax provision of ARP35.5 million compared to a provision ARP20.0 million for the fiscal year ended March 31, 2000. This change occurred because Siderca did not generate any charge for income tax at the parent level during the fiscal year ended March 31, 2000, by utilizing income tax loss carryforwards, partially offset by a significant lower taxable income generated by Siat. EQUITY IN EARNINGS (LOSSES) OF INVESTEE COMPANIES Siderca reported a gain on investments in investee companies of ARP41.2 million for the fiscal year ended March 31, 2001, compared to a loss of ARP17.9 million for the fiscal year ended March 31, 2000. This increase was primarily due to the returns on Siderca's investments in: - - Tamsa, which generated a gain to Siderca of ARP34.5 million for the fiscal year ended March 31, 2001, compared to a gain of ARP6.6 million for the fiscal year ended March 31, 2000; and - - Dalmine, which generated a gain to Siderca of ARP2.4 million for the fiscal year ended March 31, 2001, compared to a loss of ARP52.4 million for the fiscal year ended March 31, 2000. NET INCOME (LOSS) Siderca reported net income of ARP188.4 million for the fiscal year ended March 31, 2001, compared to a net loss of ARP62.9 million for the fiscal year ended March 31, 2000. This improvement in results was mainly due to improved operating results and increased returns from its investments in investee companies, partially offset by higher financial expenses and higher tax provisions. FISCAL YEAR ENDED MARCH 31, 2000, COMPARED TO FISCAL YEAR ENDED MARCH 31, 1999 SALES VOLUME Sales volume for the fiscal year ended March 31, 2000, for seamless steel pipe products decreased by 9% from the previous fiscal year. Sales volume for the fiscal year ended March 31, 2000, for welded pipe products decreased 14% compared to the previous fiscal year. Domestic sales volume for seamless steel pipe products totaled 125,000 tons for the fiscal year ended March 31, 2000, compared to 146,000 tons sold in the previous fiscal year. This decrease of 14% was a result of the impact of the international oil crisis in the Argentine market for OCTGs and line pipe. V-19 Export sales volume for seamless steel pipe products totaled 425,000 tons for the fiscal year ended March 31, 2000, compared to 457,000 tons sold in the previous fiscal year. This stability is due to the roughly equal distribution of the effects of the international oil crisis in the export market between the two fiscal years; the fiscal year ended March 31, 2000, was characterized by lower sales during the first half of the year offset by rising sales during the second half of the year, while the fiscal year ended March 31, 1999, was characterized by higher sales during the first half of the year offset by declining sales during the second half of the year. Lower sales of welded pipe products by Siat, which decreased by 114,000 tons due to decreased pipeline construction activity, were partially offset by the inclusion of Confab's sales. NET SALES For the fiscal year ended March 31, 2000, total net sales were ARP1,612 million, compared to ARP2,100 million for the fiscal year ended March 31, 1999. This decrease of 23% was mainly due to a reduction in total sales volume and lower average export prices of Siderca's products following the fall in international oil prices, partially offset by the inclusion of Confab following its acquisition in August 1999. COST OF SALES Cost of sales, expressed as a percentage of net sales, was 84.3% in the fiscal year ended March 31, 2000, compared to 79.6% in the fiscal year ended March 31, 1999, due mainly to lower sales prices. These negative effects were partially offset by increased production process efficiencies. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A, expressed as a percentage of net sales, were 16.7% in the fiscal year ended March 31, 2000, compared to 14.5% in the fiscal year ended March 31, 1999. Although 11% lower in absolute terms, SG&A increased as a percentage of net sales due to decreased net sales and the impact of fixed administrative costs. FINANCIAL INCOME (EXPENSES) AND HOLDING GAINS (LOSSES), NET Financial and holding results showed a gain of ARP25.3 million, or 1.6% of net sales, for the fiscal year ended March 31, 2000, compared to a loss of ARP9.8 million, or 0.5% of net sales, for the fiscal year ended March 31, 1999. The variation was mainly due to the consolidation of the results of Confab, which generated a gain on exchange rates and higher yield of ARP35.0 million obtained from investments of surplus funds, as well as lower interest expense on financial debt. OTHER INCOME (EXPENSES), NET Other income (expenses) for the fiscal year ended March 31, 2000, were mainly generated by the voluntary job reductions implemented by Siderca (ARP12.7 million), and other income (expenses) for the fiscal year ended March 31, 1999, were mainly generated by the voluntary job reductions implemented by Siderca (ARP67.8 million) and the loss generated by the difference between the proportional equity value and the market price of the shares of Siderar distributed as dividends in kind (ARP33.7 million). INCOME TAX Siderca's subsidiaries reported an income tax charge of ARP20.0 million for the fiscal year ended March 31, 2000, compared to a charge of ARP19.0 million for the fiscal year ended March 31, 1999. V-20 This amount represented estimated income taxes expected to be paid by Siat and Scrapservice. Siderca did not generate any charge for income tax in either fiscal year by utilizing income tax loss carryforwards. EQUITY IN EARNINGS (LOSSES) OF INVESTEE COMPANIES Siderca reported a loss on investments in investee companies of ARP17.9 million for the fiscal year ended March 31, 2000, compared to a gain of ARP115.8 million for the fiscal year ended March 31, 1999. This substantial decrease was primarily due to the returns on Siderca's investments in: - - Tamsa, which generated a gain to Siderca of ARP6.6 million for the fiscal year ended March 31, 2000, compared to a gain of ARP98.1 million for the fiscal year ended March 31, 1999; - - Dalmine, which generated a loss to Siderca of ARP52.4 million for the fiscal year ended March 31, 2000, compared to a gain of ARP28.8 million for the fiscal year ended March 31, 1999; and - - Siderar, which generated a loss to Siderca of ARP4.6 million for the fiscal year ended March 31, 2000, compared to a gain of ARP26.3 million for the fiscal year ended March 31, 1999. These negative results were partially offset by a gain on Siderca's investment in Confab Tubos of ARP5.5 million for the fiscal year ended March 31, 2000. The negative results derived from these investments resulted largely from the sharp fall in oil prices and the international market crisis that affected Siderca, Tamsa and Dalmine. NET INCOME (LOSS) Siderca reported a net loss of ARP62.9 million for the fiscal year ended March 31, 2000, compared to a net profit of ARP96.0 million for the fiscal year ended March 31, 1999. This decrease was primarily due to lower sales volume as a result of the crisis in the market for seamless steel pipe products that began to develop during the second half of the previous fiscal year and continued through the first half of the fiscal year, with a drastic reduction in global demand for many of Siderca's products precipitated by low oil prices and contraction in the Asian markets. Due to a steady recovery in the price of oil and a higher level of investments by oil companies during the second half of the fiscal year ended March 31, 2000, Siderca recorded an operating profit of ARP37.2 million compared to a loss of ARP53.8 million during the first half of the same fiscal year. LIQUIDITY AND CAPITAL RESOURCES V-21
- ----------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED JUNE 30, --------------------- THOUSANDS OF CONSTANT JUNE 30, 2002 ARGENTINE PESOS 2002 2001 - ----------------------------------------------------------------------------------- (UNAUDITED) Cash provided by operations................................. 95,191 215,090 Cash used in investment activities.......................... (52,792) (48,874) Cash provided by (used in) financing activities............. 273,426 (75,289) --------------------- Increase (decrease) in cash and cash equivalents............ 315,825 90,927 Cash and cash equivalents at the beginning of period........ 214,123 95,862 --------------------- Cash and cash equivalents at the end of period.............. 529,948 186,789 - ----------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 2002, COMPARED TO SIX MONTHS ENDED JUNE 30, 2001 Cash and cash equivalents at June 30, 2002 totaled ARP529.9 million, reflecting an increase during the period of ARP315.8 million, and net financial debt amounted to ARP615.9 million. Additionally, funds in the trust fund outside Argentina established during 2001 to provide support for ongoing operations amounted to ARP424.3 million at June 30, 2002. Cash provided by operations was ARP95.2 million, compared with cash provided by operations of ARP215.1 million in the same period of 2001. Cash used in investment activities during the six months ended June 30, 2002, included ARP52.8 million for acquisitions of fixed and intangible assets. Cash provided by financing activities was ARP273.4 million, consisting in new borrowings in the amount of ARP554.3 million, offset by repayments of bank loans in the amount of ARP258.3 million and a net decrease in minority interest in subsidiary companies in the amount of ARP22.6 million. At June 30, 2002, Siderca had current investments in the form of cash deposits with high credit-quality financial institutions amounting to ARP177.4 million, compared to ARP129.7 million at June 30, 2001. Net working capital at June 30, 2002, was ARP889.2 million, compared to ARP533.1 million at June 30, 2001. The reasons for this increase were an increase in cash and cash equivalents, trade receivables, other receivables and inventories, partially offset by a net increase in accounts payable, financial debt and others. For the six months ended June 30, 2002, and the other periods covered in this prospectus, Siderca's working capital was sufficient to satisfy its short-term liquidity needs. Siderca's debt to total assets ratio, measured as total liabilities to total assets, was 0.36 to 1 at June 30, 2002, compared to 0.28 to 1 at June 30, 2001. V-22
- ------------------------------------------------------------------------------------------------------------ FOR THE NINE-MONTH TRANSITION PERIOD FOR THE FISCAL YEAR ENDED ENDED DECEMBER 31, MARCH 31, ---------------------- ------------------------------ THOUSANDS OF CONSTANT JUNE 30, 2002 ARGENTINE PESOS 2001 2000 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------ (UNAUDITED) Cash provided by operations................... 421,604 167,017 266,104 98,260 498,006 Cash used in investment activities............ (115,439) (302,776) (385,538) (150,704) (101,955) Cash provided by (used in) financing activities.. (187,552) 154,198 107,966 (98,127) (410,781) ------------------------------------------------------- Increase (decrease) in cash and cash equivalents... 118,613 18,439 (11,468) (150,571) (14,730) Increase in cash and cash equivalents provided by consolidation of certain companies............ - - - 165,278 - Cash and cash equivalents at the beginning of period........................................ 95,510 106,977 106,977 92,271 107,001 ------------------------------------------------------- Cash and cash equivalents at the end of period.. 214,123 125,416 95,509 106,978 92,271 - ------------------------------------------------------------------------------------------------------------ NINE-MONTH TRANSITION PERIOD ENDED DECEMBER 31, 2001, COMPARED TO THE NINE-MONTH PERIOD ENDED DECEMBER 31, 2000 Siderca's cash and cash equivalents at December 31, 2001, increased to ARP214.1 million from ARP125.4 million at December 31, 2000. Cash provided by operations was ARP421.6 million, compared with an equivalent cash generation of ARP167.0 million in the same period of 2000. The principal uses of funds in investment activities during this period included ARP82.0 million for acquisitions of fixed and intangible assets and ARP33.4 million for acquisitions of additional shares in Tamsa. The increase in cash and cash equivalents was ARP118.6 million, contributing to a reduction in net financial debt from ARP463.7 million to ARP338.1 million over the period. In addition, Siderca funded a trust fund outside Argentina (payments from which are approved by an oversight committee of the trust fund) in the amount of ARP202.4 million to provide financial support for Siderca's normal operations by facilitating U.S. dollar payments abroad. Cash flow used in financing activities was ARP187.6 million, consisting principally of a payment of cash dividends in the amount of ARP156.5 million, a net decrease in minority interest in subsidiary companies in the amount of ARP25.6 million and repayments of bank loans in the amount of ARP326.8 million, offset by new borrowings in the amount of ARP321.4 million. At December 31, 2001, Siderca had current investments in the form of cash deposits with high credit-quality financial institutions amounting to ARP124.4 million, compared to ARP43.9 million at December 31, 2000. Net working capital at December 31, 2001, was ARP362.8 million, compared to ARP441.9 million at December 31, 2000. The principal reasons for this reduction were an increase in accounts payable and other debts and a decrease in trade receivables, partially offset by a net increase in cash and cash equivalents and inventories. For this period and the other periods covered in this prospectus, Siderca's working capital was sufficient to satisfy its short-term liquidity needs. Siderca's debt to total assets ratio was 0.31 to 1 at December 31, 2001, compared to 0.27 to 1 at December 31, 2000. FISCAL YEAR ENDED MARCH 31, 2001, COMPARED TO FISCAL YEAR ENDED MARCH 31, 2000 Siderca's cash and cash equivalents at March 31, 2001, decreased to ARP95.5 million from ARP107.0 million at March 31, 2000. Cash provided by operations was ARP266.1 million during the fiscal year ended March 31, 2001. The principal uses of funds in investment activities during this period included ARP253.0 million in property, plant and equipment and IT acquisitions and ARP132.6 million used mainly to acquire shares of Tamsa. Cash flow obtained from financing activities was ARP108.0 million, consisting principally of borrowings in the amount of ARP527.1 million and a net increase in minority interest in subsidiary companies in the amount of ARP19.4 million, offset by the payment of cash dividends in the amount of ARP293.5 million and repayments of bank loans in the amount of ARP145.0 million. At March 31, 2001, Siderca had current investments in the form of cash deposits with high credit-quality financial institutions amounting to ARP21.0 million, compared to ARP88.3 million at March 31, 2000. Net working capital at March 31, 2001, was ARP435.1 million, compared to ARP648.8 million at March 31, 2000. The principal reasons for this reduction were an increase in financial debt and accounts payable and a decrease in short term investments, partially offset by a net increase in cash V-23 and cash equivalents, trade receivables and inventories. For this period and the other periods covered in this prospectus, Siderca's working capital was sufficient to satisfy its short-term liquidity needs. Siderca's debt to total assets ratio was 0.26 to 1 at March 31, 2001, compared to 0.16 to 1 at March 31, 2000. FISCAL YEAR ENDED MARCH 31, 2000, COMPARED TO FISCAL YEAR ENDED MARCH 31, 1999 Siderca's cash and cash equivalents at March 31, 2000, increased to ARP107.0 million from ARP92.3 million at March 31, 1999. This change was mainly due to an increase of ARP165.3 million resulting from the inclusion of Confab after its acquisition in August 1999, partially offset by a decrease of ARP150.6 million generated by Siderca's activities. Cash provided by operations was ARP98.3 million during the fiscal year ended March 31, 2000. The principal uses of funds in investment activities during this period included ARP65.6 million in property, plant and equipment and intangible asset acquisitions and ARP85.1 million in the acquisition of a controlling interest in Confab. Cash flow used in financing activities was ARP98.1 million, consisting principally of a payment of cash dividends in the amount of ARP97.8 million and repayments of bank loans in the amount of ARP186.5 million, partially offset by borrowings of ARP192.7 million. At March 31, 2000, Siderca had current investments in the form of cash deposits with high credit-quality financial institutions amounting to ARP88.3 million, compared to ARP84.5 million at March 31, 1999. Net working capital at March 31, 2000 was ARP648.8 million, compared to ARP595.6 million at March 31, 1999. The principal reasons for this increase were the inclusion of Confab after its acquisition, an increase in current trade receivables, a decrease in accounts payable and social and fiscal debts and other liabilities, partially offset by a net decrease in cash and cash equivalents resulting from the utilization of funds as described above and lower inventories. Siderca's debt to total assets ratio was 0.16 to 1 at March 31, 2000, compared to 0.11 to 1 at March 31, 1999. FINANCINGS Siderca's consolidated financial debt at June 30, 2002, which is mainly denominated in foreign currency (except for bank overdrafts denominated in Argentine pesos in an amount of ARP22.2 million), was ARP1,145.9 million, compared to ARP561.3 million at June 30, 2001. Of this debt, ARP867.3 million was short-term and ARP278.6 million was long-term. The debt is held principally by Siderca (ARP384.5 million), Confab (ARP328.0 million), Siderca Denmark (ARP140.6 million), NKKTubes (ARP185.3 million), Siat (ARP39.7 million) and AlgomaTubes (ARP66.1 million). As of June 30, 2002, Siderca had short-term loans totaling ARP867.3 million. Of this amount, ARP572.5 million were pre-export financing facilities with foreign financial institutions with an average maturity shorter than a year and an average interest rate of 4.7%. The remaining ARP294.8 million included short-term loans with an average interest rate of 4.0%. As of June 30, 2002, Siderca, mainly through its subsidiaries NKKTubes and Confab, had long-term loans totaling ARP278.6 million. V-24 In August 2000, Siderca entered into loan agreements and guarantees in connection with its investment in NKKTubes. See "Part Four--Information about Tenaris--Business--Subsidiaries--Seamless steel pipe manufacturers--NKKTubes." Neither Siderca nor any of its subsidiaries has any limitation on investments in property, plant and equipment or in other companies. Dividend payments and repurchase of shares are not prohibited by any event of default or covenants under any present loan agreement. Siderca's subsidiary AlgomaTubes is required to comply with certain financial ratios related to interest coverage and leverage. At June 30, 2002, Siderca and its subsidiaries, including AlgomaTubes, were in compliance with all applicable financial and other covenants. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following table summarizes Siderca's contractual obligations at June 30, 2002, and the effect such obligations are expected to have on its liquidity and cash flow in future periods:
- ----------------------------------------------------------------------------------------------------- PAYMENTS DUE BY PERIOD AS OF JUNE 30, 2002 ---------------------------------------------- LESS THAN 1-3 4-5 AFTER 5 MILLIONS OF CONSTANT JUNE 30, 2002 ARGENTINE PESOS TOTAL 1 YEAR YEARS YEARS YEARS - ----------------------------------------------------------------------------------------------------- Contractual Obligations Short-Term Debt................................... 441.9 441.9 - - - Financial Long-Term Debt.......................... 703.5 474.7 134.9 31.1 62.8 Finance Lease Obligations......................... 0.5 0.2 0.3 - - ---------------------------------------------- Total Contractual Cash Obligations................... 1,145.9 916.8 135.2 31.1 62.8 - ----------------------------------------------------------------------------------------------------- (1) See note 10(c) to Siderca's audited consolidated financial statements included in this prospectus. Siderca had no off-balance sheet commitments at June 30, 2002. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Siderca's operating and financial review and prospects are based on Siderca's consolidated financial statements, which have been prepared in accordance with Argentine GAAP. The use of Argentine GAAP as opposed to U.S. GAAP has an impact on Siderca's critical accounting policies and estimates. The application of U.S. GAAP would have affected the determination of consolidated net income (loss) for the periods ended June 30, 2002, December 31, 2001 and March 31, 2001, and the determination of consolidated shareholders' equity and consolidated financial position as of June 30, 2002, and December 31, 2001. Note 17 to Siderca's audited consolidated financial statements included V-25
- ------------------------------------------------------------------------------------------------ AMOUNT OF COMMITMENT EXPIRATION PER PERIOD AS OF JUNE 30, 2002 TOTAL -------------------------------- AMOUNTS LESS THAN 1-3 4-5 AFTER 5 MILLIONS OF CONSTANT JUNE 30, 2002 ARGENTINE PESOS COMMITTED 1 YEAR YEARS YEARS YEARS - ------------------------------------------------------------------------------------------------ Other Commercial Commitments Guarantees(1)................................... 18.5 18.5 - - - ------------------------------------------- Total Commercial Commitments....................... 18.5 18.5 - - - - ------------------------------------------------------------------------------------------------ in this prospectus provides a reconciliation to U.S. GAAP of Siderca's results of operations and shareholders' equity. The preparation of these financial statements requires Siderca to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, Siderca evaluates its estimates, including those related to bad debts, valuation of long-lived and intangible assets and goodwill, reserve for obsolescence and contingencies. Siderca bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Siderca believes the following critical accounting policies and estimates affect its more significant judgments and estimates used in the preparation of its consolidated financial statements: REVENUE RECOGNITION Net sales in the consolidated statements of income are equal to gross sales from operations, net of sales returns and discounts. Revenue from sales is recognized upon transfer of ownership, which usually takes place upon delivery of the related goods. ALLOWANCES FOR DOUBTFUL ACCOUNTS Siderca's management makes estimates of the uncollectability of its accounts receivable, including receivables from government entities. Management specifically analyzes accounts receivable and historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. If circumstances change (i.e., higher than expected defaults or an unexpected material adverse change in a major customer's ability to meet its financial obligation to Siderca), Siderca's estimates of the recoverability of amounts due to it could be reduced by a material amount. INVENTORY OBSOLESCENCE RESERVE Siderca's management also makes estimates for obsolete or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon inventory turnover levels and assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. LOSS CONTINGENCIES Loss contingencies are accrued when it is reasonably certain that the loss will be incurred, but uncertainty exists relating to the amount or the date on which they will arise. Accruals for such contingencies reflect a reasonable estimate of the losses to be incurred based on information available as of the date of preparation of the financial statements. GOODWILL Siderca's business acquisitions typically result in goodwill, which affect the amount of future period amortization expense and possible impairment expense that Siderca will incur. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect V-26 Siderca's consolidated financial statements. Negative goodwill recognized by Siderca, which amounted to ARP23.7 million as of December 31, 2001, and ARP26.5 million as of June 30, 2002, is amortized by the straight-line method over a period of three years. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED Long-lived assets and intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost to sell. NET INCOME (LOSS) AND SHAREHOLDERS' EQUITY INFORMATION ON A U.S. GAAP BASIS Siderca's financial statements have been prepared in accordance with Argentine GAAP, which, as applied to Siderca, differ in significant respects from U.S. GAAP. Under U.S. GAAP, Siderca recorded net income of ARP354.4 million for the six-month period ended June 30, 2002 (compared to net income of ARP1,608.9 million under Argentine GAAP), net income of ARP133.9 million for the six-month period ended June 30, 2001 (compared to net income of ARP142.1 million under Argentine GAAP), ARP253.4 million for the transition period ended December 31, 2001 (compared to net income of ARP232.4 million under Argentine GAAP), net income of ARP213.4 million for the fiscal year ended March 31, 2001 (compared to net income of ARP188.4 million under Argentine GAAP), net loss of ARP101.7 million for the fiscal year ended March 31, 2000 (compared to net loss of ARP62.9 million under Argentine GAAP), and net income of ARP243.5 million for the fiscal year ended March 31, 1999 (compared to net income of ARP96.0 million under Argentine GAAP). The principal differences between Argentine GAAP and U.S. GAAP that affected Siderca's results of operations were: - - differences in the basis of Siderca's investments; - - foreign currency translation adjustments; - - foreign exchange differences; - - the effects on depreciation and amortization of the different bases for determination of the underlying net asset acquired and the goodwill on the combination of businesses which have been treated on the purchase method; - - vacation accrual; - - accounting for voluntary terminations; - - changes in the derivative's fair value; - - valuation of inventories; - - revenue recognition; - - the recognition of net operating tax loss carryforwards; - - differences in recognition of goodwill; - - differences in recognition of available-for-sale financial assets' changes in fair value; and - - the effects on deferred taxes, investments carried under the equity method and minority interest of the above reconciling items. V-27 Shareholders' equity determined in accordance with U.S. GAAP was ARP3,570.6 million as of June 30, 2002, ARP2,495.6 million as of June 30, 2001, ARP3,008.8 million as of December 31, 2001, ARP2,426.6 million as of March 31, 2001, and ARP2,535.1 million as of March 31, 2000. The principal differences affecting the determination of shareholders' equity are those described above. For a discussion of the principal differences between Argentine and U.S. GAAP as they relate to Siderca's consolidated net income (loss) and shareholders' equity, see note 16 to Siderca's audited financial statements included in this prospectus. For a quantitative reconciliation of these differences, see note 17 to Siderca's audited financial statements included in this prospectus. RECENT DEVELOPMENTS On July 26, 2002, Siderca announced a cash dividend of ARP180.0 million (ARP0.18 per share), which was paid on August 5, 2002. Shareholders were given the option to elect to receive their dividend in U.S. dollars at an exchange rate of ARP3.65 per U.S. dollar, which was the bank selling rate offered by Banco de la Nacion Argentina for converting Argentine pesos into U.S. dollars at the close of business on July 25, 2002. No assurances are given that Siderca will provide such an option with respect to the currency of payment of any cash dividends in the future. V-28 RISK MANAGEMENT The following discussion concerning Siderca's risk management activities includes forward contracts and other derivatives that involve risks and uncertainties. Actual results could differ due to the nature of these financial transactions. The analysis shown below presents the hypothetical loss/earnings on the fair value of the financial instruments and derivative instruments which were held by Siderca at June 30, 2002, and are sensitive to changes in interest rates and foreign exchange rates. None of these instruments are held for trading purposes. In the ordinary course of business, Siderca also faces risks with respect to financial instruments that are either non-financial or non-quantifiable; these risks principally include country risk and credit risk and are not presented in the following analysis. The risk analysis sets forth the sensitivity of Siderca's financial instruments to selected changes in interest rates and foreign exchange rates. INTEREST RATE SENSITIVITY Siderca's exposure to market risk for changes in interest rates is limited because substantially all of its indebtedness accrues interest at fixed rates. Siderca has debt at fixed rates. Siderca generally does not undertake any specific actions to cover its exposure to interest rate risk and was not a party to any interest rate risk management transactions at June 30, 2002. The following table provides information about Siderca's short- and long-term debt obligations at June 30, 2002. Since short- and long-term debt involve fixed rates that approximate market rates, no difference arises in fair value effect. At June 30, 2002, Siderca's temporary investment portfolio consisted primarily of fixed short-term deposits. Given the short-term nature of these instruments, an increase in interest rates would not significantly decrease their market value. With regard to long-term investments (trust funds), an increase in interest rates would not significantly decrease their market value because most of the underlying assets of the trust funds are short-term in nature. V-29
- -------------------------------------------------------------------------------- CARRYING FAIR MILLIONS OF ARGENTINE PESOS VALUE VALUE - -------------------------------------------------------------------------------- Financial instrument Short-term debt obligations.............................. 867.3 867.3 Long-term debt obligations............................... 278.6 278.6 ------------------ Total....................................................... 1,145.9 1,145.9 - -------------------------------------------------------------------------------- FOREIGN EXCHANGE RATE RISK Siderca continuously monitors its economic exposure to changes in foreign exchange rates. The contracts summarized below were outstanding as of June 30, 2002: FOREIGN EXCHANGE FORWARD PURCHASES (SALES) FOREIGN EXCHANGE CALL OPTIONS
- -------------------------------------------------------------------------------------------------------------------------------- CONTRACTUAL END OF CONTRACTUAL FORWARD PERIOD FORWARD AMOUNT FORWARD RATE RECEIVABLE RATE FAIR NOTIONAL AMOUNT IN INCEPTION SETTLEMENT (UNITS PER (PAYABLE) (IN (UNITS PER VALUE (IN FOREIGN CURRENCY DATE DATE U.S. DOLLAR) U.S. DOLLARS) U.S. DOLLAR) U.S. DOLLARS) - -------------------------------------------------------------------------------------------------------------------------------- EURO/USD............. E(3,000,000.0) 24-May-02 29-Jul-02 1.0916 (2,748,300) 1.0100 (221,009) EURO/USD............. E(6,900,000.0) 24-May-02 16-Sep-02 1.0939 (6,307,980) 1.0122 (502,450) EURO/USD............. E(3,000,000.0) 31-May-02 28-Aug-02 1.0736 (2,794,350) 1.0113 (170,492) EURO/USD............. E(3,000,000.0) 31-May-02 20-Dec-02 1.0789 (2,780,700) 1.0164 (166,498) EURO/USD............. E(2,500,000.0) 21-Jun-01 21-Oct-02 1.0421 (2,399,000) 1.0138 (65,843) JPY/USD.............. JPY1,273,251,901 17-Jul-01 15-Jul-02 120.0800 10,603,364 119.3800 62,031 ------------- ------------- (6,426,966) (1,064,262) - -------------------------------------------------------------------------------------------------------------------------------- The total fair value of Siderca's foreign exchange rate contracts is a loss of USD0.6 million. At June 30, 2002, Siderca's net monetary position in currencies other than the U.S. dollar and subject to foreign currency exchange rate fluctuations amounted to negative ARP184.2 million. The exposure amount is determined based on the monetary position of Siderca and its subsidiaries and primarily reflects Japanese yen-denominated debt, reduced by Siderca's assets in the same currency, plus other non-U.S. dollar denominated assets (mainly euro-denominated and Canadian dollar-denominated receivables and Brazilian real-denominated assets). At June 30, 2002, Siderca's net monetary position in U.S. dollars amounted to ARP378.8 million. V-30
- --------------------------------------------------------------------------------------------------------------------- CALL CURRENCY PUT CURRENCY STRIKE PRICE PREMIUM AMOUNT (IN AMOUNT (IN (UNITS PER OPTION EXPIRATION (IN U.S. CALL/PUT JAPANESE YEN) U.S. DOLLARS) U.S. DOLLARS) START DATE DATE DOLLARS) TYPE - --------------------------------------------------------------------------------------------------------------------- JPY/USD.............. 523,000,000 4,279,869 122.20 05/11/01 07/31/02 337,682 OTC European- style JPY/USD.............. 605,969,799 9,139,290 124.70 05/23/02 07/08/02 62,867 OTC European- style - --------------------------------------------------------------------------------------------------------------------- - --------------------- ------------- FAIR VALUE (IN CALL/PUT U.S. DOLLARS) - --------------------- ------------- JPY/USD.............. 222,272 JPY/USD.............. 260,922 - -------------------------------------------------- PART SIX INFORMATION ABOUT TAMSA OVERVIEW The following description includes information excerpted from Tamsa's annual report on Form 20-F for the fiscal year ended December 31, 2001. Additional information regarding Tamsa is available in these and Tamsa's other filings with the SEC, some of which are incorporated into this prospectus by reference. You may inspect these filings and obtain copies as described in "Part Nine--Additional Information for Shareholders--Where You Can Find More Information" beginning on page IX-1. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The following selected historical consolidated financial and other data for Tamsa should be read in conjunction with the information about Tamsa and the consolidated financial statements and the notes thereto included in this prospectus, and are qualified in their entirety by reference to the information therein. The selected historical consolidated financial data of Tamsa have been derived from its consolidated financial statements, which are prepared in accordance with Mexican GAAP (unless otherwise indicated) for each of the periods and at the dates indicated. Tamsa's consolidated financial statements as of June 30, 2002, December 31, 2001, 2000 and for the six-month period ended June 30, 2002, and for the years ended December 31, 2001, 2000 and 1999, included in this prospectus have been audited by PricewaterhouseCoopers, independent accountants in Mexico. Tamsa's results for the six-month period ended June 30, 2002, are not necessarily indicative of the results for the year ending December 31, 2002, or any other period. Tamsa's consolidated financial statements are prepared in accordance with Mexican GAAP, which differ in certain significant respects from U.S. GAAP. See note 12 to Tamsa's audited financial statements included in this prospectus, which provides a description of the principal differences between Mexican GAAP and U.S. GAAP as they relate to Tamsa's financial statements and a reconciliation to U.S. GAAP of net income (loss) and total shareholders' equity for the periods indicated therein. The selected audited historical consolidated financial data of Tamsa are stated in constant Mexican pesos as of June 30, 2002. For a discussion of the currencies used in this prospectus, exchange rates and accounting principles affecting the financial information contained in this prospectus, see "Part Nine--Additional Information for Shareholders" and "Presentation of Certain Financial and Other Information." VI-1 (1) Mainly corresponding to Tamsa's equity participation in Amazonia. See note 11 to Tamsa's interim consolidated financial statements included in this prospectus. (2) Corresponds to the net effect at the beginning of the year from changes in the accounting principles, as a result of the adoption of Statement C-2, effective January 1, 2001, which establishes the accounting treatment for derivatives and financial instruments. (3) Amounts exclude 3,650,000 shares for the first six months of 2001 and 2002 held since November 30, 1988, by a wholly-owned subsidiary of Tamsa. On July 10, 2001, each outstanding share of Tamsa's common stock was split into five shares; concurrently, the ADR ratio was modified from one ADR for each share of common stock to one ADR for five shares of common stock. For comparative purposes, the number of shares shown for prior years has been adjusted to reflect the split retroactively. See note 5 to Tamsa's interim consolidated financial statements included in this prospectus. (4) Basic earnings (loss) per share and diluted earnings (loss) per share are identical. VI-2
- --------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD THOUSANDS OF CONSTANT JUNE 30, 2002 ENDED JUNE 30, MEXICAN PESOS, EXCEPT SHARE AND PER ------------------------- SHARE AMOUNTS 2002 2001 - --------------------------------------------------------------------------------------- (UNAUDITED) SELECTED CONSOLIDATED INCOME STATEMENT DATA MEXICAN GAAP Net sales................................................... 3,004,486 3,555,950 Cost of products sold....................................... (1,832,291) (2,088,752) Selling, general and administrative expenses................ (545,286) (653,930) ------------------------- Operating profit............................................ 626,909 813,268 Comprehensive financing income (cost)....................... (165,180) 1,882 Other income (expenses), net................................ (4,255) 2,464 Income tax, asset tax and employees' statutory profit sharing.................................................. 42,774 (292,859) Equity in loss of associated companies(1)................... (2,261) (45,547) ------------------------- Income (loss) before the following items.................... 497,987 479,208 Cumulative effect of change in accounting principle(2)...... - (11,231) ------------------------- Net income (loss)........................................... 497,987 467,977 ------------------------- Weighted average number of shares outstanding(3)............ 339,284,120 339,284,120 Net earnings (loss) per share before the following items.... 1.47 1.41 Cumulative effect of change in accounting principle......... - (0.03) ------------------------- Earnings (loss) per share(4)................................ 1.47 1.38 ------------------------- U.S. GAAP(4) Net sales................................................... 3,081,434 3,483,140 Cost of sales............................................... (1,839,131) (2,061,365) Operating income (loss)..................................... 697,017 767,845 Net income (loss)........................................... 596,122 556,947 Earnings (loss) per share................................... 1.76 1.64 - --------------------------------------------------------------------------------------- (1) Income from the sale of TF de Mexico, S.A. de C.V., a subsidiary of Tamsa. (2) Mainly corresponding to Tamsa's equity participation in Amazonia. See Note 11a to Tamsa's audited consolidated financial statements included in this prospectus. (3) Mainly a tax benefit from the utilization of tax losses incurred in previous years. (4) Corresponds to the net effect at the beginning of the year from changes in the accounting principles, as a result of the adoption of Statement C-2, effective January 1, 2001, which establishes the accounting treatment for derivatives and financial instruments. (5) Amounts exclude 5,000,000 shares for 1997, and 3,650,000 shares for 1998, 1999, 2000 and 2001 held since November 30, 1988, by a wholly-owned subsidiary of Tamsa. As of June 16, 1993, an additional 66,978,000 shares of common stock were issued and paid in. On November 1, 1991, 35,000,000 shares of common stock were issued. During 1997, 7,982,910 of these shares were converted, and the remaining 27,017,090 shares were canceled. Additionally, 351,790 shares and 1,001,790 shares held in treasury were canceled during 1997 and 1998, respectively. Tamsa purchased 10,100,000 shares which were canceled on April 28, 1999. On July 10, 2001, each outstanding share of Tamsa's common stock was split into five shares; concurrently, the ADR ratio was modified from one ADR for each share of common stock to one ADR for five shares of common stock. For comparative purposes, the number of shares shown for prior years has been adjusted to reflect the split retroactively. See note 5 to Tamsa's audited consolidated financial statements included in this prospectus. (6) Amounts in 2000 and 1999 have been restated as described in note 12 to Tamsa's audited consolidated financial statements included in this prospectus. VI-3
- --------------------------------------------------------------------------------------------------------- THOUSANDS OF CONSTANT JUNE 30, 2002 FOR THE YEAR ENDED DECEMBER 31, MEXICAN PESOS, EXCEPT SHARE AND PER ------------------------------------------------------------------- SHARE AMOUNTS 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------- SELECTED CONSOLIDATED INCOME STATEMENT DATA MEXICAN GAAP Net sales........................... 6,698,756 6,275,394 4,955,173 8,029,152 8,934,257 Cost of products sold............... (3,949,394) (4,108,798) (3,496,344) (4,704,182) (5,242,372) Selling, general and administrative expenses............................ (1,251,363) (1,140,988) (914,661) (989,038) (1,038,557) ------------------------------------------------------------------- Operating profit.................... 1,497,999 1,025,608 544,166 2,335,932 2,653,328 Comprehensive financing (cost) income........................... (40,885) (85,974) (141,809) (475,541) 14,635 Other income (expenses), net........ (26,055) (9,592) 13,579 10,190 10,078 Income tax, asset tax and employees' statutory profit sharing............ (575,504) (469,701) (395,459) (802,679) (1,020,550) Gain on sale of subsidiary(1)....... - - - 512,140 - Equity in loss of associated companies(2)..................... (282,485) (51,081) (368,129) (226,644) (19,409) ------------------------------------------------------------------- Income (loss) before the following items............................ 573,070 409,260 (347,652) 1,353,398 1,638,082 Extraordinary item(3)............... - - 257,477 547,751 651,773 Cumulative effect of change in accounting principle(4)............. (11,231) - - - - ------------------------------------------------------------------- Net income (loss) for the year...... 561,839 409,260 (90,175) 1,901,149 2,289,855 ------------------------------------------------------------------- Weighted average number of shares outstanding(5)...................... 339,284,120 339,284,120 339,409,820 345,467,065 346,107,940 Net earnings (loss) per share before the following items................. 1.69 1.21 (1.03) 3.92 4.74 Extraordinary item.................. - - 0.76 1.58 1.88 Cumulative effect of change in accounting principle................ (0.03) - - - - ------------------------------------------------------------------- Earnings (loss) per share........... 1.66 1.21 (0.27) 5.50 6.62 ------------------------------------------------------------------- U.S. GAAP(6) Net sales........................... 6,704,882 5,994,729 4,955,173 Cost of sales....................... (4,000,323) (3,956,548) (3,560,531) Operating income.................... 1,453,196 897,193 479,981 Net income (loss)................... 713,436 486,007 (33,397) Earnings (loss) per share........... 2.10 1.43 (0.10) - --------------------------------------------------------------------------------------------------------- (1) Includes a deferred tax liability in the first six months of 2001 and 2002 resulting from the adoption of Statement D-4 (deferred income tax) under Mexican GAAP effective January 1, 2000. (2) Amounts exclude 3,650,000 shares for the first six months of 2001 and 2002 held since November 30, 1988, by a wholly-owned subsidiary of Tamsa. On July 10, 2001, each outstanding share of Tamsa's common stock was split into five shares; concurrently, the ADR ratio was modified from one ADR for each share of common stock to one ADR for five shares of common stock. For comparative purposes, the number of shares shown for prior years has been adjusted to reflect the split retroactively. See note 5 to Tamsa's interim consolidated financial statements included in this prospectus. VI-4
- --------------------------------------------------------------------------------------- AT JUNE 30, THOUSANDS OF CONSTANT JUNE 30, 2002 MEXICAN ------------------------- PESOS, EXCEPT SHARE AND PER SHARE AMOUNTS 2002 2001 - --------------------------------------------------------------------------------------- (UNAUDITED) SELECTED CONSOLIDATED BALANCE SHEET DATA MEXICAN GAAP Current assets.............................................. 4,861,255 3,839,096 Investments in associated companies......................... 561,494 860,821 Property, plant and equipment, net.......................... 8,022,829 7,504,197 Other assets................................................ 75,542 61,978 ------------------------- Total assets................................................ 13,521,120 12,266,092 ------------------------- Current liabilities......................................... 1,899,016 2,590,878 Long-term debt.............................................. 1,083,728 25,165 Other liabilities(1)........................................ 2,491,964 2,266,039 ------------------------- Total liabilities........................................... 5,474,708 4,882,082 ------------------------- Equity of majority shareholders............................. 8,052,218 7,343,225 Minority interest in consolidated subsidiaries.............. (5,806) 40,785 ------------------------- Total shareholders' equity.................................. 8,046,412 7,384,010 ------------------------- Weighted average number of shares outstanding(2)............ 339,284,120 339,284,120 Total shareholders' equity per share........................ 23.72 21.76 U.S. GAAP Total assets................................................ 16,049,494 15,125,110 Net assets.................................................. 8,876,856 8,340,425 Total shareholders' equity.................................. 8,888,364 8,299,644 Total shareholders' equity per share........................ 26.20 24.46 - --------------------------------------------------------------------------------------- (1) Includes a deferred tax liability in 2000 and 2001 resulting from the adoption of Statement D-4 (deferred income tax) under Mexican GAAP effective January 1, 2000. (2) Amounts exclude 5,000,000 shares for 1997, and 3,650,000 shares for 1998, 1999, 2000 and 2001 held since November 30, 1988, by a wholly-owned subsidiary of Tamsa. As of June 16, 1993, an additional 66,978,000 shares of common stock were issued and paid in. On November 1, 1991, 35,000,000 shares of common stock were issued. During 1997, 7,982,910 of these shares were converted, and the remaining 27,017,090 shares were canceled. Additionally, 351,790 shares and 1,001,790 shares held in treasury were canceled during 1997 and 1998, respectively. Tamsa purchased 10,100,000 shares which were canceled on April 28, 1999. On July 10, 2001, each outstanding share of Tamsa's common stock was split into five shares; concurrently, the ADR ratio was modified from one ADR for each share of common stock to one ADR for five shares of common stock. For comparative purposes, the number of shares shown for prior years has been adjusted to reflect the split retroactively. See note 5 to Tamsa's audited consolidated financial statements included in this prospectus. (3) Amounts in 2000 and 1999 have been restated as described in note 12 to Tamsa's audited consolidated financial statements included in this prospectus. VI-5
- ---------------------------------------------------------------------------------------------------------------- AT DECEMBER 31, THOUSAND OF CONSTANT JUNE 30, 2002 MEXICAN ------------------------------------------------------------------- PESOS, EXCEPT SHARE AND PER SHARE AMOUNTS 2001 2000 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------- SELECTED CONSOLIDATED BALANCE SHEET DATA MEXICAN GAAP Current assets............................. 3,839,569 3,894,451 3,863,538 5,228,205 4,580,995 Investments in associated companies........ 596,517 1,005,303 806,753 1,331,762 115,116 Property, plant and equipment, net......... 7,697,987 7,532,743 8,076,141 9,290,311 9,056,051 Other assets............................... 79,077 - - - - ------------------------------------------------------------------- Total assets............................... 12,213,150 12,432,497 12,746,432 15,850,278 13,752,162 ------------------------------------------------------------------- Current liabilities........................ 1,205,843 1,444,450 2,202,227 2,576,388 1,456,384 Long-term debt............................. 1,322,060 1,025,679 - 646,820 1,386,214 Other liabilities(1)....................... 2,278,052 2,401,639 161,416 176,421 115,390 ------------------------------------------------------------------- Total liabilities.......................... 4,805,955 4,871,768 2,363,643 3,399,629 2,957,988 ------------------------------------------------------------------- Equity of majority shareholders............ 7,378,208 7,530,588 10,352,693 12,383,448 10,783,077 Minority interest in consolidated subsidiaries............................... 28,987 30,141 30,096 67,201 11,097 ------------------------------------------------------------------- Total shareholders' equity................. 7,407,195 7,560,729 10,382,789 12,450,649 10,794,174 ------------------------------------------------------------------- Weighted average number of shares outstanding(2)............................. 339,284,120 339,284,120 339,409,820 345,467,065 346,107,940 Total shareholders' equity per share....... 21.83 22.28 30.59 36.04 31.19 U.S. GAAP(3) Total assets............................... 15,110,988 14,943,510 14,704,982 Net assets................................. 8,440,408 8,313,175 8,400,734 Total shareholders' equity................. 8,411,421 8,283,036 8,370,638 Total shareholders' equity per share....... 24.79 24.41 24.66 - ---------------------------------------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Tamsa is the sole producer and supplier in Mexico of various types of seamless steel pipe. Tamsa's principal finished products are seamless steel casing and tubing, seamless steel line pipe and various other mechanical and structural seamless pipes for different uses. Tamsa has an annual installed capacity of 780,000 tons of finished products, and exports more than 70% of its production to over 50 countries worldwide. Demand for Tamsa's products depends primarily upon the type and level of domestic and international oil and gas drilling activity, which in turn is substantially influenced by the level of oil prices and by the political and economic developments in countries with high drilling activity. Historically, Pemex has been Tamsa's largest customer by a significant margin. Sales to Pemex fluctuate in response to changes in Pemex's investment program, which historically decreases when oil prices experience a significant fall. Any increase in drilling activity as a result of larger investment programs does not necessarily result in increased demand for pipe. Faced with declining sales to Pemex during the 1980s, Tamsa aggressively pursued opportunities in export markets. In order to be competitive in these markets in terms of price and quality, Tamsa increased its emphasis on efficiency and quality assurance. The growth of Tamsa's exports has made its revenues less dependent on conditions within Mexico. In addition, while the ratio of export revenues to total revenues is lower than the ratio of export volumes to total volumes, exports, which are typically invoiced in dollars, have increased Tamsa's dollar revenue base and reduced the exchange rate risk associated with dollar denominated liabilities and incurring dollar denominated expenses. However, exports to Venezuela, one of Tamsa's main export markets, as well as sales in Venezuela by Tavsa, began to suffer in the last quarter of 2001 and continue to suffer to date, due to recent adverse political and economic developments in that country. For a more complete description of Tamsa's business and market position and of the competitive and other factors that could affect Tamsa's financial condition and results of operation, see the information about Tamsa incorporated by reference into this prospectus. OPERATING RESULTS The following discussion should be read in conjunction with Tamsa's consolidated financial statements and the notes thereto included in this prospectus. Tamsa prepares its financial statements in conformity with Mexican GAAP, which differ in some important respects from U.S. GAAP. See note 12 to Tamsa's audited consolidated financial statements included in this prospectus for a description of the principal differences between Mexican GAAP and U.S. GAAP as they relate to Tamsa and for a reconciliation of net income (loss) and total shareholders' equity for the periods and at the dates indicated. Mexican GAAP require that these consolidated financial statements recognize certain effects of inflation in accordance with Bulletin B-10 and its amendments. Unless otherwise noted, all data in the consolidated financial statements and the financial information derived therefrom included in this discussion and all other Tamsa financial data included throughout this prospectus and relating to dates or periods covered by the financial statements, have been restated in constant Mexican pesos as of June 30, 2002. See "Part Nine--Additional Information for Shareholders" and "Presentation of Certain Financial and Other Information." VI-6 The following table sets forth Tamsa's operating and other costs and expenses as a percentage of net sales for the periods indicated. The following table shows Tamsa's total sales volume by product and market for the periods indicated.
- ------------------------------------------------------------------------------------------------ FOR THE SIX-MONTH PERIOD FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ------------------------- ------------------ PERCENTAGE OF NET SALES 2002 2001 2001 2000 1999 - ------------------------------------------------------------------------------------------------ (UNAUDITED) Net sales....................................... 100 100 100 100 100 Operating cost and expenses: Cost of products sold........................... (61) (59) (59) (66) (71) Selling, general and administrative expenses.... (18) (18) (19) (18) (18) ---------------------------------------------- Total operating cost and expenses............... (79) (77) (78) (84) (89) ---------------------------------------------- Operating profit................................ 21 23 22 16 11 Comprehensive financing result.................. (6) 0 (1) (1) (3) Other income (expenses), net.................... 0 0 0 0 0 ---------------------------------------------- Income before taxes, employees' statutory profit sharing, equity in associated companies and extraordinary item.............................. 15 23 21 15 8 Income tax, asset tax and employees' statutory profit sharing and deferred income tax.......... 1 (8) (9) (7) (8) Equity in loss of associated companies.......... 0 (1) (4) (1) (7) Extraordinary item.............................. - - - - 5 Cumulative effect of change in accounting principle....................................... - 0 - - - ---------------------------------------------- Net income (loss)............................... 17 13 8 7 (2) - ------------------------------------------------------------------------------------------------ VI-7
- ----------------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD FOR THE YEAR ENDED ENDED JUNE 30, DECEMBER 31, ------------------------ --------------------------- TONS 2002 2001 2001 2000 1999 - ----------------------------------------------------------------------------------------------- (UNAUDITED) Domestic pipe sales (Mexico) Sales to oil-related customers...... 40,101 33,100 82,546 76,172 84,310 Sales to non-oil related customers......................... 21,008 31,589 56,179 90,896 79,432 Export sales (substantially all to oil-related customers) and Tavsa....... 274,107 327,651 575,129 498,696 276,072 Other products and Riga................ 9,957 7,849 19,091 14,186 7,309 ------------------------------------------------------ Total sales............................ 345,173 400,189 732,945 679,950 447,123 - ----------------------------------------------------------------------------------------------- The following table shows the geographic distribution of Tamsa's exports as a percentage of total export sales volume for the periods indicated. The tables below show Tamsa's net sales by market and product for the periods indicated.
- -------------------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED FOR THE YEAR ENDED JUNE 30, DECEMBER 31, -------------------------------- -------------------- PERCENTAGES 2002 2001 2001 2000 1999 - -------------------------------------------------------------------------------------------------- (UNAUDITED) North America........................... 15 19 17 19 21 Latin America........................... 13 32 30 34 23 Africa.................................. 20 11 10 12 19 Europe.................................. 12 11 9 6 10 Middle East............................. 30 18 24 19 21 Far East................................ 10 9 10 10 6 -------------------------------------------------------- 100 100 100 100 100 - --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------- FOR THE SIX-MONTH PERIOD ENDED JUNE 30, ------------------------- THOUSANDS OF CONSTANT JUNE 30, 2002 MEXICAN PESOS 2002 2001 - --------------------------------------------------------------------------------------- (UNAUDITED) Domestic pipe sales (Mexico)................................ 761,617 850,074 Export pipe sales and Tavsa................................. 2,133,480 2,590,108 Other products and Riga..................................... 109,389 115,768 ------------------------- Total sales................................................. 3,004,486 3,555,950 - --------------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 2002, COMPARED TO SIX MONTHS ENDED JUNE 30, 2001 SALES VOLUME Sales volume during the six months ended June 30, 2002, totaled 345,173 tons, compared to 400,189 tons in the same period of 2001, representing a decrease of 13.7%. This decrease was mainly due to lower sales volume in the export market, the non-oil domestic market and at Tavsa, partially offset by higher sales in the domestic petroleum pipe market. Although for most of the year to date oil prices have remained at levels which, under typical circumstances, would be expected to result in sustained levels of investment in oil and gas drilling worldwide, demand for seamless steel pipes for the rest of the year is currently expected to be lower than the levels recorded in 2001 as a result of increased VI-8
- -------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, --------------------------------- THOUSANDS OF CONSTANT JUNE 30, 2002 MEXICAN PESOS 2001 2000 1999 - -------------------------------------------------------------------------------------------- Domestic pipe sales (Mexico)............................. 1,888,303 2,253,509 2,446,958 Export pipe sales and Tavsa.............................. 4,511,102 3,805,543 2,370,119 Other products and Riga.................................. 299,351 216,342 138,096 --------------------------------- Total sales.............................................. 6,698,756 6,275,394 4,955,173 - -------------------------------------------------------------------------------------------- uncertainty about the future level of oil prices given the possibility of military action or other events in the Middle East, as well as the continuing weakness of recovery in demand in the main industrialized economies. Domestic sales volume to oil-related customers totaled 40,101 tons in the first half of 2002, compared to 33,100 tons in the same period of 2001. This increase of 21.2% was due to higher demand from Pemex reflecting a recovery in investment activity from the low levels of the first half of 2001. Sales volume to non-oil related domestic customers decreased by 33.5%, totaling 21,008 tons in the first half of 2002, compared to 31,589 tons during the same period of 2001. The decrease was mainly due to a contraction of industrial production in the Mexican economy, coupled with a slow recovery in the U.S. economy, affecting the automotive, mechanical and industrial sectors. Export sales volume in the first half of 2002 totaled 258,862 tons, compared to 305,028 tons in the same period of 2001. This 15.1% decrease was due to reduced drilling activity in South America, mainly in Venezuela. Tavsa's sales volume totaled 15,245 tons in the six months ended June 30, 2002, representing a 32.6% decrease compared to 22,623 tons in the same period of 2001. This decrease is the result of adverse economic and political conditions in Venezuela that affected and are expected to continue to affect the oil sector, as well as the reduction in oil production mandated by OPEC. Riga's sales volume during the six months ended June 30, 2002, totaled 4,110 tons of weldable pipe fittings. Sales volume of steel bars decreased to 5,847 tons during the first half of 2002, compared to 7,849 tons in the same period of 2001, reflecting a significant reduction in Tamsa's shipments of steel bars to AlgomaTubes. NET SALES During the six months ended June 30, 2002, net sales were MXP3,004,486 thousand, a decrease of 15.5% compared to the same period of 2001. The decrease in net sales was mainly attributable to lower sales volume in the export market, the non-oil domestic market and at Tavsa, partially offset by higher sales in the domestic petroleum pipe market. COST OF PRODUCTS SOLD Cost of products sold, expressed as a percentage of net sales, was 61.0% in the six months ended June 30, 2002, compared to 58.7% in the same period of 2001. This increase was due to higher depreciation expenses at Tamsa and Tavsa, increases in raw material and electricity prices and an increase in labor cost as a result of a wage increase for Tamsa's unionized employees granted on April 2002, but effective retroactively as of March 2002. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A in the six months ended June 30, 2002, as a percentage of net sales, was 18.1%, compared to 18.4% in the same period of 2001. Selling expenses represented 10.8% of net sales in the first half of 2002 compared to 11.2% in the same period of 2001. General and administrative expenses in the first half of 2002 remained stable at 7.3% of total sales compared to 7.2% in the same period of 2001. In absolute terms, general and administrative expenses decreased 14.5% during the first half of 2002 compared to the same period of 2001. VI-9 COMPREHENSIVE FINANCING RESULT Tamsa's comprehensive financing cost during the six months ended June 30, 2002, was MXP165,180 thousand, compared to comprehensive financing income of MXP1,882 thousand in the same period of 2001. The main factor that contributed to this change was an exchange-related loss of MXP168,561 thousand resulting from a devaluation in the Venezuelan Bolivar (as Tavsa's debt is denominated in U.S. dollars), compared to an exchange-related gain of MXP30,360 thousand due to an appreciation of the Mexican peso during the same period of 2001. This exchange-related loss was partially offset by lower net interest expenses of MXP22,945 thousand in the first half of 2002, compared to MXP36,134 thousand in the same period of 2001, and a monetary gain of MXP26,326 thousand in the first half of 2002, compared to a monetary gain of MXP7,656 thousand in the same period of 2001. OTHER INCOME (EXPENSES), NET During the six months ended June 30, 2002, other income and expenses totaled net expenses of MXP4,255 thousand, compared to net income of MXP2,464 thousand in the same period of 2001. The change primarily reflected the amortization of goodwill from Tamsa's acquisition of Riga. INCOME TAX, ASSET TAX, EMPLOYEES' STATUTORY PROFIT SHARING Income tax, asset tax and profit sharing provisions showed a gain of MXP42,774 thousand in the six months ended June 30, 2002, compared to a loss of MXP292,859 thousand in the same period of 2001. The gain in the first half of 2002 includes tax benefits of MXP338,740 thousand (primarily in the form of higher tax loss carryforwards) as a result of a favorable judgment with respect to a tax claim brought by Tamsa and a net deferred tax credit of MXP18,636 thousand. Tamsa's effective tax rate during the six months ended June 30, 2002, not considering the effect of this judgment, would have been 64.7%, compared to an effective tax rate of 35.8% during the same period in 2001. See note 6 to Tamsa's six-month financial statements included in this prospectus. EQUITY IN LOSS OF ASSOCIATED COMPANIES During the first half of 2002, losses from associated companies totaled MXP2,261 thousand, compared to a loss of MXP45,547 thousand during the same period of 2001. These losses were derived mainly from Tamsa's equity participation in Amazonia through Tamsider. The reduction in losses primarily reflected the recording in the first half of 2002 of a credit of MXP36,939 thousand due to a monetary gain resulting from the application of Statement B-15 relating to accounting of foreign investments, as well as lower losses at Sidor during the period. NET INCOME (LOSS) Net income during the first half of 2002 totaled MXP497,987 thousand, compared to MXP467,977 thousand in the same period of 2001. This 6.4% increase is mainly due to the tax benefits arising from a favorable tax judgment in a claim brought by Tamsa and reduced losses from associated companies, which more than offset a lower operating profit and a significant comprehensive financing cost. Net income corresponding to majority shareholders during the first half of 2002 totaled MXP536,096 thousand, compared to MXP457,651 thousand in the same period of 2001. VI-10 YEAR ENDED DECEMBER 31, 2001, COMPARED TO YEAR ENDED DECEMBER 31, 2000 SALES VOLUME Sales volume in 2001 increased 7.8% to 732,945 tons from 679,950 tons in 2000. This increase was mainly due to higher export sales volume, a recovery in domestic sales to oil related customers, and an increase in sales by Tavsa, partially offset by a significant decline in domestic sales to non-oil related customers. Domestic sales volume to oil-related customers totaled 82,546 tons in 2001, compared to 76,172 tons in 2000. This increase of 8.4% in sales was mainly due to the resumption of normal operations by Pemex in late June 2001 following the delayed approval of its budget and the national strategic gas program. Sales to non-oil related domestic customers decreased by 38.2%, amounting to 56,179 tons in 2001, from 90,896 tons in 2000. This decrease was mainly due to the effect of the slowdown in the Mexican and U.S. economies on the automotive, mechanical and industrial sectors in Mexico as well as the impact of imports from Eastern Europe. Export sales volume in 2001 totaled 533,471 tons--a record for Tamsa compared to 459,791 tons in 2000. This increase of 16.0% was mainly due to sustained demand from export oil and gas customers reflecting strong investment in exploration and production activities. Tavsa's sales volume totaled 41,658 tons in 2001, compared to 38,905 tons in 2000, representing a 7.1% increase. This increase in sales volume was mainly due to an increase in production capacity upon the completion of the first stage of the modernization program in October 2000, partially offset by a production stoppage resulting from a strike at Sidor in May 2001 and a decrease in drilling activity following a reduction in Venezuela's OPEC-mandated oil production quota. Beginning in the third quarter of 2001, sales by Riga were consolidated into Tamsa's results. Riga's sales volume during the second half of 2001 totaled 6,189 metric tons of welded pipe fittings. Sales volume of steel bars decreased 9.1% to 12,902 metric tons during 2001, compared to 14,186 metric tons in 2000. Shipments to AlgomaTubes represented 24.7% of total steel bar sales volume. NET SALES Net sales during 2001 were MXP6,698,756 thousand representing an increase of 6.7%, compared to sales of MXP6,275,394 thousand in 2000, mainly due to higher export sales, higher domestic sales of OCTGs, and increased sales by Tavsa. This increase in demand was due to high oil prices during the first nine months of 2001. However, the increase in net sales was partially offset by lower sales volume in the non-oil domestic market and by the effect of restated 2000 Mexican peso figures converted into Mexican pesos with purchasing power as of June 30, 2002. Net sales in U.S. dollar terms increased by 15.2%. COST OF PRODUCTS SOLD Cost of products sold, expressed as a percentage of net sales, decreased to 59.0% in 2001, from 65.5% in 2000. This significant reduction in costs is explained by lower raw material prices, higher absorption of fixed and semi-fixed costs, greater operating efficiencies, better production yields and lower costs at Tavsa, partially offset by a maintenance stoppage at Tamsa in October 2001. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A during 2001 were MXP1,251,363 thousand compared to MXP1,140,988 thousand in 2000. As a percentage of net sales, SG&A were 18.7% for 2001 remaining practically at the same level of VI-11 18.2% for 2000 despite being 9.7% higher in absolute terms. Selling expenses, which relate primarily to export activities and are inherently variable, remained stable as a percentage of net sales. General and administrative expenses increased during 2001 compared to 2000 as a result of Tamsa's share under its cost sharing agreement with Siderca and Dalmine of expenses relating to e-business and IT initiatives. COMPREHENSIVE FINANCING COST Comprehensive financing cost during 2001 was MXP40,885 thousand, compared to a cost of MXP85,974 thousand in 2000. This figure reflects an exchange related gain of MXP14,410 thousand in 2001 resulting from the peso appreciation of 4.5% during the year, compared to an exchange related loss of MXP35,888 thousand during 2000. Tamsa's comprehensive financing cost during 2001 consisted primarily of net interest expenses of MXP78,816 thousand, which included a provision of MXP13,295 thousand (or 50% of accrued interest) in respect of Amazonia's convertible debentures, compared to MXP74,176 thousand registered in 2000. Monetary gain in 2001 was MXP23,521 thousand compared to a monetary gain of MXP24,090 thousand during 2000. OTHER INCOME (EXPENSES), NET During 2001, other income and expenses totaled a net loss of MXP26,055 thousand, compared to a net loss of MXP9,592 thousand in 2000. Other income and expenses in 2001 include the amortization of Tavsa's and Riga's goodwill, and expenses related to the acquisition of Riga. INCOME TAX, ASSET TAX AND EMPLOYEES' STATUTORY PROFIT SHARING During 2001, income tax, asset tax and profit sharing provisions totaled MXP575,504 thousand, compared to MXP469,701 thousand in 2000. Tamsa's effective tax rate decreased to 40.2% in 2001, compared to an effective tax rate of 50.5% in 2000. The main reasons for the decrease in the effective tax rate for the period were lower taxable income (because a portion of the income reported by Tamsa's consolidated foreign subsidiaries was not subject to income tax), lower permanent differences related to the effect of inflation adjustments and lower employees' statutory profit sharing charges. EQUITY IN LOSS OF ASSOCIATED COMPANIES Losses from associated companies equaled MXP282,485 thousand during 2001 compared to a loss of MXP51,081 thousand during 2000. This result was mainly due to Tamsa's share, through Tamsider's investment in Amazonia, in the losses recorded by Sidor. During the year ended December 31, 2001, Tamsa recognized a gain on net monetary position corresponding to Amazonia of MXP40,365 thousand compared to MXP87,928 thousand during 2000, which is included in the equity in loss of associated companies in accordance with Statement B-15 issued by the MIPA. See note 11a to Tamsa's audited consolidated financial statements included in this prospectus. Tamsa recorded an interest adjustment of MXP11,231 thousand, accrued from the convertible debentures of Amazonia, which were registered in the first quarter of 2001. This is a result of the adoption of Statement C-2 effective January 1, 2001, which establishes the accounting treatment for derivatives and financial instruments. This adjustment is shown on Tamsa's statements of earnings as a net effect at the beginning of the year due to changes in the accounting principles. NET INCOME (LOSS) Tamsa's net income during 2001 totaled MXP561,839 thousand, compared to MXP409,260 thousand in 2000. This increase of 37.3% stems mainly from higher net sales, lower cost of products sold and VI-12 lower comprehensive financing cost and reflects the impact of the allowance for the investments in Amazonia and its losses incurred during the year as discussed. YEAR ENDED DECEMBER 31, 2000, COMPARED TO YEAR ENDED DECEMBER 31, 1999 SALES VOLUME Sales volume in 2000 increased 52.1% to 679,950 tons from 447,123 tons in 1999, mainly due to a 72.6% increase in export sales volume and increased sales volume in the non-oil domestic market and by Tavsa. Domestic sales to oil-related customers totaled 76,172 tons in 2000, compared to 84,310 tons in 1999, a decrease of 9.7%. This decrease in sales was due to a slowdown in offshore drilling activity, which was partially compensated by an increase in natural gas drilling activity by Pemex in the northern region. Sales to non-oil related domestic customers totaled 90,896 tons in 2000, representing an increase of 14.4% when compared to the 79,432 tons sold during 1999. This growth stems mainly from higher sales resulting from the revamping and modernization of the Madero refinery from April to October as well as higher sales to domestic market distributors. Export sales volume in 2000 totaled 459,791 tons compared to 266,442 tons in 1999. This increase of 72.6% reflects the recovery in the OCTG market which resulted from higher levels of worldwide drilling activity. The increase in rig count reflects higher levels of investment in exploration and production activities by oil companies as oil prices strengthened beginning in the second half of 1999. Sales volume during 2000 improved mainly in Venezuela, Canada, China, the Middle East and Africa. Additionally, Tamsa began shipping steel bars to AlgomaTubes during the second half of 2000, allowing better utilization of the melt shop and resulting in a significant increase of 94.1% in sales of steel bars (from 7,309 tons in 1999 to 14,186 tons in 2000). Tavsa's sales volume totaled 38,905 tons during 2000, compared to 9,630 tons in 1999, representing a 304.0% increase. Tavsa's strong sales reflect the improvement in production volume of their facilities, as well as an increase in drilling activity in Venezuela. NET SALES Net sales in 2000 increased 26.6% to MXP6,275,394 thousand from MXP4,955,173 thousand in 1999, mainly due to a higher level of export sales. This increase was attributable to the continued overall increase in demand for Tamsa's products that resulted from substantially higher oil prices registered since the second half of 1999. The increase in net sales was partially offset by the effect of the restatement of the 1999 peso figures, which were converted into Mexican pesos with purchasing power as of June 30, 2002. Net sales in dollar terms increased 40.5%. COST OF PRODUCTS SOLD Despite the increase registered in some of Tamsa's costs, such as electricity and natural gas, cost of goods sold, expressed as a percentage of net sales, decreased to 65.5% during 2000 from 70.6% in 1999. This reduction is explained by a higher absorption of fixed and semi-fixed costs due to increased sales volume, improved operating efficiencies and better production yields. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A during 2000 were MXP1,140,988 thousand compared to MXP914,661 thousand for 1999 representing 18.2% of net sales during 2000, compared to 18.5% of net sales in 1999. While 24.7% higher in absolute terms, as a percentage of net sales, SG&A remained nearly at the same level as of VI-13 1999. Selling expenses which relate more to export activities and that are variable by nature, increased by MXP228,776 thousand due to higher levels of export sales volume, which increased 72.6%. However, export selling expenses per ton decreased 10% when compared to 1999. General and administrative expenses remained in absolute terms similar to those of 1999. During the fourth quarter of 2000, general and administrative expenses increased 58.4% as compared to the prior quarter. This increase mainly reflects Tamsa's share, under its cost-sharing agreement with Siderca and Dalmine, of expenses related to investments in e-business and IT initiatives. COMPREHENSIVE FINANCING COST Comprehensive financing cost can have an important impact on the financial statements of a company in periods of high inflation. To the extent that a company has monetary assets that exceed its monetary liabilities in a period of high inflation, the company will generate a monetary loss. This monetary loss is added to the nominal interest cost on the company's liabilities as well as any foreign exchange losses that arise during the period, resulting in a net comprehensive financing cost for the period, as was the case for Tamsa in 1999. Comprehensive financing cost during 2000 was MXP85,974 thousand, compared to a comprehensive financing cost of MXP141,809 thousand in 1999. This change was mainly due to significantly lower net interest expense from lower interest rates and a gain of MXP24,090 thousand on net liability monetary position (compared to a net monetary loss of MXP3,636 thousand during 1999, when Tamsa had a net asset monetary position), partially offset by a higher exchange related loss of MXP35,888 thousand in 2000, compared with a loss of MXP21,968 thousand during 1999. OTHER INCOME (EXPENSES), NET During 2000, other income and expenses totaled a net loss of MXP9,592 thousand compared to net income of MXP13,579 thousand in 1999. In October 2000, Tamsa sold its equity interest in CFF de Mexico, S.A. de C.V., and recorded a gain of MXP7,922 thousand. INCOME TAX, ASSET TAX AND EMPLOYEES' STATUTORY PROFIT SHARING During 2000, income tax, asset tax and profit sharing provisions net of tax benefits and deferred tax totaled MXP469,701 thousand. Tax benefits arising from the utilization of tax loss carryforwards and asset tax credits totaled MXP186,826 thousand, of which MXP64,320 thousand correspond to a favorable court judgment for tax inequality related to the tax treatment of the comprehensive financing cost of 1999. Additionally, during 2000, a net deferred tax charge of MXP171,167 thousand was recorded resulting from the adoption of Statement D-4, which became effective on January 1, 2000. Prior to 2000, Tamsa utilized the partial liability method to account for deferred income taxes. Income tax, asset tax and profit sharing provisions in 1999 totaled MXP395,459 thousand. Tax benefits arising from the utilization of tax loss carryforwards and asset tax credits totaled MXP257,477 thousand in 1999, and were reported as extraordinary items prior to the adoption of Statement D-4. Tamsa's effective tax rate in 2000 decreased to 50.5% from 95.1% in 1999, primarily as a result of the factors discussed in the two preceding paragraphs. In 2000 and 1999, the first court of appeals of the Seventh District of Administrative and Labor Matters located in Boca del Rio, Veracruz, handed down a favorable decision in the injunction case brought by Tamsa against the Secretaria de Hacienda y Credito Publico, or the Ministry of Finance and Public Credit, the effect of which was that asset tax carryforwards increased by approximately VI-14 MXP61,608 and MXP64,318, amounts that were utilized in each such year. (Peso amounts discussed in this paragraph are expressed in nominal Mexican pesos.) EQUITY IN LOSS OF ASSOCIATED COMPANIES Losses from associated companies were MXP51,081 thousand in 2000, compared to losses of MXP368,129 thousand in 1999. The losses relate primarily to Tamsa's equity participation of 14.1% in Amazonia in 2000, compared to 12.5% in 1999. The loss in 2000 was partially offset by a credit of MXP87,928 thousand, resulting from a monetary gain by the application of statement B-15 under Mexican GAAP. Tamsa's investment in Amazonia as of December 31, 2000, was MXP422,265 thousand, compared to MXP409,885 thousand as of December 31, 1999. NET INCOME (LOSS) Tamsa's net income for 2000 was MXP409,260 thousand compared to a net loss of MXP90,175 thousand in 1999. This substantial growth was due in large part to higher export sales volume and the significant decrease in losses from affiliated companies. LIQUIDITY AND CAPITAL RESOURCES