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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 six-month period ended June 30, 2015. Ternium is a holding company incorporated in Luxembourg that invests in flat and long steel manufacturing and distributing companies, as well as mining operations. The company operates primarily through two reportable segments: Steel and Mining. The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS).

Key Financial Metrics (Six Months Ended June 30, 2015)

Note: All figures are in USD thousands unless otherwise specified.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by approximately 5.3% to $4.12 billion, driven by lower volumes and pricing in the steel market.
• Profitability Compression: Operating income fell significantly by 44.2% to $307.2 million. Gross profit margin declined from 21.9% in 2014 to 17.1% in 2015.
• Net Income Drop: Profit for the period attributable to owners of the parent decreased by 60.8% to $109.5 million. This was impacted by a loss of $10.6 million from equity in non-consolidated companies (primarily Usiminas), compared to a gain of $2.3 million in the prior year.
• Cash Flow Improvement: Net cash provided by operating activities surged to $758.5 million from $9.7 million in the prior year, largely due to a favorable change in working capital of $386.1 million.
• Debt Reduction: Total borrowings decreased by approximately $158 million to $1.93 billion, reflecting net repayments of $210 million during the period.

Guidance, Outlook, Risks, and Unusual Items

Management Commentary and Outlook: The filing does not contain explicit forward-looking guidance or earnings projections for the full year 2015. Management notes that the preparation of financial statements requires estimates regarding future cash flows, particularly for impairment testing of investments.

Unusual Items and Restatements:

• Usiminas Restatement: The company restated its 2014 financial statements to reduce the carrying amount of its investment in Usiminas (Usinas Siderurgicas de Minas Gerais S.A.). As of June 30, 2015, the investment value was $625.4 million, down from $742.3 million at the start of the year, primarily due to currency translation adjustments and Usiminas' operating losses.
• Acquisition of Ferrasa: On April 7, 2015, Ternium acquired the remaining 46% minority interest in its Colombian subsidiary Ferrasa for $74.0 million.

Risks and Contingencies:

• Usiminas Tender Offer Litigation: The Brazilian securities regulator (CVM) staff determined that Ternium's 2014 acquisition of Usiminas shares may have triggered a tender offer requirement. Ternium has appealed this decision, and the outcome is expected in the third quarter of 2015. If the appeal fails, Ternium may be required to sell excess shares or launch a tender offer.
• Tax Claims: Significant tax contingencies exist, including an Argentine income tax claim against Siderar (approx. $11.0 million exposure) and a potential Mexican income tax adjustment estimated at $34 million plus interest and fines. No provision has been recorded for the Mexican claim as an unfavorable outcome is deemed not probable.
• Commitments: The company has significant contractual commitments, including a $285 million transportation capacity agreement for its Techgen power plant project and various raw material and energy supply contracts.

Investor Verification Checklist

• Usiminas Valuation: Verify the recoverability of the $625 million investment in Usiminas given the subsidiary's reported losses and the ongoing regulatory uncertainty regarding the tender offer.
• Tax Provision Adequacy: Assess the likelihood of the $34 million Mexican tax adjustment and the $11 million Argentine tax claim materializing, as no provisions have been recorded for the former and only a partial provision for the latter.
• Working Capital Volatility: Investigate the drivers of the $386 million positive change in working capital, which significantly boosted operating cash flow, to determine if this trend is sustainable.
• Debt Covenants: Review the financial covenants associated with the $640 million syndicated loan for the Techgen project to ensure compliance given the current leverage ratios.
• Segment Performance: Analyze the divergence between IFRS operating income ($307 million) and the "Management view" operating income ($462 million) to understand the impact of accounting policy differences on internal performance assessment.