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Ternium S.A. Form 6-K Summary

Business Context and Reporting Period

This filing contains the unaudited consolidated condensed interim financial statements for Ternium S.A. for the three-month period ended March 31, 2017, compared to the same period in 2016. Ternium is a global steel producer organized into two reportable segments: Steel (flat and long steel products) and Mining (iron ore and pellets). The company is incorporated in Luxembourg and trades on the NYSE under the symbol "TX".

Key Financial Metrics

All amounts in USD thousands unless otherwise noted.

Margins (Q1 2017): Gross Margin was approximately 26.7%; Operating Margin was approximately 17.8%.

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased by 23.2% to $2.04 billion, driven by higher volumes and improved pricing across the Steel segment.
• Profitability Surge: Profit for the period more than doubled to $310.4 million. This was significantly aided by a $21.4 million gain from equity in earnings of non-consolidated companies (primarily Usiminas), compared to $2.4 million in the prior year.
• Working Capital Impact: Net cash provided by operating activities decreased significantly to $85.8 million from $237.4 million, primarily due to a $317.8 million increase in working capital (inventory build-up and receivables) compared to a minimal change in the prior year.
• Financial Expenses: Net foreign exchange losses increased to $41.7 million from $19.1 million, partially offset by gains on derivative contracts ($19.6 million).

Guidance, Outlook, and Material Events

• Major Acquisition: On February 21, 2017, Ternium signed a definitive agreement to acquire 100% of thyssenkrupp's Brazilian steel slab producer, CSA Siderúrgica do Atlântico Ltda. (CSA), for an enterprise value of EUR 1.5 billion. Closing is expected by September 30, 2017, subject to regulatory approvals. The deal includes a 2.0 million ton/year slab supply agreement for the U.S. market.
• Dividend Proposal: The Board proposed a dividend of $0.10 per share ($1.00 per ADS), totaling approximately $196.3 million, subject to shareholder approval at the May 3, 2017 annual meeting.
• Investment in Usiminas: Ternium's investment in Usiminas (34.39% voting rights) had a carrying value of $447.4 million, with a market value of approximately $653.5 million as of March 31, 2017. Management expects Usiminas' financial restructuring to complete in the coming months.
• Techgen Power Plant: Ternium holds a 48% stake in Techgen, a 900 MW power plant in Mexico. Ternium guaranteed approximately $365 million of Techgen's syndicated loan obligations.
• Contingencies:
  • CSN Litigation: A lawsuit by CSN regarding a tender offer for Usiminas shares was dismissed by the court of appeals in February 2017; CSN may appeal further.
  • Tax Matters: A potential Mexican income tax adjustment of ~$59 million is disputed; no provision recorded. An Argentine tax claim of $15.9 million was settled for $12.8 million in March 2017.

Investor Verification Checklist

• Acquisition Financing: Verify the final terms and debt issuance related to the EUR 1.5 billion CSA acquisition.
• Working Capital Trends: Monitor the sustainability of the $317 million working capital outflow and its impact on future free cash flow.
• Usiminas Restructuring: Track the progress of Usiminas' financial restructuring and its impact on Ternium's equity earnings.
• Regulatory Approvals: Confirm antitrust clearance status for the CSA deal in Brazil, Germany, and the U.S.
• Dividend Approval: Confirm shareholder approval of the proposed $196.3 million dividend at the May 3, 2017 meeting.