TX

Business Context and Reporting Period

This Form 6-K filing presents the consolidated financial statements of Ternium S.A., a global steel manufacturer, for the fiscal year ended December 31, 2021. The report was signed on February 15, 2022. Ternium operates primarily through two reportable segments: Steel (flat and long steel products) and Mining (iron ore and pellets). The company is incorporated in Luxembourg and trades on the NYSE under the symbol "TX."

Key Financial Metrics

Margins (2021): Gross Margin was approximately 38.5%; Operating Margin was approximately 32.8%.

Material Changes vs. Prior Period

• Revenue Surge: Net sales increased by 84% to $16.1 billion, driven by higher steel prices and volumes across all regions, particularly in Mexico and the Southern Region.
• Profitability Expansion: Profit for the year increased by 403% to $4.37 billion. Operating income rose 388% to $5.27 billion.
• Equity Earnings: Equity in earnings of non-consolidated companies (primarily Usiminas) surged to $400.7 million from $57.6 million in 2020.
• Debt Reduction: Total borrowings decreased by $244 million to $1.48 billion, despite significant capital expenditures.
• Liquidity Improvement: Cash and cash equivalents more than doubled to $1.28 billion, supported by strong operating cash flows.
• Inventory Build: Inventories increased significantly to $3.9 billion (from $2.0 billion), reflecting higher raw material costs and production levels.

Outlook, Risks, and Contingencies

• Dividends: The company paid cash dividends of $569.3 million in 2021 ($0.29 per share).
• Climate Change: Ternium announced a target to reduce carbon dioxide emissions intensity by 20% by 2030 compared to 2018 levels. This requires significant long-term investment.
• Argentina Foreign Exchange: Ternium Argentina faces significant restrictions on accessing the foreign exchange market to distribute dividends or pay royalties. While operations continue, the ability to repatriate funds is constrained by Central Bank approvals.
• Legal Contingencies:
  • CSN Litigation: Ongoing lawsuit in Brazil regarding a tender offer for Usiminas shares. No provision recorded as management believes claims are groundless.
  • Tax Matters: Potential Mexican income tax adjustments estimated at $56.4 million and $27.6 million for prior years; no provision recorded as an unfavorable outcome is deemed not probable.
  • ICMS Tax Credits: Ongoing challenges in Brazil regarding the use of ICMS tax credits; provisions of $32.5 million remain recorded.
• Investment in Usiminas: The market value of Ternium's stake in Usiminas was slightly below book value at year-end, but impairment testing resulted in no charges.
• Proposed Transaction: As of the filing date, Ternium Argentina had received an offer from Ternium Internacional España to purchase its shares in Ternium Mexico and Prosid Investments. The transaction is subject to shareholder approval and other conditions.

Investor Verification Checklist

• Argentina FX Restrictions: Verify the impact of Argentine foreign exchange controls on the ability to repatriate the $965 million in cash and investments held by Ternium Argentina.
• Usiminas Valuation: Monitor the market price of Usiminas shares relative to Ternium's carrying value of $681.7 million to assess future impairment risks.
• Legal Provisions: Review the status of the CSN tender offer litigation and Brazilian ICMS tax disputes, as adverse rulings could materially impact earnings.
• Debt Covenants: Confirm continued compliance with financial covenants (e.g., leverage ratio) on syndicated loan facilities, particularly given the high volume of floating-rate debt.
• Proposed Sale: Track the progress of the proposed sale of Ternium Argentina's stake in Ternium Mexico and Prosid Investments, including shareholder voting outcomes.