Form 20-F
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
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o |
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Registration statement pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934 |
or
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þ |
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Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 |
for the fiscal year ended December 31, 2009
or
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o |
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Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 |
or
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o |
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Shell company report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 |
Commission file number: 001-32734
TERNIUM S.A.
(Exact Name of Registrant as Specified in its Charter)
N/A
(Translation of registrants name into English)
Grand Duchy of Luxembourg
(Jurisdiction of incorporation or organization)
46a, Avenue John F. Kennedy 2nd floor
L-1855 Luxembourg
(Address of registrants registered office)
Beatriz Rodriguez Salas
46A, Avenue John F. Kennedy 2 nd floor
L-1855 Luxembourg
Tel. +352 26 68 31 52, Fax. +352 26 68 31 53, e-mail: luxembourg@ternium.com
(Name, Telephone, E-Mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange On Which Registered |
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American Depositary Shares
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New York Stock Exchange |
Ordinary Shares, par value USD1.00 per share
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New York Stock Exchange* |
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* |
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Ordinary shares of Ternium S.A. are not listed for trading but only in
connection with the registration of American Depositary Shares which
are evidenced by American Depositary Receipts. |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report.
2,004,743,442 ordinary shares, par value USD1.00 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act.
Yes þ No o
If this report is an annual or transition report, indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
Yes o No þ
Notechecking the box above will not relieve any registrant required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those
Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act (Check one):
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Large accelerated filer þ
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Accelerated Filer o
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Non-accelerated filer o |
Indicate by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
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U.S. GAAP o
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International Financial Reporting Standards as issued
by the International Accounting Standards Board þ
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Other o |
If Other has been checked in response to the previous question indicate by check mark which
financial statement item the registrant has elected to follow:
Item 17 o Item 18 o
If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Please send copies of notices and communications from the Securities and Exchange Commission to:
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Cristian J.P. Mitrani
Mitrani, Caballero, Rosso Alba, Francia,
Ojam & Ruiz Moreno Abogados
Alicia Moreau de Justo 400, 3rd Floor
C1007AAH Buenos Aires, Argentina
(54-11) 4590-8600
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Robert S. Risoleo, Esq.
Sullivan & Cromwell LLP
1701 Pennsylvania Avenue N.W.
Washington, D.C. 20006
(202) 956-7500 |
CERTAIN DEFINED TERMS
In this annual report, unless otherwise specified or if the context so
requires:
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References to the Company refer exclusively to Ternium S.A., a Luxembourg joint
stock corporation (société anonyme holding); |
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References in this annual report to Ternium, we, us or our refer to
Ternium S.A. and its consolidated subsidiaries; |
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References to the Ternium companies are to the Companys manufacturing
subsidiaries, namely Siderar S.A.I.C., an Argentine corporation (Siderar), and Ternium
México, S.A. de C.V., a Mexican corporation (Ternium Mexico), and their respective
subsidiaries; |
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References to Usiminas are to Usinas Siderurgicas de Minas Gerais S/AUSIMINAS,
a steel company organized under the laws of Brazil and an indirect shareholder of the
Company; |
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References to Tenaris are to Tenaris S.A., a Luxembourg joint stock corporation
(société anonyme holding) and a shareholder of the Company; |
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References to San Faustín are to San Faustín N.V., a Netherlands Antilles
corporation and the Companys indirect controlling shareholder; |
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References to the Ternium network or Ternium Internacional are to an
international group of companies wholly owned by Ternium that market and provide
worldwide distribution services for products offered primarily by Ternium; |
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References to ADSs are to the American Depositary Shares, which are evidenced by
American Depositary Receipts; |
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References to tons are to metric tons; one metric ton is equal to 1,000
kilograms, 2,204.62 pounds or 1.102 U.S. (short) tons; and |
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References to billions are to thousands of millions, or 1,000,000,000. |
2
PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION
Accounting Principles
We prepare our consolidated financial statements in conformity with International Financial
Reporting Standards and IFRIC interpretations as issued by the International Accounting Standards
Board, or IASB and adopted by the European Union (EU), or IFRS. IFRS differ in certain significant
respects from generally accepted accounting principles in the United States, commonly referred to
as U.S. GAAP.
3
Currencies
In this annual report, unless otherwise specified or the context otherwise requires:
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dollars, U.S. dollars, USD or US$ each refers to the United States of America
dollar; |
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Mexican pesos or MXN each refers to the Mexican peso; |
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Argentine pesos or ARP each refers to the Argentine peso; |
On December 31, 2009, the noon buying rate between the Mexican peso and the U.S. dollar (as
published by Banco de México, or the Mexican Bank) was MXN13.0659=USD1.0000 and the exchange rate
between the Argentine peso and the U.S. dollar (as published by Banco Central de la República
Argentina, or the Argentine Central Bank) was ARP3.8000=USD1.0000. Those rates may differ from the
actual rates used in preparation of the Companys consolidated financial statements. We do not
represent that any of these currencies could have been or could be converted into U.S. dollars or
that U.S. dollars could have been or could be converted into any of these currencies.
Rounding; Comparability of Data
Certain monetary amounts, percentages and other figures included in this annual report have been
subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be
the arithmetic aggregation of the figures that precede them, and figures expressed as percentages
in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic
aggregation of the percentages that precede them.
Our Internet Site is Not Part of this Annual Report
We maintain an Internet site at www.ternium.com. Information contained in or otherwise accessible
through this website is not a part of this annual report. All references in this annual report to
this Internet site are inactive textual references to this URL, or uniform resource locator and
are for your informational reference only. We assume no responsibility for the information
contained on this site.
4
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This annual report and any other oral or written statements made by us to the public may
contain forward-looking statements within the meaning of and subject to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. This annual report contains
forward-looking statements, including with respect to certain of our plans and current goals and
expectations relating to Terniums future financial condition and performance.
Sections of this annual report that by their nature contain forward-looking statements
include, but are not limited to, Item 3. Key Information, Item 4. Information on the Company,
Item 5. Operating and Financial Review and Prospects and Item 11. Quantitative and Qualitative
Disclosures About Market Risk.
We use words such as aim, will continue, will likely result, contemplate, seek to,
future, objective, goal, should, will pursue, anticipate, estimate, expect,
project, intend, plan, believe and words and terms of similar substance to identify
forward-looking statements, but they are not the only way we identify such statements. All
forward-looking statements are managements present expectations of future events and are subject
to a number of factors and uncertainties that could cause actual results to differ materially from
those described in the forward-looking statements. These factors, which could cause actual results
to differ materially from those described in the forward-looking statements, include the risks
related to our business discussed under Item 3. Key InformationD. Risk Factors, among them, the
following:
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the impact of the global economic crisis; |
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uncertainties about the behaviour of steel consumers in the markets in which Ternium
operates and sells its products; |
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changes in the pricing environments in the countries in which Ternium operates; |
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the impact in the markets in which Ternium operates of existing and new competitors,
including competitors that offer less expensive products and services, desirable or
innovative products, or have extensive resources or better financing, and whose presence may
affect Terniums customer mix, revenues and profitability; |
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increases in the prices of raw materials, other inputs or energy or difficulties in
acquiring raw materials or other inputs or energy supply cut-offs; |
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the policies of, and the economic, political and social conditions in, the countries in
which Ternium operates or other countries which have an impact on Terniums business
activities or investments; |
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inflation or deflation and foreign exchange rates in the countries in which Ternium
operates; |
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volatility in interest rates; |
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the performance of the financial markets globally and in the countries in which Ternium
operates; |
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changes in domestic and foreign laws, regulations and taxes; |
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regional or general changes in asset valuations; |
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our ability to successfully implement our business strategy or to grow through acquisitions,
greenfield projects, joint ventures and other investments; and |
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other factors or trends affecting the flat and long steel industry generally and our
financial condition in particular. |
By their nature, certain disclosures relating to these and other risks are only estimates and could
be materially different from what actually occurs in the future. As a result, actual future gains
or losses that may affect Terniums financial condition and results of operations could differ
materially from those that have been estimated. You should not place undue reliance on the
forward-looking statements, which speak only as of the date of this annual report. Except as
required by law, we are not
under any obligation, and expressly disclaim any obligation, to update or alter any forward-looking
statements, whether as a result of new information, future events or otherwise.
5
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
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A. |
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Selected Financial Data |
The selected consolidated financial data (or selected combined consolidated financial data, as
applicable) set forth below have been derived from our audited consolidated financial
statements (or combined consolidated financial statements, as applicable) for each of the
years and at the dates indicated. Our consolidated financial statements were prepared in
accordance with IFRS, and were audited by Price Waterhouse & Co. S.R.L., Argentina, an
independent registered public accounting firm that is a member firm of PricewaterhouseCoopers.
Ternium obtained control over Grupo Imsa, a Mexican steel processor, on July 26, 2007.
Accordingly, the audited consolidated financial statements of Ternium as of December 31, 2009
and 2008, and for the years then ended, included in this annual report consolidate the results
and other financial data of Grupo Imsa for the entire year, and the audited consolidated
financial statements of Ternium as of December 31, 2007, and for the year then ended, included
in this annual report consolidate the results and other financial data of Grupo Imsa beginning
on July 26, 2007. As a result, Terniums results and other financial data for the years ended
December 31, 2009 and 2008 varied significantly from the results and other financial data for
the year ended December 31, 2007, and the results and other financial data of each such year
varied significantly from the results and other financial data for the years ended
December 31, 2006 and 2005.
Ternium acquired Hylsamex, a Mexican steel producer, on August 22, 2005. Accordingly, the
audited consolidated financial statements of Ternium as of December 31, 2009, 2008, 2007 and
2006, and for the years ended December 31, 2009, 2008, 2007 and 2006 consolidate the results
and other financial statements of Hylsamex for such years, and the consolidated financial data
of Ternium as of December 31, 2005, and for the year then ended, consolidate the results and
other financial data of Hylsamex beginning on August 22, 2005. As a result, Terniums results
and other financial data for the years ended December 31, 2009, 2008, 2007 and 2006 varied
significantly from the results and other financial data for the year ended December 31, 2005.
For a discussion of the currencies used in this annual report, exchange rates and accounting
principles affecting the financial information contained in this annual report, see
Presentation of Certain Financial and Other InformationAccounting Principles and
Currencies.
6
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In thousands of U.S. dollars |
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For the year ended December 31, |
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(except number of shares and per share data) |
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2009 |
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2008 |
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2007 |
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2006 |
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2005 (1) |
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Selected consolidated income statement data |
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Continuing operations |
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Net sales |
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4,958,983 |
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8,464,885 |
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5,633,366 |
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4,484,918 |
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2,690,450 |
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Cost of sales |
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(4,110,370 |
) |
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(6,128,027 |
) |
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(4,287,671 |
) |
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(3,107,629 |
) |
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(1,787,848 |
) |
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Gross profit |
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848,613 |
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2,336,858 |
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1,345,695 |
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1,377,289 |
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902,602 |
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Selling, general and administrative expenses |
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(531,530 |
) |
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(669,473 |
) |
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(517,433 |
) |
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(370,727 |
) |
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(243,993 |
) |
Other operating (expenses) income, net |
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(20,700 |
) |
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8,662 |
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8,514 |
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(4,739 |
) |
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(57,338 |
) |
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Operating income |
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296,383 |
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1,676,047 |
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836,776 |
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1,001,823 |
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601,271 |
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Interest expense |
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(105,810 |
) |
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(136,111 |
) |
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(133,109 |
) |
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(96,814 |
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(60,686 |
) |
Interest income |
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21,141 |
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32,178 |
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41,613 |
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33,903 |
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17,786 |
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Interest income Sidor financial asset |
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135,952 |
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Other financial income (expenses), net |
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81,639 |
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(693,192 |
) |
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(38,498 |
) |
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(40,432 |
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33,514 |
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Equity in earnings of associated companies |
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1,110 |
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1,851 |
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434 |
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671 |
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153 |
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Income before income tax expense |
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430,415 |
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880,773 |
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707,216 |
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899,151 |
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592,038 |
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Income tax (expense) benefit |
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Current and deferred income tax expense |
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(91,314 |
) |
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(258,969 |
) |
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(297,838 |
) |
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(353,044 |
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(233,113 |
) |
Reversal of deferred statutory profit sharing |
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96,265 |
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Income from continuing operations |
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339,101 |
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718,069 |
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415,871 |
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546,107 |
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358,925 |
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Discontinued operations |
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Income from discontinued operations |
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428,023 |
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157,095 |
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579,925 |
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444,468 |
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715,900 |
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Net income for the year (2) |
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767,124 |
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875,164 |
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995,796 |
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990,575 |
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1,074,825 |
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Attributable to: |
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Equity holders of the Company |
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717,400 |
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715,418 |
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784,490 |
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795,424 |
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706,418 |
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Minority interest |
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49,724 |
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159,746 |
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211,306 |
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195,151 |
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368,407 |
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767,124 |
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875,164 |
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995,796 |
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990,575 |
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1,074,825 |
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Depreciation and amortization |
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385,105 |
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|
413,541 |
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|
355,271 |
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251,371 |
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160,145 |
|
Weighted average number of shares outstanding (4) |
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2,004,743,442 |
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2,004,743,442 |
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2,004,743,442 |
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1,936,833,060 |
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1,209,476,609 |
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Basic earnings per share (expressed in USD per
share) for profit: (2) (3) (4) |
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From continuing operations attributable to the
equity holders of the Company |
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0.15 |
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0.27 |
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0.15 |
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0.20 |
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0.15 |
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From discontinued operations attributable to the
equity holders of the Company |
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0.21 |
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0.09 |
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0.24 |
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0.21 |
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0.43 |
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For the year attributable to the equity holders
of the Company |
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0.36 |
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0.36 |
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0.39 |
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0.41 |
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0.58 |
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Dividends per share declared |
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0.05 |
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0.05 |
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0.05 |
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|
|
|
|
|
|
|
(1) |
|
Combined consolidated financial information on the basis of common control. |
|
(2) |
|
International Accounting Standard N° 1 (IAS 1) (Revised) requires that income for the
year as shown in the income statement includes the portion attributable to minority
interest. Basic earnings per share, however, continue to be calculated on the basis of
income attributable solely to the equity holders of the Company. |
|
(3) |
|
Diluted earnings per share (expressed in USD per share), equals basic earnings per
share in 2009, 2008, 2007 and 2006. In 2005, diluted earnings per share were USD0.54,
including USD0.14 from continuing operations and USD0.39 from discontinued operations.
Diluted earnings per share have been calculated giving effect to the conversion of certain
subordinated convertible loans. |
|
(4) |
|
In October 2005, Usiminas exchanged its 5.3% equity interest in Siderar, its 16.6%
equity interest in Amazonia and its 19.1% equity interest in Ylopa and other items for
227,608,254 new shares of the Company. Upon the consummation of this exchange, capital
increased to USD1,396.6 million, represented by 1,396,551,886 shares of USD1.00 nominal
value each. Pursuant to provisions contained in certain subordinated convertible loan
agreements, on February 6, 2006, the Company exchanged such subordinated convertible loans
(including interest accrued thereon through January 31, 2006) for Company shares at a
conversion price of USD2 per share, resulting in the issuance of 302,962,261 new shares to
a wholly-owned subsidiary of San Faustín on February 9, 2006. As provided in a certain
corporate reorganization agreement, on
February 9, 2006, after the settlement of the Companys initial public offering, a
wholly-owned subsidiary of San Faustín contributed all of its assets and liabilities to the
Company in exchange for 959,482,775 newly-issued shares of the Company, which contribution
included, among other items, the San Faustín subsidiarys right to receive 302,962,261 new
shares of the Company in connection with the conversion of the subordinated convertible
loans described above, and 374,272,579 existing shares of the Company then held by such San
Faustín subsidiary that were cancelled upon receipt by the Company. In connection with the
over-allotment option granted to the underwriters of the Companys initial public, the
Company issued 22,981,360 new shares. Upon consummation of the transactions discussed
above, as of December 31, 2006, the capital of the Company was increased to
USD2,004.7 million, represented by 2,004,743,442 shares, each having a nominal value of
USD1.00. For fiscal years 2009, 2008, 2007, 2006 and 2005, the weighted average of shares
outstanding totaled 2,004,743,442, 2,004,743,442, 2,004,743,442, 1,936,833,060 and
1,209,476,609 shares, respectively. |
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands U.S. dollars |
|
At December 31, |
|
(except number of shares and per share data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 (1) |
|
Selected consolidated
balance sheet data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
5,250,135 |
|
|
|
5,491,408 |
|
|
|
8,553,123 |
|
|
|
6,029,383 |
|
|
|
6,029,823 |
|
Property, plant and
equipment, net |
|
|
4,040,415 |
|
|
|
4,212,313 |
|
|
|
6,776,630 |
|
|
|
5,335,030 |
|
|
|
5,377,831 |
|
Other non-current assets (2) |
|
|
1,209,720 |
|
|
|
1,279,095 |
|
|
|
1,776,493 |
|
|
|
694,353 |
|
|
|
651,992 |
|
Current assets |
|
|
5,042,538 |
|
|
|
5,179,839 |
|
|
|
5,095,959 |
|
|
|
2,628,870 |
|
|
|
2,518,958 |
|
Cash and cash equivalents |
|
|
2,095,798 |
|
|
|
1,065,552 |
|
|
|
1,125,830 |
|
|
|
643,291 |
|
|
|
765,506 |
|
Other current assets |
|
|
2,937,494 |
|
|
|
4,108,954 |
|
|
|
3,200,987 |
|
|
|
1,978,537 |
|
|
|
1,750,292 |
|
Non-current assets
classified as held for sale |
|
|
9,246 |
|
|
|
5,333 |
|
|
|
769,142 |
|
|
|
7,042 |
|
|
|
3,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
10,292,673 |
|
|
|
10,671,247 |
|
|
|
13,649,082 |
|
|
|
8,658,253 |
|
|
|
8,548,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and reserves
attributable to the
Companys equity holders (3) |
|
|
5,296,342 |
|
|
|
4,597,370 |
|
|
|
4,452,680 |
|
|
|
3,757,558 |
|
|
|
1,842,454 |
|
Minority interest |
|
|
964,897 |
|
|
|
964,094 |
|
|
|
1,805,243 |
|
|
|
1,626,119 |
|
|
|
1,633,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
2,872,667 |
|
|
|
3,374,964 |
|
|
|
5,401,549 |
|
|
|
1,867,892 |
|
|
|
3,683,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
1,787,204 |
|
|
|
2,325,867 |
|
|
|
3,676,072 |
|
|
|
546,601 |
|
|
|
2,396,807 |
|
Deferred income tax |
|
|
857,297 |
|
|
|
810,160 |
|
|
|
1,327,768 |
|
|
|
982,091 |
|
|
|
1,047,038 |
|
Other non-current liabilities |
|
|
228,166 |
|
|
|
238,937 |
|
|
|
397,709 |
|
|
|
339,200 |
|
|
|
239,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
1,158,767 |
|
|
|
1,734,819 |
|
|
|
1,989,610 |
|
|
|
1,406,684 |
|
|
|
1,388,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings |
|
|
539,525 |
|
|
|
941,460 |
|
|
|
406,239 |
|
|
|
507,241 |
|
|
|
510,820 |
|
Other current liabilities |
|
|
619,242 |
|
|
|
793,359 |
|
|
|
1,369,608 |
|
|
|
899,443 |
|
|
|
877,871 |
|
Liabilities directly
associated with non-current
assets classified as held
for sale |
|
|
|
|
|
|
|
|
|
|
213,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
4,031,434 |
|
|
|
5,109,783 |
|
|
|
7,391,159 |
|
|
|
3,274,576 |
|
|
|
5,072,446 |
|
Total equity and liabilities |
|
|
10,292,673 |
|
|
|
10,671,247 |
|
|
|
13,649,082 |
|
|
|
8,658,253 |
|
|
|
8,548,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares outstanding
(4) |
|
|
2,004,743,442 |
|
|
|
2,004,743,442 |
|
|
|
2,004,743,442 |
|
|
|
2,004,743,442 |
|
|
|
1,396,551,886 |
|
|
|
|
(1) |
|
Combined consolidated financial information on the basis of common control. |
|
(2) |
|
As of December 31, 2009, 2008, 2007, 2006 and 2005, includes goodwill related to the
acquisition of our Mexican subsidiaries for a total amount of USD708.6, USD683.7,
USD850.7, USD397.9 million and USD399.7 million, respectively. |
|
(3) |
|
The Companys common stock as of December 31, 2009, 2008, 2007, 2006 and 2005 was
represented by 2,004,743,442, 2,004,743,442, 2,004,743,442, 2,004,743,442 and
1,396,551,886 shares, par value USD1.00 per share, for a total amount of USD2,004.7
million, USD2,004.7 million, USD2,004.7 million, USD2,004.7 million and
USD1,396.6 million. |
|
(4) |
|
After the completion of the Companys initial public offering, the conversion of
certain subordinated convertible loans, the exercise of the over-allotment option granted
to the underwriters of the initial public offering and the consummation of the
transactions contemplated in a corporate reorganization agreement, as of December 31,
2006, the capital was increased to USD2,004.7 million, represented by 2,004,743,442
shares, each having a nominal value of USD1.00. |
|
B. |
|
Capitalization and Indebtedness |
|
|
|
|
Not applicable. |
|
|
C. |
|
Reasons for the Offer and Use of Proceeds |
|
|
|
|
Not applicable. |
8
|
D. |
|
Risk Factors |
|
|
|
|
You should carefully consider the risks and uncertainties described below, together with all
other information contained in this annual report, before making any investment decision. Any
of these risks and uncertainties could have a material adverse effect on our business,
financial condition and results of operations, which could in turn affect the price of the
Companys shares and ADSs. |
|
|
|
|
Risks Relating to the Steel Industry |
|
|
|
|
A downturn in the global economy would cause a reduction in worldwide demand for steel, and a
protracted global recession or a depression would have a material adverse effect on the steel
industry and Ternium. |
|
|
|
|
Terniums activities and results are affected by international economic conditions, as well as
by national and regional economic conditions in the markets where Ternium operates and/or
sells its products. A downturn in the global economy would reduce demand for steel products.
This would have a negative effect on Terniums business and results of operations. |
|
|
|
|
If global macroeconomic conditions deteriorate, the outlook for steel producers would be
affected. In particular, a recession or depression in the developed economies, such as the one
experienced by the United States and Europe in 2008 and 2009, or slower growth or recessionary
conditions in emerging economies that are substantial consumers of steel (such as China and
India, as well as emerging Asian markets, the Middle East, Latin America and the Commonwealth
of Independent States regions) would exact a heavy toll on the steel industry. Financial
weakness among substantial consumers of steel products, such as the automotive industry and
the construction industry, or the bankruptcy of any large companies in such industries, would
exacerbate a negative trend in market conditions. |
|
|
|
|
Although demand, production levels and prices in certain segments and markets have recovered
and stabilized to a certain degree, the extent, timing and duration of the recovery and
potential return to pre-crisis levels remains uncertain. It is difficult to predict the
duration or severity of a new global economic downturn, or to what extent it will affect us. A
continued or renewed recession, or the public perception that a recession is continuing, or an
unsustainable recovery and persistently weak economic conditions in our key markets, could
depress demand for our products and adversely affect our business and results of operations. |
|
|
|
|
A protracted fall in steel prices would have a material adverse effect on the results of
Ternium, as could price volatility. |
|
|
|
|
Steel prices are volatile and are sensitive to trends in cyclical industries, such as the
construction, automotive, appliance and machinery industries, which are significant markets
for Terniums products. Steel prices in the international markets, which had been rising fast
during the first half of 2008, fell sharply beginning in the second half of 2008 as a result
of collapsing demand and the resulting excess capacity in the industry. The fall in prices
during this period adversely affected the results of steel producers generally, including
Ternium, as a result of lower revenues and writedowns of finished steel products and raw
material inventories. For example, in the second half of 2008 Ternium recorded a valuation
allowance on inventories in an amount of USD200 million and in the first half of 2009 it
recorded an additional valuation allowance in the amount of USD127.6 million. Beginning in the
second half of 2009, steel prices in the international markets rebounded mainly as a result of
the increase in the demand for steel in China and other emerging markets, and the subsidence
of the worldwide de-stocking process. Although the duration and extent of this price recovery
depends highly on global economic recovery, historically the length and nature of business
cycles affecting the steel industry has been unpredictable. A downturn in steel prices would
materially and adversely affect Terniums revenues and profitability. |
|
|
|
|
In addition, the steel industry is highly competitive with respect to price, product quality,
customer service and technological advances, and competition has frequently limited the
ability of steel producers to raise the price of finished products to recover higher raw
material and energy costs. Moreover, in some cases, the governments of some countries are
reluctant to accept price increases of products which are used as raw materials for the
manufacture of other goods, as such increases could ultimately affect competitiveness or
increase inflation. In some other cases, governments restrict the ability of companies to pass
on to the domestic markets any increases in international prices. Accordingly, increases in
the purchase costs of raw materials, energy and other inputs might not be recoverable through
increased product prices. |
9
A sudden increase in exports from China could have a significant impact on international steel
prices affecting Terniums profitability.
As demand for steel has surged in China, steel production capacity in that market has also
increased, and China is now the largest worldwide steel producing country, accounting for
approximately half of the worldwide steel production. Due to the size of the Chinese steel
market, a slowdown in steel consumption in that market could cause a sizable increase in the
volume of steel offered in the international steel markets, exerting a downward pressure on
sales and margins of steel companies operating in other markets and regions, including
Ternium.
Excess capacity, resulting in part from the recent financial crisis that reduced steel demand
and from a strong increase in steel production capacity in recent years, may hamper the steel
industrys ability to sustain adequate profitability.
In addition to economic conditions and prices, the steel industry is affected by other factors
such as worldwide production capacity and fluctuations in steel imports/exports and tariffs.
Historically, the steel industry has suffered, especially on downturn cycles, from substantial
over-capacity. Currently, as a result of the economic crisis and the increase in steel
production capacity in recent years, there are signs of excess capacity in all steel markets,
which is impacting the profitability of the steel industry. Accordingly, it is possible that
the industrys excess capacity will result in an extended period of depressed margins and
industry weakness.
Sales may fall as a result of fluctuations in industry inventory levels.
Inventory levels of steel products held by companies that purchase Terniums products can vary
significantly from period to period. These fluctuations can temporarily affect the demand for
Terniums products, as customers draw from existing inventory during periods of low investment
in construction and the other industry sectors that purchase Terniums products and accumulate
inventory during periods of high investment and, as a result, these companies may not purchase
additional steel products or maintain their current purchasing volume. Accordingly, Ternium
may not be able to increase or maintain its current levels of sales volumes or prices.
Price fluctuations or shortages in the supply of raw materials, slabs and energy could
adversely affect Terniums profitability.
Like other manufacturers of steel-related products, Terniums operations require substantial
amounts of raw materials, energy and other inputs from domestic and foreign suppliers. In
particular, the Ternium companies consume large quantities of iron ore, scrap, ferroalloys,
electricity, coal, natural gas, oxygen and other gases in operating their blast and electric
arc furnaces. In addition, Ternium is a large consumer of slabs and hot and cold-rolled steel,
which are used as inputs in the production process. Also, the availability and price of a
significant portion of the raw materials, slabs, energy and other inputs Ternium requires are
subject to market conditions and government regulation affecting supply and demand. For
example, shortages of natural gas in Argentina and the consequent supply restrictions imposed
by the government could lead to higher costs of production and eventually to production
cutbacks at Terniums facilities in Argentina. See Risks Relating to the Countries in Which
We OperateArgentinaRestrictions on the supply of energy to Terniums operations in Argentina
could curtail Terniums production and negatively impact Terniums results of operations. In
the past, Ternium has usually been able to procure sufficient supplies of raw materials,
slabs, energy and other inputs to meet its production needs; however, it could be unable to
procure adequate supplies in the future. Any protracted interruption, discontinuation or other
disruption of the supply of principal inputs to the Ternium companies (including as a result
of strikes, lockouts or other problems) would result in lost sales and would have a material
adverse effect on Terniums business and results of operations. For example, during 2007
Companhia Vale do Rio Doce, or Vale, our main supplier of iron ore, was unable to provide us
with the quantities of iron ore required for our Argentine operations; in addition, there was
limited transportation capacity from Brazil to Argentina through the Paraguay and Parana
rivers. For further information related to Raw Materials, Energy and Other inputs
requirements, Item 4. Information on the CompanyB. Business OverviewRaw Materials, Energy
and Other inputs.
The Ternium companies depend on a limited number of key suppliers.
The Ternium companies depend on certain key suppliers for their requirements of some of their
principal inputs, including Vale for iron ore and ArcelorMittal for slabs; there is also a
trend towards consolidation among suppliers of iron ore and other raw materials. The Ternium
companies have entered into long-term contracts for the supply of some
of their principal inputs (including iron ore) and it is expected that they will maintain and,
depending on the circumstances, renew these contracts. However, if any of the key suppliers
fails to deliver or there is a failure to renew these contracts, the Ternium companies could
face limited access to some raw materials, energy or other inputs, or higher costs and delays
resulting from the need to obtain their input requirements from other suppliers. As an
example, in 2007 Vale was unable to provide Siderar with the quantities of iron ore that it
required, forcing Siderar to import iron ore from Ternium Mexico.
10
Intense competition could cause Ternium to lose its share in certain markets and adversely
affect its sales and revenues.
The market for Terniums steel products is highly competitive, particularly with respect to
price, quality and service. In both the global and regional markets, Ternium competes against
other global and local producers of flat and long steel products, which in some cases have
greater financial and operating resources. Competition from larger steel manufacturers could
result in declining margins and reductions in sales volumes and revenues.
Terniums larger competitors could use their resources against Ternium in a variety of ways,
including by making additional acquisitions, implementing modernization programs, expanding
their production capacity, investing more aggressively in product development, and displacing
demand for Terniums products in certain markets. To the extent that these producers become
more efficient, Ternium could confront stronger competition and could fail to preserve its
current share of the relevant geographic or product markets. In addition, there has been a
trend in recent years toward steel industry consolidation among Terniums competitors, and
smaller competitors in the steel market today could become larger competitors in the future.
For example, in June 2006, Mittal Steel and Arcelor merged to create the worlds largest steel
company, ArcelorMittal; in April 2007, Tata Steel completed the acquisition of Corus and in
2008 Severstal acquired Sparrow Points steel mill, WCI Steel and Esmark. Regional players in
Terniums markets have also experienced consolidation through acquisitions; for example,
Siderperu was acquired by Gerdau in 2006, Sicartsa of Mexico was acquired by ArcelorMittal in
December 2006 and Aceria Paz del Rio of Colombia was acquired by Votorantim in March 2007. For
further information please see Item 4. Information on the CompanyB. Business
OverviewCompetition.
Moreover, competition from alternative materials (including aluminum, wood, concrete, plastic
and ceramics) could adversely affect the demand for, and consequently the market prices of,
certain steel products and, accordingly, could affect Terniums sales volumes and revenues.
Competition in the global and regional markets could also be affected by antidumping and
countervailing duties imposed on some producers in major steel markets and by the removal of
barriers to imported products in those countries where the Ternium companies direct their
sales. For further information please refer to Item 4. Information on the
CompanyRegulationsTrade regulations.
Risks Relating to our Business
If Ternium does not successfully implement its business strategy, its opportunities for growth
and its competitive position could be adversely affected.
Ternium plans to continue implementing its business strategy of further integrating the
operating and marketing activities of the Ternium companies, developing value-added products,
providing services to a wider range of customers in the local and export markets, gaining
further access to iron ore and other inputs, increasing its steel production and continuing to
pursue strategic acquisition opportunities. Any of these components or Terniums overall
business strategy could be delayed or abandoned or could cost more than anticipated, any of
which could impact its competitive position and reduce its revenue and profitability. For
example, Ternium could fail to develop its projects to increase steel production capacity and
lose market share in its regional markets. Even if Ternium successfully implements its
business strategy, it may not yield the desired goals.
Recent and future acquisitions, green-field projects, significant investments and strategic
alliances could disrupt Terniums operations and adversely affect its profits. Ternium may not
realize the benefits it expects from these business decisions.
A key element of Terniums business strategy is to identify and pursue growth-enhancing
strategic opportunities. As part of this growth strategy, Ternium has acquired interests in
various companies, including Hylsamex, one of the
main steel producers in Mexico; and Grupo Imsa, a leading steel processor with operations in
Mexico, the United States and Guatemala. Additionally, Ternium has recently entered into a
definitive agreement to acquire a 54% ownership interest in Colombia-based Ferrasa S.A.S.
(Ferrasa) and Ferrasa Panamá and signed a non-binding memorandum of understanding with
Nippon Steel Corporation to form a joint venture in Mexico for the manufacturing and sale of
hot-dip galvanized and galvannealed steel sheets to serve the Mexican automobile market, see
Item 5. Operating and Financial Review and ProspectsG. Recent Developments.
11
We regularly consider capital investments, strategic acquisitions, greenfield projects and
alliances and we intend to actively pursue that growth strategy. However, any growth project
will depend upon market and financing conditions. We must necessarily base any assessment of
potential capital investments, acquisitions, green-field projects and alliances on assumptions
with respect to operations, profitability and other matters that may subsequently prove to be
incorrect. Our recent and future acquisitions, investments and alliances may not perform in
accordance with our expectations and could adversely affect our operations and profitability.
Furthermore, we may fail to find suitable acquisition targets or fail to consummate our
acquisitions under favorable conditions, or could be unable to successfully integrate any
acquired businesses into our operations. Moreover, we may also acquire, as part of future
acquisitions, assets unrelated to our business, and we may not be able to integrate them or
sell them under favorable terms and conditions.
These risks, and the fact that integration of any acquired businesses will require a
significant amount of the time and resources of Terniums management and employees, could
disrupt Terniums ongoing business and could have a material adverse effect on its business,
financial condition and results of operations.
Ternium may be required to record a significant charge to earnings if it must reassess its
goodwill or other amortizable intangible assets.
In accordance with IFRS, management must test all of Terniums goodwill, intangible assets
with an indefinite useful life and intangible assets not yet available for use annually for
impairment, or more frequently if there are indicators of impairment, and recognize a non-cash
charge in an amount equal to any impairment. We recorded goodwill in connection with the
acquisition of our Mexican subsidiaries, the balance of which, as of December 31, 2009,
amounted to USD708.6 million. If Terniums management were to determine in the future that the
goodwill from the acquisition of our Mexican subsidiaries was impaired, Ternium would be
required to recognize a non-cash charge to write down the value of this goodwill, which would
adversely affect Terniums results of operations.
Labor disputes at Terniums operating subsidiaries could result in work stoppages and
disruptions to Terniums operations.
A substantial majority of Terniums employees at its manufacturing subsidiaries are
represented by labor unions and are covered by collective bargaining or similar agreements,
which are subject to periodic renegotiation. Strikes or work stoppages could occur prior to or
during the negotiations leading to new collective bargaining agreements, during wage and
benefits negotiations or, occasionally, during other periods for other reasons. Ternium could
also suffer plant stoppages or strikes if it were to implement cost reduction plans.
In Argentina, in early 2009, following a decrease in the level of activity since the last
quarter of 2008 due to the global economic downturn, Siderar downsized contractor and
subcontractor activities and temporary personnel, triggering adverse reactions from the
construction workers union and the steelworkers union. Later in 2009, during the
negotiations between Siderar and the steelworkers union regarding the annual bonuses related
to results, the unions called for work stoppages and other measures. For more information on
the collective bargaining agreement applicable to most of Siderars employees in Argentina,
see Item 6. Directors, Senior Management and EmployeesD. EmployeesArgentina. In Mexico,
the various measures that Terniums Mexican subsidiaries have taken in order to become more
competitive during 2009 have not resulted in significant labor unrest. Notwithstanding this,
we cannot assure that this situation will remain stable. Any future stoppage, strike,
disruption of operations or new collective bargaining agreements could result in lost sales
and could increase Terniums costs, thereby affecting our results of operations. For more
information on labor relations, see Item 6. Directors, Senior Management and EmployeesD.
Employees.
12
Terniums related party transactions with companies controlled by San Faustín may not always
be on terms as favorable as those that could be obtained from unaffiliated third parties.
Some of Terniums sales and purchases are made to and from other companies controlled by San
Faustín. These sales and purchases are primarily made in the ordinary course of business, and
we believe that they are made on terms no less favorable than those we could obtain from
unaffiliated third parties. Ternium will continue to engage in related party transactions in
the future, and these transactions may not be on terms as favorable as those that could be
obtained from unaffiliated third parties. For information concerning the principal
transactions between Ternium and related parties see Item 7. Major Shareholders and Related
Party TransactionsB. Related Party Transactions.
Following the completion of the Sidor nationalization process, Ternium is exposed to credit
concentration risk with Venezuela.
On May 7, 2009, Ternium completed the transfer of its entire 59.7% interest in Sidor to
Corporación Venezolana de Guayana, or CVG, a Venezuelan state-owned entity. Ternium agreed
to receive an aggregate amount of USD1.97 billion as compensation for its Sidor shares. Of
that amount, CVG paid USD400 million in cash on that date. The balance was divided in two
tranches: the first tranche, of USD945 million, is being paid in six quarterly installments of
approximately USD158 million each beginning in August 2009 until November 2010, while the
second tranche, of USD626 million, 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.
As of the date of this annual report, CVG has paid USD1.51 billion and the outstanding
principal is USD458 million. These receivables with CVG are unsecured. Accordingly, we have
significant credit concentration risk with CVG and Venezuela. Under the agreements with CVG
and Venezuela, in the event of non-compliance by CVG with its payment obligations, Ternium 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
Ternium may not claim an amount exceeding the outstanding balance due from CVG. For more
information on the Sidor nationalization process, see note 29 to our audited consolidated
financial statements included elsewhere in this annual report and Item 4. Information on the
CompanyA. History and Development of the CompanySidor Nationalization Process.
A significant rise in interest rates or any limitation in the Ternium companies ability to
hedge against interest rate fluctuations and other financial risks could adversely affect
Terniums business and results.
Changes in interest rates affect the amount of Terniums interest payments as well as the fair
value of its fixed rate debt. Most of Terniums long-term borrowings are at variable rates,
and accordingly, Ternium is exposed to the risk of increased interest expense in the event of
a significant rise in interest rates. As of December 31, 2009, Terniums total indebtedness
was USD2.3 billion and, as stated above, most of it has variable rates.
In addition, a substantial rise in interest rates in developed economies such as the United
States could adversely affect the economies in the countries where Ternium conducts its
operations and markets its products.
In the ordinary course of business, the Ternium companies from time to time enter into
interest rate derivatives agreements to manage their exposure to interest rate changes. Future
regulatory or financial restrictions in the countries where Ternium operates may affect its
ability to mitigate its exposure to interest rate fluctuations and other financial risks, and
thus cause an adverse impact on Terniums results of operations and financial condition.
Changes in exchange rates or any limitation in the Ternium companies ability to hedge against
exchange rate fluctuations could adversely affect Terniums business and results.
The operations of the Ternium companies expose them to the effects of changes in foreign
currency exchange rates. Most of Terniums sales are carried out in currencies other than the
U.S. dollar. As a result of this foreign currency exposure, exchange rate fluctuations impact
the Ternium companies results and net worth as reported in their income statements and
statements of financial position in the form of both translation risk and transaction risk.
In the ordinary course of business, the Ternium companies enter from time to time into
exchange rate derivatives agreements to manage their exposure to exchange rate changes. Future
regulatory or financial restrictions in the countries where Ternium operates may affect its
ability to mitigate its exposure to exchange rate fluctuations, and thus cause an adverse
impact on Terniums results of operations and financial condition.
13
Risks Relating to our Mining Activities
Iron ore is one of the principal raw materials used by Terniums operating subsidiaries.
Ternium has equity interests in two iron ore mining companies in Mexico: a 100% interest in
Las Encinas and a 50% interest in Consorcio Minero Benito Juárez Peña Colorada, S.A. de C.V.,
which operates Peña Colorada, Mexicos largest iron ore mine. In addition, Ternium may seek to
expand its mining activities in the future. Our present and future mining activities are or
would be subject to particular risks, as follows:
Our mining activities depend on governmental concessions and on our ability to reach and
maintain lease agreements (or other agreements for the use of land) with the owner of the real
estate where the mines are located.
Our mining activities are subject to specific regulations and depend on concessions and
authorizations granted by governmental authorities. Amendments to applicable law and
regulations may change the terms pursuant to which we are required to pursue our exploration,
mining and ore processing activities. Such changes may result in new taxes or royalties or
require modifications to the processes and technologies used in our mining activities, leading
to unexpected capital expenditures and higher costs. If the relevant government authority
determines that we are not in compliance with our obligations as concessionaires, it may
terminate our concession. Furthermore, in order to explore or exploit mines it is necessary to
obtain the right to occupy and use the land where the mines are situated. Even though
government regulations frequently establish provisions intended to facilitate the
establishment of such rights, in some cases it may be difficult to reach and maintain
agreements with the owners or such agreements may be excessively onerous. If we are unable to
establish use and occupancy rights on acceptable terms, our mining activities may be
compromised.
Our exploration activities are subject to uncertainties as to the result of such exploration;
even if the exploration activities lead to the discovery of ore deposits, the effective
exploitation of such deposits remains subject to several risks.
Exploration activities are highly speculative, involve substantial risks and may be
unproductive. We may incur substantial costs for exploration which do not yield the expected
results. The failure to find sufficient and adequate reserves could adversely affect our
business. In addition, even if ore deposits are discovered, our ability to pursue exploitation
activities may be delayed for a long time during which market conditions may vary. Significant
resources and time needed to be invested in order to establish ore resources through
exploration, define the appropriate processes that shall be undertaken, obtain environmental
licenses, concessions and other permits, build the necessary facilities and infrastructure for
greenfield projects and obtain the ore or extract the metals from the ore. If a project does
not turn out to be economically feasible by the time we are able to exploit it, we may incur
substantial write-offs.
Our expected costs for exploration or exploitation activities may vary significantly and
affect our expected results.
We may be subject to increased costs or delays relating to the acquisition of adequate
equipment for the exploration and exploitation of ore deposits. We may also fail to obtain any
necessary permits, or experience significant delays in connection with the issuance of such
permits. Adverse mining conditions, whether permanent or temporary, may lead to a significant
increase on our costs and/or affect our ability to produce the expected quantities of mineral.
All of the above may adversely affect our ability to conduct our mining activities as planned
and affect our expected results of operations.
Difficulties in the relationships with local communities may adversely affect our mining
activities.
Communities living near areas where we operate may take actions to oppose and interfere with
our mining activities. Although we make significant efforts to maintain good relationships
with such communities, actions taken by them may hamper our ability to conduct our mining
activities as planned, or significantly increase the cost of exploring and/or exploiting the
mines and adversely affect our business and results of operations.
14
Risks Relating to the Structure of the Company
As a holding company, the Companys ability to pay cash dividends depends on the results of
operations and financial condition of its subsidiaries and could be restricted by legal,
contractual or other limitations.
The Company conducts all its operations through subsidiaries. Dividends or other intercompany
transfers of funds from those subsidiaries are the Companys primary source of funds to pay
its expenses, debt service and dividends and to repurchase shares or ADSs. The Company does
not and will not conduct operations at the holding company level.
The ability of the Companys subsidiaries to pay dividends and make other payments to the
Company will depend on their results of operations and financial condition and could be
restricted by, among other things, applicable corporate and other laws and regulations,
including those imposing foreign exchange controls, and agreements and commitments of such
subsidiaries. If earnings and cash flows of the Companys operating subsidiaries are
substantially reduced, the Company may not be in a position to meet its operational needs or
to pay dividends. In addition, the Companys ability to pay dividends is subject to legal and
other requirements and restrictions in effect at the holding company level. For example, the
Company may only pay dividends out of net profits, retained earnings and distributable
reserves and premiums, each as defined and calculated in accordance with Luxembourg laws and
regulations.
The Companys controlling shareholder may be able to take actions that do not reflect the will
or best interests of other shareholders.
As of March 31, 2010, San Faustín beneficially owned 60.64% and Tenaris, which is also
controlled by San Faustín, held 11.46% of our outstanding voting stock. Rocca & Partners
controls a significant portion of the voting power of San Faustín and has the ability to
influence matters affecting, or submitted to a vote of, the shareholders of San Faustín. As a
result, Rocca & Partners is indirectly able to elect a substantial majority of the members of
the Companys board of directors and has the power to determine the outcome of most actions
requiring shareholder approval, including, subject to the requirements of Luxembourg law, the
payment of dividends. The decisions of the controlling shareholder may not reflect the will or
best interests of other shareholders. For example, the Companys articles of association
permit the board of directors to waive, limit or suppress preemptive rights in certain cases.
Accordingly, our controlling shareholder may cause our board of directors to approve an
issuance of shares for consideration without preemptive rights, thereby diluting the minority
interest in the Company. See Risk FactorsRisks Relating to our ADSsHolders of our shares
and ADSs in the United States may not be able to exercise preemptive rights in certain cases.
Remaining minority interests in Siderar could delay or impede our ability to complete our
strategy.
We do not own one hundred percent of the interests in certain of our subsidiaries. As of March
31, 2010, approximately 25.97% of Siderar was held by the Administración Nacional de la
Seguridad Social (ANSeS), Argentinas governmental social security agency, approximately
9.71% was publicly held, and approximately 3.38% was held by certain Siderar employees. ANSeS
became a shareholder of Siderar in the last quarter of 2008 as a result of the nationalization
of Argentinas private pension system, which caused assets under administration of Argentinas
private pension fundsincluding significant interests in publicly traded companies, such as
Siderar, held by such fundsto be transferred to ANSeS.
The existence of a minority interest in Siderar could prevent Ternium from taking actions
that, while beneficial to the Company, might not be beneficial to Siderar considered
separately. As a result, we could be delayed or impeded in the full implementation of our
strategy or the maximization of Terniums competitive strengths.
The Companys tax-exempt status will terminate on December 31, 2010. If we are unable to
mitigate the consequences of the termination of the preferential tax regime applicable to the
Company, in the future we may be subject to a higher tax burden and holders of our shares or
ADSs may be subject to tax withholdings.
The Company was established as a société anonyme holding under Luxembourgs 1929 holding
company regime and the billionaire provisions relating thereto. 1929 holding companies are
exempt from Luxembourg corporate income tax over income derived from low tax jurisdictions and
withholding tax over dividends distributions to holders of our
shares and ADSs. Following a decision by the European Commission, the Grand-Duchy of
Luxembourg terminated its 1929 holding company regime, effective January 1, 2007. However,
under the implementing legislation, pre-existing publicly-listed companiesincluding the
Companyare entitled to continue benefiting from their current tax regime until December 31,
2010. If we are unable to mitigate the consequences of the termination of the preferential tax
regime, in the future we may be subject to a higher tax burden and holders of our shares or
ADSs may be subject to tax withholdings.
15
Risks Relating to the Countries in Which We Operate
Negative economic, political and regulatory developments in certain markets where Ternium has
a significant portion of its operations and assets could hurt Terniums financial condition,
shipments and prices and disrupt its manufacturing operations, thereby adversely affecting its
results of operations and financial condition.
The results of Terniums operations are subject to the risks of doing business in emerging
markets, principally in Mexico and Argentina, and have been, and could in the future be,
affected from time to time to varying degrees by political developments, events, laws and
regulations, such as forced divestiture of assets; restrictions on production, imports and
exports; interruptions to essential energy inputs; exchange and/or transfer restrictions;
inflation; devaluation; war or other international conflicts; civil unrest and local security
concerns that threaten the safe operation of company facilities; direct and indirect price
controls; tax increases; changes in interpretation or application of tax laws and other
retroactive tax claims or challenges; expropriation of property; changes in laws or
regulations; cancellation of contractual rights; delays or denial of governmental approvals;
and environmental regulations. Both the likelihood of such occurrences and their overall
effect upon Ternium vary greatly from country to country and are not predictable. Realization
of these risks could have an adverse impact on the results of operations and financial
condition of Terniums subsidiaries located in the affected country.
Mexico
Ternium has significant manufacturing operations and assets located in Mexico and a majority
of its sales are made in Mexico. Terniums main revenues derive from its Mexican operations,
therefore, are related to market conditions in Mexico and to changes in its GDP and per capita
disposable income. Terniums business could be materially and adversely affected by economic,
political and regulatory developments in Mexico.
Economic and social conditions and government policies in Mexico could negatively impact
Terniums business and results of operations.
In the past, Mexico has experienced several periods of slow or negative economic growth, high
inflation, high interest rates, currency devaluation and other economic problems. Furthermore,
the Mexican national economy tends to reflect changes in the economic environment in the
United States. If problems such as the recent deterioration in Mexicos economic conditions
continue, or social instability, political unrest, reduction in government spending or other
adverse social developments reemerge in the future, they could lead to continued volatility in
the foreign exchange and financial markets, and, depending on their severity and duration,
could adversely affect the business, results of operations, financial condition or liquidity
of Ternium. In addition, high incidences of violence and crime in Mexico related to drug
trafficking could result in an economic slowdown, reducing domestic demand for our products
and thereby having an adverse effect on our business. A continued deterioration of the
security situation may result in significant obstacles or additional costs to the
implementation of our growth plans in Mexico.
Mexican peso volatility could have a negative impact on Terniums financial condition.
Ternium could have, at any given time, a long or short net Mexican peso financial position.
The fluctuation of the Mexican peso against the U.S. dollar (whether an appreciation or a
devaluation) could result in financial losses. For example, most of Ternium Mexicos trade
receivables are Mexican peso-denominated; accordingly, in the event of a Mexican peso
devaluation, the financial condition of our Mexican operations, when measured in U.S. dollars,
could be adversely affected.
16
Changes in the Mexican tax system could have an adverse effect on Terniums Mexican
operations.
On September 14, 2007, the Mexican Congress passed a tax reform act, which created a new flat
tax (the impuesto empresarial a tasa única or IETU) and, effective January 1, 2008, replaced
the Mexican assets tax (the impuesto al
activo or IMPAC). The act also established certain temporary and operational limits for the
recoverability of assets tax credits. The IETU works as a corporate income tax supplement and
is levied on income received. Ternium Mexico consolidates its various subsidiaries for
purposes of determination and payment of Mexican corporate income tax. However, consolidation
was not permitted for purposes of determination and payment of the new flat tax, nor was it
possible to apply corporate income tax credits against IETU liabilities.
Additionally, on November 5, 2009, the Mexican Congress passed a tax reform modifying the
Income Tax Law. As a result, the statutory tax rate was raised from 28% to 30% for the years
2010, 2011 and 2012, and subsequently reduced to 29% for 2013 and to 28% for 2014. The tax
consolidation regime was also modified. According to such changes and effective for the fiscal
years ending after January 1, 2010, the tax deferred in the sixth preceding fiscal year under
the tax consolidation regime has to be paid in five annual installments of 25%, 25%, 20%, 15%,
and 15%, respectively, with the first installment being due in 2010.
Present and future changes in the Mexican tax system may affect our Mexican subsidiaries tax
burden and the application or recoverability of tax credits, thereby affecting our financial
condition and results of operations.
Argentina
Ternium has significant manufacturing operations and assets located in Argentina and a
significant portion of its sales are made in Argentina. Terniums main revenues from its
Argentine operations, therefore, are related to market conditions in Argentina and to changes
in Argentinas gross domestic product, or GDP, and per capita disposable income. Accordingly,
Terniums business could be materially and adversely affected by economic, political, fiscal
and regulatory developments in Argentina.
Economic and political instability, which resulted in a severe recession in 2002, may occur in
the future, thereby adversely affecting our business, financial condition and results.
Our business and results of operations in Argentina have closely followed macroeconomic
conditions. Domestic sales of our Argentine subsidiary were severely affected by Argentinas
recession during 2001 and 2002. The domestic economic recovery over the 2003 2008 period,
with sustained growth in construction, agriculture, industrial activity and particularly a
significant improvement in the automobile industry, led to a recovery of steel shipments to
the Argentine domestic market. During the last quarter of 2008, however, the downturn in the
global economy reached the Argentine economy and had a significant adverse impact on our
shipments to the Argentine domestic market until the third quarter of 2009. The Argentine
economy is currently facing significant challenges. Inflation is high, as further discussed
below, and the economy has been affected by supply constraints. Capital investment in general
has lagged due to, among other factors, political uncertainties and government actions
including price controls, export taxes, the nationalization of Argentinas private pension
system, and other measures limiting the conduct of business in the private sector or affecting
investor confidence. Declining capital investment may affect growth and, accordingly, cause
the demand for our local subsidiarys products in the domestic market to drop. A lack of
financing alternatives could significantly impair Argentinas ability to sustain the economys
activity level, foster economic growth and/or avert a new sovereign default.
Economic conditions in Argentina have deteriorated rapidly in the past and may deteriorate
rapidly in the future. The Argentine economy may not continue to grow and economic instability
may return. Our business and results of operations in Argentina could be adversely affected by
rapidly changing economic conditions in Argentina or by the Argentine governments policy
response to such conditions.
Inflation may undermine economic growth in Argentina, thereby adversely affecting our results
of operations and financial position.
In the past, inflation has undermined the Argentine economy and the governments ability to
stimulate economic growth. During 2002, the Argentine Consumer Price Index (CPI) increased
by 41%, and the Wholesale Price Index (WPI) increased by 118.2%. According to official
inflation data published by the Instituto Nacional de Estadística y Censos (INDEC),
Argentinas national statistics institute, inflation slowed in 2003, with a 3.7% increase in
the CPI and a 2% increase in the WPI. Beginning in 2004, both indexes began showing
significant year-over-year increases in local prices, signaling a trend characteristic of an
inflationary economy. The pace of inflation has increased rapidly and significantly over the
last three years; however, Argentinas inflation indicators have been subject to changes in
calculation and may not be consistent with the past or may not adequately reflect increases in
costs. Moreover, since
such changes were implemented and as of the date of this annual report, the official inflation
figures published by the INDEC have been consistently disputed by independent economists.
17
Sustained inflation in Argentina could negatively impact our results of operations and
financial position as the Argentine peso-denominated costs (mainly labor-related costs) at our
Argentine subsidiary increase, thereby affecting its cost-competitiveness and deteriorating
its margins. In addition, a high inflation economy could negatively affect the economys
activity and employment levels. Uncertainty about future inflation may contribute to slow the
economic activity level by reducing the economys growth. Argentine inflation rate volatility
makes it impossible to estimate with reasonable certainty the extent to which activity levels
and results of operations of our Argentine subsidiary could be affected by inflation in the
future.
The Argentine Central Bank has imposed restrictions on the transfer of funds outside of
Argentina and other exchange controls in the past and may do so in the future, which could
prevent Ternium from paying dividends or other amounts from cash generated by its Argentine
operations.
In 2001 and 2002 and until February 7, 2003, the Argentine Central Bank restricted Argentine
individuals and corporations from transferring U.S. dollars abroad without its prior approval.
In 2003 and 2004, the government reduced some of these restrictions, including those requiring
the Argentine Central Banks prior authorization for the transfer of funds abroad in order to
pay principal and interest on debt obligations. Nevertheless, significant government controls
and restrictions remain in place. Increasingly during 2008 and into 2009, the Argentine
government imposed new restrictions on foreign exchange outflows, including through certain
transactions on securities traded locally. The existing controls and restrictions, and any
additional restrictions of this kind that may be imposed in the future, could impair Terniums
ability to transfer funds generated by Terniums Argentine operations in U.S. dollars outside
Argentina to fund the payment of dividends or other amounts and to undertake investments and
other activities that require payments in U.S. dollars.
On June 10, 2005, the Argentine government issued Decree No. 616/2005 that, together with
related regulations, established restrictions on capital inflows into Argentina, requiring
that, with certain exceptions, 30% of the amount of off-shore proceeds be deposited in a
non-transferable, non-interest bearing account with an Argentine bank for 365 days. In
addition, any principal payment obligation on external financial debtexcluding, subject to
compliance with certain requirements, export financings and debt securities publicly traded in
Argentinaof Argentine residents (including private Argentine entities) is required to have a
maturity of at least 365 days from the date of receipt of the proceeds thereof. These
restrictions could affect Terniums ability to finance its investments and operations in
Argentina. In addition, our Argentine subsidiary is currently required to repatriate U.S.
dollars collected in connection with exports from Argentina (including U.S. dollars obtained
through advance payment and pre-financing facilities) into Argentina and convert them into
Argentine pesos at the relevant exchange rate applicable on the date of repatriation. In
October 2008, the time periods for the repatriation of export revenues credited in foreign
currency overseas were, in practice, substantially shortened.
The above restrictions and requirements, and any additional restrictions or requirements that
may be imposed in the future, expose Ternium to the risk of losses arising from fluctuations
in the exchange rate of the Argentine peso and could prevent Ternium from paying dividends or
other amounts from cash generated by its Argentine operations. For additional information on
current Argentine exchange controls and restrictions, see Item 10. Additional InformationD.
Exchange Controls.
The Argentine government has increased taxes on Argentine companies and could further increase
the fiscal burden in the future.
Since 1992, the Argentine government has not permitted the application of an inflation
adjustment on the value of fixed assets for tax purposes. Since the substantial devaluation of
the Argentine peso in 2002, the amounts that the Argentine tax authorities permit Ternium to
deduct as depreciation for its past investments in plant, property and equipment have been
substantially reduced, resulting in a higher effective income tax charge. Additionally, in
2001, the Argentine government imposed a 0.6% tax on credits in checking accounts (34% of
which is paid on account of income tax payments) and a 0.6% tax on debits in checking
accounts, while in 2002 a 5% tax was imposed on the export of manufactured products. If the
Argentine government continues to increase the tax burden on Terniums operations in
Argentina, Terniums results of operations and financial condition could be adversely
affected.
18
Restrictions on the supply of energy to Terniums operations in Argentina could curtail
Terniums production and negatively impact Terniums results of operations.
There has been a lack of investment in natural gas and electricity supply and transport
capacity in Argentina in recent years. Over the course of the last several years, demand for
natural gas and electricity has increased substantially, driven by a recovery in economic
conditions and low prices in comparison with alternative fuel sources. This in turn resulted
in shortages of natural gas and electricity to residential and industrial users during periods
of high demand. For example, in recent years our operations in Argentina experienced
constraints in their natural gas supply requirements and interruptions in their electricity
supply at peak hours on many occasions. If demand for natural gas and electricity increases
and a matching increase in natural gas and electricity supply and transport capacity fails to
materialize on a timely basis, Terniums production in Argentina (or that of its main
customers and suppliers) could be curtailed, and Terniums sales and revenues could decline.
Although Ternium could take measures, such as the purchase of alternative fuels such as fuel
oil, to limit the effect of supply restrictions on its operations in Argentina, such efforts
might not be sufficient to avoid any impact on Terniums production in Argentina and Ternium
might not be able to similarly limit the effect of future supply restrictions. See Risks
Relating to the Steel IndustryPrice fluctuations or shortages in the supply of raw materials,
slabs and energy could adversely affect Terniums profitability above.
Certain Regulatory Risks and Litigation Risks
International trade actions or regulations and trade-related legal proceedings could adversely
affect Terniums sales, revenues and overall business.
International trade-related legal actions and restrictions pose a constant risk for Terniums
international operations and sales throughout the world. Additionally, increased global trade
liberalization, with many countries forming free trade blocs or otherwise reducing
restrictions on imported goods, including steel products, and excess global steel capacity
have increased competition in many markets in which Ternium sells its products. Such risks and
increased competition are likely to continue into the foreseeable future. Also, we are a
significant purchaser of slabs for our operations in Mexico, which we buy from various
suppliers in Mexico and overseas. Imports of slabs into Mexico are, subject to certain
conditions, imported under lower import duties or through a temporary import regime. Should
imports of slabs into Mexico grow, we may not be able to make such imports under the lower
duty regime, or the Mexican government may increase the applicable duties or impose
restrictions in the quantities allowed to be imported.
Increased trade liberalization has reduced certain of Terniums imported input costs and
increased Terniums access to many foreign markets. However, greater trade liberalization in
its domestic markets is increasing competition for Ternium in such markets. In recent times,
as a consequence of the global downturn, the number of antidumping and countervailing actions
limiting trade has increased substantially. Accordingly, producers from certain countries find
themselves excluded from certain markets and in need to find alternatives for their products.
Terniums domestic market share could be eroded in the face of foreign imports if tariffs and
other barriers are reduced or eliminated in Terniums domestic markets. Terniums increased
exports to foreign markets where import barriers have been reduced may not completely offset
domestic market share losses resulting from increased foreign competition.
Countries can impose restrictive import duties and other restrictions on imports under various
national trade laws. The timing and nature of the imposition of trade-related restrictions
potentially affecting Terniums exports are unpredictable. Trade restrictions on Terniums
exports could adversely affect Terniums ability to sell products abroad and, as a result,
Terniums profit margins, financial condition and overall business could suffer.
One significant source of trade restrictions results from countries imposition of so-called
antidumping and countervailing duties, as well as safeguard measures. These duties can
severely limit or altogether impede an exporters ability to export to relevant markets. In
several of Terniums export destinations, such as the United States or Europe, safeguard
duties and other protective measures have been imposed against a broad array of steel imports
in certain periods of excess global production capacity, as is currently the case.
Furthermore, certain domestic producers have filed antidumping and/or countervailing duty
actions against particular steel imports. Some of these actions have led to restrictions on
Terniums exports of certain types of steel products to some steel markets. As domestic
producers filing of such actions is largely unpredictable, additional antidumping,
countervailing duty or other such import restrictions could be imposed in the future, limiting
Terniums export sales to and potential growth in those markets. See Item 4. Information on
the CompanyB. Business OverviewRegulationsTrade regulations.
19
The cost of complying with environmental regulations and potential environmental and product
liabilities may increase our operating costs and negatively impact our business, financial
condition, results of operations and prospects.
We are subject to a wide range of local, provincial and national laws, regulations, permit
requirements and decrees relating to the protection of human health and the environment,
including laws and regulations relating to hazardous materials and radioactive materials and
environmental protection governing air emissions, water discharges and waste management. Laws
and regulations protecting the environment have become increasingly complex and more stringent
and expensive to implement in recent years. International environmental requirements vary.
Environmental laws and regulations may, in some cases, impose strict liability rendering a
person liable for damages to natural resources or threats to public health and safety without
regard to negligence or fault. Some environmental laws provide for joint and several strict
liability for remediation of spills and releases of hazardous substances. These laws and
regulations may expose us to liability for the conduct of or conditions caused by others or
for acts that were in compliance with all applicable laws at the time they were performed.
Compliance with applicable requirements and the adoption of new requirements could have a
material adverse effect on our consolidated statement of financial position, results of
operations or cash flows. The ultimate impact of complying with environmental laws and
regulations is not always clearly known or determinable since regulations under some of these
laws have not yet been promulgated or are undergoing revision. The expenditures necessary to
remain in compliance with these laws and regulations, including site or other remediation
costs, or costs incurred from potential environmental liabilities, could have a material
adverse effect on our financial condition and profitability. While we incur and will continue
to incur expenditures to comply with applicable laws and regulations, there always remains a
risk that environmental incidents or accidents may occur that may negatively affect our
reputation or our operations.
Some of the activities for which Ternium supplies products, such as canning for consumption,
construction and the automotive industry are subject to inherent risks that could result in
death, personal injury, property damage or environmental pollution. Furthermore, Terniums
products are also sold to, and used in, certain safety-critical appliances. Actual or claimed
defects in our products may give rise to claims against us for losses suffered by our
customers and expose us to claims for damages. The insurance we maintain may not be adequate
or available to protect us in the event of a claim, its coverage may be limited, canceled or
otherwise terminated, or the amount of our insurance may be less than the related impact on
enterprise value after a loss.
Risks Relating to our ADSs
The market price for our ADSs could be highly volatile.
Volatility in the price of our ADSs may be caused by factors outside of our control and may be
unrelated or disproportionate to Terniums operating results. In particular, announcements of
potentially adverse developments, such as proposed regulatory changes, new government
investigations or the commencement or threat of litigation against Ternium, as well as
announced changes in Terniums business plans or those of its competitors could adversely
affect the trading price of our ADSs, regardless of the likely outcome of those developments
or proceedings. Broad market and industry factors could adversely affect the market price of
our ADSs, regardless of its actual operating performance. As an example of this volatility,
the price of our ADSs reached USD45.99 on June 6, 2008, before falling to USD4.55 on
November 20, 2008, and then recovering to a closing price of USD35.42 on December 31, 2009.
Furthermore, the trading price of our ADSs could suffer as a result of developments in
emerging markets. Although the Company is organized as a Luxembourg corporation, almost all of
its assets and operations are located in Latin America. Financial and securities markets for
companies with a substantial portion of their assets and operations in Latin America are, to
varying degrees, influenced by political, economic and market conditions in emerging market
countries. Although market conditions are different in each country, investor reaction to
developments in one country can have significant effects on the securities of issuers with
assets or operations in other emerging markets, including Mexico and Argentina.
20
In deciding whether to purchase, hold or sell our ADSs, you may not be able to access as much
information about us as you would in the case of a U.S. company.
There may be less publicly available information about us than is regularly published by or
about U.S. issuers. Also, Luxembourg regulations governing the securities of Luxembourg
companies may not be as extensive as those in effect in the United States, and Luxembourg law
and regulations in respect of corporate governance matters might not be as protective of
minority shareholders as state corporation laws in the United States. Furthermore, IFRS differ
in certain material aspects from the accounting standards used in the United States.
Holders of our ADSs may not be able to exercise, or may encounter difficulties in the exercise
of, certain rights afforded to shareholders.
Certain shareholders rights under Luxembourg law, including the right to vote, to receive
dividends and distributions, to bring actions, to examine the books and records and to
exercise appraisal rights may not be available to holders of ADSs, or may be subject to
restrictions and special procedures for their exercise, as holders of ADSs only have those
rights that are expressly granted to them in the deposit agreement. The Bank of New York
Mellon, as depositary, through its custodian agent, is the registered shareholder of the
deposited shares underlying the ADSs and therefore only the depositary can exercise the
shareholders rights in connection with the deposited shares. For example, if we make a
distribution in the form of securities, the depositary is allowed, at its discretion, to sell
that right to acquire those securities on your behalf and to instead distribute the net
proceeds to you. Also, under certain circumstances, such as our failure to provide the
depositary with voting materials on a timely basis, you may not be able to vote by giving
instructions to the depositary. In the circumstances specified in the deposit agreement, if
the depositary does not receive voting instructions from the holder of ADSs or the
instructions are not in proper form, then the depositary shall deem such holder to have
instructed the depositary to give, and the depositary shall give, a proxy to a person
designated by the Company with respect to that amount of shares underlying such ADSs to vote
that amount of shares underlying such ADSs in favor of any proposals or recommendations of the
Company (including any recommendation by the Company to vote that amount of shares underlying
such ADSs on any issue in accordance with the majority shareholders vote on that issue) as
determined by the appointed proxy. No instruction shall be deemed given and no proxy shall be
given with respect to any matter as to which the Company informs the depositary that (x) it
does not wish such proxy given, (y) substantial opposition exists, or (z) the matter
materially and adversely affects the rights of the holders of ADSs.
Holders of our shares and ADSs in the United States may not be able to exercise preemptive
rights in certain cases.
Pursuant to Luxembourg corporate law, existing shareholders of the Company are generally
entitled to preemptive subscription rights in the event of capital increases and issues of
shares against cash contributions. Under the Companys articles of association, the board of
directors had been authorized to waive, limit or suppress such preemptive subscription rights
until October 26, 2010; such authorization was renewed in the Extraordinary General Meeting of
Shareholders held on June 2, 2010 and is in force until the fifth anniversary of the date of
publication in Luxembourgs official gazette of the deed recording the minutes of the meeting.
The Company, however, may issue shares without preemptive rights only if the newly issued
shares are issued:
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for, within, in conjunction with or related to, an initial public offering of the
shares of the Company on one or more regulated markets (in one or more instances); |
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for consideration other than cash; |
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upon conversion of convertible bonds or other instruments convertible into shares
of the Company; provided, however, that the preemptive subscription rights of the then
existing shareholders shall apply in connection with any issuance of convertible bonds or
other instruments convertible into shares of the Company for cash; or |
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subject to a certain maximum percentage, as compensation to directors, officers,
agents or employees of the Company, its direct or indirect subsidiaries or its
affiliates, including without limitation the direct issuance of shares or the issuance of
shares upon exercise of options, rights convertible into shares or similar instruments
convertible or exchangeable into shares issued or created to provide compensation or
incentives to directors, officers, agents or employees of the Company, its direct or
indirect subsidiaries or its affiliates. |
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For further details, see Item 10. Additional InformationB. Memorandum and Articles of
Association.
Furthermore, holders of our shares and ADSs in the United States may, in any event, not be
able to exercise any preemptive rights, if granted, for shares unless those shares are
registered under the U.S. Securities Act of 1933, as amended (the Securities Act) with
respect to those rights or an exemption from registration is available. We intend to evaluate,
at the time of any rights offering, the costs and potential liabilities associated with the
exercise by holders of shares and ADSs of the preemptive rights for shares, and any other
factors we consider appropriate at the time, and then to make a decision as to whether to
register additional shares. We may decide not to register any additional shares, requiring a
sale by the depositary of the holders rights and a distribution of the proceeds thereof.
Should the depositary not be permitted or otherwise be unable to sell preemptive rights, the
rights may be allowed to lapse with no consideration to be received by the holders of the
ADSs.
It may be difficult to obtain or enforce judgments against the Company in U.S. courts or
courts outside of the United States.
The Company is a corporation organized under the laws of Luxembourg, and most of its assets
are located outside of the United States. Furthermore, most of the Companys directors and
officers named in this annual report reside outside the United States. As a result, investors
may not be able to effect service of process within the United States upon the Company or its
directors or officers or to enforce against the Company or them in U.S. courts judgments
predicated upon the civil liability provisions of U.S. federal securities law. Likewise, it
may be difficult for a U.S. investor to bring an original action in a Luxembourg court
predicated upon the civil liability provisions of the U.S. federal securities laws against the
Company, its directors or its officers. There is also uncertainty with regard to the
enforceability of original actions in courts outside the United States of civil liabilities
predicated upon the civil liability provisions of U.S. federal securities laws. Furthermore,
the enforceability in courts outside the United States of judgments entered by U.S. courts
predicated upon the civil liability provisions of U.S. federal securities law will be subject
to compliance with procedural requirements under applicable local law, including the condition
that the judgment does not violate the public policy of the applicable jurisdiction.
Item 4. Information on the Company
Overview
Ternium is a leading steel company in Latin America, manufacturing and processing a wide range of
flat and long steel products for customers active in the construction, home appliances, capital
goods, container, food, energy and automotive industries. Ternium has a production capacity of
finished steel products of approximately 9.6 million tons per year, and shipped approximately 6.4
million tons of steel products in 2009. The Company believes that it is a competitive steel
producer due to its proximity to customers and high-quality raw material sources, state-of-the-art
and flexible production facilities and downstream integration into value-added steel products.
Ternium produces and distributes a broad range of finished and semi-finished steel products,
including value-added steel products such as cold-rolled coils and sheets, galvanized and
electrogalvanized sheets, pre-painted sheets, tin plate, welded pipes, hot-rolled pickled and
annealed and tailor-made flat products. Ternium also produces long steel products such as bars and
wire rod.
Ternium primarily sells its flat and long steel products in the regional markets of the Americas.
Ternium provides specialized products and delivery services, mainly to customers in Mexico and
Argentina, through its network of manufacturing facilities and service centers. We believe that
Ternium is the leading supplier of flat steel products in Mexico, the leading supplier of flat
steel products in Argentina, and a competitive player in the international steel market for flat
and long steel products. Through its network of commercial offices in several countries in Latin
America, the United States and Spain, Ternium maintains an international presence that allows it to
reach customers outside its local markets, achieve improved effectiveness in the supply of its
products and in the procurement of semi-finished steel, and maintain a fluid commercial
relationship with its customers by providing continuous services and assistance.
In 2009, approximately 60.0% of Terniums sales were made to North America, 35.9% to South and
Central America, and 4.0% to Europe and other markets. Terniums net sales were USD5.0 billion,
gross profit was USD848.6 million, and net income attributable to equity holders was USD717.4
million.
22
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History and Development of the Company |
The Company
Our legal and commercial name is Ternium S.A. The Company was organized as a joint stock
corporation (societé anonyme holding) under the laws of the Grand-Duchy of Luxembourg on
December 22, 2003. Our registered office is located at 46a, Avenue John F. Kennedy, L-1855
Luxembourg, telephone number +352 26 68 31 52. Our agent for U.S. federal securities law
purposes is Ternium International U.S.A. Corporation, located at 2200 West Loop South, 8th
floor, Houston, TX 77027, United States.
Ternium
Terniums origins began in September 1961 with the founding of Propulsora Siderúrgica, or
Propulsora, by San Faustíns predecessor in Argentina. Propulsora began its operations as a
producer of cold-rolled coils in December 1969 and in the early 1990s began to evolve through
a series of strategic investments aimed at transforming Propulsora into an integrated steel
producer. In 1993, Propulsora merged with Aceros Parana (a company formed by the Argentine
government in connection with the privatization of Somisa, at that time the main integrated
producer of flat steel in Argentina), Aceros Paranas subsidiary Sidercrom, a tin plate
processing company, and two other steel industry subsidiaries of Propulsora (Aceros Revestidos
and Bernal). After the merger, Propulsora changed its name to Siderar S.A.I.C. San Faustín
held a controlling interest in Siderar, with the remainder being held mainly by Usiminas,
certain former employees of Somisa, and the public.
In December 1997, Amazonia (a consortium formed by San Faustín, Siderar, Usiminas, Hylsamex
and Sivensa) won the bid in the privatization of 70% of the shares of Sidor, the largest steel
company in the Andean Community, while Venezuela retained the remaining 30%. The continuing
worldwide steel production crisis, the deterioration of the financial markets, the
appreciation of the Venezuelan Bolívar and other adverse factors negatively affected Sidor and
Amazonia, which undertook debt restructurings in 2000 and 2003. In the 2003 restructuring,
Amazonias interest in Sidor was reduced to 59.7%, while Venezuela increased its interest to
40.3%. In addition, Ylopa (an entity formed by San Faustín, Siderar, Tenaris, Usiminas and
Hylsamexs former controlling shareholder) provided financial assistance to Sidor under a
participation account agreement. Subsequently, Venezuela transferred a 19.9% interest in Sidor
to present and former employees of Sidor under the terms of a special employee participation
plan.
As a part of a multiple-step corporate reorganization in 2005, San Faustín reorganized its
investments in flat and long steel manufacturing, processing and distribution businesses by
contributing its controlling interests in Siderar, Sidor (through Amazonia and Ylopa) and
Ternium Internacional to the Company. On August 22, 2005, we acquired, together with Siderar,
an indirect 99.3% interest in the Mexican company Hylsamex and its subsidiaries and the equity
stakes owned by Hylsamexs former controlling shareholder, Alfa, S.A. de C.V., in Amazonia and
Ylopa. We subsequently purchased additional shares of Hylsamex in the open market, subject to
applicable law, thereby increasing our and Siderars direct and indirect interest in Hylsamex
to 99.9%. In 2005, each of Tenaris and Usiminas exchanged its interests in Amazonia, Ylopa
and, in the case of Usiminas, Siderar for shares of the Company, and Sivensa exchanged its
interest in Amazonia for shares of the Company.
On January 11, 2006, the Company launched an initial public offering of 24,844,720 American
Depositary Shares, each representing 10 shares of the Company (each an ADS), in the United
States. In connection with the offering, the Company granted the underwriters of the Companys
initial public offering an option to purchase up to 3,726,708 additional ADSs to cover
over-allotments in the sale of the ADSs. The offering was settled on February 6, 2006.
On December 28, 2006, we acquired an additional 4.85% interest in Siderar from CVRD
Internacional S.A., a wholly-owned subsidiary of Vale, thereby increasing our ownership in
Siderar to 60.93%.
On April 29, 2007, the Company entered into an agreement with Grupo Imsa and Grupo Imsas
controlling shareholders pursuant to which Grupo Imsa came under our control on July 26, 2007.
Under the agreement, the Company, through a wholly owned subsidiary, made a cash tender offer
under applicable Mexican law for all of the issued and outstanding share capital of Grupo
Imsa. Pursuant to the tender offer, we acquired 25,133,856 shares representing 9.3% of the
issued and outstanding capital of Grupo Imsa. Concurrently with the consummation of the tender
offer, on July 26, 2007, all the shares of Grupo Imsa that were not tendered into the tender
offer (including the shares owned by Grupo Imsas majority shareholders), representing 90.7%
of Grupo Imsas issued and outstanding
share capital, were redeemed for cash pursuant to a capital reduction effected at the same
price per share. Following this capital reduction, we became the sole shareholder of Grupo
Imsa.
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In 2007, Grupo Imsa was renamed Ternium Mexico and, effective March 31, 2008, Hylsamex merged
with and into Ternium Mexico. In connection with this merger, Siderar became a shareholder of
Ternium Mexico with a 28.7% interest.
Sidor Nationalization Process
On March 31, 2008, the Company controlled approximately 59.7% of Sidor, while CVG 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 region in Venezuela (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 Venezuela owning not
less than 60% of their share capital. The Decree required the Venezuelan government to create
two committees: a transition committee to be incorporated into Sidors management and to
ensure that control over the 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
would assume control and exclusive operation of, and the Executive Branch would order the
expropriation of the shares of, the relevant companies.
Upon expiration of the term contemplated under the Decree, on July 12, 2008, Venezuela, acting
through CVG, assumed operational control and complete responsibility for Sidors operations,
and Sidors 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, Ternium completed the transfer of its entire 59.7% interest in Sidor to
CVG. Ternium agreed to receive an aggregate amount of USD1.97 billion as compensation for
its Sidor shares. Of that amount, CVG paid USD400 million in cash on that date. The balance
was divided in two tranches: the first tranche, of USD945 million, payable in six equal
quarterly installments (the first such installment was due on August 7, 2009, and the last of
such installments will be due in November 2010), while the second tranche of USD626 million
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. As of the date of this annual
report, CVG has paid USD1.51 billion and the outstanding principal is USD458 million. While
the first, second and fourth installments were paid upon maturity, the third installment
payment, due on February 8, 2010, had a twenty-three day delay, and was finally paid on March
3, 2010. Under the agreements with CVG and Venezuela, in the event of non-compliance by CVG
with its payment obligations, Ternium 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 Ternium may not claim an amount exceeding the
outstanding balance due from CVG. For more information on the Sidor nationalization process,
see note 29 to our audited consolidated financial statements included elsewhere in this annual
report.
24
2010 Events
Ternium has recently entered into a definitive agreement to acquire a 54% ownership interest
in Ferrasa through a capital contribution in the amount of USD74.5 million. Upon completion of
this transaction, Ferrasa will have a 100% ownership interest in Sidecaldas S.A.S.,
Figuraciones S.A.S. and Perfilamos del Cauca S.A.S., all of which are
Colombian-based companies. The transaction is subject to Colombian antitrust clearance and
other customary conditions and is expected to close in the third quarter of 2010. Ternium also
has agreed to purchase a 54% ownership interest in Ferrasa Panamá S.A. for USD0.5 million.
Additionally, Ternium has signed a non-binding memorandum of understanding with Nippon Steel
Corporation with the intention of forming a joint venture in Mexico for the manufacturing and
sale of hot-dip galvanized and galvannealed steel sheets to serve the Mexican automobile
market. The two companies will now maintain exclusive negotiations towards a binding joint
venture agreement, which shall be subject to final documentation, due diligence, feasibility
studies, agreement on other issues, and regulatory and corporate approvals.
For more information on these developments, see Item 5. Operating and Financial Review and
ProspectsG. Recent Developments.
Our Business Strategy
Our main strategic objective is to enhance shareholder value by strengthening Terniums
position as a low cost producer of steel products, in a manner consistent with minority
shareholders rights, while further consolidating Terniums position as a leading flat and
long steel producer in Latin America and a strong competitor in the Americas with strategic
presence in other major steel markets.
The main elements of this strategy are:
Enhance Terniums position as a low cost steel producer. We are focused on improving
utilization levels of our plants, increasing efficiency and further reducing production costs
from levels that we already consider to be among the most competitive in the steel industry
through, among other measures, capital investments and further
integration of our facilities;
Pursue strategic growth opportunities. We have a history of strategically growing our
businesses through acquisitions and joint ventures. In addition to strongly pursuing organic
growth, we intend to identify and actively pursue growth-enhancing strategic opportunities to
consolidate Terniums presence in its main markets and expand it to the rest of Latin America,
gain further access to iron ore and other inputs, expand its offerings of value-added
products, increase its steel production, and increase its
distribution capabilities;
Maximize the benefits arising from Terniums broad distribution network. We intend to
maximize the benefits arising from Terniums broad network of distribution, sales and
marketing services to reach customers in major steel markets with a comprehensive range of
value-added products and services and to continue to expand its customer base and improve its
product mix;
Focus on higher margin value-added products. We intend to continue to shift Terniums sales
mix towards higher margin value-added products, such as cold-rolled sheets and coated and
tailor-made products, and services, such as just-in-time delivery and inventory management. In
this regard, our Mexican acquisitions in 2005 and 2007 allowed Ternium to expand its offerings
of value-added products, such as galvanized products and panels;
and
Implementing Terniums best practices. We believe that the implementation of Terniums
managerial, commercial and production best practices in acquired new businesses should
generate additional benefits and savings. For example, the implementation of Terniums cost
control procedures and performance analysis in Hylsamex improved control over its production
variables and led to cost savings.
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Our Competitive Strengths
We believe that the following competitive strengths distinguish Ternium from its competitors
and enhance its leading market position:
State-of-the-art and flexible production system, low cost producer. The combination of a
portfolio of state-of-the-art, low cost steel production mills, access to diversified sources
of raw materials, including proprietary iron ore mines in Mexico, diversified technology base,
including blast furnace based, mini-mill based and non-integrated based steel
processing facilities, and cost-competitive labor sources makes Ternium a low-cost producer of
steel and a cost-competitive producer of value-added products;
Strong market position and extensive market reach. Ternium has a leading participation in
the market for flat steel products in Mexico and in Argentina. The location of its production
facilities gives Ternium favorable access to the most important regional markets in the
Americas, including the North American Free Trade Agreement, or NAFTA, and Mercado Común del
Sur, or Mercosur; and
Experienced and committed management team. Our management team has extensive experience in,
and knowledge of, the steel industry, which enhances Terniums reputation in the global steel
markets. A large percentage of our senior managers have spent their entire careers working
within the steel businesses of San Faustín and its affiliates. Our management team has
substantial experience in increasing productivity and reducing costs, as well as in
identifying, evaluating and pursuing growth opportunities and integrating acquisitions.
Our Products
The Ternium companies produce mainly finished and semi-finished flat and long steel products
which are sold either directly to steel processors or to end-users, after different
value-adding processes. Flat steel products include slabs (steel in its basic, semi-finished
state), hot-rolled coils and sheets, cold-rolled coils and sheets, tin plate, hot dipped
galvanized and electrogalvanized sheets and pre-painted sheets. Galvanized and pre-painted
sheets can be further processed into a variety of corrugated sheets, trapezoidal sheets and
other tailor-made products to serve Terniums customer requirements. Long steel products
include billets (steel in its basic, semi-finished state), wire rod and bars.
Flat steel products
Slabs: Slabs are semi-finished steel forms with dimensions suitable for its processing into
hot-rolled flat products. The use of slabs is determined by its dimensions and by its chemical
and metallurgical characteristics.
Hot-rolled flat products: Hot-rolled flat products are used by a variety of industrial
consumers in applications such as the manufacturing of wheels, auto parts, pipes, gas
cylinders and containers. They are also directly used for the construction of buildings,
bridges and railroad cars, and for the chassis of trucks and automobiles. Hot-rolled products
can be supplied as coils or as sheets cut to a specific length. These products also serve as
inputs for the production of cold-rolled products.
Cold-rolled products: Cold-rolled products are applied mainly to the automotive, home
appliance and capital goods industries, as well as to galvanizers, drummers, distributors and
service centers. Cold-rolled coils are sold as coils or cut into sheets or blanks to meet
customers needs. These products also serve as inputs for the production of coated products.
Tin plate and tin free: Given its resistance to corrosion and its mechanical and chemical
characteristics, tin plate is mainly sold to the packaging industry for food canning, sprays
and paint containers. Tin plate and tin free are produced by coating cold-rolled coils with a
layer of tin and thin chrome, respectively, that is attached by an electroplating continuous
process.
Hot dipped galvanized and pre-painted sheets: Hot dipped galvanized sheets are produced by
adding a layer of zinc to cold-rolled coils, which are afterwards cut into sheets. Galvanized
sheets can also be pre-painted, resulting in a product that is mainly sold to the construction
industry for building coverings, manufacturing of ceiling systems, panels, air conditioning
ducts and several other uses. Ternium also offers, under the trademark Zintroalum in Mexico
and Cincalum in Argentina, a distinctive type of galvanized product with coating composition
that contains 55% aluminum-zinc to improve product performance for construction industry,
including rural, industrial and marine sites.
Electrogalvanized and pre-painted sheets: Electro-galvanized and pre-painted sheets are sold
mainly to customers in the automotive and home appliance industries. Electro-galvanized and
pre-painted sheets are produced from cold-rolled coils by adding a layer of zinc that is
attached by an electroplating continuous process, in one or both sides. The electro-galvanized
coils are subsequently cut and sold either as sheets or are further processed with a color
coating to produce pre-painted sheets. Electro-galvanization provides products with a longer
useful life and more resistance to corrosion compared to other coating methods.
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Steel pipes and tubular products: Products included are tubes for general use, structural
tubes, tubes for mechanical applications, conduction tubes, conduction electrical tubes and
oil tubes. These products, uncoated or galvanized, have applications in several sectors
including home accessories, furniture, scaffolding, automotive, bicycles, hospital equipment,
posts for wire mesh garden and poultry tools, handrails, guard-rails, agricultural machinery,
industrial equipment, conduction of water, air, gas, oil, high-pressure liquids and special
fluids and internal building electrical installations.
Beams: Obtained by roll forming of steel strips, include C and Z section steel profiles
(purlings) and tubular section beams, these products have applications in window frames,
stilts, mainstays, crossbeams, building structures, supports, guides and crossbars for
installing windows, doors, frames and boards.
Roll formed products: Products included are insultated panels, roofing and cladding, roof
tiles and steel decks. Obtained from the mechanical transformation of flat steel, uncoated,
galvanized or pre-painted, these products are used mainly in the construction industry in
warehouses, commercial and industrial refrigeration installations, grain storage, poultry and
porcine confinement facilities, roofing and side walls for buildings, and terraces and
mezzanine floorings.
Long steel products
Steel billets: Billets are semi-finished steel forms with dimensions suitable for its
processing into hot-rolled long steel products such as wire rod, bars and other shapes.
Wire rod: Rods are round, thin, semi-finished steel products that are rolled from a billet and
coiled for further processing. Rods are commonly drawn into wire products or used to make
bolts and nails. Wire rod can be produced in different qualities according to customers
demands.
Bars: Bars are long steel products that are rolled from billets. Two of the most common types
of bars produced are merchant bars and reinforcing bars (rebar). Merchant bars include
specific shape features such as rounds, flats, angles, squares and channels that are used by
customers to manufacture a wide variety of products such as furniture, stair railings and farm
equipment. Rebar is used to strengthen concrete highways, bridges and buildings.
Other products
Pre-engineered metal building systems: These products are obtained from the mechanical
transformation of flat steel. The steel construction systems are destined to low-rise,
non-residential buildings. Include frames, secondary steel members, roofs and walls panels, as
well as finishing and accessories.
Pig iron: A semifinished product obtained in the blast furnace, it is mostly used as metallic
charge in the steel shop for the production of crude steel and it is also marketed to other
steel producers and to manufactures of iron-based cast products.
Iron ore pellets: A raw material for the production of steel, it is mostly used as metallic
charge (after being reduced in DRI modules or blast furnaces) in the steel shop for the
production of crude steel and it is also marketed to other steel producers.
Within each of the basic product categories there is a range of different items of varying
qualities and prices that are produced either to meet the particular requirements of end users
or sold as commodity items.
Production Facilities and Processes
Ternium has steel production facilities, service centers and distribution centers, or DCs, in
North, Central and South America and iron ore mining operations in North America.
Terniums aggregate production capacity of steel products as of December 31, 2009, calculated
based on, as estimated by management, standard productivity, product mix allocations, the
maximum number of possible working shifts and a continued flow of supplies to the production
process, was approximately 10.0 million tons, of which 8.4 million tons correspond to flat
steel products and 1.6 million tons correspond to long steel products, and of which 7.2
million tons correspond to facilities located in North America and 2.8 million tons correspond
to facilities located in South and Central America.
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Steel production facilities, service centers and distribution centers
The assets described in this section are owned by Terniums operating subsidiaries. The
following table provides an overview, by type of asset, of Terniums production capacity:
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Coke Plant |
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|
|
|
|
|
|
1,030 |
|
|
|
|
|
|
|
1,030 |
|
Sinter Plant |
|
|
1 |
|
|
|
|
|
|
|
1,430 |
|
|
|
|
|
|
|
1,430 |
|
Direct Reduced Iron Plant |
|
|
3 |
|
|
|
2,690 |
|
|
|
|
|
|
|
|
|
|
|
2,690 |
|
Blast Furnace |
|
|
2 |
|
|
|
|
|
|
|
3,700 |
|
|
|
|
|
|
|
3,700 |
|
Electric Arc Furnace |
|
|
4 |
|
|
|
3,720 |
|
|
|
|
|
|
|
|
|
|
|
3,720 |
|
Basic Oxygen Furnace |
|
|
3 |
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
5,000 |
|
Thin Slab Continuous Caster |
|
|
1 |
|
|
|
2,050 |
|
|
|
|
|
|
|
|
|
|
|
2,050 |
|
Slab Continuous Caster |
|
|
1 |
|
|
|
|
|
|
|
2,880 |
|
|
|
|
|
|
|
2,880 |
|
Billet Continuous Caster |
|
|
2 |
|
|
|
1,660 |
|
|
|
|
|
|
|
|
|
|
|
1,660 |
|
Slab Rolling Mill |
|
|
4 |
|
|
|
5,700 |
|
|
|
2,780 |
|
|
|
|
|
|
|
8,480 |
|
Skin Pass Mill |
|
|
4 |
|
|
|
1,860 |
|
|
|
940 |
|
|
|
|
|
|
|
2,800 |
|
Billet Rolling Mill |
|
|
2 |
|
|
|
1,060 |
|
|
|
|
|
|
|
|
|
|
|
1,060 |
|
Pickling Line |
|
|
8 |
|
|
|
3,390 |
|
|
|
1,790 |
|
|
|
|
|
|
|
5,180 |
|
Cold-Rolling Mill (Tandem or Reversing) |
|
|
9 |
|
|
|
2,150 |
|
|
|
1,770 |
|
|
|
|
|
|
|
3,920 |
|
Electrolytic Clearing |
|
|
4 |
|
|
|
1,140 |
|
|
|
200 |
|
|
|
|
|
|
|
1,340 |
|
Annealing Line |
|
|
4 |
|
|
|
1,240 |
|
|
|
1,240 |
|
|
|
|
|
|
|
2,480 |
|
Temper Mill |
|
|
6 |
|
|
|
1,180 |
|
|
|
1,770 |
|
|
|
|
|
|
|
2,950 |
|
Tension-Leveling / Inspection Line |
|
|
7 |
|
|
|
800 |
|
|
|
985 |
|
|
|
|
|
|
|
1,785 |
|
Electro-tin plating line |
|
|
1 |
|
|
|
|
|
|
|
160 |
|
|
|
|
|
|
|
160 |
|
Hot Dip Galvanizing Line |
|
|
12 |
|
|
|
1,430 |
|
|
|
525 |
|
|
|
385 |
|
|
|
2,340 |
|
Electro-galvanizing Line |
|
|
1 |
|
|
|
|
|
|
|
120 |
|
|
|
|
|
|
|
120 |
|
Color Coating Line |
|
|
8 |
|
|
|
660 |
|
|
|
100 |
|
|
|
180 |
|
|
|
940 |
|
Slitter |
|
|
33 |
|
|
|
1,800 |
|
|
|
450 |
|
|
|
90 |
|
|
|
2,340 |
|
Cut to length |
|
|
31 |
|
|
|
500 |
|
|
|
860 |
|
|
|
50 |
|
|
|
1,410 |
|
Roll forming Line |
|
|
35 |
|
|
|
450 |
|
|
|
350 |
|
|
|
280 |
|
|
|
1,080 |
|
Panel Line |
|
|
4 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
80 |
|
Profile Line |
|
|
10 |
|
|
|
180 |
|
|
|
|
|
|
|
20 |
|
|
|
200 |
|
Tube Line |
|
|
21 |
|
|
|
440 |
|
|
|
200 |
|
|
|
|
|
|
|
640 |
|
|
|
|
1 |
|
In this annual report annual production capacity is calculated based on, as
estimated by management, standard productivity, product mix allocations, the maximum
number of possible working shifts and a continued flow of supplies to the production
process. |
North America Region. Ternium has twelve steel production and/or processing units in this
region, consisting of three integrated steel-making plants (two of which produce long steel
products and one of which produces flat steel products and includes two steel service
centers), five downstream flat steel processing plants, combining hot-rolling, cold-rolling
and/or coating facilities (two of which include steel service centers), and four steel service
centers. In addition, Ternium has ten steel retail distribution centers in this region, aimed
at serving customers mainly in the construction sector.
28
The following table sets forth key items of information regarding Terniums principal
production locations and production units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit |
|
Country |
|
Type of Plant |
|
Location |
|
Products |
|
|
|
|
|
|
|
|
Service |
|
Distribution |
|
|
|
|
|
|
|
|
Integrated |
|
Downstream |
|
Center |
|
Center |
|
|
|
|
Guerrero1
|
|
Mexico
|
|
X
|
|
|
|
X
|
|
|
|
San Nicolás d.l.G., Nuevo León
|
|
Flat Products |
Norte2
|
|
Mexico
|
|
X
|
|
|
|
|
|
|
|
Apodaca, Nuevo León
|
|
Long Products |
Puebla3
|
|
Mexico
|
|
X
|
|
|
|
|
|
|
|
Puebla, Puebla
|
|
Long Products |
Juventud4
|
|
Mexico
|
|
|
|
X
|
|
X
|
|
|
|
San Nicolás d.l.G., Nuevo León
|
|
Flat Products |
Churubusco5
|
|
Mexico
|
|
|
|
X
|
|
X
|
|
|
|
Monterrey, Nuevo León
|
|
Flat Products |
Monclova6
|
|
Mexico
|
|
|
|
X
|
|
|
|
|
|
Monclova, Coahuila
|
|
Flat Products |
Universidad7
|
|
Mexico
|
|
|
|
X
|
|
|
|
|
|
San Nicolás d.l.G., Nuevo León
|
|
Flat Products |
Apodaca Industrial8
|
|
Mexico
|
|
|
|
|
|
X
|
|
|
|
Apodaca, Nuevo León
|
|
Flat Products |
Apodaca Comercial9
|
|
Mexico
|
|
|
|
|
|
X
|
|
|
|
Apodaca, Nuevo León
|
|
Flat Products |
Varco-Pruden10
|
|
Mexico
|
|
|
|
|
|
X
|
|
|
|
Ciénaga de Flores, Nuevo León
|
|
Metal buildings |
San Luis11
|
|
Mexico
|
|
|
|
|
|
X
|
|
|
|
San Luis, San Luis Potosí
|
|
Flat Products |
DC Chihuahua
|
|
Mexico
|
|
|
|
|
|
|
|
X
|
|
Chihuahua, Chihuahua
|
|
Flat Products |
DC BC
|
|
Mexico
|
|
|
|
|
|
|
|
X
|
|
Tijuana, Baja California
|
|
Flat Products |
DC MTY
|
|
Mxico
|
|
|
|
|
|
|
|
X
|
|
Monterrey, Nuevo León
|
|
Flat Products |
DC Puebla
|
|
Mexico
|
|
|
|
|
|
|
|
X
|
|
Puebla, Puebla
|
|
Flat Products |
DC Guadalajara
|
|
Mexico
|
|
|
|
|
|
|
|
X
|
|
Guadalajara, Jalisco
|
|
Flat Products |
DC Mexico
|
|
Mexico
|
|
|
|
|
|
|
|
X
|
|
Naucalpan, Estado De México
|
|
Flat Products |
DC Culiacán
|
|
Mexico
|
|
|
|
|
|
|
|
X
|
|
Culiacán, Sinaloa
|
|
Flat Products |
DC Veracruz
|
|
Mexico
|
|
|
|
|
|
|
|
X
|
|
Veracruz, Veracruz
|
|
Flat Products |
DC Mérida
|
|
Mexico
|
|
|
|
|
|
|
|
X
|
|
Mérida, Yucatán
|
|
Flat Products |
DC Tuxtla
|
|
Mexico
|
|
|
|
|
|
|
|
X
|
|
Tuxtla Gtz, Chiapas
|
|
Flat Products |
Shreveport12
|
|
USA
|
|
|
|
X
|
|
|
|
|
|
Shreveport, Louisiana
|
|
Flat Products |
|
|
|
1 |
|
The Guerrero unit, located in the metropolitan area of Monterrey, Nuevo León,
Mexico, produces hot-rolled and cold-rolled coils for the industrial, construction and
home appliance sectors and for further processing in other Ternium Mexicos units. It
also produces slitted and cut-to-length products for the industrial sector, and profiles
and tubes for the industrial and construction sectors. This unit includes two steel
service centers, a slab-rolling mill, and an integrated facility based on direct reduced
iron, mini-mill steelmaking and thin-slab casting/rolling mill technologies that uses
iron ore pellets and steel scrap as main raw materials. The facility sources all of the
iron ore from Ternium Mexicos mining operations and the electricity and natural gas from
the Mexican grid. In addition, the facility sources its net requirements of slabs from
Mexican and international producers. Terniums procurement policy for these products is
described in greater depth in Item 4. Information on the CompanyB. Business Overview.
Raw materials, energy and other inputs. |
|
2 |
|
The Norte unit in Nuevo León, Mexico, produces billets and rebar for the
construction industry. It is an integrated facility based on mini-mill steelmaking
technology that uses steel scrap as its main raw material. The facility sources
electricity from the Mexican grid. Terniums procurement policy for these products is
described in greater depth in Item 4. Information on the CompanyB. Business Overview.
Raw materials, energy and other inputs. |
|
3 |
|
The Puebla unit in Puebla, Mexico, produces rebar and wire rod mainly for the
construction and industrial sectors, including high-carbon, low-carbon and micro-alloyed
wire rod. It is an integrated facility based on direct reduced iron and mini-mill
steelmaking technologies that uses iron ore pellets and steel scrap as main raw
materials. The facility sources all of the iron ore from Ternium Mexicos mining
operations and the electricity and natural gas from the Mexican grid. Terniums
procurement policy for these products is described in greater depth in Item 4.
Information on the CompanyB. Business Overview. Raw materials, energy and other
inputs. |
29
|
|
|
4 |
|
The Juventud unit in Nuevo León, Mexico, produces galvanized and color coated
coils for the construction, home appliance and other industries and has a steel service
center that produces slitted and roll-formed products, panels and tubes for the
construction and industrial sectors. This plant processes hot-rolled and cold-rolled
coils received from Ternium Mexicos units in Nuevo León. |
|
5 |
|
The Churubusco unit in Nuevo León, Mexico, produces hot-rolled and cold-rolled
coils for industrial, construction and home appliance sectors and for further processing
in other Ternium Mexicos units. It also produces slitted and cut-to-length products for
the industrial sector. The facility sources its requirements of slabs from other Mexican
producers and from the international markets. Terniums procurement policy for slabs is
described in greater depth in Item 4. Information on the CompanyB. Business Overview.
Raw materials, energy and other inputs. |
|
6 |
|
The Monclova unit in Coahuila, Mexico, produces galvanized and color coated
sheets for the home appliance industry. This plant procceses cold-rolled coils mainly
received from Ternim Mexicos units in Nuevo León. |
|
7 |
|
The Universidad unit in Nuevo León, Mexico, located across the street from the
Guerrero unit, produces galvanized and color coated coils for the construction, home
appliance and industrial sectors. This plant processes hot-rolled coils received from
Ternium Mexicos units in Nuevo León. |
|
8 |
|
The Apodaca Industrial unit in Nuevo León, Mexico, is a steel service center
that produces slitted and cut-to-length products for industrial customers. This plant
processes coated coils mainly received from Ternium Mexicos units in Nuevo León. |
|
9 |
|
The Apodaca Comercial unit in Nuevo León, Mexico, is a steel service center that
produces slitted and roll-formed products, profiles and tubes for the construction
industry. This plant processes coated coils mainly received from Ternium Mexicos units
in Nuevo León. |
|
10 |
|
The Varco-Pruden unit in Nuevo León, Mexico, produces metal buildings systems
for commercial construction. This plant processes heavy plates procured from the local
and international markets and coils received from Ternium Mexicos units in Nuevo León. |
|
11 |
|
The San Luis unit in San Luis Potosí, Mexico, is a steel service center that
produces slitted and cut-to-length products for the home appliance and other industries.
This plant processes coated coils received from Ternium Mexicos units in Nuevo León. |
|
12 |
|
The Shreveport unit in Lousiana, US, produces galvanized and color coated
sheets. It processes cold-rolled coils procured in the international markets. |
In May 2010, Ternium announced that it had signed a memorandum of understanding with Nippon
Steel Corporation to form a joint venture for the construction of a hot-dipped galvanizing
plant. For more information on this proposed joint venture, see Item 5 Operating and
Financial Review and Prospects G. Recent Developments Memorandum of Understanding for
Joint Venture in Mexico.
South and Central America Region. Ternium has fourteen steel production and/or processing
units in this region, consisting of one integrated steel-making plant (which produces flat
steel products), five downstream flat steel processing plants, comprising cold-rolling or
coating facilities (four of which include steel service centers), and eight steel service
centers. In addition, Ternium has five steel retail distribution centers in this region, aimed
at serving customers mainly in the construction sector.
30
The following table set forth key items of information regarding Terniums principal
production locations and production units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit |
|
Country |
|
Type of Plant |
|
Location |
|
Products |
|
|
|
|
|
|
|
|
Service |
|
Distribution |
|
|
|
|
|
|
|
|
Integrated |
|
Downstream |
|
Center |
|
Center |
|
|
|
|
San Nicolás13
|
|
Argentina
|
|
X
|
|
|
|
|
|
|
|
Ramallo, Buenos Aires
|
|
Flat Products |
Canning14
|
|
Argentina
|
|
|
|
X
|
|
X
|
|
|
|
Canning, Buenos Aires
|
|
Flat Products |
Haedo14
|
|
Argentina
|
|
|
|
X
|
|
X
|
|
|
|
Haedo, Buenos Aires
|
|
Flat Products |
Florencio Varela15
|
|
Argentina
|
|
|
|
X
|
|
X
|
|
|
|
Florencio Varela, Buenos Aires
|
|
Flat Products |
Ensenada16
|
|
Argentina
|
|
|
|
X
|
|
|
|
|
|
Ensenada, Buenos Aires
|
|
Flat Products |
Rosario17
|
|
Argentina
|
|
|
|
|
|
X
|
|
|
|
Rosario, Santa Fe
|
|
Flat Products |
San Luis17
|
|
Argentina
|
|
|
|
|
|
X
|
|
|
|
San Luis, San Luis
|
|
Flat Products |
Serviacero III18
|
|
Argentina
|
|
|
|
|
|
X
|
|
|
|
Ramallo, Buenos Aires
|
|
Flat Products |
Sidercrom19
|
|
Argentina
|
|
|
|
|
|
X
|
|
|
|
Ramallo, Buenos Aires
|
|
Flat Products |
Villa Nueva20
|
|
Guatemala
|
|
|
|
X
|
|
X
|
|
|
|
Villa Nueva, Guatemala
|
|
Flat Products |
DC Norte
|
|
Guatemala
|
|
|
|
|
|
|
|
X
|
|
Guatemala, Guatemala
|
|
Flat Products |
DC Occidente
|
|
Guatemala
|
|
|
|
|
|
|
|
X
|
|
Mazatenango, Suchitepéquez
|
|
Flat Products |
Tegucigalpa21
|
|
Honduras
|
|
|
|
|
|
X
|
|
|
|
San Pedro Sula, Cortés
|
|
Flat Products |
DC Tegucigalpa
|
|
Honduras
|
|
|
|
|
|
|
|
X
|
|
Tegucigalpa, Distrito Central
|
|
Flat Products |
San Salvador21
|
|
El Salvador
|
|
|
|
|
|
X
|
|
|
|
San Salvador, San Salvador
|
|
Flat Products |
DC San Miguel
|
|
El Salvador
|
|
|
|
|
|
|
|
X
|
|
San Miguel, San Miguel
|
|
Flat products |
Managua21
|
|
Nicaragua
|
|
|
|
|
|
X
|
|
|
|
Managua, Managua
|
|
Flat Products |
Heredia22
|
|
Costa Rica
|
|
|
|
|
|
X
|
|
|
|
Heredia, Heredia
|
|
Flat Products |
DC Liberia
|
|
Costa Rica
|
|
|
|
|
|
|
|
X
|
|
Liberia, Guanacaste
|
|
Flat Products |
|
|
|
13 |
|
The San Nicolás unit in the Province of Buenos Aires, Argentina, produces
hot-rolled, cold-rolled and tinplate coils for the construction, industrial and packaging
sectors and for further processing in other Siderars units. San Nicolás includes an
integrated facility based on blast furnace and basic oxygen furnace technologies,
supplemented with a sinter plant, coking batteries, a by-product plant and a power plant.
It uses metallurgical coal and iron ore lumps, pellets and fines as main raw materials.
The facility sources all of its coal and iron ore needs from the international markets,
shipped to its own port on the banks of the Paraná river. It sources the natural gas from
the Argentine grid, produces most of its electricity needs in its own power plant and
sources its net requirements of electricity from the Argentine grid. Terniums
procurement policy for these products is described in greater depth in Item 4.
Information on the CompanyB. Business Overview. Raw materials, energy and other
inputs. |
|
14 |
|
The Canning and Haedo units in the Province of Buenos Aires, Argentina, produce
galvanized sheets, slitted and roll-formed products and profiles for the construction and
home appliance sectors. In addition, the Canning facility produces color coated sheets
for such markets. Both plants process cold-rolled coils received from Siderars San
Nicolás and Ensenada units. |
|
15 |
|
The Florencio Varela unit in the Province of Buenos Aires, Argentina, produces
electro-galvanized sheets, blanks and slitted products for the automotive, construction
and other industries. This plant processes cold-rolled coils received from Siderars San
Nicolás and Ensenada units. |
|
16 |
|
The Ensenada unit in the Province of Buenos Aires, Argentina, produces
cold-rolled coils for the construction and industrial sectors and for further processing
in Siderars own facilities. This plant processes hot-rolled coils received from
Siderars San Nicolás unit. |
31
|
|
|
17 |
|
The Rosario unit in the Province of Santa Fe, Argentina, and the San Luis unit
in the Province of San Luis, Argentina, are steel service centers that produce tubes for
the construction industry. These plants process hot-rolled coils received from Siderars
San Nicolás unit. |
|
18 |
|
The Serviacero III unit in the Province of Buenos Aires, Argentina, is a steel
service center that produces cut-to-length products for the construction and industrial
sectors. This plant processes hot-rolled coils received from Siderars San Nicolás unit. |
|
19 |
|
The Sidercrom unit in the Province of Buenos Aires, Argentina, is a steel
service center that produces cut-to-length and slitted products for the packaging sector.
This plant processes tinplate coils received from Siderars San Nicolás unit. |
|
20 |
|
The Villa Nueva unit in Guatemala, Guatemala, produces galvanized sheets for the
construction industry and for further processing in other Ternium Mexicos units in
Central America. It also has a steel service center that produces slitted, roll-formed
and cut-to-length products, and profiles for the construction industry. This plant
processes hot-rolled, cold-rolled and coated coils received from Ternium Mexicos units
in the Nuevo León area and from the international markets. |
|
21 |
|
The Tegucigalpa unit in Cortés, Honduras, the San Salvador unit in San Salvador,
El Salvador, and the Managua unit in Managua, Nicaragua, are steel service centers that
produce roll-formed products for the construction industry. These plants process coated
coils received mainly from Ternium Mexicos Villa Nueva unit. |
|
22 |
|
The Heredia unit in Heredia, Costa Rica, is a steel service center that produces
roll-formed products and profiles for the construction industry. This plant processes
hot-rolled, cold-rolled and coated coils received from Ternium Mexicos units in Nuevo
León and from the Villa Nueva unit. |
Iron ore mining facilities
Ternium has a 100% interest in Las Encinas S.A. de C.V. (Las Encinas) and a 50% interest in
Consorcio Minero Benito Juárez Peña Colorada, S.A. de C.V (Peña Colorada). The following
table provides an overview, by type of asset, of Terniums production capacity:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capacity (thousand tons per year) |
|
Production asset |
|
Quantity |
|
|
Las Encinas |
|
|
Peña Colorada |
|
|
Total |
|
Crushing Plant |
|
|
3 |
|
|
|
5,300 |
|
|
|
9,000 |
|
|
|
14,300 |
|
Beneficiation Plant |
|
|
2 |
|
|
|
2,000 |
|
|
|
4,400 |
|
|
|
6,400 |
|
Pelletizing Line |
|
|
3 |
|
|
|
1,900 |
|
|
|
4,000 |
|
|
|
5,900 |
|
Las Encinas operates the Aquila open pit mine located in Michoacán, Mexico, and the El Encino
underground mine located in Jalisco, Mexico. Las Encinas produces iron ore pellets. The
facilities include crushing and beneficiation plants located close to the mines and
beneficiation and pelletizing plants located near Alzada in Colima, Mexico, approximately 160
kilometers from Aquila. The iron ore pellets are shipped by rail to Ternium Mexicos
integrated facilities.
Peña Colorada operates the Minatitlán open pit mine located in Colima, Mexico. Peña Colorada
produces iron ore pellets and magnetite concentrate. The facilities include crushing and
beneficiation plants located close to the mine, near Minatitlán, and a pelletizing plant,
including two pelletizing lines, located near the Manzanillo Port in the Pacific coast in
Colima, Mexico, 50 kilometers from Minatitlán. Ternium and ArcelorMittal each own 50% of Peña
Colorada. Under the existing arrangements, Peña Colorada is required to sell half of the
mines production to each of Ternium and ArcelorMittal. See Item 4. Information on the
CompanyB. Business Overview. Raw materials, energy and other inputs Mexico Iron Ore.
Both iron ore pellets and magnetite concentrates are shipped by rail or from the Manzanillo
Port to Terniums facilities, to ArcelorMittals facilities and abroad.
32
Production process
Ternium specializes in manufacturing and processing finished flat and long steel products.
Terniums facilities use different technologies and have different levels of integration. The
basic inputs for steel production are iron ore and energy. Iron ore is used in three different
formats: fines and lumps, which are purchased in the marketplace, and pellets, which are
partly purchased in the marketplace and partly produced by the company. Terniums steel
production processes consume energy mainly in the form of natural gas, coal and electricity.
Iron ore extraction and processing. The iron ore pellet production process begins with the
sourcing of iron ore from Terniums own mines in Mexico. The extraction consists of removing
or drilling, loading and transporting the iron ore to the crushing facilities in order to
reduce it to a specified size and quality through the grinding process and the separation of
ore with low iron content.
After crushing, the ore goes through magnetic drums that separate the iron from the sterile
material, to obtain a pellet with high iron content. This process is carried out using water
as an auxiliary element. Excess water is afterwards eliminated, leaving only the necessary
humidity for the formation of pellets using pelletizing disks. Pellets are separated according
to their size and are then hardened in ovens and shipped to the steel producing facilities.
Steel production. Ternium produces semi-finished steel in the form of thin slabs, slabs and
billets through the electric arc furnace and the blast furnace methods. Under the electric arc
furnace method, which is used in Mexico, pellets are converted into direct reduced iron (DRI)
in the DRI modules. One of Monterreys DRI plants includes the latest DRI HYL® technological
advances, such as Hytemp®, which permits the hot discharge of the DRI to the electric arc
furnace generating significant energy savings and improving productivity. Direct reduced iron
and steel scrap is mixed in variable proportions and heated with other elements to obtain
molten steel. The molten steel is then cast using the continuous casting method into billets
and thin slabs.
Under the blast furnace method, which is used in Argentina, iron ore pellets, lumps, sinter (a
mixture of iron ore fines and limestone produced in our sinter plant) and coke (a solid
residue obtained from the distillation of coal produced in our coking batteries) are mixed in
the blast furnaces in a process that melts and reduces the iron ore, obtaining pig iron. The
molten pig iron is then mixed with steel scrap and other products in a basic oxygen furnace
through a process that removes impurities from the pig iron by injecting pure oxygen at high
pressure into the molten metal, burning-off carbon and other elements. The molten steel is
then cast using the continuous casting method into slabs.
Steel processing. Semi-finished steel is then processed into finished products using
hot-rolling, cold-rolling, coating, tubing, paneling, slitting and cut-to-length facilities
among other processes. Ternium purchases semi-finished steel in the marketplace in the form of
slabs, as its slabs processing capacity in Mexico is higher than its slabs production capacity
in the country. It may purchase hot-rolled and cold-rolled coils as well for further
processing in its lines.
Slabs and billets are processed in the hot-rolling mills in Mexico and Argentina to obtain
hot-rolled products using different technologies. In the case of flat products, hot-rolled
coils are obtained from thin or conventional slabs. Thin slab hot-rolling, a technology
Ternium uses only in Mexico, requires less energy than conventional slab hot-rolling, as it
does not require a roughing section at the mill and does not need to be reheated from room
temperature to reach rolling temperature. In the production of long products, which is carried
out only in Mexico, billets are reheated and taken to rolling temperature. The softened steel
is processed in the rolling trains to obtain wire rods and bars as finished long products.
Depending on its final use, the hot-rolled coils are then scaled, tempered and pickled, both
in Mexico and Argentina, before being sent for sale as coils or cut into steel sheets.
Alternatively, the hot-rolled coils may be sent to a cold-rolling mill where they are put
under a deformation process at room temperature to reduce their thickness and obtain
cold-rolled coils. Cold-rolled coils can be sold in crude form to the market (full hard) or
processed in the reheating ovens, annealing bays and tempers lines to modify their metallurgic
and physical characteristics. The tempered products can be sold as coils or sheets or further
processed by adding coverings.
Cold-rolled coils can be further processed into tin plate at Terniums facility in Argentina
(by adding a thin layer of tin), into galvanized or electro galvanized sheets at several of
Terniums facilities in Mexico, Argentina, United States and Guatemala (by adding a thin layer
of zinc to the products through different processes) or into pre-painted products. Some of
these products can be further processed into slit, cut-to-length and tailor-made products
according to customers needs at Terniums service centers, which are located in several
countries. In addition, cold-rolled and hot-rolled coils can be further processed into tubular
products, such as welded pipes, insulated panels and architectural panels, among other
products.
33
Sales and Marketing
Net Sales
Ternium primarily sells its steel products in the regional markets of North America and
Central and South America, where it can leverage its strategically located manufacturing
facilities to provide specialized products, delivery services to its clients and reduce
freight costs.
Our total net sales amounted to USD5.0 billion in 2009, USD8.5 billion in 2008 and
USD5.6 billion in 2007. For further information on our net sales see Item 5. Operating and
Financial Review and ProspectsA. Results of Operations.
The following table shows Terniums total consolidated net sales by product and geographical
region for the years indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
In million of U.S. dollars |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Flat Steel Product Sales |
|
|
|
|
|
|
|
|
|
|
|
|
South and Central America |
|
|
1,717.1 |
|
|
|
2,782.5 |
|
|
|
2,037.0 |
|
North America |
|
|
2,371.9 |
|
|
|
4,294.7 |
|
|
|
2,571.8 |
|
Europe and Other |
|
|
161.0 |
|
|
|
47.5 |
|
|
|
123,0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Flat Steel Products Sales |
|
|
4,250.0 |
|
|
|
7,124.7 |
|
|
|
4.731.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Steel Product Sales |
|
|
|
|
|
|
|
|
|
|
|
|
South and Central America |
|
|
57.3 |
|
|
|
274.2 |
|
|
|
70.0 |
|
North America |
|
|
512.0 |
|
|
|
791.8 |
|
|
|
696.0 |
|
Europe and Other |
|
|
3.5 |
|
|
|
8.9 |
|
|
|
6.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long Steel Product Sales |
|
|
572.9 |
|
|
|
1,075.1 |
|
|
|
772.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Sales (1) |
|
|
136.1 |
|
|
|
265.1 |
|
|
|
128.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales |
|
|
4,959.0 |
|
|
|
8,464.9 |
|
|
|
5,633.4 |
|
|
|
|
(1) |
|
The item Other Sales primarily includes iron ore, pig iron and pre-engineered metal
buildings. |
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands tons |
|
For the year ended December 31, |
|
(unaudited) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flat Steel Product Sales Volume |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South and Central America |
|
|
1,904 |
|
|
|
2,604 |
|
|
|
2,499 |
|
North America |
|
|
3,115 |
|
|
|
3,666 |
|
|
|
3,035 |
|
Europe and Other |
|
|
287 |
|
|
|
55 |
|
|
|
185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Flat Steel Product Sales Volume |
|
|
5,305 |
|
|
|
6,326 |
|
|
|
5,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Steel Product Sales Volume |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South and Central America |
|
|
118 |
|
|
|
302 |
|
|
|
133 |
|
North America |
|
|
931 |
|
|
|
901 |
|
|
|
1,113 |
|
Europe and Other |
|
|
6 |
|
|
|
13 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long Steel Product Sales Volume |
|
|
1,056 |
|
|
|
1,217 |
|
|
|
1,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales Volume (1) |
|
|
6,361 |
|
|
|
7,543 |
|
|
|
6,980 |
|
|
|
|
(1) |
|
The Total Sales Volume does not include the tons of Other sales. |
34
North America Region
Sales to customers in the North America Region accounted for 60.0% of Terniums consolidated
sales during 2009, 61.8% during 2008 and 59.3% during 2007. See Item 5. Operating and
Financial Review and ProspectsA. Results of OperationsFiscal Year Ended December 31, 2009
compared to Fiscal Year Ended December 31, 2008Net
Sales and Fiscal Year Ended December 31, 2008 compared to Fiscal Year Ended December 31,
2007Net Sales.
Terniums largest markets in the North America Region are Mexico and the United States.
Most of Terniums Mexican customers are located near its plants. Flat steel non-coated
products are mainly sold in Mexico to construction companies, industrial customers in the
packaging, electric motors and service center industries, and distributors and auto parts
manufacturers. The principal segments in the Mexican coated steel market are construction,
manufacturing (air conditioning, lamps and furniture), appliances and auto parts. Ternium
generally serves industrial customers, which require high-quality specifications, as well as
commercial customers through service centers and warehouses. Long steel rebar and wire rod
markets in Mexico are generally characterized by a large number of orders of small volume,
and competition is largely based on price. The customer base for bar and rod products in
Mexico consists primarily of independent dealers and distributors, who in turn retail the
products to their customers in the construction industry. Ternium markets its tubular
products mainly through Mexican independent distributors, and the balance is sold directly to
industrial customers.
Customers in the United States are served directly through the Shreveport plant and through
Ternium Internacionals Houston commercial office and distribution center, which manage
transport and logistics issues and provide local services and assistance. The Gulf Coast and
a large portion of the West Coast, in particular, are regions in which our Mexican facilities
have distribution advantages. Our main markets in the United States are the construction
industry and the energy related sectors.
South and Central America Region
Sales to customers in the South and Central America Region accounted for 35.9% of Terniums
consolidated sales during 2009, 36.7% during 2008 and 38.2% during 2007. See Item 5.
Operating and Financial Review and ProspectsA. Results of OperationsFiscal Year Ended
December 31, 2009 compared to Fiscal Year Ended December 31, 2008Net Sales and Fiscal
Year Ended December 31, 2008 compared to Fiscal Year Ended December 31, 2007Net Sales.
Terniums sales are oriented toward the construction and agriculture sectors, the automotive
industry, the packaging sector (for food, paints, sprays and petrochemicals), the tube and
pipe sector (related to liquids and gas transportation and distribution networks), the
capital goods sector and the home appliances sector.
The customer base in South and Central America consists primarily of independent small- and
medium-sized companies and distributors, which in turn process or retail products to their
customers in different market sectors. In addition, Ternium serves large industrial
customers, such as the automotive industry, that require customized products that Ternium can
produce through its service centers and finishing facilities.
Terniums principal customers in the region are located near its plants in Argentina. We also
sell to customers in other South and Central American countries, including Brazil, Bolivia,
Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Paraguay,
Peru and Uruguay.
Europe and Other
Sales to customers in Europe and other regions, which are generally made on a spot basis,
accounted for 4.0% of Terniums consolidated sales during 2009, 1.5% during 2008 and 2.5%
during 2007. See Item 5. Operating and Financial Review and ProspectsA. Results of
OperationsFiscal Year Ended December 31, 2009 compared to Fiscal Year Ended December 31,
2008Net Sales and Fiscal Year Ended December 31, 2008 compared to Fiscal Year Ended
December 31, 2007Net Sales.
35
Terniums shipments in Europe in 2009 were mainly destined for Italy, Spain, Portugal and the
United Kingdom. Customers in Europe are mainly independent, small- and medium-sized companies
dedicated to steel processing that generally serve the construction, furniture and appliance
industries. A large part of their purchases are cold-rolled coils and coated products.
Terniums sales to Europe are carried out through the Ternium commercial network.
Pricing
The prices of our steel products generally reflect international market prices for similar
products. We adjust prices for our products periodically in response to changes in the import
prices of foreign steel, export prices, and supply and demand. See Item 5. Operating and
Financial Review and ProspectsOverview. The actual sales prices that we obtain for our
products are also subject to the specifications, sizes and quantity of the products ordered.
Marketing
Our marketing strategy is to continue increasing higher margin value-added products and
services in Terniums sales mix. We expect to increase Terniums offerings of value-added
products, such as cold-rolled sheets and coated and tailor-made products, and services, such
as just-in-time deliveries and inventory management. In order to do so, Ternium will continue
to work with customers to anticipate their needs and develop customized products for
particular applications and to maintain a strategic presence in several steel markets through
its network of commercial offices.
Ternium adapts its marketing strategy according to the different regions it serves. Its sales
force specializes in different regional requirements ranging from product specifications to
transport logistics.
In order to increase Terniums participation in regional markets and improve services
provided to customers, Ternium manages its exports through Ternium Internacionals network of
commercial offices. Ternium Internacional operates through subsidiaries strategically located
in Terniums key international markets, providing customers with support and services.
Ternium Internacional has extensive experience promoting steel products. Its marketing
expertise helps Ternium to expand its position in current markets and to develop new ones.
North America Region
The North American steel market is highly competitive, since most major international steel
producers direct part of their sales efforts to this region. Terniums steel customers in
Mexico are in the construction sector, automotive and home appliances industries, among other
sectors. In Mexico, where our main production facilities are located, we can offer customized
services.
Through our service centers, located in the southern United States and in northern and
central Mexico, Ternium can cut, paint or roll-form its products to specific client
requirements. Customized products include metallic roofing, auto parts and cut-to-length
products used in the home appliance and construction industries.
Ternium has commercial offices in Mexico and the United States. These offices provide
services such as logistics, stock management and customer assistance, as well as analysis of
businesses opportunities in their respective markets.
Ternium Mexico has a department focused on the development of small- and medium-sized
companies in Mexico under a program created by the Techint group for the development of its
customers and the local industry (Propymes). The objective of the program is to improve the
competitiveness of customers and suppliers, to increase their exports and allow them to
substitute imports with local products. Approximately 150 companies are part of this program
in Mexico, which provides support for industrial, training, and institutional requirements of
the participating companies.
Several Mexican steel producers compete with us in the flat and long steel markets, as
dicussed below in Competition. Terniums experienced sales force specializes in the needs
of each market sector and focuses on value-added products and services. In this competitive
and end-user oriented market, the extensive use of well-known commercial brands allows
customers to clearly recognize Terniums products. Ternium seeks to increase its competitive
advantage by providing value-added services, including the technical assistance related to
steel use and production, and developing new steel products.
36
South and Central America Region
A principal component of Terniums marketing strategy in South and Central America is
establishing lasting and close relationships with customers. This allows Ternium to provide
assistance to its customers in their use of steel products and to obtain downstream
information that can be applied to future product development.
Terniums sales force in this region is oriented toward serving the specific needs of
different market sectors, such as the construction industry, the automotive industry, the
home appliances sector, the packaging sector (for food, paints, sprays and petrochemicals),
the agricultural equipment and capital goods sector, the tube and pipe sector (related to
liquids and gas transportation and distribution), and steel processors.
Through its service centers, located in Argentina, Costa Rica, El Salvador, Guatemala,
Honduras and Nicaragua, Ternium can cut, paint or roll-form its products to specific client
requirements. Customized products include metallic roofing, auto parts, steel for
agricultural machinery, different types of tin used to produce sprays and food containers and
cut-to-length products used in the home appliance and construction industries.
Ternium has commercial offices in Argentina, Colombia, Costa Rica, Ecuador, El Salvador,
Guatemala, Honduras, Nicaragua and Uruguay. These offices provide services such as market
development, analysis of businesses opportunities, and customer support in their respective
countries. Propymes was implemented in Argentina in 2002, with the objective of promoting the
local industry. As of December 31, 2009, approximately 380 companies were part of this
program, which provides support for industrial, training, commercial, financial and
institutional requirements of the participating companies.
Europe and Other
A small share of Terniums shipments is destined to steel markets outside the Americas. Sales
to Europe and Africa are carried out mainly through Ternium Internacionals office in Spain.
Ternium Internacional is focused on trading activities, including the development of
commercial and marketing activities.
Competition
Global Market
The steel industry operates predominantly on a regional basis, with large industry
participants selling the bulk of their steel production in their home countries or regions,
where they have natural advantages and are able to more effectively market value-added
products and provide additional customized services. Despite the limitations associated with
significant transportation costs, as well as the restrictive effects of protective tariffs
and other trade restrictions, international trade of steel has generally increased in the
last decade as production has shifted towards low-cost production regions. In addition, since
2002, several large steel manufacturers have merged with each other or acquired steel
companies in other parts of the world. This wave of consolidation has resulted in a number of
large, global producers with significant operations in several regions and/or continents,
contributing to the increasing globalization of the steel industry. Considered as a whole,
however, the steel industry still remains considerably fragmented, compared with market
conditions characterizing certain of our suppliers and customers, e.g. iron ore suppliers and
the automotive industry.
Steel consumption has historically been centered in developed economies such as the United
States, Western Europe and Japan. However, in recent years steel consumption in Asia, and in
particular China, has increased significantly. Moreover, while production in Europe, Japan
and the United States remains significant, steel producers in those regions have increasingly
focused on the rolling and finishing of semi-finished products.
There has been a trend in recent years toward steel industry consolidation among Terniums
competitors. In addition, the Venezuelan government has recently reestablished itself as a
steel producer with the nationalization of Sidor. Below is a summary of the most significant
transactions:
|
|
|
June 2006: Mittal Steel and Arcelor merge to create ArcelorMittal, the worlds largest
steel company. |
|
|
|
|
March 2007: Votorantim acquires Colombias Aceria Paz del Rio. |
|
|
|
|
April 2007: Tata Steel completes the acquisition of Corus. |
37
|
|
|
July 2007: Gerdau acquires Chaparral Steel. |
|
|
|
|
August 2007: US Steel acquires Stelco. |
|
|
|
|
March 2008 to May 2008: Severstal acquires Sparrow Point steel mill, WCI Steel and Esmark. |
Despite this trend, the global steel market remains highly fragmented. In 2009, the five
largest steel producers, ArcelorMittal, Hebei, Baosteel, POSCO and Wuhan, accounted for 18%
of total worldwide steel production, compared to 15% for the five largest steel producers in
2000.
Steel prices in general, including for both flat and long products, have exhibited
significant volatility in recent years. From 2000 to 2002, the industry, especially in North
America, experienced fluctuating capacity utilization, low demand growth levels and other
adverse conditions, which led to depressed steel prices, adversely impacting many steel
producers profitability. In 2003 and 2004, steel prices increased worldwide, due to higher
economic growth in most regions, particularly China and other developing countries, as well
as higher raw material prices (iron ore, ferroalloys and energy). During the first quarter of
2008, steel prices went up significantly due to higher demand for steel products and higher
input costs resulting from constraints in the availability of raw materials. However, this
trend reversed beginning in the second half of 2008 due to a global economic downturn, with
prices and costs declining steeply. In the second half of 2009, steel prices recovered,
reflecting the improving conditions in the steel markets worldwide and higher raw material
costs.
North America Region
Mexico. Ternium has strong domestic competitors in the Mexican steel market and faces
significant competition from imports. According to Canacero, the Mexican chamber of the iron
and steel industry, imports of hot-rolled, cold-rolled and galvanized steel products in
Mexico accounted for approximately 27%, 33% and 27% of the Mexican market in 2009, 2008 and
2007, respectively, as steel consumption in Mexico is higher than the installed steel
capacity in the country.
The largest Mexican competitor in the flat products market is AHMSA, an integrated steel
producer located in Monclova, Coahuila, that produces a wide variety of steel products. AHMSA
focuses on low value added products such as plate, and commercial quality hot-rolled and
cold-rolled coils. Other significant domestic competitors are Lámina y Placa Comercial S.A.
de C.V. (Grupo Villacero), a producer of galvanized coils and a distributor of steel products
with operations throughout Mexico, and POSCO, a Korean steel company that produces galvanized
coils in Mexico.
In the rebar market, Terniums largest competitor is ArcelorMittal. To a lesser extent,
Ternium also faces competition from Aceros San Luis and Deacero. In the low-carbon wire rod
market, Terniums main competitors are Deacero, ArcelorMittal and, to a lesser extent,
Talleres y Aceros and Aceros San Luis.
In the small diameter welded pipe market, Terniums main competitors are Tubería Laguna,
Maquilacero and imports. Orders in this market are usually small and cover a wide range of
product specifications.
United States. Ternium has very small participation in the U.S. steel markets in comparison
with U.S. domestic steel manufacturers and importers. It successfully competes in the Gulf
Coast and a large portion of the West Coast where its facilities have logistic advantages.
South and Central America Region
Terniums most significant market in the South and Central America Region is Argentina. Other
relevant markets in the region are Guatemala, Colombia, Chile and Paraguay.
Argentina. Siderar is the main producer of flat rolled steel products in Argentina. Its main
competition in the Argentine flat steel market are imports, mainly from Brazil. The main
Brazilian producers of flat steel value-added products are Usiminas, Companhia Siderúrgica
Nacional and ArcelorMittal.
38
Although Siderar has been the principal flat steel provider in Argentina since its
foundation, foreign competition has challenged its market positioning in the country. For
example, during the 1990s, Siderars market share in Argentina decreased as a result of
imports of steel products at very low prices. See RegulationsTrade regulations.
Other South and Central American markets. Ternium keeps an active presence in the region,
particularly in those steel markets where there is absence or limited presence of domestic
competitors. Ternium keeps a leading position in the steel markets of Paraguay and Uruguay
and has a strong presence in the steel markets of Chile and Bolivia, where the location of
Terniums facilities in neighboring Argentina provides a logistical advantage to supply these
markets vis a vis its competitors. In addition, Ternium keeps an active presence in the steel
markets of the Andean Community (Colombia, Ecuador and Peru), although it usually faces
strong competition in these markets from steel producers located in Brazil and Venezuela.
Finally, Ternium keeps an important presence in the steel markets for coated products in
Central America, where it leverages its logistical advantages stemming from the location of
its facilities in Guatemala and Mexico.
On April 8, 2010, the Company announced that it had entered into a definitive agreement to
acquire a 54% ownership interest in Ferrasa through a capital contribution in the amount of
USD74.5 million. See Item 5. Operating and Financial Review and Prospects G. Recent
Developments Ferrasa. Upon completion of this transaction, Ternium expects to expand its
business and commercial presence in Colombia as well as in Central America.
Capital Expenditure Program
Capital expenditures in Terniums facilities during 2009 amounted to approximately USD208.6
million. In light of the global economic downturn, we delayed, reassessed or canceled a
significant part of previously announced capital expenditure plans and projects. We currently
expect that our capital expenditures for 2010 will amount to approximately USD300 million and
that such amount will be financed with cash from operations.
The main objectives of Terniums current capital expenditure program are to:
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maintain and replace equipment; |
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reduce production costs; |
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improve product quality, equipment reliability and productivity; |
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comply with applicable environmental standards; and |
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provide enhanced customer services. |
In the past, we announced new investments and projects to be developed in Mexico and in
Argentina. These investments were aimed at increasing steel production and processing
capacity through the construction of new facilities and the expansion of existing ones. The
current status of these projects is discussed below.
North America Region
During 2009, Terniums capital expenditures in the region amounted to USD88 million. A basic
capital expenditure plan was carried out in order to maintain our equipments operating
performance and continue with some projects of which the most significant were:
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New iron ore crushing and pre-beneficiation plant. This new facility, part of the
Las Encinas mining operations in Mexico, is the result of the relocation, revamping and
expansion of former crushing facilities. Its relocation freed iron ore reserves at the
former crushing plant site and its increased processing capacity will allow Las Encinas
to maintain its iron ore pellet production capacity while processing material with lower
iron ore content. |
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Revamping of hot-rolling mill No. 3 in Mexico. This included the installation of a
work-roll change system and the installation of new interstand equipment in the
finishing mill, providing an additional annual rolling capacity of 280,000 tons. |
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In 2008, Ternium announced a greenfield project to build a flat steel plant in Mexico, which
was aimed at expanding its production capacity. In its initial phase, the project would
involve the design and construction of a mini-mill and a hot-rolling mill in the Monterrey
area, while its second phase would involve the construction of a cold-rolled and galvanizing
plant, including a pickling line and a cold-rolled tandem mill, and a hot-dipped galvanizing
line, to serve the industrial and commercial markets. Subsequently, Ternium changed the
sequence of the project, and resolved to build the cold-rolling and galvanizing facilities
first, thereby changing the second phase to first phase. As part of this project, in May 2010,
Ternium announced that it had signed a memorandum of understanding with Nippon Steel
Corporation to form a joint venture for the construction of the hot-dipped galvanizing plant.
For more information on this proposed joint venture, see Item 5 Operating and Financial
Review and Prospects G. Recent Developments Memorandum of Understanding for Joint Venture
in Mexico.
South and Central America Region
During 2009, Terniums capital expenditures amounted to USD120.5 million. We carried out a
basic capital expenditure plan to maintain our equipments operating performance and continued
with some projects, of which the most significant were:
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Partial revamping of coke oven plant in Argentina. The revamping of batteries #3
and #4 was launched during 2007 with the objective of improving performance and reducing
gas emissions. The projects first stage was completed in 2008. The second stage, the
relining and repair of 70 headers, began in October 2008; work in battery #3 was
completed during 2009, while work in battery #4 was suspended. |
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Relining of blast furnace No. 1 in Argentina. The preparatory works for this
project began in 2007, and the relining work commenced in October 2008. We expect that
this project will be completed during the first half of 2010. |
Terniums capital expenditure plan in Argentina contemplates an increase in slabs annual
production capacity from the current 2.9 million tons to 4.0 million tons, through the
construction of a new continuous caster and other investments. Since the inception of this
plan through December 31, 2009, Ternium invested an aggregate amount of USD263.3 million. As
of the date of this annual report, Ternium is reassessing the scope and timetable of this
project.
Information technology investments
We spent an aggregate of approximately USD6.1 million in information technology investments
during 2009. In 2010, we expect to begin the integration of our Mexican facilities into
Terniums core business administration system and to expand the reach of that system in
Argentina and Guatemala.
Raw Materials, Energy and Other Inputs
The main inputs for Terniums facilities in Mexico are slabs, iron ore, steel scrap, natural
gas and electricity, while the main inputs materials at Terniums integrated steel facilities
in Argentina are iron ore and coal. Below is a more complete description of the supply
conditions for raw materials, energy and other inputs at Terniums facilities in these
countries. For a description of some of the risks associated with Terniums access to raw
materials, energy and other inputs, see Item 3. Key InformationD. Risk FactorsRisk
Relating to the Steel IndustryPrice fluctuations or shortages in the supply of raw
materials, slabs and energy could adversely affect Terniums profitability.
Mexico
In Mexico, Terniums manufacturing of finished steel products relies on the supply of crude
steel from its steelmaking facilities, which are based on the mini-mill technology, and on the
purchase of crude steel slabs from third parties. The mini-mill technology melts a variable
combination of steel scrap and direct reduced iron to produce steel slabs and billets.
Terniums production process requires extensive use of natural gas and electricity.
Third-party slabs are the largest component of production costs; iron ore, scrap, electricity
and natural gas costs are also significant.
Slabs. Terniums Mexican subsidiary has some non-integrated facilities that consume large
quantities of slabs purchased from third-party steel suppliers. Currently, slabs are purchased
both in Mexico (primarily from ArcelorMittal) and in the international markets. In addition,
in the past Siderar supplied slabs from time to time to our Mexican operations. Slab
consumption varies significantly year to year in accordance with market conditions. In 2008,
our Mexican subsidiary purchased 2.4 million tons of slabs, while in 2009 slab purchases
amounted to 1.7 million tons. Slab purchase prices are market-based.
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Iron ore. As described under Production Facilities and ProcessesIron ore mining facilities
above, Terniums subsidiaries own interests in two mining companies in Mexico: 100% of the
equity of the Las Encinas and a 50% equity stake in Peña Colorada. In 2009, Terniums Mexican
facilities sourced 100% of their iron ore requirements from the mines operated by these two
companies. Under our arrangement with Peña Coloradas other shareholder, an ArcelorMittal
subsidiary, we are committed to off-take 50% of the annual production of the Peña Colorada
mine. In 2009, approximately 83% of Terniums iron ore production went to our own direct
reduction plants, 1% to our own blast furnance in Argentina and the remaining 16% was sold in
the international markets. Most of the iron ore exports during 2009 were made on a spot price
basis.
Scrap. Ternium sources 100% of its steel scrap needs in Mexico through its own steel scrap
collecting and processing companies. In 2009, most of the scrap used was purchased
domestically, with approximately 23% coming from the United States. Scrap is purchased at
market prices.
Electricity. Electric arc furnaces consume large quantities of electricity. During 2009, 57%
of Ternium Mexicos total consumption was supplied by the Comisión Federal de Electricidad or
CFE, Mexicos state-owned electricity company. The remainder was purchased under long-term
contracts from two other suppliers with power plants in the Monterrey area, Iberdrola Energía
Monterrey, S.A. de C.V. (Ibedrola), a subsidiary of a Spanish utility company, and Tractebel
Energía de Monterrey, S. de R.L. de C.V. (Tractebel), a subsidiary of a U.S. utility
company. We have a long-term contract with Iberdrola for approximately 111 MW capacity and a
long-term contract with Tractebel for aproximately 90 MW capacity. Electricity purchases under
these contracts are made at prices linked to prevailing market conditions.
Natural gas. Natural gas is used as a reducing agent for the production of DRI and for the
reheating of slabs and billets before the hot-rolling process. In Mexico, Ternium purchases
natural gas from Pemex, the Mexican state-owned oil and gas company that is Mexicos sole
producer of natural gas, and from three distributors: Gas Industrial de Monterrey S.A. de C.V.
(GIMSA), Compañía Mexicana de Gas (CMG) and Gas Natural Mexico. Natural gas prices for Ternium
Mexico are determined based on the average of the quoted prices of several indexes plus
transportation and service costs depending on the areas or cities or pursuant to the
methodology approved by the Energy Regulatory Commission for prices applicable to an area, as
the case may be. Those prices are related to the market prices of natural gas in the southern
United States.
Argentina
In Argentina, Siderar produces crude steel through the use of blast furnace technology. The
principal raw materials used to produce steel are iron ore and coal. The manufacturing process
also requires significant quantities of electricity and natural gas.
Iron ore. Iron ore is purchased under long-term agreements from suppliers in neighboring
Brazil. Prices under these contracts are determined in accordance with market conditions. Our
main suppliers of iron ore, in the form of lumps, pellets and sinter feed fines, are Vale and
MMX. Our geographic location provides favorable access to high quality iron ore lump and fines
produced in Brazils iron ore mines in the Pantanal Region (Mato Grosso do Sul state), which
are transported on barges navigating the Paraguay and Parana Rivers; accordingly, our costs
associated with the provision of iron ore are low in comparison with customers requiring
seaborne shipping. In addition, our steelmaking facility in Argentina receives iron ore
pellets and fines from ports located on Brazils ocean coast.
Coking coal and related materials. Siderar obtains its coke through the distillation of coking
coal and petroleum coke in its coke ovens. Siderar requires different types of coal to produce
coke. Coking coal is purchased under annual renewable contracts and on the spot market from
several major international suppliers based mainly in Australia and the United States. Prices
under contracts are determined in accordance with market conditions. Petroleum coke is sourced
domestically from oil companies such as Exxon Mobil and Repsol YPF. The volume purchased from
each supplier mainly depends on technical quality requirements of the blast furnace
operations.
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Electricity. Siderar consumes large quantities of electricity for its manufacturing
activities, particularly in its San Nicolás and Ensenada facilities. The electricity required
to cover most of our facilities needs is self-generated by a wholly-owned thermoelectric plant
with an installed capacity of 110 Mw located at the San Nicolás facility. Most of
the energy requirements of the thermoelectric plant are obtained from blast furnace and coke
oven gases and from steam that is purchased at market prices from a power plant located at the
San Nicolás facility owned by Siderca S.A.I.C., a subsidiary of Tenaris, under a long-term
steam sales agreement. The rest of the requirements are covered through the purchase of
natural gas from different market vendors, or with alternative sources of energy such as fuel
oil. Siderar covers electricity shortfalls or sells excesses, as the case may be, at spot
prices in the wholesale market. In order to mitigate these shortfalls, it entered into
electricity supply contracts with the Central Puerto and Genelba power plants, both owned by
Petrobras. Over the course of the last several years, demand for electricity has increased
substantially, resulting in shortages of electricity to residential and industrial users
during periods of high demand. Accordingly, in 2008 certain Siderar facilities suffered
interruptions in their electricity supply at peak hours.
Natural gas. Siderar also consumes substantial volumes of natural gas, particularly to operate
its blast furnace and power generation facilities. Siderar purchases natural gas at spot
prices and on spot terms and conditions. Siderars San Nicolás facilities needs for natural
gas are covered mainly by Pan American Energy, Total Austral, Repsol YPF, Tecpetrol S.A., a
company controlled by San Faustín, and natural gas traders in Argentina, including
MetroEnergía, Albanesi, Energy Consulting Services and Energy Traders. As is the case with
electricity, natural gas demand has increased significantly, and supply to industrial users
(including Siderar) has often been restricted during the Argentine winter.
Siderar has separate transportation agreements with Transportadora de Gas del Norte S.A.
(TGN), Transportadora de Gas del Sur S.A. (TGS), Camuzzi Gas Pampeana S.A. (Camuzzi),
Gas Natural Ban S.A. (Gasban) and Metrogas. The main transportation contract is with TGN, a
company partially owned by San Faustín, which expires in April 2013. For the final
distribution phase, Siderar has several distribution contracts with Litoral Gas (a company
partially owned by San Faustín), Camuzzi, Gasban and Metrogas. The principal contract is with
Litoral Gas, which expires in December 2011.
Other inputs. Siderar has on-site oxygen, nitrogen and argon separation plants in order to
extract these gases for use in the steelmaking process. Siderar is a party to a long-term
contract with Air Liquide Argentina S.A. for the operation and maintenance of a separation
facility at San Nicolás for a contracted amount of USD175.2 million, which is due to terminate
in 2025. Under the terms of the contract, Siderar is required to take or pay certain minimum
daily amounts of oxygen, nitrogen and argon, which amounts are consistent with its production
requirements in Argentina. The parties entered into an amendment to this contract in order to
increase the volume of gases supplied thereunder; however, due to the effect of the economic
downturn on Siderars expected requirements of oxygen, nitrogen and argon, the parties entered
into a renegotiation of the contract. Pursuant to such renegotiation certain obligations of
both parties under the contract were temporarily suspended; such suspension has been extended
in several opportunities and is currently effective until June 30, 2010.
Product Quality Standards
Ternium develops its products and services with a philosophy of continuous improvement and
seeks to excel in its internal quality control of its products and processes. Terniums
products are manufactured in accordance with proprietary standards and the requirements of
customers, and within the specifications of recognized international standardization entities
including the International Organization for Standardization, or ISO, the American Society for
Testing and Materials, or ASTM, the European Standards, or EN, the Japanese Industrial
Standards, or JIS, the Society of Automotive Engineers, or SAE, and the standards of the
American Petroleum Institute, or API.
Ternium designed, developed and implemented the quality management system it has in place.
Based on the ISO 9001:2008 and, in the case of areas related to the production of automotive
supplies, ISO/TS 16949:2009 platforms, the Ternium Quality Management System aligned quality
management systems and criteria throughout Terniums subsidiaries. To keep the ISO Multisite
certification, the Ternium Quality Management System is regularly audited by Lloyds Register
Quality Assurance.
During October 2009, Siderars facilities were recertified under ISO 9001:2008 and ISO/TS
16949:2009, as part of a Multisite certification scheme running on the Ternium Quality
Management System.
Ternium Mexicos and Siderars metallurgical testing laboratories are accredited for the
performance of various technical tests in accordance with ISO/IEC 17025:2005 General
Requirements for the Competence of Testing and Calibration Laboratories or equivalent
standards.
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In July 2008, the American Petroleum Industry, or API, performed an audit under API Q1 ISO/TS
29001 at Planta Tuberia Guerrero, Ternium Mexicos thick-walled tubes manufacturing facility,
for the renewal of Ternium Mexicos license to use the API Monogram® on its line pipe products
under the conditions specified in API Spec 5L. In February 2009, the license was renewed.
Research and Development; Product Development
Product research and development activities at Ternium are conducted through a central Product
Development Department in coordination with local teams that operate in several of our
facilities. Applied research efforts are carried out in-house and in conjunction with
universities and research centers, as well as through the participation in international
consortia. Ternium also develops new products and processes in cooperation with its industrial
customers.
In 2009, Terniums product research and development activities focused on increasing the
industrial integration of its facilities and on the development of products for new customers,
mainly aimed at increasing capacity utilization rates at Terniums facilities. In addition, we
continued developing new products for long-standing customers, mainly aimed at fulfilling
increasing product performance requirements. Furthermore, Ternium continued carrying out its
medium-term product research and development plan, encompassing foreseen product requirements
and associated new equipment, which it considers a key input for the design of Terniums
capital expenditure projects and differentiating strategies.
In 2009, Ternium continued the development of new processing routes to integrate its
production units and increase shipments. These initiatives were part of its efforts to
increase capacity utilization rates at its production units in the context of a pronounced
steel market downturn. Ultimately, it allowed for replacing semi-finished steel products
procured from third parties with products manufactured in-house and a market share increase in
certain market segments. Slabs, hot-rolled coils and cold-rolled coils manufactured in our
production units in Argentina were further processed in our production units in Mexico and
Guatemala. In addition, new coated products were developed for processing at our Mexican
production units to supply customers in Argentina and Argentinas neighboring countries.
During 2009, Ternium developed structural bars for use in highway bridges and thin-gauge
hot-rolled structural steels for industrial shelving and storage racks. In addition, we
developed new steel chemical compositions to fulfill new customers requirements in our
markets. Ternium also developed new hot-rolled structural grades used by welded pipe
manufacturing customers serving the construction industry.
During 2009, Ternium developed new industrial customers in Mexico, leveraging its extended
network of service centers to differentiate and compete against imports. Among these
initiatives, we launched product approval processes with new customers in the automotive and
rail transportation sectors.
In addition, we continued the certification of processes with existing customers in the
automotive industry in Mexico and Argentina, related to newly defined standards and new car
models to be produced in these countries. We also developed new products for industrial
customers, such as high-gauge hot-rolled high-strength low-alloy grade structural steel for
the automotive industry, new cold-rolled re-phosphorized grade for boilers and super
high-gloss coil coated products for refrigerators.
Terniums medium-term product research and development plans are based on its continuing
assessment of the emerging requirements for steel product performance with leading steel
customers. Based on customer feedback, we define future technology requirements at our
facilities.
Presently, we are working on various medium-term projects, including advanced high-strength
steel for the automotive industry through the Galvanized Autobody Partnership and McMaster
University; high-strength low-alloy steel for our industrial customers in collaboration with
the University of Pittsburgh and support by the Argentine Steel Institute; and coated products
with long-term corrosion resistance for the construction industry as well as new magnesium
added metallic coatings for various applications with the French Corrosion Institute.
In 2010, Ternium plans to expand its product range of hot-rolled, cold-rolled and galvanized
products through the development of new automotive and heavy machinery high-strength steel
grades to increase its market share. We also expect to develop new wire rod grades for the
manufacturing of novel springs, aimed at reducing weight and extending service life, driven by
the specifications of some European carmakers. In addition, Ternium plans to develop
hot-rolled
and cold-rolled steel grades to increase shipments to welded pipe manufactures serving the
automotive and industrial sectors.
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We spent an aggregate of USD0.7 million for product research and development in 2009, compared
to USD0.8 million in 2008 and USD1.1 million in 2007.
Regulations
Environmental Regulation
Terniums operations (including mining activities in Mexico) are subject to a broad range of
environmental laws, regulations, permit requirements and decrees relating to the protection of
human health and environment, including laws and regulations relating to land use; air
emissions; wastewater treatment and discharges; the use, handling and disposal of hazardous or
toxic materials and the handling and disposal of solid wastes. Laws and regulations protecting
the environment have become increasingly complex and more stringent and expensive to implement
in recent years. International environmental requirements vary.
Ternium has established corporate environmental guidelines requiring each of its business
units to comply with all applicable environmental laws and regulations. Compliance with
environmental laws and regulations, and monitoring regulatory changes, is addressed primarily
at the regional level.
Ternium reports to the World Steel Association its CO2 emissions data on an annual
basis as part of the associations initiative to collect emissions data from member companies.
We support the steel industrys ongoing effort to develop innovative solutions to reduce
greenhouse gas (GHG) emissions over the life cycle of steel products. According to the
Intergovernmental Panel on Climate Change (IPCC), the steel industry accounts for
approximately 3% to 4% of total world GHG emissions.
Our steel production facilities in Mexico have achieved GHG-specific emission levels that are
close to the theoretical minimum. In Argentina, Siderars GHG-specific emission levels are
close to the industry average for blast furnace technology.
The ultimate impact of complying with existing laws and regulations is not always clearly
known or determinable since regulations under some of these laws have not yet been promulgated
or are undergoing revision. The expenditures necessary to remain in compliance with these laws
and regulations, including site or other remediation costs, or costs incurred from potential
environmental liabilities, could have a material adverse effect on our financial condition and
profitability. While we incur and will continue to incur expenditures to comply with
applicable laws and regulations, there always remains a risk that environmental incidents or
accidents may occur that may negatively affect our reputation or our operations.
Ternium has not been subject to any material penalty for any environmental violations in 2009,
and we are not aware of any current material legal or administrative proceedings pending
against Ternium with respect to environmental matters which could have an adverse material
impact on Terniums financial condition or results of operations.
Mining regulations in Mexico
Because our operations in Mexico include mining, we are also subject to Mexican regulations
relating to mining and mining concessions. Under Mexican law, mineral resources belong to the
Mexican nation and a concession from the Mexican federal government is required to explore for
or exploit mineral reserves. Pursuant to the Ley Minera (Mining Law), mining concessions may
only be granted to Mexican individuals and to legal entities incorporated under Mexican law.
Foreign investors may hold up to 100% of the shares representing the capital stock of such
entities.
A mining concession allows its holder to perform both exploration works (including identifying
mineral deposits and quantifying and evaluating economically minable reserves), and
exploitation works (including detaching and extracting mineral products from such deposits).
Mining concessions have a 50-year duration from the date of their recording in the Public
Mining Registry and may be extended for an equal term, provided certain requirements are met.
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Mining concessions grant several specified rights to the concessionaire, including:
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the right to dispose freely of mineral products obtained as a result of the
exploitation of the concession; |
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the right to obtain the expropriation of, or an easement with respect to, the
land where the exploration or exploitation will be conducted; and |
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the use of water in the mine to facilitate extraction. |
In addition, a concessionaire of a mining concession is obligated, among other things, to
explore or exploit the relevant concession, to pay for any relevant mining rights, to comply
with all environmental and safety standards, and to provide information to and permit
inspections by the Secretaría de Economía. Mining concessions may be terminated if the
obligations of the concessionaire are not satisfied.
A company that holds a concession must be registered with the Public Mining Registry. In
addition, mining concessions and permits, assignments, transfers and encumbrances must be
recorded with the Public Mining Registry to be enforceable. We believe that our material
mining concessions are duly registered in the Public Mining Registry.
Trade regulations
Intense global competition in the steel industry can lead many countries to increase duties or
impose restrictions on steel product imports to protect their domestic industries from trades
that are not made under market conditions or that are otherwise unfair. Such measures protect
domestic producers from increased imports sold at dumped or subsidized prices.
During a period of intense competition in 2001, some regions to which Ternium exports its
products, such as the United States and Europe, implemented these measures as well as other
general measures known as safeguards. While safeguards were lifted in December 2003,
antidumping and countervailing duties remain in place. At the same time, bilateral or regional
free trade agreements have liberalized trade among some countries, providing for reduced or
zero tariffs for many goods, including steel products.
Countries imposition of trade remedy measures and the entry into force of various free trade
agreements can and have both benefited and adversely affected Terniums home market and export
sales of steel products, as described below. See also Item 3. Key InformationD. Risk
FactorsCertain Regulatory Risks and Litigation RisksInternational trade actions or
regulations and trade-related legal proceedings could adversely affect Terniums sales,
revenues and overall business.
Mexico.
The Mexican government has imposed certain antidumping measures on steel import products that
are similar to the ones produced by Ternium Mexico. The following antidumping measures are
currently in effect:
Hot-rolled products: On March 28, 2000, the Mexican government imposed antidumping duties on
the Russian Federation and Ukraine of 30.31% and 46.66%, respectively. On March 25, 2005 the
first sunset review was initiated by the Mexican authorities, and on March 17, 2006 a final
resolution was issued, extending the antidumping duties for an additional five-year period. A
second sunset review was initiated on March 16, 2010.
Furthermore, since September 2005, Mexico has imposed antidumping duties against Ukraine
(60.1%), Romania (67.60%) and Russia (36.80%) on cut-to-length plate in coils. Mexican
authorities are expected to conduct a sunset review of these measures in 2010.
In March 2008, the Mexican government imposed a provisional antidumping duty on cut-to-length
plate imports from China. The measure was lifted in October 6, 2008, as the Mexican
authorities concluded that their domestic industry was not suffering injury as a result of
such imports and thus decided not to conduct any further investigations thereon.
Cold-rolled products: Since June 1999, Mexico has imposed antidumping duties on cold-rolled
steel sheets from Bulgaria (44%45%), the Russian Federation (83%88%) and Kazakhstan
(33%34%). On December 12, 2005, and as a result of the first sunset review, the Mexican
authorities extended the anti-dumping duties for an additional
five-year period until June 2009. A sunset review was initiated in July 2009 and is currently
under way; after completing this procedure, some or all of these duties could be eliminated.
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Plate in coil: Since June 1996, an anti-dumping duty of 29.3% on imports from Russia has been
imposed. In June 2003, the first sunset review resolution concluded the application of the
antidumping duty should continue. In June 2007, the Ministry of Economy issued the final
resolution of the second sunset review, determining the continuation of the anti-dumping
duties for an additional five-year period.
Long products: Brazilian imports of reinforcing bars are currently subject to an antidumping
duty of 57.69%. In June 2006, the second sunset review resolution determined the continuation
of antidumping duties for an additional five-year period. A third sunset review will be
initiated in August 2010. Wire rod imports from Ukraine are subject to a duty of 30.52% since
September 2000. In June 2006, the first sunset review resolution determined the continuation
of antidumping duties for an additional five-year period. The initiation of a second sunset
review is expected to take place in September 2010.
U.S. authorities have imposed a number of measures on flat and long steel import products from
Mexico, thereby restricting Terniums exports to that country. Below is a description of
measures currently in effect.
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Hylsamexs wire rod exports are subject to an antidumping duty of 17.94% pursuant to
an antidumping duty order on carbon and certain alloy steel wire rod from Mexico.
Following the most recent sunset review, such duty was extended for five more years from
June 2008. In November 2008, at Ternium Mexicos request, the U.S. Department of
Commerce (DoC) initiated a changed circumstances review of the antidumping duty order
described above in order to determine whether Ternium Mexico is the
successor-in-interest to Hylsamex for purposes of determining antidumping duty
liability. On May 13, 2009, the DoC determined that Ternium Mexico is the
successor-in-interest to Hylsamex and, thus, should receive the same antidumping duty
treatment with respect to steel wire rod from Mexico as Hylsamex. |
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Tubular products from Mexico have been subject to antidumping duties since August
1995. In particular, our subsidiaries Oil Country Tubular Goods, or OCTG, products were
subject to a 1.48% antidumping duty until such duty was revoked in May 31, 2007,
following International Trade Administrations (ITC) determination that if the order on
imports of OCTG from, among other countries, Mexico was lifted it would not be likely to
lead to continuation or recurrence of material injury within a reasonably foreseeable
time. |
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In 2007, the DoC initiated an antidumping investigation of light-walled rectangular
pipe and tube (LWRPT) from, among other countries, Mexico. On June 13, 2008, the DoC
made a final determination of sales at less than fair value in the investigation of
LWRPT from Mexico and, as a result, LWRPT from Mexico, including LWRPT manufactured by
Hylsamex, are now subject to antidumping duties. In particular, Hylsamexs exports of
LWRPT are subject to either a 3.76% or an 11.5% duty, depending on the plant at which
the relevant product was manufactured. In August 2009, the DoC issued the final results
of a changed circumstances review of the antidumping duty order on LWRPT from Mexico
concluding that Ternium Mexico is the successor-in-interest to Hylsamex for purposes of
determining antidumping duty liability and, thus, Ternium Mexico will receive the same
antidumping duty treatment with respect to LWRPT from Mexico as Hylsamex. |
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Since 1992, pursuant to an antidumping duty order on circular welded non-alloy steel
pipe or standard pipe from various countries, including Mexico, standard
pipes manufactured by Hylsamex and Grupo Imsa were subject to antidumping duties. In
2007, such measures were extended for five more years. In August 2009, the DoC published
the final results of a changed circumstances review, concluding that Ternium Mexico is
the successor-in-interest to Hylsamex for purposes of determining antidumping duty
liability. As of April 13, 2010, in accordance with the latest administrative review,
the applicable duty for Ternium Mexico is 48.33%. |
On January 25, 2010, Colombian authorities initiated an antidumping investigation against
wire rod products from Mexico. The investigation was closed on April 23, 2010.
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Mexico has signed trade agreements with several countries or trade blocs aimed at
liberalizing trade between them:
NAFTA was signed among Canada, Mexico and the United States and came into effect on
January 1, 1994. NAFTA provided for the progressive elimination over a ten-year period of
duties on, among other things, steel products traded
between or among Mexico, the United States and Canada. As a result, zero tariffs currently
apply to steel products traded within NAFTA countries. Accordingly, Ternium has greater
access to the U.S. and Canadian markets through Ternium Mexico, but also faces increased
competition in Mexico from U.S. and Canadian steel imports. NAFTA provides that NAFTA member
companies (including Mexican steel producers such as Ternium Mexico) can challenge trade
restrictions imposed by other NAFTA countries before a binational dispute resolution panel.
The Mexican-European Free Trade Agreement, or MEFTA, became effective on July 1, 2000. MEFTA
provides for the phase-out and eventual elimination of Mexican and European duties on all
industrial goods, including finished steel products. The European Union, or EU, eliminated
all import duties on Mexican industrial goods, including finished steel products, as of
January 1, 2003, while Mexico eliminated all import duties on European industrial goods,
including finished steel products, as of January 1, 2007. Accordingly, Ternium has increased
access to EU markets under MEFTA through Ternium Mexico, but also could face increased
competition in Mexico from EU steel imports.
In November 2003, Mexico and Argentina signed an Economic Complementation Agreement, or ACE
6, whereby reciprocal tariff preferences were granted. In 2006, Mexico and Argentina modified
the ACE 6 Agreement, reducing to zero import duties on imports of certain steel products from
the other country. Zero import duties included exports from Mexico to Argentina and from
Argentina to Mexico for up to 90,000 tons per year of slabs, 60,000 tons per year of cold
rolled coils and 30,000 tons per year of corrosion resistant coils, including hot dip
galvanized and pre-painted sheets.
In addition, the Mexican government has signed trade agreements with Venezuela, Colombia, the
European Free Trade Associationan intergovernmental organization set up by Liechtenstein,
Norway, Iceland and Switzerland, Japan, Chile, Bolivia, Nicaragua, Costa Rica and Uruguay,
among others. However, the Mexico-Venezuela free trade agreement was terminated in
November 2006.
On February 9, 2010, the Mexican Government issued a decree reducing the tariffs on several
steel product groups. For 2010, the tariff in semifinished products was set at 3% (5% in
2009), the tariff for finished flat and long products was set at 5% (7% in 2009), and the
tariff for welded pipe products was set at 7% (10% in 2009).
Argentina.
The Argentine government has imposed various antidumping measures on certain steel imports
that compete directly with Terniums sales in Argentina.The following measures are currently
in effect:
Hot-rolled products: Since December 1999, the Argentine government has imposed anti-dumping
measures requiring a minimum import price for hot-rolled steel imports from Brazil, the
Russian Federation and Ukraine. Argentina accepted a price undertaking agreement from
Brazilian exporters. In 2006 Argentine authorities conducted a sunset review of these
measures and decided to continue them for five more years. In its decision, the Argentine
government determined antidumping duties for Russian, Ukrainian and Brazilian hot-rolled
steel exports to Argentina. A price undertaking for Brazilian exports was also accepted by
Argentine authorities.
Argentina has also imposed antidumping measures on hot-rolled steel imports from Kazakhstan
(39.91%), Romania (40.48%), Slovak Republic (62.09%) and South Africa (55.26%), effective
since April 2002. In October 2008, following completion of a sunset review initiated in May
2007, Argentine authorities decided to continue these measures for five more years.
Cold-rolled products: Since January 2003, Argentina has also imposed antidumping measures on
cold-rolled steel imports from Korea (60.46%), South Africa (83.07%), Kazakhstan (80.61%) and
Ukraine (71.22%). In July 2009, following completion of a sunset review initiated in January
2008, the Argentine authorities decided to continue these antidumping measures for one year.
Galvanized products: since May 2003, Argentina has imposed antidumping duties on galvanized
steel sheets from South Korea (49.67%), South Africa (27.90%), Australia (70.37%) and Taiwan
(33.09%). The petitioners requested the initiation of a sunset review in May 2008 to
determine whether the antidumping duties will be maintained for five more years. In November
2009, following completion of a sunset review initiated in May 2008, the Argentine government
decided to renew measures for three years, replacing previous ad valorem rates by specific
antidumping
measures: USD243/ton for South Korea; USD286/ton for South Africa; USD247/ton for Australia;
and USD223/ton for Taiwan.
47
U.S. authorities had imposed a number of measures on steel import products from Argentina,
thereby restricting Terniums exports to that country in the past. Such measures were revoked
and, accordingly, none of them are currently in effect.
As of May 2003, Thailand imposed antidumping duties of 37.94% against imports of hot rolled
steel from Argentina; such duties remain currently in effect.
Argentina has signed free trade agreements with several countries or trade blocs aimed at
liberalizing trade between them.
In early 1991, the Argentine government reduced import tariffs and eliminated most non-tariff
restrictions on trade as part of an effort to open the Argentine economy to foreign
competition. In March 1991, Argentina, Brazil, Uruguay and Paraguay entered into the Treaty
of Asunción, creating the Mercado Común del Sur (Common Market of the South), or Mercosur, a
common market organization that aimed to bring about the free movement of goods, capital,
services and people among its member states. The Treaty of Ouro Preto, signed in 2004,
formalized a customs union among Mercosurs member states. Over time, the Mercosur has
eliminated or significantly reduced import duties, tariffs and other trade barriers among
member states. In particular, zero tariffs have applied to steel products imported from other
member states since January 1, 2000. The current tariff applicable to steel products imported
from outside Mercosur ranges from 2% to 16%.
In 2005, Mercosur entered into a trade agreement with Chile, pursuant to which all tariffs on
steel products have been eliminated. In 1996, Mercosur signed a free trade agreement with
Bolivia, pursuant to which all steel products began receiving a 100% tariff preference on
January 1, 2006. Mercosur and the Andean Community (Bolivia, Colombia, Ecuador, Peru and,
formerly, Venezuela), signed a free trade agreement aimed at reducing and eventually
eliminating tariffs on steel products traded among member countries over a period of 8 to
12 years. Mercosur is also negotiating free-trade agreements with the EU, Mexico, India and
South Africa. In May 2006, Venezuela became a junior member of Mercosur and is currently
seeking full membership in the group. Brazil, Argentina and Uruguay have already approved
Venezuelas membership. The matter is still pending before Congress in Paraguay.
In November 1993, Argentina and Mexico signed an Economic Complementation Agreement, or ACE 6.
See Item 4. Information on the CompanyB. Business Overview. Trade Regulations Mexico.
Insurance
Our subsidiaries carry insurance policies covering property damage (including machinery
breakdown and business interruption), general liability and other insurance such as, among
others, automobile, marine cargo and life and workers compensation insurance. These insurance
policies include coverage and contract amounts which are customary in the steel products
industry and in line with legal and domestic market requirements. General liability coverage
typically includes third party, employers, sudden and accidental seepage and pollution and
product liabilities within limits up to USD100 million.
48
|
C. |
|
Organizational Structure |
Below is a simplified diagram of Terniums corporate structure as of December 31, 2009.
Subsidiaries
Ternium operates entirely through subsidiaries. For a complete list of its subsidiaries and a
description of its investments in other companies, see note 2 to our audited consolidated
financial statements included elsewhere in this annual report.
Ternium Mexico. Ternium Mexico was formed as result of the merger of Grupo Imsa, Hylsamex and
Hylsamexs major shareholder in March 2008. Ternium Mexico and its subsidiaries operate all of
Terniums mining and steel production activities in Mexico, the United States, Guatemala,
Honduras, El Salvador, Nicaragua and Costa Rica. Ternium Mexico and its subsidiaries produce
flat and long steel products, including value-added finished steel products for use mainly in
the construction and industrial sectors. Ternium Mexico has a finished steel annual production
capacity of 6.1 million tons.
Siderar. Siderar is the main integrated manufacturer of flat steel products in Argentina with
total annual finished steel production capacity of 2.6 million tons. The shareholders of
Siderar as of March 31, 2010 are set out in the following table, together with the share
percentage owned by each such shareholder as of that date:
|
|
|
|
|
|
|
|
|
Siderar Shareholders |
|
Number |
|
|
Percent |
|
Ternium |
|
|
211,754,474 |
|
|
|
60.94 |
% |
ANSeS |
|
|
90,225,841 |
|
|
|
25.97 |
% |
Inversora Siderúrgica Argentina (employees) |
|
|
11,734,770 |
|
|
|
3.38 |
% |
Public |
|
|
33,753,686 |
|
|
|
9.71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
347,468,771 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
Siderars shares are listed on the Buenos Aires Stock Exchange (Bolsa de Comercio de Buenos
Aires), or BASE, under the symbol ERAR. The Buenos Aires Stock Market (Mercado de Valores de
Buenos Aires), which is affiliated with the BASE, is the largest stock market in Argentina. On
March 31, 2010, the closing price of the Siderar shares on the BASE was ARP26.95 per share
(approximately USD7.02 per share).
49
Ternium Internacional. Ternium Internacional comprises a network of companies in various
jurisdictions around the worldincluding Colombia, Ecuador, Panama, Spain, Uruguay, the
Netherlands and the United Statesthat market and provide services in relation to the sales of
Terniums products worldwide. The headquarters of the network are located in Uruguay. Ternium
Internacionals services include sales and trading, communication systems, offices and human
resources dedicated to export trading, technical assistance, commercial back office and credit
analysis.
Ternium Brasil. Ternium Brasil S.A. is a wholly-owned subsidiary of the Company. Organized
under the laws of Brazil, it was formed for the purpose of assessing expansion opportunities
in that country.
Other Investments
Exiros. Exiros, with offices located in nine countries, and in which we have a 50% share
ownership and Tenaris has the remaining 50% share ownership, provides our subsidiaries with
purchase agency services in connection with purchases of raw materials and other products or
services. Exiross objectives are to procure better purchase conditions and prices by
exercising the improved bargaining power that results from combining the demand of products
and services by both Ternium and Tenaris.
|
D. |
|
Property, Plants and Equipment |
See Business OverviewProduction Facilities and Processes.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The following discussion and analysis of our financial condition and results of operations is
based on, and should be read in conjunction with, our audited consolidated financial
statements and the related notes included elsewhere in this annual report. This discussion and
analysis presents our financial condition and results of operations on a consolidated basis.
We prepare our consolidated financial statements in conformity with IFRS, which differ in
certain significant respects from U.S. GAAP.
Certain information contained in this discussion and analysis is presented elsewhere in this
annual report, including information with respect to our plans and strategies for our
business, and includes forward-looking statements that involve risks and uncertainties. See
Cautionary Statement Concerning Forward-Looking Statements. In evaluating this discussion
and analysis, you should specifically consider the various risk factors identified in this
annual report and others that could cause results to differ materially from those expressed in
such forward-looking statements.
Overview
Ternium is a leading steel company in Latin America, manufacturing and processing a wide range
of flat and long steel products for customers active in the construction, home appliances,
capital goods, container, food, energy and automotive industries. Ternium has production
facilities in Mexico, Argentina, the United States and Guatemala, as well as a network of
service centers which provide it with a strong position from which to serve its core markets.
Ternium primarily sells its flat and long steel products in the regional markets of the
Americas. Ternium provides specialized products and delivery services, mainly to customers in
Mexico and Argentina, through its network of manufacturing facilities and service centers. We
believe that Ternium is a leading supplier of flat steel products in Mexico, the leading
supplier of flat steel products in Argentina, and a competitive player in the international
steel market for flat and long steel products. Through its network of commercial offices in
several countries in Latin America, the United States and Spain, Ternium maintains an
international presence that allows it to reach customers outside its local markets, achieve
improved effectiveness in the supply of its products and in the procurement of semi-finished
steel, and maintain a fluid commercial relationship with its customers by providing continuous
services and assistance.
50
Terniums revenues are affected by general global trends in the steel industry and more
specifically by the economic conditions in the countries in which it has manufacturing
operations and where its customers are located. Terniums revenues are also impacted by events
that affect the price and availability of raw materials, energy and other inputs needed for
its operations. Furthermore, due to the highly cyclical nature of the steel industry, recent
results may not be indicative of future performance, and historical results may not be
comparable to future results. Investors should not rely on the results of a single period,
particularly a period of peak prices, as an indication of Terniums annual results or future
performance. The variables and trends mentioned below could also affect the results of its
investments in steel related companies. See Item 4. Information on the CompanyB. Business
OverviewOur Business Strategy.
Terniums primary source of revenue is the sale of flat and long steel products. Management
expects sales of flat and long steel products to continue to be Terniums primary source of
revenue. The global market for such steel products is highly competitive, with the primary
competitive factors being price, cost, product quality and customer service. The majority of
Terniums sales are concentrated in the Americas. Specifically, Terniums largest markets are
Mexico and Argentina, where its main manufacturing facilities are located.
Terniums results are sensitive to economic activity and steel consumption. Terniums results
of operations primarily depend on economic conditions in Mexico and Argentina and, to a lesser
extent, on economic conditions in international and regional markets such as NAFTA, Mercosur
and the Andean Community. Historically, annual steel consumption in the countries where
Ternium operates has varied at a rate that is linked to the annual change in each countrys
gross domestic product and per capita disposable income. Recently, the global economic
downturn resulted in an overall decreased demand for Terniums products. For example, apparent
consumption of finished steel products
in Mexico decreased by 1% during 2007 and 4% during 2008, due to subdued industrial activity
in the NAFTA region, while in Argentina it increased 3% during 2007 and 4% during 2008,
reflecting a sustained activity in the construction and industrial sectors. During the fourth
quarter 2008, following a steep downturn in the global economy, demand for steel products fell
sharply. As a result, apparent consumption of finished steel products decreased in 2009 by 15%
in Mexico and 33% in Argentina. This economic downturn has had a pronounced negative effect on
Terniums business and results of operations. A protracted global recession or a depression
would have a material adverse effect on the steel industry and Ternium.
Terniums results are also sensitive to prices in the international steel markets. Moreover,
steel prices are volatile and are sensitive to trends in cyclical industries, such as the
construction, automotive, appliance and machinery industries, which are significant markets
for Terniums products. Steel prices in the international markets, which had been rising fast
during the first half of 2008, fell sharply beginning in the second half of 2008 as a result
of collapsing apparent demand and the resulting excess capacity in the industry. The fall in
prices during this period adversely affected the results of steel producers generally,
including Ternium, as a result of lower revenues and writedowns of finished steel products and
raw material inventories. For example, in the second half of 2008 Ternium recorded a valuation
allowance in an amount of USD200 million and in the first half of 2009 it recorded an
additional valuation allowance in an amount of USD127.6 million. Beginning in the second half
of 2009, steel prices in the international markets rebounded mainly as a result of the
increase in the demand for steel in China and other emerging markets, and the subside of the
worldwide inventory liquidation process. Although the duration and extent of this price
recovery depends highly on global economic recovery, historically the length and nature of
business cycles affecting the steel industry have been unpredictable. A protracted fall in
steel prices would have a material adverse effect on Terniums results, as could price
volatility.
Trends in the steel industry may also have an impact on Terniums results. In addition to
economic conditions and prices, the steel industry is affected by other factors such as
worldwide production capacity and fluctuations in steel imports/exports and tariffs.
Historically, the steel industry has suffered, especially on downturn cycles, from substantial
overcapacity. Currently, as a result of the economic crisis and from the increase in steel
production capacity in recent years, there are signs of excess capacity in all steel markets.
It is possible that the industrys excess capacity will result in depressed margins and
industry weakness. Furthermore, there has been a trend in recent years toward steel industry
consolidation among Terniums competitors, and smaller competitors in the steel market today
could become larger competitors in the future. Intense competition could cause Ternium to lose
its share in certain markets and adversely affect its sales and revenue.
51
Terniums production costs are generally sensitive to the international prices of raw
materials, slabs and energy, which reflect supply and demand factors in the global steel
industry. Ternium purchases substantial quantities of raw materials (including iron ore, coal,
ferroalloys and scrap) and slabs for use in the production of its steel products. The
availability and price of these and other inputs vary, sometimes significantly, according to
general market and economic conditions. In addition to raw materials and slabs, natural gas
and electricity are both important components of Terniums cost structure. Ternium generally
purchases these inputs at market or market based prices; accordingly, price fluctuations in
these inputs necessarily impact Terniums production costs.
Terniums export revenues could be affected by trade restrictions and its domestic revenues
could be affected by unfair competition from imports. During 2001, a period of strong
oversupply, several anti-dumping measures were imposed in several countries in which Ternium
operates (including Mexico and Argentina) to prevent foreign steel producers from dumping
certain steel products in local markets. The recovery in global economic conditions since 2003
and strong Chinese demand reduced the previously strong competition in the international
exports markets and, consequently, several countries reduced or eliminated protective measures
established in prior years. However, a number of trade restrictions, both in Terniums local
and export markets, remain in place. In the face of a protacted period of oversupply,
countries may reestablish antidumping duties and/or other safeguards to protect their domestic
markets. Terniums ability to profitably access the export markets may be adversely affected
by trade restrictions, including antidumping duties and countervailing measures, in those
markets. In addition, Terniums ability to sell its products in its principal markets could be
affected by unfair competition from imports of steel products if applicable trade regulations
are not in force.
Prevailing exchange rates have had an impact on Terniums results in the past and could impact
results again in the future. In accordance with IFRS, Terniums subsidiaries in Mexico and
Argentina prepare financial statements in their local currencies and record foreign exchange
results on their net non-local currency positions when their local
currencies revaluate or devaluate to other currencies. Accordingly, fluctuations in the local
currencies against the U.S. Dollar have had, and may also have in the future, an impact on
Terniums results. In 2008, net foreign exchange result was a loss of USD632.7 million, which
was primarily due to the impact of the Mexican pesos 25% devaluation on Ternium Mexicos U.S.
dollar denominated debt. This non-cash result when measured in U.S. dollars was offset by
changes in Terniums net equity position in the currency translation adjustment, or CTA, line,
as the value of Ternium Mexicos U.S. dollar-denominated debt was not affected by the Mexican
peso fluctuation when stated in U.S. dollar terms in Terniums consolidated financial
statements.
Our 2009 results and cash flows reflect the impact of a variety of initiatives aimed at
mitigating the effects of the global economic downturn. The decrease in apparent steel demand
in Terniums markets forced us to reduce capacity utilization rates at our facilities. We made
adjustments to our production configuration taking into consideration, among other factors,
market demand, inventory resizing goals and cost. We were able to operate our crude steel
production facilities at relatively high utilization rates in 2009 and substantially reduced
our third-party purchases of slabs. In addition, we reduced labor shifts at many of our
production lines, supplementing these measures with the downsizing of corporate and other
staff, and other company-wide cost cutting initiatives. In 2009, we faced no financial
constraints in spite of the worldwide financial crisis. In addition to the years operating
income contribution in the reduction of our net debt, we freed substantial cash flows as a
result of our inventory reduction program. Furthermore, we reassessed, early in the year, our
entire short-to medium-term capital expenditure plans and slowed down or suspended major
capital expenditure projects to strengthen our balance sheet. Through these initiatives, we
managed to significantly mitigate the impact of the global crisis on our margins.
Terniums cash flows for 2009 and 2010 are strongly affected by the non-recurring payments
received or to be received in connection with the transfer of our interest in Sidor to
Venezuela. On May 7, 2009, we completed the transfer of our entire 59.7% interest in Sidor to
CVG. Ternium agreed to receive an aggregate amount of USD1.97 billion as compensation for its
Sidor shares. Of that amount, CVG paid USD400 million in cash at closing, and the balance was
divided in two tranches: the first tranche of USD945 million is being paid in six equal
quarterly installments, while the second tranche is 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. Payments from CVG aggregated USD954 million in 2009 and USD563 million in 2010
through the date of this annual report. The outstanding principal amount of the receivables
with CVG is currently USD458 million.
52
Critical Accounting Estimates
This discussion of our operating and financial review and prospects is based on our audited
consolidated financial statements included elsewhere in this annual report, which have been
prepared in accordance with IFRS. The use of IFRS has an impact on our critical accounting
policies and estimates.
The preparation of financial statements requires management to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses, and the
related disclosure of contingent assets and liabilities. On an ongoing basis, management
evaluates its accounting estimates and assumptions, including those related to doubtful
accounts, obsolescence of inventory, impairment of long-term investments, goodwill, and other
assets and contingencies, and revises them when appropriate. Management bases its estimates on
historical experience and on various other assumptions that it believes to be reasonable under
the circumstances. These estimates form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Although
management believes that its estimates and assumptions are reasonable, they are based upon
information available when the estimates and assumptions are made. Actual results may differ
significantly from these estimates under different assumptions or conditions.
Our most critical accounting estimates are those that are most important to the portrayal of
our financial condition and results of operations, and which require us to make our most
difficult and subjective judgments, often as a result of the need to make estimates of matters
that are inherently uncertain. Changes in these assumptions and estimates could have a
material impact on our consolidated financial statements. Our most critical accounting
estimates and judgments are set forth below.
Useful Lives and Impairment of Property, Plant and Equipment and Other Long-lived Assets
As permitted under IFRS 1First Time Adoption of IFRS, management has elected to use the
fair value of its property, plant and equipment as at January 1, 2003, as its deemed cost.
In determining useful lives and impairment
estimates, management considered, among others, the following factors: age, operating
condition and level of usage and maintenance. Management conducted visual inspections for the
purpose of (i) determining whether the current conditions of such assets are consistent with
normal conditions of assets of similar age; (ii) confirming that the operating conditions and
levels of usage of such assets are adequate and consistent with their design;
(iii) establishing obsolescence levels; and (iv) estimating expectancy, all of which were used
in determining useful lives and impairment estimates. Management believes, however, that it is
possible that the periods of economic utilization of property, plant and equipment may be
different than the useful lives so determined. Impairments may result from, among other
factors, changes in usage level and maintenance capital expenditure policies, obsolescence and
external factors (including increases in input prices that would affect the profitability of
the selected fixed assets). Any such impairment charges could have a material adverse effect
on Terniums results of operations, financial condition and net worth. Under IFRS, assets that
have an indefinite useful life are not subject to amortization and are tested annually for
impairment. An impairment loss is recognized for the amount by which the assets carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of an assets fair
value less cost to sell and the present value of estimated future cash flows. For purposes of
assessing impairment, assets are grouped at the lowest level for which there are separately
identifiable cash flows (cash-generating units). Management believes that this accounting
policy involves a critical accounting estimate because it is subject to change from period to
period as a result of variations in economic conditions and business performance.
At December 31, 2009, an impairment loss over the intangible asset booked in connection with
the slab purchase agreement with Corus was recorded for the amount of USD27 million. For more
information see Item 8. Financial InformationA. Consolidated Statements and other Financial
Information. Legal Proceedings and note 27 to our consolidated financial statements
included elsewhere in this annual report.
No other impairment losses were recorded from the impairment tests performed.
Impairment and recoverability of goodwill and other assets
Assessment of the recoverability of the carrying value of goodwill and other assets require
significant judgment. We evaluate goodwill allocated to the operating units for impairment on
an annual basis.
Goodwill is tested at the level of the cash generating units, or CGU. Impairment testing of
the CGU is carried out and the value in use determined in accordance with the discounted cash
flow method. In order to perform the test, we use projections for the next five years based on
past performance and expectations of market development. After the fifth year a perpetuity
rate with no grow up increase is utilized. The discount rates used for these tests are based
on our weighted average cost of capital adjusted for specific country and currency risks
associated with the cash flow projections. Discount rate used at December 31, 2009, was 11.8%.
53
The impairment tests performed as of December 31, 2009, resulted in no impairment charge.
Although we believe our estimates and projections are appropriate based on currently available
information, the actual operating performance of an asset or group of assets which has been
tested for impairment may be significantly different from current expectations. In such an
event, the carrying value of goodwill, investments in associated companies and deferred taxes
may be required to be reduced from the amounts currently recorded. Any such reductions may
materially affect asset values and results of operations.
Allowances for Doubtful Accounts
Management makes estimates of the uncollectibility of our accounts receivable. Management
analyzes our trade accounts receivable on a regular basis and, when aware of a third partys
inability to meet its financial commitments to us, management impairs the amounts due by means
of a charge to the allowance for doubtful accounts.
Management specifically analyzes accounts receivable and historical bad debts, customer
creditworthiness, current economic trends and changes in customer payment terms when
evaluating the adequacy of the allowance for doubtful accounts.
In addition, a charge to the allowance for doubtful accounts is recognized when a customer
makes a claim in connection with an order that has been invoiced and management estimates
that, despite its efforts, we are unlikely to collect the full amount of the invoice.
Allowances for doubtful accounts are adjusted periodically in accordance with the aging of
overdue accounts. For this purpose, trade accounts receivable overdue by more than 90 days,
and which are not covered by a credit collateral, guarantee or similar surety, are fully
provisioned.
Historically, losses due to credit failures, aging of overdue accounts and customer claims
have been within expectations and in line with the provisions established. If, however,
circumstances were to materially change (e.g., higher than expected defaults), managements
estimates of the recoverability of amounts due to us could be materially reduced and our
results of operations, financial condition and net worth could be materially and adversely
affected.
Allowance for Obsolescence of Supplies and Spare Parts, Inventorys Net Realizable Value and
Slow-Moving Inventory
Management assesses the recoverability of its inventories considering their selling prices, if
the inventories are damaged, or if they have become wholly or partially obsolete. Net
realizable value is the estimated selling price in the ordinary course of business, less the
costs of completion and selling expenses.
Ternium establishes an allowance for obsolete or slow-moving inventory in connection with
finished goods and goods in process. The allowance for slow-moving inventory is recognized for
finished goods and goods in process based on managements analysis of their aging. In
connection with supplies and spare parts the calculation is based on managements analysis of
their aging, the capacity of such materials to be used based on their levels of preservation
and maintenance and the potential obsolescence due to technological change.
As of December 31, 2008 the allowance for net realizable value totaled USD160.9 million. That
allowance amount was applied, in its entirety, against sales of inventories in fiscal year
2009 and, accordingly, there was no allowance for net realizable value as of December 31,
2009. The allowance for obsolescence as of December 31, 2009 and December 31, 2008 amounted to
USD58.2 million and USD124.9 million, respectively.
Historically, losses due to obsolescence and scrapping of inventory have been within
expectations and the provisions established. If, however, circumstances were to materially
change (e.g., significant changes in market conditions or in the technology used in the
mills), managements estimates of the recoverability of these inventories could be materially
reduced and our results of operations, financial condition and net worth could be materially
and adversely affected.
54
Loss Contingencies
We are subject to various claims, lawsuits and other legal proceedings that arise in the
ordinary course of our business, including customer claims in which a third party is seeking
reimbursement or indemnity. Our liability with respect to such claims, lawsuits and other
legal proceedings cannot be estimated with certainty. Periodically, management reviews the
status of each significant matter and assesses potential financial exposure. If the potential
loss from the claim or proceeding is considered probable and the amount can be reasonably
estimated, a liability is recorded. Management estimates the amount of such liability based on
the information available and the assumptions and methods it has concluded are appropriate, in
accordance with the provisions of IFRS. Accruals for such contingencies reflect a reasonable
estimate of the losses to be incurred based on information available, including the relevant
litigation or settlement strategy, as of the date of preparation of the applicable financial
statement. As additional information becomes available, management will reassess its
evaluation of the pending claims, lawsuits and other proceedings and revise its estimates.
With respect to the loss contingencies described in our financial statements, we do not expect
to incur any losses exceeding the amounts accrued as of December 31, 2009, that would be
material relative to our consolidated financial position, results of operations or liquidity
as of such date. However, if reserves prove to be inadequate and we incur a charge to
earnings, such charge could have a material adverse effect on our results of operations,
financial condition and net worth.
Valuation Allowance of Deferred Tax Assets
Management calculates current and deferred income taxes according to the tax laws applicable
to our subsidiaries in the countries in which such subsidiaries operate. However, certain
adjustments necessary to determine the income tax provision are finalized only after the
financial statements are issued. In cases in which the final tax outcome is different from the
amounts that were initially recorded, such differences will impact the income tax and deferred
tax provisions in the period in which such determination is made. When assessing the
recoverability of deferred tax assets, management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income and tax planning strategies. Based on those
estimates, management did not record a valuation allowance at December 31, 2009.
Although we believe our estimates are appropriate, significant differences in actual
performance of the asset or group of assets may materially affect our asset values and results
of operation.
Sidor Financial Asset
As further described in Note 29 to our audited consolidated financial statements included
elsewhere in this annual report, on May 7, 2009, Ternium reached an agreement with CVG for the
transfer of its entire 59.7% interest in Sidor in exchange for an aggregate amount of USD1.97
billion, out of which USD400 million were paid in cash on that date. The initial measurement
of the outstanding receivable was performed on the basis of its discounted amount using an
annual discount rate of 14.36%. Subsequently, this receivable was valued at its amortized cost
using the effective interest rate.We believe that the most significant estimate used in the
valuation of the Sidor financial asset was the determination of the discount rate used to
discount future cash flows.
The following discussion and analysis of our financial condition and results of operations are
based on our audited consolidated financial statements included elsewhere in this annual
report. Accordingly, this discussion and analysis present our financial condition and results
of operations on a consolidated basis. See Presentation of Certain Financial and Other
InformationAccounting Principles and notes 2 and 4 to our audited consolidated financial
statements included elsewhere in this annual report. The following discussion should be read
in conjunction with our audited consolidated financial statements and the related notes
included elsewhere in this annual report.
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands of U.S. dollars |
|
For the year ended December 31, |
|
(except number of shares and per share data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 (1) |
|
Selected consolidated income statement data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
4,958,983 |
|
|
|
8,464,885 |
|
|
|
5,633,366 |
|
|
|
4,484,918 |
|
|
|
2,690,450 |
|
Cost of sales |
|
|
(4,110,370 |
) |
|
|
(6,128,027 |
) |
|
|
(4,287,671 |
) |
|
|
(3,107,629 |
) |
|
|
(1,787,848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
848,613 |
|
|
|
2,336,858 |
|
|
|
1,345,695 |
|
|
|
1,377,289 |
|
|
|
902,602 |
|
Selling, general and administrative expenses |
|
|
(531,530 |
) |
|
|
(669,473 |
) |
|
|
(517,433 |
) |
|
|
(370,727 |
) |
|
|
(243,993 |
) |
Other operating (expenses) income, net |
|
|
(20,700 |
) |
|
|
8,662 |
|
|
|
8,514 |
|
|
|
(4,739 |
) |
|
|
(57,338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
296,383 |
|
|
|
1,676,047 |
|
|
|
836,776 |
|
|
|
1,001,823 |
|
|
|
601,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(105,810 |
) |
|
|
(136,111 |
) |
|
|
(133,109 |
) |
|
|
(96,814 |
) |
|
|
(60,686 |
) |
Interest income |
|
|
21,141 |
|
|
|
32,178 |
|
|
|
41,613 |
|
|
|
33,903 |
|
|
|
17,786 |
|
Interest income Sidor financial asset |
|
|
135,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial income (expenses), net |
|
|
81,639 |
|
|
|
(693,192 |
) |
|
|
(38,498 |
) |
|
|
(40,432 |
) |
|
|
33,514 |
|
Equity in earnings of associated companies |
|
|
1,110 |
|
|
|
1,851 |
|
|
|
434 |
|
|
|
671 |
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
430,415 |
|
|
|
880,773 |
|
|
|
707,216 |
|
|
|
899,151 |
|
|
|
592,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current and deferred income tax expense |
|
|
(91,314 |
) |
|
|
(258,969 |
) |
|
|
(291,345 |
) |
|
|
(353,044 |
) |
|
|
(233,113 |
) |
Reversal of deferred statutory profit sharing |
|
|
|
|
|
|
96,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
339,101 |
|
|
|
718,069 |
|
|
|
415,871 |
|
|
|
546,107 |
|
|
|
358,925 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
428,023 |
|
|
|
157,095 |
|
|
|
579,925 |
|
|
|
444,468 |
|
|
|
715,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year (2) |
|
|
767,124 |
|
|
|
875,164 |
|
|
|
995,796 |
|
|
|
990,575 |
|
|
|
1,074,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company |
|
|
717,400 |
|
|
|
715,418 |
|
|
|
784,490 |
|
|
|
795,424 |
|
|
|
706,418 |
|
Minority interest |
|
|
49,724 |
|
|
|
159,746 |
|
|
|
211,306 |
|
|
|
195,151 |
|
|
|
368,407 |
|
|
|
|
767,124 |
|
|
|
875,164 |
|
|
|
995,796 |
|
|
|
990,575 |
|
|
|
1,074,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
385,105 |
|
|
|
413,541 |
|
|
|
355,271 |
|
|
|
251,371 |
|
|
|
160,145 |
|
Weighted average number of shares
outstanding (4) |
|
|
2,004,743,442 |
|
|
|
2,004,743,442 |
|
|
|
2,004,743,442 |
|
|
|
1,936,833,060 |
|
|
|
1,209,476,609 |
|
Basic earnings per share (expressed in USD
per share) for profit: (2) (3) (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations attributable to
the equity holders of the Company |
|
|
0.15 |
|
|
|
0.27 |
|
|
|
0.15 |
|
|
|
0.20 |
|
|
|
0.15 |
|
From discontinued operations attributable to
the equity holders of the Company |
|
|
0.21 |
|
|
|
0.09 |
|
|
|
0.24 |
|
|
|
0.21 |
|
|
|
0.43 |
|
For the year attributable to the equity
holders of the Company |
|
|
0.36 |
|
|
|
0.36 |
|
|
|
0.39 |
|
|
|
0.41 |
|
|
|
0.58 |
|
Dividends per share declared |
|
|
0.05 |
|
|
|
|
|
|
|
0.05 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
(1) |
|
Combined consolidated financial information on the basis of common control. |
|
(2) |
|
International Accounting Standard N° 1 (IAS 1) (Revised) requires that income for the
year as shown in the income statement includes the portion attributable to minority
interest. Basic earnings per share, however, continue to be calculated on the basis of
income attributable solely to the equity holders of the Company. |
|
(3) |
|
Diluted earnings per share (expressed in USD per share), equals basic earnings per
share in 2009, 2008, 2007 and 2006. In 2005, diluted earnings per share were USD0.54,
including USD0.14 from continuing operations and USD0.39 from discontinued operations.
Diluted earnings per share have been calculated giving effect to the conversion of certain
subordinated convertible loans. |
|
(4) |
|
In October 2005, Usiminas exchanged its 5.3% equity interest in Siderar, its 16.6%
equity interest in Amazonia and its 19.1% equity interest in Ylopa and other items for
227,608,254 new shares of the Company. Upon the consummation of this exchange, capital
increased to USD1,396.6 million, represented by 1,396,551,886 shares of USD1.00 nominal
value each. Pursuant to provisions contained in certain subordinated convertible loan
agreements, on February 6, 2006, the Company exchanged such subordinated convertible loans
(including interest accrued thereon through January 31, 2006) for Company shares at a
conversion price of USD2 per share, resulting in the issuance of 302,962,261 new shares to
a wholly-owned subsidiary of San Faustín on February 9, 2006. As provided in a certain
corporate reorganization agreement, on February 9, 2006, after the settlement of the
Companys initial public offering, a wholly-owned subsidiary of San Faustín contributed
all of its assets and liabilities to the Company in exchange for 959,482,775 newly-issued
shares of the Company, which contribution included, among other items, the San Faustín
subsidiarys right to receive 302,962,261 new shares of the Company in connection with the
conversion of the subordinated convertible loans described above, and 374,272,579 existing
shares of the Company then held by such San Faustín subsidiary that were cancelled upon
receipt by the Company. In connection with the over-allotment option granted to the
underwriters of the Companys initial
public offering, on March 1, 2006, the Company issued 22,981,360 new shares. Upon
consummation of the transactions discussed above, as of December 31, 2006, the capital of
the Company was increased to USD2,004.7 million, represented by 2,004,743,442 shares, each
having a nominal value of USD1.00. For fiscal years 2009, 2008, 2007, 2006 and 2005, the
weighted average of shares outstanding totaled 2,004,743,442, 2,004,743,442, 2,004,743,442,
1,936,833,060 and 1,209,476,609 shares, respectively. |
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands of U.S. dollars |
|
At December 31, |
|
(except number of shares and per share data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 (1) |
|
Selected consolidated balance sheet data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
5,250,135 |
|
|
|
5,491,408 |
|
|
|
8,553,123 |
|
|
|
6,029,383 |
|
|
|
6,029,823 |
|
Property, plant and equipment, net |
|
|
4,040,415 |
|
|
|
4,212,313 |
|
|
|
6,776,630 |
|
|
|
5,335,030 |
|
|
|
5,377,831 |
|
Other non-current assets (2) |
|
|
1,209,720 |
|
|
|
1,279,095 |
|
|
|
1,776,493 |
|
|
|
694,353 |
|
|
|
651,992 |
|
Current assets |
|
|
5,042,538 |
|
|
|
5,179,839 |
|
|
|
5,095,959 |
|
|
|
2,628,870 |
|
|
|
2,518,958 |
|
Cash and cash equivalents |
|
|
2,095,798 |
|
|
|
1,065,552 |
|
|
|
1,125,830 |
|
|
|
643,291 |
|
|
|
765,506 |
|
Other current assets |
|
|
2,937,494 |
|
|
|
4,108,954 |
|
|
|
3,200,987 |
|
|
|
1,978,537 |
|
|
|
1,750,292 |
|
Non-current assets classified as held for sale |
|
|
9,246 |
|
|
|
5,333 |
|
|
|
769,142 |
|
|
|
7,042 |
|
|
|
3,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
10,292,673 |
|
|
|
10,671,247 |
|
|
|
13,649,082 |
|
|
|
8,658,253 |
|
|
|
8,548,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and reserve attributable to equity
holders (3) |
|
|
5,296,342 |
|
|
|
4,597,370 |
|
|
|
4,452,680 |
|
|
|
3,757,558 |
|
|
|
1,842,454 |
|
Minority interest |
|
|
964,897 |
|
|
|
964,094 |
|
|
|
1,805,243 |
|
|
|
1,626,119 |
|
|
|
1,633,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
2,872,667 |
|
|
|
3,374,964 |
|
|
|
5,401,549 |
|
|
|
1,867,892 |
|
|
|
3,683,755 |
|
Borrowings |
|
|
1,787,204 |
|
|
|
2,325,867 |
|
|
|
3,676,072 |
|
|
|
546,601 |
|
|
|
2,396,807 |
|
Deferred income tax |
|
|
857,297 |
|
|
|
810,160 |
|
|
|
1,327,768 |
|
|
|
982,091 |
|
|
|
1,047,038 |
|
Other non-current liabilities |
|
|
228,166 |
|
|
|
238,937 |
|
|
|
397,709 |
|
|
|
339,200 |
|
|
|
239,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
1,158,767 |
|
|
|
1,734,819 |
|
|
|
1,989,610 |
|
|
|
1,406,684 |
|
|
|
1,388,691 |
|
Borrowings |
|
|
539,525 |
|
|
|
941,460 |
|
|
|
406,239 |
|
|
|
507,241 |
|
|
|
510,820 |
|
Other current liabilities |
|
|
619,242 |
|
|
|
793,359 |
|
|
|
1,369,608 |
|
|
|
899,443 |
|
|
|
877,871 |
|
Liabilities directly associated with
non-current assets held for sale |
|
|
|
|
|
|
|
|
|
|
213,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
4,031,434 |
|
|
|
5,109,783 |
|
|
|
7,391,159 |
|
|
|
3,274,576 |
|
|
|
5,072,446 |
|
Total equity and liabilities |
|
|
10,292,673 |
|
|
|
10,671,247 |
|
|
|
13,649,082 |
|
|
|
8,658,253 |
|
|
|
8,548,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares outstanding (4) |
|
|
2,004,743,442 |
|
|
|
2,004,743,442 |
|
|
|
2,004,743,442 |
|
|
|
2,004,743,442 |
|
|
|
1,396,551,886 |
|
|
|
|
(1) |
|
Combined consolidated financial information on the basis of common control. |
|
(2) |
|
As of December 31, 2009, 2008, 2007, 2006 and 2005, includes goodwill related to the
acquisition of our Mexican subsidiaries for a total amount of USD708.6, USD683.7,
USD850.7, USD397.9 million and USD399.7 million, respectively. |
|
(3) |
|
The Companys common stock as of December 31, 2009, 2008, 2007, 2006 and 2005 was
represented by 2,004,743,442, 2,004,743,442, 2,004,743,442, 2,004,743,442 and
1,396,551,886 shares, par value USD1.00 per share, for a total amount of USD2,004.7
million, USD2,004.7 million, USD2,004.7 million, USD2,004.7 million and
USD1,396.6 million. |
|
(4) |
|
After the completion of the Companys initial public offering, the conversion of
certain subordinated convertible loans, the exercise of the over-allotment option granted
to the underwriters of the initial public offering and the consummation of the
transactions contemplated in a corporate reorganization agreement, as of December 31,
2006, the capital was increased to USD2,004.7 million, represented by 2,004,743,442
shares, each having a nominal value of USD1.00. |
57
The following table sets forth our operating and other costs and expenses as a
percentage of net sales for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
Percentage of net sales |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
(82.9 |
)% |
|
|
(72.4 |
)% |
|
|
(76.1 |
)% |
|
|
(69.3 |
)% |
|
|
(66.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
17.1 |
% |
|
|
27.6 |
% |
|
|
23.9 |
% |
|
|
30.7 |
% |
|
|
33.5 |
% |
Selling, general and administrative expenses |
|
|
(10.7 |
)% |
|
|
(7.9 |
)% |
|
|
(9.2 |
)% |
|
|
(8.3 |
)% |
|
|
(9.1 |
)% |
Other operating (expenses) income, net |
|
|
(0.4 |
)% |
|
|
0.1 |
% |
|
|
0.2 |
% |
|
|
(0.1 |
)% |
|
|
(2.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
6.0 |
% |
|
|
19.8 |
% |
|
|
14.9 |
% |
|
|
22.3 |
% |
|
|
22.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(2.1 |
)% |
|
|
(1.6 |
)% |
|
|
(2.4 |
)% |
|
|
(2.2 |
)% |
|
|
(2.3 |
)% |
Interest income |
|
|
0.4 |
% |
|
|
0.4 |
% |
|
|
0.7 |
% |
|
|
0.8 |
% |
|
|
0.7 |
% |
Interest income Sidor financial asset |
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial income (expense), net |
|
|
1.6 |
% |
|
|
(8.2 |
)% |
|
|
(0.7 |
)% |
|
|
(0.9 |
)% |
|
|
1.2 |
% |
Equity in earnings of associated companies |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
8.7 |
% |
|
|
10.4 |
% |
|
|
12.6 |
% |
|
|
20.0 |
% |
|
|
22.0 |
% |
Income tax expense |
|
|
(1.8 |
)% |
|
|
(1.9 |
)% |
|
|
(5.3 |
)% |
|
|
(7.8 |
)% |
|
|
(8.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
6.8 |
% |
|
|
8.5 |
% |
|
|
7.4 |
% |
|
|
12.2 |
% |
|
|
13.3 |
% |
Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
8.6 |
% |
|
|
1.9 |
% |
|
|
10.3 |
% |
|
|
9.9 |
% |
|
|
26.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year |
|
|
15.5 |
% |
|
|
10.3 |
% |
|
|
17.7 |
% |
|
|
22.1 |
% |
|
|
39.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the Company |
|
|
14.5 |
% |
|
|
8.5 |
% |
|
|
13.9 |
% |
|
|
17.7 |
% |
|
|
26.3 |
% |
Minority interest |
|
|
1.0 |
% |
|
|
1.9 |
% |
|
|
3.8 |
% |
|
|
4.4 |
% |
|
|
13.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31, 2009 compared to Fiscal Year Ended December 31, 2008
Overview
Terniums operating income in 2009 was USD296.4 million, an 82.3% decrease from operating
income of USD1.7 billion in 2008. This USD1.4 billion decrease is attributable to a sharp
decline in demand in the main steel consumer sectors of Terniums core markets during the
second half of 2008, due to the global economic downturn, which led to lower shipments and
steel prices in 2009. Even though the level of shipments began to improve gradually in the
second half of the year, Terniums total shipments decreased by 1.2 million tons in 2009 as
compared to 2008, and revenue per ton decreased by USD329, leading to a 41.4% drop in net
sales, which was partially offset by a USD164 decrease in operating cost per ton.
Net income during 2009 was USD767.1 million, compared to USD875.2 million in 2008. The
USD108.0 million decrease in net income was attributable to the USD1.4 billion decrease in
operating income mentioned above, which was partially offset by the following:
|
|
|
a USD715.8 million increase in non-cash net foreign exchange results, which was
offset by changes in Terniums net equity position in the currency translation
adjustments line, and |
|
|
|
a USD564.0 million gain related to the transfer of the Sidor shares to Venezuela. |
Sidors results for the period January 1 through March 31, 2008, are presented as discontinued
operations as a result of our investment in Sidor being classified as an available-for-sale
financial asset as of April 1, 2008.
58
Net Sales
Net sales for 2009 decreased 41.4% to USD5.0 billion compared to 2008. Net sales decreased due
to lower shipments and lower revenue per ton. Shipments of flat and long products were 6.4
million tons during 2009, a decrease of 15.7% compared to 2008, as a result of lower activity
levels in Terniums core markets following the global economic downturn. Revenue per ton
shipped was USD758 in 2009, decreasing 30.3% when compared to 2008, mainly as a result of
lower prices in all of Terniums markets.
The following table shows Terniums total consolidated net sales by product and geographical
region for the years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
In millions of U.S. dollars |
|
2009 |
|
|
2008 |
|
Flat Steel Product Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South and Central America |
|
|
1,717.1 |
|
|
|
2,782.5 |
|
North America |
|
|
2,371.9 |
|
|
|
4,294.7 |
|
Europe and Other |
|
|
161.0 |
|
|
|
47.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Flat Steel Products Sales |
|
|
4,250.0 |
|
|
|
7,124.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Steel Product Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South and Central America |
|
|
57.3 |
|
|
|
274.4 |
|
North America |
|
|
512.0 |
|
|
|
791.8 |
|
Europe and Other |
|
|
3.5 |
|
|
|
8.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long Steel Product Sales |
|
|
572.9 |
|
|
|
1,075.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Product Sales (1) |
|
|
136.1 |
|
|
|
265.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales |
|
|
4,959.0 |
|
|
|
8,464.9 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The item Total Other Product Sales includes mainly sales of iron ore, pig iron
and pre-engineered metal buildings. |
Sales of flat steel products during 2009 were USD4.3 billion, decreasing 40.4% compared to
2008. Net sales decreased as a result of lower sales volume and revenue per ton. Shipments of
flat steel products were 5.3 million tons in 2009, registering a decrease of 16.1% compared
with 2008, mainly due to lower shipments in the South and Central America and the North
America regions, partially offset by higher shipments in the Europe and Other region. Revenue
per ton in 2009 was USD801, decreasing 28.9% when compared to 2008, as a result of lower steel
prices.
Sales of long products were USD572.9 million during 2009, decreasing 46.7% compared to 2008
due to lower revenue per ton and sales volume. Revenue per ton was USD543 in 2009, a decrease
of 38.6% compared to 2008 as a result of lower prices. Shipments of long products were 1.1 million tons in 2009, registering a 13.3%
decrease versus 2008, mainly due to lower billet shipments in the South and Central America
region partially offset by higher bar shipments in the North America region.
Sales of other products decreased to USD136.1 million during 2009, compared to USD265.1
million during 2008. The decrease was mainly driven by lower iron ore shipments and prices and
lower sales of pre-engineered metal buildings.
59
Sales Volume
The following table shows our sales volume by product and market for the years ended
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
In thousands of tons |
|
For the year ended December 31, |
|
(unaudited) |
|
2009 |
|
|
2008 |
|
Flat Steel Product Sales Volume |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South and Central America |
|
|
1,903.6 |
|
|
|
2,604.2 |
|
North America |
|
|
3,114.5 |
|
|
|
3,666.1 |
|
Europe and Other |
|
|
287.0 |
|
|
|
55.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Flat Steel Product Sales Volume |
|
|
5,305.2 |
|
|
|
6,325.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Steel Product Sales Volume |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South and Central America |
|
|
118.4 |
|
|
|
302.5 |
|
North America |
|
|
931.2 |
|
|
|
901.3 |
|
Europe and Other |
|
|
6.1 |
|
|
|
13.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Long Steel Product Sales Volume |
|
|
1,055.6 |
|
|
|
1,217.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales Volume (1) |
|
|
6,360.8 |
|
|
|
7,542.7 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Total Sales Volume does not include the tons related to Other Product
Sales. |
Total sales volume decreased by 15.7%, from 7.5 million tons in 2008 to 6.4 million tons in
2009. Net sales in 2009 decreased 30.4% in the South and Central America region and 11.4% in
the North America region. The global economic downturn led to a sharp decline in demand in the
main steel consumer sectors of Terniums core markets during the second half of 2008,
resulting in subdued shipments levels in 2009. Shipments began to improve gradually only in
the second half of the year.
In 2009, flat steel product sales volume decreased by 16.1% year-over-year to 5.3 million
tons, from 6.3 million tons in 2008 due to the mentioned decrease in demand. Sales in the
South and Central America region decreased by 700,600 tons, or 26.9%, from 2.6 million tons in
2008 to 1.9 million tons in 2008. Sales in the North America region decreased by 15.0%
year-over-year in 2009 to 3.1 million tons, from 3.7 million tons in 2008. Sales to Europe and
other markets increased by 231,800 tons, from 55,200 tons in 2008 to 287,000 tons in 2009.
In 2009, long steel product sales volume decreased by 13.3% to 1.1 million tons, from 1.2
million tons in 2008. Sales in the South and Central America region decreased by 184,100 tons,
or 60.9%, from 302,500 tons in 2008 to 118,400 tons in 2009, mainly as a consequence of lower
billet shipments to the region. Sales in the North America region increased by 29,900 tons, or
3.3%, from 901,300 tons in 2008 to 931,200 tons in 2009, mainly as a result of higher bar
shipments year-over-year in 2009.
The following table shows the percentage of market distribution of Terniums total sales by
region for the years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
Percentage of total sales |
|
2009 |
|
|
2008 |
|
South and Central America |
|
|
31.8 |
% |
|
|
38.5 |
% |
North America |
|
|
63.6 |
% |
|
|
60.6 |
% |
Europe and Other |
|
|
4.6 |
% |
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
60
Sales prices
Revenue per ton of flat steel products decreased by 28.9% to USD801.1 in 2009, from USD1,126.3
in 2008. Revenue per ton of long steel products decreased by 38.6% to USD542.7 in 2009, from
USD883.3 in 2008. During 2009, steel prices decreased year-over-year in Terniums core markets
as a result of the effect of the global economic downturn.
Cost of sales
Cost of sales was USD4.1 billion in 2009 compared to USD6.1 billion in 2008. Cost of sales
decreased as a result of lower level of shipments and lower cost per ton. Cost per ton
decreased year-over-year mainly as a result of lower costs for third-party steel, raw
materials, energy, labor and services, as well as on account of the impact on costs of the
Mexican pesos and Argentine pesos devaluation versus the U.S. dollar and the initiatives
Ternium launched to mitigate the global economic downturn.
Energy prices for our operations in Mexico, mainly natural gas and electricity, decreased
significantly year-over-year in 2009, following the trend in the U.S. energy markets. Energy
prices for our operations in Argentina, mainly coal, petroleum coke and to a lesser extent
natural gas, overall decreased as well in 2009, due to lower contract prices for coal and
petroleum coke, partially offset by higher natural gas prices. Our operations in Argentina are
less exposed to electricity prices as they have self-generating capabilities for a large share
of their consumption.
Average cost of sales per ton of flat steel products decreased by 17.5%, from USD831 in 2008
to USD685.2 in 2009, largely due to the mentioned year-over-year decrease in raw materials and
input costs, as well as on account of the impact on costs of the Mexican pesos and Argentine
pesos devaluation versus the U.S. dollar and the initiatives Ternium launched to mitigate the
global economic downturn. The average cost of sales per ton of long steel products decreased
38.1%, from USD601.7 in 2008 to USD372.3 in 2009, due to similar reasons.
Cost of sales, expressed as a percentage of net sales, increased to 82.9% during 2009,
compared to 72.4% in 2008. The increase was due to the fact that cost decreases year-over-year
in 2009 were more than offset by sales price decreases.
Selling, general and administrative expenses
Selling, general and administrative (SG&A) expenses in 2009 were USD531.5 million, or 10.7% of
net sales, compared with USD669.5 million, or 7.9% of net sales, in 2008. The decrease in SG&A
was due mainly to Terniums cost reduction efforts in response to the economic downturn, as
well as on account of lower freight volumes, tax charges and the impact on costs of the
Mexican pesos and Argentine pesos devaluation versus the U.S. dollar.
Other operating (expenses) income, net
Net other operating expenses in 2009 were USD20.7 million, compared with net other operating
income of USD8.7 million in 2008. The year-over-year difference was mainly due to a
USD27.0 million full impairment of the remaining intangible asset value of a contract related
to the purchase of steel slabs from Corus Teeside facility. For more information, see note 27
to our audited consolidated financial statements included elsewhere in this annual report and
Item 8. Financial InformationA. Consolidated Statements and Other Financial
InformationLegal Proceedings-Corus arbitration proceedings.
Operating income
Operating income in 2009 was USD296.4 million, or 6.0% of net sales, compared with USD1.7
billion, or 19.8.% of net sales, in 2008. Such major variation was mainly due to lower sales
prices and volumes, partially offset by lower costs of sales.
61
Net financial results
Net financial income was USD132.9 million in 2009, compared with a net financial expense of
USD797.1 million in 2008. The increase was mainly due to:
|
|
|
an increase of USD715.8 million in net foreign exchange results, mainly related to
the impact of the Mexican pesos 4% revaluation in 2009 and 25% devaluation in 2008,
respectively, on Terniums Mexican subsidiarys U.S. dollar-denominated debt. These
results are non-cash when measured in U.S. dollars and are offset by changes in Terniums
net equity position in the currency translation adjustments line, as the value of Ternium
Mexicos U.S. dollar denominated debt is not altered by the Mexican peso fluctuation when
stated in U.S. dollars in Terniums consolidated financial statements. In accordance with
IFRS, Ternium Mexico prepares its financial statements in Mexican pesos and registers
foreign exchange results on its net non-Mexican pesos positions when the Mexican peso
revaluates or devaluates to other currencies; |
|
|
|
USD136 million on interest income on the Sidor financial asset in 2009,
attributable to the Sidor financial asset in connection with the transfer of the Sidor
shares to Venezuela on May 7, 2009; |
|
|
|
a USD10.6 million gain in 2009, compared to a USD32.5 million loss in 2008, related
to certain derivative instruments entered into primarily to mitigate the effect of
interest rate and currency fluctuations; and |
|
|
|
a decrease of USD19.3 million in net interest expense, to USD84.7 million in 2009,
due to lower indebtedness as a result of amortizations of debt and lower interest rates. |
Equity in earnings (losses) of associated companies
Terniums share in the results of associated companies (mainly Exiros) during 2009 was a gain
of USD1.1 million, compared to a gain of USD1.9 million in 2008.
Income tax expense
For 2009, Ternium recorded an income tax expense of USD91.3 million (or 21.2% of income before
income tax, discontinued operations and minority interest), compared to USD259.0 million (or
29.4% of income before income tax, discontinued operations and minority interest), in 2008.
This improvement in our effective tax rate is primarily attributable to the recognition in
2009 of a USD35.4 million gain upon the resolution in favor of Ternium of a tax controversy in
Mexico. In addition, in 2008 Ternium recorded a non-recurring income tax gain in an amount of
USD96.3 million upon the reversal of a deferred statutory profit sharing liability relating to
Hylsas employees.1
Net result of discontinued operations
Net result of discontinued operations in 2009 was an after-tax gain of USD428.0 million,
related to the transfer of the Sidor shares to Venezuela on May 7, 2009. In 2008, the net
result of discontinued operations comprised an after-tax gain of USD59.6 million related to
Sidors operations prior to its nationalization and an after-tax gain of USD97.5 million from
the sale of non-core US assets during the first quarter 2008.
Net income attributable to minority interest
Net income attributable to minority interest for the fiscal year ended December 31, 2009 was
USD49.7 million, compared to USD159.7 million in 2008. The decrease was mainly attributable to
Siderars lower net income.
|
|
|
1 |
|
Under Mexican law, Terniums subsidiaries are required
to pay their employees an annual benefit calculated as a percentage of taxable
profit for the year. Because Mexican employee statutory profit sharing is
determined on a basis similar to that used for determining local income taxes,
Ternium accounts for temporary differences arising between the statutory
calculation and the reported expense determined under IFRS in a manner similar
to calculation of deferred income tax. On March 31, 2008, Hylsa engaged in a
corporate reorganization, as part of which all of Hylsas employees were
transferred to the payroll of a company expected to generate non-significant
taxable income and non-significant temporary differences, with Hylsa agreeing
to pay its employees a bonus salary to be calculated on the basis of
agreed-upon criteria. Accordingly, during the year ended December 31, 2008,
Ternium reversed the outstanding balance of the deferred tax liability recorded
in connection with the statutory profit sharing as of December 31, 2007
(amounting to USD96 million) and disclosed the related gain as an income tax
gain. |
62
Fiscal Year Ended December 31, 2008 compared to Fiscal Year Ended December 31, 2007
Our results for the year ended December 31, 2008 varied significantly from the results for the
year ended December 31, 2007, primarily as a result of (i) Grupo Imsas results being
consolidated for the entire 2008 (as opposed to the period from July 26, 2007 through the end
of that year) and (ii) Sidors results no longer being recognized as from April 1, 2008.
Sidors results during each period prior to April 1, 2008 are presented as discontinued
operations as a result of the investment in Sidor being classified as an available-for-sale
financial asset as of such date.
Overview
Terniums net income attributable to equity holders for the year ended December 31, 2008,
decreased to USD715.4 million from USD784.5 million in the previous year. This lower income
was mainly attributable to net foreign exchange losses arising from the impact of the Mexican
peso devaluation on our Mexican subsidiarys U.S. dollar-denominated debt and lower income
from discontinued operations as a result of Sidors results no longer being recognized as from
April 1, 2008, which more than offset the impact of strong steel prices for most of the year
and the consolidation of Grupo Imsas results for the entire year.
Cash and cash equivalents as of December 31, 2008, were USD1,065.6 million, a USD60.3 million
decrease from to USD1,125.8 million at the end of the previous year. This decrease is
attributable to the de-consolidation of Sidors cash and cash equivalents as of March 31, 2008
(USD157.9 million), which was partially offset by net cash generation of USD115.1 million. Net
cash generation was the result of USD517.5 million provided by operating activities and
USD350.5 million provided by investing activities, less USD752.9 million used in financing
activities.
Net Sales
Net sales increased 50.3% in 2008 to USD8,464.9 millionfrom USD5,633.4 million in
2007primarily as a result of the consolidation of Grupo Imsa for the entire year. Excluding
the effect of the consolidation of Grupo Imsa, net sales increased in 2008 due to higher
revenue per ton. Shipments of flat and long products were 7.5 million tons during 2008, an
increase of 8.1% compared to shipment levels in 2007, mainly due to the consolidation of Grupo
Imsa and higher shipment levels in the South and Central America region. Revenue per ton
shipped was USD1,087 in 2008, an increase of 37.9% when compared to 2007, mainly as a result
of higher prices and the consolidation of Grupo Imsas higher value added product mix.
63
The following table shows Terniums total consolidated net sales by product and geographical
region for the years ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
In millions of U.S. dollars |
|
2008 |
|
|
2007 |
|
Flat Steel Product Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South and Central America |
|
|
2,782.5 |
|
|
|
2,037.0 |
|
North America |
|
|
4,294.7 |
|
|
|
2,571.8 |
|
Europe and Other |
|
|
47.5 |
|
|
|
123.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Flat Steel Products Sales |
|
|
7,124.7 |
|
|
|
4,731.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Steel Product Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South and Central America |
|
|
274.4 |
|
|
|
70.0 |
|
North America |
|
|
791.8 |
|
|
|
696.0 |
|
Europe and Other |
|
|
8.9 |
|
|
|
6.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long Steel Product Sales |
|
|
1,075.1 |
|
|
|
772.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Product Sales (1) |
|
|
265.1 |
|
|
|
128.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales |
|
|
8,464.9 |
|
|
|
5,633.4 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The item Total Other Product Sales includes mainly sales of iron ore, pig iron
and pre-engineered metal buildings. |
In 2008, Ternium derived the majority of its revenues (approximately 84%) from sales of flat
steel products. Total sales of flat steel products increased significantly, from
USD4,731.7 million in 2007 to USD7,124.7 million in 2008, primarily as a result of a
USD1,722.9 million increase in sales in the North America region, an increase of
USD745,6 million in sales in the South and Central America region and a decrease of
USD75.5 million in sales in Europe and other regions. The significant increase in sales in the
North America region is due mainly to the consolidation of Grupo Imsa for the entire year.
Sales of long products were USD1,075.1 million during 2008, an increase of 39.1% when compared
to USD772.8 million in 2007, due to higher shipment levels in the South and Central America
region, partially offset by lower shipment activity in the North America region and higher
prices in both regions.
Other sales increased to USD265.1 million in 2008 from USD128.8 million in 2007, mainly as a
consequence of higher shipments and prices in our sales of iron ore pellets and fines and
higher pre-engineered metal building sales resulting from the consolidation of Grupo Imsa.
64
Sales Volume
The following table shows our sales volume by product and market for the years ended
December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
In thousand of tons |
|
For the year ended December 31, |
|
(unaudited) |
|
2008 |
|
|
2007 |
|
Flat Steel Product Sales Volume |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South and Central America |
|
|
2,604.2 |
|
|
|
2,499.1 |
|
North America |
|
|
3,666.1 |
|
|
|
3,034.9 |
|
Europe and Other |
|
|
55.2 |
|
|
|
184.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Flat Steel Product Sales Volume |
|
|
6,325.5 |
|
|
|
5,718.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Steel Product Sales Volume |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South and Central America |
|
|
302.5 |
|
|
|
132.8 |
|
North America |
|
|
901.3 |
|
|
|
1,113.4 |
|
Europe and Other |
|
|
13.3 |
|
|
|
15.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Long Steel Product Sales Volume |
|
|
1,217.2 |
|
|
|
1,261.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales Volume (1) |
|
|
7,542.7 |
|
|
|
6,980.1 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Total Sales Volume does not include the tons related to Other Product
sales. |
Total sales volume increased by 8.1%, from 6,980.1 thousand tons in 2007 to 7,542.7 thousand
tons in 2008. Net sales went up in 2008 due to an increase of 10.4% in sales in the South and
Central America region driven by good economic performance in our main markets; and an
increase of 10.1% in sales in the North America region due to the effect of the consolidation
of Grupo Imsa for the entire year, partially offset by declining activity in our main markets
in the region. Steel consumption in the North America region decreased 7% during 2008, mainly
due to softening activity in Mexico and the United States, and a de-stocking process that took
place towards the end of the year.
In 2008, flat steel product sales volume increased by 10.6% to 6,325.5 thousand tons, from
5,718.9 thousand tons in 2007. Sales in the South and Central America region increased by
105.1 thousand tons, or 4.2%, from 2,499.1 thousand tons in 2007 to 2,604.2 thousand tons in
2008, due to favorable economic conditions in our principal markets in the region. Sales in
the North America region increased by 20.8% to 3,666.1 thousand tons in 2008, from 3,034.9
thousand tons in 2007, due to the consolidation of Grupo Imsas sales for the entire year,
partially offset by a slowdown in the North American market. Sales to Europe and other markets
decreased by 129.7 thousand tons, or 70.1%, from 184.9 thousand tons in 2007 to 55.2 thousand
tons in 2008.
In 2008, long steel product sales volume decreased by 3.5% to 1,217.2 thousand tons, from
1,261.2 thousand tons in 2007. Sales in the South and Central America region increased by
169.7 thousand tons, or 127.8%, from 132.8 thousand tons in 2007 to 302.5 thousand tons in
2008, as a consequence of good economic performance in our main markets in the region. Sales
in the North America region decreased by 212.1 thousand tons, or 19.0%, from 1,113.4 thousand
tons in 2007 to 901.3 thousand tons in 2008, mainly as a result of weakening activity and a
de-stocking process in the United States towards the end of the year, coupled with softening
activity in Mexico.
65
The following table shows the percentage of market distribution of Terniums total sales by
region for the years ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
Percentage of total sales |
|
2008 |
|
|
2007 |
|
South and Central America |
|
|
38.5 |
% |
|
|
37.7 |
% |
North America |
|
|
60.6 |
% |
|
|
59.4 |
% |
Europe and Other |
|
|
0.9 |
% |
|
|
2.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
Sales prices
Revenue per ton of flat steel products increased by 36.1% to USD1,126.3 in 2008, from USD827.4
in 2007. Revenue per ton of long steel products increased by 44.1% to USD883.3 in 2008, from
USD612.8 in 2007. During the first nine months of 2008, Ternium benefited from a strong steel
market pricing environment in the North America region, followed by rapidly weakening
conditions during the fourth quarter of the year. Steel prices in the South and Central
America region grew during 2008, due to good economic performance across our main markets.
Cost of sales
Total cost of sales increased by 42.9%, from USD4,287.7 million in 2007 to USD6,128.0 million
in 2008. Cost of sales increased partly as a result of the consolidation of Grupo Imsa for the
entire year, which increased Terniums overall production volume and cost per ton due to Grupo
Imsas higher production cost structure and higher value added product sales mix. The
year-over-year cost of sales increase was also due to higher costs of third party steel, raw
materials, energy, freight, labor and services and a USD200.0 million write-down of Terniums
inventory (primarily related to purchased slabs), partially offset by a reduction in the U.S.
dollar value of inventories at the beginning of the year and purchased during 2008 (due mainly
to the Mexican pesos 25% devaluation with respect to the U.S. dollar).
Prices of natural gas and electricity for our South American operations were relatively
stable. Our operations in Argentina have self-generation capability and are largely
self-sufficient in terms of electricity. Energy input for our Argentine operations is obtained
mostly from metallurgical coal and petroleum coke, and supplemented with fuel oil and natural
gas. Natural gas prices in Argentina showed only slight fluctuations during 2008. The price of
natural gas for our operations in Mexico was partly fixed through hedging mechanisms, which
prevented major cost fluctuations.
Average cost of sales per ton of flat steel products increased by 30.8%, from USD635.3 per ton
in 2007 to USD831.0 per ton in 2008, largely due to additional processing cost associated with
Grupo Imsas richer product mix and also to higher overall costs for third party steel, raw
materials, energy, freight, labor and services and a USD200.0 million write-down of Terniums
inventory primarily related to purchased slabs. The average cost of sales per ton of long
steel products increased by 30.6%, from USD460.8 in 2007 to USD601.7 in 2008, due mainly to
the same reasons.
Cost of sales, expressed as a percentage of net sales, decreased to 72.4% during 2008,
compared to 76.1% in 2007. The decrease was due to the fact that cost increases during the
first three quarters of the year were more than offset by higher sales price increases.
Selling, general and administrative expenses
Selling general and administrative (SG&A) expenses in 2008 were USD669.5 million, or 7.9% of
net sales, compared to USD517.4 million, or 9.2% of net sales in 2007. The increase in SG&A
expenses reflects mainly the consolidation of Grupo Imsas results for the entire year and
increased taxes in Argentina of USD18.2 million.
66
Other operating income, net
Other operating income, net, increased by USD0.1 million, from a net income of USD8.5 million
for the fiscal year ended December 31, 2007, to a net income of USD8.7 million for the fiscal
year ended December 31, 2008.
Operating income
Operating income totaled USD1,676.0 million in 2008, up 100.3% from 2007s operating income of
USD836.8 million. Such major variation was mainly due to higher sales prices and a slight
increase in volume, partially offset by higher costs of sales. Operating income as a
percentage of sales was 19.8 % in 2008, compared to 14.9% in 2007.
Net financial results
Net financial results resulted in a net financial loss of USD797.1 million in 2008, compared
to a net financial loss of USD130.0 million in 2007. The increase was mainly due to:
|
|
|
an increase of USD614.3 million in net foreign exchange losses, mainly related to
the impact of the Mexican peso 25% devaluation on Ternium Mexicos U.S.
dollar-denominated debt incurred in connection with the Grupo Imsa transaction; |
|
|
|
a USD32.5 million loss in the fair value of derivatives in 2008, compared to a gain
of USD2.5 million in 2007, mainly related to derivative instruments entered into in order
to mitigate the effect of fluctuations in interest rates, foreign exchange rates and
commodities prices; |
|
|
|
an increase of USD3.0 million in interest expense, from USD133.1 million in 2007 to
USD136.1 million in 2008, due to higher interest costs resulting from the indebtedness
under the facilities entered into in connection with the Grupo Imsa transaction; and |
|
|
|
a decrease of USD9.4 million in interest income, mainly due to lower interest
rates. |
Equity in earnings (losses) of associated companies
Terniums share in the results of associated companies (mainly Exiros) during 2008 was a gain
of USD1.9 million, compared to a gain of USD0.4 million in 2007.
Income tax expense
For 2008, Ternium recorded an income tax expense of USD259.0 million (or 29.4% of income
before income tax, discontinued operations and minority interest), compared to an income tax
expense of USD291.3 million (or 41.2% of income before income tax, discontinued operations and
minority interest) for the fiscal year ended December 31, 2007. The decrease in income tax
expense for the year is due mainly to lower taxes at our Mexican subsidiary, partially offset
by higher income taxes at our Argentine subsidiary.
In addition, in 2008 Ternium recorded a non-recurring income tax gain in an amount of USD96.3
million upon the reversal of a deferred statutory profit sharing liability relating to Hylsas
employees2
Net result of discontinued operations
Net result of discontinued operations in 2008 comprised an after-tax gain of USD59.6 million
related to Sidors operations prior to its nationalization and an after-tax gain of USD97.5
million from the sale of non-core U.S. assets during the first quarter 2008. Net result of discontinued operations in 2007 was an after tax
gain of USD579.9 million, mainly related to Sidors operations.
|
|
|
2 |
|
Under Mexican law, Terniums subsidiaries are required
to pay their employees an annual benefit calculated as a percentage of taxable
profit for the year. Because Mexican employee statutory profit sharing is
determined on a basis similar to that used for determining local income taxes,
Ternium accounts for temporary differences arising between the statutory
calculation and the reported expense determined under IFRS in a manner similar
to calculation of deferred income tax. On March 31, 2008, Hylsa engaged in a
corporate reorganization, as part of which all of Hylsas employees were
transferred to the payroll of a company expected to generate non-significant
taxable income and non-significant temporary differences, with Hylsa agreeing
to pay its employees a bonus salary to be calculated on the basis of
agreed-upon criteria. Accordingly, during the year ended December 31, 2008,
Ternium reversed the outstanding balance of the deferred tax liability recorded
in connection with the statutory profit sharing as of December 31, 2007
(amounting to USD96 million) and disclosed the related gain as an income tax
gain. |
67
Net income attributable to minority interest
Net income attributable to minority interest for the fiscal year ended December 31, 2008 was
USD159.7 million, compared to USD211.3 million in 2007. The decrease was mainly due to lower
income attributable to minority interest in discontinued operations in Venezuela.
Foreign Currency Fluctuations
See Item 11. Quantitative and Qualitative Disclosure About Market RiskForeign Exchange
Exposure Risk.
Governmental Economic, Fiscal, Monetary or Political Policies or Factors
See Item 3. Key InformationD. Risk Factors Risks Relating to the Countries in Which We
Operate.
|
B. |
|
Liquidity and Capital Resources |
We obtain funds from our operations and from short-term as well as long-term borrowings from
financial institutions. These funds are primarily used to finance our working capital and
capital expenditures requirements and acquisitions (for further information on capital
expenditures see Item 4. Information on the CompanyB. Business OverviewCapital Expenditure
Program). Also, during fiscal year 2009, we had cash inflows of USD954 million in connection
with payments for the sale of our participation in Sidor. For more information on the Sidor
nationalization process, see Item 4. Information on the CompanyA. History and Development of
the CompanySidor Nationalization Process. We hold money market investments, time deposits
and variable-rate or fixed-rate securities from investment grade issuers. During 2009, we
significantly decreased our financial indebtedness, from USD3.3 billion at the end of 2008 to
USD2.3 billion at the end of 2009, using primarily cash provided by operating activities.
Management believes that funds from operations will be sufficient to satisfy our current
working capital needs, finance our current capital expenditures and service our debt in the
foreseeable future. Although Ternium believes it has access to the credit markets, it has not
negotiated additional credit facilities. Management also believes that our liquidity and
capital resources give us adequate flexibility to manage our planned capital spending programs
and to address short-term changes in business conditions.
The following table shows the changes in our cash and cash equivalents, excluding funds placed
in trust, for each of the periods indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
In thousands of U.S. dollars |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,161,758 |
|
|
|
517,513 |
|
|
|
936,418 |
|
Net cash provided by (used in) investing activities |
|
|
791,233 |
|
|
|
350,530 |
|
|
|
(1,802,317 |
) |
Net cash provided by (used in) financing activities |
|
|
(922,588 |
) |
|
|
(752,909 |
) |
|
|
1,359,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
1,030,403 |
|
|
|
115,134 |
|
|
|
493,147 |
|
Effect of exchange rate changes |
|
|
(157 |
) |
|
|
(17,518 |
) |
|
|
(258 |
) |
Cash and cash equivalents at the beginning of the year |
|
|
1,065,552 |
|
|
|
1,125,830 |
|
|
|
632,941 |
|
Cash and cash equivalents of discontinued operations
at March 31, 2008 |
|
|
|
|
|
|
(157,894 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year |
|
|
2,095,798 |
|
|
|
1,065,552 |
|
|
|
1,125,830 |
|
|
|
|
|
|
|
|
|
|
|
68
Fiscal Year Ended December 31, 2009 compared to Fiscal Year Ended December 31, 2008
Overview
During 2009, Terniums primary source of funding was net cash provided by operating and
investing activities.
Cash and cash equivalents as of December 31, 2009 were USD2.1 billion, a USD1.0 billion
(96.7%) increase from USD1.1 billion at the end of the previous year. This increase is mainly
attributable to net cash provided by operating activities of USD1.2 billion and net cash
provided by investing activities of USD791.2 million, partially offset by cash used in
financing activities.
In addition to cash and cash equivalents, as of December 31, 2009, we held other current
investments totaling USD46.8 million.
Operating activities
Net cash provided by operating activities was USD1.2 billion in 2009 compared to
USD517.5 million in 2008, an increase of USD644.2 million year-over-year. The main reasons for
the variation in operating cash flow were:
|
|
|
a decrease in working capital of USD635.2 million in 2009, compared to an increase
in working capital of USD1.1 million in 2008 (see below); |
partially offset by
|
|
|
A decrease in net income from continuing operations of USD379.0 million; |
|
|
|
Net foreign exchange results and others gain of USD53.6 million in 2009, compared
to net foreign exchange results and others loss of USD629.5 million in 2008; and |
|
|
|
Net interest income related to the Sidor financial asset of USD136 million in 2009. |
The significant variation in our working capital during 2009, as indicated above, was
attributable to:
|
|
|
a decrease in trade and other receivables of USD308.9 million in 2009, mainly due
to lower export volumes and steel prices during the fourth quarter 2009 compared to the
fourth quarter 2008; and |
|
|
|
a decrease of USD429.1 million in inventory, mainly as a result of lower costs as
well as a lower volume of finished goods, goods in process and raw materials (as shown in
the table below). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
(in millions of USD) |
|
|
|
Price (1) |
|
|
Volume |
|
|
Total |
|
Finished Goods |
|
|
(65.0 |
) |
|
|
(43.6 |
) |
|
|
(108.6 |
) |
Goods in process |
|
|
(156.9 |
) |
|
|
74.4 |
|
|
|
(82.5 |
) |
Raw materials, supplies and allowances |
|
|
(213.9 |
) |
|
|
(24.0 |
) |
|
|
(238.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
(435.9 |
) |
|
|
6.8 |
|
|
|
(429.1) |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This amount was partially offset by a USD158.0 million write-down for net
realizable value of inventory. |
The above was partially offset by an aggregate decrease in accounts payable and other
liabilities of USD102.9 million, mainly due to lower social security and other labor related
debts and lower capital expenditures during the fourth quarter 2009 compared to the fourth
quarter 2008.
Lower costs and inventory volume of finished goods, goods in process and raw materials in 2009
were primarily attributable to lower input prices and decreased demand during the year. In
particular, in the last quarter of 2008, generally as a result of the global crisis, demand
decreased substantially in Terniums markets. In that context, Ternium began to implement a
de-stocking process, with inventory levels decreasing mainly during the first half 2009.
69
Investing activities
Net cash provided by investing activities in 2009 was USD791.2 million, compared to
USD350.5 million in 2008. This variation was primarily attributable to the following events
and factors:
|
|
|
the proceeds from the Sidor financial asset of USD953.6 million in 2009; |
|
|
|
a decrease of USD379.3 million in capital expenditures (from USD587.9 million in
2008 to USD208.6 million in 2009); |
|
|
|
the proceeds from the sale of certain non-core U.S. assets in 2008, amounting to
USD718.6 million; and |
|
|
|
the cash generated by discontinued operations, mainly Sidor, of USD242.4 million in
2008. |
Financing activities
Net cash used in financing activities was USD922.6 million in 2009, compared to
USD752.9 million in 2008. The variation was mainly due to a higher net repayment of borrowings
of USD289.5 million in 2009, partially offset by lower dividend payments of USD119.8 million
in the same year (in each case, such borrowings were mostly related to the Grupo Imsa
transaction in 2007).
Fiscal Year Ended December 31, 2008 compared to Fiscal Year Ended December 31, 2007
Overview
During 2008, Terniums primary source of funding was cash flows from its operating activities.
Cash and cash equivalents as of December 31, 2008, were USD1,065.6 million, a USD60.3 million
(5.4%) decrease from to USD1,125.8 million at the end of the previous year. This decrease is
attributable to the de-consolidation of Sidors cash and cash equivalents as of March 31, 2008
(USD157.9 million), which was partially offset by net cash generation of USD115.1 million. Net
cash generation was the result of USD517.5 million provided by operating activities and
USD350.5 million provided by investing activities, less USD752.9 million used in financing
activities.
In addition to cash and cash equivalents, as of December 31, 2008, we held other current
investments totaling USD90.0 million.
Operating activities
Net cash provided by operations was USD517.5 million in 2008, compared to USD936.4 million in
2007, which represented a 44.7% decrease. The main reasons for the variation in operating cash
flow were:
|
|
|
a strong increase in working capital of USD1.1 billion in 2008, compared to a
decrease in working capital of USD97.7 million in 2007 (see below); |
|
|
|
a decrease in taxes paid of USD91.6 million; and |
|
|
|
an increase in interest paid of USD175.0 million, reflecting the accounting of
interest payments for an entire year on the debt incurred in connection with the Grupo
Imsa transaction; |
|
|
|
an increase in our operating income of USD839.3 million; and |
|
|
|
an increase in other liabilities of USD24.0 million in 2008, mainly due to an
increase in payroll and social security liabilities at our Mexican subsidiary. |
70
The significant variation in our working capital during 2008, as indicated above, was
attributable to:
|
|
|
an increase of USD821.7 million in inventory, mainly as a result of higher
inventory costs and higher volumes (as shown in the table below); |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
(in millions of USD) |
|
|
|
Price |
|
|
Volume |
|
|
Total |
|
Finished Goods |
|
|
106.0 |
|
|
|
(16.3 |
) |
|
|
89.7 |
(1) |
Goods in process |
|
|
435.0 |
|
|
|
143.3 |
|
|
|
578.2 |
(1) |
Raw materials, supplies and allowances |
|
|
172.6 |
|
|
|
181.2 |
|
|
|
353.8 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
713.5 |
|
|
|
308.1 |
|
|
|
1,021.7 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This amount was partially offset by a USD200 million write-down for net realizable
value of inventory. |
|
|
|
and |
|
|
|
|
a decrease in account payables of USD212.6 in 2008 million, mainly due to lower
purchases of semi-finished steel products in the last quarter of 2008 in a context of
weakening economic activity. |
Higher inventory costs and higher volumes of raw materials and goods in process in 2008 were
primarily attributable to higher input prices and increased demand. In particular, during the
nine months of 2008, Ternium managed its inventory levels in Mexico with a view towards
satisfying anticipated increased customer demand and preventing Ternium from missing out on
sales opportunities. This upward trend reversed in the last quarter of 2008, generally as a
result of the global crisis. In that context, Ternium began to implement a de-stocking
process, with inventory levels decreasing as finished goods were sold and raw materials and
supplies were replaced at a slower rate than before.
Investing activities
Net cash provided by investing activities in 2008 was USD350.5 million, compared to net cash
used in investing activities of USD1,802.3 million in 2007. This significant variation was
primarily attributable to the following events and factors:
|
|
|
the completion of the Grupo Imsa transaction in 2007, which resulted in a net cash
outflow of USD1,538.8 million (a USD1,728.9 million payment, partially offset by
acquired cash and cash equivalents of USD190.1 million); |
|
|
|
a non-recurring income tax credit of USD297.7 million on taxes paid in connection
with the Grupo Imsa transaction in 2007; |
|
|
|
the proceeds from the sale of certain non-core U.S. assets in 2008, amounting to
USD718.6 million; |
|
|
|
lower cash generated by discontinued operations, mainly Sidor (USD242.4 million in
2008, compared to USD419.3 million in 2007); and |
|
|
|
an increase of USD243.6 million in capital expenditures (from USD344.3 million in
2007 to USD587.9 million in 2008). |
Financing activities
Net cash used in financing activities was USD752.9 million in 2008, compared to net cash
provided by financing activities of USD1,359.0 million in 2007. The variation was mainly due
to a net repayment of borrowings of USD633.1 million in 2008, compared to net proceeds from
borrowings of USD1,478.1 million in 2007 (in each case, such borrowings were mostly related to
the Grupo Imsa transaction).
71
Principal Sources of Funding
Funding Policies
Managements policy is to maintain a high degree of flexibility in operating and investment
activities by maintaining adequate liquidity levels and ensuring access to readily available
sources of financing. While Ternium currently does not have committed credit facilities
available for borrowing, management believes that Ternium could have access to external
borrowing in case of any shortfalls. We obtain financing primarily in U.S. dollars. Whenever
feasible, management bases its financing decisions, including the election of term and type of
the facility, on the intended use of proceeds for the proposed financing.
Financial Liabilities
Our financial liabilities currently consist of loans with financial institutions and minor
overdrafts transactions. These facilities are mainly denominated in U.S. dollars. As of
December 31, 2009, U.S. dollar-denominated financial liabilities represented 99.5% of total
financial liabilities. Total financial debt decreased from USD3.3 billion as of December 31,
2008, to USD2.3 billion as of December 31, 2009. During 2009, Terniums bank borrowings
(inclusive of principal and interest accrued thereon) decreased by USD940.6 million,
principally due to the repayment of a significant portion of principal and interest on
borrowings related to prior acquisitions. As of December 2009, current borrowings were 23% of
total borrowings, none of which corresponded to borrowings with related parties.
The following table shows Terniums financial liabilities as of December 31 of each of the
last three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands of U.S. dollars |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Borrowings with related parties |
|
|
|
|
|
|
|
|
|
|
|
|
Bank borrowings (1) |
|
|
2,326,729 |
|
|
|
3,267,327 |
|
|
|
4,082,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
2,326,729 |
|
|
|
3,267,327 |
|
|
|
4,082,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of debt issuance costs |
The weighted average interest rates at December 31, 2009, 2008 and 2007 shown below were
calculated using the rates set for each instrument in its corresponding currency and weighted
using the U.S. dollar-equivalent outstanding principal amount of those instruments at
December 31, 2009, 2008 and 2007, respectively, after giving effect to any derivative
financial instruments used to mitigate interest rate risk.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank borrowings |
|
|
3.04 |
% |
|
|
2.79 |
% |
|
|
6.15 |
% |
The maturity of our financial liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 year |
|
|
1 2 |
|
|
2 3 |
|
|
3 4 |
|
|
4 5 |
|
|
Over 5 |
|
|
|
|
At December 31, 2009 |
|
or less |
|
|
years |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
Total |
|
Borrowings (1)(2) |
|
|
539,525 |
|
|
|
497,736 |
|
|
|
1,289,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,326,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
539,525 |
|
|
|
497,736 |
|
|
|
1,289,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,326,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Borrowings are primarily bank borrowings with third parties. See Liquidity and
Capital ResourcesPrincipal Sources of FundingFinancial Liabilities. |
|
(2) |
|
Net of debt issuance costs. |
72
For information on our derivative financial instruments, please see Item 11. Quantitative
and Qualitative Disclosures About Market Risk and note 25 to our audited consolidated
financial statements included in this annual report.
Most Significant Borrowings
Our most significant borrowings as of December 31, 2009, were incurred in relation to the
Grupo Imsa transaction in July 2007.
In Millions of U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original |
|
Outstanding principal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
principal |
|
amount as of |
|
|
|
|
Date |
|
Borrower |
|
Type |
|
amount |
|
December 31, 2009 |
|
|
Maturity |
July 2007 |
|
Ternium Mexico |
|
Syndicated loan |
|
|
3,485.0 |
|
|
2,287.3 |
(1) |
|
July 2012 |
|
|
|
(1) |
|
On February 1, 2008, we completed the sale of our interests in Steelscape, Inc.,
ASC Profiles Inc., Varco Pruden Buildings Inc. and Metl-Span LLC to BlueScope Steel
North America Corporation, a subsidiary of BlueScope Steel Limited, for a total
consideration of USD727 million. On February 28, 2008, we applied USD700.0 million of
the proceeds of such sale to partially prepay loans under the syndicated loan agreement.
On January 26, 2009 and July 27, 2009, we paid two installments of USD249 million each. |
The main covenants in our syndicated loan agreement are limitations on liens and
encumbrances, limitations on the sale or other dispositions of certain material assets, and
compliance with financial ratios (e.g., leverage ratio and interest coverage ratio).
As of December 31, 2009, we were in compliance with all covenants under our loan agreements.
For further information on our financial liabilities, borrowings and commitments please see
notes 26 and 27(ii) to our audited consolidated financial statements included in this annual
report.
|
C. |
|
Research and Development, Patents and Licenses, Etc. |
See Item 4. Information on the CompanyB. Business OverviewResearch and Development; Product
Development.
See Overview.
|
E. |
|
Off-Balance Sheet Arrangements |
Ternium does not use off-balance sheet arrangements as such term is defined by applicable
SEC rules. However, as described above, Ternium has various off-balance sheet commitments to
purchase raw materials, energy (electricity, steam for the production of electricity, natural
gas and natural gas transportation), supplies (oxygen, nitrogen and argon) and production
equipment. Off-balance sheet commitments are discussed in note 27(ii) to our audited
consolidated financial statements included in this annual report.
73
|
F. |
|
Contractual Obligations |
The following table summarizes our contractual obligations at December 31, 2009, and the
effect such obligations are expected to have on our liquidity and cash flow in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
as of December 31, 2009 |
|
In millions of U.S. dollars |
|
|
|
|
|
Less than 1 |
|
|
1-3 |
|
|
4-5 |
|
|
After 5 |
|
Contractual Obligations |
|
Total |
|
|
Year |
|
|
years |
|
|
years |
|
|
Years |
|
Borrowings (1) |
|
|
2,326.7 |
|
|
|
539.5 |
|
|
|
1,787.2 |
|
|
|
|
|
|
|
|
|
Estimated interest payments (2) |
|
|
51.6 |
|
|
|
21.8 |
|
|
|
29.8 |
|
|
|
|
|
|
|
|
|
Purchase Obligations (3) |
|
|
908.7 |
|
|
|
287.0 |
|
|
|
385.4 |
|
|
|
61.6 |
|
|
|
174.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations |
|
|
3,287.0 |
|
|
|
848.3 |
|
|
|
2,202.4 |
|
|
|
61.6 |
|
|
|
174.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Borrowings are primarily bank borrowings with third parties. See Liquidity and
Capital ResourcesPrincipal Sources of FundingFinancial Liabilities. |
|
(2) |
|
Variable rates used in the projection are the ones settled in the current interest
period and are considered to be fixed over the years. |
|
(3) |
|
Includes USD19.6 million in purchase obligations that were cancelled during the
first quarter 2010. Purchase obligations include supplies of raw materials, oxygen,
equipment, steam and electric power. |
Ferrasa
On April 8, 2010, Ternium announced that it had entered into a definitive agreement to acquire
a 54% ownership interest in Ferrasa through a capital contribution in the amount of USD74.5
million. Upon completion of this transaction, Ferrasa will have a 100% ownership interest in
each of Sidecaldas S.A.S., Figuraciones S.A.S. and Perfilamos del Cauca S.A.S, which are also
Colombian-based 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 del Cauca 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 USD120 million.
Ternium also has agreed to purchase a 54% ownership interest in Ferrasa Panamá for USD0.5
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.
Through these investments Ternium expects to expand its business and commercial presence in
Colombia, a country that is experiencing significant growth and is presently the fifth largest
steel consuming market in Latin America, as well as in Central America.
74
Memorandum of Understanding for Joint Venture in Mexico
On May 17, 2010, Ternium announced that it had signed a non-binding memorandum of
understanding with Nippon Steel Corporation with the intention of forming a joint venture in
Mexico for the manufacturing and sale of hot-dip galvanized and galvannealed steel sheets to
serve the Mexican automobile market.
The joint venture, which would require an investment of approximately USD350 million over two
and a half years, would be expected to build a hot-dip galvanizing plant (equivalent to the
state-of-the-art equipment now in operation at Nippon Steels steelworks in Japan) in the
vicinity of Monterrey City, and subsequently to manufacture and sell high-grade and
high-quality galvanized and galvannealed steel sheets, including outer-panel and high-strength
qualities. The plant, which would have a production capacity of about 400,000 metric tons per
year, would be primarily intended to respond to customer demand (including that of Japanese
car makers) for high-grade automotive steel sheets in Mexico.
The two companies will now maintain exclusive negotiations towards a binding joint venture
agreement, which shall be subject to final documentation, due diligence, feasibility studies,
agreement on other issues, and regulatory and corporate approvals.
Annual General Meeting and Extraordinary General Meeting of Shareholders.
On June 2, 2010, the annual general meeting of shareholders of the Company approved all
resolutions on its agenda. Among other resolutions adopted at the meeting, the shareholders
approved the consolidated financial statements and annual accounts for the year ended
December 31, 2009, as well as the payment of an annual dividend of USD0.05 per share (USD0.50
per ADS), or an aggregate amount of approximately USD100.2 million. The Company paid such
dividend on June 10, 2010. For further information about payment of dividends, see Item 8.
Financial Information Consolidated Statements and Other Financial Information Dividend
Policy.
In addition, the annual general meeting of Shareholders re-elected Ubaldo Aguirre, Roberto
Bonatti, Wilson Nélio Brumer, Carlos Condorelli, Pedro Pablo Kuczynski, Adrian Lajous, Bruno
Marchettini, Gianfelice Mario Rocca, Paolo Rocca and Daniel Agustin Novegil and elected Ronald
Seckelmann as members of the board of directors to serve until the next annual shareholders
meeting, which will be held in June 2011. The board of directors subsequently re-appointed
Paolo Rocca as its chairman and Daniel Novegil as chief executive officer of the Company, and
confirmed Ubaldo Aguirre, Pedro Pablo Kuczynski and Adrian Lajous as members of the board
audit committee, with Mr. Aguirre to continue as chairman. All three members of the audit
committee qualify as independent directors under our articles of association. The general
shareholders meeting appointed PricewaterhouseCoopers as the Companys independent auditors
for the fiscal year ending December 31, 2010. For further information about our board of
directors, audit committee and independent auditors, see Item 6. Directors, Senior Management
and Employees.
The general shareholders meeting also granted a new authorization to the Company and its
subsidiaries to purchase, acquire or receive, from time to time, shares or other securities of
the Company, on the terms and subject to the conditions set forth in the meetings minutes.
Please see Item 16.E Purchases of Equity securities by the Issuer and Affiliated Purchasers.
The extraordinary general meeting of shareholders, also held on June 2, 2010, approved the
renewal of the validity of the Companys authorized share capital and the authorizations to
the Companys board of directors with respect to any issuance of shares within such authorized
share capital, in each case, from the date of the Extraordinary General Meeting of
Shareholders until the fifth anniversary of the date of publication in Luxembourgs official
gazette of the deed recording the minutes of such meeting and otherwise on their current terms
and conditions. Please see Item 10 Additional Information. B. Memorandum and Articles of
Association.
75
Item 6. Directors, Senior Management and Employees
|
A. |
|
Directors and Senior Management |
Board of Directors
The Companys articles of association provide for a board of directors consisting of a minimum
of five members (when the shares of the Company are listed on a regulated market, as they
currently are) and a maximum of fifteen. The board of directors is vested with the broadest
powers to act on behalf of the Company and accomplish or authorize all acts and transactions
of management and disposal that are within its corporate purpose and which are not
specifically reserved in the articles of association or by applicable law to the general
shareholders meeting.
The board of directors is required to meet as often as required by the interests of the
Company and at least four times per year. A majority of the members of the board of directors
in office present or represented at each board of directors meeting constitutes a quorum, and
resolutions may be adopted by the vote of a majority of the directors present or represented.
In case of a tie, the chairman is entitled to cast the deciding vote.
Directors are elected at the annual ordinary general shareholders meeting to serve one-year
renewable terms, as determined by the general shareholders meeting. The general shareholders
meeting may dismiss all or any one member of the board of directors at any time, with or
without cause, by resolution passed by a simple majority vote.
The Companys current board of directors is composed of eleven directors, three of whom are
independent directors. Pursuant to the terms of a shareholders agreement, dated July 20,
2005, between Usiminas and I.I.I.-Industrial Investments Inc., a wholly-owned subsidiary of
San Faustín organized in the Cayman Islands and the Companys direct controlling shareholder
(I.I.I. CI), Usiminas is entitled to designate two directors and I.I.I. CI is entitled to
designate the chief executive officer of the Company and seven directors (and, in the case of
an increase in the total number of directors, a majority of such directors), one of whom shall
be the chairperson of the board of directors. The shareholders agreement will remain in full
force and effect so long as Usiminas and I.I.I. CI each hold at least 5% of the shares of the
Company or until it is terminated by either of Usiminas or I.I.I. CI pursuant to its terms.
Wilson Nélio Brumer and Ronald Seckelmann were nominated by Usiminas and appointed as
directors pursuant to this agreement.
In addition, on January 9, 2006, Tenaris and a wholly-owned subsidiary of San Faustín entered
into a shareholders agreement, pursuant to which such San Faustín subsidiary is required to
take all actions in its power to cause one of the members of the Companys board of directors
to be nominated by Tenaris and any directors nominated by Tenaris only be removed pursuant to
written instructions by Tenaris. Tenaris and San Faustíns subsidiary also agreed to cause any
vacancies on the board of directors to be filled with new directors nominated by either
Tenaris or the San Faustín subsidiary, as applicable. On April 27, 2007, the San Faustín
subsidiary assigned all of its rights and obligations under the shareholders agreement to
I.I.I. CI. The shareholders agreement will remain in effect so long as each of the parties
holds at least 5% of the shares of the Company or until it is terminated by either Tenaris or
I.I.I. CI pursuant to its terms. Carlos A. Condorelli was nominated by Tenaris and appointed
as a director pursuant to this agreement.
Under the Companys articles of association, an independent director is a director who:
|
(i) |
|
is not employed, and has not been employed in an executive capacity by the Company
or any of its subsidiaries within the five years preceding the ordinary general
shareholders meeting at which the candidate for the board of directors was voted upon; |
|
(ii) |
|
does not receive consulting, advisory or other compensatory fees from the Company
or any of its subsidiaries (other than fees received as a member of the board of
directors of any committee thereof and fees received as a member of the board of
directors or other governing body, or any committee thereof, of any of the Companys
subsidiaries); |
|
(iii) |
|
is not a person who directly or indirectly controls the Company; |
76
|
(iv) |
|
does not have, and does not control a business entity that has, a material business
relationship with the Company, any of its subsidiaries or a person who directly or
indirectly controls the Company, if such material business relationship would reasonably
be expected to adversely affect the directors ability to properly discharge his or her
duties; |
|
|
(v) |
|
does not control, and is not and has not been, within the five years preceding the
ordinary general shareholders meeting at which the candidate for the board of directors
was voted upon, employed by a present or former internal or external auditor of the
Company, any of its subsidiaries or a person who directly or indirectly controls the
Company; and |
|
(vi) |
|
is not a spouse, parent, sibling or relative up to the third degree of, and does
not share a home with, any of the persons above described. |
Within the limits of applicable law, the board of directors of the Company may delegate to one
or more persons, whether or not members of the board of directors, the Companys day-to-day
management and the authority to represent the Company, provided that such delegation shall be
subject to prior authorization by the general shareholders meeting. On September 14, 2005,
following the requisite authorization at the general shareholders meeting, the board of
directors delegated such day-to-day management and authority to Daniel A. Novegil. On June 2,
2010, the Companys annual general shareholders meeting re-elected Ubaldo Aguirre, Roberto
Bonatti, Wilson Nélio Brumer, Carlos Condorelli, Pedro Pablo Kuczynski, Adrian Lajous, Bruno
Marchettini, Gianfelice Mario Rocca, Paolo Rocca and Daniel Agustin Novegil and elected Ronald
Seckelmann as members of the board of directors to serve until the next annual shareholders
meeting, which will be held in June 2011. The board of directors subsequently re-appointed
Paolo Rocca as its chairman and Daniel Novegil as chief executive officer of the Company.
The following table sets forth the current members of the board of directors of the Company,
their respective offices on the board, their principal occupation, their years of service as
board members and their age.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years as |
|
|
Age at May 31, |
|
Name |
|
Position |
|
Principal Occupation |
|
Director |
|
|
2010 |
|
Paolo Rocca (1) |
|
Chairman |
|
Chairman and CEO of Tenaris and Chairman of Ternium |
|
|
5 |
|
|
|
57 |
|
Ronald Seckelmann |
|
Director |
|
CFO of Usiminas |
|
|
|
|
|
|
53 |
|
Ubaldo Jose Aguirre |
|
Director |
|
Managing Director of Aguirre, Gonzalez, Marx & Asociados S.A. |
|
|
4 |
|
|
|
61 |
|
Roberto Bonatti (1) |
|
Director |
|
President of San Faustín |
|
|
5 |
|
|
|
60 |
|
Carlos Condorelli |
|
Director |
|
Member of the Board of Tenaris |
|
|
5 |
|
|
|
59 |
|
Adrián Lajous Vargas |
|
Director |
|
Energy advisor at McKinsey & Company |
|
|
4 |
|
|
|
66 |
|
Wilson Nelio Brumer |
|
Director |
|
CEO of Usiminas |
|
|
2 |
|
|
|
61 |
|
Bruno Marchettini |
|
Director |
|
Member of the board of San
Faustín and Siderar |
|
|
4 |
|
|
|
68 |
|
Daniel Agustín Novegil |
|
Director |
|
CEO of the Company |
|
|
5 |
|
|
|
57 |
|
Gianfelice
Mario Rocca (1) |
|
Director |
|
Chairman of the board of directors
of San Faustín |
|
|
4 |
|
|
|
62 |
|
Pedro Pablo Kuczynski |
|
Director |
|
Partner of The Rohatyn Group |
|
|
3 |
|
|
|
71 |
|
|
|
|
(1) |
|
Paolo Rocca and Gianfelice Rocca are brothers, and Roberto Bonatti is Paolo and
Gianfelice Roccas first cousin. |
Paolo Rocca. Mr. Rocca has served as the chairman of the Companys board of directors since
2005. He is a grandson of Agostino Rocca, founder of the Techint group, a group of companies
controlled by San Faustín. He is also chairman and chief executive officer of Tenaris and
chairman of the board of directors of Tubos de Acero de México, S.A. (Tamsa). In addition,
he is a member of the board of directors and vice president of San Faustín and a director of
Techint Financial Corporation N.V. Mr. Rocca is chairman of the World Steel Association and
member of the International Advisory Committee of NYSE Euronext (New York Stock Exchange).
Mr. Rocca is an Italian citizen.
77
Ronald Seckelmann. Mr. Seckelmann currently serves as chief financial officer of Usiminas. He
began his career in Cargill Agricola S.A. (1978) and continued in Alcoa Aluminio S.A.
(1980-1988) and Cía Vidraria Santa Marina S.A. (1988-1992). In 1992, he joined Igaras Papéis e
Embalagens S.A. reaching the position of vicepresident, Administration & Finance. He was chief
financial officer and investor relation officer of Klabin S.A. (2000-2008) and Director and
vicepresident, Finance of Bertin S.A. (2008-2009). Mr. Seckelmann is a Brazilian citizen.
Ubaldo Aguirre. Mr. Aguirre has served on the Companys board of directors since 2006. He is a
managing director of Aguirre, Gonzalez and Marx S.A., an Argentine investment banking firm,
and also serves as a member of the board of directors of Juan Minetti S.A., a subsidiary of
Holcim, the Swiss cement producer. Since 2005, he also serves as chairman of the board of
directors of Permasur S.A. and since 2000 as member of the board of directors of URS Argentina
S.A. Mr. Aguirre formerly served as director and chairman of the audit committee of Siderar.
Mr. Aguirre began his career at the World Bank in Washington, D.C. In addition, Mr. Aguirre
has been a member of the boards of each of Argentinas Central Bankwhere he was responsible
for that countrys external borrowing program and financial negotiationsBanco de la Nación
Argentina and Banco Nacional de Desarrollo. He also served as the Republic of Argentinas
financial representative for Europe in Geneva and negotiator on behalf of the Republic of
Argentina with the Paris Club. Mr. Aguirre is an Argentine citizen.
Roberto Bonatti. Mr. Bonatti has served as a director of the Company since 2005. He is a
grandson of Agostino Rocca. Throughout his career in the Techint group he has been involved
specifically in the engineering and construction and corporate sectors. He was first employed
by the Techint group in 1976, as deputy resident engineer in Venezuela. In 1984, he became a
director of San Faustín, and since 2001 he has served as its president. In addition, Mr.
Bonatti currently serves as president of Techint Compañía Técnica Internacional S.A.C.I. and
Tecpetrol. He is also a member of the board of directors of Tenaris, Siderca and Siderar. Mr.
Bonatti is an Italian citizen.
Carlos Condorelli. Mr. Condorelli has served as a director of the Company since 2005. He is
currently a member of the board of directors of Tenaris. He began his career within the
Techint group in 1975 as an analyst in the accounting and administration department of
Siderar. He has held several positions within Tenaris and other Techint group companies,
including chief financial officer of Tenaris, finance and administration director of Tamsa,
and president of the board of directors of Empresa Distribuidora La Plata S.A., an Argentine
utilities company. Mr. Condorelli is an Argentine citizen.
Adrián Lajous Vargas. Mr. Lajous has served as a director of the Company since 2006. Mr.
Lajous currently serves as the senior energy advisor to McKinsey & Company, chairman of the
Oxford Institute for Energy Studies, president of Petrométrica, S.C. and non-executive
director of Schlumberger, Ltd. and Trinity Industries Inc. Mr. Lajous began his career
teaching economics at El Colegio de México and in 1977 was appointed director general for
energy at Mexicos Ministry of Energy. Mr. Lajous joined Pemex in 1983, where he held a
succession of key executive positions including executive coordinator for international trade,
corporate director of planning, corporate director of operations and director of refining and
marketing. From 1994 until 1999, he served as chief executive officer of Pemex and chairman of
the boards of the Pemex Group of operating companies. Mr. Lajous is a Mexican citizen.
Wilson Nélio Brumer. Mr. Brumer has served as a director of the Company since 2008. He is
chief executive officer and former chairman of the board of directors of Usiminas. He was
Secretary of State of Economic Development in the State of Minas Gerais, Brazil. He also
served as Chairman and Vice-Chairman of the Board of Directors of Companhia Vale Do Rio Doce,
Chairman of the Board of Directors of BHP Billiton in Brazil, and President of Acesita S.A.
Throughout his career, Mr. Brumer served as member of the Board of Directors of several
Brazilian companies and entities related to the steel industry. Mr. Brumer is a Brazilian
citizen.
Bruno Marchettini. Mr. Marchettini has served on the Companys Board of Directors since 2006.
Mr. Marchettini is senior advisor in technological matters for the Techint group. He has has
retired from executive positions and is presently engaged as a consultant by Siderar. Mr.
Marchettini is a member of the Board of Directors of San Faustín and Techint Financial
Corporation N.V. Mr. Marchettini is an Italian citizen.
Daniel Agustín Novegil. Mr. Novegil has served as a director and chief executive officer of
the Company since 2005. Mr. Novegil joined Propulsora Siderurgica in 1978 and was appointed as
its general director in 1991. In 1993, following the merger of the privatized company Somisa
with Propulsora, he was appointed managing director of Siderar. In 1998, after the acquisition
of Sidor, Mr. Novegil was appointed chairman and chief executive officer of Sidor. In March
2003, Mr. Novegil was designated executive vice-president of the Techint Flat and Long Steel
Division, with executive responsibilities over Siderar and Sidor. He became president of
Siderar in May 2005. Mr. Novegil is an Argentine citizen.
78
Gianfelice Mario Rocca. Mr. Rocca has served as a director of the Company since 2006. He is a
grandson of Agostino Rocca. He is chairman of the board of directors of San Faustín, a member
of the board of directors of Tenaris, president of the Humanitas Group, and president of the
board of directors of Tenova S.p.A. In addition, he sits on the board of directors or
executive committees of several companies, including Allianz S.p.A, RCS Quotidiani and Buzzi
Unicem. He is vice president of Confindustria, the leading association of Italian
industrialists. He is a member of the Advisory Board of Allianz Group, of the Trilateral
Commission and of the European Advisory Board of the Harvard Business School. Mr. Rocca is an
Italian citizen.
Pedro Pablo Kuczynski. Mr. Kuczynski has served as a member of the Companys Board of
Directors since 2007. He was Prime Minister of Peru in 2005-2006 and prior to that he was the
Minister of Economy and Finance from 2001. He was the Republic of Perus Minister of Energy
and Mines in 1980-82. He was president until 2001 of a private equity firm he founded in 1992
after spending ten years as Chairman of First Boston International (today Credit Suisse) in
New York. Since 2007, he is Senior Advisor to the Rohatyn Group, a firm specializing in
emerging markets. He ran a bauxite mining company affiliated with Alcoa between 1977 and 1980.
He began his career at the World Bank in 1961 and was in the 1970s head of its Policy Planning
Division, Chief Economist for Latin America and Chief Economist of IFC. He was born in Peru in
1938 and educated in Peru and at Oxford and Princeton. Mr. Kuczynski is a Peruvian national.
Director Liability
Under Luxembourg law, a director may be liable to the Company for any damage caused by
management errors, such as wrongful acts committed during the execution of the mandate granted
to them by the Company, and to the Company, its shareholders and third parties in the event
that the Company, its shareholders, or third parties suffer a loss due to an infringement of
either the Luxembourg Company Law or the Companys articles of association. A shareholder may
in certain circumstances have rights to damages if a duty owed by the directors is breached.
Under Luxembourg law, any director having a conflict of interest in respect of a transaction
submitted for approval to the board of directors may not take part in the deliberations
concerning such transaction and must inform the board of such conflict. Subject to certain
exceptions, transactions in which any directors may have had an interest conflicting with that
of the Company must be reported at the next shareholders meeting following any such
transaction.
The general shareholders meeting may dismiss all or any one member of the board of directors
at any time, with or without cause, by resolution passed by a simple majority vote,
irrespective of the number of shares present or represented at the meeting.
A director will not be liable for acts committed in accordance with a resolution if,
notwithstanding his presence at the meeting at which such a resolution was adopted, such
director advised the board of directors that he opposed the resolution and caused a record of
his statement of opposition to be included in the minutes of the meeting.
Causes of action against directors for damages may be initiated by the Company upon a
resolution of the shareholders passed by a simple majority vote, irrespective of the number of
shares present or represented at the meeting. Causes of action against directors who
misappropriate corporate assets (for example, by using corporate assets for their own benefit)
or commit a breach of trust (for example, by breaching their fiduciary duties to the Company)
may be brought by any shareholder for personal losses different from those of the Company. In
general, claims must be brought within five years from the occurrence of an action for which
liability may apply, or in the case of fraud, from the date the fraud is discovered.
It is customary in Luxembourg that the shareholders expressly discharge the members of the
board of directors from any liability arising out of or in connection with the exercise of
their mandate when approving the annual accounts of the Company at the annual shareholders
meeting. However, such discharge will not release the directors from liability for any damage
caused by wrongful acts committed during the execution of their mandate or due to an
infringement of either the Luxembourg Company Law or the Companys articles of association.
79
Auditors
The Companys articles of association require the appointment of at least one independent
auditor chosen from among the members of the Luxembourg Institute of Independent Auditors.
Auditors are appointed by the general shareholders meeting, on the audit committees
recommendation, through a resolution passed by a simple majority vote. Shareholders may
determine the number and the term of the office of the auditors at the ordinary general
shareholders meeting, provided however that an auditors term shall not exceed one year and
that any auditor may be reappointed or dismissed by the general shareholders meeting at any
time, with or without cause. Luxembourg law does not allow directors to serve concurrently as
independent auditors.
PricewaterhouseCoopers (acting, in connection with the Companys annual accounts and annual
consolidated financial statements required under Luxembourg law, through
PricewaterhouseCoopers S.àr.l., Réviseur dentreprises, and, in connection with the Companys
annual and interim consolidated financial statements required under the laws of any other
relevant jurisdiction, through Price Waterhouse & Co. S.R.L.) are the Companys independent
auditors for the year ending December 31, 2009.
Senior Management
The following table sets forth certain information concerning our senior management:
|
|
|
|
|
|
|
Age at |
|
|
|
|
December 31, |
|
|
Name |
|
2009 |
|
Position |
Daniel Novegil |
|
57 |
|
Chief Executive Officer; Director |
Pablo Brizzio |
|
39 |
|
Chief Financial Officer |
Julían Eguren |
|
46 |
|
North Region Area Manager |
Martín Berardi |
|
52 |
|
South Region Area Manager |
Oscar Montero Martínez |
|
49 |
|
Planning and Operations General Director |
Luis Andreozzi |
|
59 |
|
Engineering and Environment Director |
Miguel Punte |
|
62 |
|
Human Resources Director |
Rubén Bocanera |
|
53 |
|
Chief Information Officer |
Rubén Herrera |
|
52 |
|
Quality and Product Director |
Daniel A. Novegil. See Board of Directors.
Pablo Brizzio. Mr. Brizzio currently serves as our Chief Financial Officer. He began his
career with the Techint group in 1993 in Siderar. Since then, he has held several positions
within the Techint group. He served as finance director of Ternium from 2005 to 2007 and in
2009 and in 2008 he served as chief financial officer of Sidor. In 2010 he assumed his
position as chief financial officer of the Company. Mr. Brizzio is an Argentine citizen.
Martín Berardi. Mr. Berardi is our South Region Area Manager. He began his career with the
Techint group in 1980 as a trainee in Propulsora Siderúrgica. He has held several positions
within the Techint group including in Propulsora Siderúrgica, Siat S.A.I.C. and Siderca. He
served as managing director of Siat (1992-1995), managing director of Tamsa (1995-2000),
president and chief executive officer of Sidor (2000-2004) and became managing director of
Siderar in October 2004, a position which he held until he assumed his present position at the
Company. He was president of the IVES between 2002 and 2004, and, since 2004, he is
vice-president of CIS. Mr. Berardi is an Argentine citizen.
Julián Eguren. Mr. Eguren is our North Region Area Manager. Since January 2008, he is chief
executive officer of Ternium Mexico. Prior to that, he served as chief executive officer of
Sidor. He has held several other executive positions since joining the Techint group in 1987,
such as commercial director of Sidor, chief executive officer of Tavsa, Tubos de Acero de
Venezuela S.A., general manager of Socominter (Venezuela), economic planning manager and
treasurer of Tamsa and commercial planning manager of Siderca. He was also a director of IVES,
ILAFA and Matesi, Materiales Siderúrgicos S.A. (Matesi), and president of CAVEARG
(Venezuelan Argentinean Chamber). Mr. Eguren is an Argentine citizen.
80
Oscar Montero Martínez. Mr. Montero is our Planning and Operations General Director. He began
his career with the Techint group in 1984 as a commercial analyst in Siderar. Since then, he
has held several positions within Siderar in the planning, commercial and procurement areas.
In 1998, he assumed the position of strategic planning director of Sidor. Since 2005, he
serves as planning and operations general director of the Company. Mr. Montero is an Argentine
citizen.
Luis Andreozzi. Mr. Andreozzi is our Engineering and Environment Director. He began his career
with the Techint group in 1968 as a trainee in Siderca. He has held several positions within
other Techint group companies, including Techint Engineering Company, or TEING, Siderar and
Sidor. Most recently, he served as construction manager of TEING (1986-1992), construction
manager of Siderar (1992-1998), engineering and environment general manager of Sidor
(1998-2004) and technology manager of the Techint Flat and Long Steel Division, a position he
held until he assumed his present position at the Company. Mr. Andreozzi is an Italian
citizen.
Miguel Punte. Mr. Punte is our Human Resources Director. In 1970, Mr. Punte joined Siderar,
where he held several positions within the human resources department. In 1984, he joined
Finma S.A., or Finma, an affiliate of the Techint group that provides human resources services
to Techint group companies. At Finma, Mr. Punte served first as human resources manager and
later as human resources director until 2005, when he was appointed human resources director
of Siderar, a position that he held until he assumed his present position at the Company. Mr.
Punte is an Argentine citizen.
Rubén Bocanera. Mr. Bocanera is our Chief Information Officer. He joined the Techint group in
1983 as a junior analyst with Siderca. Since then, he has held several positions in different
Techint group companies, including project manager and automation and control manager of
Siderca and Sidor, and chief information officer of Siderar. Since 2002, he is responsible for
the information technology unit of the Techint Flat Steel Division. Mr. Bocanera is an
Argentine citizen.
Rubén Herrera. Mr. Herrera is our Quality and Product Director since July 1, 2008. He is also
Quality and Product Director of Ternium Mexico since 2007. Since joining the Techint group in
1990, he has held several other executive positions, including Mechanical Metallurgical
Department Chief in Sidercas Industrial Research Center, Product Manager of Siderar, and
Quality and Product Director of Sidor. Mr. Herrera is an Argentine citizen.
The compensation of the Companys directors is approved annually at the ordinary general
shareholders meeting. For the year ended December 31, 2009, each member of the board of
directors received an amount of USD70,000 as compensation for their services, and the chairman
of the board received, further, an additional fee of USD280,000. In addition, the directors
who were members of the audit committee each received an additional fee of USD50,000, and the
chairman of such committee received, further, an additional fee of USD10,000.
The aggregate compensation earned by directors and executive officers during 2009 amounted to
approximately USD9,471,000.
On January 1, 2007, Ternium adopted an employee retention and long term incentive program.
Pursuant to this program, certain senior executives may be granted a number of units, with the
value of such units being determined based on the Companys equity value (excluding minority
interest). Each unit entitles the holder thereof to receive cash amounts equal to the amount
of dividends paid from time to time to the Companys shareholders. Units vest over a four-year
period and we will redeem vested units on the tenth anniversary of the grant date or when the
employee ceases to be employed by us, whichever happens first; provided, however, that we are
required to repurchase the units at full value (regardless of vesting) within ten business
days of the death or permanent disability of the relevant beneficiary. Compensation under this
program is not expected to exceed 35% of the total annual compensation of the beneficiaries.
As of December 31, 2009, the outstanding liability corresponding to the program amounts to
USD5.7 million, and the total value of the units granted to date under the program is USD8.3
million.
See Directors and Senior Management.
There are no service contracts between any director and Ternium that provide for benefits upon
termination of employment.
81
Audit Committee
On June 2, 2010, the Companys board of directors re-appointed Ubaldo Aguirre, Adrián Lajous
and Pedro Pablo Kuczynski as members of its audit committee, with Mr. Aguirre to continue
chairing that committee. All three members of the audit committee are independent directors as
defined under the Companys articles of association. The members of the audit committee are
not eligible to participate in any incentive compensation plan for employees of the Company or
any of its subsidiaries.
Under our articles of association and the audit committee charter, the audit committee is
required, among other things, to report to the board of directors on its activity and the
adequacy of the Companys systems of internal control over financial reporting. In addition,
the charter of the audit committee sets forth, among other things, the audit committees
purpose and responsibilities. The audit committee assists the board of directors in its
oversight responsibilities with respect to the integrity of the Companys financial statements
and is responsible for making recommendations regarding the appointment, dismissal,
compensation, retention and oversight of, and assess the independence of the Companys
independent auditors (see Item 16.C Principal Accountant Fees and Services for additional
information about the audit committees procedures with respect to our independent auditors).
The audit committee also performs other duties imposed upon it by applicable laws and
regulations of the regulated market or markets on which the shares of the Company are listed,
as well as any other duty entrusted to it by the Companys board of directors.
In addition, the audit committee is required by the Companys articles of association to
review Material Transactions, as such term is defined by the Companys articles of
association, to be entered into by the Company or its subsidiaries with Related Parties, as
such term is defined by the Companys articles of association (other than transactions
reviewed and approved by the independent members of the board of directors of the Company or
through any other procedures that the board of directors may deem substantially equivalent to
the foregoing), in order to determine whether their terms are consistent with market
conditions or are otherwise fair to the Company and/or its subsidiaries. In the case of
Material Transactions entered into by the Companys subsidiaries with Related Parties, the
Companys audit committee will review those transactions entered into by those subsidiaries
whose boards of directors do not have independent members, or that have not been reviewed and
approved by such independent directors or through any other procedures that the board of
directors of the Company may deem substantially equivalent to the foregoing.
Under the Companys articles of association, as supplemented by the audit committees charter:
|
|
|
a Material Transaction is (i) any transaction with or involving a Related Party (x)
with an individual value equal to or greater than ten million U.S. dollars or (y) with an
individual value lower than ten million U.S. dollars, when the aggregate sum of any
series of transactions reflected in the financial statements of the four fiscal quarters
of the Company preceding the date of determination (excluding any transactions that were
reviewed and approved by any of the audit committee of the Company, or any of its
subsidiaries, the board of directors of the Company, the independent members of the board
of directors or other governing body of any subsidiary of the Company, or a majority of
the members of the board of directors or similar governing body of any subsidiary of the
Company that were not nominated by or at the request of the Company or any entity that
directly or indirectly controls or is under common control with the Company) exceeds 1.5%
of the Companys consolidated net sales made in the fiscal year preceding the year on
which the determination is made; or (ii) any corporate reorganization transaction
(including a merger, spin-off or bulk transfer of a business) involving the Company or
any of its direct or indirect subsidiaries for the benefit of or involving a Related
Party; and |
|
|
|
a Related Party is, in relation to the Company or its direct or indirect
subsidiaries, any of the following persons: (i) a member of the board of directors of the
Company or of the board of directors or other governing body of any of the Companys
subsidiaries; (ii) any member of the board of directors or other governing body of an
entity that directly or indirectly controls the Company; (iii) any entity that directly
or indirectly controls or is under common control with the Company (other than the
Companys subsidiaries); (iv) any entity controlled directly or indirectly by any
member of the board of directors of the Company, or of the board of directors or other
governing body of any subsidiary of the Company; and (v) any spouses, parents, siblings or
relatives up to the third degree of, and any person that shares a home with, any person
referred to in (i) or (ii). |
82
The audit committee has the power (to the maximum extent permitted by applicable laws) to
request that the Company or relevant subsidiary provide any information necessary for it to
review any Material Transaction. A Related Party transaction shall not be entered into unless
(i) the circumstances underlying the proposed transaction justify that it be entered into
before it can be reviewed by the Companys audit committee or approved by the board of
directors and (ii) the Related Party agrees to unwind the transaction if the Companys audit
committee or board of directors does not approve it.
The audit committee has the authority to conduct any investigation appropriate to fulfilling
its responsibilities, and has direct access to the Companys internal and external auditors as
well as Terniums management and employees and, subject to applicable laws, its subsidiaries.
The following table shows the number of persons employed by Ternium and its consolidated
subsidiaries and does not include the number of persons employed at its held-for-sale
subsidiaries as at the end of each of the past three financial years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Argentina |
|
|
5,281 |
|
|
|
5,609 |
|
|
|
5,243 |
|
Mexico |
|
|
8,051 |
|
|
|
8,597 |
|
|
|
8,712 |
|
Other |
|
|
547 |
|
|
|
586 |
|
|
|
683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employees (1) |
|
|
13,879 |
|
|
|
14,792 |
|
|
|
14,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
It does not include 2,092 outsourced employees at year-end 2009, 1,241 outsourced
employees at year-end 2008 and 2,192 outsourced employees at year-end 2007. Outsourced
personnel at year-end 2009 returned to levels similar to those of year-end 2007 as a
result of the normalization of production at Terniums facilities, following the downturn
that began in the fourth quarter 2008. |
At December 31, 2009, the number of persons employed by Ternium was 13,879. During 2009, the
aggregate number of employees decreased compared to year-end 2008, mainly due to the
initiatives that Ternium launched to mitigate the economic downturn. While Ternium generally
kept the employment levels at the operating lines, in order to preserve its capacity to ramp
up production during a recovery, it reduced corporate and other staff, an efficiency gain that
is expected to be maintained over time.
Total employees at year-end 2008 were similar to those at year-end 2007.
Mexico
In Mexico, approximately 63% of Ternium employees are unionized. Approximately 49% of Mexicos
unionized workers are members of FENASA (Federación Nacional de Asociaciones Sindicales
Autónomas), the national federation of autonomous union associations, and 51% are members of
FNSI (Federación Nacional de Sindicatos Independientes), the national federation of
independent unions. The unionized employees of Peña Colorada, however, are members of
Sindicato de Trabajadores Mineros, Metalúrgicos y Similares de la República Mexicana (Union of
Mexican Republic mine, metal and similar workers). The applicable collective bargaining
agreements are negotiated every two years and salary adjustments are made on an annual basis.
During 2009 and the beginning of 2010, Terniums subsidiaries and the unions reached
agreements regulating safety, operating flexibility, as required at some production lines with
unstable backlogs, transparency and conduct. Despite some minor social and union conflicts,
Terniums Mexican subsidiaries maintain good relations with their labor force in Mexico and
have never experienced a strike or work stoppage.
Under Mexican law, companies are required to pay to their employees an annual benefit of
approximately 10% of pre-tax income, calculated using a methodology similar to the methodology
used for the calculation of the income tax.
83
Under Mexican law, Ternium Mexico is required to pay an amount equal to 16.4 % of an
employees salary as social security and tax contributions. Ternium Mexico must also withhold
an additional percentage from salaries for contributions in relation to the mentioned items.
Under Mexican labor laws, when an employee is dismissed without cause, an employer must pay
him or her severance equal to three monthly salaries, including attached benefits in the
corresponding proportion, such as vacations, and twelve days per each year of service.
In Mexico, Ternium has defined benefit and defined contribution plans. Defined benefit
employee retirement plans (pensions and seniority premiums) cover all employees and are based
primarily on their years of service, their present age and their remuneration at the date of
retirement. The formal retirement plans are congruent with and complementary to the retirement
benefits established by the Mexican Institute of Social Security. Additionally a plan to cover
health-care expenses of retired employees has been established. The defined contribution plans
provide a benefit equivalent to the capital accumulated with the companys contributions,
which are provided as a match of employees contributions to the plan. The plan provides
vested rights according to the years of service and cause of retirement. For further
information see Note 4 (n) Accounting policies Employee liabilities to our Consolidated
Financial Statements included elsewhere in this Annual Report.
Argentina
Most of Siderars employees are members of the Argentine metalworkers union (the Unión Obrera
Metalúrgica de la República Argentina, or UOM) and are covered by a collective agreement that
includes all workers in the Argentine steel industry. The employees are also covered by
certain complementary collective agreements between Siderar and the UOM that define specific
issues related to each or all plants, such as working structures, performance related
compensation, productivity, production quantity and quality and Siderars result-related
compensation. These agreements are subject to periodic modification and are updated in
relation to competitiveness, quality, safety and efficiency goals and to reflect inflation
adjustments.
As part of the privatization process in 1992, 20% of Siderars shares were sold to former
employees of the acquired state-owned company Somisa under the Programa de Propiedad
Participada (the Employee Stock Ownership Plan). For further information see Item 4.
Information on the CompanyC. Organizational StructureSubsidiariesSiderar.
Many foremen of Siderar are affiliated with the Asociación de Supervisores de Industria
Metalmecánica de la República Argentina (ASIMRA), the union of supervisors of different
activities in the metal manufacturing industry. ASIMRA-affiliated employees are subject to an
agreement signed with Siderar that establishes regulations relating to salaries, working
organization, absences, vacations, benefits and labor relations. These agreements are subject
to periodic modification and are updated in relation to the requirements of the production
processes.
In the last five years, nominal salaries in local currency increased substantially, reflecting
the economic situation of the country and inflation, and were the result of collective
agreements entered into with the labor authorities involvement. The agreements in force on
salaries between the employers entity representing steel companies in the collective
bargaining including Siderar and the steelworkers unions
will expire on March 31, 2011. We
believe that Siderar maintains good relations with its unions, and the measures that it has
taken in order to make Siderar more competitive have not resulted in significant labor unrest.
In early 2009, following a decrease in the level of activity since the last quarter of 2008
due to the global economic downturn, Siderar downsized contractor and subcontractor activities
and temporary personnel, triggering adverse reactions from the construction workers union and
the steelworkers union. Later in 2009, during the negotiations between Siderar and the
steelworkers union regarding the annual bonuses related to results, the unions called for
work stoppages and other measures. These events have not had a significant impact on Siderars
operations.
Under Argentine law, Siderar is required to pay an amount equal to up to 23% of its employees
base salaries towards the social security system. Siderar must also withhold an additional
percentage from salaries for contribution to such funds up to a certain amount. As of March
2010, the maximum monthly amount from which social security contributions are withheld is
ARP10,119 (Law n° 26417 and its regulations). Part of those contributions finances a
state-controled pension system. There are no mandatory company-supported pension plans.
84
Under Argentine labor laws, when an employee is dismissed without cause, an employer must pay
him or her severance equal to one month of its best, monthly and regular salary per each year
of service or fraction of more than three months, subject to certain floors and caps. In
addition, Siderar implemented an unfunded benefit plan for certain senior officers. The plan
is designed to provide certain benefits (additional to those contemplated under applicable
Argentine labor laws) in case of termination of the employment relationship due to certain
specified events, including retirement.
To our knowledge, the total number of shares of the Company (including in the form of ADSs)
owned by our directors and executive officers as of March 31, 2010 was 987,560, which
represents 0.05% of our issued and outstanding shares. The following table provides
information regarding share ownership by our officers and directors.
|
|
|
|
|
|
|
Number of Shares |
|
Director or Officer |
|
Held |
|
Adrián Lajous |
|
|
740,560 |
|
Daniel Novegil |
|
|
243,000 |
|
Martín Berardi |
|
|
4,000 |
|
|
|
|
|
Total |
|
|
987,560 |
|
|
|
|
|
Item 7. Major Shareholders and Related Party Transactions
The following table shows the beneficial ownership of our securities (in the form of shares or
ADSs) based on the information most recently available to the Company, as of March 31, 2010,
by (1) the Companys major shareholders (persons or entities that own beneficially 5% or more
of the Companys shares), (2) the Companys directors and senior management as a group and (3)
non-affiliated public shareholders.
|
|
|
|
|
|
|
|
|
Identity of Person or Group |
|
Number |
|
|
Percent |
|
I.I.I. Industrial Investments Inc. (1) |
|
|
1,215,655,232 |
|
|
|
60.64 |
% |
Tenaris (2) |
|
|
229,713,194 |
|
|
|
11.46 |
% |
Usiminas (3) |
|
|
285,731,726 |
|
|
|
14.25 |
% |
Directors and Senior Management as a group |
|
|
987,560 |
|
|
|
0.05 |
% |
Public |
|
|
272,655,730 |
|
|
|
13.60 |
% |
|
|
|
(1) |
|
I.I.I. Industrial Investments Inc. is controlled by San Faustín. Rocca & Partners
controls a significant portion of the voting power of San Faustín and has the ability to
influence matters affecting, or submitted to a vote of, the shareholders of San Faustín. |
|
(2) |
|
Tenaris is controlled by I.I.I. CI, which is controlled by San Faustín. Rocca &
Partners controls a significant portion of the voting power of San Faustín and has the
ability to influence matters affecting, or submitted to a vote of, the shareholders of
San Faustín. |
|
(3) |
|
Usiminas holds its shares through a wholly-owned subsidiary. In May 2010, during an
investor conference call, Usiminas Chief Executive Officer announced that Usiminas
intended to sell its holding in Ternium within a 12
month period. See also Shareholders Agreement, dated July 20, 2005, between
I.I.I.Industrial Investments Inc. and Usiminas included as Exhibit 4.1 hereto. |
As of March 31, 2010, 25,560,046 ADSs (representing 255,600,460 shares of common stock, or
12.75% of all outstanding shares of common stock of the Company) were registered in the name
of 86 holders resident in the United States.
The voting rights of our principal shareholders do not differ from the voting rights of other
shareholders. We are not aware of any arrangement which may at a later date result in a change
of control of the Company.
85
|
B. |
|
Related Party Transactions |
Ternium is a party to several related party transactions as described below. Material related
party transactions are subject to the review of the audit committee of the Companys board of
directors and the requirements of Luxembourg law. For further detail on the approval process
for related party transactions, see Item 6.C. Directors, Senior Management and EmployeesC.
Board PracticesAudit Committee.
Grupo Imsa became a subsidiary of the Company on July 26, 2007, and consolidation of its
results began on that date. Accordingly, transactions between Grupo Imsa and related parties
for the year 2007 are only shown as related-party transactions for the Company to the extent
attributable to periods beginning on or after such consolidation date.
As discussed elsewhere in this annual report, as from April 1, 2008, the Company ceased
consolidating Sidors results of operations and cash flows, with Sidors results and cash
flows during each period prior to April 1, 2008 being presented as discontinued operations.
Consequently, transactions between Sidor and related parties for periods prior to the
de-consolidation of Sidor are shown separately. For more information, see note 29 to our
audited consolidated financial statements included elsewhere in this annual report and Item 4.
Information on the CompanyA. History and Development of the CompanySidor Nationalization
Process.
Purchases of Raw Materials
In the ordinary course of business, Ternium buys raw materials and other production inputs
from subsidiaries of Tenaris. These purchases are made on similar terms and conditions to
those purchases made by the Ternium companies from unrelated third parties. These transactions
include:
|
|
|
purchase of ferrous scrap and other raw material, which amounted to USD14.3 million
in 2009, USD28.8 million in 2008 and USD19.7 million in 2007; and |
|
|
|
purchase of steam and operational services from the Argentine electric power
generating facility of Siderca for Siderar in San Nicolás. These purchases amounted to
USD13.6 million in 2009, USD22.3 million in 2008 and USD8.1 million in 2007. |
Sales of Steel Products and Raw Materials
In the ordinary course of business, Ternium sells flat steel products, steel bars and other
raw materials to subsidiaries of Tenaris. These transactions include:
|
|
|
sales of flat steel products to be used in the production of welded pipes and
accessories, which amounted to USD24.7 million in 2009, USD91.6 million in 2008 and
USD36.6 million in 2007; |
|
|
|
sales of metal structures for a new rolling mill, which amounted to USD4.4 million
in 2009; and |
|
|
|
sales of pig iron, DRI, scrap, pellets and other raw materials to be used in the
production of seamless pipes, which amounted to USD8.9 million in 2009, USD16.8 million
in 2008 and USD11.8 million in 2007. |
In certain circumstances, Ternium sells steel products to other companies in the Techint
group. These sales amounted to USD1.0 million in 2009, USD100,000 in 2008 and USD400,000 in
2007.
All these sales are made on similar terms and conditions to those sales made by Ternium to
unrelated third parties.
Purchase Agency Services
Exiros, in which the Company has a 50% share ownership and Tenaris has the remaining 50% share
ownership, provides purchase agency services to us, and to Tenaris subsidiaries. In
connection with Exiros services, Ternium paid fees amounting to USD23.6 million in 2009,
USD24.2 million in 2008 and USD17.8 million in 2007.
86
Supply of Natural Gas
Siderar has natural gas supply agreements with Tecpetrol and Energy Consulting Services, and
natural gas transportation agreements with TGN and Litoral Gas. Tecpetrol is a company
controlled by San Faustín, engaged in oil and gas exploration and production and has rights to
various oil and gas fields in Argentina and elsewhere in Latin America. TGN operates two major
pipelines in Argentina connecting the major gas basins of Neuquén and Noroeste-Bolivia to the
major consumption centers in Argentina. Litoral Gas is a company that distributes gas in the
Province of Santa Fe and in the northeastern section of the Province of Buenos Aires. Energy
Consulting Services is a company engaged in energy and management consulting, representing one
of the major and most reliable natural gas traders in Argentina. San Faustín holds significant
but non-controlling interests in TGN, Litoral Gas and Energy Consulting Services.
In March 2003, Siderar entered into an agreement with Tecpetrol under which Siderar paid
USD17.3 million for the advance purchase of a total of 725 million cubic meters (up to 400
thousand daily cubic meters) of natural gas to be delivered over a period of 5 years. In May
2007, Tecpetrol canceled the contract pursuant to a termination clause that allowed any party
to terminate the contract after the USD17.3 million paid for the advance purchase of natural
gas were exhausted, and continues to supply gas at spot prices and on spot terms and
conditions. In all the cases, prices charged by Tecpetrol are equivalent to those charged by
Siderars other suppliers of natural gas. Tecpetrols sales to Siderar amounted to USD2.4
million in 2009, USD1.3 million in 2008 and USD7.1 million in 2007.
TGN charges Siderar a price to transport its natural gas supplies that is equivalent, on a
comparable basis, to prices paid by other industrial users. The Argentine government regulates
the general framework under which TGN operates and prices its services. TGNs sales to Ternium
amounted to USD2.0 million in 2009, USD9.6 million in 2008 and USD10.7 million in 2007.
Litoral Gas distributes gas to Siderars northern plants. Litoral Gas sales to Ternium
totaled USD1.3 million in 2009, USD600,000 in 2008 and USD600,000 in 2007.
Energy Consulting Services provides Siderar with natural gas. Energy Consulting Services sales
amounted to USD3.0 million in 2009, USD30,000 in 2008 and USD900,000 in 2007.
Provision of Engineering and Labor Services
Ternium contracts with certain companies controlled by San Faustín specialized in supplying
engineering services, construction services, labor and supervision services, for civil and
electromechanical works, and cleaning, general maintenance and handling of by-products
services. Fees accrued for these services amounted to USD87.1 million in 2009, USD162.1
million in 2008 and USD110.0 million in 2007.
Sales and Purchases of Other Products and Services
Ternium entered into other transactions with companies controlled by San Faustín. The most
important ones include:
|
|
|
purchase of plant equipment and spare parts from Tenova S.p.A. (formerly Techint
Compagnia Tecnica Internazionale) and other related companies, which amounted to
USD300,000 in 2009, USD5.2 million in 2008 and USD9.6 million in 2007; and |
|
|
|
in July 2006, Ternium entered into annual contracts with Information Systems &
Technologies, a subsidiary of Tenaris, for the provision of technology and information
services. Since October 2008, these services have been
provided by Siderca. Fees paid under this contract amounted to USD400,000 in 2009, USD1.0
million in 2008 and USD2.9 million in 2007. |
Financial Operations and Administrative Services
Finma S.A., a company owned by various Techint group companies, provides administrative and
legal support services to Techint group companies, including Siderar. Siderar has a 33.33%
participation in Finma S.A.s share capital. Fees accrued by Finma S.A. amounted to USD7.8
million in 2009, USD8.6 million in 2008 and USD6.5 million in 2007.
87
Other Transactions
During 2008, Ternium acquired office space in Buenos Aires from Santa María S.A.I.F., a
subsidiary of San Faustín, for an amount of USD0.4 million. In 2007, Ternium acquired office
space in Buenos Aires from Santa María S.A.I.F. for an amount of USD3.8 million and sold
office space in Buenos Aires to Tenaris for an amount of USD2.6 million.
Ternium sold welded steel pipes to Tenaris as part of orders to a Tenaris customer for an
amount of USD1.9 million in 2009, USD500,000 in 2008 and USD1.6 million in 2007. In the
ordinary course of business, from time to time, Ternium carries out other transactions and
enters into other arrangements with Techint group companies, none of which are believed to be
material.
Transactions between Sidor and related parties prior to April 1, 2008
As from April 1, 2008, the Company ceased consolidating Sidors results of operations and cash
flows, with Sidors results and cash flows during each period prior to April 1, 2008 being
presented as discontinued operations. Accordingly, transactions between Sidor and related
parties for periods prior to the de-consolidation of Sidor are shown below:
Purchases of Raw Materials. Sidor bought ferrous scrap from a subsidiary of Tenaris in
Venezuela for an amount of USD0.5 million in the first quarter of 2008 and USD3.0 million
during 2007.
Sales of Steel Products and Raw Materials. Sidor sold flat steel products, steel bars and raw
materials to subsidiaries of Tenaris. These transactions included:
|
|
|
sales of flat steel products to be used in the production of welded pipes and
accessories, which amounted to USD10.0 million in the first quarter of 2008 and USD34.8
million in 2007; and |
|
|
|
sales of steel bars to be used in the production of seamless pipes, which amounted
to USD4.6 million in the first quarter of 2008 and USD45.8 million in 2007. |
Transactions with Matesi. Sidor established Matesi jointly with a subsidiary of Tenaris to
operate an HBI production facility in Venezuela. As of March 31, 2008, Sidor held 49.8% of
Matesi, while Tenaris held the remaining 50.2%. Transactions associated with this operation
included:
|
|
|
purchases of HBI pursuant to an off-take agreement, which amounted to USD7.9
million in the first quarter of 2008 and USD49.4 million in 2007. The agreement
established that Matesi was required to sell to Sidor, on a take-or-pay basis, 29.9% of
Matesis HBI production, or up to 49.8% at the election of Sidor; |
|
|
|
during 2004, Sidor entered into a management assistance agreement with Matesi. As
part of this agreement, Sidor received fees from Matesi totaling USD0.1 million in the
first quarter 2008 and USD0.7 million in 2007, related to the provision of managerial
services; |
|
|
|
as part of the investment agreement to finance the acquisition of Matesis assets
and its start-up, in July 2004 Sidor granted a loan to Matesi for an outstanding amount
at March 31, 2008, of USD 26.8 million. This loan bore interest at a rate of LIBOR plus
2%. Interest earned on this loan amounted to USD0.5 million during the first quarter of
2008 and USD2.9 million in 2007; |
|
|
|
during 2006, Sidor entered into a Service Agreement with Matesi under which Sidor
recycled by-products from Matesis operations. Sidor provided services to Matesi for an
amount of USD0.9 million in 2007; and |
|
|
|
during 2007, Sidor entered into a Service Agreement with Matesi under which Matesi
recycled pellets from Sidor into HBI. Sidor paid USD4.5 million in the first quarter of
2008 and USD2.4 million in 2007 pursuant to this agreement. |
Provision of Engineering and Labor Services. Sidor contracted with certain Techint group
companies engineering services, construction services, specialized labor and supervision
services, for civil and electromechanical works, and cleaning, general maintenance and
handling of by-products services. Fees accrued for these services amounted to USD10.7 million
in the first quarter of 2008 and USD28.3 million in 2007.
88
Sales and Purchases of Other Products and Services. Sidor entered into other transactions with
Techint group companies, the most important of which was the purchase of plant equipment and
spare parts from Tenova S.p.A. (formerly Techint Compagnia Tecnica Internazionale) and other
related companies, which amounted to USD5.9 million in the first quarter of 2008 and USD17.1
million in 2007. In the ordinary course of business, from time to time prior to April 1, 2008,
Sidor carried out other transactions and entered into other arrangements with Techint group
companies, none of which are believed to have been material.
|
C |
|
Interest of Experts and Counsel |
Not applicable.
Item 8. Financial Information
|
A. |
|
Consolidated Statements and Other Financial Information |
See Item 18 and pages F-1 through F-58 for our audited consolidated financial statements.
Legal Proceedings
Tax matters relating to Siderar
The Administración Federal de Ingresos Públicos (AFIP), the Argentine tax authority, has
challenged the charge to income of certain disbursements that Siderar has treated as expenses
necessary to maintain industrial installations, which as such should be deducted in the year
in which they take place. The AFIP asserts that these are investments or improvements that
must be capitalized and, therefore, it made a jeopardy assessment income tax due on a nominal
tax basis plus fines and interest in fiscal years 1995 to 1999 amounting to approximately
USD19.4 million as of December 31, 2009.
Siderar appealed these assessments before the National Tax Court, as in the view of its legal
and tax advisors, there are reasons that would likely result in a favorable ruling for
Siderar. On April 13, 2005 Siderar was notified of a ruling issued by the National Tax Court
reducing the assessments made by the AFIP for fiscal years 1995 and 1996. The ruling was
appealed both by Siderar and the AFIP.
Based on the above, Siderar recognized a provision amounting to USD2.3 million as of December
31, 2009 as management considers there could be a potential cash outflow.
Corus arbitration proceedings
Grupo Imsa (now Ternium Mexico), together with Grupo Marcegaglia, Duferco International and
Donkuk 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 off-takers could be required to
purchase, in the aggregate, approximately 78% of the steel slab production of Corus Teeside
facility in the North East of England, of which Grupo Imsas 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 Imsas rights and obligations under this contract were assigned to
Ternium Procurement S.A. (formerly known as Alvory S.A.).
89
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
seeking damages arising out of the alleged wrongful termination of the off-take agreements,
which damages Corus did not quantify but stated that would exceed USD150 million, the maximum
aggregate cap on liability that the offtakers would have under the off-take framework
agreement. 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 offtakerss 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. On May 25, 2010, pursuant to the arbitration tribunals request that the
parties provide an estimate on the actual amounts in dispute, Corus informed that the amounts
claimed would exceed 210 million British Pounds (approximately USD 316 million), while the
offtakers estimated that the losses pursuant to their counterclaim would involve an amount
exceeding 240 million British Pounds (approximately USD 362 million). Corus has argued that no
cap is applicable in connection with the damages claimed. The arbitration proceeding has not
yet concluded. At the date of issue of these annual report it is not possible to foresee the
final outcome of this arbitration proceeding.
Dividend Policy
We do not have, and have no current plans to establish, a formal dividend policy governing the
amount and payment of dividends or other distributions. The amount and payment of dividends
will be determined by a simple majority vote at a general shareholders meeting, typically,
but not necessarily, based on the recommendation of the Companys board of directors. All
shares of the Companys capital stock rank pari passu with respect to the payment of
dividends.
On June 2, 2010, the Companys shareholders approved a dividend of USD0.05 per share (USD0.50
per ADS), or an aggregate of approximately USD100.2 million. The Company paid the dividend on
June 10, 2010.
At the shareholders meeting held on June 3, 2009, no dividend distribution was approved.
On June 4, 2008, the Companys shareholders approved a dividend of USD0.05 per share (USD0.50
per ADS), or an aggregate of approximately USD100.2 million. The Company paid the dividend on
June 12, 2008.
On June 6, 2007, the Companys shareholders approved a dividend of USD0.05 per share (USD0.50
per ADS), or an aggregate of approximately USD100.2 million. The Company paid the dividend on
June 12, 2007. This was the first dividend distribution made by the Company since its
formation.
We conduct all of our operations through subsidiaries and, accordingly, our main source of
cash to pay dividends is the dividends received from our subsidiaries. See Item 3. Key
InformationD. Risk FactorsRisks Relating to the Structure of the CompanyAs a holding
company, the Companys ability to pay dividends depends on the results of operations and
financial condition of its subsidiaries and could be restricted by legal, contractual or other
limitations. These dividend payments will likely depend on our subsidiaries results of
operations, financial condition, cash and capital requirements, future growth prospects and
other factors deemed relevant by their respective boards of directors, as well as on any
applicable legal restrictions. See Item 3. Key InformationD. Risk FactorsRisks Relating
to the Countries in Which We OperateArgentina and Item 10. Additional InformationB.
Memorandum and Articles of AssociationDividends for a discussion of the current
restrictions on the payment of dividends.
Pursuant to our articles of association, the board of directors has the power to distribute
interim dividends in accordance with applicable Luxembourg law, but dividend payments must be
approved by our shareholders at the annual general meeting, subject to the approval of our
annual accounts. Dividends may be lawfully declared and paid if our net profits and
distributable reserves are sufficient under Luxembourg law.
Under Luxembourg law, at least 5% of our net profits per year must be allocated to the
creation of a legal reserve until such reserve has reached an amount equal to 10% of our
issued share capital. If the legal reserve later falls below the 10% threshold, at least 5% of
net profits again must be allocated toward the reserve. The legal reserve is not available for
distribution.
90
Except as otherwise disclosed in this annual report, there has been no undisclosed significant
change since the date of the annual financial statements.
Item 9. The Offer and Listing
|
A. |
|
Offer and Listing Details |
The Companys ADSs are listed on the NYSE under the symbol TX. Trading on the NYSE began on
February 1, 2006. As of March 31, 2010, a total of 2,004,743,442 shares were registered in the
Companys shareholder register.
As of March 31, 2010, a total of 273,643,290 shares were registered in the name of the
depositary for the Companys ADR program. On June 22, 2010, the closing sales price for the
Companys ADSs on the NYSE was USD35.49.
New York Stock Exchange
As of March 31, 2010, a total of 27,364,329 ADSs were registered of record. Each ADS
represents 10 shares of the Companys stock. The Bank of New York Mellon acts as the Companys
depositary for issuing ADRs evidencing the ADSs. The following tables sets forth, for the
periods indicated, the high and low daily quoted prices for the Companys shares, in the form
of ADSs, traded on the NYSE.
|
|
|
|
|
|
|
|
|
|
|
Price per ADS |
|
Full Financial Years Since Listing |
|
High |
|
|
Low |
|
2007 |
|
|
42.48 |
|
|
|
23.30 |
|
2008 |
|
|
18.14 |
|
|
|
4.55 |
|
2009 |
|
|
35.61 |
|
|
|
5.76 |
|
|
|
|
|
|
|
|
|
|
|
|
Price per ADS |
|
Full Financial Quarters in 2008 |
|
High |
|
|
Low |
|
First quarter |
|
|
40.40 |
|
|
|
30.01 |
|
Second quarter |
|
|
45.99 |
|
|
|
31.86 |
|
Third quarter |
|
|
41.94 |
|
|
|
14.75 |
|
Fourth quarter |
|
|
18.14 |
|
|
|
4.55 |
|
|
|
|
|
|
|
|
|
|
|
|
Price per ADS |
|
Full Financial Quarters in 2009 |
|
High |
|
|
Low |
|
First quarter |
|
|
11.14 |
|
|
|
5.76 |
|
Second quarter |
|
|
18.64 |
|
|
|
7.05 |
|
Third quarter |
|
|
27.71 |
|
|
|
17.24 |
|
Fourth quarter |
|
|
35.61 |
|
|
|
23.63 |
|
|
|
|
|
|
|
|
|
|
|
|
Price per ADS |
|
Last Six Months |
|
High |
|
|
Low |
|
January 2010 |
|
|
37.62 |
|
|
|
29.76 |
|
February 2010 |
|
|
34.23 |
|
|
|
29.16 |
|
March 2010 |
|
|
41.34 |
|
|
|
34.45 |
|
April 2010 |
|
|
43.05 |
|
|
|
35.51 |
|
May 2010 |
|
|
39.14 |
|
|
|
29.78 |
|
June 1 to June 22, 2010 |
|
|
36.23 |
|
|
|
31.16 |
|
91
Not applicable.
See Offer and Listing Details.
Not applicable.
Not applicable.
Not applicable.
Item 10. Additional Information
Not applicable.
|
B. |
|
Memorandum and Articles of Association |
General
The following is a summary of certain rights of holders of the Companys shares. These rights
are set out in the Companys articles of association or are provided by applicable Luxembourg
law, and may differ from those typically provided to shareholders of U.S. companies under the
corporation laws of some states of the United States of America. This summary is not
exhaustive and does not contain all information that may be important to you. For more
complete information, you should read the Companys articles of association, which are
attached as an exhibit to this annual report.
The Company is a joint stock corporation ( société anonyme holding ) organized under the laws
of Luxembourg. Its object and purpose, as set forth in Article 2 of its articles of
association, is the taking of interests, in any form, in corporations or other business
entities, and the administration, management, control and development thereof. The Company is
registered under the number B98 668 in the Registre du Commerce et des Sociétés.
The Company has an authorized share capital of a single class of 3.5 billion shares having a
nominal value of USD1.00 per share. As of March 31, 2010, there were 2,004,743,442 shares
issued. All issued shares are fully paid.
The Companys articles of association authorized the board of directors, to issue shares
within the limits of its authorized share capital at such times and on such terms and
conditions as the board of directors or its delegates may determine. The extraordinary general
meeting of shareholders held on June 2, 2010 renewed this authorization for a period of five
years as of the date of publication of the deed recording the minutes of such meeting in
Luxembourgs official gazette. Accordingly, shares may be issued up to the authorized share
capital limit of USD3.5 billion by a decision of the board of directors.
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The Companys shareholders have authorized the board of directors to waive, suppress or limit
any pre-emptive subscription rights of shareholders provided for by law to the extent it deems
such waiver, suppression or limitation advisable for any issue or issues of shares within the
authorized share capital. However, if and from the date the Companys shares are listed on a
regulated market (and only for as long as they are so listed), any issuance of shares
for cash within the limits of the authorized share capital shall be subject to the pre-emptive
subscription rights of the then existing shareholders (as set out in the articles of
association), except in the following cases (in which cases no pre-emptive rights shall
apply):
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any issuance of shares for, within, in conjunction with or related to, an initial
public offering of the Companys shares on one or more regulated markets (in one or more
instances); |
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any issuance of shares against a contribution other than in cash; |
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any issuance of shares upon conversion of convertible bonds or other instruments
convertible into shares; provided, however, that the pre-emptive subscription rights of
the then existing shareholders shall apply by provision of the Companys articles of
association in connection with any issuance of convertible bonds or other instruments
convertible into shares for cash; and |
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any issuance of shares (including by way of free shares or at a discount), up to an
amount of 1.5% of the issued share capital of the Company, to directors, officers, agents
or employees of the Company, its direct or indirect subsidiaries, or its Affiliates (as
such term is defined in the Companys articles of association), including without
limitation the direct issue of shares upon the exercise of options, rights convertible
into shares, or similar instruments convertible or exchangeable into shares issued for
the purpose of, or in relation to, compensation or incentive of any such persons. |
The Companys authorized share capital is fixed by the Companys articles of association, as
amended from time to time, with the approval of shareholders at an extraordinary general
shareholders meeting. The general extraordinary meeting of shareholders held on June 2, 2010,
renewed the validity of the Companys authorized share capital for a period of five years as
of the date of publication of the deed recording the minutes of such meeting in the
Luxembourgs official gazette.
Dividends
Subject to applicable law, all shares (including shares underlying ADSs) are entitled to
participate equally in dividends when, as and if declared by the shareholders at the ordinary
general shareholders meeting, out of funds legally available for such purposes. Under
Luxembourg law, claims for dividends will lapse five years after the date such dividends are
declared. However, we may elect to pay a declared dividend after such period. The shareholders
may, at the ordinary general shareholders meeting, which every shareholder has the right to
attend in person or by proxy, declare a dividend under Article 21 of the Companys articles of
association.
Under Article 21 of the articles of association, the Companys board of directors has the
power to distribute interim dividends in accordance with the conditions that apply to
commercial companies set forth in particular in Section 72-2 of the Luxembourg law of August
10, 1915, on commercial companies.
Voting Rights; Shareholders Meetings; Election of Directors
Each share (including shares underlying ADSs) entitles the holder to one vote at the Companys
general shareholders meetings. Shareholder action by written consent is not permitted, but
proxy voting is permitted. Notices of general shareholders meetings are governed by the
provisions of Luxembourg law and the Companys articles of association. Notices of such
meetings must be published twice, at least at eight-day intervals, the second notice appearing
at least eight days prior to the meeting, in the Luxembourg Official Gazette and in a leading
newspaper having general circulation in Luxembourg. If an extraordinary general shareholders
meeting is adjourned for lack of a quorum, notices must be published twice, in the Luxembourg
Official Gazette and two Luxembourg newspapers, at 15-day intervals, the second notice
appearing at least 15 days prior to the meeting. In case the Companys shares are listed on a
foreign regulated market, notices of general shareholders meetings shall also be published in
accordance with the publicity requirements of such regulated market. No attendance quorum is
required at annual ordinary general shareholders meetings and resolutions are adopted by a
simple majority vote of the shares present or represented and voted at the meeting. An
extraordinary general shareholders meeting must have a quorum of at least 50% of the issued
and outstanding shares. If a quorum is not reached, such meeting may be reconvened at a later
date with no quorum requirements by means of the appropriate notification procedures provided
for by Luxembourg company law. In both cases, Luxembourg company law and the Companys
articles of association require that any resolution of an extraordinary general shareholders
meeting be adopted by a two-thirds majority vote of the shares present or
represented. If a proposed resolution consists of changing the Companys nationality or of
increasing the shareholders commitments, the unanimous consent of all shareholders is
required. Directors are elected at annual ordinary general shareholders meetings. Cumulative
voting is not permitted. As the Companys articles of association do not provide for staggered
terms, directors are elected for a maximum of one year and may be reappointed or removed at
any time, with or without cause, by resolution passed by a simple majority vote of the shares
present or represented and voted.
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The Companys articles of association provide that annual ordinary general shareholders
meetings, at which its annual financial statements are approved and the members of its board
of directors are appointed, must take place in Luxembourg on the first Wednesday of every June
at 2:30 p.m., Luxembourg time. If that day is a legal or banking holiday in Luxembourg, the
meeting shall be held on the following business day.
Any shareholder who holds one or more shares of the Company on the fifth calendar day
preceding the general shareholders meeting (the Record Date) shall be admitted to a general
shareholders meeting. Those shareholders who have sold their shares between the Record Date
and the date of the general shareholders meeting, may not attend or be represented at the
meeting.
In the case of shares held through fungible securities accounts, each shareholder may exercise
all rights attached to his shares and, in particular, may participate in and vote at
shareholders meetings of the Company upon presentation of a certificate issued by the
financial institution or professional depositary holding the shares, evidencing such deposit
and certifying the number of shares recorded in the relevant account on the Record Date. Such
certificate must be filed at least five days before the meeting with the Company at its
registered address or at the address stated in the convening notice or, in case the shares of
the Company are listed on a regulated market, with an agent of the Company located in the
country of the listing and designated in the convening notice. In case any such holder wishes
to vote by proxy, the holder shall have to present a completed proxy form together with the
certificate previously referred, by the same date and time and at the same addresses.
The board of directors and the shareholders meeting may, if they deem so advisable, reduce
these periods of time for all shareholders and admit all shareholders (or their proxies) who
have filed the appropriate documents to the general shareholders meeting, irrespective of
these time limits.
Access to Corporate Records
Luxembourg law and the Companys articles of association do not generally provide for
shareholder access to corporate records. Shareholders may inspect the annual accounts and
auditors reports at the Companys registered office during the fifteen-day period prior to a
general shareholders meeting.
Appraisal Rights
In the event the shareholders approve any of the following:
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the delisting of the Companys shares from all regulated markets where the
Companys shares are listed at that time, excluding a delisting made pursuant to an offer
to all of the Companys shareholders made by a business entity subject to common control
with the Company, whereby such business entity offers to issue, in exchange for the
Companys shares, shares to be listed on the same regulated market(s) on which the
Companys shares are listed; |
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a merger in which the Company is not the surviving entity (unless the shares or
other equity securities of such entity are listed on the New York or London stock
exchanges); |
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a sale, lease, exchange or other disposition of all or substantially all of the
Companys assets; |
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an amendment to the Companys articles of association that has the effect of
materially changing its corporate purpose; |
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the relocation of the Companys domicile outside the Grand Duchy of Luxembourg; or |
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amendments to the Companys articles of association that restrict the rights of its
shareholders (excluding any amendments in relation with, or to, the authorized share
capital and/or the waiver or suppression of any preferential subscription rights relating
thereto); |
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dissenting or absent shareholders have the right to have their shares repurchased by the
Company at (i) the average market value of the shares over the 90 calendar days preceding the
applicable general shareholders meeting or (ii) in the event that the Companys shares are
not traded on any regulated market, the amount that results from applying the proportion of
the Companys equity that the shares being sold represent over the Companys net worth as
determined in its last consolidated financial statements approved by the shareholders or in
its last interim consolidated financial statements approved by the board of directors,
whichever is more recent. Shareholders who voted in favor of the relevant resolution are not
entitled to exercise this right.
Dissenting or absent shareholders must present their claim within one month following the date
of the applicable general shareholders meeting and supply the Company with evidence of their
shareholding at the time of such meeting. The Company must (to the extent permitted by
applicable laws and regulations and in compliance therewith) repurchase its shares within six
months following the date of the applicable general shareholders meeting. If delisting from
one or more, but not all, of the regulated markets where the Companys shares are listed is
approved by the shareholders, only dissenting or absent shareholders with shares held through
participants in the local clearing system for that market or those markets can exercise this
appraisal right if:
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they held the shares as of the date of the announcement by the Company of its
intention to delist or as of the date of publication of the first convening notice for
the general shareholders meeting that approved the delisting; |
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they present their claim within one month following the date of the general
shareholders meeting and supply evidence of their shareholding as of the date of the
Companys announcement or the publication of the first convening notice to the meeting;
and |
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the delisting is not being made pursuant to an offer to all of the Companys
shareholders made by a business entity subject to common control with the Company,
whereby such business entity offers to issue, in exchange for the Companys shares,
shares to be listed on the same regulated market(s) on which such dissenting or absent
shareholders hold their shares through participants in the local clearing system for that
market or markets. |
In the event a shareholder exercises its appraisal right, applicable Luxembourg law provisions
shall apply.
Distribution of Assets on Winding-up
In the event of the Companys liquidation, dissolution or winding-up, the net assets remaining
after allowing for the payment of all debts, charges and expenses shall be paid out to holders
of the Companys shares in proportion to their respective holdings.
Transferability and Form
The Companys articles of association do not impose restrictions on the transfer of its
shares. The shares are issuable in registered form.
Pursuant to the Companys articles of association, the ownership of registered shares is
evidenced by the inscription of the name of the shareholder, the number of shares held by such
shareholder and the amount paid on each share in the Companys shareholders register. In
addition, the Companys articles of association provide that shares may be held through
fungible securities accounts with financial institutions or other professional depositaries.
Shares held through fungible securities accounts have the same rights and obligations as
shares recorded in the Companys shareholders register.
Shares held through fungible securities accounts may be transferred in accordance with
customary procedures for the transfer of securities in book-entry form. Shares that are not
held through fungible securities accounts may be transferred by a written statement of
transfer signed by both the transferor and the transferee or their respective duly appointed
attorney-in-fact and recorded in the Companys shareholders register. The transfer of shares
may also be made in accordance with the provisions of Article 1690 of the Luxembourg Civil
Code. As evidence of the transfer of registered shares, the Company may also accept any
correspondence or other documents evidencing the agreement between transferor and transferee
as to the transfer of registered shares.
BNP Paribas Securities Services, Luxembourg Branch, maintains the Companys shareholders
register.
95
Repurchase of Company Shares
The Company may repurchase its own shares in the cases and subject to the conditions set by
the Luxembourg law of August 10, 1915, as amended. See Item 16.E Purchases of Equity
Securities by the Issuer and Affiliated Purchasers for further information on the
authorization granted on June 2, 2010, by the Companys annual general shareholders meeting to
the Company or its subsidiaries to repurchase the Companys shares, including shares
represented by ADRs.
Limitation on Securities Ownership
There are no limitations currently imposed by Luxembourg law or the articles of association on
the rights of non-resident shareholders to hold or vote the Companys shares.
Change in Control
The Companys articles of association do not contain any provision that would have the effect
of delaying, deferring or preventing a change in control of the Company and that would operate
only with respect to a merger, acquisition or corporate restructuring involving the Company.
In addition, the Company does not know of any significant agreements or other arrangements to
which the Company is a party and which take effect, alter or terminate in the event of a
change of control of the Company.
There are no rights associated with the Companys shares other than those described above.
For a summary of any material contract entered into by us outside of the ordinary course of
business during the last two years, see Item 4. Information on the CompanyB. Business
OverviewRaw Materials, Energy and Other Inputs. For a summary of the notes evidencing CVGs
indebtedness to the Company in connection with the Sidor nationalization process, see Item 4.
Information on the CompanyA. History and Development of the CompanySidor Nationalization
Process.
Many of the countries which are important markets for us or in which we have substantial
assets have a history of substantial government intervention in currency markets, volatile
exchange rates and government-imposed currency controls. These include Argentina and Mexico.
Currently, only Argentina has exchange controls or limitations on capital flowsincluding
requirements for the repatriation of export proceedsin place.
Mexico
Between November 1991 and December 1994, the Mexican Central Bank maintained the exchange rate
between the U.S. dollar and the Mexican peso within a predetermined range through intervention
in the foreign exchange market. The Mexican Central Bank intervened in the foreign exchange
market as the exchange rate reached either the minimum or the maximum of the predetermined
range in order to reduce day-to-day fluctuations in the exchange rate. On December 20, 1994,
the Mexican government modified the predetermined range within which the Mexican peso was
permitted to float by increasing the maximum Mexican peso price of the U.S. dollar by MXN0.53,
which implied an effective 15% devaluation of the Mexican peso. On December 22, 1994, the
Mexican government suspended intervention by the Mexican Central Bank in the foreign exchange
market and allowed the Mexican peso to float freely against the U.S. dollar. Factors that
contributed to this decision included the size of Mexicos current account deficit, a decline
in the Mexican Central Banks foreign exchange reserves, rising interest rates for other
currencies (especially the U.S. dollar) and reduced confidence in the Mexican economy on the
part of investors due to political uncertainty associated with events in the state of Chiapas
and presidential and congressional elections in that year. The value of the Mexican peso
suffered a steep deterioration against the U.S. dollar, declining by 43% from December 19,
1994 to December 31, 1994. The Mexican government has since allowed the Mexican peso to float
freely against the U.S. dollar. Since September 2008, the value of the Mexican peso against
the U.S. dollar has been rapidly declining, mainly as a consecuence of the global economic
downturn. Throughout 2008, the Mexican peso suffered a 25% devaluation with respect to the
U.S. dollar and throughout 2009, it appreciated 4%.
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Historically, the Mexican economy has suffered balance of payment deficits and shortages in
foreign exchange reserves. While the Mexican government does not currently restrict the
ability of Mexican or foreign persons or entities to convert Mexican pesos to U.S. dollars and
the terms of NAFTAto which Mexico is a signatory generally prohibit exchange controls, the
Mexican government could institute a restrictive exchange control policy in the future.
For additional information regarding factors affecting the value of the Mexican peso, see
Item 3. Key InformationD. Risk FactorsRisks Relating to the Countries in Which We
OperateMexico.
Argentina
Since 2002, the Argentine government has maintained a dirty float of the peso. In addition,
following the enactment of the Public Emergency and Foreign Exchange System Reform Law
No. 25,562 in January 2002, several rules and regulations have been introduced to reduce
volatility in the ARP/USD exchange rate. Below is a summary of the principal limitations on
the transfer of foreign currency in and out of Argentina:
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the proceeds of certain foreign financial debt incurred by Argentine residents
(including private Argentine entities) as well as certain inflows for the purpose of
investments in the capital markets must remain in Argentina for at least 365 calendar
days and, with certain exceptions, 30% of the amount of off-shore proceeds shall be
deposited in a non-transferable, non-interest bearing account with an Argentine bank.
This deposit shall be held for a period of 365 calendar days and may not be used as
collateral in any credit transaction; |
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outflows from proceeds of investments in capital markets are restricted and subject
to certain requirements, such as, in certain cases, the mantainance of the investment for
a specific period of time; |
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inflows and outflows of foreign currency through the local exchange market, and
indebtedness transactions by local residents that may result in a foreign currency
payment to non-residents, must be registered with the Argentine Central Bank; and |
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funds from export revenues or financial loans received that are credited in foreign
currency overseas must be converted into local currency and credited to a local banking
account within a specific period of time. |
Regulations issued by the Argentine Central Bank establish specific exceptions pursuant to
which some of these requirements may not apply to foreign trade, export finance-related
transactions and certain medium term financial loans (subject to compliance with certain
requirements), nor to the primary placement of publicly traded securities listed in one or
more regulated markets.
Increasingly during 2008 and 2009, the Argentine government has been imposing new restrictions
on foreign exchange outflows, including through certain transactions on securities traded
locally. Also, in October 2008, the time periods for the repatriation of export revenues
credited in foreign currency overseas were, in practice, substantially shortened.
For additional information regarding factors affecting the value of the Argentine peso, see
Item 3. Key InformationD. Risk FactorsRisks Relating to the Countries in Which We
OperateArgentina.
The market exchange rate of the Argentine peso against the U.S. dollar continues to be
determined by the forces of supply and demand in the foreign exchange market, although the
Argentine government, acting through the Argentine Central Bank, has a number of means by
which it may act to maintain exchange rate stability. See Item 3. Key InformationD. Risk
FactorsRisks Relating to our Business Changes in exchange rates or any limitation in the
Ternium companies ability to hedge against exchange rate fluctuations could adversely affect
Terniums business and results. During the first nine months of 2008 the Argentine Central
Bank maintained the value of the U.S. dollar around ARP3.0 and ARP3.2 per U.S. dollar.
However, since the fourth quarter 2008, the exchange rate between the U.S. dollar and the
Argentina peso has been following an upward trend, closing at ARS 3.92/USD on June 8, 2010.
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The following discussion of the material Luxembourg and United States federal income tax
consequences of an investment in the Companys ADSs is based upon laws and relevant
interpretations thereof in effect as of the date of
this annual report, all of which are subject to change. This discussion does not address all
possible tax consequences relating to an investment in the Companys ADSs, such as the tax
consequences under United States state and local tax laws.
Grand Duchy of Luxembourg
This section describes the material Luxembourg tax consequences of owning or disposing of
ADSs.
You should consult your own tax adviser regarding the Luxembourg tax consequences of owning
and disposing of ADSs in your particular circumstances.
Holding company status
The tax treatment described below results from the tax status of the Company as a holding
company under the law of July 31, 1929 and the billionaire provisions relating there.
Following a decision by the European Commission, the Grand-Duchy of Luxembourg has terminated
its 1929 holding company regime and related billionaire holding company regime, effective
January 1, 2007. However, under the implementing legislation, pre-existing publicly-listed
companies including the Company are entitled to continue benefiting from their current tax
regime until December 31, 2010. If we are unable to mitigate the consequences of the
termination of the preferential tax regime, in the future we may be subject to a higher tax
burden and holders of our shares or ADSs may be subject to tax withholdings, as described in
Item 3.D Risks Relating to the Structure of the Company.
Ownership and disposition of the Companys ADSs
Holders of the Companys ADSs will not be subject to Luxembourg income tax, wealth tax or
capital gains tax in respect of those ADSs, except for:
(i) individual residents of Luxembourg, entities organized in Luxembourg or foreign entities
domiciled or having a permanent establishment in Luxembourg. For purposes of Luxembourg tax
law, you are deemed to be an individual resident in Luxembourg, subject to treaty provisions,
if you have your domicile or your usual place of residence in Luxembourg, or
(ii) non-resident holders are taxed with respect to the disposition of the Companys ADSs held
for less than six months if such non-resident holder has owned alone, or if such non-resident
holder is an individual, together with his spouse or minor children, directly or indirectly at
any time during the five years preceding the date of disposition more than 10% of the
Companys share capital, or
(iii) non-resident holders are taxed with respect to the disposition of the Companys ADSs
held for more than six months(x) if such non-resident holder has owned alone, or together with
his spouse or minor children, directly or indirectly, at any time during the five years
preceding the date of disposition, more than 10% of the Companys share capital and (y) was a
Luxembourg resident taxpayer for more than 15 years and has become a non-resident tax payer
less than 5 years before the moment of disposition of the ADSs.
No inheritance tax is payable by a holder of the Companys ADSs except if the deceased holder
was a resident of Luxembourg at the time of death.
There is no Luxembourg transfer duty or stamp tax on the purchase or disposition of the ADSs.
Dividends received on the Companys ADSs by non-Luxembourg resident holders
No withholding tax applies in Luxembourg on dividends distributed by the Company. No taxes
apply in Luxembourg on dividends received by holders who are not resident in Luxembourg and
who do not maintain a permanent establishment in Luxembourg to which the holding of the ADSs
is effectively connected. Dividends received by holders who are individual residents of
Luxembourg, entities organized in Luxembourg or entities domiciled or having a permanent
establishment in Luxembourg are subject to tax.
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United States federal income taxation
This section describes the material United States federal income tax consequences to a U.S.
holder (as defined below) of owning ADSs. It applies to you only if you hold your ADSs as
capital assets for tax purposes. This section does not apply to you if you are a member of a
special class of holders subject to special rules, including:
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a dealer in securities, |
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a bank, |
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a trader in securities that elects to use a mark-to-market method of accounting for
securities holdings, |
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a tax-exempt organization, |
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a person who invests through a pass-through entity, including a partnership, |
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a life insurance company, |
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a person liable for alternative minimum tax, |
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a person that actually or constructively owns 10% or more of the Companys voting
stock or its ADSs, |
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a person that holds ADSs as part of a straddle or a hedging or conversion
transaction, or |
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a person whose functional currency is not the U.S. dollar. |
This section is based on the Internal Revenue Code of 1986, as amended, its legislative
history, existing and proposed regulations, published rulings and court decisions, as well as
on the Income Tax Treaty between Luxembourg and the United States (the Treaty). These laws
are subject to change, possibly on a retroactive basis. In addition, this section is based in
part upon the representations of the depositary and the assumption that each obligation in the
deposit agreement and any related agreement will be performed in accordance with its terms.
If a partnership holds the ADSs, the tax treatment of a partner will generally depend upon the
status of the partner and the activities of the partnership. Each such partner holding the
ADSs is urged to consult his, her or its own tax advisor.
You are a U.S. holder if you are a beneficial owner of ADSs and you are:
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a citizen or resident of the United States, |
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a domestic corporation, |
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an estate whose income is subject to United States federal income tax regardless of
its source, or |
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a trust if a United States court can exercise primary supervision over the trusts
administration and one or more United States persons are authorized to control all
substantial decisions of the trust. |
In general, and taking into account the earlier assumptions, for United States federal income
tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the shares
represented by those ADRs. Exchanges of shares for ADRs, and ADRs for shares, generally will
not be subject to United States federal income tax.
Taxation of dividends
Under the United States federal income tax laws, and subject to the passive foreign investment
company, or PFIC, rules discussed below, if you are a U.S. holder, the gross amount of any
dividend the Company pays out of its current or accumulated earnings and profits (as
determined for United States federal income tax purposes) is subject to United States federal
income taxation. If you are a noncorporate U.S. holder, dividends paid to you in taxable years
beginning
before January 1, 2011 that constitute qualified dividend income will be taxable to you at a
maximum tax rate of 15% provided that you hold the ADSs for more than 60 days during the
121-day period beginning 60 days before the ex-dividend date and meet other holding period
requirements. Dividends the Company pays with respect to the ADSs generally will be qualified
dividends.
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You must include any Luxembourg tax withheld from the dividend payment in this gross amount
even though you do not in fact receive it. The dividend is taxable to you when you receive the
dividend, actually or constructively. The dividend will not be eligible for the
dividends-received deduction generally allowed to United States corporations in respect of
dividends received from other United States corporations. Distributions in excess of current
and accumulated earnings and profits, as determined for United States federal income tax
purposes, will be treated as a non-taxable return of capital to the extent of your basis in
the ADSs and thereafter as capital gain.
Subject to certain limitations, any Luxembourg tax withheld in accordance with the Treaty and
paid over to Luxembourg will be creditable against your United States federal income tax
liability. Special rules apply in determining the foreign tax credit limitation with respect
to dividends that are subject to the maximum 15% tax rate. To the extent a refund of the tax
withheld is available to you under Luxembourg law or under the Treaty, the amount of tax
withheld that is refundable will not be eligible for credit against your United States federal
income tax liability.
Dividends will be income from sources outside the United States and depending on your
circumstances, will generally be either passive or general income for purposes of
computing the foreign tax credit allowable to you.
Taxation of capital gains
Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell or otherwise
dispose of your ADSs, you will recognize capital gain or loss for United States federal income
tax purposes equal to the difference between the U.S. dollar value of the amount that you
realize and your tax basis, determined in U.S. dollars, in your ADSs. Capital gain of a
noncorporate U.S. holder is generally taxed at preferential rates where the holder has a
holding period greater than one year. The gain or loss will generally be income or loss from
sources within the United States for foreign tax credit limitation purposes. Your ability to
deduct capital losses is subject to limitations.
PFIC rules
Based on the Companys expected income and assets, we believe that the ADSs should not be
treated as stock of a PFIC for United States federal income tax purposes, but this conclusion
is a factual determination that is made annually and thus may be subject to change. If the
Company were to be treated as a PFIC, unless a U.S. holder elects to be taxed annually on a
mark-to-market basis with respect to the ADSs, gain realized on the sale or other disposition
of your ADSs would in general not be treated as capital gain. Instead, if you are a U.S.
holder, you would be treated as if you had realized such gain and certain excess
distributions ratably over your holding period for the ADSs and would be taxed at the highest
tax rate in effect for each such year to which the gain was allocated, together with an
interest charge in respect of the tax attributable to each such year. With certain exceptions,
your ADSs will be treated as stock in a PFIC if the Company were a PFIC at any time during
your holding period in your ADSs. Dividends that you receive from the Company will not be
eligible for the special tax rates applicable to qualified dividend income if the Company is
treated as a PFIC with respect to you either in the taxable year of the distribution or the
preceding taxable year, but instead will be taxable at rates applicable to ordinary income.
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Dividends and Paying Agents |
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Not applicable. |
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Statement by Experts |
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Not applicable. |
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Documents on Display |
We are required to file annual and special reports and other information with the SEC. You
may read and copy any documents filed by the Company at the SECs public reference room at
100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the public reference room. The SEC
also maintains a website at http://www.sec.gov which contains reports and other information
regarding registrants that file electronically with the SEC.
100
We are subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as
amended as applied to foreign private issuers (the Exchange Act). Because we are a foreign
private issuer, the SECs rules do not require us to deliver proxy statements or to file
quarterly reports. In addition, our insiders are not subject to the SECs rules that
prohibit short-swing trading. We prepare quarterly and annual reports containing consolidated
financial statements in accordance with IFRS. Our annual consolidated financial statements
are certified by an independent accounting firm. We submit quarterly financial information to
the SEC on Form 6-K simultaneously with or promptly following the publication of that
information in Luxembourg or any other jurisdiction in which the Companys securities are
listed, and will file annual reports on Form 20-F within the time period required by the SEC,
which is currently six months from the close of the fiscal year on December 31. These
quarterly and annual reports may be reviewed at the SECs Public Reference Room. Reports and
other information filed electronically with the SEC are also available at the SECs website.
As a foreign private issuer under the Securities Act, we are not subject to the proxy rules
of Section 14 of the Exchange Act or the insider short-swing profit reporting requirements of
Section 16 of the Exchange Act.
We have appointed The Bank of New York Mellon to act as depositary for our ADSs. During the
time the deposit agreement remains in force, we will furnish the depositary with:
|
|
|
our annual reports; and |
|
|
|
|
summaries of all notices of general meetings of shareholders and other reports and
communications that are made generally available to our shareholders. |
The depositary will, as provided in the deposit agreement, if we so request, arrange for the
mailing of summaries in English of the reports and communications to all record holders of
our ADSs. Any record holder of ADSs may read the reports, notices, or summaries thereof, and
communications at the depositarys office located at 480 Washington Blvd., Jersey City, New
Jersey 07310.
Whenever a reference is made in this annual report to a contract or other document, please be
aware that such reference is not necessarily complete and that you should refer to the
exhibits that are a part of this annual report for a copy of the contract or other document.
You may review a copy of the annual report at the SECs public reference room in Washington,
D.C.
|
I. |
|
Subsidiary Information |
Not applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
The multinational nature of our operations and customer base expose us to the risk of changes
in interest rates, foreign currency exchange rates and commodity prices. We selectively
manage these exposures through the use of derivative instruments to mitigate market risk.
Otherwise, we do not use derivative financial instruments for trading, other speculative
purposes or other exposures. In addition, in the ordinary course of business Ternium also
faces risks with respect to financial instruments that are either non-financial or
non-quantifiable. Such risks principally include country risk and credit risk and are not
presented in the following analysis. For additional information about our financial risk
management, see note 33 to our audited consolidated financial statements included in this
annual report.
101
The following tables provide a breakdown of Terniums debt instruments at December 31, 2009,
which included fixed and variable interest rate obligations detailed maturity date:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 |
|
Expected maturity date, as of December 31, |
|
In thousands of U.S. Dollars |
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
Thereafter |
|
|
Total |
|
Non-current Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
|
Floating Rate |
|
|
|
|
|
|
497,736 |
|
|
|
1,289,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,787,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
15,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,595 |
|
Floating Rate |
|
|
523,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (1) (2) |
|
|
539,525 |
|
|
|
497,736 |
|
|
|
1,289,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,326,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Borrowings are primarily bank borrowings with third parties. See Item 5.
Operating and Financial Review and ProspectsB. Liquidity and Capital
ResourcesPrincipal Sources of FundingFinancial Liabilities. |
|
(2) |
|
As most borrowings are subject to floating rates that approximate market rates,
with contractual repricing that occurs every one, three or six months, the fair value of
each borrowing approximates its carrying amount and is not disclosed separately. |
The weighted average interest rate of Terniums debt was 3.04% at December 31, 2009. This
figure, which incorporates instruments denominated mainly in U.S. dollars and also includes
the effect of derivative financial instruments, was calculated using the rates set for each
instrument in its corresponding currency and weighted using the dollar-equivalent outstanding
principal amount of said instruments at December 31, 2009.
Total Debt by Currency as of December 31, 2009
|
|
|
|
|
In thousands of U.S. Dollars |
|
|
|
|
USD |
|
|
2,315,105 |
|
ARP |
|
|
11,624 |
|
|
|
|
|
|
Total |
|
|
2,326,729 |
|
|
|
|
|
Interest Rate Exposure Risk
Interest rate movements create a degree of risk by affecting the amount of Terniums interest
payments and the value of Terniums floating-rate debt. Most of Terniums long-term borrowings
are at variable rates that are partially fixed through swaps and options. Terniums total
variable interest rate debt amounted to USD2.3 billion (99% of total borrowings) for the year
ended December 31, 2009.
Interest Rate Derivative Contracts
As of December 31, 2009, most of the Companys long-term borrowings were at floating rates.
Ternium Mexico entered into derivative instruments to manage the impact of the floating
interest rate changes on its financial debt.
On February 23, 2007, Ternium Mexico entered into four interest rate collar agreements that
fix the interest rate to be paid over an aggregate notional amount of USD250 million, in an
average range of 4.16% to 6.00%. These agreements expire in September 2011 and March 2012.
102
On June 18, 2008, Ternium Mexico entered into four knock-in swap agreements over an aggregate
notional amount of USD894 million, in an average swap level of 5.22% and a knock-in (KI)
level of 2.5%. These agreements expire in July 2012. As of December 31, 2009, these contracts
were accounted for under the hedge accounting method and generated a pre-tax reserve in equity
for USD46.7 million.
As of December 31, 2009, Ternium Mexico was a party to interest rate collar and knock-in swaps
agreements as detailed in the table below:
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|
At December 31, 2009 |
|
Total |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Interest Rate Collars Ternium Mèxico |
|
|
|
|
|
|
|
|
Contract amount (in USD million) |
|
|
250 |
|
|
|
(15.1 |
) |
Average fixed pay range |
|
|
6.00%4.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Knock-in swap agreements |
|
|
|
|
|
|
|
|
Contract amount (in USD million) |
|
|
894 |
|
|
|
(63.7 |
) |
Average swap level and knock-in level |
|
|
5.22%2.50 |
% |
|
|
|
|
Foreign Exchange Exposure Risk
A portion of Terniums business is carried out in currencies other than the U.S. dollar,
Terniums reporting currency. As a result of this foreign currency exposure, exchange rate
fluctuations impact Terniums results as reported in its income statement in the form of both
translation risk and transaction risk. Translation risk is the risk that Terniums
consolidated financial statements for a particular period or as of a certain date may be
affected by changes in the prevailing rates of the various functional currencies of the
reporting subsidiaries against the U.S. dollar. Transaction risk is the risk that the value of
transactions executed in currencies other than the subsidiarys functional currency may vary
according to currency fluctuations.
The following table shows a breakdown of Terniums assessed balance sheet exposure to currency
risk as of December 31, 2009. These balances include intercompany positions where the
intervening parties have different functional currencies.
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|
USD million |
|
Functional Currency |
|
Exposure to |
|
USD |
|
|
MXN |
|
|
ARP |
|
US dollar (USD) |
|
|
(n/a |
) |
|
|
(2,124.8 |
) |
|
|
161.5 |
|
EU euro (EUR) |
|
|
6.9 |
|
|
|
(3.2 |
) |
|
|
39.2 |
|
Other currencies |
|
|
1.4 |
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|
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|
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|
We estimate that if the Argentine peso and Mexican peso had devaluated by 1% against the U.S.
dollar with all other variables held constant, total pre-tax income for the year would have
been USD19.6 million lower, as a result of foreign exchange gains/losses on translation of
U.S. dollar-denominated financial position, mainly trade receivables and borrowings. This
effect would have been offset by the change in the currency translation adjustment recorded in
equity.
Considering the same variation of the currencies against the US dollar of all net investments
in foreign operations amounting to USD3.3 billion, the currency translation adjustment
included in total equity would have been USD32.5 million lower, arising from the adjustment on
translation of the equity related to the Mexican peso and the Argentine peso.
Foreign Exchange Derivative Contracts
Ternium aims to manage the negative impact of fluctuations in the value of other currencies
with respect to the U.S. dollar. However, the fact that some subsidiaries have measurement
currencies other than the U.S. dollar may, at times, distort the result of these efforts as
reported under IFRS.
103
Ternium operates and sells its products in different countries, and as a result is exposed to
foreign exchange rate volatility. Terniums subsidiaries may use derivative contracts in order
to hedge their exposure to exchange rate risk derived from their trade and financial
operations.
During 2009, Siderar entered into several forward agreements to manage the exchange rate
exposure generated by its sales in Euros. The notional amount covered as of December 31, 2009
was EUR0.8 million with an average forward price of 1.49 U.S. dollars per Euro.
Beginning in October 2009, our wholly-owned subsidiary Ternium Treasury Services entered into
a forward agreement over an aggregate notional amount of 5.3 million Euros, at an exchange
rate of 1.46 U.S. dollars per Euro, to manage its exposure to investments in Euros. This
forward agreement was settled on April 9, 2010.
Furthermore, during 2009, Ternium Mexico has been covering its exposure denominated in Mexican
pesos through forward agreements. As of December 31, 2009, the forward agreements aggregate
notional amount was MXN1.2 billion at an average exchange rate of 12.97 Mexican Pesos per U.S.
dollar.
As of December 31, 2009, Prosid Investments had a non-deliverable forward (NDF) agreement with
a notional amount of ARP36.3 million at an average exchange rate of 4.13 Argentine pesos per
U.S. dollar. This NDF agreement cover indirect exposure of short term debt denominated in
Argentine pesos. This NDF agreement was settled in February 2010.
The net fair values of the exchange rate derivative contracts as of December 31, 2009 were:
|
|
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|
|
|
|
|
|
|
|
|
USD Thousands |
|
|
|
|
|
|
|
|
|
Currencies |
|
Contract |
|
|
Notional amount |
|
Fair Value |
|
USD/EUR |
|
Forward |
|
EUR |
6,151 |
|
|
177 |
|
MXN/USD |
|
Forward |
|
MXN |
1,167,000 |
|
|
773 |
|
ARP/USD |
|
ND Forward |
|
ARS |
36,272 |
|
|
638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodities Exposure Risk
Terniums subsidiaries use certain commodities and raw materials that are subject to price
volatility caused by supply and weather conditions, political situations, financial variables
and other unpredictable factors. As a result, they are exposed to volatility in the price of
these commodities and raw materials. Terniums policy is to manage this risk by partially
fixing the underlying price or limiting its volatility for a defined period.
Natural Gas
As discussed in Item 4. Information on the CompanyB. Business OverviewRaw Materials, Energy
and Other inputs, Siderar covers its needs for the supply of natural gas at spot local market
conditions. On the other hand, Ternium Mexico purchases all of its natural gas from Pemex Gas
and three distributors. Natural gas prices for Ternium Mexico are determined based on the
average of the quoted prices of several indexes plus transportation and service costs
depending on the areas or cities or pursuant to the methodology approved by the Energy
Regulatory Commission for prices applicable to an area as the case may be. Those prices are
related to market prices of natural gas in US and are, therefore, subject to price volatility
caused by natural gas demand conditions in US, including US weather conditions, natural gas
supply conditions to US and other factors that are outside Ternium Mexicos control and which
are generally unpredictable. Ternium Mexico constantly monitors the natural gas markets to
manage this exposure.
Commodities Derivative Contracts
Until August 2009, Ternium Mexico has entered into derivative structures to manage the impact
of the fluctuation of natural gas price over its cost. Since August 2009, Ternium Mexico has
not covered its natural gas price exposure with derivative structures, although has continued
monitoring the natural gas market.
104
Other Commodities and raw materials
In the past, management has used commodity derivative instruments to cover fluctuations in the
market prices of certain raw materials used in the production processes, such as zinc,
aluminum and tin. While these markets are monitored periodically, during 2007, 2008 and 2009
Ternium has not hedged any commodity positions other that those of natural gas.
Item 12. Description of Securities Other Than Equity Securities
|
|
|
Not applicable. |
|
|
B. |
|
Warrants and Rights |
|
|
|
|
Not applicable. |
|
|
C. |
|
Other Securities |
Not applicable.
|
D. |
|
American Depositary Shares |
According to our deposit agreement, holders of ADSs may have to pay to the Depositary, either
directly or indirectly, fees or charges up to the amounts set forth below:
|
|
|
Depositary services |
|
Associated Fee |
Issuance of ADSs, including issuances
resulting from a distribution of shares or
rights or other property
|
|
USD5.00 (or less) per 100
ADSs (or portion of 100
ADSs) |
|
|
|
|
Cancellation of ADSs for the purpose of
withdrawal, including if the deposit agreement
Terminates |
|
|
|
|
|
Any cash distribution to ADS registered holders
|
|
USD0.02 (or less) per ADSs |
|
|
|
Taxes and other governmental charges the
Depositary or the custodian have to pay on any
ADS or share underlying an ADS (e.g. stock
transfer taxes, stamp duty or withholding
taxes)
|
|
As necessary |
|
|
|
|
Any charges incurred by the depositary or
its agents for servicing the deposited
securities |
|
|
|
|
|
Transfer and registration of shares on our
share register to or from the name of the
Depositary or its agent when you deposit or
withdraw shares
|
|
Registration or transfer fees |
|
|
|
Cable, telex and facsimile transmissions
|
|
Expenses of the Depositary |
|
|
|
|
Conversion of foreign currency |
|
|
|
|
|
Distribution of securities distributed to
holders of deposited securities which are
distributed by the Depositary to ADS
registered holders
|
|
A fee equivalent to the fee
that would be payable if
securities distributed to
ADS holders had been shares
and the shares had been
deposited for issuance of
ADSs |
|
|
|
Any charges incurred by the Depositary or its
agents for servicing the deposited securities
|
|
As necessary |
The Depositary collects its fees for delivery and surrender of ADSs directly from investors
depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries
acting for them. The Depositary collects fees for making distributions to investors by
deducting those fees from the amounts distributed or by selling a portion of distributable
property to pay the fees. The Depositary may collect its annual fee for Depositary services by
deductions from cash distributions or by directly billing investors or by charging the
book-entry system accounts of participants
acting for them. The Depositary may generally refuse to provide fee-attracting services until
its fees for those services are paid.
105
Fees payable by the Depositary to the Company
Fees incurred in 2009. In 2009, Ternium received no fees or other direct and indirect payment
from the depositary in conection with the deposited securities.
Fees to be paid in the future. Upon any listing of the Companys shares in a non-U.S. stock
exchange allowing for cross border activity, the Depositary has agreed to reimburse the
Company for expenses incurred related to the administration and maintenance of the ADS
program, including investor relations expenses, annual NYSE listing fees and other program
related expenses. There are limits on the amount of expenses for which the Depositary will
reimburse the Company. The Depositary has also agreed to pay the standard out-of-pocket
maintenance costs for the ADSs. The Company does not expect to receive any reimbursement from
the Depositary in the near future.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the
design and operation of our disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-5(e) under the Exchange Act as of December 31, 2009. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of
December 31, 2009, our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms and to ensure that such information is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer, to allow timely
decisions regarding required disclosure. Our disclosure controls and procedures are designed
to provide reasonable assurance of achieving their objectives. Our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and procedures are
effective at a reasonable assurance level.
Managements report on internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934). Terniums internal control over financial reporting was
designed by management to provide reasonable assurance regarding the reliability of financial
reporting and the preparation and fair presentation of its financial statements for external
purposes in accordance with International Financial Reporting Standards.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements or omissions. In addition, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management conducted its assessment of the effectiveness of Terniums internal control over
financial reporting based on the framework in Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
106
Based on this assessment, management has concluded that Terniums internal control over
financial reporting, as of December 31, 2009, is effective to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes.
The effectiveness of Terniums internal control over financial reporting as of December 31,
2009 has been audited by Price Waterhouse & Co S.R.L., an independent registered public
accounting firm, as stated in their report included herein. See Report of Independent
Registered Public Accounting Firm.
Change in Internal Control over Financial Reporting
During the period covered by this report, there were no changes in our internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Item 16A. Audit Committee Financial Expert
On June 2, 2010, our board of directors has determined that none of the independent members of
the audit committee, meets the attributes defined in Item 16A of Form 20-F for audit
committee financial experts. We do not have an audit committee financial expert because we
have concluded that the membership of the audit committee as a whole has sufficient recent and
relevant financial experience to properly discharge its functions. In addition, the audit
committee, from time to time as it deems necessary, engages persons that meet all of the
attributes of an audit committee financial expert as consultants.
Item 16B. Code of Ethics
We have adopted a code of ethics that applies specifically to our principal executive
officers, and principal financial and accounting officer and controller, as well as persons
performing similar functions. We have also adopted a code of conduct that applies to all
company employees, including contractors, subcontractors and suppliers.
The text of our code of ethics for senior financial officers and code of conduct for employees
is posted on our web site at: www.ternium.com/en/Investor/corporategovernance.asp.
Item 16C. Principal Accountant Fees and Services
Fees Paid to the Companys Principal Accountant
In 2009, Price Waterhouse & Co. S.R.L., Argentina, an independent registered public accounting
firm (PwC) served as the principal external auditor for the Company. Fees paid to PwC in 2009
and 2008 are detailed below:
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
In thousands of U.S. dollars |
|
2009* |
|
|
2008** |
|
|
|
|
|
Audit Fees |
|
|
2,422 |
|
|
|
2,842 |
|
Audit-Related Fees |
|
|
213 |
|
|
|
162 |
|
Tax Fees |
|
|
|
|
|
|
8 |
|
All Other Fees |
|
|
166 |
|
|
|
188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,801 |
|
|
|
3,200 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Based on the exchange rate between the U.S. Dollar and each applicable local currency as of
December 1, 2008. |
|
** |
|
Based on the exchange rate between the U.S. Dollar and each applicable local currency as
of December 31, 2007 |
Audit Fees
Audit fees were paid for professional services rendered by the auditors for the audit of the
consolidated financial statements of the Company and the statutory financial statements of the
Company and its subsidiaries.
107
Audit-Related Fees
Audit-related fees are typically services that are reasonably related to the performance of
the audit or review of the consolidated financial statements and are not reported under the
audit fee item above. This item includes fees for attestation services on financial
information of the Company and its subsidiaries included in their annual reports that are
filed with their respective regulators.
Tax Fees
Tax fees were paid for tax compliance and tax advice professional services.
All Other Fees
Fees disclosed in the table above under All Other Fees consisted primarily of fees paid for
consulting services provided in connection with processing documentation. It also included
fees paid for services provided to Siderar related to fiscal information that is filed with
the tax regulators.
Audit Committees Pre-approval Policies and Procedures
The Companys audit committee is responsible for, among other things, the oversight of the
Companys independent auditors. The audit committee has adopted a policy of pre-approval of
audit and permissible non-audit services provided by its independent auditors in its charter.
Under the policy, the audit committee makes its recommendations through the board of Directors
to the shareholders meeting concerning the continuing appointment or termination of the
Companys independent auditors. On a yearly basis, the audit committee reviews together with
management and the independent auditor, the audit plan, audit related services and other
non-audit services and approves the related fees. Any changes to the approved fees must be
reviewed and approved by the audit committee. In addition, the audit committee delegated to
its Chairman the authority to consider and approve, on behalf of the Audit Committee,
additional non-audit services that were not recognized at the time of engagement, which must
be reported to the other members of the audit committee at its next meeting. No services
outside the scope of the audit committees approval can be undertaken by the independent
auditor.
During 2009, the audit committee did not approve any fees pursuant to the de minimis exception
to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In 2009, to our knowledge, there were no purchases of any class of registered equity
securities of the Company by the Company or any affiliated purchaser (as such term is
defined in Rule 10b-18(a)(3) under the Exchange Act).
On June 2, 2010, the Companys annual general shareholders meeting resolved to cancel the
authorization granted to the Company and to the Companys subsidiaries to acquire, from time
to time, shares, including shares represented by ADRs, granted by the general meeting of
shareholders held on June 3, 2009, and to grant a new authorization to the Company and to the
Companys subsidiaries to purchase, acquire or receive, from time to time shares of the
Company, including shares represented by ADRs, on the following terms and conditions:
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The acquisitions of shares may be made in one or more transactions as the Board of
Directors of the Company or the board of directors or other governing body of the
relevant entity, as applicable, considers advisable. The number of shares acquired as a
block may amount to the maximum permitted amount of purchases; |
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The maximum number of shares, including shares represented by ADRs, acquired
pursuant to this authorization may not exceed 10% of the Companys issued and outstanding
shares or, in the case of acquisitions made through a stock exchange in which the shares
or ADRs are traded, such lower amount as may not be exceeded pursuant to any applicable
laws or regulations of such market; |
108
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The purchase price per ADR to be paid in cash may not exceed 125% (excluding
transaction costs and expenses), nor may it be lower than 75% (excluding transaction
costs and expenses), in each case of the average of the closing prices of the ADRs in the
New York Stock Exchange during the five trading days in which transactions in the ADRs
were recorded in the New York Stock Exchange preceding (but excluding) the day on which
the ADRs are purchased. In the case of purchases of shares other than in the form of
ADRs, the maximum and minimum per share purchase prices shall be equal to the prices that
would have applied in case of an ADR purchase pursuant to the formula above divided by
the number of underlying shares represented by an ADR at the time of the relevant
purchase. Such maximum and minimum purchase prices shall also apply to over-the-counter
or off-market transactions. Compliance with maximum and minimum purchase price
requirements in any and all acquisitions made pursuant to this authorization (including,
without limitation, acquisitions carried out through the use of derivative financial
instruments or option strategies) shall be determined on and as of the date on which the
relevant transaction is entered into, irrespective of the date on which the transaction
is to be settled; |
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The above maximum and minimum purchase prices shall, in the event of a change in
the par value of the shares, a capital increase by means of a capitalization of reserves,
a distribution of shares under compensation or similar programs, a stock split or reverse
stock split, a distribution of reserves or any other assets, the redemption of capital,
or any other transaction impacting on the Companys equity be adapted automatically, so
that the impact of any such transaction on the value of the shares shall be reflected; |
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The acquisitions of shares may not have the effect of reducing the Companys net
assets below the sum of the Companys capital stock plus its undistributable reserves; |
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Only fully paid-up shares may be acquired pursuant to this authorization; |
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The acquisitions of shares may be carried out for any purpose, as may be permitted
under applicable laws and regulations, including, without limitation, to reduce the share
capital of the Company, to offer such shares to third parties in the context of corporate
mergers or acquisitions of other entities or participating interests therein, for
distribution to the Companys or the Companys subsidiaries directors, officers or
employees or to meet obligations arising from convertible debt instruments; |
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The acquisitions of shares may be carried out by any and all means, as may be
permitted under applicable laws and regulations, including through any stock exchange in
which the shares or other securities representing shares are traded, through public
offers to all shareholders of the Company to buy shares, through the use of derivative
financial instruments or option strategies, or in over the counter or off-market
transactions or in any other manner; |
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The acquisitions of shares may be carried out at any time and from time to time
during the duration of the authorization, including during a tender offer period, as may
be permitted under applicable laws and regulations; |
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The authorization granted to acquire shares shall be valid for such maximum period
as may be provided for under applicable Luxembourg law as in effect from time to time
(such maximum period being, as of to date, five years); |
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The acquisitions of shares shall be made at such times and on such other terms and
conditions as may be determined by the Board of Directors of the Company or the board of
directors or other governing body of the relevant Company subsidiary, provided that any
such purchase shall comply with Article 49-2 et.seq. of the Luxembourg law of August 10,
1915 on commercial companies, as amended (or any successor law) and, in the case of
acquisitions of shares made through a stock exchange in which the shares or other
securities representing shares are traded, with any applicable laws and regulations of
such market. |
In the future, we may, on the terms and subject to the conditions above referred, initiate a
stock repurchase or similar program or engage in other transactions pursuant to which we would
repurchase, directly or indirectly, the Companys ordinary shares, ADSs or both. In addition,
we or our subsidiaries may enter into transactions involving sales or purchases of derivatives
or other instruments (either settled in cash or through physical delivery of securities) with
returns linked to the Companys ordinary shares, ADSs or both. The timing and amount of
repurchase transactions under any such program, or sales or purchases of derivatives or other
instruments, would depend on market conditions as well as other corporate and regulatory
considerations.
109
Item 16F. Change in Registrants Certifying Accountant
None.
Item 16G. Corporate Governance
Our corporate governance practices are governed by Luxembourg law (particularly the law of
August 10th, 1915 on commercial companies) and our Articles of Association. As a Luxembourg
company listed on the New York Stock Exchange (the NYSE), we are not required to comply with
all of the corporate governance listing standards of the NYSE. We, however, believe that our
corporate governance practices meet or exceed, in all material respects, the corporate
governance standards that are generally required for controlled companies by the NYSE but the
following is a summary of the significant ways that our corporate governance practices differ
from the corporate governance standards required for controlled companies by the NYSE
(provided that our corporate governance practices may differ in non-material ways from the
standards required by the NYSE that are not detailed here):
Non-management Directors Meetings
Under NYSE standards, non-management directors must meet at regularly scheduled executive
sessions without management present and, if such group includes directors who are not
independent, a meeting should be scheduled once per year including only independent directors.
Neither Luxembourg law nor our Articles of Association require the holding of such meetings
and we do not have a set policy for these meetings. Our Articles of Association provide,
however, that the board shall meet as often as required by the interests of the Company and at
least four times a year, upon notice by the chairperson or by any two directors.
In addition, NYSE-listed companies are required to provide a method for interested parties to
communicate directly with the non-management directors as a group. While we do not have such a
method, we have set up a compliance line for investors and other interested parties to
communicate their concerns to members of our audit committee (which, as already stated, are
independent).
Audit Committee
Under NYSE standards, listed U.S. companies are required to have an audit committee composed
of independent directors that satisfies the requirements of Rule 10A-3 promulgated under the
Exchange Act. Our articles of association currently require us to have an audit committee
composed of three members, of which at least two must be independent (as defined in our
articles of association) and our audit committee complies with such requirements. In
accordance with NYSE standards, we have an audit committee entirely composed of independent
directors.
Under NYSE standards, all audit committee members of listed U.S. companies are required to be
financially literate or must acquire such financial knowledge within a reasonable period and
at least one of its members shall have experience in accounting or financial administration.
In addition, if a member of the audit committee is simultaneously a member of the audit
committee of more than three public companies, and the listed company does not limit the
number of audit committees on which its members may serve, then in each case the board must
determine whether the simultaneous service would prevent such member from effectively serving
on the listed companys audit committee and shall publicly disclose its decision. No
comparable provisions on audit committee membership exist under Luxembourg law or our articles
of association.
Standards for Evaluating Director Independence
Under NYSE standards, the board is required, on a case by case basis, to express an opinion
with regard to the independence or lack of independence of each individual director. Neither
Luxembourg law nor our Articles of Association require the board to express such an opinion.
In addition, the definition of independent under the rules of the NYSE differs in some
non-material respects from the definition contained in our Articles of Association.
Audit Committee Responsibilities
Pursuant to our Articles of Association, the audit committee shall assist the board of
directors in fulfilling its oversight responsibilities relating to the integrity of the
Companys financial statements, including periodically reporting to the Board of Directors on
its activity and the adequacy of the Companys system of internal controls over financial
reporting. As per the audit committee charter, as amended, the audit committee shall make
recommendations for the appointment, compensation, retention and oversight of, and consider
the independence of, the Companys external auditors. The audit committee is required to
review material transactions (as defined by the Articles of Association) between us or our
subsidiaries with related parties and also perform the other duties entrusted to it by the
board.
110
The NYSE requires certain matters to be set forth in the audit committee charter of U.S.
listed companies. Our audit committee charter provides for many of the responsibilities that
are expected from such bodies under the NYSE standard; however, due to our equity structure
and holding company nature, the charter does not contain all such responsibilities, including
provisions related to setting hiring policies for employees or former employees of independent
auditors, discussion of risk assessment and risk management policies, and an annual
performance evaluation of the audit committee.
Shareholder Voting on Equity Compensation Plans
Under NYSE standards, shareholders must be given the opportunity to vote on
equity-compensation plans and material revisions thereto, except for employment inducement
awards, certain grants, plans and amendments in the context of mergers and acquisitions, and
certain specific types of plans. We do not currently offer equity-based compensation to our
directors, executive officers or employees, and therefore do not have a policy on this matter.
Disclosure of Corporate Governance Guidelines
NYSE-listed companies must adopt and disclose corporate governance guidelines. Neither
Luxembourg law nor our Articles of Association require the adoption or disclosure of corporate
governance guidelines. Our board of directors follows corporate governance guidelines
consistent with our equity structure and holding company nature, but we have not codified them
and therefore do not disclose them on our website.
Code of Business Conduct and Ethics
Under NYSE standards, listed companies must adopt and disclose a code of business conduct and
ethics for directors, officers and employees, and promptly disclose any waivers of the code
for directors or executive officers. Neither Luxembourg law nor our Articles of Association
require the adoption or disclosure of such a code of conduct. We have adopted a code of
conduct that applies to all directors, officers and employees, which is posted on our website
and complies with the NYSEs requirements, except that does not require the disclosure of
waivers of the code for directors and officers. In addition, we have adopted a supplementary
code of ethics for senior financial officers which is also posted on our website.
Chief Executive Officer Certification
A chief executive officer of a U.S. company listed on NYSE must annually certify that he or
she is not aware of any violation by the company of NYSE corporate governance standards. In
accordance with NYSE rules applicable to foreign private issuers, our chief executive officer
is not required to provide NYSE with this annual compliance certification. However, in
accordance with NYSE rules applicable to all listed companies, our chief executive officer
must promptly notify NYSE in writing after any of our executive officers becomes aware of any
noncompliance with any applicable provision of NYSEs corporate governance standards. In
addition, we must submit an executed written affirmation annually and an interim written
affirmation each time a change occurs to the board or the audit committee.
PART III
Item 17. Financial Statements
We have responded to Item 18 in lieu of responding to this Item.
Item 18. Financial Statements
See pages F-1 through F-58 of this annual report.
111
Item 19. Exhibits
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Exhibit |
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Number |
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Description |
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1.1 |
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Updated and Consolidated Articles of Association of Ternium S.A., dated as of June 2, 2010. |
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2.1 |
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Deposit Agreement entered into between Ternium S.A. and The Bank of New York* |
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4.1 |
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Shareholders Agreement, dated July 20, 2005, between I.I.I.Industrial Investments Inc.
and Usinas Siderurgicas de Minas Gerais, S.A.USIMINAS** |
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4.2 |
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Shareholders Agreement, dated January 9, 2006, between Tenaris S.A. and Inversora
Siderurgica Limited*** |
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4.3 |
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Promissory Notes (pagarés) numbered 1 to 7 issued by CVG on May 7, 2009.**** |
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8.1 |
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List of subsidiaries of Ternium S.A. |
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12.1 |
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
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12.2 |
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
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13.1 |
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Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
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13.2 |
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Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
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* |
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Incorporated by reference to the Registration Statement on Form F-6, filed by Ternium S.A. on
January 11, 2006 (File No. 333-130952). |
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** |
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Incorporated by reference to the F-1 Registration Statement filed by Ternium S.A. on January
11, 2006 (File No. 333-130950). |
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*** |
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Incorporated by reference to the F-1 Registration Statement filed by Ternium S.A. on January
27, 2006 (File No. 333-130950). |
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**** |
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Incorporated by reference to the Annual Report on Form 20-F, filed by Ternium S.A. on June
30, 2009 (File No.001-32734 09919440). |
112
SIGNATURES
The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
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TERNIUM S.A.
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June 30, 2010 |
By: |
/s/ Pablo Brizzio
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Name: |
Pablo Brizzio |
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Title: |
Chief Financial Officer |
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113
EXHIBIT INDEX
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Exhibit |
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Number |
|
Description |
|
1.1 |
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Updated and Consolidated Articles of Association of Ternium S.A., dated as of June 2, 2010. |
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2.1 |
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Deposit Agreement entered into between Ternium S.A. and The Bank of New York* |
|
4.1 |
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|
Shareholders Agreement, dated July 20, 2005, between I.I.I.Industrial Investments Inc.
and Usinas Siderurgicas de Minas Gerais, S.A.USIMINAS** |
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4.2 |
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|
Shareholders Agreement, dated January 9, 2006, between Tenaris S.A. and Inversora
Siderurgica Limited*** |
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4.3 |
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Promissory Notes (pagarés) numbered 1 to 7 issued by CVG on May 7, 2009.**** |
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8.1 |
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List of subsidiaries of Ternium S.A. |
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12.1 |
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
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12.2 |
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 |
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13.1 |
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Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
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13.2 |
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Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
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* |
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Incorporated by reference to the Registration Statement on Form F-6, filed by Ternium S.A. on
January 11, 2006 (File No. 333-130952). |
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** |
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Incorporated by reference to the F-1 Registration Statement filed by Ternium S.A. on January
11, 2006 (File No. 333-130950). |
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*** |
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Incorporated by reference to the F-1 Registration Statement filed by Ternium S.A. on January
27, 2006 (File No. 333-130950). |
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**** |
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Incorporated by reference to the Annual Report on Form 20-F, filed by Ternium S.A. on June
30, 2009 (File No. 001-32734 09919440). |
TERNIUM S.A.
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2009 and 2008 and
for the years ended December 31, 2009, 2008 and 2007
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