Post on 19-Apr-2020
Annual Report and
Consolidated Financial Statements
TEI&C S.A.
June 30, 2007
Engineering & Construction
Engineering & Construction
Annual Report and
Consolidated Financial Statements
TEI&C S.A.
June 30, 2007
Engineering & Construction
Index:
08 The Company
20 Board of Directors and Executive Management
21 Legal Information
24 Report of the Auditors
26 Consolidated Balance Sheet
27 Consolidated Income Statement
28 Consolidated Statement of Changes in Equity
31 Consolidated Cash Flow Statement
33 Index to the Notes to the Consolidated Financial Statements
73 Additional Information:- TEI&C and subsidiaries’ activities for the period
July 1, 2006 - June 30, 2007
Annual Report and
Consolidated Financial Statements
TEI&C S.A.
June 30, 2007
6 Annual Report TEI&C S.A.
El Mauro Tailings Dam
Techint executes this project for Minera Los Pelambres in Chile's Fourth Region. The works
basically include a pipeline for tailing from the mine up to the dump, and a water pipeline for
water recirculation. Surface facilities construction and the control of operations are also included.
7
The Company
TEI&C S.A. (“TEI&C”), incorporated in Uruguay, isthe holding company of the Techint Group (TG)Engineering, Construction and Services (“EC&S”)companies operating in South America, CentralAmerica, and the Middle East.
TECHINT GROUP
TG is a conglomerate of more than 100 companies operating internationally. In
addition to TEI&C’s activities, TG is involved in the steel and energy sectors by
manufacturing seamless and welded steel tubes (mostly for the oil industry)1, flat
and long steel products (mostly for the construction industry)2, participating in the
energy market oil and gas exploration and production3, operating gas and oil
pipelines and distribution and transportation networks4, and participating in other
engineering and construction activities in the European, Chinese and African mar-
kets5. In addition to this, TG is present in different endeavors in areas such as
healthcare, telecommunications, rail freight and others.
TG’S HIGHLIGHTS:
(In USD million)
2006-07 2005-06 2004-05
Total sales 19,835 15,932 11,325
Total assets 24,537 17,630 12,502
Total permanent staff 51,600 44,900 35,900
8 Annual Report TEI&C S.A.
1. The most important seamless and welded steel tubes companies controlled through Tenaris are: Tubos de Acero deMexico S.A., Siderca S.A.I.C. (Argentina), Dalmine S.p.A. (Italy), Algoma Tubes Inc. (Canada), NKK Tubes K.K. (Japan),Tubos de Aceros de Venezuela S.A. (Venezuela), S.C. Silcotub S.A. and S.C. Donasid (Romania), Maverick and Hydril(United States).
2. Flat and long steel products companies controlled through Ternium S.A.: Siderar S.A.I.C. (Argentina), Sidor C.A.(Venezuela), Hylsa S.A. de C.V. and Grupo Imsa S.A.B. de C.V. (Mexico).
3. Tecpetrol International S.A. (Uruguay) is the holding company controlling oil and gas operations in Argentina, Ecuador, Peru,Mexico, Venezuela, etc.
4. TG holds a minor interest in: Transportadora de Gas del Norte S.A. and Transportadora de Gas del Mercosur S.A.(Argentina), both companies being involved in gas transportation.
5. The Engineering and Construction business in Europe, China, Egypt, Mexico, and Africa are developed under the controlof Techint European Holding (Netherlands) B.V.
EC&S’s activities by TG´s subsidiaries include the completion of over 3,000
projects during the past 50 years (among them 350 power projects, 70,000 km of
pipelines installed, 20,000 km of power lines laid, 9,000 km of roads tended, etc.).
The backlog as of June 30, 2007 reached USD 2,607 million, geographically
segregated as follows:
SALES AND BACKLOG GEOGRAPHICAL
DISTRIBUTION
(In USD million)
Argentina: 261
Brazil: 413
Mexico: 267
Other America: 456
Europe, Middle & Far East, Africa: 1,210
Total: 2,607
9
ARGENTINA261
BRAZIL413
MEXICO267
OTHER AMERICA456
EUROPE, MIDDLE &FAR EAST, AFRICA1,210
TEI&C AND SUBSIDIARIES
Since its beginnings in the 1940s, TEI&C and its subsidiaries have been constantly
growing, providing services to customers located mostly in Latin America and the
Middle East. The companies grouped today under TEI&C have designed and built
more than 70,000 km of gas and oil pipelines throughout the world, including 16
pipelines laid across the Andean mountains, reaching altitudes of 5,000 m above
sea level. These companies are also active in infrastructure for such projects,
including water and waste treatment plants, mineral pipelines, telecommunication
networks, power transmission lines, transportation networks (railways, under-
grounds, roads, bridges, and highways), aqueducts, dams, reservoirs, and airports.
Manufacturing plants have been yet another area where TEI&C’s subsidiaries have
developed international expertise, including steel, chemical and petrochemical
plants, gas treatment and separation refineries and other light industry plants.
Furthermore TEI&C is also widely experienced in the erection of thermal and
hydroelectric power generation plants.
All the abovementioned projects have enabled TEI&C and its subsidiaries to gather
substantial experience and know-how overcoming very complex challenges and
fulfilling our customers requirements, thus reaching the highest levels of quality
and service standards.
In the fiscal year July 1, 2006 - June 30, 2007, TEI&C and its subsidiaries have
reached revenues amounting to USD 903.3 million through the development of the
following contracts (amounts are for the whole project indicated):
10 Annual Report TEI&C S.A.
The Company
11
MAJOR WORKS IN PROGRESS PER COUNTRY
COUNTRY WORK CLIENT USD MILLION
Argentina Los Caracoles Hydroelectric Station Energía Provincial Sociedad del Estado (EPSE) 220Steel Services and other works Siderar S.A.I.C. - Siderca S.A.I.C. - SIAT S.A. 94Campana Refinery Esso Petrolera Argentina S.R.L. 50Underground “A” Line Transport Secretariat under the Ministry of Federal Planning 32Track renewal Trenes de Buenos Aires S.A. (TBA) 25National Highway Bureau: Crema 332 - San Juan Dirección Nacional de Vialidad 19Pirquitas Mine Project Sunshine Argentina Inc. Suc. Argentina 17 Eliçabe Refinery - Bahía Blanca Petrobras Energía S.A. 13 Underground “A” Line - Renewal of Stations Transport Secretariat under the Ministry of Federal Planning 12 National Route No. 3 - Kosovo (km 2959) - La Herradura Section Dirección Nacional de Vialidad 12Petroleum Services Tecpetrol 9 El Mangrullo - Gas Pipeline Petrobras Energía S.A. 7 Hollywood Towers I & II Design Developer Group S.A. 7Hydrotreatment of gas-oil Repsol YPF 7
Gasoline unit at the Presidente Bernardes Brazil de Cubatão Refinery (RPBC) Petrobras - Petróleo Brasileiro S.A. 280
Macaé Marlim - Platform maintenance Petrobras - Petróleo Brasileiro S.A. 177PRA-1 - self-contained pumping platform Petrobras - Petróleo Brasileiro S.A. 150Samarco slurry pipeline Samarco Mineração S.A. 131Macaé Nordeste - Platform maintenance Petrobras - Petróleo Brasileiro S.A. 100 Alunorte Oeste Alumina do Norte do Brasil S.A. 32 Alunorte Expansion III Alumina do Norte do Brasil S.A. 23 Sabesp - Barueri Companhia de Saneamiento Básico do Estado do São Paulo 7
Chile El Mauro Tailings Dam Minera Los Pelambres 122 Minery Services (COMIN) 26
Chilena Compañía Minera Nevada Ltda. - Pascua Lama Subsidiary of Barrick Exploraciones 21
Mexico Steel Services and other works Hylsa S.A. de C.V. 21 Steel Services and other works Tubos de Acero de Mexico S.A. de C.V. 17
Peru Camisea - Maintenance Service COGA - Compañía Operadora de Gas del Amazonas S.A.C. 107
Saudi Arabia Khursaniyah downstream and upstream pipeline Saudi Aramco Oil Co 116 Rabigh Development Project - Utilities & Offsites I Saudi Aramco Oil Co and Sumitomo Chemical Japan JV 39
Trinidad and Tobago Gasoline Optimization Program Upgrade Petroleum Company of Trinidad and Tobago Limited (Petrotrin) 228
Uruguay Sanitation of Maldonado and Punta del Este Uragua 10 Works on Route Number 14 Ministry of transport and public works of Uruguay 7Works on Route Number 3 Ministry of transport and public works of Uruguay 4 Maldonado city - Miscellaneous projects Maldonado city 3
Venezuela Services for steel plants and other works Sidor C.A. 29
* Sales equivalent to the annual estimated revenues.
*
*
*
*
*
*
*
STRUCTURE OF TEI&C
TEI&C was incorporated, through its controlling company Techint Limited (Jersey),
in order to concentrate in one single holding company the control of the subsidiaries
doing basically engineering, procurement, construction and steel plant maintenance
services business in South America, Central America and the Middle East.
At the end of June 2007, the headcount totalized 18,369 employees, located in
several countries: Saudi Arabia, Argentina, Brazil, Chile, Ecuador, Mexico, Peru,
Uruguay, Trinidad and Tobago, and Venezuela, among others.
The family tree for TEI&C (including the most important companies) as of June 30, 2007 is as follows:
12 Annual Report TEI&C S.A.
The Company
TEI&C S.A. URUGUAY
0,06%
FLINWOK -URU
97%3%
TECHINT INVERSIONES S.A.I.F.
ARGENTINA
19% 18%
51%40% 9%
TECHINT CO. TEC. INT. S.A.C.I.
ARGENTINA
97%2,94%
TECNOMATTER IN.Y CONS. S.A.
ARGENTINA
5%95%
SIDERNET S.A.
ARGENTINA
SAN. Y URBANIZACIÓN S.A.
ARGENTINA
TECHINT INT. CONS. CORP.
(TENCO) - BAHAMAS
100%
TECHINT S.A.
BRAZIL
63%
TECHINT CHILE S.A.
CHILE
77%23%
PR. Y MONTAJES COMIN S.A.
CHILE
49%51%
S. INDUSTRIALES COMIN S.A.
CHILE
49%51%
FLUOR TECHINT S.R.L.
CHILE
50%50%
HOOK S.A.
CHILE
0,025%99,975%
TERMINAL BAHÍA BLANCA S.A.
ARGENTINA
90,3540%9,6460%
FLINWOK S.A.
URUGUAY
100%
TECHINT COMP TEC. INT. S.A.C.
URUGUAY
100%
TECHINT S.A.C.
PERU
0,0005% 99,9995%
SAUDI TECHINT LTD.
SAUDI ARABIA
40% 60%
S.PR. TECHINT FUNCHAL LDA.
PORTUGAL
100%
SIDERMEX LLC
USA
100%
SIDERNET MEX. S.A. de C.V.
MEXICO
75% 25%
TECHINT CO. TECNICA INT. S.A.
VENEZUELA
2,74% 7,48%9%
COMINTRAC S.A.E.M.A.
ECUADOR
81% 19%
COTECOL S.A.
COLOMBIA
18,0357% 5,5%76,3214%
TECHINT INT. CONST. CORP.
LLC QATAR
51% 49%
PREGLOSID S.L.U.
SPAIN
100%
SIDERNET DE VENEZUELA C.A.
VENEZUELA
100%
TECNOMATTER S.A. de C.V.
MEXICO
1%99%
SICI S.A. de C.V.
MEXICO
40%60%
ENER. TAMAULIPAS S.A. de C.V.
MEXICO
40%60%
SERSISA S.A.
VENEZUELA
100%
2,99%
CAMINOS DEL OESTE S.A.
ARGENTINA
97%2,99%
0,01%
CIA. INV. FERROVIARIA S.A.I.F.
ARGENTINA
77%23%
FERR. PAMPEANO S.A. CONC.
ARGENTINA
80%20%
COINCAR S.A.
ARGENTINA
65%35%
FLINWOK -URU
TERCEROS
TERCEROS
TERCEROS
TERCEROS
TECHINT - ARG.
TERCEROS
TERCEROS
TECHINT MEX
TECHINT ARG
FLINWOK - URU
TECHINT- MEX
TECHINT- MEX
TERCEROS
TERCEROS
TERCEROS
0,01%
80,78%ASOCIADOS
0,1429%ASOCIADOS
97%
13
TEI&C - FINANCIAL AND EQUITY STRUCTURE
TEI&C and its subsidiaries have adopted the International Financial Reporting
Standards (IFRS), issued by the International Accounting Standards Board (IASB)
as accounting standards for the preparation of its financial information.
During the current fiscal year, TEI&C experienced some changes in its investment
portfolio as regards its participating interests in companies related to the engineering,
construction and service businesses, which are detailed as follows:
14 Annual Report TEI&C S.A.
COMPANY INCORPORATION DATE SALE DATE % BUSINESS AREATechint Compañía Técnica Engineering, construction andInternacional S.A.C.I. (1) 06.25.07 10.90 services.
Engineering and construction for Proyectos y Montajes Comin S.A. (2) 12.12.06 51.00 the mining industry.Servicios Industriales Comin S.A. (2) 12.12.06 51.00 Services for the mining industry.
Engineering, construction and Hook S.A. (3) 12.12.06 51.00 services for the mining industry.
Engineering, construction and Fluor Techint S.R.L. (2) 03.12.07 50.00 services for Pascua Lama Project.
Manufacturing and sale of L.O.S.A. Ladrillos Olavarría S.A.I.C. 03.05.07 64.56 ceramic tiles.Tecnología en Servicios Urbanos - Engineering, construction and TESUR S.A. (4) (5) 04.19.07 65.36 services.
(1) On June 30, 2007 TEI&C held 40.36% of Techint Compañía Técnica Internacional S.A.C.I. (“TEARG”) directly and 59.64% indirectly through its subsidiaries. (2) Through our subsidiary Techint Chile S.A. (TECHI).(3) Controlling interest through Proyectos y Montajes Comin S.A. and Servicios Industriales Comin S.A.(4) Through our subsidiary TEARG.(5) Such percentage was calculated not considering preferred shares.
The Company
As a result of the corporate reorganization in the Andean sector and due to the
equity spinoff of Cotecol Compañía Técnica de Construcciones S.A. (in which the
Company had a participating interest since September 2006), TEI&C received in
May 2007 shares belonging to Servicios Siderúrgicos SERSISA S.A. (SERSISA),
through the exchange of shares that was part of the abovementioned process.
In June 2007, and with the aim of gathering under Preglosid S.L.U. all the
participating interests in companies providing services to the iron and steel
industry, SERSISA’s shares were contributed by the Company to Preglosid S.L.U.
On December 12, 2006 TECHI acquired 51% of Proyectos y Montajes Comin S.A.
and Servicios Industriales Comin S.A. The purchase method of accounting is used
to account for this acquisition. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of acquisition, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair values at the
acquisition date. The excess of the cost of acquisition over the fair value of the
Company’s share of the identifiable net assets acquired was USD 1,340 thousand
and is recorded as goodwill (see note 3.d.).
During the year ended June 30, 2007 TEI&C has sold its participations in L.O.S.A.
Ladrillos Olavarría S.A.I.C. (“LOSA”) and Tecnología en Servicios Urbanos –
TESUR S.A. These transactions have not implied any significant result for the
Company.
After the fiscal year end, in September 2007, the Ordinary and Special
Shareholders’ Meetings of the subsidiary company TEARG decided to spinoff part
of its assets and liabilities with the purpose of reorganizing its business areas,
separating the investments made by the Company in the area of iron and steel
services. For this reason, the Company shall hold 8,445,080 common shares,
accounting for 97.50% of the equity of Prestaciones Globales Siderúrgicas S.A. (a
company under organization proceedings).
15
During the fiscal year under consideration, TEI&C distributed dividends for
USD 5.0 million.
Net income for the year was a profit of USD 38.1 million, made up as follows:
USD MILLION JUNE 30, 2007 JUNE 30, 2006
Net sales 903.3 646.9
Cost of sales (790.1) (577.2)
Gross profit 113.2 69.7
General, administrative and selling expenses (68.7) (62.6)
Operating income 44.5 7.1
Financial results, net 4.1 6.8
Other income and expenses, net 0.3 9.9
Income before income tax 48.9 23.8
Income tax expenses (10.8) (10.3)
Net income for the year 38.1 13.5
ATTRIBUTABLE TO
Equity holder of TEI&C 33.1 6.0
Minority interest 5.0 7.5
38.1 13.5
16 Annual Report TEI&C S.A.
The Company
TEI&C’s consolidated shareholders’ equity as of June 30, 2007 reaches USD 256.1
million. See below a summary structure of its balance sheet:
USD MILLION JUNE 30, 2007 JUNE 30, 2006
Non-current assets 243.3 222.1
Current assets 351.0 280.5
594.3 502.6
Equity
Shareholders 256.1 197.1
Minority interest 17.0 16.4
Non-current liabilities 75.1 67.3
Current liabilities 246.1 221.8
594.3 502.6
The main financial indicators are:
INDICATOR JUNE 30, 2007 JUNE 30, 2006
Financial solvency 1.85 1.74
Liquidity 1.44 1.26
Indebtedness 1.18 1.35
Gross margin 13% 11%
Illiquid assets 0.41 0.44
17
PROSPECTS & PERSPECTIVES
TEI&C is developing a strategy of playing a leading role in engineering and
construction related to energy and other markets: oil & gas facilities and plants,
pipelines, mining, steel industry, power, hydroelectrical plants, LNG facilities,
and civil infrastructure.
Perspectives for these markets are essentially good, as they have been in the recent
years, basically due to:
1. strong economic growth of the world economy, not only in the
developed countries;
2. high prices of commodities that are making feasible all sorts of related
projects;
3. investment trends are not only price-driven, since other forces such as
environmental regulations are becoming also increasingly important.
The major warning to this situation is the shortage of skilled resources in an
overbooked industry. TEI&C backlog (summarizing all branches and subsidiaries)
is at record level (about USD 1 billion), a similar situation among its traditional
partners and competitors.
The company has acquired USD 800 million in new contracts during the last year,
and in the short and medium term the important offers are under development.
In the oil & gas market, there are important opportunities in sight for new con-
tracts, particularly in Saudi Arabia (for example, Ras Tanura Refinery Expansion
and Manifa-Re Development Project), Argentina (La Plata Refinery Expansion),
Peru (Camisea Gas Expansion), Colombia (revamping of Cartagena de Indias
Refinery) and Brazil (new facilities for Petrobras refineries), just to mention some
specific cases. TEI&C has expanded its businesses in this area from general EPC
contracts to engineering, maintenance and management services, and expects a fur-
ther expansion of this market.
In the pipelines market, TEI&C is foreseeing even a more dynamic demand than
the one faced the last years, due to further expansion of facilities and infrastruc-
ture, and new fields development in Saudi Arabia, Argentina, Bolivia and Peru,
and new expansions in the Latin American mining industry. We are also expecting
requests for qualification from some major international projects.
Regarding the mining market, we foresee interesting opportunities in Chile, where
we are leader for the execution of mining slurry lines. We are also foreseeing a
strong demand from the Brazilian market. TEI&C is strengthening its position in
18 Annual Report TEI&C S.A.
The Company
the mining market through different steps. In December 2006 a local subsidiary of
TENCO (a fully owned company) acquired a controlling share in COMIN, a
Chilean based company, which has opened new opportunities in the mining
services and mining facilities markets. COMIN annual turnover has achieved about
USD 25 million in the past recent years, and TEI&C is expecting to further increase
this amount integrating the experience and know how of both companies and
enlarging the type and quantity of services offered to the mining industry (adding
the experience developed in the steel industry).
In the Latin American’s steel industry we expect continuity in the investment
plans to debottleneck present production constrains and in the plans to increase
products mix and quality. TEI&C also continues to develop the strategy for services
supply to this industry (from engineering to maintenance) and expect to expand
this business onto new clients.
The energy market is also expected to increase the demand for engineering and
construction services in Latin America. Specifically in Argentina and Chile gas and
fuel power stations and hydroelectrical projects were announced by public and
private clients. Nevertheless, Argentina is continuing the erection of Atucha II
nuclear plant and also announced the erection of a forth nuclear plant for the
upcoming years. Brazil and Chile also announced nuclear projects. Investments in
LNG projects are also being mentioned to develop gas fields (in Peru for example)
or to support energy supply in Latin America (some projects were announced in
Chile, Brazil and Uruguay).
Finally, the civil infrastructure market in Latin America has been booming in the
recent years and TEI&C has participated in specific works. Further expansion of
demand is expected in the future years.
In these markets of Latin America and the Middle East, where TEIC’s commercial
effort has been focused on the development of new businesses and the integration
of local partners and suppliers to the global strategy of the company, great
achievements in sales, incoming orders and profits are expected for the near
future to enhance TEIC’s success story since 1946 in the engineering and
construction industry.
This Board wishes to express its gratitude to the staff of all TEI&C’s subsidiaries for
the cooperation and effort shown in the projects carried out during the fiscal year.
We would also like to acknowledge financial institutions, suppliers, customers and
sub-contractors for their trust, assistance and cooperation.
THE BOARD OF DIRECTORS
19
Board of Directors: President Carlos Eduardo Bacher
Vice President Eduardo Nicolás Rocca Couture
Directors Enrico Bonatti
María Virginia Jubin Vértiz
Mario Osvaldo Lalla
Luis Pablo Solari Damonte
Subsidiaries’ Presidents or
Legal Representatives: Argentina Roberto Bonatti
Brazil Roberto Caiuby Vidigal
Chile Felizardo Figueroa Barrueco
Ecuador Jorge Cevallos
Peru Rosa María Ludowieg Alvarez Calderón
Saudi Arabia Claudio Catroppa
Uruguay Eduardo Nicolás Rocca Couture
Venezuela Fulvio Italiani Firrito
Executive Management: General Manager: Carlos Eduardo Bacher
Operational Managers:
Operational Daniel Fernández
Planning, Budgeting Lodovico Rocca
and Control
Engineering Pablo Videla
Staff Managers:
Financial Mario Osvaldo Lalla
Human Resources Guillermo Farall
Legal Affairs Adriana Graciela Batan
Project and Commercial
Managers:
South America Region6 Gustavo María Gallino
Argentina Daniel Fernández (ad interim)
Brazil Ricardo Ourique
Middle East Region Gerardo Luis Freire
Steel Services Julio Rissucci
6. Including Chile, Ecuador and Uruguay
20 Annual Report TEI&C S.A.
Board of Directors and Executive Management
Denomination: TEI&C S.A.
Legal Address: Rincón 487 - Of. 403
Edificio Artigas
Montevideo (11000)
(598-2) 915-7669
Company activity: Investments
Date of registration: February 16, 2005
Expiration of Company Charter: February 16, 2105
Number of register: RUC 21-5098860012
Capital Stock: Shares: 3,589,651,901
Face Value: $U 3,589,651,9017
Parent Company: Techint Limited
Legal address: Equity Trust House
28-30 The Parade, JE4 8XY
St. Helier, Jersey
Channel Islands
Parent Company activity: Investments
Parent Company: Shares: 100%
Votes: 100%
7. $U: Uruguayan Pesos
21
Legal Information
Thermal Treatment Line III for TenarisTamsa
Techint developed basic and detail engineering, civil works and electromechanical assembly for this unit, which began to
operate in April 2007, in Veracruz, Mexico.
22 Annual Report TEI&C S.A.
23
24 Annual Report TEI&C S.A.
25
26 Annual Report TEI&C S.A.
NOTES JUNE 30, 2007 JUNE 30, 2006ASSETS
NON-CURRENT ASSETSProperty, plant and equipment 5 168,473 147,353Intangible assets 6 3,901 4,155Investments in associated companies 7 1,228 -Other investments 7 6,901 12,355Trade and other receivables 8 46,431 45,460Deferred income tax assets 9 16,393 243,327 12,798 222,121
CURRENT ASSETSInventories 10 14,694 15,900Trade and other receivables 8 221,357 187,934Construction contracts work in progress 21,923 11,747Property, plant and equipment 5 120 80Other investments 7 201 917Cash and cash equivalents 92,655 350,950 63,970 280,548
Total assets 594,277 502,669
EQUITY AND LIABILITIES
EQUITYCapital and reserves attributable tothe Company's equity holders 256,053 197,181Minority interest 17,017 273,070 16,356 213,537
NON-CURRENT LIABILITIESBorrowings 12 16,584 7,865Deferred income tax liabilities 9 10,672 10,035Trade and other payables 13 18,910 15,761Other liabilities 14 28,890 75,056 33,652 67,313
CURRENT LIABILITIESBorrowings 12 37,382 28,898Trade and other payables 13 147,447 150,447Construction contracts work in progress 15,257 7,585Other liabilities 14 46,065 246,151 34,889 221,819
Total liabilities 321,207 289,132
Total equity and liabilities 594,277 502,669
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Balance Sheetat June 30, 2007 and 2006ALL AMOUNTS IN USD THOUSANDS
27
Consolidated Income Statementfor the years ended June 30, 2007 and 2006ALL AMOUNTS IN USD THOUSANDS
NOTES JUNE 30, 2007 JUNE 30, 2006
Revenues from construction contracts and other services 903,263 646,870Cost of sales 23 (790,094) (577,198)Gross profit 113,169 69,672
General and administrative expenses 23 (64,619) (58,531)Selling expenses 23 (3,952) (3,759)Other operating expenses 23 (124) (262)Operating income 44,474 7,120
Financial results, net 24 4,120 6,774Other income and expenses, net 25 278 9,863Income before income tax 48,872 23,757
Income tax expense 26 (10,825) (10,331)Net income for the year (1) 38,047 13,426
(1) ATTRIBUTABLE TO:Equity holders of the Company 33,038 5,984Minority interest 5,009 7,442Net income for the year 38,047 13,426
The accompanying notes are an integral part of these consolidated financial statements.
28 Annual Report TEI&C S.A.
CAPITAL STOCK IRREVOCABLE CAPITALCONTRIBUTIONS SURPLUS
BALANCE AT JUNE 30, 2005 145,570 - 648
Resolution of the Shareholders' meetingheld on 10.31.05:· Legal reserve - - -· Capitalization of capital surplus 648 - (648)Shareholders' contribution as per minute of the Shareholders' meeting held on 06.14.06 - 42,317 -Currency translation adjustments - - -Capital surplus - - (1,154)Changes in minority interest - - -Net income for the year - - -
BALANCE AT JUNE 30, 2006 146,218 42,317 (1,154)
Resolution of the Shareholders' meetingheld on 12.19.06:· Board of Directors' fees - - -· Legal reserve - - -· Reserve for future dividends - - -Dividend distribution (1) - - -Fixed assets revaluation surplus - - -Currency translation adjustments - - -Changes in minority interest - - -Net income for the year - - -
BALANCE AT JUNE 30, 2007 146,218 42,317 (1,154)
The accompanying notes are an integral part of these consolidated financial statements.
(1) The dividend shall be ratified by the next Ordinary Shareholders' Meeting, which will consider the results of the fiscal year ended June 30, 2007.
Consolidated Statement of Changes in Equityfor the years ended June 30, 2007 and 2006ALL AMOUNTS IN USD THOUSANDS
29
ATTRIBUTABLE TO THE COMPANY´S EQUITY HOLDERSCUMULATIVE RESERVE FOR FIXED LEGAL RESERVE RETAINED MINORITY TOTAL
TRANSLATION ASSETS REVALUATION RESERVE FOR FUTURE EARNINGS INTEREST EQUITYADJUSTMENTS SURPLUS DIVIDENDS
- - - - 6,905 69,929 223,052
- - 345 - (345) - - - - - - - - -
- - - - - - 42,317(3,089) - - - - (3,573) (6,662)
- - - - - - (1,154)- - - - - (57,442) (57,442)- - - - 5,984 7,442 13,426
(3,089) - 345 - 12,544 16,356 213,537
- - - - (30) - (30)- - 296 - (296) - -- - - 5,600 (5,600) - -- - - - (5,000) - (5,000)- 27,154 - - - - 27,154
3,710 - - - - 137 3,847- - - - - (4,485) (4,485)- - - - 33,038 5,009 38,047
621 27,154 641 5,600 34,656 17,017 273,070
30 Annual Report TEI&C S.A.
El Mauro Tailings Dam
The challenging welding phase was completed due to the effort of thirty in line welders working simultaneously.
NOTES JUNE 30, 2007 JUNE 30, 2006
CASH FLOWS FROM OPERATING ACTIVITIESNet income for the year 38,047 13,426
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH FLOW OPERATIONSFixed assets depreciation 5 38,726 26,131 Intangible depreciation 1,740 1,662 Construction contracts in progress (2,504) 5,811 Net provisions 1,530 4,360 Net allowance for doubtful accounts 8 (3,089) 725 Tax accrued 26 10,825 10,331 Social security costs 15 1,026 956 Unrealized loss on derivate financial instruments - (641)Gain from the sales of fixed assets 25 (3,010) (6,875)Interest accrued from trade and other receivables (7,540) (5,925)Interest accrued from trade and other payables 252 1,862 Interest accrued from borrowings 4,973 10,093 Financial results, net and others (4,529) (4,851)Decrease in value of fixed assets 25 1,779 -Result from other investments (1,771) 2,538
CHANGES IN BALANCES CORRESPONDING TO:Trade accounts receivable (20,760) 22,117 Material and supplies (4,693) 252 Trade and other payables (10,157) (2,080)Other liabilities 4,346 10,972 Currency translation adjustments 3,847 (6,662)Net cash generated by operating activities 49,038 84,202
CASH FLOWS FROM INVESTING ACTIVITIESProceeds from disposal of fixed assets 6,343 27,332 Purchases of fixed assets 5 (40,748) (57,363)Purchases of intangible assets (1,633) (2,073)Changes in minority interest (4,485) (15,125)Proceeds from sales of other investments, net 6,566 9,777 Board of director´s fee (30) - Increase due to business combination (see note 1) 6,425 - Capital surplus - (1,154)Dividend distribution (5,000) - Net cash used in investing activities (32,562) (38,606)
CASH FLOW FROM FINANCING ACTIVITIESNet payments from borrowings 12,209 (32,678)Net cash generated by/ (used in) financing activities 12,209 (32,678)
Net increase in cash and cash equivalents 28,685 12,918
Cash and cash equivalents at the beginning of the year 63,970 51,052 Cash and cash equivalents at the end of the year 92,655 63,970
NON - CASH TRANSACTIONSIrrevocable contributions - 42,317
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Cash Flow Statementfor the years ended June 30, 2007 and 2006ALL AMOUNTS IN USD THOUSANDS
31
32 Annual Report TEI&C S.A.
Los Caracoles Hydroelectric Station
The company executes this project in San Juan, Argentina. The undertaking is a key factor to reach
the province's power self-sufficiency.
33
1. General information
2. Basis of preparation
3. Accounting policies
a. Foreign currency translation
b. Use of estimates
c. Property, plant and equipment
d. Intangible assets
e. Impairment of long-lived assets
f. Leases
g. Investments
h. Other investments
i. Trade and other receivables and payables
j. Income taxes-current and deferred
k. Inventories
l. Construction contracts work in progress
m. Cash and cash equivalents
n. Equity
o. Borrowings
p. Employee benefits
q. Provisions
4. Certain risk and uncertainties
5. Property, plant and equipment
6. Intangible assets
7. Investments
8. Trade and other receivables
9. Deferred income taxes
10. Inventories
11. Share capital
12. Borrowings
13. Trade and other payables
14. Other liabilities
15. Employee benefits
16. Provisions
17. Financial instruments
18. Participation in Joint Ventures
19. Contingencies and commitments
20. Restricted assets
21. Related party transactions
22. Subsidiaries
23. Cost of sales and expenses
24. Financial results, net
25. Other income and expenses, net
26. Income tax expense
27. Subsequent events
Index to the Notes to the Consolidated Financial Statements
34 Annual Report TEI&C S.A.
1. GENERAL INFORMATION
TEI&C S.A. (“TEI&C”), a company wholly-owned by Techint Limited, was organized
in Uruguay in February 2005 and is a part of the Techint Group (“TG”). TEI&C’s pur-
pose is to engage in investments by holding equity interests in companies or organi-
zations whose corporate purpose includes engineering, construction and services.
During the current fiscal year, TEI&C experienced some changes in its investment
portfolio as regards its participating interests in companies related to the engineer-
ing, construction and service businesses, which are detailed as follows:
As a result of the corporate reorganization in the Andean sector and due to the
equity spinoff of Cotecol Compañía Técnica de Construcciones S.A. (in which the
Company had a participating interest since September 2006), TEI&C received in
May 2007, shares belonging to Servicios Siderúrgicos SERSISA S.A. (SERSISA),
through the exchange of shares that was part of the abovementioned process.
In June 2007, and with the purpose of gathering under Preglosid S.L.U. all the partici-
pating interests in companies providing services to the iron and steel industry,
SERSISA’s shares were contributed by the Company to the equity of Preglosid S.L.U.
On December 12, 2006 TECHI acquired 51% of Proyectos y Montajes Comin S.A.
and Servicios Industriales Comin S.A. The purchase method of accounting is used
to account for this acquisition. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of acquisition, plus costs directly attributable to the acquisi-
tion. Identifiable assets acquired and liabilities and contingent liabilities assumed
Notes to the Consolidated Financial StatementsAll amounts are shown in USD thousands, unless otherwise stated
COMPANY INCORPORATION SALE % BUSINESS AREADATE DATE
Techint Compañía Técnica Internacional S.A.C.I. (1) 06.25.07 10.90 Engineering, construction and servicesProyectos y Montajes Comin S.A. (2) 12.12.06 51.00 Engineering and construction for the mining industryServicios Industriales Comin S.A. (2) 12.12.06 51.00 Services for the mining industryHook S.A. (3) 12.12.06 51.00 Engineering, construction and services for the mining industryFluor Techint S.R.L. (2) 03.12.07 50.00 Engineering, construction and services for Pascua Lama ProjectL.O.S.A. Ladrillos Olavarría S.A.I.C. 03.05.07 64.56 Manufacturing and sale of ceramic tilesTecnología en Servicios Urbanos - TESUR S.A. (4) (5) 04.19.07 65.36 Engineering, construction and services
(1) At June 30, 2007 TEI&C helds 40.36% of Techint Compañía Técnica Internacional S.A.C.I. ("TEARG") directly and 59.64% indirectly through its subsidiaries. (2) Through our subsidiary Techint Chile S.A. ("TECHI").(3) Controlling interest through Proyectos y Montajes Comin S.A. and Servicios Industriales Comin S.A.(4) Through our subsidiary TEARG.(5) Such percentage was calculated not considering preferred shares.
35
in a business combination are measured initially at their fair values at the acquisi-
tion date. The excess of the cost of acquisition over the fair value of the Company’s
share of the identifiable net assets acquired was USD 1,340 thousand and is record-
ed as goodwill (see note 3.d.).
During the year ended June 30, 2007, TEI&C sold its participating interests in
L.O.S.A. Ladrillos Olavarría S.A.I.C. (“LOSA”) and Tecnología en Servicios
Urbanos - TESUR S.A. These transactions have not implied any significant result
for the Company.
2. BASIS OF PREPARATION
These consolidated financial statements are prepared in accordance with
International Financial Reporting Standards (“IFRS”) and are presented in thou-
sands of U.S. dollars (“USD”), which is the functional currency of TEI&C.
Certain comparative amounts have been reclassified to conform to changes in
presentation in the current year.
The preparation of consolidated financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also requires manage-
ment to exercise its best judgment in the process of applying the Company’s
accounting policies. The areas involving a higher degree of judgment of complexi-
ty, or the areas where assumptions and estimates are significant to the consolidated
financial statements are disclosed in note 3.b.
The consolidated financial statements include the assets, liabilities and results of
the subsidiary companies, in which controlling voting powers are held.
The Company defines:
- Subsidiary companies as those in which the Company has an interest of more
than 50% of the voting rights or otherwise has the power to exercise control over
the operating decisions. See note 22 to the consolidated financial statements for
the list of consolidated subsidiaries.
- Associated companies as those in which the Company owns between 20% and
50% of the voting rights.
- Joint Ventures (“J.V.”) as jointly controlled entities, which involve the establishment
of a corporation, partnership or other entity in which each venturer has an interest.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
36 Annual Report TEI&C S.A.
TEI&C’s interest in jointly controlled entities is accounted for by the proportionate
consolidation method. TEI&C consolidates its share of the joint ventures’
individual income and expenses, assets and liabilities on a line-by-line basis with
similar items in TEI&C’s financial statements. See note 18 to the consolidated
financial statements.
3. ACCOUNTING POLICIES
INTERPRETATIONS AND AMENDMENTS TO PUBLISHED STANDARDS EFFECTIVE FOR THE
YEAR ENDED JUNE 30, 2007
In the current year, the Company adopted IAS 19 “Employee Benefits: Actuarial
Gains and Losses, Group Plans and Disclosures (Amendment)”.
On December 16, 2004, the International Accounting Standards Board (“IASB”)
issued International Accounting Standard No. 19, “Employee Benefits: Actuarial
Gains and Losses, Group Plans and Disclosures (Amendment)” (“IAS 19”). IAS 19
gives entities the option to recognize actuarial gains and losses in full during the
period in which they occur, outside of profit and loss, in the statement of recog-
nized income and expense. Previously, entities were only permitted to recognize
actuarial gains and losses in profit and loss either (1) in the period in which they
occur or (2) spread over the service life of employees. The adoption of this stan-
dard did not have a relevant impact on the Company’s accounting policies.
NEW ACCOUNTING PRONOUNCEMENTS
Certain new standards and amendments to existing standards have been published that
are mandatory for the Company’s accounting periods beginning on or after January 1,
2007 or later periods but which the company has not early adopted, as follows:
- IFRS 7, Financial Instruments: Disclosures, and a complementary
amendment to IAS 1, Presentation of Financial Statements - Capital
Disclosures.
- IFRS 8 - Operating Segments.
- IFRIC 8 - Scope of IFRS 2 - Transactions involving the issuance of
equity instruments.
- IFRIC 10 - Interim Financial Reporting and Impairment.
The Company will apply IFRS 7, IFRIC 8 and 10 from January 1, 2007, but it is not
expected to have any impact on the Company’s accounts.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
37
IFRS 7 introduces new disclosures about financial instruments such as qualitative
and quantitative information about exposure to risks arising from financial instru-
ments.
IFRS 8 replaces the currently applicable IAS 14 “Segment Reporting” and requires
an entity to adopt the “management approach” to report on the financial perform-
ance of its operating segments. This means segmental reporting must be based on
the segmentation used for internal management purposes. First time application of
IFRS 8 is required for annual periods beginning on or after January 1, 2009.
Segmentation in TEI&C is not compulsory, so it is not expected to result in material
changes for the Company.
The following is a summary of the principal accounting policies followed in the
preparation of these consolidated financial statements:
a. Foreign currency translation
I Functional and presentation currency
Items included in the financial statements of each entity in which TEI&C
holds participating interests are measured using the currency that best
reflects the economic substance of the underlying events and circumstances
relevant to that entity (“the functional currency”). The consolidated finan-
cial statements are presented in thousands of U.S. dollars, which is the func-
tional currency of TEI&C. The subsidiary companies first record transactions
using their functional currency and their financial statements are then trans-
lated to U.S. dollars with the only purpose of being consolidated by TEI&C.
II Translation of balances and transactions in currencies other than the function-
al currency
Transactions in currencies other than the functional currency are
accounted at the exchange rates prevailing at the date of the transactions,
and the corresponding exchange gains and losses are recognized in the
income statement.
Monetary assets and liabilities in currencies other than the functional
currency are translated at the year-end exchange rate.
III Translation of balances and results of consolidated companies
The results and financial position of all the consolidated companies that
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
38 Annual Report TEI&C S.A.
have a functional currency different from the Company’s presentation
currency are translated into the presentation currency as follows:
- assets and liabilities of each balance sheet are translated at the closing
rate at the date of that balance sheet;
- income and expenses for each income statement are translated at
average exchange rate (unless this average is not a reasonable approxi-
mation of the cumulative effect of the rates prevailing on the transaction
dates, in which case income and expenses are translated at the rate on
the dates of the transactions);
- all resulting exchange differences are recognized as a separate compo-
nent of equity.
In the case of sale or other disposition of any such subsidiary, any
accumulated translation adjustment would be recognized in the income
statement as part of the gain or loss on sales.
b. Use of estimates
The preparation of consolidated financial statements requires Management to esti-
mate and evaluate both recorded and contingent assets and liabilities as of a cer-
tain date, as well as income and expenses recorded during the reporting period.
Company’s Management makes estimations to calculate, at a certain moment,
works in progress, allowances for doubtful accounts, depreciation and amortiza-
tion, the recoverable value of assets, income tax and provisions for costs and con-
tingencies. The future actual results may differ from estimates made as of the date
of preparation of these consolidated financial statements.
c. Property, plant and equipment
Machinery, equipment, vehicles and others
As a general rule, TEI&C has adopted historical acquisition or construction cost
less accumulated depreciation as the measurement criterion for fixed assets.
However, in the case of machinery, equipment and vehicles used in the construc-
tion business, TEI&C has adopted fair value as the measurement criterion.
Accordingly, the wholly-owned subsidiary Techint International Construction
Corp. (TENCO) (“TENCO”) revalued its machinery, construction equipment and
vehicles at June 30, 2007 based on a technical appraisal performed by a qualified
professional valuation specialist. Management believes that the resulting value
approximates fair value. As per International Accounting Standard No. 16
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
39
“Property, plant and equipment” (“IAS 16”), when an item of property and equip-
ment is revalued, the entire class of property and equipment to which that asset
belongs should be revalued. Nevertheless, machinery, construction equipment and
vehicles held by the subsidiary TEARG were valued at historical acquisition or
construction cost restated to reflect the effects of inflation up to the transition date
for IFRS (June 30, 2002) less accumulated depreciation. In view of the restatement
performed, the Company has deemed prudent not to revalue such assets.
The “sales comparison” method was used to obtain the fair value of TENCO’s
assets for which there is a wide and transparent secondary market. This approach
consists in obtaining information from recent sales or offers of assets bearing simi-
lar characteristics, age and condition. Correction factors that take into account the
status of the market offer and demand prevailing as of the date of the appraisal, the
relative age, probable residual useful life, state of conservation and asset obsoles-
cence are applied to the sales price. The “cost less depreciation” method was used
to obtain the fair value of assets with a restricted sales market.
Depreciation was computed based on generally used and accepted engineering
criteria which led to establishing the reasonable value of fixed assets. Such criteria
take into account factors such as the age of each asset, probable residual or expected
life, state of conservation and degree of obsolescence. The market value was
obtained by applying the depreciation ratio to the value of a new asset.
TENCO intends to perform this appraisal with the frequency required by IAS 16 in
order to keep fair values of appraised assets updated.
The increase in value of fixed assets resulting from the technical appraisal
described above amounted to USD 27,154 thousand at June 30, 2007 and has been
recorded under “Reserve for fixed asset revaluation surplus” within Equity.
If TENCO’s machinery, equipment and vehicles had been valued at historical cost,
the values would have been the following:
At June 30, 2007 and 2006 the book value of those assets amounts to USD 54,164
thousand (it includes USD 4,036 thousand of technical appraisal performed in
previous years) and USD 18,452 thousand, respectively.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
JUNE 30, 2007 JUNE 30, 2006Historical cost 76,154 62,702Accumulated depreciation (53,180) (52,484)Residual value 22,974 10,218
40 Annual Report TEI&C S.A.
The straight-line method has been used to calculate depreciation, by applying
annual ratios sufficient to terminate the value of each item as to the end of their
estimated useful life.
Land and buildings
Land and buildings are stated at historical cost. Buildings are depreciated using
the straight-line method, by applying annual ratios sufficient to terminate the value
of each item as of the end of their estimated useful life.
Fixed assets of Ferroexpreso Pampeano S.A.C. (“FEPSA”)
These assets represent improvements on the assets received under concession by
FEPSA, as well as those devoted to service rendering, which will be transferred to
the assignor upon termination of the concession. Such assets are valued at their
acquisition or construction cost less accumulated depreciation.
The straight-line method has been used to calculate depreciation, by applying
annual ratios sufficient to terminate the value of each item as of the end of their
estimated useful life or upon termination of concession, whichever occurs first.
Useful lives used to calculate depreciation charges are as follows:
Buildings and improvements 30-50 years
Production equipment 10-20 years
Vehicles, furniture and fixtures, and other equipment 4-10 years
Land Not depreciated
Where the carrying amount of an asset is higher than its estimated recoverable
amount, it is written down immediately to its recoverable amount.
Gains and losses on disposals are determined by comparing procedures with
carrying amounts. When revalued assets are sold, the amounts included in fair
value and the reserve for fixed assets revaluation surplus are transferred to
retained earnings.
Repairs and maintenance expenses are charged to the statement of income during
the financial period in which they are incurred.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
41
d. Intangible assets
Systems development
Acquired computer software licenses are capitalized on the basis of the costs
incurred to acquire and bring to use the specific software. These costs are amor-
tized over their estimated useful lives (three to five years).
Costs associated with developing or maintaining computer software programs are
charged to expenses as incurred. Costs that are directly associated with the produc-
tion of identifiable and unique software products controlled by TEI&C and that
will probably generate economic benefits exceeding costs beyond one year, are
recognized as intangible assets. Direct costs include the software development
employee costs and an appropriate portion of relevant overhead.
Goodwill
TENCO and subsidiaries
Goodwill represents the excess of the cost of an acquisition over the fair value of
the Company’s share of the net identifiable assets of the acquired subsidiaries at
the date of acquisition. Goodwill on acquisitions of subsidiaries is included in
intangible assets and it is tested for impairment annually as part of the overall
balance (see note 1).
The valuation of investments will be carried at cost less accumulated impairment
losses. Impairment losses on goodwill are not reversed. Gains and losses on the dis-
posal of an entity include the carrying amount of goodwill relating to the entity sold.
Compañía Inversora Ferroviaria S.A.I.F. (COINFER)
Goodwill represents the greater cost derived from the investment in the subsidiary
Ferroexpreso Pampeano S.A.C. as a result of the compulsory subscription and pay-
ment of the portion of capital corresponding to Ferrocarriles Argentinos (16%) and
the portion corresponding to staff (4%) pursuant to the concession contract.
Goodwill is valued at original cost, less accumulated amortization; it is calculated
over the term of the concession of the service provided by Ferroexpreso
Pampeano S.A.C.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
42 Annual Report TEI&C S.A.
e. Impairment of long-lived assets
Property and equipment and other non-current assets subject to amortization, includ-
ing intangible assets, are reviewed for impairment losses whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognized for the amount by which the carrying amount of the
asset exceeds its recoverable amount, which is the higher of an asset net selling price
and its value in use. For the purposes of assessing impairment, assets are grouped at
the lowest levels for which there are separately identifiable cash flows.
f. Leases
Leases in which a significant portion of the risks and rewards of ownership are
transferred from the lessor to TEI&C are classified as finance leases. At the com-
mencement of the lease term, TEI&C recognizes finance leases as assets and lia-
bilities in the balance sheet at amounts equal to the value of the leased property
or, if lower, the present value of the minimum lease payments, each determined
at the inception of the lease. The discount rate used in calculating the present
value of the minimum lease payments is the interest rate implicit in the lease
should this be practicable to determine; otherwise, the lessee’s incremental bor-
rowing cost is used. Any initial direct costs of the lessee are added to the
amount recognized as an asset.
See amounts of assets and liabilities held under finance leases in note 20.
g. Investments
Investments in shares and participating interests in associated companies:
- Subsidiaries are consolidated from the date on which control is transferred to
the Company and are no longer consolidated from the date that the Company
ceases to have control. All material intercompany transactions and balances
among TEI&C’s subsidiaries have been eliminated in consolidation (see list of
subsidiaries in note 22),
- associated companies on which significant control influence is exercised have
been valued on the equity method of accounting.
All purchases and sales of investments are recognized on the trade date, not
significantly different from the settlement date, which is the date that the Company
commits to purchase or sell the investment. Costs include transaction costs.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
43
h. Other investments
All of TEI&C’s investments, which primarily include deposits in trust funds, are cur-
rently classified as available-for-sale and carried at fair value as established by IAS,
despite the fact that some of them are not technically available for disposition accord-
ing to the terms of the underlying contracts. As permitted by IAS 39, changes in the
fair value of available-for-sale securities are included in net income (loss) for the year.
Other investment funds comprise mainly financial resources within offshore trusts,
the purpose of which is exclusively to ensure that the financial needs for the nor-
mal development of their operations are met.
Investments in companies in which TEI&C has less than 20% of the voting rights
are valued at cost, which does not differ significantly from their fair value.
i. Trade and other receivables and payables
Trade and other receivables and payables are carried at face value less an
allowance for doubtful accounts, if applicable. This amount does not differ signifi-
cantly from fair value.
An allowance for doubtful accounts is established when there is objective evidence
that TEI&C will not be able to collect all amounts due according to the original
terms of receivables.
At June 30, 2007 and 2006, the allowance for doubtful accounts that was deducted
from the corresponding gross accounts receivable totaled USD 13.8 million and
USD 16.7 million, respectively.
j. Income taxes - current and deferred
The current income tax charge is calculated on the basis of the tax laws in force in
the countries in which TEI&C and each one of its subsidiaries operate.
Deferred income tax is recorded in full, using the liability method, on temporary
differences arising between the tax basis of assets and liabilities and their carrying
amounts in the financial statements. Currently enacted tax rates are used in the
determination of deferred income tax.
Deferred tax assets are recognized to the extent that it is probable that future tax-
able profit will be available to offset temporary differences.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
44 Annual Report TEI&C S.A.
Deferred income tax is provided on temporary differences arising on investments
in subsidiaries, associates and joint ventures, except where the timing of the rever-
sal of the temporary difference can be controlled and it is probable that the tempo-
rary difference will not reverse in the foreseeable future.
k. Inventories
Inventories are stated at the lower of cost or net realizable value less the correspon-
ding allowance for obsolescence. Net realizable value is the estimated selling price
in the ordinary course of business, less the costs of completion and direct selling
expenses. The cost of finished goods and work in progress comprises raw materials,
direct labor, other direct costs and related production overheads (based on normal
operating capacity) but excludes borrowing costs.
The allowance for obsolescence has been calculated based on Management’s analysis
of aging.
l. Construction contracts work in progress
A construction contract is a contract specifically negotiated for the construction
of an asset or a combination of assets that are closely interrelated or interde-
pendent in terms of their design, technology and functions or their ultimate
purpose or use.
When the outcome of a construction contract cannot be reliably estimated, contract
revenue is recognized to the extent of contract costs incurred where it is probable
those costs will be recoverable. Contract costs are recognized when incurred.
When the outcome of a construction contract can be reliably estimated, contract
revenue and contract costs are acknowledged by the percentage of completion
method. The stage of completion is measured by reference to the relationship con-
tract costs incurred for work performed to date bear to the estimated total costs for
the contract. When it is probable that total contract costs will exceed total contract
revenue, the expected loss is immediately recognized as an expense.
Costs incurred in the year in connection with future activity on a contract are
excluded from contract costs in determining the stage of completion. They are pre-
sented as inventories, prepayments or other assets, depending on their nature.
When a construction contract includes reimbursable works and the Company is
responsible for providing design, engineering and construction services and labor
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
45
and all equipment and materials, construction equipment and supplies, the
amount of these works is recognized in revenues and costs.
TEI&C shows as an asset the gross amount due from customers for construction
contracts for all contracts in progress for which costs incurred plus recognized
profits (less recognized losses) exceed progress billings.
TEI&C presents as a liability (within construction contracts work in progress) the
gross amount due to customers for construction contract for all contracts in
progress for which progress billings exceed costs incurred plus recognized profits
(less recognized losses).
m. Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. For the purposes
of the cash flow statement, cash and cash equivalents comprise cash on hand,
demand deposits with banks and other short-term highly liquid investments with
original maturities of three months or less. Bank overdrafts are included within
borrowings in current liabilities in the consolidated balance sheet.
n. Equity
Ordinary shares are classified as equity. The balances of the consolidated statement
of changes in equity at June 30, 2007 and 2006 include:
- The value of share capital, irrevocable contributions, legal reserves, capital sur-
plus, other reserves, and retained earnings in accordance with IFRS.
- The currency translation adjustments of TEI&C’s subsidiaries.
- Minority interest in subsidiaries.
o. Borrowings
Borrowings are initially recorded based on the fair value of the net proceeds.
Borrowings are subsequently stated at amortized cost using the effective yield
method; any difference between proceeds (net of transaction costs) and the
redemption value is recognized in the income statement over the life of the
borrowings. This amount does not differ significantly from fair value.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
46 Annual Report TEI&C S.A.
Borrowings are classified as current liabilities unless TEI&C has an unconditional
right and firm intention to defer settlement of the liability for at least twelve
months after the balance sheet date.
p. Employee benefits
Pension plans and other post-retirement benefits
Certain TEI&C’s subsidiaries officers are covered by a specific employee retirement
plan designed to provide retirement, termination and other benefits to those officers.
TEI&C’s subsidiaries are accumulating assets for the ultimate payment of those bene-
fits in the form of investments that carry time limitations for their redemption. The
investments are not part of a particular plan, nor are they segregated from TEI&C’s
other assets. Due to these conditions, the plan is classified as “unfunded” under IFRS.
Retirement costs are assessed using the projected unit credit method: the cost of pro-
viding retirement benefits is charged to the statement of income over the service lives
of employees based on actuarial calculations. This provision is measured at the present
value of the estimated future cash outflows, using applicable interest rates. Actuarial
gains and losses are recognized over the average remaining service lives of employees.
Benefits provided by the plan are calculated on a seven-year salary average.
The laws in the different countries in which TEI&C’s subsidiaries carry out their
operations provide for pension benefits to be paid to retired employees from
government pension plans and/or private funds managed plans. Amounts payable
to such plans are generally calculated based on a percentage of employee salaries
and are accounted for on an accrual basis.
Termination benefits
Termination benefits are payable whenever an employee’s employment is terminated
before the normal retirement date or whenever an employee accepts voluntary
redundancy in exchange for these benefits.
TEI&C’s subsidiaries recognize termination benefits when it is demonstrably commit-
ted to either terminating the employment of current employees according to a detailed
formal plan without possibility of withdrawal, or providing termination benefits as a
result of an offer made to encourage voluntary redundancy. Benefits falling due more
than twelve months after balance sheet date are discounted to present value.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
47
Profit-sharing and bonus plans
A liability for employee benefits in the form of profit-sharing and bonus plans is
recognized in other provisions when there is no realistic alternative but to settle
the liability and provided at least one of the following conditions is met:
- there is a formal plan and the amounts to be paid are determined before the time
of issuing the financial statements; or
- past practice has created a valid expectation in employees that they will receive
a bonus/ profit-sharing and the amount can be determined before the financial
statements are issued.
Liabilities for profit-sharing and bonus plans are expected to be settled within
twelve months and are measured at the amounts expected to be paid when they
are settled.
q. Provisions
Provisions are recognized when TEI&C has a present legal or constructive obliga-
tion as a result of past events, it is probable that an outflow of resources will be
required to settle the obligation, and a reliable estimate of the amount can be
made. When TEI&C expects a provision to be reimbursed, for example under an
insurance contract, the reimbursement is recognized as a separate asset but only
when the reimbursement is virtually certain.
4. CERTAIN RISK AND UNCERTAINTIES
Financial instruments comprised of cash, short-term investments and accounts
receivable could be subject to credit risk. The Company places its cash and cash
equivalents in high quality financial institutions. The Company's policy is
designed to limit exposure to any institution. The Company has not experienced
any losses in such accounts.
Many of the Company's projects are billed on a fixed-fee basis and, therefore, the
Company bears the risk of cost overruns. Client project margins and personnel uti-
lization are critical components of the Company's financial performance. The
Company regularly reviews staff compensation and overhead costs to ensure that
its services are properly priced. In addition, Management monitors the work in
progress on a monthly basis.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
48 Annual Report TEI&C S.A.
TEI&C conducts its operations in different locations that expose the Company to
adverse effects arising from a devaluation of local currency. To reduce such
exposure the Company bills part of its customers in U.S. dollars. Furthermore,
Management believes TEI&C is not exposed to any liquidity risk since it
generates enough cash from normal business to fulfill its operations and finan-
cial commitments.
Prudent liquidity risk management implies maintaining sufficient cash and mar-
ketable securities, the availability of funding through an adequate amount of com-
mitted credit facilities, and the ability to close out market positions. Due to the
dynamic nature of the underlying businesses, TEI&C Treasury aims at maintaining
flexibility in funding by keeping committed credit lines available.
As TEI&C has no significant interest-bearing assets, the Company’s income and
operating cash flows are substantially independent of changes in market interest
rates. TEI&C’s interest rate risk arises from long-term borrowings, which are not
significant for the Company. Borrowings issued at variable rates expose the
Company to cash flow interest rate risk. Borrowings issued at fixed rates expose
TEI&C to fair value interest rate risk.
5. PROPERTY, PLANT AND EQUIPMENT
The item evolution is as follows:
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
NON-CURRENT CURRENT TOTALLANDS EQUIPMENT SPARE PARTS, OTHER SUBTOTAL FIXED JUNE 30, JUNE 30,
AND AND VEHICLE AND ASSETS ASSETS 2007 2006BUILDINGS MACHINERY OTHERS (1)
Beginning of the year 18,190 55,455 14,739 58,969 147,353 80 147,433 144,805
Additions 247 16,267 14,119 10,115 40,748 - 40,748 57,363Disposals (193) (1,317) (858) (159) (2,527) - (2,527) (18,686)Annual depreciation (2,973) (20,409) (7,601) (7,743) (38,726) - (38,726) (26,131)Translation differences 1,282 783 479 503 3,047 - 3,047 (3,911)Other movements (2) 1,221 22,785 3,091 (2,527) 24,570 - 24,570 (6,007)Increase due to business combinations (see note 1) - 866 248 934 2,048 40 2,088 -Decrease due to sale of subsidiaries (see note 1) (3,613) (2,741) (283) (1,403) (8,040) - (8,040) -
End of the year 14,161 71,689 23,934 58,689 168,473 120 168,593 147,433
(1) It includes deferred costs of our subsidiaries FEPSA and Sidernet de Venezuela C.A. and miscellanous assets.(2) It includes USD 27,154 thousand against reserve for fixed asset revaluation surplus and USD 1,779 thousand charged in result of the year.
49
The item consists in the following:
6. INTANGIBLE ASSETS
The item consists in the following:
ORIGINAL ACCUMULATED NET VALUE VALUE DEPRECIATION JUNE 30, 2007 JUNE 30, 2006
Land and buildings 30,360 (16,199) 14,161 18,190 Equipment and machinery 208,583 (136,894) 71,689 55,455 Spare parts, vehicles, and others 62,545 (38,611) 23,934 14,739 Other assets 110,586 (51,897) 58,689 58,969 Subtotal non-current 412,074 (243,601) 168,473 147,353
Current property, plant, and equipment 120 - 120 80 Total end of the year 412,194 (243,601) 168,593 147,433
ORIGINAL VALUE ACCUMULATED NET VALUEDEPRECIATION
Systems development 9,814 (8,169) 1,645 Goodwill - TENCO and subsidiaries 1,340 - 1,340Goodwill - COINFER 2,376 (1,460) 916Total June 30, 2007 13,530 (9,629) 3,901 Total June 30, 2006 12,134 (7,979) 4,155
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
50 Annual Report TEI&C S.A.
7. INVESTMENTS
NON-CURRENT
BOOK VALUEINVESTMENT IN ASSOCIATED COMPANIES JUNE 30, 2007 JUNE 30, 2006Fluor Techint S.R.L. Construcción y Servicios Ltda. (1) 1,201 -Other 27 -Total investment in associated companies 1,228 -
(1) On March 16, 2007, Techint Chile S.A. and Fluor Chile S.A. created FLUOR TECHINT S.R.L. Construcción y Servicios Ltda., an LLC (Limited LiabilityCompany) holding 50% of shares each.
OTHER INVESTMENTS JUNE 30, 2007 JUNE 30, 2006Government Bonds 381 560Other investment fund 5,459 4,984La Nacion´s Trust fund 134 6,080Terminal Bahía Blanca 380 381Other 547 350Total other investments 6,901 12,355
TOTAL NON-CURRENT 8,129 12,355
CURRENT
OTHER INVESTMENTS JUNE 30, 2007 JUNE 30, 2006Government Bonds 175 177Temporary placements 26 26Other - 714Total other investments 201 917
TOTAL CURRENT 201 917
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
51
8. TRADE AND OTHER RECEIVABLES
At June 30, 2007 and 2006 the evolution of the allowance for doubtful accounts
that was deducted from Trade receivables is:
NON-CURRENT
JUNE 30, 2007 JUNE 30, 2006Other receivables, net 26,004 24,366Tax credit 14,547 12,863Other receivables from related parties (see note 21) 3,175 5,395Other 2,705 2,836Total trade and other receivables - non-current 46,431 45,460
CURRENT
JUNE 30, 2007 JUNE 30, 2006Trade receivables, net 150,413 104,151Trade receivables from related parties (see note 21) 25,798 16,796Other receivables from related parties (see note 21) 13,625 17,044Other receivables 17,990 28,887Prepayments 830 1,092Tax credit 12,701 19,964Total trade and other receivables - current 221,357 187,934
JUNE 30, 2007 JUNE 30, 2006Values at the beginning of the year 16,691 16,298 Translation 421 (9)Reversal (3,402) (261)Additions 313 986Used (203) (323)Values at the end of the year 13,820 16,691
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
52 Annual Report TEI&C S.A.
9. DEFERRED INCOME TAXES
As further explained in Note 3.j., TEI&C and most of the Company’s subsidiaries
are subject to income taxes. At June 30, 2007 and 2006 the Company discloses
under the caption “deferred income tax assets” the net balance recognized by those
subsidiaries that recorded a net deferred income tax asset, while the net balance
recognized by those subsidiaries that recorded a net deferred income tax liability
has been disclosed under “deferred income tax liabilities” in the consolidated
balance sheet.
The main subsidiaries generating deferred income tax balances are detailed below:
DEFERRED INCOME TAX ASSETS
JUNE 30, 2007 JUNE 30, 2006Techint S.A. of Brazil ("TEBRA") 13,440 12,193TENCO’s Subsidiaries 1,475 381Sidernet de Venezuela C.A. 1,007 -Other 471 224
16,393 12,798
DEFERRED INCOME TAX LIABILITIES
JUNE 30, 2007 JUNE 30, 2006TEARG (2,039) (3,327)FEPSA (8,472) (6,413)LOSA - (295)Other (161) -
(10,672) (10,035)
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
53
At June 30, 2007 and 2006 the deferred tax balance is originated by the following
items:
The evolution of net deferred income tax asset during the year is as follows:
DEFERRED INCOME TAX ASSETS
JUNE 30, 2007 JUNE 30, 2006Tax-loss carry-forwards 15,777 16,013Provisions 10,127 7,318Fixed assets 145 356Interets - 200Deferred costs 576 89Other 194 285Subtotal 26,819 24,261
DEFERRED INCOME TAX LIABILITIES
JUNE 30, 2007 JUNE 30, 2006Committed investment FEPSA 11,573 11,095Different criterion used to assess the tax gain/(loss) of the J.V. Techint Cía.Técnica InternacionalS.A.C.I. - Hochtief A.V.G.H. - Impregilo S.p.A. - Iglys S.A. 7,857 7,463Fixed assets 470 1,600Inflation effects 37 339Exchange differences 315 315Investments - 335Deferred income 765 213Other 81 138Subtotal 21,098 21,498
Net deferred income tax asset 5,721 2,763
JUNE 30, 2007At the beginning of the year 2,763Translation differences 1,789Increase due to business combinations (see note 1) 48Increase due to sale of subsidiaries (see note 1) 992Income statement credit 129At the end of the year 5,721
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
54 Annual Report TEI&C S.A.
The tax loss carry-forwards mature as detailed below:
The recoverable value of deferred tax assets depends on the existence of future
income subject to income tax, sufficient to be used before their legal prescription.
In this regard, Management estimates that TEI&C’s subsidiaries will generate suffi-
cient taxable income in future periods so as to offset the net balance of deferred
income tax assets recorded at June 30, 2007.
10. INVENTORIES
The item consists in the following:
At June 30, 2007 and 2006 the evolution of the valuation allowance that was
deducted from inventories is:
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
JUNE 30, 2007 JUNE 30, 2006Year 2007 - 10,834Year 2008 - 53Year 2009 55 55Year 2010 4 662Year 2011 3,780 2,761Year 2012 2,909 -Without maturity 51,314 40,000
58,062 54,365
JUNE 30, 2007 JUNE 30, 2006Materials and spare parts 15,556 15,024 Raw materials - 1,599 Advances to suppliers and subcontractors 810 353 Finished goods - 2,074 Others 387 73 Valuation allowance (2,059) (3,223) Total Inventories 14,694 15,900
JUNE 30, 2007 JUNE 30, 2006Values at the beginning of the year 3,223 2,842 Translation (4) (123)Reversal (98) (15)Additions 156 559Decrease due to sale of subsidiaries (see note 1) (1,218) -Used - (40)Values at the end of the year 2,059 3,223
55
11. SHARE CAPITALIn thousands of shares
The ordinary shares have a value of $U (Uruguayan peso) 1 per share and one vote
per five shares. All issued shares are fully paid.
The authorized capital stock amounts to $U (Uruguayan peso) 3,800,000 thousand.
12. BORROWINGS
NUMBER ORDINARYOF SHARES SHARES
At June 30, 2006 3,589,652 3,589,652At June 30, 2007 3,589,652 3,589,652
NON-CURRENT
COMPANY LENDER JUNE 30, CURRENCY INTEREST JUNE 30, 2007 RATE 2006
Compañía Inv. Ferroviaria S.A.I.F. Sociedad Comercial del Plata S.A. 1,891 ARS 10.43% 3,126 Techint S.A. of Brazil Banco Sudameris y Safra L.S.A. - - 338 Techint S.A. of Brazil Banco HSBC 452 BRL 12.40% 477 Techint Cía.Técnica Internacional S.A.C.I. Banco Comafi S.A. - - 523 Techint Cía.Técnica Internacional S.A.C.I. Banco Itaú Buen Ayre S.A. - - 1,753Techint Cía.Técnica Internacional S.A.C.I. Standard Bank Argentina S.A. 1,395 ARS 14.00% -Techint Cía.Técnica Internacional S.A.C.I. BBVA Banco Francés S.A. 253 ARS 11.80% -Techint Cía.Técnica Internacional S.A.C.I. Banco Itaú BBA S.A. 1,211 USD 7.40% -Techint Cía.Técnica Internacional S.A.C.I. BBVA Italia 1,077 EUR 5.00% -Techint International Const. Corp. (TENCO) HSBC Bank Perú S.A. 1,117 USD 6.59% -Techint International Const. Corp. (TENCO) Banco de Chile 70 CLP 8.16% -Sidernet S.A. Banco Hipotecario S.A. 787 ARS 17.56% 1,262 Sidernet S.A. Banco Itaú BBA S.A. 570 USD 7.50% 354 Sidernet de Venezuela C.A. ABN AMRO Bank, N.V. Suc. Venezuela 7,673 VEB 12.00% - Other 88 32
16,584 7,865
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
56 Annual Report TEI&C S.A.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
CURRENT
COMPANY LENDER JUNE 30, CURRENCY INTEREST JUNE 30, 2007 RATE 2006
Compañía Inv .Ferroviaria S.A.I.F. Sociedad Comercial del Plata S.A. 559 ARS 10.43% - Techint Cía.Técnica Internacional S.A.C.I. Bank Overdrafts 13,129 ARS 7.77% 5,186 Techint Cía.Técnica Internacional S.A.C.I. Banco Comafi S.A. 644 ARS 14.00% 435 Techint Cía.Técnica Internacional S.A.C.I. Caterpillar Financial Services Corp. - - 755 Techint Cía.Técnica Internacional S.A.C.I. Agrupación Fdo. Copartic. Financ. ACE - - 1,131 Techint Cía.Técnica Internacional S.A.C.I. BBVA Banco Francés S.A. 117 ARS 11.80% - Techint Cía.Técnica Internacional S.A.C.I. BBVA Italia 395 EUR 5.00% -Techint Cía.Técnica Internacional S.A.C.I. Banco Galicia y Buenos Aires S.A. 900 USD 6.50% - Techint Cía.Técnica Internacional S.A.C.I. Banco Itaú BBA S.A. 493 USD 7.40% -Techint Cía.Técnica Internacional S.A.C.I. Standard Bank Argentina S.A 767 ARS 14.00% - Techint Cía.Técnica Internacional S.A.C.I. Banco San Juan S.A. 1,819 ARS 9.50% 414 Techint Cía.Técnica Internacional S.A.C.I. Banco Itaú Buen Ayre S.A. 2,292 USD 7.00% - Techint Cía.Técnica Internacional S.A.C.I. HSBC Bank Argentina S.A. 1,084 ARS 12.98% - Techint Cía.Técnica Internacional S.A.C.I. Banco Macro S.A. 498 ARS 12.60% - Techint S.A. of Brazil Banco Sudameris y Safra L.S.A. 102 BRL 6.50% 558Techint S.A. of Brazil Banco HSBC 159 BRL 2.40% 119Techint S.A. of Brazil Banco HSBC - - 132 Tecnomatter Instalaciones y Construcciones S.A. Bank Overdrafts - - 616 Tecnomatter Instalaciones y Construcciones S.A. Santa María Financial S.A. 176 USD 7.00% 104 Sidernet S.A. Banco Hipotecario S.A. 489 ARS 11.56% 433 Sidernet S.A. Banco Itaú BBA S.A. 410 USD 7.50% 195 Sidernet S.A. Santa María Financial S.A. 163 USD 7.00% 76 Coincar S.A. Banco Río S.A. y Galicia S.A. 1,594 ARS 8.00% 6,704 Techint International Const. Corp. (TENCO) Banco Itaú BBA S.A. 750 USD 6.40% 2,280Techint International Const. Corp. (TENCO) HSBC Bank Chile 3,000 USD 5.65% 7,180Techint International Const. Corp. (TENCO) Techint Limited - - 235Techint International Const. Corp. (TENCO) Banco de Chile 380 CLP 6.60% -Techint International Const. Corp. (TENCO) Banco Security 380 CLP 7.20% -Techint International Const. Corp. (TENCO) Banco Santander Santiago 330 CLP 6.60% -Techint International Const. Corp. (TENCO) Banco de crédito e inversiones 100 CLP 6.60% -Techint International Const. Corp. (TENCO) Banco de la Nación Arg. Suc. Chile - - 670Techint International Const. Corp. (TENCO) HSBC Bank Perú S.A. 113 USD 6.59% -Sidernet de Venezuela C.A. ABN AMRO Bank, N.V. Suc. Venezuela 2,914 VEB 14.50% - Sidernet de Venezuela C.A. Banco Provincial 513 VEB 13.00% - Sidernet de Venezuela C.A. Banco de Venezuela 2,111 VEB 12.00% -Techint Inversiones S.A.I.F. Santa María S.A.I.y F. 369 ARS 5.75% -Other 632 1,675
37,382 28,898
Note:
ARS: Argentine Peso
BRL: Brazilian Real
CLP: Chilean Peso
EUR: Euro
VEB: Venezuelan Bolivar
57
The maturity of borrowings is as follows:
13. TRADE AND OTHER PAYABLES
AT JUNE 30, 2007 WITHOUT DUE DATE 1 YEAR OR LESS 1 - 2 YEARS 2 - 3 YEARS 3 - 4 YEARS 4 - 5 YEARS OVER 5 YEARS
Financial leases - 1,700 954 1,882 - - - Other borrowings 1,891 35,682 2,539 8,990 328 - - Total borrowings 1,891 37,382 3,493 10,872 328 - -
NON-CURRENT
JUNE 30, 2007 JUNE 30, 2006Trade payables 482 805 Social security and other taxes 8,162 5,985 Payables and provisions 10,266 8,971 Total non-current trade and other payables 18,910 15,761
CURRENT
JUNE 30, 2007 JUNE 30, 2006Trade payables 90,998 89,584 Social security and other taxes 52,975 58,212 Amounts due to related parties (see note 21) 3,474 2,651 Total current trade and other payables 147,447 150,447
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
14. OTHER LIABILITIES
58 Annual Report TEI&C S.A.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
NON-CURRENT
JUNE 30, 2007 JUNE 30, 2006Provisions (see note 16) 15,997 16,464 Amounts due to related parties (see note 21) 12,035 13,500Other liabilities 858 3,688 Total non-current other liabilities 28,890 33,652
CURRENT
JUNE 30, 2007 JUNE 30, 2006Provisions (see note 16) 1,251 1,275Advances received on construction contracts 31,086 20,921Advances received on construction contracts from related parties (see note 21) 1,539 116Amounts due to related parties (see note 21) 4,501 1,500Other liabilities and provisions 7,688 11,077 Total current other liabilities 46,065 34,889
15. EMPLOYEE BENEFITS
59
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
The amounts recognized in the balance sheet are determined as follows:
YEAR ENDED JUNE 30,2007 2006
Present value of unfunded obligations 6,377 6,905Unrecognized actuarial gains (losses) (3,868) (3,832)Liability in the balance sheet 2,509 3,073
The amounts recognized in the income statement are as follows:
YEAR ENDED JUNE 30,2007 2006
Current service cost 241 190Interest cost 452 404Net actuarial (gains) losses recognized in the year 333 362Total included in labor costs 1,026 956
The amounts and movements in the liability recognized in the balance sheet aredetermined as follows:
YEAR ENDED JUNE 30,2007 2006
At the beginning of the year 3,073 2,743Transfers and new participants of the plan (265) -Total expense 1,026 956Contributions paid (1,325) (626)At the end of the year 2,509 3,073
The principal actuarial assumptions used were as follows:
YEAR ENDED JUNE 30,2007 2006
Discount rate 7% 7%Rate of compensation increase 2% 2%
16. PROVISIONS
60 Annual Report TEI&C S.A.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
NON-CURRENT
LABOR TAXES CIVILS OTHER TOTAL
Values at the beginning of the year 4,482 4,922 3,613 3,447 16,464Translation 364 701 112 166 1,343Reversal - - (451) (1,056) (1,507)Additions 1,327 - 1,150 89 2,566Decrease due to sale of subsidiaries (see note 1) (85) - - - (85)Used (484) (67) (193) (2,040) (2,784)Values at the end of the year 5,604 5,556 4,231 606 15,997
CURRENT
LABOR TAXES CIVILS OTHER TOTAL
Values at the beginning of the year 54 - 259 962 1,275Translation - - (2) (1) (3)Reversal - - - (15) (15)Additions - - 177 251 428Decrease due to sale of subsidiaries (see note 1) (54) - - - (54)Used - - (310) (70) (380)Values at the end of the year - - 124 1,127 1,251
17. FINANCIAL INSTRUMENTS
The Company’s short-term investments, receivables, trade, bank and financial lia-
bilities qualify as financial instruments under the terms of IAS 32.
Bank and financial liabilities were incurred at market rates in effect in those coun-
tries in which the Company operates through its branches, joint ventures and sub-
sidiaries.
The geographic distribution of accounts receivable at June 30, 2007 and June 30,
2006 is determined by the projects in progress in the following countries:
Management policies devised to mitigate the currency risk are explained in Note 4.
61
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
COUNTRY JUNE 30, 2007 JUNE 30, 2006Argentina 29.3% 47.7%Brazil 22.8% 15.8%Chile 14.2% 3.9%Ecuador 0.1% 4.4%Peru 5.5% 6.0%Saudi Arabia 16.4% 20.3%Uruguay 0.6% 1.3%Venezuela 4.7% -Mexico 4.3% -Trinidad and Tobago 2.1% -Other - 0.6%
18. PARTICIPATION IN JOINT VENTURES
The Company’s subsidiaries were part of different J.V. which also perform engineering
and construction activities. The Company’s participation in those J.V. was recorded
through proportional consolidation of assets, liabilities and results. The following
balances represent the Company’s participation in assets and liabilities at June 30,
2007 and 2006:
62 Annual Report TEI&C S.A.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
JUNE 30, 2007 JUNE 30, 2006MAIN JOINT VENTURES TOTAL TOTAL % OF TOTAL TOTAL % OF
ASSETS LIABILITIES OWNERSHIP ASSETS LIABILITIES OWNERSHIP
Techint Cía. Técnica Internacional S.A.C.I. - Panedile Argentina S.A. - Unión Transitoria de Empresas - Complejos “Los Caracoles” and “Punta Negra” (1) 35,556 27,934 75.00% 30,744 26,232 75.00%
Techint Cía. Técnica Internacional S.A.C.I. - Hochtief A.V.G.H. - Impregilo S.p.A. - Iglys S.A. - Unión Transitoria de Empresas - Complejo Penitenciario Ezeiza (1) 41,455 2,067 60.00% 33,835 1,945 60.00%
Techint Cía. Técnica Internacional S.A.C.I. - Luis M. Pagliara S.A. - Unión Transitoria deEmpresas - C. Re. Ma. Malla 332 (1) 6,254 2,018 60.00% 5,270 4,345 60.00%
Techint Cía. Técnica Internacional S.A.C.I. - B.Roggio e Hijos S.A. - Unión Transitoria de Empresas - Subte Línea A (1) 5,867 2,482 50.00% 3,987 1,785 50.00%
Unamon Consórcio de Montagens Nuclear (2) 61,172 (211) 14.29% 53,615 201 14.29%
Techint Cía. Técnica Internacional S.A.C.I. - FLUOR Inc. - Unión Transitoria de Empresas - Proyecto: Pascua Lama (1) 1,408 762 50.00% - - -
Consórcio Techint UMSA II (2) 287 (19,901) 60.00% - - -
Consórcio Techint UMSA III (2) 251 (1,503) 80.00% - - -
ABB Lummus Techint Trinidad Joint Venture (1) 1,683 1,683 50.00% - - -
ABB Lummus Techint Bahamas Joint Venture (3) 12,596 11,516 50.00% - - -
(1) Controlling interest through TEARG.(2) Controlling interest through TEBRA.(3) Controlling interest through TENCO.
The following balances represent the Company’s participation in results at June 30,
2007 and 2006:
63
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
JUNE 30, 2007 JUNE 30, 2006MAIN JOINT VENTURES RESULTS % OF OWNERSHIP RESULTS % OF OWNERSHIP
Techint Cía. Técnica Internacional S.A.C.I. - Panedile Argentina S.A. - Unión Transitoria de Empresas - Complejos “Los Caracoles” and “Punta Negra” (1) 3,121 75.00% 754 75.00%
Techint Cía. Técnica Internacional S.A.C.I. - Hochtief A.V.G.H. - Impregilo S.p.A. - Iglys S.A. - Unión Transitoria de Empresas - Complejo Penitenciario Ezeiza (1) 7,570 60.00% 9,118 60.00%
Techint Cía. Técnica Internacional S.A.C.I. - Luis M. Pagliara S.A. - Unión Transitoria de Empresas - C. Re. Ma. Malla 332 (1) 3,342 60.00% (241) 60.00%
Techint Cía. Técnica Internacional S.A.C.I. - B.Roggio e Hijos S.A. - Unión Transitoria de Empresas - Subte Línea A (1) 1,425 50.00% 4,721 50.00%
Unamon Consórcio de Montagens Nuclear (2) (211) 14.29% 279 14.29%
Techint Cia Técnica Internacional S.A.C.I. - FLUOR Inc. - Unión Transitoria de Empresas - Proyecto: Pascua Lama (1) 673 50.00% - -
Consorcio Techint UMSA II (2) 19,614 60.00% - -
Consorcio Techint UMSA III (2) 1,253 80.00% - -
ABB Lummus Techint Trinidad Joint Venture (1) - 50.00% - -
ABB Lummus Techint Bahamas Joint Venture (3) 1,082 50.00% - -
(1) Controlling interest through TEARG.
(2) Controlling interest through TEBRA.
(3) Controlling interest through TENCO.
19. CONTINGENCIES AND COMMITMENTS
a. Guarantees and bonds granted
TEI&C and its subsidiaries have entered into a series of guarantee contracts with
third parties through which they undertake the unconditional and irrevocable obli-
gation to guarantee the prompt and complete payment and performance of certain
liabilities incurred by related parties. In addition, certain of the Company’s sub-
sidiaries issued a number of guarantees to provide for the obligations assumed in
the normal course of business.
As of June 30, 2007, TEI&C granted a guaranty in favor of SIDOR C.A. in an
amount of USD 13.5 million and other one in favor of Consórcio Techint/ UMSA II
in an amount of USD 2.3 million.
As of June 30, 2006, TEARG granted in favor of the International Finance
Corporation (IFC), a World Bank agency, a guarantee for 33% of the disbursement
of the loan granted on August 1, 1996 in favor of Transportadora de Gas del Norte
S.A. (TGN) in an amount of USD 74.8 million for the purpose of affording TGN’s
Investment Plan in the period 1995-1997. In turn, TEARG holds a counter-guaran-
tee for the value of the main guarantee, issued by Tecgas N.V. (shareholder of
TGN's holding company). In the current fiscal year, the abovementioned guarantee
was cancelled.
b. Situation of the subsidiary FEPSA
FEPSA is the railroad freight company that transports grains, byproducts of the
agro industry, petrochemical products, iron and steel products and containers
towards the ports of Bahía Blanca, Rosario, San Lorenzo and San Martín.
An agreement was reached with the Renegotiation and Analysis of Utility
Contracts Unit (UNIREN) during the renegotiation of FEPSA concession contract,
and a Final Memorandum of Understanding (MOU) was signed on March 16, 2006,
and approved by both Chambers on August 9, 2006. After the closing of these con-
solidated financial statements, new authorities took office at the Ministry of
Economy, and therefore the first page of the MOU and the draft of the decree must
be corrected. This necessarily entails that such MOU must be executed again. The
progress made with reference to the MOU has led TEI&C through its subsidiary
FEPSA to consider its terms for the preparation of these consolidated financial
statements. Mutual claims mentioned in that agreement and the ability of FEPSA
to meet its obligations are subject to the final approval of the agreement.
64 Annual Report TEI&C S.A.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
c. Works executed under a trust, construction, and leasing agreement
TEARG, as a member of the J.V. Techint Compañía Técnica Internacional S.A.C.I.-
Hochtief A.V.G.H.- Impregilo S.p.A.- Iglys S.A., has signed a contract with the
Argentine Government for the construction of a penitentiary institution, under the
turnkey system, located in Ezeiza, province of Buenos Aires, payable in 60 quarter-
ly installments as canon.
On September 9, 2004, the J.V. and the Undersecretariat of Coordination and
Innovation which depends on the National Ministry of Justice and Human Rights
signed an Agreement whereby the J.V. agrees to have the contract pesified and the
Reference Stabilization Index (RSI) applied until the effective date of payment.
Afterwards, and due to the change of Minister of Justice and Human Rights which
took place in August 2005, such Ministry consulted the Treasury Attorney General
on whether or not the Ministry party to the Agreement dated September 9, 2004
mentioned above was duly entitled to execute such Agreement. The Treasury
Attorney General issued an opinion whereby it expressed that it is within the
scope of the Ministry of Justice itself to analyze and answer the inquiry in ques-
tion. As of the date hereof, the Ministry has not issued a decision in this regard.
Notwithstanding the foregoing and, until such decision is taken by the Ministry of
Justice, the J.V. has received from such Ministry payments for several canons with-
out applying the RSI, all of which have been received by the J.V. as partial pay-
ments of the total amount owed and overdue deriving from the aforementioned
Agreement. As from January 2006 to the date of issuance of these consolidated
financial statements, the J.V. received as partial payments of canons 10 to 16 and
23 to 31 a total amount of USD 29,106 thousand.
The proportional participation of TEARG in the total balance receivable of the
J.V. with the Argentine Government as of May 31, 2007 amounts to USD 68,553
thousand.
The amount of such credit recorded in these consolidated financial statements,
which arises from discounting the amounts mentioned above from their current
value on May 31, 2007, is equal to USD 45,503 thousand (capital USD 17,655 thou-
sand and RSI USD 27,848 thousand) of which the amount of USD 13,157 thousand
is past due at June 30, 2007.
It is the opinion of the J.V. Management and of its legal advisors that, based on the
pesification law (application of the RSI to the canons owed) that would be applica-
ble to this contract, the decision of the Ministry of Justice should be taken with
regard to the formal aspects corresponding to the authority of the Ministry to exe-
cute the above mentioned agreement, the J.V. therefore being entitled to collect the
65
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
canons at a 1-to-1 relation plus RSI. These consolidated financial statements reflect
the J.V. Management’s opinion regarding the application of such law. In the event
that this issue gives rise to a judicial claim, it is considered that the J.V. is in
legal position solid enough to collect its credits within the scope of the above
mentioned law.
In addition, on December 7, 2004 the J.V. was notified of Resolution No. 656/04
issued by the Income Tax Authority of the province of Buenos Aires whereby dif-
ferences in the payment of the Stamp Tax applicable to the Contract executed on
May 28, 1998 by the Argentine Government and Río Trust S.A. are assessed. Such
Authority understands that there was a partial breach of the obligation to pay such
tax. The participation of TEARG on the amount of the assessed difference, plus
compensatory interests and fines amounts to USD 6.4 million as of May 31, 2007.
On December 30, 2004, the J.V. filed an appeal in order to have such resolution
revoked. As the Company’s Management and its legal counsel believe that there are
high possibilities of sustaining the referred appeal, the Company has not set up
any provisions.
20. RESTRICTED ASSETS
TENCO and subsidiaries
At June 30, 2007 and 2006, the net carrying amounts of the fixed assets held under
finance lease amount to USD 1,522 thousand and USD 107 thousand, respectively.
At June 30, 2007 liabilities for finance leases amount to USD 1,360 thousand. At
June 30, 2006 liabilities for finance leases do not have any balance.
Techint Compañía Técnica Internacional S.A.C.I.
There is property, plant and equipment, subject to a security interest, the account-
ing residual value of which as of June 30, 2007 is USD 720 thousand (as of June 30,
2006: USD 2,108 thousand), corresponding to liabilities already paid, the cancella-
tion of which is currently in progress. In addition, there is property, plant and
equipment, subject to a security interest, the accounting residual value of which
at closing is USD 332 thousand, corresponding to liabilities already paid, the
cancellation of which occurred on September 11, 2007.
In addition, there are fixed assets with a residual book value of USD 2,663 thou-
sand (at June 30, 2006: USD 934 thousand) which are pledged as guarantee for
66 Annual Report TEI&C S.A.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
liabilities under leasing agreements for USD 1,527 thousand (at June 30, 2006:
USD 385 thousand) and USD 1,649 thousand (at June 30, 2006: USD 671 thousand),
included in the account "Borrowings" (current and non-current, respectively).
Coincar S.A.
Under the Credit Facility Agreement entered into by Coincar S.A. with Banco Río
de la Plata S.A. and Banco de Galicia y Buenos Aires, Coincar S.A. agrees not to sell
nor cause to be sold, assign in ownership and/ or use and/ or usufruct, mortgage,
pledge, loan and/ or loan for use, levy in any manner whatsoever, lease and/ or
enter into a leasing, grant a security and/ or personal interest with respect to, not to
transfer and/ or in any manner dispose of, either in a transaction or a series of trans-
actions, all or a substantial portion of any of its assets, goods and/ or rights and/ or
of its assets, goods and/ or rights to be acquired in the future, nor to distribute divi-
dends, pay fees to the company’s directors or consultants, without the prior consent
of the majority of the banks that granted the Credit Facility Agreement.
Compañía Inversora Ferroviaria S.A.I.F. (COINFER)
Licensed assets:
In conformity with the regulations established in the bid specifications and the
License Agreement, the subsidiary FEPSA received from Ferrocarriles Argentinos
assets of its own to be used in the operation (included in “Property, plant and
equipment” non-current). They primarily comprise infrastructure (main and
secondary railway network), real property (warehouses and buildings), transportation
material (locomotives and coaches), fixed facilities and other. Upon expiration of
the license, the assets will be returned to Ferrocarriles Argentinos, at no additional
cost, in their normal condition of maintenance, except for the wear and tear over
time and the normal use.
Techint S.A. of Brazil
At June 30, 2007, the company had USD 6,833 thousand (at June 30, 2006:
USD 6,076 thousand) in assets granted as guarantee for different proceedings.
In addition, this company is judicially challenging the unconstitutionality of
certain taxes.
67
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
21. RELATED PARTY TRANSACTIONS
Year-end balances
Transactions with related parties
The aggregate compensation of the directors and executive officers earned during
2007 amount to USD 4,081 thousand.
68 Annual Report TEI&C S.A.
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
NOTES JUNE 30, 2007 JUNE 30, 2006NON-CURRENT ASSETS
Other receivables from related parties 8 3,175 5,395
CURRENT ASSETS
Trade receivables from related parties 8 25,798 16,796 Other receivables from related parties 8 13,625 17,044
NON-CURRENT LIABILITIES
Other liabilities due to related parties 14 12,035 13,500Borrowings from related parties 12 1,891 3,126
CURRENT LIABILITIES
Advances received on construction contracts from related parties 14 1,539 116Other liabilities due to related parties 14 4,501 1,500Trade and other payables due to related parties 13 3,474 2,651 Borrowings from related parties 12 1,267 1,311 Borrowings from parent company 12 - 235
JUNE 30, 2007 JUNE 30, 2006
Sales of goods and services 149,390 115,885Purchases of goods and services 5,010 7,956
22. SUBSIDIARIES
69
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
COMPANY COUNTRY % OF OWNERSHIP % OF OWNERSHIPJUNE 30, 2007(*) JUNE 30, 2006 (*)
Caminos del Oeste S.A. Argentina (1) (1)
Cimimontubi LLC U.S.A. 100.00% 100.00%Cimimontubi S.A. Venezuela 100.00% 100.00%Coincar S.A. Argentina 65.00% 65.00%Compañía Inversora Ferroviaria S.A.I.F. Argentina 77.02% 77.02%Energía Tamaulipas S.A. de C.V. Mexico 60.00% 60.00%Ferroexpreso Pampeano S.A.C. Argentina (2) (2)
Fidelis Management S.A. Panama 100.00% 100.00%Flinwok S.A. Uruguay 100.00% 100.00%Hook S.A. Chile 51.00%(4) -L.O.S.A. Ladrillos Olavarría S.A.I.C. Argentina -(4) 64.56%Norgas S.A. Argentina 50.00% 50.00%Preglosid S.L.U. Spain 100.00% 100.00%Proyectos y Montajes Comin S.A. Chile 51.00%(4) -Saneamiento y Urbanización S.A. Argentina 100.00% 100.00%Saudi Techint Ltd. Saudi Arabia 60.00% 60.00%Servicios Industriales Comin S.A. Chile 51.00%(4) -Servicios Siderúrgicos Sersisa S.A. Venezuela 100.00%(4) -Servicios y Prestaciones Techint Funchal - Serviços, Comércio e Gestão de Projetos Lda. Madeira 100.00% 100.00%SICI - Servicios de Ingeniería y Construcciones Industriales S.A. de C.V. Mexico 60.00% 60.00%Sidermex LLC U.S.A. 100.00% 100.00%Sidernet S.A. Argentina 100.00% 100.00%Sidernet de Venezuela C.A. Venezuela 100.00% 100.00%Sidernet Mexicana S.A. de C.V. Mexico 75.00% 75.00%Socominter Sociedade Comercial Internacional Ltda. Brazil 100.00% 100.00%Tebra Empreendimentos Ltda. Brazil 100.00% 100.00%Techint Chile S.A. Chile 100.00% 100.00%Techint Compañía Técnica Internacional S.A.C.I. Argentina 100.00% 100.00%Techint Compañía Técnica Internacional S.A.C.I. Uruguay 100.00% 100.00%Techint International Construction Corp. (TENCO) Bahamas 100.00% 100.00%Techint Inversiones S.A.I.F. Argentina 100.00% 100.00%Techint Nigeria Limited Nigeria 100.00% 100.00%Techint S.A. Brazil 100.00% 100.00%Techint S.A.C. Peru 100.00% 100.00%Tecnología en Servicios Urbanos - Tesur S.A. Argentina -(4) 65.36% (3)
Tecnomatter Instalaciones y Construcciones S.A. Argentina 100.00% 100.00%Tecnomatter S.A. de C.V. Mexico 100.00% 100.00%
(*) Direct and indirect participating interest are included.(1) Assets, liabilities, and results are not included in the consolidated financial statements because the Company decided to set up
an allowance for the full investment value.(2) Controlling interest through Compañía Inversora Ferroviaria S.A.I.F.(3) Such percentage was calculated not considering preferred shares.(4) See note 1.
23. COST OF SALES AND EXPENSES
24. FINANCIAL RESULTS, NET
25. OTHER INCOME AND EXPENSES, NET
70 Annual Report TEI&C S.A.
Cost of sales General and Selling Other JUNE 30, 2007administrative expenses operating
expenses expensesLabor costs 295,987 32,154 565 37 328,743Taxes, rates and contributions 34,461 5,158 981 - 40,600Fees and technical advice 13,980 7,544 15 - 21,539Sub-contract for services 139,771 2,171 933 20 142,895Purchases of material and supplies 150,649 112 - - 150,761Fixed assets depreciation 35,909 2,750 - 67 38,726Intangible assets depreciation 581 1,159 - - 1,740Work structure expenses 29,323 32 - - 29,355Office structure expenses 2,068 1,728 91 - 3,887Participation in J.V. balances 49,936 - - - 49,936Unallocated costs 37,429 11,811 1,367 - 50,607
790,094 64,619 3,952 124 858,789
JUNE 30, 2007 JUNE 30, 2006Interests and indexation 5,495 5,343Net foreign exchange transaction (losses) (985) (995)Holding results 930 5,209Other (1,320) (2,783)
4,120 6,774
JUNE 30, 2007 JUNE 30, 2006Gain from the sale of fixed assets 3,010 6,875 Result from other investments (1,067) (2,226)Provisions for legal claims and contingencies (1,343) 1,391Gain from the purchase and sale of investments 338 4,295Decrease in value of fixed assets (1,779) -Other 1,119 (472)
278 9,863
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
26. INCOME TAX EXPENSES
The net difference between the tax calculated at the rate in effect in each country
and the total charge for the year is generated by the following:
27. SUBSEQUENT EVENTS
After the fiscal year end, in September 2007, the Ordinary and Special
Shareholders’ Meetings of the subsidiary company TEARG decided to spinoff part
of its assets and liabilities with the purpose of reorganizing its business areas,
separating the investments made by the Company in the area of iron and steel
services. For this reason, the Company shall hold 8,445,080 common shares,
accounting for 97.50% of the equity of Prestaciones Globales Siderúrgicas S.A.
(a company under organization proceedings).
71
JUNE 30, 2007 JUNE 30, 2006Current income tax (10,954) (3,439)Deferred income tax 129 (6,892)
(10,825) (10,331)
JUNE 30, 2007
Tax calculated at the applicable rate on the result for the year (14,827)
Effect of restatement in constant currency 6,329Result due to participating interests in subsidiaries and related companies 2,002Reverse accounting historical result-sale of participating interests (7,070)Dividends earned 837Creation of provisions for deferred tax assets (1,169)Current adjustment of different fiscal years 2,832Other, net 241Income tax (10,825)
Notes to the Consolidated Financial Statements (Cont'd.)All amounts are shown in USD thousands, unless otherwise stated
72 Annual Report TEI&C S.A.
Khursaniyah Downstream & Upstream Pipelines
This project was executed for Saudi Aramco. The company was in charge of the development of 15 multiproduct pipelines.
TEI&C provides full engineering, procurement, andconstruction services on a global basis. The mainworldwide Engineering and Construction projects inwhich TEI&C has been involved during 2006-07 are listedbelow. They represent the most relevant part of ouractivity in the 12 months period ended on June 30, 2007.
TECHINT INTERNATIONAL CONSTRUCTION CORP. (TENCO) AND ITS SUBSIDIARIES
MIDDLE EAST REGION
SAUDI ARABIA
The main projects executed by TENCO through its affiliate Saudi Techint Ltd. were
as follows:
Rabigh Development Project - Utilities & Offsites I
Client: Petro Rabigh Company (Saudi Aramco - Sumitomo)
Utilities and offsites package (UO1) for the Rabigh Development Project, which
consists in the upgrading to an integrated petrochemical complex of the Rabigh
Refinery, located over the Red Sea coast, 160 km north of Jeddah city. The scope
included a seawater intake of 90,000 m3/ hour, cooling water system of 300,000
m3/ hour, compressed air system, sulfur forming unit, petrochemical liquid berth/
jetty to be utilized during the whole construction period.
In July 2005, the company had been awarded the design, procurement and open
book estimation (OBE) for the utilities and offsites of the Rabigh Refinery
Development Project.
Initially, the parties had agreed to perform the scope of works under an Modified Cost
Reimbusable (MCR) methodology, towards awarding the design, procurement,
construction, pre-commissioning and commissioning works on an EPC, lump sum
basis, contract upon acceptance of the OBE by the client and at its sole discretion.
In November 2005, Techint presented a preliminary OBE which differed from the
Client’s budget.
73
TEI&C and subsidiaries’ activities For the period July 1, 2006 - June 30, 2007
In February 2006, after significant and joint efforts, it was not possible to reach an
agreement as to the final price. In such circumstances, the contract was terminated
in August 2006, upon mutual agreement.
The total contract value was USD 39 million.
Khursaniyah Downstream & Upstream Pipelines
Client: Saudi Aramco
The scope of works can be summarized as follows:
Downstream: Construction of 250 km - 24” to 42” oil & gas pipelines related to the
new Khursaniyah Central Processing Facilities.
Upstream: Construction of 240 km - 16” to 30” oil & gas pipelines related to the
Khursaniyah Central Processing Facilities (KPF) upstream pipelines and the
Khursaniyah Gas Plant (KGP) upstream pipelines for the 500 MBCD Abu Hadriyah,
Fadhili and Khursaniyah Arabian light crude increment. The scope of work
comprises detail design, material procurement, construction, pipe cleaning,
gauging, water flushing, filling, hydro testing, dewatering, drying, cleaning and
pre-commissioning of the pipeline and associated facilities.
We are executing the upstream and downstream pipelines of Khursaniyah
Development Project. The physical progress by June 30, 2007 reached 95%.
Engineering activities are 100% completed, 99% of the installation material has
been received at site, and most of the main construction activities have been
completed. The only works still pending are scraper traps areas installation,
Hydrotest and clean up. The contract amount, including Change Orders, is
USD 115.5 million.
CHILE
The following projects were executed through our subsidiary Techint Chile S.A.:
El Mauro Tailings Dam
The contract with Minera Los Pelambres was signed in November 2005 for the
execution of the “El Mauro Tailings Dam” Project, in the Fourth Region, in Chile.
The works basically include a pipeline for tailing from the mine up to the dump,
74 Annual Report TEI&C S.A.
and a water pipeline for water recirculation that recovers 85% of it. The scope of works
also includes the construction of the surface facilities necessary for the circulation of
tailings and water. The control of operations is also part of the scope of works.
The water pipeline (60 km and 32”) is almost finished, while the construction of the
tailing pipeline (50 km and 36”) is in progress.
The initial contract of USD 99 million has been increased so far up to USD 122 million
due to changes in the scope of works. The contract progress is 76% at the end of this
fiscal year; the mechanical completion is planned to occur on December 31, 2007.
Pascua Lama
The contract with Barrick Exploraciones Argentina and Compañía Minera Nevada,
entered as a Joint Venture (J.V.) with the company Fluor Chile in equal shares, includes
engineering, procurement and construction management for the “Pascua Lama” Project.
This contract establishes three phases: (1) basic engineering, (2) detail engineering and
procurement and (3) construction management. The values for each phase are established
in accordance with the scope of works to be established by the owner.
The works began in February 2006. So far, the first phase has been completed and the
second phase is in progress. The amount invoiced up to June 2007 was USD 9.3 million.
Comin
On December 12, 2006, Techint Chile S.A. acquired a 51% participating interest in
Proyectos y Montajes Comin S.A. and Servicios Industriales Comin S.A.
Proyectos y Montajes Comin S.A. is a construction company engaged in civil works
as well as the assembly of industrial and mine projects.
This company keeps an investment in Hook S.A., a construction equipment rental company.
Servicios Industriales Comin S.A. provides maintenance services for plants, specially
related to the mining industry.
Since the acquisition, Techint has been taking over the activities, focusing on
implementing its own procedures in the different areas.
During this time, revenues amounted to USD 14 million. The estimated revenues for
the next fiscal year will be USD 26 million.
75
76 Annual Report TEI&C S.A.
Gasoline Optimization Program Upgrade
Techint executes this project at the Point-a-Pierre refinery. Currently the works show a 14.2% progress and the estimated
date of completion is June 2009.
PERU
Camisea
On August 20, 2004, there took place the reception and production startup of the
gas pipeline constructed by TENCO and our subsidiary Techint S.A.C. for
Transportadora de Gas del Perú (TGP). The construction of this gas pipeline
started in 2001.
It includes a gas pipeline with a 22” diameter, 730 km long, connecting the
Camisea gas field with the city of Lima, in Peru, and a NGL pipeline, a multiple
pipeline of condensate gas, approximately 561 km long, with 12” pipes.
The guarantee period ended in August 2006. The final acceptance certificate was
signed in October 2006.
An agreement for the maintenance of the gas pipeline was entered into in
September 2004 with Compañía Operadora de Gas del Amazonas (Coga), for the
term of one year, which was extended until December 2006. The approximate
annual amount of the contract is USD 14 million.
On March 1, 2007, the abovementioned contract was renewed for Coga to assist
and maintain the transportation system of Camisea.
The effective date of this contract was March 3, 2007, and the contract term should
be 36 months. It could be extended for an additional 24 month term upon prior
agreement between the parties.
The estimated amount is USD 22 million per year.
TRINIDAD AND TOBAGO
After several years, the company started to operate again in Trinidad and Tobago,
through the following project:
Petrotrin – Gasoline Optimization Program Upgrade
Under a J.V., in which Techint holds a 50% participating interest jointly with ABB
Lummus, in January 2007, a contract was executed with Petroleum Company of
Trinidad and Tobago Limited (Petrotrin). The project comprises the following
works: engineering, procurement, construction and pre-commissioning
77
management, commissioning assistance, start-up assistance and the performance
tests of the “Gasoline Optimization Program” including the following units: (1) C3/
C4 Sulphuric Acid Alkylation Unit, and (2) Acid Regeneration Unit, to be
developed in the refinery in Point-a-Pierre, Trinidad and Tobago.
The total contract value is USD 227.6 million.
The estimated completion date is June 2009 and up to June 30, 2007 the project
progress is 14.2%.
URUGUAY
We have carried out the following works with the participation of Techint
Compañía Técnica Internacional S.A.C.I. of Uruguay (TEURU):
Sanitation of Maldonado and Punta del Este
The company continues working according to the contract with OSE - UGD
Maldonado. These activities are being carried out since October 2000.
In September 2005, an agreement was signed by OSE and Uragua whereby the state
entity was awarded the concession for providing water and sanitation services in
Maldonado.
In such circumstances, the state company awarded Techint works for USD 5
million and made a commitment to jointly assess the feasibility of the assignments
that could not be included in the stated amount. During this period, Techint
executed projects for substitution of drinking water pipelines and pumps
installation in Maldonado, San Carlos and Piriápolis.
The main indicators were:
- 26,000 m of sanitation pipeline.
- 20,000 m of replacement water pipes.
- Excavation of 1,000,000 m3 of trenches, including the removal and substitution of
pavement.
At the end of the present fiscal year, the contract for USD 5 million was almost
completed but, in February 2007, the board of directors of UGD Maldonado
negotiated an extension for an additional sum of USD 5 million, already approved
by the Central Board to be performed during the 2007-2008 fiscal year.
78 Annual Report TEI&C S.A.
Maldonado city – Miscellaneous projects
This project included three contracts: Extension of “Rambla Lorenzo Batlle”,
construction of pluvial collectors in Rambla Costera and construction of coast
drainage in Solanas beach. All the basic works and the extension were
completed.
At the end of the original contract, the Maldonado city awarded Techint some
extra works financed by IMM for the sum of USD 2.8 million. These activities were
performed according to the client’s expectation.
Route number 14
In December 2004, the Ministry of Transportation and Public Projects awarded
Techint a project to reinforce the pavement of Route number 14, Section I between
distance markers 157k300 and 176k200, Section II between 173k400 and 178k300.
During this fiscal year, the company performed the horizontal and vertical marks,
environmental works and other minor activities required by the client.
In September 2006, the provisional acceptance certificate was signed.
Route number 3
In May 2007, a contract was executed with Corporación Vial de Uruguay and
ratified by the Ministry of Transportation and Public Projects. Such contract
includes structural reinforcement of the asphalt of Route number 3, between the
bridge over Arroyo Chapicuy Grande (marker 444km100 and marker 462km200), in
Paysandú. The contract value is USD 4.5 million, and the term is 12 months
starting in August 2007.
79
80 Annual Report TEI&C S.A.
Los Caracoles Hydroelectric Station
The work will have a spillway in two tunnels with an average length of 420 meters, and a disposal capacity
of 3,200 cubic meters/ second.
TECHINT COMPAÑÍA TÉCNICA INTERNACIONAL S.A.C.I. AND ITS SUBSIDIARIES
The company has carried out the following works:
INDUSTRIAL WORKS
Petrobras Energía S.A. - Eliçabe Refinery - Bahía Blanca
The contract signed with Petrobras Energía S.A. included the construction of a
Sulfur Recovery Unit (Unidad de Recuperación de Azufre, URA) and the adaptation
of the existing facilities generating acidic gas to be treated in that URA, as well as the
execution of basic engineering works up to the commissioning and performance test.
The contract amounted to ARS 16.6 million plus USD 7.6 million.
The basic engineering of the process units was subcontracted to Parsons E&C, one
of the two companies authorized by Petrobras for this project. Techint provided
basic and detail engineering for services and the modification of current facilities.
As of June 30, 2007, the civil work was almost completed, while the assembly of
metallic structures and pre-manufacturing of pipelines was in the initial stage. As
of that date, the physical progress was 99%. On August 13, 2007, the company
obtained the project’s temporary acknowledgement of receipt.
ESSO – Campana Refinery
Within the scope of the “umbrella” contract entered into on June 30, 2003, works
were awarded to the company so that Campana Refinery could satisfy the
Argentine regulations requiring reducing the amount of sulfur in diesel fuels and
gasoline as well as benzene content in gasoline by 2008/ 2009.
The Campana Clean Fuels Project contract comprises management, engineering
development, supplies and construction services, and included the following activities:
- Construction of a new diesel processing plant with hydrogen for desulfurization.
- Conversion of the existing intermediate distillates processing plant to
desulfurate gasoline through hydrogen-based processing.
- Construction of a new plant for the extraction of benzene precursors from
gasoline.
- Construction of a new unit for the extraction of sulfur from the gases produced
by the new plants.
81
- Enlargement of the current infrastructure of the Refinery to allow for the
operation of the new plants:
- Expansion of the capacity to process acidic liquid effluents.
- Expansion of the capacity of the cooling water system.
- Expansion of the power system.
- Expansions and modifications in the storage and pumping systems for
the delivery of products with new specifications.
The estimated total investment is USD 120 million.
As a result of the changes introduced in the regulations in force governing sulfur
content in fuels, the customer has confirmed the performance of the works
included in Phase I involving the construction of a benzene plant, among other
activities. In April 2008, ESSO will determine whether the Project is to be
continued and its scope, and will define the potential execution of the works
included in Phase II.
Repsol YPF – Hydrotreatment of gas-oil
On June 1, 2006, Repsol YPF awarded a Progressive Lump Sum Contract to the
J.V. formed by Techint (80%) and Sener (20%) to carry out the detail engineering
activities involved in the construction and assembly of the Argentine project related
to new fuel specifications –Sulfur reduction to 50 ppm in gas-oil at La Plata Industrial
Complex–Phase II, and the performance of all tasks for the interconnection of supplies
(raw material), products, effluents generated and all the services required for the
processes inherent to these units, as well as the facilities to be demolished and/ or
relocated in order to install the new equipments.
Activities started on May 2, 2006.
Despite the fact that the total investment amount of the Progressive Lump Sum
Contract was USD 120 million, due to changes in the regulations in force about
sulfur content in fuels, on October 31, 2006, the customer requested Techint to
terminate its activities under the project, the turnover of which amounted to
USD 6.5 million.
82 Annual Report TEI&C S.A.
CIVIL WORKS
Los Caracoles Hydroelectric Station
On September 3, 2004, the Techint-Panedile J.V. (75% and 25% stake, respectively)
signed an agreement with Energía Provincial Sociedad del Estado (“EPSE”) of the
San Juan province that allowed for the continuity of the construction of the
Caracoles Hydrostation, made up by a power plant and a dam.
As of the current fiscal year end, the project amounted to USD 220 million and its
purpose is to generate power and improve the stream-flow regulation of the San
Juan River, main water resource of the province of the same name. With a power of
132 MW, Los Caracoles will provide a mean power capability of 715 GWh a year to
be contributed to the wholesale power market so that it can pave the way towards
San Juan’s power self-sufficiency.
With a maximum volume of 565 Hm3, the dam will, in turn, increase the irrigation
area by 17,000 hectares.
If compared to the previous fiscal year, the contract amount increased significantly
due mainly to the changes in the scope of the works.
This project consists in the construction of a dam of loose materials with a
concrete face and a volume of compacted filling of about 10 million cubic meters,
with a height of 136 meters and 620 meters in length at the crest. The dam will
reach a capacity of 565 Hm3, an area of 1,200 hectares, and the corresponding
access roads to the operating sectors.
The work will have a spillway in two tunnels with an average length of 420
meters, and a disposal capacity of 3,200 cubic meters/ second. The hydroelectric
power station has two Francis turbines of 62.5 Megawatt rated power each of
Russian origin. The station will be fed from the reservoir through a 1,426 meter
long adduction gallery hollowed out in the rock block, and will be connected with
the turbines through a forced steel pipeline with a balance shaft.
From the hydroelectric power station, a high-voltage 132 kw and 47 km power line
will transport the power produced to the city of San Juan. It will also have a
sluiceway with a regulating gate chamber and an evacuation capacity of 301.2
cubic meters/ second.
The project also includes 107,000 cubic meters of excavation through rocks,
5,600,000 cubic meters of excavation through alluvial sediments, 184,000 cubic
meters of concrete, 12,000 tons of steel, and 254,000 tons of classified aggregates.
83
84 Annual Report TEI&C S.A.
Hollywood Towers I & II
These buildings are being constructed in the heart of Buenos Aires. One of them has been completed.
The second one will be ready in December 2007.
As of June 30, 2007, the headcount allocated included 1,400 people and the
project’s progress rate reached 72%.
At present, the construction of the adduction gallery is already completed and the
remaining activities, including the supply and assembly of the electromechanical
equipment, are within the schedule. The company expects to meet the date agreed
upon for the start-up of the venture (September 2008), that is to say one year later
than what had been originally projected due to the extraordinary swell of the river
occurred in November 2005, which caused serious damage to the works.
Hollywood Towers I & II
The company Design Developer Group awarded Techint a management contract for
ARS 20.6 million that addresses the construction of two Towers called Hollywood
I & II, located in Humboldt street, between Nicaragua and Costa Rica, in Palermo
Hollywood, in the city of Buenos Aires. The construction of Tower I started in
September 2005 and was completed in August 2007, while the completion of
Tower II is scheduled for December 2007.
Hollywood Tower I will feature nine double-height floors, each of them with an
internal mezzanine. There will be two additional floors, accommodating a health
club and multi-purpose room respectively. Hollywood Tower II will have fifteen
floors and two additional floors for gym and multi-purpose room.
TBA - Renewal of railroad tracks
Trenes de Buenos Aires (TBA), concession holder of the passenger railway system
in the Mitre and Sarmiento lines, awarded Techint several renewal and revamping
works under an “umbrella” contract including six subprograms, five of which are in
the Mitre tracks (M6, M7, M8, M35, M36) and one in the Sarmiento tracks (S10).
The activities consist in the execution of the engineering work, the supply of all the
materials, and the withdrawal of the existing material and assembly of the new one.
The M6 Subprogram is the first of the six stages awarded for the renewal of 4
tracks from Retiro to Empalme Maldonado in the city of Buenos Aires (14,700
meters of track) with a total contract amount of ARS 21.8 million. The final
acknowledgment of receipt is scheduled for October 2007.
Subprogram S10 is the second of the six stages awarded for the renewal of tracks and
switch gears between Castelar and Moreno stations. The total contract amount is
ARS 47.5 million. Renewal works began on September 10, 2005 and record productions
85
were achieved for renewals of tracks of this kind. As of June 2007, the installation of all
tracks was completed, and only a few assemblies of switch gears were still pending.
As regards Subprogram M36, Techint did not agree to perform the corresponding
tasks, as from which TBA is to award them to third parties.
The competent authority has not rendered its opinion yet regarding the execution
of the remaining programs.
GCBA – Underground “A” Line
During the fiscal year, the company completed the total renewal of tracks and the
assembly of the switch gears of Underground “A” Line of the city of Buenos Aires,
within the scope of the Amendment to modify the contract signed on May 5, 2004
by the Transport Secretariat under the Ministry of Federal Planning, Public
Investment and Services, and the J.V. that Techint formed with Benito Roggio
e Hijos S.A.
The total turnover of the work amounted to ARS 73.2 million.
The company received from the customer the last and final acknowledgement of
receipt on August 15, 2007.
Transport Secretariat - Underground “A” Line - Renewal of Stations
The Transport Secretariat under the Ministry of Federal Planning, Public
Investment and Services signed an Amendment to modify the contract with the J.V.
that Techint formed with Benito Roggio e Hijos S.A. for the completion of the
works on the complete renewal of several Stations of the “A” Line of the Buenos
Aires Underground, that had been halted at the end of 2000 because the required
financing from the federal government was not available.
According to the contract, the effective date for the beginning of the works was
April 6, 2006.
As of June 30, 2007, the contract amounted to ARS 36.4 million and includes the
renewal of floors; walls; electrical and water installations, restrooms and rainfall
sewers; lighting and other related tasks. As of today, the progress rate is 40%.
86 Annual Report TEI&C S.A.
National Route No. 3 - Kosovo (km 2959) - La Herradura Section
The National Highway Bureau (Dirección Nacional de Vialidad, D.N.V.) awarded
the J.V. formed by Techint, with a 55% stake, and the company Dos Arroyos S.A.,
with a 45% stake, a contract for the execution of a section of National Route No. 3
(31.4 km) in the province of Tierra del Fuego, Antártida e Islas del Atlántico Sur,
for a final amount of ARS 38 million.
The works consisted in the construction of the embankment, drains, gabions and
concrete walls in the mid-slope sector, continuing with the execution of a 0.2 m
thick draining sub-base, a 0.2 m thick antifreeze base and a 0.09 m thick asphalt
concrete layer. It also included the construction of graveled shoulders and wire
fences, apart from the installation of metal railings and snow height indicators.
The project was successfully completed in February 2007, after which the final
acknowledgement of receipt was obtained.
CREMA 332 - San Juan
In March 2005, the National Highway Bureau (D.N.V.) awarded a contract to the
J.V. formed by Techint, with a 60% stake, and the company L.M. Pagliara S.A., with
a 40% stake, for the recovery and maintenance works of the roads in the province of
San Juan. The total amount of the contract is ARS 60 million.
The works were carried out on National Routes No. 40, 20 and A014 (a ring road
around the city of San Juan). The execution term for the recovery and other mandatory
tasks was 18 months and the term for the routine maintenance was 60 months.
Works began on May 23, 2005 with the cleaning and straightening of slopes on Route
A014 for the subsequent installation of the irrigation system and the grass layer.
As of June 2007, the recovery works were already completed, and the subsequent
road maintenance works started, in agreement with the contract.
87
PIPELINES
El Mangrullo – Gas Pipeline
In February 2006, Petrobras Energía S.A. awarded a contract to Techint for the
construction of a gas pipeline with an approximate length of 70 km and a diameter
of 12” that will connect the plant of El Mangrullo with the plant of Aguada Larena in
the province of Neuquén, including the crossing of Neuquén River under the HDD
(horizontal directional drilling) method. Likewise, the works include the supply of
materials and the construction of above-ground facilities in both extremes: scrapper
traps and a fiscal measurement point, among others. The detail engineering tasks for
the gas pipeline and the above-ground facilities were already developed.
The works started in May 2006 and their final acknowledgement of receipt was
signed in November 2006.
The total amount of the contract reached USD 7.4 million.
MINING
Pirquitas Mine Project
On March 15, 2007, a contract was entered into with Sunshine Argentina Inc.,
Argentine Branch –subsidiary of Silver Standard Resorces Inc. from Canada– to
provide the services of basic and detail engineering, supply management,
construction direction and start-up of an opencast silver, tin and zinc mine, with
facilities to process 9,000 tons a day through flotation and gravimetric concentration.
The project includes the execution of the civil and electrical infrastructure works,
the processing plant, the dike for the residual material final disposal, the
infrastructure of the mine and the service facilities. The mine is estimated to produce
9,000,000 ounces of silver, 2,300 tons of tin and 6,000 tons of zinc per year. Phase I
will include basic engineering works and the purchase of the main equipments.
Pirquitas Mine is located 355 km northwest of the city of San Salvador de Jujuy, in
the province of Jujuy, Argentina.
The works started on November 9, 2006 through a Limited Notice to Proceed.
The EPCM (engineering, procurement, construction and project management) type
of contracting is carried out under the Refundable Costs Plus a Fee method. The
88 Annual Report TEI&C S.A.
total amount reaches approximately USD 17 million and the estimated execution
term is 24 months.
Barrick Gold - Pascua Lama Project
In February 2006, Barrick Gold Corp. awarded the company the execution of the
Pascua Lama Project, a gold and silver mining binational undertaking, located on
the border between Chile and Argentina. Techint associated to the company Fluor
to carry out the works, which have been divided into three phases: I - Consolidation
of Basic Engineering and Feasibility Study for the Project; II - Detail Engineering
and Supplies Management; and III - Construction Management and Construction.
In April 2007, Phase I was completed with a total turnover of USD 2.9 million.
Phase II started on April 14, 2007 and will extend for 22 months, with an expected
turnover of USD 17.6 million.
IRON AND STEEL INDUSTRY
During the fiscal year, the Steel Services sector in Argentina continued to
undertake different types of works and services for TenarisSiderca, TenarisSiat and
Ternium Siderar. Special mention deserves the relining of Siderar’s Blast Furnace
2, a work completed in 45 running days during which the furnace did not operate.
At the peak of the works, 2,250 workers participated, resulting in a total of 3.9
million man-hours effectively worked.
With this relining, Blast Furnace 2 is ready to provide a top-quality service for over
15 years, with a production capacity of 7,900 tons of pig iron per day.
Besides, during the current fiscal year, the following works were undertaken:
Ternium Siderar – San Nicolás Plant - Buenos Aires
In addition to Blast Furnace 2, the following projects were performed:
- Blast Furnaces - Pre-shutdown works.
- Coking plant - New battery 5, preparation of Revamping for Batteries 3 and 4.
- Steel mill - Relining of converters.
- Lamination - Early Works for a new winding machine 3, completion of new furnace 5.
89
- Sinter - completion of re-enhancement.
The fiscal year’s turnover, including the relining of Blast Furnace 2, amounted to
USD 71 million.
Relining works of Blast Furnace I are scheduled for the fiscal year 2007/ 2008, and
will demand over 2.6 million man-hours.
TenarisSiderca – Campana Plant - Buenos Aires
During the fiscal year 2006/ 2007, the works performed at TenarisSiderca Plant in
Campana started with an extraordinary repair at the direct reduction plant, with a
headcount of over 300 workers.
As from August 2006, the detail engineering activities boosted the main work performed
in the current fiscal year: Thermal Treatment 4 -or TRA4-, which extended up to May
2007, and required 730,000 man-hours. The size of this project is evidenced by the
following indicators: 7,000 m3 of concrete, 2,000 tons of mounted equipment, 350 tons
of piping and 125,000 m of cables laid. TenarisSiderca’s leading investment in the
recent past met the schedule timely and in due form, with excellent safety indicators.
Other works performed for this customer are:
- Yearly scheduled shutdown of the plant.
- New access gate to the plant.
- Enlargement in Trefila, including a plant shutdown.
- Foundations of the new Tenaris University.
- New pipes and installations to provide fuel oil to the thermal plant.
The overall man-hours worked during the fiscal year for TenarisSiderca reach 1.7 million.
OTHER INVESTMENTS
Puentes del Litoral S.A. – Rosario - Victoria
Techint (with an 8% share), together with Impregilo S.p.A., Iglys S.A., Hochtief
Aktiengesellschaft Vorm. Gebr. Helfmann, Benito Roggio e Hijos S.A., Sideco
Americana S.A. and Iecsa S.A., set up Puentes del Litoral S.A. to build, operate
and maintain the road connection between the cities of Rosario (Santa Fe) and
Victoria (Entre Ríos), whose temporary commissioning occurred in May 2003.
90 Annual Report TEI&C S.A.
Puentes del Litoral S.A. (PDL), in its fifth year of operation and maintenance of the
abovementioned road link, resorted to the courts on May 2, 2007 to petition the
beginning of reorganizations proceedings. The idea behind the petition is to turn
the bankruptcy proceedings filed by the companies Boskalis International B.V. and
Ballast Nedam Baggern B.V. into a reorganization process that can be managed by
the company itself in the search of a more adequate solution for its creditors. On
May 22, 2007, such reorganization proceedings began before the National Court of
First Instance in Commercial Matters No. 13, Secretariat No. 26, of the city of
Buenos Aires. In addition, no significant advances were made in the concession
contract renegotiation process affected by the economic emergency declared by
Law 25.561, which authorized the renegotiation of all contracts made by the Public
Administration, under the rules of public law.
Railway Cargo Transportation
Ferroexpreso Pampeano S.A. (FEPSA), a company under the control and corporate
decision of Techint through Compañía Inversora Ferroviaria S.A.I.F., is the
concession holder of the railway cargo transportation. The company provides
services in the ports of Bahía Blanca and Rosario-San Martín to exporters, stockers
and large-scale producers within a vast area of the pampas.
During fiscal year 2007, 4.15 million tons were transported, 11% more than in the
previous year in terms of volume; 85% corresponds to grains and oilseeds
transportation and 15% to industrial traffic.
In the renegotiation process of the FEPSA concession contract, an agreement was
reached with the Public Services Contract Analysis and Renegotiation Unit
(UNIREN) and, on March 16, 2006, the Final Memorandum of Understanding was
signed, “ad referendum” of final approval by the Argentine Executive Branch.
The renegotiation file was received at the Two-House Commission on June 16,
2006, and a favorable decision was issued on August 3, 2006 and communicated to
the Houses for their approval. On August 9, 2006 it was passed by both Houses.
After the closing date of this balance sheet, new authorities took office at the
Ministry of Economy and this delayed the signature of the confirmation decree by
the National Executive Power.
91
PREGLOSID S.L.U. AND SUBSIDIARIES
MEXICO
In February 2006, three new companies were founded to develop industrial,
engineering and construction services in this country: SICI Servicios de Ingeniería
y Construcciones S.A. de C.V., Tecnomatter S.A. de C.V. and Energía Tamaulipas
S.A. de C.V. These companies have joined Sidernet Mexicana S.A. de C.V. to meet
the needs of the iron and steel industry.
Ternium Hylsa – Plants in Monterrey
Hylsa Plain Steel Plant
In November 2005, two contracts were awarded to our company; one of them is
related to engineering services and the other refers to managed manpower services.
The term of these contracts is three years, for a total amount of USD 61 million.
The activities started in March 2006 and required 800 people at their peak.
The main activity developed at the plant was the construction of a new furnace
with a capacity of 330 tons/ hour for CSP (Compact Strip Production). This project
required around 1.1 million man-hours, 9,000 m3 of concrete, 145,000 m of wire
and the assembly of 2,400 tons of structure and 280 tons of piping.
The activities also included the revamping and adaptation of the existing facilities,
as follows:
- Continuous Rolling Mill I (July 2006): Change of the control and automation
system, 101,000 man-hours.
- Pickling Line I (October 2006): Change of the acid tank in main line, 30,000 man-hours.
- Pipe line 6K (November 2006): Dismantling of the existing line and assembly of
the new lamination line of welded tubes up to 6”.
- Steel Factory II (January 2007): Enlargement of the EAF Furnace (modification of
the furnace), and installation of an oxygen and gas injection system (COJET),
34,000 man-hours.
GALVAK Plant
Enlargement of the capacity of galvanized lines II (coils’ capacity enlargement),
requiring 56,000 man-hours, and of galvanized lines III (increase in the capacity of
the existing furnace), 152,000 man-hours.
92 Annual Report TEI&C S.A.
NORTE – APODACA Plant
Dismantling of the existing roof and assembly the new one in the lamination line
of steel rods, 44,000 man-hours.
TenarisTamsa – Plant in Veracruz
On January 1st, 2007, the company took over the iron and steel services
provided to TenarisTamsa and was awarded two contracts: one related to
engineering services and the other involving managed manpower services. All
together, the contracts have contributed USD 40 million and the total headcount
included 600 people.
The main construction activities are as follows:
- Repair of the raw materials store - in progress.
- Enlargement of the corrosion laboratory - in progress.
- New thermal treatment 3 - completed in April 2007.
- Civil and electro-mechanical maintenance - permanent activity.
- Roof maintenance - permanent activity.
- Sandblast and paint - permanent activity.
- Topography - permanent activity.
- Master plan of cold stretching (Fesf) - in progress.
- New factory of couplings 3 - in progress.
- Third expansion of Tenaris car parts - in progress.
These services, added to the plant heavy cleaning ones performed since May 2003,
complete the activities carried out in this region.
VENEZUELA
The main activities performed by the company in this country consisted in the
services rendered to steel plants by Servicios Siderúrgicos SERSISA S.A. and
Sidernet de Venezuela C.A., such as:
Ternium Sidor – Plant in Puerto Ordaz
During this fiscal year the company performed basically the following services:
93
Maintenance Services
These services employed an average of 180 people during the year with a peak of
300 employees between July and October, comprising all the electro-mechanical
categories in the following areas:
- Steel Factory (CSP and billets).
- Steel Factory - surrounding areas (lime plant, lanyard system, etc.).
- Hot-Rolling Plant.
Construction services
The purpose of the contract involved managed manpower services including
electro-mechanical works, with an average headcount 75 people during the year.
The main activities performed were:
- Mini rex of electrical works in hot rolling mill during March.
- Automation - Temple II.
- Automation - Chrome.
- Partial Automation - Rolling up III.
- Dismantling of 600 tons of structures for the assembly of the new HyL 3 module.
- Assembly of two coolers in HyL 2.
- Replacement of a 20 Mva converter in Furnace 1 of the steel factory for
Compact Strip Production and Furnace 2 of the steel factory for billets.
- Replacement of the 100 Mva converter of Furnace LF 3 (steel factory for billets).
- Disassembly of the roll way (billets) for civil works and assembly of water
pipeline.
- Revamping at the sleeves house - change of racks and sleeves. Assembly of
maintenance structures and dumpers.
- Disassembly of a pipeline 15 meters over scrap plant (115 tons).
At the end of March 2007, Sidor called for bid for the provision of skilled
personnel, and Sersisa was awarded for the new contract for a period of 1 year.
Lump Sum contracts
During the year, several activities were performed under this type of agreement for
a total amount of USD 2.86 million, including the following:
- Maintenance of the downsizing furnace - Module A of Midrex II.
- Electrical repairs in the conveyor belt systems of some of Sidor’s plants.
- Maintenance of palletizing disks in the pellets plant.
94 Annual Report TEI&C S.A.
- Assembly and disassembly of aspiration system pipelines in the lime plant.
- Maintenance of the pushing tables of the lime plant.
- Assembly of the LF 2 Furnace of the steel factory for Compact Strip Production.
- Installation of the new fume aspiration house of the LF 2 Furnace for CSP steel
factory.
Aditionally the company performed the following services directly related to Plant
production areas, with the following main indicators:
Heavy cleaning services
- Fluid steel produced by the steel factories 4,277,000 tons
- Hours of Pot Carrier used 20,800
- Material cleared away from the steel factories 233,000 tons
- Hours of equipment used in cleaning services 3,440
- Total invoiced USD 10.11 million
Raw material mobilization service
This service started on July 1st 2006.
The main indicators in this first year of service were:
- HRD transport 1,240,000 tons
- Equipment used (hours) Tr. HRD 28,350
- Raw material transportation 1,478,000 tons
- Equipment used (hours) Tr. MP 18,740
- Total invoiced USD 4.7 million
Lime in-house transport service
This service started by the end of July 2007 with the arrival and commissioning of
the Flow Boy equipment.
The main indicators were:
- Lime transported 300,500 tons
- Equipment used (hours) Tr. HRD 16,800
- Total invoiced USD 1.34 million
95
96 Annual Report TEI&C S.A.
Maintenance and improvement of offshore platforms for Petrobras in Macaé
Techint performs planning, engineering, industrial maintenance and electromechanical assembly tasks in several sea-based oil
platforms at the Ativo Nordeste and at the Ativo Marlim.
TECHINT S.A. OF BRAZIL AND SUBSIDIARIES (”TEBRA”)
Techint S.A. of Brazil carries out several activities related to engineering,
construction, project management, assembly, petrochemical plants, offshore
projects, generation, steel factories, transportation systems and general
infrastructure projects.
During the present fiscal year, Techint performed different activities in the
following projects:
INDUSTRIAL PROJECTS
Sabesp – Barueri
The works to enlarge the sewage waste treatment plant in the city of Barueri,
50 km away from São Paulo, are currently in progress.
They started in April 2006 and are scheduled to be completed in December 2007.
The physical progress of this undertaking is 74%, with a current headcount of 141
people.
The contract was awarded for USD 7 million, and the scope of the work covers
supply, construction, assembly, start up and assistance in the operation.
PRA-1 – self-contained pumping platform
The services for the construction and assembly of the autonomous pumping
platform (PRA) have been already completed. The contract signed in 2003 was
successfully complied with in December 2006.
The structure manufacturing services were hired to Confab and completed in July
2006.
In the second half of 2006, the Company carried out the works to facilitate the load
out and release the raft, for which 6,500 tons of metallic structure were moved in
December 2006.
The total contract value, including physical quantity additions and the extension
of the term, reached USD 150 million.
97
Maintenance and improvement of offshore platforms for Petrobras in Macaé
Located in the operations center of Bacia de Campos, Techint’s site in Macaé is
responsible for planning, engineering projects, industrial maintenance and electro-
mechanical assemblies to be performed in the sea-based oil platforms Garoupa-1,
Vermelho-1, Vermelho-2 and Vermelho-3 in the so-called “Ativo Nordeste” (NE) as
well as in the sea-based oil production platforms P-18, P-20, P-26, P-27 and P-47 in
the “Ativo Marlim” (MRL).
With a total headcount of 1,550 workers, the Company reached a progress
certification of 63% for NE and 55% for MRL.
The main items assembled included 926 tons of metallic structure and 549 tons of
piping in “Ativo Nordeste”.
In the case of “Ativo Marlim”, the assembly included 662 tons of metallic structure
and 646 tons of piping.
For “Ativo Nordeste”, our customer, Petrobras, mobilized a floating hotel to lodge
the additional personnel now working in the platform and this opened new service
opportunities. Techint’s employees accommodated in the floating hotel are
currently providing maintenance services and exceed 140 people.
Both contracts required 450,000 hours of engineering services to prepare the basic
and detail projects.
The overall value of the contracts reaches USD 100 million and USD 177 million
for the “Ativo Nordeste” and “Ativo Marlim”, respectively.
The contract is effective until 2009 and can be renewed for another five years.
Gasoline unit at the Presidente Bernardes de Cubatão Refinery (RPBC)
In March 2007, the Company and Petrobras entered into a contract involving the
consistency analysis of the Basic Project, outline of the detail project, partial
supply of equipment, supplies of bulk material, civil construction,
electromechanical assembly, pre-commissioning, commissioning and technical
assistance during the pre-operation and start-up of the Cracked Gasoline
Desulfurization (HDS) units, Diethalonamine (DEA) Units and Coke Gasoline
Hydrotreatment (HDT) Units at the Presidente Bernardes de Cubatão Refinery,
located 100 km away from São Paulo.
98 Annual Report TEI&C S.A.
The overall value of the contract is USD 280 million, to be certified according to
the physical progress of the work during its execution term of 930 days.
The contract foresees the use of 200,000 hours of engineering services, the supply
of 159 equipments, the bombing of 10,000 m3 of concrete, manufacturing and
assembly of 450 tons of metallic structure and manufacturing and assembly of
1,200 tons of piping.
Alunorte Expansion III
The works corresponding to the Expansion III Project of Alumina do Norte do
Brasil’s factory (Alunorte) in the city of Belém, Estado de Pará, are still in progress.
The scope of works performed by Techint/ Usiminas consortium includes the
supply of equipments, materials, transportation and assembly of the metallic
structure and the boiler-making equipment.
The contract’s value is USD 23 million, including the modifications in the scope
and term.
The overall progress rate is 76%, and has already required 1.5 million man-hours.
The completion is scheduled for February 2008.
PIPELINES
Samarco slurry pipeline
The construction of the second slurry pipeline for the mining company Samarco
was mechanically completed in August 2007.
The slurry pipeline is 400 km long and joins the Mariana mine, located in Minas
Gerais, with the shipping terminal in Ponta Ubu, State of Espírito Santo.
The updated contract value reaches USD 131 million, and the scope of the works
included detail engineering, materials supply and construction.
99