form6k.htm
FORM 6 -
K
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Report
of Foreign Private Issuer
Pursuant
to Rule 13a - 16 or 15d - 16 of
the
Securities Exchange Act of 1934
As
of 8/5/2008
Ternium
S.A.
(Translation
of Registrant's name into English)
Ternium
S.A.
46a,
Avenue John F. Kennedy
L-1855
Luxembourg
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual reports under
cover Form 20-F or 40-F.
Form 20-F
þ Form 40-F o
Indicate
by check mark whether the registrant by furnishing the information contained in
this Form is also thereby furnishing the information to the Commission pursuant
to Rule 12G3-2(b) under the Securities Exchange Act of 1934.
Yes o No þ
If “Yes”
is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):
Not
applicable
The
attached material is being furnished to the Securities and Exchange Commission
pursuant to Rule 13a-16 and Form 6-K under the Securities Exchange Act of 1934,
as amended.
This
report contains Ternium S.A.’s consolidated financial statements as of June 30,
2008.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TERNIUM
S.A.
By:
/s/ Roberto
Philipps
|
By:
/s/ Daniel
Novegil
|
Name:
Roberto Philipps
|
Name:
Daniel Novegil
|
Title:
Chief Financial Officer
|
Title:
Chief Executive Officer
|
Dated:
August 5, 2008
TERNIUM
S.A.
CONSOLIDATED
CONDENSED INTERIM
FINANCIAL
STATEMENTS AS OF JUNE 30, 2008
AND
FOR THE SIX-MONTH PERIODS
ENDED
JUNE 30, 2008 AND 2007
46a,
Avenue John F. Kennedy, 2nd
floor
R.C.S.
Luxembourg : B 98 668
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders of Ternium S.A.:
We have
reviewed the accompanying consolidated condensed balance sheet of Ternium S.A.
and its subsidiaries (“Ternium”) as of June 30, 2008, and the related
consolidated condensed statements of income and of changes in shareholders’
equity for the six-month periods ended June 30, 2008 and 2007 and the
consolidated condensed statements of cash flows for the six-month periods ended
June 30, 2008 and 2007. These interim financial statements are the
responsibility of the Company’s management.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on
our review, we are not aware of any material modifications that should be made
to the accompanying consolidated condensed interim financial statements for them
to be in conformity with International Financial Reporting
Standards.
As
further explained in Note 12, in May 2008 the Government of Venezuela passed a
decree providing for the transformation of Sidor C.A. and its subsidiaries into
state-owned enterprises ("empresas del estado"). At the date of issue
of these financial statements the Government of Venezuela and the Company's
management have not come to a final agreement regarding the conditions under
which all or a significant part of Ternium's interest in Sidor will be
transferred to Venezuela. Accordingly, it is not possible to foresee the final
outcome of this situation and its impact on the financial statements of Ternium,
including the valuation of Ternium's investment in Sidor.
We
previously audited in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet as of
December 31, 2007, and the related consolidated statements of income, of changes
in shareholders’ equity and of cash flows for the year then ended (not presented
herein), and in our report dated February 26, 2008 we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet information
as of December 31, 2007, is fairly stated in all material respects in relation
to the consolidated balance sheet from which it has been derived.
Buenos
Aires, Argentina
August 5,
2008
PRICE
WATERHOUSE & CO. S.R.L.
|
|
|
|
|
|
|
|
by /s/ Marcelo D.
Pfaff
|
(Partner)
|
|
Marcelo
D. Pfaff
|
|
TERNIUM
S.A.
Consolidated
condensed interim financial statements as of June 30, 2008
and
for the six-month periods ended June 30, 2008 and 2007
(All
amounts in USD thousands)
CONSOLIDATED
CONDENSED INTERIM INCOME STATEMENTS
|
|
|
Three-month
period
ended
June 30,
|
|
|
Six-month
period
ended
June 30,
|
|
|
Notes
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Continuing
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
3
|
|
|
2,374,792 |
|
|
|
1,255,851 |
|
|
|
4,327,474 |
|
|
|
2,430,668 |
|
Cost
of sales
|
3
& 4
|
|
|
(1,584,120 |
) |
|
|
(931,090 |
) |
|
|
(3,036,889 |
) |
|
|
(1,809,681 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
3
|
|
|
790,672 |
|
|
|
324,761 |
|
|
|
1,290,585 |
|
|
|
620,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
3
& 5
|
|
|
(181,783 |
) |
|
|
(118,221 |
) |
|
|
(328,377 |
) |
|
|
(211,042 |
) |
Other
operating income (expenses), net
|
3
|
|
|
1,468 |
|
|
|
(3,547 |
) |
|
|
11,412 |
|
|
|
3,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
3
|
|
|
610,357 |
|
|
|
202,993 |
|
|
|
973,620 |
|
|
|
413,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
(30,112 |
) |
|
|
(10,394 |
) |
|
|
(74,390 |
) |
|
|
(24,518 |
) |
Interest
income
|
|
|
|
12,035 |
|
|
|
7,701 |
|
|
|
24,143 |
|
|
|
14,948 |
|
Other
financial income (expenses), net
|
6
|
|
|
115,488 |
|
|
|
(10,772 |
) |
|
|
118,396 |
|
|
|
6,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings (losses) of associated companies
|
|
|
|
445 |
|
|
|
(362 |
) |
|
|
890 |
|
|
|
(825 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income tax expense
|
|
|
|
708,213 |
|
|
|
189,166 |
|
|
|
1,042,659 |
|
|
|
408,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax (expense) benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
and deferred income tax expense
|
|
|
|
(209,333 |
) |
|
|
(73,168 |
) |
|
|
(316,414 |
) |
|
|
(161,009 |
) |
Reversal
of deferred statutory profit sharing
|
9
|
|
|
- |
|
|
|
- |
|
|
|
96,265 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
|
498,880 |
|
|
|
115,998 |
|
|
|
822,510 |
|
|
|
247,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
12
|
|
|
- |
|
|
|
198,955 |
|
|
|
159,937 |
|
|
|
318,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the period
|
|
|
|
498,880 |
|
|
|
314,953 |
|
|
|
982,447 |
|
|
|
566,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
holders of the Company
|
|
|
|
415,634 |
|
|
|
236,928 |
|
|
|
837,759 |
|
|
|
459,059 |
|
Minority
interest
|
|
|
|
83,246 |
|
|
|
78,025 |
|
|
|
144,688 |
|
|
|
107,521 |
|
|
|
|
|
498,880 |
|
|
|
314,953 |
|
|
|
982,447 |
|
|
|
566,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
|
2,004,743,442 |
|
|
|
2,004,743,442 |
|
|
|
2,004,743,442 |
|
|
|
2,004,743,442 |
|
Basic
and diluted earnings per share for profit attributable to the equity
holders of the Company (expressed in USD per share)
|
|
|
|
0.21 |
|
|
|
0.12 |
|
|
|
0.42 |
|
|
|
0.23 |
|
The
accompanying notes are an integral part of these consolidated condensed interim
financial statements. These consolidated condensed interim financial statements
should be read in conjunction with our audited Consolidated Financial Statements
and notes for the fiscal year ended December 31, 2007.
TERNIUM
S.A.
Consolidated
condensed interim financial statements as of June 30, 2008
and
for the six-month periods ended June 30, 2008 and 2007
(All
amounts in USD thousands)
CONSOLIDATED
CONDENSED BALANCE SHEETS
|
Notes
|
|
June 30, 2008
|
|
|
December 31, 2007 (1)
|
|
ASSETS
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Non-current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
7
|
|
|
5,188,007 |
|
|
|
|
|
|
6,858,779 |
|
|
|
|
Intangible
assets, net
|
8
|
|
|
1,500,973 |
|
|
|
|
|
|
1,452,230 |
|
|
|
|
Investments
in associated companies
|
|
|
|
4,743 |
|
|
|
|
|
|
44,042 |
|
|
|
|
Other
investments, net
|
|
|
|
15,422 |
|
|
|
|
|
|
14,815 |
|
|
|
|
Deferred
tax assets
|
|
|
|
2,243 |
|
|
|
|
|
|
31,793 |
|
|
|
|
Receivables,
net
|
|
|
|
58,024 |
|
|
|
6,769,412 |
|
|
|
217,638 |
|
|
|
8,619,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
|
260,746 |
|
|
|
|
|
|
|
426,038 |
|
|
|
|
|
Derivative
financial instruments
|
|
|
|
464 |
|
|
|
|
|
|
|
577 |
|
|
|
|
|
Inventories,
net
|
|
|
|
2,337,968 |
|
|
|
|
|
|
|
1,913,051 |
|
|
|
|
|
Trade
receivables, net
|
|
|
|
1,051,175 |
|
|
|
|
|
|
|
847,827 |
|
|
|
|
|
Available
for sale assets – discontinued operations
|
12
(ii)
|
|
|
1,318,900 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
Other
investments
|
|
|
|
- |
|
|
|
|
|
|
|
65,337 |
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
688,763 |
|
|
|
5,658,016 |
|
|
|
1,126,041 |
|
|
|
4,378,871 |
|
Non-current
assets classified as held for sale
|
|
|
|
|
|
|
|
6,674 |
|
|
|
|
|
|
|
769,142 |
|
|
|
|
|
|
|
|
|
5,664,690 |
|
|
|
|
|
|
|
5,148,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
|
|
|
12,434,102 |
|
|
|
|
|
|
|
13,767,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
and reserves attributable to the company’s equity holders
|
|
|
|
|
|
|
|
5,353,230 |
|
|
|
|
|
|
|
4,452,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
|
|
|
|
|
1,195,595 |
|
|
|
|
|
|
|
1,914,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity
|
|
|
|
|
|
|
|
6,548,825 |
|
|
|
|
|
|
|
6,366,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions
|
|
|
|
29,255 |
|
|
|
|
|
|
|
57,345 |
|
|
|
|
|
Deferred
income tax
|
|
|
|
1,233,381 |
|
|
|
|
|
|
|
1,337,039 |
|
|
|
|
|
Other
liabilities
|
|
|
|
176,557 |
|
|
|
|
|
|
|
336,500 |
|
|
|
|
|
Trade
payables
|
|
|
|
- |
|
|
|
|
|
|
|
6,690 |
|
|
|
|
|
Borrowings
|
|
|
|
2,569,090 |
|
|
|
4,008,283 |
|
|
|
3,677,497 |
|
|
|
5,415,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
tax liabilities
|
|
|
|
199,181 |
|
|
|
|
|
|
|
184,766 |
|
|
|
|
|
Other
liabilities
|
|
|
|
137,776 |
|
|
|
|
|
|
|
182,239 |
|
|
|
|
|
Trade
payables
|
|
|
|
927,942 |
|
|
|
|
|
|
|
983,884 |
|
|
|
|
|
Derivative
financial instruments
|
|
|
|
15,369 |
|
|
|
|
|
|
|
13,293 |
|
|
|
|
|
Borrowings
|
|
|
|
596,726 |
|
|
|
1,876,994 |
|
|
|
407,404 |
|
|
|
1,771,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
directly associated with non-current assets classified as held for
sale
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
213,763 |
|
|
|
|
|
|
|
|
|
1,876,994 |
|
|
|
|
|
|
|
1,985,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
|
|
|
|
|
5,885,277 |
|
|
|
|
|
|
|
7,400,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity and liabilities
|
|
|
|
|
|
|
|
12,434,102 |
|
|
|
|
|
|
|
13,767,310 |
|
Contingencies,
commitments and restrictions to the distribution of profits are disclosed in
Note 11.
(1)
According to IFRS 5, balances related to Sidor have been consolidated on a
line-by-line basis as of December 31, 2007.
The
accompanying notes are an integral part of these consolidated condensed interim
financial statements. These consolidated condensed interim financial statements
should be read in conjunction with our audited Consolidated Financial Statements
and notes for the fiscal year ended December 31, 2007.
TERNIUM
S.A.
Consolidated
condensed interim financial statements as of June 30, 2008
and
for the six-month periods ended June 30, 2008 and 2007
(All
amounts in USD thousands)
CONSOLIDATED
CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
|
|
Attributable
to the Company’s equity holders (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
stock (2)
|
|
|
Initial
public offering expenses
|
|
|
Revaluation
and other reserves (3)
|
|
|
Capital
stock issue discount (4)
|
|
|
Currency
translation adjustment
|
|
|
Retained
earnings
|
|
|
Total
|
|
|
Minority
interest
|
|
|
Total
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
|
2,004,744 |
|
|
|
(23,295 |
) |
|
|
1,946,962 |
|
|
|
(2,324,866 |
) |
|
|
(110,739 |
) |
|
|
2,959,874 |
|
|
|
4,452,680 |
|
|
|
1,914,210 |
|
|
|
6,366,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165,610 |
|
|
|
|
|
|
|
165,610 |
|
|
|
45,963 |
|
|
|
211,573 |
|
Net
income for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
837,759 |
|
|
|
837,759 |
|
|
|
144,688 |
|
|
|
982,447 |
|
Change
in fair value of cash flow hedge (net of taxes)
|
|
|
|
|
|
|
|
|
|
|
(2,582 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,582 |
) |
|
|
(329 |
) |
|
|
(2,911 |
) |
Total
recognized income for the period
|
|
|
|
|
|
|
|
|
|
|
(2,582 |
) |
|
|
|
|
|
|
165,610 |
|
|
|
837,759 |
|
|
|
1,000,787 |
|
|
|
190,322 |
|
|
|
1,191,109 |
|
Dividends
paid in cash and other distributions
|
|
|
|
|
|
|
|
|
|
|
(100,237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,237 |
) |
|
|
- |
|
|
|
(100,237 |
) |
Dividends
paid in cash and other distributions by subsidiary
companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,595 |
) |
|
|
(19,595 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(889,342 |
) |
|
|
(889,342 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2008
|
|
|
2,004,744 |
|
|
|
(23,295 |
) |
|
|
1,844,143 |
|
|
|
(2,324,866 |
) |
|
|
54,871 |
|
|
|
3,797,633 |
|
|
|
5,353,230 |
|
|
|
1,195,595 |
|
|
|
6,548,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2007
|
|
|
2,004,744 |
|
|
|
(23,295 |
) |
|
|
2,047,199 |
|
|
|
(2,324,866 |
) |
|
|
(121,608 |
) |
|
|
2,175,384 |
|
|
|
3,757,558 |
|
|
|
1,729,583 |
|
|
|
5,487,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,177 |
|
|
|
|
|
|
|
7,177 |
|
|
|
(1,791 |
) |
|
|
5,386 |
|
Net
income for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
459,059 |
|
|
|
459,059 |
|
|
|
107,521 |
|
|
|
566,580 |
|
Total
recognized income for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,177 |
|
|
|
459,059 |
|
|
|
466,236 |
|
|
|
105,730 |
|
|
|
571,966 |
|
Dividends
paid in cash and other distributions
|
|
|
|
|
|
|
|
|
|
|
(100,237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,237 |
) |
|
|
|
|
|
|
(100,237 |
) |
Dividends
paid in cash and other distributions by subsidiary
companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
(19,871 |
) |
|
|
(19,871 |
) |
Acquisition
of business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(130 |
) |
|
|
(130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2007
|
|
|
2,004,744 |
|
|
|
(23,295 |
) |
|
|
1,946,962 |
|
|
|
(2,324,866 |
) |
|
|
(114,431 |
) |
|
|
2,634,443 |
|
|
|
4,123,557 |
|
|
|
1,815,312 |
|
|
|
5,938,869 |
|
|
(1)
|
Shareholders’
equity determined in accordance with accounting principles generally
accepted in Luxembourg is disclosed in Note 11
(iii).
|
|
(2)
|
At
June 30, 2008, the Capital Stock adds up to 2,004,743,442 shares at a
nominal value of USD 1 each.
|
|
(4)
|
Represents
the difference between book value of non-monetary contributions received
from shareholders under Luxembourg GAAP and
IFRS.
|
Dividends
may be paid by Ternium to the extent distributable retained earnings calculated
in accordance with Luxembourg law and regulations exist. Therefore, retained
earnings included in these consolidated condensed interim financial statements
may not be wholly distributable. See Note 11 (iii).
The
accompanying notes are an integral part of these consolidated condensed interim
financial statements. These consolidated condensed interim financial statements
should be read in conjunction with our audited Consolidated Financial Statements
and notes for the fiscal year ended December 31, 2007.
TERNIUM
S.A.
Consolidated
condensed interim financial statements as of June 30, 2008
and
for the six-month periods ended June 30, 2008 and 2007
(All
amounts in USD thousands)
CONSOLIDATED
CONDENSED INTERIM CASH FLOW STATEMENTS
|
Notes
|
|
Six-month
period
ended
June, 30
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
|
822,510 |
|
|
|
247,837 |
|
Adjustments
for:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
7
& 8
|
|
|
210,633 |
|
|
|
144,722 |
|
Income
tax accruals less payments
|
|
|
|
74,455 |
|
|
|
(1,483 |
) |
Equity
in (earnings) losses of associated companies
|
|
|
|
(890 |
) |
|
|
825 |
|
Interest
accruals less payments
|
|
|
|
(84,650 |
) |
|
|
(2,716 |
) |
Changes
in provisions
|
|
|
|
2,032 |
|
|
|
(9,777 |
) |
Changes
in working capital
|
|
|
|
(940,820 |
) |
|
|
144,698 |
|
Others
|
|
|
|
(126,190 |
) |
|
|
(3,361 |
) |
Net
cash (used in) provided by operating activities
|
|
|
|
(42,920 |
) |
|
|
520,745 |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
7
& 8
|
|
|
(250,845 |
) |
|
|
(162,763 |
) |
Proceeds
from the sale of property, plant and equipment
|
|
|
|
1,001 |
|
|
|
6,192 |
|
Acquisition
of business
|
|
|
|
- |
|
|
|
(130 |
) |
Decrease
in other investments
|
|
|
|
65,337 |
|
|
|
- |
|
Proceeds
from the sale of discontinued operations
|
12
(i)
|
|
|
722,523 |
|
|
|
- |
|
Discontinued
operations
|
12
(iv)
|
|
|
89,820 |
|
|
|
269,213 |
|
Net
cash provided by investing activities
|
|
|
|
627,836 |
|
|
|
112,512 |
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
Dividends
paid in cash and other distributions
|
|
|
|
(100,237 |
) |
|
|
(100,237 |
) |
Dividends
paid in cash and other distributions by subsidiary
companies
|
|
|
|
(19,595 |
) |
|
|
(19,871 |
) |
Proceeds
from borrowings
|
|
|
|
181,305 |
|
|
|
112,265 |
|
Repayments
of borrowings
|
|
|
|
(931,441 |
) |
|
|
(527,582 |
) |
Net
cash used in financing activities
|
|
|
|
(869,968 |
) |
|
|
(535,425 |
) |
|
|
|
|
|
|
|
|
|
|
(Decrease)/Increase
in cash and cash equivalents
|
|
|
|
(285,052 |
) |
|
|
97,832 |
|
|
|
|
|
|
|
|
|
|
|
Movement
in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
At
January 1,
|
|
|
|
1,126,041 |
|
|
|
633,002 |
|
Effect
of exchange rate changes
|
|
|
|
5,668 |
|
|
|
9 |
|
(Decrease)/Increase
in cash and cash equivalents
|
|
|
|
(285,052 |
) |
|
|
97,832 |
|
Cash
& cash equivalents of discontinued operations at
March 31, 2008
|
|
|
|
(157,894 |
) |
|
|
- |
|
Cash
and cash equivalents at June 30,
|
|
|
|
688,763 |
|
|
|
730,843 |
|
The
accompanying notes are an integral part of these consolidated condensed interim
financial statements. These consolidated condensed interim financial statements
should be read in conjunction with our audited Consolidated Financial Statements
and notes for the fiscal year ended December 31, 2007.
TERNIUM
S.A.
Notes
to the Consolidated Condensed Interim Financial Statements
INDEX TO
THE NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL
STATEMENTS
1
|
General
information and basis of presentation
|
2
|
Accounting
policies
|
3
|
Segment
information
|
4
|
Cost
of sales
|
5
|
Selling,
general and administrative expenses
|
6
|
Other
financial income (expenses), net
|
7
|
Property,
plant and equipment, net
|
8
|
Intangible
assets, net
|
9
|
Deferred
statutory profit sharing
|
10
|
Distribution
of dividends
|
11
|
Contingencies,
commitments and restrictions on the distribution of
profits
|
12
|
Discontinued
operations
|
13
|
Related
party transactions
|
14
|
Recently
issued accounting pronouncements
|
TERNIUM
S.A.
Notes
to the Consolidated Condensed Interim Financial Statements (Contd.)
1 General
information and basis of presentation
Ternium
S.A. (the “Company” or “Ternium”), a Luxembourg Corporation (Societé Anonyme),
was incorporated on December 22, 2003 under the name of Zoompart Holding S.A. to
hold investments in flat and long steel manufacturing and distributing
companies. The extraordinary shareholders’ meeting held on August 18, 2005,
changed the corporate name to Ternium S.A.
Following
a corporate reorganization carried out during fiscal year 2005, in January 2006
the Company successfully completed its registration process with the United
States Securities and Exchange Commission (“SEC”). As from February 1, 2006, the
Company’s shares are listed in the New York Stock Exchange.
The name
and percentage of ownership of subsidiaries that have been included in
consolidation in these Consolidated Condensed Interim Financial Statements is
disclosed in Note 2 to the audited Consolidated Financial Statements for the
year ended December 31, 2007, except as explained in Note 12.
The
results of operations and cash flows generated by Sidor prior to its
classification as an available-for-sale asset were presented as discontinued
operations in these financial statements. Comparative figures were re-presented
for consistency as required by IFRS 5.
In
addition, certain comparative amounts have been reclassified to conform to
changes in presentation in the current period.
The
preparation of consolidated condensed interim financial statements requires
management to make estimates and assumptions that might affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities as of the balance sheet dates, and also the reported amounts of
revenues and expenses for the reported periods. Actual results may differ from
these estimates.
Material
intercompany transactions and balances have been eliminated in consolidation.
However, the fact that the functional currency of the Company’s subsidiaries
differ, results in the generation of foreign exchange gains (losses) that are
included in the consolidated condensed interim income statement under “Other
financial income (expenses), net”.
These
Consolidated Condensed Interim Financial Statements were approved by the Board
of Directors of Ternium on August 5, 2008.
2 Accounting
policies
These
Consolidated Condensed Interim Financial Statements have been prepared in
accordance with IAS 34, “Interim Financial Reporting”. The accounting policies
used in the preparation of these Consolidated Condensed Interim Financial
Statements are consistent with those used in the audited Consolidated Financial
Statements for the year ended December 31, 2007. These Consolidated Condensed
Interim Financial Statements should be read in conjunction with the audited
Consolidated Financial Statements for the year ended December 31, 2007, which
have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standard
Board.
Recently
issued accounting pronouncements were applied by the Company as from their
respective dates.
A detail
of the accounting policies followed by the Company in the preparation of these
financial statements, other than those followed in the preparation of the
audited Consolidated Financial Statements for the year ended December 31, 2007
follows:
-
|
Accounting for Derivative
Financial Instruments and Hedging
Activities
|
Ternium
designates certain derivatives as hedges of a particular risk associated with a
recognized asset or liability or a highly probable forecast transaction. These
transactions are classified as cash flow hedges (mainly interest rate swaps and
collars). The effective portion of the fair value of derivatives that are
designated and qualify as cash flow hedges is recognized in equity. Amounts
accumulated in equity are recognized in the income statement in the same period
than any offsetting losses and gains on the hedged item. The gain or loss
relating to the ineffective portion is recognized immediately in the income
statement. The fair value of Ternium derivative financial instruments (asset or
liability) continues to be reflected on the Balance Sheet.
TERNIUM
S.A.
Notes
to the Consolidated Condensed Interim Financial Statements (Contd.)
2 Accounting
policies (continued)
For
transactions designated and qualifying for hedge accounting, Ternium documents
the relationship between hedging instruments and hedged items, as well as its
risk management objectives and strategy for undertaking various hedge
transactions. At June 30, 2008, the effective portion of designated cash flow
hedges amounts to USD 2.6 million (net of taxes for USD 1.0 million) and is
included as “Change in fair value of cash flow hedge (net of taxes)”
under “Revaluation and other reserves” line item in the Statement of
changes in shareholders’ equity.
Primary
reporting format – business segments
Business
segments: for management purposes, the Company is organized on a worldwide basis
into the following segments: flat steel products, long steel products and
others.
The flat
steel products segment comprises the manufacturing and marketing of hot rolled
coils and sheets, cold rolled coils and sheets, tin plate, welded pipes, hot
dipped galvanized and electrogalvanized sheets, pre-painted sheets and other
tailor-made products to serve its customers’ requirements.
The long
steel products segment comprises the manufacturing and marketing of billets
(steel in its basic, semifinished state), wire rod and bars.
The other
products segment includes products other than flat and long steel, mainly pig
iron and pellets.
|
|
Flat
steel products
|
|
|
Long
steel products
|
|
|
Other
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
Six-month
period ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
3,656,149 |
|
|
|
544,419 |
|
|
|
126,906 |
|
|
|
4,327,474 |
|
Cost
of sales
|
|
|
(2,599,547 |
) |
|
|
(355,306 |
) |
|
|
(82,036 |
) |
|
|
(3,036,889 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,056,602 |
|
|
|
189,113 |
|
|
|
44,870 |
|
|
|
1,290,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
(276,307 |
) |
|
|
(36,157 |
) |
|
|
(15,913 |
) |
|
|
(328,377 |
) |
Other
operating income, net
|
|
|
4,627 |
|
|
|
2,500 |
|
|
|
4,285 |
|
|
|
11,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
784,922 |
|
|
|
155,456 |
|
|
|
33,242 |
|
|
|
973,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
- PP&E
|
|
|
150,081 |
|
|
|
16,723 |
|
|
|
4,075 |
|
|
|
170,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flat
steel products
|
|
|
Long
steel products
|
|
|
Other
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
Six-month
period ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
1,967,435 |
|
|
|
389,822 |
|
|
|
73,411 |
|
|
|
2,430,668 |
|
Cost
of sales
|
|
|
(1,484,685 |
) |
|
|
(284,944 |
) |
|
|
(40,052 |
) |
|
|
(1,809,681 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
482,750 |
|
|
|
104,878 |
|
|
|
33,359 |
|
|
|
620,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
(173,621 |
) |
|
|
(32,048 |
) |
|
|
(5,373 |
) |
|
|
(211,042 |
) |
Other
operating income, net
|
|
|
786 |
|
|
|
1,355 |
|
|
|
997 |
|
|
|
3,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
309,915 |
|
|
|
74,185 |
|
|
|
28,983 |
|
|
|
413,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
- PP&E
|
|
|
111,164 |
|
|
|
16,288 |
|
|
|
6,228 |
|
|
|
133,680 |
|
TERNIUM
S.A.
Notes
to the Consolidated Condensed Interim Financial Statements (Contd.)
3
Segment
information (continued)
Secondary
reporting format - geographical segments
The
secondary reporting format is based on a geographical location. Ternium sells
its products to three main geographical areas: South and Central America, North
America, and Europe and others. The North American segment comprises principally
United States, Canada and Mexico. The South and Central American segment
comprises principally Argentina, Brazil, Colombia, Venezuela and
Ecuador.
|
|
South
and Central
America
|
|
|
North
America
|
|
|
Europe
and others
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
Six-month
period ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
1,475,992 |
|
|
|
2,812,001 |
|
|
|
39,481 |
|
|
|
4,327,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
– PP&E
|
|
|
67,639 |
|
|
|
103,223 |
|
|
|
17 |
|
|
|
170,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-month
period ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
938,161 |
|
|
|
1,377,233 |
|
|
|
115,274 |
|
|
|
2,430,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
– PP&E
|
|
|
62,916 |
|
|
|
70,745 |
|
|
|
19 |
|
|
|
133,680 |
|
4 Cost of
sales
|
|
Six-month
period ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
Inventories
at the beginning of the year
|
|
|
1,913,051 |
|
|
|
|
|
|
1,241,325 |
|
|
|
|
Adjustment
corresponding to inventories from discontinued operations
|
|
|
(455,013 |
) |
|
|
1,458,038 |
|
|
|
(337,041 |
) |
|
|
904,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus:
Charges for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials and consumables used and other movements
|
|
|
|
|
|
|
3,281,090 |
|
|
|
|
|
|
|
1,282,159 |
|
Services
and fees
|
|
|
|
|
|
|
77,980 |
|
|
|
|
|
|
|
50,834 |
|
Labor
cost
|
|
|
|
|
|
|
230,991 |
|
|
|
|
|
|
|
150,194 |
|
Depreciation
of property, plant and equipment
|
|
|
|
|
|
|
167,767 |
|
|
|
|
|
|
|
130,083 |
|
Amortization
of intangible assets
|
|
|
|
|
|
|
9,881 |
|
|
|
|
|
|
|
8,085 |
|
Maintenance
expenses
|
|
|
|
|
|
|
145,620 |
|
|
|
|
|
|
|
108,175 |
|
Office
expenses
|
|
|
|
|
|
|
4,255 |
|
|
|
|
|
|
|
3,144 |
|
Freight
and transportation
|
|
|
|
|
|
|
20,531 |
|
|
|
|
|
|
|
13,790 |
|
Insurance
|
|
|
|
|
|
|
3,955 |
|
|
|
|
|
|
|
2,456 |
|
Allowance
(Recovery) for obsolescence
|
|
|
|
|
|
|
543 |
|
|
|
|
|
|
|
(7,201 |
) |
Recovery
from sales of scrap and by-products
|
|
|
|
|
|
|
(47,923 |
) |
|
|
|
|
|
|
(34,724 |
) |
Others
|
|
|
|
|
|
|
22,129 |
|
|
|
|
|
|
|
35,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Inventories at the end of the period
|
|
|
(2,337,968 |
) |
|
|
|
|
|
|
(1,215,880 |
) |
|
|
|
|
Adjustment
corresponding to inventories from discontinued operations
|
|
|
- |
|
|
|
(2,337,968 |
) |
|
|
379,053 |
|
|
|
(836,827 |
) |
Cost
of sales
|
|
|
|
|
|
|
3,036,889 |
|
|
|
|
|
|
|
1,809,681 |
|
TERNIUM
S.A.
Notes
to the Consolidated Condensed Interim Financial Statements (Contd.)
5
Selling, general and administrative expenses
|
|
Six-month period
ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
Services
and fees
|
|
|
32,276 |
|
|
|
17,968 |
|
Labor
cost
|
|
|
98,774 |
|
|
|
63,724 |
|
Depreciation
of property plant and equipment
|
|
|
3,112 |
|
|
|
3,597 |
|
Amortization
of intangible assets
|
|
|
29,873 |
|
|
|
2,957 |
|
Maintenance
expenses
|
|
|
4,381 |
|
|
|
4,954 |
|
Taxes
|
|
|
39,728 |
|
|
|
30,697 |
|
Office
expenses
|
|
|
16,291 |
|
|
|
9,033 |
|
Freight
and transportation
|
|
|
89,032 |
|
|
|
71,873 |
|
Insurance
|
|
|
605 |
|
|
|
666 |
|
Recovery
for doubtful accounts
|
|
|
(395 |
) |
|
|
(2,843 |
) |
Others
|
|
|
14,700 |
|
|
|
8,416 |
|
Selling,
general and administrative expenses
|
|
|
328,377 |
|
|
|
211,042 |
|
6
Other financial income (expenses), net
|
|
Six-month
period
ended
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
Net
foreign exchange transaction gains and change in fair value of derivative
instruments
|
|
|
138,814 |
|
|
|
15,909 |
|
Debt
issue costs
|
|
|
(8,560 |
) |
|
|
(5,493 |
) |
Others
|
|
|
(11,858 |
) |
|
|
(4,258 |
) |
Other
financial income (expenses), net
|
|
|
118,396 |
|
|
|
6,158 |
|
7
Property, plant and equipment, net
|
|
Six-month
period
ended
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
At
the beginning of the year
|
|
|
6,858,779 |
|
|
|
|
|
|
5,420,683 |
|
|
|
|
Adjustments
corresponding to PP&E from discontinued operations
|
|
|
(1,975,266 |
) |
|
|
4,883,513 |
|
|
|
(2,088,574 |
) |
|
|
3,332,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation differences
|
|
|
|
|
|
|
249,937 |
|
|
|
|
|
|
|
1,423 |
|
Transfers
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
(2,444 |
) |
Additions
|
|
|
|
|
|
|
226,671 |
|
|
|
|
|
|
|
144,545 |
|
Disposals
|
|
|
|
|
|
|
(1,235 |
) |
|
|
|
|
|
|
(4,679 |
) |
Depreciation
charge
|
|
|
|
|
|
|
(170,879 |
) |
|
|
|
|
|
|
(133,680 |
) |
At
the end of the period
|
|
|
|
|
|
|
5,188,007 |
|
|
|
|
|
|
|
3,337,274 |
|
TERNIUM
S.A.
Notes
to the Consolidated Condensed Interim Financial Statements (Contd.)
8
Intangible assets, net
|
|
Six-month
period
ended
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
At
the beginning of the year
|
|
|
1,452,230 |
|
|
|
|
|
|
551,587 |
|
|
|
|
Adjustments
corresponding to intangible assets from
discontinued operations
|
|
|
(12,731 |
) |
|
|
1,439,499 |
|
|
|
(15,461 |
) |
|
|
536,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation differences
|
|
|
|
|
|
|
77,054 |
|
|
|
|
|
|
|
3,857 |
|
Additions
|
|
|
|
|
|
|
24,174 |
|
|
|
|
|
|
|
18,218 |
|
Amortization
charge
|
|
|
|
|
|
|
(39,754 |
) |
|
|
|
|
|
|
(11,042 |
) |
At
the end of the period
|
|
|
|
|
|
|
1,500,973 |
|
|
|
|
|
|
|
547,159 |
|
9
Deferred statutory profit sharing
As
mentioned in Note 4 (m) to the audited Consolidated Financial Statements at
December 31, 2007, Mexican laws require local companies to pay its employees a
profit sharing bonus calculated on a basis similar to that used for local income
tax purposes. The Company accounts for temporary differences arising between the
statutory calculation and the reported expense determined under IFRS in a manner
similar to calculation of deferred income tax.
In 2008,
one of Ternium’s Mexican subsidiaries (Hylsa S.A. de C.V., “Hylsa”) entered into
a spin off that became effective on March 31, 2008. After this corporate
reorganization, all of Hylsa’s employees are included in the payroll of a
company that is expected to generate non-significant taxable income and
non-significant temporary differences. The Company agreed to pay its employees a
bonus salary that will be calculated on a basis similar to that used for income
tax purposes. Accordingly, during the six-month period ended June 30, 2008, the
Company reversed the outstanding balance of the liability as of December 31,
2007 (amounting to USD 96 million) within Income tax (expense) benefit line item
in the Consolidated Condensed Interim Income Statement.
10
Distribution of dividends
During
the annual general shareholders meeting held on June 4, 2008, the shareholders
approved the consolidated financial statements and unconsolidated annual
accounts for the year ended December 31, 2007 and a distribution of dividends of
USD 0.05 per share (USD 0.50 per ADS), or USD 100.2 million. The dividends were
paid on June 12, 2008.
11
Contingencies, commitments and restrictions on the distribution of
profits
This note
should be read in conjunction with Note 27 to the Company’s audited Consolidated
Financial Statements for the year ended December 31, 2007. Significant changes
or events since the date of the annual report are as follows:
(i) Sidor-Venezuelan tax
authorities claim
In late
May 2008, the Venezuelan tax authorities initiated a tax assessment against
Sidor involving income taxes for fiscal years 2003, 2004, 2005, 2006 and 2007
resulting in allegedly omitted payments in an aggregate principal amount of VEB
1,438.6 million (or USD 669.1 million). The tax assessment, which covers certain
previously audited periods, alleges that Sidor improperly deducted certain
payments for income tax purposes, primarily consisting of amounts paid to Ylopa
Serviços de Consultadoria Ltd., or Ylopa, and Corporación Venezolana de Guayana,
or CVG, under certain participation account agreements (“contratos de cuentas en
participación”) entered into with Ylopa and CVG in connection with the
restructuring of Sidor’s financial debt in 2003. In addition, the tax assessment
challenges, among other things, the adjustment of tax loss carry forwards
corresponding to prior fiscal years. The tax assessment requires Sidor to amend
the relevant income tax returns and pay the balance resulting therefrom, plus a
penalty equal to 10% of the allegedly omitted amounts. Sidor has challenged the
tax assessment and believes that it is and has always been in compliance with
all applicable Venezuelan tax laws and regulations, and that there are no
grounds for any such claims.
TERNIUM
S.A.
Notes
to the Consolidated Condensed Interim Financial Statements (Contd.)
11
Contingencies, commitments and restrictions on the distribution of profits
(continued)
(ii)
Siderar investment plan
Within
the investment plan to increase its production capacity to 4 million tons per
year, Siderar has entered into several commitments to acquire a new continuous
casting machine for a total consideration of USD 70.7 million.
(iii)
Restrictions on the distribution of profits
Under
Luxembourg law, at least 5% of net income per year calculated in accordance with
Luxembourg law and regulations must be allocated to a reserve until such reserve
equals 10% of the share capital. At June 30, 2008, this reserve reached the
above-mentioned threshold.
Ternium
may pay dividends to the extent that it has distributable retained earnings and
distributable reserves calculated in accordance with Luxembourg law and
regulations. Therefore, retained earnings included in these consolidated
condensed interim financial statements may not be wholly
distributable.
Shareholders'
equity under Luxembourg law and regulations comprises the following
captions:
|
|
At
June 30, 2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Share
capital
|
|
|
2,004,744 |
|
Legal
reserve
|
|
|
200,474 |
|
Distributable
reserves
|
|
|
201,675 |
|
Non
distributable reserves
|
|
|
1,414,122 |
|
Accumulated
profit at January 1, 2008
|
|
|
1,231,825 |
|
Profit
for the period
|
|
|
235,301 |
|
Total
shareholders’ equity under Luxembourg GAAP
|
|
|
5,288,141 |
|
12
Discontinued
operations
(i) Sale of non strategic U.S.
assets
On
February 1, 2008, Ternium, through its subsidiary Imsa Acero S.A. de C.V.,
completed the sale of its interests in Steelscape Inc., ASC Profiles Inc., Varco
Pruden Buildings Inc. and Metl-Span LLC to BlueScope Steel North America
Corporation, a subsidiary of BlueScope Steel Limited, for a total consideration
of USD 726.6 million on a cash-free and debt-free basis, subject to working
capital and other adjustments. Direct transaction costs paid by the Company in
connection with this sale totaled USD 4.1 million. The Company continues to own
Steelscape’s Shreveport, LA plant. Ternium has also retained its pre-engineered
metal buildings and insulated steel panels businesses in Mexico. The result of
this transaction was a gain of USD 101.4 million, calculated as the net proceeds
of the sale less the book value of discontinued net assets and the corresponding
tax effect.
TERNIUM
S.A.
Notes
to the Consolidated Condensed Interim Financial Statements (Contd.)
12
Discontinued
operations (continued)
(ii) Sidor Nationalization
Process
On March
31, 2008, the Company controlled approximately 59.7% of Sidor, while Corporación
Venezolana de Guayana, or CVG (a Venezuelan governmental entity) and Banco de
Desarrollo Económico y Social de Venezuela, or BANDES (a bank owned by the
Venezuelan government) held approximately 20.4% of Sidor and certain Sidor
employees and former employees held the remaining 19.9% interest.
On April
8, 2008, the Venezuelan government announced its intention to take control over
Sidor. Following the confirmation of the Venezuelan government’s decision to
nationalize Sidor, on April 16, 2008, the Company, Sidor and the Venezuelan
government entered into an agreement providing for the creation of a transition
committee, composed of representatives of the government, the union and Sidor’s
class B employee shareholders, which was charged with ensuring the normal
conduct of Sidor’s production and commercial processes, acting in coordination
with Sidor’s board of directors, during the transition period until the
nationalization is completed.
On April
29, 2008, the National Assembly of the Republic of Venezuela passed a resolution
declaring that the shares of Sidor, together with all of its assets, are of
public and social interest. This resolution authorized the Venezuelan government
to take any action it may deem appropriate in connection with any such assets,
including expropriation.
On May 2,
2008, the Company sent a letter to the Minister of Basic Industries and Mining
of Venezuela stating, among other things, its rejection of the considerations
made by Venezuela’s National Assembly in connection with its April 29, 2008
resolutions, and providing the Company’s consent to submit any controversy
between the Company or its subsidiaries and Venezuela relating to Sidor’s
nationalization to arbitration administered by the International Center for
Settlement of Investment Disputes (ICSID), as provided in applicable investment
protection treaties signed by Venezuela, in the event that the Company and
Venezuela fail to reach a negotiated solution.
On May
11, 2008, the Venezuelan government announced that Decree Law 6058 regulating
the steel production activity in the Guayana, Venezuela region (the “Decree”)
became effective upon its publication on Venezuela’s Official
Gazette. The Decree ordered that Sidor and its subsidiaries and
associated companies be transformed into state-owned enterprises (“empresas del
estado”), with the government owning not less than 60% of their share
capital.
The
Decree required the Venezuelan government to create two committees. A
transition committee was created to be incorporated into Sidor’s management and
to ensure that control over the current operations of Sidor and its subsidiaries
and associated companies was transferred to the government on or prior to July
12, 2008. A separate technical committee, composed of representatives
of the government and the private shareholders of Sidor and its subsidiaries and
associated companies, was formed to negotiate over a 60-day period (extendable
by mutual agreement) a fair price for the shares to be transferred to Venezuela,
together with the terms and conditions of the possible participation of such
private shareholders in the share capital of the state-owned
enterprises.
The
Decree also stated that, in the event the parties failed to reach agreement
regarding the terms and conditions for the transformation of Sidor and its
subsidiaries and associated companies into state-owned enterprises by the
expiration of the 60-day period, the Ministry of Basic Industries and Mining
would assume control and exclusive operation, and the Executive Branch would
order the expropriation of the shares of the relevant
companies. Finally, the Decree specified that all facts and
activities thereunder would be subject to Venezuelan law and any disputes would
be submitted to Venezuelan courts.
TERNIUM
S.A.
Notes
to the Consolidated Condensed Interim Financial Statements (Contd.)
12
Discontinued
operations (continued)
(ii) Sidor Nationalization Process
(continued)
On May
14, 2008, the Company sent a letter to the Minister of Basic Industries and
Mining of Venezuela stating, among other things, that the determination of the
compensation for the transfer of the Company’s interest in Sidor to Venezuela
and the solution of any controversy between the Company or its subsidiaries and
Venezuela relating to Sidor’s nationalization would be governed by the
applicable investment treaties signed by Venezuela, and would not be subject to
Venezuelan law or submitted to Venezuelan courts.
Upon
expiration of the term contemplated under the Decree, on July 12, 2008,
Venezuela, acting through CVG, assumed operational control of Sidor. Following
the change in operational control, CVG assumed complete responsibility for
Sidor’s operations, Sidor’s board of directors ceased to function and Sidor’s
operations are managed by a 6-member temporary operating committee, the majority
of whose members are appointed by CVG. The Company, however, has not yet
transferred its ownership interest in Sidor to Venezuela.
The term
provided in the Decree for the negotiation of the conditions under which all or
a significant part of the Company’s interest in Sidor will be transferred to
Venezuela was extended until August 18, 2008. The negotiation of proposed future
business relationships between the Company and Sidor is also expected to be
completed during that term.
The
Company’s investment in Sidor is protected under the bilateral investment
treaties between Venezuela and Argentina, Venezuela and the Belgian-Luxembourg
Union, Venezuela and Spain and Venezuela and Portugal, and, as noted above, the
Company has consented to the jurisdiction of the ICSID in connection with the
Sidor nationalization process. The Company continues to reserve all of its
rights under contracts, investment treaties and Venezuelan and international law
and will continue to evaluate its options in realizing the fair value of its
interest in Sidor. In addition, the Company will defend itself vigorously
against any attempt by the Venezuelan government to lower the compensation for
its interest in Sidor as a result of any government claims.
Based on
the facts and circumstances described above and following the guidance set forth
by IAS 27, the Company ceased consolidating Sidor’s results of operations and
cash flows as from April 1, 2008 and classified its investment in Sidor as an
available-for-sale asset – discontinued operations, which management believes is
the most appropriate accounting treatment applicable under the circumstances to
non-voluntary dispositions of assets.
The
initial measurement of the available-for-sale asset – discontinued operations is
the carrying amount of the company’s investment in Sidor at March 31, 2008 (IAS
27). A subsequent remeasurement was not performed. Thus, the carrying amount of
this available-for-sale asset at June 30, 2008 does not represent its fair value
at that date.
The
results of operations and cash flows generated by Sidor prior to its
classification as an available-for-sale asset were presented as discontinued
operations in these financial statements. Comparative figures were re-presented
for consistency as required by IFRS 5.
TERNIUM
S.A.
Notes
to the Consolidated Condensed Interim Financial Statements (Contd.)
(iii) Analysis of the result of
discontinued operations:
|
|
Six-month
period
ended
June 30,
|
|
|
|
2008
(1)
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
Net
sales
|
|
|
467,618 |
|
|
|
1,328,689 |
|
Cost
of sales
|
|
|
(306,744 |
) |
|
|
(722,950 |
) |
Gross
profit
|
|
|
160,874 |
|
|
|
605,739 |
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
(90,362 |
) |
|
|
(151,787 |
) |
Other
operating income (expenses), net
|
|
|
1,080 |
|
|
|
(994 |
) |
Operating
income
|
|
|
71,592 |
|
|
|
452,958 |
|
|
|
|
|
|
|
|
|
|
Financial
expenses, net
|
|
|
(54,200 |
) |
|
|
(165,776 |
) |
Equity
in losses of associated companies
|
|
|
(150 |
) |
|
|
(567 |
) |
Income
before income tax
|
|
|
17,242 |
|
|
|
286,615 |
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
41,326 |
|
|
|
32,128 |
|
Sidor
– Discontinued operations – see Note 12 (ii)
|
|
|
58,568 |
|
|
|
318,743 |
|
|
|
|
|
|
|
|
|
|
Results
from the sale of non strategic U.S. assets - see Note 12
(i)
|
|
|
101,369 |
|
|
|
- |
|
Income
from discontinued operations
|
|
|
159,937 |
|
|
|
318,743 |
|
(1)
Includes the results of Sidor for the period January 1, 2008 up to March 31,
2008.
(iv) Analysis of cash flows from
discontinued operations -Sidor:
|
|
Six-month
period
ended
June 30,
|
|
|
|
2008
(1)
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
Cash
flows from discontinued operating activities
|
|
|
|
|
|
|
Net
income of from discontinued operations
|
|
|
58,568 |
|
|
|
318,743 |
|
Adjustments
for:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
50,820 |
|
|
|
100,742 |
|
Income
tax accruals less payments
|
|
|
(41,613 |
) |
|
|
(32,128 |
) |
Changes
in working capital and others
|
|
|
107,184 |
|
|
|
(10,959 |
) |
Cash
flows from discontinued operating activities
|
|
|
174,959 |
|
|
|
376,398 |
|
Net
cash used by discontinued investing activities
|
|
|
(54,923 |
) |
|
|
(34,030 |
) |
Net
cash used in discontinued financing activities
|
|
|
(30,216 |
) |
|
|
(73,155 |
) |
Net
cash from discontinued activities
|
|
|
89,820 |
|
|
|
269,213 |
|
(1)
Includes the cash flow movements from Sidor for the period January 1, 2008 up to
March 31, 2008.
TERNIUM
S.A.
Notes
to the Consolidated Condensed Interim Financial Statements (Contd.)
13
Related party transactions
The
Company is controlled by San Faustín, which at June 30, 2008 indirectly owned
70.52% of Ternium’s shares and voting rights. Rocca & Partners S.A. controls
a significant portion of the voting power of San Faustin N.V. and has the
ability to influence matters affecting, or submitted to a vote of the
shareholders of San Faustin N.V., such as the election of directors, the
approval of certain corporate transactions and other matters concerning the
Company’s policies. There are no controlling shareholders for Rocca &
Partners S.A.
The
following transactions were carried out with related parties:
|
|
Six-month
period
ended
June, 30
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
(i) Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Sales
of goods and services
|
|
|
|
|
|
|
Sales
of goods to other related parties
|
|
|
30,899 |
|
|
|
23,458 |
|
Sales
of services and others to associated parties
|
|
|
- |
|
|
|
53 |
|
Sales
of services and others to other related parties
|
|
|
894 |
|
|
|
3,367 |
|
|
|
|
31,793 |
|
|
|
26,878 |
|
(b) Purchases
of goods and services
|
|
|
|
|
|
|
|
|
Purchases
of goods from other related parties
|
|
|
18,208 |
|
|
|
21,057 |
|
Purchases
of services and others from associated parties
|
|
|
13,158 |
|
|
|
9,272 |
|
Purchases
of services and others from other related
parties
|
|
|
72,813 |
|
|
|
74,442 |
|
|
|
|
104,179 |
|
|
|
104,771 |
|
(c) Financial
results
|
|
|
|
|
|
|
Income
with associated parties
|
|
|
284 |
|
|
|
240 |
|
(ii)
Period-end balances
|
|
June
30,
2008
|
|
|
December
31,
2007
|
|
|
|
(Unaudited)
|
|
|
|
|
(a) Arising
from sales/purchases of goods/services
|
|
|
|
|
|
|
Receivables
from associated parties
|
|
|
1,214 |
|
|
|
937 |
|
Receivables
from other related parties
|
|
|
29,126 |
|
|
|
93,047 |
|
Payables
to associated parties
|
|
|
(3,203 |
) |
|
|
(5,084 |
) |
Payables
to other related parties
|
|
|
(32,400 |
) |
|
|
(32,346 |
) |
|
|
|
(5,263 |
) |
|
|
56,554 |
|
|
|
|
|
|
|
|
|
|
b) Other
investments
|
|
|
|
|
|
|
|
|
Time
deposits
|
|
|
13,250 |
|
|
|
12,673 |
|
14
Recently issued accounting pronouncements
(i)
International Accounting Standard 27 (amended 2008), “Consolidated and separate
financial statements”
In
January 2008, the International Accounting Standards Board (“IASB”) issued
International Accounting Standard 27 (amended 2008), “Consolidated and separate
financial statements” (“IAS 27 - amended”). IAS 27 - amended includes
modifications to International Accounting Standard 27 that are related,
primarily, to accounting for non-controlling interests and the loss of control
of a subsidiary.
IAS 27 -
amended must be applied for annual periods beginning on or after 1 July 2009,
although earlier application is permitted. However, an entity must not apply the
amendments contained in IAS 27 - amended for annual periods beginning before 1
July 2009 unless it also applies IFRS 3 (as revised in 2008).
The
Company's management has not assessed the potential impact that the application
of IAS 27 - amended may have on the Company's financial condition or results of
operations.
TERNIUM
S.A.
Notes
to the Consolidated Condensed Interim Financial Statements (Contd.)
14
Recently issued accounting pronouncements (continued)
(ii)
International Financial Reporting Standard 3 (revised January 2008), “Business
combinations”
In
January 2008, the IASB issued International Financial Reporting Standard 3
(revised January 2008), “Business combinations” (“IFRS 3 revised”). IFRS 3
revised includes amendments that are meant to provide guidance for applying the
acquisition method.
IFRS 3
revised replaces IFRS 3 (as issued in 2004) and comes into effect for business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after 1 July
2009. Earlier application is permitted, provided that IAS 27 –
amended is applied at the same time.
The
Company's management estimates that the application of IFRS 3 revised will not
have a material effect on the Company's financial condition or results of
operations.
(iii)
International Financial Reporting Standard 2 (amended January 2008),
“Share-based payment”
In
January 2008, the IASB issued International Financial Reporting Standard 2
(amended January 2008), “Share-based payment” (“IFRS 2 revised”). IFRS 2 revised
establishes that for equity-settled share-based payment transactions, an entity
shall measure the goods or services received, and the corresponding increase in
equity, directly, at the fair value of the goods or services received, unless
that fair value cannot be estimated reliably. If the entity cannot estimate
reliably the fair value of the goods or services received, the entity is
required to measure their value, and the corresponding increase in equity,
indirectly, by reference to the fair value of the equity instruments granted.
For goods or services measured by reference to the fair value of the equity
instruments granted, IFRS 2 revised specifies that all non-vesting conditions
are taken into account in the estimate of the fair value of the equity
instruments.
Entities
shall apply these amendments to all share-based payments within the scope of
IFRS 2 for annual periods beginning on or after 1 January 2009. Earlier
application is permitted.
The
Company's management estimates that the application of IFRS 2 revised will not
have a material effect on the Company's financial condition or results of
operations.
(iv)
Amendments to International Accounting Standard 32 “Financial instruments:
presentation” and International Accounting Standard 1 “Presentation of financial
statements” (as revised in 2007) - Puttable financial instruments and
obligations
In
February 2008 the IASB amended International Accounting Standard 32 “Financial
instruments: presentation” by requiring some financial instruments that meet the
definition of a financial liability to be classified as equity. The amendment
addresses the classification of some: (a) puttable financial instruments, and
(b) instruments, or components of instruments, that impose on the entity an
obligation to deliver to another party a pro rata share of the net assets of the
entity only on liquidation.
Entities
shall apply these amendments for annual periods beginning on or after 1 January
2009. Earlier application is permitted. If entities apply these amendments for
an earlier period, they shall disclose that fact.
The
Company's management has not assessed the potential impact that the application
of IAS 32 (revised 2008) and IAS 1 (revised 2008) may have on the Company's
financial condition or results of operations.
(v)
Amendments to IFRS 1 “First-time Adoption of International Financial Reporting
Standards” and
IAS
27 “Consolidated and Separate Financial Statements”
In May
2008, the IASB amended International Accounting Standard 27 “Consolidated and
Separate Financial Statements Cost of an investment in a Subsidiary, Jointly
Controlled Entity or Associate” (“IAS 27 - amended”). IAS 27 - amended includes
modifications to International Accounting Standard 27 that are related,
primarily, to the accounting for investments in subsidiaries, jointly controlled
entities or associates in separate financial statements when reorganizations are
established.
TERNIUM
S.A.
Notes
to the Consolidated Condensed Interim Financial Statements (Contd.)
14
Recently issued accounting pronouncements (continued)
(v)
Amendments to IFRS 1 “First-time Adoption of International Financial Reporting
Standards” and
IAS
27 “Consolidated and Separate Financial Statements” (continued)
Additionally,
the IASB amended International Financial Reporting Standard 1 “First-time
adoption of international financial reporting standard” (“IFRS 1 – amended”).
IFRS 1 – amended includes modifications to the accounting of subsidiaries,
jointly controlled entities and associates at cost in the entity´s separate
opening IFRS statement of financial position.
Entities
shall apply these amendments for annual periods beginning on or after 1 January
2009. If entities apply these amendments for an earlier period, they shall
disclose that fact.
The
Company’s management estimates that the application of IAS 27 – amended and IFRS
1 - amended will not have a material effect on the Company’s financial condition
or results of operations.
(vi)
Improvements to International Financial Reporting Standards
In May
2008, the IASB issued “Improvements to International Financial Reporting
Standards” by which it amended several international accounting and financial
reporting standards.
Entities
shall apply these amendments for annual periods beginning on or after 1 July
2009. If entities apply these amendments for an earlier period, they shall
disclose that fact.
The
Company’s management has not assessed the potential impact that the application
of this paper may have on the Company’s financial condition or results of
operations.
(vii)
IFRIC Interpretation 15
-Agreements for the Construction of Real Estate
In July
2008, International Financial Reporting Interpretations Committee (“IFRIC”)
issued IFRIC Interpretation 15 “Agreements for the Construction of Real Estate”
(“IFRIC 15”). IFRIC 15 applies to the accounting for revenue and associated
expenses by entities that undertake the construction of real estate directly or
through subcontractors.
An entity
shall apply this Interpretation for annual periods beginning on or after 1
January 2009. Earlier application is permitted. If an entity applies the
Interpretation for a period beginning before 1 January 2009,
it shall
disclose that fact.
The
Company's management estimates that the application of IFRIC 15 will not have a
material effect on the Company's financial condition or results of
operations.
(viii)
IFRIC Interpretation 16
–Hedges of net investment in a foreign operation
In July
2008, International Financial Reporting Interpretations Committee (“IFRIC”)
issued IFRIC Interpretation 16 “Hedges of net investment in a foreign operation”
(“IFRIC 16”). IFRIC 16 applies to an entity that hedges the foreign currency
risk arising from its net investments in foreign operations and wishes to
qualify for hedge accounting in accordance with IAS 39.
An entity
shall apply this Interpretation for annual periods beginning on or after 1
October 2008. Earlier application is permitted. If an entity applies this
Interpretation for a period beginning before 1 October 2008, it shall disclose
that fact.
The
Company's management estimates that the application of IFRIC 16 will not have a
material effect on the Company's financial condition or results of
operations.
Roberto
Philipps
Chief
Financial Officer