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Business Context and Reporting Period

Company: Ternium S.A.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Fiscal year ended December 31, 2010 (filed February 22, 2011)
Business Overview: Ternium is a global steel manufacturer and distributor operating primarily in flat and long steel products. The company is incorporated in Luxembourg and operates subsidiaries across the Americas and Europe. In 2010, the company completed a corporate reorganization to transition from a tax-exempt 1929 holding company regime to an ordinary public limited liability company, subject to standard Luxembourg taxation.

Key Financial Metrics (Year Ended Dec 31, 2010)

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 49% to $7.38 billion, driven by higher steel prices and volumes compared to the recessionary 2009 period.
• Profitability: Operating income surged 256% to $1.05 billion. Gross margin expanded from 17.1% to 23.3%.
• Discontinued Operations: 2009 results included a significant one-time gain of $428 million from the disposal of Sidor (Venezuelan steel assets). 2010 had no discontinued operations income, yet total profit remained stable due to strong core performance.
• Debt Reduction: Total borrowings decreased by approximately $387 million to $1.94 billion, reflecting a deleveraging strategy.
• Acquisitions: In August 2010, Ternium acquired a 54% stake in Ferrasa S.A.S. (Colombia) and Ferrasa Panamá for $75 million, expanding its long steel product portfolio.
• Financial Asset: The "Sidor financial asset" (receivable from the Venezuelan government) decreased from $964 million in 2009 to $258 million in 2010 as payments were received and the balance was rescheduled.

Guidance, Outlook, Risks, and Unusual Items

• Tax Regime Change: Effective January 1, 2011, the company is subject to Luxembourg corporate income tax. Management expects the overall tax burden will not increase significantly due to participation exemptions on dividends from high-tax jurisdictions.
• Joint Venture: In October 2010, Ternium formed a joint venture (Tenigal) with Nippon Steel Corporation in Mexico to produce galvanized steel sheets for the automotive market, with an expected investment of $350 million.
• Legal Contingencies:
  • Corus Arbitration: An arbitration tribunal ruled in December 2010 that Ternium invalidly terminated a steel slab off-take agreement with Corus (Tata Steel). While a liability cap of $150 million (approx. $29.7 million for Ternium) applies, damages are pending determination.
  • Sidor Receivable: The final payment from the Venezuelan government (CVG) was rescheduled in December 2010. The receivable is secured by promissory notes from Argentine state-owned entities.
• Subsequent Event: In February 2011, Ternium repurchased 41.7 million shares from Usiminas for $150 million, reducing Usiminas' stake to zero and increasing Techint's control.

Investor Verification Checklist

• Sidor Receivable Collectibility: Verify the status of the rescheduled payments from CVG and the creditworthiness of the Argentine guarantors (Enarsa/Cammesa).
• Corus Arbitration Outcome: Monitor the final determination of damages regarding the terminated off-take agreement to assess potential liability up to the $29.7 million cap.
• Tax Impact: Confirm the actual effective tax rate in 2011 following the transition to the ordinary Luxembourg tax regime.
• Working Capital Trends: Review the $448 million use of cash for working capital in 2010 (primarily inventory buildup) to ensure it aligns with sales growth and does not signal future liquidity strain.
• FX Exposure: Assess the impact of currency fluctuations (MXN, ARS, COP) on reported earnings, given the company's significant operations in these regions.