Report of Foreign Issuer (6-k)

Date : 10/30/2019 @ 12:42PM
Source : Edgar (US Regulatory)
Stock : Ternium SA (TX)
Quote : 21.65  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 10/29/2019

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 September 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: October 29, 2019








TXLOGOA09.JPG
 
 
 
TERNIUM S.A.
 
Consolidated Condensed Interim Financial Statements
 
as of September 30, 2019
 
and for the nine-month periods
 
ended on September 30, 2019 and 2018

 
 
 
29 Avenue de la Porte-Neuve, 3rd floor

 
L – 2227

 
R.C.S. Luxembourg: B 98 668

 



TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of September 30, 2019
and for the nine-month periods ended September 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
9
3
Segment information
10
4
Cost of sales
12
5
Selling, general and administrative expenses
13
6
Finance expense, Finance income and Other financial income (expenses), net
13
7
Property, plant and equipment, net
13
8
Intangible assets, net
14
9
Investments in non-consolidated companies
14
10
Distribution of dividends
16
11
Contingencies, commitments and restrictions on the distribution of profits
16
12
Related party transactions
20
13
Financial instruments by category and fair value measurement
21
14
Changes in accounting policies
22
 
 
 
 
 
 



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








Consolidated Condensed Interim Income Statements
 
 
 
 
Three-month period ended
September
 30,
 
Nine-month period ended
September
30,
 
 
Notes
 
2019
 
2018
 
2019
 
2018
 
 
 
 
(Unaudited)
 
(Unaudited)
Net sales
 
3
 
2,419,500

 
2,999,231

 
7,853,448

 
8,818,677

Cost of sales
 
3 & 4
 
(1,994,086
)
 
(2,078,290
)
 
(6,436,068
)
 
(6,423,453
)
 
 
 
 
 
 
 
 
 
 
 
Gross profit
 
3
 
425,414

 
920,941

 
1,417,380

 
2,395,224

 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
3 & 5
 
(208,303
)
 
(216,917
)
 
(663,744
)
 
(674,739
)
Other operating income (expenses), net
 
3
 
7,258

 
4,909

 
13,301

 
5,188

 
 
 
 
 
 
 
 
 
 
 
Operating income
 
3
 
224,368

 
708,933

 
766,937

 
1,725,673

 
 
 
 
 
 
 
 
 
 
 
Finance expense
 
6
 
(25,353
)
 
(40,113
)
 
(66,253
)
 
(101,558
)
Finance income
 
6
 
8,890

 
5,104

 
21,164

 
15,391

Other financial income (expenses), net
 
6
 
(15,637
)
 
(54,890
)
 
(17,205
)
 
(154,150
)
Equity in earnings (losses) of non-consolidated companies
 
9
 
1,872

 
22,594

 
37,079

 
54,943

 
 
 
 
 
 
 
 
 
 
 
Profit before income tax expense
 
 
 
194,141

 
641,628

 
741,722

 
1,540,299

 
 
 
 
 
 
 
 
 
 
 
Income tax expense
 
 
 
(83,504
)
 
(80,849
)
 
(198,521
)
 
(313,601
)
 
 
 
 
 
 
 
 
 
 
 
Profit for the period
 
 
 
110,637

 
560,779

 
543,201

 
1,226,698

 
 
 
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
 
 
 
 
Owners of the parent
 
 
 
94,502

 
523,555

 
497,609

 
1,156,086

Non-controlling interest
 
 
 
16,135

 
37,224

 
45,592

 
70,612

 
 
 
 
 
 
 
 
 
 
 
Profit for the period
 
 
 
110,637

 
560,779

 
543,201

 
1,226,698

 
 
 
 
 
 
 
 
 
 
 
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)
 
 
 
0.05

 
0.27

 
0.25

 
0.59

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 25

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








Consolidated Condensed Interim Statements of Comprehensive Income
 
 
Three-month period ended September 30,
 
Nine-month period ended
September
30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(Unaudited)
 
(Unaudited)
Profit for the period
 
110,637

 
560,779

 
543,201

 
1,226,698

 
 
 
 
 
 
 
 
 
Items that may be reclassified subsequently to profit or loss:
 
 
 
 
 
 
 
 
Currency translation adjustment (see note 2)
 
(244,667
)
 
(162,828
)
 
(129,555
)
 
(423,705
)
Currency translation adjustment from participation in non-consolidated companies
 
(41,601
)
 
(16,372
)
 
(36,206
)
 
(87,314
)
Changes in the fair value of financial instruments at fair value through other comprehensive income
 
(1,019
)
 
(127
)
 
(974
)
 
(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
 
(87
)
 
50

 
(790
)
 
293

Income tax related to cash flow hedges
 
26

 
(15
)
 
237

 
(200
)
Other comprehensive income items
 
(22
)
 

 
(22
)
 
(305
)
Other comprehensive income items from participation in non-consolidated companies
 
(87
)
 
13

 
(18
)
 
498

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

 

 
(416
)
 
1,099

Income tax relating to remeasurement of post employment benefit obligations
 

 

 
63

 
(297
)
Remeasurement of post employment benefit obligations from participation in non-consolidated companies
 
270

 
(1,612
)
 
(971
)
 
(3,444
)
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) for the period, net of tax
 
(287,187
)
 
(180,860
)
 
(168,652
)
 
(514,300
)
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss) for the period
 
(176,550
)
 
379,919

 
374,549

 
712,398

 
 
 
 
 
 
 
 
 
Attributable to:
 
 
 
 
 
 
 
 
Owners of the parent
 
(102,767
)
 
435,192

 
372,489

 
812,281

Non-controlling interest
 
(73,783
)
 
(55,274
)
 
2,060

 
(99,883
)
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss) for the period
 
(176,550
)
 
379,919

 
374,549

 
712,398

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 25

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








Consolidated Condensed Interim Statements of Financial Position
 
 
 
 
Balances as of
 
 
Notes
  
September 30, 2019
 
December 31, 2018
 
 
 
 
(Unaudited)
 
 
 
 
ASSETS
 
 
  
 
 
 
 
 
 
 
Non-current assets
 
 
  
 
 
 
 
 
 
 
Property, plant and equipment, net
 
7
  
6,295,826

 
 
 
5,817,609

 
 
Intangible assets, net
 
8
  
944,996

 
 
 
1,012,524

 
 
Investments in non-consolidated companies
 
9
  
494,415

 
 
 
495,241

 
 
Other investments
 
 
 
4,134

 
 
 
7,195

 
 
Derivative financial instruments
 
 
 

 
 
 
818

 
 
Deferred tax assets
 
 
 
128,471

 
 
 
134,224

 
 
Receivables, net
 
 
 
569,910

 
 
 
649,447

 
 
Trade receivables, net
 
 
  
1,784

 
8,439,536

 
4,766

 
8,121,824

Current assets
 
 
 
 
 
 
 
 
 
 
Receivables, net
 
 
 
375,005

 
 
 
309,750

 
 
Derivative financial instruments
 
 
 
4,705

 
 
 
770

 
 
Inventories, net
 
 
 
2,336,275

 
 
 
2,689,829

 
 
Trade receivables, net
 
 
 
994,774

 
 
 
1,128,470

 
 
Other investments
 
 
 
214,041

 
 
 
44,529

 
 
Cash and cash equivalents
 
 
 
637,669

 
4,562,469

 
250,541

 
4,423,889

Non-current assets classified as held for sale
 
 
 
 
 
2,069

 
 
 
2,149

 
 
 
 
 
 
4,564,538

 
 
 
4,426,038

Total Assets
 
 
 
  
 
13,004,074

 
  
 
12,547,862

 
 
 
 
  
 
 
 
  
 
 
EQUITY
 
 
 
  
 
 
 
  
 
 
Capital and reserves attributable to the owners of the parent
 
 
 
 
 
6,536,301

 
 
 
6,393,255

Non-controlling interest
 
 
 
  
 
1,058,496

 
  
 
1,091,321

Total Equity
 
 
 
 
 
7,594,797

 
 
 
7,484,576

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
Non-current liabilities
 
 
 
  
 
 
 
  
 
 
Provisions
 
 
 
593,918

 
  
 
643,950

 
 
Deferred tax liabilities
 
 
 
445,462

 
  
 
474,431

 
 
Other liabilities
 
 
 
424,692

 
  
 
414,541

 
 
Trade payables
 
 
 
947

 
 
 
935

 
 
Derivative financial instruments
 
 
 
86

 
 
 

 
 
Lease liabilities
 
14
 
279,269

 
 
 
65,798

 
 
Borrowings
 
 
 
1,751,299

 
3,495,673

 
1,637,101

 
3,236,756

Current liabilities
 
 
 
 
 
 
 
 
 
 
Current income tax liabilities
 
 
 
32,377

 
 
 
150,276

 
 
Other liabilities
 
 
 
295,348

 
 
 
351,216

 
 
Trade payables
 
 
 
918,369

 
 
 
904,171

 
 
Derivative financial instruments
 
 
 
5,693

 
 
 
12,981

 
 
Lease liabilities
 
14
 
46,326

 
 
 
8,030

 
 
Borrowings
 
 
 
615,491

 
1,913,604

 
399,856

 
1,826,530

Total Liabilities
 
 
 
 
 
5,409,277

 
  
 
5,063,286

 
 
 
 
 
 
 
 
  
 
 
Total Equity and Liabilities
 
 
 
 
 
13,004,074

 
  
 
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 25

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






497,609

497,609

 
45,592

 
543,201

Other comprehensive income (loss) for the period
 








 

 

Currency translation adjustment
 





(122,530
)

(122,530
)
 
(43,231
)
 
(165,761
)
Remeasurement of post employment benefit obligations
 



(1,270
)



(1,270
)
 
(54
)
 
(1,324
)
Cash flow hedges and others, net of tax
 



(282
)



(282
)
 
(271
)
 
(553
)
Others
 



(1,038
)



(1,038
)
 
24

 
(1,014
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss) for the period
 



(2,590
)

(122,530
)
497,609

372,489

 
2,060

 
374,549

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends paid in cash (5)
 






(235,569
)
(235,569
)
 

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








 
(24,546
)
 
(24,546
)
Acquisition of non-controlling interest (6)
 



6,126




6,126

 
(10,339
)
 
(4,213
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of September 30, 2019 (unaudited)
 
2,004,743

(150,000
)
(23,295
)
1,389,237

(2,324,866
)
(2,825,007
)
8,465,489

6,536,301

 
1,058,496

 
7,594,797

(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 September 30, 2019, there were 2,004,743,442 shares issued. All issued shares are fully paid. Also, as of September 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 (82.4) million.
(4) Represents the difference between book value of non-monetary contributions received from shareholders under Luxembourg GAAP and IFRS.
(5) See note 10.
(6) Corresponds to the acquisition of non-controlling interest participation of Ternium Argentina S.A..
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 25


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






1,156,086

1,156,086

 
70,612

 
1,226,698

Other comprehensive income (loss) for the period
 








 

 

Currency translation adjustment
 





(340,597
)

(340,597
)
 
(170,422
)
 
(511,019
)
Remeasurement of post employment benefit obligations
 



(2,501
)



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



(136
)



(136
)
 
229

 
93

Others
 



(571
)



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



(3,208
)

(340,597
)
1,156,086

812,281

 
(99,883
)
 
712,398

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 September 30, 2018 (unaudited)
 
2,004,743

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

(2,324,866
)
(2,744,262
)
7,852,888

6,028,572

 
990,553

 
7,019,124

(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 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.
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 25


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

Consolidated Condensed Interim Statements of Cash Flows

 

 
Nine- month period ended September 30,

 
Notes
 
2019
 
2018

 

 
(Unaudited)
Cash flows from operating activities
 

 

 

Profit for the period
 

 
543,201

 
1,226,698

Adjustments for:
 

 

 

Depreciation and amortization
 
7 & 8
 
484,269

 
459,175

Income tax accruals less payments
 

 
(181,667
)
 
(76,347
)
Equity in earnings of non-consolidated companies
 
9
 
(37,079
)
 
(54,943
)
Interest accruals less payments
 

 
10,551

 
(12,956
)
Changes in provisions
 

 
(2,271
)
 
1,347

Changes in working capital (1)
 

 
414,792

 
(341,041
)
Net foreign exchange results and others
 

 
30,003

 
(19,342
)
Net cash provided by operating activities
 

 
1,261,799

 
1,182,591

Cash flows from investing activities
 

 

 

Capital expenditures
 
7 & 8
 
(748,375
)
 
(346,482
)
Recovery/(Loans) to non-consolidated companies
 

 
24,480

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

 
(166,451
)
 
58,643

Proceeds from the sale of property, plant and equipment
 

 
512

 
607

Acquisition of non-controlling interest
 

 
(4,213
)
 

Net cash used in investing activities
 

 
(894,047
)
 
(311,712
)
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
 

 
(24,546
)
 
(20,940
)
Finance lease payments
 

 
(36,155
)
 
(5,006
)
Proceeds from borrowings
 

 
1,133,000

 
1,105,203

Repayments of borrowings
 

 
(802,045
)
 
(1,648,233
)
Net cash provided by (used in) financing activities
 

 
34,685

 
(784,914
)
Increase in cash and cash equivalents
 

 
402,437

 
85,965

Movement in cash and cash equivalents
 

 

 

At January 1,
 

 
250,541

 
337,779

Effect of exchange rate changes and inflation adjustment
 

 
(15,309
)
 
(24,683
)
Increase in cash and cash equivalents
 

 
402,437

 
85,965

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

 
637,669

 
399,061

 
 
 
 
 
 
 
Non-cash transactions:
 

 

 

Acquisition of PP&E under lease contract agreements
 

 
3,048

 


(1) The working capital is impacted by non-cash movements of USD (28.2) million as of September 30, 2019 (USD 229.3 million as of September 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 70 and USD 7 as of September 30, 2019 and 2018, respectively. In addition, the Company had other investments with a maturity of more than three months for USD 217,924 and USD 75,640 as of September 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 25

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of September 30, 2019
and for the nine-month periods ended September 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 September 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”.

The Argentine subsidiaries of the Company are operating in an economical context where the main variables have recently experienced a strong volatility as a consequence of political and economic uncertainties in the national and international environments. In the local market, specifically, the shares of the main publicly traded companies, the sovereign bonds and the Argentine peso experienced a strong value decrease.

In this situation, the national government has implemented certain economic measures, such as: certain restrictions in the exchange market and the postponement in the payment of certain public debt instruments, among others.

Considering this situation, the Company continues to assess the evolution of the above-mentioned variables, to determine the recoverability of its long-lived assets related to Argentine operations. As of September 30, 2019, the Company tested those assets for impairment, resulting in no impairment charges.

Based on the information currently available, Ternium believes that no reasonably possible change to assumptions would cause the carrying amount to exceed the recoverable amount.


Page 8 of 25

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




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.

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 nine-month period ended September 30, 2019, was 1.38. The comparative figures as of September 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.

Page 9 of 25

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




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 10 of 25

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




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

 

 

 

Net sales
 
7,853,420

 
264,300

 
(264,272
)
 
7,853,448

Cost of sales
 
(6,513,955
)
 
(186,194
)
 
264,081

 
(6,436,068
)
Gross profit
 
1,339,465

 
78,107

 
(191
)
 
1,417,380

Selling, general and administrative expenses
 
(652,372
)
 
(11,372
)
 

 
(663,744
)
Other operating income, net
 
13,730

 
(429
)
 

 
13,301

Operating income - IFRS
 
700,823

 
66,305

 
(191
)
 
766,937

Management view
 

 

 

 

Net sales
 
8,003,009

 
335,128

 
(335,100
)
 
8,003,037

Operating income
 
691,078

 
140,851

 
(191
)
 
831,738

Reconciliation items:
 

 

 

 

Differences in Cost of sales
 

 

 

 
104,493

Effect of inflation adjustment (1)
 

 

 

 
(169,295
)
Operating income - IFRS
 

 

 

 
766,937

Financial income (expense), net
 

 

 

 
(62,294
)
Equity in earnings of non-consolidated companies
 

 

 

 
37,079

Income before income tax expense - IFRS
 

 

 

 
741,722

Depreciation and amortization - IFRS (2)
 
(448,838
)
 
(35,431
)
 

 
(484,269
)

The effect of the application of IAS 29 - Hyperinflationary economies in Argentina for the nine-month period ended September 30, 2019, is only allocated in the Steel segment, having an impact of USD (150) million on Net sales, USD (91) million in Cost of sales, USD 14 million in Selling, general and administrative expenses and USD (1) million in Other operating expenses, net.

(1) There is no difference between IFRS and Management view related to the inflation adjustment of depreciation and amortization (USD 58 million).
(2) It includes the depreciation and amortization of right-of-use assets of USD 31.0 million in the Steel segment.
 
 
Nine- month period ended September 30, 2018 (Unaudited)
 
 
Steel
 
Mining
 
Inter-segment eliminations
 
Total
IFRS
 

 

 

 

Net sales
 
8,817,699

 
210,114

 
(209,136
)
 
8,818,677

Cost of sales
 
(6,466,835
)
 
(169,967
)
 
213,349

 
(6,423,453
)
Gross profit
 
2,350,864

 
40,147

 
4,213

 
2,395,224

Selling, general and administrative expenses
 
(662,768
)
 
(11,971
)
 

 
(674,739
)
Other operating income, net
 
4,479

 
709

 

 
5,188

Operating income - IFRS
 
1,692,575

 
28,885

 
4,213

 
1,725,673

Management view
 

 

 

 

Net sales
 
9,096,614

 
254,032

 
(253,054
)
 
9,097,593

Operating income
 
1,480,006

 
81,441

 
(10,932
)
 
1,550,515

Reconciliation items:
 

 

 

 

Differences in Cost of sales
 

 

 

 
392,974

Effect of inflation adjustment
 

 

 

 
(217,813
)
Operating income - IFRS
 

 

 

 
1,725,673

Financial income (expense), net
 

 

 

 
(240,317
)
Equity in earnings of non-consolidated companies
 

 

 

 
54,943

Income before income tax expense - IFRS
 

 

 

 
1,540,299

Depreciation and amortization - IFRS
 
(419,204
)
 
(39,971
)
 

 
(459,175
)

The effect of the application of IAS 29 - Hyperinflationary economies in Argentina for the nine-month period ended September 30, 2018, is only allocated in the Steel segment, having an impact of USD (279) million on Net sales, USD 35 million in Cost of sales, USD 26 million in Selling, general and administrative expenses and USD nil in Other operating expenses, net.

Page 11 of 25

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of September 30, 2019
and for the nine-month periods ended September 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.
    
 
 
Nine- month period ended September 30, 2019 (Unaudited)
 
 
Mexico
 
Southern region
 
Other markets
 
Total
 
 
 
 
 
 
 
 
 
Net sales
 
4,261,739

 
1,174,028

 
2,417,681

 
7,853,448

 
 
 
 
 
 
 
 
 
Non-current assets (1)
 
4,392,800

 
954,767

 
1,893,255

 
7,240,822

 
 

 

 

 

 
 
Nine- month period ended September 30, 2018 (Unaudited)
 
 
Mexico
 
Southern region
 
Other markets
 
Total
 
 
 
 
 
 
 
 
 
Net sales
 
4,872,618

 
1,464,178

 
2,481,881

 
8,818,677

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

 
1,001,568

 
1,665,260

 
6,709,102


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


4.
COST OF SALES

 
Nine- month period ended September 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
 
(67,436
)
 
(454,874
)
Plus: Charges for the period
 

 

Raw materials and consumables used and
other movements
 
4,816,111

 
5,478,464

Services and fees
 
115,171

 
119,652

Labor cost
 
459,830

 
529,510

Depreciation of property, plant and equipment
 
371,765

 
342,478

Amortization of intangible assets
 
13,553

 
20,152

Maintenance expenses
 
355,659

 
376,171

Office expenses
 
6,136

 
6,301

Insurance
 
7,219

 
6,425

Change of obsolescence allowance
 
9,022

 
6,426

Recovery from sales of scrap and by-products
 
(17,044
)
 
(22,326
)
Others
 
12,528

 
11,667

Less: Inventories at the end of the period
 
(2,336,275
)
 
(2,739,231
)
Cost of Sales
 
6,436,068

 
6,423,453



Page 12 of 25

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




5.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
Nine- month period ended September 30,
 
2019
 
2018
 
(Unaudited)
Services and fees
55,355
 
54,321
Labor cost
162,524
 
185,198
Depreciation of property, plant and equipment
11,950
 
10,145
Amortization of intangible assets
87,001
 
86,401
Maintenance and expenses
3,796
 
4,076
Taxes
73,066
 
68,006
Office expenses
26,006
 
27,842
Freight and transportation
233,349
 
227,418
Increase (decrease) of allowance for doubtful accounts
(335)
 
1,070
Others
11,032
 
10,262
Selling, general and administrative expenses  
663,744
 
674,739


6.
FINANCE EXPENSE, FINANCE INCOME AND OTHER FINANCIAL INCOME (EXPENSES), NET
 
Nine- month period ended September 30,
 
2019
 
2018
 
(Unaudited)
Interest expense
(66,253
)
 
(101,558
)
 
 
 
 
Finance expense
(66,253
)
 
(101,558
)
 
 
 
 
Interest income
21,164

 
15,391

 
 
 
 
Finance income
21,164

 
15,391

 
 
 
 
Net foreign exchange gain (loss)
(92,188
)
 
(207,348
)
Inflation adjustment results
91,620

 
146,371

Derivative contract results
(10,683
)
 
(103,055
)
Others
(5,954
)
 
9,882

 
 
 
 
Other financial income (expenses), net
(17,205
)
 
(154,150
)


7.    PROPERTY, PLANT AND EQUIPMENT, NET
 
Nine- month period ended September 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
(111,849
)
 
(389,266
)
Additions
703,644

 
323,020

Disposals
(22,026
)
 
(17,589
)
Depreciation charge
(383,715
)
 
(352,623
)
Capitalized borrowing costs
12,955

 

Transfers and reclassifications
(1,285
)
 
(246
)
At the end of the period
6,295,826

 
5,701,079


Page 13 of 25

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




8.    INTANGIBLE ASSETS, NET

 
Nine- month period ended September 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
(1,417)

 
(6,677)

Additions
34,823

 
23,462

Amortization charge
(100,554)

 
(106,553)

Transfers/Disposals
(380)

 
245

At the end of the period
944,996

 
1,008,022



9.
INVESTMENTS IN NON-CONSOLIDATED COMPANIES

Company
 
Country of incorporation
 
Main activity
 
Voting rights as of
 
Value as of
 
 
 
September 30, 2019
 
December 31, 2018
 
September 30, 2019
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Usinas Siderurgicas de Minas Gerais S.A. - USIMINAS
 
Brazil
 
Manufacturing and selling of steel products
 
34.39%
 
34.39%
 
471,517
 
480,084
Other non-consolidated companies (1)
 
 
 
 
 
 
 
 
 
22,898
 
15,157
 
 
 
 
 
 
 
 
 
 
494,415
 
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 20.4% 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 September 30, 2019, the closing price of the Usiminas ordinary and preferred shares, as quoted on the BM&F Bovespa Stock Exchange, was BRL 9.35 (approximately USD 2.25; December 31, 2018: BRL 11.44 - USD 2.95) per ordinary share and BRL 7.81 (approximately USD 1.88; December 31, 2018: BRL 9.22 - USD 2.38) per preferred share, respectively. Accordingly, as of September 30, 2019, Ternium’s ownership stake had a market value of approximately USD 560.6 million and a carrying value of USD 471.5 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 14 of 25

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




9.
INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)

As of September 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)
 
28,660

Other comprehensive income
 
(36,649
)
Dividends received
 
(578
)
 
 
 
As of September 30, 2019
 
471,517

 
 
 
(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
 
3,418,572

Percentage of interest of the Company over shareholders' equity
 
20.43
%
 
 
 
Interest of the Company over shareholders' equity
 
698,172

 
 
 
Purchase price allocation
 
72,387

Goodwill
 
249,600

Impairment
 
(548,642
)
 
 
 
Total Investment in Usiminas
 
471,517


On October 24, 2019, Usiminas issued its consolidated interim accounts as of and for the nine-month period ended September 30, 2019.
 
 
USIMINAS
Summarized balance sheet (in million USD)
 
As of September 30, 2019
Assets
 
 
Non-current
 
4,145
Current
 
1,904
Other current investments
 
220
Cash and cash equivalents
 
218
 
 
 
Total Assets
 
6,487
Liabilities
 
 
Non-current
 
557
Non-current borrowings
 
1,339
Current
 
740
Current borrowings
 
66
 
 
 
Total Liabilities
 
2,702
 
 
 
Minority interest
 
366
 
 
 
Shareholders' equity
 
3,419



Page 15 of 25

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




9.
INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)

 
 
USIMINAS
Summarized income statement (in million USD)
 
Nine- month period ended September 30, 2019
 
 
 
Net sales
 
2,849
Cost of sales
 
(2,443)
Gross Profit
 
406
Selling, general and administrative expenses
 
(134)
Other operating income, net
 
(110)
Operating income
 
162
Financial expenses, net
 
(169)
Equity in earnings of associated companies
 
34
Profit before income tax
 
27
Income tax expense
 
2
Net profit before minority interest
 
29
Minority interest in other subsidiaries
 
(29)
Net profit for the period
 
0

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 16 of 25

TERNIUM S.A.
 
 
Consolidated Condensed Interim Financial Statements as of September 30, 2019
and for the nine-month periods ended September 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. On September 10, 2019, the Superior Court of Justice declared CSN’s appeal admissible. The Superior Court of Justice will review the case and, 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 17 of 25

TERNIUM S.A.