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Ternium S.A. Form 6-K Summary: Third Quarter and Nine Months Ended September 30, 2010

Business Context and Reporting Period

This filing reports the financial and operational results for Ternium S.A., a leading steel manufacturer in Latin America, for the third quarter (3Q) and the first nine months (9M) ended September 30, 2010. The company operates primarily in Mexico and Argentina, serving markets in the Americas with an annual production capacity of approximately nine million tons. Results are presented in U.S. dollars in accordance with International Financial Reporting Standards (IFRS).

Key Financial Metrics

Material Changes vs. Prior Periods

• Quarter-over-Quarter (3Q 2010 vs. 2Q 2010): Operating income decreased 26% to $267.6 million, and EBITDA fell 20% to $362.3 million. This decline was driven by higher costs per ton (specifically purchased slabs and scrap) and a slight decrease in shipments and revenue per ton. Net income dropped 13% to $200.8 million.
• Year-over-Year (3Q 2010 vs. 3Q 2009): Net sales increased 47% and shipments rose 19% due to recovering demand in South & Central America. Operating income surged 68% to $267.6 million, and net income increased 92% to $200.8 million. The improvement was driven by higher volumes and revenue per ton, partially offset by higher costs.
• Nine-Month Performance (9M 2010 vs. 9M 2009): Operating income increased 1,046% to $920.3 million, and EBITDA rose 206% to $1.2 billion. Net income increased 18% to $676.6 million. Notably, 9M 2009 included a $428.0 million gain from discontinued operations (Sidor transfer), whereas 9M 2010 had no such item.
• Foreign Exchange: The company recorded a $32.0 million non-cash foreign exchange gain in 3Q 2010 (vs. a $47.6 million loss in 3Q 2009) and a $100.2 million gain for 9M 2010. These gains were primarily due to the revaluation of the Mexican Peso against the U.S. dollar on the Mexican subsidiary's debt.

Guidance, Outlook, and Risks

• Outlook: Management anticipates continued recovery in steel demand in Latin America driven by economic growth. However, shipments in the coming quarters are expected to remain relatively stable compared to 3Q 2010 levels due to seasonal patterns.
• Margin Pressure: The company expects a decrease in operating margin in the fourth quarter of 2010 compared to the third quarter. This is attributed to lower prices and higher costs per ton, as increased raw material and purchased slab prices from Q2 and Q3 are expected to be reflected in Q4 cost of sales.
• Liquidity and Capital: As of September 30, 2010, Ternium held a net cash position of $0.6 billion. The company collected $767.4 million in 9M 2010 from the transfer of Sidor shares to Venezuela. Capital expenditures for 9M 2010 were $220.0 million, funding projects such as blast furnace relining and mill expansions.
• Risks: Forward-looking statements are subject to risks including uncertainties in GDP, market demand, global production capacity, tariffs, and cyclicality in steel-consuming industries.

Investor Verification Checklist

• Cost Inflation: Verify the trajectory of raw material and purchased slab costs, as management explicitly forecasts these will compress Q4 margins.
• Foreign Exchange Impact: Confirm the non-cash nature of the significant foreign exchange gains ($32.0M in 3Q, $100.2M in 9M) related to the Mexican Peso revaluation and their offset in equity translation adjustments.
• Sidor Proceeds: Validate the collection of the final $257.4 million payment from the Sidor share transfer, which was due in November 2010.
• Working Capital: Review the $485.0 million increase in working capital during 9M 2010, driven largely by a $576.7 million increase in inventory, to assess cash flow sustainability.
• Discontinued Operations: Ensure comparisons with 2009 exclude the $428.0 million one-time gain from discontinued operations present in the prior year's 9M results.