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 2/24/2009
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 December
31, 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:
February 24, 2009
TERNIUM
S.A.
CONSOLIDATED
FINANCIAL STATEMENTS
As
of December 31, 2008 and 2007 and
for
the years ended December 31, 2008, 2007 and 2006
46a,
Avenue John F. Kennedy, 2nd
floor
R.C.S.
Luxembourg : B 98 668
TERNIUM
S.A.
Index
to financial statements
Consolidated
Financial Statements
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
1
|
|
|
Consolidated
income statements for the years ended December 31, 2008, 2007 and
2006
|
2
|
|
|
Consolidated
balance sheets as of December 31, 2008 and 2007
|
3
|
|
|
Consolidated
statements of changes in shareholders’ equity for the years ended December
31, 2008, 2007 and 2006
|
4
|
|
|
Consolidated
cash flow statements for the years ended December 31, 2008, 2007 and
2006
|
7
|
|
|
Notes
to the consolidated financial statements
|
8
|
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders of
Ternium
S.A.:
In our
opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of changes in shareholders’
equity present fairly, in all material respects, the financial position of
Ternium S.A. and its subsidiaries at December 31, 2008 and 2007, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2008 in conformity with International Financial
Reporting Standards as issued by the International Accounting Standards Board.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
We draw
attention to Note 29 to the financial statements which describes the uncertainty
related to the amount of the compensation to be received by Ternium in
connection with the nationalization process of Sidor C.A. Our opinion is not
qualified in respect of this matter.
Buenos
Aires, Argentina
February
24, 2009
PRICE
WATERHOUSE & CO. S.R.L.
|
|
|
|
|
|
|
by
|
|
(Partner)
|
Marcelo
D. Pfaff
|
TERNIUM
S.A.
Consolidated
financial statements
as
of December 31, 2008 and 2007 and
for
the years ended December 31, 2008, 2007 and 2006
(All
amounts in USD thousands)
CONSOLIDATED
INCOME STATEMENTS
|
|
|
|
|
Year
ended December 31,
|
|
|
|
Notes
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Continuing
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
30
|
|
|
|
8,464,885 |
|
|
|
5,633,366 |
|
|
|
4,484,918 |
|
Cost
of sales
|
|
|
6
& 30
|
|
|
|
(6,128,027 |
) |
|
|
(4,287,671 |
) |
|
|
(3,107,629 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
|
|
|
|
2,336,858 |
|
|
|
1,345,695 |
|
|
|
1,377,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
7
|
|
|
|
(669,473 |
) |
|
|
(517,433 |
) |
|
|
(370,727 |
) |
Other
operating income (expenses), net
|
|
|
9
|
|
|
|
8,662 |
|
|
|
8,514 |
|
|
|
(4,739 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
|
|
|
|
1,676,047 |
|
|
|
836,776 |
|
|
|
1,001,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
30
&31
|
|
|
|
(136,111 |
) |
|
|
(133,109 |
) |
|
|
(96,814 |
) |
Interest
income
|
|
|
30
|
|
|
|
32,178 |
|
|
|
41,613 |
|
|
|
33,903 |
|
Other
financial expenses, net
|
|
|
10
|
|
|
|
(693,192 |
) |
|
|
(38,498 |
) |
|
|
(40,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings of associated companies
|
|
|
14
|
|
|
|
1,851 |
|
|
|
434 |
|
|
|
671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income tax expense
|
|
|
|
|
|
|
880,773 |
|
|
|
707,216 |
|
|
|
899,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax (expense) benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
and deferred income tax expense
|
|
|
11
|
|
|
|
(258,969 |
) |
|
|
(291,345 |
) |
|
|
(353,044 |
) |
Reversal
of deferred statutory profit sharing
|
|
|
4(n)
|
|
|
|
96,265 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
|
|
|
|
718,069 |
|
|
|
415,871 |
|
|
|
546,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
29
|
|
|
|
157,095 |
|
|
|
579,925 |
|
|
|
444,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year
|
|
|
|
|
|
|
875,164 |
|
|
|
995,796 |
|
|
|
990,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
holders of the Company
|
|
|
28
|
|
|
|
715,418 |
|
|
|
784,490 |
|
|
|
795,424 |
|
Minority
interest
|
|
|
|
|
|
|
159,746 |
|
|
|
211,306 |
|
|
|
195,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
875,164 |
|
|
|
995,796 |
|
|
|
990,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
28
|
|
|
|
2,004,743,442 |
|
|
|
2,004,743,442 |
|
|
|
1,936,833,060 |
|
Basic
earnings per share for profit attributable to the equity holders of the
Company (expressed in USD per share)
|
|
|
|
|
|
|
0.36 |
|
|
|
0.39 |
|
|
|
0.41 |
|
Diluted
earnings per share for profit attributable to the equity holders of the
Company (expressed in USD per share)
|
|
|
|
|
|
|
0.36 |
|
|
|
0.39 |
|
|
|
0.41 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
TERNIUM
S.A.
Consolidated
financial statements
as
of December 31, 2008 and 2007 and
for
the years ended December 31, 2008, 2007 and 2006
(All
amounts in USD thousands)
CONSOLIDATED
BALANCE SHEETS
|
|
Notes
|
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
12
|
|
|
|
4,212,313 |
|
|
|
|
|
|
6,776,630 |
|
|
|
|
Intangible
assets, net
|
|
|
13
|
|
|
|
1,136,367 |
|
|
|
|
|
|
1,449,320 |
|
|
|
|
Investments
in associated companies
|
|
|
14
|
|
|
|
5,585 |
|
|
|
|
|
|
44,042 |
|
|
|
|
Other
investments, net
|
|
|
15
& 30
|
|
|
|
16,948 |
|
|
|
|
|
|
14,815 |
|
|
|
|
Deferred
tax assets
|
|
|
23
|
|
|
|
- |
|
|
|
|
|
|
31,793 |
|
|
|
|
Receivables,
net
|
|
|
16
& 30
|
|
|
|
120,195 |
|
|
|
5,491,408 |
|
|
|
236,523 |
|
|
|
8,553,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
17
& 30
|
|
|
|
248,991 |
|
|
|
|
|
|
|
405,031 |
|
|
|
|
|
Derivative
financial instruments
|
|
|
25
|
|
|
|
1,516 |
|
|
|
|
|
|
|
577 |
|
|
|
|
|
Inventories,
net
|
|
|
6
& 18
|
|
|
|
1,826,547 |
|
|
|
|
|
|
|
1,904,489 |
|
|
|
|
|
Trade
receivables, net
|
|
|
19
& 30
|
|
|
|
622,992 |
|
|
|
|
|
|
|
825,553 |
|
|
|
|
|
Available
for sale assets – discontinued operations
|
|
|
29
|
|
|
|
1,318,900 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
Other
investments
|
|
|
20
|
|
|
|
90,008 |
|
|
|
|
|
|
|
65,337 |
|
|
|
|
|
Cash
and cash equivalents
|
|
|
20
|
|
|
|
1,065,552 |
|
|
|
5,174,506 |
|
|
|
1,125,830 |
|
|
|
4,326,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
assets classified as held for sale
|
|
|
29
|
|
|
|
|
|
|
|
5,333 |
|
|
|
|
|
|
|
769,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,179,839 |
|
|
|
|
|
|
|
5,095,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
|
|
|
|
|
|
10,671,247 |
|
|
|
|
|
|
|
13,649,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
and reserves attributable to the company’s equity holders
|
|
|
|
|
|
|
|
|
|
|
4,597,370 |
|
|
|
|
|
|
|
4,452,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
|
|
|
|
|
|
|
|
964,094 |
|
|
|
|
|
|
|
1,805,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity
|
|
|
|
|
|
|
|
|
|
|
5,561,464 |
|
|
|
|
|
|
|
6,257,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions
|
|
|
21
|
|
|
|
24,400 |
|
|
|
|
|
|
|
57,345 |
|
|
|
|
|
Deferred
income tax
|
|
|
23
|
|
|
|
810,160 |
|
|
|
|
|
|
|
1,327,768 |
|
|
|
|
|
Other
liabilities
|
|
|
24
|
|
|
|
148,690 |
|
|
|
|
|
|
|
333,674 |
|
|
|
|
|
Trade
payables
|
|
|
30
|
|
|
|
- |
|
|
|
|
|
|
|
6,690 |
|
|
|
|
|
Derivative
financial instruments
|
|
|
25
|
|
|
|
65,847 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
Borrowings
|
|
|
26
|
|
|
|
2,325,867 |
|
|
|
3,374,964 |
|
|
|
3,676,072 |
|
|
|
5,401,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
tax liabilities
|
|
|
|
|
|
|
194,075 |
|
|
|
|
|
|
|
179,678 |
|
|
|
|
|
Other
liabilities
|
|
|
24
& 30
|
|
|
|
103,376 |
|
|
|
|
|
|
|
180,974 |
|
|
|
|
|
Trade
payables
|
|
|
30
|
|
|
|
438,711 |
|
|
|
|
|
|
|
995,663 |
|
|
|
|
|
Derivative
financial instruments
|
|
|
25
|
|
|
|
57,197 |
|
|
|
|
|
|
|
13,293 |
|
|
|
|
|
Borrowings
|
|
|
26
|
|
|
|
941,460 |
|
|
|
1,734,819 |
|
|
|
406,239 |
|
|
|
1,775,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
directly associated with non-current assets classified as held for
sale
|
|
|
29
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
213,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,734,819 |
|
|
|
|
|
|
|
1,989,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
|
|
|
|
|
|
|
|
5,109,783 |
|
|
|
|
|
|
|
7,391,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity and liabilities
|
|
|
|
|
|
|
|
|
|
|
10,671,247 |
|
|
|
|
|
|
|
13,649,082 |
|
The accompanying notes are an integral
part of these consolidated financial statements.
TERNIUM
S.A.
Consolidated
financial statements
as
of December 31, 2008 and 2007 and
for
the years ended December 31, 2008, 2007 and 2006
(All
amounts in USD thousands)
CONSOLIDATED
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
|
|
|
Capital
stock issue discount (3)
|
|
|
Currency
translation adjustment
|
|
|
Retained
earnings
|
|
|
Total
|
|
|
Minority
interest
|
|
|
Total
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
|
2,004,743 |
|
|
|
(23,295 |
) |
|
|
1,946,963 |
|
|
|
(2,324,866 |
) |
|
|
(110,739 |
) |
|
|
2,959,874 |
|
|
|
4,452,680 |
|
|
|
1,805,243 |
|
|
|
6,257,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation adjustment (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(417,746 |
) |
|
|
|
|
|
|
(417,746 |
) |
|
|
(85,250 |
) |
|
|
(502,996 |
) |
Net
income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
715,418 |
|
|
|
715,418 |
|
|
|
159,746 |
|
|
|
875,164 |
|
Change
in fair value of cash flow hedge (net of taxes)
|
|
|
|
|
|
|
|
|
|
|
(52,745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,745 |
) |
|
|
(6,708 |
) |
|
|
(59,453 |
) |
Total
recognized income for the year
|
|
|
|
|
|
|
|
|
|
|
(52,745 |
) |
|
|
|
|
|
|
(417,746 |
) |
|
|
715,418 |
|
|
|
244,927 |
|
|
|
67,788 |
|
|
|
312,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal
of revaluation reserves related to discontinued operations
(5)
|
|
|
|
|
|
|
|
|
|
|
(91,696 |
) |
|
|
|
|
|
|
|
|
|
|
91,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2008
|
|
|
2,004,743 |
|
|
|
(23,295 |
) |
|
|
1,702,285 |
|
|
|
(2,324,866 |
) |
|
|
(528,485 |
) |
|
|
3,766,988 |
|
|
|
4,597,370 |
|
|
|
964,094 |
|
|
|
5,561,464 |
|
(1)
|
Shareholders’
equity determined in accordance with accounting principles generally
accepted in Luxembourg is disclosed in Note 27
(iv).
|
(2)
|
At
December 31, 2008, the Capital Stock adds up to 2,004,743,442 shares with
a nominal value of USD1 each.
|
(3)
|
Represents
the difference between book value of non-monetary contributions received
from shareholders under Luxembourg GAAP and
IFRS.
|
(4)
|
Includes
an increase of USD 121.9 million corresponding to the currency translation
adjustment from discontinued operations attributable to the Company’s
equity holders and of USD 29.6 million attributable to the Minority
interest.
|
(5)
|
Corresponds
to the reversal of the revaluation reserve recorded in fiscal year 2005,
representing the excess of fair value over the book value of Ternium’s
pre-acquisition interest in the net assets of
Sidor.
|
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 financial statements may not be wholly
distributable. See Note 27 (iii). The accompanying notes are an integral part of
these consolidated financial statements.
TERNIUM
S.A.
Consolidated
financial statements
as
of December 31, 2008 and 2007 and
for
the years ended December 31, 2008, 2007 and 2006
(All
amounts in USD thousands)
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)
|
|
Attributable
to the Company’s equity holders (1)
|
|
|
|
|
|
|
|
|
|
Capital
stock (2)
|
|
|
Initial
public offering expenses
|
|
|
Revaluation
and other reserves
|
|
|
Capital
stock issue discount (3)
|
|
|
Currency
translation adjustment
|
|
|
Retained
earnings
|
|
|
Total
|
|
|
Minority
interest
|
|
|
Total
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2007
|
|
|
2,004,743 |
|
|
|
(23,295 |
) |
|
|
2,047,200 |
|
|
|
(2,324,866 |
) |
|
|
(121,608 |
) |
|
|
2,175,384 |
|
|
|
3,757,558 |
|
|
|
1,626,119 |
|
|
|
5,383,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,869 |
|
|
|
|
|
|
|
10,869 |
|
|
|
(13,152 |
) |
|
|
(2,283 |
) |
Net
income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
784,490 |
|
|
|
784,490 |
|
|
|
211,306 |
|
|
|
995,796 |
|
Total
recognized income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,869 |
|
|
|
784,490 |
|
|
|
795,359 |
|
|
|
198,154 |
|
|
|
993,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid in cash and other distributions
|
|
|
|
|
|
|
|
|
|
|
(100,237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,237 |
) |
|
|
|
|
|
|
(100,237 |
) |
Dividends
paid in cash and other distributions by subsidiary
companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,000 |
) |
|
|
(20,000 |
) |
Acquisition
of business (see Note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195 |
) |
|
|
(195 |
) |
Contributions
from minority shareholders in consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,165 |
|
|
|
1,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
2,004,743 |
|
|
|
(23,295 |
) |
|
|
1,946,963 |
|
|
|
(2,324,866 |
) |
|
|
(110,739 |
) |
|
|
2,959,874 |
|
|
|
4,452,680 |
|
|
|
1,805,243 |
|
|
|
6,257,923 |
|
(1)
|
Shareholders’
equity determined in accordance with accounting principles generally
accepted in Luxembourg is disclosed in Note 27
(iv).
|
(2)
|
At
December 31, 2008, the Capital Stock adds up to 2,004,743,442 shares with
a nominal value of USD1 each.
|
(3)
|
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 financial statements may not be wholly
distributable. See Note 27 (iii). The accompanying notes are an integral part of
these consolidated financial statements.
TERNIUM
S.A.
Consolidated
financial statements
as
of December 31, 2008 and 2007 and
for
the years ended December 31, 2008, 2007 and 2006
(All
amounts in USD thousands)
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)
|
|
Attributable
to the Company’s equity holders (1)
|
|
|
|
|
|
|
|
|
Capital
stock (2)
|
|
|
Initial
public offering expenses
|
|
|
Revaluation
and other reserves
|
|
|
Capital
stock issue discount (3)
|
|
|
Currency
translation adjustment
|
|
|
Retained
earnings
|
|
|
Total
|
|
|
Minority
interest
|
|
|
Total
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2006
|
|
|
1,396,551 |
|
|
|
(5,456 |
) |
|
|
1,462,138 |
|
|
|
(2,298,048 |
) |
|
|
(92,691 |
) |
|
|
1,379,960 |
|
|
|
1,842,454 |
|
|
|
1,633,881 |
|
|
|
3,476,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,917 |
) |
|
|
|
|
|
|
(28,917 |
) |
|
|
(6,479 |
) |
|
|
(35,396 |
) |
Net
income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
795,424 |
|
|
|
795,424 |
|
|
|
195,151 |
|
|
|
990,575 |
|
Total
recognized income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,917 |
) |
|
|
795,424 |
|
|
|
766,507 |
|
|
|
188,672 |
|
|
|
955,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid in cash and other distributions by subsidiary
companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,175 |
) |
|
|
(27,175 |
) |
Acquisition
of business (see Note 3)
|
|
|
|
|
|
|
|
|
|
|
(32,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,429 |
) |
|
|
(122,261 |
) |
|
|
(154,690 |
) |
Contributions
from shareholders (see Note 1)
|
|
|
33,801 |
|
|
|
|
|
|
|
43,100 |
|
|
|
(26,818 |
) |
|
|
|
|
|
|
|
|
|
|
50,083 |
|
|
|
(46,998 |
) |
|
|
3,085 |
|
Conversion
of Subordinated Convertible Loans (see Note 1)
|
|
|
302,962 |
|
|
|
|
|
|
|
302,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
605,924 |
|
|
|
|
|
|
|
605,924 |
|
Initial
Public Offering (see Note 1)
|
|
|
271,429 |
|
|
|
(17,839 |
) |
|
|
271,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
525,019 |
|
|
|
|
|
|
|
525,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
2,004,743 |
|
|
|
(23,295 |
) |
|
|
2,047,200 |
|
|
|
(2,324,866 |
) |
|
|
(121,608 |
) |
|
|
2,175,384 |
|
|
|
3,757,558 |
|
|
|
1,626,119 |
|
|
|
5,383,677 |
|
(1)
|
Shareholders’
equity determined in accordance with accounting principles generally
accepted in Luxembourg is disclosed in Note 27
(iv).
|
(2)
|
At
December 31, 2008, the Capital Stock adds up to 2,004,743,442 shares with
a nominal value of USD1 each.
|
(3)
|
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 financial statements may not be wholly
distributable. See Note 27 (iii). The accompanying notes are an integral part of
these consolidated financial statements.
TERNIUM
S.A.
Consolidated
financial statements
as
of December 31, 2008 and 2007 and
for
the years ended December 31, 2008, 2007 and 2006
(All
amounts in USD thousands)
CONSOLIDATED
CASH FLOW STATEMENTS
|
|
|
Year
ended December 31,
|
|
|
Notes
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
|
718,069 |
|
|
|
415,871 |
|
|
|
546,107 |
|
Adjustments
for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
12&13
|
|
|
413,541 |
|
|
|
355,271 |
|
|
|
251,371 |
|
Income
tax accruals less payments
|
31
|
|
|
(88,511 |
) |
|
|
(51,471 |
) |
|
|
72,613 |
|
Derecognition
of property, plant and equipment
|
9
(iii)
|
|
|
- |
|
|
|
- |
|
|
|
13,130 |
|
Changes
to pension plan
|
24
|
|
|
- |
|
|
|
- |
|
|
|
46,947 |
|
Equity
in earnings of associated companies
|
14
|
|
|
(1,851 |
) |
|
|
(434 |
) |
|
|
(671 |
) |
Interest
accruals less payments
|
31
|
|
|
(84,151 |
) |
|
|
87,580 |
|
|
|
2,237 |
|
Changes
in provisions
|
|
|
|
2,358 |
|
|
|
2,995 |
|
|
|
2,770 |
|
Changes
in working capital
|
31
|
|
|
(1,071,472 |
) |
|
|
97,728 |
|
|
|
(156,707 |
) |
Net
foreign exchange losses (gains) and others
|
|
|
|
629,530 |
|
|
|
28,878 |
|
|
|
(23,789 |
) |
Net
cash provided by operating activities
|
|
|
|
517,513 |
|
|
|
936,418 |
|
|
|
754,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
12&13
|
|
|
(587,904 |
) |
|
|
(344,293 |
) |
|
|
(314,863 |
) |
Changes
in trust funds
|
|
|
|
- |
|
|
|
- |
|
|
|
5,185 |
|
Acquisition
of business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
consideration
|
3
|
|
|
- |
|
|
|
(1,728,869 |
) |
|
|
(210,548 |
) |
Cash
acquired
|
3
|
|
|
- |
|
|
|
190,087 |
|
|
|
- |
|
Income
tax credit paid on business acquisition
|
3
|
|
|
- |
|
|
|
(297,700 |
) |
|
|
- |
|
Increase
in other investments
|
|
|
|
(24,674 |
) |
|
|
(65,337 |
) |
|
|
- |
|
Investments
in associated companies
|
|
|
|
- |
|
|
|
- |
|
|
|
(2,598 |
) |
Proceeds
from the sale of property, plant and equipment
|
|
|
|
2,103 |
|
|
|
24,490 |
|
|
|
2,787 |
|
Proceeds
from the sale of discontinued operations
|
29
(i)
|
|
|
718,635 |
|
|
|
- |
|
|
|
- |
|
Discontinued
operations
|
29
(iv)
|
|
|
242,370 |
|
|
|
419,305 |
|
|
|
326,904 |
|
Net
cash provided by (used in) investing activities
|
|
|
|
350,530 |
|
|
|
(1,802,317 |
) |
|
|
(193,133 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
paid in cash and other distributions to company’s
shareholders
|
|
|
|
(100,237 |
) |
|
|
(100,237 |
) |
|
|
- |
|
Dividends
paid in cash and other distributions by subsidiary
companies
|
|
|
|
(19,595 |
) |
|
|
(20,000 |
) |
|
|
(27,175 |
) |
Net
proceeds from Initial Public Offering
|
|
|
|
- |
|
|
|
- |
|
|
|
525,019 |
|
Contributions
from shareholders
|
|
|
|
- |
|
|
|
- |
|
|
|
3,085 |
|
Contributions
from minority shareholders in consolidated subsidiaries
|
|
|
|
- |
|
|
|
1,165 |
|
|
|
- |
|
Proceeds
from borrowings
|
|
|
|
519,809 |
|
|
|
4,052,745 |
|
|
|
109,144 |
|
Repayments
of borrowings
|
|
|
|
(1,152,886 |
) |
|
|
(2,574,627 |
) |
|
|
(1,292,548 |
) |
Net
cash (used in) provided by financing activities
|
|
|
|
(752,909 |
) |
|
|
1,359,046 |
|
|
|
(682,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) in cash and cash equivalents
|
|
|
|
115,134 |
|
|
|
493,147 |
|
|
|
(121,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement
in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
January 1,(1)
|
|
|
|
1,125,830 |
|
|
|
632,941 |
|
|
|
754,856 |
|
Effect
of exchange rate changes
|
|
|
|
(17,518 |
) |
|
|
(258 |
) |
|
|
(315 |
) |
Increase
(Decrease) in cash and cash equivalents
|
|
|
|
115,134 |
|
|
|
493,147 |
|
|
|
(121,600 |
) |
Cash
& cash equivalents of discontinued operations at March 31,
2008
|
|
|
|
(157,894 |
) |
|
|
- |
|
|
|
- |
|
Cash
and cash equivalents at December 31,
|
20
|
|
|
1,065,552 |
|
|
|
1,125,830 |
|
|
|
632,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of debt instruments into shares
|
|
|
|
- |
|
|
|
- |
|
|
|
605,924 |
|
(1)
|
In
addition, the Company had restricted cash for USD 10,350 at December 31,
2006.
|
The
accompanying notes are an integral part of these consolidated financial
statements.
TERNIUM
S.A.
Consolidated
financial statements
as
of December 31, 2008 and 2007 and
for
the years ended December 31, 2008, 2007 and 2006
(All
amounts in USD thousands)
INDEX
TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
1
|
Business
of the Company, Initial Public Offering and corporate
reorganization
|
2
|
Basis
of presentation
|
3
|
Acquisition
of business
|
4
|
Accounting
policies
|
5
|
Segment
information
|
6
|
Cost
of sales
|
7
|
Selling,
general and administrative expenses
|
8
|
Labor
costs (included in cost of sales, selling, general and administrative
expenses)
|
9
|
Other
operating income (expense), net
|
10
|
Other
financial expenses, net
|
11
|
Income
tax expense
|
12
|
Property,
plant and equipment, net
|
13
|
Intangible
assets, net
|
14
|
Investments
in associated companies
|
15
|
Other
investments, net – non current
|
16
|
Receivables,
net - non current
|
17
|
Receivables
- current
|
18
|
Inventories,
net
|
19
|
Trade
receivables, net
|
20
|
Cash,
cash equivalents and other investments
|
21
|
Allowances
and Provisions - non current
|
22
|
Allowances
- current
|
23
|
Deferred
income tax
|
24
|
Other
liabilities
|
25
|
Derivative
financial instruments
|
26
|
Borrowings
|
27
|
Contingencies,
commitments and restrictions on the distribution of
profits
|
28
|
Earnings
per share
|
29
|
Discontinued
operations
|
30
|
Related
party transactions
|
31
|
Cash
flow disclosures
|
32
|
Recently
issued accounting pronouncements
|
33
|
Financial
risk management
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements
1
|
Business
of the Company, Initial Public Offering and corporate
reorganization
|
Ternium
S.A. (the “Company” or “Ternium”), a Luxembourg Corporation (Societé Anonyme),
was incorporated on December 22, 2003 to hold investments in flat and long steel
manufacturing and distributing companies.
Near the
end of 2004, Ternium was acquired by its ultimate parent company San Faustín
N.V. (“San Faustín”), a Netherlands Antilles company, to serve as a vehicle in
the restructuring of San Faustín’s investments in the flat and long steel
manufacturing and distribution business. This restructuring was carried out by
means of a corporate reorganization through which Ternium was assigned the
equity interests previously held by San Faustín and its subsidiaries in various
flat and long steel manufacturing and distributing companies (the “Corporate
Reorganization”). The Corporate Reorganization took place in fiscal year 2005.
Until that date, Ternium was a dormant company.
On
January 11, 2006, the Company successfully completed its registration process
with the United States Securities and Exchange Commission (“SEC”) and announced
the commencement of its offer to sell 24,844,720 American Depositary Shares
(“ADS”) representing 248,447,200 shares of common stock through Citigroup Global
Markets Inc., Deutsche Bank Securities Inc., JP Morgan Securities Inc., Morgan
Stanley & Co. Incorporated, BNP Paribas Securities Corp., Caylon Securities
(USA) Inc. and Bayerische Hypo-und Vereinsbank AG (collectively, the
“Underwriters” and the offering thereunder, the “Initial Public Offering”). The
Company’s Initial Public Offering was priced at USD20 per ADS. The gross
proceeds from the Initial Public Offering totaled USD 496.9 million and have
been used to fully repay Tranche A of the Ternium Credit Facility, after
deducting related expenses.
Ternium’s
ADSs began trading on the New York Stock Exchange under the symbol “TX” on
February 1, 2006. The Company’s Initial Public Offering was settled on February
6, 2006.
Also, the
Company granted the Underwriters an option, exercisable for 30 days from January
31, 2006, to purchase up to 3,726,708 additional ADSs at the public offering
price of USD20 per ADS less an underwriting discount of USD0.55 per ADS. On
February 23, 2006 the Underwriters exercised partially this over-allotment
option granted by the Company. In connection with this option, on March 1, 2006,
the Company issued 22,981,360 new shares. The gross proceeds from this
transaction totaled USD46.0 million.
In
addition, during 2005, the Company entered into the Subordinated Convertible
Loan Agreements for a total aggregate amount of USD594 million to fund the
acquisition of Hylsamex S.A. de C.V. (“Hylsamex”). As per the provisions
contained in the Subordinated Convertible Loan Agreements, the Subordinated
Convertible Loans would be converted into shares of the Company upon delivery of
Ternium’s ADSs to the Underwriters. On February 6, 2006, the Subordinated
Convertible Loans (including interest accrued through January 31, 2006) were
converted into shares at a conversion price of USD 2 per share, resulting in the
issuance of 302,962,261 new shares on February 9, 2006.
Furthermore,
in November 2005, Siderúrgica del Turbio Sidetur S.A. (“Sidetur”), a subsidiary
of Siderúrgica Venezolana Sivensa S.A. (“Sivensa”), exchanged with Inversora
Siderúrgica Limited (“ISL”, a wholly-owned subsidiary of Ternium’s majority
shareholder) its 3.42% equity interest in Consorcio Siderurgia Amazonia Ltd.
(“Amazonia”) and USD 3.1 million in cash for shares of the Company. On February
9, 2006, ISL contributed all of its assets and liabilities (including its
interest in Amazonia) to the Company in exchange for 959,482,775 newly issued
shares of the Company after the settlement of the Initial Public Offering. The
increase in equity resulting from this transaction is reflected under
“Contributions from shareholders” line item in the Statement of changes in
shareholders’ equity and amounts to USD 50.1 million.
After the
completion of the Initial Public Offering, the conversion of the Subordinated
Convertible Loans, the exercise of the option granted to the Underwriters and
the consummation of the transactions contemplated in the Corporate
Reorganization agreement, 2,004,743,442 shares (including shares in the form of
ADSs) were outstanding.
These
consolidated financial statements have been prepared in accordance with those
IFRS standards and IFRIC interpretations issued and effective or issued and
early adopted as at the time of preparing these statements (February 2009), as
issued by the International Accounting Standards Board. These consolidated
financial statements are presented in thousands of United States dollars
(“USD”).
As
mentioned in Note 1, Ternium was assigned the equity interests previously held
by San Faustín and its subsidiaries in various flat and long steel manufacturing
and distributing companies. As these transactions were carried out among
entities under common control, the assets and liabilities contributed to the
Company have been accounted for at the relevant predecessor’s cost, reflecting
the carrying amount of such assets and liabilities. Accordingly, the
consolidated financial statements include the financial statements of the
above-mentioned companies on a combined basis at historical book values on a
carryover basis as though the contribution had taken place on January 1, 2003,
(the transition date to IFRS) and no adjustment has been made to reflect fair
values at the time of the contribution.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
2
|
Basis
of presentation (continued)
|
Detailed
below are the companies whose financial statements have been included in these
consolidated financial statements.
|
|
|
|
|
|
Percentage
of ownership at December 31,
|
Company
|
|
Country
of Organization
|
|
Main
activity
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Ternium
S.A.
|
|
Luxembourg
|
|
Holding
of investments in flat and long steel manufacturing and distributing
companies
|
|
100.00%
|
|
100.00%
|
|
100.00%
|
Hylsamex
S.A. de C.V. (1)
|
|
Mexico
|
|
Holding
company
|
|
-
|
|
88.23%
|
|
88.22%
|
Siderar
S.A.I.C.
|
|
Argentina
|
|
Manufacturing
and selling of flat steel products
|
|
60.93%
|
|
60.93%
|
|
60.93%
|
Sidor
C.A. (2)
|
|
Venezuela
|
|
Manufacturing
and selling of steel products
|
|
-
|
|
56.38%
|
|
56.38%
|
Ternium
Internacional S.A.
|
|
Uruguay
|
|
Holding company
and marketing of steel products
|
|
100.00%
|
|
100.00%
|
|
100.00%
|
Ylopa
- Servicos de Consultadoria Lda. (3)
|
|
Portugal
|
|
Participation
in the debt restructuring process of Amazonia and Sidor
C.A.
|
|
94.38%
|
|
95.66%
|
|
95.66%
|
Consorcio
Siderurgia Amazonia S.L.U. (formerly Consorcio Siderurgia Amazonia Ltd.)
(4)
|
|
Spain
|
|
Holding
of investments in Venezuelan steel companies
|
|
94.38%
|
|
94.38%
|
|
94.38%
|
Fasnet
International S.A.
|
|
Panama
|
|
Holding
company
|
|
100.00%
|
|
100.00%
|
|
100.00%
|
Alvory
S.A.
|
|
Uruguay
|
|
Holding
of investment in procurement services companies
|
|
100.00%
|
|
100.00%
|
|
100.00%
|
Comesi
San Luis S.A.I.C. (5)
|
|
Argentina
|
|
Production
of cold or hot rold prepainted, formed and skelped steel
sheets
|
|
-
|
|
61.32%
|
|
61.32%
|
Impeco
S.A. (6)
|
|
Argentina
|
|
Manufacturing
of pipe products
|
|
60.96%
|
|
60.93%
|
|
60.93%
|
Inversiones
Basilea S.A. (6)
|
|
Chile
|
|
Purchase
and sale of real estate and other
|
|
60.93%
|
|
60.93%
|
|
60.93%
|
Prosid
Investments S.C.A.(6)
|
|
Uruguay
|
|
Holding
company
|
|
60.93%
|
|
60.93%
|
|
60.93%
|
Ternium
Internacional España S.L.U. (7)
|
|
Spain
|
|
Marketing
of steel products
|
|
100.00%
|
|
100.00%
|
|
100.00%
|
Ternium
International Ecuador S.A. (8)
|
|
Ecuador
|
|
Marketing
of steel products
|
|
100.00%
|
|
100.00%
|
|
100.00%
|
Ternium
International USA Corporation (8)
|
|
USA
|
|
Marketing
of steel products
|
|
100.00%
|
|
100.00%
|
|
100.00%
|
Ternium
Internationaal B.V. (8)
|
|
Netherlands
|
|
Marketing
of steel products
|
|
100.00%
|
|
100.00%
|
|
100.00%
|
Ternium
Internacional Perú S.A.C. (8)
|
|
Peru
|
|
Marketing
of steel products
|
|
100.00%
|
|
100.00%
|
|
100.00%
|
Ternium
International Inc.
|
|
Panama
|
|
Marketing
of steel products
|
|
100.00%
|
|
100.00%
|
|
100.00%
|
Hylsa
S.A. de C.V. (9)
|
|
Mexico
|
|
Manufacturing
and selling of steel products
|
|
88.71%
|
|
88.23%
|
|
88.22%
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
2
|
Basis
of presentation (continued)
|
|
|
|
|
|
|
Percentage
of ownership at December 31,
|
Company
|
|
Country
of Organization
|
|
Main
activity
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Ferropak
Comercial S.A. de C.V. (9)
|
|
Mexico
|
|
Scrap
company
|
|
88.71%
|
|
88.23%
|
|
88.22%
|
Ferropak
Servicios S.A. de C.V. (9)
|
|
Mexico
|
|
Services
|
|
88.71%
|
|
88.23%
|
|
88.22%
|
Galvacer
America Inc (9)
|
|
USA
|
|
Distributing
company
|
|
88.71%
|
|
88.23%
|
|
88.22%
|
Galvamet
America Corp (9)
|
|
USA
|
|
Manufacturing
and selling of insulates panel products
|
|
88.71%
|
|
88.23%
|
|
88.22%
|
Transamerica
E. & I. Trading Corp (9)
|
|
USA
|
|
Scrap
company
|
|
88.71%
|
|
88.23%
|
|
88.22%
|
Galvatubing
Inc. (9)
|
|
USA
|
|
Manufacturing
and selling of pipe products
|
|
88.71%
|
|
88.23%
|
|
88.22%
|
Las
Encinas S.A. de C.V. (9)
|
|
Mexico
|
|
Exploration,
explotation and pelletizing of iron ore
|
|
88.71%
|
|
88.23%
|
|
88.22%
|
Técnica
Industrial S.A. de C.V. (9)
|
|
Mexico
|
|
Services
|
|
88.71%
|
|
88.23%
|
|
88.22%
|
Consorcio
Minero Benito Juarez Peña Colorada S.A.de C.V. (10)
|
|
Mexico
|
|
Exploration,
explotation and pelletizing of iron ore
|
|
44.36%
|
|
44.12%
|
|
44.11%
|
Peña
Colorada Servicios S.A. de C.V. (10)
|
|
Mexico
|
|
Services
|
|
44.36%
|
|
44.12%
|
|
44.11%
|
Ternium
Treasury Services S.A.
|
|
Uruguay
|
|
Financial
Services
|
|
100.00%
|
|
100.00%
|
|
-
|
Ternium
Treasury Services B.V
|
|
Holanda
|
|
Financial
Services
|
|
100.00%
|
|
100.00%
|
|
-
|
Servicios
Integrales Nova de Monterrey S.A. de C.V. (11)
|
|
Mexico
|
|
Medical
and Social Services
|
|
66.09%
|
|
65.73%
|
|
-
|
Ternium Mexico
S.A. de C.V. (formerly Grupo Imsa S.A.B. de C.V.)
|
|
Mexico
|
|
Holding
company
|
|
88.71%
|
|
100.00%
|
|
-
|
Imsa
Acero S.A. de C.V. (12)
|
|
Mexico
|
|
Holding
company
|
|
88.71%
|
|
100.00%
|
|
-
|
Enermex
S.A. de C.V. (12)
|
|
Mexico
|
|
Holding
company
|
|
88.71%
|
|
100.00%
|
|
-
|
Sefimsa
S.A. de C.V. (12)
|
|
Mexico
|
|
Financial
Services
|
|
88.71%
|
|
100.00%
|
|
-
|
Ecore
Holding S. de R.L. de C.V. (12)
|
|
Mexico
|
|
Holding
company
|
|
88.71%
|
|
100.00%
|
|
-
|
Neotec L.L.C.
(12)
|
|
USA
|
|
Holding
company
|
|
88.71%
|
|
100.00%
|
|
-
|
Treasury
Services L.L.C. (12)
|
|
USA
|
|
Financial
Services
|
|
88.71%
|
|
100.00%
|
|
-
|
APM,
S.A. de C.V. (12)
|
|
Mexico
|
|
Manufacturing
and selling of steel products
|
|
88.71%
|
|
100.00%
|
|
-
|
Acedor,
S.A. de C.V. (12)
|
|
Mexico
|
|
Holding
company
|
|
88.71%
|
|
100.00%
|
|
-
|
Empresas
Stabilit S.A. de C.V. (12)
|
|
Mexico
|
|
Holding
company
|
|
88.71%
|
|
100.00%
|
|
-
|
Acerus
S.A. de C.V. (12)
|
|
Mexico
|
|
Manufacturing
and selling of steel products
|
|
88.71%
|
|
100.00%
|
|
-
|
Imsa
Monclova S.A. de C.V. (12)
|
|
Mexico
|
|
Services
|
|
88.71%
|
|
100.00%
|
|
-
|
Imsamex
Ecuador S.A. (12)
|
|
Ecuador
|
|
Marketing
of steel products
|
|
88.71%
|
|
100.00%
|
|
-
|
Industrias
Monterrey S.A. (12)
|
|
Guatemala
|
|
Manufacturing
and selling of steel products
|
|
88.71%
|
|
100.00%
|
|
-
|
Corporativo
Grupo Imsa S.A. de C.V. (12)
|
|
Mexico
|
|
Services
|
|
88.71%
|
|
100.00%
|
|
-
|
Industrias
Monterrey S.A. de C.V. (12)
|
|
Mexico
|
|
Manufacturing
and selling of steel products
|
|
88.71%
|
|
100.00%
|
|
-
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
2
|
Basis
of presentation (continued)
|
|
|
|
|
|
|
Percentage
of ownership at December 31,
|
Company
|
|
Country
of Organization
|
|
Main
activity
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Ternium
USA Inc. (formerly Imsa Holding Inc.) (12)
|
|
USA
|
|
Holding
company
|
|
88.71%
|
|
100.00%
|
|
-
|
Industria
Galvanizadora S.A. (12)
|
|
Guatemala
|
|
Manufacturing
and selling of steel products
|
|
88.71%
|
|
100.00%
|
|
-
|
Imsa
Americas Inc. (12)
|
|
USA
|
|
Marketing
of steel products
|
|
88.71%
|
|
100.00%
|
|
-
|
Imsa
Caribbean Inc. (12)
|
|
Puerto
Rico
|
|
Manufacturing
and selling of steel products
|
|
88.71%
|
|
100.00%
|
|
-
|
Ternium
Internacional de Colombia S.A. (formerly Imsa Colombia
S.A.)
|
|
Colombia
|
|
Marketing
of steel products
|
|
100.00%
|
|
100.00%
|
|
-
|
Imsa
Andina S.A. (12)
|
|
Peru
|
|
Marketing
of steel products
|
|
88.71%
|
|
100.00%
|
|
-
|
Multypanel
de América S.A. (12)
|
|
Costa
Rica
|
|
Manufacturing
and selling of insulates panel products
|
|
88.71%
|
|
100.00%
|
|
-
|
Industria
Galvanizadora S.A. (12)
|
|
Nicaragua
|
|
Manufacturing
and selling of steel products
|
|
88.09%
|
|
99,30%
|
|
-
|
Industria
Galvanizadora de Honduras S.A. de C.V. (12)
|
|
Honduras
|
|
Manufacturing
and selling of steel products
|
|
88.00%
|
|
99.20%
|
|
-
|
Ternium
Internacional El Salvador, S.A. de C.V. (formerly Industria
Galvanizadora S.A. de C.V.) (12)
|
|
El
Salvador
|
|
Manufacturing
and selling of steel products
|
|
88.65%
|
|
99.93%
|
|
-
|
Industrias
Monterrey S.A. (12)
|
|
Costa
Rica
|
|
Manufacturing
and selling of steel products
|
|
88.71%
|
|
100.00%
|
|
-
|
Dirken
Company S.A. (13)
|
|
Uruguay
|
|
Holding
Company
|
|
100.00%
|
|
-
|
|
-
|
Secor-
Servicios Corporativos S.A. (14)
|
|
Venezuela
|
|
Holding
Company
|
|
93.44%
|
|
-
|
|
-
|
Ternium
Brasil S.A. (14)
|
|
Brazil
|
|
Holding
Company
|
|
100.00%
|
|
-
|
|
-
|
(1)
|
Effective
April1, 2008 it was merged with and into Ternium México S.A. de
C.V.
|
(3)
|
Directly
(85.62%) and indirectly through Prosid Investments S.C.A. (8.76%). Total
voting rights held: 100.00%.
|
(4)
|
Indirectly
through Ylopa – Servicos de Consultadoría Lda.. Total voting rights held:
100.00%. As of April 25, 2008, this subsidiary was relocated into Spain
(formerly Cayman Islands)
|
(5)
|
As
of December, 2008 it was merged with and into Impeco
S.A.
|
(6)
|
Indirectly
through Siderar S.A.I.C. Total voting rights held
100.00%.
|
(7)
|
Indirectly
through Dirken Company S.A. Total voting rights held
100.00%
|
(8)
|
Indirectly
through Ternium Internacional S.A. Total voting rights held
100.00%
|
(9)
|
Indirectly
through Ternium Mexico S.A. de C.V. Total voting rights held:
99.92%.
|
(10)
|
Indirectly
through Ternium Mexico S.A. de C.V. Total voting rights held: 50.00%.
Consolidated under the proportionate consolidation method (see Note 2
(ii))
|
(11)
|
Indirectly
through Ternium Mexico S.A. de C.V. Total voting rights held:
74.44%.
|
(12)
|
Indirectly
through Ternium Mexico S.A. de C.V. (see Note 3 (a)). Effective April 1,
2008 Siderar exchanged all of its shares in Hylsamex for shares in Ternium
Mexico S.A. de C.V., thus reducing Ternium’s indirect participation in all
of Ternium Mexico’s subsidiaries.
|
(13)
|
Incorporated
during 2008, as a result of a spin off of Ternium Internacional
S.A.
|
(14)
|
Incorporated
during 2008.
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
2
|
Basis
of presentation (continued)
|
Elimination
of all material intercompany transactions and balances between the Company and
their respective subsidiaries have been made in consolidation.
The
consolidated financial statements have been prepared under the historical cost
convention, as modified by the revaluation of available-for-sale financial
assets, and financial assets and financial liabilities (including derivative
instruments) at fair value through profit or loss.
Certain
comparative amounts have been reclassified to conform to changes in presentation
in the current period. The most significant modifications to comparative
information are described below:
(i) In
fiscal year 2007, Ternium presented cash flows from disposal groups and
discontinued operations based on their nature as either cash flows from
operating, investing or financing activities. In 2008 net cash flows from
disposal groups and discontinued operations have been disclosed within cash
flows from investing activities.
Caption
|
|
As
originally presented
|
|
|
Current
period presentation
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
6,535 |
|
|
|
- |
|
Cash
flows from investing activities
|
|
|
(10,435 |
) |
|
|
(3,900 |
) |
Cash
flows from financing activities
|
|
|
- |
|
|
|
- |
|
(ii) Until
December 31, 2007, Ternium’s investment in Consorcio Minero Benito Juarez Peña
Colorada S.A. de C.V. and Peña Colorada Servicios S.A. de C.V. was presented
following the consolidation method prescribed by IAS 27. Beginning in December
31, 2008, the Company began accounting for its investments in these companies
under the proportionate consolidation method described by IAS 31, the effect of
such modification being immaterial. Changes in the most relevant figures are
detailed below:
|
|
Year
ended December 31, 2006
|
|
|
Year
ended December 31, 2007
|
|
Caption
|
|
As
originally presented
|
|
|
Current
period presentation
|
|
|
As
originally presented
|
|
|
Current
period presentation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
8,770,539 |
|
|
|
8,658,254 |
|
|
|
13,767,310 |
|
|
|
13,649,082 |
|
Total
liabilities
|
|
|
3,283,398 |
|
|
|
3,274,576 |
|
|
|
7,400,420 |
|
|
|
7,391,159 |
|
Minority
interest
|
|
|
1,729,583 |
|
|
|
1,626,119 |
|
|
|
1,914,210 |
|
|
|
1,805,243 |
|
Operating
income
|
|
|
1,003,807 |
|
|
|
1,001,823 |
|
|
|
849,030 |
|
|
|
836,776 |
|
Cash
flows from operating activities
|
|
|
761,338 |
|
|
|
754,008 |
|
|
|
939,901 |
|
|
|
936,418 |
|
Cash
flows from investing activities
|
|
|
(200,526 |
) |
|
|
(193,133 |
) |
|
|
(1,805,650 |
) |
|
|
(1,802,317 |
) |
Cash
flows from financing activities
|
|
|
(682,475 |
) |
|
|
(682,475 |
) |
|
|
1,359,046 |
|
|
|
1,359,046 |
|
The
preparation of 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 at the balance sheet dates,
and the reported amounts of revenues and expenses during the reporting periods.
The most critical estimates made by management in these financial statements are
those related to impairment tests of Property, plant and equipment, Goodwill and
other assets, valuation allowances for inventories and other provisions. Actual
results may differ from these estimates.
These
consolidated financial statements have been approved for issue by the board of
directors on February 24, 2009.
3
|
Acquisition
of business
|
(a) Grupo
Imsa S.A.B. de C.V. (“Grupo Imsa”)
On April
29, 2007, Ternium entered into an agreement with Grupo IMSA S.A.B. de C.V.
(“Grupo Imsa”) and Grupo Imsa’s controlling shareholders under which Ternium
obtained control of Grupo Imsa for a total consideration (equity value) of
approximately USD 1.7 billion.
Under the
agreement, Ternium, through its wholly owned subsidiary Ternium Internacional
España S.L.U., made a cash tender offer under applicable Mexican law for all of
the issued and outstanding share capital of Grupo Imsa at a price of US$ 6.40
per share. Pursuant to the tender offer, Ternium acquired 25,133,856 shares
representing 9.3% of the issued and outstanding capital of the
company.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
3
|
Acquisition
of business (continued)
|
(a) Grupo
Imsa S.A.B. de C.V. (“Grupo Imsa”) (continued)
Concurrently
with the consummation of the tender offer, on July 26, 2007, all the shares of
Grupo Imsa that were not tendered into the tender offer (including the shares
owned by Grupo Imsa’s majority shareholders), representing 90.7% of Grupo Imsa’s
issued and outstanding share capital were redeemed for cash pursuant to a
capital reduction effected at the same price per share.
Grupo
Imsa is a steel manufacturer with operations in Mexico, the United States,
Guatemala, Nicaragua, Honduras, El Salvador and Costa Rica. It has an annual
production capacity of 2.2 million tons of hot rolled coils, 1.8 million tons of
cold rolled products and 1.7 million tons of coated products. In addition, Grupo
Imsa produces panels and other steel products.
Grupo
Imsa contributed revenues of USD 976.3 million and a net loss of USD 77.5
million in the period from July 26, 2007 to December 31, 2007 (these amounts do
not include revenues or net profits generated by discontinued operations). The
book value of Grupo Imsa’s net assets acquired totals USD 543.9 million. The
fair value of assets and liabilities arising from the transaction are as
follows:
|
|
USD
Thousands
|
|
|
|
Fair
value
|
|
|
Book
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
1,602,398 |
|
|
|
1,205,128 |
|
Intangible
assets
|
|
|
456,404 |
|
|
|
73,227 |
|
Inventories
|
|
|
501,304 |
|
|
|
501,304 |
|
Cash
and cash equivalents
|
|
|
190,087 |
|
|
|
190,087 |
|
Deferred
Tax Liabilities
|
|
|
(481,930 |
) |
|
|
(253,991 |
) |
Provisions
|
|
|
(10,011 |
) |
|
|
(10,011 |
) |
Borrowings
|
|
|
(1,437,676 |
) |
|
|
(1,437,676 |
) |
Other
assets and liabilities, net
|
|
|
(99,069 |
) |
|
|
(99,069 |
) |
Net
assets pertaining to discontinued operations (1)
|
|
|
485,651 |
|
|
|
374,949 |
|
Net
|
|
|
1,207,158 |
|
|
|
543,948 |
|
Goodwill
|
|
|
455,776 |
|
|
|
|
|
Goodwill
– Discontinued operations
|
|
|
65,740 |
|
|
|
|
|
Total
Purchase Consideration
|
|
|
1,728,674 |
|
|
|
|
|
Other
cash consideration – Income Tax paid on the transaction
|
|
|
297,700 |
|
|
|
|
|
(1) These
amounts do not include the goodwill attributable to discontinued operations for
USD 65.7 million.
Goodwill,
representing the excess of the purchase price paid over the fair value of
identifiable assets, liabilities and contingent liabilities totaled USD 521.5
million. Goodwill derives principally from synergies expected to be obtained by
the Company after the transaction, as well as the fair value of the going
concern element of the acquiree.
Upon
consummation of the transaction, the Company was subject to an income tax
payment of USD 297.7 million. This payment can be credited against future income
tax obligations for the following three fiscal years. As the Company expects to
generate sufficient taxable income in that period, the above mentioned amount
has been considered as an income tax prepayment (USD 222.7 million
have been disclosed under Other Receivables line item and USD 75.0
million have been offset against Current Tax Liabilities at December 31, 2007).
As of December 31, 2008, the remaining tax credit is USD 28.2
million.
The
transactions were financed primarily through the incurrence of debt as
follows:
|
·
|
Ternium
made several borrowings in an aggregate principal amount of USD 125
million under a loan facility (the “Ternium Facility”) with a syndicate of
banks led by Calyon New York Branch as administrative agent, the proceeds
of which were primarily used to finance the above described tender offer.
Ternium’s loans under the Ternium Facility would have been repaid in nine
consecutive and equal semi-annual installments commencing on July 26,
2008. On January 28, 2008, the company prepaid all of its outstanding
obligations with Calyon New York Branch, amounting to approximately USD
129.1 million.
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
3
|
Acquisition
of business (continued)
|
(a) Grupo
Imsa S.A.B. de C.V. (“Grupo Imsa”) (continued)
|
·
|
Ternium’s
subsidiary Hylsa S.A. de C.V. (“Hylsa”) made several borrowings in an
aggregate principal amount of 3,485 million under a loan facility (the
“Hylsa Facility”) with a syndicate of banks led by Calyon New York Branch
as administrative agent, the proceeds of which were primarily used to
finance the above described capital reduction by Grupo Imsa, to refinance
existing indebtedness of Grupo Imsa and Hylsa and to pay taxes, fees and
expenses related to the
transactions.
|
The loans
are divided in two tranches of equal principal amount. Tranche A loans will be
repaid in seven equal semi-annual installments beginning on January 26, 2009,
while tranche B loans will be repaid in one installment due on July 26,
2012.
These
facilities contain covenants customary for transactions of this type, including
limitations on liens and encumbrances, restrictions on investments and capital
expenditures, limitations on the sale of certain assets and compliance with
financial ratios (e.g., leverage ratio and interest coverage ratio). There are
no limitations to the payment of dividends under either facility, except in case
of non compliance of the above mentioned covenants.
Pro
forma data including acquisitions for the year ended December 31,
2007
Had the
Grupo Imsa transaction been consummated on January 1, 2007, then Ternium’s
unaudited pro forma net sales and net income for the year ended December 31,
2007 would have been approximately $9.6 billion and $0.8 billion, respectively.
These pro forma results were prepared based on public information and unaudited
accounting records maintained prior to such transaction and adjusted by
depreciation and amortization of tangible and intangible assets and interest
expense of the borrowing incurred for the transaction as described
above.
Subsidiary
reorganization
Effective
April 1, 2008, Ternium Mexico S.A. de C.V. (“ Ternium Mexico”) was formed as a
result of the merger of Grupo Imsa, Hylsamex and Hylsamex’s major shareholder.
Ternium Mexico and its subsidiaries operate all of Ternium’s mining and steel
production activities in Mexico.
(b)
Acerex S.A. de C.V.
In April
2006, the Company acquired a 50% equity interest in Acerex S.A. de C.V.
(“Acerex”) through its subsidiary Hylsa S.A. de C.V. for a total purchase price
of USD 44.6 million. Upon completion of this transaction Hylsa S.A. de C.V. owns
100% of Acerex. Acerex is a service center dedicated to processing steel to
produce short-length and steel sheets in various widths. Acerex operates as a
cutting and processing plant for Ternium’s Mexican operations and as an
independent processor for other steel companies. On August 31, 2006 Acerex S.A.
de C.V. was merged into Hylsa S.A. de C.V.
As
permitted by IFRS 3 “Business Combinations” (“IFRS 3”), the Company accounted
for this acquisition under the economic entity model, which requires that the
acquisition of an additional equity interest in a controlled subsidiary be
accounted for at its carrying amount, with the difference arising on purchase
price allocation (amounting to USD 24.3 million) being recorded directly in
equity.
(c)
Additional shares of Siderar bought by Ternium S.A.
On
December 28, 2006, Ternium S.A. acquired from CVRD International S.A. 16,860,000
shares of Siderar S.A.I.C, representing 4.85% of that company, for an aggregate
purchase price of USD 107.5 million. After this acquisition Ternium has
increased its ownership in Siderar to 60.93%.
As
permitted by IFRS 3, the Company accounted for this acquisition under the
economic entity model, which requires that the acquisition of an additional
equity interest in a controlled subsidiary be accounted for at its carrying
amount, with the difference arising on purchase price allocation (amounting to
USD 8.1 million) being recorded directly in equity.
(d)
Additional shares of Hylsamex bought by Siderar
On June
19, 2006, Siderar completed the acquisition of 940,745 additional shares of
Hylsamex, representing 0.2% of that company’s issued and outstanding common
stock, for a total consideration of USD 3.3 million. This acquisition was
effected through a trust fund established by Siderar in 2005 in connection with
the initial acquisition of Hylsamex. Goodwill resulting from this acquisition
totaled USD 0.7 million. During 2007 and 2008, Siderar completed the acquisition
of 94,379 additional shares of Hylsamex, representing 0.02% of that company’s
issued and outstanding common stock, for a total consideration of USD 0.3
million.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
The
following is a summary of the principal accounting policies followed in the
preparation of these consolidated financial statements:
(1)
Subsidiary companies
Subsidiary
companies are those entities 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. Subsidiaries are consolidated from the date on which
control is transferred to the Company and are no longer consolidated from the
date that control ceases. The purchase method of accounting is used to account
for the acquisition of subsidiaries. The cost of an acquisition is measured as
the fair value of assets given up, shares issued or liabilities undertaken at
the date of acquisition, plus costs directly attributable to the acquisition.
The excess of the acquisition cost over the Company’s share of the fair value of
net assets acquired is recorded as goodwill. Acquisition of minority interests
in subsidiaries is accounted for following the economic entity model and,
accordingly, assets acquired and liabilities assumed are valued at book value
and the difference arising on purchase price allocation is recorded in equity
under “Revaluation and other reserves” line item. Material intercompany
transactions, balances and unrealized gains on transactions among the Company
and its subsidiaries are eliminated; unrealized losses are also eliminated
unless cost cannot be recovered. However, the fact that the functional currency
of some subsidiaries is their respective local currency, generates some
financial gains (losses) arising from intercompany transactions, that are
included in the consolidated income statement under Other financial expenses,
net.
(2)
Joint ventures
The
Company reports its interests in jointly controlled entities using proportionate
consolidation. The Company’s share of the assets, liabilities, income, expenses
and cash flows of jointly controlled entities are combined on a line-by-line
basis with similar items in the Company’s financial statements.
Where the
Company transacts with its jointly controlled entities, unrealized profits and
losses are eliminated to the extent of the Company’s interest in the joint
venture.
(3)
Associated companies
Associated
companies are entities in which Ternium generally has between 20% and 50% of the
voting rights, or over which Ternium has significant influence, but which it
does not control. Investments in associated companies are accounted for using
the equity method of accounting. Under this method the Company’s share of the
post-acquisition profits or losses of an associated company is recognized in the
income statement and its share of post-acquisition changes in reserves is
recognized in reserves. The cumulative post-acquisition changes are adjusted
against the cost of the investment. Unrealized gains on transactions among the
Company and its associated companies are eliminated to the extent of the
Company’s interest in such associated company; unrealized losses are also
eliminated unless the transaction provides evidence of an impairment of the
transferred asset. When the Company’s share of losses in an associated company
equals or exceeds its interest in such associate, the Company does not recognize
further losses unless it has incurred obligations or made payments on behalf of
such associated company.
(4)
First-time application of IFRS
The
Company’s transition date is January 1, 2003. Ternium prepared its opening IFRS
balance sheet at that date.
In
preparing its financial statements in accordance with IFRS 1, the Company has
applied the mandatory exceptions and certain of the optional exemptions from
full retrospective application of IFRS, as detailed below:
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
4
|
Accounting
policies (continued)
|
(4)
First-time application of IFRS (continued)
4.1. Exemptions from full retrospective
application – elected by the Company
The
Company has elected to apply the following optional exemptions from full
retrospective application.
(a)
Fair value as deemed cost exemption
Ternium
has elected to measure its property, plant and equipment at fair value as of
January 1, 2003.
(b)
Cumulative translation differences exemption
Ternium
has elected to set the previously accumulated cumulative translation to zero at
January 1, 2003. This exemption has been applied to all subsidiaries in
accordance with IFRS 1.
4.2
Exceptions from full retrospective application followed by the
Company
Ternium
has applied the following mandatory exceptions from retrospective
application.
(a)
Derecognition of financial assets and liabilities exception
Financial
assets and liabilities derecognized before January 1, 2003 are not re-recognized
under IFRS. However, this exception had no impact on these financial statements
as it was not applicable since the Company did not derecognize any financial
assets or liabilities before the transition date that qualified for
recognition.
(b)
Hedge accounting exception
At
January 1, 2003, the Company did not have derivatives that qualify for hedge
accounting. This exception is therefore not applicable.
(c)
Estimates exception
Estimates
under IFRS at January 1, 2003 should be consistent with estimates made for the
same date under previous GAAP.
(d)
Assets held for sale and discontinued operations exception
Ternium
did not have assets that met the held-for-sale criteria (as defined by IFRS 5)
at the transition date (January 1, 2003).
(b)
|
Foreign
currency translation
|
(1)
|
Functional
and presentation currency
|
Items
included in the financial statements of each of the Company’s subsidiaries and
associated companies are measured using the currency of the primary economic
environment in which the entity operates (the “functional currency”). The
functional currency of the Company is the U.S. dollar. Although Ternium is
located in Luxembourg, it operates in several countries with different
currencies. The USD is the currency that best reflects the economic substance of
the underlying events and circumstances relevant to Ternium as a
whole.
The
results and financial position of all the group entities (none of which operates
in a hyperinflationary economy) that have a functional currency different from
the presentation currency, are translated into the presentation currency as
follows:
(i)
assets and liabilities are translated at the closing rate of each balance
sheet;
(ii)
income and expenses for each income statement are translated at average exchange
rates; and
(iii) all
resulting translation differences are recognized as a separate component of
equity.
In the
case of a sale or other disposition of any such subsidiary, any accumulated
translation differences would be recognized in the income statement as part of
the gain or loss on sale.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
4
|
Accounting
policies (continued)
|
(b)
|
Foreign
currency translation (continued)
|
(3)
Transactions in currencies other than the functional currency
Transactions
in currencies other than the functional currency are accounted for at the
exchange rates prevailing at the date of the transactions. Gains and losses
resulting from the settlement of such transactions and from the translation of
monetary assets and liabilities denominated in currencies other than the
functional currency are recognized in the income statement, including the
foreign exchange gains and losses from intercompany transactions.
(c)
|
Financial
instruments
|
Non
derivative financial instruments
Non
derivative financial instruments comprise investment in equity and debt
securities, trade and other receivables, cash and cash equivalents, loans and
borrowings, and trade and other payables. Ternium non derivative financial
instruments are classified into the following specified categories:
|
·
|
Financial
assets as at fair value through profit or loss: mainly financial assets
that are held for trading;
|
|
·
|
Held
to maturity investments: these investments are recorded at amortized cost
using the effective interest method less impairment, with revenue
recognized on an effective yield
basis;
|
|
·
|
Available-for-sale
(“AFS”) financial assets: gains and losses arising from changes in fair
value are recognized directly in equity (AFS reserve) with the exception
of impairment losses, interest calculated using the effective interest
method and foreign exchange gains and losses on monetary assets, which are
recognized directly in profit or loss. Where the investment is disposed of
or is determined to be impaired, the cumulative gain or loss previously
recognized in the investments revaluation reserve is included in the
income statement for the period;
|
|
·
|
Loans
and receivables: are measured at amortized cost using the effective
interest method less any impairment. Interest income is recognized by
applying the effective interest rate, except for short-term receivables
where the recognition of interest would be immaterial;
and
|
|
·
|
Other
non derivative financial instruments are measured at amortized cost using
the effective interest method, less any impairment losses when
applicable.
|
The
classification depends on the nature and purpose of the financial assets and is
determined at the time of initial recognition.
Financial
assets and liabilities are recognized and derecognized on the trade
date.
Financial
assets are initially measured at fair value, net of transaction costs, except
for those financial assets classified at fair value through the income
statement.
Financial
liabilities, including borrowings, are initially measured at fair value, net of
transaction costs and subsequently measured at amortized cost using the
effective interest method, with interest expense recognized on an effective
yield basis.
Derivative
financial instruments
Information
about accounting for derivative financial instruments and hedging activities is
included in Note 33 “Financial Risk management”.
(d)
|
Property,
plant and equipment
|
Land and
buildings comprise mainly factories and offices. All property, plant and
equipment are recognized at historical acquisition or construction cost less
accumulated depreciation and accumulated impairment (if applicable), except for
land, which is carried at acquisition cost less accumulated impairment (if
applicable). Nevertheless, as mentioned in Note 4(a), property, plant and
equipment have been valued at its deemed cost at the transition date to
IFRS.
Major
overhaul and rebuilding expenditures are recognized as a separate asset when
future economic benefits are expected from the item, and the cost can be
measured reliably.
Ordinary
maintenance expenses on manufacturing properties are recorded as cost of
products sold in the period in which they are incurred.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
4
|
Accounting
policies (continued)
|
(d)
|
Property,
plant and equipment (continued)
|
In
accordance with IAS 23, borrowing costs that are attributable to the acquisition
or construction of certain capital assets could be capitalized as part of the
cost of the assets. Capital assets for which borrowing costs may be capitalized
are those that require a substantial period of time to be ready for their
intended use. At December 31, 2008, no borrowing costs have been
capitalized.
Where a
tangible fixed asset comprises major components having different useful lives,
these components are accounted for as separate items.
Leases
where the lessor retains a significant portion of the risks and rewards of
ownership are classified as operating leases. Payments made under operating
leases (net of any incentives received from the lessor) are charged to the
income statement on a straight-line basis over the period of the
lease.
Depreciation
method is reviewed at each balance sheet date. Depreciation is calculated using
the straight-line method to amortize the cost of each asset to its residual
value over its estimated useful life as follows:
Land
|
|
No
Depreciation
|
Buildings
and improvements
|
|
15-40
years
|
Production
equipment
|
|
10-25
years
|
Vehicles,
furniture and fixtures and other equipment
|
|
5-15
years
|
The
assets’ useful lives are reviewed, and adjusted if appropriate, at each balance
sheet date.
Gains and
losses on disposals are determined by comparing the proceeds with the
corresponding carrying amounts and are included in the income
statement.
If the
carrying amount of an asset were greater than its estimated recoverable amount,
it would be written down to its recoverable amount. (see Note 4 (f)
“Impairment”).
(1)
Information system projects
Generally,
costs associated with developing or maintaining computer software programs are
recognized as an expense as incurred. However, costs directly related to the
acquisition and implementation of information systems are recognized as
intangible assets if they have a probable economic benefit exceeding the cost
beyond one year.
Information
system projects recognized as assets are amortized using the straight-line
method over their useful lives, not exceeding a period of 3 years. Amortization
charges are included in cost of sales, selling, general and administrative
expenses.
(2)
Mining concessions and exploration costs
Mining
license was recognized as a separate intangible asset upon the acquisition of
Hylsamex and comprises the right to exploit or explore the mines and is
recognized at its fair value less accumulated amortization. Amortization charge
is calculated according to the mineral extracted in each period and is included
in cost of sales.
Exploration
and evaluation costs are measured at cost. Costs directly associated with
exploration activities and leasehold acquisition costs are capitalized until the
determination of reserves is evaluated. If it is determined that commercial
discovery has not been achieved, these costs are charged to expense.
Capitalization is made within Property, Plant and Equipment or Intangible Assets
according to the nature of the expenditure. Exploration costs are tested for
impairment annually. No impairment losses have been recorded for any of the
years presented.
(3)
Goodwill
Goodwill
represents the excess of the acquisition cost over the fair value of Ternium’s
participation in acquired companies’ net assets at the acquisition date. Under
IFRS 3, goodwill is considered to have an indefinite life and not amortized, but
is subject to annual impairment testing.
Goodwill
is allocated to cash-generating units for the purpose of impairment testing. The
allocation is made to those cash-generating units expected to benefit from the
business combination which generated the goodwill being tested.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
4
|
Accounting
policies (continued)
|
(e)
|
Intangible
assets (continued)
|
(4)
Research and development
Research
expenditures are recognized as expenses as incurred. Development costs are
recorded as cost of sales in the income statement as incurred because they do
not fulfill the criteria for capitalization. Research and development
expenditures for the years ended December 31, 2008, 2007 and 2006 totaled USD
0.8 million, USD 1.1 million and USD 1.3 million, respectively.
(5)
Customer relationships acquired in a business combination
In
accordance with IFRS 3 and IAS 38, Ternium has recognized the value of customer
relationships separately from goodwill attributable to the acquisition of Grupo
Imsa.
Customer
relationships are amortized over a useful life of approximately 10
years.
(6)
Trademarks
In
accordance with IFRS 3 and IAS 38, Ternium has recognized the value of
trademarks separately from goodwill attributable to the acquisition of Grupo
Imsa.
Trademarks
are amortized over a useful life of approximately 5 years.
Assets
that have an indefinite useful life are not subject to amortization and are
tested annually for impairment. Assets that are subject to amortization and
investments in affiliates are reviewed for impairment 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 asset’s carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of
an asset’s fair value less cost to sell and the value in use.
To carry
out these tests, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (cash-generating units). The value in use of
these units is determined on the basis of the present value of net future cash
flows which will be generated by the assets tested. Cash flows are discounted at
rates that reflect specific country and currency risks.
In order
to test goodwill for impairment and other assets indicated as possibly impaired,
the "fair value less costs to sell" of the related cash-generating unit is
calculated and only if it is lower than the carrying amount is the value in use
determined. Ternium uses projections for the next 5 years based on past
performance and expectations of market development. After the fifth year a
perpetuity rate with no grow up increase was utilized. Discounted
Cash Flow (DCF) method to determine the "fair value less costs to sell" of a
related cash-generating unit, starts with a forecast of all expected future net
cash flows.
The net
present values involve highly sensitive estimates and assumptions specific to
the nature of Ternium's activities with regard to:
|
•
|
The
amount and timing of projected future cash
flows;
|
|
•
|
The
discount rate selected and;
|
The
discount rates used are based on Ternium's weighted average cost of capital,
which is adjusted for specific country and currency risks associated with the
cash flow projections. To perform the test, post-tax rates have been applied.
Discount rates used range from 12.4 to 18.3%.
Due to
the above factors, actual cash flows and values could vary significantly from
the forecasted future cash flows and related values derived using discounting
techniques.
At
December 31, 2008, 2007 and 2006, no impairment provisions were
recorded.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
4
|
Accounting
policies (continued)
|
Other
investments consist primarily of investments in financial debt instruments and
equity investments where the Company holds less than 20% of the outstanding
equity and does not exert significant influence.
All
purchases and sales of investments are recognized on the trade date, which is
not significantly different from the settlement date, which is the date that
Ternium commits to purchase or sell the investment.
Income
from financial instruments is recognized in Other financial expenses, net in the
income statement. Interest receivable on investments in debt securities is
calculated using the effective rate. Dividends from investments in equity
instruments are recognized in the income statement when the Company’s right to
receive payments is established.
Inventories
are stated at the lower of cost (calculated using the first-in-first-out “FIFO”
method) or net realizable value. The cost of finished goods and goods in process
comprises raw materials, direct labor, depreciation, other direct costs and
related production overhead costs. It excludes borrowing costs. Goods
acquired in transit at year end are valued at supplier’s invoice
cost.
The
Company assesses the recoverability of its inventories considering if their
selling prices have declined, if the inventories are damaged, or if they have
become wholly or partially obsolete.
Net
realizable value is the estimated selling price in the ordinary course of
business, less the costs of completion and selling expenses.
The
Company establishes an allowance for obsolete or slow-moving inventory in
connection with finished goods and goods in process. The allowance for
slow-moving inventory is recognized for finished goods and goods in process
based on management’s analysis of their aging. In connection with supplies and
spare parts the calculation is based on management’s analysis of their aging,
the capacity of such materials to be used based on their levels of preservation
and maintenance and the potential obsolescence due to technological
change.
As of
December 31, 2008, the Company established a valuation allowance for net
realizable value of USD 160.9 million and maintains an allowance for
obsolescence of USD 124.9 million.
Trade and
other receivables are carried at face value less an allowance for doubtful
accounts, if applicable. This amount does not differ significantly from fair
value.
A
provision for impairment is established when there is objective evidence that a
financial asset or group of assets is impaired. Objective evidence that a
financial asset or group of assets is impaired includes observable data that
comes to the attention of the Company about a loss event, such as a significant
financial difficulty of the obligor or a breach of contract. The amount of the
impairment is determined as the difference between the asset’s carrying amount
and the present value of estimated future cash flows discounted at the asset’s
original effective interest rate. The amount of the loss is recognized in the
income statement.
(j)
|
Cash
and cash equivalents
|
Cash and
cash equivalents and highly liquid short-term securities are carried at fair
market value.
For
purposes of the cash flow statement, cash and cash equivalents comprise cash,
bank current accounts and short-term highly liquid investments (original
maturity of less than 90 days).
In the
consolidated balance sheet, bank overdrafts are included in borrowings within
current liabilities.
(k)
|
Non
current assets (disposal groups) classified as held for
sale
|
Non-current
assets (disposal groups) are classified as assets held for sale and stated at
the lower of carrying amount and fair value less cost to sell if their carrying
amount is recovered principally through a sale transaction rather than through a
continuing use.
The
carrying value of non-current assets classified as held for sale, at December
31, 2008, totals USD 5.3 million, which corresponds principally to land and
other real estate items. Sale is expected to be completed within a one-year
period.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
4
|
Accounting
policies (continued)
|
The
consolidated statement of changes in shareholders’ equity for the years 2008,
2007 and 2006 was prepared based on the following criteria:
·
|
Currency
translation differences arising from the translation of financial
statements expressed in currencies other than the U.S. dollar are shown in
a separate line.
|
·
|
Expenses
incurred in connection with the Initial Public Offering at December 31,
2006 and 2005 totaled USD 17.8 million and USD 5.5 million, respectively,
and have been deducted from equity, since they directly relate to a
transaction which itself is to be recorded in
equity.
|
Borrowings
are recognized initially for an amount equal to the proceeds received. In
subsequent periods, borrowings are stated at amortized cost; any difference
between proceeds and the redemption value is recognized in the income statement
over the period of the borrowings.
Capitalized
borrowing costs are amortized over the life of their respective
debt.
(n)
|
Income
taxes – current and deferred
|
Under
present Luxembourg law, so long as the Company maintains its status as a holding
company, no income tax, withholding tax (including with respect to dividends),
or capital gain tax is payable in Luxembourg by the Company.
The
Company has qualified for, and was admitted to, the Billionaire holding company
tax regime in conjunction with the financing holding company tax regime in
Luxembourg starting January 1, 2006.
On
December 29, 2006, the Grand-Duchy of Luxembourg announced the decision to
terminate its 1929 holding company regime, effective January 1, 2007. However,
under the implementing legislation, pre-existing publicly listed companies
(including Ternium S.A.) will be entitled to continue benefiting from their
current tax regime until December 31, 2010.
The
current income tax charge is calculated on the basis of the tax laws in force in
the countries in which Ternium’s subsidiaries operate. Management evaluates
positions taken in tax returns with respect to situations in which applicable
tax regulation could be subject to interpretation. A liability is recorded for
tax benefits that were taken in the applicable tax return but have not been
recognized for financial reporting.
Deferred
income taxes are calculated, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements. The principal temporary
differences arise on fixed assets, intangible assets, inventories valuation and
provisions for pensions. Deferred tax assets and liabilities are measured at the
tax rates that are expected to apply in the period when the asset is realized or
the liability is settled, based on tax rates and tax laws that have been enacted
or substantially enacted at the balance sheet date. Under IFRS, deferred income
tax assets (liabilities) are classified as non-current assets
(liabilities).
Deferred
tax assets are recognized to the extent it is probable that future taxable
income will be available to offset temporary differences.
Deferred
income tax is provided on temporary differences arising on investments in
subsidiaries and associated companies, except where the timing of the reversal
of the temporary difference is controlled by the Company and it is probable that
the temporary difference will not reverse in the foreseeable
future.
Under
Mexican law, Ternium’s subsidiaries are required to pay their employees an
annual benefit which is as a percentage of taxable profit for the year. Because
Mexican employee statutory profit sharing is determined on a basis similar to
that used for determining local income taxes, 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.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
4
|
Accounting
policies (continued)
|
(n)
|
Income
taxes – current and deferred
(continued)
|
In 2008,
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 were transferred to 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 the basis of agreed-upon criteria. Accordingly, during the year
ended December 31, 2008, the Company reversed the outstanding balance of the
deferred tax liability recorded in connection with the statutory profit sharing
as of December 31, 2007 (amounting to USD 96 million) and disclosed the related
gain within Income tax (expense) benefit line item in the Consolidated Income
Statement.
The
Company has defined benefit and defined contribution plans. A defined benefit
plan is a pension plan that defines an amount of pension benefit that an
employee will receive on retirement, usually dependent on one or more factors
such as age, years of service and compensation.
The
liability recognized in the balance sheet in respect of defined benefit pension
plans is the present value of the defined benefit obligation at the balance
sheet date, together with adjustments for unrecognized actuarial gains or losses
and past service costs. The defined benefit obligation is calculated annually by
independent actuaries using the projected unit credit method.
Actuarial
gains and losses arising from experience adjustments and changes in actuarial
assumptions are charged or credited to income over the employees’ expected
average remaining working lives.
Past-service
costs are recognized immediately in income, unless the changes to the pension
plan are conditional on the employees remaining in service for a specified
period of time (the vesting period). In this case, the past-service costs are
amortized on a straight-line basis over the vesting period.
México
Ternium
Mexico has defined benefit and defined contribution plans.
The
valuation of the liabilities for the defined benefit employee retirement plans
(pensions and seniority premiums) covers all employees and is based primarily on
their years of service, their present age and their remuneration at the date of
retirement. The cost of the employee retirement plans (pension, health-care
expenses and seniority premiums) is recognized as an expense in the year in
which services are rendered in accordance with actuarial studies made by
independent actuaries. The formal retirement plans are congruent with and
complementary to the retirement benefits established by the Mexican Institute of
Social Security. Additionally, the Company has established a plan to cover
health-care expenses of retired employees. The Company has established
irrevocable trust funds for the payment of pensions and seniority premiums, as
well as for health-care expenses.
The
defined contribution plans provides a benefit equivalent to the capital
accumulated with the company’s contributions, which are provided as a match of
employees’ contribution to the plan. The plan provides vested rights according
to the years of service and the cause of retirement.
Argentina
Siderar
implemented an unfunded defined benefit employee retirement plan for certain
officers on August 1, 1995. The plan is designed to provide retirement,
termination and other benefits to those officers. For its main plan, Siderar is
accumulating assets for the ultimate payment of those benefits 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 Siderar’s other
assets, and therefore this plan is classified as “unfunded” under IFRS
definitions. Benefits provided by the plan are denominated in U.S. Dollars and
are calculated based on a seven-year salary average.
(2) Termination
benefits
Termination
benefits are payable when employment is terminated before the normal retirement
date, or whenever an employee accepts voluntary redundancy in exchange for these
benefits. The Company recognizes termination benefits when it is demonstrably
committed to either: (i) terminating the employment of current employees
according to a detailed formal plan without possibility of withdrawal or (ii)
providing termination benefits as a result of an offer made to encourage
voluntary redundancy.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
4
|
Accounting
policies (continued)
|
(o)
|
Employee
liabilities (continued)
|
(3)
Other compensation obligations
Employee
entitlements to annual leave and long-service leave are accrued as
earned.
During
2007, Ternium launched an incentive retention program (the “Program”) applicable
to certain senior officers and employees of the Company, who will be granted a
number of Units throughout the duration of the Program. The value of each of
these Units is based on Ternium’s shareholders’ equity (excluding minority
interest). Also, the beneficiaries of the Program are entitled to receive cash
amounts based on (i) the amount of dividend payments made by Ternium to its
shareholders, and (ii) the number of Units held by each beneficiary to the
Program. Units vest ratably over a period of four years and will be redeemed by
the Company ten years after grant date, with the option of an early redemption
at seven years after grant date.
As of
December 31, 2008, the outstanding liability corresponding to the Program
amounts to USD 5.8 million. The total value of the units granted to date under
the program, considering the number of units and the book value per share as of
December 31, 2008, is USD 4.8 million.
(4)
Social security contributions
Social
security laws in force in Argentina and Mexico provide for pension benefits to
be paid to retired employees from government pension plans and/or private fund
managed plans to which employees may elect to contribute. As stipulated by the
respective laws, Siderar and Ternium Mexico make monthly contributions
calculated based on each employee's salary to fund such plans. The related
amounts are expensed as incurred. No additional liabilities exist once the
contributions are paid.
(p)
|
Provisions
and other liabilities
|
Ternium
has certain contingencies with respect to existing or potential claims, lawsuits
and other proceedings. Unless otherwise specified, Ternium accrues a provision
for a present legal or constructive obligation as a result of a past event, when
it is probable that future cost could be incurred and that cost can be
reasonably estimated. Generally, accruals are based on developments to date,
Ternium’s estimates of the outcomes of these matters and the advice of Ternium’s
legal advisors.
Trade
payables are recognized initially at fair value and subsequently measured at
amortized cost using the effective interest method.
Revenues
are recognized as sales when revenue is earned and is realized or realizable.
This includes satisfying all of the following criteria: the arrangement with the
customer is evident, usually through the receipt of a purchase order; the sales
price is fixed or determinable; delivery as defined by the risk transfer
provision of the sales contracts has occurred, and collectibility is reasonably
assured.
Interest
income is recognized on an effective yield basis.
Income
from participation account is recognized when earned according to its
contractual terms (see Note 29 (iii)).
(s)
|
Cost
of sales, selling, general and administrative
expenses
|
Cost of
sales and expenses are recognized in the income statement on the accrual basis
of accounting.
Earnings
per share are calculated by dividing the net income attributable to shareholders
by the daily weighted average number of ordinary shares issued during the year
(see Note 28).
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
4
|
Accounting
policies (continued)
|
(u)
|
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,
collars and commodities contracts). 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.
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 December 31, 2008, the effective portion of designated cash
flow hedges amounts to USD 59.5 million (net of taxes for USD 23.1 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.
More
information about accounting for derivative financial instruments and hedging
activities is included in Note 33 “Financial risk management”.
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 flat steel
products. Flat steel products include 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 long steel
products. Long steel products include billets (steel in its basic, semifinished
state), wire rod and bars.
The other
products segment includes the products other than flat and long steel, mainly
pig iron, pellets and pre-engineered metal buildings.
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 Other. 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.
Allocation
of net sales is based on the customers’ location. Allocation of assets,
liabilities and capital expenditures is based on their corresponding
location.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
Primary
reporting format – business segments
|
|
Flat
steel products
|
|
|
Long
steel products
|
|
|
Other
|
|
|
Unallocated
|
|
|
Total
|
|
Year
ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
7,124,687 |
|
|
|
1,075,090 |
|
|
|
265,108 |
|
|
|
- |
|
|
|
8,464,885 |
|
Cost
of sales
|
|
|
(5,256,340 |
) |
|
|
(732,332 |
) |
|
|
(139,355 |
) |
|
|
- |
|
|
|
(6,128,027 |
) |
Gross
profit
|
|
|
1,868,347 |
|
|
|
342,758 |
|
|
|
125,753 |
|
|
|
- |
|
|
|
2,336,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
(560,189 |
) |
|
|
(80,303 |
) |
|
|
(28,981 |
) |
|
|
- |
|
|
|
(669,473 |
) |
Other
operating income, net
|
|
|
2,789 |
|
|
|
2,419 |
|
|
|
3,454 |
|
|
|
- |
|
|
|
8,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
1,310,947 |
|
|
|
264,874 |
|
|
|
100,226 |
|
|
|
- |
|
|
|
1,676,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures - PP&E
|
|
|
511,658 |
|
|
|
29,684 |
|
|
|
2,915 |
|
|
|
- |
|
|
|
544,257 |
|
Depreciation
- PP&E
|
|
|
292,236 |
|
|
|
37,810 |
|
|
|
3,715 |
|
|
|
- |
|
|
|
333,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories,
net
|
|
|
1,708,324 |
|
|
|
100,494 |
|
|
|
17,729 |
|
|
|
- |
|
|
|
1,826,547 |
|
Trade
receivables, net
|
|
|
449,168 |
|
|
|
133,673 |
|
|
|
40,151 |
|
|
|
- |
|
|
|
622,992 |
|
Property
, plant and equipment, net
|
|
|
3,836,241 |
|
|
|
336,603 |
|
|
|
39,469 |
|
|
|
- |
|
|
|
4,212,313 |
|
Intangible
assets, net
|
|
|
1,039,337 |
|
|
|
51,769 |
|
|
|
45,261 |
|
|
|
- |
|
|
|
1,136,367 |
|
Assets
– discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,318,900 |
|
|
|
1,318,900 |
|
Other
assets
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,554,128 |
|
|
|
1,554,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
liabilities
|
|
|
704,455 |
|
|
|
103,134 |
|
|
|
43,527 |
|
|
|
4,258,667 |
|
|
|
5,109,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flat
steel products
|
|
|
Long
steel products
|
|
|
Other
|
|
|
Unallocated
|
|
|
Total
|
|
Year
ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
4,731,715 |
|
|
|
772,829 |
|
|
|
128,822 |
|
|
|
- |
|
|
|
5,633,366 |
|
Cost
of sales
|
|
|
(3,633,368 |
) |
|
|
(581,123 |
) |
|
|
(73,180 |
) |
|
|
- |
|
|
|
(4,287,671 |
) |
Gross
profit
|
|
|
1,098,347 |
|
|
|
191,706 |
|
|
|
55,642 |
|
|
|
- |
|
|
|
1,345,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
(439,170 |
) |
|
|
(66,513 |
) |
|
|
(11,750 |
) |
|
|
- |
|
|
|
(517,433 |
) |
Other
operating income, net
|
|
|
4,970 |
|
|
|
4,044 |
|
|
|
(500 |
) |
|
|
- |
|
|
|
8,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
664,147 |
|
|
|
129,237 |
|
|
|
43,392 |
|
|
|
- |
|
|
|
836,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures - PP&E
|
|
|
285,858 |
|
|
|
21,463 |
|
|
|
1,277 |
|
|
|
- |
|
|
|
308,598 |
|
Depreciation
- PP&E
|
|
|
264,382 |
|
|
|
37,741 |
|
|
|
7,733 |
|
|
|
- |
|
|
|
309,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories,
net
|
|
|
1,345,386 |
|
|
|
91,170 |
|
|
|
12,917 |
|
|
|
- |
|
|
|
1,449,473 |
|
Trade
receivables, net
|
|
|
553,692 |
|
|
|
87,237 |
|
|
|
18,542 |
|
|
|
- |
|
|
|
659,471 |
|
Property
, plant and equipment, net
|
|
|
4,398,526 |
|
|
|
360,529 |
|
|
|
42,309 |
|
|
|
- |
|
|
|
4,801,364 |
|
Intangible
assets, net
|
|
|
1,319,544 |
|
|
|
63,506 |
|
|
|
53,539 |
|
|
|
- |
|
|
|
1,436,589 |
|
Assets
– discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,599,667 |
|
|
|
3,599,667 |
|
Other
assets
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,702,518 |
|
|
|
1,702,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities –
discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
853,722 |
|
|
|
853,722 |
|
Other
liabilities
|
|
|
704,292 |
|
|
|
127,252 |
|
|
|
29,448 |
|
|
|
5,676,445 |
|
|
|
6,537,437 |
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
5
|
Segment
information (continued)
|
|
|
Flat
steel products
|
|
|
Long
Steel products
|
|
|
Other
|
|
|
Unallocated
|
|
|
Total
|
|
Year
ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
3,593,053 |
|
|
|
739,919 |
|
|
|
151,946 |
|
|
|
- |
|
|
|
4,484,918 |
|
Cost
of sales
|
|
|
(2,519,689 |
) |
|
|
(537,001 |
) |
|
|
(50,939 |
) |
|
|
- |
|
|
|
(3,107,629 |
) |
Gross
profit
|
|
|
1,073,364 |
|
|
|
202,918 |
|
|
|
101,007 |
|
|
|
- |
|
|
|
1,377,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
(297,647 |
) |
|
|
(54,196 |
) |
|
|
(18,884 |
) |
|
|
- |
|
|
|
(370,727 |
) |
Other
operating expenses, net
|
|
|
(7,687 |
) |
|
|
1,479 |
|
|
|
1,469 |
|
|
|
- |
|
|
|
(4,739 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
768,030 |
|
|
|
150,201 |
|
|
|
83,592 |
|
|
|
- |
|
|
|
1,001,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures - PP&E
|
|
|
293,815 |
|
|
|
1,372 |
|
|
|
3,705 |
|
|
|
- |
|
|
|
298,892 |
|
Depreciation
- PP&E
|
|
|
202,323 |
|
|
|
25,411 |
|
|
|
7,638 |
|
|
|
- |
|
|
|
235,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories,
net
|
|
|
822,533 |
|
|
|
53,212 |
|
|
|
20,843 |
|
|
|
- |
|
|
|
896,588 |
|
Trade
receivables, net
|
|
|
303,774 |
|
|
|
100,219 |
|
|
|
22,995 |
|
|
|
- |
|
|
|
426,988 |
|
Property, plant and
equipment, net
|
|
|
2,941,125 |
|
|
|
254,724 |
|
|
|
50,608 |
|
|
|
- |
|
|
|
3,246,457 |
|
Intangible
assets, net
|
|
|
416,120 |
|
|
|
60,608 |
|
|
|
57,149 |
|
|
|
- |
|
|
|
533,877 |
|
Assets
– discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,779,054 |
|
|
|
2,779,054 |
|
Other
assets
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
775,289 |
|
|
|
775,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities –
discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
730,999 |
|
|
|
730,999 |
|
Other
liabilities
|
|
|
554,598 |
|
|
|
68,408 |
|
|
|
22,315 |
|
|
|
1,898,256 |
|
|
|
2,543,577 |
|
Secondary
reporting format - geographical segments
|
|
South
and Central
America
|
|
|
North
America
|
|
|
Europe
and other
|
|
|
Total
|
|
Year
ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
3,107,510 |
|
|
|
5,230,126 |
|
|
|
127,249 |
|
|
|
8,464,885 |
|
Segment
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
receivables, net
|
|
|
176,348 |
|
|
|
425,163 |
|
|
|
21,481 |
|
|
|
622,992 |
|
Property,
plant and equipment
|
|
|
1,424,382 |
|
|
|
2,787,903 |
|
|
|
28 |
|
|
|
4,212,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
- PP&E
|
|
|
132,891 |
|
|
|
200,843 |
|
|
|
27 |
|
|
|
333,761 |
|
Capital expenditures
– PP&E
|
|
|
325,496 |
|
|
|
218,753 |
|
|
|
8 |
|
|
|
544,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
2,150,717 |
|
|
|
3,340,982 |
|
|
|
141,667 |
|
|
|
5,633,366 |
|
Segment
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
receivables, net
|
|
|
57,625 |
|
|
|
589,418 |
|
|
|
12,428 |
|
|
|
659,471 |
|
Property,
plant and equipment
|
|
|
1,363,016 |
|
|
|
3,438,298 |
|
|
|
50 |
|
|
|
4,801,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
– PP&E
|
|
|
127,314 |
|
|
|
182,504 |
|
|
|
38 |
|
|
|
309,856 |
|
Capital expenditures
– PP&E
|
|
|
140,259 |
|
|
|
168,339 |
|
|
|
- |
|
|
|
308,598 |
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
5
|
Segment
information (continued)
|
|
|
South
and Central
America
|
|
|
North
America
|
|
|
Europe
and other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
1,727,584 |
|
|
|
2,686,789 |
|
|
|
70,545 |
|
|
|
4,484,918 |
|
Segment
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
receivables, net
|
|
|
86,148 |
|
|
|
321,523 |
|
|
|
19,316 |
|
|
|
426,987 |
|
Property,
plant and equipment
|
|
|
1,361,602 |
|
|
|
1,884,767 |
|
|
|
87 |
|
|
|
3,246,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
- PP&E
|
|
|
108,119 |
|
|
|
127,209 |
|
|
|
44 |
|
|
|
235,372 |
|
Capital expenditures
– PP&E
|
|
|
208,620 |
|
|
|
90,269 |
|
|
|
2 |
|
|
|
298,891 |
|
|
|
Year ended
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
at the beginning of the year
|
|
|
1,904,489 |
|
|
|
|
|
|
1,233,629 |
|
|
|
|
|
|
991,573 |
|
|
|
|
Adjustments
corresponding to inventories from discontinued operations
|
|
|
(455,013 |
) |
|
|
1,449,476 |
|
|
|
(337,041 |
) |
|
|
896,588 |
|
|
|
(301,162 |
) |
|
|
690,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
501,304 |
|
|
|
|
|
|
|
8,180 |
|
Translation
differences
|
|
|
|
|
|
|
(440,685 |
) |
|
|
|
|
|
|
(11,571 |
) |
|
|
|
|
|
|
(8,703 |
) |
Plus:
Charges for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw
materials and consumables used and other movements
|
|
|
|
|
|
|
5,374,363 |
|
|
|
|
|
|
|
3,313,355 |
|
|
|
|
|
|
|
2,455,678 |
|
Services
and fees
|
|
|
|
|
|
|
154,176 |
|
|
|
|
|
|
|
118,819 |
|
|
|
|
|
|
|
87,772 |
|
Labor
cost
|
|
|
|
|
|
|
481,057 |
|
|
|
|
|
|
|
348,027 |
|
|
|
|
|
|
|
282,072 |
|
Depreciation
of property, plant and equipment
|
|
|
|
|
|
|
328,260 |
|
|
|
|
|
|
|
300,161 |
|
|
|
|
|
|
|
230,228 |
|
Amortization
of intangible assets
|
|
|
|
|
|
|
19,023 |
|
|
|
|
|
|
|
17,434 |
|
|
|
|
|
|
|
14,343 |
|
Maintenance
expenses
|
|
|
|
|
|
|
277,753 |
|
|
|
|
|
|
|
224,697 |
|
|
|
|
|
|
|
189,535 |
|
Office
expenses
|
|
|
|
|
|
|
8,347 |
|
|
|
|
|
|
|
6,770 |
|
|
|
|
|
|
|
6,104 |
|
Freight
and transportation
|
|
|
|
|
|
|
37,735 |
|
|
|
|
|
|
|
30,899 |
|
|
|
|
|
|
|
25,451 |
|
Insurance
|
|
|
|
|
|
|
8,695 |
|
|
|
|
|
|
|
6,076 |
|
|
|
|
|
|
|
5,753 |
|
Provision
(Recovery) of obsolescence allowance
|
|
|
|
|
|
|
82,206 |
|
|
|
|
|
|
|
(2,965 |
) |
|
|
|
|
|
|
20,849 |
|
Provision
of valuation allowance
|
|
|
|
|
|
|
199,972 |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
Recovery
from sales of scrap and by-products
|
|
|
|
|
|
|
(60,379 |
) |
|
|
|
|
|
|
(69,394 |
) |
|
|
|
|
|
|
(34,107 |
) |
Others
|
|
|
|
|
|
|
34,575 |
|
|
|
|
|
|
|
56,947 |
|
|
|
|
|
|
|
30,651 |
|
Less: Inventories at the end of the
year
|
|
|
(1,826,547 |
) |
|
|
|
|
|
|
(1,904,489 |
) |
|
|
|
|
|
|
(1,233,629 |
) |
|
|
|
|
Adjustments
corresponding to inventories from discontinued operations
|
|
|
- |
|
|
|
(1,826,547 |
) |
|
|
455,013 |
|
|
|
(1,449,476 |
) |
|
|
337,041 |
|
|
|
(896,588 |
) |
Cost
of Sales
|
|
|
|
|
|
|
6,128,027 |
|
|
|
|
|
|
|
4,287,671 |
|
|
|
|
|
|
|
3,107,629 |
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
7
|
Selling,
general and administrative
expenses
|
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Services
and fees
|
|
|
65,221 |
|
|
|
50,480 |
|
|
|
37,990 |
|
Labor
cost
|
|
|
199,304 |
|
|
|
159,027 |
|
|
|
109,548 |
|
Depreciation
of property plant and equipment
|
|
|
5,501 |
|
|
|
9,695 |
|
|
|
5,144 |
|
Amortization
of intangible assets
|
|
|
60,757 |
|
|
|
27,981 |
|
|
|
1,656 |
|
Maintenance
and expenses
|
|
|
7,737 |
|
|
|
11,629 |
|
|
|
10,833 |
|
Taxes
|
|
|
79,286 |
|
|
|
61,123 |
|
|
|
49,879 |
|
Office
expenses
|
|
|
32,682 |
|
|
|
22,362 |
|
|
|
22,236 |
|
Freight
and transportation
|
|
|
189,848 |
|
|
|
155,929 |
|
|
|
124,359 |
|
Increase
(Decrease) of allowance for doubtful accounts
|
|
|
2,861 |
|
|
|
(915 |
) |
|
|
(5,611 |
) |
Others
|
|
|
26,276 |
|
|
|
20,122 |
|
|
|
14,693 |
|
Selling,
general and administrative expenses
|
|
|
669,473 |
|
|
|
517,433 |
|
|
|
370,727 |
|
8
|
Labor
costs (included in cost of sales, selling, general and administrative
expenses)
|
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Wages,
salaries and social security costs
|
|
|
636,018 |
|
|
|
448,360 |
|
|
|
342,684 |
|
Termination
benefits
|
|
|
22,604 |
|
|
|
39,992 |
|
|
|
17,022 |
|
Pension
benefits (Note 24 (i))
|
|
|
21,739 |
|
|
|
18,702 |
|
|
|
31,914 |
|
|
|
|
680,361 |
|
|
|
507,054 |
|
|
|
391,620 |
|
9
|
Other
operating income (expenses),
net
|
|
|
|
Year
ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Other
operating income
|
|
|
|
|
|
|
|
|
|
|
Gains
from the sale of sundry assets
|
|
|
5,535 |
|
|
|
12,419 |
|
|
|
- |
|
|
Others
|
|
|
13,177 |
|
|
|
7,068 |
|
|
|
12,390 |
|
|
Total
other operating income
|
|
|
18,712 |
|
|
|
19,487 |
|
|
|
12,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii)
|
Other
operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for legal claims and other matters (Note 21)
|
|
|
(2,358 |
) |
|
|
(2,995 |
) |
|
|
(2,772 |
) |
|
Others
|
|
|
(7,692 |
) |
|
|
(7,978 |
) |
|
|
(1,227 |
) |
|
Total
other operating expenses
|
|
|
(10,050 |
) |
|
|
(10,973 |
) |
|
|
(3,999 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(iii)
|
Derecognition
of property, plant and equipment
|
|
|
- |
|
|
|
- |
|
|
|
(13,130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating income
(expenses), net
|
|
|
8,662 |
|
|
|
8,514 |
|
|
|
(4,739 |
) |
10
|
Other
financial expenses, net
|
|
|
Year
ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Debt
issue costs
|
|
|
(11,314 |
) |
|
|
(9,061 |
) |
|
|
(13,764 |
) |
Net
foreign exchange loss (i)
|
|
|
(632,735 |
) |
|
|
(18,436 |
) |
|
|
(4,165 |
) |
Change
in fair value of derivative instruments
|
|
|
(32,480 |
) |
|
|
2,477 |
|
|
|
(10,480 |
) |
Others
|
|
|
(16,663 |
) |
|
|
(13,478 |
) |
|
|
(12,023 |
) |
Other
financial expenses, net
|
|
|
(693,192 |
) |
|
|
(38,498 |
) |
|
|
(40,432 |
) |
(i) In
fiscal year 2008, includes USD 628.6 million corresponding to the exchange loss
derived from the USD denominated borrowings held by Ternium Mexico. The
outstanding balance of Ternium Mexico's USD denominated loans at December 31,
2008 amounts to USD 2,968.0 million.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
Income
tax
Income
tax expense for each of the years presented is as follows:
|
|
Year
ended December 31,
|
|
|
|
2008
(1)
|
|
|
2007
|
|
|
2006
|
|
Current
tax
|
|
|
(502,424 |
) |
|
|
(272,004 |
) |
|
|
(390,031 |
) |
Deferred
tax (Note 23)
|
|
|
300,614 |
|
|
|
(20,109 |
) |
|
|
23,020 |
|
Effect
of change in fair value of cash flow hedge
|
|
|
(23,122 |
) |
|
|
- |
|
|
|
- |
|
Recovery
of income tax
|
|
|
62,228 |
|
|
|
- |
|
|
|
- |
|
Utilization
of previously unrecognized tax losses (Note 23)
|
|
|
- |
|
|
|
768 |
|
|
|
13,967 |
|
|
|
|
(162,704 |
) |
|
|
(291,345 |
) |
|
|
(353,044 |
) |
(1)
Includes the reversal of deferred statutory profit sharing.
Income
tax expense for the years ended December 31, 2008, 2007 and 2006 differed from
the amount computed by applying the statutory income tax rate in force in each
country in which the company operates to pre-tax income as a result of the
following:
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Income
before income tax
|
|
|
880,772 |
|
|
|
707,216 |
|
|
|
899,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense at statutory tax rate
|
|
|
(238,822 |
) |
|
|
(342,932 |
) |
|
|
(396,319 |
) |
Non
taxable income
|
|
|
40,785 |
|
|
|
58,885 |
|
|
|
68,890 |
|
Non
deductible expenses
|
|
|
(16,411 |
) |
|
|
(3,608 |
) |
|
|
(39,582 |
) |
Recovery
of income tax
|
|
|
62,228 |
|
|
|
- |
|
|
|
- |
|
Recovery
for tax loss carry-forwards
|
|
|
- |
|
|
|
768 |
|
|
|
13,967 |
|
Provisions
for tax loss carry-forwards
|
|
|
(10,484 |
) |
|
|
(4,458 |
) |
|
|
- |
|
Income
tax expense
|
|
|
(162,704 |
) |
|
|
(291,345 |
) |
|
|
(353,044 |
) |
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
12
|
Property,
plant and equipment, net
|
Year
ended December 31, 2008
|
|
Land
|
|
|
Buildings
and
improvements
|
|
|
Production
equipment
|
|
|
Vehicles,
furniture
and fixtures
|
|
|
Work in
progress
|
|
|
Spare
Parts
|
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values
at the beginning of the year
|
|
|
523,693 |
|
|
|
2,011,957 |
|
|
|
6,280,864 |
|
|
|
200,070 |
|
|
|
348,776 |
|
|
|
70,425 |
|
|
|
9,435,785 |
|
Adjustments
corresponding to property, plant and equipment from discontinued
operations
|
|
|
(53,818 |
) |
|
|
(396,730 |
) |
|
|
(1,711,972 |
) |
|
|
(30,522 |
) |
|
|
(114,576 |
) |
|
|
(37,564 |
) |
|
|
(2,345,182 |
) |
At
the beginning of the year, adjusted
|
|
|
469,875 |
|
|
|
1,615,227 |
|
|
|
4,568,892 |
|
|
|
169,548 |
|
|
|
234,200 |
|
|
|
32,861 |
|
|
|
7,090,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
differences
|
|
|
(92,813 |
) |
|
|
(209,698 |
) |
|
|
(672,121 |
) |
|
|
(19,124 |
) |
|
|
(67,714 |
) |
|
|
(2,890 |
) |
|
|
(1,064,360 |
) |
Additions
|
|
|
35,171 |
|
|
|
11,969 |
|
|
|
929 |
|
|
|
4,453 |
|
|
|
481,514 |
|
|
|
10,221 |
|
|
|
544,257 |
|
Disposals
/ Consumptions
|
|
|
(146 |
) |
|
|
(24 |
) |
|
|
(5,317 |
) |
|
|
(3,160 |
) |
|
|
(167 |
) |
|
|
- |
|
|
|
(8,814 |
) |
Transfers
|
|
|
- |
|
|
|
119,373 |
|
|
|
137,954 |
|
|
|
10,456 |
|
|
|
(267,783 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values
at the end of the year
|
|
|
412,087 |
|
|
|
1,536,847 |
|
|
|
4,030,337 |
|
|
|
162,173 |
|
|
|
380,050 |
|
|
|
40,192 |
|
|
|
6,561,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
at the beginning of the year
|
|
|
- |
|
|
|
(552,077 |
) |
|
|
(1,968,257 |
) |
|
|
(136,581 |
) |
|
|
- |
|
|
|
(2,239 |
) |
|
|
(2,659,154 |
) |
Adjustments
corresponding to property, plant and equipment from discontinued
operations
|
|
|
- |
|
|
|
39,793 |
|
|
|
323,548 |
|
|
|
6,572 |
|
|
|
- |
|
|
|
- |
|
|
|
369,913 |
|
At
the beginning of the year, adjusted
|
|
|
- |
|
|
|
(512,284 |
) |
|
|
(1,644,709 |
) |
|
|
(130,009 |
) |
|
|
- |
|
|
|
(2,239 |
) |
|
|
(2,289,241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
differences
|
|
|
- |
|
|
|
52,570 |
|
|
|
203,427 |
|
|
|
13,459 |
|
|
|
- |
|
|
|
235 |
|
|
|
269,691 |
|
Depreciation
charge
|
|
|
- |
|
|
|
(72,342 |
) |
|
|
(248,939 |
) |
|
|
(12,418 |
) |
|
|
- |
|
|
|
(62 |
) |
|
|
(333,761 |
) |
Disposals
/ Consumptions
|
|
|
- |
|
|
|
- |
|
|
|
1,907 |
|
|
|
2,031 |
|
|
|
- |
|
|
|
- |
|
|
|
3,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
at the end of the year
|
|
|
- |
|
|
|
(532,056 |
) |
|
|
(1,688,314 |
) |
|
|
(126,937 |
) |
|
|
- |
|
|
|
(2,066 |
) |
|
|
(2,349,373 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2008
|
|
|
412,087 |
|
|
|
1,004,791 |
|
|
|
2,342,023 |
|
|
|
35,236 |
|
|
|
380,050 |
|
|
|
38,126 |
|
|
|
4,212,313 |
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
12
|
Property,
plant and equipment, net
(continued)
|
Year ended December 31,
2007
|
|
Land
|
|
|
Building
and
improvements
|
|
|
Production
equipment
|
|
|
Vehicles,
furniture
and fixtures
|
|
|
Work in
progress
|
|
|
Spare
Parts
|
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values
at the beginning of the year
|
|
|
311,516 |
|
|
|
1,556,693 |
|
|
|
5,192,816 |
|
|
|
192,058 |
|
|
|
351,283 |
|
|
|
25,587 |
|
|
|
7,629,953 |
|
Adjustments
corresponding to property, plant and equipment from discontinued
operations
|
|
|
(53,818 |
) |
|
|
(395,057 |
) |
|
|
(1,715,554 |
) |
|
|
(29,673 |
) |
|
|
(66,415 |
) |
|
|
(11 |
) |
|
|
(2,260,528 |
) |
At
the beginning of the year, adjusted
|
|
|
257,698 |
|
|
|
1,161,636 |
|
|
|
3,477,262 |
|
|
|
162,385 |
|
|
|
284,868 |
|
|
|
25,576 |
|
|
|
5,369,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
differences
|
|
|
1,950 |
|
|
|
(24,143 |
) |
|
|
(45,612 |
) |
|
|
(3,766 |
) |
|
|
(3,166 |
) |
|
|
(719 |
) |
|
|
(75,456 |
) |
Acquisition
of business
|
|
|
203,586 |
|
|
|
222,134 |
|
|
|
1,102,553 |
|
|
|
9,520 |
|
|
|
62,791 |
|
|
|
1,814 |
|
|
|
1,602,398 |
|
Additions
|
|
|
317 |
|
|
|
8,193 |
|
|
|
277 |
|
|
|
2,707 |
|
|
|
290,914 |
|
|
|
6,190 |
|
|
|
308,598 |
|
Disposals
/ Consumptions
|
|
|
(153 |
) |
|
|
(4,848 |
) |
|
|
(72,591 |
) |
|
|
(3,088 |
) |
|
|
(3,904 |
) |
|
|
- |
|
|
|
(84,584 |
) |
Transfers
|
|
|
6,477 |
|
|
|
252,255 |
|
|
|
107,002 |
|
|
|
1,790 |
|
|
|
(397,303 |
) |
|
|
- |
|
|
|
(29,779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
corresponding to property, plant and equipment from discontinued
operations, at the end of the year
|
|
|
53,818 |
|
|
|
396,730 |
|
|
|
1,711,972 |
|
|
|
30,522 |
|
|
|
114,576 |
|
|
|
37,564 |
|
|
|
2,345,182 |
|
Values
at the end of the year
|
|
|
523,693 |
|
|
|
2,011,957 |
|
|
|
6,280,863 |
|
|
|
200,070 |
|
|
|
348,776 |
|
|
|
70,425 |
|
|
|
9,435,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
at the beginning of the year
|
|
|
- |
|
|
|
(463,372 |
) |
|
|
(1,701,880 |
) |
|
|
(128,737 |
) |
|
|
- |
|
|
|
(934 |
) |
|
|
(2,294,923 |
) |
Adjustments
corresponding to property, plant and equipment from discontinued
operations
|
|
|
- |
|
|
|
9,668 |
|
|
|
158,240 |
|
|
|
4,008 |
|
|
|
- |
|
|
|
39 |
|
|
|
171,955 |
|
At
the beginning of the year, adjusted
|
|
|
- |
|
|
|
(453,704 |
) |
|
|
(1,543,640 |
) |
|
|
(124,729 |
) |
|
|
- |
|
|
|
(895 |
) |
|
|
(2,122,968 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
differences
|
|
|
- |
|
|
|
13,078 |
|
|
|
40,504 |
|
|
|
3,290 |
|
|
|
- |
|
|
|
20 |
|
|
|
56,892 |
|
Depreciation
charge
|
|
|
- |
|
|
|
(74,232 |
) |
|
|
(223,302 |
) |
|
|
(10,958 |
) |
|
|
- |
|
|
|
(1,364 |
) |
|
|
(309,856 |
) |
Disposals
/ Consumptions
|
|
|
- |
|
|
|
2,846 |
|
|
|
62,389 |
|
|
|
2,190 |
|
|
|
- |
|
|
|
- |
|
|
|
67,425 |
|
Transfers
|
|
|
- |
|
|
|
(272 |
) |
|
|
19,340 |
|
|
|
198 |
|
|
|
- |
|
|
|
- |
|
|
|
19,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
corresponding to property, plant and equipment from discontinued
operations, at the end of the year
|
|
|
- |
|
|
|
(39,793 |
) |
|
|
(323,548 |
) |
|
|
(6,572 |
) |
|
|
- |
|
|
|
- |
|
|
|
(369,913 |
) |
Accumulated
at the end of the year
|
|
|
- |
|
|
|
(552,077 |
) |
|
|
(1,968,257 |
) |
|
|
(136,581 |
) |
|
|
- |
|
|
|
(2,239 |
) |
|
|
(2,659,154 |
) |
At
December 31, 2007
|
|
|
523,693 |
|
|
|
1,459,880 |
|
|
|
4,312,606 |
|
|
|
63,489 |
|
|
|
348,776 |
|
|
|
68,186 |
|
|
|
6,776,630 |
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
13
|
Intangible
assets, net
|
Year
ended December 31, 2008
|
|
Information
System Projects
|
|
|
Mining
Concessions
and Exploration Costs
|
|
|
Customer
Relationships and other contractual rights
|
|
|
Trademarks
|
|
|
Goodwill
|
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values
at the beginning of the year
|
|
|
108,360 |
|
|
|
127,434 |
|
|
|
378,059 |
|
|
|
78,420 |
|
|
|
850,702 |
|
|
|
1,542,975 |
|
Adjustments
corresponding to intangible assets from discontinued
operations
|
|
|
(26,792 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(26,792 |
) |
At
the beginning of the year, adjusted
|
|
|
81,568 |
|
|
|
127,434 |
|
|
|
378,059 |
|
|
|
78,420 |
|
|
|
850,702 |
|
|
|
1,516,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
differences
|
|
|
(14,383 |
) |
|
|
(27,722 |
) |
|
|
(65,728 |
) |
|
|
(14,808 |
) |
|
|
(167,000 |
) |
|
|
(289,641 |
) |
Additions
|
|
|
30,173 |
|
|
|
13,128 |
|
|
|
346 |
|
|
|
- |
|
|
|
- |
|
|
|
43,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values
at the end of the year
|
|
|
97,358 |
|
|
|
112,840 |
|
|
|
312,677 |
|
|
|
63,612 |
|
|
|
683,702 |
|
|
|
1,270,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
at the beginning of the year
|
|
|
(52,215 |
) |
|
|
(21,394 |
) |
|
|
(13,809 |
) |
|
|
(6,237 |
) |
|
|
- |
|
|
|
(93,655 |
) |
Adjustments
corresponding to intangible assets from discontinued
operations
|
|
|
14,061 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,061 |
|
At
the beginning of the year, adjusted
|
|
|
(38,154 |
) |
|
|
(21,394 |
) |
|
|
(13,809 |
) |
|
|
(6,237 |
) |
|
|
- |
|
|
|
(79,594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
differences
|
|
|
6,853 |
|
|
|
5,870 |
|
|
|
9,056 |
|
|
|
3,773 |
|
|
|
- |
|
|
|
25,552 |
|
Amortization
charge
|
|
|
(18,844 |
) |
|
|
(8,905 |
) |
|
|
(37,263 |
) |
|
|
(14,768 |
) |
|
|
- |
|
|
|
(79,780 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
at the end of the year
|
|
|
(50,145 |
) |
|
|
(24,429 |
) |
|
|
(42,016 |
) |
|
|
(17,232 |
) |
|
|
- |
|
|
|
(133,822 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2008
|
|
|
47,213 |
|
|
|
88,411 |
|
|
|
270,661 |
|
|
|
46,380 |
|
|
|
683,702 |
|
|
|
1,136,367 |
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
13
|
Intangible
assets, net (continued)
|
Year
ended December 31, 2007
|
|
Information
System Projects
|
|
|
Mining
Concessions
and Exploration Costs
|
|
|
Customer
Relationships and other contractual rights
|
|
|
Trademarks
|
|
|
Goodwill
|
|
|
Total
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values
at the beginning of the year
|
|
|
68,817 |
|
|
|
126,819 |
|
|
|
- |
|
|
|
- |
|
|
|
397,943 |
|
|
|
593,579 |
|
Adjustments
corresponding to intangible assets from discontinued
operations
|
|
|
(23,971 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(23,971 |
) |
At
the beginning of the year, adjusted
|
|
|
44,846 |
|
|
|
126,819 |
|
|
|
- |
|
|
|
- |
|
|
|
397,943 |
|
|
|
569,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
differences
|
|
|
(195 |
) |
|
|
(107 |
) |
|
|
1,169 |
|
|
|
850 |
|
|
|
(3,017 |
) |
|
|
(1,300 |
) |
Acquisition
of business (see note 3)
|
|
|
5,895 |
|
|
|
- |
|
|
|
372,939 |
|
|
|
77,570 |
|
|
|
455,776 |
|
|
|
912,180 |
|
Additions
|
|
|
31,022 |
|
|
|
722 |
|
|
|
3,951 |
|
|
|
- |
|
|
|
- |
|
|
|
35,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
corresponding to intangible assets from discontinued operations, at the
end of the year
|
|
|
26,792 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
26,792 |
|
Values
at the end of the year
|
|
|
108,360 |
|
|
|
127,434 |
|
|
|
378,059 |
|
|
|
78,420 |
|
|
|
850,702 |
|
|
|
1,542,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
at the beginning of the year
|
|
|
(31,367 |
) |
|
|
(12,873 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(44,240 |
) |
Adjustments
corresponding to intangible assets from discontinued
operations
|
|
|
8,509 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,509 |
|
At
the beginning of the year, adjusted
|
|
|
(22,858 |
) |
|
|
(12,873 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(35,731 |
) |
Translation
differences
|
|
|
664 |
|
|
|
(59 |
) |
|
|
980 |
|
|
|
(33 |
) |
|
|
- |
|
|
|
1,552 |
|
Amortization
charge
|
|
|
(15,960 |
) |
|
|
(8,462 |
) |
|
|
(14,789 |
) |
|
|
(6,204 |
) |
|
|
- |
|
|
|
(45,415 |
) |
Adjustments
corresponding to intangible assets from discontinued operations, at the
end of the year
|
|
|
(14,061 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(14,061 |
) |
Accumulated
at the end of the year
|
|
|
(52,215 |
) |
|
|
(21,394 |
) |
|
|
(13,809 |
) |
|
|
(6,237 |
) |
|
|
- |
|
|
|
(93,655 |
) |
At
December 31, 2007
|
|
|
56,145 |
|
|
|
106,040 |
|
|
|
364,250 |
|
|
|
72,183 |
|
|
|
850,702 |
|
|
|
1,449,320 |
|
14
|
Investments
in associated companies
|
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
At
the beginning of the year
|
|
|
44,042 |
|
|
|
16,284 |
|
Adjustments
corresponding to investments in associated companies from discontinued
operations
|
|
|
(40,227 |
) |
|
|
(12,866 |
) |
At
the beginning of the year, adjusted
|
|
|
3,815 |
|
|
|
3,418 |
|
|
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
(81 |
) |
|
|
(37 |
) |
Equity
in earnings of associated companies
|
|
|
1,851 |
|
|
|
434 |
|
|
|
|
|
|
|
|
|
|
Adjustments
corresponding to investments in associated companies from discontinued
operations, at the end of the year
|
|
|
- |
|
|
|
40,227 |
|
At
the end of the year
|
|
|
5,585 |
|
|
|
44,042 |
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
14
|
Investments
in associated companies (continued)
|
The
principal associated companies, all of which are unlisted, are:
Company
|
|
Country
of incorporation
|
|
Voting
rights
at
December 31,
|
|
|
Value
at December 31,
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lomond
Holdings BV. (1)
|
|
Netherlands
|
|
|
50.00 |
% |
|
|
50.00 |
% |
|
|
4,287 |
|
|
|
2,893 |
|
Matesi
Materiales Siderúrgicos S.A. (2)
|
|
Venezuela
|
|
|
- |
|
|
|
49.80 |
% |
|
|
- |
|
|
|
40,227 |
|
Compañía
Afianzadora de Empresas Siderúrgicas S.G.R. (3)
|
|
Argentina
|
|
|
38.89 |
% |
|
|
38.89 |
% |
|
|
86 |
|
|
|
95 |
|
Finma
S.A.I.F. (4)
|
|
Argentina
|
|
|
33.33 |
% |
|
|
33.33 |
% |
|
|
1,212 |
|
|
|
827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,585 |
|
|
|
44,042 |
|
(1)
|
Holding
Company. Indirectly through the participation in Alvory
S.A.
|
(3)
|
Granting
of guarantees to participating partners to facilitate or permit access to
credits for purchase of national raw material. Indirectly through the
participation in Siderar.
|
(4)
|
Consulting
and financial services. Indirectly through the participation in
Siderar.
|
15
|
Other
investments, net – non-current
|
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Time
deposits with related parties (i) (Note 30)
|
|
|
15,075 |
|
|
|
12,673 |
|
Guarantee
fund Compañía Afianzadora de Empresas Siderúgicas S.G.R.
(ii)
|
|
|
1,680 |
|
|
|
1,842 |
|
Others
|
|
|
193 |
|
|
|
300 |
|
Total
|
|
|
16,948 |
|
|
|
14,815 |
|
(i) Time deposits with related
parties
The
Company holds a savings fund denominated in U.S. dollars. Withdrawal of
investments before certain dates is subject to penalties on amounts
invested.
(ii)
Guarantee fund Compañía Afianzadora de Empresas Siderúrgicas S.G.R.
Corresponds
to the Company’s portion of the risk funds sponsored by Compañía Afianzadora de
Empresas Siderúrgicas S.G.R., which acts as guarantor of third parties’
debts.
16
|
Receivables,
net – non-current
|
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Receivables
with related parties (Note 30)
|
|
|
492 |
|
|
|
35,949 |
|
Employee
advances and loans
|
|
|
16,371 |
|
|
|
13,078 |
|
Advances
to suppliers for property, plant and equipment
|
|
|
48,690 |
|
|
|
13,582 |
|
Advances
to suppliers for property, plant and equipment with related
parties
|
|
|
22,422 |
|
|
|
5,303 |
|
Income
tax credit paid on business acquisition (Note 3 (a))
|
|
|
- |
|
|
|
138,700 |
|
Tax
credits
|
|
|
- |
|
|
|
14,810 |
|
Others
|
|
|
32,390 |
|
|
|
15,613 |
|
Allowance
for doubtful accounts (Note 21 )
|
|
|
(170 |
) |
|
|
(512 |
) |
|
|
|
120,195 |
|
|
|
236,523 |
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Value
added tax
|
|
|
87,113 |
|
|
|
23,073 |
|
Tax
credits
|
|
|
80,280 |
|
|
|
118,858 |
|
Income
tax credit paid on business acquisition (Note 3 (a))
|
|
|
28,214 |
|
|
|
84,000 |
|
Employee
advances and loans
|
|
|
7,300 |
|
|
|
16,918 |
|
Advances
to suppliers
|
|
|
9,157 |
|
|
|
38,019 |
|
Advances
to suppliers with related parties (Note 30)
|
|
|
4,878 |
|
|
|
2,088 |
|
Expenses
paid in advance
|
|
|
3,770 |
|
|
|
14,226 |
|
Government
tax refunds on exports
|
|
|
6,520 |
|
|
|
56,056 |
|
Receivables
with related parties (Note 30)
|
|
|
2,543 |
|
|
|
21,667 |
|
Others
|
|
|
19,216 |
|
|
|
30,126 |
|
|
|
|
248,991 |
|
|
|
405,031 |
|
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Raw
materials, materials and spare parts
|
|
|
708,333 |
|
|
|
723,875 |
|
Goods
in process
|
|
|
1,069,904 |
|
|
|
672,656 |
|
Finished
goods
|
|
|
315,670 |
|
|
|
360,526 |
|
Goods
in transit
|
|
|
18,458 |
|
|
|
229,934 |
|
Obsolescence
allowance (Note 22)
|
|
|
(124,883 |
) |
|
|
(82,502 |
) |
Valuation
allowance (Note 22)
|
|
|
(160,935 |
) |
|
|
- |
|
|
|
|
1,826,547 |
|
|
|
1,904,489 |
|
19
|
Trade
receivables, net
|
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Current
accounts
|
|
|
627,451 |
|
|
|
823,540 |
|
Trade
receivables with related parties (Note 30)
|
|
|
18,891 |
|
|
|
28,977 |
|
Allowance
for doubtful accounts (Note 22)
|
|
|
(23,350 |
) |
|
|
(26,964 |
) |
|
|
|
622,992 |
|
|
|
825,553 |
|
20
|
Cash,
cash equivalents and other
investments
|
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
(i) Other
investments
|
|
|
|
|
|
|
Deposits
(due in more than 90 days)
|
|
|
90,008 |
|
|
|
65,337 |
|
|
|
|
|
|
|
|
|
|
(ii) Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
Cash
at banks and deposits (due in less than 90 days)
|
|
|
1,065,552 |
|
|
|
1,125,830 |
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
21
|
Allowances
and Provisions – non current
|
|
|
Deducted
from assets
|
|
|
Liabilities
|
|
|
|
Allowance
for
doubtful
accounts
|
|
|
Legal
claims
and
other
matters
|
|
Year
ended December 31, 2008
|
|
|
|
|
|
|
Values
at the beginning of the year
|
|
|
512 |
|
|
|
57,345 |
|
Adjustments
corresponding to allowances from discontinued operations
|
|
|
- |
|
|
|
(30,426 |
) |
At
the beginning of the year, adjusted
|
|
|
512 |
|
|
|
26,919 |
|
|
|
|
|
|
|
|
|
|
Translation
differences
|
|
|
(20 |
) |
|
|
(3,662 |
) |
Additions
|
|
|
- |
|
|
|
11,359 |
|
Reversals
|
|
|
(322 |
) |
|
|
(9,001 |
) |
Uses
|
|
|
- |
|
|
|
(1,215 |
) |
At
December 31, 2008
|
|
|
170 |
|
|
|
24,400 |
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2007
|
|
|
|
|
|
|
|
|
Values
at the beginning of the year
|
|
|
1,373 |
|
|
|
60,543 |
|
Adjustments
corresponding to allowances from discontinued operations
|
|
|
- |
|
|
|
(44,857 |
) |
At
the beginning of the year, adjusted
|
|
|
1,373 |
|
|
|
15,686 |
|
|
|
|
|
|
|
|
|
|
Translation
differences
|
|
|
(33 |
) |
|
|
(317 |
) |
Acquisition
of business
|
|
|
- |
|
|
|
10,011 |
|
Additions
|
|
|
- |
|
|
|
3,432 |
|
Reversals
|
|
|
(828 |
) |
|
|
(437 |
) |
Uses
|
|
|
- |
|
|
|
(1,456 |
) |
|
|
|
|
|
|
|
|
|
Adjustments
corresponding to allowances from discontinued operations, at the end of
the year
|
|
|
- |
|
|
|
30,426 |
|
At
December 31, 2007
|
|
|
512 |
|
|
|
57,345 |
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
|
|
Deducted
from assets
|
|
|
|
Allowance
for doubtful accounts
|
|
|
Obsolescence
allowance
|
|
|
Valuation
allowance
|
|
Year
ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
Values
at the beginning of the year
|
|
|
26,964 |
|
|
|
82,502 |
|
|
|
- |
|
Adjustments
corresponding to allowances from discontinued operations
|
|
|
(867 |
) |
|
|
(14,754 |
) |
|
|
- |
|
At
the beginning of the year, adjusted
|
|
|
26,097 |
|
|
|
67,748 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
differences
|
|
|
(2,478 |
) |
|
|
(19,149 |
) |
|
|
(39,037 |
) |
Reversals
|
|
|
(3,931 |
) |
|
|
(40,084 |
) |
|
|
- |
|
Additions
|
|
|
7,113 |
|
|
|
122,209 |
|
|
|
199,972 |
|
Uses
|
|
|
(3,451 |
) |
|
|
(5,841 |
) |
|
|
- |
|
At
December 31, 2008
|
|
|
23,350 |
|
|
|
124,883 |
|
|
|
160,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Values
at the beginning of the year
|
|
|
25,083 |
|
|
|
78,779 |
|
|
|
- |
|
Adjustments
corresponding to allowances from discontinued operations
|
|
|
(2,359 |
) |
|
|
(19,882 |
) |
|
|
- |
|
At
the beginning of the year, adjusted
|
|
|
22,724 |
|
|
|
58,897 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
differences
|
|
|
(221 |
) |
|
|
(548 |
) |
|
|
- |
|
Acquisition
of business
|
|
|
4,616 |
|
|
|
14,357 |
|
|
|
- |
|
Reversals
|
|
|
(3,493 |
) |
|
|
(19,569 |
) |
|
|
- |
|
Additions
|
|
|
3,405 |
|
|
|
16,541 |
|
|
|
- |
|
Uses
|
|
|
(934 |
) |
|
|
(1,930 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
corresponding to allowances from discontinued operations, at the end of
the year
|
|
|
867 |
|
|
|
14,754 |
|
|
|
- |
|
At
December 31, 2007
|
|
|
26,964 |
|
|
|
82,502 |
|
|
|
- |
|
Deferred
income taxes are calculated in full on temporary differences under the liability
method using the tax rate of the applicable country.
Changes
in deferred income tax are as follows:
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
At
beginning of the year
|
|
|
(1,295,975 |
) |
|
|
(945,652 |
) |
Adjustments
corresponding to changes in deferred income tax from discontinued
operations
|
|
|
43,675 |
|
|
|
178,873 |
|
At
the beginning of the year, adjusted
|
|
|
(1,252,300 |
) |
|
|
(766,779 |
) |
|
|
|
|
|
|
|
|
|
Acquisition
of business
|
|
|
- |
|
|
|
(481,930 |
) |
Translation
differences
|
|
|
141,526 |
|
|
|
16,518 |
|
Income
statement credit/(charge)
|
|
|
300,614 |
|
|
|
(20,109 |
) |
Adjustments
corresponding to changes in deferred income tax from discontinued
operations, at the end of the year
|
|
|
- |
|
|
|
(43,675 |
) |
|
|
|
|
|
|
|
|
|
At
end of the year
|
|
|
(810,160 |
) |
|
|
(1,295,975 |
) |
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
23
|
Deferred
income tax (continued)
|
The
changes in deferred tax assets and liabilities (prior to offsetting the balances
within the same tax jurisdiction) during the year are as follow:
Deferred
tax liabilities
|
|
Fixed
assets
|
|
|
Inventories
|
|
|
Intangible
assets
|
|
|
Other
|
|
|
Total
at December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
beginning of year
|
|
|
(1,131,205 |
) |
|
|
(166,163 |
) |
|
|
(146,993 |
) |
|
|
(60,937 |
) |
|
|
(1,505,298 |
) |
Adjustments
corresponding to deferred tax liabilities from discontinued
operations
|
|
|
146,150 |
|
|
|
(21,778 |
) |
|
|
- |
|
|
|
- |
|
|
|
124,372 |
|
At
the beginning of the year, adjusted
|
|
|
(985,055 |
) |
|
|
(187,941 |
) |
|
|
(146,993 |
) |
|
|
(60,937 |
) |
|
|
(1,380,926 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
differences
|
|
|
131,059 |
|
|
|
6,937 |
|
|
|
19,592 |
|
|
|
7,900 |
|
|
|
165,488 |
|
Income
statement credit/(charge)
|
|
|
105,654 |
|
|
|
184,968 |
|
|
|
26,149 |
|
|
|
(26,206 |
) |
|
|
290,565 |
|
At
end of year
|
|
|
(748,342 |
) |
|
|
3,964 |
|
|
|
(101,252 |
) |
|
|
(79,243 |
) |
|
|
(924,873 |
) |
Deferred
tax assets
|
|
Provisions
|
|
|
Trade
Receivables
|
|
|
Tax
loss carry-forwards
|
|
|
Other
|
|
|
Total
at December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
beginning of year
|
|
|
73,945 |
|
|
|
12,843 |
|
|
|
1,372 |
|
|
|
121,163 |
|
|
|
209,323 |
|
Adjustments
corresponding to deferred tax assets from discontinued
operations
|
|
|
(6,634 |
) |
|
|
- |
|
|
|
- |
|
|
|
(74,063 |
) |
|
|
(80,697 |
) |
At
the beginning of the year, adjusted
|
|
|
67,311 |
|
|
|
12,843 |
|
|
|
1,372 |
|
|
|
47,100 |
|
|
|
128,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
differences
|
|
|
(13,386 |
) |
|
|
(2,371 |
) |
|
|
- |
|
|
|
(8,205 |
) |
|
|
(23,962 |
) |
Income
statement credit (charge)
|
|
|
18,302 |
|
|
|
(3,653 |
) |
|
|
(1,372 |
) |
|
|
(3,228 |
) |
|
|
10,049 |
|
At
end of year
|
|
|
72,227 |
|
|
|
6,819 |
|
|
|
- |
|
|
|
35,667 |
|
|
|
114,713 |
|
Deferred
tax assets and liabilities are offset when the entity a) has a legally
enforceable right to set off the recognized amounts; and b) intends to settle
the tax on a net basis or to realize the asset and settle the liability
simultaneously.
As of
December 31, 2008 and 2007, USD nil and USD 31,793, respectively, have been
classified as non-current assets and USD 810,160 and USD 1,327,768,
respectively, have been classified as non-current liabilities.
The
amounts shown in the balance sheet include the following:
|
|
As of December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Deferred
tax assets to be recovered after more than 12 months
|
|
|
48,189 |
|
|
|
129,376 |
|
Deferred
tax liabilities to be settled after more than 12 months
|
|
|
(927,764 |
) |
|
|
(1,339,333 |
) |
|
|
|
(879,575 |
) |
|
|
(1,209,957 |
) |
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007 |
|
(i)
|
Other
liabilities - non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
benefits
|
|
|
4,187 |
|
|
|
8,723 |
|
|
Pension
benefits
|
|
|
125,700 |
|
|
|
317,050 |
|
|
Related
Parties (Note 30)
|
|
|
1,021 |
|
|
|
1,272 |
|
|
Other
|
|
|
17,782 |
|
|
|
6,629 |
|
|
|
|
|
148,690 |
|
|
|
333,674 |
|
Pension
benefits
The
amounts recognized in the consolidated balance sheet are determined as
follows:
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Present
value of unfunded obligations
|
|
|
156,359 |
|
|
|
362,748 |
|
Unrecognized
prior service costs
|
|
|
(4,657 |
) |
|
|
(2,137 |
) |
Unrecognized
actuarial losses
|
|
|
(26,002 |
) |
|
|
(43,561 |
) |
Liability
in the balance sheet
|
|
|
125,700 |
|
|
|
317,050 |
|
The
amounts recognized in the consolidated income statement are as
follows:
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Current
service cost
|
|
|
5,589 |
|
|
|
3,674 |
|
Interest
cost
|
|
|
14,027 |
|
|
|
18,290 |
|
Amortization
of prior service costs
|
|
|
661 |
|
|
|
580 |
|
Net
actuarial (gains) losses recognized in the year
|
|
|
1,462 |
|
|
|
(3,842 |
) |
Total
included in labor costs
|
|
|
21,739 |
|
|
|
18,702 |
|
Changes
in the liability recognized in the consolidated balance sheet are as
follows:
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
At
the beginning of the year
|
|
|
317,050 |
|
|
|
263,454 |
|
Adjustments
corresponding to allowances from discontinued operations
|
|
|
(183,821 |
) |
|
|
(146,932 |
) |
At
the beginning of the year, adjusted
|
|
|
133,229 |
|
|
|
116,522 |
|
|
|
|
|
|
|
|
|
|
Transfers
and new participants of the plan
|
|
|
(139 |
) |
|
|
258 |
|
Total
expense
|
|
|
21,739 |
|
|
|
18,702 |
|
Translation
differences
|
|
|
(26,006 |
) |
|
|
185 |
|
Contributions
paid
|
|
|
(639 |
) |
|
|
(2,438 |
) |
|
|
|
|
|
|
|
|
|
Adjustments
corresponding to allowances from discontinued operations, at the end of
the year
|
|
|
- |
|
|
|
183,821 |
|
|
|
|
|
|
|
|
|
|
Effect
of companies under joint control (see Note 4 (a))
|
|
|
(2,484 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
At
the end of year
|
|
|
125,700 |
|
|
|
317,050 |
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
24
|
Other
liabilities (continued)
|
The
principal actuarial assumptions used were as follows:
Mexico
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
2007
|
|
Discount
rate |
|
|
9.75 |
% |
|
|
8.75 |
% |
Rate
of compensation increase |
|
|
4.00 |
% |
|
|
4.00 |
% |
Argentina
|
Year
ended December 31,
|
|
|
2008
|
|
|
2007
|
|
Discount
rate
|
|
|
7.00 |
% |
|
|
7.00 |
% |
Rate
of compensation increase
|
|
|
2.00 |
% |
|
|
2.00 |
% |
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
(ii)
|
Other
liabilities – current
|
|
|
|
|
|
|
|
Payroll
and social security payable
|
|
|
88,610 |
|
|
|
106,755 |
|
|
Termination
benefits
|
|
|
3,620 |
|
|
|
3,939 |
|
|
Participation
account
|
|
|
- |
|
|
|
51,219 |
|
|
Related
Parties (Note 30)
|
|
|
1,563 |
|
|
|
9,194 |
|
|
Others
|
|
|
9,583 |
|
|
|
9,867 |
|
|
|
|
|
103,376 |
|
|
|
180,974 |
|
25
|
Derivative
financial instruments
|
Net
fair values of derivative financial instruments
The net
fair values of derivative financial instruments at December 31, 2008 and 2007
were as follows:
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Contracts
with positive fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
|
1,516 |
|
|
|
- |
|
Commodities
contracts
|
|
|
- |
|
|
|
577 |
|
|
|
|
1,516 |
|
|
|
577 |
|
Contracts
with negative fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swap contracts
|
|
|
(97,153 |
) |
|
|
(9,557 |
) |
Foreign
exchange contracts
|
|
|
(13,553 |
) |
|
|
(3,736 |
) |
Commodities
contracts
|
|
|
(12,338 |
) |
|
|
- |
|
|
|
|
(123,044 |
) |
|
|
(13,293 |
) |
Derivative
financial instruments breakdown is as follows:
a) Interest rate
contracts
Fluctuations
in market interest rates create a degree of risk by affecting the amount of the
Company’s interest payments and the value of its fixed-rate debt. As of December
31, 2008, most of the Company’s long-term borrowings were at variable
rates.
Ternium
México entered into derivative instruments to manage the impact of the floating
interest rate changes on its financial debt.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
25
|
Derivative
financial instruments (continued)
|
On
February 23, 2007, Ternium Mexico entered into four interest rate collar
agreements that fix the interest rate to be paid over an aggregate notional
amount of USD 250 million, in an average range of 4.16% to 6.00%. These
agreements are due in November 2011 and March 2012.
On
September 21, 2007, Ternium Mexico entered into several interest rate collars
that fix the interest rate to be paid over an aggregate notional amount of USD
1,500 million, in an average range of 3.28% to 5.50%. These agreements are due
in July 2009.
On June
18, 2008, Ternium Mexico entered into 4 knock-in swap agreements over an
aggregate notional amount of USD 894 million, in an average swap level of 5.22%
and a knock-in (“KI”) level of 2.5%. These agreements are due in July
2012. As of December 31, 2008, these contracts were accounted for under the
hedge accounting method and generated a pre-tax reserve in equity for USD 70,241
thousand.
b) Foreign exchange
contracts
From time
to time, Ternium’s subsidiaries enter into derivative agreements to manage this
exposure to currencies other than the US Dollar.
During
December 2008, Siderar hedged its purchases of machinery denominated in Canadian
Dollars with a zero cost collar for a notional amount of CAD 1.9 million and
strike prices of 1.17 and 1.30, due in January 2009.
Beginning
in November 2008, Siderar entered into several forward agreements to manage the
exchange rate exposure generated by its sales in Euros. The notional amount
covered as of December 31, 2008 was EUR 9.2 million with an average forward
price of 1.30 US Dollars per Euro.
As of
December 31, 2008, Prosid Investments had several non-deliverable forward (NDF)
agreements with a notional amount of ARS 100 million at an average exchange rate
of 3.62 Argentine Pesos per US Dollar. These NDFs cover indirect exposure of
short term debt denominated in ARS and are due in January 2009.
During
2003, Ternium Mexico entered into a cross currency swap contract with Bank of
America to manage its exposure to changes in the Mexican Peso against the US
Dollar and the impact of the floating interest rate changes on certain debt
certificates. As of December 31, 2008, the notional amount totaled USD 52.6
million and the fixed interest rate was 9.30% per annum. This agreement is due
on May 27, 2009.
Furthermore,
during December 2008, Ternium Treasury Services entered into a forward agreement
over an aggregate notional amount of EUR 14 million, at an exchange rate of 1.43
US Dollars per Euro, to manage its exposure to investments in Euros. This
forward is due on January 20, 2009.
The net
fair values of the exchange rate derivative contracts as of December 31, 2008
and December 31, 2007 were as follows:
|
|
|
|
|
|
|
Fair
Value at December 31,
|
|
Currencies
|
|
Contract
|
|
Notional
amount
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD/EUR
|
|
Forward
|
|
|
31,935 |
|
|
|
(423 |
) |
|
|
- |
|
CAD/USD
|
|
Collar
|
|
|
1,613 |
|
|
|
6 |
|
|
|
- |
|
MXN/USD
|
|
Cross
Currency Swap
|
|
|
52,583 |
|
|
|
(12,678 |
) |
|
|
(2,486 |
) |
MXN/USD
|
|
Forward
|
|
|
|
|
|
|
- |
|
|
|
(1,220 |
) |
ARS/USD
|
|
ND
Forward
|
|
|
27,751 |
|
|
|
1,058 |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
(12,037 |
) |
|
|
(3,736 |
) |
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
25
|
Derivative
financial instruments (continued)
|
c)
Commodities
contracts
Ternium
Mexico entered into derivative structures to manage the impact of the
fluctuation of natural gas price over its cost.
As of
December 2008, Ternium Mexico had two structures outstanding with an aggregate
notional amount of 7 million MMBTU (100 contracts a month). These structures
cover 23% of Ternium Mexico’s natural gas consumption until July 2009. As of
December 31, 2008, these contracts were accounted for under the hedge accounting
method and generated a pre-tax reserve in equity for USD 12,338
thousand.
|
|
|
|
|
|
Fair
value at December 31,
|
|
Contract
|
|
Average
price
|
|
Notional
amount
|
|
2008
|
|
|
2007
|
|
Call –
Purchases
|
|
9.79/9.55
|
|
7,000
MMBTU
|
|
|
129 |
|
|
|
1,200 |
|
Call
– Sales
|
|
13.50
|
|
7,000
MMBTU
|
|
|
(7 |
) |
|
|
(29 |
) |
Put
– Sales
|
|
9.79@KI
7.50 /9.55@KI 6.80
|
|
7,000
MMBTU
|
|
|
(21,248 |
) |
|
|
(594 |
) |
Put
– Purchases
|
|
6.50
|
|
7,000
MMBTU
|
|
|
8,788 |
|
|
|
- |
|
|
|
|
|
|
|
|
(12,338 |
) |
|
|
577 |
|
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
(i) Non-current
|
|
|
|
|
|
|
Bank
borrowings
|
|
|
2,336,796 |
|
|
|
3,683,277 |
|
Less:
debt issue costs
|
|
|
(10,929 |
) |
|
|
(7,205 |
) |
|
|
|
2,325,867 |
|
|
|
3,676,072 |
|
(ii) Current
|
|
|
|
|
|
|
|
|
Bank
borrowings
|
|
|
945,822 |
|
|
|
429,287 |
|
Less:
debt issue costs
|
|
|
(4,362 |
) |
|
|
(23,048 |
) |
|
|
|
941,460 |
|
|
|
406,239 |
|
|
|
|
|
|
|
|
|
|
Total
Borrowings
|
|
|
3,267,327 |
|
|
|
4,082,311 |
|
The
maturity of borrowings is as follows:
|
|
Expected
Maturity Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, (1)
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
|
|
227,276 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
227,276 |
|
|
|
194,638 |
|
Floating
Rate
|
|
|
714,184 |
|
|
|
542,882 |
|
|
|
493,427 |
|
|
|
1,289,558 |
|
|
|
3,040,051 |
|
|
|
3,887,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
941,460 |
|
|
|
542,882 |
|
|
|
493,427 |
|
|
|
1,289,558 |
|
|
|
3,267,327 |
|
|
|
4,082,311 |
|
(1)
|
As
most borrowings incorporate floating rates that approximate market rates
and the contractual repricing occurs every 3 to 6 months, the fair value
of the borrowings approximates this carrying amount and is not disclosed
separately.
|
The
weighted average interest rates - which incorporate instruments denominated
mainly in US dollars and which also include the effect of derivative financial
instruments- at the balance sheet date were as follows:
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Bank
borrowings
|
|
|
2.79 |
% |
|
|
6.15 |
% |
The
nominal average interest rates shown above were calculated using the rates set
for each instrument in its corresponding currency and weighted using the
dollar-equivalent outstanding principal amount of said instruments at December
31, 2008 and 2007, respectively.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
26
|
Borrowings
(continued)
|
Breakdown
of borrowings by currency is as follows:
Currency
|
|
Interest
rates
|
|
December
31,
|
|
|
|
|
|
2008
|
|
|
2007
|
|
USD
|
|
Floating
|
|
|
3,040,052 |
|
|
|
3,807,438 |
|
USD
|
|
Fixed
|
|
|
148,117 |
|
|
|
188,168 |
|
ARS
|
|
Fixed
|
|
|
38,754 |
|
|
|
2,067 |
|
MXN
|
|
Fixed
|
|
|
40,404 |
|
|
|
1,812 |
|
MXN
|
|
Floating
|
|
|
- |
|
|
|
82,826 |
|
Total
bank borrowings
|
|
|
3,267,327 |
|
|
|
4,082,311 |
|
USD: US
dollars; ARS: Argentine pesos; MXN: Mexican pesos
27
|
Contingencies,
commitments and restrictions on the distribution of
profits
|
Ternium
is involved in litigation arising from time to time in the ordinary course of
business. Based on management’s assessment and the advice of legal counsel, it
is not anticipated that the ultimate resolution of existing litigation will
result in amounts in excess of recorded provisions that would be material to
Ternium’s consolidated financial position or results of operations.
(a)
Siderar. AFIP – Income tax claim for fiscal years 1995 to
1999
The Administración Federal de Ingresos Públicos
(“AFIP” – the Argentine tax authority) has challenged the charge to income of
certain disbursements that Siderar has treated as expenses necessary to maintain
industrial installations, which as such should be deducted in the year in which
they take place. The AFIP asserts that these are investments or
improvements that must be capitalized and, therefore, it made a jeopardy
assessment of income tax due on a nominal tax basis plus fines and interest in
fiscal years 1995 to 1999 amounting to approximately USD 21.7
million.
The
Company appealed these assessments before the National Tax Court, as in the view
of its legal and tax advisors, based on existing evidence and the work performed
by the Tax Authorities, the Company would likely obtain a favorable
ruling.
On April
13, 2005 the Company was notified of a ruling issued by the National Tax Court
reducing the assessments made by the AFIP for fiscal years 1995 and 1996 by USD
14.1 million and instructing the recalculation of taxes in accordance with this
ruling. The Company questioned the recalculation conducted by the AFIP,
generating an incident that had favorable resolution to the criteria exposed by
the Company. Consequently, in December 2006 Siderar made a payment of USD 0.1
million according to the Company´s filing and the Fiscal Court´s approval, which
was then appealed by the AFIP.
Based on
the above, the Company recognized a provision amounting to USD 4.7 million as of
December 31, 2008 as management considers there is a probable cash
outflow.
(ii)
Commitments
The
following are the Company’s main off-balance sheet commitments:
(a)
Siderar entered into a contract with Tenaris, a related company of Ternium, for
the supply of steam generated at the power generation facility that Tenaris owns
in the compound of the Ramallo facility of Siderar. Under this contract, Tenaris
has to provide 250 tn/hour of steam, and Siderar has the obligation to take or
pay this volume. The contracted amount of this outsourcing agreeement totals USD
134.7 million and is due to terminate in 2018.
(b)
Siderar, within the investment plan to increase its production capacity, entered
into several commitments to acquire new production equipment for a total
consideration of USD 223.6 million. Given the severe international financial
crisis, its impact in the steel global market and the uncertainty about the
evolution of steel demand, Siderar rescheduled the execution of its investment
plan and entered into a renegotiation process to reduce the outflow of cash
during 2009.
(c)
Siderar, following global steel industry tendencies, entered into several
renegotiation processes regarding prices related to certain relevant raw
material contracts, considering that the existing contractual terms do not
reflect the current market conditions.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
27
|
Contingencies,
commitments and restrictions on the distribution of profits
(continued)
|
(d)
Siderar entered into a contract with Air Liquide Argentina S.A. for the supply
of oxygen, nitrogen and argon. The contracted amount totals USD 179.5 million
and the agreement is due to terminate in 2025.
(e) The
production process of Ternium Mexico’s (former Hylsa's plants) requires a large
amount of electricity. On December 20, 2000, Hylsa entered into a 25-year
contract with Iberdrola Energia Monterrey, S.A. de C.V. (“Iberdrola”), a Mexican
subsidiary of the Spanish Company Iberdrola Energía, S.A., for the supply of a
contracted electrical demand of 143.2 MW. This contract effectively started on
April 30, 2002, and currently supplies approximately 28% of Ternium México's
electricity needs with the remainder supplied by CFE, the Mexican state-owned
utility company. The contract with Iberdrola will terminate in
2027.
Effective
January 1, 2008, Iberdrola invoked an early termination clause included in the
above mentioned contract in connection with two of the plants located in Puebla
and Apodaca. This early termination clause provides for a ninety-day
period before electricity supply is suspended. Accordingly, the termination of
the contract and the suspension of the energy supply became effective on March
31, 2008. The contracted electrical demand from these two plants represents
approximately 22% of the total demand of 143.2 MW.
(f)
Ternium México (former Hylsamex S.A. de C.V. and subsidiaries) entered into 16
long-term operating lease agreements for the rental of machinery, materials
handling equipment, earth moving equipment, computers and assorted vehicles.
Total amounts due, from 2009 to 2012, include USD 6.3 million in lease payments.
Total loss for lease payments recorded in the year ended December 31, 2008
accounts for USD 6.0 million.
Future
minimum lease payments under non-cancellable operating leases are as
follows:
Year
|
|
USD Million
|
|
2009
|
|
|
4.3 |
|
2010-2012
|
|
|
2.0 |
|
Total
|
|
|
6.3 |
|
(g) On
April 5, 2000, several subsidiaries of Ternium México (former Grupo Imsa) which
have facilities throughout the Mexican territory, entered into a 15-year energy
purchase agreement for approximately 90 MW of electricity as purchased capacity
with Tractebel Energía de Monterrey, S. de R.L. de C.V., distributed among each
plant defined as a capacity user. Each capacity user is committed to
pay Tractebel for the purchased capacity and for the net energy delivered.
Ternium México is required to provide its best estimate of its expected
nomination for capacity and energy under the specific limits and timelines. The
monthly payments are calculated considering the capacity charges, energy
charges, back-up power charges, and transmission charges, less any steam
credits.
(h) On
April 1, 2003, Ternium México (former Grupo Imsa, through Industrias Monterrey
S.A. de C.V.) entered into a contract with PEMEX GAS and Petroquímica Básica for
the supply of natural gas to one of Ternium México’s plants located in Monclova,
based on an annual program established 30 days before the commencement of the
following service year. This annual program is agreed based on Ternium México’s
needs during the relevant period and Ternium México has the obligation to
purchase this agreed volume, which is subject to renegotiation according to the
agreement. The reference price is determined based on the average of the quoted
prices of several indexes plus transportation and service costs depending on the
areas or cities.
(i) On
December 16, 2004, Ternium México (former Grupo Imsa) entered into a ten-year
steel slab supply agreement (the “Agreement”) with Corus UK Limited (“Corus”)
together with Grupo Marcegaglia (Italy), Duferco International (Switzerland),
Donkuk Steel (South Korea) (collectively referred to as the “Off-takers”).
During the term of the contract, Ternium México through one of its subsidiaries,
will be entitled to purchase 15.4% of the production of Corus’ Teeside plant,
estimated between 3.2 and 3.6 million tons of steel slab per year. This
represents approximately 20% of Ternium México’s actual steel slab needs. The
Agreement also establishes a supply schedule for each of the
Off-takers.
Ternium
México is committed to make predetermined cash payments during the term of the
contract in addition to the purchase price paid for the steel slab, as follows:
(i) an initial payment of USD 14.3 million, (ii) twenty semi-annual payments
distributed proportionately in different percentages until 2014 for a total of
USD 16.5 million, and (iii) additional payments for future capital investments
in Corus’ Teeside plant amounting to approximately USD 15.1 million. The initial
payment and the due payments described in (ii) above have been made prior to the
acquisition of Ternium México by Ternium. In December 2007, the rights and
obligations established in this contract were transferred to Alvory
S.A.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
27
|
Contingencies,
commitments and restrictions on the distribution of profits
(continued)
|
(j) On
January 19, 2006, Ternium México (former Grupo Imsa, through Industrias
Monterrey S.A. de C.V) entered into an agreement with Gas Industrial de
Monterrey, S.A. de C.V (GIMSA), under which GIMSA agrees to supply natural gas
to two of Ternium México’s plants, based on an Annual Firm Base which is
established 45 days before the commencement of the following service year and is
determined based on Ternium México’s daily needs for the relevant period.
Ternium México has the obligation to purchase the agreed volume, which is
subject to changes according to written communications, as established in the
agreement. The price is determined on a monthly basis pursuant to the
methodology approved by the Energy Regulatory Commission for prices applicable
to the area.
(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
has reached an amount equal to 10% of the share capital. At December 31, 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 the consolidated financial
statements may not be wholly distributable.
Shareholders'
equity under Luxembourg law and regulations comprises the following
captions:
|
|
At
December 31, 2008
|
|
Share
capital
|
|
|
2,004,743 |
|
Legal
reserve
|
|
|
200,474 |
|
Distributable
reserves
|
|
|
201,674 |
|
Non
distributable reserves
|
|
|
1,414,123 |
|
Accumulated
profit at January 1, 2008
|
|
|
1,231,826 |
|
Profit
for the year
|
|
|
225,455 |
|
Total
shareholders equity under Luxembourg GAAP
|
|
|
5,278,295 |
|
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.
As
mentioned in Note 1, on January 11, 2006, the Company launched an Initial Public
Offering of 24,844,720 ADSs (each representing 10 shares of the Company) in the
United States. The Company´s Initial Public Offering was settled on February 6,
2006.
In
connection with the over-allotment described in Note 1, on March 1, 2006, the
Company issued 22,981,360 new shares.
As per
the provisions contained in the Subordinated Convertible Loan Agreement, on
February 6, 2006 the Company exchanged the Subordinated Convertible Loans
(including interest accrued through January 31, 2006) held by ISL and converted
them into shares at a conversion price of USD2 per share, resulting in the
issuance of 302,962,261 new shares on February 9, 2006.
As
provided in the Corporate Reorganization Agreement, on February 9, 2006, ISL
contributed all of its assets and liabilities (including its interest in
Amazonia) to the Company in exchange for 959,482,775 newly-issued shares of the
Company after the settlement of the Initial Public Offering.
Upon
consummation of the transactions mentioned above, as of December 31, 2006, the
capital was increased to USD 2,004,743,442 represented by 2,004,743,442 shares,
each having a nominal value of USD 1.00 each.
For
fiscal years 2008, 2007 and 2006, the weighted average of shares outstanding
totaled 2,004,743,442, 2,004,743,442 and 1,936,833,060 shares,
respectively.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
28
|
Earnings
per share (continued)
|
Earnings
per share are calculated by dividing the net income attributable to equity
holders of the Company by the daily weighted average number of ordinary shares
outstanding during the year. Diluted earnings per share have been calculated
giving effect to the conversion of the Subordinated Convertible Loans on the
date each one was entered into.
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Profit
attributable to equity holders of the Company
|
|
|
715,418 |
|
|
|
784,490 |
|
|
|
795,424 |
|
Weighted
average number of ordinary shares in issue
|
|
|
2,004,743,442 |
|
|
|
2,004,743,442 |
|
|
|
1,936,833,060 |
|
Basic
earnings per share (USD per share)
|
|
|
0.36 |
|
|
|
0.39 |
|
|
|
0.41 |
|
Diluted
earnings per share (USD per share)
|
|
|
0.36 |
|
|
|
0.39 |
|
|
|
0.41 |
|
29
|
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 722.7 million on a cash-free and debt-free basis, net of 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 97.5 million, calculated as the net proceeds
of the sale less the book value of discontinued net assets and the corresponding
tax effect.
(ii)
Available for sale assets - Sidor
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.
Further
to several threats of nationalization and various adverse interferences with
management in preceding years, 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 was
completed. In the meantime, the Venezuelan Government took control of
the process of negotiation of the collective labor agreement and excluded Sidor
from that process.
On April
29, 2008, the National Assembly of Venezuela passed a resolution declaring that
the shares of Sidor, together with all of its assets, were of public and social
interest. This resolution authorized the Venezuelan government to take any
action it deemed appropriate in connection with any such assets, including
expropriation.
On May
11, 2008, the Decree Law 6058 of the President of Venezuela regulating the steel
production activity in the Guayana, Venezuela region (the “Decree”), dated April
30, 2008, was published. 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 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, and a separate technical committee, composed of representatives of the
government and the private shareholders of Sidor and its subsidiaries and
associated companies, 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.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
29
|
Discontinued
operations (continued)
|
(ii)
Assets held for sale - Sidor (continued)
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
(the “MIBAM”) 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.
On May 2,
2008, the Company communicated to the MIBAM, among other things, its 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”) established
by the Convention on the Settlement of Investment Disputes between States and
the Nationals of Other States (the “ICSID Convention”). On May 14, 2008, the
Company informed the MIBAM, 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 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 and Sidor's board of directors ceased to function.
Thereafter, Sidor's operations were to be managed by a temporary operating
committee; this committee, which could act by simple majority, was to have six
members, with the majority of such members being appointed by CVG and one of
CVG's appointees to become the committee's president and Sidor's general
manager. However, the temporary operating committee has subsequently become
non-operational and, accordingly, Sidor's operations are exclusively controlled
and managed by Venezuela through CVG and MIBAM.
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 would be transferred to
Venezuela was extended until August 18, 2008. Negotiations continued even after
this additional term expired. On August 29, 2008, the President of Venezuela
publicly stated his rejection of the latest proposal submitted by the Company to
the Venezuelan authorities as part of their ongoing negotiations. The
negotiations were subsequently resumed and continue to be under way. As the date
of issuance of these financial statements, Ternium continues to retain formal
title over the shares.
On August
29, 2008, Ternium gave further notice to the MIBAM regarding the existence of a
controversy under the applicable bilateral investment treaties as a consequence
of the nationalization ordered by the President of Venezuela without payment of
adequate compensation, and reserved the right to initiate arbitration
proceedings before ICSID.
The
Company’s investment in Sidor is protected under several bilateral investment
treaties, including the treaty between Venezuela and the Belgium-Luxembourg
Economic Union, 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 prior to state
intervention. 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 a
financial asset based on the definitions contained in paragraphs 11(c)(i) and 13
of IAS 32.
The
Company classified its interest in Sidor as an available-for-sale investment
since management believes it does not fulfill the requirements for
classification within any of the remaining categories provided by IAS 39 and
such classification is the most appropriate accounting treatment applicable to
non-voluntary dispositions of assets.
Consistent
with that treatment, the cost on initial measurement of the Sidor financial
asset was its carrying amount at March 31, 2008 (IAS 27, paragraphs 31 and 32),
and any difference between the carrying amount and the fair value of the Sidor
financial asset at each reporting date shall be recognized directly in equity,
except for impairment charges, foreign exchange gains/losses and the application
of the effective interest method (IAS 39, paragraph 55(b)).
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
29
|
Discontinued
operations (continued)
|
(ii)
Assets held for sale - Sidor (continued)
Ternium
is entitled to receive compensation in an amount equal to the fair value of
Sidor just before the nationalization measures were announced as provided, among
others, by Article 4 of the bilateral investment treaty between the
Belgian-Luxembourg Economic Union and Venezuela. In addition, Ternium is
entitled to submit the dispute concerning the nationalization to arbitration
administered by ICSID, and in accordance with the ICSID Convention, a judgment
by ICSID awarding compensation to Ternium would be binding upon the parties and
immediately enforceable as if it were a final judgment of a court of each of the
143 States, including Venezuela, that have ratified the ICSID
Convention.
In
determining fair value though several valuation techniques, as further explained
below, in all cases Ternium concluded that the amount of the expected
compensation for the Sidor financial asset would be higher than the carrying
amount. However, the variability in the range of fair value estimates is
significant and the probabilities of the various estimates within that range
cannot be reasonably assessed. Accordingly, and following the guidance set forth
by paragraphs 46 (c), AG 80 and AG 81 of IAS 39, Ternium continues to record the
Sidor financial asset at its carrying amount.
Ternium
tests the Sidor financial asset for impairment at each reporting period. In
measuring fair value, Ternium employs several different valuation techniques.
Specifically, Ternium performed fair value estimates on the basis of discounted
cash flows, FV/EBITDA multiples based on market capitalization of public steel
companies and capacity multiples of public steel companies, as well as multiples
of transactions that took place in the period preceding the nationalization,
using FV/EBITDA and capacity multiples. In all of the scenarios evaluated by the
Company, the estimated fair value of Ternium's interest in Sidor, as calculated
by the Company, exceeds the carrying amount of the Sidor asset at December 31,
2008 (USD 1.3 billion). Consequently, the Company did not recognize any
impairment loss in connection with the Sidor financial asset.
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.
(iii) Analysis of the
result of discontinued operations:
|
|
Year
ended December 31,
|
|
|
|
2008
(1)
|
|
|
2007
(2)
|
|
|
2006
(3)
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
467,618 |
|
|
|
2,899,049 |
|
|
|
2,055,582 |
|
Cost
of sales
|
|
|
(306,744 |
) |
|
|
(1,833,427 |
) |
|
|
(1,172,156 |
) |
Gross
profit
|
|
|
160,874 |
|
|
|
1,065,622 |
|
|
|
883,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
(90,362 |
) |
|
|
(328,850 |
) |
|
|
(247,749 |
) |
Other
operating income (expenses), net
|
|
|
1,080 |
|
|
|
13,146 |
|
|
|
(2,915 |
) |
Operating
income
|
|
|
71,592 |
|
|
|
749,918 |
|
|
|
632,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
expenses, net
|
|
|
(15,330 |
) |
|
|
(13,018 |
) |
|
|
(8,480 |
) |
Loss
from Participation Account – Sidor
|
|
|
(96,525 |
) |
|
|
(701,599 |
) |
|
|
(670,874 |
) |
Income
from Participation Account
|
|
|
210,205 |
|
|
|
419,065 |
|
|
|
400,713 |
|
Equity
in (losses) earnings of associated companies
|
|
|
(150 |
) |
|
|
(7,499 |
) |
|
|
3,863 |
|
Income
before income tax
|
|
|
169,792 |
|
|
|
446,867 |
|
|
|
357,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
41,326 |
|
|
|
133,058 |
|
|
|
86,484 |
|
Discontinued
operations
|
|
|
211,118 |
|
|
|
579,925 |
|
|
|
444,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal
of currency translation adjustment - Sidor
|
|
|
(151,504 |
) |
|
|
- |
|
|
|
- |
|
Results
from the sale of non strategic U.S. assets - see Note 29
(i)
|
|
|
97,481 |
|
|
|
- |
|
|
|
- |
|
Income
from discontinued operations
|
|
|
157,095 |
|
|
|
579,925 |
|
|
|
444,468 |
|
(1)
|
Includes
the results of Sidor for the period January 1, 2008 up to March 31,
2008.
|
(2)
|
Includes
the results of Sidor for the period January 1, 2007 up to December 31,
2007 and the results from non strategic U.S. assets from August 1, 2007 up
to December 31, 2007.
|
(3)
|
Includes
the results of Sidor for the period January 1, 2006 up to December 31,
2006.
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
29
|
Discontinued
operations (continued)
|
(iv) Analysis of cash flows from
discontinued operations:
|
|
Year
ended December 31,
|
|
|
|
2008
(1)
|
|
|
2007
(2)
|
|
|
2006
(3)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operating activities
|
|
|
|
|
|
|
|
|
|
Net
income of from discontinued operations
|
|
|
157,095 |
|
|
|
579,925 |
|
|
|
444,468 |
|
Adjustments
for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
50,820 |
|
|
|
217,662 |
|
|
|
166,518 |
|
Income
tax accruals less payments
|
|
|
(41,613 |
) |
|
|
(133,930 |
) |
|
|
(86,485 |
) |
Results
from the sale of non strategic U.S. assets
|
|
|
(97,481 |
) |
|
|
- |
|
|
|
- |
|
Reversal
of currency translation adjustment - Sidor
|
|
|
151,504 |
|
|
|
- |
|
|
|
- |
|
Changes
in working capital and others
|
|
|
107,184 |
|
|
|
(39,356 |
) |
|
|
(40,906 |
) |
Cash
flows from discontinued operating activities
|
|
|
327,509 |
|
|
|
624,301 |
|
|
|
483,595 |
|
Net
cash used in discontinued investing activities
|
|
|
(54,923 |
) |
|
|
(98,685 |
) |
|
|
(82,835 |
) |
Net
cash used in discontinued financing activities
|
|
|
(30,216 |
) |
|
|
(106,311 |
) |
|
|
(73,856 |
) |
Net
cash flows from discontinued operations
|
|
|
242,370 |
|
|
|
419,305 |
|
|
|
326,904 |
|
(1)
|
Includes
cash flow movements from Sidor for the period January 1, 2008 up to March
31, 2008.
|
(2)
|
Includes
cash flow movements from Sidor for the period January 1, 2007 up to
December 31, 2007 and cash flow movements from non strategic U.S. assets
from August 1, 2007 up to December 31,
2007.
|
(3)
|
Includes
cash flow movements from Sidor for the period January 1, 2006 up to
December 31, 2006.
|
30
|
Related
party transactions
|
The
Company is controlled by San Faustín, which at December 31, 2008 indirectly
owned 72.10% 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 us 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.. For commitments with Related Parties see Note 27.
The
following transactions were carried out with related parties:
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
(i) Transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Sales
of goods and services
|
|
|
|
|
|
|
Sales
of goods to associated parties
|
|
|
- |
|
|
|
7 |
|
Sales
of goods to other related parties
|
|
|
109,036 |
|
|
|
50,431 |
|
Sales
of services to associated parties
|
|
|
43 |
|
|
|
54 |
|
Sales
of services to other related parties
|
|
|
1,101 |
|
|
|
4,318 |
|
|
|
|
110,180 |
|
|
|
54,810 |
|
(b) Purchases
of goods and services
|
|
|
|
|
|
|
|
|
Purchases
of goods from other related parties
|
|
|
61,127 |
|
|
|
46,049 |
|
Purchases
of services from associated parties
|
|
|
32,796 |
|
|
|
24,163 |
|
Purchases
of services from other related parties
|
|
|
172,708 |
|
|
|
129,324 |
|
|
|
|
266,631 |
|
|
|
199,536 |
|
(c) Financial
results
|
|
|
|
|
|
|
|
|
Income
with associated parties
|
|
|
906 |
|
|
|
534 |
|
|
|
|
906 |
|
|
|
534 |
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
30
|
Related
party transactions (continued)
|
(ii)
Transactions involving discontinued operations
During
the three-month period ended March 31, 2008 and during the year ended December
31, 2007, Sidor entered into several transactions with related parties outside
the Ternium group. These transactions have been included within “Income from
discontinued operations” in the consolidated income statements for the years
ended December 31, 2008 and 2007. The related amounts are described in the table
below:
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Sales
of goods and services to related parties/associated
companies
|
|
|
14,644 |
|
|
|
82,090 |
|
Purchases
of goods and services to related parties/associated
companies
|
|
|
29,947 |
|
|
|
92,447 |
|
Financial
income with related parties/associated companies
|
|
|
488 |
|
|
|
2,932 |
|
|
|
|
45,079 |
|
|
|
177,469 |
|
(iii)
Year-end balances
|
|
At
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
a)
Arising from sales/purchases of goods/services and other
transactions
|
|
|
|
|
|
|
Receivables
from associated parties
|
|
|
1,655 |
|
|
|
937 |
|
Receivables
from other related parties
|
|
|
20,271 |
|
|
|
87,744 |
|
Advances
to suppliers with other related parties
|
|
|
27,302 |
|
|
|
5,303 |
|
Payables
to associated parties
|
|
|
(1,164 |
) |
|
|
(5,084 |
) |
Payables
to other related parties
|
|
|
(44,047 |
) |
|
|
(32,346 |
) |
|
|
|
4,017 |
|
|
|
56,554 |
|
|
|
|
|
|
|
|
|
|
(b)
Other investments
|
|
|
|
|
|
|
|
|
Time
deposit
|
|
|
15,075 |
|
|
|
12,673 |
|
|
|
|
15,075 |
|
|
|
12,673 |
|
(iv)
Officers and Directors’ compensation
The
aggregate compensation of Officers and Directors earned during the years ended
December 31, 2008, 2007 and 2006 amounts to USD 10,955 thousand, USD 9,984
thousand and USD 10,276 thousand, respectively.
|
|
|
At
December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
(i)
|
Changes
in working capital (i)
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
(821,713 |
) |
|
|
(59,249 |
) |
|
|
(204,431 |
) |
|
Receivables,
other investments and others
|
|
|
(35,031 |
) |
|
|
32,312 |
|
|
|
45,812 |
|
|
Trade
receivables
|
|
|
(22,535 |
) |
|
|
68,962 |
|
|
|
(55,046 |
) |
|
Other
liabilities
|
|
|
20,412 |
|
|
|
(3,543 |
) |
|
|
(59,161 |
) |
|
Trade
payables
|
|
|
(212,605 |
) |
|
|
59,246 |
|
|
|
116,119 |
|
|
|
|
|
(1,071,472 |
) |
|
|
97,728 |
|
|
|
(156,707 |
) |
(ii)
|
Income
tax accruals less payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
accrued (Note 11)
|
|
|
162,703 |
|
|
|
291,345 |
|
|
|
353,044 |
|
|
Taxes
paid
|
|
|
(251,214 |
) |
|
|
(342,816 |
) |
|
|
(280,431 |
) |
|
|
|
|
(88,511 |
) |
|
|
(51,471 |
) |
|
|
72,613 |
|
(iii)
|
Interest
accruals less payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
accrued
|
|
|
138,979 |
|
|
|
135,755 |
|
|
|
110,500 |
|
|
Interest
paid
|
|
|
(223,130 |
) |
|
|
(48,175 |
) |
|
|
(108,263 |
) |
|
|
|
|
(84,151 |
) |
|
|
87,580 |
|
|
|
2,237 |
|
(i)
Changes in working capital are shown net of the effect of exchange rate
changes.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
32
|
Recently
issued accounting pronouncements
|
(i)
International Financial Reporting Standard 8, “Operating Segments”
In
November 2006, the International Accounting Standards Board issued International
Financial Reporting Standard 8, “Operating Segments” (“IFRS”). IFRS 8 sets out
requirements for disclosure of information about an entity’s operating segments
and also about the entity’s products and services, the geographical areas in
which it operates, and its major customers.
An entity
shall apply IFRS 8 in its annual financial statements for periods beginning on
or after January 1, 2009. Earlier application is permitted. If an entity applies
IFRS 8 in its financial statements for a period before January 1, 2009, it shall
disclose that fact.
The
Company's management has not assessed the potential impact that the application
of IFRS 8 may have on the Company's financial condition or results of
operations.
(ii)
International Accounting Standard 23 (revised 2007), “Borrowing
Costs”
In March
2007, the International Accounting Standards Board issued International
Accounting Standard 23 (revised 2007), “Borrowing Costs” (the “Standard”). The
Standard provides that borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying asset form part of the
cost of that asset, while all other borrowing costs shall be recognized as an
expense.
The
Standard supersedes IAS 23 (revised 1993) and is applicable for annual periods
beginning on or after 1 January 2009. Earlier application is permitted. If an
entity applies the Standard from a date before 1 January 2009, it shall disclose
that fact.
The
Company's management estimates that the application of IAS 23 (revised 2007)
will not have a material effect on the Company's financial condition or results
of operations.
(iii) 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 estimates that the application of IAS 27 - amended will not
have a material effect on the Company's financial condition or results of
operations.
(iv)
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, until a business combination is consummated.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
32
|
Recently
issued accounting
pronouncements (continued)
|
(v)
International Financial Reporting Standard 2 (amended January 2008),
“Share-based payments”
In
January 2008, the IASB issued International Financial Reporting Standard 2
(amended January 2008), “Share-based payments” (“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.
(vi)
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 estimates that the application of IAS 32 (revised 2008) and
IAS 1 (revised 2008) will not have a material effect on the Company's financial
condition or results of operations.
(vii)
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.
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.
(viii)
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 estimates that the application of this paper will not have
a material effect on the Company’s financial condition or results of
operations.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
32
|
Recently
issued accounting
pronouncements (continued)
|
(ix)
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.
(x)
Amendments to IAS 39 “Financial Instruments: Recognition and
Measurement”
In July
2008, the IASB amended International Accounting Standard 39 “Financial
Instruments: Recognition and Measurement” (“IAS 39 - amended”). IAS 39 - amended
includes modifications to International Accounting Standard 39 that are related,
primarily, to clarify how the principles that determine whether a hedged risk or
portion of cash flows is eligible for designation should be applied in
particular situations.
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 estimates that the application of IAS 39 – amended will not
have a material effect on the Company’s financial condition or results of
operations.
(xi)
Amendments to IAS 39 “Financial Instruments: Recognition and Measurement” and
IFRS 7 “Financial Instruments: Disclosures”
In
October 2008, the IASB amended International Accounting Standard 39 “Financial
Instruments: Recognition and Measurement” (“IAS 39 - amended”) and IFRS 7
“Financial Instruments: Disclosures” (“IFRS 7 – amended”). The
amendments will only permit reclassification of certain non-derivative financial
assets recognized in accordance with IAS 39. Financial liabilities, derivatives
and financial assets that are designated as at fair value through profit or loss
on initial recognition under the fair value option cannot be reclassified. The
amendments therefore only permit reclassification of debt and equity financial
assets subject to meeting specified criteria and do not permit reclassification
into the category of fair value through profit or loss.
Entities
shall apply these amendments on or after 1 July 2008. Entities are not permitted
to reclassify financial assets in accordance with the amendments before 1 July
2008. Any reclassification of a financial asset made on or after 1 November 2008
will take effect only from the date when the reclassification is made. Any
reclassification of a financial asset in accordance with the amendments should
not be applied retrospectively to reporting periods ended before the effective
date.
The
Company’s management estimates that the application of IAS 39 – amended and IFRS
7 - amended will not have a material effect on the Company’s financial condition
or results of operations.
33
|
Financial
risk management
|
1) Financial
risk factors
Ternium’s
activities expose the Company to a variety of risks: market risk (including the
effects of changes in foreign currency exchange rates, interest rates and
commodities prices), credit risk and liquidity risk.
Ternium’s
overall risk management program focuses on the unpredictability of financial
markets and seeks to minimize potential adverse effects on the financial
performance. Ternium’s subsidiaries may use derivative financial instruments to
hedge certain risk exposures.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
33
|
Financial
risk
management (continued)
|
1.1) Market
Risk
(i)
Foreign exchange rate risk
Ternium
operates and sells its products in different countries, and as a result is
exposed to foreign exchange rate volatility. In addition, the Company entered
into several borrowings that contain covenants providing for the compliance with
certain financial ratios, including ratios measured in currencies other that the
U.S. dollar. This situation exposes Ternium to a risk of non-compliance derived
from volatility in foreign exchange rates. Ternium’s subsidiaries may use
derivative contracts in order to hedge their exposure to exchange rate risk
derived from their trade and financial operations.
Ternium
general policy is to minimize the negative impact of fluctuations in the value
of other currencies with respect to the U.S. dollar. Ternium’s subsidiaries
monitor their net operating cash flows in currencies other than the U.S. dollar,
and analyze potential hedgings according to market conditions. These hedgings
can be carried out by netting operational positions or by financial derivatives.
However, regulatory or legal restrictions in the countries in which Ternium’s
subsidiaries operate, could limit the possibility of the Company carrying out
its hedging policy.
Ternium
has foreign operations, whose net assets are exposed to foreign currency
translation risk, some of which may impact net income. The fact that some
subsidiaries have measurement currencies other than the U.S. dollar may, at
times, distort the results of the hedging efforts as reported under
IFRS.
(i)
Foreign exchange rate risk (continued)
The
following table shows a breakdown of Ternium’s assessed balance sheet exposure
to currency risk as of December 31, 2008. These balances include intercompany
positions where the intervening parties have different functional
currencies.
|
|
|
|
USD
million
|
|
Functional
Currency
|
|
Exposure
to
|
|
USD
|
|
|
MXN
|
|
|
ARS
|
|
|
|
|
|
|
|
|
|
|
|
US
dollar (USD)
|
|
|
(n/a |
) |
|
|
(2,286.3 |
) |
|
|
(152.8 |
) |
EU
euro (EUR)
|
|
|
30.2 |
|
|
|
(6.4 |
) |
|
|
55.2 |
|
Other
currencies
|
|
|
1.1 |
|
|
|
- |
|
|
|
- |
|
We
estimate that if the Argentine peso and Mexican peso had weakened by 1% against
the US dollar with all other variables held constant, total pre-tax income for
the year would have been USD 24.3 million lower, as a result of foreign exchange
gains/losses on translation of US dollar-denominated financial position, mainly
trade receivables and borrowings. This effect would have been offset by the
change in the currency translation adjustment recorded in equity.
Considering
the same variation of the currencies against the US dollar of all net
investments in foreign operations amounting to USD 3.3 billion, the currency
translation adjustment included in total equity would have been USD 33.4 million
lower, arising from the adjustment on translation of the equity related to the
Mexican peso and the Argentine peso.
(ii)
Interest rate risk
Ternium
manages its exposure to interest rate volatility through its financing
alternatives and hedging instruments. Borrowings issued at variable rates expose
the Company to the risk of increased interest expense in the event of a raise in
market interest rates, while borrowings issued at fixed rates expose the Company
to a variation in its fair value. The Company’s interest-rate risk mainly arises
from long-term borrowings that bear variable-rate interest that is partially
fixed through different derivative transactions, such as swaps and structures
with options. The Company’s general policy is to maintain a balance between
instruments exposed to fixed and variable rates; which can be modified according
to long term market conditions.
Ternium’s
nominal weighted average interest rate for its debt instruments was 1.98% and
6.15% for 2008 and 2007, respectively. These rates were calculated using the
rates set for each instrument in its corresponding currency and weighted using
the dollar-equivalent outstanding principal amount of each instrument as of
December 31, 2008 and 2007, respectively. This nominal weighted average interest
rate does not include the effect of derivative financial
instruments.
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
33
|
Financial
risk
management (continued)
|
1.1) Market
Risk (continued)
(ii)
Interest rate risk (continued)
Ternium’s
total variable interest rate debt amounted to USD 3,040 million (93% of total
borrowings) at December 31, 2008 and USD 3,888 million (95 % of total
borrowings) at December 31, 2007.
If
interest rates on the aggregate average notional of US dollar denominated
borrowings held during 2008, would have been 100 basis points higher with all
other variables held constant, total profit for the year ended December 31, 2008
would have been USD 34.0 million lower, excluding the effect of derivative
contracts mentioned in Note 25 (a).
(iii)
Commodity price risk
In the
ordinary course of its operations, Ternium purchases raw materials (such as iron
ore and slabs) and other commodities (including electricity and gas). Commodity
prices are generally volatile as a result of several factors, including those
affecting supply and demand, political, social and economic conditions, and
other circumstances. Ternium monitors its exposure to commodity price volatility
on a regular basis and applies customary commodity price risk management
strategies, including entering into long-term supply agreements and/or fixing
commodity prices for limited periods of time. For further information on
long-term commitments, see note 27(ii).
1.2) Credit
risk
Credit
risk arises from cash and cash equivalents, deposits with banks and financial
institutions, as well as credit exposures to customers, including outstanding
receivables and committed transactions. Ternium’s subsidiaries have credit
guidelines in place to ensure that derivative and treasury counterparties are
limited to high credit quality financial institutions.
Ternium
has no significant concentrations of credit risk from customers. No single
customer accounts for more than five percent of Ternium’s sales. Ternium’s
subsidiaries have policies in place to ensure that sales are made to customers
with an appropriate credit history, and that credit insurances, letters of
credit or other instruments are requested to reduce credit risk whenever deemed
necessary. The subsidiaries maintain allowances for potential credit losses. The
utilization of credit limits is regularly monitored.
Trade and
other receivables are carried at face value less allowance for doubtful
accounts, if applicable. This amount does not differ significantly from fair
value. The other receivables do not contain significant impaired
assets.
As of
December 31, 2008, trade receivables total USD 623.0 million. These trade
receivables are collateralized by guarantees under letter of credit and other
bank guarantees of USD 44.7 million, credit insurance of USD 316.3 million and
other guarantees of USD 14.4 million.
As of
December 31, 2008, trade receivables of USD 534.9 million were fully
performing.
As of
December 31, 2008, trade receivables of USD 88.1 million were past due but not
impaired. These relate to a number of independent customers for whom there is no
recent history of default. These trade receivables as of December 31, 2008, are
past due less than 3 months.
The
amount of the allowance for doubtful accounts was USD 23.4 million as of
December 31, 2008. This allowance for doubtful accounts and the
existing guarantees are sufficient to cover overdue trade
receivables.
The
carrying amounts of the Company’s trade and other receivables as of December 31,
2008, are denominated in the following currencies:
|
|
|
|
Currency
|
|
USD
million
|
|
|
|
|
|
US
dollar (USD)
|
|
|
610.6 |
|
EU
euro (EUR)
|
|
|
69.2 |
|
Argentine
peso (ARS)
|
|
|
80.4 |
|
Mexican
peso (MXN)
|
|
|
230.8 |
|
Other
currencies
|
|
|
1.1 |
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
33
|
Financial
risk management (continued)
|
1.3) Liquidity
risk
Management
maintains sufficient cash and marketable securities and credit facilities to
finance normal operations.
Management
monitors rolling forecasts of the group’s liquidity reserve on the basis of
expected cash flow.
The
Company has not negotiated additional credit facilities.
The table
below analyses financial liabilities into relevant maturity groups based on the
remaining period at the balance sheet to the contractual maturity date. The
amounts disclosed in the table are the contractual undiscounted cash
flows.
|
|
Expected
Maturity Date (at December 31, 2008)
|
|
USD
million
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
941.5 |
|
|
|
542.9 |
|
|
|
493.4 |
|
|
|
1,289.6 |
|
|
|
- |
|
Interests
to be accrued
|
|
|
53.3 |
|
|
|
28.0 |
|
|
|
20.5 |
|
|
|
15.1 |
|
|
|
- |
|
Trade
payables and other liabilities
|
|
|
503.0 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,497.8 |
|
|
|
570.9 |
|
|
|
513.9 |
|
|
|
1,304.7 |
|
|
|
- |
|
1.4) Capital
risk
Ternium
seeks to maintain an adequate debt/equity ratio considering the industry and the
markets where it operates. The year-end ratio debt over debt plus equity is 0.37
and 0.39 as of December 31, 2008 and 2007, respectively. The Company does not
have to comply with regulatory capital adequacy requirements as known in the
financial services industry.
2)
Financial instruments by category
The
accounting policies for financial instruments have been applied to the line
items below:
At
December 31, 2008
(in
USD thousand)
|
|
Loans
and receivables
|
|
|
Assets
at fair value through profit and loss
|
|
|
Derivatives
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) Assets
as per balance sheet (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
39,626 |
|
|
|
|
|
|
|
|
|
39,626 |
|
Derivative
financial
|
|
|
|
|
|
|
|
|
|
1,516 |
|
|
|
1,516 |
|
Trade
receivables
|
|
|
622,992 |
|
|
|
|
|
|
|
|
|
|
622,992 |
|
Other
investments
|
|
|
|
|
|
|
105,084 |
|
|
|
|
|
|
|
105,084 |
|
Cash
and cash equivalents
|
|
|
|
|
|
|
1,065,552 |
|
|
|
|
|
|
|
1,065,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
662,618 |
|
|
|
1,170,636 |
|
|
|
1,516 |
|
|
|
1,834,770 |
|
(1) It does not include available for sale
assets related to discontinued operations- Sidor (see note 29
(ii))
At
December 31, 2008
(in
USD thousand)
|
|
Derivatives
|
|
|
Other
financial liabilities
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(ii) Liabilities
as per balance sheet
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
|
|
|
104,945 |
|
|
|
104,945 |
|
Trade
payables
|
|
|
|
|
|
398,096 |
|
|
|
398,096 |
|
Derivative
financial instruments
|
|
|
123,044 |
|
|
|
|
|
|
|
123,044 |
|
Borrowings
|
|
|
|
|
|
|
3,267,327 |
|
|
|
3,267,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
123,044 |
|
|
|
3,770,368 |
|
|
|
3,893,412 |
|
TERNIUM
S.A.
Notes
to the Consolidated Financial Statements (Contd.)
33
|
Financial
risk management (continued)
|
3)
Accounting for derivative financial instruments and hedging
activities
Derivative
financial instruments are initially recognized in the balance sheet at cost and
subsequently remeasured at fair value. Changes in fair value are disclosed under
Financial income, net line item in the income statement. Ternium does not hedge
its net investments in foreign entities.
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,
collars and commodities contracts). 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.
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 December 31, 2008, the effective portion of designated cash
flow hedges amounts to USD 59.5 million (net of taxes for USD 23.1 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
Ternium
documents at the inception of the transaction the relationship between hedging
instruments and hedged items, as well as its risk management objectives and
strategy for undertaking various hedging transactions. The group also documents
its assessment, both at hedge inception and on an ongoing basis, of whether the
derivatives that are used in hedging transactions are highly effective in
offsetting changes in fair values or cash flows of hedged items.
The fair
values of various derivative instruments used for hedging purposes are disclosed
in Note 25. The full fair value of a hedging derivative is classified as a
non-current asset or liability when the remaining hedged item is more than 12
months and as a current asset or liability when the remaining maturity of the
hedged item is less than 12 months.
Changes
in the fair value of any derivative instruments that do not qualify for hedge
accounting under IAS 39 are recognized immediately in the income
statement.
4)
Fair value estimation
The
estimated fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale.
For the
purpose of estimating the fair value of financial assets and liabilities with
maturities of less than one year, the Company uses the market value less any
estimated credit adjustments. For other investments, including the trust fund,
the Company uses quoted market prices.
As most
borrowings include variable rates or fixed rates that approximate market rates
and the contractual re-pricing occurs every 3 to 6 months, the fair value of the
borrowings approximates its carrying amount and is not disclosed
separately.
In
assessing the fair value of derivatives and other financial instruments, Ternium
uses a variety of methods, including, but not limited to, estimated discounted
value of future cash flows using assumptions based on market conditions existing
at each balance sheet date.
Roberto
Philipps
Chief
Financial Officer
-58-