TX

Business Context and Reporting Period

This Form 6-K filing by Ternium S.A. (NYSE: TX) reports financial results for the fourth quarter and full fiscal year ended December 31, 2005. The filing includes a press release dated February 28, 2006. The 2005 results reflect the full consolidation of Hylsamex (acquired August 2005) and Amazonia/Sidor (consolidated from February 2005), significantly altering the comparability with 2004 figures. Ternium is a major steel producer in the Americas with operations in Mexico, Argentina, and Venezuela.

Key Financial Metrics

Fourth Quarter 2005

• Net Sales: US$1.47 billion (Shipments: 2.1 million tons; Average price: US$647/ton).
• Operating Income: US$367.0 million (25% margin).
• EBITDA: US$489.7 million (33% margin).
• Net Income: US$168.7 million (Attributable to equity holders: US$137.5 million).
• Cash Flow: Net cash provided by operations was US$343.6 million.
• Liquidity: Cash and cash equivalents at period end were US$765.6 million.

Full Year 2005

• Net Sales: US$4.45 billion (Shipments: 6.6 million tons; Average price: US$646/ton).
• Operating Income: US$1.39 billion (31% margin).
• EBITDA: US$1.8 billion (40% margin).
• Net Income: US$1.07 billion (Attributable to equity holders: US$704.4 million).
• Cash Flow: Net cash provided by operations was US$1.26 billion.
• Debt: Total borrowings (current and non-current) were US$2.92 billion.

Material Changes vs. Prior Period

Comparisons to 2004 are significantly impacted by the consolidation of Hylsamex and Amazonia/Sidor.

• Revenue Growth: Full-year net sales increased from US$1.60 billion in 2004 to US$4.45 billion in 2005, driven primarily by the inclusion of Hylsamex and Sidor.
• Profitability: Operating income rose from US$514.2 million in 2004 to US$1.39 billion in 2005. Net income increased from US$748.2 million to US$1.07 billion.
• Financial Expenses: Net financial expenses shifted from a net income of US$202.3 million in 2004 to a net expense of US$310.7 million in 2005. This change is largely due to the consolidation of Sidor, where excess cash distributions to minority shareholders are recorded as financial losses, whereas previously they were recorded as gains under the equity method.
• Cost Structure: Cost of sales as a percentage of net sales decreased from 60% in 2004 to 56% in 2005, aided by the acquisition of Hylsamex's proprietary iron ore mines which hedged against rising international iron ore prices.

Guidance, Outlook, and Risks

Outlook and Commentary

Management expects steel demand in primary markets to remain strong in 2006, with GDP and international trade growing above historical averages. Steel prices are expected to remain stable. However, Central & South America operations face higher iron ore costs in 2006 due to price increases negotiated in late 2005. The North America operation remains insulated from iron ore price hikes due to proprietary mines.

Unusual Items and Contingencies

• IPO Proceeds: In January/February 2006, Ternium completed an IPO of 27.1 million ADSs at US$20 per share, generating US$527.9 million in net proceeds, primarily used to repay debt.
• Reorganization Charges: The 2005 results include non-recurring charges of US$31.2 million related to the reorganization of Hylsamex (US$22.5 million in SG&A and US$8.7 million in Cost of Sales) and US$54.3 million for the closure of certain Hylsamex facilities.
• Participation Accounts: Significant financial expenses relate to Sidor's debt restructuring mechanism, where excess cash is distributed to creditors and minority shareholders.

Risks

Forward-looking statements are subject to risks including uncertainties in GDP, market demand, global production capacity, tariffs, and cyclicality in steel-consuming industries. Specific operational risks include rising natural gas and electricity costs in North America and iron ore price volatility in Latin America.

Investor Verification Checklist

• Verify the impact of the Hylsamex and Sidor consolidations on year-over-year growth metrics, as 2004 figures do not include these entities.
• Confirm the utilization of IPO proceeds (US$527.9 million) for debt reduction and its effect on the leverage ratio.
• Monitor the realization of operating synergies from processing Sidor slabs at Hylsamex, which management states is generating value-added products for North America.
• Assess the exposure to rising iron ore costs in Central & South America operations for 2006, contrasting with the hedged position in North America.
• Review the sustainability of EBITDA margins (40% in 2005) given the one-time nature of certain reorganization gains and the potential for increased input costs.