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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, 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 American Depositary Shares (ADS) trade on the NYSE under the symbol "TX".

Key Financial Metrics (Six Months Ended June 30, 2014)

Note: All amounts in USD thousands unless otherwise noted. Gross margin for the six-month period was approximately 21.9% in 2014 compared to 22.5% in 2013.

Material Changes vs. Prior Period

• Profitability: Profit for the period increased by 28.9% to $368.5 million, driven primarily by a significant reduction in income tax expense ($128.5 million vs. $156.6 million) and improved equity earnings from non-consolidated companies ($2.3 million gain vs. $26.2 million loss).
• Revenue: Net sales increased by 1.9% to $4.35 billion. The Steel segment contributed $4.34 billion, while the Mining segment contributed $160 million.
• Cash Flow: Net cash provided by operating activities decreased significantly to $9.7 million from $555.5 million in the prior year. This was largely due to a negative change in working capital of $504.5 million (compared to a positive $121.5 million in 2013), impacted by inventory buildup and exchange rate variations.
• Debt Reduction: Total borrowings decreased by approximately $694 million year-over-year, reflecting net repayments of $248.7 million against proceeds of $594.3 million.
• Capital Expenditures: Capital expenditures decreased to $240.0 million from $507.7 million in the prior period.

Guidance, Outlook, and Risks

Management Commentary and Outlook: The filing does not contain specific forward-looking guidance or quantitative outlook for the remainder of 2014. Management notes that the company's current overall tax burden is not expected to increase due to the participation exemption for dividends from high-tax jurisdictions.

Risks and Contingencies:

• Tax Claims (Siderar): The Argentine tax authority (AFIP) has challenged deductions for fiscal years 1995-1999. Aggregate exposure is approximately $11.4 million. A recent court ruling approved an assessment of $0.8 million for 1997, which Siderar paid while reserving the right to seek reimbursement. A provision of $0.3 million was recognized.
• Legal Litigation (CSN): A lawsuit filed by Companhia Siderúrgica Nacional (CSN) in Brazil regarding a tender offer requirement for Usiminas shares was dismissed by a first-instance court in September 2013. The claimants appealed, and Ternium believes the allegations are groundless; no provision has been recorded.
• Contractual Commitments: Significant commitments include a $59.4 million steam supply agreement with Tenaris (through 2018), $86.2 million for new production equipment, and $124.4 million for raw material purchases over the next three years.
• Electricity Contract: Ternium Mexico terminated a long-term contract with Iberdrola in April 2014, replacing it with a new agreement that includes credits and discounts expected to maintain comparable rates for approximately two years before increasing to market rates.

Investor Verification Checklist

• Working Capital Impact: Verify the drivers behind the $504 million negative change in working capital, specifically the increase in inventories and the impact of exchange rate fluctuations on subsidiaries.
• Tax Provision Volatility: Review the sustainability of the reduced effective tax rate compared to the prior year and the status of the AFIP tax dispute in Argentina.
• Usiminas Valuation: Note the discrepancy between the book value of the Usiminas investment ($1.46 billion) and its market value ($360.5 million) as of June 30, 2014.
• Dividend Capacity: Confirm the distributable retained earnings under Luxembourg law, which stood at approximately $5.8 billion as of December 31, 2013, to assess future dividend potential.
• Segment Performance: Analyze the "Management View" operating income ($385 million) versus IFRS operating income ($550 million) to understand the impact of internal cost methodologies on reported profitability.