form6k.htm
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 2/26/2008


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 December 31, 2007.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


TERNIUM S.A.


By: /s/ Roberto Philipps
By: /s/ Daniel Novegil
Name: Roberto Philipps
Name: Daniel Novegil
Title: Chief Financial Officer
Title: Chief Executive Officer


Dated: February 26, 2008

 
 
 

TERNIUM S.A.


CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2007 and 2006 and
for the years ended December 31, 2007, 2006 and 2005
 
 
46a, Avenue John F. Kennedy, 2nd floor
L – 1855
R.C.S. Luxembourg : B 98 668

 
 
 

TERNIUM S.A.
 
Index to financial statements
 
Consolidated Financial Statements
 

   
 
Page
   
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2
   
3
   
4
   
6
   
8
 
 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of
Ternium S.A.


In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of changes in shareholders’ equity present fairly, in all material respects, the financial position of Ternium S.A. and its subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


Buenos Aires, Argentina

February 26, 2008


PRICE WATERHOUSE & CO. S.R.L.
  
     
     
by
(Partner)
  
Marcelo D. Pfaff
  
 
-1-

TERNIUM S.A.
Consolidated financial statements
as of December 31, 2007 and 2006 and
for the years ended December 31, 2007, 2006 and 2005
(All amounts in USD thousands)
 
CONSOLIDATED INCOME STATEMENTS

     
Year ended December 31,
  
 
Notes
  
2007
    
2006
    
2005
  
Continuing operations
                    
Net sales
30
     8,184,381       6,565,582       4,449,771  
Cost of sales
6 & 30
     (5,796,040 )     (4,296,979 )     (2,486,974 )
                           
Gross profit
       2,388,341       2,268,603       1,962,797  
                           
Selling, general and administrative expenses
7
     (825,807 )     (624,784 )     (504,687 )
Other operating income (expenses), net
 9
     23,874       (7,250 )     (65,949 )
                           
Operating income
       1,586,408       1,636,569       1,392,161  
                           
Interest expense
30 &31
     (142,137 )     (112,918 )     (81,608 )
Interest income
30
     66,878       52,554       32,324  
Other financial expenses, net
10 & 30
     (351,096 )     (322,417 )     (261,452 )
                           
Excess of fair value of net assets acquired over cost
3
     -       -       188,356  
Equity in (losses) earnings of associated companies
14
     (7,065 )     4,534       21,524  
                           
Income before income tax expense
       1,152,988       1,258,322       1,291,305  
                           
Income tax expense
11
     (162,640 )     (262,356 )     (218,492 )
                           
Income from continuing operations
       990,348       995,966       1,072,813  
                           
Discontinued operations
                          
Income from discontinued operations
29
     10,818       -       -  
                           
Net income for the year
       1,001,166       995,966       1,072,813  
                           
Attributable to:
                          
Equity holders of the Company
 28
     784,490       795,424       704,406  
Minority interest
       216,676       200,542       368,407  
                           
        1,001,166       995,966       1,072,813  
                           
Weighted average number of shares outstanding
28
     2,004,743,442       1,936,833,060       1,209,476,609  
Basic earnings per share for profit attributable to the equity holders of the Company (expressed in USD per share)
       0.39       0.41       0.58  
Diluted earnings per share for profit attributable to the equity holders of the Company (expressed in USD per share)
       0.39       0.41       0.54  

The accompanying notes are an integral part of these consolidated financial statements.

-2-
 
TERNIUM S.A.
Consolidated financial statements
as of December 31, 2007 and 2006 and
for the years ended December 31, 2007, 2006 and 2005
(All amounts in USD thousands)
 
CONSOLIDATED BALANCE SHEETS
 
Notes
  
December 31, 2007
    
 December 31, 2006
  
ASSETS
                          
Non-current assets
                          
Property, plant and equipment, net
 12
     6,858,779             5,420,683        
Intangible assets, net
13
     1,452,230             551,587        
Investments in associated companies
14
     44,042             16,285        
Other investments, net
15 & 30
     14,815             13,387        
Deferred tax assets
23
     31,793             36,439        
Receivables, net
16 & 30
     217,638       8,619,297       78,903       6,117,284  
 
 
                               
Current assets
 
                               
Receivables
17 & 30
     426,038               175,818          
Derivative financial instruments
25
     577               7,852          
Inventories, net
18
     1,913,051               1,241,325          
Trade receivables, net
19 & 30
     847,827               577,866          
Other investments
20
     65,337               -          
Cash and cash equivalents
20
     1,126,041       4,378,871       643,352       2,646,213  
Non-current assets classified as held for sale
29
             769,142               7,042  
 
 
            5,148,013               2,653,255  
                                   
Total assets
               13,767,310               8,770,539  
                                   
EQUITY
                                  
Capital and reserves attributable to the company’s equity holders
               4,452,680               3,757,558  
                                   
Minority interest
               1,914,210               1,729,583  
                                   
Total equity
               6,366,890               5,487,141  
                                   
LIABILITIES
                                  
Non-current liabilities
                                  
Provisions
21
     57,345               60,543          
Deferred income tax
23
     1,337,039               985,155          
Other liabilities
24
     336,500               274,566          
Trade payables
30
     6,690               7,229          
Borrowings
26
     3,677,497       5,415,071       548,401       1,875,894  
 
 
                               
Current liabilities
 
                               
Current tax liabilities
 
    184,766               103,195          
Other liabilities
24 & 30
     182,239               158,374          
Trade payables
30
     983,884               621,754          
Derivative financial instruments
25
     13,293               15,487          
Borrowings
26
     407,404       1,771,586       508,694       1,407,504  
 
 
                               
Liabilities directly associated with non-current assets classified as held for sale
29
             213,763               -  
                1,985,349               1,407,504  
                                   
Total liabilities
               7,400,420               3,283,398  
                                   
Total equity and liabilities
               13,767,310               8,770,539  
 
The accompanying notes are an integral part of these consolidated financial statements.

-3-
 
TERNIUM S.A.
Consolidated financial statements
as of December 31, 2007 and 2006 and
for the years ended December 31, 2007, 2006 and 2005
(All amounts in USD thousands)
 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

   
Attributable to the Company’s equity holders (1)
                                
   
Capital 
stock (2)
    
Initial 
public 
offering 
expenses
    
Revaluation 
and other 
reserves
    
Capital 
stock issue 
discount (3)
    
Currency 
translation 
adjustment
    
Retained 
earnings
    
Total
    
Minority 
interest
    
Total
Equity at 
December 
31, 2007
    
Total
Equity at 
December 
31, 2006
  
                                                             
Balance at January 1
     2,004,744       (23,295 )     2,047,199       (2,324,866 )     (121,608 )     2,175,384       3,757,558       1,729,583       5,487,141       3,575,919  
 
                                                                               
Currency translation adjustment
                                     10,869               10,869       (13,019 )     (2,150 )     (36,907 )
Net income for the year
                                             784,490       784,490       216,676       1,001,166       995,966  
Total recognized income for the year
                                     10,869       784,490       795,359       203,657       999,016       959,059  
 
                                                                               
Dividends paid in cash and other distributions
                     (100,237 )                             (100,237 )             (100,237 )     -  
Dividends paid in cash and other distributions by subsidiary companies
                                                             (20,000 )     (20,000 )     (27,175 )
Acquisition of business (see Note 3)
                                                             (195 )     (195 )     (154,690 )
Contributions from shareholders (see Note 1)
                                                             -       -       3,085  
Contributions from minority shareholders in consolidated subsidiaries
                                                             1,165       1,165       -  
Conversion of Subordinated Convertible Loans (see Note 1)
                                                             -       -       605,924  
Initial Public Offering (see Note 1)
                                                             -       -       525,019  
Balance at December 31
     2,004,744       (23,295 )     1,946,962       (2,324,866 )     (110,739 )     2,959,874       4,452,680       1,914,210       6,366,890       5,487,141  
 
-4-

TERNIUM S.A.
Consolidated financial statements
as of December 31, 2007 and 2006 and
for the years ended December 31, 2007, 2006 and 2005
(All amounts in USD thousands)
 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)

   
Attributable to the Company’s equity holders (1)
                                
   
Capital 
stock (2)
    
Initial 
public 
offering 
expenses
    
Revaluation 
and other 
reserves
    
Capital 
stock issue 
discount 
(3)
    
Currency 
translation 
adjustment
    
Retained 
earnings
    
Total
    
Minority
interest
    
Total
Equity at
December
31, 2006
    
Total
Equity at
December
31, 2005
  
                                                             
Balance at January 1
     1,396,552       (5,456 )     1,462,137       (2,298,048 )     (92,691 )     1,379,960       1,842,454       1,733,465       3,575,919       1,771,851  
 
                                                                               
Currency translation adjustment
                                     (28,917 )             (28,917 )     (7,990 )     (36,907 )     (120,246 )
Net income for the year
                                             795,424       795,424       200,542       995,966       1,072,813  
Total recognized income for the year
                                     (28,917 )     795,424       766,507       192,552       959,059       952,567  
 
                                                                               
Dividends paid in cash and other distributions
                                                                     -       (238,652 )
Dividends paid in cash and other distributions by subsidiary companies
                                                             (27,175 )     (27,175 )     (130,571 )
Acquisition of business (see Note 3)
                     (32,429 )                             (32,429 )     (122,261 )     (154,690 )     1,171,422  
Contributions from shareholders (see Note 1)
     33,801               43,100       (26,818 )                     50,083       (46,998 )     3,085       54,758  
Conversion of Subordinated Convertible Loans (see Note 1)
     302,962               302,962                               605,924               605,924       -  
Initial Public Offering (see Note 1)
     271,429       (17,839 )     271,429                               525,019               525,019       (5,456 )
 
                                                                               
Balance at December 31
     2,004,744       (23,295 )     2,047,199       (2,324,866 )     (121,608 )     2,175,384       3,757,558       1,729,583       5,487,141       3,575,919  
 
 
 
(1)
Shareholders’ equity determined in accordance with accounting principles generally accepted in Luxembourg is disclosed in Note 27 (iv).
 
 
(2)
At December 31, 2007, the Capital Stock adds up to 2,004,743,442 shares at a nominal value of USD1 each.
 
 
(3)
Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.
 
Dividends may be paid by Ternium to the extent distributable retained earnings calculated in accordance with Luxembourg law and regulations exist. Therefore, retained earnings included in these consolidated financial statements may not be wholly distributable. See Note 27 (iv). The accompanying notes are an integral part of these consolidated financial statements.
 
-5-

TERNIUM S.A.
Consolidated financial statements
as of December 31, 2007 and 2006 and
for the years ended December 31, 2007, 2006 and 2005
(All amounts in USD thousands)
 
CONSOLIDATED CASH FLOW STATEMENTS
 
     
Year ended December 31,
  
 
Notes
  
2007
    
2006
    
2005
  
Cash flows from operating activities
                    
Net income for the year
       1,001,166       995,966       1,072,813  
Adjustments for:
                          
Depreciation and amortization
12&13
     565,848       424,495       316,405  
Income tax accruals less payments
31
     (181,048 )     (18,075 )     (44,008 )
Derecognition of property, plant and equipment
9 (iii)
     -       13,323       54,348  
Excess of fair value of net assets acquired over cost
3
     -       -       (188,356 )
Changes to pension plan
24
     -       46,947       -  
Equity in loss (earnings) of associated companies
14
     7,065       (4,534 )     (21,524 )
Interest accruals less payments
31
     89,465       4,197       24,523  
Changes in  provisions
21&22
     (10,125 )     33,802       19,046  
Changes in working capital
31
     24,883       (276,153 )     54,420  
Discontinued operations
29
     6,535       -       -  
Others
       60,412       25,005       (25,212 )
Net cash provided by operating activities
       1,564,201       1,244,973       1,262,455  
                           
Cash flows from investing activities
                          
Capital expenditures
12&13
     (436,268 )     (405,817 )     (244,939 )
Changes in trust funds
       -       5,185       83,570  
Acquisition of business:
                          
Purchase consideration
3
     (1,728,869 )     (210,548 )     (2,196,678 )
Cash acquired (1)
3
     190,087       -       520,753  
Income tax credit paid on business acquisition
3
     (297,700 )     -       -  
Increase in other investments
       (65,337 )     -       -  
Investments in associated companies
       -       (2,598 )     -  
Proceeds from the sale of property, plant and equipment
       24,883       3,425       6,063  
Discontinued operations
29
     (10,435 )     -       -  
Net cash used in  investing activities
       (2,323,639 )     (610,353 )     (1,831,231 )
                           
Cash flows from financing activities
                          
Dividends paid in cash and other distributions to company’s shareholders
       (100,237 )     -       (238,652 )
Dividends paid in cash and other distributions by subsidiary companies
       (20,000 )     (27,175 )     (130,571 )
Net proceeds from Initial Public Offering
       -       525,019       -  
Contributions from shareholders
       -       3,085       54,758  
Contributions from minority shareholders in consolidated subsidiaries
       1,165       -       -  
Proceeds from borrowings
       4,132,745       167,283       2,135,430  
Repayments of borrowings
       (2,760,938 )     (1,424,495 )     (657,597 )
Net cash provided by (used in) financing activities
       1,252,735       (756,283 )     1,163,368  
                           
Increase (Decrease) in cash and cash equivalents
       493,297       (121,663 )     594,592  
                           
Movement in cash and cash equivalents
                          
At January 1,(2)
       633,002       754,980       194,875  
Effect of exchange rate changes
       (258 )     (315 )     (34,487 )
Increase (Decrease) in cash and cash equivalents
       493,297       (121,663 )     594,592  
Cash and cash equivalents at December 31,
 20
     1,126,041       633,002       754,980  
                           
Non-cash transactions                          
Conversion of debt instruments into shares       -       605,924       127,576  

 (1) The amount of cash acquired of USD 520,753 was presented as a movement in cash and cash equivalents at December 31, 2005.
 (2) In addition, the Company has restricted cash for USD 10,350 and USD 10,650 at December 31, 2006 and December 31, 2005, respectively.
The accompanying notes are an integral part of these consolidated financial statements.

-6-

TERNIUM S.A.
Consolidated financial statements
as of December 31, 2007 and 2006 and
for the years ended December 31, 2007, 2006 and 2005
(All amounts in USD thousands)
 
INDEX TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   
1
Business of the Company, Initial Public Offering and corporate reorganization
2
Basis of presentation
3
Acquisition of business
4
Accounting policies
5
Segment information
6
Cost of sales
7
Selling, general and administrative expenses
8
Labor costs (included in cost of sales, selling, general and administrative expenses)
9
Other operating income (expense), net
10
Other financial expenses, net
11
Income tax expense
12
Property, plant and equipment, net
13
Intangible assets, net
14
Investments in associated companies
15
Other investments, net – non current
16
Receivables, net - non current
17
Receivables - current
18
Inventories, net
19
Trade receivables, net
20
Cash, cash equivalents and other investments
21
Allowances and Provisions - non current
22
Allowances - current
23
Deferred income tax
24
Other liabilities
25
Derivative financial instruments
26
Borrowings
27
Contingencies, commitments and restrictions on the distribution of profits
28
Earnings per share
29
Discontinued operations
30
Related party transactions
31
Cash flow disclosures
32
Recently issued accounting pronouncements
33
Financial risk management
34
Post balance sheet events
 
-7-

TERNIUM S.A.
Notes to the Consolidated Financial Statements

1     Business of the Company, Initial Public Offering and corporate reorganization

Ternium S.A. (the “Company” or “Ternium”), a Luxembourg Corporation (Societé Anonyme), was incorporated on December 22, 2003 to hold investments in flat and long steel manufacturing and distributing companies.

Near the end of 2004, Ternium was acquired by its ultimate parent company San Faustín N.V. (“San Faustín”), a Netherlands Antilles company, to serve as a vehicle in the restructuring of San Faustín’s investments in the flat and long steel manufacturing and distribution business. This restructuring was carried out by means of a corporate reorganization through which Ternium was assigned the equity interests previously held by San Faustín and its subsidiaries in various flat and long steel manufacturing and distributing companies (the “Corporate Reorganization”). The Corporate Reorganization took place in fiscal year 2005. Until that date, Ternium was a dormant company.

On January 11, 2006, the Company successfully completed its registration process with the United States Securities and Exchange Commission (“SEC”) and announced the commencement of its offer to sell 24,844,720 American Depositary Shares (“ADS”) representing 248,447,200 shares of common stock through Citigroup Global Markets Inc., Deutsche Bank Securities Inc., JP Morgan Securities Inc., Morgan Stanley & Co. Incorporated, BNP Paribas Securities Corp., Caylon Securities (USA) Inc. and Bayerische Hypo-und Vereinsbank AG (collectively, the “Underwriters” and the offering thereunder, the “Initial Public Offering”). The Company’s Initial Public Offering was priced at USD20 per ADS. The gross proceeds from the Initial Public Offering totaled USD 496.9 million and have been used to fully repay Tranche A of the Ternium Credit Facility, after deducting related expenses.

Ternium’s ADSs began trading on the New York Stock Exchange under the symbol “TX” on February 1, 2006. The Company’s Initial Public Offering was settled on February 6, 2006.

Also, the Company granted the Underwriters an option, exercisable for 30 days from January 31, 2006, to purchase up to 3,726,708 additional ADSs at the public offering price of USD20 per ADS less an underwriting discount of USD0.55 per ADS. On February 23, 2006 the Underwriters exercised partially this over-allotment option granted by the Company. In connection with this option, on March 1, 2006, the Company issued 22,981,360 new shares. The gross proceeds from this transaction totaled USD46.0 million.

In addition, during 2005, the Company entered into the Subordinated Convertible Loan Agreements for a total aggregate amount of USD594 million to fund the acquisition of Hylsamex. As per the provisions contained in the Subordinated Convertible Loan Agreements, the Subordinated Convertible Loans would be converted into shares of the Company upon delivery of Ternium’s ADSs to the Underwriters. On February 6, 2006, the Subordinated Convertible Loans (including interest accrued through January 31, 2006) were converted into shares at a conversion price of USD 2 per share, resulting in the issuance of 302,962,261 new shares on February 9, 2006.

Furthermore, in November 2005, Siderúrgica del Turbio Sidetur S.A. (“Sidetur”), a subsidiary of Siderúrgica Venezolana Sivensa S.A. (“Sivensa”), exchanged with Inversora Siderúrgica Limited (“ISL”, a wholly-owned subsidiary of Ternium’s majority shareholder) its 3.42% equity interest in Consorcio Siderurgia Amazonia Ltd. (“Amazonia”) and USD 3.1 million in cash for shares of the Company. On February 9, 2006, ISL contributed all of its assets and liabilities (including its interest in Amazonia) to the Company in exchange for 959,482,775 newly issues shares of the Company after the settlement of the Initial Public Offering. The increase in equity resulting from this transaction is reflected under “Contributions from shareholders” line items in the Statement of changes in shareholders’ equity and amounts to USD 50,083.

After the completion of the Initial Public Offering, the conversion of the Subordinated Convertible Loans, the exercise of the option granted to the Underwriters and the consummation of the transactions contemplated in the Corporate Reorganization agreement, 2,004,743,442 shares (including shares in the form of ADSs) were outstanding.


2     Basis of presentation

These consolidated financial statements have been prepared in accordance with those IFRS standards and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these statements (February 2008). These consolidated financial statements are presented in thousands of United States dollars (“USD”).

As mentioned in Note 1, Ternium was assigned the equity interests previously held by San Faustín and its subsidiaries in various flat and long steel manufacturing and distributing companies. As these transactions were carried out among entities under common control, the assets and liabilities contributed to the Company have been accounted for at the relevant predecessor’s cost, reflecting the carrying amount of such assets and liabilities. Accordingly, the consolidated financial statements include the financial statements of the above-mentioned companies on a combined basis at historical book values on a carryover basis as though the contribution had taken place on January 1, 2003, (the transition date to IFRS ) and no adjustment has been made to reflect fair values at the time of the contribution.

-8-

TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)


2     Basis of presentation (continued)

Detailed below are the companies whose consolidated financial statements have been included in these consolidated financial statements.

       
Percentage of ownership at December 31,
  
Company
Country of
Organization
Main activity
  
2007
    
2006
    
2005
  
                       
Ternium S.A.
Luxembourg
Holding of investments in flat and long steel manufacturing and distributing companies
     100.00 %     100.00 %     100.00 %
Hylsamex S.A. de C.V. (1)
Mexico
Holding company
     88.23 %     88.22 %     86.68 %
Siderar S.A.I.C.
Argentina
Manufacturing of flat steel products
     60.93 %     60.93 %     56.07 %
Sidor C.A. (2)
Venezuela
Manufacturing and selling of steel products
     56.38 %     56.38 %     53.20 %
Ternium Internacional S.A.
(formerly Techintrade Uruguay S.A.)
Uruguay
Holding  company and marketing of steel products
     100.00 %     100.00 %     100.00 %
III Industrial Investments Inc. S.A. de C.V. (3)
    Mexico
Holding company
     -       100.00 %     100.00 %
Inversiones Siderúrgicas S.A.
Panama
Holding company
     -       100.00 %     100.00 %
Ylopa - Servicios de Consultadoria Lda. (4)
Madeira - Free zone
Participation in the debt restructuring process of Amazonia and Sidor C.A.
     95.66 %     95.66 %     95.12 %
Consorcio Siderurgia Amazonia Ltd.(5)
Cayman Islands
Holding of investments in Venezuelan steel companies
     94.39 %     94.39 %     89.07 %
Fasnet International S.A.
Panama
Holding company
     100.00 %     100.00 %     100.00 %
Alvory S.A.
Uruguay
Holding of investment in procurement services companies
     100.00 %     100.00 %     100.00 %
Comesi San Luis S.A.I.C. (6)
Argentina
Production of cold or hot rold prepainted, formed and skelped steel sheets
     61.32 %     61.32 %     56.07 %
Inversiones Basilea S.A. (7)
Chile
Purchase and sale of real estate and other
     60.93 %     60.93 %     56.07 %
Prosid Investments S.C.A.(7)
Uruguay
Holding company
     60.93 %     60.93 %     56.07 %
Impeco S.A. (7)
Argentina
Manufacturing of pipe products
     60.93 %     60.93 %     60.93 %
Socominter de Guatemala S.A. (8)
Guatemala
Marketing of steel products
     100.00 %     100.00 %     100.00 %
Ternium Internacional España S.A. (formerly Socominter de España S.A.U.) (8)
Spain
Marketing of steel products
     100.00 %     100.00 %     100.00 %
Ternium Internacional Ecuador S.A. (formerly Socotrading S.A.) (8)
Ecuador
Marketing of steel products
     100.00 %     100.00 %     100.00 %
Ternium International USA Corporation (formerly Techintrade Corporation) (8)
USA
Marketing of steel products
     100.00 %     100.00 %     100.00 %
Ternium Internationaal B.V. (formerly Techint Engineering Company B.V.)(8)
Netherlands
Marketing of steel products
     100.00 %     100.00 %     100.00 %

-9-

TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)


2     Basis of presentation (continued)

       
Percentage of ownership at December 31,
  
Company
Country of Organization
Main activity
  
2007
    
2006
    
2005
  
Ternium Internacional Perú S.A.C. (formerly Techintrade del Perú S.A.C.) (8)
Peru
Marketing of steel products
     100.00 %     100.00 %     100.00 %
Ternium International Inc.(8)
Panama
Marketing of steel products
     100.00 %     100.00 %     -  
Hylsa S.A. de C.V. (9)
Mexico
Manufacturing and selling of steel products
     88.23 %     88.22 %     86.68 %
Ferropak Comercial S.A. de C.V. (9)
Mexico
Scrap company
     88.23 %     88.22 %     86.68 %
Ferropak Servicios S.A. de C.V. (9)
Mexico
Services
     88.23 %     88.22 %     86.68 %
Galvacer America Inc (9)
USA
Distributing company
     88.23 %     88.22 %     86.68 %
Galvamet America Corp (9)
USA
Manufacturing and selling of insulates panel products
     88.23 %     88.22 %     86.68 %
Transamerica E. & I. Trading Corp (9)
USA
Scrap company
     88.23 %     88.22 %     86.68 %
Galvatubing Inc. (9)
USA
Manufacturing and selling of pipe products
     88.23 %     88.22 %     86.68 %
Las Encinas S.A. de C.V. (9)
Mexico
Exploration, explotation and pelletizing of iron ore
     88.23 %     88.22 %     86.68 %
Técnica Industrial S.A. de C.V. (9)
Mexico
Services
     88.23 %     88.22 %     86.68 %
Acerex S.A. de C.V.
Mexico
Tooling services
     -       -       43.34 %
Acerex Servicios S.A. de C.V.
Mexico
Services
     -       -       43.34 %
Consorcio Minero Benito Juarez Peña Colorada S.A.de C.V. (10)
Mexico
Exploration, explotation and pelletizing of iron ore
     44.12 %     44.11 %     43.34 %
Peña Colorada Servicios S.A. de C.V. (10)
Mexico
Services
     44.12 %     44.11 %     43.34 %
Ternium Treasury  Services S.A.
Uruguay
Financial Services
     100.00 %     -       -  
Ternium Treasury Services B.V
Holanda
Financial Services
     100.00 %     -       -  
Servicios Integrales Nova de Monterrey S.A. de C.V. (11)
Mexico
Medical and Social Services
     65.73 %     -       -  
Ternium  Mexico S.A. de C.V. (formerly Grupo Imsa S.A.B. de C.V.)
Mexico
Holding company
     100.00 %     -       -  
Imsa Acero S.A. de C.V. (12)
Mexico
Holding company
     100.00 %     -       -  
Enermex S.A. de C.V. (12)
Mexico
Holding company
     100.00 %     -       -  
Sefimsa S.A. de C.V. (12)
Mexico
Financial Services
     100.00 %     -       -  
Ecore Holding S. de R.L. de C.V. (12)
Mexico
Holding company
     100.00 %     -       -  
Neotec  L.L.C. (12)
USA
Holding company
     100.00 %     -       -  
Treasury Services L.L.C. (12)
USA
Financial Services
     100.00 %     -       -  
APM, S.A. de C.V.
Mexico
Manufacturing and selling of steel products
     100.00 %     -       -  
Acedor, S.A. de C.V.
Mexico
Holding company
     100.00 %     -       -  
Empresas Stabilit S.A. de C.V. (12)
Mexico
Holding company
     100.00 %     -       -  
Acerus S.A. de C.V. (12)
Mexico
Manufacturing and selling of steel products
     100.00 %     -       -  
 
-10-

TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)


2
Basis of presentation (continued)

       
Percentage of ownership at December 31,
  
Company
Country of Organization
Main activity
  
2007
    
2006
    
2005
  
Imsa Monclova S.A. de C.V. (12)
Mexico
Services
     100.00 %     -       -  
Imsamex Ecuador S.A. (12)
Ecuador
Marketing of steel products
     100.00 %     -       -  
Industrias Monterrey S.A. (12)
Guatemala
Manufacturing and selling of steel products
     100.00 %     -       -  
Imsaacero Ecuador Holding S.A. (12)
Ecuador
Holding company
     100.00 %     -       -  
Corporativo Grupo Imsa S.A. de C.V. (12)
Mexico
Services
     100.00 %     -       -  
Industrias Monterrey S.A. de C.V. (12)
Mexico
Manufacturing and selling of steel products
     100.00 %     -       -  
Ternium USA Inc. (formerly Imsa holding Inc.) (12)
USA
Holding company
     100.00 %     -       -  
Industria Galvanizadora S.A. (12)
Guatemala
Manufacturing and selling of steel products
     100.00 %     -       -  
Imsa Americas Inc. (12)
USA
Marketing of steel products
     100.00 %     -       -  
Imsa Caribbean Inc. (12)
Puerto Rico
Manufacturing and selling of steel products
     100.00 %     -       -  
Imsa Colombia S.A. (12)
Colombia
Marketing of steel products
     100.00 %     -       -  
Imsa Andina S.A. (12)
Peru
Marketing of steel products
     100.00 %     -       -  
Multypanel de América S.A. (12)
Costa Rica
Manufacturing and selling of insulates panel products
     100.00 %     -       -  
Industria Galvanizadora S.A. (12)
Nicaragua
Manufacturing and selling of steel products
     99,30 %     -       -  
Industria Galvanizadora de Honduras S.A. de C.V. (12)
Honduras
Manufacturing and selling of steel products
     99.20 %     -       -  
Industria Galvanizadora S.A. de C.V. (12)
El Salvador
Manufacturing and selling of steel products
     99.93 %     -       -  
Industrias Monterrey S.A. (12)
Costa Rica
Manufacturing and selling of steel products
     100.00 %     -       -  
 
(1)
Indirectly through the participation of Ternium Mexico S.A. de C.V. (70.00%) and Siderar S.A.I.C. (29.92%). Total voting rights held: 99.92%.
(2)
Indirectly through the participation in Amazonia (59.73%). Total voting rights held: 59.73%.

(3)
Formerly III Industrial Investment Inc. BVI. As of December 13, 2007 it was merged into Ternium México S.A. de C.V.
(4)
Directly (88,89%), indirectly through Prosid Investments S.C.A. (11.11%). Total voting rights held: 100.00%.
(5)
Directly (85,62%) and indirectly through the participation in Prosid Investments S.C.A. (14.38%). Total voting rights held: 100.00%.
(6)
Indirectly through Siderar S.A.I.C. (99.00%) and Ternium Internacional Uruguay S.A. (1.00%). Total voting rights held: 100.00%.
(7)
Indirectly through Siderar S.A.I.C. Total voting rights held 100.00%.
(8)
Indirectly through Ternium Internacional S.A. Uruguay.
(9)
Indirectly through the participation in Hylsamex. Total voting rights held: 99.92%. See Note 3 e).
(10)
Indirectly through the participation in Hylsamex. Total voting rights held: 50.00%.
(11)
Incorporated during 2007.
(12)
Subsidiary of Ternium Mexico S.A. de C.V. (see Note 3 (a)).
 
-11-

TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)


2
Basis of presentation (continued)

Elimination of all material intercompany transactions and balances between the Company and their respective subsidiaries have been made in consolidation.

The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

Certain comparative amounts have been reclassified to conform to changes in presentation in the current period.

The 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 consolidated financial statements have been approved for issue by the board of directors on February 26, 2008.

3     Acquisition of business

(a) Grupo Imsa S.A.B. de C.V. (“Grupo Imsa”)

On April 29, 2007, Ternium entered into an agreement with Grupo IMSA S.A.B. de C.V. (“Grupo Imsa”) and Grupo Imsa’s controlling shareholders under which Ternium obtained control of Grupo Imsa for a total consideration (equity value) of approximately USD 1.7 billion.

Under the agreement, Ternium, through its wholly owned subsidiary Ternium Internacional España S.L.U., made a cash tender offer under applicable Mexican law for all of the issued and outstanding share capital of Grupo Imsa at a price of US$ 6.40 per share. Pursuant to the tender offer, Ternium acquired 25,133,856 shares representing 9.3% of the issued and outstanding capital of the company.

Concurrently with the consummation of the tender offer, on July 26, 2007, all the shares of Grupo Imsa that were not tendered into the tender offer (including the shares owned by Grupo Imsa’s majority shareholders), representing 90.7% of Grupo Imsa’s issued and outstanding share capital were redeemed for cash pursuant to a capital reduction effected at the same price per share.

Accordingly, Ternium now owns all of Grupo Imsa’s issued and outstanding share capital.

Grupo Imsa is a steel manufacturer with operations in Mexico, the United States and Guatemala. It has an annual production capacity of 2.2 million tons of hot rolled coils, 1.8 million tons of cold rolled products and 1.7 million tons of coated products. In addition, Grupo Imsa produces panels and other steel products.

Grupo Imsa contributed revenues of USD 976.3 million and a net loss of USD 77.5 million in the period from July 26, 2007 to December 31, 2007 (these amounts do not include revenues or net profits generated by discontinued operations). The book value of Grupo Imsa’s net assets acquired totals USD 543.9 million. The fair value of assets and liabilities arising from the transaction are as follows:

-12-

TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)


3     Acquisition of business (continued)
   
USD Thousands
  
   
Fair value
    
Book value
  
             
Property, plant and equipment
     1,602,398       1,205,128  
Intangible assets
     456,404       73,227  
Inventories
     501,304       501,304  
Cash and cash equivalents
     190,087       190,087  
Deferred Tax Liabilities
     (481,930 )     (253,991 )
Provisions
     (10,011 )     (10,011 )
Borrowings
     (1,437,676 )     (1,437,676 )
Other assets and liabilities, net
     (99,069 )     (99,069 )
Net assets pertaining to discontinued operations (1)
     485,651       374,949  
Net
     1,207,158       543,948  
Goodwill
     455,776          
Goodwill – Discontinued operations
     65,740          
Total Purchase Consideration
     1,728,674          
                 
Other cash consideration – Income Tax paid on the transaction
     297,700          

(1) These amounts do not include the goodwill attributable to discontinued operations for USD 65.7 million.

Goodwill, representing the excess of the purchase price paid over the fair value of identifiable assets, liabilities and contingent liabilities totaled USD 521.5 million. Goodwill derives principally from synergies expected to be obtained by the Company after the transaction, as well as the fair value of the going concern element of the acquiree.

Upon consummation of the transaction, the Company was subject to an income tax payment of USD 297.7 million. This payment can be credited against future income tax obligations for the following three fiscal years. As the Company expects to generate sufficient taxable income in that period, the above mentioned amount has been considered as an income tax prepayment (USD 222.7 million have  been disclosed under Other Receivables line item and USD 75.0 million have been offset against Current Tax Liabilities at December 31, 2007).

The transactions were financed primarily through the incurrence of debt as follows:

 
·
Ternium made several borrowings in an aggregate principal amount of USD 125 million under a loan facility (the “Ternium Facility”) with a syndicate of banks led by Calyon New York Branch as administrative agent, the proceeds of which were primarily used to finance the above described tender offer. Ternium’s loans under the Ternium Facility will be repaid in nine consecutive and equal semi-annual installments commencing on July 26, 2008. On January 28, 2008, the company prepaid all of its outstanding obligations with Calyon New York Branch, amounting to approximately USD 129.1 million.

 
·
Ternium’s subsidiary Hylsa S.A. de C.V. (“Hylsa”) made several borrowings in an aggregate principal amount of 3,485 million under a loan facility (the “Hylsa Facility”) with a syndicate of banks led by Calyon New York Branch as administrative agent, the proceeds of which were primarily used to finance the above described capital reduction by Grupo Imsa, to refinance existing indebtedness of Grupo Imsa and Hylsa and to pay taxes, fees and expenses related to the transactions.

Grupo Imsa assumed on August 3, 2007 certain of Hylsa’s loans under the Hylsa Facility, as well as a portion of Hylsa’s remaining unused commitments. Following the assumption date:

 
·
Hylsa’s debt under the Hylsa Facility amounted to USD 2,070 million in principal amount, and Grupo Imsa’s debt under that facility amounted to USD 1,415 million in principal amount; and

 
·
Grupo Imsa’s unused commitment under the facility amounted to USD 140 million.

The loans of each of Hylsa and Grupo Imsa are divided in two tranches of equal principal amount. Tranche A loans will be repaid in seven equal semi-annual installments beginning on January 26, 2009, while tranche B loans will be repaid in one installment due on July 26, 2012.

-13-

TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)


3     Acquisition of business (continued)

Each of the Ternium Facility and the Hylsa Facility contains covenants customary for transactions of this type, including limitations on liens and encumbrances, restrictions on investments and capital expenditures, limitations on the sale of certain assets and compliance with financial ratios (e.g., leverage ratio and interest coverage ratio). There are no limitations to the payment of dividends under either facility, except in case of non compliance of the above mentioned covenants.

Pro forma data including acquisitions for the year ended December 31, 2007
Had the Grupo Imsa transaction been consummated on January 1st., 2007, then Ternium’s unaudited pro forma net sales and net income for the year ended December 31, 2007 would have been approximately $9.6 billion and $0.8 billion, respectively. These pro forma results were prepared based on public information and unaudited accounting records maintained prior to such transaction and adjusted by depreciation and amortization of tangible and intangible assets and interest expense of the borrowing incurred for the transaction as described above.

(b) Acerex S.A. de C.V.

In April 2006, the Company acquired a 50% equity interest in Acerex S.A. de C.V. (“Acerex”) through its subsidiary Hylsa S.A. de C.V. for a total purchase price of USD 44.6 million. Upon completion of this transaction Hylsa S.A. de C.V. owns 100% of Acerex. Acerex is a service center dedicated to processing steel to produce short-length and steel sheets in various widths. Acerex operates as a cutting and processing plant for Ternium’s Mexican operations and as an independent processor for other steel companies. On August 31, 2006 Acerex S.A. de C.V. was merged into Hylsa S.A. de C.V.

As permitted by IFRS 3 “Business Combinations” (“IFRS 3”), the Company accounted for this acquisition under the economic entity model, which requires that the acquisition of an additional equity interest in a controlled subsidiary be accounted for at its carrying amount, with the difference arising on purchase price allocation (amounting to USD 24.3 million) being recorded directly in equity.

(c) Additional shares of Siderar bought by Ternium S.A.

On December 28, 2006, Ternium S.A. acquired from CVRD International S.A. 16,860,000 shares of Siderar S.A.I.C, representing 4.85% of that company, for an aggregate purchase price of USD 107.5 million. After this acquisition Ternium has increased its ownership in Siderar to 60.93%.

As permitted by IFRS 3, the Company accounted for this acquisition under the economic entity model, which requires that the acquisition of an additional equity interest in a controlled subsidiary be accounted for at its carrying amount, with the difference arising on purchase price allocation (amounting to USD 8.1 million) being recorded directly in equity.

(d) Impeco S.A.

On November 18, 2005, Ternium’s Argentine subsidiary, Siderar, agreed to acquire assets and facilities of Acindar Industria Argentina de Aceros S.A. related to the production of welded steel pipes in the province of Santa Fe in Argentina, as well as 100% of the issued and outstanding shares of Impeco S.A., which in turn owns a plant located in the province of San Luis in Argentina. Purchase price paid totaled USD 55.2 million. These two plants have a production capacity of 140 thousand tons per year of tubes to be used in the construction, agricultural and manufacturing industries. The acquisition has been approved by the Argentine competition authorities and was completed on January 31, 2006. This acquisition did not give rise to goodwill.

The acquired business contributed revenues of USD 73.3 million in the year ended December 31, 2006. The fair value of assets and liabilities arising from acquisition are as follows:
 
   
USD Thousands
  
Property, plant and equipment
     47,825  
Inventories
     8,180  
Deferred tax liabilities
     (875 )
Others assets and liabilities, net
     53  
Net
     55,183  

-14-
 
TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)


3
Acquisition of business (continued)

(e) 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 Alfa’s 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 Hylsamex’s 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 29.9% equity interest in that company.

Hylsamex’s 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 USD 1,492 million. The fair value of assets and liabilities arising from acquisition are as follows:
   
USD Thousands
  
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.

(f) Additional shares of Hylsamex bought by Siderar

On June 19, 2006, Siderar completed the acquisition of 940,745 additional shares of Hylsamex, representing 0.2% of that company’s issued and outstanding common stock, for a total consideration of USD 3.3 million. This acquisition was effected through a trust fund established by Siderar in 2005 in connection with the initial acquisition of Hylsamex (see note 3(e)). Goodwill resulting from this acquisition totaled USD 0.7 million. During 2007, Siderar completed the acquisition of 56,502 additional shares of Hylsamex, representing 0.01% of that company’s issued and outstanding common stock, for a total consideration of USD 0.2 million.

(g) 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, Ternium’s 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 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 million correspond to the majority shareholders. The excess of Ternium’s interest in the net fair value of Amazonia’s 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 Amazonia’s net assets over their corresponding carrying amounts.

-15-

TERNIUM S.A.
Notes to the Consolidated Financial Statements (Contd.)


3
Acquisition of business (continued)

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:
 
   
USD Thousands
  
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  

4
Accounting policies

The following is a summary of the principal accounting policies followed in the preparation of these consolidated financial statements:

(a)      Group accounting

(1) Subsidiary companies
 
Subsidiary companies are those entities in which the Company has an interest of more than 50% of the voting rights or otherwise has the power to exercise control over the operating decisions. Subsidiaries are consolidated from the date on which control is transferred to the Company and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of assets given up, shares issued or liabilities undertaken at the date of acquisition, plus costs directly attributable to the acquisition. The excess of the acquisition cost over the Company’s share of the fair value of net assets acquired is recorded as goodwill. Acquisition of minority interests in subsidiaries is accounted for following the economic entity model and, accordingly, assets acquired and liabilities assumed are valued at book value and the difference arising on purchase price allocation is recorded in equity under “Revaluation and other reserves” line item. Material intercompany transactions, balances and unrealized gains on transactions among the Company and its subsidiaries are eliminated; unrealized losses are also eliminated unless cost cannot be recovered. However, the fact that the functional currency of some subsidiaries is their respective local currency, generates some financial gains (losses) arising from intercompany transactions, that are included in the consolidated income statement under Other financial expenses, net.

(2) Associated companies
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