Annual Report 2005 - Tenaris

Annual Report 2005

Annual Report 2005

Company 

profile 

More than 60 years in activity 

In 1943, the banker Gastão Vidigal, in partnership 

with the Polish industrialist Isydor Kleinberger, 

acquired the Fábrica Nacional de Tambores 

in auction. The company, which produced steel 

drums, gas cylinders and refrigerators, had been 

confiscated from its German owners in consequence 

of the Second World War. This was the 

beginning of Confab's history in the São Paulo 

district of Pompéia.

Gastão Vidigal placed his son, Carlos Bueno 

Vidigal in charge of Confab, and it was he who 

ensured the consolidation of the company, imbuing 

it with a sense seriousness, responsibility, 

transparency and respect for people, combined 

with a constant drive to improve the quality 

of products and services and invest in technology 

and human capital. 

With the creation of Petrobras in 1953 and the 

development of the petroleum refining industry 

in the country, Confab had the opportunity to 

expand its business, manufacturing equipment 

for the new industry. 

Growing with Brazil 

In 1961, Confab began to manufacture welded 

steel pipes. It was at this time that the company 

closed its first large scale contract: supplying 

tubular stakes for the construction of Usiminas. 

In the 1970's, Confab was split into two units: 

pipes and equipment, with the construction 

of two plants in Pindamonhangaba, 160 km 

from São Paulo. The company started supplying 

the petroleum & gas, petrochemical, mining, 

steel, cellulose & paper and sanitation industries, 

as well as nuclear power plants. 

5. Annual Report 2005

It was during this period, with the business now 

under the command of Roberto Caiuby Vidigal, 

that Confab realized that it was time to expand 

into new markets. The company thus initiated 

what was to become a major participation in the 

implantation of the country's petrochemical 

industry, projected to make Brazil self-sufficient 

in petroleum, as well as in the amplification of 

the country's steel industry. 

Exports and the stock exchange: new challenges 

Confab began to gain global recognition in the 

beginning of the 1980's, when in partnership 

with Cosipa, it won a tender from All American 

Pipeline to build a 2,000 kilometer oil pipeline, 

stretching from Texas to California in the United 

States. During this decade, the company's commercial 

network was extended from Singapore 

and Teheran to Houston, Texas. 

It was also during the 1980's that senior management 

decided that taking the company public 

would be essential for its future. 60% of its shares 

were offered to ensure growth, diversification and 

external funding. The funds raised – and the 

confidence of shareholders – provided the fuel for 

the company to continue its activities. In addition 

to bringing on board a large number of shareholders, 

Confab transformed its employees into 

true partners by initiating a profit sharing scheme 

for all employees meeting their targets. 

6. TenarisConfab 

Tenaris: global leader 

In 1993, as part of the company's growth and 

globalization strategies, 30% of Confab's shares 

were swapped with Siat, a welded steel pipe manufacturer 

belonging to the Techint Organization, 

which values and principles had a great deal 

in common with Confab's. The company shares 

remained listed on the São Paulo Stock Exchange 

(Bovespa), with 60% of its capital in the hands 

of Brazilian shareholders. 

To add value and increase the range of products 

on offer to customers, in 1998 Confab formed 

a joint venture with the Argentine company Soco- 

Ril. The partnership was sealed with the construction 

of a center of excellence in pipe coatings 

– today known as Socotherm Brasil, also located 

in Pindamonhangaba. 

In 1999, the Techint Organization acquired a controlling 

share in Confab, and Roberto Vidigal was 

invited to stay on as president of the company. 

In 2001, the Tenaris brand, which originally denoted 

a strategic alliance involving eight welded and seamless 

steel pipe producers strategically located around 

the globe, came into existence. The following year, 

the company signed some of the biggest contracts 

in its history: the supply of pipes for the Camisea 

project in Peru; OCP in Ecuador; Gasyrg in Bolivia 

and Carina & Aries in Argentina. 

Tenaris is the leading global manufacturer 

of seamless steel pipes for the world’s oil and gas 

industry and a leading global supplier of seamless 

steel pipes for process and power plants and for 

industrial and automotive applications. We are 

also the leading regional supplier of welded steel 

pipes for oil and gas pipelines in South America. 

Our customers include most of the world’s major 

oil and gas companies as well as a large number 

of engineering and industrial companies.

Domiciled in Luxembourg, we have manufacturing 

facilities in Argentina, Brazil, Canada, Italy, Japan, 

Mexico, Romania and Venezuela and specialized 

R&D and proprietary global service and distribution 

networks. Our annual manufacturing capacity 

is 3.3 million tons of seamless and 930 thousand 

tons of welded pipes. With this infrastructure and 

our 17,500 employees, we focus on providing enduser 

customers a service that integrates manufacturing, 

procurement, distribution and on-time delivery 

of high quality products throughout the world. 

TenarisConfab and Confab Equipamentos 

In Brazil, with the incorporation by Tenaris, the 

Confab units were renamed TenarisConfab and 

Confab Equipamentos. 

TenarisConfab is the leading producer and supplier 

of welded pipes to the Brazilian energy industry, 

and a leading exporter of these products to Mercosur 

and Latin America. 

Confab Equipamentos produces equipment utilized 

in the chemical, petrochemical, steel, energy, steam 

generation, oil and gas, pulp and paper, infrastructure, 

engineering, construction and service industries. 

With the mission of complementing its products 

with an ever growing number of services, in 2002 

TenarisConfab installed a base in Macaé in the 

state of Rio de Janeiro to manage customers' stocks 

and ensure the just-in-time supply of pipes for oil 

wells. The following year, the company gained 

a definitive foothold in the oil and gas exploration 

and production industry with the inauguration 

of a Heat Treatment plant in Pindamonhangaba. 

In 2004, the company started producing sucker rods 

and accessories for onshore applications. 

In 2005, through Socotherm Brasil, the company 

invested in the construction of a special coatings 

plant in the state of Espírito Santo for offshore projects. 

In addition to providing the company with 

an exclusive technology in Brazil, the venture reinforces 

Tenaris's global partnership with Socotherm. 

25 years on the São Paulo Stock Exchange 

In 2003, TenarisConfab adhered to Level 1 

Corporate Governance, confirming the commitment 

to its investors that the company had striven to 

maintain since its shares were first traded on 

the stock market. Through the application of criteria 

that go beyond those required by law, the select 

group of companies that Confab is part of today 

shows single-minded dedication to providing 

greater security for those who invest in the company. 

The share split in 2004 was projected to provide 

greater liquidity for Confab's shares, and once 

more the market responded positively, valuing 

the company's sotcks. 

In 2005 the company celebrated 25 years of activity 

on the São Paulo Stock Exchange and also received 

a sustained performance seal from APIMEC SP 

– the Capital Markets Investments Analysts and 

Professionals Association – for five consecutive years 

of presentation in the institution. 

During this time, sustained by its transparent and 

responsible performance, Tenaris has won the trust 

of the market and its shareholders. 


8. TenarisConfab

Striving for excellence is more than just a Quality Program at TenarisConfab, it is an operational guideline 

supported by a program certified by national and international standards. 


Highlights 


PIPE DIVISION (IN TONS) 

Export sales 

Domestic sales 

Total sales volume 

SAW - submerged arc welding production 

ERW - electrical resistence welding production 

Total production 

EQUIPMENT DIVISION (IN MAN HOURS) 

Level of activity 

HEADCOUNT (NUMBER OF EMPLOYEES) 

CONSOLIDATED FINANCIAL INFORMATION (*) 

Net operating revenues 

Net earnings 

Net earnings per share in R$ 

Common nominative shares 

Preference shares 

Total shares 

Current assets 

Long term receivables 

Permanent assets 

Total assets 

Current liabilities 

Long term liabilities 

Minority interests 

Shareholders' equity 

Total liabilities and shareholders' equity 

Dividends / Interest on owner's equity 

(*) Amounts expressed in thousands of reais, except earning per share and shares 

(**) Interest on own capital already deducted from Shareholders' Equity 

(***) To be ratified in Shareholders' Assembly in April 2006 

107,369 

320,548 

427,917 

279,871 

103,288 

383,159 

604,371 

2,086 

1,783,105 

277,013 

0.8517 

127,794,168 

197,453,829 

325,247,997 

769,311 

39,172 

318,050 

1,126,533 

2005 2004 

358,043 

10,746 

20,117 

637,627 (**) 

1,126,533 

67,118 (***) 

154,221 

92,385 

246,606 

260,701 

46,210 

306,911 

574,135 

2,050 

887,626 

17,519 

0.0539 

127,794,168 

197,453,829 

325,247,997 

884,037 

31,077 

298,480 

1,213,594 

666,604 

106,841 

13,748 

426,401 

1,213,594 

21,596 


Message 

to the 

shareholders 


Dear Shareholders, 

A landmark in 2005 was the 25th anniversary of the company's decision to 

go public. Once again, it is worth repeating that this decision was decisive 

in allowing Confab to continue to grow solidly and transparently, leading 

to a year of achievements worthy of commemoration. 

Important regional projects, mainly in the energy transportation sector 

and the excellent performance of the equipment division once again proved 

Confab's efficiency in meeting its customer needs. 

The result of this hard work was net revenues of R$ 1,783.1 million, 101% 

higher than in 2004, a net profit of R$ 277.0 million, and a rise in earnings per 

share to R$ 0.8517, due to increased sales and a better product and price mix. 

A total of R$ 47.2 million was invested in 2005, mainly in the expansion and 

modernization of plants to improve quality, automation and competitiveness. 

We also invested in the construction of a new plant for special coatings in 

partnership with Socotherm Brasil. The plant, located in the state of Espírito 

Santo, will supply products for deepwater projects. 

During the year, the demand for natural gas and petroleum in Brazil continued 

to grow, stimulated by the increased participation of natural gas in the 

Brazilian energy grid, which in turn ensured the ongoing expansion of pipeline 

networks with important projects such as: Coari-Manaus, Cabiúnas-Vitória 

and Catu-Carmópolis-Pilar. 

There was an upturn in the mining sector and Confab contributed with the 

supply of pipes to Companhia Vale do Rio Doce (CVRD) for the world's first 

bauxite mineral pipeline. 

With the support of the BNDES, TenarisConfab and TenarisSiat delivered 

more than 700 kilometers of piping for the amplification and modernization 

of the Argentinean gas pipeline network, a highlight in the export segment. 

The main projects in Confab Equipamentos were: a pulp evaporation plant 

for Veracel; a ship loading system for CVRD; a precipitation system for 

Alunorte and the supply of maritime metallic structures for Petrobrás' PRA-1 

autonomous repumping platform. 


The segment supplying fuel tanks for service stations performed well during 

the year, especially worthy of note being the company's sales to Companhia 

Ipiranga and to BR Distribuidora. 

The outlook for 2006 in TenarisConfab is affected by the evolution of the 

GASENE projects in Brazil and the second expansion phase of the north and 

south gas pipelines in Argentina. It is expected that the lack of definition in 

these projects will result in decreased demand for welded pipes in the regional 

market, which should be partially offset by higher sales outside the region. 

Even so, if the demand and prices of natural gas maintain their current levels, 

large projects in the area may well come to fruition. 

In the industrial equipments unit, the outlook for 2006 is favorable, based 

on the expansion plans announced by Petrobras, as well as the enlargement 

and modernization of its main refineries. In the petrochemical and pulp 

sectors there are also a number of investment plans. Companhia Vale do Rio 

Doce should also be investing in equipment and plants in the mining sector. 

We take this opportunity to thank our team for their great professionalism 

and dedication, resulting once again in increased efficiency and productivity 

for the company. 

We also thank our customers, suppliers and shareholders for their continous 

support and confidence in the company. 

Roberto Caiuby Vidigal 

President of the Board 


Increasing productivity using the best technology available. Research and technological development 

driving new products, methods, processes and solutions are part of our daily routine. 


Letter 

of principles 


TenarisConfab has the ongoing objective of growth 

and self-perpetuation. This objective is pursued based 

on solid principles that guide the conduct of our 

workforce and the way the company does business. 

Customers 

Excellence in meeting our customers' needs is our 

major and permanent concern. In order to fulfill 

market expectations, we act with the utmost seriousness, 

responsibility, reliability and transparency. 

We expect no less from our employees, who are 

our representatives in our dealings with customers. 

Any commitments assumed by employees, even 

verbal ones, will be honored by the company. 

Our employees 

Our greatest asset is our human resources. For this 

reason we strive constantly to improve our team, 

to engage people and to maximize efficiency and 

effectiveness. 

Each individual is encouraged to be entrepreneurial 

and innovative. Personal growth within our 

organization occurs in alignment with the growth 

of the company itself, in function of personal 

and team performance. 

We offer better remuneration, encouraging increased 

efficiency rather than higher hierarchical position. 

We are committed to implanting a lean, responsive 

organization, with a minimal number of hierarchical 

levels, placing greater value on team work than 

on individual distinction. 

Technology 

We continuously strive to improve productivity 

using the best technology available, from our systems 

to the most advanced means of production 

and processes. Research and technological development 

into new products, methods, processes 

and solutions is a constant priority. 

Suppliers 

Tenaris is committed to considering its suppliers 

as partners; showing respect and commitment 

to common objectives based on the needs of the 

final customer. 

The practice of these principles is reflected in 

our success, growth and perpetuation. 

Profits permit new investments, attract new shareholders, 

generate new jobs and create new wealth 

which is shared in a transparent manner. They 

also generate taxes, which contribute to the welfare 

of the country through the provision of further 

resources in the areas of education, health, sanitation 

and security. 

The company has an overriding commitment 

to the health and safety of its employees and 

of the community, as well as to the preservation 

of the environment. 


Business review 


NET REVENUES 

MILLLIONS 

OF R$ 

1800 

1600 

1400 

1200 

1000 

800 

600 

400 

200 

0 

Operating Performance 

2005 saw the confirmation of the increased importance 

of gas in the Brazilian energy grid, with the 

amplification of gas pipeline networks. In Argentina, 

the greater demand for gas due to economic growth 

also led to expansion of its gas pipeline network. 

We successfully concluded the supply of pipes for 

large projects, mostly in South America, and several 

of which were on our order books at the end of 

2004. The main highlights were the Coari-Manaus, 

Cabiúnas-Vitória, Catu-Carmópolis-Pilar gas 

pipelines and the amplification of the North and 

South gas pipelines in Argentina. 

TOTAL PIPES EQUIPMENT 

710.4 

547.8 

162.6 

1,462.0 

1,221.1 

240.9 

994.7 

800.5 

194.2 

887.6 

676.0 

211.6 

1,783.1 

1,659.5 

2001 2002 2003 2004 2005 

123.6 

In 2005, the area also supplied pipes for the 

Paragominas bauxite slurry pipeline, dedicated 

to the transportation of bauxite from the mine 

in Paragominas (Pará) to the Alunorte aluminum 

processing plant located in Barcarena (Pará). 

The industrial equipment operations showed an 

increase in nominal production levels, as well as a 

significant increase in profitability in consequence 

of the selective operational strategy adopted. 

Revenues 

Confab Industrial S.A. had net operating revenues 

of R$ 1,783.1 million in 2005, a 101% increase over 

2004. This impressive growth in revenues was due 

to increased sales volume and an improved product 

and price mix. 

The following chart shows the evolution of net revenues 

over the last five years. 

Result 

Net profit for 2005 was R$ 277.0 million, compared 

with R$ 17.5 million in 2004. The chart at the 

next page shows the evolution of the consolidated 

result for the period from 2001 to 2005. 

The profit per share was R$ 0.8517 in 2005, against 

R$ 0. 0539 for 2004. 

The operating profit before the financial result and 

results in associated companies increased from 



On a daily basis, the Quality Control Department carries out tests to ensure products meet 

the parameters demanded by specifications, certifying the quality of TenarisConfab products.

RESULT 

MILLLIONS 

OF R$ 

72.5 

R$ 64.7 million in 2004 to R$ 436.3 million in 

2005, the result of higher sales and greater production 

efficiency. 

Financial Result 

The net financial result for 2005 shows an expense 

of R$ 9.3 million, against an expense of R$ 24.2 

million for the same period of the previous year. 

This result corresponds to 0.5% of net revenues 

against 2.7% in 2004. 

The breakdown of these results is as follows: 

I) interest net of liability and asset operations characterized 

an expenditure of R$ 0.8 million in 2005 

and R$ 12.1 million in 2004; II) a gain from exchange 

variation of R$ 3.3 million in 2005 and 

an expenditure of R$ 4.8 million in 2004; III) expenditures 

with CPMF and other taxes on financial 

revenues of R$ 11.8 million in 2005 and R$ 7.3 

million in 2004. 

170.7 

277.0 

20.5 17.5 

2001 2002 2003 2004 2005 

CONSOLIDATED 

EBITDA RESULT 

MILLLIONS 

OF R$ 

500 

450 

400 

350 

300 

250 

200 

150 

100 

50 

0 

122.4 

257.1 

72.0 

99.2 

450.5 

2001 2002 2003 2004 2005 

The EBITDA result (Profit before interest, taxes, 

depreciation and amortization) was R$ 450.5 

million (R$ 99.2 million in 2004), which breaks 

down as follows: 

Operating Profit R$ 427.8 

Results in associated companies R$ (0.8) 

Financial Revenues R$ (36.6) 

Financial Expenses R$ 45.9 

Depreciation and Amortization R$ 29.6 

Management and Employee Profit Share R$ (15.2) 

Non-Operating Expenses R$ (0.2) 

EBITDA R$ 450.5 

The following chart shows the evolution over the 

last five years. 

The total financial debt on December 31st 2005 

was R$ 56 million, 24% of which short and 76% 

long term. 

At the end of the period the net cash position 

(cash less loans and short term bank financing) 

was R$ 246 million. 

Shareholdings 

Confab Industrial S.A. holds shares in the companies: 

Siat S.A. (30%), an Argentinean manufacturer 

of welded steel pipes; Socotherm Brasil S.A. (50%), 

a company specialized in pipe coatings; Tenaris 

Confab Hastes de Bombeio S.A. (49%), a company 

specialized in manufacturing and commercializing 

of sucker rods. 

Confab's holding in Siat represented earnings of 

R$ 4.8 million in 2005 (against a loss of R$ 3.7 million 

in 2004) due to a positive operating result of R$ 15.2 

million, driven by increased sales and offset partially 

by a negative exchange rate in function of the appreciation 

of the Real against the Argentine Peso. 



The graph shows the equity equivalence evolution 

for Siat over the last five years. 

The holding in Socotherm Brasil, a company special 

ized in pipe coatings, produced earnings of R$ 11.1 

million for Confab in 2005 (compared with R$ 1.1 

million in 2004) as a result of the increased demand 

for coated pipes. There follows the evolution in 

results for the period 2001 to 2005, net of minority 

shareholdings (50%). 

Tenaris Confab Hastes de Bombeio was founded in 

2004 to produce sucker rods and other materials for 

the oil and petrochemical sector. Up until September, 

SIAT EQUITY EQUIVALENCE 

MILLLIONS 

OF R$ 

36 

30 

24 

18 

12 

6 

0 

(6) 

(12) 

OPERATING 

RESULTS 

12.8 

(11.6) 

1.1 

EXCHANGE 

PARITY 

35.7 

(9.4) 

26.3 

TOTAL SIAT 

2001 2002 2003 2004 

0.9 

15.2 

(3.8) 

(5.9) 

(4.6) (3.7) 

(9.7) (10.4) 

2005 

4.8 

the company honored previously signed commercial 

contracts denominated in US dollars. In October 

a new two-year contract was signed with Petrobras, 

producing positive results for the end of the year, 

but not enough to revert the losses accumulated 

in the company's balance sheet for the year of 2005. 

This led to a loss of R$ 1.6 million for Confab 

in 2005 (compared with R$ 0.4 million in 2004). 

Human Resources 

Social Action - Working Responsibly 

Confab seeks to practice corporate social responsibility 

by means of diverse actions that contemplate the 

needs of the different publics with which it interacts. 

To this end, the company is involved in identifying 

the needs of its employees and the communities 

in which it operates, as well as emphasizing respect 

for the environment. At the end of 2005, the company 

had 2,086 employees. 

In 2005, Confab invested a total of R$ 2.7 million 

in technical, management, information technology, 

language and postgraduate courses for its employees, 

a 153% increase compared with the previous year 

(see Social Action Report on page 40). 

Investments 

The company invested R$ 47.2 million last year, 

mainly in the amplification and modernization 

of plants. The main focus was on technological 

modernization to improve quality, automation 

and competitiveness. The investments undertaken 

over the last five years are shown in the chart on 

the next page. 

A number of investments were aimed at increasing 

productivity and the quality of our products for 

the offshore market. Especially worthy of mention 

are the installation of a fluoroscopic station at the 

UOE plant, a transportation mechanism at the exit

SOCOTHERM EQUITY 

EQUIVALENCE 

MILLLIONS 

OF R$ 

12 

6 

0 

3.8 

11.3 

of the “O” press, the installation wire caging on 

the internal welding machines, the modernization 

of the side stamping press and the automation 

of work stations. 

Socotherm Brasil invested R$ 18.4 million in the 

construction of a new coating plant in the state 

of Espírito Santo, equipped with state-of-the-art 

technology designed to meet the needs of our customers 

in deepwater and ultra deepwater petroleum 

and gas exploration and production projects. 

Auditors 

The company's policy with respect to contracting 

services unrelated to external audits from our 

independent auditors is based on principles that 

preserve the independence of the independent 

auditor. These principles are in accordance with 

internationally accepted conventions and stipulate 

that: (a) the auditor should not audit his/her own 

2.6 

1.1 

11.1 

2001 2002 2003 2004 2005 

INVESTMENTS 

MILLLIONS 

OF R$ 

80 

60 

40 

20 

HEAT 

TREATMENT 

0 

26.8 

73.0 

43.0 

30.0 

INVESTMENTS 

IN PRODUCTION 

PROCESSES AND OTHERS 

75.0 

56.4 

18.6 

51.8 

47.2 

2001 2002 2003 2004 2005 

work, (b) the auditor should not exercise management 

functions at the client and (c) the auditor 

should not promote the interests of his/her client. 

During 2005, we hired independent auditors for 

consulting services worth less than 5% of the annual 

amount spent on independent auditing services. 

The consulting services were provided in March, 

2005. They totaled 50 hours of work and concerned 

the area of indirect federal taxes. 


The challenges TenarisConfab faced 

in supplying the Coari-Manaus gas 

pipeline did not stop at the tough 

negotiations and international tender 

to win this important R$ 242 

million contract with Petrobras. 

The company was also responsible 

for part of the complex logistics 

involved in the operation. 

The 400 km of welded pipes were 

transported from Pindamonhangaba 

to Porto Velho by road, and 

from there to Manaus by waterway 

– ferries were loaded with 20", 70 

grade steel API 5L pipes – for transportation 

to jungle clearings. Some 

4,500 tons of the pipes were delivered 

to and stored in Manaus. 

An Expedition 

in the Jungle . 


The major challenge of this stage 

of the project was meeting the rigorous 

deadlines, imposed by natural 

phenomena. In June, the level 

of the rivers in the region decreases, 

making it impossible for the ferries 

to operate. 

The gas pipeline will transport some 

4.5 million m3 of gas per day 

and will go through the municipal 

districts of Coari, Codajás, Anori, 

Anama, Iranduba and Caapiranga. 

The project represented a great 

opportunity for TenarisConfab to 

show off its capacity to provide 

customers with complete solutions. 

Coari-Manaus Project 

Porto Velho, Rondônia 

Petrobras 

TenarisConfab supplied 400 km of pipes to transport gas 

to the Amazon's capital. The work will enable the region to substitute 

diesel oil with natural gas for its energy supply. 

Location 

. Customer 

. Project Description


Leading 

indicators 


amounts expressed in thousands of reais, except earnings per share 

STATEMENT OF RESULTS - CONSOLIDATED 

Net operating revenues 

Operating costs and expenses 

Operating income before financial and other income 

Financial income 

Equity equivalence in subsidiaries and associated companies 

Shares, statutory contributions and non-operating results 

Income tax and social contribution 

Net profit for the year 

Net profit per share in R$ 

Total shares 

EBITDA (profit before interest, taxes, depreciation and amortization) 

FINANCIAL POSITION 

Working Capital 

Total Assets 

Long Term Debt 

Shareholders' Equity 

2005 2004 

2003 

1,783,105 

887,626 

994,756 

(1,346,818) (822,908) (948,879) 

436,287 

64,718 

45,877 

(9,283) 

(24,165) 

(10,940) 

777 

(6,146) 

(15,409) 

(23,193) 

(4,734) 

(5,242) 

(127,575) 

(12,154) 

6,221 

277,013 

17,519 

20,507 

0.8517 

325,247,997 

450,515 

411,268 

1,126,533 

64,251 

637,627 

0.0539 

325,247,997 

99,225 

217,433 

1,213,594 

78,059 

426,401 

0.1892 

108,415,999 

72,018 

175,166 

1,118,811 

50,417 

430,478 

1,461,974 

(1,217,391) 

244,583 

(32,364) 

36,680 

(21,146) 

(57,015) 

170,738 

1.5748 

108,415,999 

257,115 

2002 2001 

250,486 

1,148,856 

105,016 

461,978 

710,374 

(600,957) 

109,417 

(10,855) 

3,832 

(10,327) 

(19,584) 

72,483 

0.6686 

108,415,999 

123,543 

199,496 

753,210 

59,637 

340,815 


Pipes 


PIPES - SALES VOLUME 

THOUSANDS 

OF TONS 

500 

450 

400 

350 

300 

250 

200 

150 

100 

50 

0 

DOMESTIC 

MARKET 

322.9 

245.8 

77.1 

497.4 

417.5 

Market and background 

Sales of welded tubular products in 2005 totaled 

427,900 tons, a 73% increase over the 246,600 tons 

invoiced in 2004. 

The demand for natural gas and petroleum continued 

to increase in Brazil and Argentina, sustained 

mainly by economic growth and the increased 

participation of natural gas in the Brazilian energy 

grid. Important infrastructure projects for the transportation 

of natural gas and slurry that had previously 

been postponed came to fruition in 2005. 

EXPORT 

MARKET 

311.6 

71.5 320.5 

240.1 

246.6 

154.4 

79.9 92.2 

427.9 

107.4 

2001 2002 2003 2004 2005 

PIPES - NET REVENUES 

MILLLIONS 

OF R$ 

1800 

1600 

1400 

1200 

1000 

800 

600 

400 

200 

0 

547.8 

1,221.1 

800.5 

1,659.5 

676.0 

2001 2002 2003 2004 2005 

. 

. 

. 

. 

With this, the domestic market accounted for 75% 

of sales in 2005, the largest share in recent years, 

as shown in the chart below. 

TenarisConfab had net revenues of R$ 1,659.5 

million in 2005, 145% higher than the previous 

year (R$ 676.0 million). 

The behavior of the different market segments 

during 2005, were as follows: 

In the Brazilian gas transportation market, the sustained 

demand for the product (both effective and 

projected) ensured continuity in the amplification 

of the pipeline network, the main projects worthy 

of note being the Coari-Manaus pipeline in the 

Amazon region; Manati Onshore and Offshore, 

Catu-Carmópolis-Pilar, and Cabiunas-Vitoria (part 

of GASENE), in the southeast and northeast of 

the country. 

In the mining sector, the highlight was the supply 

of pipes to the Companhia Vale do Rio Doce 

(CVRD) for construction of the Paragominas / 

Barcarena bauxite slurry pipeline to supply the 

Alunorte aluminum processing plant, the first such 

pipeline built in the world. 

Pipe sales to the dealer market grew 6.9% compared 

with 2004, a reflex of the increased industrial activity 

in Brazil. 

In contrast to the otherwise positive climate, the 

performance of the sanitation market maintained 



Confab Equipamentos: investments in modernizing the welding process and buying ultra modern instruments 

for non-destructive tests, such as TOFD, Phased Array and Digital Radiography. 

. 

the low levels of recent years due to lack of funding 

for infrastructure works and a lack of regulatory 

definition in the sector. 

In the overseas market, oil and gas prices remained 

high, driving prospecting and drilling activities 

and leveraging demand for pipes in all markets. 

Especially worthy of note among the company's 

export activities were the sales to Argentina, where 

the existing gas pipeline network infrastructure 

was amplified through the construction of loops. 

Outlook 

At the end of the year there was a downturn in 

the demand for pipes for regional products, mainly 

due to the delay in the definition of the second 

stretch of the GASENE (Cacimbas-Catu) pipeline, 

as well as in Gasfor II and the new loops for the 

Argentinean gas pipelines. 

The outlook for 2006 continue to be good, as 

definitions are expected for the GASENE project 

in Brazil and the Loops projects in Argentina. 

Export sales are expected to account for a larger 

proportion of overall welded pipe sales. 

The deficit in gas transportation capacity persists 

in Brazil, mainly in the northeast of the country, 

where there is significant demand from thermoelectric 

power stations. In the south of the country, 

where gas is in demand for industrial purposes, 

amplification of the gas pipeline network is expected 

but depends on definitions involving Bolivia. 

With respect to petroleum transportation, Petrobras 

has initiated the purchase process for the PDET 

offshore project in the Campos basin. 

In the mining sector, we have received an order 

from Samarco for the construction of a new 345 km 



In 2005 more than R$ 47 million was invested in amplifying and modernizing the plants 

to improve quality, automation and the competitiveness of the company.

PIPES - BOOKED ORDERS 

MILLLIONS 

OF R$ 

1000 

800 

600 

400 

200 

0 

713.4 

long pipeline consisting of 16” diameter pipes 

for transporting iron ore from the state of Minas 

Gerais to the Espiríto Santo coast. 

In Argentina, if the gas transportation deficit 

continues throughout the winter and if the current 

industrial growth and GDP projections for the 

coming years hold true, there will be an increase 

in the demand for gas, making it very likely 

that projects such as the Loops and the gas pipeline 

under study to bring gas from Bolivia will 

be implemented. 

In the overseas markets, the demand and the prices 

of natural gas and petroleum are at high levels, 

producing a favorable scenario for the execution 

of large exploration and production projects 

and, consequently, elevating potential sales in countries 

in North America and Africa. 

788.9 

299.6 

965.9 

490.8 

2001 2002 2003 2004 2005 

PIPES - PRODUCTION 

THOUSANDS 

OF TONS 

500 

400 

300 

200 

100 

0 

347.7 

434.0 

288.6 

306.9 

383.2 

2001 2002 2003 2004 2005 

In the following chart, we show the evolution of 

TenarisConfab order book over the last five years. 

Production 

Production in 2005 reached the level of 383.2 

thousand tons, a 25% increase over 2004. The chart 

below shows the evolution of pipe production 

from 2001 to 2005. 

A number of production records were broken during 

the year, notably in SAW pipe manufacture 

and coating. Additionally, a series of challenges 

with high demands in terms of quality requirements 

were successfully met, such as pipe production 

for the deep and shallow Campos Basin petroleum 

outflow and treatment projects (PDET in their 

Portuguese acronym). 


PRA-1 is a Petrobras project aimed 

at making Brazil self-sufficient in 

petroleum. Confab Equipamentos 

participated in this challenge with 

the production of jacketed components 

for the PRA-1 petroleum 

exploration platform, projected to 

increase deep water production, 

a part of the Campos Basin Petroleum 

Flow and Treatment plan (PDET). 

Confab Equipamentos was subcontracted 

by Techint Engineering, 

responsible for detail engineering, 

building and assembly, and for manufacturing 

knots, piping, casing and 

supports, among other accessories. 

7 thousand 

tons for PRA-1 . 


The Autonomous Pumping Platform, 

known as PRA-1, will enable the 

transportation of the oil and natural 

gas produced by platforms located 

at a depth of more than 1000 

meters. It is a fixed platform that 

will be installed 115 km from 

the Rio de Janeiro coast at a depth 

of 105 meters. It will have a daily 

capacity to pump and transfer 

818,000 barrels of petroleum and 1.9 

million cubic meters of natural gas. 

Project PRA-01 

Bacia de Campos 

Petrobras 

Confab Equipamentos supplied 7 thousand tons for the PRA-1 

Location 

. Customer 

. Project description 

Autonomous Pumping Platform.


Equipments 


EQUIPMENT 

NET REVENUES 

MILLLIONS 

OF R$ 

300 

200 

100 

0 

162.6 

240.9 

Market and background 

The industrial equipment operations, which include 

manufacture and assembly, showed an increase 

in the nominal level of production, reaching 604 

thousand man/hours in 2005, compared with 574 

thousand man/hours in 2004. The following chart 

shows the evolution of man/hours worked 

between 2001 and 2005. 

The net revenues of the unit for 2005 were 

R$ 123.6 million, a 42% decrease from the previous 

year (R$ 211.6 million). This effect was due mainly 

to the supply contract for the PRA-1 platform, 

where all the raw materials were supplied by the 

customer. The chart below shows the evolution 

of revenues over the last five years: 

194.2 

211.6 

123.6 

2001 2002 2003 2004 2005 

EQUIPMENT 

ACTIVITY LEVEL 

THOUSANDS 

OF m/h 

1000 

800 

600 

400 

200 

0 

956 

957 

504 

574 

604 

2001 2002 2003 2004 2005 

. 

. 

. 

. 

. 

. 

The major factors influencing our order book during 

2005 were: 

The Veracel Project (black Liquor Evaporation system), 

contracted in 2003. 

The ship loader for the Companhia Vale do Rio 

Doce (CVRD) – contracted at the beginning of 2004. 

The aluminum precipitation system for Alunorte 

– contracted at the beginning of 2004. 

Supply contract for maritime metallic structures 

(knots, stakes, piping and accessories ) for the 

Petrobras PRA-1 autonomous repumping platform 

in the Campos Basin. 

The continued postponement of capital investment 

plans, mainly in the petroleum and petrochemical 

areas had a negative effect on our sales forecasts. 

The performance of the service station fuel tank 

segment was satisfactory in 2005, the main customers 

in the period being Companhia Ipiranga de Petróleo 

and BR Distribuidora. 

Outlook 

Sales and growth prospects look favorable for 2006, 

on account of the expansion plans announced by 

Petrobras in gas supply and the exploration and production 

of petroleum, as well as the expansion and 

modernization of its main refineries. 



In-depth knowledge of metallurgy and tubular properties, combined with experience in working 

close to customers, ensures products that anticipate and meet market needs. 

In the petrochemical sector, a number of investment 

plans should be implemented in the short term 

in São Paulo, Bahia and Rio Grande do Sul. 

Companhia do Vale do Rio Doce (CVRD) should 

be investing in plant and equipment for the extraction 

and processing of minerals (iron, copper and 

nickel), as well as infrastructure for exportation. 

Alumar (Maranhão) and Alunorte (Pará) should 

increase the production capacity of their alumina 

plants in 2006 and 2007. 

In the pulp and paper sector, various investment 

studies are in course. There is great likelihood the a 

number of these will result in concrete orders over 

the coming years (2006-2008), most notably from the 

Aracruz, International Paper and Veracel projects. 

The following chart shows the evolution of the 

unit's order book over the last five years. 

EQUIPMENT 

BOOKED ORDERS 

MILLLIONS 

OF R$ 

250 

200 

150 

100 

50 

0 

216.1 

139.1 

187.4 

79.5 

61.9 

2001 2002 2003 2004 2005 


Social action 

review 


Confab seeks to practice corporate social responsibility 

by means of diverse actions that contemplate 

the needs of the different publics with which it 

interacts. To this end, the company is involved in 

identifying the needs of its employees and the communities 

in which it operates, as well as emphasizing 

respect for the environment. 

By assuming this commitment to social responsibility, 

whilst at the same time striving to be competitive 

in an ethical and transparent manner, TenarisConfab 

is contributing to sustainable social, economic 

and environmental development, resulting in greater 

quality of life for all. 

Human capital - the company's most important value 

TenarisConfab's present and future development 

depends on the professional and personal development 

of its people, the company's most important 

asset. The quality of the company's products and 

services is the product of the combination of talents 

and technologies within a global organizational 

structure. 

TenarisConfab's human resources philosophy is 

based on promoting synergies, team work, flexibility 

and interchange to meet the current challenges 

that face any state-of-the-art company and the 

growing demands of an increasingly competitive 

marketplace. 

In 2005, the company invested R$ 2,708,000 in 

technical, management, information technology, 

language and postgraduate courses, a 153% 

increase over the previous year. A total of 113,000 

hours of training were given to employees, resulting 

in an average of 54 hours per person. 

The quality of these activities was assured 

by the high caliber of the institutions with which 

TenarisConfab established partnerships, such as: 

the Universidade de São Paulo (USP), Universidade 

Federal do Rio de Janeiro (UFRJ), Universidade 

Estadual Paulista (UNESP), Faculdade de Engenharia 

Industrial (FEI), Instituto de Tecnologia Aeronáutica 

(ITA), The Welding Institute (TWI), Fundação 

Dom Cabral (FDC), Fundação Getúlio Vargas 

Foundation (FGV) and Stanford University, 

among others. 

In 2005, Confab initiated its second Industrial 

Technology program in partnership with the Serviço 

Nacional da Indústria (SENAI). The 1,300 hour long 

course, which was adapted specifically to meet the 

needs of the company, is being taken by 21 employees 

in the industrial production area. 

In partnership with the Colégio Objetivo, the company 

continued its primary and secondary education 

supplementary program, which benefits 128 employees. 

In addition to providing a first rate course, 

TenarisConfab pays for the participants' expenses 

with travel, meals, uniforms and teaching materials. 



The quality of the company's products and services depends on the professional and personal 

development of its people, the company's most important asset.

The courses in the areas of Non-Destructive Testing, 

Laboratories and Quality Management 

accounted for 25% of all the training hours given 

to employees. Highly qualified professionals were 

hired to give courses on complex themes such as 

phased array ultrasound and Electron Microscope 

Scanning, among others. 

2005 also saw the formation of an initial group for 

the Metallurgy course organized by the company 

in conjunction with the Welding Institute. With 

a course load of 140 hours, the program benefited 

23 TenarisConfab employees from the technology 

areas, as well as guests students from nearby 

universities. 

Another training highlight was the postgraduate 

Project Management course. 27 executives from 

the Proposal and Project Management, IT and 

Engineering areas spent 180 hours learning how 

to use the tools developed by the Project Management 

Institute (PMI). 

As part of a Tenaris global alignment project, 

13 TenarisConfab executives took part in a course 

at Stanford University in the USA. With other 

Tenaris executives from around the world, they 

participated in a 40 hour module designed specifically 

to analyze Tenaris strategy. 

In 2005, in line with Tenaris' strategic principles, 

the TenarisConfab training area was denominated 

TenarisUniversity-Brazil. This major change was 

designed to ensure greater alignment of training 

with the organization's international strategy. 

The Metallurgy and the Stanford University courses 

are a result of this new approach, as are the e-learning 

programs– which accounted for 9% of the number 

of training hours (2,340 hours) provided for 

administrative staff in the second half of the year. 

In addition to managing training, TenarisUniversity 

is responsible for all areas related to knowledge 

management, intranet and university relations. 

Global Trainee Program 

The company has a differentiated trainee program, 

which is implemented throughout the global organization. 

This is a strategic initiative designed to 

develop young talents. Reformulated in 2005, the 

main characteristics of the program are: the Global 

Trainees (GTs) work in at least two different 

areas; they are formally assessed in accordance 

with pre-established targets, which in turn are 

linked to those of the department(s) in which they 

are located; individual accompaniment throughout 

the program; specific e-learning courses in accordance 

with the GT's area; and a global induction 

program during which Tenaris GT's from around 

the world spend one month together to familiarize 

themselves with the company's values and culture 

and other basic information about the organization. 

A total of 113 young professionals have graduated 

from the program in Brazil over the last five years, 

receiving a thorough grounding in state-of-the-art 

business practice. 

The partnership with the Fundação Dom Cabral 

for the training course which is an integral part of 

the program utilizes the concept of distance education, 

that is, the use of IT resources, in conjunction 

with classroom activities, with both types 

of learning activity conducted by highly qualified 

lecturers. The subjects covered include: strategic 

management, business management, people management, 

written and spoken communication, 

managerial skills and project management. 


The program modules are designed to broaden 

participants' technical and managerial skills and 

further opportunities for their professional development. 

Split up into groups, at the end of the 

course participants engage in real-life projects, the 

contents of which are determined by the directors 

and managers of the areas involved. These managers 

are also responsible for providing orientation 

for the trainees. The fourth class, with 32 participants, 

was begun in May, 2005. 

Relations with universities 

In order to tighten its links with the universities from 

which it recruits people, Confab has established 

an intern program, known as the PRV (Summer 

Remunerated Practice Program) 10 interns were 

hired during the 2005 vacations. 

In addition to this program, the company also has 

an annual intern program offering opportunities 

for undergraduates in the areas of both human 

and exact sciences. 

In 2005, the company continued to promote its 

Roberto Rocca Education Program, designed to promote 

the development of human resources in the 

science and technology area. Among other actions, 

the program provides study grants for undergraduate 

students. The latest group consisted of 25 students, 

selected from among the best Engineering students 

at the Universidade do Estado de State of São Paulo 

(UNESP), Escola Politécnica of the Universidade 

de São Paulo (Poli/USP), Faculdade de Engenharia 


Industrial (FEI), Faculdade de Engenharia Qúimica 

de Lorena (FAENQUIL) and the Instituto Tecnológica 

de Aeronáutica (ITA). 

The program includes a monthly allowance, quarterly 

meetings in the company and monitoring of 

the recipients academic performance. The students 

selected to receive a grant are given priority for selection 

as interns or trainees. 

Profit share and rewards 

Confab has an employee profit share program 

designed to reward employees who achieve their targets 

and improve company performance indicators. 

In 2005, the company distributed R$ 7,335,000 

to its employees under this scheme. 

Health, safety and environment 

Production, quality and cost control in tune with 

environmental preservation – both inside its units 

and in the areas surrounding its plants – plus an 

overriding concern for the safety and health of its 

employees. To ensure this working philosophy, 

in 2005 the company strengthened the work tools 

used in the action plan prepared for its Accident 

Reduction Campaign. 

The company also implanted the Tenaris Safety 

Environment program, which ensures that records 

are kept of all accidents and incidents, as well as 

follow up with preventive and corrective actions. 

To celebrate International Environment Day 

on June 5th, 200 native tree seedlings were planted 

in the company's units, in a ceremony attended 

by employees and their families.

At TenarisConfab, Research & Development are focused on pipe application engineering 

and developing products for severe conditions. 


In 2005, Confab invested R$5.3 million in the 

safety, health and environment area. 

Quality of Life 

The company engages in a number of activities 

designed to improve employees' quality of life 

by promoting physical, organic and emotional 

balance. The actions promote sports and leisure 

activities and a healthy working environment. 

At the end of 2005, Confab had a total of 2,086 

employees. 

The company invested R$ 6.6 million in medical 

and dental assistance, offering diverse health plans 

with differentiated coverage for employees and 

their dependents. 

R$ 4.0 million was invested in meals. The company 

plants have self-service restaurants, which 

served a total of 599,000 lunches and dinners and 

295,000 breakfasts to employees. 

Confab provides transportation subsidies for travel 

between work and home for 1,100 employees. 

R$ 2.6 million was invested in this benefit in 2005. 

The company also invested more than R$ 478,000 

in subsidized medicines, school materials, toys, 

Christmas hampers and clothing for employees' 

new born babies. 


Credit Cooperative 

Employees belonging to the Credit Cooperative are 

eligible for quick and cheap credit. On December 

31st 2005, the 1,726 members of the credit cooperative 

had accumulated funds of R$ 4.3 million. 

A total of R$ 8.1 million was loaned to employees 

during the year. The cooperative had a surplus of 

R$ 821,500 in the year, which will be carried forward 

for future activities. 

Confab Employees' Association Club 

The Confab ADC club was completely refurbished 

to meet the needs of Confab employees and their 

families. Around US$ 100,000 was invested in the 

first stage, which included the remodeling of the 

installations and landscaping. Another US$ 22,000 

was spent on restoring the tennis court. 

Installed on an old farm, the club offers a large 

green area where employees and their families have 

the use of adult and children's swimming pools, 

cloakrooms, a playground, barbecue facilities, 

a gym, a multi-use sports court, a full-size football 

pitch and a seven-a-side football court, a clubhouse 

and a function room. 

Support for the community 

The company has sought to contribute to community 

well-being through a number of initiatives 

in the town of Pindamonhangaba, where its manufacturing 

plants are located. The company is careful 

in choosing the organizations with which it establishes 

partnerships. In 2005, two of these charities 

– the Casa Transitória Fabiano de Cristo (Fabiano 

de Cristo Halfway House), responsible for the “Anália 

Franco” project, and the Associação de Pais e Amigos 

dos Excepcionais de Pindamomohangaba-APAE) 

(Pinhamonhangaba Association for the Disabled) 

– received the coveted Efficiency Award, (Prêmio 

Bem Eficiente), for which they competed with 355 

non-profit-making institutions from all over Brazil.

In 2005, Confab invested around R$ 590,000 in 

diverse projects that benefited hundreds of people. 

Intensive Therapy unit for the Hospital Santa Casa 

de Misericórdia 

The company donated R$ 148,000, which was used 

to buy X-ray and electrocardiogram machines, 

essential for the start up of this unit, the first in 

the district to initiate operations. The unit will attend 

both adults and children. 

Staying off the Streets Project 

Around 1,700 children and teenagers in the Pindamonhangaba 

area benefit from this project, which 

stimulates participants' formal education with back 

up classes from specialized professionals. The project 

also provides participants with classes in street 

dancing, aerobics, capoeira, football and seven-aside 

football. The project seeks to promote social 

inclusion by ensuring that participants' free time 

is dedicated to cultural and educational activities. 

The “Anália Franco” Space 

More than 400 children and teenagers from needy 

families in Pindamonhangaba attend the “Anália 

Franco” Space, a halfway house whose mission 

is to promote ethical behavior and citizenship. 

The children participate in a number of activities 

designed to develop their self-esteem and basic skills. 

Confab provided support for the construction 

of this home four years ago and since then has 

provided a monthly allowance to fund the activities 

it undertakes. 

The Brasil Florido (Flowers for Brazil) Project 

The company has adopted the seven main squares 

in Pindamonhangaba, assuming the cost of maintenance 

for them. This initiative benefits the population 

with green areas that contribute to a healthier 

environment. 

Help for the Elderly 

In 2005, Confab maintained its support for the two 

old people's homes in Pindamonhangaba: the Irmã 

Terezinha and São Vicente de Paula homes provide 

shelter for around 140 elderly people. Over the last 

five years the two homes have received approximately 

R$ 250,000 from the company. This support from 

the company ensures greater quality of life, leisure 

and special care for inmates. 

Volunteers in Action” campaign 

To increase the impact of its social responsibility 

initiatives, Confab encouraged its employees to participate 

in voluntary social activities in institutions 

in the Pindamonhangaba area. 

Support for APAE 

Recognized nationwide for its important role in educating 

children and young people with special needs, 

APAE – Associação de Pais e Amigos dos Excepcionais 

(Support Association for the Disabled) receives 

support from Confab for the construction of a 

multiuse sports stadium – the only one in the region 

specifically adapted for this public. 


Board of Directors 


President 

Vice Presidents 

Council Members 

Executive Officers 

Executive President 


Equipment Business Director 

Emyr Elias Berbare 

Human Resources Director 

Hércules de Jesus Peres Filho 

Strategic Planning Director 

Juan Carlos Satostegui 


Paolo Rocca 

Ricardo Juan Pedro Soler 

Carlos Eduardo Bacher 

João Pedro Gouvêa Vieira Filho 

Rinaldo Campos Soares 

Tomas Tomislav Antonin Zinner 

Executive Vice President 

Ricardo Juan Pedro Soler 

Administration & Finance and Investor 

Relations Director 

Marcelo Héctor Barreiro 

Local Sales Director 

Nicolau Marcelo Bernardo 

Pipe Business Director 

Túlio Cesar do Couto Chipoletti

Financial 

Statements 

December 31st 2005 and 2004 

Amounts in thousands of reais, except when otherwise indicated

Balance sheet 


ASSETS 

CURRENT 

Cash on hand and in banks 

Financial investments (Note 3) 

Accounts receivable (Note 4) 

Inventories (Note 5) 

Receivables from related parties (Note 10) 

Taxes recoverable (Note 6) 

Deferred income tax and social contributions (Note 16) 

Prepaid expenses 

LONG TERM RECEIVABLES 

Subsidiaries and associated companies (Note 10) 


Taxes recoverable (Note 6) 

Judicial deposits 

Assets for sale 

Tax incentive investments 

Acounts receivable 

PERMANENT ASSETS 

Investments 

Subsidiaries and associated companies (Note 7) 

Others investments 

Property, plant and equipment (Note 8) 

Deferred 

Total assets 

The management's explanatory notes are an integral part of the financial statements 


3,157 

251,525 

129,870 

229,643 

43,402 

60,088 

11,319 

987 

729,991 

16 

18,382 

5,950 

4,443 

7,109 

– 

823 

36,723 

98,990 

– 

228,808 

– 

327,798 

1,094,512 

Parent company 

2004 

55,745 

37,166 

187,051 

356,045 

18,091 

123,151 

23,712 

692 

801,653 

16 

10,760 

6,398 

1,556 

7,324 

214 

3,893 

30,161 

82,181 

325 

224,858 

– 

307,364 

1,139,178 


6,186 

253,590 

139,492 

261,305 

24,252 

69,761 

11,420 

3,305 

769,311 

– 

18,468 

8,080 

4,692 

7,109 

– 

823 

39,172 

51,682 

84 

266,284 

– 

318,050 

1,126,533 

Consolidated 

2004 

61,578 

105,040 

187,865 

360,549 

15,207 

129,112 

23,783 

903 

884,037 

– 

10,760 

7,081 

1,805 

7,324 

214 

3,893 

31,077 

48,682 

487 

248,849 

462 

298,480 

1,213,594

LIABILITIES AND STOCKHOLDERS' EQUITY 

CURRENT 

Suppliers (Note 9) 

Loans and financing (Note 11) 

Advances from customers (Note 12) 

Taxes and contributions payable 

PAES installments – special regime (Note 13) 

Salaries and social security charges 

Employee profit share provision 

Loans – related parties (Note 10) 

Dividends and interest on own capital 

Other accounts payable 

LONG TERM LIABILITIES 


Loans and finance (Note 11) 

PAES installments – special regime (Note 13) 

Contingencies provision (Note 14) 

MINORITY INTEREST 

STOCKHOLDERS' EQUITY (Note 15) 

Capital 

Capital reserve 

Revaluation reserve 

Profit reserves 

Total liabilities and stockholders' equity 



84,116 

13,425 

101,336 

85,959 

2,796 

10,886 

8,576 

12,492 

26,988 

6,085 

352,659 

2,423 

42,390 

18,280 

41,133 

104,226 

– 

229,419 

309 

6,035 

401,864 

637,627 

1,094,512 


2004 

129,191 

217,412 

155,911 

38,769 

2,576 

10,095 

– 

23,501 

19,248 

15,810 

612,513 

3,655 

54,813 

19,438 

22,358 

100,264 

– 

229,419 

309 

6,273 

190,400 

426,401 

1,139,178 


71,009 

13,425 

122,435 

90,457 

3,335 

12,379 

9,031 

– 

27,553 

8,419 

358,043 

2,423 

42,390 

21,861 

44,072 

110,746 

20,117 

229,419 

309 

6,035 

401,864 

637,627 

1,126,533 

Consolidated 

2004 

99,102 

244,886 

214,551 

40,928 

3,071 

11,312 

– 

14,464 

20,132 

18,158 

666,604 

3,655 

54,813 

23,246 

25,127 

106,841 

13,748 

229,419 

309 

6,273 

190,400 

426,401 

1,213,594 

51. Financial Statements 2005

Income statement 

GROSS REVENUE 

Sales taxes 

NET OPERATING REVENUES 

Cost of goods and services sold 

Gross profit 

OPERATING EXPENSES 

Selling 

Administrative 

Management fees 

Amortization of deferred charges 

Others operational expenses, net (Note 17) 

INCOME BEFORE EQUITY IN RESULTS OF SUBSIDIARIES 

AND FINANCIAL INCOME 

Equity in results of subsidiaries and related companies (Note 7) 

OPERATING INCOME BEFORE FINANCIAL INCOME (EXPENSES) 

Financial expenses 

Financial income 

OPERATING INCOME 

Net non – operating expenses 

INCOME BEFORE INCOME TAX, SOCIAL CONTRIBUTION, PROFIT SHARE 

AND MINORITY SHAREHOLDER'S INTERESTS 

Income tax and social contribution (Note 16) 

Profit share management and employees 

Minority interest 

Net income for year 

Net income per share based on capital at end of year – R$ 




2,067,603 

(313,900) 

1,753,703 

(1,168,652) 

585,051 

(104,485) 

(49,376) 

(7,025) 

– 

(23,957) 

(184,843) 

400,208 

18,322 

418,530 

(45,981) 

37,077 

(8,904) 

409,626 

(242) 

409,384 

(118,375) 

(13,996) 

– 

277,013 

0.8517 


2004 

918,106 

(111,230) 

806,876 

(586,160) 

220,716 

(103,459) 

(41,276) 

(6,562) 

(7,794) 

(5,837) 

(164,928) 

55,788 

(12,144) 

43,644 

(59,396) 

39,247 

(20,149) 

23,495 

(63) 

23,432 

(5,913) 

– 

– 

17,519 

0.0539 


2,121,874 

(338,769) 

1,783,105 

(1,155,227) 

627,878 

(106,625) 

(51,170) 

(8,057) 

(462) 

(25,277) 

(191,591) 

436,287 

777 

437,064 

(45,876) 

36,593 

(9,283) 

427,781 

(256) 

427,525 

(127,575) 

(15,237) 

(7,700) 

277,013 

Consolidated 

2004 

1,013,652 

(126,026) 

887,626 

(649,529) 

238,097 

(107,156) 

(43,386) 

(7,728) 

(7,995) 

(7,114) 

(173,379) 

64,718 

(6,146) 

58,572 

(61,388) 

37,223 

(24,165) 

34,407 

(69) 

34,338 

(12,154) 

– 

(4,665) 

17,519

Statement of changes 

in stockholders' equity 

At December 31 2003 

REALIZATION OF REVALUATION RESERVE 

Through depreciation of own assets 

Income tax on realization of revaluation 

reserve of own assets 

NET INCOME FOR YEAR 

CONSTITUTION OF RESERVES 

INTEREST ON OWN CAPITAL 

(R$ 0.0664 PER SHARE) 

At December 31 2004 

CAPITAL INCREASE WITH INCOME 

RESERVES 

REALIZATION OF REVALUATION RESERVE 

Through depreciation of own assets 

Income tax on realization of revaluation 

reserve of own assets 

Reversion of income tax on revaluation 

of plots of land 

NET INCOME FOR YEAR 

CONSTITUTION OF RESERVES 

PROPOSED COMPLEMENTARY DIVIDENDS 


INTEREST ON OWN CAPITAL 


At December 31 2005 

Capital 

229,419 

– 

– 

– 

– 

– 

229,419 

– 

– 

– 

– 

– 

– 

– 

– 

229,419 

The management's explanatory notes are an integral part of the financial 

Investments 

w/incentives 

309 

– 

– 

– 

– 

– 

309 

– 

– 

– 

– 

– 

– 

– 

– 

309 

Capital Reserve Income reserves 

Revaluation 

reserve 

6,979 

(1,069) 

363 

– 

– 

– 

6,273 

– 

(1,046) 

356 

452 

– 

– 

– 

– 

6,035 

Legal 

reserve 

29,408 

– 

– 

– 

876 

– 

30,284 

– 

– 

– 

– 

– 

13,851 

– 

– 

44,135 

For capital 

increase 

– 

– 

– 

– 

– 

– 

– 

87,000 

– 

– 

– 

– 

– 

– 

– 

87,000 

Retention 

of profits 

164,363 

– 

– 

– 

17,349 

(21,596) 

160,116 

(87,000) 

– 

– 

– 

– 

263,400 

(24,781) 

(41,006) 

270,729 

Accumulated 

profits 

– 

1,069 

(363) 

17,519 

(18,225) 

– 

– 

– 

1,046 

(356) 

(452) 

277,013 

(277,251) 

– 

– 

Total 

430,478 

53. Financial Statements 2005 

– 

– 

17,519 

– 

(21,596) 

426,401 

– 

– 

– 

– 

277,013 

– 

(24,781) 

(41,006) 

637,627

Statement of changes 

in financial position 


ORIGINS OF FUNDS 

OPERATIONS 

Net earnings for year 

Expenses (revenues) not affecting working capital 

Depreciation and amortization 

Residual value of permanent asset disposal 

Equity in results of subsidiary and associated companies 

Exchange differences and monetary correction on long term liabilities 

Change in minority interests 

Amortization of deferred assets 

Amortization of goodwill on investments 

Provision for losses on investments 

Contingencies provision 

Exchange variation in investment in associated company abroad 

THIRD PARTIES 

Loans raised 

Dividends in subsidiary and associated companies 

Reduction in long term receivables 

Total funds provided 



277,013 

25,140 

673 

(18,322) 

3,095 

– 

– 

182 

325 

23,389 

– 

311,495 

– 

1,331 

– 

312,826 


2004 

17,519 

23,798 

12,517 

12,144 

(465) 

– 

7,794 

198 

– 

6,078 

– 

79,583 

47,604 

1,039 

23,199 

151,425 


277,013 

29,076 

687 

(777) 

3,401 

7,700 

462 

182 

393 

23,837 

(2,395) 

339,579 

– 

– 

– 

339,579 

Consolidated 

2004 

17,519 

26,504 

12,523 

6,146 

(212) 

4,665 

7,995 

198 

– 

6,879 

(1,988) 

80,229 

47,604 

– 

14,309 

142,142

RESOURCES USED FOR 

Property, plant and equipment 

Investment 

Interest on capital and proposed dividends 

Short term transfer – loans 

Future results 

Decrease in long term liabilities 

Total funds used 

Increase in net working capital 

CHANGES IN WORKING CAPITAL 

CURRENT ASSETS 

At beginning of year 

At end of year 

CURRENT LIABILITIES 

At beginning of year 

At end of year 

Increase in working capital 



29,763 

– 

65,787 

13,820 

6,702 

8,562 

124,634 

188,192 

801,653 

729,991 

(71,662) 

612,513 

352,659 

(259,854) 

188,192 


2004 

42,572 

1,505 

21,596 

17,526 

– 

5,806 

89,005 

62,420 

646,949 

801,653 

154,704 

520,229 

612,513 

92,284 

62,420 


47,198 

– 

67,118 

13,820 

8,236 

9,372 

145,744 

193,835 

884,037 

769,311 

(114,726) 

666,604 

358,043 

(308,561) 

193,835 

Consolidated 

2004 

51,778 

1,505 

22,634 

17,526 

– 

6,432 

99,875 

42,267 

776,850 

884,037 

107,187 

601,684 

666,604 

64,920 

42,267 


Explanatory notes 


1. Operations 

Confab Industrial S.A. (hereinafter “Company”) is a publicly 

traded corporation based in São Caetano do Sul, with 

manufacturing plants in Pindamonhangaba, in the state 

of São Paulo. Its main parent company is Siderca S.A., 

a subsidiary of Tenaris. 

The main activities of the company and its subsidiaries 

and associated companies involve the manufacture of welded 

steel pipes for the petroleum, petrochemical, gas, mining 

and sanitation industries, and industrial equipment for the 

petroleum, petrochemical, pulp, metallurgical, steel industries, 

among others. 

The Company's performance in 2005 reflects the supply of 

pipes and equipment for important infrastructure projects 

in the petroleum, petrochemical, gas and sanitation industries, 

a number of which were already included in the company's 

order books on December 31st, 2004. 

. 

. 

. 

2. Main accounting practices 

a. Financial statements 

The financial statements of the parent company and consolidated 

financial statements have been prepared and are 

presented in conformity with accounting practices adopted 

in Brazil, and are in compliance with Corporation Law and 

the norms of the Securities Commission-CVM. 

In the preparation of financial statements, it is necessary to 

make estimates when accounting for certain assets, liabilities 

and other transactions. Therefore, the parent company 

and consolidated financial statements include various estimates 

about the working lives of property, plant and equipment, 

provisions necessary for contingent liabilities, income 

tax and the like. Accordingly, the actual results may differ 

from the estimates. 

b. Determination of income 

Income is determined by the accrual basis of accounting, 

taking into account the following: 

Revenues from steel pipe sales are recognized only when it 

is probable that the relative economic benefits will be 

received by the Company and when the respective risks and 

rewards are transferred to the customer. 

The gross profit on contracts is recognized proportionally 

to the work performed on each contract up to the date of 

the balance sheet. Provisions for losses are made in those 

cases where costs incurred to date plus the estimate of 

costs still to be incurred exceed the total restated sale price. 

Provision for income tax is constituted with the inclusion 

of tax incentives. Deferred taxes were recognized at the 

rates in force for income tax and social contribution on tax 

losses and temporary differences, to the extent that realization 

is probable (Note 16).

. 

. 

. 

c. Current assets and long term assets 

Assets are stated at realizable values, including monetary 

or exchange variations and related accrued income, when 

applicable. 

Allowance for doubtful receivables has been set at a level 

considered to be sufficient to cover possible losses on the 

amounts receivable from customers and others, accounts 

receivable are recorded net of this allowance. 

Inventories are stated at the average cost of purchase or 

production, less than replacement costs or realizable 

values. Imports in transit are stated at the accumulated 

cost of each importation. 

d. Permanent Assets 

Permanent assets are stated at cost price restated monetarily 

up to December 31, 1995, under the following 

conditions: 

Investments in subsidiaries and associated companies are 

recorded using the equity equivalence method. 

Revaluation of property, plant and equipment, conducted 

in 1991, is based on appraisals by independent experts. 

Depreciation of property, plant and equipment on a 

straight line basis, using the annual rates given in explanatory 

note 8, which take into account the useful working 

lives of the assets. 

e. Current and long term liabilities 

Are shown by known or calculable amounts, in addition 

to monetary or exchange variations and corresponding 

charges, when applicable. 

. 

f. Consolidation Criteria 

The consolidated financial statements were prepared in 

accordance with the technical consolidation criteria in 

Ruling no. 247/96 issued by the CVM. 

For the preparation of the consolidated financial statements, 

the following accounts are eliminated: investments, 

unrealized profits or losses between parent company and 

subsidiaries or associated companies, the results of equity 

equivalence, the revenues and expenses from transactions 

among the companies, the balances among companies 

for current and long term assets and liabilities. The 

minority stockholders' interests are clearly shown in the 

results and net worth. 

The consolidated financial statements include the following 

subsidiary companies: 

Confab Montagens Ltda. 

Revestimentos Ltda. 

Socotherm Brasil S.A. 

Confab Trading LLC and its subsidiary Confab Trading N.V. 

g. Supplementary information 

In order to maximize the information being made available 

to the market, the Company is presenting as supplementary 

information the cash flow statement prepared in 

accordance with norm NPC 20 issued by IBRACON 

(Institute of Independent Auditors of Brazil), taking into 

account the main operations influencing the Company's 

available cash and financial investments. 




3. Financial investments 

LOCAL CURRENCY 

Time deposits 

FOREIGN CURRENCY 

Time deposits 

Trust 

4. Accounts receivable 

CUSTOMERS 

Domestic (*) 

Overseas (*) 

EXPORT CONTRACT ADVANCES 

OTHER RECEIVABLES – NET (*) 

(*) 

The amounts for domestic and overseas customers and other receivables are stated net of 

provisions for doubtful receivables, fines and other deductions in the amount of R$ 9,274 

(R$ 8,357 on December 31, 2004) in the parent company and R$ 12,446 (R$ 11,931 on 

December 31, 2004) in the consolidated statements. 


42,254 

209,271 

– 

209,271 

251,525 


107,338 

8,327 

– 

14,205 

129,870 

Parent company Consolidated 

2004 

– 

37,166 

– 

37,166 

37,166 

2004 

138,803 

54,666 

(26,385) 

19,967 

187,051 


42,254 

211,336 

– 

211,336 

253,590 


107,813 

15,554 

– 

16,125 

139,492 

2004 

– 

50,757 

54,283 

105,040 

105,040 


2004 

124,598 

39,478 

– 

23,789 

187,865

5. Inventories 

Finished products 

Products in progress 

Raw material 

Sundry material 

Advances to suppliers 

Imports in progress 

Provisions for obsolescence / market 

The reduction in the level of products in stock is related to 

the Company's strategy to adjust stock levels for the needs 

projected for the first months of 2006. 


120,628 

729 

67,544 

20,548 

14,359 

9,950 

(4,115) 

229,643 


2004 

228,004 

263 

103,643 

11,489 

13,163 

1,799 

(2,316) 

356,045 


128,020 

2,616 

85,844 

22,155 

16,278 

10,507 

(4,115) 

261,305 

2004 

229,876 

263 

109,069 

12,643 

9,120 

2,274 

(2,696) 

360,549 



. 


6. Taxes recoverable 

Represented mainly by tax credits and advances, as follows: 

CURRENT 

Value added tax on goods and services – ICMS 

Excise tax – IPI 

Income tax – IRPJ 

Social contribution on net earnings – CSLL 

PIS and COFINS recoverable – non-cumulative 

Others 

LONG TERM 

Social purposes recoverable (Finsocial) 

ICMS recoverable on fixed assets 

The Company continues to implement its action plan projected 

to use tax credits in the short term. Among the main 

actions during the years, the following are worthy of note: 

Federal taxes (PIS, COFINS and IPI) – used to offset tax 

payments on sales and, mainly, income tax and social contributions. 

. 


40,876 

4,073 

3,181 

1,363 

8,440 

2,155 

60,088 

2,368 

3,582 

5,950 


2004 

60,043 

26,330 

5,847 

3,364 

21,227 

6,340 

123,151 

2,368 

4,030 

6,398 


43,984 

6,272 

3,352 

1,432 

8,440 

6,281 

69,761 

2,368 

5,712 

8,080 

2004 

61,901 

26,690 

6,375 

3,676 

21,240 

9,230 

129,112 

2,368 

4,713 

7,081 

State tax (ICMS) – used to offset the amounts payable for 

the ICMS tax on sales and on diverse imports. Also used to 

pay suppliers.

7. Investments in subsidiaries and associated companies 

MOVEMENT 

Balances on December 31, 2003 

New investments 

Amortization of goodwill 

Dividends received and receivable 

Results in related companies 

Balances on December 31, 2004 

Amortization of goodwill 

Dividends received and receivable 

Results in related companies 

Balances on December 31, 2005 (Parent company) 

Eliminations 

Balances on December 31, 2005 (Consolidated ) 

(I) Examined by our independent auditors 

(II) Reviewed by our independent auditors 

(III)Examined by other independent auditors 

Confab 

Montagens 

Ltda. 

8,238 

– 

(198) 

– 

(4,849) 

3,191 

(182) 

– 

5,921 

8,930 

(8,930) 

– 

Confab 

Revestimentos 

Ltda. 

(5) 

– 

– 

– 

– 

(5) 

– 

– 

– 

(5) 

5 

– 

Socotherm 

Brasil 

S.A. 

(II) (II) (III) 

10,121 

– 

– 

(1,039) 

1,065 

10,147 

– 

(1,331) 

11,075 

19,891 

(19,891) 

– 

TenarisConfab 

Hastes de 

Bombeio S.A. 

– 

(I) 

1,505 

– 

– 

(406) 

1,099 

– 

– 

(1,616) 

(517) 

– 

(517) 

Confab 

Trading LLC 

24,558 

– 

– 

– 

(4,210) 

20,348 

– 

– 

(1,856) 

18,492 

(18,492) 

– 

(II) 

Siat S.A. 

51,145 

– 

– 

– 

(3,744) 

47,401 

– 

– 

4,798 

52,199 

– 

52,199 

(I) 

Total 

94,057 

1,505 

(198) 

(1,039) 

(12,144) 

82,181 

(182) 

(1,331) 

18,322 

98,990 

(47,308) 

51,682 




On December 31, 2004 


Confab Revestimentos Ltda. 


Tenaris Confab Hastes de Bombeio S.A. 

Confab Trading LLC 

Siat S.A. 

On December 31, 2005 

Confab Montagens Ltda. (I) 

Confab Revestimentos Ltda. (II) 

Socotherm Brasil S.A. (III) 

TenarisConfab Hastes de Bombeio S.A. (IV) 

Confab Trading LLC (V) 

Siat S.A. (VI) 

(I) Confab Montagens Ltda – activities consist mainly of conducting studies and carrying out 

the assembly, installation and maintenance of devices, machinery and/or industrial subunits 

manufactured by third parties. 

(II) Confab Revestimentos Ltda – company not in operation. 

(III)TenarisConfab Hastes de Bombeio S.A. – the company's main activity is the manufacture 

and commercialization of sucker rods and other materials, equipment, components and 

metallic accessories used in the petroleum and petrochemical segments. 

Ordinary 

Shares 

– 

– 

932 

1,505 

– 

12,000 

– 

– 

932 

1,505 

– 

12,000 

(IV) Confab Trading LLC – based in Delaware – USA, the company was incorporated on Novem 

ber 9, 2001, with capital paid up by all the shares of Confab Trading N.V. It was created 

with the objective of participating as a shareholder in foreign companies. 

Thousands of shares or 

quotas held by Company 

Quotas 

10,419 

7,103 

– 

– 

– 

– 

10,419 

7,103 

– 

– 

– 

– 

Company share in 

made up 

capital – % 

100 

100 

50 

49 

100 

30 

100 

100 

50 

49 

100 

30 

Adjusted 

shareholders' 

equity 

3,009 

(5) 

27,495 

2,240 

20,348 

158,003 

8,930 

(5) 

42,895 

(1,056) 

18,492 

173,997 

Adjusted 

Net earnings/ 

(loss) 

(4,849) 

– 

9,330 

(832) 

(2,213) 

3,029 

5,921 

– 

15,400 

(3,296) 

548 

37,474 

(V) Socotherm Brasil S.A. – activities consist mainly of the manufacture, commercialization and 

provision of services in the segment of internal and external coating for steel pipes and 

metallic parts in general and the acquisition and transfer of technology in the segment of 

anticorrosive and thermal coating for metallic parts. 

In Ordinary and Extraordinary General Assembly on April 29, 2005, and by filing with 

JUCESP on June 28, 2005, the name of the subsidiary Soco-Ril do Brasil S.A. was changed 

to Socotherm Brasil S.A. 

(VI)Siat S.A. – located in Argentina, its activities consist mainly of the manufacture of welded 

steel pipes for the petroleum, petrochemical, gas and sanitation industries.

8. Property, plant and equipment 

Land 

Buildings 

Machinery and equipment 

Installations 

Data processing equipment 

Furniture and fixtures 

Vehicles 

Construction in progress 

Others 

Land 

Buildings 


Installations 

Data processing equipment 

Furniture and fixtures 

Vehicles 

Construction in progress 

Others 

Annual 

depreciation 

rate – % 

– 

4 

10 

10 

20 

10 

20 

– 

– 


depreciation 

rate – % 

– 

4 

10 

10 

20 

10 

20 

– 

– 

Restated cost 

and revaluation 

increments 

9,010 

78,294 

205,994 

17,884 

30,182 

3,427 

14,251 

28,060 

20 

387,122 

Restated cost 

and revaluation 

increments 

9,010 

83,507 

223,735 

20,247 

30,652 

3,543 

16,348 

49,484 

29 

436,555 

Accumulated 

depreciation 

– 

(28.806) 

(93,457) 

(4,879) 

(18,093) 

(2,044) 

(11,015) 

– 

(20) 

(158,314) 

Accumulated 

depreciation 

– 

(30,883) 

(100,118) 

(6,322) 

(18,450) 

(2,096) 

(12,373) 

– 

(29) 

(170,271) 


Net 

value 

9,010 

49,488 

112,537 

13,005 

12,089 

1,383 

3,236 

28,060 

– 

228,808 


Net 

value 

9,010 

52,624 

123,617 

13,925 

12,202 

1,447 

3,975 

49,484 

– 

266,284 


2004 

Net 

value 

9,010 

49,169 

108,489 

10,713 

15,391 

1,385 

3,975 

26,625 

101 

224,858 

Consolidated 

2004 

Net 

value 

9,010 

52,746 

116,773 

12,447 

15,553 

1,460 

4,874 

35,872 

114 

248,849 



In 1991, the stockholders approved the revaluation of property, 

plant and equipment based on appraisals by specialized 

companies. The position of the revalued assets on December 

31, 2005 is as follows: 

Land 

Buildings 


Vehicles 

The construction in progress refers basically to expenditure 

on the expansion and modernization of the Pindamonhangaba 

plant. 

9. Suppliers 

SUPPLIERS 

Local 

Overseas 


depreciation 

rate – % 

– 

4 

4 

– 


46,772 

37,344 

84,116 

Restated 

cost 

1,331 

15,009 

11,817 

428 

28,585 

2004 

79,084 

50,107 

Accumulated 

depreciation 

– 

(9,966) 

(9,733) 

(428) 

(20,127) 


Net 

value 

1,331 

5,043 

2,084 

– 

8,458 


129,191 


61,583 

9,426 

71,009 

2004 

68,033 

31,069 

99,102 

2004 

Net 

value 

1,331 

5,731 

2,437 

6 

9,505

10. Transactions with associated companies 

ACCOUNTS 


ACCOUNTS RECEIVABLE 


Confab Trading N.V. 

Dalmine S.p.A 

Exiros BR Ltda 

Siat S.A. 

Siderca S.A.I.C. 

Socominter Sociedade Comercial Internacional Ltda 

Socominter S.A. (Venezuela) 


Tecgas Argentina S.A. 

Techint Compagnia Tecnica Internazionale S.p.A. 

Techint S.A. 

TenarisConfab Hastes de Bombeio S.A. 

Tenaris Global Services (Canadá) Inc. 

Tenaris Global Services (USA) Corporation 

Tenaris Global Services S.A. 

Tubular DST Nigéria Ltd 

ADVANCES TO SUPPLIERS 



RECEIVABLES 


Dalmine S.p.A 




RECEIVABLES FROM ASSOCIATED COMPANIES 





LOANS 

Confab Revestimentos Ltda. 

Total 

NOTES 

(I) 

(II) 

(III) 

(IV) 

(V) 

(VI) 

(VII) 


1 

832 

– 

– 

– 

– 

1 

– 

2,382 

40 

50 

1 

6,616 

– 

– 

1,937 

– 

11,860 

– 

11,126 

11,126 

78 

130 

8 

2,004 

5 

2,225 

13,127 

6,023 

24,252 

43,402 

16 

16 

68,629 


2004 

– 

44,360 

2 

89 

– 

– 

– 

– 

10,243 

– 

57 

147 

9,499 

– 

– 

– 

– 

64,397 

100 

4,043 

4,143 

– 

– 

– 

– 

– 

– 

– 

2,884 

15,207 

18,091 

16 

16 

86,647 


– 

– 

– 

– 

– 

500 

1 

8,434 

– 

40 

50 

1 

6,616 

– 

– 

2,759 

6 

18,407 

– 

– 

– 

– 

130 

8 

– 

5 

143 

– 

– 

24,252 

24,252 

– 

– 

42,802 

2004 

– 

– 

2 

101 

2,757 

599 

– 

– 

– 

– 

57 

148 

9,499 

1,245 

2,152 

3,329 

47 

19,936 

100 

– 

100 

– 

– 

– 

– 

– 

– 

– 

– 

15,207 

15,207 

– 

– 

35,243 



ACCOUNTS 


SUPPLIERS 


Dalmine S.p.A. 

Metalmecanica S.A. 

Siat S.A. 

Siderar S.A.I.C. 



Tubos de Acero de México S.A. 

Tamtrade S.A. de C.V. 


Techint Eng. Technical and Commercial Services LLC 

Techint Engineering Company Inc.Panamá 

Techint Engineering LLC USA 

Techint Engineering Holding S.A. 

Techint Internat.Construction Corporation 

Tenaris Conection B.V. 



Tenaris Global Services LLC 

Tenaris Global Services Far East Pte Ltd 

ADVANCES FROM CUSTOMERS 

Techint S.A. 


RECEIVABLES 




Metalcentro S.A. 


Siat S.A. 







LOANS 


Techint Engineering Company B.V. 

Total 

NOTES 

(VIII) 

(IX) 

(X) 

(XI) 

(XII) 


(23,640) 

(735) 

(105) 

(10) 

(1) 

(2,116) 

(4,931) 

(12) 

– 

– 

– 

– 

– 

(6) 

– 

– 

– 

– 

(94) 

– 

(31,650) 

– 

(5,359) 

(5,359) 

(1,250) 

(1,034) 

(11) 

(1) 

– 

(238) 

(92) 

(4) 

– 

– 

(1,321) 

(240) 

(4,191) 

(12,492) 

– 

(12,492) 

(53,692) 


2004 

(26,808) 

(811) 

(10,505) 

(11) 

(1) 

(1,782) 

(14,876) 

(5) 

(261) 

(89) 

(11) 

(64) 

(7) 

– 

(796) 

(538) 

(1,300) 

(2) 

(560) 

– 

(58,427) 

(1,407) 

– 

(1,407) 

(1,417) 

(24) 

(18) 

(9) 

(502) 

– 

(1,415) 

690 

(229) 

(6) 

(1,014) 

– 

(3,944) 

(9,037) 

(14,464) 

(23,501) 

(87,279) 


– 

(735) 

(105) 

(56) 

(1) 

(2,116) 

– 

(12) 

– 

– 

– 

– 

– 

(6) 

– 

– 

– 

– 

(101) 

(5) 

(3,137) 

– 

(5,359) 

(5,359) 

– 

(1,046) 

(11) 

(1) 

– 

(238) 

(92) 

– 

– 

– 

(1,321) 

(240) 

(2,949) 

– 

– 

– 

(11,445) 

2004 

– 

(917) 

(10,505) 

(64) 

(1) 

(1,782) 

– 

(5) 

(261) 

(89) 

(11) 

(64) 

(7) 

– 

(796) 

(538) 

(1,300) 

(2) 

(567) 

(6) 

(16,915) 

(1,407) 

– 

(1,407) 

– 

(24) 

(18) 

(9) 

(502) 

– 

(1,415) 

– 

(229) 

(6) 

(1,014) 

– 

(3,217) 

– 

(14,464) 

(14,464) 

(36,003)

ACCOUNTS 

REVENUES FROM: 

FINANCIAL INVESTMENTS 

Tenaris Financial Service S.A. 

SALES OF PRODUCTS AND SERVICES 



Dalmine S.p.A 


Siat S.A. 


Socominter S.A. 



Tecgas Argentina S.A. 


Techint International Construction Corporation 

Techint S.A. 


Tenaris Global Services (Canadá) Inc. 

Tenaris Global Services (UK) 



Tubular DST Nigéria Ltd 

RECEIVABLES FROM ASSOCIATED COMPANIES 




Tenaris Global Services B.V. 


LOANS 

Confab Montagens Ltda 



Total 


– 

– 

2 

70,302 

– 

249 

3,576 

– 

31,624 

2,313 

– 

187 

– 

– 

1,340 

1,396 

– 

– 

– 

– 

– 

110,989 

77 

553 

3,024 

– 

3,654 

– 

– 

– 

– 

114,643 


2004 

336 

336 

– 

351,613 

3 

46 

– 

1,319 

– 

– 

7 

160 

– 

– 

214 

– 

– 

– 

– 

– 

– 

353,362 

2,877 

– 

– 

399 

3,276 

585 

1,100 

102 

1,787 

358,761 


– 

– 

– 

– 

– 

252 

8,859 

475 

31,624 

– 

– 

187 

– 

31 

1,341 

1,396 

2,793 

– 

16,010 

8,280 

4,961 

76,209 

– 

– 

3,024 

– 

3,024 

– 

– 

– 

– 

79,233 

2004 

336 

336 

– 

– 

3 

46 

4,559 

2,206 

– 

– 

10,696 

160 

67 

– 

214 

– 

18,341 

2,459 

80,439 

38,470 

1,274 

158,934 

– 

– 

– 

399 

399 

– 

– 

– 

– 

159,669 




ACCOUNTS 

COSTS AND/ OR EXPENSES FROM: 

SUPPLIERS 



Metalcentro S.A. 


Siat S.A. 

Siderar S.A.I.C. 







Techint Compañia Internacional SACI - Bs As 

Techint Eng. Technical and Commercial Services LLC 

Techint Engineering Company Inc.Panamá 

Techint Engineering LLC USA 

Techint International Construction Corporation 

Tenaris Conection B.V. 



Tenaris Global Services UK Ltd 


Texas Pipe Threaders Co. 

LOANS 


Techint Engineering Company B.V. 

Tenaris Global Services B.V. 

Total 


(1,003) 

(4,866) 

(49) 

(1,821) 

(1,384) 

(13) 

(2,943) 

(93,831) 

(2) 

(33) 

(112) 

(55) 

– 

(116) 

(4) 

– 

(30) 

451 

(4,932) 

(2,572) 

– 

(250) 

– 

(113,565) 

(1,411) 

(175) 

– 

(1,586) 

(115,151) 


2004 

(558) 

(3,186) 

(152) 

(1,579) 

(1,514) 

– 

(12,213) 

(33,849) 

– 

(5) 

(511) 

(79) 

(3) 

(191) 

– 

712 

(858) 

(592) 

(4,670) 

(13,372) 

(35) 

– 

(79) 

(72,734) 

(62) 

(788) 

(373) 

(1,223) 

(73,957) 


(1,003) 

(4,866) 

(49) 

(1,821) 

(1,384) 

(13) 

(2,943) 

– 

(2) 

(33) 

(112) 

(55) 

– 

(116) 

(4) 

– 

(30) 

451 

(4,932) 

(2,572) 

– 

(250) 

– 

(19,734) 

– 

(175) 

– 

(175) 

(19,909) 

2004 

(558) 

(3,186) 

(152) 

(1,579) 

(1,514) 

– 

(12,213) 

– 

– 

(5) 

(511) 

(79) 

(3) 

(191) 

– 

712 

(858) 

(592) 

(4,670) 

(13,375) 

(35) 

– 

(79) 

(38,888) 

– 

(788) 

(373) 

(1,161) 

(40,049)

The purchase and sale of merchandise, products and services 

are carried out under normal market conditions; 

balances of assets and payables between related companies 

are subject to the usual market finance charges. 

The main amounts of receivables and liabilities with 

related parties were: 

(I) Socotherm Brasil S.A. – balance receivable from commercial 

operations, without guarantee, due on following 

dates: R$ 155 in January 2006 and R$ 2,227 in June 2006. 

(II) Tenaris Confab Hastes de Bombeio S.A. – balance 

receivable from commercial operations, without guarantee, 

due in June 2006. 

(III) Tenaris Global Services S.A. – balance receivable from 

commercial operations, without guarantee, due in February 

2006. 

(IV) Socotherm Brasil S.A. – advance made on pipe coating 

services for Petrobras job (PDET Raso) to be used in 

January 2006 and February 2006. 

(V) Confab Trading N.V. – loan granted at average interest 

rate of 3.25% p.a. plus libor, without guarantee, due in 

May 2006. 

(VI) Socotherm Brasil S.A. – balance receivable of R$ 6,023, 

of which R$ 5,458 is related to a loan granted at interest 

rate of 12% p.a., without guarantee, due in March 2006 and 

R$ 565 is related to interest on own capital receivable. 

(VII) Tenaris Confab Hastes de Bombeio S.A. – loan granted 

at Selic rate interest, without guarantee, due in June 

2006 and December 2006. 

(VIII) Confab Trading N.V. – balance payable on commercial 

operations, without guarantee, due in March 2006. 

(IX) Siderca S.A.I.C. – balance payable of R$ 2,116, of 

which R$ 242 is related to commercial operations, without 

guarantee, due in February 2006 and R$ 1,874 is related to 

interest on own capital payable. 

(X) Socotherm Brasil S.A. – balance payable related to 

provision of pipe coating services, without guarantee, due 

as follows: R$ 1,068 in January 2006, R$ 3,125 in February 

2006, R$ 510 in March 2006, R$ 142 in June 2006 and 

R$ 86 in December 2006. 

(XI) Socominter Sociedade Comercial Internacional Ltda. – 

advance received on account of execution of work for 

Petrobras (Paranaguá-Paraná), to be used in January 2006 

and February 2006. 

(XII) Confab Montagens Ltda. – balance payable related 

to current account for intercompany operations, with no 

determined due date, subject to interest of 1% per month. 




11. Loans and financing 

Type 

a. BALANCES ON 31ST OF DECEMBER 

LOCAL CURRENCY 

BNDES investments 

BNDES investments 

FOREIGN CURRENCY 

Exchange contract advances 

Pre-export finance 

Working capital finance 

Total 

CURRENT 

LONG TERM LIABILITIES 

TJLP – Long Term Interest Rate 

UMBND – BNDES monetary unit (basket of currencies) 

b.FALLING DUE IN LONG TERM 

2006 

2007 

2008 

2009 

2010 

2011 

c.GUARANTEES 

Index 

or currency 

TJLP 

UMBND 

US$ 

US$ 

US$ 

Financing for investment was guaranteed by mortgaging company assets. 

The other financing in local and foreign currency was guaranteed by promissory notes. 

Annual interest 

rates per year 

4% and 4.25% 

4% and 4.25% 

4.05% 

4.49% 

6.41% 


41,968 

12,585 

54,553 

1,262 

– 

– 

1,262 

55,815 

(13,425) 

42,390 


– 

14,559 

9,307 

9,227 

6,137 

3,160 

42,390 

Consolidated 

2004 

47,310 

16,664 

63,974 

186,088 

8,848 

13,315 

208,251 

272,225 

(217,412) 

54,813 


and Consolidated 

2004 

11,619 

14,683 

9,439 

9,345 

6,227 

3,500 

54,813

12. Customer advances 

The balance of R$ 101,336 (R$ 155,911 on December 31, 

2004) in the parent company and R$ 122,435 (R$ 214,551 

on December 31, 2004) in the consolidated statements is for 

customer advances for the production of goods or provision 

of services. This liability is represented by the contractual 

obligation to produce such goods or provide services 

and if these should not materialize, the return of the 

money received. 

13. PAES – Special installment plan – Law 10.684/03 

On July 31 2003 the parent company Confab Industrial 

S.A. and its subsidiary Confab Montagens Ltda, joined the 

PAES regime, benefiting from payment in up to 120 

Labor suits 

Labor suits – Rio de Janeiro Refrescos S.A. 

Tributary suits 

Tributary suits – Rio de Janeiro Refrescos S.A. 

Civil suits 

Civil suits – Rio de Janeiro Refrescos S.A. 

The provisions are as follows: 

Balance on December 31, 2004 

Provisions constituted, net of reversions 

Compensation with amounts receivable – Rio de Janeiro Refrescos 

Payments 

Balance on December 31, 2005 

installments. This involved giving up actions using tax 

losses and negative social contribution, not taking into 

consideration the limitation of 30% of profit in the period. 

These amounts were provisioned as contingencies and have 

been transferred to current and long term liabilities. 

14. Contingencies 

It is the company's practice to make provisions for the labor, 

tax and civil claims which its legal advisors consider to be 

probable losses; management judges that historically such 

provisions have proved sufficient to cover eventual losses. 

On the dates of the financial statements, the Company had 

the following liabilities related to contingencies: 


23,459 

3,335 

9,339 

2,460 

1,540 

1,000 

41,133 

22,358 

23,389 

(2,907) 

(1,707) 

41,133 


2004 

16,211 

3,375 

1,118 

651 

3 

1,000 

22,358 


24,670 

3,335 

11,067 

2,460 

1,540 

1,000 

44,072 

25,127 

23,837 

(2,907) 

(1,985) 

44,072 

2004 

17,467 

3,375 

2,601 

651 

33 

1,000 

25,127 





The company is responsible for contingent liabilities 

from the time when it administered its ex-subsidiary Rio 

Janeiro Refrescos S.A., sold in 1994. Additionally, in 

accordance with the corresponding sale contract, the 

company has a mortgage on its plant equipment assets 

with a net book value of R$ 16.557. 

The company also has law suits deemed by its legal advisors 

to be possible losses, in the amounts of R$ 89,782 

(R$ 59,554 on December 31, 2004), in the mother 

company and R$ 90,803 (R$ 59,921 on December 31, 2004) 

in the consolidated statements. From these suits, the 

amount of R$ 14,737 (R$ 14,265 on December 31, 2004) is 

related to the company Rio de Janeiro Refrescos S.A. Based 

on the information from legal advisors and management 

analysis, no provision was made for these contingencies. 

The company also has ongoing law suits where a favorable 

outcome is probable, involving the consolidated 

amount of R$ 72,988 (R$ 57,136 on December 31, 2004) 

net of legal fees, which will be recognized when realized. 

The Company contested judicially the constitutionality 

of the broadening of the calculation base determined 

by the Law nº 9.718/98 with reference to the Programa de 

Integração Social-PIS and the Contribution for the Financiamento 

da Seguridade Social-COFINS. On November 

9, 2005, in a plenary session, the Supreme Federal Court 

(Supremo Tribunal Federal) ruled, in individual suits, 

that the law is unconstitutional. 

Since this decision only benefited the parties involved 

in that case, and since the suits being brought by the 

Company have not yet been judged, and based on the 

guidelines released by the Securities and Exchange 

Commission (Comissão de Valores Mobiliários-CVM) 

in its Ruling nº 489/05 and by the Institute of Independent 

Auditors (Instituto dos Auditores Independentes 

do Brasil-IBRACON) through its bulletin nº 02/2006, the 

reversal of the registration of the liability provisioned 

and consequent recognition of revenue will only occur 

after a favorable and irreversible court ruling. 

15. Shareholders equity 

a. Capital 

At the Extraordinary General Meeting on May 31st, 

2004, the Council deliberated on the split of the company's 

shares such that each share in existence on the date 

of the EGM would be attributed with two new shares 

of the same type, with no alteration in capital value. 

With the share split deliberated on May 31, 2004, the 

Company by-laws authorized the increase in capital to 

a total limit of 422,822,400 shares (before the split, the 

limit allowed for was 140,940,800), respecting the proportionality 

amongst the existing classes of shares, the 

Council being the competent body for such deliberation. 

It is also within the Council's competence to determine 

the conditions applicable based on the authorized capital 

as well as the applicability or not of the preference rights 

of the current shareholders under the terms of Article 

172 of Law nº. 10.303/2001.

The subscribed and paid up capital on December 31, 2005 

is as follows: 

SHAREHOLDERS 

Controlling (Foreign Capital) 

Management 

Administrative Council 


Audit Council 

Other shareholders 

Total 

Breakdown on December 31, 2004: 

SHAREHOLDERS 

Controlling (Foreign Capital) 

Management 

Administrative Council 


Audit Council 

Other shareholders 

Total 

b. Retained profits reserve 

Quantity of 

ordinary 

shares 

126,800,634 

15 

600,003 

– 

393,516 

127,794,168 

Quantity of 

ordinary 

shares 

126.800,634 

15 

600,003 

– 

393,516 

127,794,168 

Since own generation of funds is the company's main 

source of financing and given the prospect of important 

investments in pipelines in Brazil and South America, 

the Company's main markets, at the Ordinary General 

Meeting, to be held on April 18, 2006, it will be proposed 

that there be a capital increase of R$ 87,000 in this reserve 

and that the balance of profits remaining from the accumulated 

results be retained in line with the capital budget 

proposed by management. 

% 

99.22 

– 

0.47 

– 

0.31 

100.00 

% 

99.22 

– 

0.47 

– 

0.31 

100.00 

Quantity of 

preferential 

shares 

– 

– 

5,655,000 

530,000 

191,268,829 

197,453,829 

Quantity of 

preferential 

shares 

– 

– 

5,655,000 

489,000 

191,309,829 

197,453,829 

% 

– 

– 

2.86 

0.27 

96.87 

100.00 

% 

– 

– 

2.86 

0.25 

96.89 

100.00 

Total 

quantity 

126,800,634 

15 

6,255,003 

530,000 

191,662,345 

325,247,997 

Total 

quantity 

126.800,634 

15 

6,255,003 

489,000 

191,703,345 

325,247,997 

% 

38.99 

– 

1.92 

0.16 

58.93 

100.00 

% 

38.99 

– 

1.92 

0.15 

58.94 

100.00 




c. Dividends and interest on capital 

Preferential shares, which do not have voting rights, have 

priority on the return of capital, as well as the preferential 

right to receipt of fixed non-cumulative dividends of 8% 

per year on that portion of the capital attributable to them, 

which take priority in payment above all other classes of 

shares. After payment of the 8% on the preferred shares, 

the ordinary shares are guaranteed the same participation 

in profits, being at least equivalent to 25% of adjusted net 

profit, whichever is the greater of the two. 

In accordance with tax legislation, the company opted to 

pay interest to shareholders on capital in line with the 

mandatory dividend for 2005 of R$ 41,006. These interest 

Net profit for year 

Legal reserve 

Basis of calculation of dividends 

Proposed complementary dividends 

Interest on own capital 

Total dividends paid out 

Percentage of net earnings of year 

payments were approved in meetings of the Board held 

on July 26 and November 3 2005 and were paid out on 

September 13 and December 2 2005. 

Although for tax purposes the interest on capital has been 

recognized in the results, for purposes of the financial 

reports it has been restated as shareholders equity. 

Additionally, the Company will be proposing to the 

Ordinary General Assembly complementary dividends 

of R$ 24,781. 

The calculation of dividends and interest on capital is 

shown below: 


277,013 

(13,851) 

263,162 

24,781 

41,006 

65,787 

25% 

2004 

17,519 

(876) 

16,643 

– 

21,596 

21,596 

130%

16. Income tax and social contribution 

a. Nature of deferred taxes 

The parent company and subsidiaries recorded tax credits 

as a result of temporary timing differences relating to income 

tax losses and negative social contribution base. These 

credits have been recorded in current and long term assets 

DEFERRED TAX ASSET 

Taxes challenged in court 

Non-deductible provisions 

Tax loss and negative base 

Total Parent company 

Subsidiaries 

Consolidated Total 

DEFERRED TAX LIABILITY 

Revaluation reserves 

Public company profit 

Total Parent company and consolidated 

Net change in result 

Current 

– 

9,961 

1,358 

11,319 

101 

11,420 

– 

– 

– 

based on the expected date of their realization, taking into 

account projections of future profits approved by the 

Administrative Council, as well as finalization dates and 

the restriction of offsets to 30% of annual taxable income 

under the law in force. 

Long term 

asset/ 

liability 

7,370 

11,012 

– 

18,382 

86 

18,468 

2,423 

– 

2,423 


Change 

in result 

– 

9,475 

(14,246) 

(4,771) 

116 

(4,655) 

809 

423 

1,232 

(3,423) 

Current 

– 

8,108 

15,604 

23,712 

71 

23,783 

– 

– 

– 

Long term 

asset/ 

liability 

7,370 

3,390 

– 

10,760 

– 

10,760 

3,232 

423 

3,655 

2004 

Change 

in result 

145 

1,058 

(2,007) 

(804) 

(3,174) 

(3,978) 

364 

51 

415 

(3,563) 




Estimate of realization of credits recorded: 

DEFERRED TAX ASSET 

Taxes challenged in court 

Provision for losses on receivables 

Contingencies provision 

Tax loss and negative base 

Other temporary credits 

Parent company total 

Subsidiaries 

Consolidated total 

DEFERRED TAX LIABILITY 

Revaluation reserves (*) 

Total parent company and consolidated 

(*) Deferred income tax and social contribution calculated based on the revaluation of property, 

plant and equipment are expected to be realized based on the depreciation of assets, the rates 

of which are informed in Note 8. 

1 year 

– 

1,943 

– 

1,358 

8,018 

11,319 

101 

11,420 

– 

– 

2 years 

267 

– 

1,073 

– 

– 

1,340 

86 

1,426 

345 

345 

3 years 

7,103 

– 

2,285 

– 

– 

9,388 

– 

9,388 

345 

345 

From 4 

years 

– 

– 

7,654 

– 

– 

7,654 

– 

7,654 

1,733 

1,733 

Total 

7,370 

1,943 

11,012 

1,358 

8,018 

29,701 

187 

29,888 

2,423 

2,423

. Reconciliation of income tax and social contribution with the 

amount of taxes that would be payable were they to be assessed 

by applying tax rates to the results shown in the corporate accounts 

PROFIT BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 

AND AFTER MANAGEMENT AND EMPLOYEE PROFIT SHARE 

NOMINAL AGREED RATE – % 

EXPENSES WITH NOMINAL INCOME TAX AND SOCIAL CONTRIBUTION 

PERMANENT DIFFERENCES 

Equity in results of subsidiaries and associates 

Interest on own capital 

Deferred income tax in non-recognized subsidiary 

Other permanent additions and exclusions, net 

TEMPORARY DIFFERENCES 

Use of tax loss and negative base 

Tax credit on temporary additions and exclusions 

Current tax 

Use of tax loss and negative base 

Deferment of temporary additions and exclusions 

Reversion of deferred income tax and social contribution of Confab Montagens Ltda. 

Deferred tax 

Charge for income tax and social contribution for period 

17. Other operating expenses, net 

Contingency provision 

Others, net 

Other operating expenses, net 


395,388 

34 

(134,432) 

6,230 

13,943 

– 

(4,116) 

14,246 

(10,707) 

(114,836) 

(14,246) 

10,707 

– 

(3,539) 

(118,375) 


(23,389) 

(568) 

(23,957) 


2004 

23,432 

34 

(7,967) 

(4,129) 

6,990 

– 

(807) 

2,007 

(1,618) 

(5,524) 

(2,007) 

1,618 

– 

(389) 

(5,913) 

2004 

(6,078) 

241 

(5,837) 


412,288 

34 

(140,178) 

264 

14,849 

– 

(3,637) 

15,373 

(10,823) 

(124,152) 

(14,246) 

10,823 

– 

(3,423) 

(127,575) 


(23,837) 

(1,440) 

(25,277) 

2004 

34,338 

34 

(11,675) 

(2,090) 

7,343 

(2,129) 

(1,132) 

2,007 

(915) 

(8,591) 

(2,007) 

915 

(2,471) 

(3,563) 

(12,154) 


2004 

(6,879) 

(235) 

(7,114) 




18. Financial Instruments 

The parent company and its subsidiaries engage in transactions 

with financial instruments to reduce exposure to 

the effects of changes in interest and exchange rates and 

other market risks. Transactions observe guidelines established 

and monitored by the board of the company. 

a. Valuing of financial instruments 

The Company's main asset and liability financial instruments 

on December 31, 2005 are herein described, together 

with the criteria for valuing / evaluating them: 

(I) Cash and banks, financial investments, accounts receivable, 

other current assets and accounts payable 

The amounts accounted for are approximate to those realized. 

(II) Investments 

These consist mainly of investments in private subsidiaries, 

recorded by the equity equivalence method, which are of 

strategic interest to the company. The market value of the 

shares held is not taken into consideration. 

(III) Loans and financing 

Subject to normal market interest rates, as described in 

Note 11. 

b. Risk Management 

The main risks the Company and its subsidiaries are 

exposed to are of a strategic/operational and 

economic/financial nature. 

Operational-strategic risks, such as demand behavior, competition 

and technology are taken into consideration in the 

company's management model. 

Economic financial risk reflects mainly the behavior of macroeconomic 

variables, such as interest and exchange rates. 

Policies and guidelines determined by the company management 

forbid speculative negotiation and establish the 

diversification of instruments and counterparts. They also 

aim to constantly monitor and evaluate the global portfolio 

position in order to measure financial results and the 

impact on cash flow. 

To protect its assets, the company and its subsidiaries 

adopt conservative fund raising and financial investment 

policies and seek to minimize the cost of capital. 

(I) Interest Rate Risk 

Interest rate risk comes from that portion of debt contracted 

at floating rates. The portion of debt in foreign currency 

at floating rates is subject mainly to the oscillations of the 

LIBOR-(London Interbank Offered Rate) rate. 

The portion of the debt in reais subject to floating rates consists 

basically of that subject to Brazilian long term interest 

rate (TJLP), determined by the Brazilian Central Bank. 

(II) Exchange Rate Risk 

The Company monitors the effect of exchange rate oscillations 

on its assets and liabilities in foreign currency and on 

the commercial flow of contracts on the books and under 

negotiation. Additionally, it strives to diversify its financial 

investments between domestic and foreign currency (reais 

and U.S dollar), in accordance with its working capital and 

estimated usage of same. Financial derivative operations 

are on occasion used to ameliorate specific risks related to 

these positions.

The equity position related to the US dollar on December 

31, 2005 was as follows: 


Financial investments (Note 3) 

Accounts receivable (Note 4) 

Total current assets 


Loans and financing (Note 11) 

Suppliers (Note 9) 

Total current liabilities 

At the end of the financial year, the Company had active 

derivative or forward contracts with a principal value equivalent 

to R$ 1,229 (US$ 525,000) to cover specific oscillations 

in its commercial flow. 

(III) Credit risk 

These risks are managed and minimized through a specific 

policy of granting credit selectively to customers, with 

coverage for eventual default established according to the 

provisions in explanatory note 4. 

(IV) Project volatility risk 

The company's economic and financial performance is 

dependent on the supply of steel pipes for infrastructure 

projects in the petroleum, petrochemical, gas and sanitation 

industries. 

c. Market Value 

The Company and its subsidiaries evaluate their book assets 

and liabilities in relation to market values using available 

information and appropriate methodologies, a procedure 

requiring considerable judgment and reasonable estimates 

to produce the most suitable realizable value. The use 

of different market assumptions and / or methodologies 

for estimates may have a material effect on the estimated 

realizable values. 

209,271 

8,327 

217,598 

(1,262) 

(37,344) 

(38,606) 


211,336 

15,554 

226,890 

(1,262) 

(9,426) 

(10,688) 

The market values of financial investments and loans and 

financing were calculated based on the current value of the 

respective contracts, using indices and interest rates applicable 

to instruments of a similar nature, terms and risks. 

The book value of the financial instruments is equivalent 

to their market value. 

19. Insurance Cover 

It is the policy of the Company and its subsidiaries to contract 

insurance cover against the risk of fire for plant and 

equipment and inventories subject to risk for amounts 

considered sufficient to cover possible losses, considering 

the nature of the operation and based on advice from insurance 

consultants. 


Statement of cash flow 


OPERATIONAL ACTIVITIES 

NET PROFIT FOR YEAR 

EXPENSES (REVENUES) NOT AFFECTING CASH AND EQUIVALENTS 

Depreciation and amortization 

Monetary / exchange variation 

Amortization of deferrals 

Residual value of written off permanent assets 

Results in subsidiaries and associates 

Deferred income tax and social contribution 

Provision for investment losses 

Amortization of goodwill in investments 

Variation in minority shareholdings 

Exchange variation of investments in overseas subsidiary 

Contingency provision 

REDUCTION (INCREASE) IN ASSETS 

Accounts receivable 

Credits from associates 

Inventories 

Expenses brought forward 

Taxes recoverable 

Others 

INCREASE (DECREASE) IN LIABILITIES 

Suppliers 

Customer advances 

Taxes and contributions payable 

Salaries and charges 

PAES – special regime 

Disbursement for contingencies provision 

Disbursement for income tax and social contribution 

Others 

Cash generation from (use of cash in) operational activities 


277,013 

25,140 

(575) 

– 

673 

(18,322) 

3,539 

325 

182 

– 

– 

23,389 

311,364 

57,181 

(24,645) 

126,402 

(236) 

63,063 

1,001 

222,766 

(45,075) 

(54,575) 

55,968 

791 

(938) 

(1,707) 

(8,778) 

(4,056) 

(58,370) 

475,760 


2004 

17,519 

23,798 

(7,226) 

7,794 

12,517 

12,144 

389 

– 

198 

– 

– 

6,078 

73,211 

(34,067) 

71,410 

(177,695) 

1,630 

(80,483) 

4,845 

(214,360) 

38,181 

78,482 

6,131 

659 

782 

(3,512) 

– 

5,624 

126,347 

(14,802) 


277,013 

29,076 

2,386 

462 

687 

(777) 

3,423 

393 

182 

7,700 

(2,395) 

23,837 

341,987 

48,373 

(9,045) 

99,244 

(2,343) 

59,351 

(446) 

195,134 

(28,093) 

(92,116) 

64,155 

1,067 

(1,121) 

(1,985) 

(14,626) 

(3,615) 

(76,334) 

460,787 

2004 

17,519 

26,504 

(1,690) 

7,995 

12,523 

6,146 

3,563 

– 

198 

4,665 

(1,988) 

6,879 

82,314 

33,254 

(241) 

(163,528) 

2,183 

(81,712) 

4,751 

(205,293) 

11,312 

82,060 

6,540 

690 

664 

(3,798) 

(2,922) 

(852) 

93,694 

(29,285)

INVESTMENT ACTIVITIES 

Dividends received from subsidiary and associate 

Acquisition of property, plant and equipment 

Acquisition of investments 

Use of cash in investment activities 

FINANCING ACTIVITIES 

Payment of dividends and interest on own capital 

Loans and financing 

Funds raised 

Payments 

Use of cash in financing activities 

Effect of exchange variations on cash and equivalents 

Net increase (decrease) cash and equivalents 

Starting balance of cash and equivalents 

Closing balance of cash and equivalents 

Net increase (decrease) in cash and equivalents 

Sérgio Ricardo Putini 

TC CRC 1SP221919/O–2 

CPF 063.498.578–79 


665 

(29,763) 

– 

(29,098) 

(58,047) 

662,816 

(878,097) 

(273,328) 

(11,563) 

161,771 

92,911 

254,682 

161,771 


2004 

– 

(42,572) 

(1,505) 

(44,077) 

– 

471,261 

(493,370) 

(22,109) 

(2,102) 

(83,090) 

176,001 

92,911 

(83,090) 


– 

(47,198) 

– 

(47,198) 

(59,697) 

706,163 

(949,305) 

(302,839) 

(17,592) 

93,158 

166,618 

259,776 

93,158 

2004 

– 

(51,778) 

(1,505) 

(53,283) 

(1,077) 

476,766 

(493,370) 

(17,681) 

(8,188) 

(108,437) 

275,055 

166,618 

(108,437) 


Report of the Independent Auditors 

To the Board of Directors and Shareholders 

Confab Industrial S.A. 

1. We have audited the balance sheets of Confab Industrial S.A. and the consolidated balance sheets 

of Confab Industrial S.A. and its subsidiaries as of December 31, 2005 and 2004 and the related 

statements of income, of changes in shareholders' equity and of changes in the financial position 

of Confab Industrial S.A. and the corresponding statements of income and of changes in financial 

position for the years then ended. These financial statements are the responsibility of the company's 

management. Our responsibility is to express an opinion on these financial statements. 

2. We conducted our audits in accordance with approved Brazilian auditing standards, which require 

that we perform the audit to obtain reasonable assurance about whether the financial statements 

are fairly presented in all material aspects. Accordingly, our work included, among other procedures: 

(a) planning our audits taking into consideration the significance of balances and the accounting 

and internal control systems of the companies, (b) examining, based on tests, evidence and records 

supporting the amounts and disclosures in the financial statements, and (c) assessing the most 

significant accounting principles and estimates used by the company's management, as well as 

the overall presentation of the financial statements. 

3. In our opinion the financial statements examined by us present fairly, in all material aspects, 

the equity and financial position of Confab Industrial S.A. and Confab Industrial S.A. and its subsidiaries 

on December 31, 2005 and 2004, and the results of the operations, the changes in shareholders' 

equity and the changes in financial position of Confab Industrial S.A. for the years then 

ended, as well as the changes in consolidated financial position for the years then ended, in compliance 

with accounting practices adopted in Brazil. 

4. We conducted our audits with the objective of presenting an opinion about the financial statements 

referred to in the first paragraph, taken as a whole. The statement of cash flow, presented 

in the attachment to provide supplementary information about the company, is not required as an 

integral part of the financial statements. This statement of cash flow was submitted to the auditing 

procedures described in the second paragraph and in our opinion fairly presents, in all material 

aspects, the cash flow situation in relation to the overall presentation of the financial statements. 

São Paulo, January 27, 2006 

Independent Auditors 

CRC 2SP000160/O–5 

Paulo Cesar Estevão Netto 

Accountant CRC 1RJ026365/O–8 "T" SP

www.tenarisconfab.com.br 

www.confabequipamentos.com.br

Annual Report 2005 - Tenaris

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