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Ternium S.A. Third Quarter 2009 Results Summary

Business Context and Reporting Period

This Form 6-K filing, dated November 4, 2009, reports the financial and operational results for Ternium S.A. for the third quarter and the first nine months ended September 30, 2009. Ternium is a leading steel manufacturer in Latin America with principal operations in Mexico and Argentina. The results are presented in U.S. dollars and metric tons in accordance with IFRS.

Key Financial Metrics

*Net debt at end of 3Q 2008 is derived from the text stating a $1.6 billion decrease from Dec 31, 2008 to Sep 30, 2009, and the balance sheet showing $2.4B debt vs $2.0B cash at Sep 30, 2009. The text explicitly states net debt decreased $520.9M from 2Q 2009 to 3Q 2009.

Material Changes vs. Prior Periods

• Quarter-over-Quarter (3Q vs 2Q 2009): Operating income improved significantly from a loss of $52.1 million to a gain of $158.9 million. This turnaround was driven by an 11% increase in shipments (1.68M tons) and a $113 decrease in operating cost per ton. EBITDA surged 486% to $254.3 million.
• Year-over-Year (3Q 2009 vs 3Q 2008): Net sales declined 48% to $1.28 billion due to a 9% drop in shipments and a 42% decrease in revenue per ton ($747 vs $1,278). Operating income fell 70% to $158.9 million. Net income decreased 58% to $104.7 million.
• Discontinued Operations: The 2Q 2009 results included a $428.0 million gain from the transfer of Sidor shares to Venezuela, which is not present in 3Q 2009. This non-recurring item significantly inflated 2Q and 9M 2009 net income figures.
• Foreign Exchange: 3Q 2009 included a $47.6 million non-cash foreign exchange loss, compared to a $219.1 million gain in 2Q 2009, primarily due to the devaluation of the Mexican Peso against the U.S. dollar.

Outlook, Commentary, and Risks

• Outlook: Management expects a slight increase in operating income for Q4 2009 compared to Q3 2009. This is attributed to higher revenue per ton and stable costs, partially offset by slightly lower shipments due to year-end seasonality.
• Market Conditions: The company notes an economic recovery in Latin America driven by stimulus packages and Asian performance. Argentina is recovering faster than Mexico, which remains affected by the gradual U.S. recovery.
• Liquidity and Debt: Net financial debt decreased to $485.7 million at the end of Q3 2009. The company generated positive free cash flow of $248.2 million in the quarter and collected a $266.5 million installment from the Sidor transaction. Total borrowings are $2.4 billion, with significant scheduled repayments in 2010, 2011, and 2012.
• Risks: Forward-looking statements are subject to risks including GDP uncertainties, market demand fluctuations, global production capacity, tariffs, and cyclicality in steel-consuming industries.

Investor Verification Checklist

• Sidor Transaction Impact: Verify the sustainability of earnings excluding the $428 million discontinued operations gain from the Sidor share transfer, which heavily influenced 9M 2009 net income.
• Foreign Exchange Exposure: Assess the impact of currency fluctuations (specifically Mexican and Argentine Pesos) on future earnings, given the significant non-cash FX loss in Q3 2009.
• Debt Maturity Profile: Review the schedule of debt repayments ($500M in 2010/2011, $1.3B in 2012) against current cash reserves and projected cash flows.
• Volume vs. Price Dynamics: Monitor the trend of revenue per ton, which has dropped significantly year-over-year, to determine if price stabilization is occurring alongside volume recovery.
• Inventory Levels: Confirm the continued reduction in steel inventories (down 550,000 tons in 9M 2009) as a driver of working capital efficiency.