Report of Foreign Issuer (6-k)

Date : 07/31/2019 @ 10:26AM
Source : Edgar (US Regulatory)
Stock : Ternium SA (TX)
Quote : 21.68  0.36 (1.69%) @ 3:41PM

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 7/30/2019

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, 2019.


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 30, 2019








TXLOGOA08.JPG
 
 
 
TERNIUM S.A.
 
Consolidated Condensed Interim Financial Statements
 
as of June 30, 2019
 
and for the six-month periods
 
ended on June 30, 2019 and 2018

 
 
 
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, 2019
and for the six-month periods ended June 30, 2019 and 2018




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
15
11
Contingencies, commitments and restrictions on the distribution of profits
15
12
Related party transactions
19
13
Financial instruments by category and fair value measurement
20
14
Changes in accounting policies
21
 
 
 
 
 
 



TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018
(All amounts in USD thousands)
 
 








Consolidated Condensed Interim Income Statements
 
 
 
 
Three-month period ended
June 30,
 
Six-month period ended
June 30,
 
 
Notes
 
2019
 
2018
 
2019
 
2018
 
 
 
 
(Unaudited)
 
(Unaudited)
Net sales
 
3
 
2,813,389

 
3,022,435

 
5,598,699

 
5,819,446

Cost of sales
 
3 & 4
 
(2,325,047
)
 
(2,212,439
)
 
(4,583,265
)
 
(4,345,163
)
 
 
 
 
 
 
 
 
 
 
 
Gross profit
 
3
 
488,342

 
809,996

 
1,015,434

 
1,474,283

 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
3 & 5
 
(250,443
)
 
(233,992
)
 
(475,607
)
 
(457,821
)
Other operating income (expenses), net
 
3
 
352

 
(5,499
)
 
5,887

 
279

 
 
 
 
 
 
 
 
 
 
 
Operating income
 
3
 
238,251

 
570,505

 
545,714

 
1,016,741

 
 
 
 
 
 
 
 
 
 
 
Finance expense
 
6
 
(21,667
)
 
(31,330
)
 
(41,654
)
 
(61,445
)
Finance income
 
6
 
6,647

 
5,346

 
12,601

 
10,287

Other financial income (expenses), net
 
6
 
9,530

 
(75,472
)
 
(2,142
)
 
(99,260
)
Equity in earnings (losses) of non-consolidated companies
 
9
 
20,329

 
12,366

 
35,207

 
32,349

 
 
 
 
 
 
 
 
 
 
 
Profit before income tax expense
 
 
 
253,090

 
481,415

 
549,726

 
898,672

 
 
 
 
 
 
 
 
 
 
 
Income tax expense
 
 
 
(47,350
)
 
(192,164
)
 
(119,813
)
 
(232,752
)
 
 
 
 
 
 
 
 
 
 
 
Profit for the period
 
 
 
205,741

 
289,251

 
429,913

 
665,920

 
 
 
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
 
 
 
 
Owners of the parent
 
 
 
181,122

 
293,651

 
398,886

 
632,532

Non-controlling interest
 
 
 
24,619

 
(4,400
)
 
31,027

 
33,388

 
 
 
 
 
 
 
 
 
 
 
Profit for the period
 
 
 
205,741

 
289,251

 
429,913

 
665,920

 
 
 
 
 
 
 
 
 
 
 
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)
 
 
 
0.09

 
0.15

 
0.20

 
0.32

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, 2018.

Page 2 of 24

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018
(All amounts in USD thousands)
 
 








Consolidated Condensed Interim Statements of Comprehensive Income
 
 
Three-month period ended June 30,
 
Six-month period ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(Unaudited)
 
(Unaudited)
Profit for the period
 
205,741

 
289,251

 
429,913

 
665,920

 
 
 
 
 
 
 
 
 
Items that may be reclassified subsequently to profit or loss:
 
 
 
 
 
 
 
 
Currency translation adjustment (see note 2)
 
151,413

 
(206,953
)
 
115,112

 
(260,877
)
Currency translation adjustment from participation in non-consolidated companies
 
8,679

 
(68,196
)
 
5,395

 
(70,942
)
Changes in the fair value of financial instruments at fair value through other comprehensive income
 
13

 
(710
)
 
45

 
(940
)
Income tax related to financial instruments at fair value
 

 
57

 

 
111

Changes in the fair value of derivatives classified as cash flow hedges
 
(435
)
 
140

 
(703
)
 
243

Income tax related to cash flow hedges
 
131

 
(42
)
 
211

 
(185
)
Other comprehensive income items
 

 

 

 
(305
)
Other comprehensive income items from participation in non-consolidated companies
 
2

 
426

 
69

 
485

Items that will not be reclassified subsequently to profit or loss:
 
 
 
 
 
 
 
 
Remeasurement of post employment benefit obligations
 
(416
)
 
1,099

 
(416
)
 
1,099

Income tax relating to remeasurement of post employment benefit obligations
 
63

 
(297
)
 
63

 
(297
)
Remeasurement of post employment benefit obligations from participation in non-consolidated companies
 
(1,084
)
 
(1,476
)
 
(1,241
)
 
(1,832
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) for the period, net of tax
 
158,366

 
(275,952
)
 
118,535

 
(333,440
)
 
 
 
 
 
 
 
 
 
Total comprehensive income for the period
 
364,107

 
13,299

 
548,448

 
332,480

 
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
 
 
Owners of the parent
 
280,529

 
102,508

 
472,605

 
405,087

Non-controlling interest
 
83,578

 
(89,209
)
 
75,843

 
(72,607
)
 
 
 
 
 
 
 
 
 
Total comprehensive income for the period
 
364,107

 
13,299

 
548,448

 
332,480

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, 2018.

Page 3 of 24

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018
(All amounts in USD thousands)
 
 








Consolidated Condensed Interim Statements of Financial Position
 
 
 
 
Balances as of
 
 
Notes
  
June 30, 2019
 
December 31, 2018
 
 
 
 
(Unaudited)
 
 
 
 
ASSETS
 
 
  
 
 
 
 
 
 
 
Non-current assets
 
 
  
 
 
 
 
 
 
 
Property, plant and equipment, net
 
7
  
6,375,120

 
 
 
5,817,609

 
 
Intangible assets, net
 
8
  
968,590

 
 
 
1,012,524

 
 
Investments in non-consolidated companies
 
9
  
533,963

 
 
 
495,241

 
 
Other investments
 
 
 
5,141

 
 
 
7,195

 
 
Derivative financial instruments
 
 
 
166

 
 
 
818

 
 
Deferred tax assets
 
 
 
139,405

 
 
 
134,224

 
 
Receivables, net
 
 
 
621,697

 
 
 
649,447

 
 
Trade receivables, net
 
 
  
2,832

 
8,646,914

 
4,766

 
8,121,824

Current assets
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
 
 
390,846

 
 
 
309,750

 
 
Derivative financial instruments
 
 
 
88

 
 
 
770

 
 
Inventories, net
 
 
 
2,447,577

 
 
 
2,689,829

 
 
Trade receivables, net
 
 
 
1,289,534

 
 
 
1,128,470

 
 
Other investments
 
 
 
28,645

 
 
 
44,529

 
 
Cash and cash equivalents
 
 
 
777,528

 
4,934,218

 
250,541

 
4,423,889

Non-current assets classified as held for sale
 
 
 
 
 
2,125

 
 
 
2,149

 
 
 
 
 
 
4,936,343

 
 
 
4,426,038

Total Assets
 
 
 
  
 
13,583,257

 
  
 
12,547,862

 
 
 
 
  
 
 
 
  
 
 
EQUITY
 
 
 
  
 
 
 
  
 
 
Capital and reserves attributable to the owners of the parent
 
 
 
 
 
6,630,291

 
 
 
6,393,255

Non-controlling interest
 
 
 
  
 
1,137,570

 
  
 
1,091,321

Total Equity
 
 
 
 
 
7,767,861

 
 
 
7,484,576

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
Non-current liabilities
 
 
 
  
 
 
 
  
 
 
Provisions
 
 
 
646,132

 
  
 
643,950

 
 
Deferred tax liabilities
 
 
 
470,241

 
  
 
474,431

 
 
Other liabilities
 
 
 
434,005

 
  
 
414,541

 
 
Trade payables
 
 
 
953

 
 
 
935

 
 
Lease liabilities
 
14
 
289,989

 
 
 
65,798

 
 
Borrowings
 
 
 
1,829,147

 
3,670,467

 
1,637,101

 
3,236,756

Current liabilities
 
 
 
 
 
 
 
 
 
 
Current income tax liabilities
 
 
 
26,792

 
 
 
150,276

 
 
Other liabilities
 
 
 
321,583

 
 
 
351,216

 
 
Trade payables
 
 
 
1,014,292

 
 
 
904,171

 
 
Derivative financial instruments
 
 
 
3,792

 
 
 
12,981

 
 
Lease liabilities
 
14
 
52,263

 
 
 
8,030

 
 
Borrowings
 
 
 
726,207

 
2,144,929

 
399,856

 
1,826,530

Total Liabilities
 
 
 
 
 
5,815,396

 
  
 
5,063,286

 
 
 
 
 
 
 
 
  
 
 
Total Equity and Liabilities
 
 
 
 
 
13,583,257

 
  
 
12,547,862

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, 2018.


Page 4 of 24

TERNIUM S.A.
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018
(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, 2019
 
2,004,743

(150,000
)
(23,295
)
1,385,701

(2,324,866
)
(2,702,477
)
8,203,449

6,393,255

 
1,091,321

 
7,484,576

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Profit for the period
 






398,886

398,886

 
31,027

 
429,913

Other comprehensive income (loss) for the period
 








 

 

Currency translation adjustment
 





75,404


75,404

 
45,103

 
120,507

Remeasurement of post employment benefit obligations
 



(1,520
)



(1,520
)
 
(74
)
 
(1,594
)
Cash flow hedges and others, net of tax
 



(251
)



(251
)
 
(241
)
 
(492
)
Others
 



86




86

 
28

 
114

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss) for the period
 



(1,685
)

75,404

398,886

472,605

 
75,843

 
548,448

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends paid in cash (5)
 






(235,569
)
(235,569
)
 

 
(235,569
)
Dividends paid in cash to non-controlling interest
 








 
(29,594
)
 
(29,594
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2019 (unaudited)
 
2,004,743

(150,000
)
(23,295
)
1,384,016

(2,324,866
)
(2,627,073
)
8,366,766

6,630,291

 
1,137,570

 
7,767,861


(1) Shareholders’ equity determined in accordance with accounting principles generally accepted in Luxembourg is disclosed in Note 25 (iii) of the audited Consolidated Financial Statements and notes for the year ended December 31, 2018.
(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, 2019 , there were 2,004,743,442 shares issued. All issued shares are fully paid. Also, as of June 30, 2019 , 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 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.
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, 2018.

Page 5 of 24


TERNIUM S.A.
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018
(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
 



450



(147
)
303

 
204

 
507

Impact of adopting IAS 29 at January 1, 2018
 






421,502

421,502

 
268,824

 
690,326

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

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

(2,324,866
)
(2,403,664
)
6,912,740

5,432,229

 
1,111,375

 
6,543,604

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Profit for the period
 






632,532

632,532

 
33,388

 
665,920

Other comprehensive income (loss) for the period
 








 

 

Currency translation adjustment
 





(225,775
)

(225,775
)
 
(106,044
)
 
(331,819
)
Remeasurement of post employment benefit obligations
 



(1,022
)



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



(154
)



(154
)
 
212

 
58

Others
 



(494
)



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



(1,670
)

(225,775
)
632,532

405,087

 
(72,607
)
 
332,480

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends paid in cash
 






(215,938
)
(215,938
)
 

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








 
(20,940
)
 
(20,940
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2018 (unaudited)
 
2,004,743

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

(2,324,866
)
(2,629,439
)
7,329,334

5,621,378

 
1,017,828

 
6,639,206

(1) Shareholders’ equity determined in accordance with accounting principles generally accepted in Luxembourg is disclosed in Note 25 (iii) of the audited Consolidated Financial Statements and notes for the year ended December 31, 2018.
(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.
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.
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, 2018.

Page 6 of 24


TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018
(All amounts in USD thousands)

Consolidated Condensed Interim Statements of Cash Flows

 

 
Six- month period ended June 30,

 
Notes
 
2019
 
2018

 

 
(Unaudited)
Cash flows from operating activities
 

 

 

Profit for the period
 

 
429,913

 
665,920

Adjustments for:
 

 

 

Depreciation and amortization
 
7 & 8
 
337,896

 
311,645

Income tax accruals less payments
 

 
(192,369
)
 
(32,673
)
Equity in earnings of non-consolidated companies
 
9
 
(35,207
)
 
(32,349
)
Interest accruals less payments
 

 
8,329

 
(7,060
)
Changes in provisions
 

 
(2,671
)
 
1,047

Changes in working capital (1)
 

 
202,643

 
(248,116
)
Net foreign exchange results and others
 

 
1,035

 
67,390

Net cash provided by operating activities
 

 
749,569

 
725,804

Cash flows from investing activities
 

 

 

Capital expenditures
 
7 & 8
 
(485,122
)
 
(229,609
)
Recovery/(Loans) to non-consolidated companies
 

 
24,480

 

Decrease in other investments
 

 
17,938

 
6,311

Proceeds from the sale of property, plant and equipment
 

 
475

 
440

Net cash used in investing activities
 

 
(442,229
)
 
(222,858
)
Cash flows from financing activities
 

 

 

Dividends paid in cash to company’s shareholders
 
10
 
(235,569
)
 
(215,938
)
Dividends paid in cash to non-controlling interest
 

 
(29,594
)
 
(20,940
)
Finance lease payments
 

 
(23,400
)
 
(3,843
)
Proceeds from borrowings
 

 
869,359

 
526,046

Repayments of borrowings
 

 
(353,805
)
 
(885,361
)
Net cash provided by (used in) financ ing activities
 

 
226,991

 
(600,036
)
Increase (Decrease) in cash and cash equivalents
 

 
534,331

 
(97,090
)
Movement in cash and cash equivalents
 

 

 

At January 1,
 

 
250,541

 
337,779

Effect of exchange rate changes and inflation adjustment
 

 
(7,344
)
 
(10,877
)
Increase (Decrease) in cash and cash equivalents
 

 
534,331

 
(97,090
)
Cash and cash equivalents as of June 30, (2)
 

 
777,528

 
229,812

 
 
 
 
 
 
 
Non-cash transactions:
 

 

 

Acquisition of PP&E under lease contract agreements
 

 
4,266

 

(1) The working capital is impacted by non-cash movements of USD (51.9) million as of June 30, 2019 (USD (142.3) million as of June 30, 2018) 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 USD 88 and nil as of June 30, 2019 and 2018, respectively. In addition, the Company had other investments with a maturity of more than three months for USD 33,534 and USD 128,799 as of June 30, 2019 and 2018, 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, 2018.

Page 7 of 24

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018





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, 2019, 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 are disclosed in Note 2 to the audited Consolidated Financial Statements for the year ended December 31, 2018.

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 consolidated condensed interim 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, 2018, 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, 2018, 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, 2018, except for the changes in connection with the implementation of IFRS 16 -Leases, explained in Note 14 of these Consolidated Condensed Interim Financial Statements.


Page 8 of 24

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018




2.    ACCOUNTING POLICIES (continued)

IAS 29 “Financial Reporting in Hyperinflationary Economies”, which requires that the financial statements of entities whose functional currency is that of a hyperinflationary economy to be adjusted for the effects of changes in a suitable general price index and to be expressed in terms of the current unit of measurement at the closing date of the reporting period, is still applicable for the Company’s Argentine subsidiaries and associates. The inflation adjustment was calculated by means of conversion factor derived from the Argentine price indexes published by the National Institute of Statistics (“INDEC”). The price index for the six-month period ended June 30, 2019, was 1.22. The comparative figures as of June 30, 2018, have been restated for the changes in the general price index applicable to the financial reporting of the Company’s subsidiaries and associates with the Argentine peso as functional currency and, as result, have been stated in terms of such currency as of the end of the comparative reporting period. The Currency translation adjustment line in the statement of comprehensive income includes the effects of the currency translation and the inflation adjustments.

None of the accounting pronouncements issued after December 31, 2018, 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 four 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 24

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018




3. SEGMENT INFORMATION (continued)
 
 
Six- month period ended June 30, 2019 (Unaudited)
 
 
Steel
 
Mining
 
Inter-segment eliminations
 
Total
IFRS
 

 

 

 

Net sales
 
5,598,687

 
152,583

 
(152,571
)
 
5,598,699

Cost of sales
 
(4,612,421
)
 
(124,624
)
 
153,780

 
(4,583,265
)
Gross profit
 
986,266

 
27,959

 
1,209

 
1,015,434

Selling, general and administrative expenses
 
(467,915
)
 
(7,692
)
 

 
(475,607
)
Other operating income, net
 
6,587

 
(700
)
 

 
5,887

Operating income - IFRS
 
524,938

 
19,567

 
1,209

 
545,714

Management view
 

 

 

 

Net sales
 
5,545,448

 
232,538

 
(232,526
)
 
5,545,460

Operating income
 
466,161

 
100,642

 
2,369

 
569,172

Reconciliation items:
 

 

 

 

Differences in Cost of sales
 

 

 

 
83,938

Effect of inflation adjustment
 

 

 

 
(107,396
)
Operating income - IFRS
 

 

 

 
545,714

Financial income (expense), net
 

 

 

 
(31,195
)
Equity in earnings of non-consolidated companies
 

 

 

 
35,207

Income before income tax expense - IFRS
 

 

 

 
549,726

Depreciation and amortization - IFRS (1)
 
(314,460
)
 
(23,436
)
 

 
(337,896
)
The effect of the application of IAS 29 - Hyperinflationary economies in Argentina for the six-month period ended June 30, 2019, is only allocated in the Steel segment, having an impact of USD 53 million on Net sales, USD (200) million in Cost of sales, USD (8) million in Selling, general and administrative expenses and USD (1) million in Other operating expenses, net.

(1) It includes the depreciation and amortization of right-of-use assets of USD 22.0 million in the Steel segment.
 
 
Six- month period ended June 30, 2018 (Unaudited)
 
 
Steel
 
Mining
 
Inter-segment eliminations
 
Total
IFRS
 

 

 

 

Net sales
 
5,818,700

 
143,469

 
(142,723
)
 
5,819,446

Cost of sales
 
(4,386,411
)
 
(107,745
)
 
148,993

 
(4,345,163
)
Gross profit
 
1,432,289

 
35,724

 
6,270

 
1,474,283

Selling, general and administrative expenses
 
(449,146
)
 
(8,675
)
 

 
(457,821
)
Other operating income, net
 
(335
)
 
614

 

 
279

Operating income - IFRS
 
982,808

 
27,663

 
6,270

 
1,016,741

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
 

 

 

 
286,375

Effect of inflation adjustment
 

 

 

 
(156,679
)
Operating income - IFRS
 

 

 

 
1,016,741

Financial income (expense), net
 

 

 

 
(150,418
)
Equity in earnings of non-consolidated companies
 

 

 

 
32,349

Income before income tax expense - IFRS
 

 

 

 
898,672

Depreciation and amortization - IFRS
 
(284,331
)
 
(27,316
)
 

 
(311,646
)
The effect of the application of IAS 29 - Hyperinflationary economies in Argentina for the six-month period ended June 30, 2018, is only allocated in the Steel segment, having an impact of USD (276) million on Net sales, USD 91 million in Cost of sales, USD 28 million in Selling, general and administrative expenses and USD nil in Other operating expenses, net.

Page 10 of 24

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018




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, 2019 (Unaudited)
 
 
Mexico
 
Southern region
 
Other markets
 
Total
 
 
 
 
 
 
 
 
 
Net sales
 
2,884,477

 
922,812

 
1,791,410

 
5,598,699

 
 
 
 
 
 
 
 
 
Non-current assets (1)
 
4,275,745

 
1,155,848

 
1,912,117

 
7,343,710

 
 

 

 

 

 
 
Six- month period ended June 30, 2018 (Unaudited)
 
 
Mexico
 
Southern region
 
Other markets
 
Total
 
 
 
 
 
 
 
 
 
Net sales
 
3,285,070

 
955,355

 
1,579,021

 
5,819,446

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

 
1,193,796

 
1,697,287

 
6,923,731


 
 
 
 
 
 
 
 
(1) Includes Property, plant and equipment and Intangible assets.
 
 
 
 


4.
COST OF SALES

 
Six- month period ended June 30,

 
2019
 
2018

 
(Unaudited)
Inventories at the beginning of the year
 
2,689,829

 
2,550,930

Effect of initial inflation adjustment
 

 
191,708

Translation differences
 
59,323

 
(276,369
)
Plus: Charges for the period
 

 

Raw materials and consumables used and
other movements
 
3,320,263

 
3,701,964

Services and fees
 
79,796

 
81,332

Labor cost
 
330,760

 
353,642

Depreciation of property, plant and equipment
 
256,474

 
227,218

Amortization of intangible assets
 
9,021

 
14,363

Maintenance expenses
 
274,170

 
260,802

Office expenses
 
4,310

 
3,994

Insurance
 
5,126

 
3,876

Change of obsolescence allowance
 
5,908

 
4,421

Recovery from sales of scrap and by-products
 
(13,174
)
 
(10,704
)
Others
 
9,036

 
7,808

Less: Inventories at the end of the period
 
(2,447,577
)
 
(2,769,822
)
Cost of Sales
 
4,583,265

 
4,345,163



Page 11 of 24

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018




5.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
Six- month period ended June 30,
 
2019
 
2018
 
(Unaudited)
Services and fees
40,654
 
37,196
Labor cost
112,257
 
123,739
Depreciation of property, plant and equipment
8,382
 
6,776
Amortization of intangible assets
64,019
 
63,289
Maintenance and expenses
2,932
 
2,612
Taxes
55,559
 
43,080
Office expenses
18,030
 
18,671
Freight and transportation
166,803
 
153,010
Increase (decrease) of allowance for doubtful accounts
(345)
 
1683
Others
7,316
 
7,765
Selling, general and administrative expenses  
475,607
 
457,821


6.
FINANCE EXPENSE, FINANCE INCOME AND OTHER FINANCIAL INCOME (EXPENSES), NET
 
Six- month period ended June 30,
 
2019
 
2018
 
(Unaudited)
Interest expense
(41,654
)
 
(61,445
)
 
 
 
 
Finance expense
(41,654
)
 
(61,445
)
 
 
 
 
Interest income
12,601

 
10,287

 
 
 
 
Finance income
12,601

 
10,287

 
 
 
 
Net foreign exchange gain (loss)
(45,968
)
 
(90,625
)
Inflation adjustment results
63,774

 
52,961

Derivative contract results
(6,592
)
 
(73,636
)
Others
(13,356
)
 
12,040

 
 
 
 
Other financial income (expenses), net
(2,142
)
 
(99,260
)


7.    PROPERTY, PLANT AND EQUIPMENT, NET
 
Six- month period ended June 30,
 
2019
 
2018
 
(Unaudited)
At the beginning of the year
5,817,609

 
5,349,753

 
 
 
 
Effect of initial inflation adjustment

 
788,030

Effect of initial recognition of right-of-use assets
280,493

 

Currency translation differences
91,019

 
(212,741
)
Additions
461,148

 
213,175

Disposals
(18,620
)
 
(12,180
)
Depreciation charge
(264,856
)
 
(233,994
)
Capitalized borrowing costs
7,906

 

Transfers and reclassifications
421

 
(227
)
At the end of the period
6,375,120

 
5,891,816


Page 12 of 24

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018




8.    INTANGIBLE ASSETS, NET

 
Six- month period ended June 30,
 
2019
 
2018
 
(Unaudited)
At the beginning of the year
1,012,524

 
1,092,579

 
 
 
 
Effect of initial inflation adjustment

 
4,966

Currency translation differences
1,247

 
(4,639)

Additions
28,239

 
16,433

Amortization charge
(73,040)

 
(77,652)

Transfers/Disposals
(380)

 
227

At the end of the period
968,590

 
1,031,914



9.
INVESTMENTS IN NON-CONSOLIDATED COMPANIES

Company
 
Country of incorporation
 
Main activity
 
Voting rights as of
 
Value as of
 
 
 
June 30, 2019
 
December 31, 2018
 
June 30, 2019
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS
 
Brazil
 
Manufacturing and selling of steel products
 
34.39%
 
34.39%
 
513,053
 
480,084
Other non-consolidated companies (1)
 
 
 
 
 
 
 
 
 
20,910
 
15,157
 
 
 
 
 
 
 
 
 
 
533,963
 
495,241
(1) It includes the investments held in Techgen S.A. de C.V., Finma S.A.I.F., 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.

As of June 30, 2019, the closing price of the Usiminas ordinary and preferred shares, as quoted on the BM&F Bovespa Stock Exchange, was BRL 10.5 (approximately USD 2.74; December 31, 2018: BRL 11.44 - USD 2.95) per ordinary share and BRL 8.94 (approximately USD 2.33; December 31, 2018: BRL 9.22 - USD 2.38) per preferred share, respectively. Accordingly, as of June 30, 2019, Ternium’s ownership stake had a market value of approximately USD 684.5 million and a carrying value of USD 513.1 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.

Page 13 of 24

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018




9.
INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)

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, 2019, the value of the investment in Usiminas is comprised as follows:
Value of investment
 
USIMINAS
 
 
 
As of January 1, 2019
 
480,084

Share of results (1)
 
29,482

Other comprehensive income
 
4,065

Dividends received
 
(578
)
 
 
 
As of June 30, 2019
 
513,053

 
 
 
(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
 
3,761,987

Percentage of interest of the Company over shareholders' equity
 
20.43
%
 
 
 
Interest of the Company over shareholders' equity
 
768,323

 
 
 
Purchase price allocation
 
77,991

Goodwill
 
271,237

Impairment
 
(604,498
)
 
 
 
Total Investment in Usiminas
 
513,053



On July 25, 2019, Usiminas issued its consolidated interim accounts as of and for the six-month period ended June 30, 2019.
 
 
USIMINAS
Summarized balance sheet (in million USD)
 
As of June 30, 2019
Assets
 
 
Non-current
 
4,700
Current
 
1,803
Other current investments
 
195
Cash and cash equivalents
 
130
 
 
 
Total Assets
 
6,828
Liabilities
 
 
Non-current
 
538
Non-current borrowings
 
1,358
Current
 
711
Current borrowings
 
67
 
 
 
Total Liabilities
 
2,674
 
 
 
Minority interest
 
392
 
 
 
Shareholders' equity
 
3,762



Page 14 of 24

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018




9.
INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)

 
 
USIMINAS
Summarized income statement (in million USD)
 
Six- month period ended June 30, 2019
 
 
 
Net sales
 
1,879
Cost of sales
 
(1,593)
Gross Profit
 
286
Selling, general and administrative expenses
 
(91)
Other operating income, net
 
(69)
Operating income
 
126
Financial expenses, net
 
(57)
Equity in earnings of associated companies
 
19
Profit before income tax
 
88
Income tax expense
 
(24)
Net profit before minority interest
 
64
Minority interest in other subsidiaries
 
(18)
Net profit for the period
 
46

10.    DISTRIBUTION OF DIVIDENDS

During the annual shareholders’ meeting held on May 6, 2019, the shareholders approved a distribution of dividends of USD 0.12 per share (USD 1.20 per ADS), or approximately USD 235.6 million in the aggregate. The dividend was paid on May 14, 2019.

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

Contingencies, commitments and restrictions on the distributions of profits should be read in Note 25 to the Company’s audited Consolidated Financial Statements for the year ended December 31, 2018.

Companhia Siderúrgica Nacional (CSN) - Tender offer litigation
In 2013, the Company was notified of a lawsuit filed in Brazil by Companhia Siderúrgica Nacional, or CSN, and various entities affiliated with CSN against Ternium Investments, its subsidiary Ternium Argentina, and TenarisConfab. The entities named in the CSN lawsuit had acquired a participation in Usiminas in January 2012. The CSN lawsuit alleges that, under applicable Brazilian laws and rules, the acquirers were required to launch a tag-along tender offer to all noncontrolling holders of Usiminas ordinary shares for a price per share equal to 80% of the price per share paid in such acquisition, or BRL 28.8, and seeks an order to compel the acquirers to launch an offer at that price plus interest. If so ordered, the offer would need to be made to 182,609,851 ordinary shares of Usiminas not belonging to Usiminas’ control group; Ternium Investments and Ternium Argentina’s respective shares in the offer would be 60.6% and 21.5%.


Page 15 of 24

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of June 30, 2019
and for the six-month periods ended June 30, 2019 and 2018




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

On September 23, 2013, the first instance court dismissed the CSN lawsuit, and on February 8, 2017, the court of appeals of São Paulo maintained the understanding of the first instance court. On March 6, 2017, CSN filed a motion for clarification against the decision of the court of appeals, which was rejected on July 19, 2017. On August 18, 2017, CSN filed with the court of appeals an appeal seeking the review and reversal of the decision issued by the court of appeals by the Superior Court of Justice. On March 5, 2018, the court of appeals ruled that CSN’s appeal did not meet the requirements for review by the Superior Court of Justice and rejected such appeal. On May 8, 2018, CSN appealed against such ruling and on January 22, 2019, the court of appeals rejected such appeal and ordered that the case be submitted to the Superior Court of Justice. The Superior Court of Justice will review the admissibility of CSN’s appeal, and, if the appeal is declared admissible, will then render a decision on the merits. The Superior Court of Justice is restricted to the analysis of alleged violations to federal laws and cannot assess matters of fact.

Ternium continues to believe that all of CSN’s claims and allegations are groundless and without merit, as confirmed by several opinions of Brazilian legal counsel, two decisions issued by the Brazilian securities regulator (CVM) in February 2012 and December 2016, and the first and second instance court decisions referred to above. Accordingly, no provision has been recorded in these Consolidated Condensed Interim Financial Statements.
Shareholder claims relating to the October 2014 acquisition of Usiminas shares
On April 14, 2015, the staff of CVM, determined that an acquisition of additional ordinary shares of Usiminas by Ternium Investments made in October 2014, triggered a requirement under applicable Brazilian laws and regulations for Usiminas’ controlling shareholders to launch a tender offer to all non-controlling holders of Usiminas ordinary shares. The CVM staff’s determination was made further to a request by NSSMC and its affiliates, who alleged that Ternium’s 2014 acquisition had exceeded a threshold that triggers the tender offer requirement. In the CVM staff’s view, the 2014 acquisition exceeded the applicable threshold by 5.2 million shares. On April 29, 2015, Ternium filed an appeal to be submitted to the CVM’s Board of Commissioners. On May 5, 2015, the CVM staff confirmed that the appeal would be submitted to the Board of Commissioners and that the effects of the staff’s decision would be stayed until such Board rules on the matter.
On June 15, 2015, upon an appeal filed by NSSMC, the CVM staff changed its earlier decision and stated that the obligation to launch a tender offer would fall exclusively on Ternium. Ternium’s appeal has been submitted to the CVM’s Board of Commissioners and it is currently expected that such Board will rule on the appeal in 2019. In addition, on April 18, 2018, Ternium filed a petition with the CVM’s reporting Commissioner requesting that the applicable threshold for the tender offer requirement be recalculated taking into account the new ordinary shares issued by Usiminas in connection with its 2016 BRL 1 billion capital increase and that, in light of the replenishment of the threshold that would result from such recalculation, the CVM staff’s 2015 determination be set aside. In the event the appeal is not successful, under applicable CVM rules Ternium may elect to sell to third parties the 5.2 million shares allegedly acquired in excess of the threshold, in which case no tender offer would be required.


Page 16 of 24