Report of Foreign Issuer (6-k)

Date : 10/31/2018 @ 11:35AM
Source : Edgar (US Regulatory)
Stock : Ternium S.A. Ternium S.A. American Depositary Shares (Each Representing Ten Shares, USD1.00 Par Value) (TX)
Quote : 31.31  0.0 (0.00%) @ 12:00PM

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 10/30/2018

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: October 30, 2018








TXLOGOA04.JPG
 
 
 
TERNIUM S.A.
 
Consolidated Condensed Interim Financial Statements
 
as of September 30, 2018
 
and for the nine-month periods
 
ended on September 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 September 30, 2018
and for the nine-month periods ended September 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
Application of IAS 29 in financial reporting of Argentine subsidiaries and associates
30
 
 
 



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








Consolidated Condensed Interim Income Statements
 
 
 
 
Three-month period ended September 30,
 
Nine- month period ended September 30,
 
 
Notes
 
2018
 
2017
 
2018
 
2017
 
 
 
 
(Unaudited)
 
(Unaudited)
Net sales
 
3
 
2,903,050

 
2,535,024

 
8,551,932

 
6,932,788

Cost of sales
 
3 & 4
 
(2,012,636
)
 
(1,972,454
)
 
(6,211,599
)
 
(5,232,093
)
 
 
 
 
 
 
 
 
 
 
 
Gross profit
 
3
 
890,414

 
562,570

 
2,340,333

 
1,700,695

 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
3 & 5
 
(205,951
)
 
(211,249
)
 
(644,383
)
 
(572,572
)
Other operating income (expenses), net
 
3
 
4,833

 
(1,476
)
 
5,077

 
(21,305
)
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
3
 
689,296

 
349,845

 
1,701,027

 
1,106,818

 
 
 
 
 
 
 
 
 
 
 
Finance expense
 
6
 
(36,701
)
 
(29,235
)
 
(94,531
)
 
(74,718
)
Finance income
 
6
 
5,035

 
5,251

 
15,141

 
14,346

Other financial income (expenses), net
 
6
 
(80,914
)
 
(4,842
)
 
(165,558
)
 
(75,465
)
Equity in earnings (losses) of non-consolidated companies
 
9
 
22,594

 
15,535

 
54,943

 
52,108

 
 
 
 
 
 
 
 
 
 
 
Profit before income tax expense
 
 
 
599,310

 
336,554

 
1,511,022

 
1,023,089

 
 
 
 
 
 
 
 
 
 
 
Income tax expense
 
 
 
(75,950
)
 
(103,823
)
 
(300,252
)
 
(198,180
)
 
 
 
 
 
 
 
 
 
 
 
Profit for the period
 
 
 
523,360

 
232,731

 
1,210,770

 
824,909

 
 
 
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
 
 
 
 
Owners of the parent
 
 
 
488,527

 
194,938

 
1,137,354

 
705,978

Non-controlling interest
 
 
 
34,833

 
37,793

 
73,416

 
118,931

 
 
 
 
 
 
 
 
 
 
 
Profit for the period
 
 
 
523,360

 
232,731

 
1,210,770

 
824,909

 
 
 
 
 
 
 
 
 
 
 
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)
 
 
 
0.25

 
0.10

 
0.58

 
0.36

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 31

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








Consolidated Condensed Interim Statements of Comprehensive Income
 
 
Three-month period ended September 30,
 
Nine- month period ended September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
(Unaudited)
 
(Unaudited)
Profit for the period
 
523,360

 
232,731

 
1,210,770

 
824,909

 
 
 
 
 
 
 
 
 
Items that may be reclassified subsequently to profit or loss:
 
 
 
 
 
 
 
 
Currency translation adjustment
 
(103,514
)
 
(24,389
)
 
(369,410
)
 
(47,578
)
Currency translation adjustment from participation in non-consolidated companies
 
(16,372
)
 
19,688

 
(87,314
)
 
12,047

Changes in the fair value of financial instruments at fair value through other comprehensive income
 
(127
)
 

 
(1,067
)
 

Income tax related to financial instruments at fair value
 
31

 

 
142

 

Changes in the fair value of derivatives classified as cash flow hedges
 
50

 
(38,191
)
 
293

 
849

Income tax related to cash flow hedges
 
(15
)
 
(34
)
 
(200
)
 
9

Other comprehensive income items
 

 
20

 
(305
)
 
92

Other comprehensive income items from participation in non-consolidated companies
 
13

 
(747
)
 
498

 
(482
)
Items that will not be reclassified subsequently to profit or loss:
 
 
 
 
 
 
 
 
Remeasurement of post employment benefit obligations
 

 
121

 
1,099

 
(1,189
)
Income tax relating to remeasurement of post employment benefit obligations
 

 

 
(297
)
 

Remeasurement of post employment benefit obligations from participation in non-consolidated companies
 
(1,612
)
 
(196
)
 
(3,444
)
 
5,985

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) for the period, net of tax
 
(121,546
)
 
(43,728
)
 
(460,005
)
 
(30,267
)
 
 
 
 
 
 
 
 
 
Total comprehensive income for the period
 
401,814

 
189,003

 
750,765

 
794,642

 
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
 
 
Owners of the parent
 
436,522

 
159,244

 
826,857

 
693,012

Non-controlling interest
 
(34,708
)
 
29,759

 
(76,092
)
 
101,630

 
 
 
 
 
 
 
 
 
Total comprehensive income for the period
 
401,814

 
189,003

 
750,765

 
794,642

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 31

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








Consolidated Condensed Interim Statements of Financial Position
 
 
 
 
Balances as of
 
 
Notes
  
September 30, 2018
 
December 31, 2017
 
 
 
 
(Unaudited)
 
 
 
 
ASSETS
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-current assets
 
 
  
 
 
 
 
 
 
 
Property, plant and equipment, net
 
7
  
5,594,881

 
 
 
5,349,753

 
 
Intangible assets, net
 
8
  
1,006,113

 
 
 
1,092,579

 
 
Investments in non-consolidated companies
 
9
  
442,970

 
 
 
478,348

 
 
Other investments
 
 
 
14,899

 
 
 
3,380

 
 
Derivative financial instruments
 
 
 
1,166

 
 
 

 
 
Deferred tax assets
 
 
 
118,216

 
 
 
121,092

 
 
Receivables, net
 
 
 
652,361

 
 
 
677,299

 
 
Trade receivables, net
 
 
  
5,838

 
7,836,444

 
4,832

 
7,727,283

 
 
 
  
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
 
 
266,377

 
 
 
362,173

 
 
Derivative financial instruments
 
 
 
3,409

 
 
 
2,304

 
 
Inventories, net
 
 
 
2,670,511

 
 
 
2,550,930

 
 
Trade receivables, net
 
 
 
1,256,960

 
 
 
1,006,598

 
 
Other investments
 
 
 
60,993

 
 
 
132,736

 
 
Cash and cash equivalents
 
 
 
399,060

 
4,657,310

 
337,779

 
4,392,520

 
 
 
 
 
 
 
 
 
 
 
Non-current assets classified as held for sale
 
 
 
 
 
2,167

 
 
 
2,763

 
 
 
 
 
 
 
 
 
 
 
Total Assets
 
 
 
  
 
12,495,921

 
  
 
12,122,566

 
 
 
 
  
 
 
 
  
 
 
EQUITY
 
 
 
  
 
 
 
  
 
 
Capital and reserves attributable to the owners of the parent
 
 
 
 
 
5,939,621

 
 
 
5,010,424

Non-controlling interest
 
 
 
  
 
939,099

 
  
 
842,347

 
 
 
 
 
 
 
 
 
 
 
Total Equity
 
 
 
 
 
6,878,720

 
 
 
5,852,771

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-current liabilities
 
 
 
  
 
 
 
  
 
 
Provisions
 
 
 
632,366

 
  
 
768,517

 
 
Deferred tax liabilities
 
 
 
530,905

 
  
 
513,357

 
 
Other liabilities
 
 
 
378,335

 
  
 
373,046

 
 
Trade payables
 
 
 
1,116

 
 
 
2,259

 
 
Finance lease liabilities
 

 
66,621

 
 
 
69,005

 
 
Borrowings
 
 
 
1,689,633

 
3,298,976

 
1,716,337

 
3,442,521

 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
Current income tax liabilities
 
 
 
116,637

 
 
 
52,940

 
 
Other liabilities
 
 
 
359,034

 
 
 
357,001

 
 
Trade payables
 
 
 
957,816

 
 
 
897,732

 
 
Derivative financial instruments
 
 
 
18,379

 
 
 
6,001

 
 
Finance lease liabilities
 

 
8,724

 
 
 
8,030

 
 
Borrowings
 
 
 
857,635

 
2,318,225

 
1,505,570

 
2,827,274

 
 
 
 
 
 
 
 
 
 
 
Total Liabilities
 
 
 
 
 
5,617,201

 
  
 
6,269,795

 
 
 
 
 
 
 
 
  
 
 
Total Equity and Liabilities
 
 
 
 
 
12,495,921

 
  
 
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 31

TERNIUM S.A.
Consolidated Condensed Interim Financial Statements as of September 30, 2018
and for the nine-month periods ended September 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 15)
 
 
 
 
450

 
 
(147
)
303

 
204

 
507

Impact of adopting IAS 29 at January 1, 2018 (see note 16)
 
 
 
 
 
 
 
317,975

317,975

 
204,601

 
522,576

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

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

(2,324,866
)
(2,403,664
)
6,809,213

5,328,702

 
1,047,151

 
6,375,854

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Profit for the period
 






1,137,354

1,137,354

 
73,416

 
1,210,770

Other comprehensive income (loss) for the period
 








 

 

Currency translation adjustment
 





(307,289
)

(307,289
)
 
(149,435
)
 
(456,724
)
Remeasurement of post employment benefit obligations
 



(2,501
)



(2,501
)
 
(141
)
 
(2,642
)
Cash flow hedges and others, net of tax
 



(136
)



(136
)
 
229

 
93

Others
 



(571
)



(571
)
 
(161
)
 
(732
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income for the period
 



(3,208
)

(307,289
)
1,137,354

826,857

 
(76,092
)
 
750,765

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends paid in cash (5)
 






(215,938
)
(215,938
)
 

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








 
(29,006
)
 
(29,006
)
Inflation effect on dividends paid to non-controlling interest
 








 
(2,955
)
 
(2,955
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of September 30, 2018 (unaudited)
 
2,004,743

(150,000
)
(23,295
)
1,413,363

(2,324,866
)
(2,710,953
)
7,730,629

5,939,621

 
939,099

 
6,878,720


(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 September 30, 2018 , there were 2,004,743,442 shares issued. All issued shares are fully paid. Also, as of September 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 0.8 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 31


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






705,978

705,978

 
118,931

 
824,909

Other comprehensive (loss) income for the period
 








 

 

Currency translation adjustment
 





(17,905
)

(17,905
)
 
(17,626
)
 
(35,531
)
Remeasurement of post employment benefit obligations
 



4,463




4,463

 
333

 
4,796

Cash flow hedges, net of tax
 



868




868

 
(10
)
 
858

Others
 



(392
)



(392
)
 
2

 
(390
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss) for the period
 



4,939


(17,905
)
705,978

693,012

 
101,630

 
794,642

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 September 30, 2017 (unaudited)
 
2,004,743

(150,000
)
(23,295
)
1,425,110

(2,324,866
)
(2,354,834
)
6,311,144

4,888,002

 
846,352

 
5,734,354


(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 September 30, 2017 , there were 2,004,743,442 shares issued. All issued shares are fully paid. Also, as of September 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 0.1 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 31


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

Consolidated Condensed Interim Statements of Cash Flows

 

 
Nine- month period ended September 30,

 
Notes
 
2018
 
2017

 

 
(Unaudited)
Cash flows from operating activities
 

 

 

Profit for the period
 

 
1,210,770

 
824,909

Adjustments for:
 

 

 

Depreciation and amortization
 
7 & 8
 
443,867

 
321,932

Income tax accruals less payments
 

 
(89,697
)
 
(316,997
)
Equity in earnings of non-consolidated companies
 
9
 
(54,943
)
 
(52,108
)
Interest accruals less payments
 

 
(12,956
)
 
7,880

Changes in provisions
 

 
1,347

 
1,896

Changes in working capital (1)
 

 
(394,822
)
 
(555,257
)
Net foreign exchange results and others
 

 
87,962

 
119,495

Net cash provided by operating activities
 

 
1,191,528

 
351,750

Cash flows from investing activities
 

 

 

Capital expenditures
 
7 & 8
 
(344,398
)
 
(282,873
)
Loans to non-consolidated companies
 

 
(24,480
)
 
(23,904
)
Decrease (Increase) in other investments
 

 
58,643

 
(9,492
)
Proceeds from the sale of property, plant and equipment
 

 
607

 
747

Dividends received from non-consolidated companies
 

 

 
65

Acquisition of business
 

 

 

Purchase consideration
 
13
 

 
(1,890,989
)
Cash acquired
 
13
 

 
278,162

Net cash used in investing activities
 

 
(309,628
)
 
(1,928,284
)
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
 

 
(31,961
)
 
(30,573
)
Finance lease payments
 

 
(5,006
)
 
(1,083
)
Proceeds from borrowings
 

 
1,105,203

 
2,812,231

Repayments of borrowings
 

 
(1,648,233
)
 
(806,274
)
Net cash (used in) provided by financing activities
 

 
(795,935
)
 
1,777,993

Decrease in cash and cash equivalents
 

 
85,965

 
201,459

Movement in cash and cash equivalents
 

 

 

At January 1,
 

 
337,779

 
183,463

Effect of exchange rate changes and initial inflation adjustment
 
16
 
(24,684
)
 
(1,108
)
Increase in cash and cash equivalents
 

 
85,965

 
201,459

Cash and cash equivalents as of September 30, (2)
 

 
399,060

 
383,814

Non-cash transactions:
 

 

 

Acquisition of PP&E under lease contract agreements
 

 

 
77,436

(1) The working capital is impacted by non-cash movement of USD (189.7) million as of September 30, 2018 (USD (36.7) million as of September 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 80 as of September 30, 2018 and 2017, respectively. In addition, the Company had other investments with a maturity of more than three months for USD 75,640 and USD 157,151 as of September 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 31

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of September 30, 2018
and for the nine-month periods ended September 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 September 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 Notes 15 and 16 of these Consolidated Condensed Interim Financial Statements.


Page 8 of 31

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of September 30, 2018
and for the nine-month periods ended September 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 four operating segments: Mexico, Southern Region, Brazil 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 Brazil operating segment includes the business generated in Brazil. The Other markets operating segment includes businesses mainly in 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 31

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


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

 

 

 

Net sales
 
8,550,953

 
210,114

 
(209,136
)
 
8,551,932

Cost of sales
 
(6,254,981
)
 
(169,967
)
 
213,349

 
(6,211,599
)
Gross profit
 
2,295,972

 
40,147

 
4,213

 
2,340,333

Selling, general and administrative expenses
 
(632,412
)
 
(11,971
)
 

 
(644,383
)
Other operating income, net
 
4,368

 
709

 

 
5,077

Operating income - IFRS
 
1,667,928

 
28,886

 
4,213

 
1,701,027

Management view
 

 

 

 

Net sales
 
9,096,614

 
254,032

 
(253,054
)
 
9,097,593

Operating income
 
1,480,006

 
81,441

 
(10,932
)
 
1,550,514

Reconciliation items:
 

 

 

 

Differences in Cost of sales
 

 

 

 
392,973

Effect of inflation adjustment (Note 16)
 

 

 

 
(242,460
)
Operating income - IFRS
 

 

 

 
1,701,027

Financial income (expense), net
 

 

 

 
(244,948
)
Equity in earnings of non-consolidated companies
 

 

 

 
54,943

Income before income tax expense - IFRS
 

 

 

 
1,511,022

Depreciation and amortization - IFRS
 
(403,896
)
 
(39,971
)
 

 
(443,867
)
 
 
 
 
 
 
 
 
 

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

 

 

 

Net sales
 
6,932,764

 
202,433

 
(202,409
)
 
6,932,788

Cost of sales
 
(5,281,939
)
 
(156,926
)
 
206,772

 
(5,232,093
)
Gross profit
 
1,650,825

 
45,507

 
4,363

 
1,700,695

Selling, general and administrative expenses
 
(563,473
)
 
(9,099
)
 

 
(572,572
)
Other operating income, net
 
(22,076
)
 
772

 

 
(21,305
)
Operating income - IFRS
 
1,065,276

 
37,180

 
4,363

 
1,106,818

Management view
 

 

 

 

Net sales
 
6,782,237

 
215,663

 
(215,639
)
 
6,782,261

Operating income
 
792,893

 
53,339

 
868

 
847,100

Reconciliation items:
 

 

 

 

Differences in Cost of sales
 

 

 

 
259,718

Operating income - IFRS
 

 

 

 
1,106,818

Financial income (expense), net
 

 

 

 
(135,837
)
Equity in earnings of non-consolidated companies
 

 

 

 
52,108

Income before income tax expense - IFRS
 

 

 

 
1,023,089

Depreciation and amortization - IFRS
 
(285,530
)
 
(36,402
)
 

 
(321,932
)



Page 10 of 31

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of September 30, 2018
and for the nine-month periods ended September 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.
 
 
Nine- month period ended September 30, 2018 (Unaudited)
 
 
Mexico
 
Southern region
 
Brazil and
Other
 markets (2)
 
Total
 
 
 
 
 
 
 
 
 
Net sales
 
4,869,687

 
1,203,633

 
2,478,612

 
8,551,932

 
 
 
 
 
 
 
 
 
Non-current assets (1)
 
4,042,274

 
893,459

 
1,665,261

 
6,600,994

 
 

 

 

 

 
 
Nine- month period ended September 30, 2017 (Unaudited)
 
 
Mexico
 
Southern region
 
Brazil and
O
ther markets (2)
 
Total
 
 
 
 
 
 
 
 
 
Net sales
 
4,233,860

 
1,694,916

 
1,004,012

 
6,932,788

 
 
 
 
 
 
 
 
 
Non-current assets (1)
 
4,038,473

 
685,723

 
1,432,016

 
6,156,212


 
 
 
 
 
 
 
 
(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

 
Nine- month period ended September 30,

 
2018
 
2017

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

 
1,647,869

Acquisition of business (Note 12)
 

 
344,532

Effect of initial inflation adjustment (Note 16)
 
132,610

 

Translation differences
 
(454,874
)
 
(49,626
)
Plus: Charges for the period
 

 

Raw materials and consumables used and
other movements
 
5,318,446

 
4,488,926

Services and fees
 
116,158

 
71,321

Labor cost
 
504,563

 
472,838

Depreciation of property, plant and equipment
 
328,110

 
249,596

Amortization of intangible assets
 
19,945

 
29,219

Maintenance expenses
 
357,477

 
325,197

Office expenses
 
5,990

 
5,100

Insurance
 
6,098

 
6,096

Change of obsolescence allowance
 
5,934

 
(2,313
)
Recovery from sales of scrap and by-products
 
(19,876
)
 
(20,055
)
Others
 
10,599

 
20,610

Less: Inventories at the end of the period
 
(2,670,511
)
 
(2,357,217
)
Cost of Sales
 
6,211,599

 
5,232,093


Page 11 of 31

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


5.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 
Nine- month period ended September 30,
 
2018
 
2017
 
(Unaudited)
Services and fees
49,290
 
62,625

Labor cost
178,426
 
167,657

Depreciation of property, plant and equipment
9,843
 
9,145

Amortization of intangible assets
85,969
 
33,972

Maintenance and expenses
3,928
 
3,554

Taxes
58,325
 
68,204

Office expenses
26,740
 
25,992

Freight and transportation
220,378
 
191,429

Increase (decrease) of allowance for doubtful accounts
1,053
 
(26
)
Others
10,431
 
10,020

Selling, general and administrative expenses  
644,383
 
572,572


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

 
Nine- month period ended September 30,
 
2018
 
2017
 
(Unaudited)
Interest expense
(94,531
)
 
(74,718
)
 
 
 
 
Finance expense
(94,531
)
 
(74,718
)
 
 
 
 
Interest income
15,141

 
14,346

 
 
 
 
Finance income
15,141

 
14,346

 
 
 
 
Net foreign exchange gain (loss)
(170,227
)
 
(84,999
)
Inflation adjustment results (Note 16)
97,945

 

Change in fair value of financial assets

 
(650
)
Derivative contract results
(103,055
)
 
12,958

Others
9,779

 
(2,774
)
 
 
 
 
Other financial income (expenses), net
(165,558
)
 
(75,465
)

7.    PROPERTY, PLANT AND EQUIPMENT, NET
 
Nine- month period ended September 30,
 
2018
 
2017
 
(Unaudited)
At the beginning of the year
5,349,753

 
4,135,977

 
 
 
 
Effect of initial inflation adjustment (Note 16)
613,849

 

Acquisition of business (Note 12)

 
892,856

Currency translation differences
(334,408)

 
(58,952)

Additions
321,385

 
337,759

Disposals
(17,499)

 
(25,027)

Depreciation charge
(337,953)

 
(258,741)

Transfers and reclassifications
(246)

 
(123)

At the end of the period
5,594,881

 
5,023,749



Page 12 of 31

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


8.    INTANGIBLE ASSETS, NET

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

 
842,557

 
 
 
 
Effect of initial inflation adjustment (Note 16)
3,429

 

Acquisition of business (Note 12)

 
316,908

Currency translation differences
(7,239)

 
(828)

Additions
23,013

 
37,017

Amortization charge
(105,914)

 
(63,191)

Transfers/Disposals
245

 

At the end of the period
1,006,113

 
1,132,463



9.
INVESTMENTS IN NON-CONSOLIDATED COMPANIES

Company
 
Country of incorporation
 
Main activity
 
Voting rights as of
 
Value as of
 
 
 
September 30, 2018
 
December 31, 2017
 
September 30, 2018
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS
 
Brazil
 
Manufacturing and selling of steel products
 
34.39%
 
34.39%
 
429,596
 
466,299
Other non-consolidated companies (1)
 
 
 
 
 
 
 
 
 
13,374
 
12,049
 
 
 
 
 
 
 
 
 
 
442,970
 
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 31


TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of September 30, 2018
and for the nine-month periods ended September 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 September 30, 2018, the closing price of the Usiminas ordinary and preferred shares, as quoted on the BM&F Bovespa Stock Exchange, was BRL 11.37 (approximately USD 2.84; December 31, 2017: BRL 10.83 - USD 3.27) per ordinary share and BRL 8.32 (approximately USD 2.08; December 31, 2017: BRL 9.10 - USD 2.75) per preferred share, respectively. Accordingly, as of September 30, 2018, Ternium’s ownership stake had a market value of approximately USD 706.6 million and a carrying value of USD 429.6 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 September 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)
 
51,787

Other comprehensive income
 
(88,490
)
 
 
 
As of September 30, 2018
 
429,596

 
 
 
(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
 
3,521,544

Percentage of interest of the Company over shareholders' equity
 
20.47
%
 
 
 
Interest of the Company over shareholders' equity
 
719,688

 
 
 
Purchase price allocation
 
69,203

Goodwill
 
259,605

Impairment
 
(618,900
)
 
 
 
Total Investment in Usiminas
 
429,596


Page 14 of 31

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


9.    INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)

On October 25, 2018, Usiminas issued its consolidated interim accounts as of and for the nine- month period ended September 30, 2018 , which state that revenues, net profit from continuing operations and shareholders’ equity amounted to USD 2,866 million, USD 101 million and USD 3,523 million, respectively.
 
 
USIMINAS
Summarized balance sheet (in million USD)
 
As of September 30, 2018
Assets
 
 
Non-current
 
4,596
Current
 
1,503
Other current investments
 
146
Cash and cash equivalents
 
274
 
 
 
Total Assets
 
6,519