|
|
|
|
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
|
|
|
|
|
|
|
|
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%.
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
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)
ICMS deferral tax benefit - Unconstitutionality
Through State Law No. 4,529, of March 31, 2005, the State of Rio de Janeiro granted Ternium Brasil a tax incentive consisting of a deferment of ICMS payable by Ternium Brasil in connection with the construction and operation of the company’s Rio de Janeiro steelmaking complex. The incentive applies in respect of the acquisition of fixed assets and certain raw materials (i.e. iron ore, pellets, alloys, coke, coal and scrap) and significantly reduces input ICMS credit accumulation by Ternium Brasil. The tax incentive was granted for a period of 20 years from the commencement of the construction works for Ternium Brasil’s Rio de Janeiro steel complex.
In 2012, a Brazilian political party filed a direct action of unconstitutionality against the above-mentioned State Law before the Brazilian Federal Supreme Court, predicated on the argument that, since the tax incentive granted pursuant to such State Law had not been approved by Brazil’s National Council of Fiscal Policy (Conselho Nacional de Política Fazendária, or CONFAZ), such State Law should be declared unconstitutional.
In August 2017, the Brazilian Congress enacted Supplementary Law No. 160/2017, instituting a mechanism through which the States may confirm any ICMS incentives they had granted in prior years without CONFAZ approval and, in furtherance of such Supplementary Law, in December 2017 the States adopted ICMS Convention 190/2017, establishing the applicable rules and deadlines for so confirming such ICMS incentives. As per the terms of ICMS Convention 190/2017, all States are required to publish in their official gazettes, on or before March 29, 2018, a list of the ICMS incentives that are to be confirmed pursuant to Supplementary Law No. 160. On March 6, 2018, the State of Rio de Janeiro published its list of ICMS incentives, including, among others, the ICMS benefit granted to Ternium Brasil. ICMS Convention 190/2017 also required that all relevant documents concerning such incentives be filed with CONFAZ, and the State of Rio de Janeiro satisfied such requirements as well. On July 27, 2018, the Governor of Rio de Janeiro issued Executive Order (Decreto) No. 46,78, pursuant to which the State of Rio de Janeiro reconfirmed, in accordance with ICMS Convention 190/2017, the ICMS tax benefits listed in its official gazette publication made pursuant to the Convention, including, among others, Ternium Brasil’s ICMS tax benefits.
|
|
|
|
|
|
|
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)
|
In October 2018, the State of Rio de Janeiro and the Federation of Industries of the State of Rio de Janeiro (Federação das Indústrias do Estado do Rio de Janeiro , or FIRJAN) filed petitions arguing that the action of unconstitutionality against the March 31, 2005 Rio de Janeiro State Law No. 4,529 could not be judged by the Federal Supreme Court since, following the revalidation of such law under Supplementary Law No.160/17 and the ICMS Convention 190/2017, such action of unconstitutionality had lost its purpose. Following the filing of such petitions, the Reporting Justice Minister in charge of the case summoned the plaintiff in such action of unconstitutionality, the Federal Attorney General’s Office (Advocacia-Geral da União, or AGU) and the Chief of the Public Minister (Procuradoria-Geral da República, or PGR) to submit statements expressing their respective views on the arguments presented by the State of Rio de Janeiro and the FRIJAN with respect to the effect of Supplementary Law No.160/17 and the ICMS Convention 190/2017 on the pending action of unconstitutionality. In their respective statements, the plaintiff argued that Supplementary Law No.160/17 and the ICMS Convention 190/2017 do not affect the unconstitutionality of ICMS benefits granted through State Law No. 4,529, while the AGU stated that, in light of the additional legal support provided by Supplementary Law No.160/17 and the ICMS Convention 190/2017, a finding of unconstitutionality of State Law No. 4,529 would not be warranted. In turn, the PGR stated that a decision on the case should be postponed until the Federal Supreme Court completes its analysis of Supplementary Law No.160/17 and ICMS Convention 190/2017. As of the date of these consolidated condensed interim financial statements, the Brazilian Federal Supreme Court has not yet ruled on the action of unconstitutionality against Rio de Janeiro’s State Law No. 4,529.
The tax benefits accumulated under Ternium Brasil’s ICMS incentive as of the acquisition date amounted to approximately USD 1,089 million. In accordance with the guidance in IFRS 3, the Company recorded as of the acquisition date a provision of USD 651.8 million (including estimated penalties and interest) in connection with this matter, together with an asset of USD 325.9 million arising from its right to recover part of the contingency amount from Thyssenkrup Veerhaven B.V. (USD 492.6 million and USD 246.3 million, respectively, as of September 30, 2019). The calculation of this contingency has been determined taking into consideration the probability of negative outcome for the Company, if any, on an estimated total risk of USD 1,630 million (including estimated penalties and interests).
Putative class action
Following the Company’s November 27, 2018 announcement that its chairman Paolo Rocca had been included in an Argentine court investigation known as the Notebooks Case (a decision subsequently reversed by a higher court),
a putative class action complaint was filed in the U.S. District Court for the Eastern District of New York. On January 31, 2019, the court appointed lead plaintiff and lead counsel. On June 17, 2019, the lead plaintiff filed an amended complaint purportedly on behalf of purchasers of Ternium securities from May 1, 2014 through November 27, 2018. The individual defendants named in the amended complaint are our chairman, our former CEO, our current CEO and our CFO. That complaint alleges that during the class period, the Company and the individual defendants inflated the price of Ternium’s ADSs by failing to disclose that sale proceeds received by Ternium when Sidor was expropriated by Venezuela were received or expedited as a result of alleged improper payments made to Argentine officials. The complaint does not specify the damages that plaintiff is seeking. Management believes the Company has meritorious defenses to these claims; however, at this stage the Company cannot predict the outcome of the claim or the amount or range of loss in case of an unfavorable outcome.
|
|
|
|
|
|
|
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
|
12. RELATED PARTY TRANSACTIONS (continued)
As of September 30, 2019, Techint Holdings S.à r.l. (“Techint”) owned 62.02% of the Company’s share capital and Tenaris Investments S.à r.l. (“Tenaris”) held 11.46% of the Company’s share capital. Each of Techint and Tenaris were controlled by San Faustin S.A., a Luxembourg company (“San Faustin”). Rocca & Partners Stichting Administratiekantoor Aandelen San Faustin (“RP STAK”), a Dutch private foundation (Stichting), held voting shares in San Faustin sufficient in number to control San Faustin. No person or group of persons controls RP STAK.
The following transactions were carried out with related parties:
|
|
|
|
|
|
|
|
|
|
|
Nine-month period ended
September 30,
|
|
|
2019
|
|
2018
|
|
|
(Unaudited)
|
|
(i) Transactions
|
|
|
|
|
(a) Sales of goods and services
|
|
|
|
|
Sales of goods to non-consolidated parties
|
439,437
|
|
|
602,794
|
|
|
Sales of goods to other related parties
|
68,118
|
|
|
131,291
|
|
|
Sales of services and others to non-consolidated parties
|
130
|
|
|
132
|
|
|
Sales of services and others to other related parties
|
687
|
|
|
919
|
|
|
|
|
|
|
|
|
508,372
|
|
|
735,135
|
|
|
(b) Purchases of goods and services
|
|
|
|
|
Purchases of goods from non-consolidated parties
|
298,641
|
|
|
357,359
|
|
|
Purchases of goods from other related parties
|
41,084
|
|
|
36,261
|
|
|
Purchases of services and others from non-consolidated parties
|
9,216
|
|
|
7,323
|
|
|
Purchases of services and others from other related parties
|
115,740
|
|
|
67,910
|
|
|
Purchases of goods and services in connection with lease contracts from other related parties
|
11,416
|
|
|
—
|
|
|
|
|
|
|
|
|
476,097
|
|
|
468,853
|
|
|
(c) Financial results
|
|
|
|
|
Income with non-consolidated parties
|
7,291
|
|
|
6,538
|
|
|
Expenses in connection with lease contracts from other related parties
|
(815
|
)
|
|
—
|
|
|
|
|
|
|
|
|
6,476
|
|
|
6,538
|
|
|
(d) Dividends received
|
|
|
|
|
Dividends received from non-consolidated parties
|
642
|
|
|
61
|
|
|
|
|
|
|
|
|
642
|
|
|
61
|
|
|
(e) Other income and expenses
|
|
|
|
|
Income (expenses), net with non-consolidated parties
|
529
|
|
|
527
|
|
|
Income (expenses), net with other related parties
|
882
|
|
|
521
|
|
|
|
|
|
|
|
|
1,411
|
|
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
|
(Unaudited)
|
|
|
|
(ii) Period-end balances
|
|
|
|
|
(a) Arising from sales/purchases of goods/services
|
|
|
|
|
Receivables from non-consolidated parties
|
173,508
|
|
|
201,693
|
|
|
Receivables from other related parties
|
15,386
|
|
|
5,975
|
|
|
Advances from non-consolidated parties
|
10,130
|
|
|
2,812
|
|
|
Advances to suppliers with other related parties
|
19,153
|
|
|
7,534
|
|
|
Payables to non-consolidated parties
|
(27,319
|
)
|
|
(37,384
|
)
|
|
Payables to other related parties
|
(27,221
|
)
|
|
(23,495
|
)
|
|
Lease Liabilities with other related parties
|
(7,883
|
)
|
|
—
|
|
|
|
|
|
|
|
|
155,754
|
|
|
157,135
|
|
|
|
|
|
|
|
|
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
|
13. FINANCIAL INSTRUMENTS BY CATEGORY AND FAIR VALUE MEASUREMENT
|
|
|
|
1)
|
Financial instruments by category
|
The accounting policies for financial instruments have been applied to the line items below. According to the scope and definitions set out in IFRS 7 and IAS 32, employers’ rights and obligations under employee benefit plans, and non-financial assets and liabilities such as advanced payments and income tax payables, are not included.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019 (in USD thousands)
|
|
Amortized
cost
|
|
Assets at fair value through profit or loss
|
|
Assets at fair value through OCI
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(i) Assets as per statement of financial position
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
409,836
|
|
|
—
|
|
|
—
|
|
|
409,836
|
|
|
Derivative financial instruments
|
|
—
|
|
|
4,705
|
|
|
—
|
|
|
4,705
|
|
|
Trade receivables
|
|
996,558
|
|
|
—
|
|
|
—
|
|
|
996,558
|
|
|
Other investments
|
|
181,290
|
|
|
—
|
|
|
36,634
|
|
|
217,924
|
|
|
Cash and cash equivalents
|
|
350,774
|
|
|
286,895
|
|
|
—
|
|
|
637,669
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
1,938,458
|
|
|
291,600
|
|
|
36,634
|
|
|
2,266,692
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019 (in USD thousands)
|
|
Amortized
cost
|
|
Liabilities at fair value through profit or loss
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(ii) Liabilities as per statement of financial position
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
102,090
|
|
|
—
|
|
|
|
|
102,090
|
|
|
Trade payables
|
|
896,577
|
|
|
—
|
|
|
|
|
896,577
|
|
|
Derivative financial instruments
|
|
—
|
|
|
5,779
|
|
|
|
|
5,779
|
|
|
Lease liabilities
|
|
325,595
|
|
|
—
|
|
|
|
|
325,595
|
|
|
Borrowings
|
|
2,366,790
|
|
|
—
|
|
|
|
|
2,366,790
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
3,691,052
|
|
|
5,779
|
|
|
|
|
3,696,831
|
|
|
|
|
|
2)
|
Fair Value by Hierarchy
|
IFRS 13 requires for financial instruments that are measured at fair value, a disclosure of fair value measurements by level. See note 29 of the Consolidated Financial Statements as of December 31, 2018 for definitions of levels of fair values and figures at that date.
The following table presents the assets and liabilities that are measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement as of September 30, 2019 (in USD thousands):
|
|
Description
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
Financial assets at fair value through profit or loss / OCI
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
286,895
|
|
|
286,895
|
|
|
—
|
|
|
Other investments
|
|
36,635
|
|
|
36,635
|
|
|
—
|
|
|
Derivative financial instruments
|
|
4,705
|
|
|
—
|
|
|
4,705
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
328,235
|
|
|
323,530
|
|
|
4,705
|
|
|
|
|
|
|
|
|
|
|
Financial assets at fair value through profit or loss / OCI
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
5,779
|
|
|
—
|
|
|
5,779
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
5,779
|
|
|
—
|
|
|
5,779
|
|
|
|
|
|
|
|
|
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
|
13. FINANCIAL INSTRUMENTS BY CATEGORY AND FAIR VALUE MEASUREMENT (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement as of December 31, 2018 (in USD thousands)
|
|
Description
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
Financial assets at fair value through profit or loss / OCI
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
140,455
|
|
|
140,455
|
|
|
—
|
|
|
Other investments
|
|
36,630
|
|
|
36,630
|
|
|
—
|
|
|
Derivative financial instruments
|
|
1,588
|
|
|
—
|
|
|
1,588
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
178,673
|
|
|
177,085
|
|
|
1,588
|
|
|
|
|
|
|
|
|
|
|
Financial assets at fair value through profit or loss / OCI
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
12,981
|
|
|
—
|
|
|
12,981
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
12,981
|
|
|
—
|
|
|
12,981
|
|
14. CHANGES IN ACCOUNTING POLICIES
This note explains the impact of the adoption of IFRS 16 Leases on the Company’s financial statements and also discloses the new accounting policies that have been applied from January 1, 2019, where they are different to those applied in prior periods.
|
|
|
|
(a)
|
Impact on the financial statements
|
IFRS 16 was adopted following the simplified approach, without restating comparative. The reclassifications and the adjustments arising from the new lease accounting rules are directly recognized in the opening balance sheet on January 1, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
Lease liabilities
Current (*)
|
Lease liabilities
Non Current (*)
|
|
|
|
|
|
|
Closing balance as of December 31, 2018 - IFRS 16
|
5,817,609
|
|
8,030
|
|
65,798
|
|
|
Initial recognition of right-of-use assets
|
280,493
|
|
—
|
|
—
|
|
|
Initial recognition of lease liabilities
|
—
|
|
34,848
|
|
245,645
|
|
|
Opening balance as of January 1, 2019 - IFRS 16
|
6,098,102
|
|
42,878
|
|
311,443
|
|
(*) Finance lease liabilities in the Consolidated Financial Statements as of December 31, 2018.
|
|
|
|
(b)
|
IFRS 16 Leases - Impact of adoption
|
The Company has adopted IFRS 16 Leases from January 1, 2019, but has not restated comparatives for previous reporting period as permitted under the specific transition provisions in the Standard.
On adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of IAS 17 Leases. For the initial recognition, these liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of January 1, 2019. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on January 1, 2019, was of 4.05%. The maturity of the lease liabilities will be of USD 46.3 million until September 2020, USD 45.1 million until September 2021 and USD 234.2 million in the subsequent years.
The cost related to variable-lease payments that do not depend on an index or rate amounted to USD 12.9 million for the nine-months period ended September 30, 2019. The expenses related to leases for which the Company applied the practical expedient described in paragraph 5 (a) of IFRS 16 (leases with contract term of less than 12 months) amounted to USD 2.8 million for the nine-months period ended September 30, 2019.
|
|
|
|
|
|
|
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
|
14. CHANGES IN ACCOUNTING POLICIES (continued)
The difference between the amount of the lease liability recognized in the statement of financial position at the date of initial application and the operating lease commitments under IAS 17 is due to leases with a duration lower than 12 months and leases with a value lower than thirty thousand dollars and/or with clauses related to variable payments.
The adoption of IFRS 16 Leases from January 1, 2019, resulted in changes in accounting policies and adjustments to the amounts recognized in the financial statements.
Right-of-use assets
The total of the right-of-use assets are included under such type of assets in Property, plant and equipment. These right-of-use assets include the following classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets
|
|
|
|
Buildings
and
improvements
|
|
Production equipment
|
|
Vehicles, furniture and fixtures
|
|
Total
|
|
Values at the beginning of the year
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
55,288
|
|
|
|
|
55,288
|
|
|
Accumulated depreciation
|
|
|
|
(5,918
|
)
|
|
|
|
(5,918
|
)
|
|
Net book value at January 1, 2019
|
|
—
|
|
|
49,370
|
|
|
—
|
|
|
49,370
|
|
|
Opening net book value
|
|
—
|
|
|
49,370
|
|
|
—
|
|
|
49,370
|
|
|
Effect of initial recognition under IFRS 16
|
|
226,936
|
|
|
52,469
|
|
|
1,088
|
|
|
280,493
|
|
|
Translation differences
|
|
(327
|
)
|
|
(7,000
|
)
|
|
—
|
|
|
(7,327
|
)
|
|
Net additions
|
|
2,287
|
|
|
1,568
|
|
|
(807
|
)
|
|
3,048
|
|
|
Depreciation charge
|
|
(22,084
|
)
|
|
(8,978
|
)
|
|
(281
|
)
|
|
(31,343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Closing net book value
|
|
206,812
|
|
|
87,429
|
|
|
—
|
|
|
294,241
|
|
|
Values at the end of the year
|
|
|
|
|
|
|
|
|
|
Cost
|
|
228,896
|
|
|
103,051
|
|
|
—
|
|
|
331,947
|
|
|
Accumulated depreciation
|
|
(22,084
|
)
|
|
(15,621
|
)
|
|
—
|
|
|
(37,705
|
)
|
|
Net book value at September 30, 2019
|
|
206,812
|
|
|
87,430
|
|
|
—
|
|
|
294,242
|
|
Lease liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities
|
|
|
|
Current
|
|
Non Current
|
|
Total
|
|
Values at the beginning of the year
|
|
8,030
|
|
|
65,798
|
|
|
73,828
|
|
|
Effect of initial recognition under IFRS 16
|
|
34,848
|
|
|
245,645
|
|
|
280,493
|
|
|
Translation differences
|
|
1,645
|
|
|
(9,270
|
)
|
|
(7,625
|
)
|
|
Net proceeds
|
|
806
|
|
|
5,632
|
|
|
6,438
|
|
|
Repayments
|
|
(34,896
|
)
|
|
—
|
|
|
(34,896
|
)
|
|
Interest accrued
|
|
10,922
|
|
|
1,922
|
|
|
12,844
|
|
|
Interest paid
|
|
(5,487
|
)
|
|
—
|
|
|
(5,487
|
)
|
|
Reclassifications
|
|
30,458
|
|
|
(30,458
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2019
|
|
46,326
|
|
|
279,269
|
|
|
325,595
|
|
|
|
|
|
(c)
|
IFRS 16 Leases - Accounting policies applied from January 1, 2019
|
Right-of-use assets and Lease liabilities
The Company is a party to lease contracts for:
|
|
|
|
–
|
Plants and equipment for the production of industrial gases and other production materials.
|
|
|
|
|
–
|
Transportation and maintenance equipment.
|
|
|
|
|
–
|
Warehouses and office spaces.
|
|
|
|
|
|
|
|
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
|
14. CHANGES IN ACCOUNTING POLICIES (continued)
These leases are recognized, measured and presented in accordance to IFRS 16 “Leases”, following the guidelines described below.
Accounting by the lessee
The Company recognizes a right-of-use asset and a lease liability at the commencement date of each lease contract that grants the right to control the use of an identified asset during a period of time. The commencement date is the date in which the lessor makes an underlying asset available for use by the lessee.
The Company applied exemptions for leases with a duration lower than 12 months, with a value lower than thirty thousand dollars and/or with clauses related to variable payments. These leases have been considered as short-term leases and, accordingly, no right-of-use asset or lease liability have been recognized.
At initial recognition, the right-of-use asset is measured considering:
|
|
|
|
–
|
The value of the initial measurement of the lease liability;
|
|
|
|
|
–
|
Any lease payments made at or before the commencement date, less any lease incentives; and
|
|
|
|
|
–
|
Any initial direct costs incurred by the lessee; and
|
After initial recognition, the right-of-use assets are measured at cost, less any accumulated depreciation and/or impairment losses, and adjusted for any re-measurement of the lease liability.
Depreciation of the right-of-use asset is calculated using the straight-line method over the estimated duration of the lease contract, as follows:
Buildings and facilities 2-10 years
Machinery 2-6 years
Vehicles and furniture 2-6 years
If the lease transfers ownership of the underlying asset to the Company by the end of the lease term, or if the cost of the right-of-use asset reflects that the Company will exercise a purchase option, the Company depreciates the right-of-use asset from the commencement date to the end of the useful life of the underlying asset. Otherwise, the Company depreciates the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.
The lease liability is initially measured at the present value of the lease payments that are not paid at such date, including the following concepts:
|
|
|
|
–
|
Fixed payments, less any lease incentives receivable;
|
|
|
|
|
–
|
Variable lease payments that depend on an index or rate, initially measured using the index or rate as of the commencement date;
|
|
|
|
|
–
|
Amounts expected to be payable by the lessee under residual value guarantees;
|
|
|
|
|
–
|
The exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
|
|
|
|
|
–
|
Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
|
Variable lease liabilities with payments dependent on external factors, such as minimum volumes sold or used, are not included in the initial measurement of the lease liabilities and such payments are recognized directly in profit and loss.
Lease payments are discounted using incremental borrowing rates for the location and currency of each lease contract or, if available, the rate implicit in the lease contract.
|
|
|
|
|
|
|
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
|
14. CHANGES IN ACCOUNTING POLICIES (continued)
The finance cost is charged to profit or loss over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
The lease term determined by the Company comprises:
|
|
|
|
–
|
Non-cancelable period of lease contracts;
|
|
|
|
|
–
|
Periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and
|
|
|
|
|
–
|
Periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.
|
After the commencement date, the Company measures the lease liability by:
|
|
|
|
–
|
Increasing the carrying amount to reflect interest on the lease liability;
|
|
|
|
|
–
|
Reducing the carrying amount to reflect lease payments made; and
|
|
|
|
|
–
|
Re-measuring the carrying amount to reflect any reassessment or lease modifications.
|
Accounting by the lessor
When the Company is acting as a lessor, each of its leases is classified as either operating or finance lease:
|
|
|
|
–
|
Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
|
|
|
|
|
–
|
Leases where all substantial risks and rewards of ownership are transferred by the lessor to the lessee are classified as finance leases.
|
Critical accounting estimates
Valuation of lease liabilities and right-of-use assets
The application of IFRS 16 requires the Company to make judgments that affect the recognition and valuation of the lease liabilities and the right-of-use assets, including the determination of the contracts within the scope of the Standard, the contract term and the interest rate used for the discount of future cash flows.
The lease term determined by the Company generally comprises non-cancellable period of leases contracts, periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option. The same term is applied as economic useful life of right-of-use assets.
The present value of the lease payments is determined using the discount rate representing a risk-free interest rate, adjusted by a spread related to the credit quality of the Company in each location and currency rate in connection with each lease contract.
|
|
|
|
|
|
|
|
|
|
|
|
Pablo Brizzio
|
|
|
|
|
|
Chief Financial Officer
|
|