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Ternium S.A. Form 6-K Summary: Q4 and Full Year 2011 Results

Business Context and Reporting Period

This Form 6-K, filed on February 22, 2012, reports the fourth quarter and full-year 2011 financial results for Ternium S.A., a leading steel manufacturer in Latin America with principal operations in Mexico and Argentina. The company manufactures flat and long steel products for construction, automotive, and energy sectors. Financial data is presented in U.S. dollars (USD) in accordance with International Financial Reporting Standards (IFRS).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Full-year 2011 net sales increased 24% year-over-year (YoY) to $9.2 billion, driven by a 10% increase in shipments and a 14% increase in revenue per ton due to higher steel prices.
• Operating Performance: Operating income rose 20% YoY to $1.3 billion. However, Q4 2011 operating income declined 22% sequentially from Q3 2011 due to seasonally lower shipments and reduced revenue per ton.
• Net Income Decline: Despite higher operating income, full-year net income decreased 17% YoY to $650 million. This was primarily caused by a $431 million deterioration in net financial results, largely due to a $236 million non-cash foreign exchange loss from the Mexican Peso's depreciation against the USD.
• Segment Performance: The long steel products segment saw a 46% sales increase YoY, while flat steel products sales grew 22%.

Outlook, Risks, and Contingencies

• Q1 2012 Outlook: Management expects lower operating income in Q1 2012 compared to Q4 2011, driven by higher costs per ton and relatively stable shipments. Stronger demand is anticipated in Mexico, while Argentina is expected to be seasonally weaker.
• Dividend Proposal: The Board proposed an annual dividend of $0.075 per share ($0.75 per ADS), totaling approximately $150.4 million, subject to shareholder approval on May 2, 2012.
• Sidor Financial Asset Contingency: A significant portion of the Sidor financial asset remains outstanding. Following the transfer of Sidor shares to the Venezuelan government, CVG failed to pay the final two installments of a rescheduled payment plan. As of the filing date, $130.3 million remains outstanding, and Ternium is actively pursuing payment under investment treaties and international law.
• Recent Acquisition: On January 16, 2012, Ternium acquired 114.7 million ordinary shares of Usiminas for approximately $2.2 billion, financed by cash on hand and a $700 million syndicated term loan.
• Risks: Forward-looking statements are subject to risks including global GDP uncertainty, market demand fluctuations, tariffs, and cyclicality in steel-consuming industries.

Key Investor Verification Points

• Foreign Exchange Impact: Verify the magnitude of non-cash FX losses related to the Mexican Peso's depreciation and their impact on reported net income versus cash flow.
• Sidor Recovery: Monitor the status of the $130.3 million outstanding claim against CVG/Venezuela and the likelihood of recovery.
• Usiminas Integration: Assess the financial impact and integration progress of the $2.2 billion Usiminas share acquisition completed in January 2012.
• Cost Pressures: Review the sustainability of operating margins given the management's guidance on rising raw material and labor costs in Q1 2012.
• Liquidity Position: Confirm the net cash position of $0.5 billion remains sufficient to support the new debt incurred for the Usiminas deal and ongoing capital expenditures ($601 million in 2011).