TX

Ternium S.A. Form 6-K Summary

Business Context and Reporting Period

This filing contains the unaudited consolidated condensed interim financial statements for Ternium S.A. for the nine-month period ended September 30, 2012. Ternium is a global steel manufacturer organized into flat steel products, long steel products, and other segments. The company is incorporated in Luxembourg and trades on the NYSE under the symbol "TX."

Key Financial Metrics (Nine Months Ended Sept 30, 2012)

Margins: Gross margin decreased to 21.4% from 23.5% in the prior year. Operating margin decreased to 12.1% from 14.2%.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by 5.6% to $6.54 billion, driven primarily by a 7.2% drop in the Flat Steel segment ($5.51B vs $5.94B) and a 10.0% drop in South and Central America sales.
• Profitability Pressure: Operating income fell 19.1% to $793.2 million. While cost of sales decreased slightly, gross profit declined due to lower sales volumes and pricing pressures.
• Financial Income Improvement: "Other financial income, net" improved significantly from a loss of $197.3 million in 2011 to a gain of $9.0 million in 2012, largely due to a net foreign exchange gain of $7.8 million compared to a loss of $164.1 million in the prior year.
• Cash Flow Strength: Operating cash flow surged to $778.6 million from $182.2 million, despite a decrease in net income, due to favorable changes in working capital and tax accruals.
• Investing Outflow: Net cash used in investing activities was $2.82 billion, primarily due to the $2.24 billion acquisition of a 22.71% stake in Usiminas (Brazil) and capital expenditures of $710.2 million.

Guidance, Outlook, Risks, and Unusual Items

• Usiminas Acquisition: The company acquired a significant stake in Usiminas in January 2012. The investment is recorded at $1.94 billion as of September 30, 2012, reflecting a purchase price of $2.24 billion less share of losses and currency translation adjustments of $278 million. The company has not yet completed an impairment test.
• Sidor Nationalization Resolution: A subsequent event disclosed in the filing indicates that on October 10, 2012, the company received $136.7 million from the Venezuelan government (CVG), resolving the long-standing dispute regarding the nationalization of Sidor. This amount was outstanding as of September 30, 2012.
• Functional Currency Change: Effective January 1, 2012, the functional currency of Mexican subsidiaries changed to the U.S. dollar due to the economic environment, impacting translation adjustments.
• Tax Contingency: Ternium Mexico faces a tax assessment of approximately $324 million regarding a 2004 capital reduction. The company believes an obligation is not probable and has not recorded a provision.
• Dividends: The company paid dividends of $147.2 million to shareholders and $15.9 million by subsidiaries during the period.

Investor Verification Checklist

• Verify the status of the impairment test for the Usiminas investment, given the $278 million reduction in carrying value due to currency and losses.
• Confirm the impact of the $136.7 million Sidor payment received in October 2012 on the full-year 2012 cash flow and income statement.
• Monitor the resolution of the $324 million Mexican tax assessment and any potential future provisions.
• Assess the sustainability of operating cash flows given the significant drop in net sales and gross margins.
• Review the leverage ratio and covenant compliance under the new $700 million term loan facility used to finance the Usiminas acquisition.