Form 6-K
 
 
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
As of 8/3/2010
Ternium S.A.
(Translation of Registrant’s name into English)
Ternium S.A.
46a, Avenue John F. Kennedy
L-1855 Luxembourg

(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or 40-F.
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 Ternium S.A.’s consolidated financial statements as of June 30, 2010.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
                     
 
          TERNIUM S.A.  
 
                   
By:
  /s/ Pablo Brizzio
 
Name: Pablo Brizzio
      By:   /s/ Daniel Novegil
 
Name: Daniel Novegil
   
 
  Title: Chief Financial Officer           Title: Chief Executive Officer    
Dated: August 3, 2010

 

 


 

TERNIUM S.A.
CONSOLIDATED CONDENSED INTERIM
FINANCIAL STATEMENTS AS OF JUNE 30, 2010
AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 2010 AND 2009
46a, Avenue John F. Kennedy, 2nd floor
L — 1855
R.C.S. Luxembourg : B 98 668

 

 


 

TERNIUM S.A.
Consolidated condensed interim financial statements as of June 30, 2010
and for the six-month periods ended June 30, 2010 and 2009

(All amounts in USD thousands)
CONSOLIDATED CONDENSED INTERIM INCOME STATEMENTS
                                     
        Three-month period     Six-month period  
        ended June 30,     ended June 30,  
    Notes   2010     2009     2010     2009  
      (Unaudited)     (Unaudited)  
Continuing operations
                                   
Net sales
  3     1,926,640       1,140,293       3,577,239       2,314,948  
Cost of sales
  3 & 4     (1,398,989 )     (1,048,698 )     (2,612,634 )     (2,093,270 )
 
                           
 
                                   
Gross profit
  3     527,651       91,595       964,605       221,678  
 
                                   
Selling, general and administrative expenses
  3 & 5     (168,208 )     (142,991 )     (312,518 )     (279,157 )
Other operating (expenses) income, net
  3     (256 )     (695 )     599       (21,095 )
 
                           
 
                                   
Operating income (loss)
  3     359,187       (52,091 )     652,686       (78,574 )
 
                                   
Interest expense
        (18,461 )     (32,130 )     (37,381 )     (59,836 )
Interest income
        3,807       5,273       7,933       10,369  
Interest income — Sidor financial asset
  11     17,849       57,126       45,081       57,126  
Other financial (expenses) income, net
  6     (34,157 )     223,752       62,078       58,747  
 
                                   
Equity in (losses) earnings of associated companies
        (661 )     117       (884 )     658  
 
                           
 
                                   
Income (loss) before income tax expense
        327,564       202,047       729,513       (11,510 )
 
                                   
Income tax (expense) benefit
        (96,896 )     (45,384 )     (253,728 )     51,155  
 
                           
 
                                   
Income from continuing operations
        230,668       156,663       475,785       39,645  
 
                                   
Discontinued operations
                                   
Gain from the disposal of Sidor
  11           428,023             428,023  
 
                           
 
                                   
Profit for the period
        230,668       584,686       475,785       467,668  
 
                                   
Attributable to:
                                   
Equity holders of the Company
        187,647       562,818       392,885       469,636  
Non-controlling interests
        43,021       21,868       82,900       (1,968 )
 
                           
 
        230,668       584,686       475,785       467,668  
 
                           
 
                                   
Weighted average number of shares outstanding
        2,004,743,442       2,004,743,442       2,004,743,442       2,004,743,442  
Basic and diluted earnings per share (expressed in USD per share) for profit:
                                   
- From continuing operations attributable to the equity holders
        0.09       0.07       0.20       0.02  
- From discontinued operations attributable to the equity holders
              0.21             0.21  
- For the period attributable to the equity holders
        0.09       0.28       0.20       0.23  
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the fiscal year ended December 31, 2009.

 

-2-


 

TERNIUM S.A.
Consolidated condensed interim financial statements as of June 30, 2010
and for the six-month periods ended June 30, 2010 and 2009

(All amounts in USD thousands)
CONSOLIDATED CONDENSED INTERIM STATEMENTS OF COMPREHENSIVE INCOME
                                 
    Three-month period     Six-month period  
    ended June 30,     ended June 30,  
    2010     2009     2010     2009  
    (Unaudited)     (Unaudited)  
 
                               
Profit for the period
    230,668       584,686       475,785       467,668  
 
                               
Other comprehensive income:
                               
 
                               
Currency translation adjustment
    (51,057 )     88,983       6,754       (109,688 )
Cash flow hedges
    2,452       16,059       3,242       24,786  
Income tax relating to cash flow hedges
    (735 )     (4,496 )     (972 )     (6,940 )
 
                       
Other comprehensive (loss) income for the period, net of tax
    (49,340 )     100,546       9,024       (91,842 )
 
                               
Total comprehensive income for the period
    181,328       685,232       484,809       375,826  
 
                       
 
                               
Attributable to:
                               
Equity holders of the Company
    149,222       661,024       415,094       428,219  
Non-controlling interests
    32,106       24,208       69,715       (52,393 )
 
                       
 
                               
 
    181,328       685,232       484,809       375,826  
 
                       
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the fiscal year ended December 31, 2009.

 

-3-


 

TERNIUM S.A.
Consolidated condensed interim financial statements as of June 30, 2010
and for the six-month periods ended June 30, 2010 and 2009

(All amounts in USD thousands)
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
                                     
    Notes   June 30, 2010     December 31, 2009  
      (Unaudited)          
ASSETS
                                   
Non-current assets
                                   
Property, plant and equipment, net
  7     4,065,452               4,040,415          
Intangible assets, net
  8     1,094,810               1,085,412          
Investments in associated companies
        5,651               6,577          
Other investments, net
        36,971               16,414          
Receivables, net
        67,188       5,270,072       101,317       5,250,135  
 
                           
 
                                   
Current assets
                                   
Receivables
        89,944               136,300          
Derivative financial instruments
        11               1,588          
Inventories, net
        1,630,502               1,350,568          
Trade receivables, net
        705,254               437,835          
Sidor financial asset
  11     446,008               964,359          
Other investments
        6,638               46,844          
Cash and cash equivalents
        2,637,196       5,515,553       2,095,798       5,033,292  
 
                           
Non-current assets classified as held for sale
                10,024               9,246  
 
                               
 
                5,525,577               5,042,538  
 
                               
Total assets
                10,795,649               10,292,673  
 
                               
 
                                   
EQUITY
                                   
Capital and reserves attributable to the company’s equity holders
                5,611,199               5,296,342  
 
                                   
Non-controlling interests
                996,308               964,897  
 
                               
 
                                   
Total equity
                6,607,507               6,261,239  
 
                               
LIABILITIES
                                   
Non-current liabilities
                                   
Provisions
        16,324               18,913          
Deferred income tax
        853,914               857,297          
Other liabilities
        197,636               176,626          
Derivative financial instruments
        30,239               32,627          
Trade Payables
        1,019                        
Borrowings
        1,536,073       2,635,205       1,787,204       2,872,667  
 
                           
 
                                   
Current liabilities
                                   
Current tax liabilities
        257,470               103,171          
Other liabilities
        112,163               57,021          
Trade payables
        632,081               412,967          
Derivative financial instruments
        42,552               46,083          
Borrowings
        508,671       1,552,937       539,525       1,158,767  
 
                           
Total liabilities
                4,188,142               4,031,434  
 
                               
Total equity and liabilities
                10,795,649               10,292,673  
 
                               
Contingencies, commitments and restrictions to the distribution of profits are disclosed in Note 10.
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the fiscal year ended December 31, 2009.

 

-4-


 

TERNIUM S.A.
Consolidated condensed interim financial statements as of June 30, 2010
and for the six-month periods ended June 30, 2010 and 2009

(All amounts in USD thousands)
CONSOLIDATED CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
                                                                         
    Attributable to the Company’s equity holders (1)              
            Initial public     Revaluation     Capital stock     Currency                     Non-        
    Capital stock     offering     and other     issue discount     translation     Retained             controlling     Total  
    (2)     expenses     reserves     (3)     adjustment     earnings     Total     interests     Equity  
 
                                                                       
Balance at January 1, 2010
    2,004,743       (23,295 )     1,726,216       (2,324,866 )     (570,844 )     4,484,388       5,296,342       964,897       6,261,239  
 
                                                                       
Profit for the period
                                            392,885       392,885       82,900       475,785  
Other comprehensive income for the period
                                                                       
 
                                                                       
Currency translation adjustment
                                    20,196               20,196       (13,442 )     6,754  
Cash flow hedges, net of tax
                    2,013                               2,013       257       2,270  
 
                                                     
Total comprehensive income for the period
                    2,013               20,196       392,885       415,094       69,715       484,809  
 
                                                     
Dividends paid in cash and other distributions (See Note 9)
                    (100,237 )                             (100,237 )             (100,237 )
Dividends paid in cash and other distributions by subsidiary companies
                                                            (38,304 )     (38,304 )
 
                                                     
 
                                                                       
Balance at June 30, 2010 (unaudited)
    2,004,743       (23,295 )     1,627,992       (2,324,866 )     (550,648 )     4,877,273       5,611,199       996,308       6,607,507  
 
                                                     
     
(1)  
Shareholders’ equity determined in accordance with accounting principles generally accepted in Luxembourg is disclosed in Note 10 (iii).
 
(2)  
At June 30, 2010, the Capital Stock adds up to 2,004,743,442 shares at a nominal value of USD 1 each.
 
(3)  
Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.
Dividends may be paid by Ternium to the extent distributable retained earnings calculated in accordance with Luxembourg law and regulations exist. Therefore, retained earnings included in these consolidated condensed interim financial statements may not be wholly distributable. See Note 10 (iii).
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the fiscal year ended December 31, 2009.

 

-5-


 

TERNIUM S.A.
Consolidated condensed interim financial statements as of June 30, 2010
and for the six-month periods ended June 30, 2010 and 2009

(All amounts in USD thousands)
CONSOLIDATED CONDENSED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (continued)
                                                                         
    Attributable to the Company’s equity holders (1)              
            Initial public     Revaluation     Capital stock     Currency                     Non-        
    Capital     offering     and other     issue discount     translation     Retained             controlling     Total  
    stock (2)     expenses     reserves     (3)     adjustment     earnings     Total     interests     Equity  
Balance at January 1, 2009
    2,004,743       (23,295 )     1,702,285       (2,324,866 )     (528,485 )     3,766,988       4,597,370       964,094       5,561,464  
 
                                                                       
Profit (loss) for the period
                                            469,636       469,636       (1,968 )     467,668  
Other comprehensive income (loss) for the period
                                                                       
 
                                                                       
Currency translation adjustment
                                    (57,248 )             (57,248 )     (52,440 )     (109,688 )
 
                                                                       
Cash flow hedges, net of tax
                    15,831                               15,831       2,015       17,846  
 
                                                     
Total comprehensive income (loss) for the period
                    15,831               (57,248 )     469,636       428,219       (52,393 )     375,826  
 
                                                                       
Acquisition of business (4)
                    182                               182       (378 )     (196 )
 
                                                     
 
                                                                       
Balance at June 30, 2009 (unaudited)
    2,004,743       (23,295 )     1,718,298       (2,324,866 )     (585,733 )     4,236,624       5,025,771       911,323       5,937,094  
 
                                                     
     
(1)  
Shareholders’ equity determined in accordance with accounting principles generally accepted in Luxembourg is disclosed in Note 10 (iii).
 
(2)  
At June 30, 2009, the Capital Stock adds up to 2,004,743,442 shares at a nominal value of USD 1 each.
 
(3)  
Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.
 
(4)  
On February 5, 2009, Ternium Internacional España S.L.U. acquired from its related company Siderca S.A.I.C., 53,452 shares of Siderar S.A.I.C., representing 0.015% of that company’s share capital, for an aggregate purchase price of USD 196 thousand. After this acquisition, Ternium increased its ownership in Siderar to 60.94%.
 
   
As permitted by IFRS 3, the Company accounted for this acquisition under the economic entity model, which requires that the acquisition of an additional equity interest in a controlled subsidiary be accounted for at its carrying amount, with the difference arising on purchase price allocation being recorded directly in equity.
Dividends may be paid by Ternium to the extent distributable retained earnings calculated in accordance with Luxembourg law and regulations exist. Therefore, retained earnings included in these consolidated condensed interim financial statements may not be wholly distributable. See Note 10 (iii).
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the fiscal year ended December 31, 2009.

 

-6-


 

TERNIUM S.A.
Consolidated condensed interim financial statements as of June 30, 2010
and for the six-month periods ended June 30, 2010 and 2009

(All amounts in USD thousands)
CONSOLIDATED CONDENSED INTERIM STATEMENTS OF CASH FLOWS
                         
            Six-month period  
            ended June, 30  
    Notes     2010     2009  
          (Unaudited)  
Cash flows from operating activities
                       
Income from continuing operations
            475,785       39,645  
Adjustments for:
                       
Depreciation and amortization
    7 & 8       185,291       189,894  
Income tax accruals less payments
            169,412       (145,995 )
Equity in losses (earnings) of associated companies
            884       (658 )
Interest accruals less payments
            402       22,812  
Impairment charge
  10 (ii)           27,022  
Changes in provisions
            4,079       2,463  
Changes in working capital
            (226,877 )     779,521  
Interest income — Sidor financial asset
    11       (45,081 )     (57,126 )
Net foreign exchange results and others
            (31,594 )     (51,681 )
 
                   
Net cash provided by operating activities
            532,301       805,897  
 
                   
 
                       
Cash flows from investing activities
                       
Capital expenditures
    7 & 8       (150,083 )     (110,670 )
Proceeds from the sale of property, plant and equipment
            825       639  
Decrease in other investments
            19,639       90,008  
Acquisition of business
                  (196 )
Proceeds from Sidor financial asset
    11       563,432       400,000  
 
                   
Net cash provided by investing activities
            433,813       379,781  
 
                   
 
                       
Cash flows from financing activities
                       
Dividends paid in cash and other distributions
            (100,237 )      
Dividends paid in cash and other distributions by subsidiary companies
            (38,304 )      
Proceeds from borrowings
            11,402       161,980  
Repayments of borrowings
            (297,300 )     (596,387 )
 
                   
Net cash used in financing activities
            (424,439 )     (434,407 )
 
                   
 
                       
Increase in cash and cash equivalents
            541,675       751,271  
 
                   
 
                       
Movement in cash and cash equivalents
                       
At January 1,
            2,095,798       1,065,552  
Effect of exchange rate changes
            (277 )     (800 )
Increase in cash and cash equivalents
            541,675       751,271  
 
                   
Cash and cash equivalents at June 30,
            2,637,196       1,816,023  
 
                   
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the fiscal year ended December 31, 2009.

 

-7-


 

TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements
INDEX TO THE NOTES TO THE CONSOLIDATED CONDENSED INTERIM FINANCIAL STATEMENTS
     
1
  General information and basis of presentation
2
  Accounting policies
3
  Segment information
4
  Cost of sales
5
  Selling, general and administrative expenses
6
  Other financial (expenses) income, net
7
  Property, plant and equipment, net
8
  Intangible assets, net
9
  Distribution of dividends
10
  Contingencies, commitments and restrictions on the distribution of profits
11
  Nationalization of Sidor
12
  Acquisition of business
13
  Related party transactions
14
  Recently issued accounting pronouncements

 

-8-


 

TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
1 General information and basis of presentation
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.
Following a corporate reorganization carried out during fiscal year 2005, in January 2006 the Company successfully completed its registration process with the United States Securities and Exchange Commission (“SEC”). As from February 1, 2006, the Company’s shares are listed in the New York Stock Exchange.
The name and percentage of ownership of subsidiaries that have been included in consolidation in these Consolidated Condensed Interim Financial Statements is disclosed in Note 2 to the audited Consolidated Financial Statements for the year ended December 31, 2009.
Certain comparative amounts have been reclassified to conform to changes in presentation in the current period.
The preparation of consolidated condensed interim financial statements requires management to make estimates and assumptions that might affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the statement of financial position, and also the reported amounts of revenues and expenses for the reported periods. Actual results may differ from these estimates.
Material intercompany transactions and balances have been eliminated in consolidation. However, the fact that the functional currency of the Company’s subsidiaries differ, results in the generation of foreign exchange gains that are included in the consolidated condensed interim income statement under “Other financial (expenses) income, net”.
These Consolidated Condensed Interim Financial Statements were approved by the Board of Directors of Ternium on August 3, 2010.
2 Accounting policies
These Consolidated Condensed Interim Financial Statements have been prepared in accordance with IAS 34, “Interim Financial Reporting”. These Consolidated Condensed Interim Financial Statements should be read in conjunction with the audited Consolidated Financial Statements for the year ended December 31, 2009, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, and adopted by the European Union.
Recently issued accounting pronouncements were applied by the Company as from their respective dates.
These Consolidated Condensed Interim Financial Statements have been prepared following the same accounting policies used in the preparation of the audited Consolidated Financial Statements for the year ended December 31, 2009.

 

-9-


 

TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
3 Segment information
Reportable operating 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 hot rolled coils and sheets, cold rolled coils and sheets, tin plate, welded pipes, hot dipped galvanized and electro-galvanized sheets, pre-painted sheets and other tailor-made products to serve its customers’ requirements.
The long steel products segment comprises the manufacturing and marketing of billets (steel in its basic, semi-finished state), wire rod and bars.
The other products segment includes products other than flat and long steel, mainly pig iron, pellets and pre-engineered metal buildings.
                                 
    Flat steel     Long steel              
    products     products     Other     Total  
    (Unaudited)  
Six-month period ended June 30, 2010
                               
Net sales
    3,088,825       387,516       100,898       3,577,239  
Cost of sales
    (2,287,743 )     (273,064 )     (51,827 )     (2,612,634 )
 
                       
Gross profit
    801,082       114,452       49,071       964,605  
 
                               
Selling, general and administrative expenses
    (275,042 )     (28,123 )     (9,353 )     (312,518 )
Other operating income, net
    127       393       79       599  
 
                       
Operating income
    526,167       86,722       39,797       652,686  
 
                               
Depreciation — PP&E
    138,652       9,474       3,092       151,218  

 

-10-


 

TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
3 Segment information (continued)
                                 
    Flat steel     Long steel              
    products     products     Other     Total  
    (Unaudited)  
Six-month period ended June 30, 2009
                               
Net sales
    1,969,184       280,208       65,556       2,314,948  
Cost of sales
    (1,866,116 )     (186,354 )     (40,800 )     (2,093,270 )
 
                       
Gross profit
    103,068       93,854       24,756       221,678  
Selling, general and administrative expenses
    (246,665 )     (25,289 )     (7,203 )     (279,157 )
Other operating (expenses) income, net (*)
    (21,656 )     563       (2 )     (21,095 )
 
                       
Operating (loss) income
    (165,253 )     69,128       17,551       (78,574 )
 
                               
Depreciation — PP&E
    140,098       8,973       3,195       152,266  
     
(*)  
Flat steel products segment includes an impairment charge of intangible assets of USD 27.0 million (see Note 10 (ii)).
Geographical information
Ternium sells its products to three main geographical areas: South and Central America, North America, and Europe and others. The North American area comprises principally United States, Canada and Mexico. The South and Central American area comprises principally Argentina, Colombia, Chile, Paraguay, Ecuador, Guatemala, Costa Rica and Brazil.
                                 
    South and                    
    Central     North     Europe        
    America     America     and others     Total  
    (Unaudited)  
Six-month period ended June 30, 2010
                               
Net sales
    1,384,632       2,128,516       64,091       3,577,239  
Depreciation — PP&E
    53,310       97,899       9       151,218  
 
                               
Six-month period ended June 30, 2009
                               
Net sales
    756,975       1,405,184       152,789       2,314,948  
Depreciation — PP&E
    57,305       94,926       35       152,266  

 

-11-


 

TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
4 Cost of sales
                 
    Six-month period  
    ended June 30,  
    2010     2009  
    (Unaudited)  
 
               
Inventories at the beginning of the year
    1,350,568       1,826,547  
 
               
Translation differences
    8,014       (53,822 )
Plus: Charges for the period
               
Raw materials and consumables used and other movements
    2,236,924       856,816  
Services and fees
    82,480       58,598  
Labor cost
    239,304       182,101  
Depreciation of property, plant and equipment
    142,455       149,841  
Amortization of intangible assets
    9,117       8,361  
Maintenance expenses
    163,182       99,602  
Office expenses
    3,180       2,543  
Freight and transportation
    15,911       17,584  
Insurance
    3,915       4,721  
Recovery of provision for obsolescence
    (1,954 )     (37,381 )
Valuation allowance
          127,553  
Recovery from sales of scrap and by-products
    (22,533 )     (10,617 )
Others
    12,573       12,090  
 
               
Less: Inventories at the end of the period
    (1,630,502 )     (1,151,267 )
 
           
Cost of sales
    2,612,634       2,093,270  
 
           
5 Selling, general and administrative expenses
                 
    Six-month period  
    ended June 30,  
    2010     2009  
    (Unaudited)  
 
               
Services and fees
    26,870       24,418  
Labor cost
    75,614       82,916  
Depreciation of property plant and equipment
    8,763       2,425  
Amortization of intangible assets
    24,956       29,267  
Maintenance expenses
    3,922       3,154  
Taxes
    42,259       32,042  
Office expenses
    15,532       11,980  
Freight and transportation
    106,328       84,339  
Decrease of allowances for doubtful accounts
    (493 )     (1,859 )
Others
    8,767       10,475  
 
           
Selling, general and administrative expenses
    312,518       279,157  
 
           

 

-12-


 

TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
6 Other financial (expenses) income, net
                 
    Six-month period  
    Ended June 30,  
    2010     2009  
    (Unaudited)  
 
               
Net foreign exchange gains
    68,194       58,527  
Change in fair value of derivative instruments
    (804 )     6,165  
Debt issue costs
    (2,289 )     (2,790 )
Others
    (3,023 )     (3,155 )
 
           
Other financial income, net
    62,078       58,747  
 
           
7 Property, plant and equipment, net
                 
    Six-month period  
    ended June 30,  
    2010     2009  
    (Unaudited)  
 
               
At the beginning of the year
    4,040,415       4,212,313  
Currency translation differences
    41,325       (63,163 )
Additions
    139,392       98,706  
Disposals
    (4,462 )     (1,331 )
Depreciation charge
    (151,218 )     (152,266 )
Transfers and other movements
          (12,896 )
 
           
At the end of the period
    4,065,452       4,081,363  
 
           
8 Intangible assets, net
                 
    Six-month period  
    ended June 30,  
    2010     2009  
    (Unaudited)  
 
               
At the beginning of the year
    1,085,412       1,136,367  
Currency translation differences
    32,780       21,279  
Additions
    10,691       11,964  
Amortization charge
    (34,073 )     (37,628 )
Impairment charge (*)
          (27,022 )
 
           
At the end of the period
    1,094,810       1,104,960  
 
           
     
(*)  
This charge represents the full impairment over the steel supply contract mentioned in Note 10 (ii).

 

-13-


 

TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
9 Distribution of dividends
During the annual general shareholders ´ meeting held on June 2, 2010, the shareholders approved the consolidated financial statements and unconsolidated annual accounts for the year ended December 31, 2009 and a distribution of dividends of USD 0.05 per share (USD 0.50 per ADS), or USD 100.2 million. The dividends were paid on June 10, 2010.
10 Contingencies, commitments and restrictions on the distribution of profits
This note should be read in conjunction with Note 27 to the Company’s audited Consolidated Financial Statements for the year ended December 31, 2009. Significant changes or events since the date of issue of such financial statements are as follows:
(i) Siderar
(a) Expansion project
Within the investment plan to increase its production capacity, Siderar has entered into several commitments to acquire new production equipment for a total consideration of USD 137.6 million.
Furthermore, related to operating activities and to the investment plan, Siderar entered into an agreement with Air Liquide Argentina S.A. (“Alasa”) for the supply of oxygen, nitrogen and argon for a contracted amount of USD 176.1 million which is due to terminate in 2025.
Given the severe international financial crisis initiated in 2008, its impact on the steel global market and the uncertainty about the evolution of steel demand, Siderar rescheduled the execution of its investment plan. Consequently, Siderar agreed with some suppliers to cancel or postpone some purchase orders.
Regarding the agreement entered with Alasa and after several negotiations, a provisory suspension of services and supplies from both parties related to the construction of the new gas facility was agreed until September 30, 2010. If a new postponement is not agreed, or a definitive agreement is not reached, Alasa would be entitled to claim Siderar fulfillment of the commitments starting October 1, 2010.
(b) Raw material contracts
Siderar has assumed firm commitments for the purchase of raw materials for a total consideration USD 736.5 million. These commitments include certain purchases of raw materials at prices that are in aggregate USD 31.7 million higher than current market conditions.
(ii) Steel supply contracts
Grupo Imsa (now Ternium Mexico), together with Grupo Marcegaglia, Duferco International and Dongkuk Steel were parties to a ten-year steel slab off-take framework agreement with Corus UK Limited dated as of December 16, 2004, which was supplemented by bilateral off-take agreements. Under the agreements, the offtakers could be required, in the aggregate, to purchase approximately 78% of the steel slab production of Corus’ Teeside facility in the North East of England, of which Grupo Imsa’s share was 15.38%, or approximately 0.5 million tons per year.
In addition, the offtakers were required to make, in the aggregate and according to their respective pro rata shares, significant payments to Corus to finance capital expenditures. In December 2007, all of Grupo Imsa’s rights and obligations under this contract were assigned to Ternium Procurement S.A. (formerly known as Alvory S.A.).

 

-14-


 

TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
10 Contingencies, commitments and restrictions on the distribution of profits (continued)
(ii) Steel supply contracts (continued)
On April 7, 2009, Ternium Procurement S.A., together with the other offtakers, declared the early termination of the off-take framework agreement and their respective off-take agreements with Corus pursuant to a provision allowing the offtakers to terminate the agreements upon the occurrence of certain events specified in the off-take framework agreement. Corus initially denied the occurrence of the alleged termination event, stated that it would pursue specific performance and initiated an arbitration proceeding against the offtakers and Ternium Mexico (as guarantor of Ternium Procurement ´s obligations) seeking damages arising out of the alleged wrongful termination of the off-take agreements, which damages Corus did not quantify but stated would exceed the USD150 million (approximately USD 29.7 million in the case of Ternium Procurement), the maximum aggregate cap on liability that the offtakers understand would have under the off-take framework agreement (a limitation that Corus disputes). In addition, Corus threatened to submit to arbitration further claims in tort against the offtakers, and also threatened to submit such claims against certain third parties to such agreements, including the Company. The offtakers and Ternium Mexico, in turn, denied Corus’ claims and brought counterclaims against Corus which, in the aggregate, would also be greater than USD150 million. On May 12, 2009, Corus, by a letter from its lawyers, alleged that the offtakers’s termination notice amounted to a repudiatory breach of the agreements and stated that it accepted that the agreements had come to an end and that it would no longer pursue a claim for specific performance in the arbitration; the claim for damages, for all losses caused by the alleged offtakers’ wrongful repudiation of the agreements, however, would be maintained. On July 9, 2009, Corus submitted an amended request for arbitration adding tortious claims against the offtakers and adding to its claims the payment of punitive or exemplary damages. The arbitration proceeding has not yet concluded. At the date of issue of these financial statements it is impossible to foresee the final outcome of this arbitration proceeding.
(iii) Restrictions on the distribution of profits
Under Luxembourg law, at least 5% of net income per year calculated in accordance with Luxembourg law and regulations must be allocated to a reserve until such reserve equals 10% of the share capital. At December 31, 2009, this reserve reached the above-mentioned threshold.
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 these consolidated condensed interim financial statements may not be wholly distributable.
Shareholders’ equity under Luxembourg law and regulations comprises the following captions:
         
    At December  
    31, 2009  
 
       
Share capital
    2,004,743  
Legal reserve
    200,474  
Distributable reserves
    201,674  
Non distributable reserves
    1,414,123  
Accumulated profit at December 31, 2009
    1,535,379  
 
     
Total shareholders’ equity under Luxembourg GAAP
    5,356,393  
 
     

 

-15-


 

TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
11 Nationalization of Sidor
On March 31, 2008, Ternium S.A. (the “Company”) controlled approximately 59.7% of Sidor, while Corporación Venezolana de Guayana, or CVG (a Venezuelan governmental entity), and Banco de Desarrollo Económico y Social de Venezuela, or BANDES (a bank owned by the Venezuelan government), held approximately 20.4% of Sidor and certain Sidor employees and former employees held the remaining 19.9% interest.
Further to several threats of nationalization and various adverse interferences with management in preceding years, on April 8, 2008, the Venezuelan government announced its intention to take control over Sidor. On April 29, 2008, the National Assembly of Venezuela passed a resolution declaring that the shares of Sidor, together with all of its assets, were of public and social interest, and authorizing the Venezuelan government to take any action it deemed appropriate in connection with any such assets, including expropriation.
On May 11, 2008, Decree Law 6058 of the President of Venezuela regulating the steel production activity in the Guayana, Venezuela region (the “Decree”), dated April 30, 2008, was published. The Decree ordered that Sidor and its subsidiaries and associated companies be transformed into state-owned enterprises (“empresas del Estado”), with the government owning not less than 60% of their share capital. The Decree required the Venezuelan government to create two committees: a transition committee to be incorporated into Sidor’s management and to ensure that control over the current operations of Sidor and its subsidiaries and associated companies was transferred to the government on or prior to July 12, 2008, and a separate technical committee, composed of representatives of the government and the private shareholders of Sidor and its subsidiaries and associated companies, to negotiate over a 60-day period (extendable by mutual agreement) a fair price for the shares to be transferred to Venezuela. The Decree also stated that, in the event the parties failed to reach agreement by the expiration of the 60-day period, the Venezuelan Ministry of Basic Industries and Mining (the “MIBAM”) would assume control and exclusive operation of, and the Executive Branch would order the expropriation of, the shares of the relevant companies in accordance with the Venezuelan Expropriation Law.
Upon expiration of the term contemplated under the Decree, on July 12, 2008, Venezuela, acting through CVG, assumed operational control and complete responsibility for Sidor’s operations, and Sidor’s board of directors ceased to function. However, negotiations between the Venezuelan government and the Company regarding the terms of the compensation continued over several months, and the Company retained formal title over the Sidor shares during that period.
On May 7, 2009, the Company completed the transfer of its entire 59.7% interest in Sidor to CVG. The Company agreed to receive an aggregate amount of USD 1.97 billion as compensation for its Sidor shares. Of that amount, CVG paid USD 400 million in cash at closing. The balance was divided in two tranches: the first tranche of USD 945 million is being paid in six equal quarterly installments beginning in August 2009 until November 2010, while the second tranche will be due in November 2010, subject to quarterly mandatory prepayment events based on the increase of the WTI crude oil price over its May 6, 2009 level. Under the agreements with CVG and Venezuela, in the event of non-compliance by CVG with its payment obligations, the Company has reserved the rights and remedies that it had prior to the transfer of the Sidor shares in relation to any claim against Venezuela, subject to certain limitations, including that the Company may not claim an amount exceeding the outstanding balance due from CVG.

 

-16-


 

TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
11 Nationalization of Sidor (continued)
At June 30, 2010, the carrying amount of the Sidor financial asset (following the receipt of USD 1,517.0 million cash payments) amounted to USD 446.0 million after application of a 14.36% annual discount rate to adequately reflect, and only for the purpose of recording, the present accounting value of the receivable with CVG.
In the three-month period ended June 30, 2009, the Company recorded a net gain, in accounting terms, of USD 428.0 million in connection with this transaction which was disclosed within “Income from discontinued operations” in the Income Statement. This result represents the difference between (i) the fair value, in accounting terms, net of taxes and other transaction costs, of the compensation for the Sidor financial asset (which comprised a USD 400 million cash payment and a receivable against CVG that, at May 7, 2009, had a fair value of USD 1,382.0 million after application of the discount rate stated above, net of taxes and other transaction costs of USD 35.1 million) and (ii) the carrying amount of the Sidor financial asset at March 31, 2009.
In the six-month period ended June 30, 2010, the Company recorded a gain in the amount of USD 45.1 million included in “Interest income — Sidor financial asset” in the Income Statement. All the above is without prejudice to the rights of the Company, including the rights and remedies reserved in the agreement with CVG and Venezuela as described above, in the event of non-compliance by CVG with its payment obligations.
12 Acquisition of business
In April 2010, Ternium S.A. agreed to acquire a 54% ownership interest in Ferrasa S.A.S., a company organized under the laws of Colombia (“Ferrasa”) through a capital contribution in the amount of USD 74.5 million. Upon completion of this transaction, Ferrasa will have a 100% ownership interest in Sidecaldas S.A.S. (“Sidecaldas”), Figuraciones S.A.S. (“Figuraciones”) and Perfilamos del Cauca S.A.S. (“Perfilamos”), all of which are also Colombian companies.
Ferrasa is a long and flat steel products processor and distributor. Sidecaldas is a scrap-based long steel making and rolling facility, with an annual production capacity of approximately 140,000 tons. Figuraciones and Perfilamos manufacture welded steel tubes, profiles and beams. These companies have combined annual sales of approximately 300,000 tons, of which approximately 70% are long products and 30% are flat and tubular products, used mainly in the construction sector.
The transaction, which is subject to Colombian antitrust clearance and other customary conditions, is expected to close in the third quarter of 2010. Upon its completion Ferrasa is expected to have consolidated financial debt of approximately USD 120 million.
Ternium also agreed to purchase a 54% ownership interest in Ferrasa Panamá S.A. (“Ferrasa Panamá”) for USD 0.5 million. Ferrasa Panamá is a long steel products processor and distributor based in Panama, with annual sales of approximately 8,000 tons.
Upon closing, the former controlling shareholders will have an option to sell to Ternium, at any time, all or part of their remaining 46% interest in each of Ferrasa and Ferrasa Panamá, and Ternium will have an option to purchase all or part of that remaining interest from the former controlling shareholders, at any time after the second anniversary of the closing.

 

-17-


 

TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
13 Related party transactions
The Company is controlled by San Faustín N.V. As of June 30, 2010, San Faustin N.V. beneficially owned 60.64% and Tenaris, which is also controlled by San Faustin, held 11.46%, of our outstanding voting stock. Rocca & Partners S.A. controls a significant portion of the voting power of San Faustin N.V. and has the ability to influence matters affecting, or submitted to a vote of the shareholders of San Faustin N.V., such as the election of directors, the approval of certain corporate transactions and other matters concerning the Company’s policies. There are no controlling shareholders for Rocca & Partners S.A.
The following transactions were carried out with related parties:
                 
    Six-month period  
    ended June, 30  
    2010     2009  
    (Unaudited)  
 
               
(i) Transactions
               
 
               
(a) Sales of goods and services
               
Sales of goods to other related parties
    86,929       17,711  
Sales of services and others to associated parties
    38       43  
Sales of services and others to other related parties
    1,191       330  
 
           
 
    88,158       18,084  
 
           
(b) Purchases of goods and services
               
Purchases of goods from other related parties
    21,021       12,905  
Purchases of services and others from associated parties
    15,182       16,236  
Purchases of services and others from other related parties
    58,727       48,272  
 
           
 
    94,930       77,413  
 
           
(c) Financial results
               
Income with associated parties
    30       475  
Income with other related parties
          118  
Expenses with other related parties
          (25 )
 
           
 
    30       568  
 
           
                 
    June 30,     December 31,  
    2010     2009  
    (Unaudited)        
(ii) Period-end balances
               
 
               
(a) Arising from sales/purchases of goods/services
               
Receivables from associated parties
    441       329  
Receivables from other related parties
    30,617       13,128  
Advances to suppliers with other related parties
    3,118       15,687  
Payables to associated parties
    (1,718 )     (1,775 )
Payables to other related parties
    (19,897 )     (16,541 )
 
           
 
    12,561       10,828  
 
           
 
               
(b) Other investments — non current
               
Time deposits
    16,169       16,161  
 
           
 
    16,169       16,161  
 
           

 

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TERNIUM S.A.
Notes to the Consolidated Condensed Interim Financial Statements (Contd.)
14 Recently issued accounting pronouncements
Improvements to International Financial Reporting Standards
In May 2010, the IASB issued “Improvements to International Financial Reporting Standards” by which it amended several international accounting and financial reporting standards.
The effective date of each amendment is included in the IFRS affected.
The Company’s management estimates that the application of these improvements will not have a material effect on the Company’s financial condition or results of operations.
Pablo Brizzio
Chief Financial Officer

 

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