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Business Context and Reporting Period

This Form 6-K filing presents the unaudited consolidated condensed interim financial statements for Ternium S.A., a global steel and mining company, for the three-month period ended March 31, 2015. The report was signed on April 30, 2015. Ternium operates primarily through two reportable segments: Steel (manufacturing and distribution) and Mining (iron ore and pellets), with significant operations in Mexico, the Southern Cone (Argentina, Chile, etc.), and other markets including the United States and Colombia.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Decline: The company reported a net loss of $22.2 million in Q1 2015, a significant reversal from the $188.2 million profit in Q1 2014. Operating income dropped 36% to $204.1 million.
• Impairment Charge: A primary driver of the loss was a $109.7 million impairment charge on the investment in Usiminas (Brazil), a non-consolidated company. This was due to lower steel/iron ore price expectations, weaker Brazilian demand, and currency devaluation.
• Equity in Earnings: Equity in earnings of non-consolidated companies swung from a $2.7 million gain in 2014 to a $132.7 million loss in 2015, largely reflecting the Usiminas impairment and results.
• Foreign Exchange: Significant currency translation adjustments contributed to a total comprehensive loss of $299.7 million, compared to a comprehensive income of $23.6 million in the prior year.
• Cost of Sales: Cost of sales increased to $1.73 billion (up from $1.64 billion), compressing the gross margin from 23.8% in 2014 to 18.7% in 2015.

Outlook, Risks, and Contingencies

• SEC Review: The SEC staff has issued comments regarding the carrying value of the Usiminas investment. Ternium is in discussions with the SEC; if an additional impairment is required for 2014, the company may need to restate its 2014 and Q1 2015 financial statements.
• Usiminas Tender Offer: The Brazilian securities regulator (CVM) staff determined that Ternium's 2014 acquisition of Usiminas shares triggered a tender offer requirement. Ternium has appealed this decision. If unsuccessful, Ternium may be required to sell excess shares or launch a tender offer.
• Legal and Tax Contingencies:
  • Argentina (Siderar): Ongoing tax disputes with AFIP regarding fiscal years 1995-1999, with an aggregate exposure of approximately $11.2 million.
  • Brazil (CSN Litigation): Lawsuits filed by CSN regarding the 2012 Usiminas acquisition, alleging a required tag-along tender offer. Ternium believes these claims are groundless.
  • Mexico: A potential income tax adjustment of approximately $34 million related to a 2008 intercompany share sale.
• Dividends: The Board proposed a dividend of $0.09 per share ($0.90 per ADS), totaling approximately $180.4 million, subject to shareholder approval in May 2015.
• Subsequent Event: On April 7, 2015, Ternium completed the acquisition of the remaining 46% minority interest in its Colombian subsidiary, Ferrasa, for $74.0 million.

Investor Verification Checklist

• Verify the status of the SEC review regarding the Usiminas impairment and the potential for financial restatement.
• Monitor the outcome of the CVM appeal in Brazil regarding the Usiminas tender offer requirement and potential financial impact.
• Assess the sustainability of the gross margin compression (down to 18.7%) given the current steel market environment.
• Review the Usiminas valuation assumptions (discount rate, steel prices, FX rates) used in the impairment test.
• Confirm the approval and payment date of the proposed $180.4 million dividend.