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.
2
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.
3
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.
4
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