Report of Foreign Issuer (6-k)

Date : 08/01/2018 @ 6:16AM
Source : Edgar (US Regulatory)
Stock : Ternium S.A. Ternium S.A. American Depositary Shares (Each Representing Ten Shares, USD1.00 Par Value) (TX)
Quote : 28.99  -0.94 (-3.14%) @ 12:56PM

Report of Foreign Issuer (6-k)


FORM 6 - K



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934

As of 7/31/2018

Ternium S.A.
(Translation of Registrant's name into English)

Ternium S.A.
29 Avenue de la Porte-Neuve – 3rd floor
L-2227 Luxembourg
(352) 2668-3152
(Address of principal executive offices)


Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or 40-F.

Form 20-F a Form 40-F __

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12G3-2(b) under the Securities Exchange Act of 1934.

Yes __ No a


If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
Not applicable



The attached material is being furnished to the Securities and Exchange Commission pursuant to Rule 13a-16 and Form 6-K under the Securities Exchange Act of 1934, as amended.
 
This report contains Ternium S.A.’s consolidated financial statements as of June 30, 2018.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


TERNIUM S.A.


By: /s/ Pablo Brizzio
 
By: /s/ Máximo Vedoya
Name: Pablo Brizzio
 
Name: Máximo Vedoya
Title: Chief Financial Officer
 
Title: Chief Executive Officer
            

Dated: July 31, 2018








TXLOGOA03.JPG
 
 
 
TERNIUM S.A.
 
Consolidated Condensed Interim Financial Statements
 
as of June 30, 2018
 
and for the six-month periods
 
ended on June 30 2018 and 2017
 
 
 
29 Avenue de la Porte-Neuve, 3 rd  floor
 
L – 2227
 
R.C.S. Luxembourg: B 98 668
 



TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017


INDEX

 
Page
 
 
2
3
Consolidated Condensed Interim Statements of Financial Position
4
Consolidated Condensed Interim Statements of Changes in Equity
5
Consolidated Condensed Interim Statements of Cash Flows
7
Notes to the Consolidated Condensed Interim Financial Statements
 
1
General information and basis of presentation
8
2
Accounting policies
8
3
Segment information
9
4
Cost of sales
11
5
Selling, general and administrative expenses
12
6
Finance expense, Finance income and Other financial income (expenses), net
12
7
Property, plant and equipment, net
12
8
Intangible assets, net
13
9
Investments in non-consolidated companies
13
10
Distribution of dividends
16
11
Contingencies, commitments and restrictions on the distribution of profits
16
12
Acquisition of business
21
13
Related party transactions
25
14
Financial instruments by category and fair value measurement
26
15
Changes in accounting policies
27
16
Hyperinflation in Argentina
30
 
 
 



TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017
(All amounts in USD thousands)
 
 








Consolidated Condensed Interim Income Statements
 
 
 
 
Three-month period ended June 30,
 
Six- month period ended June 30,
 
 
Notes
 
2018
 
2017
 
2018
 
2017
 
 
 
 
(Unaudited)
 
(Unaudited)
Net sales
 
3
 
3,133,957

 
2,322,656

 
6,095,270

 
4,397,764

Cost of sales
 
3 & 4
 
(2,233,024
)
 
(1,728,177
)
 
(4,436,516
)
 
(3,259,639
)
 
 
 
 
 
 
 
 
 
 
 
Gross profit
 
3
 
900,933

 
594,479

 
1,658,754

 
1,138,125

 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
3 & 5
 
(245,001
)
 
(189,048
)
 
(485,518
)
 
(361,323
)
Other operating income (expenses), net
 
3
 
(5,584
)
 
(12,609
)
 
183

 
(19,829
)
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
3
 
650,348

 
392,822

 
1,173,419

 
756,973

 
 
 
 
 
 
 
 
 
 
 
Finance expense
 
6
 
(33,294
)
 
(24,101
)
 
(67,076
)
 
(45,483
)
Finance income
 
6
 
5,468

 
4,500

 
10,604

 
9,095

Other financial income (expenses), net
 
6
 
(121,367
)
 
(47,472
)
 
(172,462
)
 
(70,623
)
Equity in earnings (losses) of non-consolidated companies
 
9
 
12,366

 
15,163

 
32,349

 
36,573

 
 
 
 
 
 
 
 
 
 
 
Profit before income tax expense
 
 
 
513,521

 
340,912

 
976,834

 
686,535

 
 
 
 
 
 
 
 
 
 
 
Income tax expense
 
 
 
(175,742
)
 
(59,123
)
 
(216,960
)
 
(94,357
)
 
 
 
 
 
 
 
 
 
 
 
Profit for the period
 
 
 
337,779

 
281,789

 
759,874

 
592,178

 
 
 
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
 
 
 
 
Owners of the parent
 
 
 
326,570

 
249,705

 
693,294

 
511,040

Non-controlling interest
 
 
 
11,209

 
32,084

 
66,580

 
81,138

 
 
 
 
 
 
 
 
 
 
 
Profit for the period
 
 
 
337,779

 
281,789

 
759,874

 
592,178

 
 
 
 
 
 
 
 
 
 
 
Weighted average number of shares outstanding
 
 
 
1,963,076,776

 
1,963,076,776

 
1,963,076,776

 
1,963,076,776

 
 
 
 
 
 
 
 
 
 
 
Basic and diluted earnings (losses) per share for profit (loss) attributable to the equity holders of the company (expressed in USD per share)
 
 
 
0.17

 
0.13

 
0.35

 
0.26

The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the year ended December 31, 2017.


Page 2 of 30

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017
(All amounts in USD thousands)
 
 








Consolidated Condensed Interim Statements of Comprehensive Income
 
 
Three-month period ended June 30,
 
Six- month period ended June 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
(Unaudited)
 
(Unaudited)
Profit for the period
 
337,779

 
281,789

 
759,874

 
592,178

 
 
 
 
 
 
 
 
 
Items that may be reclassified subsequently to profit or loss:
 
 
 
 
 
 
 
 
Currency translation adjustment
 
(209,576
)
 
(46,236
)
 
(265,896
)
 
(23,189
)
Currency translation adjustment from participation in non-consolidated companies
 
(68,196
)
 
(19,504
)
 
(70,942
)
 
(7,641
)
Changes in the fair value of financial instruments at fair value through other comprehensive income
 
(710
)
 

 
(940
)
 

Income tax related to financial instruments at fair value
 
57

 

 
111

 

Changes in the fair value of derivatives classified as cash flow hedges
 
140

 
39,407

 
243

 
39,040

Income tax related to cash flow hedges
 
(42
)
 
54

 
(185
)
 
43

Other comprehensive income items
 

 
(3
)
 
(305
)
 
72

Other comprehensive income items from participation in non-consolidated companies
 
426

 
150

 
485

 
265

Items that will not be reclassified subsequently to profit or loss:
 
 
 
 
 
 
 
 
Remeasurement of post employment benefit obligations
 
1,099

 
(811
)
 
1,099

 
(1,310
)
Income tax relating to remeasurement of post employment benefit obligations
 
(297
)
 

 
(297
)
 

Remeasurement of post employment benefit obligations from participation in non-consolidated companies
 
(1,476
)
 
(198
)
 
(1,832
)
 
6,181

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) for the period, net of tax
 
(278,575
)
 
(27,141
)
 
(338,459
)
 
13,461

 
 
 
 
 
 
 
 
 
Total comprehensive income for the period
 
59,204

 
254,648

 
421,415

 
605,639

 
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
 
 
Owners of the parent
 
133,846

 
242,026

 
462,799

 
533,768

Non-controlling interest
 
(74,642
)
 
12,622

 
(41,384
)
 
71,871

 
 
 
 
 
 
 
 
 
Total comprehensive income for the period
 
59,204

 
254,648

 
421,415

 
605,639

The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the year ended December 31, 2017.


Page 3 of 30

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017
(All amounts in USD thousands)
 
 








Consolidated Condensed Interim Statements of Financial Position
 
 
 
 
Balances as of
 
 
Notes
  
June 30, 2018
 
December 31, 2017
 
 
 
 
(Unaudited)
 
 
 
 
ASSETS
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-current assets
 
 
  
 
 
 
 
 
 
 
Property, plant and equipment, net
 
7
  
5,138,794

 
 
 
5,349,753

 
 
Intangible assets, net
 
8
  
1,027,425

 
 
 
1,092,579

 
 
Investments in non-consolidated companies
 
9
  
438,347

 
 
 
478,348

 
 
Other investments
 
 
 
31,112

 
 
 
3,380

 
 
Deferred tax assets
 
 
 
129,066

 
 
 
121,092

 
 
Receivables, net
 
 
 
635,978

 
 
 
677,299

 
 
Trade receivables, net
 
 
  
5,583

 
7,406,305

 
4,832

 
7,727,283

 
 
 
  
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
 
 
262,744

 
 
 
362,173

 
 
Derivative financial instruments
 
 
 
1,685

 
 
 
2,304

 
 
Inventories, net
 
 
 
2,589,388

 
 
 
2,550,930

 
 
Trade receivables, net
 
 
 
1,273,727

 
 
 
1,006,598

 
 
Other investments
 
 
 
97,939

 
 
 
132,736

 
 
Cash and cash equivalents
 
 
 
229,813

 
4,455,296

 
337,779

 
4,392,520

 
 
 
 
 
 
 
 
 
 
 
Non-current assets classified as held for sale
 
 
 
 
 
2,190

 
 
 
2,763

 
 
 
 
 
 
 
 
 
 
 
Total Assets
 
 
 
  
 
11,863,791

 
  
 
12,122,566

 
 
 
 
  
 
 
 
  
 
 
EQUITY
 
 
 
  
 
 
 
  
 
 
Capital and reserves attributable to the owners of the parent
 
 
 
 
 
5,257,588

 
 
 
5,010,424

Non-controlling interest
 
 
 
  
 
772,161

 
  
 
842,347

 
 
 
 
 
 
 
 
 
 
 
Total Equity
 
 
 
 
 
6,029,749

 
 
 
5,852,771

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-current liabilities
 
 
 
  
 
 
 
  
 
 
Provisions
 
 
 
657,068

 
  
 
768,517

 
 
Deferred tax liabilities
 
 
 
453,073

 
  
 
513,357

 
 
Other liabilities
 
 
 
365,779

 
  
 
373,046

 
 
Trade payables
 
 
 
1,054

 
 
 
2,259

 
 
Finance lease liabilities
 

 
67,430

 
 
 
69,005

 
 
Borrowings
 
 
 
1,512,172

 
3,056,576

 
1,716,337

 
3,442,521

 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Current income tax liabilities
 
 
 
72,236

 
 
 
52,940

 
 
Other liabilities
 
 
 
347,667

 
 
 
357,001

 
 
Trade payables
 
 
 
1,027,256

 
 
 
897,732

 
 
Derivative financial instruments
 
 
 
49,133

 
 
 
6,001

 
 
Finance lease liabilities
 

 
8,030

 
 
 
8,030

 
 
Borrowings
 
 
 
1,273,144

 
2,777,466

 
1,505,570

 
2,827,274

 
 
 
 
 
 
 
 
 
 
 
Total Liabilities
 
 
 
 
 
5,834,042

 
  
 
6,269,795

 
 
 
 
 
 
 
 
  
 
 
Total Equity and Liabilities
 
 
 
 
 
11,863,791

 
  
 
12,122,566

The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the year ended December 31, 2017.


Page 4 of 30

TERNIUM S.A.
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017
(All amounts in USD thousands)

Consolidated Condensed Interim Statements of Changes in Equity
 
 
Attributable to the owners of the parent (1)
 
 
 
 
 
 
Capital stock (2)
Treasury shares
(2)
Initial public offering expenses
Reserves
(3)
Capital stock issue discount (4)
Currency translation adjustment
Retained earnings
Total
 
Non-controlling interest
 
Total Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of January 1, 2018
 
2,004,743

(150,000
)
(23,295
)
1,416,121

(2,324,866
)
(2,403,664
)
6,491,385

5,010,424

 
842,347

 
5,852,771

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impact of adopting IFRS 9 at January 1, 2018 (see note 14)
 
 
 
 
450

 
 
(147
)
303

 
204

 
507

Adjusted Balance at January 1, 2018
 
2,004,743

(150,000
)
(23,295
)
1,416,571

(2,324,866
)
(2,403,664
)
6,491,238

5,010,727

 
842,551

 
5,853,278

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Profit for the period
 






693,294

693,294

 
66,580

 
759,874

Other comprehensive income (loss) for the period
 








 

 

Currency translation adjustment
 





(228,825
)

(228,825
)
 
(108,013
)
 
(336,838
)
Remeasurement of post employment benefit obligations
 



(1,022
)



(1,022
)
 
(8
)
 
(1,030
)
Cash flow hedges and others, net of tax
 



(154
)



(154
)
 
212

 
58

Others
 



(494
)



(494
)
 
(155
)
 
(649
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income for the period
 



(1,670
)

(228,825
)
693,294

462,799

 
(41,384
)
 
421,415

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends paid in cash (5)
 






(215,938
)
(215,938
)
 

 
(215,938
)
Dividends paid in cash to non-controlling interest
 








 
(29,006
)
 
(29,006
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2018 (unaudited)
 
2,004,743

(150,000
)
(23,295
)
1,414,901

(2,324,866
)
(2,632,489
)
6,968,594

5,257,588

 
772,161

 
6,029,749

(1) Shareholders’ equity determined in accordance with accounting principles generally accepted in Luxembourg is disclosed in Note 11 (iii).
(2) The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of USD 1.00 per share. As of June 30, 2018 , there were 2,004,743,442 shares issued. All issued shares are fully paid. Also, as of June 30, 2018, the Company held 41,666,666 shares as treasury shares.
(3) Include legal reserve under Luxembourg law for USD 200.5 million, undistributable reserves under Luxembourg law for USD 1.4 billion, hedge accounting reserve, net of tax effect, for USD 0.7 million and reserves related to the acquisition of non-controlling interest in subsidiaries for USD (88.5) million.
(4) Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.
(5) See Note 10.

Dividends may be paid by Ternium to the extent distributable retained earnings calculated in accordance with Luxembourg law and regulations exist. Therefore, retained earnings included in these consolidated condensed interim financial statements may not be wholly distributable. See Note 11 (iii).
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the year ended December 31, 2017.

Page 5 of 30


TERNIUM S.A.
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017
(All amounts in USD thousands)

Consolidated Condensed Interim Statements of Changes in Equity

 
Attributable to the owners of the parent (1)
 
 
 
 

 
Capital stock (2)
Treasury shares
(2)
Initial public offering expenses
Reserves (3)
Capital stock issue discount (4)
Currency translation adjustment
Retained earnings
Total
 
Non-controlling interest
 
Total Equity

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of January 1, 2017
 
2,004,743

(150,000
)
(23,295
)
1,420,171

(2,324,866
)
(2,336,929
)
5,801,474

4,391,298

 
775,295

 
5,166,593

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Profit for the period
 






511,040

511,040

 
81,138

 
592,178

Other comprehensive (loss) income for the period
 








 

 

Currency translation adjustment
 





(21,217
)

(21,217
)
 
(9,613
)
 
(30,830
)
Remeasurement of post employment benefit obligations
 



4,523




4,523

 
348

 
4,871

Cash flow hedges, net of tax
 



39,132




39,132

 
(49
)
 
39,083

Others
 



290




290

 
47

 
337

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss) for the period
 



43,945


(21,217
)
511,040

533,768

 
71,871

 
605,639

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends paid in cash
 






(196,308
)
(196,308
)
 

 
(196,308
)
Dividends paid in cash to non-controlling interest
 








 
(30,573
)
 
(30,573
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2017 (unaudited)
 
2,004,743

(150,000
)
(23,295
)
1,464,116

(2,324,866
)
(2,358,146
)
6,116,206

4,728,758

 
816,593

 
5,545,351


(1) Shareholders’ equity determined in accordance with accounting principles generally accepted in Luxembourg.
(2) The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of USD 1.00 per share. As of June 30, 2017 , there were 2,004,743,442 shares issued. All issued shares are fully paid. Also, as of June 30, 2017 , the Company held 41,666,666 shares as treasury shares.
(3) Include legal reserve under Luxembourg law for USD 200.5 million, undistributable reserves under Luxembourg law for USD 1.4 billion, hedge accounting reserve, net of tax effect, for USD 39.1 million and reserves related to the acquisition of non-controlling interest in subsidiaries for USD (88.5) million.
(4) Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.

Dividends may be paid by Ternium to the extent distributable retained earnings calculated in accordance with Luxembourg law and regulations exist. Therefore, retained earnings included in these consolidated condensed interim financial statements may not be wholly distributable. See Note 11 (iii).
The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the year ended December 31, 2017.


Page 6 of 30


TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017
(All amounts in USD thousands)

Consolidated Condensed Interim Statements of Cash Flows

 

 
Six- month period ended June 30,

 
Notes
 
2018
 
2017

 

 
(Unaudited)
Cash flows from operating activities
 

 

 

Profit for the period
 

 
759,874

 
592,178

Adjustments for:
 

 

 

Depreciation and amortization
 
7 & 8
 
279,286

 
205,637

Income tax accruals less payments
 

 
(48,465
)
 
(309,586
)
Equity in earnings of non-consolidated companies
 
9
 
(32,349
)
 
(36,573
)
Interest accruals less payments
 

 
(7,060
)
 
1,984

Changes in provisions
 

 
1,047

 
1,305

Changes in working capital (1)
 

 
(350,796
)
 
(458,502
)
Net foreign exchange results and others
 

 
140,649

 
110,015

Net cash provided by operating activities
 

 
742,186

 
106,458

Cash flows from investing activities
 

 

 

Capital expenditures
 
7 & 8
 
(237,923
)
 
(182,490
)
Loans to non-consolidated companies
 

 

 
(23,904
)
(Increase) Decrease in other investments
 

 
6,311

 
(8,184
)
Proceeds from the sale of property, plant and equipment
 

 
440

 
358

Dividends received from non-consolidated companies
 

 

 
65

Net cash used in investing activities
 

 
(231,172
)
 
(214,155
)
Cash flows from financing activities
 
 
 
 
 
 
Dividends paid in cash to company’s shareholders
 
10
 
(215,938
)
 
(196,308
)
Dividends paid in cash to non-controlling interest
 

 
(29,006
)
 
(30,573
)
Finance lease payments
 

 
(3,843
)
 
(1,083
)
Proceeds from borrowings
 

 
526,046

 
858,374

Repayments of borrowings
 

 
(885,361
)
 
(527,251
)
Net cash (used in) provided by financing activities
 

 
(608,102
)
 
103,159

Decrease in cash and cash equivalents
 

 
(97,088
)
 
(4,538
)
Movement in cash and cash equivalents
 

 

 

At January 1,
 

 
337,779

 
183,463

Effect of exchange rate changes
 

 
(10,878
)
 
(587
)
Decrease in cash and cash equivalents
 

 
(97,088
)
 
(4,538
)
Cash and cash equivalents as of June 30, (2)
 

 
229,813

 
178,338

Non-cash transactions:
 

 

 

Acquisition of PP&E under lease contract agreements
 

 

 
76,185

(1) The working capital is impacted by non-cash movement of USD (249.6) million as of June 30, 2018 (USD (21.4) million as of June 30, 2017) due to the variations in the exchange rates used by subsidiaries with functional currencies different from the US dollar.
(2) It includes restricted cash of nil and USD 81 as of June 30, 2018 and 2017, respectively. In addition, the Company had other investments with a maturity of more than six months for USD 97,939 and USD 159,035 as of June 30, 2018 and 2017, respectively.

The accompanying notes are an integral part of these consolidated condensed interim financial statements. These consolidated condensed interim financial statements should be read in conjunction with our audited Consolidated Financial Statements and notes for the year ended December 31, 2017.



Page 7 of 30

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017



Notes to the Consolidated Condensed Interim Financial Statements

1.
GENERAL INFORMATION AND BASIS OF PRESENTATION

a)    General information and basis of presentation
Ternium S.A. (the “Company” or “Ternium”), was incorporated on December 22, 2003 to hold investments in flat and long steel manufacturing and distributing companies.  The Company has an authorized share capital of a single class of 3.5 billion shares having a nominal value of USD 1.00 per share.  As of June 30, 2018, there were 2,004,743,442 shares issued.  All issued shares are fully paid.

Ternium’s American Depositary Shares (“ADS”) trade on the New York Stock Exchange under the symbol “TX”. 

The name and percentage of ownership of subsidiaries that have been included in consolidation in these Consolidated Condensed Interim Financial Statements is disclosed in Note 2 to the audited Consolidated Financial Statements for the year ended December 31, 2017.

Certain comparative amounts have been reclassified to conform to changes in presentation in the current period. These reclassifications do not have a material effect on the Company’s condensed interim consolidated financial statements.

The preparation of Consolidated Condensed Interim Financial Statements requires management to make estimates and assumptions that might affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the statement of financial position, and also the reported amounts of revenues and expenses for the reported periods. Actual results may differ from these estimates. The main assumptions and estimates were disclosed in the Consolidated Financial Statements for the year ended December 31, 2017, without significant changes since its publication.

Material intercompany transactions and balances have been eliminated in consolidation. However, the fact that the functional currency of the Company’s subsidiaries differs, results in the generation of foreign exchange gains and losses that are included in the Consolidated Condensed Interim Income Statement under “Other financial income (expenses), net”.

2.    ACCOUNTING POLICIES

These Consolidated Condensed Interim Financial Statements have been prepared in accordance with IAS 34, “Interim Financial Reporting” and are unaudited. These Consolidated Condensed Interim Financial Statements should be read in conjunction with the audited Consolidated Financial Statements for the year ended December 31, 2017, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and in conformity with International Financial Reporting Standards as adopted by the European Union (“EU”). Recently issued accounting pronouncements were applied by the Company as from their respective dates.

These Consolidated Condensed Interim Financial Statements have been prepared following the same accounting policies used in the preparation of the audited Consolidated Financial Statements for the year ended December 31, 2017, except for the changes explained in Note 15 of these Consolidated Condensed Interim Financial Statements.



Page 8 of 30

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017


2.    ACCOUNTING POLICIES (continued)

None of the accounting pronouncements issued after December 31, 2017, and as of the date of these Consolidated Condensed Interim Financial Statements have a material effect on the Company’s financial condition or result or operations.

3.
SEGMENT INFORMATION

REPORTABLE OPERATING SEGMENTS

The Company is organized in two reportable segments: Steel and Mining.

The Steel segment includes the sales of steel products, which comprises slabs, hot rolled coils and sheets, cold rolled coils and sheets, tin plate, welded pipes, hot dipped galvanized and electro-galvanized sheets, pre-painted sheets, billets (steel in its basic, semi-finished state), wire rod and bars and other tailor-made products to serve its customers’ requirements. It also includes the sales of energy.

The Steel segment comprises three operating segments: Mexico, Southern Region and Other markets. These three segments have been aggregated considering the economic characteristics and financial effects of each business activity in which the entity engages; the related economic environment in which it operates; the type or class of customer for the products; the nature of the products; and the production processes. The Mexico operating segment comprises the Company’s businesses in Mexico. The Southern region operating segment manages the businesses in Argentina, Paraguay, Chile, Bolivia and Uruguay. The Other markets operating segment includes businesses mainly in Brazil, United States, Colombia, Guatemala, Costa Rica, Honduras, El Salvador and Nicaragua.

The Mining segment includes the sales of mining products, mainly iron ore and pellets, and comprises the mining activities of Las Encinas, an iron ore mining company in which Ternium holds a 100% equity interest and the 50% of the operations and results performed by Peña Colorada, another iron ore mining company in which Ternium maintains that same percentage over its equity interest. Both mining operations are located in Mexico. For Peña Colorada, the Company recognizes its assets, liabilities, revenue and expenses in relation to its interest in the joint operation.

Ternium’s Chief Operating Decision Maker (CEO) holds monthly meetings with senior management, in which operating and financial performance information is reviewed, including financial information that differs from IFRS principally as follows:

-    The use of direct cost methodology to calculate the inventories, while under IFRS is at full cost, including absorption of production overheads and depreciation.

-    The use of costs based on previously internally defined cost estimates, while, under IFRS, costs are calculated at historical cost (with the FIFO method).

-    Other timing and non-significant differences.

Most information on segment assets is not disclosed as it is not reviewed by the CODM (CEO).


Page 9 of 30

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017


3.
SEGMENT INFORMATION (continued)
 
 
Six- month period ended June 30, 2018 (Unaudited)
 
 
Steel
 
Mining
 
Inter-segment eliminations
 
Total
IFRS
 

 

 

 

Net sales
 
6,094,524

 
143,469

 
(142,723
)
 
6,095,270

Cost of sales
 
(4,477,764
)
 
(107,745
)
 
148,993

 
(4,436,516
)
Gross profit
 
1,616,760

 
35,724

 
6,270

 
1,658,754

Selling, general and administrative expenses
 
(476,843
)
 
(8,675
)
 

 
(485,518
)
Other operating income, net
 
(431
)
 
614

 

 
183

Operating income - IFRS
 
1,139,486

 
27,663

 
6,270

 
1,173,419

Management view
 

 

 

 

Net sales
 
6,094,524

 
173,030

 
(172,284
)
 
6,095,270

Operating income
 
830,873

 
61,558

 
(5,386
)
 
887,045

Reconciliation items:
 

 

 

 

Differences in Cost of sales
 

 

 

 
286,374

Operating income - IFRS
 

 

 

 
1,173,419

Financial income (expense), net
 

 

 

 
(228,934
)
Equity in earnings of non-consolidated companies
 

 

 

 
32,349

Income before income tax expense - IFRS
 

 

 

 
976,834

Depreciation and amortization - IFRS
 
(251,970
)
 
(27,316
)
 

 
(279,286
)
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Six- month period ended June 30, 2017 (Unaudited)
 
 
Steel
 
Mining
 
Inter-segment eliminations
 
Total
IFRS
 

 

 

 

Net sales
 
4,397,752

 
118,165

 
(118,153
)
 
4,397,764

Cost of sales
 
(3,274,549
)
 
(102,326
)
 
117,236

 
(3,259,639
)
Gross profit
 
1,123,203

 
15,839

 
(917
)
 
1,138,125

Selling, general and administrative expenses
 
(356,077
)
 
(5,246
)
 

 
(361,323
)
Other operating income, net
 
(20,145
)
 
316

 

 
(19,829
)
Operating income - IFRS
 
746,981

 
10,909

 
(917
)
 
756,973

Management view
 

 

 

 

Net sales
 
4,302,716

 
132,002

 
(131,990
)
 
4,302,728

Operating income
 
476,541

 
25,996

 
3,081

 
505,618

Reconciliation items:
 

 

 

 

Differences in Cost of sales
 

 

 

 
251,355

Operating income - IFRS
 

 

 

 
756,973

Financial income (expense), net
 

 

 

 
(107,011
)
Equity in earnings of non-consolidated companies
 

 

 

 
36,573

Income before income tax expense - IFRS
 

 

 

 
686,535

Depreciation and amortization - IFRS
 
(182,378
)
 
(23,259
)
 

 
(205,637
)



Page 10 of 30


TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017


3.    SEGMENT INFORMATION (continued)

GEOGRAPHICAL INFORMATION

For purposes of reporting geographical information, net sales are allocated based on the customer’s location. Allocation of non-current assets is based on the geographical location of the underlying assets.
    
 
 
Six- month period ended June 30, 2018 (Unaudited)
 
 
Mexico
 
Southern region
 
Other markets (2)
 
Total
 
 
 
 
 
 
 
 
 
Net sales
 
3,285,070

 
1,229,561

 
1,580,639

 
6,095,270

 
 
 
 
 
 
 
 
 
Non-current assets (1)
 
4,032,648

 
436,283

 
1,697,288

 
6,166,219

 
 

 

 

 

 
 
Six- month period ended June 30, 2017 (Unaudited)
 
 
Mexico
 
Southern region
 
Other markets
 
Total
 
 
 
 
 
 
 
 
 
Net sales
 
2,827,339

 
1,075,600

 
494,825

 
4,397,764

 
 
 
 
 
 
 
 
 
Non-current assets (1)
 
4,056,941

 
704,473

 
230,693

 
4,992,107


 
 
 
 
 
 
 
 
(1) Includes Property, plant and equipment and Intangible assets.
 
 
 
 
(2) Includes the assets related to the business acquisition disclosed in note 12.
 
 



4.
COST OF SALES

 
Six- month period ended June 30,

 
2018
 
2017

 
(Unaudited)
Inventories at the beginning of the year
 
2,550,930

 
1,647,869

Translation differences
 
(276,369
)
 
(27,259
)
Plus: Charges for the period
 

 

Raw materials and consumables used and
other movements
 
3,786,830

 
2,862,870

Services and fees
 
84,991

 
44,262

Labor cost
 
378,672

 
299,417

Depreciation of property, plant and equipment
 
196,110

 
160,896

Amortization of intangible assets
 
14,142

 
20,374

Maintenance expenses
 
280,911

 
205,420

Office expenses
 
4,304

 
3,282

Insurance
 
4,159

 
4,096

Change of obsolescence allowance
 
5,077

 
2,428

Recovery from sales of scrap and by-products
 
(13,058
)
 
(13,360
)
Others
 
9,205

 
12,966

Less: Inventories at the end of the period
 
(2,589,388
)
 
(1,963,622
)
Cost of Sales
 
4,436,516

 
3,259,639



Page 11 of 30

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017


5.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 
Six- month period ended June 30,
 
2018
 
2017
 
(Unaudited)
Services and fees
41,160
 
39,506

Labor cost
129,909
 
108,303

Depreciation of property, plant and equipment
5,826
 
5,720

Amortization of intangible assets
63,208
 
18,647

Maintenance and expenses
2,780
 
2,502

Taxes
52,467
 
42,427

Office expenses
19,582
 
17,003

Freight and transportation
160,047
 
121,194

Increase (decrease) of allowance for doubtful accounts
1,707
 
(280
)
Others
8,832
 
6,301

Selling, general and administrative expenses  
485,518
 
361,323


6.
FINANCE EXPENSE, FINANCE INCOME AND OTHER FINANCIAL INCOME (EXPENSES), NET

 
Six- month period ended June 30,
 
2018
 
2017
 
(Unaudited)
Interest expense
(67,076
)
 
(45,483
)
 
 
 
 
Finance expense
(67,076
)
 
(45,483
)
 
 
 
 
Interest income
10,604

 
9,095

 
 
 
 
Finance income
10,604

 
9,095

 
 
 
 
Net foreign exchange gain (loss)
(110,922
)
 
(79,183
)
Change in fair value of financial assets

 
(454
)
Derivative contract results
(73,636
)
 
9,986

Others
12,096

 
(972
)
 
 
 
 
Other financial income (expenses), net
(172,462
)
 
(70,623
)

7.    PROPERTY, PLANT AND EQUIPMENT, NET

 
Six- month period ended June 30,
 
2018
 
2017
 
(Unaudited)
At the beginning of the year
5,349,753
 
4,135,977
 
 
 
 
Currency translation differences
(217,740)
 
(32,301)
Additions
221,295
 
245,580
Disposals
(12,351)
 
(22,321)
Depreciation charge
(201,936)
 
(166,616)
Transfers and reclassifications
(227)
 
(104)
At the end of the period
5,138,794
 
4,160,215



Page 12 of 30

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017


8.    INTANGIBLE ASSETS, NET

 
Six- month period ended June 30,
 
2018
 
2017
 
(Unaudited)
At the beginning of the year
1,092,579

 
842,557

 
 
 
 
Acquisition of business

 

Currency translation differences
(4659)

 
(457)

Additions
16,628

 
28,813

Amortization charge
(77,350)

 
(39,021)

Transfers/Disposals
227

 

At the end of the period
1,027,425

 
831,892



9.
INVESTMENTS IN NON-CONSOLIDATED COMPANIES

Company
 
Country of incorporation
 
Main activity
 
Voting rights as of
 
Value as of
 
 
 
June 30, 2018
 
December 31, 2017
 
June 30, 2018
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS
 
Brazil
 
Manufacturing and selling of steel products
 
34.39%
 
34.39%
 
424,976
 
466,299
Other non-consolidated companies (1)
 
 
 
 
 
 
 
 
 
13,371
 
12,049
 
 
 
 
 
 
 
 
 
 
438,347
 
478,348
(1) It includes the investments held in Techgen S.A. de C.V., Finma S.A.I.F., Arhsa S.A., Techinst S.A., Recrotek S.R.L. de C.V. and Gas Industrial de Monterrey S.A. de C.V.

(a) Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS

Ternium, through its subsidiaries Ternium Investments S.à r.l. (“Ternium Investments”), Ternium Argentina S.A. (“Ternium Argentina”) and Prosid Investments S.A. (“Prosid”), owns a total of 242.6 million ordinary shares and 8.5 million preferred shares, representing 20.5% of the issued and outstanding share capital of Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS (“Usiminas”), the largest flat steel producer in Brazil.

Ternium Investments, Ternium Argentina and Prosid, together with Tenaris S.A.’s Brazilian subsidiary Confab Industrial S.A. (“TenarisConfab”), are part of Usiminas’ control group, comprising the so-called T/T Group. The other members of Usiminas’ control group are Previdência Usiminas (Usiminas’ employee pension fund) and the so-called NSSMC Group, comprising Nippon Steel & Sumitomo Metal Corporation Group (“NSSMC”), Nippon Usiminas Co., Ltd., Metal One Corporation and Mitsubishi Corporation do Brasil, S.A.

On April 10, 2018, the T/T Group, the NSSMC Group and Previdência Usiminas entered into a new shareholders’ agreement (the “New SHA”) to govern their relations as shareholders and members of the control group of Usiminas. The New SHA sets forth Usiminas’ corporate governance rules, including, among others, an alternation mechanism for the nomination of each of the chief executive officer and the chairman of the board of directors, as well as a mechanism for the nomination of other members of Usiminas’ executive board. The right to nominate Usimina’s chief executive officer and chairman will alternate between Ternium and NSSMC at every 4-year interval, comprising two consecutive 2-year terms. For the initial four years, Ternium will be entitled to nominate the CEO and NSSMC will be entitled to nominate the chairman. The executive board will be composed of six members, including the chief executive officer and five vice-presidents, with Ternium and NSSMC nominating three members each.

Page 13 of 30


TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017


9.    INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)

Usiminas’ control group holds, in the aggregate, 483.6 million ordinary shares bound to the New SHA, representing approximately 68.6% of Usiminas’ voting capital, with the T/T Group holding approximately 47.1% of the total shares held by the control group (39.5% corresponding to Ternium and the other 7.5% corresponding to TenarisConfab); the NSSMC Group holding approximately 45.9% of the total shares held by the control group; and Previdência Usiminas holding the remaining 7% of the total shares held by the control group.

The New SHA provides for an exit mechanism consisting of a buy-and-sell procedure, exercisable at any time during the term of the New SHA after November 16, 2022. Such exit mechanism shall apply with respect to shares held by the NSSMC Group and the T/T Group, and would allow either Ternium or NSSMC to purchase all or a majority of the Usiminas shares held by the other shareholder group.

The 51.4 million ordinary shares of Usiminas acquired by Ternium on October 30, 2014 and 6.7 million ordinary shares acquired by NSSMC prior to execution of the January 16, 2012 shareholders’ agreement remain free from any transfer restrictions under the New SHA and will not be subject to the exit mechanism described above.
 
As of June 30, 2018, the closing price of the Usiminas ordinary and preferred shares, as quoted on the BM&F Bovespa Stock Exchange, was BRL 11.23 (approximately USD 2.91; December 31, 2017: BRL 10.83 - USD 3.27) per ordinary share and BRL 7.32 (approximately USD 1.90; December 31, 2017: BRL 9.10 - USD 2.75) per preferred share, respectively. Accordingly, as of June 30, 2018, Ternium’s ownership stake had a market value of approximately USD 722.7 million and a carrying value of USD 425.0 million.
 
The Company reviews periodically the recoverability of its investment in Usiminas. To determine the recoverable value, the Company estimates the value in use of the investment by calculating the present value of the expected cash flows or its fair value less costs of disposal.

Usiminas financial restructuring process (that started in April 2016 with the capital increase) was completed by the end of August 2017. The completion of this process together with the higher share price since June 2016, and the improvement in business conditions may lead to an increase in the value of the investment in Usiminas in future periods.

As of June 30, 2018 the value of the investment in Usiminas is comprised as follows:
Value of investment
 
USIMINAS
 
 
 
As of January 1, 2018
 
466,299

Share of results (1)
 
29,630

Other comprehensive income
 
(70,953
)
 
 
 
As of June 30, 2018
 
424,976

 
 
 
(1) It includes the adjustment of the values associated to the purchase price allocation.

The investment in Usiminas is based in the following calculation:
Usiminas' shareholders' equity
 
3,597,542

Percentage of interest of the Company over shareholders' equity
 
20.47
%
 
 
 
Interest of the Company over shareholders' equity
 
735,363

 
 
 
Purchase price allocation
 
71,573

Goodwill
 
269,576

Impairment
 
(651,536
)
 
 
 
Total Investment in Usiminas
 
424,976


Page 14 of 30

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017


9.    INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)

On July 26, 2018, Usiminas issued its consolidated interim accounts as of and for the Six- month period ended June 30, 2018 , which state that revenues, net profit from continuing operations and shareholders’ equity amounted to USD 1,889 million, USD 35 million and USD 3,598 million, respectively.
 
 
USIMINAS
Summarized balance sheet (in million USD)
 
As of June 30, 2018
Assets
 
 
Non-current
 
4,782
Current
 
1,500
Other current investments
 
136
Cash and cash equivalents
 
150
 
 
 
Total Assets
 
6,568
Liabilities
 
 
Non-current
 
550
Non-current borrowings
 
1,509
Current
 
546
Current borrowings
 
5
 
 
 
Total Liabilities
 
2,610
 
 
 
Minority interest
 
360
 
 
 
Shareholders' equity
 
3,598
 
 
 
 
 
USIMINAS
Summarized income statement (in million USD)
 
Six- month period ended June 30, 2018
 
 
 
Net sales
 
1,889
Cost of sales
 
(1,539)
Gross Profit
 
350
Selling, general and administrative expenses
 
(107)
Other operating income, net
 
(86)
Operating income
 
157
Financial expenses, net
 
(118)
Equity in earnings of associated companies
 
23
Profit before income tax
 
62
Income tax expense
 
(18)
Net profit before minority interest
 
44
Minority interest in other subsidiaries
 
(9)
Net profit for the period
 
35

(b) Techgen S.A. de C.V.
Techgen is a Mexican natural gas-fired combined cycle electric power plant in the Pesquería area of the State of Nuevo León, Mexico. The company started producing energy on December 1st, 2017 and is fully operational. As of February 2017, Ternium, Tenaris, and Tecpetrol International S.A. (a wholly-owned subsidiary of San Faustin S.A., the controlling shareholder of both Ternium and Tenaris) completed their investments in Techgen. Techgen is currently owned 48% by Ternium, 30% by Tecpetrol and 22% by Tenaris. Ternium and Tenaris also agreed to enter into power supply and transportation agreements with Techgen, pursuant to which Ternium and Tenaris will contract 78% and 22%, respectively, of Techgen’s power capacity of 900 megawatts. During 2017 and 2016, Techgen’s shareholders made additional investments in Techgen, in the form of subordinated loans, which in the case of Ternium amounted to USD 127.1 million as of June 30, 2018, and which are due in June 2020.
For commitments from Ternium in connection with Techgen, see note 11.

Page 15 of 30

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2018
and for the six-month periods ended June 30, 2018 and 2017


10.    DISTRIBUTION OF DIVIDENDS

During the annual shareholders’ meeting held on May 2, 2018, the shareholders approved a distribution of dividends of USD 0.11 per share (USD 1.10 per ADS), or approximately USD 220.5 million in the aggregate. The dividend was paid on May 10, 2018.

11.    CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF PROFITS

This note should be read in conjunction with Note 25 to the Company’s audited Consolidated Financial Statements for the year ended December 31, 2017. The main contingencies and commitments are as follows:

(i) Tax claims and other contingencies

(a) Companhia Siderúrgica Nacional (CSN) - Tender offer litigation

In 2013, the Company was notified of a lawsuit filed in Brazil by Companhia Siderúrgica Nacional (CSN) and various entities affiliated with CSN against Ternium Investments S.à r.l., its subsidiary Ternium Argentina S.A., and Confab Industrial S.A., a Brazilian subsidiary of Tenaris S.A. The entities named in the CSN lawsuit had acquire