FORM 6 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
As of 8/2/2007
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 X Form 40-F
----- -----
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 No X
----- -----
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):
Not applicable
The attached material is being furnished to the Securities and Exchange
Commission pursuant to Rule 13a-16 and Form 6-K under the Securities Exchange
Act of 1934, as amended.
This report contains Ternium S.A.'s consolidated financial statements as of June
30, 2007.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TERNIUM S.A.
By: /s/ Roberto Philipps By: /s/ Daniel Novegil
-------------------- ------------------
Name: Roberto Philipps Name: Daniel Novegil
Title: Chief Financial Officer Title: Chief Executive Officer
Dated: August 2, 2007
TERNIUM S.A.
CONSOLIDATED CONDENSED INTERIM
FINANCIAL STATEMENTS AS OF JUNE 30, 2007
AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 2007 AND 2006
46a, Avenue John F. Kennedy, 2nd floor
L - 1855
R.C.S. Luxembourg : B 98 668
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Ternium S.A.:
We have reviewed the accompanying consolidated condensed balance sheet of
Ternium S.A. and its subsidiaries as of June 30, 2007, and the related
consolidated condensed statements of income and of changes in shareholders'
equity for each of the six-month periods ended June 30, 2007 and 2006 and the
consolidated condensed statements of cash flows for the six-month periods ended
June 30, 2007 and 2006. These interim financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated condensed interim financial statements
for them to be in conformity with International Financial Reporting Standards.
We previously audited in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet as of
December 31, 2006, and the related consolidated statements of income, of changes
in shareholders' equity and of cash flows for the year then ended (not presented
herein), and in our report dated February 27, 2007 we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet information
as of December 31, 2006, is fairly stated in all material respects in relation
to the consolidated balance sheet from which it has been derived
Buenos Aires, Argentina
August 2, 2007
PRICE WATERHOUSE & CO. S.R.L.
by (Partner)
-------------------------------
Marcelo D. Pfaff
TERNIUM S.A.
Consolidated condensed interim financial statements as of June 30, 2007
and for the six-month periods ended June 30, 2007 and 2006
(All amounts in USD thousands)
CONSOLIDATED CONDENSED INTERIM INCOME STATEMENTS
Three-month period Six-month period
ended June 30, ended June 30,
-------------------------------- --------------------------------
Notes 2007 2006 2007 2006
------------ --------------- ---------------- ---------------- ---------------
(Unaudited) (Unaudited)
Net sales 3 1,961,064 1,707,672 3,759,357 3,238,671
Cost of sales 3 & 4 (1,308,740) (1,075,701) (2,532,630) (2,065,358)
--------------- ---------------- ---------------- ---------------
Gross profit 3 652,324 631,971 1,226,727 1,173,313
Selling, general and administrative expenses 3 & 5 (198,280) (155,069) (362,829) (306,085)
Other operating (expenses) income, net 3 (3,418) (222) 2,143 1,977
--------------- ---------------- ---------------- ---------------
Operating income 3 450,626 476,680 866,041 869,205
Interest expense (12,909) (29,705) (29,857) (64,019)
Interest income 14,031 12,991 24,848 25,144
Other financial expenses, net 6 (88,058) (91,498) (164,180) (192,867)
Equity in (losses) earnings of associated
companies (388) 907 (1,391) (922)
--------------- ---------------- ---------------- ---------------
Income before income tax expense 363,302 369,375 695,461 636,541
Income tax expense (48,349) (80,194) (128,881) (152,847)
--------------- ---------------- ---------------- ---------------
Net income for the period 314,953 289,181 566,580 483,694
--------------- ---------------- ---------------- ---------------
Attributable to:
Equity holders of the Company 236,928 232,601 459,059 397,644
Minority interest 78,025 56,580 107,521 86,050
--------------- ---------------- ---------------- ---------------
314,953 289,181 566,580 483,694
--------------- ---------------- ---------------- ---------------
Weighted average number of shares outstanding 2,004,743,442 2,004,743,442 2,004,743,442 1,867,797,092
Basic and diluted earnings per share for profit
attributable to the equity holders of the 0.12 0.12 0.23 0.21
Company (expressed in USD per share)
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. These consolidated condensed interim financial
statements should be read in conjunction with our audited Consolidated Financial
Statements and notes for the fiscal year ended December 31, 2006.
2
TERNIUM S.A.
Consolidated condensed interim financial statements as of June 30, 2007
and for the six-month periods ended June 30, 2007 and 2006
(All amounts in USD thousands)
CONSOLIDATED CONDENSED BALANCE SHEETS
Notes June 30, 2007 December 31, 2006
--------- ------------------------------ ------------------------------
(Unaudited)
ASSETS
Non-current assets
Property, plant and equipment, net 7 5,361,882 5,420,683
Intangible assets, net 8 559,961 551,587
Investments in associated companies 49,758 16,285
Other investments, net 13,576 13,387
Deferred tax assets 34,508 36,439
Receivables, net 66,542 6,086,227 78,903 6,117,284
------------- --------------- ------------ ----------------
Current assets
Receivables 152,199 175,818
Derivative financial instruments 1,395 7,852
Inventories, net 1,215,880 1,241,325
Trade receivables, net 729,261 577,866
Cash and cash equivalents 730,843 2,829,578 643,352 2,646,213
------------- --------------- ------------ ----------------
Non-current assets classified as held for sale 7,198 7,042
--------------- ----------------
Total assets 8,923,003 8,770,539
--------------- ----------------
EQUITY
Capital and reserves attributable to the company's
equity holders 4,123,557 3,757,558
Minority interest 1,815,312 1,729,583
--------------- ----------------
Total equity 5,938,869 5,487,141
LIABILITIES
Non-current liabilities
Provisions 65,524 60,543
Deferred income tax 952,245 985,155
Other liabilities 308,176 274,566
Trade payables 7,061 7,229
Borrowings 199,523 1,532,529 548,401 1,875,894
------------- --------------- ------------ ----------------
Current liabilities
Current tax liabilities 122,702 103,195
Other liabilities 190,321 158,374
Trade payables 770,590 621,754
Derivative financial instruments 161 15,487
Borrowings 367,831 1,451,605 508,694 1,407,504
------------- --------------- ------------ ----------------
Total liabilities 2,984,134 3,283,398
--------------- ----------------
Total equity and liabilities 8,923,003 8,770,539
--------------- ----------------
Contingencies, commitments and restrictions on the distribution of profits are
disclosed in Note 10.
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. These consolidated condensed interim financial
statements should be read in conjunction with our audited Consolidated Financial
Statements and notes for the fiscal year ended December 31, 2006.
3
TERNIUM S.A.
Consolidated condensed interim financial statements as of June 30, 2007
and for the six-month periods ended June 30, 2007 and 2006
(All amounts in USD thousands)
CONSOLIDATED CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Attributable to the Company's equity holders (1)
-------------------------------------------------------------------------------------------------------
Initial Capital
Capital public Revaluation stock Currency Retained Total Minority Total
stock offering and other issue translation earnings interest Equity
expenses reserves discount(2) adjustment
-------------------------------------------------------------------------------------------------------
Balance at January 1, 2007 2,004,744 (23,295) 2,047,199 (2,324,866) (121,608) 2,175,384 3,757,558 1,729,583 5,487,141
Currency translation
adjustment 7,177 7,177 (1,791) 5,386
Net income for the period 459,059 459,059 107,521 566,580
-------------------------------------------------------------------------------------------------------
Total recognized income
for the period 7,177 459,059 466,236 105,730 571,966
Dividends paid in cash and
other distributions (100,237) (100,237) (100,237)
Dividends paid in cash and
other distributions by
subsidiary companies (19,871) (19,871)
Acquisition of business (130) (130)
-------------------------------------------------------------------------------------------------------
Balance at June 30, 2007 2,004,744 (23,295) 1,946,962 (2,324,866) (114,431) 2,634,443 4,123,557 1,815,312 5,938,869
-------------------------------------------------------------------------------------------------------
Balance at January 1, 2006 1,396,552 (5,456) 1,462,137 (2,298,048) (92,691) 1,379,960 1,842,454 1,733,465 3,575,919
Currency translation
adjustment (119,146) (119,146) (28,547) (147,693)
Net income for the period 397,644 397,644 86,050 483,694
-------------------------------------------------------------------------------------------------------
Total recognized income
for the period (119,146) 397,644 278,498 57,503 336,001
Dividends paid in cash and
other distributions
by subsidiary companies (27,175) (27,175)
Acquisition of business (25,076) (25,076) (23,471) (48,547)
Contributions from
shareholders 33,801 43,100 (26,818) 50,083 (46,998) 3,085
Conversion of Subordinated
Convertible Loans 302,962 302,962 605,924 605,924
Initial Public Offering 271,429 (17,839) 271,429 525,019 525,019
-------------------------------------------------------------------------------------------------------
Balance at June 30, 2006 2,004,744 (23,295) 2,054,552 (2,324,866) (211,837) 1,777,604 3,276,902 1,693,324 4,970,226
-------------------------------------------------------------------------------------------------------
(1) Shareholders' equity determined in accordance with accounting principles
generally accepted in Luxembourg is disclosed in Note 10 (ii).
(2) Represents the difference between book value of non-monetary contributions
received from shareholders under Luxembourg GAAP and IFRS.
Dividends may be paid by Ternium to the extent distributable retained
earnings calculated in accordance with Luxembourg law and regulations exist.
Therefore, retained earnings included in these consolidated condensed
interim financial statements may not be wholly distributable. See Note 10
(ii).
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. These consolidated condensed interim financial
statements should be read in conjunction with our audited Consolidated
Financial Statements and notes for the fiscal year ended December 31, 2006.
4
TERNIUM S.A.
Consolidated condensed interim financial statements as of June 30, 2007
and for the six-month periods ended June 30, 2007 and 2006
(All amounts in USD thousands)
CONSOLIDATED CONDENSED INTERIM CASH FLOW STATEMENTS
Notes Six-month period
ended June 30,
------------ ----------------------------------------
2007 2006
----------------------------------------
(Unaudited)
Cash flows from operating activities
Net income for the period 566,580 483,694
Adjustments for:
Depreciation and amortization 7 & 8 245,469 211,773
Income tax accruals less payments (33,610) 3,512
Equity in losses of associated companies 1,391 922
Interest accruals less payments (1,830) 1,894
Changes in provisions (6,170) 25,010
Changes in working capital 106,996 (83,999)
Others 18,317 10,007
------------------ -------------------
Net cash provided by operating activities 897,143 652,813
------------------ -------------------
Cash flows from investing activities
Capital expenditures 7 & 8 (197,010) (186,289)
Changes in trust funds - 5,185
Acquisition of business (130) (103,055)
Proceeds from the sale of property, plant and equipment 6,409 584
------------------ -------------------
Net cash used in investing activities (190,731) (283,575)
------------------ -------------------
Cash flows from financing activities
Dividends paid in cash and other distributions (100,237) -
Dividends paid in cash and other distributions
by subsidiary companies (19,871) (27,175)
Net proceeds from Initial Public Offering - 525,019
Contributions from shareholders - 3,085
Proceeds from borrowings 192,264 36,541
Repayments of borrowings (680,736) (754,847)
------------------ -------------------
Net cash used in financing activities (608,580) (217,377)
------------------ -------------------
------------------ -------------------
Increase in cash and cash equivalents 97,832 151,861
------------------ -------------------
Movement in cash and cash equivalents
At January 1, (1) 633,002 754,980
Effect of exchange rate changes 9 (1,551)
Increase in cash and cash equivalents 97,832 151,861
------------------ -------------------
Cash and cash equivalents at June 30, 730,843 905,290
------------------ -------------------
Non-cash transactions
Conversion of debt instruments into shares - 605,924
(1) In addition, the Company has restricted cash for USD 10,350 at December 31,
2006.
The accompanying notes are an integral part of these consolidated condensed
interim financial statements. These consolidated condensed interim financial
statements should be read in conjunction with our audited Consolidated Financial
Statements and notes for the fiscal year ended December 31, 2006.
5
TERNIUM S.A.
Consolidated condensed interim financial statements as of June 30, 2007
and for the six-month periods ended June 30, 2007 and 2006
(All amounts in USD thousands)
INDEX TO THE NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
1 General information and basis of presentation
2 Accounting policies
3 Segment information
4 Cost of sales
5 Selling, general and administrative expenses
6 Other financial expenses, net
7 Property, plant and equipment, net
8 Intangible assets, net
9 Distribution of dividends
10 Contingencies, commitments and restrictions on the distribution of profits
11 Related party transactions
12 Subsequent event: Grupo Imsa S.A.B. de C.V. ("Grupo Imsa")
13 Recent accounting pronouncements
6
TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements
1 General information and basis of presentation
Ternium S.A. (the "Company" or "Ternium"), a Luxembourg Corporation (Societe
Anonyme), was incorporated on December 22, 2003 under the name of Zoompart
Holding S.A. to hold investments in flat and long steel manufacturing and
distributing companies. The extraordinary shareholders' meeting held on August
18, 2005, changed the corporate name to Ternium S.A.
Following a corporate reorganization carried out during fiscal year 2005, in
January 2006 the Company successfully completed its registration process with
the United States Securities and Exchange Commission ("SEC"). As from February
1, 2006, the Company's shares are listed in the New York Stock Exchange.
The name and percentage of ownership of subsidiaries that have been included in
consolidation in these Consolidated Condensed Interim Financial Statement is
disclosed in Note 2 to the audited Consolidated Financial Statements for the
year ended December 31, 2006.
These Consolidated Condensed Interim Financial Statements have been prepared in
accordance with IAS 34, "Interim Financial Reporting". These Consolidated
Condensed Interim Financial Statements should be read in conjunction with the
audited Consolidated Financial Statements for the year ended December 31, 2006,
which have been prepared in accordance with International Financial Reporting
Standards ("IFRS").
Certain comparative amounts have been reclassified to conform to changes in
presentation in the current period.
The preparation of consolidated condensed interim financial statements requires
management to make estimates and assumptions that might affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities as of the balance sheet dates, and also the reported amounts of
revenues and expenses for the reported periods. Actual results may differ from
these estimates.
Material intercompany transactions and balances have been eliminated in
consolidation. However, the fact that the functional currency of the Company's
subsidiaries differ, results in the generation of foreign exchange gains
(losses) that are included in the consolidated condensed interim income
statement under "Other financial expenses, net".
These Consolidated Condensed Interim Financial Statements were approved by the
Board of Directors of Ternium on August 2, 2007.
2 Accounting policies
The accounting policies used in the preparation of these Consolidated Condensed
Interim Financial Statements are consistent with those used in the audited
Consolidated Financial Statements for the year ended December 31, 2006.
Recently issued accounting pronouncements were applied by the Company as from
their respective dates.
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
beginning January 1, 2007 and will be redeemed by the Company ten years after
grant date. As of June 30, 2007, the outstanding liability corresponding to the
Program amounts to USD 2.2 million.
7
TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
3 Segment information
Primary reporting format - business segments
Business segments: for management purposes, the Company is organized on a
worldwide basis into the following segments: flat steel products, long steel
products and others.
The flat steel products segment comprises the manufacturing and marketing of hot
rolled coils and sheets, cold rolled coils and sheets, tin plate, welded pipes,
hot dipped galvanized and electrogalvanized sheets, pre-painted sheets and other
tailor-made products to serve its customers' requirements.
The long steel products segment comprises the manufacturing and marketing of
billets (steel in its basic, semifinished state), wire rod and bars.
The other products segment includes products other than flat and long steel,
mainly pig iron and pellets.
Flat steel Long steel
products products Other Total
----------------------------------------------------------------------
(Unaudited)
Six-month period ended June 30, 2007
Net sales 2,914,777 739,026 105,554 3,759,357
Cost of sales (1,957,006) (501,882) (73,742) (2,532,630)
---------------------------------- ---------------- ------------------
Gross profit 957,771 237,144 31,812 1,226,727
Selling, general and administrative expenses (283,895) (71,920) (7,014) (362,829)
Other operating income, net 31 1,146 966 2,143
---------------------------------- ---------------- ------------------
Operating income 673,907 166,370 25,764 866,041
Depreciation - PP&E 190,887 34,592 6,228 231,707
Flat steel Long steel
products products Other Total
----------------------------------------------------------------------
(Unaudited)
Six-month period ended June 30, 2006
Net sales 2,501,790 625,560 111,321 3,238,671
Cost of sales (1,587,004) (416,534) (61,820) (2,065,358)
---------------------------------- ---------------- ------------------
Gross profit 914,786 209,026 49,501 1,173,313
Selling, general and administrative expenses (241,733) (58,308) (6,044) (306,085)
Other operating (expenses) income, net (1,916) 1,017 2,876 1,977
---------------------------------- ---------------- ------------------
Operating income 671,137 151,735 46,333 869,205
Depreciation - PP&E 167,809 29,011 5,516 202,336
8
TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
3 Segment information (continued)
Secondary reporting format - geographical segments
The secondary reporting format is based on a geographical location. Ternium
sells its products to three main geographical areas: South and Central America,
North America, and Europe and others. The North American segment comprises
principally United States, Canada and Mexico. The South and Central American
segment comprises principally Argentina, Brazil, Colombia, Venezuela and
Ecuador.
South and
Central Europe and
America North America others Total
-------------- ---------------- ---------------- ----------------
(Unaudited)
Six-month period ended June 30, 2007
Net sales 2,203,239 1,421,842 134,276 3,759,357
Depreciation - PP&E 160,943 70,744 20 231,707
Six-month period ended June 30, 2006
Net sales 1,768,207 1,431,129 39,335 3,238,671
Depreciation - PP&E 195,820 6,509 7 202,336
4 Cost of sales
Six-month period
ended June 30,
--------------------------------------------
2007 2006
---------------------- ---------------------
(Unaudited)
Inventories at the beginning of the year 1,241,325 1,000,119
Acquisition of business - 8,180
Plus: Charges for the period
Raw materials and consumables used and other movements 1,699,255 1,455,555
Services and fees 92,593 72,943
Labor cost 272,031 236,125
Depreciation of property, plant and equipment 225,350 194,862
Amortization of intangible assets 8,085 6,943
Maintenance expenses 181,731 150,731
Office expenses 4,129 3,767
Freight and transportation 13,790 11,650
Insurance 4,467 5,208
Provision for obsolescence (7,116) 20,779
Recovery from sales of scrap and by-products (42,848) (24,436)
Others 55,718 36,374
Less: Inventories at the end of the period (1,215,880) (1,113,442)
---------------------- ---------------------
Cost of sales 2,532,630 2,065,358
---------------------- ---------------------
9
TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
5 Selling, general and administrative expenses
Six-month period
ended June 30,
---------------------------------------------
2007 2006
--------------------- ----------------------
(Unaudited)
Services and fees 26,211 27,179
Labor cost 87,870 69,111
Depreciation of property plant and equipment 6,357 7,474
Amortization of intangible assets 5,677 2,494
Maintenance expenses 8,986 7,970
Taxes 34,426 26,731
Office expenses 12,492 15,535
Freight and transportation 170,402 138,254
Insurance 671 727
Provision for impairment of trade receivables (3,414) (898)
Others 13,151 11,508
---------------------- ---------------------
Selling, general and administrative expenses 362,829 306,085
---------------------- ---------------------
6 Other financial expenses, net
Six-month period
ended June 30,
---------------------------------------------
2007 2006
--------------------- ----------------------
(Unaudited)
Net foreign exchange transaction gains and change
in fair value of derivative instruments 14,631 (15,309)
Debt issue costs (5,493) (9,505)
Loss from Participation Account (160,353) (157,546)
Others (12,965) (10,507)
---------------------- ---------------------
Other financial expenses, net (164,180) (192,867)
---------------------- ---------------------
7 Property, plant and equipment, net
Six-month period
ended June 30,
---------------------------------------------
2007 2006
--------------------- ----------------------
(Unaudited)
At the beginning of the year 5,420,683 5,463,871
Currency translation differences 1,423 (143,412)
Transfers (2,444) (9,632)
Additions 178,732 178,116
Disposals (4,805) (2,400)
Increase due to business acquisition - 47,825
Depreciation charge (231,707) (202,336)
---------------------- ---------------------
At the end of the period 5,361,882 5,332,032
---------------------- ---------------------
10
TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
8 Intangible assets, net
Six-month period
ended June 30,
---------------------------------------------
2007 2006
--------------------- ----------------------
(Unaudited)
At the beginning of the year 551,587 552,882
Currency translation differences 3,858 (27,661)
Additions 18,278 8,848 (1)
Amortization charge (13,762) (9,437)
---------------------- ---------------------
At the end of the period 559,961 524,632
---------------------- ---------------------
(1) Includes USD 675 thousand corresponding to goodwill derived from the
acquisition of additional shares of Hylsamex.
9 Distribution of dividends
During the annual general shareholders meeting held on June 6, 2007, the
shareholders approved the consolidated financial statements and unconsolidated
annual accounts for the year ended December 31, 2006 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, 2007.
10 Contingencies, commitments and restrictions on the distribution of profits
This note should be read in conjunction with Note 28 to the Company's audited
Consolidated Financial Statements for the year ended December 31, 2006.
Significant changes or events since the date of the annual report are as
follows:
(i) Consorcio Siderurgia Amazonia Ltd .- PDVSA-Gas C.A. claim
In June 2004, the arbitration proceedings brought by Sidor against PDVSA Gas,
C.A. (on the basis that PDVSA Gas had charged Sidor higher than agreed-upon
prices in its supplies of gas against the application of the most favored client
clause) were resolved in Sidor's favor. Accordingly, in its financial statements
at December 31, 2004, Sidor reversed the USD41.4 million provision it had
recorded at December 31, 2003. In July 2004, PDVSA Gas, C.A. filed an appeal
with the Venezuelan courts seeking to void the arbitral award. Sidor believes
that applicable Venezuelan law does not allow the courts to void an arbitral
award under the circumstances and that the likelihood of loss thereunder is
remote. Accordingly, Sidor did not record any liabilities in connection with the
appeal. At June 30, 2007, Sidor's potential exposure under this litigation
amounted to USD 143.4 million.
(ii) Restrictions on the distribution of profits
Under the credit agreements entered into to finance the acquisition of Hylsamex,
the Company and its affiliates had some restrictions to the payment of dividends
in excess of certain amounts, among other limitations (see Note 3e) to the
audited Consolidated Financial Statements for the year ended December 31, 2006).
As of June 30, 2007, Ternium S.A. has fully repaid this loan, and at the same
time the guarantees and restrictions imposed by the financing contracts were
released. However, Siderar S.A.I.C. is still subject to those restrictions as it
has not prepaid the mentioned loan.
Under Luxembourg law, at least 5% of net income per year calculated in
accordance with Luxembourg law and regulations must be allocated to a reserve
until such reserve equals 10% of the share capital. At June 30, 2007, 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.
11
TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
10 Contingencies, commitments and restrictions on the distribution of profits
(continued)
Shareholders' equity under Luxembourg law and regulations comprises the
following captions:
At June 30, 2007
---------------------
(Unaudited)
Share capital 2,004,744
Legal reserve 200,474
Distributable reserves 301,912
Non distributable reserves 1,414,122
Accumulated profit at January 1, 2007 499,842
Profit for the period 524,876
---------------------
Total shareholders' equity under Luxembourg GAAP 4,945,970
---------------------
11 Related party transactions
The Company is controlled by San Faustin N.V., a Netherlands Antilles
corporation, which has 70.52% of the Company's voting rights, either directly or
indirectly. The ultimate controlling entity of the Company is Rocca & Partners,
a British Virgin Islands corporation.
The following transactions were carried out with related parties:
Six-month period
ended June, 30
------------------------------------
2007 2006
----------------- ------------------
(Unaudited)
(i) Transactions
(a) Sales of goods and services
Sales of goods to associated parties 45 712
Sales of goods to other related parties 48,164 42,868
Sales of services and others to associated parties 1,403 1,570
Sales of services and others to other related parties 3,000 143
----------------- ------------------
52,612 45,293
----------------- ------------------
(b) Purchases of goods and services
Purchases of goods from associated parties 35,306 31,533
Purchases of goods from other related parties 22,680 21,572
Purchases of services and others from associated parties 10,200 -
Purchases of services and others from other related parties 97,624 73,414
----------------- ------------------
165,810 126,519
----------------- ------------------
(c) Financial results
Income with associated parties 2,156 1,824
Income with other related parties 5 27
Expenses with other related parties - (1,815)
----------------- ------------------
2,161 36
----------------- ------------------
12
TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
11 Related party transactions (continued)
At June 30, At December 31,
2007 2006
----------------- -------------------
(Unaudited)
(ii) Period-end balances
(a) Arising from sales/purchases of goods/services
Receivables from associated parties 34,568 67,558
Receivables from other related parties 32,847 48,533
Payables to associated parties (5,779) (5,588)
Payables to other related parties (39,459) (48,032)
----------------- -------------------
22,177 62,471
----------------- -------------------
b) Other investments
----------------- -------------------
Time deposit 11,459 11,249
----------------- -------------------
(c) Financial debt
----------------- -------------------
Borrowings with other related parties - (2,161)
----------------- -------------------
12 Subsequent event: 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 would obtain 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 Espana 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.
Concurrently with the consummation of the tender offer, on July 26, 2007, all of
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.
Accordingly, Ternium now owns all of Grupo Imsa's issued and outstanding share
capital.
The foregoing transactions were financed primarily through the incurrence of
debt as follows:
o 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 will be repaid in nine
consecutive and equal semi-annual installments commencing on July 26, 2008.
o Ternium's subsidiary Hylsa S.A. de C.V. ("Hylsa") made several borrowings
in an aggregate principal amount of 3,167 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.
13
TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
12 Subsequent event: Grupo Imsa S.A.B. de C.V. ("Grupo Imsa") (continued)
Grupo Imsa is expected to assume on or about August 3, 2007 certain of Hylsa's
loans under the Hylsa Facility, as well as a portion of Hylsa's remaining unused
commitments. Following the assumption date:
o Hylsa's debt under the Hylsa Facility will amount to USD 1,752 million in
principal amount, and Grupo Imsa's debt under that facility will amount to
USD 1,415 million in principal amount; and
o Hylsa's unused commitment under the Hylsa Facility will amount to USD 318
million and Grupo Imsa's unused commitment under the facility will amount
to USD 140 million.
The loans of each of Hylsa and Grupo Imsa 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.
Each of the Ternium Facility and the Hylsa Facility contains 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.
13 Recent accounting pronouncements
(i) IFRIC Interpretation 13, Customer Loyalty Programmes
In June 2007, International Financial Reporting Interpretations Committee
("IFRIC") issued IFRIC Interpretation 13 "Customer Loyalty Programmes" ("IFRIC
13"). IFRIC 13 applies to customer loyalty award credits that:
(a) an entity grants to its customers as part of a sales transaction (i.e. a
sale of goods, rendering of services or use by a customer of entity
assets); and
(b) subject to meeting any further qualifying conditions, the customers can
redeem in the future for free or discounted goods or services.
IFRIC 13 addresses accounting by the entity that grants award credits to its
customers.
An entity shall apply IFRIC 13 for annual periods beginning on or after July 1,
2008, although earlier application is permitted. If an entity applies IFRIC 13
for a period beginning before July 1, 2008, it shall disclose that fact.
The Company's management estimates that the application of IFRIC 13 will not
have a material effect on the Company's financial condition or results of
operations.
(ii) IFRIC Interpretation 14, IAS 19 -The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction
In July 2007, IFRIC issued IFRIC Interpretation 14 "IAS 19 -The Limit on a
Defined Benefit Asset, Minimum Funding Requirements and their Interaction"
("IFRIC 14"). IFRIC 14 applies to all post-employment defined benefits and other
long-term employee defined benefits and addresses the following issues:
(a) when refunds or reductions in future contributions should be regarded as
available in accordance with paragraph 58 of IAS 19;
(b) how a minimum funding requirement might affect the availability of
reductions in future contributions; and
(c) when a minimum funding requirement might give rise to a liability.
14
TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
13 Recent accounting pronouncements (continued)
An entity shall apply this Interpretation for annual periods beginning on or
after January 1, 2008. Earlier application is permitted.
The Company's management has not assessed the potential impact that the
application of IFRIC 14 may have on the Company's financial condition or results
of operations.
Roberto Philipps
Chief Financial Officer
15