Ternium S.A. Form 6-K Summary
Business Context and Reporting Period
This filing reports the consolidated condensed interim financial statements for Ternium S.A., a Luxembourg-based steel manufacturer, for the nine-month period ended September 30, 2006. The statements were approved by the Board of Directors on November 6, 2006. The company operates primarily in flat and long steel manufacturing across North, South, and Central America.
Key Financial Metrics (Nine Months Ended Sept 30, 2006)
| Metric | 2006 (USD '000s) | 2005 (USD '000s) |
|---|---|---|
| Net Sales | 4,981,447 | 2,979,840 |
| Gross Profit | 1,833,803 | 1,398,022 |
| Operating Income | 1,377,410 | 1,025,144 |
| Net Income | 837,728 | 904,120 |
| Net Income Attributable to Equity Holders | 655,022 | 566,859 |
| Diluted EPS (USD) | 0.34 | 0.46 |
| Operating Cash Flow | 938,577 | 918,871 |
| Total Debt (Borrowings) | 1,298,612 | 3,587,838 |
| Cash and Equivalents | 825,678 | 2,929,124 |
Note: Total debt is the sum of current and non-current borrowings. 2005 debt figures reflect pre-IPPO repayment levels.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 67% to $4.98 billion, driven by higher volumes and prices in both flat steel ($3.81B) and long steel ($965M) segments.
- Profitability: While Net Income attributable to equity holders rose 15.5% to $655 million, total Net Income declined 7.3% to $838 million due to a significant reduction in minority interest earnings ($183M vs $337M in 2005).
- Debt Reduction: Total borrowings decreased by approximately $2.29 billion. This was primarily due to the use of Initial Public Offering (IPO) proceeds to fully repay Tranche A of the Ternium Credit Facility and the conversion of $594 million in Subordinated Convertible Loans into equity.
- Capital Structure: The company completed its IPO in January 2006, raising gross proceeds of $543 million ($497M initial + $46M option exercise), significantly increasing equity capital.
- Acquisitions: The company acquired assets from Acindar (Argentina) and a 50% stake in Acerex (Mexico), contributing $50.4 million in revenue for the period.
Outlook, Risks, and Contingencies
- Legal Contingency: Sidor (a subsidiary) faces a potential exposure of $118.6 million related to an appeal by PDVSA-Gas C.A. regarding gas pricing arbitration. Management believes the likelihood of loss is remote.
- Dividend Restrictions: Under Luxembourg law, dividends are payable only to the extent of distributable retained earnings. Not all retained earnings in the consolidated statements are distributable.
- Assets Held for Sale: Non-current assets classified as held for sale total $9.5 million, primarily land and real estate, with sales expected within one year.
- Accounting Changes: The company adopted IFRIC 9 and IFRIC 10; management estimates these will not have a material effect on financial condition.
Investor Verification Checklist
- Verify the sustainability of the 67% revenue growth given the cyclical nature of the steel industry.
- Confirm the status of the $118.6 million PDVSA-Gas litigation and any potential impact on cash flows.
- Review the specific terms of the "Loss from Participation Account" ($215.7M expense) to understand its impact on future earnings.
- Assess the impact of the significant reduction in minority interest on future consolidated net income reporting.
- Monitor the execution of the $9.5 million asset sale and the integration of the Acindar and Acerex acquisitions.