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 three-month period ended March 31, 2012, compared to the same period in 2011. Ternium is a global steel manufacturer organized into flat steel, long steel, and other product segments. The company is incorporated in Luxembourg and trades on the NYSE under the symbol "TX".

Key Financial Metrics

Note: Total borrowings decreased significantly due to the repayment of debt and the specific financing structure for the Usiminas acquisition.

Material Changes vs. Prior Period

• Profitability Decline: Net profit attributable to equity holders decreased by approximately 22% (from $204.7M to $159.6M). This was primarily driven by a significant drop in "Other financial income, net," which fell from $69.7M in Q1 2011 to $12.2M in Q1 2012, largely due to the absence of large foreign exchange gains recorded in the prior year.
• Revenue Growth: Net sales increased by 2.2% year-over-year, driven by higher volumes in the North American region.
• Major Acquisition: In January 2012, Ternium acquired a 22.7% stake in Usiminas (Brazil) for approximately $2.2 billion. This transaction is reflected in the balance sheet as a massive increase in "Investments in non-consolidated companies" (from $94.9M to $2.3B).
• Liquidity Impact: Cash and cash equivalents dropped by roughly $1.5 billion during the quarter, primarily due to the cash outflow for the Usiminas acquisition ($2.24B purchase consideration) and capital expenditures ($176M), partially offset by new borrowings ($807M).
• Accounting Policy Change: The company early-adopted IFRS 10, 11, and 12, resulting in the deconsolidation of a joint venture (Consorcio Minero Benito Juarez) and a change in the functional currency of Mexican subsidiaries to the U.S. dollar.

Guidance, Outlook, and Risks

• Dividend Proposal: The Board proposed a dividend of $0.075 per share (approx. $150.4M total), subject to shareholder approval at the May 2, 2012 meeting.
• Usiminas Integration: Usiminas contributed a net loss of $4 million for the period from acquisition (Jan 16) to March 31. Purchase price allocation is not yet complete.
• Sidor Nationalization Contingency: Regarding the 2008 nationalization of Sidor by Venezuela, $130.3 million remains outstanding from the compensation agreement. Ternium is pursuing payment and has reserved rights under international law.
• Tax Contingency: Mexican tax authorities assessed a deficiency of approximately $321 million (MXN 4.124B) related to a 2004 capital reduction. Ternium has appealed and believes an obligation is not probable; no provision was recorded.
• Commitments: Siderar has significant fixed commitments for raw material purchases ($813.8M over 3 years) and equipment acquisitions ($111.3M).

Investor Verification Checklist

• Usiminas Valuation: Verify the final purchase price allocation and the impact of Usiminas' operational performance on future earnings.
• Cash Position: Monitor the company's liquidity given the $1.5B cash reduction and the new $700M syndicated term loan taken for the Usiminas deal.
• Financial Income Volatility: Assess the sustainability of earnings without the one-time foreign exchange gains that boosted Q1 2011 results.
• Legal Risks: Track the resolution of the Mexican tax appeal ($321M) and the Venezuelan Sidor receivable ($130.3M).
• Dividend Approval: Confirm the outcome of the shareholder vote on the proposed dividend at the May 2012 meeting.