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 08/01/2006
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 June 30, 2006.
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 1, 2006
TERNIUM S.A.
CONSOLIDATED CONDENSED INTERIM
FINANCIAL STATEMENTS AS OF JUNE 30, 2006
AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 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 June 30, 2006
and for the six-month periods ended June 30, 2006 and 2005
(All amounts in USD thousands)
CONSOLIDATED CONDENSED INTERIM INCOME STATEMENTS
Three-month period ended Six-month period ended
June 30, June 30,
------------------------------- -------------------------------
Notes 2006 2005 2006 2005
------- ------------------------------- -------------------------------
(Unaudited) (Unaudited)
Net sales 4 1,709,072 1,060,256 3,237,956 1,827,845
Cost of sales 4 & 5 (1,078,057) (493,378) (2,065,242) (911,543)
--------------- --------------- --------------- ---------------
Gross profit 4 631,015 566,878 1,172,714 916,302
Selling, general and administrative
expenses 6 (155,392) (114,624) (306,385) (179,604)
Other operating income (expenses), net 1,057 (6,782) 2,876 (7,797)
--------------- --------------- --------------- ---------------
Operating income 476,680 445,472 869,205 728,901
Financial expenses, net 7 (108,212) (63,822) (231,742) (102,723)
Excess of fair value of net assets
acquired over cost - - - 188,356
Equity in earnings (losses) of
associated companies 8 907 (186) (922) 19,123
--------------- --------------- --------------- ---------------
Income before income tax expense 369,375 381,464 636,541 833,657
Income tax expense (80,194) (57,101) (152,847) (105,717)
--------------- --------------- --------------- ---------------
Net income for the period 289,181 324,363 483,694 727,940
--------------- --------------- --------------- ---------------
Attributable to:
Equity holders of the Company 232,601 139,989 397,644 477,609
Minority interest 56,580 184,374 86,050 250,331
--------------- --------------- --------------- ---------------
289,181 324,363 483,694 727,940
--------------- --------------- --------------- ---------------
Weighted average number of shares
outstanding 2,004,743,442 1,168,943,632 1,867,797,092 1,168,943,632
Basic and diluted earnings per share
for profit attributable to the equity
holders of the Company (expressed in
USD per share) 0.12 0.12 0.21 0.41
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.
- 2 -
TERNIUM S.A.
Consolidated condensed interim financial statements as of June 30, 2006
and for the six-month periods ended June 30, 2006 and 2005
(All amounts in USD thousands)
CONSOLIDATED CONDENSED BALANCE SHEETS
Notes June 30, 2006 December 31, 2005
------- ----------------------- -----------------------
(Unaudited)
ASSETS
Non-current assets
Property, plant and equipment, net 9 5,332,032 5,463,871
Intangible assets, net 9 524,632 552,882
Investments in associated companies, net 8 8,229 9,122
Other investments, net 12,447 12,607
Deferred tax assets 35,184 29,126
Other assets - 952
Receivables, net 60,183 5,972,707 47,863 6,116,423
----------- ----------- ----------- -----------
Current assets
Receivables 219,448 291,302
Other assets - 3,160
Derivative financial instruments 11,570 5,402
Inventories, net 1,113,442 1,000,119
Trade receivables, net 551,906 472,760
Other investments - 5,185
Cash and cash equivalents 915,607 2,811,973 765,630 2,543,558
----------- ----------- ----------- -----------
Non-current assets classified as held for sale 9,444 -
----------- -----------
----------- -----------
Total assets 8,794,124 8,659,981
----------- -----------
EQUITY
Capital and reserves attributable to the
company's equity holders 3,276,902 1,842,454
Minority interest 1,693,324 1,733,465
----------- -----------
Total equity 4,970,226 3,575,919
LIABILITIES
Non-current liabilities
Provisions 57,852 53,479
Deferred income tax 991,206 1,048,188
Other liabilities 206,314 187,917
Trade payables 1,098 1,167
Borrowings 1,087,998 2,344,468 2,399,878 3,690,629
----------- ----------- ----------- -----------
Current liabilities
Provisions - 659
Current tax liabilities 143,002 126,972
Other liabilities 179,697 194,073
Trade payables 648,803 555,330
Derivative financial instruments 10,164 -
Borrowings 497,764 1,479,430 516,399 1,393,433
----------- ----------- ----------- -----------
Total liabilities 3,823,898 5,084,062
----------- -----------
Total equity and liabilities 8,794,124 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.
- 3 -
TERNIUM S.A.
Consolidated condensed interim financial statements as of June 30, 2006
and for the six-month periods ended June 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 Revaluation Capital Currency Retained Total Minority Total Total
stock public and other stock issue translation earnings interest Equity at Equity at
offering reserves discount adjustment June 30, June 30,
expenses (2) 2006 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 (119,146) (119,146) (28,547) (147,693) (65,114)
Net income for the
period 397,644 397,644 86,050 483,694 727,940
---------------------------------------------------------------------------------------------------------------
Total recognized
income for the
period (119,146) 397,644 278,498 57,503 336,001 662,826
Dividends paid in
cash and other
distributions (171,444)
Dividends paid in
cash and other
distributions by
subsidiary
companies (27,175) (27,175) (108,661)
Acquisition of
business (19,647) (19,647) 932,414
Contributions
from shareholders
(see Note 3) 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) (25,076) (25,076) (3,824) (28,900) 416,612
---------------------------------------------------------------------------------------------------------------
Balance at June 30 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 3,558,356
---------------------------------------------------------------------------------------------------------------
(1) Shareholders' equity determined in accordance with accounting principles
generally accepted in Luxembourg is disclosed in Note 10 (iii).
(2) Represents the difference between book value of non-monetary contributions
received form shareholders under Luxembourg GAAP and IFRS.
Dividends may be paid by Ternium to the extent distributable retained earnings
calculated in accordance with Luxembourg GAAP exist. Therefore, retained
earnings included in these consolidated condensed interim financial statements
may not be wholly distributable. See Note 10 (iii).
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.
- 4 -
TERNIUM S.A.
Consolidated condensed interim financial statements as of June 30, 2006
and for the six-month periods ended June 30, 2006 and 2005
(All amounts in USD thousands)
CONSOLIDATED CONDENSED INTERIM CASH FLOW STATEMENTS
Notes Six-month period ended June, 30
-------- --------------------------------------
2006 2005
--------------------------------------
(Unaudited)
Cash flows from operating activities
Net income for the period ............................ 483,694 727,940
Adjustments for:
Depreciation and amortization ................... 9 211,773 117,628
Income tax accruals less payments ............... 3,512 (87,299)
Derecognition of property, plant and equipment.... 9 1,700 -
Excess of fair value of net assets acquired over
cost ........................................ - (188,356)
Equity in losses (earnings) of associated 8
companies ................................... 922 (19,123)
Interest accruals less payments ................. 1,894 207
Changes in provisions ............................... 25,010 4,460
Changes in working capital ........................... (83,999) (17,125)
Currency translation adjustment and others ........... 7,634 62,804
------------------- ----------------
Net cash provided by operating activities............. 652,140 601,136
------------------- ----------------
Cash flows from investing activities
Capital expenditures ................................. 9 (186,289) (81,364)
Changes in trust funds................................ 5,185 88,755
Acquisition of business .............................. 11 (103,055) -
Proceeds from the sale of property, plant and
equipment ............................................ 1,257 1,402
------------------- ----------------
Net cash (used in) provided by investing activities (282,902) 8,793
------------------- ----------------
Cash flows from financing activities
Dividends paid in cash and other distributions to
company's equity shareholders......................... - (171,444)
Dividends paid in cash and other distributions to
minority shareholders................................. (27,175) (108,661)
Net proceeds from Initial Public Offering ............ 525,019 -
Contributions from shareholders....................... 3,085 54,758
Proceeds from borrowings ............................. 36,541 102,385
Repayments of borrowings ............................. (754,847) (367,231)
------------------- ----------------
Net cash used in financing activities (217,377) (490,193)
------------------- ----------------
Increase in cash and cash equivalents
151,861 119,736
------------------- ----------------
Movement in cash and cash equivalents
At January 1, (1)..................................... 754,980 194,875
Acquisition of business .............................. - 305,342
Effect of exchange rate changes....................... (1,551) (33,941)
Increase in cash and cash equivalents................. 151,861 119,736
------------------- ----------------
Cash and cash equivalents at June 30, (1) ............ 905,290 586,012
------------------- ----------------
Non-cash transactions
Conversion of debt instruments into shares ........... 605,924 127,576
(1) In addition, the Company has restricted cash for USD 10,317 and USD 10,650
at June 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 June 30, 2006
and for the six-month periods ended June 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, net
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 August 1, 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
9.4 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)
Six-month period ended June 30, 2006
Net sales 2,497,332 625,560 115,064 3,237,956
Cost of sales (1,583,385) (415,084) (66,773) (2,065,242)
------------ ------------------------------------
Gross profit 913,947 210,476 48,291 1,172,714
Depreciation - PP&E 176,660 25,069 607 202,336
Flat Steel Long steel
products products Other Total
------------ ------------ ----------- ----------
Six-month period ended June 30, 2005
Net sales 1,584,386 169,706 73,753 1,827,845
Cost of sales (774,129) (93,866) (43,548) (911,543)
------------ ------------------------ ----------
Gross profit 810,257 75,840 30,205 916,302
Depreciation - PP&E 107,631 6,600 - 114,231
-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
America America and others Total
--------- --------- ----------- ------------
(Unaudited)
Six-month period ended June 30, 2006
Net sales 1,788,347 1,427,482 22,127 3,237,956
Depreciation - PP&E 195,820 6,509 7 202,336
Six-month period ended June 30, 2005
Net sales 1,295,708 321,770 210,367 1,827,845
Depreciation - PP&E 114,219 4 8 114,231
5 Cost of sales
Six-month period ended
June 30,
------------------------------------
2006 2005
----------------- ------------------
(Unaudited)
Inventories at the beginning of the year 1,000,119 254,286
Acquisition of business 8,180 284,676
Plus: Charges for the period
Raw materials and consumables used and other movements 1,460,687 577,479
Services and fees 72,943 57,706
Labor cost 236,125 107,649
Depreciation of property, plant and equipment 189,614 103,551
Amortization of intangible assets 6,943 2,485
Maintenance expenses 150,731 89,898
Office expenses 3,767 2,534
Freight and transportation 11,650 11,178
Insurance 5,208 2,060
Provision for obsolescence 20,779 2,552
Recovery from sales of scrap and by-products (24,436) (12,670)
Others 36,374 18,216
Less: Inventories at the end of the period (1,113,442) (590,057)
----------------- ------------------
Cost of sales 2,065,242 911,543
----------------- ------------------
-9-
TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
6 Selling, general and administrative expenses
Six-month period ended
June 30,
-----------------------------------
2006 2005
-----------------------------------
(Unaudited)
Services and fees 27,179 14,036
Labor cost 69,112 27,814
Depreciation of property plant and equipment 12,722 10,680
Amortization of intangible assets 2,494 912
Maintenance and expenses 7,970 2,752
Taxes 20,886 19,207
Office expenses 15,535 4,079
Freight and transportation 138,254 93,441
Insurance 727 292
Others 11,506 6,391
----------------- -----------------
Selling, general and administrative expenses 306,385 179,604
----------------- -----------------
7 Financial expenses, net
Six-month period ended
June 30,
------------------------------------
2006 2005
------------------------------------
(Unaudited)
Interest expense (67,499) (15,135)
Interest income 25,144 12,603
Net foreign exchange transaction gains and change in fair value of
derivative instruments (15,309) (29,636)
Debt issue costs
(9,505) -
Income from Participation Account (i) 44,050
-
Loss from Participation Account (i) (157,546) (110,164)
Others (7,027) (4,441)
------------------ -----------------
Financial expenses, net (231,742) (102,723)
------------------ -----------------
(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, net
Six-month period ended June 30,
--------------------------------------
2006 2005
--------------------------------------
(Unaudited)
At the beginning of the year 9,122 309,318
Translation adjustment 29 (3,273)
Equity in (losses) earnings of associated companies (922) 19,123
Consolidation of Amazonia - (318,166)
------------------ -------------------
At the end of the period 8,229 7,002
------------------ -------------------
-10-
TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
9 Property, plant and equipment and Intangible assets, net
Net Property,
Plant and Net Intangible
Equipment Assets
----------------- ----------------------
(Unaudited) (Unaudited)
Six-month period ended June 30, 2006
At the beginning of the year 5,463,871 552,882
Currency translation differences (143,412) (27,661)
Transfers (9,632) -
Additions 178,116 8,848(1)
Disposals (700) -
Derecognition (1,700) -
Increase due to business acquisition 47,825 -
Depreciation/ Amortization charge (202,336) (9,437)
----------------- ----------------------
At the end of the period 5,332,032 524,632
----------------- ----------------------
(1) Includes USD 675 thousands 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
As a consequence of the commercial transactions entered into by Sidor and
PDVSA-Gas during the six-month period ended June 30, 2006, Sidor's potential
exposure under its litigation against that company increased by USD 16.3
million, thus reaching a total amount of USD 110.6 million.
(ii) Consorcio Siderurgia Amazonia Ltd .- Sidernet supply agreement
During the six-month period ended June 30, 2006, Sidor and Sidernet de Venezuela
C.A. ("Sidernet", a related party under the common control of San Faustin)
entered into a supply agreement for the term of 10 years (the "Supply
Agreement") under which Sidernet will perform the heavy cleaning of Sidor's
mills, as well as the moving and processing of certain raw and other materials
(the "Service"). The total value to be paid by Sidor for the Service is
approximately USD 155.8 million.
As part of the Supply Agreement, Sidor agreed to make an advanced payment of USD
15.0 million. This advanced payment will be repaid in 120 equal monthly
installments that will be deducted from the payments made by Sidor in connection
with the Service.
(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.
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 June 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 88,915
----------------
Total shareholders' equity under Luxembourg GAAP 4,203,088
----------------
-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 28.6 million in the six
month period ended June 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 25.1 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.
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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:
Six-month period ended June, 30
----------------------------------------
2006 2005
-------------------- -------------------
(Unaudited)
(i) Transactions
(a) Sales of goods and services
Sales of goods to other related parties 42,868 37,680
Sales of goods to associated parties 712 27
Sales of services to associated parties 1,570 1,850
Sales of services to other related parties 143 739
-------------------- -------------------
45,293 40,296
-------------------- -------------------
(b) Purchases of goods and services
Purchases of goods from associated parties 31,533 26,350
Purchases of goods from other related parties 21,572 11,772
Purchases of services from other related parties 73,414 40,563
-------------------- -------------------
126,519 78,685
-------------------- -------------------
(c) Financial results
Income with associated parties 1,824 55,522
Income with other related parties 27 368
Expenses with other related parties (1,815) (106)
-------------------- -------------------
36 55,784
-------------------- -------------------
At June 30, 2006 At December 31,
2005
------------------ --------------------
(Unaudited)
(ii) Period-end balances
(a) Arising from sales/purchases of goods/services
Receivables from associated parties 70,096 71,317
Receivables from other related parties 43,515 18,175
Payables to associated parties (4,367) (13,644)
Payables to other related parties (28,178) (17,914)
------------------ --------------------
81,066 57,934
------------------ --------------------
b) Other investments
------------------ --------------------
Time deposit with other related parties 10,337 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)
------------------ --------------------
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TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
13 Recent accounting pronouncements
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. If an entity
applies the Interpretation for a period beginning before 1 June 2006, it shall
disclose that fact. The Interpretation shall be applied retrospectively.
The Company's management has not assessed the potential impact that the
application of IFRIC 9 may have on the Company's financial condition or results
of operations.
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Roberto Philipps
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Chief Financial Officer
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