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 05/5/2006
Ternium S.A.
(Translation of Registrants name into English)
Ternium S.A.
46a, Avenue John F. Kennedy
L-1855 Luxembourg
(352) 26 68 3152
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under
cover Form 20-F or 40-F.
Form 20-F
þ Form 40-F o
Indicate by check mark whether the registrant by furnishing the information contained in this
Form is also thereby furnishing the information to the Commission pursuant to Rule 12G3-2(b) under
the Securities Exchange Act of 1934.
Yes
o No þ
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 and the Shareholder
Meeting Brochure and Proxy Statement
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TERNIUM S.A.
By: /s/ Raúl H. Darderes
Name: Raúl H. Darderes
Title: Corporate Secretary
Dated: May 5, 2006
April 24, 2006
Dear Ternium Shareholder,
I am pleased to invite you to attend the Annual General Meeting of Shareholders of TERNIUM S.A.,
société anonyme holding, to be held on Wednesday, June 7, 2006, at 46A, avenue John F. Kennedy
L-1855 Luxembourg. 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.
Enclosed please find the Notice and Agenda for the meeting, the Shareholder Meeting Brochure and
Proxy Statement. These documents, as well as the Companys 2005 annual report (which includes the
Companys financial statements for the year ended December 31, 2005 in their consolidated and
unconsolidated form together with the directors report and the report of the independent
auditors), are available on our website at http://www.ternium.com/en/investor/ and may also
be obtained upon request at +352 26 68 31 52 or +1 (888) 269 2377 (this number is toll free if you
call from the United States) and are available free of charge at the Companys registered office in
Luxembourg.
Even if you only own a few shares, I would like to see them represented at the meeting. You can
vote the shares represented by your ADRs by proxy using the enclosed dedicated proxy form. Please
see the letter from The Bank of New York, the depositary bank, or your broker/custodian, for
instructions on how to exercise your vote by proxy.
I look forward to welcoming you on June 7, 2006.
Very truly yours,
Paolo Rocca
Chairman
THE BANK OF NEW YORK
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 Shares of Common Stock, US$1 Nominal Value (Common Stock), of
Ternium S.A. (the Company): |
The Company has announced that its Annual General Meeting of Shareholders will be held on June 7,
2006, at 2:30 p.m. C.E.T., the meeting will take place 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 enclosed.
The enclosed materials are provided to allow the shares represented by your ADRs to be voted at the
meeting. They include the Notice of Annual General Meeting of Shareholders and the Shareholder
Meeting Brochure and Proxy Statement. These documents, as well as the Companys 2005 annual report
(which includes the Companys financial statements for the year ended December 31, 2005 in their
consolidated and unconsolidated form), 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 +1-888-269-2377 (this number is toll free if you call from the United States) and are
available free of charge at the Companys registered office in Luxembourg.
Each holder of ADRs as of May 1, 2006 is entitled to instruct The Bank of New York, as Depositary
(the Depositary), as to the exercise of the voting rights pertaining to the Companys shares of
Common Stock represented by such holders ADRs. Eligible ADR holders who desire to vote 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, 101 Barclay Street, New York, NY 10286, U.S.A. Attention:
American Depositary Receipt Administration. If the Depositary receives properly completed
instructions by 3:00 p.m., New York City time, on June 1, 2006, then it shall vote or cause to be
voted the shares underlying such ADRs in the manner prescribed by the instructions. However, if
by 3:00 p.m., New York time, on June 1, 2006, the Depositary receives no instructions from the
holder of ADRs, or the instructions 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 any instructions which it has 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 3:00 p.m., New York time, on June 1, 2006. No instructions,
revocations or revisions thereof shall 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 May 1, 2006, until June 2, 2006.
IF YOU WANT YOUR VOTE TO BE COUNTED, THE DEPOSITARY MUST RECEIVE YOUR
VOTING INSTRUCTIONS PRIOR TO 3:00 P.M. (NEW YORK CITY TIME) ON JUNE 1, 2006.
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THE BANK OF NEW YORK |
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Depositary |
April 24, 2006
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
7, 2006 at 2:30 p.m. C.E.T.
Notice is hereby given to holders of shares of TERNIUM S.A. (the Company) that the Annual
General Meeting of Shareholders of the Company will be held on June 7, 2006, at 2:30 p.m. (local
time). The meeting will be held at 46A, avenue John F. Kennedy L-1855 Luxembourg. The items listed
below will be submitted to the vote of the Shareholders.
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Agenda |
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Consideration of the Board of Directors and independent auditors reports on the
consolidated financial statements. Approval of the Companys consolidated financial
statements as of, and for the fiscal year ended, December 31, 2005. |
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2. |
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Consideration of the Board of Directors and independent auditors reports on the
unconsolidated annual accounts. Approval of the Companys unconsolidated annual accounts as
of, and for the fiscal year ended, December 31, 2005. |
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Allocation of results. |
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4. |
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Discharge to the members of the Board of Directors and to the former members of the
Board of Directors Messrs. Carlos M. Franck and Fernando R. Mantilla for the exercise of
their mandate throughout the year ended December 31, 2005. |
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5. |
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Election of the Board of Directors members. |
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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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7. |
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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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8. |
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Board of Directors compensation. |
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9. |
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Appointment of independent auditors and approval of their fees. |
Pursuant to the Companys Articles of Association, resolutions at the Annual General Meeting of
Shareholders will be passed by simple majority vote, 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 June 2, 2006 (the Record
Date) shall be admitted to the Annual General Meeting of Shareholders of the Company. Holders of
shares as of June 2, 2006 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 (article 17, first paragraph, in fine, of
the Articles of Association of the Company).
Holders of American Depositary Receipts (the ADRs) as of May 1, 2006 who desire to vote the
shares represented by their ADRs at the Meeting must complete, date and sign a proxy form and
return it pursuant to the instructions indicated on the form.
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, or from the
Depositary, between 10:00 a.m. and 5:00 p.m. (local time).
Copies of the Shareholder Meeting Brochure and Proxy Statement and the forms are also available at
http://www.ternium.com/en/investor/. Copies of the Companys financial statements and the
reports of the auditors as well as the documents referred to in the preceding sentence may also be
obtained free of charge at the Companys registered office in Luxembourg.
Raúl H. Darderes
Secretary to the Board of Directors
April 24, 2006
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 7, 2006 at 2:30 p.m. C.E.T.
This Shareholder Meeting Brochure and Proxy Statement is furnished by TERNIUM S.A. (the
Company) in connection with the Annual General Meeting of Shareholders of the Company (the
Meeting) to be held on June 7, 2006, starting at 2:30 p.m., C.E.T., for the purposes set forth in
the accompanying Notice of the Annual General Meeting of Shareholders (the Notice), at 46A,
avenue John F. Kennedy L-1855 Luxembourg.
As of April 24, 2006, there were issued and outstanding 2,004,743,442 shares of common stock, US$1
nominal value each, of the Company (the Common Stock), including shares of Common Stock (the
Deposited Shares) deposited with The Bank of New York (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 holder of shares of Common Stock is entitled to one vote per share.
Holders of shares as of June 2, 2006 may also vote by proxy.
Each holder of ADRs as of May 1, 2006 is entitled to instruct the Depositary as to the exercise of
the voting rights pertaining to the Companys shares of Common Stock represented by such holders
ADRs. Elegible holders of ADRs who desire to vote 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, 101
Barclay Street, New York, NY 10286, U.S.A. Attention: American Depositary Receipt Administration,
by 3:00 p.m., New York City time, on June 1, 2006. If the Depositary receives properly completed
instructions by 3:00 p.m., New York City time, on June 1, 2006, 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 3:00 p.m., New York time, on June 1, 2006, the Depositary
receives no instructions from the holder of ADRs, or the instructions 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 any instructions which it has 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 3:00 p.m., New
York time, on June 1, 2006. No instructions, revocations or revisions thereof shall 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 May 1, 2006 until June 2, 2006.
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 Annual General Meeting of
Shareholders will be passed by majority vote, irrespective of the number of shares present or
represented.
The meeting is called to address and vote on the following items:
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Consideration of the Board of Directors and independent auditors reports on the
consolidated financial statements. Approval of the Companys consolidated financial statements
as of, and for the fiscal year ended, December 31, 2005 |
The Board of Directors recommends a vote FOR approval of the Companys consolidated financial
statements for the fiscal year ended December 31, 2005, and having considered the reports from each
of the Board of Directors and Price Waterhouse & Co. S.R.L., member firm of PricewaterhouseCoopers,
on such consolidated financial statements. The consolidated balance sheet of the Company and its
subsidiaries at December 31, 2005 and the related consolidated statement of income, consolidated
statement of changes in shareholders equity, consolidated cash flow statement and notes to the
consolidated financial statements, the report from Price Waterhouse & Co. S.R.L. on such
consolidated financial statements and managements discussion and analysis on the Companys results
of operations and financial condition are included in the Companys annual report 2005, a copy of
which is available on our website at http://www.ternium.com/en/investor/ and may also be
obtained upon request at +352 26 68 31 52 or +1 (888) 269 2377 (this number is toll free if you
call from the United States) and are 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
unconsolidated annual accounts. Approval of the Companys unconsolidated annual accounts as
of, and for the fiscal year ended, December 31, 2005 |
The Board of Directors recommends a vote FOR approval of the Companys unconsolidated annual
accounts as of, and for the fiscal year ended, December 31, 2005, and having considered the report
from each of the Board of Directors and PricewaterhouseCoopers S.àr.l., Réviseur dentreprises,
member firm of PricewaterhouseCoopers, on such unconsolidated annual accounts. These documents are
included in the Companys annual report 2005, a copy of which is available on our website at
http://www.ternium.com/en/investor/ and may also be obtained upon request at +352 26 68 31
52 or +1 (888) 269 2377 (this number is toll free if you call from the United States) and are
available free of charge at the Companys registered office in Luxembourg.
The Board of Directors recommends a vote FOR approval of an allocation of the profits of the
year ended December 31, 2005 of US$ 107,623,638 to the Companys retained earnings account.
4. |
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Discharge to the members of the Board of Directors and to the former members of the Board
of Directors Messrs. Carlos M. Franck and Fernando R. Mantilla for the exercise of their
mandate throughout the year ended December 31, 2005 |
In accordance with applicable Luxembourg law and regulations, it is proposed that, upon
approval of the Companys accounts for the year ended December 31, 2005, the members of the Board
of Directors and the former members of the Board of Directors Messrs. Carlos M. Franck and Fernando
R. Mantilla be discharged from any liability in connection with the management of the Companys
affairs during such year.
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Election of the Board of Directors members |
The Companys Articles of Association provide for the annual election by the holders of Common
Stock 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 Gerardo Sepulveda) qualify as
independent members under the Companys Articles of Association.
It is proposed that 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 is a managing director of Aguirre, Gonzalez and Marx S.A., and
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. Mr. Aguirre is an Argentine
citizen
2) Mr. Roberto Bonatti. Mr. Bonatti is president of San Faustin N.V., president of Techint Compañía
Técnica Internacional S.A.C.I. of Argentina, and Tecpetrol S.A. and a director of Tenaris S.A.,
Siderca S.A.I.C. and Siderar S.A.I.C. Mr. Bonatti is an Italian citizen.
3) Mr. Rinaldo Campos Soares. Mr. Campos Soares is president and a member of the board of directors
of Usinas Siderurgicas de Minas Gerais S/A USIMINAS, president of Cosipa, chairman of the board
of directors of Rio Negro Comércio e Indústria de Aço, Usiparts Sistemas Automotivos,
president of Usiminas Mecânica, president of Fundação São Francisco Xavier and vice president of the Brazilian
Steel Institute. Mr. Campos Soares is a Brazilian citizen.
4) Mr. Carlos Condorelli. Mr Condorelli is chief financial officer of Tenaris S.A., and vice
president and member of the board of directors of each of Tenaris Financial Services S.A. and
Tenaris Global Services S.A.
5) Mr. Adrian Lajous*. Mr. Lajous is 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. Mr. Lajous is a Mexican citizen.
6) Mr. Bertoldo Machado Veiga. Mr. Machado Veiga is chairman of the board of directors of Usinas
Siderurgicas de Minas Gerais S/A USIMINAS and head of its legal department, and a director of
Fasal S/A Comércio e Indústria de Produtos Siderúrgicos. Mr. Machado Veiga is a Brazilian citizen.
7) Mr. Bruno Marchettini. Mr. Marchettini is chief technological officer of the Techint Group and a
director of San Faustin N.V., Tenaris S.A. and Siderar S.A.I.C. Mr. Marchettini is an Italian
citizen.
8) Mr. Gianfelice Mario Rocca. Mr. Rocca is chairman of the board of directors of San Faustin N.V.,
a director of I.I.I. Industrial Investments Inc., Tenaris S.A., Dalmine S.p.A. and Tubos de Acero
de México, S.A., president of the Humanitas Group and president of the board of directors of
Techint Compagnia Tecnica Internazionale S.p.A. and Techint S.A. de C.V. In addition, he sits on
the board of directors or executive committees of several companies, including Sirti S.p.A., Ras,
RCS Quotidiani, Fastweb, Buzzi Unicem and Cam Finanziara S.p.A. He is Vice President of
Confindustria, the leading association of Italian industrialists. He is a member of the European
Advisory Board of the Harvard Business School, the Trilateral Commission. Mr. Gianfelice Rocca
graduated in Physics cum laude at the University of Milan and holds a postgraduate degree from the
Harvard Business School. Mr. Rocca is an Italian citizen.
9) Mr. Paolo Rocca. Mr. Rocca is chairman of our board of directors. He is also chairman and chief
executive officer of Tenaris S.A., director and vice-president of San Faustín N.V., director of
Techint Financial Corporation N.V., chairman of the board of directors of Tubos de Acero de México
S.A. and Dalmine S.p.A., honorary chairman of Siderar S.A.I.C. and vice-president of Confab
Industrial S.A. Mr. Rocca is member of the Executive Committee of the IISI (International Iron and
Steel Institute), member of the International Advisory Committee of the NYSE (New York Stock
Exchange) and member of the Private Sector Advisory Council of the IDB (Inter-American Development
Bank). Mr. Rocca is an Italian citizen.
10) Mr. Gerardo R. Sepulveda*. Mr. Sepulveda is a partner of The Latin America Enterprise Fund I &
II and a partner of Westfield Capital Ltd., a director of Construmat, Cosapi and Venequip and Past
President of The Chile-U.S. Chamber of Commerce. Mr. Sepulveda is a Chilean citizen.
11) Mr. Daniel Agustin Novegil. Mr. Novegil is chief executive officer of the Company.
* Independent directors
Each elected director will hold office until the next annual meeting of shareholders. Under
the current Companys Articles of Association, such meeting is required to be held on June 6, 2007.
The Board of Directors of the Company met 18 times during 2005. 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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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.
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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.
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Board of Directors compensation |
It is proposed that each of the Board of Directors members in office each receive an amount
of US$ 50,000 as compensation for the performance of their duties during the current fiscal year.
It is further proposed that the Directors who are members of the Companys Audit Committee receive
an additional fee of US$ 50,000.
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Appointment of independent auditors and approval of their fees |
Based on the recommendation from the Companys Audit Committee, the Board of Directors of the
Company recommends a vote FOR the appointment of PricewaterhouseCoopers S.àr.l., Réviseur
dentreprises, member firm of PricewaterhouseCoopers, as independent auditors of the Company for
the fiscal year ending December 31, 2006, to be engaged until the next annual general meeting that
will be convened to decide on the 2006 accounts.
In addition, the Board of Directors recommends a vote FOR approval of an amount up to US$ 2,784,367
payable to the independent auditors as fees for services to be rendered during the fiscal year
ending December 31, 2006, such fees to cover the audit of the Companys consolidated financial
statements and annual accounts, other audit related services and other services rendered by the
independent auditors and other member firms of PricewaterhouseCoopers specifically engaged for that
purpose. The Board also recommends that the Board of Directors be authorized to modify such
compensation whenever it would conclude that circumstances would merit a change.
The Company anticipates that the next Annual General Meeting of Shareholders will be held on June
6, 2007. A holder of shares who intends to present a proposal 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 20, 2007, in order for such proposal to be considered
for inclusion on the agenda for the 2007 annual general meeting of shareholders.
PricewaterhouseCoopers S.àr.l., Réviseur dentreprises, member firm of PricewaterhouseCoopers, are
the auditors of the Company for the fiscal year ended December 31, 2005. A representative of the
auditors will be present at the Meeting to respond to questions.
Raúl H. Darderes
Secretary to the Board of Directors
Annual Report and Accounts 2005
Annual Report and Accounts 2005
Company Profile
Ternium is one of the leading steel companies in the Americas. We manufacture and process a
broad spectrum of value-added steel products, including tinplate, galvanized and electro-galvanized
sheets, pre-painted sheets, hot rolled pickled and annealed 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.
Our customers range from large global companies to small enterprises operating in the construction,
home appliances, capital goods, containers, food and automotive industries. We aim to build close
relationships with our customers and recognize that our success is closely linked with theirs.
Ternium supports its operations with 18,300 direct employees. Our integrated manufacturing
facilities, which produced nearly 10 million tons of crude steel in 2005 are located in Mexico,
Argentina and Venezuela, providing us with a strong position from which to serve our core markets
throughout the Americas. In addition, our own distribution network gives us access to the global
steel markets.
Terniums production costs are among the lowest in the industry as a result of favorable access to
energy and proximity to iron ore sources, further enhanced by our proprietary mines in Mexico.
The contributions we make to the communities were we operate are key to our success, therefore, we
are committed to investing in their development and aim to share our achievements with our
neighbors.
Annual Report and Accounts 2005
Operating and Financial Highlights
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2005 |
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2004 |
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SALES VOLUME (thousand tons)
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Flat products |
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5,275.9 |
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2,176.0 |
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Long products |
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1,217.7 |
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Total flat and long products |
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6,493.5 |
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2,176.0 |
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FINANCIAL INDICATORS (million of US dollars) |
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Net sales |
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4,447.7 |
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1,598.9 |
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Operating income |
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1,392.2 |
|
|
|
514.2 |
|
EBITDA (1) |
|
|
1,762.9 |
|
|
|
613.4 |
|
Income before income tax expense |
|
|
1,291.3 |
|
|
|
925.7 |
|
Net income attributable to: |
|
|
|
|
|
|
|
|
Equity holders of the Company |
|
|
704.4 |
|
|
|
457.3 |
|
Minority interest |
|
|
368.4 |
|
|
|
290.8 |
|
|
|
|
|
|
|
|
Net income for the year |
|
|
1,072.8 |
|
|
|
748.2 |
|
|
|
|
|
|
|
|
|
|
Free cash flow (2) |
|
|
1,017.5 |
|
|
|
425.0 |
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
244.9 |
|
|
|
92.6 |
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET (million of US dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
8,660.0 |
|
|
|
2,646.6 |
|
Total financial debt |
|
|
2,916.3 |
|
|
|
123.0 |
|
Net financial debt |
|
|
2,145.5 |
|
|
|
(160.6 |
) |
Total liabilities |
|
|
5,084.1 |
|
|
|
874.8 |
|
Capital and reserves attributable to the companys equity holders |
|
|
1,842.5 |
|
|
|
1,026.7 |
|
Minority interest |
|
|
1,733.5 |
|
|
|
745.1 |
|
|
|
|
|
|
|
|
|
|
STOCK DATA (US dollars per share / ADS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
0.58 |
|
|
|
0.39 |
|
Basic earnings per ADS (3) |
|
|
5.82 |
|
|
|
3.91 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding (4) |
|
|
1,209,476.6 |
|
|
|
1,168,943.6 |
|
(thousand shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECT EMPLOYEES (5) |
|
|
18,283 |
|
|
|
|
|
OUTSOURCED PERSONNEL |
|
|
4,733 |
|
|
|
|
|
Note: based on combined and consolidated financial data. The combined consolidated financial
statements for the year 2004 combine and consolidate Siderar, Ylopa and Techintrade. The combined
consolidated financial statements for the year 2005 combine and consolidate Siderar, Ylopa and
Techintrade, together with Amazonia since February 2005 and Hylsamex since August 2005.
|
|
|
(1) |
|
EBITDA equals operating income of US$1.4 billion and US$0.5 billion plus
depreciation and amortization of US$316.4 million and US$99.2 million in 2005 and 2004,
respectively, and other non cash items of US$54.3 million in 2005 (closure of certain
facilities in Hylsamex). |
|
(2) |
|
Free cash flow equals net cash provided by operating activities of US$1.3 billion
and US$0.5 billion less capital expenditures of US$0.2 billion and US$0.1 billion in 2005 and
2004 respectively. |
|
(3) |
|
Each ADS represents 10 shares of common stock. |
|
(4) |
|
For fiscal year 2004 we assumed that 1,168,943,632 shares were issued and
outstanding during the year and as of the years end. For fiscal year 2005, the weighted
average shares outstanding were 1,209,476,609. |
|
(5) |
|
We expect that during 2006 some outsourced personnel will be incorporated in Ternium
as direct employees. |
Annual Report and Accounts 2005
Letter to Shareholders
Dear Shareholders,
On February 1, 2006, Ternium became a public company listed on the New York Stock Exchange
following the successful completion of an initial public offering. With operations in Mexico,
Argentina and Venezuela and 11.6 million tons of crude steel annual capacity, it is one of the
leading steel companies in the Americas. Based on 2005 fourth quarter numbers, which is the first
period for which the company reported results consolidating its three principal operations, Ternium
had annualized net sales of US$5.9 billion, operating income of US$1.5 billion and net income of
US$676 million.
Ternium is proud of its industrial operations. Management is focused on quality and productivity,
on the continuous improvement of processes and products, on meeting the needs of our end-user
customers and on building an efficient supply chain. Through our integrated operations, from iron
ore mines to finished products, we concentrate on providing customers significant value through a
full line of products and value added services.
I believe that Ternium is well positioned to grow and prosper in a consolidating steel industry.
Our core markets are growing, as Latin American economies take advantage of favorable international
conditions to invest in infrastructure, housing and industrial capacity. Our position in the
Mexican market, with its privileged access to the rest of the North American market, is
particularly important for the future expansion of our activities.
The values of the company are based on a rich industrial heritage. This is reflected in
a strong commitment to the steel industry and to technological innovation, as well as on a constant
exchange of knowledge, ideas and best practices.
The long-term growth of Ternium is closely linked with that of our customers and suppliers. We work
with them by leveraging our experience in managing supply chains, accessing international markets,
using information technology and managing product and process quality so that we can accompany
their growth. The success of our customers in expanding their operations using our products is the
key to our success.
Our 18,300 employees have been deeply involved in the integration process through which Ternium has
been created. Their dedication and the development of their skills and potential are critical to
the success of the company.
We are committed to improving the quality of life in the communities where we have our operations.
Working with local institutions, public and private, and supporting educational, health and social
integration programs, we promote social and cultural development.
I view the creation of Ternium as an extraordinary achievement. I would like to thank all of those
that made it possible, especially our customers, suppliers and employees, and to express my
gratitude to the new shareholders who have joined us in our project.
Sincerely,
Paolo Rocca
Chairman
Annual Report and Accounts 2005
IPO and the Creation of Ternium
On February 1, 2006, Ternium became a public company and its American Depositary Shares (ADSs)
started trading on the New York Stock Exchange under the symbol TX. The offering was well
received with the IPO price set at US$20.00 per ADS, above the initial target price range of
US$16.00 to US$18.00. The Company sold 27,142,856 ADSs, including the underwriters over-allotment
option, for net proceeds of US$527.9 million that were used to repay debt. Each ADS represents 10
common shares of Ternium.
On the date on which our ADSs were delivered to the underwriters of the IPO, the subordinated
convertible loans held by certain Ternium shareholders totaling US$594 million plus interest were
converted into common shares of Ternium at a price per share equal to the price per share paid by
the investors in the IPO. The convertible loans were issued to fund the Hylsamex acquisition, which
was completed on August 22, 2005. The proceeds from the IPO and the subsequent conversion of the
outstanding convertible loans have enhanced Terniums financial flexibility, reducing debt by
US$1.1 billion and providing the Company with a strong balance sheet to pursue other growth
opportunities organically and through acquisitions.
The IPO is the culmination of a process initiated by the controlling shareholders of the Company to
consolidate their interests in flat and long steel producers in the Americas. The controlling
interests in both Siderar (Argentina) and Sidor (Venezuela) were strengthened with the acquisition
of Hylsamex (Mexico). After completing the purchase of Hylsamex, it was clear that combining the
three companies into Ternium provided a strong position from which to compete in the large and
growing steel markets throughout the Americas.
Corporate Structure as of April 19th, 2006:
Ternium has a robust business model. In 2005, the Companys facilities produced nearly 10 million
tons of crude steel, making Ternium one of the leading steel companies in Latin America. Its
manufacturing facilities in Mexico, Argentina and Venezuela provide the Company with geographically
diverse operations that allow it to serve the growing steel needs of the Americas. Terniums
locations also offer good access to attractive markets in North America, specifically the
Annual Report and Accounts 2005
United States and Mexico, which are dynamic, highly developed and dependent on imports to satisfy
steel demand.
Terniums facilities have been modernized and production is primarily focused on value-added
products that have better margins and less volatility. Terniums steelworks also benefit from the
Companys favorable access to raw materials and energy as well as from its proprietary mines in
Mexico. Combined, these factors make Ternium a low cost producer by world standards.
Ternium is capturing significant cost and operating synergies. The acquisition of Hylsamex
enhanced our growth opportunities in the North American steel market and added significant
operational flexibility. This includes the ability to produce steel in locations with favorable
access to key inputs and to finish and customize products in those markets that offer the best
opportunities. Toward that end, the Company is making additional investments in several projects
aimed at further enhancing these advantages.
Derived from two Latin roots, Ter (three) and Eternitas (eternity), the name Ternium reflects its
three foundational entities, Siderar, Sidor and Hylsa. Ternium envisions its possibilities in a
world that combines eternal presence of metals with industrial dynamism. Latin in its roots and
global in its projection, Ternium is synonymous with strength, commitment and vision.
Annual Report and Accounts 2005
Business Review
Market Background and Outlook
In 2005, Latin American economies continued to enjoy favorable dynamics characterized by high
commodity prices, low international interest rates and decreasing country risk premiums. When
measured by GDP performance, the main economies in the region showed robust and coordinated levels
of growth for the second year in a row. The same pattern of growth was evidenced in other relevant
economic indicators, such as in machinery and equipment investment and in construction spending,
both showing good performances in 2005 after a particularly strong 2004.
The performance of the United States economy was good during 2005. Although GDP is estimated to
have grown at a slightly lower rate than in 2004, it is estimated that investment growth in
machinery and equipment, and in construction accelerated.
|
|
|
|
|
|
|
|
|
GDP performance Latin America
|
|
GDP performance United States
|
|
|
|
|
|
|
|
|
|
|
|
Growth (% year/year)
|
|
Growth (% year/year)
|
|
|
Source: IISI
Finished steel demand continued to grow at a strong pace in our core markets within Central and
South America, with apparent steel consumption growing at an estimated rate of 5.6% in 2005. This
followed double-digit growth rates in the previous two years, which primarily reflected the strong
recoveries of the Argentine and Venezuelan economies.
Apparent Steel Consumption South and Central
America ex Brazil
All products (000 tons)
Source: IISI
In the North America Region, the Mexican market is notable for its strong and consistent
performance. Apparent per capita steel consumption is estimated to have reached 223 kilograms in
2005 compared to 187 kilograms in 2001, a 4.5% compound annual growth rate. The compound annual
growth rate for flat products consumption is estimated at 5.4% during the same period.
Annual Report and Accounts 2005
Despite the good performance of the United States economy, the countrys apparent steel consumption
actually decreased during 2005 following a significant increase in the previous year, affected by
the inventory correction process that took place primarily at the distribution level.
|
|
|
|
|
|
|
|
|
Apparent Steel Consumption Mexico
|
|
Apparent Steel Consumption United States
|
|
|
|
|
|
|
|
|
|
|
|
All products (000 tons)
|
|
All products (000 tons)
|
|
|
Source: IISI
The Latin American construction, automotive and machinery and equipment sectors had another strong
year of growth in 2005. These results came on top of a particularly strong performance in 2004.
Residential construction in the United States grew at an estimated annual rate of 6.5% in 2005,
while the automotive industry showed flat levels of activity.
|
|
|
|
|
|
|
|
|
Construction Latin America
|
|
Residential Construction United States
|
|
|
|
|
|
|
|
|
|
|
|
Growth (% year/year)
|
|
Growth (% year/year)
|
|
|
Source: IISI
These favorable trends are expected to continue in 2006. Latin American economies should continue
to enjoy robust commodity pricing and improved financial conditions. GDP performance in the region
is expected to be slightly lower compared to the strong growth achieved in 2005, as the main
economies are likely to revert to more normal long-term growth trends. Investments in machinery
and equipment and increases in construction spending are expected to show similar patterns with
healthy levels of growth.
In the United States, the economy is expected to grow at rates close to long-term trends, with
positive estimates in overall industrial production and capital spending, and lower activity
forecasted in the construction and automotive sectors.
In this context, finished steel demand in 2006 should continue to grow in our core Latin American
markets at above historical levels. Growth rates, however, are predicted to be slightly lower
compared to 2005. In the United States, finished steel demand in 2006 is expected to remain at
similar levels to those of the previous year.
Summary of Results
As a consequence of the consolidation of Amazonias and Hylsamexs results and other financial data
since February 2005 and August 2005, respectively, Terniums results and other financial data for the
Annual Report and Accounts 2005
year 2005 differ significantly from those for the year 2004. For more details on these
transactions, please refer to the notes of the combined consolidated financial statements.
Driven by healthy pricing levels and solid demand in its core markets, the companies under Ternium
achieved significant shipment growth in 2005. The strength in volume was not a surprise,
considering the improved global economic activity in 2005. Growth was particularly strong in South
and Central America. Shipments increased significantly as a result of the strong GDP growth rates
in the economies where Ternium participates.
International steel prices experienced a decrease during 2005 from record levels in 2004 and into
2005. The softening occurred largely in the second half of the year and was attributable mainly to
increased output by producers. Production cuts by leading steel producers stabilized prices toward
the end of the third quarter of 2005 and into 2006. The steel industry shift to a more
disciplined, profit-oriented mindset is remarkable considering its historic production-oriented
mentality that used to create steep boom-bust cycles. Furthermore, supply constraints in key steel
inputs such as iron ore and metallurgic coal continue to discourage production from high-cost
opportunistic producers.
This environment benefited Ternium in 2005. Our net sales were US$4.4 billion on shipments of 6.6
million tons. Revenue per ton shipped was US$646 (including only flat and long products). Operating
income was US$1.4 billion, or 31% of net sales. Net income for the year was US$1.1 billion, of
which US$0.4 billion is attributable to minority interest.
Ternium also achieved a strong free cash flow (net cash provided by operations less capital
expenditures) of US$1.0 billion in 2005. Furthermore, including the effects of the IPO and the
conversion of the subordinated convertible loans into common shares of the Company, both concluded
in early 2006, Terniums debt was reduced by US$1.1 billion after year-end 2005. Accordingly,
Ternium obtained renewed financial flexibility to pursue growth opportunities through internal
initiatives and acquisitions.
For a more detailed analysis of Terniums financial condition and results of operations, refer to
Operating and Financial Review section.
Regional Performance
We follow Terniums performance by region. The North America Region comprises sales in Mexico, the
United States and Canada, and the Central and South America Region serves markets within Central
and South America, including those of the Andean Community and the Mercosur. Sales outside of the
Americas are reported in the Europe and Other Regions.
North America Region
In the North America Region, production facilities are located in Mexico and manufacture both flat
and long steel products with significant emphasis on value-added offerings. The product range is
wide and includes hot rolled coils, cold rolled steel, galvanized, pre-painted steel and steel
tubing. The products are also tailor made, either slit or cut-to-length and subject to other
transformations at the service centers of the Company. The long products area manufactures
reinforcing bars for the construction sector and wire rod for industrial uses and for the
construction market. Ternium ranks, depending on the product category, #1 or #2 in terms of market
share in the Mexican steel market. Moreover, our presence in Mexico serves as a privileged platform
from which to supply both the United States and Canada given the preferential access to NAFTA
markets.
Following the acquisition of Hylsamex in August 2005, its commercial area was reorganized from a
former divisional arrangement into a unified sales organization responsible for the
commercialization of all product offerings. The new structure delivers better customer service, as
it provides a single point
of contact between the client and the sales organization, eliminates redundancy and adds better
focus on the customer needs. The improved internal coordination in the areas of sales, credit and
logistics is already showing good results. Moreover, Terniums market share in Mexico increased at
Annual Report and Accounts 2005
the expense of reduced imports. Ternium is also performing well in the construction, auto parts,
home appliances and containers sectors.
This region is characterized by the size and the development of the steel marketplace. Terniums
strategy for the North America Region is to boost its production capacity of value-added products.
We are cautiously optimistic that in 2006 steel markets in the North American region will remain
favorable. We expect the Mexican marketplace to continue to grow strongly and the United States and
Canada to remain attractive markets for Terniums products. Our primary goal is to keep Ternium as
a supplier of choice within the region.
Central and South America Region
In the Central and South America Region our production units are located in Argentina and
Venezuela. We manufacture both flat and long steel products with a significant emphasis on
value-added offerings. The product range is wide and includes hot rolled coils, cold rolled steel,
hot dip and electro galvanized, tinplate and pre-painted steel products. Products are also tailor
made, either slit or cut-to-length and subject to other transformations at the service centers of
the Company. The long products area manufactures reinforcing bars for the construction sector and
wire rod for industrial uses and the construction market.
Ternium seeks direct contact with steel end users. Our deep understanding of their needs allows
the Company to offer customized products and delivery services that are supported by a network of
service centers and commercial offices located in the main steel consuming markets, with
preferential access to the Mercosur and the Andean Community.
Shipments to the construction industry were good throughout the region in 2005. In Argentina,
however, the strength in the construction sector was partially offset by softer agriculture related
construction, which declined from very strong levels achieved in 2004. In Venezuela, good overall
activity levels were accompanied by 11% and 12% increases in flat and long products shipments,
respectively. The Colombian markets performance was particularly good. Terniums shipments of wire
rod and bars in this market increased by 25% in 2005.
Shipments to oil & gas related industries were mixed. In Argentina, the steel sheet market for the
manufacture of pipes performed well as a result of higher demand associated to natural gas
transportation projects, while in Venezuela shipments of hot rolled steel increased at levels not
seen in the last eight years while shipments of ingots were at record levels. On the other hand,
shipments to Ecuador were flat relative to 2004, with higher participation of long products and a
reduction in hot rolled products.
The automotive manufacturing industry in Argentina continued to grow in 2005 on top of its
significant expansion in 2004 as a result of the domestic market recovery and higher exports. Car
production increased in volume by 23% in 2005. This led to an increase of 23% in Terniums
shipments to this industry in Argentina compared to 2004.
In the Central and South America Region, Ternium implemented an ongoing strategic program to foster
small and medium sized enterprises in the machinery and equipment sector. This program was
originally launched in Argentina and more recently extended to Venezuela, and is aimed at improving
the competitiveness of customers and suppliers of the Company. Terniums assistance covers
commercial, financial, industrial and institutional aspects. There are 119 companies included in
this program in Argentina. During 2005, they increased their sales and exports by 30% and 28%,
respectively. Likewise, their direct employment numbers rose by 10% compared to 2004. In
Venezuela, 21 success cases have been achieved so far, including a program for production of
liquefied petroleum gas (LPG) cylinders for low income families, which is having a significant
social impact.
Annual Report and Accounts 2005
Looking forward, a rise in shipments in Argentina is expected, as a result of higher activity
levels in the construction and industrial sectors. Domestic demand in Venezuela is projected to be
favored by an increase in government spending and oil investments, coupled with good activity
levels in the construction industry. In Colombia, steel consumption should be aided by an increase
in government spending and a positive investment environment generated by a free trade agreement
with the United States. In Ecuador, steel consumption is expected to remain at similar levels to
those of 2005.
Europe and Other Regions
Strategically located commercial offices in continental Europe and in China provide Ternium with
ample market intelligence and the flexibility to offer products on the global steel market. Sales
to Europe in 2005 were US$0.3 billion. Sales to other regions, including China, were US$0.1
billion. The lower level of revenue from these markets reflects the strong performance of our core
markets in the Americas.
Investments
Terniums companies in Argentina and Venezuela underwent significant expansion and modernization
following their privatizations. Recently acquired facilities in Mexico (Hylsamex) also underwent a
substantial modernization program in previous years. Today, Ternium is largely comprised of modern
manufacturing facilities that take advantage of the latest technologies in steelmaking, applying IT
systems to improve production processes.
To date, capital expenditure programs have been diverse. They have encompassed improving iron ore
extraction, increasing finished product capacity and making downstream investments to enhance the
overall mix of value-added products. As a result, a significant share of Terniums sales are now
comprised of value-added products, which usually command higher margins and exhibit lower price
volatility.
Looking forward, the substantial investments completed by Ternium so far require a relatively
modest ongoing ordinary investment program of approximately US$140 million per year. The program
will be conducted on a continuous improvement basis that is aimed at achieving higher quality
standards, reducing costs, increasing value-added products and improving overall operating
reliability.
The addition of Hylsamex enhanced Terniums growth prospects in the North America steel market and
added significant opportunities for operational integration. The Company is planning additional
investments to further capitalize on its competitive advantages.
Ternium is planning to increase crude steel production in the Central and South America Region
facilities primarily through de-bottlenecking and relining of existing equipment. Ternium expects
to achieve additional crude steel production of 0.5 million tons per year by 2007 and an additional
1.4 million tons per year by 2009. These production enhancements will require investments of
approximately US$620 million. We also expect to generate additional annual production of 530
thousand tons of hot rolled coils and 120 thousand tons of coated products by 2007 from
enhancements to existing lines. These improvements will require investments of approximately US$50
million.
We are planning to enhance the hot rolled and coated lines in the North America Region facilities
by an investment of approximately US$110 million. We expect to increase hot rolled steel annual
production by 520 thousand tons by 2007 and to increase coated steel annual production by 130
thousand tons by 2008.
This investment plan aims to produce crude steel in locations with favorable access to raw
materials and energy, and finished steel close to the locations where we expect the strongest sales
growth. This strategy will allow Ternium to match the growing demand of its regional markets while
increasing its presence in the North American markets. The additional production needed to satisfy
Annual Report and Accounts 2005
these new requirements will be mostly generated from spare capacity that requires a low per added
ton investment to be effected.
Annual Report and Accounts 2005
Communities and Environment Review
Ternium is convinced that the success of the Company depends on an active participation that
links its own development to that of its suppliers, customers, employees and local communities.
Over the years, each production unit has strengthened its community ties: from close collaborative
relations with their local constituencies and a strong presence in local markets, to solid bonds to
scientific research and education centers. From these communities and their people, Ternium has
developed into an industrial leader in the region.
Ternium offers support to small and medium sized steel-related companies, committing to its value
chain development as a sustainable path to the Company success. As part of this support program
(ProPymes), many customers have received diverse assistance, including loans, professional advice
and the ability to reach new markets in the Americas and the world.
With over 18,300 direct employees and 4,700 outsourced personnel, Ternium aims to turn every
professional into a key participant in its regional leadership. Our philosophy is to promote from
within. Talent recruiting at the best education centers in its core countries allows Ternium to
form a diverse team in terms of competencies, cultures and perspectives. Ternium offers its
associates ongoing education and graduate studies, the possibility of assuming different roles that
integrate experiences and skills, and a career with global responsibilities.
Ternium sees its success as an opportunity to help achieve personal growth and quality of life for
its workers and their families. Moreover, Ternium conducts activities and programs aimed at
improving local quality of life. Ternium leads projects and collaborates with public and private
organizations in the fields of culture, education and health. We sponsor academic scholarships, the
improvement of educational and healthcare facilities, cultural activities and practicing sports.
Ternium is committed to the environment and its preservation for future generations. Terniums
plants are located in cities of profound industrial tradition as Monterrey (Mexico) and in more
recent development centers as Puerto Ordaz (Venezuela) and San Nicolás (Argentina). In each of
these, Ternium complies with rigorous parameters regarding the environment and natural resources. A
significant part of Terniums investment is aimed at reducing the impact of steel production on the
environment. In addition, Ternium organizes educational programs for technicians and employees, and
encourages individual initiatives toward environmental protection.
Venezuela
In 2005, through Fundación Sidor, Ternium funded diverse needs of local schools and healthcare
institutions. It helped improve an intensive care unit in a local hospital and supported a local
government campaign to prevent malaria. In the field of education, Ternium supplied desks and
other basic needs to local schools.
Sidor sponsored sports activities and many employees participated in inter-company games among the
leading Venezuelan companies. Sidor was recognized by the Venezuelan press as the Company of the
Year, because of its effort to promote sports activities among employees.
Sidor continued developing ongoing programs such as its support to the local symphony orchestra,
high school student visits to the plant and an initiative to encourage ethics among young
entrepreneurs. Sidor Chorus performed in Argentina and the Company supported the international
showcase El Hombre de Guayana that was shown in Buenos Aires.
Annual Report and Accounts 2005
Argentina
During 2005, Siderar developed educational programs aimed at strengthening technical school
education. These programs provide technical assistance and promote closer cooperation among
technical schools and the workplace. Other education initiatives included the promotion of math and
science in local schools. In addition, the Company sponsored two initiatives aimed at the small
business community. One of them, in association with the University of Bologna, developed a
directory of small companies in the region. The other provided technical and business training for
entrepreneurs. Siderar also helped improve several local public health facilities.
Mexico
In Monterrey we conduct health, sports and social initiatives through Fundación Nova. Nova owns a
healthcare unit and sporting and leisure facilities and seeks to promote healthcare for employees,
their families and their communities. It looks after the integral development of the individual and
family, and sponsors educational, artistic, cultural and sporting activities.
Health, Safety and the Environment
A safe and healthy working environment is an absolute priority for Ternium. Prevention, education,
workplace intervention and incident and accident analysis are all part of top managements core
responsibilities. Currently, Terniums operating companies are undertaking ongoing initiatives that
promote and reward health and safety. In Sidor, a program was started in 2004 to obtain OHSAS 18001
certification. As part of this effort, Usiminas, one of our largest shareholders, is providing
technical assistance. Safety programs were implemented in Sidor for 75% of the workforce by the end
of 2005, compared to 47% at end of the previous year. A similar program was started in Siderar in
2005.
Ternium strives to achieve sustainable growth in harmony with the environment with particular
emphasis on the efficient use of non-renewable resources. Specific actions are carried out to
achieve continuous environmental performance improvement, including: recycling byproducts in other
industries; waste water treatment; air emission control and abatement; programs for the reduction
of fossil-fuel energy and water consumption; and reforestation initiatives. In all these programs,
we work together with the appropriate authorities and private organizations.
Annual Report and Accounts 2005
Corporate Governance
Shares
Ternium has a single class of shares, with each share having equal rights, including the
entitlement to one vote at our general shareholders meetings. Our articles of association provide
that annual ordinary general shareholders meeting, at which our annual financial statements are
approved and the members of our board of directors are appointed, occur on the first Wednesday of
each June at 2:30 P.M., Luxembourg time.
We have an authorized share capital of a single class of 3.5 billion shares, having a nominal value
of US$1.00 per share.
Our articles of association currently authorize our board of directors, for a period commencing on
June 17, 2005 and ending on October 26, 2010, to issue shares within the limits of our 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 some 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 our 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 our shares.
The Company may repurchase its own shares in the cases and subject to the conditions set by the
Luxembourg law of 10th August 1915, as amended.
Board of Directors
Our articles of association provide for a board of directors consisting of a minimum of five (5)
members (when the shares of the Company are listed on a regulated market as they currently are) and
a maximum of fifteen (15) members. 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 which are within its corporate purpose and which are not specifically reserved in the
articles of association to the general shareholders meetings.
The board of directors is required to meet as often as required by the interests of Ternium. 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 shareholders. Our current board of directors is comprised of
11 directors and an audit committee, which is comprised entirely of independent directors.
Audit Committee
Ternium 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 Ternium employees
or any of its subsidiaries. Under our articles of association and the audit committee charter, the
audit committee:
|
§ |
|
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 |
Annual Report and Accounts 2005
|
|
|
directors on its activity and the adequacy of Terniums systems of internal control over
financial reporting; |
|
|
§ |
|
is responsible for making recommendations for the appointment, compensation, retention
and oversight of, and assessment of the independence of, the Companys independent
auditors; |
|
|
§ |
|
reviews Material Transactions (as such term is defined in the Companys articles of
association and the audit committee charter) between Ternium and 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 Ternium) to determine whether
their terms are consistent with market conditions or are otherwise fair to Ternium and its
subsidiaries; and |
|
|
§ |
|
performs such other duties imposed to it by applicable laws and regulations of the
regulated market or markets on which the shares of Ternium 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
Terniums management and employees and, subject to applicable laws, its subsidiaries.
Auditors
Our 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 shareholders through a resolution passed by a simple majority vote at the annual general
shareholders meeting, irrespective of the number of shares present or represented, on the audit
committees recommendation. 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 shareholders.
As part of their duties, the auditors report directly to the audit committee.
PricewaterhouseCoopers, S.ár.l., Luxembourg, an independent registered public accounting firm, was
appointed as the statutory auditor of Terniums statutory annual accounts at the ordinary general
shareholders meeting held on May 25, 2005. On June 17, 2005, our general shareholders meeting
resolved to amend and restate the Companys articles of association, as a result of which the
position of statutory auditor was eliminated in accordance with the provisions of applicable
Luxembourg law. Upon the appointment of an independent auditor by the general shareholders
meeting to be held on the first Wednesday of June 2006, Ternium will not be required to have a
statutory auditor.
Compensation
The compensation of the Companys directors is approved annually at the ordinary general
shareholders meeting. The aggregate compensation earned by directors and executive officers during
2005 and 2004 amounted to approximately US$4.5 million and US$3.1 million, respectively.
Corporate Governance Standards
Our corporate governance practices are governed by Luxembourg law (particularly the law of August
10th, 1915 on commercial companies) and our Articles of Association. As a Luxembourg
company listed on the New York Stock Exchange (the NYSE), we are not required to comply with all
of the corporate governance listing standards of the NYSE. We, however, believe that our corporate
governance practices meet or exceed, in all material respects, the corporate governance standards
that are generally required for controlled companies by the NYSE but the following is a summary of
the significant ways that our corporate governance practices differ from the corporate governance
standards required for controlled companies by the NYSE (provided that our corporate governance
practices may differ in non-material ways from the standards required by the NYSE that are not
detailed here):
Annual Report and Accounts 2005
Non-management Directors Meetings
Under NYSE standards, non-management directors must meet at regularly scheduled executive sessions
without management present and, if such group includes directors who are not independent, a meeting
should be scheduled once per year including only independent directors. Neither Luxembourg law nor
our Articles of Association require the holding of such meetings and we do not have a set policy
for these meetings. Our Articles of Association provide, however, that the board shall meet as
often as required by the interests of the Company and at least four times a year, upon notice by
the chairperson or by any two directors.
In addition, NYSE-listed companies are required to provide a method for interested parties to
communicate directly with the non-management directors as a group. While we do not have such a
method, we have set up a compliance line for investors and other interested parties to communicate
their concerns to members of our audit committee (which, as already said, are independent).
Audit Committee
Under NYSE standards, listed US companies are required to have an audit committee composed of
independent directors that satisfies the requirements of Rule 10A-3 promulgated under the
Securities and Exchange Act of 1934. Our Articles of Association currently require us to have an
audit committee composed of three members, of which at least two must be independent (as defined in
our Articles of Association) and our audit committee complies with such requirements. In accordance
with NYSE standards, we have an audit committee entirely composed of independent directors.
Under NYSE standards, all audit committee members of listed US companies are required to be
financially literate or must acquire such financial knowledge within a reasonable period and at
least one of its members shall have experience in accounting or financial administration. In
addition, if a member of the audit committee is simultaneously a member of the audit committee of
more than three public companies, and the listed company does not limit the number of audit
committees on which its members may serve, then in each case the board must determine whether the
simultaneous service would prevent such member from effectively serving on the listed companys
audit committee and shall publicly disclose its decision. No comparable provisions on audit
committee membership exist under Luxembourg law or our Articles of Association.
Annual Report and Accounts 2005
Standards for Evaluating Director Independence
Under NYSE standards, the board is required, on a case by case basis, to express an opinion with
regard to the independence or lack of independence of each individual director. Neither Luxembourg
law nor our Articles of Association require the board to express such an opinion. In addition, the
definition of independent under the rules of the NYSE differ in some non-material respects from
the definition contained in our Articles of Association.
Audit Committee Responsibilities
Pursuant to our Articles of Association, the audit committee shall assist the board of directors in
fulfilling its oversight responsibilities relating to the integrity of the Companys financial
statements, including periodically reporting to the Board of Directors on its activity and the
adequacy of the Companys system of internal controls over financial reporting. As per the audit
committee charter, as amended, the audit committee shall make recommendations for the appointment,
compensation, retention and oversight of, and consider the independence of, the Companys external
auditors. The audit committee is required to review material transactions (as defined by the
Articles of Association) between us or our subsidiaries with related parties and also perform the
other duties entrusted to it by the board.
The NYSE requires certain matters to be set forth in the audit committee charter of U.S. listed
companies. Our audit committee charter provides for many of the responsibilities that are expected
from such bodies under the NYSE standard; however, due to our equity structure and holding company
nature, the charter does not contain all such responsibilities, including provisions related to
setting hiring policies for employees or former employees of independent auditors, discussion of
risk assessment and risk management policies, and an annual performance evaluation of the audit
committee.
Shareholder Voting on Equity Compensation Plans
Under NYSE standards, shareholders must be given the opportunity to vote on equity-compensation
plans and material revisions thereto, except for employment inducement awards, certain grants,
plans and amendments in the context of mergers and acquisitions, and certain specific types of
plans. We do not currently offer equity-based compensation to our directors, executive officers or
employees, and therefore do not have a policy on this matter.
Disclosure of Corporate Governance Guidelines
NYSE-listed companies must adopt and disclose corporate governance guidelines. Neither Luxembourg
law nor our Articles of Association require the adoption or disclosure of corporate governance
guidelines. Our board of directors follows corporate governance guidelines consistent with our
equity structure and holding company nature, but we have not codified them and therefore do not
disclose them on our website.
Code of Business Conduct and Ethics
Under NYSE standards, listed companies must adopt and disclose a code of business conduct and
ethics for directors, officers and employees, and promptly disclose any waivers of the code for
directors or executive officers. Neither Luxembourg law nor our Articles of Association require the
adoption or disclosure of such a code of conduct. We have adopted a code of conduct that applies
to all directors, officers and employees, which is posted on our website and complies with the
NYSEs requirements, except that does not require the disclosure of waivers of the code for
directors and officers.
Chief Executive Officer Certification
A chief executive officer of a U.S. company listed on NYSE must annually certify that he or she is
not aware of any violation by the company of NYSE corporate governance standards. In accordance
with NYSE rules applicable to foreign private issuers, our chief executive officer is not required
to provide NYSE with this annual compliance certification. However, in accordance with NYSE rules
applicable to all listed companies, our chief executive officer must promptly notify NYSE in writing after any
of our executive officers becomes aware of any material noncompliance with any applicable provision
of
Annual Report and Accounts 2005
NYSEs corporate governance standards. In addition, we must submit an executed written affirmation annually and an interim written affirmation each time a change occurs to the board or the audit committee.
Annual Report and Accounts 2005
Board of Directors and Executive Officers
Board of Directors
Chairman
Paolo Rocca
Vice Chairman
Rinaldo Campos Soares
Ubaldo Aguirre (*)
Roberto Bonatti
Carlos Condorelli
Adrián Lajous Vargas (*)
Bruno Marchettini
Daniel Novegil
Gianfelice Rocca
Gerardo Sepúlveda (*)
Bertoldo Machado Veiga
Secretary
Raúl Darderes
(*) Audit Committee Members
Executive Officers
Chief Executive Officer and Director
Daniel Novegil
Chief Financial Officer
Roberto Philipps
International Commercial Officer
Alfredo Indaco
North Region Area Manager
Regulo Salinas
South Region Area Manager
Martín Berardi
Central Region Area Manager
Julián Eguren
Planning and Supply Chain Director
Oscar Montero
Technical Director
Luis Andreozzi
Human Resources Director
Miguel Angel Punte
Chief Information Officer
Rubén Bocanera
Annual Report and Accounts 2005
Operating and Financial Review (MD&A)
The review of Terniums results of operations and financial condition is based on, and should
be read in conjunction with, the Companys audited combined consolidated financial statements and
related notes included in this annual report. Ternium prepares its combined consolidated financial
statements according to International Financial Reporting Standards (IFRS), which differ in certain
significant respects from Generally Accepted Accounting Principles in the United States (US GAAP)
and other accounting standards.
It is important to note that as a consequence of the consolidation of Amazonias (Sidors
controlling company) and Hylsamexs results and other financial data, Terniums results are
somewhat difficult to compare between 2004 and 2005. During 2004, the only relevant operating
company that was consolidated was Siderar. The investment in Amazonia was recognized under the
equity method, and Hylsamex was not yet a part of Ternium. In 2005, Siderar was the only one of the
three aforementioned companies that was consolidated for the whole year. Amazonias results were
consolidated since February 15 and Hylsamexs results since August 22. The latter two companies
started to consolidate on the date that Ternium control became effective.
The operating and financial review emphasizes the main trends observed in both the Company and the
steel industry in 2005, rather than explaining changes over comparable periods. The review will
provide details on the key performance variables we observed during the period.
Results of Operations
The following table sets forth, for the periods indicated, selected financial data from our
combined consolidated income statement and depicts our operating costs and other expenses.
|
|
|
|
|
|
|
|
|
US$ million |
|
2005 |
|
|
2004 |
|
Net sales |
|
|
4,447.7 |
|
|
|
1,598.9 |
|
Cost of sales |
|
|
(2,470.8 |
) |
|
|
(965.0 |
) |
|
|
|
|
|
|
|
Gross profit |
|
|
1,976.8 |
|
|
|
633.9 |
|
Selling, general and administrative expenses |
|
|
(521.2 |
) |
|
|
(119.0 |
) |
Other operating expense, net |
|
|
(63.5 |
) |
|
|
(0.8 |
) |
|
|
|
|
|
|
|
Operating income |
|
|
1,392.2 |
|
|
|
514.2 |
|
Financial (expense) income, net |
|
|
(310.7 |
) |
|
|
202.3 |
|
Excess of fair value of net assets acq. over
cost |
|
|
188.4 |
|
|
|
|
|
Equity in earnings of associated companies |
|
|
21.5 |
|
|
|
209.2 |
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
1,291.3 |
|
|
|
925.7 |
|
Income tax expense |
|
|
(218.5 |
) |
|
|
(177.5 |
) |
Net income for the year |
|
|
1,072.8 |
|
|
|
748.2 |
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
Equity holders of the Company |
|
|
704.4 |
|
|
|
457.3 |
|
Minority interest |
|
|
368.4 |
|
|
|
290.8 |
|
|
|
|
|
|
|
|
|
|
|
1,072.8 |
|
|
|
748.2 |
|
Annual Report and Accounts 2005
Net Sales
Net sales for the fiscal year 2005 were US$4.4 billion on shipments of 6.6 million tons. The
average price was US$646 per ton shipped (includes only flat and long products). The sales volume
achieved in 2005 reflects solid demand for steel in Terniums core markets. As a result of the
increase in world steel production capacity and the deceleration of steel consumption in Europe and
the United States during 2005, international steel prices decreased from the very high levels seen
in both the second half of 2004 and the first quarter of 2005. The resulting production cuts by
leading steel producers in these markets stabilized prices toward the end of the third quarter of
2005 and into 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
Shipments |
|
|
Revenue/ton |
|
|
Net Sales |
|
|
|
(000 tons) |
|
|
(US$/ton) |
|
|
(US$ million) |
|
South & Ctral America |
|
|
3,461.6 |
|
|
|
689 |
|
|
|
2,383.5 |
|
North America |
|
|
1,299.8 |
|
|
|
662 |
|
|
|
859.9 |
|
Europe |
|
|
407.8 |
|
|
|
657 |
|
|
|
267.9 |
|
Other |
|
|
106.6 |
|
|
|
554 |
|
|
|
59.4 |
|
|
|
|
|
|
|
|
Total flat products |
|
|
5,275.9 |
|
|
|
677 |
|
|
|
3,570.4 |
|
|
South & Ctral America |
|
|
709.4 |
|
|
|
522 |
|
|
|
370.6 |
|
North America |
|
|
503.3 |
|
|
|
502 |
|
|
|
252.6 |
|
Europe |
|
|
4.9 |
|
|
|
436 |
|
|
|
2.2 |
|
|
|
|
|
|
|
Total long products |
|
|
1,217.7 |
|
|
|
514 |
|
|
|
625.4 |
|
|
|
|
|
|
|
|
Total flat and long pdts |
|
|
6,493.5 |
|
|
|
646 |
|
|
|
4,195.8 |
|
|
Other products(1) |
|
|
130.2 |
|
|
|
|
|
|
|
251.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,623.8 |
|
|
|
|
|
|
|
4,447.7 |
|
(1) Net sales include steel pipes and tubular products, pig iron and iron ore. Shipments include
only steel pipes and tubular products volumes.
Flat Product Sales
Flat steel sales amounted to US$3.6 billion on shipments of 5.3 million tons. The average
price was US$677 per ton shipped. The volume for flat steel achieved in 2005 is consistent with the
strong performances of the main economies where Ternium does business. The pricing environment
continued to be robust, particularly in the first half of 2005, reflecting healthy demand in
emerging economies. In addition, Ternium benefited from a higher-value product mix from the
incorporation of Hylsamex in August 2005, although recent results only partially reflect the total
mix and value improvement Ternium expects to achieve from the value-added products produced by
Hylsamex and sold in the North America Region.
Long Product Sales
Long steel sales reached US$625.4 million on shipments of 1.2 million tons. The average price was
US$514 per ton shipped. Long steel volume was particularly strong and benefited from significant
growth in the South and Central America Region. Long steel prices softened during the year.
Annual Report and Accounts 2005
Sales by Region
Sales of flat and long products in North America were US$1.1 billion on shipments of 1.8
million tons, increasing considerably when compared to 2004 due to the inclusion of Hylsamex from
August 22, 2005.
Sales of flat and long products in Central and South America were US$2.8 billion on shipments of
4.2 million tons. Steel demand continued to improve as a result of the strong economic performance
of the region, and better pricing was realized in 2005 both in flat and long steel.
Sales of flat and long products in Europe accounted for US$270.1 million resulting from shipments
of 412.7 thousand tons. Sales to other markets amounted to US$59.1 million on shipments of 106.6
thousand tons.
Cost of Sales
Cost of sales totaled US$2.5 billion in 2005, or 56% of net sales. Iron ore costs in the
Central and South American operations rose in 2005 following the increase in international
reference prices. Our effective increase, however, was less since the increase for Sidor was
negotiated in November and did not affect 2005. Further, the acquisition of Hylsamex and its
proprietary mines in the third quarter of 2005 provided Ternium a partial hedge against
fluctuations in iron ore prices.
Natural gas and electricity prices for the Central and South American operations remained
relatively stable. However, during the second half of 2005, Mexico experienced significantly
increased natural gas prices, which affected both gas and electricity rates. Hedging strategies and
a temporary government relief program limited the increase in natural gas costs for Ternium.
Labor costs across the different regions were relatively stable in dollar terms. Nominal wage
increases in Central and South America were cushioned by a slight depreciation of the local
currencies against the US dollar.
Selling, General and Administrative Expenses (SG&A)
Selling, general and administrative expenses in
2005 were US$521.2 million, or 12% of net
sales. Freight and personnel represented a significant portion of SG&A. During the year, maritime
freight rates decreased from the peak levels seen at the end of 2004. In addition, the SG&A figure
include a one-time charge of US$22.5 million from the reorganization of Hylsamex. The total
non-recurring charge related to Hylsamexs reorganization amounted to US$31.2 million, with the
difference recorded in Cost of Sales.
Other Net Operating Expense
Other net operating expense was US$63.5 million in the year, of which US$54.3 million relates
to a one-time charge for the closure of some of Hylsamexs facilities, primarily the Ingot Casting
Mill.
Operating Income & EBITDA*
As a result of solid volumes, stable pricing and relative cost containment, operating income
reached US$1.4 billion, or 31% of net sales. EBITDA*was US$1.8 billion, or 40% of net
sales.
|
|
|
* |
|
EBITDA equals operating income of US$1.4
billion plus depreciation and amortization of US$316.4 million and other
non-cash items of US$54.3 million (closure of certain facilities in Hylsamex). |
Annual Report and Accounts 2005
Net Financial Expense
Net financial expense was US$310.7 million. Interest expenses in 2005 were US$81.6 million,
while net losses from excess cash payments related to a participation account were US$221.2
million.
Net financial expense primarily reflects the effect of Sidors excess cash distribution related to
the participation account established as a result of its 2003 debt restructuring. According to this
mechanism, Sidors excess cash is distributed quarterly to its creditors and shareholders involved
in the restructuring of the company.
Until February 15, 2005, Ternium accounted for its indirect investment in Sidor under the equity
method of accounting. Any excess cash payments received by Ternium in any given period were
recorded as a financial gain. Ternium recorded a financial gain from excess cash payments related
to the participation accounts of US$44.1 million during 2005 until February 15.
After February 15, 2005, Ternium acquired indirect control of Sidor and began accounting such
investment on a consolidated basis. Accordingly, any excess cash payments received by Ternium were
eliminated in the consolidating process, while any excess cash payments made by Sidor to third
parties in connection to a participation account were recorded as a financial loss. Since then, and
until the end of the fiscal year 2005, excess cash payments to third parties in connection to a
participation account were US$265.2 million.
Excess of Fair Value of Net Assets Acquired Over Cost
Excess of fair value of net assets acquired over cost was US$188.4 million. This non-recurring
gain is related to the conversion of Amazonias convertible debt instruments into Amazonias shares
in February 2005. At the time of conversion, the shares had a fair value that exceeded the value of
the convertible debt due to the improvement of Sidors business conditions. Amazonia is the direct
controlling shareholder of Sidor.
Equity in Earnings of Associated Companies
Equity in earnings of associated companies resulted in a gain of US$21.5 million in 2005.
These results are mainly related to Terniums investment in Amazonia, which was accounted for under
the equity method until February 15, 2005.
Income Tax Expense
Income tax expense for the year was US$218.5 million, including a current tax loss of US$243.5
million and deferred tax income of US$25.0 million.
Income Attributable to Minority Interest
Income attributable to minority interest was US$368.4 million. Of total income attributable to
minority interest, US$163.4 million related to minority shareholders in Siderar and US$189.7
million related to minority interest in Sidor and Amazonia (Sidors controlling shareholder) prior
to the exchange of their participation in Amazonia for Ternium shares.
Liquidity and Financial Resources
Our financing strategy is to maintain adequate financial resources at hand and access to
additional liquidity. During 2005, cash flows from operations and short-term as well as long-term
borrowings were the principal sources of funding.
We are confident that our cash from operations and our access to external borrowings are sufficient
to meet our requirements for working capital and that we have ample cover of our debt service
obligations for the foreseeable future. Furthermore, the IPO and the subsequent conversion of the
subordinated convertible loans improved our financial condition reducing our debt by US$1.1
billion. We believe that our liquidity and access to capital and bank markets gives us significant
flexibility to execute our planned capital expenditures as well as carry out strategic
acquisitions, should the opportunity arise.
Annual Report and Accounts 2005
We hold money market investments and variable-rate or fixed-rate securities from investment grade
issuers. We concentrate our cash in major financial centers (mainly New York and London). We hold
our cash primarily in US dollars, and limit our holdings of other currencies to the minimum
required to fund our cash operating needs. Liquid financial assets as a whole represented 9% of
total assets at the end of 2005.
Historical Cash Flows
Operating Activities
Net cash provided by operations during 2005 was US$1.3 billion. Net cash from operations is derived
primarily from US$1.1 billion in net income and additional funds resulting from a reduction in
working capital of US$54.4 million. The remainder reflects the adding back of the depreciation and
amortization that was largely offset by other non-cash items.
Investing Activities
Net cash used in investing activities was US$2.4 billion, which included US$2.2 billion applied to
the acquisition of Hylsamex and US$244.9 million for capital expenditures, partially offset by
changes in trust funds of US$83.6 million.
Financing Activities
Net cash provided by financing activities was US$1.2 billion. Net borrowings were US$1.5 billion,
which were primarily associated with the Hylsamex acquisition. Dividends paid in cash and other
distributions to the Companys shareholders were US$238.7 million. Dividends paid in cash and
other distributions to minority shareholders were US$130.6 million.
Cash and Equivalents
Cash at the end of the year was US$765.6 million (includes US$10.7 million of restricted cash).
|
|
|
|
|
|
|
|
|
Million of USD |
|
|
|
2005 |
|
|
2004 |
|
Net cash provided by operating activities |
|
|
1,262.5 |
|
|
|
517.6 |
|
Net cash used in investing activities |
|
|
-2,352.0 |
|
|
|
-91.7 |
|
Net cash provided by (used in) financing activities |
|
|
1,163.4 |
|
|
|
-359.9 |
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
73.8 |
|
|
|
66.0 |
|
|
|
|
|
|
|
|
|
|
Acquisition of Business Amazonia |
|
|
305.3 |
|
|
|
|
|
Acquisition of Business Hylsamex |
|
|
215.4 |
|
|
|
|
|
Effect of exchange rate changes |
|
|
-34.5 |
|
|
|
-0.1 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the year |
|
|
194.9 |
|
|
|
129.0 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year |
|
|
755.0 |
|
|
|
194.9 |
|
Annual Report and Accounts 2005
Principal Sources of Funding
Funding Policies
Our policy is to maintain a high degree of flexibility in operating and investment activities by
maintaining adequate liquidity levels and ensuring our access to readily available sources of
financing. Most of our financing is conducted in US dollars. We select the type of facility,
associated rate and tenor after considering the intended use of proceeds.
Financial Liabilities
Terniums borrowings as of December 31, 2005 consisted primarily of bank loans and subordinated
convertible loans that had been subscribed by certain shareholders and were converted into common
shares of the Company upon the completion of our initial public offering (more information in the
IPO and creation of Ternium section). Total borrowings outstanding amounted to US$2.9 billion
dollars, 96.3% denominated in USD. The average interest rate at the balance sheet date, which
incorporates instruments denominated in various currencies, was 6.08%. The Company entered into
floating for fixed interest rate swaps for an amount of US$450 million, paying an average interest
rate of 4.22% and receiving libor (see note 27 in the combined consolidated financial statements
section).
During 2006, Terniums IPO generated net proceeds of US$ 0.5 billion. These net proceeds, combined
with the conversion of the subordinated convertible loans for US$0.6 billion, allowed us to reduce
debt by US$1.1 billion.
Annual Report and Accounts 2005
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Shareholders of Ternium S.A.:
In our opinion, the accompanying combined consolidated balance sheets and the related combined
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, 2005 and 2004, and the results of their operations and their cash flows for the years
ended December 31, 2005, 2004 and 2003 in conformity with International Financial Reporting
Standards. 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 financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States of America). 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.
International Financial Reporting Standards vary in certain significant respects from the
accounting principles generally accepted in the United States of America. Information relating to
the nature and effect of such differences is presented in Note 36 to the combined consolidated
financial statements.
Buenos Aires, Argentina
February 28, 2006
(except for Note 36, as to
which the date is April 4, 2006)
|
|
|
PRICE WATERHOUSE & CO. S.R.L. |
|
|
|
|
|
by Marcelo D. Pfaff (Partner)
Marcelo D. Pfaff
|
|
|
TERNIUM S.A.
Combined consolidated financial statements
as of December 31, 2005 and 2004 and for the
years ended December 31, 2005, 2004 and 2003
(All amounts in USD thousands)
Annual Report and Accounts 2005
COMBINED CONSOLIDATED INCOME STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
Notes |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
Net sales |
|
|
31 |
|
|
|
4,447,680 |
|
|
|
1,598,925 |
|
|
|
1,056,566 |
|
Cost of sales |
6 & 31 |
|
|
|
(2,470,844 |
) |
|
|
(965,004 |
) |
|
|
(671,720 |
) |
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
1,976,836 |
|
|
|
633,921 |
|
|
|
384,846 |
|
General and administrative expenses |
|
|
7 |
|
|
|
(269,231 |
) |
|
|
(58,428 |
) |
|
|
(51,557 |
) |
Selling expenses |
|
|
8 |
|
|
|
(251,962 |
) |
|
|
(60,524 |
) |
|
|
(62,786 |
) |
Other operating expenses, net |
|
|
10 |
|
|
|
(63,482 |
) |
|
|
(798 |
) |
|
|
(5,721 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
1,392,161 |
|
|
|
514,171 |
|
|
|
264,782 |
|
Financial (expenses) income, net |
11 & 31 |
|
|
|
(310,736 |
) |
|
|
202,289 |
|
|
|
75,606 |
|
Excess of fair value of net assets acquired over cost |
|
|
3 |
|
|
|
188,356 |
|
|
|
|
|
|
|
|
|
Equity in earnings of associated companies |
|
|
12 |
|
|
|
21,524 |
|
|
|
209,201 |
|
|
|
110,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
|
|
|
|
1,291,305 |
|
|
|
925,661 |
|
|
|
450,638 |
|
Income tax expense |
|
|
13 |
|
|
|
(218,492 |
) |
|
|
(177,486 |
) |
|
|
(94,087 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year |
|
|
|
|
|
|
1,072,813 |
|
|
|
748,175 |
|
|
|
356,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company |
|
|
30 |
|
|
|
704,406 |
|
|
|
457,339 |
|
|
|
218,215 |
|
Minority interest |
|
|
|
|
|
|
368,407 |
|
|
|
290,836 |
|
|
|
138,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,072,813 |
|
|
|
748,175 |
|
|
|
356,551 |
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
|
30 |
|
|
|
1,209,476,609 |
|
|
|
1,168,943,632 |
|
|
|
1,168,943,632 |
|
Basic earnings per share for profit attributable to
the equity holders of the Company, during the year
(expressed in USD per share) |
|
|
|
|
|
|
0.58 |
|
|
|
0.39 |
|
|
|
0.19 |
|
Diluted earnings per share for profit attributable to
the equity holders of the Company, during the year
(expressed in USD per share) |
|
|
|
|
|
|
0.54 |
|
|
|
0.39 |
|
|
|
0.19 |
|
The accompanying notes are an integral part of these combined consolidated financial
statements.
Annual Report and Accounts 2005
COMBINED CONSOLIDATED BALANCE SHEETS
(All amounts in USD thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes |
|
|
December 31, 2005 |
|
|
December 31, 2004 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
14 |
|
|
|
5,463,871 |
|
|
|
|
|
|
|
1,244,691 |
|
|
|
|
|
Intangible assets, net |
|
|
15 |
|
|
|
552,882 |
|
|
|
|
|
|
|
10,049 |
|
|
|
|
|
Investments in associated companies, net |
|
|
16 |
|
|
|
9,122 |
|
|
|
|
|
|
|
309,318 |
|
|
|
|
|
Other investments, net |
17 & 31 |
|
|
|
12,607 |
|
|
|
|
|
|
|
148,569 |
|
|
|
|
|
Deferred tax assets |
|
|
25 |
|
|
|
29,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets |
|
|
|
|
|
|
952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
18 & 31 |
|
|
|
47,863 |
|
|
|
6,116,423 |
|
|
|
15,783 |
|
|
|
1,728,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
19 & 31 |
|
|
|
291,302 |
|
|
|
|
|
|
|
208,699 |
|
|
|
|
|
Other Assets |
|
|
|
|
|
|
3,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments |
|
|
27 |
|
|
|
5,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net |
|
|
20 |
|
|
|
1,000,119 |
|
|
|
|
|
|
|
254,286 |
|
|
|
|
|
Trade receivables, net |
21 & 31 |
|
|
|
472,760 |
|
|
|
|
|
|
|
171,605 |
|
|
|
|
|
Other investments |
22 & 31 |
|
|
|
5,185 |
|
|
|
|
|
|
|
88,755 |
|
|
|
|
|
Cash and cash equivalents |
22 & 31 |
|
|
|
765,630 |
|
|
|
2,543,558 |
|
|
|
194,875 |
|
|
|
918,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
8,659,981 |
|
|
|
|
|
|
|
2,646,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and reserves attributable to the
companys equity holders |
|
|
|
|
|
|
|
|
|
|
1,842,454 |
|
|
|
|
|
|
|
1,026,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
1,733,465 |
|
|
|
|
|
|
|
745,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
|
|
|
|
|
|
|
|
3,575,919 |
|
|
|
|
|
|
|
1,771,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions |
|
|
23 |
|
|
|
53,479 |
|
|
|
|
|
|
|
11,925 |
|
|
|
|
|
Deferred income tax |
|
|
25 |
|
|
|
1,048,188 |
|
|
|
|
|
|
|
337,473 |
|
|
|
|
|
Other liabilities |
|
|
26 |
|
|
|
187,917 |
|
|
|
|
|
|
|
9,104 |
|
|
|
|
|
Trade payables |
|
|
|
|
|
|
1,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
28 |
|
|
|
2,399,878 |
|
|
|
3,690,629 |
|
|
|
1,008 |
|
|
|
359,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions |
|
|
24 |
|
|
|
659 |
|
|
|
|
|
|
|
960 |
|
|
|
|
|
Current tax liabilities |
|
|
|
|
|
|
126,972 |
|
|
|
|
|
|
|
158,124 |
|
|
|
|
|
Other liabilities |
26 & 31 |
|
|
|
194,073 |
|
|
|
|
|
|
|
33,288 |
|
|
|
|
|
Trade payables |
|
|
31 |
|
|
|
555,330 |
|
|
|
|
|
|
|
194,943 |
|
|
|
|
|
Derivative financial instruments |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
5,956 |
|
|
|
|
|
Borrowings |
|
|
28 |
|
|
|
516,399 |
|
|
|
1,393,433 |
|
|
|
121,998 |
|
|
|
515,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
5,084,062 |
|
|
|
|
|
|
|
874,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity and liabilities |
|
|
|
|
|
|
|
|
|
|
8,659,981 |
|
|
|
|
|
|
|
2,646,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined consolidated financial
statements.
Annual Report and Accounts 2005
COMBINED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(All amounts in USD thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to the |
|
|
|
|
|
|
|
|
|
|
companys equity |
|
|
|
|
|
|
Total |
|
|
|
holders (1) |
|
|
Minority Interest |
|
|
Equity |
|
|
|
|
Year ended December 31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2003 |
|
|
407,144 |
|
|
|
367,355 |
|
|
|
774,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment |
|
|
49,892 |
|
|
|
52,113 |
|
|
|
102,005 |
|
Net income |
|
|
218,215 |
|
|
|
138,336 |
|
|
|
356,551 |
|
|
|
|
Total recognized income for the year |
|
|
268,107 |
|
|
|
190,449 |
|
|
|
458,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions |
|
|
35,539 |
|
|
|
2,243 |
|
|
|
37,782 |
|
Dividends paid in cash |
|
|
(8,969 |
) |
|
|
(9,783 |
) |
|
|
(18,752 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003 |
|
|
701,821 |
|
|
|
550,264 |
|
|
|
1,252,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2004 |
|
|
701,821 |
|
|
|
550,264 |
|
|
|
1,252,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment |
|
|
(51,549 |
) |
|
|
(25,697 |
) |
|
|
(77,246 |
) |
Net income |
|
|
457,339 |
|
|
|
290,836 |
|
|
|
748,175 |
|
|
|
|
Total recognized income for the year |
|
|
405,790 |
|
|
|
265,139 |
|
|
|
670,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid in cash and other distributions |
|
|
(80,886 |
) |
|
|
(70,277 |
) |
|
|
(151,163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
|
1,026,725 |
|
|
|
745,126 |
|
|
|
1,771,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005 |
|
|
1,026,725 |
|
|
|
745,126 |
|
|
|
1,771,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment |
|
|
(66,001 |
) |
|
|
(54,245 |
) |
|
|
(120,246 |
) |
Net income |
|
|
704,406 |
|
|
|
368,407 |
|
|
|
1,072,813 |
|
|
|
|
Total recognized income for the year |
|
|
638,405 |
|
|
|
314,162 |
|
|
|
952,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions |
|
|
54,758 |
|
|
|
|
|
|
|
54,758 |
|
Dividends paid in cash and other distributions |
|
|
(238,652 |
) |
|
|
(130,571 |
) |
|
|
(369,223 |
) |
Acquisition of business |
|
|
|
|
|
|
864,415 |
|
|
|
864,415 |
|
Usiminas exchange (see Note 1 (b)) |
|
|
303,791 |
|
|
|
(303,791 |
) |
|
|
|
|
Initial public offering expenses (see Note 4 (j)) |
|
|
(5,456 |
) |
|
|
|
|
|
|
(5,456 |
) |
Revaluation and other reserves |
|
|
62,883 |
|
|
|
244,124 |
|
|
|
307,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
|
1,842,454 |
|
|
|
1,733,465 |
|
|
|
3,575,919 |
|
|
|
|
(1) |
|
Shareholders equity determined in accordance with accounting principles generally accepted
in Luxembourg is disclosed in Note 29 (vi). |
Dividends may be paid by Ternium to the extent distributable retained earnings calculated in
accordance with Luxembourg GAAP exist. Therefore, retained earnings included in the consolidated
combined financial statements may not be wholly distributable. See Note 29 (vi).
The accompanying notes are an integral part of these combined consolidated financial
statements.
Annual Report and Accounts 2005
COMBINED CONSOLIDATED CASH FLOW STATEMENTS
(All amounts in USD thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
Notes |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year |
|
|
|
|
|
|
1,072,813 |
|
|
|
748,175 |
|
|
|
356,551 |
|
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
14&15 |
|
|
|
316,405 |
|
|
|
99,192 |
|
|
|
85,479 |
|
Income tax accruals less payments |
|
|
32 |
|
|
|
(44,008 |
) |
|
|
120,210 |
|
|
|
94,087 |
|
Excess of fair value of net assets acquired over cost |
|
|
3 |
|
|
|
(188,356 |
) |
|
|
|
|
|
|
|
|
Equity in earnings of associated companies |
|
|
12 |
|
|
|
(21,524 |
) |
|
|
(209,201 |
) |
|
|
(110,250 |
) |
Derecognition of property, plant and equipment |
|
10 (iii) |
|
|
54,348 |
|
|
|
|
|
|
|
|
|
Interest accruals less payments |
|
|
32 |
|
|
|
21,352 |
|
|
|
9,083 |
|
|
|
5,428 |
|
Changes in provisions |
|
|
23&24 |
|
|
|
19,046 |
|
|
|
(798 |
) |
|
|
3,594 |
|
Changes in working capital |
|
|
32 |
|
|
|
54,420 |
|
|
|
(204,670 |
) |
|
|
(55,662 |
) |
Currency translation adjustment and others |
|
|
|
|
|
|
(22,041 |
) |
|
|
(44,426 |
) |
|
|
(32,909 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
1,262,455 |
|
|
|
517,565 |
|
|
|
346,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
14&15 |
|
|
|
(244,939 |
) |
|
|
(92,563 |
) |
|
|
(34,328 |
) |
Amazonia convertible debt instrument |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127,576 |
) |
Changes in trust funds |
|
|
|
|
|
|
83,570 |
|
|
|
|
|
|
|
|
|
Acquisition of business-Hylsamex |
|
|
|
|
|
|
(2,196,678 |
) |
|
|
|
|
|
|
|
|
Proceeds form sale of investment in associated company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304 |
|
Proceeds from the sale of property, plant and equipment |
|
|
|
|
|
|
6,063 |
|
|
|
862 |
|
|
|
3,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(2,351,984 |
) |
|
|
(91,701 |
) |
|
|
(157,796 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid in cash and other distributions to
companys shareholders |
|
|
|
|
|
|
(238,652 |
) |
|
|
(80,886 |
) |
|
|
(8,969 |
) |
Dividends paid in cash and other distributions to
minority shareholders |
|
|
|
|
|
|
(130,571 |
) |
|
|
(70,277 |
) |
|
|
(9,783 |
) |
Contributions of minority shareholders in subsidiary
companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,553 |
|
Contributions |
|
|
|
|
|
|
54,758 |
|
|
|
|
|
|
|
37,782 |
|
Proceeds from borrowings |
|
|
|
|
|
|
2,135,430 |
|
|
|
52,309 |
|
|
|
95,448 |
|
Repayments of borrowings |
|
|
|
|
|
|
(657,597 |
) |
|
|
(261,033 |
) |
|
|
(324,992 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
|
1,163,368 |
|
|
|
(359,887 |
) |
|
|
(171,961 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
|
|
|
|
73,839 |
|
|
|
65,977 |
|
|
|
16,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, |
|
|
|
|
|
|
194,875 |
|
|
|
129,020 |
|
|
|
111,198 |
|
Acquisition of business-Amazonia |
|
|
3 |
|
|
|
305,342 |
|
|
|
|
|
|
|
|
|
Acquisition of business-Hylsamex |
|
|
3 |
|
|
|
215,411 |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
|
|
|
|
(34,487 |
) |
|
|
(122 |
) |
|
|
1,261 |
|
Increase in cash and cash equivalents |
|
|
|
|
|
|
73,839 |
|
|
|
65,977 |
|
|
|
16,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at December 31, |
|
|
|
|
|
|
754,980 |
|
|
|
194,875 |
|
|
|
129,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Report and Accounts 2005
The accompanying notes are an integral part of these combined consolidated financial statements.
Annual Report and Accounts 2005
INDEX TO THE NOTES TO THE COMBINED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
1
|
|
Business of the Company and corporate reorganization |
2
|
|
Basis of presentation |
3
|
|
Acquisition of business |
4
|
|
Accounting policies |
5
|
|
Segment information |
6
|
|
Cost of sales |
7
|
|
General and administrative expenses |
8
|
|
Selling expenses |
9
|
|
Labor costs (included in cost of sales, selling expenses and administrative expenses) |
10
|
|
Other operating expenses, net |
11
|
|
Financial (expenses) income, net |
12
|
|
Equity in earnings of associated companies |
13
|
|
Tax charge |
14
|
|
Property, plant and equipment, net |
15
|
|
Intangible assets, net |
16
|
|
Investments in associated companies, net |
17
|
|
Other investments, net non current |
18
|
|
Receivables, net non current |
19
|
|
Receivables current |
20
|
|
Inventories, net |
21
|
|
Trade receivables, net |
22
|
|
Cash and cash equivalents and other investments |
23
|
|
Provisions non current |
24
|
|
Provisions current |
25
|
|
Deferred income tax |
26
|
|
Other liabilities |
27
|
|
Derivative financial instruments |
28
|
|
Borrowings |
29
|
|
Contingencies, commitments and restrictions on the distribution of profits |
30
|
|
Earnings per share |
31
|
|
Related party transactions |
32
|
|
Cash flow disclosures |
33
|
|
Recently issued accounting pronouncements |
34
|
|
Financial risk management |
35
|
|
Post balance sheet events |
36
|
|
Reconciliation of net income and shareholders equity to US GAAP |
Annual Report and Accounts 2005
1 Business of the Company and corporate reorganization
(a) Business of the Company
Ternium S.A. (the Company or Ternium), a Luxembourg Corporation (Societé Anonyme), was
incorporated on December 22, 2003 under the name of Zoompart Holding S.A. to hold investments in
flat and long steel manufacturing and distributing companies. The extraordinary shareholders
meeting held on August 18, 2005, changed the corporate name to Ternium S.A.
Near the end of 2004, Terniums ultimate parent company San Faustín N.V. (San Faustín), a
Netherlands Antilles company, decided to restructure its investments in the flat and long steel
manufacturing and distribution business. In connection with the restructuring, San Faustín acquired
Ternium in December 2004. Until that date, Ternium was a dormant company.
In January 2006, the Company successfully completed its registration process with the United States
Securities and Exchange Commission (SEC) and announced the commencement of its offer to sale
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). Also, the Company has granted to the Underwriters an option,
exercisable for 30 days from January 31, 2006, to purchase up to 3,726,708 additional ADSs at the
public offering price of USD20 per ADS less an underwriting discount of USD0.55 per ADS. Such
option has been exercised on February 23, 2006 for 22,981,360 shares. 2,004,743,442 shares
(including shares in the form of ADSs) will be outstanding upon completion of the Initial Public
Offering, the conversion of the Subordinated Convertible Loans mentioned in Note 3, exercise of the
option granted to the underwriters and consummation of the transactions contemplated in the
Corporate Reorganization Agreement described in Note 1 (b).
The proceeds of the Initial Public Offering totaled USD 496.9 million and have been used to repay
Tranche A of the Ternium Credit Facility (as defined below) after deducting related expenses. See
Note 35.
(b) Corporate reorganization
On May 6, 2005 San Faustín assigned and contributed to Inversora Siderurgica Limited (ISL), a
wholly-owned subsidiary, a 100% interest in I.I.I.-Industrial Investments Inc. (III BVI), a
subsidiary of San Faustín organized under the laws of the British Virgin Islands through which it
held its investments in the flat and long steel manufacturing and distribution business and a 100%
interest in Fasnet International S.A. (Fasnet).
The investments then held by III BVI consisted principally of the following:
|
|
a 50.75% interest in Siderar S.A.I.C. (Siderar) (which in turn
owns a 11.11% equity interest in Ylopa Servicos de Consultadoria
Lda. (Ylopa) and a 14.40% interest in Consorcio Siderurgia
Amazonia Ltd. (Amazonia)); |
|
|
|
a 25.00% interest in Amazonia; |
|
|
|
a 34.27% interest in Ylopa; and |
|
|
|
a 100% interest in the Techintrade Network. |
On May 6, 2005, ISL acquired a 96.77% interest in Ternium, which it afterwards increased to an
interest of almost 100% of its issued and outstanding capital. On June 29, 2005, ISL assigned and
contributed to Ternium all of its assets and liabilities, including, but not limited to, a 100%
interest in III BVI and a 100% interest in Fasnet, in exchange for 959,482,775 shares of Ternium.
Also, on September 9, 2005 Tenaris S.A. (Tenaris) agreed to exchange with ISL its 21.17% interest
(14.49% direct ownership at December 31, 2004) in Amazonia, and its 24.40% interest in Ylopa for
209,460,856 shares of the Company.
On September 15, 2005, ISL made a second contribution of all of its assets and liabilities
including 750,021,919 shares of the Company, 21.17% in Amazonia, a Cuota representing 24.40% of
Ylopa and other items, in exchange for 959,482,775 new shares of the Company. Upon consummation of
this second contribution, the 750,021,919 shares contributed by ISL to the Company were cancelled
and the Companys issued share capital was increased to USD 1,168,943,632 represented by
1,168,943,632 shares of 1 USD nominal value each.
On September 22, 2005, the Company assumed all of I.I.I. BVIs rights and obligations under the
Ternium Credit Facility, dated as of August 16, 2005, for an aggregate principal amount of USD1.0
billion entered into among I.I.I. BVI and the lenders named therein; and several Subordinated
Convertible Loan Agreements, each among I.I.I. BVI, as borrower, the subordinated lender party
thereto, as lender, and the Company.
On October 27, 2005, I.I.I. BVI transferred to the Company all of its shares of Siderar, Amazonia,
Inversiones Siderúrgicas, Techintrade, Hylsa Latin and Ylopa in consideration of the assumption by
Ternium of I.I.I. BVIs obligations under the Ternium Credit Facility and the Subordinated
Convertible Loan Agreements.
In October 2005, Usinas Siderúrgicas de Minas Gerais S.A. (Usiminas) exchanged its 5.32%
equity interest in Siderar, its 16.58% equity interest in Amazonia and its 19.11% equity interest
in Ylopa and other items (the Usiminas Exchange) for
Annual Report and Accounts 2005
227,608,254 new shares of the Company. Upon
the consummation of this exchange the capital was increased to USD 1,396,552, represented by
1,396,551,887 shares of 1 USD nominal value each.
Furthermore, in November 2005, Siderúrgica del Turbio S.A. (Sidetur), a subsidiary of Siderúrgica
Venezolana S.A. (Sivensa), exchanged with ISL its 3.42% equity interest in Amazonia for shares of
the Company. ISL has, under the terms of the Corporate Reorganization Agreement (as defined below),
contributed such interest in Amazonia to the Company in exchange for shares of the Company after
the settlement of the Initial Public Offering (the Sivensa Exchange).
ISL and the Company entered into a reorganization agreement (the Corporate Reorganization
Agreement) pursuant to which ISL committed to deliver shares of the Company to the Underwriters
and to the Subordinated Lenders (as defined below) in an amount sufficient to satisfy the Companys
obligation to deliver shares of the Company to the Underwriters (excluding any shares to be
delivered in connection with the Underwriters over-allotment option) and to the Subordinated
Lenders pursuant to the terms of the Initial Public Offering and the Subordinated Convertible Loan
Agreements. As provided in the Corporate Reorganization Agreement, after ISLs delivery of such
shares, ISL will contribute all of its assets and liabilities (including the credit against the
Company arising from such delivery of shares, its interest in Amazonia resulting from the Sivensa
Exchange and any remaining shares of the Company) to the Company in exchange for that number of
newly issued shares of the Company equal to the number of shares of the Company held by ISL prior
to the Sivensa Exchange.
Because III BVI and Fasnet are under the common control of ISL, their consolidated financial
statements have been retroactively combined with those of the Company and presented as one
reporting entity (Ternium) in these combined consolidated financial statements. In addition,
since Tenaris and the Company are under common control of San Faustín, the equity interests held by
Tenaris in Amazonia and Ylopa that have been exchanged with ISL on September 9, 2005, have also
been retroactively combined in these combined consolidated financial statements.
In addition, as mentioned in Note 3, on May 18, 2005, III BVI, Hylsamex S.A. de C.V. (Hylsamex)
and Alfa S.A. de C.V. (Alfa) entered into an acquisition agreement (the Hylsamex Acquisition
Agreement). Pursuant to the terms of the Hylsamex Acquisition Agreement, on August 22, 2005, the
acquisition by III BVI of a controlling interest in Hylsamex and of Alfas minority interests in
Amazonia, Ylopa and Hylsa Latin was consummated. Accordingly, Hylsamexs results of operations have
been consolidated in these financial statements as from that date.
Detailed below are the companies whose consolidated financial statements have been included in
these combined consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of ownership |
|
|
Country of |
|
|
|
at December 31, |
Company |
|
incorporation |
|
Main activity |
|
2005 |
|
2004 |
Ternium S.A.
|
|
Luxembourg
|
|
Holding of investments in flat and
long steel manufacturing and
distributing companies
|
|
|
100.00 |
% |
|
|
100.00 |
% |
Alvory S.A.
|
|
Uruguay
|
|
Rendering of procurement services
|
|
|
100.00 |
% |
|
|
III Industrial
Investments Inc.
(B.V.I.)
|
|
British Virgin
Islands
|
|
Holding company
|
|
|
100.00 |
% |
|
|
100.00 |
% |
Inversiones Siderúrgicas
S.A.
|
|
Panama
|
|
Holding company
|
|
|
100.00 |
% |
|
|
100.00 |
% |
Siderar S.A.I.C.
|
|
Argentina
|
|
Manufacturing of flat steel products
|
|
|
56.07 |
% |
|
|
50.75 |
% |
Techintrade Uruguay S.A.
|
|
Uruguay
|
|
Holding company and marketing of
steel products
|
|
|
100.00 |
% |
|
|
100.00 |
% |
Ylopa Servicos de
Consultadoria Lda. (1)
|
|
Madeira Free zone
|
|
Participation in the debt
restructuring process of Amazonia
and Sidor C.A.
|
|
|
95.12 |
% |
|
|
64.31 |
% |
Fasnet International S.A.
|
|
Panama
|
|
Holding company
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
(1) |
|
Directly (54.62%) and indirectly through the participation of Prosid Investments S.C.A.
(11.11%), and Inversiones Siderúrgicas (34.27%). |
2 Basis of presentation
These combined consolidated financial statements are prepared in accordance with International
Financial Reporting Standards (IFRS). The Companys transition date for IFRS purposes was January
1, 2003 and thus, certain limited exceptions and exemptions provided by IFRS 1, First-time
Adoption of IFRS have been used.
These combined 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 2006). The combined consolidated financial statements
are presented in thousands of United States dollars (USD)
The assets and liabilities of III BVI and Fasnet (and their respective subsidiaries, Inversiones
Siderurgicas S.A. (IS), Siderar, Techintrade and Ylopa) have been accounted for at the relevant
predecessors cost, reflecting the
Annual Report and Accounts 2005
carrying amount of such assets and liabilities contributed to
the Company. Accordingly, the combined consolidated financial statements include the financial
statements of the above-mentioned combined companies at historical book values on a carryover basis
as though the contribution had taken place on January 1, 2003, and no adjustment has been made to
reflect fair values at the time of the contribution.
Detailed below are the subsidiary companies whose consolidated financial statements have been
combined in these combined consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of ownership |
|
|
Country of |
|
|
|
at December 31, |
Company |
|
Organization |
|
Main activity |
|
2005 |
|
2004 |
Comesi San Luis S.A.I.C. (1)
|
|
Argentina
|
|
Production of cold or hot
rold prepainted, formed
and skelped steel sheets
|
|
|
56.07 |
% |
|
|
50.24 |
% |
Inversiones Basilea S.A. (1)
|
|
Chile
|
|
Purchase and sale of real
estate and other
|
|
|
56.07 |
% |
|
|
Prosid Investments S.C.A.(1)
|
|
Uruguay
|
|
Holding of investments in
companies
|
|
|
56.07 |
% |
|
|
50.75 |
% |
Techintrade Italy S.R.L. (2)
|
|
Italy
|
|
Marketing of steel products
|
|
|
100.00 |
% |
|
|
100.00 |
% |
Socominter de Guatemala S.A.
(2)
|
|
Guatemala
|
|
Marketing of steel products
|
|
|
100.00 |
% |
|
|
100.00 |
% |
Socominter de España S.A.U.(2)
|
|
Spain
|
|
Marketing of steel products
|
|
|
100.00 |
% |
|
|
100.00 |
% |
Socotrading S.A.(2)
|
|
Ecuador
|
|
Marketing of steel products
|
|
|
100.00 |
% |
|
|
100.00 |
% |
Techintrade Corporation (2)
|
|
USA
|
|
Marketing of steel products
|
|
|
100.00 |
% |
|
|
100.00 |
% |
Ternium Internationaal B.V.
(formerly Techint Engineering
Company B.V.)(2)
|
|
Netherlands
|
|
Marketing of steel products
|
|
|
100.00 |
% |
|
|
100.00 |
% |
Techintrade del Perú S.A.C. (2)
|
|
Peru
|
|
Marketing of steel products
|
|
|
100.00 |
% |
|
|
100.00 |
% |
Consorcio Siderurgia Amazonia
Ltd.(3)
|
|
Cayman Islands
|
|
Holding of investments in
Venezuelan steel companies
|
|
|
89.07 |
% |
|
|
Sidor C.A. (4)
|
|
Venezuela
|
|
Manufacturing and selling
of steel products
|
|
|
53.20 |
% |
|
|
Hylsamex S.A. de C.V. (5)
|
|
Mexico
|
|
Holding Company
|
|
|
86.68 |
% |
|
|
|
|
|
(1) |
|
Indirectly through Siderar S.A.I.C. |
|
(2) |
|
Indirectly through Tecnintrade Uruguay S.A. |
|
(3) |
|
Directly (45.24%) and indirectly through the participation of Prosid Investments S.C.A.
(14.38%), Inversiones Siderúrgicas S.A. (25.00%), Hylsa Latin LLC (11.38%) and Hylsamex S.A
de CV (0.59%). Total voting rights held 96.59%. |
|
(4) |
|
Indirectly through the participation of Amazonia (59.73%). |
|
(5) |
|
Indirectly through the participation of III (B.V.I.) (70.00%), and Siderar S.A.I.C.
(29.75%). |
Annual Report and Accounts 2005
Detailed below are the subsidiary companies whose consolidated financial statements have been
consolidated in these combined consolidated financial statements, and the percentage of ownership
held directly or indirectly through Hylsamex S.A. de C.V. in these companies at the end of each
year indicated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of ownership |
|
|
Country of |
|
|
|
at December 31, |
Company |
|
Organization |
|
Main activity |
|
2005 |
|
2004 |
Hylsa S.A. de C.V. (1)
|
|
Mexico
|
|
Manufacturing and
selling of steel
products
|
|
|
86.68 |
% |
|
|
Express Anahuac S.A. de
C.V. (1)
|
|
Mexico
|
|
Freight services
|
|
|
86.68 |
% |
|
|
Ferropak Comercial S.A. de
C.V. (1)
|
|
Mexico
|
|
Scrap company
|
|
|
86.68 |
% |
|
|
Ferropak Servicios S.A. de
C.V. (1)
|
|
Mexico
|
|
Services
|
|
|
86.68 |
% |
|
|
Galvacer America Corp (1)
|
|
USA
|
|
Distributing company
|
|
|
86.68 |
% |
|
|
Galvamet America Corp (1)
|
|
USA
|
|
Manufacturing and
selling of
insulates panel
products
|
|
|
86.68 |
% |
|
|
Tansamerica E. & I. Corp (1)
|
|
USA
|
|
Scrap company
|
|
|
86.68 |
% |
|
|
Galvatubing Inc. (1)
|
|
USA
|
|
Manufacturing and
selling of pipe
products
|
|
|
86.68 |
% |
|
|
Las Encinas S.A. de C.V. (1)
|
|
Mexico
|
|
Exploration,
explotation and
pelletizing of iron
ore
|
|
|
86.68 |
% |
|
|
Técnica Industrial S.A. de
C.V. (1)
|
|
Mexico
|
|
Services
|
|
|
86.68 |
% |
|
|
Hylsa Latin LLC (2)
|
|
USA
|
|
Holding company
|
|
|
86.68 |
% |
|
|
Acerex S.A. de C.V. (3)
|
|
Mexico
|
|
Tooling services
|
|
|
43.34 |
% |
|
|
Acerex Servicios S.A. de
C.V. (3)
|
|
Mexico
|
|
Services
|
|
|
43.34 |
% |
|
|
Consorcio Minero Benito
Juarez Peña Colorada S.A.de
C.V. (3)
|
|
Mexico
|
|
Exploration,
explotation and
palletizing of iron
ore
|
|
|
43,34 |
% |
|
|
Peña Colorada Servicios
S.A. de C.V. (3)
|
|
Mexico
|
|
Services
|
|
|
43.34 |
% |
|
|
|
|
|
(1) |
|
Indirectly through the participation of Hylsamex. Total voting rights held: 100.00%. |
|
(2) |
|
Indirectly through the participation of Hylsamex (73.4%) and Ternium S.A. (26.6%).
Total voting rights held: 100%. |
|
(3) |
|
Indirectly through the participation of Hylsamex. Total voting rights held: 50.00%. |
Detailed below are the most relevant associated companies which are accounted for by the equity
method of accounting in these combined consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of ownership |
|
|
Country of |
|
|
|
at December 31, |
Company |
|
Organization |
|
Main activity |
|
2005 |
|
2004 |
Consorcio
Siderurgia Amazonia
Ltd.(1)
|
|
Cayman Islands
|
|
Holding of
investments in
Venezuelan steel
companies
|
|
|
|
|
|
|
31.03 |
% |
Matesi Materiales
Siderúrgicos
S.A.(2)
|
|
Venezuela
|
|
Manufacturing and
marketing of
briquettes
|
|
|
26.49 |
% |
|
|
Compañía
Afianzadora de
Empresas
Siderúrgicas S.G.R.
(3)
|
|
Argentina
|
|
Granting of
guarantees to
participating
partners to
facilitate or
permit access to
credits for the
purchase of
national raw
material
|
|
|
21.81 |
% |
|
|
19.74 |
% |
|
|
|
(1) |
|
Indirectly through the participation of Prosid Investments S.C.A. (21.14%), IS (5.81%) and
Tamsider (14.49%). Total voting rights held: 41.44%. The Company acquired control over
Amazonia on February 15, 2005 (see Note 3). |
|
(2) |
|
Indirectly through the participation of Sidor (49.8%). |
|
(3) |
|
Indirectly through the participation of Siderar (38.89%). Total voting rights held: 38.89%. |
Eliminations of all material intercompany transactions and balances between the Company and the
other combined companies and their respective subsidiaries have been made in consolidation.
Annual Report and Accounts 2005
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.
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. Actual results may differ from these estimates.
These combined consolidated financial statements have been approved for issue by the board of
directors on February 28, 2006.
3 Acquisition of business
(a) Hylsamex
On May 18, 2005, III BVI, Hylsamex S.A. de C.V. and Alfa entered into the Hylsamex Acquisition
Agreement. Pursuant to the terms of the Hylsamex Acquisition Agreement, on July 26, 2005, III BVI
launched a cash tender offer in Mexico for the acquisition of all the outstanding shares of
Hylsamex. On August 22, 2005, the acquisition by III BVI of a controlling interest in Hylsamex and
of Alfas minority interests in Amazonia, Ylopa and Hylsa Latin was consummated. The Company
acquired an indirect controlling interest in Hylsamex and its subsidiaries, and the indirect equity
stakes owned by Hylsamexs former controlling shareholder, Alfa, in Amazonia and Ylopa. III BVI and
Siderar acquired 70.0% and 29.3% of the shares of Hylsamex, respectively by a total amount of USD
2,095 million. III BVI also acquired an additional 10.5% direct and indirect interest in Amazonia
and an additional 11.1% interest in Ylopa by USD 91.9 million. Subsequently, Siderar purchased
additional shares of Hylsamex in the open market for a total amount of USD 9.7 million, thus
reaching a 29.8% equity interest in that company.
Hylsamexs main business is the production of flat and long steel products, with manufacturing
plants located in the cities of Monterrey and Puebla, Mexico, and is a leader in the production of
coated steel.
The acquired business contributed revenues of USD 723.8 million and net income of USD 25.4 million
to the Company in the year ended December 31, 2005. The book value of net assets acquired totals
USD1,492 million. The fair value of assets and liabilities arising from acquisition are as follows:
|
|
|
|
|
|
|
Fair value of assets |
|
|
and liabilities at the date |
|
|
of acquisition |
|
|
USD Thousand |
Property, plant and equipment |
|
|
2,129,325 |
|
Inventories |
|
|
345,053 |
|
Cash and cash equivalents |
|
|
215,411 |
|
Deferred tax liabilities |
|
|
(449,537 |
) |
Pension benefits |
|
|
(116,860 |
) |
Borrowings |
|
|
(751,730 |
) |
Others assets and liabilities, net |
|
|
488,297 |
|
Minority interest |
|
|
(156,651 |
) |
|
|
|
|
|
Net |
|
|
1,703,308 |
|
|
|
|
|
|
Goodwill, representing the excess of the purchase price paid over the fair value of identifiable
assets, liabilities and contingent liabilities acquired, totaled USD 399.7 million.
Annual Report and Accounts 2005
As part of the financing for the acquisition, the Company and its affiliates entered into the
following loan agreements:
i) |
|
an amended and restated credit agreement, dated as of August 16, 2005 among I.I.I. BVI and
lenders for an aggregate principal amount of USD1,000 million (the Ternium Credit Facility).
The Ternium Credit Facility is comprised of two equal tranches: |
|
|
|
Tranche A with a maturity of three years and bearing interest at the annual rate of
LIBOR plus an applicable margin that ranges from 75 to 400 basis points. This tranche has
been fully repaid in February 2006 (see Note 35). |
|
|
|
|
Tranche B with a maturity of five years and bearing interest at the annual rate of
LIBOR plus an applicable margin that ranges from 137.5 to 300 basis points. |
ii) |
|
an amended and restated credit agreement, dated as of August 16, 2005, for an aggregate
principal amount of USD380 million among Siderar, as borrower, and the lenders (the Siderar
Credit Facility). The Siderar Credit Facility is payable in five equal and consecutive
semi-annual installments with a grace period of 12 months and bears interest at LIBOR plus 200
basis points; and |
|
iii) |
|
several convertible and subordinated loan agreements, dated as of various dates, for an
aggregate principal amount of USD594 million, each among the Company, I.I.I. BVI, as
borrowers, and Usiminas, Tenaris, or other Techint Group companies (collectively, the
Subordinated Lenders, the agreements, the Subordinated Convertible Loan Agreements and the
loans thereunder, the Subordinated Convertible Loans). Pursuant to the terms of the
Subordinated Convertible Loan Agreements, on February 6, 2006 the Company delivered the ADSs
to the Underwriters upon consummation of the Initial Public Offering, the Subordinated
Convertible Loans have been converted into shares of the Company at a price per share equal to
the price per share paid by the investors in the offering (see Note 35). |
Under the credit agreements mentioned in i) and ii) above, the Company and its affiliates are
subject to certain covenants that limit their ability to, among other things: pay dividends in
excess of certain amounts to their shareholders or make other restricted payments; make
capital expenditures in excess of certain amounts; grant certain liens, borrow additional money
or prepay principal or interest on subordinated debt over certain limits, change their business
or amend certain significant agreements, effect a change of control, and merge, acquire or
consolidate with another company, make additional investments or dispose of their assets.
These contracts also require Ternium and its subsidiaries to meet certain financial covenants,
ratios and other tests, which could limit their operational flexibility and could prevent Ternium
from taking advantage of business opportunities as they arise, growing its business or competing
effectively. Moreover, a failure by Ternium and its subsidiaries to comply with applicable
financial measures could result in defaults under those agreements or instruments. Ternium and its
subsidiaries are in compliance with all of their financial covenants, ratios and tests.
(b) Amazonia
On February 3, 2005, Ylopa exercised its option to convert the outstanding balance of the Amazonia
convertible debt instrument into newly issued shares of that company. On February 15, 2005 new
shares of Amazonia were issued in exchange for the convertible instrument. As a result, Terniums
indirect participation in Amazonia increased from 31.03% to 53.47%, thereby increasing its indirect
participation in Sidor from 18.53% to 31.94%. This acquisition has been accounted for following the
provisions contained in IFRS 3 Business Combinations (IFRS 3) and, accordingly, assets acquired
and liabilities assumed have been valued at fair value. Total purchase consideration, representing
the carrying amount of the convertible debt instrument at the date of conversion, accounted for
USD127.6 million, of which USD82.0 correspond to the majority shareholders. The excess of Terniums
interest in the net fair value of Amazonias identifiable assets, liabilities and contingent
liabilities over the purchase price (amounting to USD 188.4 million) has been recognized in income
for the year. The main factor that contributed to a purchase price significantly below the fair
value of net assets acquired is the downturn experienced by steel prices until 2003. Thus, the
convertible debt instrument was issued at a time when Amazonia was undergoing a severe crisis
affecting its business and financial condition, this situation being opposite to the current
business condition on the date the conversion feature was exercised and the business combination
was effected. In addition, as also required by IFRS 3, the Company recorded in equity the excess of
the fair value of its pre-acquisition interest in Amazonias net assets over their corresponding
carrying amounts.
With the increase in equity ownership of Amazonia to 53.47%, the Company has effective control.
Annual Report and Accounts 2005
The acquired business contributed revenues of USD 1,863.5 million to the Company in the year
ended December 31, 2005. The book value of net assets acquired totals USD 928 million. The fair
value of assets and liabilities arising from acquisition are as follows:
|
|
|
|
|
|
|
Fair value of assets |
|
|
and liabilities at the date |
|
|
of acquisition |
|
|
USD Thousand |
Property, plant and equipment |
|
|
2,444,289 |
|
Inventories |
|
|
284,676 |
|
Cash and cash equivalents |
|
|
305,342 |
|
Deferred Tax Liabilities |
|
|
(284,242 |
) |
Pension Benefits |
|
|
(78,425 |
) |
Provisions |
|
|
(37,163 |
) |
Borrowings |
|
|
(656,658 |
) |
Others assets and liabilities, net |
|
|
(13,459 |
) |
Minority Interest |
|
|
(795,178 |
) |
|
|
|
|
|
Net |
|
|
1,169,182 |
|
|
|
|
|
|
(c) Impeco S.A.
On November 18 2005, Terniums Argentine subsidiary, Siderar, agreed to acquire, for USD 55.2
million, assets and facilities of Acindar Industria Argentina de Aceros S.A. (Acindar) related to
the production of welded steel pipes in the province of San Luis in Argentina, as well as 100% of
the issued and outstanding shares of Impeco S.A., which in turn owns a plant located in the
province of Santa Fe in Argentina. These two plants have a production capacity of 140 thousand tons
per year of tubes to be used in the construction, agricultural and manufacturing industries. The
acquisition has been approved by the Argentine competition authorities and was completed on January
31, 2006.
4 Accounting policies
The following is a summary of the principal accounting policies followed in the preparation of
these combined 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. 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.
(2) 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 (see Note
2). 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.
(3) First-time application of IFRS
Annual Report and Accounts 2005
The Companys transition date is January 1, 2003. Ternium prepared its opening IFRS balance sheet
at that date.
In preparing these combined consolidated 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:
3.1. 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.
3.2 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
The Company has no 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) during the
period presented.
(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
(USD). 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. The combined consolidated financial
statements are presented in thousands of U.S. dollars.
(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.
(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
Annual Report and Accounts 2005
recognized in the income statement, including the
foreign exchange gains and losses from intercompany transactions.
(c) 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
impairment (if applicable). Nevertheless, as mentioned in Note 4(a), property, plant and equipment
has 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.
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
|
|
20-40 years |
Plant and production equipment
|
|
15-25 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 (d) Impairment).
(d) 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 present value of estimated future cash flows. For purposes of
assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units). For these purposes, each associate has been
considered a cash generating unit.
At December 31, 2005 and 2004, no impairment provisions were recorded. The impairment provision
recorded in previous years on the investment in Amazonia was reversed in 2004 and included in
equity in earnings of associated companies, as explained in Note 12.
(e) Intangible assets
(1) Information systems 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 systems 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 expenses and general and administrative expenses.
Annual Report and Accounts 2005
(2) Mining concessions
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.
(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.
(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, 2005, 2004
and 2003 totaled USD 2.1 million, USD 0.3 million and USD 0.5 million, respectively.
(f) Other investments
Under IAS 39 Financial Instruments: Recognition and Measurement, investments have to be
classified into the following categories: financial assets at fair value through profit or loss;
held-to-maturity investments; loans and receivables and available-for-sale financial assets. The
classification depends on the purpose for which the investments were acquired. Management
determines the classification of its investments at initial recognition.
Deposits in trusts are classified as financial assets at fair value through profit or loss.
Subsequent to their acquisition, these investments are carried at fair value through profit and
loss. Realized and unrealized gains and losses arising from changes in the fair value in those
investments are included in the income statement for the period in which they arise. The Amazonia
Convertible Debt Instrument was carried at cost until it was capitalized in February 2005.
In order to mitigate any potential impact of Argentine regulations restricting payments outside of
Argentina, Siderar has placed financial resources in a trust outside Argentina. The objective of
the trust is solely to ensure that the financial needs for the normal development of Siderars
operations are met. The fund mainly comprises time deposits and commercial paper. No liabilities
or debts have been offset within the trust fund. The financial resources that were placed in the
trust up to December 31, 2004 have been contributed to a subsidiary (Inversiones Basilea S.A.) as
of January 1, 2005.
All purchases and sales of investments are recognized on the trade date, not significantly
different from the settlement date, which is the date that Ternium commits to purchase or sell the
investment.
(g) Inventories
Inventories are stated at the lower of cost (calculated using principally the first-in-first-out
FIFO method) or net realizable value. The cost of finished goods and work in progress comprises
raw materials, direct labor, depreciation, other direct costs and related production overhead
costs. It excludes borrowing costs. Net realizable value is the estimated selling price in the
ordinary course of business, less the costs of completion and selling expenses. Goods acquired in
transit at period end are valued at supplier invoice cost.
A provision for obsolescence or slow-moving inventory is recorded in connection with supplies and
spare parts and 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. The provision for slow-moving inventory is recognized for finished goods and
goods in progress based on managements analysis of their aging.
(h) Trade receivables
Trade and other receivables are carried at face value less a provision for impairment, 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.
(i) 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 words missing
Annual Report and Accounts 2005
short-term highly liquid investments (original maturity of less than 90 days).
In the combined consolidated balance sheet, bank overdrafts are included in borrowings within
current liabilities.
(j) Shareholders equity
Basis of combination
The combined consolidated statement of changes in shareholders equity for the years 2005, 2004 and
2003 was prepared based on the following:
|
|
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; |
|
|
Dividends include the dividends paid by III (BVI) to San Faustín,
and dividends paid by Ylopa to Tenaris, as if they had been paid
by Ternium to San Faustín or Tenaris. |
|
|
Other distributions comprise loans granted by Ylopa and Amazonia
to its shareholders that are in substance capital nature
transactions. These loans are non-interest bearing facilities
granted by Ylopa to its shareholders based on their respective
stockholdings. These loans mature in one year, although debtors
are allowed to make partial or full prepayments at any time.
However Ylopas intention is to offset the outstanding balance of
such facilities against future dividend distributions.
Accordingly, these credits have been shown as a reduction to
equity. |
|
|
Expenses incurred in connection with the Initial Public Offering
at year-end, totaling USD5.5 million approximately, have been
deducted from equity, since they directly relate to a transaction
which itself is to be recorded in equity, although at December 31,
2005, the equity transaction had not yet been completed. |
(k) 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.
A debt restructuring is accounted for in accordance with the guidelines set forth by IAS No. 39
which states that a substantial modification of the terms of an existing debt instrument (whether
or not due to the financial difficulty of the debtor) should be accounted for as an extinguishment
of the old debt. For purposes of IAS No. 39, the terms are substantially different if the
discounted present value of the cash flows under the new terms, including any fees paid net of any
fees received, is at least 10 per cent different from the discounted present value of the remaining
cash flows of the original debt instrument.
Borrowing costs are expensed as incurred.
(l) 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 current income tax charge is calculated on the basis of the tax laws existing 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, originated in different
valuation and useful lives considered by accounting standards and tax regulations, tax loss
carry-forwards, 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 by 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.
(m) Employee liabilities
(1) Pension obligations
Annual Report and Accounts 2005
The Company has defined benefit 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.
Siderar
Siderar implemented an unfunded defined benefit employee retirement plan for Siderars and certain
other officers throughout the world 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 in U.S.
Dollars and are calculated based on a three-year or seven-year salary average (whichever is more
favorable to the beneficiary) for those executives who have retired or were terminated before
December 31, 2003. After this date, the benefits of the plan are calculated based on a seven-year
salary average.
Sidor
In compliance with the requirements established by the share purchase agreement subscribed in
connection with the acquisition of Sidor, and as provided by the agreement entered into with the
Union representing Sidors employees, on July 6, 1998, Sidor has established a plan providing for
certain pension and other post-retirement benefits for qualifying employees. This plan is financed
through contributions made by that company and active employees. Although the plan does not provide
for the amounts to be paid to employees upon retirement, for purposes of International Accounting
Standard No. 19 (Employee Benefits), Sidors obligations have been calculated based on actuarial
calculations prepared assuming this plan qualifies as a defined benefit plan.
Hylsamex
The valuation of the liabilities for 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.
(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.
(3) Other compensation obligations
Employee entitlements to annual leave and long-service leave are accrued as earned.
(4) Social security contributions
Annual Report and Accounts 2005
Social security laws in force in Argentina, Mexico and Venezuela 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, Hylsamex
and Sidor 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.
(n) 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.
(o) 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).
(p) Cost of sales, selling expenses and general and administrative expenses
Cost of sales and expenses are recognized in the income statement on the accrual basis of
accounting.
(q) 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. At December 31, 2005,
there were 297,010,812 potential shares outstanding (see Note 30; actual shares are described in
Note 35 (a)).
(r) Derivative financial instruments
Information about accounting for derivative financial instruments and hedging activities is
included in Note 34 Financial risk management.
(s) 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 and the long steel
products segment comprises the manufacturing and marketing of long steel products.
The secondary reporting format is based on a geographical location. Ternium sells its products to
four main geographical areas: South and Central America, North America, Europe and Other.
Annual Report and Accounts 2005
5 Segment information
Primary reporting format business segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flat steel |
|
Long steel |
|
|
|
|
|
|
|
|
products |
|
products |
|
Other |
|
Unallocated |
|
Total |
|
|
|
Year ended December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
3,570,414 |
|
|
|
625,368 |
|
|
|
251,898 |
|
|
|
|
|
|
|
4,447,680 |
|
Cost of sales |
|
|
(1,925,163 |
) |
|
|
(382,325 |
) |
|
|
(163,356 |
) |
|
|
|
|
|
|
(2,470,844 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,645,251 |
|
|
|
243,043 |
|
|
|
88,542 |
|
|
|
|
|
|
|
1,976,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures PP&E |
|
|
208,772 |
|
|
|
14,587 |
|
|
|
|
|
|
|
|
|
|
|
223,359 |
|
Depreciation PP&E |
|
|
267,975 |
|
|
|
32,604 |
|
|
|
1,387 |
|
|
|
|
|
|
|
301,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net |
|
|
859,270 |
|
|
|
126,536 |
|
|
|
14,313 |
|
|
|
|
|
|
|
1,000,119 |
|
Trade receivables, net |
|
|
363,573 |
|
|
|
74,925 |
|
|
|
34,262 |
|
|
|
|
|
|
|
472,760 |
|
PP&E, net |
|
|
4,653,192 |
|
|
|
749,305 |
|
|
|
61,374 |
|
|
|
|
|
|
|
5,463,871 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,723,231 |
|
|
|
1,723,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
|
|
1,566,451 |
|
|
|
193,247 |
|
|
|
31,117 |
|
|
|
3,293,247 |
|
|
|
5,084,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flat steel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
products |
|
|
Trading |
|
|
Other |
|
|
Unallocated |
|
|
Total |
|
Year ended December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
1,266,197 |
|
|
|
325,227 |
|
|
|
7,501 |
|
|
|
|
|
|
|
1,598,925 |
|
Cost of sales |
|
|
(647,815 |
) |
|
|
(312,447 |
) |
|
|
(4,742 |
) |
|
|
|
|
|
|
(965,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
618,382 |
|
|
|
12,780 |
|
|
|
2,759 |
|
|
|
|
|
|
|
633,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures PP&E |
|
|
83,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,763 |
|
Depreciation PP&E |
|
|
92,596 |
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
92,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net |
|
|
233,624 |
|
|
|
20,100 |
|
|
|
562 |
|
|
|
|
|
|
|
254,286 |
|
Trade receivables, net |
|
|
111,945 |
|
|
|
58,877 |
|
|
|
783 |
|
|
|
|
|
|
|
171,605 |
|
PP&E, net |
|
|
1,244,294 |
|
|
|
397 |
|
|
|
|
|
|
|
|
|
|
|
1,244,691 |
|
Investment in Amazonia |
|
|
309,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
309,195 |
|
Other assets |
|
|
468,673 |
|
|
|
95,047 |
|
|
|
|
|
|
|
103,133 |
|
|
|
666,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
|
|
635,461 |
|
|
|
143,629 |
|
|
|
|
|
|
|
95,689 |
|
|
|
874,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flat steel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
products |
|
|
Trading |
|
|
Other (ii) |
|
|
Unallocated |
|
|
Total |
|
Year ended December 31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
955,591 |
|
|
|
98,261 |
|
|
|
2,714 |
|
|
|
|
|
|
|
1,056,566 |
|
Cost of sales |
|
|
(576,368 |
) |
|
|
(93,276 |
) |
|
|
(2,076 |
) |
|
|
|
|
|
|
(671,720 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
379,223 |
|
|
|
4,985 |
|
|
|
638 |
|
|
|
|
|
|
|
384,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures PP&E |
|
|
26,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,014 |
|
Depreciation PP&E |
|
|
81,720 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
81,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net |
|
|
140,754 |
|
|
|
3,167 |
|
|
|
386 |
|
|
|
|
|
|
|
144,307 |
|
Trade receivables, net |
|
|
81,504 |
|
|
|
26,922 |
|
|
|
30 |
|
|
|
|
|
|
|
108,456 |
|
PP&E, net |
|
|
1,275,477 |
|
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
1,275,699 |
|
Investment in Amazonia |
|
|
151,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151,543 |
|
Other assets |
|
|
360,492 |
|
|
|
37,888 |
|
|
|
|
|
|
|
108,503 |
|
|
|
506,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment liabilities |
|
|
795,102 |
|
|
|
52,982 |
|
|
|
|
|
|
|
86,719 |
|
|
|
934,803 |
|
(ii) Includes sales of pig iron made by Siderar
Annual Report and Accounts 2005
Secondary reporting format geographical segments
Allocation of net sales is based on the customers location. Allocation of assets and capital
expenditures is based on the assets location.
Terniums subsidiaries operate for four main geographical areas. The North American segment
comprises principally United States, Canada and Mexico. The South and Central American segment
comprises principally Argentina, Brazil, Colombia, Venezuela and Ecuador.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central |
|
|
North |
|
|
|
|
|
|
|
|
|
|
|
|
America |
|
|
America |
|
|
Europe |
|
|
Other |
|
|
Total |
|
Year ended December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
2,805,214 |
|
|
|
1,290,353 |
|
|
|
270,496 |
|
|
|
81,617 |
|
|
|
4,447,680 |
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables |
|
|
64,837 |
|
|
|
335,795 |
|
|
|
68,050 |
|
|
|
4,078 |
|
|
|
472,760 |
|
Property, plant and equipment |
|
|
3,409,045 |
|
|
|
2,054,687 |
|
|
|
139 |
|
|
|
|
|
|
|
5,463,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation PP&E. |
|
|
249,808 |
|
|
|
52,132 |
|
|
|
26 |
|
|
|
|
|
|
|
301,966 |
|
Capital expenditures PP&E |
|
|
180,867 |
|
|
|
42,473 |
|
|
|
19 |
|
|
|
|
|
|
|
223,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
1,123,692 |
|
|
|
230,829 |
|
|
|
212,373 |
|
|
|
32,031 |
|
|
|
1,598,925 |
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables |
|
|
50,956 |
|
|
|
42,563 |
|
|
|
77,581 |
|
|
|
505 |
|
|
|
171,605 |
|
Property, plant and equipment |
|
|
1,244,428 |
|
|
|
93 |
|
|
|
170 |
|
|
|
|
|
|
|
1,244,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation PP&E. |
|
|
92,626 |
|
|
|
25 |
|
|
|
31 |
|
|
|
|
|
|
|
92,682 |
|
Capital expenditures PP&E |
|
|
83,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
713,265 |
|
|
|
86,618 |
|
|
|
184,033 |
|
|
|
72,650 |
|
|
|
1,056,566 |
|
Segment assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables |
|
|
35,529 |
|
|
|
7,744 |
|
|
|
63,930 |
|
|
|
1,253 |
|
|
|
108,456 |
|
Property, plant and equipment |
|
|
1,275,542 |
|
|
|
29 |
|
|
|
128 |
|
|
|
|
|
|
|
1,275,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation PP&E |
|
|
81,720 |
|
|
|
7 |
|
|
|
22 |
|
|
|
|
|
|
|
81,749 |
|
Capital expenditures PP&E |
|
|
26,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,014 |
|
6 Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
|
Inventories at the beginning of the year |
|
|
254,286 |
|
|
|
144,307 |
|
|
|
109,966 |
|
Acquisition of business Amazonia |
|
|
284,676 |
|
|
|
|
|
|
|
|
|
Acquisition of business Hylsamex |
|
|
345,053 |
|
|
|
|
|
|
|
|
|
Plus: Charges for the year |
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials and consumables used and other movements |
|
|
1,607,002 |
|
|
|
781,337 |
|
|
|
453,590 |
|
Services and fees |
|
|
114,115 |
|
|
|
42,277 |
|
|
|
37,782 |
|
Labor cost |
|
|
283,775 |
|
|
|
89,362 |
|
|
|
68,053 |
|
Depreciation of property, plant and equipment |
|
|
279,480 |
|
|
|
89,836 |
|
|
|
78,996 |
|
Amortization of intangible assets |
|
|
10,488 |
|
|
|
5,400 |
|
|
|
2,871 |
|
Maintenance expenses |
|
|
207,242 |
|
|
|
62,488 |
|
|
|
57,888 |
|
Office expenses |
|
|
5,174 |
|
|
|
1,145 |
|
|
|
1,214 |
|
Freight and transportation |
|
|
41,457 |
|
|
|
18,746 |
|
|
|
14,574 |
|
Insurance |
|
|
814 |
|
|
|
815 |
|
|
|
607 |
|
Provision for obsolescence |
|
|
7,927 |
|
|
|
|
|
|
|
|
|
Recovery from sales of scrap and by-products |
|
|
(35,266 |
) |
|
|
(23,315 |
) |
|
|
(13,714 |
) |
Others |
|
|
64,740 |
|
|
|
6,892 |
|
|
|
4,200 |
|
Less: Inventories at the end of the year |
|
|
(1,000,119 |
) |
|
|
(254,286 |
) |
|
|
(144,307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,470,844 |
|
|
|
965,004 |
|
|
|
671,720 |
|
|
|
|
|
|
|
|
|
|
|
Annual Report and Accounts 2005
7 General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Services and fees |
|
|
40,471 |
|
|
|
12,479 |
|
|
|
9,117 |
|
Labor cost |
|
|
119,822 |
|
|
|
15,105 |
|
|
|
17,159 |
|
Depreciation of property plant and equipment |
|
|
22,486 |
|
|
|
2,846 |
|
|
|
2,753 |
|
Amortization of intangible assets |
|
|
3,308 |
|
|
|
440 |
|
|
|
438 |
|
Maintenance and expenses |
|
|
7,564 |
|
|
|
2,162 |
|
|
|
1,452 |
|
Taxes |
|
|
35,787 |
|
|
|
17,977 |
|
|
|
13,665 |
|
Office expenses |
|
|
21,147 |
|
|
|
1,346 |
|
|
|
1,155 |
|
Donations |
|
|
3,242 |
|
|
|
1,061 |
|
|
|
1,767 |
|
Insurance |
|
|
4,410 |
|
|
|
529 |
|
|
|
685 |
|
Others |
|
|
10,994 |
|
|
|
4,483 |
|
|
|
3,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269,231 |
|
|
|
58,428 |
|
|
|
51,557 |
|
|
|
|
|
|
|
|
|
|
|
8 Selling expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Services and fees |
|
|
13,237 |
|
|
|
3,249 |
|
|
|
3,582 |
|
Labor cost |
|
|
22,578 |
|
|
|
9,144 |
|
|
|
9,271 |
|
Amortization of intangible assets |
|
|
643 |
|
|
|
670 |
|
|
|
421 |
|
Office expenses |
|
|
6,229 |
|
|
|
194 |
|
|
|
240 |
|
Freight and transportation |
|
|
198,657 |
|
|
|
42,354 |
|
|
|
46,257 |
|
Taxes |
|
|
9,321 |
|
|
|
3,934 |
|
|
|
2,251 |
|
Others |
|
|
1,297 |
|
|
|
979 |
|
|
|
764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251,962 |
|
|
|
60,524 |
|
|
|
62,786 |
|
|
|
|
|
|
|
|
|
|
|
9 Labor costs (included in cost of sales, selling expenses and general and administrative
expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Wages, salaries and social security costs |
|
|
361,250 |
|
|
|
104,268 |
|
|
|
83,087 |
|
Termination benefits |
|
|
40,364 |
|
|
|
7,969 |
|
|
|
10,419 |
|
Pension benefits defined benefit plans (Note 26 (i)) |
|
|
24,561 |
|
|
|
1,374 |
|
|
|
977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
426,175 |
|
|
|
113,611 |
|
|
|
94,483 |
|
|
|
|
|
|
|
|
|
|
|
10 Other operating expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
(i) Other operating income |
|
|
|
|
|
|
|
|
|
|
|
|
Others |
|
|
6,543 |
|
|
|
502 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
Total other operating income |
|
|
6,543 |
|
|
|
502 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii) Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for impairment- trade receivables |
|
|
(1,853 |
) |
|
|
(1,093 |
) |
|
|
(6,025 |
) |
Recovery of provision for impairment- trade receivables |
|
|
4,320 |
|
|
|
3,419 |
|
|
|
4,701 |
|
Provision for legal claims and other matters |
|
|
(13,586 |
) |
|
|
(2,714 |
) |
|
|
(3,975 |
) |
Others |
|
|
(4,558 |
) |
|
|
(912 |
) |
|
|
(497 |
) |
|
|
|
|
|
|
|
|
|
|
Total other operating expenses |
|
|
(15,677 |
) |
|
|
(1,300 |
) |
|
|
(5,796 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(iii) Derecognition of property, plant & equipment (a) |
|
|
(54,348 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses, net |
|
|
(63,482 |
) |
|
|
(798 |
) |
|
|
(5,721 |
) |
|
|
|
|
|
|
|
|
|
|
(a) |
|
After the acquisition of Hylsamex described in Note 3, the Companys management
decided to abandon one of Hylsamexs mills and, accordingly, the net carrying amount of
such mill has been charged to income for the year. |
Annual Report and Accounts 2005
11 Financial (expenses) income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Interest expense |
|
|
(81,608 |
) |
|
|
(18,257 |
) |
|
|
(39,980 |
) |
Interest income |
|
|
32,324 |
|
|
|
8,911 |
|
|
|
6,036 |
|
Net foreign exchange transaction gains
and change in fair value of derivative
instruments |
|
|
(28,828 |
) |
|
|
9,845 |
|
|
|
37,787 |
|
Bank commissions and other bank charges |
|
|
(10,015 |
) |
|
|
(1,506 |
) |
|
|
(1,719 |
) |
Income from Participation Account (i) |
|
|
44,050 |
|
|
|
203,429 |
|
|
|
73,913 |
|
Loss from Participation Account (i) |
|
|
(265,207 |
) |
|
|
|
|
|
|
|
|
Others |
|
|
(1,452 |
) |
|
|
(133 |
) |
|
|
(431 |
) |
|
|
|
|
|
|
|
|
|
|
Financial (expenses) income, net |
|
|
(310,736 |
) |
|
|
202,289 |
|
|
|
75,606 |
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Until February 15, 2005, the Company accounted for its investment in Amazonia under the
equity method of accounting. Thus, income arising from the Participation Account Agreement
described in Note 29 has been recorded under Income from Participation Account within
Financial income, net. Upon conversion of the Amazonia Convertible Debt Instrument on
February 15, 2005, the Company acquired control over Amazonia and began accounting for such
investment on a consolidated basis. Accordingly, income resulting from Terniums share of the
Participation Account has been offset against Amazonias loss for the same concept and shown
net under Loss from Participation Account line item. |
12 Equity in earnings of associated companies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Equity in earnings of associated companies (Note
16) |
|
|
21,524 |
|
|
|
60,908 |
|
|
|
148,162 |
|
Impairments (i) (Note 16) |
|
|
|
|
|
|
148,293 |
|
|
|
(37,912 |
) |
|
|
|
|
|
|
|
|
|
|
Equity in earnings of associated companies |
|
|
21,524 |
|
|
|
209,201 |
|
|
|
110,250 |
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
The accumulated impairment loss over the Companys investment in Amazonia at December 31,
2003 (totaling USD 148,293) was fully reversed in fiscal year 2004. |
13 Tax charge
Income tax
Income tax expense for each of the years presented is as follows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Current tax |
|
|
(243,482 |
) |
|
|
(209,147 |
) |
|
|
(60,625 |
) |
Deferred tax (Note 25) |
|
|
24,990 |
|
|
|
31,661 |
|
|
|
(33,462 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(218,492 |
) |
|
|
(177,486 |
) |
|
|
(94,087 |
) |
|
|
|
|
|
|
|
|
|
|
Income tax expense for the years ended December 31, 2004 and 2003 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, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Income before income tax |
|
|
1,291,305 |
|
|
|
925,661 |
|
|
|
450,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense at statutory tax rate |
|
|
271,953 |
|
|
|
179,827 |
|
|
|
94,727 |
|
Non taxable income |
|
|
(70,115 |
) |
|
|
(2,341 |
) |
|
|
(1,289 |
) |
Non deductible expenses |
|
|
19,196 |
|
|
|
|
|
|
|
649 |
|
Utilization of previously unrecognized tax losses |
|
|
(2,542 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
218,492 |
|
|
|
177,486 |
|
|
|
94,087 |
|
|
|
|
|
|
|
|
|
|
|
Annual Report and Accounts 2005
14 Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicles, |
|
|
|
|
|
|
|
|
|
|
|
|
Building and |
|
Production |
|
furniture |
|
Work in |
|
Spare |
|
|
Year ended December 31, 2005 |
|
Land |
|
improvements |
|
equipment |
|
and fixtures |
|
progress |
|
parts |
|
Total |
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
23,427 |
|
|
|
682,576 |
|
|
|
2,217,688 |
|
|
|
141,212 |
|
|
|
36,865 |
|
|
|
16,331 |
|
|
|
3,118,099 |
|
Translation differences |
|
|
(6,243 |
) |
|
|
(98,975 |
) |
|
|
(266,065 |
) |
|
|
(6,484 |
) |
|
|
(10,094 |
) |
|
|
(382 |
) |
|
|
(388,243 |
) |
Acquisition of business Amazonia |
|
|
55,815 |
|
|
|
959,849 |
|
|
|
2,473,696 |
|
|
|
42,231 |
|
|
|
94,370 |
|
|
|
|
|
|
|
3,625,961 |
|
Acquisition of business Hylsamex |
|
|
235,479 |
|
|
|
547,183 |
|
|
|
2,881,273 |
|
|
|
68,959 |
|
|
|
49,872 |
|
|
|
|
|
|
|
3,782,766 |
|
Additions |
|
|
266 |
|
|
|
7,539 |
|
|
|
42,747 |
|
|
|
2,633 |
|
|
|
165,966 |
|
|
|
4,208 |
|
|
|
223,359 |
|
Disposals / Consumptions |
|
|
|
|
|
|
(29,029 |
) |
|
|
(83,352 |
) |
|
|
(3,396 |
) |
|
|
|
|
|
|
(1,538 |
) |
|
|
(117,315 |
) |
Transfers |
|
|
6,252 |
|
|
|
59,808 |
|
|
|
115,457 |
|
|
|
5,379 |
|
|
|
(186,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
Values at the end of the year |
|
|
314,996 |
|
|
|
2,128,951 |
|
|
|
7,381,444 |
|
|
|
250,534 |
|
|
|
150,083 |
|
|
|
18,619 |
|
|
|
10,244,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at the beginning of
the year |
|
|
|
|
|
|
(392,996 |
) |
|
|
(1,368,813 |
) |
|
|
(109,797 |
) |
|
|
|
|
|
|
(1,802 |
) |
|
|
(1,873,408 |
) |
Translation differences |
|
|
|
|
|
|
61,210 |
|
|
|
107,768 |
|
|
|
3,773 |
|
|
|
|
|
|
|
(2 |
) |
|
|
172,749 |
|
Acquisition of business Amazonia |
|
|
|
|
|
|
(480,581 |
) |
|
|
(688,188 |
) |
|
|
(12,903 |
) |
|
|
|
|
|
|
|
|
|
|
(1,181,672 |
) |
Acquisition of business Hylsamex |
|
|
|
|
|
|
(274,824 |
) |
|
|
(1,330,310 |
) |
|
|
(48,307 |
) |
|
|
|
|
|
|
|
|
|
|
(1,653,441 |
) |
Depreciation Charge |
|
|
|
|
|
|
(68,442 |
) |
|
|
(221,566 |
) |
|
|
(11,801 |
) |
|
|
|
|
|
|
(157 |
) |
|
|
(301,966 |
) |
Disposals / Consumptions |
|
|
|
|
|
|
14,207 |
|
|
|
39,929 |
|
|
|
1,806 |
|
|
|
|
|
|
|
1,040 |
|
|
|
56,982 |
|
Accumulated at the end of the year |
|
|
|
|
|
|
(1,141,426 |
) |
|
|
(3,461,180 |
) |
|
|
(177,229 |
) |
|
|
|
|
|
|
(921 |
) |
|
|
(4,780,756 |
) |
|
|
|
At December 31, 2005 |
|
|
314,996 |
|
|
|
987,525 |
|
|
|
3,920,264 |
|
|
|
73,305 |
|
|
|
150,083 |
|
|
|
17,698 |
|
|
|
5,463,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicles, |
|
|
|
|
|
|
|
|
|
|
|
|
Building and |
|
Production |
|
furniture |
|
Work in |
|
Spare |
|
|
Year ended December 31, 2004 |
|
Land |
|
improvements |
|
equipment |
|
and fixtures |
|
progress |
|
parts |
|
Total |
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
23,856 |
|
|
|
644,233 |
|
|
|
2,233,218 |
|
|
|
141,874 |
|
|
|
29,797 |
|
|
|
14,187 |
|
|
|
3,087,165 |
|
Translation differences |
|
|
(392 |
) |
|
|
(11,212 |
) |
|
|
(36,999 |
) |
|
|
(2,346 |
) |
|
|
(585 |
) |
|
|
(263 |
) |
|
|
(51,797 |
) |
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
970 |
|
|
|
80,386 |
|
|
|
2,407 |
|
|
|
83,763 |
|
Disposals / Consumptions |
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
(187 |
) |
|
|
(808 |
) |
|
|
|
|
|
|
(1,032 |
) |
Transfers |
|
|
|
|
|
|
49,555 |
|
|
|
21,469 |
|
|
|
901 |
|
|
|
(71,925 |
) |
|
|
|
|
|
|
|
|
|
|
|
Values at the end of the year |
|
|
23,427 |
|
|
|
682,576 |
|
|
|
2,217,688 |
|
|
|
141,212 |
|
|
|
36,865 |
|
|
|
16,331 |
|
|
|
3,118,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at the beginning of
the year |
|
|
|
|
|
|
(374,761 |
) |
|
|
(1,329,670 |
) |
|
|
(105,504 |
) |
|
|
|
|
|
|
(1,531 |
) |
|
|
(1,811,466 |
) |
Translation differences |
|
|
|
|
|
|
6,439 |
|
|
|
22,525 |
|
|
|
1,576 |
|
|
|
|
|
|
|
30 |
|
|
|
30,570 |
|
Depreciation charge |
|
|
|
|
|
|
(24,674 |
) |
|
|
(61,668 |
) |
|
|
(6,039 |
) |
|
|
|
|
|
|
(301 |
) |
|
|
(92,682 |
) |
Disposals / Consumptions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
170 |
|
|
|
|
Accumulated at the end of the year |
|
|
|
|
|
|
(392,996 |
) |
|
|
(1,368,813 |
) |
|
|
(109,797 |
) |
|
|
|
|
|
|
(1,802 |
) |
|
|
(1,873,408 |
) |
|
|
|
At December 31, 2004 |
|
|
23,427 |
|
|
|
289,580 |
|
|
|
848,875 |
|
|
|
31,415 |
|
|
|
36,865 |
|
|
|
14,529 |
|
|
|
1,244,691 |
|
|
|
|
Annual Report and Accounts 2005
15 Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information System |
|
Mining |
|
|
|
|
Year ended December 31, 2005 |
|
Projects |
|
Concessions |
|
Goodwill |
|
Total |
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
20,547 |
|
|
|
|
|
|
|
|
|
|
|
20,547 |
|
Translation differences |
|
|
(1,767 |
) |
|
|
(603 |
) |
|
|
(5,694 |
) |
|
|
(8,064 |
) |
Acquisition of business Amazonia |
|
|
7,465 |
|
|
|
|
|
|
|
|
|
|
|
7,465 |
|
Acquisition of business Hylsamex |
|
|
11,172 |
|
|
|
127,101 |
|
|
|
|
|
|
|
138,273 |
|
Additions |
|
|
21,144 |
|
|
|
436 |
|
|
|
405,388 |
|
|
|
426,968 |
|
Disposals |
|
|
(77 |
) |
|
|
|
|
|
|
|
|
|
|
(77 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at the end of the year |
|
|
58,484 |
|
|
|
126,934 |
|
|
|
399,694 |
|
|
|
585,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at the beginning of the year |
|
|
(10,498 |
) |
|
|
|
|
|
|
|
|
|
|
(10,498 |
) |
Translation differences |
|
|
806 |
|
|
|
|
|
|
|
|
|
|
|
806 |
|
Acquisition of business Amazonia |
|
|
(2,906 |
) |
|
|
|
|
|
|
|
|
|
|
(2,906 |
) |
Acquisition of business Hylsamex |
|
|
(5,193 |
) |
|
|
|
|
|
|
|
|
|
|
(5,193 |
) |
Amortization charge |
|
|
(10,115 |
) |
|
|
(4,324 |
) |
|
|
|
|
|
|
(14,439 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at the end of the year |
|
|
(27,906 |
) |
|
|
(4,324 |
) |
|
|
|
|
|
|
(32,230 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005 |
|
|
30,578 |
|
|
|
122,610 |
|
|
|
399,694 |
|
|
|
552,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information |
Year ended December 31, 2004 |
|
System Projects |
Cost |
|
|
|
|
Values at the beginning of the year |
|
|
12,055 |
|
Translation differences |
|
|
(308 |
) |
Additions |
|
|
8,800 |
|
|
|
|
|
|
Values at the end of the year |
|
|
20,547 |
|
|
|
|
|
|
Amortization |
|
|
|
|
Accumulated at the beginning of the year |
|
|
(4,074 |
) |
Translation differences |
|
|
86 |
|
Amortization charge |
|
|
(6,510 |
) |
|
|
|
|
|
Accumulated at the end of the year |
|
|
(10,498 |
) |
|
|
|
|
|
At December 31, 2004 |
|
|
10,049 |
|
|
|
|
|
|
16 Investments in associated companies, net
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2005 |
|
2004 |
At the beginning of the year |
|
|
309,318 |
|
|
|
151,672 |
|
Translation adjustment |
|
|
(3,554 |
) |
|
|
(51,555 |
) |
Equity in earnings of associated companies |
|
|
21,524 |
|
|
|
60,908 |
|
Consolidation of Amazonia (see Note 3) |
|
|
(318,166 |
) |
|
|
|
|
Impairments (Note 12) |
|
|
|
|
|
|
148,293 |
|
|
|
|
|
|
|
|
|
|
At the end of the year |
|
|
9,122 |
|
|
|
309,318 |
|
|
|
|
|
|
|
|
|
|
Annual Report and Accounts 2005
The principal associated companies, all of which are unlisted, are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of ownership |
|
|
|
|
Country of |
|
at December 31, |
|
Value at December 31, |
Company |
|
incorporation |
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Matesi Materiales Siderúrgicos S.A. (1) |
|
Venezuela |
|
|
26.49 |
% |
|
|
|
|
|
|
9,002 |
|
|
|
|
|
Consorcio Siderurgia Amazonia Ltd. (2) |
|
Cayman Islands |
|
|
|
|
|
|
31.03 |
% |
|
|
|
|
|
|
309,195 |
|
Compañía Afianzadora de Empresas
Siderúrgicas S.G.R (3) |
|
Argentina |
|
|
21.81 |
% |
|
|
19.74 |
% |
|
|
120 |
|
|
|
123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,122 |
|
|
|
309,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Indirectly through the participation of Sidor (49.8%). |
|
(2) |
|
Indirectly through the participation of Prosid Investments S.C.A. (21.14%), IS (5.81%)
and Tamsider (14.49%). Total voting rights held: 41.44%. |
|
(3) |
|
Indirectly through the participation of Siderar (38.89%). Total voting rights held:
38.89%. |
The equity investment in Amazonia at December 31, 2004 has been valued using the financial
statements of that company at that date. The accompanying table shows summarized financial
information of Amazonia at December 31, 2004.
|
|
|
|
|
|
|
As of December |
|
|
31, 2004 |
Non-current assets |
|
|
1,775,801 |
|
Current assets |
|
|
881,875 |
|
|
|
|
|
|
Total assets |
|
|
2,657,676 |
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
746,157 |
|
Minority interest |
|
|
595,912 |
|
|
|
|
|
|
Total shareholders equity |
|
|
1,342,069 |
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
693,640 |
|
Current liabilities |
|
|
621,967 |
|
|
|
|
|
|
Total liabilities |
|
|
1,315,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
December 31, |
|
|
2004 |
Net sales |
|
|
1,914,308 |
|
Income tax and asset tax expense |
|
|
(8,342 |
) |
Net income for the year attributable to equity holders |
|
|
146,324 |
|
Net income for the year attributable to minority interest |
|
|
116,999 |
|
17 Other investments, net non-current
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2005 |
|
2004 |
Amazonia convertible debt instrument (Note 29) |
|
|
|
|
|
|
127,576 |
|
Time deposits with related parties (i) |
|
|
10,450 |
|
|
|
11,171 |
|
Guarantee fund Compañía Afianzadora de Empresas Siderúgicas S.G.R. (ii) |
|
|
3,402 |
|
|
|
3,949 |
|
Other |
|
|
243 |
|
|
|
7,874 |
|
Provision for impairment of other investments (Note 23 (i)) |
|
|
(1,488 |
) |
|
|
(2,001 |
) |
|
|
|
|
|
|
|
|
|
Total |
|
|
12,607 |
|
|
|
148,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 de Empresas Siderúrgicas S.G.R. |
|
|
|
Corresponds to the Companys portion of the risk funds sponsored by Compañia Afianzadora de
Empresas Siderurgicas SGR, which acts as guarantor of third parties debts. |
Annual Report and Accounts 2005
18 Receivables, net non-current
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2005 |
|
2004 |
Related parties |
|
|
39,285 |
|
|
|
12,293 |
|
Employee advances and loans |
|
|
6,323 |
|
|
|
1,516 |
|
Trade receivables |
|
|
3,474 |
|
|
|
3,404 |
|
Employee receivables from sale of fixed assets |
|
|
1,729 |
|
|
|
1,861 |
|
Others |
|
|
76 |
|
|
|
113 |
|
Provision for impairment receivables (Note 23 (i)) |
|
|
(3,024 |
) |
|
|
(3,404 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
47,863 |
|
|
|
15,783 |
|
|
|
|
|
|
|
|
|
|
19 Receivables current
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2005 |
|
2004 |
Value added tax |
|
|
55,326 |
|
|
|
|
|
Asset tax |
|
|
60,312 |
|
|
|
|
|
Prepaid taxes |
|
|
2,894 |
|
|
|
2,534 |
|
Employee advances and loans |
|
|
5,943 |
|
|
|
1,919 |
|
Advances to suppliers |
|
|
58,839 |
|
|
|
11,815 |
|
Expenses paid in advance |
|
|
15,172 |
|
|
|
688 |
|
Government tax refunds on exports |
|
|
36,425 |
|
|
|
6,534 |
|
Receivables with related parties |
|
|
35,548 |
|
|
|
160,230 |
|
Other |
|
|
20,843 |
|
|
|
24,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
291,302 |
|
|
|
208,699 |
|
|
|
|
|
|
|
|
|
|
20 Inventories, net
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2005 |
|
2004 |
Raw materials, materials and spare parts |
|
|
578,088 |
|
|
|
125,711 |
|
Goods in process |
|
|
282,358 |
|
|
|
71,228 |
|
Finished goods |
|
|
192,492 |
|
|
|
69,871 |
|
Provision for obsolescence (Note 24 (i)) |
|
|
(52,819 |
) |
|
|
(12,524 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
1,000,119 |
|
|
|
254,286 |
|
|
|
|
|
|
|
|
|
|
21 Trade receivables, net
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2005 |
|
2004 |
Current accounts |
|
|
487,952 |
|
|
|
169,180 |
|
Trade receivables with related parties |
|
|
14,659 |
|
|
|
13,179 |
|
Provision for impairment trade receivables (Note 24 (i)) |
|
|
(29,851 |
) |
|
|
(10,754 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
472,760 |
|
|
|
171,605 |
|
|
|
|
|
|
|
|
|
|
22 Cash, cash equivalents and other investments
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2005 |
|
|
2004 |
|
(i) Other investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust funds with specific objective |
|
|
5,185 |
|
|
|
88,755 |
|
|
|
|
|
|
|
|
|
|
|
5,185 |
|
|
|
88,755 |
|
|
|
|
|
|
|
|
|
(ii) Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at banks and in hand |
|
|
117,737 |
|
|
|
32,825 |
|
Deposits and foreign private sector bonds |
|
|
637,243 |
|
|
|
162,050 |
|
Restricted cash |
|
|
10,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
765,630 |
|
|
|
194,875 |
|
|
|
|
|
|
|
|
Annual Report and Accounts 2005
23 Provisions non current
(i) Deducted from assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision |
|
|
|
Provision for |
|
|
for impairment |
|
|
|
Impairment- |
|
|
Other investments - |
|
|
|
Receivables |
|
|
non current |
|
|
|
|
Year ended December 31, 2005 |
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
3,404 |
|
|
|
2,001 |
|
Translation differences |
|
|
(47 |
) |
|
|
(17 |
) |
Reversals |
|
|
(333 |
) |
|
|
|
|
Uses |
|
|
|
|
|
|
(496 |
) |
|
|
|
At December 31, 2005 |
|
|
3,024 |
|
|
|
1,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004 |
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
6,894 |
|
|
|
2,035 |
|
Translation differences |
|
|
(71 |
) |
|
|
(34 |
) |
Reversals |
|
|
(3,419 |
) |
|
|
|
|
|
|
|
At December 31, 2004 |
|
|
3,404 |
|
|
|
2,001 |
|
|
|
|
(ii) Liabilities
|
|
|
|
|
|
|
Legal claims |
|
|
and |
|
|
other matters |
Year ended December 31, 2005 |
|
|
|
|
Values at the beginning of the year |
|
|
11,925 |
|
Translation differences |
|
|
(4,349 |
) |
Acquisition of business Amazonia |
|
|
37,163 |
|
Additional provisions |
|
|
9,240 |
|
Used |
|
|
(500 |
) |
|
|
|
|
|
At December 31, 2005 |
|
|
53,479 |
|
|
|
|
|
|
|
Year ended December 31, 2004 |
|
|
|
|
Values at the beginning of the year |
|
|
9,859 |
|
Translation differences |
|
|
(173 |
) |
Additional provisions |
|
|
2,239 |
|
|
|
|
|
|
At December 31, 2004 |
|
|
11,925 |
|
|
|
|
|
|
Annual Report and Accounts 2005
24
Provisions current
(i) Deducted from assets
|
|
|
|
|
|
|
|
|
|
|
Provision for impairment |
|
|
|
|
trade receivables |
|
Provision for obsolescence |
Year ended December 31, 2005 |
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
10,754 |
|
|
|
12,524 |
|
Translation differences |
|
|
(418 |
) |
|
|
(1,802 |
) |
Reversals |
|
|
(3,987 |
) |
|
|
|
|
Acquisition of business Amazonia |
|
|
6,108 |
|
|
|
13,184 |
|
Acquisition of business Hylsamex |
|
|
24,509 |
|
|
|
24,713 |
|
Additional provisions |
|
|
1,853 |
|
|
|
7,927 |
|
Uses |
|
|
(8,968 |
) |
|
|
(3,727 |
) |
|
|
|
|
|
|
|
|
|
At December 31, 2005 |
|
|
29,851 |
|
|
|
52,819 |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004 |
|
|
|
|
|
|
|
|
Values at the beginning of the year |
|
|
9,877 |
|
|
|
13,925 |
|
Translation differences |
|
|
(216 |
) |
|
|
(215 |
) |
Reversals |
|
|
|
|
|
|
(3,234 |
) |
Additional provisions |
|
|
1,093 |
|
|
|
2,048 |
|
|
|
|
|
|
|
|
|
|
At December 31, 2004 |
|
|
10,754 |
|
|
|
12,524 |
|
|
|
|
|
|
|
|
|
|
(ii) Liabilities
|
|
|
|
|
|
|
Legal claims and |
|
|
other matters |
Year ended December 31, 2005 |
|
|
|
|
Values at the beginning of the year |
|
|
960 |
|
Translation differences |
|
|
(6 |
) |
Additional provisions |
|
|
4,346 |
|
Uses |
|
|
(4,641 |
) |
|
|
|
|
|
At December 31, 2005 |
|
|
659 |
|
|
|
|
|
|
|
Year ended December 31, 2004 |
|
|
|
|
Values at the beginning of the year |
|
|
1,584 |
|
Translation differences |
|
|
(19 |
) |
Additional provisions |
|
|
475 |
|
Uses |
|
|
(1,080 |
) |
|
|
|
|
|
At December 31, 2004 |
|
|
960 |
|
|
|
|
|
|
25 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.
The movement on the deferred income tax account is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
At beginning of year |
|
|
(337,473 |
) |
|
|
(374,907 |
) |
Acquisition of business Amazonia |
|
|
(284,242 |
) |
|
|
|
|
Acquisition of business Hylsamex |
|
|
(426,786 |
) |
|
|
|
|
Translation differences |
|
|
4,449 |
|
|
|
5,773 |
|
Income statement credit |
|
|
24,990 |
|
|
|
31,661 |
|
|
|
|
|
|
|
|
At end of year |
|
|
(1,019,062 |
) |
|
|
(337,473 |
) |
|
|
|
|
|
|
|
Annual Report and Accounts 2005
The tax effects of temporary differences that give rise to significant portions of the groups
deferred tax assets and liabilities are presented below:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2005 |
|
|
2004 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Receivables |
|
|
23,217 |
|
|
|
|
|
Inventories |
|
|
12,708 |
|
|
|
|
|
Other assets |
|
|
7,941 |
|
|
|
1,638 |
|
Tax loss carryforwards |
|
|
18,188 |
|
|
|
12,879 |
|
Tax assets |
|
|
79,983 |
|
|
|
|
|
Provisions |
|
|
9,918 |
|
|
|
4,504 |
|
Other liabilities |
|
|
124,298 |
|
|
|
9,480 |
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets |
|
|
276,253 |
|
|
|
28,501 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Property, plant and equipment & Intangible Assets |
|
|
(1,115,262 |
) |
|
|
(363,605 |
) |
Inventories |
|
|
(39,353 |
) |
|
|
(75 |
) |
Provision |
|
|
(67,915 |
) |
|
|
|
|
Other |
|
|
(72,785 |
) |
|
|
(2,294 |
) |
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities |
|
|
(1,295,315 |
) |
|
|
(365,974 |
) |
|
|
|
|
|
|
|
|
Net deferred tax liability |
|
|
(1,019,062 |
) |
|
|
(337,473 |
) |
|
|
|
|
|
|
|
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, 2005 and 2004, USD 29,126 and USD nil, respectively, have been classified as
non-current assets and USD 1,048,188 and 337,473, respectively, have been classified as non-current
liabilities.
26 Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
|
2005 |
|
2004 |
(i |
) |
Other liabilities non-current |
|
|
|
|
|
|
|
|
|
|
|
Termination benefits |
|
|
3,118 |
|
|
|
2,987 |
|
|
|
Pension benefits |
|
|
177,899 |
|
|
|
6,117 |
|
|
|
Other |
|
|
6,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187,917 |
|
|
|
9,104 |
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
The amounts recognized in the combined consolidated balance sheet are determined as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2005 |
|
2004 |
Present value of unfunded obligations |
|
|
172,394 |
|
|
|
8,558 |
|
Unrecognized actuarial losses |
|
|
8,594 |
|
|
|
1,086 |
|
Unrecognized prior service costs |
|
|
(3,089 |
) |
|
|
(3,527 |
) |
|
|
|
|
|
|
|
|
|
Liability in the balance sheet |
|
|
177,899 |
|
|
|
6,117 |
|
|
|
|
|
|
|
|
|
|
The amounts recognized in the combined consolidated income statement are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2005 |
|
2004 |
Current service cost |
|
|
7,227 |
|
|
|
317 |
|
Interest cost |
|
|
17,785 |
|
|
|
636 |
|
Amortization of prior service costs |
|
|
443 |
|
|
|
420 |
|
Net actuarial losses (gains) recognized in the year |
|
|
(894 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Total included in labor costs |
|
|
24,561 |
|
|
|
1,374 |
|
|
|
|
|
|
|
|
|
|
Movement in the liability recognized in the combined consolidated balance sheet is as follows:
Annual Report and Accounts 2005
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2005 |
|
2004 |
At the beginning of the year |
|
|
6,117 |
|
|
|
5,479 |
|
Acquisition of business Amazonia |
|
|
78,425 |
|
|
|
|
|
Acquisition of business Hylsamex |
|
|
116,860 |
|
|
|
|
|
Transfers and new participants of the plan |
|
|
(25,153 |
) |
|
|
122 |
|
Total expense |
|
|
24,560 |
|
|
|
1,374 |
|
Translation differences |
|
|
(9,549 |
) |
|
|
|
|
Contributions paid |
|
|
(13,361 |
) |
|
|
(858 |
) |
|
|
|
|
|
|
|
|
|
At the end of year |
|
|
177,899 |
|
|
|
6,117 |
|
|
|
|
|
|
|
|
|
|
The principal actuarial assumptions used were as follows:
|
|
|
|
|
|
|
|
|
Siderar |
|
Year ended December 31, |
|
|
2005 |
|
2004 |
Discount rate |
|
|
7.00 |
% |
|
|
7.00 |
% |
Rate of compensation increase |
|
|
2.00 |
% |
|
|
2.00 |
% |
|
|
|
|
|
|
|
|
|
Sidor |
|
Year ended December 31, |
|
|
2005 |
|
2004 |
Discount rate |
|
|
23.32 |
% |
|
|
|
|
Rate of compensation increase |
|
|
16.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hylsamex |
|
Year ended December 31, |
|
|
2005 |
|
2004 |
Discount rate |
|
|
8.67 |
% |
|
|
|
|
Rate of compensation increase |
|
|
4.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2005 |
|
2004 |
(ii) |
Other liabilities current |
|
|
|
|
|
|
|
|
|
Payroll and social security payable |
|
|
67,639 |
|
|
|
23,135 |
|
|
Termination benefits |
|
|
18,966 |
|
|
|
2,163 |
|
|
Participation account |
|
|
90,186 |
|
|
|
|
|
|
Related Parties |
|
|
17 |
|
|
|
|
|
|
Others |
|
|
17,265 |
|
|
|
7,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194,073 |
|
|
|
33,288 |
|
|
|
|
|
|
|
|
|
|
|
Annual Report and Accounts 2005
27 Derivative financial instruments
Net fair values of derivative financial instruments
The net fair values of derivative financial instruments at December 31, 2005 and 2004 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2005 |
|
2004 |
Contracts with positive fair values: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts |
|
|
86 |
|
|
|
|
|
Interest rate Swap contracts |
|
|
5,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2005 |
|
2004 |
Contracts with negative fair values: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts |
|
|
|
|
|
|
(5,956 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,956 |
) |
|
|
|
|
|
|
|
|
|
Derivative financial instruments breakdown are as follows:
Exchange rate derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional amount |
|
|
|
|
|
|
|
|
|
|
at December 31, |
|
|
|
|
|
|
|
|
|
|
2005 (in USD |
|
Fair value at December 31, |
Currencies |
|
Contract |
|
thousands) |
|
2005 |
|
2004 |
USD/EUR |
|
Euro forward sales |
|
|
1,400 |
|
|
|
86 |
|
|
|
(5,622 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD/GBP |
|
Pound Sterling forward sales |
|
|
|
|
|
|
|
|
|
|
(334 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86 |
|
|
|
(5,956 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
On September 1, 2005, III BVI entered into a USD 250 million interest rate swap agreement with
Citibank N.A., New York to manage the impact of the floating interest rate changes on the Ternium
Credit Facility by setting the interest rate to 4.235% per annum. This interest rate swap is due on
August 22, 2010 and provides for semi-annual payments on February 22 and August 22 of each year,
commencing on August 22, 2006 through and including the termination date. The notional amount and
schedule of payments provided by this agreement are as follows:
|
|
|
|
|
|
|
Calculation period |
|
Notional amount |
From and including |
|
To but excluding |
|
(USD thousands) |
February 22, 2006
|
|
August 22, 2006
|
|
|
250,000 |
|
August 22, 2006
|
|
February 22, 2007
|
|
|
226,250 |
|
February 22, 2007
|
|
August 22, 2007
|
|
|
201,250 |
|
August 22, 2007
|
|
February 22, 2008
|
|
|
176,250 |
|
February 22, 2008
|
|
August 22, 2008
|
|
|
148,750 |
|
August 22, 2008
|
|
February 22, 2009
|
|
|
121,250 |
|
February 22, 2009
|
|
August 22, 2009
|
|
|
93,750 |
|
August 22, 2009
|
|
February 22, 2010
|
|
|
66,250 |
|
February 22, 2010
|
|
August 22, 2010
|
|
|
33,750 |
|
Annual Report and Accounts 2005
In addition, on September 1, 2005, Siderar entered into two interest rate swap agreements with JP
Morgan Chase Bank N.A. and Deutsche Bank AG with a notional amount of USD 100 million each to
manage its exposure to changes in market rates associated with the Siderar Credit Facility by
setting the interest rate to 4.18% and 4.20% per annum, respectively. These interest rate swaps are
due on August 22, 2008 and provide for semi-annual payments on February 22 and August 22 of each
year, commencing on August 22, 2006 through and including the termination date. The notional amount
and schedule of payments provided by these agreements are as follows:
|
|
|
|
|
|
|
Calculation period |
|
Notional amount |
From and including |
|
To but excluding |
|
(USD thousands) |
February 22, 2006
|
|
August 22, 2006
|
|
|
100,000 |
|
August 22, 2006
|
|
February 22, 2007
|
|
|
80,000 |
|
February 22, 2007
|
|
August 22, 2007
|
|
|
60,000 |
|
August 22, 2007
|
|
February 22, 2008
|
|
|
40,000 |
|
February 22, 2008
|
|
August 22, 2008
|
|
|
20,000 |
|
28 Borrowings
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
December 31, |
|
|
2005 |
|
2004 |
(i) Non-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank borrowings |
|
|
1,810,910 |
|
|
|
1,008 |
|
Borrowings with related parties |
|
|
603,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,414,593 |
|
|
|
1,008 |
|
Less: debt issue costs |
|
|
(14,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,399,878 |
|
|
|
1,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii) Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank borrowings |
|
|
518,629 |
|
|
|
45,628 |
|
Others |
|
|
|
|
|
|
443 |
|
Borrowings with related parties |
|
|
3,789 |
|
|
|
75,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
522,418 |
|
|
|
121,998 |
|
Less: debt issue costs |
|
|
(6,019 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
516,399 |
|
|
|
121,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Borrowings |
|
|
2,916,277 |
|
|
|
123,006 |
|
|
|
|
|
|
|
|
|
|
The maturity of borrowings is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected maturity date |
At December 31, 2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
Thereafter |
|
Total(1) |
Non-Current Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
|
|
|
|
83,594 |
|
|
|
21,947 |
|
|
|
1,811 |
|
|
|
1,811 |
|
|
|
35,495 |
|
|
|
144,658 |
|
Floating Rate |
|
|
|
|
|
|
463,349 |
|
|
|
713,693 |
|
|
|
265,844 |
|
|
|
208,651 |
|
|
|
603,683 |
|
|
|
2,255,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
121,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,829 |
|
Floating Rate |
|
|
394,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
394,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
516,399 |
|
|
|
546,943 |
|
|
|
735,640 |
|
|
|
267,655 |
|
|
|
210,462 |
|
|
|
639,178 |
|
|
|
2,916,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Report and Accounts 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected maturity date |
At December 31, 2004 |
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
Thereafter |
|
Total(1) |
Non-Current Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating Rate |
|
|
|
|
|
|
783 |
|
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
102,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102,583 |
|
Floating Rate |
|
|
19,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
121,998 |
|
|
|
783 |
|
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As most borrowings incorporate floating rates that approximate market rates and the
contractual repricing occurs every 3 to 6 months, the fair value of the borrowings approximates its
carrying amount and is not disclosed separately. |
During March 2003, Siderar signed an agreement with its creditors which allowed Siderar to modify
certain conditions of its financial debt (principally the extension of the original loans terms)
for a total of USD 473.6 million. As a result of this agreement, Siderar made an initial payment of
USD 85.0 million corresponding to 17.95% of the restructured debt. The remaining debt balance (New
Bank Debt) at March 18, 2003 consisted of New Trade Facility for a total of USD 309.3 million and
a New FRN Facility for a total of USD 79.0 million.
During 2004, the Company settled all the outstanding balances of the New Trade Facility and the New
FRN Facility, and at the same time the guarantees and restrictions imposed by the financing
contracts were released.
The weighted average interest rates which incorporate instruments denominated in various
currencies at the balance sheet date were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2005 |
|
2004 |
Bank borrowings |
|
|
6.08 |
% |
|
|
2.25 |
% |
The nominal average interest rates shown above were calculated using the rates set for each
instrument in its corresponding currency and weighted using the dollar-equivalent outstanding
principal amount of said instruments at December 2005 and 2004, respectively.
Breakdown of long-term borrowings by currency is as follows:
Bank borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
Currency |
|
Interest rates |
|
2005 |
|
2004 |
USD |
|
Variable |
|
|
2,200,543 |
|
|
|
18,091 |
|
USD |
|
Fixed |
|
|
609,293 |
|
|
|
102,583 |
|
EUR |
|
Variable |
|
|
|
|
|
|
2,332 |
|
EUR |
|
Fixed |
|
|
404 |
|
|
|
|
|
ARS |
|
Fixed |
|
|
55 |
|
|
|
|
|
MXN |
|
Variable |
|
|
64,822 |
|
|
|
|
|
VEB |
|
Fixed |
|
|
41,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bank borrowings |
|
|
2,916,277 |
|
|
|
123,006 |
|
|
|
|
|
|
|
|
|
|
|
|
EUR: Euro; ARS: Argentine pesos; MXN: Mexican pesos; VEB: Venezuelan Bolivar
29 Contingencies, commitments and restrictions on the distribution of profits
Ternium is involved in litigation arising from time to time in the ordinary course of business.
Based on managements assessment and the advice of legal counsel, it is not anticipated that the
ultimate resolution of existing litigation will result in amounts in excess of recorded provisions
that would be material to Terniums
Annual Report and Accounts 2005
combined consolidated financial position or results of operations.
(i) Consorcio Siderurgia Amazonia, Ltd.- Debt restructuring process
The financial restructuring of Sidor and Amazonia, which concluded during 2003 (the 2003
Restructuring), entailed the termination of certain guarantees and commitments to further finance
Amazonia and Sidor that Ternium had entered into as a result of the privatization of Sidor and
previous restructuring agreements. The restructuring agreements contemplate, however, certain
continuing obligations and restrictions to protect the claims held by the financial creditors of
Sidor. These obligations and restrictions include pledges over all of Amazonias existing shares
and shares of Sidor held in its possession, which were released in July 2005.
During 2003, as part of the 2003 Restructuring, Ternium acquired a 64.31% equity stake in Ylopa, a
special purpose vehicle incorporated in Madeira, created to support Sidor and Amazonia in their
financial restructuring. The acquisition was made by means of an aggregate cash contribution of USD
135 million (USD 94 million contributed by the majority shareholders of the Company and USD 41
million contributed by the minority shareholders), primarily in the form of debt. As a result of
the consummation of the 2003 Restructuring, Ylopa: (a) became Sidors creditor (in a Participation
Account Agreement) of a loan bearing interest at an annual rate of 8%, payable if and when Sidor
reaches certain financial goals, and (b) received debt instruments of Amazonia, convertible into
67.4% of the common stock of Amazonia at Ylopas option (the Amazonia convertible debt
instrument). Such convertible debt instrument was accounted for at cost.
The Amazonia convertible debt instrument was convertible into Amazonias common stock as from
February 2005, but the option had to be exercised in a specific 15-day period during that month.
Otherwise, the holders of the Amazonia convertible debt instrument would not be able to exercise
the conversion option until February 2006. This conversion scheme was applicable every year until
maturity. On February 3, 2005 Ylopa exercised its option to convert its convertible debt instrument
into Amazonias common stock. As a result of this conversion, Terniums indirect participation in
Amazonia increased from 31.03% to 53.47%, thereby increasing its indirect participation in Sidor
from 18.53% to 31.94%. With the increase in equity ownership of Amazonia to 53.47%, the Company has
effective control.
As a result of the Participation Account Agreement described above, Ternium recognized a gain of
USD 203.4 million and USD 73.9 million during the years ended December 31, 2004 and 2003,
respectively, representing the amounts of the rights to receive the compensation payable for its
participation in Sidors 2003 restructuring according to the terms of the agreement. Such
compensation in the form of cash payments has been distributed on a semi-annual basis since October
2003. As from January 2005, Sidor began making those cash payments on a quarterly basis. This
agreement has a term of 14 years, or until the fiscal year prior to the date of the settlement in
full of certain bank borrowings (BANDES) due by Sidor. Also, it was agreed that any such
compensation collected by Ylopa in excess of the accumulated amount of USD 324 million, must be
transferred to Amazonia., while Corporación Venezolana de Guayana (CVG) is not subject to any
limitation to its entitlement. During the three-month period ended March 31, 2005, the accumulated
compensation payable for the participation in Sidors 2003 restructuring reached the cap.
As of December 31, 2005, the Participation Agreement provides that 40.27% of the compensation
payable by Sidor goes to the Venezuelan Government and the remaining goes to Amazonia. These
percentages are equal to the equity participation of the Venezuelan Government and Amazonia in
Sidor.
(ii) Consorcio Siderurgia Amazonia Ltd .- PDVSA-Gas C.A. claim
In June 2004, the arbitration proceedings brought by Sidor against PDVSA Gas, C.A. (on the basis
that PDVSA Gas had charged Sidor higher than agreed-upon prices in its supplies of gas against the
application of the most favored client clause) were resolved in Sidors favor. Accordingly, in its
financial statements at December 31, 2004, Sidor reversed the USD41.4 million provision it had
recorded at December 31, 2003. In July 2004, PDVSA Gas, C.A. filed an appeal with the Venezuelan
courts seeking to void the arbitral award. Sidor believes that applicable Venezuelan law does not
allow the courts to void an arbitral award under the circumstances and that the likelihood of loss
thereunder is remote. Accordingly, Sidor did not record any liabilities in connection with the
appeal. At December 31, 2005, Sidors potential exposure under this litigation amounted to USD94.3
million.
(iii) Consorcio Siderurgia Amazonia Ltd .- Pension plan
The Venezuelan Supreme Court of Justice has recently ruled in favor of increasing the benefits
payable to retired employees of a Venezuelan company. This ruling is only binding on the parties to
the litigation and Sidor has not received any claims in this regard. The Company analyzed the
rulings legal grounds and the cases facts and circumstances, and concluded that it is not
probable that Sidor be subject to additional obligations in this respect. In the event that a
potential claim by the participants of Sidors pension plan be successful, the Company estimates
that the maximum loss would be approximately USD 56 million.
(iv) Tax claims
(a) Siderar.
AFIP Income tax claim for fiscal years 1995 to 1999
Annual Report and Accounts 2005
The Administración Federal de Ingresos Públicos (AFIP the Argentine tax authority) has
challenged the charge to income of certain disbursements that Siderar has treated as expenses
necessary to maintain industrial installations, which as such should be deducted in the year in
which they take place. The AFIP asserts that these are investments or improvements that must be
capitalized and, therefore, it made a jeopardy assessment of income tax due on a nominal tax basis
plus fines and interest in fiscal years 1995 to 1999 amounting to approximately USD 20.4 million.
The Company appealed these assessments before the National Tax Court, as in the view of its legal
and tax advisors, based on existing evidence and the work performed by the Tax Authorities, the
Company would likely obtain a favorable ruling.
On April 13, 2005 the Company was notified of a ruling issued by the National Tax Court reducing
the assessments made by the AFIP for fiscal years 1995 and 1996 from USD 16.6 million to USD 3.1
million and instructing the recalculation of taxes in accordance with this ruling. Based on the
above, the Company recognized a provision amounting to USD 4.6 million as of December 31, 2005 as
management considers there is a probable outflow of benefits.
(b) Amazonia
At December 31, 2004, Sidor recorded a provision for a total amount of USD 23.2 million in
connection with tax matters. Among these claims, the most significant is the tax assessment brought
by SENIAT, the Venezuelan tax and customs authority, in the third quarter of 2001, questioning the
application of VAT credits arising from exports totaling USD5.2 million to offset tax liabilities.
While the validity of such tax credits was not under discussion, the SENIAT questioned the
application of such tax credits as payment on account of Sidors asset tax and other tax
obligations. The Group recorded a provision in an amount of USD17.5 million in connection with this
claim, representing the aggregate amount that SENIAT could claim as accrued interest under the
Venezuelan tax code.
(v) Commitments
The following are the Companys main off-balance sheet commitments:
(a) In March 2003, Siderar entered into an agreement with Tecpetrol under which Siderar paid
USD17.3 million for the advance purchase of a total of 725 million cubic meters (up to 400 thousand
daily cubic meters) of natural gas to be delivered over a period of 5 years on pricing terms that
will enable it to share through discounts the impact of any increase in natural gas prices over
that period with Tecpetrol. Under the terms of the agreement, Siderar will have a minimum
guaranteed return on this advance payment equal to LIBOR plus 3.5%.
(b) Siderar entered into a contract with Tenaris, for the supply of steam generated at the power
generation facility that Tenaris owns in the compound of the Ramallo facility of Siderar. Under
this contract, Tenaris has to provide 250 tn/hour of steam, and Siderar has the obligation to take
or pay this volume. Tenaris detected technical problems at this facility that impeded the delivery
of certain steam volume. This outsourcing contract is due to terminate in 2018.
(c) On August 20, 2004, Sidor entered into a contract with MATESI Materiales Siderúrgicos S.A., for
the supply of hot briquetted iron (HBI). Sidor commits to purchase 29.9% of MATESIs HBI production
volume for the term of ten years. In addition, Sidor has the right to increase its proportion on
MATESIs production by an extra 19.9 % until reaching a 49.8 % of MATESIs HBI production. Under
the contract, the sale price is determined on a cost-plus basis. The contract is renewable for
additional three year periods unless Sidor or MATESI object to its renewal more than a year prior
to its termination.
(d) Siderar entered into a contract with Transportadora de Gas del Norte (TGN) for gas
transportation service. TGN charges Siderar a price that is equivalent a comparable basis to prices
paid by other industrial users, and the Argentine government regulates the general framework under
which TGN operates. Siderar pays a monthly fee for reserved cubic meter (1,070 thousands m3/day),
either it uses it or not.
(e) Sidors production process requires a large amount of electricity. On August 21, 1997, that
company entered into a twenty-year contract with EDELCA, a Venezuelan state-owned company, for the
supply of all of Sidors electricity needs. This contract will terminate in 2018.
(f) Sidors production process is heavily reliant upon supplies of natural gas. Sidor buys 100% of
its natural gas from PDVSA-Gas, a Venezuelan state-owned natural gas supply company. In 1997, Sidor
signed a twenty-year contract with PDVSA-Gas for the supply of natural gas.
(g) In 1998, Sidor signed a contract with TAVSA Tubos de Acero de Venezuela S.A. (a Venezuelan
seamless steel pipe producer subsidiary of Tenaris), under which it committed to sell up to 90,000
tons of blooms or 130,000 tons of liquid steel per year, until 2013. Purchase price varies in
relation to changes in the costs of production.
(h) In 1997 Sidor entered into a twenty-year sales contract with Ferrominera del Orinoco (FMO)
under which it committed to sell, at buyers requirements, up to 2 million tons per year of pellets
to FMO. The price is based on the sale price of FMOs iron ore to Sidor plus and applicable margin.
Sidor and FMO entered into an amendment of the 1997 contract on November 11, 2005. The revised
contract sets the iron ore price at the lower of the price charged by FMO to its customers (other
than certain newly-created state-owned steel producers) in the Venezuelan domestic market, and 80%
of a market reference price (which percentage may drop to 70%).
Annual Report and Accounts 2005
In connection with the iron ore contract, in 1997 Sidor and FMO entered into another agreement
under which Sidor committed to sell, upon the request of FMO, up to 2.0 million tons per year of
pellets to FMO, at a price based on the sale price at which FMO sells iron ore to Sidor plus an
applicable margin paid to Sidor for the production of pellets, which is determined using market
references.
(i) Hylsas production process requires a large amount of electricity. On December 20, 2000, Hylsa
entered into a 25-year contract with Iberdrola Energa Monterrey, S.A. de C.V. (Iberdrola), a
Mexican subsidiary of the Spanish Company Iberdrola Energía, S.A., for the supply of a contracted
electrical demand of 143.2 MW. This contract currently supplies approximately 42% of Hylsas
electricity needs with the remainder supplied by CFE, the Mexican State-owned utility. The contract
with Iberdrola will terminate in 2027.
(j) Hylsamex S.A. de C.V. and subsidiaries enter into 21 long term operational leasing agreements
for the rental of machinery, materials handling equipment, earth moving equipment, computers and
assorted vehicles. Total amounts due, from 2006 to 2010, include USD39.1 million in leasing
payments. Total loss for lease payments recorded in the year ended December 31, 2005 accounts for
USD 10.2 million.
Future minimum lease payments under non-cancellable operating leases are as follows:
|
|
|
|
|
|
|
USD |
Year |
|
Thousands |
2006 |
|
|
14,506 |
|
2007-2010 |
|
|
24,552 |
|
Total |
|
|
39,058 |
|
(k) On October 24, 2003, Terniums subsidiary Siderar, together with Tenaris, entered into a joint
gas purchase agreement with Repsol-YPF. Under the agreement, which incorporate certain take-or-pay
conditions, Siderar committed to purchase up to 400 million cubic meters of gas during the life of
the four year contract, expiring at the end of 2006 at a price to be negociated by the parties on
an annual basis. At December 31, 2004, the parties to the joint agreement fulfilled the purchase
commitments originated therein, as a result of which all outstanding obligations resulting from the
take-or-pay provisions have ceased to exist.
(vi) Restrictions on the distribution of profits
Under Luxembourg law, at least 5% of net income per year calculated in accordance with Luxembourg
law and regulations must be allocated to a reserve until such reserve has reached an amount equal
to 10% of the share capital.
Ternium may pay dividends to the extent that it has distributable retained earnings and
distributable reserves calculated in accordance with Luxembourg law and regulations. Therefore,
retained earnings included in the consolidated combined financial statements may not be wholly
distributable.
Shareholders equity under Luxembourg law and regulations comprises the following captions (amounts
in USD thousands):
|
|
|
|
|
|
|
At December |
|
|
31,2005 |
Share capital |
|
|
1,396,552 |
|
Legal reserve |
|
|
139,655 |
|
Distributable reserves |
|
|
279,581 |
|
Non distributable reserves |
|
|
980,018 |
|
Accumulated deficit at January 1, 2005 |
|
|
(12 |
) |
Profit for the year |
|
|
107,624 |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity under Luxembourg GAAP |
|
|
2,903,418 |
|
|
|
|
|
|
30 Earnings per share
On December 30, 2004, the Company converted the currency in which its share capital is expressed
from EUR to USD. The share capital of EUR 31,000, represented by 31 shares of EUR 1,000 nominal
value each, was converted into USD 41,471.80, represented by 31 shares of no nominal value. On June
17, 2005, the share capital of the Company was restructured by setting the nominal value per share
at USD 1 and dividing the 31 issued shares into 41,471 shares of USD 1 nominal value each, and
further transferring USD 0.80 to the share premium account of the Company.
On June 29, 2005, ISL contributed all of its assets (including 41,470 shares of the Company) and
liabilities to the Company, in exchange for 959,482,775 new shares of the Company.
Upon consummation of this contribution, the 41,470 shares contributed by ISL to the Company were
cancelled and the Companys issued share capital was increased to USD 959,482,776 represented by
959,482,776 shares of 1 USD nominal value each.
Annual Report and Accounts 2005
On September 15, 2005, ISL made a second contribution of all of its assets (including 750,021,919
shares of the Company) and liabilities to the Company, in exchange for 959,482,775 new shares of
the Company.
Upon consummation of this second contribution, the 750,021,919 shares contributed by ISL to the
Company were cancelled and the Companys issued share capital was increased to USD 1,168,943,632
represented by 1,168,943,632 shares of 1 USD nominal value each.
As mentioned in Note 1, in October 2005, Usiminas exchanged its 5.32% equity interest in Siderar,
its 16.58% equity interest in Amazonia and its 19.11% equity interest in Ylopa and other items for
227,608,254 new shares of the Company. Upon the consummation of this exchange the capital was
increased to USD 1,396,552, represented by 1,396,551,887 shares of 1 USD nominal value each.
The Companys combined earnings per share for the years ended December 31, 2004 and 2003 have been
calculated based on the assumption that 1,168,943,632 shares were issued and outstanding in each
period. For fiscal year 2005, the weighted average of shares outstanding totaled 1,209,476,609
shares.
Earnings per share are calculated by dividing the net income attributable to equity holders of the
Company by the daily weighted average number of ordinary shares outstanding during the year. The
weighted average number of ordinary shares assumes that 1,168,943,632 shares were issued and
outstanding as of January 1, 2003. Diluted earnings per share have been calculated giving effect to
the conversion of the Subordinated Convertible Loans on the date each one was entered into.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2003 |
Profit attributable to equity holders of the Company |
|
|
704,406 |
|
|
|
457,339 |
|
|
|
218,215 |
|
Weighted average number of ordinary shares in issue |
|
|
1,209,476,609 |
|
|
|
1,168,943,632 |
|
|
|
1,168,943,632 |
|
Basic earnings per share (USD per share) |
|
|
0.58 |
|
|
|
0.39 |
|
|
|
0.19 |
|
Diluted earnings per share (USD per share) |
|
|
0.54 |
|
|
|
0.39 |
|
|
|
0.19 |
|
31 Related party transactions
The Company is controlled by San Faustín, which at December 31, 2004 indirectly owned 100% of
Terniums shares and voting rights. The ultimate controlling entity of the Company is Rocca &
Partners S.A., a British Virgin Island Corporation. For commitments with Related Parties see Note
29.
The following transactions were carried out with related parties:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2005 |
|
2004 |
(i) Transactions |
|
|
|
|
|
|
|
|
|
(a) Sales of goods and services |
|
|
|
|
|
|
|
|
Sales of goods to other related parties |
|
|
36,978 |
|
|
|
23,665 |
|
Sales of services to associated parties |
|
|
2,905 |
|
|
|
12,751 |
|
Sales of services to other related parties |
|
|
5,636 |
|
|
|
1,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
45,519 |
|
|
|
37,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Purchases of goods and services |
|
|
|
|
|
|
|
|
Purchases of goods from associated parties |
|
|
85,636 |
|
|
|
293,353 |
|
Purchases of goods from other related parties |
|
|
71,205 |
|
|
|
68,826 |
|
Purchases of services from other related parties |
|
|
21,792 |
|
|
|
28,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
178,633 |
|
|
|
390,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Financial results |
|
|
|
|
|
|
|
|
Income with associated parties |
|
|
44,697 |
|
|
|
208,575 |
|
Income with other related parties |
|
|
89 |
|
|
|
1,745 |
|
Expenses with other related parties |
|
|
(10,043 |
) |
|
|
(7,843 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
34,743 |
|
|
|
202,477 |
|
|
|
|
|
|
|
|
|
|
Annual Report and Accounts 2005
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
2005 |
|
2004 |
(ii) Year-end balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Arising from sales/purchases of goods/services |
|
|
|
|
|
|
|
|
Receivables from associated parties |
|
|
71,317 |
|
|
|
94,401 |
|
Receivables from other related parties |
|
|
18,175 |
|
|
|
91,301 |
|
Payables to associated parties |
|
|
(13,644 |
) |
|
|
(78,325 |
) |
Payables to other related parties |
|
|
(17,914 |
) |
|
|
(40,359 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,934 |
) |
|
|
67,018 |
|
|
|
|
|
|
|
|
|
|
(b) Other investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposit |
|
|
10,450 |
|
|
|
11,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Other balances |
|
|
|
|
|
|
|
|
Trust fund with other related parties (Note 22) |
|
|
5,185 |
|
|
|
88,755 |
|
Amazonia convertible debt instrument (Note 17) |
|
|
|
|
|
|
127,576 |
|
Other |
|
|
|
|
|
|
7,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
5,185 |
|
|
|
224,205 |
|
|
|
|
|
|
|
|
|
|
(d) Financial debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings with other related parties (Note 28) |
|
|
(607,472 |
) |
|
|
(75,927 |
) |
|
|
|
|
|
|
|
|
|
(iii) Officers and Directors compensation
The aggregate compensation of Officers and Directors earned during the years ended December 31,
2005 and 2004 amounts to USD 4,485 thousand and 3,050 thousand, respectively. No compensation has
been determined or paid to any of its directors during 2003.
32 Cash flow disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2005 |
|
2004 |
|
2003 |
(i) Changes in working capital (i) |
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
(133,995 |
) |
|
|
(114,686 |
) |
|
|
(19,416 |
) |
Receivables and prepayments |
|
|
3,103 |
|
|
|
(138,248 |
) |
|
|
(73,631 |
) |
Trade receivables |
|
|
97,814 |
|
|
|
(55,273 |
) |
|
|
22,341 |
|
Other liabilities |
|
|
46,117 |
|
|
|
10,233 |
|
|
|
12,163 |
|
Trade payables |
|
|
41,381 |
|
|
|
93,304 |
|
|
|
2,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,420 |
|
|
|
(204,670 |
) |
|
|
(55,662 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ii) Income tax accruals less payments |
|
|
|
|
|
|
|
|
|
|
|
|
Tax accrued |
|
|
218,492 |
|
|
|
177,486 |
|
|
|
94,087 |
|
Taxes paid |
|
|
(262,500 |
) |
|
|
(57,276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,008 |
) |
|
|
120,210 |
|
|
|
94,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(iii) Interest accruals less payments, net |
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrued |
|
|
81,608 |
|
|
|
18,257 |
|
|
|
39,980 |
|
Interest paid |
|
|
(60,256 |
) |
|
|
(9,174 |
) |
|
|
(34,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,352 |
|
|
|
9,083 |
|
|
|
5,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Changes in working capital are shown net of the effect of exchange rate changes. |
33 Recently issued accounting pronouncements
1. IFRIC Interpretation No. 8, Scope of IFRS 2
In January 2005, IFRIC issued IFRIC Interpretation No. 8, Scope of IFRS 2 (IFRIC 8). The issue
addressed in IFRIC 8 is whether IFRS 2 applies to transactions in which the entity cannot identify
specifically some or all of the goods or services received. An entity shall apply this
Interpretation for annual periods beginning on or after 1 May 2006. Earlier application is
encouraged. If an entity applies this Interpretation to a period beginning before 1 May 2006, it
shall disclose that fact. The Companys management estimates that the application of this
Interpretation will not have a material effect on the Companys financial condition or results of
operations.
2. Amendment to IAS 21, The Effects of Changes in Foreign Exchange Rates Net Investment in a
Foreign Operation
Annual Report and Accounts 2005
In December 2005, the International Accounting Standards Board (IASB) issued an amendment to
International Accounting Standard No. 21, The Effects of Changes in Foreign Exchange Rates Net
Investment in a Foreign Operation (IAS 21). The amendment finalizes proposals that were
contained in Draft Technical Correction 1 Proposed Amendments to IAS 21 Net Investment in a Foreign
Operation published in September 2005 and is applicable for annual periods beginning on or after
January 1, 2006. Earlier application is encouraged. The Companys management estimates that the
application of this Amendment will not have a material effect on the Companys financial condition
or results of operations.
3. IFRIC Interpretation No. 7, Applying the Restatement Approach under IAS 29 Financial Reporting
in Hyperinflationary Economies
In November 2005, IFRIC issued IFRIC Interpretation No. 7, Applying the Restatement Approach under
IAS 29 Financial Reporting in Hyperinflationary Economies (IFRC 7), which provides guidance on
how to apply the requirements of International Accounting Standard No. 29 (IAS 29) in a reporting
period in which an entity identifies the existence of hyperinflation in the economy of its
functional currency, when that economy was not hyperinflationary in the prior period, and the
entity therefore restates its financial statements in accordance with IAS 29. An entity shall apply
this Interpretation for annual periods beginning on or after 1 March 2006. Earlier application is
encouraged. If an entity applies this Interpretation to financial statements for a period beginning
before 1 March 2006, it shall disclose that fact. The Companys management estimates that the
application of this Intepretation will not have a material effect on the Companys financial
condition or results of operations.
4. Amendment to IAS 1, Presentation of Financial Statements
In August 2005, the IASB issued an amendment to International Accounting Standard No. 1
Presentation of Financial Statements. This amendment requires companies to disclose certain
information about (a) the entitys objectives, policies and processes for managing capital; (b)
quantitative data about what the entity regards as capital; (c) whether the entity has complied
with any capital requirements; and (d) if it has not complied, the consequences of such
non-compliance. This document finalizes some of the proposals that were contained in Exposure Draft
7 Financial Instruments: Disclosures (ED 7) published in July 2004. The remaining proposals in ED 7
were finalized in IFRS 7 Financial Instruments: Disclosures. Entities shall apply the amendments in
this document for annual periods beginning on or after 1 January 2007. Earlier application is
encouraged. The Companys management estimates that the application of this Amendment will not have
a material effect on the Companys financial condition or results of operations.
5. International Financial Reporting Standard No. 7, Financial Instruments: Disclosures
In August, 2005, the IASB issued International Financial Reporting Standard No. 7, Financial
Instruments: Disclosures (IFRS 7). The objective of IFRS 7 is to require entities to provide
disclosures in their financial statements that enable users to evaluate: (a) the significance of
financial instruments for the entitys financial position and performance; and (b) the nature and
extent of risks arising from financial instruments to which the entity is exposed during the period
and at the reporting date, and how the entity manages those risks. The principles in IFRS 7
complement the principles for recognizing measuring and presenting financial assets and financial
liabilities in International Accounting Standard No. 32 Financial Instruments: Presentation and
IAS 39 Financial Instruments: Recognition and Measurement. An entity shall apply this IFRS for
annual periods beginning on or after 1 January 2007. Earlier application is encouraged. If an
entity applies this IFRS for an earlier period, it shall disclose that fact. The Companys
management estimates that the application of IFRS 7 will not have a material effect on the
Companys financial condition or results of operations.
34 Financial risk management
(1) Financial risk factors
Terniums activities expose it to a variety of financial risks, including the effects of changes in
foreign currency exchange rates. Terniums subsidiaries use derivative financial instruments to
minimize potential adverse effects on Terniums financial performance, by hedging certain risk
exposures.
(i) Foreign exchange rate risk
Ternium operates in export markets and is exposed to foreign exchange rate risk arising from some
currency exposures. Terniums relevant subsidiaries use forward contracts in order to hedge their
exposure to exchange rate risk primarily derived from their exports.
Ternium aims to neutralize the negative impact of fluctuations in the value of these exports
currencies with respect to the U.S. dollar. However, the fact that some subsidiaries have
measurement currencies other than the U.S. dollar may, at times, distort the result of these
efforts as reported under IFRS.
(ii) Interest rate risk
Terniums income and operating cash flows are substantially independent from changes in market
interest rates. The Groups interest-rate risk arises from long-term borrowings. Borrowings issued
at variable rates expose the Group to cash flow interest-rate risk. Borrowings issued at fixed
rates expose the Group to fair value interest-rate risk.
Annual Report and Accounts 2005
(iii) Concentration of credit risk
Ternium has no significant concentrations of credit risk from customers. No single customer
accounts for more than five percent of Terniums sales.
Terniums subsidiaries have policies in place to ensure that sales of products and services are
made to customers with an appropriate credit history, or use credit insurance, letters of credit
and other instruments to reduce credit risk whenever deemed necessary. These subsidiaries maintain
allowances for potential credit losses.
Derivative counterparties and cash transactions are limited to high quality financial institutions.
(1) Financial risk factors
(iv) Liquidity risk
Management maintains sufficient cash and marketable securities, availability of funding through an
adequate amount of committed credit facilities and the ability to close out market positions.
(v) Gas and electricity supply
Sidor relies heavily upon two Venezuelan state-owned companies for the provision of gas and
electricity, which are critical for the operation of its plant and equipment. A major
disruption in the gas and electricity supply process, such as strikes, lockouts and other
problems, would impact Sidor significantly. However, the risk of such a disruption at the current
time appears to be low.
(vi) Iron ore supply
Expenditures for iron ore constitute one of the companys largest individual raw
material costs. While Sidor purchases all of its iron ore from a Venezuelan state-owned
company, a number of other sources are available. Although management believes that Sidor will
be able to continue to purchase iron ore on favorable terms, there can be no assurance that
Sidor could timely purchase sufficient quantities of that raw material from alternative suppliers
at prices comparable to those offered by its current supplier.
(2) Accounting for derivative financial instruments and hedging activities
Derivative financial instruments are initially recognized in the balance sheet at cost and
subsequently remeasured at fair value. Changes in fair value are disclosed under Financial income,
net line item in the income statement .Ternium does not hedge its net investments in foreign
entities.
Derivative transactions and other financial instruments, while providing economic hedges under risk
management policies, do not qualify for hedge accounting under the specific rules in IAS 39.
Changes in the fair value of any derivative instruments that do not qualify for hedge accounting
under IAS 39 are recognized immediately in the income statement. The fair value of derivative
instruments is disclosed in Note 27.
(3) Fair value estimation
The estimated fair value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a forced or liquidation
sale.
For the purpose of estimating the fair value of financial assets and liabilities with maturities of
less than one year, the Company uses the market value less any estimated credit adjustments. For
other investments, including the trust fund, the Company uses quoted market prices.
As most borrowings include variable rates or fixed rates that approximate market rates and the
contractual re-pricing occurs every 3 to 6 months, the fair value of the borrowings approximates
its carrying amount and is not disclosed separately.
In assessing the fair value of derivatives and other financial instruments, Ternium uses a
variety of methods, including, but not limited to, estimated discounted value of future cash flows
using assumptions based on market conditions existing at each balance sheet date.
Annual Report and Accounts 2005
35 Post balance sheet events
The following are the main post balance sheet events:
(a) |
|
As mentioned in Note 3, the Company entered into the Subordinated Convertible Loan Agreements
for a total aggregate amount of USD594 million to fund the acquisition of Hylsamex. As per the
provisions contained in the Subordinated Convertible Loan Agreements, the Subordinated
Convertible Loans would be converted into shares of the Company upon delivery of Terniums
ADSs to the Underwriters. On February 6, 2006 the Company delivered the above mentioned ADSs
and, accordingly, the Subordinated Convertible Loans (including interest accrued through
January 31, 2006) were converted into shares at a conversion price of USD2 per share,
resulting in the issuance of 302,962,261 new shares. |
(b) |
|
As mentioned in Note 1, the Companys management used the proceeds from the Initial Public
Offering to repay Tranche A of the Ternium Credit Facility. On February 6, 2006, the Company
delivered the ADSs to the Underwriters and collected the amount that were used to fully repay
Tranche A of the Ternium Credit Facility and to provide for Initial Public Offering related
expenses. |
(c) |
|
On February 23, 2006 the underwriter exercised the option to purchase 2,298,136 ADSs at the
public offering price of USD20 per ADS less an underwriting discount of USD0.55 per ADS. |
36 Reconciliation of net income and shareholders equity to US GAAP
I. Differences in measurement methods
The principal differences between IFRS and US GAAP as they relate to the Company are
described below, together with an explanation, where appropriate, of the method used in the
determination of the necessary adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
Net income attributable to equity holders of the Company in accordance with
IFRS |
|
|
704,406 |
|
|
|
457,339 |
|
|
|
218,215 |
|
|
US GAAP
adjustments income (expense)
|
|
Valuation of fixed assets- PP&E (Note 36.a) |
|
|
123,824 |
|
|
|
79,493 |
|
|
|
72,890 |
|
Troubled debt restructuring (Note 36.b) |
|
|
14,820 |
|
|
|
|
|
|
|
|
|
Accounting for pension plans (Note 36.c) |
|
|
(991 |
) |
|
|
(164 |
) |
|
|
(468 |
) |
Inventory valuation (Note 36.d) |
|
|
(5,882 |
) |
|
|
(1,628 |
) |
|
|
(813 |
) |
Capitalization of interest cost- PP&E (Note 36.e) |
|
|
(910 |
) |
|
|
152 |
|
|
|
(278 |
) |
Capitalization of interest cost- Intangible assets (Note 36.e) |
|
|
(302 |
) |
|
|
313 |
|
|
|
80 |
|
Changes in fair value of financial assets through profit and loss (Note 36.f) |
|
|
50,819 |
|
|
|
(1,361 |
) |
|
|
12,147 |
|
Equity in investments in associated companies- Amazonia (Note 36.h) |
|
|
|
|
|
|
(76,926 |
) |
|
|
24,237 |
|
Excess of fair value of assets acquired over cost (Note 36.i) |
|
|
(170,510 |
) |
|
|
|
|
|
|
|
|
Revaluation reserve over pre-acquisition interest in Amazonia (Note 36.j) |
|
|
5,734 |
|
|
|
|
|
|
|
|
|
Acquisition of minority interest in controlled subsidiaries (Note 36.k) |
|
|
(4,101 |
) |
|
|
|
|
|
|
|
|
Valuation of intangible assets and other assets (Note 36.m) |
|
|
(674 |
) |
|
|
|
|
|
|
|
|
Deferred income tax (Note 36.n) |
|
|
(51,315 |
) |
|
|
(27,101 |
) |
|
|
(29,251 |
) |
Minority interest (Note 36.o) |
|
|
(105,613 |
) |
|
|
(5,462 |
) |
|
|
(32,586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income in accordance with US GAAP |
|
|
559,305 |
|
|
|
424,655 |
|
|
|
264,173 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding (thousands) |
|
|
1,209,477 |
|
|
|
1,168,944 |
|
|
|
1,168,944 |
|
Consolidated basic earnings per share in accordance with US GAAP |
|
|
0.46 |
|
|
|
0.36 |
|
|
|
0.23 |
|
Consolidated diluted earnings per share in accordance with US GAAP |
|
|
0.43 |
|
|
|
0.36 |
|
|
|
0.23 |
|
Annual Report and Accounts 2005
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2005 |
|
|
2004 |
|
Shareholders equity in accordance with IFRS |
|
|
1,842,454 |
|
|
|
1,026,725 |
|
|
Valuation of fixed assets- PP&E (Note 36.a) |
|
|
(1,410,264 |
) |
|
|
(962,453 |
) |
Troubled debt restructuring (Note 36.b) |
|
|
(12,051 |
) |
|
|
|
|
Accounting for pension plans (Note 36.c) |
|
|
5,227 |
|
|
|
1,463 |
|
Inventory valuation (Note 36.d) |
|
|
(14,854 |
) |
|
|
(7,476 |
) |
Capitalization of interest cost- PP&E (Note 36.e) |
|
|
7,083 |
|
|
|
5,697 |
|
Capitalization of interest cost- Intangible assets (Note 36.e) |
|
|
344 |
|
|
|
647 |
|
Accounting for convertible debt (Note 36.g) |
|
|
|
|
|
|
572,413 |
|
Equity in investments in associated companies- Amazonia (Note 36.h) |
|
|
|
|
|
|
(163,529 |
) |
Excess of fair value of assets acquired over cost (Note 36.i) |
|
|
(267,542 |
) |
|
|
|
|
Revaluation reserve over pre-acquisition interest in Amazonia (Note 36.j) |
|
|
(85,962 |
) |
|
|
|
|
Acquisition of minority interest in controlled subsidiaries (Note 36.k) |
|
|
470,850 |
|
|
|
|
|
Equity securities issuance cost (Note 36.l) |
|
|
5,456 |
|
|
|
|
|
Valuation of intangible assets and other assets (Note 36.m) |
|
|
(1,300 |
) |
|
|
|
|
Deferred income tax (Note 36.n) |
|
|
507,253 |
|
|
|
336,743 |
|
Minority interest (Note 36.o) |
|
|
389,944 |
|
|
|
144,025 |
|
|
|
|
|
|
|
|
Shareholders equity in accordance with US GAAP |
|
|
1,436,638 |
|
|
|
954,255 |
|
|
|
|
|
|
|
|
Changes in shareholders equity under US GAAP are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2004 |
|
Shareholders equity (deficit) at the beginning of the year in accordance with US GAAP |
|
|
954,255 |
|
|
|
382,703 |
|
Net income for the year in accordance with US GAAP |
|
|
559,305 |
|
|
|
424,655 |
|
Usiminas exchange |
|
|
531,088 |
|
|
|
|
|
Capital increase |
|
|
54,758 |
|
|
|
|
|
Other comprehensive (loss) income |
|
|
(424,116 |
) |
|
|
227,783 |
|
Dividends paid in cash and other distributions |
|
|
(238,652 |
) |
|
|
(80,886 |
) |
|
|
|
|
|
|
|
Shareholders equity at the end of the year in accordance with US GAAP |
|
|
1,436,638 |
|
|
|
954,255 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Valuation of fixed assets property, plant and equipment |
Under IFRS, the Company applied the provisions contained in IFRS 1 for the revaluation of property,
plant and equipment. Accordingly, a technical revaluation was adopted by the Company as the deemed
cost for its property, plant and equipment.
Under US GAAP, no accommodations are given to first-time adopters with regards to estimates of the
original value of property, plant and equipment. Thus, no revaluations have been made for US GAAP
purposes and historical cost has been used by the Company as its basis of accounting for this
caption. The US GAAP adjustment to net income represents the difference in depreciation charge for
the year.
(b) Troubled debt restructuring
In June 2003, Amazonia and Sidor concluded the restructuring of their financial indebtedness. Under
IFRS, those companies accounted for their debt restructuring process in accordance with the
guidelines set forth by IAS 39, which states that a substantial modification of the terms of an
existing debt instrument (whether or not due to the financial difficulty of the debtor) should be
accounted for as an extinguishment of the old debt. For purposes of IAS 39, the terms are
substantially different if the discounted present value of the cash flows under the new terms,
including any fees paid net of any fees received, is at least 10 per cent different from the
discounted present value of the remaining cash flows of the original debt instrument. If an
exchange of debt instruments or modification of terms is accounted for as an extinguishment, any
costs or fees incurred are recognized as part of the gain or loss on the extinguishment. If the
exchange or modification is not accounted for as an extinguishment, any costs or fees incurred are
an adjustment to the carrying amount of the liability and are amortized over the remaining term of
the modified loan. As the terms of Sidors new debt were deemed to be substantially different (as
this term is defined by IAS 39), that company recorded a USD59.5 million gain on restructuring in
fiscal 2003.
Under US GAAP, Sidor followed the provisions contained in Statement of Financial Accounting
Standards No. 15 Accounting by Debtors and Creditors for Troubled Debt Restructurings (SFAS 15)
which states that in the case of a troubled debt restructuring (as this term is defined by SFAS 15)
involving a cash payment and a modification of terms, a debtor shall reduce the carrying amount of
the payable by the total fair value of the assets transferred and no gain on restructuring of
payables shall be recognized unless the remaining carrying amount of the payable exceeds the total
future cash payments (including amounts
contingently payable) specified by the terms of the debt remaining unsettled after the
restructuring. Future interest expense, if any,
Annual Report and Accounts 2005
shall be determined by applying the interest rate
that equates the present value of the future cash payments specified by the new terms (excluding
amounts contingently payable) with the carrying amount of the payable. Based on the above, no gain
on restructuring has been recorded by Sidor under US GAAP. The US GAAP adjustment to net income
represents the difference in interest expense for the year arising from the application of a
different effective interest rate under US GAAP as compared to IFRS.
(c) Accounting for pension plans
Under IFRS, the Company accounts for benefits granted to its employees in accordance with the
provisions contained in International Accounting Standard No. 19 Employee Benefits (IAS 19),
which requires an enterprise to recognize (i) a liability when an employee has provided service in
exchange for employee benefits to be paid in the future; and (ii) an expense when the enterprise
consumes the economic benefit arising from service provided by an employee in exchange for employee
benefits.
Under US GAAP, the Company follows the guidance set forth by Statement of Financial Accounting
Standard No. 87 Employers Accounting for Pensions (SFAS No. 87), which contains provisions
substantially consistent with those provided by IAS No. 19. Nevertheless, differences arise as a
consequence of the following:
|
a. |
|
Under IFRS Venezuela was considered a hyperinflationary country through December 31,
2002 while under US GAAP Venezuela ceased being hyperinflationary as from January 1, 2002.
The effect of such a divergence gave rise to differences in the accounting for employee
benefits. |
|
|
b. |
|
Under IFRS, past-service costs are recognized immediately as expenses, 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. Under US GAAP, past service
costs are recognized over the remaining service lives of active employees. |
(d) Inventory valuation
Under both IFRS and US GAAP, the Company values inventory at the lower of cost or net realizable
value. Nevertheless, under IFRS, Venezuela was considered a hyperinflationary country through
December 31, 2002, while, under US GAAP, Venezuela ceased being hyperinflationary as from January
1, 2002. Accordingly, for IFRS purposes, the historical cost of inventories has been adjusted to
reflect the effects of inflation up to December 31, 2002, whereas under US GAAP, no inflation
adjustment has been recorded.
In addition, the outstanding balance of inventories at year-end contains a portion of the
depreciation of property, plant and equipment for the year. As mentioned in Note 36.a above, the
value of property, plant and equipment for IFRS purposes has been determined based on a technical
revaluation while historical cost has been used under US GAAP. Accordingly, the carrying amount
and the annual depreciation charge under IFRS are higher than those determined under US GAAP.
Therefore, this US GAAP adjustment reflects the reversal of the excess depreciation of property,
plant and equipment capitalized within inventory under IFRS.
(e) Capitalization of interest cost
Under IFRS, the Company follows the guidance set forth by International Accounting Standard No. 23
Borrowing Costs (IAS 23), which states that interest cost should be recognized as an expense in
the period in which it is incurred. IAS 23 provides for an allowed alternative treatment under
which interest cost that is directly attributable to the acquisition, construction or production of
a qualifying asset should be capitalized as part of the cost of that asset. In case the allowed
alternative treatment is applied, the amount of interest cost eligible for capitalization should be
determined in accordance with IAS 23. However, for IFRS purposes, the Company elected to follow the
general guidance contained in IAS 23 and interest cost has been expensed as incurred.
Under US GAAP, the Company applies the provisions of Statement of Financial Accounting Standards
No. 34, Capitalization of Interest Cost (SFAS No. 34), which requires interest capitalization
on assets which have a period of time to get them ready for their intended use. In accordance with
these requirements, interest was capitalized during the years ended December 31, 2005, 2004 and
2003. The net US GAAP adjustment also includes amortization of the interest capitalized.
(f) Changes in fair value of financial assets through profit and loss
The Company had certain investments in trust funds. Under IFRS, the Company carried these
investments at fair value through profit or loss with unrealized gains and losses, if any, included
in the statement of income.
Under US GAAP, the Company carried these investments at market value with material unrealized gains
and losses, if any, included in Other comprehensive income in accordance with Statement of
Financial Accounting Standards No. 115 Accounting for Certain Investments in Debt and Equity
Securities (SFAS No. 115). At December 31, 2005, the Company settled its available-for-sale
investments and the unrealized gains recorded within other comprehensive income were reclassified
into the statement of income.
Annual Report and Accounts 2005
(g) Accounting for convertible debt
Under IFRS, the investment in the convertible debt instrument issued by Amazonia was carried at
cost. Under US GAAP, this security was valued at its fair value at each balance sheet date with
changes in value recorded directly in Other comprehensive income as the Company considered this
security to be an available-for-sale security as defined by SFAS No. 115. Upon conversion of the
Amazonia convertible debt instrument into shares of that company, the amounts previously recorded
in Other comprehensive income have been reversed as an adjustment to the cost value of the
convertible debt and the net carrying amount has been deemed purchase price paid for the common
shares received.
(h) Equity in investments in associated companies
Under both IFRS and US GAAP, investments in companies in which the Company exercises significant
influence, but not control, are accounted for by the equity method. For purposes of the US GAAP
reconciliation of net income and shareholders equity for the year ended December 31, 2004, the
Company included under this line item the effect of the differences mentioned in items a. to e.
above related to its investment in Amazonia and Sidor, as well as the following:
|
- |
|
Ternium recorded an impairment provision on its investment in Amazonia in
previous years. During 2004, and due to better conditions in the economic environment
market of Sidor and based on projections of future cash flows estimated by the Companys
management, the impairment provision was reversed under IFRS. No impairment provision
has been recorded under US GAAP. |
(i) Excess of fair value of net assets acquired over cost
As mentioned in Note 29, on February 3, 2005, Ylopa exercised its option to convert the outstanding
balance of the Amazonia convertible debt instrument into newly issued shares of that company. As a
result, Terniums indirect participation in Amazonia increased from 31.03% to 53.47%. Under IFRS,
this acquisition has been accounted for following the provisions contained in IFRS 3 Business
Combinations (IFRS 3) and, accordingly, assets acquired and liabilities assumed have been valued
at fair value. The excess of Terniums interest in the net fair value of Amazonias identifiable
assets, liabilities and contingent liabilities over the purchase price (amounting to USD 188.4
million) has been recognized in income for the year.
Under US GAAP, the Company applied the provisions contained in Statement of Financial Accounting
Standard No. 141 Business Combinations (SFAS No. 141), which states that the excess of fair
value of acquired net assets over cost shall be allocated as a pro rata reduction of the amounts
that otherwise would have been assigned to all of the acquired assets except (a) financial assets
other than investments accounted for by the equity method, (b) assets to be disposed of by sale,
(c) deferred tax assets, (d) prepaid assets relating to pension or other postretirement benefit
plans, and (e) any other current assets. Accordingly, under US GAAP, the Company reversed the gain
recognized for IFRS purposes. This adjustment also reflects the effect of the above-mentioned
difference on the depreciation of fixed assets, totaling USD 17.8 million.
(j) Revaluation reserve over pre-acquisition interest in Amazonia
As mentioned in Note 29, on February 3, 2005, the Company increased its equity interest in Amazonia
from 31.03% to 53.47%. Under IFRS, this acquisition has been accounted for following the provisions
contained in IFRS 3 and, accordingly, the Company recorded in equity (under Revaluation and other
reserves line item) the excess of the fair value of its pre-acquisition interest in Amazonias net
assets over their corresponding carrying amounts.
For US GAAP purposes, the Company applied the provisions contained in SFAS No. 141. Under SFAS No.
141, when a company increases its shareholding interest in an equity investee, no fair value
revaluation shall be made on the pre-acquisition equity interest held. This adjustment also
reflects the effect of the above-mentioned difference on the depreciation of fixed assets.
(k) Acquisition of minority interest in controlled subsidiaries
In August 2005, the Company acquired an additional equity interest in Amazonia through the
acquisition of Hylsamex. Under IFRS, this acquisition has been accounted for following 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 being recorded directly in equity.
In October 2005, the Company acquired an additional equity interest in Ylopa, Amazonia and Siderar
through the Usiminas Exchange. Under IFRS, this acquisition has also been accounted for following
the economic entity model and thus, it was recorded at carrying amount at acquisition date.
Under US GAAP when a company acquires an additional equity interest in a controlled subsidiary,
this acquisition is recorded at fair value. Accordingly, under US GAAP, the Company (i) reversed
the amounts charged to equity under IFRS in connection with the acquisition of an additional equity
interest in Amazonia through the acquisition of Hylsamex, and (ii) allocated the difference between
fair value and carrying amount arising from the above mentioned acquisitions to net tangible and
identifiable intangible assets and goodwill.
As mentioned in Note 29, on February 3, 2005, the Company increased its equity interest in Amazonia
from 31.03% to 53.47%. Under IFRS, this acquisition has been accounted for following the provisions
contained in IFRS 3 and, accordingly, the Company
Annual Report and Accounts 2005
recorded the interest corresponding to minority
equity holders of Amazonia at fair value. Under IFRS, the remaining minority interest in Amazonia
at year-end (representing 10.9% of this companys share capital) has been valued at fair value,
resulting in an adjustment to minority interest of USD 257.4 million. Under US GAAP, the interest
of minority equity holders of Amazonia has been valued at pre-acquisition carrying amount of net
assets. No reconciling item has been shown in the reconciliation of shareholders equity and net
income for the year as this difference has no effect on those amounts.
The chart below shows the net carrying amount of Property, plant and equipment and goodwill under
IFRS and US GAAP after the application of all the above mentioned adjustments:
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount at December 31, 2005 |
|
|
|
IFRS |
|
|
US GAAP |
|
Property, plant and equipment |
|
|
5,463,871 |
|
|
|
3,967,401 |
|
Goodwill |
|
|
399,694 |
|
|
|
610,330 |
|
(l) Equity securities issuance cost
Under IFRS, expenses incurred at year-end in connection with the issuance of equity securities
effected in 2006 (totaling USD 5.5 million) has been deducted from shareholders equity. Under US
GAAP, this amount has been shown within total assets.
(m) Valuation of intangible assets and other assets
Under both IFRS and US GAAP, the Company values intangible assets and other assets at historical
cost. Nevertheless, as mentioned in Note 36.c above, under IFRS, Venezuela was considered a
hyperinflationary country through December 31, 2002 while, under US GAAP, Venezuela ceased being
hyperinflationary as from January 1, 2002. Accordingly, for IFRS purposes, the historical cost of
intangible assets and other assets has been adjusted to reflect the effects of inflation up to
December 31, 2002, whereas under US GAAP, no inflation adjustment has been recorded.
(n) Deferred income tax
Under US GAAP the Company calculated the effect of all of the above mentioned adjustments on
deferred income taxes.
(o) Minority Interest
This adjustment represents the effect on minority interest of all the foregoing differences between
IFRS and US GAAP.
(p) Net income
Under US GAAP, net income is shown net of the portion of the Companys gain (loss) for the year
attributable to minority shareholders. Accordingly, for US GAAP purposes, net income represents the
gain (loss) attributable only to majority equity holders. Under IFRS, net income represents total
gain (loss) obtained by the Company in a given period before offsetting the portion attributable to
minority shareholders.
(q) Cumulative translation differences exemption
As mentioned in Note 4.(a), Ternium applied the cumulative translation differences exemption
provided by IFRS 1 and, accordingly, has set the previously cumulative translation differences to
zero at January 1, 2003. This exemption is not available under US GAAP. Nevertheless, this
circumstance does not give rise to a difference between total shareholders equity under IFRS and
US GAAP, but to a reclassification within shareholders equity.
Annual Report and Accounts 2005
II. Other significant US GAAP disclosure requirements
The following is a summary of additional financial statement disclosures required under US GAAP:
(a) Statement of combined consolidated comprehensive income under US GAAP
Ternium uses SFAS No. 130, Reporting Comprehensive Income, which requires that an enterprise (i)
classify items of other comprehensive income (loss) by their nature in a financial statement and
(ii) display the accumulated balance of other comprehensive income (loss) separately from retained
earnings and additional paid-in capital in the equity section of a statement of financial position.
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2005 |
|
|
2004 |
|
Net income for the year |
|
|
559,305 |
|
|
|
424,655 |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(39,247 |
) |
|
|
(10,776 |
) |
Change in fair value of available for sale securities |
|
|
(384,869 |
) |
|
|
238,559 |
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
|
(424,116 |
) |
|
|
227,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
135,189 |
|
|
|
652,438 |
|
|
|
|
|
|
|
|
The accumulated balances related to each component of other comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation |
|
|
|
adjustment for the year ended |
|
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Balance at the beginning of the year |
|
|
(144,587 |
) |
|
|
(133,811 |
) |
Decrease for the year |
|
|
(39,247 |
) |
|
|
(10,776 |
) |
|
|
|
|
|
|
|
Balance at the end of the year |
|
|
(183,834 |
) |
|
|
(144,587 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of financial |
|
|
assets for the year ended |
|
|
December 31, |
|
|
2005 |
|
2004 |
Balance at the beginning of the year |
|
|
384,869 |
|
|
|
146,310 |
|
(Decrease) increase for the year |
|
|
(384,869 |
) |
|
|
238,559 |
|
|
|
|
Balance at the end of the year |
|
|
|
|
|
|
384,869 |
|
|
|
|
Annual Report and Accounts 2005
(b) Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 |
|
|
Hylsamex |
Amazonia |
Siderar |
Details of Acquisition of Subsidiary Companies: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash assets acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
337,039 |
|
|
|
9,875 |
|
|
|
|
|
Trade accounts receivable |
|
|
305,831 |
|
|
|
188,978 |
|
|
|
|
|
Other receivables |
|
|
72,069 |
|
|
|
162,199 |
|
|
|
|
|
Inventories |
|
|
345,053 |
|
|
|
284,676 |
|
|
|
|
|
Intangible assets |
|
|
133,079 |
|
|
|
3,893 |
|
|
|
|
|
Property, plant and equipment |
|
|
2,129,325 |
|
|
|
2,444,289 |
|
|
|
|
|
Other assets |
|
|
7,032 |
|
|
|
36,800 |
|
|
|
|
|
|
|
|
Total non-cash assets acquired |
|
|
3,329,428 |
|
|
|
3,130,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed: |
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts payable |
|
|
(234,325 |
) |
|
|
(371,908 |
) |
|
|
|
|
Current tax liabilities |
|
|
(19,000 |
) |
|
|
(7,630 |
) |
|
|
|
|
Borrowings |
|
|
(751,730 |
) |
|
|
(656,658 |
) |
|
|
|
|
Pension benefits |
|
|
(116,860 |
) |
|
|
(78,425 |
) |
|
|
|
|
Deferred income tax |
|
|
(449,537 |
) |
|
|
(284,242 |
) |
|
|
|
|
Other liabilities |
|
|
(21,521 |
) |
|
|
(35,666 |
) |
|
|
|
|
Provisions |
|
|
|
|
|
|
(37,163 |
) |
|
|
|
|
|
|
|
Total liabilities assumed |
|
|
(1,592,973 |
) |
|
|
(1,471,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net non-cash assets acquired |
|
|
1,736,455 |
|
|
|
1,659,018 |
|
|
|
|
|
Cash acquired |
|
|
215,411 |
|
|
|
305,342 |
|
|
|
|
|
|
|
|
Net assets acquired |
|
|
1,951,866 |
|
|
|
1,964,360 |
|
|
|
|
|
|
|
|
Minority interest |
|
|
(160,576 |
) |
|
|
(1,338,320 |
) |
|
|
|
|
Pre-acquisition interest in Amazonia |
|
|
|
|
|
|
(323,229 |
) |
|
|
|
|
Goodwill (excess of fair value of net assets acquired over cost) |
|
|
405,388 |
|
|
|
(220,767 |
) |
|
|
|
|
Non-cash assets surrendered |
|
|
|
|
|
|
(82,044 |
) |
|
|
|
|
Purchase price paid for acquired companies |
|
|
2,196,678 |
|
|
|
|
|
|
|
|
|
Cash acquired |
|
|
(215,411 |
) |
|
|
(305,342 |
) |
|
|
|
|
|
|
|
Net cash paid (received) for acquired companies |
|
|
1,981,267 |
|
|
|
(305,342 |
) |
|
|
|
|
|
|
|
Increase in shareholding interest in subsidiary companies: |
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
109,171 |
|
|
|
54,432 |
|
Increase in fair value of net assets acquired |
|
|
|
|
|
|
116,424 |
|
|
|
38,404 |
|
Goodwill |
|
|
|
|
|
|
149,391 |
|
|
|
61,244 |
|
|
|
|
Purchase price paid |
|
|
|
|
|
|
374,986 |
|
|
|
154,080 |
|
|
|
|
(c) Recently issued accounting pronouncements
1. Statement of Financial Accounting Standard No. 156, Accounting for Servicing of Financial
Assets (SFAS No. 156)
In March 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard No. 156, Accounting for Servicing of Financial Assets (SFAS No. 156). SFAS
No. 156 amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, with respect to the accounting for separately recognized
servicing assets and servicing liabilities. This Statement:
|
a. |
|
Requires an entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a servicing contract
in certain specific situations. |
|
|
b. |
|
Requires all separately recognized servicing assets and servicing liabilities to be
initially measured at fair value, if practicable. |
|
|
c. |
|
Permits an entity to choose between two different subsequent measurement methods for
each class of separately recognized servicing assets and servicing liabilities. |
|
|
d. |
|
At its initial adoption, permits a one-time reclassification of available-for-sale
securities to trading securities by entities with recognized servicing rights, without
calling into question the treatment of other available-for-sale securities under FASB
Statement No. 115, provided that the available-for-sale
securities are identified in some
manner as offsetting the entitys exposure to changes in fair value of servicing assets or
servicing liabilities that a servicer elects to subsequently measure at fair value. |
Annual Report and Accounts 2005
|
e. |
|
Requires separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial position and additional
disclosures for all separately recognized servicing assets and servicing liabilities. |
An entity
should adopt this Statement as of the beginning of its first fiscal year that begins after
September 15, 2006. Earlier adoption is permitted as of the
beginning of an entitys fiscal year,
provided the entity has not yet issued financial statements,
including interim financial statements,
for any period of that fiscal year. The effective date of this Statement is the date an entity
adopts the requirements of this Statement.
The Companys management has not assessed the potential impact of this standard on its financial
statements.
2. Statement of Financial Accounting Standard No. 155 Accounting for Certain Hybrid Financial
Instruments an amendment of FASB Statements No. 133 and 140 (SFAS No. 155)
In February 2006, the FASB issued SFAS No. 155, which amends Statements No. 133 and 140. This
Statement:
|
a. |
|
Permits fair value remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation. |
|
|
b. |
|
Clarifies which interest-only strips and principal-only strips are not subject to the
requirements of Statement No. 133 |
|
|
c. |
|
Establishes a requirement to evaluate interests in securitized financial assets to
identify interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation |
|
|
d. |
|
Clarifies that concentrations of credit risk in the form of subordination are not
embedded derivatives |
|
|
e. |
|
Amends Statement No. 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a beneficial
interest other than another derivative financial instrument. |
This Statement is effective for all financial instruments acquired or issued after the beginning of
an entitys first fiscal year that begins after September 15, 2006. The fair value election
provided for in paragraph 4(c) of this Statement may also be applied upon adoption of this
Statement for hybrid financial instruments that had been bifurcated under paragraph 12 of Statement
133 prior to the adoption of this Statement. Earlier adoption is permitted. Provisions of this
Statement may be applied to instruments that an entity holds at the date of adoption on an
instrument-by-instrument basis.
At adoption, any difference between the total carrying amount of the individual components of the
existing bifurcated hybrid financial instrument and the fair value of the combined hybrid financial
instrument should be recognized as a cumulative-effect adjustment to beginning retained earnings.
An entity should separately disclose the gross gains and losses that make up the cumulative-effect
adjustment, determined on an instrument-by-instrument basis. Prior periods should not be restated.
The Companys management has not assessed the potential impact of this standard on its financial
statements.
3. Statement of Financial Accounting Standard No. 154 Accounting Changes and Error Corrections
a replacement of APB No. 20 and FAS No. 3 (SFAS No. 154)
In May 2005, the FASB issued SFAS No. 154, which replaces APB Opinion No. 20, Accounting Changes,
and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and
changes the requirements for the accounting for and reporting of a change in accounting principle.
This Statement applies to all voluntary changes in accounting principle. It also applies to changes
required by an accounting pronouncement in the unusual instance that the pronouncement does not
include specific transition provisions. When a pronouncement includes specific transition
provisions, those provisions should be followed.
This Statement shall be effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. Early adoption is permitted for accounting changes and
corrections of errors made in fiscal years beginning after the date this Statement is issued. This
Statement does not change the transition provisions of any existing accounting pronouncements,
including those that are in a transition phase as of the effective date of this Statement.
The Companys management believes that the application of SFAS No. 154 will not have a material
impact on the Companys financial condition or results of operations.
4. Emerging Issues Task Force Issue 05-08 (Issue 05-08)
Annual Report and Accounts 2005
In September 2005, the Emerging Issues Task Force (EITF) discussed Issue 05-08, which establishes
additional guidance with respect to accounting for income tax consequences of issuing convertible
debt with a beneficial conversion feature. Issue 05-08 should be applied to financial statements
beginning in the first interim or annual reporting period beginning after December 15, 2005. This
Issue should be applied by retrospective application pursuant to FASB Statement No. 154 to all
instruments with a beneficial conversion feature accounted for under Issue 00-27. Therefore, this
Issue would also be applicable to debt instruments that were converted (or extinguished) in prior
periods but are still presented in the financial statements. Early application is permitted in
periods for which financial statements have not been issued.
The Companys management has not assessed the potential impact of this standard on its financial
statements.
5. Emerging Issues Task Force Issue 05-07 (Issue 05-07)
In September 2005, the EITF discussed Issue 05-07, which addresses how to account for modifications
to conversion options embedded in debt instruments and other related issues. This Issue applies to
convertible debt instruments that are accounted for under APB Opinion No. 14 and related
interpretations and to modifications that are not accounted for as extinguishments under Issue
96-19. This Issue should be applied to future modifications of debt instruments beginning in the
first interim or annual reporting period beginning after December 15, 2005. Early application of
this guidance is permitted in periods for which financial statements have not yet been issued.
The Companys management has not assessed the potential impact of this standard on its financial
statements.
6. Emerging Issues Task Force Issue 05-06 (Issue 05-06)
In June and September 2005, the EITF discussed Issue 05-06, which addresses the amortization period
for leasehold improvements in operating leases that are either (a) placed in service significantly
after and not contemplated at or near the beginning of the initial lease term or (b) acquired in a
business combination. This Issue does not address the amortization of intangible assets that may
be recognized in a business combination for the favorable or unfavorable terms of a lease relative
to market prices. The Task Force reached a consensus that leasehold improvements acquired in a
business combination should be amortized over the shorter of the useful life of the assets or a
term that includes required lease periods and renewals that are deemed to be reasonably assured (as
defined in paragraph 5 of FASB Statement No. 13) at the date of acquisition. Also, the Task Force
reached a consensus that leasehold improvements that are placed in service significantly after and
not contemplated at or near the beginning of the lease term should be amortized over the shorter of
the useful life of the assets or a term that includes required lease periods and renewals that are
deemed to be reasonably assured (as defined in paragraph 5 of FASB Statement No. 13) at the date
the leasehold improvements are purchased. Furthermore, at the September 15, 2005 meeting, the Task
Force agreed to clarify that the consensus in this Issue does not apply to preexisting leasehold
improvements. Therefore, the consensus in this Issue should not be used to justify the
reevaluation of the amortization period for preexisting leasehold improvements for additional
renewal periods that are reasonably assured when new leasehold improvements are placed into service
significantly after and are not contemplated at or near the beginning of the lease term. This Issue
should be applied to leasehold improvements (within the scope of this Issue) that are purchased or
acquired in reporting periods beginning after Board ratification of the consensus (June 29, 2005).
Early application of the consensus is permitted in periods for which financial statements have not
been issued.
The Companys management has not assessed the potential impact of this standard on its financial
statements.
Roberto Philipps
Chief Financial Officer
Annual Report and Accounts 2005
Report and Accounts of Ternium S.A. (Luxembourg GAAP)
Index to annual accounts
Management Report
Report of the Statutory Auditor
Balance Sheet
Profit and loss account
Notes to the accounts
Annual Report and Accounts 2005
Management Report
The board of directors of Ternium S.A. (the Company) submits the annual accounts for the
fiscal year ended December 31, 2005 in accordance with the article 20 of the Companys articles of
association and Luxembourg applicable laws and regulations.
Results for the year
Profit for the year ended December 31, 2005 totaled USD 107,6 million.
During this financial year, the Company obtained dividends totaling USD 133,9 million, from its
investments in Consorcio Siderurgia Amazonia Ltd (USD102,1 million), Fasnet International S.A.
(USD4,0 million), Inversiones Siderurgicas S.A. (USD22,5 million) and Hylsa Latin LLC (USD 5,3
million).
Main charge for the period were the interest expense (USD 21,3 million), as result of the amounts
owed to affiliated companies and financial institutions involved in the acquisition of Hylsamex SA
de CV and its subsidiaries.
Other profit and loss were recorded under other financial results (profit USD 0,3 million) and
taxes (loss USD 5,2 million).
As of December 31, 2005, the Company had investments in affiliated companies for USD 4,483,155,423.
These financial assets were acquired by the Company as a result of capital contributions to the
Company made by Inversora Siderurgica Limited (ISL); on June 29, 2005 ISL contributed to Ternium
all of its assets and liabilities, including, but not limited to, a 100% interest in III BVI and a
100% interest in Fasnet; on September 15, 2005, ISL contributed its 21.17% interest in Amazonia, a
Cuota representing 24.40% of Ylopa and other items and finally, on October 27, 2005 Usiminas
Europa A/S,. (Usiminas) exchanged its 5.32% equity interest in Siderar, its 16.58% equity
interest in Amazonia and its 19.11% equity interest in Ylopa and other items for 227,608,254 new
shares of the Company.
Between September 22, 2005 and October 27, 2005, I.I.I.-Industrial Investments Inc transferred to
the Company all of its shares of Siderar S.A.I.C., Consorcio Siderurgia Amazonia Ltd., Inversiones
Siderúrgicas S.A., Techintrade Uruguay S.A., Hylsa Latin LLC and Ylopa-Serviços de Consultadoria
Lda in consideration of the assumption by the Company of I.I.I.-Industrial Investments Incs
obligations under the Credit Agreement and the Convertible and Subordinated Loan Agreements.
On September 22, 2005, the Company assumed all of I.I.I.-Industrial Investments Incs rights and
obligations under:
|
|
|
the Second Amended and Restated Credit Agreement for an aggregate principal amount
of USD1.0 billion, dated as of August 16, 2005, by and among I.I.I.-Industrial
Investments Inc, as borrower, the lenders listed on the signature pages thereof, as
lenders, Citibank, N.A., as administrative agent, and Citibank, N.A. as collateral
agent (the Credit Agreement); and |
|
|
|
|
several convertible and subordinated loans for an aggregate principal amount of USD 594
million (collectively, the Convertible Loans) from various affiliated and
unaffiliated lenders (collectively, the Subordinated Lenders) under several
convertible and subordinated loan agreements, dated as of various dates, each among
I.I.I.-Industrial Investments Inc, as borrower, the relevant lenders thereto, as
lenders, and the Company (collectively, the Convertible and Subordinated Loan
Agreements). |
Annual Report and Accounts 2005
As a result of the transactions detailed above, the financial assets of the Company as at December
31, 2005 consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value at |
|
Net |
|
Book value at |
|
|
Jurisdiction of |
|
% of |
|
12.31.2004 |
|
Additions |
|
12.31.2005 |
Company |
|
Organization |
|
ownership |
|
USD |
|
USD |
|
USD |
|
I.I.I.-Industrial
Investments Inc |
|
British Virgin Islands |
|
|
99 |
% |
|
|
|
|
|
|
1,490,636,610 |
|
|
|
1,490,636,610 |
|
|
Consorcio Siderurgia
Amazonia Ltd. |
|
Cayman Islands |
|
|
45.237 |
% |
|
|
|
|
|
|
890,920,421 |
|
|
|
890,920,421 |
|
|
Hylsa Latin LLC |
|
USA |
|
|
26.5992 |
% |
|
|
|
|
|
|
26,325,700 |
|
|
|
26,325,700 |
|
|
Inversiones
Siderúrgicas S.A. |
|
Panama |
|
|
100 |
% |
|
|
|
|
|
|
561,050,327 |
|
|
|
561,050,327 |
|
|
Siderar S.A.I.C. |
|
Argentina |
|
|
56.0686 |
% |
|
|
|
|
|
|
1,367,654,500 |
|
|
|
1,367,654,500 |
|
|
Techintrade Uruguay S.A. |
|
Uruguay |
|
|
100 |
% |
|
|
|
|
|
|
120,000,000 |
|
|
|
120,000,000 |
|
|
Ylopa Serviços de
Consultadoria Lda. |
|
Portugal |
|
|
54.62 |
% |
|
|
|
|
|
|
7,378,665 |
|
|
|
7,378,665 |
|
|
Fasnet International SA |
|
Panama |
|
|
99 |
% |
|
|
|
|
|
|
19,189,200 |
|
|
|
19,189,200 |
|
|
Shares in subsidiary
companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,483,155,423 |
|
|
|
4,483,155,423 |
|
|
The Company has qualified for, and was admitted to, the Billionaire holding company tax regime in
conjunction with the financing holding company tax regime (régime fiscal des sociétés de
participations financières) in Luxemburg starting 1 January 2006.
On January 11, 2006, the Company announced that it had filed a registration statement on Form F-1
with the U.S. Securities and Exchange Commission related to its proposed initial public offering of
24,844,720 American Depositary Shares (ADSs), each representing ten shares of common stock.
The Companys initial public offering of 24,844,720 ADSs was priced at USD 20 per ADS.
Terniums ADSs began trading on the New York Stock Exchange under the symbol TX on February 1,
2006.
The Company entered into the Subordinated Convertible Loan Agreements for a total aggregate amount
of USD594 million to fund the acquisition of Hylsamex. As per the provisions contained in the
Subordinated Convertible Loan Agreements, the Subordinated Convertible Loans would be converted
into shares of the Company upon delivery of Terniums ADSs to the Underwriters. On February 6, 2006
the Company delivered the above mentioned ADSs and, accordingly, the Subordinated Convertible Loans
(including interest accrued through January 31, 2006) were converted into shares at a conversion
price of USD2 per share, resulting in the issuance of 302,962,261 new shares.
The Companys initial public offering was settled on February 6, 2006. As a result of the Companys
initial public offering, the Company received proceeds of approximately USD 497 million. The
Company used all of the proceeds received from the offering to pay down the Companys indebtedness
under the Credit Agreement after deducting related expenses.
Outlook
Steel demand in our primary markets was strong in 2005, achieving growth rates above the world
average, a pace that is expected to continue this year. Latin American economies continue to enjoy
high commodity prices, low international interest rates and decreasing country risk premiums. The
Annual Report and Accounts 2005
economic trends are expected to remain favorable in our regional markets in 2006, with GDP and
international trade expected to grow at above historical averages.
Steel prices are expected to remain stable in 2006, while the Central and South America operations
are expected to have higher prices for iron ore, as the price increase negotiated by Sidor in
November 2005 will finally affect its production cost.
|
|
|
|
|
|
|
|
Roberto Philipps |
|
|
Chief Financial Officer |
Annual Report and Accounts 2005
Independent auditors report
To the shareholders of
Ternium S.A.
Luxembourg
We have audited the annual accounts of Ternium S.A. for the year ended December 31, 2005 and have
read the related management report. These annual accounts and the management report are the
responsibility of the Board of Directors. Our responsibility is to express an opinion on these
annual accounts based on our audit and to check the consistency of the management report with them.
We conducted our audit in accordance with International Standards on Auditing. Those Standards
require that we plan and perform the audit to obtain reasonable assurance about whether the annual
accounts are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the annual accounts. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall annual accounts presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the attached annual accounts give, in conformity with the Luxembourg legal and
regulatory requirements, a true and fair view of the financial position of Ternium S.A. as of
December 31, 2005 and of the results of its operations for the year then ended.
The management report is in accordance with the annual accounts.
|
|
|
|
|
|
PricewaterhouseCoopers S.à r.l.
|
|
Luxembourg, February 28, 2006 |
Réviseur dentreprises |
|
|
Represented by |
|
|
Mervyn R. Martins
Annual Report and Accounts 2005
Balance sheets as at December 31, 2005 and 2004
(expressed in United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note |
|
12/31/2005 |
|
12/31/2004 |
|
|
|
|
|
|
USD |
|
USD |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Formation expenses |
|
|
4 |
|
|
|
5,456,249 |
|
|
|
1,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,456,249 |
|
|
|
1,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets |
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
- Shares in affiliated undertakings |
|
|
5 |
|
|
|
4,483,155,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,483,155,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Debtors |
|
|
|
|
|
|
|
|
|
|
|
|
- Receivables owed by affiliated undertakings |
|
|
6 |
|
|
|
5,306,317 |
|
|
|
|
|
- Other receivables |
|
|
|
|
|
|
8,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,314,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Cash at banks and cash in hand |
|
|
7 |
|
|
|
66,564,262 |
|
|
|
40,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
4,560,490,521 |
|
|
|
41,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these annual accounts.
Annual Report and Accounts 2005
Balance sheets as at December 31, 2005 and 2004 (Contd.)
(expressed in United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note |
|
12/31/2005 |
|
12/31/2004 |
|
|
|
|
|
|
USD |
|
USD |
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
8 |
|
|
|
|
|
|
|
|
|
- Share capital |
|
|
|
|
|
|
1,396,551,887 |
|
|
|
41,472 |
|
- Legal reserve |
|
|
9 |
|
|
|
139,655,189 |
|
|
|
|
|
- Distributable reserves |
|
|
|
|
|
|
279,580,555 |
|
|
|
|
|
- Non distributable reserves |
|
|
|
|
|
|
980,017,925 |
|
|
|
|
|
- Accumulated deficit |
|
|
|
|
|
|
(11,537 |
) |
|
|
(343 |
) |
- Profit (Loss) for the year |
|
|
|
|
|
|
107,623,638 |
|
|
|
(11,194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,903,417,657 |
|
|
|
29,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions |
|
|
|
|
|
|
|
|
|
|
|
|
- Initial Public Offering expenses provision |
|
|
|
|
|
|
4,580,500 |
|
|
|
|
|
- Tax provision |
|
|
12 |
|
|
|
1,340,685 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,921,185 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Creditors |
|
|
|
|
|
|
|
|
|
|
|
|
- Amounts owed to affiliated undertakings
becoming due and payable after more than
one year |
|
|
10 |
|
|
|
603,683,346 |
|
|
|
|
|
becoming due and payable within one year |
|
|
|
|
|
|
27,580,299 |
|
|
|
|
|
- Amounts owed to credit institutions
becoming due and payable after more than
one year |
|
|
11 |
|
|
|
872,500,000 |
|
|
|
|
|
becoming due within one year |
|
|
11 |
|
|
|
146,896,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Other creditors |
|
|
|
|
|
|
491,367 |
|
|
|
11,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,651,151,679 |
|
|
|
11,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
4,560,490,521 |
|
|
|
41,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these annual accounts.
Annual Report and Accounts 2005
Profit and loss accounts for the years ended
December 31, 2005 and 2004
(expressed in United States Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note |
|
12/31/2005 |
|
12/31/2004 |
|
|
|
|
|
|
USD |
|
USD |
CHARGES |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of formation expenses |
|
|
4 |
|
|
|
828 |
|
|
|
249 |
|
Administrative and general expenses |
|
|
|
|
|
|
57,558 |
|
|
|
11,788 |
|
Interest expense |
|
|
|
|
|
|
21,348,194 |
|
|
|
|
|
Taxes |
|
|
12 |
|
|
|
5,173,275 |
|
|
|
59 |
|
Profit for the year |
|
|
|
|
|
|
107,623,638 |
|
|
|
|
|
Total charges |
|
|
|
|
|
|
134,203,493 |
|
|
|
12,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain on exchange |
|
|
|
|
|
|
6,939 |
|
|
|
775 |
|
Other interest income |
|
|
|
|
|
|
315,225 |
|
|
|
127 |
|
Dividends income |
|
|
13 |
|
|
|
133,866,322 |
|
|
|
|
|
Income for own shares cancellation |
|
|
14 |
|
|
|
15,007 |
|
|
|
|
|
Loss for the year |
|
|
|
|
|
|
|
|
|
|
11,194 |
|
Total Income |
|
|
|
|
|
|
134,203,493 |
|
|
|
12,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these annual accounts.
Annual Report and Accounts 2005
Notes to the accounts
Note 1 Business of the Company and corporate reorganization
(a) Business of the Company
Ternium S.A. (the Company or Ternium) was incorporated on December 22, 2003 under the name
Zoompart Holding S.A. as a Luxembourg société anonyme holding under the law of August 10, 1915
relating to commercial companies and the law of July 31, 1929 relating to holding companies for an
unlimited period.
The registered office of the Company is established in Luxembourg. The Companys financial year
starts on January 1 and ends on December 31 of each year.
The Companys objective is to invest in companies that manufacture, process and distribute flat and
long steel products, providing raw materials for several industrial activities.
The Company also prepares consolidated financial statements, which are published according to the
provisions of the law and that are available at the registered office of the Company, 46a, Avenue
John F. Kennedy, L-1855, Luxembourg.
In January 2006, the Company successfully completed its registration process with the United States
Securities and Exchange Commission (SEC) and announced the commencement of its offer to sale
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). Also, the Company has granted to the Underwriters an option,
exercisable for 30 days from January 31, 2006, to purchase up to 3,726,708 additional ADSs at the
public offering price of USD20 per ADS less an underwriting discount of USD0.55 per ADS. Such
option has been exercised on February 23, 2006 for 22,981,360 shares. 2,004,743,442 shares
(including shares in the form of ADSs) will be outstanding upon completion of the Initial Public
Offering, the conversion of the Subordinated Convertible Loans mentioned in Note 2(ii), exercise of
the option granted to the underwriters and consummation of the transactions contemplated in the
Corporate Reorganization Agreement described in Note 1 (b).
The proceeds of the Initial Public Offering totaled USD 496.9 million and have been used to repay
Tranche A of the Ternium Credit Facility (as defined below) after deducting related expenses. See
Note 16.
Annual Report and Accounts 2005
(b) Corporate reorganization
On May 6, 2005, Inversora Siderurgica Limited (ISL) acquired a 96.77% interest in Ternium, which
it afterwards increased to an interest of almost 100% of its issued and outstanding capital. On
June 29, 2005, ISL assigned and contributed to Ternium all of its assets and liabilities,
including, but not limited to, a 100% interest in I.I.I. Industrial Investments Inc (I.I.I.
BVI) and a 100% interest in Fasnet, in exchange for 959,482,775 shares of Ternium.
Also, on September 9, 2005 Tenaris S.A. (Tenaris) agreed to exchange with ISL its 21.17% interest
(14.49% direct ownership at December 31, 2004) in Amazonia, and its 24.40% interest in Ylopa for
209,460,856 shares of the Company.
On September 15, 2005, ISL made a second contribution of all of its assets and liabilities
including 750,021,919 shares of the Company, a 21.17% interest in Amazonia, a Cuota representing
24.40% of Ylopa and other items, in exchange for 959,482,775 new shares of the Company. Upon
consummation of this second contribution, the 750,021,919 shares contributed by ISL to the Company
were cancelled and the Companys issued share capital was increased to USD 1,168,943,632
represented by 1,168,943,632 shares of 1 USD nominal value each.
On September 22, 2005, the Company assumed all of I.I.I. BVIs rights and obligations under the
Ternium Credit Facility, dated as of August 16, 2005, for an aggregate principal amount of USD1,000
million entered into among I.I.I. BVI and the lenders named therein; and several Subordinated
Convertible Loan Agreements, each among I.I.I. BVI, as borrower, the subordinated lender party
thereto, as lender, and the Company.
On October 27, 2005, I.I.I BVI transferred to the Company all of its shares of Siderar, Amazonia,
Inversiones Siderúrgicas, Techintrade, Hylsa Latin and Ylopa in consideration of the assumption by
Ternium of I.I.I. BVIs obligations under the Ternium Credit Facility and the Subordinated
Convertible Loan Agreements.
In October 2005, Usinas Siderúrgicas de Minas Gerais S.A. (Usiminas) exchanged its 5.32% equity
interest in Siderar, its 16.58% equity interest in Amazonia and its 19.11% equity interest in Ylopa
and other items for shares of the Company (the Usiminas Exchange) for 227,608,254 new shares of
the Company. Upon the consummation of this exchange the capital was increased to USD 1,396,551,887
represented by 1,396,551,887 shares of 1 USD nominal value each.
Furthermore, in November 2005, Siderúrgica del Turbio S.A. (Sidetur), a subsidiary of Siderúrgica
Venezolana S.A. (Sivensa), exchanged with ISL its 3.42% equity interest in Amazonia for shares of
the Company. ISL has, under the terms of the Corporate Reorganization Agreement (as defined below),
contributed such interest in Amazonia to the Company in exchange for shares of the Company after
the settlement of the Initial Public Offering (the Sivensa Exchange).
Annual Report and Accounts 2005
ISL and the Company entered into a reorganization agreement (the Corporate Reorganization
Agreement) pursuant to which ISL committed to deliver shares of the Company to the Underwriters
and to the Subordinated Lenders (as defined below) in an amount sufficient to satisfy the Companys
obligation to deliver shares of the Company to the Underwriters (excluding any shares to be
delivered in connection with the Underwriters over-allotment option) and to the Subordinated
Lenders pursuant to the terms of the Initial Public Offering and the Subordinated Convertible Loan
Agreements. As provided in the Corporate Reorganization Agreement, after ISLs delivery of such
shares, ISL will contribute all of its assets and liabilities (including the credit against the
Company arising from such delivery of shares, its interest in Amazonia resulting from the Sivensa
Exchange and any remaining shares of the Company) to the Company in exchange for that number of
newly issued shares of the Company equal to the number of shares of the Company held by ISL prior
to the Sivensa Exchange.
Note 2- Acquisition of business
On May 18, 2005, I.I.I. BVI, Hylsamex S.A. de C.V. (Hylsamex) and Alfa S.A. de C.V. (Alfa)
entered into the Hylsamex Acquisition Agreement. Pursuant to the terms of the Hylsamex Acquisition
Agreement, on July 26, 2005, I.I.I. BVI launched a cash tender offer in Mexico for the acquisition
of all the outstanding shares of Hylsamex. The Company acquired an indirect controlling interest in
Hylsamex and its subsidiaries, and the indirect equity stakes owned by Hylsamexs former
controlling shareholder, Alfa, in Amazonia and Ylopa.
As part of the transfer of rights and obligations of I.I.I. BVI, the Company assumed the following
liabilities:
i) |
|
an amended and restated credit agreement, dated as of August 16, 2005 among I.I.I. BVI and
lenders (including affiliates of Citigroup Global Markets Inc., J.P. Morgan Securities Inc.,
BNP Paribas Securities Corp., Caylon Securities (USA) Inc. and Bayerische Hypo- und
Vereinsbank AG ) for an aggregate principal amount of USD 1,000 million (the Ternium Credit
Facility). The Ternium Credit Facility is comprised of two equal tranches: |
|
|
|
Tranche A with a maturity of three years and bearing interest at the annual rate of
LIBOR plus an applicable margin that ranges from 75 to 400 basis points. This tranche has
been fully repaid in February 2006. |
|
|
|
|
Tranche B with a maturity of five years and bearing interest at the annual rate of
LIBOR plus an applicable margin that ranges from 137.5 to 300 basis points. |
ii) |
|
several convertible and subordinated loan agreements, dated as of various dates, for an
aggregate principal amount of USD594 million, each among the Company, I.I.I. BVI, as
borrowers, and Usiminas, Tenaris, or other Techint Group companies (collectively, the
Subordinated Lenders, the agreements, the Subordinated Convertible Loan Agreements and the
loans thereunder, the Subordinated Convertible Loans). Pursuant to the terms of the
Subordinated Convertible Loan Agreements, on the date on which the Company delivers the ADSs
to the Underwriters upon consummation of the Initial Public Offering, the Subordinated
Convertible Loans would be converted into shares of the Company at a price per share equal to
the price per share paid by the investors in the offering. |
Annual Report and Accounts 2005
Note 3 Summary of significant accounting policies
3.1 Basis of preparation
The annual accounts have been prepared in accordance with Luxembourg legal and regulatory
requirements.
3.2 Foreign currency translation
Financial assets, current and non-current assets and debts denominated in currencies other than the
United States dollar (USD) are translated into USD at the rate of exchange at the balance sheet
date. Income and expenses in currencies other than the USD are translated into USD at the exchange
rate prevailing at the date of each transaction. Only realized exchange gains and losses and
unrealized losses are accounted for in the profit and loss accounts.
3.3 Formation expenses
Formation expenses are amortized over a period of 5 years.
3.4 Financial assets
Financial assets are stated at cost. In case of other than temporary decline in the value of an
investment, its carrying value will be reduced to recognize this decline. Reductions in the
carrying value will be reversed in case of a rise in the value of the investment or when the
reasons for the reduction no longer exist.
3.5 Receivables and payables
Receivables and payables are valued at their nominal value.
3.6 Short-term investments
Short-term investments are valued at their nominal value.
Annual Report and Accounts 2005
Note 4 Formation expenses
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
December 31, 2004 |
|
Formation expenses |
|
USD |
|
|
USD |
|
Gross amount |
|
|
|
|
|
|
|
|
- at the beginning of the year |
|
|
1,657 |
|
|
|
1,657 |
|
- additions of IPO expenses (i) |
|
|
5,456,000 |
|
|
|
|
|
|
|
|
|
|
|
|
- at the end of the year |
|
|
5,457,657 |
|
|
|
1,657 |
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
- at the beginning of the year |
|
|
580 |
|
|
|
331 |
|
- charge for the year |
|
|
828 |
|
|
|
249 |
|
|
|
|
|
|
|
|
- at the end of the year |
|
|
1,408 |
|
|
|
580 |
|
|
Net book value at the end of the year |
|
|
5,456,249 |
|
|
|
1,077 |
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Expenses incurred in connection with the Initial Public Offering will be amortized beginning in
February 2006, which is the closing date of such process. |
Annual Report and Accounts 2005
Note 5 Financial assets
- Shares in affiliated undertakings
Terniums investments in affiliated undertakings at December 31, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value at |
|
|
|
|
|
|
Book value at |
|
|
|
|
|
|
|
% of beneficial |
|
|
12.31.2004 |
|
|
Net Additions |
|
|
12.31.2005 |
|
Company |
|
Country |
|
|
ownership |
|
|
USD |
|
|
USD |
|
|
USD |
|
I.I.I.
Industrial Investments Inc. |
|
British Virgin Islands |
|
|
99 |
% |
|
|
|
|
|
|
1,490,636,610 |
|
|
|
1,490,636,610 |
|
Consorcio Siderurgia
Amazonia Ltd. |
|
Cayman Islands |
|
|
45.237 |
% |
|
|
|
|
|
|
890,920,421 |
|
|
|
890,920,421 |
|
Hylsa Latin LLC |
|
USA |
|
|
26.5992 |
% |
|
|
|
|
|
|
26,325,700 |
|
|
|
26,325,700 |
|
Inversiones Siderúrgicas
S.A. |
|
Panama |
|
|
100 |
% |
|
|
|
|
|
|
561,050,327 |
|
|
|
561,050,327 |
|
Siderar S.A.I.C. |
|
Argentina |
|
|
56.0686 |
% |
|
|
|
|
|
|
1,367,654,500 |
|
|
|
1,367,654,500 |
|
Techintrade Uruguay S.A. |
|
Uruguay |
|
|
100 |
% |
|
|
|
|
|
|
120,000,000 |
|
|
|
120,000,000 |
|
Ylopa Serviços de
Consultadoria Lda. |
|
Portugal |
|
|
54.62 |
% |
|
|
|
|
|
|
7,378,665 |
|
|
|
7,378,665 |
|
Fasnet International S.A. |
|
Panama |
|
|
99 |
% |
|
|
|
|
|
|
19,189,200 |
|
|
|
19,189,200 |
|
Shares in affiliated
undertakings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,483,155,423 |
|
|
|
4,483,155,423 |
|
Note 6 Receivables owed by affiliated undertakings
Correspond to dividends distributed by Hylsa Latin LLC which were collected in February 2006.
Annual Report and Accounts 2005
Note 7 Cash at banks and cash in hand as of December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
Citifunds Time deposits denominated in USD |
|
|
|
|
|
USD |
|
USD 66,480,905 |
KBL, Luxembourg DDA account denominated in Euros |
|
|
132 |
|
|
Eur |
|
USD 157 |
Citibank, London DDA account denominated in USD |
|
|
|
|
|
USD |
|
USD 51,409 |
Citibank, London DDA account denominated in Euros |
|
|
25,861 |
|
|
Eur |
|
USD 30,619 |
Petty Cash |
|
|
990 |
|
|
Eur |
|
USD 1,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD 66,564,262 |
Note 8 Shareholders equity
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
Share |
|
|
Legal |
|
|
Distributable |
|
|
distributable |
|
|
Retained |
|
|
Result for the |
|
|
Shareholders |
|
Item |
|
Capital |
|
|
reserve |
|
|
reserves |
|
|
reserves |
|
|
earnings |
|
|
year |
|
|
Equity |
|
|
|
USD |
|
Balance at the
beginning of the
year |
|
|
41,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(343 |
) |
|
|
(11,194 |
) |
|
|
29,935 |
|
Capital increase
dated June 29, 2005 |
|
|
959,482,775 |
|
|
|
95,948,277 |
|
|
|
191,896,555 |
|
|
|
671,637,943 |
|
|
|
|
|
|
|
|
|
|
|
1,918,965,550 |
|
Cancellation of own
shares |
|
|
(41,470 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,470 |
) |
Capital increase
dated September 15,
2005 |
|
|
959,482,775 |
|
|
|
95,948,277 |
|
|
|
191,896,259 |
|
|
|
671,635,277 |
|
|
|
|
|
|
|
|
|
|
|
1,918,962,588 |
|
Cancellation of own
shares |
|
|
(750,021,919 |
) |
|
|
(75,002,191 |
) |
|
|
(150,004,384 |
) |
|
|
(525,015,344 |
) |
|
|
|
|
|
|
|
|
|
|
(1,500,043,838 |
) |
Capital increase
dated October 27,
2005 |
|
|
227,608,254 |
|
|
|
22,760,826 |
|
|
|
45,792,125 |
|
|
|
161,760,049 |
|
|
|
|
|
|
|
|
|
|
|
457,921,254 |
|
Allocation of
previous year
results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,194 |
) |
|
|
11,194 |
|
|
|
|
|
Profit for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,623,638 |
|
|
|
107,623,638 |
|
Balance at the end
of the year |
|
|
1,396,551,887 |
|
|
|
139,655,189 |
|
|
|
279,580,555 |
|
|
|
980,017,925 |
|
|
|
(11,537 |
) |
|
|
107,623,638 |
|
|
|
2,903,417,657 |
|
The authorized capital of the Company amounts to USD 3,500 million. The total authorized share
capital of the Company is represented by 3,500,000,000 shares with a par value of USD 1 per share.
The total capital issued and fully paid-up at December 31, 2005 was 1,396,551,887 shares with a par
value of USD 1 per share.
On
June 29, 2005 Terniums Board of Directors approved a capital increase in the context of the
contribution in kind received from ISL. Such capital increase (amounting to USD 1,918,965,550) was
Annual Report and Accounts 2005
allocated as follows: USD 959,482,775 to share capital, USD 95,948,277 to the Companys legal
reserve, USD 191,896,555 to other distributable reserves and USD 671,637,943 to non-distributable
reserves (share premium), in accordance with Luxembourg legislation.
On September 15, 2005, ISL made a second contribution of all of its assets (including 750,021,919
shares of the Company) and liabilities to the Company, in exchange for 959,482,775 new shares of
the Company. Upon consummation of this second contribution, the 750,021,919 shares contributed by
ISL to the Company were cancelled and the Companys issued share capital was increased to USD
1,168,943,632 represented by 1,168,943,632 shares of 1 USD nominal value each.
On October 27, 2005, Usinas Siderúrgicas de Minas Gerais S.A. (Usiminas) exchanged its 5.32%
equity interest in Siderar, its 16.58% equity interest in Amazonia and its 19.11% equity interest
in Ylopa for 227,608,254 shares of the Company (the Usiminas
Exchange) and the Companys issued
and outstanding share capital reached USD 1,396,