|
|
9.
|
INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)
|
As of June 30, 2020, the value of the investment in Usiminas is comprised as follows:
|
|
|
|
|
Value of investment
|
|
USIMINAS
|
|
|
|
As of January 1, 2020
|
|
486,643
|
|
Share of results (1)
|
|
(24,863
|
)
|
Other comprehensive income
|
|
(108,161
|
)
|
|
|
|
As of June 30, 2020
|
|
353,619
|
|
|
|
|
(1) It includes the adjustment of the values associated to the purchase price allocation.
|
The investment in Usiminas is based on the following calculation:
|
|
|
|
|
Usiminas' shareholders' equity
|
|
2,478,497
|
|
Percentage of interest of the Company over shareholders' equity
|
|
20.42
|
%
|
|
|
|
Interest of the Company over shareholders' equity
|
|
506,147
|
|
|
|
|
Purchase price allocation
|
|
56,062
|
|
Goodwill
|
|
189,816
|
|
Impairment
|
|
(398,406
|
)
|
|
|
|
Total Investment in Usiminas
|
|
353,619
|
|
On July 29, 2020, Usiminas issued its consolidated interim accounts as of and for the six-month period ended June 30, 2020.
|
|
|
|
|
|
|
USIMINAS
|
Summarized balance sheet (in million $)
|
|
As of June 30, 2020
|
Assets
|
|
|
Non-current
|
|
3,180
|
|
Current
|
|
1,265
|
|
Other current investments
|
|
151
|
|
Cash and cash equivalents
|
|
307
|
|
|
|
|
Total Assets
|
|
4,903
|
|
Liabilities
|
|
|
Non-current
|
|
468
|
|
Non-current borrowings
|
|
1,108
|
|
Current
|
|
520
|
|
Current borrowings
|
|
28
|
|
|
|
|
Total Liabilities
|
|
2,124
|
|
|
|
|
Minority interest
|
|
301
|
|
|
|
|
Shareholders' equity
|
|
2,478
|
|
|
|
|
|
TERNIUM S.A.
|
|
|
Consolidated Condensed Interim Financial Statements as of June 30, 2020
|
and for the six-month periods ended June 30, 2020 and 2019
|
|
|
9.
|
INVESTMENTS IN NON-CONSOLIDATED COMPANIES (continued)
|
|
|
|
|
|
|
|
USIMINAS
|
Summarized income statement (in million $)
|
|
Six- month period ended June 30, 2020
|
|
|
|
Net sales
|
|
1,303
|
|
Cost of sales
|
|
(1,136
|
)
|
Gross Profit
|
|
167
|
|
Selling, general and administrative expenses
|
|
(85
|
)
|
Other operating income, net
|
|
(37
|
)
|
Operating income
|
|
45
|
|
Financial expenses, net
|
|
(244
|
)
|
Equity in earnings of associated companies
|
|
12
|
|
Loss before income tax
|
|
(187
|
)
|
Income tax expense
|
|
19
|
|
Net loss before minority interest
|
|
(168
|
)
|
Minority interest in other subsidiaries
|
|
(25
|
)
|
Net loss for the period
|
|
(193
|
)
|
10. CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF PROFITS
Contingencies, commitments and restrictions on the distributions of profits should be read in Notes 3 and 25 to the Company’s audited Consolidated Financial Statements for the year ended December 31, 2019.
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 non-controlling 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 June 30, 2020
|
and for the six-month periods ended June 30, 2020 and 2019
|
10. 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 2020. 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 June 30, 2020
|
and for the six-month periods ended June 30, 2020 and 2019
|
10. 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. 4,678, 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.
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 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.
|
|
|
|
TERNIUM S.A.
|
|
|
Consolidated Condensed Interim Financial Statements as of June 30, 2020
|
and for the six-month periods ended June 30, 2020 and 2019
|
|
|
10.
|
CONTINGENCIES, COMMITMENTS AND RESTRICTIONS ON THE DISTRIBUTION OF PROFITS (continued)
|
The tax benefits accumulated under Ternium Brasil’s ICMS incentive amounted to approximately $ 1,089 million as of the acquisition date. In accordance with the guidance in IFRS 3, the Company recorded as of the acquisition date a provision of $ 651.8 million (including estimated penalties and interest) in connection with this matter, together with an asset of $ 325.9 million arising from its right to recover part of the contingency amount from Thyssenkrup Veerhaven B.V. ($ 374.6 million and $ 187.3 million, respectively, as of June 30, 2020, and $ 508.9 million and $ 254.4 million, respectively, as of December 31, 2019). The calculation of this contingency related to an uncertain tax position has been determined taking into consideration the probability of negative outcome for the Company, if any, on an estimated total risk as of the acquisition date of $ 1,630 million (including estimated penalties and interests) (the maximum gross exposure as of June 30, 2020, amounts to $ 1,543 million). In connection with the asset related to the Company’s right to recover part of the contingency amount from Thyssenkrup Veerhaven B.V., the following two events need to happen within the following time frames: the Supreme Federal Court of Brazil or any Civil Court of the State of Rio de Janeiro would need to issue a decision voiding above mentioned law prior to September 7, 2020, and Ternium Brasil would have to make a payment or repayment of ICMS tax incentives prior to September 7, 2022.
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. Defendants’ motions to dismiss are expected to be decided during 2020. 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 June 30, 2020
|
and for the six-month periods ended June 30, 2020 and 2019
|
11. RELATED PARTY TRANSACTIONS
As of June 30, 2020, 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:
|
|
|
|
|
|
|
|
Six- month period ended June 30,
|
|
2020
|
|
2019
|
|
(Unaudited)
|
(i) Transactions
|
|
|
|
(a) Sales of goods and services
|
|
|
|
Sales of goods to non-consolidated parties
|
169,450
|
|
|
255,506
|
|
Sales of goods to other related parties
|
4,610
|
|
|
30,118
|
|
Sales of services and others to non-consolidated parties
|
87
|
|
|
88
|
|
Sales of services and others to other related parties
|
500
|
|
|
479
|
|
|
|
|
|
|
174,647
|
|
|
286,191
|
|
(b) Purchases of goods and services
|
|
|
|
Purchases of goods from non-consolidated parties
|
163,810
|
|
|
199,552
|
|
Purchases of goods from other related parties
|
47,864
|
|
|
23,934
|
|
Purchases of services and others from non-consolidated parties
|
3,925
|
|
|
6,873
|
|
Purchases of services and others from other related parties
|
47,880
|
|
|
74,352
|
|
Purchases of goods and services in connection with lease contracts from other related parties
|
159
|
|
|
8,859
|
|
|
|
|
|
|
263,638
|
|
|
313,570
|
|
(c) Financial results
|
|
|
|
Income with non-consolidated parties
|
3,959
|
|
|
4,998
|
|
Expenses in connection with lease contracts from other related parties
|
(678
|
)
|
|
(104
|
)
|
|
|
|
|
|
3,281
|
|
|
4,894
|
|
(d) Dividends received
|
|
|
|
Dividends received from non-consolidated parties
|
—
|
|
|
642
|
|
|
|
|
|
|
—
|
|
|
642
|
|
(e) Other income and expenses
|
|
|
|
Income (expenses), net with non-consolidated parties
|
296
|
|
|
400
|
|
Income (expenses), net with other related parties
|
328
|
|
|
262
|
|
|
|
|
|
|
624
|
|
|
662
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
(Unaudited)
|
|
|
(ii) Period-end balances
|
|
|
|
(a) Arising from sales/purchases of goods/services
|
|
|
|
Receivables from non-consolidated parties
|
128,055
|
|
|
167,312
|
|
Receivables from other related parties
|
1,318
|
|
|
5,027
|
|
Advances from non-consolidated parties
|
8,450
|
|
|
8,017
|
|
Advances to suppliers with other related parties
|
7,960
|
|
|
15,936
|
|
Payables to non-consolidated parties
|
(25,472
|
)
|
|
(44,784
|
)
|
Payables to other related parties
|
(22,592
|
)
|
|
(41,849
|
)
|
Lease Liabilities with other related parties
|
(4,310
|
)
|
|
(7,310
|
)
|
|
|
|
|
|
93,409
|
|
|
102,349
|
|
|
|
|
|
TERNIUM S.A.
|
|
|
Consolidated Condensed Interim Financial Statements as of June 30, 2020
|
and for the six-month periods ended June 30, 2020 and 2019
|
12. 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 June 30, 2020 (in $ 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
|
|
335,557
|
|
|
—
|
|
|
—
|
|
|
335,557
|
|
Derivative financial instruments
|
|
—
|
|
|
7,713
|
|
|
—
|
|
|
7,713
|
|
Trade receivables
|
|
723,695
|
|
|
—
|
|
|
—
|
|
|
723,695
|
|
Other investments
|
|
690,592
|
|
|
—
|
|
|
19,507
|
|
|
710,099
|
|
Cash and cash equivalents
|
|
192,347
|
|
|
262,212
|
|
|
—
|
|
|
454,559
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
1,942,191
|
|
|
269,925
|
|
|
19,507
|
|
|
2,231,623
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2020 (in $ thousands)
|
|
Amortized
cost
|
|
Liabilities at fair value through profit or loss
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(ii) Liabilities as per statement of financial position
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
68,870
|
|
|
—
|
|
|
|
|
68,870
|
|
Trade payables
|
|
697,754
|
|
|
—
|
|
|
|
|
697,754
|
|
Derivative financial instruments
|
|
—
|
|
|
924
|
|
|
|
|
924
|
|
Lease liabilities
|
|
302,417
|
|
|
—
|
|
|
|
|
302,417
|
|
Borrowings
|
|
2,082,039
|
|
|
—
|
|
|
|
|
2,082,039
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
3,151,080
|
|
|
924
|
|
|
|
|
3,152,004
|
|
|
|
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 30 of the Consolidated Financial Statements as of December 31, 2019 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 June 30, 2020
(in $ thousands):
|
Description
|
|
Total
|
|
Level 1
|
|
Level 2
|
Financial assets at fair value through profit or loss / OCI
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
262,212
|
|
|
262,212
|
|
|
—
|
|
Other investments
|
|
19,507
|
|
|
19,507
|
|
|
—
|
|
Derivative financial instruments
|
|
7,713
|
|
|
—
|
|
|
7,713
|
|
Total assets
|
|
289,432
|
|
|
281,719
|
|
|
7,713
|
|
|
|
|
|
|
|
|
Financial liabilities at fair value through profit or loss / OCI
|
|
|
|
|
|
|
Derivative financial instruments
|
|
924
|
|
|
—
|
|
|
924
|
|
Total liabilities
|
|
924
|
|
|
—
|
|
|
924
|
|
|
|
|
|
TERNIUM S.A.
|
|
|
Consolidated Condensed Interim Financial Statements as of June 30, 2020
|
and for the six-month periods ended June 30, 2020 and 2019
|
13. FINANCIAL INSTRUMENTS BY CATEGORY AND FAIR VALUE MEASUREMENT (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement as of December 31, 2019
(in $ thousands):
|
Description
|
|
Total
|
|
Level 1
|
|
Level 2
|
Financial assets at fair value through profit or loss / OCI
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
199,877
|
|
|
199,877
|
|
|
—
|
|
Other investments
|
|
38,803
|
|
|
38,803
|
|
|
—
|
|
Derivative financial instruments
|
|
1,196
|
|
|
—
|
|
|
1,196
|
|
Total assets
|
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239,876
|
|
|
238,680
|
|
|
1,196
|
|
|
|
|
|
|
|
|
Financial liabilities at fair value through profit or loss / OCI
|
|
|
|
|
|
|
Derivative financial instruments
|
|
3,024
|
|
|
—
|
|
|
3,024
|
|
Total liabilities
|
|
3,024
|
|
|
—
|
|
|
3,024
|
|
13. THE COVID-19 PANDEMIC AND ITS IMPACT ON TERNIUM
A novel strain of coronavirus (SARS-CoV-2) was reported to have surfaced in China in December 2019, spreading to the rest of the world in the first quarter of 2020. In March 2020, the World Health Organization declared COVID-19, the disease caused by the SARS-CoV-2 virus, a global pandemic. The COVID-19 outbreak is impacting economic activity worldwide.
Each jurisdiction where Ternium operates has adopted specific measures in response to the pandemic and the Company is adjusting its operations on a country-by-country basis to comply with applicable rules and requirements and adapt to a rapidly evolving scenario. As of the issue date of these consolidated condensed interim financial statements, the operational status of the main facilities is as follows:
•In Mexico, the company is operating the majority of its production lines, meeting reduced, but gradually improving, market demand. The auto industry and the construction sector have been gradually increasing activity following an almost complete stoppage of operations in April 2020. Other export-led manufacturing industries, including the household appliances and lightning industries, are currently approaching normal levels of capacity utilization.
•In Argentina and Colombia, Ternium reduced its activity following the imposition of mandatory lockdowns in these countries in March 2020 and it is currently increasing production rates under strict sanitary protocols, as restrictions to mobility are gradually being lifted in several parts of both countries.
•In Brazil, after reducing production to minimum technical levels during the second quarter 2020, Ternium's slab facility is currently close to normal levels of production, as demand for slabs improved in the seaborne markets, as well as in Mexico and the US.
Although in all of these countries the lockdowns or restrictions to operate are being relaxed , these could be extended and/or made more stringent if so decided by the appropriate authorities as the circumstances could require.
In order to safeguard the health and safety of its employees, customers and suppliers, Ternium has taken preventive measures, including remote working for the majority of white collar employees, restricting onsite access to essential operational personnel, keeping personnel levels at a minimum, implementing a special operations protocol to ensure social distancing and providing medical assistance and supplies to onsite employees. As of the date of these consolidated condensed interim financial statements, remote work and other work arrangements have not materially adversely affected Ternium's ability to conduct operations. In addition, these alternative working arrangements have not adversely affected our financial reporting systems, internal control over financial reporting or disclosure controls and procedures.
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TERNIUM S.A.
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Consolidated Condensed Interim Financial Statements as of June 30, 2020
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and for the six-month periods ended June 30, 2020 and 2019
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13. THE COVID-19 PANDEMIC AND ITS IMPACT ON TERNIUM (continued)
Ternium has taken steps to ensure the continued strength of its financial position, the maintenance of its operations and a return to growth once economic activity normalizes. In order to mitigate the impact of expected lower sales, Ternium has slowed or postponed several capital expenditure projects across its facilities, including its new hot rolling mill in Mexico and its new rebar mill in Colombia. The specific reduction in 2020 will depend on the pace at which economic activity and steel market demand return.
As a result of the COVID-19 pandemic, the steel industry in the Americas experienced during the second quarter of 2020 significant decreases in capacity utilization to adapt to lockdowns and/or weak demand in most of its markets. Although the timing of these changes to activity levels varied among the different countries in the region, most of the steel industry is now gradually increasing production from low levels. The Company currently expects that the second quarter will be the hardest hit in 2020 by the effects of lower production and reduced shipments tied to the COVID-19 pandemic. At the same time, the Company's cash flows and financial condition in the quarter were strengthened by several measures taken to cope with the pandemic, including the rescheduling of certain capital expenditures and the withdrawal of the annual dividend payment for the 2019 fiscal year. Even though activity shows signs of improvement in all of Ternium's markets, uncertainty persists regarding the extent and timing of the future spread of COVID-19 and the imposition or relaxation of protective measures in the future.
As of the issue date of these consolidated condensed interim financial statements, the Company's capital and financial resources, and overall liquidity position, remain strong. In the second quarter of 2020, funds provided by operating activities amounted to $504 million, and capital expenditures were $111 million. With net debt of $917 million as of June 30, 2020 and a manageable debt amortization schedule, Ternium has in place non-committed credit facilities and management believes it has adequate access to the credit markets. In addition, Ternium has liquidity (cash and cash equivalents plus other investments) of $1.2 billion as of June 30, 2020. Considering its financial position and the funds provided by operating activities, management believes that the Company has sufficient resources to satisfy its current working capital needs and service its debt. Management also believes that Ternium's liquidity and capital resources give adequate flexibility to manage the revised capital spending programs and address short-term changes in business conditions, and that it is unlikely that Ternium will not be able to meet its financial covenants.
In accordance with IFRS, management must test for impairment all of Ternium's assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets subject to testing include goodwill, intangible assets, investments in non-consolidated companies, long-lived assets and right-of-use assets. In addition, management must test goodwill for impairment at least once a year whether or not there are indicators of impairment. Management carried out impairment tests as of June 30, 2020, resulting in no impairment charges to be recognized for any of its cash-generating units. Similarly, management does not expect to disclose or incur any material COVID-19-related contingencies.
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Pablo Brizzio
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Chief Financial Officer
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