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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. as of September 30, 2014, covering the three-month and nine-month periods ended on that date. Ternium is a global steel and mining company organized into two reportable segments: Steel (flat and long steel products) and Mining (iron ore and pellets). The company is incorporated in Luxembourg and trades on the NYSE under the symbol "TX."

Key Financial Metrics (Nine Months Ended Sept 30, 2014)

Note: All figures are in USD thousands in the source text; converted to millions for readability.

Material Changes vs. Prior Period

• Profitability: Profit for the period increased by approximately 25% year-over-year (from $421.9M to $528.7M), driven by higher operating income and improved financial results.
• Operating Income: Increased to $864.9M from $813.9M. This was supported by a significant increase in "Other operating income, net" to $68.3M (from $22.8M), which included a USD 57.5 million insurance recovery in Argentina.
• Cash Flow: Net cash provided by operating activities decreased significantly to $297.5M from $845.5M. This decline was primarily due to a negative change in working capital of $553.2M (compared to a positive $124.3M in 2013), largely impacted by non-cash foreign exchange movements of $128.2M.
• Debt Reduction: Total borrowings decreased by approximately $912 million compared to the prior year-end, reflecting net repayments exceeding new proceeds.
• Investment in Usiminas: The carrying value of the investment in Usiminas (Brazil) declined by $155 million in the third quarter, primarily due to currency translation adjustments (CTA) resulting from the devaluation of the Brazilian Real. No impairment charge was recorded in Q3 2014.

Guidance, Outlook, Risks, and Contingencies

• Usiminas Volatility: Management highlighted high volatility in the Brazilian market following presidential elections. While no impairment was deemed necessary as of September 30, 2014, the company noted that future changes in economic policy or exchange rates could lead to further reductions in the carrying value of the Usiminas investment.
• Subsequent Event: On October 31, 2014, Ternium completed the acquisition of an additional 51.4 million ordinary shares of Usiminas, increasing its ownership stake to 32.9%.
• Legal Contingencies:
  • Siderar Tax Claim: An Argentine tax authority assessment regarding fiscal years 1995-1999 remains in litigation. A provision of $0.2 million was recognized following a partial court ruling.
  • CSN Lawsuit: A lawsuit filed by Companhia Siderúrgica Nacional (CSN) regarding a tender offer requirement for Usiminas shares was dismissed in the first instance. The claimants have appealed, but Ternium believes the allegations are groundless and has recorded no provision.
• Commitments: Significant commitments include a new electricity supply contract with Iberdrola (valued at $100M in credits/discounts), a five-year railroad freight agreement with Ferromex, and guarantees related to the Techgen power plant project totaling approximately $258 million.

Key Facts for Investor Verification

• Insurance Recovery Impact: Verify the sustainability of operating income given the $57.5M one-time insurance recovery included in Q3 2014 results.
• Usiminas Valuation: Monitor the Brazilian Real exchange rate and Usiminas' operational performance, as the investment value is highly sensitive to currency fluctuations and local economic policy.
• Working Capital Dynamics: Investigate the drivers behind the $553M negative change in working capital, distinguishing between operational inventory/receivables changes and non-cash foreign exchange impacts.
• Debt Profile: Confirm the maturity schedule of the remaining $2.12 billion in borrowings and the impact of the new Techgen-related guarantees on future liquidity.
• Dividend Capacity: Note that while distributable retained earnings under Luxembourg law were approximately $5.8 billion as of Dec 31, 2013, actual distributions depend on subsidiary cash flows and local regulations.