LTM LATAM Airlines Group SA

 

 

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

May 14, 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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IFRS

Santiago, Chile, May 14, 2015 – LATAM Airlines Group S.A. (NYSE: LFL; IPSA: LAN; BOVESPA: LATM33), the leading airline group in Latin America, announced today its consolidated financial results for the first quarter ended March 31, 2015. “LATAM” or “the Company” makes reference to the consolidated entity, which includes passenger and cargo airlines in Latin America. All figures were prepared in accordance with IAS 34 “Interim financial reporting” of the International Financial Reporting Standards (IFRS) and are expressed in U.S. dollars.

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LATAM AIRLINES GROUP S.A. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

PREPARED IN ACCORDANCE WITH IAS 34 “INTERIM FINANCIAL REPORTING” OF THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

MARCH 31, 2015

CONTENTS

Interim Consolidated Statement of Financial Position

Interim Consolidated Statement of Income by Function

Interim Consolidated Statement of Comprehensive Income

Interim Consolidated Statement of Changes in Equity

Interim Consolidated Statement of Cash Flows - Direct Method

Notes to Interim 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

Santiago, May 14, 2015

To the Board of Directors and Shareholders of Latam Airlines Group S.A.

We have reviewed the accompanying consolidated interim statement of financial position of Latam Airlines Group S.A. and its subsidiaries as of March 31, 2015, and the related consolidated interim statements of income and comprehensive income, cash flows and changes in equity for the three-month periods ended March 31, 2015 and 2014.

Management’s responsibility for the consolidated interim financial statements

Management is responsible for the preparation and fair presentation of the interim financial information in accordance with IAS 34 “Interim Financial Reporting” of the International Financial Reporting Standards (IFRS). This responsibility includes the design, implementation and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of the interim financial information in accordance with the applicable framework for the preparation and presentation of financial information.

Auditor’s responsibilities

Our responsibility is to perform our review in accordance with the Chilean auditing standards applicable for the review of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards in Chile, the objective of which is the expression of an opinion regarding the financial information taken as a whole. Accordingly, we do not express such an opinion.

Conclusion

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial information, for them to be in conformity with IAS 34 according to the International Financial Reporting Standards.

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Santiago, May 14, 2015

Latam Airlines Group S.A.

2

Other matters

On March 17, 2015 we issued an unqualified opinion on the consolidated financial statements as of December 31, 2014 and 2013 of Latam Airlines Group S.A. and its subsidiaries, in which is included the statement of financial position as of December 31, 2014 as presented in the accompanying consolidated interim financial statements, and corresponding notes.

 

Jonathan Yeomans Gibbons RUT: 13.473.972-K

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

 

Notes		Page
1 -  General information			1
2 -  Summary of significant accounting policies			4
2.1. Basis of Preparation			4
2.2. Basis of Consolidation			7
2.3. Foreign currency transactions			8
2.4. Property, plant and equipment			9
2.5. Intangible assets other than goodwill			10
2.6. Goodwill			10
2.7. Borrowing costs			10
2.8. Losses for impairment of non-financial assets			11
2.9. Financial assets			11
2.10. Derivative financial instruments and hedging activities			12
2.11. Inventories			13
2.12. Trade and other accounts receivable			13
2.13. Cash and cash equivalents			13
2.14. Capital			14
2.15. Trade and other accounts payables			14
2.16. Interest-bearing loans			14
2.17. Current and deferred taxes			14
2.18. Employee benefits			15
2.19. Provisions			15
2.20. Revenue recognition			15
2.21. Leases			16
2.22. Non-current assets (or disposal groups) classified as held for sale			17
2.23. Maintenance			17
2.24. Environmental costs			17
3 -  Financial risk management			18
3.1. Financial risk factors			18
3.2. Capital risk management			32
3.3. Estimates of fair value			33
4 -  Accounting estimates and judgments			36
5 -  Segmental information			37
6 -  Cash and cash equivalents			39
7 -  Financial instruments			42
7.1. Financial instruments by category			42
7.2. Financial instruments by currency			44
8 -  Trade, other accounts receivable and non-current accounts receivable			45
9 -  Accounts receivable from/payable to related entities			48
10 -  Inventories			49
11 -  Other financial assets			50
12 -  Other non-financial assets			51
13 -  Investments in subsidiaries			52
14 -  Intangible assets other than goodwill			55

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15 -  Goodwill			56
16 -  Property, plant and equipment			58
17 -  Current and deferred tax			64
18 -  Other financial liabilities			70
19 -  Trade and other accounts payables			78
20 -  Other provisions			80
21 -  Other non-financial liabilities			83
22 -  Employee benefits			84
23 -  Accounts payable, non-current			85
24 -  Equity			85
25 -  Revenue			90
26 -  Costs and expenses by nature			91
27 -  Other income, by function			92
28 -  Foreign currency and exchange rate differences			93
29 -  Earnings per share			101
30 -  Contingencies			102
31 -  Commitments			111
32 -  Transactions with related parties			116
33 -  Share based payments			117
34 -  The environment			120
35 -  Events subsequent to the date of the financial statements			121

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

ASSETS
				As of				As of
				March 31,				December 31,
		Note		2015				2014
				ThUS$				ThUS$
				Unaudited
Current assets
Cash and cash equivalents		6 - 7			959,160				989,396
Other financial assets		7 - 11			469,354				650,401
Other non-financial assets		12			317,211				247,871
Trade and other accounts receivable		7 - 8			1,016,988				1,378,837
Accounts receivable from related entities		7 - 9			313				308
Inventories		10			235,494				266,039
Tax assets		17			74,063				100,708
Total current assets other than non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners					3,072,583				3,633,560
Non-current assets (or disposal groups) classified as held for sale or as held for distribution to owners					994				1,064
Total current assets					3,073,577				3,634,624
Non-current assets
Other financial assets		7 - 11			79,842				84,986
Other non-financial assets		12			365,539				342,813
Accounts receivable		7 - 8			29,590				30,465
Intangible assets other than goodwill		14			1,567,976				1,880,079
Goodwill		15			2,762,163				3,313,401
Property, plant and equipment		16			10,637,808				10,773,076
Tax assets		17			24,629				17,663
Deferred tax assets		17			348,556				407,323
Total non-current assets					15,816,103				16,849,806
Total assets					18,889,680				20,484,430

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

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

LIABILITIES AND EQUITY
				As of				As of
				March 31,				December 31,
		Note		2015				2014
				ThUS$				ThUS$
				Unaudited
LIABILITIES
Current liabilities
Other financial liabilities		7 - 18			1,582,113				1,624,615
Trade and other accounts payables		7 - 19			1,360,225				1,489,396
Accounts payable to related entities		7 - 9			57				35
Other provisions		20			11,261				12,411
Tax liabilities		17			20,250				17,889
Other non-financial liabilities		21			2,301,578				2,685,386
Total current liabilities					5,275,484				5,829,732
Non-current liabilities
Other financial liabilities		7 - 18			7,301,440				7,389,012
Accounts payable		7 - 23			543,077				577,454
Other provisions		20			583,064				703,140
Deferred tax liabilities		17			952,555				1,051,894
Employee benefits		22			80,588				74,102
Other non-financial liabilities		21			343,714				355,401
Total non-current liabilities					9,804,438				10,151,003
Total liabilities					15,079,922				15,980,735
EQUITY
Share capital		24			2,545,705				2,545,705
Retained earnings		24			496,771				536,190
Treasury Shares		24			(178	)			(178	)
Other reserves		24			677,006				1,320,179
Parent’s ownership interest					3,719,304				4,401,896
Non-controlling interest		13			90,454				101,799
Total equity					3,809,758				4,503,695
Total liabilities and equity					18,889,680				20,484,430

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

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF INCOME BY FUNCTION

 

				For the period ended
				March 31,
		Note		2015				2014
				ThUS$				ThUS$
				Unaudited
Revenue		25			2,693,849				3,091,256
Cost of sales					(2,037,285	)			(2,455,699	)
Gross margin					656,564				635,557
Other income		27			97,293				86,179
Distribution costs					(220,623	)			(250,688	)
Administrative expenses					(250,004	)			(255,621	)
Other expenses					(56,326	)			(103,017	)
Other gains/(losses)					6,214				(80,777	)
Income from operation activities					233,118				31,633
Financial income					18,490				19,541
Financial costs		26			(95,333	)			(131,384	)
Share of profit of investments accounted for using the equity method					—				(3,276	)
Foreign exchange gains/(losses)		28			(204,577	)			56,990
Result of indexation units					474				(28	)
Income (loss) before taxes					(47,828	)			(26,524	)
Income (loss) tax expense / benefit		17			23,553				(12,459	)
NET INCOME (LOSS) FOR THE PERIOD					(24,275	)			(38,983	)
Income (loss) attributable to owners of the parent					(39,947	)			(41,333	)
Income (loss) attributable to non-controlling interest		13			15,672				2,350
Net income (loss) for the year					(24,275	)			(38,983	)
EARNINGS PER SHARE
Basic earnings (losses) per share (US$)		29			(0.07322	)			(0.07576	)
Diluted earnings (losses) per share (US$)		29			(0.07322	)			(0.07576	)

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

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

						For the periods ended
						March 31,
		Note				2015				2014
						ThUS$				ThUS$
NET INCOME (LOSS)							(24,275	)			(38,983	)
Components of other comprehensive income that will be reclassified to income before taxes
Currency translation differences
Gains (losses) on currency translation, before tax			28				(726,740	)			144,422
Other comprehensive income, before taxes, currency translation differences							(726,740	)			144,422
Cash flow hedges
Gains (losses) on cash flow hedges before taxes			18				83,263				(27,328	)
Other comprehensive income (losses), before taxes, cash flow hedges							83,263				(27,328	)
Other components of other comprehensive income (loss), before taxes							(643,477	)			117,094
Income tax relating to other comprehensive income that will be reclassified to income
Income tax related to cash flow hedges in other comprehensive income							(21,366	)			1,909
Income taxes related to components of other comprehensive income that will be reclassified to income							(21,366	)			1,909
Other comprehensive income (loss)							(664,843	)			119,003
Total comprehensive income (loss)							(689,118	)			80,020
Comprehensive income (loss) attributable to owners of the parent							(687,176	)			78,344
Comprehensive income (loss) attributable to non-controlling interests							(1,942	)			1,676
TOTAL COMPREHENSIVE INCOME (LOSS)							(689,118	)			80,020

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

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

				Attributable to owners of the parent
												Change in other reserves
		Note		Share capital				Treasury shares				Currency translation reserve				Cash flow hedging reserve				Shares based payments reserve				Other sundry reserve				Total other reserve				Retained earnings				Parent’s ownership interest				Non- controlling interest				Total equity
				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Equity as of January 1, 2015					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
Total increase (decrease) in equity
Comprehensive income
Gain (losses)		24			—				—				—				—				—				—				—				(39,947	)			(39,947	)			15,672				(24,275	)
Other comprehensive income					—				—				(709,950	)			62,721				—								(647,229	)			—				(647,229	)			(17,614	)			(664,843	)
Total comprehensive income					—				—				(709,950	)			62,721				—				—				(647,229	)			(39,947	)			(687,176	)			(1,942	)			(689,118	)
Transactions with shareholders
Increase (decrease) through transfers and other changes, equity		24-33			—				—				—				—				2,128				1,928				4,056				528				4,584				(9,403	)			(4,819	)
Total transactions with shareholders					—				—				—				—				2,128				1,928				4,056				528				4,584				(9,403	)			(4,819	)
Closing balance as of March 31, 2015 (Unaudited)					2,545,705				(178	)			(1,903,821	)			(88,619	)			31,770				2,637,676				677,006				496,771				3,719,304				90,454				3,809,758

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

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

						Attributable to owners of the parent
														Change in other reserves
		Note				Share capital				Treasury shares				Currency translation reserve				Cash flow hedging reserve				Shares based payments reserve				Other sundry reserve				Total other reserve				Retained earnings				Parent’s ownership interest				Non- controlling interest				Total 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				—				—				—				—				—				—				—				(41,333	)			(41,333	)			2,350				(38,983	)
Other comprehensive income							—				—				146,434				(26,757	)			—				—				119,677				—				119,677				(674	)			119,003
Total comprehensive income							—				—				146,434				(26,757	)			—				—				119,677				(41,333	)			78,344				1,676				80,020
Transactions with shareholders
Equity issuance			24-33				156,321				—				—				—				—				—				—				—				156,321				—				156,321
Increase (decrease) through transfers and other changes, equity			24-33				—				—				—				—				3,533				509				4,042				(3	)			4,039				(4,126	)			(87	)
Total transactions with shareholders							156,321				—				—				—				3,533				509				4,042				(3	)			160,360				(4,126	)			156,234
Closing balance as of March 31, 2014 (Unaudited)							2,545,705				(178	)			(443,557	)			(61,265	)			24,544				2,658,309				2,178,031				753,967				5,477,525				85,188				5,562,713

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

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS DIRECT – METHOD

 

						For the periods ended
						March 31,
		Note				2015				2014
						ThUS$				ThUS$
						Unaudited
Cash flows from operating activities
Cash collection from operating activities
Proceeds from sales of goods and services							2,961,149				3,221,686
Other cash receipts from operating activities							23,622				24,709
Payments for operating activities
Payments to suppliers for goods and services							(1,778,734	)			(2,424,849	)
Payments to and on behalf of employees							(638,808	)			(669,386	)
Other payments for operating activities							(73,264	)			(113,362	)
Interest received							5,975				5,094
Income taxes refunded (paid)							(13,586	)			(22,558	)
Other cash inflows (outflows)			6				(123,659	)			6,970
Net cash flows from operating activities							362,695				28,304
Cash flows used in investing activities
Cash flows used to obtain control of subsidiaries or other businesses							—				2
Other cash receipts from sales of equity or debt instruments of other entities							143,825				201,491
Other payments to acquire equity or debt instruments of other entities							(26,241	)			(299,259	)
Amounts raised from sale of property, plant and equipment							5,254				514,218
Purchases of property, plant and equipment							(297,008	)			(194,926	)
Amounts raised from sale of intangible assets							17				13
Purchases of intangible assets							(2,402	)			(13,104	)
Other cash inflows (outflows)			6				3,800				(25,217	)
Net cash flow from (used in) investing activities							(172,755	)			183,218
Cash flows from (used in) financing activities
Amounts raised from issuance of shares							—				156,321
Amounts raised from long-term loans							129,299				83,608
Amounts raised from short-term loans							14,990				—
Loans repayments							(164,563	)			(1,121,751	)
Payments of finance lease liabilities							(76,312	)			(106,343	)
Dividends paid							(9,419	)			(400	)
Interest paid							(75,100	)			(116,548	)
Other cash inflows (outflows)			6				41,311				54,943
Net cash flows from (used in) financing activities							(139,794	)			(1,050,170	)
Net increase (decrease) in cash and cash equivalents before effect of exchanges rate change							50,146				(838,648	)
Effects of variation in the exchange rate on cash and cash equivalents							(80,382	)			15,084
Net increase (decrease) in cash and cash equivalents							(30,236	)			(823,564	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			6				989,396				1,984,903
CASH AND CASH EQUIVALENTS AT END OF PERIOD			6				959,160				1,161,339

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

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LATAM AIRLINES GROUP S.A AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF MARCH 31, 2015 (UNAUDITED)

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 March 31, 2015, the Company had a total of 1,640 registered shareholders. At that date approximately 6.16 % of the Company’s share capital was in the form of ADRs and approximately 0.52% in the form of BDRs.

For the period ended March 31, 2015, the Company had an average of 53,644 employees, ending this period with a total of 53,247 employees, spread over 7,117 Administrative employees, 7,252 in Maintenance, 20,459 in Operations, 9,197 in Cabin Crew, 4,057 in Controls Crew, and 5,165 in Sales.

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

 

a)	Participation rate

 

								As March 31, 2015												As December 31, 2014
				Country		Functional
Tax No.		Company		of origin		Currency		Direct				Indirect				Total				Direct				Indirect				Total
								%				%				%				%				%				%
								Unaudited
96.518.860-6		Lantours Division Servicios Terrestres S.A. y Filial		Chili		US$			99.9900				0.0100				100.0000				99.9900				0.0100				100.0000
96.763.900-1		Inmobiliaria Aeronáutica S.A.		Chili		US$			99.0100				0.9900				100.0000				99.0100				0.9900				100.0000
96.969.680-0		Lan Pax Group S.A. and Subsidiaries		Chili		US$			99.8361				0.1639				100.0000				99.8361				0.1639				100.0000
Foreign		Lan Perú S.A.		Peru		US$			49.0000				21.0000				70.0000				49.0000				21.0000				70.0000
Foreign		Lan Chile Investments Limited and Subsidiary		Cayman Insland		US$			99.9900				0.0100				100.0000				99.9900				0.0100				100.0000
93.383.000-4		Lan Cargo S.A.		Chili		US$			99.8939				0.0041				99.8980				99.8939				0.0041				99.8980
Foreign		Connecta Corporation		U.S.A.		US$			0.0000				100.0000				100.0000				0.0000				100.0000				100.0000
Foreign		Prime Airport Services Inc. y Filial		U.S.A.		US$			0.0000				100.0000				100.0000				0.0000				100.0000				100.0000
96.951.280-7		Transporte Aéreo S.A.		Chili		US$			0.0000				100.0000				100.0000				0.0000				100.0000				100.0000
96.634.020-7		Ediciones Ladeco América S.A.		Chili		CLP			0.0000				100.0000				100.0000				0.0000				100.0000				100.0000
Foreign		Aircraft International Leasing Limited		U.S.A.		US$			0.0000				100.0000				100.0000				0.0000				100.0000				100.0000
96.631.520-2		Fast Air Almacenes de Carga S.A.		Chili		CLP			0.0000				100.0000				100.0000				0.0000				100.0000				100.0000
96.631.410-9		Ladeco Cargo S.A.		Chili		CLP			0.0000				100.0000				100.0000				0.0000				100.0000				100.0000
Foreign		Laser Cargo S.R.L.		Argentina		ARS			0.0000				100.0000				100.0000				0.0000				100.0000				100.0000
Foreign		Lan Cargo Overseas Limited and Subsidiaries		Bahamas		US$			0.0000				100.0000				100.0000				0.0000				100.0000				100.0000
96.969.690-8		Lan Cargo Inversiones S.A. y Filial		Chili		CLP			0.0000				100.0000				100.0000				0.0000				100.0000				100.0000
96.575.810-0		Inversiones Lan S.A. and Subsidiaries		Chili		CLP			99.7100				0.2900				100.0000				99.7100				0.0000				99.7100
Foreign		TAM S.A. and Subsidiaries (*)		Brazil		BRL			63.0901				36.9099				100.0000				63.0901				36.9099				100.0000

 

(*)

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.

 

2

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b)	Statement of financial position

 

				Statement of financial position																								Net Income
																												For the periods ended
				As of March 31, 2015												As of December 31, 2014												March 31,
																												2015				2014
Tax No.		Company		Assets				Liabilities				Equity				Assets				Liabilities				Equity				Gain /(loss)
				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
				Unaudited																								Unaudited
96.518.860-6		Lantours Division Servicios Terrestres S.A. y Filial			5,730				4,043				1,687				3,229				2,289				940				737				720
96.763.900-1		Inmobiliaria Aeronáutica S.A.			39,754				15,890				23,864				39,920				16,854				23,066				798				632
96.969.680-0		Lan Pax Group S.A. and Subsidiaries (*)			602,280				1,030,726				(422,599	)			640,020				1,065,157				(426,016	)			9,677				(1,206	)
Foreign		Lan Perú S.A.			259,364				234,621				24,743				239,470				228,395				11,075				15,058				(7,408	)
Foreign		Lan Chile Investments Limited and Subsidiary (*)			2,016				1				2,015				2,015				—				2,015				—				(3	)
93.383.000-4		Lan Cargo S.A.			563,822				235,178				328,644				575,979				234,772				341,207				(12,563	)			(14,384	)
Foreign		Connecta Corporation			39,012				39,089				(77	)			27,431				28,853				(1,422	)			1,345				40
Foreign		Prime Airport Services Inc. y Filial (*)			20,175				24,822				(4,647	)			18,120				22,897				(4,777	)			129				(226	)
96.951.280-7		Transporte Aéreo S.A.			366,840				147,676				219,164				367,570				147,278				220,292				(1,129	)			6,820
96.634.020-7		Ediciones Ladeco América S.A.			—				469				(469	)			—				484				(484	)			—				—
Foreign		Aircraft International Leasing Limited			—				4				(4	)			—				—				—				(4	)			—
96.631.520-2		Fast Air Almacenes de Carga S.A.			9,035				3,068				5,967				9,601				3,912				5,689				458				54
96.631.410-9		Ladeco Cargo S.A.			336				12				324				346				13				333				—				2
Foreign		Laser Cargo S.R.L.			39				204				(165	)			41				138				(97	)			(71	)			(39	)
Foreign		Lan Cargo Overseas Limited and Subsidiaries (*)			70,391				48,323				19,482				60,634				46,686				12,218				7,060				(9,218	)
96.969.690-8		Lan Cargo Inversiones S.A. y Filial (*)			62,715				66,602				(3,949	)			45,589				59,768				(12,711	)			8,765				(2,913	)
96.575.810-0		Inversiones Lan S.A. and Subsidiaries (*)			15,728				13,585				2,110				16,035				14,746				1,272				874				699
Foreign		TAM S.A. and Subsidiaries (*) (**)			6,011,366				5,182,653				749,694				6,817,698				5,809,529				912,634				(14,978	)			28,094

 

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

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

Additionally, has proceeded to consolidate the following special purpose entities: 1) JOL (Japanese Operating Lease) created in order to finance the purchase of certain aircraft; 2) Chercán Leasing Limited created to finance the pre-delivery payments on aircraft; 3) Guanay Finance Limited created to issue a bond collateralized with future credit card receivables, and 4) Private investment funds. These companies have been consolidated as required by IFRS 10.

All the entities controlled have been included in the consolidation.

 

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Changes in the scope of consolidation between January 1, 2014 and March 31, 2015, are detailed below:

 

(1)	Incorporation or acquisition of companies

 

•

Lan Pax Group S.A., a subisidiary of Latam Airlines Group S. A., was the direct owner of 55% of Aerolane Líneas Aéreas Nacionales del Ecuador S.A.. During 2014, Lan Pax Group S.A. obtained 100% of the economic rights in Aerolane, through its participation in the company Holdco Ecuador S.A., who is the owner of the 45% remaining of Aerolane. By this Lan Pax Group S.A. is the owner of 20% of shares with voting rights and is owner of 100% with the economic rights of Holdco Ecuador S.A.. As Latam Airlines Group S. A.already controlled Aerolane Líneas Aéreas Nacionales del Ecuador S.A.for accouting purposes, this transaction was recorded as a transaction with non-controlling interests.

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 March 31, 2015, and have been prepared 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).

As explained in notes 2.17 and 17, on September 29, 2014 Law No. 20,780 was issued, which introduces modifications to the income tax system in Chile and other tax matters. On October 17, 2014 the Chilean Superintendence of Securities and Insurance (the “SVS”) issued Circular No. 856, which established that the effects of the change in the income tax rates on deferred tax assets and liabilities must be recognized directly within “Retained earnings” instead of the income statement as required by IAS 12.

 

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In order to comply with IAS 12, these financial statements are different to those presented to the SVS as the aforementioned effect has been recognized within the income statement. A reconciliation of such differences in presented as follows:

 

As of December 31, 2014
		Consolidated				Consolidated
		Financial				Financial
		Statements				Statements
		for SEC				for SVS				Difference
		ThUS$				ThUS$				ThUS$
Total Equity
Parent’s ownership
Retained earnings
Net Income (Loss) for the period			(259,985	)			(109,790	)			(150,195	)
Retained earnings for the last period			796,175				645,980				150,195
Total Retained earnings			536,190				536,190				—
Non-controlling
Retained earnings
Net Income (Loss) for the period			32,814				32,829				(15	)
Retained earnings for the last period			17,099				17,084				15
Total Retained earnings			49,913				49,913				—

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. These interim consolidated financial statements have been prepared under IAS 34.

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

 

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(a) Accounting pronouncements with implementation effective from January 1, 2015:

 

				Mandatory
				Application:
		Date of issue		Annual periods
(i) Standards and amendments				beginning on or after
Amendment to IAS 19: Employee Benefits		November 2013		07/01/2014
				Mandatory
				Application:
		Date of issue		Annual periods
(ii) Improvements				beginning on or after
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 not yet in force for financial years beginning on January 1, 2015 and which has not been effected early adoption

 

				Mandatory
				Application:
		Date of issue		Annual periods
(i) Standards and amendments				beginning on or after
IFRS 9: Financial instruments.		December 2009		01/01/2018
IFRS 15: Revenue from contracts with customers.		May 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

 

6

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				Mandatory
				Application:
		Date of issue		Annual periods
(i) Standards and amendments				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
(ii) 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.

 

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 is 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.

 

8

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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.

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.

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.

 

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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.

 

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.

 

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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.

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.

 

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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.

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.

 

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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.

 

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.

 

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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.

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.

 

 

14

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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 projected unit credit method, 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;

 

(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.

 

15

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(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 non - 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.

 

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.

 

16

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(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, the recovery is request to the lessor. At the end of the contract period, the balance between paid reservations and conditions agreed with levels of maintain in delivering, offsetting the parties if applicable.

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.

 

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NOTE 3 - FINANCIAL RISK MANAGEMENT

 

3.1.	Financial risk factors

The Company is exposed to different financial risks: (a) market risk, (b) credit risk, and (c) liquidity risk. The program overall risk management of the Company aims to minimize the adverse effects of financial risks affecting the company.

 

(a)	Market risk

Due to the nature of its operations, the Company is exposed to market factors such as: (i) fuel-price risk, (ii) exchange -rate risk, and (iii) interest -rate risk

The Company has developed policies and procedures for managing market risk, which aim to identify, quantify, monitor and mitigate the adverse effects of changes in market factors mentioned above.

For this, the Administration monitors the evolution of price levels and rates, and quantifies their risk exposures (Value at Risk), and develops and implements hedging strategies.

 

(i)	Fuel-price risk:

Exposition:

For the execution of its operations the Company purchases a fuel called Jet Fuel grade 54USGC, which it is subject to the fluctuations of international fuel prices.

Mitigation:

To cover the risk exposure fuel, the Company operates with derivative instruments (swaps and options) whose underlying assets may be different from Jet Fuel, given that it 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.

Fuel Hedging Results:

During the first quarter of 2015, the company restructured the 13% and 15% of the portfolio of derivative instruments of the first and second quarter of 2015, respectively.

During the first quarter of 2015, the Company recognized losses of US$ 104.7 million on fuel derivative. During the same period of 2014, the Company recognized gains of US$ 0.5 million for the same reason.

 

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At March 31, 2015, the market value of its fuel positions amounted to US$ 79.1 million (negative). At December 31, 2014, this market value was US$ 157.2 million (negative).

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

 

Positions as of March 31, 2015 (Unaudited) (*)		Maturities
		Q215				Q315				Q415				Total
Percentage of the hedge of expected consumption value			25	%			44	%			34	%			35	%

 

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

 

Positions as of December 31, 2014 (*)		Maturities
		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).

Sensitivity analysis

A drop in fuel price positively affects the Company through a reduction in costs. However, 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.

The current hedge positions they are booked as cash flow hedge contracts, so a variation in the fuel price has an impact on the Company’s net equity.

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 analysis was performed on all outstanding positions at end of each period presented.

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 March, 2015 and the end of December, 2014.

 

Benchmark price         (US$ per barrel)		Positions as of March 31, 2015         effect on equity (millions of US$)		Positions as of December 31, 2014         effect on equity (millions of US$)
		(Unaudited)
+5		+12.73		+24.90
-5		-13.16		-25.06

 

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Given the fuel hedge structure during the first quarter of 2015, 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$ 34.1 million in the cost of total fuel consumption for the same period. For the first quarter of 2015, 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$ 33.3 million of increased fuel costs.

 

(ii)	Foreign exchange rate risk:

Exposition:

The functional and presentation currency of the Financial Statements of the Parent Company is the United States dollar, so the risk of Transactional exchange rate and Conversion arises mainly from its own operating activities of the business, strategic and accounting of the Company are denominated in a different currency than the functional currency.

As well, TAM S.A. and LATAM Subsidiaries are also exposed to currency risk that impacts the consolidated results of the Company.

Most currency exposure of LATAM comes from the concentration of business in Brazil, which are mostly denominated in Brazilian Real (BRL), being actively managed by the company.

Additionally, the company manages the economic exposure to operating revenues in Euro (EUR) and Pound Sterling (GBP).

In lower concentrations the Company is therefore exposed to fluctuations in others currencies, such as: Chilean peso, Argentine peso, Paraguayan guaraní, Mexican peso, Peruvian sol, Colombian peso, Australian dollar and New Zealand dollar.

Mitigation:

The Company mitigates currency risk exposures by contracting derivative instruments or through natural hedges or execution of internal operations.

FX Hedging Results:

With the aim of reducing exposure to exchange rate risk on operating cash flows in 2015 and secure the operating margin, LATAM and TAM conduct hedging through FX derivatives.

At March 31, 2015, the market value of its FX positions amounted to US$ 13.1 million (positive). At end of December 2014 the market value was of US$ 0.1 million (negative).

During the period ended at March 31, 2015 the Company recognized gains of US$ 7.5 million on hedging FX. During the same period of 2014 the Company recognized gains of US$ 6.9 million on hedging FX.

 

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At end of March 2015, the Company has contracted FX derivatives for US$ 235 million to BRL, US$ 252 million to EUR and US$ 82 million to GBP. At end of December 2014, the Company had contracted derivatives for US$ 100 million to BRL, while for EUR and GBP there were no current positions.

Sensitivity analysis:

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

The FX derivatives are registered for as hedges of cash flow, therefore, a variation in the exchange rate has an impact on the market value of derivatives, whose changes impact on the Company’s net equity.

The following table presents the sensitivity of derivative FX Forward instruments agrees with reasonable changes to exchange rate and its effect on equity. The analysis was performed on all outstanding positions at end of each period presented:

 

Appreciation (depreciation)         of R$/US$		Effect at March 31, 2015         Millions of US$		Effect at December 31, 2014         Millions of US$
		(Unaudited)
-10%		-57.02		-9.98
+10%		+57.01		+9.98

In the case of TAM S.A, which operates with the Brazilian Real as its functional currency, a large proportion of the company’s assets 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 March 31, 2015         Millons of US$		Effect at December 31, 2014         Millons of US$
		(Unaudited)
-10%		+67.0		+69.8
+10%		-67.0		-69.8

 

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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 March 31, 2015         Millions of US$		Effect at December 31, 2014         Millions of US$
		(Unaudited)
-10%		+383.59		+464.01
+10%		-313.85		-379.69

 

(iii)

Interest -rate risk:

Exposition:

The Company is exposed to fluctuations in interest rates affecting the markets future cash flows of the assets, and current and future financial liabilities.

The Company is exposed in one portion to the variations of London Inter-Bank Offer Rate (“LIBOR”) and other interest rates of less relevance are Brazilian Interbank Deposit Certificate (“ILC”), and the Interest Rate Term of Brazil (“TJLP”).

Mitigation:

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 67% (69% at December 31, 2014) of the debt is fixed to fluctuations in interest rate.

 

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Rate Hedging Results:

At March 31, 2015, the market value of the positions of interest rate derivatives amounted to ThUS$ 61.1 million (negative). At end of December 2014 this market value was ThUS$ 60.7 million (negative).

Sensitivity analysis:

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) futures curve         in libor 3 months		Positions as of March 31, 2015         effect on profit or loss before tax         (millions of US$)		Positions as of December 31, 2014         effect on profit or loss before tax         (millions of US$)
		(Unaudited)
+100 basis points		-27.65		-27.53
-100 basis points		+27.65		+27.53

Much of the current rate derivatives are registered for as hedges of cash flow, therefore, a variation in the exchange rate has an impact on the market value of derivatives, whose changes impact on the Company’s net equity.

The calculations were made increasing (decreasing) vertically 100 basis points of the three-month Libor futures curve, being both reasonably possible scenarios according to historical market conditions.

 

Increase (decrease) futures curve         in libor 3 months		Positions as of March 31, 2015         effect on equity (millions of US$)		Positions as of December 31, 2014         effect on equity (millions of US$)
		(Unaudited)
+100 basis points		+13.78		+15.33
-100 basis points		-14.33		-15.95

The assumptions of sensitivity calculation must assume that forward curves of interest rates do not necessarily reflect the real value of the compensation flows. Moreover, the structure of interest rates is dynamic over time.

During the periods presented, the Company has no registered amounts by ineffectiveness in consolidated statement of income for this kind of hedging.

 

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(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.

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.

 

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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.

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 March 31, 2015 (Unaudited)

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

 

												More than				More than				More than
								Up to				90 days				one to				three to				More than
				Creditor				90				to one				three				five				five								Nominal						Effective				Nominal
Tax No.		Creditor		country		Currency		days				year				years				years				years				Total				value				Amortization		rate				rate
								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Loans to exporters
97.032.000-8		BBVA		Chili		CLP			100,620				—				—				—				—				100,620				99,716			At expiration			3.61				3.61
97.036.000-K		SANTANDER		Chili		US$			60,083				—				—				—				—				60,083				60,000			At expiration			0.74				0.74
97.006.000-6		ESTADO		Chili		US$			55,085				—				—				—				—				55,085				55,000			At expiration			0.61				0.61
97.030.000-7		BCI		Chili		US$			100,226				—				—				—				—				100,226				100,000			At expiration			0.90				0.90
97.951.000-4		HSBC		Chili		US$			12,010				—				—				—				—				12,010				12,000			At expiration			0.50				0.50
Bank loans
97.023.000-9		CORPBANCA		Chili		UF			15,801				46,594				116,702				3,063				—				182,160				168,491			Quarterly			4.85				4.85
0-E		CITIBANK		Argentina		ARS			12,323				5,803				—				—				—				18,126				17,003			Monthly			31.00				31.00
0-E		BBVA		Argentina		ARS			1,660				21,024				—				—				—				22,684				20,404			Monthly			33.00				33.00
97.036.000-K		SANTANDER		Chili		US$			1,743				2,805				340,104				—				—				344,652				340,104			Quarterly			2.36				2.36
Guaranteed obligations
0-E		CREDIT AGRICOLE		France		US$			—				81,523				170,051				61,975				30,697				344,246				360,046			Quarterly			1.71				1.71
0-E		BNP PARIBAS		U.S.A.		US$			9,722				29,431				80,614				83,139				179,893				382,799				343,402			Quarterly			2.15				2.06
0-E		WELLS FARGO		U.S.A.		US$			35,558				106,794				285,464				286,480				662,261				1,376,557				1,272,617			Quarterly			2.26				1.57
0-E		CITIBANK		U.S.A.		US$			19,269				58,123				157,334				160,877				327,470				723,073				667,491			Quarterly			2.26				1.51
97.036.000-K		SANTANDER		Chili		US$			5,516				16,640				45,119				46,228				67,728				181,231				175,214			Quarterly			1.34				0.80
0-E		BTMU		U.S.A.		US$			2,949				8,906				24,209				24,894				49,414				110,372				104,996			Quarterly			1.66				1.06
0-E		APPLE BANK		U.S.A.		US$			1,449				4,378				11,908				12,268				24,777				54,780				52,094			Quarterly			1.65				1.06
0-E		US BANK		U.S.A.		US$			18,704				55,991				148,464				147,200				358,464				728,823				634,000			Quarterly			3.99				2.81
0-E		DEUTSCHE BANK		U.S.A.		US$			5,882				17,686				45,552				30,451				74,762				174,333				150,728			Quarterly			3.27				3.27
0-E		NATIXIS		France		US$			12,795				38,789				107,256				103,326				279,010				541,176				486,241			Quarterly			1.89				1.85
0-E		HSBC		U.S.A.		US$			1,574				4,739				12,784				12,998				30,080				62,175				57,665			Quarterly			2.34				1.53
0-E		PK AIRFINANCE US, INC.		U.S.A.		US$			2,103				6,447				18,295				20,077				26,147				73,069				67,966			Monthly			1.87				1.87
0-E		KFW IPEX-BANK		Germany		US$			700				2,152				6,126				4,309				3,253				16,540				15,477			Quarterly			2.12				2.12
Other guaranteed obligations
0-E		DVB BANK SE		U.S.A.		US$			8,212				24,658				24,693				—				—				57,563				56,369			Quarterly			2.00				2.00
Financial leases
0-E		ING		U.S.A.		US$			9,156				27,584				55,503				32,202				8,108				132,553				118,783			Quarterly			4.90				4.38
0-E		CREDIT AGRICOLE		France		US$			1,665				5,082				12,446				—				—				19,193				18,831			Quarterly			1.22				1.22
0-E		CITIBANK		U.S.A.		US$			6,083				18,250				48,667				46,658				10,188				129,846				111,040			Quarterly			6.40				5.67
0-E		PEFCO		U.S.A.		US$			17,550				52,683				134,178				55,691				1,950				262,052				237,655			Quarterly			5.36				4.76
0-E		BNP PARIBAS		U.S.A.		US$			11,285				33,999				92,009				52,682				7,527				197,502				182,216			Quarterly			4.13				3.67
0-E		WELLS FARGO		U.S.A.		US$			5,595				16,783				44,696				44,600				40,824				152,498				134,952			Quarterly			3.98				3.53
0-E		DVB BANK SE		U.S.A.		US$			4,712				14,166				28,481				—				—				47,359				46,113			Quarterly			1.91				1.91
0-E		US BANK		U.S.A.		US$			279				11,422				—				—				—				11,701				11,701			Monthly			—				—
0-E		BANC OF AMERICA		U.S.A.		US$			703				2,724				3,061				—				—				6,488				4,962			Monthly			1.41				1.41
Other loans																													—
0-E		BOEING		U.S.A.		US$			—				6,419				227,316				—				—				233,735				226,503			At expiration			1.74				1.74
0-E		CITIBANK (*)		U.S.A.		US$			6,675				39,611				209,730				209,778				78,742				544,536				450,000			Quarterly			6.00				6.00
Hedging derivatives
—		OTHERS		—		US$			11,635				31,028				49,388				5,036				201				97,288				92,414			—			—				—
Non - hedging derivatives
—		OTHERS		—		US$			314				314				—				—				—				628				151			—			—				—
		Total							559,636				792,548				2,500,150				1,443,932				2,261,496				7,557,762				6,952,345

 

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

 

26

---

Class of liability for the analysis of liquidity risk ordered by date of maturity as of March 31, 2015 (Unaudited)

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

 

												More than				More than				More than
								Up to				90 days				one to				three to				More than
				Creditor				90				to one				three				five				five								Nominal						Effective				Nominal
Tax No.		Creditor		country		Currency		days				year				years				years				years				Total				value				Amortization		rate				rate
								ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$						%				%
Bank loans
0-E		NEDERLANDSCHE
		CREDIETVERZEKERING MAATSCHAPPIJ		Holland		US$			183				493				1,315				1,315				1,204				4,510				3,688			Monthly			6.01				6.01
Obligation with the public
0-E		THE BANK OF NEW YORK		U.S.A.		US$			32,858				63,074				480,443				446,705				565,069				1,588,149				1,100,000			At Expiration			7.90				7.45
Financial leases
0-E		AFS INVESTMENT IX LLC		U.S.A.		US$			2,799				7,701				20,530				20,521				5,983				57,534				49,257			Monthly			1.25				1.25
0-E		AIRBUS FINANCIAL		U.S.A.		US$			3,648				10,793				26,939				15,949				5,725				63,054				59,831			Monthly			1.43				1.43
0-E		CREDIT AGRICOLE-CIB		U.S.A.		US$			2,886				29,965				—				—				—				32,851				32,466			Quarterly			1.10				1.10
0-E		CREDIT AGRICOLE-CIB		France		US$			1,629				7,622				—				—				—				9,251				9,000			Quarterly/ Semiannual			3.25				3.25
0-E		DVB BANK SE		Germany		US$			3,216				6,281				—				—				—				9,497				9,375			Quarterly			2.50				2.50
0-E		DVB BANK SE		U.S.A.		US$			205				473				645				—				—				1,323				1,295			Monthly			1.64				1.64
0-E		GENERAL ELECTRIC CAPITAL
		CORPORATION		U.S.A.		US$			3,772				11,303				20,487				—				—				35,562				34,552			Monthly			1.25				1.25
0-E		KFW IPEX-BANK		Germany		US$			3,804				10,769				17,619				14,079				3,583				49,854				47,441			Monthly/ Quarterly			1.72				1.72
0-E		NATIXIS		France		US$			3,502				10,917				28,031				28,715				83,381				154,546				136,805			Quarterly/ Semiannual			3.85				3.85
0-E		PK AIRFINANCE US, INC.		U.S.A.		US$			1,402				4,135				19,306				—				—				24,843				24,085			Monthly			1.75				1.75
0-E		WACAPOU LEASING S.A.		Luxemburg		US$			557				1,493				3,467				2,767				12,916				21,200				19,566			Quarterly			2.00				2.00
0-E		SOCIÉTÉ GÉNÉRALE MILAN BRANCH		Italy		US$			12,139				31,731				85,339				86,019				151,047				366,275				336,346			Quarterly			3.63				3.55
0-E		BANCO IBM S.A		Brazil		BRL			301				950				2,527				—				—				3,778				2,896			Monthly			10.58				10.58
0-E		HP FINANCIAL SERVICE		Brazil		BRL			228				686				915				—				—				1,829				1,659			Monthly			9.90				9.90
0-E		SOCIÉTÉ GÉNÉRALE		France		BRL			126				369				1,151				12				—				1,658				1,256			Monthly			12.60				12.60
Other loans
0-E		COMPANHIA BRASILEIRA DE MEIOS DE PAGAMENTO		Brazil		BRL			25,072				12,897				—				—				—				37,969				37,969			Monthly			4.23				4.23
		Total							98,327				211,652				708,714				616,082				828,908				2,463,683				1,907,487

 

27

---

Class of liability for the analysis of liquidity risk ordered by date of maturity as of March 31, 2015 (Unaudited)

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$			556,666				15,099				—				—				—				571,765				571,765			—			—				—
						USD			1,109				9,341				—				—				—				10,450				10,350			Quarterly			2.14				2.14
						CLP			72,322				10				—				—				—				72,332				72,332			—			—				—
						BRL			169,489				12				—				—				—				169,501				169,501			—			—				—
						Others currencies			216,386				38				—				—				—				216,424				216,424			—			—				—
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			11				—				—				—				—				11				11			—			—				—
0-E		INVERSORA AERONÁUTICA ARGENTINA		Argentina		US$			44				—				—				—				—				44				44			—			—				—
		Total							1,016,029				24,500				—				—				—				1,040,529				1,040,429
		Total consolidated							1,673,992				1,028,700				3,208,864				2,060,864				3,090,404				11,062,824				9,900,261

 

28

---

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 SE		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.

 

29

---

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

 

30

---

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

 

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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 2014, the Company provided US$ 91.8 million in derivative margin guarantees, for cash and stand-by letters of credit. At March 31, 2015, the Company had provided US$ 91.1 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 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). On March 24, 2015 the agency S&P confirmed the long-term rating of BB with stable perspective and the rating agency Fitch has issued on April 1, 2015 a new long-term rating for the Company of BB- with stable perspective. Additionally, on April 7, 2015, the rating agency Moody’s began coverage with a long term rating of Ba2, with a stable perspective.

 

32

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Adjusted leverage ratios:

 

		As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
		Unaudited
Total financial loans			8,758,400				8,817,215
Last twelve months Operating lease payment x 8			4,179,320				4,171,072
Less:
Cash and marketable securities			(1,364,497	)			(1,533,770	)
Total net adjusted debt			11,573,223				11,454,517
Net Equity			3,719,304				4,401,896
Cash flow hedging reserve			88,619				151,340
Adjusted equity			3,807,923				4,553,236
Total adjusted debt and equity			15,381,146				16,007,753
Adjusted leverage			75.2	%			71.6	%

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

 

3.3.	Estimates of fair value.

At March 31, 2015, 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

 

33

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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.

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

 

		As of March 31, 2015 (Unaudited)																As of December 31, 2014
						Fair value measurements using values																Fair value measurements using values
						considered as																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			201,173				201,173				—				—				200,753				200,753				—				—
Short-term mutual funds			201,173				201,173				—				—				200,753				200,753				—				—
Other financial assets, current			430,700				405,337				25,363				—				546,535				526,081				20,454				—
Fair value of interest rate derivatives			—				—				—				—				1				—				1				—
Fair value of fuel derivatives			5,528				—				5,528				—				1,783				—				1,783				—
Fair value of foreign currency derivatives			19,656				—				19,656				—				—				—				—				—
Interest accrued since the last payment date of Cross Currency Swap			179				—				179				—				377				—				377				—
Private investment funds			356,670				356,670				—				—				480,777				480,777				—				—
Certificate of deposit CDB			—				—				—				—				18,293				—				18,293				—
Domestic and foreign bonds			48,667				48,667				—				—				41,111				41,111				—				—
Time deposit			—				—				—				—				—				—				—				—
Other investments			—				—				—				—				4,193				4,193				—				—
Liabilities
Other financial liabilities, current			156,603				—				156,603				—				227,233				—				227,233				—
Fair value of interest rate derivatives			30,215				—				30,215				—				26,395				—				26,395				—
Fair value of fuel derivatives			79,112				—				79,112				—				157,233								157,233
Fair value of foreign currency derivatives			41,843				—				41,843				—				37,242				—				37,242				—
Interest accrued since the last payment date of Currency Swap			4,874				—				4,874				—				5,173				—				5,173				—
Interest rate derivatives not recognized as a hedge			559				—				559								1,190								1,190
Other financial liabilities, non current			28,478				—				28,478				—				28,327				—				28,327				—
Fair value of interest rate derivatives			28,478				—				28,478				—				28,327				—				28,327				—

 

34

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Additionally, at March 31, 2015, 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 March 31, 2015								As of December 31, 2014
		Book value				Fair value				Book value				Fair value
		ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited
Cash and cash equivalents			757,987				757,987				788,643				788,643
Cash on hand			8,468				8,468				11,568				11,568
Bank balance			169,729				169,729				239,514				239,514
Overnight			160,839				160,839				154,666				154,666
Time deposits			418,951				418,951				382,895				382,895
Other financial assets, current			38,654				38,654				103,866				103,866
Other financial assets			38,654				38,654				103,866				103,866
Trade and other accounts receivable current			1,016,988				1,016,988				1,378,837				1,378,837
Accounts receivable from related entities			313				313				308				308
Other financial assets, non current			79,842				79,842				84,986				84,986
Accounts receivable			29,590				29,590				30,465				30,465
Other financial liabilities, current			1,425,510				1,574,064				1,397,382				1,446,100
Trade and other accounts payables			1,332,362				1,332,362				1,489,396				1,489,396
Accounts payable to related entities			57				57				35				35
Other financial liabilities, non current			7,272,962				7,272,962				7,360,685				8,319,022
Accounts payable, non-current			543,077				543,077				577,454				577,454

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.

 

35

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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.

 

(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.

 

36

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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 12.9 million of members, along with being a regulated entity with a separately business and not directly related to air transport.

 

37

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(a) For the periods ended

 

		Air transportation At March 31,								Coalition and loyalty program Multiplus At March 31,								Eliminations At March 31,								Consolidated At March 31,
		2015				2014				2015				2014				2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited
Income from ordinary activities from external customers (*)			2,561,740				2,990,540				132,109				100,716				—				—				2,693,849				3,091,256
LAN passenger			1,128,658				1,174,194				—				—				—				—				1,128,658				1,174,194
TAM passenger			1,082,760				1,413,701				132,109				100,716				—				—				1,214,869				1,514,417
Freight			350,322				402,645				—				—				—				—				350,322				402,645
Income from ordinary activities from transactions with other operating segments			132,109				100,716				14,426				53,113				(146,535	)			(153,829	)			—				—
Other operating income			50,624				51,503				46,669				34,676				—				—				97,293				86,179
Interest income			9,279				6,495				12,798				13,046				(3,587	)			—				18,490				19,541
Interest expense			(98,920	)			(131,384	)			—				—				3,587				—				(95,333	)			(131,384	)
Total net interest expense			(89,641	)			(124,889	)			12,798				13,046				—				—				(76,843	)			(111,843	)
Depreciation and amortization			(214,252	)			(244,147	)			(3,910	)			(1,443	)			—				—				(218,162	)			(245,590	)
Material non-cash items other than depreciation and amortization			(214,252	)			51,412				86				(17	)			—				—				(214,166	)			51,395
Disposal of fixed assets and inventory losses			(6,879	)			(2,214	)			—				(32	)			—				—				(6,879	)			(2,246	)
Doubtful accounts			(3,177	)			(3,346	)			(7	)			25				—				—				(3,184	)			(3,321	)
Exchange differences			(204,670	)			57,000				93				(10	)			—				—				(204,577	)			56,990
Result of indexation units			474				(28	)			—				—				—				—				474				(28	)
Income (loss) attributable to owners of the parents			(73,359	)			(69,635	)			33,412				28,302				—				—				(39,947	)			(41,333	)
Participation of the entity in the income of associates			—				(2,413	)			—				(863	)			—				—				—				(3,276	)
Expenses for income tax			40,640				5,351				(17,087	)			(17,810	)			—				—				23,553				(12,459	)
Segment profit / (loss)			(57,687	)			(67,285	)			33,412				2,830				—				—				(24,275	)			(64,455	)
Assets of segment			17,953,630				19,726,483				1,054,936				1,960,138				(118,886	)			(7,763	)			18,889,680				21,678,858
Investments in associates			—				1,160				—				2,236				—				—				—				3,396
Amount of non-current asset additions			172,829				167,309				—				—				—				—				172,829				167,309
Property, plant and equipment			166,397				146,942				—				—				—				—				166,397				146,942
Intangibles other than goodwill			6,432				20,367				—				—				—				—				6,432				20,367
Segment liabilities			14,635,848				15,452,593				444,345				794,190				(271	)			(130,638	)			15,079,922				16,116,145
Purchase of non-monetary assets of segment			299,410				208,030				—				—				—				—				299,410				208,030

 

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

 

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

 

		For the periods ended At March 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Peru			163,314				153,109
Argentina			253,250				245,605
U.S.A.			277,513				325,902
Europe			195,355				249,335
Colombia			96,323				83,269
Brazil			1,039,517				1,281,888
Ecuador			61,463				56,513
Chili			425,536				423,411
Asia Pacific and rest of Latin America			181,578				272,224
Income from ordinary activities			2,693,849				3,091,256
Other operating income			97,293				86,179

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 March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
		Unaudited
Cash on hand			8,468				11,568
Bank balances			169,729				239,514
Overnight			160,839				154,666
Total Cash			339,036				405,748
Cash equivalents
Time deposits			418,951				382,895
Mutual funds			201,173				200,753
Total cash equivalents			620,124				583,648
Total cash and cash equivalents			959,160				989,396

 

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Cash and cash equivalents are denominated in the following currencies:

 

Currency		As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
		Unaudited
Argentine peso			50,261				44,697
Brazilian real			49,378				45,591
Chilean peso (*)			257,256				30,758
Colombian peso			15,561				17,188
Euro			7,346				9,639
US Dollar			488,681				745,214
Strong bolivar (**)			62,513				63,236
Other currencies			28,164				33,073
Total			959,160				989,396

 

(*)	The Company maintains currency derivative contracts (forward) at March 31, 2015, for ThUS$ 115,062 (at December 31, 2014 no maintains currency derivative contracts (forward)), 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$, which represented a charge in results for the period 2014 by foreign exchange, equivalent amount of ThUS$ 61,021.

At end of the first quarter of 2015, the Company has maintained the exchange rate of Strong Bolivar in 12.0 VEF/US$.

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
		March 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Currency hedge			(3,748	)			5,478
Fuel hedge			(131,229	)			5,027
Hedging margin guarantees			69,658				7,984
Guarantees			(54,174	)			(6,736	)
Fuel derivatives premiums			(3,745	)			(1,385	)
Bank commissions, taxes paid and other			(421	)			(3,398	)
Total Other inflows (outflows) Operation flow			(123,659	)			6,970
Certificate of bank deposits			3,800				(25,217	)
Total Other inflows (outflows) Investment flow			3,800				(25,217	)
Aircraft Financing advances			46,997				62,993
Credit card loan manager			2,814				3,185
Settlement of derivative contracts			(10,048	)			(11,235	)
Finance charges by transfer of the rights			1,548				—
Total Other inflows (outflows) Financing flow			41,311				54,943

 

41

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NOTE 7 - FINANCIAL INSTRUMENTS

 

7.1.	Financial instruments by category

As of March 31, 2015 (Unaudited)

 

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			757,987				—				—				201,173				959,160
Other financial assets, current (*)			38,654				25,363				48,667				356,670				469,354
Trade and others accounts receivable, current			1,016,988				—				—				—				1,016,988
Accounts receivable from related entities, current			313				—				—				—				313
Other financial assets, non current (*)			79,351				—				491				—				79,842
Accounts receivable, non current			29,590				—				—				—				29,590
Total			1,922,883				25,363				49,158				557,843				2,555,247
Liabilities						Other financial liabilities				Hedge derivatives				Held for trading				Total
						ThUS$				ThUS$				ThUS$				ThUS$
Other liabilities, current							1,425,510				156,044				559				1,582,113
Trade and others accounts payable, current							1,360,225				—				—				1,360,225
Accounts payable to related entities, current							57				—				—				57
Other financial liabilities, non-current							7,272,962				28,478				—				7,301,440
Accounts payable, non-current							543,077				—				—				543,077
Total							10,601,831				184,522				559				10,786,912

 

(*)	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.

 

42

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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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7.2.	Financial instruments by currency

 

a)        Assets		As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
		Unaudited
Cash and cash equivalents			959,160				989,396
Argentine peso			50,261				44,697
Brazilian real			49,378				45,591
Chilean peso			257,256				30,758
Colombian peso			15,561				17,188
Euro			7,346				9,639
US Dollar			488,681				745,214
Strong bolivar			62,513				63,236
Other currencies			28,164				33,073
Other financial assets (current and non-current)			549,196				735,387
Argentine peso			48,524				45,169
Brazilian real			368,719				500,875
Chilean peso			26,867				26,881
Colombian peso			384				406
Euro			3,797				4,244
US Dollar			99,851				156,687
Strong bolivar			23				43
Other currencies			1,031				1,082
Trade and other accounts receivable, current			1,016,988				1,378,837
Argentine peso			86,518				100,798
Brazilian real			384,397				528,404
Chilean peso			63,242				131,191
Colombian peso			9,836				9,021
Euro			23,053				38,764
US Dollar			338,789				369,774
Strong bolivar			4,854				4,895
Other currencies (*)			106,299				195,990
Accounts receivable, non-current			29,590				30,465
Brazilian real			634				761
Chilean peso			5,070				5,814
US Dollar			23,735				23,734
Other currencies (*)			151				156
Accounts receivable from related entities, current			313				308
Brazilian real			—				9
Chilean peso			313				299
Total assets			2,555,247				3,134,393
Argentine peso			185,303				190,664
Brazilian real			803,128				1,075,640
Chilean peso			352,748				194,943
Colombian peso			25,781				26,615
Euro			34,196				52,647
US Dollar			951,056				1,295,409
Strong bolivar			67,390				68,174
Other currencies			135,645				230,301

 

(*)	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.

 

44

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

 

		As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
		Unaudited
Trade accounts receivable			926,226				1,269,435
Other accounts receivable			185,935				210,909
Total trade and other accounts receivable			1,112,161				1,480,344
Less: Allowance for impairment loss			(65,583	)			(71,042	)
Total net trade and accounts receivable			1,046,578				1,409,302
Less: non-current portion – accounts receivable			(29,590	)			(30,465	)
Trade and other accounts receivable, current			1,016,988				1,378,837

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 March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
		Unaudited
Fully performing			804,151				1,088,364
Matured accounts receivable, but not impaired
Expired from 1 to 90 days			39,596				83,599
Expired from 91 to 180 days			8,869				11,521
More than 180 days overdue (*)			8,027				14,909
Total matured accounts receivable, but not impaired			56,492				110,029
Matured accounts receivable and impaired
Judicial, pre-judicial collection and protested documents			31,304				53,956
Debtor under pre-judicial collection process and portfolio sensitization			34,279				17,086
Total matured accounts receivable and impaired			65,583				71,042
Total			926,226				1,269,435

 

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

 

45

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

 

		As of				As of
		March 31,				December 31,
Currency		2015				2014
		ThUS$				ThUS$
		Unaudited
Argentine Peso			86,518				100,798
Brazilian Real			385,031				529,165
Chilean Peso			68,312				137,005
Colombian peso			9,836				9,021
Euro			23,053				38,764
US Dollar			362,524				393,508
Strong bolivar			4,854				4,895
Other currency (*)			106,450				196,146
Total			1,046,578				1,409,302
(*) Other currencies
Australian Dollar			9,087				15,243
Chinese Yuan			3,177				35,626
Danish Krone			3,617				8,814
Pound Sterling			34,038				33,624
Indian Rupee			81				1,887
Japanese Yen			1,682				4,635
Norwegian Kroner			8,077				16,516
Swiss Franc			5,273				5,701
Korean Won			4,788				25,203
New Taiwanese Dollar			4,274				10,323
Other currencies			32,356				38,574
Total			106,450				196,146

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	%

 

46

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

 

		Opening								(Increase)				Closing
		balance				Write-offs				Decrease				balance
Periods		ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to March 31, 2014 (Unaudited)			(70,602	)			19				(5,019	)			(75,602	)
From April 1 to December 31, 2014			(75,602	)			6,845				(2,285	)			(71,042	)
From January 1 to March 31, 2015 (Unaudited)			(71,042	)			225				5,234				(65,583	)

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 March 31, 2015 (Unaudited)												As of December 31, 2014
		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			926,226				(65,583	)			860,643				1,269,435				(71,042	)			1,198,393
Other accounts receivable			185,935				—				185,935				210,909				—				210,909

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.

 

47

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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 March 31, 2015

As of December 31, 2014

ThUS$

ThUS$

Unaudited

78.591.370-1

Bethia S.A. and Subsidiaries

Others related parties

Chile

CLP

299

284

87.752.000-5

Granja Marina Tornagaleones S.A.

Others related parties

Chile

CLP

14

15

Foreign

Prisma Fidelidade S.A.

Joint Venture

Brazil

BRL

—

9

Total current assets

313

308

 

(b)	Accounts payable

 

Tax No.

Related party

Relationship

Country of origin

Currency

As of March 31, 2015

As of December 31, 2014

ThUS$

ThUS$

Unaudited

65.216.000-K

Comunidad Mujer

Other related parties

Chile

CLP

2

2

78.591.370-1

Bethia S.A. and Subsidiaries

Other related parties

Chile

CLP

11

6

Foreign

Inversora Aeronaútica Argentina

Other related parties

Argentina

US$

44

27

Total current liabilities

57

35

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.

 

48

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NOTE 10 - INVENTORIES

 

		As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
		Unaudited
Technical stock			201,586				229,313
Non-technical stock			33,908				36,726
Total production suppliers			235,494				266,039

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 March 31, 2015 amounts to ThUS$ 3,418 (ThUS$ 2,982 as of December 31, 2014). The resulting amounts do not exceed the respective net realizable values.

As of March 31, 2015, the Company recorded ThUS$ 39,685 (ThUS$ 43,148 as of March 31, 2014) within the income statement, mainly due to in-flight consumption and maintenance, which forms part of Cost of sales.

During the period of 2015 no reversals of write-downs resulting from an increase in net realizable value were recognized.

 

49

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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 March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited								Unaudited
(a)    Other financial assets
Private investment funds			356,670				480,777				—				—				356,670				480,777
Deposits in guarantee (aircraft)			9,908				8,458				70,240				70,155				80,148				78,613
Certificate of deposit (CBD)			—				18,293				—				—				—				18,293
Guarantees for margins of derivatives			22,946				92,556				—				—				22,946				92,556
Deposits in guarantee (loan)			—				—				5,999				11,116				5,999				11,116
Other investments			—				4,193				491				491				491				4,684
Domestic and foreign bonds			48,667				41,111				—				—				48,667				41,111
Other guarantees given			5,800				2,852				3,112				3,224				8,912				6,076
Subtotal of other financial assets			443,991				648,240				79,842				84,986				523,833				733,226
(b)    Hedging assets
Interest accrued since the last payment date of Cross currency swap			179				377				—				—				179				377
Fair value of interest rate derivatives			—				1				—				—				—				1
Fair value of foreign currency derivatives (*)			19,656				—				—				—				19,656				—
Fair value of fuel price derivatives			5,528				1,783				—				—				5,528				1,783
Subtotal of hedging assets			25,363				2,161				—				—				25,363				2,161
Total Other Financial Assets			469,354				650,401				79,842				84,986				549,196				735,387

 

(*)	The foreign currency derivatives correspond to forward and combination of options.

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

 

50

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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 March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
(a)    Advance payments
Aircraft leases			25,180				26,039				22,340				26,201				47,520				52,240
Aircraft insurance and other			5,140				12,160				—				—				5,140				12,160
Others			25,517				17,970				39,070				36,450				64,587				54,420
Subtotal advance payments			55,837				56,169				61,410				62,651				117,247				118,820
(b)    Other assets
Aircraft maintenance reserve (*)			28,630				31,108				161,327				123,588				189,957				154,696
Sales tax			226,419				155,795				62,598				64,652				289,017				220,447
Other taxes			4,298				3,513				—				—				4,298				3,513
Contributions to Société Internationale de Télécommunications Aéronautiques (“SITA”)			599				599				453				453				1,052				1,052
Judicial deposits			—				—				78,491				90,450				78,491				90,450
Others			1,428				687				1,260				1,019				2,688				1,706
Subtotal other assets			261,374				191,702				304,129				280,162				565,503				471,864
Total Other Non-Financial Assets			317,211				247,871				365,539				342,813				682,750				590,684

 

(*)	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 paid 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 March 31, 2015, LATAM had ThUS$ 189,957 in maintenance reserves (ThUS$ 154,696 at December 31, 2014), corresponding to 12 aircraft out of a total fleet of 327 (12 aircraft out of a total fleet of 327 at December 31, 2014). 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).

 

51

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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

Country of

Functional

As of March 31, 2015

As of December 31, 2014

Name of significant subsidiary

incorporation

currency

%

%

Unaudited

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

100.00000

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.

 

52

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Summary financial information of significant subsidiaries

 

		Statement of financial position as of March 31, 2015																								Results for the period ended March 31, 2015
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$
																										Unaudited
Lan Perú S.A.			259,364				234,252				25,112				234,621				233,046				1,575				277,969				15,058
Lan Cargo S.A.			563,822				240,189				323,633				235,178				129,015				106,163				65,860				(12,563	)
Lan Argentina S.A.			221,037				200,887				20,150				177,451				174,881				2,570				126,391				13,728
Transporte Aéreo S.A.			366,840				81,506				285,334				147,676				61,808				85,868				91,458				(1,129	)
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.			118,265				63,286				54,979				101,626				97,041				4,585				62,308				5,513
Aerovías de Integración Regional, AIRES S.A.			146,974				62,150				84,824				48,097				36,528				11,569				75,124				(9,244	)
TAM S.A. (*)			6,011,366				1,641,647				4,369,719				5,182,653				1,947,942				3,234,711				1,332,408				(14,978	)
		Statement of financial position as of December 31, 2014																								Results for the period ended March 31, 2014
		Total				Current				Non-current				Total				Current				Non-current								Net
Name of significant subsidiary		Assets				Assets				Assets				Liabilities				Liabilities				Liabilities				Revenue				Income
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
																										Unaudited
Lan Perú S.A.			239,470				214,245				25,225				228,395				226,784				1,611				282,152				(7,408	)
Lan Cargo S.A.			575,979				250,174				325,805				234,772				119,111				115,661				63,351				(14,384	)
Lan Argentina S.A.			233,142				206,503				26,639				201,168				198,593				2,575				134,241				18,794
Transporte Aéreo S.A.			367,570				80,090				287,480				147,278				59,805				87,473				102,056				6,820
Aerolane Líneas Aéreas Nacionales del Ecuador S.A.			126,472				78,306				48,166				116,040				111,718				4,322				62,346				(7,381	)
Aerovías de Integración Regional, AIRES S.A.			131,324				38,751				92,573				61,736				49,577				12,159				93,902				(12,766	)
TAM S.A. (*)			6,817,698				1,921,316				4,896,382				5,809,529				2,279,110				3,530,419				1,663,758				28,094

 

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(b)	Non-controlling interest

 

Equity		Tax No.		Country of origin		As of March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014
						%				%				ThUS$				ThUS$
						Unaudited								Unaudited
Lan Perú S.A		0-E		Peru			30.00000				30.00000				7,423				3,323
Lan Cargo S.A. and Subsidiaries		93.383.000		Chile			0.10605				0.10605				1,086				925
Inversiones Lan S.A. and Subsidiaries		96.575.810		Chile			0.29000				0.29000				—				5
Promotora Aérea Latinoamericana S.A. and Sub		0-E		Mexico			51.00000				51.00000				2,788				1,730
Inversora Cordillera S.A. and Subsidiaries		0-E		Argentina			4.22000				4.22000				(1,066	)			195
Lan Argentina S.A.		0-E		Argentina			1.00000				1.00000				18				217
Americonsult de Guatemala S.A.		0-E		Guatemala			1.00000				1.00000				4				5
Americonsult Costa Rica S.A.		0-E		Costa Rica			1.00000				1.00000				7				6
Linea Aérea Carguera de Colombiana S.A.		0-E		Colombia			10.00000				10.00000				204				(826	)
Aerolíneas Regionales de Integración Aires S.A.		0-E		Colombia			0.98307				0.98307				971				684
Transportes Aereos del Mercosur S.A.		0-E		Paraguay			5.02000				5.02000				754				825
Multiplus S.A.		0-E		Brazil			27.26000				27.26000				78,265				94,710
Total															90,454				101,799
Incomes				Country		As of March 31,				As of December 31,				For the period ended December 31,
		Tax No.		of origin		2015				2014				2015				2014
						%				%				ThUS$				ThUS$
		Unaudited
Lan Perú S.A		0-E		Peru			30.00000				30.00000				4,517				(2,223	)
Lan Cargo S.A. and Subsidiaries		93.383.000		Chile			0.10605				0.10605				6				(20	)
Inversiones Lan S.A. and Subsidiaries		96.575.810		Chile			0.00000				0.29000				—				1
Promotora Aerea Latinoamericana S.A. and Sub		0-E		Mexico			51.00000				51.00000				1,058				(788	)
Aerolane, Lineas Aéreas Nacionales del Ecuador		0-E		Ecuador			0.00000				0.00000				—				(2,070	)
Inversora Cordillera S.A. and Subsidiaries		0-E		Argentina			4.22000				4.22000				67				66
Lan Argentina S.A.		0-E		Argentina			1.00000				1.00000				14				14
Americonsult de Guatemala S.A.		0-E		Guatemala			1.00000				1.00000				(1	)			—
Americonsult Costa Rica S.A.		0-E		Costa Rica			1.00000				1.00000				1				—
Linea Aérea Carguera de Colombiana S.A.		0-E		Colombia			10.00000				10.00000				1,029				(336	)
Aerolíneas Regionales de Integración Aires S.A.		0-E		Colombia			0.98307				0.98307				(91	)			(125	)
Transportes Aereos del Mercosur S.A.		0-E		Paraguay			5.02000				5.02000				(36	)			148
Multiplus S.A.		0-E		Brazil			27.26000				27.26000				9,108				7,683
Total															15,672				2,350

 

54

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NOTE 14 - INTANGIBLE ASSETS OTHER THAN GOODWILL

The details of intangible assets are as follows:

 

		Classes of intangible assets (net)								Classes of intangible assets (gross)
		As of March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited
Airport slots			994,442				1,201,028				994,442				1,201,028
Loyalty program			331,459				400,317				331,459				400,317
Computer software			109,344				126,797				303,729				309,846
Developing software			68,241				74,050				68,241				74,050
Trademarks			64,490				77,887				64,490				77,887
Other assets			—				—				808				808
Total			1,567,976				1,880,079				1,763,169				2,063,936

Movement in Intangible assets other than goodwill:

 

		Computer software Net				Developing software				Airport slots (*)				Trademarks and loyalty program (*)				Other assets Net				Total
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2014			143,124				46,075				1,361,807				542,221				81				2,093,308
Additions			4,508				15,859				—				—				—				20,367
Withdrawals			(1,071	)			(1,227	)			—				—				—				(2,298	)
Transfer software			7,868				(7,529	)			—				—				—				339
Foreing exchange			2,154				1,062				47,901				19,072				—				70,189
Amortization			(14,087	)			—				—				—				(41	)			(14,128	)
Closing balance as of March 31, 2014 (Unaudited)			142,496				54,240				1,409,708				561,293				40				2,167,777
Opening balance as of April 1, 2014			142,496				54,240				1,409,708				561,293				40				2,167,777
Additions			12,394				45,135				—				—				—				57,529
Withdrawals			(294	)			(2,349	)			—				—				—				(2,643	)
Transfer software			14,483				(17,010	)			—				—				—				(2,527	)
Foreing exchange			(8,917	)			(5,966	)			(208,680	)			(83,089	)			—				(306,652	)
Amortization			(33,365	)			—				—				—				(40	)			(33,405	)
Closing balance as of December 31, 2014			126,797				74,050				1,201,028				478,204				—				1,880,079
Opening balance as of January 1, 2015			126,797				74,050				1,201,028				478,204				—				1,880,079
Additions			608				5,824				—				—				—				6,432
Withdrawals			(945	)			—				—				—				—				(945	)
Transfer software			3,302				(3,328	)			—				—				—				(26	)
Foreing exchange			(9,082	)			(8,305	)			(206,586	)			(82,255	)			—				(306,228	)
Amortization			(11,336	)			—				—				—				—				(11,336	)
Closing balance as of March 31, 2015 (Unaudited)			109,344				68,241				994,442				395,949				—				1,567,976

 

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The amortization of the period is shown in the consolidated statement of income in administrative expenses. The accumulated amortization of computer programs as of March 31, 2015 amounts to ThUS$ 194,385 (ThUS$ 183,049 as of December 31, 2014). The accumulated amortization of other identifiable intangible assets as of March 31, 2015 amounts to ThUS$ 808 (ThUS$ 808 as of December 31, 2014).

(*) See Note 2.5

NOTE 15 – GOODWILL

The Goodwill amount at March 31, 2015 is ThUS$ 2,762,163 (ThUS$ 3,313,401 at December 31, 2014).

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 CGU		Coalition and loyalty 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, projections of ten years are used.

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.

 

56

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

 

		Increase Maximum WACC				Increase Maximum CoE				Decrease Minimum terminal 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 impairment in the cash-generating unit was presented.

Movement of Goodwill, separated by CGU:

 

		Air Transport				Coalition and loyalty program Multiplus				Total
		ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2014			2,985,037				742,568				3,727,605
Increase (decrease) due to exchange rate differences			96,969				26,119				123,088
Closing balance as of March 31, 2014 (Unaudited)			3,082,006				768,687				3,850,693
Opening balance as of April 1, 2014			3,082,006				768,687				3,850,693
Increase (decrease) due to exchange rate differences			(457,340	)			(113,789	)			(571,129	)
Others			33,837				—				33,837
Closing balance as of December 31, 2014			2,658,503				654,898				3,313,401
Opening balance as of January 1, 2015			2,658,503				654,898				3,313,401
Increase (decrease) due to exchange rate differences			(438,590	)			(112,648	)			(551,238	)
Closing balance as of March 31, 2015 (Unaudited)			2,219,913				542,250				2,762,163

 

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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 March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited								Unaudited
Construction in progress			1,071,644				937,279				—				—				1,071,644				937,279
Land			50,849				57,988				—				—				50,849				57,988
Buildings			132,313				249,361				(40,566	)			(82,355	)			91,747				167,006
Plant and equipment			8,372,794				8,660,352				(1,609,454	)			(1,770,560	)			6,763,340				6,889,792
Own aircraft			7,450,883				7,531,526				(1,420,223	)			(1,407,704	)			6,030,660				6,123,822
Other			921,911				1,128,826				(189,231	)			(362,856	)			732,680				765,970
Machinery			42,825				65,832				(23,069	)			(42,099	)			19,756				23,733
Information technology equipment			174,212				188,208				(129,609	)			(137,199	)			44,603				51,009
Fixed installations and accessories			191,244				97,090				(91,362	)			(53,307	)			99,882				43,783
Motor vehicles			109,278				95,981				(70,602	)			(53,452	)			38,676				42,529
Leasehold improvements			150,481				144,230				(89,938	)			(87,707	)			60,543				56,523
Other property, plants and equipment			3,922,709				4,522,589				(1,525,941	)			(2,019,155	)			2,396,768				2,503,434
Financial leasing aircraft			3,768,473				4,365,247				(1,492,845	)			(1,985,458	)			2,275,628				2,379,789
Other			154,236				157,342				(33,096	)			(33,697	)			121,140				123,645
Total			14,218,349				15,018,910				(3,580,541	)			(4,245,834	)			10,637,808				10,773,076

 

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(a)	The movement in the different categories of Property, plant and equipment from January 1, 2014 to March 31, 2015 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, 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			4,690				—				2,041				107,130				5,097				742				645				—				36,597				156,942
Disposals			—				—				—				(556,217	) (*)			(1	)			—				—				—				—				(556,218	)
Retirements			(21	)			—				(1	)			(8,899	)			(42	)			(120	)			(13	)			—				(8,518	)			(17,614	)
Depreciation expenses			—				—				(2,946	)			(99,509	)			(3,793	)			(1,938	)			(80	)			(3,408	)			(85,047	)			(196,721	)
Foreing exchange			9,937				1,430				3,029				13,484				357				(619	)			(23	)			—				60,864				88,459
Other increases (decreases)			57,497				—				1,179				(300,006	)			(999	)			695				9				58,931				237,432				54,738
Changes, total			72,103				1,430				3,302				(844,017	)			619				(1,240	)			538				55,523				241,328				(470,414	)
Closing balance as of March 31, 2014 (Unaudited)			930,753				60,782				175,087				5,963,101				46,838				49,352				2,282				72,292				3,211,885				10,512,372
Opening balance as of April 1, 2014			930,753				60,782				175,087				5,963,101				46,838				49,352				2,282				72,292				3,211,885				10,512,372
Additions			25,290				3,440				14,595				1,107,152				17,142				1,448				941				—				117,452				1,287,460
Disposals			—				—				—				(103,912	) (*)			(56	)			—				(4	)			—				(328	)			(104,300	)
Retirements			(684	)			—				(402	)			(30,564	)			(163	)			(110	)			(40	)			(50	)			(25,764	)			(57,777	)
Depreciation expenses			—				—				(11,034	)			(332,458	)			(13,096	)			(6,961	)			(961	)			(15,719	)			(200,986	)			(581,215	)
Foreing exchange			(9,204	)			(6,234	)			(15,370	)			(73,441	)			(3,952	)			(890	)			353				—				(171,591	)			(280,329	)
Other increases (decreases)			(8,876	)			—				4,130				424,211				4,296				944				(606	)			—				(427,234	)			(3,135	)
Changes, total			6,526				(2,794	)			(8,081	)			990,988				4,171				(5,569	)			(317	)			(15,769	)			(708,451	)			260,704
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
Opening balance as of January 1, 2015			937,279				57,988				167,006				6,954,089				51,009				43,783				1,965				56,523				2,503,434				10,773,076
Additions			9,142				—				—				112,683				1,165				557				17				9,445				33,388				166,397
Disposals			—				—				—				(5,187	)			—				—				—				—				—				(5,187	)
Retirements			—				—				—				(2,889	)			(45	)			(1	)			—				—				(1,790	)			(4,725	)
Depreciation expenses			—				—				(941	)			(132,222	)			(4,129	)			(4,083	)			(73	)			(4,199	)			(43,991	)			(189,638	)
Foreing exchange			(45	)			(6,073	)			(16,130	)			(93,311	)			(2,938	)			(457	)			(366	)			—				(109,916	)			(229,236	)
Other increases (decreases)			125,268				(1,066	)			(58,188	)			(12,934	)			(459	)			60,083				—				(1,226	)			15,643				127,121
Changes, total			134,365				(7,139	)			(75,259	)			(133,860	)			(6,406	)			56,099				(422	)			4,020				(106,666	)			(135,268	)
Closing balance as of March 31, 2015 (Unaudited)			1,071,644				50,849				91,747				6,820,229				44,603				99,882				1,543				60,543				2,396,768				10,637,808

 

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

 

59

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(b)	Composition of the fleet:

 

				Aircraft included in the Company’s Property, plant and equipment								Operating leases								Total fleet
Aircraft		Model		As of March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014
				Unaudited								Unaudited								Unaudited
Boeing 767		300ER			34				34				4				4				38				38
Boeing 767		300F			8	(2)			8	(1)			3				3				11	(2)			11	(1)
Boeing 777		300ER			4				4				6				6				10				10
Boeing 777		Freighter			2				2				2				2				4				4
Boeing 787		800			6				6				4				4				10				10
Boeing 787		900			—				—				2				—				2				—
Airbus A319		100			40				40				12				12				52				52
Airbus A320		200			95				95				61				63				156				158
Airbus A321		200			19				18				3				3				22				21
Airbus A330		200			8				8				5				5				13				13
Airbus A340		300			3				3				—				—				3				3
Bombardier		Dhc 8-200			2				2				5				5				7				7
Total					221				220				107				107				328				327

 

(1)	Two aircraft leased to FEDEX

(2)	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$ 189,638 (ThUS$ 196,721 at March 31, 2014). 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 March 31, 2015, direct guarantees by one Airbus A321-200 aircraft was added.

Description of Property, plant and equipment pledged as guarantee:

 

						As of March 31, 2015								As of December 31, 2014
Creditor of guarantee		Assets committed		Fleet		Existing Debt				Book Value				Existing Debt				Book Value
						ThUS$				ThUS$				ThUS$				ThUS$
						Unaudited
Wilmington Trust Company		Aircraft and engines		Boeing 767			977,978				1,266,682				1,001,311				1,277,357
				Boeing 777 / 787			442,359				503,052				452,622				518,788
Banco Santander S.A.		Aircraft and engines		Airbus A319			64,377				99,115				66,318				100,485
				Airbus A320			570,058				777,517				585,008				788,706
				Airbus A321			38,895				46,380				39,739				45,161
BNP Paribas		Aircraft and engines		Airbus A319			169,798				235,353				174,714				238,103
				Airbus A320			158,154				202,020				162,304				207,881
Credit Agricole		Aircraft and engines		Airbus A319			51,362				118,142				55,797				121,038
				Airbus A320			147,088				222,091				157,514				219,460
				Airbus A321			57,894				99,485				60,288				63,939
JP Morgan		Aircraft and engines		Boeing 777			231,951				272,244				237,463				278,169
Wells Fargo		Aircraft and engines		Airbus A320			299,385				358,980				305,949				360,064
Bank of Utah		Aircraft and engines		Airbus A320			254,558				322,440				259,260				327,094
Natixis		Aircraft and engines		Airbus A320			46,946				55,259				48,814				55,946
				Airbus A321			439,295				555,880				405,416				488,198
Citibank N.A.		Aircraft and engines		Airbus A320			138,761				173,651				142,591				146,535
				Airbus A321			54,268				77,171				55,836				59,452
HSBC		Aircraft and engines		Airbus A320			57,665				64,698				59,005				59,342
KfW IPEX-Bank		Aircraft and engines		Airbus A320			15,477				17,227				16,088				17,516
PK AirFinance US, Inc.		Aircraft and engines		Airbus A320			67,966				49,735				69,721				70,102
Total direct guarantee							4,284,235				5,517,122				4,355,758				5,443,336

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

Additionally, there are indirect guarantees related to assets recorded in Property, plant and equipment whose total debt at March 31, 2015 amounted to ThUS$ 1,542,387 (ThUS$ 1,626,257 at December 31, 2014). The book value of assets with indirect guarantees as of March 31, 2015 amounts to ThUS$ 2,176,994 (ThUS$ 2,335,135 as of December 31, 2014).

 

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(ii)	Commitments and others

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

 

		As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
Gross book value of fully depreciated property, plant and equipment still in use			150,987				138,960
Commitments for the acquisition of aircraft (*)			21,700,000				21,500,000

 

(*)	According 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.			15				23				26				31				11				12				5				123
A320-NEO			—				2				18				16				8				8				—				52
A321			14				15				—				—				—				—				—				29
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			18				28				32				35				11				12				5				141

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 9 Airbus A321 aircraft for 9 Airbus A321 NEO aircraft.

At March 31, 2015, as a result of the different aircraft purchase agreements signed with Airbus S.A.S., remain to receive 96 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$ 17,700,000, according to the manufacturer’s price list. Additionally, the Company has valid purchase options for 5 Airbus A350 aircraft.

As of March 31, 2015, and as a result of different aircraft purchase contracts signed with The Boeing Company, a total of sixteen 787 Dreamliner aircraft, with delivery dates between 2015 and 2018, and two 777 with delivery expected for 2017 remain to receive. Additionally, the Company has valid purchase options for 15 787 Dreamliner aircraft.

The approximate amount, according to the manufacturer’s price list, is ThUS$ 4,000,000.

 

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(iii)

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

 

						For the periods ended March 31,
						2015				2014
						Unaudited
Average rate of capitalization of capitalized interest costs			%				2.77				2.84
Costs of capitalized interest			ThUS$				6,192				7,114

 

(iv)	Financial leases

The detail of the main financial leases is as follows:

 

Lessor		Aircraft		Model		As of March 31, 2015				As of December 31, 2014
						Unaudited
Agonandra Statutory Trust		Airbus A319		100			4				4
Agonandra Statutory Trust		Airbus A320		200			2				2
Becacina Leasing LLC		Boeing 767		300ER			1				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				2
Codorniz Leasing Limited		Airbus A319		100			2				2
Conure Leasing Limited		Airbus A320		200			2				2
Flamenco Leasing LLC		Boeing 767		300ER			1				1
FLYAFI1 S.R.L.		Boeing 777		300ER			1				1
FLYAFI2 S.R.L.		Boeing 777		300ER			1				1
FLYAFI3 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				2
Loica Leasing Limited		Airbus A320		200			2				2
Mirlo Leasing LLC		Boeing 767		300ER			1				1
NBB Riode 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				1
TMF Interlease Aviation B.V.		Airbus A330		200			1				1
TMF Interlease Aviation IIB.V.		Airbus A319		100			5				5
TMF Interlease Aviation IIB.V.		Airbus A320		200			2				2
Tricahue Leasing LLC		Boeing 767		300ER			3				3
Wacapou Leasing S.A		Airbus A320		200			1				1
Total							71				71

 

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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 March 31, 2015 the Company had seventy one aircraft (seventy one aircraft as of December 31, 2014).

The book value of assets under financial leases as of March 31, 2015 amounts to ThUS$ 2,275,628 (ThUS$ 2,379,789 as of December 31, 2014).

The minimum payments under financial leases are as follows:

 

		As of March 31, 2015 (Unaudited)												As of December 31, 2014
		Gross Value				Interest				Present Value				Gross Value				Interest				Present Value
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
No later than one year			409,029				(51,481	)			357,548				403,840				(48,197	)			355,643
Between one and five years			1,038,224				(105,198	)			933,026				1,121,190				(97,909	)			1,023,281
Over five years			331,233				4,688				335,921				261,877				(6,409	)			255,468
Total			1,778,486				(151,991	)			1,626,495				1,786,907				(152,515	)			1,634,392

NOTE 17 - CURRENT AND DEFERRED TAXES

In the period ended March 31, 2015, the income tax provision was calculated at the rate of 22.5% for the business year 2015, 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 were recorded on income for the business year 2014. The total effect on income 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 was an increase on liabilities for ThUS$ 145,166.

 

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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.

 

(*)	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 March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited								Unaudited
Provisional monthly payments (advances)			45,553				68,752				—				—				45,553				68,752
Other recoverable credits			28,510				31,956				24,629				17,663				53,139				49,619
Total current tax assets			74,063				100,708				24,629				17,663				98,692				118,371
(a.2)   The composition of the current tax liabilities are as follows:
		Current liabilities								Non-current liabilities								Total liabilities
		As of March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited								Unaudited
Income tax provision			19,485				16,712				—				—				19,485				16,712
Additional tax provision			765				1,177				—				—				765				1,177
Total current tax liabilities			20,250				17,889				—				—				20,250				17,889

 

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(b)	Deferred taxes

The balances of deferred tax are the following:

 

		Assets								Liabilities
Concept		As of March 31, 2015				As of December 31, 2014				As of March 31, 2015				As of December 31, 2014
		Unaudited								Unaudited
		ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			(22,603	)			(23,675	)			895,250				847,965
Leased assets			(94,085	)			(102,457	)			74,974				83,318
Amortization			(35,218	)			(31,750	)			117,485				128,350
Provisions			336,913				416,153				71,687				65,076
Revaluation of financial instruments			319				270				(11,893	)			(12,536	)
Tax losses			166,351				151,569				(621,975	)			(571,180	)
Revaluation property, plant and equipment			—				—				(4,968	)			(5,999	)
Intangibles			—				—				433,268				523,275
Others			(3,121	)			(2,787	)			(1,273	)			(6,375	)
Total			348,556				407,323				952,555				1,051,894

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

Movements of Deferred tax assets and liabilities:

 

(a)	From January 1 to March 31, 2014

 

		Opening balance Assets/(liabilities)				Recognized in consolidated income				Recognized in comprehensive income				Exchange rate variation				Others				Ending balance Asset (liability)
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			(574,997	)			(11,661	)			—				(1,065	)			—				(587,723	)
Leased assets			(193,762	)			(4,763	)			—				(973	)			—				(199,498	)
Amortization			(124,357	)			(8,391	)			—				(574	)			—				(133,322	)
Provisions			525,241				(41,447	)			—				15,817				—				499,611
Revaluation of financial instruments			16,070				(3,508	)			1,909				397				—				14,868
Tax losses (*)			551,528				86,068				—				4,161				—				641,757
Revaluation property, plant and equipment			18,544				(1,236	)			—				1,836				—				19,144
Intangibles			(593,325	)			—				—				(20,869	)			—				(614,194	)
Others			10,792				(8,309	)			—				6,976				(860	)			8,599
Total			(364,266	)			6,753				1,909				5,706				(860	)			(350,758	)

 

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(b)	From April 1 to December 31, 2014

 

		Opening balance Assets/(liabilities)				Recognized in consolidated income				Recognized in comprehensive income				Exchange rate variation				Effect from change in tax rate				Others				Ending balance Asset (liability)
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			(587,723	)			(62,962	)			—				4,640				(225,595	)			—				(871,640	)
Leased assets			(199,498	)			52,512				—				4,240				(43,029	)			—				(185,775	)
Amortization			(133,322	)			(13,230	)			—				2,502				(16,050	)			—				(160,100	)
Provisions			499,611				(57,815	)			—				(68,907	)			(21,812	)			—				351,077
Revaluation of financial instruments			14,868				(50,167	)			46,070				(1,728	)			3,763				—				12,806
Tax losses (*)			641,757				61,730				—				(18,129	)			163,596				(126,205	)			722,749
Revaluation property, plant and equipment			19,144				(5,148	)			—				(7,997	)			—				—				5,999
Intangibles			(614,194	)			—				—				90,919				—				—				(523,275	)
Others			8,599				21,764				—				(33,176	)			(6,039	)			12,440				3,588
Total			(350,758	)			(53,316	)			46,070				(27,636	)			(145,166	)			(113,765	)			(644,571	)

 

(c)	From January 1 to March 31, 2015

 

		Opening balance Assets/(liabilities)				Recognized in consolidated income				Recognized in comprehensive income				Exchange rate variation				Others				Ending balance Asset (liability)
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
Depreciation			(871,640	)			(50,807	)			—				4,594				—				(917,853	)
Leased assets			(185,775	)			12,519				—				4,197				—				(169,059	)
Amortization			(160,100	)			4,919				—				2,478				—				(152,703	)
Provisions			351,077				(17,635	)			—				(68,216	)			—				265,226
Revaluation of financial instruments			12,806				22,482				(21,366	)			(1,710	)			—				12,212
Tax losses (*)			722,749				83,524				—				(17,947	)			—				788,326
Revaluation property, plant and equipment			5,999				6,885				—				(7,916	)			—				4,968
Intangibles			(523,275	)			—				—				90,007				—				(433,268	)
Others			3,588				(8,341	)			—				1,521				1,384				(1,848	)
Total			(644,571	)			53,546				(21,366	)			7,008				1,384				(603,999	)

 

(*)

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, during the business year 2014 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 March 31, 2015, generating no effect on the outcome of tax.

 

 

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Deferred tax assets not recognized:

 

		As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
		Unaudited
Tax losses			—				2,781
Total Deferred tax assets not recognized			—				2,781

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. During the business year 2015, the Company has not ceased to recognize deferred tax assets (ThUS$ 2,781 at December 31, 2014 according with a loss of ThUS$ 11,620 at December 31, 2014) to offset against future years tax benefits.

Deferred tax expense and current income taxes:

 

		For the periods ended March 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Current tax expense
Current tax expense			29,794				19,212
Adjustment to previous period’s current tax			199				—
Total current tax expense, net			29,993				19,212
Deferred tax expense
Deferred expense for taxes related to the creation and reversal of temporary differences			(53,546	)			(8,021	)
Reduction (increase) in value of deferred tax assets during the evaluation of its usefulness			—				1,268
Total deferred tax expense, net			(53,546	)			(6,753	)
Income tax expense			(23,553	)			12,459

 

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Composition of income tax expense (income):

 

		For the periods ended March 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Current tax expense, net, foreign			28,689				18,665
Current tax expense, net, Chile			1,304				547
Total current tax expense, net			29,993				19,212
Deferred tax expense, net, foreign			(33,218	)			37,282
Deferred tax expense, net, Chile			(20,328	)			(44,035	)
Deferred tax expense, net, total			(53,546	)			(6,753	)
Income tax expense			(23,553	)			12,459

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

 

		For the periods ended
		March 31,								March 31,
		2015				2014				2015				2014
		ThUS$				ThUS$				%				%
		Unaudited								Unaudited
Tax expense using the legal rate			(14,288	)(*)			(5,773	)			22.50	(*)			20.00
Tax effect of rates in other jurisdictions			1,039				(1,737	)			(1.64	)			6.02
Tax effect of non-taxable operating revenues			(30,197	)			(28,649	)			47.55				99.22
Tax effect of disallowable expenses			17,977				48,449				(28.31	)			(167.80	)
Other increases (decreases) in legal tax charge			1,916				169				(3.02	)			(0.59	)
Total adjustments to tax expense using the legal rate			(9,265	)			18,232				14.58				(63.15	)
Tax expense using the effective rate			(23,553	)			12,459				37.08				(43.15	)

 

(*)

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 this law contains, the First - Category Tax rate is gradually modified from 2014 to 2018 and should be declared and paid in tax year 2015.

Thus, at December 31, 2014, the Company recognized a loss 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 March 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Aggregate deferred taxation of components of other comprehensive income			(21,366	)			1,909
Aggregate deferred taxation related to items charged to net equity			(713	)			(860	)

NOTE 18 - OTHER FINANCIAL LIABILITIES

The composition of Other financial liabilities is as follows:

 

		As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
		Unaudited
Current
(a) Interest bearing loans			1,425,510				1,397,382
(b) Derivatives not recognized as a hedge			559				1,190
(c) Hedge derivatives			156,044				226,043
Total current			1,582,113				1,624,615
Non-current
(a) Interest bearing loans			7,272,962				7,360,685
(c) Hedge derivatives			28,478				28,327
Total non-current			7,301,440				7,389,012

 

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(a)	Interest bearing loans

Obligations with credit institutions and debt instruments:

 

		As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
		Unaudited
Current
Loans to exporters			327,586				327,278
Bank loans			95,722				98,711
Guaranteed obligations			512,672				472,864
Other guaranteed obligations			31,970				61,872
Subtotal bank loans			967,950				960,725
Obligation with the public			29,368				21,206
Financial leases			364,980				364,514
Other loans			63,212				50,937
Total current			1,425,510				1,397,382
Non-current
Bank loans			454,929				415,667
Guaranteed obligations			3,763,798				3,765,518
Other guaranteed obligations			24,438				93,992
Subtotal bank loans			4,243,165				4,275,177
Obligation with the public			1,107,892				1,111,481
Financial leases			1,264,762				1,344,520
Other loans			657,143				629,507
Total non-current			7,272,962				7,360,685
Total obligations with financial institutions			8,698,472				8,758,067

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 March 31, 2015				As of December 31, 2014
Currency		ThUS$				ThUS$
		Unaudited
Argentine peso			38,055				39,053
Brazilian real			43,745				53,410
Chilean peso (U.F.)			268,201				187,614
Euro			—				547
US Dollar			8,348,471				8,477,443
Total			8,698,472				8,758,067

 

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Interest-bearing loans due in installments to March 31, 2015 (Unaudited)

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		Chili		US$			99,716				—				—				—				—				99,716				100,338				—				—				—				—				100,338			At expiration			3.61				3.61
97.036.000-K		SANTANDER		Chili		US$			60,000				—				—				—				—				60,000				60,025				—				—				—				—				60,025			At expiration			0.74				0.74
97.030.000-7		ESTADO		Chili		US$			55,000				—				—				—				—				55,000				55,025				—				—				—				—				55,025			At expiration			0.61				0.61
97.006.000-6		BCI		Chili		US$			100,000				—				—				—				—				100,000				100,193				—				—				—				—				100,193			At expiration			0.90				0.90
97.951.000-4		HSBC		Chili		US$			12,000				—				—				—				—				12,000				12,005				—				—				—				—				12,005			At expiration			0.50				0.50
Bank loans
97.023.000-9		CORP BANCA		Chili		UF			13,789				41,366				110,310				3,026				—				168,491				14,910				41,366				108,592				2,995				—				167,863			Quarterly			4.85				4.85
0-E		CITIBANK		Argentina		ARS			—				17,003				—				—				—				17,003				368				17,003				—				—				—				17,371			Monthly			31.00				31.00
0-E		BBVA		Argentina		ARS			—				20,404				—				—				—				20,404				280				20,404				—				—				—				20,684			Monthly			33.00				33.00
97.036.000-K		SANTANDER		Chili		US$			—				—				340,104				—				—				340,104				922				—				340,104				—				—				341,026			Quarterly			2.36				2.35
Guaranteed obligations
0-E		CREDIT AGRICOLE		France		US$			26,208				78,071				165,443				60,225				30,099				360,046				26,920				78,071				165,443				60,225				30,099				360,758			Quarterly			1.69				1.55
0-E		BNP PARIBAS		U.S.A.		US$			7,939				24,229				68,542				73,850				168,842				343,402				9,029				24,229				68,011				73,681				168,816				343,766			Quarterly			2.14				2.97
0-E		WELLS FARGO		U.S.A.		US$			30,486				92,275				252,156				261,269				636,431				1,272,617				34,807				92,275				221,769				246,771				621,441				1,217,063			Quarterly			2.26				1.59
0-E		CITIBANK		U.S.A.		US$			16,736				50,795				140,402				147,882				311,676				667,491				18,286				50,795				130,170				142,883				305,392				647,526			Quarterly			2.26				1.51
97.036.000-K		SANTANDER		Chile		US$			5,168				15,610				42,871				44,704				66,861				175,214				5,451				15,611				40,494				43,705				66,287				171,548			Quarterly			1.34				0.80
0-E		BTMU		U.S.A.		US$			2,668				8,088				22,362				23,548				48,330				104,996				2,851				8,088				20,748				22,811				47,734				102,232			Quarterly			1.66				1.06
0-E		APPLE BANK		U.S.A.		US$			1,312				3,972				10,988				11,598				24,224				52,094				1,460				3,972				10,186				11,230				23,922				50,770			Quarterly			1.65				1.06
0-E		US BANK		U.S.A.		US$			14,239				43,205				118,880				124,410				333,266				634,000				17,184				43,205				98,985				114,716				322,460				596,550			Quarterly			3.99				2.81
0-E		DEUTSCHE BANK		U.S.A.		US$			4,642				14,156				37,988				25,001				68,941				150,728				5,231				14,156				37,989				25,000				68,941				151,317			Quarterly			3.27				3.27
0-E		NATIXIS		France		US$			10,544				32,235				91,842				91,013				260,607				486,241				11,152				32,235				91,841				91,014				260,607				486,849			Quarterly			1.89				1.85
0-E		HSBC		U.S.A.		US$			1,358				4,098				11,319				11,894				28,996				57,665				1,486				4,098				11,319				11,893				28,997				57,793			Quarterly			2.29				1.51
0-E		PK AIR FINANCE		U.S.A.		US$			1,785				5,548				16,296				18,737				25,600				67,966				1,842				5,547				16,295				18,737				25,600				68,021			Quarterly			1.87				1.87
0-E		KFW IP EX-BANK		U.S.A.		US$			616				1,922				5,672				4,076				3,191				15,477				620				1,922				5,672				4,076				3,191				15,481			Quarterly			2.12				2.12
-		SWAP Aircraft arrivals		-		US$			573				1,576				3,132				1,437				78				6,796				573				1,576				3,132				1,437				78				6,796			Quarterly			—				—
Other guaranteed obligations
0-E		DVB BANK SE		U.S.A.		US$			7,914				24,017				24,438				—				—				56,369				7,953				24,017				24,438				—				—				56,408			Quarterly			2.00				2.00
Financial leases
0-E		ING		U.S.A.		US$			7,850				24,043				49,280				29,679				7,931				118,783				8,794				24,043				48,289				29,420				7,911				118,457			Quarterly			4.90				4.38
0-E		CREDIT AGRICOLE		France		US$			1,607				4,935				12,289				—				—				18,831				1,651				4,935				12,289				—				—				18,875			Quarterly			1.22				1.40
0-E		CITIBANK		U.S.A.		US$			4,523				13,822				39,963				42,802				9,930				111,040				5,454				13,822				38,732				42,448				9,905				110,361			Quarterly			6.40				5.67
0-E		PEFCO		U.S.A.		US$			14,763				45,224				122,411				53,331				1,926				237,655				16,312				45,224				120,095				53,072				1,923				236,626			Quarterly			5.36				4.76
0-E		BNP PARIBAS		U.S.A.		US$			9,600				29,465				84,572				51,110				7,469				182,216				10,237				29,465				82,754				50,812				7,454				180,722			Quarterly			4.13				6.67
0-E		WELLS FARGO		U.S.A.		US$			4,402				13,441				37,561				40,199				39,349				134,952				4,846				13,440				36,090				39,645				39,164				133,185			Quarterly			3.98				3.53
0-E		DVB BANK SE		U.S.A.		US$			4,494				13,618				28,000				—				—				46,112				4,571				13,619				28,001				—				—				46,191			Quarterly			5.77				5.51
0-E		US BANK		U.S.A.		US$			279				11,422				—				—				—				11,701				279				11,422				—				—				—				11,701			Monthly			—				—
0-E		BANC OF AMERICA		U.S.A.		US$			868				1,998				2,096				—				—				4,962				886				1,998				2,096				—				—				4,980			Monthly			1.41				1.41
Other loans
0-E		BOEING		U.S.A.		US$			—				—				226,503				—				—				226,503				—				4,458				226,503				—				—				230,961			At expiration			1.74				1.74
0-E		CITIBANK (*)		U.S.A.		US$			—				19,360				166,570				187,639				76,431				450,000				1,425				19,360				166,570				187,639				76,431				451,425			Quarterly			6.00				6.00
		Total							521,079				655,898				2,231,990				1,307,430				2,150,178				6,866,575				543,366				660,356				2,156,607				1,274,210				2,116,353				6,750,892

 

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

 

72

---

Interest-bearing loans due in installments to March 31, 2015 (Unaudited)

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$			110				340				985				1,111				1,142				3,688				129				340				985				1,111				1,142				3,707			Monthly			6.01				6.01
Obligation with the public
0-E		THE BANK OF NEW YORK		U.S.A.		US$			—				—				300,000				300,000				500,000				1,100,000				23,487				5,881				303,070				303,364				501,458				1,137,260			At Expiration			7.90				7.45
Financial leases
0-E		AFS INVESTMENT IX LLC		U.S.A.		US$			1,890				5,833				16,816				18,818				5,900				49,257				2,122				5,834				16,815				18,818				5,900				49,489			Monthly			1.25				1.25
0-E		AIRBUS FINANCIAL		U.S.A.		US$			3,234				9,973				25,554				15,383				5,687				59,831				3,342				9,973				25,555				15,384				5,687				59,941			Monthly			1.43				1.43
0-E		CREDIT AGRICOLE-CIB		U.S.A.		US$			2,704				29,762				—				—				—				32,466				2,750				29,762				—				—				—				32,512			Quarterly			1.10				1.10
0-E		CREDIT AGRICOLE-CIB		France		US$			1,500				7,500				—				—				—				9,000				1,554				7,500				—				—				—				9,054			Quarterly/ Semiannual			3.25				3.25
0-E		DVB BANK SE		Germany		US$			3,125				6,250				—				—				—				9,375				3,151				6,250				—				—				—				9,401			Quarterly			2.50				2.50
0-E		DVB BANK SE		U.S.A.		US$			197				461				637				—				—				1,295				199				461				637				—				—				1,297			Monthly			1.64				1.64
0-E		GENERAL ELECTRIC CAPITAL CORPORATION		U.S.A.		US$			3,569				10,876				20,107				—				—				34,552				3,622				10,877				20,107				—				—				34,606			Monthly			1.25				1.25
0-E		KFWIP EX-BANK		Germany		US$			3,477				10,161				16,581				13,654				3,568				47,441				3,563				10,161				16,581				13,654				3,568				47,527			Monthly/ Quarterly			1.72				1.72
0-E		NATIXIS		France		US$			1,844				7,928				21,393				24,195				81,445				136,805				2,450				7,928				21,393				24,195				81,446				137,412			Quarterly/ Semiannual			3.85				3.85
0-E		PK AIRFINANCE US, INC.		U.S.A.		US$			1,225				3,777				19,083				—				—				24,085				1,271				3,777				19,083				—				—				24,131			Monthly			1.75				1.75
0-E		WACAPOU LEASING S.A.		Luxemburg		US$			408				1,173				2,788				2,356				12,841				19,566				445				1,173				2,788				2,356				12,841				19,603			Quarterly			2.00				2.00
0-E		SOCIÉTÉ GÉNÉRALE MILAN BRANCH		Italy		US$			7,863				24,143				68,789				75,673				159,875				336,343				9,413				24,144				68,789				75,673				159,876				337,895			Quarterly			3.63				3.55
0-E		BANCO IBMS.A		Brazil		BRL			264				792				1,838				—				—				2,894				265				792				1,812				—				—				2,869			Monthly			10.58				10.58
0-E		HP FINANCIAL SERVICE		Brazil		BRL			190				599				869				—				—				1,658				190				599				870				—				—				1,659			Monthly			9.90				9.90
0-E		SOCIETEGENERALE		France		BRL			104				312				832				8				—				1,256				103				311				826				8				—				1,248			Monthly			12.60				12.60
Other loans
0-E		COMPANHIA BRAS ILEIRA DE
		MEIOS DEP AGAMENTO		Brazil		BRL			25,072				12,897				—				—				—				37,969				25,072				12,897				—				—				—				37,969			Monthly			4.23				4.23
		Total							56,776				132,777				496,272				451,198				770,458				1,907,481				83,128				138,660				499,311				454,563				771,918				1,947,580
		Total consolidated							577,855				788,675				2,728,262				1,758,628				2,920,636				8,774,056				626,494				799,016				2,655,918				1,728,773				2,888,271				8,698,472

 

73

---

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
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$			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				35,710				39,264				44,290				137,417			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				2,062,054				1,299,308				2,238,569				6,774,488

 

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

 

74

---

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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(b)	Derivatives not recognized as a hedge

 

		Current liabilities								Non-current liabilities								Total derivative not recognized as a hedge
		As of March 31,				As of December 31,				As of March 31,				As of December 31,				As of March 31,				As of December 31,
		2015				2014				2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited								Unaudited
Interest rate derivative not recognized as a hedge			559				1,190				—				—				559				1,190
Total derivatives not recognized as a hedge			559				1,190				—				—				559				1,190

 

(c)	Hedge derivatives

 

		Current liabilities								Non-current liabilities								Total hedge derivatives
		As of March 31,				As of December 31,				As of March 31,				As of December 31,				As of March 31,				As of December 31,
		2015				2014				2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited								Unaudited
Accrued interest from the last date of interest rate swap			4,874				5,173				—				—				4,874				5,173
Fair value of interest rate derivatives			30,215				26,395				28,478				28,327				58,693				54,722
Fair value of fuel derivatives			79,112				157,233				—				—				79,112				157,233
Fair value of foreign currency derivatives			41,843				37,242				—				—				41,843				37,242
Total hedge derivatives			156,044				226,043				28,478				28,327				184,522				254,370

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 March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
		Unaudited
Cross currency swaps (CCS) (1)			(43,654	)			(38,802	)
Interest rate options (2)			—				1
Interest rate swaps (3)			(61,577	)			(58,758	)
Fuel collars (4)			(41,077	)			(32,772	)
Fuel swap (5)			(32,507	)			(122,678	)
Currency forward CLP/US$ (6)			10,010				—
Currency forward R$/US$ (7)			9,646				—

 

(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.

 

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(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 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.

(7)	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.

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 9 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, no hedging operations of future highly probable transaction that have not been realized have occurred.

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 March 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Debit (credit) recognized in comprehensive income during the period			83,263				(27,328	)
Debit (credit) transferred from net equity to income during the period			(113,462	)			(24,098	)

 

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NOTE 19 - TRADE AND OTHER ACCOUNTS PAYABLES

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

 

		As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
		Unaudited
Current
(a) Trade and other accounts payables			1,040,372				1,196,123
(b) Accrued liabilities at the reporting date			319,853				293,273
Total trade and other accounts payables			1,360,225				1,489,396

 

(a)	Trade and other accounts payable:

 

		As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
		Unaudited
Trade creditors			769,788				924,105
Leasing obligation			27,554				37,322
Other accounts payable			243,030				234,696
Total			1,040,372				1,196,123

 

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

 

		As of March 31,				As of December 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Boarding Fee			177,956				193,263
Aircraft Fuel			166,435				290,109
Airport charges and overflight			93,935				102,111
Other personnel expenses			89,391				114,245
Suppliers’ technical purchases			63,825				64,799
Professional services and advisory			59,807				65,445
Handling and ground handling			55,106				55,503
Land services			49,537				47,103
Marketing			42,567				54,885
Leases, maintenance and IT services			31,757				34,029
Aircraft and engines leasing			27,554				37,322
Services on board			25,169				24,642
Crew			15,724				12,403
Maintenance			15,475				14,757
Achievement of goals			14,115				12,197
Airlines			13,867				908
Distribution sistem			8,147				3,293
Aviation insurance			7,339				4,749
Communications			6,235				6,447
Others			76,431				57,913
Total trade and other accounts payables			1,040,372				1,196,123

 

(b)	Liabilities accrued:

 

		As of March 31,				As of December 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Accrued personnel expenses			136,293				130,382
Aircraft and engine maintenance			126,238				121,946
Accounts payable to personnel (*)			31,621				16,407
Others accrued liabilities			25,701				24,538
Total accrued liabilities			319,853				293,273

 

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

 

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NOTE 20 - OTHER PROVISIONS

Other provisions:

 

		Current liabilities								Non-current liabilities								Total Liabilities
		As of December 31,				As of December 31,				As of December 31,				As of December 31,				As of December 31,				As of December 31,
		2015				2014				2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited								Unaudited
Provision for contingencies (1)
Tax contingencies			320				320				503,763				607,371				504,083				607,691
Civil contingencies			10,393				11,870				39,398				47,355				49,791				59,225
Labor contingencies			548				221				17,846				23,064				18,394				23,285
Other			—				—				13,232				15,351				13,232				15,351
Provision for European Commission investigation (2)			—				—				8,825				9,999				8,825				9,999
Total other provisions (3)			11,261				12,411				583,064				703,140				594,325				715,551

 

(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 March 31, 2015, and at December 31, 2014, 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:

 

		Legal claims				European Commission Investigation(*)				Total
		ThUS$				ThUS$				ThUS$
Opening balance as of January 1, 2014			1,138,754				11,349				1,150,103
Increase in provisions			2,998				—				2,998
Provision used			(3,269	)			—				(3,269	)
Difference by subsidiaries conversion			39,354				—				39,354
Reversal of provision			(38,190	)			—				(38,190	)
Exchange difference			(176	)			(28	)			(204	)
Closing balance as of March 31, 2014 (Unaudited)			1,139,471				11,321				1,150,792
Opening balance as of April 1, 2014			1,139,471				11,321				1,150,792
Increase in provisions			39,794				—				39,794
Provision used			(24,328	)			—				(24,328	)
Difference by subsidiaries conversion			(171,446	)			—				(171,446	)
Reversal of provision			(277,098	)			—				(277,098	)
Exchange difference			(841	)			(1,322	)			(2,163	)
Closing balance as of December 31, 2014			705,552				9,999				715,551
Opening balance as of January 1, 2015			705,552				9,999				715,551
Increase in provisions			7,527				—				7,527
Provision used			(1,040	)			—				(1,040	)
Difference by subsidiaries conversion			(118,486	)			—				(118,486	)
Reversal of provision			(7,736	)			—				(7,736	)
Exchange difference			(317	)			(1,174	)			(1,491	)
Closing balance as of March 31, 2015 (Unaudited)			585,500				8,825				594,325

Accumulated balance includes the judicial deposit in guarantee, related to the “Fundo Aeroviário” (FA), in the amount of US$ 74 million, 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 March 31, 2015 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 that 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 March 31, 2015 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 March 31,				As of December 31,				As of March 31,				As of December 31,				As of March 31,				As of December 31,
		2015				2014				2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited								Unaudited
Deferred revenues (*)			2,183,971				2,565,391				343,714				355,353				2,527,685				2,920,744
Sales tax			59,384				38,160				—				—				59,384				38,160
Retentions			33,898				52,567				—				—				33,898				52,567
Others taxes			11,539				18,880				—				—				11,539				18,880
Other sundry liabilities			12,786				10,388				—				48				12,786				10,436
Total other non-financial liabilities			2,301,578				2,685,386				343,714				355,401				2,645,292				3,040,787

 

(*)	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 of 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 that are members of oneworld^® and other airlines associated with the program, as well as when they buy on the stores or use the services of a vast network of companies that have an agreement with the program around the world.

Thinking on people who travel constantly, TAM 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 programs, 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 March 31,				As of December 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Retirements payments			43,883				36,523
Resignation payments			6,709				5,556
Other obligations			29,996				32,023
Total liability for employee benefits			80,588				74,102

 

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

 

		Opening balance				Increase (decrease) current service provision				Benefits paid				Change of model				Closing balance
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to March 31, 2014			45,666				2,871				(43	)			—				48,494
From April 1 to December 31, 2014			48,494				(1,364	)			(2,423	)			29,395				74,102
From January 1 to March 31, 2015			74,102				7,713				(1,227	)			—				80,588

 

(b)	The liability for short-term:

 

		As of March 31,				As of December 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Profit-sharing and bonuses (*)			31,621				16,407

 

(*)	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 March 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Salaries and wages			450,402				406,271
Short-term employee benefits			50,883				119,227
Termination benefits			22,919				12,623
Other personnel expenses			51,485				61,646
Total			575,689				599,767

 

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NOTE 23 - ACCOUNTS PAYABLE, NON-CURRENT

 

		As of March 31,				As of December 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Aircraft and engine maintenance			473,342				506,312
Fleet financing (JOL)			59,928				59,148
Provision for vacations and bonuses			9,352				9,595
Other accounts payable			—				1,945
Other sundry liabilities			455				454
Total accounts payable, non-current			543,077				577,454

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 March 31, 2015 amounts to ThUS$ 2,545,705 divided into 545,547,819 common stock of a same series (ThUS$ 2,545,705, divided into 545,547,819 shares as of December 31, 2014), 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, 2014			551,847,819
No movement of autorized shares at March 31, 2014			—
Authorized shares as of March 31, 2014 (Unaudited)			551,847,819
Autorized shares as of April 1, 2014			551,847,819
No movement of autorized shares at December 31, 2014			—
Authorized shares as of December 31, 2014			551,847,819
Autorized shares as of January 1, 2014			551,847,819
No movement of autorized shares at March 31, 2015			—
Authorized shares as of March 31, 2015 (Unaudited)			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, 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 March 31, 2014 (Unaudited)			545,547,819				2,552,066				(6,361	)			2,545,705
Paid shares as of April 1, 2014			545,547,890				2,552,066				(6,361	)			2,545,705
No movement of autorized shares at December 31, 2014			—				—				—				—
Paid shares as of December 31, 2014			545,547,890				2,552,066				(6,361	)			2,545,705
Paid shares as of January 1, 2015			545,547,819				2,552,066				(6,361	)			2,545,705
No movement of autorized shares at March 31, 2015			—				—				—				—
Paid shares as of March 31, 2015 (Unaudited)			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.

(3)	At March 31, 2015, 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)).

 

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(c)	Treasury stock

At March 31, 2015, 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 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 March 31, 2014			21,011				4,393				(860	)			—				24,544
From April 1 to December 31, 2014			24,544				10,335				(2,529	)			(2,708	)			29,642
From January 1 to March 31, 2015			29,642				2,841				(713	)			—				31,770

 

(*)

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:

 

Periods		Opening balance				Transactions with non-controlling interest				Legal reserves				Closing balance
		ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to March 31, 2014			2,657,800				990				(481	)			2,658,309
From April 1 to December 31, 2014			2,658,309				(22,516	)			(45	)			2,635,748
From January 1 to March 31, 2015			2,635,748								1,928				2,637,676

 

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Balance of Other sundry reserves comprises the following:

 

		As of March 31,				As of December 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
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	)			(25,891	)
Cost of issuance and placement of shares			(5,264	)			(5,264	)
Others			519				(1,409	)
Total			2,637,676				2,635,748

 

(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 March 31, 2015, 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, 2014			(589,991	)			(34,508	)			(624,499	)
Derivatives valuation gains (losses)			—				(29,002	)			(29,002	)
Deferred tax			—				2,245				2,245
Difference by subsidiaries conversion			146,434				—				146,434
Closing balance as of March 31, 2014 (Unaudited)			(443,557	)			(61,265	)			(504,822	)
Opening balance as of April 1, 2014			(443,557	)			(61,265	)			(504,822	)
Derivatives valuation gains (losses)			—				(136,229	)			(136,229	)
Deferred tax			—				38,402				38,402
Tax effect on deferred tax by change legal tax rate (Tax reform)(*)			—				7,752				7,752
Difference by subsidiaries conversion			(750,314	)			—				(750,314	)
Closing balance as of December 31, 2014			(1,193,871	)			(151,340	)			(1,345,211	)
Opening balance as of January 1, 2015			(1,193,871	)			(151,340	)			(1,345,211	)
Derivatives valuation gains (losses)			—				84,500				84,500
Deferred tax			—				(21,779	)			(21,779	)
Difference by subsidiaries conversion			(709,950	)			—				(709,950	)
Closing balance as of March 31, 2015 (Unaudited)			(1,903,821	)			(88,619	)			(1,992,440	)

 

(*)

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)				Closing balance
		ThUS$				ThUS$				ThUS$				ThUS$
From January 1 to March 31, 2014			795,303				(41,333	)			(3	)			753,967
From April 1 to December 31, 2014			753,967				(218,652	)			875				536,190
From January 1 to March 31, 2015			536,190				(39,947	)			528				496,771

 

(h)	Dividends per share

At March 31, 2015 and at December 31, 2014 have not been provisioned minimum mandatory dividends.

NOTE 25 - REVENUE

The detail of revenues is as follows:

 

		For the periods ended March 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Passengers LAN			1,128,658				1,174,194
Passengers TAM			1,214,869				1,514,417
Cargo			350,322				402,645
Total			2,693,849				3,091,256

 

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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 March 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Aircraft fuel			744,064				1,080,184
Other rentals and landing fees			285,905				324,071
Aircraft rentals			128,899				127,868
Aircraft maintenance			113,974				130,331
Commissions			82,563				105,540
Passenger services			77,762				75,817
Other operating expenses			317,934				375,857
Total			1,751,101				2,219,668

 

(b)	Depreciation and amortization

Depreciation and amortization are detailed below:

 

		For the periods ended March 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Depreciation (*)			226,468				231,462
Amortization			10,980				14,128
Total			237,448				245,590

 

(*)	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 March 31, 2015 is ThUS$ 86,565 (ThUS$ 88,335 at the same period of 2014).

 

(c)	Personnel expenses

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

 

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(d)	Financial costs

The detail of financial costs is as follows:

 

		For the periods ended March 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Bank loan interest			81,082				108,910
Financial leases			12,078				21,332
Other financial instruments			2,173				1,142
Total			95,333				131,384

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.

 

(e)	Restructuring Costs

As part of the ongoing process of reviewing 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 March 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Tours			21,899				25,008
Aircraft leasing			9,348				9,913
Customs and warehousing			5,417				5,113
Duty free			4,129				2,910
Maintenance			187				11
Other miscellaneous income			56,313				43,224
Total			97,293				86,179

 

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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.

 

(a)	Foreign currency

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

 

Current assets		As of March 31,				As of December 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Cash and cash equivalents			418,718				213,161
Argentine peso			24,048				22,121
Brazilian real			5,854				2,365
Chilean peso			256,768				30,453
Colombian peso			2,712				1,622
Euro			7,346				9,639
U.S. dollar			31,313				50,652
Strong bolivar			62,513				63,236
Other currency			28,164				33,073
Other financial assets, current			79,628				73,030
Argentine peso			44,221				40,939
Chilean peso			25,798				25,781
Euro			1				1
U.S. dollar			9,345				6,008
Strong bolivar			23				43
Other currency			240				258

 

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Current assets		As of March 31,				As of December 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Other non - financial assets, current			76,585				59,700
Argentine peso			10,856				7,326
Brazilian real			173				148
Chilean peso			22,184				18,073
Colombian peso			1,494				1,415
Euro			2,513				2,523
U.S. dollar			14,827				5,751
Strong bolivar			330				330
Other currency			24,208				24,134
Trade and other accounts receivable, current			345,075				543,257
Argentine peso			56,429				61,291
Brazilian real			13,280				33,267
Chilean peso			61,215				128,780
Colombian peso			8,761				4,394
Euro			23,053				38,764
U.S. dollar			71,184				75,876
Strong bolivar			4,854				4,895
Other currency			106,299				195,990
Accounts receivable from related entities, current			313				299
Chilean peso			313				299
Tax current assets			19,799				21,605
Argentine peso			2,972				2,300
Brazilian real			2				2
Chilean peso			3,748				5,773
Colombian peso			1,593				1,995
Euro			27				21
U.S. dollar			20				467
Other currency			11,437				11,047
Total current assets			940,118				911,052
Argentine peso			138,526				133,977
Brazilian real			19,309				35,782
Chilean peso			370,026				209,159
Colombian peso			14,560				9,426
Euro			32,940				50,948
U.S. Dollar			126,689				138,754
Strong bolivar			67,720				68,504
Other currency			170,348				264,502

 

94

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Non-current assets		As of March 31,				As of December 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Other financial assets, non-current			29,366				36,715
Argentine peso			54				57
Brazilian real			985				1,050
Chilean peso			1,069				1,100
Colombian peso			197				203
Euro			3,796				4,243
U.S. dollar			22,474				29,238
Other currency			791				824
Other non - financial assets, non-current			15,473				18,803
Argentine peso			43				45
U.S. dollar			347				1
Other currency			15,083				18,757
Accounts receivable, non-current			9,881				10,569
Chilean peso			4,730				5,413
U.S. dollar			5,000				5,000
Other currency			151				156
Deferred tax assets			2,644				2,613
Colombian peso			304				256
U.S. dollar			—				3
Other currency			2,340				2,354
Total non-current assets			57,364				68,700
Argentine peso			97				102
Brazilian real			985				1,050
Chilean peso			5,799				6,513
Colombian peso			501				459
Euro			3,796				4,243
U.S. dollar			27,821				34,242
Other currency			18,365				22,091

 

95

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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 March 31,				As of December 31,				As of March 31,				As of December 31,
		2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited
Other financial liabilities, current			220,736				71,436				165,282				173,416
Chilean peso			151,393				15,542				41,366				42,725
Euro			—				547				—				—
U.S. dollar			69,343				55,347				123,916				130,691
Trade and other accounts payables, current			586,994				421,188				24,174				20,875
Argentine peso			36,362				38,740				782				—
Brazilian real			10,451				14,330				12				13
Chilean peso			74,612				25,040				10,805				11,502
Colombian peso			21,926				13,652				290				187
Euro			12,580				35,937				8,060				8,266
U.S. dollar			298,704				175,298				1,555				827
Strong bolivar			2,937				5,261				—				—
Other currency			129,422				112,930				2,670				80
Accounts payable to related entities, current			57				35				—				—
Chilean peso			13				8				—				—
U.S. dollar			44				27				—				—
Tax liabilities, current			122				268				—				—
Chilean peso			—				268				—				—
Other currency			122				—				—				—

 

96

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		Up to 90 days								91 days to 1 year
Current liabilities		As of March 31,				As of December 31,				As of March 31,				As of December 31,
		2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited
Other non-financial liabilities, current			80,550				126,953				161				158
Argentine peso			3,524				5,698				—				—
Brazilian real			4,609				959				38				46
Chilean peso			20,864				18,798				18				—
Colombian peso			1,856				4,670				—				—
Euro			6,051				6,400				—				—
U.S. dollar			28,999				44,728				104				111
Strong bolivar			78				227				—				—
Other currency			14,569				45,473				1				1
Total current liabilities			888,459				619,880				189,617				194,449
Argentine peso			39,886				44,438				782				—
Brazilian real			15,060				15,289				50				59
Chilean peso			246,882				59,656				52,189				54,227
Colombian peso			23,782				18,322				290				187
Euro			18,631				42,884				8,060				8,266
U.S. dollar			397,090				275,400				125,575				131,629
Strong bolivar			3,015				5,488				—				—
Other currency			144,113				158,403				2,671				81

 

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		More than 1 to 3 years								More than 3 to 5 years								More than 5 years
		As of				As of				As of				As of				As of				As of
Non-current liabilities		March 31,				December 31,				March 31,				December 31,				March 31,				December 31,
		2015				2014				2015				2014				2015				2014
		ThUS$				ThUS$				ThUS$				ThUS$				ThUS$				ThUS$
		Unaudited								Unaudited								Unaudited
Other financial liabilities, non-current			604,393				625,406				457,552				171,288				771,919				1,088,218
Chilean peso			108,592				112,161				2,995				17,186				—				—
U.S. dollar			495,801				513,245				454,557				154,102				771,919				1,088,218
Accounts payable, non-current			475,391				474,955				101				2,316				2				—
Chilean peso			6,954				4,938				101				2,316				2				—
U.S. dollar			466,644				468,184				—				—				—				—
Other currency			1,793				1,833				—				—				—				—
Other provisions, non-current			16,071				16,660				—				—				—				—
Argentine peso			528				454				—				—				—				—
Brazillian real			147				146				—				—				—				—
Chilean peso			36				36				—				—				—				—
Colombian peso			243				—				—				—				—				—
Euro			8,826				9,999				—				—				—				—
U.S. dollar			6,291				6,025				—				—				—				—
Provisions for employees benefits, non-current			874				822				—				—				—				—
U.S. dollar			874				822				—				—				—				—
Total non-current liabilities			1,096,729				1,117,843				457,653				173,604				771,921				1,088,218
Argentine peso			528				454				—				—				—				—
Brazilian real			147				146				—				—				—				—
Chilean peso			115,582				117,135				3,096				19,502				2				—
Colombian peso			243				—				—				—				—				—
Euro			8,826				9,999				—				—				—				—
U.S. dollar			969,610				988,276				454,557				154,102				771,919				1,088,218
Other currency			1,793				1,833				—				—				—				—

 

98

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General summary of foreign currency:		As of March 31, 2015				As of December 31, 2014
		ThUS$				ThUS$
		Unaudited
Total assets			997,482				979,752
Argentine peso			138,623				134,079
Brazilian real			20,294				36,832
Chilean peso			375,825				215,672
Colombian peso			15,061				9,885
Euro			36,736				55,191
U.S. dollar			154,510				172,996
Strong bolivar			67,720				68,504
Other currency			188,713				286,593
Total liabilities			3,404,379				3,193,994
Argentine peso			41,196				44,892
Brazilian real			15,257				15,494
Chilean peso			417,751				250,520
Colombian peso			24,315				18,509
Euro			35,517				61,149
U.S. dollar			2,718,751				2,637,625
Strong bolivar			3,015				5,488
Other currency			148,577				160,317
Net position
Argentine peso			97,427				89,187
Brazilian real			5,037				21,338
Chilean peso			(41,926	)			(34,848	)
Colombian peso			(9,254	)			(8,624	)
Euro			1,219				(5,958	)
U.S. dollar			(2,564,241	)			(2,464,629	)
Strong bolivar			64,705				63,016
Other currency			40,136				126,276

 

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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 March 31, 2015 and 2014, generated a debit of ThUS$ 204,577 and a credit of ThUS$ 56,990, respectively.

Exchange differences recognized in equity as reserves for currency translation differences for the period ended March 31, 2015 and 2014, represented a debit of ThUS$ 726,740 and a credit of ThUS$ 144,422, respectively.

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

 

		As of March 31, 2015				As of December 31, 2014
		Unaudited
Argentine peso			8.82				8.55
Brazilian real			3.20				2.66
Chilean peso			626.58				606.75
Colombian peso			2,598.19				2,839.50
Euro			0.93				0.82
Strong bolivar			12.00				12.00
Australian dollar			1.31				1.22
Boliviano			6.85				6.86
Mexican peso			15.25				14.74
New Zealand dollar			1.34				1.28
Peruvian Sol			3.10				2.99
Uruguayan peso			25.66				24.25

 

100

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NOTE 29 - EARNINGS / (LOSS) PER SHARE

 

		For the periods ended March 31,
		2015				2014
		Unaudited
Basic earnings / (loss) per share
Earnings / (loss) attributable to owners of the parent (ThUS$)			(39,947	)			(41,333	)
Weighted average number of shares, basic			545,547,819				545,547,819
Basic earnings / (loss) per share (US$)			(0.07322	)			(0.07576	)
		For the periods ended March 31,
		2015				2014
		Unaudited
Diluted earnings / (loss) per share
Earnings / (loss) attributable to owners of the parent (ThUS$)			(39,947	)			(41,333	)
Weighted average number of shares, basic			545,547,819				545,547,819
Weighted average number of shares, diluted			545,547,819				545,547,819
Diluted earnings / (loss) per share (US$)			(0.07322	)			(0.07576	)

 

101

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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. Parties were called by the judge for a conciliation hearing. The terms of a possible settlement are currently being discussed.		17,100 Plus interest costs and compensation for damage.

 

102

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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

 

103

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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$ 8,825. 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.   A hearing has been called for the parties to present their case on May 11th, 2015.		8,825
Lan Cargo S.A. y LATAM Airlines Group S.A.		In the High Court of Justice Chancery División (England) Ovre Romerike District Court (Norway) y 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 and the Netherlands.		Cases are in the uncovering evidence stage.		Undetermined

 

104

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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$ 10,196 million; (ii) Norberto Jochmann: ThUS$ 204; (iii) Hernan Merino: ThUS$ 102; (iv) Felipe Meyer: ThUS$ 102. 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.		10,196
Aerolinhas Brasileiras S.A		Federal Justice.		0001872-58.2014.4.03.6105		An annulment action with a motion for preliminary injunction, was filed on 28/2014, in order to cancel tax debts of PIS, CONFINS, IPI and II, connected with the administrative process 10831.005704/2006.43.		The PFN worsened the decision which granted the suspension of the tax credits’ payment discussed in the PA. Currently, the case is waiting for decision of the Court of First Instance.		11,317
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.		LATAM Airlines Group S.A. has requested the abandonment of the procedure. The Santiago Court of Appeal revoked the court decision and declared the abandonment of the procedure. The plaintiff filed an appeal (casación en el fondo) against such court decision.		11,935

 

105

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Company		Court		Case Number		Origin		Stage of trial		Amounts Committed
										ThUS$
Tam Linhas Aéreas S.A		Department of Federal Revenue of Brazil		19515.721155/2014-15		Apparent irregularities in SAT payment in the period from 01/10 to 13/2010.		We filed an administrative defense which is awaiting for judgment since 12.01.2015.		25,820
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 collect 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$ 74 million The process is in TRF2 since 28/04/2014 awaiting for sentence on the appeal filed by TAM		91,916
Tam Linhas Aéreas S.A.		Internal Revenue Service of Brazil		16643.000087/2009-36		This is an administrative proceeding arising from an infraction notice issued on 15.12.2009, by which the authority aims to request social contribution on net income (CSL) on base periods 2004 to 2007, due to the deduction of expenses related to suspended taxes.		The appeal filed by the company was dismissed in 2010. In 2012 the voluntary appeal was also dismissed. Consequently, the special appeal filed by the company awaits judgment of admissibility, since 2012.		22,579
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) Declared on DCOMPs.		The objection (manifestação de inconformidade) filed by the company was rejected, which is why the voluntary appeal was filed. Such appeal is waiting for judgment by CARF since 2014.		20,757

 

106

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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		It is an annulment action filed against the municipality of São Paulo seeking to annul the tax credit constituted by the non-payment of ISS due by INFRAERO for the provision of airport services.		In 2013 the claim was judged partially valid for the interests of the company. The appeal is pending since March 2014.		10,364
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.		9,993
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.		Adverse administrative decision to the interests of the company. Case pending before the Court of Tax Appeals (CARF) awaiting decision.		8,039
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 in STF.		8,347
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.		10,739

 

107

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Company		Court		Case Number		Origin		Stage of trial		Amounts Committed
										ThUS$
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 in the hands of the new judge assigned for the case (First Civil Circuit of Decongestion), for him to issue the relevant notice assuming the case and ordering the performance of the relevant procedural actions since there 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. the Federal Court of Appeals, confirmed the end of the case in the U.S. on April 1st, 2015.		12,443
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.		70,964
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 for judgment on the objection (manifestações de inconformidade).		139,963

 

108

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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 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.		Defense presented. First Instance court decision maintained the infraction notice in its entirety. We filed ordinary appeal, which is awaiting for judgment of the TIT / SP.		8,073
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.		8,273 Approximate value / Estimated
Tam Linhas Aéreas S.A.		Labor Court of São Paulo		0001734- 78.2014.5.02.0045		Action filed by the Ministry of Labor, which requires compliance with legislation on breaks, extra hours and others.		Early stage. Eventually could affect the operations and control of working hours of employees.		Undetermined
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.		106,087
Tam Linhas Aereas S.A.		1° Civil Court of Goiânia/GO.				That action is filed by the current complainants against the defendant, TAM Linhas Aéreas S / A, for receiving compensation for material and moral damages suffered as a result of an accident with one of its aircraft, which landed on adjacent lands to the Bauru airport, impacting the vehicle of Ms. Savi Gisele Marie de Seixas Pinto and William Savi de Seixas Pinto, causing their death. The first was the wife and mother of the complainants and the second, son and brother, respectively.		Currently under the enforcement phase of the sentence.		12,064

 

109

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Company		Court		Case Number		Origin		Stage of trial		Amounts Committed
										ThUS$
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 and in negotiation process with the Union.		16,529 Approximate value / estimated
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 Workers of Campinas requesting risk compensation for ABSA workers.		The process is in its initial phase. The amounts involved are being calculated by the external accountant of the Company.		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 March 31, 2015, 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.

 

110

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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 March 31, 2015, 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
				March 31,				December 31,
Lessor		Aircraft		2015				2014
				Unaudited
Aircraft 76B-26329 Inc.		Boeing 767			1				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
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

 

111

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				As of				As of
				March 31,				December 31,
Lessor		Aircraft		2015				2014
				Unaudited
Baker & Spice Aviation Limited		Airbus A320			2				2
BOC Aviation Pte. Ltd.		Airbus A320			1				1
CIT Aerospace International		Airbus A320			2				2
Delaware Trust Company, National Association		Bombardier Dhc8-200			5				5
Eden Irish Aircr Leasing MSN 1459		Airbus A320			1				1
GECAS Sverige Aircraft Leasing Worldwide AB		Airbus A320			4				6
GFL Aircraft Leasing Netherlands B.V.		Airbus A320			1				1
International Lease Finance Corporation		Boeing 767			1				1
Magix Airlease limited		Airbus A320			2				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
Orix Aviation Systems Limited		Airbus A320			2				2
RBS Aerospace Limited		Airbus A320			5				6
SASOF II (J) Aviation Ireland Limited		Airbus A319			1				1
SKY HIGH V LEASING COMPANY LIMITED		Airbus A320			1				1
Sky High XXIV Leasing Company Limited		Airbus A320			5				5
Sky High XXV Leasing Company Limited		Airbus A320			2				2
SMBC Aviation Capital Limited		Airbus A320			3				2
SMBC Aviation Capital Limited		Airbus A321			2				2
Sunflower Aircraft Leasing Limited		Airbus A320			2				2
TC-CIT Aviation Ireland Limited		Airbus A320			1				1
Volito Aviation August 2007 AB		Airbus A320			2				2
Volito Aviation November 2006 AB		Airbus A320			2				2
Volito November 2006 AB		Airbus A320			2				2
Wells Fargo Bank North National Association		Airbus A319			3				3
Wells Fargo Bank North National Association		Airbus A320			2				2
Wells Fargo Bank Northwest National Association		Airbus A320			6				6
Wells Fargo Bank Northwest National Association		Airbus A330			5				5
Wells Fargo Bank Northwest National Association		Boeing 787			3				3
Wells Fargo Bank Northwest National Association		Boeing 777			7				7
Wells Fargo Bank Northwest National Association		Boeing 787			5				3
Wilmington Trust Company		Airbus A319			1				1
Zipdell Limited		Airbus A320			1				1
Total					107				107

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

 

112

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

 

		As of				As of
		March 31,				December 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
No later than one year			515,450				511,624
Between one and five years			1,190,522				1,202,440
Over five years			616,653				441,419
Total			2,322,625				2,155,483

The minimum lease payments charged to income are the following:

 

		For the periods ended
		March 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Minimum operating lease payments			128,899				127,868
Total			128,899				127,868

In 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. During the second quarter of 2014, one Airbus A320-200 aircraft and one Boeing 787-800 aircraft were added by leasing them for a period of 8 and 12 years, respectively. On the 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, one Airbus A320-200 aircraft and one Boeing 787-800 aircraft were added by leasing them for a period of 8 and 12 years, respectively. On the 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. On the 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.

During the first quarter of 2015, two Boeing 787-9 aircraft were leased for a period of twelve years each. On the other hand, two Airbus A320-200 aircraft were returned.

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

 

113

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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 March 31, 2015 the Company has existing letters of credit related to operating leasing as follows:

 

						Value				Release
Creditor Guarantee		Debtor		Type		ThUS$				date
AFS Investments 48 LLC.		Lan Cargo S.A.		Two letter of credit			3,500			Apr 25, 2015
GE Capital Aviation Services Limited		Lan Cargo S.A.		Three letter of credit			10,435			Jun 30, 2015
GE Capital Aviation Services Limited		LATAM Airlines Group S.A.		Six letter of credit			23,456			Dec 4, 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		LATAM Airlines Group S.A.		Two letter of credit			4,000			Feb 9, 2016
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.		Two letter of credit			5,782			Jul 12, 2015
MACQUARIE		Tam Linhas Aéreas S.A.		Three letter of credit			2,124			May 4, 2015
SMBC Aviation Capital Ltd.		Tam Linhas Aéreas S.A.		One letter of credit			10,532			Aug 24, 2015
							102,424

 

114

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(c)	Other commitments

At March 31, 2015 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

2,041

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

8,822

Feb 11, 2016

Deutsche Bank A.G.

LATAM Airlines Group S.A.

Three letter of credit

40,000

Jun 1, 2015

Dirección General de Aeronáutica Civil

LATAM Airlines Group S.A.

Fifty five letter of credit

17,659

Jun 30, 2015

Dirección Nacional de Aduanas

LATAM Airlines Group S.A.

Three letter of credit

1,210

Jun 28, 2015

Empresa Pública de Hidrocarburos del Ecuador EP Petroecuador

LATAM Airlines Group S.A.

One letter of credit

5,500

Jun 18, 2015

Fundação de Protação e Defesa do Consumidor Procon

LATAM Airlines Group S.A.

Three letter of credit

2,427

Mar 10, 2019

Metropolitan Dade County

LATAM Airlines Group S.A.

Eight letter of credit

2,220

May 20, 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.

Three letter of credit

2,460

Apr 5, 2015

Wells Fargo Bank

LATAM Airlines Group S.A.

Four letter of credit

5,160

Mar 13, 2016

4ª Vara Mista de Bayeux

Tam Linhas Aéreas S.A.

One insurance policies guarantee

1,077

Mar 25, 2021

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

Tam Linhas Aéreas S.A. (Pantanal)

Two insurance policies guarantee

23,616

Jan 4, 2016

8 Vara da Fazenda Pública da Comarca de São Paulo

Tam Linhas Aéreas S.A. (Pantanal)

One insurance policies guarantee

11,454

Apr 12, 2015

Vara da Fazenda Pública da Comarca de São Paulo

Tam Linhas Aéreas S.A.

One insurance policies guarantee

2,437

Mar 29, 2016

Vara De Execuções Fiscais Estaduais de São Paulo

Tam Linhas Aéreas S.A.

One insurance policies guarantee

11,459

Apr 16, 2015

199,822

 

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NOTE 32 - TRANSACTIONS WITH RELATED PARTIES

 

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

 

Transaction amount

Nature of

Explanation of

Nature of

with related parties

relationship with

Country

other information

related parties

As of March 31,

Tax No.

Related party

related parties

of origin

about related parties

transactions

Currency

2015

2014

ThUS$

ThUS$

Unaudited

96.810.370-9

Inversiones Costa Verde Ltda. y CP A.

Controlling shareholder

Chile

Investments

Revenue from services provided

CLP

—

21

96.847.880-K

Lufthansa Lan Technical

Associate

Chile

Training center

Leases as lessor

CLP

—

62

Services received

CLP

—

(157

)

Services received

US $

—

(139

)

Distribution of dividends

US $

—

(267

)

78.591.370-1

Bethia S.A and subsidiaries

Other related parties

Chile

Investments

Leases as lessor

CLP

—

(1

)

Revenue from services provided

CLP

515

367

Services received

CLP

(199

)

(184

)

Commitments made on behalf of the entity

CLP

4

79.773.440-3

Transportes San Felipe S.A

Other related parties

Chile

Transport

Revenue from services provided

CLP

—

18

Services received

CLP

(48

)

—

87.752.000-5

Granja Marina Tornagaleones

Other related parties

Chile

Pisciculture

Revenue from services provided

CLP

—

36

Foreign

Inversora Aeronáutica

Other related parties

Argentina

Investments

Revenue from services provided

US $

2

4

Leases as lessor

US $

(45

)

(84

)

Foreign

Prismah Fidelidade S.A.

Joint Venture

Brazil

Marketing

Liabilities settlement on behalf of the entity for the related party

BRL

—

109

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.

 

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(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
		March 31,
		2015				2014
		ThUS$				ThUS$
		Unaudited
Remuneration			4,474				5,250
Management fees			164				211
Non-monetary benefits			191				449
Short-term benefits			4,848				5,421
Share-based payments			2,640				4,412
Total			12,317				15,743

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:

 

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.

 

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		Number
		of share
		options
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
Share options in agreements of share- based payments, as of January 1, 2015			4,202,000
No movement at March 31, 2015			—
Share options in agreements of share- based payments, as of March 31, 2015 (Unaudited)			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 March 2015 corresponds to ThUS$ 2,640 (ThUS$ 4,300 at March 31, 2014).

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

 

		Weighted average				Exercise				Expected				Life of				Dividends				Risk-free
		share price				price				volatility				option				expected				interest
As of March 31, 2014		US$	23.55			US$	24.97				61.52	%			3.6 years				0	%			0.00550
As of March 31, 2015		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. With regard to this compensation, a defined date for implementation does not exist. 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 March 31, 2015, which amounted to 96,675 shares and 593,910 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.

 

														4nd Extraordinary
Description		1st Grant				3rd Grant				4th Grant				Grant				Total
Date			10-04-2010				04-16-2012				10-04-2010				11-20-2013
Outstanding option number			3,796				115,298				269,241				205,575				593,910

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:

 

		Number of shares				Number of shares
Company		Accrued options				Non accrued options
TAM Linhas Aéreas S.A.			—				96,675
Multiplus S.A.			—				593,910

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. There is no value recorded in liabilities and in income at March 31, 2015 (at March 31, 2014 the amount recognized in liabilities was ThUS$ 1,802 and ThUS$ 112 in incomes).

 

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NOTE 34 - THE ENVIRONMENT

LATAM Airlines Group S.A. manages environmental issues at the corporate level, centralized in Environmental Management. There is a commitment to the highest level to monitor the company and minimize their impact on the environment, where continuous improvement and contribute to the solution of global climate change problems, 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 called Climate Change Strategy and is based on the following objectives:

 

i.	Impacto y Rentabilidad:

 

•

Environmental Management System

•

Risk Management

•

Eco-efficiency

•

Sustainable Alternative Energy

 

ii.	Compromiso y Reconocimiento:

 

•

Internal Capacity Development

•

Transparency

•

Value Chain

•

Emissions Offsets

•

Recognition and Communications Projects

For 2014, were established and worked the following topics:

 

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.	Corporate Risk Management;

 

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 and the 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.

 

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In the year 2014, 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 March 31, 2015 the Environment Management has spent US$ 41,085 (US$ 102,070 at March 31, 2014). The budget of the Environment Management for 2015 is US$ 324,465 (US$ 520,000 for 2014)

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

Subsequent at March 31, 2015 until the date of issuance of these financial statements, there is no knowledge of other financial facts or otherwise, that could significantly affect the balances or interpretation thereof.

LATAM Airlines Group S.A. and Subsidiaries’ consolidated financial statements as at March 31, 2015, have been approved by the Board of Director’s in an extraordinary meeting held on May 14, 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: May 14, 2015				LATAM AIRLINES GROUP S.A.
				By:		/s/ Cristian Toro
				Name:		Cristian Toro
				Title:		VP LEGAL LATAM