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Ternium S.A. Form 6-K Summary

Business Context and Reporting Period

This Form 6-K filing, dated August 2, 2016, presents the unaudited consolidated condensed interim financial statements for Ternium S.A. for the three-month and six-month periods ended June 30, 2016. Ternium is a global steel manufacturer organized into two reportable segments: Steel (flat and long products) and Mining (iron ore and pellets). The company operates primarily in Mexico, the Southern Cone of South America, and other markets including the United States and Central America.

Key Financial Metrics (Six Months Ended June 30, 2016)

Note: All amounts in USD thousands unless otherwise noted. Borrowings decreased significantly due to repayments exceeding proceeds.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased by approximately 14.7% year-over-year, driven primarily by lower volumes and prices in the Southern Region and Mexico.
• Profitability Expansion: Despite lower sales, Operating Income increased by 61.4% and Net Profit increased by 103.6%. This was driven by a significant reduction in Cost of Sales (down 21.7%) and Selling, General, and Administrative expenses (down 14.5%), alongside favorable foreign exchange results.
• Debt Reduction: Total borrowings decreased by approximately USD 780 million compared to the prior year-end, reflecting a strategic deleveraging effort.
• Investment Activity: The company invested USD 114.4 million in additional shares of Usiminas (a non-consolidated company) during the period.

Outlook, Risks, and Contingencies

Management Commentary and Outlook: Management views the capital increase in Usiminas and ongoing debt restructuring as positive steps to improve that entity's financial situation. The company maintains that no additional impairment is required for its Usiminas investment following a USD 191.9 million impairment recorded in Q4 2015.

Key Risks and Contingencies:

• Usiminas Going Concern: Usiminas' auditors have reiterated a "material uncertainty" regarding its ability to continue as a going concern due to a downgraded economic scenario and high leverage.
• Tax Litigation:
  • Argentina (Siderar): Ongoing disputes with AFIP regarding income tax (1995-1999) and personal assets tax (2008-2010). Management believes unfavorable outcomes are not probable for the latter, with no provision recorded.
  • Mexico: A potential income tax adjustment estimated at USD 34 million plus interest/fines regarding a 2008 intercompany share sale. No provision recorded as an unfavorable outcome is deemed not probable.
• Usiminas Tender Offer: Ongoing regulatory proceedings in Brazil (CVM) regarding whether Ternium's 2014 acquisition of Usiminas shares triggered a mandatory tender offer. Ternium believes the claims are groundless.
• Commitments: Significant long-term commitments exist for energy supply (Iberdrola, Tractebel), gas transportation (Techgen), and railroad freight (Ferromex).

Investor Verification Checklist

• Usiminas Financial Health: Verify the status of Usiminas' debt restructuring and the potential for further impairment charges given the "going concern" warning from auditors.
• Tax Provision Adequacy: Review the likelihood of the Mexican and Argentine tax assessments materializing, as management has recorded no provisions for significant potential liabilities (USD 34M+ in Mexico).
• Debt Covenants: Confirm compliance with financial covenants, particularly regarding the Techgen syndicated loan (USD 800M) where Ternium guarantees 48% of obligations.
• Dividend Sustainability: Assess the impact of the USD 180.4 million dividend paid in May 2016 on future liquidity, given the reduction in operating cash flow compared to the prior year.
• Segment Performance: Analyze the divergence between the Steel segment (profitable) and Mining segment (loss-making) to understand margin drivers.