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Ternium S.A. Form 6-K Summary

Business Context and Reporting Period

This Form 6-K filing by Ternium S.A., a Luxembourg-based steel manufacturer, reports consolidated condensed interim financial statements for the nine-month period ended September 30, 2009. The filing was submitted to the SEC on November 4, 2009. The company operates primarily in flat steel, long steel, and other products segments across South/Central America, North America, and Europe.

Key Financial Metrics (Nine Months Ended Sept 30, 2009)

Note: 2008 figures include discontinued operations. 2009 Profit for the Period includes a significant gain from discontinued operations.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by approximately 47% year-over-year, dropping from $6.74 billion to $3.59 billion, reflecting the severe impact of the global financial crisis on steel demand.
• Profitability Shift: While operating income from continuing operations fell significantly to $80.3 million (from $1.49 billion in 2008), the total profit for the period was bolstered by a $428.0 million gain from discontinued operations related to the disposal of Sidor.
• Discontinued Operations: The 2008 period included income from discontinued operations of $157.1 million. In 2009, this line item surged to $428.0 million due to the finalization of the Sidor nationalization settlement.
• Debt Reduction: Total borrowings decreased by over $2.6 billion, from $5.11 billion at year-end 2008 to $2.44 billion at September 30, 2009, driven by significant repayments.
• Segment Performance: The Flat Steel segment reported an operating loss of $51.5 million for the nine-month period, compared to an operating income of $1.18 billion in the prior year. The Long Steel segment remained profitable with $110.3 million in operating income.

Outlook, Risks, and Unusual Items

• Sidor Nationalization Settlement: On May 7, 2009, Ternium completed the transfer of its 59.7% interest in Sidor to the Venezuelan government (CVG). The company received $400 million in cash and a receivable for the remaining balance ($1.57 billion total consideration), recorded as a financial asset. A gain of $428.0 million was recognized in discontinued operations.
• Impairment Charges: The company recorded a $27.0 million impairment charge on intangible assets related to a steel supply contract with Corus UK Limited, which was terminated early.
• Legal Contingencies: An arbitration proceeding is ongoing with Corus UK regarding the termination of the steel slab off-take agreement. Corus claims damages exceeding the $150 million liability cap; Ternium has filed counterclaims. The outcome remains uncertain.
• Investment Plan Adjustments: Due to market uncertainty, subsidiary Siderar has rescheduled its expansion plan, canceling or postponing certain equipment purchases and suspending a gas facility agreement with Air Liquide.
• Dividend Restrictions: Dividends are payable only to the extent of distributable retained earnings under Luxembourg law. Not all retained earnings in the financial statements are distributable.

Investor Verification Checklist

• Sidor Receivable Collectibility: Verify the status of payments from CVG (Venezuela) regarding the $1.57 billion receivable and the risk of non-compliance.
• Corus Arbitration: Monitor the progress of the arbitration with Corus UK and potential liability exposure beyond the $150 million cap.
• Continuing Operations Margins: Analyze the sustainability of profitability in the Flat Steel segment, which moved from high profit to an operating loss.
• Debt Covenants: Review the impact of the significant debt reduction on liquidity and future borrowing capacity.
• Raw Material Contracts: Assess the financial impact of renegotiated raw material contracts where purchase prices exceed current market conditions by $50.1 million.