Form 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 5/5/2009
Ternium S.A.
(Translation of Registrants name into English)
Ternium S.A.
46a, Avenue John F. Kennedy
L-1855 Luxembourg
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover
Form 20-F or 40-F.
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.
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 Terniums notice of Annual General Meeting of Shareholders, the Shareholder
Meeting Brochure and Proxy Statement and Terniums 2008 Annual Report.
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.
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By:
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/s/ Raúl Darderes
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Name:
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Raúl Darderes
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Title:
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Secretary to the Board of Directors |
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Dated: May 5, 2009
May 5, 2009
Dear Ternium Shareholders and ADR holders,
I am pleased to invite you to attend the Annual General Meeting of Shareholders of TERNIUM S.A.,
société anonyme holding (the Company), to be held on Wednesday, June 3, 2009, at the Companys
registered office in Luxembourg, located at 46A, avenue John F. Kennedy, L-1855 Luxembourg (the
Meeting). The Meeting will begin promptly at 2:30 p.m., local time.
At the Meeting, you will hear a report on the Companys business, financial condition and results
of operations and will have the chance to vote on various matters, including the approval of the
Companys financial statements, the election of the members of the board of directors and the
appointment of the independent auditors.
The Notice and Agenda for the Meeting, the Shareholder Meeting Brochure and Proxy Statement and the
Companys 2008 annual report (which includes the Companys consolidated financial statements as of
December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006, and the
Companys annual accounts as at December 31, 2008, together with the board of directors and the
independent auditors reports thereon), are available free of charge at the Companys registered
office in Luxembourg and on our website at http://www.ternium.com/en/investor/. They may
also be obtained upon request, by calling +352 26 68 31 52 or +1 800 555 2470 (the latter number is
toll free if you call from the United States).
Even if you only own a few shares or ADRs, I hope that you will exercise your right to vote at the
Meeting. You can vote your shares personally or by proxy. If you choose to vote by proxy, you may
use the enclosed dedicated proxy form. If you are a holder of ADRs, please see the letter from The
Bank of New York Mellon, the depositary bank, or your broker/custodian, for instructions on how to
exercise your vote by proxy.
Yours sincerely,
Paolo Rocca
Chairman
THE BANK OF NEW YORK MELLON
101 Barclay Street
New York, NY 10286
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Re: TERNIUM S.A. |
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To:
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Registered Holders of American
Depositary Receipts (ADRs)
for ordinary shares, USD 1.00 par value each (the Shares), of
Ternium S.A. (the Company): |
The Company has announced that its Annual General Meeting of Shareholders will be held on June 3,
2009, at 2:30 p.m. (Central European Time). The meeting will take place at the Companys
registered office in Luxembourg, located at 46A, avenue John F. Kennedy L-1855 Luxembourg. A
copy of the Companys Notice of Annual General Meeting of Shareholders, which includes the agenda
for such meeting, is available on the Companys website at http://www.ternium.com/en/investor/.
The enclosed dedicated proxy form is provided to allow you to give voting instructions in respect
of the Shares represented by your ADRs. The Notice of Annual General Meeting of Shareholders, the
Shareholder Meeting Brochure and Proxy Statement and the Companys 2008 annual report (which
includes the Companys consolidated financial statements as of December 31, 2008 and 2007 and for
the years ended December 31, 2008, 2007 and 2006; and the Companys annual accounts as at December
31, 2008, together with the Board of Directors and independent auditors reports thereon), are
available on the Companys website at http://www.ternium.com/en/investor/ and may also be
obtained upon request at +352 26 68 31 52 or +1-800-555-2470 (the latter number is toll free if you
call from the United States). They are also available free of charge at the Companys registered
office in Luxembourg.
Each holder of ADRs as of April 29, 2009 is entitled to instruct The Bank of New York Mellon, as
Depositary (the Depositary), as to the exercise of the voting rights pertaining to the Shares
represented by such holders ADRs. Elegible holders of ADRs who desire to give voting
instructions in respect of the Shares represented by their ADRs must complete, date and sign a
proxy form and return it to The Bank of New York Mellon Shareowner Services, P.O. Box 3549, S.
Hackensack New Jersey 07606-9249, U.S.A. Attention: Proxy Processing, by 5:00 p.m., New York City
time, on May 29, 2009. If the Depositary receives properly completed instructions by 5:00 p.m.,
New York City time, on May 29, 2009, then it shall endeavor, insofar as practicable, to vote or
cause to be voted the shares underlying such ADRs in the manner prescribed by the instructions.
However, if by 5:00 p.m., New York City time, on May 29, 2009, the Depositary receives no
instructions from the holder of ADRs, or the instructions received are not in proper form, then
the Depositary shall deem such holder to have instructed the Depositary to give, and the
Depositary shall give, a discretionary proxy to a person designated by the Company with respect
to that amount of Shares underlying such ADRs to vote that amount of Shares underlying such ADRs
in favor of any proposals or recommendations of the Company (including any recommendation by the
Company to vote that amount of shares underlying such ADRs on any issue in accordance with the
majority shareholders vote on that issue) as determined by the appointed proxy. No instruction
shall be deemed given and no discretionary proxy shall be given with respect to any matter as to
which the Company informs the Depositary that (x) it does not wish such proxy given, (y)
substantial opposition exists, or (z) the matter materially and adversely affects the rights of
the holders of ADRs.
Any holder of ADRs is entitled to revoke or revise any instructions previously given to the
Depositary by filing with the Depositary a written revocation or duly executed instructions bearing
a later date at any time prior to 5:00 p.m., New York City time, on May 29, 2009. No instructions,
revocations or revisions thereof will be accepted by the Depositary after that time.
In order to avoid the possibility of double vote, the Companys ADR books will be closed for
cancellations from April 29, 2009, until May 29, 2009.
IF YOU WANT YOUR VOTE TO BE COUNTED, THE DEPOSITARY MUST RECEIVE YOUR VOTING INSTRUCTIONS PRIOR
TO 5:00 P.M. (NEW YORK CITY TIME) ON MAY 29, 2009.
THE BANK OF NEW YORK MELLON
Depositary
May 5, 2009
New York, New York
TERNIUM S.A.
Société Anonyme Holding
46A, Avenue John F. Kennedy
L-1855, Luxembourg
RCS Luxembourg B 98 668
Notice of the Annual General Meeting of Shareholders
to be held on June 3, 2009 at 2:30 p.m. C.E.T.
Notice is hereby given to holders of shares of TERNIUM S.A., société anonyme holding (the
Company), that the Annual General Meeting of Shareholders of the Company will be held on June 3,
2009, at 2:30 p.m. (Central European Time). The meeting will be held at the Companys registered
office in Luxembourg, located at 46A, avenue John F. Kennedy L-1855 Luxembourg. The items listed
below will be submitted to the vote of the shareholders.
Agenda
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Consideration of the Board of Directors and independent auditors reports on
the Companys consolidated financial statements. Approval of the Companys consolidated
financial statements as of December 31, 2008 and 2007 and for the years ended December
31, 2008, 2007 and 2006. |
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Consideration of the Board of Directors and independent auditors reports on
the Companys annual accounts. Approval of the Companys annual accounts as at December
31, 2008. |
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Allocation of results. |
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Discharge to the members of the Board of Directors for the exercise of their
mandate throughout the year ended December 31, 2008. |
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Election of the members of the Board of Directors. |
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Compensation of the members of the Board of Directors. |
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Appointment of the independent auditors for the fiscal year ending December 31,
2009 and approval of their fees. |
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Authorization to the Board of Directors to delegate the day-to-day management
of the Companys business to one or more of its members. |
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Authorization to the Board of Directors to appoint one or more of its members
as the Companys attorney-in-fact. |
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Authorization to the Board of Directors of the Company or the board of
directors or other governing bodies of the Companys subsidiaries to acquire shares of
the Company. |
Pursuant to the Companys Articles of Association, resolutions at the Annual General Meeting of
Shareholders will be passed by a simple majority of the votes cast, irrespective of the number of
shares present or represented.
Procedures for attending the meeting
Any shareholder who holds one or more share(s) of the Company on May 29, 2009 (the Record Date)
shall be admitted to the Annual General Meeting of Shareholders of the Company. Holders of shares
as of the Record Date may also vote by proxy.
Those shareholders who have sold their shares between the Record Date and the date of the Annual
General Meeting of Shareholders must not attend or be represented at such meeting. In case of
breach of such prohibition, criminal sanctions may apply.
Holders of American Depositary Receipts (the ADRs) as of April 29, 2009 are entitled to instruct
The Bank of New York Mellon, as Depositary, as to the exercise of the voting rights pertaining to
the Companys shares represented by such holders ADRs. Elegible holders of ADRs who desire to give
voting instructions in respect of the shares represented by their ADRs at the Meeting must
complete, date and sign a proxy form and return it to The Bank of New York Mellon Shareowner
Services, P.O. Box 3549, S. Hackensack New Jersey 07606-9249, U.S.A. Attention: Proxy Processing,
by 5:00 p.m., New York City time, on May 29, 2009.
The Shareholder Meeting Brochure and Proxy Statement (which contains reports on each item of the
agenda for the meeting, and further details on voting procedures) and the forms furnished by the
Company in connection with the meeting, may be obtained from the Companys registered office
located at 46A, avenue John F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg, between 10:00
a.m. and 5:00 p.m. (local time).
Copies of the Shareholder Meeting Brochure and Proxy Statement and the Companys 2008 annual report
(which includes the Companys consolidated financial statements as of December 31, 2008 and 2007
and for the years ended December 31, 2008, 2007 and 2006; and the Companys annual accounts as at
December 31, 2008, together with the board of directors and the independent auditors reports
thereon) are available on our website at http://www.ternium.com/en/investor/ and may also
be obtained upon request, by calling +352 26 68 31 52 or +1 800 555 2470 (the latter number is toll
free if you call from the United States). These documents are also available free of charge at the
Companys registered office in Luxembourg.
Raúl H. Darderes
Secretary to the Board of Directors
May 5, 2009
Luxembourg
TERNIUM S.A.
Société Anonyme Holding
46A, Avenue John F. Kennedy
L-1855, Luxembourg
RCS Luxembourg B 98 668
SHAREHOLDER MEETING BROCHURE AND PROXY STATEMENT
Annual General Meeting of Shareholders
to be held on June 3, 2009 at 2:30 p.m. C.E.T.
This Shareholder Meeting Brochure and Proxy Statement is furnished by TERNIUM S.A., société
anonyme holding (the Company), in connection with the Annual General Meeting of
Shareholders of the Company (the Meeting) to be held on June 3, 2009, starting at 2:30
p.m., Central European Time, for the purposes set forth in the accompanying Notice of the
Annual General Meeting of Shareholders (the Notice), at the Companys registered office in
Luxembourg, located at 46A, avenue John F. Kennedy L-1855 Luxembourg.
As of April 29, 2009, there were issued and outstanding 2,004,743,442 ordinary shares, USD
1.00 par value each, of the Company (the Shares), including Shares (the Deposited
Shares) deposited with The Bank of New York Mellon (the Depositary) under the Deposit
Agreement, dated as of January 31, 2006 (the Deposit Agreement), among the Company, the
Depositary and owners and beneficial owners from time to time of American Depositary
Receipts (the ADRs) issued thereunder. The Deposited Shares are represented by American
Depositary Shares, which are evidenced by the ADRs (one ADR equals ten Deposited Shares).
Each Share entitles the holder thereof to one vote at General Meetings of Shareholders of
the Company.
Any holder of one or more Share(s) as of May 29, 2009 shall be admitted to the Meeting.
Holders of Shares as of May 29, 2009 may also vote by proxy.
Each holder of ADRs as of April 29, 2009 is entitled to instruct the Depositary as to the
exercise of the voting rights pertaining to the Shares represented by such holders ADRs.
Elegible holders of ADRs who desire to give voting instructions in respect of the Shares
represented by their ADRs must complete, date and sign a proxy form and return it to The
Bank of New York Mellon Shareowner Services, P.O. Box 3549, S. Hackensack New Jersey
07606-9249, U.S.A. Attention: Proxy Processing, by 5:00 p.m., New York City time, on May 29,
2009. If the Depositary receives properly completed instructions by 5:00 p.m., New York City
time, on May 29, 2009, then it shall endeavor, insofar as practicable, to vote or cause to
be voted the shares underlying such ADRs in the manner prescribed by the instructions.
However, if by 5:00 p.m., New York City time, on May 29, 2009, the Depositary receives no
instructions from the holder of ADRs, or the instructions received are not in proper form,
then the Depositary shall deem such holder to have instructed the Depositary to give, and
the Depositary shall give, a discretionary proxy to a person designated by the Company with
respect to that amount of Shares underlying such ADRs to vote that amount of Shares
underlying such ADRs in favor of any proposals or recommendations of the Company (including
any recommendation by the Company to vote
that amount of shares underlying such ADRs on any issue in accordance with the majority
shareholders vote on that issue) as determined by the appointed proxy. No instruction shall
be deemed given and no discretionary proxy shall be given with respect to any matter as to
which the Company informs the Depositary that (x) it does not wish such proxy given, (y)
substantial opposition exists, or (z) the matter materially and adversely affects the rights
of the holders of ADRs. Any holder of ADRs is entitled to revoke or revise any instructions
previously given to the Depositary by filing with the Depositary a written revocation or
duly executed instructions bearing a later date at any time prior to 5:00 p.m., New York
City time, on May 29, 2009. No instructions, revocations or revisions thereof will be
accepted by the Depositary after that time. In order to avoid the possibility of double
vote, the Companys ADR books will be closed for cancellations from April 29, 2009 until May
29, 2009.
Holders of ADRs maintaining non-certificated positions must follow voting instructions
outlined by their broker or custodian bank.
Holders of ADRs traded in the New York stock exchange need not have their ADRs blocked for
trading.
The Meeting will appoint a chairperson pro tempore to preside over the Meeting. The
chairperson pro tempore will have broad authority to conduct the Meeting in an orderly and
timely manner and to establish rules for shareholders who wish to address the Meeting; the
chairperson may exercise broad discretion in recognizing shareholders who wish to speak and
in determining the extent of discussion on each item of the agenda.
Pursuant to the Companys Articles of Association, resolutions at the Meeting will be passed
by a simple majority of the votes cast, irrespective of the number of shares present or
represented.
The Meeting is called to address and vote on the following agenda:
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Consideration of the Board of Directors and independent auditors reports on
the Companys consolidated financial statements. Approval of the Companys consolidated
financial statements as of December 31, 2008 and 2007 and for the years ended December
31, 2008, 2007 and 2006 |
The Board of Directors recommends a vote FOR approval of the Companys consolidated
financial statements as of December 31, 2008 and 2007 and for the years ended December 31,
2008, 2007 and 2006, after due consideration of the reports from each of the Board of
Directors and the independent auditor on such consolidated financial statements. The
consolidated balance sheets of the Company and its subsidiaries and the related consolidated
income statements, consolidated statements of changes in shareholders equity, consolidated
cash flow statements and the notes to such consolidated financial statements, the report
from the independent auditor on such consolidated financial statements and managements
discussion and analysis on the Companys results of operations and financial condition are
included in the Companys 2008 annual report, a copy of which is available on our website at
http://www.ternium.com/en/investor/ and may also be obtained upon request, by
calling +352 26 68 31 52 or +1 (800) 555 2470 (the latter number is toll free if you call
from the United States). Copies of the Companys 2008 annual report are also available free
of charge at the Companys registered office in Luxembourg.
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Consideration of the Board of Directors and independent auditors reports on
the Companys annual accounts. Approval of the Companys annual accounts as at December
31, 2008 |
The Board of Directors recommends a vote FOR approval of the Companys annual accounts as at
December 31, 2008, after due consideration of the Board of Directors management report and
the report from the independent auditor on such annual accounts. These documents are
included in the Companys 2008 annual report, a copy of which is available on our website at
http://www.ternium.com/en/investor/ and may also be obtained upon request, by
calling +352 26 68 31 52 or +1 (800) 555 2470 (the latter number is toll free if you call
from the United States). Copies of the Companys 2008 annual report are also available free
of charge at the Companys registered office in Luxembourg.
The Board of Directors recommends a vote FOR approval of the allocation of the profits of
the year ended December 31, 2008 of USD 225,455,160.00 to the Companys retained earnings
account.
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Discharge to the members of the Board of Directors for the exercise of their
mandate throughout the year ended December 31, 2008 |
In accordance with applicable Luxembourg law and regulations, it is proposed that, upon
approval of the Companys annual accounts as at December 31, 2008, the members of the Board
of Directors be discharged from any liability in connection with the management of the
Companys affairs during such year.
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Election of the Members of the Board of Directors |
The Companys Articles of Association provide for the annual election by the shareholders of
a Board of Directors of not less than five and not more than fifteen members. Members of the
Board of Directors have a term of office of one year, but may be reappointed.
Under the Companys Articles of Association and applicable U.S. laws and regulations,
effective on February 1, 2006, the Company is required to have an Audit Committee comprised
solely of directors who are independent.
The present Board of Directors of the Company consists of eleven Directors. Three members of
the Board of Directors (Messrs. Ubaldo Aguirre, Adrian Lajous and Pedro Pablo Kuczynski)
qualify as independent members under the Companys Articles of Association and applicable
law and are members of the Audit Committee.
It is proposed that the number of members of the Board of Directors be maintained at eleven
and that all of the current members of the Board of Directors be re-elected.
Set forth below is summary biographical information of each of the candidates:
1) Mr. Ubaldo Aguirre*. Mr. Aguirre has served on the Companys board of directors since
2006. He is a managing director of Aguirre, Gonzalez and Marx S.A., an Argentine investment
banking firm, and also serves as a member of the board of directors of Juan Minetti S.A., a
subsidiary of Holcim, the Swiss cement producer. Since 2005, he also serves as chairman of
the board of directors of Permasur S.A. and since 2000 as member of the board of directors
of URS Argentina S.A. Mr. Aguirre formerly served as director and chairman of the audit
committee of Siderar S.A.I.C. (Siderar). Mr. Aguirre began his career at the World Bank in
Washington, D.C. In addition, Mr. Aguirre has been a member of the boards of each of
Argentinas Central Bank where he was responsible for that countrys external borrowing
program and financial negotiations Banco de la Nación Argentina and Banco Nacional de
Desarrollo. He also served as the Republic of Argentinas financial representative for
Europe in Geneva and negotiator on behalf of the Republic of Argentina with the Paris Club.
Mr. Aguirre, aged 60, is an Argentine citizen.
2) Mr. Roberto Bonatti. Mr. Bonatti has served as a director of the Company since 2005. He
is a grandson of Agostino Rocca, founder of the Techint group, a group of companies
controlled by San Faustin N.V. (San Faustin). Throughout his career in the Techint group
he has been involved specifically in the engineering and construction and corporate sectors.
He was first employed by the Techint group in 1976, as deputy resident engineer in
Venezuela. In 1984, he became a director of San Faustín, and since 2001 he has served as its
president. In addition, Mr. Bonatti currently serves as president of Techint Compañía
Técnica Internacional S.A.C.I. and Tecpetrol S.A. (Tecpetrol). He is also a member of the
board of directors of Tenaris S.A. (Tenaris), Siderca S.A.I.C. (Siderca) and Siderar.
Mr. Bonatti, aged 59, is an Italian citizen.
3) Mr. Wilson Nélio Brumer. Mr. Brumer has served as a director of the Company since 2008.
He is chairman of the board of directors of Usinas Siderurgicas de Minas Gerais S/A
USIMINAS (Usiminas), a position to which he was appointed on April 29, 2008. He was
Secretary of State of Economic Development in the State of Minas Gerais, Brazil. He also
served as Chairman and Vice-Chairman of the Board of Directors of Companhia Vale Do Rio
Doce, Chairman of the Board of Directors of BHP Billiton in Brazil, and President of Acesita
S.A. Throughout his career, Mr. Brumer served as member of the Board of Directors of several
Brazilian companies and entities related to the steel industry. Mr. Brumer, aged 60, is a
Brazilian citizen.
4) Mr. Marco Antônio Soares da Cunha Castello Branco. Mr. Castello Branco has served as a
director of the Company since 2008. He currently serves as President-CEO of Usiminas, a
position to which he was appointed on April 29, 2008. He has held several positions within
Mannesman (now Vallourec & Mannesmann Tubes) including Commercial Director and Chairman of
the Board of Directors. Mr. Castello Branco, aged 48, is a Brazilian citizen.
5) Mr. Carlos Alberto Condorelli. Mr. Condorelli has served as a director of the Company
since 2005. He is currently a member of the board of directors of Tenaris. He began his
career within the Techint group in 1975 as an analyst in the accounting and administration
department of Siderar. He has held several positions within Tenaris and other Techint group
companies, including chief financial officer of Tenaris, finance and administration director
of Tubos de Acero de México, S.A. (Tamsa), and president of the board of directors of
Empresa Distribuidora La Plata S.A., an Argentine utilities company. Mr. Condorelli, aged
58, is an Argentine citizen.
6) Mr. Pedro Pablo Kuczynski*. Mr. Kuczynski has served as a member of the Companys Board
of Directors since 2007. He was Prime Minister of Peru in 2005-2006 and prior to that he was
the Minister of Economy and Finance from 2001. He was the Republic of Perus Minister of
Energy and Mines in 1980-82. He was president until 2001 of a private equity firm he founded
in 1992 after spending ten
years as Chairman of First Boston International (today Credit Suisse) in New York. Since
2007, he is Senior Advisor to the Rohatyn Group, a firm specializing in emerging markets.
He ran a bauxite mining company affiliated with Alcoa between 1977 and 1980. He began his
career at the World Bank in 1961 and was in the 1970s head of its Policy Planning Division,
Chief Economist for Latin America and Chief Economist of IFC. He was born in Peru in 1938
and educated in Peru and at Oxford and Princeton. Mr. Kuczynski, aged 70, is a U.S. and
Peruvian national.
7) Mr. Adrian Lajous*. Mr. Lajous has served as a director of the Company since 2006. Mr.
Lajous currently serves as the senior energy advisor to McKinsey & Company, chairman of the
Oxford Institute for Energy Studies, president of Petrométrica, S.C. and non-executive
director of Schlumberger, Ltd. and Trinity Industries Inc. Mr. Lajous began his career teaching economics at El Colegio
de México and in 1977 was appointed director general for energy at Mexicos Ministry of
Energy. Mr. Lajous joined Pemex in 1983, where he held a succession of key executive
positions including executive coordinator for international trade, corporate director of
planning, corporate director of operations and director of refining and marketing. From 1994
until 1999, he served as chief executive officer of Pemex and chairman of the boards of the
Pemex Group of operating companies. Mr. Lajous, aged 65, is a Mexican citizen.
8) Mr. Bruno Marchettini. Mr. Marchettini has served on the Companys Board of Directors
since 2006. Mr. Marchettini is senior advisor in technological matters for the Techint
group. Mr. Marchettini has retired from executive positions and is presently engaged as a
consultant by Siderar. Mr. Marchettini is a director of San Faustin and Techint Financial
Corporation N.V. Mr. Marchettini, aged 67, is an Italian citizen.
9) Mr. Gianfelice Mario Rocca. Mr. Rocca has served as a director of the Company since 2006.
He is a grandson of Agostino Rocca. He is chairman of the board of directors of San Faustín,
a member of the board of directors of Tenaris, president of the Humanitas Group, and
president of the board of directors of Techint Compagnia Tecnica Internazionale S.p.A. and
of Tenova S.p.A. In addition, he sits on the board of directors or executive committees of
several companies, including Allianz S.p.A, RCS Quotidiani and Buzzi Unicem. He is vice
president of Confindustria, the leading association of Italian industrialists. He is a
member of the Advisory Board of Allianz Group, of the Trilateral Commission and of the
European Advisory Board of the Harvard Business School. Mr. Rocca, aged 61, is an Italian
citizen.
10) Mr. Paolo Rocca. Mr. Rocca has served as the chairman of the Companys Board of
Directors since 2005. He is a grandson of Agostino Rocca. He is also chairman and chief
executive officer of Tenaris, chairman of the board of directors of Tamsa and vice president
of Confab Industrial S.A. In addition, he is a member of the board of directors and vice
president of San Faustín and a director of Techint Financial Corporation N.V. Mr. Rocca is
vice chairman of the World Steel Association and member of the International Advisory
Committee of NYSE Euronext (New York Stock Exchange). Mr. Rocca, aged 56, is an Italian
citizen.
11) Mr. Daniel Agustin Novegil. Mr. Novegil has served as a director and chief executive
officer of the Company since 2005. Mr. Novegil joined Propulsora Siderurgica in 1978 and was
appointed as its general director in 1991. In 1993, following the merger of the privatized
company Somisa with Propulsora, he was appointed managing director of Siderar. In 1998,
after the acquisition of Sidor, Mr. Novegil was appointed chairman and chief executive
officer of Sidor. In March 2003, Mr. Novegil was designated executive vice-president of the
Techint Flat and Long Steel Division, with executive responsibilities over Siderar and
Sidor. He became president of Siderar in May 2005. Mr. Novegil, aged 56, is an Argentine
citizen.
Each elected director will hold office until the next Annual General Meeting of
Shareholders. Under the current Companys Articles of Association, such meeting is required
to be held on June 2, 2010.
The Board of Directors of the Company met six times during 2008. On January 12, 2006, the
Board of Directors created an Audit Committee pursuant to Article 11 of the Articles of
Association of the Company. As permitted under applicable laws and regulations, the Board of
Directors does not have any executive, nominating or compensation committee, or any
committees exercising similar functions.
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Compensation of the members of the Board of Directors |
It is proposed that each of the members of the Board of Directors receive an amount of USD
70,000.00 as compensation for their services during the fiscal year 2009, and that the
Chairman of the Board of Directors receive, further, an additional fee of USD 280,000.00. It
is further proposed that each of the members of the Board of Directors who are members of
the Audit Committee receive an additional fee of USD 50,000.00, and that the Chairman of
such committee receive, further, an additional fee of USD 10,000.00.
7. |
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Appointment of the independent auditors and approval of their fees |
Based on the recommendation from the Audit Committee, the Board of Directors recommends a
vote FOR the appointment of PricewaterhouseCoopers (acting, in connection with the Companys
annual accounts and annual consolidated financial statements required under Luxembourg law,
through PricewaterhouseCoopers S.àr.l., Réviseur dentreprises, and, in connection with the
Companys annual and interim consolidated financial statements required under the laws of
any other relevant jurisdiction, through Price Waterhouse & Co. S.R.L.) as the Companys
independent auditors for the fiscal year ending December 31, 2009, to be engaged until the
next Annual General Meeting of Shareholders that will be convened to decide on the 2009
accounts.
In addition, the Board of Directors recommends a vote FOR approval of the independent
auditors fees for audit, audit-related and other services to be rendered during the fiscal
year ending December 31, 2009, broken-down into four currencies (Argentine Pesos, Euro,
Mexican Pesos, and U.S. Dollars), up to a maximum amount for each currency equal to ARS
5,163,342.00; EUR 70,900.00; MXN 11,232,744.00 and USD 183,821.00. Such fees would cover the
audit of the Companys consolidated financial statements and annual accounts, the audit of
the Companys internal controls over financial reporting as mandated by the Sarbanes-Oxley
Act of 2002, other audit-related services, and other services rendered by the independent
auditors. The Board of Directors also recommends that its Audit Committee be authorized to
approve any increase or reallocation of the independent auditors fees as may be necessary,
appropriate or desirable under the circumstances.
8. |
|
Authorization to the Board of Directors to delegate the day-to-day management
of the Companys business to one or more of its members |
It is proposed that the Board of Directors of the Company be authorized to delegate the
management of the Companys day-to-day business and the authority to represent and bind the
Company with his sole
signature in such day-to-day management to Mr. Daniel Agustin Novegil, and to appoint Mr.
Novegil as chief executive officer (administrateur délégué) of the Company.
9. |
|
Authorization to the Board of Directors to appoint one or more of its members
as the Companys attorney-in-fact |
In order to provide for the necessary flexibility in the management of the Companys
affairs, it is proposed to authorize the Board of Directors of the Company (the Board) to
appoint any or all members of the Board from time to time as the Companys attorney-in-fact,
delegating to such directors any management powers (including, without limitation, any
day-to-day management powers) to the extent the Board may deem appropriate in connection
therewith, this authorization to be valid until expressly revoked by the Companys General
Shareholders Meeting, it being understood, for the avoidance of doubt, that this
authorization does not impair nor limit in any way the powers of the Board to appoint any
non-members of the Board of Directors as attorneys-in-fact of the Company pursuant to the
provisions of article 10.1(iii) of the Articles of Association of the Company.
10. |
|
Authorization to the Board of Directors of the Company or the board of
directors or other governing bodies of the Companys subsidiaries to acquire shares of
the Company |
It is recommended that an authorization be granted to the Company and to the Companys
subsidiaries to acquire, from time to time, Shares, including Shares represented by ADRs.
Any such acquisition of Shares must be made on the following terms and conditions:
|
1. |
|
The nominal value of the Shares so acquired, together with Shares previously
acquired by the Company, the Companys wholly-owned subsidiaries or any other person
acting on the Companys behalf, and not cancelled, shall not exceed 10% of the
Companys issued and outstanding Shares or, in the case of acquisitions of Shares made
through a stock exchange in which the Shares or ADRs are traded, such lower amount as
may not be exceeded pursuant to any applicable laws or regulations of such market. |
|
|
2. |
|
The acquisitions of Shares may be made in one or more transactions as the
Board of Directors of the Company or the board of directors or other governing body of
the relevant entity, as applicable, considers advisable. The number of Shares
acquired as a block may amount to the maximum permitted amount of purchases. |
|
3. |
|
The purchase price per ADR to be paid in cash may not exceed 125% (excluding
transaction costs and expenses), nor may it be lower than 75% (excluding transaction
costs and expenses), in each case of the average of the closing prices of the ADRs in
the New York Stock Exchange during the five trading days in which transactions in the
ADRs were recorded in the New York Stock Exchange preceding (but excluding) the day on
which the ADRs are purchased. In the case of purchases of Shares other than in the
form of ADRs, the maximum and minimum per Share purchase prices shall be equal to the
prices that would have applied in case of an ADR purchase pursuant to the formula
above divided by the number of underlying Shares represented by an
ADR at the time of the relevant purchase. Such maximum and minimum purchase prices
shall also apply to over-the-counter or off-market transactions. |
|
|
4. |
|
The above maximum and minimum purchase prices shall, in the event of a change
in the par value of the Shares, a capital increase by means of a capitalization of
reserves, a distribution of Shares under compensation or similar programs, a stock
split or reverse stock split, a distribution of reserves or any other assets, the
redemption of capital, or any other transaction impacting on the Companys equity be
adapted automatically, so that the impact of any such transaction on the value of the
Shares shall be reflected. |
|
|
5. |
|
The acquisitions of Shares may not have the effect of reducing the Companys
net assets below the sum of the Companys capital stock plus its undistributable
reserves. |
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|
6. |
|
Only fully paid-up Shares may be purchased pursuant to this authorization. |
|
|
7. |
|
The acquisitions of Shares may be carried out for any purpose, as may be
permitted under applicable laws and regulations, including, without limitation, to
reduce the share capital of the Company, to offer such shares to third parties in the
context of corporate mergers or acquisitions of other entities or participating
interests therein, for distribution to the Companys or the Companys subsidiaries
directors, officers or employees or to meet obligations arising from convertible debt
instruments. |
|
|
8. |
|
The acquisitions of Shares may be carried out by any and all means, as may be
permitted under applicable laws and regulations, including through any stock exchange
in which the Shares or other securities representing Shares are traded, through public
offers to all shareholders of the Company to buy Shares, through the use of derivative
financial instruments or option strategies, or in over the counter or off-market
transactions or in any other manner. |
|
|
9. |
|
The acquisitions of Shares may be carried out at any time and from time to
time during the duration of the authorization, including during a tender offer period,
as may be permitted under applicable laws and regulations. |
|
|
10. |
|
The authorization granted to acquire Shares shall be valid for such maximum
period as may be provided for under applicable Luxembourg law as in effect from time
to time (such maximum period being, as of to date, 18 months). |
|
11. |
|
The acquisitions of Shares shall be made at such times and on such other
terms and conditions as may be determined by the Board of Directors of the Company or
the board of directors or other governing body of the relevant entity, provided that
any such purchase shall comply with Article 49-2 et.seq. of the Luxembourg Law of 10
August 1915 on commercial companies, as amended (or any successor law) and, in the
case of acquisitions of Shares made through a stock exchange in which the Shares or
other securities representing Shares are traded, with any applicable laws and
regulations of such market. |
It is recommended that the Annual General Meeting of Shareholders grant this authorization
and further grant all powers to the Board of Directors and to the board of directors or
other governing bodies of the Companys subsidiaries, in each case with powers to delegate
in accordance with applicable laws, the Companys Articles of Association or the articles of
association or other applicable organizational documents of the relevant Companys
subsidiary, to decide on and implement this authorization, to define, if necessary, the
terms and procedures for carrying out any purchase of Shares, and, in particular, to place
any stock exchange orders, conclude any agreements, including for keeping registers of
purchases and sales of Shares, make any declarations to the applicable regulatory
authorities, carry out all formalities and, generally, do all such other acts and things as
may be necessary, appropriate or desirable for the purposes aforesaid. The Board of
Directors is expressly authorized to delegate to its Chairman, with the latter having the
option to sub-delegate to any other person(s), the performance of the actions entrusted to
the Board of Directors, pursuant to, or in connection with, this authorization.
The Company anticipates that the next Annual General Meeting of Shareholders will be held on
June 2, 2010. Any shareholder who intends to present a proposal to be considered at the next
Annual General Meeting of Shareholders must submit the proposal in writing to the Company at
the registered office of the Company, located at 46A, avenue John F. Kennedy, L-1855
Luxembourg, Grand Duchy of Luxembourg, not later than 4:00 P.M. (local time) on February 19,
2010, in order for such proposal to be considered for inclusion on the agenda for the 2010
Annual General Meeting of Shareholders.
PricewaterhouseCoopers are the Companys independent auditors. A representative of the
independent auditors will be present at the Meeting to respond to questions.
Raúl H. Darderes
Secretary to the Board of Directors
Ternium
Annual Report 2008
Annual Report 2008
Contents
- 2 -
Company Profile & Strategy
Ternium is a leading steel company in Latin America. We manufacture and process a broad spectrum
of value-added steel products, including tinplate, galvanized and electro-galvanized sheets,
pre-painted sheets, welded pipes, and hot rolled and cold rolled steel, as well as slit and
cut-to-length offerings through our service centers. We also produce long steel products, such as
bars and wire rod, and metal building components.
Our customers range from large global companies to small enterprises operating in the construction,
home appliances, capital goods, container, food, energy and automotive industries. We aim to build
close relationships with our customers and recognize that our success is closely linked with
theirs.
Ternium has a deeply engrained industrial culture. With an annual production capacity of
approximately 9 million tons of finished steel products and 16,000 employees, we have production
facilities located in Mexico, Argentina, the southern United States and Guatemala, as well as a
network of service centers that provide it with a strong position from which to serve its core
markets.
Our favorable access to iron ore sources, diversified steel production technology and proximity to
domestic steel consuming markets, enable us to minimize production and logistic costs under
fluctuating input cost conditions, and to offer valuable services to our customer base.
We operate with a broad and long-term perspective. We take steps to improve the quality of life
for our employees and their families as well as the local communities in which we operate.
- 3 -
Operating and Financial Highlights (*)
The financial and operational information contained in this annual report is based on consolidated
financial statements of Ternium S.A. (the Company), prepared in accordance with International
Financial Reporting Standards (IFRS) and presented in U.S. dollars and metric tons.
|
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|
|
|
|
2008 |
|
|
2007 |
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2006 |
|
SALES VOLUME (thousand tons) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Flat products |
|
|
6,325.5 |
|
|
|
5,718.9 |
|
|
|
4,693.3 |
|
Long products |
|
|
1,217.2 |
|
|
|
1,261.2 |
|
|
|
1,234.6 |
|
Total flat and long products |
|
|
7,542.7 |
|
|
|
6,980.1 |
|
|
|
5,927.8 |
|
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|
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|
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FINANCIAL INDICATORS (US$ millions) |
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|
|
|
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Net sales |
|
|
8,464.9 |
|
|
|
5,633.4 |
|
|
|
4,484.9 |
|
Operating income |
|
|
1,676.0 |
|
|
|
836.8 |
|
|
|
1,001.8 |
|
EBITDA (1) |
|
|
2,089.6 |
|
|
|
1,192.1 |
|
|
|
1,253.2 |
|
Income before income tax expense |
|
|
880.8 |
|
|
|
707.2 |
|
|
|
899.2 |
|
Discontinued operations (2) |
|
|
157.1 |
|
|
|
579.9 |
|
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444.5 |
|
Net income attributable to: |
|
|
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|
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|
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Equity holders of the Company |
|
|
715.4 |
|
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784.5 |
|
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795.4 |
|
Minority interest |
|
|
159.7 |
|
|
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211.3 |
|
|
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195.2 |
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|
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|
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Net income for the year |
|
|
875.2 |
|
|
|
995.8 |
|
|
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990.6 |
|
Free cash flow (3) |
|
|
(70.4 |
) |
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592.1 |
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439.1 |
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Capital expenditures |
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|
587.9 |
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344.3 |
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314.9 |
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BALANCE SHEET (US$ millions) |
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Total assets |
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10,671.2 |
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13,649.1 |
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8,658.3 |
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Total financial debt |
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3,267.3 |
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4,082.3 |
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1,053.8 |
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Net financial debt |
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2,111.8 |
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2,891.1 |
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410.6 |
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Total liabilities |
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5,109.8 |
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7,391.2 |
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3,274.6 |
|
Capital and reserves attributable to the companys equity holders |
|
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4,597.4 |
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4,452.7 |
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3,757.6 |
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Minority interest |
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964.1 |
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1,805.2 |
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1,626.1 |
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STOCK DATA (US$ per share / ADS) |
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Basic earnings per share |
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0.36 |
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0.39 |
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0.41 |
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Basic earnings per ADS (4) |
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3.57 |
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3.91 |
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4.11 |
|
Weighted average number of shares outstanding (5)
(thousand shares) |
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2,004,743.4 |
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2,004,743.4 |
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1,936,833.1 |
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(*) |
|
Sidors results of operations have been deconsolidated from the Companys
consolidated financial statements and are shown as Discontinued Operations. For a description
of the events in Venezuela relating to the Sidor nationalization process, see note 29
(Discontinued operations) to the Companys consolidated financial statements included
elsewhere in this Annual Report. |
|
(1) |
|
EBITDA is calculated as operating income plus depreciation and amortization. |
|
(2) |
|
Discontinued Operations include results from Sidor and from certain non-core U.S.
assets that were sold during the first quarter 2008. For further details, see note 29
(Discontinued operations) to the Companys consolidated financial statements included
elsewhere in this Annual Report. |
|
(3) |
|
Free cash flow is calculated as net cash provided by continuing operating activities
less capital expenditures. |
|
(4) |
|
Each ADS represents 10 shares of common stock. |
|
(5) |
|
Shares outstanding were 2,004,743,442 as of December 31, 2008, 2007 and 2006. |
- 4 -
Chairmans Letter
2008 was certainly a year of strong contrasts for Ternium. In Mexico, we consolidated our position
as the leading supplier of flat steel products in the local market following the integration of
IMSAs operations. Today, we hold around 40% share in our flat steel product range, compared to
approximately 20% two years ago. In Venezuela, however, we were forced to relinquish the ten years
of hard work and investment that we put in at Sidor. We have still not received compensation from
the Venezuelan government.
The business environment also went through a dramatic change. For the first three quarters of the
year, our industry enjoyed a period of strong demand and rising prices as the global economy
continued to expand strongly. In the fourth quarter, however, demand and prices plummeted, as the
steel industry was one of the first to feel the impact of the collapse of global industrial
production.
Following the severe retraction in demand worldwide for steel products, exacerbated by a strong
inventory adjustment effect throughout the value chain, the outlook for our industry has
definitively changed. We can expect a lengthy period of excess industry capacity and demand is not
likely to return to the levels of 2008 for several years. This will have an impact on our sales
and margins in 2009 and beyond.
How is Ternium positioned within the new environment? We have a number of important advantages,
which will help us to differentiate our performance in this environment and to come out of the
crisis strengthened. Firstly, our focus has been on selling finished steel products by integrating
our operations into end-user markets. Through our network of service centers and distributors we
are building strong and stable relationships with our customers and increasingly supplying them
with customized products and services. Almost half of our sales by volume are of coated or
cold-rolled products and most are directed to local or regional markets where we have established
ourselves as market leaders. Consequently, we do not rely on export markets for volume sales.
Our production system is flexible and cost-competitive. We produce steel both in electric furnaces
and in blast furnaces and buy slabs on the open market. This variety of options helps us to adapt
rapidly to changing levels of demand and input costs. We have our own low-cost iron ore mines,
which supply the majority of our requirements, as well as good access to competitive iron ore from
Brazil. Our cash costs are competitive within our region which does not have a structural excess of
steelmaking capacity.
Our management team has experienced crisis before. They are taking rapid and decisive action to
adjust production to lower levels of demand, to reduce inventories and working capital, to reduce
costs, and to resize our capital expenditure program. Expansion plans are being re-evaluated and
our net debt position will continue to be reduced during the first half of 2009.
In 2008, we made good progress in improving our safety performance. Following the acquisition of
IMSA, we took steps to consolidate safety, health and environmental standards throughout our
operations in Mexico and elsewhere. Injury frequency indicators declined steadily over the year and
showed a 30% improvement over 2007.
- 5 -
Our program to develop the competitiveness of small and medium enterprises in our markets is now in
its seventh year and has brought good results in strengthening our value chain. In 2008, we focused
on providing assistance in managing industrial operations and training. We think that this program
will gain even more relevance in the current market context.
Our results for the year reflected the contrasts we faced. Sales rose 50% to US$8.5 billion,
EBITDA rose 75% to US$2.1 billion, and net income declined 12%, mainly related to the accounting
effects of holding US dollar denominated debt at our Mexican subsidiaries level. Earnings per ADS
for the year amounted to US$3.57, 9% down on last year. Considering our current priority of
strengthening the balance sheet so that we are in a position to make the most effective advantage
of the opportunities that may arise in these distressed times, we are not proposing to pay a
dividend this year.
It has been a difficult year for our employees, particularly those involved with our former
operations in Venezuela. I would like to thank them for their efforts and the results they have
achieved. I would also like to thank our customers, suppliers and shareholders for their continuing
support and confidence in our company.
Paolo Rocca
Chairman
- 6 -
Sidors Nationalization Process 1
Further to several threats of nationalization and various adverse interferences with management in
preceding years, on April 8, 2008, the Venezuelan government announced its intention to take
control over Sidor. Following the confirmation of the Venezuelan governments decision to
nationalize Sidor, on April 16, 2008, the Company, Sidor and the Venezuelan government entered into
an agreement providing for the creation of a transition committee, composed of representatives of
the government, the union and Sidors class B employee shareholders, which was charged with
ensuring the normal conduct of Sidors production and commercial processes, acting in coordination
with Sidors board of directors, during the transition period until the nationalization was
completed.
On April 29, 2008, the National Assembly of Venezuela passed a resolution declaring that the shares
of Sidor, together with all of its assets, were of public and social interest. This resolution
authorized the Venezuelan government to take any action it deemed appropriate in connection with
any such assets, including expropriation.
On May 11, 2008, the President of Venezuelas decree regulating the steel production activity in
the Guayana, Venezuela, dated April 30, 2008, was published. The decree ordered that Sidor and its
subsidiaries and associated companies be transformed into state-owned enterprises, with the
government owning not less than 60% of their share capital. The decree required the Venezuelan
government to create two committees: a transition committee to be incorporated into Sidors
management and to ensure that control over the operations of Sidor and its subsidiaries and
associated companies was transferred to the government on or prior to July 12, 2008, and a separate
technical committee, composed of representatives of the government and the private shareholders of
Sidor and its subsidiaries and associated companies, to negotiate over a 60-day period (extendable
by mutual agreement) a fair price for the shares to be transferred to Venezuela, together with the
terms and conditions of the possible participation of such private shareholders in the share
capital of the state-owned enterprises.
The decree also stated that, in the event the parties failed to reach agreement regarding the terms
and conditions for the transformation of Sidor and its subsidiaries and associated companies into
state-owned enterprises by the expiration of the 60-day period, the Ministry of Basic Industries
and Mining (the MIBAM) would assume control and exclusive operation, and the Executive Branch
would order the expropriation of the shares of the relevant companies.
Upon expiration of the term contemplated under the decree, on July 12, 2008, Venezuela, acting
through Corporación Venezolana de Guayana, or CVG (a Venezuelan governmental entity), assumed
operational control of Sidor. Following the change in operational control, CVG assumed complete
responsibility for Sidors operations and Sidors board of directors ceased to function.
Thereafter, Sidors operations were to be managed by a temporary operating committee; this
committee, which could act by simple majority, was to have six members, with the majority of such
members being appointed by CVG and one of CVGs appointees to become the committees president and
Sidors general manager. However, the temporary operating committee has subsequently become
non-operational and, accordingly, Sidors operations are exclusively controlled and managed by
Venezuela through CVG and MIBAM.
|
|
|
1 |
|
For a description of the events in Venezuela relating to
the Sidor nationalization process, see note 29 (Discontinued operations) to the
Companys consolidated financial statements included elsewhere in this Annual
Report. |
- 7 -
The term provided in the decree for the negotiation of the conditions under which all or a
significant part of the Companys interest in Sidor would be transferred to Venezuela was extended
until August 18, 2008. Negotiations continued even after this additional term expired. On August
29, 2008, the President of Venezuela publicly stated his rejection of the latest proposal submitted
by the Company to the Venezuelan authorities as part of their ongoing negotiations. The
negotiations were subsequently resumed and continue to be under way. As of the date of issuance of
this annual report, Ternium
continues to retain formal title over the shares.
The Companys investment in Sidor is protected under several bilateral investment treaties,
including the treaty between Venezuela and the Belgium-Luxembourg Economic Union. In connection
with the Sidor nationalization process, the Company has consented to the jurisdiction of the
International Center for Settlement of Investment Disputes established by the Convention on the
Settlement of Investment Disputes between States and the Nationals of Other States. The Company
continues to reserve all of its rights under contracts, investment treaties and Venezuelan and
international law and will continue to evaluate its options in realizing the fair value of its
interest in Sidor prior to state intervention. In addition, the Company will defend itself
vigorously against any attempt by the Venezuelan government to lower the compensation for its
interest in Sidor as a result of any government claims.
- 8 -
Business Review
Terniums business went through significant contrasts in the year 2008. Latin American commodity
export prices reached record high levels during the year, supporting a multi-year trend of
expansion in economic activity and steel consumption in the region. However, during the fourth
quarter of 2008 the crisis in the global financial markets began to spread to the real economy of
the region, causing a decrease in capital goods and consumer durables sales, which in turn resulted
in a significant contraction in steel consumption and a generalized de-stocking of the steel
industry value chain. Also in 2008, our business was significantly affected by the nationalization
of Sidor2.
The worlds economic activity is expected to decrease year-over year in 2009, particularly at
developed economies. The adverse conditions will be reflected in significant decreases in world
steel consumption in 2009 compared to the previous year. Lower steel industry capacity utilization
rates and input costs are expected to favor a depressed pricing environment for steel in the
international markets.
We have acted quickly to effectively position Ternium to operate in the current environment and
succeed in the long term. As a result of the ongoing measures, we anticipate a reduction in net
debt and costs during 2009.
Among the measures taken to strengthen the balance sheet, we suspended or postponed major capital
expenditure programs and reduced inventory through scaling down production and reducing the volume
of semi-finished product and raw-material purchases. As a result working capital needs are expected
to decrease, continuing the trend initiated in the fourth quarter of 2008.
On-going cost-reduction measures include efforts aimed at reassigning in-house personnel to reduce
the use of third party services, reducing selling, general and administrative expenses and revising
and re-negotiating supply contracts. Ternium produces crude steel utilizing a mix of blast furnace
and mini-mill technologies and purchases slabs in the market from third parties. This diversified
technology base enables us to adjust plant utilization rates to adapt to different demand and cost
conditions.
North America Region
During 2008, Ternium has been the leading supplier of flat steel products to Mexico and has also
been active in the south of the United States. Ternium benefited from a strong steel market
pricing environment in North America during the first nine months of 2008, followed by rapidly
weakening conditions during the fourth quarter of the year.
The economies in the North America Region continued slowing in 2008. The Mexican economy showed
less dynamism in consumption and lower investment activity compared to 2007 in an environment of
relatively higher inflation.
|
|
|
2 |
|
For a description of the events in Venezuela relating
to the Sidor nationalization process, see note 29 (Discontinued
operations) to the Companys consolidated financial statements included
elsewhere in this Annual Report. |
- 9 -
Mexican export-oriented industries were particularly affected by conditions of continued weak
demand in the United States. GDP in Mexico increased 1.5% year-over-year in 2008. The U.S.
economy suffered from the effects of weakening consumer confidence and increasing unemployment,
accentuated by the worsening difficulties in the financial sector.
While apparent steel use in Mexico decreased 3% year-over-year in 2008 to approximately 17.3
million tons, in the entire North America Region it decreased 8%, due to even steeper drops in
steel consumption rates in the U.S. and Canada, coupled with a de-stocking process that took place
towards the end of the year.
Steel consuming sectors in Mexico, such as construction and the automotive industry, showed mixed
results in 2008.
In 2008, Ternium achieved its main corporate restructuring goals by merging Hylsamex and Grupo Imsa
into a single entity named Ternium Mexico. In addition, Grupo Imsa completed the reshaping of its
core businesses by selling several manufacturing U.S. assets that were not a strategic fit with our
production system4.
|
|
|
3 |
|
Source: World Steel Association |
|
4 |
|
For additional information, see note 29 (Discontinued
operations) to the Companys consolidated financial statements included
elsewhere in this Annual Report. |
- 10 -
We furthered our initiatives related to the integration of Terniums industrial and supply-chain
systems in Mexico, the United States and Guatemala, by developing new cold rolled and hot rolled
semi-finished steel products aimed at supplying our coating lines in Shreveport, Louisiana and
Villanueva, Guatemala, resulting in the reduction of third party supplies of semi-finished steel.
In 2008, we concluded a project designed to expand Ternium Mexicos thin slab casting production
capacity in Monterrey, Mexico. With the streamlining of the facility, annual steel production
capacity increased by approximately 85,000 tons to a total of 1.9 million tons. This facility is
currently run at the highest utilization rate in Terniums system, as it utilizes low cost iron ore
supplied from our proprietary mines in Mexico and other inputs such as scrap, natural gas and
electricity, the market prices of which have decreased significantly.
In addition, we concluded the revamping of one hot strip mill in Monterrey, which increased its
annual processing capacity by approximately 280,000 tons. As a result of this project, Ternium
Mexicos annual hot rolled coil processing capacity expanded to approximately 5.4 million tons as
of year-end 2008. Nevertheless, in view of the adverse situation in the steel market, we expect to
continue running this facility at low utilization rates during 2009.
During the year, Ternium announced that it plans to build a green-field project in Mexico to expand
its flat steel production capacity. The project would involve the design and construction of a
mini-mill in the Monterrey area with an annual production capacity of two million tons of hot
rolled coils, one million tons of cold rolled coils and 300,000 tons of hot-dipped galvanized coils
to serve the industrial and commercial markets. While the timing of the project is currently being
revised in light of the ongoing global crisis, we continue advancing the basic engineering design.
South and Central America Region
During 2008, Ternium has been the leading supplier of flat steel products to Argentina, Paraguay
and Uruguay and has kept a significant presence in the steel markets of Chile, Colombia, Peru and
Ecuador. Overall, Ternium benefited from a higher per-capita steel consumption in these economies,
which for the sixth consecutive year achieved significant year-over-year growth rates in terms of
GDP despite the slowdown during the fourth quarter of 2008, which anticipates an adverse scenario
for 2009.
- 11 -
Finished steel demand reached record high levels in 2008 in our main markets in the region.
Apparent steel use in South and Central America is estimated to have grown 5% year-over-year in
2008, with advances in every major market.
Overall, the construction and automotive sectors had another positive year in 2008, despite the
adverse conditions during the fourth quarter. In Argentina, the construction sector grew 3.6%
year-over-year in 2008, while the automotive sector achieved record high production levels and a
10.4% year-over-year growth.
Apparent steel demand in Argentina grew 4% to about 4.8 million tons for the year 2008, as the
expansion during the first nine months of the year was offset by a sharp contraction in the fourth
quarter. The countrys economy, as measured by its GDP, expanded 7% year-over-year, mainly driven
by growth in domestic demand.
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5 |
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Source: World Steel Association |
- 12 -
Apparent steel demand was strong in Chile, Bolivia, Paraguay and Uruguay. The economies of these
countries performed well in 2008, recording GDP growth rates of between 3% and 9% year-over-year.
However, we had to reduce steel product shipments to these markets in 2008. Throughout the first
nine months of the year, production capacity constraints and a year-over-year increase in steel
products demand in Argentina reduced our ability to ship steel products to these countries. This
situation reversed during the fourth quarter 2008, as a result of a significant decrease in steel
demand in Argentina.
Steel demand in Colombia, Peru and Ecuador was also strong. The economies of these countries
performed well in 2008, in particular Peru, which recorded an over-9% year-over-year GDP growth
rate. We reduced our participation in the steel markets of those countries following the
nationalization of Sidor.
In 2008, Terniums subsidiary Siderar made significant capital expenditures in Argentina. It
completed maintenance and upgrading works in two coke batteries in San Nicolás, which resulted in
improved performance and quality of operations. Additionally, in October 2008, Siderar started the
relining of blast furnace #1 in the same location, having concluded the relining of blast furnace
#2 in January 2007. The relining, which is expected to be completed later in 2009, is aimed at
enabling the continuous operation of the mill for a 12- to 15-year production period. Siderars
plan to increase its
annual steelmaking capacity in Argentina by 1.2 million tons to a total of 4.0 million tons was
suspended during January 2009. The aim of the plan was to increase the availability of slabs
within Ternium.
During 2009, we intend to take measures aimed at enhancing the integration and flexibility of our
production system to be in a better position to cope with the challenging steel market condition.
Iron Ore Mining
Terniums mining activities are aimed at securing the supply of iron ore for our facilities in
Mexico for at least a 20-year operating period. In addition, surplus production of iron ore is
commercialized to hedge the iron ore procurement requirements of Terniums subsidiary in Argentina.
The extraction, processing and production of iron ore is organized under two operating companies:
Las Encinas, which is wholly owned by Ternium; and Peña Colorada, which is 50% owned by Ternium and
50% owned by Arcelor Mittal.
As of year-end 2008, the mining activities employed approximately 1,300 direct employees and had a
combined production capacity of 5.9 million tons per year of pellets, 0.4 million tons per year of
concentrate and 0.4 million tons per year of fines. Of these totals, Arcelor Mittal is entitled to
receive up to two million tons per year of pellets and 0.2 million tons per year of concentrate.
Las Encinas
The Las Encinas mining facilities include a pelletizing plant located in the community of Alzada,
in the Colima state of Mexico, which has a production capacity of 1.9 million tons per year. In
addition, approximately 0.4 million tons per year of hematite iron ore is produced as fines for
export.
As of year-end 2008, Las Encinas had two iron ore mines in Mexico: Aquila, located in nearby
Michoacan, and El Encino, located in nearby Jalisco and currently in stand-by mode. Another mine,
Cerro Náhuatl, located in Colima, was exhausted and permanently shutdown in August 2008, following
20 years in operation.
We carried out intensive exploration activities during 2008 in Michoacán, Jalisco and Colima aiming
to incorporate iron ore resources. These areas are located close to Las Encinas current
facilities, which could eventually facilitate the new mines integration with the existing ones.
- 13 -
Peña Colorada
The Peña Colorada mining facilities include a two-line pelletizing plant in the Manzanillo port in
Colima, with a production capacity of 4.0 million tons per year of pellets and 0.4 million tons per
year of concentrate. The pelletizing plant is fed from a mine in the Minatitlán municipality,
located in Colima. Peña Colorada continued its exploration activities in 2008 at the existing
mines nearby areas with the purpose of expanding current iron ore reserves.
In 2009, we intend to continue running these mining facilities at high capacity utilization rates,
as they represent a low cost raw material option for the production of steel. We will continue
pursuing the expansion of our iron ore resources to eventually support production expansion
projects. These activities do not entail the commitment of significant amounts of capital
expenditures and are expected to better position Ternium for future steel market expansion cycles.
Support Program for Small- and Medium-Sized Enterprises
Ternium sponsors a small- and medium-sized enterprise (SME) support program called ProPymes. The
program, created by the Techint group of companies, is focused on helping SMEs in the steel
industrys value chain to grow. First launched in Argentina in 2002, ProPymes assisted
approximately 500 SMEs in Mexico and Argentina in 2008.
Customers and suppliers are invited to join the program, provided they meet certain qualifications,
including specific management skills and growth potential. Suppliers who join the program have the
opportunity to become suppliers to participating companies worldwide. The programs ultimate goal
is to enhance SMEs competitiveness and to stimulate investments in the value chain.
As of year-end 2008, Terniums participation in ProPymes was organized into two departments, one
responsible for the programs execution in Mexico and the other for the programs execution in
Argentina. Each department operated under local management supervision and was centrally
coordinated by a ProPymes program director.
The programs main focus in 2008 has been to provide SMEs with industrial assistance and training
for personnel of all levels. These activities have been carried out by Terniums professionals and
by top tier local universities with support from Ternium and national and world development
agencies, together with the participating SMEs.
In Argentina, the program continued to focus on SME difficulties in accessing financial markets.
Terniums subsidiary Siderar, together with other sponsoring companies, offered financial
assistance and advice to those companies seeking credit to fund projects aimed at increasing
production levels and updating production technology.
The program has also assisted companies with growth opportunities in international markets. We
promoted marketing studies by different institutions and consultants. Furthermore, the program
offered advice with respect to international negotiations and patenting of new products, and it
facilitated the participation of SMEs in government-organized commercial missions abroad. We also
gave SMEs access to our vast commercial network in order to provide them with added logistical and
commercial support.
For 2009, the program is aiming to expand industrial assistance and training related activities as
well as the consolidation and strengthening of the SMEs institutional networks in Mexico and
Argentina in anticipation of an increasingly difficult environment for international trade.
Product Research & Development
Product research and development activities at Ternium are conducted through a central Product
Development Department in coordination with local teams that operate in several of our facilities.
We carry out our applied research efforts in house and in conjunction with universities and
research centers, as well as through its participation in international consortia. We have also
developed new products and processes in cooperation with its industrial customers.
- 14 -
Integration of Processes
The incorporation of Grupo Imsa into Terniums operations opened up several opportunities for
synergies and integration of processes. During 2008, new processing routes were developed for
Terniums Mexican facilities, enabling certain products to be manufactured at several rolling,
coating and customizing mills. In turn, this added ability increased the flexibility to allocate
orders to specialized processing lines and according to their technological strengths, and
ultimately increase efficiency and reduce costs.
In addition, we developed new cold rolled and hot rolled semi-finished steel products aimed at
supplying our coating lines in Shreveport, Louisiana and Villanueva, Guatemala. These new
products, which can be manufactured at Terniums Mexican mills, enhance the integration between
those mills and the above-mentioned downstream lines.
Construction Products
In 2008, we launched a new product portfolio of metal components for the construction industry,
including roll formed steels for roofing, cladding, decking and floor decking. All these components
have been certified in accordance with international standards.
In the same period, Ternium Mexico signed a technology and trademark license agreement with Varco
Pruden Buildings, Inc. for the purpose of consolidating our leadership in the Latin American metal
building systems market. The agreement grants Ternium Mexico the right to use Varco Prudens
technology and software for the design, engineering, fabrication, production, inspection and
distribution of metal building systems and components in various Latin American countries,
including, among others, Argentina, Colombia, Mexico, Panama and Venezuela.
Automotive Products
During 2008, Ternium supported the automotive industrys efforts to reduce automobile weight
through the development of steel products with improved structural resistance that enables the
usage of thinner steel sheets with similar resistance standards.
Additionally, we have been actively participating in research consortiums the purpose of which has
been to evaluate the feasibility of applying new steel coatings, both in galvanized and
electro-galvanized products, in order to either increase corrosion resistance or reduce coating
weight.
Oil & Gas Products
In 2008, we developed boron-titanium bearing steels, through conventional and compact hot rolling
mills, to serve customers needs for quenched and tempered welded tubes for oil and gas industry
applications. In addition, we widened the dimensional range of high resistance API X65, for
as-rolled line pipe applications, to meet the market demand.
- 15 -
Home Appliance & Other Industrial Products
Ternium has also completed joint developments with several first-tier home-appliance manufacturers.
New products include structured surface coated steel for laundry; chrome-free coated galvanized
steel for refrigeration, in compliance with ROHS (Restriction of Hazardous Substances) standards;
and high-stability metallic finishing for various applications.
During 2008, developments for the electrical industry included a new ultra low-carbon
silicon-alloyed cold rolled grade to further reduce magnetic losses for electric motor cores with
improved energy efficiency.
New wire rods for forging and automatic welding have been developed. Also new manganese-chrome
bearing steel billets for hot forging processes have been produced with improved performance among
our customers.
Basic & Applied Research
Our profound metallurgical knowledge, which is the result of our basic and applied research
activities, has been key for the development of new steel products.
Several basic research efforts were conducted during 2008. Projects were mainly aimed at improving
processes, creating new steel products with superior performances and generating the basic
knowledge for the design of certain steel products. These mid- to long-term efforts are being
carried out in conjunction with several institutions, including the University of Pittsburg, the
Steel Research Center McMaster University, the French Corrosion Institute, the Tenaris Research
Center and the Argentine Steel Institute.
Also during 2008, Ternium signed long-term cooperation agreements with leading universities. Under
these agreements, engineers, post-graduate students and teachers at these institutions are
sponsored to conduct, along with our steel product engineers, steel, metallurgy and product
research and development projects of academic and industrial interest.
In 2009, we intend to further Terniums industrial integration through the complementation of
Argentinas steel shop and Mexican hot rolling mills, with the design of slab chemistries that
optimize processes in both facilities. These initiatives are expected to enable higher flexibility
and integration of the mills, a valuable development in the current steel market crisis.
In addition, we intend to continue our flat, long and coated steel product development plans to
enter new niches in key industrial markets and to support new export opportunities.
Human Resources & Communities
During 2008, Ternium continued developing and upgrading its human resources. Training activities
continued to be supported by our institutional program for recent graduates and our ongoing
customized programs for other employees. The institutional training program, aimed at young
professionals, is a one- to two-year program where trainees, coached by a senior employee assigned
as tutor, join Ternium in anticipation of an eventual job opening and hold different assistant
positions, gaining in-depth knowledge in several areas of expertise. Our ongoing training programs
include a number of customized courses. These courses are designed to inform employees of the
latest concepts and tools in relevant fields to encourage them to achieve the highest possible
levels of productivity and operating efficiency.
- 16 -
Throughout 2008, following the merger of Hylsa and Grupo Imsa into a single entity (Ternium
Mexico), Ternium undertook a process of rationalization of job positions and standardization of
employees benefits and salary levels. Later in the year, Terniums corporate structure was
further
adapted as our business profile changed following the nationalization of Sidor6. As a
result, some corporate functions being carried out in Venezuela were adapted or replaced.
Furthermore, an in-depth restructuring plan is being carried out, and is expected to be completed
by the end of 2009.
Community Relations
Terniums initiatives aim to establish long-term sustainable relationships and foster a sense of
collaboration in the communities where we operate. Our community budget supports a select number
of high-impact programs adapted to a wide range of socioeconomic realities in the different
regions.
Consequently, Terniums programs foster sports and cultural activities among its employees, their
families and the broader communities, as well as enhance and improve technical education skills in
some regions, while fulfilling basic health and educational community requirements in certain
locations where this is most needed.
In this regard, we continued several educational programs in 2008 to improve the standard of living
and general sustainability of certain communities in the mining areas in Mexico. Among these
programs, Ternium granted support for the modernization of school infrastructure and the
construction of a student hostel to facilitate the ability of youngsters living in rural areas to
attend local schools.
We also supported the development of farming activities, literacy campaigns, teachers training and
skill academies. Ternium continued a general and dental health enhancement program in the region,
including prophylactic medicine campaigns, preventative and urgent care medicine practices and
disease treatments.
Terniums subsidiary Siderar has also continued its program intended to reduce student drop-out
rates within certain communities in Argentina. Under this program, Siderar renewed existing
scholarships or granted new ones at certain schools to students who were at risk of dropping out.
The program was complemented with conferences to raise the communities awareness of the benefits
of proper education.
During 2008, Siderar continued its contribution to the complete remodeling and expansion of a
public hospital located close to one of its main facilities in Argentina. It also contributed to
the design of training programs for the improvement of overall administration of the institution.
The program is currently in its initial stages of implementation.
For the third consecutive year, Siderar continued its program to strengthen technical schools in
Argentina. This endeavor, which includes five technical schools near certain Siderar facilities,
focuses on the enhancement of institutions technical education so as to match the increasingly
demanding requirements of the industrial labor market.
Under this program, Siderar funded scholarships and provided training for students and teachers at
its own workshops, while continuing to build necessary infrastructure at the participating
technical schools to support future training activities. Moreover, Siderar continued its
scholarship programs for university students as well as for talented high-school students.
Environment, Health & Safety
Terniums environment, health and safety policies abide by the World Steel
Associations7 policy statement and its principles for excellence in safety and
occupational health, as well as the Occupational Health and Safety Administrations (OHSA) 18,000
and ISO 14000 international standard directives.
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6 |
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For a description of the events in Venezuela relating to
the Sidor nationalization process, see note 29 (Discontinued operations) to the
Companys consolidated financial statements included elsewhere in this Annual
Report. |
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The World Steel Association (WSA) was formerly known as
The International Iron and Steel Institute. |
- 17 -
Health and safety activities are coordinated through a central department within Terniums
corporate industrial direction, in coordination with local departments operating in each production
unit. Likewise, environmental policies are coordinated by a corporate technical director and
executed by the local engineering and environment managers.
Following the Grupo Imsa transaction, we implemented a plan aimed at consolidating the
environmental, health and safety standards throughout the existing and acquired operations in
Mexico. In this context, during 2008 approximately 430 environmental, health and safety
coordinators participated in environmental training programs.
Terniums average injuries frequency rate8 (IFR) in 2008 reached a new low of 6.2, down
from an IFR of 9.0 the previous year. Likewise, the average lost time injuries frequency
rate9 (LTIFR) in 2008 was 3.8, down from 5.3 in the previous year. These measurements,
which include Terniums facilities in Mexico, Argentina, the United States and Guatemala, encompass
the activity of our personnel and of the personnel of third-party contractors operating in our
facilities. The results demonstrate the growing commitment and participation of management and
workers in the activities aimed at improving safety.
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Injuries frequency rate refers to total quantity of
injuries per million of hours worked. |
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Lost time injuries frequency rate refers to quantity of
day-loss injuries per million of hours worked. |
- 18 -
In 2007, we initiated a new program designed to prevent the occurrence of serious accidents. Under
this program, the safety measures for key processes and tasks were surveyed and comprehensively
reassessed. During 2008, the recommendations and corrective measures that resulted from such
reassessment, as well as from the permanent audit program, were implemented. The audit program,
which is being conducted by middle and senior management, is expected to ensure the continuous
commitment to safety by all interested parties.
We have actively participated in World Steel Association forums focused on sustainable development,
environment, safety and occupational health, for the purpose of developing and sharing
state-of-the-art best practices. These forums include the Climate Change Policy Group, Life Cycle
Assessment, CO2 Breakthrough Program, Water Management, Sustainability Reporting, By-product
Management, and the Safety and Occupational Health Committee and its working subgroups.
Environment, Health & Safety Management System
During 2008, a unified safety, health and environment (SHE) management information system was
successfully implemented in Argentina. The system supports the implementation and execution of SHE
management programs, chief among our top managements core responsibilities. In addition, the
software enables any personnel in any location to report SHE incidents, generating instant and
valuable information for local and central SHE staff, and thus contributing to its proper and
timely management.
We expect to complete the implementation of our unified SHE management information system in our
remaining facilities in Mexico, the United States and Guatemala in 2009.
Emissions Control
During 2008, new air emission control equipment was installed at Siderars sinter facilities and
steel shop in Argentina, and at one of our steel shops in Mexico. We continually review our
operations to maximize the efficient use of energy resources, the re-use of by-products and the
appropriate treatment and disposal of wastes, air emissions and waste water.
Greenhouse gas emissions
Ternium has recently decided to report to the world steel association its CO2 emissions data on an annual basis
as part of the associations initiative to collect emissions data from member companies.
We support the steel industrys ongoing effort to develop innovative solutions to reduce
greenhouse gas (GHG) emissions over the lifecycle of steel products. According to the
Intergovernmental Panel on Climate Change (IPCC), the steel industry accounts for approximately 3%
to 4% of total world
GHG emissions.
- 19 -
Our steel production facilities in Mexico have achieved GHG-specific emission levels that are close
to the theoretical minimum. Also, in 2008 Ternium was recognized by
GEI Mexico a public and
private venture for GHG emissions control in the country for its participation in the program. In
Argentina, Siderars GHG-specific emission levels are close to the industry average for blast
furnace technology.
PCB
Studies made on polychlorinated biphenyl (PCB) questioned the utilization of this product as
cooling oil in electric transformers, among other applications, as PCB may pose inappropriate risks
to health and the environment. Consequently, and in compliance with local laws and regulations as
well as with the Stockholm Convention Guidelines, Ternium developed a plan to replace and manage
all PCB-based electric transformers according to each countrys defined schedule.
Ternium Mexicos facilities became PCB free in 2008 and Siderars facilities in Argentina have
advanced their replacement plan toward a 60% completion rate. Terniums current PCB replacement
plan schedules are far ahead of those provided by the Stockholm Convention Guidelines.
Underground Water Management
In 2008, Siderar began the implementation of an underground water management policy in Argentina,
aimed at ensuring the long-term preservation of this resource. The programs activities in 2009 is
expected to include the completion of new hydrological studies, the establishment of new monitoring
wells and the analysis of the mid-term balance between the supply and demand of the resource in the
facilities and neighboring areas.
- 20 -
Corporate Governance
Shares
The Company has a single class of shares, each having a nominal value of US$1.00 per share and
equal economic and voting rights, including the right to vote at its general shareholders
meetings. The Companys articles of association provide that annual ordinary general shareholders
meetings, at which its annual financial statements are approved and the members of its board of
directors are appointed, must take place in Luxembourg on the first Wednesday of every June at 2:30
p.m., Luxembourg time. No attendance quorum is required at annual ordinary general shareholders
meetings and resolutions are adopted by a simple majority vote of the shares present or represented
at the meeting.
The Company has an authorized share capital of US$3.5 billion, of which US$2,004,743,442 was issued
and outstanding as of December 31, 2008.
The Companys articles of association currently authorize the board of directors, for a period that
ends on October 26, 2010, to issue shares within the limits of its authorized share capital at such
times and on such terms and conditions as the board of directors or its delegates may determine.
Accordingly, until October 26, 2010, shares may be issued up to the authorized share capital limit
of US$3.5 billion by a decision of the board of directors. With the exception of certain cases set
out in the articles of association, any issuance of shares for cash within the limits of the
authorized share capital shall be, as long as the Companys shares are listed on a regulated
market, subject to the pre-emptive subscription rights of the then-existing shareholders.
There are no limitations currently imposed by Luxembourg law on the rights of non-resident
shareholders to hold or vote the Companys shares.
The Company may repurchase its own shares in the cases and subject to the conditions set by the
Luxembourg law of August 10, 1915, as amended.
Board of Directors
The Companys articles of association provide for a board of directors consisting of a minimum of
five members (when the shares of the Company are listed on a regulated market, as they currently
are) and a maximum of fifteen. The board of directors is vested with the broadest powers to act on
behalf of the Company and accomplish or authorize all acts and transactions of management and
disposal that are within its corporate purpose and which are not specifically reserved in the
articles of association or by applicable law to the general shareholders meeting.
The board of directors is required to meet as often as required by the interests of the Company and
at least four times per year. A majority of the members of the board of directors in office
present or represented at each board of directors meeting constitutes a quorum, and resolutions
may be adopted by the vote of a majority of the directors present or represented. In case of a
tie, the chairman is entitled to cast the deciding vote.
Directors are elected at the annual ordinary general shareholders meeting to serve one-year
renewable terms, as determined by the general shareholders meeting. The general shareholders
meeting may dismiss all or any one member of the board of directors at any time, with or without
cause, by resolution passed by a simple majority vote. The Companys current board of directors is
comprised of eleven directors, three of whom are independent directors.
- 21 -
Audit Committee
The board of directors has an audit committee consisting of three independent directors. The
members
of the audit committee are not eligible to participate in any incentive compensation plan for
employees of the Company or any of its subsidiaries. Under the Companys articles of association
and the audit committee charter, the audit committee:
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assists the board of directors in fulfilling its oversight responsibilities relating to
the integrity of the financial statements of the Company, including periodically reporting
to the board of directors on its activity and the adequacy of the Companys systems of
internal control over financial reporting; |
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is responsible for making recommendations for the appointment, compensation, retention
and oversight of, and assessment of the independence of the Companys independent auditors; |
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reviews Material Transactions (as such term is defined in the Companys articles of
association and the audit committee charter) between the Company or its subsidiaries with
Related Parties (as such term is defined in the Companys articles of association) (other
than transactions that were reviewed and approved by the independent members of the board
of directors or other governing body of any subsidiary of the Company) to determine whether
their terms are consistent with market conditions or are otherwise fair to the Company and
its subsidiaries; and |
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performs such other duties imposed to it by applicable laws and regulations of the
regulated market or markets on which the shares of the Company are listed, as well as any
other duty entrusted to it by the board of directors. |
The audit committee has the authority to conduct any investigation appropriate to fulfilling its
responsibilities, and has direct access to the Companys internal and external auditors as well as
the Companys management and employees and, subject to applicable laws, its subsidiaries.
Auditors
The Companys articles of association require the appointment of at least one independent auditor
chosen from among the members of the Luxembourg Institute of Independent Auditors. Auditors are
appointed by the general shareholders meeting, on the audit committees recommendation, through a
resolution passed by a simple majority vote. Shareholders may determine the number and the term of
the office of the auditors at the ordinary general shareholders meeting, provided however that an
auditors term shall not exceed one year and that any auditor may be reappointed or dismissed by
the general shareholders meeting at any time, with or without cause. As part of their duties, the
auditors report directly to the audit committee.
PricewaterhouseCoopers (acting, in connection with the Companys annual accounts and annual
consolidated financial statements required under Luxembourg law, through PricewaterhouseCoopers
S.ár.l., Réviseur dentreprises, and, in connection with the Companys annual and interim
consolidated financial statements required under the laws of other relevant jurisdictions, through
Price Waterhouse & Co. S.R.L.) was appointed as the Companys independent auditor for the fiscal
year ended December 31, 2008, at the ordinary general shareholders meeting held on June 4, 2008.
- 22 -
Board of Directors and Executive Officers
Board of Directors
Chairman
Paolo Rocca
Ubaldo Aguirre (*)
Roberto Bonatti
Wilson Nélio Brumer
Carlos Condorelli
Pedro Pablo Kuczynski (*)
Adrián Lajous (*)
Bruno Marchettini
Daniel Novegil
Gianfelice Rocca
Marco Antônio Soares da Cunha Castello Branco
Secretary
Raúl Darderes
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(*) |
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Audit Committee Members |
Senior Management
Chief Executive Officer
Daniel Novegil
Chief Financial Officer
Roberto Philipps
North Region Area Manager
Julián Eguren
South Region Area Manager
Martín Berardi
International Area Manager
Ricardo Prósperi
Planning and Operations General Director
Oscar Montero
Engineering and Environment Director
Luis Andreozzi
Human Resources Director
Miguel Angel Punte
Chief Information Officer
Rubén Bocanera
- 23 -
Corporate Information
Registered Office
46a Avenue John F. Kennedy
L1855 Luxembourg
Luxembourg
(352) 26 68 31 52 tel
(352) 26 68 31 53 fax
Principal Executive Offices
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México
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Argentina |
Av. Universidad 992, Colonia Cuauhtémoc
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Av. Leandro N. Alem 1067 21st Floor |
San Nicolás de los Garza Nuevo León
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C1001AAF Buenos Aires |
66450 México
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Argentina |
(52) 81 8865 2828 phone
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(54) 11 4018 4100 phone |
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(54) 11 4018 1000 fax |
Investor Information
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Investor Relations Director
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General Inquiries |
Sebastián Martí
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TERNIUM Investor Relations |
smarti@ternium.com
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ir@ternium.com |
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Phone |
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Toll free number for U.S. callers: 1 (866) 890 0443 |
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Mexico: 52 (81) 8865 2111 |
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Argentina: 54 (11) 4018 2389 |
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Stock Information
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ADS Depositary Bank |
New York Stock Exchange (TX)
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Bank of New York Mellon |
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Shareowner Services |
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480 Washington Blvd |
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Jersey City, NJ 07310 |
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Toll free number for U.S. callers: 1 800 522 6645 |
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International Callers: 1 201 680 6578 |
|
|
shrrelations@mellon.com |
|
|
CUSIP Number: 880890108 |
|
|
|
Internet |
|
|
www.ternium.com |
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- 24 -
Management Discussion & Analysis
The review of Terniums financial condition and results of operations is based on, and should be
read in conjunction with, the Companys consolidated financial statements as of December 31, 2008
and 2007 and for the years ended December 31, 2008, 2007 and 2006 (including the notes thereto),
which are included elsewhere in this Annual Report.
The Company prepares its consolidated financial statements according to International Financial
Reporting Standards (IFRS). As a consequence of the consolidation of results and other financial
data of Grupo Imsa as of July 26, 2007, the Companys results in 2008 reflect the consolidation of
Grupo Imsa for the entire fiscal year, while the 2007 results reflect the consolidation of Grupo
Imsa since July 26, 2007, to the end of the year.
Net results
The following table sets forth, for the periods indicated, selected financial data from the
Companys consolidated income statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All amounts in US$ million |
|
2008 |
|
|
2007 |
|
|
Net sales |
|
|
8,464.9 |
|
|
|
100.0 |
% |
|
|
5,633.4 |
|
|
|
100.0 |
% |
Cost of sales |
|
|
(6,128.0 |
) |
|
|
-72.4 |
% |
|
|
(4,287.7 |
) |
|
|
-76.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
2,336.9 |
|
|
|
27.6 |
% |
|
|
1,345.7 |
|
|
|
23.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
(669.5 |
) |
|
|
-7.9 |
% |
|
|
(517.4 |
) |
|
|
-9.2 |
% |
Other operating income (expenses), net |
|
|
8.7 |
|
|
|
0.1 |
% |
|
|
8.5 |
|
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,676.0 |
|
|
|
19.8 |
% |
|
|
836.8 |
|
|
|
14.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial income (expenses), net |
|
|
(797.1 |
) |
|
|
-9.4 |
% |
|
|
(130.0 |
) |
|
|
-2.3 |
% |
Equity in earnings (losses) of associated companies |
|
|
1.9 |
|
|
|
0.0 |
% |
|
|
0.4 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expenses |
|
|
880.8 |
|
|
|
10.4 |
% |
|
|
707.2 |
|
|
|
12.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses |
|
|
(162.7 |
) |
|
|
-1.9 |
% |
|
|
(291.3 |
) |
|
|
-5.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
718.1 |
|
|
|
8.5 |
% |
|
|
415.9 |
|
|
|
7.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
157.1 |
|
|
|
1.9 |
% |
|
|
579.9 |
|
|
|
10.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year |
|
|
875.2 |
|
|
|
10.3 |
% |
|
|
995.8 |
|
|
|
17.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATTRIBUTABLE TO: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company |
|
|
715.4 |
|
|
|
8.5 |
% |
|
|
784.5 |
|
|
|
13.9 |
% |
Minority interest |
|
|
159.7 |
|
|
|
1.9 |
% |
|
|
211.3 |
|
|
|
3.8 |
% |
|
|
|
875.2 |
|
|
|
10.3 |
% |
|
|
995.8 |
|
|
|
17.7 |
% |
Net sales
Net
sales for 2008 increased 50% to US$8.5 billion, compared with
2007. The increase is due in
part to the consolidation of Grupo Imsa for the whole fiscal year of 2008 as compared to 2007,
when the Company consolidated Grupo Imsas results for approximately four months, as it obtained
control of Grupo Imsa on July 26, 2007. Excluding the effect of the consolidation of Grupo Imsa,
net sales increased due to higher revenue per ton. Shipments of flat and long products were 7.5
million tons during 2008, an increase of 8% compared to shipment levels in 2007, mainly due to the
consolidation of Grupo Imsa and higher shipment levels in the South and Central America Region.
Revenue per ton shipped was US$1,087 in 2008, an increase of 38% when compared to 2007, mainly as a
result of higher prices and the consolidation of Grupo Imsas higher value-added product mix.
During 2008 steel consumption in the North American market decreased 7% mainly due to the economic
slowdown in the United States during the final months of the year. Evidence of the deepening
economic deceleration in the United States is the revised GDP growth in the fourth quarter of 2008,
which showed a contraction of 6% on an annual basis. Mexico fared somewhat better,
showing a contraction of 5% in steel consumption during 2008. The entire NAFTA region suffered a
reduction in steel consumption rates that not only reflects a decrease in actual demand from steel
consuming sectors but also a significant de-stocking process in the steel value chain.
- 25 -
Conversely, the steel markets in Central and South America showed a 5% growth in apparent steel
consumption during 2008, with every single national market showing positive growth. Countries
neighboring Argentina, the natural export markets for Ternium in that geographic area, expanded at
GDP growth rates of between 4% and 6% year-over-year. Nonetheless, Argentina, the main market for
Ternium in South America, managed only to show a 1% growth in steel consumption, as the rapid
expansion that occurred during the first nine months of the year was followed by a sharp
contraction in the last quarter of 2008. The markets in Central and South America seemed to
experience the effects of the global slowdown with some delay. Under these conditions, Ternium
increased its shipments to the Region in 2008.
|
|
|
|
|
|
|
|
|
Tons (thousands) |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
SHIPMENTS |
|
|
|
|
|
|
|
|
South & Central America |
|
|
2,604.2 |
|
|
|
2,499.1 |
|
North America |
|
|
3,666.1 |
|
|
|
3,034.9 |
|
Europe & Other |
|
|
55.2 |
|
|
|
184.9 |
|
|
|
|
|
|
|
|
Total flat steel |
|
|
6,325.5 |
|
|
|
5,718.9 |
|
|
|
|
|
|
|
|
|
|
South & Central America |
|
|
302.5 |
|
|
|
132.8 |
|
North America |
|
|
901.3 |
|
|
|
1,113.4 |
|
Europe & Other |
|
|
13.3 |
|
|
|
15.0 |
|
|
|
|
|
|
|
|
Total long steel |
|
|
1,217.2 |
|
|
|
1,261.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total flat and long sales |
|
|
7,542.7 |
|
|
|
6,980.1 |
|
|
|
|
|
|
|
|
|
|
US$/Ton |
|
2008 |
|
|
2007 |
|
|
REVENUE PER TONE |
|
|
|
|
|
|
|
|
South & Central America |
|
|
1,068 |
|
|
|
815 |
|
North America |
|
|
1,171 |
|
|
|
847 |
|
Europe & Other |
|
|
860 |
|
|
|
665 |
|
|
|
|
|
|
|
|
Total flat steel |
|
|
1,126 |
|
|
|
827 |
|
|
|
|
|
|
|
|
|
|
South & Central America |
|
|
907 |
|
|
|
527 |
|
North America |
|
|
878 |
|
|
|
625 |
|
Europe & Other |
|
|
669 |
|
|
|
457 |
|
|
|
|
|
|
|
|
Total long steel |
|
|
883 |
|
|
|
613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total flat and long sales |
|
|
1,087 |
|
|
|
789 |
|
- 26 -
|
|
|
|
|
|
|
|
|
US$ (thousands) |
|
2008 |
|
|
2007 |
|
|
NET SALES |
|
|
|
|
|
|
|
|
South & Central America |
|
|
2,782.5 |
|
|
|
2,037.0 |
|
North America |
|
|
4,294.7 |
|
|
|
2,571.8 |
|
Europe & Other |
|
|
47.5 |
|
|
|
123.0 |
|
|
|
|
|
|
|
|
Total flat steel |
|
|
7,124.7 |
|
|
|
4,731.7 |
|
|
|
|
|
|
|
|
|
|
South & Central America |
|
|
274.4 |
|
|
|
70.0 |
|
North America |
|
|
791.8 |
|
|
|
696.0 |
|
Europe & Other |
|
|
8.9 |
|
|
|
6.9 |
|
|
|
|
|
|
|
|
Total long steel |
|
|
1,075.1 |
|
|
|
772.8 |
|
|
|
|
|
|
|
|
|
|
Total flat and long sales |
|
|
8,199.8 |
|
|
|
5,504.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other products |
|
|
265.1 |
|
|
|
128.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
|
8,464.9 |
|
|
|
5,633.4 |
|
Flat steel sales during 2008 totaled US$7.1 billion, an increase of 51% compared with 2007.
Excluding the effect of the consolidation of Grupo Imsa, net sales increased mainly as a result of
higher revenue per ton. Shipments of flat products totaled 6.3 million tons in 2008, an increase
of 11% compared with 2007, mainly due to the consolidation of Grupo Imsa and higher shipments to
the South and Central America Region, partially offset by lower shipments to the Europe and Other
Region. Revenue per ton shipped increased 36% to US$1,126 in 2008 compared to 2007, mainly as a
result of higher steel prices and the consolidation of Grupo Imsas higher value-added product mix.
Long steel sales were US$1.1 billion during 2008, an increase of 39% compared with 2007 mainly due
to higher prices. Shipments of long products totaled 1.2 million tons in 2008, representing a 3%
decrease versus 2007, as lower shipments to the North America Region were offset by higher
shipments to the South and Central America Region. Revenue per ton shipped was US$883 in 2008, an
increase of 44% compared with 2007.
Sales of other products totaled US$265.1 million during 2008, compared to US$128.8 million during
2007. The increase was driven by higher iron ore shipments and prices, as well as by higher
pre-engineered metal building sales coming from the Grupo Imsa transaction.
Sales of flat and long products in the North America Region totaled US$5.1 billion in 2008, an
increase of 56% versus 2007, mainly due to the effect of the consolidation of Grupo Imsa and higher
prices. Shipments in the region totaled 4.6 million tons during 2008, or 10% higher than during
2007. Revenue per ton shipped was US$1,114 in 2008, an increase of 41% compared with 2007, as a
result of higher steel prices and the consolidation of Grupo Imsas higher value-added product mix.
Flat and long product sales in the South and Central America Region were US$3.1 billion during
2008, an increase of 45% versus 2007. This increase was due to higher volumes and revenue per ton.
Shipments to the region totaled 2.9 million tons during 2008, or 10% higher than in 2007. Revenue
per ton shipped to the South and Central America Region was US$1,052 in 2008, an increase of 31%
compared to 2007, mainly due to higher prices.
- 27 -
Cost of sales
Cost of sales was US$6.1 billion in 2008 compared to US$4.3 billion in 2007. Cost of sales
increased as a result, in part, of the consolidation of Grupo Imsa, which increased Terniums
production volume and cost per ton due to Grupo Imsas higher production cost structure and higher
value-added product sales mix. The year-over-year cost of sales increase also related to higher
costs for third party steel, raw materials, energy, freight, labor and services and the US$200.0
million write-down of Terniums inventory (which was primarily related to purchased slabs),
partially offset by a reduction in the U.S. dollar value of inventories at the beginning of the
year and purchased during the period (mainly as a result of the Mexican Pesos 25% devaluation with
respect to the U.S. dollar).
The consolidation of Grupo Imsa, which began on July 26, 2007, resulted in an increased volume of
purchased slabs with a cost per ton significantly higher than Terniums average cost of slab
production. Scrap and energy prices increased in Mexico while the price of zinc was lower in 2008
compared to the prior year. Iron ore and coal costs were higher during 2008 than they were in
2007, mainly as a result of higher annual contract prices of third party supplies and higher
production costs at Terniums iron ore mines.
Selling, general and administrative (SG&A) expenses
SG&A expenses in 2008 were US$669.5 million, or 8% of net sales, compared with US$517.4 million, or
9% of net sales, in 2007. The increase in SG&A was due mainly to the consolidation of Grupo Imsa,
which increased finished product freight due to the volume growth, generated higher amortization of
intangibles and augmented other sundry SG&A categories. In addition, the operations in Argentina
experienced higher taxes on checking accounts and export taxes.
Operating income and EBITDA10
Operating income in 2008 was US$1.7 billion, or 20% of net sales, compared with US$836.8 million,
or 15% of net sales, in 2007. EBITDA in 2008 was US$2.1 billion, or 25% of net sales, compared to
US$1.2 billion, or 21% of net sales, in 2007. The increase in Terniums EBITDA margin in 2008 as
compared to 2007 was mainly the result of higher steel prices, partially offset by the
consolidation of Grupo Imsas lower margins, as its steel processing business did not include
steelmaking. Equity holders EBITDA in 2008 was 79% of EBITDA.
Net financial expenses
Net financial expenses were US$797.1 million in 2008, compared with US$130.0 million in 2007.
During 2008, Terniums net interest expenses were US$103.9 million, an increase of US$12.4 million
compared to 2007 due to higher indebtedness as a result of the Grupo Imsa transaction in July 2007,
partially compensated by lower interest rates.
Net foreign exchange result was a loss of US$632.7 million in 2008, compared to a loss of US$18.4
million in 2007. The result in 2008 was primarily due to the impact of the Mexican Pesos 25%
devaluation with respect to the U.S. dollar on Terniums Mexican subsidiarys U.S.
dollar-denominated debt. This result is non-cash when measured in US dollars and is offset by
changes in Terniums net equity position in the currency translation adjustments line, as the value
of Ternium Mexicos U.S. dollar-denominated debt is not altered by the Mexican Peso fluctuation
when stated in
U.S. dollars in the Companys consolidated financial statements. In accordance with IFRS, Ternium
Mexico prepares its financial statements in Mexican Pesos and registers foreign exchange results on
its net non-Mexican Pesos positions when the Mexican Peso revaluates or devaluates with respect to
other currencies.
|
|
|
10 |
|
EBITDA in 2008 is calculated as operating income
(US$1.7 billion) plus depreciations and amortizations (US$413.5 million). |
- 28 -
Fair value of derivatives result was a loss of US$32.5 million in 2008, compared to a gain of
US$2.5 million in 2007, related to certain derivative instruments entered into by Ternium mainly to
mitigate the effect of interest rate and foreign exchange fluctuations.
Income tax expense
Income tax expense in 2008 was US$259.0 million or 29% of income before income tax, discontinued
operations and minority interest, compared with US$291.3 million, or 41% of income before income
tax, discontinued operations and minority interest, in 2007. The income tax expense in 2008
included a non-recurring gain of US$96.3 million on account of Hylsas reversal of deferred
statutory profit sharing, which reduced the effective tax rate for the year.
Net result of discontinued operations
Net result of discontinued operations in 2008 was a gain of US$157.1 million, comprising an
after-tax gain of US$97.5 million from the sale of certain non-core U.S. assets during the first
quarter of 2008 and an after-tax gain of US$59.6 million related to Sidor11. In 2007,
the net result of discontinued operations was a gain of US$579.9 million, mainly related to Sidor.
Ternium recorded Sidors results as income from discontinued operations.12 The
accounting of income from discontinued operations for both the non-core U.S. assets sold in the
first quarter of 2008 and Sidor was also reflected in 2007 for comparative purposes.
Income attributable to minority interest
Income attributable to minority interest in 2008 was US$159.7 million, compared to US$211.3 million
in 2007, mainly as a result of a lower income attributable to minority interest in Sidor.
Liquidity and financial resources
Terniums financing strategy is to maintain adequate financial resources in hand and access to
additional liquidity to achieve its objective of maximizing financial flexibility at a reasonable
cost. In 2008, Ternium completed the integration of Grupo Imsa, which came under the Companys
control in July 26, 2007. There were no new acquisitions carried out in 2008, with capital
expenditures limited to brown-field projects. Ternium only accessed the capital markets to obtain
short-term bank financing for working capital purposes, relying largely on cash flow from
operations and proceeds from the sale of non-core assets as its principal sources of funding during
the year.
Ternium holds money market investments and variable rate or fixed rate securities from investment
grade issuers. Ternium concentrates cash in major financial centers, mainly New York. Ternium holds
cash primarily in U.S. dollars and limit its holdings of other currencies to the minimum required
to
fund its cash operating needs. Liquid financial assets as a whole represented 10.8% of its total
assets at the end of 2008 or US$1.2 billion.
Given the global economic slowdown and the negative effects that the downturn is having in the
steel industry, Ternium launched several initiatives to cope with the current crisis and boost its
liquidity. Among them, the main ones are: a re-assessment and rescheduling of capital expenditures
that reduced our budget for 2009 to US$230 million; a program to reduce working capital; a
significant reduction in head-count, largely in outsourced personnel, and a comprehensive program
for the rationalization of costs and expenses.
|
|
|
11 |
|
For additional information, see note 29 (Discontinued
operations) to the Companys consolidated financial statements included
elsewhere in this Annual Report. |
|
12 |
|
For a description of the events in Venezuela relating
to the Sidor nationalization process, see note 29 (Discontinued
operations) to the Companys consolidated financial statements included
elsewhere in this Annual Report. |
- 29 -
Historical cash flows
Operating activities
Net cash provided by continuing operations was US$517.5 million in 2008, lower than the US$936.4
million reported in 2007, mainly due to a working capital increase of US$1.1 billion, partially
offset by increased operating income in 2008. Working capital was higher in 2008 than in 2007
mainly as a result of a US$821.7 million increase in inventories and a US$212.6 million decrease in
accounts payable mainly due to a reduction in the volume of slab and raw material purchases during
the second half of 2008. Inventories increased during the first nine months of 2008 as a result of
higher costs due to higher input prices as well as higher volume of finished goods, goods in
process and raw materials. This upward trend in volume reversed during the fourth quarter 2008,
with a substantial reduction in inventories of finished goods, goods in process and raw materials
as a result of declining demand.
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Net cash provided by operating activities |
|
|
517.5 |
|
|
|
936.4 |
|
|
|
|
|
|
|
|
|
|
Acquisition of business |
|
|
|
|
|
|
(1,538.8 |
) |
Income tax credit paid on business acquisition |
|
|
|
|
|
|
(297.7 |
) |
Capital expenditures |
|
|
(587.9 |
) |
|
|
(344.3 |
) |
Proceeds from sale of discontinued operations |
|
|
718.6 |
|
|
|
|
|
Discontinued operations |
|
|
242.4 |
|
|
|
419.3 |
|
Other investing activities, net |
|
|
(22.6 |
) |
|
|
(40.8 |
) |
Net cash provided by/ used in investing activities |
|
|
350.5 |
|
|
|
(1,802.3 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(752.9 |
) |
|
|
1,359.0 |
|
|
|
|
|
|
|
|
Increase /(decrease) in cash and cash equivalents |
|
|
115.1 |
|
|
|
493.1 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
(17.5 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
Cash and cash equivalents at January 1 |
|
|
1,125.8 |
|
|
|
632.9 |
|
Cash and cash equivalents from discountinued operations at March 31, 2008 |
|
|
-157.9 |
|
|
|
|
|
Cash and cash equivalents at December 31 |
|
|
1,065.6 |
|
|
|
1,125.8 |
|
Investing activities
Net cash provided by investing activities during 2008 was US$ 350.5 million, compared to net cash
used in investing activities of US$ 1.8 billion in 2007. Net cash provided by investing activities
in 2008 consisted mainly of US$ 718.6 million of proceeds from the sale of certain non-core U.S.
assets, which had been acquired as part of the Grupo Imsa transaction, and US$ 242.4 million of
cash from discontinued operations, mainly coming from Sidor, less US$ 587.9 million disbursed for
capital expenditures. Net cash used in investing activities in 2007 was mainly comprised of US$
344.3 million disbursed for capital expenditures plus US$ 1.8 billion related to the Grupo Imsa
transaction, less US$ 419.3 million of proceeds from discontinued operations, mainly from Sidor.
Capital expenditures disbursed in 2008 included the following main investments:
|
|
|
Mexico: the expansion of the flat steel shop in Monterrey, the upgrading of one hot
strip mill and the upgrading of one cold rolled mill. |
|
|
|
|
Argentina: the relining of one blast furnace and the revamping and expansion of the
coking facilities. |
Terniums capital expenditures disbursed in 2007 included the following investments:
|
|
|
Mexico: the upgrading of the hot strip mills and a cold rolled mill. |
|
|
|
|
Argentina: the relining of a blast furnace, the revamping and expansion of the coking
facilities and the construction of a new bag house for the steel shop. |
- 30 -
Financing activities
Net cash used by financing activities in 2008 was US$ 752.9 million, compared to net cash provided
by financing activities of US$ 1.4 billion in 2007. Proceeds from borrowings during 2008 amounted
to US$ 519.8 million, mainly short-tem debt used for working capital needs. Repayments of
borrowings in 2008 reached US$ 1.2 billion related to maturities of long-term debt and prepayments
on bank facilities associated with the Grupo Imsa transaction. The Company paid dividends of US$
100.2 million in 2008. Proceeds from borrowings during 2007 were US$ 4.1 billion, mainly related to
the Grupo Imsa transaction. A majority of this debt is held by Terniums Mexican subsidiaries.
Repayment of borrowings in 2007 was US$ 2.6 billion, related to the refinancing of most of
Terniums Mexican subsidiaries outstanding debt and to debt payments upon maturity. The Company
paid dividends of US$ 100.2 million in 2007.
Principal sources of funding
Funding policy
Terniums policy is to maintain a high degree of flexibility in operating and investment activities
by maintaining adequate liquidity levels and ensuring access to readily available sources of
financing. Most of Terniums financing is conducted in U.S. dollars. Ternium selects the type of
facility, associated rate and term after considering the intended use of proceeds.
Financial liabilities
Terniums borrowings as of December 31, 2008, consisted mainly of different bank loans and
facilities. Outstanding financial debt amounted to US$ 3.3 billion at year end, compared with US$
4.1 billion as of December 31, 2007, a decrease of US$ 0.8 billion, largely resulting from the
application of the proceeds from the sale of certain non-core U.S. assets completed in February
2008 to the prepayment of bank debt. Terniums net debt position (borrowings less cash and cash
equivalents and other current investments) decreased by US$ 0.8 billion during 2008 to US$ 2.1
billion as of December 31, 2008, compared to net debt of US$ 2.9 billion as of December 31, 2007.
We believe that available cash and marketable securities and funds from operations will be
sufficient to finance our operations. We have not negotiated additional credit facilities.
The U.S. dollar-denominated portion of Terniums outstanding financial debt is 98%. For 2008, the
average interest rate, which incorporates instruments denominated in various currencies, was 2.79%.
Ternium has in place a variety of interest rate derivatives to mitigate interest rate fluctuations
as most of its long-term borrowings outstanding as of December 31, 2008, were Libor-based variable
rates. For
additional information on the amounts, tenor and main characteristics of these instruments, please
see note 25 (Derivative financial instruments) to the Companys consolidated financial statements
included elsewhere in this Annual Report.
- 31 -
TERNIUM S.A.
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2008 and 2007 and
for the years ended December 31, 2008, 2007 and 2006
46a, Avenue John F. Kennedy, 2nd floor
L 1855
R.C.S. Luxembourg : B 98 668
- 32 -
TERNIUM S.A.
Index to financial statements
Consolidated Financial Statements
- 33 -
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Ternium S.A.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income, of cash flows and of changes in shareholders equity present fairly, in all
material respects, the financial position of Ternium S.A. and its subsidiaries at December 31, 2008
and 2007, and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2008 in conformity with International Financial Reporting Standards
as issued by the International Accounting Standards Board. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these statements in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
We draw attention to Note 29 to the financial statements which describes the uncertainty related to
the amount of the compensation to be received by Ternium in connection with the nationalization
process of Sidor C.A. Our opinion is not qualified in respect of this matter.
Buenos Aires, Argentina
February 24, 2009
PRICE WATERHOUSE & CO. S.R.L.
|
|
|
|
|
|
|
By
|
|
|
|
(Partner) |
|
|
|
|
|
|
|
|
|
Marcelo D. Pfaff
|
|
|
- 1 -
TERNIUM S.A.
Consolidated financial statements
as of December 31, 2008 and 2007 and
for the years ended December 31, 2008, 2007 and 2006
(All amounts in USD thousands)
CONSOLIDATED INCOME STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
Notes |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
30 |
|
|
|
8,464,885 |
|
|
|
5,633,366 |
|
|
|
4,484,918 |
|
Cost of sales |
|
|
6 & 30 |
|
|
|
(6,128,027 |
) |
|
|
(4,287,671 |
) |
|
|
(3,107,629 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
2,336,858 |
|
|
|
1,345,695 |
|
|
|
1,377,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
7 |
|
|
|
(669,473 |
) |
|
|
(517,433 |
) |
|
|
(370,727 |
) |
Other operating income (expenses), net |
|
|
9 |
|
|
|
8,662 |
|
|
|
8,514 |
|
|
|
(4,739 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
1,676,047 |
|
|
|
836,776 |
|
|
|
1,001,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
30 &31 |
|
|
|
(136,111 |
) |
|
|
(133,109 |
) |
|
|
(96,814 |
) |
Interest income |
|
|
30 |
|
|
|
32,178 |
|
|
|
41,613 |
|
|
|
33,903 |
|
Other financial expenses, net |
|
|
10 |
|
|
|
(693,192 |
) |
|
|
(38,498 |
) |
|
|
(40,432 |
) |
|
Equity in earnings of associated companies |
|
|
14 |
|
|
|
1,851 |
|
|
|
434 |
|
|
|
671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
|
|
|
|
880,773 |
|
|
|
707,216 |
|
|
|
899,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current and deferred income tax expense |
|
|
11 |
|
|
|
(258,969 |
) |
|
|
(291,345 |
) |
|
|
(353,044 |
) |
Reversal of deferred statutory profit sharing |
|
|
4 |
(n) |
|
|
96,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
|
|
|
|
718,069 |
|
|
|
415,871 |
|
|
|
546,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
29 |
|
|
|
157,095 |
|
|
|
579,925 |
|
|
|
444,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year |
|
|
|
|
|
|
875,164 |
|
|
|
995,796 |
|
|
|
990,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company |
|
|
28 |
|
|
|
715,418 |
|
|
|
784,490 |
|
|
|
795,424 |
|
Minority interest |
|
|
|
|
|
|
159,746 |
|
|
|
211,306 |
|
|
|
195,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
875,164 |
|
|
|
995,796 |
|
|
|
990,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
|
28 |
|
|
|
2,004,743,442 |
|
|
|
2,004,743,442 |
|
|
|
1,936,833,060 |
|
Basic earnings per share for profit
attributable to the equity holders of the
Company (expressed in USD per share) |
|
|
|
|
|
|
0.36 |
|
|
|
0.39 |
|
|
|
0.41 |
|
Diluted earnings per share for profit
attributable to the equity holders of the
Company (expressed in USD per share) |
|
|
|
|
|
|
0.36 |
|
|
|
0.39 |
|
|
|
0.41 |
|
The accompanying notes are an integral part of these consolidated financial statements.
- 2 -
TERNIUM S.A.
Consolidated financial statements
as of December 31, 2008 and 2007 and
for the years ended December 31, 2008, 2007 and 2006
(All amounts in USD thousands)
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes |
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
12 |
|
|
|
4,212,313 |
|
|
|
|
|
|
|
6,776,630 |
|
|
|
|
|
Intangible assets, net |
|
|
13 |
|
|
|
1,136,367 |
|
|
|
|
|
|
|
1,449,320 |
|
|
|
|
|
Investments in associated companies |
|
|
14 |
|
|
|
5,585 |
|
|
|
|
|
|
|
44,042 |
|
|
|
|
|
Other investments, net |
|
|
15 & 30 |
|
|
|
16,948 |
|
|
|
|
|
|
|
14,815 |
|
|
|
|
|
Deferred tax assets |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
31,793 |
|
|
|
|
|
Receivables, net |
|
|
16 & 30 |
|
|
|
120,195 |
|
|
|
5,491,408 |
|
|
|
236,523 |
|
|
|
8,553,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
17 & 30 |
|
|
|
248,991 |
|
|
|
|
|
|
|
405,031 |
|
|
|
|
|
Derivative financial instruments |
|
|
25 |
|
|
|
1,516 |
|
|
|
|
|
|
|
577 |
|
|
|
|
|
Inventories, net |
|
|
6 & 18 |
|
|
|
1,826,547 |
|
|
|
|
|
|
|
1,904,489 |
|
|
|
|
|
Trade receivables, net |
|
|
19 & 30 |
|
|
|
622,992 |
|
|
|
|
|
|
|
825,553 |
|
|
|
|
|
Available for sale assets discontinued operations |
|
|
29 |
|
|
|
1,318,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments |
|
|
20 |
|
|
|
90,008 |
|
|
|
|
|
|
|
65,337 |
|
|
|
|
|
Cash and cash equivalents |
|
|
20 |
|
|
|
1,065,552 |
|
|
|
5,174,506 |
|
|
|
1,125,830 |
|
|
|
4,326,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets classified as held for sale |
|
|
29 |
|
|
|
|
|
|
|
5,333 |
|
|
|
|
|
|
|
769,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,179,839 |
|
|
|
|
|
|
|
5,095,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
10,671,247 |
|
|
|
|
|
|
|
13,649,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and reserves attributable to the companys
equity holders |
|
|
|
|
|
|
|
|
|
|
4,597,370 |
|
|
|
|
|
|
|
4,452,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
964,094 |
|
|
|
|
|
|
|
1,805,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
|
|
|
|
|
|
|
|
5,561,464 |
|
|
|
|
|
|
|
6,257,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions |
|
|
21 |
|
|
|
24,400 |
|
|
|
|
|
|
|
57,345 |
|
|
|
|
|
Deferred income tax |
|
|
23 |
|
|
|
810,160 |
|
|
|
|
|
|
|
1,327,768 |
|
|
|
|
|
Other liabilities |
|
|
24 |
|
|
|
148,690 |
|
|
|
|
|
|
|
333,674 |
|
|
|
|
|
Trade payables |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
6,690 |
|
|
|
|
|
Derivative financial instruments |
|
|
25 |
|
|
|
65,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
26 |
|
|
|
2,325,867 |
|
|
|
3,374,964 |
|
|
|
3,676,072 |
|
|
|
5,401,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax liabilities |
|
|
|
|
|
|
194,075 |
|
|
|
|
|
|
|
179,678 |
|
|
|
|
|
Other liabilities |
|
|
24 & 30 |
|
|
|
103,376 |
|
|
|
|
|
|
|
180,974 |
|
|
|
|
|
Trade payables |
|
|
30 |
|
|
|
438,711 |
|
|
|
|
|
|
|
995,663 |
|
|
|
|
|
Derivative financial instruments |
|
|
25 |
|
|
|
57,197 |
|
|
|
|
|
|
|
13,293 |
|
|
|
|
|
Borrowings |
|
|
26 |
|
|
|
941,460 |
|
|
|
1,734,819 |
|
|
|
406,239 |
|
|
|
1,775,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities directly associated with non-current
assets classified as held for sale |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,734,819 |
|
|
|
|
|
|
|
1,989,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
5,109,783 |
|
|
|
|
|
|
|
7,391,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities |
|
|
|
|
|
|
|
|
|
|
10,671,247 |
|
|
|
|
|
|
|
13,649,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
- 3 -
TERNIUM S.A.
Consolidated financial statements
as of December 31, 2008 and 2007 and
for the years ended December 31, 2008, 2007 and 2006
(All amounts in USD thousands)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to the Companys equity holders (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
public |
|
|
Revaluation |
|
|
Capital |
|
|
Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
offering |
|
|
and other |
|
|
stock issue |
|
|
translation |
|
|
Retained |
|
|
|
|
|
|
Minority |
|
|
Total |
|
|
|
stock (2) |
|
|
expenses |
|
|
reserves |
|
|
discount (3) |
|
|
adjustment |
|
|
earnings |
|
|
Total |
|
|
interest |
|
|
Equity |
|
|
Balance at January 1, 2008 |
|
|
2,004,743 |
|
|
|
(23,295 |
) |
|
|
1,946,963 |
|
|
|
(2,324,866 |
) |
|
|
(110,739 |
) |
|
|
2,959,874 |
|
|
|
4,452,680 |
|
|
|
1,805,243 |
|
|
|
6,257,923 |
|
|
Currency translation adjustment (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(417,746 |
) |
|
|
|
|
|
|
(417,746 |
) |
|
|
(85,250 |
) |
|
|
(502,996 |
) |
Net income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
715,418 |
|
|
|
715,418 |
|
|
|
159,746 |
|
|
|
875,164 |
|
Change in fair value of cash flow
hedge (net of taxes) |
|
|
|
|
|
|
|
|
|
|
(52,745 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,745 |
) |
|
|
(6,708 |
) |
|
|
(59,453 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized income for the year |
|
|
|
|
|
|
|
|
|
|
(52,745 |
) |
|
|
|
|
|
|
(417,746 |
) |
|
|
715,418 |
|
|
|
244,927 |
|
|
|
67,788 |
|
|
|
312,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of revaluation reserves
related to discontinued operations
(5) |
|
|
|
|
|
|
|
|
|
|
(91,696 |
) |
|
|
|
|
|
|
|
|
|
|
91,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid in cash and other
distributions |
|
|
|
|
|
|
|
|
|
|
(100,237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,237 |
) |
|
|
|
|
|
|
(100,237 |
) |
Dividends paid in cash and other
distributions by subsidiary
companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,595 |
) |
|
|
(19,595 |
) |
Minority interest in discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(889,342 |
) |
|
|
(889,342 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
2,004,743 |
|
|
|
(23,295 |
) |
|
|
1,702,285 |
|
|
|
(2,324,866 |
) |
|
|
(528,485 |
) |
|
|
3,766,988 |
|
|
|
4,597,370 |
|
|
|
964,094 |
|
|
|
5,561,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Shareholders equity determined in accordance with accounting principles generally
accepted in Luxembourg is disclosed in Note 27 (iv). |
|
(2) |
|
At December 31, 2008, the Capital Stock adds up to 2,004,743,442 shares with a nominal
value of USD1 each. |
|
(3) |
|
Represents the difference between book value of non-monetary contributions received from
shareholders under Luxembourg GAAP and IFRS. |
|
(4) |
|
Includes an increase of USD 121.9 million corresponding to the currency translation
adjustment from discontinued operations attributable to the Companys equity holders and of
USD 29.6 million attributable to the Minority interest. |
|
(5) |
|
Corresponds to the reversal of the revaluation reserve recorded in fiscal year 2005,
representing the excess of fair value over the book value of Terniums pre-acquisition
interest in the net assets of Sidor. |
Dividends may be paid by Ternium to the extent distributable retained earnings calculated in
accordance with Luxembourg law and regulations exist. Therefore, retained earnings included in
these consolidated financial statements may not be wholly distributable. See Note 27 (iii). The
accompanying notes are an integral part of these consolidated financial statements.
- 4 -
TERNIUM S.A.
Consolidated financial statements
as of December 31, 2008 and 2007 and
for the years ended December 31, 2008, 2007 and 2006
(All amounts in USD thousands)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to the Companys equity holders (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
public |
|
|
Revaluation |
|
|
Capital |
|
|
Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
offering |
|
|
and other |
|
|
stock issue |
|
|
translation |
|
|
Retained |
|
|
|
|
|
|
Minority |
|
|
Total |
|
|
|
stock (2) |
|
|
expenses |
|
|
reserves |
|
|
discount (3) |
|
|
adjustment |
|
|
earnings |
|
|
Total |
|
|
interest |
|
|
Equity |
|
|
Balance at January 1, 2007 |
|
|
2,004,743 |
|
|
|
(23,295 |
) |
|
|
2,047,200 |
|
|
|
(2,324,866 |
) |
|
|
(121,608 |
) |
|
|
2,175,384 |
|
|
|
3,757,558 |
|
|
|
1,626,119 |
|
|
|
5,383,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,869 |
|
|
|
|
|
|
|
10,869 |
|
|
|
(13,152 |
) |
|
|
(2,283 |
) |
Net income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
784,490 |
|
|
|
784,490 |
|
|
|
211,306 |
|
|
|
995,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,869 |
|
|
|
784,490 |
|
|
|
795,359 |
|
|
|
198,154 |
|
|
|
993,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid in cash and other
distributions |
|
|
|
|
|
|
|
|
|
|
(100,237 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,237 |
) |
|
|
|
|
|
|
(100,237 |
) |
Dividends paid in cash and other
distributions by subsidiary
companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,000 |
) |
|
|
(20,000 |
) |
Acquisition of business (see Note 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195 |
) |
|
|
(195 |
) |
Contributions from minority
shareholders in consolidated
subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,165 |
|
|
|
1,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
2,004,743 |
|
|
|
(23,295 |
) |
|
|
1,946,963 |
|
|
|
(2,324,866 |
) |
|
|
(110,739 |
) |
|
|
2,959,874 |
|
|
|
4,452,680 |
|
|
|
1,805,243 |
|
|
|
6,257,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Shareholders equity determined in accordance with accounting principles generally
accepted in Luxembourg is disclosed in Note 27 (iv). |
|
(2) |
|
At December 31, 2008, the Capital Stock adds up to 2,004,743,442 shares with a nominal
value of USD1 each. |
|
(3) |
|
Represents the difference between book value of non-monetary contributions received from
shareholders under Luxembourg GAAP and IFRS. |
Dividends may be paid by Ternium to the extent distributable retained earnings calculated in
accordance with Luxembourg law and regulations exist. Therefore, retained earnings included in
these consolidated financial statements may not be wholly distributable. See Note 27 (iii). The
accompanying notes are an integral part of these consolidated financial statements.
- 5 -
TERNIUM S.A.
Consolidated financial statements
as of December 31, 2008 and 2007 and
for the years ended December 31, 2008, 2007 and 2006
(All amounts in USD thousands)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to the Companys equity holders (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
public |
|
|
Revaluation |
|
|
Capital |
|
|
Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
offering |
|
|
and other |
|
|
stock issue |
|
|
translation |
|
|
Retained |
|
|
|
|
|
|
Minority |
|
|
Total |
|
|
|
stock (2) |
|
|
expenses |
|
|
reserves |
|
|
discount (3) |
|
|
adjustment |
|
|
earnings |
|
|
Total |
|
|
interest |
|
|
Equity |
|
|
Balance at January 1, 2006 |
|
|
1,396,551 |
|
|
|
(5,456 |
) |
|
|
1,462,138 |
|
|
|
(2,298,048 |
) |
|
|
(92,691 |
) |
|
|
1,379,960 |
|
|
|
1,842,454 |
|
|
|
1,633,881 |
|
|
|
3,476,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,917 |
) |
|
|
|
|
|
|
(28,917 |
) |
|
|
(6,479 |
) |
|
|
(35,396 |
) |
Net income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
795,424 |
|
|
|
795,424 |
|
|
|
195,151 |
|
|
|
990,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,917 |
) |
|
|
795,424 |
|
|
|
766,507 |
|
|
|
188,672 |
|
|
|
955,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid in cash and other
distributions by subsidiary
companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,175 |
) |
|
|
(27,175 |
) |
Acquisition of business (see Note 3) |
|
|
|
|
|
|
|
|
|
|
(32,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,429 |
) |
|
|
(122,261 |
) |
|
|
(154,690 |
) |
Contributions from shareholders
(see Note 1) |
|
|
33,801 |
|
|
|
|
|
|
|
43,100 |
|
|
|
(26,818 |
) |
|
|
|
|
|
|
|
|
|
|
50,083 |
|
|
|
(46,998 |
) |
|
|
3,085 |
|
Conversion of Subordinated
Convertible Loans (see Note 1) |
|
|
302,962 |
|
|
|
|
|
|
|
302,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
605,924 |
|
|
|
|
|
|
|
605,924 |
|
Initial Public Offering (see Note 1) |
|
|
271,429 |
|
|
|
(17,839 |
) |
|
|
271,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
525,019 |
|
|
|
|
|
|
|
525,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
|
2,004,743 |
|
|
|
(23,295 |
) |
|
|
2,047,200 |
|
|
|
(2,324,866 |
) |
|
|
(121,608 |
) |
|
|
2,175,384 |
|
|
|
3,757,558 |
|
|
|
1,626,119 |
|
|
|
5,383,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Shareholders equity determined in accordance with accounting principles generally
accepted in Luxembourg is disclosed in Note 27 (iv). |
|
(2) |
|
At December 31, 2008, the Capital Stock adds up to 2,004,743,442 shares with a nominal
value of USD1 each. |
|
(3) |
|
Represents the difference between book value of non-monetary contributions received from
shareholders under Luxembourg GAAP and IFRS. |
Dividends may be paid by Ternium to the extent distributable retained earnings calculated in
accordance with Luxembourg law and regulations exist. Therefore, retained earnings included in
these consolidated financial statements may not be wholly distributable. See Note 27 (iii). The
accompanying notes are an integral part of these consolidated financial statements.
- 6 -
TERNIUM S.A.
Consolidated financial statements
as of December 31, 2008 and 2007 and
for the years ended December 31, 2008, 2007 and 2006
(All amounts in USD thousands)
CONSOLIDATED CASH FLOW STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
Notes |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
|
|
|
|
718,069 |
|
|
|
415,871 |
|
|
|
546,107 |
|
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
12&13 |
|
|
|
413,541 |
|
|
|
355,271 |
|
|
|
251,371 |
|
Income tax accruals less payments |
|
|
31 |
|
|
|
(88,511 |
) |
|
|
(51,471 |
) |
|
|
72,613 |
|
Derecognition of property, plant and equipment |
|
|
9 |
(iii) |
|
|
|
|
|
|
|
|
|
|
13,130 |
|
Changes to pension plan |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
46,947 |
|
Equity in earnings of associated companies |
|
|
14 |
|
|
|
(1,851 |
) |
|
|
(434 |
) |
|
|
(671 |
) |
Interest accruals less payments |
|
|
31 |
|
|
|
(84,151 |
) |
|
|
87,580 |
|
|
|
2,237 |
|
Changes in provisions |
|
|
|
|
|
|
2,358 |
|
|
|
2,995 |
|
|
|
2,770 |
|
Changes in working capital |
|
|
31 |
|
|
|
(1,071,472 |
) |
|
|
97,728 |
|
|
|
(156,707 |
) |
Net foreign exchange losses (gains) and others |
|
|
|
|
|
|
629,530 |
|
|
|
28,878 |
|
|
|
(23,789 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
517,513 |
|
|
|
936,418 |
|
|
|
754,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
12&13 |
|
|
|
(587,904 |
) |
|
|
(344,293 |
) |
|
|
(314,863 |
) |
Changes in trust funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,185 |
|
Acquisition of business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase consideration |
|
|
3 |
|
|
|
|
|
|
|
(1,728,869 |
) |
|
|
(210,548 |
) |
Cash acquired |
|
|
3 |
|
|
|
|
|
|
|
190,087 |
|
|
|
|
|
Income tax credit paid on business acquisition |
|
|
3 |
|
|
|
|
|
|
|
(297,700 |
) |
|
|
|
|
Increase in other investments |
|
|
|
|
|
|
(24,674 |
) |
|
|
(65,337 |
) |
|
|
|
|
Investments in associated companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,598 |
) |
Proceeds from the sale of property, plant and equipment |
|
|
|
|
|
|
2,103 |
|
|
|
24,490 |
|
|
|
2,787 |
|
Proceeds from the sale of discontinued operations |
|
|
29 |
(i) |
|
|
718,635 |
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
29 |
(iv) |
|
|
242,370 |
|
|
|
419,305 |
|
|
|
326,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
|
|
|
|
350,530 |
|
|
|
(1,802,317 |
) |
|
|
(193,133 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid in cash and other distributions to
companys shareholders |
|
|
|
|
|
|
(100,237 |
) |
|
|
(100,237 |
) |
|
|
|
|
Dividends paid in cash and other distributions by
subsidiary companies |
|
|
|
|
|
|
(19,595 |
) |
|
|
(20,000 |
) |
|
|
(27,175 |
) |
Net proceeds from Initial Public Offering |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
525,019 |
|
Contributions from shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,085 |
|
Contributions from minority shareholders in
consolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
1,165 |
|
|
|
|
|
Proceeds from borrowings |
|
|
|
|
|
|
519,809 |
|
|
|
4,052,745 |
|
|
|
109,144 |
|
Repayments of borrowings |
|
|
|
|
|
|
(1,152,886 |
) |
|
|
(2,574,627 |
) |
|
|
(1,292,548 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
|
|
|
|
(752,909 |
) |
|
|
1,359,046 |
|
|
|
(682,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in cash and cash equivalents |
|
|
|
|
|
|
115,134 |
|
|
|
493,147 |
|
|
|
(121,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1,(1) |
|
|
|
|
|
|
1,125,830 |
|
|
|
632,941 |
|
|
|
754,856 |
|
Effect of exchange rate changes |
|
|
|
|
|
|
(17,518 |
) |
|
|
(258 |
) |
|
|
(315 |
) |
Increase (Decrease) in cash and cash equivalents |
|
|
|
|
|
|
115,134 |
|
|
|
493,147 |
|
|
|
(121,600 |
) |
Cash & cash equivalents of discontinued operations at
March 31, 2008 |
|
|
|
|
|
|
(157,894 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at December 31, |
|
|
20 |
|
|
|
1,065,552 |
|
|
|
1,125,830 |
|
|
|
632,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt instruments into shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
605,924 |
|
|
|
|
(1) |
|
In addition, the Company had restricted cash for USD 10,350 at December 31, 2006. |
The accompanying notes are an integral part of these consolidated financial statements.
- 7 -
TERNIUM S.A.
Consolidated financial statements
as of December 31, 2008 and 2007 and
for the years ended December 31, 2008, 2007 and 2006
(All amounts in USD thousands)
INDEX TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
1 Business of the Company, Initial Public Offering and corporate reorganization |
|
9 |
|
|
|
|
|
2 Basis of presentation |
|
9 |
|
|
|
|
|
3 Acquisition of business |
|
13 |
|
|
|
|
|
4 Accounting policies |
|
16 |
|
|
|
|
|
5 Segment information |
|
26 |
|
|
|
|
|
6 Cost of sales |
|
28 |
|
|
|
|
|
7 Selling, general and administrative expenses |
|
29 |
|
|
|
|
|
8 Labor costs (included in cost of sales, selling, general and administrative expenses) |
|
29 |
|
|
|
|
|
9 Other operating income (expense), net |
|
29 |
|
|
|
|
|
10 Other financial expenses, net |
|
29 |
|
|
|
|
|
11 Income tax expense |
|
30 |
|
|
|
|
|
12 Property, plant and equipment, net |
|
31 |
|
|
|
|
|
13 Intangible assets, net |
|
33 |
|
|
|
|
|
14 Investments in associated companies |
|
34 |
|
|
|
|
|
15
Other investments, net non current |
|
35 |
|
|
|
|
|
16
Receivables, net non current |
|
35 |
|
|
|
|
|
17
Receivables current |
|
36 |
|
|
|
|
|
18 Inventories, net |
|
36 |
|
|
|
|
|
19 Trade receivables, net |
|
36 |
|
|
|
|
|
20 Cash, cash equivalents and other investments |
|
36 |
|
|
|
|
|
21
Allowances and Provisions non current |
|
37 |
|
|
|
|
|
22
Allowances current |
|
38 |
|
|
|
|
|
23 Deferred income tax |
|
38 |
|
|
|
|
|
24 Other liabilities |
|
40 |
|
|
|
|
|
25 Derivative financial instruments |
|
41 |
|
|
|
|
|
26 Borrowings |
|
43 |
|
|
|
|
|
27 Contingencies, commitments and restrictions on the distribution of profits |
|
44 |
|
|
|
|
|
28 Earnings per share |
|
46 |
|
|
|
|
|
29 Discontinued operations |
|
47 |
|
|
|
|
|
30 Related party transactions |
|
50 |
|
|
|
|
|
31 Cash flow disclosures |
|
51 |
|
|
|
|
|
32 Recently issued accounting pronouncements |
|
52 |
|
|
|
|
|
33 Financial risk management |
|
54 |
|
|
|
|
|
- 8 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements
1 Business of the Company, Initial Public Offering and corporate reorganization
Ternium S.A. (the Company or Ternium), a Luxembourg Corporation (Societé Anonyme), was
incorporated on December 22, 2003 to hold investments in flat and long steel manufacturing and
distributing companies.
Near the end of 2004, Ternium was acquired by its ultimate parent company San Faustín N.V. (San
Faustín), a Netherlands Antilles company, to serve as a vehicle in the restructuring of San
Faustíns investments in the flat and long steel manufacturing and distribution business. This
restructuring was carried out by means of a corporate reorganization through which Ternium was
assigned the equity interests previously held by San Faustín and its subsidiaries in various flat
and long steel manufacturing and distributing companies (the Corporate Reorganization). The
Corporate Reorganization took place in fiscal year 2005. Until that date, Ternium was a dormant
company.
On January 11, 2006, the Company successfully completed its registration process with the United
States Securities and Exchange Commission (SEC) and announced the commencement of its offer to
sell 24,844,720 American Depositary Shares (ADS) representing 248,447,200 shares of common stock
through Citigroup Global Markets Inc., Deutsche Bank Securities Inc., JP Morgan Securities Inc.,
Morgan Stanley & Co. Incorporated, BNP Paribas Securities Corp., Caylon Securities (USA) Inc. and
Bayerische Hypo-und Vereinsbank AG (collectively, the Underwriters and the offering thereunder,
the Initial Public Offering). The Companys Initial Public Offering was priced at USD20 per ADS.
The gross proceeds from the Initial Public Offering totaled USD 496.9 million and have been used to
fully repay Tranche A of the Ternium Credit Facility, after deducting related expenses.
Terniums ADSs began trading on the New York Stock Exchange under the symbol TX on February 1,
2006. The Companys Initial Public Offering was settled on February 6, 2006.
Also, the Company granted the Underwriters an option, exercisable for 30 days from January 31,
2006, to purchase up to 3,726,708 additional ADSs at the public offering price of USD20 per ADS
less an underwriting discount of USD0.55 per ADS. On February 23, 2006 the Underwriters exercised
partially this over-allotment option granted by the Company. In connection with this option, on
March 1, 2006, the Company issued 22,981,360 new shares. The gross proceeds from this transaction
totaled USD46.0 million.
In addition, during 2005, the Company entered into the Subordinated Convertible Loan Agreements for
a total aggregate amount of USD594 million to fund the acquisition of Hylsamex S.A. de C.V.
(Hylsamex). As per the provisions contained in the Subordinated Convertible Loan Agreements, the
Subordinated Convertible Loans would be converted into shares of the Company upon delivery of
Terniums ADSs to the Underwriters. On February 6, 2006, the Subordinated Convertible Loans
(including interest accrued through January 31, 2006) were converted into shares at a conversion
price of USD 2 per share, resulting in the issuance of 302,962,261 new shares on February 9, 2006.
Furthermore, in November 2005, Siderúrgica del Turbio Sidetur S.A. (Sidetur), a subsidiary of
Siderúrgica Venezolana Sivensa S.A. (Sivensa), exchanged with Inversora Siderúrgica Limited
(ISL, a wholly-owned subsidiary of Terniums majority shareholder) its 3.42% equity interest in
Consorcio Siderurgia Amazonia Ltd. (Amazonia) and USD 3.1 million in cash for shares of the
Company. On February 9, 2006, ISL contributed all of its assets and liabilities (including its
interest in Amazonia) to the Company in exchange for 959,482,775 newly issued shares of the Company
after the settlement of the Initial Public Offering. The increase in equity resulting from this
transaction is reflected under Contributions from shareholders line item in the Statement of
changes in shareholders equity and amounts to USD 50.1 million.
After the completion of the Initial Public Offering, the conversion of the Subordinated Convertible
Loans, the exercise of the option granted to the Underwriters and the consummation of the
transactions contemplated in the Corporate Reorganization agreement, 2,004,743,442 shares
(including shares in the form of ADSs) were outstanding.
2 Basis of presentation
These consolidated financial statements have been prepared in accordance with those IFRS standards
and IFRIC interpretations issued and effective or issued and early adopted as at the time of
preparing these statements (February 2009), as issued by the International Accounting Standards
Board. These consolidated financial statements are presented in thousands of United States dollars
(USD).
As mentioned in Note 1, Ternium was assigned the equity interests previously held by San Faustín
and its subsidiaries in various flat and long steel manufacturing and distributing companies. As
these transactions were carried out among entities under common control, the assets and liabilities
contributed to the Company have been accounted for at the relevant predecessors cost, reflecting
the carrying amount of such assets and liabilities. Accordingly, the consolidated financial
statements include the financial statements of the above-mentioned companies on a combined basis at
historical book values on a carryover basis as though the contribution had taken place on January
1, 2003, (the transition date to IFRS) and no adjustment has been made to reflect fair values at
the time of the contribution.
- 9 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
2 Basis of presentation (continued)
Detailed below are the companies whose financial statements have been included in these
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of ownership at |
|
|
|
Country of |
|
|
|
December 31, |
|
Company |
|
Organization |
|
Main activity |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Ternium S.A. |
|
Luxembourg |
|
Holding of investments in flat and long steel manufacturing and distributing companies |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hylsamex S.A. de C.V. (1) |
|
Mexico |
|
Holding company |
|
|
|
|
|
|
88.23 |
% |
|
|
88.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Siderar S.A.I.C. |
|
Argentina |
|
Manufacturing and selling of flat steel products |
|
|
60.93 |
% |
|
|
60.93 |
% |
|
|
60.93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sidor C.A. (2) |
|
Venezuela |
|
Manufacturing and selling of steel products |
|
|
|
|
|
|
56.38 |
% |
|
|
56.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ternium Internacional S.A. |
|
Uruguay |
|
Holding company and marketing of steel products |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ylopa Servicos de Consultadoria Lda. (3) |
|
Portugal |
|
Participation in the debt restructuring process of Amazonia and Sidor C.A. |
|
|
94.38 |
% |
|
|
95.66 |
% |
|
|
95.66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consorcio Siderurgia Amazonia S.L.U.
(formerly Consorcio Siderurgia
Amazonia Ltd.) (4) |
|
Spain |
|
Holding of investments in Venezuelan steel companies |
|
|
94.38 |
% |
|
|
94.38 |
% |
|
|
94.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fasnet International S.A. |
|
Panama |
|
Holding company |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alvory S.A. |
|
Uruguay |
|
Holding of investment in procurement services companies |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comesi San Luis S.A.I.C. (5) |
|
Argentina |
|
Production of cold or hot rold prepainted, formed and skelped steel sheets |
|
|
|
|
|
|
61.32 |
% |
|
|
61.32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impeco S.A. (6) |
|
Argentina |
|
Manufacturing of pipe products |
|
|
60.96 |
% |
|
|
60.93 |
% |
|
|
60.93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inversiones Basilea S.A. (6) |
|
Chile |
|
Purchase and sale of real estate and other |
|
|
60.93 |
% |
|
|
60.93 |
% |
|
|
60.93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prosid Investments S.C.A.(6) |
|
Uruguay |
|
Holding company |
|
|
60.93 |
% |
|
|
60.93 |
% |
|
|
60.93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ternium Internacional España S.L.U. (7) |
|
Spain |
|
Marketing of steel products |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ternium International Ecuador S.A. (8) |
|
Ecuador |
|
Marketing of steel products |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ternium International USA Corporation (8) |
|
USA |
|
Marketing of steel products |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ternium Internationaal B.V. (8) |
|
Netherlands |
|
Marketing of steel products |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ternium Internacional Perú S.A.C. (8) |
|
Peru |
|
Marketing of steel products |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ternium International Inc. |
|
Panama |
|
Marketing of steel products |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hylsa S.A. de C.V. (9) |
|
Mexico |
|
Manufacturing and selling of steel products |
|
|
88.71 |
% |
|
|
88.23 |
% |
|
|
88.22 |
% |
- 10 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
2 Basis of presentation (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of ownership at |
|
|
|
Country of |
|
|
|
December 31, |
|
Company |
|
Organization |
|
Main activity |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Ferropak Comercial S.A. de C.V. (9) |
|
Mexico |
|
Scrap company |
|
|
88.71 |
% |
|
|
88.23 |
% |
|
|
88.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ferropak Servicios S.A. de C.V. (9) |
|
Mexico |
|
Services |
|
|
88.71 |
% |
|
|
88.23 |
% |
|
|
88.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Galvacer America Inc (9) |
|
USA |
|
Distributing company |
|
|
88.71 |
% |
|
|
88.23 |
% |
|
|
88.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Galvamet America Corp (9) |
|
USA |
|
Manufacturing and selling of insulates panel products |
|
|
88.71 |
% |
|
|
88.23 |
% |
|
|
88.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transamerica E. & I. Trading Corp (9) |
|
USA |
|
Scrap company |
|
|
88.71 |
% |
|
|
88.23 |
% |
|
|
88.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Galvatubing Inc. (9) |
|
USA |
|
Manufacturing and selling of pipe products |
|
|
88.71 |
% |
|
|
88.23 |
% |
|
|
88.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las Encinas S.A. de C.V. (9) |
|
Mexico |
|
Exploration, explotation and pelletizing of iron ore |
|
|
88.71 |
% |
|
|
88.23 |
% |
|
|
88.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Técnica Industrial S.A. de C.V. (9) |
|
Mexico |
|
Services |
|
|
88.71 |
% |
|
|
88.23 |
% |
|
|
88.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consorcio Minero Benito Juarez Peña
Colorada S.A.de C.V. (10) |
|
Mexico |
|
Exploration, explotation and pelletizing of iron ore |
|
|
44.36 |
% |
|
|
44.12 |
% |
|
|
44.11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peña Colorada Servicios S.A. de C.V. (10) |
|
Mexico |
|
Services |
|
|
44.36 |
% |
|
|
44.12 |
% |
|
|
44.11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ternium Treasury Services S.A. |
|
Uruguay |
|
Financial Services |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ternium Treasury Services B.V |
|
Holanda |
|
Financial Services |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicios Integrales Nova de
Monterrey S.A. de C.V. (11) |
|
Mexico |
|
Medical and Social Services |
|
|
66.09 |
% |
|
|
65.73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ternium Mexico S.A. de C.V.
(formerly Grupo Imsa S.A.B. de C.V.) |
|
Mexico |
|
Holding company |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imsa Acero S.A. de C.V. (12) |
|
Mexico |
|
Holding company |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enermex S.A. de C.V. (12) |
|
Mexico |
|
Holding company |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sefimsa S.A. de C.V. (12) |
|
Mexico |
|
Financial Services |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ecore Holding S. de R.L. de C.V. (12) |
|
Mexico |
|
Holding company |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neotec L.L.C. (12) |
|
USA |
|
Holding company |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services L.L.C. (12) |
|
USA |
|
Financial Services |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APM, S.A. de C.V. (12) |
|
Mexico |
|
Manufacturing and selling of steel products |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acedor, S.A. de C.V. (12) |
|
Mexico |
|
Holding company |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Empresas Stabilit S.A. de C.V. (12) |
|
Mexico |
|
Holding company |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acerus S.A. de C.V. (12) |
|
Mexico |
|
Manufacturing and selling of steel products |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imsa Monclova S.A. de C.V. (12) |
|
Mexico |
|
Services |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imsamex Ecuador S.A. (12) |
|
Ecuador |
|
Marketing of steel products |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrias Monterrey S.A. (12) |
|
Guatemala |
|
Manufacturing and selling of steel products |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporativo Grupo Imsa S.A. de C.V. (12) |
|
Mexico |
|
Services |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrias Monterrey S.A. de C.V. (12) |
|
Mexico |
|
Manufacturing and selling of steel products |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
- 11 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
2 Basis of presentation (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of ownership at |
|
|
|
Country of |
|
|
|
December 31, |
|
Company |
|
Organization |
|
Main activity |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Ternium USA Inc. (formerly Imsa
Holding Inc.) (12) |
|
USA |
|
Holding company |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industria Galvanizadora S.A. (12) |
|
Guatemala |
|
Manufacturing and selling of steel products |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imsa Americas Inc. (12) |
|
USA |
|
Marketing of steel products |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imsa Caribbean Inc. (12) |
|
Puerto Rico |
|
Manufacturing and selling of steel products |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ternium Internacional de Colombia S.A.
(formerly Imsa Colombia S.A.) |
|
Colombia |
|
Marketing of steel products |
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imsa Andina S.A. (12) |
|
Peru |
|
Marketing of steel products |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multypanel de América S.A. (12) |
|
Costa Rica |
|
Manufacturing and selling of insulates panel products |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industria Galvanizadora S.A. (12) |
|
Nicaragua |
|
Manufacturing and selling of steel products |
|
|
88.09 |
% |
|
|
99,30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industria Galvanizadora de Honduras
S.A. de C.V. (12) |
|
Honduras |
|
Manufacturing and selling of steel products |
|
|
88.00 |
% |
|
|
99.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ternium Internacional El Salvador,
S.A. de C.V. (formerly Industria Galvanizadora S.A. de C.V.) (12) |
|
El Salvador |
|
Manufacturing and selling of steel products |
|
|
88.65 |
% |
|
|
99.93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrias Monterrey S.A. (12) |
|
Costa Rica |
|
Manufacturing and selling of steel products |
|
|
88.71 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dirken Company S.A. (13) |
|
Uruguay |
|
Holding Company |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secor- Servicios Corporativos S.A. (14) |
|
Venezuela |
|
Holding Company |
|
|
93.44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ternium Brasil S.A. (14) |
|
Brazil |
|
Holding Company |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Effective April1, 2008 it was merged with and into Ternium México S.A. de C.V. |
|
(2) |
|
See Note 29 (ii). |
|
(3) |
|
Directly (85.62%) and indirectly through Prosid Investments S.C.A. (8.76%). Total
voting rights held: 100.00%. |
|
(4) |
|
Indirectly through Ylopa Servicos de Consultadoría Lda.. Total voting rights held:
100.00%. As of April 25, 2008, this subsidiary was relocated into Spain (formerly Cayman
Islands) |
|
(5) |
|
As of December, 2008 it was merged with and into Impeco S.A. |
|
(6) |
|
Indirectly through Siderar S.A.I.C. Total voting rights held 100.00%. |
|
(7) |
|
Indirectly through Dirken Company S.A. Total voting rights held 100.00% |
|
(8) |
|
Indirectly through Ternium Internacional S.A. Total voting rights held 100.00% |
|
(9) |
|
Indirectly through Ternium Mexico S.A. de C.V. Total voting rights held: 99.92%. |
|
(10) |
|
Indirectly through Ternium Mexico S.A. de C.V. Total voting rights held: 50.00%.
Consolidated under the proportionate consolidation method (see Note 2 (ii)) |
|
(11) |
|
Indirectly through Ternium Mexico S.A. de C.V. Total voting rights held: 74.44%. |
|
(12) |
|
Indirectly through Ternium Mexico S.A. de C.V. (see Note 3 (a)). Effective April 1,
2008 Siderar exchanged all of its shares in Hylsamex for shares in Ternium Mexico S.A. de
C.V., thus reducing Terniums indirect participation in all of Ternium Mexicos
subsidiaries. |
|
(13) |
|
Incorporated during 2008, as a result of a spin off of Ternium Internacional S.A. |
|
(14) |
|
Incorporated during 2008. |
- 12 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
2 Basis of presentation (continued)
Elimination of all material intercompany transactions and balances between the Company and their
respective subsidiaries have been made in consolidation.
The consolidated financial statements have been prepared under the historical cost convention, as
modified by the revaluation of available-for-sale financial assets, and financial assets and
financial liabilities (including derivative instruments) at fair value through profit or loss.
Certain comparative amounts have been reclassified to conform to changes in presentation in the
current period. The most significant modifications to comparative information are described below:
(i) In fiscal year 2007, Ternium presented cash flows from disposal groups and discontinued
operations based on their nature as either cash flows from operating, investing or financing
activities. In 2008 net cash flows from disposal groups and discontinued operations have been
disclosed within cash flows from investing activities.
|
|
|
|
|
|
|
|
|
|
|
As originally |
|
|
Current period |
|
Caption |
|
presented |
|
|
presentation |
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
6,535 |
|
|
|
|
|
Cash flows from investing activities |
|
|
(10,435 |
) |
|
|
(3,900 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
(ii) Until December 31, 2007, Terniums investment in Consorcio Minero Benito Juarez Peña Colorada
S.A. de C.V. and Peña Colorada Servicios S.A. de C.V. was presented following the consolidation
method prescribed by IAS 27. Beginning in December 31, 2008, the Company began accounting for its
investments in these companies under the proportionate consolidation method described by IAS 31,
the effect of such modification being immaterial. Changes in the most relevant figures are detailed
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006 |
|
|
Year ended December 31, 2007 |
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
Current |
|
|
|
As originally |
|
|
period |
|
|
As originally |
|
|
period |
|
Caption |
|
presented |
|
|
presentation |
|
|
presented |
|
|
presentation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
8,770,539 |
|
|
|
8,658,254 |
|
|
|
13,767,310 |
|
|
|
13,649,082 |
|
Total liabilities |
|
|
3,283,398 |
|
|
|
3,274,576 |
|
|
|
7,400,420 |
|
|
|
7,391,159 |
|
Minority interest |
|
|
1,729,583 |
|
|
|
1,626,119 |
|
|
|
1,914,210 |
|
|
|
1,805,243 |
|
Operating income |
|
|
1,003,807 |
|
|
|
1,001,823 |
|
|
|
849,030 |
|
|
|
836,776 |
|
Cash flows from operating activities |
|
|
761,338 |
|
|
|
754,008 |
|
|
|
939,901 |
|
|
|
936,418 |
|
Cash flows from investing activities |
|
|
(200,526 |
) |
|
|
(193,133 |
) |
|
|
(1,805,650 |
) |
|
|
(1,802,317 |
) |
Cash flows from financing activities |
|
|
(682,475 |
) |
|
|
(682,475 |
) |
|
|
1,359,046 |
|
|
|
1,359,046 |
|
The preparation of financial statements requires management to make estimates and assumptions that
might affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the balance sheet dates, and the reported amounts of revenues and expenses
during the reporting periods. The most critical estimates made by management in these financial
statements are those related to impairment tests of Property, plant and equipment, Goodwill and
other assets, valuation allowances for inventories and other provisions. Actual results may differ
from these estimates.
These consolidated financial statements have been approved for issue by the board of directors on
February 24, 2009.
3 Acquisition of business
(a) Grupo Imsa S.A.B. de C.V. (Grupo Imsa)
On April 29, 2007, Ternium entered into an agreement with Grupo IMSA S.A.B. de C.V. (Grupo Imsa)
and Grupo Imsas controlling shareholders under which Ternium obtained control of Grupo Imsa for a
total consideration (equity value) of approximately USD 1.7 billion.
Under the agreement, Ternium, through its wholly owned subsidiary Ternium Internacional España
S.L.U., made a cash tender offer under applicable Mexican law for all of the issued and outstanding
share capital of Grupo Imsa at a price of US$ 6.40 per share. Pursuant to the tender offer, Ternium
acquired 25,133,856 shares representing 9.3% of the issued and outstanding capital of the company.
- 13 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
3 Acquisition of business (continued)
(a) Grupo Imsa S.A.B. de C.V. (Grupo Imsa) (continued)
Concurrently with the consummation of the tender offer, on July 26, 2007, all the shares of Grupo
Imsa that were not tendered into the tender offer (including the shares owned by Grupo Imsas
majority shareholders), representing 90.7% of Grupo Imsas issued and outstanding share capital
were redeemed for cash pursuant to a capital reduction effected at the same price per share.
Grupo Imsa is a steel manufacturer with operations in Mexico, the United States, Guatemala,
Nicaragua, Honduras, El Salvador and Costa Rica. It has an annual production capacity of 2.2
million tons of hot rolled coils, 1.8 million tons of cold rolled products and 1.7 million tons of
coated products. In addition, Grupo Imsa produces panels and other steel products.
Grupo Imsa contributed revenues of USD 976.3 million and a net loss of USD 77.5 million in the
period from July 26, 2007 to December 31, 2007 (these amounts do not include revenues or net
profits generated by discontinued operations). The book value of Grupo Imsas net assets acquired
totals USD 543.9 million. The fair value of assets and liabilities arising from the transaction are
as follows:
|
|
|
|
|
|
|
|
|
|
|
USD Thousands |
|
|
|
Fair value |
|
|
Book value |
|
Property, plant and equipment |
|
|
1,602,398 |
|
|
|
1,205,128 |
|
Intangible assets |
|
|
456,404 |
|
|
|
73,227 |
|
Inventories |
|
|
501,304 |
|
|
|
501,304 |
|
Cash and cash equivalents |
|
|
190,087 |
|
|
|
190,087 |
|
Deferred Tax Liabilities |
|
|
(481,930 |
) |
|
|
(253,991 |
) |
Provisions |
|
|
(10,011 |
) |
|
|
(10,011 |
) |
Borrowings |
|
|
(1,437,676 |
) |
|
|
(1,437,676 |
) |
Other assets and liabilities, net |
|
|
(99,069 |
) |
|
|
(99,069 |
) |
Net assets pertaining to discontinued
operations (1) |
|
|
485,651 |
|
|
|
374,949 |
|
|
|
|
|
|
|
|
|
Net |
|
|
1,207,158 |
|
|
|
543,948 |
|
|
Goodwill |
|
|
455,776 |
|
|
|
|
|
Goodwill Discontinued operations |
|
|
65,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Purchase Consideration |
|
|
1,728,674 |
|
|
|
|
|
Other cash consideration Income Tax paid on
the transaction |
|
|
297,700 |
|
|
|
|
|
|
|
|
(1) |
|
These amounts do not include the goodwill attributable to discontinued operations
for USD 65.7 million. |
Goodwill, representing the excess of the purchase price paid over the fair value of identifiable
assets, liabilities and contingent liabilities totaled USD 521.5 million. Goodwill derives
principally from synergies expected to be obtained by the Company after the transaction, as well as
the fair value of the going concern element of the acquiree.
Upon consummation of the transaction, the Company was subject to an income tax payment of USD 297.7
million. This payment can be credited against future income tax obligations for the following three
fiscal years. As the Company expects to generate sufficient taxable income in that period, the
above mentioned amount has been considered as an income tax prepayment (USD 222.7 million have
been disclosed under Other Receivables line item and USD 75.0 million have been offset against
Current Tax Liabilities at December 31, 2007). As of December 31, 2008, the remaining tax credit is
USD 28.2 million.
The transactions were financed primarily through the incurrence of debt as follows:
|
|
|
Ternium made several borrowings in an aggregate principal amount of USD 125 million under
a loan facility (the Ternium Facility) with a syndicate of banks led by Calyon New York
Branch as administrative agent, the proceeds of which were primarily used to finance the
above described tender offer. Terniums loans under the Ternium Facility would have been
repaid in nine consecutive and equal semi-annual installments commencing on July 26, 2008. On
January 28, 2008, the company prepaid all of its outstanding obligations with Calyon New York
Branch, amounting to approximately USD 129.1 million. |
|
|
|
|
Terniums subsidiary Hylsa S.A. de C.V. (Hylsa) made several borrowings in an aggregate
principal amount of 3,485 million under a loan facility (the Hylsa Facility) with a
syndicate of banks led by Calyon New York Branch as administrative agent, the proceeds of
which were primarily used to finance the above described capital reduction by Grupo Imsa, to
refinance existing indebtedness of Grupo Imsa and Hylsa and to pay taxes, fees and expenses
related to the transactions. |
- 14 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
3 Acquisition of business (continued)
(a) Grupo Imsa S.A.B. de C.V. (Grupo Imsa) (continued)
The loans are divided in two tranches of equal principal amount. Tranche A loans will be repaid in
seven equal semi-annual installments beginning on January 26, 2009, while tranche B loans will be
repaid in one installment due on July 26, 2012.
These facilities contain covenants customary for transactions of this type, including limitations
on liens and encumbrances, restrictions on investments and capital expenditures, limitations on the
sale of certain assets and compliance with financial ratios (e.g., leverage ratio and interest
coverage ratio). There are no limitations to the payment of dividends under either facility, except
in case of non compliance of the above mentioned covenants.
Pro forma data including acquisitions for the year ended December 31, 2007
Had the Grupo Imsa transaction been consummated on January 1, 2007, then Terniums unaudited pro
forma net sales and net income for the year ended December 31, 2007 would have been approximately
$9.6 billion and $0.8 billion, respectively. These pro forma results were prepared based on public
information and unaudited accounting records maintained prior to such transaction and adjusted by
depreciation and amortization of tangible and intangible assets and interest expense of the
borrowing incurred for the transaction as described above.
Subsidiary reorganization
Effective April 1, 2008, Ternium Mexico S.A. de C.V. ( Ternium Mexico) was formed as a result of
the merger of Grupo Imsa, Hylsamex and Hylsamexs major shareholder. Ternium Mexico and its
subsidiaries operate all of Terniums mining and steel production activities in Mexico.
(b) Acerex S.A. de C.V.
In April 2006, the Company acquired a 50% equity interest in Acerex S.A. de C.V. (Acerex) through
its subsidiary Hylsa S.A. de C.V. for a total purchase price of USD 44.6 million. Upon completion
of this transaction Hylsa S.A. de C.V. owns 100% of Acerex. Acerex is a service center dedicated to
processing steel to produce short-length and steel sheets in various widths. Acerex operates as a
cutting and processing plant for Terniums Mexican operations and as an independent processor for
other steel companies. On August 31, 2006 Acerex S.A. de C.V. was merged into Hylsa S.A. de C.V.
As permitted by IFRS 3 Business Combinations (IFRS 3), the Company accounted for this
acquisition under the economic entity model, which requires that the acquisition of an additional
equity interest in a controlled subsidiary be accounted for at its carrying amount, with the
difference arising on purchase price allocation (amounting to USD 24.3 million) being recorded
directly in equity.
(c) Additional shares of Siderar bought by Ternium S.A.
On December 28, 2006, Ternium S.A. acquired from CVRD International S.A. 16,860,000 shares of
Siderar S.A.I.C, representing 4.85% of that company, for an aggregate purchase price of USD 107.5
million. After this acquisition Ternium has increased its ownership in Siderar to 60.93%.
As permitted by IFRS 3, the Company accounted for this acquisition under the economic entity model,
which requires that the acquisition of an additional equity interest in a controlled subsidiary be
accounted for at its carrying amount, with the difference arising on purchase price allocation
(amounting to USD 8.1 million) being recorded directly in equity.
(d) Additional shares of Hylsamex bought by Siderar
On June 19, 2006, Siderar completed the acquisition of 940,745 additional shares of Hylsamex,
representing 0.2% of that companys issued and outstanding common stock, for a total consideration
of USD 3.3 million. This acquisition was effected through a trust fund established by Siderar in
2005 in connection with the initial acquisition of Hylsamex. Goodwill resulting from this
acquisition totaled USD 0.7 million. During 2007 and 2008, Siderar completed the acquisition of
94,379 additional shares of Hylsamex, representing 0.02% of that companys issued and outstanding
common stock, for a total consideration of USD 0.3 million.
- 15 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
4 Accounting policies
The following is a summary of the principal accounting policies followed in the preparation of
these consolidated financial statements:
(a) Group accounting
(1) Subsidiary companies
Subsidiary companies are those entities in which the Company has an interest of more than 50% of
the voting rights or otherwise has the power to exercise control over the operating decisions.
Subsidiaries are consolidated from the date on which control is transferred to the Company and are
no longer consolidated from the date that control ceases. The purchase method of accounting is used
to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair
value of assets given up, shares issued or liabilities undertaken at the date of acquisition, plus
costs directly attributable to the acquisition. The excess of the acquisition cost over the
Companys share of the fair value of net assets acquired is recorded as goodwill. Acquisition of
minority interests in subsidiaries is accounted for following the economic entity model and,
accordingly, assets acquired and liabilities assumed are valued at book value and the difference
arising on purchase price allocation is recorded in equity under Revaluation and other reserves
line item. Material intercompany transactions, balances and unrealized gains on transactions among
the Company and its subsidiaries are eliminated; unrealized losses are also eliminated unless cost
cannot be recovered. However, the fact that the functional currency of some subsidiaries is their
respective local currency, generates some financial gains (losses) arising from intercompany
transactions, that are included in the consolidated income statement under Other financial
expenses, net.
(2) Joint ventures
The Company reports its interests in jointly controlled entities using proportionate consolidation.
The Companys share of the assets, liabilities, income, expenses and cash flows of jointly
controlled entities are combined on a line-by-line basis with similar items in the Companys
financial statements.
Where the Company transacts with its jointly controlled entities, unrealized profits and losses are
eliminated to the extent of the Companys interest in the joint venture.
(3) Associated companies
Associated companies are entities in which Ternium generally has between 20% and 50% of the voting
rights, or over which Ternium has significant influence, but which it does not control. Investments
in associated companies are accounted for using the equity method of accounting. Under this method
the Companys share of the post-acquisition profits or losses of an associated company is
recognized in the income statement and its share of post-acquisition changes in reserves is
recognized in reserves. The cumulative post-acquisition changes are adjusted against the cost of
the investment. Unrealized gains on transactions among the Company and its associated companies are
eliminated to the extent of the Companys interest in such associated company; unrealized losses
are also eliminated unless the transaction provides evidence of an impairment of the transferred
asset. When the Companys share of losses in an associated company equals or exceeds its interest
in such associate, the Company does not recognize further losses unless it has incurred obligations
or made payments on behalf of such associated company.
(4) First-time application of IFRS
The Companys transition date is January 1, 2003. Ternium prepared its opening IFRS balance sheet
at that date.
- 16 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
4 Accounting policies (continued)
(4) First-time application of IFRS (continued)
In preparing its financial statements in accordance with IFRS 1, the Company has applied the
mandatory exceptions and certain of the optional exemptions from full retrospective application of
IFRS, as detailed below:
4.1. Exemptions from full retrospective application elected by the Company
The Company has elected to apply the following optional exemptions from full retrospective
application.
(a) Fair value as deemed cost exemption
Ternium has elected to measure its property, plant and equipment at fair value as of January 1,
2003.
(b) Cumulative translation differences exemption
Ternium has elected to set the previously accumulated cumulative translation to zero at January 1,
2003. This exemption has been applied to all subsidiaries in accordance with IFRS 1.
4.2 Exceptions from full retrospective application followed by the Company
Ternium has applied the following mandatory exceptions from retrospective application.
(a) Derecognition of financial assets and liabilities exception
Financial assets and liabilities derecognized before January 1, 2003 are not re-recognized under
IFRS. However, this exception had no impact on these financial statements as it was not applicable
since the Company did not derecognize any financial assets or liabilities before the transition
date that qualified for recognition.
(b) Hedge accounting exception
At January 1, 2003, the Company did not have derivatives that qualify for hedge accounting. This
exception is therefore not applicable.
(c) Estimates exception
Estimates under IFRS at January 1, 2003 should be consistent with estimates made for the same date
under previous GAAP.
(d) Assets held for sale and discontinued operations exception
Ternium did not have assets that met the held-for-sale criteria (as defined by IFRS 5) at the
transition date (January 1, 2003).
(b) Foreign currency translation
(1) Functional and presentation currency
Items included in the financial statements of each of the Companys subsidiaries and associated
companies are measured using the currency of the primary economic environment in which the entity
operates (the functional currency). The functional currency of the Company is the U.S. dollar.
Although Ternium is located in Luxembourg, it operates in several countries with different
currencies. The USD is the currency that best reflects the economic substance of the underlying
events and circumstances relevant to Ternium as a whole.
(2) Subsidiary companies
The results and financial position of all the group entities (none of which operates in a
hyperinflationary economy) that have a functional currency different from the presentation
currency, are translated into the presentation currency as follows:
(i) assets and liabilities are translated at the closing rate of each balance sheet;
(ii) income and expenses for each income statement are translated at average exchange rates; and
(iii) all resulting translation differences are recognized as a separate component of equity.
In the case of a sale or other disposition of any such subsidiary, any accumulated translation
differences would be recognized in the income statement as part of the gain or loss on sale.
- 17 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
4 Accounting policies (continued)
(b) Foreign currency translation (continued)
(3) Transactions in currencies other than the functional currency
Transactions in currencies other than the functional currency are accounted for at the exchange
rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of
such transactions and from the translation of monetary assets and liabilities denominated in
currencies other than the functional currency are recognized in the income statement, including the
foreign exchange gains and losses from intercompany transactions.
(c) Financial instruments
Non derivative financial instruments
Non derivative financial instruments comprise investment in equity and debt securities, trade and
other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.
Ternium non derivative financial instruments are classified into the following specified
categories:
|
|
|
Financial assets as at fair value through profit or loss: mainly financial assets
that are held for trading; |
|
|
|
|
Held to maturity investments: these investments are recorded at amortized cost using
the effective interest method less impairment, with revenue recognized on an effective
yield basis; |
|
|
|
|
Available-for-sale (AFS) financial assets: gains and losses arising from changes
in fair value are recognized directly in equity (AFS reserve) with the exception of
impairment losses, interest calculated using the effective interest method and foreign
exchange gains and losses on monetary assets, which are recognized directly in profit
or loss. Where the investment is disposed of or is determined to be impaired, the
cumulative gain or loss previously recognized in the investments revaluation reserve is
included in the income statement for the period; |
|
|
|
|
Loans and receivables: are measured at amortized cost using the effective interest
method less any impairment. Interest income is recognized by applying the effective
interest rate, except for short-term receivables where the recognition of interest
would be immaterial; and |
|
|
|
|
Other non derivative financial instruments are measured at amortized cost using the
effective interest method, less any impairment losses when applicable. |
The classification depends on the nature and purpose of the financial assets and is determined at
the time of initial recognition.
Financial assets and liabilities are recognized and derecognized on the trade date.
Financial assets are initially measured at fair value, net of transaction costs, except for those
financial assets classified at fair value through the income statement.
Financial liabilities, including borrowings, are initially measured at fair value, net of
transaction costs and subsequently measured at amortized cost using the effective interest method,
with interest expense recognized on an effective yield basis.
Derivative financial instruments
Information about accounting for derivative financial instruments and hedging activities is
included in Note 33 Financial Risk management.
(d) Property, plant and equipment
Land and buildings comprise mainly factories and offices. All property, plant and equipment are
recognized at historical acquisition or construction cost less accumulated depreciation and
accumulated impairment (if applicable), except for land, which is carried at acquisition cost less
accumulated impairment (if applicable). Nevertheless, as mentioned in Note 4(a), property, plant
and equipment have been valued at its deemed cost at the transition date to IFRS.
Major overhaul and rebuilding expenditures are recognized as a separate asset when future economic
benefits are expected from the item, and the cost can be measured reliably.
Ordinary maintenance expenses on manufacturing properties are recorded as cost of products sold in
the period in which they are incurred.
- 18 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
4 Accounting policies (continued)
(d) Property, plant and equipment (continued)
In accordance with IAS 23, borrowing costs that are attributable to the acquisition or construction
of certain capital assets could be capitalized as part of the cost of the assets. Capital assets
for which borrowing costs may be capitalized are those that require a substantial period of time to
be ready for their intended use. At December 31, 2008, no borrowing costs have been capitalized.
Where a tangible fixed asset comprises major components having different useful lives, these
components are accounted for as separate items.
Leases where the lessor retains a significant portion of the risks and rewards of ownership are
classified as operating leases. Payments made under operating leases (net of any incentives
received from the lessor) are charged to the income statement on a straight-line basis over the
period of the lease.
Depreciation method is reviewed at each balance sheet date. Depreciation is calculated using the
straight-line method to amortize the cost of each asset to its residual value over its estimated
useful life as follows:
|
|
|
Land
|
|
No Depreciation |
Buildings and improvements
|
|
15-40 years |
Production equipment
|
|
10-25 years |
Vehicles, furniture and fixtures and other equipment
|
|
5-15 years |
The assets useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
Gains and losses on disposals are determined by comparing the proceeds with the corresponding
carrying amounts and are included in the income statement.
If the carrying amount of an asset were greater than its estimated recoverable amount, it would be
written down to its recoverable amount. (see Note 4 (f) Impairment).
(e) Intangible assets
(1) Information system projects
Generally, costs associated with developing or maintaining computer software programs are
recognized as an expense as incurred. However, costs directly related to the acquisition and
implementation of information systems are recognized as intangible assets if they have a probable
economic benefit exceeding the cost beyond one year.
Information system projects recognized as assets are amortized using the straight-line method over
their useful lives, not exceeding a period of 3 years. Amortization charges are included in cost of
sales, selling, general and administrative expenses.
(2) Mining concessions and exploration costs
Mining license was recognized as a separate intangible asset upon the acquisition of Hylsamex and
comprises the right to exploit or explore the mines and is recognized at its fair value less
accumulated amortization. Amortization charge is calculated according to the mineral extracted in
each period and is included in cost of sales.
Exploration and evaluation costs are measured at cost. Costs directly associated with exploration
activities and leasehold acquisition costs are capitalized until the determination of reserves is
evaluated. If it is determined that commercial discovery has not been achieved, these costs are
charged to expense. Capitalization is made within Property, Plant and Equipment or Intangible
Assets according to the nature of the expenditure. Exploration costs are tested for impairment
annually. No impairment losses have been recorded for any of the years presented.
(3) Goodwill
Goodwill represents the excess of the acquisition cost over the fair value of Terniums
participation in acquired companies net assets at the acquisition date. Under IFRS 3, goodwill is
considered to have an indefinite life and not amortized, but is subject to annual impairment
testing.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The
allocation is made to those cash-generating units expected to benefit from the business combination
which generated the goodwill being tested.
- 19 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
4 Accounting policies (continued)
(e) Intangible assets (continued)
(4) Research and development
Research expenditures are recognized as expenses as incurred. Development costs are recorded as
cost of sales in the income statement as incurred because they do not fulfill the criteria for
capitalization. Research and development expenditures for the years ended December 31, 2008, 2007
and 2006 totaled USD 0.8 million, USD 1.1 million and USD 1.3 million, respectively.
(5) Customer relationships acquired in a business combination
In accordance with IFRS 3 and IAS 38, Ternium has recognized the value of customer relationships
separately from goodwill attributable to the acquisition of Grupo Imsa.
Customer relationships are amortized over a useful life of approximately 10 years.
(6) Trademarks
In accordance with IFRS 3 and IAS 38, Ternium has recognized the value of trademarks separately
from goodwill attributable to the acquisition of Grupo Imsa.
Trademarks are amortized over a useful life of approximately 5 years.
(f) Impairment
Assets that have an indefinite useful life are not subject to amortization and are tested annually
for impairment. Assets that are subject to amortization and investments in affiliates are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. An impairment loss is recognized for the amount by which the assets carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of an assets fair
value less cost to sell and the value in use.
To carry out these tests, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units). The value in use of these units is determined on
the basis of the present value of net future cash flows which will be generated by the assets
tested. Cash flows are discounted at rates that reflect specific country and currency risks.
In order to test goodwill for impairment and other assets indicated as possibly impaired, the fair
value less costs to sell of the related cash-generating unit is calculated and only if it is lower
than the carrying amount is the value in use determined. Ternium uses projections for the next 5
years based on past performance and expectations of market development. After the fifth year a
perpetuity rate with no grow up increase was utilized. Discounted Cash Flow (DCF) method to
determine the fair value less costs to sell of a related cash-generating unit, starts with a
forecast of all expected future net cash flows.
The net present values involve highly sensitive estimates and assumptions specific to the nature of
Terniums activities with regard to:
|
|
|
The amount and timing of projected future cash flows; |
|
|
|
|
The discount rate selected and; |
|
|
|
|
The tax rate selected |
The discount rates used are based on Terniums weighted average cost of capital, which is adjusted
for specific country and currency risks associated with the cash flow projections. To perform the
test, post-tax rates have been applied. Discount rates used range from 12.4 to 18.3%.
Due to the above factors, actual cash flows and values could vary significantly from the forecasted
future cash flows and related values derived using discounting techniques.
At December 31, 2008, 2007 and 2006, no impairment provisions were recorded.
- 20 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
4 Accounting policies (continued)
(g) Other investments
Other investments consist primarily of investments in financial debt instruments and equity
investments where the Company holds less than 20% of the outstanding equity and does not exert
significant influence.
All purchases and sales of investments are recognized on the trade date, which is not significantly
different from the settlement date, which is the date that Ternium commits to purchase or sell the
investment.
Income from financial instruments is recognized in Other financial expenses, net in the income
statement. Interest receivable on investments in debt securities is calculated using the effective
rate. Dividends from investments in equity instruments are recognized in the income statement when
the Companys right to receive payments is established.
(h) Inventories
Inventories are stated at the lower of cost (calculated using the first-in-first-out FIFO method)
or net realizable value. The cost of finished goods and goods in process comprises raw materials,
direct labor, depreciation, other direct costs and related production overhead costs. It excludes
borrowing costs. Goods acquired in transit at year end are valued at suppliers invoice cost.
The Company assesses the recoverability of its inventories considering if their selling prices have
declined, if the inventories are damaged, or if they have become wholly or partially obsolete.
Net realizable value is the estimated selling price in the ordinary course of business, less the
costs of completion and selling expenses.
The Company establishes an allowance for obsolete or slow-moving inventory in connection with
finished goods and goods in process. The allowance for slow-moving inventory is recognized for
finished goods and goods in process based on managements analysis of their aging. In connection
with supplies and spare parts the calculation is based on managements analysis of their aging, the
capacity of such materials to be used based on their levels of preservation and maintenance and the
potential obsolescence due to technological change.
As of December 31, 2008, the Company established a valuation allowance for net realizable value of
USD 160.9 million and maintains an allowance for obsolescence of USD 124.9 million.
(i) Trade receivables
Trade and other receivables are carried at face value less an allowance for doubtful accounts, if
applicable. This amount does not differ significantly from fair value.
A provision for impairment is established when there is objective evidence that a financial asset
or group of assets is impaired. Objective evidence that a financial asset or group of assets is
impaired includes observable data that comes to the attention of the Company about a loss event,
such as a significant financial difficulty of the obligor or a breach of contract. The amount of
the impairment is determined as the difference between the assets carrying amount and the present
value of estimated future cash flows discounted at the assets original effective interest rate.
The amount of the loss is recognized in the income statement.
(j) Cash and cash equivalents
Cash and cash equivalents and highly liquid short-term securities are carried at fair market value.
For purposes of the cash flow statement, cash and cash equivalents comprise cash, bank current
accounts and short-term highly liquid investments (original maturity of less than 90 days).
In the consolidated balance sheet, bank overdrafts are included in borrowings within current
liabilities.
(k) Non current assets (disposal groups) classified as held for sale
Non-current assets (disposal groups) are classified as assets held for sale and stated at the lower
of carrying amount and fair value less cost to sell if their carrying amount is recovered
principally through a sale transaction rather than through a continuing use.
The carrying value of non-current assets classified as held for sale, at December 31, 2008, totals
USD 5.3 million, which corresponds principally to land and other real estate items. Sale is
expected to be completed within a one-year period.
- 21 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
4 Accounting policies (continued)
(l) Shareholders equity
The consolidated statement of changes in shareholders equity for the years 2008, 2007 and 2006 was
prepared based on the following criteria:
|
|
Currency translation differences arising from the translation of financial statements
expressed in currencies other than the U.S. dollar are shown in a separate line. |
|
|
|
Expenses incurred in connection with the Initial Public Offering at December 31, 2006 and
2005 totaled USD 17.8 million and USD 5.5 million, respectively, and have been deducted from
equity, since they directly relate to a transaction which itself is to be recorded in equity. |
(m) Borrowings
Borrowings are recognized initially for an amount equal to the proceeds received. In subsequent
periods, borrowings are stated at amortized cost; any difference between proceeds and the
redemption value is recognized in the income statement over the period of the borrowings.
Capitalized borrowing costs are amortized over the life of their respective debt.
(n) Income taxes current and deferred
Under present Luxembourg law, so long as the Company maintains its status as a holding company, no
income tax, withholding tax (including with respect to dividends), or capital gain tax is payable
in Luxembourg by the Company.
The Company has qualified for, and was admitted to, the Billionaire holding company tax regime in
conjunction with the financing holding company tax regime in Luxembourg starting January 1, 2006.
On December 29, 2006, the Grand-Duchy of Luxembourg announced the decision to terminate its 1929
holding company regime, effective January 1, 2007. However, under the implementing legislation,
pre-existing publicly listed companies (including Ternium S.A.) will be entitled to continue
benefiting from their current tax regime until December 31, 2010.
The current income tax charge is calculated on the basis of the tax laws in force in the countries
in which Terniums subsidiaries operate. Management evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation could be subject to interpretation. A
liability is recorded for tax benefits that were taken in the applicable tax return but have not
been recognized for financial reporting.
Deferred income taxes are calculated, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the financial
statements. The principal temporary differences arise on fixed assets, intangible assets,
inventories valuation and provisions for pensions. Deferred tax assets and liabilities are measured
at the tax rates that are expected to apply in the period when the asset is realized or the
liability is settled, based on tax rates and tax laws that have been enacted or substantially
enacted at the balance sheet date. Under IFRS, deferred income tax assets (liabilities) are
classified as non-current assets (liabilities).
Deferred tax assets are recognized to the extent it is probable that future taxable income will be
available to offset temporary differences.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and
associated companies, except where the timing of the reversal of the temporary difference is
controlled by the Company and it is probable that the temporary difference will not reverse in the
foreseeable future.
Under Mexican law, Terniums subsidiaries are required to pay their employees an annual benefit
which is as a percentage of taxable profit for the year. Because Mexican employee statutory profit
sharing is determined on a basis similar to that used for determining local income taxes, the
Company accounts for temporary differences arising between the statutory calculation and the
reported expense determined under IFRS in a manner similar to calculation of deferred income tax.
- 22 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
4 Accounting policies (continued)
(n) Income taxes current and deferred (continued)
In 2008, Hylsa S.A. de C.V. (Hylsa) entered into a spin off that became effective on March 31,
2008. After this corporate reorganization, all of Hylsas employees were transferred to the payroll
of a company that is expected to generate non-significant taxable income and non-significant
temporary differences. The Company agreed to pay its employees a bonus salary that will be
calculated on the basis of agreed-upon criteria. Accordingly, during the year ended December 31,
2008, the Company reversed the outstanding balance of the deferred tax liability recorded in
connection with the statutory profit sharing as of December 31, 2007 (amounting to USD 96 million)
and disclosed the related gain within Income tax (expense) benefit line item in the Consolidated
Income Statement.
(o) Employee liabilities
(1) Pension obligations
The Company has defined benefit and defined contribution plans. A defined benefit plan is a pension
plan that defines an amount of pension benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and compensation.
The liability recognized in the balance sheet in respect of defined benefit pension plans is the
present value of the defined benefit obligation at the balance sheet date, together with
adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit
obligation is calculated annually by independent actuaries using the projected unit credit method.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions
are charged or credited to income over the employees expected average remaining working lives.
Past-service costs are recognized immediately in income, unless the changes to the pension plan are
conditional on the employees remaining in service for a specified period of time (the vesting
period). In this case, the past-service costs are amortized on a straight-line basis over the
vesting period.
México
Ternium Mexico has defined benefit and defined contribution plans.
The valuation of the liabilities for the defined benefit employee retirement plans (pensions and
seniority premiums) covers all employees and is based primarily on their years of service, their
present age and their remuneration at the date of retirement. The cost of the employee retirement
plans (pension, health-care expenses and seniority premiums) is recognized as an expense in the
year in which services are rendered in accordance with actuarial studies made by independent
actuaries. The formal retirement plans are congruent with and complementary to the retirement
benefits established by the Mexican Institute of Social Security. Additionally, the Company has
established a plan to cover health-care expenses of retired employees. The Company has established
irrevocable trust funds for the payment of pensions and seniority premiums, as well as for
health-care expenses.
The defined contribution plans provides a benefit equivalent to the capital accumulated with the
companys contributions, which are provided as a match of employees contribution to the plan. The
plan provides vested rights according to the years of service and the cause of retirement.
Argentina
Siderar implemented an unfunded defined benefit employee retirement plan for certain officers on
August 1, 1995. The plan is designed to provide retirement, termination and other benefits to those
officers. For its main plan, Siderar is accumulating assets for the ultimate payment of those
benefits in the form of investments that carry time limitations for their redemption. The
investments are not part of a particular plan, nor are they segregated from Siderars other assets,
and therefore this plan is classified as unfunded under IFRS definitions. Benefits provided by
the plan are denominated in U.S. Dollars and are calculated based on a seven-year salary average.
(2) Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date,
or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company
recognizes termination benefits when it is demonstrably committed to either: (i) terminating the
employment of current employees according to a detailed formal plan without possibility of
withdrawal or (ii) providing termination benefits as a result of an offer made to encourage
voluntary redundancy.
- 23 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
4 Accounting policies (continued)
(o) Employee liabilities (continued)
(3) Other compensation obligations
Employee entitlements to annual leave and long-service leave are accrued as earned.
During 2007, Ternium launched an incentive retention program (the Program) applicable to certain
senior officers and employees of the Company, who will be granted a number of Units throughout the
duration of the Program. The value of each of these Units is based on Terniums shareholders
equity (excluding minority interest). Also, the beneficiaries of the Program are entitled to
receive cash amounts based on (i) the amount of dividend payments made by Ternium to its
shareholders, and (ii) the number of Units held by each beneficiary to the Program. Units vest
ratably over a period of four years and will be redeemed by the Company ten years after grant date,
with the option of an early redemption at seven years after grant date.
As of December 31, 2008, the outstanding liability corresponding to the Program amounts to USD 5.8
million. The total value of the units granted to date under the program, considering the number of
units and the book value per share as of December 31, 2008, is USD 4.8 million.
(4) Social security contributions
Social security laws in force in Argentina and Mexico provide for pension benefits to be paid to
retired employees from government pension plans and/or private fund managed plans to which
employees may elect to contribute. As stipulated by the respective laws, Siderar and Ternium Mexico
make monthly contributions calculated based on each employees salary to fund such plans. The
related amounts are expensed as incurred. No additional liabilities exist once the contributions
are paid.
(p) Provisions and other liabilities
Ternium has certain contingencies with respect to existing or potential claims, lawsuits and other
proceedings. Unless otherwise specified, Ternium accrues a provision for a present legal or
constructive obligation as a result of a past event, when it is probable that future cost could be
incurred and that cost can be reasonably estimated. Generally, accruals are based on developments
to date, Terniums estimates of the outcomes of these matters and the advice of Terniums legal
advisors.
(q) Trade payables
Trade payables are recognized initially at fair value and subsequently measured at amortized cost
using the effective interest method.
(r) Revenue recognition
Revenues are recognized as sales when revenue is earned and is realized or realizable. This
includes satisfying all of the following criteria: the arrangement with the customer is evident,
usually through the receipt of a purchase order; the sales price is fixed or determinable; delivery
as defined by the risk transfer provision of the sales contracts has occurred, and collectibility
is reasonably assured.
Interest income is recognized on an effective yield basis.
Income from participation account is recognized when earned according to its contractual terms (see
Note 29 (iii)).
(s) Cost of sales, selling, general and administrative expenses
Cost of sales and expenses are recognized in the income statement on the accrual basis of
accounting.
(t) Earnings per share
Earnings per share are calculated by dividing the net income attributable to shareholders by the
daily weighted average number of ordinary shares issued during the year (see Note 28).
- 24 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
4 Accounting policies (continued)
(u) Derivative financial instruments and Hedging Activities
Ternium designates certain derivatives as hedges of a particular risk associated with a recognized
asset or liability or a highly probable forecast transaction. These transactions are classified as
cash flow hedges (mainly interest rate swaps, collars and commodities contracts). The effective
portion of the fair value of derivatives that are designated and qualify as cash flow hedges is
recognized in equity. Amounts accumulated in equity are recognized in the income statement in the
same period than any offsetting losses and gains on the hedged item. The gain or loss relating to
the ineffective portion is recognized immediately in the income statement. The fair value of
Ternium derivative financial instruments (asset or liability) continues to be reflected on the
Balance Sheet.
For transactions designated and qualifying for hedge accounting, Ternium documents the relationship
between hedging instruments and hedged items, as well as its risk management objectives and
strategy for undertaking various hedge transactions. At December 31, 2008, the effective portion of
designated cash flow hedges amounts to USD 59.5 million (net of taxes for USD 23.1 million) and is
included as Change in fair value of cash flow hedge (net of taxes) under Revaluation and other
reserves line item in the Statement of changes in shareholders equity.
More information about accounting for derivative financial instruments and hedging activities is
included in Note 33 Financial risk management.
(v) Segment information
Business segments: for management purposes, the Company is organized on a worldwide basis into the
following segments: flat steel products, long steel products and others.
The flat steel products segment comprises the manufacturing and marketing of flat steel products.
Flat steel products include hot rolled coils and sheets, cold rolled coils and sheets, tin plate,
welded pipes, hot dipped galvanized and electrogalvanized sheets, pre-painted sheets and other
tailor-made products to serve its customers requirements.
The long steel products segment comprises the manufacturing and marketing of long steel products.
Long steel products include billets (steel in its basic, semifinished state), wire rod and bars.
The other products segment includes the products other than flat and long steel, mainly pig iron,
pellets and pre-engineered metal buildings.
The secondary reporting format is based on a geographical location. Ternium sells its products to
three main geographical areas: South and Central America, North America, and Europe and Other. The
North American segment comprises principally United States, Canada and Mexico. The South and
Central American segment comprises principally Argentina, Brazil, Colombia, Venezuela and Ecuador.
Allocation of net sales is based on the customers location. Allocation of assets, liabilities and
capital expenditures is based on their corresponding location.
- 25 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
5 Segment information
Primary reporting format business segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flat steel |
|
|
Long steel |
|
|
|
|
|
|
|
|
|
|
|
|
products |
|
|
products |
|
|
Other |
|
|
Unallocated |
|
|
Total |
|
Year ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
7,124,687 |
|
|
|
1,075,090 |
|
|
|
265,108 |
|
|
|
|
|
|
|
8,464,885 |
|
Cost of sales |
|
|
(5,256,340 |
) |
|
|
(732,332 |
) |
|
|
(139,355 |
) |
|
|
|
|
|
|
(6,128,027 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,868,347 |
|
|
|
342,758 |
|
|
|
125,753 |
|
|
|
|
|
|
|
2,336,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
(560,189 |
) |
|
|
(80,303 |
) |
|
|
(28,981 |
) |
|
|
|
|
|
|
(669,473 |
) |
Other operating income, net |
|
|
2,789 |
|
|
|
2,419 |
|
|
|
3,454 |
|
|
|
|
|
|
|
8,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,310,947 |
|
|
|
264,874 |
|
|
|
100,226 |
|
|
|
|
|
|
|
1,676,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures PP&E |
|
|
511,658 |
|
|
|
29,684 |
|
|
|
2,915 |
|
|
|
|
|
|
|
544,257 |
|
Depreciation PP&E |
|
|
292,236 |
|
|
|
37,810 |
|
|
|
3,715 |
|
|
|
|
|
|
|
333,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net |
|
|
1,708,324 |
|
|
|
100,494 |
|
|
|
17,729 |
|
|
|
|
|
|
|
1,826,547 |
|
Trade receivables, net |
|
|
449,168 |
|
|
|
133,673 |
|
|
|
40,151 |
|
|
|
|
|
|
|
622,992 |
|
Property , plant and equipment, net |
|
|
3,836,241 |
|
|
|
336,603 |
|
|
|
39,469 |
|
|
|
|
|
|
|
4,212,313 |
|
Intangible assets, net |
|
|
1,039,337 |
|
|
|
51,769 |
|
|
|
45,261 |
|
|
|
|
|
|
|
1,136,367 |
|
Assets discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,318,900 |
|
|
|
1,318,900 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,554,128 |
|
|
|
1,554,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
|
|
704,455 |
|
|
|
103,134 |
|
|
|
43,527 |
|
|
|
4,258,667 |
|
|
|
5,109,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flat steel |
|
|
Long steel |
|
|
|
|
|
|
|
|
|
|
|
|
products |
|
|
products |
|
|
Other |
|
|
Unallocated |
|
|
Total |
|
Year ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
4,731,715 |
|
|
|
772,829 |
|
|
|
128,822 |
|
|
|
|
|
|
|
5,633,366 |
|
Cost of sales |
|
|
(3,633,368 |
) |
|
|
(581,123 |
) |
|
|
(73,180 |
) |
|
|
|
|
|
|
(4,287,671 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,098,347 |
|
|
|
191,706 |
|
|
|
55,642 |
|
|
|
|
|
|
|
1,345,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
(439,170 |
) |
|
|
(66,513 |
) |
|
|
(11,750 |
) |
|
|
|
|
|
|
(517,433 |
) |
Other operating income, net |
|
|
4,970 |
|
|
|
4,044 |
|
|
|
(500 |
) |
|
|
|
|
|
|
8,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
664,147 |
|
|
|
129,237 |
|
|
|
43,392 |
|
|
|
|
|
|
|
836,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures PP&E |
|
|
285,858 |
|
|
|
21,463 |
|
|
|
1,277 |
|
|
|
|
|
|
|
308,598 |
|
Depreciation PP&E |
|
|
264,382 |
|
|
|
37,741 |
|
|
|
7,733 |
|
|
|
|
|
|
|
309,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net |
|
|
1,345,386 |
|
|
|
91,170 |
|
|
|
12,917 |
|
|
|
|
|
|
|
1,449,473 |
|
Trade receivables, net |
|
|
553,692 |
|
|
|
87,237 |
|
|
|
18,542 |
|
|
|
|
|
|
|
659,471 |
|
Property , plant and equipment, net |
|
|
4,398,526 |
|
|
|
360,529 |
|
|
|
42,309 |
|
|
|
|
|
|
|
4,801,364 |
|
Intangible assets, net |
|
|
1,319,544 |
|
|
|
63,506 |
|
|
|
53,539 |
|
|
|
|
|
|
|
1,436,589 |
|
Assets discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,599,667 |
|
|
|
3,599,667 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,702,518 |
|
|
|
1,702,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
853,722 |
|
|
|
853,722 |
|
Other liabilities |
|
|
704,292 |
|
|
|
127,252 |
|
|
|
29,448 |
|
|
|
5,676,445 |
|
|
|
6,537,437 |
|
- 26 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
5 Segment information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flat steel |
|
|
Long Steel |
|
|
|
|
|
|
|
|
|
|
|
|
products |
|
|
products |
|
|
Other |
|
|
Unallocated |
|
|
Total |
|
Year ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
3,593,053 |
|
|
|
739,919 |
|
|
|
151,946 |
|
|
|
|
|
|
|
4,484,918 |
|
Cost of sales |
|
|
(2,519,689 |
) |
|
|
(537,001 |
) |
|
|
(50,939 |
) |
|
|
|
|
|
|
(3,107,629 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,073,364 |
|
|
|
202,918 |
|
|
|
101,007 |
|
|
|
|
|
|
|
1,377,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
(297,647 |
) |
|
|
(54,196 |
) |
|
|
(18,884 |
) |
|
|
|
|
|
|
(370,727 |
) |
Other operating expenses, net |
|
|
(7,687 |
) |
|
|
1,479 |
|
|
|
1,469 |
|
|
|
|
|
|
|
(4,739 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
768,030 |
|
|
|
150,201 |
|
|
|
83,592 |
|
|
|
|
|
|
|
1,001,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures PP&E |
|
|
293,815 |
|
|
|
1,372 |
|
|
|
3,705 |
|
|
|
|
|
|
|
298,892 |
|
Depreciation PP&E |
|
|
202,323 |
|
|
|
25,411 |
|
|
|
7,638 |
|
|
|
|
|
|
|
235,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net |
|
|
822,533 |
|
|
|
53,212 |
|
|
|
20,843 |
|
|
|
|
|
|
|
896,588 |
|
Trade receivables, net |
|
|
303,774 |
|
|
|
100,219 |
|
|
|
22,995 |
|
|
|
|
|
|
|
426,988 |
|
Property, plant and equipment, net |
|
|
2,941,125 |
|
|
|
254,724 |
|
|
|
50,608 |
|
|
|
|
|
|
|
3,246,457 |
|
Intangible assets, net |
|
|
416,120 |
|
|
|
60,608 |
|
|
|
57,149 |
|
|
|
|
|
|
|
533,877 |
|
Assets discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,779,054 |
|
|
|
2,779,054 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
775,289 |
|
|
|
775,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
730,999 |
|
|
|
730,999 |
|
Other liabilities |
|
|
554,598 |
|
|
|
68,408 |
|
|
|
22,315 |
|
|
|
1,898,256 |
|
|
|
2,543,577 |
|
Secondary reporting format geographical segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South and |
|
|
|
|
|
|
|
|
|
|
|
|
Central |
|
|
North |
|
|
Europe and |
|
|
|
|
|
|
America |
|
|
America |
|
|
other |
|
|
Total |
|
Year ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
3,107,510 |
|
|
|
5,230,126 |
|
|
|
127,249 |
|
|
|
8,464,885 |
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net |
|
|
176,348 |
|
|
|
425,163 |
|
|
|
21,481 |
|
|
|
622,992 |
|
Property, plant and equipment |
|
|
1,424,382 |
|
|
|
2,787,903 |
|
|
|
28 |
|
|
|
4,212,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation PP&E |
|
|
132,891 |
|
|
|
200,843 |
|
|
|
27 |
|
|
|
333,761 |
|
Capital expenditures PP&E |
|
|
325,496 |
|
|
|
218,753 |
|
|
|
8 |
|
|
|
544,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
2,150,717 |
|
|
|
3,340,982 |
|
|
|
141,667 |
|
|
|
5,633,366 |
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net |
|
|
57,625 |
|
|
|
589,418 |
|
|
|
12,428 |
|
|
|
659,471 |
|
Property, plant and equipment |
|
|
1,363,016 |
|
|
|
3,438,298 |
|
|
|
50 |
|
|
|
4,801,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation PP&E |
|
|
127,314 |
|
|
|
182,504 |
|
|
|
38 |
|
|
|
309,856 |
|
Capital expenditures PP&E |
|
|
140,259 |
|
|
|
168,339 |
|
|
|
|
|
|
|
308,598 |
|
- 27 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
5 Segment information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South and |
|
|
|
|
|
|
|
|
|
|
|
|
Central |
|
|
North |
|
|
Europe and |
|
|
|
|
|
|
America |
|
|
America |
|
|
other |
|
|
Total |
|
|
Year ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
1,727,584 |
|
|
|
2,686,789 |
|
|
|
70,545 |
|
|
|
4,484,918 |
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables, net |
|
|
86,148 |
|
|
|
321,523 |
|
|
|
19,316 |
|
|
|
426,987 |
|
Property, plant and equipment |
|
|
1,361,602 |
|
|
|
1,884,767 |
|
|
|
87 |
|
|
|
3,246,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation PP&E |
|
|
108,119 |
|
|
|
127,209 |
|
|
|
44 |
|
|
|
235,372 |
|
Capital expenditures PP&E |
|
|
208,620 |
|
|
|
90,269 |
|
|
|
2 |
|
|
|
298,891 |
|
6 Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Inventories at the beginning of the year |
|
|
1,904,489 |
|
|
|
|
|
|
|
1,233,629 |
|
|
|
|
|
|
|
991,573 |
|
|
|
|
|
Adjustments corresponding to inventories from
discontinued operations |
|
|
(455,013 |
) |
|
|
1,449,476 |
|
|
|
(337,041 |
) |
|
|
896,588 |
|
|
|
(301,162 |
) |
|
|
690,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
501,304 |
|
|
|
|
|
|
|
8,180 |
|
Translation differences |
|
|
|
|
|
|
(440,685 |
) |
|
|
|
|
|
|
(11,571 |
) |
|
|
|
|
|
|
(8,703 |
) |
Plus: Charges for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials and consumables used and other
movements |
|
|
|
|
|
|
5,374,363 |
|
|
|
|
|
|
|
3,313,355 |
|
|
|
|
|
|
|
2,455,678 |
|
Services and fees |
|
|
|
|
|
|
154,176 |
|
|
|
|
|
|
|
118,819 |
|
|
|
|
|
|
|
87,772 |
|
Labor cost |
|
|
|
|
|
|
481,057 |
|
|
|
|
|
|
|
348,027 |
|
|
|
|
|
|
|
282,072 |
|
Depreciation of property, plant and equipment |
|
|
|
|
|
|
328,260 |
|
|
|
|
|
|
|
300,161 |
|
|
|
|
|
|
|
230,228 |
|
Amortization of intangible assets |
|
|
|
|
|
|
19,023 |
|
|
|
|
|
|
|
17,434 |
|
|
|
|
|
|
|
14,343 |
|
Maintenance expenses |
|
|
|
|
|
|
277,753 |
|
|
|
|
|
|
|
224,697 |
|
|
|
|
|
|
|
189,535 |
|
Office expenses |
|
|
|
|
|
|
8,347 |
|
|
|
|
|
|
|
6,770 |
|
|
|
|
|
|
|
6,104 |
|
Freight and transportation |
|
|
|
|
|
|
37,735 |
|
|
|
|
|
|
|
30,899 |
|
|
|
|
|
|
|
25,451 |
|
Insurance |
|
|
|
|
|
|
8,695 |
|
|
|
|
|
|
|
6,076 |
|
|
|
|
|
|
|
5,753 |
|
Provision (Recovery) of obsolescence allowance |
|
|
|
|
|
|
82,206 |
|
|
|
|
|
|
|
(2,965 |
) |
|
|
|
|
|
|
20,849 |
|
Provision of valuation allowance |
|
|
|
|
|
|
199,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery from sales of scrap and by-products |
|
|
|
|
|
|
(60,379 |
) |
|
|
|
|
|
|
(69,394 |
) |
|
|
|
|
|
|
(34,107 |
) |
Others |
|
|
|
|
|
|
34,575 |
|
|
|
|
|
|
|
56,947 |
|
|
|
|
|
|
|
30,651 |
|
Less: Inventories at the end of the year |
|
|
(1,826,547 |
) |
|
|
|
|
|
|
(1,904,489 |
) |
|
|
|
|
|
|
(1,233,629 |
) |
|
|
|
|
Adjustments corresponding to inventories from
discontinued operations |
|
|
|
|
|
|
(1,826,547 |
) |
|
|
455,013 |
|
|
|
(1,449,476 |
) |
|
|
337,041 |
|
|
|
(896,588 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
|
|
|
|
|
6,128,027 |
|
|
|
|
|
|
|
4,287,671 |
|
|
|
|
|
|
|
3,107,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 28 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
7 Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Services and fees |
|
|
65,221 |
|
|
|
50,480 |
|
|
|
37,990 |
|
Labor cost |
|
|
199,304 |
|
|
|
159,027 |
|
|
|
109,548 |
|
Depreciation of property plant and equipment |
|
|
5,501 |
|
|
|
9,695 |
|
|
|
5,144 |
|
Amortization of intangible assets |
|
|
60,757 |
|
|
|
27,981 |
|
|
|
1,656 |
|
Maintenance and expenses |
|
|
7,737 |
|
|
|
11,629 |
|
|
|
10,833 |
|
Taxes |
|
|
79,286 |
|
|
|
61,123 |
|
|
|
49,879 |
|
Office expenses |
|
|
32,682 |
|
|
|
22,362 |
|
|
|
22,236 |
|
Freight and transportation |
|
|
189,848 |
|
|
|
155,929 |
|
|
|
124,359 |
|
Increase (Decrease) of allowance for doubtful accounts |
|
|
2,861 |
|
|
|
(915 |
) |
|
|
(5,611 |
) |
Others |
|
|
26,276 |
|
|
|
20,122 |
|
|
|
14,693 |
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
669,473 |
|
|
|
517,433 |
|
|
|
370,727 |
|
|
|
|
|
|
|
|
|
|
|
8 Labor costs (included in cost of sales, selling, general and administrative expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Wages, salaries and social security costs |
|
|
636,018 |
|
|
|
448,360 |
|
|
|
342,684 |
|
Termination benefits |
|
|
22,604 |
|
|
|
39,992 |
|
|
|
17,022 |
|
Pension benefits (Note 24 (i)) |
|
|
21,739 |
|
|
|
18,702 |
|
|
|
31,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
680,361 |
|
|
|
507,054 |
|
|
|
391,620 |
|
|
|
|
|
|
|
|
|
|
|
9 Other operating income (expenses), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) Other operating income |
|
|
|
|
|
|
|
|
|
|
|
|
Gains from the sale of sundry assets |
|
|
5,535 |
|
|
|
12,419 |
|
|
|
|
|
Others |
|
|
13,177 |
|
|
|
7,068 |
|
|
|
12,390 |
|
|
|
|
|
|
|
|
|
|
|
Total other operating income |
|
|
18,712 |
|
|
|
19,487 |
|
|
|
12,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii) Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for legal claims and other matters (Note 21) |
|
|
(2,358 |
) |
|
|
(2,995 |
) |
|
|
(2,772 |
) |
Others |
|
|
(7,692 |
) |
|
|
(7,978 |
) |
|
|
(1,227 |
) |
|
|
|
|
|
|
|
|
|
|
Total other operating expenses |
|
|
(10,050 |
) |
|
|
(10,973 |
) |
|
|
(3,999 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(iii) Derecognition of property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
(13,130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating income (expenses), net |
|
|
8,662 |
|
|
|
8,514 |
|
|
|
(4,739 |
) |
|
|
|
|
|
|
|
|
|
|
10 Other financial expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Debt issue costs |
|
|
(11,314 |
) |
|
|
(9,061 |
) |
|
|
(13,764 |
) |
Net foreign exchange loss (i) |
|
|
(632,735 |
) |
|
|
(18,436 |
) |
|
|
(4,165 |
) |
Change in fair value of derivative instruments |
|
|
(32,480 |
) |
|
|
2,477 |
|
|
|
(10,480 |
) |
Others |
|
|
(16,663 |
) |
|
|
(13,478 |
) |
|
|
(12,023 |
) |
|
|
|
|
|
|
|
|
|
|
Other financial expenses, net |
|
|
(693,192 |
) |
|
|
(38,498 |
) |
|
|
(40,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
In fiscal year 2008, includes USD 628.6 million corresponding to the exchange loss derived
from the USD denominated borrowings held by Ternium Mexico. The outstanding balance of Ternium
Mexicos USD denominated loans at December 31, 2008 amounts to USD 2,968.0 million. |
- 29 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
11 Income tax expense
Income tax
Income tax expense for each of the years presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 (1) |
|
|
2007 |
|
|
2006 |
|
Current tax |
|
|
(502,424 |
) |
|
|
(272,004 |
) |
|
|
(390,031 |
) |
Deferred tax (Note 23) |
|
|
300,614 |
|
|
|
(20,109 |
) |
|
|
23,020 |
|
Effect of change in fair value of cash flow hedge |
|
|
(23,122 |
) |
|
|
|
|
|
|
|
|
Recovery of income tax |
|
|
62,228 |
|
|
|
|
|
|
|
|
|
Utilization of previously unrecognized tax losses (Note 23) |
|
|
|
|
|
|
768 |
|
|
|
13,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(162,704 |
) |
|
|
(291,345 |
) |
|
|
(353,044 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the reversal of deferred statutory profit sharing. |
Income tax expense for the years ended December 31, 2008, 2007 and 2006 differed from the amount
computed by applying the statutory income tax rate in force in each country in which the company
operates to pre-tax income as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Income before income tax |
|
|
880,772 |
|
|
|
707,216 |
|
|
|
899,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense at statutory tax rate |
|
|
(238,822 |
) |
|
|
(342,932 |
) |
|
|
(396,319 |
) |
Non taxable income |
|
|
40,785 |
|
|
|
58,885 |
|
|
|
68,890 |
|
Non deductible expenses |
|
|
(16,411 |
) |
|
|
(3,608 |
) |
|
|
(39,582 |
) |
Recovery of income tax |
|
|
62,228 |
|
|
|
|
|
|
|
|
|
Recovery for tax loss carry-forwards |
|
|
|
|
|
|
768 |
|
|
|
13,967 |
|
Provisions for tax loss carry-forwards |
|
|
(10,484 |
) |
|
|
(4,458 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
(162,704 |
) |
|
|
(291,345 |
) |
|
|
(353,044 |
) |
|
|
|
|
|
|
|
|
|
|
- 30 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
12 Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicles, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Production |
|
|
furniture |
|
|
Work in |
|
|
Spare |
|
|
|
|
|
|
Land |
|
|
improvements |
|
|
equipment |
|
|
and fixtures |
|
|
progress |
|
|
Parts |
|
|
Total |
|
Year ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
523,693 |
|
|
|
2,011,957 |
|
|
|
6,280,864 |
|
|
|
200,070 |
|
|
|
348,776 |
|
|
|
70,425 |
|
|
|
9,435,785 |
|
|
Adjustments corresponding to property,
plant and equipment from discontinued
operations |
|
|
(53,818 |
) |
|
|
(396,730 |
) |
|
|
(1,711,972 |
) |
|
|
(30,522 |
) |
|
|
(114,576 |
) |
|
|
(37,564 |
) |
|
|
(2,345,182 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
469,875 |
|
|
|
1,615,227 |
|
|
|
4,568,892 |
|
|
|
169,548 |
|
|
|
234,200 |
|
|
|
32,861 |
|
|
|
7,090,603 |
|
Translation differences |
|
|
(92,813 |
) |
|
|
(209,698 |
) |
|
|
(672,121 |
) |
|
|
(19,124 |
) |
|
|
(67,714 |
) |
|
|
(2,890 |
) |
|
|
(1,064,360 |
) |
Additions |
|
|
35,171 |
|
|
|
11,969 |
|
|
|
929 |
|
|
|
4,453 |
|
|
|
481,514 |
|
|
|
10,221 |
|
|
|
544,257 |
|
Disposals / Consumptions |
|
|
(146 |
) |
|
|
(24 |
) |
|
|
(5,317 |
) |
|
|
(3,160 |
) |
|
|
(167 |
) |
|
|
|
|
|
|
(8,814 |
) |
Transfers |
|
|
|
|
|
|
119,373 |
|
|
|
137,954 |
|
|
|
10,456 |
|
|
|
(267,783 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at the end of the year |
|
|
412,087 |
|
|
|
1,536,847 |
|
|
|
4,030,337 |
|
|
|
162,173 |
|
|
|
380,050 |
|
|
|
40,192 |
|
|
|
6,561,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at the beginning of the year |
|
|
|
|
|
|
(552,077 |
) |
|
|
(1,968,257 |
) |
|
|
(136,581 |
) |
|
|
|
|
|
|
(2,239 |
) |
|
|
(2,659,154 |
) |
|
Adjustments corresponding to property,
plant and equipment from discontinued
operations |
|
|
|
|
|
|
39,793 |
|
|
|
323,548 |
|
|
|
6,572 |
|
|
|
|
|
|
|
|
|
|
|
369,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
|
|
|
|
(512,284 |
) |
|
|
(1,644,709 |
) |
|
|
(130,009 |
) |
|
|
|
|
|
|
(2,239 |
) |
|
|
(2,289,241 |
) |
Translation differences |
|
|
|
|
|
|
52,570 |
|
|
|
203,427 |
|
|
|
13,459 |
|
|
|
|
|
|
|
235 |
|
|
|
269,691 |
|
Depreciation charge |
|
|
|
|
|
|
(72,342 |
) |
|
|
(248,939 |
) |
|
|
(12,418 |
) |
|
|
|
|
|
|
(62 |
) |
|
|
(333,761 |
) |
Disposals / Consumptions |
|
|
|
|
|
|
|
|
|
|
1,907 |
|
|
|
2,031 |
|
|
|
|
|
|
|
|
|
|
|
3,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at the end of the year |
|
|
|
|
|
|
(532,056 |
) |
|
|
(1,688,314 |
) |
|
|
(126,937 |
) |
|
|
|
|
|
|
(2,066 |
) |
|
|
(2,349,373 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 |
|
|
412,087 |
|
|
|
1,004,791 |
|
|
|
2,342,023 |
|
|
|
35,236 |
|
|
|
380,050 |
|
|
|
38,126 |
|
|
|
4,212,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 31 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
12 Property, plant and equipment, net (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicles, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building and |
|
|
Production |
|
|
furniture |
|
|
Work in |
|
|
Spare |
|
|
|
|
|
|
Land |
|
|
improvements |
|
|
equipment |
|
|
and fixtures |
|
|
progress |
|
|
Parts |
|
|
Total |
|
Year ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
311,516 |
|
|
|
1,556,693 |
|
|
|
5,192,816 |
|
|
|
192,058 |
|
|
|
351,283 |
|
|
|
25,587 |
|
|
|
7,629,953 |
|
|
Adjustments corresponding to
property, plant and equipment from
discontinued operations |
|
|
(53,818 |
) |
|
|
(395,057 |
) |
|
|
(1,715,554 |
) |
|
|
(29,673 |
) |
|
|
(66,415 |
) |
|
|
(11 |
) |
|
|
(2,260,528 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
257,698 |
|
|
|
1,161,636 |
|
|
|
3,477,262 |
|
|
|
162,385 |
|
|
|
284,868 |
|
|
|
25,576 |
|
|
|
5,369,425 |
|
Translation differences |
|
|
1,950 |
|
|
|
(24,143 |
) |
|
|
(45,612 |
) |
|
|
(3,766 |
) |
|
|
(3,166 |
) |
|
|
(719 |
) |
|
|
(75,456 |
) |
Acquisition of business |
|
|
203,586 |
|
|
|
222,134 |
|
|
|
1,102,553 |
|
|
|
9,520 |
|
|
|
62,791 |
|
|
|
1,814 |
|
|
|
1,602,398 |
|
Additions |
|
|
317 |
|
|
|
8,193 |
|
|
|
277 |
|
|
|
2,707 |
|
|
|
290,914 |
|
|
|
6,190 |
|
|
|
308,598 |
|
Disposals / Consumptions |
|
|
(153 |
) |
|
|
(4,848 |
) |
|
|
(72,591 |
) |
|
|
(3,088 |
) |
|
|
(3,904 |
) |
|
|
|
|
|
|
(84,584 |
) |
Transfers |
|
|
6,477 |
|
|
|
252,255 |
|
|
|
107,002 |
|
|
|
1,790 |
|
|
|
(397,303 |
) |
|
|
|
|
|
|
(29,779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments corresponding to property,
plant and equipment from discontinued
operations, at the end of the year |
|
|
53,818 |
|
|
|
396,730 |
|
|
|
1,711,972 |
|
|
|
30,522 |
|
|
|
114,576 |
|
|
|
37,564 |
|
|
|
2,345,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at the end of the year |
|
|
523,693 |
|
|
|
2,011,957 |
|
|
|
6,280,863 |
|
|
|
200,070 |
|
|
|
348,776 |
|
|
|
70,425 |
|
|
|
9,435,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at the beginning of the year |
|
|
|
|
|
|
(463,372 |
) |
|
|
(1,701,880 |
) |
|
|
(128,737 |
) |
|
|
|
|
|
|
(934 |
) |
|
|
(2,294,923 |
) |
|
Adjustments corresponding to
property, plant and equipment
from discontinued operations |
|
|
|
|
|
|
9,668 |
|
|
|
158,240 |
|
|
|
4,008 |
|
|
|
|
|
|
|
39 |
|
|
|
171,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
|
|
|
|
(453,704 |
) |
|
|
(1,543,640 |
) |
|
|
(124,729 |
) |
|
|
|
|
|
|
(895 |
) |
|
|
(2,122,968 |
) |
Translation differences |
|
|
|
|
|
|
13,078 |
|
|
|
40,504 |
|
|
|
3,290 |
|
|
|
|
|
|
|
20 |
|
|
|
56,892 |
|
Depreciation charge |
|
|
|
|
|
|
(74,232 |
) |
|
|
(223,302 |
) |
|
|
(10,958 |
) |
|
|
|
|
|
|
(1,364 |
) |
|
|
(309,856 |
) |
Disposals / Consumptions |
|
|
|
|
|
|
2,846 |
|
|
|
62,389 |
|
|
|
2,190 |
|
|
|
|
|
|
|
|
|
|
|
67,425 |
|
Transfers |
|
|
|
|
|
|
(272 |
) |
|
|
19,340 |
|
|
|
198 |
|
|
|
|
|
|
|
|
|
|
|
19,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments corresponding to property,
plant and equipment from discontinued
operations, at the end of the year |
|
|
|
|
|
|
(39,793 |
) |
|
|
(323,548 |
) |
|
|
(6,572 |
) |
|
|
|
|
|
|
|
|
|
|
(369,913 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at the end of the year |
|
|
|
|
|
|
(552,077 |
) |
|
|
(1,968,257 |
) |
|
|
(136,581 |
) |
|
|
|
|
|
|
(2,239 |
) |
|
|
(2,659,154 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007 |
|
|
523,693 |
|
|
|
1,459,880 |
|
|
|
4,312,606 |
|
|
|
63,489 |
|
|
|
348,776 |
|
|
|
68,186 |
|
|
|
6,776,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 32 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
13 Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining |
|
|
Relationships |
|
|
|
|
|
|
|
|
|
|
|
|
Information |
|
|
Concessions and |
|
|
and other |
|
|
|
|
|
|
|
|
|
|
|
|
System |
|
|
Exploration |
|
|
contractual |
|
|
|
|
|
|
|
|
|
|
|
|
Projects |
|
|
Costs |
|
|
rights |
|
|
Trademarks |
|
|
Goodwill |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
108,360 |
|
|
|
127,434 |
|
|
|
378,059 |
|
|
|
78,420 |
|
|
|
850,702 |
|
|
|
1,542,975 |
|
|
Adjustments corresponding to intangible assets from discontinued operations |
|
|
(26,792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
81,568 |
|
|
|
127,434 |
|
|
|
378,059 |
|
|
|
78,420 |
|
|
|
850,702 |
|
|
|
1,516,183 |
|
Translation differences |
|
|
(14,383 |
) |
|
|
(27,722 |
) |
|
|
(65,728 |
) |
|
|
(14,808 |
) |
|
|
(167,000 |
) |
|
|
(289,641 |
) |
Additions |
|
|
30,173 |
|
|
|
13,128 |
|
|
|
346 |
|
|
|
|
|
|
|
|
|
|
|
43,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at the end of the year |
|
|
97,358 |
|
|
|
112,840 |
|
|
|
312,677 |
|
|
|
63,612 |
|
|
|
683,702 |
|
|
|
1,270,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at the beginning of the year |
|
|
(52,215 |
) |
|
|
(21,394 |
) |
|
|
(13,809 |
) |
|
|
(6,237 |
) |
|
|
|
|
|
|
(93,655 |
) |
Adjustments corresponding to intangible assets from discontinued operations |
|
|
14,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
(38,154 |
) |
|
|
(21,394 |
) |
|
|
(13,809 |
) |
|
|
(6,237 |
) |
|
|
|
|
|
|
(79,594 |
) |
Translation differences |
|
|
6,853 |
|
|
|
5,870 |
|
|
|
9,056 |
|
|
|
3,773 |
|
|
|
|
|
|
|
25,552 |
|
Amortization charge |
|
|
(18,844 |
) |
|
|
(8,905 |
) |
|
|
(37,263 |
) |
|
|
(14,768 |
) |
|
|
|
|
|
|
(79,780 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at the end of the year |
|
|
(50,145 |
) |
|
|
(24,429 |
) |
|
|
(42,016 |
) |
|
|
(17,232 |
) |
|
|
|
|
|
|
(133,822 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 |
|
|
47,213 |
|
|
|
88,411 |
|
|
|
270,661 |
|
|
|
46,380 |
|
|
|
683,702 |
|
|
|
1,136,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 33 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
13 Intangible assets, net (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining |
|
|
Customer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concessions |
|
|
Relationships |
|
|
|
|
|
|
|
|
|
|
|
|
Information |
|
|
and |
|
|
and other |
|
|
|
|
|
|
|
|
|
|
|
|
System |
|
|
Exploration |
|
|
contractual |
|
|
|
|
|
|
|
|
|
|
|
|
Projects |
|
|
Costs |
|
|
rights |
|
|
Trademarks |
|
|
Goodwill |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
68,817 |
|
|
|
126,819 |
|
|
|
|
|
|
|
|
|
|
|
397,943 |
|
|
|
593,579 |
|
Adjustments corresponding to intangible assets from discontinued operations |
|
|
(23,971 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,971 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
44,846 |
|
|
|
126,819 |
|
|
|
|
|
|
|
|
|
|
|
397,943 |
|
|
|
569,608 |
|
Translation differences |
|
|
(195 |
) |
|
|
(107 |
) |
|
|
1,169 |
|
|
|
850 |
|
|
|
(3,017 |
) |
|
|
(1,300 |
) |
Acquisition of business (see note 3) |
|
|
5,895 |
|
|
|
|
|
|
|
372,939 |
|
|
|
77,570 |
|
|
|
455,776 |
|
|
|
912,180 |
|
Additions |
|
|
31,022 |
|
|
|
722 |
|
|
|
3,951 |
|
|
|
|
|
|
|
|
|
|
|
35,695 |
|
Adjustments corresponding to intangible assets from discontinued
operations,
at the end of the year |
|
|
26,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at the end of the year |
|
|
108,360 |
|
|
|
127,434 |
|
|
|
378,059 |
|
|
|
78,420 |
|
|
|
850,702 |
|
|
|
1,542,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at the beginning of the year |
|
|
(31,367 |
) |
|
|
(12,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,240 |
) |
Adjustments corresponding to intangible assets from discontinued operations |
|
|
8,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
(22,858 |
) |
|
|
(12,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,731 |
) |
Translation differences |
|
|
664 |
|
|
|
(59 |
) |
|
|
980 |
|
|
|
(33 |
) |
|
|
|
|
|
|
1,552 |
|
Amortization charge |
|
|
(15,960 |
) |
|
|
(8,462 |
) |
|
|
(14,789 |
) |
|
|
(6,204 |
) |
|
|
|
|
|
|
(45,415 |
) |
Adjustments corresponding to intangible assets from discontinued
operations,
at the end of the year |
|
|
(14,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at the end of the year |
|
|
(52,215 |
) |
|
|
(21,394 |
) |
|
|
(13,809 |
) |
|
|
(6,237 |
) |
|
|
|
|
|
|
(93,655 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007 |
|
|
56,145 |
|
|
|
106,040 |
|
|
|
364,250 |
|
|
|
72,183 |
|
|
|
850,702 |
|
|
|
1,449,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 Investments in associated companies
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2008 |
|
|
2007 |
|
At the beginning of the year |
|
|
44,042 |
|
|
|
16,284 |
|
Adjustments corresponding to investments in associated
companies from discontinued operations |
|
|
(40,227 |
) |
|
|
(12,866 |
) |
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
3,815 |
|
|
|
3,418 |
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
|
(81 |
) |
|
|
(37 |
) |
Equity in earnings of associated companies |
|
|
1,851 |
|
|
|
434 |
|
|
|
|
|
|
|
|
|
|
Adjustments corresponding to investments in associated companies
from discontinued operations, at the end of the year |
|
|
|
|
|
|
40,227 |
|
|
|
|
|
|
|
|
|
At the end of the year |
|
|
5,585 |
|
|
|
44,042 |
|
|
|
|
|
|
|
|
- 34 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
14 Investments in associated companies (continued)
The principal associated companies, all of which are unlisted, are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voting rights |
|
|
|
|
|
|
Country of |
|
|
at December 31, |
|
|
Value at December 31, |
|
Company |
|
incorporation |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Lomond Holdings BV. (1) |
|
Netherlands |
|
|
50.00 |
% |
|
|
50.00 |
% |
|
|
4,287 |
|
|
|
2,893 |
|
Matesi Materiales Siderúrgicos S.A. (2) |
|
Venezuela |
|
|
|
|
|
|
49.80 |
% |
|
|
|
|
|
|
40,227 |
|
Compañía Afianzadora de Empresas
Siderúrgicas S.G.R. (3) |
|
Argentina |
|
|
38.89 |
% |
|
|
38.89 |
% |
|
|
86 |
|
|
|
95 |
|
Finma S.A.I.F. (4) |
|
Argentina |
|
|
33.33 |
% |
|
|
33.33 |
% |
|
|
1,212 |
|
|
|
827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,585 |
|
|
|
44,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Holding Company. Indirectly through the participation in Alvory S.A. |
|
(2) |
|
See note 29 (ii). |
|
(3) |
|
Granting of guarantees to participating partners to facilitate or permit access to
credits for purchase of national raw material. Indirectly through the participation in
Siderar. |
|
(4) |
|
Consulting and financial services. Indirectly through the participation in Siderar. |
15 Other investments, net non-current
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2008 |
|
|
2007 |
|
Time deposits with related parties (i) (Note 30) |
|
|
15,075 |
|
|
|
12,673 |
|
Guarantee fund Compañía Afianzadora de Empresas Siderúgicas S.G.R. (ii) |
|
|
1,680 |
|
|
|
1,842 |
|
Others |
|
|
193 |
|
|
|
300 |
|
|
|
|
|
|
|
|
Total |
|
|
16,948 |
|
|
|
14,815 |
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Time deposits with related parties |
The Company holds a savings fund denominated in U.S. dollars. Withdrawal of investments before
certain dates is subject to penalties on amounts invested.
|
|
|
(ii) |
|
Guarantee fund Compañía Afianzadora de Empresas Siderúrgicas S.G.R. |
Corresponds to the Companys portion of the risk funds sponsored by Compañía Afianzadora de
Empresas Siderúrgicas S.G.R., which acts as guarantor of third parties debts.
16 Receivables, net non-current
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2008 |
|
|
2007 |
|
Receivables with related parties (Note 30) |
|
|
492 |
|
|
|
35,949 |
|
Employee advances and loans |
|
|
16,371 |
|
|
|
13,078 |
|
Advances to suppliers for property, plant and equipment |
|
|
48,690 |
|
|
|
13,582 |
|
Advances to suppliers for property, plant and equipment with related parties |
|
|
22,422 |
|
|
|
5,303 |
|
Income tax credit paid on business acquisition (Note 3 (a)) |
|
|
|
|
|
|
138,700 |
|
Tax credits |
|
|
|
|
|
|
14,810 |
|
Others |
|
|
32,390 |
|
|
|
15,613 |
|
Allowance for doubtful accounts (Note 21 ) |
|
|
(170 |
) |
|
|
(512 |
) |
|
|
|
|
|
|
|
|
|
|
120,195 |
|
|
|
236,523 |
|
|
|
|
|
|
|
|
- 35 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
17 Receivables current
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2008 |
|
|
2007 |
|
Value added tax |
|
|
87,113 |
|
|
|
23,073 |
|
Tax credits |
|
|
80,280 |
|
|
|
118,858 |
|
Income tax credit paid on business acquisition (Note 3 (a)) |
|
|
28,214 |
|
|
|
84,000 |
|
Employee advances and loans |
|
|
7,300 |
|
|
|
16,918 |
|
Advances to suppliers |
|
|
9,157 |
|
|
|
38,019 |
|
Advances to suppliers with related parties (Note 30) |
|
|
4,878 |
|
|
|
2,088 |
|
Expenses paid in advance |
|
|
3,770 |
|
|
|
14,226 |
|
Government tax refunds on exports |
|
|
6,520 |
|
|
|
56,056 |
|
Receivables with related parties (Note 30) |
|
|
2,543 |
|
|
|
21,667 |
|
Others |
|
|
19,216 |
|
|
|
30,126 |
|
|
|
|
|
|
|
|
|
|
|
248,991 |
|
|
|
405,031 |
|
|
|
|
|
|
|
|
18 Inventories, net
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2008 |
|
|
2007 |
|
Raw materials, materials and spare parts
|
|
|
708,333 |
|
|
|
723,875 |
|
Goods in process |
|
|
1,069,904 |
|
|
|
672,656 |
|
Finished goods |
|
|
315,670 |
|
|
|
360,526 |
|
Goods in transit |
|
|
18,458 |
|
|
|
229,934 |
|
Obsolescence allowance (Note 22) |
|
|
(124,883 |
) |
|
|
(82,502 |
) |
Valuation allowance (Note 22) |
|
|
(160,935 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,826,547 |
|
|
|
1,904,489 |
|
|
|
|
|
|
|
|
19 Trade receivables, net
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2008 |
|
|
2007 |
|
Current accounts |
|
|
627,451 |
|
|
|
823,540 |
|
Trade receivables with related parties (Note 30) |
|
|
18,891 |
|
|
|
28,977 |
|
Allowance for doubtful accounts (Note 22) |
|
|
(23,350 |
) |
|
|
(26,964 |
) |
|
|
|
|
|
|
|
|
|
|
622,992 |
|
|
|
825,553 |
|
|
|
|
|
|
|
|
20 Cash, cash equivalents and other investments
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2008 |
|
|
2007 |
|
(i) Other investments |
|
|
|
|
|
|
|
|
Deposits (due in more than 90 days) |
|
|
90,008 |
|
|
|
65,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii) Cash and cash equivalents |
|
|
|
|
|
|
|
|
Cash at banks and deposits (due in less than 90 days) |
|
|
1,065,552 |
|
|
|
1,125,830 |
|
|
|
|
|
|
|
|
- 36 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
21 Allowances and Provisions non current
|
|
|
|
|
|
|
|
|
|
|
Deducted from |
|
|
|
|
|
|
assets |
|
|
Liabilities |
|
|
|
Allowance for |
|
|
Legal claims |
|
|
|
doubtful |
|
|
and |
|
|
|
accounts |
|
|
other matters |
|
Year ended December 31, 2008 |
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
512 |
|
|
|
57,345 |
|
Adjustments corresponding to allowances from discontinued operations |
|
|
|
|
|
|
(30,426 |
) |
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
512 |
|
|
|
26,919 |
|
|
Translation differences |
|
|
(20 |
) |
|
|
(3,662 |
) |
Additions |
|
|
|
|
|
|
11,359 |
|
Reversals |
|
|
(322 |
) |
|
|
(9,001 |
) |
Uses |
|
|
|
|
|
|
(1,215 |
) |
|
|
|
|
|
|
|
At December 31, 2008 |
|
|
170 |
|
|
|
24,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007 |
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
1,373 |
|
|
|
60,543 |
|
Adjustments corresponding to allowances from discontinued operations |
|
|
|
|
|
|
(44,857 |
) |
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
1,373 |
|
|
|
15,686 |
|
|
Translation differences |
|
|
(33 |
) |
|
|
(317 |
) |
Acquisition of business |
|
|
|
|
|
|
10,011 |
|
Additions |
|
|
|
|
|
|
3,432 |
|
Reversals |
|
|
(828 |
) |
|
|
(437 |
) |
Uses |
|
|
|
|
|
|
(1,456 |
) |
|
Adjustments corresponding to allowances from discontinued operations,
at the end of the year |
|
|
|
|
|
|
30,426 |
|
|
|
|
|
|
|
|
At December 31, 2007 |
|
|
512 |
|
|
|
57,345 |
|
|
|
|
|
|
|
|
- 37 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
22 Allowances current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from assets |
|
|
|
Allowance for |
|
|
|
|
|
|
|
|
|
doubtful |
|
|
Obsolescence |
|
|
Valuation |
|
|
|
accounts |
|
|
allowance |
|
|
allowance |
|
Year ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
26,964 |
|
|
|
82,502 |
|
|
|
|
|
Adjustments corresponding to allowances
from discontinued operations |
|
|
(867 |
) |
|
|
(14,754 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
26,097 |
|
|
|
67,748 |
|
|
|
|
|
|
Translation differences |
|
|
(2,478 |
) |
|
|
(19,149 |
) |
|
|
(39,037 |
) |
Reversals |
|
|
(3,931 |
) |
|
|
(40,084 |
) |
|
|
|
|
Additions |
|
|
7,113 |
|
|
|
122,209 |
|
|
|
199,972 |
|
Uses |
|
|
(3,451 |
) |
|
|
(5,841 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 |
|
|
23,350 |
|
|
|
124,883 |
|
|
|
160,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
25,083 |
|
|
|
78,779 |
|
|
|
|
|
Adjustments corresponding to allowances
from discontinued operations |
|
|
(2,359 |
) |
|
|
(19,882 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
22,724 |
|
|
|
58,897 |
|
|
|
|
|
|
Translation differences |
|
|
(221 |
) |
|
|
(548 |
) |
|
|
|
|
Acquisition of business |
|
|
4,616 |
|
|
|
14,357 |
|
|
|
|
|
Reversals |
|
|
(3,493 |
) |
|
|
(19,569 |
) |
|
|
|
|
Additions |
|
|
3,405 |
|
|
|
16,541 |
|
|
|
|
|
Uses |
|
|
(934 |
) |
|
|
(1,930 |
) |
|
|
|
|
|
Adjustments corresponding to allowances
from discontinued operations, at the end of the year |
|
|
867 |
|
|
|
14,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007 |
|
|
26,964 |
|
|
|
82,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 Deferred income tax
Deferred income taxes are calculated in full on temporary differences under the liability method
using the tax rate of the applicable country.
Changes in deferred income tax are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
At beginning of the year |
|
|
(1,295,975 |
) |
|
|
(945,652 |
) |
Adjustments corresponding to changes in
deferred income tax from discontinued
operations |
|
|
43,675 |
|
|
|
178,873 |
|
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
(1,252,300 |
) |
|
|
(766,779 |
) |
Acquisition of business |
|
|
|
|
|
|
(481,930 |
) |
Translation differences |
|
|
141,526 |
|
|
|
16,518 |
|
Income statement credit/(charge) |
|
|
300,614 |
|
|
|
(20,109 |
) |
Adjustments corresponding to changes in
deferred income tax from discontinued
operations, at the end of the year |
|
|
|
|
|
|
(43,675 |
) |
|
|
|
|
|
|
|
|
At end of the year |
|
|
(810,160 |
) |
|
|
(1,295,975 |
) |
|
|
|
|
|
|
|
- 38 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
23 Deferred income tax (continued)
The changes in deferred tax assets and liabilities (prior to offsetting the balances within the
same tax jurisdiction) during the year are as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at |
|
|
|
Fixed |
|
|
|
|
|
|
Intangible |
|
|
|
|
|
|
December 31, |
|
Deferred tax liabilities |
|
assets |
|
|
Inventories |
|
|
assets |
|
|
Other |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At beginning of year |
|
|
(1,131,205 |
) |
|
|
(166,163 |
) |
|
|
(146,993 |
) |
|
|
(60,937 |
) |
|
|
(1,505,298 |
) |
Adjustments corresponding to deferred
tax liabilities from discontinued
operations |
|
|
146,150 |
|
|
|
(21,778 |
) |
|
|
|
|
|
|
|
|
|
|
124,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
(985,055 |
) |
|
|
(187,941 |
) |
|
|
(146,993 |
) |
|
|
(60,937 |
) |
|
|
(1,380,926 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation differences |
|
|
131,059 |
|
|
|
6,937 |
|
|
|
19,592 |
|
|
|
7,900 |
|
|
|
165,488 |
|
Income statement credit/(charge) |
|
|
105,654 |
|
|
|
184,968 |
|
|
|
26,149 |
|
|
|
(26,206 |
) |
|
|
290,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of year |
|
|
(748,342 |
) |
|
|
3,964 |
|
|
|
(101,252 |
) |
|
|
(79,243 |
) |
|
|
(924,873 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax loss |
|
|
|
|
|
|
Total at |
|
|
|
|
|
|
|
Trade |
|
|
carry- |
|
|
|
|
|
|
December 31, |
|
Deferred tax assets |
|
Provisions |
|
|
Receivables |
|
|
forwards |
|
|
Other |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At beginning of year |
|
|
73,945 |
|
|
|
12,843 |
|
|
|
1,372 |
|
|
|
121,163 |
|
|
|
209,323 |
|
Adjustments corresponding to deferred
tax assets from discontinued
operations |
|
|
(6,634 |
) |
|
|
|
|
|
|
|
|
|
|
(74,063 |
) |
|
|
(80,697 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
67,311 |
|
|
|
12,843 |
|
|
|
1,372 |
|
|
|
47,100 |
|
|
|
128,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation differences |
|
|
(13,386 |
) |
|
|
(2,371 |
) |
|
|
|
|
|
|
(8,205 |
) |
|
|
(23,962 |
) |
Income statement credit (charge) |
|
|
18,302 |
|
|
|
(3,653 |
) |
|
|
(1,372 |
) |
|
|
(3,228 |
) |
|
|
10,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of year |
|
|
72,227 |
|
|
|
6,819 |
|
|
|
|
|
|
|
35,667 |
|
|
|
114,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities are offset when the entity a) has a legally enforceable right
to set off the recognized amounts; and b) intends to settle the tax on a net basis or to realize
the asset and settle the liability simultaneously.
As of December 31, 2008 and 2007, USD nil and USD 31,793, respectively, have been classified as
non-current assets and USD 810,160 and USD 1,327,768, respectively, have been classified as
non-current liabilities.
The amounts shown in the balance sheet include the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2008 |
|
|
2007 |
|
Deferred tax assets to be recovered after more than 12 months |
|
|
48,189 |
|
|
|
129,376 |
|
Deferred tax liabilities to be settled after more than 12 months |
|
|
(927,764 |
) |
|
|
(1,339,333 |
) |
|
|
|
|
|
|
|
|
|
|
(879,575 |
) |
|
|
(1,209,957 |
) |
|
|
|
|
|
|
|
- 39 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
24 Other liabilities
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2008 |
|
|
2007 |
|
(i) Other liabilities non-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination benefits |
|
|
4,187 |
|
|
|
8,723 |
|
Pension benefits |
|
|
125,700 |
|
|
|
317,050 |
|
Related Parties (Note 30) |
|
|
1,021 |
|
|
|
1,272 |
|
Other |
|
|
17,782 |
|
|
|
6,629 |
|
|
|
|
|
|
|
|
|
|
|
148,690 |
|
|
|
333,674 |
|
|
|
|
|
|
|
|
Pension benefits
The amounts recognized in the consolidated balance sheet are determined as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
Present value of unfunded obligations |
|
|
156,359 |
|
|
|
362,748 |
|
Unrecognized prior service costs |
|
|
(4,657 |
) |
|
|
(2,137 |
) |
Unrecognized actuarial losses |
|
|
(26,002 |
) |
|
|
(43,561 |
) |
|
|
|
|
|
|
|
Liability in the balance sheet |
|
|
125,700 |
|
|
|
317,050 |
|
|
|
|
|
|
|
|
The amounts recognized in the consolidated income statement are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
Current service cost |
|
|
5,589 |
|
|
|
3,674 |
|
Interest cost |
|
|
14,027 |
|
|
|
18,290 |
|
Amortization of prior service costs |
|
|
661 |
|
|
|
580 |
|
Net actuarial (gains) losses recognized in the year |
|
|
1,462 |
|
|
|
(3,842 |
) |
|
|
|
|
|
|
|
Total included in labor costs |
|
|
21,739 |
|
|
|
18,702 |
|
|
|
|
|
|
|
|
Changes in the liability recognized in the consolidated balance sheet are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
At the beginning of the year |
|
|
317,050 |
|
|
|
263,454 |
|
Adjustments corresponding to allowances from discontinued operations |
|
|
(183,821 |
) |
|
|
(146,932 |
) |
|
|
|
|
|
|
|
|
At the beginning of the year, adjusted |
|
|
133,229 |
|
|
|
116,522 |
|
|
|
|
|
|
|
|
|
|
Transfers and new participants of the plan |
|
|
(139 |
) |
|
|
258 |
|
Total expense |
|
|
21,739 |
|
|
|
18,702 |
|
Translation differences |
|
|
(26,006 |
) |
|
|
185 |
|
Contributions paid |
|
|
(639 |
) |
|
|
(2,438 |
) |
|
|
|
|
|
|
|
|
|
Adjustments corresponding to allowances from discontinued
operations, at the end of the year |
|
|
|
|
|
|
183,821 |
|
|
|
|
|
|
|
|
|
Effect of companies under joint control (see Note 4 (a)) |
|
|
(2,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the end of year |
|
|
125,700 |
|
|
|
317,050 |
|
|
|
|
|
|
|
|
- 40 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
24 Other liabilities (continued)
The principal actuarial assumptions used were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
Mexico |
|
|
|
|
|
|
|
|
Discount rate |
|
|
9.75 |
% |
|
|
8.75 |
% |
Rate of compensation increase |
|
|
4.00 |
% |
|
|
4.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
Argentina |
|
|
|
|
|
|
|
|
Discount rate |
|
|
7.00 |
% |
|
|
7.00 |
% |
Rate of compensation increase |
|
|
2.00 |
% |
|
|
2.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2008 |
|
|
2007 |
|
(ii) Other liabilities current |
|
|
|
|
|
|
|
|
Payroll and social security payable |
|
|
88,610 |
|
|
|
106,755 |
|
Termination benefits |
|
|
3,620 |
|
|
|
3,939 |
|
Participation account |
|
|
|
|
|
|
51,219 |
|
Related Parties (Note 30) |
|
|
1,563 |
|
|
|
9,194 |
|
Others |
|
|
9,583 |
|
|
|
9,867 |
|
|
|
|
|
|
|
|
|
|
|
103,376 |
|
|
|
180,974 |
|
|
|
|
|
|
|
|
25 Derivative financial instruments
Net fair values of derivative financial instruments
The net fair values of derivative financial instruments at December 31, 2008 and 2007 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
Contracts with positive fair values: |
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
|
1,516 |
|
|
|
|
|
Commodities contracts |
|
|
|
|
|
|
577 |
|
|
|
|
|
|
|
|
|
|
|
1,516 |
|
|
|
577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts with negative fair values: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts |
|
|
(97,153 |
) |
|
|
(9,557 |
) |
Foreign exchange contracts |
|
|
(13,553 |
) |
|
|
(3,736 |
) |
Commodities contracts |
|
|
(12,338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(123,044 |
) |
|
|
(13,293 |
) |
|
|
|
|
|
|
|
Derivative financial instruments breakdown is as follows:
a) Interest rate contracts
Fluctuations in market interest rates create a degree of risk by affecting the amount of the
Companys interest payments and the value of its fixed-rate debt. As of December 31, 2008, most of
the Companys long-term borrowings were at variable rates.
Ternium México entered into derivative instruments to manage the impact of the floating interest
rate changes on its financial debt.
- 41 -
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)
25 Derivative financial instruments (continued)
On February 23, 2007, Ternium Mexico entered into four interest rate collar agreements that fix the
interest rate to be paid over an aggregate notional amount of USD 250 million, in an average range
of 4.16% to 6.00%. These agreements are due in November 2011 and March 2012.
On September 21, 2007, Ternium Mexico entered into several interest rate collars that fix the
interest rate to be paid over an aggregate notional amount of USD 1,500 million, in an average
range of 3.28% to 5.50%. These agreements are due in July 2009.
On June 18, 2008, Ternium Mexico entered into 4 knock-in swap agreements over an aggregate notional
amount of USD 894 million, in an average swap level of 5.22% and a knock-in (KI) level of 2.5%.
These agreements are due in July 2012. As of December 31, 2008, these contracts were accounted for
under the hedge accounting method and generated a pre-tax reserve in equity for USD 70,241
thousand.
b) Foreign exchange contracts
From time to time, Terniums subsidiaries enter into derivative agreements to manage this exposure
to currencies other than the US Dollar.
During December 2008, Siderar hedged its purchases of machinery denominated in Canadian Dollars
with a zero cost collar for a notional amount of CAD 1.9 million and strike prices of 1.17 and
1.30, due in January 2009.
Beginning in November 2008, Siderar entered into several forward agreements to manage the exchange
rate exposure generated by its sales in Euros. The notional amount covered as of December 31, 2008
was EUR 9.2 million with an average forward price of 1.30 US Dollars per Euro.
As of December 31, 2008, Prosid Investments had several non-deliverable forward (NDF) agreements
with a notional amount of ARS 100 million at an average exchange rate of 3.62 Argentine Pesos per
US Dollar. These NDFs cover indirect exposure of short term debt denominated in ARS and are due in
January 2009.
During 2003, Ternium Mexico entered into a cross currency swap contract with Bank of America to
manage its exposure to changes in the Mexican Peso against the US Dollar and the impact of the
floating interest rate changes on certain debt certificates. As of December 31, 2008, the notional
amount totaled USD 52.6 million and the fixed interest rate was 9.30% per annum. This agreement is
due on May 27, 2009.
Furthermore, during December 2008, Ternium Treasury Services entered into a forward agreement over
an aggregate notional amount of EUR 14 million, at an exchange rate of 1.43 US Dollars per Euro, to
manage its exposure to investments in Euros. This forward is due on January 20, 2009.
The net fair values of the exchange rate derivative contracts as of December 31, 2008 and December
31, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, |
|
Currencies |
|
Contract |
|
|
Notional amount |
|
|
2008 |
|
|
2007 |
|
USD/EUR |
|
Forward |
|
|
31,935 |
|
|
|
(423 |
) |
|
|
|
|
CAD/USD |
|
Collar |
|
|
1,613 |
|
|
|
6 |
|
|
|
|
|
MXN/USD |
|
Cross Currency Swap |
|
|
52,583 |
|
|
|
(12,678 |
) |
|
|
(2,486 |
) |
MXN/USD |
|
Forward |
|
|
|
|
|
|
|
|
|
|
(1,220 |
) |
ARS/USD |
|
ND Forward |
|
|
27,751 |
|
|
|
1,058 |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,037 |
) |
|
|
(3,736 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 42 -