Edgar Filing: Ternium S.A.

Form 6-K

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

As of 2/22/2012

Ternium S.A.

(Translation of Registrant’s name into English)

Ternium S.A.

29, Avenue de la Porte-Neuve

L-2227 Luxembourg

(352) 2668-3152

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or 40-F.

Form 20-F x Form 40-F ¨

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12G3-2(b) under the Securities Exchange Act of 1934.

Yes ¨ No x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

Not applicable

The attached material is being furnished to the Securities and Exchange Commission pursuant to Rule 13a-16 and Form 6-K under the Securities Exchange Act of 1934, as amended.

This report contains Ternium S.A.’s consolidated financial statements as of December 31, 2011.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TERNIUM S.A.


By:	/s/ Pablo Brizzio	By:	/s/ Daniel Novegil
Name: Pablo Brizzio		Name: Daniel Novegil
Title: Chief Financial Officer		Title: Chief Executive Officer

Dated: February 22, 2012

TERNIUM S.A.

CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2011 and 2010 and

for the years ended December 31, 2011, 2010 and 2009

29, Avenue de la Porte-Neuve, 3rd floor

L – 2227

R.C.S. Luxembourg: B 98 668

TERNIUM S.A.

Index to financial statements

Consolidated Financial Statements


	Page

Consolidated income statement for the years ended December 31, 2011, 2010 and 2009		2

Consolidated statement of comprehensive income for the years ended December 31, 2011, 2010 and 2009		3

Consolidated statement of financial position as of December 31, 2011 and 2010		4

Consolidated statement of changes in equity for the years ended December 31, 2011, 2010 and 2009		5

Consolidated statement of cash flows for the years ended December 31, 2011, 2010 and 2009		8

Notes to the consolidated financial statements		9

TERNIUM S.A.

Consolidated financial statements

as of December 31, 2011 and 2010 and

for the years ended December 31, 2011, 2010 and 2009

(All amounts in USD thousands)

CONSOLIDATED INCOME STATEMENT


		Year ended December 31,
	Notes	2011			2010			2009
Continuing operations
Net sales			9,157,198			7,382,004			4,958,983
Cost of sales	6		(7,094,252	)		(5,665,254	)		(4,110,370	)


Gross profit			2,062,946			1,716,750			848,613

Selling, general and administrative expenses	7		(786,161	)		(665,306	)		(531,530	)
Other operating (expenses) income, net	9		(11,566	)		2,493			(20,700	)


Operating income			1,265,219			1,053,937			296,383

Interest expense			(100,712	)		(72,969	)		(105,810	)
Interest income			28,689			27,347			21,141
Interest income—Sidor financial asset	27		11,390			61,012			135,952
Other financial (expenses) income, net	10		(239,997	)		115,112			81,639

Equity in earnings of associated companies	14		1,293			1,688			1,110


Income before income tax expense			965,882			1,186,127			430,415

Income tax expense	11		(315,974	)		(406,657	)		(91,314	)


Income from continuing operations			649,908			779,470			339,101


Discontinued operations
Income from discontinued operations	27		—			—			428,023


Profit for the year			649,908			779,470			767,124


Attributable to:
Equity holders of the Company	26		513,541			622,076			717,400
Non-controlling interest			136,367			157,394			49,724

			649,908			779,470			767,124


Weighted average number of shares outstanding	26		1,968,327,917			2,004,743,442			2,004,743,442

Basic and diluted earnings per share (expressed in USD per share) for profit:

- From continuing operations attributable to the equity holders of the Company			0.26			0.31			0.15

- From discontinued operations attributable to the equity holders of the Company			—			—			0.21

- For the year attributable to the equity holders of the Company			0.26			0.31			0.36

The accompanying notes are an integral part of these consolidated financial statements.

TERNIUM S.A.

Consolidated financial statements

as of December 31, 2011 and 2010 and

for the years ended December 31, 2011, 2010 and 2009

(All amounts in USD thousands)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		September 30,			September 30,			September 30,
	Year ended December 31,
	2011			2010			2009

Profit for the year		649,908			779,470			767,124

Other comprehensive income:
Currency translation adjustment		(433,633	)		35,915			(93,922	)
Changes in the fair value of derivatives classified as cash flow hedges		14,134			14,729			35,881
Income tax relating to cash flow hedges		(6,701	)		(4,419	)		(9,112	)


Other comprehensive (loss) income for the year, net of tax		(426,200	)		46,225			(67,153	)


Total comprehensive income for the year		223,708			825,695			699,971


Attributable to:
Equity holders of the Company		172,863			684,635			698,789
Non-controlling interest		50,845			141,060			1,182


		223,708			825,695			699,971

The accompanying notes are an integral part of these consolidated financial statements.

TERNIUM S.A.

Consolidated financial statements

as of December 31, 2011 and 2010 and

for the years ended December 31, 2011, 2010 and 2009

(All amounts in USD thousands)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION


	Notes	December 31, 2011			December 31, 2010
ASSETS
Non-current assets
Property, plant and equipment, net	12		4,032,675			4,262,896
Intangible assets, net	13		986,072			1,129,348
Investments in associated companies	14		9,311			8,212
Sidor financial asset	27		—			74,549
Other investments	15		14,087			35,575
Deferred tax assets	21		8,101			12,387
Receivables, net	16		124,201			56,471
Trade receivables, net	17		7,526	5,181,973		—	5,579,438


Current assets
Receivables	16		105,591			94,573
Derivative financial instruments	23		50			212
Inventories, net	18		2,137,024			1,953,390
Trade receivables, net	17		735,002			663,502
Sidor financial asset	27		136,294			183,439
Other investments	19		281,676			848,400
Cash and cash equivalents	19		2,158,591	5,554,228		1,779,416	5,522,932


Non-current assets classified as held for sale				10,373			9,961


				5,564,601			5,532,893


Total assets				10,746,574			11,112,331


EQUITY
Capital and reserves attributable to the company’s equity holders				5,756,372			5,880,740

Non-controlling interest				1,084,827			1,135,361


Total equity				6,841,199			7,016,101


LIABILITIES
Non-current liabilities
Provisions	20		15,340			16,144
Deferred income tax	21		748,999			877,742
Other liabilities	22		200,845			201,312
Trade payables			21,096			—
Derivative financial instruments	23		—			18,822
Borrowings	24		948,495	1,934,775		1,426,574	2,540,594


Current liabilities
Current tax liabilities			106,625			294,902
Other liabilities	22		114,776			123,610
Trade payables			677,747			588,086
Derivative financial instruments	23		29,902			35,955
Borrowings	24		1,041,550	1,970,600		513,083	1,555,636


Total liabilities				3,905,375			4,096,230

Total equity and liabilities				10,746,574			11,112,331

The accompanying notes are an integral part of these consolidated financial statements.

TERNIUM S.A.

Consolidated financial statements

as of December 31, 2011 and 2010 and

for the years ended December 31, 2011, 2010 and 2009

(All amounts in USD thousands)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


	Attributable to the Company’s equity holders (1)
	Capital stock (2)		Treasury shares (3)			Initial public offering expenses			Reserves (4)			Capital stock issue discount (5)			Currency translation adjustment			Retained earnings			Total			Non- controlling interest			Total Equity

Balance at January 1, 2011		2,004,743		—			(23,295	)		1,635,126			(2,324,866	)		(517,432	)		5,106,464			5,880,740			1,135,361			7,016,101

Profit for the year																			513,541			513,541			136,367			649,908
Other comprehensive income (loss) for the year
Currency translation adjustment																(346,921	)					(346,921	)		(86,712	)		(433,633	)
Cash flow hedges, net of tax										6,243												6,243			1,190			7,433

Total comprehensive income for the year		—		—			—			6,243			—			(346,921	)		513,541			172,863			50,845			223,708

Repurchase of own shares to Usiminas (3)				(150,000	)																	(150,000	)					(150,000	)
Dividends paid in cash (6)										(99,329	)								(47,902	)		(147,231	)					(147,231	)
Dividends paid in cash by subsidiary companies																						—			(140,579	)		(140,579	)
Contributions from non-controlling shareholders in consolidated subsidiaries																						—			39,200			39,200


Balance at December 31, 2011		2,004,743		(150,000	)		(23,295	)		1,542,040			(2,324,866	)		(864,353	)		5,572,103			5,756,372			1,084,827			6,841,199

(1)	Shareholders’ equity determined in accordance with accounting principles generally accepted in Luxembourg is disclosed in Note 25 (iii).

(2)	The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of USD1.00 per share. As of December 31, 2011, there were 2,004,743,442 shares issued. All issued shares are fully paid.

(3)	See Note 30.

(4)

Include legal reserve under Luxembourg law for USD 200.5 million, undistributable reserves under Luxembourg law for USD 1.4 billion, hedge accounting reserve, net of tax effect, for USD (14.9) million and reserves related to the acquisition of non-controlling interest in subsidiaries according to IAS 27 for USD (58.5) million.

(5)	Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.

(6)	Represents USD 0.075 per share (USD 0.75 per ADS).

Dividends may be paid by Ternium to the extent distributable retained earnings calculated in accordance with Luxembourg law and regulations exist. Therefore, retained earnings included in these consolidated financial statements may not be wholly distributable. See Note 25 (iii). The accompanying notes are an integral part of these consolidated financial statements.

TERNIUM S.A.

Consolidated financial statements

as of December 31, 2011 and 2010 and

for the years ended December 31, 2011, 2010 and 2009

(All amounts in USD thousands)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


	Attributable to the Company’s equity holders (1)
	Capital stock (2)		Initial public offering expenses			Reserves (3)			Capital stock issue discount (4)			Currency translation adjustment			Retained earnings		Total			Non- controlling interest			Total Equity

Balance at January 1, 2010		2,004,743		(23,295	)		1,726,216			(2,324,866	)		(570,844	)		4,484,388		5,296,342			964,897			6,261,239

Profit for the year																622,076		622,076			157,394			779,470
Other comprehensive income (loss) for the year:
Currency translation adjustment													53,412					53,412			(17,497	)		35,915
Cash flow hedges, net of tax							9,147											9,147			1,163			10,310

Total comprehensive income for the year							9,147						53,412			622,076		684,635			141,060			825,695

Dividends paid in cash (5)							(100,237	)										(100,237	)					(100,237	)
Dividends paid in cash by subsidiary companies																					(38,304	)		(38,304	)
Contributions from non-controlling shareholders in consolidated subsidiaries																					4,900			4,900

Acquisition of business (See Note 3)																					62,808			62,808


Balance at December 31, 2010		2,004,743		(23,295	)		1,635,126			(2,324,866	)		(517,432	)		5,106,464		5,880,740			1,135,361			7,016,101

(1)	Shareholders’ equity determined in accordance with accounting principles generally accepted in Luxembourg is disclosed in Note 25 (iii).

(2)	The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of USD1.00 per share. As of December 31, 2010, there were 2,004,743,442 shares issued. All issued shares are fully paid.

(3)

Include legal reserve under Luxembourg law for USD 200.5 million, distributable reserves under Luxembourg law for USD 101.4 million, undistributable reserves under Luxembourg law for USD 1.4 billion, hedge accounting reserve, net of tax effect, for USD (22.4) million and reserves related to the acquisition of non-controlling interest in subsidiaries according to IAS 27 for USD (58.5) million.

(4)	Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.

(5)	Represents USD 0.05 per share (USD 0.50 per ADS).

TERNIUM S.A.

Consolidated financial statements

as of December 31, 2011 and 2010 and

for the years ended December 31, 2011, 2010 and 2009

(All amounts in USD thousands)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


	Attributable to the Company’s equity holders (1)
	Capital stock (2)		Initial public offering expenses			Reserves		Capital stock issue discount (3)			Currency translation adjustment			Retained earnings		Total			Non- controlling interest			Total Equity

Balance at January 1, 2009		2,004,743		(23,295	)		1,702,285		(2,324,866	)		(528,485	)		3,766,988		4,597,370			964,094			5,561,464

Profit for the year															717,400		717,400			49,724			767,124
Other comprehensive income (loss) for the year
Currency translation adjustment												(42,359	)				(42,359	)		(51,563	)		(93,922	)
Cash flow hedges, net of tax							23,748										23,748			3,021			26,769

Total comprehensive income (loss) for the year							23,748					(42,359	)		717,400		698,789			1,182			699,971

Acquisition of non-controlling interest (4)							183										183			(379	)		(196	)


Balance at December 31, 2009		2,004,743		(23,295	)		1,726,216		(2,324,866	)		(570,844	)		4,484,388		5,296,342			964,897			6,261,239

(1)	Shareholders’ equity determined in accordance with accounting principles generally accepted in Luxembourg is disclosed in Note 25 (iii).

(2)	The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of USD1.00 per share. As of December 31, 2009, there were 2,004,743,442 shares issued. All issued shares are fully paid.

(3)	Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.

(4)

On February 5, 2009, Ternium Internacional España S.L.U. acquired from its related company Siderca S.A.I.C., 53,452 shares of Siderar S.A.I.C., representing 0.015% of that company’s share capital, for an aggregate purchase price of USD 196 thousand. After this acquisition, Ternium increased its ownership in Siderar to 60.94%.

As permitted by IFRS 3, the Company accounted for this acquisition under the economic entity model, which requires that the acquisition of an additional equity interest in a controlled subsidiary be accounted for at its carrying amount, with the difference arising on purchase price allocation being recorded directly in equity.

TERNIUM S.A.

Consolidated financial statements

as of December 31, 2011 and 2010 and

for the years ended December 31, 2011, 2010 and 2009

(All amounts in USD thousands)

CONSOLIDATED STATEMENT OF CASH FLOWS


		Year ended December 31,
	Notes	2011			2010			2009

Cash flows from operating activities
Income from continuing operations:			649,908			779,470			339,101
Adjustments for:
Depreciation and amortization	12 & 13		405,842			383,300			385,105
Income tax accruals less payments	31 (b)		(255,945	)		226,820			(49,342	)
Equity in earnings of associated companies	14		(1,293	)		(1,688	)		(1,110	)
Interest accruals less payments	31 (b)		43,047			(59	)		10,706
Impairment charge	25 (ii)		—			—			27,022
Changes in provisions	20		29,932			5,543			4,614
Changes in working capital	31 (b)		(397,806	)		(447,973	)		635,179
Interest income—Sidor financial asset	27 (i)		(11,390	)		(61,012	)		(135,952	)
Net foreign exchange results and others			184,840			(77,576	)		(53,565	)

Net cash provided by operating activities			647,135			806,825			1,161,758


Cash flows from investing activities
Capital expenditures	12 & 13		(601,343	)		(350,124	)		(208,590	)
Acquisition of business:
Purchase consideration	3		—			(75,000	)		(196	)
Cash acquired	3		—			6,593			—
Decrease (Increase) in other investments	15 & 19		588,212			(820,672	)		43,163
Proceeds from the sale of property, plant and equipment			1,696			1,693			3,245
Proceeds from Sidor financial asset	27		133,084			767,382			953,611
Dividends received from associated companies	14		—			302			—
Contributions in associated companies	14		—			(302	)		—

Net cash provided by (used in) investing activities			121,649			(470,128	)		791,233


Cash flows from financing activities
Dividends paid in cash to company’s shareholders			(147,231	)		(100,237	)		—
Dividends paid in cash by subsidiary companies			(140,579	)		(38,304	)		—
Contributions from non-controlling shareholders in consolidated subsidiaries			39,200			4,900			—
Repurchase of treasury shares	30		(150,000	)		—			—
Proceeds from borrowings			666,180			35,441			219,037
Repayments of borrowings			(632,140	)		(555,918	)		(1,141,625	)

Net cash used in financing activities			(364,570	)		(654,118	)		(922,588	)



Increase (Decrease) in cash and cash equivalents			404,214			(317,421	)		1,030,403


Movement in cash and cash equivalents
At January 1,			1,779,416			2,095,798			1,065,552
Effect of exchange rate changes			(25,039	)		1,039			(157	)
Increase (Decrease) in cash and cash equivalents			404,214			(317,421	)		1,030,403

Cash and cash equivalents at December 31, (1)	19		2,158,591			1,779,416			2,095,798

(1)

In addition, the Company had restricted cash for USD 248 and USD 12,343 as of December 31, 2011 and 2010, respectively. As of December 31, 2009, there were no restricted cash. Additionally, the Company had other investments with a maturity of more than three months for USD 281,676 and USD 848,400 at December 31, 2011 and 2010, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

TERNIUM S.A.

Notes to the Consolidated Financial Statements

INDEX TO THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

General information

Basis of presentation

Acquisition of business

Accounting policies

Segment information

Cost of sales

Selling, general and administrative expenses

Labor costs (included in cost of sales, selling, general and administrative expenses)

Other operating (expenses) income, net

Other financial (expenses) income, net

Income tax expense

Property, plant and equipment, net

Intangible assets, net

Investments in associated companies

Other investments, net—non current

Receivables, net—non current and current

Trade receivables, net—non current and current

Inventories, net

Cash, cash equivalents and other investments

Allowances and Provisions—non current and current

Deferred income tax

Other liabilities—non current and current

Derivative financial instruments

Borrowings

Contingencies, commitments and restrictions on the distribution of profits

Earnings per share

Discontinued operations—Nationalization of Sidor

Related party transactions

Investments in Mexico

Repurchase of Shares from Usiminas concurrently with secondary public offering

Other required disclosures

Recently issued accounting pronouncements

Financial risk management

Subsequent events—Share purchase agreement of Usiminas

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

1 General information

Ternium S.A. (the “Company” or “Ternium”), was incorporated on December 22, 2003 to hold investments in flat and long steel manufacturing and distributing companies. The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of USD1.00 per share. As of December 31, 2011, there were 2,004,743,442 shares issued. All issued shares are fully paid.

Following a corporate reorganization carried out during fiscal year 2005, in January 2006 the Company successfully completed its registration process with the United States Securities and Exchange Commission (“SEC”). Ternium’s ADSs began trading on the New York Stock Exchange under the symbol “TX” on February 1, 2006. The Company’s initial public offering was settled on February 6, 2006. On January 31, 2011, the Company filed with the SEC a registration statement on form F-3 relating to sales of equity and debt securities.

The Company was initially established as a public limited liability company (société anonyme) under Luxembourg’s 1929 holding company regime. Until termination of such regime on December 31, 2010, holding companies incorporated under the 1929 regime (including the Company) were exempt from Luxembourg corporate and withholding tax over dividends distributed to shareholders.

On January 1, 2011, the Company became an ordinary public limited liability company (société anonyme) and, effective as from that date, the Company is subject to all applicable Luxembourg taxes (including, among others, corporate income tax on its worldwide income) and its dividend distributions will generally be subject to Luxembourg withholding tax. However, dividends received by the Company from subsidiaries in high income tax jurisdictions, as defined under Luxembourg law, will continue to be exempt from corporate income tax in Luxembourg under Luxembourg’s participation exemption.

As part of the Company’s corporate reorganization in connection with the termination of Luxembourg’s 1929 holding company regime, on December 6, 2010, the Company contributed its equity holdings in all its subsidiaries and all its financial assets to its Luxembourg wholly-owned subsidiary Ternium Investments S.à.r.l., or Ternium Investments, in exchange for newly issued corporate units of Ternium Investments. As the assets contributed were recorded at their historical carrying amount in accordance with Luxembourg GAAP, the Company’s December 2010 contribution of such assets to Ternium Investments resulted in a non-taxable revaluation of the accounting value of the Company’s assets under Luxembourg GAAP. The amount of the December 2010 revaluation was equal to the difference between the historical carrying amounts of the assets contributed and the value at which such assets were contributed and amounted to USD4.0 billion. However, for the purpose of these consolidated financial statements, the assets contributed by Ternium to its wholly-owned subsidiary Ternium Investments were recorded based on their historical carrying amounts in accordance with IFRS, with no impact on the financial statements.

Following the completion of the corporate reorganization, and upon its conversion into an ordinary Luxembourg holding company, the Company voluntarily recorded a special reserve exclusively for tax-basis purposes. As of December 31, 2011 and 2010, this special tax reserve amounted to USD 7.7 billion and USD 7.9 billion, respectively. The Company expects that, as a result of its corporate reorganization, its current overall tax burden will not increase, as all or substantially all of its dividend income will come from high income tax jurisdictions. In addition, the Company expects that dividend distributions for the foreseeable future will be imputed to the special reserve and therefore should be exempt from Luxembourg withholding tax under current Luxembourg law.

2 Basis of presentation

These consolidated financial statements have been prepared in accordance with IFRS (International Financial Reporting Standards) issued and effective or issued and early adopted as at the time of preparing these statements (February 2012), as issued by the International Accounting Standards Board, and adopted by the European Union. These consolidated financial statements are presented in thousands of United States dollars (“USD”), except otherwise indicated.

Elimination of all material intercompany transactions and balances between the Company and their respective subsidiaries have been made in consolidation.

The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

Certain comparative amounts have been reclassified to conform to changes in presentation in the current period. These reclassifications do not have a material effect on the Company’s consolidated financial statements.

These consolidated financial statements have been approved for issue by the Board of Directors on February 22, 2012.

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

2 Basis of presentation (continued)

Detailed below are the companies whose financial statements have been included in these consolidated financial statements.

	xxxx	xxxx		xxxx			xxxx			xxxx
Company	Country of Organization	Main activity	Percentage of ownership at December 31,
Company	Country of Organization	Main activity	2011			2010			2009

Ternium S.A.	Luxembourg	Holding		100.00	%		100.00	%		100.00	%
Ternium Investments S.à.r.l. (1)	Luxembourg	Holding		100.00	%		100.00	%		—
Ternium Solutions A.G. (2)	Switzerland	Services		100.00	%		—			—
Ternium Brasil S.A. (3)	Brazil	Holding		100.00	%		100.00	%		100.00	%

Siderúrgica do Norte Fluminense S.A. (4)	Brazil	Manufacturing and selling of steel products		100.00	%		100.00	%		—

Ylopa—Servicos de Consultadoria Lda. (5)	Portugal	Holding		—			94.38	%		94.38	%
Consorcio Siderurgia Amazonia S.L.U. (6)	Spain	Holding		94.38	%		94.38	%		94.38	%
Secor—Servicios Corporativos S.A. (6)	Venezuela	Holding		94.38	%		94.38	%		94.38	%
Ternium Internacional España S.L.U. (3)	Spain	Marketing of steel products		100.00	%		100.00	%		100.00	%

Siderar S.A.I.C. (7)	Argentina	Manufacturing and selling of flat steel products		60.94	%		60.94	%		60.94	%
Impeco S.A. (8)	Argentina	Manufacturing of pipe products		60.97	%		60.97	%		60.97	%
Prosid Investments S.C.A. (8)	Uruguay	Holding		60.94	%		60.94	%		60.94	%

Inversiones Basilea S.A. (9)	Chile	Purchase and sale of real estate and other		60.94	%		60.94	%		60.94	%
Ternium Mexico S.A. de C.V. (10)	Mexico	Holding		88.72	%		88.72	%		88.71	%

Hylsa S.A. de C.V. (11)	Mexico	Manufacturing and selling of steel products		88.72	%		88.72	%		88.71	%

Las Encinas S.A. de C.V. (11)	Mexico	Exploration, exploitation and pelletizing of iron ore		88.72	%		88.72	%		88.71	%
Ferropak Comercial S.A. de C.V. (11)	Mexico	Scrap services company		88.72	%		88.72	%		88.71	%
Ferropak Servicios S.A. de C.V. (11)	Mexico	Services		88.72	%		88.72	%		88.71	%
Galvacer America Inc (11)	USA	Distributing company		88.72	%		88.72	%		88.71	%

Galvamet America Corp (11)	USA	Manufacturing and selling of insulated panel products		88.72	%		88.72	%		88.71	%
Transamerica E. & I. Trading Corp (11)	USA	Scrap services company		88.72	%		88.72	%		88.71	%
Técnica Industrial S.A. de C.V. (11)	Mexico	Services		88.72	%		88.72	%		88.71	%
Sefimsa S.A. de C.V. (11)	Mexico	Financial Services		88.72	%		88.72	%		88.71	%
Ecore Holding S. de R.L. de C.V. (11)	Mexico	Holding		88.72	%		88.72	%		88.71	%
Neotec L.L.C. (11)	USA	Holding		88.72	%		88.72	%		88.71	%
Treasury Services S.A. de C.V. (11)	Mexico	Financial Services		88.72	%		88.72	%		88.71	%

APM, S.A. de C.V. (11)	Mexico	Manufacturing and selling of steel products		88.72	%		88.72	%		88.71	%
Acedor, S.A. de C.V. (11)	Mexico	Holding		88.72	%		88.72	%		88.71	%

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

2 Basis of presentation (continued)


Company	Country of Organization	Main activity	Percentage of ownership at December 31,
Company	Country of Organization	Main activity	2011			2010			2009

Empresas Stabilit S.A. de C.V. (12)	Mexico	Holding		—			88.72	%		88.71	%

Acerus S.A. de C.V. (11)	Mexico	Manufacturing and selling of steel products		88.72	%		88.72	%		88.71	%

Imsa Monclova S.A. de C.V. (11)	Mexico	Services		88.72	%		88.72	%		88.71	%
Ternium Internacional Guatemala S.A. (13)	Guatemala	Selling of steel products		99.98	%		88.72	%		88.71	%
Corporativo Grupo Imsa S.A. de C.V. (11)	Mexico	Services		88.72	%		88.72	%		88.71	%

Ternium USA Inc. (11)	USA	Manufacturing and selling of steel products		88.72	%		88.72	%		88.71	%

Consorcio Minero Benito Juarez Peña Colorada S.A.de C.V. (14)	Mexico	Exploration, exploitation and pelletizing of iron ore		44.36	%		44.36	%		44.36	%
Peña Colorada Servicios S.A. de C.V. (14)	Mexico	Services		44.36	%		44.36	%		44.36	%

Servicios Integrales Nova de Monterrey S.A. de C.V. (15)	Mexico	Medical and Social Services		66.09	%		66.09	%		66.09	%

Ternium Guatemala S.A. (16)	Guatemala	Manufacturing and selling of steel products		—			88.72	%		88.71	%

Ternium Internacional Nicaragua S.A.	Nicaragua	Manufacturing and selling of steel products		99.38	%		88.18	%		88.18	%

Ternium Internacional Honduras S.A. de C.V.	Honduras	Manufacturing and selling of steel products		99.18	%		88.01	%		88.00	%

Ternium Internacional El Salvador, S.A. de C.V.	El Salvador	Manufacturing and selling of steel products		99.91	%		88.66	%		88.65	%

Ternium Internacional Costa Rica S.A.	Costa Rica	Manufacturing and selling of steel products		99.98	%		88.72	%		88.71	%

Ferrasa S.A.S. (17)	Colombia	Manufacturing and selling of steel products		54.00	%		54.00	%		—

Perfilamos del Cauca S.A.S. (17)	Colombia	Manufacturing and selling of steel products		54.00	%		54.00	%		—

Figuraciones S.A.S. (17)	Colombia	Manufacturing and selling of steel products		54.00	%		54.00	%		—

Siderúrgica de Caldas S.A.S. (17)	Colombia	Manufacturing and selling of steel products		54.00	%		54.00	%		—

Procesadora de Materiales Industriales S.A.	Colombia	Scrap services company		32.40	%		32.40	%		—

Recolectora Industrial de Colombia S.A. (18)	Colombia	Scrap services company		—			28.70	%		—

Desechos Industriales de Colombia S.A. (18)	Colombia	Scrap services company		—			29.70	%		—

Tenigal S. de R.L. de C.V. (19)	Mexico	Manufacturing and selling of steel products		51.00	%		51.00	%		—

Ternium Investments Switzerland AG (3)	Switzerland	Holding		100.00	%		100.00	%		—

Ternium Internacional S.A. (20)	Uruguay	Holding and marketing of steel products		100.00	%		100.00	%		100.00	%

Ternium International Ecuador S.A. (21)	Ecuador	Marketing of steel products		100.00	%		100.00	%		100.00	%

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

2 Basis of presentation (continued)

	xxxx	xxxx		xxxx			xxxx			xxxx
Company	Country of Organization	Main activity	Percentage of ownership at December 31,
Company	Country of Organization	Main activity	2011			2010			2009

Ternium International USA Corporation (21)	USA	Marketing of steel products		100.00	%		100.00	%		100.00	%
Ternium Internationaal B.V. (21)	Netherlands	Marketing of steel products		100.00	%		100.00	%		100.00	%
Ternium Internacional Perú S.A. (21)	Peru	Marketing of steel products		100.00	%		100.00	%		100.00	%
Ternium Internacional de Colombia S.A.S. (formerly Ternium Internacional de Colombia S.A.) (21)	Colombia	Marketing of steel products		100.00	%		100.00	%		100.00	%
Ternium Procurement S.A. (20)	Uruguay	Procurement services		100.00	%		100.00	%		100.00	%
Ternium International Inc. (20)	Panama	Marketing of steel products		100.00	%		100.00	%		100.00	%
Ternium Engineering & Services S.A. (22)	Uruguay	Engineering and other services		100.00	%		100.00	%		100.00	%
Ternium Ingeniería y Servicios de Argentina S.A.	Argentina	Engineering and other services		100.00	%		100.00	%		100.00	%
Ternium Ingeniería y Servicios de Mexico S.A. de C.V.	Mexico	Engineering and other services		100.00	%		100.00	%		100.00	%
Ternium Treasury Services S.A. (20)	Uruguay	Financial Services		100.00	%		100.00	%		100.00	%
Ternium Treasury Services B.V. (20)	Netherlands	Financial Services		100.00	%		100.00	%		100.00	%

Ferrasa Panamá, S.A. (23)	Panama	Manufacturing and selling of steel products		54.00	%		54.00	%		—
Aceros Transformados de Panamá, S.A. (23)	Panama	Manufacturing and selling of steel products		54.00	%		54.00	%		—
Ternium Investments S.A. (formerly Dirken Company S.A.) (24)	Uruguay	Holding		—			—			100.00	%

(1)	Incorporated in the fourth quarter of 2010.

(2)	Indirectly through Ternium Investments S.à.r.l. Total voting rights held: 100.00%. Incorporated in the first quarter of 2011.

(3)	Indirectly through Ternium Investments S.à.r.l. Total voting rights held: 100.00%.

(4)	Indirectly through Ternium Brasil S.A. Total voting rights held: 100.00%. Incorporated during 2010.

(5)	This company was dissolved as of December 27, 2011.

(6)	Since December 27, 2011, indirectly through Ternium Investments S.á.r.l. (85.62%) and Prosid Investments S.C.A. (8.76%). Total voting rights held: 100.00%. Before that, indirectly through Ylopa – Servicos de Consultadoría Lda.

(7)	Indirectly through Ternium Internacional España S.L.U. Total voting rights held: 60.94%.

(8)	Indirectly through Siderar S.A.I.C and Ternium Internacional S.A. Total voting rights held 100.00%.

(9)	Indirectly through Siderar S.A.I.C. Total voting rights held 100.00%.

(10)	Indirectly through Siderar S.A.I.C., Inversiones Basilea S.A. and Ternium Internacional España S.L.U. Total voting rights held 99.93%.

(11)	Indirectly through Ternium Mexico S.A. de C.V. Total voting rights held: 100.00%.

(12)	Merged with Ternium Mexico S.A. de C.V. during the fourth quarter of 2011.

(13)	Indirectly through Ternium Internacional España S.L.U. Total voting rights held: 100%.

(14)	Indirectly through Ternium Mexico S.A. de C.V. Total voting rights held: 50.00%. Consolidated under the proportionate consolidation method.

(15)	Indirectly through Ternium Mexico S.A. de C.V. Total voting rights held: 74.50%.

(16)	This company was merged with Ternium Internacional Guatemala, S.A. during the first quarter of 2011.

(17)	Indirectly through Ternium Internacional España S.L.U. Total voting rights held: 54.00%. Incorporated during 2010. (See note 3).

(18)	These companies were sold during the second quarter of 2011.

(19)	Indirectly through Ternium Internacional España S.L.U. Total voting rights held: 51.00%. Incorporated during 2010. (See note 29).

(20)	Indirectly through Ternium Investments Switzerland AG. Total voting rights held: 100.00%.

(21)	Indirectly through Ternium Internacional S.A. Total voting rights held 100.00%.

(22)	Indirectly through Ternium Internacional Inc. Total voting rights held 100.00%.

(23)	Indirectly through Ternium Treasury Services S.A. Total voting rights held: 54.00%. Incorporated during 2010. (See note 3).

(24)	This company was dissolved as of December 6, 2010.

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

3 Acquisition of business

Ferrasa S.A.S and Ferrasa Panamá S.A.

On August 25, 2010, Ternium completed the acquisition of a 54% ownership interest in Ferrasa S.A.S., a company organized under the laws of Colombia (“Ferrasa”) through a capital contribution in the amount of USD 74.5 million. Ferrasa has a 100% ownership interest in Sidecaldas S.A.S. (“Sidecaldas”), Figuraciones S.A.S. (“Figuraciones”) and Perfilamos del Cauca S.A.S. (“Perfilamos”), all of which are also Colombian companies. Ternium has also completed the acquisition of a 54% ownership interest in Ferrasa Panamá S.A. (“Ferrasa Panamá”) and its subsidiary Aceros Transformados de Panamá S.A. (“Aceros”) for USD 0.5 million. On the mentioned date the Company obtained control over the assets and liabilities of the acquired companies.

Ferrasa is a long and flat steel products processor and distributor. Sidecaldas is a scrap-based long steel making and rolling facility, with an annual production capacity of approximately 140,000 tons. Figuraciones and Perfilamos manufacture welded steel tubes, profiles and beams. These companies have combined annual sales of approximately 300,000 tons, of which approximately 70% are long products and 30% are flat and tubular products, used mainly in the construction sector. Ferrasa Panamá is a long steel products processor and distributor based in Panama, with annual sales of approximately 8,000 tons.

The former controlling shareholders have an option to sell to Ternium, at any time, all or part of their remaining 46% interest in each of Ferrasa and Ferrasa Panamá, and Ternium has an option to purchase all or part of that remaining interest from the former controlling shareholders, at any time after the second anniversary of the closing.

Ferrasa and Ferrasa Panamá contributed revenues of USD 128.0 million and a net loss of USD 1.5 million (net of USD 1.3 million corresponding to non-controlling interests) in the period from August 25, 2010 to December 31, 2010. The fair value and book value of assets and liabilities arising from the transaction are as follows:

		September 30,
	Fair value

Property, plant and equipment		140,118
Previously recognized goodwill		—
Customer relationships		15,403
Trademarks		4,407
Other contractual rights		4,064
Other intangible assets		42
Inventories		76,771
Cash and cash equivalents		6,593
Deferred tax assets		7,832
Borrowings		(134,120	)
Other assets and liabilities, net		15,141
Non-controlling interest in subsidiaries		(236	)

Net		136,015
Non-controlling interest		(62,572	)
Goodwill		1,557

Total Purchase Consideration		75,000

The Company accounts for the acquired businesses using the purchase method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values.

The application of the purchase method requires certain estimates and assumptions especially concerning the determination of the fair values of the acquired intangible assets and property, plant and equipment as well as the liabilities assumed at the date of the acquisition. Moreover the useful lives of the acquired intangible assets, property, plant and equipment have to be determined. The judgments made in the context of the purchase price allocation can materially impact the Company’s future results of operations. The valuations are based on information available at the acquisition date.

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

3 Acquisition of business (continued)

Significant judgments and assumptions made regarding the purchase price allocation in the course of the acquisition of Ferrasa and Ferrasa Panamá, included the following:

For valuation of customer relationship the excess earnings method was used, which is based on calculating the present value of the future cash flows of the future economic benefits during the remaining useful life attributable to the customer base. Customer relationships are being amortized over an estimated useful life of 10 years.

For the valuation of brands, the relief-from-royalty method was applied, both with the value that a third party would have paid for these trademarks. The expected amortization of these assets is determined on the basis of the expected benefit the asset provides the entity (e.g. expected decline in value). For valuation of the other contractual rights, the postulated loss of income method was used. Both intangible assets are being amortized over an estimated useful life of 10 years.

The valuation of acquired intangible assets is to a great extent based on anticipated cash flows. Nevertheless it is possible that actual outcomes could vary significantly from such estimated future cash flows.

For property, plant and equipment, fair values were derived from expert appraisals.

The valuation of inventories at the date of acquisition was based on the corresponding selling price less estimated costs of completion or estimated costs to make the sale.

The excess of the purchase price for Ferrasa and Ferrasa Panamá over the estimated fair values of the net assets acquired is recorded as goodwill amounting to USD 1.6 million as of August 25, 2010. Goodwill derives mainly from the fair value of the going concern element of the acquiree.

The Company has chosen to recognize the non-controlling interest at its proportionate share in net identifiable assets acquired.

Acquisition related costs are included in the income statement.

Pro forma data for the acquisitions

Had the Ferrasa transaction been consummated on January 1, 2010, unaudited pro forma net sales and net loss totaling USD 336 million and USD 4 million, respectively, would have been included in Ternium’s financial statements for the year ended December 31, 2010. These pro forma results were prepared based on unaudited accounting records maintained prior to such transaction and adjusted by depreciation and amortization of tangible and intangible assets and interest expense of the borrowing incurred for the transaction as described above.

4 Accounting policies

These Consolidated Financial Statements have been prepared following the same accounting policies used in the preparation of the audited Consolidated Financial Statements for the year ended December 31, 2010.

The following is a summary of the principal accounting policies followed in the preparation of these consolidated financial statements:

(a) Group accounting

(1) Subsidiary companies and transactions with non-controlling interests

Subsidiaries are all entities over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases.

The Company uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Company. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at the fair values at the acquisition date. Indemnification assets are recognized at the same time that the Company recognizes the indemnified item and measures them on the same basis as the indemnified item, subject to the need for a valuation allowance for uncollectible amounts. The Company measures the value of a reacquired right recognized as an intangible asset on the basis of the remaining contractual term of the related contract regardless of whether market participants would consider potential contractual renewals in determining its fair value.

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

4 Accounting policies (continued)

On an acquisition-by-acquisition basis, the Company recognizes any non-controlling interest in the acquiree at the non-controlling interest’s proportionate share of the acquiree’s net assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Company’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the income statement.

The measurement period is the earlier of the date that the acquirer receives the information that it is looking for or cannot obtain the information and one year after the acquisition date. Where the accounting for a business combination is not complete by the end of the reporting period in which the business combination occurred provisional amounts are reported.

The Company treats transactions with non-controlling interests as transactions with equity owners of the Company. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

When the Company ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.

Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. However, the fact that the functional currency of some subsidiaries is their respective local currency, generates some financial gains (losses) arising from intercompany transactions, that are included in the consolidated income statement under Other financial expenses, net.

(2) Joint ventures

The Company reports its interests in jointly controlled entities using proportionate consolidation. The Company’s share of the assets, liabilities, income, expenses and cash flows of jointly controlled entities are combined on a line-by-line basis with similar items in the Company’s financial statements.

Where the Company transacts with its jointly controlled entities, unrealized profits and losses are eliminated to the extent of the Company’s interest in the joint venture.

(3) Associated companies

Associated companies are entities in which Ternium generally has between 20% and 50% of the voting rights, or over which Ternium has significant influence, but which it does not control. Investments in associated companies are accounted for using the equity method of accounting. Under this method the Company’s share of the post-acquisition profits or losses of an associated company is recognized in the income statement and its share of post-acquisition changes in reserves is recognized in reserves. The cumulative post-acquisition changes are adjusted against the cost of the investment. Unrealized gains on transactions among the Company and its associated companies are eliminated to the extent of the Company’s interest in such associated company; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. When the Company’s share of losses in an associated company equals or exceeds its interest in such associate, the Company does not recognize further losses unless it has incurred obligations or made payments on behalf of such associated company.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income are reclassified to profit or loss where appropriate.

(b) Foreign currency translation

(1) Functional and presentation currency

Items included in the financial statements of each of the Company’s subsidiaries and associated companies are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The functional and presentation currency of the Company is the U.S. dollar. Although Ternium is located in Luxembourg, it operates in several countries with different currencies. The USD is the currency that best reflects the economic substance of the underlying events and circumstances relevant to Ternium as a whole.

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

4 Accounting policies (continued)

(2) Subsidiary companies

The results and financial position of all the group entities (none of which operates in a hyperinflationary economy) that have a functional currency different from the presentation currency, are translated into the presentation currency as follows:

(i) assets and liabilities are translated at the closing rate of each statement of financial position;

(ii) income and expenses for each income statement are translated at average exchange rates; and

(iii) all resulting translation differences are recognized within other comprehensive income.

In the case of a sale or other disposition of any such subsidiary, any accumulated translation differences would be recognized in the income statement as part of the gain or loss on sale.

(3) Transactions in currencies other than the functional currency

Transactions in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the date of the transactions or valuation where items are re-measured.

At the end of each reporting period: (i) monetary items denominated in currencies other than the functional currency are translated using the closing rates, (ii) non-monetary items that are measured in terms of historical cost in a currency other than the functional currency are translated using the exchange rates prevailing at the date of the transactions; and (iii) non-monetary items that are measured at fair value in a currency other than the functional currency are translated using the exchange rates prevailing at the date when the fair value was determined.

Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies other than the functional currency are recorded as gains and losses from foreign exchange and included in “Other financial income (expenses), net” in the consolidated income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss as part of the “fair value gain or loss,” while translation differences on non-monetary financial assets such as equities classified as available for sale are included in the “available for sale reserve” in equity. Ternium had no such assets or liabilities for any of the periods presented.

(c) Financial instruments

Non derivative financial instruments

Non derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Ternium non derivative financial instruments are classified into the following categories:

•

Financial instruments at fair value through profit or loss: comprises mainly cash and cash equivalents and investments in debt securities held for trading;

•

Held-to-maturity instruments: measured at amortized cost using the effective interest method less impairment losses. As of December 31, 2011 and 2010, there are no instruments classified under this category;

•

Loans and receivables: measured at amortized cost using the effective interest method less impairment losses;

•

Available-for-sale (“AFS”) financial assets: gains and losses arising from changes in fair value are recognized within other comprehensive income (“OCI”) with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets, which are recognized directly in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognized in OCI is included in the income statement for the period. As of December 31, 2011 and 2010, there are no instruments classified under this category;

•

Other financial liabilities: measured at amortized cost using the effective interest method.

The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Financial assets and liabilities are recognized and derecognized on the settlement date.

Financial assets are initially measured at fair value, net of transaction costs, except for those financial assets classified as financial assets at fair value through profit or loss.

Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis.

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

4 Accounting policies (continued)

Impairment of financial assets

The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The Company first assesses whether objective evidence of impairment exists.

For loans and receivables category and for held-to-maturity investments, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the consolidated income statement.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the reversal of the previously recognized impairment loss is recognized in the consolidated income statement.

Derivative financial instruments

Information about accounting for derivative financial instruments and hedging activities is included in Note 33 “Financial Risk management”.

(d) Property, plant and equipment

Land and buildings comprise mainly factories and offices. All property, plant and equipment are recognized at historical acquisition or construction cost less accumulated depreciation and accumulated impairment (if applicable), except for land, which is carried at acquisition cost less accumulated impairment (if applicable). There are no material residual values for property, plant and equipment items.

Major overhaul and rebuilding expenditures are recognized as a separate asset when future economic benefits are expected from the item, and the cost can be measured reliably.

Ordinary maintenance expenses on manufacturing properties are recorded as cost of products sold in the period in which they are incurred.

Where a tangible fixed asset comprises major components having different useful lives, these components are accounted for as separate items.

Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

Depreciation method is reviewed at each year end. Depreciation is calculated using the straight-line method to amortize the cost of each asset to its residual value over its estimated useful life as follows:

			September 30,
Land			No Depreciation
Buildings and improvements			10-45 years
Production equipment			5-20 years
Vehicles, furniture and fixtures and other equipment			5-10 years

Property, plant and equipment used in mining activities are depreciated over its useful life or over the remaining life of the mine if shorter and there is no alternative use possible.

The assets’ useful lives are reviewed, and adjusted if appropriate, at each year end.

Gains and losses on disposals are determined by comparing the proceeds with the corresponding carrying amounts and are included in the income statement.

If the carrying amount of an asset were greater than its estimated recoverable amount, it would be written down to its recoverable amount. (see Note 4 (f) “Impairment”).

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

4 Accounting policies (continued)

(e) Intangible assets

(1) Information system projects

Generally, costs associated with developing or maintaining computer software programs are recognized as an expense as incurred. However, costs directly related to the acquisition and implementation of information systems are recognized as intangible assets if they have a probable economic benefit exceeding the cost beyond one year and comply with the recognition criteria of IAS 38.

Information system projects recognized as assets are amortized using the straight-line method over their useful lives, not exceeding a period of 3 years. Amortization charges are included in cost of sales, selling, general and administrative expenses.

(2) Mining concessions

Mining license was recognized as a separate intangible asset upon the acquisition of the investment in Mexico and comprises the right to exploit the mines and is recognized at its fair value at acquisition date less accumulated amortization.

These mining concessions were granted for a 50-year period; following the expiration of the initial concession term, the concessions are renewable for an additional 50- year term in accordance with, and subject to the procedures set forth in, applicable Mexican mining law.

Amortization charge is calculated by using the unit-of-production method, on the basis of actual mineral extracted in each period compared to the estimated mineral reserves, and is included in cost of sales. Any change in the estimation of reserves is accounted for prospectively. The resulting amortization rate for the years ended December 31, 2011 and 2010, is approximately 9% per year.

(3) Exploration costs

Exploration and evaluation costs are measured at cost. Costs directly associated with exploration activities and leasehold acquisition costs are capitalized until the determination of reserves is evaluated. If it is determined that commercial discovery has not been achieved, these costs are charged to expense. If it is determined that commercial discovery has been achieved, costs incurred are reclassified into Property, Plant and Equipment or Intangible Assets according to the nature of the expenditure and amortization starts. Exploration costs are tested for impairment annually. No impairment losses have been recorded for any of the years presented.

(4) Goodwill

Goodwill represents the excess of the acquisition cost over the fair value of Ternium’s participation in acquired companies’ net assets at the acquisition date. Under IFRS 3 (revised), goodwill is considered to have an indefinite life and not amortized, but is subject to annual impairment testing.

Goodwill is allocated to Cash-generating units (“CGU”) for the purpose of impairment testing. The allocation is made to those cash-generating units expected to benefit from the business combination which generated the goodwill being tested.

As of December 31, 2011, the carrying amount of goodwill allocated to the Mexico CGU was USD 662.3 million, while the carrying amount of goodwill allocated to other CGUs totaled USD 1.5 million.

(5) Research and development

Research expenditures are recognized as expenses as incurred. Development costs are recorded as cost of sales in the income statement as incurred because they do not fulfill the criteria for capitalization. Research and development expenditures for the years ended December 31, 2011, 2010 and 2009 totaled USD 8.8 million, USD 5.7 million and USD 6.0 million, respectively.

(6) Customer relationships acquired in a business combination

In accordance with IFRS 3 (revised) and IAS 38, Ternium has recognized the value of customer relationships separately from goodwill in connection with the acquisitions of Grupo Imsa and Ferrasa S.A.S.

Customer relationships are amortized using the straight-line method over a useful life of approximately 10 years.

(7) Trademarks acquired in a business combination

In accordance with IFRS 3 and IAS 38, Ternium has recognized the value of trademarks separately from goodwill in connection with the acquisitions of Grupo Imsa and Ferrasa S.A.S.

Trademarks are amortized using the straight-line method over a useful life of between 5 to 10 years.

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

4 Accounting policies (continued)

(f) Impairment

Assets that have an indefinite useful life (including goodwill) are not subject to amortization and are tested annually for impairment or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortization and investments in affiliates are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and the value in use.

To carry out these tests, assets are grouped at the lowest levels for which there are separately identifiable cash flows (each, a CGU). When evaluating long-lived assets for potential impairment, the Company estimates the recoverable amount based on the value in use of the corresponding CGU. The value in use of each CGU is determined on the basis of the present value of net future cash flows which will be generated by the assets tested.

Determining the present value of future cash flows involves highly sensitive estimates and assumptions specific to the nature of each CGU’s activities, including estimates and assumptions relating to amount and timing of projected future cash flows, expected changes in market prices, expected changes in the demand of Ternium products and services, selected discount rate and selected tax rate.

Ternium uses cash flow projections for the next five years based on past performance and expectations of market development; thereafter, it uses a perpetuity rate with no growth increase. Application of the discounted cash flow (DCF) method to determine the value in use of a CGU begins with a forecast of all expected future net cash flows. Variables considered in forecasts include the gross domestic product (GDP) growth rates of the country under study and their correlation with steel demand, level of steel prices and estimated raw material costs as observed in industry reports.

Cash flows are discounted at post-tax rates that reflect specific country and currency risks associated with the cash flow projections. The discount rates used are based on Ternium’s weighted average cost of capital (WACC), which is considered to be a good indicator of cost of capital. As of December 31, 2011, the discount rate used to test goodwill allocated to Mexico CGU for impairment was 11.4%.

As a result of the above factors, actual cash flows and values could vary significantly from the forecasted future cash flows and related values derived using discounting techniques. Based on the information currently available, however, Ternium believes that it is not reasonably possible that the variation would cause the carrying amount to exceed the recoverable amount of the CGUs.

At December 31, 2009, an impairment provision over the agreement with Corus recognized as intangible assets, was recorded for the amount of USD 27.0 million. See note 25 (ii). At December 31, 2011 and 2010, no impairment provisions were recorded.

(g) Other investments

Other investments consist primarily of investments in financial debt instruments and equity investments where the Company holds less than 20% of the outstanding equity and does not exert significant influence.

All purchases and sales of investments are recognized on the settlement date, which is not significantly different from the trade date, which is the date that Ternium commits to purchase or sell the investment.

Income from financial instruments is recognized in Other financial income (expenses), net in the income statement. The fair value of quoted investments are based on current bid prices. If the market for a financial investment is not active or the securities are not listed, the Company estimates the fair value by using standard valuation techniques. Dividends from investments in equity instruments are recognized in the income statement when the Company’s right to receive payments is established.

(h) Inventories

Inventories are stated at the lower of cost (calculated using the first-in-first-out “FIFO” method) or net realizable value. The cost of finished goods and goods in process comprises raw materials, direct labor, depreciation, other direct costs and related production overhead costs. It excludes borrowing costs. Goods acquired in transit at year end are valued at supplier’s invoice cost.

The cost of iron ore produced in our mines comprises all direct costs necessary to extract and convert stockpiled inventories into raw materials, including stripping costs, depreciation of fixed assets related to the mining activity and amortization of mine exploration costs for those under-production mines.

The Company assesses the recoverability of its inventories considering their selling prices, if the inventories are damaged, or if they have become wholly or partially obsolete (see note 4 (x) (4)).

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

4 Accounting policies (continued)

(i) Trade receivables and other receivables

Trade and other receivables are carried at face value less an allowance for doubtful accounts, if applicable. This amount does not differ significantly from fair value.

A provision for impairment is established when there is objective evidence that a financial asset or group of assets is impaired. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Company about a loss event, such as a significant financial difficulty of the obligor or a breach of contract. The amount of the impairment is determined as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The amount of the loss is recognized in the income statement.

(j) Cash and cash equivalents

Cash and cash equivalents and highly liquid short-term securities are carried at fair market value or at a historical cost which approximates fair market value.

For purposes of the cash flow statement, cash and cash equivalents comprise cash, bank current accounts and short-term highly liquid investments (original maturity of three months or less at date of acquisition) and overdrafts.

In the consolidated statement of financial position, bank overdrafts are included in borrowings within current liabilities.

(k) Non current assets (disposal groups) classified as held for sale

Non-current assets (disposal groups) are classified as assets held for sale, complying with the recognition criteria of IFRS 5, and stated at the lower of carrying amount and fair value less cost to sell if their carrying amount is recovered principally through a sale transaction rather than through continuing use.

The carrying value of non-current assets classified as held for sale, at December 31, 2011 and 2010 totals USD 10.4 million and USD 10.0 million, respectively, which corresponds principally to land and other real estate items. Sale is expected to be completed within a one-year period.

(l) Borrowings

Borrowings are recognized initially for an amount equal to the proceeds received. In subsequent periods, borrowings are stated at amortized cost; any difference between proceeds and the redemption value is recognized in the income statement over the period of the borrowings.

Capitalized costs for issue of debt are amortized over the life of their respective debt.

(m) Income taxes — current and deferred

The current income tax charge is calculated on the basis of the tax laws in force in the countries in which Ternium and its subsidiaries operate. Management evaluates positions taken in tax returns with respect to situations in which applicable tax regulation could be subject to interpretation. A liability is recorded for tax benefits that were taken in the applicable tax return but have not been recognized for financial reporting.

Deferred income taxes are calculated using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. The principal temporary differences arise on fixed assets, intangible assets, inventories valuation and provisions for pensions. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantially enacted at year end. Under IFRS, deferred income tax assets (liabilities) are classified as non-current assets (liabilities).

Deferred tax assets are recognized to the extent it is probable that future taxable income will be available to offset temporary differences.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associated companies, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.

Under Mexican law, Ternium’s subsidiaries are required to pay their employees an annual benefit which is determined as a percentage of taxable profit for the year.

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

4 Accounting policies (continued)

(n) Employee liabilities

(1) Pension obligations

The Company has defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at year end, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually (at year end) by independent actuaries using the projected unit credit method.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to income over the employees’ expected average remaining working lives.

Past-service costs are recognized immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortized on a straight-line basis over the vesting period.

Mexico

Ternium Mexico has defined benefit and defined contribution plans.

The valuation of the liabilities for the defined benefit employee retirement plans (pensions and seniority premiums) covers all employees and is based primarily on their years of service, their present age and their remuneration at the date of retirement. The cost of the employee retirement plans (pension, health-care expenses and seniority premiums) is recognized as an expense in the year in which services are rendered in accordance with actuarial studies made by independent actuaries. The formal retirement plans are congruent with and complementary to the retirement benefits established by the Mexican Institute of Social Security. Additionally, the Company has established a plan to cover health-care expenses of retired employees. The Company has established irrevocable trust funds for the payment of pensions and seniority premiums, as well as for health-care expenses.

The defined contribution plans provides a benefit equivalent to the capital accumulated with the company’s contributions, which are provided as a match of employees’ contributions to the plan. The plan provides vested rights according to the years of service and the cause of retirement.

Argentina

Siderar implemented an unfunded defined benefit employee retirement plan for certain senior officers. The plan is designed to provide certain benefits to those officers (additional to those contemplated under applicable Argentine labor laws) in case of terminations of the employment relationship due to certain specified events, including retirement. Benefits provided by the plan are denominated in U.S. Dollars and are calculated based on a seven-year salary average.

(2) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes termination benefits when it is demonstrably committed to either: (i) terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or (ii) providing termination benefits as a result of an offer made to encourage voluntary redundancy.

(3) Other compensation obligations

Employee entitlements to annual leave and long-service leave are accrued as earned.

During 2007, Ternium launched an incentive retention program (the “Program”) applicable to certain senior officers and employees of the Company, who will be granted a number of Units throughout the duration of the Program. The value of each of these Units is based on Ternium’s shareholders’ equity (excluding non-controlling interest). Also, the beneficiaries of the Program are entitled to receive cash amounts based on (i) the amount of dividend payments made by Ternium to its shareholders, and (ii) the number of Units held by each beneficiary to the Program. Units vest ratably over a period of four years and will be redeemed by the Company ten years after grant date, with the option of an early redemption at seven years after grant date. As the cash payment of the benefit is tied to the book value of the shares, and not to their market value, Ternium valued this long-term incentive program as a long term benefit plan as classified in IAS 19.

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

4 Accounting policies (continued)

As of December 31, 2011 and 2010, the outstanding liability corresponding to the Program amounts to USD 12.5 million and USD 10.8 million, respectively. The total value of the units granted to date under the program, considering the number of units and the book value per share as of December 31, 2011 and 2010, is USD 15.1 million and USD 12.6 million, respectively.

(4) Social security contributions

Social security laws in force in the countries in which the Company operates provide for pension benefits to be paid to retired employees from government pension plans and/or private fund managed plans to which employees may elect to contribute. As stipulated by the respective laws, Siderar and Ternium Mexico make monthly contributions calculated based on each employee’s salary to fund such plans. The related amounts are expensed as incurred. No additional liabilities exist once the contributions are paid.

(o) Provisions and other liabilities

Ternium has certain contingencies with respect to existing or potential claims, lawsuits and other proceedings. Unless otherwise specified, Ternium accrues a provision for a present legal or constructive obligation as a result of a past event, when it is probable that future cost could be incurred and that cost can be reasonably estimated. Generally, accruals are based on developments to date, Ternium’s estimates of the outcomes of these matters and the advice of Ternium’s legal advisors.

(p) Trade payables

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

(q) Revenue recognition

Revenues are recognized as sales when revenue is earned and is realized or realizable. This includes satisfying all of the following criteria: the arrangement with the customer is evident, usually through the receipt of a purchase order; the sales price is fixed or determinable; delivery as defined by the risk transfer provision of the sales contracts has occurred, and collectibility is reasonably assured.

Interest income is recognized on an effective yield basis.

(r) Borrowing Costs

Beginning on January 1, 2009, and as required by IAS 23 revised, Ternium capitalizes the borrowing costs incurred to finance construction, acquisition or production of qualifying assets. In the case of specific borrowings, Ternium determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. For general borrowings, Ternium determines the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that Ternium capitalizes during a period will not exceed the amount of borrowing costs incurred during that period. At December 31, 2011, the capitalized borrowing costs are not material.

(s) Cost of sales, selling, general and administrative expenses

Cost of sales and expenses are recognized in the income statement on the accrual basis of accounting.

Commissions, freight and other selling expenses, including shipping and handling costs, are recorded in Selling, general and administrative expenses in the Consolidated Income Statement.

(t) Removal of waste materials to access mineral deposits

Stripping costs (the costs associated with the removal of overburden and other waste materials) that are incurred during the development of a mine (pre-production stripping costs) are expensed when incurred, while post-production stripping costs are included in the cost of the inventory produced (that is extracted) at each mine individually during the period they are incurred.

(u) Earnings per share

Earnings per share are calculated by dividing the net income attributable to shareholders by the daily weighted average number of ordinary shares issued during the year (see Note 26).

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

4 Accounting policies (continued)

(v) Derivative financial instruments and hedging activities

Ternium designates certain derivatives as hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction. These transactions are classified as cash flow hedges (mainly interest rate swaps, collars, currency forward contracts on highly probable forecast transactions and commodities contracts). The effective portion of the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in OCI. Amounts accumulated in OCI are recognized in the income statement in the same period as any offsetting losses and gains on the hedged item. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. The fair value of Ternium derivative financial instruments (asset or liability) continues to be reflected in the statement of financial position.

For transactions designated and qualifying for hedge accounting, Ternium documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. At December 31, 2011, the effective portion of designated cash flow hedges amounts to USD 14.9 million (net of taxes for USD 2.9 million) and is included under “changes in the fair value of derivatives classified as cash flow hedges” line item in the statement of comprehensive income (see Note 32 (a)).

More information about accounting for derivative financial instruments and hedging activities is included in Note 34 “Financial risk management”.

(w) Segment information

Reportable operating segments: for management purposes, the Company is organized on a worldwide basis into the following segments: flat steel products, long steel products and others. The Company is not aggregating any operating segments in order to arrive at its reportable segments.

The flat steel products segment comprises the manufacturing and marketing of hot rolled coils and sheets, cold rolled coils and sheets, tin plate, welded pipes, hot dipped galvanized and electro-galvanized sheets, pre-painted sheets and other tailor-made products to serve its customers’ requirements.

The long steel products segment comprises the manufacturing and marketing of billets (steel in its basic, semi-finished state), wire rod and bars.

The other products segment includes products other than flat and long steel, mainly pig iron, pellets and pre-engineered metal buildings.

(x) Critical Accounting Estimates

The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management makes estimates and assumptions concerning the future. Actual results may differ significantly from these estimates under different assumptions or conditions.

The principal estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

(1) Goodwill impairment test

Assessment of the recoverability of the carrying value of goodwill requires significant judgment. Management evaluates goodwill allocated to the operating units for impairment on an annual basis or whenever there is an impairment indicator.

Goodwill is tested at the level of the CGU. Impairment testing of the CGU is carried out and the value in use determined in accordance with the accounting policy stated in Note 4(f). The discount rates used for these tests are based on Ternium’s weighted average cost of capital adjusted for specific country and currency risks associated with the cash flow projections. The discount rate used at December 31, 2011 was 11.4% and no impairment charge resulted from the impairment test performed.

(2)

Income taxes

Management calculates current and deferred income taxes according to the tax laws applicable to each subsidiary in the countries in which such subsidiaries operate. However, certain adjustments necessary to determine the income tax provision are finalized only after the balance sheet is issued. In cases in which the final tax outcome is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

4 Accounting policies (continued)

Also, when assessing the recoverability of tax assets, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies.

(3) Loss contingencies

Ternium is subject to various claims, lawsuits and other legal proceedings that arise in the ordinary course of business, including customer claims in which a third party is seeking reimbursement or indemnity. The Company’s liability with respect to such claims, lawsuits and other legal proceedings cannot be estimated with certainty. Periodically, management reviews the status of each significant matter and assesses potential financial exposure. If the potential loss from the claim or proceeding is considered probable and the amount can be reasonably estimated, a liability is recorded. Management estimates the amount of such liability based on the information available and the assumptions and methods it has concluded are appropriate, in accordance with the provisions of IFRS. Accruals for such contingencies reflect a reasonable estimate of the losses to be incurred based on information available, including the relevant litigation or settlement strategy, as of the date of preparation of these financial statements. As additional information becomes available, management will reassess its evaluation of the pending claims, lawsuits and other proceedings and revise its estimates. The loss contingencies provision amounts to USD 15.3 million and USD 16.1 million as of December 31, 2011 and 2010, respectively.

(4) Allowance for obsolescence of supplies and spare parts and slow-moving inventory

Management assesses the recoverability of its inventories considering their selling prices or whether they are damaged or have become wholly or partly obsolete.

Net realizable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses.

The Company establishes an allowance for obsolete or slow-moving inventory in connection with finished goods and goods in process. The allowance for slow-moving inventory is recognized for finished goods and goods in process based on management’s analysis of their aging. In connection with supplies and spare parts, the calculation is based on management’s analysis of their aging, the capacity of such materials to be used based on their levels of preservation and maintenance, and their potential obsolescence due to technological change.

As of December 31, 2011 and 2010, the Company recorded no allowance for net realizable value and USD 60.5 million and USD 68.2 million, respectively, as allowance for obsolescence.

During 2011 and 2010, no charges were recorded in connection with net realizable value allowance. Charges to mark the inventory to net realizable value in 2009 were USD 127.6 million. Of this amount, USD 82.8 million in 2009 corresponded to inventories for shipments to the North America region, while USD 44.8 million in 2009 corresponded to inventories for exports within the South and Central America region.

The additions to the allowance for net realizable value recorded during 2009 responded to the steep fall of steel prices as a result of the global financial crisis that began in 2008. Beginning in the second half of 2008 up to the first half of 2009 average prices of flat steel products decreased 41%. Accordingly, inventory values were compared to their estimated net selling prices and written down when the selling prices were lower than historical costs. This was the case of inventories produced from third-party slabs in Mexico and certain raw materials in Argentina that had been acquired at market prices in force prior to the beginning of the global financial crisis.

(5) Valuation of the Sidor financial asset

The Sidor financial asset recorded as a result of the nationalization of Sidor was treated as a receivable and valued at its amortized cost using the applicable effective interest rate. The discount rate used to measure this receivable at amortized cost was estimated on the basis of management’s best estimate of market rates adjusted to reflect specific risks.

The initial measurement of the receivable and its subsequent measurements until November 8, 2010, were performed on the basis of its discounted amount using an annual discount rate of 14.36%. This discount rate was estimated on the basis of the yield (13.3%) of Venezuelan sovereign debt with maturities similar to that of the receivable held by Ternium against CVG; however, as the Venezuelan sovereign debt with similar maturities was governed by New York law, while the receivable with CVG was governed by Venezuelan law, the discount rate was further adjusted to adequately reflect the specific risk of Ternium’s receivable. After the rescheduling of the last unpaid installment agreed on December 18, 2010, the annual discount rate used to measure the receivable was estimated at 6.28%, on the basis of the specific risks associated to the third-party promissory notes received as guarantee for full payment of CVG obligations.

For further information on the Sidor nationalization and the rescheduling of the related receivable, refer to Note 27.

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

4 Accounting policies (continued)

(6)

Useful Lives and Impairment of Property, Plant and Equipment and Other Long-lived Assets

In determining useful lives, management considered, among others, the following factors: age, operating condition and level of usage and maintenance. Management conducted visual inspections for the purpose of (i) determining whether the current conditions of such assets are consistent with normal conditions of assets of similar age; (ii) confirming that the operating conditions and levels of usage of such assets are adequate and consistent with their design; (iii) establishing obsolescence levels and (iv) estimating life expectancy, all of which were used in determining useful lives. Management believes, however, that it is possible that the periods of economic utilization of property, plant and equipment may be different than the useful lives so determined. Furthermore, management believes that this accounting policy involves a critical accounting estimate because it is subject to change from period to period as a result of variations in economic conditions and business performance.

When assessing whether an impairment indicator may exist, the Company evaluates both internal and external sources of information, such as the following:

•	whether significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated;

•	whether market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset’s value in use and decrease the asset’s recoverable amount materially;

•	whether the carrying amount of the net assets of the entity is more than its market capitalization;

•	whether evidence is available of obsolescence or physical damage of an asset.

•

whether significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite; and

•	whether evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected.

None of the Company’s CGUs were tested for impairment, other than for goodwill test (see note 4 (x) (1)), in 2011 and 2010, as no impairment indicators were identified. Furthermore, based on information currently available, management believes that the recognition of a future impairment charge is not reasonably possible.

(7)

Allowances for doubtful accounts

Management makes estimates of the uncollectibility of our accounts receivable. Management analyses the trade accounts receivable on a regular basis and, when aware of a third party´s inability to meet its financial commitments to the Company, managements impairs the amount due by means of a charge to the allowance for doubtful accounts. Management specifically analyses accounts receivable and historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.

Allowances for doubtful accounts are adjusted periodically in accordance with the aging of overdue accounts. For this purpose, trade accounts receivable overdue by more than 90 days, and which are not covered by a credit collateral, guarantee or similar surety, are fully provisioned. As of December 31, 2011 and 2010, allowance for doubtful accounts totals USD 16.1 million and USD 17.2 million, respectively.

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

5 Segment information

Reportable operating segments

		September 30,			September 30,			September 30,			September 30,		September 30,
	Year ended December 31, 2011
	Flat steel products			Long steel products			Other			Unallocated		Total

Net sales		7,792,045			1,217,877			147,276			—		9,157,198
Cost of sales		(6,138,685	)		(864,522	)		(91,045	)		—		(7,094,252	)

Gross profit		1,653,360			353,355			56,231			—		2,062,946

Selling, general and administrative expenses		(673,363	)		(96,832	)		(15,966	)		—		(786,161	)
Other operating income (expenses), net		(14,912	)		3,247			99			—		(11,566	)


Operating income		965,085			259,770			40,364			—		1,265,219


Capital expenditures—PP&E		470,641			70,181			12,528			—		553,350
Depreciation—PP&E		300,795			31,468			6,284			—		338,547

Segment assets
Inventories, net		1,870,523			239,060			27,441			—		2,137,024
Trade receivables, net		588,371			143,255			10,902			—		742,528
Property, plant and equipment, net		3,591,733			389,820			51,122			—		4,032,675
Intangible assets, net		868,978			72,629			44,465			—		986,072
Assets—discontinued operations											136,294		136,294
Other assets											2,711,981		2,711,981

		September 30,			September 30,			September 30,			September 30,		September 30,
	Year ended December 31, 2010
	Flat steel products			Long steel products			Other			Unallocated		Total

Net sales		6,376,380			833,137			172,487			—		7,382,004
Cost of sales		(4,932,551	)		(633,958	)		(98,745	)		—		(5,665,254	)

Gross profit		1,443,829			199,179			73,742			—		1,716,750

Selling, general and administrative expenses		(585,746	)		(62,419	)		(17,141	)		—		(665,306	)
Other operating income (expenses), net		2,887			(506	)		112			—		2,493


Operating income		860,970			136,254			56,713			—		1,053,937


Capital expenditures—PP&E		272,623			38,123			6,172			—		316,918
Depreciation—PP&E		285,755			20,851			6,214			—		312,820

Segment assets
Inventories, net		1,804,896			117,721			30,773			—		1,953,390
Trade receivables, net		514,521			121,872			27,109			—		663,502
Property, plant and equipment, net		3,831,181			378,212			53,503			—		4,262,896
Intangible assets, net		1,004,680			75,504			49,164			—		1,129,348
Assets—discontinued operations											257,988		257,988
Other assets											2,845,207		2,845,207

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

5 Segment information (continued)

		September 30,			September 30,			September 30,			September 30,		September 30,
	Year ended December 31, 2009
	Flat steel products			Long steel products			Other			Unallocated		Total

Net sales		4,249,979			572,900			136,104			—		4,958,983
Cost of sales		(3,634,854	)		(392,983	)		(82,533	)		—		(4,110,370	)

Gross profit		615,125			179,917			53,571			—		848,613

Selling, general and administrative expenses		(477,067	)		(40,739	)		(13,724	)		—		(531,530	)
Other operating income (expenses), net		(21,303	)		414			189			—		(20,700	)


Operating income		116,755			139,592			40,036			—		296,383


Capital expenditures—PP&E		178,425			10,270			1,983			—		190,678
Depreciation—PP&E		287,177			19,017			6,786			—		312,980

Segment assets
Inventories, net		1,219,347			102,423			28,798			—		1,350,568
Trade receivables, net		349,230			60,825			27,780			—		437,835
Property, plant and equipment, net		3,724,825			263,461			52,129			—		4,040,415
Intangible assets, net		977,552			60,795			47,065			—		1,085,412
Assets—discontinued operations											964,359		964,359
Other assets											2,414,084		2,414,084

Geographical information

There are no revenues from external customers attributable to the Company’s country of incorporation (Luxembourg). Ternium sells its products to three main geographical areas: South and Central America, North America, and Europe and others. The North American area comprises principally United States and Mexico. The South and Central American area comprises principally Argentina, Colombia, Paraguay, Guatemala, Costa Rica, Uruguay, Dominican Republic and Honduras.

		September 30,		September 30,		September 30,		September 30,
	Year ended December 31, 2011
	South and Central America		North America		Europe and other		Total

Net sales		4,015,858		5,085,227		56,113		9,157,198
Segment assets
Trade receivables, net		237,910		496,506		8,112		742,528
Property, plant and equipment , net		1,392,065		2,639,229		1,381		4,032,675
Intangible assets, net		50,438		935,634		—		986,072

Capital expenditures—PP&E		201,849		350,524		977		553,350
Depreciation—PP&E		141,352		197,067		128		338,547

		September 30,		September 30,		September 30,		September 30,
	Year ended December 31, 2010
	South and Central America		North America		Europe and other		Total

Net sales		3,057,676		4,208,617		115,711		7,382,004
Segment assets
Trade receivables, net		192,723		456,433		14,346		633,502
Property, plant and equipment , net		1,437,417		2,825,370		109		4,262,896
Intangible assets, net		54,443		1,074,905		—		1,129,348

Capital expenditures—PP&E		182,845		134,027		46		316,918
Depreciation—PP&E		118,774		194,029		17		312,820

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

5 Segment information (continued)

		September 30,		September 30,		September 30,		September 30,
	Year ended December 31, 2009
	South and Central America		North America		Europe and other		Total

Net sales		1,782,446		2,976,938		199,599		4,958,983
Segment assets
Trade receivables, net		116,231		318,466		3,138		437,835
Property, plant and equipment , net		1,297,289		2,743,045		81		4,040,415
Intangible assets, net		36,188		1,049,224		—		1,085,412

Capital expenditures—PP&E		117,583		73,044		51		190,678
Depreciation—PP&E		111,895		201,071		14		312,980

Revenues by product

		September 30,		September 30,		September 30,
	Year ended December 31,
	2011		2010		2009

Semi-finished (1)		—		29		11,389
Hot rolled		2,749,607		2,264,308		1,214,349
Cold rolled		1,458,875		1,213,813		837,798
Coated (2)		2,926,291		2,410,809		1,846,967
Roll-formed and tubular (3)		657,272		487,421		339,476

Flat steel products		7,792,045		6,376,380		4,249,979


Semi-finished (4)		91,955		147,282		30,835
Hot rolled (5)		1,125,922		685,855		542,065

Long steel products		1,217,877		833,137		572,900


TOTAL STEEL PRODUCTS		9,009,922		7,209,517		4,822,879



Other products		147,276		172,487		136,104



TOTAL SALES		9,157,198		7,382,004		4,958,983

(1)	Semi-finished includes slabs.

(2)	Coated includes hot-dipped galvanized, electrogalvanized, pre-painted, tin plate and tin-free steel.

(3)	Roll-formed and tubular includes steel pipes, tubular products, beams, insulated panels, roofing and cladding, roof tiles and steel decks.

(4)	Semi-finished includes billets and round bars.

(5)	Hot rolled includes wire rod, bars and stirrups.

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

6 Cost of sales

		September 30,			September 30,			September 30,
	Year ended December 31,
	2011			2010			2009

Inventories at the beginning of the year		1,953,390			1,350,568			1,826,547
Acquisition of business (Note 3)		—			76,771			—
Translation differences		(229,685	)		28,621			(46,857	)
Plus: Charges for the year
Raw materials and consumables used and other movements		5,933,893			4,763,000			2,473,327
Services and fees		246,364			197,873			126,325
Labor cost		577,101			496,961			378,558
Depreciation of property, plant and equipment		323,210			295,504			308,156
Amortization of intangible assets		16,557			19,453			14,462
Maintenance expenses		348,721			342,529			221,175
Office expenses		6,678			6,662			4,997
Freight and transportation		56,035			36,892			32,846
Insurance		7,032			7,530			9,256
Charge (Recovery) of obsolescence allowance		6,121			11,710			(7,556	)
Valuation allowance		—			—			127,553
Recovery from sales of scrap and by-products		(40,532	)		(40,654	)		(27,326	)
Others		26,391			25,224			19,475

Less: Inventories at the end of the year		(2,137,024	)		(1,953,390	)		(1,350,568	)

Cost of Sales		7,094,252			5,665,254			4,110,370

7 Selling, general and administrative expenses

		September 30,		September 30,			September 30,
	Year ended December 31,
	2011		2010			2009

Services and fees (1)		71,091		60,874			46,923
Labor cost		180,650		153,807			150,914
Depreciation of property plant and equipment		15,337		17,316			4,824
Amortization of intangible assets		50,738		51,027			57,663
Maintenance expenses		17,730		11,113			6,858
Taxes		120,264		89,412			65,889
Office expenses		32,973		29,567			26,134
Freight and transportation		269,630		232,184			156,520
Increase (Decrease) of allowance for doubtful accounts		322		(393	)		(1,635	)
Others		27,426		20,399			17,440

Selling, general and administrative expenses		786,161		665,306			531,530

(1)

Includes fees accrued for professional services rendered by PwC to Ternium S.A. and its subsidiaries during the year ended December 31, 2011 that amounted to USD 3,776, including USD 3,281 for audit services, USD 447 for audit-related services, USD 24 for tax services and USD 24 for all other services.

8 Labor costs (included in cost of sales, selling, general and administrative expenses)

September 30,

Year ended December 31,

2011

2010

2009

Wages, salaries and social security costs

687,877

594,909

450,828

Termination benefits

38,786

27,872

55,358

Pension benefits (Note 22 (i))

31,088

27,987

23,286

Labor costs

757,751

650,768

529,472

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

9 Other operating (expenses) income, net

		September 30,			September 30,			September 30,
	Year ended December 31,
	2011			2010			2009

Results from the sale of sundry assets		(4,169	)		(4,681	)		(2,121	)
Provision for legal claims and other matters (Note 20 and 25 (ii))		(29,932	)		(5,543	)		(4,614	)
Fees related to the repurchase of shares from Usiminas (Note 30)		10,200			—			—
Impairment charge (Note 25 (ii))		—			—			(27,022	)
Others		12,335			12,717			13,057

Other operating (expenses) income, net		(11,566	)		2,493			(20,700	)

10 Other financial (expenses) income, net

		September 30,			September 30,			September 30,
	Year ended December 31,
	2011			2010			2009

Net foreign exchange (loss) gain		(236,362	)		123,690			83,057
Change in fair value of financial instruments		7,968			1,545			10,607
Debt issue costs		(5,078	)		(4,562	)		(5,149	)
Others		(6,525	)		(5,561	)		(6,876	)

Other financial (expenses) income, net		(239,997	)		115,112			81,639

11 Income tax expense

Income tax

Income tax expense for each of the years presented is as follows:

		September 30,			September 30,			September 30,
	Year ended December 31,
	2011			2010			2009
Current tax		(368,378	)		(410,041	)		(124,647	)
Deferred tax (Note 21)		41,285			(1,035	)		(24,812	)
Deferred tax—effect of changes in tax rates		—			—			(11,216	)
Effect of change in fair value of cash flow hedge		6,701			4,419			9,112
Recovery of income tax (1)		4,417			—			60,249

Income tax expense		(315,974	)		(406,657	)		(91,314	)

(1)	Represents gains recorded in 2011 and 2009 for several income tax claims filed against the tax authorities for which definitive favorable rulings were obtained in such years.

Income tax expense for the years ended December 31, 2011, 2010 and 2009 differed from the amount computed by applying the statutory income tax rate in force in each country in which the company operates to pre-tax income as a result of the following:

		September 30,			September 30,			September 30,
	Year ended December 31,
	2011			2010			2009
Income before income tax		965,882			1,186,127			430,415

Income tax expense at statutory tax rate		(292,300	)		(366,992	)		(92,662	)
Non taxable income		5,929			2,797			1,940
Non deductible expenses		(28,568	)		(38,132	)		(41,085	)
Unrecognized tax losses		(5,452	)		(4,330	)		(8,540	)
Recovery of income tax		4,417			—			60,249
Effect of changes in tax rate		—			—			(11,216	)

Income tax expense		(315,974	)		(406,657	)		(91,314	)

Tax rates used to perform the reconciliation between tax expense (income) and accounting profit are those in effect at each relevant date or period in each applicable jurisdiction.

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

12 Property, plant and equipment, net

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Year ended December 31, 2011
	Land			Buildings and improvements			Production equipment			Vehicles, furniture and fixtures			Work in progress			Spare parts			Total
Cost
Values at the beginning of the year		489,750			1,799,404			4,181,696			152,280			318,330			37,148			6,978,608
Translation differences		(59,328	)		(158,079	)		(409,796	)		(12,920	)		(51,784	)		(2,955	)		(694,862	)
Additions		46,565			2,514			13,760			4,359			482,981			3,171			553,350
Disposals / Consumptions		—			(10,412	)		(10,563	)		(3,942	)		(1,315	)		(133	)		(26,365	)
Transfers		—			86,869			106,692			6,749			(200,310	)		—			—

Values at the end of the year		476,987			1,720,296			3,881,789			146,526			547,902			37,231			6,810,731

Depreciation
Accumulated at the beginning of the year		—			(611,089	)		(1,975,650	)		(127,363	)		—			(1,610	)		(2,715,712	)
Translation differences		—			53,672			195,284			10,570			—			129			259,655
Depreciation charge		—			(96,190	)		(232,395	)		(9,393	)		—			(569	)		(338,547	)
Disposals / Consumptions		—			4,787			9,474			2,250			—			37			16,548

Accumulated at the end of the year		—			(648,820	)		(2,003,287	)		(123,936	)		—			(2,013	)		(2,778,056	)


At December 31, 2011		476,987			1,071,476			1,878,502			22,590			547,902			35,218			4,032,675

		September 30,		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Year ended December 31, 2010
	Land		Buildings and improvements			Production equipment			Vehicles, furniture and fixtures			Work in progress			Spare parts			Total
Cost
Values at the beginning of the year		424,722		1,511,825			4,024,494			149,214			387,721			32,590			6,530,566
Translation differences		20,717		(18,926	)		43,439			(4,097	)		(7,566	)		(1,522	)		32,045
Acquisition of business		26,041		41,217			67,280			4,070			1,510			—			140,118
Additions		18,270		5,575			2,730			1,955			282,139			6,249			316,918
Disposals / Consumptions		—		(3,616	)		(34,111	)		(2,381	)		(762	)		(169	)		(41,039	)
Transfers		—		263,329			77,864			3,519			(344,712	)		—			—

Values at the end of the year		489,750		1,799,404			4,181,696			152,280			318,330			37,148			6,978,608

Depreciation
Accumulated at the beginning of the year		—		(554,581	)		(1,809,902	)		(124,455	)		—			(1,213	)		(2,490,151	)
Translation differences		—		20,341			29,192			4,128			—			54			53,715
Depreciation charge		—		(78,000	)		(225,866	)		(8,464	)		—			(490	)		(312,820	)
Disposals / Consumptions		—		1,151			30,926			1,428			—			39			33,544

Accumulated at the end of the year		—		(611,089	)		(1,975,650	)		(127,363	)		—			(1,610	)		(2,715,712	)


At December 31, 2010		489,750		1,188,315			2,206,046			24,917			318,330			35,538			4,262,896

TERNIUM S.A.

Notes to the Consolidated Financial Statements (Contd.)

13 Intangible assets, net

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Year ended December 31, 2011
	Information system projects			Mining concessions			Exploration costs			Customer relationships and other contractual rights			Trademarks			Goodwill			Total
Cost
Values at the beginning of the year		118,784			109,809			31,688			324,670			81,023			750,127			1,416,101
Translation differences		(14,399	)		(14,981	)		(3,019	)		(34,349	)		(7,358	)		(86,321	)		(160,427	)
Additions		34,345			—			13,648			—			—			—			47,993
Transfers		—			16,493			(16,493	)		—			—			—			—

Values at the end of the year		138,730			111,321			25,824			290,321			73,665			663,806			1,303,667

Depreciation
Accumulated at the beginning of the year		(82,741	)		(47,600	)		—			(108,711	)		(47,701	)		—			(286,753	)
Translation differences		8,437			6,635			—			15,032			6,349			—			36,453
Depreciation charge		(11,455	)		(9,884	)		—			(31,625	)		(14,331	)		—			(67,295	)

Accumulated at the end of the year		(85,759	)		(50,849	)		—			(125,304	)		(55,683	)		—			(317,595	)


At December 31, 2011		52,971			60,472			25,824			165,017			17,982			663,806			986,072

		September 30,			September 30,		September 30,			September 30,		September 30,		September 30,		September 30,
	Year ended December 31, 2010
	Information system projects			Mining concessions		Exploration costs			Customer relationships and other contractual rights		Trademarks		Goodwill		Total
Cost
Values at the beginning of the year		98,736			103,909		20,812			288,414		73,358		708,643		1,293,872
Translation differences		(363	)		5,900		1,412			14,795		3,258		39,927		64,929
Acquisition of business		42			—		—			19,467		4,407		1,557		25,473
Additions		20,369			—		10,843			1,994		—		—		33,206
Disposals / Consumptions		—			—		(1,379	)		—		—		—		(1,379	)

Values at the end of the year		118,784			109,809