TX

Ternium S.A. Q1 2014 Financial Summary

Business Context and Reporting Period

This Form 6-K filing presents the unaudited consolidated condensed interim financial statements for Ternium S.A. for the three-month period ended March 31, 2014. Ternium is a global steel and mining company organized into two reportable segments: Steel (flat and long products) and Mining (iron ore and pellets). The company is incorporated in Luxembourg and its ADSs trade on the NYSE under the symbol "TX".

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Improvement: Net profit increased 24.3% year-over-year to $188.2 million, driven by a 7.0% increase in gross profit and a reduction in selling, general, and administrative expenses (SG&A) from $207.2 million to $195.6 million.
• Segment Performance: The Steel segment operating income (IFRS) rose to $301.5 million from $253.9 million. The Mining segment operating income decreased to $18.0 million from $24.4 million.
• Working Capital Impact: Operating cash flow turned negative ($23.9 million used) compared to a positive $347.7 million in Q1 2013. This was primarily due to a $368.9 million increase in working capital usage, largely attributed to inventory build-up and significant foreign exchange translation differences ($91.7 million non-cash impact).
• Debt Reduction: Total borrowings decreased by approximately $186 million compared to the prior year period, with net financing activities providing $56.5 million in cash.
• Equity in Earnings: Equity in earnings of non-consolidated companies improved significantly to a gain of $2.7 million, compared to a loss of $15.9 million in Q1 2013, largely due to the performance of USIMINAS.

Guidance, Outlook, and Risks

Dividends: The Board of Directors proposed a dividend of $0.075 per share ($0.75 per ADS), totaling approximately $150.4 million, subject to shareholder approval at the annual meeting on May 7, 2014.

Contingencies and Legal Matters:

• Argentina Tax Claim: The Argentine tax authority (AFIP) has assessed income tax, fines, and interest of approximately $11.4 million for fiscal years 1995-1999. Ternium has appealed and recorded a provision of $1.2 million.
• USIMINAS Lawsuit: A lawsuit filed by CSN in Brazil regarding a tag-along tender offer requirement was dismissed by a first-instance court in September 2013. The claimants appealed, and no provision has been recorded as management believes the allegations are groundless.

Commitments: Significant commitments include a $62.8 million steam supply contract with Tenaris (through 2018), $93.4 million for new production equipment, and $172.9 million for raw material purchases over the next three years. A new electricity contract with Iberdrola was signed in April 2014, replacing a previous agreement and providing credits totaling $83.4 million over time.

Investor Verification Checklist

• Dividend Approval: Confirm the outcome of the shareholder vote on the proposed $150.4 million dividend at the May 7, 2014 meeting.
• Cash Flow Volatility: Investigate the drivers behind the $369 million working capital outflow and the negative operating cash flow, specifically the impact of inventory levels and foreign exchange rate fluctuations.
• Legal Exposure: Monitor the status of the CSN appeal in Brazil and the AFIP tax dispute in Argentina for potential future cash outflows.
• USIMINAS Performance: Verify the sustainability of the improved equity earnings from USIMINAS, which contributed significantly to the Q1 profit recovery.
• Debt Maturity: Review the maturity profile of the $2.0 billion in total borrowings to assess near-term liquidity requirements.