LTM Latam Airlines Group Sa

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

March 18, 2015

Commission File Number 1-14728

 

 

LATAM Airlines Group S.A.

(Translation of Registrant’s Name Into English)

 

 

Presidente Riesco 5711, 20th floor

Las Condes

Santiago, Chile

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F  x             Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

 

 

 

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LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014

(FREE TRANSLATION)

CONTENTS

 

Consolidated Statement of Financial Position

Consolidated Statement of Income by Function

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows - Direct Method

Notes to the Consolidated Financial Statements

 

CLP		-		CHILEAN PESO
ARS		-		ARGENTINE PESO
US$		-		UNITED STATES DOLLAR
THUS$		-		THOUSANDS OF UNITED STATES DOLLARS
COP		-		COLOMBIAN PESO
BRL/R$		-		BRAZILIAN REAL
THR$		-		THOUSANDS OF BRAZILIAN REAL
VEF		-		STRONG BOLIVAR

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REPORT OF INDEPENDENT AUDITORS

(Free translation from the original in Spanish)

Santiago, March 17, 2015

To the Board of Directors and Shareholders

Latam Airlines Group S.A.

We have audited the accompanying consolidated financial statements of Latam Airlines Group S.A. and its subsidiaries which comprise the consolidated statements of financial position as at December 31, 2014 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and the related notes to the consolidated financial statements.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with the instructions and standards related to the preparation and presentation of financial information established by the Chilean Superintendency of Securities and Insurance as described in Note 2 of the consolidated financial statements. This responsibility includes the design, implementation and maintenance of a relevant internal control for the preparation and fair presentation of consolidated financial statements that are free from material misstatements, whether due to fraud or error.

Auditor’s responsibilities

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the Chilean generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the entity’s internal control. Consequently, we do not express such an opinion. An audit also includes evaluating the appropriateness of accounting policies uses and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

PwC Chile, Av. Andrés Bello 2711 - piso 5, Las Condes - Santiago, Chile RUT: 81.513.400-1 | Teléfono: (56 2) 22940 0000 | www.pwc.cl

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Santiago, March 17, 2015

Latam Airlines Group S.A.

2

 

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Latam Airlines Group S.A. and its subsidiaries as at December 31, 2014, and the results of operations and cash flows for the year then ended in accordance with the instructions and standards related to the preparation and presentation of financial information established by the Chilean Superintendency of Securities and Insurance as described in Note 2.

Basis of accounting

As described in Note 2 of the consolidated financial statements, under its authority the Chilean Superintendency of Securities and Insurance, issued on October 17, 2014 the Official Circular N° 856, instructing the registered entities, to record against equity the differences generated in deferred tax assets and liabilities arising as a direct effect of the increase in the first category tax rate introduced by Law 20.780. This fact has caused a change in the framework of preparation and presentation of the financial information applied until this date, which corresponded to International Financial Reporting Standards. At December 31, 2014 and for the year then ended, the effect of changing the accounting framework is described in Note 17. Our opinion is not modified regarding this matter.

Other matters

Previously, we have performed and audit in accordance with the Chilean generally accepted auditing standards, of the consolidated financial statements as of December 31, 2013 of Latam Airlines Group S.A. and its subsidiaries, included herein, and in our report dated March 17, 2014 we issued an unmodified opinion on those consolidated financial statements.

 

Jonathan Yeomans Gibbons RUT: 13.473.972-K

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Contents of the notes to the consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries.

 

Notes		Page
1 - General information			1
2 - Summary of significant accounting policies			5
2.1. Basis of Preparation			5
2.2. Basis of Consolidation			8
2.3. Foreign currency transactions			9
2.4. Property, plant and equipment			10
2.5. Intangible assets other than goodwill			11
2.6. Goodwill			11
2.7. Borrowing costs			12
2.8. Losses for impairment of non-financial assets			12
2.9. Financial assets			12
2.10. Derivative financial instruments and hedging activities			13
2.11. Inventories			14
2.12. Trade and other accounts receivable			14
2.13. Cash and cash equivalents			15
2.14. Capital			15
2.15. Trade and other accounts payables			15
2.16. Interest-bearing loans			15
2.17. Current and deferred taxes			15
2.18. Employee benefits			16
2.19. Provisions			16
2.20. Revenue recognition			17
2.21. Leases			18
2.22. Non-current assets (or disposal groups) classified as held for sale			18
2.23. Maintenance			18
2.24. Environmental costs			19
3 - Financial risk management			19
3.1. Financial risk factors			19
3.2. Capital risk management			33
3.3. Estimates of fair value			34
4 - Accounting estimates and judgments			37
5 - Segmental information			39
6 - Cash and cash equivalents			42
7 - Financial instruments			45
7.1. Financial instruments by category			45
7.2. Financial instruments by currency			47
8 - Trade, other accounts receivable and non-current accounts receivable			48
9 - Accounts receivable from/payable to related entities			51
10 - Inventories			52
11 - Other financial assets			53
12 - Other non-financial assets			54
13 - Investments in subsidiaries			55
14 - Intangible assets other than goodwill			58

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15 - Goodwill			59
16 - Property, plant and equipment			61
17 - Current and deferred tax			68
18 - Other financial liabilities			73
19 - Trade and other accounts payables			81
20 - Other provisions			83
21 - Other non-financial liabilities			86
22 - Employee benefits			87
23 - Accounts payable, non-current			88
24 - Equity			88
25 - Revenue			94
26 - Costs and expenses by nature			94
27 - Other income, by function			96
28 - Foreign currency and exchange rate differences			96
29 - Earnings per share			105
30 - Contingencies			106
31 - Commitments			115
32 - Transactions with related parties			120
33 - Share based payments			121
34 - The environment			124
35 - Events subsequent to the date of the financial statements			125

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ASSETS

 

		Note		As of December 31, 2014				As of December 31, 2013
				ThUS$				ThUS$
Current assets
Cash and cash equivalents		6 - 7			989,396				1,984,903
Other financial assets		7 - 11			650,401				709,944
Other non-financial assets		12			247,871				335,617
Trade and other accounts receivable		7 - 8			1,378,837				1,633,094
Accounts receivable from related entities		7 - 9			308				628
Inventories		10			266,039				231,028
Tax assets		17			100,708				81,890
Total current assets other than non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners					3,633,560				4,977,104
Non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners					1,064				2,445
Total current assets					3,634,624				4,979,549
Non-current assets
Other financial assets		7 - 11			84,986				65,289
Other non-financial assets		12			342,813				272,276
Accounts receivable		7 - 8			30,465				100,775
Equity accounted investments					—				6,596
Intangible assets other than goodwill		14			1,880,079				2,093,308
Goodwill		15			3,313,401				3,727,605
Property, plant and equipment		16			10,773,076				10,982,786
Tax assets		17			17,663				—
Deferred tax assets		17			407,323				402,962
Total non-current assets					16,849,806				17,651,597
Total assets					20,484,430				22,631,146

The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

LIABILITIES AND EQUITY

 

LIABILITIES		Note		As of December 31, 2014				As of December 31, 2013
				ThUS$				ThUS$
Current liabilities
Other financial liabilities		7 - 18			1,624,615				2,039,787
Trade and other accounts payables		7 - 19			1,489,396				1,557,736
Accounts payable to related entities		7 - 9			35				505
Other provisions		20			12,411				27,856
Tax liabilities		17			17,889				11,583
Other non-financial liabilities		21			2,685,386				2,871,640
Total current liabilities					5,829,732				6,509,107
Non-current liabilities
Other financial liabilities		7 - 18			7,389,012				7,859,985
Accounts payable		7 - 23			577,454				922,887
Other provisions		20			703,140				1,122,247
Deferred tax liabilities		17			1,051,894				767,228
Employee benefits		22			74,102				45,666
Other non-financial liabilities		21			355,401				77,567
Total non-current liabilities					10,151,003				10,795,580
Total liabilities					15,980,735				17,304,687
EQUITY
Share capital		24			2,545,705				2,389,384
Retained earnings		24			536,190				795,303
Treasury Shares		24			(178	)			(178	)
Other reserves		24			1,320,179				2,054,312
Parent’s ownership interest					4,401,896				5,238,821
Non-controlling interest		13			101,799				87,638
Total equity					4,503,695				5,326,459
Total liabilities and equity					20,484,430				22,631,146

The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME BY FUNCTION

 

				For the period ended December 31,
		Note		2014				2013
				ThUS$				ThUS$
Revenue		25			12,093,501				12,924,537
Cost of sales					(9,624,501	)			(10,054,164	)
Gross margin					2,469,000				2,870,373
Other income		27			377,645				341,565
Distribution costs					(957,072	)			(1,025,896	)
Administrative expenses					(980,660	)			(1,136,115	)
Other expenses					(401,021	)			(408,703	)
Other gains/(losses)					33,524				(55,410	)
Gains (losses) from operating activities					541,416				585,814
Financial income					90,500				72,828
Financial costs		26			(430,034	)			(462,524	)
Share of profit of investments accounted for using the equity method					(6,455	)			1,954
Foreign exchange gains/(losses)		28			(130,201	)			(482,174	)
Result of indexation units					7				214
Income (loss) before taxes					65,233				(283,888	)
Income (loss) tax expense / benefit		17			(142,194	)			20,069
NET INCOME (LOSS) FOR THE PERIOD					(76,961	)			(263,819	)
Income (loss) attributable to owners of the parent					(109,790	)			(281,114	)
Income (loss) attributable to non-controlling interest		13			32,829				17,295
Net income (loss) for the year					(76,961	)			(263,819	)
EARNINGS PER SHARE
Basic earnings (losses) per share (US$)		29			(0.20125	)			(0.57613	)
Diluted earnings (losses) per share (US$)		29			(0.20125	)			(0.57613	)

The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

				For the periods ended December 31,
		Note		2014				2013
				ThUS$				ThUS$
NET INCOME (LOSS)					(76,961	)			(263,819	)
Components of other comprehensive income that will be reclassified to income before taxes
Currency translation differences
Gains (losses) on currency translation, before tax		28			(650,439	)			(629,858	)
Other comprehensive income, before taxes, currency translation differences					(650,439	)			(629,858	)
Cash flow hedges
Gains (losses) on cash flow hedges before taxes		18			(163,993	)			128,166
Other comprehensive income (losses), before taxes, cash flow hedges					(163,993	)			128,166
Other components of other comprehensive income (loss), before taxes					(814,432	)			(501,692	)
Income tax relating to other comprehensive income that will be reclassified to income					—				—
Income tax related to cash flow hedges in other comprehensive income					47,979				(19,345	)
Income taxes related to components of other comprehensive income that will be reclassified to income					47,979				(19,345	)
Other comprehensive income (loss)					(766,453	)			(521,037	)
Total comprehensive income (loss)					(843,414	)			(784,856	)
Comprehensive income (loss) attributable to owners of the parent					(830,502	)			(768,457	)
Comprehensive income (loss) attributable to non-controlling interests					(12,912	)			(16,399	)
TOTAL COMPREHENSIVE INCOME (LOSS)					(843,414	)			(784,856	)

The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

				Attributable to owners of the parent
												Change in other reserves
				Share				Treasury				Currency translation				Cash flow hedging				Shares based payments				Other sundry				Total other				Retained				Parent’s ownership				Non- controlling				Total
		Note		capital				shares				reserve				reserve				reserve				reserve				reserve				earnings				interest				interest				equity
				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Equity as of January 1, 2014					2,389,384				(178	)			(589,991	)			(34,508	)			21,011				2,657,800				2,054,312				795,303				5,238,821				87,638				5,326,459
Total increase (decrease) in equity
Comprehensive income
Gain (losses)		24			—				—				—				—				—				—				—				(109,790	)			(109,790	)			32,829				(76,961	)
Other comprehensive income					—				—				(603,880	)			(116,832	)			—				—				(720,712	)			—				(720,712	)			(45,741	)			(766,453	)
Total comprehensive income					—				—				(603,880	)			(116,832	)			—				—				(720,712	)			(109,790	)			(830,502	)			(12,912	)			(843,414	)
Transactions with shareholders
Equity issuance		24-33			156,321				—				—				—				—				—				—				—				156,321				—				156,321
Increase (decrease) through transfers and other changes, equity		24-33			—				—				—				—				8,631				(22,052	)			(13,421	)			(149,323	)			(162,744	)			27,073				(135,671	)
Total transactions with shareholders					156,321				—				—				—				8,631				(22,052	)			(13,421	)			(149,323	)			(6,423	)			27,073				20,650
Closing balance as of December 31, 2014					2,545,705				(178	)			(1,193,871	)			(151,340	)			29,642				2,635,748				1,320,179				536,190				4,401,896				101,799				4,503,695

The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

				Attributable to owners of the parent
												Change in other reserves
				Share				Treasury				Currency translation				Cash flow hedging				Shares based payments				Other sundry				Total other				Retained				Parent’s ownership				Non- controlling				Total
		Note		capital				shares				reserve				reserve				reserve				reserve				reserve				earnings				interest				interest				equity
				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Equity as of January 1, 2013					1,501,018				(203	)			3,574				(140,730	)			5,574				2,666,682				2,535,100				1,076,136				5,112,051				108,634				5,220,685
Total increase (decrease) in equity
Comprehensive income
Gain (losses)		24			—				—				—				—				—				—				—				(281,114	)			(281,114	)			17,295				(263,819	)
Other comprehensive income					—				—				(593,565	)			106,222				—				—				(487,343	)			—				(487,343	)			(33,694	)			(521,037	)
Total comprehensive income					—				—				(593,565	)			106,222				—				—				(487,343	)			(281,114	)			(768,457	)			(16,399	)			(784,856	)
Transactions with shareholders
Equity issuance		24-33			888,570				—				—				—				—				—				—				—				888,570				—				888,570
Dividends		24			(25	)			25				—				—				—				—				—				—				—				—				—
Increase (decrease) through transfers and other changes, equity		24-33			(179	)			—				—				—				15,437				(8,882	)			6,555				281				6,657				(4,597	)			2,060
Total transactions with shareholders					888,366				25				—				—				15,437				(8,882	)			6,555				281				895,227				(4,597	)			890,630
Closing balance as of December 31, 2013					2,389,384				(178	)			(589,991	)			(34,508	)			21,011				2,657,800				2,054,312				795,303				5,238,821				87,638				5,326,459

The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD

 

				For the periods ended December 31,
		Note		2014				2013
				ThUS$				ThUS$
Cash flows from operating activities
Cash collection from operating activities
Proceeds from sales of goods and services					13,367,838				13,406,275
Other cash receipts from operating activities					96,931				4,638
Payments for operating activities
Payments to suppliers for goods and services					(8,823,007	)			(9,570,723	)
Payments to and on behalf of employees					(2,433,652	)			(2,405,315	)
Other payments for operating activities					(528,214	)			(31,215	)
Interest received					11,589				11,310
Income taxes refunded (paid)					(108,389	)			(83,033	)
Other cash inflows (outflows)		6			(251,657	)			76,761
Net cash flows from operating activities					1,331,439				1,408,698
Cash flows used in investing activities
Cash flows used to obtain control of subsidiaries or other businesses					518				(5,517	)
Cash flows used in the purchase of non- controlling interest					—				(497	)
Other cash receipts from sales of equity or debt instruments of other entities					524,370				270,485
Other payments to acquire equity or debt instruments of other entities					(474,656	)			(440,801	)
Amounts raised from sale of property, plant and equipment					564,266				225,196
Purchases of property, plant and equipment					(1,440,445	)			(1,381,786	)
Purchases of intangible assets					(55,759	)			(43,484	)
Payment from other long-term assets					—				22,144
Other cash inflows (outflows)		6			(17,399	)			75,448
Net cash flow from (used in) investing activities					(899,105	)			(1,278,812	)
Cash flows from (used in) financing activities
Amounts raised from issuance of shares					156,321				888,949
Payments to acquire or redeem the shares of the entity					4,661				—
Amounts raised from long-term loans					1,042,820				2,043,518
Amounts raised from short-term loans					603,151				1,101,159
Loans repayments					(2,315,120	)			(1,952,013	)
Payments of finance lease liabilities					(394,131	)			(423,105	)
Dividends paid					(35,362	)			(29,694	)
Interest paid					(368,789	)			(361,006	)
Other cash inflows (outflows)		6			(13,777	)			(62,013	)
Net cash flows from (used in) financing activities					(1,320,226	)			1,205,795
Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change					(887,892	)			1,335,681
Effects of variation in the exchange rate on cash and cash equivalents					(107,615	)			(1,041	)
Net increase (decrease) in cash and cash equivalents					(995,507	)			1,334,640
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		6			1,984,903				650,263
CASH AND CASH EQUIVALENTS AT END OF PERIOD		6			989,396				1,984,903

The accompanying Notes 1 to 35 form an integral part of these consolidated financial statements.

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2014

NOTE 1 - GENERAL INFORMATION

LATAM Airlines Group S.A. (the “Company”) is a public company registered with the Chilean Superintendency of Securities and Insurance (SVS), under No.306, whose shares are quoted in Chile on the Stock Brokers - Stock Exchange (Valparaíso), the Chilean Electronic Stock Exchange and the Santiago Stock Exchange; it is also quoted in the United States of America on the New York Stock Exchange (“NYSE”) in New York in the form of American Depositary Receipts (“ADRs”) and in Brazil BM & FBOVESPA S.A. – Stock Exchange, Mercadorias e Futuros, in the form of Brazilian Depositary Receipts (“BDRs”).

Its principal business is passenger and cargo air transportation, both in the domestic markets of Chile, Peru, Argentina, Colombia, Ecuador and Brazil and in a developed series of regional and international routes in America, Europe and Oceania. These businesses are performed directly or through its subsidiaries in different countries. In addition, the Company has subsidiaries operating in the freight business in Mexico, Brazil and Colombia.

The Company is located in Santiago, Chile, at Avenida Américo Vespucio Sur No. 901, commune of Renca.

Corporate Governance practices of the Company are set in accordance with Securities Market Law the Corporations Law and its regulations, and the regulations of the SVS and the laws and regulations of the United States of America and the U.S. Securities and Exchange Commission (“SEC”) of that country, with respect to the issuance of ADRs, and the Federal Republic of Brazil and the Comissão de Valores Mobiliarios (“CVM”) of that country, as it pertains to the issuance of BDRs.

The Board of the Company is composed of nine members who are elected every two years by the ordinary shareholders’ meeting. The Board meets in regular monthly sessions and in extraordinary sessions as the corporate needs demand. Of the nine board members, three form part of its Directors’ Committee which fulfills both the role foreseen in the Corporations Law and the functions of the Audit Committee required by the Sarbanes Oxley Law of the United States of America and the respective regulations of the SEC.

The majority shareholder of the Company is the Cueto Group, which through Costa Verde Aeronáutica S.A., Costa Verde Aeronáutica SpA, Inversiones Nueva Costa Verde Aeronáutica Limitada, Inversiones Priesca Dos y Cía. Ltda., Inversiones Caravia Dos y Cía. Ltda., Inversiones El Fano Dos y Cía. Ltda., Inversiones La Espasa Dos S.A., Inversiones Puerto Claro Dos Limitada, Inversiones La Espasa Dos y Cía. Ltda., Inversiones Puerto Claro Dos y Cía. Limitada and Inversiones Mineras del Cantábrico S.A. owns 25.49% of the shares issued by the Company, and therefore is the controlling shareholder of the Company in accordance with the provisions of the letter b) of Article 97 and Article 99 of the Securities Market Law, given that there is a decisive influence on its administration.

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As of December 31, 2014, the Company had a total of 1,622 registered shareholders. At that date approximately 7.69 % of the Company’s share capital was in the form of ADRs and approximately 0.53% in the form of BDRs.

For the period ended December 31, 2014, the Company had an average of 53,300 employees, ending this period with a total of 53,072 employees, spread over 10,077 Administrative employees, 6,986 in Maintenance, 17,517 in Operations, 9,237 in Cabin Crew, 4,009 in Controls Crew, and 5,246 in Sales.

 

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The main subsidiaries included in these consolidated financial statements are as follows:

 

a)	As of December 31, 2014

 

								Participation rate												Statement of financial position												Net Income
Tax No.		Company		Country of origin		Functional Currency		Direct ownership interest				Indirect ownership interest				Total ownership interest				Assets				Liabilities				Equity				Gain (loss)
								%				%				%				ThUS$				ThUS$				ThUS$				ThUS$
96.518.860-6		Lantours Division Servicios
		Terrestres S.A. and Subsidiaries		Chile		US$			99.9900				0.0100				100.0000				3,229				2,289				940				2,074
96.763.900-1		Inmobiliaria Aeronáutica S.A.		Chile		US$			99.0100				0.9900				100.0000				39,920				16,854				23,066				1,906
96.969.680-0		Lan Pax Group S.A. and Subsidiaries (1)		Chile		US$			99.8361				0.1639				100.0000				640,020				1,065,157				(426,016	)			(114,511	)
Foreign		Lan Perú S.A.		Peru		US$			49.0000				21.0000				70.0000				239,470				228,395				11,075				1,058
Foreign		Lan Chile Investments Limited and Subsidiaries (1)		Cayman Islands		US$			99.9900				0.0100				100.0000				2,015				—				2,015				2,844
93.383.000-4		Lan Cargo S.A.		Chile		US$			99.8939				0.0041				99.8980				575,979				234,772				341,207				(9,966	)
Foreign		Connecta Corporation		U.S.A.		US$			0.0000				100.0000				100.0000				27,431				28,853				(1,422	)			740
Foreign		Prime Airport Services Inc. and Subsidiary (1)		U.S.A.		US$			0.0000				100.0000				100.0000				18,120				22,897				(4,777	)			107
96.951.280-7		Transporte Aéreo S.A.		Chile		US$			0.0000				100.0000				100.0000				367,570				147,278				220,292				(8,983	)
96.634.020-7		Ediciones Ladeco América S.A.		Chile		CLP			0.0000				100.0000				100.0000				—				484				(484	)			—
Foreign		Aircraft International Leasing Limited		U.S.A.		US$			0.0000				100.0000				100.0000				—				—				—				2,805
96.631.520-2		Fast Air Almacenes de Carga S.A.		Chile		CLP			0.0000				100.0000				100.0000				9,601				3,912				5,689				923
96.631.410-9		Ladeco Cargo S.A.		Chile		CLP			0.0000				100.0000				100.0000				346				13				333				6
Foreign		Laser Cargo S.R.L.		Argentina		ARS			0.0000				100.0000				100.0000				41				138				(97	)			12
Foreign		Lan Cargo Overseas Limited and Subsidiaries (1)		Bahamas		US$			0.0000				100.0000				100.0000				60,634				46,686				12,218				(84,603	)
96.969.690-8		Lan Cargo Inversiones S.A. and Subsidiary (1)		Chile		CLP			0.0000				100.0000				100.0000				45,589				59,768				(12,711	)			(4,276	)
96.575.810-0		Inversiones Lan S.A. and Subsidiaries (1)		Chile		CLP			99.7100				0.0000				99.7100				16,035				14,746				1,272				(4,546	)
Foreign		TAM S.A. and Subsidiaries (1) (2)		Brazil		BRL			63.0901				36.9099				100.0000				6,817,698				5,809,529				912,634				171,655

 

(1)	The Equity reported corresponds to Equity attributable to owners of the parent, does not include Non-controlling interest.

(2)

The indirect participation percentage over TAM S.A. and Subsidiaries comes from Holdco I S.A., entity for which LATAM Airlines Group S.A. holds a 99.9983% participation on the economic rights. Additionally LATAM Airlines Group S.A. owns 226 voting shares of Holdco I S.A., equivalent to 19.42% of total voting shares of that company.

During 2014 LATAM Airlines Group S.A. made a capital increase in TAM S.A. for the total amount of ThUS$ 250,000.

 

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b)	As of December 31, 2013

 

								Participation rate												Statement of financial position												Net Income
Tax No.		Company		Country of origin		Functional Currency		Direct ownership interest				Indirect ownership interest				Total ownership interest				Assets				Liabilities				Equity				Gain (loss)
								%				%				%				ThUS$				ThUS$				ThUS$				ThUS$
96.518.860-6		Lantours Division Servicios
		Terrestres S.A. and Subsidiaries		Chile		US$			99.9900				0.0100				100.0000				2,722				2,210				512				787
96.763.900-1		Inmobiliaria Aeronáutica S.A.		Chile		US$			99.0100				0.9900				100.0000				38,553				12,124				26,429				1,231
96.969.680-0		Lan Pax Group S.A. and Subsidiaries (1)		Chile		US$			99.8361				0.1639				100.0000				641,589				901,851				(246,521	)			(104,966	)
Foreign		Lan Perú S.A.		Peru		US$			49.0000				21.0000				70.0000				263,516				252,109				11,407				3,755
Foreign		Lan Chile Investments Limited and Subsidiaries (1)		Cayman Islands		US$			99.9900				0.0100				100.0000				4,419				5,248				(829	)			(1	)
93.383.000-4		Lan Cargo S.A.		Chile		US$			99.8939				0.0041				99.8980				772,640				413,527				359,113				3,685
Foreign		Connecta Corporation		U.S.A.		US$			0.0000				100.0000				100.0000				9				2,171				(2,162	)			(356	)
Foreign		Prime Airport Services Inc. and Subsidiary (1)		U.S.A.		US$			0.0000				100.0000				100.0000				13,528				18,412				(4,884	)			78
96.951.280-7		Transporte Aéreo S.A.		Chile		US$			0.0000				100.0000				100.0000				359,693				120,399				239,294				(4,129	)
96.634.020-7		Ediciones Ladeco América S.A.		Chile		CLP			0.0000				100.0000				100.0000				—				560				(560	)			—
Foreign		Aircraft International Leasing Limited		U.S.A.		US$			0.0000				100.0000				100.0000				—				2,805				(2,805	)			(5	)
96.631.520-2		Fast Air Almacenes de Carga S.A.		Chile		CLP			0.0000				100.0000				100.0000				10,675				3,684				6,991				1,802
96.631.410-9		Ladeco Cargo S.A.		Chile		CLP			0.0000				100.0000				100.0000				381				13				368				(2	)
Foreign		Laser Cargo S.R.L.		Argentina		ARS			0.0000				100.0000				100.0000				52				201				(149	)			(34	)
Foreign		Lan Cargo Overseas Limited and Subsidiaries (1)		Bahamas		US$			0.0000				100.0000				100.0000				354,250				256,109				96,817				111,043
96.969.690-8		Lan Cargo Inversiones S.A. and Subsidiary (1)		Chile		CLP			0.0000				100.0000				100.0000				39,419				48,630				(9,937	)			(1,246	)
96.575.810-0		Inversiones Lan S.A. and Subsidiaries (1)		Chile		CLP			99.7100				0.0000				99.7100				15,362				8,933				6,421				517
Foreign		TAM S.A. and Subsidiaries (1) (2)		Brazil		BRL			63.0901				36.9099				100.0000				8,695,458				7,983,671				617,035				(458,475	)

 

(1)	The Equity reported corresponds to Equity attributable to owners of the parent, does not include Non-controlling interest.

(2)

The indirect participation percentage over TAM S.A. and Subsidiaries comes from Holdco I S.A., entity for which LATAM Airlines Group S.A. holds a 99.9983% participation on the economic rights. Additionally LATAM Airlines Group S.A. owns 226 voting shares of Holdco I S.A., equivalent to 19.42% of total voting shares of that company.

During 2013 LATAM Airlines Group S.A. made a capital increase in TAM S.A. for the total amount of ThUS$ 1,650,000.

 

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Additionally, has proceeded to consolidate special purpose entities, denominated: JOL, destined to the aircraft financing and Chercán Leasing Limited, destined to the aircraft advance financing and Guanay Finance Limited, destined to the issuance of securitized bond, as the Company has major risks and benefits associated to them according to standards issued by the International Financial Reporting Standards: Consolidated Financial Statement (IFRS 10) and private investment funds in which the parent company and subsidiaries are contributors.

All the entities controlled have been included in the consolidation.

Changes in the scope of consolidation between January 1, 2013 and December 31, 2014, are detailed below:

 

(1)	Incorporation or acquisition of companies

 

•

On October 11, 2013, TAM S.A., under each contracts of sale of shares with Lan Cargo Overseas Limited (indirect subsidiary of LATAM Airlines Group S.A.) , TADEF, Participação e Consultoria Empresarial Ltda. y Jochman Participações Ltda. acquired the 100% of the shares of Aerolinhas Brasileiras S.A. (ABSA). The effect of this transaction on LATAM Airlines Group S.A. corresponds to the purchase of shares on ABSA that possessed the companies TADEF, Participação e Consultoria Empresarial Ltda. and Jochman Participações Ltda., which represented the non-controlling interest on the acquired company.

 

•

Lan Pax Group S.A. is the direct owner of 55% of Aerolane Líneas Aéreas Nacionales del Ecuador S.A., during 2014 obtains the 100% of the economic rights, through its participation in the company Holdco Ecuador S.A., who is owner of 45% remaining of Aerolane Líneas Aéreas Nacionales del Ecuador S.A. By this Lan Pax Group S.A. is owner of 20% of shares with voting rights and is owned of 100% with the economic rights.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following describes the principal accounting policies adopted in the preparation of these consolidated financial statements.

 

2.1.	Basis of Preparation

The consolidated financial statements of LATAM Airlines Group S.A. are for the period ended December 31, 2014, and have been prepared in accordance with Standards an Instructions by Chilean Superintendency of Securities and Insurance (“SVS”), which, except as provided by its Office Circular No. 856, as detailed in the following paragraph are in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (“IASB”) incorporated therein and with the interpretations issued by the International Financial Reporting Standards Interpretations Committee (IFRIC).

On September 26, 2014 the law No. 20,780 was promulgated, and on September 29, 2014 was published in the Official Journal of the Republic of Chile, which introduces modifications to the tax system in Chile concerning income tax, among other matters. In relation to the Law,

 

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on October 17, 2014 the SVS issued Office Circular No. 856, in which it decided that the restatement of assets and liabilities by deferred income taxes that occur as a direct effect of the First- Category Tax rate increase introduced by Law No. 20,780 (Tax reform) will be held in equity and not as indicates the IAS 12. In notes 2.17 and 17 the criteria and impacts related to the registration of the effects of the reform and the implementation of the Circular cited are detailed.

The consolidated financial statements have been prepared under the historic-cost criterion, although modified by the valuation at fair value of certain financial instruments.

The preparation of the consolidated financial statements in accordance with described above requires the use of certain critical accounting estimates. It also requires management to use its judgment in applying the Company’s accounting policies. Note 4 shows the areas that imply a greater degree of judgment or complexity or the areas where the assumptions and estimates are significant to the consolidated financial statements.

In order to facilitate comparison, there have been some minor reclassifications to the consolidated financial statements corresponding to the previous year.

 

(a)	Accounting pronouncements with implementation effective from January 1, 2014:

 

				Mandatory
		Date of issue		Application:
(i) Standards and amendments				Annual periods beginning on or after
Amendment to IAS 32: Financial instruments: Presentation		December 2011		01/01/2014
Amendments to IFRS 10: Consolidated financial statements, IFRS 12: Disclosure of interests in other entities and IAS 27: Separate financial statements.		October 2012		01/01/2014
Amendment to IAS 36: Impairment of assets		May 2013		01/01/2014 The Company adopted in advance this amendment at December 31, 2013.
Amendment to IAS 39: Financial instruments: Recognition and measurement		June 2013		01/01/2014
Amendment to IAS 19: Employee Benefits		November 2013		07/01/2014
(ii) Interpretations
IFRIC 21: Levies		May 2013		01/01/2014

 

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				Mandatory
		Date of issue		Application:
(i) Standards and amendments				Annual periods
				beginning on or after
(ii) Improvements
Improvements to the International Financial Reporting Standards (2012): IFRS 2: Share-based Payment; IFRS 3: Business Combinations Therefore, IFRS 9, IAS 37, and IAS 39 are also modified; IFRS 8: Operating Segments, IFRS 13: Fair Value Measurement, IFRS 9 and IAS 39 were consequently changed; IAS 16: Property, Plant and Equipment, and IAS 38: Intangible Assets; and IAS 24: Related Party Disclosures.		December 2013		07/01/2014
Improvements to the International Financial Reporting Standards (2013): IFRS 1: First-time Adoption of International Financial Reporting Standards; IFRS 3: Business Combinations; IFRS 13: Fair Value Measurement; and IAS 40: Investment Property.		December 2013		07/01/2014
The application of standards, amendments, interpretations and improvements had no material impact on the consolidated financial statements of the Company.
(b) Accounting pronouncements effective implementation starting on January 1, 2015 and following:
				Mandatory
		Date of issue		Application:
(i) Standards and amendments				Annual periods
				beginning on or after
IFRS 9: Financial instruments.		December 2009		01/01/2018
IFRS 15: Revenue from contracts with customers.		June 2014		01/01/2017
Amendment to IFRS 9: Financial instruments.		November 2013		01/01/2018
Amendment to IFRS 11: Joint arrangements.		May 2014		01/01/2016
Amendment to IAS 16: Property, plant and equipment, and IAS 38: Intangible assets.		May 2014		01/01/2016
Amendment to IAS 27: Separate financial statements.		August 2014		01/01/2016

 

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				Mandatory
		Date of issue		Application:
(ii) Standards and amendments				Annual periods beginning on or after
Amendment to IFRS 10: Consolidated financial statements and IAS 28 Investments in associates and joint ventures.		September 2014		01/01/2016
Amendment IAS 1: Presentation of Financial Statements		December 2014		01/01/2016
Amendment to IFRS 10: Consolidated financial statements, IFRS 12: Disclosure of Interests in other entities and IAS 28: Investments in associates and joint ventures.		December 2014		01/01/2016
(iii) Improvements
Improvements to International Financial Reporting Standards (2012-2014 cycle): IFRS 5 Non-current assets held for sale and discontinued operations; IFRS 7 Financial instruments: Disclosures; IAS 19 Employee benefits and IAS 34 Interim financial reporting.		September 2014		01/01/2016

The Company’s management believes that the early adoption of the standards, amendments and interpretations described above but not yet effective would not have had a significant impact on the Company’s consolidated financial statements in the year of their first application. The Company only has early adopted the amendment to IAS 36.

 

2.2.	Basis of Consolidation

 

(a)	Subsidiaries

Subsidiaries are all the entities (including special-purpose entities) over which the Company has the power to control the financial and operating policies, which are generally accompanied by a holding of more than half of the voting rights. In evaluating whether the Company controls another entity, the existence and effect of potential voting rights that are currently exercisable or convertible at the date of the consolidated financial statements are considered. The subsidiaries are consolidated from the date on which control is passed to the Company and they are excluded from the consolidation on the date they cease to be so controlled. The results and flows are incorporated from the date of acquisition.

Inter-company transactions, balances and unrealized gains on transactions between the Company’s entities are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment loss of the asset transferred. When necessary in order to ensure uniformity with the policies adopted by the Company, the accounting policies of the subsidiaries are modified.

 

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To account for and identify the financial information to be revealed when carrying out a business combination, such as the acquisition of an entity by the Company, shall apply the acquisition method provided for in IFRS 3: Business combination.

 

(b)	Transactions with non-controlling interests

The Company applies the policy of considering transactions with non-controlling interests, when not related to loss of control, as equity transactions without an effect on income.

 

(c)	Sales of subsidiaries

When a subsidiary is sold and a percentage of participation is not retained, the Company derecognizes assets and liabilities of the subsidiary, the non-controlling and other components of equity related to the subsidiary. Any gain or loss resulting from the loss of control is recognized in the consolidated income statement in Other gains (losses).

If LATAM Airlines Group S.A. and Subsidiaries retain an ownership of participation in the sold subsidiary, and does not represent control, this is recognized at fair value on the date that control is lost, the amounts previously recognized in Other comprehensive income are accounted as if the Company had disposed directly from the assets and related liabilities, which can cause these amounts are reclassified to profit or loss. The percentage retained valued at fair value are subsequently accounted using the equity method.

 

(d)	Investees or associates

Investees or associates are all entities over which LATAM Airlines Group S.A. and Subsidiaries have significant influence but have no control. This usually arises from holding between 20% and 50% of the voting rights. Investments in associates are booked using the equity method and are initially recognized at their cost.

2.3. Foreign currency transactions

 

(a)	Presentation and functional currencies

The items included in the financial statements of each of the entities of LATAM Airlines Group S.A. and Subsidiaries are valued using the currency of the main economic environment in which the entity operates (the functional currency). The functional currency of LATAM Airlines Group S.A. is the United States dollar which is also the presentation currency of the consolidated financial statements of LATAM Airlines Group S.A. and Subsidiaries.

 

(b)	Transactions and balances

Foreign currency transactions are translated to the functional currency using the exchange rates on the transaction dates. Foreign currency gains and losses resulting from the liquidation of these transactions and from the translation at the closing exchange rates of the monetary assets and liabilities denominated in foreign currency are shown in the consolidated statement of income by function except when deferred in Other comprehensive income as qualifying cash flow hedges.

 

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(c)	Group entities

The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency other than the presentation currency are translated to the presentation currency as follows:

(i) Assets and liabilities of each consolidated statement of financial position presented are translated at the closing exchange rate on the consolidated statement of financial position date;

(ii) The revenues and expenses of each income statement account are translated at the exchange rates prevailing on the transaction dates, and

(iii) All the resultant exchange differences by conversion are shown as a separate component in Other comprehensive income.

The exchange rates used correspond to those fixed in the country where the subsidiary is located, whose functional currency is different to the U.S. dollar.

In the consolidation, exchange differences arising from the translation of a net investment in foreign entities (or local with a functional currency different to that of the parent), and of loans and other foreign currency instruments designated as hedges for these investments, are recorded within net equity. When the investment is sold, these exchange differences are shown in the consolidated statement of income as part of the loss or gain on the sale.

Adjustments to the Goodwill and fair value arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing exchange rate or period informed.

2.4. Property, plant and equipment

The land of LATAM Airlines Group S.A. and Subsidiaries is recognized at cost less any accumulated impairment loss. The rest of the Property, plant and equipment are registered, initially and subsequently, at historic cost less the corresponding depreciation and any impairment loss.

The amounts of advance payments to aircraft manufacturers are capitalized by the Company under Construction in progress until receipt of the aircraft.

Subsequent costs (replacement of components, improvements, extensions, etc.) are included in the value of the initial asset or shown as a separate asset only when it is probable that the future economic benefits associated with the elements of Property, plant and equipment are going to flow to the Company and the cost of the element can be determined reliably. The value of the component replaced is written off in the books at the time of replacement. The rest of the repairs and maintenance are charged to the results of the year in which they are incurred.

Depreciation of Property, plant and equipment is calculated using the straight-line method over their estimated technical useful lives; except in the case of certain technical components which are depreciated on the basis of cycles and hours flown.

The residual value and useful life of assets are reviewed, and adjusted if necessary, once per year.

 

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When the carrying amount of an asset is higher than its estimated recoverable amount, its value is reduced immediately to its recoverable amount (Note 2.8).

Losses and gains on the sale of Property, plant and equipment are calculated by comparing the compensation with the book value and are included in the consolidated statement of income.

 

2.5.	Intangible assets other than goodwill

 

(a)	Brands, Airport slots and Loyalty program

Brands, Airport slots and Coalition and loyalty program are intangible assets of indefinite useful life and are subject to impairment tests annually as an integral part of each CGU, in accordance with the premises that are applicable, included as follows:

Airport slots – Air transport CGU

Loyalty program – Coalition and loyalty program Multiplus CGU

Brand – Air transport CGU

(See Note 15)

The airport slots correspond to an administrative authorization to carry out operations of arrival and departure of aircraft at a specific airport, within a specified period.

The Loyalty program corresponds to the system of accumulation and redemption of points that has developed Multiplus S.A., subsidiary of TAM S.A.

The Brands, airport Slots and Loyalty program were recognized in fair values determined in accordance with IFRS 3, as a consequence of the business combination with TAM and Subsidiaries.

 

(b)	Computer software

Licenses for computer software acquired are capitalized on the basis of the costs incurred in acquiring them and preparing them for using the specific software. These costs are amortized over their estimated useful lives, for which the Company has been defined useful lives between 3 and 7 years.

Expenses related to the development or maintenance of computer software which do not qualify for capitalization, are shown as an expense when incurred. The personnel costs and others costs directly related to the production of unique and identifiable computer software controlled by the Company, are shown as intangible Assets others than Goodwill when they have met all the criteria for capitalization.

2.6. Goodwill

Goodwill represents the excess of acquisition cost over the fair value of the Company’s participation in the net identifiable assets of the subsidiary or associate on the acquisition date. Goodwill related to acquisition of subsidiaries is not amortized but tested for impairment annually. Gains and losses on the sale of an entity include the book amount of the goodwill related to the entity sold.

 

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2.7.	Borrowing costs

Interest costs incurred for the construction of any qualified asset are capitalized over the time necessary for completing and preparing the asset for its intended use. Other interest costs are recognized in the consolidated income statement when they are accrued.

2.8. Losses for impairment of non-financial assets

Intangible assets that have an indefinite useful life, and developing IT projects, are not subject to amortization and are subject to annual testing for impairment. Assets subject to amortization are subjected to impairment tests whenever any event or change in circumstances indicates that the book value of the assets may not be recoverable. An impairment loss is recorded when the book value is greater than the recoverable amount. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. In evaluating the impairment, the assets are grouped at the lowest level for which cash flows are separately identifiable (CGUs). Non-financial assets other than goodwill that have suffered an impairment loss are reviewed if there are indicators of reverse losses at each reporting date.

2.9. Financial assets

The Company classifies its financial instruments in the following categories: financial assets at fair value through profit and loss and loans and receivables. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at the time of initial recognition, which occurs on the date of transaction.

 

(a)	Financial assets at fair value through profit and loss

Financial assets at fair value through profit and loss are financial instruments held for trading and those which have been designated at fair value through profit or loss in their initial classification. A financial asset is classified in this category if acquired mainly for the purpose of being sold in the near future or when these assets are managed and measured using fair value. Derivatives are also classified as held for trading unless they are designated as hedges. The financial assets in this category and have been designated initial recognition through profit or loss, are classified as Cash and cash equivalents and Other current financial assets and those designated as instruments held for trading are classified as Other current and non-current financial assets.

 

(b)	Loans and receivables

Loans and receivables are non-derivative financial instruments with fixed or determinable payments not traded on an active market. These items are classified in current assets except for those with maturity over 12 months from the date of the consolidated statement of financial position, which are classified as non-current assets. Loans and receivables are included in trade and other accounts receivable in the consolidated statement of financial position (Note 2.12).

The regular purchases and sales of financial assets are recognized on the trade date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or losses are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

 

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The financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest rate method.

At the date of each consolidated statement of financial position, the Company assesses if there is objective evidence that a financial asset or group of financial assets may have suffered an impairment loss.

 

2.10.

Derivative financial instruments and hedging activities

Derivatives are booked initially at fair value on the date the derivative contracts are signed and later they continue to be valued at their fair value. The method for booking the resultant loss or gain depends on whether the derivative has been designated as a hedging instrument and if so, the nature of the item hedged. The Company designates certain derivatives as:

 

(a)	Hedge of the fair value of recognized assets (fair value hedge);

 

(b)	Hedge of an identified risk associated with a recognized liability or an expected highly- Probable transaction (cash-flow hedge), or

 

(c)	Derivatives that do not qualify for hedge accounting.

The Company documents, at the inception of each transaction, the relationship between the hedging instrument and the hedged item, as well as its objectives for managing risk and the strategy for carrying out various hedging transactions. The Company also documents its assessment, both at the beginning and on an ongoing basis, as to whether the derivatives used in the hedging transactions are highly effective in offsetting the changes in the fair value or cash flows of the items being hedged.

The total fair value of the hedging derivatives is booked as Other non-current financial asset or liability if the remaining maturity of the item hedged is over 12 months, and as an other current financial asset or liability if the remaining term of the item hedged is less than 12 months. Derivatives not booked as hedges are classified as Other financial assets or liabilities.

 

(a)	Fair value hedges

Changes in the fair value of designated derivatives that qualify as fair value hedges are shown in the consolidated statement of income, together with any change in the fair value of the asset or liability hedged that is attributable to the risk being hedged.

 

(b)	Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is shown in the statement of other comprehensive income. The loss or gain relating to the ineffective portion is recognized immediately in the consolidated statement of income under Other gains (losses). Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss.

 

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In case of variable interest-rate hedges, the amounts recognized in the statement of Other comprehensive income are reclassified to results within financial costs at the same time the associated debts accrue interest.

For fuel price hedges, the amounts shown in the statement of Other comprehensive income are reclassified to results under the line item Cost of sales to the extent that the fuel subject to the hedge is used.

For foreign currency hedges, the amounts recognized in the statement of Other comprehensive income are reclassified to income as deferred revenue resulting from the use of points, are recognized as Income.

When hedging instruments mature or are sold or when they do not meet the requirements to be accounted for as hedges, any gain or loss accumulated in the statement of Other comprehensive income until that moment remains in the statement of other comprehensive income and is reclassified to the consolidated statement of income when the hedged transaction is finally recognized. When it is expected that the hedged transaction is no longer going to occur, the gain or loss accumulated in the statement of other comprehensive income is taken immediately to the consolidated statement of income as “Other gains (losses)”.

 

(c)	Derivatives not booked as a hedge

The changes in fair value of any derivative instrument that is not booked as a hedge are shown immediately in the consolidated statement of income in “Other gains (losses)”.

 

2.11.

Inventories

Inventories, detailed in Note 10, are shown at the lower of cost and their net realizable value. The cost is determined on the basis of the weighted average cost method (WAC). The net realizable value is the estimated selling price in the normal course of business, less estimated costs necessary to make the sale.

 

2.12.

Trade and other accounts receivable

Trade accounts receivable are shown initially at their fair value and later at their amortized cost in accordance with the effective interest rate method, less the allowance for impairment losses. An allowance for impairment loss of trade accounts receivable is made when there is objective evidence that the Company will not be able to recover all the amounts due according to the original terms of the accounts receivable.

The existence of significant financial difficulties on the part of the debtor, the probability that the debtor is entering bankruptcy or financial reorganization and the default or delay in making payments are considered indicators that the receivable has been impaired. The amount of the provision is the difference between the book value of the assets and the present value of the estimated future cash flows, discounted at the original effective interest rate. The book value of the asset is reduced by the amount of the allowance and the loss is shown in the consolidated statement of income in Cost of sales. When an account receivable is written off, it is charged to the allowance account for accounts receivable.

 

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2.13.

Cash and cash equivalents

Cash and cash equivalents include cash and bank balances, time deposits in financial institutions, and other short-term and highly liquid investments.

2.14. Capital

The common shares are classified as net equity.

Incremental costs directly attributable to the issuance of new shares or options are shown in net equity as a deduction from the proceeds received from the placement of shares.

2.15. Trade and other accounts payables

Trade payables and other accounts payable are initially recognized at fair value and subsequently at amortized cost and are valued according to the method of the effective interest rate.

2.16. Interest-bearing loans

Financial liabilities are shown initially at their fair value, net of the costs incurred in the transaction. Later, these financial liabilities are valued at their amortized cost; any difference between the proceeds obtained (net of the necessary arrangement| costs) and the repayment value, is shown in the consolidated statement of income during the term of the debt, according to the effective interest rate method.

Financial liabilities are classified in current and non-current liabilities according to the contractual payment dates of the nominal principal.

 

2.17.

Current and deferred taxes

The expense by current tax is comprised of income and deferred taxes.

The charge for current tax is calculated based on tax laws in force on the date of statement of financial position, in the countries in which the subsidiaries and associates operate and generate taxable income.

Deferred taxes are calculated using the liability method, on the temporary differences arising between the tax bases of assets and liabilities and their book values. However, if the temporary differences arise from the initial recognition of a liability or an asset in a transaction different from a business combination that at the time of the transaction does not affect the accounting result or the tax gain or loss, they are not booked. The deferred tax is determined using the tax rates (and laws) that have been enacted or substantially enacted at the consolidated financial statements close, and are expected to apply when the related deferred tax asset is realized or the deferred tax liability discharged.

Deferred tax assets are recognized when it is probable that there will be sufficient future tax earnings with which to compensate the temporary differences.

 

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According to the instructions of Chilean Superintendency of Securities and Insurance in his Office Circular No. 856 of October 17, 2014, the effects on assets and liabilities by deferred tax as a result of the rate increase of the First Category Tax approved by Law No. 20,780 (tax reform) about deferred income tax, according to IAS 12 should be imputed to income (loss) of period, have been classified as Retained earnings, under Retained earnings. The subsequent amendments shall be recognized in income (loss) of period according to IAS 12.

Except as mentioned in the previous subparagraph, the tax (current and deferred) is recognized in income by function, unless it relates to an item recognized in Other comprehensive income, directly in equity or from business combination. In that case the tax is also recognized in Other comprehensive income, directly in income by function or goodwill, respectively.

 

2.18.

Employee benefits

 

(a)	Personnel vacations

The Company recognizes the expense for personnel vacations on an accrual basis.

 

(b)	Share-based compensation

The compensation plans implemented by the granting of options for the subscription and payment of shares are shown in the consolidated financial statements in accordance with IFRS 2: Share based payments, showing the effect of the fair value of the options granted as a charge to remuneration on a straight-line basis between the date of granting such options and the date on which these become vested.

 

(c)	Post-employment and other long-term benefits

Provisions are made for these obligations by applying the method of the actuarial value of the accrued cost, and taking into account estimates of future permanence, mortality rates and future wage increases determined on the basis of actuarial calculations. The discount rates are determined by reference to market interest-rate curves. Actuarial gains or losses are shown in other comprehensive income.

 

(d)	Incentives

The Company has an annual incentives plan for its personnel for compliance with objectives and individual contribution to the results. The incentives eventually granted consist of a given number or portion of monthly remuneration and the provision is made on the basis of the amount estimated for distribution.

2.19. Provisions

Provisions are recognized when:

 

(i)	The Company has a present legal or implicit obligation as a result of past events;

 

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(ii)	It is probable that payment is going to be necessary to settle an obligation; and

 

(iii)

The amount has been reliably estimated.

2.20. Revenue recognition

Revenues include the fair value of the proceeds received or to be received on sales of goods and rendering services in the ordinary course of the Company’s business. Revenues are shown net of refunds, rebates and discounts.

 

(a)	Rendering of services

 

(i)	Passenger and cargo transport

The Company shows revenue from the transportation of passengers and cargo once the service has been provided.

Consistent with the foregoing, the Company presents the deferred revenues, generated by anticipated sale of flight tickets and freight services, in heading Other financial liabilities in the Statement of Financial Position.

 

(ii)	Frequent flyer program

The Company currently has a frequent flyer programs, whose objective is customer loyalty through the delivery of kilometers or points fly whenever the programs holders make certain flights, use the services of entities registered with the program or make purchases with an associated credit card. The kilometers or points earned can be exchanged for flight tickets or other services of associated entities.

The consolidated financial statements include liabilities for this concept (deferred income), according to the estimate of the valuation established for the kilometers or points accumulated pending use at that date, in accordance with IFRIC 13: Customer loyalty programs.

 

(iii)

Other revenues

The Company records revenues for other services when these have been provided.

 

(b)	Interest income

Interest income is booked using the effective interest rate method.

 

(c)	Dividend income

Dividend income is booked when the right to receive the payment is established.

 

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2.21.

Leases

 

(a)	When the Company is the lessee – financial lease

The Company leases certain Property, plant and equipment in which it has substantially all the risk and benefits deriving from the ownership; they are therefore classified as financial leases. Financial leases are initially recorded at the lower of the fair value of the asset leased and the present value of the minimum lease payments.

Every lease payment is separated between the liability component and the financial expenses so as to obtain a constant interest rate over the outstanding amount of the debt. The corresponding leasing obligations, net of financial charges, are included in Other financial liabilities. The element of interest in the financial cost is charged to the consolidated statement of income over the lease period so that it produces a constant periodic rate of interest on the remaining balance of the liability for each year. The asset acquired under a financial lease is depreciated over its useful life and is included in Property, plant and equipment.

 

(b)	When the Company is the lessee – operating lease

Leases, in which the lessor retains an important part of the risks and benefits deriving from ownership, are classified as operating leases. Payments with respect to operating leases (net of any incentive received from the lessor) are charged in the consolidated statement of income on a straight-line basis over the term of the lease.

 

2.22.

Non-current assets or disposal groups classified as held for sale

Non-current assets (or disposal groups) classified as assets held for sale are shown at the lesser of their book value and the fair value less costs to sell.

 

2.23.

Maintenance

The costs incurred for scheduled heavy maintenance of the aircraft’s fuselage and engines are capitalized and depreciated until the next maintenance. The depreciation rate is determined on technical grounds, according to the use of the aircraft expressed in terms of cycles and flight hours.

In case of own aircraft or under financial leases, these maintenance cost are capitalized as Property, plant and equipment, while in the case of aircraft under operating leases, a liability is accrued based on the use of the main components is recognized, since exists a contractual obligation with the lessor to return the aircraft on agreed terms of maintenance levels. These are recognized as Cost of sales.

Additionally, some leases establish the obligation of the lessee to make deposits to the lessor as a guarantee of compliance with the maintenance and return conditions. These deposits, often called maintenance reserves, accumulate until a major maintenance is performed, once made, is request the recovery to the lessor. At the end of the contract period, the balance between paid reservations and conditions agreed with levels of maintain in delivering, be offset the parties if applicable.

 

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The unscheduled maintenance of aircraft and engines, as well as minor maintenance, are charged to results as incurred.

 

2.24.

Environmental costs

Disbursements related to environmental protection are charged to results when incurred.

NOTE 3 - FINANCIAL RISK MANAGEMENT

3.1. Financial risk factors

The Company’s activities are exposed to different financial risks: (a) market risk, (b) credit risk, and (c) liquidity risk. The Company’s global risk management program is focused on uncertainty in the financial markets and tries to minimize the potential adverse effects on the net margin. The Company uses derivative instruments to hedge part of these risks.

 

(a)	Market risk

Due to the nature of its operations, the Company is exposed to market risks such as:

(i)   fuel-price risk, (ii) interest-rate risk, and (iii) local exchange-rate risk. In order to fully or partially hedge all of these risks, the Company operates with derivative instruments to fix or limit the possible impact that could generate the above mentioned risks.

 

(i)	Fuel-price risk:

Fluctuations in fuel prices largely depend on the global supply and demand for oil, decisions taken by Organization of Petroleum Exporting Countries (“OPEC”), global refining capacity, stock levels maintained, and weather and geopolitical factors.

The Company purchases an aircraft fuel called Jet Fuel grade 54. There is a benchmark price in the international market for this underlying asset, which is US Gulf Coast Jet 54. However, the futures market for this asset has a low liquidity index and as a result the Company hedges its exposure using West Texas Intermediate (“WTI”) crude, Brent (“BRENT”) crude and distillate Heating Oil (“HO”), which have a high correlation with Jet Fuel and are highly liquid assets and therefore have advantages in comparison to the use of the U.S. Gulf Coast Jet 54 index.

During the period ended December 31, 2014, the Company recognized losses of US$ 108.7 million on fuel derivative. During the period 2013, the Company recognized gains of US$ 19.0 million for the same reason.

At December 31, 2014, the market value of its fuel positions amounted to US$ 157.2 million (negative). At December 31, 2013, this market value was US$ 15.9 million (positive).

 

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The following tables show the level of hedge for different periods:

 

		Maturities
Positions as of December 31, 2014 (*)		Q115				Q215				Q315				Q415				Total
Percentage of the hedge of expected consumption value			30	%			15	%			30	%			20	%			24	%

 

(*)	The volume shown in the table considers all the hedging instruments (swaps and options).

 

		Maturities
Positions as of December 31, 2013 (*)		Q114				Q214				Total
Percentage of the hedge of expected consumption value			56	%			26	%			41	%

 

(*)	The volume shown in the table considers all the hedging instruments (swaps and options).

Sensitivity analysis

A drop in fuel price positively affects the Company through a reduction in costs. However, this drop also negatively affects contracted positions as these are acquired to protect the Company against the risk of a rise in price. The policy therefore is to maintain a hedge-free percentage in order to be competitive in the event of a drop in price.

Due to the fact that current positions do not represent changes in cash flows, but a variation in the exposure to the market value, the current hedge positions have no impact on income (they are booked as cash flow hedge contracts, so a variation in the fuel price has an impact on the Company’s net equity through the consolidated statement of comprehensive income).

The following table shows the sensitivity analysis of the financial instruments according to reasonable changes in the fuel price and their effect on equity. The term of the projection was defined until the end of the last current fuel hedge contract, being the last business day of the third quarter of 2015.

The calculations were made considering a parallel movement of US$ 5 per barrel in the curve of the BRENT and JET crude futures benchmark price at the end of December, 2014 and the end of December, 2013.

 

		Positions as of December 31, 2014		Positions as of December 31, 2013
Benchmark price		effect on equity		effect on equity
(US$ per barrel)		(millions of US$)		(millions of US$)
+5		+24.90		+24.57
-5		-25.06		-19.13

 

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The Company seeks to reduce the risk of fuel price rises to ensure it is not left at a disadvantage compared to its competitors in the event of a sharp price fall. The Company therefore uses hedge instruments like swaps, call options and collars to partially hedge the fuel volumes by consume.

Given the fuel hedge structure during the year of 2014, which considers a hedge-free portion, a vertical fall by 5 dollars in the BRENT and JET benchmark price (the monthly daily average), would have meant an impact of approximately US$ 90.2 million in the cost of total fuel consumption for the same period. For the period of 2014, a vertical rise by 5 dollars in the BRENT and JET benchmark price (the monthly daily average) would have meant an impact of approximately US$ 88.07 million of increased fuel costs.

 

(ii)	Cash flow interest-rate risk:

The fluctuation in interest rates depends heavily on the state of the global economy. An improvement in long-term economic prospects moves long-term rates upward while a drop causes a decline through market effects. However, if we consider government intervention in periods of economic recession, it is usual to reduce interest rates to stimulate aggregate demand by making credit more accessible and increasing production (in the same way interest rates are raised in periods of economic expansion).

The present uncertainty about how the market and governments will react, and thus how interest rates will change, creates a risk related to the Company’s debt at floating interest rates and its investments.

Cash flow interest rate risk equates to the risk of future cash flows of the financial instruments due to the fluctuation in interest rates on the market. The Company’s exposure to risks of changes in market interest rates is mainly related to long-term obligations with variable interest rates.

In order to reduce the risk of an eventual rise in interest rates, the Company has signed interest-rate swap and call option contracts. Currently a 69% (70% at December 31, 2013) of the debt is fixed to fluctuations in interest rate. Therefore the Company is exposed in one portion to the variations of London Inter-Bank Offer Rate (“LIBOR”) of 30 days, 90 days, 180 days and 360 days. Other interest rates of less relevance are Brazilian Interbank Deposit Certificate (“ILC”), and the Interest Rate Term of Brazil (“TJLP”).

The following table shows the sensitivity of changes in financial obligations that are not hedged against interest-rate variations. These changes are considered reasonably possible based on current market conditions.

 

Increase (decrease)		Positions as of December 31, 2014		Positions as of December 31, 2013
futures curve		effect on profit or loss before tax		effect on profit or loss before tax
in libor 3 months		(millions of US$)		(millions of US$)
+100 basis points		-27.53		-29.70
-100 basis points		+27.53		+29.70

Changes in market conditions produce a change in the valuation of current financial instruments hedging interest rates, causing an effect on the Company’s equity (because they are booked as cash-flow hedges). These changes are considered reasonably possible based on current market conditions. The calculations were made increasing (decreasing) vertically 100 basis points of the three-month Libor futures curve.

 

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Increase (decrease) futures curve in libor 3 months		Positions as of December 31, 2014 effect on equity (millions of US$)		Positions as of December 31, 2013 effect on equity (millions of US$)
+100 basis points		+15.33		+23.35
-100 basis points		-15.95		-24.46

There are limitations in the method used for the sensitivity analysis and relate to those provided by the market because the levels indicated by the futures curves are not necessarily met and will change in each period.

In accordance with the requirements of IAS 39, during the periods presented, the Company has not recorded amounts for ineffectiveness in the consolidated income statement.

 

(iii)

Foreign exchange rate risk:

The functional currency used by the Company is the US dollar in terms of setting prices for its services, the composition of its statement of financial position and effects on its operating income.

The main risk arises when items listed on the balance sheet are exposed to exchange rate variations, due to their being listed in a currency other than the functional currency.

In the case of the subsidiary TAM S.A, which operates with the Brazilian Real as its functional currency, a large proportion of the company’s liabilities are expressed in United States Dollars. Therefore, this subsidiary’s profit and loss varies when its financial assets and liabilities, and its accounts receivable listed in dollars are converted to Brazilian Reals. This impact on profit and loss is consolidated in the Company.

In order to reduce the volatility on the financial statements of the Company caused by rises and falls in the R$/US$ exchange rate, the Company has conducted transactions for to reduce the net US$ liabilities held by TAM S.A.

The following table shows the variation of financial performance to appreciate or depreciate 10% exchange rate R$/US$:

 

Appreciation (depreciation) of R$/US$		Effect at December 31, 2014 Millons of US$
-10%		+69.8
+10%		-69.8

The Company sells most of its services in US dollars, prices equivalent to the US dollar and Brazilian real. A large part of its expenses are denominated in US dollars or equivalents to the US dollar, particularly fuel costs, aeronautic charges, aircraft leases, insurance and aircraft components and accessories. Remuneration expenses are denominated in local currencies.

 

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The Company maintains its cargo and passenger international business tariffs in US dollars. There is a mix in the domestic markets as sales in Peru are in local currency but the prices are indexed to the US dollar. In domestic markets of Brazil, Chile, Argentina and Colombia the tariffs are in local currency without any kind of indexation. In the case of the domestic business in Ecuador, both tariffs and sales are in US dollar. The Company is therefore exposed to fluctuations in the different currencies, among which are: Brazilian real, Chilean peso, Argentine peso, Paraguayan guaraní, Mexican peso, Euro, Pound sterling, Peruvian sol, Colombian peso, Australian dollar and New Zealand dollar. Of these currencies, the largest exposure is presented by Brazilian real and Chilean peso.

On the other hand, one of the sources of financing of the Company is the receipt of future flows relating to dividends and distributions of capital that the subsidiaries project distribute. These futures flows vary depending on the evolution of currency in compared to the US$. Most exposure to future flows is presented in subsidiary TAM S.A. and the volatility in the exchange rate R$/US$. In the case of the subsidiary TAM S.A. the incomes are expressed a large proportion in R$ and a large proportion of their costs are expressed in US$.

For cover the inversion in the subsidiaries and reduce the volatility in the cash flow , the Company may acquire derivatives contracts to hedge variations in other currencies against the Company’s functional currency, hedging exchange rate risk through currency forward.

With the object of reduce the exposition to the futures monthly operating flows of all 2014, caused by eventual depreciation of the BRL and assure an economic margins, LATAM done the hedge by derivatives FX Forward.

During the year ended at December 31, 2014 the Company recognized losses of US$ 3.8 million on hedging FX. During the period of 2013 the Company had no current positions for this item, so no compensation is recognized.

At December 31, 2014, the market value of its FX positions amounted to US$0.1 million (negative). At end of December 2013 the market value was of US$ 32.1 million (positive).

At end of December 2014, the Company has contracted derivatives of FX for US$ 100 million (US$ 500 million at December 31, 2013)

Sensitivity exchange rate LATAM

A depreciation of exchange rate R$/ US$ affects negatively the Company for a rise of its costs in US$, however, it also affects positively the value of contracted derivate positions.

Because the changes in the value of current positions not represented changes in cash flows, but a variation in the exposure of market value, the current hedge positions have not impact on result (are registered as cash flow hedges according to IAS 39, therefore, a variation in the exposure has an impact on the Company’s net equity).

 

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The following table presents the sensitivity of derivative FX Forward instruments agrees with reasonable changes to exchange rate and its effect on equity. The projection term was defined until the end of the last current contract hedge, being the last business day of the first month of 2015:

 

Appreciation (depreciation) of R$/US$		Effect at December 31, 2014 Millions of US$
-10%		-9.98
+10%		+9.98

Effects of exchange rate derivatives in the Financial Statements

The profit or losses caused by changes in the fair value of hedging instruments are segregated between intrinsic value and temporary value. The intrinsic value is the actual percentage of cash flow covered, initially shown in equity and later transferred to income, while the hedge transaction is recorded in income. The temporary value corresponds to the ineffective portion of cash flow hedge which is recognized in the financial results of the Company (Note 18).

Due to the functional currency of TAM S.A. and Subsidiaries is the Brazilian real, the Company presents the effects of the exchange rate fluctuations in Other comprehensive income by converting the Statement of financial position and Income statement of TAM S.A. and Subsidiaries from their functional currency to the U.S. dollar, which is the presentation currency of the consolidated financial statement of LATAM Airlines Group S.A. and Subsidiaries. The Goodwill generated in the Business combination is recognized as an asset of TAM S.A. and Subsidiaries in Brazilian real whose conversion to U.S. dollar also produces effects in Other comprehensive income.

The following table shows the change in Other comprehensive income recognized in Total equity in the case of appreciate or depreciate 10% the exchange rate R$/US$:

 

Appreciation (depreciation) of R$/US$		Effect at December 31, 2014 Millions of US$		Effect at December 31, 2013 Millions of US$
-10%		+461.15		+466.45
+10%		-377.31		-381.63

 

(b)	Credit risk

Credit risk occurs when the counterparty to a financial agreement or instrument fails to discharge an obligation due or financial instrument, leading to a loss in market value of a financial instrument (only financial assets, not liabilities).

The Company is exposed to credit risk due to its operative and financial activities, including deposits with banks and financial institutions, investments in other kinds of instruments, exchange-rate transactions and the contracting of derivative instruments or options.

 

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To reduce the credit risk associated with operational activities, the Company has established credit limits to abridge the exposure of their debtors which are monitored permanently (mainly in case of operational activities in Brazil with travel agents).

As a way to mitigate credit risk related to financial activities, the Company requires that the counterparty to the financial activities remain at least investment grade by major Risk Assessment Agencies. Additionally the company has established maximum limits for investments which are monitored regularly.

 

(i)	Financial activities

Cash surpluses that remain after the financing of assets necessary for the operation are invested according to credit limits approved by the Company’s Board, mainly in time deposits with different financial institutions, private investment funds, short-term mutual funds, and easily-liquidated corporate and sovereign bonds with short remaining maturities. These investments are booked as Cash and cash equivalents and Other current financial assets.

In order to reduce counterparty risk and to ensure that the risk assumed is known and managed by the Company, investments are diversified among different banking institutions (both local and international). The Company evaluates the credit standing of each counterparty and the levels of investment, based on (i) their credit rating, (ii) the equity size of the counterparty, and (iii) investment limits according to the Company’s level of liquidity. According to these three parameters, the Company chooses the most restrictive parameter of the previous three and based on this, establishes limits for operations with each counterparty.

The Company has no guarantees to mitigate this exposure.

 

(ii)	Operational activities

The Company has four large sales “clusters”: travel agencies, cargo agents, airlines and credit-card administrators. The first three are governed by International Air Transport Association, international (“IATA”) organization comprising most of the airlines that represent over 90% of scheduled commercial traffic and one of its main objectives is to regulate the financial transactions between airlines and travel agents and cargo. When an agency or airline does not pay their debt, they are excluded from operating with IATA’s member airlines. In the case of credit-card administrators, they are fully guaranteed by 100% by the issuing institutions.

The exposure consists of the term granted, which fluctuates between 1 and 45 days.

One of the tools the Company uses for reducing credit risk is to participate in global entities related to the industry, such as IATA, Business Sales Processing (“BSP”), Cargo Account Settlement Systems (“CASS”), IATA Clearing House (“ICH”) and banks (credit cards). These institutions fulfill the role of collectors and distributors between airlines and travel and cargo agencies. In the case of the Clearing House, it acts as an offsetting entity between airlines for the services provided between them. A reduction in term and implementation of guarantees has been achieved through these entities. Currently the sales invoicing of TAM Linhas Aéreas S.A. related with travel agents and cargo agents for domestic transportation in Brazil is done directly by TAM Linhas Aéreas S.A.

 

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Credit quality of financial assets

The external credit evaluation system used by the Company is provided by IATA. Internal systems are also used for particular evaluations or specific markets based on trade reports available on the local market. The internal classification system is complementary to the external one, i.e. for agencies or airlines not members of IATA, the internal demands are greater.

To reduce the credit risk associated with operational activities, the Company has established credit limits to abridge the exposure of their debtors which are monitored permanently (mainly in case of operational activities of TAM Linhas Aéreas S.A. with travel agents). The bad-debt rate in the principal countries where the Company has a presence is insignificant.

 

(c)	Liquidity risk

Liquidity risk represents the risk that the Company has no funds to meet its obligations.

Because of the cyclical nature of the business, the operation, and its investment and financing needs related to the acquisition of new aircraft and renewal of its fleet, plus the financing needs related to market-risk hedges, the Company requires liquid funds to meet its payment obligations.

The Company therefore manages its cash and cash equivalents and its financial assets, matching the term of investments with those of its obligations. The Company’s policy is that the average term of its investments may not exceed the average term of its obligations. This cash and cash equivalents position is invested in highly-liquid short-term instruments through first-class financial entities.

The Company has future obligations related to financial leases, operating leases, maturities of other bank borrowings, derivative contracts and aircraft purchase contracts.

 

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Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2014

Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.

 

Tax No.		Creditor		Creditor country		Currency		Up to 90 days				More than 90 days to one year				More than one to three years				More than three to five years				More than five years				Total				Nominal value				Amortization		Effective rate				Nominal rate
								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Loans to exporters
97.032.000-8		BBVA		Chile		US$			100,102				—				—				—				—				100,102				100,000			At expiration			0.40				0.40
97.036.000-K		SANTANDER		Chile		US$			45,044				—				—				—				—				45,044				45,000			At expiration			0.34				0.34
97.006.000-6		ESTADO		Chile		US$			55,076				—				—				—				—				55,076				55,000			At expiration			0.52				0.52
97.030.000-7		BCI		Chile		US$			100,157				—				—				—				—				100,157				100,000			At expiration			0.47				0.47
76.645.030-K		ITAU		Chile		US$			15,025				—				—				—				—				15,025				15,000			At expiration			0.65				0.65
97.951.000-4		HSBC		Chile		US$			12,010				—				—				—				—				12,010				12,000			At expiration			0.50				0.50
Bank loans
97.023.000-9		CORPBANCA		Chile		UF			16,575				48,581				121,945				17,621				—				204,722				188,268			Quarterly			4.85				4.85
0-E		CITIBANK		Argentina		ARS			1,298				18,700				—				—				—				19,998				17,542			Monthly			31.00				31.00
0-E		BBVA		Argentina		ARS			1,713				23,403				—				—				—				25,116				21,050			Monthly			33.00				33.00
97.036.000-K		SANTANDER		U.S.A.		US$			1,610				3,476				283,438				—				—				288,524				282,967			Quarterly			2.33				2.33
Guaranteed obligations
0-E		CREDIT AGRICOLE		France		US$			18,670				55,089				109,536				64,101				36,625				284,021				273,599			Quarterly			1.68				1.43
0-E		BNP PARIBAS		U.S.A.		US$			9,634				29,259				80,097				83,020				190,070				392,080				351,217			Quarterly			2.13				2.04
0-E		WELLS FARGO		U.S.A.		US$			35,533				106,692				285,218				286,264				698,052				1,411,759				1,302,968			Quarterly			2.26				1.57
0-E		CITIBANK		U.S.A.		US$			19,149				57,915				156,757				160,323				347,710				741,854				684,114			Quarterly			2.24				1.49
97.036.000-K		SANTANDER		Chile		US$			5,482				16,572				44,925				46,047				73,544				186,570				180,341			Quarterly			1.32				0.78
0-E		BTMU		U.S.A.		US$			2,931				8,863				24,091				24,778				52,541				113,204				107,645			Quarterly			1.64				1.04
0-E		APPLE BANK		U.S.A.		US$			1,437				4,358				11,849				12,206				26,318				56,168				53,390			Quarterly			1.63				1.03
0-E		US BANK		U.S.A.		US$			18,713				56,052				148,622				147,357				376,792				747,536				648,158			Quarterly			3.99				2.81
0-E		DEUTSCHE BANK		U.S.A.		US$			5,834				17,621				47,600				30,300				78,509				179,864				155,279			Quarterly			3.25				3.25
0-E		NATIXIS		France		US$			11,783				35,803				99,012				98,632				259,912				505,142				454,230			Quarterly			1.86				1.81
0-E		HSBC		U.S.A.		US$			1,564				4,725				12,738				12,956				31,701				63,684				59,005			Quarterly			2.29				1.48
0-E		PK AirFinance US, Inc.		U.S.A.		US$			2,074				6,378				18,091				19,836				28,763				75,142				69,721			Monthly			1.86				1.86
0-E		KFW IPEX-BANK		Germany		US$			696				2,124				6,048				4,587				3,771				17,226				16,088			Quarterly			2.10				2.10
Other guaranteed obligations
0-E		DVB BANK SE		U.S.A.		US$			8,199				24,623				32,904				—				—				65,726				64,246			Quarterly			2.00				2.00
0-E		CREDIT AGRICOLE		U.S.A.		US$			7,864				23,394				62,540				—				—				93,798				91,337			Quarterly			1.73				1.73
Financial leases
0-E		ING		U.S.A.		US$			9,137				27,520				58,821				34,067				12,134				141,679				126,528			Quarterly			4.84				4.33
0-E		CREDIT AGRICOLE		France		US$			1,643				5,036				14,152				—				—				20,831				20,413			Quarterly			1.20				1.20
0-E		CITIBANK		U.S.A.		US$			6,083				18,250				48,667				48,667				14,262				135,929				115,449			Quarterly			6.40				5.67
0-E		PEFCO		U.S.A.		US$			17,555				52,678				138,380				67,095				3,899				279,607				252,205			Quarterly			5.35				4.76
0-E		BNP PARIBAS		U.S.A.		US$			11,240				33,917				91,743				60,834				10,974				208,708				191,672			Quarterly			4.14				3.68
0-E		WELLS FARGO		U.S.A.		US$			5,604				16,784				44,705				44,615				46,394				158,102				139,325			Quarterly			3.98				3.53
0-E		DVB BANK S E		U.S.A.		US$			4,701				14,145				33,201				—				—				52,047				50,569			Quarterly			1.89				1.89
0-E		US BANK		U.S.A.		US$			326				6,247				5,455				—				—				12,028				11,981			Monthly			—				—
0-E		BANC OF AMERICA		U.S.A.		US$			720				2,118				2,912				—				—				5,750				5,462			Monthly			1.41				1.41
Other loans
0-E		BOEING		U.S.A.		US$			—				4,994				180,583				—				—				185,577				179,507			At expiration			1.74				1.74
0-E		CITIBANK (*)		U.S.A.		US$			6,825				20,175				209,730				209,778				104,852				551,360				450,000			Quarterly			6.00				6.00
Hedging derivatives
—		OTHERS		—		US$			11,702				30,761				48,667				7,311				245				98,686				93,513			—			—				—
Non - hedging derivatives
—		OTHERS		—		US$			1,002				628				—				—				—				1,630				730			—			—				—
		Total							574,711				776,881				2,422,427				1,480,395				2,397,068				7,651,482				6,985,519

 

(*)	Securitized bond with the future flows from the sales with credit card in United States and Canada.

 

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Table of Contents

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2014

Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.

 

Tax No.		Creditor		Creditor country		Currency		Up to 90 days				More than 90 days to one year				More than one to three years				More than three to five years				More than five years				Total				Nominal value				Amortization		Effective rate				Nominal rate
								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Bank loans
0-E		NEDERLANDSCHE
		CREDIETVERZEKERING MAATSCHAPPIJ		Holland		US$			184				493				1,315				1,315				1,369				4,676				3,796			Monthly			6.01				6.01
Obligation with the public
0-E		THE BANK OF NEW YORK		U.S.A.		US$			14,639				82,006				481,920				148,037				880,604				1,607,206				1,100,000			At Expiration			7.99				7.19
Financial leases
0-E		AFS INVESTMENT IX LLC		U.S.A.		US$			2,808				7,701				20,531				20,522				8,548				60,110				51,120			Monthly			1.25				1.25
0-E		AIRBUS FINANCIAL		U.S.A.		US$			3,623				10,709				28,593				15,908				7,736				66,569				63,021			Monthly			1.42				1.42
0-E		CREDIT AGRICOLE-CIB		U.S.A.		US$			2,897				32,805				—				—				—				35,702				35,170			Quarterly			1.10				1.10
0-E		CREDIT AGRICOLE -CIB		France		US$			1,653				4,683				4,514				—				—				10,850				10,500			Quarterly/Semiannual			3.25				3.25
0-E		DVB BANK SE		Germany		US$			3,247				9,470				—				—				—				12,717				12,500			Quarterly			2.50				2.50
0-E		DVB BANK SE		U.S.A.		US$			206				554				767				—				—				1,527				1,492			Monthly			1.68				1.68
0-E		GENERAL ELECTRIC CAPITAL CORPORATION		U.S.A.		US$			2,512				11,229				24,278				—				—				38,019				36,848			Monthly			1.25				1.25
0-E		KFW IPEX-BANK		Germany		US$			3,596				11,209				19,167				14,028				5,365				53,365				50,687			Monthly/Quarterly			1.72				1.72
0-E		NATIXIS		France		US$			5,121				9,778				27,874				28,520				87,769				159,062				139,693			Quarterly/Semiannual			3.87				3.87
0-E		PK AIRFINANCE US, INC.		U.S.A.		US$			1,392				4,103				20,694				—				—				26,189				25,293			Monthly			1.75				1.75
0-E		WACAPOU LEASING S.A.		Luxemburg		US$			573				1,528				3,559				2,852				13,226				21,738				19,982			Quarterly			2.00				2.00
0-E		SOCIÉTÉ GÉNÉRALE MILAN BRANCH		Italy		US$			9,777				27,207				75,066				78,964				170,509				361,523				344,106			Quarterly			3.06				3.58
0-E		BANCO DE LAGE LANDEN BRASIL S.A		Brazil		BRL			8				—				—				—				—				8				—			Monthly			11.70				11.70
0-E		BANCO IBM S.A		Brazil		BRL			356				1,118				3,405				40				—				4,919				3,817			Monthly			10.58				10.58
0-E		HP FINANCIAL SERVICE		Brazil		BRL			276				829				1,381				—				—				2,486				2,229			Monthly			9.90				9.90
0-E		SOCIETE AIR FRANCE		France		EUR			547				—				—				—				—				547				114			Monthly			6.82				6.82
0-E		SOCIÉTÉ GÉNÉRALE		France		BRL			155				446				1,351				206				—				2,158				1,643			Monthly			11.60				11.60
Other loans
0-E		COMPANHIA BRASILEIRA DE MEIOS DE PAGAMENTO		Brazil		BRL			30,281				15,576				—				—				—				45,857				45,857			Monthly			4.23				4.23
		Total							83,851				231,444				714,415				310,392				1,175,126				2,515,228				1,947,868

 

28

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Table of Contents

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2014

Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.

 

Tax No.		Creditor		Creditor country		Currency		Up to 90 days				More than 90 days to one year				More than one to three years				More than three to five years				More than five years				Total				Nominal value				Amortization		Effective rate				Nominal rate
								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Trade and other accounts payables
—		OTHERS		OTHERS		US$			529,043				26,483				—				—				—				555,526				555,526			—			—				—
						USD			1,107				10,449				—				—				—				11,556				11,431			Quarterly			2.11				2.11
						CLP			23,878				241				—				—				—				24,119				24,119			—			—				—
						BRL			380,766				13				—				—				—				380,779				380,779			—			—				—
						Others currencies			224,040				228				—				—				—				224,268				224,268			—			—				—
Accounts payable to related parties currents
65.216.000-1		COMUNIDAD MUJER		Chile		CLP			2				—				—				—				—				2				2			—			—				—
78.591.370-1		BETHIA S.A. AND SUBSIDIARIES		Chile		CLP			6				—				—				—				—				6				6			—			—				—
0-E		INVERSORA AERONÁUTICA ARGENTINA		Argentina		US$			27				—				—				—				—				27				27			—			—				—
		Total							1,158,869				37,414				—				—				—				1,196,283				1,196,158
		Total consolidated							1,817,431				1,045,739				3,136,842				1,790,787				3,572,194				11,362,993				10,129,545

 

29

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Table of Contents

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2013

Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.

 

Tax No.		Creditor		Creditor country		Currency		Up to 90 days				More than 90 days to one year				More than one to three years				More than three to five years				More than five years				Total				Nominal value				Amortization		Effective rate				Nominal rate
								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Loans to exporters
97.032.000-8		BBVA		Chile		US$			—				30,100				—				—				—				30,100				30,000			At expiration			1.00				1.00
97.036.000-K		SANTANDER		Chile		US$			231,533				—				—				—				—				231,533				230,000			At expiration			1.63				1.63
97.030.000-7		ESTADO		Chile		US$			—				40,188				—				—				—				40,188				40,000			At expiration			1.06				1.06
76.100.458-1		BLADEX		Chile		US$			100,934				—				—				—				—				100,934				100,000			At expiration			1.87				1.87
Bank loans
97.036.000-K		SANTANDER		Chile		US$			877				789				115,051				—				—				116,717				115,051			At expiration			3.19				3.19
97.023.000-9		CORPBANCA		Chile		UF			19,001				55,465				139,603				84,505				—				298,574				268,460			Quarterly			4.85				4.85
0-E		CITIBANK		Argentina		ARS			785				15,861				—				—				—				16,646				15,335			Monthly			20.75				20.75
0-E		BBVA		Argentina		ARS			1,668				30,029				—				—				—				31,697				27,603			Monthly			23.78				23.78
Guaranteed obligations
0-E		ING		U.S.A.		US$			4,031				12,065				32,213				32,203				28,234				108,746				91,543			Quarterly			5.69				5.01
0-E		CREDIT AGRICOLE		France		US$			11,862				35,886				83,920				10,139				—				141,807				140,312			Quarterly			1.99				1.99
0-E		PEFCO		U.S.A.		US$			2,280				6,839				—				—				—				9,119				8,964			Quarterly			3.06				2.73
0-E		BNP PARIBAS		U.S.A.		US$			11,325				34,296				93,368				96,444				237,865				473,298				418,254			Quarterly			2.45				2.31
0-E		WELLS FARGO		U.S.A.		US$			55,235				165,469				439,680				437,387				1,205,577				2,303,348				2,099,776			Quarterly			2.47				1.76
0-E		CITIBANK		U.S.A.		US$			11,540				34,748				93,687				95,226				168,917				404,118				372,191			Quarterly			2.64				2.04
97.036.000-K		SANTANDER		Chile		US$			5,420				16,374				44,359				45,459				96,694				208,306				200,599			Quarterly			1.32				0.78
0-E		BTMU		U.S.A.		US$			2,891				8,741				23,742				24,417				65,005				124,796				118,070			Quarterly			1.64				1.04
0-E		APPLE BANK		U.S.A.		US$			1,418				4,292				11,671				12,017				32,461				61,859				58,502			Quarterly			1.63				1.04
0-E		US BANK		U.S.A.		US$			18,699				56,022				148,643				147,528				449,705				820,597				703,992			Quarterly			2.81				2.81
0-E		DEUTSCHE BANK		U.S.A.		US$			5,760				17,500				47,175				39,021				93,773				203,229				173,036			Quarterly			3.27				3.27
Other guaranteed obligations
0-E		DVB BANK SE		U.S.A.		US$			8,178				24,564				65,726				—				—				98,468				95,292			Quarterly			1.99				1.99
Financial leases
0-E		ING		U.S.A.		US$			5,028				15,205				39,703				9,324				—				69,260				65,076			Quarterly			3.23				3.03
0-E		CREDIT AGRICOLE		France		US$			5,086				14,599				31,434				24,647				17,415				93,181				89,514			Quarterly			1.21				1.21
0-E		CITIBANK		U.S.A.		US$			2,009				6,028				16,075				16,075				8,038				48,225				40,564			Quarterly			6.38				5.65
0-E		PEFCO		U.S.A.		US$			17,566				52,678				140,462				115,934				23,211				349,851				308,774			Quarterly			5.35				4.23
0-E		BNP PARIBAS		U.S.A.		US$			7,984				24,056				64,890				59,475				7,139				163,544				147,334			Quarterly			4.65				4.15
0-E		BANC OF AMERICA		U.S.A.		US$			703				2,099				5,628				—				—				8,430				7,899			Monthly			1.43				1.43
Other loans
0-E		BOEING		U.S.A.		US$			—				2,804				172,128				—				—				174,932				170,838			At expiration			1.75				1.75
0-E		CITIBANK (*)		U.S.A.		US$			9,750				20,100				131,865				209,810				209,684				581,209				450,000			Quarterly			6.00				6.00
Hedging derivatives
—		OTHERS		—		US$			11,005				30,495				59,829				16,561				614				118,504				112,819			—			—				—
Non - hedging derivatives
—		OTHERS		—		US$			1,120				3,203				1,618				—				—				5,941				5,562			—			—				—
		Total							553,688				760,495				2,002,470				1,476,172				2,644,332				7,437,157				6,705,360

 

(*)	Securitized bond with the future flows from the sales with credit card in United States and Canada.

 

30

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Table of Contents

Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2013

Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.

 

Tax No.		Creditor		Creditor country		Currency		Up to 90 days				More than 90 days to one year				More than one to three years				More than three to five years				More than five years				Total				Nominal value				Amortization		Effective rate				Nominal rate
								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Bank loans
0-E		CITIBANK		Brazil		US$			2,410				44,071				—				—				—				46,481				43,885			At Expiration			3.76				3.20
0-E		BANCO DO BRASIL S.A.		Brazil		US$			9,803				135,450				—				—				—				145,253				137,849			At Expiration			5.20				4.66
0-E		BANCO ITAU BBA		Brazil		US$			29,142				50,737				—				—				—				79,879				73,830			At Expiration			6.31				4.73
0-E		BANCO SAFRA		Brazil		US$			43,211				22,986				—				—				—				66,197				62,357			At Expiration			3.73				2.94
0-E		BANCO SAFRA		Brazil		BRL			200				447				52				—				—				699				684			Monthly			7.42				7.42
0-E		BANCO BRADESCO		Brazil		US$			79,995				50,686				—				—				—				130,681				122,341			At Expiration			3.87				3.29
0-E		BANCO BRADESCO		Brazil		BRL			—				44,986				—				—				—				44,986				42,688			At Expiration			10.63				10.15
0-E		NEDERLANDSCHE CREDIETVERZEKERING MAATSCHAPPIJ		Holland		US$			186				495				1,320				1,320				2,035				5,356				4,215			Monthly			6.01				6.01
Obligation with the public
0-E		THE BANK OF NEW YORK		U.S.A.		US$			34,010				80,251				190,343				457,367				953,212				1,715,183				1,100,000			At Expiration			8.60				8.41
Financial leases
0-E		AFS INVESTMENT IX LLC		U.S.A.		US$			2,850				7,728				20,609				20,609				18,892				70,688				58,321			Monthly			1.25				1.25
0-E		AIR CANADA		U.S.A.		US$			1,325				1,645				—				—				—				2,970				2,970			Monthly			—				—
0-E		AIRBUS FINANCIAL		U.S.A.		US$			3,546				10,405				28,944				21,867				15,758				80,520				75,352			Monthly			1.42				1.42
0-E		AWAS		U.S.A.		US$			5,651				4,432				—				—				—				10,083				5,651			Monthly			—				—
0-E		BNP PARIBAS		U.S.A.		US$			722				2,008				5,705				6,283				8,648				23,366				22,082			Quarterly			1.00				1.00
0-E		BNP PARIBAS		France		US$			872				2,397				6,387				6,394				10,385				26,435				22,359			Quarterly			0.86				0.75
0-E		CITIBANK		England		US$			7,059				20,021				48,442				50,209				109,870				235,601				222,590			Quarterly			1.03				0.90
0-E		CREDIT AGRICOLE-CIB		U.S.A.		US$			4,971				14,177				57,595				12,297				14,308				103,348				97,945			Quarterly			1.40				1.40
0-E		CREDIT AGRICOLE -CIB		France		US$			8,834				26,771				61,037				51,629				53,270				201,541				195,396			Semiannual/ Quarterly			0.75				0.65
0-E		DVB BANK SE		Germany		US$			3,386				9,812				12,717				—				—				25,915				25,000			Quarterly			2.50				2.50
0-E		DVB BANK SE		U.S.A.		US$			214				621				1,243				284				—				2,362				2,279			Monthly			1.75				1.75
0-E		GENERAL ELECTRIC CAPITAL CORPORATION		U.S.A.		US$			3,709				48,803				—				—				—				52,512				51,978			Monthly			1.25				1.25
0-E		HSBC		France		US$			1,611				4,480				12,148				12,461				37,705				68,405				64,296			Quarterly			1.45				1.25
0-E		KFW IPEX-BANK		Germany		US$			4,463				13,067				30,880				21,672				18,232				88,314				82,718			Monthly/ Quarterly			1.74				1.74
0-E		NATIXIS		France		US$			9,619				20,117				58,917				62,444				124,621				275,718				246,128			Semiannual/ Quarterly			2.81				2.78
0-E		PK AIRFINANCE US, INC.		U.S.A.		US$			3,491				10,137				43,583				19,001				38,965				115,177				106,403			Monthly			1.71				1.71
0-E		WACAPOU LEASING S.A.		Luxemburg		US$			632				1,679				3,943				3,209				14,585				24,048				21,737			Quarterly			2.00				2.00
0-E		WELLS FARGO BANK NORTHWEST N.A.		U.S.A.		US$			1,781				1,427				—				—				—				3,208				3,194			Monthly			1.25				1.25
0-E		SOCIÉTÉ GÉNÉRALE MILAN BRANCH		Italy		US$			14,113				39,557				96,309				102,366				105,460				357,805				334,095			Quarterly			3.86				3.78
0-E		THE TORONTO- DOMINION BANK		U.S.A.		US$			580				1,673				4,534				4,645				6,619				18,051				17,394			Quarterly			0.57				0.57
0-E		BANCO DE LAGE LANDEN BRASIL S.A		Brazil		BRL			224				676				—				—				—				900				963			Monthly			10.38				10.38
0-E		BANCO IBM S.A		Brazil		BRL			184				205				630				306				—				1,325				1,050			Monthly			10.58				10.58
0-E		HP FINANCIAL SERVICE		Brazil		BRL			376				960				2,507				313				—				4,156				3,559			Monthly			9.90				9.90
0-E		SOCIETE AIR FRANCE		France		EUR			847				1,258				—				—				—				2,105				1,379			Monthly			6.82				6.82
Other loans
0-E		COMPANHIA BRASILEIRA DE MEIOS DE PAGAMENTO		Brazil		BRL			27,244				537				—				—				—				27,781				27,781			Monthly			2.38				2.38
—		OTHERS		Brazil		US$			496				1,156				—				—				—				1,652				1,652			—			—				—
		Total							307,757				675,858				687,845				854,676				1,532,565				4,058,701				3,282,121

 

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Class of liability for the analysis of liquidity risk ordered by date of maturity as of December 31, 2013

Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2 Chile.

 

Tax No.		Creditor		Creditor country		Currency		Up to 90 days				More than 90 days to one year				More than one to three years				More than three to five years				More than five years				Total				Nominal value				Amortization		Effective rate				Nominal rate
								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Trade and other accounts payables
—		OTHERS		OTHERS		US$			814,354				7,245				—				—				—				821,599				821,599			—			—				—
						US$			1,104				3,318				—				—				—				4,422				4,141			Quarterly			2.01				2.01
						CLP			16,364				6				—				—				—				16,370				16,370			—			—				—
						BRL			193,189				8				—				—				—				193,197				193,197			—			—				—
						BRL			5,220				14,878				—				—				—				20,098				14,569			Monthly			8.99				8.99
						Others currencies			213,904				615				—				—				—				214,519				214,519			—			—				—
Accounts payable, non-current
—		OTHERS		OTHERS		US$			—				—				11,557				—				—				11,557				11,400			Quarterly			2.01				2.01
									—				—				42,743				54,907				199,200				296,850				124,481			Monthly			8.99				8.99
Accounts payable to related parties currents						BRL
96.847.880-K		LUFTHANSA LAN TECHNICAL TRAINING S.A.		Chile		US$			187				—				—				—				—				187				187			—			—				—
78.591.370-1		BETHIA S.A. AND SUBSIDIARIES		Chile		CLP			14				—				—								—				14				14			—			—				—
O-E		INVERSORA AERONÁUTICA ARGENTINA		Argentina		US$			304				—				—								—				304				304			—			—				—
		Total							1,244,640				26,070				54,300				54,907				199,200				1,579,117				1,400,781
		Total consolidated							2,106,085				1,462,423				2,744,615				2,385,755				4,376,097				13,074,975				11,388,262

 

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The Company has fuel, interest rate and exchange rate hedging strategies involving derivatives contracts with different financial institutions. The Company has margin facilities with each financial institution in order to regulate the mutual exposure produced by changes in the market valuation of the derivatives.

At the end of 2013, the Company provided US$ 94.3 million in derivative margin guarantees, for cash and stand-by letters of credit. At December 31, 2014, the Company had provided US$ 91.8 million in guarantees for Cash and cash equivalent and stand-by letters of credit. The fall was due at i) maturity of hedge contracts, ii) acquire of new fuel purchase contracts, and iii) changes in fuel prices, exchange rate R$/US$ and interest rates.

 

3.2.	Capital risk management

The Company’s objectives, with respect to the management of capital, are (i) to safeguard it in order to continue as an on-going business, (ii) to seek a return for its shareholders, and (iii) to maintain an optimum capital structure and reduce its costs.

In order to maintain or adjust the capital structure, the Company may adjust the amount of the dividends payable to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Company monitors the adjusted leverage rate, in line with industry practice. This rate is calculated as net adjusted debt divided by the sum of adjusted equity and net adjusted debt. Net adjusted debt is total financial debt plus 8 times the operating lease payments of the last 12 months, less total cash (measured as the sum of cash and cash equivalents plus marketable securities). Adjusted capital is the amount of net equity without the impact of the market value of derivatives.

The Company’s strategy, which has not changed since 2007, has consisted of maintaining an adjusted leverage rate of between 70% and 80% and an international credit rating of higher than BBB- (the minimum required for being considered investment grade). As a result of consolidation with TAM S.A. and Subsidiaries, the rating agency Fitch has issued on May 2, 2014 a new long-term rating for the Company of BB with negative perspective (which is not an investment grade rating).Additionally, on June 10, 2013, S&P issued a long term rating of BB, with a positive outlook.

 

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Adjusted leverage ratios:

 

		As of				As of
		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Total financial loans			8,817,215				9,830,866
Last twelve months Operating lease payment x 8			4,171,072				3,528,616
Less:
Cash and marketable securities			(1,533,770	)			(2,561,574	)
Total net adjusted debt			11,454,517				10,797,908
Net Equity			4,401,896				5,238,821
Cash flow hedging reserve			151,340				34,508
Adjusted equity			4,553,236				5,273,329
Total adjusted debt and equity			16,007,753				16,071,237
Adjusted leverage			71.6	%			67.2	%

See information related to financial covenants in Note 31 (a).

 

3.3.	Estimates of fair value.

At December 31, 2014, the Company maintained financial instruments that should be recorded at fair value. These are grouped into two categories:

 

1.	Hedge Instruments:

This category includes the following instruments:

 

•

Interest rate derivative contracts,

 

•

Fuel derivative contracts,

 

•

Currency derivative contracts

 

2.	Financial Investments:

This category includes the following instruments:

 

•

Investments in short-term Mutual Funds (cash equivalent),

 

•

Bank certificate of deposit – CBD,

 

•

Private investment funds

 

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The Company has classified the fair value measurement using a hierarchy that reflects the level of information used in the assessment. This hierarchy consists of 3 levels (I) fair value based on quoted prices in active markets for identical assets or liabilities, (II) fair value calculated through valuation methods based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) and (III) fair value based on inputs for the asset or liability that are not based on observable market data.

The fair value of financial instruments traded in active markets, such as investments acquired for trading, is based on quoted market prices at the close of the period using the current price of the buyer. The fair value of financial assets not traded in active markets (derivative contracts) is determined using valuation techniques that maximize use of available market information. Valuation techniques generally used by the Company are quoted market prices of similar instruments and / or estimating the present value of future cash flows using forward price curves of the market at period end.

 

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The following table shows the classification of financial instruments at fair value, depending on the level of information used in the assessment:

 

		As of December 31, 2014																As of December 31, 2013
						Fair value measurements using values considered as																Fair value measurements using values considered as
		Fair value				Level I				Level II				Level III				Fair value				Level I				Level II				Level III
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Assets
Cash and cash equivalents			200,753				200,753				—				—				579,349				579,349				—				—
Short-term mutual funds			200,753				200,753				—				—				579,349				579,349				—				—
Other financial assets, current			546,535				526,081				20,454				—				625,086				546,116				78,970				—
Fair value of interest rate derivatives			1				—				1				—				6				—				6				—
Fair value of fuel derivatives			1,783				—				1,783				—				15,868				—				15,868				—
Fair value of foreign currency derivatives			—				—				—				—				32,058				—				32,058				—
Interest accrued since the last payment date of Cross Currency Swap			377				—				377				—				483				—				483				—
Private investment funds			480,777				480,777				—				—				544,182				544,182				—				—
Certificate of deposit CDB			18,293				—				18,293				—				2,374				—				2,374				—
Domestic and foreign bonds			41,111				41,111				—				—				351				351				—				—
Time deposit			—				—				—				—				28,181				—				28,181				—
Other investments			4,193				4,193				—				—				1,583				1,583				—				—
Liabilities
Other financial liabilities, current			227,233				—				227,233				—				70,506				—				70,506				—
Fair value of interest rate derivatives			26,395				—				26,395				—				32,070				—				32,070				—
Fair value of fuel derivatives			157,233				—				157,233				—
Fair value of foreign currency derivatives			37,242				—				37,242				—				28,621				—				28,621				—
Interest accrued since the last payment date of Currency Swap			5,173				—				5,173				—				5,775				—				5,775				—
Interest rate derivatives not recognized as a hedge			1,190				—				1,190								4,040								4,040
Other financial liabilities, non current			28,327				—				28,327				—				56,397				—				56,397				—
Fair value of interest rate derivatives			28,327				—				28,327				—				54,906				—				54,906				—
Interest rate derivatives not recognized as a hedge			—				—				—				—				1,491				—				1,491				—

 

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Additionally, at December 31, 2014, the Company has financial instruments which are not recorded at fair value. In order to meet the disclosure requirements of fair values, the Company has valued these instruments as shown in the table below:

 

		As of December 31, 2014								As of December 31, 2013
		Book value				Fair value				Book value				Fair value
		ThUS$				ThUS$				ThUS$				ThUS$
Cash and cash equivalents			788,643				788,643				1,405,554				1,405,554
Cash on hand			11,568				11,568				6,017				6,017
Bank balance			239,514				239,514				229,935				229,935
Overnight			154,666				154,666				508,781				508,781
Time deposits			382,895				382,895				660,821				660,821
Other financial assets, current			103,866				103,866				84,858				84,858
Other financial assets			103,866				103,866				84,858				84,858
Trade and other accounts receivable current			1,378,837				1,378,837				1,633,094				1,633,094
Accounts receivable from related entities			308				308				628				628
Other financial assets, non current			84,986				84,986				65,289				65,289
Accounts receivable			30,465				30,465				100,775				100,775
Other financial liabilities, current			1,397,382				1,446,100				1,969,281				2,128,096
Trade and other accounts payables			1,489,396				1,489,396				1,557,736				1,557,736
Accounts payable to related entities			35				35				505				505
Other financial liabilities, non current			7,360,685				8,319,022				7,803,588				7,910,446
Accounts payable, non-current			577,454				577,454				922,887				922,887

The book values of accounts receivable and payable are assumed to approximate their fair values, due to their short-term nature. In the case of cash on hand, bank balances, overnight, time deposits and accounts payable, non-current, fair value approximates their carrying values.

The fair value of Other financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate for similar financial instruments. In the case of Other financial assets, the valuation was performed according to market prices at period end.

NOTE 4 - ACCOUNTING ESTIMATES AND JUDGMENTS

The Company has used estimates to value and book some of the assets, liabilities, revenues, expenses and commitments; these relate principally to:

(a) The evaluation of possible impairment losses for certain assets.

(b) The useful lives and residual values of fixed and intangible assets.

 

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(c)	The criteria employed in the valuation of certain assets.

 

(d)	Air tickets sold that are not actually used.

 

(e)	The calculation of deferred income at the end of the period, corresponding to the valuation of kilometers or points credited to holders of the loyalty programs which have not yet been used.

 

(f)	The need for provisions and where required, the determination of their values.

 

(g)	The recoverability of deferred tax assets.

These estimates are made on the basis of the best information available on the matters analyzed.

In any case, it is possible that events will require modification of the estimates in the future, in which case the effects would be accounted for prospectively.

The management has applied judgment in determining that LATAM Airlines Group S.A. has control over TAM S.A. and Subsidiaries for accounting purposes and therefore has consolidated their financial statements. This judgment is made on the basis that LATAM issued their ordinary shares in exchange for all of the outstanding common and preferred shares of TAM, except those shareholders of TAM who did not accept exchange and which were subject of the squeeze-out entitling LATAM to substantially all of the economic benefits that will be generated by the LATAM Group and also, consequently, exposing it to substantially all the risks incidental to the operations of TAM. This exchange aligns the economic interests of LATAM and all of its shareholders, including the TAM controlling shareholders, ensuring that the shareholders and directors of TAM will have no incentive to exercise their rights in a manner that is beneficial to TAM but detrimental to LATAM. Further, all significant actions required for the operation of the airlines require the affirmative vote of both LATAM and the TAM controlling shareholders.

Since the integration of LAN and TAM operations, most critical airline activities in Brazil have been managed under the TAM CEO and global activities have been managed by the LATAM CEO, who is in charge of the overall operation of the LATAM Group and who reports to the LATAM board. Further, the LATAM CEO evaluates performance of the LATAM Group executives and, together with the LATAM board, determines compensation. Although there are restrictions on voting interests that currently may be held by foreign investors under Brazilian law, LATAM believes that the economic substance of these arrangements satisfies the requirements established by the applicable accounting standards and that consolidation by LATAM of TAM’s operations is appropriate.

 

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NOTE 5 - SEGMENTAL INFORMATION

The Company has determined that it has two operating segments: the air transportation business and the coalition and loyalty program Multiplus.

The Air transport segment corresponds to the route network for air transport and it is based on the way that the business is run and managed, according to the centralized nature of its operations, the ability to open and close routes and reallocate resources (aircraft, crew, staff, etc..) within the network, which is a functional relationship between all of them, making them inseparable. This segment definition is the most common level used by the global airline industry.

The segment of loyalty coalition called Multiplus, unlike LanPass and TAM Fidelidade, is a frequent flyer programs which operate as a unilateral system of loyalty that offers a flexible coalition system, interrelated among its members, with 13.8 million of members, along with being a government entity with a separately business and not directly related to air transport.

 

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(a)	For the periods ended

 

										Coalition and
		Air								loyalty program
		transportation								Multiplus								Eliminations								Consolidated
		At December 31,								At December 31,								At December 31,								At December 31,
		2014				2013				2014				2013				2014				2013				2014				2013
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Income from ordinary activities from external customers (*)			11,587,224				12,328,634				506,277				595,903				—				—				12,093,501				12,924,537
LAN passenger			4,464,761				4,731,296				—				—				—				—				4,464,761				4,731,296
TAM passenger			5,409,084				5,734,359				506,277				595,903				—				—				5,915,361				6,330,262
Freight			1,713,379				1,862,979				—				—				—				—				1,713,379				1,862,979
Income from ordinary activities from transactions with other operating segments			506,277				595,903				106,030				94,457				(612,307	)			(690,360	)			—				—
Other operating income			217,390				272,640				160,255				68,925				—				—				377,645				341,565
Interest income			32,390				49,737				58,110				34,280				—				(11,189	)			90,500				72,828
Interest expense			(430,030	)			(472,171	)			(4	)			(1,542	)			—				11,189				(430,034	)			(462,524	)
Total net interest expense			(397,640	)			(422,434	)			58,106				32,738				—				—				(339,534	)			(389,696	)

 

(*)	The Company does not have any interest revenue that should be recognized as income from ordinary activities by interest.

 

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For the periods ended

 

		Air transportation At December 31,								Coalition and loyalty program Multiplus At December 31,								Eliminations At December 31,								Consolidated At December 31,
		2014				2013				2014				2013				2014				2013				2014				2013
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Depreciation and amortization			(983,847	)			(1,037,734	)			(7,417	)			(3,999	)			—				—				(991,264	)			(1,041,733	)
Material non-cash items other than depreciation and amortization			(168,573	)			(523,666	)			(2,350	)			59				—				—				(170,923	)			(523,607	)
Disposal of fixed assets and inventory losses			(28,756	)			(33,987	)			(814	)			(123	)			—				—				(29,570	)			(34,110	)
Doubtful accounts			(9,637	)			(7,754	)			(1,522	)			217				—				—				(11,159	)			(7,537	)
Exchange differences			(130,187	)			(482,139	)			(14	)			(35	)			—				—				(130,201	)			(482,174	)
Result of indexation units			7				214				—				—				—				—				7				214
Income (loss) atributable to owners of the parents			(254,151	)			(389,040	)			144,361				107,926				—				—				(109,790	)			(281,114	)
Participation of the entity in the income of associates			(2,175	)			1,954				(4,280	)			—				—				—				(6,455	)			1,954
Expenses for income tax			(68,293	)			72,155				(73,901	)			(52,086	)			—				—				(142,194	)			20,069
Segment profit / (loss)			(182,077	)			(344,337	)			105,116				80,518				—				—				(76,961	)			(263,819	)
Assets of segment			18,759,848				21,520,500				1,773,584				1,118,686				(49,002	)			(8,040	)			20,484,430				22,631,146
Investments in associates			—				3,572				—				3,024				—				—				—				6,596
Amount of non-current asset additions			1,522,298				1,746,913				—				—				—				—				1,522,298				1,746,913
Property, plant and equipment			1,444,402				1,685,011				—				—				—				—				1,444,402				1,685,011
Intangibles other than goodwill			77,896				61,902				—				—				—				—				77,896				61,902
Segment liabilities			15,293,668				16,604,451				723,438				775,975				(36,371	)			(75,739	)			15,980,735				17,304,687
Purchase of non-monetary assets of segment			1,496,204				1,425,270				—				—				—				—				1,496,204				1,425,270

 

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The Company’s revenues by geographic area are as follows:

 

		For the periods ended
		At December 31,
		2014				2013
		ThUS$				ThUS$
Peru			660,057				646,217
Argentina			813,472				950,595
U.S.A.			1,224,264				1,290,493
Europe			935,893				937,539
Colombia			391,678				387,999
Brazil			5,361,594				5,572,884
Ecuador			248,585				273,712
Chile			1,589,202				1,698,476
Asia Pacific and rest of Latin America			868,756				1,166,622
Income from ordinary activities			12,093,501				12,924,537
Other operating income			377,645				341,565

The Company allocates revenues by geographic area based on the point of sale of the passenger ticket or cargo. Assets are composed primarily of aircraft and aeronautical equipment, which are used throughout the different countries, so it is not possible to assign a geographic area.

The Company has no customers that individually represent more than 10% of sales.

NOTE 6 - CASH AND CASH EQUIVALENTS

 

		As of				As of
		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Cash on hand			11,568				6,017
Bank balances			239,514				229,935
Overnight			154,666				508,781
Total Cash			405,748				744,733
Cash equivalents
Time deposits			382,895				660,821
Mutual funds			200,753				579,349
Total cash equivalents			583,648				1,240,170
Total cash and cash equivalents			989,396				1,984,903

 

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Cash and cash equivalents are denominated in the following currencies:

 

		As of				As of
Currency		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Argentine peso			44,697				59,018
Brazilian real			45,591				253,392
Chilean peso (*)			30,758				229,918
Colombian peso			17,188				28,132
Euro			9,639				16,571
US Dollar			745,214				1,200,828
Strong bolivar (**)			63,236				162,809
Other currencies			33,073				34,235
Total			989,396				1,984,903

 

(*)	The Company no maintain currency derivative contracts (forward) at December 31, 2014 (ThUS$ 174,020 as of December 31, 2013), for conversion into dollars of investments in pesos.

(**)	In Venezuela, effective 2003, the authorities decreed that all remittances abroad should be approved by the Currency Management Commission (CADIVI). Despite having free availability of bolivars in Venezuela, the Company has certain restrictions for freely remitting these funds outside Venezuela.

During 2014, in accordance with the acceptance of the Company about the proposal Bolivarian Republic of Venezuela regarding the repatriation of foreign exchange through the so-called “request of acquisition of foreign exchange”, the Company has modified the exchange rate used in determining equivalence of United States Dollar in cash and cash equivalents held in Strong Bolivar, from 6.3 VEF/US$ to 12.0 VEF/US$, which represented a loss by foreign exchange, amounting to the sum of ThUS$ 61,021.

The Company has done significant non-cash transactions mainly with financial leases, which are detailed in Note 16 letter (d), additional information in numeral (iv) Financial leases.

 

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Other inflows (outflows) of cash:

 

		For the periods ended December 31,
		2014				2013
		ThUS$				ThUS$
Currency hedge			(1,153	)			—
Fuel hedge			(45,365	)			11,413
Hedging margin guarantees			(64,334	)			88,925
Guarantees			(86,006	)			(5,001	)
Fuel derivatives premiums			(7,075	)			(4,041	)
Bank commissions, taxes paid and other			(47,724	)			(14,535	)
Total Other inflows (outflows) Operation flow			(251,657	)			76,761
Certificate of bank deposits			(17,399	)			75,448
Total Other inflows (outflows) Investment flow			(17,399	)			75,448
Aircraft Financing advances			8,669				24,650
Credit card loan manager			23,864				(8,965	)
Settlement of derivative contracts			(42,962	)			(61,897	)
Breakage			—				(16,280	)
Other			(3,348	)			479
Total Other inflows (outflows) Financing flow			(13,777	)			(62,013	)

 

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NOTE 7 - FINANCIAL INSTRUMENTS

 

7.1.	Financial instruments by category

As of December 31, 2014

 

Assets		Loans and receivables				Hedge derivatives				Held for trading				Initial designation as fair value through profit and loss				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Cash and cash equivalents			788,643				—				—				200,753				989,396
Other financial assets, current (*)			103,866				2,161				41,111				503,263				650,401
Trade and others accounts receivable, current			1,378,837				—				—				—				1,378,837
Accounts receivable from related entities, current			308				—				—				—				308
Other financial assets, non current (*)			84,495				—				491				—				84,986
Accounts receivable, non current			30,465				—				—				—				30,465
Total			2,386,614				2,161				41,602				704,016				3,134,393

 

Liabilities		Other financial liabilities				Hedge derivatives				Held for trading				Total
		ThUS$				ThUS$				ThUS$				ThUS$
Other liabilities, current			1,397,382				226,043				1,190				1,624,615
Trade and others accounts payable, current			1,489,396				—				—				1,489,396
Accounts payable to related entities, current			35				—				—				35
Other financial liabilities, non-current			7,360,685				28,327				—				7,389,012
Accounts payable, non-current			577,454				—				—				577,454
Total			10,824,952				254,370				1,190				11,080,512

 

(*)	The value presented as initial designation as fair value through profit and loss, corresponds mainly to private investment funds; and loans and receivables corresponds to guarantees given.

 

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At December 31, 2013

 

Assets		Loans and receivables				Hedge derivatives				Held for trading				Initial designation as fair value through profit and loss				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Cash and cash equivalents			1,405,554				—				—				579,349				1,984,903
Other financial assets, current (*)			83,136				48,415				2,073				576,320				709,944
Trade and others accounts receivable, current			1,633,094				—				—				—				1,633,094
Accounts receivable from related entities, current			628				—				—				—				628
Other financial assets, non current (*)			64,783				—				506				—				65,289
Accounts receivable, non current			100,775				—				—				—				100,775
Total			3,287,970				48,415				2,579				1,155,669				4,494,633

 

Liabilities		Other financial liabilities				Hedge derivatives				Held for trading				Total
		ThUS$				ThUS$				ThUS$				ThUS$
Other liabilities, current			1,969,281				66,466				4,040				2,039,787
Trade and others accounts payable, current			1,557,736				—				—				1,557,736
Accounts payable to related entities, current			505				—				—				505
Other financial liabilities, non-current			7,803,588				54,906				1,491				7,859,985
Accounts payable, non-current			922,887				—				—				922,887
Total			12,253,997				121,372				5,531				12,380,900

 

(*)	The value presented as initial designation as fair value through profit and loss, corresponds mainly to private investment funds; and loans and receivables corresponds to guarantees given.

 

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7.2.	Financial instruments by currency

 

a)

Assets

 

		As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS $
Cash and cash equivalents			989,396				1,984,903
Argentine peso			44,697				59,018
Brazilian real			45,591				253,392
Chilean peso			30,758				229,918
Colombian peso			17,188				28,132
Euro			9,639				16,571
US Dollar			745,214				1,200,828
Strong bolivar			63,236				162,809
Other currencies			33,073				34,235
Other financial assets (current and non-current)			735,387				775,233
Argentine peso			45,169				1,007
Brazilian real			500,875				577,973
Chilean peso			26,881				27,555
Colombian peso			406				2,550
Euro			4,244				5,494
US Dollar			156,687				159,563
Strong bolivar			43				14
Other currencies			1,082				1,077
Trade and other accounts receivable, current			1,378,837				1,633,094
Argentine peso			100,798				27,343
Brazilian real			528,404				802,789
Chilean peso			131,191				82,880
Colombian peso			9,021				9,762
Euro			38,764				21,479
US Dollar			369,774				520,991
Strong bolivar			4,895				2,353
Other currencies (*)			195,990				165,497
Accounts receivable, non-current			30,465				100,775
Brazilian real			761				1,194
Chilean peso			5,814				8,624
US Dollar			23,734				90,755
Other currencies (*)			156				202
Accounts receivable from related entities , current			308				628
Brazilian real			9				162
Chilean peso			299				466
Total assets			3,134,393				4,494,633
Argentine peso			190,664				87,368
Brazilian real			1,075,640				1,635,510
Chilean peso			194,943				349,443
Colombian peso			26,615				40,444
Euro			52,647				43,544
US Dollar			1,295,409				1,972,137
Strong bolivar			68,174				165,176
Other currencies			230,301				201,011

 

(*)	See the composition of the others currencies in Note 8 Trade, other accounts receivable and non-current accounts receivable.

 

b)	Liabilities

Liabilities information is detailed in the table within Note 3 Financial risk management.

 

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NOTE 8 - TRADE AND OTHER ACCOUNTS RECEIVABLE CURRENT, AND NON-CURRENT ACCOUNTS RECEIVABLE

 

		As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS$
Trade accounts receivable			1,269,435				1,552,489
Other accounts receivable			210,909				251,982
Total trade and other accounts receivable			1,480,344				1,804,471
Less: Allowance for impairment loss			(71,042	)			(70,602	)
Total net trade and accounts receivable			1,409,302				1,733,869
Less: non-current portion – accounts receivable			(30,465	)			(100,775	)
Trade and other accounts receivable, current			1,378,837				1,633,094

The fair value of trade and other accounts receivable does not differ significantly from the book value.

The maturity of these accounts at the end of each period is as follows:

 

		As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS$
Day			1,088,364				1,378,226
Matured accounts receivable, but not impaired
Expired from 1 to 90 days			83,599				72,417
Expired from 91 to 180 days			11,521				11,547
More than 180 days overdue (*)			14,909				19,697
Total matured accounts receivable, but not impaired			110,029				103,661
Matured accounts receivable and impaired
Judicial, pre-judicial collection and protested documents			53,956				19,630
Debtor under pre-judicial collection process and portfolio sensitization			17,086				50,972
Total matured accounts receivable and impaired			71,042				70,602
Total			1,269,435				1,552,489

 

(*)	Value of this segment corresponds primarily to accounts receivable that were evaluated in their ability to recover, therefore not requiring a provision.

 

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Currency balances that make up the Trade and other accounts receivable and non-current accounts receivable:

 

Currency		As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS$
Argentine Peso			100,798				27,343
Brazilian Real			529,165				803,983
Chilean Peso			137,005				91,504
Colombian peso			9,021				9,762
Euro			38,764				21,479
US Dollar			393,508				611,746
Strong bolivar			4,895				2,353
Other currency (*)			196,146				165,699
Total			1,409,302				1,733,869
(*) Other currencies
Australian Dollar			15,243				26,198
Chinese Yuan			35,626				22,887
Danish Krone			8,814				6,899
Pound Sterling			33,624				15,256
Indian Rupee			1,887				5,343
Japanese Yen			4,635				10,332
Norwegian Kroner			16,516				14,970
Swiss Franc			5,701				6,645
Korean Won			25,203				16,929
New Taiwanese Dollar			10,323				9,670
Other currencies			38,574				30,570
Total			196,146				165,699

The Company records allowances when there is evidence of impairment of trade receivables. The criteria used to determine that there is objective evidence of impairment losses are the maturity of the portfolio, specific acts of damage (default) and specific market signals.

 

Maturity		Impairment
Judicial and pre-judicial collection assets			100	%
Over 1 year			100	%
Between 6 and 12 months			50	%

 

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Movement in the allowance for impairment loss of Trade and other accounts receivables:

 

Periods		Opening balance ThUS$				Write-offs ThUS$				(Increase) Decrease ThUS$				Addition for business combination ThUS$				Differences by subsidiaries ThUS$				Closing balance ThUS$
From January 1 to December 31, 2013			(75,503	)			9,928				(5,027	)			—				—				(70,602	)
From January 1 to December 31, 2014			(70,602	)			6,864				(7,304	)			—				—				(71,042	)

Once pre-judicial and judicial collection efforts are exhausted, the assets are written off against the allowance. The Company only uses the allowance method rather than direct write-off, to ensure control.

Historic and current re-negotiations are not relevant and the policy is to analyze case by case in order to classify them according to the existence of risk, determining whether it is appropriate to re-classify accounts to pre-judicial recovery. If such re-classification is justified, an allowance is made for the account, whether overdue or falling due.

The maximum credit-risk exposure at the date of presentation of the information is the fair value of each one of the categories of accounts receivable indicated above.

 

		As of December 31, 2014												As of December 31, 2013
		Gross exposure according to balance				Gross impaired exposure				Exposure net of risk concentrations				Gross exposure according to balance				Gross Impaired exposure				Exposure net of risk concentrations
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Trade accounts receivable			1,269,435				(71,042	)			1,198,393				1,552,489				(70,602	)			1,481,887
Other accounts receivable			210,909				—				210,909				251,982				—				251,982

There are no relevant guarantees covering credit risk and these are valued when they are settled; no materially significant direct guarantees exist. Existing guarantees, if appropriate, are made through IATA.

 

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NOTE 9 - ACCOUNTS RECEIVABLE FROM/PAYABLE TO RELATED ENTITIES

 

(a)	Accounts Receivable

 

Tax No.

Related party

Relationship

Country of origin

Currency

As of December 31, 2014

As of December 31, 2013

ThUS$

ThUS$

78.591.370-1

Bethia S.A. and Subsidiaries

Others related parties

Chile

CLP

284

441

79.773.440-1

Transportes San Felipe S.A.

Others related parties

Chile

CLP

—

1

87.752.000-5

Granja Marina Tornagaleones S.A.

Others related parties

Chile

CLP

15

24

Foreign

Made In Everywhere Repr. Com. Distr. Ltda.

Others related parties

Brazil

BRL

—

2

Foreign

TAM Aviação Executiva e Taxi Aéreo S.A.

Others related parties

Brazil

BRL

—

14

Foreign

Prisma Fidelidade S.A.

Joint Venture

Brazil

BRL

9

146

Total current assets

308

628

 

(b)	Accounts payable

 

Tax No.

Related party

Relationship

Country of origin

Currency

As of December 31, 2014

As of December 31, 2013

ThUS$

ThUS$

96.847.880-K

Lufthansa Lan Technical Training S.A.

Associate

Chile

US$

—

187

65.216.000-K

Comunidad Mujer

Other related parties

Chile

CLP

2

—

78.591.370-1

Bethia S.A. and Subsidiaries

Other related parties

Chile

CLP

6

14

Foreign

Inversora Aeronaútica Argentina

Other related parties

Argentina

US$

27

304

Total current liabilities

35

505

Transactions between related parties have been carried out on free-trade conditions between interested and duly-informed parties. The transaction times are between 30 and 45 days, and the nature of settlement of the transactions is monetary.

 

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NOTE 10 - INVENTORIES

 

		As of				As of
		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Technical stock			229,313				190,202
Non-technical stock			36,726				40,826
Total production suppliers			266,039				231,028

The items included in this heading are spare parts and materials that will be used mainly in consumption in in-flight and maintenance services provided to the Company and third parties, which are valued at average cost, net of provision for obsolescence that as of December 31, 2014 amounts to ThUS$ 2,982 (ThUS$ 1,757 as of December 31, 2013). The resulting amounts do not exceed the respective net realizable values.

As of December 31, 2014, the Company recorded ThUS$ 189,864 (ThUS$ 160,068 as of December 31, 2013) within the income statement, mainly due to in-flight consumption and maintenance, which forms part of Cost of sales.

During 2014 no reversals of write-downs resulting from an increase in net realizable value.

 

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NOTE 11 - OTHER FINANCIAL ASSETS

The composition of Other financial assets is as follows:

 

		Current Assets								Non-current assets								Total Assets
		As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
(a) Other financial assets
Private investment funds			480,777				544,182				—				—				480,777				544,182
Deposits in guarantee (aircraft)			8,458				51,879				70,155				49,893				78,613				101,772
Certificate of deposit (CBD)			18,293				2,374				—				—				18,293				2,374
Time deposits			—				28,181				—				—				—				28,181
Guarantees for margins of derivatives			92,556				28,157				—				—				92,556				28,157
Deposits in guarantee (loan)			—				—				11,116				11,753				11,116				11,753
Other investments			4,193				1,583				491				506				4,684				2,089
Domestic and foreign bonds			41,111				351				—				—				41,111				351
Other guarantees given			2,852				4,822				3,224				3,137				6,076				7,959
Subtotal of other financial assets			648,240				661,529				84,986				65,289				733,226				726,818
(b) Hedging assets
Interest accrued since the last payment date of Cross currency swap			377				483				—				—				377				483
Fair value of interest rate derivatives			1				6				—				—				1				6
Fair value of foreign currency derivatives (1)			—				32,058				—				—				—				32,058
Fair value of fuel price derivatives			1,783				15,868				—				—				1,783				15,868
Subtotal of hedging assets			2,161				48,415				—				—				2,161				48,415
Total Other Financial Assets			650,401				709,944				84,986				65,289				735,387				775,233

 

(1)	The foreign currency derivatives exchange is collars and cross currency swap.

The types of derivative hedging contracts maintained by the Company at the end of each period are presented in Note 18.

 

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NOTE 12 - OTHER NON-FINANCIAL ASSETS

The composition of Other non-financial assets is as follows:

 

		Current assets								Non-current assets								Total Assets
		As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
(a) Advance payments
Aircraft leases			26,039				28,555				26,201				17,332				52,240				45,887
Aircraft insurance and other			12,160				13,180				—				—				12,160				13,180
Others			17,970				14,657				36,450				38,557				54,420				53,214
Subtotal advance payments			56,169				56,392				62,651				55,889				118,820				112,281
(b) Other assets
Aircraft maintenance reserve (*)			31,108				152,797				123,588				79,012				154,696				231,809
Sales tax			155,795				120,215				64,652				65,936				220,447				186,151
Other taxes			3,513				5,556				—				—				3,513				5,556
Contributions to Société Internationale de Télécommunications Aéronautiques (“SITA”)			599				657				453				515				1,052				1,172
Judicial deposits			—				—				90,450				70,380				90,450				70,380
Others			687				—				1,019				544				1,706				544
Subtotal other assets			191,702				279,225				280,162				216,387				471,864				495,612
Total Other Non - Financial Assets			247,871				335,617				342,813				272,276				590,684				607,893

 

(*)	Aircraft maintenance reserves reflect prepayment deposits made by the group to lessors of certain aircraft under operating lease agreements in order to ensure that funds are available to support the scheduled heavy maintenance of the aircraft.

These amounts are calculated based on performance measures, such as flight hours or cycles, are payable periodically (usually monthly) and are contractually required to be repaid to the lessee upon the completion of the required maintenance of the leased aircraft. At the end of the lease term, any unused maintenance reserves are either returned to the Company in cash or used to offset amounts that we may owe the lessor as a maintenance adjustment.

In some cases (5 lease agreements), if the maintenance cost incurred by LATAM is less than the corresponding maintenance reserves, the lessor is entitled to retain those excess amounts at the time the heavy maintenance is performed. The Company periodically reviews its maintenance reserves for each of its leased aircraft to ensure that they will be recovered, and recognizes an expense if any such amounts are less than probable of being returned. Since the acquisition of TAM in June 2012, the cost of aircraft maintenance has been higher than the related maintenance reserves for all aircraft.

As of December 31, 2014, LATAM had ThUS$ 154,696 in maintenance reserves (ThUS$ 231,809 at December 31, 2013), corresponding to 12 aircraft out of a total fleet of 327 (21 aircraft out of a total fleet of 339 at December 31, 2013). All of the Company’s aircraft leases containing provisions for maintenance reserves will expire fully by 2017.

Aircraft maintenance reserves are classified as current or non-current depending on the dates when the related maintenance is expected to be performed (Note 2.23).

 

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NOTE 13 - INVESTMENTS IN SUBSIDIARIES

 

(a)	Investments in subsidiaries

The Company has investments in companies recognized as investments in subsidiaries. All the companies defined as subsidiaries have been consolidated within the financial statements of LATAM Airlines Group S.A. and Subsidiaries. The consolidation also includes special-purpose entities and private investment funds.

Detail of significant subsidiaries and summarized financial information:

 

Ownership

Name of significant subsidiary

Country of incorporation

Functional currency

As of December 31, 2014 %

As of December 31, 2013 %

Lan Perú S.A.

Peru

US$

69.97858

69.97858

Lan Cargo S.A.

Chile

US$

99.89803

99.89803

Lan Argentina S.A.

Argentina

ARS

94.99055

94.99055

Transporte Aéreo S.A.

Chile

US$

99.89804

99.89804

Aerolane Líneas Aéreas Nacionales del Ecuador S.A.

Ecuador

US$

100.00000

71.94990

Aerovías de Integración Regional, AIRES S.A.

Colombia

COP

99.01646

99.01646

TAM S.A.

Brazil

BRL

99.99938

99.99938

The consolidated subsidiaries do not have significant restrictions for transferring funds to controller.

 

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Summary financial information of significant subsidiaries

 

																										Results for the period
		Statement of financial position as of December 31, 2014																								ended December 31, 2014
Name of significant subsidiary		Total Assets				Current Assets				Non-current Assets				Total Liabilities				Current Liabilities				Non-current Liabilities				Revenue				Net Income
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Lan Perú S.A.			239,470				214,245				25,225				228,395				226,784				1,611				1,134,289				1,058
Lan Cargo S.A.			575,979				250,174				325,805				234,772				119,111				115,661				267,578				(9,966	)
Lan Argentina S.A.			233,142				206,503				26,639				201,168				198,593				2,575				439,929				(17,864	)
Transporte Aéreo S.A.			.367,570				80,090				287,480				147,278				59,805				87,473				364,580				(8,983	)
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.			126,472				78,306				48,166				116,040				111,718				4,322				256,925				(20,193	)
Aerovías de Integración Regional, AIRES S.A.			131,324				38,751				92,573				61,736				49,577				12,159				392,433				(81,033	)
TAM S.A. (*)			6,817,698				1,921,316				4,896,382				5,809,529				2,279,110				3,530,419				6,628,432				171,655

 

																										Results for the period
		Statement of financial position as of December 31, 2013																								ended December 31, 2013
Name of significant subsidiary		Total Assets				Current Assets				Non-current Assets				Total Liabilities				Current Liabilities				Non-current Liabilities				Revenue				Net Income
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Lan Perú S.A.			263,516				237,577				25,939				252,109				250,699				1,410				1,173,391				3,755
Lan Cargo S.A.			772,640				360,733				411,907				413,527				233,363				180,164				304,060				3,685
Lan Argentina S.A.			214,426				192,590				21,836				205,672				203,567				2,105				500,128				(13,311	)
Transporte Aéreo S.A.			359,693				69,459				290,234				120,399				37,049				83,350				400,518				(4,129	)
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.			94,160				58,867				35,293				93,535				89,802				3,733				299,138				(40,295	)
Aerovías de Integración Regional, AIRES S.A.			188,518				69,591				118,927				36,009				24,936				11,073				335,854				(63,359	)
TAM S.A. (*)			8,695,458				2,372,047				6,323,411				7,983,671				3,249,581				4,734,090				6,791,104				(458,475	)

 

(*)	Corresponds to consolidated information of TAM S.A. and Subsidiaries.

 

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(b)	Non-controlling interest

 

Equity		Tax No.		Country of origin		As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013
						%				%				ThUS$				ThUS$
Lan Perú S.A		0-E		Peru			30.00000				30.00000				3,323				3,423
Lan Cargo S.A. and Subsidiaries		93.383.000-4		Chile			0.10605				0.10605				925				591
Inversiones Lan S.A. and Subsidiaries		96.575.810-0		Chile			0.29000				0.29000				5				19
Promotora Aérea Latinoamericana S.A. and Subsidiaries		0-E		Mexico			51.00000				51.00000				1,730				1,315
Aerolane, Lineas Aéreas Nacionales del Ecuador S.A.		0-E		Ecuador			0.00000				28.05000				—				(14,688	)
Inversora Cordillera S.A. and Subsidiaries		0-E		Argentina			4.22000				4.22000				195				966
Lan Argentina S.A.		0-E		Argentina			1.00000				1.00000				217				221
Americonsult de Guatemala S.A.		0-E		Guatemala			1.00000				1.00000				5				1
Americonsult Costa Rica S.A.		0-E		Costa Rica			1.00000				1.00000				6				8
Linea Aérea Carguera de Colombiana S.A.		0-E		Colombia			10.00000				10.00000				(826	)			660
Aerolíneas Regionales de Integración Aires S.A.		0-E		Colombia			0.98307				0.98307				684				370
Transportes Aereos del Mercosur S.A.		0-E		Paraguay			5.02000				5.02000				825				1,695
Multiplus S.A.		0-E		Brazil			27.26000				27.15000				94,710				93,057
Total															101,799				87,638
				Country		As of December 31,				As of December 31,				For the period ended December 31,
Incomes		Tax No.		of origin		2014				2013				2014				2013
						%				%				ThUS$				ThUS$
Lan Perú S.A		0-E		Peru			30.00000				30.00000				317				1,127
Lan Cargo S.A. and Subsidiaries		93.383.000-4		Chile			0.10605				0.10605				(109	)			111
Inversiones Lan S.A. and Subsidiaries		96.575.810-0		Chile			0.29000				0.29000				(14	)			1
Promotora Aerea Latinoamericana S.A. and Subsidiaries		0-E		Mexico			51.00000				51.00000				396				(511	)
Aerolinheas Brasileiras S.A. and Subsidiaries		0-E		Brasil			0.00000				26.70000				—				(1,520	)
Aerolane, Lineas Aéreas Nacionales del Ecuador S.A.		0-E		Ecuador			0.00000				28.05000				(5,671	)			(11,303	)
Inversora Cordillera S.A. and Subsidiaries		0-E		Argentina			4.22000				4.22000				269				188
Lan Argentina S.A.		0-E		Argentina			1.00000				1.00000				58				47
Americonsult de Guatemala S.A.		0-E		Guatemala			1.00000				1.00000				4				1
Americonsult Costa Rica S.A.		0-E		Costa Rica			1.00000				1.00000				6				—
Linea Aérea Carguera de Colombiana S.A.		0-E		Colombia			10.00000				10.00000				(495	)			(145	)
Aerolíneas Regionales de Integración Aires S.A.		0-E		Colombia			0.98307				1.02665				(797	)			(645	)
Transportes Aereos del Mercosur S.A.		0-E		Paraguay			5.02000				5.02000				(389	)			671
Multiplus S.A.		0-E		Brazil			27.26000				27.13000				39,254				29,273
Total															32,829				17,295

 

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NOTE 14 - INTANGIBLE ASSETS OTHER THAN GOODWILL

The details of intangible assets are as follows:

 

		Classes of intangible assets								Classes of intangible assets
		(net)								(gross)
		As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,
		2014				2013				2014				2013
		ThUS$				ThUS$				ThUS$				ThUS$
Computer software			126,797				143,124				309,846				278,721
Developing software			74,050				46,075				74,050				46,075
Airport slots			1,201,028				1,361,807				1,201,028				1,361,807
Loyalty program			400,317				453,907				400,317				453,907
Trademarks			77,887				88,314				77,887				88,314
Other assets			—				81				808				808
Total			1,880,079				2,093,308				2,063,936				2,229,632

Movement in Intangible assets other than goodwill:

 

		Computer												Trademarks				Other
		software				Developing				Airport				and loyalty				assets
		Net				software				slots (*)				program (*)				Net				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2013			144,244				54,635				1,561,130				621,584				806				2,382,399
Additions			14,703				47,199				—				—				—				61,902
Withdrawals			(467	)			(1,975	)			—				—				—				(2,442	)
Transfer software			46,444				(48,890	)			—				—				(492	)			(2,938	)
Foreing exchange			(5,542	)			(4,894	)			(199,323	)			(79,363	)			(72	)			(289,194	)
Amortization			(56,258	)			—				—				—				(161	)			(56,419	)
Closing balance as of December 31, 2013			143,124				46,075				1,361,807				542,221				81				2,093,308
Opening balance as of January 1, 2014			143,124				46,075				1,361,807				542,221				81				2,093,308
Additions			16,902				60,994				—				—				—				77,896
Withdrawals			(1,365	)			(3,576	)			—				—				—				(4,941	)
Transfer software			22,351				(24,539	)			—				—				—				(2,188	)
Foreing exchange			(6,763	)			(4,904	)			(160,779	)			(64,017	)			—				(236,463	)
Amortization			(47,452	)			—				—				—				(81	)			(47,533	)
Closing balance as of December 31, 2014			126,797				74,050				1,201,028				478,204				—				1,880,079

The amortization of the period is shown in the consolidated statement of income in administrative expenses. The accumulated amortization of computer programs as of December 31, 2014 amounts to ThUS$ 183,049 (ThUS$ 135,597 as of December 31, 2013). The accumulated amortization of other identifiable intangible assets as of December 31, 2014 amounts to ThUS$ 808 (ThUS$ 727 as of December 31, 2013).

 

(*)	See Note 2.5

 

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NOTE 15 – GOODWILL

The Goodwill amount at December 31, 2014 is ThUS$ 3,313,401 (ThUS$ 3,727,605 at December 31, 2013).

The Company has two cash- generating units (CGUs), confirming the existence of two cash-generating units: “Air transportation” and, “Coalition and loyalty program Multiplus”; consistent with this, at December 31, 2014 was performed impairment tests based on value in use and no impairment was identified. These tests are done at least once per year.

At December 31, 2014, the recoverable amounts of cash generating units have been determined from estimated cash flows by the Administration. The main assumptions used are disclosed as follows:

 

				Air transportation		Coalition and loyalty
				CGU		program Multiplus CGU (2)
Annual growth rate (Terminal)		%		1.5 and 2.5		4.7 and 5.7
Exchange rate (1)		R$/US$		2.7 and 3.62		2.7 and 3.62
Discount rate based on the weighted average cost of capital (WACC)		%		9.8 and 10.8		—
Discount rate based on cost of equity (CoE)		%		—		18.0 and 24.0
Fuel Price from futures price curves commodities markets		US$/barril		90		—

 

(1)	In line with the expectations of the Central Bank of Brazil

(2)	The flows, as in the growth rate and discount, are denominated in real.

Given the expectation of growth and the long investment cycles characteristic of the industry, are used projections of ten years.

The result of the impairment test, which includes a sensitivity analysis of the main variables, showed that the estimated recoverable amount is higher than carrying value of the book value of net assets allocated to the cash generating unit, and therefore impairment was not detected.

The sensitivity analysis included individual impact of variations in the key assumptions with impact on the determination of the recoverable amounts, namely:

 

										Decrease
		Increase				Increase				Minimum
		Maximum				Maximum				terminal
		WACC				CoE				growth rate
		%				%				%
Air transportation CGU			10.8				—				1.5
Coalition and loyalty program Multiplus CGU			—				24.0				4.7

In none of the previous cases was presented impairment in the cash- generating unit.

 

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Movement of Goodwill, separated by CGU:

 

		Air Transport				Coalition and loyalty program Multiplus				Total
		ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2013			3,361,906				851,254				4,213,160
Increase (decrease) due to exchange rate differences			(421,729	)			(108,686	)			(530,415	)
Others			44,860				—				44,860
Closing balance as of December 31, 2013			2,985,037				742,568				3,727,605
Opening balance as of January 1, 2014			2,985,037				742,568				3,727,605
Increase (decrease) due to exchange rate differences			(360,371	)			(87,670	)			(448,041	)
Others			33,837				—				33,837
Closing balance as of December 31, 2014			2,658,503				654,898				3,313,401

 

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NOTE 16 - PROPERTY, PLANT AND EQUIPMENT

The composition by category of Property, plant and equipment is as follows:

 

		Gross Book Value								Acumulated depreciation								Net Book Value
		As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2014				2013				2014				2013				2014				2013
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Construction in progress			937,279				858,650				—				—				937,279				858,650
Land			57,988				59,352				—				—				57,988				59,352
Buildings			249,361				247,263				(82,355	)			(75,478	)			167,006				171,785
Plant and equipment			8,660,352				8,461,456				(1,770,560	)			(1,708,668	)			6,889,792				6,752,788
Own aircraft			7,531,526				7,409,394				(1,407,704	)			(1,347,671	)			6,123,822				6,061,723
Other			1,128,826				1,052,062				(362,856	)			(360,997	)			765,970				691,065
Machinery			65,832				73,561				(42,099	)			(41,509	)			23,733				32,052
Information technology equipment			188,208				182,108				(137,199	)			(135,889	)			51,009				46,219
Fixed installations and accessories			97,090				97,212				(53,307	)			(46,620	)			43,783				50,592
Motor vehicles			95,981				75,150				(53,452	)			(51,128	)			42,529				24,022
Leasehold improvements			144,230				88,641				(87,707	)			(71,872	)			56,523				16,769
Other property, plants and equipment			4,522,589				4,791,236				(2,019,155	)			(1,820,679	)			2,503,434				2,970,557
Financial leasing aircraft			4,365,247				4,618,127				(1,985,458	)			(1,777,980	)			2,379,789				2,840,147
Other			157,342				173,109				(33,697	)			(42,699	)			123,645				130,410
Total			15,018,910				14,934,629				(4,245,834	)			(3,951,843	)			10,773,076				10,982,786

 

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(a)	The movement in the different categories of Property, plant and equipment from January 1, 2013 to December 31, 2014 is shown below:

 

		Construction in progress				Land				Buildings net				Plant and equipment net				Information technology equipment net				Fixed installations & accessories net				Motor vehicles net				Leasehold improvements net				Other property, plant and equipment net				Property, Plant and equipment net
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2013			1,153,003				65,307				175,070				6,360,115				40,463				42,343				4,722				21,728				3,944,325				11,807,076
Additions			17,731				—				11,798				1,555,667				22,146				7,663				303				—				69,703				1,685,011
Disposals			—				—				—				(141,328	)			(31	)			—				(161	)			—				(644,637	)			(786,157	)
Retirements			(615	)			—				(430	)			(65,151	)			(270	)			(15	)			(10	)			(219	)			(19,716	)			(86,426	)
Depreciation expenses			—				—				(11,768	)			(446,503	)			(14,131	)			(8,893	)			(312	)			(12,281	)			(336,586	)			(830,474	)
Foreing exchange			(53,452	)			(5,955	)			(12,414	)			(71,013	)			(3,375	)			(1,527	)			(286	)			(1	)			(320,738	)			(468,761	)
Other increases (decreases)			(258,017	)			—				9,529				(384,669	)			1,417				11,021				(2,512	)			7,542				278,206				(337,483	)
Changes, total			(294,353	)			(5,955	)			(3,285	)			447,003				5,756				8,249				(2,978	)			(4,959	)			(973,768	)			(824,290	)
Closing balance as of December 31, 2013			858,650				59,352				171,785				6,807,118				46,219				50,592				1,744				16,769				2,970,557				10,982,786
Opening balance as of January 1, 2014			858,650				59,352				171,785				6,807,118				46,219				50,592				1,744				16,769				2,970,557				10,982,786
Additions			29,980				3,440				16,636				1,214,282				22,239				2,190				1,586				—				154,049				1,444,402
Disposals			—				—				—				(660,129	)(*)			(57	)			—				(4	)			—				(328	)			(660,518	)
Retirements			(705	)			—				(403	)			(39,463	)			(205	)			(230	)			(53	)			(50	)			(34,282	)			(75,391	)
Depreciation expenses			—				—				(13,980	)			(431,967	)			(16,889	)			(8,899	)			(1,041	)			(19,127	)			(286,033	)			(777,936	)
Foreing exchange			733				(4,804	)			(12,341	)			(59,957	)			(3,595	)			(1,509	)			330				—				(110,727	)			(191,870	)
Other increases (decreases)			48,621				—				5,309				124,205				3,297				1,639				(597	)			58,931				(189,802	)			51,603
Changes, total			78,629				(1,364	)			(4,779	)			146,971				4,790				(6,809	)			221				39,754				(467,123	)			(209,710	)
Closing balance as of December 31, 2014			937,279				57,988				167,006				6,954,089				51,009				43,783				1,965				56,523				2,503,434				10,773,076

 

(*)	During the first half of 2014 four Boeing 777-300ER aircraft were sold and subsequently leased.

 

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(b)	Composition of the fleet:

 

				Aircraft included in the Company’s Property, plant and equipment								Operating leases								Total fleet
				As of				As of				As of				As of				As of				As of
Aircraft		Model		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
				2014				2013				2014				2013				2014				2013
Boeing 767		300			—				3				—				—				—				3
Boeing 767		300ER			34				34				4				6				38				40
Boeing 767		300F			8	(1)			8				3				4				11	(1)			12
Boeing 777		300ER			4				8				6				2				10				10
Boeing 777		Freighter			2				2				2				2				4				4
Boeing 787		800			6				3				4				2				10				5
Airbus A319		100			40				39				12				15				52				54
Airbus A320		200			95				95				63				65				158				160
Airbus A321		200			18				9				3				1				21				10
Airbus A330		200			8				8				5				12				13				20
Airbus A340		300			3				—				—				4				3				4
Airbus A340		500			—				2				—				—				—				2
Boeing 737		700			—				—				—				5				—				5
Bombardier		Dhc8-200			2				—				5				7				7				7
Bombardier		Dhc8-400			—				—				—				3				—				3
Total					220				211				107				128				327				339

 

(1)	Two aircraft leased to FEDEX

 

(c)	Method used for the depreciation of Property, plant and equipment:

 

		Method		Useful life
				minimum				maximum
Buildings		Straight line without residual value			20				50
Plant and equipment		Straight line with residual value of 20% in the short-haul fleet and 36% in the long-haul fleet. (*)			5				20
Information technology equipment		Straight line without residual value			5				10
Fixed installations and accessories		Straight line without residual value			10				10
Motor vehicle		Straight line without residual value			10				10
Leasehold improvements		Straight line without residual value			5				5
Other property, plant and equipment		Straight line with residual value of 20% in the short-haul fleet and 36% in the long-haul fleet. (*)			3				20

 

(*)	Except for certain technical components, which are depreciated on the basis of cycles and flight hours.

The aircraft with remarketing clause (**) under modality of financial leasing, which are depreciated according to the duration of their contracts, between 12 and 18 years. Its residual values are estimated according to market value at the end of such contracts.

 

(**)

Aircraft with remarketing clause are those that are required to sell at the end of the contract. The depreciation charged to income in the period, which is included in the consolidated statement of income, amounts to ThUS$ 777,936 (ThUS$ 830,474 at December 31, 2013). Depreciation charges for the year are recognized in Cost of sales and administrative expenses in the consolidated statement of income.

 

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(d)	Additional information regarding Property, plant and equipment:

 

(i)

Property, plant and equipment pledged as guarantee:

In the period ended December 31, 2014, were added direct guarantees by nine Airbus A321-200 aircraft and three Boeing 787-800 aircraft. Additionally, as a result of fleet transfer plan from TAM Linhas Aéreas S.A. to LATAM Airlines Group S.A., the Company added direct guarantees associated with three Airbus A319-100 aircraft, twenty one Airbus A320-200 aircraft and seven Airbus A321-200 aircraft.

Moreover, the Company sold its interest in the permanent establishments Flamenco Leasing LLC, Cisne Leasing LLC, Becacina Leasing LLC, Tricahue Leasing LLC and Loica Leasing Limited. Products of the above direct guarantees associated with seven Boeing 767-300, two Airbus A319-100 and two Airbus A320-200 aircraft were removed.

Additionally, as a result of sale, direct guarantees associated with four Boeing 777-300 aircraft were removed.

Description of Property, plant and equipment pledged as guarantee:

 

						As of								As of
						December 31,								December 31,
						2014								2013
Creditor of guarantee		Assets committed		Fleet		Existing Debt				Book Value				Existing Debt				Book Value
						ThUS$				ThUS$				ThUS$				ThUS$
Wilmington		Aircraft and engines		Boeing 767			1,001,311				1,277,357				1,437,810				1,827,349
Trust Company				Boeing 777 / 787			452,622				518,788				777,796				880,470
Banco Santander S.A.		Aircraft and engines		Airbus A319			66,318				100,485				74,042				105,353
				Airbus A320			585,008				788,706				643,945				829,185
				Airbus A321			39,739				45,161				43,071				49,208
BNP Paribas		Aircraft and engines		Airbus A319			174,714				238,103				209,993				281,846
				Airbus A320			162,304				207,881				199,114				257,857
Credit Agricole		Aircraft and engines		Airbus A319			55,797				121,038				32,251				99,241
				Airbus A320			157,514				219,460				96,774				153,531
				Airbus A321			60,288				63,939				—				—
JP Morgan		Aircraft and engines		Boeing 777			237,463				278,169				259,272				292,486
Wells Fargo		Aircraft and engines		Airbus A320			305,949				360,064				331,854				384,273
Bank of Utah		Aircraft and engines		Airbus A320			259,260				327,094				277,622				347,765
DVB Bank SE		Aircraft and engines		Boeing 767			—				—				95,292				151,824
Natixis		Aircraft and engines		Airbus A320			48,814				55,946				—				—
				Airbus A321			405,416				488,198				—				—
Citibank N. A.		Aircraft and engines		Airbus A320			142,591				146,535				—				—
				Airbus A321			55,836				59,452				—				—
HSBC		Aircraft and engines		Airbus A320			59,005				59,342				—				—
KfW IPEX-Bank		Aircraft and engines		Airbus A320			16,088				17,516				—				—
PK AirFinance US, Inc.		Aircraft and engines		Airbus A320			69,721				70,102				—				—
Total direct guarantee							4,355,758				5,443,336				4,478,836				5,660,388

The amounts of existing debt are presented at nominal value. Book value corresponds to the carrying value of the goods provided as guarantees.

 

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Additionally, there are indirect guarantees related to assets recorded in Property, plant and equipment whose total debt at December 31, 2014 amounted to ThUS$ 1,626,257 (ThUS$ 2,167,470 at December 31, 2013). The book value of assets with indirect guarantees as of December 31, 2014 amounts to ThUS$ 2,335,135 (ThUS$ 2,767,593 as of December 31, 2013).

 

(ii)

Commitments and others

Fully depreciated assets and commitments for future purchases are as follows:

 

		As of				As of
		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Gross book value of fully depreciated property, plant and equipment still in use			138,960				160,116
Commitments for the acquisition of aircraft (*)			21,500,000				23,900,000

 

(*)	Acording to the manufacturer’s price list.

Purchase commitment of aircraft

 

		Year of delivery
Manufacturer		2015				2016				2017				2018				2019				2020				2021				Total
Airbus S.A.S.			16				23				26				31				11				12				5				124
A320-NEO			—				2				18				16				8				8				—				52
A321			15				15				—				—				—				—				—				30
A321-NEO			—				—				—				6				—				4				5				15
A350			1				6				8				9				3				—				—				27
The Boeing Company			3				5				6				4				—				—				—				18
B777			—				—				2				—				—				—				—				2
B787-8											4				4																8
B787-9			3				5				—				—				—				—				—				8
Total			19				28				32				35				11				12				5				142

In July 2014 the cancellation of 4 Airbus A320 was signed and changing 12 Airbus A320 aircraft for 12 Airbus A320 NEO aircraft. In December 2014 a contract was signed changing 4 Airbus A320 aircraft for 4 Airbus A320 NEO aircraft and changing 4 Airbus A321 aircraft for 4 Airbus A321 NEO aircraft.

At December 31, 2014, as a result of the different aircraft purchase agreements signed with Airbus S.A.S., remain to receive 97 aircraft Airbus A320 family, with deliveries between 2015 and 2021, and 27 Airbus aircraft A350 family with delivery dates starting from 2015.

The approximate amount is ThUS$ 17,600,000, according to the manufacturer’s price list. Additionally, the Company has valid purchase options for 5 Airbus A350 aircraft.

 

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As of December 31, 2014, and as a result of different aircraft purchase contracts signed with The Boeing Company, remain to receive a total of sixteen 787 Dreamliner aircraft, with delivery dates between 2015 and 2018, and two 777 with delivery expected for 2017.

The approximate amount, according to the manufacturer’s price list, is ThUS$ 3,900,000. Additionally, the Company has valid purchase options for 2 Boeing 777 aircraft.

 

(iii)

Capitalized interest costs with respect to Property, plant and equipment.

 

				For the periods ended
				December 31,
				2014				2013
Average rate of capitalization of capitalized interest costs		%			2.84				3.63
Costs of capitalized interest		ThUS$			18,426				25,625

 

(iv)

Financial leases

The detail of the main financial leases is as follows:

 

						As of				As of
						December 31,				December 31,
Lessor		Aircraft		Model		2014				2013
Agonandra Statutory Trust		Airbus A319		100			4				4
Agonandra Statutory Trust		Airbus A320		200			2				2
Air Canada		Airbus A340		500			—				2
AWMS I (AWAS)		Boeing 767		300			—				3
Becacina Leasing LLC		Boeing 767		300ER			1				—
Caiquen Leasing LLC		Boeing 767		300F			1				1
Cernicalo Leasing LLC		Boeing 767		300F			2				2
Chirihue Leasing Trust		Boeing 767		300F			2				2
Cisne Leasing LLC		Boeing 767		300ER			2				—
Codorniz Leasing Limited		Airbus A319		100			2				2
Conure Leasing Limited		Airbus A320		200			2				2
Flamenco Leasing LLC		Boeing 767		300ER			1				—
FLYAFI 1 S.R.L.		Boeing 777		300ER			1				1
FLYAFI 2 S.R.L.		Boeing 777		300ER			1				1
FLYAFI 3 S.R.L.		Boeing 777		300ER			1				1
Forderum Holding B.V. (GECAS)		Airbus A320		200			2				2
Garza Leasing LLC		Boeing 767		300ER			1				1
General Electric Capital Corporation		Airbus A330		200			3				3
Intraelo BETA Corpotation (KFW)		Airbus A320		200			1				1
Juliana Leasing Limited		Airbus A320		200			2				2
Linnet Leasing Limited		Airbus A320		200			4				4
Loica Leasing Limited		Airbus A319		100			2				—
Loica Leasing Limited		Airbus A320		200			2				—
Mirlo Leasing LLC		Boeing 767		300ER			1				1

 

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						As of				As of
						December 31,				December 31,
Lessor		Aircraft		Model		2014				2013
NBB Rio de Janeiro Lease CO and Brasilia Lease LLC (BBAM)		Airbus A320		200			1				1
NBB São Paulo Lease CO. Limited (BBAM)		Airbus A321		200			1				1
Osprey Leasing Limited		Airbus A319		100			8				8
Petrel Leasing LLC		Boeing 767		300ER			1				1
Pochard Leasing LLC		Boeing 767		300ER			2				2
Quetro Leasing LLC		Boeing 767		300ER			3				3
SG Infraestructure Italia S.R.L.		Boeing 777		300ER			1				1
SL Alcyone LTD (Showa)		Airbus A320		200			1				1
TMF Interlease Aviation B.V.		Airbus A320		200			1				12
TMF Interlease Aviation B.V.		Airbus A330		200			1				1
TMF Interlease Aviation II B.V.		Airbus A319		100			5				5
TMF Interlease Aviation II B.V.		Airbus A320		200			2				2
TMF Interlease Aviation III B.V.		Airbus A319		100			—				3
TMF Interlease Aviation III B.V.		Airbus A320		200			—				12
TMF Interlease Aviation III B.V.		Airbus A321		200			—				7
Tricahue Leasing LLC		Boeing 767		300ER			3				—
Wacapou Leasing S.A		Airbus A320		200			1				1
Wells Fargo Bank North National Association (ILFC)		Airbus A330		200			—				1
Total							71				99

Financial leasing contracts where the Company acts as the lessee of aircrafts establish duration between 12 and 18 year terms and semi-annual, quarterly and monthly payments of obligations.

Additionally, the lessee will have the obligation to contract and maintain active the insurance coverage for the aircraft, perform maintenance on the aircraft and update the airworthiness certificates at their own cost.

Fixed assets acquired under financial leases are classified as Other property, plant and equipment. As of December 31, 2014 the Company had seventy one aircraft (ninety nine aircraft as of December 31, 2013).

During the period ended December 2014, due to the sale of its participation in the permanent establishments Flamenco Leasing LLC, Cisne Leasing LLC, Becacina Leasing LLC, Tricahue Leasing LLC and Loica Leasing Limited, the Company increased its number of aircraft on lease by seven Boeing 767-300, two Airbus A319-100 and two Airbus A320-200 aircraft. Therefore, these aircraft were reclassified from the Plant and equipment category to the category Other property plant and equipment.

During the third quarter of 2014 the option was exercised to purchase one A330-200 and during the fourth quarter of 2014 the option were exercised to purchase two A320-200 aircraft. Therefore, this aircraft was reclassified from the Other property plant and equipment category to the category Plant and equipment.

For other hand, as a result of fleet transfer plan from TAM Linhas Aéreas S.A. to LATAM Airlines Group S.A., the Company decreases its number of aircraft on lease by three Airbus A319-100 aircraft, twenty one Airbus A320-200 and seven Airbus A321-200 aircraft as a result of modifications in its financial contracts. Therefore, these aircraft were reclassified from the Other property plant and equipment category to the category Plant and equipment.

 

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Additionally, as a result of the leasing contracts had ended; the Company decreases its number of aircraft on lease by three Boeing 767-300 aircraft and two Airbus A340-500 aircraft. These aircraft were on operative leasing agreement, but according to the stated policy were classified as financial leasing.

The book value of assets under financial leases as of December 31, 2014 amounts to ThUS$ 2,379,789 (ThUS$ 2,840,147 as of December 31, 2013).

The minimum payments under financial leases are as follows:

 

		As of December 31, 2014												As of December 31, 2013
		Gross								Present				Gross								Present
		Value				Interest				Value				Value				Interest				Value
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
No later than one year			403,840				(48,197	)			355,643				462,157				(53,925	)			408,232
Between one and five years			1,121,190				(97,909	)			1,023,281				1,406,384				(118,702	)			1,287,682
Over five years			261,877				(6,409	)			255,468				633,120				(19,562	)			613,558
Total			1,786,907				(152,515	)			1,634,392				2,501,661				(192,189	)			2,309,472

NOTE 17 - CURRENT AND DEFERRED TAXES

In the period ended December 31, 2014, the income tax provision was calculated at the rate of 21% for the business year 2014, in accordance with the recently enacted Law No. 20,780 published in the Official Journal of the Republic of Chile on September 29, 2014.

Among the main changes is the progressive increase of the First Category Tax which will reach 27% in 2018 if the “Partially Integrated Taxation System”(*) is chosen. Alternatively, if the Company chooses the “Attributed Income Taxation System”(*) the top rate would reach 25% in 2017.

As LATAM Airlines Group S.A. is a public company, by default it must choose the “Partially Integrated Taxation System”, unless a future Extraordinary Meeting of Shareholders of the Company agrees, by a minimum of 2/3 of the votes, to choose the “Attributed Income Taxation System”. This decision must be taken at the latest in the last quarter of 2016.

The effects of the updating of deferred tax assets and liabilities according to rates changes introduced by Law No. 20,780 depending on their period back have been recorded in equity in accordance with the instructions of Chilean Superintendency of Securities and Insurance in his Office Circular No. 856 of October 17, 2014. The total effect in equity was ThUS $ 150,210, which is explained by an increase in deferred tax assets of ThUS$ 87 and an increase in deferred tax liabilities of ThUS$ 145,253 and an increase in equity by deferred tax of ThUS$ 5,044. The net effect on the assets and liabilities by deferred tax is an increase on liabilities for ThUS$ 145,166.

Deferred tax assets and liabilities are offset if there is a legal right to offset assets and liabilities for income taxes relating to the same entity and tax authority.

 

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(*)	The Partially Integrated Taxation System is one of the tax regimes approved through the Tax Reform previously mentioned, which is based on the taxation by the perception of profits and the Attributed Income Taxation System is based on the taxation by the accrual of profits.

 

(a)	Current taxes

 

(a.1)

The composition of the current tax assets is the following:

 

		Current assets								Non-current assets								Total assets
		As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 31,
		2014				2013				2014				2013				2014				2013
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Provisional monthly payments (advances)			68,752				61,570				—				—				68,752				61,570
Other recoverable credits			31,956				20,320				17,663				—				49,619				20,320
Total current tax assets			100,708				81,890				17,663				—				118,371				81,890

 

(a.2)

The composition of the current tax liabilities are as follows:

 

		Current liabilities								Non-current liabilities								Total liabilities
		As of				As of				As of				As of				As of				As of
		December 31,				December 31,				December 31,				December 31,				December 31,				December 3
		2014				2013				2014				2013				2014				2013
		ThUS$				ThUS$			ThUS$				ThUS$				ThUS$				ThUS$
Income tax provision			16,712				9,919				—				—				16,712				9,919
Additional tax provision			1,177				1,664				—				—				1,177				1,664
Total current tax liabilities			17,889				11,583				—				—				17,889				11,583

 

(b)	Deferred taxes

The balances of deferred tax are the following:

 

		Assets								Liabilities
		As of				As of				As of				As of
Concept		December 31,				December 31,				December 31,				December 31,
		2014				2013				2014				2013
		ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			(23,675	)			(17,152	)			847,965				557,845
Leased assets			(102,457	)			(147,074	)			83,318				46,688
Amortization			(31,750	)			(10,778	)			128,350				113,579
Provisions			416,153				317,883				65,076				(207,358	)
Revaluation of financial instruments			270				562				(12,536	)			(15,508	)
Tax losses			151,569				267,189				(571,180	)			(284,339	)
Revaluation property, plant and equipment			—				—				(5,999	)			(18,544	)
Intangibles			—				—				523,275				593,325
Others			(2,787	)			(7,668	)			(6,375	)			(18,460	)
Total			407,323				402,962				1,051,894				767,228

The balance of deferred tax assets and liabilities are composed principally of temporary differences to reverse in the long term.

 

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Movements of Deferred tax assets and liabilities:

 

(a)	From January 1 to December 31, 2013

 

		Opening				Recognized in				Recognized in				Exchange								Ending
		balance				consolidated				comprehensive				rate								balance
		Assets/(liabilities)				income				income				variation				Others				Asset (liability)
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			(454,845	)			(124,584	)			—				4,432				—				(574,997	)
Leased assets			(268,619	)			70,807				—				4,050				—				(193,762	)
Amortization			(76,763	)			(49,985	)			—				2,391				—				(124,357	)
Provisions			555,423				35,636				—				(65,818	)			—				525,241
Revaluation of financial instruments			36,919				146				(19,345	)			(1,650	)			—				16,070
Tax losses			420,578				148,266				—				(17,316	)			—				551,528
Revaluation propety, plant and equipment			22,892				3,290				—				(7,638	)			—				18,544
Intangibles			(680,167	)			—				—				86,842				—				(593,325	)
Others			28,310				9,543				—				(28,070	)			1,009				10,792
Total			(416,272	)			93,119				(19,345	)			(22,777	)			1,009				(364,266	)

 

(b)	From January 1 to December 31, 2014

 

		Opening				Recognized in				Recognized in				Exchange				Efect from								Ending
		balance				consolidated				comprehensive				rate				change in								balance
		Assets/(liabilities)				income				income				variation				tax rate				Others				Asset (liability)
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			(574,997	)			(74,623	)			—				3,575				(225,595	)			—				(871,640	)
Leased assets			(193,762	)			47,749				—				3,267				(43,029	)			—				(185,775	)
Amortization			(124,357	)			(21,621	)			—				1,928				(16,050	)			—				(160,100	)
Provisions			525,241				(99,262	)			—				(53,090	)			(21,812	)			—				351,077
Revaluation of financial instruments			16,070				(53,675	)			47,979				(1,331	)			3,763				—				12,806
Tax losses (*)			551,528				147,798				—				(13,968	)			163,596				(126,205	)			722,749
Revaluation propety, plant and equipment			18,544				(6,384	)			—				(6,161	)			—				—				5,999
Intangibles			(593,325	)			—				—				70,050				—				—				(523,275	)
Others			10,792				13,455				—				(26,200	)			(6,039	)			11,580				3,588
Total			(364,266	)			(46,563	)			47,979				(21,930	)			(145,166	)			(114,625	)			(644,571	)

 

(*)

In relation to the Tax Recovery Program (REFIS), established in Law No. 11,941/09, the Provisional Measure No. 651/2014 approved by the Brazilian National Congress and signed into Law No. 13,043/14, in its Section VIII, Article 33, establishes that taxpayers that have tax debts can anticipate paying their tax debt by using tax credits related to tax loss carryforwards up to an amount of 70% of the total debt if they pay the other 30% in cash. The Company adhered to the program and paid its debt through this mechanism.

Therefore, the company TAM Linhas Aéreas S.A. decreased its liability associated with the REFIS program using its deferred tax assets related to its tax loss of ThUS $ 126,205 at December 31, 2014, generating no effect on the outcome of tax.

 

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Deferred tax assets not recognized:

 

		As of				As of
		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Tax losses			2,781				6,538
Total Deferred tax assets not recognized			2,781				6,538

Deferred tax assets on tax loss carry-forwards, are recognized to the extent that it is likely to provide relevant tax benefit through future taxable profits. The Company has not recognized deferred tax assets of ThUS$ 2,781 (ThUS$ 6,538 at December 31, 2013) compared to a loss of ThUS$ 11,620 (ThUS$ 28,855 at December 31, 2013) to offset against future years tax benefits.

Deferred tax expense and current income taxes:

 

		For the periods ended
		December 31,
		2014				2013
		ThUS$				ThUS$
Current tax expense
Current tax expense			97,782				73,611
Adjustment to previous period’s current tax			(2,151	)			(561	)
Total current tax expense, net			95,631				73,050
Deferred tax expense
Deferred expense for taxes related to the creation and reversal of temporary differences			46,466				(92,863	)
Reduction (increase) in value of deferred tax assets during the evaluation of its usefulness			97				(256	)
Total deferred tax expense, net			46,563				(93,119	)
Income tax expense			142,194				(20,069	)

 

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Composition of income tax expense (income):

 

		For the periods ended
		December 31,
		2014				2013
		ThUS$				ThUS$
Current tax expense, net, foreign			92,272				61,118
Current tax expense, net, Chile			3,359				11,932
Total current tax expense, net			95,631				73,050
Deferred tax expense, net, foreign			168,049				(112,047	)
Deferred tax expense, net, Chile			(121,486	)			18,928
Deferred tax expense, net, total			46,563				(93,119	)
Income tax expense			142,194				(20,069	)

Profit before tax by the legal tax rate in Chile (21%)

 

		For the periods ended
		December 31,								December 31,
		2014				2013				2014				2013
		ThUS$				ThUS$				%				%
Tax expense using the legal rate			6,805	(*)			(61,035	)			21.00	(*)			20.00
Tax effect of rates in other jurisdictions			112,563				(34,287	)			347.37				11.24
Tax effect of non-taxable operating revenues			(60,960	)			(24,004	)			(188.12	)			7.87
Tax effect of disallowable expenses			88,643				98,211				273.55				(32.18	)
Other increases (decreases) in legal tax charge			(4,857	)			1,046				(14.99	)			(0.34	)
Total adjustments to tax expense using the legal rate			135,389				40,966				417.81				(13.41	)
Tax expense using the effective rate			142,194				(20,069	)			438.81				6.59

 

(*)

On September 29, 2014, Law No. 20,780 “Amendment to the system of income taxation and introduces various adjustments in the tax system.” was published in the Official Journal of the Republic of Chile. Within major tax reforms that law contains is modified gradually from 2014 to 2018 the First- Category Tax rate to be declared and paid starting in tax year 2015.

Thus, at December 31, 2014, the Company filed tax expense reconciliation and legal tax rate considering the rate increase. According to the instructions of Chilean Superintendency of Securities and Insurance in his Office Circular No. 856 of October 17, 2014, the Company recognized a loss on their retained earnings ThUS$ 150,210 as a result of the rate increase.

 

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Deferred taxes related to items charged to net equity:

 

		For the period ended
		December 31,
		2014				2013
		ThUS$				ThUS$
Aggregate deferred taxation of components of other comprehensive income			40,227				(19,345	)
Tax effect by change legal tax rate in other comprehensive income (*)			7,752				—
Aggregate deferred taxation related to items charged to net equity			(3,389	)			(3,440	)
Tax effect by change legal tax rate in net equity (*)			(2,708	)			—
Total deferred taxes related to items charged to net equity			41,882				(22,785	)

 

(*)	Correspond to the tax by tax rate increases Law No. 20,780, tax reform, published in the Official Journal of the Republic of Chile on September 29, 2014.

NOTE 18 - OTHER FINANCIAL LIABILITIES

The composition of Other financial liabilities is as follows:

 

		As of				As of
		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Current
(a) Interest bearing loans			1,397,382				1,969,281
(b) Derivatives not recognized as a hedge			1,190				4,040
(c) Hedge derivatives			226,043				66,466
Total current			1,624,615				2,039,787
Non-current
(a) Interest bearing loans			7,360,685				7,803,588
(b) Derivatives not recognized as a hedge			—				1,491
(c) Hedge derivatives			28,327				54,906
Total non-current			7,389,012				7,859,985

 

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(a)	Interest bearing loans

Obligations with credit institutions and debt instruments:

 

		As of				As of
		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Current
Loans to exporters			327,278				401,263
Bank loans			98,711				602,618
Guaranteed obligations			472,864				455,512
Other guaranteed obligations			61,872				31,109
Subtotal bank loans			960,725				1,490,502
Obligation with the public			21,206				21,761
Financial leases			364,514				423,537
Other loans			50,937				33,481
Total current			1,397,382				1,969,281
Non-current
Bank loans			415,667				322,207
Guaranteed obligations			3,765,518				3,776,910
Other guaranteed obligations			93,992				64,247
Subtotal bank loans			4,275,177				4,163,364
Obligation with the public			1,111,481				1,116,671
Financial leases			1,344,520				1,902,715
Other loans			629,507				620,838
Total non-current			7,360,685				7,803,588
Total obligations with financial institutions			8,758,067				9,772,869

All interest-bearing liabilities are recorded using the effective interest rate method. Under IFRS, the effective interest rate for loans with a fixed interest rate does not vary throughout the loan, while in the case of loans with variable interest rates, the effective rate changes on each date of reprising of the loan.

Currency balances that make the interest bearing loans:

 

		As of				As of
		December 31,				December 31,
		2014				2013
Currency		ThUS$				ThUS$
Argentine peso			39,053				43,335
Brazilian real			53,410				76,674
Chilean peso (U.F.)			187,614				267,554
Euro			547				2,029
US Dollar			8,477,443				9,383,277
Total			8,758,067				9,772,869

 

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Interest-bearing loans due in installments to December 31, 2014

Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.

 

								Nominal values																								Accounting values
				Creditor				Up to 90				More than 90 days to one				More than one to three				More than three to five				More than five				Total nominal				Up to 90				More than 90 days to one				More than one to three				More than three to five				More than five				Total accounting						Effective				Nominal
Tax No.		Creditor		country		Currency		days				year				years				years				years				value				days				year				years				years				years				value				Amortization		rate				rate
								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Loans to exporters
97.032.000-8		BBVA		Chile		US$			100,000				—				—				—				—				100,000				100,058				—				—				—				—				100,058			At expiration			0.40				0.40
97.036.000-K		SANTANDER		Chile		US$			45,000				—				—				—				—				45,000				45,040				—				—				—				—				45,040			At expiration			0.34				0.34
97.030.000-7		ESTADO		Chile		US$			55,000				—				—				—				—				55,000				55,022				—				—				—				—				55,022			At expiration			0.52				0.52
97.006.000-6		BCI		Chile		US$			100,000				—				—				—				—				100,000				100,140				—				—				—				—				100,140			At expiration			0.47				0.47
76.645.030-K		ITAU		Chile		US$			15,000				—				—				—				—				15,000				15,018				—				—				—				—				15,018			At expiration			0.65				0.65
97.951.000-4		HSBC		Chile		US$			12,000				—				—				—				—				12,000				12,000				—				—				—				—				12,000			At expiration			0.50				0.50
Bank loans
97.023.000-9		CORPBANCA		Chile		UF			14,242				42,725				113,934				17,367				—				188,268				15,542				42,725				112,160				17,187				—				187,614			Quarterly			4.85				4.85
0-E		CITIBANK		Argentina		ARS			—				17,542				—				—				—				17,542				122				17,542				—				—				—				17,664			Monthly			31.00				31.00
0-E		BBVA		Argentina		ARS			—				21,050				—				—				—				21,050				339				21,050				—				—				—				21,389			Monthly			33.00				33.00
97.036.000-K		BBVA		Chile		US$			—				—				282,967				—				—				282,967				928				—				282,967				—				—				283,895			Quarterly			2.33				2.33
Guaranteed obligations
0-E		CREDIT AGRICOLE		France		US$			17,225				52,658				105,594				62,209				35,883				273,569				17,745				52,658				105,594				62,209				35,883				274,089			Quarterly			1.68				1.43
0-E		BNP PARIBAS		U.S.A.		US$			7,815				24,005				67,806				73,475				178,116				351,217				8,940				24,005				67,248				73,287				178,078				351,558			Quarterly			2.13				2.04
0-E		WELLS FARGO		U.S.A.		US$			30,351				91,866				251,040				260,112				669,599				1,302,968				34,771				91,866				219,808				245,026				653,056				1,244,527			Quarterly			2.26				1.57
0-E		CITIBANK		U.S.A.		US$			16,624				50,489				139,491				146,931				330,579				684,114				18,154				50,489				128,993				141,745				323,754				663,135			Quarterly			2.24				1.49
97.036.000-K		SANTANDER		Chile		US$			5,127				15,545				42,646				44,472				72,551				180,341				5,418				15,545				40,183				43,413				71,879				176,438			Quarterly			1.32				0.78
0-E		BTMU		U.S.A.		US$			2,649				8,042				22,221				23,393				51,340				107,645				2,838				8,042				20,557				22,621				50,668				104,726			Quarterly			1.64				1.04
0-E		APPLE BANK		U.S.A.		US$			1,296				3,952				10,919				11,516				25,707				53,390				1,448				3,952				10,094				11,131				25,366				51,991			Quarterly			1.63				1.03
0-E		US BANK		U.S.A.		US$			14,158				42,960				118,206				123,705				349,129				648,158				17,169				42,960				97,791				113,644				337,272				608,836			Quarterly			3.99				2.81
0-E		DEUTSCHE BANK		U.S.A.		US$			4,552				14,031				39,791				24,725				72,180				155,279				5,190				14,031				39,791				24,726				72,180				155,918			Quarterly			3.25				3.25
0-E		NATIXIS		France		US$			9,739				29,807				84,884				87,304				242,496				454,230				10,278				29,807				84,884				87,304				242,496				454,769			Quarterly			1.86				1.81
0-E		HSBC		U.S.A.		US$			1,340				4,082				11,249				11,820				30,514				59,005				1,474				4,082				11,249				11,820				30,514				59,139			Quarterly			2.29				1.48
0-E		PK AirFinance		U.S.A.		US$			1,755				5,452				16,014				18,412				28,088				69,721				1,810				5,452				16,014				18,412				28,088				69,776			Quarterly			1.86				1.86
0-E		KFW IPEX-BANK		U.S.A.		US$			611				1,885				5,568				4,334				3,690				16,088				613				1,885				5,568				4,334				3,690				16,090			Quarterly			2.10				2.10
—		SWAP Aircraft arrivals		—		US$			595				1,647				3,333				1,658				157				7,390				595				1,647				3,333				1,658				157				7,390			Quarterly			—				—
Other guaranteed obligations
0-E		DVB BANK SE		U.S.A.		US$			7,877				23,877				32,492				—				—				64,246				7,920				23,878				32,492				—				—				64,290			Quarterly			2.00				2.00
0-E		CREDIT AGRICOLE		U.S.A.		US$			7,459				22,378				61,500				—				—				91,337				7,696				22,378				61,500				—				—				91,574			Quarterly			1.73				1.73
Financial leases
0-E		ING		U.S.A.		US$			7,744				23,786				52,041				31,151				11,806				126,528				8,754				23,786				50,985				30,853				11,771				126,149			Quarterly			4.84				4.33
0-E		CREDIT AGRICOLE		France		US$			1,581				4,877				13,955				—				—				20,413				1,628				4,877				13,955				—				—				20,460			Quarterly			1.20				1.20
0-E		CITIBANK		U.S.A.		US$			4,409				13,657				39,402				44,177				13,804				115,449				5,384				13,657				38,125				43,767				13,762				114,695			Quarterly			6.40				5.67
0-E		PEFCO		U.S.A.		US$			14,549				44,742				125,130				63,957				3,827				252,205				16,216				44,742				122,596				63,620				3,819				250,993			Quarterly			5.35				4.76
0-E		BNP PARIBAS		U.S.A.		US$			9,457				29,109				83,466				58,792				10,848				191,672				10,125				29,109				81,505				58,421				10,820				189,980			Quarterly			4.14				3.68
0-E		WELLS FARGO		U.S.A.		US$			4,373				13,323				37,242				39,862				44,525				139,325				4,830				13,323				357,710				39,264				44,290				459,417			Quarterly			3.98				3.53
0-E		DVB BANK SE		U.S.A.		US$			4,457				13,545				32,567				—				—				50,569				4,545				13,545				32,567				—				—				50,657			Quarterly			1.89				1.89
0-E		US BANK		U.S.A.		US$			280				11,701				—				—				—				11,981				280				11,701				—				—				—				11,981			Monthly			—				—
0-E		BANC OF AMERICA		U.S.A.		US$			643				2,049				2,770				—				—				5,462				664				2,049				2,770				—				—				5,483			Monthly			1.41				1.41
Other loans
0-E		BOEING		U.S.A.		US$			—				—				179,507				—				—				179,507				3,580				—				179,507				—				—				183,087			At expiration			1.74				1.74
0-E		CITIBANK (*)		U.S.A.		US$			—				—				164,108				184,866				101,026				450,000				1,500				—				164,108				184,866				101,026				451,500			Quarterly			6.00				6.00
		Total							517,908				630,782				2,139,843				1,334,238				2,275,865				6,898,636				543,774				630,783				2,384,054				1,299,308				2,238,569				7,096,488

 

(*)	Securitized bond with the future flows from the sales with credit card in United States and Canada.

 

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Interest-bearing loans due in installments to December 31, 2014

Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.

 

								Nominal values																								Accounting values
Tax No.		Creditor		Creditor country		Currency		Up to 90 days				More than 90 days to one year				More than one to three years				More than three to five years				More than five years				Total nominal value				Up to 90 days				More than 90 days to one year				More than one to three years				More than three to five years				More than five years				Total accounting value				Amortization		Effective rate				Nominal rate
								ThUS$				ThUS$				ThUS$				ThUS$			ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Bank loans
0-E		NEDERLANDSCHE
		CREDIETVERZEKERING MAATSCHAPPIJ		Holland		US$			108				335				971				1,094				1,288				3,796				127				336				971				1,094				1,288				3,816			Monthly			6.01				6.01
Obligation with the public
0-E		THE BANK OF NEW YORK		U.S.A.		US$			—				—				300,000				—				800,000				1,100,000				12,178				9,028				304,377				4,583				802,521				1,132,687			At Expiration			7.99				7.19
Financial leases
0-E		AFS INVESTMENT IX LLC		U.S.A.		US$			1,864				5,752				16,580				18,555				8,369				51,120				2,104				5,752				16,580				18,555				8,369				51,360			Monthly			1.25				1.25
0-E		AIRBUS FINANCIAL		U.S.A.		US$			3,189				9,836				27,070				15,262				7,664				63,021				3,303				9,836				27,070				15,262				7,664				63,135			Monthly			1.42				1.42
0-E		CREDIT AGRICOLE-CIB		U.S.A.		US$			2,704				32,466				—				—				—				35,170				2,752				32,466				—				—				—				35,218			Quarterly			1.10				1.10
0-E		CREDIT AGRICOLE -CIB		France		US$			1,500				4,500				4,500				—				—				10,500				1,566				4,500				4,500				—				—				10,566			Quarterly/ Semiannual			3.25				3.25
0-E		DVB BANK SE		Germany		US$			3,125				9,375				—				—				—				12,500				3,160				9,375				—				—				—				12,535			Quarterly			2.50				2.50
0-E		DVB BANK SE		U.S.A.		US$			197				540				755				—				—				1,492				199				540				755				—				—				1,494			Monthly			1.68				1.68
0-E		GENERAL ELECTRIC CAPITAL CORPORATION		U.S.A.		US$			2,296				10,791				23,761				—				—				36,848				2,346				10,791				23,761				—				—				36,898			Monthly			1.25				1.25
0-E		KFW IPEX-BANK		Germany		US$			3,246				10,541				18,037				13,535				5,328				50,687				3,339				10,541				18,037				13,535				5,328				50,780			Monthly/ Quarterly			1.72				1.72
0-E		NATIXIS		France		US$			2,887				6,705				20,987				23,723				85,391				139,693				4,044				6,705				20,987				23,723				85,391				140,850			Quarterly/ Semiannual			3.87				3.87
0-E		PK AIRFINANCE US, INC.		U.S.A.		US$			1,208				3,725				20,360				—				—				25,293				1,256				3,725				20,360				—				—				25,341			Monthly			1.75				1.75
0-E		WACAPOU LEASING S.A.		Luxemburg		US$			416				1,198				2,847				2,406				13,115				19,982				456				1,198				2,847				2,406				13,115				20,022			Quarterly			2.00				2.00
0-E		SOCIÉTÉ GÉNÉRALE MILAN BRANCH		Italy		US$			7,761				23,859				67,973				74,783				169,730				344,106				8,574				23,859				67,973				74,783				169,730				344,919			Quarterly			3.06				3.58
0-E		BANCO DE LAGE LANDEN BRASIL S.A		Brazil		BRL			—				—				—				—				—				—				8				—				—				—				—				8			Monthly			11.70				11.70
0-E		BANCO IBM S.A		Brazil		BRL			319				957				2,514				27				—				3,817				91				957				2,604				27				—				3,679			Monthly			10.58				10.58
0-E		HP FINANCIAL SERVICE		Brazil		BRL			225				707				1,297				—				—				2,229				143				707				1,379				—				—				2,229			Monthly			9.90				9.90
0-E		SOCIETE AIR FRANCE		France		EUR			114				—				—				—				—				114				547				—				—				—				—				547			Monthly			6.82				6.82
0-E		SOCIETE GENERALE		France		BRL			126				377				1,005				135				—				1,643				82				377				1,044				135				—				1,638			Monthly			11.60				11.60
Other loans
0-E		COMPANHIA BRASILEIRA DE
		MEIOS DE PAGAMENTO		Brazil		BRL			30,281				15,576				—				—				—				45,857				30,281				15,576				—				—				—				45,857			Monthly			4.23				4.23
		Total							61,566				137,240				508,657				149,520				1,090,885				1,947,868				76,556				146,269				513,245				154,103				1,093,406				1,983,579
		Total consolidated							579,474				768,022				2,648,500				1,483,758				3,366,750				8,846,504				620,330				777,052				2,575,299				1,453,411				3,331,975				8,758,067

 

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Table of Contents

Interest-bearing loans due in installments to December 31, 2013

Debtor: LATAM Airlines Group S.A. and Subsidiaries, Tax No. 89.862.200-2, Chile.

 

								Nominal values																								Accounting values
Tax No.		Creditor		Creditor country		Currency		Up to 90 days				More than 90 days to one year				More than one to three years				More than three to five years				More than five years				Total nominal value				Up to 90 days				More than 90 days to one year				More than one to three years				More than three to five years				More than five years				Total accounting value				Amortization		Effective rate				Nominal rate
								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Loans to exporters
97.032.000-8		BBVA		Chile		US$			—				30,000				—				—				—				30,000				—				30,022				—				—				—				30,022			At expiration			1.00				1.00
97.036.000-K		SANTANDER		Chile		US$			230,000				—				—				—				—				230,000				230,819				—				—				—				—				230,819			At expiration			1.63				1.63
97.030.000-7		ESTADO		Chile		US$			—				40,000				—				—				—				40,000				—				40,023				—				—				—				40,023			At expiration			1.06				1.06
76.100.458-1		BLADEX		Chile		US$			100,000				—				—				—				—				100,000				100,399				—				—				—				—				100,399			At expiration			1.87				1.87
Bank loans
97.036.000-K		SANTANDER		Chile		US$			—				—				115,051				—				—				115,051				153				—				115,051				—				—				115,204			At expiration			3.19				3.19
97.023.000-9		CORPBANCA		Chile		UF			15,590				46,772				124,724				81,374				—				268,460				17,475				46,771				122,780				80,528				—				267,554			Quarterly			4.85				4.85
0-E		CITIBANK		Argentina		ARS			—				15,335				—				—				—				15,335				35				15,335				—				—				—				15,370			Monthly			20.75				20.75
0-E		BBVA		Argentina		ARS			—				27,603				—				—				—				27,603				362				27,603				—				—				—				27,965			Monthly			23.78				23.78
Guaranteed obligations
0-E		ING		U.S.A.		US$			2,865				8,808				25,172				27,867				26,831				91,543				3,635				8,807				24,144				27,437				26,682				90,705			Quarterly			5.69				5.01
0-E		CREDIT AGRICOLE		France		US$			12,920				34,713				82,646				10,033				—				140,312				13,209				34,713				82,646				10,033				—				140,601			Quarterly			1.99				1.99
0-E		PEFCO		U.S.A.		US$			2,219				6,745				—				—				—				8,964				2,239				6,746				(19	)			—				—				8,966			Quarterly			3.06				2.73
0-E		BNP PARIBAS		U.S.A.		US$			8,875				27,256				76,985				83,871				221,267				418,254				10,356				27,256				75,420				83,243				221,031				417,306			Quarterly			2.45				2.31
0-E		WELLS FARGO		U.S.A.		US$			46,007				139,012				378,314				389,759				1,146,684				2,099,776				52,722				139,012				330,363				365,871				1,115,366				2,003,334			Quarterly			2.47				1.76
0-E		CITIBANK		U.S.A.		US$			9,607				29,315				81,681				87,189				164,399				372,191				10,850				29,315				76,583				84,847				162,473				364,068			Quarterly			2.64				2.04
97.036.000-K		SANTANDER		Chile		US$			5,021				15,237				41,767				43,552				95,022				200,599				5,347				15,238				38,966				42,256				93,880				195,687			Quarterly			1.32				0.78
0-E		BTMU		U.S.A.		US$			2,579				7,846				21,655				22,801				63,189				118,070				2,784				7,846				19,797				21,891				62,166				114,484			Quarterly			1.64				1.04
0-E		APPLE BANK		U.S.A.		US$			1,264				3,848				10,636				11,210				31,544				58,502				1,431				3,848				9,716				10,758				31,027				56,780			Quarterly			1.63				1.04
0-E		US BANK		U.S.A.		US$			13,840				41,995				115,549				120,924				411,684				703,992				17,106				41,995				93,083				109,417				395,163				656,764			Quarterly			2.81				2.81
0-E		DEUTSCHE BANK		U.S.A.		US$			4,348				13,408				38,018				32,448				84,814				173,036				5,053				13,408				38,017				32,449				84,814				173,741			Quarterly			3.27				3.27
—		SWAP Aircraft arrivals		—		US$			681				1,915				4,104				2,521				765				9,986				681				1,915				4,104				2,521				765				9,986			Quarterly			—				—
Other guaranteed obligations
0-E		DVB BANK SE		U.S.A.		US$			7,703				23,342				64,247				—				—				95,292				7,766				23,343				64,247				—				—				95,356			Quarterly			1.99				1.99
Financial leases
0-E		ING		U.S.A.		US$			4,523				13,896				37,656				9,001				—				65,076				4,964				13,896				37,395				8,971				—				65,226			Quarterly			3.23				3.03
0-E		CREDIT AGRICOLE		France		US$			4,808				13,833				63,715				7,158				—				89,514				4,952				13,834				63,715				7,157				—				89,658			Quarterly			1.21				1.21
0-E		CITIBANK		U.S.A.		US$			1,430				4,414				12,707				14,254				7,759				40,564				1,651				4,413				12,254				14,089				7,731				40,138			Quarterly			6.38				5.65
0-E		PEFCO		U.S.A.		US$			13,867				42,702				121,395				108,403				22,407				308,774				15,884				42,702				118,027				107,595				22,324				306,532			Quarterly			5.35				4.23
0-E		BNP PARIBAS		U.S.A.		US$			6,443				19,839				56,989				56,934				7,129				147,334				6,908				19,839				55,403				56,567				7,109				145,826			Quarterly			4.65				4.15
0-E		BANC OF AMERICA		U.S.A.		US$			616				1,891				5,392				—				—				7,899				647				1,891				5,392				—				—				7,930			Monthly			1.43				1.43
Other loans
0-E		BOEING		U.S.A.		US$			—				—				170,838				—				—				170,838				—				1,650				170,838				—				—				172,488			At expiration			1.75				1.75
0-E		CITIBANK (*)		U.S.A.		US$			—				—				79,611				174,178				196,211				450,000				4,050				—				79,611				174,178				196,211				454,050			Quarterly			6.00				6.00
		Total							495,206				609,725				1,728,852				1,283,477				2,479,705				6,596,965				521,478				611,421				1,637,533				1,239,808				2,426,742				6,436,982

 

(*)	Securitized bond with the future flows from the sales with credit card in United States and Canada.

 

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Interest-bearing loans due in installments to December 31, 2013

Debtor: TAM S.A. and Subsidiaries, Tax No. 02.012.862/0001-60, Brazil.

 

								Nominal values																								Accounting values
Tax No.		Creditor		Creditor country		Currency		Up to 90 days				More than 90 days to one year				More than one to three years				More than three to five years				More than five years				Total nominal value				Up to 90 days				More than 90 days to one year				More than one to three years				More than three to five years				More than five years				Total accounting value				Amortization				Effective rate				Nominal rate
								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$								%				%
Bank loans
0-E		CITIBANK		Brazil		US$			2,207				41,678				—				—				—				43,885				2,306				42,413				—				—				—				44,719				At Expiration				3.76				3.20
0-E		BANCO DO Brazil S.A.		Brazil		US$			9,050				128,799				—				—				—				137,849				9,410				130,742				—				—				—				140,152				At Expiration				5.20				4.66
0-E		BANCO ITAU BBA		Brazil		US$			26,611				47,219				—				—				—				73,830				27,804				48,424				—				—				—				76,228				At Expiration				6.31				4.73
0-E		BANCO SAFRA		Brazil		US$			40,626				21,731				—				—				—				62,357				41,768				22,213				—				—				—				63,981				At Expiration				3.73				2.94
0-E		BANCO SAFRA		Brazil		BRL			193				443				48				—				—				684				187				431				51				—				—				669				Monthly				7.42				7.42
0-E		BANCO BRADESCO		Brazil		US$			74,700				47,641				—				—				—				122,341				77,218				48,828				—				—				—				126,046				At Expiration				3.87				3.29
0-E		BANCO BRADESCO		Brazil		BRL			—				42,688				—				—				—				42,688				—				42,701				—				—				—				42,701				At Expiration				10.63				10.15
0-E		NEDERLANDSCHE
		CREDIETVERZEKERING MAATSCHAPPIJ		Holland		US$			102				316				915				1,031				1,851				4,215				123				316				915				1,031				1,851				4,236				Monthly				6.01				6.01
Obligation with the public
0-E		THE BANK OF NEW YORK		U.S.A.		US$			—				—				—				300,000				800,000				1,100,000				19,760				2,001				5,343				305,554				805,774				1,138,432				At Expiration				8.60				8.41
Financial leases
0-E		AFS INVESTMENT IX LLC		U.S.A.		US$			1,762				5,438				15,673				17,540				17,908				58,321				2,036				5,437				15,673				17,541				17,908				58,595				Monthly				1.25				1.25
0-E		AIR CANADA		U.S.A.		US$			1,325				1,645				—				—				—				2,970				1,325				1,645				—				—				—				2,970				Monthly				—				—
0-E		AIRBUS FINANCIAL		U.S.A.		US$			3,020				9,311				26,792				20,813				15,416				75,352				3,156				9,311				26,792				20,812				15,417				75,488				Monthly				1.42				1.42
0-E		AWAS		U.S.A.		US$			2,992				2,659				—				—				—				5,651				3,656				2,659				—				—				—				6,315				Monthly				—				—
0-E		BNP PARIBAS		U.S.A.		US$			580				1,810				5,262				5,982				8,448				22,082				651				1,810				5,262				5,982				8,448				22,153				Quarterly				1.00				1.00
0-E		BNP PARIBAS		France		US$			578				1,758				4,959				5,371				9,693				22,359				652				1,758				4,959				5,371				9,693				22,433				Quarterly				0.86				0.75
0-E		CITIBANK		England		US$			5,983				18,179				44,318				47,123				106,987				222,590				6,401				18,179				44,318				47,123				106,987				223,008				Quarterly				1.03				0.90
0-E		CREDIT AGRICOLE-CIB		U.S.A.		US$			4,258				12,917				55,573				11,431				13,766				97,945				4,516				12,917				55,573				11,431				13,766				98,203				Quarterly				1.40				1.40
0-E		CREDIT AGRICOLE -CIB		France		US$			7,911				25,433				58,866				50,469				52,717				195,396				8,334				25,433				58,866				50,469				52,717				195,819				Quarterly/ Semiannual				0.75				0.65
0-E		DVB BANK SE		Germany		US$			3,125				9,375				12,500				—				—				25,000				3,195				9,375				12,500				—				—				25,070				Quarterly				2.50				2.50
0-E		DVB BANK SE		U.S.A.		US$			197				590				1,210				282				—				2,279				201				590				1,210				282				—				2,283				Monthly				1.75				1.75
0-E		GENERAL ELECTRIC CAPITAL CORPORATION		U.S.A.		US$			3,430				48,548				—				—				—				51,978				3,501				48,548				—				—				—				52,049				Monthly				1.25				1.25
0-E		HSBC		France		US$			1,307				3,983				10,976				11,533				36,497				64,296				1,436				3,983				10,976				11,533				36,497				64,425				Quarterly				1.45				1.25
0-E		KFW IPEX-BANK		Germany		US$			3,877				11,869				28,660				20,499				17,813				82,718				4,027				11,869				28,660				20,500				17,813				82,869				Monthly/ Quarterly				1.74				1.74
0-E		NATIXIS		France		US$			6,009				16,490				49,293				55,352				118,984				246,128				7,586				16,490				49,293				55,352				118,984				247,705				Quarterly/ Semiannual				2.81				2.78
0-E		PK AIRFINANCE US, INC.		U.S.A.		US$			2,780				8,610				40,227				17,171				37,615				106,403				2,964				8,611				40,227				17,171				37,615				106,588				Monthly				1.71				1.71
0-E		WACAPOU LEASING S.A.		Luxemburg		US$			453				1,303				3,097				2,617				14,267				21,737				498				1,303				3,097				2,617				14,267				21,782				Quarterly				2.00				2.00
0-E		WELLS FARGO BANK NORTHWEST N.A.		U.S.A.		US$			1,769				1,425				—				—				—				3,194				1,773				1,425				—				—				—				3,198				Monthly				1.25				1.25
0-E		SOCIÉTÉ GÉNÉRALE MILAN BRANCH		Italy		US$			11,772				35,604				87,655				96,473				102,591				334,095				12,694				35,604				87,655				96,473				102,591				335,017				Quarterly				3.86				3.78
0-E		THE TORONTO- DOMINION BANK		U.S.A.		US$			515				1,566				4,297				4,485				6,531				17,394				541				1,566				4,297				4,485				6,531				17,420				Quarterly				0.57				0.57
0-E		BANCO DE LAGE LANDEN BRASIL S.A		Brazil		BRL			239				724				—				—				—				963				222				674				—				—				—				896				Monthly				10.38				10.38
0-E		BANCO IBM S.A		Brazil		BRL			134				192				511				213				—				1,050				153				192				511				213				—				1,069				Monthly				10.58				10.58
0-E		HP FINANCIAL SERVICE		Brazil		BRL			287				746				2,218				308				—				3,559				285				745				2,220				308				—				3,558				Monthly				9.90				9.90
0-E		SOCIETE AIR FRANCE		France		EUR			69				1,310				—				—				—				1,379				824				1,205				—				—				—				2,029				Monthly				6.82				6.82
Other loans
0-E		COMPANHIA BRASILEIRA DE
		MEIOS DE PAGAMENTO		Brazil		BRL			27,244				537				—				—				—				27,781				27,244				537				—				—				—				27,781				Monthly				2.38				2.38
		Total							245,105				552,537				453,050				668,693				1,361,084				3,280,469				276,447				559,935				458,398				674,248				1,366,859				3,335,887
		Total consolidated							740,311				1,162,262				2,181,902				1,952,170				3,840,789				9,877,434				797,925				1,171,356				2,095,931				1,914,056				3,793,601				9,772,869

 

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(b)	Derivatives not recognized as a hedge

 

		Current liabilities								Non-current liabilities								Total derivative not recognized as a hedge
		As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Interest rate derivative not recognized as a hedge			1,190				4,040				—				1,491				1,190				5,531
Total derivatives not recognized as a hedge			1,190				4,040				—				1,491				1,190				5,531

 

(c)	Hedge derivatives

 

		Current liabilities								Non-current liabilities								Total hedge derivatives
		As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Accrued interest from the last date of interest rate swap			5,173				5,775				—				—				5,173				5,775
Fair value of interest rate derivatives			26,395				32,070				28,327				54,906				54,722				86,976
Fair value of fuel derivatives			157,233				—				—				—				157,233				—
Fair value of foreign currency derivatives			37,242				28,621				—				—				37,242				28,621
Total hedge derivatives			226,043				66,466				28,327				54,906				254,370				121,372

The foreign currency derivatives exchanges are FX forward and cross currency swap.

Hedging operation

The fair values of assets/ (liabilities), by type of derivative, of the contracts held as hedging instruments are presented below:

 

		As of				As of
		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Cross currency swaps (CCS) (1)			(38,802	)			(26,028	)
Interest rate options (2)			1				6
Interest rate swaps (3)			(58,758	)			(92,088	)
Fuel collars (4)			(32,772	)			1,878
Fuel swap (5)			(122,678	)			13,990
Currency forward R$/US$ (6)			—				32,058
Currency forward CLP/US$ (7)			—				(1,121	)
Currency collars (8)			—				(1,652	)

 

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(1)	Covers the significant variations in cash flows associated with market risk implicit in the changes in the 3-month LIBOR interest rate and the exchange rate dollar-UF of bank loans. These contracts are recorded as cash flow hedges and fair value.

(2)	Covers the significant variations in cash flows associated with market risk implicit in the changes in the 3-month LIBOR interest rate for long-term loans incurred in the acquisition of aircraft. These contracts are recorded as cash flow hedges.

(3)	Covers the significant variations in cash flows associated with market risk implicit in the increases in the 3 months LIBOR interest rates for long-term loans incurred in the acquisition of aircraft and bank loans. These contracts are recorded as cash flow hedges.

(4)	Covers significant variations in cash flows associated with market risk implicit in the changes in the price of future fuel purchases. These contracts are recorded as cash flow hedges.

(5)	Covers the significant variations in cash flows associated with market risk implicit in the changes in the price of future fuel purchases. These contracts are recorded as cash flow hedges.

(6)	Covers the foreign exchange risk exposure of operating cash flows caused mainly by fluctuations in the exchange rate R$/US$. These contracts are recorded as cash flow hedges.

(7)	Covers the investments denominated in Chilean pesos to Dollar- Chilean peso exchange rate, in order to secure investment in Dollars. These contracts are recorded as cash flow hedges.

(8)	Covers the foreign exchange risk exposure of Multiplus income caused by fluctuations in the exchange rate R$/US$.

During the periods presented, the Company only maintains cash flow hedges and fair value (in the case of CCS). In the case of fuel hedges, the cash flows subject to such hedges will impact results in the next 12 months from the consolidated statement of financial position date, meanwhile in the case of interest rate hedging, the hedges will impact results over the life of the related loans, which are valid for 12 years. The hedges on investments will impact results continuously throughout the life of the investment, while the cash flows occur at the maturity of the investment. In the case of currency hedges through a CCS, are generated two types of hedge accounting, a cash flow component by UF, and other fair value by US$ floating rate component.

During the periods presented, there have not occurred hedging operations of future highly probable transaction that have not been realized.

Since none of the coverage resulted in the recognition of a non-financial asset, no portion of the result of the derivatives recognized in equity was transferred to the initial value of such assets.

The amounts recognized in comprehensive income during the period and transferred from net equity to income are as follows:

 

		For the periods ended December 31,
		2014				2013
		ThUS$				ThUS$
Debit (credit) recognized in comprehensive income during the period			(163,993	)			128,166
Debit (credit) transferred from net equity to income during the period			(151,520	)			(18,688	)

 

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NOTE 19 - TRADE AND OTHER ACCOUNTS PAYABLES

The composition of Trade and other accounts payables is as follows:

 

		As of				As of
		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Current
(a) Trade and other accounts payables			1,196,123				1,264,395
(b) Accrued liabilities at the reporting date			293,273				293,341
Total trade and other accounts payables			1,489,396				1,557,736

 

(a)	Trade and other accounts payable:

 

		As of				As of
		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Trade creditors			924,105				969,260
Leasing obligation			37,322				44,756
Other accounts payable (*)			234,696				250,379
Total			1,196,123				1,264,395

 

(*)	Include agreement entitled “Plea Agreement” with the Department of Justice of the United States of America. See detail in Note 20.

 

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The details of Trade and other accounts payables are as follows:

 

		As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS$
Aircraft Fuel			290,109				302,419
Boarding Fee			193,263				217,389
Other personnel expenses			114,245				117,418
Airport charges and overflight			102,111				98,560
Professional services and advisory			65,445				63,082
Suppliers’ technical purchases			64,799				67,995
Handling and ground handling			55,503				48,797
Marketing			54,885				50,009
Land services			47,103				47,046
Aircraft and engines leasing			37,322				44,756
Leases, maintenance and IT services			34,029				46,163
Services on board			24,642				29,940
Maintenance			14,757				15,793
Crew			12,403				14,040
Achievement of goals			12,197				9,806
Communications			6,447				4,578
Aviation insurance			4,749				10,665
Distribution sistem			3,293				3,103
Airlines			908				5,054
Tax recovery program (*)			—				14,569
U.S.A. Department of Justice (**)			—				18,290
Others			57,913				34,923
Total trade and other accounts payables			1,196,123				1,264,395

 

(*)	Fiscal Recovery Program in Brazil (REFIS), established in Law No. 11.941/09 and Provisional Measure No. 449/2009. REFIS is intended to allow the settlement of tax debts through a special mechanism to pay and refinance (See Note 17(b)).

(**)	Include agreement entitled “Plea Agreement” with the Department of Justice of the United States of America. See detail in Note 20.

 

(b)	Liabilities accrued:

 

		As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS$
Accrued personnel expenses			130,382				151,586
Aircraft and engine maintenance			121,946				3,741
Accounts payable to personnel (*)			16,407				110,147
Others accrued liabilities			24,538				27,867
Total accrued liabilities			293,273				293,341

 

(*)	Profits and bonds participation (Note 22 letter b)

 

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NOTE 20 - OTHER PROVISIONS

The detail of Other provisions as of December 31, 2014 and December 31, 2013 is as follows:

 

		Current liabilities								Non-current liabilities								Total Liabilities
		As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Provision for contingencies (1)
Tax contingencies			320				7,092				607,371				968,211				607,691				975,303
Civil contingencies			11,870				13,430				47,355				50,022				59,225				63,452
Labor contingencies			221				7,334				23,064				64,895				23,285				72,229
Other			—				—				15,351				27,770				15,351				27,770
Provision for European Commision investigation (2)			—				—				9,999				11,349				9,999				11,349
Total other provisions (3)			12,411				27,856				703,140				1,122,247				715,551				1,150,103

 

(1)	Provisions for contingencies:

The tax contingencies correspond to litigation and tax criteria related to the tax treatment applicable to direct and indirect taxes, which are found in both administrative and judicial stage.

The civil contingencies correspond to different demands of civil order filed against the company.

The labor contingencies correspond to different demands of labor order filed against the company.

The Provisions are recognized in the consolidated income statement in administrative expenses or tax expenses, as appropriate.

 

(2)	Provision made for proceedings brought by the European Commission for possible breaches of free competition in the freight market.

(3)

Total other provision at December 31, 2014, and at December 31, 2013, include the fair value correspond to those contingencies from the business combination with TAM S.A and subsidiaries, with a probability of loss under 50%, which are not provided for the normal application of IFRS enforcement and that only must be recognized in the context of a business combination in accordance with IFRS 3.

 

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Movement of provisions:

 

						European
		Legal				Commission
		claims				Investigation(*)				Total
		ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2013			1,355,581				10,865				1,366,446
Increase in provisions			65,107				—				65,107
Provision used			(57,192	)			—				(57,192	)
Difference by subsidiaries conversion			(170,452	)			—				(170,452	)
Reversal of provision			(53,459	)			—				(53,459	)
Exchange difference			(831	)			484				(347	)
Closing balance as of December 31, 2013			1,138,754				11,349				1,150,103
Opening balance as of January 1, 2014			1,138,754				11,349				1,150,103
Increase in provisions			42,792				—				42,792
Provision used			(27,597	)			—				(27,597	)
Difference by subsidiaries conversion			(132,092	)			—				(132,092	)
Reversal of provision			(315,288	)			—				(315,288	)
Exchange difference			(1,017	)			(1,350	)			(2,367	)
Closing balance as of December 31, 2014			705,552				9,999				715,551

Accumulated balance includes the judicial deposit in guarantee, related to the “Fundo Aeroviário” (FA), in the amount of US$ 90 million, was done in order to suspend the enforceability of the tax credit. The company is discussing over the Tribunal the constitutionality of the requirement made by FA in a legal suit. Initially it was covered by the effects of a provisional remedy, meaning that, the company was not obligated to collect the tax while there was not a judicial decision in this regard. However, the decision taken by a judge in the first instance was publicized in an unfavorable way, revoking the provisional remedy relief. As the legal suit is still in progress (TAM appealed from this first decision), the company needed to do the deposit judicial in guarantee to suspend the enforceability of such tax credit; deposit classified in this category deducting the existing provision. Finally, if the final decision is favorable to the company, the deposit already made is going to come back to TAM. On the other hand, if the tribunal confirms the first decision, such deposit will be converted in a definitive payment in favor of the Brazilian Government. The procedural stage at December 31, 2014 is disclosed in Note 30, at case No. 2001.51.01.012530-3.

 

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(*)	European Commission Provision:

(a)

This provision was established because of the investigation brought by the Directorate General for Competition of the European Commission against more than 25 cargo airlines, including Lan Cargo S.A., as part of a global investigation begun in 2006 regarding possible unfair competition on the air cargo market. This was a joint investigation by the European and U.S.A. authorities. The start of the investigation was disclosed through an Essential Matter report dated December 27, 2007. The U.S.A. portion of the global investigation concluded when Lan Cargo S.A. and its subsidiary, Aerolíneas Brasileiras S.A. (“ABSA”) signed a Plea Agreement with the U.S.A. Department of Justice, as disclosed in an Essential Matter report notice on January 21, 2009.

(b)

A Essential Matter report dated November 9, 2010, reported that the General Direction of Competition had issued its decision on this case (the “decision”), under which it imposed fines totaling € 799,445,000 (seven hundred and ninety nine million four hundred and forty-five thousand Euros) for infringement of European Union regulations on free competition against eleven (11) airlines, among which are LATAM Airlines Group S.A. and Lan Cargo S.A., Air Canada, Air France, KLM, British Airways, Cargolux, Cathay Pacific, Japan Airlines, Qantas Airways, S.A.S. and Singapore Airlines.

(c)

Jointly, LATAM Airlines Group S.A. and Lan Cargo S.A., have been fined in the amount of € 8,220,000 (eight million two hundred twenty thousand Euros) for said infractions, which was provisioned in the financial statements of LATAM Airlines Group S.A.. This is a minor fine in comparison to the original decision, as there was a significant reduction in fine because LATAM Airlines Group S.A. cooperated during the investigation.

(d)

On January 24, 2011, LATAM Airlines Group S.A. and Lan Cargo S.A. appealed the decision before the Court of Justice of the European Union. The procedural stage at December 31, 2014 is disclosed in Note 30, in (ii) lawsuits received by Latam Airlines Group S.A. and Subsidiaries in European Commission Court.

 

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NOTE 21 - OTHER NON-FINANCIAL LIABILITIES

 

		Current liabilities								Non-current liabilities								Total Liabilities
		As of				As of				As of				As of				As of				As of
		2014				2013				2014				2013				2014				2013
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Deferred revenues (*)			2,565,391				2,739,125				355,353				77,513				2,920,744				2,816,638
Sales tax			38,160				52,576				—				—				38,160				52,576
Retentions			52,567				49,355				—				—				52,567				49,355
Others taxes			18,880				12,294				—				—				18,880				12,294
Other sundry liabilities			10,388				18,290				48				54				10,436				18,344
Total other non-financial liabilities			2,685,386				2,871,640				355,401				77,567				3,040,787				2,949,207

 

(*)	Note 2.20.

The balance comprises, mainly, deferred income by services not yet rendered and programs such as: LANPASS, TAM Fidelidade y Multiplus:

LANPASS is the frequent flyer program created by LAN to reward the preference and loyalty its customers with many benefits and privileges, by the accumulation of kilometers that can be exchanged for free flying tickets or a wide range of products and services. Customers accumulate LANPASS kilometers every time they fly with LAN, TAM, in companies oneworld^® members and other airlines associated with the program, as well as buy on the stores or use the services of a vast network of companies that have an agreement with the program around the world.

For its part, TAM, thinking on frequent flyer who travel constantly, created the program TAM Fidelidade, in order to improve the passenger attention and give recognition to those who choose the company. By using this program, customers accumulate points in a variety of programs loyalty in a single account and can redeem them at all TAM destinations and related airline companies, and even more, participate in the Red Multiplus Fidelidade.

Multiplus is a coalition of loyalty program, with the aim of operate accumulation activities and redemption of points. This program has an integrated network by associates including hotels, financial institutions, retail companies, supermarkets, vehicle rentals and magazines, among many other partners from different segments.

 

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NOTE 22 - EMPLOYEE BENEFITS

 

		As of				As of
		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Retirements payments			36,523				9,639
Resignation payments			5,556				493
Other obligations			32,023				35,534
Total liability for employee benefits			74,102				45,666

 

(a)	The movement in retirements and resignation payments and other obligations:

 

						Increase (decrease)
		Opening				current service				Benefits				Change				Closing
		balance				provision				paid				of model				balance
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to December 31, 2013			38,095				9,866				(2,295	)			—				45,666
From January 1 to December 31, 2014			45,666				1,507				(2,466	)			29,395				74,102

 

(b)	The liability for short-term:

 

		As of				As of
		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Profit-sharing and bonuses (*)			16,407				110,147

 

(*)	Accounts payables to employees (Note 19 letter b)

The participation in profits and bonuses correspond to an annual incentives plan for achievement of objectives.

 

(c)	Employment expenses are detailed below:

 

		For the periods ended
		December 31,
		2014				2013
		ThUS$				ThUS$
Salaries and wages			1,656,565				1,720,513
Short-term employee benefits			361,328				452,158
Termination benefits			84,179				67,508
Other personnel expenses			248,030				252,590
Total			2,350,102				2,492,769

 

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NOTE 23 - ACCOUNTS PAYABLE, NON-CURRENT

 

		As of				As of
		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Aircraft and engine maintenance			506,312				663,837
Tax recovery program (*)			—				176,666
Fleet financing (JOL)			59,148				57,997
Provision for vacations and bonuses			9,595				9,879
Other accounts payable			1,945				2,654
Other sundry liabilities			454				11,854
			577,454				922,887

 

(*)	Fiscal Recovery Program in Brazil (REFIS), established in Law No. 11.941/09 and Provisional Measure No. 449/2009. REFIS is intended to allow the settlement of tax debts through a special mechanism to pay and refinance (See Note 17(b)).

NOTE 24 - EQUITY

 

(a)

Capital

The Company’s objective is to maintain an appropriate level of capitalization that enables it to ensure access to the financial markets for carrying out its medium and long-term objectives, optimizing the return for its shareholders and maintaining a solid financial position.

The Capital of the Company is managed and composed in the following form:

The capital of the Company at December 31, 2014 amounts to ThUS$ 2,545,705 divided into 545,547,819 common stock of a same series (ThUS$ 2,389,384, divided into 535,243,229 shares as of December 31, 2013), no par value. There are no special series of shares and no privileges. The form of its stock certificates and their issuance, exchange, disablement, loss, replacement and other similar circumstances, as well as the transfer of the shares, is governed by the provisions of Corporations Law and its regulations.

 

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(b)	Subscribed and paid shares

The following table shows the movement of the authorized and fully paid shares described above:

Movement of authorized shares

 

		Nro. Of shares
Autorized shares as of January 1, 2013			488,355,791
Increase capital approved at Extraordinary Shareholders meeting dated June 11, 2013			63,500,000
Full right decrease of treasury stock			(7,972	)
Authorized shares as of December 31, 2013			551,847,819
Autorized shares as of January 1, 2014			551,847,819
No movement of autorized shares at December 31, 2014			—
Authorized shares as of December 31, 2014			551,847,819

Movement fully paid shares

 

		N° of shares				Movement value of shares (1) ThUS$				Cost of issuance and placement of shares (2) ThUS$				Paid- in Capital ThUS$
Paid shares as of January 1, 2013			479,098,052				1,507,200				(6,182	)			1,501,018
Placement of the remaining preferential shares issued for merger Companies Sister Holdco S.A. y Holdco II S.A.			4,457,739				104,351				—				104,351
Preferential placement capital increase approved at Extraordinary Shareholders meeting dated June 11, 2013			51,695,410				784,219				—				784,219
Full right decrease of treasury stock			(7,972	)			(25	)			—				(25	)
Capitalization of reserves			—				—				(179	)			(179	)
Paid shares as of December 31, 2013			535,243,229				2,395,745				(6,361	)			2,389,384
Paid shares as of January 1, 2014			535,243,229				2,395,745				(6,361	)			2,389,384
Preferential placement capital increase approved at Extraordinary Shareholders meeting dated June 11, 2013			10,304,590				156,321				—				156,321
Paid shares as of December 31, 2014			545,547,819	(3)			2,552,066				(6,361	)			2,545,705

 

(1)	Amounts reported represent only those arising from the payment of the shares subscribed.

(2)	Decrease of capital by capitalization of reserves for cost of issuance and placement of shares established according to Extraordinary Shareholder’s Meetings, where such decreases were authorized.

 

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(3)	At December 31, 2014, the difference between authorized shares and fully paid shares are 6,300,000 shares allocated to compensation plans for executives of LATAM Airlines Group S.A. and subsidiaries (see Note 33(a)).

 

(c)	Treasury stock

At December 31, 2014, the Company held no treasury stock, the remaining of ThUS$ (178) corresponds to the difference between the amount paid for the shares and their book value, at the time of the full right decrease of the shares.

At December 31, 2013, as per minutes of the Extraordinary Shareholder´s Meeting held on June 11, 2013, the company relinquished all right to 7,972 stocks of its portfolio, this date the Company does not maintain treasury stock.

 

(d)	Reserve of share- based payments

Movement of Reserves of share- based payments:

 

Periods		Opening balance				Stock option plan				Deferred tax				Deferred tax by tax effect of change in legal rate (Tax reform) (*)				Closing balance
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to December 31, 2013			5,574				18,877				(3,440	)			—				21,011
From January 1 to December 31, 2014			21,011				14,728				(3,389	)			(2,708	)			29,642

 

(*)

On September 29, 2014, Law No. 20,780 “Amendment to the system of income taxation and introduces various adjustments in the tax system.” was published in the Official Journal of the Republic of Chile. Within major tax reforms that law contains is modified gradually from 2014 to 2018 the First- Category Tax rate to be declared and paid starting in tax year 2015.

The effect on deferred tax calculated on the reserves of share- based payments by modifying the tax rate mentioned above, was a charge to equity of ThUS $ 2,708.

These reserves are related to the “Share-based payments” explained in Note 33.

 

(e)	Other sundry reserves

 

Movement

of Other sundry reserves:

 

Periodos		Opening balance				Transactions with non-controlling interest				Cost of issuance and placement of shares				Capitalization share issuance and placement cost				Higer value for TAM S.A. share exchage				Legal reserves				Closing balance
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to December 31, 2013			2,666,682				(1,950	)			(5,443	) (1)			179	(2)			—				(1,668	)			2,657,800
From January 1 to December 31, 2014			2,657,800				(21,526	)			—				—				—				(526	)			2,635,748

 

(1)

The costs incurred through the issuance and placement to ThUS$ 5,264 and ThUS$ 179 corresponds to the capital increase authorized at the Extraordinary Meeting of Shareholders held on June 11, 2013 and the remaining 7,436,816 shares, not used in this exchange (business combination with TAM S.A. and subsidiaries), reallocated as agreed at the Extraordinary Shareholders’ Meeting held on September 4, 2012, respectively.

 

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(2)	The cost of ThUS$ 179 was capitalized during June 2013, according with minute of the Extraordinary Meeting of Shareholders held on June 11, 2013.

Balance of Other sundry reserves comprises the following:

 

		As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS$
Higher value for TAM S.A. share exchange (1)			2,665,692				2,665,692
Reserve for the adjustment to the value of fixed assets (2)			2,620				2,620
Transactions with non-controlling interest (3)			(25,891	)			(5,355	)
Cost of issuance and placement of shares			(5,264	)			(5,264	)
Others			(1,409	)			107
Total			2,635,748				2,657,800

 

(1)

Corresponds to the difference in the shares value of TAM S.A. acquired (under subscriptions) by Sister Holdco S.A. and Holdco II S.A. (under the Exchange Offer), as stipulated in the Declaration of Posting of Merger by Absorption and the fair value of these exchange shares of LATAM Airlines Group S.A. at June 22, 2012.

(2)	Corresponds to the technical revaluation of fixed assets authorized by the Superintendence of Securities and Insurance in 1979, in Circular No. 1,529. The revaluation was optional and could be taken only once, the reserve is not distributable and can only be capitalized.

(3)

The balance at December 31, 2014, correspond to the loss generated by the participation of Lan Pax Group S.A. in the acquisition of shares of Aerovías de Integración Regional Aires of ThUS$ (3,480), the acquisition of TAM S.A. of the minority holding of Aerolinhas Brasileiras S.A. of ThUS$ (885) and the acquisition of minority interest of Aerolane S.A. by Lan Pax group S.A. through Holdco Ecuador S.A. for US$ (21,526).

 

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(f)	Reserves with effect in other comprehensive income.

Movement of Reserves with effect in other comprehensive income:

 

		Currency translation reserve				Cash flow hedging reserve				Total
		ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2013			3,574				(140,730	)			(137,156	)
Derivatives valuation gains (losses)			—				124,227				124,227
Deferred tax			—				(18,005	)			(18,005	)
Difference by subsidiaries conversion			(593,565	)			—				(593,565	)
Closing balance as of December 31, 2013			(589,991	)			(34,508	)			(624,499	)
Opening balance as of January 1, 2014			(589,991	)			(34,508	)			(624,499	)
Derivatives valuation gains (losses)			—				(165,231	)			(165,231	)
Deferred tax			—				40,647				40,647
Tax effect on deferred tax by change legal tax rate (Tax reform)(*)			—				7,752				7,752
Difference by subsidiaries conversion			(603,880	)			—				(603,880	)
Closing balance as of December 31, 2014			(1,193,871	)			(151,340	)			(1,345,211	)

 

(*)

On September 29, 2014, Law No. 20,780 “Amendment to the system of income taxation and introduces various adjustments in the tax system.” was published in the Official Journal of the Republic of Chile. Within major tax reforms that law contains is modified gradually from 2014 to 2018 the First- Category Tax rate to be declared and paid starting in tax year 2015.

 

(f.1)

Currency translation reserve

These originate from exchange differences arising from the translation of any investment in foreign entities (or Chilean investment with a functional currency different to that of the parent), and from loans and other instruments in foreign currency designated as hedges for such investments. When the investment (all or part) is sold or disposed and loss of control occurs, these reserves are shown in the consolidated statement of income as part of the loss or gain on the sale or disposal. If the sale does not involve loss of control, these reserves are transferred to non-controlling interests.

 

(f.2)

Cash flow hedging reserve

These originate from the fair value valuation at the end of each period of the outstanding derivative contracts that have been defined as cash flow hedges. When these contracts expire, these reserves should be adjusted and the corresponding results recognized.

 

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(g)	Retained earnings

Movement of Retained earnings:

 

Periods		Opening balance				Result for the period				Other increase (decreases)				Deferred tax by tax effect of change in legal tax rate (Tax reform) (*)				Closing balance
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to December 31, 2013			1,076,136				(281,114	)			281				—				795,303
From January 1 to December 31, 2014			795,303				(109,790	)			872				(150,195	)			536,190

 

(*)	According to the instructions of Chilean Superintendency of Securities and Insurance in his Office Circular No. 856 of October 17, 2014, the Company recognized a loss on their retained earnings ThUS$ 150,210 as a result of the rate increase.

 

(h)	Dividends per share

As of December 31, 2013

 

Description of dividend		Final dividend 2012
Date of dividend			04-29-2013
Amount of the dividend (ThUS$)			3,288
Number of shares among which the dividend is distributed			483,547,819
Dividend per share (US$)			0.0068

The Company’s dividend policy is that dividends distributed will be equal to the minimum required by law, i.e. 30% of the net income according to current regulations. This policy does not preclude the Company from distributing dividends in excess of this obligatory minimum, based on the events and circumstances that may occur during the course of the year.

At December 31, 2014, have not been provisioned minimum mandatory dividends.

 

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NOTE 25 - REVENUE

The detail of revenues is as follows:

 

		For the periods ended December 31,
		2014				2013
		ThUS$				ThUS$
Passengers LAN			4,464,761				4,731,296
Passengers TAM			5,915,361				6,330,262
Cargo			1,713,379				1,862,979
Total			12,093,501				12,924,537

NOTE 26 - COSTS AND EXPENSES BY NATURE

 

(a)	Costs and operating expenses

The main operating costs and administrative expenses are detailed below:

 

		For the periods ended December 31,
		2014				2013
		ThUS$				ThUS$
Aircraft fuel			4,167,030				4,414,249
Other rentals and landing fees			1,327,238				1,373,061
Aircraft rentals			521,384				441,077
Aircraft maintenance			452,731				477,086
Comissions			365,508				408,671
Passenger services			300,325				331,405
Other operating expenses			1,487,672				1,644,827
Total			8,621,888				9,090,376

 

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(b)	Depreciation and amortization

Depreciation and amortization are detailed below:

 

		For the periods ended December 31,
		2014				2013
		ThUS$				ThUS$
Depreciation (*)			943,731				985,317
Amortization			47,533				56,416
Total			991,264				1,041,733

 

(*)	Include the depreciation of Property, plant and equipment and the maintenance cost of aircraft held under operating leases. The amount of maintenance cost included within the depreciation line item at December 31, 2014 is ThUS$ 373,183 (ThUS$ 396,974 at December 31, 2013).

 

(c)	Personnel expenses

The costs for personnel expenses are disclosed in Note 22 liability for employee benefits.

 

(d)	Financial costs

The detail of financial costs is as follows:

 

		For the periods ended December 31,
		2014				2013
		ThUS$				ThUS$
Bank loan interest			330,298				382,969
Financial leases			72,242				76,343
Other financial instruments			27,494				3,212
Total			430,034				462,524

Costs and expenses by nature presented in this note plus the Employee expenses disclosed in Note 22, are equivalent to the sum of cost of sales, distribution costs, administrative expenses, other expenses and financing costs presented in the consolidated statement of income by function.

 

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(e)	Restructuring Costs

As part of the ongoing process of review its fleet plan, the company decided to implement a broad restructuring plan in order to reduce the variety of aircraft currently in operation and gradually withdrawing the less efficient. According with this plan, during the first quarter of 2014 were formalized contracts and commitments having as a result a negative impact on the results of such period of US$ 112 million before tax that are associated with exit costs of seven A330, six A340, five B737, three Q400, five A319 and three B767-33A aircraft. These exit costs are associated with penalties related to early repayment and maintenance costs for returning.

NOTE 27 - OTHER INCOME, BY FUNCTION

Other income by function is as follows:

 

		For the periods ended December 31,
		2014				2013
		ThUS$				ThUS$
Tours			109,788				105,449
Aircraft leasing			31,104				36,614
Customs and warehousing			22,368				24,281
Duty free			18,076				14,748
Maintenance			15,421				12,392
Other miscellaneous income			180,888				148,081
Total			377,645				341,565

NOTE 28 - FOREIGN CURRENCY AND EXCHANGE RATE DIFFERENCES

The functional currency of LATAM Airlines Group S.A. is the US dollar, also it has subsidiaries whose functional currency is different to the US dollar, such as the Chilean peso, Argentine peso, Colombian peso and Brazilian real.

The functional currency is defined primarily as the currency of the primary economic environment in which an entity operates and in each entity and all other currencies are defined as foreign currency.

Considering the above, the balances by currency mentioned in this note correspond to the sum of foreign currency of each of the entities that make LATAM Airlines Group S.A. and Subsidiaries.

 

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(a)	Foreign currency

The foreign currency detail of balances of monetary items in current and non-current assets is as follows:

 

		As of				As of
Current assets		December 31, 2014				December 31, 2013
		ThUS$				ThUS$
Cash and cash equivalents			213,161				538,213
Argentine peso			22,121				41,092
Brazilian real			2,365				3,683
Chilean peso			30,453				229,913
Colombian peso			1,622				5,254
Euro			9,639				16,571
U.S. dollar			50,652				44,656
Strong bolivar			63,236				162,809
Other currency			33,073				34,235
Other financial assets, current			73,030				51,082
Argentine peso			40,939				885
Chilean peso			25,781				25,854
Colombian peso			—				2,039
Euro			1				6
U.S. dollar			6,008				22,035
Strong bolivar			43				14
Other currency			258				249

 

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		As of				As of
Current assets		December 31, 2014				December 31, 2013
		ThUS$				ThUS$
Other non—financial assets, current			59,700				56,218
Argentine peso			7,326				5,310
Brazilian real			148				846
Chilean peso			18,073				16,846
Colombian peso			1,415				1,011
Euro			2,523				3,052
U.S. dollar			5,751				2,221
Strong bolivar			330				102
Other currency			24,134				26,830
Trade and other accounts receivable, current			543,257				417,775
Argentine peso			61,291				11,387
Brazilian real			33,267				19,986
Chilean peso			128,780				80,461
Colombian peso			4,394				2,240
Euro			38,764				21,479
U.S. dollar			75,876				114,372
Strong bolivar			4,895				2,353
Other currency			195,990				165,497
Accounts receivable from related entities, current			299				466
Chilean peso			299				466
Tax current assets			21,605				14,836
Argentine peso			2,300				—
Brazilian real			2				—
Chilean peso			5,773				3,398
Colombian peso			1,995				787
Euro			21				35
U.S. dollar			467				515
Other currency			11,047				10,101
Total current assets			911,052				1,078,590
Argentine peso			133,977				58,674
Brazilian real			35,782				24,515
Chilean peso			209,159				356,938
Colombian peso			9,426				11,331
Euro			50,948				41,143
U.S. Dollar			138,754				183,799
Strong bolivar			68,504				165,278
Other currency			264,502				236,912

 

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		As of				As of
Non-current assets		December 31, 2014				December 31, 2013
		ThUS$				ThUS$
Other financial assets, non-current			36,715				49,786
Argentine peso			57				24
Brazilian real			1,050				597
Chilean peso			1,100				1,701
Colombian peso			203				254
Euro			4,243				5,488
U.S. dollar			29,238				40,894
Other currency			824				828
Other non—financial assets, non-current			18,803				18,006
Argentine peso			45				—
U.S. dollar			1				—
Other currency			18,757				18,006
Accounts receivable, non-current			10,569				13,429
Chilean peso			5,413				8,227
U.S. dollar			5,000				5,000
Other currency			156				202
Deferred tax assets			2,613				4,460
Colombian peso			256				—
U.S. dollar			3				2,056
Other currency			2,354				2,404
Total non-current assets			68,700				85,681
Argentine peso			102				24
Brazilian real			1,050				597
Chilean peso			6,513				9,928
Colombian peso			459				254
Euro			4,243				5,488
U.S. dollar			34,242				47,950
Other currency			22,091				21,440

 

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The foreign currency detail of balances of monetary items in current liabilities and non-current is as follows:

 

		Up to 90 days								91 days to 1 year
Current liabilities		As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS$				ThUS$				ThUS$
Other financial liabilities, current			71,436				303,626				173,416				561,428
Chilean peso			15,542				53,619				42,725				46,772
Euro			547				824				—				1,205
U.S. dollar			55,347				249,183				130,691				513,451
Trade and other accounts payables, current			421,188				679,769				20,875				20,676
Argentine peso			38,740				31,603				—				—
Brazilian real			14,330				9,671				13				8
Chilean peso			25,040				29,560				11,502				11,975
Colombian peso			13,652				14,445				187				422
Euro			35,937				19,373				8,266				3,316
U.S. dollar			175,298				433,377				827				4,902
Strong bolivar			5,261				4,024				—				—
Other currency			112,930				137,716				80				53
Accounts payable to related entities, current			35				318				—				—
Chilean peso			8				14				—				—
U.S. dollar			27				304				—				—
Tax liabilities, current			268				134				—				—
Chilean peso			268				4				—				—
Other currency			—				130				—				—

 

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		Up to 90 days								91 days to 1 year
Current liabilities		As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS$				ThUS$				ThUS$
Other non-financial liabilities, current			126,953				76,040				158				72
Argentine peso			5,698				10,710				—				—
Brazilian real			959				3,746				46				52
Chilean peso			18,798				37,227				—				19
Colombian peso			4,670				6,069				—				—
Euro			6,400				8,382				—				—
U.S. dollar			44,728				1,272				111				—
Strong bolivar			227				637				—				—
Other currency			45,473				7,997				1				1
Total current liabilities			619,880				1,059,887				194,449				582,176
Argentine peso			44,438				42,313				—				—
Brazilian real			15,289				13,417				59				60
Chilean peso			59,656				120,424				54,227				58,766
Colombian peso			18,322				20,514				187				422
Euro			42,884				28,579				8,266				4,521
U.S. dollar			275,400				684,136				131,629				518,353
Strong bolivar			5,488				4,661				—				—
Other currency			158,403				145,843				81				54

 

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		More than 1 to 3 years								More than 3 to 5 years								More than 5 years
Non-current liabilities		As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013				As of December 31, 2014				As of December 31, 2013
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Other financial liabilities, non-current			625,406				578,393				171,288				754,256				1,088,218				1,366,860
Chilean peso			112,161				122,780				17,186				80,528				—				—
U.S. dollar			513,245				455,613				154,102				673,728				1,088,218				1,366,860
Accounts payable, non-current			474,955				647,880				2,316				641				—				11
Chilean peso			4,938				7,187				2,316				641				—				11
U.S. dollar			468,184				639,204				—				—				—				—
Other currency			1,833				1,489				—				—				—				—
Other provisions, non-current			16,660				11,929				—				—				—				—
Argentine peso			454				410				—				—				—				—
Brazillian real			146				146				—				—				—				—
Chilean peso			36				—				—				—				—				—
Euro			9,999				11,349				—				—				—				—
U.S. dollar			6,025				24				—				—				—				—
Provisions for employees benefits, non-current			822				636				—				—				—				—
U.S. dollar			822				636				—				—				—				—
Total non-current liabilities			1,117,843				1,238,838				173,604				754,897				1,088,218				1,366,871
Argentine peso			454				410				—				—				—				—
Brazilian real			146				146				—				—				—				—
Chilean peso			117,135				129,967				19,502				81,169				—				11
Euro			9,999				11,349				—				—				—				—
U.S. dollar			988,276				1,095,477				154,102				673,728				1,088,218				1,366,860
Other currency			1,833				1,489				—				—				—				—

 

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		As of				As of
General summary of foreign currency:		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
Total assets			979,752				1,164,271
Argentine peso			134,079				58,698
Brazilian real			36,832				25,112
Chilean peso			215,672				366,866
Colombian peso			9,885				11,585
Euro			55,191				46,631
U.S. dollar			172,996				231,749
Strong bolivar			68,504				165,278
Other currency			286,593				258,352
Total liabilities			3,193,994				5,002,669
Argentine peso			44,892				42,723
Brazilian real			15,494				13,623
Chilean peso			250,520				390,337
Colombian peso			18,509				20,936
Euro			61,149				44,449
U.S. dollar			2,637,625				4,338,554
Strong bolivar			5,488				4,661
Other currency			160,317				147,386
Net position
Argentine peso			89,187				15,975
Brazilian real			21,338				11,489
Chilean peso			(34,848	)			(23,471	)
Colombian peso			(8,624	)			(9,351	)
Euro			(5,958	)			2,182
U.S. dollar			(2,464,629	)			(4,106,805	)
Strong bolivar			63,016				160,617
Other currency			126,276				110,966

 

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(b)	Exchange differences

Exchange differences recognized in the income statement, except for financial instruments measured at fair value through profit or loss, for the period ended December 31, 2014 and 2013, generated a debit of ThUS$ 130,201 and ThUS$ 482,174, respectively.

Exchange differences recognized in equity as reserves for currency translation differences for the period ended December 31, 2014 and 2013, represented a debit of ThUS$ 650,439 and ThUS$ 629,858, respectively.

The following shows the current exchange rates for the U.S. dollar, on the dates indicated:

 

		As of				As of
		December 31,				December 31,
		2014				2013
Argentine peso			8.55				6.52
Brazilian real			2.66				2.36
Chilean peso			606.75				524.61
Colombian peso			2,839.50				1,925.52
Euro			0.82				0.72
Strong bolivar			12.00				6.30
Australian dollar			1.22				1.12
Boliviano			6.86				6.86
Mexican peso			14.74				13.07
New Zealand dollar			1.28				1.22
Peruvian Sol			2.99				2.80
Uruguayan peso			24.25				21.49

 

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NOTE 29 – EARNINGS / (LOSS) PER SHARE

 

		For the periods ended
		December 31,
		2014				2013
Basic earnings / (loss) per share
Earnings / (loss) attributable to owners of the parent (ThUS$)			(109,790	)			(281,114	)
Weighted average number of shares, basic			545,547,819				487,930,977
Basic earnings / (loss) per share (US$)			(0.20125	)			(0.57613	)

 

		For the periods ended
		December 31,
		2014				2013
Diluted earnings / (loss) per share
Earnings / (loss) attributable to owners of the parent (ThUS$)			(109,790	)			(281,114	)
Weighted average number of shares, basic			545,547,819				487,930,977
Weighted average number of shares, diluted			545,547,819				487,930,977
Diluted earnings / (loss) per share (US$)			(0.20125	)			(0.57613	)

 

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NOTE 30 – CONTINGENCIES

Lawsuits

 

(i)	Lawsuits filed by LATAM Airlines Group S.A. and Subsidiaries

 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed
										ThUS$
Atlantic Aviation Investments LLC (AAI)		Supreme Court of the State of New York County of New York.		07-6022920		Atlantic Aviation Investments LLC. (“AAI”), an indirect subsidiary LATAM Airlines Group S.A., incorporated under the laws of the State of Delaware, sued in August 29th, 2007 Varig Logistics S.A. (“Variglog”) for non-payment of four documented loans in credit agreements governed by New York law. These contracts establish the acceleration of the loans in the event of sale of the original debtor, VRG Linhas Aéreas S.A.		In implementation stage in Switzerland, the conviction stated that Variglog should pay the principal, interest and costs in favor of AAI. It keeps the embargo of Variglog funds in Switzerland with AAI. Variglog is in the process of judicial recovery in Brazil and has asked Switzerland to recognize the judgment that declared the state of judicial recovery and subsequent bankruptcy.		17,100 Plus interests and costs
Atlantic Aviation Investments LLC (AAI)		Supreme Court of the State of New York County of New York.		602286-09		Atlantic Aviation Investments LLC. (“AAI”) sued on July 24th, 2009 Matlin Patterson Global Advisers LLC, Matlin Patterson Global Opportunities Partners II LP, Matlin Patterson Global Opportunities Partners (Cayman) II LP and Logistics LLC Volo (a) as alter egos of Variglog for non-payment of the four loans mentioned in the previous note and (b) for breach of its obligation to guarantee and other obligations under the Memorandum of Understanding signed between the parties on September 29th , 2006.		AAI filed a “summary judgment” (abbreviated trial) which the court ruled favorably. The defendants appealed this decision which was ultimately dismissed by the High Court. The cause was turned back to the lower court for determination of the amount actually payable by the applicants (damages) ongoing proceedings before the court.		17,100 Plus interest costs and compensation for damage.

 

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Company		Court		Case Number		Origin		Stage of trial		Amounts Committed
										ThUS$
Lan Argentina S.A.		National Administrative Court.		36337/13		ORSNA Resolution No. 123 which directs Lan Argentina to vacate the hangar located in the Airport named Aeroparque Metropolitano Jorge Newberry, Argentina.		On June 19th, 2014, the Second Division of the Federal Administrative Chamber confirmed the extension of the injunction granted by the Court of 1st Instance in March. On September 18th, 2014 the Court of 1st Instance decided to extend the validity of the injunction until a sentence is reached in the main trial. On December 30th, 2014 the Supreme Court of Justice of the Nation decided to reject the appeal of complaint presented by ORSNA against the granting of the injunction.		Undetermined

 

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(ii) Lawsuits received by LATAM Airlines Group S.A. and Subsidiaries

 

Company		Court		Case Number		Origin		Stage of trial		Amounts Committed
										ThUS$
LATAM Airlines Group S.A. y Lan Cargo S.A.		European Commission.		—		Investigation of alleged infringements to free competition of cargo airlines, especially fuel surcharge. On December 26th, 2007, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the instruction process against twenty five cargo airlines, including Lan Cargo S.A., for alleged breaches of competition in the air cargo market in Europe, especially the alleged fixed fuel surcharge and freight. On November 9th, 2010, the General Directorate for Competition of the European Commission notified Lan Cargo S.A. and LATAM Airlines Group S.A. the imposition of a fine in the amount of ThUS$9,999. This fine is being appealed by Lan Cargo S.A. and LATAM Airlines Group S.A. We cannot predict the outcome of this appeal process.		On April 14th, 2008, the notification of the European Commission was replied. The appeal was filed on January 24, 2011.		9,999
Lan Cargo S.A. y LATAM Airlines Group S.A.		In the High Court of Justice Chancery División (England) Ovre Romerike District Court (Norway) and Directie Juridische Zaken Afdeling Ceveil Recht (Netherlands), Cologne Regional Court (Landgerich Köln Germany).		—		Lawsuits filed against European airlines by users of freight services in private lawsuits as a result of the investigation into alleged breaches of competition of cargo airlines, especially fuel surcharge. Lan Cargo S.A. and LATAM Airlines Group S.A., have been sued in court proceedings directly and/or in third party, based in England, Norway, the Netherlands and Germany.		Cases are in the uncovering evidence stage.		Undetermined

 

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Company		Court		Case Number		Origin		Stage of trial		Amounts Committed
										ThUS$
Aerolinhas Brasileiras S.A.		Administrative Council for Economic Defense, Brazil.		08012.011027/2006-02		Investigation of alleged infringements to competition of cargo airlines, especially fuel surcharge		On the conviction stated over the new administrative appeal, the Administrative Council for Economics Defense (CADE) agreed to reduce the amounts of the fines imposed to ABSA and its executives, as following: (i) ABSA: US$12 million; (ii) Norberto Jochmann: ThUS$246; (iii) Hernan Merino: ThUS$123; (iv) Felipe Meyer: ThUS$123. After internal analysis it was decided not to present new administrative appeals in order to try new reductions on the Court before a cancellation request that will be filed in the beginning of 2015, through the guarantee of the previously mentioned amounts.		12,315
Aerolinhas Brasileiras S.A		Federal Justice.		0001872- 58.2014.4.03.6105		Is discussed the collection of court fines and taxes originally imposed and collected through administrative process 10831.005704/2006-43. We obtained adverse decision administratively and are judicially discussing now.		First instance - pending Federal Union statement regarding our request for invalidation of the tax debt.		13,668
LATAM Airlines Group S.A.		Tenth Civil Court of Santiago.		C-32989-2011		Jara and Jara Limited company demanded LATAM Airlines Group S.A. based on the damage they have caused by fraud complaints filed against them in 2008, and were finally dismissed. They claim that the damage caused by LATAM Airlines Group S.A. affected their prestige and business continuity.		The trial is currently in first instance. LATAM Airlines Group S.A. has requested the abandonment of the procedure. The resolution of this incident is pending.		11,935

 

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Company		Court		Case Number		Origin		Stage of trial		Amounts Committed
										ThUS$
Tam Linhas Aéreas S.A.		Court of the Second Region.		2001.51.01.012530-0		Ordinary judicial action brought for the purpose of declaring the nonexistence of legal relationship obligating the company to raise the Air Fund.		Unfavorable court decision in first instance. Currently expecting the ruling of the appeal filed by the company. In order to suspend chargeability of Tax Credit a Guaranty Deposit to the Court was delivered by US$90 million which is revealed in more detail in Note 20.		111,011
Tam Linhas Aéreas S.A.		Internal Revenue Service of Brazil		16643.000087/2009-36		Notice of Violation to the requirement to pay the Social Contribution on Liquid Profit (CSL).		Decisions of first and second administrative instance adverse to the interests of the company. Currently expecting the result on the new appeal filed by the company are expected.		27,270
Tam Linhas Aéreas S.A.		Internal Revenue Service of Brazil		10880.725950/2011-05		Compensation credits of the Social Integration Program (PIS) and Contribution for Social Security Financing (COFINS).		Court decision was unfavorable to the interests of the company, which was appealed. At present, pending the trial of the appeal, the Board of Tax Appeals (CARF).		25,070

 

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Company		Court		Case Number		Origin		Stage of trial		Amounts Committed
										ThUS$
Tam Linhas Aéreas S.A.		6th Rod Treasury of San Pablo.		0012938- 14.2013.8.26.0053		Lawsuit filed by the tax authority imputing to TAM the Service Tax on amounts paid to Infraero, according to a change in applicable law.		The application for interlocutory appeal with preliminary injunction was granted, suspending the accrual of tax credits derived from the file infringement n. 66233992, 66234000 and 66234026. On March 10, 2014, the Municipal Government of Sao Paulo presented opposed bill. Currently awaiting trial on the merits of the appeal mentioned.		12,517
Tam Linhas Aéreas S.A.		Internal Revenue Service of Brazil		16643.000085/2009-47		File demanding the recovery of income tax and social contribution on net profits (CSL) derived from royalties and costs of using the TAM brand.		First instance decision was unfavorable to the interests of the company. Currently expecting ruling on the appeal filed by the company on March 15, 2012.		12,069
Tam Linhas Aéreas S.A.		Internal Revenue Service of Brazil		10831.012344/2005-55		Auto infringement presented to demand the import tax (II), the Social Integration Program (PIS) Contribution for Social Security Financing (COFINS) arising from the loss of international unidentified cargo.		The trial is currently in the Board of Tax Appeals (CARF).		9,709
Tam Linhas Aéreas S.A.		Department of Finance of the State of Sao Paulo.		3.123.785-0		Infringement notice to demand payment of the tax on the circulation of goods and services (ICMS) regulating the import of aircraft.		Currently awaiting the decision on the appeal filed by the company.		10,081

 

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Company		Court		Case Number		Origin		Stage of trial		Amounts Committed
										ThUS$
Tam Linhas Aéreas S.A.		1st Civil Court of the District of Goiânia/GO.		200702435095 (ordinary)		Lawsuit filed by a former TAM sales representative that requires compensation for moral and material damages resulting from the termination of his contract as sales representative.		Currently undergoing liquidation sentencing and pending term expert witness.		8,909
Aerovías de Integración Regional, AIRES S.A.		United States Court of Appeals for the Eleventh Circuit, Florida, U.S.A.		2013-20319 CA 01		The July 30th, 2012 LAN COLOMBIA AIRLINES initiated a legal process in Colombia against Regional One INC and Volvo Aero Services LLC, to declare that these companies are civilly liable for moral and material damages caused to LAN COLOMBIA AIRLINES arising from breach of contractual obligations of the aircraft HK-4107. The June 20th, 2013 AIRES SA And / Or LAN AIRLINES COLOMBIA was notified of the lawsuit filed in U.S. for Regional One INC and Dash 224 LLC for damages caused by the aircraft HK-4107 arguing failure of LAN COLOMBIA AIRLINES customs duty to obtain import declaration when the aircraft in April 2010 entered Colombia for maintenance required by Regional One.		The process in Colombia is pending resolution of preliminary objections filed by the defendant. The Federal Court ruled on March 26th, 2014 and approved the request from LAN AIRLINES COLOMBIA to suspend the process in the U.S. as the demand in Colombia is underway. Additionally, the U.S. judge closed the case administratively. Regional One appealed this decision to the Federal Court, and in September 2014 the Court ordered the parties to reconcile, process that is currently underway.		12,443

 

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Company		Court		Case Number		Origin		Stage of trial		Amounts Committed
										ThUS$
Tam Linhas Aéreas S.A.		Department of Finance of the State of Rio de Janeiro.		03.431129-0		The State of Rio de Janeiro requires VAT tax credit for the purchase of kerosene (jet fuel). According to a report, the auditor noted that none of the laws of Rio de Janeiro authorizes the appropriation of credit, so the credit was refused and demanded tribute.		Objection was filed on December 12th, 2013. Currently, waiting for the trial of the first administrative instance.		85,706
Tam Linhas Aéreas S.A.		Internal Revenue Service of Brazil		10880.722.355/2014-52		On August 19th , 2014 the Federal Tax Service issued a notice of violation stating that compensation credits Program (PIS) and the Contribution for the Financing of Social Security COFINS by TAM are not directly related to the activity of air transport.		An administrative objection was filed on September 17th, 2014. Currently awaiting trial.		169,038
Tam Linhas Aéreas S.A.		Department of Finance of the State of Sao Paulo		4037054-9		On September 20th, 2014 we were notified that the Department of Finance of the State of São Paulo filed an infringement lawsuit for non-payment of tax on the circulation of goods and services relating to telecommunications services ICMS.		An objection protocol was filed. Currently awaiting trial.		9,750
Tam Linhas Aéreas S.A.		Labor Court of Porto Alegre.		0001611- 93.2012.5.04.0013		Civil Action of Ministry of Labor that requires the granting of black shoes, belts and socks for workers who wear uniforms.		Pending the formalization of agreement for the beginning of the concession of shoes to employees. The process will be completed in the coming months.		9,991 Approximate value / estimated
TAM S.A.		Conselho Administrativo de Recursos Fiscais		13855.720077/2014-02		Notice of an alleged infringement presented by Secretaria da Receita Federal do Brasil requiring the payment of IRPJ and CSLL, taxes related to the income earned by TAM on March, 2011, in relation of the reduction of the statute capital of Multiplus S.A.		On January 12, 2014, it was filed an appeal against the object of the notice of infringement. Currently, the company is waiting for the court judgment regarding the appeal filed in the Conselho Administrativo de Recursos Fiscais.		128,125
Aerolinhas Brasileiras S.A.		Labor Court of Campinas.		0010498- 37.2014.5.15.0095		Lawsuit filed by the National Union of aeronauts, requiring weekly rest payment (DSR) scheduled stopovers, displacement and moral damage.		Trial in initial stage.		19,963 Approximate value / estimated

 

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Company		Court		Case Number		Origin		Stage of trial		Amounts Committed
										ThUS$
Aerolinhas Brasileiras S.A.		Labor Court of Manaus.		0002037- 67.2013.5.11.0016		Lawsuit filed by the Union of Manaus Aeroviarios requiring assignment of hazard to ground workers (AEROVIARIOS).		Process in the initial phase. The value is in the calculation stage by the external auditor.		Undetermined
Aerolinhas Brasileiras S.A.		Labor Court of Campinas		0011014- 52.2014.5.15.0129		Lawsuit filed by the Union of Air Service Workers of Campinas requiring assignment of hazard for ABSA workers.		Process in the initial phase. The amounts committed are being calculated by external auditor.		Undetermined
LATAM Airlines Group S.A., Transporte Aéreo S.A., Lan Cargo S.A., Andes Airport Services S.A., Inversiones LAN S.A., Lantours División Servicios Terrestres S.A., Fast Air Almacenes de Carga S.A.		First Labor Court of Santiago.		S-99-2014		Lawsuit filed by the Union of Workers of LAN Airlines S.A. Airport CAMB Pudahuel (Sindicato). Accusation of anti-union practice and declare of a unique employer for labor effects of the defendant.		Judgment on evidence scheduled for January 30th, 2015. In such hearing the trial was finished due to agreement on payment of ThUS$10.		Undetermined

 

•

Governmental Investigations. The investigation by the authorities of Chile and the United States of America continues, related to payments carried out by LATAM Airlines Group S.A. (before called LAN Airlines S.A.) in 2006-2007, to a consultant that advised it in the resolution of labor matters in Argentina. The Company continues cooperating with the respective authorities in the aforementioned investigation. Presently the Company cannot predict the results in the matter; nor estimate or range the potential losses or risks that may eventually come resulting from the way in which this matter is finally resolved.

 

•

In order to deal with any financial obligations arising from legal proceedings in effect at December 31, 2014, whether civil, tax, or labor, LATAM Airlines Group S.A. and Subsidiaries, has made provisions, which are included in Other non-current provisions that are disclosed in Note 20.

 

•

The Company has not disclosed the individual probability of success for each contingency in order to not negatively affect its outcome.

 

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NOTE 31 - COMMITMENTS

 

(a)	Loan covenants

With respect to various loans signed by the Company for the financing of Boeing 767, 777 and 787 aircraft, which carry the guarantee of the United States Export–Import Bank, limits have been set on some of the Company’s financial indicators on a consolidated basis. Moreover, and related to these same contracts, restrictions are also in place on the Company’s management in terms of its ownership and disposal of assets.

Additionally, with respect to various loans signed by its subsidiary Lan Cargo S.A. for the financing of Boeing 767F and 777F aircraft, which carry the guarantee of the United States Export–Import Bank, restrictions have been established to the Company´s management and its subsidiary Lan Cargo S.A. in terms of shareholder composition and disposal of assets.

In connection with the financing of spare engines for its Boeing 767, 767F, 777, 777F, which are guaranteed by the Export—Import Bank of the United States, restrictions have been placed on the ownership structure of their guarantors and their legal successor in case of merger.

The Company and its subsidiaries do not maintain financial credit contracts with banks in Chile that indicate some limits on financial indicators of the Company or its subsidiaries.

At December 31, 2014, the Company is in compliance with all indicators detailed above.

 

(b)	Commitments under operating leases as lessee

Details of the main operating leases are as follows:

 

				As of				As of
				December 31,				December 31,
Lessor		Aircraft		2014				2013
ACS Aircraft Finance Bermuda Ltd. - Aircastle		Boeing 737			—				1
Airbus Financial Services		Airbus A340			—				3
Aircraft 76B-26329 Inc.		Boeing 767			1				1
Aircraft 76B-27613 Inc.		Boeing 767			—				1
Aircraft 76B-27615 Inc.		Boeing 767			1				1
Aircraft 76B-28206 Inc.		Boeing 767			1				1
Aviacion Centaurus, A.I.E.		Airbus A319			3				3
Aviación Centaurus, A.I.E.		Airbus A321			1				1
Aviación Real A.I.E.		Airbus A319			1				1
Aviación Real A.I.E.		Airbus A320			1				1
Aviación Tritón A.I.E.		Airbus A319			3				3
Avolon Aerospace AOE 19 Limited		Airbus A320			1				1
Avolon Aerospace AOE 20 Limited		Airbus A320			1				1
Avolon Aerospace AOE 6 Limited		Airbus A320			1				1
Avolon Aerospace AOE 62 Limited		Boeing 777			1				1
Avolon Aerospace AOE 63 Limited		Boeing 787			1				1

 

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				As of				As of
				December 31,				December 31,
Lessor		Aircraft		2014				2013
AWAS 4839 Trust		Airbus A320			1				1
AWAS 5125 Trust		Airbus A320			1				1
AWAS 5178 Limited		Airbus A320			1				1
AWAS 5234 Trust		Airbus A320			1				1
Baker & Spice Aviation Limited		Airbus A320			2				2
BOC Aviation Pte. Ltd.		Airbus A320			1				1
CIT Aerospace International		Boeing 767			—				1
CIT Aerospace International		Airbus A319			—				1
CIT Aerospace International		Airbus A320			2				4
Continuity Air Finance IV B.V		Airbus A319			—				1
Delaware Trust Company, National Association		Bombardier Dhc8-200			5				7
Eden Irish Aircr Leasing MSN 1459		Airbus A320			1				1
GECAS Sverige Aircraft Leasing Worldwide AB		Airbus A320			6				10
GECAS Sverige Aircraft Leasing Worldwide AB		Airbus A330			—				2
GFL Aircraft Leasing Netherlands B.V.		Airbus A320			1				1
International Lease Finance Corporation		Boeing 737			—				1
International Lease Finance Corporation		Boeing 767			1				1
International Lease Finance Corporation		Airbus A320			—				1
KN Operating Limited (NAC)		Bombardier Dhc8-400			—				3
Magix Airlease limited		Airbus A320			2				—
MASL Sweden (1) AB		Airbus A320			1				1
MASL Sweden (2) AB		Airbus A320			1				1
MASL Sweden (7) AB		Airbus A320			1				1
MASL Sweden (8) AB		Airbus A320			1				1
MCAP Europe Limited - Mitsubishi		Boeing 737			—				1
Orix Aviation Systems Limited		Airbus A320			2				3
Pembroke B737-7006 Leasing Limited		Boeing 737			—				2
RBS Aerospace Limited		Airbus A320			6				6
SASOF II (J) Aviation Ireland Limited		Airbus A319			1				—
SKY HIGH V LEASING COMPANY LIMITED		Airbus A320			1				1
Sky High XXIV Leasing Company Limited		Airbus A320			5				3
Sky High XXV Leasing Company Limited		Airbus A320			2				2
SMBC Aviation Capital Limited		Airbus A320			2				—
SMBC Aviation Capital Limited		Airbus A321			2				—
Sunflower Aircraft Leasing Limited		Airbus A320			2				2
TC-CIT Aviation Ireland Limited		Airbus A320			1				—
Volito Aviation August 2007 AB		Airbus A320			2				2
Volito Aviation November 2006 AB		Airbus A320			2				2
Volito Brasilien AB		Airbus A319			—				1
Volito November 2006 AB		Airbus A320			2				2
Wells Fargo Bank North National Association		Airbus A319			3				4
Wells Fargo Bank North National Association		Airbus A320			2				2
Wells Fargo Bank Northwest National Association		Airbus A320			6				7
Wells Fargo Bank Northwest National Association		Airbus A330			5				10
Wells Fargo Bank Northwest National Association		Boeing 787			3				4
Wells Fargo Bank Northwest National Association		Boeing 777			7				3
Wells Fargo Bank Northwest National Association		Boeing 787			3				1
Wilmington Trust Company		Airbus A319			1				1
Yamasa Singapore Pte. Ltd.		Airbus A340			—				1
Zipdell Limited		Airbus A320			1				1
Total					107				128

The rentals are shown in results for the period for which they are incurred.

 

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The minimum future lease payments not yet payable are the following:

 

		As of				As of
		December 31,				December 31,
		2014				2013
		ThUS$				ThUS$
No later than one year			511,624				475,762
Between one and five years			1,202,440				1,101,741
Over five years			441,419				335,019
Total			2,155,483				1,912,522

The minimum lease payments charged to income are the following:

 

		For the periods ended
		December 31,
		2014				2013
		ThUS$				ThUS$
Minimum operating lease payments			521,384				441,077
Total			521,384				441,077

In the first quarter of 2013, returned an Airbus A320-200, while during the second quarter of 2013 two Airbus A319-100, one Airbus A320-200 and one Bombardier Dhc8-200 were returned as their leasing contracts had ended. During June 2013 the contracts system applied to ten Airbus A330-200 aircraft were changed from financial leasing to operative leasing, with each aircraft being leased for a period of forty months. During the third quarter of 2013, two Airbus A320-200 aircraft were leased for a period of 8 years each, one Boeing 787-800 aircraft was leased for a period of 12 years and two Boeing 777-300ER aircraft were leased for a period of 5 years each. Moreover, one Airbus A320-200, two Boeing 767-300ER aircraft and one Bombardier Dhc8-400 aircraft were returned. Additionally, during July of 2013 two Bombardier Dhc8-200 aircraft were acquired on leasing. In the fourth quarter of 2013, three Airbus A320-200 aircraft were leased for a period of eight years each, one Boeing 787-800 aircraft was leased for a period of twelve years. Moreover, two Airbus A320-200, one Airbus A319-100, one Airbus A340-300 and one Boeing 737-700 aircraft were returned.

During the first quarter of 2014, two Airbus A320-200 aircraft were acquired and two Airbus A321-200 aircraft were leased for a period of 8 years each. Moreover, two Boeing 737-700 aircraft, one Boeing B767-300F aircraft, one Boeing 767-300F aircraft, one Airbus A340-300 aircraft and one Bombardier Dhc8-400 aircraft were returned. Additionally, as a result of its sale and subsequent lease, during March 2014 four Boeing 777-300ER aircraft were added as operative leasing, with each aircraft being leased for periods between four and six years each.

 

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During the second quarter of 2014, were added one Airbus A320-200 aircraft and one Boeing 787-800 aircraft by leasing them for a period of 8 and 12 years, respectively. For other hand, one Bombardier Dhc8-400 aircraft, four Airbus A320-200 aircraft, seven Airbus A330-200 aircraft and three Boeing 737-700 aircraft were returned.

In the third quarter of 2014, were added one Airbus A320-200 aircraft and one Boeing 787-800 aircraft by leasing them for a period of 8 and 12 years, respectively. For other hand, one Bombardier Dhc8-400 aircraft, two Airbus A319-100 aircraft and one Boeing 767-300ER aircraft were returned.

In the fourth quarter of 2014, two Airbus A320-200 aircraft and one Boeing 767-300ER aircraft were returned. For other hand, three A340-300 aircraft and one A319-100 aircraft were bought. Additionally it was reported that the purchase option will be exercised by 2 Bombardier Dhc8-200 aircraft. Therefore, these aircraft were reclassified to the category Property, plant and equipment.

The operating lease agreements signed by the Company and its subsidiaries state that maintenance of the aircraft should be done according to the manufacturer’s technical instructions and within the margins agreed in the leasing agreements, a cost that must be assumed by the lessee. The lessee should also contract insurance for each aircraft to cover associated risks and the amounts of these assets. Regarding rental payments, these are unrestricted and may not be netted against other accounts receivable or payable between the lessor and lessee.

At December 31, 2014 the Company has existing letters of credit related to operating leasing as follows:

 

Creditor Guarantee

Debtor

Type

Value ThUS$

Release date

AFS Investments 48 LLC.

Lan Cargo S.A.

Two letter of credit

3,500

Apr 25, 2015

GE Capital Aviation Services Limited

LATAM Airlines Group S.A.

Six letter of credit

23,456

Jun 30, 2015

GE Capital Aviation Services Limited

Lan Cargo S.A.

Three letter of credit

10,435

Jun 30, 2015

International Lease Finance Corp

LATAM Airlines Group S.A.

Four letter of credit

1,700

Oct 13, 2015

ORIX Aviation System Limited

LATAM Airlines Group S.A.

One letter of credit

3,255

Jul 31, 2015

TAF Mercury

LATAM Airlines Group S.A.

One letter of credit

4,000

Dec 4, 2015

TAF Venus

LATAM Airlines Group S.A.

One letter of credit

4,000

Dec 4, 2015

Wells Fargo Bank Northwest, National Association

Lan Cargo S.A.

Four letter of credit

10,060

Apr 25, 2015

Baker & Spice Aviation Limited

Tam Linhas Aéreas S.A.

One letter of credit

19,580

Apr 13, 2015

Cit Aerospace International

Tam Linhas Aéreas S.A.

Five letter of credit

22,995

Jan 5, 2015

MACQUARIE

Tam Linhas Aéreas S.A.

Three letter of credit

2,124

May 4, 2015

Royal Bank Of scotland Aerospace

Tam Linhas Aéreas S.A.

One letter of credit

8,939

Jul 13, 2015

SMBC Aviation Capital Ltd.

Tam Linhas Aéreas S.A.

Two letter of credit

18,532

Feb 23, 2015

Wells Fargo Bank Northwest, National Association

Tam Linhas Aéreas S.A.

Two letter of credit

6,000

Mar 28, 2015

Wilmington

Tam Linhas Aéreas S.A.

One letter of credit

5,738

Jan 31, 2015

144,314

 

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(c)	Other commitments

At December 31, 2014 the Company has existing letters of credit, certificates of deposits and warranty insurance policies as follows:

 

Value

Release

Creditor Guarantee

Debtor

Type

ThUS$

date

Aena Aeropuertos S.A.

LATAM Airlines Group S.A.

Four letter of credit

2,373

Nov 15, 2015

American Alternative Insurance

Corporation

LATAM Airlines Group S.A.

Four letter of credit

3,140

Apr 5, 2015

BBVA

LATAM Airlines Group S.A.

One letter of credit

24,315

Aug 3, 2015

Citibank N.A.

LATAM Airlines Group S.A.

One letter of credit

6,825

Dec 20, 2015

Comisión Europea

LATAM Airlines Group S.A.

One letter of credit

10,254

Feb 11, 2015

Deutsche Bank A.G.

LATAM Airlines Group S.A.

Three letter of credit

40,000

Mar 31, 2015

Dirección General de Aeronáutica

Civil

LATAM Airlines Group S.A.

Sixty seven letter of credit

17,703

Jan 31, 2015

Dirección Nacional de Aduanas

LATAM Airlines Group S.A.

Three letter of credit

1,210

Jun 28, 2015

Empresa Pública de Hidrocarburosdel Ecuador EP Petroecuador

LATAM Airlines Group S.A.

One letter of credit

5,500

Jun 18, 2015

Metropolitan Dade County

LATAM Airlines Group S.A.

Five letter of credit

1,675

May 31, 2015

The Royal Bank of Scotland plc

LATAM Airlines Group S.A.

Two letter of credit

28,000

May 20, 2015

Washington International Insurance

LATAM Airlines Group S.A.

Two letter of credit

2,100

Apr 5, 2015

Wells Fargo Bank

LATAM Airlines Group S.A.

Four letter of credit

5,160

Mar 13, 2015

Westpac Banking Corporation

LATAM Airlines Group S.A.

One letter of credit

1,046

Apr 4, 2015

6ª Vara de Execuções Fiscais Federal de Campo Grande/MS

Tam Linhas Aéreas S.A.     (Pantanal)

Two insurance policies guarantee

28,522

Jan 4, 2016

8 Vara da Fazenda Pública da Comarca de São Paulo

Tam Linhas Aéreas S.A.     (Pantanal)

One insurance policies guarantee

13,834

Apr 12, 2015

Fundação de Proteção e Defesa do Consumidor Procon

Tam Linhas Aéreas S.A.

One insurance policies guarantee

1,651

May 16, 2016

Vara da Fazenda Pública da Comarcade São Paulo

Tam Linhas Aéreas S.A.

One insurance policies guarantee

2,943

Mar 29, 2016

Vara De Execuções Fiscais Estaduais de São Paulo

Tam Linhas Aéreas S.A.

One insurance policies guarantee

13,839

Apr 16, 2015

210,090

 

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NOTE 32 - TRANSACTIONS WITH RELATED PARTIES

 

(a)	Details of transactions with related parties as follows:

 

Nature of relationship with

Country

Explanation of other information

Nature of related parties

Transaction amount with related parties As of December 31,

Tax No.

Related party

related parties

of origin

about related parties

transactions

Currency

2014

2013

ThUS$

ThUS$

96.810.370-9

Inversiones Costa Verde Ltda. y CPA.

Controlling shareholder

Chile

Investments

Revenue from services provided

CLP

31

17

96.847.880-K

Lufthansa Lan Technical Training

Associate

Chile

Training center

Leases as lessor

CLP

209

253

Services received

CLP

(785

)

(1,186

)

Services received

US$

(743

)

(1,146

)

78.591.370-1

Bethia S.A and subsidiaries

Other related parties

Chile

Investments

Leases as lessor

CLP

(3

)

(6

)

Revenue from services provided

CLP

7

2,726

Services received

CLP

(1,156

)

(883

)

Settlement of Property plant and equipment (1)

CLP

—

14,217

Commitments made on behalf of the entity

CLP

—

(84

)

79.773.440-3

Transportes San Felipe S.A

Other related parties

Chile

Transport

Revenue from services provided

CLP

26

17

Services received

CLP

(70

)

(142

)

Commitments made on behalf of the entity

CLP

—

(84

)

87.752.000-5

Granja Marina Tornagaleones S.A.

Other related parties

Chile

Pisciculture

Revenue from services provided

CLP

155

231

65.216.000-K

Comunidad Mujer

Other related parties

Chile

Promotion and training of women

Revenue from services provided

CLP

9

10

Services received

CLP

(11

)

(11

)

Foreign

Inversora Aeronáutica Argentina

Other related parties

Argentina

Investments

Revenue from services provided

ARS

12

9

Leases as lessor

US$

(334

)

(358

)

Foreign

Made In Everywhere

Foreign

Repr. Com. Distr. Ltda.

Other related parties

Brazil

Transport

Services received

BRL

(2

)

—

Foreign

TAM Aviação Executiva

e Taxi Aéreo S/A

Other related parties

Brazil

Transport

Revenue from services provided

BRL

—

485

Services received

BRL

(12

)

—

Commitments made on behalf of the entity

BRL

—

(17

)

Foreign

Prismah Fidelidade S.A.

Joint Venture

Brazil

Marketing

Liabilities settlement on behalf of the entity for the related party

BRL

(119

)

(499

)

Foreign

Jochmann Paticipacoes Ltda.

Other related parties

Brazil

Transport

Services received

BRL

—

(27

)

On December 28, 2012, Inmobiliaria Aeronáutica S.A. as seller and Sotraser S.A. (Subsidiary of Bethia S.A.) as purchaser, entered into an agreement to purchase the land called “Lot No. 12 of parcellation project Lo Echevers”. The value of the sale amounts to ThUS$ 14,217. On December 31, 2013, this balance is paid.

 

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The balances of Accounts receivable and accounts payable to related parties are disclosed in Note 9.

Transactions between related parties have been carried out on free-trade conditions between interested and duly-informed parties.

 

(b)	Compensation of key management

The Company has defined for these purposes that key management personnel are the executives who define the Company’s policies and major guidelines and who directly affect the results of the business, considering the levels of Vice-Presidents, Chief Executives and Directors.

 

		For the periods ended December 31,
		2014				2013
		ThUS$				ThUS$
Remuneration			19,507				15,148
Management fees			1,213				368
Non-monetary benefits			990				565
Short-term benefits			—				22,400
Share-based payments			16,086				17,709
Total			37,796				56,190

NOTE 33 - SHARE-BASED PAYMENTS

 

(a)	Compensation plan for increase of capital in LATAM Airlines Group S.A.

Compensation plans implemented by providing options for the subscription and payment of shares that have been granted by LATAM Airlines Group S.A. to employees of the Company and its subsidiaries, are recognized in the financial statements in accordance with the provisions of IFRS 2 “Share-based Payment”, showing the effect of the fair value of the options granted under compensation in linear between the date of grant of such options and the date on which these irrevocable.

 

(a.1)

Compensation plan 2011

At a Special Shareholders Meeting held on December 21, 2011, the Company’s shareholders approved, among other matters, an increase of capital of which 4,800,000 shares were allocated to compensation plans for employees of the Company and its subsidiaries, pursuant to Article 24 of the Companies Law. In this compensation plan no member of the controlling group would be benefited. The granting of options for the subscription and payment of shares has been formalized through conclusion of contracts of options to subscribe for shares, according to the proportions shown in the following schedule of accrual and is related to the permanence condition of the executive as employee of the Company at these dates for the exercise of the options:

 

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Percentage		Period
30%		From December 21, 2014 and until December 21, 2016.
30%		From December 21, 2015 and until December 21, 2016.
40%		From June 21, 2016 and until December 21, 2016.

 

		Number of share options
Share options in agreements of share - based payments, as of January 1, 2013			—
Share options granted			4,497,000
Share options in agreements of share - based payments, as of December 31, 2013			4,497,000
Share options in agreements of share - based payments, as of January 1, 2014			4,497,000
Share options granted			160,000
Share options cancelled			(455,000	)
Share options in agreements of share - based payments, as of December 31, 2014			4,202,000

These options have been valued and recorded at fair value at the grant date, determined by the “Black-Scholes-Merton”. The effect on income to September 2014 corresponds to ThUS$ 15,895 (ThUS$ 17,200 at December 31, 2013).

The input data of option pricing model used for share options granted are as follows:

 

		Weighted average share price				Exercise price				Expected volatility				Life of option				Dividends expected				Risk-free interest
As of December 31, 2013		US$	23.55			US$	24.97				61.52	%			3.6 years				0	%			0.00550
As of December 31, 2014		US$	15.47			US$	18.29				34.74	%			3.6 years				0	%			0.00696

 

(a.2)

Compensation plan 2013

At the Extraordinary Shareholders’ Meeting held on June 11, 2013, the Company’s shareholders approved motions including increasing corporate equity, of which 1,500,000 shares were allocated to compensation plans for employees of the Company and its subsidiaries, in conformity with the stipulations established in Article 24 of the Corporations Law. Regard to this compensation plan, not exist yet a defined date for implementation. The granting of options for the subscription and payment of shares has been formalized through conclusion of contracts of options to subscribe for shares, according to the proportions shown in the following schedule of accrual and is related to the permanence condition of the executive at these dates for the exercise of the options:

 

Percentage		Period
100%		From November 15, 2017 and until June 11, 2018.

 

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(b)	Subsidiaries compensation plans

TAM Linhas Aereas S.A. and Multiplus S.A., both subsidiaries of TAM S.A., have outstanding stock options at December 31, 2014, which amounted to 96,675 shares and 637,400 shares, respectively.

TAM Linhas Aéreas S.A.

 

Description		4th Grant				Total
Date			05-28-2010
Outstanding option number			96,675				96,675

Multiplus S.A.

 

Description		1st Grant				3rd Grant				4th Grant				4nd Extraordinary Grant				Total
Date			10-04-2010				04-16-2012				10-04-2010				11-20-2013
Outstanding option number			7,760				129,371				294,694				205,575				637,400

The Options of TAM Linhas Aéreas S.A., under the plan’s terms, are divided into three equal parts and employees can run a third of its options after three, four and five years respectively, as long as they remain employees of the company. The agreed term of the options is seven years.

For Multiplus S.A., the plan’s terms provide that the options granted to the usual prizes are divided into three equal parts and employees may exercise one-third of their two, three and four, options respectively, as long as they keep being employees of the company. The agreed term of the options is seven years after the grant of the option. The first extraordinary granting was divided into two equal parts, and only half of the options may be exercised after three years and half after four years. The second extraordinary granting was also divided into two equal parts, which may be exercised after one and two years respectively.

Both companies have an option that contains a “service condition” in which the exercise of options depends exclusively on the delivery services by employees during a predetermined period. Terminated employees will be required to meet certain preconditions in order to maintain their right to the options.

The acquisition of the share’s rights, in both companies is as follows:

 

Company		Number of shares Accrued options				Number of shares Non accrued options
TAM Linhas Aéreas S.A.			—				96,675
Multiplus S.A.			—				637,400

In accordance with IFRS 2 - Share-based payments, the fair value of the option must be recalculated and recorded as a liability of the Company once payment is made in cash (cash-settled). The fair value of these options was calculated using the Black-Scholes method, where the cases were updated with information LATAM Airlines Group S.A.. Not exist value recorded in liabilities at December 31, 2014 and in income ThUS$ 191 (at December 31, 2013 the amount recognized in liabilities was ThUS$ 1,493 and ThUS$ 509 in incomes).

 

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NOTE 34 - THE ENVIRONMENT

LATAM Airlines Group S.A. manages environmental issues at the corporate, centralized in Environmental Management. To monitor the company and minimize their impact on the environment is a commitment to the highest level, where continuous improvement and contribute to the solution of the problem of global climate change, generating added value to the company and the region, are the pillars of his administration.

One function of Environmental Management, in conjunction with the various areas of the Company, is to ensure environmental compliance, implementing a management system and environmental programs that meet the increasingly demanding requirements globally; well as continuous improvement programs in their internal processes that generate environmental and economic benefits and to join the currently completed.

The Environment Strategy LATAM Airlines Group S.A. is based on the following objectives:

 

•

Minimize the impact of its operations by using a modern fleet, efficient operational management and continuous incorporation of new technologies.

 

•

Promote the efficient use of resources and minimization of waste in all processes.

 

•

Manage responsibly our carbon footprint by measuring, monitoring and reducing emissions.

 

•

Promote the development and use of alternative energy more efficient and less environmental impact.

For 2014, we have established four priority areas of work to develop:

 

1.	Advance in the implementation of an Environmental Management System;

 

2.	Manage the Carbon Footprint by measuring, external verification and compensation of our emissions by ground operations;

 

3.	Development of environmental projects based on renewable energy.

 

4.	Establishment of corporate strategy to meet the global target of aviation to have a carbon neutral growth by 2020.

Thus, during the first half of the year, we have worked in the following initiatives:

 

•

Advance in the implementation of an Environmental Management System for main operations, with an emphasis on Santiago, Miami (USA) y San Carlos (Brasil). In addition to continuing with the process of certification of IATA Environmental Assestment (IEnvA).

 

•

Preparation of the environmental chapter for reporting sustainability of the Company, to measure progress on environmental issues.

 

•

The preparation of the first report supporting environmental management of the Company.

 

•

Measurement and external verification of the Corporate Carbon Footprint.

As achievement this year, LATAM Airlines Group was selected in the Dow Jones Sustainability index, in global category, emerging as a leader in the global aviation industry its strategy on Climate Change and its efficient operation (Eco-Efficiency).

At December 31, 2014 the Environment Management has spent US$370,159 (US$ 478,445 at December 31, 2013).

 

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NOTE 35 – EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS

Subsequent to the closing date of the annual financial statements, at December 31, 2014, has occurred an important variation in the exchange rate R$/US$, from R$ 2.66 per US$ to R$ 3.27 per US$ at March 17, 2015, which represents a 23% depreciation of the Brazilian currency.

At the date of issuance of these financial statements, given the complexity of this matter, the administration has not yet concluded the analysis and determination of the financial effects of this situation.

LATAM Airlines Group S.A. and Subsidiaries’ consolidated financial statements as at December 31, 2014, have been approved by the Board of Director’s in an extraordinary meeting held on March 17, 2015.

 

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SIGNATURES

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.

 

Date: March 18, 2015				LATAM AIRLINES GROUP S.A.
				By:		/s/ Cristian Toro
				Name:		Cristian Toro
				Title:		VP LEGAL LATAM