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Ternium S.A. Q1 2011 Financial Summary

Business Context and Reporting Period

This Form 6-K filing presents the unaudited consolidated condensed interim financial statements for Ternium S.A. for the three-month period ended March 31, 2011. Ternium is a global steel manufacturer organized into flat steel, long steel, and other product segments. The company operates primarily in South and Central America and North America. Effective January 1, 2011, the company transitioned from a tax-exempt 1929 Luxembourg holding company regime to an ordinary public limited liability company, subject to applicable Luxembourg taxes, though it expects its overall tax burden to remain stable due to participation exemptions on dividends from high-tax jurisdictions.

Key Financial Metrics

Note: Total borrowings for Q1 2010 are not directly comparable in the income statement; the table above compares Q1 2011 borrowings to the Dec 31, 2010 balance sheet position to show debt reduction.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 30.1% to $2.15 billion, driven by higher volumes and prices across both flat and long steel segments.
• Operating Income: Despite revenue growth, operating income decreased slightly by 0.8% to $291.0 million. This was due to a significant increase in Selling, General, and Administrative (SG&A) expenses, which rose 31.0% to $189.1 million, largely due to higher freight and transportation costs.
• Financial Income: "Other financial income (expenses), net" decreased to $69.8 million from $96.2 million in Q1 2010. This decline was primarily due to a reduction in "Interest income – Sidor financial asset," which dropped from $27.2 million to $3.8 million as the receivable balance decreased following payments from the Venezuelan government.
• Debt Reduction: Total borrowings decreased significantly from $3.896 billion at December 31, 2010, to $1.773 billion at March 31, 2011, reflecting substantial debt repayments.
• Cash Flow: Net cash provided by operating activities decreased to $248.6 million from $313.2 million, impacted by changes in working capital and foreign exchange results.

Guidance, Outlook, and Risks

Management Commentary and Dividends: The Board of Directors proposed a dividend of $0.075 per share ($0.75 per ADS), totaling approximately $150.4 million, subject to shareholder approval at the annual meeting on June 1, 2011. The company expects dividend distributions to be imputed to a special tax reserve, potentially exempting them from Luxembourg withholding tax.

Key Risks and Contingencies:

• Sidor Nationalization: The company continues to collect payments on the $1.97 billion compensation for the nationalization of its Sidor subsidiary in Venezuela. As of March 31, 2011, the remaining receivable balance was $223.5 million. While payments are being made under a rescheduled agreement, the company reserves rights under international law in case of non-compliance.
• Corus/Tata Steel Arbitration: An arbitration tribunal ruled that Ternium Procurement invalidly terminated a steel slab off-take agreement with Corus (now Tata Steel). The tribunal upheld a liability cap of approximately $29.7 million for Ternium Procurement. Final damages and costs are pending determination.
• Siderar (Argentina) Regulatory Issues: A dispute exists regarding the voting rights of ANSeS (Argentina's social security agency), which holds 25.97% of Siderar. A recent Argentine decree purports to remove a 5% voting cap. The company is challenging this in court. Additionally, a preliminary injunction was issued suspending certain shareholder resolutions, including a $370 million dividend, though the company intends to proceed with the payment.
• Share Repurchase: In February 2011, Ternium repurchased 41.7 million shares from Usiminas for $150 million. Usiminas no longer holds any Ternium shares.

Investor Verification Checklist

• Verify the status of the $223.5 million receivable from the Venezuelan government (CVG) and the schedule of remaining payments.
• Monitor the outcome of the arbitration with Tata Steel regarding the off-take agreement termination and the final liability amount.
• Track the legal proceedings in Argentina concerning ANSeS voting rights and the enforceability of the $370 million Siderar dividend.
• Confirm the impact of the new Luxembourg tax regime on future dividend distributions and effective tax rates.
• Review the sustainability of SG&A expense levels, particularly freight and transportation costs, which rose significantly year-over-year.