-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N30n2vBfnB132YoRwRvG8kbH5sVzbdAofoEbZ9pqjHW22qgfjP5/VcbpzbKNKqPi FJK2lgPY4dVJAX6jLo3kFA== 0001157523-06-010986.txt : 20061107 0001157523-06-010986.hdr.sgml : 20061107 20061107140130 ACCESSION NUMBER: 0001157523-06-010986 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20061106 FILED AS OF DATE: 20061107 DATE AS OF CHANGE: 20061107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Ternium S.A. CENTRAL INDEX KEY: 0001342874 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 000000000 STATE OF INCORPORATION: N4 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-32734 FILM NUMBER: 061193254 BUSINESS ADDRESS: STREET 1: 46A, AVENUE JOHN F. KENNEDY 2ND FLOOR CITY: LUXEMBOURG STATE: N4 ZIP: L-1855 BUSINESS PHONE: (352) 4661-11-3815 MAIL ADDRESS: STREET 1: 46A, AVENUE JOHN F. KENNEDY 2ND FLOOR CITY: LUXEMBOURG STATE: N4 ZIP: L-1855 6-K 1 a5268286.txt TERNIUM S.A. 6-K 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 11/06/2006 Ternium S.A. (Translation of Registrant's name into English) Ternium S.A. 46a, Avenue John F. Kennedy - 2nd floor L-1855 Luxembourg (352) 4661-11-3815 (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 condensed interim financial statements as of September 30, 2006. TERNIUM S.A. CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2006 AND FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2006 AND 2005 46a, Avenue John F. Kennedy, 2nd floor L - 1855 R.C.S. Luxembourg : B 98 668
TERNIUM S.A. Consolidated condensed interim financial statements as of September 30, 2006 and for the nine-month periods ended September 30, 2006 and 2005 (All amounts in USD thousands) CONSOLIDATED CONDENSED INTERIM INCOME STATEMENTS Three-month period ended Nine-month period ended September 30, September 30, --------------------------------- ------------------------------- Notes 2006 2005 2006 2005 ---------- ---------------- ---------------- -------------- ---------------- (Unaudited) (Unaudited) Net sales ........................................ 4 1,743,491 1,151,995 4,981,447 2,979,840 Cost of sales .................................... 4 & 5 (1,082,402) (670,275) (3,147,644) (1,581,818) ------------- ------------- ------------- ------------- Gross profit ..................................... 4 661,089 481,720 1,833,803 1,398,022 Selling, general and administrative expenses ..... 6 (152,680) (148,610) (459,065) (328,214) Other operating income (expenses), net ........... (204) (36,867) 2,672 (44,664) ------------- ------------- ------------- ------------- Operating income ................................. 508,205 296,243 1,377,410 1,025,144 Financial expenses, net .......................... 7 (87,191) (77,307) (318,933) (180,030) Excess of fair value of net assets acquired over cost............................................. - - - 188,356 Equity in earnings of associated companies ....... 8 4,767 2,192 3,845 21,315 ------------- ------------- ------------- ------------- Income before income tax expense.................. 425,781 221,128 1,062,322 1,054,785 Income tax expense ............................... (71,747) (44,948) (224,594) (150,665) ------------- ------------- ------------- ------------- Net income for the period ........................ 354,034 176,180 837,728 904,120 ------------- ------------- ------------- ------------- Attributable to: Equity holders of the Company .................... 257,378 89,251 655,022 566,859 Minority interest ................................ 96,656 86,929 182,706 337,261 ------------- ------------- ------------- ------------- 354,034 176,180 837,728 904,120 ------------- ------------- ------------- ------------- Weighted average number of shares outstanding..... 2,004,743,442 1,168,943,632 1,913,947,510 1,168,943,632 Basic earnings per share for profit attributable to the equity holders of the Company (expressed in USD per share) 0.13 0.08 0.34 0.48 Diluted earnings per share for profit attributable to the equity holders of the Company (expressed in USD per share) 0.13 0.07 0.34 0.46 The accompanying notes are an integral part of these consolidated condensed interim financial statements. The Report of the Independent Registered Public Accounting Firm on these consolidated condensed interim financial statements is issued as a separate document. These consolidated condensed interim financial statements should be read in conjunction with our audited Combined Consolidated Financial Statements and notes for the fiscal year ended December 31, 2005.
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TERNIUM S.A. Consolidated condensed interim financial statements as of September 30, 2006 and for the nine-month periods ended September 30, 2006 and 2005 (All amounts in USD thousands) CONSOLIDATED CONDENSED BALANCE SHEETS Notes September 30, 2006 December 31, 2005 ----------- ------------------------- ----------------------- (Unaudited) ASSETS Non-current assets Property, plant and equipment, net..................... 9 5,374,866 5,463,871 Intangible assets, net................................. 9 541,750 552,882 Investments in associated companies.................... 8 13,336 9,122 Other investments, net ................................ 13,291 12,607 Deferred tax assets ................................... 37,582 29,126 Other assets .......................................... - 952 Receivables, net....................................... 61,042 6,041,867 47,863 6,116,423 ------------- ----------- ----------- ----------- Current assets Receivables............................................ 220,217 291,302 Other assets .......................................... - 3,160 Derivative financial instruments....................... 6,788 5,402 Inventories, net ...................................... 1,267,069 1,000,119 Trade receivables, net ................................ 609,372 472,760 Other investments...................................... - 5,185 Cash and cash equivalents.............................. 825,678 2,929,124 765,630 2,543,558 ------------- ----------- ----------- ----------- Non-current assets classified as held for sale......... 9,504 - ----------- ----------- Total assets .......................................... 8,980,495 8,659,981 ----------- ----------- EQUITY Capital and reserves attributable to the company's equity holders...................................... 3,592,640 1,842,454 Minority interest...................................... 1,800,017 1,733,465 ----------- ----------- Total equity........................................... 5,392,657 3,575,919 LIABILITIES Non-current liabilities Provisions ............................................ 59,385 53,479 Deferred tax liabilities............................... 952,694 1,048,188 Other liabilities ..................................... 217,666 187,917 Trade payables ........................................ - 1,167 Borrowings ............................................ 799,412 2,029,157 2,399,878 3,690,629 ------------- ----------- ----------- ----------- Current liabilities Provisions............................................. - 659 Current tax liabilities................................ 216,348 126,972 Other liabilities ..................................... 172,440 194,073 Trade payables ........................................ 653,238 555,330 Derivative financial instruments....................... 17,455 - Borrowings ............................................ 499,200 1,558,681 516,399 1,393,433 ------------- ----------- ----------- ----------- Total liabilities ..................................... 3,587,838 5,084,062 ----------- ----------- Total equity and liabilities........................... 8,980,495 8,659,981 ----------- ----------- Contingencies, commitments and restrictions to the distribution of profits are disclosed in Note 10. The accompanying notes are an integral part of these consolidated condensed interim financial statements. The Report of the Independent Registered Public Accounting Firm on these consolidated condensed interim financial statements is issued as a separate document. These consolidated condensed interim financial statements should be read in conjunction with our audited Combined Consolidated Financial Statements and notes for the fiscal year ended December 31, 2005.
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TERNIUM S.A. Consolidated condensed interim financial statements as of September 30, 2006 and for the nine-month periods ended September 30, 2006 and 2005 (All amounts in USD thousands) CONSOLIDATED CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Attributable to the Company's equity holders (1) ------------------------------------------------------------------------- Capital Initial stock Total Total public Revaluation issue Currency Equity at Equity at Capital offering and other discount translationRetained Minority September September stock expenses reserves (2) adjustment earnings Total interest 30, 2006 30, 2005 ------------------------------------------------------------------------------------------------------- Balance at January 1 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 1,771,851 Currency translation adjustment (61,524) (61,524) (19,128) (80,652) (90,043) Net income for the period 655,022 655,022 182,706 837,728 904,120 ------------------------------------------------------------------------------------------------------- Total recognized income for the period (61,524) 655,022 593,498 163,578 757,076 814,077 Dividends paid in cash and other distributions (238,652) Dividends paid in cash and other distributions by subsidiary companies (27,175) (27,175) (125,954) Acquisition of business (19,142) (19,142) 864,415 Contributions from shareholders (see Note 3) Exchange 33,801 43,100 (26,818) 50,083 (46,998) 3,085 54,758 Conversion of Subordinated Convertible Loans (see Note 3) 302,962 302,962 605,924 605,924 Initial Public Offering (see Note 3) 271,429 (17,839) 271,429 525,019 525,019 Other reserves (see Note 11.b) (24,338) (24,338) (3,711) (28,049) 307,007 ------------------------------------------------------------------------------------------------------- Balance at September 30 2,004,744 (23,295) 2,055,290 (2,324,866) (154,215)2,034,982 3,592,640 1,800,017 5,392,657 3,447,502 ------------------------------------------------------------------------------------------------------- (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. The Report of the Independent Registered Public Accounting Firm on these consolidated condensed interim financial statements is issued as a separate document. These consolidated condensed interim financial statements should be read in conjunction with our audited Combined Consolidated Financial Statements and notes for the fiscal year ended December 31, 2005.
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TERNIUM S.A. Consolidated condensed interim financial statements as of September 30, 2006 and for the nine-month periods ended September 30, 2006 and 2005 (All amounts in USD thousands) CONSOLIDATED CONDENSED INTERIM CASH FLOW STATEMENTS Notes Nine-month period ended September, 30 ---------- -------------------------------------- 2006 2005 -------------------------------------- (Unaudited) Cash flows from operating activities Net income for the period ................................ 837,728 904,120 Adjustments for: Depreciation and amortization ....................... 9 318,460 205,492 Income tax accruals less payments ................... 4,307 (25,052) Derecognition of property, plant and equipment....... 9 1,716 42,547 Excess of fair value of net assets acquired over cost ............................................... - (188,356) Equity in earnings of associated companies .......... 8 (3,845) (21,315) Interest accruals less payments ..................... (10,736) 11,222 Changes in provisions ................................... 31,680 (3,516) Changes in working capital ............................... (274,111) (4,068) Currency translation adjustment and others ............... 33,378 (2,203) ------------------- ---------------- Net cash provided by operating activities 938,577 918,871 ------------------- ---------------- Cash flows from investing activities Capital expenditures ..................................... 9 (280,091) (124,741) Changes in trust funds.................................... 5,185 88,755 Acquisition of business .................................. 11 (103,055) (2,186,946) Proceeds from the sale of property, plant and equipment... 988 2,384 ------------------- ---------------- Net cash used in investing activities (376,973) (2,220,548) ------------------- ---------------- Cash flows from financing activities Dividends paid in cash and other distributions to company's equity shareholders............................. - (238,652) Dividends paid in cash and other distributions to minority shareholders.................................... (27,175) (125,954) Net proceeds from Initial Public Offering ................ 525,019 - Contributions from shareholders........................... 3,085 54,758 Proceeds from borrowings ................................. 123,207 2,051,009 Repayments of borrowings ................................. (1,124,792) (593,777) ------------------- ---------------- Net cash (used in) provided by financing activities (500,656) 1,147,384 ------------------- ---------------- Increase (decrease) in cash and cash equivalents 60,948 (154,293) ------------------- ---------------- Movement in cash and cash equivalents At January 1, (1)......................................... 754,980 194,875 Acquisition of business .................................. - 520,753 Effect of exchange rate changes........................... (591) (32,665) Increase (decrease) in cash and cash equivalents.......... 60,948 (154,293) ------------------- ---------------- Cash and cash equivalents at September 30, (1) ........... 815,337 528,670 ------------------- ---------------- Non-cash transactions Conversion of debt instruments into shares ............... 605,924 127,576 (1) In addition, the Company has restricted cash for USD 10,341 and USD 10,650 at September 30, 2006 and December 31, 2005, respectively. The accompanying notes are an integral part of these consolidated condensed interim financial statements. The Report of the Independent Registered Public Accounting Firm on these consolidated condensed interim financial statements is issued as a separate document. These consolidated condensed interim financial statements should be read in conjunction with our audited Combined Consolidated Financial Statements and notes for the fiscal year ended December 31, 2005.
5 TERNIUM S.A. Consolidated condensed interim financial statements as of September 30, 2006 and for the nine-month periods ended September 30, 2006 and 2005 (All amounts in USD thousands) INDEX TO THE NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS 1 Basis of presentation 2 Accounting policies 3 Initial Public Offering 4 Segment information 5 Cost of sales 6 Selling, general and administrative expenses 7 Financial expenses, net 8 Investments in associated companies 9 Property, plant and equipment and Intangible assets, net 10 Contingencies, commitments and restrictions on the distribution of profits 11 Acquisition of business 12 Related party transactions 13 Recent accounting pronouncements 6 TERNIUM S.A. Notes to the Consolidated Condensed Interim Financial Statements 1 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. 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 combined consolidated financial statements for the year ended December 31, 2005. 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 "Financial expenses, net". These consolidated condensed interim financial statements were approved by the Board of Directors of Ternium on November 6, 2006. 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 combined consolidated financial statements for the year ended December 31, 2005. Recently issued accounting pronouncements were applied by the Company as from their respective dates. A detail of the accounting policies followed by the Company in the preparation of these financial statements, other than those followed in the preparation of the audited combined consolidated financial statements for the year ended December 31, 2005 follows: - - 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 total USD 9.5 million and include principally land and other real estate items. Sale is expected to be completed within a one-year period. 7 TERNIUM S.A. Notes to the Consolidated Condensed Interim Financial Statements (Contd.) 3 Initial Public Offering In January 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 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. Also, the Company has granted to 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 such option to purchase 2,298,136 ADSs at the public offering price of USD20 per ADS less an underwriting discount of USD0.55 per ADS. The gross proceeds from this transaction totaled USD46.0 million. In addition, the Company entered into the Subordinated Convertible Loan Agreements for a total aggregate amount of USD594 million to fund the acquisition of 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 Company delivered the above mentioned ADSs and, accordingly, the Subordinated Convertible Loans (including interest accrued through January 31, 2006) were converted into shares at a conversion price of USD2 per share, resulting in the issuance of 302,962,261 new shares. Furthermore, in November 2005, Sidetur, a subsidiary of Sivensa, exchanged with ISL its 3.42% equity interest in Amazonia and USD 3.1 million in cash for shares of the Company. ISL has contributed such interest in Amazonia to the Company in exchange for shares of the Company after the settlement of the Initial Public Offering. 4 Segment information Primary reporting format - business segments
Flat steel Long steel products products Other Total ------------------------------------------------- (Unaudited) Nine-month period ended September 30, 2006 Net sales 3,809,556 964,737 207,154 4,981,447 Cost of sales (2,394,215) (632,051) (121,378) (3,147,644) ---------- -------- -------- ---------- Gross profit 1,415,341 332,686 85,776 1,833,803 Depreciation - PP&E 266,846 36,203 922 303,971 Flat steel Long steel products products Other Total ------------------------------------------------- (Unaudited) Nine-month period ended September 30, 2005 Net sales 2,515,185 365,496 99,159 2,979,840 Cost of sales (1,295,674) (211,290) (74,854) (1,581,818) ---------- -------- -------- ---------- Gross profit 1,219,511 154,206 24,305 1,398,022 Depreciation - PP&E 177,551 22,008 425 199,984
8 TERNIUM S.A. Notes to the Consolidated Condensed Interim Financial Statements (Contd.) 4 Segment information (continued) Secondary reporting format - geographical segments Allocation of net sales is based on the customers' location. Ternium's subsidiaries operate for three main geographical areas. 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 North Europe and America America others Total ------- ------- ------ ----- (Unaudited) Nine-month period ended September 30, 2006 Net sales 2,839,179 2,108,910 33,358 4,981,447 Depreciation - PP&E 204,665 99,298 8 303,971 Nine-month period ended September 30, 2005 Net sales 2,122,251 579,486 278,103 2,979,840 Depreciation - PP&E 181,691 18,286 7 199,984
5 Cost of sales Nine-month period ended September 30, ---------------------------------- 2006 2005 ----------------- ---------------- (Unaudited) Inventories at the beginning of the year 1,000,119 254,286 Acquisition of business 8,180 629,729 Plus: Charges for the period Raw materials and consumables used and other movements 2,326,769 989,486 Services and fees 112,694 83,011 Labor cost 354,924 196,923 Depreciation of property, plant and equipment 284,652 183,250 Amortization of intangible assets 10,187 3,762 Maintenance expenses 242,915 148,389 Office expenses 5,988 4,806 Freight and transportation 18,816 16,653 Insurance 7,597 3,185 Provision for obsolescence 26,274 2,552 Recovery from sales of scrap and by-products (37,559) (20,262) Others 53,157 22,636 Less: Inventories at the end of the period (1,267,069) (936,588) ----------------- ---------------- Cost of sales 3,147,644 1,581,818 ----------------- ----------------
9 TERNIUM S.A. Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
6 Selling, general and administrative expenses Nine-month period ended September 30, ----------------------------------- 2006 2005 ----------------------------------- (Unaudited) Services and fees 37,872 27,164 Labor cost 108,665 69,057 Depreciation of property plant and equipment 19,319 16,734 Amortization of intangible assets 4,302 1,746 Maintenance and expenses 12,409 4,980 Taxes 32,513 32,471 Office expenses 23,252 9,195 Freight and transportation 203,744 154,947 Insurance 1,011 292 Others 15,978 11,628 ----------------- ----------------- Selling, general and administrative expenses 459,065 328,214 ----------------- -----------------
7 Financial expenses, net Nine-month period ended September 30, ------------------------------------ 2006 2005 ------------------------------------ (Unaudited) Interest expense (91,671) (43,016) Interest income 40,559 18,567 Net foreign exchange transaction gains and change in fair value of derivative instruments (22,176) (20,386) Debt issue costs (12,770) (950) Income from Participation Account (i) - 44,050 Loss from Participation Account (i) (215,707) (173,288) Others (17,168) (5,007) ------------------ ----------------- Financial expenses, net (318,933) (180,030) ------------------ ----------------- (i) Until February 15, 2005, the Company accounted for its investment in Amazonia under the equity method of accounting. Thus, income arising from the Participation Account Agreement has been recorded under Income from Participation Account within Financial expenses, net. Upon conversion of the Amazonia Convertible Debt Instrument on February 15, 2005, the Company acquired control over Amazonia and began accounting for such investment on a consolidated basis. Accordingly, income resulting from Ternium's share of the Participation Account as from February 15, 2005, has been offset against Amazonia's loss for the same concept and shown net under Loss from Participation Account line item.
8 Investments in associated companies Nine-month period ended September 30, -------------------------------------- 2006 2005 -------------------------------------- (Unaudited) At the beginning of the year 9,122 309,318 Translation adjustment 25 (3,365) Acquisition 344 - Equity in earnings of associated companies 3,845 21,315 Consolidation of Amazonia - (318,166) ------------------ ------------------- At the end of the period 13,336 9,102 ------------------ -------------------
10 TERNIUM S.A. Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
9 Property, plant and equipment and Intangible assets, net Net Property, Net Intangible Plant and Equipment Assets ----------------- ----------------- (Unaudited) (Unaudited) Nine-month period ended September 30, 2006 At the beginning of the year 5,463,871 552,882 Currency translation differences (85,708) (10,604) Transfers (9,632) - Additions 266,804 13,961 (1) Disposals (2,607) - Derecognition (1,716) - Increase due to business acquisition 47,825 - Depreciation/ Amortization charge (303,971) (14,489) ----------------- ----------------- At the end of the period 5,374,866 541,750 ----------------- ----------------- (1) Includes USD 675 thousand corresponding to goodwill derived from the acquisition of additional shares of Hylsamex. See Note 11.c.
10 Contingencies, commitments and restrictions on the distribution of profits This note should be read in conjunction with Note 29 to the Company's audited Combined Consolidated Financial Statements for the year ended December 31, 2005. 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 September 30, 2006, Sidor's potential exposure under this litigation amounted to USD 118.6 million. (ii) 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. 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 condensed interim financial statements may not be wholly distributable. Shareholders' equity under Luxembourg law and regulations comprises the following captions (amounts in USD thousands):
At September 30, 2006 ---------------- Share capital 2,004,744 Initial Public Offering expenses (14,928) Legal reserve 200,474 Distributable reserves 402,149 Non distributable reserves 1,414,122 Accumulated profit at January 1, 2006 107,612 Profit for the period 326,107 ---------------- Total shareholders' equity under Luxembourg GAAP 4,440,280 ----------------
11 TERNIUM S.A. Notes to the Consolidated Condensed Interim Financial Statements (Contd.) 11 Acquisition of business a) On November 18 2005, Ternium's Argentine subsidiary, Siderar, agreed to acquire assets and facilities of Acindar Industria Argentina de Aceros S.A. ("Acindar") related to the production of welded steel pipes in the province of Santa Fe in Argentina, as well as 100% of the issued and outstanding shares of Impeco S.A., which in turn owns a plant located in the province of San Luis in Argentina. Purchase price paid totaled USD 55.2 million, subject to subsequent adjustments. These two plants have a production capacity of 140 thousand tons per year of tubes to be used in the construction, agricultural and manufacturing industries. The acquisition has been approved by the Argentine competition authorities and was completed on January 31, 2006. This acquisition did not give rise to goodwill. The acquired business contributed revenues of USD 50.4 million in the nine month period ended September 30, 2006. The fair value of assets and liabilities arising from acquisition are as follows:
USD thousands ---------------- Property, plant and equipment 47,825 Inventories 8,180 Deferred tax liabilities (875) Others assets and liabilities, net 53 ---------------- Net 55,183 ----------------
b) 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. 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 24.3 million) being recorded directly in equity. c) 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. Ternium's voting and equity interest in Hylsamex after this acquisition totals 99.9% and 86.8%, respectively. This acquisition was effected through a trust fund established by Siderar in 2005 in connection with the initial acquisition of Hylsamex (see note 3(a) to Ternium's Annual Combined Consolidated Financial Statements at December 31, 2005). Goodwill resulting from this acquisition totaled USD 0.7 million. 12 TERNIUM S.A. Notes to the Consolidated Condensed Interim Financial Statements (Contd.) 12 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:
Nine-month period ended September, 30 ---------------------------------------- 2006 2005 -------------------- ------------------- (Unaudited) (i) Transactions (a) Sales of goods and services Sales of goods to associated parties 1,905 - Sales of goods to other related parties 66,146 27,652 Sales of services to associated parties 2,169 3,244 Sales of services to other related parties 858 3,186 -------------------- ------------------- 71,078 34,082 -------------------- ------------------- (b) Purchases of goods and services Purchases of goods from associated parties 62,570 65,921 Purchases of goods from other related parties 30,717 27,562 Purchases of services from associated parties 2,316 - Purchases of services from other related parties 120,837 45,222 -------------------- ------------------- 216,440 138,705 -------------------- ------------------- (c) Financial results Income with associated parties 2,832 47,275 Income with other related parties 31 40 Expenses with other related parties (1,815) (2,975) -------------------- ------------------- 1,048 44,340 -------------------- ------------------- At September 30, At December 31, 2006 2005 --------------------------------------- (Unaudited) (ii) Period-end balances (a) Arising from sales/purchases of goods/services Receivables from associated parties 71,120 71,317 Receivables from other related parties 50,736 18,175 Payables to associated parties (9,181) (13,644) Payables to other related parties (40,716) (17,914) ------------------ -------------------- 71,959 57,934 ------------------ -------------------- b) Other investments Time deposit with other related parties 11,185 10,450 ------------------ -------------------- (c) Other balances Trust fund with other related parties - 5,185 ------------------ -------------------- (d) Financial debt Borrowings with other related parties (2,161) (607,472) ------------------ --------------------
13 TERNIUM S.A. Notes to the Consolidated Condensed Interim Financial Statements (Contd.) 13 Recent accounting pronouncements a) IFRIC Interpretation 9, Reassessment of Embedded Derivatives In February 2006, the International Financial Reporting Interpretations Committee ("IFRIC") issued IFRIC Interpretation 9 "Reassessment of Embedded Derivatives" ("IFRIC 9"). IFRIC 9 applies to all embedded derivatives within the scope of International Accounting Standard No. 39. However, it does not address (i) remeasurement issues arising from a reassessment of embedded derivatives, or (ii) the acquisition of contracts with embedded derivatives in a business combination nor their possible reassessment at the date of acquisition. Paragraph 7 of IFRIC 9 states that an entity shall assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. Also, paragraph 8 of IFRIC 9 states that a first-time adopter shall assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative on the basis of the conditions that existed at the later of the date it first became a party to the contract and the date a reassessment is required by paragraph 7. An entity shall apply this Interpretation for annual periods beginning on or after 1 June 2006, although earlier application is encouraged. The Company's management estimates that the application of IFRIC 9 will not have a material effect on the Company's financial condition or results of operations. b) IFRIC Interpretation 10, Interim Financial Reporting and Impairment In July 2006, IFRIC issued IFRIC Interpretation 10 "Interim Financial Reporting and Impairment" ("IFRIC 10"). IFRIC 10 provides guidance on whether impairment losses related to goodwill (IAS 36), investments in equity instruments or financial assets carried at cost (IAS 39), which were recognised in previous periods, should ever be reversed in an interim period (IAS 34) and the effect of that interaction on subsequent interim and annual financial statements. IFRIC reached a consensus that an entity shall not reverse an impairment loss recognised in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost. In addition, paragraph 9 of IFRIC 10 states that "an entity shall not extend this consensus by analogy to other areas of potential conflict between IAS 34 and other standards". An entity shall apply this Interpretation for annual periods beginning on or after 1 November 2006, although earlier application is encouraged. The Company's management estimates that the application of IFRIC 10 will not have a material effect on the Company's financial condition or results of operations. - -------------------------------------------------------------------------------- Roberto Philipps - -------------------------------------------------------------------------------- Chief Financial Officer - -------------------------------------------------------------------------------- 14 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: November 6, 2006 -----END PRIVACY-ENHANCED MESSAGE-----